IDE.L Regulatory News (IDE)

Cupid plc

Final Results for the year ended 31 December 2011, Trading Update and Board changes

Cupid plc (AIM: CUP), a global leader in online dating, is pleased to announce its final results for the year ended 31 December 2011 ('FY 2011'), an update on current trading and Board changes.

Financial Highlights 2011

§ Revenues increased by 109% to £53.6m (FY10: £25.7m)

§ Adjusted EBITDA1 increased by 95% to £11.3m (FY10: £5.8m)

§ Revenues in established markets2 grew by 38% to £30.5m (FY10: £22.1m)

§ Revenues in new markets3 grew by 534% to £22.2m (FY10: £3.5m)

§ Profit before tax increased by 67% to £7.0m (FY10: £4.2m)

§ Cash position increased to £7.8m at 31 Dec 2011 (31 Dec 2010: £6.0m)

§ Proposed final dividend of 2.25p per share (FY10: 1.32p per share)

Operational Highlights

§ Subscriber numbers grew by 50.0% to 486,776 at Dec 2011 (Dec 2010: 324,399)

§ Customer lifetime growing as churn reduces to 18% in Dec 2011 (Dec 2010: 25%)

§ Establishing strong and growing foothold in North American market

§ Continued international expansion with German and Brazilian acquisitions in 2011

Trading Update

§ A strong start to 2012, with revenue ahead of expectations

§ Year to date revenues at 29 February 2012 amounted to £12.0m (YTD Feb 2011: £7.4m)

§ USA and Western Europe revenues growing strongly

§ Well positioned for another year of growth in revenues and profits

Board Changes

§ Strengthening of Board to position the business for next growth phase

§ Ian McCaig, former CEO of Lastminute.com, joins the Board as non executive director

§ Russ Shaw, former head of Skype EMEA, joins the Board as non executive director

§ Director of Business Development and co-founder Max Polyakov steps down from the Board to pursue a new social gaming venture in the USA, but remains a consultant to the Company

§ Martin Higginson, non executive director, leaves the Board to concentrate on other business interests

Commenting on the results, Bill Dobbie, Chief Executive of Cupid plc, said:

"As we continue to expand internationally, we are pleased to see exceptionally strong revenue and profit growth from the new markets we have entered. As we reach critical mass in each new country, we are confident that we will see sustained revenues and profits equivalent to those we record in the UK, Australia, New Zealand and Ireland, where our services are more established but still continue to grow and perform strongly."

"2012 has started very promisingly, and we remain confident that we will grow value for shareholders this year and beyond. We are well placed to take advantage of a market that is global and growing and we will continue to explore the numerous opportunities that exist to develop our services and expand into new markets."

1 Throughout this statement adjusted EBITDA is earnings before interest, tax, depreciation, amortisation, share based payment charges and acquisition related costs.

2 Established Markets are the UK, Australia, New Zealand and Ireland

3 New Markets are USA, Canada, France, Italy, Spain, Germany

For further information please contact:

Notes to Editors

§ Cupid plc (formerly Easydate plc) listed on AIM in June 2010 and is a leading provider of online dating services

§ Cupid has built significant and growing revenues in 15 countries.

§ Cupid offers a wide variety of online dating services allowing members to interact with each other and access the content available on the Group's websites. These websites are intended to appeal to dating users of diverse ages, cultures and social interest groups. The Group's most heavily visited websites include www.cupid.com, www.flirt.com, www.benaughty.com, www.girlsdateforfree.com and www.datetheuk.com. The Group also promotes the niche brands www.datingforparents.com, www.speeddater.com and www.maturedating.co.uk.

§ The majority of services are also available via Apple and Android App Stores for mobile users as well as through their own Facebook apps - e.g. http://apps.facebook.com/cupidcom and http://apps.facebook.com/benaughtynow.

§ Further information on the Company can be found at www.cupidplc.com.

Chairman's statement

Cupid plc has continued to deliver a strong performance whilst growing a widening international subscriber footprint.

Over the past two years the business has evolved from a company relying heavily on the UK market for revenues and profits to one operating within multiple territories, with more than 50% of total revenues now coming from outside the UK. The investment in these overseas territories has been undertaken largely through targetted marketing spend, supplemented by several acquisitions. We have continued to deliver a strong profit performance whilst making this international expansion. This is testimony to the strength of the team within the Company.

During 2011 the Company acquired 75% of two German businesses and 100% of a small Brazilian business. The German businesses should generate good revenues in the short term, whereas the Brazilian business provides good medium to long term potential.

Continual innovative development of new products and features is a core part of our business. As an exciting example, we have continued to develop market leading applications for our brands and have seen increasing volumes of customers accessing our services via mobile devices and social networks.

During the year we made a number of improvements to the infrastructure of the business including the implementation of new call handling systems. We have also established a second data centre which reinforces our commitment to continually improving the customer experience.

Your Company is ambitious to achieve its full potential, consequently we have decided to strengthen our Board through the appointment of two experienced non executive directors. We welcome Ian McCaig, former CEO of Lastminute.com and Russ Shaw, former VP & General Manager of Skype Europe. As part of the Board evolution, Martin Higginson leaves the Board to concentrate on other business interests. In addition our co-founder Max Polyakov is stepping down from the Board to pursue a new social gaming venture in the USA and will remain involved as a consultant to the Company. We thank both for their significant contribution to the Board.

The ongoing international expansion of our Company, our strong financial position and highly performing marketing capability provide the Board with confidence in our ability to execute on our growth strategy. The strong start that has been made to 2012 reinforces this view.

Finally I would like to take this opportunity to thank our shareholders for their support during our second year as a public company.

George Elliott

Non Executive Chairman

6 March 2012

Chief Executive Officer's review

Review of 2011

2011 was an important year in the development of Cupid plc, best described as the year when we became a truly international company - building significant and growing revenues in 15 countries, and acquiring businesses in Germany and Brazil which will help in the implementation of our expansion plans. Our recent licence to operate the Friends Reunited Dating business shows that we will seek commercial transactions in the more mature markets of UK and USA, thereby leveraging our investment in staff and infrastructure.

We continue to widen the company's global presence and now have growing organisational units in the UK, USA and Germany, as well as our main operational base in Ukraine. All of this whilst delivering significant financial progress for shareholders in terms of value and dividends.

Revenue has more than doubled in the year, growing from £25.7m in 2010 to £53.6m in 2011, and adjusted EBITDA has grown from £5.8m in 2010 to £11.3m in 2011.

We continue to grow strongly and look for earnings and value enhancing opportunities in the UK and overseas, with the goal of becoming a recognised global player in the growing market for online, mobile and social network based dating services.

Our staff numbers have been expanded to support this growth and we now have over 420 employees - once more I thank them for all their effort and commitment, and look forward to a continued bright future for them and the Company.

The Market

Internet dating and relationship building via the Internet continue to gain social acceptance - we cannot fail to notice the significant growth of Facebook, LinkedIn and other social network giants. These are all welcome macro developments as people use the Internet not only to find dates, but common interests, companionship, advice, travel tips and many other social interactions.

Last year I reported that Facebook had become a significant new channel for Cupid and this trend continues. Another significant new channel is mobile; 24% of our users are now registering via mobile and 20% of our marketing spend is directed towards mobile devices. We launched Cupid's first interactive magazine in 2011 and we will continue to pursue such innovations on new social and mobile networks as they emerge.

The market is clearly global, and while Cupid's 2012 focus is to continue the growth within its international footprint, it is pleasing to note that our longest established markets of the UK and Australia continue to grow steadily.

Our near term goal is to grow our USA and European business units to be bigger than our original UK and Australian territories, and to establish more significant plans for India and Brazil as the business models for making significant profits emerge in these territories.

Operational Review

The successful share placing in April 2011 allowed us to raise funds to continue our modest acquisition strategy whenever it made sense; the IndianDating acquisition, OnLineLiebe GmbH and Womenweb GmbH acquisitions in Germany, AondeNamoro Brazilian acquisition and, more recently the Friends Reunited Dating licence. They have been integrated without additional staff or infrastructure investment. We have retained a small group of staff in Munich to manage and develop a female web portal (womenweb.de) which was part of the business acquired in Germany.

All of this activity has happened while we continue to deliver strong organic growth in revenue.

-Products

To improve customer service and increase resilience we recently opened an additional data centre in USA.

All our main products are available on the Web, via Apple and Android mobile devices, and via Facebook. Further product development will allow users to access our products seamlessly via all these digital channels - communicating via email, SMS and Messenger to suit. Browser toolbars and our own chat client have also been developed to improve usability and encourage communication between our customers.

Our products have been internationalised (our core network of Cupid, BeNaughty, GirlsDateforFree and Flirt were revenue generating/operating in 15 countries as at December 2011), and are also available in Apple, Android and Facebook applications. We continue to interact with a large number of users via Facebook and other social networks, where we had over 1.8m installations of our product in January 2012.

-Customer Service

It was recognised in late 2010 that our customer service systems, policies and processes needed to improve to keep pace with business growth. We have invested in all of these areas and are happy to report a significant reduction in churn in our most mature markets, together with an improving trend in the developing markets. We have also added enhanced multi lingual capabilities to our support centre.

-Marketing

Our marketing strategy continues to be predominantly digital and our marketing team is currently effectively managing digital spends of around £4m per month across Google, Mobile, Affiliate Networks and Facebook. We are increasingly buying affiliate traffic from site owners directly as opposed to via CPA (cost per acquisition) networks, thus increasing our marketing effectiveness and controlling our spend.

In addition to this we have started experimenting with TV advertising in the UK and billboard advertising in Germany. It is too early to comment on the long term effectiveness of these initiatives; however they both offer further growth potential and the ability to reduce our dependence on any one channel to market.

-Investors in People

We achieved Investors in People accreditation in 2011, and roll out staff development and training initiatives across the company as part of the business's philosophy of developing staff internally. The company now employs 420 people between Edinburgh, London, Dnipropetrovsk, Zaporozhye, Munich and Palo Alto.

Financial Review

The 2011 financial results show continued growth in revenue and profit within all three territories.

Established Markets:

Our most established market position is within the UK, Australia, New Zealand and Ireland. These are our "Established Markets". Revenue growth of 38% has been generated from FY 2010 to FY 2011 within these countries.

These established markets, where we have a firm base of members and subscribers, are very profitable for us. These countries generate 79% of the company's profit contribution from 57% of the company's revenue. We expect ongoing revenue growth within these countries to be at a sustained rate of between 10-15%. In 2011, we spent 39% of revenue on direct marketing costs. This level is consistent within an established market.

New Markets:

The new markets which we have entered within the past 2 years (our "New Markets") include the USA, Canada, France, Italy, Spain and Germany. Our revenues within these countries are growing even faster than our revenues within the more established markets. We continue to market heavily within these New Markets as we see significant potential for more growth. As we grow rapidly, our online marketing spend is high as a percentage of revenues and in 2011 the rate of direct marketing spend was 79% of revenues. As each of these markets becomes more established for us, we see a trend where we achieve user critical mass, lower churn rates and lower cost to acquire subscribers, thereby allowing a lower percentage of marketing spend and improved profit margin, consistent with the Established Markets.

Most of the increased marketing spend in the second half of 2011 was made in the New Markets, particularly France and the USA where we have seen strong subscriber numbers and revenue growth, with this continuing into 2012.

Developing Territories:

The markets with medium to longer term potential for Cupid plc are what we classify as the Developing Territories. These include Brazil and India. Our Indian revenues continue to show promise and in August 2011 we acquired a small Brazilian business, which we shall utilise as a catalyst for growth in South America.

Overall, the strong profitability within the 2011 financial year has been achieved whilst investing in the New Markets and Developing Territories. In the second half of 2011 we invested 19% more in direct marketing than in the first half of 2011. This is a similar trend to that which we followed in 2010.

Looking ahead we expect to see sustained growth from our Established Markets, supplemented by rapid revenue growth from the New Markets. As our products reach maturity within these New Markets we expect them to generate profit at increased margins.

The largest single cost within Cupid plc is our marketing spend. In 2011 we spent £29.9m on direct marketing costs. Our ability to spend this wisely has been developed over six years, and we believe that this experience and pricing power is one of the barriers to successful growth for other businesses wishing to compete in this market.

Over the past 12 months we have been able to add to and enhance the Cupid plc team to allow us to deliver this rapid growth, and maintain and develop the financial systems and processes to control it.

Dividend

The directors intend to propose a final ordinary dividend in respect of the current financial year of 2.25p per share (2010: interim dividend 0.82p per share, 0.5p final dividend per share). This has not been included within creditors, as it was not approved before the year-end. Subject to approval at the Annual General Meeting on 15 June 2012, the final dividend will be paid on 29 June 2012 to shareholders on the register on 1 June 2012.

The level of dividend is intended to deliver a dividend yield the directors believe is appropriate for a company of this size and nature. The Board intends to continue with a progressive dividend policy based on the Group's retained annual earnings. The level of distributions will, however, be subject to the Group's working capital requirements and the ongoing needs of the business.

Trading Update 2012

We have had a strong start to 2012. Year to date revenues at 29 February 2012 (after two complete months) are £12.0m, which places Cupid plc ahead of 2012 revenue expectations. In particular we have seen strong growth from USA and Western Europe. The growth that we have seen in 2012 is as a result of effective marketing spend in the latter part of 2011 and into 2012.

Whilst it is still early in the year, we are quite confident that the business is well positioned for another year of growth in revenues and profits.

Outlook

In 2011 we have generated subscriber numbers and revenue of good scale in a number of large geographical markets. The markets for our products continue to grow and at the same time we continue to enter and perform well in new markets.

We continued to invest heavily in marketing throughout 2011 in each of our markets whilst also generating good profit growth. This continued marketing investment has put us in a strong position for ongoing growth in 2012. We remain confident that we will grow value for shareholders in 2012 and beyond.

Our team is talented and our infrastructure is robust. This is combined with a growing database of members and profiles where we have a unique and meaningful insight into online relationship habits and trends.

We remain resolute in our ambition to be a recognised global player in the digital dating and relationship sector.

Finally, on a personal note, I thank Max Polyakov our co-founder and Martin Higginson for their significant personal contribution to the Board of Cupid, and I wish them both well for the future on behalf of all the staff and shareholders.

Bill Dobbie

Chief Executive Officer

6 March 2012

Consolidated Statement of Comprehensive Income

for year ended 31 December 2011

Unaudited

The Company has elected to take the exemption under section 408 of the Companies Act 2006 to not present the parent company statement of comprehensive income.

Balance Sheet

at 31 December 2011

Unaudited

Consolidated statement of changes in equity

Unaudited

Cash Flow Statements

for year ended 31 December 2011

Unaudited

Notes

(forming part of the financial statements)

1. Background and basis of preparation

Cupid plc is a company incorporated and domiciled in the UK. Its registered office is at 23 Manor Place, Edinburgh, EH3 7DX.

The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 December 2011 or 2010. The financial information for 2010 is derived from the statutory accounts for 2010 which have been delivered to the registrar of companies. The auditor has reported on the 2010 accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The statutory accounts for 2011 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies in due course.

2. Acquisitions of subsidiaries

On 15 December 2009, the Company acquired the trade and assets of Easy Date Limited and all of the ordinary shares in Easy Date Ukraine, Easy Date Dnepr, Easy Date (Ireland) Limited and Datingbiz Inc in return for the issue of £1,419,956 of share capital.

As the business combination arose from the transfer of interests in entities that are under common control of the shareholders, the assets and liabilities are recognised at the carrying amounts previously recorded.

The fair value adjustment relates wholly to internal development costs which were re-assessed at date of acquisition and the recognition of deferred taxation in connection with development costs.

Effect of acquisition

The acquisition had the following effect on the Group's assets and liabilities.

Goodwill has arisen on the acquisition because of the difference between the value of the shares in Easydate plc and the fair value of the net assets acquired and is supported by value attributed to the trade and company employees.

On 22 September 2010 the Company acquired 100% of the share capital of US based Cupid.com Inc from On Target Jobs Inc for £4.2 million. The Company acquired this business to allow expansion into new markets and realise the benefits from synergies.

Effect of acquisition

The company incurred expenses of acquisition totalling £62,000 which were expensed.

The acquisition contributed revenue of £0.7 million and EBITDA of nil in the period from acquisition to 31 December 2010

The consideration consisted of an initial cash payment of £4.2million plus a contingent consideration which was based on certain performance criteria. The directors believe these performance conditions will be satisfied so have taken this into account in calculating the fair value of the deferred consideration.

Goodwill has arisen and represents the value of synergies and the benefits of additional volume which will be realised by the Group on integration.

Other acquisitions:

Allegran

On 31 March 2010, the Company acquired the trade and assets of Allegran Ltd from Associated North Cliff Digital Group Limited for £3.3m of which £200,000 was initially settled in cash and £3,100,000 was deferred. At 31 December 2011 £300,000 remains deferred. This acquisition consisted of domain names, trademarks, customer database and computer equipment. The primary reason for the acquisition was to provide additional members and domain names to the Group's existing portfolio.

Goodwill arose on the acquisitions because of the difference between the consideration paid and the fair value of the net assets acquired. The goodwill represents synergies which will be realised on integration.

The acquisition had the following effect on the Company's assets and liabilities:

The Company incurred expenses on acquisition of £25,000 which were expensed.

The acquisition contributed revenue of £3.2 million and EBITDA of £1.7 million in the period from acquisition to 31 December 2010

The deferred consideration for the Allegran purchase has been discounted using an interest rate of 5.15%. This rate was selected based on benchmarking similar commercial borrowing rates available at March 2010 when the acquisition took place.

Goodwill represents the value of synergies which will be realised by the Group on integration.

Flirt.com

On 10 December 2010 the Company purchased the trade and assets of Flirt.com for £800,000 from Belamo Corp. The consideration was satisfied by cash. The primary reason for the acquisition was to provide additional members and domain names to the Group's existing portfolio.

The acquisition had the following effect on the Company's assets and liabilities.

The Company incurred expenses on acquisition of £6,000 which were expensed.

The acquisition contributed revenue of £50,000 and EBITDA of £nil in the period from acquisition to 31 December 2010

Online Liebe GmbH and WomenWeb GmbH

On 30 June 2011 the Company acquired 75% of the trade and assets of Online Liebe GmbH and WomenWeb GmbH for £2.4million (€2.75million). The consideration was satisfied by cash. 

The fair value of the identifiable assets, consisting of domain names, trademarks and copyright, customer databases and contacts with suppliers and partners was £864,000 leading to a Non controlling interest of £216,000. The company also has the option to acquire the remaining 25% at fair value.

Goodwill arose on the acquisition because of the difference between the cost of the acquisition and the book value of the net assets acquired. This represents the value of synergies that will be realised by the Group on integration.

The acquisition had the following effect on the Company's assets and liabilities.

Brazil websites

On 19 August 2011 the Company acquired the trade and assets of AondeNamoro for USD750,000. The initial consideration was satisfied by cash of USD500,000 with a further USD250,000 payable subject to achieving sales targets.

Goodwill arose on the acquisition because of the difference between the cost of the acquisition and the book value of the net assets acquired. This represents the value of synergies that will be realised by the Group on integration.

The acquisition had the following effect on the Company's assets and liabilities.

Other acquisitions

On 4 February 2011, the company acquired the business of Indiandating.com for £93,000 ($150,000). A further $50,000, was paid in August 2011.

On 3rd May 2011, the company acquired the domain name Cupidon.com for £180,000 ($300,000).

3. Segmental Analysis

The chief operating decision-maker has been identified as the Chief Executive Officer ("CEO") of the Company. The CEO reviews the Group's internal reporting in order to assess performance and to allocate resources. The Company has determined its operating segments based on these reports .The Group currently has three reportable segments, which are based upon geographical territories. The location of the user is the basis for determining the segment.

The three segments are:

§ Established Markets (UK, Australia, New Zealand, Ireland)

§ New Markets (USA, Canada, France, Italy, Spain, Germany plus any newly entered countries)

§ Developing Territories (Brazil, India)

Each of the three segments has different performance characteristics within its Key Performance Indicators as they are at different levels of maturity and critical mass for the Group. The CEO transitioned to this basis of assessing progress from the previous basis due to the volume of countries in which the Group operates increasing, and the characteristics being better aligned by maturity rather than international region. The 2010 numbers have been restated to ensure they are presented on a consistent basis with the current year.

Information regarding the operation of the reportable segments is included below. The CEO assesses the performance of the business at the operating segment level based on revenue and revenue less direct marketing costs, which gives a measure of the effectiveness and contribution after deduction of direct marketing costs.

The segment information is prepared using accounting policies consistent with those of the Group as a whole.

The assets and liabilities of the Group are not reviewed by the CEO on a segment basis. Therefore none of the Group's assets and liabilities are segmental assets and liabilities and are all unallocated for segmental disclosure purposes. Segmental assets and liabilities are not presented to the CEO and on this basis the Group has not disclosed details of segmental assets and liabilities.

All segments are continuing operations. No customer accounts for more than 10% of external revenues. There are no inter-segment transactions.

The CEO assesses the performance of the Operating Segments before deduction of Other Direct Costs. Other Direct Costs are shown above to provide reconciliation to reported Gross Profit.

4. Taxation

Recognised in the income statement

Tax recognised directly in equity (ie, not in comprehensive income)

Reconciliation of effective tax rate

The Emergency Budget on 22 June 2010 announced that the UK corporation tax rate will reduce from 28% to 24% over a period of four years from 2011. The first reduction in the UK corporation tax rate from 28% to 27% was substantively enacted on 20 July 2010, a reduction to 26% was substantively enacted on 29 March 2011, effective from 1 April 2011 and a further reduction to 25% was substantively enacted on 5 July 2011 and will be effective from 1 April 2012. This will reduce the company's future tax charge accordingly. It has not yet been possible to quantify the full anticipated effect of the announced further 1% rate reduction, although this will further reduce the company's future current tax charge and reduce the company's deferred tax liabilities accordingly.

5. Earnings per share

Basic earnings per share

The calculation of basic earnings per share at 31 December 2011 was based on the profit attributable to ordinary shareholders of £5,665,000 (2010: £3,134,000) and a weighted average number of ordinary shares outstanding of 79,299,393 (2010:  66,143,806) calculated as follows:

Weighted average number of ordinary shares

Diluted earnings per share

The calculation of diluted earnings per share at 31 December 2011 was based on profit attributable to ordinary shareholders of £5,665,000 (2010: £3,134,000) and a weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares of 2,631,538 (2010: 1,519,190), calculated as follows:

Weighted average number of ordinary shares (diluted)

The average market value of the company's shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were outstanding.

6. Intangible assets - Group