Xlmedia Regulatory News (XLM)

22 April 2020

XLMedia PLC

("XLMedia" or the "Group" or the "Company")

Audited Results for the Year Ended 31 December 2019

XLMedia (AIM: XLM), a leading provider of digital performance marketing services, announces the Company's audited results for the year ended 31 December 2019.

Financial summary

· Revenues of $79.7 million (2018: $93.5million*)

· Gross profit of $53.7 million (2018: $63.4 million*)

· Adjusted EBITDA(2) of $33.5 million (2018: $43.6 million*)

· Adjusted profit before tax(1) of $25.3 million (2018: $36.4 million*)

· Impairment Loss of $81.4 million (2018: $0.3 million)

o Follows an independent and comprehensive review of recorded asset values at year end as required by IAS 36

o Further reductions follow the demotion of the Group's websites by Google in January 2020

· Income (Loss) from discontinued operations of $2.2 million (2018: ($11.3) million)

· Reported Profit (Loss) before tax of ($57.7) million (2018: $36.1 million)

· Cash and short-term investments of $29.9 million (31 December 2018: $47.6 million) - the Company has minimal debt (

(*) Reclassified - excluding discontinued operations

1 Excluding loss from impairment and reorganization costs

2 Earnings Before interest, Taxes, Depreciation, Amortization and excluding share-based payments, impairment and reorganisation costs

Operating summary

· New Executive Management Team joined late 2019/early 2020 bringing significant successful transformation experience to evolve the Company to reposition for growth markets and territories

· Investment areas: 

o Operating Model - evolution to support strategic ambition and growth through significant transformation program

o Data & Programmatic learning - harness data to create compelling consumer experiences

o US Sports - resources, technology and expertise to develop US presence

o New Markets - resources to develop existing verticals into new markets

· On 18 January 2020, the Company became aware that a number of its casino sites had been manually de-ranked by Google

o Management remains optimistic that a number of premium sites will be re-ranked and fully operational during H2 2020

o The Company has increased its focus and resources on premium sites, accelerating planned changes to business model

COVID-19 update

· The Company's global workforce has been working remotely since March 2020, in line with current regulations globally

· The global impact of Coronavirus has had an impact on all business verticals and revenue streams, negatively in Sports and Personal Finance, but likely to be positive in Casino in the medium term

· The forced change in working practices and proactive decision to accelerate the Group's transformation program offers the Company an opportunity to become more efficient and progressive in its working practices and organisational capabilities

Outlook

· The Company made a solid start to 2020 before the Google de-ranking and COVID 19 pandemic effects

· As previously guided the Company currently estimates a monthly reduction in Group revenues as a result of the Google de-ranking of between $1 million and $2 million (assuming only a minor fall in its repeat revenues)

· Experience to date has shown the Google de-ranking impact has been within that range and management are confident that, taken together with the direct impact of COVID 19, the reduction of revenues will not be in excess of this guidance range over the course of the year

· COVID-19 will continue to create uncertainty in the short to medium-term, impacting a number of the Company's consumers and verticals and subsequently our revenues. However, the Company is using the opportunity to accelerate the transformation program and review attractive acquisition opportunities

· Q2 2020 will be a challenging period, one during which significant changes are being delivered increasing one-off costs, and whose impacts are compounded by reduced revenues in the core verticals / markets due to the ongoing Google de-ranking and COVID 19

· The year-end exit trajectory and renewed operating platform will form a strong basis for future growth and development

· Board will not be recommending a dividend or share buyback programme for the foreseeable future

Christopher Bell, Non-Executive Chairman, of XLMedia commented:

"There is no question that the business is now undergoing a significant period of transformation with our new management team evaluating new geographies and end markets, alongside an improved focus on our efforts to generate greater levels of end consumer engagement.

"To that end, we remain committed to investing in the core business alongside additional organic investment initiatives.

"The health and safety of our staff is of paramount importance during the current coronavirus pandemic and we have implemented a number of measures to protect our global workforce aligned with the latest local government and industry recommendations. 

"I would like to thank all our staff for their ongoing dedication to our clients and our business."

A webcast of our results presentation will be available on our website within the next 48 hours: https://www.xlmedia.com/investor-relations/webcasts/ 

For further information, please contact:

Chairman's statement

2019 was a year of limited financial progress for the Group, as management sought to mitigate a number of operationally frustrating scenarios and global sector headwinds, predominantly within our online casino vertical. Greater clarity on the situation with Google is outlined in the Chief Executive review later in the document.

In February 2019, we made the decision to reduce a significant part of the Group's advertising and media activities, reflecting the Board's desire to limit our exposure to certain gambling and digital marketing sectors, with a view of becoming a pure play digital publishing operator.

This move was further consolidated with the sale of our advertising media subsidiary in August 2019, which was considered both low margin and non-core to our ongoing activities.

In addition, ongoing gambling regulatory uncertainty, specifically in Sweden and Germany remained, and therefore continued to impact our financial performance in territories which have historically been strong for the Group.

Despite these challenges, the Group delivered a credible performance in FY 2019, producing revenues of $79.7 million (2018: $93.5 million), gross profit of $53.7 million (2018: $63.4 million) and an Adjusted EBITDA of $33.5 million (2018: $43.6 million).

It is against this backdrop that we decided to make a number of significant Executive Management changes. Ory Weihs, who served as Chief Executive Officer since our IPO in 2014, moved to a Non-Executive Director role, with Stuart Simms appointed as Chief Executive Officer in October 2019, following an extensive executive search conducted by Egon Zehnder.  

Since Stuart's appointment, he has already made a significant and positive contribution in both the day to day running of the business and our strategic direction, more of which is covered in his strategic review of the business.

Also, our Chief Financial Officer, Yehuda Dahan, tendered his resignation and we were pleased to appoint Iain Balchin as Group CFO in February 2020. Iain has a wealth of transformation experience having held a number of Group CFO roles, making him ideally placed for our business.

In both Stuart and Iain, we have two highly skilled and experienced senior executives who are now working tirelessly to reshape and reposition XLMedia for sustainable and long-term growth. Stuart has also completely restructured his executive team, further rejuvenating our business and positioning us well for the future.

In early 2020, the Company became aware that a number of its casino sites had been manually demoted by Google, impacting their online ranking and therefore significantly reducing their ability to generate revenues. The Company is continuing to work with Google to restore the rankings of these sites as soon as possible.

There is no question that the business is now undergoing a significant period of transformation with our new management team evaluating new geographies and end markets, alongside an improved focus upon our efforts to generate greater levels of end consumer engagement.

To that end, we remain committed to investing in the core business alongside additional organic investment initiatives and as a result the Board will not be recommending a dividend or share buyback programme for the foreseeable future.

We continue to monitor very closely the impact of the COVID-19 virus across the world in relation to our dedicated colleagues and of course our customers.

The health and safety of our staff is of paramount importance and we have implemented a number of measures to protect our global workforce aligned with the latest local government and industry recommendations.

In each of the jurisdictions we operate within, the Board and I would all like to thank all our colleagues for their persistent dedication during what has been, and continues to be a challenging period for the business and wish them all a safe and healthy future.

Christopher Bell

Non-Executive Chairman

22 April 2020

Chief Executive Officer review

Introduction

I joined XLMedia in October 2019 with both optimism and a defined strategic ambition that necessitated an overhaul of the businesses working practices, executive team and organisation structure. It is clear that the Company's recent growing pains, coupled with broader industry changes mean that the Company must evolve and be able to constantly adapt to dynamic market conditions.

In addition, it is evident to the Board and I that there are significant market opportunities for performance marketing companies that can truly activate and engage consumers, whilst also cultivating strategic, tenured partnerships with brands and operators alike. Specifically, with brands increasing their direct-to-consumer marketing activities, and traditional value chains collapsing, companies like XLMedia should be thriving in many verticals and markets, offering access to consumers and players for an attractive return.

However, the historical focus of the Group has been on the European gambling segment, unregulated markets, which as the Group's FY2019 results show, include some of the most volatile markets, especially when becoming regulated, such as Sweden. Therefore, it has been paramount to shift the focus of the Company, its resources, its investment strategy and culture towards a more global, cross vertical operating model, that thrives in regulated markets, with a particular focus on the US Sports market opportunity and personal finance. 

XLMedia has a strong balance sheet to power the transformation and shift required, providing both leverage and growth. This also applies to our ability to survive situations that many other companies might not, such as the Google de-ranking of a number of our websites, which we are using as a catalyst to drive and deliver change faster than anticipated and with a renewed clarity of purpose and commitment.

I firmly believe that we are defining and building the capabilities to support our future growth, whilst making hard decisions to restructure our operations and priorities; such as to shut down or dispose of non-core business groups, refresh the Executive team, focus on premium assets (removing legacy sites), and re-platform from legacy technology systems and processes. 

Our proposition

XLMedia has a long track record of success in online performance marketing and currently operate over 2,000 websites across numerous sectors. The Group's core skill is to stimulate active engagement by sending paying customers to our partners and sharing the revenues associated with these activities.

To date, the Group has managed an extensive portfolio of online websites ranging from content rich and highly interactive sites, such as moneyunder30.com, to less interactive domains. Typically, the Group's financial services websites utilise a qualitative approach whereby consumers are encouraged to browse and digest a highly sophisticated level of content. Conversely, the Group's gambling segment utilises a methodology based around quantity, targeting multiple sites across the same segment or geography. Going forward, we will be focused on a qualitative approach and are now prioritising the development of more engaging websites, seeking to develop the Group's publishing activities and enhancing consumer engagement.

Currently, roughly 50% of Group revenues are generated by 20 sites, underlining the need for a more consolidated and focused approach. To this end, we have been focused on closing down older, legacy sites which generate either minimal or no revenue for the Group.

Controlling and managing a diverse publishing portfolio puts the Group in a better position to create higher levels of engagement than other traditional performance marketing, encouraging consumers to actively choose the content they want to digest, generating both greater value and increased levels of engagement.

Operational Review

Having joined the Group in October 2019, it was clear then that XLMedia was in need of transformation. It was a typical mid-sized company that had seen dramatic growth but was not fully prepared for the next phase of development, instead seeking to maximise short-term profits over investing for the future. This is not uncommon in many companies of its size and age, and many of the problems are familiar to me from previous experience. However, there is no 'quick fix' and shareholders will have to understand that unpicking years of underinvestment will take time, but when completed, sustainable, predictable growth will again be possible. The first step for any transformation is People, and I feel confident that I am assembling a team that can lead us through the next phase of growth and beyond. 

To that end, I have prioritised the following key areas of investment:

· Operating Model - business processes and organisation design to support future growth

· Data & Programmatic learning - using machines to harness data and create compelling consumer experiences

· US Sports - M&A, US infrastructure and resources with Sport specific technology

· New Markets - utilise XLMedia's expertise and experience to grow existing verticals into new markets

As our FY 2019 financial performance highlights, the business needs to transform to meet the future demands of both customers and consumers, and to operate in growth verticals and markets. Therefore, management will remain focused on further developing the Group's core publishing activities, positioning XLMedia for further growth. 

Within the Group's European gambling markets, well documented regulatory headwinds, specifically in Germany and Sweden, have had an impact on revenue growth in the period, although the Group has maintained its market share, albeit at lower volumes. A further update on the broader regulatory landscape is set out below.

The Group's North American personal finance assets continue to perform well and now account for 16.5% of Group revenues and continues to be a key growth market. North America as a whole (Sports and Personal Finance) represents currently 20.3 % of Group revenues. 

During the period we also made the decision to focus solely on XLMedia's core publishing activities. Therefore, we terminated all media activities as of Q1 2020.

Despite these challenges, the Group delivered a very creditable performance in FY 2019, producing revenues of $79.7 million (2018: $93.5 million), gross profit of $53.7 million (2018: $63.4 million) and an adjusted EBITDA of $33.5 million (2018: $43.6 million).

Going forward, management is focused on becoming a 'pure play' global digital performance publisher.

Regulation

All of XLMedia's business units in some way are controlled or impacted by regulations. We believe that, on the whole, regulation offers sustainable revenues and significant market opportunities for companies such as ourselves, who have the experience, size and maturity to support regulation, protecting the consumer, brands and operators.

Further to being sustainable, regulation offers market consolidation opportunities and therefore market share growth as with Sweden, albeit with total revenues diminishing. Therefore, as gambling markets transform into regulated territories, investors should expect short term revenue volatility as new regulation impacts volumes, though, this should be followed by more predictable revenues streams in the longer term.

It is also important to note that micro-verticals often face differences in regulation, for example slot machines are treated very differently from Bingo. We will continue to operate across a broad spectrum of micro-verticals and over time intend to provide more commentary on the revenue split and the opportunities and risks associated with each. 

Our plan is to globalise our Personal Finance offering and brands, which currently only operate in North America.

A key capability in the Group will be to continue to monitor and abide by regulations worldwide, whilst also investing in technology to quickly respond to changing environments and new compliance needs.

I passionately believe that XLMedia's role is to embrace regulations, and, in some instances, help tighten and control them to further protect consumers. I believe that our future revenues will be focused predominantly on regulated markets operating in Sports, other gambling segments and Personal Finance.

Google update

On 18 January 2020, the Company became aware that a number of its casino sites had been manually demoted by Google, impacting their online ranking and therefore significantly reducing their ability to generate revenues. The Company is continuing to work with Google to restore their rankings as soon as possible.

Currently, 105 sites have been demoted, ranging from 'premium' revenue generating sites to low grade, typically legacy sites, or low commercial value domains. Of the 105 sites demoted by Google, 23 are 'premium' sites and are predominantly within the online casino vertical. Currently, Google has not impacted personal finance.

Management understands that the large number of low-grade, typically legacy sites, operated by the Company had a collective negative impact when reviewed by Google. Therefore, we have removed or de-indexed a large number of these sites.

Separately, XLMedia has reviewed its entire online publishing assets, to focus on significantly reducing the total number of non-revenue generating sites and increasing the focus on 'premium' sites, as well as both incubating and developing new sites.

Part of this review was to analyse the Groups technology platform strategy, specifically Palcon. As a consequence of this review and analysis, XLMedia is transferring its premium revenue generating sites impacted by the Google demotion to a new operating environment, that supports improved content management, innovative design and more commoditised resources / operational support. The broader implications for the business will be a shift to a flexible, lower operating cost model, which supports the Company's aspirations as a premium performance marketing company.

Management remains optimistic that a number of premium de-ranked sites will be fully operational during H2 2020.

As announced in February 2020, management expect a monthly reduction in Group revenues of between $1 million and $2 million (assuming only a minor fall in its repeat revenues) as a result of the Google demotions. In addition, management anticipates that any lengthy period of demotion could impact the rankings once restored, and that it may take a period of time to re-establish. However, based on industry experience, we do expect re-ranked sites eventually to outperform any historical results.

Transformational strategy

Google de-ranking and COVID-19 have not changed our strategic ambition or goals for the transformation, and in some ways have amplified them, acting as a catalyst to accelerate and drive change.

I believe with the Executive team we are building - (who have the skills and experience to deliver transformation), and the balance sheet - (to survive the intense market conditions), we will come out of this period leaner, better operationally structured and driven to grow quickly.

In terms of change, as highlighted above, we are focused on shifting the emphasis of the business from 'quantity to the quality' of websites. We are a performance-based business at heart, and this will not change. We will continue to be focused on connecting brands to consumers by operating a diverse global portfolio of premium websites that deliver significant intrinsic value for consumers.

To that end, management are focused on the following strategic goals:

· Consolidation of publishing assets, focusing of resources

Currently the Group operates over 450 online publishing assets globally, ranging from premium and highly interactive sites to basic, legacy sites. We have therefore decided to reduce the total number of sites operated by the Company, instead focusing on building strong brand recognition across a focused number of 'premium', highly profitable, online assets.

This process has been accelerated by the de-ranking of over 100 casino assets by Google, which has prompted the Company to begin the process of upgrading over 20 'premium' sites.

Alongside consolidating the Group's online assets, management are enhancing the focus and capabilities on consumer experience, putting this at the heart of what we do. Using our rich data and intelligence capabilities to improve consumer engagement, segmentation and understanding. We believe this will be better for the consumer, and as importantly, the customers we represent. 

Sites such as moneyunder30.com offer an initial blueprint for how the Group is seeking to develop existing assets going forward. 

· US Sports and Personal Finance investment - targeting high growth markets

The US sports betting market represents a significant opportunity for us. As a result, we are firmly focused on building our US presence to develop organic investment opportunities, partnerships, acquisitions and use of technology. Earlier this year we opened our first US office in New York and look to expand further into regional offices.

XLMedia has already established a solid revenue foothold within personal finance and will seek to further develop growth opportunities by deploying local resources and increasing localised editorial content. Acquisitions and partnerships remain key vehicles to delivering growth.

· Further investment in regulated (mature) markets - stable revenue growth

We continue to invest in fully regulated gambling markets which we believe provide a solid framework from which to generate stable revenue growth, with a specific focus on developing our Sports assets and associated technology.

Capital allocation / Dividend

Given the current cash balance and lower levels of cash generation from the Group, the Board is recommending that no final dividend is proposed for the 2019 financial year, with no dividend expected to be proposed until further notice.

In addition, while we give due consideration to capital allocation activities such as a share buyback programme or tender offer, in order to accelerate a number of strategic initiatives highlighted above, such initiatives are not expected to be offered for the foreseeable future.

COVID-19 update

XLMedia's global workforce has been working remotely since March 2020, in line with current regulations globally and the health and wellbeing of our employees remains of the utmost importance. This required XLMedia to accelerate a dramatic change to daily operations, technology (laptops) and embracing more flexible working practices. Previously, only a limited number of staff were provided with laptops and working from home was prohibited with a clocking in and out system in place to monitor attendance.

Due to the excellent work by the HR function and IT team, to date, we have not seen any negative impact on our remote working policy and the business remains well placed to weather a prolonged period of self-isolation, with morale seeming high and the team remaining engaged. Further to this we believe that the improvements made to how we operate, will continue and evolve further when COVID-19 ends. This will provide us with a more flexible and agile workforce, supporting one of our key goals to become one of the most progressive employers in Israel and around the world.

However, Coronavirus is having an impact on a number of our key business verticals and revenue streams. Starting in February 2020, many sport events were cancelled around the world which looks likely to continue for much of the remainder of the year with major championships such as European Football Championship and the Olympics being postponed or cancelled. In addition, personal finance has also been affected with many banks and financial services organisations pulling back marketing spend in favour of a "wait and see" strategy. Both Business Groups responsible for Personal Finance and Sports have been creative in adopting new working practices, improving editorial workflow and finding new revenue sources.

This decrease should be marginally offset by increases in in other verticals, such as online gambling and cyber security, but has obviously been hampered by many of the sites remaining de-ranked. The Group is actively assessing and responding to the potential impact of the outbreak, but since there is uncertainty regarding the extent of the effects and future events, there is uncertainty regarding the total effect on the Group revenue.

Outlook

Despite making a solid start to 2020, the Company is still unable to determine the full impact of Google's demotions, although initial indications are that the previous guidance of a monthly reduction in Group revenues of between $1 million and $2 million (assuming only a minor fall in its repeat revenues) is accurate.

In addition, COVID-19 will continue to create uncertainty in the short to medium-term, impacting a number of our end-customers and verticals. Management continues to monitor this situation closely and will align the Company's cost base accordingly.

Therefore, as with many other companies, Q2 2020 looks likely to be a very challenging period, one during which significant change is being delivered against a background of increasing one-time costs as we further embed our transformation plans.

While the Google de-ranking impact and the direct impact of COVID 19 are expected to remain, Management are confident that the impact of both taken together will not be in excess of the previous guidance over the course of the year.

Stuart Simms

Chief Executive Officer

22 April 2020

Financial Review

(*) Reclassified - excluding discontinued operations

1 Excluding loss from impairment and reorganization costs

2 Earnings Before interest, Taxes, Depreciation, Amortization and excluding share-based payments, impairment and reorganisation costs

XLMedia revenues in 2019 totalled $79.7m (2018: $93.5 million), a decrease of 15% compared to the previous year due to expected regulatory headwinds in key Swedish, German and Swiss markets.

Gross profit for 2019 was $53.7 million and gross margin was 67% (2018: $63.4 million, 68% gross margin), representing a 15% decrease, proportional to the decrease in revenues.

Operating expenses for 2019 were $27.3 million (2018: $26.4 million), principally in line with 2019.

Adjusted EBITDA for 2019 was $33.5 million or 42% of revenues (2018: $43.6 million, 47%), a decrease of 23% on the previous year. The decrease in the margin was due entirely to the reduction in revenues.

Net financing expenses for 2019 were $1.0 million (2018: $0.5 million). The increase in financing expenses mainly reflects the initial adoption of IFRS 16 in which the Group recognises interest and exchange rate differences on its lease liabilities.

IAS36 requires that a company ensures that its assets are carried at no more than their recoverable value. Under IAS 36, when the carrying amount of the assets exceeds its recoverable amount an impairment loss is recorded. Following an independent and comprehensive review of recorded asset values at year end and further reductions following the demotion of the Group's websites by Google in January 2020, XL Media has booked an impairment loss of $81.3 million in its 2019 accounts (2018: $0.3m).

In 2019 the Group recorded reorganisation costs of $1.7 million following the commencement of a significant future restructuring plan of the Group. This program will complete during 2020.

Adjusted profit before tax in 2019 was $25.3 million (2018: $36.5 million), a decrease of 31%.

In 2019 the Group recorded income from discontinued operations of $2.2 million (2018: loss of $11.3 million) as result of the Company's Board decision to reduce certain parts of its Media activities which had lower profit margins. In August 2019, the Company completed the sale of Webpals Mobile Ltd which was a substantial component of the discontinued operation. The gain derived from the sale was $1.8 million.

As at 31 December 2019, the Company had $29.9 million in cash and short-term investments (2018: $47.6 million). The change in cash is a reflection of $40.1 million generated by operating activities offset by $7.3 million used for investment activity, and $51.0 million used for financing activities (acquisition of treasury shares of $29.7 million, dividend payments to shareholders of $14.2 million and repayments of bank loans of $5.5 million).

Current assets as at 31 December 2019 were $42.4 million (31 December 2018: $69.2 million) The decrease in current assets was predominantly as a result of the decrease in cash and cash-equivalents mentioned above and a decrease in trade receivables of $8.4 million, mainly as a result of discontinued operations. Non-current assets as at 31 December 2019 were $57.0 million (31 December 2018: $127.3 million). The decrease in non-current assets is mainly from the impairment adjustment of $81.3 million.

Current liabilities as at 31 December 2019 were $27.2 million (31 December 2018: $28.1 million). Non-current liabilities as at 31 December 2019 were $8.6 million (31 December 2018: $1.6 million). The increase in non-current liabilities is mainly attributable to the lease liability of $8.1 million recognized as result of the initial adoption of IFRS 16.

Total equity as at 31 December 2019 was $63.5 million or 64% of total assets (2018: $166.8m or 85% of total assets). The decrease in the equity was mainly as a result of the net loss for the year of $58.7 million, acquisitions of treasury shares of $29.7 million and dividend payments to shareholders of $14.2 million.

I joined the Company in February 2020 with a firm belief that under a visionary new Management team with proven turnaround experience, a right sized but strong balance sheet and no debt, the Company remains poised to deliver strong future returns for its shareholders.

2020 will undoubtedly be a testing and transformative year for the Group but I fully expect that these changes should put us in a strong position as we move into 2021 and beyond.

Iain Balchin

Chief Financial Officer

22 April 2020

INDEPENDENT AUDITOR'S REPORT

To the Shareholders of

XLMedia PLC

Report on the audit of the consolidated financial statements

Opinion

We have audited the consolidated financial statements of XLMedia PLC and its subsidiaries (the Group), which comprise the consolidated statements of financial position as of 31 December 2019 and 2018 and the consolidated statements of profit or loss and other comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for each of the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2019 and 2018 and its financial performance and its cash flows for each of the years then ended in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards)(IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the year ended 31 December 2019. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

Emphasis of matter - Subsequent event

We draw attention to Note 22 of the consolidated financial statements, which describes the uncertainties of the potential impact of Coronavirus on the Company's operation subsequent to the reporting period. Our opinion is not modified in respect of this matter.

Other information included in the Group's 2019 Annual Report

Other information consists of the information included in the Group's 2019 Annual Report other than the consolidated financial statements and our auditor's report thereon. Management is responsible for the other information. The Group's 2019 Annual Report is expected to be made available to us after the date of this auditor's report.

Our opinion on the consolidated financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

Responsibilities of management and the board of directors for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS as adopted by the European Union, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

The board of directors is responsible for overseeing the Group's financial reporting process.

Auditor's responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

► Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

► Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.

► Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

► Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Group to cease to continue as a going concern.

► Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

► Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the board of directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the board of directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the board of directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the year ended 31 December 2019 and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements

The consolidated financial statements have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991.

The accompanying notes are an integral part of the consolidated financial statements.

*) Lower than USD 1 thousand.

The accompanying notes are an integral part of the consolidated financial statements.

(*) Reclassified for discontinued operations - See Note 16.

The accompanying notes are an integral part of the consolidated financial statements.

*) Lower than USD 1 thousand.

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

*) net of cash balance of discontinued operation. 

NOTE 1: GENERAL

(a) General description of the Group and its operations:

The Group is a leading global digital performance publisher. The Group attracts traffic from multiple online channels and directs them to online businesses who, in turn, convert such traffic into paying customers.

Online traffic is attracted by the Group's publications and are then directed, by the Group, to its customers in return for mainly a share of the revenue generated by such user, a fee generated per user acquired, fixed fees or a hybrid of any of these models.

The Company is incorporated in Jersey and commenced its operations in 2012.

Since March 2014, the Company's shares are traded on the London Stock Exchange's Alternative Investment Market (AIM).

(b) Definitions:

In these financial statements:

(c) Assessment of going concern:

As part of their ongoing responsibilities, the Directors have recently undertaken a thorough review of the Group's cash flow forecast and potential liquidity risks. Forecasts of operating results and cash flow projections have been prepared for 2020 and 2021 which show that the Group's will have sufficient liquidity for its operations during the period. The Directors have determined that the Group is likely to continue in business for at least 12 months from the date of the consolidated financial statements. Accordingly, the Board of Directors applied the going concern basis of accounting in preparing the consolidated financial statements.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

The following accounting policies have been applied consistently in the financial statements for all periods presented, unless otherwise stated.

(a) Basis of presentation of the consolidated financial statements:

These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS as adopted by the EU") and in accordance with the requirements of the Companies (Jersey) Law 1991.

The financial statements have been prepared on a cost basis, except for financial assets and liabilities (derivatives) that are presented at fair value through profit or loss.

The Company has elected to present profit or loss items using the function of expense method.

In 2019 new Standards and amendments became effective, regarding the effect on the consolidated financial statements, see Note 2(t).

Classification of expenses in profit or loss

Cost of revenues- includes mainly compensation of personnel, media buying costs, affiliates network costs and websites promotion and content.

Research and development and sale and marketing- includes primarily compensation of personnel.

General and administrative- includes primarily compensation and related costs of personnel, amortisation and depreciation expenses, costs related to the Group's facilities and fees for professional services.

Reorganisation costs - includes primarily termination benefits to former key management personnel and various consulting fees.

(b) Consolidated financial statements:

The consolidated financial statements comprise the financial statements of companies that are controlled by the Company (subsidiaries). Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Potential voting rights are considered when assessing whether an entity has control. The consolidation of the financial statements commences on the date on which control is obtained and ends when such control ceases.

The financial statements of the Company and of the subsidiaries are prepared as of the same dates and periods. The consolidated financial statements are prepared using uniform accounting policies by all companies in the Group. Significant intragroup balances and transactions and gains or losses resulting from intragroup transactions are eliminated in full in the consolidated financial statements.

Non-controlling interests in subsidiaries represent the equity in subsidiaries not attributable, directly or indirectly, to a parent. Non-controlling interests are presented in equity separately from the equity attributable to the equity holders of the Company. Profit or loss and components of other comprehensive income are attributed to the Company and to non-controlling interests. Losses are attributed to non-controlling interests even if they result in a negative balance of non-controlling interests in the consolidated statement of financial position.

A change in the ownership interest of a subsidiary without a change of control is accounted for as an equity transaction in accordance with IFRS 10.

(c) Business combinations and goodwill:

Business combinations are accounted for by applying the acquisition method. The cost of the acquisition is measured at the fair value of the consideration transferred on the date of acquisition with the addition of non-controlling interests in the acquiree. In each business combination, the Company chooses whether to measure the non-controlling interests in the

acquiree based on their fair value on the date of acquisition or at their proportionate share in the fair value of the acquiree's net identifiable assets.

Direct acquisition costs are expensed as incurred.

Contingent consideration is recognised at fair value on the acquisition date and classified as a financial asset or liability in accordance with IAS 39. Subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. If the contingent consideration is classified as an equity instrument, it is measured at fair value on the acquisition date without subsequent remeasurement.

Goodwill is initially measured at cost, which represents the excess of the acquisition consideration and the amount of non-controlling interests over the net identifiable assets acquired and liabilities assumed. If the resulting amount is negative, the acquirer recognises the resulting gain on the acquisition date.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For purposes of evaluation of impairment of goodwill, goodwill purchased in a business combination is evaluated and attributed to the cash-generating units to which it had been allocated.

(d) Functional currency, presentation currency and foreign currency:

1. Functional currency and presentation currency:

The functional and presentation currency of the Company and of its subsidiaries is the U.S. dollar ("USD").

2. Transactions, assets and liabilities in foreign currency:

Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are translated at the end of each reporting period into the functional currency at the exchange rate at that date. Exchange rate differences, other than those capitalised to qualifying assets or recorded in equity in hedges, are recognised in profit or loss. Non-monetary assets and liabilities measured at cost in foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currency and measured at fair value are translated into the functional currency using the exchange rate prevailing at the date when the fair value was determined.

(e) Cash equivalents:

Cash equivalents are considered as highly liquid investments, including unrestricted short-term bank deposits with an original maturity of three months or less from the date of acquisition or with a maturity of more than three months, but which are redeemable on demand without penalty and which form part of the Group's cash management.

(f) Short-term and long-term deposits:

Short-term bank deposits are deposits with an original maturity of more than three months and less than twelve months from the date of acquisition. Long-term deposits are deposits with maturity of more than twelve months from the reporting date. The deposits are presented according to their terms of deposit.

 (g) Revenue recognition:

On January 1, 2018, the Company first adopted IFRS 15, "Revenue from Contracts with Customers" ("the Standard").

Revenue from contracts with customers is recognised when the control over the services is transferred to the customer. The transaction price is the amount of the consideration that is expected to be received based on the contract terms.

Revenue from rendering of services:

Revenue from rendering of services is recognized over time, during the period the customer simultaneously receives and consumes the benefits provided by the Company's performance. The Company charges its customers based on payment terms agreed upon in specific agreements.

In determining the amount of revenue from contracts with customers, the Group evaluates whether it is a principal or an agent in the arrangement. The Group is principal when the Group controls the promised services before transferring them to the customer. In these circumstances, the Group recognises revenue for the gross amount of the consideration. When the Group is an agent, it recognises revenue for the net amount of the consideration, after deducting the amount due to the principal.

(h) Taxes on income:

Current or deferred taxes are recognised in profit or loss, except to the extent that they relate to items which are recognised in other comprehensive income or equity.

1. Current taxes:

The current tax liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the reporting date as well as adjustments required in connection with the tax liability in respect of previous years.

2. Deferred taxes:

Deferred taxes are computed in respect of temporary differences between the carrying amounts in the financial statements and the amounts attributed for tax purposes.

Deferred taxes are measured at the tax rate that is expected to apply when the asset is realised or the liability is settled, based on tax laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is not probable that they will be utilised. Deductible temporary differences for which deferred tax assets had not been recognised are reviewed at each reporting date and a respective deferred tax asset is recognised to the extent that their utilisation is probable.

Taxes that would apply in the event of the disposal of investments in investees have not been taken into account in computing deferred taxes, as long as the disposal of the investments in investees is not probable in the foreseeable future. Also, deferred taxes that would apply in the event of distribution of earnings by investees as dividends have not been taken into account in computing deferred taxes, since the distribution of dividends does not involve an additional tax liability or since it is the Group's policy not to initiate distribution of dividends from a subsidiary that would trigger an additional tax liability.

Deferred taxes are offset if there is a legally enforceable right to offset a current tax asset against a current tax liability and the deferred taxes relate to the same taxpayer and the same taxation authority.

(i) Leases:

As detailed in paragraph 2 (t) below regarding the initial adoption of IFRS 16, "Leases" ("the Standard"), the Group elected to apply the provisions of the Standard using the modified retrospective approach (without restatement of comparative data).

The accounting policy for leases applied effective from 1 January 2019, is as follows:

The Group accounts for a contract as a lease when the contract terms convey the right to control the use of an identified asset for a period of time in exchange for consideration.

1. Recognition of assets and liabilities:

For leases in which the Group is the lessee, the Group recognizes on the commencement date of the lease a right-of-use asset and a lease liability, excluding leases whose term is up to 12 months and leases for which the underlying asset is of low value. For these excluded leases, the Group has elected to recognize the lease payments as an expense in profit or loss on a straight-line basis over the lease term. In measuring the lease liability, the Group has elected to apply the practical expedient in the Standard and does not separate the lease components from the non-lease components (such as management and maintenance services, etc.) included in a single contract.

On the commencement date, the lease liability includes all unpaid lease payments discounted at the interest rate implicit in the lease, if that rate can be readily determined, or otherwise using the Group's incremental borrowing rate. After the commencement date, the Group measures the lease liability using the effective interest rate method.

On the commencement date, the right-of-use asset is recognized in an amount equal to the lease liability plus lease payments already made on or before the commencement date and initial direct costs incurred. The right-of-use asset is measured applying the cost model and depreciated over the shorter of its useful life or the lease term (see Note 2(j) below). The Group tests for impairment of the right-of-use asset whenever there are indications of impairment pursuant to the provisions of IAS 36.

2. Variable lease payments that depend on an index:

On the commencement date, the Group uses the index rate prevailing on the commencement date to calculate the future lease payments.

For leases in which the Group is the lessee, the aggregate changes in future lease payments resulting from a change in the index are discounted (without a change in the discount rate applicable to the lease liability) and recorded as an adjustment of the lease liability and the right-of-use asset, only when there is a change in the cash flows resulting from the change in the index (that is, when the adjustment to the lease payments takes effect).

3. Lease extension and termination options:

A non-cancellable lease term includes both the periods covered by an option to extend the lease when it is reasonably certain that the extension option will be exercised and the periods covered by a lease termination option when it is reasonably certain that the termination option will not be exercised.

In the event of any change in the expected exercise of the lease extension option or in the expected non-exercise of the lease termination option, the Group remeasures the lease liability based on the revised lease term using a revised discount rate as of the date of the change in expectations. The total change is recognized in the carrying amount of the right-of-use asset until it is reduced to zero, and any further reductions are recognized in profit or loss.

4. Lease modifications:

If a lease modification does not reduce the scope of the lease and does not result in a separate lease, the Group remeasures the lease liability based on the modified lease terms using a revised discount rate as of the modification date and records the change in the lease liability as an adjustment to the right-of-use asset.

If a lease modification reduces the scope of the lease, the Group recognises a gain or loss arising from the partial or full reduction of the carrying amount of the right-of-use asset and the lease liability. The Group subsequently remeasures the carrying amount of the lease liability according to the revised lease terms, at the revised discount rate as of the modification date and records the change in the lease liability as an adjustment to the right-of-use asset.

The accounting policy for leases applied before 1 January 2019 is as follows:

The criteria for classifying leases as finance or operating leases depend on the substance of the agreements and are made at the inception of the lease in accordance with the following principles as set out in IAS 17.

Operating leases - the Group as lessee:

Lease agreements are classified as an operating lease if they do not transfer substantially all the risks and benefits incidental to ownership of the leased asset. Lease payments are recognised as an expense in profit or loss on a straight-line basis over the lease term.

 (j) Property and equipment:

Property and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.

Depreciation is calculated on a straight-line basis over the useful life of the assets at annual rates as follows:

Right of use leased assets and leasehold improvements are depreciated on a straight-line basis over the shorter of the lease term (including any extension option held by the Group and intended to be exercised) and the expected life of the asset.

The useful life, depreciation method and residual value of an asset are reviewed at least each year-end and any changes are accounted for prospectively as a change in accounting estimate.

Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognised. An asset is derecognised on disposal or when no further economic benefits are expected from its use.

(k) Intangible assets:

Separately acquired intangible assets are measured on initial recognition at cost including directly attributable costs. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Expenditures relating to internally generated intangible assets, excluding capitalised development costs, are recognised in profit or loss when incurred.

Intangible assets with a finite useful life are amortised over their useful life and reviewed for impairment whenever there is an indication that the asset may be impaired. The amortisation period and the amortisation method for an intangible asset are reviewed at least at each year end.

Intangible assets (domains and websites) with indefinite useful lives are not systematically amortised and are tested for impairment annually or whenever there is an indication that the intangible asset may be impaired. Since the content of the domains and websites is being updated on a current basis management believes that these assets have indefinite useful lives. The useful life of these assets is reviewed annually to determine whether their indefinite life assessment continues to be supportable. If the events and circumstances do not continue to support the assessment, the change in the useful life assessment from indefinite to finite is accounted for prospectively as a change in accounting estimate and on that date the asset is tested for impairment. Commencing from that date, the asset is amortised systematically over its useful life.

Research and development expenditures:

Research expenditures are recognised in profit or loss when incurred. An intangible asset arising from a development project or from the development phase of an internal project is recognised if the Group can demonstrate: the technical feasibility of completing the intangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; the Company's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability of adequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably the expenditure attributable to the intangible asset during its development.

The asset is measured at cost less any accumulated amortisation and any accumulated impairment losses. Amortisation of the asset begins when development is completed, and the asset is available for use. The asset is amortised over its useful life. Testing of impairment is performed annually over the period of the development project.

Software:

The Group's assets include computer systems comprising hardware and software. Software forming an integral part of the hardware to the extent that the hardware cannot function without the programs installed on it is classified as property and equipment. In contrast, software that adds functionality to the hardware is classified as an intangible asset.

Systems and software (purchased and in- house development cost) are amortised on a straight-line basis over the useful life of three years

Non-competition is amortised on a straight-line basis over the agreement term (between 2 to 3 years).

 (l) Impairment of non-financial assets:

The Group evaluates the need to record an impairment of the carrying amount of non-financial assets whenever events or changes in circumstances indicate that the carrying amount is not recoverable.

If the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable amount of an asset that does not generate independent cash flows is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognised in profit or loss.

An impairment loss of an asset, other than goodwill, is reversed only if there have been changes in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. Reversal of an impairment loss, as above, shall not be increased above the lower of the carrying amount that would have been determined (net of depreciation or amortisation) had no impairment loss been recognised for the asset in prior years, and its recoverable amount. The reversal of impairment loss of an asset presented at cost is recognised in profit or loss.

The following criteria are applied in assessing impairment of these specific assets:

1. Goodwill

The Company reviews goodwill for impairment once a year as of 31 December or more frequently if events or changes in circumstances indicate that there is impairment need for such review.

Goodwill is tested for impairment by assessing the recoverable amount of the cash-generating unit (or group of cash-generating units) to which the goodwill has been allocated. An impairment loss is recognised if the recoverable amount of the cash-generating unit (or group of cash-generating units) to which goodwill has been allocated is less than the carrying amount of the cash-generating unit (or group of cash-generating units). Any impairment loss is allocated first to goodwill. Impairment losses recognised for goodwill cannot be reversed in subsequent periods.

2. Domains and websites - Intangible assets with an indefinite useful life that are not systematically amortised.

The impairment test is performed annually, on 31 December, or more frequently if events or changes in circumstances indicate that there is an impairment.

(m) Financial instruments:

On January 1, 2018, the Company first adopted IFRS 9, "Financial Instruments" ("the Standard"). The Company elected to adopt the provisions of the Standard retrospectively without restatement of comparative data.

The accounting policy for financial instruments applied commencing from January 1, 2018, is as follows:

1. Financial assets:

Financial assets are measured upon initial recognition at fair value plus transaction costs directly attributable to the acquisition of the financial assets, except for financial assets measured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.

The Company classifies and measures debt instruments in the financial statements based on the following criteria:

- The Company's business model for managing financial assets; and

- The contractual cash flow terms of the financial asset.

a) Debt instruments are measured at amortized cost when:

The Company's business model is to hold the financial assets in order to collect their contractual cash flows, and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. After initial recognition, the instruments in this category are measured according to their terms at amortised cost using the effective interest rate method, less any provision for impairment.

b) Financial assets held for trading:

Financial assets held for trading (derivatives) are measured through profit or loss unless they are designated as effective hedging instruments.

2. Impairment of financial assets:

The Company reviews at the end of each reporting period the provision for loss of financial debt instruments which are measured at amortized cost. The Company has short-term trade receivables in respect of which the Company applies a simplified approach and measures the loss allowance in an amount equal to the lifetime expected credit losses.

An impairment loss on debt instruments measured at amortized cost is recognized in profit or loss with a corresponding loss allowance that is offset from the carrying amount of the financial asset.

3. Derecognition of financial assets:

A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire.

4. Financial liabilities:

a) Financial liabilities measured at amortized cost:

Financial liabilities are initially recognized at fair value less transaction costs that are directly attributable to the issue of the financial liability.

After initial recognition, the Company measures all financial liabilities at amortized cost using the effective interest rate method, except for:

- Financial liabilities at fair value through profit or loss such as derivatives;

- Contingent consideration recognized by the buyer in a business combination within the scope of IFRS 3.

b) Financial liabilities measured at fair value through profit or loss:

At initial recognition, the Company measures financial liabilities that are not measured at amortized cost at fair value. Transaction costs are recognised in profit or loss.

After initial recognition, changes in fair value are recognized in profit or loss.

5. Derecognition of financial liabilities:

A financial liability is derecognised only when it is extinguished, that is when the obligation is discharged or cancelled or expires.

(n) Fair value measurement:

Fair value is the price to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in the absence of a principal market, in the most advantageous market.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities measured at fair value or for which fair value is disclosed are categorised into levels within the fair value hierarchy based on the lowest level input that is significant to the entire fair value measurement:

 (o) Provisions:

A provision in accordance with IAS 37 is recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects part or all of the expense to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense is recognised in profit or loss net of the reimbursed amount.

(p) Employee benefit liabilities:

The Group has several employee benefit plans:

1. Short-term employee benefits:

Short-term employee benefits include salaries, paid annual leave, paid sick leave, recreation and social security contributions and are recognised as expenses as the services are rendered. A liability in respect of a cash bonus or a profit-sharing plan is recognised when the Group has a legal or constructive obligation to make such payment as a result of past service rendered by an employee and a reliable estimate of the amount can be made.

2. Post-employment benefits:

The plans are financed by contributions to insurance companies or pension funds and classified as defined contribution plans.

The Israeli subsidiaries of the Group have defined contribution plans pursuant to Section 14 to the Severance Pay Law under which the subsidiary pays fixed contributions and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient amounts to pay all employee benefits relating to employee service in the current and prior periods. Contributions to the defined contribution plan in respect of severance or retirement pay are recognised as an expense when contributed concurrently with performance of the employee's services.

(q) Share-based payment transactions:

The Group's employees and officers are entitled to remuneration in the form of equity-settled share-based payment transactions.

Equity-settled transactions:

The cost of equity-settled transactions with employees and officers is measured at the fair value of the equity instruments granted at grant date. The fair value is determined using an acceptable option pricing model - additional details are given in Note 14.

In estimating fair value, the vesting conditions (consisting of service conditions and performance conditions other than market conditions) are not taken into account.

The cost of equity-settled transactions is recognised in profit or loss together with a corresponding increase in equity during the period which the performance is to be satisfied ending on the date on which the relevant employees or officers become entitled to the award ("the vesting period"). The cumulative expense recognised for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied.

(r) Discontinued operations:

A discontinued operation is a component of the Company that either has been disposed of or is classified as held for sale. The operating results relating to the discontinued operation (including comparative data) are presented separately in profit or loss, net of the tax effect.

(s) Earnings (loss) per share:

Earnings per share are calculated by dividing the net income (loss) attributable to equity holders of the Company by the weighted average number of Ordinary Shares outstanding during the period. The Company's share of earnings of investees is included based on the earnings per share of the investees multiplied by the number of shares held by the Company. If the number of Ordinary Shares outstanding increases as a result of a capitalisation, bonus issue, or share split, the calculation of earnings per share for all periods presented are adjusted retrospectively.

Potential Ordinary shares are included in the computation of diluted earnings per share when their conversion decreases earnings per share from continuing operations. Potential Ordinary shares that are converted during the period are included in diluted earnings per share only until the conversion date and from that date in basic earnings per share.

(t) Initial adoption of new financial reporting and accounting standards and amendments to existing financial reporting and accounting standards:

1. Initial adoption of IFRS 16, "Leases":

In January 2016, the IASB issued IFRS 16, "Leases" ("the Standard"), which supersedes IAS 17, "Leases" ("the old Standard"), IFRIC 4, "Determining Whether an Arrangement Contains a Lease", and SIC-15, "Operating Leases - Incentives".

The Standard has been applied for the first time in these financial statements. As permitted by the Standard, the Group elected to adopt the provisions of the Standard using the modified retrospective method whereby the carrying amount of the right-of-use assets is identical to the carrying amount of the lease liability.

According to this approach, comparative data has not been restated. The carrying amount of the lease liability as of the date of initial adoption of the Standard is calculated using the Group's incremental borrowing rate on the date of initial adoption of the Standard.

a) Following are data relating to the initial adoption of the Standard as of 1 January 2019, in respect of existing leases as of that date:

b) The Group determined the appropriate interest rate for discounting its leases based on credit risk, the weighted average term of the leases and other economic variables. A weighted average incremental borrowing rate of 6% was used to discount future lease payments in the calculation of the lease liability on the date of initial adoption of the Standard. 

c) Practical expedients applied in the initial adoption of the Standard- The Company elected to apply a single discount rate to a portfolio of leases with reasonably similar characteristics.

2. IFRIC 23, "Uncertainty over Income Tax Treatments":

In June 2017, the IASB issued IFRIC 23, "Uncertainty over Income Tax Treatments" ("the Interpretation"). The Interpretation clarifies the accounting for recognition and measurement of assets or liabilities in accordance with the provisions of IAS 12, "Income Taxes", in situations of uncertainty involving income taxes. The Interpretation provides guidance on considering whether some tax treatments should be considered collectively, examination by the tax authorities, measurement of the effects of uncertainty involving income taxes on the financial statements and accounting for changes in facts and circumstances in respect of the uncertainty.

The Interpretation has been initially applied in these financial statements.

The initial adoption of the Interpretation did not have a material effect on the Group's financial statements.

NOTE 3: SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS

Estimations and assumptions:

The preparation of the financial statements requires management to make estimates and assumptions that have an effect on the application of the accounting policies and on the reported amounts of assets, liabilities, revenues and expenses. Changes in accounting estimates are reported in the period of the change in estimate.

The key assumptions made in the financial statements concerning uncertainties at the end of the reporting period and the critical estimates computed by the Group that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

- Impairment of goodwill, domains and websites:

The Group reviews goodwill, domains and websites for impairment at least once a year. This requires management to make an estimate of the projected future cash flows from the continuing use of the cash-generating units to which the assets are allocated and also to choose a suitable discount rate for those cash flows. See also Note 8.

- Income taxes

The Group is subject to income tax in various jurisdictions and judgment is required in determining the provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination may be uncertain. The Group recognises tax liabilities based on assumptions supported by, among others, transfer price studies. The Group believes that its accruals for tax liabilities are adequate for all open audit years based on its assessment of many factors including past experience and interpretations of tax law. See also Note 15. 

NOTE 4: DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION

IFRS 3, "Business Combinations":

In October 2018, the IASB issued an amendment to the definition of a "business" in IFRS 3, "Business Combinations" ("the Amendment"). The Amendment is intended to assist entities in determining whether a transaction should be accounted for as a business combination or as an acquisition of an asset.

The Amendment is to be applied prospectively to all business combinations and asset acquisitions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020, with earlier application permitted.

NOTE 5: SHORT-TERM AND LONG-TERM INVESTMENTS

(1) The above interest rates are the weighted average rates as of 31 December 2019.

(2) Includes deposits for the amount of USD 3,467 thousand with fixed liens recorded as security for credit card transactions in connection with advertising campaigns and other online purchasing over the internet as well as for financial derivative transactions and bank guarantee provided in connection with a lease agreement on property.

NOTE 6: TRADE AND OTHER RECEIVABLES

a. Trade receivables:

1. As of 31 December 2019, the Group has no material amounts that are past due and not impaired.

2. Doubtful accounts expenses included in general and administrative expenses USD 211 thousands (2018- USD 530 thousands).

3. See Note 12 (b) (2) on credit risk of trade receivables.

b. Other receivables:

NOTE 7: PROPERTY AND EQUIPMENT

(1) See Note 16.

(2) See Note 11.

NOTE 8: INTANGIBLE ASSETS

a. Composition and movement:

(1) See Note 16.

(2) See Note b below.

b. Additional information on impairment:

In January 2020, 107 of the Group's sites were demoted in search results by Google, of which 23 were premium sites. The demotion of the sites is expected to have a material impact on the Group's future revenues.

Based on the value in use of the Publishing operations of the Group performed by an independent valuation specialist, the carrying amount of the goodwill was written down to nil. The remaining amount of the impairment loss was allocated to the other intangible assets based on their relative carrying amounts.

As result the Company recorded an impairment loss for the amount of USD 81,350 thousands, which is included in the statement of profit or loss.

The pre-tax discount rate applied to the cash flow projection is 15.5% (2018-13.1%). The projected cash flows are estimated using mainly fixed growth rate of 4.5% for the years 2021-2024 and terminal growth rate of 3% (2018-3%).

The key assumptions used in calculating the value in use:

Revenues and operational profit- the revenues and the profit rate assumptions are based on management expectations and forecasts for the coming year and the management's forecasted cash flows for the following three years. These forecasts included an evaluation of those specific sites that suffered a demotion or other factors which could adversely affect revenues and profitability

Discount rate - the discount rate reflects management's assumptions regarding the Group's specific risk premium.

Growth rate - the growth rate applied for the period beyond the four-year forecasted period is based on the long-term average growth rate as customary in similar industries.

2. Sensitivity analyses of changes in assumptions:

With respect to the assumptions used in determining the value in use, management believes that a significant change in key assumptions, in particular, a decrease in forecasted revenues, would result in a further impairment of the intangible assets.  

NOTE 9: OTHER LIABILITIES AND ACCOUNTS PAYABLE

NOTE 10: LOANS FROM BANK

a. Composition:

b. Loan terms: