Xlmedia Regulatory News (XLM)

XLMedia PLC

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

Business and Trading Update

XLMedia (AIM: XLM) provides the following update further to its announcement of 20 January 2020 relating to the reduction in ranking of a number of the Group's websites. The update addresses further developments, immediate actions being taken and the impact on the Group's future strategy.

The Company is continuing to work with Google to understand the issues which have led to certain websites being demoted and is working hard to resolve what it believes to be the key issues, with a view to restoring the rankings of these online assets as quickly as possible.

Sites impacted

Currently 107 sites have been impacted since the initial announcement on 20 January. Of the sites impacted, over 84 are tier 3 or tier 4 sites, being sites which are typically legacy or of low commercial value to the Company. The remining 23 sites are tier 1 and tier 2 premium sites. The sites that have been demoted by Google are predominantly in the online casino vertical, and the demotion activity by Google has not impacted the other verticals of the business, such as personal finance.

The Company believes that it is possible that a certain number of its tier 3 or tier 4 legacy sites may have had a collective negative impact on the ranking of a broader pool of the Company's sites, including its premium sites. The Company is therefore taking steps to remove or de-index such sites, which are seen as most likely to have been regarded by Google as having insufficient content, with the expectation that it will assist in the re-ranking of the premium sites. However, until these actions are completed and some of the premium sites are successfully resubmitted, it will not be possible to be certain that the issue will have been resolved.

Strategy implementation and immediate actions

Further to the announcement relating to strategic changes on 19 December 2019, and as a direct consequence of the actions taken by Google, the Company has decided to accelerate some of its proposed strategic changes and refocus its activities on the sustainable growth of its publishing assets. This will involve a focus on its core and profitable tier 1 and tier 2 premium sites and a significant reduction in its tier 3 and tier 4 sites and non-core business activities. 

As an immediate priority, the Company has identified the tier 1 and tier 2 premium sites that have been impacted and has prioritised all efforts in getting these reinstated by Google and has begun the process of removing a number of websites from its online portfolio that are either old legacy sites, or that it believes are not sufficiently compliant with current Google guidelines. In addition, it has ceased certain activities which, following the closure of the majority of the media activity in March 2019, are no longer regarded as core to the future of the business.

Going forward, the Company will allocate significant resources to improving and expanding the Group's portfolio of tier 1 and tier 2 sites alongside both incubating and developing new sites.

Trading Update

Until there is clarity as to when the rankings of the demoted tier 1 and tier 2 sites are fully restored, the Company is unable to determine the full impact of Google's demotion of its websites. As a result of the demotions however, the demoted tier 1 and tier 2 sites will see an immediate impact of lost revenues for the period that the sites have reduced rankings. Management expects this to represent a monthly reduction in Group revenues of between c$1 million and c$2 million (assuming only a minor fall in its repeat revenues). In addition, management expects that any lengthy period of demotion could impact the rankings once restored and that it may take a period of time to re-establish the former high rankings.

The removal or de-indexing of tier 3 and tier 4 sites, and the reduction in non-core activities, is expected to have a modest impact on revenue of between $3 million and $5 million for the financial year 2020.

As a number of these actions were included in the Group's proposed strategic changes, some of the associate costs were budgeted for during the period which will reduce the full impact on earnings.

While currently under review and subject to confirmation with the Group's auditors, it is expected that these issues will result in a revaluation of the Company's assets and incur an impairment charge.

Dividend

In order to accelerate a number of strategic initiatives, alongside evaluating potential acquisition opportunities, no final dividend is proposed for the 2019 financial year, with no dividend expected to be proposed until further notice. 

Further updates will be made as and when appropriate.

Stuart Simms, Group Chief Executive Officer commented:

"There is no question that we currently face operational headwinds, but fundamentally, I firmly believe in the underlying quality and sustainability of our business. However, I believe it is now time to accelerate a number of strategic measures that will create a short-term drag on revenue growth, but will ultimately strengthen our business by creating a much stronger and more transparent platform from which to grow.

"By proactively consolidating - and where necessary culling - our considerable tail of legacy websites and focusing a greater proportion of our efforts on monetising both tier 1 and tier 2 websites in addition to incubating new sites, we will significantly improve the medium-term prospects of the Group. 

"I feel it's important to reiterate that we continue to operate a global portfolio of content rich websites that deliver significant value for our users. This expertise remains a core competence for our business which I fully intend to capitalise on as management seeks to both enhance and expand our business over the coming years."

The information contained within this announcement (the "Announcement") is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this Announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

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