Xlmedia Regulatory News (XLM)

XLMedia PLC

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

Strategic and Trading Update

XLMedia (AIM: XLM), a leading provider of digital performance marketing services, provides the following strategic and trading update. The key elements include:

· Investment in Publishing assets - The Group will increase investment across its higher margin Publishing activities with specific focus on growth opportunities in North America. It will commit to invest materially, including an internal network development plan of at least US$7 million in total over the next three years.

· Reduction of non-core Media activities - The Group has taken the decision to materially reduce certain parts of its Media activities which have lower profit margins and unstable revenues, resulting in a substantial reduction in Media revenues.

· Focus on sustainable growth - The Group intends to focus on its Publishing expertise, responding to changing regulatory environments and new compliance needs in the gaming sector and digital marketing. The Group aims to deliver more sustainable and high margin growth through improving the profile of its existing sites and integrating the recently acquired assets

· Trading update & impact of strategy change - Trading for 2019 has started in line with management's expectations although still seeing operational and regulatory headwinds. However, the strategic shift away from Media is expected to reduce 2019 revenues by approximately US$30 million. This, together with increased Publishing investment, will largely account for an expected reduction in 2019 adjusted EBITDA of between US$6-7 million. However, in the medium-term these changes are expected to deliver higher profit margins and better quality of earnings.

· Dividend and Buy Back - The Board remains committed to maintaining a progressive dividend policy and seeks to continue to pay out at least 50 per cent net profit by way of dividend (adjusted for non-cash impairment). The Board remains committed to the share buyback announced December 2018.

Strategic update

The Company currently uses two principal performance marketing methods - Publishing and Media buying. Within the Publishing division, XLMedia owns hundreds of informational and content rich websites globally, which act as a conduit to channel users to our clients. The Group's Media buying activity centres on creating and deploying self-funded online media campaigns across a range of platforms, utilising formats such as paid search, display, social, mobile and in-app advertising, to drive traffic to both our own sites and our clients' sites. 

The Group has consistently invested in its higher margin Publishing activities, extending its market reach beyond the gaming sector to now include personal finance and other verticals, and increasing its presence geographically. In FY2018, Publishing accounted for approximately US$66 million (56%) of Group revenue and US$52 million (77%) of gross profit and, as such, is considered to be the main strategic driver of growth for the Group. Therefore, management remains focused on improving the profile of its existing sites, developing more assets targeting regulated markets and products, and completing the integration of recently acquired assets.

Furthermore, XLMedia has identified a number of Publishing growth opportunities in North America and intends to capitalise on its existing footprint in the personal finance market across the U.S. and Canada. The Company plans to invest at least US$7 million of cash on the internal development of publishing assets over the next three years, aiming to establish a leading position in the emerging U.S gaming market. The non-capitalised investment will have a short-term impact on Group EBITDA.

In order to best capitalise on the opportunities available, the Board has taken the decision to proactively reduce all the Group's non-core, lower margin Media activities which are not complimentary to its Publishing activities. The Media business is a significantly lower margin activity compared to the Group's Publishing activities. In FY2018, Media accounted for approximately US$47 million (40%) of revenue and US$15 million (22%) gross profit.

Current trading

2019 has started in line with management's expectations but the Group continues to recover from the operational and regulatory headwinds reported in 2018. The performance of the affected Publishing assets continues to recover, albeit slowly, and the integration of recently acquired assets remains ongoing.

To continue this focus on Publishing, the Board has made the strategic decision to proactively cease its involvement in much of its existing Media activities. This will result in a one-off impairment of US$11-13 million, for the year ended 31 December 2018, mainly related to the intangible assets of acquired assets in the Media division. 

As a result of the proactive measures outlined above, management now expects Group revenues to be reduced by approximately US$30 million and Group adjusted EBITDA to be reduced to a lesser degree by US$6-7 million for the year ending 31 December 2019, reflecting the forward trading for the Company. However, the Board are confident that these steps will deliver higher profit margins with much better quality of earnings in the medium and long-term.

The Board remains committed to maintaining a progressive dividend policy and seeks to continue to pay out at least 50 per cent of the adjusted net profit by way of dividend. The Board remains committed to the share buyback announced in December 2018.

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