UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of September 2019
Commission File Number: 001-38588
Opera Limited
Gjerdrums vei 19, 0484 Oslo, Norway
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F☑ Form 40-F☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
EXHIBIT INDEX
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Opera Limited | |||
| By: | /s/ Yahui Zhou | ||
| Name: | Yahui Zhou | ||
| Title: | Chairman and Chief Executive Officer | ||
Date: September 16, 2019
3
Exhibit 99.1
Unless otherwise indicated or unless the context otherwise requires, “we,” “us,” “our company,” “the Group,” “our group,” “our” or “Opera” refers to Opera Limited and its subsidiaries, an exempt company incorporated under the laws of the Cayman Islands with limited liability that is the holding company of our group.
Summary Consolidated Financial and Operating Data
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following summary consolidated statements of operations data for the period from January 1, 2016 to November 3, 2016 (the “Predecessor”) and from inception of Kunhoo Software LLC, to which Opera Limited become successor-in-interest, on July 26, 2016 to December 31, 2016 and for the years ended December 31, 2017 and 2018, and summary consolidated statements of financial position data as of December 31, 2016, 2017 and 2018 (the “Successor”) have been derived from our audited financial statements incorporated by reference in this prospectus from our annual report on Form 20-F for the year ended December 31, 2018, or 2018 Annual Report. The consolidated financial statements are prepared and presented in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board, or IFRS. The consolidated statement of operations data for the six month periods ended June 30, 2018 and 2019, and summary consolidated statement of financial position data as of June 30, 2019 have been derived from our unaudited condensed interim consolidated financial statements included elsewhere in this prospectus supplement. The unaudited condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as issued by the International Accounting Standards Board.
Our historical results are not necessarily indicative of results expected for future periods. You should read this “Summary Consolidated Financial Data and Operating Data” section together with our audited consolidated financial statements and the related notes and our unaudited condensed interim consolidated financial statements and the “Item 5. Operating and Financial Review and Prospects” section included in our 2018 Annual Report.
The following tables also set forth the summary pro forma consolidated statement of operations for the year ended December 31, 2016 which reflects the effect of the acquisition of Opera Software AS and its subsidiaries and the Consumer Business on November 3, 2016, by Kunhoo Software LLC and its subsidiaries, or the Group, as if such transaction had occurred on January 1, 2016. Prior to the acquisition, the Group had no operations. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Unaudited Pro Forma Consolidated Financial Information” in our 2018 Annual Report for more information. The pro forma adjustments are based upon currently available information and certain assumptions that are factually supportable and that we believe are reasonable under the circumstances. The pro forma financial information does not necessarily represent, what our actual consolidated results of operations would have been had the transactions occurred on the dates indicated, nor are they necessarily indicative of results that may be expected for any future period.
Summary Consolidated Statement of Operations
|
2016 |
Successor Group for the year ended December 31, |
Successor Group for the six months ended June 30, |
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|
Predecessor for the period from January 1, 2016 to November 3, 2016 |
Successor Group since inception on July 26, 2016 to December 31, 2016 |
Unaudited pro forma consolidated Group for the year ended December 31, 2016(1) |
2017 |
2018(3) | 2018 | 2019 | ||||||||||||||||||||||
|
(US$ in thousands, except for percentages) |
||||||||||||||||||||||||||||
|
Revenue |
88,518 | 18,767 | 107,285 | 128,893 | 172,276 | 79,274 | 111,568 | |||||||||||||||||||||
|
Other income |
— | — | — | 5,460 | — | — | — | |||||||||||||||||||||
|
Operating expenses: |
||||||||||||||||||||||||||||
|
Cost of revenue |
(638 | ) | (469 | ) | (1,107 | ) | (1,303 | ) | (13,316 | ) | (2,079 | ) | (17,883 | ) | ||||||||||||||
|
Personnel expenses including share-based remuneration |
(35,493 | ) | (5,972 | ) | (41,465 | ) | (44,315 | ) | (40,968 | ) | (20,466 | ) | (26,685 | ) | ||||||||||||||
|
Marketing and distribution expenses |
— | — | — | — | — | (15,176 | ) | (35,770 | ) | |||||||||||||||||||
|
Credit loss expense |
— | — | — | — | — | 329 | (7,633 | ) | ||||||||||||||||||||
|
Depreciation and amortization |
(9,586 | ) | (3,082 | ) | (16,712 | ) | (16,604 | ) | (12,694 | ) | (6,766 | ) | (8,423 | ) | ||||||||||||||
|
Other expenses |
(42,486 | ) | (19,032 | ) | (55,418 | ) | (58,652 | ) | (59,997 | ) | (14,871 | ) | (13,990 | ) | ||||||||||||||
|
Restructuring costs |
(3,911 | ) | — | (3,911 | ) | (3,240 | ) | — | — | — | ||||||||||||||||||
|
Total operating expenses |
(92,113 | ) | (28,555 | ) | (118,613 | ) | (124,114 | ) | (126,975 | ) | (59.029 | ) | (110,303 | ) | ||||||||||||||
|
Operating profit (loss) |
(3,595 | ) | (9,788 | ) | (11,328 | ) | 10,239 | 45,301 | 20,245 | 1,265 | ||||||||||||||||||
|
Share of net income (loss) of associates and joint ventures |
(2,664 | ) | (237 | ) | (2,901 | ) | (1,670 | ) | (3,248 | ) | (1,624 | ) | 2,957 | |||||||||||||||
|
Net finance income (expense): |
||||||||||||||||||||||||||||
|
Finance income |
— | 37 | 37 | 1,054 | 1,637 | 198 | 3,359 | |||||||||||||||||||||
|
Finance expense |
(1,378 | ) | (24 | ) | (1,402 | ) | (238 | ) | (1,695 | ) | (77 | ) | (326 | ) | ||||||||||||||
|
Net foreign exchange gain (loss) |
(1,212 | ) | 212 | (1,000 | ) | (1,881 | ) | (354 | ) | 112 | (154 | ) | ||||||||||||||||
|
Net finance income (loss) |
(2,590 | ) | 225 | (2,365 | ) | (1,065 | ) | (412 | ) | 233 | 2,879 | |||||||||||||||||
|
Net income (loss) before income taxes |
(8,849 | ) | (9,800 | ) | (16,594 | ) | 7,504 | 41,641 | 18,854 | 7,100 | ||||||||||||||||||
|
Income tax (expense) benefit |
743 | 2,096 | 3,850 | (1,440 | ) | (6,481 | ) | (4,824 | ) | 703 | ||||||||||||||||||
|
Net income (loss) |
(8,106 | ) | (7,704 | ) | (12,744 | ) | 6,064 | 35,160 | 14,030 | 7,803 | ||||||||||||||||||
|
Basic and diluted income (loss) per share |
||||||||||||||||||||||||||||
|
Basic, US$ |
(0.04 | ) | (0.04 | ) | (0.07 | ) | 0.03 | 0.17 | 0.07 | 0.04 | ||||||||||||||||||
|
Diluted, US$ |
(0.04 | ) | (0.04 | ) | (0.07 | ) | 0.03 | 0.17 | 0.07 | 0.04 | ||||||||||||||||||
|
Basic and diluted income (loss) per ADS |
||||||||||||||||||||||||||||
|
Basic, US$ |
(0.09 | ) | (0.08 | ) | (0.13 | ) | 0.06 | 0.34 | 0.15 | 0.07 | ||||||||||||||||||
|
Diluted, US$ |
(0.09 | ) | (0.08 | ) | (0.13 | ) | 0.06 | 0.34 | 0.14 | 0.07 | ||||||||||||||||||
|
Non-IFRS Financial Measures |
||||||||||||||||||||||||||||
|
Adjusted EBITDA (2) |
10,816 | (6,706 | ) | 10,210 | 34,119 | 65,794 | 31,788 | 12,657 | ||||||||||||||||||||
|
Adjusted net income (loss) (2) |
(7,229 | ) | (8,264 | ) | (9,226 | ) | 17,796 | 46,136 | 20,653 | 12,609 | ||||||||||||||||||
|
(1) |
Including pro form adjustments. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Unaudited Pro Forma Consolidated Financial Information” in our 2018 Annual Report. |
|
(2) |
To see how we define and calculate adjusted EBITDA and adjusted net income (loss), a reconciliation between adjusted EBITDA and net income (loss), and adjusted net income (loss) and net income (loss) (for each, the most directly comparable IFRS financial measures) and a discussion about the limitations of non-IFRS financial measures, see “—Non-IFRS Financial Measures.” |
|
(3) |
Effective January 1, 2018, the Group adopted IFRS 9 and IFRS 15. The impact of adopting these standards is described in Note 3 to our consolidated financial statements included in our 2018 Annual Report. |
Summary Consolidated Statement of Financial Position
| As of December 31, | As of June | |||||||||||||||
| 2016 | 2017 | 2018 | 30, 2019 | |||||||||||||
|
|
(US$ in thousands) | |||||||||||||||
| Selected Consolidated Statement of Financial Position Data: | ||||||||||||||||
|
Total non-current assets |
561,511 | 561,989 | 587,213 | 610,140 | ||||||||||||
|
Intangible assets |
124,536 | 118,620 | 115,444 | 113,507 | ||||||||||||
|
Investments in associates and joint ventures |
1,043 | 5,517 | 35,060 | 44,290 | ||||||||||||
|
Total current assets |
78,967 | 74,311 | 238,090 | 242,194 | ||||||||||||
|
Cash and cash equivalents |
34,181 | 33,207 | 177,873 | 134,155 | ||||||||||||
|
Total assets |
640,479 | 636,300 | 825,303 | 852,333 | ||||||||||||
|
Total equity |
568,197 | 583,503 | 775,460 | 779,642 | ||||||||||||
|
Total non-current liabilities |
19,010 | 15,947 | 15,841 | 24,006 | ||||||||||||
|
Total current liabilities |
53,272 | 36,850 | 34,002 | 48,685 | ||||||||||||
|
Total liabilities |
72,282 | 52,797 | 49,843 | 72,691 | ||||||||||||
|
Total equity and liabilities |
640,479 | 636,300 | 825,303 | 852,333 | ||||||||||||
Non-IFRS Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with IFRS, we use adjusted EBITDA and adjusted net income (loss), both non-IFRS financial measures, as described below, to understand and evaluate our core operating performance. These non-IFRS financial measures, which may differ from similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with IFRS.
We define adjusted EBITDA as net income (loss) excluding income tax expense (benefit), total net financial loss (income), share of net loss (income) of associates and joint ventures, restructuring costs, depreciation and amortization, share-based remuneration and expensed costs related to our recent initial public offering, less other income. We define adjusted net income (loss) as net income (loss) excluding share-based remuneration, amortization cost related to acquired intangible assets, and expensed costs related to our recent initial public offering, adjusted for the associated tax benefit related to such items. We believe that adjusted EBITDA and adjusted net income (loss) provide useful information to investors and others in understanding and evaluating our operating results. These non-IFRS financial measures adjust for the impact of items that we do not consider indicative of the operational performance of our business. While we believe that these non-IFRS financial measures are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for the related financial information prepared and presented in accordance with IFRS.
The following table presents reconciliations of adjusted EBITDA and adjusted net income (loss) to net income (loss), the most directly comparable IFRS financial measures, for the periods indicated.
| 2016 | ||||||||||||||||||||||||||||
|
Predecessor for the period |
Successor Group from |
Unaudited pro forma consolidated |
Successor Group for the year ended December 31, |
Successor Group for the six months ended June 30, |
||||||||||||||||||||||||
|
from January 1, 2016 to November 3, 2016 |
inception on July 26, 2016 to December 31, 2016 |
Group for the year ended December 31, 2016 (1) |
2017 |
2018(5) | 2018 | 2019 | ||||||||||||||||||||||
|
(US$ in thousands) |
||||||||||||||||||||||||||||
|
Reconciliation of net income (loss) to adjusted EBITDA: |
||||||||||||||||||||||||||||
|
Net income (loss) |
(8,106 | ) | (7,704 | ) | (12,744 | ) | 6,064 | 35,160 | 14,030 | 7,803 | ||||||||||||||||||
|
Add: Income tax expense (benefit) |
(743 | ) | (2,096 | ) | (3,850 | ) | 1,440 | 6,481 | 4,824 | (703 | ) | |||||||||||||||||
|
Add: Total net financial loss (income) |
2,590 | (225 | ) | 2,365 | 1,065 | 412 | (233 | ) | (2,879 | ) | ||||||||||||||||||
|
Add: Share of net loss (income) of associates and joint ventures |
2,664 | 237 | 2,901 | 1,670 | 3,248 | 1,624 | (2,957 | ) | ||||||||||||||||||||
|
Add: Restructuring costs (2) |
3,911 | — | 3,911 | 3,240 | — | — | — | |||||||||||||||||||||
|
Add: Depreciation and amortization |
9,586 | 3,082 | 16,712 | 16,604 | 12,694 | 6,766 | 8,423 | |||||||||||||||||||||
|
Add: Share-based remuneration |
914 | — | 914 | 9,496 | 4,846 | 2,667 | 2,970 | |||||||||||||||||||||
|
Add: Expensed IPO related costs |
2,952 | 2,110 | — | |||||||||||||||||||||||||
|
Less: Other income (3) |
— | — | — | (5,460 | ) | — | — | — | ||||||||||||||||||||
|
Adjusted EBITDA |
10,816 | (6,706 | ) | 10,210 | 34,119 | 65,794 | 31,788 | 12,657 | ||||||||||||||||||||
|
Reconciliation of net income (loss) to adjusted net income |
||||||||||||||||||||||||||||
|
Net income (loss) |
(8,106 | ) | (7,704 | ) | (12,744 | ) | 6,064 | 35,160 | 14,030 | 7,803 | ||||||||||||||||||
|
Add: Share-based remuneration |
914 | — | 914 | 9,496 | 4,846 | 2,667 | 2,970 | |||||||||||||||||||||
|
Add: Opera acquisition amortization |
— | 853 | 5,120 | 5,120 | 5,120 | 2,560 | 2,560 | |||||||||||||||||||||
|
Add: Expensed IPO related costs |
— | — | — | — | 2,952 | 2,110 | - | |||||||||||||||||||||
|
Income tax adjustment (4) |
(37 | ) | (1,413 | ) | (2,516 | ) | (2,884 | ) | (1,943 | ) | (713 | ) | (724 | ) | ||||||||||||||
|
Adjusted net income (loss) |
(7,229 | ) | (8,264 | ) | (9,226 | ) | 17,796 | 46,136 | 20,653 | 12,609 | ||||||||||||||||||
|
(1) |
Including pro form adjustments. See “——Unaudited Pro Forma Consolidated Financial Information” in our 2018 Annual Report. |
|
(2) |
Restructuring costs in 2016 and 2017 mainly consist of severance payments to former employees and reductions of office space, with certain associated legal fees. Such costs are not recurring in nature. |
|
(3) |
Other income in 2017 was related to a sale of intellectual property and related costs, and not related to our ordinary business activities. |
|
(4) |
Reversal of the income tax benefit related to the social security cost component of share-based remuneration, deferred taxes on the amortization of acquired intangible assets and expensed IPO related costs. |
|
(5) |
Effective January 1, 2018, the Group adopted IFRS 9 and IFRS 15. The impact of adopting these standards is described in Note 3 to our consolidated financial statements included in our 2018 Annual Report. |
Management’s Discussion & Analysis of Financial Condition and Results of Operation
Results of Operations
The following table sets forth a summary, for the periods indicated, of our consolidated results of operations and each item expressed as a percentage of our total revenue. The summary consolidated results of operations for the six months ended June 30, 2018 and 2019 have been derived from our unaudited condensed interim consolidated financial statements included elsewhere in this prospectus supplement. This information should be read together with the financial statements and related notes. Our historical results presented below are not necessarily indicative of the results that may be expected for any future period.
|
Six months ended June 30, |
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|
2018 |
2019 |
|||||||||||||||
|
US$ |
% |
US$ |
% |
|||||||||||||
|
(US$ in thousands, except for share, per share, per ADS and percentages) |
||||||||||||||||
|
Revenue |
||||||||||||||||
|
Search |
39,985 | 50.4 | 41,987 | 37.6 | ||||||||||||
|
Advertising |
26,634 | 33.6 | 30,300 | 27.2 | ||||||||||||
|
Fintech |
- | - | 16,608 | 14.9 | ||||||||||||
|
Retail |
- | - | 14,465 | 13.0 | ||||||||||||
|
Technology licensing and other revenue |
12,655 | 16.0 | 8,208 | 7.4 | ||||||||||||
|
Total revenue |
79,274 | 100.0 | 111,568 | 100.0 | ||||||||||||
|
Operating expenses |
||||||||||||||||
|
Cost of revenue |
(2,079 | ) | (2.6 | ) | (17,883 | ) | (16.0 | ) | ||||||||
|
Personnel expenses including share-based remuneration |
(20,466 | ) | (25.8 | ) | (26,685 | ) | (23.9 | ) | ||||||||
|
Marketing and distribution expenses |
(15,176 | ) | (19.1 | ) | (35,770 | ) | (32.1 | ) | ||||||||
|
Credit loss expense |
329 | 0.4 | (7,633 | ) | (6.8 | ) | ||||||||||
|
Depreciation and amortization |
(6,766 | ) | (8.5 | ) | (8,423 | ) | (7.5 | ) | ||||||||
|
Other expenses |
(14,871 | ) | (18.8 | ) | (13,909 | ) | (12.5 | ) | ||||||||
|
Total operating expenses |
(59,029 | ) | (74.5 | ) | (110,303 | ) | (98.9 | ) | ||||||||
|
Operating profit (loss) |
20,245 | 25.5 | 1,265 | 1.1 | ||||||||||||
|
Share of net income (loss) of associates and joint ventures |
(1,624 | ) | (2.0 | ) | 2,957 | 2.7 | ||||||||||
|
Net finance income (expense) |
||||||||||||||||
|
Finance income |
198 | 0.2 | 3,359 | 3.0 | ||||||||||||
|
Finance expense |
(77 | ) | (0.1 | ) | (326 | ) | (0.3 | ) | ||||||||
|
Net foreign exchange gain (loss) |
112 | 0.1 | (154 | ) | (0.1 | ) | ||||||||||
|
Net finance income (loss) |
233 | 0.3 | 2,879 | 2.6 | ||||||||||||
|
Net income (loss) before income taxes |
18,854 | 23.8 | 7,100 | 6.4 | ||||||||||||
|
Income tax (expense) benefit |
(4,824 | ) | (6.1 | ) | 703 | 0.6 | ||||||||||
|
Net income (loss) |
14,030 | 17.7 | 7,803 | 7.0 | ||||||||||||
|
Net income (loss) attributable to |
||||||||||||||||
|
Equity holders of the parent |
14,030 | 17.7 | 7,803 | 7.0 | ||||||||||||
|
Non-controlling interests |
- | - | - | - | ||||||||||||
|
Total net income (loss) attributed |
14,030 | 17.7 | 7,803 | 7.0 | ||||||||||||
|
Weighted average number of ordinary shares outstanding |
||||||||||||||||
|
Basic, millions |
190.25 | 219.68 | ||||||||||||||
|
Diluted, millions |
195.98 | 224.31 | ||||||||||||||
|
Net income (loss) per ordinary share |
||||||||||||||||
|
Basic, US$ |
0.07 | 0.04 | ||||||||||||||
|
Diluted, US$ |
0.07 | 0.04 | ||||||||||||||
|
Net income (loss) per ADS |
||||||||||||||||
|
Basic, US$ |
0.15 | 0.07 | ||||||||||||||
|
Diluted, US$ |
0.14 | 0.07 | ||||||||||||||
Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
Revenue increased to US$111.6 million in the six months ended June 30, 2019 from US$79.3 million in the same period in 2018, representing an increase of 40.7%.
|
• |
Search revenue increased to US$42.0 million in first half of 2019, from US$40.0 million in the same period in 2018, representing an increase of 5.0% primarily due to search optimization and PC browser growth. |
|
• |
Advertising revenue increased to US$30.3 million from US$26.6 million in the same period in 2018, representing an increase of 13.8%, primarily due to growth in both smartphone and desktop users, and benefiting from direct advertiser campaigns, including following the launch of Opera Ads. |
|
• |
Fintech revenue was US$16.6 million, with no comparable revenue during the first half of 2018. Revenue was generated from our microfinance business, mainly in Kenya as well as from the mid-period launch in India. |
|
• |
Retail revenue was US$14.5 million, with no comparable revenue during the first half of 2018. This revenue came from our airtime, data and handsets sales. |
|
• |
Technology licensing and other revenue was US$8.2 million, compared to US$12.7 million during the first half of 2018, representing a decrease of 35.1%. We expect this revenue category will continue to decline over time as we focus our business on more scalable revenue streams. |
Operating expenses increased to US$110.3 million in the six months ended June 30, 2019 from US$59.0 million in the same period in 2018, representing an increase of 86.9%.
|
• |
Cost of revenue was US$17.9 million in the first half of 2019, compared to US$2.1 million in the first half of 2018. Within this total, US$14.4 million related to our retail business, US$2.3 million related to microfinance and US$1.2 million related to our browsers and Opera News. |
|
• |
Personnel expenses, including share-based remuneration, were US$26.7 million, a 30.4% increase versus US$20.5 million during the same period in 2018. This expense consists of cash-based compensation expenses of US$23.7 million, a 33.2% increase, driven primarily by increased headcount related to investee support, Opera News, Opera Ads, microfinance and other growth initiatives, and US$3.0 million of share-based remuneration expense. |
|
• |
Marketing and distribution expenses were US$35.8 million, an increase of 135.7% versus US$15.2 million during the same period in 2018, following our previously announced efforts to further invest in accelerating our growth in 2019. Browsers and Opera News represented 97.5% of the total, or US$34.9 million, whereas the remaining US$0.9 million related to the promotion of our microfinance services. |
|
• |
Credit loss expense was US$7.6 million in the first half of 2019, of which US$7.1 million related to our microfinance business and US$0.5 million related to our browsers and Opera News. This compares to a gain of US$0.3 million from provision reversals in the first half of 2018, solely related to our browsers and Opera News. |
|
• |
Depreciation and amortization expenses were US$8.4 million, representing a 24.5% increase from US$6.8 million in the first half of 2018. The increase is largely the result of the adoption of IFRS 16 on January 1, 2019. |
|
• |
Other expenses were US$13.9 million, a 6.5% decrease compared to US$14.9 million the first half of 2018. |
Operating profit was US$1.3 million in the six months ended June 30, 2019, representing an operating margin of 1.1%, compared to US$20.3 million and a 25.5% margin. The decline was largely due to the increased investment in marketing and distribution activities in the period and increased headcount associated with our growth initiatives.
Share of net income of associates and joint ventures amounted to US$3.0 million in the six months ended June 30, 2019, including a non-cash gain related to the fair value of our preferred shares in OPay, following the increased valuation in connection with a round of funding that took place in the period.
Income tax benefit was US$0.7 million in the six months ended June 30, 2019, compared to an expense of US$4.8 million in the first half of 2018. The reduced tax cost is mainly driven by the lower operating profit in the first half of 2019 compared to the same period in 2018.
Net income was US$7.8 million in the six months ended June 30, 2019, compared to US$14.0 million in the first half of 2018.
Net income per ADS was US$0.07 in the six months ended June 30, 2019, and US$0.07 on a diluted basis. In the period, the average number of shares outstanding was 219.7 million, corresponding to 109.8 million ADSs.
Adjusted EBITDA was US$12.7 million in the six months ended June 30, 2019, representing an 11.3% adjusted EBITDA margin, compared to US$31.8 million and 40.1% in the first half of 2018. Adjusted EBITDA excludes share-based remuneration and expensed costs related to our 2018 initial public offering. See "Summary Consolidated Financial and Operating Data--Non-IFRS Financial Measures."
Adjusted Net Income was US$12.6 million in the six months ended June 30, 2019, representing a 11.3% adjusted net margin compared to US$20.7 million and 26.1% in the first half of 2018. Adjusted net income excludes share-based remuneration, amortization of intangible assets related to acquisitions (all of which relates to the Opera privatization in 2016), and expensed costs related to our 2018 initial public offering. Adjusted net income further includes partially offsetting reversals of the tax impacts of the foregoing adjustments. See "Summary Consolidated Financial and Operating Data--Non-IFRS Financial Measures."
Contribution Margin by Segment
Our operating segments are based on our main categories of products and services, namely Browser and News, Fintech, Retail and Other. The following table presents contribution for these segments, which represents revenue from the segment, less the sum of (i) cost of revenue, (ii) marketing and distribution expense and (iii) credit loss expense attributed to that segment, as wells as each item expressed as a percentage of the segment revenue during the periods indicated. Because contributions from both the Fintech and Retail segments were immaterial during 2017 and 2018, we have not provided revisions reflecting these operating segments to the financial information for those historical periods.
|
Six months ended June 30, |
||||||||||||||||
|
2018 |
2019 |
|||||||||||||||
|
US$ |
% |
US$ |
% |
|||||||||||||
|
(US$ in thousands, except for percentages) |
||||||||||||||||
|
Browser and News |
||||||||||||||||
|
Revenue |
66,619 | 100.0 | 72,287 | 100.0 | ||||||||||||
|
Cost of revenue |
(2,079 | ) | (3.1 | ) | (1,213 | ) | (1.7 | ) | ||||||||
|
Marketing and distribution expenses |
(15,176 | ) | (22.8 | ) | (34,899 | ) | (48.3 | ) | ||||||||
|
Credit loss expense |
329 | 0.5 | (545 | ) | (0.8 | ) | ||||||||||
|
Contribution |
49,693 | 74.6 | 35,630 | 49.3 | ||||||||||||
Browser and News contributed US$35.6 in the six months ended June 30, 2019, corresponding to 49.3% of revenue and comparing to US$49.7 million or 74.6% of revenue in the same period in 2018. While the segment revenue increased by US$5.7 million, this was offset by the effect of our strategic investments in additional marketing and distribution (increasing by US$19.7 million).
|
Six months ended June 30, |
||||||||||||||||
|
2018 |
2019 |
|||||||||||||||
|
US$ |
% |
US$ |
% |
|||||||||||||
|
(US$ in thousands, except for percentages) |
||||||||||||||||
|
Fintech |
||||||||||||||||
|
Revenue |
- | - | 16,608 | 100.0 | ||||||||||||
|
Cost of revenue |
- | - | (2.261 | ) | (13.6 | ) | ||||||||||
|
Marketing and distribution expenses |
- | - | (871 | ) | (5.2 | ) | ||||||||||
|
Credit loss expense |
- | - | (7,088 | ) | (42.7 | ) | ||||||||||
|
Contribution |
- | - | 6,388 | 38.5 | ||||||||||||
Fintech contributed US$6.4 million in the six months ended June 30, 2019, or 38.5% of revenue. This business did not exist in the comparable 2018 period.
|
Six months ended June 30, |
||||||||||||||||
|
2018 |
2019 |
|||||||||||||||
|
US$ |
% |
US$ |
% |
|||||||||||||
|
(US$ in thousands, except for percentages) |
||||||||||||||||
|
Retail |
||||||||||||||||
|
Revenue |
- | - | 14,465 | 100.0 | ||||||||||||
|
Cost of revenue |
- | - | (14.409 | ) | (99.6 | ) | ||||||||||
|
Marketing and distribution expenses |
- | - | - | - | ||||||||||||
|
Credit loss expense |
- | - | - | - | ||||||||||||
|
Contribution |
- | - | 56 | 0.4 | ||||||||||||
Retail contributed US$56 thousand in the six months ended June 30, 2019, or 0.4% of revenue. We expect to continue operating this segment near break-even contribution prior to potentially exploring a wider retail opportunity. This business did not exist in the comparable 2018 period.
|
US$ |
% |
US$ |
% |
|||||||||||||
|
(US$ in thousands, except for percentages) |
||||||||||||||||
|
Other |
||||||||||||||||
|
Revenue |
12,655 | 100.0 | 8,208 | 100.0 | ||||||||||||
|
Cost of revenue |
- | - | - | - | ||||||||||||
|
Marketing and distribution expenses |
- | - | - | - | ||||||||||||
|
Credit loss expense |
- | - | - | - | ||||||||||||
|
Contribution |
12,655 | 100.0 | 8,208 | 100.0 | ||||||||||||
The Other segment, which includes licensing of our proprietary technology, including related maintenance, support and hosting services, professional services, and customized browser configurations to mobile operators, contributed US$8.2 million in the six months ended June 30, 2019, or 100% of revenue, comparing to US$12.7 million or 100% of revenue in the same period in 2018.
Cash Flows and Working Capital
The following table sets forth a summary of our cash flows for the periods indicated:
|
Six months ended June 30, |
||||||||
|
2018 |
2019 |
|||||||
|
(US$ in thousands) |
||||||||
|
Net income (loss) before income taxes |
18,854 | 7,100 | ||||||
|
Income taxes paid |
(1,877 | ) | (617 | ) | ||||
|
Depreciation and amortization |
6,766 | 8,423 | ||||||
|
Share of net loss (income) of associates and joint ventures |
1,624 | (2,957 | ) | |||||
|
Share-based payment expense |
2,916 | 2,238 | ||||||
|
Net finance (income) expense |
(233 | ) | (2,879 | ) | ||||
|
Change in trade and other receivables |
(9,467 | ) | (3,365 | ) | ||||
|
Change in loans to customers |
(164 | ) | (19,163 | ) | ||||
|
Change in trade and other payables |
(242 | ) | 14,217 | |||||
|
Change in deferred revenue |
711 | (714 | ) | |||||
|
Change in prepayments |
(874 | ) | (9,662 | ) | ||||
|
Change in other liabilities |
(1,470 | ) | (2,135 | ) | ||||
|
Other |
(1,650 | ) | 2,594 | |||||
|
Net cash flow from (used in) operating activities |
14,893 | (6,920 | ) | |||||
|
Cash flow from investment activities |
||||||||
|
Purchase of equipment |
(2,023 | ) | (4,565 | ) | ||||
|
Release of escrow account |
2,508 | — | ||||||
|
Receipt of contingent consideration |
2,945 | — | ||||||
|
Disbursement of short-term loans |
(1,203 | ) | — | |||||
|
Investment in, and loans to associates and joint ventures |
(1,398 | ) | (6,758 | ) | ||||
|
Net proceeds from sale and purchase of listed equity instruments |
— | (14,049 | ) | |||||
|
Development expenditure |
(2,116 | ) | (2,111 | ) | ||||
|
Net cash flow from (used in) investment activities |
(1,287 | ) | (27,483 | ) | ||||
|
Cash flow from financing activities |
||||||||
|
Acquisition of treasury shares |
— | (5,780 | ) | |||||
|
Repayment of loans and borrowings |
(974 | ) | (900 | ) | ||||
|
Payment of lease liabilities |
(1,372 | ) | (2,485 | ) | ||||
|
Net cash flow from (used in) financing activities |
(2,346 | ) | (9,165 | ) | ||||
|
Net change in cash and cash equivalents |
11,260 | (43,568 | ) | |||||
|
Cash and cash equivalents at beginning of period |
33,207 | 177,873 | ||||||
|
Net foreign exchange difference |
(474 | ) | (149 | ) | ||||
|
Cash and cash equivalents at end of period |
43,993 | 134,155 | ||||||
Operating Activities
Net cash used in operating activities was a US$6.9 million in the first half of 2019, compared to cash from operating activities of US$14.9 million in the first half of 2018. The net cash used in operating activities in the first half of 2019 was primarily due to an increase in loans to customers of US$19.2 million following the rapid growth of our microfinance business, as well as a change in prepayments of US$9.7 million following an agreement in which one of our distribution partners has accepted the financial risks related to the retention of acquired new users. These effects were partially offset by a change in trade and other payables of US$14.2 million in the first half of 2019 relating to our increased investment in marketing and distribution in the six months ended June 30, 2019.
Investing Activities
Net cash used in investing activities was US$27.5 million in the first half of 2019 compared to US$1.3 million in the first half of 2018. This included purchases of listed equity instruments of US$14.0 million, as well as investments in, and loans to joint ventures of US$6.8 million, which included a US$4.6 million cash impact resulting from our participation in OPay’s latest funding round (the remainder of the US$12.1 million investment was a conversion of loan to equity). Net cash used in investing activities also included US$4.6 million in purchase of equipment, predominantly servers supporting our suite of products, and US$2.1 million in capitalized development cost.
Financing Activities
Net cash used in financing activities was US$9.2 million in the first half of 2019, compared to US$2.3 million in the first half of 2018 which was attributable to the acquisition of treasury shares of US$5.8 million, as well as lease payments and the repayment of loans and borrowings relating to our hosting infrastructure totaling of US$3.4 million.
Exhibit 99.2
INDEX TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2019 | F-2 |
| UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) FOR THE SIX MONTHS ENDED JUNE 30, 2019 | F-3 |
| UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF JUNE 30, 2019 | F-4 |
| UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2019 | F-5 |
| UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2019 | F-6 |
| NOTES | F-7 |
OPERA LIMITED
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
|
Six months ended June 30, |
|||||||||||
|
[US$ thousands, except per share and ADS amounts] |
Notes |
2018 |
2019 |
||||||||
|
Revenue |
3, 4 | 79,274 | 111,568 | ||||||||
|
Operating expenses |
|||||||||||
|
Cost of revenue |
3 | (2,079 | ) | (17,883 | ) | ||||||
|
Personnel expenses including share-based remuneration |
5 | (20,466 | ) | (26,685 | ) | ||||||
|
Marketing and distribution expenses |
3 | (15,176 | ) | (35,770 | ) | ||||||
|
Credit loss expense |
3, 4 | 329 | (7,633 | ) | |||||||
|
Depreciation and amortization |
(6,766 | ) | (8,423 | ) | |||||||
|
Other expenses |
6 | (14,871 | ) | (13,909 | ) | ||||||
|
Total operating expenses |
(59,029 | ) | (110,303 | ) | |||||||
|
Operating profit (loss) |
20,245 | 1,265 | |||||||||
|
Share of net income (loss) of associates and joint ventures |
7 | (1,624 | ) | 2,957 | |||||||
|
Net finance income (expense) |
|||||||||||
|
Finance income |
198 | 3,359 | |||||||||
|
Finance expense |
(77 | ) | (326 | ) | |||||||
|
Net foreign exchange gain (loss) |
112 | (154 | ) | ||||||||
|
Net finance income (expense) |
233 | 2,879 | |||||||||
|
Net income (loss) before income taxes |
18,854 | 7,100 | |||||||||
|
Income tax (expense) benefit |
11 | (4,824 | ) | 703 | |||||||
|
Net income (loss) |
14,030 | 7,803 | |||||||||
|
Net income (loss) attributable to: |
|||||||||||
|
Equity holders of the parent |
14,030 | 7,803 | |||||||||
|
Non-controlling interests |
- | - | |||||||||
|
Total net income (loss) attributed |
14,030 | 7,803 | |||||||||
|
Weighted average number of ordinary shares outstanding |
|||||||||||
|
Basic, millions |
1 | 190.25 | 219.68 | ||||||||
|
Diluted, millions |
195.98 | 224.31 | |||||||||
|
Net income (loss) per ordinary share |
|||||||||||
|
Basic, US$ |
0.07 | 0.04 | |||||||||
|
Diluted, US$ |
0.07 | 0.04 | |||||||||
|
Net income (loss) per ADS |
|||||||||||
|
Basic, US$ |
0.15 | 0.07 | |||||||||
|
Diluted, US$ |
0.14 | 0.07 | |||||||||
|
The accompanying notes are an integral part of these financial statements. |
OPERA LIMITED
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
| Six months ended June 30, | |||||||||||
|
[US$ thousands] |
Notes |
2018 |
2019 |
||||||||
|
Net income (loss) |
14,030 | 7,803 | |||||||||
|
Other comprehensive income (loss) that may be reclassified to Statement of Operations in subsequent periods (net of tax) |
|||||||||||
|
Exchange differences on translation of foreign operations |
(1,096 | ) | (96 | ) | |||||||
|
Reclassification of exchange differences on loss of control |
(138 | ) | (7 | ) | |||||||
|
Share of other comprehensive income (loss) of associates and joint ventures |
- | (41 | ) | ||||||||
|
Net other comprehensive income (loss) that may be reclassified to the Statement of Operations in subsequent periods |
(1,234 | ) | (144 | ) | |||||||
|
Total comprehensive income (loss) |
12,796 | 7,659 | |||||||||
|
Total comprehensive income (loss) attributable to: |
|||||||||||
|
Equity holders of the parent |
12,796 | 7,659 | |||||||||
|
Non-controlling interests |
- | - | |||||||||
|
Total comprehensive income (loss) attributed |
12,796 | 7,659 | |||||||||
|
The accompanying notes are an integral part of these financial statements. |
OPERA LIMITED
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
|
[US$ thousands] |
Notes |
As of December 31, 2018 |
As of June 30, 2019 |
||||||||
|
ASSETS |
|||||||||||
|
Non-current assets |
|||||||||||
|
Furniture, fixtures and equipment |
2 | 12,162 | 27,362 | ||||||||
|
Intangible assets |
115,444 | 113,507 | |||||||||
|
Goodwill |
421,578 | 421,578 | |||||||||
|
Investments in associates and joint ventures |
7, 8 | 35,060 | 44,290 | ||||||||
|
Non-current financial assets |
8 | 2,025 | 2,727 | ||||||||
|
Deferred tax assets |
11 | 944 | 676 | ||||||||
|
Total non-current assets |
587,213 | 610,140 | |||||||||
|
Current assets |
|||||||||||
|
Trade receivables |
8 | 37,468 | 40,963 | ||||||||
|
Loans to customers |
3, 8 | 3,092 | 22,255 | ||||||||
|
Other receivables |
8 | 4,031 | 3,901 | ||||||||
|
Prepayments |
10 | 14,372 | 24,034 | ||||||||
|
Other current financial assets |
8 | 1,254 | 16,886 | ||||||||
|
Cash and cash equivalents |
177,873 | 134,155 | |||||||||
|
Total current assets |
238,090 | 242,194 | |||||||||
|
TOTAL ASSETS |
825,303 | 852,333 | |||||||||
|
EQUITY AND LIABILITIES |
|||||||||||
|
Equity |
|||||||||||
|
Share capital |
22 | 22 | |||||||||
|
Other paid in capital |
738,690 | 732,910 | |||||||||
|
Retained earnings |
36,432 | 46,538 | |||||||||
|
Foreign currency translation reserve |
316 | 172 | |||||||||
|
Equity attributed to equity holders of the parent |
775,460 | 779,642 | |||||||||
|
Non-controlling interests |
- | - | |||||||||
|
Total equity |
775,460 | 779,642 | |||||||||
|
Non-current liabilities |
|||||||||||
|
Non-current lease liabilities and other loans |
2, 8 | 2,271 | 10,053 | ||||||||
|
Deferred tax liabilities |
11 | 13,358 | 13,756 | ||||||||
|
Other non-current liabilities |
8 | 212 | 197 | ||||||||
|
Total non-current liabilities |
15,841 | 24,006 | |||||||||
|
Current liabilities |
|||||||||||
|
Trade and other payables |
8 | 17,957 | 32,174 | ||||||||
|
Current lease liabilities and other loans |
2, 8 | 2,490 | 6,988 | ||||||||
|
Income tax payable |
11 | 1,920 | 724 | ||||||||
|
Deferred revenue |
1,932 | 1,218 | |||||||||
|
Other current liabilities |
2, 8 | 9,701 | 7,581 | ||||||||
|
Total current liabilities |
34,002 | 48,685 | |||||||||
|
Total liabilities |
49,843 | 72,691 | |||||||||
|
TOTAL EQUITY AND LIABILITIES |
825,303 | 852,333 | |||||||||
|
The accompanying notes are an integral part of these financial statements. |
OPERA LIMITED
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
|
[US$ thousands] |
Share capital* |
Other paid in capital* |
Retained Earnings |
Foreign currency translation reserve |
Total Equity |
|||||||||||||||
|
As of December 31, 2017 |
19 | 576,512 | 5,366 | 1,605 | 583,502 | |||||||||||||||
|
Adjustment on initial application of IFRS 9 and IFRS 15 |
- | - | (629 | ) | - | (629 | ) | |||||||||||||
|
As of January 1, 2018, restated |
19 | 576,512 | 4,737 | 1,605 | 582,873 | |||||||||||||||
|
Net income (loss) |
- | - | 14,030 | - | 14,030 | |||||||||||||||
|
Other comprehensive income (loss) |
- | - | - | (1,234 | ) | (1,234 | ) | |||||||||||||
|
Total comprehensive income (loss) |
- | - | 14,030 | (1,234 | ) | 12,796 | ||||||||||||||
|
Share-based remuneration expense |
- | - | 2,916 | - | 2,916 | |||||||||||||||
|
As of June 30, 2018 |
19 | 576,512 | 21,683 | 371 | 598,585 | |||||||||||||||
|
[US$ thousands] |
Share capital* |
Other paid in capital* |
Retained Earnings |
Foreign currency translation reserve |
Total Equity |
|||||||||||||||
|
As of December 31, 2018 |
22 | 738,690 | 36,432 | 316 | 775,460 | |||||||||||||||
|
Adjustment on initial application of IFRS 16 |
- | - | 64 | - | 64 | |||||||||||||||
|
As of January 1, 2019, restated |
22 | 738,690 | 36,496 | 316 | 775,524 | |||||||||||||||
|
Net income (loss) |
- | - | 7,803 | - | 7,803 | |||||||||||||||
|
Other comprehensive income (loss) |
- | - | - | (144 | ) | (144 | ) | |||||||||||||
|
Total comprehensive income (loss) |
- | - | 7,803 | (144 | ) | 7,659 | ||||||||||||||
|
Acquisition of treasury shares |
- | (5,780 | ) | - | - | (5,780 | ) | |||||||||||||
|
Share-based remuneration expense |
- | - | 2,238 | - | 2,238 | |||||||||||||||
|
As of June 30, 2019 |
22 | 732,910 | 46,537 | 172 | 779,642 | |||||||||||||||
|
* The amounts of share capital and other paid-in capital have been amended by reclassifying amounts between the two equity components. |
|
The accompanying notes are an integral part of these financial statements. |
OPERA LIMITED
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
| Six months ended June 30, | |||||||||||
|
[US$ thousands] |
Notes |
2018 |
2019 |
||||||||
|
Net income (loss) before income taxes |
18,854 | 7,100 | |||||||||
|
Income taxes paid |
(1,877 | ) | (617 | ) | |||||||
|
Depreciation and amortization |
6,766 | 8,423 | |||||||||
|
Share of net loss (income) of associates and joint ventures |
7 | 1,624 | (2,957 | ) | |||||||
|
Share-based payment expense |
5 | 2,916 | 2,238 | ||||||||
|
Net finance (income) expense |
(233 | ) | (2,879 | ) | |||||||
|
Change in trade and other receivables |
(9,467 | ) | (3,365 | ) | |||||||
|
Change in loans to customers |
(164 | ) | (19,163 | ) | |||||||
|
Change in trade and other payables |
(242 | ) | 14,217 | ||||||||
|
Change in deferred revenue |
711 | (714 | ) | ||||||||
|
Change in prepayments |
(874 | ) | (9,662 | ) | |||||||
|
Change in other liabilities |
(1,470 | ) | (2,135 | ) | |||||||
|
Other |
(1,650 | ) | 2,594 | ||||||||
|
Net cash flow from (used in) operating activities |
14,893 | (6,920 | ) | ||||||||
|
Cash flow from investment activities |
|||||||||||
|
Purchase of equipment |
(2,023 | ) | (4,565 | ) | |||||||
|
Release of escrow account |
2,508 | - | |||||||||
|
Receipt of contingent consideration |
2,945 | - | |||||||||
|
Disbursement of short-term loans |
(1,203 | ) | - | ||||||||
|
Investment in, and loans to associates and joint ventures |
7, 10 | (1,398 | ) | (6,758 | ) | ||||||
|
Net proceeds (investments) from sale and purchase of listed equity instruments |
- | (14,049 | ) | ||||||||
|
Development expenditure |
(2,116 | ) | (2,111 | ) | |||||||
|
Net cash flow from (used in) investment activities |
(1,287 | ) | (27,483 | ) | |||||||
|
Cash flow from financing activities |
|||||||||||
|
Acquisition of treasury shares |
- | (5,780 | ) | ||||||||
|
Repayment of loans and borrowings |
(974 | ) | (900 | ) | |||||||
|
Payment of lease liabilities |
(1,372 | ) | (2,485 | ) | |||||||
|
Net cash flow from (used in) financing activities |
(2,346 | ) | (9,165 | ) | |||||||
|
Net change in cash and cash equivalents |
11,260 | (43,568 | ) | ||||||||
|
Cash and cash equivalents at beginning of period |
33,207 | 177,873 | |||||||||
|
Net foreign exchange difference |
(474 | ) | (149 | ) | |||||||
|
Cash and cash equivalents at end of period |
43,993 | 134,155 | |||||||||
|
The accompanying notes are an integral part of these financial statements. |
Note 1 – General information
Opera Limited (the “Company” and “Parent”), with its office at Maples Corporate Services Limited, P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands, is an exempted company under the laws of Cayman Islands. The address of the principal executive office is Gjerdrums vei 19, 0484 Oslo, Norway. The Company was incorporated in the Cayman Islands on March 19, 2018, with the purpose of being the issuer in our initial public offering of American Depository Shares (ADSs) on NASDAQ following a corporate reorganization in 2018. For periods prior to the reorganization the capitalization of share amounts has been adjusted to reflect those of Opera Limited.
As of June 30, 2019, the total number of shares outstanding for Opera Limited was 220,576,326, equivalent to 110,288,163 ADSs.
Opera is one of the world's most influential web innovators. The company delivers browsers, news and content platforms, fintech solutions and certain retail offerings to a quickly growing user base of 350 million users worldwide.
The interim condensed consolidated financial statements of Opera Limited and its subsidiaries (the “Group”) for the six-month period ended June 30, 2019 were authorized for issue by the Board of Directors on September 16, 2019.
Note 2 – Basis of preparation
The interim condensed consolidated financial statements for the six-month period ended June 30, 2019 have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as issued by the International Accounting Standards Board (IASB).
The interim condensed consolidated financial statements do not include all the information and disclosures required in annual financial statements, and should be read in conjunction with the Group’s annual consolidated financial statements for the year ended December 31, 2018.
The financial information presented in US Dollars has been rounded to the nearest thousand (USD thousands), therefore the subtotals and totals in some tables may not equal the sum of the amounts shown.
Certain prior year balances have been reclassified to conform to the current year’s presentation. Such reclassifications did not affect total cash flows, revenue, operating profit, net income, total assets, total liabilities or equity.
The interim condensed consolidated financial statements have not been audited by the Group’s independent registered accounting firm.
Significant accounting policies
Microloans are recognized at amortized cost and presented as Loans to customers in the Statement of Financial Position. Interest income, comprising of origination fees and late interest, is recognized based on the effective interest method, and is presented as Revenue, while credit losses are presented as Credit loss expense in the Statement of Operations.
The business model for microloans is to collect the contractual cash flows. There is no pattern of selling the loans, and the performance of the business is not measured at fair value for internal purposes. Contractual cash flows do not include components other than those representing interest on the principal amount and payments of the principal amount. Based on this, the loans are measured at amortized cost. Microloans are not credit-impaired when issued and thus follow the normal model for calculation of expected credit losses and presentation of interest income. Due to the short maturity of the loans, the small principal amounts and the limited amount of data for individual loans, a loss rate approach is applied when measuring expected credit losses. The effective interest on a microloan is calculated over the contractual life of the loan (currently 2, 3 or 4 weeks). Before maturity (that is, before a loan is credit-impaired) interest income is calculated on the gross carrying amount of the loan. The gross carrying amount is the amortized cost before adjusting for the loss allowance. Amortized cost before adjusting for the loss allowance equals the initial measurement of the loan plus accrued effective interest, less percentage of down payment caused by payments received. After maturity (that is, subsequent to a loan being credit-impaired) interest income is calculated on the carrying amount of the loan. The carrying amount is the amortized cost after adjusting for the loss allowance. See Note 4 for additional information.
Income tax expense for the interim period is recognized at an amount determined by multiplying the net income (loss) before income taxes for the interim period for each tax jurisdiction by the nominal tax rate in those jurisdictions. Income tax expense is adjusted for the impact of any permanent tax differences.
In March 2019, the IFRS Interpretations Committee issued an agenda decision regarding a customer’s right to receive access to a supplier’s software hosted in the cloud. In the agenda decision, the Committee clarified that if a contract conveys to the customer only the right to receive access to the supplier’s application software over the contract term, the contract does not contain a software lease. Moreover, the Committee concluded that a contract that conveys to the customer only the right to receive access to the supplier’s application software in the future is a service contract. The Group has capitalized expenditure related to rights to access software hosted in the cloud and is currently assessing the implications of the agenda decision. The implication of the agenda decision could be that the Group needs to change its accounting policy and account for the amounts capitalized as an expense when incurred. The potential impact in the financial statements of a change in accounting policy is a decrease in intangible assets and a corresponding increase in operating expenses of up to US$1.2 million for the periods affected.
Significant accounting estimates, judgments and assumptions
In preparing these interim condensed consolidated financial statements, the significant estimates and judgments made by management were the same as those applied in the Group’s annual consolidated financial statements for the year ended December 31, 2018, except for (i) management no longer applying significant judgment when assessing collectability of consideration from OPay Digital Services Limited (OPay) due to OPay in the second quarter of 2019 having settled the accumulated amount for trade receivables outstanding as of March 31, 2019, and (ii) measurement of expected credit losses related to the microloans. The measurement of impairment losses for microloans requires judgement, in particular, the estimation of the amount and timing of future cash flows when determining credit losses and the assessment of a significant increase in credit risk.
New standards, interpretations and amendments adopted by the Group
The accounting policies adopted in the preparation of these interim consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended December 31, 2018, except for the adoption of new standards, amendments and interpretations effective as of January 1, 2019. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective, except as disclosed in the Group's annual consolidated financial statements for the year ended December 31, 2018.
The Group applies, for the first time, IFRS 16 Leases. Other standards, amendments and interpretations applied for the first time in 2019, did not have an impact on the interim condensed consolidated financial statements of the Group.
IFRS 16 Leases
The Group adopted IFRS 16 Leases retrospectively as of January 1, 2019 with the cumulative effect of initially applying the standard recognized as of that date. This entailed that the Group did not restate comparative information, but instead recognized the cumulative effect of initially applying this standard as an adjustment to the opening balance of Retained earnings at the date of initial application. For leases which had previously been classified as operating leases under the principles of IAS 17 Leases, the lease liability upon adoption of IFRS 16 was measured as the present value of the remaining lease payments, discounted using the lessee’s estimated incremental borrowing rate as of January 1, 2019. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The Group used a single discount rate to a portfolio of leases with reasonably similar characteristics. The incremental borrowing rate was estimated based on yields for government bonds denominated in the same currency as the lease payments and a credit risk premium. The discount rates were in the range 1.4% to 17%, where the variance is primarily explained by the currencies of which the lease payments are denominated in. The right-of-use asset was recognized at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognized in the Statement of Financial Position immediately before the date of initial application. For leases that were classified as finance leases applying IAS 17, the carrying amounts of the right-of-use asset and the lease liability at January 1, 2019 were the carrying amounts of the lease asset and lease liability immediately before that date measured applying IAS 17.
The Group elected to apply the recognition exemptions for short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option), and leases for which the underlying asset is of low value. These exemptions are applied to short-term office leases, and leases of office equipment, including printers and photocopying machines. Non-lease components, such as maintenance and supply of utilities, are accounted for separately from lease components.
The Statement of Financial Position increase (decrease) as of January 1, 2019:
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[US$ thousands] |
As of January 1, 2019 |
|||
|
Assets |
||||
|
Furniture, fixtures and equipment |
14,969 | |||
|
Liabilities |
||||
|
Non-current lease liabilities and other loans |
10,709 | |||
|
Current lease liabilities and other loans |
4,260 | |||
|
Other current liabilities |
(64 | ) | ||
|
Net impact on equity |
64 | |||
The net impact on the Group’s equity as of January 1, 2019 was due to the derecognition of an accrued liability related to a period of free rent of an office space, which was accounted for as a lease incentive under IAS 17 and SIC 15.
Following the adoption of IFRS 16, the accounting policies for leases are as set out below:
At the commencement date of the lease (i.e., the date the underlying asset is available for use), the Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (and payments that are fixed in substance) less any lease incentives receivable; variable lease payments that depend on an index or a rate; and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of any purchase option reasonably certain to be exercised by the Group, and payments of penalties for terminating a lease, if the lease term reflects the Group’s expectation of exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognized as expense in the period when the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses the estimated incremental borrowing rate at the lease commencement date unless the interest rate implicit in the lease is readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.
The Group recognizes right-of-use assets at the commencement date of the lease. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment.
The Group applies the short-term lease recognition exemption to its short-term leases of equipment. It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term.
Note 3 – Segment and revenue information
As of 2019, management has identified four operating segments, named (i) Browser and News, (ii) Fintech, (iii) Retail and (iv) Other. Whereas in prior periods, the Group had one operating segment. The change follows the Group’s expansion and growth into new businesses including microlending, and related changes to how financial information is reviewed by the Group’s chief operating decision maker (the “CODM”).
An operating segment captures relatively distinct business activities from which the Group earns revenue and incurs expenses. Furthermore, the segments’ operating results are regularly reviewed by the CODM to make decisions about resources to be allocated to the various business activities and to assess performance. Management has determined that the CEO, who is also the Chairman of the Board, is the Group’s CODM.
The operating and reportable segments are based on the Group’s main categories of products and services. The segment profit or loss is the Contribution by segment, which is calculated as revenue, less (i) cost of revenue, (ii) marketing and distribution expense, and (iii) credit loss expense.
The Browser and News business area includes the Group’s PC and mobile browser business as well as the Opera News platform, both as leveraged within the Group’s browsers and as made available through a standalone app. These products have similar characteristics and are often closely bundled. The Fintech business area relates to app-based microfinance services that offer instant credit to approved borrowers. The retail business area includes sale of handsets, prepaid airtime, and data to consumers and wholesalers. The segment Other includes licensing of the Group’s proprietary technology to third parties, including related maintenance, support and hosting services, providing professional services, and providing customized browser configurations to mobile operators.
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Six months ended June 30, 2018 |
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|
[US$ thousands] |
||||||||||||||||||||
|
Segments |
Browser and News |
Fintech |
Retail |
Other |
Total |
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Revenue |
||||||||||||||||||||
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External revenue |
66,619 | - | - | 12,655 | 79,274 | |||||||||||||||
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Total revenue |
66,619 | - | - | 12,655 | 79,274 | |||||||||||||||
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Cost of revenue |
(2,079 | ) | - | - | - | (2,079 | ) | |||||||||||||
|
Marketing and distribution expenses |
(15,176 | ) | - | - | - | (15,176 | ) | |||||||||||||
|
Credit loss expense |
329 | - | - | - | 329 | |||||||||||||||
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Direct expenses |
(16,926 | ) | - | - | - | (16,926 | ) | |||||||||||||
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Contribution by segment |
49,693 | - | - | 12,655 | 62,348 | |||||||||||||||
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Six months ended June 30, 2019 |
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|
[US$ thousands] |
||||||||||||||||||||
|
Segments |
Browser and News |
Fintech |
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