Earnings Release • Aug 21, 2007
Earnings Release
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XING makes your professional network an active part of your life. Far more than a directory of business contacts, XING enables its members to discover professional people, opportunities and privileges through its unique discovery capability and advanced contact management tools. Besides Headquarters in Hamburg, XING AG is represented by offices in Barcelona (Neurona, eConozco) and Beijing.
| 01.01.2007 – 30.06.2007 in thousand € |
01.01.2006 – 30.06.2006 in thousand € |
01.01.2007 – 31.03.2007 in thousand € |
01.04.2007 – 30.06.2007 in thousand € |
|
|---|---|---|---|---|
| Recognized revenues | 8,212 | 3,759 | 3,926 | 4,286 |
| EBITDA | 1,427 | (588) | 529 | 898 |
| EBITDA margin in % | 17 | (16) | 13 | 21 |
| Cashflow from operating activities | 2,271 | 1,208 | 305 | 1,968 |
| Equity | 42,331 | 5,590 | 41,510 | 42,331 |
| Number of registered members (at the end of the period) in million |
3,519 | 1,170 | 2,127 | 3,519 |
| Number of employees (at the end of the period)2) |
111 | 52 | 100 | 111 |
1) There may be deviations due to rounding figures.
2) The first half year 2007 includes both Spanish subsidiaries eConozco and Neurona with 17 employees/contractors.
We look back over a highly successful first half of the year: Having started 2007 on a high note, the second quarter has seen XING AG (XING) continue its sustained course of profitable growth embarked upon at the beginning of the year. Our membership base grew to over 3.5 million members at the end of the second quarter 2007, as a result of further global acquisitions and cooperation agreements, coupled with ongoing viral growth. During the same period, the number of fee-paying Premium Members also climbed to more than 285,000 members.
XING has consolidated the Spanish-speaking market for social business networking with the acquisition of the non fee-paying Spanish networks Grupo Galenicom Tecnologias de la Information, S.L. (eConozco) and Neurona Networking, S.L. (Neurona) in the first half year of 2007 — becoming the key player in this important market, as well as retaining its market leadership in the German-speaking world. Meanwhile, a strategic partnership has been agreed with the US-based company Zoom Information Inc. (www.zoominfo.com), which will provide XING members with access to a further 36 million business profiles in the Englishspeaking world — particularly in the US, Canada and the UK.
The first six months of 2007 have also been characterized by significant advancement of the XING platform's technical capabilities and the launch of new online features from which the Company is now profiting. Large-scale IT projects such as XING Marketplace, the launch of new search technology and an invitation functionality for email address books were successfully completed during this period. With over 30,000 job listings posted within just a few weeks of the launch, the Marketplace project in particular has exceeded our expectations. In the fourth quarter of 2007, we will begin charging fees for Marketplace postings, ensuring that we can expect relevant income from this additional source of revenue from 2008 onwards.
The ongoing realization of our expansion strategy is also reflected in the financial results for the second quarter: XING generated revenues of approximately ¤4.29 million in this quarter ended June 30, 2007 representing a 9.2% increase over the first quarter of 2007. Total revenues increased in the first half year of 2007 to ¤8.21 million — more than doubling over the first half year of 2006. The renewed rise in EBITDA our key financial indicator — coupled with quarterly earnings of approximately ¤728 thousand (EBT), also confirm the Company's solid growth.
We hope you will continue to join us in realizing this strategic path.
Hamburg, August 2007
Lars Hinrichs Eoghan Jennings Chairman of CFO the Executive Board XING AG XING AG
XING held an open dialogue with analysts, as well as institutional and private investors, during the first half of 2007. The first Annual General Meeting took place on June 13, 2007. At this meeting, 99.9% of shareholders voted in favour of changing the name of the Company from open Business Club AG to XING AG.
| Highest price (22.06.2007) | €46.90/XETRA |
|---|---|
| Lowest price (20.03.2007) | €26.00/XETRA |
| Starting price (02.01.2007) | €31.21/XETRA |
| Closing price as of 29.06.2007 | €45.77/XETRA |
| Earnings per share (undiluted/diluted) | €0.23/0.22 |
| Market capitalization as of 31.12.2006 | €159.4 million |
| Market capitalization as of 30.06.2007 | €238.1 million |
| Average daily trading volume | 12,715 |
| (01.01. – 30.06.2007) | no-par value shares |
| 30,572 | |
| Average daily trading volume (30 days) | no-par value shares |
| 19,365 | |
| Average daily trading volume (60 days) | no-par value shares |
| 15,527 | |
| Average daily trading volume (90 days) | no-par value shares |
| Number of shares | 5,201,700 |
| Authorized and outstanding shares | 1,925,850 |
In addition to the Annual General Meeting, XING organized roadshows, phone conferences and investor meetings for institutional target groups in New York, London, Frankfurt and one-to-one investor meetings in Hamburg. In those, investors were provided with details regarding current trends relevant to the Company. Last but not least, the participation of XING in Deutsche Bank's German Corporate Conference in July 2007 provided the Company with exposure to new potential investors.
During the first half of 2007, worldwide equity markets continued to reflect market participants' overall positive outlook on corporate earnings potential. The TecDAX, XING's most relevant equity market index, increased by 22.8% during the period under review opening on the first day of trading at 759.07 (January 2, 2007) and closing on the last day of trading (June 29, 2007) at 932.47. The XING share outperformed this significant increase in the technology sector's share price performance. The share price at the very start of 2007 was slightly higher than the issue price at �€ 31.21 (January 2, 2007� �A) and rose as of the end of June to �€ 46.90 (June 22, 2007� �A). The closing price for the period under review was �€ 45.77 (June 29, 2007� XETRA), representing an increase of 46.7% over the course of the first half year of 2007.
The Euro zone economy grew 2.7% last year – the strongest increase since the turn of the century. In the first quarter of 2007 alone the European economy expanded by 0.7% as corporate investment surged to its highest level in a decade.
In Germany, Europe's largest economy and XING's largest market, the economy expanded by 0.4% between April and June after growing by 0.5% in the previous three months1). Total consensus estimates for full-year growth in Germany will be between 2.6% and 3.2%. These impressive growth estimates are predicted despite the increase in the rate of value-added tax, applicable to all of XING's revenues in Europe, which jumped to 19% from 16% at the beginning of the year.
European interest rates have been on the rise for several years and currently stand at 4.0% per annum. The resulting strength of the Euro means that the price of the XING service will be perceived as higher by the customers outside of the Euro zone. This may have a slight negative effect on the short term future growth of new Premium Memberships if the Euro remains strong compared to other major currencies such as the US dollar for a prolonged period.
As at the end of June 2007, XING was already the market leader in online professional networking in its cornerstone markets of Europe and Latin America — based on the key indicators of unique visitors, total page hits and total time spent online. With regard to these key activity indicators2), the relative and absolute values of XING lie significantly above those of its nearest competitor LinkedIn3).
In the Company's core European markets as well as in China, XING retained its position as the clear market leader in online professional networking. At the end of June 2007, XING continued to lead the segment based on activity and usage. In particular the numbers2) of total unique monthly visitors, total pages viewed, average daily visitors, average minutes per visitor were all between 20% and 60% higher than the Company's nearest competitor3).
Even on a worldwide basis, XING continues to remain a global competitor in a highly dynamic market. The global number of monthly unique visitors to the XING domains increased by 19% at the end of second quarter compared to the end of the first quarter 20072). Despite the fact that XING's nearest competitor3) has a larger number of monthly unique visitors, visitors to the XING domains are on average much more active on the XING platform. The key indicators of activity2) (average minutes per usage day, average pages per usage day, average usage days per visitor, average minutes per visitor, average pages per visitor, average minutes per visit, average visits per visitor) are all between 130% and 180% greater on a global basis than XING's nearest competitor. And although the total number of the nearest competitor's registered user base3) is over three times the size of XING's Basic Member base, XING achieves over 80% of their total pages viewed and total minutes spent on the platform and over 60% of their average daily visitors and number of total visits2).
At the end of the second quarter, XING registered approximately 1.4 million Basic Members in Germany alone. That represents 1.7% of the entire population and 2.8% of the estimated Internet population4). In June 2007, the number of Premium Members in Germany has already exceeded 235,000 subscribers. In terms of the number of paid subscribers, this places XING above all subscribers of the leading business weekly publications.
1) DIW
2) As measured by ComScore, Inc., June 2007 report
3) Source: LinkedIn Corporation
4) Source: www.internetworldstats.com
Member base and Premium revenues
| Members | Premium revenues1) |
|||
|---|---|---|---|---|
| 01.01.2007 – 30.06.2007 |
Xing in million |
eConozco in million |
Neurona in million |
in million € |
| Germany | 1.40 | 0.00 | – | 6.34 |
| Spain | 0.02 | 0.10 | 0.59 | 0.03 |
| Rest of Europe | 0.45 | 0.01 | 0.04 | 1.28 |
| Asia Pacific | 0.34 | 0.00 | – | 0.11 |
| South America | 0.03 | 0.13 | 0.33 | 0.01 |
| North America | 0.05 | 0.01 | – | 0.08 |
| Other | 0.02 | 0.00 | – | 0.03 |
| Total | 2.31 | 0.25 | 0.96 | 7.88 |
1) Premium revenues generated by XING exclusively
Marketing activities in the German-speaking market become more sophisticated with the use of cost-effective, personalized email campaigns to convert and reactivate basic members to the Premium service. In addition, search engine marketing and other innovative online marketing methods which were successfully tested in the first quarter of 2007 were put to more extensive and active use in the second quarter. These initiatives have led to an increase in the number of paying members and will be treated as benchmark for other markets.
With a population of over 420 million people, an Internet usage approaching 90 million users and an Internet penetration which is growing faster than the rest of the world, the Spanish-speaking business community represents a key strategic focus for XING. The Company has been active in this market for some time and has now consolidated its position through two acquisitions: eConozco, a leading online business network in the Spanish-speaking market, followed by Neurona, the largest online network of Spanish business users. XING has thereby established itself as the dominant online business community in Spain.
With the acquisitions of eConozco and Neurona, XING has achieved critical mass in the key cities of Madrid, Barcelona, Mexico City, Buenos Aires, Lima and Bogotá and access to the entire South American market. In these markets, eConozco and Neurona provide an excellent platform for future organic growth via invitation. A gradual migration and integration process has already begun.
Neither eConozco nor Neurona currently offer paymentbased services on their respective websites. Consequently, subscription fees and premium services will be introduced in the fourth quarter 2007 (eConozco) or in the first quarter of 2008 (Neurona), supported by marketing campaigns. XING already has fee-paying Premium Members using its Spanish-language version of the website and the Executive Board is confident that charged services can be successfully introduced to the newly acquired members registered with eConozco and Neurona, due to the high added value XING provides to users.
XING continued along its dynamic organic growth path between January and June 2007. The primary focus of the first half of the current financial year was increasing the base of basic (non-paying) members. The number of registered members on the XING domain increased to 2,312,092 at the end of the first half year 2007, representing 36.5% organic growth compared to the end of 2006 and 97.6% growth compared to the end of the second quarter of 2006. The registered members growth between the end of the first quarter and end of the second quarter was 17.1%. Taking the acquisitions made in Spain in March and June into consideration, the overall number of registered members in all three networks totalled 3,518,563 members. This represents an increase of 108% since December, 31 2006 and a rise of over 200% compared to the end of the second quarter 2006. In terms of outstanding member base development in the second quarter 2007, eConozco, a 100% subsidiary of the Company, recorded a 67% growth between end of the first quarter 2007 and end of the second quarter 2007 alone.
In the second quarter of the current financial year, the primary focus of increasing the overall registered basic member base (17% growth versus Q1 2007) took precedence over the secondary focus of increasing the base of subscribers to the Premium service. As predicted at the end of the first quarter of 2007, the resulting number of new Premium Members acquired during the second quarter of 2007 was below the record results achieved in the first quarter of 2007 (11% growth versus Q1 2007).
Members (number) in million and growth in %
Besides the increased focus on growing the basic membership base at the expense of growing the Premium Member base, a number of factors contributed to a short term decline in new monthly Premium Members. The months of April and May were affected by two separate factors: lower activity as a result of extraordinarily warm weather and a higher than expected and unexplained level of membership cancellations. While the remaining months of the second quarter recorded 'normal' churn rates of between 1% and 2% of the total payer base, payer churn for the month of April was recorded at almost 2.3%. Since April however, the monthly churn rate has declined month for month. In June 2007, for instance, the churn rate accounted for 1.3%. Concurrently, the number of monthly net new Premium Members has also increased month for month.
Despite these factors, the base of Premium subscribers increased to 285,359 paying subscribers by the end of the second quarter of 2007. The increase of 130,872 additional Premium subscribers over the year to June 30, 2007 represents 84.7% growth compared to the end of the second quarter of 2006. Compared to December 31, 2006, the Premium subscriber base increased by 29.4% and by 10.6% when compared to the end of the first quarter of 2007.
Besides routine maintenance and general performance optimization, the focus of the conceptual and technical activities during the second quarter of 2007 involved:
The implementation of key new XING modules in the innovative web development framework Ruby on Rails to the established XING core database was successfully implemented. This brings XING a step closer to its longterm goal of a service-oriented architecture which will enable development resources to be scaled more easily.
The Management Board and Supervisory Board composition is the same as reported in the 2006 Annual Report.
At the first Annual General Meeting held by the company on June 13, 2007, a new remuneration system was decided upon for the members of the Supervisory Board for participation in each Supervisory Board meeting. Accordingly, each member of the Supervisory Board will receive a remuneration of €2,000 per meeting day for participating in each Supervisory Board meeting. Members of committees affiliated with the Supervisory Board will receive an additional remuneration of €1,000 per meeting day for participating in each committee meeting. The Chairman of the Supervisory Board will receive a meeting remuneration totalling twice as much for participating in a Supervisory Board meeting. The Chairman of a committee will receive a meeting remuneration accounting for three times the amount usually earned for participating in a committee meeting. The total remuneration for a member of the Supervisory Board for participating in Supervisory Board and committee meetings may not exceed €75,000 per financial year per member. Twice this amount applies as an upper limit for the Chairman of the Supervisory Board or of a committee.
In the first half year of 2007, XING generated revenues from Premium Memberships of €7,875 thousand, compared to €3,580 thousand for the same period in 2006.
Other revenues, mainly from services relating to Premium Groups, amounted to €337 thousand compared to €179 thousand for the same period in 2006.
The total revenue amount for the first half year of 2007 is equivalent to a growth of 118% compared to the same period in the previous year. In comparison to the previous quarter, there was a growth in Q2 2007 of 9.2% from €3,926 thousand to €4,286 thousand.
Other operating income of €320 thousand (previous period: €8 thousand) results from income relating to the reversal of accruals and exchange rate fluctuations. Other operating income of €147 thousand was generated in the second quarter, compared to €173 thousand in Q1 2007.
EBITDA amounted to €1,427 thousand in the first half year of 2007, compared to €–588 thousand in the previous period. In Q2 2007 XING increased the EBITDA from €529 thousand (Q1 2007) to €898 thousand.
The EBIDTA margin of 17% in the first half year of 2007 has therefore increased significantly compared to the same period in 2006, where a negative EBITDA margin of –16% was recorded. The EBITDA margin accounting for 13% in Q1 2007, reached 21% in Q2 2007. This increase in earnings arises from strong revenue growth which according to plan did not require an equivalent growth in operating costs.
XING's consolidated group earnings excluding its subsidiary First Tuesday AG in Zurich would have been on an EBIDTA basis of 26% for Q2 2007.
EBT also continued to grow strongly during the first half year of 2007 (€1,195 thousand compared to €–651 thousand for the same period in 2006). Apart from improvements in underlying profitability, EBT was affected favourably by increased interest earnings on the Company's cash positions. Compared to the previous quarter, Q2 2007 also registered a considerable improvement in interest income (increased by €109 thousand) due to the placement of an additional €4,594 thousand in a financial product with higher interest yield.
Personnel costs slightly more than doubled when comparing the first half year of 2006 (€1,154 thousand) with the first half year of 2007 (€2,904 thousand) due to the recruitment of new employees. The headcount increased from 52 to 111 when comparing Q2 2006 with Q2 2007. In addition, accruals were made for employee holidays, which were not taken yet.
The growth in the number of employees from Q1 2007 to Q2 2007 was lower than for the period Q4 2006 to Q1 2007. Full-time equivalents went from 100 in March 2007 to 111 in June 2007, mainly due to the recruitment of new employees and the consolidation of qualified personnel from the acquired subsidiaries eConozco and Neurona.
XING more than doubled its marketing expenditure during the reporting period (€740 thousand) compared to the previous year (€242 thousand) and almost tripled these costs from Q1 2007 (€214 thousand) to Q2 2007 (€526 thousand). The increase results from the implementation of major online campaigns in key markets for XING in line with its development plans for the year 2007.
Other operating expenses increased from €2,951 thousand to €3,141 thousand during the reporting period 2007 compared to 2006, representing a slight growth of 6%. This is attributable to higher legal and audit consultancy and IT hosting and maintenance costs. When comparing Q2 2007 to Q1 2007, the other operating expenditure marks a decrease of €433 thousand, mainly due to lower expenses for administration and development and other service providers.
The Company aims to continue to reduce costs for external service providers and freelancers while investing in the recruitment and training of new employees.
The depreciation and amortization of intangible and tangible assets in the first half year 2007 increased from €185 thousand to €917 thousand compared to the previous reporting period, largely due to additional investments in XING's self-developed software (€537 thousand) and the retirement of a non-operational migration software (€136 thousand). From Q1 to Q2 2007 depreciation increased by 62% from €351 to €567 thousand.
At the reporting date June 30, 2007, non-current assets were 3.5 times higher than on December, 31 2006 (€13,962 thousand compared to €3,994 thousand). The main reasons for the increase are the temporary allocation of a portion of Neurona's purchase price to intangible assets and further investments in self-developed software and fixed assets. After Q1 2007 the net assets constituted €5,671 thousand.
Cash and cash equivalents amounting to €36,611 thousand accounted for 70% of the Group's €52,277 thousand total assets at the reporting date June 30, 2007. On December 31, 2006, the proportion of liquid assets amounted to 89%. The decrease in liquid assets to €38,315 thousand for the period ending June 30, 2007 from €46,979 thousand at the end of December 31, 2006 arose primarily from the acquisitions of eConozco and Neurona. On March 31, 2007 cash and cash equivalents amounted to €43,502 thousand.
During the first six months of 2007, net cash from operating activities rose to €2,271 thousand compared to €1,208 thousand in the first half of 2006. This growth can be primarily attributed to a strong increase in XING's EBITDA to €1,427 thousand in the period ended June 30, 2007, compared to €–588 thousand in the previous year (six months ended June 30, 2006). In contrast to the first half of 2006, non cash items such as personnel expenses for the stock option plan (€268 thousand) and deferred taxes (€155 thousand) were recorded in the first six months of 2007 as well. Cash flow from operating activities was reduced by a large decrease in accruals of €1,366 thousand (previous year increase of €316 thousand) resulting from the payment of items accrued at the year end, most of them related to the IPO which took place at the end of the 2006 financial year.
In the second quarter of 2007, cashflow from operating activities amounted to €1,968 thousand, over €305 thousand in Q1 2007. This is also the result of the high difference in provisioned items reserved here relating to the IPO. EBITDA in Q2 2007 increased to €898 thousand (Q1 2007 €529 thousand). Furthermore, accruals increased by €506 thousand (Q1 2007: decrease of €1,871 thousand). Trade payables and other liabilities decreased by €609 thousand in the three months ended June 30, 2007 (Q1 2007 increase of €553 thousand). Both factors mainly relate to the balance sheet dates (e.g. receipt and payment of invoices in different periods). The increase in accruals in the second quarter of 2007 refers to further investments in self-developed software, as well as legal consultancy costs for acquisitions during this period.
For the first half of 2007, cash from investing activities amounted to €10,885 thousand (first half 2006 €1,399 thousand) for the acquisitions of eConozco and Neurona, as well as additional investments made in intangible assets such as self-developed software and other software (cash outflow of €1,842 thousand in comparison to €781 thousand in the previous year).
On a quarterly comparison, the Company invested €8,859 thousand in Q2 2007 (€2,026 thousand in Q1 2007). This mainly corresponds to further investments in the selfdeveloped software and in the Spanish subsidiary Neurona.
At the end of the period, XING's cash and cash equivalents amounted to €36,611 thousand (€6,791 thousand at June 30, 2006). This increase in cash and cash equivalents resulted from the increase in cash flow from operating activities, as well as from the Company's IPO proceeds totaling €36,833 thousand (net of fees).
The positive development of the Company's earnings situation recorded in the first half year of 2007 serves to confirm XING's forecasts that the economies of scale, as well as national and international organic and non-organic growth are now starting to have an effect.
With an equity ratio of 81% at June 30, 2007 (December 30, 2006 was 80%), XING is primarily equity-financed, meaning that it is well-equipped to withstand any adversed market. In addition, the net cash from operating activities puts XING in a position to finance its further growth from available funds.
At the end of the reported half year, capital reserves con–stituted 92% of the total equity amounting to €38,830 thousand and accounted for 94% of the total equity at the end of 2006 (€38,561 thousand).
Risks are monitored and managed on a permanent basis in accordance with the risk early warning system required by Article 91 (2) of the German Stock Corporation Act.
Here, the significant risks posed for XING regarding its "competitive situation" and "network security" should be outlined as examples. XING faces competition from both existing and new competitors on the market. For example, one of its largest competitors recently announced plans to expand into the German market with a German-language version of its platform. To the Company's knowledge, this German-language version has nevertheless not yet been launched. In terms of risks relating to network security, particular caution is paid to interruptions that could impinge upon operations, increase operating expenses and damage the Company's reputation. Successful attacks on the XING platform could, for example, result in the destruction or alteration of members' stored personal data, or the use of such data for malicious or non-consensual purposes.
The Annual Report 2006 should also be referred to here, in which these and other risks arising from XING's operations are outlined in detail. At present, there are no risks identified that could endanger the continued existence of the Company.
XING has taken extensive measures to counteract all risks identified as appropriate.
Many promising opportunities to be exploited
The first half of 2007 was characterized by a number of key strategic transactions including the acquisition of the two leading business networks in the Spanish-speaking world and a strategic partnership with Zoom Information Inc. (www.zoominfo.com) providing market entry into the US market. XING expects of this and other potential transactions to extend the range of opportunities available to the company to grow its member and payer base. Further opportunities for strategic acquisitions and partnerships in the US and Europe are currently under review.
In the second half of 2007 the focus of the Company's efforts will shift to capitalising on the opportunities created. In this regard, the migration and integration of eConozco's and Neurona's Basic Members over the course of the next few quarters will be an important milestone in XING's development. In addition, the integration of ZoomInfo's database with that of XING as well as the conversion of ZoomInfo's traffic and members into paying Premium Members will be a key initiative throughout the rest of 2007 and beyond.
In addition to the inorganic growth opportunities created over the first half of 2007, XING expects to generate increasing numbers of Basic and Premium Members organically, partially as a result of internal marketing initiatives. Indeed, the effectiveness of promoting viral growth on the Company's website has increased the percentage of new members joining XING as a result of invitations from members already on the platform to approximately 70% at the end of the second quarter from 30% at the end of the first quarter 2007.
All of these initiatives are of critical significance for XING's longer term future growth prospects, and XING expects notable increases in the resulting average monthly number of new Premium Members over the coming quarters. The Company therefore remains on course to complete the second half of 2007 according to plan and achieve the targets forecast for the entire year. This confirms the fulfilment of objectives for 2007, namely to approximately double revenues generated in the previous year of €10.1 million and reach an EBITDA margin of 30% to 35%.
The acquisition of Neurona in June 2007, which has already been outlined in the section labeled "Acquisition" was one of the major events during the interim period.
On June 14, 2007, XING announced a comprehensive partnership with Zoom Information Inc. (ZoomInfo).
The partnership provides XING's 3,5 million-plus members with immediate access to profiles detailing nearly 36 million business people and 3.8 million companies directly on the XING platform. Under the terms of the partnership, all XING members have access to ZoomInfo profiles and XING Premium Members are able to contact over 18 million professionals directly and securely. The contract foresees a mutual revenue share.
On August 17, 2007 the Supervisory Board of XING AG appointed Burkhard Blum as new member of the Executive Board to assume responsibility of Corporate Development.
The XING share price developed in line with the current capital market conditions in August 2007, lying at €39.12 (August 20, 2007/XETRA) after a period high of €50.79 (XETRA) on July 31, 2007.
On August 21, 2007, the Executive Board signed an agreement for the divesture of First Tuesday AG. Management of the key customer relationships, which comprised the prime source of value in the company, has been relocated to XING in Hamburg. In selling First Tuesday, XING aims to reduce the ongoing cost of maintaining the legal entity, as well as reduce the ongoing operating costs associated with local personnel and other expenses. After the reporting date, several buyers expressed interest in acquiring the subsidiary to pursue its core commercial activities. The Executive Board expects the transaction to be completed within the third quarter and to have an overall negligible effect on the overall net assets of the Company.
Hamburg, August 2007
Lars Hinrichs Eoghan Jennings Chairman of CFO the Executive Board XING AG XING AG
| 01.01.2007 – 30.06.2007 in thousand € |
01.01.2006 – 30.06.2006 in thousand € |
01.04.2007 – 30.06.2007 in thousand € |
01.04.2006 – 30.06.2006 in thousand € |
|
|---|---|---|---|---|
| Service revenues | 7,892 | 3,751 | 4,139 | 2,166 |
| Other operating income | 320 | 8 | 147 | 8 |
| Total revenues | 8,212 | 3,759 | 4,286 | 2,174 |
| Personnel and permanent contractors expenses | (2,904) | (1,154) | (1,508) | (678) |
| Marketing expenses | (740) | (242) | (526) | (104) |
| Other operating expenses | (3,141) | (2,951) | (1,354) | (1,546) |
| EBITDA | 1,427 | (588) | 898 | (154) |
| Depreciation and amortization | (917) | (185) | (567) | (122) |
| EBIT | 510 | (773) | 331 | (276) |
| Interest income /expense (net) | 685 | 122 | 397 | 101 |
| EBT | 1,195 | (651) | 728 | (175) |
| Income taxes | (18) | 4 | (18) | (13) |
| Net profit/loss for the period | 1,177 | (647) | 710 | (188) |
| Earnings per share (undiluted) | 0.23 € | (0.17 €) | 0.14 € | (0.05 €) |
| Earnings per share (diluted) | 0.22 € | (0.17 €) | 0.13 € | (0.05 €) |
| ASSETS | 30.06.2007 in thousand € |
31.12.2006 in thousand € |
|---|---|---|
| Non-current assets | ||
| Intangible assets | ||
| Other intangible assets | 4,176 | 202 |
| Acquired software | 392 | 297 |
| Self-developed software | 2,533 | 1,869 |
| Goodwill | 5,008 | 254 |
| Fixed assets | ||
| Technical equipment and machinery | 5 | 12 |
| EDP-Hardware and other office equipment | 1,355 | 971 |
| Financial assets | ||
| Investments | 206 | 100 |
| Other financial assets | 287 | 289 |
| 13,962 | 3,994 | |
| Current assets | ||
| Inventories | ||
| Merchandise | 9 | 0 |
| Receivables and other assets | ||
| Trade receivables | 628 | 1,533 |
| Other assets | 1,067 | 221 |
| Cash and cash equivalents | 36,611 | 45,225 |
| 38,315 | 46,979 | |
| 52,277 | 50,973 | |
| EQUITY AND LIABILITIES | 30.06.2007 in thousand € |
31.12.2006 in thousand € |
| Equity | ||
| Subscribed capital | 5,202 | 5,202 |
| Capital reserves | 38,830 | 38,561 |
| Other reserves | (16) | 9 |
| Retained earnings | (1,685) | (2,862) |
| 42,331 | 40,910 | |
| Minority interests | 0 | 0 |
| 42,331 | 40,910 | |
| Long-term liabilities | ||
| Finance lease liabilities | 338 | 393 |
| Deferred tax liabilities | 155 | 0 |
| Deferred income | 496 | 500 |
| Short-term liabilities | 989 | 893 |
| Finance lease liabilities | 157 | 157 |
| Trade payables | 1,263 | 1,734 |
| Accruals | 1,511 | 2,877 |
| Deferred income | 5,291 | 4,160 |
| Other liabilities | 735 | 242 |
| 8,957 | 9,170 | |
| 52,277 | 50,973 |
| 01.01.2007 – 30.06.2007 in thousand € |
01.01.2006 – 30.06.2006 in thousand € |
01.04.2007 – 30.06.2007 in thousand € |
01.04.2006 – 30.06.2006 in thousand € |
|
|---|---|---|---|---|
| Net profit/loss for the period | 1,177 | (647) | 710 | (188) |
| Depreciation and amortization | 917 | 185 | 567 | 122 |
| Personnel expenses for stock option plan | 268 | 0 | 134 | (194) |
| Changes in accruals | (1,366) | 316 | 506 | 26 |
| Changes in deferred taxes | 155 | (4) | 155 | 0 |
| Changes in net working capital | ||||
| Changes in receivables and other assets | 50 | 13 | (6) | 485 |
| Changes in trade payables and other liabilities | (57) | 77 | (609) | 17 |
| Changes in deferred income | 1,127 | 1,268 | 511 | 589 |
| Cash flow from operating activities | 2,271 | 1,208 | 1,968 | 857 |
| Purchase of intangible assets | (1,842) | (781) | (1,178) | (590) |
| Purchase of fixed assets | (601) | (156) | (491) | (109) |
| Investments in subsidiaries (less cash acquired) | (8,336) | (245) | (7,184) | (18) |
| Investments in other financial assets | (106) | (217) | (6) | (218) |
| Cash flow from investing activities | (10,885) | (1,399) | (8,859) | (935) |
| Capital increases | 0 | (3) | 0 | (3) |
| Cash flow from financing activities | 0 | (3) | 0 | (3) |
| Changes in cash and cash equivalents | (8,614) | (194) | (6,891) | (81) |
| Cash and cash equivalents | ||||
| at the beginning of the period | 45,225 | 6,985 | 43,502 | 6,872 |
| Cash and cash equivalents at the end of the period |
36,611 | 6,791 | 36,611 | 6,791 |
| Attributable to equity holders of the parent | |||||||
|---|---|---|---|---|---|---|---|
| Subscribed capital in thousand € |
Capital reserves in thousand € |
Other reserves in thousand € |
Retained earnings in thousand € |
Total in thousand € |
Minority interests in thousand € |
Total equity in thousand € |
|
| At 31.12.2005 | 52 | 6,837 | 0 | (649) | 6,240 | 0 | 6,240 |
| Cost of raising capital | 0 | (3) | 0 | 0 | (3) | 0 | (3) |
| Net loss for the period |
0 | 0 | 0 | (647) | (647) | 0 | (647) |
| At 30.06.2006 | 52 | 6,834 | 0 | (1,296) | 5,590 | 0 | 5,590 |
| At 31.12.2006 | 5,202 | 38,561 | 9 | (2,862) | 40,910 | 0 | 40,910 |
| Foreign currency translation |
0 | 0 | (25) | 0 | (25) | 0 | (25) |
| Net profit for the period |
0 | 0 | 0 | 1,177 | 1,177 | 0 | 1,177 |
| Total income and expense for the period |
0 | 0 | (25) | 1,177 | 1,152 | 0 | 1,152 |
| Personnel expenses for stock option plan |
0 | 269 | 0 | 0 | 269 | 0 | 269 |
| At 30.06.2007 | 5,202 | 38,830 | (16) | (1,685) | 42,331 | 0 | 42,331 |
The first Annual General Meeting of XING AG (XING) was held in June 2007. The attending shareholders supported changing the name of the company from OPEN Business Club AG to XING by a large majority: over 99.9 voted in favor of the new name. "XING" now being the name of both the Internet platform and part of the Company's legal entity fully backs up our international strategy and brand awareness objectives.
XING is a leading online service which provides business executives with a variety of professional tools, including advanced contact management, sophisticated networking opportunities and digital profile management. XING generates its revenues from membership subscriptions.
The consolidated financial statements for the half year ended June 30, 2007, have been prepared in accordance with the International Financial Reporting Standards (IAS 34) as adopted by the EU.
The period under review is from January 1, 2007 to June 30, 2007. The prior-period figures relate to the period from January 1, 2006 to June 30, 2006.
The same accounting policies and calculation methods were used for this Interim Report as for the Annual Report ending December 31, 2006.
The basis of consolidation in the consolidated financial statements comprises the following companies:
| 30.06.2007 in % |
31.03.2007 in % |
31.12.2006 in % |
Year of consolidation |
|
|---|---|---|---|---|
| First Tuesday AG, Switzerland | 100 | 100 | 100 | 2006 |
| openBC China Ltd., China | 55 | 55 | 55 | 2006 |
| openBC Network Technology (Beijing) Co. Ltd., China1) | 1001) | 1001) | 1001) | 2006 |
| Grupo Galenicom Tecnologias de la Information, | ||||
| S.L., (eConozco), Spain | 100 | 100 | 0 | 2007 |
| XING International Holding GmbH | 100 | 0 | 0 | 2007 |
| Neurona Networking, S.L., (Neurona), Spain2) | 1002) | 0 | 0 | 2007 |
1) 100% are indirectly held via shares amounting to 55% of openBC China Ltd., China.
2) 100% are indirectly held via shares amounting to 100% of XING International Holding GmbH, Germany.
XING maintains its 2006 Stock Option Plan. Options are generally granted for a term of five years and vest 50 after the first two years, a further 25 after three years and the remaining 25 after the fourth year. Under this plan, stock options may only be granted to persons employed by XING's group of companies. In total, 160,000 stock options were granted.
The valuation of the stock option plan recorded in the Company's books since December 2006 is based on the actuarial report of Mercer Human Resource Consulting (Mercer) — a subsidiary of Marsh & McLennan Companies, Inc. (MMC) — performed in February 2007.
The valuation method is based using the Monte-Carlo Simulation which relies on assumptions such as preferential and current prices, vesting duration, expected stock price volatility and risk-free interest for the duration of the option privilege.
During the first half year 2007 and based on the outcomes of Mercer's actuarial report, the Company expensed a total amount of �€ 267,853 for its stock option plan.
The Company invested in both money market funds – "DWS Institutional Money Plus" and "DB Platinum IV-Corporate Cash" — in Q2 2007.
While "DWS Institutional Money Plus" is a short-term investment instrument (investing in bonds, convertibles, profit certificates, etc.), "DB-Platinum IV-Corporate Fonds" is a public fund which offers an attractive alternative to money market investments for cash management purposes. Both funds can be traded daily.
On average, the Company invested �€ 154 thousand and �€ 38,432 thousand in DWS and DB Platinum respectively throughout Q2 2007. Interest income of �€ 416 thousand was recorded in Q2 2007.
Neurona:
On June 22, 2007, XING International Holding GmbH, a 100% held company by XING AG, completed the 100% acquisition of Neurona Networking, S.L. (Neurona), a subsidiary of Grupo Intercom de Capital, SCR, S.A. The transaction was accounted for as a business combination. Neurona, the professional networking leader in Spain and Latin America, is a free virtual community created to promote networking among professionals and academics from the marketing and sales arena. The initial consolidation took place on June 30, 2007. As a result, the consolidated profit and loss statement will not contain any revenues or expenses relating to Neurona prior to the consolidated financial statements as of June 30, 2007.
The total cash consideration of approximately �€ 7,225 thousand less cash acquired of �€ 7 thousand and transaction costs resulted in a net cash outlay of �€ 7,223 thousand. Additional cash payments of up to �€2 million will be carried out if certain performance targets to be achieved in three stages are met through April 8, 2008. All targets refer to the development, i.e. growth of the member base, data quality and completeness over the next nine months. Further costs such as notary, legal and M&A consulting are still anticipated.
The following table summarizes the temporary allocation of the purchase price for the above acquisition:
| Acquisition capitalization in thousand € |
Book value in thousand € |
|
|---|---|---|
| Intangible assets | 3,582 | — |
| Financial assets | 3,582 | — |
| Cash acquired | 7 | 7 |
| Other assets | 403 | 403 |
| Other liabilities assumed | 343 | 343 |
Net cash outflow resulting from the company acquisition:
| in thousand € | |
|---|---|
| Acquisition price | (7,225) |
| Direct transaction costs | (5) |
| With subsidiary cash acquired | 7 |
| Net cash outflow | (7,223) |
The purchase price allocation was assessed on a temporary basis in the consolidated financial statements as of June 30, 2007. The total acquisition costs were allocated by 50 (�3,582 thousand) as "customer base" and 50 (�3,582 thousand) as "goodwill". A final valuation in the consolidated financial statements ending December 31, 2007 will provide the definitive allocation between intangible assets and financial asset. The value of the goodwill can be attributed to the expected synergies and combination of assets and activities of Neurona with those of the Company. Neurona was acquired in order to strengthen XING's market leadership after a successful market entry onto the Spanish and Latin American markets with the initial acquisition of eConozco in March 2007.
In the six-month period ended June 30, 2007, Neurona reported a net loss of €227 thousand.
The purchase price allocation of eConozco, our first acquisition in Q1 2007 which was included in the quarterly report on a temporary basis, has now been completed.
The following overviews summarize the allocation of the purchase price:
| in thousand € | |
|---|---|
| Purchase price | 1,200 |
| Transaction costs | 200 |
| Subtotal | 1,400 |
| Customer relations | (268) |
| Tax amortisation benefit | (115) |
| Deferred tax liabilities | 155 |
| Goodwill | 1,172 |
The customer relations have a useful life of six years starting from the customer migration date from the eConozco platform to the XING platform onwards.
The changes in the carrying amount of goodwill and intangible assets for the six months ended June 30, 2006, are as follows:
| in thousand € | |
|---|---|
| Balance as of December 31, 2006 | 254 |
| Goodwill acquired | 4,754 |
| Balance as of June 30, 2007 | 5,008 |
| in thousand € | |
| Balance as of December 31, 2006 | 2,368 |
| Self developed software | 664 |
| Acquired software | 95 |
| Other intangible assets | 3,974 |
Balance as of June 30, 2007 7,101
In the six-month period ended June 30, 2007, an amount of �€ 1,284 thousand (prior period: �€ 611 thousand) was invested in self-developed software. The capitalized self-developed software comprises investments for further developments and new functions of the XING Website. In the second quarter ended June 30, 2007, the Company purchased software amounting to �€ 126 thousand (prior period: �€ 61 thousand), as well as IT hardware and other office equipment amounting to �€ 601 thousand (prior period: �€ 156 thousand).
Besides an increase of �€ 100 thousand in the shares held in Plazes AG, Zurich, Switzerland, in Q1 2007 (prior period: �€ 200 thousand).
Furthermore, the full amount of a technical application/software was written off accounting for �€ 136 thousand during the reporting period.
The main items regarding other operating expenses are broken down in the following overview:
| 01.01.2007 – 31.03.2007 in thousand € |
01.04.2007 – 30.06.2007 in thousand € |
01.01.2007 – 30.06.2007 in thousand € |
01.01.2006 – 30.06.2006 in thousand € |
|
|---|---|---|---|---|
| IT services, business services and | ||||
| services for new markets | 545 | 199 | 744 | 1,053 |
| Legal, audit and book-keeping | 383 | 239 | 622 | 355 |
| Server hosting, administration and traffic | 302 | 202 | 504 | 199 |
| Payment processing | 150 | 149 | 299 | 259 |
| Travel, entertainment and other business expenses | 124 | 72 | 196 | 218 |
| Brand development | 7 | 5 | 12 | 116 |
| Other expenses | 277 | 487 | 764 | 751 |
| Total | 1,788 | 1,353 | 3,141 | 2,951 |
An income tax provision was formed in Q2 2007 amounting to �€ 18 thousand. According to local GAAP results, a net profit of �€ 1,048 thousand has been achieved in the first half year of 2007, only partly taxable due to previous loss carried forward, accumulated throughout the Company's history.
The geographical allocation of revenues from the product Premium Membership for the reporting period is shown in the table below:
| 01.04.2007 – 30.06.2007 in thousand € |
01.01.2007 – 31.03.2007 in thousand € |
01.01.2007 – 30.06.2007 in thousand € |
01.04.2006 – 30.06.2006 in thousand € |
01.01.2006 – 31.03.2006 in thousand € |
01.01.2006 – 30.06.2006 in thousand € |
|
|---|---|---|---|---|---|---|
| Germany | 3,323 | 3,012 | 6,335 | 1,604 | 1,172 | 2,776 |
| Others Europe | 688 | 628 | 1,316 | 390 | 285 | 675 |
| Asia Pacific | 60 | 52 | 112 | 35 | 23 | 58 |
| America | 45 | 41 | 86 | 27 | 17 | 44 |
| Other | 6 | 20 | 26 | 15 | 12 | 27 |
| Total | 4,122 | 3,753 | 7,875 | 2,071 | 1,509 | 3,580 |
epublica GmbH, Hamburg, which is a shareholder of the Company and develops the software for the XING platform, provided services amounting to €1,042 thousand (prior period: €549 thousand) during the reporting period.
Notifications received in accordance with section 21 of the German Securities Trading Act On January 17, 2007, Wellington Partners III Management Ltd. Jersey, Channel Islands, has informed XING, that its voting rights on the company totalled 13.66 on December 05, 2006.
On January 17, 2007, Wellington Partners III Management Ltd. Jersey, Channel Islands, has informed XING, that its voting rights on the company have fallen below the 10 limit of the voting rights on December 11, 2006 and now amount to 7.85%
On June 12, 2007, Absolute Capital Management Holdings Limited, George Town, Cayman Islands, has informed XING, that its voting rights on the company have fallen below the 3 limit of the voting rights on June 05, 2007 and now amount to 2.89%
Information on director's dealings pursuant to Section 15 a of the German Securities Trading Law can be downloaded from the Company's website under the Investor Relations heading.
The acquisition of Neurona in June 2007, which has already been outlined in the section labeled "Acquisition", was one of the major events during the interim period.
In addition, on June 14, 2007, XING AG announced a comprehensive partnership with Zoom Information Inc. (ZoomInfo).
The partnership provides XING's 3,5 million-plus members with immediate access to profiles detailing nearly 36 million businesspeople and 3.8 million companies directly on the XING platform. Under the terms of the partnership, all XING members have access to ZoomInfo profiles and XING Premium Members are able to contact over 18 million professionals directly and securely. The contract foresees a mutual revenue share.
On August 17, 2007 the Supervisory Board of XING AG appointed Burkhard Blum as new member of the Executive Board to assume responsibility of Corporate Development.
On August 21, 2007, the Executive Board signed an agreement for the divesture of First Tuesday AG. Management of the key customer relationships, which comprised the prime source of value in the company, has been relocated to XING in Hamburg. In selling First Tuesday, XING aims to reduce the ongoing cost of maintaining the legal entity, as well as reduce the ongoing operating costs associated with local personnel and other expenses. After the reporting date, several buyers expressed interest in acquiring the subsidiary to pursue its core commercial activities. The Executive Board expects the transaction to be completed within the third quarter and to have an overall negligible effect on the overall net assets of the Company.
Hamburg, August 2007
Lars Hinrichs Eoghan Jennings Chairman of CFO the Executive Board XING AG XING AG
To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the interim consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the interim management report of the group includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal opportunities and risks associated with the expected development of the group for the remaining months of the financial year.
Hamburg, August 2007
Lars Hinrichs Eoghan Jennings Chairman of CFO the Executive Board XING AG XING AG
We have reviewed the interim condensed consolidated financial statements prepared by Xing AG, Hamburg, Germany, comprising the balance sheet, the income statement, the cash flow statement, the statement of changes in equity and selected explanatory notes, together with the interim group management report for the period from January 1, 2007 to June 30, 2007, which are part of the half-yearly financial report pursuant to Sec. 37w WpHG ["Wertpapierhandelsgesetz": German Securities Trading Act]. The preparation of the interim condensed consolidated financial statements in accordance with IFRSs [International Financial Reporting Standards] on interim financial reporting as adopted by the EU and of the interim group management report in accordance with the requirements of the German Securities Trading Act applicable to interim group management reports is the responsibility of the Company's management. Our responsibility is to issue a report on the interim condensed consolidated financial statements and the interim group management report based on our review.
We conducted our review of the interim condensed consolidated financial statements and the interim group management report in accordance with German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the review to obtain a certain level of assurance in our critical appraisal to preclude that the interim condensed consolidated financial statements have not been prepared, in all material respects, in accordance with IFRSs on interim financial reporting as adopted by the EU and that the interim group management report has not been prepared, in all material respects, in accordance with the requirements of the German Securities Trading Act applicable to interim group management reports. A review is limited primarily to inquiries of company employees and analytical assessments and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot issue an audit opinion.
Based on our review nothing has come to our attention that causes us to believe that the interim condensed consolidated financial statements have not been prepared, in all material respects, in accordance with IFRSs on interim financial reporting as adopted by the EU and that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports.
Hamburg, Germany, August 17, 2007
Ernst & Young AG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft
Klimmer Borcherding Wirtschaftsprüfer Wirtschaftsprüfer [German Public Auditor] [German Public Auditor]
Key data
| Trading symbol | O1BC |
|---|---|
| German Securities Code Number (WKN) | XNG888 |
| ISIN | DE000XNG8888 |
| Bloomberg | O1BC |
| Reuters | OBCGn.DE |
| Market segment | Prime Standard |
| Stock exchanges | Berlin, Düsseldorf,Frankfurt, Munich, Stuttgart |
| Date | Event |
|---|---|
| November 20, 2007 | Publication of results for the first nine months of financial year 2007 |
Gänsemarkt 43 20354 Hamburg Germany
Phone +49 40 41 91 31– 0 Fax +49 40 41 91 31– 11 [email protected] www.xing.com
Phone +49 40 41 91 31– 19 Fax +49 40 41 91 31– 11 [email protected]
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