Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

For the fiscal year ended December 31, 2019.2020.

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

For the transition period from to

OR

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

Date of event requiring this shell company report

 

Commission file number: 001-38588

 

Opera Limited

(Exact name of Registrant as specified in its charter)

 

N/A

(Translation of Registrant’sRegistrants name into English)

 

Cayman Islands

(Jurisdiction of incorporation or organization)

 

Vitaminveien 4, 0485 Oslo, Norway

(Address of principal executive offices)

 

Mr. Yahui Zhou, Chief Executive Officer

c/o Aaron McParlan, General Counsel

Vitaminveien 4, 0485 Oslo, Norway

 

Tel: +47 2369-2400

 

E-mail: legal@opera.com

 

 

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section12(b) of the Act:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

American Depositary Shares, each representing

two ordinary shares, par value US$0.0001 per share

OPRA

The Nasdaq Stock Market LLC

 

Securities registered or to be registered pursuant to Section12(g) of the Act:

None

(Title of Class)

 

1

 

Securities for which there is a reporting obligation pursuant to Section15(d) of the Act:

None

(Title of Class)

 

Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

237,826,326228,285,684 ordinary shares, par value US$0.0001 per share, as of December 31, 20192020

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ☐    No  ☒

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☒   No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  ☒   No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ☐

Accelerated filer ☒

Non-accelerated filer  ☐

Emerging growth company ☒

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act.   ☐

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.                          ☐     

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP   ☐    International Financial Reporting Standards as issued by the International Accounting Standards Board  ☒  Other  ☐

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17  ☐    Item 18  ☐

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  ☐    No  ☐

 

2

 

TABLE OF CONTENTS

 

Page

CONVENTIONS THAT APPLY TO THIS ANNUAL REPORT ON FORM 20-F

4

FORWARD-LOOKING STATEMENTS

5

FORWARD LOOKING STATEMENTSPART I

5

6

PART I

6

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

6

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

6

ITEM 3. KEY INFORMATION

6

ITEM 4. INFORMATION ON THE COMPANY

30

34

ITEM 4A. UNRESOLVED STAFF COMMENTS

42

46

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

42

46

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

59

70

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

67

77

ITEM 8. FINANCIAL INFORMATION

69

78

ITEM 9. THE OFFER AND LISTING

70

79

ITEM 10. ADDITIONAL INFORMATION

70

80

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

77

86

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

79

87

PART II

89

PART II

80

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

80

89

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

80

89

ITEM 15. CONTROLS AND PROCEDURES

81

89

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

82

90

ITEM 16B. CODE OF ETHICS

82

90

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

83

91

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

83

91

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

83

91

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

84

92

ITEM 16G. CORPORATE GOVERNANCE

84

92

ITEM 16H. MINE SAFETY DISCLOSURE

92

84PART III

93

PART III

84

ITEM 17 FINANCIAL STATEMENTS

84

93

ITEM 18 FINANCIAL STATEMENTS

84

93

ITEM 19. EXHIBITS

85

93

 

3

 

CONVENTIONSCONVENTIONS THAT APPLY TO THIS ANNUAL REPORT ON FORM 20-F

 

Unless otherwise indicated and except where the context otherwise requires:

 

 

“active user” refers to a user, calculated based on device identification, that has accessed one of our mobile browsers, PC browsers or other applications at least once during a given period. A unique user that is active in more than one of the applications on our platform is counted as more than one active user;

  

 

“ADSs” refer to American depositary shares, each of which represents two ordinary shares;

  

 

“China” or “PRC” refers to the People’s Republic of China, excluding, for the purpose of this annual report only, Taiwan and the special administrative regions of Hong Kong and Macau;

  

 

“MAUs” or “monthly active users” refers to the average number of active users during eachof any month (within a given period), calculated as of its final day using a 30-day lookback window;

  

 

“shares” or “ordinary shares” refers to our ordinary shares, par value US$0.0001 per share;

  

 

“South Asia” comprises the four distinct markets of India, Pakistan, Bangladesh and Sri Lanka;

  

 

“Southeast Asia” comprises the six distinct markets of Indonesia, Vietnam, Thailand, the Philippines, Malaysia and Myanmar;

  

 

“US$,” “U.S. Dollars,” “$” and “dollars” refer to the legal currency of the United States; and

  

 

“we,” “us,” “our company,” “the Group,” “our group,” “our” or “Opera” refers to Opera Limited†, an exempt company incorporated under the laws of the Cayman Islands with limited liability that is the holding company of our group.

 

† On June 25, 2018, Opera Limited became our holding company by way of an exchange of equity interests in which the existing members of Kunhoo Software LLC (our previous ultimate holding company) exchanged their interests in Kunhoo Software LLC for ordinary shares having substantially the same rights in Opera Limited. At such time, the historical consolidated financial statements of Kunhoo Software LLC became those of Opera Limited. For convenience, we refer herein to such historical consolidated financial statements as being those of Opera Limited. Unless stated otherwise, all share and per share information for periods prior to June 25, 2018, reflect the capitalization of Opera Limited.

 

All discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.

 

4


 

FORWARD LOOKINGFORWARD-LOOKING STATEMENTS

 

This annual report contains forward-looking statements that involve risks and uncertainties. All statements other than statements of current or historical facts are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, including those listed under “Item 3. Key Information—D. Risk Factors,” that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

 

In some cases, you can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements about:

 

 

our goals and strategies;

  

 

our expected development and launch, and market acceptance, of our products and services;

  

 

our future business development, financial condition and results of operations;

  

 

the expected growth in, and market size of, the global internet industry;

  

 

expected changes in our revenues, costs or expenditures;

  

 

our expectations regarding demand for and market acceptance of our brand, platforms and services;

  

 

our expectations regarding growth in our user base and level of engagement;

  

 

our ability to attract, retain and monetize users;

  

 

our ability to continue to develop new technologies and/or upgrade our existing technologies;

  

 

growth of and trends of competition in our industry;

  

 

government policies and regulations relating to our industry; and

  

 

general economic and business conditions in the markets we have businesses.

 

You should read this annual report and the documents that we refer to in this annual report with the understanding that our actual future results may be materially different from and worse than what we expect. Other sections of this annual report include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time, and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

 

You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

This annual report also contains statistical data and estimates that we obtained from industry publications and reports generated by government or third-party providers of market intelligence. Although we have not independently verified the data, we believe that the publications and reports are reliable. However, the statistical data and estimates in these publications and reports are based on a number of assumptions and if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. In addition, due to the rapidly evolving nature of the online content consumption and e-commerce industries, projections or estimates about our business and financial prospects involve significant risks and uncertainties. 

 

5


 

PART I

 

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

ITEM 3.

KEY INFORMATION

 

A.

Selected Financial Data

 

The following summary historical consolidated statements of operations data for the period from January 1, 2016 to November 3, 2016 (the “Predecessor”) and from the inception of Opera Limited (as successor-in-interest to Kunhoo Software LLC) on July 26, 2016 to December 31, 2016 and for the years ended December 31, 2017, 2018 and 2019, and summary consolidated statements of financial position data as of December 31, 2016, 2017, 2018 and 2019 (the “Successor”), have been derived from our audited consolidated financial statements. 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.Not applicable.

The selected consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements and the related notes and the “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report. Our historical results are not necessarily indicative of results expected for future periods.

Summary Consolidated Statement of Operations

  

2016

  

2017

  

2018

  

2019

 
  

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)

  

Successor Group for the year ended December 31, 2017

  

Successor Group for the year ended December 31, 2018 (3)

  

Successor Group for the year ended December 31, 2019 (4)

 
                         
      

(US$ in thousands, except per share and ADS amounts)

 
                         

Revenue

  88,518   18,767   107,285   128,893   172,276   334,855 

Other income

  -   -   -   5,460   -   - 
                         

Operating expenses:

                        

Cost of revenue (5)

  (638)  (469)  (1,107)  (3,969)  (20,009)  (73,991)

Personnel expenses including share-based remuneration

  (35,493)  (5,972)  (41,465)  (42,134)  (34,683)  (61,029)

Marketing and distribution expense

  -   -   (30,530)  (30,971)  (31,381)  (73,150)

Credit loss expense

  -   -   866   (1,837)  678   (577)
Other changes in fair value of loans to customers  -   -   -   -   (528)   (54,302)

Depreciation and amortization

  (9,586)  (3,082)  (16,712)  (16,604)  (12,694)  (18,933)

Other expenses

  (42,486)  (19,032)  (25,754)  (26,536)  (28,359)  (32,210)

Restructuring costs

  (3,911)  -   (3,911)  (3,240)  -   - 

Total operating expenses

  (92,113)  (28,555)  (118,613)  (124,114)  (126,975)  (314,192)

Operating profit (loss)

  (3,595)  (9,788)  (11,328)  10,239   45,301   20,662 
                         

Share of net income (loss) of associates and joint ventures

  (2,664)  (237)  (2,901)  (1,670)  (3,248)  (3,818) 
Change in fair value of preferred shares in associates  -   -   -   -   -   37,900 

  2016  2017  2018  2019 
  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)  Successor Group for the year ended December 31, 2017  Successor Group for the year ended December 31, 2018 (3)  Successor Group for the year ended December 31, 2019 (4) 
                         
      (US$ in thousands, except per share and ADS amounts) 
                         

Net finance income (expense):

                        

Finance income

  -   37   37   1,054   1,637   10,530 

Finance expense

  (1,378)  (24)  (1,402)  (238)  (1,695)  (1,505)

Net foreign exchange gain (loss)

  (1,212)  212   (1,000)  (1,881)  (354)  (269)

Net finance income (expense)

  (2,590)  225   (2,365)  (1,065)  (412)  8,756 

Net income (loss) before income taxes

  (8,849)  (9,800)  (16,594)  7,504   41,641   63,500 

Income tax (expense) benefit

  743   2,096   3,850   (1,440)  (6,481)  (5,602)

Net income (loss)

  (8,106)  (7,704)  (12,744)  6,064   35,160   57,899 
                         

Basic and diluted income (loss) per share

                        

Basic, US$

  (0.04)  (0.04)  (0.07)  0.03   0.17   0.26 

Diluted, US$

  (0.04)  (0.04)  (0.07)  0.03   0.17   0.25 
                         

Basic and diluted income (loss) per ADS

                        

Basic, US$

  (0.09)  (0.08)  (0.13)  0.06   0.35   0.52 

Diluted, US$

  (0.09)  (0.08)  (0.13)  0.06   0.34   0.51 
                         

Non-IFRS Financial Measures

                        

Adjusted EBITDA (2)

  10,816   (6,706)  10,210   34,119   65,794   45,523 

Adjusted net income (loss) (2)

  (7,229)  (8,264)  (9,226)  17,796   46,136   67,635 


(1)

Including pro forma adjustments. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Unaudited Pro Forma Consolidated Financial Information” in our 2018 Form 20-F filed with the SEC on April 17, 2019.

(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 “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Non-IFRS Financial Measures.”

(3)

Effective January 1, 2018, we adopted IFRS 9 and IFRS 15.

(4)

Effective January 1, 2019, we adopted IFRS 16. The impact of adopting this standard is described in Note 3 to our consolidated financial statements included elsewhere in this annual report.

(5)Certain expenses in the comparative periods have been reclassified as Cost of revenue. See Note 7 to our consolidated financial statements included elsewhere in this annual report for more details. 

Summary Consolidated Statement of Financial Position

  

As of December 31,

 
  

2016

  

2017

  

2018

  

2019

 
  

(US$ in thousands)

 

Selected Consolidated Statement of Financial Position Data:

                

Total non-current assets

  561,511   561,989   587,213   642,293 

Intangible assets

  124,536   118,620   115,444   110,807 

Investments in associates and joint ventures

  1,043   5,517   35,060   76,300 

Total current assets

  78,967   74,311   238,090   418,327 

Loans to customers

  -   -   3,092   93,115 

Cash and cash equivalents

  34,181   33,207   177,873   139,487 

Marketable securities

  -   -   1,165   42,146 

Total cash, cash equivalents, and marketable securities

  34,181   33,207   179,038   181,633 

Total assets

  640,479   636,300   825,303   1.060,620 

Total equity

  568,197   583,503   775,460   912,206 

Total non-current liabilities

  19,010   15,947   15,841   19,844 

Total current liabilities

  53,272   36,850   34,002   128,570 

Total liabilities

  72,282   52,797   49,843   148,414 

Total equity and liabilities

  640,479   636,300   825,303   1.060,620 

 

B.

Capitalization and Indebtedness

 

Not applicable.

 

C.

Reasons for the Offer and Use of Proceeds

 

Not applicable.

6

 

D.

Risk Factors

 

Risks Related to Our Business and Industry

 

We may fail to maintain or grow the size of our user base or the level of engagement of our users.

 

The size and engagement level of our user base are critical to our success. Our business and financial performance have been and will continue to be significantly affected by our success in adding, retaining and engaging active users. We continue to invest significant resources to grow our user base and increase user engagement, whether through innovations, providing new or improved content or services, marketing efforts or other means. While our user base has expanded significantly in the last threeseveral years, we cannot assure you that our user base and engagement levels will continue growing at satisfactory rates, or at all. Our user growth and engagement could be adversely affected if:

 

 

we fail to maintain the popularity of our platforms among users;

  

 

we are unable to continue to develop products that work with a variety of mobile operating systems, networks and smartphones;

  

 

we are unable to maintain the quality of our existing content and services;

  

 

we are unsuccessful in innovating or introducing new, best-in-class content and services;

  

 

we fail to adapt to changes in user preferences, market trends or advancements in technology;

  

we are unsuccessful with cross-selling new products and services to our existing user base;

 

our partners who provide content to Opera News and our other platform applications do not create content that is engaging, useful, or relevant to users;

  

 

our partners who provide content to Opera News and our other platform applications decide not to renew agreements or not to devote their resources to creating engaging content;

  

 

our global distribution partners decide not to distribute our software on their products or platforms or impose adverse new restrictions or requirements for distribution on their products or platforms;

  

 

we fail to provide adequate service to users or partners;

 

 

technical or other problems prevent us from delivering our content or services in a timely and reliable manner or otherwise affect the user experience;

  

 

there are user concerns related to privacy, safety, fund security or other factors;

  

 

there are adverse changes to our platforms that are mandated by, or that we elect to make to address, legislation, regulation or litigation, including settlements or consent decrees;

  

 

we fail to maintain the brand image of our platforms, or our reputation is damaged; or

  

 

there are unexpected changes to the demographic trends or economic development in the markets that we compete in.

 

Our efforts to avoid or address any of these events could require us to incur substantial expenditures to modify or adapt our content, services or platforms. If we fail to retain or continue growing our user base, or if our users reduce their engagement with our platforms, our business, financial condition and results of operations could be materially and adversely affected.

 

7

We face intense competition in a number of spaces and industries and if we do not continue to innovate and provide products and services that meet the needs of our users, we may not remain competitive.

 

We face intense competition in all of the products and services we offer. In the browser space, we generally compete with other global browser developers, including companies such as Google (Chrome browser), Apple (Safari browser), Samsung and Microsoft (Internet Explorer and Edge browsers) and, which have distributional or other advantages on their respective hardware or software platforms. We also compete with other regional internet companies that have strong positions in particular countries. In the content space, we have faced significant competition from other internet companies promoting their own content products and services globally, including Google and Apple, and traditional media such as local and global newspapers and magazines. In addition, we compete with all major internet companies for user attention and advertising spend. Moreover, in emerging international markets, where mobile devices often lack large storage capabilities, we may compete with other applications for the limited space available on a user’s mobile device. As we introduce new products, as our existing products evolve, or as other companies introduce new products and services, we may become subject to additional competition. For example, in 2018, we launched the Opera News App, our first standalone AI-powered news-publishing appDify cashback and payments solution in February 2021 and we enteredmay further expand into other financial services businesses in the fintech business with the acquisition of OKash.future. For details relating to the increasing competition we may face in our fintech operations, see “--As we“--We may not be able to expand our fintechfinancial services business operation, we may face increasing competition from localeffectively and international competitors, and if we do not compete effectively, our operating results could be materially and adversely affected.successfully.” While we view our new products as an extensionextensions of Opera’s mobileexisting product portfolio, adding new products and services subjects us to additional competition and new competitors.

 

Many of our current and potential competitors have significantly greater resources and broader global recognition and occupy better competitive positions in certain markets or on certain platforms than we do. These factors may allow our competitors to respond to new or emerging technologies and changes in market requirements better than we can. Our competitors may also develop products, features or services that are similar to ours or that achieve greater market acceptance. These products, features and services may undertake more far-reaching and successful product development efforts or marketing campaigns, or may adopt more aggressive pricing policies. In addition, our partners may use information that we share with them to develop or work with competitors to develop products or features that compete with us. Certain competitors, including Apple, Microsoft, Samsung and Google, could use strong or dominant positions on their respective platforms or in one or more markets to gain competitive advantages against us in areas where we operate, including by:

 

 

integrating competing features into products they control such as web browsers or mobile device operating systems;

  

 

making acquisitions for similar or complementary products or services; or

  

 

impeding Opera’s accessibility and usability by modifying or imposing use restrictions on existing hardware and software on which the Opera application operates or upon which it depends.

 

As a result, our competitors may acquire and engage users at the expense of our user growth or engagement, which may seriously harm our business.

 

We believe that our ability to compete effectively depends on many factors, many of which are beyond our control, including:

 

 

the usefulness, novelty, performance and reliability of our products compared to our competitors;

  

 

the size and demographics of our MAUs;

  

 

the timing and market acceptance of our products, including developments and enhancements of our competitors’ products;

  

 

our ability to monetize our products;

8

 

the effectiveness of our marketing and distribution teams;

  

 

our ability to establish and maintain partners’ interest in using Opera;

  

 

the frequency, relative prominence and type of advertisements displayed on our applications or by our competitors;

  

 

the effectiveness of our customer service and support efforts;

  

 

the effectiveness of our marketing activities;

  

 

changes as a result of legislation, regulatory authorities or litigation, including settlements and consent decrees, some of which may have a disproportionate effect on us;

  

 

acquisitions or consolidation within the industries in which we operate;

  

 

our ability to attract, retain and motivate talented employees, particularly engineers and sales personnel;

  

 

our ability to cost-effectively manage and scale our rapidly growing operations; and

  

 

our reputation and brand strength relative to our competitors.

 

If we cannot effectively compete, our user engagement may decrease, which could make us less attractive to users, advertisers and partners and seriously harm our business.

 

We may fail to keep up with rapid changes in technologies and mobile devices.

 

The PC and mobile internet industry is characterized by rapid technological changes. Our future success will depend on our ability to respond to rapidly changing technologies, adapt our services to evolving industry standards and improve the performance and reliability of our products and services. Our failure to adapt to such changes could harm our business. In addition, changes in mobile devices resulting from technological development may also adversely affect our business. If we are slow to develop new products and services for the latest mobile devices, or if the products and services we develop are not widely accepted and used by mobile device users, we may not be able to capture a significant share of this increasingly important market. In addition, the widespread adoption of new internet, mobile, networking or telecommunications technologies or other technological changes could require substantial expenditures to modify or adapt our products, services or infrastructure. If we fail to keep up with rapid technological changes to remain competitive, our future success may be adversely affected.

 

We may not succeed in managing or expanding our business across the expansive and diverse markets that we operate in.

 

Our business has become increasingly complex as we have expanded the markets in which we operate, the variety of products and services we offer and the overall scale of our operations. We have expanded and expect to continue to expand our headcount, office facilities and infrastructure. As our operations continue to expand, our technology infrastructure systems and corporate functions will need to be scaled to support our operations, and if they fail to do so, it could negatively affect our business, financial condition and results of operations.operations, and our ability to provide accurate and timely information.

 

The markets where we operate are diverse and fragmented, with varying levels of economic and infrastructure development and distinct legal and regulatory systems, and do not operate seamlessly across borders as a single or common market. Managing our growing businesses across these emerging markets requires considerable management attention and resources. Entering into new markets also involves various legal and regulatory risks and requires us to obtain various licenses and permits. We cannot assure you that we will be able to maintain, renew or obtain such licenses or permits on commercially reasonable terms or at all. We may incur additional compliance costs and may be subject to regulatory action or be ordered to cease our operations in certain markets if we fail to maintain, renew or obtain any material license or permit. Should we choose to expand into additional markets, these complexities and challenges could further increase. Because each market presents its own unique challenges, the scalability of our business is dependent on our ability to tailor our content and services to this diversity.

 

For example, we entered the market for content discovery and recommendation platforms in 2017 with our Opera News product. Opera News is now available in a wide variety of markets worldwide. In recent years, several countries have adopted regulatory regimes for news aggregation services requiring local registration or licensing, in some cases enabling more effective governmental restrictions on their citizens’ access to certain categories of information. In Western markets some countries have adopted legislation expanding publishers’ copyright entitlements on digital platforms including search engines, social media and content recommendation platforms. At the same time, there has been an increased discussion of the extent to which content aggregators should prevent the dissemination of “fake news,” on the one hand, or be prevented from restricting free expression on their platforms on the other hand.

In short, content recommendation and aggregation are increasingly regulated, and we anticipate that we will be subject to an increasingly diverse and fragmented regulatory environment over time.

 

Our growing multi-market operations also require that we incur certain additional costs, including costs relating to staffing, logistics, intellectual property licensing or protection, tariffs and other trade barriers. Moreover, we may become subject to risks associated with:

 

 

recruiting and retaining talented and capable management and employees in various markets;

  

 

challenges caused by distance, language and cultural differences;

  

 

providing content and services that appeal to the tastes and preferences of users in multiple markets;

  

 

implementing our businesses in a manner that complies with local laws and practices, which may differ significantly from market to market;

  

 

maintaining adequate internal and accounting control across various markets, each with its own accounting principles that must be reconciled to IFRS upon consolidation;

  

 

currency exchange rate fluctuations;

  

 

protectionist laws and business practices;

  

 

complex local tax regimes;regimes. Digital business models in general are under significant scrutiny from tax authorities around the world, given the considerable complexity that these can bring on a cross-border basis, particularly when there may be no physical presence involved;

  

 

potential political, economic and social instability;

  

 

potential local government initiatives to restrict access to our products and services; and

  

 

higher costs associated with doing business in multiple markets.

 

Any of the foregoing could negatively affect our business, financial condition and results of operations.

 

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We may not be able to expand our fintechfinancial services business effectively and successfully.

 

In December 2018, we acquired a fintech business that had already launched in Kenya. We have since grown this business in Kenya and later in Nigeria and India. This app-based microfinance service offers instant microcredit to approved borrowers under “OKash” and other local brands. In 2019, revenue from our microfinance business was US$128.4 million, representing 38.3%developed a non-custodial crypto currency wallet integrated into certain of our total revenue.browsers. In February 2021 we launched Dify, a cashback and payments solution debuting in Spain, with the intention to expand to additional European markets. We may pursue additional opportunities in or relating to the financial services industry in the future, for which we would provide different financial services to our users across different markets. These services may include consumer lending or other financial services and activities or initiatives relating to payments or crypto currencies. We have limited experience in most aspects of the operation of our microfinance business,financial services businesses, which makes it difficult to evaluate our future prospects. We intend to promote our new financial services offerings to our existing user base and the success of such cross promotional efforts is uncertain. Moreover, we may not be able to obtain the regulatory approvals, permits or licenses as may be required for all of our desired financial services initiatives. Failure to manage or grow our fintech businessfinancial services businesses may have material adverse effects on our overall financial position and results of operations.

 

WeTo the extent our financial services offerings come to involve lending money, either through consumer lending or otherwise, we may bear the credit risk of our borrowers. As we carry out our plans to expand our microfinance businessinto new markets and offer new financial services or loan products to an expanding borrower base, we may not be able to effectively manage theany relevant credit risks associated with the fintech business.our financial services businesses. Furthermore, we are subject to the risk of fraudulent activity associated with borrowers and parties handling borrower information. In addition, our business ismay be subject to credit cycles associated with the volatility of the general economy in the markets in which we operate our fintech business,financial services businesses, which are generally developing markets and could be impacted by a wide array of factors including commodity prices, political instability or health crises.factors. If economic conditions deteriorate, we may face an increased risk of default or borrower delinquency, which will result in lower returns or losses.

In order to maintain and increase the amount of loans we extend to borrowers, we must continue to offer competitive products and broaden our prospective borrower base, which may be affected by several factors, including our brand recognition and reputation, the financing fee rate charged, credit terms offered and our efficiency in engaging prospective borrowers. New product offerings may not be received favorably by consumers which may impact both our reputation and the strength of our brand. If we fail to promote our loan products and brand in an effective and cost-efficient ways, our business and results of operations may be harmed. As we expand our fintech business to new markets, we may not be able to effectively navigate regulatory rules in new regions and we may have to incur increasing expenses to establish our brand, attract new borrowers and comply with local laws and regulations. In addition, we currently utilize our own capital to fund loans, which limits our ability to scale our microfinance business. We may require external funding to fund and expand our microfinance business, which may not be available on terms that will allow us to extend loans to customers at a competitive rate or at all. Moreover, we plan to expand our fintech business beyond microfinance and we may not be successful due to our limited experience in those areas, which could impact our financial results.

As we expand our fintech business operation, we may face increasing competition from local and international competitors.

In 2019, we scaled our microfinance business in Kenya and further expanded our footprint to India. The financial service industry in these two countries are relatively new, evolving and highly competitive. Our competitors may operate different business models, have different cost structures or participate selectively in different market segments. They may ultimately prove more successful or more adaptable to consumer demand and new regulatory, technological and other developments. Some of our current and potential competitors have significantly more financial, technical, marketing and other resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their product and service offerings. Our competitors may also have longer operating history, more extensive borrower bases or funding sources, greater brand recognition and brand loyalty and broader relationships with funding partners than us. Additionally, a current or potential competitor may acquire, or form a strategic alliance with, one or more of our competitors. Our competitors may be better at developing new products, offering more attractive fees, responding more quickly to new technologies and undertaking more extensive and effective marketing campaigns. Furthermore, in light of the low barriers to entry in the fintech and microlending industry, more players may enter this market and increase the level of competition. We anticipate that more established internet, technology and financial services companies that possess large, existing user bases, substantial financial resources and established distribution channels may also enter the market in the future. In response to competition and in order to grow or maintain the amount of transactions facilitated to borrowers, we may have to offer lower initiation fees, which could materially and adversely affect our business and results of operations. If we are unable to compete with such companies and meet the need for innovation in our industry, the demand for our credit products could stagnate or substantially decline, which could harm our business and results of operations.

 

A small number of business partners contribute a significant portion of our revenues.

 

A small number of business partners contribute a significant portion of our revenues, and we have been continuously working on diversifying our partner base, and have seen a decrease in revenue concentration.revenues. Our largest business partner, Google contributed approximately 22.3%46.1% of our revenues in 2019,2020, compared to 39.4%42.1% in 2018,2019, and 43.2%42.1% in 2017.2018. Although we continue efforts to diversify our partner base, we cannot assure you that a limited number of partners will not continue to contribute a significant portion of our revenues for the near future. Consequently, any of the following events may materially and adversely impact our business, results of operations and growth prospects:

 

 

reduction, delay or cancellation of services by our large search partners;

  

a significant decrease in the business results or prospects of one of our large search partners;

 

failure by one or more of our large search partners to pay for our services; or

  

 

loss of one or more of our significant search customers and any failure to identify and acquire additional or replacement partners.

 

In addition, in2020 and 2019, 69.5%48.4% and 46.1% of our revenues respectively were generated from customers and monetization partners domiciled in four geographic markets, with 29.4%, 24.4%, 10.5% and 5.2% from India, Ireland, Kenya and Russia respectively.Ireland. During 2018, 54.7%58.4% of our revenues were generated from monetization partners domiciled in two geographic markets, with 44.6%47.6% and 10.1%10.8% from Ireland and Russia, respectively. During 2017, our monetization partners domiciled in Ireland and Russia contributed 49.0% and 14.2% of our revenues, respectively. This geographic concentration is not necessarily an indication of where user activity occurs as our end users are located across the world but is affected by the geographic concentration of domicile among certain of our primary monetization partners. We are especially exposed to risks related to the economic conditions, regional specific legislation and tax law of the identified countries.

 

We rely on our users’users web searches onwithin Opera browsers for a substantial portion of our revenues.

 

We share in the revenue generated by search partners when our users conduct searches initiated within the URL bar or search boxes embedded in our PC and mobile browsers. Revenue generated from search partners accounted for 52.9%49.7%, 46.6%48.7% and 25.7%50.9% of our total revenue in 2017, 2018, 2019 and 2019,2020, respectively. The revenue sharing and fee arrangements with these search partners are subject to change. If our search partners reduce or discontinue their advertising spending with us, we fail to attract new search or advertising partners, our search partners see reduced monetization or the fees we receive for the traffic we refer to our search partners significantly decrease, our business, financial condition and results of operations could be materially and adversely affected.

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Our existing business and our expansion strategy depend on certain key collaborative arrangements, and we may be unable to maintain or develop these relationships.

 

Our existing business, and our strategy for developing our business, involve maintaining and developing various types of collaborations with third parties, which provide us with access to additional user traffic, search services, products and technology. For example, our collaborations with Google and Yandex allow us to provide our users with best-in-class search services. We also work with leading device manufacturers, and chipset vendors and mobile software storefront providers, to ensure cost-efficient and reliable distribution of our products and services. Moreover, as part of our focus on expanding our AI capabilities, we formed strong relationships with high profile media and independent content providers to obtain comprehensive news and other content that we can make available to users on our platform. We consider these collaborations to be important to our ability to deliver attractive services, products and content offerings to our users, in order to maintain and expand our user and advertiser bases, and we believe that it will continue to be important for us to develop similar partnerships in the future. Our inability to maintain and grow such relationships could have an adverse impact on our existing business and our growth prospects.

 

We also have existing, and hope to develop additional, relationships with mobile device manufacturers for pre-installation of our browsers and standalone news app. If we are unable to maintain and expand such relationships, the quality and reach of delivery of our services will be adversely affected, and it may also be difficult for us to maintain and expand our user base and enhance awareness of our brand. In addition, our competitors may establish the same relationships that we have, which would diminish any advantage we might otherwise gain from these relationships.

 

We may fail to maintain and expand our collaborations with third party operators of internet properties.

 

We place promotional links to some of our search engine providers and other partners on our browsers, thereby providing easy access to premier search and other online services for our users and increasing our searchassociated revenues. Moreover, we rely on third party operators of internet properties for auxiliary services. For example, we use Google BigQuery to store and analyze most of our system data including number of active users, clicks-per-user, impressions, comments, likes, visits, etc. Google BigQuery allows us to affordably and seamlessly scale our data warehouse capacity affordably and seamlessly, which is key as we derive insights from our massive user base to enhance our AI-powered content discovery platform. If these third parties decide to stop collaborating with us, our revenues and growth and operations may be adversely affected.

 

Privacy concerns relating to our services and the use of user information could negatively impact our user base or user engagement, or subject us to governmental regulation and other legal obligations.

 

We collect certain user profile, user location and other data from our users in orderfor various purposes including to better understand our users and their needs and to support our AI-powered content discovery and recommendation platform and big data analytical capabilities for more targeted services such as personalized news, videos and other online content recommendations. We or our suppliers also collect or may in the future collect certain data from users of our fintechfinancial services products for purposes such as transaction attribution, account opening, credit scoring andand/or money transfer purposes. Concerns about the collection, use, disclosure or security of personal information and data or other privacy-related matters, even if unfounded, could damage our reputation, cause us to lose users and subject us to regulatory investigations, all of which may adversely affect our business. While we strive to comply with applicable data protection laws and regulations, as well as our privacy policies pursuant to our terms of use and other obligations we may have with respect to privacy and data protection, any failure or perceived failure to comply with these laws, regulations or policies may result, and in some cases have resulted, in inquiries and other proceedings or actions against us by government agencies or others, as well as negative publicity and damage to our reputation and brands, each of which could cause us to lose users and have an adverse effect on our business and operating results. The confidential information we collect, store and process may make us an attractive target and potentially vulnerable to cyber-attacks, computer virus, physical or electronic break-ins or similar disruptions.

 

 

Any actual or perceived systems failure or compromise of our security that results in the unauthorized access to or release of the data of our users because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our technology infrastructure are exposed and exploited, could significantly reduce our users’ willingness to use our services, as well as harm our reputation and brands. We expect to continue expending significant resources to protect against security breaches. The risk that these types of events could seriously harm our business is likely to increase as we expand the number of services we offer and increase the size of our user base.

 

We are exposed to cyber-attacks, data breaches, internal employee and other insider misconduct, computer viruses, physical and electronic break-ins and similar disruptions that may adversely impact our ability to protect the confidential information of our users and borrowers.

 

We collect, store and process certain personal and other sensitive data from our users during our daily business operations. For example, for our fintechfinancial services business, we or our external service providers may collect our users’ personal information for transaction attribution, account opening, credit assessment andand/or money transfer purposes. The external service providers on which we rely for credit assessment, loan distribution, and payment collection also collect and store information and data of our users. The data that we have processed and stored makes us and our external service providers a target and potentially vulnerable to cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions.

 

While we have taken measures to protect the confidential information that we have access to, our security measures could be breached. Moreover, the techniques used to obtain unauthorized, improper or illegal access to our and our external service providers’ systems, our data or customers’ data, disable or degrade service, or sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized until after they have been launched against a target. Unauthorized parties can and have attempted to gain access to our systems and facilities through various means, including, among others, hacking into the systems or facilities of us or our partners or customers, or attempting to fraudulently induce our employees, partners, customers or others into disclosing user names,usernames, passwords, or other sensitive information, which may in turn be used to access our information technology systems. Certain efforts may be state-sponsored and supported by significant financial and technological resources, making them even more difficult to detect. Computer malware, viruses and hacking, phishing and denial of service attacks by third parties have become more prevalent in our industry and have occurred on our systems in the past and may occur on our systems in the future. Although to date we have not suffered material costs or disruption to our business caused by any such incident, any future security breach could have a material adverse impact on our relationships with our borrowers and our reputation, business operations and financial performance.

 

Because we store, process and use data, some of which contains personal information, we are subject to complex and evolving laws and regulations across multiple jurisdictions regarding privacy, data protection and other matters.

 

We are subject to a variety of laws and regulations in the European Union, Nigeria and other markets that involve matters central to our business, including user privacy, rights of publicity, data protection, content, intellectual property, distribution, electronic contracts and other communications, competition, protection of minors, consumer protection, taxation and online-payment services. These laws can be particularly restrictive in certain countries, and constantly evolve and remain subject to significant change. In addition, the application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate. Because we store, process and use data, some of which contains personal information, we are subject to complex and evolving laws and regulations regarding privacy, data protection and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in investigations, claims, changes to our business practices, increased cost of operations and declines in user growth, retention or engagement, any of which could seriously harm our business.

 

In the European Union, for example, the General Data Protection Regulation, or the GDPR (replacing the 1995 Data Protection Directive), went into effect on May 25, 2018. The GDPR applies to processing of the personal data of users in the European Union/EEA, as well as by businesses established in the European Union/EEA. We serve our European users from our business establishment in Norway and consequently all our processing of the personal data of such users is subject to the GDPR. Likewise, the Nigeria Data Protection Regulation of 2019, or the NDPR, was adopted based on the GDPR but applying to the personal data of Nigerians. Under NDPR, entities collecting the personal data of Nigerians must register with Nigeria’s National Information Technology Development Agency and submit to the agency the results of annual data privacy audits conducted by registered data privacy auditors. We serve a substantial number of Nigerian users and consequently must comply with the NDPR. Non-compliance with the GDPR or NDPR may seriously harm our business and may result in significant penalties. Also

13

The application and interpretation of data privacy laws is also continuing to evolve in our markets. In July 2020, the Court of Justice for the European Union (or CJEU) handed down a decision with potentially significant implications for all companies, including Opera, which are engaged in the international transfer of personal data. The judgment, commonly referred to as Schrems II, invalidated the EU Commission’s “Privacy Shield” program, a self-certification framework that allowed some companies in the EEA to transfer personal data more easily to their partners in the United States; the decision also upheld, but called into question, the degree to which EU Commission-approved standard contractual clauses can be used for international personal data transfers. While Privacy Shield was not crucial to Opera’s business, both the Schrems II decision itself, and ensuing guidance and statements from European regulators, increased uncertainty and potential risk to our business and the businesses of our partners.

Additionally, the long-debated E-Privacy Regulation (replacing the 2002 E-Privacy Directive) whichrecently took significant steps forward in the EU parliamentary process and could be enacted within the next year. Although the text is currentlystill being processed by the legislative bodies of the European Union, is likely to affectdebated, we anticipate, based on drafts recently made public, that there may be an impact on our business. There is uncertainty relating to the potential impact of the E-Privacy Regulationproducts and how its requirements will relate to the requirements of the GDPR.

Our fintech business exposes us to credit risks.

We currently utilize our own capital to fund loans extended in our fintech business, and we therefore bear the credit risks of our borrowers. The delinquency rate of the loans we extend may increase in a manner that surpasses the benefits we derive, putting a significant portion of the funds that we lend at risk, which may adversely affect our financial position and results of operations. In the fourth quarter of 2019, our non-performing loans were 5.5% of our total loan value. We monitor our risk tolerance levels relating to microlending on a regular basis. Furthermore, we review the occurrence, progress and status of credit risks, and take appropriate actions to mitigate any adverse effects. However, we cannot assure you that our credit risk management measures could reduce risks we are exposed to or prevent repeated credit losses in a timely or effective manner or at all, which may adversely affect our financial position and results of operations. Additionally, we face risks from events outside of our direct control, including for example global pandemics, geo-political situations and rapid changes in economic environments, all of which could lead to increased credit risk. overall GDPR compliance strategy.

 

Our move into the financial service industry has subjected us to complex, evolving and uncertainregulatory regimes in multiple jurisdictions.

 

The online microfinance markets in the countries where we operate are new and may not evolve as expected. The regulatory regimes in some of these countries with respect to the online microfinance industry are new and evolving, and interpretation and enforcement regimes are subject to significant uncertainties. We have expanded our footprint into the financial service industry in multiple jurisdictions. In 2019, we scaled our microfinance business in Kenya and further expanded our footprint to India. India, before contributing these operations in August 2020 to an investee (Nanobank) in which we continue to hold a significant interest. The online microfinance markets in the countries where Nanobank operates may not evolve as expected and applicable regulatory regimes may be subject to significant uncertainties.

In January 2020, we completed the acquisition of the Estonian-based banking-as-a-service company PocosysPocosys. In July 2020, we invested in Fjord Bank, a Lithuanian specialized bank. In February 2021 we launched Dify, a cashback and announced an agreement subjectpayments solution debuting in Spain, with the intention to regulatory approvalexpand to further take over Pocopay, its sister company, which is a licensed payment institution regulated by the Estonian FSA that provides financial services in theadditional European Union.markets. These expansions have subjected us to complex regulatory regimes in multiple jurisdictions and increased our compliance burden. If one of our microfinance businessfinancial services products is deemed not to comply with any laws and regulations, our business, financial condition and results of operation could be materially and adversely affected. As a result of our expansion into new jurisdictions, each with different regulatory compliance requirements, we have incurred new compliance costs, and if any of the relevant regulatory authorities such as the Reserve Bank of India and the Estonian Financial Supervision Authority, introduce new regulations or impose greater restrictions on us, we may incur additional compliance costs. Other regulatory changes could require us to change our business model or processes in order to comply. We may also be subject to new taxes or cumbersome reporting obligations, which could be financially burdensome to us. If we fail to comply with any of the applicable regulations, we may be subject to monetary penalties, which would also affect our results of operations.

 

Our business depends on a strong brand and reputation, and we may not be able to maintain and enhance our brand or reputation or there may be negative publicity against us.

 

We believe that our “Opera” brand and our reputation have contributed significantly to the success of our business. We also believe that maintaining and enhancing the “Opera” brand and our reputation are critical to increasing the number of our users and customers. As our market becomes increasingly competitive, our success in maintaining and enhancing our brand and reputation will depend largely on our ability to remain as a leading provider of AI-powered news feed, browser and other products and services, which may become more expensive and challenging.

 

We consistently conduct marketing and brand promotion efforts and over the years have increased related spending. In addition, we work closely with key mobile device manufacturer partners to pre-install Opera products and co-market our products and services. However, we cannot assure you that our marketing and brand promotion activities in the future will achieve the expected brand promotion effect to acquire users in a cost-effective way. If we fail to maintain and further promote the “Opera” brand or our reputation, or if we incur excessive expenses in this effort, our business and results of operations may be materially and adversely affected.

 

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Our investments in companies, new businesses and new products, services and technologies are inherently risky and could disrupt our ongoing businesses.

 

We have invested and expect to continue to invest in promising companies, new businesses, products, services and technologies. For example, in November 2018 we invested in StarMaker,Star Group Interactive Inc. (formerly StarMaker), a fast-growing technology-driven social media company focused on music and entertainment, with a user base in emerging markets such as India, Indonesia and the Middle East. WeSince 2019 we have also invested in OPay, a leading mobile wallet and payment services company in Nigeria. In August 2020 we contributed our emerging market fintech assets to Nanobank, an investee in which we continue to have a significant interest. Further, in July 2020, we invested in Fjord Bank, a European financial services provider.

Such endeavors may involve significant risks and uncertainties. If our investee companiesinvestees fail to carry out their businesses in compliance with applicable laws and regulations, incur excessive amounts of debt or go bankrupt, or the business operations decline, the fair value of our investment in these companies may deteriorate. Certain of our investees, such as Nanobank for example, may be particularly material to our consolidated financial statements. To meet our own reporting obligations, we are dependent on such investees to fulfill their obligation to deliver their audited financial statements to us in a timely fashion. Moreover, the general operational risks, such as inadequate or failing internal control of these investee companies, may also expose our investments to risks. Furthermore, changes to the valuation of these investees may also impact our financial results, depending on the way in which we account for our investment. For example, because we hold preferred shares in OPay, IFRS requires us to account for changes to the fair value of OPay under gain (loss) from associates and joint ventures, which in 2019 resulted in an increase in our net income of US$33.9 million. Should the fair value of OPayany of these investments decrease in future years, our financial results will be adversely affected.

 

Likewise, we are subject to risks resulting fromIn accordance with our investment and efforts in new businesses and new products. In December 2018,policy, we acquired the “OKash” fintech business, a microcredit product which we believe is a new user-driven business opportunity that will benefit from our existing reach and scale in emerging markets. In 2019, we launched Opera Ads, our advertising solution targeting digital agencies, advertisers and brands to connect and engage directly with Opera users, and OList, an online marketplace and ecommerce platform in Nigeria. Due to these investments, we may be subject to uncertainties, including insufficient revenues from such investments or new products to offset any new liabilities assumed and expenses associated with these new investments, inadequate return of capital on our investments, distraction of management from current operations and unidentified issues not discovered in our due diligence of such strategies and offerings that could cause us to fail to realize the anticipated benefits of such investments and incur unanticipated liabilities. For example, as we carry out our plans to expand our microfinance business and offer new loan products to an expanding borrower base, we may not be able to effectively manage the credit risks associated with the microfinance business. The delinquency rate of the loans we extend may increase in a manner that surpasses the benefits we derive, putting a significant portion of the funds that we lend at risk, which may adversely affect our financial position and results of operations. Because these new ventures are inherently risky, no assurance can be given that such strategies and offerings will be successful and will not adversely affect our reputation, financial condition and operating results.

In addition, we investhave invested certain excess cash in marketable securities in accordance withand other financial instruments, and to a limited extent have written short duration call options on listed equity instruments. While we did not enter into short positions during 2020, our investment policy. Ourpolicy allows such positions to be entered into. For additional details of our investments, please see "Item 11. Market risk -- Equity price risk". These investments and instruments are subject to volatilities in the financial markets.market risks, including price risk arising from equity price volatility. We cannot guarantee that our investment portfolio will be safe or liquid or generate expected returns. Any failure to make these investments effectively could limit cash available for our business operation and expansion, result in financial losses and have a material adverse effect on our business, financial position, results of operation, and prospects.

 

We operate a platform that includes third parties over whose actions we have no control.

 

Our AI-powered content discovery platform integrates the services of third party content providers and provides a platform for independent bloggers and journalists to publish their work. For example, our recently released Opera News Hub is a new online media platform which enables bloggers and content writers to gain more exposure. We cannot control the actions of these third parties and if they were to upload any content that may be deemed inaccurate, misleading, offensive, socially unacceptable or otherwise violates applicable laws in relevant jurisdictions, or they do not perform their functions to our satisfaction or the satisfaction of our users, even if we may not be legally responsible for their actions, it may damage the reputation of our platform. In certain Western countries, such as some European states and the United States, there has recently been an increased emphasis on the veracity of online news reports, with the increasing social expectation that news and content aggregators will take steps to prevent the dissemination of “fake news.” We do not have plans to begin moderating the stories that are published and promoted through Opera News, which may cause our users to lose trust in our Opera News service. Likewise, if these third parties do not perform their functions in compliance with applicable law and with due respect for the legal rights of others, this also may damage the reputation of our platform or result in us incurring legal liabilities.

 

Our browsers integrate online search capabilities from leading international and regional search companies. We cannot be certain that our search partners will provide our users with the search results that they are looking for. Our browsers also contain short-cuts to third party e-commerce, travel and other businesses and we cannot be certain that the products and services that these third-parties provide will all be legitimate, of a sufficiently high quality or that they will accurately represent the products and services in their postings. Further, while we have agreements with each of these parties, any legal protections we might have in our agreements could be insufficient to compensate us for our losses and may not be able to repair the damage to our reputation.

 

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We rely upon third party channels and partners in distributing our products and services.

 

We rely upon a number of third parties for distribution of our products and services to end users. For example, we rely on mobile software application storefronts, including Google Play and Apple’s App Store, as well as various mobile manufacturer app stores, (including those of Samsung, Huawei, Xiaomi and Oppo), and the Google Play Store, to enable users to download our mobile software applications, and on key mobile manufacturers to pre-install our mobile software applications on mobile phones prior to sale. The promotion, distribution and operation of our software applications are subject to the standard terms and conditions of these distribution channel providers, which may be broad, poorly tailored to local conditions, and subject to frequent unilateral changes and interpretation by the channel providers. If one or more channel providers haltshalt the distribution of certain of our products and services on their platforms, as they have temporarily done in the past, our business may suffer. There is no guarantee that these distribution channel providers will distribute or continue to support or feature our product offerings. Furthermore, these channel providers may not enforce their standard terms and conditions for application developers consistently or uniformly across all applications and with all application developers, in part because such terms and conditions may not be practical or otherwise appropriate in certain markets. We will continue to be dependent on distribution channel providers, and any changes, bugs, technical or regulatory issues relating to such channel providers, our relationships with these channel providers, or the requirements or interpretation of their terms and conditions or pricing that is to our detriment could adversely impact our business. These may include any changes that degrade the functionality of our offerings, reduce or eliminate our ability to distribute our offerings, give preferential treatment to competitive products, limit our ability to deliver high quality offerings, or impose fees or other charges related to delivering our offerings. Further, if a channel provider believes that we have violated the terms and conditions of its platform, regardless of whether such terms and conditions have a legitimate basis or are practical in a given market, this could result in the channel provider restricting our ability to use their services and adversely affect our product usage and monetization. Furthermore, if any of these distribution channel providers delivers unsatisfactory services, engages in fraudulent action, or is unable or refuses to continue to provide its services to us and our users for any reason, it may materially and adversely affect our business, financial condition and results of operations.

Our fintech business relies on a number of third party service providers, and a disruption or failure in services provided by these third parties could materially and adversely affect our business.

We rely on a number of external service providers for certain critical aspect of our fintech business, including credit assessing, loan distribution, payment receipt and payment collection. We rely on proprietary and third party licensed risk assessment technology in assessing the creditworthiness of our borrowers and the risks associated with loans. If internal or external components of such risk assessment technology is flawed or ineffective, or if we otherwise fail or are perceived to fail in managing the default risks of loans we extend, the delinquency rate of these loans may increase in a manner that surpasses the benefits we derive, putting a significant portion of the funds that we lend at risk, which may adversely affect our financial position and results of operations. In addition, if we cannot continue to obtain third party licensed risk assessment services, or if we cannot transition to another service provider in a timely manner or at all, our ability to assess credit risks of our borrowers could suffer, which may adversely affect our business operations. In addition, we also rely on mobile money and payment service providers to distribute loans and receive repayments, and call centers to collect payments. If our mobile money and payment service providers lose their regulatory licenses, become insolvent or lose market share to other forms of payment, or if call center operations we rely on are disrupted, our results of operation could be adversely affected. Furthermore, these third parties may breach their agreements with us or refuse to provide services or renew our existing agreement on commercially reasonable terms. If any of our third party service providers provides unsatisfactory services or fails to provide services at all, we may face business disruptions, customer complaints, reputational damage and/or financial and legal exposure, which may in turn harm our fintech business.

 

We may fail to attract, motivate and retain the key members of our management team or other experienced and capable employees.

 

Our future success is significantly dependent upon the continued service of our executives and other key employees. If we lose the services of any member of management or any key personnel, we may not be able to locate a suitable or qualified replacement and we may incur additional expenses to recruit and train a replacement, which could severely disrupt our business and growth.

 

To maintain and grow our business, we will need to identify, hire, develop, motivate and retain highly skilled employees. Identifying, recruiting, training, integrating and retaining qualified individuals requires significant time, expense and attention. In addition, from time to time, there may be changes in our management team that may be disruptive to our business. We may also be subject to local hiring restrictions in certain markets, particularly in connection with the hiring of foreign employees, which may affect the flexibility of our management team. If our management team, including any new hires that we make, fail to work together effectively and execute our plans and strategies, or if we are not able to recruit and retain employees effectively, our ability to achieve our strategic objectives will be adversely affected and our business and growth prospects will be harmed.

 

Competition for highly skilled personnel is intense, particularly in the markets where our business operations are located. We may need to invest significant amounts of cash and equity to attract and retain new employees and we may not be able to realize returns on these investments.

 

We may fail to maintain or improve our technology infrastructure.

 

We are constantly upgrading our technology to provide improved performance, increased scale and better integration among our platforms. Adopting new technologies, upgrading our internet ecosystem infrastructure, maintaining and improving our technology infrastructure require significant investments of time and resources, including adding new hardware, updating software and recruiting and training new engineering personnel. Adverse consequences for the failure to do so may include unanticipated system disruptions, security breaches, computer virus attacks, slower response times, decreased user satisfaction and delays in reporting accurate operating and financial information. In addition, many of the software and interfaces we use are internally developed and proprietary technology. If we experience problems with the functionality and effectiveness of our software or platforms, or are unable to maintain and constantly improve our technology infrastructure to handle our business needs and ensure a consistent and acceptable level of service for our users, our business, financial condition, results of operation and prospects, as well as our reputation, could be materially and adversely affected.

 

 

Mobile malware, viruses, hacking and phishing attacks, spamming and improper or illegal use of our products or services could seriously harm our business and reputation.

 

Mobile malware, viruses, hacking and phishing attacks have become more prevalent in our industry, have occurred on our systems in the past and may occur on our systems in the future. Because of our prominence, we believe that we are an attractive target for these sorts of attacks. In some of our businesses we rely on mobile money providers and payment processors to conclude transactions. Such suppliers may hold funds on our behalf and may themselves be attractive targets for these sorts of attacks. Although it is difficult to determine what, if any, harm may directly result from an interruption or attack, any failure to maintain performance, reliability, security and availability of our products and technical infrastructure to the satisfaction of our users may seriously harm our reputation and our ability to retain existing users and attract new users. If these activities increase on our platform, our reputation, user growth and engagement, and operational cost structure could be seriously harmed. Likewise, such failures with respect to our suppliers may harm our reputation or result in a financial loss.

 

We may not be able to prevent others from unauthorized use of our intellectual property or brands.

 

We regard our patents, copyrights, trademarks, trade secrets, and other intellectual property as critical to our business. Unauthorized use of our intellectual property by third parties may adversely affect our business and reputation. We rely on a combination of intellectual property laws and contractual arrangements to protect our proprietary rights. It is often difficult to register, maintain and enforce intellectual property rights in the markets where we operate. For example, statutory laws and regulations are subject to judicial interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory interpretation in Africa, Southeast Asia, China, Russia and India. In addition, contractual agreements may be breached by counterparties and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights. Policing any unauthorized use of our intellectual property is difficult and costly and the steps we have taken may be inadequate to prevent the misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. We can provide no assurance that we will prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors.

 

Some of our applications contain open source software, which may pose increased risk to our proprietary software.

 

We use open source software in some of our applications, including our Opera browsers which incorporate Chromium browser technology, and we will use open source software in the future. In addition,We are supportive of the open source community, and we regularly contribute source code to open source software projects and release internal software projects under open source licenses and anticipate doingcontinuing to do so in the future. The terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to sell or distribute our applications. Additionally, we may from time to time face threats or claims from third parties claiming ownership of, or demanding release of, the alleged open source software or derivative works we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source license. These threats or claims could result in litigation and could require us to make our source code freely available, purchase a costly license or cease offering the implicated applications unless and until we can re-engineer them to avoid the alleged infringement. Such a re-engineering process could require significant additional research and development resources, and we may not be able to complete it successfully. In addition to risks related to license requirements, our use of certain open source software may lead to greater risks than use of third party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. Additionally, because any software source code we contribute to open source projects is publicly available, our ability to protect our intellectual property rights with respect to such software source code may be limited or lost entirely, and we are unable to prevent our competitors or others from using such contributed software source code. Any of these risks could be difficult to eliminate or manage and, if not addressed, could adversely affect our business, financial condition and results of operations.

 

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We rely upon the internet infrastructure, data center providers and telecommunications networks in the markets where we operate.

 

Our business depends on the performance and reliability of the internet infrastructure and contracted data center providers in the markets where we operate. We may not have access to alternative networks or data servers in the event of disruptions or failures of, or other problems with, the relevant internet infrastructure. In addition, the internet infrastructure, especially in the emerging markets where we operate, may not support the demands associated with continued growth in internet usage.

 

We use third party data center providers for the storing of data related to our business. We do not control the operation of these facilities and rely on contracted agreements to employ their use. The owners of the data center facilities have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms, or if one of our data center providers is acquired by another party, we may be required to transfer our servers and other infrastructure to new data center facilities, and we may incur significant costs and possible lengthy service interruptions in connection with doing so. Any changes in third party service levels at our data centers or any errors, defects, disruptions or other performance problems with our browsers or other services could adversely affect our reputation and adversely affect the online browsing experience. If navigation through our browsers is slower than our users expect, users may use our services less, if at all. Interruptions in our services might reduce our revenue, subject us to potential liability or adversely affect our ability to attract advertisers.

 

We also rely on major telecommunications operators in the markets where we operate to provide us with data communications capacity primarily through local telecommunications lines and data centers to host our servers. We and our users may not have access to alternative services in the event of disruptions or failures of, or other problems with, the fixed telecommunications networks of these telecommunications operators, or if such operators otherwise fail to provide such services. Any unscheduled service interruption could disrupt our operations, damage our reputation and result in a decrease in our revenue. Furthermore, we have no control over the costs of the services provided by the telecommunications operators to us and our users. If the prices that we pay for telecommunications and internet services rise significantly, our gross margins could be significantly reduced. In addition, if internet access fees or other charges to internet users increase, our user traffic may decrease, which in turn may cause our revenue to decline.

 

Our business depends on continued and unimpeded access to the internet by us and our users. Internet access providers may be able to restrict, block, degrade or charge for access to certain of our products and services, which could lead to additional expenses and the loss of users and advertisers.

 

Our products and services depend on the ability of our users to access the internet. Currently, this access is provided by companies that have significant market power in the broadband and internet access marketplace, including incumbent telephone companies, cable companies, mobile communications companies and government-owned service providers. Some of these providers have taken, or have stated that they may take measures, including legal actions, that could degrade, disrupt or increase the cost of user access to certain of our products by restricting or prohibiting the use of their infrastructure to support or facilitate our offerings, or by charging increased fees to us or our users to provide our offerings.

 

In addition, in some markets, our products and services may be subject to government-initiated restrictions or blockages. Such interference could result in a loss of existing users and advertisers, and increased costs, and could impair our ability to attract new users and advertisers, thereby harming our revenues and growth.

 

We plan to continue expanding our operations globally to markets where we have limited operating experience, which may subject us to increased business, economic and regulatory risks.

 

We plan to continue expanding our business operations globally and translating our products into other languages. Opera is currently available in more than 50 languages, and we have major offices in ten countries. We plan to enter new markets where we have limited or no experience in marketing, selling and deploying our products and services. If we fail to deploy or manage our operations in international markets successfully, our business may suffer. In the future, as our international operations increase, or more of our revenue and expenses are denominated in currencies other than the U.S. dollar, or Euros, our operating results may become more sensitive to fluctuations in the exchange rates of the currencies in which we do business. In addition, we are subject to a variety of risks inherent in doing business internationally, including:

 

 

political, social and economic instability;

  

 

risks related to the legal and regulatory environment in foreign jurisdictions, including with respect to privacy, localization and content laws as well as unexpected changes in laws, regulatory requirements and enforcement due to the wide discretion given local lawmakers and regulators regarding the enactment, interpretation and implementation of local regulations;

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potential damage to our brand and reputation due to compliance with local laws, including potential censorship and requirements to provide user information to local authorities;

 

 

fluctuations in currency exchange rates;

  

 

higher levels of credit risk and payment fraud;

  

 

complying with multiple tax jurisdictions;

  

 

enhanced difficulties of integrating any foreign acquisitions;

  

 

complying with a variety of foreign laws, including certain employment laws requiring national collective bargaining agreements that set minimum salaries, benefits, working conditions and termination requirements;

  

 

reduced protection for our intellectual property rights in some countries and/or heightened protection for intellectual property rights of content providers in other countries;

  

 

difficulties in staffing and managing global operations and the increased travel, infrastructure and compliance costs associated with multiple international locations;

  

 

regulations that might add difficulties in repatriating cash earned outside our core markets and otherwise preventing us from freely moving cash;

  

 

import and export restrictions and changes in trade regulation;

  

 

complying with statutory equity requirements;

  

 

complying with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar laws in other jurisdictions; and

  

 

complying with export controls and economic sanctions administered by the relevant local authorities, including in the United States and European Union, in our international business.

 

If we are unable to expand internationally and manage the complexity of our global operations successfully, our business could be seriously harmed.

 

We may not achieve the intended tax efficiencies of our corporate structure and intercompany arrangements, which could increase our worldwide effective tax rate.

 

Our corporate structure and intercompany arrangements, including the manner in which we conduct our intercompany and related party transactions, are intended to provide us with worldwide tax efficiencies. The application of tax laws of various jurisdictions to our business activities is subject to interpretation and also depends on our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The tax authorities of jurisdictions where we operate may challenge our methodologies for intercompany and related party arrangements, including transfer pricing, or determine that the manner in which we operate does not achieve the intended tax consequences, which could increase our worldwide effective tax rate and adversely affect our financial position and results of operations.

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A certain degree of judgment is required in evaluating our tax positions and determining our provision for income taxes. In the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. For example, our effective tax rate could be adversely affected by lower than anticipated earnings in markets where we have lower statutory rates and higher than anticipated earnings in markets where we have higher statutory rates, inability to fully utilize tax assets recognized on our balance sheet, by changes in foreign currency exchange rates or by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations. Any of these factors could materially and adversely affect our financial position and results of operations.

 

Industry data, projections and estimates contained in this annual report are inherently uncertain and subject to interpretation. Accordingly, you should not place undue reliance on such information.

 

Certain facts, forecasts and other statistics relating to the industries in which we compete contained in this annual report have been derived from various public data sources and third party industry reports. In deriving the market size of the aforementioned industries and regions, these industry consultants may have adopted different assumptions and estimates, such as the number of internet users. While we generally believe such reports are reliable, we have not independently verified the accuracy or completeness of such information. Such reports may not be prepared on a comparable basis or may not be consistent with other sources.

 

Industry data, projections and estimates are subject to inherent uncertainty as they necessarily require certain assumptions and judgments. Our industry data and market share data should be interpreted in light of the defined geographic markets and defined industries we operate in. Any discrepancy in the interpretation thereof could lead to different industry data, measurements, projections and estimates and result in errors and inaccuracies.

 

Our user metrics and other estimates are subject to inherent challenges in measuring our operations.

 

We regularly review metrics, including our MAUs, to evaluate growth trends, measure our performance and make strategic decisions. These metrics are calculated using internal company data and have not been validated by an independent third party. While these numbers are based on what we believe to be reasonable estimates for the applicable period of measurement, there are inherent challenges in measuring how our platforms are used across large populations throughout the regions that we operate in. For example, we believe that we cannot distinguish individual users who use multiple applications. Our user metrics are also affected by technology on certain mobile devices that automatically runs in the background of our applications when another phone function is used, and this activity can cause our system to miscount the user metrics associated with such applications.

 

Errors or inaccuracies in our metrics or data could result in incorrect business decisions and inefficiencies. For instance, if a significant understatement or overstatement of active users were to occur, we may expend resources to implement unnecessary business measures or fail to take required actions to remedy an unfavorable trend. Moreover, during the process of upgrading our platform in the past, we have lost certain historical metrics, such as the number of search queries, that we rely on to manage our operations. If partners or investors do not perceive our user, geographic or other operating metrics as accurately representing our user base, or if we discover material inaccuracies in our user, geographic or other operating metrics, our reputation may be seriously harmed.

 

If we fail to implement and maintain effective internal control over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.

 

As a public company in the United States, we are subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include a report from management on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F beginning with this annual report.20-F. In connection with the preparation of this annual report, management concluded that our internal control over financial reporting as of December 31, 20192020, was not effective due to the presence of the followingcertain control deficiencies that constitute material weaknesses in our internal control over financial reporting:reporting. These deficiencies were related to us not having designed and maintained effective internal control over certain accounting transactions. Specifically, we did not perform an appropriate risk assessment, design and implement appropriate controls including the monitoring of the effectiveness of those controls to ensure that accounting transactions were sufficiently analyzed and assessed against the requirements and to analyze complex accounting matters, including the timely preparation and review of contemporaneous documentation. While we have hired qualified accounting personnel, there continued to be insufficient capacity to appropriately identify and implement robust controls prior to December 31, 2020.

 

1.

We did not design and maintain effective internal control over certain accounting transactions. Specifically, we did not perform an appropriate risk assessment, design and implement appropriate controls including the monitoring of the effectiveness of those controls to ensure that accounting transactions were sufficiently analyzed and assessed against the requirements and to analyze complex accounting matters, including the timely preparation and review of contemporaneous documentation. We have introduced appropriately qualified accounting personnel however there was insufficient time to allow them to appropriately identify and implement robust controls prior December 31, 2019.
2.We did not perform an appropriate risk assessment in identifying specific risks with microlending businesses across several countries being operated in, and thereafter design and implement controls including monitor such controls in terms of oversight. Our process to evaluate the competence and expertise necessary to support the growth and complexity of the business, its financial reporting, and response to address shortcomings was not sufficiently implemented during 2019. As a result, we did not have a sufficient number of adequately trained personnel within the organization with assigned responsibility and accountability for the design, effective operation, and documentation of internal control over financial reporting.
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Although we are in the process of taking remedial measures to secure the resources necessary to fully implement our framework of internal controls, we cannot assure you that these material weaknesses will be cured in a timely manner. See “Item 15. Controls and Procedures—Management’s Annual Report on Internal Control over Financial Reporting.”

 

Moreover, during the course of documenting and testing our internal control procedures in order to satisfy the requirements of Section 404, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.

 

In addition, if we cease to be an “emerging growth company” as such term is defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, our reporting obligations as a public company may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.

 

We may be required to recognize impairment charges.

 

Our goodwill and other intangible assets totaled US$421.6425 million and US$110.8112 million, respectively, as of December 31, 2019.2020. We did not incur any impairment charges with respect to these long-lived assets in 2017, 2018, 2019 and 2019.2020. We also had US$26.118 million of furniture, fixtures and equipment as of December 31, 2019.2020. In accordance with applicable accounting standards, goodwill and intangible assets that are not amortized are subject to assessment for impairment by applying a fair value or value in use baseduse-based test annually, and also when certain circumstances warrant, such as when our market capitalization falls below the book value of our equity. In addition to this indication of impairment, goodwill, intangible assets and furniture, fixtures and equipment are subject to assessment for impairment if there are other indicators of impairment, including:

 

 

losses of key customers;

  

 

unfavorable changes in technology or competition;

  

 

unfavorable changes in user base or user tastes

We also have investments in preferred shares in OPay and StarMaker, two associates of the Group. The carrying amounts of the preferred shares in OPay and StarMaker were US$49 million and US$55 million, respectively, as of December 31, 2020. The preferred shares are measured at fair value through profit or loss. While we recognized unrealized gains in 2020 from increases in fair value of the preferred shares in OPay by US$3 million and US$21 million for the preferred shares in StarMaker, we may recognize losses in future periods if the fair value of the shares decreases. Moreover, since the estimates of fair value are based on significant unobservable inputs, the estimates are subject to estimation uncertainty, as disclosed in Notes 2 and 16 to the annual consolidated financial statements included elsewhere in this annual report.

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Based upon future economic and financial market conditions, the operating performance of our reporting units and other factors, including those listed above, future impairment charges could be incurred. It is possible that such impairment, if required, could be material. Any future impairment charges that we are required to record could have a material adverse impact on our results of operations.

 

We may need additional capital but may not be able to obtain it on favorable terms or at all.

 

While we believe we have sufficient capital to fund our current growth plans, we may require additional capital in order to fund future plans for the additional growth and development of our businesses and any additional investments or acquisitions we may decide to pursue. If our cash resources are insufficient to satisfy our cash requirements, we may seek to issue additional equity or debt securities or obtain new or expanded credit facilities. Our ability to obtain external financing in the future is subject to a variety of uncertainties, including our future financial condition, results of operations, cash flows, share price performance, liquidity of international capital and lending markets and governmental regulations in the markets that we operate in. In addition, incurring indebtedness would subject us to increased debt service obligations and could result in operating and financing covenants that would restrict our operations. There can be no assurance that financing will be available in a timely manner or in amounts or on terms acceptable to us, or at all. Any failure to raise needed funds on terms favorable to us, or at all, could severely restrict our liquidity as well as have a material adverse effect on our business, financial condition and results of operations. Moreover, any issuance of equity or equity-linked securities could result in significant dilution to our existing shareholders.

 

We have limited business insurance coverage.

 

Consistent with customary industry practice in the markets that we operate in, our business insurance is limited. Any uninsured damage to our platforms, technology infrastructures or disruption of our business operations could require us to incur substantial costs and divert our resources, which could have an adverse effect on our business, financial condition and results of operations.

 

We are subject to risks related to litigation, including intellectual property claims and regulatory disputes.

 

We may be, and in some instances have been, subject to claims, lawsuits (including class actions and individual lawsuits), government investigations and other proceedings relating to intellectual property, consumer protection, privacy, labor and employment, import and export practices, competition, securities, tax, marketing and communications practices, commercial disputes and other matters. The number and significance of our legal disputes and inquiries have increased as we have grown larger, as our business has expanded in scope and geographic reach and as our services have increased in complexity.

 

Moreover, as a public company we have an elevated public profile, which may result in increased litigation and public awareness of such litigation. There is substantial uncertainty regarding the scope and application of many of the laws and regulations to which we are subject, which increases the risk that we will be subject to claims alleging violations of those laws and regulations. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in investigations, claims, changes to our business practices, increased cost of operations and declines in our user base, retention or engagement, any of which could seriously harm our business. In the future, we may also be accused of having, or be found to have, infringed or violated third party intellectual property rights.

 

Regardless of the outcome, legal proceedings can have a material and adverse impact on us due to their costs, diversion of our resources and other factors. We may decide to settle legal disputes on terms that are unfavorable to us. Furthermore, if any litigation to which we are a party is resolved adversely, we may be subject to an unfavorable judgment that we may not choose to appeal or that may not be reversed upon appeal. We may have to seek a license to continue practices found to be in violation of a third party’s rights. If we are required, or choose to enter into, royalty or licensing arrangements, such arrangements may not be available on reasonable terms, or at all, and may significantly increase our operating costs and expenses. As a result, we may also be required to develop or procure alternative non-infringing technology or discontinue the use of technology, and doing so could require significant effort and expense, or may not be feasible. In addition, the terms of any settlement or judgment in connection with any legal claims, lawsuits or proceedings may require us to cease some or all of our operations, or pay substantial amounts to the other party and could materially and adversely affect our business, financial condition and results of operations.

 

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We are currentlyhave been and expect to continue to be subject to and in the future may from time to time face, intellectual property infringement claims, which could be time consuming and costly to defend, and may require us to pay significant damages or cease offering any of our products or key features of our products.

 

We cannot be certain that the products, services and intellectual property used in the ordinary course of our business do not or will not infringe valid patents, copyrights or other intellectual property rights held by third parties. We operate platforms, in particular Opera News, which display third party content and through which third party content providers may use to distribute their content, and wecontent. We cannot assure you that we or such content providers have sufficient rights in theall content they distributedistributed via our platforms. We currently are,have been and may in the futureexpect to continue to be subject to claims or legal proceedings relating to the intellectual property of others in the ordinary course of our business and may in the future be required to pay damages or license fees, or to agree to restrict our activities. In particular, if we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property, may be ordered to pay damages and may incur licensing fees or be forced to develop alternatives. We may incur substantial expense in defending against third party infringement claims, regardless of their merit. Successful infringement claims against us may result in substantial monetary liability or may materially disrupt the conduct of our business by restricting or prohibiting our use of the intellectual property in question.

 

We do not have exclusive rights to certain technology, trademarks and designs that are crucial to our business.

 

We have applied for various patents relating to our business. While we have succeeded in obtaining some patents, some of our patent applications are still under examination by the various regulatory authorities in the markets that we operate in. Approvals of our patent applications are subject to determinations by the relevant local authorities that there are no prior rights in the applicable territory. In addition, we have also applied for initial registrations and/or changes in registrations relating to transfers of our Opera logos and other of our key trademarks to establish and protect our exclusive rights to these trademarks. While we have succeeded in registering the trademarks for most of these marks in our major markets under certain classes, the applications for initial registration, and/or changes in registrations relating to transfers, of some marks and/or of some of trademarks under other classes are still under examination by the relevant local authorities. Approvals of our initial trademark registration applications, and/or of changes in registrations relating to such transfers, are subject to determinations by the relevant local authorities that there are no prior rights in the applicable territories. We cannot assure you that these patent and trademark applications will be approved. Any rejection of these applications could adversely affect our rights to the affected technology, marks and designs. In addition, even if these applications are approved, we cannot assure you that any issued patents or registered trademarks will be sufficient in scope to provide adequate protection of our rights.

 

Our business may be adversely affected by third party software applications or practices that interfere with our receipt of information from, or provision of information to, our users, which may impair the user experience on our platform.

 

Our business may be adversely affected by third party software applications, which may be unintentional or malicious, that make changes to our users’ PCs or mobile devices and interfere with our products and services. These software applications may change the user experience on our platform by hijacking queries, altering or replacing the search results provided by our search engine partners to our users or otherwise interfering with our ability to connect with our users. Such interference can occur without disclosure to or consent from users, and users may associate any resulting negative experience with our products and services. Such software applications are often designed to be difficult to remove, block or disable. Further, software loaded on or added to mobile devices on which our search or othersoftware applications such as Opera News, are pre-installed may be incompatible with or interfere with or prevent the operation of such applications, which might deter the owners of such devices from using our services. If we are unable to successfully prevent or limit any such applications or systems that interfere with our products and services, our ability to deliver a high-quality browsing experience andor recommend relevant content to our users may be adversely affected.

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Interruption or failure of our information technology and communications systems may result in reduced user traffic and harm to our reputation and business.

 

Interruption or failure of any of our information technology and communications systems or those of the operators of third party internet properties that we collaborate with could impede or prevent our ability to provide our services. In addition, our operations are vulnerable to natural disasters and other events. Our disaster recovery plan for our servers cannot fully ensure safety in the event of damage from fire, floods, typhoons, earthquakes, power loss, telecommunications failures, hacking and similar events. If any of the foregoing occurs, we may experience a partial or complete system shutdown. Furthermore, our servers, which are hosted at third party internet data centers, are also vulnerable to break-ins, sabotage and vandalism. Some of our systems are not fully redundant, and our disaster recovery planning does not account for all possible scenarios. The occurrence of a natural disaster or a closure of an internet data center by a third party provider without adequate notice could result in lengthy service interruptions. Any system failure or inadequacy that causes interruptions in the availability of our services, or increases the response time of our services, could have an adverse impact on our user experience and satisfaction, our attractiveness to users and advertisers and future user traffic and advertising on our platform. To improve performance and to prevent disruption of our services, we may have to make substantial investments to deploy additional servers or one or more copies of our internet platforms to mirror our online resources.

 

Our results of operations are subject to seasonal fluctuations due to a number of factors.

 

We are subject to seasonality and other fluctuations in our business. RevenuesFor example, revenues from our e-commerce and travel partners are typically affected by seasonality due to various holidays that may result in higher than usual e-commerce transactions and travel-related activities, and similar seasonal trends may affect revenues from our search partners. We may not yet have sufficient historical information to accurately anticipate seasonal or other fluctuations in our newer business areas.

 

Our corporate actions are substantially controlled by our parent company, Kunlun, as well as our chairman and chief executive officer Mr. Yahui Zhou, who hashave the ability to control or exert significant influence over important corporate matters that require approval of shareholders, which may deprive you of an opportunity to receive a premium for your ADSs and materially reduce the value of your investment.

 

As of the date of this annual report, Beijing Kunlun Tech Co., Ltd. (“Kunlun”), a Chinese public company traded on the Shenzhen stock exchange, indirectly owns 54.57% of our issued and outstanding ordinary shares. As such, we are a consolidated subsidiary of Kunlun. In addition, Mr. Yahui Zhou, our chairman of the board and chief executive officer, beneficially owned 26.4%indirectly owns an additional 8.47% of the ordinaryour shares issued and outstandingis also a significant Kunlun shareholder, controlling 28.5% of Kunlun’s voting rights and serving on its board of directors. With his own holdings, as well as those of Kunlun, Mr. Yahui Zhou then may be in a position to effectively control 60.16%63.04% of theour voting power.

As a result of the foregoing, Kunlun and Mr. Yahui Zhou hashave the ability to control or exert significant influence over important corporate matters and investors may be prevented from affecting important corporate matters involving our company that require approval of shareholders, including:

 

 

the composition of our board of directors and, through it, any determinations with respect to our operations, business direction and policies, including the appointment and removal of officers;

  

 

any determinations with respect to mergers or other business combinations;

  

 

our disposition of substantially all of our assets; and

  

 

any change in control.

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These actions may be taken even if they are opposed by our other shareholders, including the holders of the ADSs. Furthermore, this concentration of ownership may also discourage, delay or prevent a change in control of our company, which could have the dual effect of depriving our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and reducing the price of the ADSs. As a result of the foregoing, the value of your investment could be materially reduced.

 

We may be the subject of anti-competitive, harassing or other detrimental conduct that could harm our reputation and cause us to lose users and customers.

 

In the future, we may be the target of anti-competitive, harassing, or other detrimental conduct by third parties. Allegations, directly or indirectly against us or any of our executive officers, may be posted in internet chatrooms or on blogs or websites by anyone, whether or not related to us, on an anonymous basis. The availability of information on social media platforms and devices is virtually immediate, as is its impact. Social media platforms and devices immediately publish the content their subscribers and participants post, often without filters or checks on the accuracy of the content posted. Information posted may be inaccurate and adverse to us, and it may harm our business, prospects or financial performance. The harm may be immediate without affording us an opportunity for redress or correction. In addition, such conduct may include complaints, anonymous or otherwise, to regulatory agencies. We have been and may again in the future be subject to regulatory investigations as a result of such third party conduct and may be required to expend significant time and incur substantial costs to address such third party conduct, and there is no assurance that we will be able to conclusively refute each of the allegations within a reasonable period of time, or at all. Additionally, our reputation could be harmed as a result of the public dissemination of anonymous allegations or malicious statements about our business, which in turn may cause us to lose users and customers and adversely affect the price of our ADSs.

 

If we fail to detect click-through fraud, we could lose the confidence of our advertisers and our revenues could decline.

 

Our business is exposed to the risk of click-through fraud on our partners’ advertisements. Click-through fraud occurs when a person clicks advertisements for a reason other than to view the underlying content of advertisements. If our advertising partners fail to detect significant fraudulent clicks or otherwise are unable to prevent significant fraudulent activity, the affected search advertisers may experience a reduced return on their investment in advertising on our platform and lose confidence in the integrity of our search partners’ pay-for-click service systems. If this happens, our revenues from our monetization partners may decline.

 

We currently report our financial results under IFRS, which differs in certain significant respects from U.S. GAAP.

 

We report our financial statements under IFRS. There have been and there may in the future be certain significant differences between IFRS and U.S. generally accepted accounting principles, or U.S. GAAP, including but not limited to differences related to revenue recognition, share-based compensation expense, income tax, impairment of long-lived assets and earnings per share. As a result, our financial information and reported earnings for historical or future periods could be significantly different if they were prepared in accordance with U.S. GAAP. As a result, you may not be able to meaningfully compare our financial statements under IFRS with those companies that prepare financial statements under U.S. GAAP.

 

We face risks related to natural disasters, health epidemics or terrorist attacks, which could significantly disrupt our operations.

 

Our business could be adversely affected by natural disasters, such as earthquakes, floods, landslides, tsunamis, outbreaks of health epidemics such as an outbreak of COVID-19, avian influenza, severe acute respiratory syndrome, Zika virus, or Ebola virus, or the outbreak of coronavirus (COVID-19), as well as terrorist attacks, other acts of violence or war or social instability. If any of these occurs, we may be required to temporarily or permanently close and our business operations may be suspended or terminated. For example, the outbreak of COVID-19 spread rapidly throughout China and to over 100 countries throughout the world. On January 30, 2020, the International Health Regulations Emergency Committee of the World Health Organization declared the outbreak a “Public Health Emergency of International Concern (PHEIC)”, and later on March 11, 2020 a global pandemic. Our office operations in the PRC, Poland, Norway, Nigeria, Kenya, India and other countries have been disrupted to an extent by local restrictions in such locations, and the duration and effects of such restrictions are not fully apparent at present. However, our microfinance business is heavily dependent on call center staff for customer service and collections so we have meaningfully scaled back lending activities. Moreover, the COVID-19 pandemic may also result in a slow-down in advertising markets which would in turn affect our revenues from advertising and search partners. In the event that COVID-19 spreads to other countries in which we operate, additional disruption may occur. Moreover, if any of our employees contract or are suspected of having contracted COVID-19, these employees will be required to be quarantined and they could infect other of our employees potentially resulting in severe disruption to our business. Thus, our operating results in one or more future quarters or years may fluctuate substantially or fall below the expectations of securities analysts and investors. In such event, the trading price of our ADSs may fluctuate significantly. If the outbreakany such situation persists, the global economy may be severely harmed and disrupted, which could adversely affect our results of operation.

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The continuing impacts of COVID-19 are highly unpredictable and could be significant, and may have an adverse effect on our business, operations and our future financial performance.

Since COVID-19 was declared a global pandemic by the World Health Organization, governments and municipalities around the world have instituted measures in an effort to control the spread of COVID-19, including quarantines, shelter-in-place orders, school closings, travel restrictions, and closure of non-essential businesses. The macroeconomic impacts on our business continue to evolve and be unpredictable and may continue to adversely affect our business, operations and financial performance. As a result of the scale of the ongoing pandemic and the speed at which the global community has been impacted, our revenue growth rate and expense as a percentage of our revenues in future periods may differ significantly from our historical rate, and our future operating results may fall below expectations.

The future impacts of the ongoing pandemic on our business, operations and future financial performance could include, but are not limited to:

Significant decline in advertising and search revenues as advertiser spending slows due to an economic downturn. This decline in such revenues could persist through and beyond a recessionary period. In addition, we may experience a significant and prolonged shift in user behavior such as a shift in interests to less commercial topics.

Significant decline in other revenues due to a decline or shifts in customer demand.

Adverse impacts to our financial results, particularly if our expenses do not decrease at the same pace as revenue declines. Many of our expenses are less variable in nature and/or may not correlate to changes in revenues, including costs associated with our data centers and facilities as well as employee compensation. As such, we may not be able to decrease them significantly in the short-term, or we may choose not to significantly reduce them in an effort to remain focused on long-term outlook and investment opportunities.

Significant decline in our operating cash flows as a result of decreased advertiser spending and deterioration in the credit quality and liquidity of our customers, which could adversely affect our accounts receivable.

The prolonged and broad-based shift to a remote working environment continues to create inherent productivity, connectivity, and oversight challenges and could affect our ability to enhance, develop and support existing products and services, detect and prevent spam and problematic content, hold product launch and marketing events, and generate new sales leads, among others. In addition, the changed environment under which we are operating could have an effect on our internal controls over financial reporting as well as our ability to meet a number of our compliance requirements in a timely or quality manner. Additional and/or extended, governmental lockdowns, restrictions or new regulations could significantly impact the ability of our employees and vendors to work productively. Governmental restrictions have been globally inconsistent, and it remains unclear when a return to worksite locations or travel will be permitted or what restrictions will be in place in those environments. As we prepare to return our workforce in more locations back to the office in 2021, we may experience increased costs as we prepare our facilities for a safe return to work environment and experiment with hybrid work models, in addition to potential effects on our ability to compete effectively and maintain our corporate culture.

Conversely, as the COVID-19 pandemic recedes and as quarantine and other similar restrictions are lifted, this too could have unpredictable impacts on our business, operations and future financial performance. We have, for example, in some cases seen positive usage growth for our software applications in certain markets during the pandemic, which may be attributable in part to COVID-19 related restrictions. Likewise, as described in “Item 5. Operating and Financial Review and Prospects---  A. Our Ability to Monetize”, some of our advertising partners have been negatively affected by the pandemic while others have seen growth. Lifting COVID-19 related restrictions, therefore, could involve some of the same unpredictable impacts as described hereinabove.

 

Fluctuations in foreign currency exchange rates will affect our financial results, which we report in U.S. Dollars.

 

We operate in multiple jurisdictions, which exposes us to the effects of fluctuations in currency exchange rates. We earn revenue denominated in a variety of currencies including but not limited to U.S. Dollars, Canadian Dollars, Euros, Brazilian Reales, Russian Rubles, Norwegian Krone, Indonesian Rupiah,British Pounds, Japanese Yen, Singapore Dollars, Kenyan Shillings, Chinese Yuan, South African Rand, Indian Rupees and Nigerian Naira, among other currencies. We typically have currency exchange exposure also in cases of global partners, even as such partners typically make payments to us in a major international currency like the U.S. Dollar, as the underlying activity upon which our revenue is calculated may be based on such local currencies as observed and collected by our partners prior to converting to the currency in which we are paid, and in many cases this currency exposure is less visible to us. We generally incur expenses for employee compensation and other expenses in the local currencies in the jurisdictions in which we operate. Fluctuations in the exchange rates between the various currencies that we use or are exposed to could result in expenses being higher and revenue being lower than would be the case if exchange rates were stable. We cannot assure you that movements in foreign currency exchange rates will not have a material adverse effect on our results of operations in future periods. We do not generally enter into hedging contracts to limit our exposure to fluctuations in the value of the currencies that our businesses use. Furthermore, the substantial majority of our revenue is earned in emerging markets currencies. Because fluctuations in the value of emerging markets currencies are not necessarily correlated, there can be no assurance that our results of operations will not be adversely affected by such volatility.

 

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Risks Related to Our ADSs

 

The trading price of ADSs has been and may continue to be volatile, which could result in substantial losses to investors.

 

The trading price of ADSs can be volatile and fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors such as but not limited to concerns over the health of the global economy, geopolitical concerns, and the outbreak and spread of the COVID-19 global pandemic.

 

In addition to market and industry factors, the price and trading volume for the ADSs may be highly volatile for factors specific to our own operations, including the following:

 

 

variations in our quarterly or annual revenue, earnings and cash flow;

  

 

announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors;

  

 

announcements of new products, services and expansions by us or our competitors;

  

 

changes in financial estimates by securities analysts;

  

 

detrimental adverse publicity about us, our platforms or our industries;

  

 

additions or departures of key personnel;

  

 

short seller reports that make allegations against us or our affiliates, even if unfounded;

  

 

release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities;

  

 

potential litigation or regulatory investigations:investigations; and

  

 

other risk factors mentioned in this annual report.

 

Any of these factors may result in large and sudden changes in the volume and price at which the ADSs will trade.

 

In the past, class action lawyers have often sought to bring securities class action suits against those companies following periods of instability in the market price of their securities. We have been named in Brown v. Opera Limited, et al., in the Southern District of New York following a period of instability brought on by the published report of a short seller. See the “Item 8. Financial Information — A. Consolidated Statements and Other Financial Information — Legal and Administrative Proceedings”. This or otherSuch class action suits may divert a significant amount of our management’s attention and other resources from our business and operations and may require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.

 

If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding the ADSs, the market price for the ADSs and trading volume could decline.

 

The trading market for the ADSs will be influenced by research or reports that industry or securities analysts publish about our business. If one or more analysts who cover us downgrade the ADSs, the market price for the ADSs would likely decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for the ADSs to decline.

 

We currently do not expect to pay dividends in the foreseeable future, and you must rely on price appreciation of the ADSs for return on your investment.

 

We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in the ADSs as a source for any future dividend income.

 

Our board of directors has complete discretion as to whether to distribute dividends subject to our memorandum and articles of association and certain restrictions under Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiary, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in the ADSs will likely depend entirely upon any future price appreciation of the ADSs. There is no guarantee that the ADSs will appreciate in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in the ADSs and you may even lose your entire investment in the ADSs.

 

Kunlun, our parent company, and Mr. Yahui Zhou, our chairman of the board and chief executive officer, hashave control or substantial influence over our company and histheir interests may not be aligned with the interests of our other shareholders.

 

As of the date of this annual report, Mr. Zhou beneficiallyKunlun indirectly owns 26.4%54.57% of our total issued and outstanding ordinary shares and may be inmaking Opera a position to effectively control 60.16%consolidated subsidiary of Kunlun. In addition, Mr. Yahui Zhou, our chairman of the totalboard and chief executive officer, indirectly owns an additional 8.47% of our shares and is also a significant Kunlun shareholder, controlling 28.5% of Kunlun’s voting rights and serving on its board of directors. Kunlun and Mr. Yahui Zhou together control 63.04% of our voting power. As a result, Kunlun and Mr. Zhou hashave control or substantial influence over our business, including significant corporate actions such as mergers, consolidations, sales of all or substantially all of our assets, election of directors and other significant corporate actions.

 

Kunlun or Mr. Zhou may take actions that are not aligned with the interests of our other shareholders and may render new investors unable to influence significant corporate decisions. We have in the past, and likely will continue to enter into related party transactions involving entities directly or indirectly controlled by Kunlun or Mr. Zhou. See “Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions” for details. Such related party transactions, while reviewed and approved by our Board's Audit Committee consisting solely of independent Directors, may indirectly benefit Kunlun or Mr. Zhou personally, by virtue of histheir interest in the related party. Furthermore, Kunlun’s or Mr. Zhou’s control or substantial influence over our company and such concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of the ADSs. These actions may be taken even if they are opposed by our other shareholders. In addition, the significant concentration of share ownership may adversely affect the trading price of the ADSs due to investors’ perception that conflicts of interest may exist or arise. For more information regarding our principal shareholders and their affiliated entities, see “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”

 

 

As a “controlled company”controlled company under the rules of the Nasdaq, we may be exempt from certain corporate governance requirements that could adversely affect our public shareholders.

 

Since Mr.Due to the shareholding of our Chairman and CEO Yahui Zhou, our chairman of the board and chief executive officer,because Kunlun is the beneficial owner of a majority of the voting power of our issued and outstanding share capital, following the completion of the initial public offering, we are qualified as a “controlled company” under the rules of the Nasdaq. Under these rules a company of which more than 50% of the voting power is held by an individual, group or another company is a controlled company and may elect not to comply with certain corporate governance requirements, including the requirement that a majority of our directors be independent, as defined in the Nasdaq rules, and the requirement that our compensation and corporate governance and nominating committees consist entirely of independent directors. We replyrely on certain corporate governance exemptions as described in Item 16G (Corporate Governance) of this annual report. So long as we remain a controlled company relying on any of such exemptions and during any transition period following the time when we are no longer a controlled company, you would not have the same protections afforded to shareholders of companies that are subject to all of the Nasdaq corporate governance requirements.

 

Shareholders must obtain regulatory pre-approval before directly or indirectly acquiring beneficial ownership of 10% or more of our voting power.

We operate in regulated financial services markets and certain of our operating companies have licenses issued by regulatory bodies in Europe or elsewhere. Under these regulatory regimes, the relevant regulator conducts a “fit and proper” evaluation of all major, direct or indirect shareholders. Pursuant to applicable law, therefore, any shareholder acquiring directly or indirect beneficial ownership of 10% or more of Opera must first obtain pre-approval from the relevant regulator. Such major shareholders must also seek pre-approval of any additional major increase in its shareholding and give notice of any major decrease in shareholding. These requirements could have the effect of making ownership of our stock less attractive to certain types of investors, potentially adversely impacting our trading price.

If a United States person is treated as owning at least 10% of our ADSs or ordinary shares, such person may be subject to adverse United States federal income tax consequences.

 

If a United States person is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting power of our ADSs or ordinary shares, such person may be treated as a “United States shareholder” with respect to each “controlled foreign corporation,” or CFC, in our group. Because our group includes one or more United States subsidiaries, that are corporations for United States federal income tax purposes, in certain circumstances we could be treated as a CFC and certain of our non-United States subsidiary corporations could be treated as CFCs (regardless of whether or not we are treated as a CFC).

 

A United States shareholder of a CFC may be required to annually report and include in its United States taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income” and investments in United States property by CFCs, whether or not we make any distributions. An individual thatwho is a United States shareholder with respect to a CFC generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholdercorporation that is a United States corporation.shareholder. A failure to comply with these reporting obligations may subject a United States shareholder to significant monetary penalties and may prevent starting of the statute of limitations with respect to such shareholder’s United States federal income tax return for the year for which reporting was due. We do not intend to monitor whether we are or any of our non-United States subsidiaries is treated as a CFC or whether any investor is treated as a United States shareholder with respect to us or any of our CFC subsidiaries or to furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. A United States investor should consult its owntax advisor regarding the potential application of these rules in its particular circumstances.

 

If we areWe may be classified as a passive foreign investment company, for United States federal income tax purposes for any taxable year, United States holders of ADSs or ordinary shareswhich could be subject toresult in adverse United States federal income tax consequences.consequences to United States Holders of our ADSs or ordinary shares.

 

We will be a passive foreign investment company, or PFIC, for United States federal income tax purposes for any taxable year if, applying applicable look-through rules, either (i) at least 75% of our gross income for such year is passive income or (ii) at least 50% of the value of our assets (generally determined based on an average of the quarterly values of the assets) during such year is attributable to assets that produce or are held for the production of passive income. A separate determination must be made after the close of each taxable year as to whether we are a PFIC for that year.year and involves extensive factual investigation, including ascertaining the fair market value of all of our assets on a quarterly basis and the character of each item of income that we earn, and is subject to uncertainty in several respects. Based on the market price of our ADSs, the value of our assets and the nature and composition of our income and assets, we do not believe that we were a PFIC for United States federal income tax purposes for our taxable year ended December 31, 2019,2020, although there can be no assurances in this regard. Moreover, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure you that the United States Internal Revenue Service, or the IRS, will agree with any position that we take. Accordingly, there can be no assurance that we will not be treated as a PFIC for any taxable year or that the IRS will not take a position contrary position to any determinationposition that we make.take.

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Changes in the nature or composition of our income or composition of our assets, including as a result of our investment in new businesses, products, services and technologies (including our European fintech business and our interest in Nanobank), may cause us to be or become a PFIC. In addition, the determination of whether we will be a PFIC for any taxable year may also depend in part upon the value of our goodwill and other unbookedunrecorded intangibles not reflected on our balance sheet (which may depend upon the market price of our ADSs or ordinary shares from time to time, which may fluctuate significantly) and also may be affected by how, and how quickly, we spend our liquid assets and the cash we generate from our operations and raise in any offering. In estimating the value of our goodwill and other unbookedunrecorded intangibles, we have taken into account our market capitalization. Among other matters, if our market capitalization declines, we may be or become a PFIC for the current or future taxable years because our liquid assets and cash (which are for this purpose considered assets that produce passive income) may then represent a greater percentage of the value of our overall assets. Further, while we believe our classification methodology and valuation approach are reasonable, it is possible that the IRS may challenge our classification or valuation of our goodwill and other unbookedunrecorded intangibles, which may result in our being or becoming a PFIC for our taxable year ended December 31, 2019,2020, the current taxable year or one or more future taxable years.

 

If we are a PFIC for any taxable year during which a United States personHolder (as defined in “Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations”) holds our ADSs or ordinary shares, certain adverse United States federal income tax consequences couldwould generally apply to such United States person.Holder. See “Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations—Passive Foreign Investment Company.”

 

Our memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares and the ADSs.

 

Our memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. For example, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, in the form of ADSs or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of the ADSs may fall and the voting and other rights of the holders of our ordinary shares and the ADSs may be materially and adversely affected.

 

You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.

 

We are an exempted company limited by shares incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Law (2020 Revision) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary duties owed to us by our directors under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.

 

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Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records (save for our memorandum and articles of association) or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our memorandum and articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder resolution or to solicit proxies from other shareholders in connection with a proxy contest.

 

Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies incorporated in other jurisdictions such as the United States. For example, we have elected to not have our compensation committee consist of entirely independent directors. We replyrely on certain corporate governance exemptions as described in Item 16G (Corporate Governance) of this annual report. However, if we choosereport which permit us to follow our home country practice in the future,practices. Consequently, our shareholders may be afforded less protectionor different protections than they otherwise would under the rules and regulations applicable to U.S. domestic issuers.

 

As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.

 

Certain judgments obtained against us by our shareholders may not be enforceable.

 

We are a Cayman Islands company, and the majority of our assets are located, and the majority of our operations are conducted outside of the United States. In addition, a majority of our current directors and officers are nationals and residents of countries other than the United States. Substantially all of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of Norway may render you unable to enforce a judgment against our assets or the assets of our directors and officers.

 

We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.

 

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from requirements applicable to other public companies that are not emerging growth companies including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 for so long as we are an emerging growth company. We will remain an emerging growth company until the earliest of (a) the last day of the fiscal year during which we have total annual gross revenue of at least US$1.07 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (c) the date on which we have, during the preceding three-year period, issued more than US$1.07 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act, which would occur if the market value of the ADSs that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided by the JOBS Act.

 

The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. However, we have elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

 

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As an exemptedan exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices for corporate governance matters that differ significantly from the Nasdaqcorporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the corporate governance listing standards.

 

As a Cayman Islands exempted company listed on the Nasdaq, we are subject to Nasdaq corporate governance listing standards which permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq corporate governance listing standards. For instance, we are not required to: (i) have a majority of the board be independent; (ii) have a compensation committee consisting entirely of independent directors; or (iii) have regularly scheduled executive sessions with only independent directors each year. We rely on certain corporate governance exemptions as described in Item 16G (Corporate Governance) of this annual report. To the extent we choose to follow home country practice in the future, our shareholders may be afforded less protection than they would otherwise enjoy under the Nasdaq corporate governance listing standards applicable to U.S. domestic issuers.

 

We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies.

 

Because we are a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

 

 

the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC;

  

 

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

  

 

the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

  

 

the selective disclosure rules by issuers of material nonpublic information under Regulation FD.

 

We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to continue to publish our results on a quarterly basis through press releases, distributed pursuant to the rules and regulations of the Nasdaq. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC is less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a U.S. domestic issuer.

 

The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to vote with respect to the ordinary shares.

 

As a holder of ADSs, you will only be able to exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will try to vote the underlying ordinary shares in accordance with these instructions. You will not be able to directly exercise your right to vote with respect to the underlying shares unless you withdraw the shares. Under our amended and restated memorandum and articles of association, the minimum notice period required for convening a general meeting is seven days. When a general meeting is convened, you may not receive sufficient advance notice to withdraw the shares underlying your ADSs to allow you to vote with respect to any specific matter. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to vote and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested.

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ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.

 

The deposit agreement governing the ADSs representing our ordinary shares provides that, to the fullest extent permitted by law, ADS holders waive the right to a jury trial for any claim they may have against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws.

 

If we or the depositary were to oppose a jury trial based on this waiver, the court would have to determine whether the waiver was enforceable based on the facts and circumstances of the case in accordance with applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, or by a federal or state court in the City of New York, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this would be the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before investing in the ADSs.

 

If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us or the depositary. If a lawsuit is brought against us or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have, including outcomes that could be less favorable to the plaintiff(s) in any such action.

 

Nevertheless, if this jury trial waiver is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or the ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.

 

You may not receive dividends or other distributions on our ordinary shares, and you may not receive any value for them if it is illegal or impractical to make them available to you.

 

The depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on the ordinary shares or other deposited securities underlying your ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs.

 

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You may experience dilution of your holdings due to inability to participate in rights offerings.

 

We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

 

The requirements of being both a public company and a Kunlun subsidiary may strain our resources and divert our management’smanagements attention.

 

We have been a public company since 2018 and have this year become a consolidated subsidiary of Kunlun, a Chinese public company. As a public company, we are subject to the reporting requirements of the Exchange Act, the U.S. Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Act and the listing standards of Nasdaq as applicable to a foreign private issuer, which are different in some material respects from those required for a U.S. public company. Similarly, as a subsidiary of Kunlun, we are additionally subject to certain of the listing rules of the Shenzhen Stock Exchange and PRC corporate governance standards. We expect that the requirements of these rules and regulations will increase our legal, accounting and financial compliance costs, make some activities more difficult, time consuming and costly, and place significant strain on our personnel, systems and resources. See “—Risks Related to Our Business and Industry — If we fail to implement and maintain effective internal control over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.” As a result of disclosure of information in this annual report and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors, shareholders or third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating results.

 

ITEM 4.

INFORMATION ON THE COMPANY

 

A.

History and Development of the Company

 

We trace our history back to 1996 and the launch of the first version of our “Opera” branded browser software. We have since been a pioneer in redefining the web browsing experience, providing personalized content discovery platforms and offering fintech and transactional services for hundreds of millions of global internet users.

 

Opera Limited is an exempted company with limited liability incorporated in March 2018 in the Cayman Islands. We conduct our business mainly through our operating companies, including in particular Opera Norway AS, a private limited liability company incorporated under the laws of Norway. We acquired Opera Norway AS and its subsidiaries on November 3, 2016, from Otello Corporation ASA for a consideration of US$575.0 million, less working capital adjustments. This acquisition included the business of providing Opera’s mobile and PC web browsers, as well as certain related products and services.

 

We listed our ADSs on the Nasdaq Global Select Market under the symbol “OPRA” on July 27, 2018. One ADS corresponds to two underlying shares in Opera Limited. On August 9, 2018, we completed the initial public offering of 9,600,000 ADSs, and the underwriters exercised their over-allotment option on the same date for the purchase of an additional 334,672 ADSs. We also sold 9,999,998 shares, equivalent to 4,999,999 ADSs, in a concurrent private placement. Our pre-IPO shareholders held 190,250,000 shares, equivalent to 95,125,000 ADSs. Combined, following the IPO, Opera Limited had 220,119,342 shares outstanding, corresponding to 110,059,671 ADSs. On September 24, 2019, we completed a follow-on public offering of an additional 7,500,000 ADSs, and the underwriters later exercised their over-allotment option for the purchase of an additional 1,125,000 ADSs, which was completed on October 16, 2020. As of the date of this report, net of separately announced repurchases of our own shares and the exercise of employee equity grants, a total of 238,521,354230,291,732 shares are outstanding, equivalent to 119,260,677115,145,866 ADSs.

 

Our company is a holding company that does not have substantive operations. We conduct our principal activities through our subsidiaries. Our principal executive offices are located at Vitaminveien 4, 0485 Oslo, Norway. Our telephone number at this address is +47 23 69 24 00

 

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B.

Business overview

 

Overview

 

Opera is a leading global internet brand with a large, engaged and growing base ofreaching over 350370 million average monthly active users in 2019.2020. Building on over 20 years of innovation, starting with our browser products, we are increasingly leveraging our brand as well as our massive and engaged user base in order to expand our offerings and our business. Today, we offer users across Europe, Africa and Asia a range of products and services that include our PC and mobile browsers, our AI-powered content platform Opera News, and our app-based fintech solutions as well as our emerging products such as classifieds.video game development platform GameMaker. We have also recently initiatedlaunched Dify -- a project to provide European banking/payment services.and financial services initiative.

 

Opera launched one of the world’s first PC browsers in 1996 and introduced the world’s first full web browser for smartphonesmobile phones in 2002. Since then, Opera has remained an innovator in the browser space, launching features including tabbed browsing, data savings, PC/mobile sync, and numerous features focused on privacy and security, including ad blocking and a built-in VPN. Today, our browser products include Opera Mini, Opera Browser for Android Opera Touch,and iOS, Opera for Computers and Opera GX, a separate PC browser tailored for gamers. These products averaged approximately 318327 million average MAUs in 2019.2020. The browser is an increasingly strategic application -- often serving as an access point for content, e-commerce, gaming and fintech activities on the internet, and Opera is utilizing this strategic position to launch and scale new offerings.

 

Opera News, our AI-driven content platform enabled by big data technologies, was launched in 2017, and was initially launched as part of our browser, leveraging our large user base and well-known brand in order to deliver a personalized and relevant content experience at scale. In early 2018, we launched a standalone Opera News app, which now also supports short-form video functionality. Today, Opera News is offered under a variety of brands and is one of the most downloaded and used global news applications. In 2019,2020, Opera News averaged 124200 million MAUs, which included 3739 million usersMAUs from the Opera News app. Additionally, in 2019 Opera News launched Opera News Hub, which was launched in its initial market of Nigeria. Opera News HubAfrica during 2019, enables local content creators to publish exclusive content on our platform, which has helped increasegrow engagement on the service by increasing page views and time spent.

 

We rolled out our app-based microfinance service in late 2018, offering instant short-term microloans to approved borrowers under the “OKash” and other local brands, initially in Kenya and subsequently expanding to India and Nigeria (collectively referred to as “OKash”). Our apps are intended to simplify borrowing and provide a high-demand service due to convenience and ease-of-use. As we did with Opera News, we utilize our existing user engagement across our browser and news app in order to promote this product, enabling us to acquire users in a cost-efficient and scaled manner. Our service relies on our large repository of user behavior data as well as AI algorithms in order to credit-score potential borrowers, analyze the purpose of the loan as well as the repayment behavior of borrowers. Our microfinance service disbursed over 15 million short-term microloans in 2019, and millions of users are now logging into our app. In the future, we plan to expand our microfinance offerings to additional markets and broaden our fintech product offerings.

Opera Adsfor Business is our advertising solution targeting digital agencies, advertisers and brands to connect and engage directly with Opera users through both programmatic and traditional advertising solutions. Launched during the second quarter of 2019, Opera AdsThis initiative is an important part of our monetization strategy aimed at growing our average revenue per user. Encouraged by its early success, we decided to expand Opera Ads beyond large advertisers to include a focususer and it builds on smallour existing search and medium sized enterprises. Specifically, we launched OLeads, a new online lead generation platform for small and medium sized enterprises in Nigeria to maximize their visibility through enabling their online presence.

In August 2019 we launched a classifieds product, OList, a free online marketplace and e-commerce platform in Nigeria, designed for individuals and corporate businesses to advertise, market, purchaseaffiliate monetization partnerships with companies such as Google, Yandex or sell goods and services. OList is also focused on becoming heavily involved in several high value categories including real estate/rentals and used cars, where there is an opportunity for Opera to create transparent and robust marketplaces and to participate in, or facilitate, transactions.Amazon.

 

As we have done with Opera News, OKash, Opera Ads, OList and OLeads, weWe intend to continue to leverage our brand as well as our large and engaged user base to launch additional consumer facing products in the future. In addition to our efforts around creating a robust classifieds marketplaceOpera News and taking deeper measures in certain high-value verticals such as gaming, we have announced our intentionbegun to launch fintech products, under the brand Dify, that will be offered to our large user base in Europe. The initial offering is a cashback feature that will allow browser users to financially benefit from online shopping and incorporates both the Opera PC browser and Dify wallet functionality.

 

Our Products and Users

 

Our products for users include (i) the web browsers Opera Mini, Opera Browser for Android Opera Touch,and iOS, Opera for Computers and Opera GX, (ii) the standalone personalized news aggregation appapps Opera News, (iii) the GameMaker 2D video game development engine, (iv) European fintech/payments offering, Dify, and our emerging markets fintech apps, which includes microfinance and other capabilities, and (iii)(v) the intelligent online marketing platformsplatform Opera for Business which includes Opera Ads OList and OLeads. Our cloud-based technologies enable hundreds of millions of users to discover and interact with the content and services that matter most to them. The application of leading AI-powered technologies and advanced data analytics and the recommendation engine built into our browsers and news app, and other products and services, give our users a better, faster and more personalized online experience and enable advertisers to target relevant users in a more precise way.

 

 

Our Mobile Browsers: Opera Mini, Opera Browser for Android and Opera TouchBrowser for iOS

We currently have three mobile browser products: Opera Mini, Opera Browser for Android and Opera Touch.Browser for iOS. Our mobile browser products are fast and optimized for mobile browsing. All mobile browsers come with native ad blockers, which provide users with the option to further increase browser speed by blocking ads that are often slow and intrusive.

 

First launched in 2006, Opera Mini is a mobile browser that provides a faster browser experience on practically any smartphone or feature phone. Through the application of advanced data compression and savingsavings technologies, Opera Mini has enabled hundreds of millions of users around the world to access the internet through their mobile devices, providing a reliable browsing experience regardless of their network conditions. Opera Mini is a cloud-based browser that is fast to install and takes up very little space on a user’s mobile phone. When browsing with Opera Mini, the data traffic can go through Opera servers, which compress web pages, including text and images, towards only 10% of their original size, reducing the amount of data that needs to be sent over mobile networks that are often congested. Moreover, the reduced data traffic consumption providescan provide users with a significantly lower data cost compared to the default browser found on their phones.

 

Launched in 2013, the Opera Browser for Android is our flagship Android smartphone browser. It comes with a full browser engine, based on the Chromium project, and a user-friendly interface designed to give users a fast browsing experience on high-end smartphones. Opera for Android is a powerful and feature-rich browser, and is optimized for mobile phones with larger screens and tablets. In December 2018, Opera for Android became the first browser to feature an integrated Crypto Wallet, making it easy to use Ethereum based cryptocurrencies and blockchain powered web applications. The browser also enables users to block annoying cookie dialogs, and in March 2019, the browser became the first major mobile browser to ship with an integrated VPN solution.

 

We launched our newest mobile browser,the iOS version of the Opera Touch, in the second quarter of 2018 for Android andBrowser, in the fourth quarter of 2018, at the time branded as Opera Touch. Opera Browser for iOS. Opera TouchiOS is designed for mobile phone users to use the browser with one hand while they are on the move. It is also designed to let users share content from Opera Touch to their other devices in a faster and easier fashion than with other mobile browsers. We believe Opera Touch is a great companion app for our PC browser. The Opera Touch browser has won both the Red Dot Award in Communication Design 2018 and the iF DESIGN AWARD 2019 for its unique design and usability. Opera Touch is today the only browser we offer for iOS that offers a rich feature set including a native ad-blocker, a Crypto Wallet and the Flow syncing feature that enables users to continue browsing across their devices.

 

Our mobile browser users

Our mobile browser user base reached 251.9252.6 million average MAUs in 2019,2020, of which 189.9190.0 million were smartphone users and 6262.6 million were feature phone users. Our smartphone user base continues to grow throughout the world. The growth rate of our mobile browser user base has historically been strongest in regions where users had the greatest need for fast browsers on limited mobile networks, and often paid a relatively higher cost for data relative to their income. As a result, our mobile browsers have been very popular in Africa and South Asia.Africa. Further, we have seen organic mobile browser growth in Europe relating to the increase in users of Opera for Computers in the region. Offsetting this growth is South Asia, where we have reduced acquisition spend and reallocated to driving our mobile user base in Africa and Europe.

Our PC browser:browsers: Opera for Computers and Opera GX

Opera for Computers is one of the most innovative and differentiated PC browsers on the market, catering to the high-end user segment that requires performance and features beyond those offered by the default system browsers on both Windows and macOS. Opera for Computers uses an Opera-tuned version of the Chromium browsing engine carefully optimized for performance metrics such as speed and laptop battery consumption. In addition, we provide users with unique features that are not found in other major web browsers, including a free, built-in VPN service that enhances user privacy and security, especially for laptops on public networks, subject to compliance with relevant local regulatory requirements. The browser also includes a battery-saving mode that can increase battery life by up to 50%, and a native ad block feature that increases page loading speeds by up to five times. Our PC browser makes it easier to shop online with built-in currency and foreign unit conversion, and makes communication easier by embedding social network services such as Facebook Messenger, WhatsApp, Instagram, Telegram and VKontakte in the browser’s sidebar.

In the first quarter of 2019,2020, we launched a redesigned PC browser codenamed R3, becoming the first PC browser with Web 3 support, powering a year-to-year PC browser MAU growth of 14% in a mature market.continued to add features and functionality to our Opera for Computers offering.

 

 

Opera GX, which launched in the second quarter of 2019, is a PC web browser tailored for gamers. Opera GX allows PC gamers to customize and tune their browsers to improve their gaming experience. In September 2019, Opera GX won the Red Dot Award in the Interface and User Experience Design category. The productSince its launch it has grown rapidly with strong user engagement, including reaching 1more than 7 million downloads approximately three months after launch.  MAUs in December 2020. Additionally, in January 2021, Opera announced the acquisition of YoYo Games, the owner of the GameMaker 2D game development platform, which will further strengthen Opera GX’s position in the PC gaming community.

Our PC browser (including Opera GX) users

We have a large and active global PC user base with 66.474.0 million average MAUs in 2019,2020, reaching 67.678.9 million average MAUs in the fourth quarter of 2019,2020, up 11%17% year-over-year. Our PC browser user base has historically been prominent in regions that value our innovations in browser technology.technology and more recently in regions where gaming is particularly popular. As a result, our strongest PC region has been Europe, representing the majority of our user base. In addition, we have experienced significant growth in other geographies such as Asia and the Americas in 2019.2020.

 

Our AI-powered news and content recommendations service: Opera News

Leveraging our massive user base and innovation capability, we launched the Opera News service in January 2017. Opera News is our AI-powered personalized news discovery and aggregation service. The service is both featured prominently as part of our browsers, and also made available as a standalone app and website. By providing AI-powered news and content recommendations, we have increased both user activity and the amount of time users spend in our online ecosystem. This has supported an attractive revenue growth trajectory that is predictable, recurring and fully scalable as well as an ability to promote other Opera products.

 

Key Opera News Features

We use our proprietary AI technologies to curate and intelligently recommend news, articles, videos and other online content that may be of interest to our users. Users can conveniently access this content through real-time intelligent ranking, top news and push notification features. Moreover, Opera News utilizes natural language processing and other technologies to quickly process linguistic differences and nuances to assess and recommend online content across different languages and cultures. When using an Opera product powered by our AI recommendation engine, people can efficiently discover and share online content that appeals to them.

 

In addition, we have been constantly innovatingWe continue to improve Opera News, withadding new features and functions for our users. In December 2018, we launched Instaclips, a streaming video feature withinusers as well as improving the attractiveness of the platform that is designed to captivatefor content creators and engage our users with easy-to-consume, interest-based, short-form video clips.publishers. In September 2019, we launched Opera News Hub in Nigeria aand then expanded to additional markets in 2020. The Opera News Hub platform which enables content creators to publishself-publish and monetize their content through Opera News.our Opera News Hubchannels, which has further improved engagement metrics, with increases in article clicks, readingenabled us to attract increasingly local content. At the same time, and app time spend. We planwe have sought to expandincrease the number of mainstream news publishers distributing content on the Opera News Hubplatform. To enable publishers to four additional African countries beyond Nigeria in 2020.build audience loyalty, we have added features for users to follow specific publishers and receive notifications when they submit new content. Users can also create custom feeds to receive content from their preferred publishers and content categories.

 

Our Opera News users

Growing the size of our Opera News user base and increasing engagement is one of our strategic priorities. Since its launch in January 2017, its user base reached 124200 million average MAUs in 20192020 across those users that accessed Opera News from within Opera browsers and those that accessed it from the dedicated Opera News app. Leveraging our established monetization channels, the platform generated immediate revenues and serves as an additional access portal to partners and publishers.

We launched the standalone Opera News app on the Google Play Store and other Android app stores for certain African markets in January 2018. Within four weeks of its launch,apps or websites. Additionally, the Opera News app generated over oneapps reached an average of 38.9 million downloads and wasin MAUs in 2020. In the most downloaded app on the Google Play Store in Nigeria, Tanzania, Kenya and Ghana. From an initialfuture, Opera News will also broaden its focus on Nigeria, Kenya and Southbeyond Africa to the Ivory Coastdeveloped markets.

Our European payment and fintech offerings: Dify

In 2020, Opera began to better serve French speaking African countries, as well as Egypt for North Africa, we have also expanded our presence in Indiadevelop fintech and Indonesia successfully following the same model. As a result,payment products and solutions that would leverage Opera’s large user base in the second quarterEuropean market, and in early 2021, Opera announced the formation of 2019,Dify, its payment and fintech brand for Europe. The initial Dify product is a browser-based cashback offering that utilizes the Dify mobile wallet to provide cashback to Opera News app was identified by Sensor Tower, asusers for certain online transactions. As of March 2021, there were over 90 merchants participating directly or through affiliate networks in the top downloaded global news app. The Opera News app user base has experienced rapid growth since its launch, averaging 36.9 million MAUs in 2019.Dify cashback program. We expect to attractlaunch additional users by expanding Opera News Hub and creating additional access points including a light version ofDify products in the app for lower-end smartphones.future.

 

Our emerging market fintech apps: OKash, and other local brandsgaming initiative: Opera Gaming

 

Our emerging market fintech apps offer instant microloansOpera is developing a community of gamers around its Opera GX browser. This included creating the Opera Gaming division following the January 2021 acquisition of YoYo Games, the owner of GameMaker, a 2D gaming development platform. The focus of Opera Gaming will be to approved borrowers under “OKash” and other local brands. The apps are designed for young consumers with an income and are intended to simplify borrowing for "last mile" financial inclusion. Our microfinance service is unique as it uses artificial intelligence technologies to analyzegrow the purpose of the loans as well as the repayment behavior of borrowers. We work to create an accessible credit product with similar use cases as a credit card would have in developed markets that result in high levels of repeat usage. We take our social responsibility seriously, and offer only limited loan amounts to first-time borrowers. Further, to date, we have effectively capped interest charges for all users that are not able to repay on time, such that our claims have never exceed twice the original amounts due. We have also, to date, elected not to bring legal collections proceedings against any borrower that did not pay us back.

In 2019, we have made tremendous progress scaling our microfinance business since launching in Kenya in December 2018. Besides scaling in Kenya, we expanded our footprint, most notably to India. In 2019, we disbursed about 15 million short duration microloans globally. Further, AI technologies and a growinguser base of recurring users enabled us to decrease non-performing loans asOpera GX and build increased functionality within and outside the year progressed. In the fourth quarter of 2019, non-performing loans had been reduced to approximately 5.5% of total loan value, supported by about 80% of loans being granted to returning users. Our microfinance business has proven to be a new and profitable user-driven opportunity that we believe has benefited from our existing reach and scale as well as from strong user reviews in Google Play. Further, we expect to expand to additional countries and launch additional fintech products to leverage the large base of users that are engaging with our fintech apps. We also expect further improvements in the credit scoring AI technologies and business processes including collections, which could enable us to serve a broader set of customers and expand our offering.Opera GX browser, using GameMaker.

 

Our intelligent online marketing platforms: Opera Ads, OList and OLeadsfor Business

In May 2019, we launched Opera Ads, a new platform to facilitate both traditional and programmatic access to Opera’s advertising inventory. Based on user intent and contextual relevance, Opera Ads offers an intelligent advertising solution to digital agencies, advertisers and brands to connect and engage directly with the Opera audiences. Opera Ads is available in both traditional and programmatic buying models and is a strong alternative to advertisers in key regions where we have significant scale and reach, e.g. sub-Saharan Africa.

 

Encouraged by its early success, we expandedOpera for Business encompasses Opera’s business-to-business efforts. This includes Opera Ads, beyond largewhich is our online advertising platform that allows advertisers to include a focus oninteract directly with Opera and enables buying advertising programmatically, and OLeads, an offering that provides small and medium sized enterprises. In September 2019, we launched OLeads,enterprises free websites that Opera can monetize through online advertising leads. Also, OList, a new online lead generation platform for small and medium sized enterprisesclassifieds offering in Nigeria, is part of the Opera for Business offering. In the future, we expect Opera for Business to maximize their visibility and online presence. OLeads offers user-friendly tools which enable userscontinue to come online easilybuild out its digital capabilities for their marketing campaign. Once registered with OLeads, users can choose between a wide variety of website templates which they can personalize according to their own business needs. By simply dragging and dropping text, images and call-to-action modules, users can have their business landing page up and running in minutes. OLeads also allows users to manage the data generated from their websites. In addition, OLeads integrates seamlessly into the contextual advertising platform, Opera Ads, with direct access to Opera’s huge user base in Nigeria.

In August 2019 we launched a classifieds product, OList, an online marketplace in Nigeria and an e-commerce platform, designed for individuals and corporate businesses to advertise, market, purchase or sell goods and services. OList offers a wide variety of products and services and has been focusing on becoming heavily involved in several high value categories, including real estate, rentals and used cars, where there is an opportunity for us to create transparent and robust marketplaces and to participate in and/or facilitate transactions. These categories represent large revenue opportunities and the potential to solve inefficiencies or challenges for users and suppliers in these markets. Since its launch to the end of 2019, OList attracted more than 2 million listings in its websites, with more than 4 million monthly visiting users.businesses.

 

Our partners

 

Monetization partners

Our monetization partners areWe partner with companies that benefit from our online marketing and advertising services, including search engines, e-commerce and travel agenciesproviders and digital advertising platforms. Through placement of shortcuts, or Speed Dials,"Speed Dials", and advertisements in our browsers and apps, we have the ability to direct traffic to the websites of both global and local partners that provide services to our users. These companies pay us either for referring traffic to them or for displaying their advertisements.

 

Search Providers

We partner with internet search providers like Google and Yandex and have worked closely with them for over 15 years. These partnerships make available best-in-class search technology to our users and enhance the visibility of our brand. We share the revenue generated by our search partners when our users conduct searches initiated within the URL bar, default search page or search boxes embedded in our PC and mobile browsers.

 

We have had a search distribution agreement with Google since 2001. We entered into our current search distribution agreement with Google in 2012 with a two-year term. The agreement has since been amended and restated severalmultiple times, with the term of the most current version extending to December 2020. Google may also extend2021. The parties are currently discussing the term by an additional 12-monthnext agreement for the period by providing 30 days written notice to us.beyond the current term. We have had a search partner agreement with Yandex since 2007. We entered into our current partner agreement with Yandex in 2012 with a five-year initial term. The initial term has subsequently been extended twice and now extends until April 2023. Following the initial term, the partner agreement automatically renews for additional two-year periods unless written notice is given by either party at least 30 days prior to the automatic renewal. Our agreements with Google and Yandex are subject to customary events of default, including failure to make payments, material breach, liquidation, as well as other termination trigger events as provided therein.

 

E-commerce and online travel agencies

We work closely with large, global e-commerce and online travel agencies, such as Booking.com, Amazon, AliExpresseBay, and eBay,Booking.com, as well as strong local brands like Flipkart, Tokopedia Lazada and others. The value of these partnerships continues to rise through increased user engagement with such popular services within our browsers, as well as deeper integration of services and our AI technology, which allows for more accurate suggestions, price comparisons, personalized landing pages and one-click purchases.

 

We earn revenue from transactions initiated by our directed users via links provided on our Speed Dial homepage and other advertisements, typically in the form of a defined share of the revenue generated by these service providers.

 

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Digital advertising platforms

We have established relationships with leading digital advertising platforms such as Google AdSense, AdMob by Google, Audience Network by Facebook, Yandex Direct and Baidu.others.

 

We allow these digital advertising platforms to display their advertisement inventoriesadvertisements on our browsers and recognize revenue based on the amounts we are entitled to receive from such advertising partners. We also sell select premium advertising placements, such as banners, interstitials, videos, sponsored articles and notifications to global and local advertisers.

 

Retail salesContent Providers

Our underlying browser business puts us in the position of being the gateway to the web. The ongoing consumer shift from offline retail to online shopping means this is an attractive position for us. We have established relationships with certain mobile operators and vendors of mobile handsets, prepaid airtime and data in an effort to begin to explore ways in which we can capitalize on our position and build our brand through direct retail sales. We began retail sales of prepaid airtime and data, and eventually mobile handsets, to local consumers and wholesalers in the second half of 2018. Our focus has been maintaining our retail business at current volumes, in order to support adjacent potential opportunities.

 

Content Partners

WeIn addition to monetization partners, we have formed strong relationships with high profile media companies, while also focusing on regional and local content providers in key markets in Sub-Saharan Africa, India and Indonesia. These relationships enable us to obtain comprehensive news and other content that we can make available to users on our platform, provide more publicity for our content provider partners and generate revenues through the placement of advertising within our news service. Further, we are increasingly focused on the creation of exclusive local content through Opera News Hub. We also analyze users’ behavior to improve the relevance of the news stories and advertisements that we show to each user based on their preferences.

 

Marketing & DistributionDistribution Partners

We also partner with device manufacturers and mobile network operators to promote and distribute our products. We have long-term relationships with device manufacturers and chipset vendors worldwide, including many of the largest smartphone brands, such as Samsung, Huawei, Xiaomi, OPPO and Vivo. This ensuresto ensure cost-efficient and reliable distribution benefitting both these distribution partners and us. We cooperateIn addition, we partner with global OEMs at favorable rates based upon activationmobile network operators in Africa for joint marketing campaigns. These campaigns promote the data savings features of pre-installations.our mobile browsers on our operator partner’s network, while providing free or reduced cost browsing to the consumer for a limited time.

 

 

Technology

 

Technology is key to our success as it enables us to innovate, improve our users' experience and operate our business more efficiently. Our technology team is composed of highly skilled engineers, computer scientists and technicians whose expertise spans a wide range of areas. As of December 31, 2019,2020, we employed a team of approximately 550 engineering and data analytics personnel, mainly located in Poland, China, Sweden, Estonia and Sweden,the UK, engaged in building our technology platform and developing new Opera products and services. Likewise, in January 2020 we acquired a company in Estonia with banking-as-a-service technology and a skilled Estonian fintech team to support our existing Swedish and Polish teamservices in our European financial services initiative.core businesses as well as newer initiatives such as payments or gaming.

 

Artificial Intelligence

 

Through AI technologies, we have transformed our browsers and other products and services into an AI-powered content discovery and recommendation platform that provides our users with personalized news, videos and other online content. We leverage data from our existing user base and technologies, such as natural language processing, computer visioning and image recognition, deep learning and collaborative filtering, to develop our AI-powered content discovery and recommendation platform that we integrate into a variety of our products and services. Our AI platform evaluates billions of potentially correlated data points between each item of online content and each individual user to provide personalized content recommendations of high interest to our users. We have also integrated AI technologies into our microfinance offerings to improve credit scoring capabilities.

 

Our key AI technologies implement the following powerful features:

 

 

Natural Language Processing. We use natural language processing, or NLP, and deep learning models to analyze, sort, extract, classify, process and better understandnews content. Using NLP, we can quickly incorporate new languages into our AI-powered content discovery and recommendation platform. Our deep learning models, which include word embedding, advanced recurrent neural networks (e.g., long short-term memory and gated recurrent units), convolutional neural networks and attention-based deep neural networks, help us to extract keywords and tag topics and concepts. For example, with advanced NLP technology, Opera News can make intelligent recommendations among local news in Swahili to users in Africa who chose Swahili as their preferred language.

 

Computer Vision for Images and Videos. We analyze the images and videos that are associated with online text to better understand the content and optimize ourrecommendation engines. Deep learning is at the core of our image and video understanding technologies. Our deep learning convolutional neural network-based models analyze images and videos frame-by-frame and classify them into content categories that our recommendation engine refers to when recommending content to users.

 

Personalized Click Prediction Model. We developed a large-scale and personalized recommendation and click prediction ranking model that is based on real-time userinteractions. Tens of billions of feature sets employ a Gradient Boost Decision Tree, or GBDT, model for raw feature transformation and large-scale Logistic Regression combined with Factorization Machine with attention mechanism and another Deep Neural Network model to output the click prediction of a user to a certain news article to decide the ranking of news article recommendations for such user.

 

Neural Collaborative Filtering and Networks. Our neural collaborative filtering technology uses deep learning basedlearning-based word-to-vector and embedding models thatexamine and assess more variables and allows for more intelligent filtered results than traditional user-based and item-based collaborative filtering technologies. Moreover, we developed multi-dimensional vector-based interest representations of user profiles that are more data rich than simple tag-based representations and combine them with deep layers of neural networks to create more accurate and personalized recommendations for our users.

 

Big Data Capabilities

We are able to quickly develop and scale our presence across different geographies, languages and cultures because of our big data capabilities. We have multiple data centers distributed across threefour continents that support massive petabyte-level distributed data storage and allow us to process in real-time hundreds of terabytes of data related to our users every day. We use data mining and analytics technologies to find patterns in the large amounts of data we collect, which helps us to understand our users and provide them with better content recommendations.

 

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Cloud Compression Technologies

Our compression technologies, Turbo and OBML (Opera Binary Markup Language), are advanced compression technologies that are built into our apps to optimize data traffic and connection times for our users. These technologies allow our browsers to load web pages faster by downloading less data. Today, Turbo is our standard compression mode for high-end smartphones and computers, while OBML, adapted exclusively for Opera Mini, provides an extreme compression mode, which compresses web content by up to 90%, providing a good web browsing experience even on the most limited mobile data networks.

 

Network Infrastructure

We have built a reliable and secure network infrastructure that will fully support our operations. Our physical network infrastructure utilizes our data centers that are linked with high-speed networking. We have developed our architecture to work effectively in a flexible cloud environment that has a high degree of elasticity. Our automatic provisioning tools have enabled us to increase our storage and computing capacity in a short period of time in response to increasing demand for our services. Our proprietary network application protocols ensure fast and reliable mobile communications under different network conditions in the various markets where we operate. The aim is to provide a consistent user experience across different devices, operating systems, carriers and network environments.

 

As of December 31, 2019,2020, we owned approximately 7,0006,000 servers in seveneight internet data centers located in The Netherlands (two locations), Russia, the United States (two locations), Singapore, Kenya and Nigeria,Nigeria. By replacing our oldest generation of servers with an additional location openednewer ones, we were able to reduce our total number of servers in Kenya in January 2020.operation while achieving increased computing power, as well as effectively reducing hosting costs and recognizing environmental benefits. As of December 31, 2019,2020, our data centers had a total connectivity bandwidth of 1.0121.042 Tbps (max throughput), an increase of 13.7% versus December 31, 2018.. We have also expanded our large-scale AI computing service cluster, including GPU processors, to provide computing power for our AI technologies.

Crypto Wallet

In 2018, we introduced a Crypto Wallet inside our browsers, enabling access to a new generation of blockchain-based Web 3 applications. This allows users to interact with these applications, send or receive various kinds of crypto-currenciescryptocurrencies to sites and users, as well as identify themselves to sites and hold unique digital items from blockchain-based games. Opera supports several blockchains including Ethereum, Bitcoin and Tron, as well as a large number of crypto-currencies.

 

Our Investments

 

Our business includes investments in certain associates and joint ventures:

 

OpayOPay Limited, or OPay, an associate in which we originally held 19.9% interest in December 2018 and now currently hold a 13.1% equity interest, launched its mobilemoney services in 2018. OPay focused its efforts in Nigeria, a market characterized by a massive, un-bankedunbanked population with low mobile money penetration. OPay has an agent-centric operation as a means to reach the underserved population.population and currently has over 340,000 registered agents. In November 2019,December 2020, OPay had recruited 140,000 agents with average dailymonthly transaction volume in excess of US$10 million,2 billion, placing OpayOPay among top-tier mobile moneypayments providers in Nigeria. OPay also plans to expand its platform to additional countries beyond Nigeria. OPay’s growing position in Nigeria less than one year after launch. OPay has also launched additional services such as ridesharing to increase engagement and usagedrives further brand awareness of its platform.Opera.

 

Powerbets HoldingsNanoCred Cayman Co. Limited, or Powerbets, a joint ventureNanobank, an associate in which Opera haswe currently hold a 50.1%42% equity interest, provides a platform for sports betting, virtual sports betting, and gaming services throughout Africa. Having one of the largest gaming footprints in Africa, Powerbets operates in eights African markets.

nHorizon Innovation (Beijing) Software Ltd., or nHorizon, a joint venture in which Opera has a 29.1% equity interest, operates an Opera browser in China. nHorizon’s monetization partners include Baidu, Sogou and others. nHorizon consists of nHorizon Innovation (Beijing) Software Limited and nHorizon Infinite (Beijing) Software Limited. The joint venture was co-founded by Otello Corporation ASA and Telling Telecomformed in August 2011. We acquired2020 by merging Opera’s emerging market fintech business with a similar business of Mobimagic. Today, Nanobank offers microlending and other services in Indonesia, India, Kenya and Mexico, and is in the investmentprocess of launching in nHorizon as a result of the acquisition of Opera Norway ASseveral other emerging markets. Nanobank intends to grow by launching in 2016.  additional geographies, offering new products and services and by continuing to recover from COVID-19 impacts in its existing markets.

 

 

StarMaker IncStar Group Interactive Inc., or StarMaker, an associate in which we invested US$30 million on November 5, 2018, in exchange for preferred shares in the company, resulting in a19.4% equity interest, is a technology-driven social media company focused on music and entertainment. StarMaker enables users to record and share their own music videos, collaborate with other musicians, connect with other users and follow their idols on the social platform. StarMaker continued its revenue growth during 2019,2020, with revenues totaling approximately US$21 million.89.9 million, up 210% compared to 2019. This was driven by a combination of daily active users doubling in 2020 and improved monetization. In 2020,2021, the company plans to expand into new markets (South-East Asia)continue its efforts to grow users and increase monetization to drive rapid revenue growth. StarMaker exited 2020 with an annualized revenue run rate of US$127 million (based on its fourth quarter 2020 revenue).

AB Fjord Bank, to reach more users. The growing user base, coupledor Fjord Bank, an associate in which Opera acquired a 9.9% equity interest in January 2021 for EUR 0.77 million. Fjord Bank operates as a licensed specialized bank and has recently launched operations with improvements such as enhanced live streaming features in its products, is expected to increase revenues for 2020. During 2019, StarMaker expanded into short-form musican online offering which includes fixed deposits and video clips of a more viral nature, and revenues increased in excess of 140%, compared to 2018. The preferred shares have dividend and liquidation preference. As part of the investment, Opera also obtained an option to increase our ownership to 51%consumer lending business in the second halfLithuanian market.

nHorizon Innovation (Beijing) Software Ltd., or nHorizon, a joint venture in which Opera has a 29.1% equity interest, operates an Opera browser in China. nHorizon’smonetization partners include Baidu, Sogou and others. nHorizon consists of the year 2020.nHorizon Innovation (Beijing) Software Limited and nHorizon Infinite (Beijing) Software Limited. The joint venture was founded in August 2011.

 

User Privacy and Safety

 

The vitality and integrity of our user base is the cornerstone of our business. We dedicate significant resources to the goal of strengthening our user base through developing and implementing programs designed to protect user privacy, promote a safe environment, and ensure the security of user data. We also implement unique features in our products to protect users’ online digital presence, such as a free, no-log VPN service, native ad blocking and anti-tracking options.

 

Our privacy statements seek to describe our data use practices and how privacy works on our platforms in a user-friendly manner. We provide users with adequate notice as to what data is being collected and undertake to manage and use the data collected in accordance with applicable laws. WeWith respect to our primary browser and news products, we serve our European users from our business establishment in Norway and consequently all our processing of the personal data of such users is conducted in accordance with the General Data Protection Regulation, or GDPR. We serve our users outside of Europe primarily from our business establishment in Singapore. Regardless, we consider the protection of the personal privacy of each of our users to be of paramount importance.

 

We continuously strive to prevent unauthorized use, loss or leak of user data. In addition, we use a variety of technologies to protect the data with which we are entrusted and have a team of privacy professionals dedicated to the ongoing review and monitoring of data security practices. For example, we store all user data in an encrypted format and strictly limit the number of personnel who can access servers that store user data. For our external interfaces, we also utilize demilitarized zones and firewalls to protect against potential attacks or unauthorized access.

 

Product Marketing and Distribution

 

OurFor the majority of our products and services, the main source of marketing for our products and services is “word-of-mouth” from our large user base. The trust and reliance that our users place in us is a key growth driver of our business, since prospective users that hear positive feedback from their friends and colleagues about our products and services are more likely to try them.

In 2019,2020, organic installs represented approximately 63%69% of our new smartphone users. In parallel, we investinvested in 2020 more than 45 million dollars in advertising campaigns and paid online promotions to reach prospective users. We also cooperate with industry partners to promote our products. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions.” In 2019,2020, approximately 8%3% of new smartphone users originated from our paid online promotions. We normally set an annual budget for the overall spending on paid online promotions. In addition, we work closely with key device manufacturers and chipset vendors worldwide to pre-install Opera products and co-market our products and services. In 2019,2020, approximately 29%28% of new smartphone users came from such partners. We have long-standing relationships covering mostmany of the largest smartphone brands, including Samsung, Huawei, OPPO and Tecno.brands.

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Our products are available through our official website, www.opera.com, as well as the Google Play, Apple’s App Store, and Apple App Store.other online app marketplaces.

 

Competition

 

We face intense competition with regardsregard to all of the products and services we offer. In the browser space, we generally compete with other global browser developers, including companies such as Google (Chrome browser), Samsung, Apple (Safari browser) and Microsoft (Internet Explorer and Edge browsers) that distribute their browsers via proprietary operating systems and devices, and with other regional internet companies that have strong positions in particular countries.

In the content space, we face competition from other internet companies promoting their own content products and services globally, including Google, Apple and Facebook, and traditional media such as global or regional newspapers and magazines. Unlike some other large competitors, we primarily focushave historically focused on key growth markets outside North America, which enables us to integrate unique content to local Opera News users via our evolving AI-powered content discovery and recommendation platform. However, we expect to compete with digital media properties and other AI based news offerings as we expand Opera News into development markets. In addition, we compete with all major internet companies for user attention and advertising spend.

 

In microfinanceEuropean financial services, we face significantor expect to face competition from large, venture backed global microfinanceincumbent financial providers, payment and fintech start-ups, and non-traditional payment and credit providers such as TalaRevolut and Branch, incumbent banksKlarna. We also compete with existing cashback solutions such as Letyshops and local players. We believe our advantages include scale, a large user base to promote our products, strong AI technology for credit scoringTopcashback in Europe and a substantial in-market presence and operational expertise in key geographies.the CIS region.

 

Intellectual Property

 

We regard our patents, copyrights, service marks, trademarks, trade secrets and other intellectual properties as critical to our success. We rely on patents, trademarks, and copyrights, trade secret protection, and non-competition, confidentiality, and license agreements with our employees, customers, partners and others to protect our intellectual property rights. Despite our precautions, it may be possible for third parties to obtain and use our intellectual properties without authorization. Furthermore, the validity, enforceability and scope of protection of intellectual property rights in internet-related industries are uncertain and still evolving.

 

As of December 31, 2019,2020, we had 179over 150 active registrations ofor pending applications for the OPERA, Opera with Red O (both old and new versions) and OPERA SOFTWARE trademarks in 92 countries/regionsover 100 countries, and 18 applications in 10 additional countries/regions. We also had 167 active registrations of thefor our red “O” logo in 73 countries/regions and 25 applications in sevenover 75 countries. Our main classesWe are 9, 35, 38 and 42.also seeking trademark protections for certain of our other brands. Opera also has a patent portfolio that includes 22more than 20 patents issued in the United States as well as certain international patent registrations. In addition, as of December 31, 2019,2020, we had over 900hundreds of registered domain names related to our business.

 

Norwegian Regulations

 

Norwegian Regulations on Foreign Investments

There are currently no general restrictions on foreign investments in Norway, but national restrictions exist on ownership of natural resources and on some specific activities (fishing, maritime transport and media). The Norwegian government also applies a “qualified ownership” test for significant ownership positions within the financial sector.

Regulations on Dividend Distributions

The Norwegian Private Limited Companies Act, or the PLCA, chapter 8 includes certain constraints on the distribution of dividends from Norwegian subsidiaries.

Section 8-1 of the PLCA provides that a Norwegian company may distribute dividends up to its distributable equity, to the extent that its net assets following the distribution covers the (i) share capital, (ii) reserve for valuation variances and (iii) reserve for unrealized gains. The total nominal value of treasury shares which the Norwegian company has acquired for ownership or as security prior to the balance sheet date, as well as credit and security to related parties shall be deducted from the distributable equity.

Dividends are declared by a shareholders’ resolution based on a recommendation from the board of directors. The calculation of the distributable equity is made on the basis of the balance sheet included in the latest approved annual accounts, provided, however, that the registered share capital as of the date of the resolution to distribute dividends shall be applied. Following the approval of the annual accounts for the last financial year, the shareholders may also authorize the board of directors to declare dividends on the basis of its annual accounts. Dividends may also be resolved by a shareholders’ resolution based on an interim balance sheet which has been prepared and audited in accordance with the provisions applying to the annual accounts and with a balance sheet date not further into the past than six months before the date of the resolution.

Dividends can only be distributed to the extent that the Norwegian company’s equity and liquidity following the distribution is considered sound. Dividends may be paid in cash or in some instances in kind.

The PLCA does not provide for any time limit after which entitlement to dividends lapses. Subject to various exceptions, Norwegian law provides a limitation period of three years from the date on which an obligation is due. There are no dividend restrictions or specific procedures for non-Norwegian shareholders to claim dividends, however withholding tax may apply.

Regulations on Foreign Exchange

There are currently no foreign exchange control restrictions in Norway that would potentially restrict the payment of dividends to a shareholder outside Norway. There is no maximum transferable amount either to or from Norway, although transferring banks are required to submit reports on foreign currency exchange transactions into and out of Norway into a central data register maintained by the Norwegian customs and excise authorities. The Norwegian police, tax authorities, customs and excise authorities, the National Insurance Administration and the Norwegian FSA have electronic access to the data in this register.

Regulations on Information Technology and Intellectual Property Rights

 

Norway adheres to key international agreements for the protection of intellectual property rights, hereunder the Paris Union Convention for the Protection of Industrial Property, Berne Copyright Convention, Universal Copyright Convention of 1952, Rome Convention and the TRIPS agreement.

 

The main acts governing intellectual property rights in Norway are the Patents Act of December 15, 1967, Designs Act of March 14, 2003, Trademarks Act of March 26, 2010, Copyrights Act of June 15, 2018, and Marketing Act of January 9, 2009. The latter also protects trade secrets.

 

Trademarks, designs and patents shall be registered upon application to the Norwegian Industrial Property Office, or the NIPO, in order to be valid in Norway. Patent applications which have been granted at the European Patent Office can be validated in Norway upon application to the NIPO.

 

Norwegian Regulations on Data Protection and Information Security

 

The principal data protection legislation in Norway is the Personal Data Act of June 15, 2018, no. 38. The Personal Data Act implements 2016/679/EU - General Data Protection Regulation, (or “GDPR”) in its entirety. The purpose of the act is to protect natural persons from violation of their right to privacy through the processing of personal data. The new Personal Data Act implements 2016/679/EU - General Data Protection Regulation, onBroadly speaking, the protection of natural persons with regardGDPR applies to the processing of personal data conducted by companies established in the EEA, and onto the free movement of such data (or “GDPR”) in its entirety. The Personal Data Act applies to processing of personal data conducted in Norway, regardless of whether the processing takes place within the EEA. The Act also applies to processing of personal data of data subjects who are in Norway by an entity not established in the EEA, where the processing is linked to the offering of goods or services to such data subject in Norwaysubjects or the monitoring of their behavior as far at their behavior takes place in Norway.behavior.

 

European Financial Services Regulations

Certain Company subsidiaries operate or may come to operate in regulated financial services markets under licenses issued by regulatory bodies in Europe or elsewhere. Under these regulatory regimes, the relevant national regulator may conduct a “fit and proper” evaluation of all major, direct or indirect shareholders and require that any shareholder intending to acquire beneficial ownership of 10% or more of Company to first obtain pre-approval from the regulator. Such major shareholders must also seek pre-approval of any additional major increase in its shareholding and give notice of any major decrease in shareholding. Company has, for example, a subsidiary in the United Kingdom licensed by the UK Financial Conduct Authority and under applicable law any shareholder intending to acquire 10% or more of Company must first obtain the prior approval of the UK Financial Conduct Authority. Company may, moreover, expand its European financial services initiatives to additional jurisdictions within the EU/EEA with operations which may require similar pre-approvals for additional regulators.

 

Regulations on Anti-money Laundering and the Prevention of Terrorism Financing

 

The Norwegian Anti-Money Laundering Act of June 1, 2018 and the Anti-Money Laundering Regulation of September 14, 2018, both entered into force on October 15, 2018. The purpose of this legislation isCompany’s European financial services initiatives are subject to regulations intended to prevent and detect money laundering and terrorist financing. The legislation isfinancing (“AML Regulations”). Such AML Regulations are generally based on the EUEU’s Fourth Money Laundering Directive (Directive EU 2015/849), Fifth Money Laundering Directive (Directive EU 2018/843) and FATF Recommendations. The legislation applies to reporting entities, such as banks, investment firms, insurance companies, etc. Reporting entities under such legislation are obliged to apply a risk basedrisk-based approach when determining measures against money laundering and terrorist financing, including the performance of required customer due diligence measures. If a reporting entity detects circumstances which may indicate that funds are associated with money laundering or terrorist financing, further examinations shall be conducted. If the reporting entity after such examinations suspects that funds are the proceeds of a criminal activity, or are related to terrorist financing, it is required to report its suspicions to appropriate authorities. At present, the Norwegian national financial intelligence unit.Company has subsidiaries which are reporting entities under the AML Regulations of the United Kingdom and Spain. The Company may expand its European financial services initiatives to additional jurisdictions within the EU/EEA in the future and may then have reporting entities in such additional jurisdictions for purposes of compliance with the applicable AML Regulations of such jurisdictions.

Holding Foreign Companies Accountable Act

The United States adopted the Holding Foreign Companies Accountable Act in 2020, which law requires the Securities Exchange Commission to prohibit the trading of any shares for which the issuer’s auditor has not been under the inspection of the Public Company Accounting Oversight Board (PCAOB) for three consecutive years.

The Company’s consolidated financial statements are prepared at its headquarters in Norway in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and audited by KPMG AS in accordance with PCAOB auditing standards.
The Company's auditor, KPMG AS, is not a reporting entity accordingNorwegian-based independent public accounting firm that is registered with the PCAOB. The PCAOB is able to this legislation.inspect the Company’s audit files in Norway pursuant to a cooperative agreement between the PCAOB and the Financial Supervisory Authority of Norway that has been effective since 2011.

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C.

Organizational Structure

 

The chart below summarizes our corporate structure and identifies our principal subsidiaries and their places of incorporation as of the date of this annual report:

 

chart04.jpg

 

Notes:
(1) 20% held by a nominee shareholders.

(2) 0.01%1 share held by Kunhoo Software Ltd.
an additional Opera group entity.

(3) 1% held by O-Play Kenya Limited.
(4) Variable interest entity contractually controlled by Opesa South Africa (Pty) Limited.
(5) Formerly known as Opera Software AS.
(6) 1% held by Oplay Digital Services S.A. De C.V.
(7) 15% held by two local partners.
(8) Variable interest entity contractually controlled by Opera Software International AS.

 

D.

Property, Plants and Equipment

 

Our corporate headquarters is located in Oslo, Norway. Our principal technical development facilities are located in Wroclaw, Poland, Tallinn, Estonia, Dundee, Scotland, Beijing, China and both Linköping and Gothenburg, Sweden. We also have offices in Nigeria, India, Ireland, Estonia, Mexico,France, England and Kenya among other countries.

 

Our servers are hosted in leased data centers, primarily in the Netherlands, the United States, Nigeria, Kenya and Singapore, with an additional small data center in Russia. The data centers in our network are owned and maintained for us by major domestic and international data center providers. We generally enter into leasing and hosting service agreements with renewal terms that range from one to three years.

 

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ITEM 4A.

UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “ItemItem 3. Key Information—InformationD. Risk Factors”Factors and elsewhere in this annual report.

For discussion of 20172018 items and year-over-year comparisons between 20182019 and 20172018 that are not included in this annual report on Form 20-F, refer to “ItemItem 5. Operating and Financial Review and Prospects”Prospects found in our Form 20-F for the year ended December 31, 2018,2019, that was filed with the Securities and Exchange Commission on April 17, 2019.30, 2020.

A.

Operating Results

 

Major Factors Affecting Our Results of Operations

 

Our business and operating results are affected by general factors affecting the global online content consumption, e-commerce and fintech industries, which include:

 

 

overall global economic growth;

  

 

mobile and PC internet usage and penetration rate by geography;

  

 

growth of online content consumption, and its popularity as an advertising medium;

  

 

growth of online commerce and related advertising;

  

 

growth of mobile money solutions and traditional banking alternatives; and

  

 

governmental policies and initiatives affecting online content consumption, and e-commerce, and fintech.

 

While our business is influenced by these general factors, we believe our results of operations are more directly affected by company specific factors, including the following major factors:

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Our Ability to Maintain and Expand Our User Base, and Maintain and Enhance User Engagement

 

Our user base is important for our revenue generation, both because its sheer size makes us an attractive partner for search and advertising partners, and in terms of directly impacting our user-generated revenues. The following table presents certain of our user metrics for the periods indicated:

 

 

Three months ended(1)

  

Three months ended (1)

 
 

Mar 31, 2018

  

Jun 30, 2018

  

Sept 30, 2018

  

Dec 31, 2018

  

Mar 31, 2019

  

Jun 30, 2019

  

Sept 30, 2019

  

Dec 31, 2019

  

Mar 31, 2019

  

Jun 30, 2019

  

Sept 30, 2019

  

Dec 31, 2019

  

Mar 31, 2020

  

Jun 30, 2020

  

Sept 30, 2020

  

Dec 31, 2020

 
 

(in millions)

  

(in millions)

 

Smartphone browser average MAUs

  182.0   174.3   178.6   188.5   190.0   190.2   190.9   188.5   190.0   190.2   190.9   188.5   187.3   183.8   198.9   190.1 

Smartphone total average MAUs

  184.3   182.2   196.0   208.0   221.4   226.7   232.0   227.4   221.4   226.7   232.0   227.4   225.1   226.3   243.0   232.7 

PC browser average MAUs

  57.4   57.1   58.4   60.9   65.1   65.0   67.8   67.6   65.1   65.0   67.8   67.6   67.4   74.8   74.7   78.9 

Opera News average MAUs (2)

  90.2   101.0   121.4   134.1   149.7   162.9   169.0   162.8   149.7   162.9   169.0   162.8   179.5   190.9   219.9   210.3 

 


(1) Average across the three months included in each period, with each month calculated as of its final day using a 30-day lookback window.

 

(1)

Average across the three months included in each period, with each month calculated as of its final day using a 30-day look back window.

(2)

(2)Includes Opera News users within our browsers as well as the dedicated Opera News app.

 

Our total browser average MAUs in the three months ended December 31, 20192020, was 316.2333.2 million including 248.6254.3 million mobile browser users and 67.678.9 million PC browser users. Our mobile browser users included 188.5190.1 million smartphone users and 60.164.2 million feature phone users.

 

Our total smartphone average MAUs in the three months ended December 31, 20192020, was 227.4232.7 million. This figure is comprised of the 188.5190.1 million smartphone browser users, and the 38.942.6 million users of the dedicated Opera News app.apps.

 

Our smartphone browser user base followed a positive growth trend across 2017, 2018grew in Africa and 2019, adding 28.5 million MAUs over that period.Europe in 2020, our core focus regions, but slightly declined in Asia. As we oriented our marketing and distribution efforts around the new dedicated Opera News appapps during 2019,2020, our overall smartphone user base grew faster than the browser subset, adding a total of 67.45.3 million in 2019 alone.2020.

 

Our ability to continue to effectively maintain and expand our user base will affect the growth of our business and our revenues going forward. We generate revenues from our business partners, including search providers and advertisers, who are drawn to our platform in part because of the size of our user base, its attractive demographics, and our level of user engagement. Our ability to maintain and expand our user base, as well as maintain and enhance user engagement, depends on, among other things, the effectiveness of our marketing and distribution spend, our ability to continuously offer comprehensive and effective products and services, recommend personalized content through technological innovation and provide a superior content discovery experience.

 

47

Our Ability to Monetize

 

We have long and deep relationships with many of our major monetization partners. Changes in the revenue sharing or fee arrangements with our key monetization partners may materially affect our revenues, although we have not seen such material impacts to our revenues over the 20172018 to 2019 period from such pricing related factors.2020 period. However, for example, a change in the revenue sharing percentage paid by certain of our major partners such as Google or Yandex, or a change in their payment policies or other contractual arrangements, could impact our revenues, either positively or negatively. Likewise, with respect to certain major advertising partners, changes in the fee rate we receive per click or per sale may affect our revenues.

 

The growth, seasonality and strength of our major advertising partners’ businesses may also materially affect our revenues, positively or negatively. This has been illustrated by the COVID-19 pandemic where, for example, we have seen revenues decline from monetization partners in travel related businesses, presumably due to pandemic related travel restrictions. At the same time, we have seen revenues increase from monetization partners with e-commerce businesses as more people buy online. Revenues from monetization partners in sports related businesses were temporarily down when sporting events were suspended, only to later recover and with even stronger demand as people follow sporting events digitally, with such digital adoption presumably accelerated due to pandemic related restrictions on attending live sporting events. A reversal of pandemic related restrictions may have further unpredictable effects, positive or negative, on the businesses of some of our major advertising partners and by extension on our revenues. 

Further, our revenue generation is affected by our ability to promote and improve our users’ experience with our partners’ services, and our ability to open advertising inventory.

 

In 2019,2020, we had more thanapproximately 400 monetization partners. We intend to maintain and deepen our relationships with current partners and attract more partners to increase and diversify our revenue sources. Our ability to further increase the number of partners primarily depends on whether we can provide integrated marketing services and help them more precisely reach their targeted users through our AI-powered content discovery platform.

 

Our Brand Recognition and Market Leadership

 

We believe that the strong brand recognition of “Opera” is a key element of our success. Our ability to maintain our massive user base and brand recognition as a leading independent browser and content discovery platform is key to our ability to maintain and enhance relationships with our users, monetization partners, content partners and distribution partners. In addition, the reputation and attractiveness of our platform among internet users also serves as a highly efficient marketing channel for our new products and services.

 

Our Ability to Manage Our Operating Expenses

 

Our long-term results of operations further depend on our ability to manage our operating expenses. Our operating expenses consist primarily of staffpersonnel cost, marketing and distribution expenses, loss related to changes in fair value of loans to customers, cost of revenue,depreciation and amortization, server hosting expenses, professional services and rent. We expect the absolute amount of staff cost, server hosting expenses and rent to increase as we grow our business and as we make necessary adjustments to operate as a public company. We anticipate further investing in our growth by incurring increased staff costs from new business initiatives as well as increased loss related to changes in fair value of loans to customers (primarily driven by realized and expected cash shortfalls, i.e., credit losses) and cost of revenue driven mainly by microlending revenues, the new revenue category which scaled rapidly through 2019, and is expected to see continued growth.business. In 2019,2020, our operating expenses totaled US$314.2179.0 million, representing a 147%0.8% increase compared to 20182019 mainly due to costs from our microlending business and increaseddecreased investment in marketing.marketing and distribution expenses. As a percentage of revenue, operating expenses represented 94%108.3% in 2019,2020 following COVID-19 related impacts to revenue, compared to 74%100.3% in 2018.2019. However, over time, we expect our costs and operating expenses to decrease as a percentage of revenue as we improve our operating efficiency and as a result of economies of scale. Key examples would be personnel and hosting cost which decreased as a percentage of revenue in 2019 versus 2018 due to our larger scale.

48

 

Our Ability to Strengthen Our Technological Capabilities, Especially AI and Big Data

 

The internet business in general is undergoing constant technological evolution. In particular, AI and big data have been transforming, and will continue to transform, the internet industry, especially the content consumption market. We are dedicated to continually enhancing and applying our capabilities to new forms of content discovery and recommendation technologies and other applications. To maintain and enhance our innovation capabilities, we have increased our investments in product development and expect to continue to do so.

 

Our Ability to Attract, Engage and Retain Borrowers and Collect Repayments From ThemUsers for our European Fintech Initiatives

In 2019, 38.3% of our revenue was derived from our fintech business, which we generate by charging our borrowers origination fees and interest. Origination fees remain fixed regardless of any early repayments, while interest fees accrue only if and after a loan is not repaid by its due date. The amount of revenue we generate from these fees is dependent on the number of loans we disburse and the percentage of loans that are timely repaid.

Our ability to attract, retain and engage users for our existing borrowers and continue to expand our borrower basevarious initiatives is essential to the growth of our European fintech business. We bearhave launched products and services, including cashback, under the credit risk of loans disbursedDify brand. Critical to our borrowers, which we attemptsuccess with these initiatives is that users are attracted to measureour offerings, and mitigate using a variety of methods, including total outstanding loan balance, delinquency rates by aging, credit scorecards and by way of collection models. Ifthat we are unablesuccessful in cross promoting these services to collect repaymentsOpera users. Further, the European fintech space is highly regulated. Consequently, the success of our loans in a timely manner, we may incur credit losses which would adversely affectproducts will depend on attracting users to our fintech business operations.offerings while complying with complex regulatory standards.

 

Critical Accounting Policies and Estimates

 

We prepare our consolidated financial statements in accordance with IFRSInternational Financial Reporting Standards (IFRS) as issued by the IASB. PreparingInternational Accounting Standards Board (IASB). The application of certain of these financial statementsaccounting principles requires us to makeconsiderable judgment based upon estimates and assumptions that affectinvolve significant uncertainty at the reported amounts of assets, liabilities, equity, revenue, expenses,time they are made. Estimates and related disclosures. We evaluate our estimatesjudgments are continually evaluated and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptionsfactors, including expectations of future events that we believeare believed to be reasonable under the circumstances. Our actual resultsActual outcomes may differdeviate from these estimates.

The critical accounting estimates, Changes in assumptions and judgmentsdeviations between estimates and final outcomes may have a significant impact on the financial statements in the periods when assumptions are changed and when uncertainty is resolved. Accounting policies that are deemed critical to our results and financial position, in terms of materiality of the items to which the policy is applied, and which involve significant assumptions and estimates, are discussed in this section. A broader and more detailed description of the accounting policies that we believeuse is included in Note 2 to have the most significant impact on our consolidated financial statements are described below.included elsewhere in this annual report. 

 

Revenue Recognition

 

i.

i. Search revenue

 

Search revenue is generated when a user conducts a qualified search using a search partner (such as Google or Yandex) through the built-in combined address and search bar provided in our PC and mobile browsers, or when otherwise redirected to the search partner via browser functionality. Search revenue is recognized in the period the qualified search occurs based upon the contractually agreed revenue share amount.

 

ii.

ii. Advertising revenue

 

Advertising includes revenues from all other user-generated activities excluding search revenues. Advertising revenues include revenues from industry-standard ad units, predefined partner bookmarks (“Speed Dials”) and subscriptions of various promoted services that are provided by us. Revenue is recognized when our advertising services are delivered based on the specific terms of the underlying contract, which are commonly based on revenue sharing, clicks, or subscription revenues collected by third parties on behalf of us.

 

The majority of advertising revenue is reported based on the amounts we are entitled to receive from advertising partners. In limited instances where we have developed or procured a service which we promote to the users, we consider ourselves the principal party to a transaction and not an agent of another entity. In such cases, we will recognize revenue on a gross basis. In our determination as to whether we are the principal, we consider our (i) responsibility to provide the service to the end-user, (ii) ability to determine pricing, (iii) exposure to risk. The associated costs for these transactions are included in the Statement of Operations withinas technology and platform fees, content cost, or cost of revenue.inventory sold.

 

iii.

Origination fees and interest

49

 

We provide instant app-based microloans to customers in exchange for an origination fee that remains fixed regardless of any early repayment. The origination fee is compensation for the credit risk and time value of money. Additional fees in the form of interest accrues only if and after a loan is not repaid by its due date.

While loans to customers are classified as financial assets measured at fair value through profit or loss, we disaggregate changes in fair value into interest income and credit losses in the Statement of Operation. Interest income, classified as revenue, is recognized when the interest is accrued based on the effective interest rate – the rate that at inception exactly discounts the estimated contractual future cash receipts through the expected life of the loans to the disbursed amount.

iv.

Airtime and handsets revenue

The Retail segment includes sale of handsets, prepaid airtime and data to consumers and wholesalers. Revenue is recognized when the contracted good or service is transferred to the customer, after which we do not have any remaining obligations, except for a potential obligation to provide refunds customers in some arrangements if certain criteria are met. This right of refund creates variability in the transaction price. The amount of revenue recognized includes variable consideration to which we expect to be entitled. In 2019, customers’ right of refund did not materially impact the amount of revenue recognized. We update our estimates of refund liabilities (and the corresponding change in the transaction price) at the end of each reporting period. We have concluded that we are a principal for all our existing arrangements with customers classified as retail, based on the factors discussed above for Advertising revenue. Although other parties are involved in the supply of the contracted good or service to the customer, we control the contracted good or service before it is transferred.

v.

iii. Technology licensing and other revenue

 

Technology licensing and other revenue include other revenues that are not generated by our user base, such as revenues from providing professional services, from device manufacturers and mobile communication operators. We generate such revenue from licensing of our proprietary compression technology and providing related maintenance, supporting and hosting services to third parties, as well as providing professional services, and enabling customized browser configurations to mobile operators. We also generate such revenue from providing development and managerial services to certain equity-accounted investees. Licensing agreements may in addition to licensing of technology, include related professional services, maintenance and support, as well as hosting services. Depending on the customization and integration level, the software licenses are either distinct or not distinct performance obligations from related professional services, and accordingly, the licensing revenue is recognized either separately when control is transferred to the customer or together with the implementation services. Sale of licenses that are part of a multi-element contract where the license is not distinct from maintenance, support or hosting services, are recognized over the contract period.

 

Maintenance, support and hosting revenues are generally recognized ratably over the term that these services are provided.

Revenue from distinct professional services areis recognized over the development period in line with the degree of completion.

 

Fair value of investment in Nanobank

On August 19, 2020, we contributed TenSpot Pesa Limited and its subsidiaries to Nanobank in exchange for us obtaining an ownership interest of 42% in Nanobank. We concluded that the investment in Nanobank is an associate to be accounted for in accordance with the equity method. The cost of the investment in Nanobank, i.e., the amount at which it initially was recognized, was the estimated fair value of the investment as of August 19, 2020. We estimated the fair value using a combination of methodologies, including income and market-based approaches. Under the income approach, we estimated expected future cash flows for each component of Nanobank and then discounted those cash flows using an estimated weighted average cost of capital ("WACC"). The estimates for future cash flows were based on assumptions that included the number of loans to customers, nominal size of loans, amount of interest and fees generated and credit losses. The estimate for WACC was based on estimates for risk-free rate, beta, equity risk premium, cost of debt and a company-specific risk premium. Under the market approach, we used judgment in identifying comparable companies. Based on the combination of the income and market approaches, we concluded that the estimate for fair value of the investment in Nanobank as of August 19, 2020, was US$265.9 million, which became the deemed cost of the investment. See Note 13 to our consolidated financial statements included elsewhere in this annual report for more information.

On acquisition of the investment in Nanobank, we used assumptions in identifying and valuing the assets and liabilities of the entity, including goodwill. We identified intangible assets that were not separately recognized by Nanobank, including trademarks, technology, customer relationships and licenses. For all identified assets and liabilities, we estimated their fair values as of August 19, 2020. In estimating the fair value of the trademarks and technology assets, we used a relief-from-royalty method that included estimates for royalty rates and future revenue related to the trademarks. In estimating the fair value of the customer relationships, we estimated future revenue from the customer base of Nanobank and the churn rate for customers. The identified licenses were valued using a combination of a cost-based approach that estimated the cost of acquiring the licenses and a market-based approach under which we estimated a transaction price for similar licenses. For all identified assets, we used judgment in determining their useful lives.

Significant influence over OPay and basis of accounting for investment

We determined that we have significant influence over OPay Limited even though we were diluted in 2019 from holding 19.9% to 13.1% of the voting rights in the company and do not have a direct representation on the board of directors. In determining that we have significant influence, we considered the influence our chairman and CEO is capable of exercising on our behalf. Our chairman and CEO is also the chairman and CEO of OPay, though appointed as a representative of a personal investment entity, which also is an investor in OPay. Based on the assessment that our chairman and CEO is capable of exercising significant influence in OPay on our behalf, we concluded that we have power to participate in the financial and operating policy decisions of OPay and thus the investment was classified as an associate.

 

Financial assets

Our financial assets include loan to customers, trade receivables,We hold preferred shares holdings of publicly traded securitiesin OPay, acquired in 2019, as disclosed in Notes 13 and other loans. 

Initial recognition16 to our consolidated financial statements included elsewhere in this annual report. While the preferred shares have characteristics similar to equity instruments, we determined that the rights and measurement

Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income, or fair value through profit or loss. We did not have financial assets measured at fair value through other comprehensive income.

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and our business model for managing them. Trade receivables that do not contain a significant financing component are initially measured at the transaction price determined in accordance with the accounting policies for revenue recognition (see below). All other financial assets are initially measured at their fair value plus,benefits inherent in the case of apreferred shares, including redemption rights and liquidation preference, entail that they in substance are debt instruments. Consequently, we classified the preferred shares as financial asset not at fair value through profit or loss, transaction costs. Transaction costs of financial assetsinstruments measured at fair value through profit or loss are expensed when incurred.loss. The carrying amount of the preferred shares is part of our net investment in OPay. We applied significant judgment in determining the share of net income (loss) to be recognized under the equity method. We considered the rights and benefits of all classes of shares issued by OPay and determined that our share was to be calculated based on its number of ordinary shares relative to the total number of shares outstanding, including preferred shares, opposed to only the total number of ordinary shares outstanding.

 

In order forFair value of preferred shares in associates

We have invested in preferred shares in OPay and StarMaker, both entities classified as associates. These preferred shares represent a financial assetlong-term interest that in substance form part of our net investment in the associates. Due to be classifiedtheir characteristics the preferred shares are not equity instruments and measured at amortized cost or fair value through other comprehensive income it needs todo not give rise to cash flows that are solely payments of principal and interest ("SPPI") on the principal amount outstanding. This assessment is performed at an instrument level. Our business model for managing financial assets refers to how we manage our financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, sellingThus, the financial assets, or both. Financial assets are measured at amortized cost if the financial assets satisfy the SPPI criteria and are held within a business model whose objective is to collect the contractual cash flows. If the financial asset is held within a business model that is achieved by both collecting contractual cash flows and selling and which contain contractual terms that are SPPI, the assets are measured at fair value through other comprehensive income. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of business model.

The microloans are held within a business model whose objective is to hold the assets and collect the contractual cash flows over the life of the instruments. There is no pattern of selling the loans, and the performance of the business is not measured at fair value for internal purposes. However, we have established a contractual obligation based on our business practices and external communication to limit the total amount of interest in the form of late fees to the amount of the principal and origination fee. This means that for overdue loans that are repaid after having reached such limit, the contractual cash flows are not payments of principal and interest on the principal amount outstanding. This is due to the interest amounts not being consideration for the time value of money. Consequently, the microloanspreferred shares are measured at fair value through profit or loss. In the Statement of Financial Position, the microloans are presented as Loans to customers.

Subsequent measurement at amortized cost

Our financial assets at amortized cost includes trade receivables, loans to associates and joint ventures and other loans. These assets are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.

Subsequent measurement at fair value through profit or loss

Our financial assets subsequently measured at fair value through profit or loss include loans to customers, preferred shares in OPay and StarMaker and holdings of publicly traded securities. These assets are carried in the Statement of Financial Position at fair value with changes in fair value recognized in the Statement of Operations.

While loans to customers are measured at fair value through profit or loss, changes in fair value are disaggregated in the Statement of Operations into interest income (presented as revenue) and credit loss (other changes in fair value). The net of interest income and credit loss expense represents the change in fair value. Fair value is estimated by discounting projected future cash flows to their present value using the credit-adjusted effective interest rate, determined as at the date loans were granted. This method is deemed appropriate for estimating fair value due to the short duration of the loans and the amounts of origination fees and interest reflecting market rates at the point in time when the loans were granted. The credit-adjusted effective interest rate reflects the risk of defaulted payment. The total cash flows (both principal, origination fees and interest) expected to be collected are regularly reviewed. The impact of changes in expected cash flows is adjusted in the carrying amount of Loans to customers and is, together with the difference between the realized and expected cash flow of the period, recognized in the Statement of Operations as Revenue or Other changes in fair value of loans to customers. The underlying estimates for future cash flows, which form the basis for revenue recognition, depends on variables such as the ability to contact the debtor and reach an agreement, timing of cash flows, general economic environment, and statutory regulations. Events or changes in assumptions and management’s judgment will affect the recognition of revenue in the period.

 

The fair values of preferred shares in OPay and StarMaker as of December 31, 20192020, were measured using methods and techniques that reflect the economic rights and benefits of the preferred shares. These rights and benefits include redemption rights and liquidation preferences. A combination of the following three valuation methods was used to estimate the fair value of the preferred shares: Probability weighted expected return model (“PWERM”); Option pricing model (“OPM”); and Current value method (“CV”). These models, which also were used to estimate fair values as of December 31, 2019, build on estimates, such as discount for lack of marketability and the fair value of equity in OPay and StarMaker. Moreover, the PWERM model is based on estimates for future scenarios and outcomes, including sale transactions, initial public offering, dissolution, and redemption. More details on the models and input are provided in Note 16 to our consolidated financial statements included elsewhere in this annual report.

 

Share-based Paymentsconsideration from Powerbets

 

Our employees receive remunerationTo recognize revenue from a contract with a customer within the scope of IFRS 15, certain criteria must be met, including it being probable that we will collect the consideration to which we will be entitled in exchange for the formgoods or services transferred to the customer. In evaluating whether collectability of share-based payment transactions, whereby employees render services inan amount of consideration for equity instruments.is probable, we consider the customer’s ability and intention to pay that amount of consideration, which may involve significant judgment.

 

Estimating fair valueEffective from the beginning of 2020, we determined that it was not probable that we would collect the consideration to which we were entitled for share-based awards requires an assessmentservices provided to Powerbets during the year and as a result, we did not recognize any revenue from these services. However, in 2019, we determined that at the time the collectability criterion was met and based on this we recognized US$2,210 thousand as revenue from contracts with Powerbets (2018: US$4,369 thousand). As of an appropriate valuation model, which depends onDecember 31, 2020, the termstotal amount of outstanding trade receivables due from Powerbets was US$6,579 thousand (December 31, 2019: US$6,579 thousand).

In assessing whether the collectability criterion was met for contracts with Powerbets, we considered the likelihood of and conditionstiming for when Powerbets will start generating net cash inflows from its operating activities and other factors that are relevant in assessing the timing of the grant. The estimate also requires an assessmentrevenue recognition and collectability of the most appropriate inputs to the valuation model including grant date fair valuerelated accounts receivable.

We disposed of the underlyingour equity the expected life of the grant, volatilityinvestment in Powerbets in December 2020. See Notes 13, 14 and dividend yield. Assumptions and models used for current grants are disclosed in Note 626 to our consolidated financial statements included elsewhere in this annual report.report for more information.

 

When applicable, employer social security costs are accrued overAs of December 31, 2020, we estimated the vesting periodlifetime expected credit losses on trade receivables and long-term loans due from Powerbets. In estimating the cash flows we expect to receive, we considered a range of each award,possible outcomes, which were assigned weights based on probabilities. Possible outcomes included scenarios in which Powerbets starts generating sufficient cash flows from its operating activities to settle the award’s intrinsic valuereceivables and capital contributions from new investors in the company. We determined that the probability-weighted best estimate for the amount to be collected was nil and consequently that the trade receivables and the long-term loans were fully impaired. Consequently, we recognized an impairment loss of US$10.5 million, of which US$6.6 million was related to trade receivables and US$3.9 million was related to long-term loans. Due to the distinct nature of the underlying equity interestexpense, the impairment loss was recognized on a separate line item in the Statement of Operations as of the reporting date."Credit loss expense related to divested joint venture".

 

51

Both periodic equity costs

Impairment of Goodwill and social security cost accruals are adjusted for estimated forfeitures.Intangibles with Indefinite Lives

 

We assess at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, we estimate the asset’s recoverable amount. The recoverable amount of an asset or cash-generating unit (CGU) is the higher of its fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are not requiredlargely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Goodwill and our brand of Opera (the trademark) were initially recognized in November 2016 through the acquisition of Opera Norway AS (formerly Opera Software AS) with subsidiaries, consisting of one segment – “the Consumer business”. In 2019, the goodwill was reallocated to what was then a new operating segment: Browser and News, which represents a single CGU. 

Goodwill is tested for impairment annually as of December 31, and when circumstances indicate that the carrying value may be impaired.

In assessing value in use, the estimated future cash settle any equity awards in any scenario. Asflows are discounted to their present value using a result,pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.

We base our impairment calculation on detailed budgets and forecast calculations. These budgets and forecast calculations cover a period of one year. Because the length of the projection period for the cash flow forecast where a CGU has goodwill or intangible assets with indefinite lives is into perpetuity, we consider all equity awards to be equity settledidentify a “steady state” set of assumptions for the cash flows based an approach where we estimate cash flows for the following four years and then using the estimated cash flows in the contextfinal year of estimation as the basis for the terminal value. A long-term growth rate is calculated and applied to project future cash flows after the projected period. See Note 12 to our consolidated financial statements.statements included elsewhere in this annual report for more information.

For assets, excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such an indication exists, we estimate the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized.

 

Capitalized Development Costs and Customer Relationships

 

Certain costs of developing new features, together with significant and pervasive improvements of core functionality, are capitalized as development costs and amortized on a straight-line, three-year basis. Other engineering work related to research activities or ongoing product maintenance, such as “bug fixes,” updates needed to comply with changes in laws and regulations, or updates needed to keep pace with the latest web trends are expensed as ordinary compensation costs in the period they are incurred. Initial capitalization of expenditure is based on management’s judgment that the project meets all of the six criteria discussed in Note 2 to our consolidated financial statements included elsewhere in this annual report. Assessing if and when all of these criteria are met is based on judgment, which takes into account past experiences and expectations about the technical ability to complete the asset as intendedintended.

 

Acquired intangible assets related to customer relationships are recognized at cost less accumulated amortization and impairment losses and are amortized over a period up to 15 years. We evaluate customer relationships for impairment when circumstances warrant.

 

Business Combinations and Goodwill

Business combinations, except those occurring under common control, are accounted for using the acquisition method. Acquired businesses are included in the consolidated financial statements from the date we obtain control. The cost of an acquisition is measured as the consideration transferred, which is measured at acquisition date fair value. Acquisition-related costs are expensed as incurred.

We initially measure goodwill at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests and any previous interest held, over the net identifiable assets acquired and liabilities assumed.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is from the acquisition date allocated to our Cash Generating Units, or CGUs, that are expected to benefit from the transaction. The goodwill recognized by us is allocated to the Consumer Business CGU.

The acquisition of a microfinance business primarily operating under the brand OKash, as discussed in Note 26 to our consolidated financial statements included elsewhere in this annual report, occurred under common control because we concluded that both Opera Limited and the acquired business was controlled by our Chairman and CEO. The determination that Opera Limited was controlled by our Chairman and CEO was based on significant judgment. The Chairman and CEO’s ownership interest and voting rights were established by his control of Keeneyes Future Holding Inc and Kunlun Tech Limited, a subsidiary of Beijing Kunlun Tech Co. Ltd. Although the Chairman and CEO did not hold a majority of the shares and voting rights in the latter, we concluded that he had de facto control over that entity based on his practical ability to direct the relevant activities unilaterally. This was based on him being the largest holder of voting rights in Beijing Kunlun Tech Co. Ltd, effectively controlling 33.77% of the voting rights directly. The history of voting in general meetings for Beijing Kunlun Tech Co. Ltd demonstrated that our Chairman and CEO controlled significantly more than 50% of the shares registered to vote. The remaining shares in Beijing Kunlun Tech Co. Ltd were widely dispersed among a large number of other shareholders.

Business combinations under common control are accounted for using predecessor accounting. Under this method, assets and liabilities of the acquired entity are stated at predecessor carrying values; they were not measured at acquisition date fair values. No new goodwill is recognized. Any difference between the consideration given and the aggregate carrying value of the assets and liabilities of the acquired entity at the date of the transaction is included in equity in retained earnings. The acquired entity’s results, assets and liabilities are incorporated prospectively from the date on which the business combination between entities under common control occurred. See Note 26 to our consolidated financial statements included elsewhere in this annual report for a detailed discussion. 

Impairment of Goodwill and Intangibles with Indefinite Lives

We assess, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, we estimate the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Goodwill and our brand of Opera (the trademark) were initially recognized in November 2016 through the acquisition of Opera Norway AS (formerly Opera Software AS) with subsidiaries, consisting of one segment – “the Consumer business”. Due to growth and expansion into new businesses in 2019, including microlending, management organized us into four operating segments effective from 2019: Browser and News, Fintech, Retail and Other. The goodwill and the trademark that previously was allocated to the Consumer business CGU was reallocated to the Browser and News CGU.

Goodwill is tested for impairment annually as of December 31, and when circumstances indicate that the carrying value may be impaired.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.

We base our impairment calculation on detailed budgets and forecast calculations. These budgets and forecast calculations cover a period of one year. Because the length of the projection period for the cash flow forecast where a CGU has goodwill or intangible assets with indefinite lives is into perpetuity, we identify a “steady state” set of assumptions for the cash flows based an approach where we estimate cash flows for the following four years and then using the estimated cash flows in the final year of estimation as the basis for the terminal value. A long-term growth rate is calculated and applied to project future cash flows after the projected period. See Note 10 to our consolidated financial statements included elsewhere in this annual report for more information.

For assets, excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, we estimate the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized.

 

Income Taxes

 

Income tax consists of the sum of (i) current year income taxes payable plus (ii) the change in deferred taxes and liabilities, except if income taxes relate to items recognized in other comprehensive income, in which case it is recognized in other comprehensive income (loss). Income taxes include all domestic and foreign taxes, which are based on taxable profits, including withholding taxes. Current year income taxes payable is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the year end, and any adjustment to tax payable in respect of previous years.

 

We recognize income taxes in the income statement except to the extent that it relates to items recognized directly in equity or in comprehensive income. We include deductions for uncertain tax positions when it is probable that the tax position will be sustained in a tax review. We record provisions relating to uncertain or disputed tax positions at the amount expected to be paid. The provision is reversed if the disputed tax position is settled in favor of us and can no longer be appealed.

 

Deferred tax is provided using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. We only recognize a deferred tax asset to the extent that it is probable that future taxable profits will allow the deferred tax asset to be realized. Recognized assets are reversed when realization is no longer probable.

 

See Note 252 to our consolidated financial statements included elsewhere in this annual report for a detailed discussion.

 

Recent Accounting Pronouncements

See Note 3 to our consolidated financial statements included elsewhere in this report for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the dates of the statement of financial position included in this report.

 

Description of Certain Statement of Operations Items

Reclassifications and adjustments made after presentation of unaudited 2020 financial results

Subsequent to the announcement of our fourth quarter and full-year 2020 results on February 25, 2021, we have made certain reclassifications and adjustments to amounts in the primary statements. The items detailed below in Group I were reflected in our release of financial results for the first quarter of 2021 and detailed in the financial tables issued together with the press release. Combined, the adjustments in Group I had no impact to revenue or adjusted EBITDA, but resulted in 2020 net income increasing by $7.0 million. The items detailed in below Group II were not included in the first quarter of 2021 information. Combined, items in Groups I and II reduced 2020 revenue, and thereby adjusted EBITDA, by US$0.2 million, and increased 2020 net income by US$3.1 million, compared with the full-year 2020 results as presented on February 25, 2021.

Group I: Previously communicated changes

In prior periods and in the earnings release for the fourth quarter of 2020, we classified certain expenses based on their function as “cost of revenue”. Effective from the annual consolidated financial statements for 2020 we classify all expenses based on their nature. Consequently, expenses previously classified as cost of revenue have been reclassified based on their nature, which resulted in US$12,112 thousand formerly reported cost of revenue being reclassified into the following categories (2019: US$14,239 thousand, 2018: US$10,499 thousand):

-Content cost (new category): US$4,312 thousand (2019: US$1,545 thousand, 2018: US$72 thousand);
-Technology and platform fees (new category): US$3,315 thousand (2019: US$796 thousand, 2018: US$3,644 thousand);
-Cost of inventory sold (new category): US$700 thousand (2019: US$208 thousand, 2018: US$0 thousand);
-Personnel expenses: US$ 2,167 thousand (2019: US$11,040 thousand, 2018: US$6,285 thousand);
-Marketing: US$0 thousand (2019: US$189 thousand, 2018: US$200 thousand);
-Other expenses:
oAudit, legal and other advisory services: US$1,483 thousand (2019: US$101 thousand, 2018: US$18 thousand);
oOther: US$135 thousand (2019: US$360 thousand, 2018: US$280 thousand).
Adjustments following the divestment of Powerbets, our former joint venture:
-Reclassification of impairment loss for long-term loans that were part of the net investment in Powerbets: US$3,897 thousand had previously been recognized as a loss on the line for “share of net income (loss) of associates and joint ventures”. This is now recognized as a credit loss expense, with a reversal (i.e., a gain) of the same amount on the line for share of net income (loss) of associates and joint ventures.
-Reclassification of the accounting gain associated with the divestment: US$2,063 thousand had previously been recognized as a gain on the line for “share of net income (loss) of associates and joint ventures”. This gain is now recognized as other income.
-Impairment of the full amount for outstanding trade receivables due from Powerbets: In the previously announced results for the fourth quarter of 2020, we recognized an impairment loss of US$3,000 thousand for trade receivables due from Powerbets. Based on new information subsequently obtained about the situation as of December 31, 2020, we have determined that the full amount of trade receivables due from Powerbets is credit impaired and have thus recognized an additional credit loss expense of US$3,579 thousand.
-The credit loss expense of US$3,000 thousand related to trade receivables due from Powerbets that was presented as a non-recurring expense in the previously announced results for the fourth quarter of 2020 is presented as “credit loss expense related to divested joint venture” in the annual consolidated financial statements, together with the additional credit loss expense for trade receivables and long-term loans due from Powerbets as outlined above. In total, we recognized US$10,476 thousand as credit loss expense for receivables due from Powerbets.
Change in fair value of preferred shares in associates has increased by US$10,000 thousand when taking into account additional information pertaining to the year-end value of StarMaker, which has become available as of the date we issue these financial statements.
• Income tax expense has been reduced by US$614 thousand, primarily as a consequence of the increase in provision for expected credit losses on receivables due from Powerbets, as outlined above. The carrying amount for deferred tax assets and income tax payable were changed correspondingly.

54

Group II: Not included in prior communication

Revenue has been reduced by US$218 thousand based on new information about the amount due for services performed as of December 31, 2020. This adjustment resulted in a corresponding reduction in the amount of trade receivables as of December 31, 2020.
The share of net income from our investment in Nanobank has been adjusted by US$3,694 thousand to reflect our share of net income as expected in the audited financial statements of Nanobank. Compared with the prior presented financial results of Nanobank, profit before tax has increased, however this was offset by derecognition of certain deferred tax assets. Our share of other comprehensive loss of associates and joint ventures has increased by US$935 thousand based on adjustments to other comprehensive loss of Nanobank.
US$3,543 thousand related to actions taken following a short report has been allocated to audit, legal and other advisory services within the line item for other expenses.
In the statement of cash flow, certain line items that adjust profit before tax to net cash flows, and working capital changes, were adjusted to reflect the adjustments in the statements of operations and financial position as outlined above. However, these adjustments did not impact the presented free cash flow of the year, nor the aggregated measures of net cash flows from operating, investing and financing activities.

Our former emerging markets fintech and retail businesses, which became discontinued operations in 2020, are excluded from the results of continuing operations and are presented as a single amount as profit from discontinued operations. Amounts in the comparative periods have been re-presented accordingly. 

 

Revenue

 

Our revenues are derived from four business lines,two segments, namely (i) Browser and News (ii) Fintech, (iii) Retail and (iv)(ii) Other. The table below sets forth the revenue, both in absolute amount and as a percentage of total revenue for each business linesegment for the periods indicated.

 

 

For the year ended December 31,

  

For the year ended December 31,

 
 

2018

  

%

  

2019

  

%

  

2019

  

%

  

2020

  

%

 
 

(US$ in thousands, except for percentages)

  

(US$ in thousands, except for percentages)

 

Revenue:

                                

Browser and News

  138,444   80.4   154,968   46.3   154,968   87.5   155,472   94.2 

Fintech

  1,655   1.0   128,373   38.3 

Retail

  9,287   5.4   29,802   8.9 

Other

  22,890   13.3   21,712   6.5   22,111   12.3   9,584   5.8 

Total revenue

  172,276   100.0   334,855   100.0   177,078   100.0   165,056   100.0 

 

Browser and News segment revenue primarily consists of our search and advertising revenue, while Other segment primarily of Technology licensing and other revenue.

 

Search revenue accounted for 46.6%48.7% and 25.7%51.0% of our total revenue in 20182019 and 2019,2020, respectively. Through revenue sharing arrangements with our search partners, including Google and Yandex, we generate search revenue when our users conduct searches initiated within the URL bar, default search page or search boxes embedded in our PC and mobile browsers, or otherwise redirected to our search partners via our browser functionality.

 

Advertising revenue accounted for 33.8%38.9% and 20.6%43.3% of our total revenue in 20182019 and 2019,2020, respectively. We generate advertising revenue by referring traffic from our platform to e-commerce partners, online travel agencies and other partners, and by selling advertisements. The fee arrangements generally include revenue sharing, cost per click or subscription revenues collected by third parties on our behalf.

 

Fintech revenue is primarily generated from origination fees and interest fees of our microlending business, accounting for 1.0% and 38.3% of our total revenue in 2018 and 2019, respectively. We started to generate origination fees and interest in late 2018 when we initiated our microlending business in Africa. We provide instant app-based microloans to our clients with a relatively short duration, up to 365 days, in exchange for a fixed origination fee regardless of any early repayment. The average duration for microloans provided in 2019 was 15 days. Additional fees in the form of interest, limited to the sum of the principal and origination fee, accrues only if and after a loan extended to our clients is not repaid by its due date.

Retail revenue accounted for 5.4% and 8.9% of total revenue in 2018 and 2019, respectively. We started to generate retail revenue from the second half of 2018, when we began scaling sales, both retail and wholesale, of prepaid data, airtime, and mobile handsets.

Technology licensing and other revenue accounted for 13.3%12.5% and 6.5%5.7% of our total revenue in 20182019 and 2019,2020, respectively. We generate licensing and other revenue mainly from providing professional services, licensing of our proprietary compression technology and providing related maintenance, supporting and hosting services to third parties, as well as enabling customized browser configurations to mobile operators.

 

Geographically, our revenue in 20182019 and 20192020 was generated primarily from customers and monetization partners domiciled in India, Ireland Kenya and Russia, with no other country exceeding 10% of our total revenue. The table below sets forth the revenue by customers and monetization partners’ domiciled country, both in absolute amount and as a percentage of total revenue for the periods indicated. The breakdown of revenue by country reflects the country of domicile for our direct source of revenues from our monetization partners, which is not necessarily an indication of where user activities occur because the end users are located globally. For example, in the fourth quarter of 2020, monthly active users in Africa and Asia were both approximately 150 million, while Europe (including Commonwealth of Independent States (CIS) and Rest of the World (ROW) (including North American and Latin America) were approximately 50 million and 20 million, respectively.

 

 

For the year ended December 31,

  

For the year ended December 31,

 
 

2018

  

%

  

2019

  

%

  

2019

  

%

  

2020

  

%

 
 

(US$ in thousands, except for percentages)

  

(US$ in thousands, except for percentages)

 

India

  1,549   0.9   98,504   29.4 

Ireland

  76,791   44.6   81,637   24.4   81,637   46.1   80,059   48.5 

Kenya

  3,426   2.0   35,086   10.5 

Russia

  17,356   10.1   17,265   5.2 

Other

  73,154   42.5   102,363   30.6   95,441   53.9   84,997   51.5 

Total revenue

  172,276   100.0   334,855   100.0   177,078   100.0   165,056   100.0 

 

Other Income

Other income primarily reflects the gain on disposal of a Nigerian subsidiary and the gain from divestment of a joint venture (Powerbets).

 

Operating Expenses

 

We categorize our operating expenses into (i) technology and platform fees, (ii) content cost, (iii) cost of revenue, (ii)inventory sold, (iv) personnel expenses including share-based remuneration, (iii)(v) marketing and distribution expenses, (iv)(vi) credit loss expenses, (v) other changes in fair value of loansexpense, (vii) credit loss expense related to customers, (vi)divested joint venture, (viii) depreciation and amortization and (vii)(ix) other expenses. The table below sets forth our operating expenses, both in absolute amount and as a percentage of total revenue, for the periods indicated.

 

  

For the year ended December 31,

 
  

2018

  

%

  

2019(1)

  

%

 
  

(US$ in thousands, except for percentages)

 

Cost of revenue

  20,009   11.6   73,991   22.1 

Personnel expenses including share-based remuneration

  34,683   20.1   61,029   18.2 

Marketing and distribution expenses

  31,381   18.2   73,150   21.8 

Credit loss expense

  (678)  (0.4)  577   0.2 
Other changes in fair value of loans to customers  528   0.3   54,302   16.2 

Depreciation and amortization

  12,694   7.4   18,933   5.7 

Other expenses

  28,359   16.5   32,210   9.6 

Total operating expenses

  126,975   73.7   314,192   93.8 


(1)

Effective January 1, 2019, we adopted IFRS 16. The impact of adopting this standard is described in Note 3 to our consolidated financial statements included elsewhere in this annual report.

  

For the year ended December 31,

 
  

2019

  

%

   2020   % 
  

(US$ in thousands, except for percentages)

 

Technology and platform fees

  796   0.4   3,315   2.0 

Content cost

  1,545   0.9   4,312   2.6 

Cost of inventory sold

  208   0.1   700   0.4 

Personnel expenses including share-based remuneration

  62,323   35.2   62,103   37.6 

Marketing and distribution expenses

  65,074   36.7   47,860   29.0 

Credit loss expense

  577   0.3   1,849   1.1 

Credit loss expense related to divested joint venture

  -   -   10,476   6.3 

Depreciation and amortization

  18,843   10.6   20,234   12.3 

Other expenses

  28,242   16.0   28,197   17.1 

Total operating expenses

  177,614   100.3   179,046   108.5 

 

Cost of RevenueTechnology and Platform Fees

 

Our costTechnology and platform fees primarily comprise of revenue is primarily comprised of (i) revenue shares to content creators on Opera platforms and payments to publishers and monetization partners (including the costs of any platform or collection service used to facilitate subscription services where we are the principal in the transaction) related to our browser and news business line;transaction, (ii) transaction and communication platform expenses, as well as third party credit scoring, data and risk control costs related to our microlending business; (iii) inventory cost incurred for the purchase of data, airtime and handsets related to our retail business; and (iv) personnel expenses incurred in connection with the “technology licensing and other” revenue segment.fintech business. We expect such individual components within this cost category to stay relatively stable as a percentage of the related revenue streams.

Content Cost

Content cost mainly consists of revenue shares to content creators on our microlending, retailplatforms and other revenue streams,payments to publishers and increase relativemonetization partners related to our advertising revenue.browser and news segment. We will continue our efforts to increase the amount of content available through its applications by onboarding more European and American publishers. We expect this cost category to stay relatively stable as a percentage of the related revenue streams.

 

Cost of Inventory Sold

Cost of inventory sold consists primarily of the cost for 3rd party advertising inventory that is sold to our existing customers along with Opera owned inventory to create a large advertising purchase. We benefit from discounts we obtain from suppliers of inventory, like Google or Facebook. We expect this cost category to grow as a percentage of the advertising revenue stream.

56

Personnel Expenses including Share-based Remuneration

 

Our personnel expenses including share-based remuneration primarily consist of salaries and bonuses with applicable social security costs, external temporary hire costcosts and other personnel related expenses, as well as share-based remuneration, including related social security costs. Personnel expenses are net of capitalized development expenses. Capitalized development expenses in 20192020 mainly relatesrelate to the development of Opera News.our publishing and ad exchange platforms as well as fintech projects. We expect our personnel expenses to increase in absolute amounts in the foreseeable future due to the anticipated growth of business and expansion of our global operations, as well as periodic salary adjustments. For details of our share incentive plan, see “ —“— Critical Accounting Policies — Share-based payment.” The table below sets forth the breakdown of our personnel expenses, both in absolute amount and as a percentage of total revenue for the periods indicated.

 

  

For the year ended December 31,

 
  

2018

  

%

  

2019

  

%

 
  

(US$ in thousands, except for percentages)

 

Personnel expenses excluding share-based remuneration

  29,836   17.3   55,101   16.5 

Share-based remuneration, including related social security costs

  4,846   2.8   5,928   1.8 

Total

  34,683   20.1   61,029   18.2 

  

For the year ended December 31,

 
  

2019

  

%

  

2020

  

%

 
  

(US$ in thousands, except for percentages)

 

Personnel expenses excluding share-based remuneration

  

56,395

   

31.8

   

57,397

   

34.8

 

Share-based remuneration, including related social security costs

  

5,928

   

3.3

   

4,706

   

2.9

 

Total

  

62,323

   

35.2

   

62,103

   

37.6

 

 

Credit Loss Expenses Expense

 

Our credit loss expense is mainly related to provisions for expected credit losses on trade receivables and consist of specific provisions where risk of credit loss havehas been determined by management as well as general provisions determined based on the aging of the trade receivables. Changes in credit loss expense is affected by our ability to collect our trade receivables, the credit risk of the markets we operate in as well as general market conditions affecting our trade partners.

 

Other changes in fair value of loansCredit Loss Expense Related to customersDivested Joint Venture

 

While loansOur credit loss expense related to customers are accountedthe divested joint venture (Powerbets). The financial statement line is new, and no comparative figures exist for at fair value through profit or loss, changes in fair value are disaggregated into interest revenue and other changes in fair value of loans to customers. Other changes in fair value are primarily driven by realized and expected cash shortfalls, i.e. credit losses. Changes in fair value of loans to customers are estimated on a per-loan, per-day basis, informed by the observed probability of collecting a loan at different stages of maturity, adjusting for factors such as first-time versus returning borrower, country, loan duration and loan amount, and managerial assessments of other factors influencing probability of repayment. Changes in fair value of loans to customers as a percentage of loan disbursements, or percentage of associated revenue, is affected by our ability to appropriately identify borrowers most likely to repay their loans, the quality of our collection operations, the amount of relevant market and user data obtainable, how much history we have in a given market, as well as general market conditions affecting our borrowers.prior periods. 

 

Marketing and Distribution Expenses

 

Marketing and distribution expenses primarily consist of performance basedperformance-based campaigns associated with our browser and news business. In the short-term, marketing and distribution expenses are expected to increase as a percent of total revenue, as we expand our news business in western markets. Firstly, the increase will mainly be driven by distribution costs of Opera News on various online advertising platforms. Secondly, we anticipate to increase distribution campaigns for the Opera GX browser through similar channels. Finally, the introduction of our new gaming and microlending business. Wefintech businesses will contribute to the increase of marketing expenses. On a longer horizon we expect our marketing and distribution expenses to decrease as a percent of total revenue, overfollowing increased scale and completion of the years to come, though there may be short-term fluctuations including in the near future due to the COVID-19 situation.initial launch initiatives as described above.

 

Depreciation and amortization

 

Depreciation cost largely relates to purchased equipment and servers as well as leasehold improvements. Amortization cost largely relates to intangible assets such as technology and customer relationships as well as capitalized development. Depreciation and amortization isare driven by the amounts of assets we purchase and/or capitalize and the expected lifetime of those assets.

 

57

Other Expenses

 

Our other expenses primarily consist of hosting expenses; professional advisory service fees; software license fees, rent and other office expenses and travel expenses. We expect our other expenses to increase in absolute amounts in the foreseeable future due to the anticipated growth of our business as well as accounting, insurance, investor relations and other public company costs.costs and increased travel post-COVID. The table below sets forth the breakdown of our other expenses, both in absolute amount and as a percentage of total revenue for the periods indicated.

 

 

For the year ended December 31,

  

For the year ended December 31,

 
 

2018

  

%

  

2019(1)

  

%

  

2019

  

%

   2020   % 
 

(US$ in thousands, except for percentages)

  

(US$ in thousands, except for percentages)

 

Hosting

  10,146   5.9   6,941   2.1   7,344   4.1   8,056   4.9 

Audit, legal and other advisory services

  8,306   4.8   8,533   2.5   6,742   3.8   10,863   6.6 

Software license fees

  1,799   1.0   2,566   0.8   2,397   1.3   1,882   1.1 

Rent and other office expenses

  4,573   2.7   5,379   1.6   4,175   2.4   3,318  

2.0

 

Travel

  2,057   1.2   3,990   1.2   3,903   2.2   1,304   0.8 

Other

  1,477   0.9   4,801   1.4   3,686   2.1   2,774   1.7 

Total other expenses

  28,359   16.5   32,210   9.6   28,248   15.9   28,197   17.1 

 

58

(1)

Effective January 1, 2019, we adopted IFRS 16. The impact of adopting this standard is described in Note 3 to our consolidated financial statements included elsewhere in this annual report.

 

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) technology and platform fees, (ii) content cost, (iii) cost of inventory sold, (iv) other cost of revenue, (ii)(v) marketing and distribution expense and (iii)(vi) credit loss expense attributed to that segment, as well as each item expressed as a percentage of the segment revenue during the periods indicated.

 

  

For the year ended December 31,

 
  

2018

  

2019

 
  

US$

  

%

  

US$

  

%

 
  

(US$ in thousands, except for percentages)

 

Browser and News

                

Revenue

  138,444   100.0   154,968   100.0 

Cost of revenue

  3,637   2.6   2,642   1.7 

Marketing and distribution expenses

  31,336   22.6   64,685   41.7 

Credit loss expense

  (678)  (0.5)  577   0.4 

Contribution

  104,149   75.2   87,064   56.2 

  

For the year ended December 31,

 
  

2019

  

2020

 
  

US$

  

%

  

US$

  

%

 
  

(US$ in thousands, except for percentages)

 

Browser and News

                

Revenue

  154,968   100.0   155,472   100.0 

Technology and platform fees

  796   0.5   3,315   2.1 

Content cost

  1,545   1.0   4,312   2.8 

Cost of inventory sold

  -   -   -   - 

Other cost of revenue

   301    0.2    (140   (0.1

Marketing and distribution expenses

  64,685   41.7   47,042   30.3 

Credit loss expense

  448   0.3   568   0.4 

Contribution

  87,193   56.3   100,375   64.6 

 

The Browser and News segment contributed US$87.1100.4 million in 2019,2020, corresponding to 56.2%64.6% of segment revenue and comparingcompared to US$104.187.2 million or 75.2%56.3% of segment revenue in 2018.2019. While the segment revenue increased bywas relatively flat with an increase of US$16.50.7 million, this increased contribution was offsetmainly driven by the effect of our strategic investments in additionallower marketing and distribution (increasingspend which was down with US$17.6 million, partly offset by an increase in technology and platform fees of US$33.4 million).2.5 million and an increase of content cost of US$2.8 million.

 

  

For the year ended December 31,

 
  

2018

  

2019

 
  

US$

  

%

  

US$

  

%

 
  

(US$ in thousands, except for percentages)

 

Fintech

                

Revenue

  1,655   100.0   128,373   100.0 

Cost of revenue

  428   25.9   29,759   23.2 

Marketing and distribution expenses

  45   2.7   8,464   6.6 

Credit loss expense (1)

  528   31.9   54,302   42.3 

Contribution

  654   39.5   35,848   27.9 

(1) Credit loss expense is consistent with Other changes in fair value of loans to customers in the Statement of Operations. 

Fintech contributed US$35.8 million in 2019, or 27.9% of segment revenue and comparing to US$0.7 million or 39.5% of segment revenue in 2018. The segment revenue increased by US$126.7 million, while credit loss expense, cost of revenue and marketing and distribution expenses increased with a total of US$91.5 million. This significant growth was primarily driven by the launch and subsequent scaling of our microlending offerings in Kenya in the fourth quarter of 2018 and India in the second quarter of 2019.

 

For the year ended December 31,

  

For the year ended December 31,

 
 

2018

  

2019

  

2019

  

2020

 
 

US$

  

%

  

US$

  

%

  

US$

  

%

  

US$

  

%

 
 

(US$ in thousands, except for percentages)

  

(US$ in thousands, except for percentages)

 

Retail

                

Other

                

Revenue

  9,287   100.0   29,802   100.0   22,110   100.0   9,584   100.0 

Cost of revenue

  9,096   97.9   29,836   100.1 

Technology and platform fees

  -   -   -   - 

Content cost

  -   -   -   - 

Cost of inventory sold

  208   0.9   700   7.3 

Other cost of revenue

   11,389    51.5    3,925    41.0 

Marketing and distribution expenses

  -   -   -   -   198   0.9   818   8.5 

Credit loss expense

  -   -   -   -   129   0.6   1,281   13.4 

Contribution

  191   2.1   (34)  (0.1)  10,186   46.1   2,860   29.8 

 

Retail contributed a loss of US$34 thousands in 2019, and comparing to US$0.2 million or 2.1% of segment revenue in 2018. The segment revenue increased by US$20.5 million, while cost of revenue increased with a total of US$20.7 million. The increase was primarily due to the full year effect of this revenue category which was introduced in the third quarter of 2018, as well as continued scaling of our handset and airtime resale activity in Asia and launch of operations in Africa.

  

For the year ended December 31,

 
  

2018

  

2019

 
  

US$

  

%

  

US$

  

%

 
  

(US$ in thousands, except for percentages)

 

Other

                

Revenue

  22,890   100.0   21,712   100.0 

Cost of revenue

  6,848   29.9   11,754   54.1 

Marketing and distribution expenses

  -   -   -   - 

Credit loss expense

  -   -   -   - 

Contribution

  16,042   70.1   9,958   45.9 

 

The Other segment, which mainly includes licensing of our proprietary technology and professional services, contributed US$10.02.8 million in 2019,2020, or 45.9%29.8% of segment revenue, comparingcompared to US$16.010.2 million or 70.1%46.1% of segment revenue in 2018.2019. The decrease was attributable to a general decline in our licensing and operator revenues in line with our strategic decision to center our focus on more scalable sources of revenue, partially offset by the growth in professional services.revenue.

 

Taxation

The vast majority of our revenue and operating profit is generated in countries with stable and transparent tax regimes, such as Norway and Ireland. We do not expect significant exposure to tax regimes in non-European countries over the foreseeable future.

Certain intra-group funding of subsidiaries of the Company has resulted in tax benefits on interest charged between these subsidiaries. We expect that such tax benefits will not be of significant importance in future periods, in isolation resulting in a marginal increase of our expected future effective tax rate.

However, our investments in associates, joint ventures and other investees are not taxed at Opera’s level, but within such separate companies. These investments represent a significant factor in our historically low effective tax rate. As these investments are further expected to provide financial gains to us also in the future, either in terms of our share of profit, and/or realized or unrealized gains on the shares held, we expect a continuation of this factor to our effective tax rate also in future periods.

We recognize equity cost in connection with share-based remuneration. Such equity cost is not tax deductible and in isolation contributes to increased effective tax rate. Equity cost has been and may continue to be volatile, depending on timing of grants and the market price of our ADS.

 

Norway

 

As most of our activities are consolidated in Norway, the starting point of reconciliation of effective tax rate is the applicable tax rate in Norway, which was 23.0% and 22.0% in 20182019 and 2019,2020, respectively.

 

Ireland

 

Opera Software Ireland Limited, our subsidiary incorporated and tax resident in Ireland, is subject to Irish corporation tax on any worldwide profits or chargeable capital gains (subject to any available reliefs). The standard rate of corporation tax on Irish trading profits is 12.5%. To benefit from this rate, companies must derive income from a trade that is actively carried on in Ireland. A rate of 25% applies to non-trading (for example, rental income and royalty income) and foreign-source income. An Irish resident company will, subject to any exemptions that are available, pay tax on any gains it realizes on the disposal of its capital assets at an effective rate of 33%.

 

Cayman Islands

 

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty.

 

There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of, the Cayman Islands. In addition, the Cayman Islands does not impose withholding tax on dividend payments. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.

 

Hong Kong

 

Our subsidiaries incorporated in Hong Kong, are subject to 16.5% Hong Kong profit tax on their taxable income generated from operations in Hong Kong. Under Hong Kong tax laws, we are exempted from the Hong Kong income tax on our foreign-derived income. In addition, payments of dividends from our Hong Kong subsidiaries to us are not subject to any Hong Kong withholding tax.

60

 

Results of Operations

 

The following table sets forth a summary of our consolidated statements of operations for the periods indicated, in absolute amounts and as percentages of total revenue during the period. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.

 

 

For the year ended December 31,

 
 

2018

  

%

  

2019(1)

  

%

  

For the year ended December 31,

 
 

(US$ in thousands, except for percentages)

  

2019

  

%

  2020   % 

                 

(US$ in thousands, except for percentages)

 

Revenue

  172,276   100.0   334,855   100.0   177,078   100.0   165,056   100.0 

Operating expenses:

                

Cost of revenue

  (20,009)  (11.6)  (73,991)  (22.1)

Other income

        11,543   7.0 
 

Operating expenses

                

Technology and platform fees

  (796

)

  (0.4)  (3,315)  (2.0

)

Content cost

  (1,545

)

  (0.9)  (4,312

)

  (2.6

)

Cost of inventory sold

  (208

)

  (0.1)  (700

)

  (0.4

)

Personnel expenses including share-based remuneration

  (34,683)  (20.1)  (61,029)  (18.2)  (62,323

)

  (35.2

)

  (62,103

)

  (37.6

)

Marketing and distribution expense

  (31,381)  (18.3)  (73,150)  (21.9)  (65,074

)

  (36.7

)

  (47,860

)

  (29.0

)

Credit loss expense

  678   0.4   (577)  (0.2)  (577

)

  (0.3

)

  (1,849

)

  (1.1

)

Other changes in fair value of loans to customers (528)  (0.3) (54,302) (16.2)

Credit loss expense related to divested joint venture

  -   -   (10,479)  (6.3

)

Depreciation and amortization

  (12,694)  (7.4)  (18,933)  (5.7)  (18,843

)

  (10.6

)

  (20,234

)

  (12.3

)

Other expenses

  (28,359)  (16.5)  (32,210)  (9.6)  (28,248

)

  (16.0

)

  (28,197

)

  (17.1

)

Restructuring costs

  -   -   -   - 

Total operating expenses

  (126,975)  (73.7)  314,192   (93.8)  (177,614

)

  (100.3

)

  (179,046

)

  (108.5

)

Operating profit

  45,301   26.3   20,662   6.2 
                

Operating profit (loss)

  (537

)

  (0.3)  (2,448)  (1.5)
            

Share of net income (loss) of associates and joint ventures

  (3,248)  (1.9)  (3,818)   (1.1)   (3,818)  (2.2)  2,005   1.2 
Change in fair value of preferred shares in associates  -   -   37,900   11.3   37,900   21.4   24,000   14.5 

Net finance income (expense):

                
 

Net finance income (expense)

                

Finance income

  1,637   1.0   10,530   3.1   10,532   5.9   13,633   8.3 

Finance expense

  (1,695)  (1.0)  (1,505)  (0.4)  (655

)

  (0.4

)

  (516

)

  (0.3

)

Net foreign exchange gain (loss)

  (354)  (0.2)  (269)  (0.1)  (25

)

  (0.0

)

  833   0.5 

Net finance income (expense)

  (412)  (0.2)  8,756   2.6   9,851   5.6   13,950   8.5 

Net income before income taxes

  41,641   24.2   63,500   19 
                

Profit before income taxes

  43,396   24.5   37,507   22.7 

Income tax expense

  (6,481)  (3.8)  (5,602)  (1.7)  (2,658

)

  (1.5

)

  (75

)

  (0.0

)

Profit from continuing operations

  40,739   23.0   37,432   22.7 

Profit from discontinued operations

  17,161   9.7   141,742   85.9 

Net income

  35,160   20.4   57,899   17.3   57,899   32.7   179,174   108.6 

 

61

(1)

Effective January 1, 2019, we adopted IFRS 16. The impact of adopting this standard is described in Note 3 to our consolidated financial statements included elsewhere in this annual report.

 

Year Ended December31, 20192020, Compared to Year Ended December31, 20182019

 

Revenue

 

We had revenue of US$334.8165.1 million in 2020, compared to US$177.1 million in 2019, compared to US$172.3 million in 2018, marking an increasea decrease of 94.4%6.7%. This increasedecrease was driven primarily by (i) the increasedecrease in technology licensing and other revenue from origination fees and interest in mircrolending business, (ii)as Opera has been phasing out low-margin professional services for an investee, while user driven search and advertising revenue duecame in relatively flat given the impacts related to continuing growth of our existing PC and mobile smartphone user bases and improved monetization of our new and existing partners, and (iii) retail revenue that we started to generate in the second half of 2018 and which scaledCOVID-19 during 2019.2020.

 

 

Search Revenue.Our search revenue increaseddecreased to US$84.2 million in 2020 from US$86.2 million in 2019, from US$80.2 million in 2018, representing an increasea decrease of 7.5%2.3%. The increasedecrease was primarily due to the impact of COVID-19 on monetization in the first three quarters of 2020, which exceeded the strong underlying user growth and recovery of our smartphone and PC user base.monetization from COVID-19 in the fourth quarter of 2020.

 

 

Advertising Revenue. Our advertising revenue increased to US$71.5 million in 2020 from US$68.8 million in 2019, from US$59.9 million in 2018, representing an increase of 14.9%4.0%. This growth was fueled by growth in our Opera News service both in our mobile browsersboth smartphone and stand-alone app, growth in PC user base,users, as well as improved monetization from our existing and new monetization partners both in mobile and PC products. The underlying growth was partiallylargely offset by using our advertising inventory to promote our own apps.the negative impact of COVID-19.

  

 

Fintech Revenue. Our fintech revenue increased to US$128.4 million in 2019 from US$1.7 million in 2018. This significant growth was primarily driven by the launch and subsequent scaling of our microlending offerings in Kenya in the fourth quarter of 2018 and India in the second quarter of 2019.

Retail Revenue. Our retail revenue increased to US$29.8 million in 2019 from US$9.3 million in 2018, representing an increase of 220.4%. The increase was primarily due to the full year effect of this revenue category which was introduced in the third quarter of 2018, as well as continued scaling of our handset and airtime resale activity in Asia and launch of operations in Africa.

Technology Licensing and Other Revenue. Our technology licensing and other revenue decreased to US$21.79.4 million in 20192020 from US$22.922.1 million in 2018,2019, representing a decrease of 5.2%57.6%. The decrease was attributable to a general decline in our licensing and operator revenues in line with our strategic decision to center our focus on more scalable sources of revenue, partially offset by the growth in professional services.revenue.

Other Income

We recorded other income of US$11.5 million in 2020, compared to US$0 million in 2019. Other income related primarily to the divestment of a Nigerian subsidiary and a divested joint venture (Powerbets). 

 

Operating expenses

 

We had total operating expenses of US$314.2179.0 million in 2019,2020, compared to US$127.0177.6 million in 2018.2019. Our total operating expenses as a percentage of total revenue increased to 93.8%108.5% in 2020 from 100.3% in 2019.

Technology and platform fees

Our Technology and platform fees increased from US$0.8 million in 2019 to US$3.3 million in 2020. The main reason for the increase was a rapid expansion of additional services promoted to our users in Nigeria, supported by adding three new mobile operators as our VAS service distributors.

62

Content cost

Our Content cost almost tripled from 73.7%US$1.5 million in 2018.2019 to US$4.3 million in 2020. Opera has launched News Hub at the end of 2019 to increase quality as well as coverage of the content offered by Opera News. The move has improved the user experience and engagement, and the operation continued throughout 2020, which resulted in a significant increase of the content cost. New Hub complements content provided by our publisher partners, of which we also added approximately 60 new partners during 2020.

 

Cost of revenueinventory sold

 

Our costCost of revenueinventory sold largely relates to reselling our partners' inventories, like Google or Facebook, leveraging our advertising customers' demand. In our initial phase of leveraging third-party inventory, Google has accounted for more than 90% of such expenses. The service was launched in 2019 and increased tofrom US$74.00.2 million in 2019 fromto US$20.00.7 million in 2018, primarily due to increases in (i) cost incurred in microlending business, from US$0.4 million in 2018 to US$29.8 million in 2019, which is in line with our growing scale of business operation in 2019, (ii) retail business cost from US$9.1 million in 2018 to US$29.8 million in 2019, resulting from increase sale of prepaid airtime and handsets, and (iii) cost in relation to technology licensing and other business from US$6.8 million in 2018 to US$11.8 million in 2019, primarily attributable to cost of professional services provided to OPay, and is partially offset by a slight decrease in costs related to search and advertising from US$3.6 million in 2018 to US$2.6 million in 2019.2020.

 

Personnel expensesexpenses including share-based remunerationshare-based remuneration

 

Our personnel expenses including share-based remuneration increased toremained relatively flat at US$61.062.1 million in 2019 from2020, versus US$34.762.3 million in 2018, representing an increase of 76.0%. The increase was driven mainly by the growth in our fintech business as well as by other new initiatives including OList, Opera Ads and Opera News.2019. Cash-based compensation expenses increased by 84.7%1.8% from US$29.8 million in 2018 to US$55.156.4 million in 2019 which is primarily attributable to an increaseUS$57.4 million in the number of full time employees from 464 as of December 31, 2018 to 819 as of December 31, 2019, as well as an increase in the number of our outsourced staff in call centers and similar in-market roles from almost zero as of December 31, 2018 to close to 6,000 as of December 31, 2019.2020. Share-based remuneration expense increaseddecreased by 22.3%20.6% from US$4.8 million in 2018 to US$5.9 million in 2019.2019 to US$4.7 million in 2020.

 

Marketing and distribution expenses

 

Our marketing and distribution expenses increaseddecreased to US$73.247.9 million in 2020 from US$65.1 million in 2019, from US$31.4 million in 2018, representing a 133.1% increase.decrease of 26.5%. This was primarily related to lower marketing activity following strong organic user growth, and reduced unit costs mostly due to our strategic decision to invest more resources in accelerating our growth in Opera News, which was scaling rapidly in Africa and expanding to additional geographies, as well as targeted marketing of browser offerings during 2019.COVID-19.

 

Credit lossloss expense

Our credit loss expense was US$1.8 million in 2020, as compared to US$0.6 million in 2019. Compared to a gain of US$0.7 million related to reversal of bad debt provisions in prior periods within the browser and news segment in 2018.

 

Other changes in fair value of loansCredit loss expense related to customersdivested joint venture

 

In our Fintech segment, Other changes in fair value of loans to customers is consistent with CreditOur credit loss expense inrelated to the Browserdivested joint venture (Powerbets) was US$10.5 million. The financial statement line is new, and News segment. In 2019 our changes in fair value of loans to customers amounted tono comparative figures exist for prior periods. The amount includes US$54.3 million compared to US$0.56.6 million in 2018. The increase was mainly driven byimpaired trade receivables. In addition, the scaled microlending operationsexpense includes US$3.9 million in India and Kenya.

an impaired debt facility (see Note 14).

 

Depreciation and amortizationamortization

 

We had depreciation and amortization of US$20.2 million in 2020 compared to US$18.9 million in 2019, compared to US$12.7 million in 2018, representing an increase of 49.2%7.4%. The increase is largely the result of the adoption of IFRS 16 on January 1, 2019.primarily related to capitalized development and other intangible assets.

 

Other expensesexpenses

 

Our other expenses increasedremained relatively flat at US$28.2 million in 2020 compared to US$32.228.2 million in 2019 from US$28.4 million in 2018, representing an increase of 14.2%. Within the2019. This category includes among other office expenses, hosting expenses, software license fees, audit legal and other advisory services increased from US$8.3 million in 2018 to US$8.5 million in 2019. Our travel expenses also increased from US$2.1 million in 2018 to US$4.0 million in 2019, rent and other office expenses grew from US$4.6 million in 2018 to US$5.4 million in 2019 and lastly software license fees increased from US$1.8 million in 2018 to US$2.6 million in 2019, all due to the scale of operations. This increase was partly offset by a decrease in hosting expenses from US$10.2 million in 2018 to US$6.9 million in 2019, primarily as a result of the adoption of IFRS 16 on January 1, 2019.fees.

63

 

Operating profitloss

 

As a result of the foregoing, we recorded an operating profitloss of US$20.62.4 million in 2019,2020, representing an operating margin of 6.2%negative 1.5%, compared to an operating profitloss of US$45.30.5 million in 20182019 and an operating margin of 26.3%negative 0.3%.

 

Share of net lossincome (loss) from associates and joint ventures

 

Our share of lossnet income from associates and joint ventures was US$3.82.0 million in 20192020 compared to a share of net loss of US$3.23.8 million in 2018.2019. Our share of net income from associates and joint ventures predominantly arose due to the reclassification of US$3.9 million of credit loss expense on long-term loans that were part of the net investment in Powerbets and that had fully absorbed losses under the equity method. Upon recognizing the credit loss expense as "Credit loss expense related to divested joint venture", an equivalent amount was recognized as income on the line item for "Share of net income (loss) from associates and joint ventures. See Note 2713 to our consolidated financial statements included elsewhere in this annual report for more details on the financial performance of each investee.

 

Change in fair value of preferred shares in associates

 

Our gain in fair value of preferred shares was US$24.0 million in 20192020, as compared to US$37.9 million in 2019. Our gain in fair value of preferred shares in 2020 was related to increased valuations of our preferred shares in OPayStarMaker and StarMaker,OPay, by US$33.921.0 million and US$4.03.0 million, respectively. See Note 16 to our consolidated financial statements included elsewhere in this annual report for more details on the valuation of the preferred shares.

 

Net finance income (expense)

 

We recorded a total net finance income of US$8.814.0 million in 2019,2020, compared to net finance expense of US$0.49.9 million in 2018.2019. The 20192020 result included interest as well aswas mainly driven by gains related to marketable securities held as part of our marketable securities.treasury function.

 

Income tax expense

 

We recorded an income tax expense of US$5.60.1 million in 2019.2020. The effective tax rate, expressed as the percentage of income tax expenses to net incomeprofit before income taxes, was 8.8%0.2%, compared to an income tax expense of US$6.52.7 million in 2018,2019, representing an effective tax rate of 15.6%6.1%. The decrease in theVariance versus statutory tax expense in 2019 wasrates is mainly driven by non-taxable gains related toincluding from our associates and joint ventures and changes in deferred tax assets and liabilities and reductions in applicable tax rates.liabilities. See Note 258 to our consolidated financial statements included elsewhere in this annual report for more detail.

Profit from continuing operations

As a result of the foregoing, we recorded a profit from continuing operations of US$37.4 million in 2020, representing a profit margin of 22.7%, compared to US$40.7 million in 2019 and a profit margin of 23.0%.

Profit from discontinued operations

On August 19, 2020, the board of directors of the Company approved a transaction in which TenSpot Pesa Limited, a wholly owned subsidiary at the time, was to be contributed to a subsidiary of NanoCred Cayman Company Limited (“Nanobank”) in exchange for us obtaining an ownership interest of 42% in Nanobank. The transaction was completed on the same date. The business of TenSpot Pesa Limited and its subsidiaries represented the entirety of our fintech operating segment at the time, comprising of apps in emerging markets that offered instant microloans to approved borrowers. Because TenSpot Pesa Limited and its subsidiaries represented a business, we recognized the gain from loss of control as the difference between the fair value of the 42% ownership interest in Nanobank obtained and the net carrying amount of equity in TenSpot Pesa Limited. The gain of US$151.4 million was presented as a component of the profit from discontinued operations. 

On September 25, 2020, we decided to terminate the retail operating segment under which we sold prepaid airtime and handsets. The retail business was completely terminated prior to December 31, 2020. The retail segment represented a separate major line of business and is thus classified as a discontinued operation.  

The results of TenSpot Pesa Limited and its subsidiaries up until August 19, 2020, and the discontinued retails operations, are presented in the table below:

[US$ thousands]

 

Year ended December 31,

 

Discontinued operations

 

2019

  

2020

 

Revenue

  157,776   136,246 

Expenses

  (137,671)  (147,822)

Profit (loss) before income tax

  20,105   (11,576)

Income tax (expense) benefit

  (2,944)  1,950 

Profit (loss) after income tax

  17,161   (9,626)

Gain on sale of the subsidiary after income tax

  -   151,368 

Profit from discontinued operation

  17,161   141,742 

Our profit from discontinued operations in 2020 was US$141.7 million in 2020, as compared to US$17.2 million in 2019. Our profit from discontinued operations in 2020 was fueled primarily by the gain associated with the creation of Nanobank. See Note 9 to our consolidated financial statements included elsewhere in this annual report for more details on profit from discontinued operations.

 

Net income

 

As a result of the foregoing, we recorded net income of US$57.9179.2 million for 2019,2020, compared to US$35.257.9 million in 2018.2019. 

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.

 

64

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, change in fair value of preferred shares in associates, restructuring costs (though no such cost in below presented periods), depreciation and amortization, share-based remuneration, and expensed costs related to our recent initial public offering,non-recurring expenses, less other income.income and profit (loss) from discontinued operations. We define adjusted net income (loss) as net income (loss) excluding share-based remuneration, amortization cost related to acquired intangible assets, non-recurring expenses and expensed costs related to our recent initial public offering,(income) loss from discontinued operations, 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.

 

 

For the year ended December 31,

  

For the year ended December 31,

 
 

2018

   2019 (2)  

2019

  2020 
 

(US$ in thousands)

  

(US$ in thousands)

 

Reconciliation of net income (loss) to adjusted EBITDA:

                

Net income

  35,160   57,899 

Add: Income tax expense

  6,481   5,602 

Net income (loss)

  57,899   179,174 

Add: Income tax expense (benefit)

  2,658   75 

Add: Total net financial loss (income)

  412   (8,756)  (9,852)  (13,950)

Add: Share of net loss (income) of associates and joint ventures

  3,248   3,818   3,818   (2,005)
Add: Change in fair value of preferred shares in associates -  (37,900)  (37,900)  (24,000)

Add: Depreciation and amortization

  12,694   18,933   18,843   20,234 

Add: Share-based remuneration

  4,846   5,928   5,928   4,706 

Add: Expensed IPO related costs

  2,952   - 
Add: Credit loss expense related to divested joint venture -  10,476 

Add: Non-recurring expenses (1)

  -   3,543 

Less: Other income

  -   (11,542)

Less: Profit from discontinued operations

  (17,161)  (141,742)

Adjusted EBITDA

  65,794   45,523   24,233   24,971 

Reconciliation of net income to adjusted net income

        

Net income

  35,160   57,899 

Reconciliation of net income (loss) to adjusted net income

        

Net income (loss)

  57,899   179,174 

Add: Share-based remuneration

  4,846   5,928   5,928   4,706 

Add: Opera acquisition amortization

  5,120   5,120 

Add: Expensed IPO related costs

  2,952   - 

Income tax adjustment (1)

  (1,943)  (1,311)

Add: Amortization of acquired intangible assets

  5,120   5,354 

Add: Amortization of Nanobank intangible assets (2)

  -   2,584 
Add: Credit loss expense related to divested joint venture -  10,476 

Add: Non-recurring expenses (1)

  -   3,543 

Income tax adjustment (3)

  (1,311)  (1,219)

Less: Profit from discontinued operations

  (17,161)  (141,742)

Adjusted net income

  46,136   67,635   50,475   62,876 

 


(1) Non-recurring expenses relate to actions taken following a short report and are presented within "Audit, legal and other advisory services" in Note 6 to our consolidated financial statements included elsewhere in this annual report.

 

(1)

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.

(2)

Effective January 1, 2019, we adopted IFRS 16. The impact of adopting this standard is described in Note 3 to our consolidated financial statements included elsewhere in this annual report.

(2) The amortization of Nanobank intangible assets is included in the line “Share of net income (loss) of associates and joint ventures and relates to excess values from the Nanobank valuation.”  

(3) Reversal of tax benefit related to the social security cost component of share-based remuneration and deferred taxes on the amortization of acquired intangible assets.

65

 

B.

Liquidity and Capital Resources

 

Cash Flows and Working Capital

 

In addition to net proceeds of US$167.8 million weOpera received from our initial public offering in the third quarter of 2018 and US$82.6 million from our follow-on offering in the third quarter of 2019, our principal source of liquidity has been cash generated from our operating activities. As of December 31, 20182019 and 2019,2020, we had US$177.9139.5 million and US$139.5134.2 million, respectively, in cash and cash equivalents. Cash and cash equivalents consist of cash on hand, checking and demand deposits, cash equivalents and restricted cash other than cash used as collateral for our subsidiaries’ local bank debts. Our microlending business is capital intensive by nature. As we have scaled this business in 2019, we have used a larger portion of our balance of cash and cash equivalents to finance this business, either directly or via local credit institutions.cash. See Note 1924 to our consolidated financial statements included elsewhere in this annual report for more information on our Capital Management.

 

Our cash and cash equivalents are primarily denominated in U.S. Dollars, with limited amounts held in Euro, Norwegian Krone and other local currencies of the markets where we operate. We intend to finance our future working capital requirements and capital expenditures primarily from cash generated from operating activities as well as existing cash and cash equivalents. We believe that our current available cash and cash equivalents will be sufficient to meet our working capital requirements and capital expenditures in the ordinary course of business for the next 12 months.

Our statement of cash flows, which is prepared based on the indirect method, reflects the cash flows of discontinued operations up to the date of disposal. Items of working capital, such as receivables and payables, that were disposed of, are eliminated from the balance sheet changes to such items in the reconciliation of profit to cash flows from operating activities. The amount of cash and cash equivalents in subsidiaries disposed of is classified as an investing activity at the time of disposal. The prospective absence of cash flows from our discontinued operations is not expected to materially impact our liquidity and capital resources. 

 

The following table sets forth a summary of our cash flows for the periods indicated.

 

 

For the year ended December 31,

  

For the year ended December 31,

 
 

2018

  

2019

  

2019

  

2020

 
 

(US$ in thousands)

  

(US$ in thousands)

 

Summary Consolidated Cash Flow Data:

        

Summary Consolidated Cash Flow:

        

Net cash provided by (used in) operating activities

  33,828   (44,464)  (44,464

)

  93,324 

Net cash provided by (used in) investing activities

  (47,250)  (106,987)  (106,987

)

  2,956 

Net cash provided by financing activities

  158,946   113,200 

Net cash provided by (used in) financing activities

  113,200   100,972 

Net increase (decrease) in cash and cash equivalents

  145,524   (38,248)  (38,248

)

  (4,692

)

Cash and cash equivalents at beginning of the period

  33,207   177,873   177,873   139,487 

Effects of exchange rate change on cash and cash equivalents

  (857)  (137)  (137

)

  (627

)

Cash and cash equivalents at end of the period

  177,873   139,487   139,487   134,168 

 

Operating Activities

 

Net cash used inprovided by operating activities was US$44.593.3 million in 2019.2020. This amount primarily represents net incomeprofit before income taxes from continuing operation of US$63.537.5 million adjusted forand profit before income taxes from discontinued operations of US$139.8 million, subject to several adjustments to arrive at an operating cash flow basis. Major exclusions include the recognized gain following the formation of Nanobank, US$151.4 million, partially offset by the decrease in our net loan book due to the discontinuity of the microlending business, US$75.1 million. Other adjustments include depreciation and amortization of US$18.920.4 million, equity cost of share-based remuneration of US$5.1 million, share of losses from associates and joint ventures of US$3.8 million, and change in fair value of preferred shares in associates and joint ventures of US$37.924.0 million, equity cost of share-based remuneration of US$4.5 million and share of income from associates and joint ventures of US$2.0 million. Income taxes paid during the year of US$9.9 million is mainly related to operations in India, NorwayKenya and Ireland. Operating cash flow was substantially affected by the increase in our net loan book due to the scaling of our microlending operations, reducing cash by US$90.0 million. Following the growth of our business, operating cash flow was reduced by an increase in trade and other payables of US$25.1 million, offset by an increase in trade and other receivables of US$14.222.1 million increased pre-paymentsand an increase in prepayments of US$11.412.0 million (of which US$6.3 millionthe majority related to marketing, distribution and promotion services), and retail inventorya decrease in inventories of US$7.8 million, however, combined these were more than offset by our increase in trade and other payablesmillion. Net finance gains of US$39.212.0 million are also excluded from operating cash flow. Net cash provided by operating activities in discontinued operations was US$65.8 million.

 

Investing Activities

 

Net cash used ingenerated from investing activities was US$107.03.0 million in 2019,2020, which was primarily attributable to an increasenet sale of depositlisted equity instruments of collateral for our Indian subsidiary's loan facilityUS$58.5 million, offset by the cash transferred with Okash Group of US$52.939.3 million, and net purchasescash outflow of marketable securities totalingan US$35.34.9 million in connection with the purchase of a subsidiary. In connection with the discontinuation of the microlending business, we had negative cash flow in connection with disbursement of short-term loans of US$6.3 million, which is fully offset by the repayment of short-term loans of US$6.3 million. Furthermore, we had development expenditures of US$6.6 million, purchased equipment for US$8.92.5 million, and had development expenditures totaling US$4.2 million. In addition, we made investments in, and provided loans to associates and joint ventures,purchased intangible assets of US$6.62.3 million. TheNet cash outflows were partially offset by repayment of loans to associates and joint ventures ofused in investing activities in discontinued operations was US$0.70.6 million.

 

Financing Activities

 

Net cash provided byused in financing activities was US$113.2101.0 million in 2019,2020, which was attributable to net proceeds of US$82.6 million from issues of equity instruments, less transaction costs of US$1.4 million. Proceeds from loans and borrowing contributed with US$43.2 million, predominantly relating to our Indian subsidiary partially funding its growth in loan book by obtaining local bank debt which we guarantee through international escrow (as described in the above paragraph). These items were partially offset by share repurchases of US$5.8 million, and repayment of loans and leases, including interest,borrowings of US$5.4 million.

Compared52.9 million, as we repaid the credit facility obtained to our fourth quarter earnings release filed on Form 6-K on February 25, 2020, we have reclassified certain items, withinfund the full-year cash flow components. As a consequence, operating cash flow was reduced bymicrolending business. Our financing outflow also included share repurchases of US$3.149.0 million, investing cash flow was increased byrepayment of lease liabilities of US$1.84.2 million and interest on loans and borrowings of US$1.8 million. Our financing cash flowoutflow was increasedpartially offset by the proceeds from loans and borrowings of US$1.36.9 million. The net effect of these reclassifications is zero.Net cash used in financing activities in discontinued operations was US$44.7 million. 

 

Capital Expenditures

 

We made capital expenditures of US$7.313.0 million and US$13.011.3 million in 20182019 and 2019,2020, respectively. In these periods, our capital expenditures were used for purchase of equipment and capitalized development cost.

 

67

C.

Research and Development, Patents and Licenses, etc.

 

See “Item 4. Information on the Company—B. Business Overview—Technology.” and “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”

 

D.

Trend Information

 

Other than as disclosed elsewhere in this annual report, and in particular as it relates to COVID-19 impacts in 2020, we are not aware of any other trends, uncertainties, demands, commitments or events for the period from January 1, 20192020 to December 31, 20192020 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial conditions.

 

E.

Off-balance Sheet Arrangements

 

As of December 31, 2019,2020, we did not have any off-balance sheet arrangements that had or were reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

F.

Tabular Disclosure of Contractual Obligations

 

The following table sets forth our contractual obligations as of December 31, 2019.2020.

 

 

Payment Due by Period

 

Payment Due by Period

 
 

Total

  

Less Than

1 Year

  

1-5 Years

  

More than

5 Years

 

Total

 

Less Than

1 Year

 

1-5 Years

 

More than

5 Years

 
     

(US$ in thousands)

        

(US$ in thousands)

   

Trade and other payables

  57,125   57,125   -   -  

25,454

 

25,454

  

-

 

  

-

 

Lease liabilities (1)

  13,858   4,930   8,928   -  

8,138

  

4,914

  

3,224

 

  

- 

Interest-bearing loans including interest

  45,143   43,303   1,840   -  

842

  

337

  

505

 

  

-

 

Other liabilities

  15,279   15,142   137   -  

13,108

  

13,040

  

68

 

  

- 

Total contractual commitments

  131,405   120,500   10,905   -  

47,541

  

43,744

  

3,797

 

  

-

 

 

(1)

(1)Represents mainly leases of office properties and server equipment for hosting purposes.

 

A guarantee has been made by us in favor of Dell Bank International d.a.c. ("Dell") as a security for all our present and future lease liabilities (as the lessee) to Dell. This guarantee is limited to a principal amount of US$11,382 thousand,11.7 million, with the addition of any interests, costs and/or expenses accruing on the liabilities and/or as a result of we non-fulfilment of the liabilities. The guarantee is independent and separate from our obligations as the lessee and is valid for 10 years from January 17, 2017.

 

In 2019, we obtained a credit facility from a financial institution. Loans under the credit facility, denominated in Indian Rupee, were used to partially fund the microlending business in India. As of December 31, 2019, the total amount of loans under the credit facility was US$42.2 million. See Notes 17 and 18 to our consolidated financial statements included elsewhere in this annual report for additional details.

In 2019, we entered into an agreement with Putu Novi Financing Corporation, a related party, under which we provided a revolving credit facility limited to US$10 million and would be entitled to interest and gross profit sharing of the borrower’s operations. The credit facility was provided for a period of 18 months starting on December 18, 2019. As of December 31, 2019, no loans were provided under the credit facility. See Note 28 to our consolidated financial statements included elsewhere in this annual report for additional details.

68

 

In 2018, we provided a revolving credit facility of US$6 million to Powerbets, a related party.Powerbets. As of December 31, 2019,2020, a total of US$3.03.9 million was drawn under the credit facility.facility prior to its termination, and such amount was fully impaired. See Note 2814 to our consolidated financial statements included elsewhere in this annual report for more information.

 

Other than those shown above, we did not have any significant capital and other commitments, long-term obligations, or guarantees as of December 31, 2019.2020.

 

G.

Safe Harbor

 

See “Forward-Looking Statements” at the beginning of this annual report.

 

69

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A.

Directors and Senior Management

 

The following table provides information regarding our directors and executive officers as of the date of this annual report.

 

Directors and Executive Officers

 

Age

Position/Title

Yahui Zhou

 

4344

Chairman of the Board and Chief Executive Officer

Hongyi Zhou

 

4950

Director

Tian JinXiaoling Qian

 

4032

Director

Lori Wheeler Næss 

 

4950

Independent Director

Trond Riiber Knudsen

 

5657

Independent Director

James Liu

 

4950

 

Independent Director

Lin Song

 

3940

Chief OperatingCo-Chief Executive Officer

Frode Jacobsen

 

3738

Chief Financial Officer

 

Yahui Zhou has served as our chairman and chief executive officer since July 2016. Mr. Zhou has also served as the chairmanDirector of Beijing Kunlun, a global internet company listed on the Shenzhen Stock Exchange, since MarchApril 2020, the Chairman of the Board and General Manager from 2011 to 2020, and an executive director and general manager of Beijing Kunlun from March 2008 to March 2011. He served as general manager of Beijing JiNaiTe Internet Technology Co., Ltd. from March 2007 to March 2008. From November 2005 to March 2007, Mr. Zhou was an executive officer in charge of new business development at RenRen Inc., a NYSE-listed company. From September 2000 to January 2004, Mr. Zhou was general manager of Beijing Huoshen Technology Co., Ltd. Mr. Zhou received his bachelor’sbachelor's degree in mechanical engineering and his master’smaster's degree in optical engineering from Tsinghua University in 1999 and 2006, respectively.respectively.

 

Hongyi Zhou has been a member of our board of directors since November 2016. Mr. Zhou has twenty years of managerial and operational experience in China’s internet industry. Mr. Zhou co-founded Qihoo 360 Technology Co. Ltd. and has been serving as chairman of the board of Qihoo 360 Technology Co. Ltd. and its de facto successor 360 Security Technology Inc. (SH: 601360). Prior to founding Qihoo 360 Technology Co., Ltd., Mr. Zhou was a partner at IDG Ventures Capital since September 2005, a global network of venture capital funds, where he assisted small- to medium-sized software companies source funds to support their growth. Mr. Zhou was the chief executive officer of Yahoo! China from January 2004 to August 2005. In 1998, Mr. Zhou founded www.3721.com, a company in the internet search and online marketing businesses in China, and served as its chairman and chief executive officer until www.3721.com was acquired by Yahoo! China in January 2004. Mr. Zhou also serves as a director of a number of privately owned companies based in China. Mr. Zhou received his bachelor’s degree in computer software in 1992 and his master’s degree in system engineering in 1995 from Xi’an Jiaotong University.

 

70

Tian Jin Xiaoling Qianhas been a member of our board of directors since December 2019. Mr. Jin held positions of the vice general manager and secretary of the boardJune 2021. Ms. Qian is an executive of Beijing Kunlun TechTech. Co., Ltd. (CH: 300418)(300418:CH), a global internet company listed on the Shenzhen Stock Exchange, from 2015 to 2018,Exchange. Ms. Qian has taken a leading role in managing Kunlun's investment in Opera and has been serving asworked with our other board members and the Opera management team since 2016. Ms. Qian obtained a director since November 2018. Prior to that, Mr. Jin had six years of experience in the banking industry. He held the positions of vice president of the customer development department of Nanjing Bank Beijing branch from 2010 to 2011 and vice president of the bank’s Beichuan sub-branch from 2011 to 2015, and he also served as a key account manager of Agricultural Bank of China Beijing branch from 2009 to 2010. Before that, Mr. Jin worked at Heyi Ceramics (Shanghai) Co., Ltd., a high-end ceramics manufacturing company, where he served as the managing director and supervisor from 2000 to 2009. Mr. Jin received his bachelor’sbachelor's degree in marketing managementJapanese from Upper IowaZhejiang University in 2006.2010. 

 

Lori Wheeler Næss has served as our independent director since July 2018. She has served as a director of the technical department of PricewaterhouseCoopers, a global auditing service provider, leading IFRS reviews for companies listed in Oslo from September 2012 to June 2015. Prior to that, Ms. Næss served as a senior advisor of the Section for Prospectuses and Financial Reporting of The Financial Supervisory Authority of Norway, a Norwegian government agency responsible for the supervision of financial companies from January 2011 to September 2012. She served as an audit director and manager for US GAAP and SEC Reporting at PricewaterhouseCoopers and its predecessor Coopers & Lybrand at various offices in the United States, Norway and Germany from September 1994 to January 2011. Ms. Næss has also served as a board member and the audit committee chair of Golar LNG Limited, a Nasdaq-listed liquefied natural gas shipping company since March 2016 and its Nasdaq-listed limited partner, Golar LNG Partners Limited, sincefrom March 2016 until April 2021, as well as Klaveness Combination Carriers ASA, a shipping company listed on the Oslo Stock Exchange in Norway. Ms. Næss is a U.S. Certified Public Accountant (inactive). She received her bachelor’s degree in business administration in 1994 and her master’s degree in accounting in 1994 from the University of Michigan.

 

Trond Riiber Knudsen has served as our independent director since July 2018. Mr. Knudsen has served as the founder and CEO of TRK Group AS, an Oslo-based investment and advisory firm since June 2015. He worked ofat McKinsey & Company, a management consulting firm and served as a senior partner with responsibility for the company’s marketing and sales practice since August 1992 to June 2015. Mr. Knudsen received his sivilingeniør (equivalent of a master’s of science degree) in structural engineering from the Norwegian University of Science and Technology in 1987 and a master’s degree in business administration from Harvard University in 1992.

 

James Liu has served as our independent director since July 2019. Mr. Liu had over 20 years of experience with China’s high growth internet and technologies companies. From January 2008 to now, Mr. Liu served as an executive director and chief operating officer of RenRen Inc., a NYSE-listed company. Prior to that, in September 2003, he founded UUMe.com (which was later acquired by RenRen in May 2005), one of the earliest social networking service websites in China. Previously, from February 2002 to August 2003, Mr. Liu served as the founding product management director at Fortinet (NASDAQ: FTNT), a NASDAQ listed network security solution provider. From July 2000 to January 2002, he served as a product manager at Siebel Systems Inc., a U.S. software company. Mr. Liu started his career as a management consultant at Boston Consulting Group in China from September 1995 to August 1998. Mr. Liu earned his bachelor’s degree in computer science from Shanghai Jiao Tong University in 1995 and later received his MBA degree from Stanford University in 2000.

 

Lin Song has served as our chief operating officer since March 2017.2017 and has served as co-CEO since August 2020. He has worked for our group beginning in 2002 in Oslo, Norway. Mr. Song has an engineering background and has served in various roles inside our group, including project manager of one of our group’s earliest initiatives to enable full web browsing on mobile devices and as director of engineering delivery. Later on, he served as general manager of Opera’s subsidiary in China and assisted in the establishment of Opera’s R&D center in Beijing. Mr. Song obtained a bachelor’s degree in information systems from the University of International Business and Economics in 2004. 

Frode Jacobsen has served as the chief financial officer of our group since April 2016. Prior to becoming our chief financial officer, he has worked as the senior vice president responsible for strategic initiatives beginning in February 2015 and as the senior director for corporate development beginning in January 2013. Prior to joining our group, Mr. Jacobsen worked for McKinsey & Company, a management consulting firm which conducts qualitative and quantitative analyses to inform management decisions across the public and private sectors, beginning in August 2008 and served as engagement manager before he left the position in January 2013. He graduated with a master’s degree in management from HEC Paris in 2008 and obtained his bachelor’sbachelor‘s degree in economics and business administration from Norwegian School of Economics in 2006. Mr. Jacobsen currently serves on the board of directors and audit committee of Otello Corporation ASA, a Norwegian public company.

71

 

B.

Compensation

 

Compensation of Directors and Executive Officers

 

In 2017, 2018, 2019 and 2019,2020, we paid an aggregate of US$1.00.9 million, US$0.92.2 million and US$2.22.1 million, respectively, in cash and benefits to our directors and executive officers. Our chairman and chief executive officer, Mr. Yahui Zhou, waived receiving any salary in 2017 and 2018. From and including 2019, however, our board approved the payment of a salary of US$1.0 million per annum to him. Mr. Yahui Zhou recused himself from the board’s decision on the issue. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors. We have no service contracts with any of our directors providing for benefits upon termination of employment.

 

Share Incentive Plan

 

We maintain a share incentive plan in order to attract, motivate, retain and reward talent, provide additional incentives to our officers, employees, directors and other eligible persons, and promote the success of our business and the interests of our shareholders.

 

We adopted the 2017 Restricted Share Unit Plan on April 7, 2017 and later adopted an Amended and Restated Share Incentive Plan on January 10, 2019 (the “Plan”) to promote the success of our business and the interests of our employees and shareholders by providing long term incentives in the form of Restricted Share Units (“RSUs”) or Options (and together with the RSUs, the “Awards”) to attract, motivate, retain and reward our officers, employees, directors and other eligible persons and to link their interests with those of our shareholders.

 

Under this Plan, up to a maximum of 20,000,000 ordinary shares are available for Awards, corresponding to 10,000,000 ADSs. Each vested RSU (as reported) entitles the participant of the Plan to receive 1 ADS, subject to adjustments for dividend payments. Each vested option entitles the participant of the Plan to purchase 1 ADS at a defined price. As of December 31, 2019, 2,983,9402020, 4,768,050 RSUs and Options to purchase 150,000 ADSs have been granted, net of forfeitures.

 

The following paragraphs summarize the terms of the Plan:

 

Plan administration. Our compensation committee or executive officers delegated by our compensation committee acts as the plan administrator.

 

Type of Awards. The Plan permits the award of Options or grant of RSUs singly, in combination or in tandem.

 

Award Agreement. Each Award is evidenced by an Award agreement between the Award recipient and our Company.

 

Eligibility. All of our employees are eligible for the grant of Awards under the Plan at the discretion of the compensation committee. A grant of Awards to any member of the compensation committee requires Board approval.

 

Vesting Schedule and Other Restrictions. The plan administrator has discretion in making adjustmentadjustments in the individual vesting schedules and other restrictions applicable to the Awards granted under the Plan. The default vesting period is four years, where 20% vests on January 1 of each of the first and second year, and 30% vests on January 1 of each of the third and fourth year. So long as Mr. Yahui Zhou is a member of the Board, he has authority to cancel equity instruments for any participant of this Plan that are scheduled to vest in the current vesting period, based solely on his assessment that such participant’s professional performance has not been in line with the Company’s expectations. The vesting period is set forth in each Award agreement.

 

Exercise price. The plan administrator has discretion in determining the price of the Awards, subject to a number of limitations. The plan administrator has absolute discretion in making adjustments to the exercise price of Options.

 

Payment. The plan administrator determines the methods by which payments by any recipient of any Awards under the Plan are made.

 

Transfer Restrictions. Except as permitted by the plan administrator, and subject to all the transfer restrictions under the applicable laws and regulations and restrictions set forth in the applicable award agreement, all Awards are not transferable or assignable.

 

Term of the Options. The term of any Option granted under the Plan cannot exceed ten years from its effective date. 

 

72

The table below sets forth certain information as of the date of this annual report, concerning the outstanding Awards we have granted to our directors and executive officers individually.

 

Name

 

Type of
Awards

Granted

  

Ordinary Shares Underlying
UnderlyingOutstanding
Outstanding
Awards Granted

  

Price

(US$/Share)

  

Date of Grant

  

Date of
Expiration

 

Yahui Zhou

  -   -   -   -   - 

Hongyi Zhou

  -   -   -   -   - 

Tian JinXiaoling Qian

  -   -   -   -   - 

Trond Riiber Knudsen

  -   -   -   -   - 

Lori Wheeler Næss

  -   -   -   -   - 

James Liu

  -   -   -   -   - 

Frode Jacobsen

  *   *   *  

April 2017, February 2021

  

November 2021, January 2027

 

Lin Song

  *   *   *  

April 2017, December 2019

  

November 2021, January 2026

 

 


 

*

The outstanding awards held by each of these directors and executive officers represent less than 1% of our total outstanding shares.

 

C.

Board Practices

 

Our board of directors consists of six directors. A director is not required to hold any shares in our company to qualify to serve as a director. A director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with our company is required to declare the nature of his interest at a meeting of our directors. A general notice given to the directors by any director to the effect that he is a member, shareholder, director, partner, officer or employee of any specified company or firm and is to be regarded as interested in any contract or transaction with that company or firm is deemed a sufficient declaration of interest for the purposes of voting on a resolution in respect to a contract or transaction in which he has an interest, and after such general notice it is not necessary to give special notice relating to any particular transaction. Subject to any separate requirement for audit committee approval under applicable law or the Listing Rules of the Nasdaq Stock Market and disqualification by the chairman of the relevant board meeting, a director may vote in respect of any contract, proposed contract, arrangement or transaction notwithstanding that he may be interested therein and if he does so his vote is counted and he is counted in the quorum at any meeting of the directors at which any such contract, proposed contract, arrangement or transaction is considered, provided that the nature of the interest of any directors in such contract or transaction is disclosed by him at or prior to its consideration and any vote in that matter. Our board of directors may exercise all of the powers of our company to borrow money, to mortgage or charge its undertaking, property and uncalled capital, or any part thereof, and to issue debentures, debenture stock or other securities whenever money is borrowed or as security for any debt, liability or obligation of our company or of any third-party. None of our directors has a service contract with us that provides for benefits upon termination of service.

 

Committees of the Board of Directors

 

We have an audit committee, a compensation committee and a corporate governance and nominating committee under the board of directors. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below.

 

Audit Committee. Our audit committee consists of Lori Wheeler Næss, Trond Riiber Knudsen and James Liu, and is chaired by Lori Wheeler Næss. Each of them satisfies the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market and meet the independence standards under Rule 10A-3 under the Exchange Act. Our board of directors has also determined that Lori Wheeler Næss qualifies as an “audit committee financial expert” within the meaning of the SEC rules and possesses financial sophistication within the meaning of the Listing Rules of the Nasdaq Stock Market. The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:

 

•          reviewing and approving all transactions with the Company’s related parties;

 

•         selecting our independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by our independent registered public accounting firm;

 

•           reviewing with our independent registered public accounting firm any audit problems or difficulties and management’s response and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K;

73

 

•           discussing the annual audited financial statements with management and our independent registered public accounting firm;

reviewing with our independent registered public accounting firm any audit problems or difficulties and management’s response and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K;

 

•           periodically reviewing and reassessing the adequacy of our audit committee charter;

discussing the annual audited financial statements with management and our independent registered public accounting firm;

 

•           meeting periodically with the management and our internal auditor and our independent registered public accounting firm;

periodically reviewing and reassessing the adequacy of our audit committee charter;

 

•           reporting regularly to the full board of directors;

meeting periodically with the management and our internal auditor and our independent registered public accounting firm;

 

•           reviewing the adequacy and effectiveness of our accounting and integral control policies and procedures and any steps taken to monitor and control major financial risk exposure; and

reporting regularly to the full board of directors;

 

reviewing the adequacy and effectiveness of our accounting and integral control policies and procedures and any steps taken to monitor and control major financial risk exposure; and

•           

such other matters that are specifically delegated to our audit committee by our board of directors from time to time.

 

Compensation Committee. Our compensation committee consists of Trond Riiber Knudsen, Hongyi Zhou and James Liu, and is chaired by Trond Riiber Knudsen. Trond Riiber Knudsen and James Liu satisfy the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market. As a controlled company and foreign private issuer, we have elected to not have our compensation committee consist of entirely independent directors. Our compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated upon. The compensation committee is responsible for, among other things:

 

•           reviewing and approving to the board with respect to the total compensation package for our chief executive officer;

 

•           reviewing the total compensation package for our employees and recommending any proposed changes to our management;

 

reviewing and recommending to the board with respect to the compensation of our directors;

 

•           reviewing and recommending to the board with respect to the compensation of our directors;

reviewing annually and administering all long-term incentive compensation or equity plans;

 

•           reviewing annually and administering all long-term incentive compensation or equity plans;

selecting and receiving advice from compensation consultants, legal counsel or other advisors after taking into consideration all factors relevant to that person’s independence from management; and

 

•           selecting and receiving advice from compensation consultants, legal counsel or other advisors after taking into consideration all factors relevant to that person’s independence from management; and

•           programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans.

 

Corporate Governance and Nominating Committee. Our corporate governance and nominating committee consists of Lori Wheeler Næss, Trond Riiber Knudsen and James Liu, and is chaired by James Liu. Each of them satisfies the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market. The corporate governance and nominating committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board of directors and its committees. The corporate governance and nominating committee is responsible for, among other things:

 

•           identifying and recommending nominees for election or re-election to our board of directors or for appointment to fill any vacancy;

 

•           reviewing annually with our board of directors its current composition in light of the characteristics of independence, age, skills, experience and availability of service to us;

 

•           advising the board periodically with respect to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to our board of directors on all matters of corporate governance and on any corrective action to be taken; and

 

•           monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.

74

 

Duties of Directors

 

Under Cayman Islands law, our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly, and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also owe to our company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time. Our company has the right to seek damages if a duty owed by our directors is breached. In limited exceptional circumstances, a shareholder may have the right to seek damages in our name if a duty owed by our directors is breached.

 

The functions and powers of our board of directors include, among others:

 

•           convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;

 

•           declaring dividends and distributions;

 

•           appointing officers and determining the term of office of officers;

 

•           exercising the borrowing powers of our company and mortgaging the property of our company; and

 

•           approving the transfer of shares of our company, including the registering of such shares in our share register.

approving the transfer of shares of our company, including the registering of such shares in our share register.

 

Terms of Directors and Executive Officers

 

Each of our directors holds office until the expiration of his or her term, as may be provided in a written agreement with our company, and his or her successor has been elected and qualified, until his or her resignation or until his or her office is otherwise vacated in accordance with our articles of association. At each annual general meeting one-third of the directors for the time being (or, if their number is not a multiple of three, the number nearest to but not greater than one-third) shall retire from office by rotation. A retiring director shall be eligible for re-election. All of our executive officers are appointed by and serve at the discretion of our board of directors. Our directors may be appointed or removed from office by an ordinary resolution of shareholders. A director will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies or is found to be or becomes of unsound mind; (iii) resigns by notice in writing to our company; (iv) without special leave of absence from our board of directors, is absent from three consecutive meetings of the board and the board resolves that his office be vacated; (v) is prohibited by law from being a director; or (vi) is removed pursuant to our amended and restated memorandum and articles of association then in effect. The compensation of our directors is determined by the board of directors. There is no mandatory retirement age for directors.

 

Employment Agreements and Indemnification Agreements

 

We have entered into employment agreements with our executive officers. Each of our executive officers is employed for a continuous term, or a specified time period which will be automatically extended, unless either we or the executive officer gives prior notice to terminate such employment. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer, including but not limited to the commitments of any serious or persistent breach or non-observance of the terms and conditions of the employment, conviction of a criminal offense other than one which in the opinion of the board does not affect the executive’s position, willful, disobedience of a lawful and reasonable order, misconduct being inconsistent with the due and faithful discharge of the executive officer’s material duties, fraud or dishonesty, or habitual neglect of his or her duties. An executive officer may terminate his or her employment at any time with a three- to six-month prior written notice.

 

Each executive officer has agreed to hold, both during and after the employment agreement expires or is earlier terminated, in strict confidence and not to use or disclose to any person, corporation or other entity without written consent, any confidential information or trade secrets. Each executive officer has also agreed to disclose in confidence to us all inventions, intellectual and industry property rights and trade secrets which they made, discover, conceive, develop or reduce to practice during the executive officer’s employment with us and to assign to our company all of his or her associated titles, interests, patents, patent rights, copyrights, trade secret rights, trademarks, trademark rights, mask work rights and other intellectual property and rights anywhere in the world which the executive officer may solely or jointly conceive, invent, discover, reduce to practice, create, drive, develop or make, or cause to be conceived, invented, discovered, reduced to practice, created, driven, developed or made, during the period of the executive officer’s employment with us that are either related to our business, actual or our move demonstrably anticipated research or development or any of our products or services being developed, manufactured, marketed, sold, or are related to the scope of the employment or make use of our resources. In addition, all executive officers have agreed to be bound by non-competition and non-solicitation restrictions set forth in their agreements. Each executive officer has agreed to devote all his or her working time and attention to our business and use best efforts to develop our business and interests. Moreover, each executive officer has agreed not to, for a certain period following termination of his or her employment or expiration of the employment agreement: (i) carry on or be engaged, concerned or interested directly or indirectly whether as shareholder, director, employee, partner, agent or otherwise carry on any business in direct competition with us, (ii) solicit or entice away any of our customer, client, representative or agent, or (iii) employ, solicit or entice away or attempt to employ, solicit or entice away any of our officers, managers, consultants or employees.

 

75

We have entered into indemnification agreements with our directors and executive officers, pursuant to which we will agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being such a director or executive officer. 

 

D.

Employees

 

We had 464819 and 819577 full-time employees as of December 31, 20182019 and 2019, respectively.2020, respectively, with the decline primarily explained by the divestment of our former microlending business and termination of investee services. As of December 31, 2019, 67%2020, 75.5% of our full-time employees served research and development roles. The following table sets forth the number of employees in each functional area as of the date indicated.

  

As of December 31, 2019

 

Area

 

R&D

  

Other

  

Total

 

Browser

  309   29   338 

Fintech

  129   5   134 

AdTech

  52   9   61 

OList and verticals

  38   -   38 

Retail

  13   17   30 

Sales & Commercial

  -   26   26 

Hosting & Infrastructure

  11   5   16 

Corporate

  -   62   62 

Investee Services

  -   114   114 

Total

  552   267   819 

(1)

Refers to employees that are engaged in providing professional services, predominantly for our associate Opay Digital Services Limited (HK). See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions.”

  

As of December 31, 2020

 

Area

 

R&D

  

Other

  

Total

 

Browser

  310   30   340 

Fintech

  79   5   84 

AdTech

  33   3   36 

Sales & Commercial

  0   21   21 

Hosting & Infrastructure

  14   4   18 

Corporate

  0   78   78 

Total

  436   141   577 

 

We believe we offer our employees competitive compensation packages and a discrimination-free, collegial and creative working environment. As a result, we have generally been able to attract and retain qualified employees and have had limited attrition at senior leadership levels.

 

We generally enter into standard confidentiality and employment agreements with our management and other employees. These contracts include a non-solicitation covenant, as well as a standard non-compete covenant that prohibits the employee from competing with us, directly or indirectly, during his or her employment and for one year after the termination of his or her employment.

 

E.

Share Ownership

 

The following table sets forth information concerning the beneficial ownership of our ordinary shares as of the date of this annual report for:

 

 

each of our directors and executive officers; and

 

 

each person known to us to beneficially own more than 5% of our ordinary shares.

 

The calculations in the table below are based on 238,521,354230,291,732 ordinary shares issued and outstanding as of the date of this annual report.report, equivalent to 115,145,866 ADSs in Opera Limited.

 

Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days of the date of this annual report, including through the exercise of any option, warrant, or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.

Directors and Executive Officers: (1)

 

Ordinary Shares
Beneficially Owned

  

Percentage of Total
Voting Power held (%†)

 
         

Yahui Zhou (2)

  143,500,000   60.2

%

Hongyi Zhou (3)

  46,750,000   19.6

%

Tian Jin

   *    * 

Lori Wheeler Næss

   *    * 

Trond Riiber Knudsen

   *    * 

James Liu

   *    * 

Frode Jacobsen

  *   * 

Lin Song

  *   * 

All directors and executive officers as a group

        
         

Principal Shareholders:

        

Kunlun Tech Limited (4)

  104,500,000   43.8

%

Keeneyes Future Holding Inc. (5)

  39,000,000   16.4

%

Qifei International Development Co., Ltd (6)

  46,750,000   19.6

%

 

Directors and Executive Officers: (1)

 

Ordinary Shares
Beneficially Owned

  

Percentage of Total
Voting Power held (%)

 

Yahui Zhou (2)

  145,166,666   63.04

%

Hongyi Zhou (3)

  46,750,000   20.30

%

Xiaoling Qian

  *   * 

Lori Wheeler Næss

  *   * 

Trond Riiber Knudsen

  *   * 

James Liu

  *   * 

Frode Jacobsen

  *   * 

Lin Song

  *   * 

All directors and executive officers as a group

        
         

Principal Shareholders:

        

Kunlun Tech Limited (4)

  125,666,666   54.57

%

Keeneyes Future Holding Inc. (5)

  19,500,000   8.47

%

Qifei International Development Co., Ltd (6)

  46,750,000   20.30

%

 

*

Less than 1% of our total outstanding shares.

 

For each person and group included in this column, percentage ownership is calculated by dividing the number of ordinary shares beneficially owned by such person or group, including shares that such person or group has the right to acquire within 6 days after the date of this annual report, by the sum of (i) 238,521,354230,291,732 which is the total number of ordinary shares outstanding as of the date of this annual report, and (ii) the number of ordinary shares that such person or group has the right to acquire beneficial ownership within 60 days after the date of this annual report. The 238,521,354 ordinary shares outstanding as of the date of this annual report excludes shares on deposit with our depositary bank but for which the corresponding ADSs are held by Opera as a result of, for example, Opera’s share repurchase program (see Item 16E of this report).

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(1)

Unless otherwise indicated, the business address of our directors and executive officers is Vitaminveien 4, 0485 Oslo, Norway.

 

(2)

Represents (i) 104,500,000125,666,666 ordinary shares held by Kunlun Tech Limited, a limited liability company incorporated in Hong Kong, which is wholly owned by Beijing Kunlun Tech Co., Ltd., a company in which Yahui Zhou owns 22.9%21.22% of the equity interests, and (ii) 39,000,00019,500,000 ordinary shares held by Keeneyes Future Holding Inc., an exempted company established in the Cayman Islands, which is wholly owned by Yahui Zhou.

 

(3)

Represents 46,750,000 ordinary shares held by Qifei International Development Co. Limited, a limited liability company incorporated in Hong Kong. Qifei International Development Co. Limited, wholly owned by Qisi (HK) Technology Co. Ltd., which in turn is indirectly wholly owned by 360 Security Technology Inc., a company in which Hongyi Zhou serves as the chairman and chief executive officer.

 

(4)

Represents 104,500,000125,666,666 ordinary shares held by Kunlun Tech Limited, a limited liability company incorporated in Hong Kong. Kunlun Tech Limited is wholly owned by Beijing Kunlun Tech Co., Ltd., a company in which Yahui Zhou owns 22.9%21.22% of the equity interest. The registered address of Kunlun Tech Limited is Flat/Rm 1903, 19/F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong.

 

(5)

Represents 39,000,00019,500,000 ordinary shares held by Keeneyes Future Holding Inc., an exempted company established in the Cayman Islands. Keeneyes Future Holding Inc. is wholly owned by Yahui Zhou. The registered address of Keeneyes Future Holding Inc., is P.O. Box 2075, George Town, Grand Cayman, KY1-1105, Cayman Islands.

 

(6)

Represents 46,750,000 ordinary shares held by Qifei International Development Co. Limited, a limited liability company incorporated in Hong Kong. Qifei International Development Co. Limited is wholly owned by Qisi (HK) Technology Co. Ltd., which in turn is indirectly wholly owned by 360 Security Technology Inc., a company in which Hongyi Zhou serves as chairman and chief executive officer. The registered address of Qifei International Development Co. Limited is Flat 402, Jardine House, 1 Connaught Place, Central, Hong Kong.

 

As of the date of this annual report, we had no ordinary shareshares outstanding that were held by a record holder in the United States. None of our shareholders has informed us that it is affiliated with a registered broker-dealer or is in the business of underwriting securities. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

 

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A.

Major Shareholders

 

See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”

 

B.

Related Party Transactions

 

Transactions with Certain Shareholders

 

We leased office facilities from one of our shareholders, Beijing Kunlun Tech, in Beijing, China.

 

development and key management personnel services, and we have been invoiced by Kunlun based on time used.

 

Kunlun associates Kunlun Group Limited and Xinyu Kunnuo Investment Management Co. Ltd. provide us with investment management services related to managing the investment of a portion of our cash reserves in tradable securities and other investment products.

Transactions with Other Related Parties

 

Powerbets HoldingsNanobank

On August 19, 2020, we contributed TenSpot Pesa Limited, or Powerbets,a wholly owned subsidiary at the time, to a subsidiary of NanoCred Cayman Company Limited (“Nanobank”) in exchange for the Group obtaining an ownership interest of 42% in Nanobank. The business of TenSpot Pesa Limited and its subsidiaries represented the entirety of the Group’s fintech operating segment at the time, comprising apps in emerging markets that offered instant microloans to approved borrowers. Prior to this transaction, Nanobank was operating in the same industry, but in different geographies than the microlending business of Opera. By combining the microlending businesses, Nanobank became one of the largest emerging markets dedicated fintech companies in the world, with a presence in Indonesia, India, Mexico and Kenya. The combined registered user base is approximately 50 million people.

As a result of the transaction, we recognized a gain of US$151.4 million, being the difference between the fair value of the 42% ownership interest obtained in Nanobank and the carrying amount of the net assets contributed. Additional information about transactions with related parties, associates and joint ventures is included in Notes 13 and 26 to our equity investee, in which weconsolidated financial statements.

77

Ying Liang / Mobimagic:

We have received services from Mobimagic Digital Technology Ltd (formerly known as 360 Mobile Security) related to distribution and promotion of our products worldwide. Mobimagic Digital Technology Ltd was initially a subsidiary of the Qihoo 360 group, later invested into by other investors, including Mr. Yahui Zhou. The Qihoo 360 group and Mr. Yahui Zhou were also two of the original shareholders of Opera Limited. Both Opera and Mobimagic Digital Technology Ltd have a 50.1% of ownership interest. On October 4, 2018, we provided a revolving line of credit of US$6.0 millionneed to Powerbets. The principal, together with all accrued and unpaid interest, shall be repaidpromote their apps through mobile advertising on third party advertising inventory. As the date set by Powerbets’ board of directors, which effectively requires the consenttwo companies have operated under overlapping control, it was decided to take advantage of the other investorcombined volume of advertising to be procured in Powerbets.order to achieve the most attractive pricing from third parties; hence the partnership. As of December 31, 2019, a total of US$3.0 million was drawn under the credit facility. No repayment date has been set. This loan is accounted2020, we had provided prepayments to Mobimagic Digital Technology Ltd for distribution and promotion services as part of our long-term interest in Powerbets. Effective from January 1, 2018, we and Powerbets entered intoan agreement where Mobimagic Digital Technology Ltd had accepted financial risk related to the retention of acquired new users. The prepayments had a software development and consultancy agreement. We have also provided advertising servicescarrying amount of US$3.8 million as of December 31, 2020, compared to Powerbets. A total of US$2.215.5 million was recognized as revenue from Powerbets in 2019. As of December 31, 2019, while the total outstanding balance on trade receivable wascarrying amount had reached US$6.6 million, compared to US$4.4 million nil as of year-end 2018.the date of this report.

 

On November 11, 2020, the Opera and Mobimagic Digital Technology Ltd partnership agreement was amended such that the latter party assigned the rights and obligations of the existing agreement to Ying Liang Limited. In 2020, Opera purchased marketing and distribution-related services from Ying Liang Limited for US$3.7 million.

OPay:

OPay Limited, or OPay, is our equity investee, in which we have 13.1% of ownership interest and our chairman and chief executive officer, Mr. Yahui Zhou has control or significant influence. OPay is an online payment service provider targeting African users. On April 16, 2019,March 3, 2020, we sold 1,242,322entered into an agreement with OPay Digital Services Limited, a subsidiary of OPay Limited, for the sale of 100% of the shares in Neofin Malelane (PTY) Ltd., a subsidiary of the Group, in exchange for US$0.1 million. Moreover, on March 17, 2020, the Group entered into an agreement with the same entity in the OPay to Wisdom Connection III Holding Inc.group for the sale of 100% of the shares in the Group's subsidiary Blue Ridge Microfinance Bank Ltd. in exchange for a consideration of US$0.55.0 million. We recognized a gain of US$5.3 million in parallel with OPay’s other founder selling an equal portionthe Statement of its shares at the same valuation. These transactions were carried out to facilitate an equity poolOperations for OPay’s employees ahead of new investor funding2020 as a result of the company. On May 27, 2019, we acquired 3,210,617 preference shares in OPay for US$7.5 million by converting loan to equity. Moreover, on May 29, 2019, we acquired an additional 1,230,736 preference shares in OPay for US$4.6 million by converting US$2.67 millionloss of debt to equitycontrol over Neofin Malelane (PTY) Ltd and by transferring US$1.93 million in cash. By the end of 2019, the accumulated investment made in OPay was US$12.1 million. In addition, on December 18, 2019, we entered into a sales agreement with OPay to sell an inventory of mobile phones for US$6.27 million, which was based on the prevailing market price. The transaction closed in 2020. Furthermore, on July 5, 2019, Blue Ridge Microfinance Bank Limited, or Blue Bridge, our Nigerian subsidiary, entered intoBank.

On May 19, 2020, we provided a service agreement with Paycom Nigerialoan of KES 200 million, equivalent to US$1.9 million, to OStream Credit Limited, a subsidiary of OPay, to facilitate OPay’s launchOpay Limited. The loan was provided with a simple interest of a savings product to its users. Under8% per annum. The loan was repaid on October 19, 2020. In 2020, we recognized interest income of US$62 thousand from the service agreement, deposits from customers of OPay were transferred to Blue Ridge, which invested the funds in financial instruments, including microloans offered in Nigeria. Blue Ridge paid a fixed interest rate on deposits from Paycom. loan.

We also providedprovide professional services to OPay consisting of development and key management personnel services, toand we have invoiced OPay which has been invoiced based on time used and with a 5-8% markup dependent of the type of service. In 2019, we recorded revenue relating to development and personnel services of US$22.2 million from OPay.

Mobimagic Digital Technology Ltd (formerly known as 360 Mobile Security) and its associated companies, or Mobimagic, is a company controlled by our chairman and chief executive officer, Mr. Yahui Zhou. In mid-2019, we entered into service agreements with Mobimagic, under which Mobimagic provides app, systems and platform maintenance, and data processing services as well as managerial oversight to PC Financial Services Private Limited, our Indian subsidiary offering microloans. Under the agreement, we will pay a combination of fixed fees and a variable fee that is calculated based on revenue less credit losses and indirect taxes, recorded as a cost of revenue amounting to $US25.6 million in 2019. In addition, we also received professional services of $US0.3 million related to distribution and promotion of our advertising services worldwide from Mobimagic. As of December 31, 2019, we had provided prepayments to Mobimagic for distribution and promotion services as part of an agreement where Mobimagic accepts financial risk related to the retention of acquired new users. The prepayments had a carrying amount of US$15.5 million as of December 31, 2019, compared to US$10.4 million as of December 31, 2018.

Putu Novi Financing Corporation, or Putu, is a company indirectly controlled by our chairman and chief executive officer, Mr. Yahui Zhou. On December 18, 2019, we entered into an agreement with Putu, under which, we provided a revolving credit facility for 18 months in exchange of interest and net revenue sharing from the Putu’s operations. As of December 31, 2019, no loans had been provided under this credit facility.used.

 

Share Incentive Plan

 

See “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plan.”

 

Employment Agreements and Indemnification Agreements

 

See “Item 6. Directors, Senior Management and Employees—C. Board Practice—Employment Agreements and Indemnification Agreements.”

 

C.

Interest of Experts and Counsel

 

Not applicable.

 

ITEM 8.

FINANCIAL INFORMATION

 

A.

Consolidated Statement and Other Financial Information

 

We have appended consolidated financial statements filed as part of this annual report.

 

Legal and Administrative Proceedings

 

From time to time, we are subject to various legal proceedings, investigations and claims incidental to the conduct of our business. Such proceedings can be costly and time consuming, and are inherently unpredictable. Therefore, no assurance can be given of the final outcome of any proceeding or that such proceeding will not materially impact our financial condition or results of operation.

 

In January 2020, we and certain of our directors and officers were named as defendants in a putative class action filed in the United States District Court for the Southern District of New York: Brown v. Opera Limited. et al., Case No. 20-cv-674 (S.D.N.Y.). The complaint, asserts violations of Sections 11 and 15 of the Securities Act of 1933, Section 10(b) and 20(a) of the Securities and Exchange Act of 1934, and SEC Rule 10b-5 promulgated under the Securities Exchange Act of 1934. The complaint allegesas amended, alleged that the Company had made certain material misstatements and/or omissions during the period from July 27, 2018 through January 15, 2020. The allegations relate to statements regarding the Company sustainable growth and market opportunity for its browser applications and the alleged business practicesin violation of certain loan service applications owned or controlled by the Company. The complaint seeks unspecified damages on behalf of all person and entities who purchased or acquired the Company’s (a) American depositary shares (“ADSs”) pursuant and/or traceable to the Company’s initial public offering commenced on or about July 27, 2018 (the “IPO” or “Offering”); and/or (b) OperaUS securities between July 27, 2018 and January 15, 2020, both dates inclusive. Several individuals have sought to be appointed as the lead plaintiff to represent the putative class, but no lead plaintiff has been appointed yet. As the case remains in its preliminary stages, we express no opinion on the likelihood of any unfavorable outcome or any estimate of the amount or range of any potential loss.laws. The Company intendsannounced its decision to vigorously defend itself againstfrom these claims.allegations and moved to dismiss the complaint. On March 13, 2021, the court granted the Company’s motion to dismiss, dismissing all of the claims on multiple grounds. The plaintiffs in the action determined to forgo their right to file a further amended complaint and instead stipulated to dismissal of the litigation. The case was dismissed with prejudice in an order entered on April 22, 2021.

 

78

Apart from the class action, as

As of the date of this annual report, we are not a party to, nor are we aware of, any legal proceeding, investigation or claim which, in the opinion of our management, is likely to have an adverse material effect on our business, financial condition or results of operations. We may periodically be subject to legal proceedings, investigations and claims relating to our business. We may also initiate legal proceedings to protect our rights and interests.

 

Dividend Policy

 

We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

 

Our board of directors has discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends on our ordinary shares, we will pay those dividends which are payable in respect of the ordinary shares underlying the ADSs to the depositary, as the registered holder of such ordinary shares, and the depositary then will pay such amounts to the ADS holders who will receive payment to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder.

 

We are an exempted holding company incorporated in the Cayman Islands. For our cash requirements, including any payment of dividends to our shareholders, we may rely on our substantial cash position remaining from the initial public offering of our securities, as further described in Part II, Item 14 of this annual report. We may further rely upon payments from our operating entities. We may rely on a combination of dividend payments from our subsidiaries in markets we operate such as Norway. Regulations in Norway where we utilize dividend payments may restrict the ability of our subsidiaries to pay dividends to us. 

 

B.

Significant Changes

 

Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

 

ITEM 9.

THE OFFER AND LISTING

 

A.

Offer and Listing Details

 

Our ADSs have been listed on the Nasdaq Global Select Market since July 27, 2018 and traded under the symbol “OPRA.” Each ADS represents two ordinary shares. 

 

B.

Plan of Distribution

 

Not applicable.

 

C.

Markets

 

Our ADSs have been listed on the Nasdaq Global Select Market since July 27, 2018 under the symbol “OPRA.”

 

D.

Selling Shareholders

 

Not applicable.

 

E.

Dilution

 

Not applicable.

 

F.

Expenses of the Issue

 

Not applicable. 

 

79

ITEM 10.

ADDITIONAL INFORMATION

 

A.

Share Capital

 

Not applicable.

 

B.

Memorandum and Articles of Association

 

We incorporate by reference into this annual report our Second Amended and Restated Memorandum and Articles of Association, as currently in effect, filed as Exhibit 3.2 to our registration statement on Amendment No.1 to Form F-1 (File No. 333-226017), filed with the SEC on July 13, 2018.

 

C.

Material Contracts

 

We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 7. Major Shareholders and Related Party Transactions,” or elsewhere in this annual report.

 

D.

Exchange Controls

 

The Cayman Islands currently has no exchange control regulations or currency restrictions. See “Item 4. Information of the Company—B. Business Overview—Norwegian Regulations—Regulations on Foreign Exchange.”

 

E.

Taxation

 

The following summary of Cayman Islands, Norway and U.S. federal income tax consequences of an investment in the ADSs or ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in the ADSs or ordinary shares, such as the tax consequences under state, local and other tax laws, or tax laws of jurisdictions other than the Cayman Islands, Norway, and the United States.

 

Cayman Islands Tax Considerations

 

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in or, after execution brought within, the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties which are applicable to any payments made by or to our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.

 

Payments of dividends and capital in respect of our ordinary shares or the ADSs will not be subject to taxation in the Cayman Islands and no withholding tax will be required on the payment of a dividend or capital to any holder of our ordinary shares or the ADSs, as the case may be, nor will gains derived from the disposal of our ordinary shares or the ADSs be subject to Cayman Islands income or corporation tax. The Cayman Islands currently have no income, corporation or capital gains tax and no estate duty, inheritance tax or gift tax.

 

An unstamped document that is required to be stamped may not be admissible in evidence until duly stamped and unstamped documents may be subject to penalties and interest for late stamping. Certain criminal offenses may also be committed in connection with unstamped documents.

 

No stamp duty is payable in respect of the issue of our ordinary shares or the ADSs or on an instrument of transfer in respect of our ordinary shares or the ADSs.

 

Norway Tax Considerations

 

Below is a summary of the primary tax issue in Norway for Norwegian corporate holders of the ADSs.

 

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The ADS is a financial instrument with shares in Opera Limited, an exempted company incorporated under the laws of the Cayman Islands with limited liability, as the underlying object. For Norwegian tax purposes, the ADSs will not be covered by the participation exemption since the underlying object is an entity in a low tax jurisdiction outside the EU/EEA. For limited liability companies (and certain similar entities) resident in Norway for tax purposes, dividends from the ADSs will be considered as taxable income. Gains on realization (including sales) of the ADSs will also be considered as taxable income for limited liability companies (and certain similar entities) resident in Norway for tax purposes. The tax rate for 20192020 for limited liability companies (and certain similar entities) is 22%, and will be 22% for 2020.2021.

 

United States Federal Income Tax Considerations

 

The following discussion describes the material United States federal income tax consequences to a United States Holder (as defined below), under current law, of an investment in our ADSs or ordinary shares. This discussion is based on the federal income tax laws of the United States as of the date of this annual report, including the United States Internal Revenue Code of 1986, as amended, or the Code, existing and proposed Treasury Regulationsregulations promulgated thereunder, judicial authority, published administrative positions of the United States Internal Revenue Service, or the IRS, and other applicable authorities, all as of the date of this annual report. All of the foregoing authorities are subject to change, which change could apply retroactively and could significantly affect the tax consequences described below. We have not sought any ruling from the IRS with respect to the statements made and the conclusions reached in the following discussion and there can be no assurance that the IRS or a court will agree with our statements and conclusions.

 

This discussion applies only to a United States Holder (as defined below) that holds our ADSs or ordinary shares as capital assets for United States federal income tax purposes (generally, property held for investment). The discussion neither addresses the tax consequences to any particular investor nor describes all of the tax consequences applicable to persons in special tax situations, such as:

 

 

banks and certain other financial institutions;

  

 

insurance companies;

  

 

regulated investment companies;

  

 

real estate investment trusts;

 

 

brokers or dealers in stocks and securities, or currencies;

  

 

persons whothat use or are required to use a mark-to-market method of accounting;

  

 

certain former citizens or residents of the United States subject to Section 877 of the Code;

  

 

entities subject to the United States anti-inversion rules;

  

 

tax-exempt organizations and entities;

  

 

persons subject to the alternative minimum tax provisions of the Code;

  

 

persons whose functional currency is other than the United States dollar;

  

 

persons holding ADSs or ordinary shares as part of a straddle, hedging, conversion or integrated transaction;

  

 

persons that actually or constructively own ADSs or ordinary shares representing 10% or more of our total voting power or value;

  

 

persons who acquired ADSs or ordinary shares pursuant to the exercise of an employee equity grant or otherwise as compensation;

  

 

partnerships or other pass-through entities, or persons holding ADSs or ordinary shares through such entities;

  

 

persons required to accelerate the recognition of any item of gross income with respect to our ADSs or ordinary shares as a result of such income being recognized on an applicable financial statement; or

  

 

persons that held, directly, indirectly or by attribution, ADSs or ordinary shares or other ownership interests in us prior to our initial public offering.

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This discussion, moreover, does not address the United States federal estate, gift, Medicare, or alternative minimum tax considerations, or any state, local or non-United States tax considerations, relating to the ownership and disposition of our ADSs or ordinary shares.

 

Except as specifically described below, this discussion does not address any tax consequences or reporting obligations that may be applicable to persons holding our ADSs or ordinary shares through a bank, financial institution or other entity, or a branch thereof, located, organized or resident outside the United States.States, and does not describe any tax consequences arising in respect of the Foreign Account Tax Compliance Act, or FATCA regime.

 

If a partnership (including an entity or arrangement treated as a partnership for United States federal income tax purposes) holds our ADSs or ordinary shares, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. A partnership or partner in a partnership holding our ADSs or ordinary shares should consult its tax advisors regarding the tax consequences of investing in and holding our ADSs or ordinary shares.

 

THE FOLLOWING DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING AND ADVICE. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE UNITED STATES FEDERAL ESTATE OR GIFT TAX LAWS OR THE LAWS OF ANY STATE, LOCAL OR NON-UNITED STATES TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

 

For purposes of the discussion below, a “United States Holder” is a beneficial owner of theour ADSs or ordinary shares that is, for United States federal income tax purposes:

 

 

an individual who is a citizen or resident of the United States;

  

 

a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

  

 

an estate, the income of which is subject to United States federal income taxation regardless of its source; or

  

 

a trust, if (i) a court within the United States is able to exercise primary jurisdiction over its administration and one or more United States persons have the authority to control all of its substantial decisions or (ii) in the case of a trust that was treated as a domestic trust under the law in effect before 1997, a valid election is in place under applicable Treasury Regulationsregulations to treat such trust as a domestic trust.

 

The discussion below assumes that the representations contained in the deposit agreement and any related agreement are true and that the obligations in such agreements will be complied with in accordance with their terms.

 

ADSs

 

If you own our ADSs, then you should be treated as the owner of the underlying ordinary shares represented by those ADSs for United States federal income tax purposes. Accordingly, deposits or withdrawals of ordinary shares for ADSs should not be subject to United States federal income tax.

 

Dividends and Other Distributions on theour ADSs or Our Ordinary Shares

 

Subject to the passive foreign investment company rules discussed below, the gross amount of any distribution that we make to you with respect to theour ADSs or ordinary shares (including any amounts withheld to reflect withholding taxes) will be taxable as a dividend, to the extent paid out of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Such income (including any withheld taxes) will be includable in your gross income on the day actually or constructively received by you, if you own theour ordinary shares, or by the depositary, if you own our ADSs.

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Because we do not intend to determine our earnings and profits on the basis of United States federal income tax principles, any distribution paid generally will be reported as a “dividend” for United States federal income tax purposes. Such dividends will not be eligible for the dividends- received deduction allowed to qualifying corporations under the Code.

 

Dividends received by a non-corporate United States Holder may qualify for the lower rates of tax applicable to “qualified dividend income,” if the dividends are paid by a “qualified foreign corporation” and other conditions discussed below are met. A non-United States corporation is treated as a qualified foreign corporation (i) with respect to dividends paid by that corporation on shares (or American depositary shares backed by such shares) that are readily tradable on an established securities market in the United States or (ii) if such non-United States corporation is eligible for the benefits of a qualifying income tax treaty with the United States that includes an exchange of information program. We do not expect to be eligible for the benefits of such an income tax treaty. A non-United States corporation will not be treated as a qualified foreign corporation if it is a passive foreign investment company in the taxable year in which the dividend is paid or the preceding taxable year.

 

Under a published IRS Notice, common or ordinary shares, or American depositary shares representing such shares (such as our ADSs), are considered to be readily tradable on an established securities market in the United States if they are listed on the Nasdaq Global Select Market, as our ADSs are (but not our ordinary shares). Based on existing guidance, it is unclear whether the ordinary shares will be considered to be readily tradable on an established securities market in the United States, because only our ADSs, and not the underlying ordinary shares, are listed on a securities market in the United States. We believe, but we cannot assure you, that dividends we pay on the ordinary shares that are represented by our ADSs, but not on the ordinary shares that are not so represented, will, subject to applicable limitations, be eligible for the reduced rates of taxation.

 

Even if dividends would be treated as paid by a qualified foreign corporation, a non-corporate United States Holder will not be eligible for reduced rates of taxation if it does not hold our ADSs or ordinary shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date (disregarding certain periods of ownership while the United States Holder’s risk of loss is diminished) or if thesuch United States Holder elects to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code. In addition, the rate reduction will not apply to dividends of a qualified foreign corporation if the non-corporate United States Holder receiving the dividend is obligated to make related payments with respect to positions in substantially similar or related property.

 

You should consult your tax advisors regarding the availability of the lower tax rates applicable to qualified dividend income for any dividends that we pay with respect to theour ADSs or ordinary shares, as well as the effect of any change in applicable law after the date of this annual report.

 

Any non-United States withholding taxes imposed on dividends paid to you with respect to theour ADSs or ordinary shares generally will be treated as foreign taxes eligible for deduction or credit against your United States federal income tax liability, subject to the various limitations and disallowance rules that apply to foreign tax credits generally.generally (including that the election to deduct or credit foreign taxes applies to all of your other applicable foreign taxes for a particular tax year). For purposes of calculating the foreign tax credit limitation, dividends paid to you with respect to theour ADSs or ordinary shares will be treated as income from sources outside the United States and generally will constitute passive category income, or in certain cases, general category income. The rules relating to the determination of the foreign tax credit are complex, and you should consult your tax advisors regarding the availability of a foreign tax credit in your particular circumstances.

 

Disposition of theour ADSs or Our Ordinary Shares

 

You will recognize gain or loss on a sale or exchange of theour ADSs or ordinary shares in an amount equal to the difference between the amount realized on the sale or exchange and your tax basis in theour ADSs or ordinary shares. Subject to the discussion under “—Passive Foreign Investment Company” below, such gain or loss generally will be capital gain or loss. Capital gains of a non-corporate United States Holder, including an individual that has held theour ADSs or ordinary shares for more than one year currently are eligible for reduced tax rates. The deductibility of capital losses is subject to limitations.

 

Any gain or loss that you recognize on a disposition of theour ADSs or ordinary shares generally will be treated as United States-source income or loss for foreign tax credit limitation purposes. You should consult your tax advisors regarding the proper treatment of gain or loss, as well as the availability of a foreign tax credit, in your particular circumstances.

 

Passive Foreign Investment Company

 

Based on the market price of our ADSs, the value of our assets and the nature and composition of our income and assets, we do not believe that we were a passive foreign investment company, or PFIC, for United States federal income tax purposes for our taxable year ended December 31, 2019,2020, although there can be no assurances in this regard. The determination of PFIC status is based on an annual determination that cannot be made until the close of a taxable year, involves extensive factual investigation, including ascertaining the fair market value of all of our assets on a quarterly basis and the character of each item of income that we earn, and is subject to uncertainty in several respects. Accordingly,Moreover, we cannot assure you that the United States Internal Revenue Service, or the IRS, will agree with any position that we take. Accordingly, there can be no assurance that we will not be treated as a PFIC for our taxable year ended December 31, 2019, the current taxable year or any future taxable year or that the IRS will not take a contrary position to any determination we make.

 

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We will be treated as a passive foreign investment company, or PFIC for United States federal income tax purposes for any taxable year if, applying applicable look-through rules, either:

 

at least 75% of itsour gross income for such year is passive income; or

 

at least 50% of the value of itsour assets (generally determined based on a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income.

 

For this purpose, passive income generally includes dividends, interest, royalties and rents (other than certain royalties and rents derived in the active conduct of a trade or business and not derived from a related person). We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% by value of the stock. Although the law in this regard is unclear, we treat our VIEs as being owned by us for United States federal income tax purposes, because we exercise effective control over the operation of such entities and because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their results of operations in our consolidated IFRS financial statements. If it were determined, however, that we are not the owner of our VIEs for United States federal income tax purposes, the nature and composition of our income and assets would change and we may be more likely to be treated as a PFIC.PFIC for the current or one or more future taxable years.

 

Changes in the nature or composition of our income or composition of our assets, including as a result of our investment in new businesses, products, services and technologies (including our European fintech business and our interest in Nanobank), may cause us to be or become a PFIC. The determination of whether we will be a PFIC for any taxable year may depend in part upon the value of our goodwill and other unbookedunrecorded intangibles not reflected on our balance sheet (which may depend upon the market value of theour ADSs or ordinary shares from time to time, which may be volatile) and also may be affected by how, and how quickly, we spend our liquid assets and the cash we generate from our operations and raise in any offering. In estimating the value of our goodwill and other unbookedunrecorded intangibles, we have taken into account our market capitalization. Among other matters, if our market capitalization declines, we may be or become a PFIC for the current or future taxable years because our liquid assets and cash (which are for this purpose considered assets that produce passive income) may then represent a greater percentage of the value of our overall assets. Further, while we believe our classification methodology and valuation approach are reasonable, it is possible that the IRS may challenge our classification or valuation of our goodwill and other unbookedunrecorded intangibles, which may result in our being or becoming a PFIC for our taxable year ended December 31, 2019,2020, the current taxable year or one or more future taxable years.

 

If we are a PFIC for any taxable year during which you holdyour holding period for our ADSs or ordinary shares, we will continue to be treated as a PFIC with respect to you for all succeeding years during which you hold our ADSs or ordinary shares, unless we were to cease to be a PFIC and you make a “deemed sale” election with respect to theour ADSs or ordinary shares. If such election is made, you will be deemed to have sold the ADSs or ordinary shares you hold at their fair market value and any gain from such deemed sale would be subject to the rules described in the following two paragraphs. After the deemed sale election, so long as we do not become a PFIC in a subsequent taxable year, thesuch ADSs or ordinary shares with respect to which such election was made will not be treated as shares in a PFIC and, as a result, you will not be subject to the rules described below with respect to any “excess distribution” you receive from us or any gain from an actuala sale or other taxable disposition of theour ADSs or ordinary shares. You are strongly urged to consult your tax advisors as to the possibility and consequences of making a deemed sale election if we are and then cease to be a PFIC and such an election becomes available to you.

 

If we are a PFIC for any taxable year during which you holdyour holding period for our ADSs or ordinary shares, then, unless you make a “mark-to-market” election (as discussed below), you generally will be subject to special and adverse tax rules with respect to any “excess distribution” that you receive from us and any gain that you recognize from a sale or other disposition, including a pledge, of the ADSs or ordinary shares. For this purpose, distributions that you receive in a taxable year that are greater than 125% of the average annual distributions that you received during the shorter of the three preceding taxable years or your holding period for the ADSs or ordinary shares will be treated as an excess distribution. Under these rules:

 

 

the excess distribution or recognized gain will be allocated ratably over your holding period for the ADSs or ordinary shares;

  

 

the amount of the excess distribution or recognized gain allocated to the taxable year of distribution or gain, and to any taxable years in your holding period prior to the first taxable year in which we were treated as a PFIC, will be treated as ordinary income; and

  

 

the amount of the excess distribution or recognized gain allocated to each other taxable year will be subject to the highest tax rate in effect for individuals or corporations, as applicable, for each such year and the resulting tax will be subject to the interest charge generally applicable to underpayments of tax.

 

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If we are a PFIC for any taxable year during which you holdyour holding period for our ADSs or ordinary shares and any of our non-United States subsidiaries that are corporations (or other corporations in which we directly or indirectly own equity interests) is also a PFIC, you would be treated as owning a proportionate amount (by value) of the shares of each such non-United States corporation classified as a PFIC (each such corporation, a lower tier PFIC) for purposes of the application of these rules. You should consult your tax advisors regarding the application of the PFIC rules to any of our lower tier PFICs.

 

If we are a PFIC for any taxable year during which you holdyour holding period for our ADSs or ordinary shares, then in lieu of being subject to the tax and interest-charge rules discussed above, you may make an election to include gain on our ADSs or ordinary shares as ordinary income under a mark-to-market method, provided that such ADSs or ordinary shares constitute “marketable stock.” Marketable stock is stock that is regularly traded on a qualified exchange or other market, as defined in applicable Treasury regulations. Our ADSs, but not our ordinary shares, are listed on the Nasdaq Global Select Market, which is a qualified exchange or other market for these purposes. Consequently, ifas long as our ADSs remain listed on the Nasdaq Global Select Market and are regularly traded, and you are a holder of such ADSs, we expect that the mark-to-market election would be available to you if we becamewere a PFIC, but no assurances are given in this regard.

 

Because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, if we were a PFIC for any taxable year, a United States Holder that makes thea mark-to-market election with respect to our ADSs or ordinary shares may continue to be subject to the tax and interest charges under the general PFIC rules with respect to such United States Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for United States federal income tax purposes.

 

In certain circumstances, a shareholderUnited States Holder of shares in a PFIC may avoid the adverse tax and interest-charge regime described above by making a “qualified electing fund” election to include in income its share of the corporation’s income on a current basis. However, you may make a qualified electing fund election with respect to theour ADSs or ordinary shares only if we agree to furnish you annually with a PFIC annual information statement as specified in the applicable Treasury regulations. We currently do not intend to prepare or provide the information that would enable you to make a qualified electing fund election.

 

A United States Holder that holds theour ADSs or ordinary shares in any year in which we are a PFIC will be required to file an annual report containing such information as the United States Treasury Department may require. You should consult your tax advisors regarding the application of the PFIC rules to your ownership and disposition of theour ADSs or ordinary shares and the availability, application and consequences of the elections discussed above.

 

Information Reporting and Backup Withholding

 

Information reporting to the IRS and backup withholding generally will apply to dividends in respect of our ADSs or ordinary shares, and the proceeds from the sale or exchange of our ADSs or ordinary shares, that are paid to you within the United States (and in certain cases, outside the United States), unless you furnish a correct taxpayer identification number and make any other required certification, generally on IRS Form W-9, or you otherwise establish an exemption from information reporting and backup withholding. Backup withholding is not an additional tax. Amounts withheld as backup withholding generally are allowed as a credit against your United States federal income tax liability, and you may be entitled to obtain a refund of any excess amounts withheld under the backup withholding rules if you file an appropriate claim for refund with the IRS and furnish any required information in a timely manner. United States Holders should consult their tax advisors regarding the application of the information reporting and backup withholding rules.

 

Information with Respect to Foreign Financial Assets

 

United States Holders who are individuals (and certain entities closely held by individuals) generally will be required to report our name, address and such information relating to an interest in theour ADSs or ordinary shares as is necessary to identify the class or issue of which theour ADSs or ordinary shares are a part. These requirements are subject to exceptions, including an exception for ADSs or ordinary shares held in accounts maintained by certain financial institutions and an exception applicable if the aggregate value of all “specified foreign financial assets” (as defined in the Code) does not exceed US$50,000.

 

United States Holders should consult their tax advisors regarding the application of these information reporting rules.

 

F.

Dividends and Paying Agents

 

Not applicable.

85

 

G.

Statement by Experts

 

Not applicable.

 

H.

Documents on Display

 

We previously filed with the SEC a registration statement on Form F-1 (File No. 333-226017), as amended, including the prospectus contained therein to register our ordinary shares in relation to our initial public offering and later filed with the SEC a registration on Form F-3 (File No. 333-233691), as amended, including the prospectus contained therein to register our ordinary shares in relation to our follow-on public offering. We also filed with the SEC a related registration statement on Form F-6 (File No. 333-226171) to register the ADSs and a registration statement on Form S-8 (File No. 333-229285) to register our securities to be issued under our Amended and Restated Share Incentive Plan.

 

We are subject to the periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year. Copies of reports and other information, when so filed with the SEC, can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the Commission at 1-800-SEC-0330

 

The SEC also maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.

 

We will furnish The Bank of New York Mellon, the depositary of our ADSs, with our annual reports, which will include a review of operations and annual audited consolidated financial statements prepared in conformity with IFRS, and all notices of shareholders’ meetings and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.

  

I.

Subsidiary Information

 

For a list of our significant subsidiaries, Exhibit 8.1 filed with this annual report.

 

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Overview

 

We are exposed to market risk, liquidity risk and credit risk. Our management seeks to minimize potential adverse effects of these risks through sound business practices and risk management. The board of directors, together with senior management, is involved in the risk assessment process. We have not utilized derivatives for hedging purposes.

 

Market risk

 

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. We are exposed to three types of market risk: Interestinterest rate risk, foreign currency risk and equity price risk. Financial instruments affected by market risk include loans and borrowings, trade receivables, trade payables, accrued liabilities and listed equity instruments.

 

Interest rate risk

 

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

 

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In 2019, we obtained a credit facility from a financial institution. Loans under the credit facility, denominated in Indian Rupee, were used to fund the microlending business in India. As of December 31, 2019, the total amount of loans under the credit facility was US$42,247 thousand. The resulting positive impact to our financing cash flow was offset by us transferring US$52,878 thousand into an U.S. Dollar denominated escrow account as collateral for these loans; which has been classified as a receivable and as such, as a cash outflow under investing activities in the Statement of Cash Flows. The interest rate on these loans is based on the bank’s 6-month marginal cost of funds-based lending rate plus 0.3%. As of year-end 2019, that rate was 8.85%. Except for the above, our

Our exposure to interest risk is immaterial. Financiallimited because financial liabilities other than loans under the credit facility have fixed interest rates and future interest payments on these will thus not fluctuate. We expect to settle all financial liabilities at maturity, meaning changes in market interest rates will only impact their fair value temporarily. Financial assets are not interest-bearing, except for deposits with banks.

 

Foreign currency risk

 

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Our exposure to the risk of changes in foreign exchange rates relates primarily to our consolidated results being presented in U.S. Dollar, while our revenues are generated in nearly all global currencies, though often converted to USD or EUR before being paid to us from our partners. We incur operating expenses in various currencies, including the Norwegian Krone,krone, Chinese Renminbi,renminbi, Polish Zloty,zloty, Swedish Krone,krona, Indian Rupee,rupee, Kenyan Shilling,shilling, Nigerian Nairanaira, Great British Pounds and the Euro. Additionally, we are exposed to foreign currency risk due to monetary items recognized inon the balance sheet being denominated in currencies other than the functional currency, which for most of our entities is the U.S. Dollar. Management isWe are closely monitoring our exposure to foreign currency risk and seeksseek to minimize itsour exposure to such risk. We were not exposedOur exposure to material foreign currency risk in 2018 and 2019.related to cash on hand is limited.

 

Equity price risk

 

We areWhile we did not hold any investment in listed equity instruments as of December 31, 2020, we held such investments throughout 2020. Investments in listed equity instruments exposed us to equity price risk related to its limited holding of publicly traded equity securities. Suchrisk. Specifically, such holdings arewere susceptible to market price risk arising from uncertainties about future values of such securities.

 

Our holdinginvestment activity in listed equity instruments is managed by Kunlun Group Limited, a related party of publicly traded securitiesthe Company, and is overseen by our CEOCEO. The investment activity, including risk management, is subject to set requirements for performance monitoring, risk tolerance, investment strategies and conducted withindiversification. Under our applicable policies, the total capital allocated to investments in listed equity instruments is limited up to US$70 million. During 2020, we invested in shares listed on stock exchanges in mainland China, Hong Kong and the United States. The majority of the investments were in companies in the tech and electronics industries. We also wrote call options on listed equity instruments to a limited extent, resulting in a gain of US$700.1 million capital allocation.

Asin 2020. The written call options, representing a financial liability for us, had a fair value of US$0.7 million as of December 31, 2019,2020. The written call options exposed us to equity price risk due to the fair valuecounterparties' rights to buy the underlying listed equity instrument from us for a fixed price. This specific risk was managed by us only writing call options with relative short durations, by limiting the number of contracts entered into, and by preparing to purchase the underlying shares in the event of certain levels of adverse price movements. While we did not enter into short positions during 2020, the investment policies allow such holdings was US$42,146 thousand.positions to be entered into.

 

The net gain from investments in publicly traded securities in 20192020 was US$8,477 thousand (2018:13.0 million, compared to a net lossgain of US$1,485 thousand). We did not invest8.5 million in publicly traded equity securities in 2017.2019.

 

Liquidity risk 

 

Liquidity risk is the risk that we will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. We are not exposedOur exposure to material liquidity risk is limited given itsour significant cash position and low debt-to-equity ratio as of December 31, 2019.2020. See Note 1720 to our consolidated financial statements included elsewhere in this annual report for an overview of maturity profile on our financial liabilities.

 

Credit risk

 

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss for us.

 

We are exposed to credit risk from our operating activities, primarily loans to customers and trade receivables and from itsour cash management activities, including deposits with banks and financial institutions, and other receivables, such as loans to associates and joint ventures (details in Note 2826 to our consolidated financial statements included elsewhere in this annual report). Our revenue comes mainly from sales where settlement in cash generally takes place within 30-90 days of the invoice being issued, which is concurrently when we have an unconditional right to consideration. For some specific revenue streams, including those relating to OPay, and Powerbets, settlement is agreed to exceed 90 days. Details of outstanding trade receivable are disclosed in Notes 21 and 28Note 14 to our consolidated financial statements included elsewhere in this annual report. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets. 

 

Credit risk for loans to customers

We are continuously monitoring its credit risk relating to microlending. Under the credit risk policies, the exposure is subject to regular reviews of risk tolerance levels. All operating decisions in terms of exposure and geographic profile are made in accordance with applicable risk management policies. Furthermore, we review the occurrence, progress and status of all credit risks, and take appropriate actions to mitigate any adverse effects. Credit risk is measured by a variety of methods, including total outstanding loan balance, delinquency rates by aging, credit scorecards and by way of collection models. The objectives and policies to credit risk have not changed relative to 2018, though the processes and methods to measure and manage credit risk has been continuously evolving.

Management of risk concentration is conducted by using a variety of systems to monitor and track concentration. This enables quantification and analyzing of risks relating to concentration on a real-time basis. Measurement of expected credit losses is calculated from analysis of the outstanding loans, including loan tenure and historical delinquency rates. When considering whether the credit risk has increased significantly, metrics including first payment delinquency and delinquency by aging are evaluated, directly affecting our credit loss provisions.

When considering whether loans are credit impaired, management considers market and borrower indicators. The disappearance of an active market for the financial asset is an indicator of the need for credit-impairment, as is transactions of comparable financial assets at steep discounts that reflect incurred credit losses. Borrower indicators of credit-impaired financial assets include observing that a borrower has significant financial difficulties, breaches the loan agreement or enters into, or the likely entrance into, a form of reorganization (such as bankruptcy). We find that these indicators reduce the likelihood of receiving payment of the outstanding loan balance. We do not incorporate forward-looking information into the determination of expected credit losses, as reliable data supporting credit impairment is deemed not to be available in the markets in which we offer microloans.

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

A.

Debt Securities

 

Not applicable.

 

B.

Warrants and Rights

 

Not applicable.

 

C.

Other Securities

 

Not applicable.

 

D.

American Depositary Shares

 

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Fees and Expenses

For details of description of our ADSs, see Exhibit 2.4 filed with this annual report.

 

Our ADS holders are required to pay the following service fees to the depositary bank, the Bank of New York Mellon, and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of ADSs):

 

Persons depositing or withdrawing shares or ADS holders must pay:

 

For:

US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)

Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property Cancelation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates

US$0.05 (or less) per ADS

Any cash distribution to ADS holders

A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs

Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the depositary to ADS holders

US$0.05 (or less) per ADS per calendar year

Depositary services

Registration or transfer fees

Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares

Expenses of the depositary

Cable and facsimile transmissions (when expressly provided in the deposit agreement)
Converting foreign currency to U.S. Dollars

Taxes and other governmental charges the depositary or the custodian has to pay on any ADSs or shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes

As necessary

Any charges incurred by the depositary or its agents for servicing the deposited securities

As necessary

 

The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may collect any of its fees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to pay those fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

 

From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance of the ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performing its duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliated with the depositary and that may earn or share fees, spreads or commissions.

 

The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor, broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account.

 

The revenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and the rate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that the exchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that the method by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. The methodology used to determine exchange rates used in currency conversions is available upon request.

 

88

PART II

 

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 

None.

 

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

A.—D.

Material Modifications to the Rights of Security Holders

 

See “Item 10. Additional Information” for a description of the rights of shareholders, which remain unchanged.

 

E.

Use of Proceeds

 

The following “Use of Proceeds” information relates to (i) the registration statement on Form F-1 (File No. 333-226017), as amended, including the prospectus contained therein, which registered 19,200,000 ordinary shares represented by ADSs and was declared effective by the SEC on July 27, 2018, for our initial public offering, which closed in July 27, 2018, and the underwriters’ exercise of their option to purchase from us an additional 334,672 ADSs representing 669,344 ordinary shares, or the optional offering, which closed in August 9, 2018 at an initial offering price of US$12.00 per ADS, and (ii) the registration statement on Form F-3 (File No. 333-233691), as amended, including the prospectus contained therein, which registered 15,000,000 ordinary shares represented by ADSs and was declared effective by the SEC on September 16, 2019, for our follow-on offering, which closed in September 24, 2019, and the underwriters’ exercise of their option to purchase from us an additional 1,125,000 ADSs representing 2,250,000 ordinary shares, or the optional offering, which closed on October 16, 2020,2019, at an offering price of US$10.00 per ADS. China International Capital Corporation Hong Kong Securities Limited and Citigroup Global Markets were the representatives of the underwriters for both of our initial public offering and follow-on offering.

 

We received an aggregated net proceeds of approximately US$110.8 million from our initial public offering and the optional offering. In addition, we received an additional US$57.0 million from three contemporaneous private placements, net of underwriting commissions paid. Our expenses incurred and paid to others in connection with the issuance and distribution of the ADSs in our initial public offering and the optional offering totaled US$3.4 million, which included US$0.4 million deducted directly from equity and US$3.0 million for other expenses. The additional material items upon which we have used the proceeds of our initial public offering and the optional offering include (i) US$16.1 million in our share repurchase programs in 2018, 2019 and 2020, (ii) an investment of US$30 million in acquiring 19.35% equity interest of StarMaker Inc., (iii) US$9.5 million for the purchase of TenSpot Pesa Limited and its microfinance business (OKash), and (iv) the funding of our microlending business which ended 2019 with a net loan book of US$93.1 million.

We received net proceeds of approximately US$82.6 million from our follow-on offering. TheseWe have used US$49.7 million of such proceeds arein our share repurchase program that ended on January 17, 2021, while the remaining amount is currently held in cash and marketable securities.cash equivalents.

 

Other than reimbursement of officersalaries and director travel expenses to attend out listing ceremony in New York, certain limited bonuses paid to our chief financial officerofficers, and chief operating officer, and the annual board fees paid to our two independent directors, none of the net proceeds from any of our public offeringsfollow-on offering were paid, directly or indirectly, to any of our directors or officers or their associates, persons owning 10% or more of our equity securities or our affiliates or others.

 

ITEM 15.

CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as required by Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our management has concluded that as a result of the material weaknessesweakness in internal control over financial reporting described below, as of December 31, 2019,2020, our disclosure controls and procedures were ultimately not effective.

 

Management’sManagements Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) under the Exchange Act, for our company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The company’s internal control over financial reporting includes policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with IFRS and that receipts and expenditures are being made only in accordance with authorizations of the management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements.

 

Material weaknessesweakness

 

As required by Section 404 of the Sarbanes-Oxley Act and related rules as promulgated by the SEC, our management has assessed the effectiveness of internal control over financial reporting based on the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that the company’s internal control over financial reporting as of December 31, 20192020, was not effective due to the presence of control deficiencies.

89

 

A material weakness is a deficiency, or combination of deficiencies, in Internal Control over Financial Reporting, such that there is a reasonable possibility that a material misstatement of the Company's consolidated financial statements will not be prevented or detected on a timely basis. Management has identified the following control deficiencies that constitute a material weaknessesweakness in our Internal Control over Financial Reporting as of December 31, 2019:2020:

 

1.

The Company did not design and maintain effective internal control over certain accounting transactions. Specifically, the Company has not performed an appropriate risk assessment, designed and implemented appropriate controls including the monitoring of the effectiveness of those controls to ensure that accounting transactions are sufficiently analyzed and assessed against the requirements and to analyze complex accounting matters, including the timely preparation and review of contemporaneous documentation. TheWhile the Company has introduced appropriatelyhired qualified accounting personnel, however there wascontinued to be insufficient time to allow themcapacity to appropriately identify and implement robust controls prior December 31, 2019.

2.The Company did not design and maintain effective internal control, specifically the Company did not perform an appropriate risk assessment in identifying specific risks with microlending businesses across several countries being operated, and thereafter designing and implementing controls including the monitoring of these controls in terms of oversight. Our process to evaluate the competence and expertise necessary to support the growth and complexity of the business, its financial reporting, and response to address shortcomings was not sufficiently implemented during 2019. As a result, we did not have a sufficient number of adequately trained personnel within the organization with assigned responsibility and accountability for the design, effective operation, and documentation of internal control over financial reporting.2020.

 

To our knowledge, these control deficiencies did not resultThis material weakness resulted in a material misstatement caused by insufficient review of valuation models used to determine the fair value of preferred shares in associates, which impacted the carrying amount of investments in associates and joint ventures and the change in fair value of preferred shares in associates. This misstatement was corrected prior to the consolidatedissuance of the financial statements. However, the deficiencies created a possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis, and accordingly a remediation plan has been undertaken.

 

Management has performed additional analysis and mitigation controls and procedures in preparing our consolidated financial statements. We have concluded that our consolidated financial statements, in all material respects, fairly present our financial condition, results of operations and cash flows at and for the periods presented. Apart from the material weaknesses described above, our management has not identified any other deficiencies that have led management to conclude that the company’s internal control over financial reporting was not effective.

 

Remediation plan

 

Our management is actively undertaking remediation efforts to address the material weaknesses identified above through the following actions:

 

We have hired employees with IFRS, external financial reporting and internal controls expertise to finalize policies and procedures that will ensure transactions are sufficiently analyzed and assessed against the requirements of IFRS and our corporate governance standards, and that contemporaneous documentation is prepared and reviewed.

In 2019,While we engaged external consultantshave made significant improvements in the risk assessment, design and implementation of appropriate controls, including having hired an additional employee with relevant experience in the design, implementation and testing of internal controls, we plan to assist us in designing and implementing a formalizedcontinue on improving our framework for internal control, based on the “Internal Control - Integrated Framework (2013)” issued by COSO. Our internal controls are being designed to ensure that all financial statement assertionsrisks are maintainedproperly identified in our consolidated financial statements. We intend to finalize the internal control framework in 2020, including the implementationa timely manner and monitoring of effectiveness of internalthat controls related to risk assessment, complianceare effectively designed, implemented and oversight of the Company's legacy and developing microlending businesses.

In 2020, management will evaluate the need to engage external consultants to support testing the design and operating effectiveness of the internal controls as of December 31, 2020.monitored.

  

We have hired additional employees at the group levelwill continue to strengthen our management oversightdevelop and compliance structures over our legacy and developing microlending businesses, as well as obtained additional expertise in enterprise risk management.

We have established a policy clarifyingmaintain policies outlining the roles and responsibilities of our various finance and control functions across our group, as well as the lines of reporting and responsibilities of local resources, and we will continue to refine this policy as it is implemented across our businesses and new initiatives.

  

We are evaluating the long-term needs of our various finance and control functions, both at group headquarters as well as in certain local markets, and intend to hire additional resources or engage external support as needed.

  

We will continue to improve the timeliness of the financial reporting process, including a more timely preparation of accounting assumptions and accounting analysis.

These remediation measures may be time consuming, costly and might place significant demands on our financial and operational resources. Further, we may not be able to complete them by the end of 2020.2021. However, once completed, management believes the remediation plan will effectively resolve the deficiencies constituting the material weaknesses. As the remediation plan is implemented, management may take additional measures or modify the plan described above.

 

Attestation Report of the Registered Public Accounting Firm

 

This annual report on Form 20-F does not include an attestation report on internal control over financial reporting of the company’s registered public accounting firm due to a transition period established by rules of the SEC for emerging growth companies.

 

Changes in Internal Controls

 

Management has evaluated, with the participation of our chief executive officer and chief financial officer, whether any changes in our internal control over financial reporting that occurred during our last fiscal year have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Since one of the material weaknessesweakness disclosed above also was identified when preparing the consolidated financial statements for 2018,2019, management has concluded that while we are making progress on the matter, we cannot at this stage conclude that our internal control over financial reporting has sufficiently improved during the period covered by this annual report on Form 20-F. However, as a result of the Company contributing its microlending business to Nanobank on August 19, 2020 resulting in the loss of control over subsidiaries engaged in that business, the material weakness specifically related to the discontinued microlending business, as disclosed in the annual report for 2019 on Form 20-F, is no longer present.

 

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

 

Our board of directors has determined that Lori Wheeler Næss, an independent director and a member of our audit committee, qualifies as an “audit committee financial expert” within the meaning of the SEC rules and possesses financial sophistication within the meaning of Listing Rules of the Nasdaq Stock Market. Lori Wheeler Næss meets the independence standards under Rule 10A-3 under the Exchange Act.

 

ITEM 16B.

CODE OF ETHICS

 

Our board of directors has adopted a code of business conduct and ethics that applies to all of our directors, officers, employees, including certain provisions that specifically apply to our principal executive officer, principal financial officer, principal accounting officer or controller and any other persons who perform similar functions for us. We have filed our code of business conduct and ethics as Exhibit 99.1 of our registration statement on Form F-1 (file No. 333-226017) filed with the SEC on June 29, 2018 and posted a copy of our code of business conduct and ethics on our website at investor.opera.com. We hereby undertake to provide to any person without charge, a copy of our code of business conduct and ethics within ten working days after we receive such person’s written request.

 

 

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by KPMG AS, our independent registered public accounting firm, for the periods indicated. We did not pay any other fees to our independent registered public accounting firm during the periods indicated below.

 

 

For the Year Ended December 31,

  

For the Year Ended December 31,

 
 

2018

  

2019

  

2019

 

2020

 
 

(US$ in thousands)

  

(US$ in thousands)

 

Audit fees (1)

  1,505   1,970  

1,970

 

2,986

 

Audit-related fees (2)

  225   53  

53

 

501

 

Tax fees (3)

  10   44  

44

 

21

 

All other fees

  -   -  

-

 

-

 

 

(1)

(1)Audit fees include the audit of our annual financial statements and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements for those fiscal years including review of documents filed with the SEC.

 

(2)

(2)Audit-related fees means the aggregate fees billed for professional services rendered by our principal auditors for the assurance and related services, which were not included under Audit Fees above. 

 

(3)

(3)Tax fees means the aggregate fees billed in each of the fiscal periods listed for professional services rendered by our principal auditors for tax compliance.

 

The policy of our audit committee is to pre-approve all audit and non-audit services provided by KPMG AS, our independent registered public accounting firm, including audit services and audit-related services as described above.

 

ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

We are in compliance with Rule 10A-3 under the Exchange Act and The Nasdaq Stock Market, Inc. Marketplace Rules with respect to the audit committee.

 

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

 

On November 8, 2018, we announced that our board of directors had approved a share repurchase program of up to 1.5 million ADSs to be purchased on the open market, commencing on November 12, 2018. As of December 31, 2018, we had purchased 728,912 ADSs, at a total cost of US$4.9 million. In February 2019, the share repurchase program was completed following the successful repurchase of all 1.5 million ADSs for an aggregate purchase price of approximately US$10.6 million.

 

The following table provides information about the shares we repurchased each month under the program.

 

Period

 

(a) Total Number of ADSs Purchased

  

(b) Average Price Paid per ADS

  

(c) Total Number of ADSs Purchased as Part of Publicly Announced Plans or Programs

  

(d) Maximum Number (or Appropriate Dollar Value of ADSs that May Yet Be Purchased Under the Plans or Programs

 

Nov 1 - Nov 30, 2018

  

481,837

   

6.79

   

481,837

  

$

1,018,163

 

Dec 1 - Dec 31, 2018

  

247,075

   

6.44

   

247,075

  

$

771,008

 

Jan 1 - Jan 31, 2019

  

649,640

   

7.38

   

649,640

  

$

121,448

 

Feb 1 - Feb 28, 2019

  

121,448

   

7.99

   

121,448

   

0

 

Total

  

1,500,000

   

7.08

   

1,500,000

   

0

 

 

On January 17, 2020, we announced that our board of directors had approved an additionala share repurchase program, which authorized us to execute the repurchase of up to US$5050.0 million of ADSs by January 17, 2021, in any form that management may deem appropriate. As ofOn January 17, 2021, the date of this report, we haveshare repurchase program expired and was terminated. We purchased 773,4865,976,455 ADSs under this program, at a total cost of US$5.4849.7 million.

 

 

The following table provides information about the shares we repurchased each month under the program.

 

Period

 

(a) Total Number of ADSs Purchased

  

(b) Average Price Paid per ADS

  

(c) Total Number of ADSs Purchased as Part of Publicly Announced Plans or Programs

  

(d) Maximum Number or Appropriate Dollar Value of ADSs that May Yet Be Purchased Under the Plans or Programs

  

(a) Total Number of ADSs Purchased

  

(b) Average Price Paid per ADS

  

(c) Total Number of ADSs Purchased as Part of Publicly Announced Plans or Programs

  

(d) Maximum Number (or Appropriate Dollar Value of ADSs that May Yet Be Purchased Under the Plans or Programs)

 

Jan 1 - Jan 31, 2020

  0   0   0  $50,000,000   0   0   0  $50,000,000 

Feb 1 - Feb 29, 2020

  110,664   7,97   110,664  $49,118,374   110,664   7,97   110,664  $49,118,374 

Mar 1 - Mar 31, 2019

  662,822   6.93   773,486  $44,523,100 

Mar 1 - Mar 31, 2020

  662,822   6.93   773,486  $44,523,100 

Apr 1 – Apr 30, 2020

  0   0   773,486  $44,523,100 

May 1 – May 31, 2020

  0   0   773,486  $44,523,100 

Jun 1 – Jun 30, 2020

  1,696,846   7.63   2,470,332  $31,572,890 

Jul 1 – Jul 31, 2020

  962,712   9.57   3,433,044  $22,355,814 

Aug 1 – Aug 31, 2020

  610,559   8.61   4,043,603  $17,099,812 

Sep 1 – Sep 30, 2020

  923,947   8.51   4,967,550  $9,232,754 

Oct 1 – Oct 31, 2020

  32,513   8.96   5,000,063  $8,941,576 

Nov 1 – Nov 30, 2020

  418,466   8.93   5,418,529  $5,205,649 

Dec 1 – Dec 31, 2020

  474,610   8.75   5,893,130  $1,053,838 

Jan 1 – Jan 31, 2021

  83,316   8.96   5,976,455   0 

Total

  5,976,455   8.31   5,976,455   0 

 

ITEM 16F.

CHANGE IN REGISTRANT’SREGISTRANTS CERTIFYING ACCOUNTANT

 

Not applicable.

 

ITEM 16G.

CORPORATE GOVERNANCE

 

As a Cayman Islands exempted company listed on the Nasdaq Global Select Market, we are subject to Nasdaq corporate governance listing standards. However, Rule 5615(a)(3) of The Listing Rules of the Nasdaq Stock Market (the “Nasdaq Rules”) permits foreign private issuers like us to follow certain home country corporate governance practices in lieu of certain provisions of the Rule 5600 Series of the Nasdaq Rules. A foreign private issuer that elects to follow a home country practice instead of such provisions, must disclose in its annual reports each requirement that it does not follow and describe the home country practice followed by it.

 

Our current corporate governance practices differ from Nasdaq corporate governance requirements for U.S. companies in certain respects, as summarized below:

 

•    Rule 5605(b)(1) of the Nasdaq Rules requires a Nasdaq listed company to have a majority of the board be independent. In this regard we have elected to adopt the practices of our home country, the Cayman Islands, which practices do not require a majority independent board; and

 

•    Rule 5605(d)(2) of the Nasdaq Rules requires a Nasdaq listed company to have a compensation committee composed solely of independent directors to determine or recommend the compensation of the executive officers of the company. In this regard we have elected to adopt the practices of our home country, the Cayman Islands, which practices do not require that any of the members of a company’s compensation committee be independent directors.

 

ITEM 16H.

MINE SAFETY DISCLOSURE

 

Not applicable.

 

92

PART III

 

ITEM 17

FINANCIAL STATEMENTS

 

We have elected to provide financial statements pursuant to Item 18.

 

ITEM 18

FINANCIAL STATEMENTS

 

The consolidated financial statements of Opera Limited are included at the end of this annual report. 

 

ITEM 19.

EXHIBITS

 

Exhibit
Number

Description of Document

1.1

Second Amended and Restated Memorandum and Articles of Association of the Registrant, as currently in effect (incorporated by reference to Exhibit 3.2 from our registration statement on Amendment No. 1 to Form F-1 (File No. 333-226017) filed publicly with the SEC on July 13, 2018)

2.1

Form of Registrant’s Specimen American Depositary Receipt (included in Exhibit 2.3)

2.2

Registrant’s Specimen Certificate for Ordinary Shares (incorporated by reference to Exhibit 4.2 from our registration statement on Form F-1 (File No. 333-226017) filed publicly with the SEC on June 29, 2018)

2.3

Form of Deposit Agreement among the registrant, the depositary and owners and holders of the ADSs (incorporated by reference to Exhibit 4.3 from our registration statement on Amendment No. 2 to Form F-1 (File No. 333-226017) filed publicly with the SEC on July 23, 2018)

2.4*

2.4

 

Description of the Rights of Securities Registered under Section 12 of the Securities Act as of December 31, 2019.

4.1

Amended and Restated Share Incentive Plan, dated as of January 10, 2019, as currently in effect  (incorporated by reference to Exhibit 10.1 from our registration statement on Form S-8 (File No. 333-229285) filed publicly with the SEC on January 10, 2019)

4.2

Form of Indemnification Agreement between the Registrant and each of the directors and executive officers of the Registrant (incorporated by reference to Exhibit 10.2 from our registration statement on Form F-1 (File No. 333-226017) filed publicly with the SEC on June 29, 2018)

4.3

Form of Employment Agreement between the Registrant and each executive officer of the Registrant (incorporated by reference to Exhibit 10.3 from our registration statement on Amendment No. 1 to Form F-1 (File No. 333-226017) filed publicly with the SEC on July 13, 2018)

4.4†

Google Distribution Agreement, dated as of August 1, 2012, by and between Opera Software AS (currently known as Opera Norway AS) and Google Ireland Limited, and amendments entered into from time to time (incorporated by reference to Exhibit 10.4 from our registration statement on Form F-1 (File No. 333-226017) filed publicly with the SEC on June 29, 2018)

4.5†

Partner Agreement, dated as of October 1, 2012, by and between Opera Software ASA and Yandex LLC, and amendments entered into from time to time (incorporated by reference to Exhibit 10.5 from our registration statement on Form F-1 (File No. 333-226017) filed publicly with the SEC on June 29, 2018)

4.6

Professional Service Agreement, dated as of June 1, 2016, by and between Opera Software AS (currently known as Opera Norway AS) and 360 Mobile Security Limited, and amendments entered into from time to time (incorporated by reference to Exhibit 10.6 from our registration statement on Form F-1 (File No. 333-226017) filed publicly with the SEC on June 29, 2018)

4.7

Amendment No. 2 to the Professional Service Agreement, dated as of July 1, 2018, by and between Opera Software AS (currently known as Opera Norway AS) and 360 Mobile Security Limited (currently known as Mobimagic Digital Technology Limited) (incorporated by reference to Exhibit 4.7 to the annual report on Form 20-F (File No. 001-38588) filed publicly with the SEC on April 17, 2019)

4.8

Amendment No. 3 to the Professional Service Agreement, dated as of October 1, 2018, by and between Opera Software AS (currently known as Opera Norway AS) and 360 Mobile Security Limited (currently known as Mobimagic Digital Technology Limited) (incorporated by reference to Exhibit 4.8 to the annual report on Form 20-F (File No. 001-38588) filed publicly with the SEC on April 17, 2019)

4.9*4.9

 

Amendment No. 4 to the Professional Service Agreement, dated April 1, 2019, by and between Opera Software AS (currently known as Opera Norway AS) and 360 Mobile Security Limited (currently known as Mobimagic Digital Technology Limited)

4.10*4.10

 

Amendment No. 5 to the Professional Service Agreement, dated January 1, 2019, by and between Opera Software AS (currently known as Opera Norway AS) and 360 Mobile Security Limited (currently known as Mobimagic Digital Technology Limited)

4.11

Service Agreement, dated as of November 1, 2017, by and between Opera Software AS (currently known as Opera Norway AS) and Opay Digital Services Limited (incorporated by reference to Exhibit 10.7 from our registration statement on Form F-1 (File No. 333-226017) filed publicly with the SEC on June 29, 2018)

4.12

Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.11 from our registration statement on Amendment No. 1 to Form F-1 (File No. 333-226017) filed publicly with the SEC on July 13, 2018)

93

4.13

Share Purchase Agreement, dated as of December 19, 2018, by and between Opera Limited and Opay Digital Services Limited (incorporated by reference to Exhibit 4.11 to the annual report on Form 20-F (File No. 001-38588) filed publicly with the SEC on April 17, 2019)

4.14*4.14

 

Service Agreement, dated April 1, 2019, by and between PC Financial Services Private Limited and Mobimagic Co., Ltd.

4.15*4.15

 

Software License Agreement, dated October 1, 2019, by and between Hong Kong Fintango Limited and PC Financial Services Private Limited.

4.16Marketing and Advertising Services Agreement between Opera Norway AS and Mobimagic Digital Technology Limited, effective April 1, 2020
4.17Addendum No. 1 to the Marketing and Advertising Services Agreement between Opera Norway AS and Mobimagic Digital Technology Limited, effective October 1, 2020, by and among Opera Norway AS, Ying Liang Limited, and Mobimagic Digital Technology Limited. 

8.1*

Significant Subsidiaries and Consolidated Affiliated Entities of the Registrant

11.1

Code of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 99.1 from our registration statement on Form F-1 (File No. 333-226017) filed publicly with the SEC on June 29, 2018)

12.1*

Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

12.2*

Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

13.1**

Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

13.2**

Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

15.1*

ConsentsConsent of KPMG, Independent Registered Public Accounting Firm

101.INS**

 

XBRL Instance

101.SCH**

 

XBRL Taxonomy Extension Schema

101.CAL**

 

XBRL Taxonomy Extension Calculation

101.DEF**

 

XBRL Taxonomy Extension Definition

101.LAB**

 

XBRL Taxonomy Extension Labels

101.PRE**

 

XBRL Taxonomy Extension Presentation

*

Filed with this annual report on Form 20-F.

 

**

Furnished with this annual report on Form 20-F.

 

Confidential treatment has been granted with respect to portions of the exhibit that have been redacted pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

 

 

SIGNATURES

 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

Opera Limited

By:

/s/ Yahui Zhou

Name: Yahui Zhou
Title:  Chairman and Chief Executive Officer

 

Date: April 30, 2020June 10, 2021

 

[Signature Page to 20-F]

 

  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

F-2

CONSOLIDATED STATEMENT OF OPERATIONS

F-3

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

F-4

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

F-5

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

F-6

CONSOLIDATED STATEMENT OF CASH FLOWS

F-7

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

F-9F-8

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors of Opera Limited:

Opera Limited

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated statementstatements of financial position of Opera Limited and subsidiaries (the Company) as of December 31, 2020 and 2019, and 2018, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2019,2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192020 and 2018,2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 20192020, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).Board.

Change in Accounting Principle

 

As discussed in Note 32 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1,in 2019 due to the adoption IFRS 16 Leases. 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ KPMG AS

 

We have served as the Company’s and its predecessor's auditor since 2000.

 

Oslo, Norway

April 30, 2020June 10, 2021

 

 

 

CONSOLIDATED STATEMENT OF OPERATIONS

 

     

Year Ended December 31,

      

Year Ended December 31,

 

[US$ thousands, except per share and ADS amounts]

 

Notes

  

2017

  

2018

  

2019

  

Notes

  

2018 (1)

  

2019 (1)

  

2020

 
                

Revenue

  4, 5   128,893   172,276   334,855   4   161,334   177,078   165,056 

Other income

  4   5,460   -   -   4   -   -   11,542 
                                

Operating expenses

                                

Cost of revenue (1)

  7   (3,969)  (20,009)  (73,991)

Technology and platform fees

  4   (3,644)  (796)  (3,315)

Content cost

  4   (72)  (1,545)  (4,312)

Cost of inventory sold

  4   -   (208)  (700)

Personnel expenses including share-based remuneration

  6   (42,134)  (34,683)  (61,029)  5   (41,004)  (62,323)  (62,103)

Marketing and distribution expenses

  4   (30,971)  (31,381)  (73,150)  4   (31,543)  (65,074)  (47,860)
Credit loss expense 4, 21  (1,837) 678  (577)  4, 14   678   (577)  (1,849)
Other changes in fair value of loans to customers 4, 5, 21  -  (528) (54,302)

Credit loss expense related to divested joint venture

  14   -   -   (10,476)

Depreciation and amortization

  9, 10   (16,604)  (12,694)  (18,933)  11, 12   (12,694)  (18,843)  (20,234)

Other expenses

  8   (25,359)  (28,359)  (32,210)  6   (28,674)  (28,248)  (28,197)

Restructuring costs

      (3,240)  -   - 

Total operating expenses

      (124,114)  (126,975)  (314,192)      (116,953)  (177,614)  (179,046)
                                

Operating profit

      10,239   45,301   20,662 

Operating profit (loss)

      44,381   (537)  (2,448)
                                

Share of net income (loss) of associates and joint ventures

  27   (1,670)  (3,248)  (3,818)  13   (3,248)  (3,818)  2,005 
Change in fair value of preferred shares in associates 16, 27 - - 37,900   13, 16   -   37,900   24,000 
                                

Net finance income (expense)

                                

Finance income

  23   1,054   1,637   10,530   7   1,626   10,532   13,633 

Finance expense

  23   (238)  (1,695)  (1,505)  7   (1,694)  (655)  (516)

Net foreign exchange gain (loss)

  23   (1,881)  (354)  (269)  7   (365)  (25)  833 

Net finance income (expense)

      (1,065)  (412)  8,756       (433)  9,851   13,950 
                                

Net income before income taxes

      7,504   41,641   63,500 

Profit before income taxes

      40,700   43,396   37,507 

Income tax expense

  25   (1,440)  (6,481)  (5,602)  8   (6,481)  (2,658)  (75)

Profit from continuing operations

      34,219   40,739   37,432 
                

Profit from discontinued operations

  9   941   17,161   141,742 
                

Net income

      6,064   35,160   57,899       35,160   57,899   179,174 
                                

Net income attributable to:

                                

Equity holders of the parent

      6,064   35,160   57,899       35,160   57,899   179,174 

Non-controlling interests

      -   -   -       -   -   - 

Total net income attributed

      6,064   35,160   57,899       35,160   57,899   179,174 
                

Profit per ordinary share from continuing operations

                

Basic, US$

  10   0.17   0.18   0.16 

Diluted, US$

  10   0.16   0.18   0.16 
                

Profit per ADS from continuing operations

                

Basic, US$

  10   0.34   0.36   0.32 

Diluted, US$

  10   0.33   0.36   0.32 
                                

Net income per ordinary share

                                

Basic, US$

  29   0.03   0.17   0.26   10   0.17   0.26   0.76 

Diluted, US$

  29   0.03   0.17   0.25   10   0.17   0.25   0.75 
                                

Net income per ADS

                                

Basic, US$

  29   0.06   0.35   0.52   10   0.35   0.52   1.53 

Diluted, US$

  29   0.06   0.34   0.51   10   0.34   0.51   1.51 

 

(1) Certain expenses Amounts in the comparative periods have been reclassifiedre-presented to account for the impact of discontinued operations and the reclassification of items classified as Cost"cost of revenue.revenue" in the consolidated financial statements for the years ended December 31, 2018 and 2019. See Note 7Notes 2 and 9 for more details.additional information. 

 

The accompanying notes are an integral part of this financial statement.

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

     

Year Ended December 31,

      

Year Ended December 31,

 

[US$ thousands]

 

Notes

  

2017

  

2018

  

2019

  

Notes

  

2018

  

2019

  

2020

 
                

Net income

      6,064   35,160   57,899       35,160   57,899   179,174 
                                

Other comprehensive income that may be reclassified to the Statement of Operations in subsequent periods (net of tax)

                                

Exchange differences on translation of foreign operations

      2,235   (1,245)  (1,790)      (1,245)  (1,790)  42 

Reclassification of exchange differences on loss of control

      -   (138)  7   9   (138)  7   2,936 

Share of other comprehensive income (loss) of associates and joint ventures

  27   -   94   (41)  13   94   (41)  (935)

Net other comprehensive income (loss) that may be reclassified to the Statement of Operations in subsequent periods

      2,235   (1,289)  (1,824)      (1,289)  (1,824)  2,043 

Total comprehensive income

      8,299   33,871   56,075       33,871   56,075   181,217 
                                

Total comprehensive income attributable to:

                                

Equity holders of the parent

      8,299   33,871   56,075       33,871   56,075   181,217 

Non-controlling interests

      -   -   -       -   -   - 

Total comprehensive income attributed

      8,299   33,871   56,075       33,871   56,075   181,217 

 

The accompanying notes are an integral part of this financial statement.

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

     

As of December 31,

      

As of December 31,

 

[US$ thousands]

 

Notes

  

2018

  

2019

  

Notes

  

2019

  

2020

 

ASSETS

                        

Non-current assets

                        

Furniture, fixtures and equipment

  9   12,162   26,053   11   26,053   18,167 

Intangible assets

  10   115,444   110,807   12   110,807   111,954 

Goodwill

  10   421,578   421,578   12   421,578   424,961 

Investments in associates and joint ventures

  16, 27   35,060   76,300   13, 16   76,300   364,946 

Non-current financial assets

  16   2,025   1,351   16   1,351   1,490 

Deferred tax assets

  25   944   6,204   8   6,204   4,383 

Total non-current assets

      587,213   642,293       642,293   925,901 
                        

Current assets

                        

Trade receivables

  21   37,468   49,371   14   49,371   28,809 

Loans to customers

  5, 16   3,092   93,115       93,115   68 

Other receivables

  21   4,031   59,112   14   59,112   10,750 

Prepayments

  21   14,372   25,809   14   25,809   9,061 

Inventories

  11   -   7,752       7,752   - 

Other current financial assets

  16   89   1,535   16   1,535   856 

Marketable securities

  16   1,165   42,146   16, 23, 24   42,146   - 

Cash and cash equivalents

  20   177,873   139,487   15   139,487   134,168 

Total cash, cash equivalents, and marketable securities

      179,038   181,633       181,633   134,168 

Total current assets

      238,090   418,327       418,327   183,711 

TOTAL ASSETS

      825,303   1,060,620       1,060,620   1,109,612 
                        

EQUITY AND LIABILITIES

                        

Equity

                        

Share capital

  29   22   24   10   24   24 

Other paid in capital

      738,690   814,177       814,177   765,129 

Retained earnings

      36,432   99,513       99,513   283,334 

Foreign currency translation reserve

      316   (1,508)      (1,508)  408 

Equity attributed to equity holders of the parent

      775,460   912,206       912,206   1,048,895 

Non-controlling interests

      -   -       -   - 

Total equity

      775,460   912,206       912,206   1,048,895 
                        

Non-current liabilities

                        

Non-current lease liabilities and other loans

  12, 13   2,271   9,181   17   9,181   3,584 

Deferred tax liabilities

  25   13,358   10,526   8   10,526   11,745 

Other non-current liabilities

  16   212   137       137   68 

Total non-current liabilities

      15,841   19,844       19,844   15,397 
                        

Current liabilities

                        

Trade and other payables

  22   17,957   57,125   18   57,125   25,454 

Current lease liabilities and other loans

  12, 13   2,490   47,793   17   47,793   5,389 

Income tax payable

  25   1,920   7,803   8   7,803   1,094 

Deferred revenue

      1,932   708       708   345 

Other current liabilities

  15, 16   9,701   15,142   19   15,142   13,040 

Total current liabilities

      34,002   128,570       128,570   45,320 

Total liabilities

      49,843   148,414       148,414   60,717 

TOTAL EQUITY AND LIABILITIES

      825,303   1,060,620       1,060,620   1,109,612 

 

The accompanying notes are an integral part of this financial statement.

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

for the year ended December 31, 2017

                     

[US$ thousand]

 

Share capital

(1)

  

Other paid in

capital (1)

  

Retained

earnings

  

Foreign currency translation reserve

  

Total equity

 
                    

As of January 1, 2017

  19   576,512   (7,704)  (630)  568,197 

for the year ended December 31, 2018

                    

[US$ thousands]

 

Share capital (1)

  

Other paid in

capital

  

Retained

earnings

  

Foreign currency

translation reserve

  

Total equity

 

As of December 31, 2017

  19   576,512   5,366   1,605   583,503 

Impact of implementing IFRS 9 and IFRS 15

  -   -   (629)  -   (629)

As of January 1, 2018, restated

  19   576,512   4,737   1,605   582,874 

Net income

  -   -   6,064   -   6,064   -   -   35,160   -   35,160 

Other comprehensive income (loss)

  -   -   -   2,235   2,235   -   -   -   (1,289)  (1,289)

Total comprehensive income

  -   -   6,064   2,235   8,299   -   -   35,160   (1,289)  33,871 

Share-based payments (Note 6)

  -   -   7,006   -   7,006 

As of December 31, 2017

  19   576,512   5,366   1,605   583,503 

Business combination with entity under common control

  -   -   (9,904)  -   (9,904)

Acquisition of treasury shares

  -   (4,875)  -   -   (4,875)

Contribution of equity, net of transaction costs

  3   167,053   -   -   167,056 

Share-based remuneration expense (Note 5)

  -   -   6,439   -   6,439 

As of December 31, 2018

  22   738,690   36,432   316   775,460 

 

for the year ended December 31, 2018

                    

[US$ thousands]

 

Share capital

(1)

  

Other paid in

capital (1)

  

Retained

earnings

  

Foreign currency translation reserve

  

Total equity

 
                     

As of December 31, 2017, as previously reported

  19   576,512   5,366   1,605   583,503 

Impact of implementing IFRS 9 and IFRS 15

  -   -   (629)  -   (629)

As of January 1, 2018, restated

  19   576,512   4,737   1,605   582,874 

Net income

  -   -   35,160   -   35,160 

Other comprehensive income (loss)

  -   -   -   (1,289)  (1,289)

Total comprehensive income

  -   -   35,160   (1,289)  33,871 

Business combination with entity under common control (Note 26)

  -   -   (9,904)  -   (9,904)

Acquisition of treasury shares (Note 19)

  -   (4,875)  -   -   (4,875)

Contribution of equity, net of transaction costs

  3   167,053   -   -   167,056 

Share-based remuneration expense (Note 6)

  -   -   6,439   -   6,439 

As of December 31, 2018

  22   738,690   36,432   316   775,460 

for the year ended December 31, 2019

                    

[US$ thousands]

 

Share capital (1)

  

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 

Impact of implementing IFRS 16

  -   -   64   -   64 

As of January 1, 2019, restated

  22   738,690   36,496   316   775,524 

Net income

  -   -   57,899   -   57,899 

Other comprehensive income (loss)

  -   -   -   (1,824)  (1,824)

Total comprehensive income

  -   -   57,899   (1,824)  56,075 

Contribution of equity, net of transaction costs

  2   81,267   -   -   81,269 

Acquisition of treasury shares

  -   (5,780)  -   -   (5,780)

Share-based remuneration expense (Note 5)

  -   -   5,118   -   5,118 

As of December 31, 2019

  24   814,177   99,513   (1,508)  912,206 

 

for the year ended December 31, 2019

                    

[US$ thousands]

 

Share capital

(1)

  

Other paid in

capital (1)

  

Retained

earnings

  

Foreign currency translation reserve

  

Total equity

 
                     

As of December 31, 2018

  22   738,690   36,432   316   775,460 

Impact of implementing IFRS 16

  -   -   64   -   64 

As of January 1, 2019, restated

  22   738,690   36,496   316   775,524 

Net income

  -   -   57,899   -   57,899 

Other comprehensive income (loss)

  -   -   -   (1,824)  (1,824)

Total comprehensive income

  -   -   57,899   (1,824)  56,075 

Contribution of equity, net of transaction costs (Note 19)

  2   81,267   -   -   81,269 

Acquisition of treasury shares (Note 19)

  -   (5,780)  -   -   (5,780)

Share-based remuneration expense (Note 6)

  -   -   5,118   -   5,118 

As of December 31, 2019

  24   814,177   99,513   (1,508)  912,206 

for the year ended December 31, 2020

                    

[US$ thousands]

 

Share capital (1)

  

Other paid in

capital

  

Retained

earnings

  

Foreign currency

translation reserve

  

Total equity

 

As of December 31, 2019

  24   814,177   99,513   (1,508)  912,206 

Net income

  -   -   179,174   -   179,174 

Other comprehensive income (loss)

  -   -   -   2,043   2,043 

Total comprehensive income

  -   -   179,174   2,043   181,217 

Reclassification of foreign currency translation reserve

  -   -   126   (126)  - 

Acquisition of treasury shares (Note 24)

  -   (49,049)  -   -   (49,049)

Share-based remuneration expense (Note 5)

  -   -   4,521   -   4,521 

As of December 31, 2020

  24   765,129   283,334   408   1,048,895 

 

(1) Opera Limited, the Group's parent, was established in 2018. The amount of share capital in the prior period reflects the share capital of the parent at the time of incorporation, as if the share capital was contributed in 2016. In 2019, the amounts of share capital and other paid in capital have been amended by reclassifying amounts between the two equity components.incorporation.

 

The accompanying notes are an integral part of this financial statement.

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

 

     

Year ended December 31,

      

Year ended December 31,

 

[US$ thousands]

 

Notes

  

2017

  

2018

  

2019

  

Notes

  

2018

  

2019

  

2020

 

Cash flow from operating activities

                

Net income before income taxes

      7,504   41,640   63,500 

Cash flows from operating activities

                

Profit before income taxes from continuing operations

      40,700   43,396   37,507 

Profit before income taxes from discontinued operations

      941   20,105   139,792 

Income taxes paid

      (3,202)  (4,381)  (9,870)  8   (4,381)  (9,870)  (9,887)

Gain on disposal of equipment and intangible assets

  4   (5,460)  -   - 

Depreciation and amortization

  9, 10   16,604   12,694   18,934   11, 12   12,694   18,934   20,390 

Share of net loss (income) of associates and joint ventures

  27   1,670   3,248   3,818   13   3,248   3,818   (2,005)
Change in fair value of preferred shares in associates 16, 27  -  -  (37,900)  13, 16   -   (37,900)  (24,000)

Share-based payment expense

  6   7,006   6,439   5,118   5   6,439   5,118   4,521 

Gain on disposal of emerging market fintech operations

  9   -   -   (151,368)

Impact of divestment of joint venture

  13   -   -   1,834 

Net finance income (expense)

  23   1,065   412   (8,756)  7   433   (8,756)  (11,980)

Change in inventories

  11   -   -   (7,752)      -   (7,752)  7,752 

Change in trade and other receivables

  21   (235)  (6,543)  (14,206)  14   (6,543)  (14,206)  22,101 

Change in loans to customers

  5   -   (3,092)  (90,023)      (3,092)  (90,023)  75,064 

Change in trade and other payables

  22   (8,509)  (5,635)  39,168   18   (5,635)  39,168   (25,135)

Change in deferred revenue

      (2,106)  460   (1,224)      460   (1,224)  (346)

Change in prepayments

  21   (136)  (12,205)  (11,437)  14   (12,205)  (11,437)  12,032 

Change in other liabilities

      (1,402)  1,507   5,441       1,507   5,441   (1,482)

Other

      (1,146)  (715)  726       (738)  724   (1,466)

Net cash flow from (used in) operating activities

      11,653   33,828   (44,464)      33,828   (44,464)  93,324 
                                

Cash flow from investment activities

                

Cash flows from investment activities

                

Purchase of intangibles assets

  12   -   -   (2,286)

Proceeds from sales of equipment and intangible assets

  4   5,716   -   6       -   6   - 

Purchase of equipment

  9   (3,523)  (2,616)  (8,868)  11   (2,616)  (8,868)  (2,484)

Settlement of earnout obligation

      -   (600)  -       (600)  -   - 

Receipt of contingent consideration

      -   2,945   -       2,945   -   - 

Acquisition of subsidiary, net of cash acquired

      -   (7,901)  -   25   (7,901)  -   (4,882)

Cash transferred upon loss of control over emerging market fintech operations

  9   -   -   (39,260)

Release of escrow account

      5,402   2,508   -       2,508   -   1,000 

Deposit of collateral for subsidiaries' loan facility

      -   (52,878)  (1,000)

Disbursement of short-term loans

      (500)  (2,400)  -       (2,400)  -   (6,332)

Repayment of short-term loans

      -   -   6,332 

Investment in, and loans to associates and joint ventures

  27   (6,896)  (32,867)  (6,550)  13   (32,867)  (6,550)  (440)
Repayment of loans to associates and joint ventures    -  -  726       -   726   - 

Deposit of collateral for subsidiaries' loan facility

  19   -   -   (52,878)

Net purchase of listed equity instruments

  16, 19   -   (2,188)  (35,250)

Net sale (purchase) of listed equity instruments

  16, 24   (2,188)  (35,250)  58,535 

Interest income received

      -   -   326 

Development expenditure

  10   (3,503)  (4,132)  (4,173)  12   (4,132)  (4,173)  (6,553)

Net cash flow from (used in) investing activities

      (3,305)  (47,250)  (106,987)      (47,250)  (106,987)  2,956 
                                

Cash flow from financing activities

                

Cash flows from financing activities

                

Proceeds from issues of equity instruments

  19   -   170,871   82,630       170,871   82,630   - 

Transaction costs on issue of equity instruments

  19   -   (2,992)  (1,364)      (2,992)  (1,364)  - 

Acquisition of treasury shares

  19   -   (4,875)  (5,780)  24   (4,875)  (5,780)  (49,049)

Proceeds from loans and borrowings

  13, 19   -   -   43,163       -   43,163   6,905 

Payment of interests on loans and borrowings

  23, 24  ��-   -   (1,184)

Interests on loans and borrowings

      -   (1,184)  (1,752)

Repayment of loans and borrowings

  13   (4,372)  (1,765)  (1,509)      (1,765)  (1,509)  (52,874)

Payment of lease liabilities

  12   (5,659)  (2,293)  (2,755)  17   (2,293)  (2,755)  (4,202)

Net cash flow from (used in) financing activities

      (10,031)  158,946   113,200       158,946   113,200   (100,972)
                                

Net change in cash and cash equivalents

      (1,683)  145,524   (38,248)      145,524   (38,248)  (4,692)
                                

Cash and cash equivalents at beginning of period

  20   34,181   33,207   177,873   15   33,207   177,873   139,487 

Net foreign exchange difference

      709   (857)  (137)      (857)  (137)  (627)

Cash and cash equivalents at end of period

  20   33,207   177,873   139,487   15   177,873   139,487   134,168 

 

The accompanying notes are an integral part of this financial statement.

 

 

INDEX TO NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Page

Note 1. Corporate information

F-9

Note 2. Significant accounting policies

F-10

Note 3. Changes in accounting policies and disclosures

F-24

Note 4. Segment and revenue information

F-25

Note 5. Personnel expenses including share-based remuneration

F-28

Note 6. Other expenses

F-30

Note 7. Finance income and expense

F-31

Note 8. Income tax

F-32

Note 9. Discontinued operations

F-34

Note 10. Net income per share

F-36

Note 11. Furniture, fixtures and equipment

F-37

Note 12. Intangible assets

F-38

Note 13. Investments in associates and joint ventures

F-40

Note 14. Trade receivables, other receivables and prepayments

F-44

Note 15. Cash and cash equivalents

F-45

Note 16. Financial assets and liabilities

F-46

Note 17. Lease liabilities and other loans

F-49

Note 18. Trade and other payables

F-51

Note 19. Other current liabilities

F-52

Note 20. Scheduled maturities of financial liabilities

F-53

Note 21. Changes in liabilities arising from financing activities

F-54

Note 22. Guarantees and other commitments

F-55

Note 23. Financial risk management

F-56

Note 24. Capital management

F-57

Note 25. Group information

F-58

Note 26. Related parties

F-59

Note 27. Events after the reporting period

F-62

 

Page

F-8

NOTE 1.

CORPORATE INFORMATION

Note 1. Corporate information

Opera Limited (the “Company” and “Parent”), with its office at Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands, is an exempted company under the laws of the Cayman Islands. The address of the principal executive office is Vitaminveien 4, 0485 Oslo, Norway. The Company is listed on Nasdaq under the ticker symbol OPRA.

Opera Limited and its subsidiaries (the “Group”) is a leading global internet brand with an engaged and growing user base. Building on over 20 years of innovation, starting with its browser products, the Group is increasingly leveraging its brand and user base in order to expand its offerings and its business. Today, the Group offers a range of products and services that include PC and mobile browsers as well as AI-powered news reader Opera News and fintech solutions. Information on the Group’s segments and structure is provided in Notes 4 and 25. Information on related parties of the Group is provided in Note 26.

The consolidated financial statements of the Group for the year ended December 31, 2020, were authorized for issue in accordance with a resolution of the directors on June 10, 2021.

F-9

NOTE 2.

SIGNIFICANT ACCOUNTING POLICIES

Note 2. Significant accounting policies

F-10

Note 3. Changes in accounting policies and disclosures

F-24

Note 4. Segment and revenue information

F-26

Note 5. Loans to customers

F-29

Note 6. Personnel expenses including share-based remuneration

F-31

Note 7. Cost of revenueF-33

Note 8. Other expenses

F-34

Note 9. Furniture, fixtures and equipment

F-35

Note 10. Intangible assets

F-36

Note 11. InventoriesF-38

Note 12. Leases

F-39

Note 13. Lease liabilities and other loans

F-40

Note 14. Guarantees and other commitments

F-41

Note 15. Other current liabilities

F-42

Note 16. Financial assets and liabilities

F-43

Note 17. Scheduled maturities of financial liabilities

F-47

Note 18. Financial risk management

F-48

Note 19. Capital management

F-50

Note 20. Cash and cash equivalents

F-51

Note 21. Trade receivables, prepayments and other receivables

F-52

Note 22. Trade and other payables

F-53

Note 23. Finance income and expense

F-54

Note 24. Changes in liabilities arising from financing activities

F-55

Note 25. Income tax

F-56

Note 26. Group information

F-58

Note 27. Investments in associates and joint ventures

F-60

Note 28. Related party disclosures

F-63

Note 29. Net income per share

F-66

Note 30. Events after the reporting period

F-67

NOTE 1.

CORPORATE INFORMATION

Opera Limited (the “Company” and “Parent”), with its office at Maples Corporate Services Limited, PO 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 Vitaminveien 4, 0485 Oslo, Norway. The Company is listed on Nasdaq under the ticker symbol OPRA.

Opera Limited and its subsidiaries (the “Group”) has become a leading global internet brand with an engaged and growing base. Building on over 20 years of innovation, starting with its browser products, the Group is increasingly leveraging its brand as well as its user base in order to expand its offerings and its business. Today, the Group offers users across Europe, Africa and Asia a range of products and services that include PC and mobile browsers as well as AI-powered news reader Opera News and app-based microfinance solutions. Information on the Group’s structure is provided in Notes 4 and 26. Information on other related party relationships of the Group is provided in Note 28.

The consolidated financial statements of the Group for the year ended December 31, 2019 were authorized for issue in accordance with a resolution of the directors on April 30, 2020.

NOTE 2.

SIGNIFICANT ACCOUNTING POLICIES

 

2.1 Basis of preparation

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

The consolidated financial statements have been prepared on a historical cost basis, except for preferred shares in associates and listed equity instruments that have been measured at fair value. The consolidated financial statements are presented in U.S. Dollars (US$) and all values are rounded to the nearest thousand (US$000), except when otherwise indicated. Rounding differences may occur.

The consolidated financial statements provide comparative information in respect of the previous two periods, except for the Statement of Financial Position and related disclosures, which provide comparative information as of December 31, 2019. Certain amounts in the comparable years have been restated to conform to current year presentation. In 2020, the Group reclassified items of Technology and Platform Fees, Content Cost and Cost of Inventory Sold. These items were presented as cost of revenue in the consolidated financial statements for the year ended December 31, 2019. These reclassifications did not have any impact on the classification of assets and liabilities of the Group.

2.2 Basis of consolidation

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”).

The consolidated financial statements have been prepared on a historical cost basis, except for debt instruments, including loans to customers and preferred shares, and listed equity instruments that have been measured at fair value. The consolidated financial statements are presented in U.S. Dollars (US$) and all values are rounded to the nearest thousand (US$000), except when otherwise indicated. The subtotals and totals in some of the tables in the notes may not equal the sum of the amounts shown in the primary financial statements due to rounding.

The consolidated financial statements provide comparative information in respect of the previous two periods, except for the Statement of Financial Position and related disclosures, which provide comparative information as of December 31, 2018. Certain amounts in the comparable years have been restated to conform to current year presentation. In 2019, the Group reclassified items in the Statement of Financial Position, specifically Loans to customers, Inventories and Marketable securities. These items were not presented separately in the consolidated financial statements for the year ended December 31, 2018. The Group has not presented a third Statement of Financial Position as of January 1, 2018 due to the reclassifications not having material effects on the information in the statement at that date.

Expenses in the Statement of Operations are classified by nature, except for Cost of revenue, which includes expenses directly attributable to revenue. The combination of presentation by nature and function is made based on historical and industry factors, and the nature of the Group. See section for Cost of revenue below and Note 7 for more information on the nature of expenses included in Cost of revenue.

2.2 Basis of consolidation

 

The consolidated financial statements comprise the financial statements of Opera Limited and its subsidiaries. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Generally, there is a presumption that a majority of voting rights results in control. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with an investee and has the ability to affect those returns through its power over the investee. Generally, there is a presumption that a majority of voting rights results in control. Specifically, the Group controls an investee if, and only if, the Group has:

 

 

power over the investee (i.e., existing and potential rights that give it the current ability to direct the relevant activities of the investee);

 

exposure, or rights, to variable returns from its involvement with the investee; and

 

the ability to use its power over the investee to affect its return.

If the Group loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognized in profit or loss. Any investment retained is recognized at fair value.

2.3 Summary of significant accounting policies

Foreign currencies

The consolidated financial statements are presented in U.S. Dollars, which is also the functional currency of the parent company.

For each entity, the Group determines the functional currency, which is the currency of the primary economic environment in which the entity operates. Items included in the financial statements of each entity are measured using that functional currency.

Foreign currency transactions are recognized by the Group’s entities at their respective functional currency spot rate at the date the transaction first qualifies for initial recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates at the reporting date. Gains or losses arising from settlement or translation of monetary items are recognized in the Statement of Operations as Net foreign exchange gain (loss). Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.

The assets and liabilities of entities within the Group with a functional currency which differs from the Group’s presentation currency, are translated using the currency exchange rates of the reporting date. Income and expense items are translated at average currency exchange rates for the respective period. The overall net foreign currency impact from translating assets, liabilities, income and expenses to U.S. Dollars is recognized in the Statement of Comprehensive Income as Exchange differences on translation of foreign operations.

Investments in joint ventures and associates

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

Associates are those entities in which the Group has significant influence, meaning power to participate in the financial and operating policy decisions of the investee but not control or joint control of those policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity.

Investments in associates and joint ventures are accounted for using the equity method (equity-accounted investees) and are recognized initially at cost.

The consolidated financial statements include the Group’s share of the net income or loss and other comprehensive income, after adjustments, to align the accounting policies of the associates and joint ventures with those of the Group from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. Any change in other comprehensive income of those investees is presented as part of the Group’s other comprehensive income. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. However, in the acquisition of a business from an equity-accounted investee, Opera does not eliminateaffect its share of gains or losses.return.

When the Group’s share of losses exceeds its interest in an equity-accounted investee, the carrying amount of that interest, including any long-term interests that in substance form part of its net investment, is reduced to zero, and the recognition of further losses is discontinued. Additional losses are provided for, and a liability is recognized, only to the extent that the Group has incurred legal or constructive obligations or has made payments on behalf of the investee.

The Group has invested in preferred shares in OPay and StarMaker, both entities classified as associates of the Group. These preferred shares represent a long-term interest that in substance form part of the net investment in the associates. Due to their characteristics the preferred shares are not equity instruments and do not give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. Thus, the preferred shares are measured at fair value through profit or loss. The carrying amount of the preferred shares is presented as Investments in associates and joint ventures in the Statement of Financial Position, while changes in fair value is presented as Change in fair value of preferred shares in associates in the Statement of Operations. Losses recognized using the equity method in excess of the Group's investment in ordinary shares are applied to the other components of the entity's interest in the associates, including preferred shares, in the reverse order of their seniority (i.e., priority in liquidation).

If the Group loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognized in profit or loss. Any investment retained is recognized at fair value, including any retained interest in a former subsidiary comprising a business that is sold or contributed to an equity-accounted investee.

2.3 Summary of significant accounting policies

Foreign currencies

The consolidated financial statements are presented in U.S. Dollars, which is also the functional currency of the parent company.

For each entity, the Group determines the functional currency, which is the currency of the primary economic environment in which the entity operates. Items included in the financial statements of each entity are measured using that functional currency.

Foreign currency transactions are recognized by the Group’s entities at their respective functional currency spot rate at the date the transaction first qualifies for initial recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates at the reporting date. Gains or losses arising from settlement or translation of monetary items are recognized in the Statement of Operations as Net foreign exchange gain (loss). Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.

F-10

 

The assets and liabilities of entities within the Group with a functional currency which differs from the Group’s presentation currency, are translated using the currency exchange rates of the reporting date. Income and expense items are translated at average currency exchange rates for the respective period. The overall net foreign currency impact from translating assets, liabilities, income and expenses to U.S. Dollars is recognized in the Statement of Comprehensive Income as Exchange differences on translation of foreign operations.

Investments in joint ventures and associates

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

Associates are those entities in which the Group has significant influence, meaning power to participate in the financial and operating policy decisions of the investee, but not control or joint control of those policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity.

Investments in associates and joint ventures are accounted for using the equity method (equity-accounted investees) and are recognized initially at cost. On acquisition of an equity-accounted investee, the Group identifies and values assets and liabilities of the associate or joint venture, as if it had acquired a business. While these fair value adjustments are not recognized separately, the fair values identified form the basis for additional depreciation, amortization and similar adjustments that are reflected in the Group’s share of the results in subsequent years. Any excess between the cost of the investment and the Group's share of the net fair value of the investee's identifiable assets and liabilities, i.e., goodwill, is included in the carrying amount of the investment.

Upon loss of control of a subsidiary that constitutes a business with a retained interest that is an investment in an associate or joint venture, the retained interest is remeasured at its fair value and this fair value becomes the cost on initial recognition of the investment in the associate or joint venture.

The consolidated financial statements include the Group’s share of the net income or loss and other comprehensive income, after adjustments to align the accounting policies of the associates and joint ventures with those of the Group, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. Any change in other comprehensive income of those investees is presented as part of the Group’s other comprehensive income. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. However, in the acquisition of a business from an equity-accounted investee, Opera does not eliminate its share of gains or losses.

When the Group’s share of losses exceeds its interest in an equity-accounted investee, the carrying amount of that interest, including any long-term interests that in substance form part of its net investment, is reduced to zero, and the recognition of further losses is discontinued. However, additional losses are provided for, and a liability is recognized, to the extent that the Group has incurred legal or constructive obligations or has made payments on behalf of the investee.

After application of the equity method, the Group determines whether it is necessary to recognize an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value.

The Group has invested in preferred shares in OPay and StarMaker, both entities classified as associates of the Group. These preferred shares represent a long-term interest that in substance form part of the net investment in the associates. Due to their characteristics the preferred shares are not equity instruments and do not give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. Thus, the preferred shares are measured at fair value through profit or loss. The carrying amount of the preferred shares is presented as Investments in associates and joint ventures in the Statement of Financial Position, while changes in fair value is presented as Change in fair value of preferred shares in associates in the Statement of Operations. Losses recognized using the equity method in excess of the Group's investment in ordinary shares are applied to the other components of the entity's interest in the associates, including preferred shares, in the reverse order of their seniority (i.e., priority in liquidation).

Business combinations and goodwill

Business combinations, except those occurring under common control, are accounted for using the acquisition method. Acquired businesses are included in the consolidated financial statements from the date the Group obtains control. The cost of an acquisition is measured as the consideration transferred, which is measured at acquisition date fair value. Acquisition-related costs are expensed as incurred.

F-11

The Group initially measures goodwill at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests and any previous interest held, over the net identifiable assets acquired and liabilities assumed.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is from the acquisition date allocated to the Group’s cash generating units (CGUs) that are expected to benefit from the transaction.

Furniture, fixtures and equipment

Business combinations, except those occurring under common control, are accounted for using the acquisition method. Acquired businesses are included in the consolidated financial statements from the date the Group obtains control. The cost of an acquisition is measured as the consideration transferred, which is measured at acquisition date fair value. Acquisition-related costs are expensed as incurred.

The Group initially measures goodwill at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests and any previous interest held, over the net identifiable assets acquired and liabilities assumed.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is from the acquisition date allocated to the Group’s cash generating units (CGUs) that are expected to benefit from the transaction. Due to growth and expansion into new businesses in 2019, including microlending, management organized the Group into four operating segments effective from 2019: Browser and News, Fintech, Retail and Other. The goodwill and the trademark that previously was allocated to the Consumer business CGU was reallocated to the Browser and News CGU.

Business combinations under common control are accounted for using predecessor accounting. Under this method, assets and liabilities of the acquired entity are stated at predecessor carrying values; they are not measured at acquisition date fair values. No new goodwill is recognized. Any difference between the consideration given and the aggregate carrying value of the assets and liabilities of the acquired entity at the date of the transaction is included in equity in retained earnings. The acquired entity’s results from operations, assets and liabilities are incorporated prospectively from the date on which the business combination between entities under common control occurred.

Furniture, fixtures and equipment

 

Furniture, fixtures and equipment, including leasehold improvements, are recognized at cost, less accumulated depreciation and impairment losses.

 

Depreciation and amortization of furniture, fixtures and equipment is recognized on a straight-line basis over the asset’s estimated useful life as follows:

 

 

Leasehold improvements: Up to 6 years.

 

Equipment: Up to 10 years.

 

Furniture and fixtures: Up to 5 years.

Residual values, useful lives and depreciation method are reviewed at each financial year-end and adjusted prospectively, if appropriate.fixtures: Up to 5 years.

At the end of each reporting period, furniture, fixtures and equipment are assessed for any indications of impairment. If there are indications implying that an asset may be impaired, the recoverable amount is estimated. See below for accounting policies for impairment of non-financial assets.

Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination, which for the group includes customer relationships and trademark, is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. Internally generated intangibles, excluding capitalized development costs, are not capitalized and the related expenditure is reflected

Residual values, useful lives and the depreciation method are reviewed at each financial year-end and adjusted prospectively, if appropriate.

At the end of each reporting period, furniture, fixtures and equipment are assessed for any indications of impairment. If there are indications implying that an asset may be impaired, the recoverable amount is estimated. See below for accounting policies for impairment of non-financial assets.

Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination, which for the group includes customer relationships and trademark, is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and the related expenditure is recognized as an expense in the Statement of Operations in the period in which the expenditure is incurred.

 

The useful lives of intangible assets are assessed as either finite or indefinite.

 

Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period.

 

For goodwill and other intangible assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at a minimum at each reporting date.

F-12

 

Research costs are expensed as incurred. Development expenditures on an individual project are recognized as an intangible asset when the Group can demonstrate all of the following:

 

 

the technical feasibility of completing the intangible asset so that it will be available for use or sale;

 

its intention to complete the intangible asset and use or sell it;

 

its ability to use or sell the intangible asset;

 

how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset;

 

the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and other resources to complete the development and to use or sell the intangible asset;

its ability to measure reliably the expenditure attributable to the intangible asset during its development.

The cost of developing new features, together with significant and pervasive improvements of core platform functionality, are capitalized as development costsits ability to measure reliably the expenditure attributable to the intangible asset during its development.

The cost of developing new features, together with significant and pervasive improvements of core platform functionality, that meet the criteria above for development activities are capitalized as separate assets or as additions to existing assets and amortized on a straight-line basis, generally over a period of up to 3 years. Intangible assets classified as technology acquired in the acquisition of Opera Norway AS (formerly Opera Software AS) in 2016 are amortized over 5 years.

Expenditures related to product maintenance, such as “bug fixes”, updates needed to comply with changes in laws and regulations, or updates needed to keep pace with the latest trends, are expensed in the period they are incurred.

Intangible assets related to customer relationships, which result from business combinations, are measured at cost less accumulated amortization and impairment losses and are amortized over the estimated customer relationship period up to 15 years. Customer relationship and trademark assets are evaluated for impairment at least annually and more frequently when circumstances warrant.

Leases

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:

 

Other engineering work related to research activities or ongoing product maintenance, such as “bug fixes”, updates needed to comply with changes

fixed payments (and payments that are fixed in laws and regulations, or updates needed to keep pace with the latest trends, are expensed in the period they are incurred.

Intangible assets related to customer relationships, which result from business combinations, are measured at costsubstance) less accumulated amortization and impairment losses and are amortized over the estimated customer relationship period up to 15 years. Customer relationship and trademark assets are evaluated for impairment at least annually and more frequently when circumstances warrant.

Leases

At the commencement date of theany 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.incentives;

Variable

variable lease payments that depend on an index or a rate; and

Amounts expected to be paid under residual value guarantees.

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.

Variable lease payments that do not depend on an index or a rate are recognized as expense in rate;

amounts expected to be paid under residual value guarantees; and

the period when the event or condition that triggers the payment occurs.

In calculating the present valueexercise price of lease payments,any purchase option reasonably certain to be exercised by the Group, uses the estimated incremental borrowing rate at theand payments of penalties for terminating a 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 inreflects the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments), or a change inGroup’s expectation of exercising the assessment of an option to purchase the underlying asset.terminate.

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 office properties and 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

Variable lease payments that do not depend on an index or a rate are recognized as an 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 lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments), or a change in the assessment of an option 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.

F-13

Lease payments on short-term leases of office properties and equipment, and leases of office equipment of low value are recognized as expenses on a straight-line basis over the lease term.

 

Prior to the implementation of IFRS 16 Leases as of January 1, 2019, details of which are provided in Note 3, the Group applied IAS 17 Leases. In accordance with IAS 17, a lease was classified at the inception date as a finance lease or an operating lease. A lease that transferred substantially all the risks and rewards incidental to ownership to the Group was classified as a finance lease. Additional details about the accounting policies applied prior to 2019 are provided below.

Finance leases, which for the Group primarily were related to network server equipment, were capitalized at the commencement of the lease at the inception date fair value of the leased equipment or, if lower, at the present value of the minimum lease payments. Lease payments were apportioned between finance charges and reduction of the lease liability to achieve a constant rate of interest on the remaining balance of the liability. Finance charges were recognized in finance costs in the Statement of Operations.

A leased asset was depreciated over the useful life of the asset, consistent with the useful lives for furniture, fixtures and equipment disclosed above. However, if there was no reasonable certainty that the Group would obtain ownership by the end of the lease term, the asset was depreciated over the shorter of the estimated useful life of the asset and the lease term.

An operating lease was a lease other than a finance lease. Operating lease payments were recognized as operating expenses in the Statement of Operations on a straight-line basis over the lease term.

Financial assets

The Group has the following financial assets:

Loans and receivables: Trade receivables, other receivables, preferred shares and other current and non-current financial assets.

Equity instruments: Holdings of publicly traded securities.

Initial recognition and measurement

Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income, or fair value through profit or loss. The Group did not have financial assets measured at fair value through other comprehensive income.

The classification of debt instruments at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. Trade receivables that do not contain a significant financing component are initially measured at the transaction price determined in accordance with the accounting policies for revenue recognition (see below). All other financial assets are initially measured at their fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Transaction costs of financial assets measured at fair value through profit or loss are expensed when incurred.

In order for a financial asset to be classified and measured at amortized cost or fair value through other comprehensive income it needs to give rise to cash flows that are solely payments of principal and interest ("SPPI") on the principal amount outstanding. This assessment is performed at an instrument level. The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets are measured at amortized cost if the financial assets satisfy the SPPI criteria and are held within a business model whose objective is to collect the contractual cash flows. If the financial asset is held within a business model that is achieved by both collecting contractual cash flows and selling and which contain contractual terms that are SPPI, the assets are measured at fair value through other comprehensive income. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of business model.

F-14

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades, such as publicly traded securities) are recognized on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

Subsequent measurement at amortized cost

Financial assets at amortized cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.

The Group’s financial assets at amortized cost includes trade receivables, loans to associates and joint ventures and other loans. A receivable represents the Group’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due).

Subsequent measurement at fair value through profit or loss

Financial assets at fair value through profit or loss are carried in the Statement of Financial Position at fair value with changes in fair value recognized in the Statement of Operations. This category includes listed equity instruments held for trading and preferred shares in OPay and StarMaker. Financial instruments are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term.

Derecognition

A financial asset is primarily derecognized when:

the rights to receive cash flows from the asset have expired, or

the Group has transferred its rights to receive cash flows from the asset and either (a) the Group has transferred substantially all the risks and rewards incidental to ownership to the Group was classified as a finance lease. Additional details about the accounting policies applied prior to 2019 are provided below.

Finance leases, which for the Group primarily were related to network server equipment, were capitalized at the commencement of the lease at the inception date fair value of the leased equipment or, if lower, at the present value of the minimum lease payments. Lease payments were apportioned between finance charges and reduction of the lease liability to achieve a constant rate of interest on the remaining balance of the liability. Finance charges were recognized in finance costs in the Statement of Operations.

A leased asset was depreciated over the useful life of the asset, consistent with the useful lives for furniture, fixtures and equipment disclosed above. However, if there was no reasonable certainty thator (b) the Group would obtain ownership byhas neither transferred nor retained substantially all the end of the lease term, the asset was depreciated over the shorter of the estimated useful liferisks and rewards of the asset, and the lease term.

An operating lease was a lease other than a finance lease. Operating lease payments were recognized as an operating expense in the Statement of Operations on a straight-line basis over the lease term.

Financial assets

The Group has the following financial assets:

Loans and receivables: Trade receivables, loans to customers, other receivables, preferred shares and non-current financial assets.

Equity instruments: Holdings of publicly traded securities.

Initial recognition and measurement

Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income, or fair value through profit or loss. The Group did not have financial assets measured at fair value through other comprehensive income.

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. Trade receivables that do not contain a significant financing component are initially measured at the transaction price determined in accordance with the accounting policies for revenue recognition (see below). All other financial assets are initially measured at their fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Transaction costs of financial assets measured at fair value through profit or loss are expensed when incurred.

In order for a financial asset to be classified and measured at amortized cost or fair value through other comprehensive income it needs to give rise to cash flows that are solely payments of principal and interest ("SPPI") on the principal amount outstanding. This assessment is performed at an instrument level. The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets are measured at amortized cost if the financial assets satisfy the SPPI criteria and are held within a business model whose objective is to collect the contractual cash flows. If the financial asset is held within a business model that is achieved by both collecting contractual cash flows and selling and which contain contractual terms that are SPPI, the assets are measured at fair value through other comprehensive income. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of business model.

The microloans are held within a business model whose objective is to hold the assets and collect the contractual cash flows over the life of the instruments. There is no pattern of selling the loans, and the performance of the business is not measured at fair value for internal purposes. However, the Group has established a contractual obligation based on its business practices and external communication to limit the total amount of interest in the form of late fees to the amount of the principal and origination fee. This means that for overdue loans that are repaid after having reached such limit, the contractual cash flows are not payments of principal and interest on the principal amount outstanding. This is due to the interest amounts not being consideration for the time value of money. Consequently, the microloans are measured at fair value through profit or loss. In the Statement of Financial Position, the microloans are presented as Loans to customers. 

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades, such as publicly traded securities) are recognized on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

Subsequent measurement at amortized cost

Financial assets at amortized cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.

The Group’s financial assets at amortized cost includes trade receivables, loans to associates and joint ventures and other loans. A receivable represents the Group’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due).

Subsequent measurement at fair value through profit or loss

Financial assets at fair value through profit or loss are carried in the Statement of Financial Position at fair value with changes in fair value recognized in the Statement of Operations. This category includes loans to customers, listed equity instruments held for trading and preferred shares in OPay and StarMaker. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term.

While microloans are measured at fair value through profit or loss, changes in fair value are disaggregated in the Statement of Operations into interest income (presented as revenue) and other changes in fair value (primarily driven by realized and expected cash shortfalls, i.e. credit losses). See section below on Revenue for information about accounting policies related to measurement of interest income from microloans. The net of interest income and other changes in fair value of loans to customers represents the change in fair value.

Derecognition

A financial asset is primarily derecognized when:

The rights to receive cash flows from the asset have expired; or

The Group has transferred its rights to receive cash flows from the asset and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset

Financial liabilities

Financial liabilities of the Group comprise of loans, borrowings and payables, including interest bearing loans, lease liabilities, trade payables, other payables and other current and non-current financial liabilities.

Initial recognition and measurement

All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

Subsequent measurement

Interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method (EIR). Gains and losses are recognized in the Statement of Operations when the liabilities are derecognized as well as through the EIR amortization process.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the Statement of Operations.

Derecognition

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires

Impairment

Impairment of financial assets

The Group recognizes an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through the Statement of Operations. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. The Group makes specific loss provisions at the level of specific invoices where information exists that management can utilize in its determination of credit risk. For trade receivables where no specific risk information is identified, the Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

The Group normally considers a financial asset in default when contractual payments are 90 days past due. In certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

Prior to the implementation of IFRS 9 as of January 1, 2018, the Group assessed, at each reporting date, whether there was objective evidence that a financial asset or a group of financial assets was impaired. An impairment existed if one or more events that had occurred since the initial recognition of the asset (an incurred "loss event"), had an impact on the estimated future cash flows of the financial asset or the group of financial assets that could be reliably estimated. The amount of impairment losses identified was measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that had not yet been incurred)

Financial liabilities

Financial liabilities of the Group comprise of loans, borrowings and payables, including interest bearing loans, lease liabilities, trade payables, other payables and other current and non-current financial liabilities.

Initial recognition and measurement

All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

Subsequent measurement

Interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method (EIR). Gains and losses are recognized in the Statement of Operations when the liabilities are derecognized as well as through the EIR amortization process.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the Statement of Operations.

Derecognition

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.

F-15

Impairment

Impairment of financial assets

The Group recognizes an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through the Statement of Operations. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. The Group makes specific loss provisions at the level of specific invoices where information exists that management can utilize in its determination of credit risk. For trade receivables where no specific risk information is identified, the Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

The Group normally considers a financial asset in default when contractual payments are 90 days past due. In certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

Impairment of non-financial assets

The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

Goodwill is tested for impairment annually as of December 31, and when circumstances indicate that the carrying value may be impaired.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

The Group bases its impairment calculation on detailed budgets and forecast calculations. These budgets and forecast calculations cover a period of one year. Because the length of the projection period for the cash flow forecast where a CGU has goodwill or intangible assets with indefinite lives is into perpetuity, we identify a “steady state” set of assumptions for the cash flows based on an approach where we estimate cash flows for the following four years and then using the estimated cash flows in the final year of estimation as the basis for the terminal value. A long-term growth rate is calculated and applied to project future cash flows after the projected period. See Note 12 for more information.

For assets, excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such an indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized.

F-16

Fair value measurement

The Group measures certain financial assets and liabilities, as disclosed in Note 16, at fair value at each reporting date.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

 

Impairment of non-financial assets

The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

Goodwill is tested for impairment annually as of December 31, and when circumstances indicate that the carrying value may be impaired.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

The Group bases its impairment calculation on detailed budgets and forecast calculations. These budgets and forecast calculations cover a period of one year. Because the length of the projection period for the cash flow forecast where a CGU has goodwill or intangible assets with indefinite lives is into perpetuity, we identify a “steady state” set of assumptions for the cash flows based on an approach where we estimate cash flows for the following four years and then using the estimated cash flows in the final year of estimation as the basis for the terminal value. A long-term growth rate is calculated and applied to project future cash flows after the projected period. See Note 10 for more information.

For assets, excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized.

Fair value measurement

The Group measures certain financial assets and liabilities, as disclosed in Notes 5 and 16, at fair value at each reporting date.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

In the principal market for the asset or liability; or

In

in the absence of a principal market, in the most advantageous market for the asset or liability.

 

The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

 

All assets and liabilities for which fair value is disclosed in the financial statements are categorized within the fair value hierarchy, based on the lowest level input that is significant to the fair value measurement as a whole:

 

 

Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

 

Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

 

Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For the investments in listed equity instruments, quoted market prices in active markets for identical assets form the basis for fair value measurement.

For assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement is unobservable.

For the investments in listed equity instruments, quoted market prices in active markets for identical assets form the basis for fair value measurement.

For assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Provisions

A provision is recognized in the Statement of Financial Position when the Group has a currently existing legal or constructive obligation as a result of a past event, and it is probable that a future outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Revenue

The Group has the following primary sources of revenue:

 

Provisions

A provision is recognized in the Statement of Financial Position when the Group has a currently existing legal or constructive obligation as a result of a past event, and it is probable that a future outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

A provision for restructuring costs is recognized when the Group has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced.

Inventories

Inventories in the form of handsets and airtime are valued at the lower of cost and net realizable value. The costs of individual items of inventory are determined using weighted average costs. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

Revenue

The Group has the following primary sources of revenue:

i.

Search

 

ii.

Advertising

 

iii.

Origination fees and interest (Fintech)

 iv.

Airtime and handsets (Retail)

 v.

Technology licensing and other revenue

Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services (the transaction price).

F-17

Revenues from each of these categories are recognized as follows:

i.

Search

Search revenue is generated when a user conducts a qualified search using a search partner (such as Google or Yandex) through the built-in combined address and search bar provided in Opera’s PC and mobile browsers, or when otherwise redirected to the search partner via browser functionality. Search revenue is recognized in the period the qualified search occurs based upon the contractually agreed revenue share amount.

ii.

Advertising

Advertising includes revenues from all other user-generated activities excluding search revenues. Advertising revenues include revenues from industry-standard ad units, predefined partner bookmarks (“Speed Dials”) and subscriptions of various promoted services that are provided by the Group. Revenue is recognized when our advertising services are delivered based on the specific terms of the underlying contract, which are commonly based on revenue sharing, clicks, or subscription revenues collected by third parties on behalf of the Group.

The majority of advertising revenue is reported based on the amounts the Group is entitled to receive from advertising partners. In limited instances where the Group has developed or procured a service which it promotes to the users, the Group considers itself the principal party to a transaction and not an agent of another entity. In such cases, the Group will recognize revenue on a gross basis. In the Group’s determination as to whether it is the principal, it considers its (i) responsibility to provide the service to the end-user, (ii) ability to determine pricing, (iii) exposure to risk. The associated costs for these transactions are included in the Statement of Operations within cost of revenue.

iii.

Technology licensing and other revenue

Technology licensing and other revenue include other revenues that are not generated by the Group’s user base, such as revenues from providing professional services, from device manufacturers and mobile communication operators. We generate such revenue from licensing of our proprietary compression technology and providing related maintenance, supporting and hosting services to third parties, as well as providing professional services, and enabling customized browser configurations to mobile operators. We also generate such revenue from providing development and managerial services to certain equity-accounted investees.

Licensing agreements may in addition to licensing of technology, include related professional services, maintenance and support, as well as hosting services. Depending on the customization and integration level, the software licenses are either distinct or not distinct performance obligations from related professional services, and accordingly, the licensing revenue is recognized either separately when control is transferred to the customer or together with the implementation services. Sale of licenses that are part of a multi-element contract where the license is not distinct from maintenance, support or hosting services, are recognized over the contract period.

Maintenance, support and hosting revenues are generally recognized ratably over the term that these services are provided.

Revenue from software developed specifically for one customer is recognized over the development period in line with the degree of completion, provided that the criteria for recognizing revenue over time defined in IFRS 15 are met.

Revenue from distinct professional services is recognized over the development period in line with the degree of completion.

Set-up activities that do not result in the transfer of a promised good or service, are not identified as a performance obligation to the customer. The costs of set-up activities are recognized as an asset, provided the criteria in IFRS 15 are met.

F-18

The allocation of revenue for contracts with multiple elements is based on the Group’s estimate of its standalone selling prices. Such estimates are based on relevant historical information and can include past contracts with fewer elements, or the Group’s typical hourly rates for professional services compared with an estimated number of hours required.

Revenue from operators is included in the “Technology licensing and other revenue” category even if there are variable components that scale with the number of users. This is related to the fact that such operator agreements typically contain licensing fees based on usage, as well as hosting and support services.

Other income

Other income is income which is not related to the Group’s ordinary activities and is presented net of associated costs. Other income includes the gain from loss of control over subsidiaries and the gain on disposal of equity-accounted investees.

Personnel expenses

Personnel expenses, other than share-based payments to employees, include short-term employee benefits, such as wages, salaries and social security contributions, paid annual leave and paid sick leave, performance-based bonuses and non-monetary benefits. It also includes expenses related to defined contribution schemes provided to employees as post-employment benefits. Personnel expenses are recognized at the undiscounted amount due to the employees or the de-facto employees when these have rendered service to the Group or when the liability otherwise arises.

Income taxes

Income tax expense consists of the sum of (i) current year income taxes payable plus (ii) the change in deferred taxes and liabilities, except if income taxes relate to items recognized in other comprehensive income, in which case it is recognized in other comprehensive income.

Current year income taxes payable is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the year-end date, and any adjustment to tax payable in respect of previous years. The Group includes deductions for uncertain tax positions when it is probable that the tax position will be sustained in a tax review. The Group records provisions relating to uncertain or disputed tax positions at the amount expected to be paid.

Deferred tax is provided using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realization or settlement of the underlying items, using tax rates enacted or substantively enacted at the reporting date.

A deferred tax asset is only recognized to the extent that it is probable that future taxable profits will allow the deferred tax asset to be realized. Recognized assets are reversed when realization is no longer probable. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis, or their tax assets and liabilities will be realized simultaneously.

Income taxes include all domestic and foreign taxes, which are based on taxable profits, including withholding taxes.

F-19

Discontinued operations

A discontinued operation is a component of the Group that has been disposed of or is a disposal group classified as held for sale, and

represents a separate major line of business or geographical area of operations;

is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or

is a subsidiary acquired exclusively with a view to resale.

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the Statement of Operations. In 2020, the Group disposed of its microlending business and terminated its retail business, both classified as discontinued operations. Additional disclosures on discontinued operations are provided in Note 9. All other notes to the consolidated financial statements include amounts for continuing operations, unless indicated otherwise.

The Statement of Cash Flows, which is prepared based on the indirect method, reflects the cash flows of discontinued operations up to the date of disposal. Items of working capital, such as receivables and payables, that are disposed of, are eliminated from the balance sheet changes to such items in the reconciliation of profit to operating cash flows. The amount of cash and cash equivalents in subsidiaries disposed of is classified as an investing activity at the time of disposal. 

Government grants

Government grants are recognized when there is reasonable assurance that the grant will be received, and all attached conditions will be complied with. The Group has received government grants that relate to the development of technology, which includes expenditures that are capitalized. Those government grants are deducted in arriving at the carrying amount of the asset. Government grants related to income are recognized as Other income in the Statement of Operations.

Treasury shares

Treasury shares are shares in Opera Limited, the parent, that are reacquired under a repurchase program. Treasury shares are recognized at cost and deducted from equity. No gain or loss is recognized in the Statement of Operations on the purchase, sale, reissue or cancellation of the Group’s own equity instruments.

2.4 Significant accounting estimates, judgments and assumptions

The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that may affect the reported amounts of assets, liabilities, income and expenses, and the accompanying disclosures. The estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which forms the basis for making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed continuously. Changes in accounting estimates are recognized in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following summarizes the most significant judgments and estimates in preparing the consolidated financial statements.

F-20

Fair value of investment in Nanobank

On August 19, 2020, the Group contributed TenSpot Pesa Limited and its subsidiaries to Nanobank, a related party, in exchange for the Group obtaining an ownership interest of 42% in Nanobank. The Group concluded that the investment in Nanobank is an associate to be accounted for in accordance with the equity method. The cost of the investment in Nanobank, i.e., the amount at which it initially was recognized, was the estimated fair value of the investment as of August 19, 2020. The Group estimated the fair value using a combination of methodologies, including income and market-based approaches. Under the income approach, the Group estimated expected future cash flows for each component of Nanobank and then discounted those cash flows using an estimated weighted average cost of capital ("WACC"). The estimates for future cash flows were based on assumptions that included the number of loans to customers, nominal size of loans, amount of interest and fees generated and credit losses. The estimate for WACC was based on estimates for risk-free rate, beta, equity risk premium, cost of debt and a company-specific risk premium. Under the market approach, the Group used judgment in identifying comparable companies. Based on the combination of the income and market approaches, the Group concluded that the estimate for fair value of the investment in Nanobank as of August 19, 2020, was US$265.9 million, which became the deemed cost of the investment. See Notes 13 and 26 for more information.

On acquisition of the investment in Nanobank, the Group used assumptions in identifying and valuing the assets and liabilities of the entity, including goodwill. The Group identified intangible assets that were not separately recognized by Nanobank, including trademarks, technology, customer relationships and licenses. For all identified assets and liabilities, the Group estimated their fair values as of August 19, 2020. In estimating the fair value of the trademarks and technology assets, the Group used a relief-from-royalty method that included estimates for royalty rates and future revenue related to the trademarks. In estimating the fair value of the customer relationships, the Group estimated future revenue from the customer base of Nanobank and the churn rate for customers. The identified licenses were valued using a combination of a cost-based approach that estimated the cost of acquiring the licenses and a market-based approach under which the Group estimated a transaction price for similar licenses. For all identified assets, the Group used judgment in determining their useful lives. 

Significant influence over OPay and basis of accounting for investment

The Group determined that it has significant influence over OPay Limited even though it was diluted in 2019 from holding 19.9% to 13.1% of the voting rights in the company and does not have a direct representation on the board of directors. In determining that it has significant influence, the Group considered the influence its chairman and CEO is capable of exercising on its behalf. The Group’s chairman and CEO is also the chairman and CEO of OPay, though appointed as a representative of a personal investment entity, which also is an investor in OPay. Based on the assessment that the chairman and CEO of the Group is capable of exercising significant influence in OPay on behalf of the Group, it was determined that it has power to participate in the financial and operating policy decisions of OPay and thus the investment was classified as an associate.

The Group holds preferred shares in OPay, acquired in 2019, as disclosed in Notes 13 and 16. While the preferred shares have characteristics similar to equity instruments, the Group determined that the rights and benefits inherent in the preferred shares, including redemption rights and liquidation preference, entail that they in substance are debt instruments. Consequently, the Group classified the preferred shares as financial instruments measured at fair value through profit or loss. The carrying amount of the preferred shares is part of the Group’s net investment in OPay. The Group applied significant judgment in determining the share of net income (loss) to be recognized under the equity method. The Group considered the rights and benefits of all classes of shares issued by OPay and determined that the Group's share was to be calculated based on its number of ordinary shares relative to the total number of shares outstanding, including preferred shares, opposed to only the total number of ordinary shares outstanding.

F-21

Fair value of preferred shares in associates

The Group has invested in preferred shares in OPay and StarMaker, both entities classified as associates of the Group. These preferred shares represent a long-term interest that in substance form part of the net investment in the associates. Due to their characteristics the preferred shares are not equity instruments and do not give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. Thus, the preferred shares are measured at fair value through profit or loss.

The fair values of preferred shares in OPay and StarMaker as of December 31, 2020, were measured using methods and techniques that reflect the economic rights and benefits of the preferred shares. These rights and benefits include redemption rights and liquidation preferences. A combination of the following three valuation methods was used to estimate the fair value of the preferred shares: Probability weighted expected return model (“PWERM”); Option pricing model (“OPM”); and Current value method (“CV”). These models, which also were used to estimate fair values as of December 31, 2019, build on estimates, such as discount for lack of marketability and the fair value of equity in OPay and StarMaker. Moreover, the PWERM model is based on estimates for future scenarios and outcomes, including sale transactions, initial public offering, dissolution, and redemption. More details on the models and input are provided in Note 16.

Collectability of consideration from Powerbets

In order to recognize revenue from a contract with a customer within the scope of IFRS 15, certain criteria must be met, including it being probable that the Group will collect the consideration to which it will be entitled in exchange for the goods or services transferred to the customer. In evaluating whether collectability of an amount of consideration is probable, the Group considers the customer’s ability and intention to pay that amount of consideration, which may involve significant judgment.

Effective from the beginning of 2020, the Group determined that it was not probable that it would collect the consideration to which it was entitled for services provided to Powerbets during the year and as a result, the Group did not recognize any revenue from these services. However, in 2019, the Group determined that at the time the collectability criterion was met and based on this the Group recognized US$2,210 thousand as revenue from contracts with Powerbets (2018: US$4,369 thousand). As of December 31, 2020, the total amount of outstanding trade receivables due from Powerbets was US$6,579 thousand (December 31, 2019: US$6,579 thousand).

In assessing whether the collectability criterion was met for contracts with Powerbets, management considered the likelihood of and timing for when Powerbets will start generating net cash inflows from its operating activities and other factors that are relevant in assessing the timing of revenue recognition and collectability of related accounts receivable.

F-22

The Group disposed of its equity investment in Powerbets in December 2020. See Notes 13, 14 and 26 for more information.

As of December 31, 2020, the Group estimated the lifetime expected credit losses on trade receivables and long-term loans due from Powerbets. In estimating the cash flows the Group expects to receive, it considered a range of possible outcomes, which were assigned weights based on probabilities. Possible outcomes included scenarios in which Powerbets starts generating sufficient cash flows from its operating activities to settle the receivables and capital contributions from new investors in the company. The Group determined that the probability-weighted best estimate for amount to be collected was nil and consequently that the trade receivables and the long-term loans were fully impaired. Consequently, the Group recognized an impairment loss of US$10,476 thousand, of which US$6,579 thousand was related to trade receivables and US$3,897 thousand was related to long-term loans. Due to the distinct nature of the expense, the impairment loss was recognized on a separate line item in the Statement of Operations as "Credit loss expense related to divested joint venture".

Impairment of non-financial assets

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. Goodwill and the Opera brand (“Trademark”), which have indefinite useful lives, were tested for impairment as of December 31, 2020, based on estimates of value in use for the CGUs to which the goodwill and Trademark are allocated. The goodwill recognized by the Group is predominantly allocated to the Browser and News CGU, with a smaller amount allocated to the Other CGU. The Trademark is allocated to the Browser and News CGU. The value in use calculation is based on a discounted cash flow (“DCF”) model. It requires management to estimate future cash flows expected to arise from the CGU, discounted using a suitable discount rate. The key assumptions in determining the value in use are the expected future cash flows, long-term growth rate and the discount rate. The key assumptions, including a sensitivity analysis, are disclosed in Note 12.

Capitalized development costs

The Group capitalizes expenditure incurred in the development of new products and services. Initial capitalization of expenditure is based on management’s judgment that the project meets all of the six criteria discussed above in the accounting policy for intangible assets. Assessing if and when all of these criteria are met is based on judgment, which takes into account past experiences and expectations about the technical ability to complete the asset as intended.

The Group periodically, and when circumstances warrant, reviews capitalized costs to evaluate whether there are indicators of impairment for individual assets. If indicators of impairment are identified, the Group tests the asset or CGU to which it is included for impairment in accordance with the principles discussed above. In the event the Group abandons a development project, the asset is written off immediately. See Note 12 for more information.

F-23

NOTE 3.

CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

3.1 New standards, interpretations and amendments adopted by the Group

The accounting policies applied in the preparation of the consolidated financial statements are consistent with those applied in the preparation of the Group’s annual consolidated financial statements for the year ended December 31, 2019. Several amendments to IFRSs apply for the first time in 2020 but these did not have an impact on the consolidated financial statements of the Group. Except for the amendments to IFRS 10 and IAS 28 for sales or contributions of assets between an investor and its associate or joint venture, the Group has not early adopted standards, interpretations or amendments that have been issued but are not yet effective. See Note 2 for information about the Group’s accounting policies.

3.2 New standards, interpretations and amendments not yet effective

The following new and amended standards that are issued, but not yet effective, are not expected to have a material impact on the Group’s consolidated financial statements:

 

All categories
COVID-19-Related Rent Concessions (Amendment to IFRS 16).
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16).
Reference to Conceptual Framework (Amendments to IFRS 3).
Classification of revenue are within the scopeLiabilities as Current or Non-current (Amendments to IAS 1).
Onerous Contracts – Costs of Fulfilling a Contract (Amendments to IAS 37).
IFRS 15 Revenue17 Insurance Contracts.

Annual Improvements to IFRS Standards 2018-2020 Cycle (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41).

Deferred Tax related to Assets and Liabilities arising from contracts with customers, except for origination feesa Single Transaction (Amendments to IAS 12).
Definition of Accounting Estimates (Amendments to IAS 8).
Disclosure Initiative – Accounting Policies (Amendments to IAS 1).

F-24

NOTE 4.

SEGMENT AND REVENUE INFORMATION

For management reporting purposes, the Group is organized into business units based on its products and services, and has two reportable segments:

Browser and interest, which represent components of changesNews

Other

The prior segments “Retail” and “Fintech” (relating to fintech businesses in emerging markets) were discontinued in 2020 and are no longer presented, with prior period results presented net as results from discontinued operations.

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 chief operating decision maker ("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) technology and platform fees, (ii) content cost, (iii) cost of inventory sold, (iv) other cost of revenue (v) marketing and distribution expense, and (vi) credit loss expense.

The Browser and News segment 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 standalone apps. These products have similar characteristics and are often closely bundled. The segment Other includes licensing of the Group’s proprietary technology to third parties, related maintenance, support and hosting services, providing professional services, and providing customized browser configurations to mobile operators.

[US$ thousands]

 

Year ended December 31, 2018

 

Segments

 

Browser and

News

  

Other

  

Total

 

Revenue

            

Revenue from contracts with customers

  138,444   22,890   161,334 

Total revenue

  138,444   22,890   161,334 
             

Technology and platform fees

  (3,644)  -   (3,644)

Content cost

  (77)  5   (72)

Cost of inventory sold

  -   -   - 
Other cost of revenue  84   (6,853)  (6,769)

Marketing and distribution expenses

  (31,336)  -   (31,336)

Credit loss expense

  678   -   678 

Direct expenses

  (34,295)  (6,848)  (41,143)
             

Contribution by segment

  104,149   16,042   120,191 

[US$ thousands]

 

Year ended December 31, 2019

 

Segments

 

Browser and

News

  

Other

  

Total

 

Revenue

            

Revenue from contracts with customers

  154,968   22,110   177,078 

Total revenue

  154,968   22,110   177,078 
             

Technology and platform fees

  (796)  -   (796)

Content cost

  (1,545)  -   (1,545)

Cost of inventory sold

  -   (208)  (208)
Other cost of revenue  (301)  (11,389)  (11,690)

Marketing and distribution expenses

  (64,685)  (198)  (64,883)

Credit loss expense

  (448)  (129)  (577)

Direct expenses

  (67,775)  (11,924)  (79,699)
           - 

Contribution by segment

  87,193   10,186   97,379 

F-25

[US$ thousands]

 

Year ended December 31, 2020

 

Segments

 

Browser and

News

  

Other

  

Total

 

Revenue

            

Revenue from contracts with customers

  155,472   9,584   165,056 

Total revenue

  155,472   9,584   165,056 
             

Technology and platform fees

  (3,315)  -   (3,315)

Content cost

  (4,312)  -   (4,312)

Cost of inventory sold

  -   (700)  (700)
Other cost of revenue  140   (3,925)  (3,785)

Marketing and distribution expenses

  (47,042)  (818)  (47,860)

Credit loss expense

  (568)  (1,281)  (1,849)

Direct expenses

  (55,097)  (6,724)  (61,821)
           - 

Contribution by segment

  100,375   2,860   103,235 

The table below specifies the items of income and expenses that are not included in the measure of segment profit as they are managed and monitored on a group basis.

[US$ thousands]

 

Year ended December 31,

 

Reconciliation

 

2018

  

2019

  

2020

 

Contribution by segment

  120,191   97,379   103,235 

Other income

  -   -   11,542 

Personnel expenses including share-based remuneration (1)

  (34,719)  (51,283)  (59,977)

Credit loss expense related to divested joint venture

  -   -   (10,476)

Depreciation and amortization

  (12,694)  (18,843)  (20,234)

Other expenses (1)

  (28,397)  (27,791)  (26,538)

Share of net income (loss) of associates and joint ventures

  (3,248)  (3,818)  2,005 

Change in fair value of preferred shares in associates

  -   37,900   24,000 

Finance income

  1,626   10,532   13,633 

Finance expense

  (1,694)  (655)  (516)

Net foreign exchange gains (losses)

  (365)  (25)  833 

Profit before income taxes from continuing operations

  40,700   43,396   37,507 

(1) Certain personnel and other expenses are included as part of "other cost of revenue" in the measure of segment profit. Accordingly, the amounts for personnel and other expenses in this reconciliation are not consistent with the equivalent amounts in the Statement of Operations. 

Revenue

Set out below is the disaggregation of the Group’s revenue from contracts with customers.

[US$ thousands]

 

Year ended December 31, 2018

 

Segments

 

Browser and

News

  

Other

  

Total

 

Type of goods or service

            

Search

  80,204   -   80,204 

Advertising

  58,240   -   58,240 

Technology licensing and other revenue

  -   22,890   22,890 

Total revenue from contracts with customers

  138,444   22,890   161,334 

F-26

[US$ thousands]

 

Year ended December 31, 2019

 

Segments

 

Browser and

News

  

Other

  

Total

 

Type of goods or service

            

Search

  86,155   -   86,155 

Advertising

  68,813   -   68,813 

Technology licensing and other revenue

  -   22,110   22,110 

Total revenue from contracts with customers

  154,968   22,110   177,078 

[US$ thousands]

 

Year ended December 31, 2020

 

Segments

 

Browser and

News

  

Other

  

Total

 

Type of goods or service

            

Search

  84,180   -   84,180 

Advertising

  71,292   216   71,508 

Technology licensing and other revenue

  -   9,368   9,368 

Total revenue from contracts with customers

  155,472   9,584   165,056 

The table below presents the revenue by customer location.

[US$ thousands]

 

Year ended December 31,

 

Revenue by customer location

 

2018

  

2019

  

2020

 

Ireland

  76,791   81,637   80,059 

Russia

  17,356   17,265   15,239 

Other

  67,187   78,176   69,758 

Total

  161,334   177,078   165,056 

Revenue by country is based upon the customers' countries of domicile, which is not necessarily an indication of where activities occur because the end-users of the Group's products are located worldwide.

The Group has two customer groups that each has exceeded 10% of the Group's revenue in the periods below.

[US$ thousands]

 

Year ended December 31,

 
  

2018

  

2019

  

2020

 

Customer group 1

  67,882   74,572   76,184 

Customer group 2

  17,017   17,758   16,281 

Revenue from Customer group 1 includes both search and advertising services, while revenue from Customer group 2 includes only search services.

Other income

The table below specifies the nature of other income.

[US$ thousands]

 

Year ended December 31,

 

Other income

 

2018

  

2019

  

2020

 

Gain from disposal of subsidiaries (See Note 26)

  -   -   5,289 

Gain from divestment of joint venture (See Note 13)

  -   -   2,063 

Government granted VAT refund in China

  -   -   4,030 

Other items

  -   -   160 

Total

  -   -   11,542 

F-27

NOTE 5.

PERSONNEL EXPENSES INCLUDING SHARE-BASED REMUNERATION

The table below specifies the amounts of personnel expenses including share-based remuneration.

[US$ thousands]

 

Year ended December 31,

 

Personnel expenses including share-based remuneration

 

2018

  

2019

  

2020

 

Salaries incl. bonuses

  26,733   42,185   40,301 

Social security cost, excluding amounts related to share-based remuneration

  3,428   3,774   4,624 

External temporary hires

  1,687   2,474   7,090 

Defined-contribution pension cost

  2,066   3,616   3,279 

Other personnel related expenses

  2,244   4,345   2,103 

Personnel expenses excluding share-based remuneration

  36,158   56,395   57,397 

Share-based remuneration, including related social security costs

  4,846   5,928   4,706 

Total

  41,004   62,323   62,103 

The amount of expensed versus capitalized development cost is detailed in the following table.

[US$ thousands]

 

Year ended December 31,

 

Research and development expenditure

 

2018

  

2019

  

2020

 

Total research and development expenditure

  26,418   34,143   38,736 

Less: Capitalized development expenditure excluded from personnel expenses

  4,545   4,056   7,110 

Net expensed research and development expenditure

  21,873   30,087   31,626 

The table below specifies the amount of compensation to key management personnel, which include Officers and Directors of the Group.

[US$ thousands]

 

Year ended December 31,

 

Compensation of key management personnel

 

2018

  

2019

  

2020

 

Short-term employee benefits

  843   2,121   2,032 

Post-employment and medical benefits

  57   59   51 

Share-based remuneration

  621   536   1,179 

Total

  1,521   2,716   3,262 

The amounts disclosed as short-term benefits in the table above are the amounts recognized as an expense during the reporting period. In 2019, the Chairman and CEO started receiving remuneration from the Group. The cost of equity grants to Officers that vested in 2020 was $1,179 thousand, compared to US$536 thousand in 2019 and US$621 thousand in 2018. No loans have been granted and no guarantees have been issued to key management personnel. Key management personnel do not have any agreements for compensation upon termination or change of employment or directorship.

Share-based remuneration

On April 7, 2017, the Group adopted an RSU (Restricted Share Unit) plan for employees of the Group. The program was transferred to the Group’s new parent company, Opera Limited, in connection with the Group’s IPO in 2018. Awards equal to 10% of the equity of the Company are made available for grants.

On January 10, 2019, the Group amended and restated its share incentive plan. The plan was adopted for the purpose of rewarding, attracting and retaining employees of the Group. Under the amended plan, a total of 20,000,000 ordinary shares are issuable to employees, corresponding to 10,000,000 ADSs. For the purpose of these consolidated financial statements, all counts of RSUs and options, as well as per-unit values, are communicated as converted to ADS equivalent units.

In 2020, RSU grants corresponding to 401,818 ADSs were made. The average vesting schedule for the majority of 2020 grants were 25% on each January 1 of the years 2021-2024.

The equity unit value applied for the 2020 RSU grants was determined based on the market value of the Company on the date of each grant and was determined by Monte Carlo simulation as specified below. The table presents the weighted average values across grants within each category of equity award instruments. The equity cost of each award is recognized on a straight-line basis over the vesting period.

F-28

The Group accrues for relevant social security costs based on the most recent available measure of the equity value, with the same straight-line recognition over the vesting period. As of December 31, 2020, social security cost was accrued based on the period-end market value of the Company.

The expense recognized for the employee services received is shown in the following table.

[US$ thousands]

 

Year ended December 31,

 

Expense from share-based payment transactions

 

2018

  

2019

  

2020

 

Expense arising from equity-settled share-based payment transactions (1)

  4,846   5,928   4,706 

Expense arising from cash-settled share-based payment transactions

  -   -   - 

Total

  4,846   5,928   4,706 

(1) Including accrued social security cost.

Movements during the period: Number of RSUs and options as expressed in equivalent ADSs:

  

Year ended December 31,

 

RSUs

 

2019

  

2020

 

Outstanding at period start

  4,244,132   2,983,940 

Granted during the period

  1,019,000   401,818 

Forfeited during the period

  (550,700)  (346,200)

Exercised during the period

  (1,728,492)  (1,122,818)

Expired during the period

  -   - 

Outstanding at period end

  2,983,940   1,916,740 

  

Year ended December 31,

 

Options

 

2019

  

2020

 

Outstanding at period start

  -   150,000 

Granted during the period

  150,000   - 

Forfeited during the period

  -   - 

Exercised during the period

  -   - 

Expired during the period

  -   - 

Outstanding at period end

  150,000   150,000 

The weighted average remaining vesting period for the equity instruments outstanding as of December 31, 2020, was 0.73 years (December 31, 2019: 0.95 years).

Fair value measurement per awarded equity unit as converted to ADS equivalent:

  

2019 grants:

RSU valuation input

  

2019 grants:

Option valuation input

  

2020 grants:

RSU valuation input

  

2020 grants:

Option valuation input

 

Equity unit price valuation ($)

  9,09(3)  7.42   8.07   N/A 

Model Used

 

 

Monte Carlo  

 

Black-Scholes  

 

Monte Carlo     

Expected Volatility (%) (1), (2)

  40.00%  40%  40.00%    

Risk free interest rate (%) (1)

  1.70%  2.43%  0.58%    

Dividend Yield (%)

  0%  0%  0%    

Duration of initial simulation period (years to longstop date)

  3.16   4.81   3.81     

Duration of second simulation period with postponed exercise (years)

  3.00   N/A   3.00     

Fair value at the measurement date ($)

  8.92   2.36   7.84     

(1) Specified value is 4 years (modelled on yearly basis).

(2) Based on a defined peer group of companies considered comparable to the Group.

(3) Weighted average equity unit price valuation of all grants in 2020.

F-29

NOTE 6.

OTHER EXPENSES

The table below specifies the nature of other expenses.

[US$ thousands]

 

Year ended December 31,

 

Other expenses

 

2018

  

2019

  

2020

 

Hosting

  10,146   7,344   8,056 

Audit, legal and other advisory services (1)

  8,323   6,742   10,863 

Software license fees

  1,799   2,397   1,882 

Rent and other office expenses

  4,573   4,175   3,318 

Travel

  2,057   3,903   1,304 

Other

  1,776   3,686   2,774 

Total

  28,674   28,248   28,197 

(1) Amount in 2020 includes US$3,543 thousand related to actions taken following a short seller report.

F-30

NOTE 7.

FINANCE INCOME AND EXPENSE

[US$ thousands]

 

Year ended December 31,

 

Finance income

 

2018

  

2019

  

2020

 

Interest income

  1,375   2,045   326 

Other finance income

  251   10   275 

Net fair value gain related to listed equity instruments (1)

  -   8,477   13,033 

Total

  1,626   10,532   13,633 

[US$ thousands]

 

Year ended December 31,

 

Finance expense

 

2018

  

2019

  

2020

 

Interest expense

  182   562   447 

Other financial cost

  27   93   69 

Net fair value loss related to listed equity instruments (1)

  1,485   -   - 

Total

  1,694   655   516 

(1) The increase in fair value of microloans to customers.

Revenuelisted equity instruments is the net gain from contracts with customers is recognized when controlour investments of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitledlisted equity instruments in exchange for those goods or services (the transaction price).

Prior to the implementation of IFRS 15 as of January 1,2019 and 2020. In 2018, the Group recognized revenue to the extent that it was probable that the economic benefits would flow to the Group and the revenue could be reliably measured, regardless of when the payment was received. Revenue was measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The sections below describe the accounting principlesinvestments in listed equity instruments resulted in a net loss, classified as a finance expense. See Note 16 for revenue recognition in 2018 and 2019.more information.

[US$ thousands]

 

Year ended December 31,

 

Foreign exchange gain (loss)

 

2018

  

2019

  

2020

 

Unrealized foreign exchange gain (loss)

  (1,116)  166   2,365 

Realized foreign exchange gain (loss)

  751   (191)  (1,532)

Total

  (365)  (25)  833 

F-31

NOTE 8.

INCOME TAX

  Revenues from each of these categories are recognized as follows:

A summary of income tax (expense) benefit is as follows.

 

i.

Search

Search revenue is generated when a user conducts a qualified search using a search partner (such as Google or Yandex) through the built-in combined address and search bar provided in Opera’s PC and mobile browsers, or when otherwise redirected to the search partner via browser functionality. Search revenue is recognized in the period the qualified search occurs based upon the contractually agreed revenue share amount.

[US$ thousands]

 

Year ended December 31,

 

Income tax (expense) benefit

 

2018

  

2019

  

2020

 

Current income taxes

  (4,322)  (5,112)  1,983 

Currency effect on income tax (expense) benefit and adjustments recognized in the period for current tax of prior periods (1)

  (615)  (322)  (1,272)

Deferred taxes

  (1,544)  (168)  1,164 

Income tax (expense) benefit

  (6,481)  (5,602)  1,876 
             

Income tax (expense) benefit is attributable to:

            

Profit from continuing operations

  (6,481)  (2,658)  (75)

Profit from discontinued operation

  -   (2,944)  1,950 

(1) Currency effect on income tax (expense) benefit due to corporate income tax filing in NOK for Norwegian entities with USD as functional currency.

 

ii.

Advertising

Advertising includes revenues from all other user-generated activities excluding search revenues. Advertising revenues include revenues from industry-standard ad units, predefined partner bookmarks (“Speed Dials”) and subscriptions of various promoted services that are provided by the Group. Revenue is recognized when our advertising services are delivered based on the specific terms of the underlying contract, which are commonly based on revenue sharing, clicks, or subscription revenues collected by third parties on behalf of the Group.

The majority of advertising revenue is reported based on the amounts the Group is entitled to receive from advertising partners. In limited instances where the Group has developed or procured a service which it promotes to the users, the Group considers itself the principal party to a transaction and not an agent of another entity. In such cases, the Group will recognize revenue on a gross basis. In the Group’s determination as to whether it is the principal, it considers its (i) responsibility to provide the service to the end-user, (ii) ability to determine pricing, (iii) exposure to risk. The associated costs for these transactions are included in the Statement of Operations within cost of revenue.

The Group’s parent company is domiciled in the Cayman Islands, where the applicable tax rate is zero. With the headquarter of the Group being located in Norway and a large share of the income from the browser and news segment being recognized by Opera Norway AS, the reconciliation of the expected to actual income tax (expense) benefit effective tax rate is based on the applicable tax rate in Norway, which was 22% in 2020 and 2019 (2018: 23%). The tax rate in Norway will remain 22% in 2021.

 

[US$ thousands]

 

Year ended December 31,

 

Reconciliation of tax (expense) benefit to Norwegian nominal statutory tax rate

 

2018

  

2019

  

2020

 

Profit from continuing operations before income tax expense

  40,700   43,396   37,507 

Profit from discontinued operation before income tax expense

  941   20,105   139,792 
Basis for calculation of the tax (expense) benefit  41,641   63,500   177,299 

Tax expense at nominal tax rate in Norway

  (9,577)  (13,970)  (39,006)

Effect of different tax rates applied by subsidiaries

  (167)  (2,118)  11,543 

Permanent differences

            

Tax effect of translation differences exempted for tax

  218   1,155   99 

Tax effect of financial items exempted from tax

  1,726   1,917   20,143 

Tax effects of losses in associates and joint ventures which are non-deductible

  (744)  383   2,200 

Withholding taxes paid

  -   (232)  (271)

Net other permanent differences (not) tax deductible

  (617)  4,269   5,313 

Other effects

            

Change to previously recognized deferred tax assets

  1,589   27   246 

Currency effect on income tax (expense) benefit, adjustments recognized in the period for current tax of prior periods and other effects

  (615)  3,162   670 

Change in unrecognized deferred tax assets

  1,144   (314)  952 

Change in tax rate

  561   119   (14)

Income tax (expense) benefit for the year

  (6,481)  (5,602)  1,876 

Effective tax rate

  15.6%  8.8%  -1.1%

F-32

The following summarizes the Group’s deferred tax assets and liabilities.

[US$ thousands]

 

As of December 31,

 

Deferred tax asset and deferred tax liability

 

2019

  

2020

 

Furniture, fixtures and equipment, and intangible assets

  22,703   21,969 

Other

  (8,479)  (1,274)

Trade receivables

  (121)  (591)

Intercompany interest costs subject to limitations

  (7,714)  (9,361)

Withholding tax expected to be credited (credit method)

  (1,065)  (364)

Tax losses carried forward

  (1,003)  (3,017)

Net deferred tax liability recognized

  4,322   7,362 

The following summarizes the Group’s changes in deferred taxes during the periods.

[US$ thousands]

 

As of December 31,

 

Change in net deferred tax liability

 

2019

  

2020

 

Net deferred tax liability as of January 1

  12,414   4,322 

Expense (benefit) in Statement of Operations

  (8,092)  3,040 

Net deferred tax liability

  4,322   7,362 

[US$ thousands]

 

As of December 31,

 

Deferred tax assets and liabilities

 

2019

  

2020

 

Deferred tax assets

  6,204   4,383 

Deferred tax liabilities

  10,526   11,745 

Net deferred tax liability

  4,322   7,362 

Deferred tax liability related to furniture, fixtures and equipment

The deferred tax liability relates mainly to excess values identified in the purchase price allocation performed in accounting for the acquisition of Opera Norway AS (formerly Opera Software AS) with subsidiaries in 2016.

Deferred tax assets on interest charges carried forward

Deferred tax assets relate to Norwegian limitations to interest deductions on intercompany loans, carried forward due to restrictions. The interest subject to limitations must be utilized within ten years.

Management has assessed that there is convincing evidence that future taxable profits will be available in order to utilize the interest charges within the time restriction period.

F-33

iii.

Origination fees and interest

NOTE 9.

The Group provides instant app-based microloans to customers in exchange for an origination fee that remains fixed regardless of any early repayment. The origination fee is compensation for the credit risk and time value of money. Additional fees in the form of interest accrues only if and after a loan is not repaid by its due date.DISCONTINUED OPERATIONS

While loans to customers are classified as financial assets measured at fair value through profit or loss, the Group disaggregates changes in fair value into interest income and credit losses in the Statement of Operation. Interest income, classified as revenue, is recognized when

On August 19, 2020, the board of directors of the Company approved a transaction in which TenSpot Pesa Limited, a wholly owned subsidiary at the time, was to be contributed to a subsidiary of NanoCred Cayman Company Limited (“Nanobank”) in exchange for the Group obtaining an ownership interest of 42% in Nanobank. As part of the transaction, the Group agreed to transfer receivables due from TenSpot Pesa Limited to Nanobank. The transaction was completed on the same date. The business of TenSpot Pesa Limited and its subsidiaries represented the entirety of the Group’s fintech operating segment at the time, comprising of apps in emerging markets that offered instant microloans to approved borrowers. Since TenSpot Pesa Limited and its subsidiaries represented a separate major line of business of the Group, it has been classified as a discontinued operation. The fintech segment is no longer presented in the segment note. Because TenSpot Pesa Limited and its subsidiaries represented a business, the Group recognized the gain from loss of control as the difference between the fair value of the 42% ownership interest in Nanobank obtained and the net carrying amount of equity in TenSpot Pesa Limited. The gain was presented as a component of the profit from discontinued operations. See Notes 13 and 26 for information on the Group’s investment in Nanobank.

On September 25, 2020, the Group decided to terminate the retail operating segment under which the Group sold prepaid airtime and handsets. The retail segment was conducted in PT Inpesa Digital Teknologi and Opera Lifestyle, two wholly owned subsidiaries. The retail business was completely terminated prior to December 31, 2020. The retail operating segment represented a separate major line of business and was thus classified as a discontinued operation and is no longer presented in the segment note.

The results of TenSpot Pesa Limited and its subsidiaries up until August 19, 2020, and the discontinued operations of PT Inpesa Digital Teknologi and Opera Lifestyle, are presented in the table below.

[US$ thousands]

 

Year ended December 31,

 

Discontinued operations

 

2018

  

2019

  

2020

 

Revenue

  10,942   157,776   136,246 

Expenses

  (10,001)  (137,671)  (147,822)

Profit (loss) before income tax

  941   20,105   (11,576)

Income tax (expense) benefit

  -   (2,944)  1,950 

Profit (loss) after income tax

  941   17,161   (9,626)

Gain on sale of the subsidiary after income tax

  -   -   151,368 

Profit from discontinued operation

  941   17,161   141,742 
             

Exchange differences on translation of discontinued operations

  (11)  (1,134)  (1,802)

Other comprehensive loss from discontinued operations

  (11)  (1,134)  (1,802)

TenSpot Pesa Limited and its subsidiaries generated revenue from instant app-based microloans to customers in exchange for an origination fee that remained fixed regardless of any early repayment. The origination fee was compensation for the credit risk and time value of money. Additional fees in the form of interest accrued only if and after a loan was not repaid by its due date. While loans to customers were classified as financial assets measured at fair value through profit or loss, changes in fair value were disaggregated into interest income and credit losses. Interest income, presented as revenue, was recognized when the interest was accrued based on the effective interest rate – the rate that at inception exactly discounts the estimated contractual future cash receipts through the expected life of the loans to the disbursed amount.

 

Revenue from the retail business was recognized when the contracted good or service was transferred to the customer, after which the Group did not have any remaining obligations, except for a potential obligation to provide refunds to customers in some arrangements if certain criteria were met. This right of refund created variability in the transaction price. The amount of revenue recognized included variable consideration to which the Group expected to be entitled. Customers’ right of refund did not materially impact the amount of revenue recognized. The Group updated its estimates of refund liabilities (and the corresponding change in the transaction price) at the end of each reporting period.

The table below presents the calculation of the gain on loss of control over TenSpot Pesa Limited.

[US$ thousands]

As of August 19,

 

iv.

Airtime and handsets

The Retail segment includesGain on sale of handsets, prepaid airtime and data to consumers and wholesalers. Revenue is recognized when the contracted good or service is transferred to the customer, after which the Group does not have any remaining obligations, except for a potential obligation to provide refunds customersfintech segment

2020

Fair value of shares in some arrangements if certain criteria are met. This right of refund creates variability in the transaction price. TheNanobank

264,936

Carrying amount of revenue recognized includes variable consideration to which we expect to be entitled. In 2019, customers’ rightnet assets disposed of refund did not materially impact the

(22,766)

Carrying amount of revenue recognized. The Group updates its estimates of refund liabilities (and the corresponding change in the transaction price) at the end of each reporting period.

The Group has concluded that it is a principal for all its existing arrangements with customers classified as retail, based on the factors discussed above for Advertising revenue. Although other parties are involved in the supply of the contracted good or service to the customer, Opera controls the contracted good or service before it is transferred.

v.

Technology licensing and other revenue

Technology licensing and other revenue include other revenues that are not generated by the Group’s user base, such as revenues from providing professional services, from device manufacturers and mobile communication operators. We generate such revenue from licensing of our proprietary compression technology and providing related maintenance, supporting and hosting services to third parties, as well as providing professional services, and enabling customized browser configurations to mobile operators. We also generate such revenue from providing development and managerial services to certain equity-accounted investees.

Licensing agreements may in addition to licensing of technology, include related professional services, maintenance and support, as well as hosting services. Depending on the customization and integration level, the software licenses are either distinct or not distinct performance obligations from related professional services, and accordingly, the licensing revenue is recognized either separately when control is transferred to the customer or together with the implementation services. Sale of licenses that are part of a multi-element contract where the license is not distinct from maintenance, support or hosting services, are recognized over the contract period.

Maintenance, support and hosting revenues are generally recognized ratably over the term that these services are provided.

Revenue from software developed specifically for one customer is recognized over the development period in line with the degree of completion, provided that the criteria for recognizing revenue over time defined in IFRS 15 are met.

Revenue from distinct professional services are recognized over the development period in line with the degree of completion.

Set-up activities that do not result in the transfer of a promised good or service, are not identified as a performance obligation to the customer. The costs of set-up activities are recognized as an asset, provided the criteria defined in IFRS 15 are met.

The allocation of revenue for contracts with multiple elements is based on the Group’s estimate of its standalone selling prices. Such estimates are based on relevant historical information and can include past contracts with fewer elements, or the Group’s typical hourly rates for professional services compared with an estimated number of hours required.

Revenue from operators is included in the “Technology licensing and other revenue” category even if there are variable components that scales with the number of users. This is related to the fact that such operator agreements typically contain licensing fees based on usage, as well as hosting and support services.

Other income

Other income is income which is not related to the Group’s ordinary activities and is presented net of associated costs. In 2017, other income included net gain from sale of certain fixed and intangible assets.

Cost of revenue

Cost of revenue comprises the fintech cost categories of transaction and communication platform expenses, as well as third party credit scoring, data and risk control costs, as well as the cost of handsets and airtime sold to customers. It also includes revenue shares to content creators on our Opera News platform, and payments to publishers and monetization partners, including the costs of any platform or collection service used to facilitate subscription services where the Group is the principal of the transaction. Payments to publishers and monetization partners typically consist of fees based upon a percentage of relevant revenues, such as publishers providing content in which the Group delivers mobile ads or operators facilitating payments of Opera branded services. Cost of revenue also includes expenses directly attributable to revenue recognized in the period, such as employee benefits for individuals who provided maintenance, support, and managerial services to customers for which revenue was recognized. The Group recognizes such costs at the same time it recognizes the associated revenue.

Personnel expenses

Personnel expenses, other than share-based payments to employees, include short-term employee benefits, such as wages, salaries and social security contributions, paid annual leave and paid sick leave, performance-based bonuses and non-monetary benefits. It also includes expenses related to defined contribution schemes provided to employees as post-employment benefit. Expenses related to certain outsourced services, primarily sales, debt collection and customer support, are classified as personnel expenses if the nature of the arrangement is that the Group is functioning as the employer. Personnel expenses are recognized at the undiscounted amount due to the employees or the de-facto employees when these have rendered service to the Group or when the liability otherwise arises.

Income taxes

Income tax expense consists of the sum of (i) current year income taxes payable plus (ii) the change in deferred taxes and liabilities, except if income taxes relate to items recognized in other comprehensive income, in which case it is recognized in other comprehensive income.

Current year income taxes payable is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the year-end date, and any adjustment to tax payable in respect of previous years. The Group includes deductions for uncertain tax positions when it is probable that the tax position will be sustained in a tax review. The Group records provisions relating to uncertain or disputed tax positions at the amount expected to be paid.

Deferred tax is provided using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realization or settlement of the underlying items, using tax rates enacted or substantively enacted at the reporting date.

A deferred tax asset is only recognized to the extent that it is probable that future taxable profits will allow the deferred tax asset to be realized. Recognized assets are reversed when realization is no longer probable. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis, or their tax assets and liabilities will be realized simultaneously.

Income taxes include all domestic and foreign taxes, which are based on taxable profits, including withholding taxes.

Government grants

Government grants are recognized when there is reasonable assurance that the grant will be received and all attached conditions will be complied with. The Group has received government grants that relate to the development of technology, which includes expenditures that are capitalized. Those government grants are deducted in arriving at the carrying amount of the asset.

Treasury shares

Treasury shares are shares in Opera Limited, the parent, that are reacquired under a repurchase program. Treasury shares are recognized at cost and deducted from equity. No gain or loss is recognized in the Statement of Operations on the purchase, sale, reissue or cancellation of the Group’s own equity instruments.

2.4 Significant accounting estimates, judgments and assumptions

The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that may affect the reported amounts of assets, liabilities, income and expenses, and the accompanying disclosures. The estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which forms the basis for making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed continuously. Changes in accounting estimates are recognized in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following summarizes the most significant judgments and estimates in preparing the consolidated financial statements.

Control over Opera Limited

In 2018, in connection with the Group’s acquisition of TenSpot Pesa Limited the Group concluded that Opera Limited was controlled by its Chairmanreceivables transferred to Nanobank

(87,867)

Gain on sale before income tax and CEO. Since the Group’s Chairmanreclassification of foreign currency translation reserve

154,304

Reclassification of foreign currency translation reserve

(2,936)

Income tax expense on gain

-

Gain on sale after income tax

151,368

F-34

The table below provides a specification of the assets and liabilities disposed of. 

[US$ thousands]

As of August 19,

Assets and CEO also controlled TenSpot Pesa Limited, the business combination occurred under common control. The determination that Opera Limited was controlled by its Chairman and CEO was based on significant judgment. The Chairman and CEO’s ownership interest and voting rights were established by his control of Keeneyes Future Holding Inc and Kunlun Tech Limited, a subsidiary of Beijing Kunlun Tech Co. Ltd. Although the Chairman and CEO did not hold a majorityliabilities of the sharesfintech segment, as disposed of

2020

Furniture, fixtures and voting rightsequipment

1,014

Non-current financial assets

566

Deferred tax assets

7,467

Trade receivables

1,377

Loans to customers

17,983

Other receivables

45,445

Prepayments

4,703

Cash and cash equivalents

38,957

Total assets

117,512

Non-current lease liabilities and other loans

8

Other non-current liabilities

4

Trade and other payables

6,376

Current lease liabilities and other loans

87,879

Income tax payable

246

Deferred revenue

17

Other current liabilities

457

Total liabilities

94,987

The table below presents the net cash flows incurred by TenSpot Pesa Limited, its subsidiaries, and the discontinued operations of PT Inpesa Digital Teknologi and Opera Lifestyle:

[US$ thousands]

 

Year ended December 31,

 

Net cash flows incurred by discontinued operations

 

2018

  

2019

  

2020

 

Net cash inflow from operating activities

  (3,349)  (108,813)  65,806 

Net cash inflow/(outflow) from investing activities

  (227)  (507)  (576)

Net cash (outflow) from financing activities

  5,963   125,675   (44,711)

Net cash (outflow)/inflow

  2,387   16,354   20,518 

As of August 19, 2020, TenSpot Pesa Limited and its subsidiaries had US$39.3 million in cash and cash equivalents, which were derecognized by the Group when accounting for the loss of control. 

The table below presents the basic and diluted earnings per share from discontinued operations.

[Net income per share and ADS in US$]

 

Year ended December 31,

 

Earnings per share from discontinued operations

 

2018

  

2019

  

2020

 
             

Basic net income from discontinued operations per share, US$

  0.00   0.08   0.60 

Diluted net income from discontinued operations per share, US$

  0.00   0.07   0.60 
             

Basic net income from discontinued operations per ADS, US$

  0.01   0.15   1.21 

Diluted net income from discontinued operations per ADS, US$

  0.01   0.15   1.19 

F-35

NOTE 10.

NET INCOME PER SHARE

Basic net income per share is calculated by dividing the net income for the year attributable to ordinary equity holders of Opera Limited by the weighted average number of ordinary shares outstanding during the year. Diluted net income per share is calculated by dividing the net income attributable to ordinary equity holders of Opera Limited by the weighted average number of ordinary shares outstanding during the year plus the number of ordinary shares that would be issued pursuant to our employee equity program based on period-average employee equity awards. The net dilutive effect of these awards is determined by application of the treasury stock method related to the share equivalents of unrecognized share compensation expense on employee equity grants outstanding at period end.

The net income per share calculation for all periods prior to the Initial Public Offering reflects 200 million shares as outstanding, less 9.75 million shares that were surrendered by two shareholders upon completion of the IPO. As of December 31, 2020, the total number of shares outstanding for Opera Limited was 228,285,684, each with a par value of US$0.0001.

The following tables show the income and share data used in the basic and diluted net income per share calculations.

[Net income in US$ thousands]

 

Year ended December 31,

 

Net income attributable to the owners of the parent

 

2018

  

2019

  

2020

 

Continuing operations

  34,219   40,739   37,432 

Discontinued operations

  941   17,161   141,742 

Net income attributable to the owners of the parent for basic and diluted earnings

  35,160   57,899   179,174 
             

Issued ordinary shares at beginning of period

  190,250,000   220,119,343   237,826,326 

Effect of shares issued

  12,504,070   7,422,487   1,889,770 

Effect of treasury shares held

  (133,681)  (2,913,330)  (5,146,244)

Basic weighted-average number of ordinary shares in the period

  202,620,388   224,628,500   234,569,852 

Effect of employee equity grants

  6,107,813   4,437,167   2,816,613 

Diluted weighted-average number of ordinary shares in the period

  208,728,201   229,065,667   237,386,466 
             

Basic net income from continuing operations per share, US$

  0.17   0.18   0.16 

Basic net income per share, US$

  0.17   0.26   0.76 
             

Diluted net income from continuing operations per share, US$

  0.16   0.18   0.16 

Diluted net income per share, US$

  0.17   0.25   0.75 

Opera Limited, the parent, has American Depositary Shares (ADSs) listed on Nasdaq, trading under the OPRA ticker symbol. Each ADS represents two ordinary shares in the parent. The table below specifies net income per ADS.

[Net income in US$ thousands]

 

Year ended December 31,

 

Net income attributable to the owners of the parent

 

2018

  

2019

  

2020

 

Continuing operations

  34,219   40,739   37,432 

Discontinued operations

  941   17,161   141,742 

Net income attributable to the owners of the parent for basic and diluted earnings

  35,160   57,899   179,174 
             

ADS equivalent of basic weighted-average number of ordinary shares

  101,310,194   112,314,250   117,284,926 

ADS equivalent of diluted weighted-average number of ordinary shares

  104,364,101   114,532,833   118,693,233 
             

Basic net income from continuing operations per ADS, US$

  0.34   0.36   0.32 

Basic net income per ADS, US$

  0.35   0.52   1.53 
             

Diluted net income from continuing operations per ADS, US$

  0.33   0.36   0.32 

Diluted net income per ADS, US$

  0.34   0.51   1.51 

F-36

NOTE 11.

FURNITURE, FIXTURES AND EQUIPMENT

[US$ thousands]

 

Office

properties

  

Furniture and

fixtures

  

Equipment

  

Leasehold

improvements

  

Total

 

Cost

                    

As of January 1, 2019

  6,739   629   32,804   1,738   41,911 

Additions

  1,228   243   9,197   78   10,746 

Disposals

  -   -   (13,672)  -   (13,672)

Exchange rate differences

  -   5   (321)  (69)  (385)

As of December 31, 2019

  7,967   878   28,008   1,747   38,601 
                     

Additions

  1,135   198   2,259   17   3,608 

Additions through business combinations

  -   -   11   -   11 

Disposals

  (852)  (284)  (1,205)  (37)  (2,377)

Exchange rate differences

  -   (19)  632   7   619 

As of December 31, 2020

  8,250   773   29,705   1,733   40,462 
                     

Depreciation and impairment

                    
As of January 1, 2019  -   324   13,831   628   14,780 

Depreciation for the year

  1,766   139   8,585   258   10,748 

Disposals

  -   -   (12,994)  -   (12,994)

Exchange rate differences

  -   1   24   (17)  8 

As of December 31, 2019

  1,766   464   9,446   869   12,543 
                     

Depreciation for the year

  2,221   128   7,301   260   9,912 

Disposals

  (71)  (12)  (77)  (5)  (164)

Exchange rate differences

  -   5   -   -   5 

As of December 31, 2020

  3,917   586   16,670   1,124   22,295 
                     
                     

Net book value as of December 31, 2019

  6,201   415   18,562   878   26,053 

Net book value as of December 31, 2020

  4,333   187   13,034   609   18,167 

Office

properties

Fixture and

fittings

Equipment

Leasehold

improvements

Useful life

Up to 6 years

Up to 5 years

Up to 10 years, or term of lease contract (1)

Up to 6 years, or term of lease contract

Depreciation plan

Straight-line

Straight-line

Straight-line

Straight-line

(1) The Group has one lease agreement classified as Equipment, which expires in 2022.

F-37

NOTE 12.

INTANGIBLE ASSETS

[US$ thousands]

 

Goodwill

  

Customer

relationships

  

Technology

  

Trademarks

  

Other intangible

assets

  

Total

 

Cost

                        

As of January 1, 2019

  421,578   40,700   18,677   70,600   2,047   553,602 

Additions (1)

  -   -   3,545   -   -   3,545 

Disposals

  -   -   -   -   -   - 

Exchange differences

  -   -   -   -   -   - 

As of December 31, 2019

  421,578   40,700   22,222   70,600   2,047   557,147 
                         

Additions (1)

  -   -   6,553   -   2,287   8,840 

Additions from business combination (2)

  2,998   32   1,695   -   -   4,725 

Disposals

  -   -   -   -   -   - 

Exchange differences

  385   -   187   -   114   686 

As of December 31, 2020

  424,961   40,732   30,657   70,600   4,448   571,398 
                         

Amortization and impairment

                        

As of January 1, 2019

  -   6,457   8,122   -   2,002   16,581 

Amortization for the year

  -   2,980   5,203   -   2   8,185 

Disposals

  -   -   -   -   -   - 

Exchange differences

  -   -   -   -   (4)  (4)

As of December 31, 2019

  -   9,437   13,325   -   2,000   24,762 
                         

Amortization for the year

  -   3,013   6,674   -   2   9,689 

Disposals

  -   -   -   -   -   - 

Exchange differences

  -   (1)  -   -   33   32 

As of December 31, 2020

  -   12,449   19,999   -   2,035   34,483 
                         
                         

Net book value as of December 31, 2019

  421,578   31,263   8,897   70,600   47   532,385 

Net book value as of December 31, 2020

  424,961   28,283   10,658   70,600   2,413   536,915 

Goodwill

Customer

relationships

Technology

Trademarks

Other intangible

assets

Useful life

Indefinite

Up to 15 years

Up to 5 years

Indefinite

Up to 5 years

Amortization method

Straight-line

Straight-line

Straight-line

(1) Represents capitalized development expenditure net of grants received from the Norwegian government.

(2) See Note 25 for additional information on the business combination. 

Goodwill and our brand of Opera (the trademark) have indefinite useful lives and are tested for impairment at least annually. Both assets were initially recognized in November 2016 through the acquisition of Opera Norway AS with subsidiaries, consisting of one segment – “the Consumer business”. At the end of 2020, the Group comprises of two operating segments: 1) Browser and News, and 2) Other. The prior fintech and retail operating segments were discontinued in 2020, as discussed in Note 9. The goodwill and the trademark that previously was allocated to the Consumer business cash-generating unit (“CGU”) was reallocated to the Browser and News CGU in 2019.

The goodwill and trademark allocated to the Browser and News CGU, with carrying amounts of US$421,578 thousand and US$70,600 thousand, respectively, were tested for impairment as of December 31, 2020. The carrying amount of the CGU as of December 31, 2020, was US$550,184 thousand (December 31, 2019: US$577,376 thousand). In addition to goodwill and trademark it included customer relationships, trade and other receivables, trade and other payables and other assets and liabilities allocated to Browser & News CGU.

In the annual impairment test of goodwill and trademark allocated to the Browser and News CGU, a discounted cash flow model was used to determine the value in use for the CGU. The projected cash flows were based on the most up-to-date forecast that have been approved by management and do not include cash flows arising from future enhancements of assets that have not been committed to and have not substantively commenced. The approved forecast is for 2021 only as management does not approve forecasts for a longer period. Because the length of the projection period for the cash flow forecast where a CGU has goodwill or intangible assets with indefinite lives is into perpetuity, we identified a “steady state” set of assumptions for the cash flows based an approach where we estimate cash flows for the years 2022 to 2024 and then using the estimated cash flows in 2024 as the basis for the terminal value. This two-stage approach is aimed to take cash flows to a level at which they can be regarded as reflecting maintainable earnings and to the period in a mid-point of the cycle – i.e., not at peak or trough of the cycle. Beyond 2024, the cash flows are extrapolated using constant nominal growth rates.

The value-in-use calculation demonstrated that the value in use exceeded the carrying amount of the CGU, thus no impairment loss was recognized. For key assumptions and sensitivity analysis, see below.

F-38

Key assumptions

Key assumptions used in the calculation of value in use are the nominal cash flows in the forecast period, including revenue growth rate, discount rate, and estimated long-term growth.

Cash flows

Cash inflows in the Browser and News segment are expected to grow over the projected period reaching its long-term stable level. The cash inflows are forecasted for each product and country where there are sufficient and reliable data on which to base the projections. The revenue from the PC browser is expected to grow steadily, reflecting an expectation that we will continue to strengthen our position in western markets. This will bring users with strong monetization potential. Our mobile revenues are expected to increase faster, including in developing markets from product development that has been committed to and has substantively commenced, and from the undertaking of cost-effective and efficient marketing and distribution initiatives.

Forecasted cash outflows are partly based on actual costs in 2020 and a bottom-up assessment for the relevant operating unit. Operating expenditures are expected to grow, primarily due to user acquisition initiatives and closer cooperation with publishers and monetization partners which is expected to increase our revenue, but also our content cost as we pay a share of the revenues generated to these parties. The estimated increase in users will also lead to an uplift in hosting costs that are variable by its nature, like content delivery networks, bandwidth and cloud services.

Discount rate

The discount rate represents the current market assessment of the risk specific to the Browser and News CGU. The discount rate is based on the after-tax Weighted Average Cost of Capital (WACC) derived from the Capital Asset Pricing Model (CAPM) methodology and incremental borrowing rate, assuming cash flows in U.S. Dollars. The WACC calculation is based on a risk-free rate in 2020 of 0.84% based on the 10-year US Treasury Rate (2019: 1.9%), and a market risk premium of 4.97% (2019: 5.2%). The estimated beta for equity was 0.91 (2019: 1.4). The equity to total capital ratio was 100% (2019: 100%). This resulted in a post-tax WACC of 11.8% (2019: 13.1%).

Long-term growth

In estimating the long-term growth in the terminal value, we estimated long-term GDP growth in the relevant regions. We assumed no growth in the labor force as well as no improvement in labor productivity, which results in zero real GDP growth. Moreover, for estimating long-term inflation we used IMF’s inflation estimates for 2025, broken down across regions as the basis. Based on this we estimated a long-term nominal growth rate of 2.5% (2019: 3%).

Sensitivity

We have simulated a variety of sensitivities to the key assumptions, including revenue growth rate, OPEX (as % of revenue), capital expenditure necessary for maintenance, long-term growth and the WACC. Since the Browser and News CGU is in a growth period, we consider changes of +/-3 percentage points for the three former metrics and narrower +/- 1 percentage point for the long-term growth and WACC to be reasonable possible changes. No reasonable possible change in the key assumptions would result in the CGU being impaired as of December 31, 2020. The following thresholds would individually trigger an impairment loss:

Decrease in annual revenue growth in the latter, the Group concluded that he had de facto control over that entity based on his practical ability to direct the relevant activities unilaterally. This was based on him being the largest holderprojected period of voting rights11.1 percentage points.

Increase in Beijing Kunlun Tech Co. Ltd, effectively controlling 33.77%operating expenditure as percent of the voting rights directly. The history of voting in general meetings for Beijing Kunlun Tech Co. Ltd demonstrated that the Group’s Chairman and CEO controlled significantlyrevenue by more than 50%11.0 percentage points.

Increase of the shares registeredWACC by more than 4.3 percentage points. 

No economically reasonable changes to capital maintenance expenditure and the long-term growth rate would trigger the CGU to be impaired. No impairment would be recognized as long as the long-term growth rate is positive (above 0%).

F-39

NOTE 13.

INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

The Group has investments in associates and joint ventures, which are accounted for in accordance with the equity method, except for the preferred shares in OPay and StarMaker, as outlined below.

Nanobank

On August 19, 2020, the Group contributed TenSpot Pesa Limited, a wholly owned subsidiary at the time, to a subsidiary of NanoCred Cayman Company Limited (“Nanobank”) in exchange for the Group obtaining an ownership interest of 42% in Nanobank. See Note 9 for additional information on the transaction, including the impact of discontinued operations for the Group, and Note 26 for disclosures pertaining to it being a transaction with a related party. 

Nanobank provides microlending services in Indonesia, India, Mexico and Kenya. It expects to fuel growth through scaling in existing markets, continued geographic expansion, and from the launch of financial services beyond microlending. In addition, Nanobank will benefit from shared technologies, data aggregation and central functions, such as risk management and credit scoring through user profiling and know-your-customer (KYC) efforts, shared operational know-how and a more holistic view and adaptation to regulation.

Certain significant subsidiaries of Nanobank are regulated entities in the markets in which they provide microlending services. Maintaining their licenses could be prerequisites for them being able to continue providing microlending services, and each relevant regulator has specific and evolving operational requirements to which any licensed entity must comply. P.C. Financial Services Private Limited, Nanobank’s subsidiary in India, is regulated by the Reserve Bank of India and in late 2020, the entity became the subject of an annual inspection that has not been concluded as of the date these consolidated financial statements are authorized for issue. The Group concluded that the regulatory review itself did not constitute an objective indicator of impairment for its investment in Nanobank, as the outcome of the review and any potential implications on the prospective financial performance of Nanobank are highly uncertain.

Nanobank is an associate of the Group, which is accounted for in accordance with the equity method. The acquisition cost of the Group’s investment was measured as the fair value of the 42% ownership interest obtained in Nanobank on August 19, 2020. The fair value was estimated using a combination of methodologies, including income-based and market-based approaches. Under the income approach, the Group estimated expected future cash flows for each component of Nanobank and then discounted those cash flows using an estimated weighted average cost of capital ("WACC"). The estimates for future cash flows were based on assumptions that included the number of loans to customers, nominal size of loans, amount of interest and fees generated and credit losses. The estimate for WACC was based on estimates for risk-free rate, beta, equity risk premium, cost of debt and a company-specific risk premium. Under the market approach, the Group used judgment in identifying comparable companies. Based on the combination of the income and market approaches, the Group concluded that the estimate for fair value of the investment in Nanobank as of August 19, 2020, was US$265.9 million, which became the deemed cost of the investment.

On acquisition of the investment in Nanobank, the Group used assumptions in identifying and valuing the assets and liabilities of the entity, including goodwill. The Group identified intangible assets that were not separately recognized by Nanobank, including trademarks, technology, customer relationships and licenses. For all identified assets and liabilities, the Group estimated their fair values as of August 19, 2020. In estimating the fair value of the trademarks and technology assets, the Group used a relief-from-royalty method that included estimates for royalty rates and future revenue related to the trademarks. In estimating the fair value of the customer relationships, the Group estimated future revenue from the customer base of Nanobank and the churn rate for customers. The identified licenses were valued using a combination of a cost-based approach that estimated the cost of acquiring the licenses and a market-based approach under which the Group estimated a transaction price for similar licenses. For all identified assets, the Group used judgment in determining their useful lives. While these fair value adjustments are not recognized separately, the fair values identified form the basis for additional depreciation, amortization and similar adjustments that are reflected in the Group’s share of net income. The excess between the cost of the investment and the Group's share of the net fair value of Nanobank's identifiable assets and liabilities, i.e., goodwill, is included in the carrying amount of the investment.

F-40

In the period from August 19, 2020, until December 31, 2020, Nanobank had operating income of US$60.9 million and operating expenses of US$46.1 million, which included US$6.2 million in depreciation and amortization of fair value adjustments that the Group recognizes on top of the underlying results of Nanobank, resulting in a profit before tax of US$14.8 million. Income tax expense of US$14.2 million included the impact of derecognizing certain deferred tax assets that were recognized as of August 19, 2020. Net income after tax was US$0.6 million. The tables below specify income and expenses in Nanobank in the period from August 19, 2020, until December 31, 2020, and the totals for assets, liabilities and equity as of year-end. 

Period from August 19,

until December 31,

[US$ thousands]

2020

The Group's interest

42%

Net revenue

Interest income

60,887
Interest expense(621)
Other revenue669

Operating income

 60,935
Operating expenses

Credit loss expense on loans to vote. The remaining shares in Beijing Kunlun Tech Co. Ltd were widely dispersed among a large number of other shareholders.customers

(20,755)

Personnel expenses

(9,399)

Significant influence over OPayMarketing expenses

(5,101)

Technical service fee

(3,956)
Collection service fee(1,027)
Commission fee(1,930)

Depreciation and basis for accounting of investmentamortization (1)

(7,492)

Other expenses

(2,163)
Net foreign exchange gain5,702

Total operating expenses

(46,121)

Profit before income taxes

14,814

Income tax expense

(14,193)

Net income (loss)

The Group determined

621
Other comprehensive income (loss) that it has significant influence over OPay Limited even though it was diluted in 2019 from holding 19.9%may be reclassified to 13.1% of the voting rights in the company and did not have a direct representation on the board of directors. In determining that it has significant influence, the Group considered the influence its chairman and CEO is capable of exercising on its behalf. The Group’s chairman and CEO is also the chairman and CEO of OPay, though appointed as a representative of a personal investment entity, which also is an investor in OPay. Based on the assessment that the chairman and CEO of the Group is capable of exercising significant influence in OPay on behalf of the Group, it was determined that it has power to participate in the financial and operating policy decisions of OPay and thus the investment was classified as an associate.

In 2019, the Group acquired preferred shares in OPay, as disclosed in Notes 16 and 27. While the preferred shares have characteristics similar to equity instruments, the Group determined that the rights and benefits inherent in the preferred shares, including redemption rights and liquidation preference, entail that they in substance are debt instruments. Consequently, the Group classified the preferred shares as financial instruments measured at fair value through profit or loss. The carrying amountloss in subsequent periods (net of the preferred shares is parttax)

Exchange difference on translation of the Group’s net investment in OPay. The Group applied significant judgment in determining theforeign operations

(2,227)

Total comprehensive income (loss)

(1,606)
Group's share of net income (loss) to be recognized under the equity method. The Group considered the rights and benefits of all classes of shares issued by OPay and determined that the 261
Group's share was to be calculated based on its number of ordinary shares relative to the total number of shares outstanding, including preferred shares, opposed to only the total number of ordinary shares outstanding.

Fair value of preferred shares in associates

The Group has invested in preferred shares in OPay and StarMaker, both entities classified as associatesother comprehensive income (loss)

(935)

(1) Includes US$6.2 million in depreciation and amortization of fair value adjustments done by the Group. These preferred shares represent a long-term interest that in substance form part of the net investment in the associates. Due to their characteristics the preferred shares are not equity instruments and do not give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. Thus, the preferred shares are measured at fair value through profit or loss.

The fair values of preferred shares in OPay and StarMaker as of December 31, 2019 were measured using methods and techniques that reflect the economic rights and benefits of the preferred shares. These rights and benefits include redemption rights and liquidation preferences. A combination of the following three valuation methods was used to estimate the fair value of the preferred shares: Probability weighted expected return model (“PWERM”); Option pricing model (“OPM”); and Current value method (“CV”). These models build on estimates, such as discount for lack of marketability and the fair value of equity in OPay and StarMaker. Moreover, the PWERM model is based on estimates for future scenarios and outcomes, including sale transactions, initial public offering, dissolution, and redemption. More details on the models and input are provided in Note 16.

Fair value of microloans

Microloans are measured at fair value through profit or loss. Fair value is estimated by discounting projected future cash flows to their present value using the credit-adjusted effective interest rate, determined as at the date loans were granted. This method is deemed appropriate for estimating fair value due to the short duration of the loans and the amounts of origination fees and interest reflecting market rates at the point in time when the loans were granted. The credit-adjusted effective interest rate reflects the risk of defaulted payment. The total cash flows (both principal, origination fees and interest) expected to be collected are regularly reviewed. The impact of changes in expected cash flows is adjusted in the carrying amount of Loans to customers and is, together with the difference between the realized and expected cash flow of the period, recognized in the Statement of Operations as Revenue or Other changes in fair value of loans to customers. The underlying estimates for future cash flows, which form the basis for revenue recognition, depends on variables such as the ability to contact the debtor and reach an agreement, timing of cash flows, general economic environment, and statutory regulations. Events or changes in assumptions and management’s judgment will affect the recognition of revenue in the period.

Provision for expected credit losses

For trade receivables and other financial assets measured at amortized cost, a loss allowance is recognized based on lifetime expected credit losses.

For trade receivables, the Group makes specific loss provisions at the level of specific customer invoices where information exists that management can utilize in its determination of credit risk. For trade receivables where no specific risk information is identified, the Group uses a provision matrix that is based on the nature of the receivable, location of its invoicing and the age of the invoice relative to its due date, reflecting its historical credit loss experience and adjusting for forward-looking factors specific to the debtors and the economic environment. See Note 21 for more information.

Collectability of consideration from Powerbets

In order to recognize revenue from a contract with a customer within the scope of IFRS 15, certain criteria must be met, including it being probable that the Group will collect the consideration to which it will be entitled in exchange for the goods or services transferred to the customer. In evaluating whether collectability of an amount of consideration is probable, the Group considers the customer’s ability and intention to pay that amount of consideration, which may involve significant judgment.

In 2019, the Group recognized US$2,210 thousand of revenue from contracts with Powerbets (2018: US$4,369 thousand and 2017: US$0). As of December 31, 2019, the total amount of outstanding trade receivables due from Powerbets was US$6,579 thousand, compared to US$4,369 thousand as of December 31, 2018.

In assessing whether the collectability criterion was met for contracts with Powerbets, management considered the likelihood of and timing for when Powerbets will start generating net cash inflows from its operating activities and other factors that are relevant in assessing the timing of revenue recognition and collectability of related accounts receivable. See Notes 21, 27 and 28 for more information.

As of December 31, 2019, the Group estimated the lifetime expected credit losses on the receivables due from Powerbets for the purpose of recognizing a loss allowance. In estimating the cash flows the Group expects to receive, it considered a range of possible outcomes, which were assigned weights based on probabilities. Possible outcomes included scenarios in which Powerbets starts generating sufficient cash flows from its operating activities to settle the receivables and capital contributions from new investors in the company.  

Impairment of non-financial assets

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The Group tested the Browser and News CGU, which includes goodwill and the Opera brand (“Trademark”), for impairment as of December 31, 2019, based on an estimate of its value in use. The value in use calculation is based on a discounted cash flow (“DCF”) model. It requires management to estimate future cash flows expected to arise from the CGU using a suitable discount rate. The key assumptions in determining the value in use are the expected future cash flows, long-term growth rate and the discount rate. The key assumptions, including a sensitivity analysis, are disclosed in Note 10.

 

F-22

OPay

OPay Limited is an associate in which the Group has a 13.10% ownership interest, of which 10.24% is held in preferred shares and 2.86% in ordinary shares. The investment in ordinary shares is accounted for in accordance with the equity method, while the preferred shares are accounted for as long-term interests in the associate and measured at fair value through profit or loss. For information about the measurement of the preferred shares, see Note 16.

In 2018, OPay launched a mobile wallet (“OWallet”) to customers in Nigeria, a market characterized by a large un-banked population with low mobile money penetration. OPay’s goal is to become a one-stop mobile-based platform for financial and social inclusion.

In 2020, OPay’s payment initiatives, OWallet and point of sale solutions for merchants, OPos, continued to scale, both in the number of users and total transaction volume. OPay's revenues in the fourth quarter of 2020 were approximately 450% higher than in the first quarter of the year. In 2020, OPay had revenues of US$38.4 million, and exited the year with US$69 million annual revenue run rate (based on fourth quarter performance). Cost of revenue in 2020 was US$13.3 million, while operating expenses were US$48.6 million. The net loss after taxes for OPay was US$30.6 million for 2020.

To fund its growth, OPay raised a total of US$170 million in new capital from investors in 2019 by issuing both ordinary and preferred shares. On May 27, 2019, Opera acquired 3,210,617 Series Seed+ preferred shares in OPay for US$7.5 million by converting loans to equity. Moreover, on May 29, 2019, Opera acquired 1,230,736 Series A preferred shares in OPay for US$4.6 million by converting US$2.67 million of debt to equity and by transferring US$1.93 million in cash. By the end of 2019, the accumulated investment made in OPay was US$12.1 million. Of the loans converted to equity in 2019, US$4,969 was classified as part of the net investment in prior periods. There were no funding rounds during 2020, except for OPay obtaining convertible loans totaling US$30 million.

StarMaker

Star Group Interactive Inc. (formerly StarMaker Inc. and here referred to as “StarMaker”) is an associate in which the Group has preferred shares representing a 19.35% ownership interest. The preferred shares, accounted for as long-term interests and measured at fair value through profit or loss, have dividend and liquidation preference. For information about the measurement of the preferred shares, see Note 16.

StarMaker is a technology-driven social media company focused on music and entertainment. StarMaker enables users to record and share their own music videos, collaborate with other musicians, connect with other users and follow their idols on the social platform. In 2020, StarMaker grew revenues by approximately 210% to US$89.9 million, and exited the year with US$127 million annual revenue run rate (based on fourth quarter performance). The net profit after taxes was US$13.2 million for 2020. This was driven by a doubling of daily active users and increased monetization. StarMaker is popular in emerging markets like Southeast Asia, Middle East, and is also seeing solid growth in developed markets.

nHorizon

nHorizon is a joint venture in which the Group has a 29.09% ownership interest. nHorizon operates an Opera browser in China with monetization partners, including Baidu, Sogou and others. nHorizon consists of nHorizon Innovation (Beijing) Software Limited and nHorizon Infinite (Beijing) Software Limited (collectively, “nHorizon”). The joint venture was co-founded by Otello Corporation ASA and Telling Telecom in August 2011. The Group acquired the investment in nHorizon as a result of the acquisition of Opera Norway AS in 2016.

Powerbets

Powerbets Holdings Limited was a joint venture in which the Group held a 50.1% ownership interest, while Supabets HL Limited owned the remaining 49.9%. The joint venture was established on August 1, 2017. Powerbets provides a platform for sports betting, virtual sports betting, and gaming services throughout Africa.

The Group disposed of its entire Powerbets ownership interest in December 2020, resulting in a gain on disposal of US$2.1 million, which was recognized as Other income in the Statement of Operations. In 2020, the Group recognized US$10.5 million in credit loss expense related to trade receivables and long-term loans provided to Powerbets in the period from 2017 until 2020. The credit loss expense was recognized as Credit loss expense related to divested joint venture in the Statement of Operations. See Note 14 for additional information on the credit loss expense. 

2018 summary information regarding OPay, StarMaker, nHorizon and Powerbets

2019 summary information regarding OPay, StarMaker, nHorizon and Powerbets

 

Share-based payments

The Group has established an employee equity plan to provide long-term incentives for its employees.

Estimating fair value for share-based awards requires an assessment of an appropriate valuation model, which depends on the terms2020 summary information regarding OPay, StarMaker, nHorizon and conditions of the grant. The estimate also requires an assessment of the most appropriate inputs to the valuation model including grant date fair value of the underlying equity, the expected life of the grant, volatility and dividend yield. Assumptions and models used for current grants are disclosed in Note 6.Powerbets

When applicable, employer social security costs are accrued over the vesting period of each award, based on the award’s intrinsic value of the underlying equity interest as of the reporting date.

Both periodic equity costs and social security cost accruals are adjusted for estimated forfeitures.

Capitalized development costs

The Group capitalizes expenditure incurred in the development of new products and services. Initial capitalization of expenditure is based on management’s judgment that the project meets all of the six criteria discussed above in the accounting policy for intangible assets. Assessing if and when all of these criteria are met is based on judgment, which takes into account past experiences and expectations about the technical ability to complete the asset as intended

The Group periodically, and when circumstances warrant, reviews capitalized costs to evaluate whether there are indicators of impairment for individual assets. If indicators of impairment are identified, the Group tests the asset or CGU to which it is included for impairment in accordance with the principles discussed above. In the event the Group abandons a development project, the asset is written off immediately. See Note 10 for more information.

NOTE 3.

CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

3.1 New standards, interpretations and amendments adopted by the Group

The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those applied in the preparation of the Group’s annual consolidated financial statements for the year ended December 31, 2018, except for the adoption of IFRS 16 Leases, as outlined below, and a change in accounting policy for expenditure related to software as a service ("SaaS") cloud computing arrangement. Prior to 2019, the Group capitalized expenditure related to implementation of SaaS arrangement, while under the amended policy, such expenditure is expensed when incurred. The change in accounting policy for SaaS arrangement had an immaterial impact on the Group’s consolidated financial statements. Several other amendments and interpretations apply for the first time in 2019 but did not have a material impact on the consolidated financial statements of the Group. The Group has not early adopted standards, interpretations or amendments that have been issued but is not yet effective. See Note 2 for information about the Group’s accounting policies.

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 an adjustment to the opening balance of Retained earnings at that date. Comparative information has not been restated.

For leases which had previously been classified as operating leases under the principles of IAS 17, 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 2.15% to 12.3%, where the variance is primarily explained by the currencies in 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.
  

Year ended December 31, 2020

 

[US$ thousands]

 

OPay

  

StarMaker

  

nHorizon

  

Powerbets

 

The Group’s interest

  13.10%(2)  19.35%(1)  29.09%  0.00%

Revenue

  38,388   89,937   12,837   9,638 

Operating profit (loss)

  (30,700)  13,298   (1,827)  (1,029)

Net income (loss)

  (30,618)  13,151   (1,840)  (1,481)

Other comprehensive income that may be reclassified to net income

  -   -   -   - 

Total comprehensive income

  (30,618)  13,151   (1,840)  (1,481)

Group's share of net income (loss)

  (876)  N/A   (535)  (742)
                 

Current assets

  72,573   36,600   6,068   N/A 

Non-current assets

  34,860   13,000   578   N/A 

Current liabilities

  40,368   36,900   5,302   N/A 

Non-current liabilities

  180,639   34,800   -   N/A 

Equity

  (113,575)  (22,100)  1,343   N/A 

(1) The Group ownership interest in StarMaker is held through preferred shares, which are measured at fair value through profit or loss.

(2) Reflects the total ownership interest in OPay as of December 31, 2019 and 2020, 10.24% of which is held in preferred shares and 2.86% in ordinary shares. The share of net income (loss) recognized under the equity method was calculated based on the investment in ordinary shares, relative to the total number of shares outstanding. The Group owns 8.85% of the total number of ordinary shares issued by OPay.

 

[US$ thousands]

As of January 1, 2019

Measurement of lease liabilities

Operating lease commitments disclosed as of December 31, 2018

7,790

Discounted using the lessee’s incremental borrowing rate (4%) of at the date of initial application

7,202

Add: adjustments as a result of a different treatment of extension and termination options

7,533

Add: finance lease liabilities recognized as of December 31, 2018

234

Lease liability recognized as of January 1, 2019

14,969

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:
  

Year ended December 31, 2019

 

[US$ thousands]

 

OPay

  

StarMaker

  

nHorizon

  

Powerbets

 

Carrying amount as of January 1, 2019

  4,330   30,000   443   289 

Investment during the year

  7,131   -   -   366 

Change in fair value of preferred shares

  33,900   4,000   -   - 

Foreign exchange adjustment

  -   -   3   - 

Other adjustments

  673   -   -   157 

Share of net income (loss)

  (2,938)  N/A   518   (2,572)

Share of other comprehensive income

  -  

 

NA   -   - 

Carrying amount as of December 31, 2019

  43,096   34,000   963   (1,760)
                 

Groups share in %

  13.10%   19.35%  29.09%  50.10%

Groups share in equity

  (2,145)  n/a   886   (6,424)

Unrecognized intangible assets

  -   n/a   -   566 

Equity method adjustments

  (759)  n/a   77   4,097 

Fair value of preferred shares (1)

  46,000   34,000   -   - 

Carrying amount as of December 31, 2019

  43,096   34,000   963   (1,760)

(1) The carrying amount of the preferred shares form part of the net investment in the associates.

(2) The cost of the investment in Nanobank was the fair value of the Group's ownership interest in the entity obtained following the contribution of TenSpot Pesa Limited.

(3) In 2020, the Group recognized US$3,897 thousand in credit loss expense on long-term loans due from Powerbets. Because the long-term loans were classified as part of the net investment in Powerbets, these had absorbed losses under the equity method in the period from 2017 until 2020, resulting in their carrying amount being zero at the time the Group concluded that they were credit impaired. Upon recognition of the impairment loss, the equivalent amount was recognized as income on the line item for Share of net income (loss) of associates and joint ventures in the Statement of Operations. Thus, the credit loss expense was effectively reclassified as such in the Statement of Operations for 2020. The amount for share of net loss from Powerbets in the table above does not include the impact of that reclassification. 

 

[US$ thousands]

F-43

NOTE 14.

TRADE RECEIVABLES, OTHER RECEIVABLES AND PREPAYMENTS

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.

3.2 New standards, interpretations and amendments not yet effective

New and amended IFRSs, interpretations and amendments, which have been published but are not effective as of December 31, 2019, are not expected to have a material impact on the consolidated financial statements upon adoption. As of January 1, 2020, the amendments disclosed below became effective. These could impact the Group’s consolidated financial statements for future periods.

Amendments to IFRS 3: Definition of a Business

The IASB has issued amendments to the definition of a business in IFRS 3 Business Combinations to help entities determine whether an acquired set of activities and assets is a business or not. The amendments clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test. Since the amendments apply prospectively to transactions or other events that occur on or after the date of first application, the Group will not be affected by these amendments on the date of transition. The Group adopted the amendments on January 1, 2020.

Amendments to IAS 1 and IAS 8: Definition of Material

IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors have been amended by the IASB to align the definition of “material” across the standards and to clarify certain aspects of the definition. The new definition states that, “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.” The amendments to the definition of material is not expected to have a significant impact on the Group’s consolidated financial statements. The Group adopted the amendments prospectively on January 1, 2020.

NOTE 4.

SEGMENT AND REVENUE INFORMATION

For management reporting purposes, the Group is organized into business units based on its products and services and has four reportable segments, as follows:

[US$ thousands]

 

As of December 31,

 

Trade receivables

 

2019

  

2020

 

Trade receivables

  39,981   18,152 

Unbilled receivables

  9,390   10,658 

Total

  49,371   28,809 

[US$ thousands]

 

As of December 31,

 

Other receivables

 

2019

  

2020

 

VAT

  1,232   1,218 

Receivable due from Otello Corporation ASA

  924   - 

Receivable due from OPay (1)

  -   5,000 

Deposit in restricted escrow account

  52,878   - 

Other

  4,078   4,532 

Total

  59,112   10,750 

(1) The receivable due from OPay is the consideration for the sale of Blue Ridge Microfinance Bank. See Note 26 additional information.

 

Browser and News

[US$ thousands]

 

As of December 31,

 

Prepayments

 

2019

  

2020

 

Prepaid expenses (1)

  25,809   9,061 

Total

  25,809   9,061 

(1) See Note 26 for specification of amount of prepaid expenses with Mobimagic Digital Technology Ltd.

[US$ thousands]

 

As of December 31,

 

Allowance for impairment of trade receivables

 

2019

  

2020

 

As of period start

  1,619   1,446 
Loss allowance related to trade receivables due from Powerbets  -   6,579 

Other changes in the period

  (173)  (382)

As of period end

  1,446   7,643 

As of period end, the aging of trade receivables was as follows.     

[US$ thousands]

     

Neither past due

  

Past due

 

Aging analysis of trade receivables

 

Total

  nor impaired  

<30 days

  

31-60 days

  

61-90 days

  

>90 days (1)

 

As of December 31, 2019

  39,981   22,125   8,761   657   341   8,097 

As of December 31, 2020

  18,152   14,647   1,425   367   117   1,597 

(1) As of year-end 2020, the total amount of trade receivables due from Powerbets, which was a joint venture until its disposal, was US$ nil (December 31, 2019: US$6,579 thousand).

For trade receivables, the Group recognizes a loss allowance based on lifetime expected credit losses as of each reporting date. The Group makes specific loss provisions at the level of specific invoices where information exists that management can utilize in its determination of risk. For trade receivables where no specific risk information is identified, the Group uses a provision matrix that is based on the nature of the receivable, location of its invoicing and the age of the invoice relative to its due date, reflecting its historical credit loss experience and adjusting for forward-looking factors specific to the debtors and the economic environment. As of December 31, 2020, the Group had recognized loss provisions related to receivables due from related parties of US$85 thousand (December 31, 2019: US$0).

As of December 31, 2020, the loss allowance totaled US$7,643 thousand, corresponding to 26.5% of trade receivables (December 31, 2019: US$1,446 thousand, corresponding to 2.9% of trade receivables).

Of the total loss allowance of US$7,643 thousand for trade receivables, US$6,579 thousand was related to trade receivables due from Powerbets, a joint venture of the Group until December 2020, at which point in time it was disposed of. In addition to the expected credit losses on trade receivables due from Powerbets, the Group recognized an impairment loss of US$3,897 thousand on long-term receivables due from Powerbets. Because the long-term loans were classified as part of the net investment in Powerbets, these had absorbed losses under the equity method in the period from 2017 until 2020, resulting in their carrying amount being zero at the time the Group concluded that they were credit impaired. Upon recognition of the impairment loss, the equivalent amount was recognized as income on the line item for Share of net income (loss) of associates and joint ventures in the Statement of Operations. Thus, the credit loss expense was effectively reclassified as such in the Statement of Operations for 2020. The credit loss expense on trade receivables and long-term loans due from Powerbets was recognized in the Statement of Operations as "credit loss expense related to divested joint venture". As of December 31, 2020, the carrying amount of trade receivables and long-term loans due from Powerbets was zero.

For details regarding the Group’s procedures on managing credit risk, please refer to Note 23.

F-44

NOTE 15.

CASH AND CASH EQUIVALENTS

Fintech

[US$ thousands]

 

As of December 31,

 

Cash and cash equivalents

 

2019

  

2020

 

Restricted cash

  216   280 

Cash and cash equivalents

  139,271   133,888 

Total

  139,487   134,168 

Restricted cash

Restricted cash is related to employee payroll tax withholdings for Norwegian employees, which are held in restricted deposit accounts under applicable regulations. The Group considers these balances to be cash equivalents because the related liabilities are settled from these accounts on a continuous basis.

F-45

NOTE 16.

FINANCIAL ASSETS AND LIABILITIES

Retail

Other

In prior periods,

In 2019 and 2020 the Group had one operating segment. The change in 2019 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 segment 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 standalone apps. These products, which have similar characteristics and are often closely bundled, generate search and advertising revenue for the Group. The Fintech segment relates to app-based microfinance services that offer instant credit to approved borrowers. The retail segment 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.

[US$ thousands]

 

Year ended December 31, 2017

 

Segments

 

Browser

and News

  

Fintech

  

Retail

  

Other

  

Total

 

Revenue

                    

Revenue from contracts with customers

  109,239   -   -   19,653   128,892 

Total revenue

  109,239   -   -   19,653   128,892 
                     

Cost of revenue

  (1,303)  -   -   (2,666)  (3,969)

Marketing and distribution expenses

  (30,971)  -   -   -   (30,971)

Credit loss expense (1)

  (1,837)  -   -   -   (1,837)

Direct expenses

  (34,111)  -   -   (2,666)  (36,777)
                   - 

Contribution by segment

  75,128   -   -   16,987   92,115 

[US$ thousands]

 

Year ended December 31, 2018

 

Segments

 

Browser

and News

  

Fintech

  

Retail

  

Other

  

Total

 

Revenue

                    

Revenue from contracts with customers

  138,444   -   9,287   22,890   170,621 

Other revenue

  -   1,655   -   -   1,655 

Total revenue

  138,444   1,655   9,287   22,890   172,276 
                     

Cost of revenue

  (3,637)  (428)  (9,096)  (6,848)  (20,009)

Marketing and distribution expenses

  (31,336)  (45)  -   -   (31,381)

Credit loss expense (1)

  678   (528)  -   -   150 

Direct expenses

  (34,295)  (1,001)  (9,096)  (6,848)  (51,240)
                     

Contribution by segment

  104,149   654   191   16,042   121,036 

[US$ thousands]

 

Year ended December 31, 2019

 

Segments

 

Browser

and News

  

Fintech

  

Retail

  

Other

  

Total

 

Revenue

                    

Revenue from contracts with customers

  154,968   -   29,802   21,712   206,482 

Other revenue

  -   128,373   -   -   128,373 

Total revenue

  154,968   128,373   29,802   21,712   334,855 
                     

Cost of revenue

  (2,642)  (29,759)  (29,836)  (11,754)  (73,991)

Marketing and distribution expenses

  (64,685)  (8,464)  -   -   (73,150)

Credit loss expense (1)

  (577)  (54,302)  -   -   (54,879)

Direct expenses

  (67,904)  (92,525)  (29,836)  (11,754)  (202,019)
                   - 

Contribution by segment

  87,064   35,848   (34)  9,958   132,835 

(1) For the Browser and News segment, Credit loss expense in the segment reporting is consistent with Credit loss expense in the Statement of Operations, while for the Fintech segment, Credit loss expense is consistent with Other changes in fair value of loans to customers in the Statement of Operations. 

Other income, personnel expenses, depreciation and amortization, share of net income (loss) of associates and joint ventures, change in fair value of preferred shares in associates, finance income and expense, net foreign exchange gain (loss), income tax expense and other expenses are not allocated to those segments as they are managed and monitored on a group basis.

[US$ thousands]

 

Year ended December 31,

 

Reconciliation

 

2017

  

2018

  

2019

 

Contribution by segment

  92,115   121,036   132,835 

Other income

  5,460   -   - 

Personnel expenses including share-based remuneration

  (42,134)  (34,683)  (61,029)

Depreciation and amortization

  (16,604)  (12,694)  (18,933)

Other expenses

  (25,359)  (28,359)  (32,210)

Restructuring costs

  (3,240)  -   - 

Share of net income (loss) of associates and joint ventures

  (1,670)  (3,248)  (3,818)
Change in fair value of preferred shares in associates  -   -   37,900 

Finance income

  1,054   1,637   10,530 

Finance expense

  (238)  (1,695)  (1,505)

Net foreign exchange gains (losses)

  (1,881)  (354)  (269)

Net income (loss) before income taxes

  7,504   41,641   63,500 

Revenue

Set out below is the disaggregation of the Group’s revenue from contracts with customers. Origination fees and late interest from loans to customers are also presented as revenue in the Statement of Operations.

[US$ thousands]

 

Year ended December 31, 2017

 

Segments

 

Browser

and News

  

Fintech

  

Retail

  

Other

  

Total

 

Type of goods or service

                    

Search

  68,192   -   -   -   68,192 

Advertising

  41,047   -   -   -   41,047 

Airtime and handsets

  -   -   -   -   - 

Technology licensing and other revenue (1)

  -   -   -   19,653   19,653 

Total revenue from contracts with customers

  109,239   -   -   19,653   128,892 

Origination fees and late interest

  -   -   -   -   - 

Total revenue

  109,239   -   -   19,653   128,892 

[US$ thousands]

 

Year ended December 31, 2018

 

Segments

 

Browser

and News

  

Fintech

  

Retail

  

Other

  

Total

 

Type of goods or service

                    

Search

  80,204   -   -   -   80,204 

Advertising

  58,240   -   -   -   58,240 

Airtime and handsets

  -   -   9,287   -   9,287 

Technology licensing and other revenue (1)

  -   -   -   22,890   22,890 

Total revenue from contracts with customers

  138,444   -   9,287   22,890   170,621 

Origination fees and late interest

  -   1,655   -       1,655 

Total revenue

  138,444   1,655   9,287   22,890   172,276 

[US$ thousands]

 

Year ended December 31, 2019

 

Segments

 

Browser

and News

  

Fintech

  

Retail

  

Other

  

Total

 

Type of goods or service

                    

Search

  86,155   -   -   -   86,155 

Advertising

  68,813   -   -   -   68,813 

Airtime and handsets

  -   -   29,802   -   29,802 

Technology licensing and other revenue (1)

  -   -   -   21,712   21,712 

Total revenue from contracts with customers

  154,968   -   29,802   21,712   206,482 

Origination fees and late interest

  -   128,373   -   -   128,373 

Total revenue

  154,968   128,373   29,802   21,712   334,855 

(1) Technology licensing and other revenue in 2019 include US$18,632 thousand related to professional services provided to associates and other related parties of the Group (2018: US$18,319 thousand and 2017: US$3,216 thousand).

The table below presents the revenue by customer location.

[US$ thousands]

 

Year ended December 31,

 

Revenue by customer location

 

2017

  

2018

  

2019

 

Ireland

  63,152   76,791   81,637 

Russia

  18,251   17,356   17,265 

India

  -   1,549   98,504 
Kenya  -   3,426   35,086 

Other (1)

  47,490   73,154   102,363 

Total

  128,893   172,276   334,855 

(1) No other individual country exceeded 10% of total revenue.

Revenue by country is based upon the customers' countries of domicile, which is not necessarily an indication of where activities occur because the end-users of the Group's products are located worldwide.

The Group has two customer groups that each has exceeded 10% of the Group's revenue in the periods below.

[US$ thousands]

 

Year ended December 31,

 
Customer groups 

2017

  

2018

  

2019

 

Customer group 1

  55,685   67,882   74,572 

Customer group 2

  16,604   17,017   17,758 

Revenue from Customer group 1 includes both search and advertising services, while revenue from Customer group 2 includes only search services.

Other income

During 2017, the Group entered into a set of agreements with one customer that included a sale of intellectual property, which had embedded technology licensed from Otello Corporation ASA, and certain time-restricted hosting services. The sale of intellectual property (IP), net of associated costs and the book value of the divested IP, and the costs of external technology required to enable the intellectual property to be transferred, is presented net as Other Income. Revenue related to the licensing of the Group's own IP and the revenues from hosting services are included in the Technology Licensing and other category

[US$ thousands]

 

Year ended December 31,

 

Other income

 

2017

  

2018

  

2019

 

Proceeds allocated to divestment of IP

  7,800   -   - 

Cost of technology license obtained from Otello Corporation ASA

  (2,000)  -   - 

Book value of associated capitalized development costs

  (256)  -   - 

Legal fees related to the divestment process

  (84)  -   - 

Total

  5,460   -   - 

NOTE 5.

LOANS TO CUSTOMERS

The Group engages in microlending in several developing countries, including Kenya and India. In 2019, the Group provided loans to customers with a relatively short duration, up to 365 days, in exchange for an origination fee that remained fixed regardless of any early repayment. The average duration for microloans provided in 2019 was 15 days. Additional fees in the form of interest, limited to the sum of the principal and origination fee, is accrued only if and after a loan was not repaid by its due date.

The fair value of microloans is presented in the Statement of Financial Position as Loans to customers. In the Statement of Operations, changes in fair value are disaggregated into Revenue and Other changes in fair value of loans to customers. While fair value of loans to customers is estimated as the present value of expected cash flows discounted by the credit-adjusted effective interest rate, the amount of revenue recognized related to origination fees and interest is measured based on the effective interest rate method. The amount of Other changes in fair value of loans to customers, presented as credit loss expense in the segment reporting in Note 4, is the difference between the fair value at inception or the beginning of the period and the fair value at the end of the period, less cash flows received in the period and interest revenue. Other changes in fair value of loans to customers consist primarily of changes in fair value of expected cash flows.

See Note 18 for information on the Group’s exposure to credit risk and its policies for managing that risk.

The following tables present detailed financial information related to the microloans to customers:

 

 

Loans to customers

  

Loans to customers

  

Loans to customers

  

Loans to customers

     

[US$ thousands]

Statement of Financial Position as of December 31, 2018

 

not yet

overdue

  

overdue

1-30 days

  

overdue

31-90 days

  

overdue

>90 days

  Total 
Disbursed amounts  1,520   503   235   310   2,568 
Accumulated interest revenue  247   223   276   400   1,146 
Accumulated credit loss expense (1)  -   (91)  (99)  (337)  (528)
Accumulated partial repayments  (6)  (37)  (34)  (18)  (95)

Net loans to customers

  1,762   598   378   355   3,092 

 

 

Loans to customers

  

Loans to customers

  

Loans to customers

  

Loans to customers

     

[US$ thousands]

Statement of Financial Position as of December 31, 2019

 

not yet

overdue

  

overdue

1-30 days

  

overdue

31-90 days

  

overdue

>90 days

  Total 
Disbursed amounts  88,271   10,350   13,462   20,335   132,418 
Accumulated interest revenue  5,101   2,017   3,390   6,830   17,338 
Accumulated credit loss expense (1)  (4,754)  (8,629)  (15,950)  

(24,969

)  (54,302)
Accumulated partial repayments  (30)  (137)  (300)  (1,375)  (1,843)

Net loans to customers

  88,588   3,601   602   325   93,115 

(1) Accumulated credit loss expense is part of Other changes in fair value of loans to customers in the Statement of Operations. 

[US$ thousands]

 

Year ended December 31,

 

Statement of Operations

 2017  

2018

  

2019

 

Origination fees and late interest

  -   1,655   128,373 
Other changes in fair value of loans to customers  -   (528)  (54,431)
Net change in fair value of loans to customers  -   1,127   74,071 

[US$ thousands]

 

Year-ended December 31,

 

Reconciliation of fair value measurement of loans to customers

 

2018

  

2019

 

As of January 1

  -   3,092 

Disbursements

  9,728   856,883 

Interest revenue

  1,655   128,373 

Other changes in fair value

  (528)  (54,302)

Repayments

  (8,840)  (840,003)

Other movements

  1,077   (928)

As of December 31

  3,092   93,115 

Fair value measurement

The fair value of microloans is estimated as the present value of expected cash flows discounted by the credit-adjusted effective interest rate. The fair value is a level 3 measurement. Future expected cash flows are estimated based on historic data and management overlay when necessary to reflect current expectations.

In the Group’s fair value model, each individual loan is designated into groups of loans where each group of loans has a corresponding recovery curve. The recovery curve reflects the expected cash flows for that group of loans and is constructed based on the observed historic data for loans with similar characteristics (e.g., to a first-time borrower or a returning borrower, disbursed amounts, loan term (maturity) and actual repayments). As the loan progresses and the Group obtains payment data (behavior data) on the customer, the contract remains in its current loan group or switch to the loan group whose recovery curve is most aligned with the observed payment history for that specific contract. Based on accumulated data, Opera has no reasonable expectation of receiving cash flows subsequent to 180 days after maturity, and consequently do not include any expected cash flow after 180 days past due in the estimation of fair value.

A basic premise applied for the initial and subsequent measurement of fair value is that each loan is issued without the creation of a gain or loss on issue. Thus, at initial recognition, the fair value of the loan, being the net present value of expected future cash flows, equals the cash flows disbursed when issuing the loan. Due to the short duration of the loan, the credit adjusted effective interest rate, that resulted in no gain or loss at inception, is kept constant when measuring the fair value of the loan for the remaining of the duration of the loan.

Due to the short duration of the microloans, the most significant factor when evaluating the loans is the estimation of future expected cash flows (the recovery curve). The estimate of fair value is also sensitive to the discount rate.

A 10% increase in the expected future cash flows would result in the fair value of the loans to customers being US$101,641 thousand, while a 10% decrease would result in the fair value being US$84,589 thousand. If the annualized discount rate was 100 percentage points higher, the fair value would be US$92,933 thousand, and if the annualized discount rate was 100 percentage points lower, the fair value would be US$93,348 thousand. 

See Note 16 for additional details.

NOTE 6.

PERSONNEL EXPENSES INCLUDING SHARE-BASED REMUNERATION

The table below specifies the amounts of personnel expenses including share-based remuneration. The amount of personnel expenses presented as cost of revenue is specified in Note 7.

[US$ thousands]

 

Year ended December 31,

 

Personnel expenses including share-based remuneration

 

2017

  

2018

  

2019

 

Salaries incl. bonuses

  23,714   20,412   34,186 

Social security cost, excluding amounts related to share-based remuneration

  4,235   3,428   3,777 

External temporary hires

  686   1,687   8,159 

Defined-contribution pension cost

  2,068   2,066   3,616 

Other personnel related expenses

  1,935   2,244   5,364 

Personnel expenses excluding share-based remuneration

  32,638   29,836   55,101 

Share-based remuneration, including related social security costs

  9,496   4,846   5,928 

Total

  42,134   34,683   61,029 

The amount of expensed versus capitalized development cost is detailed in the following table:

[US$ thousands]

 

Year ended December 31,

 

Research and development expenditure

 

2017

  

2018

  

2019

 

Total research and development expenditure

  23,386   26,418   34,143 

Less: Capitalized development expenditure excluded from personnel expenses

  3,503   4,545   4,056 

Net expensed research and development expenditure

  19,883   21,873   30,087 

The table below specifies the amount of compensation to key management personnel, which include Officers and Directors of the Group:

[US$ thousands]

 

Year ended December 31,

 

Compensation of key management personnel

 

2017

  

2018

  

2019

 

Short-term employee benefits

  946   843   2,121 

Post-employment and medical benefits

  47   57   59 

Share-based payment transactions

  -   621   536 

Total

  993   1,521   2,716 

The amounts disclosed as short-term benefits in the table above are the amounts recognized as an expense during the reporting period. In 2019, the Chairman and CEO started receiving remuneration from the Group. The cost of equity grants to Officers that vested in 2019 was $536 thousand, compared to US$621 thousand in 2018. No equity grants vested in 2017. No loans have been granted and no guarantees have been issued to key management personnel. Key management personnel do not have any agreements for compensation upon termination or change of employment or directorship.

Share-based remuneration

On April 7, 2017 the Group adopted an RSU (Restricted Share Unit) plan for employees of the Group. The program was transferred to the Group’s new parent company, Opera Limited, in connection with the Group’s IPO in 2018. Awards equal to 10% of the equity of the Company are made available for grants.

The program was established with an assumption that there would be 500 million shares in the ultimate issuer entity. Opera Limited was set up with 200 million shares, resulting in a conversion ratio of 0.4 from the count of RSUs granted to the ultimate shares to be delivered. As each traded ADS represents two shares, the reported grants have been further adjusted by a factor of 0.5.

On January 10, 2019, the Group amended and restated its share incentive plan. The plan was adopted for the purpose of rewarding, attracting and retaining employees of the Group. Under the amended plan, a total of 20,000,000 ordinary shares are issuable to employees, corresponding to 10,000,000 ADSs. For the purpose of these consolidated financial statements, all counts of RSUs and options, as well as per-unit values, are communicated as converted to ADS equivalent units.

In 2019, grants were made in the months of March, June, September, November and December. The average vesting schedule for the majority of 2019 grants were 16%, 22%, 28%, 34% on January 1 in each of the years 2020-2023.

The equity unit value applied for the 2019 grants was determined based on the market value of the Company on the date of each grant. The fair value for RSUs granted was determined by Monte Carlo simulation, while the fair value of options was determined based on the Black-Scholes model, as specified below. The table presents the weighted average values across grants within each category of equity award instruments. The equity cost of each award is recognized on a straight-line basis over the vesting period.

The Group accrues for relevant social security costs based on the most recent available measure of the equity value, with the same straight-line recognition over the vesting period. As of December 31, 2019, social security cost was accrued based on the period-end market value of the Company, and corresponded to US$1,050 thousand. The full amount of social security payable on grants outstanding at period end, assuming all grants become exercisable at the current period-end market value of the Company, amounts to US$1,442 thousand.

The expense recognized for the employee services received is shown in the following table:

[US$ thousands]

 

Year ended December 31,

 

Expense from share-based payment transactions

 

2017

  

2018

  

2019

 

Expense arising from equity-settled share-based payment transactions (1)

  9,496   4,846   5,928 

Expense arising from cash-settled share-based payment transactions

  -   -   - 

Total

  9,496   4,846   5,928 

(1) Including accrued social security cost.

Movements during the period: Number of RSUs and options as expressed in equivalent ADSs:

  

Year ended December 31,

 

RSUs

 

2018

  

2019

 

Outstanding at period start

  3,882,600   4,244,132 

Granted during the period

  516,000   1,019,000 

Forfeited during the period

  (154,468)  (550,700)

Exercised during the period

  -   (1,728,492)

Expired during the period

  -   - 

Outstanding at period end

  4,244,132   2,983,940 

  

Year ended December 31,

 

Options

 

2018

  

2019

 

Outstanding at period start

  -   - 

Granted during the period

  -   150,000 

Forfeited during the period

  -   - 

Exercised during the period

  -   - 

Expired during the period

  -   - 

Outstanding at period end

  -   150,000 

The weighted average remaining vesting period for the equity instruments outstanding as of December 31, 2019 was 0.95 years (December 31, 2018: 0.97 years). On January 1, 2020, 1,130,000 RSUs and 30,000 options became exercisable, with no exercise price for the RSUs and $7.42 exercise price for the options.

Fair value measurement per awarded equity unit as converted to ADS equivalent:

  

2018 RSU grants:

RSU valuation input

  

2019 RSU grants:

RSU valuation input

  

2019 RSU grants:

Option valuation input

 

Equity unit price valuation ($)

  7.75   9.09(3)  7.42 

Model Used

  Monte Carlo  

 

Monte Carlo  

 

Black-Scholes 

Expected Volatility (%) (1), (2)

  35.28%  40.00%  40%

Risk free interest rate (%) (1)

  2.43%  1.70%  2.43%

Dividend Yield (%)

  0%  0%  0%

Duration of initial simulation period (years to longstop date)

  4.73   3.16   4.81 

Duration of second simulation period with postponed exercise (years)

  3.00   3.00   N/A 

Fair value at the measurement date ($)

  7.12   8.92   2.36 

(1) Specified value is 4 years (modelled on yearly basis).

(2) Based on a defined peer group of companies considered comparable to the Group.

(3) Weighted average equity unit price valuation of all grants in 2019.

NOTE 7.

COST OF REVENUE

The table below specifies the nature of expenses presented as Cost of revenue.

[US$ thousands]

 

Year ended December 31,

 

Cost of revenue

 

2017

  

2018

  

2019

 

Payouts to publishers and monetization partners

  1,303   1,227   2,096 

Cost of prepaid airtime and handsets sold

  -   9,096   29,836 

Microlending service fee (1)

  -   428   29,759 

Cost of professional services (2)

  2,181   6,693   11,754 

Other expenses

  485   2,565   546 

Total

  3,969   20,009   73,991 

(1) Includes accrued fee for provision of app, systems and platform maintenance, and data processing services as well as managerial oversight to P C Financial Services, the subsidiary of the Group offering microloans in India. See Note 28 for more details.


(2) The Group provided development and managerial services to equity-accounted investees. Related to this, the Group incurred expenses, predominantly personnel expenses. In 2019, the Group reclassified personnel and other operating expenses in prior periods as cost of revenue. In 2018, the Group reclassified personnel expenses of US$6,285 thousand as cost of revenue, compared to US$2,181 thousand in 2017. Other operating expenses reclassified as cost of revenue was US$408 thousand in 2018 and US$485 thousand in 2017.

NOTE 8.

OTHER EXPENSES

The table below specifies the nature of other expenses.

[US$ thousands]

 

Year ended December 31,

 

Other expenses

 

2017

  

2018

  

2019

 

Hosting

  12,105   10,146   6,941 

Audit, legal and other advisory services

  3,529   8,306   8,533 

Software license fees

  1,346   1,799   2,566 

Rent and other office expenses

  4,304   4,573   5,379 

Travel

  1,775   2,057   3,990 

Other

  2,300   1,477   4,801 

Total

  25,359   28,359   32,210 

NOTE 9.

FURNITURE, FIXTURES AND EQUIPMENT

[US$ thousands]

 

Office

properties

  

Furniture and

fixtures

  

Equipment

  

Leasehold

improvements

  

Total

 

Cost

                    

Cost as of January 1, 2018

  -   478   20,685   1,692   22,855 

Additions

  -   149   4,201   139   4,489 

Disposals

  -   -   -   -   - 

Exchange rate differences

  -   4   (312)  (93)  (401)

As of December 31, 2018

  -   629   24,574   1,738   26,942 
                     

Adjustment for change in accounting policy (1)

  6,739   -   8,230   -   14,969 

Restated cost as of January 1, 2019

  6,739   629   32,804   1,738   41,911 

Additions

  1,228   243   9,197   78   10,746 

Disposals

  -   -   (13,672)  -   (13,672)

Exchange rate differences

  -   5   (321)  (69)  (384)

As of December 31, 2019

  7,967   878   28,008   1,747   38,601 
                     

Depreciation and impairment

                    

As of January 1, 2018

  -   186   8,802   406   9,394 

Depreciation for the year

  -   116   5,001   243   5,360 

Disposals

  -   -   -   -   - 

Exchange rate differences

  -   21   28   (22)  26 

As of December 31, 2018

  -   324   13,831   628   14,780 
                     

Depreciation for the year

  1,766   139   8,585   258   10,748 

Disposals

  -   -   (12,994)  -   (12,994)

Exchange rate differences

  -   1   24   (17)  8 

As of December 31, 2019

  1,766   464   9,446   869   12,543 
                     
                     
                     

Net book value as of December 31, 2018

  -   306   10,742   1,109   12,162 

Net book value as of December 31, 2019

  6,201   415   18,562   878   26,053 

Office

properties

Fixture and

fittings 

Equipment

Leasehold

improvements

Useful life

Up to 6 years

Up to 5 years

Up to 10 years, or term of lease contract

Up to 6 years, or term of lease contract

Depreciation plan

Straight-line

Straight-line

Straight-line

Straight-line

(1) See Note 3 for information about change in accounting policy related to implementation of IFRS 16.

NOTE 10.

INTANGIBLE ASSETS

      

Customer

          

Other intangible

     

[US$ thousands]

 

Goodwill

  relationships  

Technology

  

Trademarks

  assets  

Total

 

Cost

                        

Cost as of January 1, 2018

  421,578   40,700   14,545   70,600   2,020   549,443 

Additions (1)

  -   -   4,132   -   27   4,159 

Disposals

  -   -   -   -   -   - 

Exchange differences

  -   -   -   -   -   - 

As of December 31, 2018

  421,578   40,700   18,677   70,600   2,047   553,602 
                         

Additions (1)

  -   -   3,545   -   -   3,545 

Disposals

  -   -   -   -   -   - 

Exchange differences

  -   -   -   -   -   - 

As of December 31, 2019

  421,578   40,700   22,222   70,600   2,047   557,147 
                         

Amortization and impairment

                        

As of January 1, 2018

  -   3,477   4,028   -   1,741   9,246 

Amortization for the year

  -   2,980   4,094   -   261   7,335 

Disposals

  -   -       -   -   - 

Exchange differences

  -   -       -   -   - 

As of December 31, 2018

  -   6,457   8,122   -   2,002   16,581 
                         

Amortization for the year

  -   2,980   5,203   -   2   8,185 

Disposals

  -   -   -   -   -   - 

Exchange differences

  -   -   -   -   (4)  (4)

As of December 31, 2019

  -   9,437   13,325   -   2,000   24,762 
                         
                         

Net book value as of December 31, 2018

  421,578   34,243   10,555   70,600   45   537,022 

Net book value as of December 31, 2019

  421,578   31,263   8,897   70,600   47   532,385 

Goodwill

Customer relationships

Technology

Trademarks

Other intangible assets

Useful life

Indefinite

Up to 15 year

Up to 5 year

Indefinite

Up to 5 years

Amortization method

Straight-line

Straight-line

Straight-line

(1) Represents capitalized development expenditure net of grants received from the Norwegian government.

Goodwill and our brand of Opera (the trademark) have indefinite useful lives and are tested for impairment at least annually. Both assets were initially recognized in November 2016 through the acquisition of Opera Norway AS with subsidiaries, consisting of one segment – “the Consumer business”. Due to growth and expansion into new businesses in 2019, including microlending, management organized the Group into four operating segments effective from 2019: Browser and News, Fintech, Retail and Other. The goodwill and the trademark that previously was allocated to the Consumer business CGU was reallocated to the Browser and News CGU.      

The Group performed its annual impairment test of Browser & News CGU as of December 2019 as required by IFRS.      

The carrying amount of the Browser & News CGU as of December 31, 2019 was US$577,376 thousand (December 31, 2018: US$580,705 thousand). In addition to goodwill and trademark it included customer relationships, trade and other receivables, trade and other payables and other assets and liabilities allocated to Browser & News CGU.

For carrying out the annual impairment testing, a discounted cash flow model is used to determine the value in use for the cash generating unit with goodwill and intangible assets with indefinite lives. The projected cash flows are based on the most up-to-date forecast that have been approved by management and do not include cash flows arising from future enhancements. The approved forecast is for 2020 only as management does not approve forecasts for a longer period. Because the length of the projection period for the cash flow forecast where a CGU has goodwill or intangible assets with indefinite lives is into perpetuity, we have identified a “steady state” set of assumptions for the cash flows based an approach where we estimate cash flows for the years 2021 to 2023 and then using the estimated cash flows in 2023 as the basis for the terminal value. This two-stage approach is aimed to take cash flows to a level at which they can be regarded as reflecting maintainable earnings and to the period in a mid-point of the cycle – i.e., not at peak or trough of the cycle. Beyond 2023, the cash flows are extrapolated using constant nominal growth rates.

The value-in-use calculation demonstrates that the value in use exceed the carrying amount of the CGU, i.e. it was not impaired.

Key assumptions

Key assumptions used in the calculation of value in use are the nominal cash flows in the forecast period, including revenue growth rate, discount rate, and estimated long-term growth.

Cash flows

Cash inflows in the Browser & News CGU are expected to grow over the projected period reaching its long-term stable level. The cash inflows are forecasted for each product and country where we have sufficient and reliable data on which to base the projections. Our PC browser revenue is expected to grow steadily, reflecting an expectation that we will continue to strengthen our position in western markets. This will bring users with strong monetization potential. Our mobile revenues are expected to increase faster, including in developing markets by continuous product development and the undertaking of cost-effective and efficient marketing and distribution initiatives.

Forecasted cash outflows are partly based on actual costs in 2019 and a bottom-up assessment for the relevant operating unit. Operating expenditures are expected to grow, primarily due to user acquisition initiatives by engaging more publishers and monetization partners, which is expected to increase our revenue, but also our cost of revenue as we pay a share of the revenues generated to these parties. The estimated increase in users will also lead to an uplift in hosting costs that are variable by its nature, like content delivery networks, bandwidth and cloud services.

Discount rate

The discount rate represents the current market assessment of the risk specific to the Browser & News CGU. The discount rate is based on the after-tax Weighted Average Cost of Capital (WACC) derived from the Capital Asset Pricing Model (CAPM) methodology and incremental borrowing rate, assuming cash flows in U.S. Dollars. The WACC calculation is based on a risk-free rate of 1.9% (2018: 3.0%), in 2019 based on the 10-year US Treasury Rate, and a market risk premium of 5.2% (5.68% in 2018). The estimated beta for equity was 1.4 (2018: 1.20). The equity to total capital ratio was 100% (2018: 97%). This resulted in a post-tax WACC of 13.1% (2018: 10.6%).

Long-term growth

In estimating the long-term growth in the terminal value, we estimated long-term GDP growth in the relevant regions. We assumed no growth in labor force as well as no improvement in labor productivity, which results in zero real GDP growth. Moreover, for estimating long-term inflation we used IMF’s inflation estimates for 2024, broken down across regions as the basis. Based on this we estimated a long-term nominal growth rate 3% for the Browser & News CGU (2018: 2.5%).

Sensitivity

We have simulated a variety of sensitivities to the key assumptions, including revenue growth rate, operating expenditure (as % of revenue), capital expenditure necessary for maintenance, long-term growth and the WACC. Since Opera is in a high-growth period, we consider changes of +/- 3 percentage points for the three former metrics and narrower +/- 1 percentage point for the long-term growth and WACC to be reasonable possible changes. No reasonable possible change in the key assumptions would result in the CGU being impaired as of December 31, 2019. The following thresholds would trigger an impairment loss:

Decrease in annual revenue growth in the projected period of 3.8 percentage points.

Increase in operating expenditure as percent of revenue by more than 12.3 percentage points.

Increase of WACC by more than 3.1 percentage points.

No economically reasonable changes to capital maintenance expenditure and the long-term growth rate would trigger the CGU to be impaired. For instance, there is no positive value of long-term growth that would result in impairment.

NOTE 11.

INVENTORIES

[US$ thousands]

 

As of December 31,

 

Inventories

 

2018

  

2019

 

Handsets

  -   7,656 

Prepaid airtime

  -   96 

Total

  -   7,752 

Inventories were measured at cost. No items of inventory were written down to net realizable value. The cost of inventory sold in the period is recognized as Cost of revenue. See Note 7 for more details.

NOTE 12.

LEASES

The Group is the lessee for leases of office space, data centers and servers and other equipment used in its operations.

The Statement of Financial Position has the following amounts relating to leases:

[US$ thousands]

 

As of December 31,

 

Amounts recognized in the Statement of Financial Position

 2018 (2)  2019 

Right-of-use assets (1)

        

Office properties

  0   6,178 

Equipment

  0   5,528 

Total

  0   11,706 
         

Lease liabilities

        

Current

  0   4,625 

Non-current

  0   7,378 

Total

  0   12,003 

(1) Additions to the right-of-use assets during the 2019 financial year were US$1.2 million.

(2) In the previous year, the Group only recognized lease assets and lease liabilities in relation to leases that were classified as "finance leases" under IAS 17. The assets were presented in property, plant and equipment and the liabilities as part of the Group’s borrowings. For adjustments recognized on adoption of IFRS 16 on 1 January 2019, please refer to Note 3

The Statement of Operations has the following amounts relating to leases:

[US$ thousands]

 

Year ended December 31,

 

Amounts recognized in the Statement of Operations

 

2018

  

2019

 

Depreciation charge of right-of-use assets

        

Office properties

  -   1,752 

Equipment

  -   2,739 

Total

  -   4,491 
         

Interest expense (included in Finance expense)

  -   457 

The total cash outflow for leases in 2019 was US$5,328 thousand. 

Lease contracts are typically made for fixed periods of 6 months up to 6 years but may have extension options as described below. Contracts may contain both lease and non-lease components, which are accounted for separately. The Group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. Lease terms are negotiated on an individual basis and are for a wide range of different terms and conditions. Some lease agreements required that the Group provide cash deposits as security for lease payments, while a guarantee is made by the Group in favor of Dell Bank International d.a.c. ("Dell") as security for all present and future lease liabilities, as disclosed in Note 14. Leased assets may not be used as security for borrowing purposes.

Prior to the adoption of IFRS 16 on January 1, 2019, as disclosed in Note 3, leases of office properties and equipment were classified as finance or operating leases. Note 12 provides information about the lease liabilities as of December 31, 2018 related what then were finance leases. From January 1, 2019, leases other than those leases that have a lease term of 12 months or less and leases for which the underlying asset is of low value, are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Assets and liabilities arising from a lease are initially measured on a present value basis.

To determine the incremental borrowing rate, which were the basis on which lease payments were discounted, the Group:

Where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received.

Used a build-up approach that started with a risk-free interest rate adjusted for credit risk for leases held by the Group, which does not have recent third-party financing.

Made adjustments specific to the lease, e.g., term, country, currency and security.

Extension and termination options

Extension and termination options are included in a number of property and equipment leases across the Group. To the extent the Group is reasonable certain it will exercise these extension options, they have been included in the right-of-use asset and lease liability. Extension and termination options are used to maximize operational flexibility in terms of managing the assets used in the Group’s operations. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.

NOTE 13.

LEASE LIABILITIES AND OTHER LOANS

The terms, including interest rates and maturities, and the total carrying amount of lease liabilities and interest-bearing loans are presented below.

[US$ thousands]

         

As of December 31,

 

Lease liabilities and interest-bearing loans

 

Interest rate

 

Maturity

 

2018

  

2019

 

Lease liabilities

          229   12,003 

Interest-bearing loans (1)

  2%-9% January 2020-

July 2023

  4,040   43,904 

Total

          4,269   55,907 

(1) See Notes 18 and 19 for more information about a loan of US$42,247 thousand as of December 31, 2019.

Total lease liabilities and other loans, non-current and current are summarized below.

[US$ thousands]

 

As of December 31,

 

Non-current lease liabilities and other loans

 

2018

  

2019

 

Lease liabilities

  33   7,378 

Interest-bearing loans

  2,238   736 

Other loans

  -   1,067 

Total

  2,271   9,181 

[US$ thousands]

 

As of December 31,

 

Current lease liabilities and other loans

 

2018

  

2019

 

Lease liabilities

  196   4,625 

Interest-bearing loans

  1,802   43,169 

Other loans

  492   0 

Total

  2,490   47,793 

See Note 12 for additional details regarding the Group’s leases and Note 17 for a maturity analysis of the financial liabilities.

NOTE 14.

GUARANTEES AND OTHER COMMITMENTS

A guarantee has been made by the Group in favor of Dell Bank International d.a.c. ("Dell") as a security for all present and future lease liabilities of the Group (as the lessee) to Dell. This guarantee is limited to a principal amount of US$11,382 thousand, with the addition of any interests, costs and/or expenses accruing on the liabilities and/or as a result of the Group’s non-fulfilment of the liabilities. The guarantee is independent and separate from the obligations of the Group as the lessee and is valid for 10 years from January 17, 2017.

In 2019, the Group entered into an agreement with Putu Novi Financing Corporation, a related party, under which the Group provided a revolving credit facility limited to US$10 million and would be entitled to interest and gross profit sharing of the borrower’s operations. The credit facility was provided for a period of 18 months starting on December 18, 2019. As of December 31, 2019, no loans were provided under the credit facility. See Note 28 for additional details.

In 2018, the Group provided a revolving credit facility of US$6 million to Powerbets, a related party. As of December 31, 2019, a total of US$3.0 million was drawn under the credit facility. The loan to Powerbets forms part of the Group’s net investment in the company due to settlement neither being planned nor being likely to occur in the foreseeable future. See Note 28 for more information.

NOTE 15.

OTHER CURRENT LIABILITIES

[US$ thousands]

 

As of December 31,

 

Other current liabilities

 

2018

  

2019

 

Accrued personnel expenses

  6,919   10,472 

Trading liability (1)

  500   - 

Unsettled trades (1)

  335   - 

Customer deposits

  -   2,694 

Other current liabilities

  1,947   1,976 

Total

  9,701   15,142 

(1) See Note 16 for additional information.

NOTE 16.

FINANCIAL ASSETS AND LIABILITIES

The group has the following financial instruments:

 

 

Loans and receivables: Trade receivables, loans to customers, other receivables, preferred shares, and other current and non-current financial assets.

 

Equity instruments: Holdings of publicly traded securities.

 

Loans, borrowings and payables: Interest-bearing loans, lease liabilities, trade payables, other payables and other current and non-current financial liabilities.

The table below shows the various financial assets and liabilities, grouped in the different categories of financial instruments.liabilities.

[US$ thousands]

 

As of December 31,

 

Financial assets

 

2018

  

2019

 

Financial assets at amortized cost

        

Non-current financial assets (1)

  2,025   1,351 

Trade receivables

  37,468   49,371 

Other short-term receivables (2)

  4,031   59,112 

Other current financial assets

  89   1,535 

Total financial assets at amortized cost

  43,612   111,369 
         

Financial assets at fair value through profit or loss

        

Preferred shares in associates (3)

  30,000   80,000 

Loans to customers

  3,092   93,115 

Listed equity instruments

  1,165   42,146 

Total financial assets at fair value through profit or loss

  34,257   215,261 
         

Total financial assets

  77,869   326,630 

(1) Includes long-term deposits for office rent

(2) Includes cash of US$52,878 thousand deposited into an escrow account as security for loans from a credit institution. See Note 19 for more information.

(3) Carrying amount of preferred shares is presented as Investments in associates and joint ventures in the Statement of Financial Position, while changes in fair value is presented as Change in fair value of preferred shares in associates in the Statement of Operations. In 2019, the Group recognized an unrealized gain on the preferred shares of US$37,900 thousand (2018: US$0). See Note 27 for more information.

[US$ thousands]

 

As of December 31,

 

Financial liabilities

 

2018

  

2019

 

Financial liabilities at amortized cost

        

Lease liabilities and other loans (1)

  4,761   56,974 

Trade and other payables

  17,957   57,125 

Other financial liabilities

  9,413   15,279 

Total financial liabilities at amortized cost

  32,132   129,378 
         

Financial liabilities at fair value through profit or loss

        

Short position in listed equity instruments

  500   - 

Total financial liabilities at fair value through profit or loss

  500   - 
         

Total financial liabilities

  32,632   129,378 

(1) As of December 31, 2019, US$42,247 thousand was related to short term loans used to partially fund the microlending business in India. See Notes 13 and 19 for more information.

The tables below specify the gains (losses) from the Group’s investments in listed equity instruments.

[US$ thousands]

            

Gain (loss) on listed equity instruments in 2018

 

Realized gain (loss)

  

Unrealized gain (loss)

  

Total

 

Long positions

  (1,353)  (169)  (1,522)

Short positions

  48   (11)  38 

Total

  (1,305)  (180)  (1,485)

[US$ thousands]

            

Gain (loss) on listed equity instruments in 2019

 

Realized gain (loss)

  

Unrealized gain (loss)

  

Total

 

Long positions

  6,278   2,564   8,842 

Short positions

  (365)  -   (365)

Total

  5,913   2,564   8,477 

Net gain from publicly traded securities in 2019 is recognized in the Statement of Operations as finance income, while net loss in 2018 was presented as a finance expense. The Group did not hold investments in listed equity instruments in 2017.

The tables below show the various financial assets and liabilities, grouped in the different categories of financial instruments.

(1) Includes long-term deposits for office rent.

(2) Upon loss of control over the microlending business, cash deposited into an escrow account as security for loans from a credit institution, which was US$52.9 million as of December 31, 2019, and loans to customers, were derecognized. See Note 9 for further information.

(3) The carrying amount of preferred shares is presented as Investments in associates and joint ventures in the Statement of Financial Position, while changes in fair value is presented as Change in fair value of preferred shares in associates in the Statement of Operations. In 2020, the Group recognized an unrealized gain on the preferred shares of US$24.0 million (2019: US$37.9 million, 2018: US$0). See Note 13 for more information.

(1) See Notes 17 and 22 for more information.

 

The tables below specify the gains (losses) from the Group’s investments in listed equity instruments.

Net gains from publicly traded securities in 2019 and 2020 were recognized in the Statement of Operations as Finance income, while the net loss in 2018 was presented as a Finance expense.

16.1 Fair value of financial instruments

 

The fair values of cash and cash equivalents, trade receivables, trade payables and other current liabilities approximate their carrying amounts largely due to the relatively short-term maturities of these instruments. For lease liabilities and other loans, the difference between the carrying amount and fair value is not material.

 

The fair values of financial assets and liabilities are measured as the price that would be received to sell the assets or paid to transfer the liabilities in an orderly transaction between market participants at the measurement date.

 

Fair values of listed equity instruments are determined by reference to published price quotations in active markets.

 

See Note 5 for information about fair value measurement of loans to customers.

Fair value of preferred shares in OPay and StarMaker

 

The fair values of preferred shares in OPay and StarMaker as of December 31,year-end 2019 areand 2020 were measured using methods and techniques that reflect the economic rights and benefits of the preferred shares. These rights and benefits include a right to redeem the preferred shares at the preferred share issue price plus 8% interest rate per year and a right to receive the invested amount in the event of liquidation before payments are made to holders of ordinary shares. Moreover, the preferred shares in StarMaker have a priority on dividends by providing a right to 8% annual return to the Group prior to dividends being made to holders of ordinary shares. The Group's preferred shares in both OPay and StarMaker have the same voting rights as ordinary shares.

 

A combination of the following three valuation methods was used to estimate the fair value of the preferred shares:

 

 

Probability weightedProbability-weighted expected return modelmethod (“PWERM”)

 

Option pricing model (“OPM”)

 

Current value method (“CV”)

 

Under the probability weighted expected return model, fair value of the preferred shares is estimated based upon the probability-weighted present value of expected future investment returns, considering a range of possible future scenarios and outcomes available to the company, as well as the rights of each share class. The PWERM is most appropriate when there are a set of visible future liquidity events and when the time to liquidity is short.

 

The option pricing model treats ordinary and preferred shares as call options on the company’s equity value, with exercise prices based on the liquidation preferences of the preferred shares. Under this model, the ordinary shares have a positive fair value only if the funds available for distribution to shareholders exceed the value of the liquidation preferences. The OPM is most appropriate when specific future liquidity events are challenging to forecast.

 

The current value method allocates value to each share class based on an estimated equity value (on a controlling basis). The method bases allocation of value as of the valuation date and not a future date. It is most appropriate when a liquidity event, such as an acquisition or dissolution, is imminent, or when the company is at a very early stage.

 

Under all three methods, a discount for lack of marketability (“DLOM”) was applied to reflect that the shares in a private and early stageearly-stage company are considered to be illiquid. Shares that cannot be readily liquidated generally have a lower fair value and it is therefore appropriate to consider a discount when estimating fair value. For the preferred shares in OPay, a DLOM in the range 5-15%10-20% was applied (December 31, 2019: 5-15%), while for the preferred shares in StarMaker, a DLOM in the range of 25-35%30-40% was applied.applied (December 31, 2019: 25-35%). That a lower DLOM range was applied for the preferred shares in OPay reflect that there werehave been multiple transactions in equity instruments of the company, in 2019, including transactions with investors that are not related parties of the Group.

 

The option pricing model and the current value method builds on estimates of the fair value of the equity in the investees. For OPay, the estimate offor fair value of equity as of December 31, 20192020, was US$555 million (December 31, 2019: US$500 million,million), while for StarMaker it was US$350 million (December 31, 2019: US$155 million.million). The estimated fair value of equity in OPay was observed to increase through 2019 following several transactions of equity instruments in the company during the year. The estimated fair values of OPay and StarMaker at year-end was primarily based on discounted future expected cash flows and valuation multiples, but also, for OPay, to a lesser extent indications of themultiples. The estimated fair value of equity as expressed in a term sheet for a capital increaseStarMaker was primarily based on the price in OPay signed in early 2020.an observed transaction.

 

The Group determined that the rounded mid-points of the averages of estimated ranges of fair values reflectreflected the best estimate of the price that would be received in orderly transactions if the preferred shares were sold as of December 31, 2019.2019 and 2020. Consequently, the preferred shares in OPay were measured at US$46,000 thousand,49.0 million (December 31, 2019: 46.0 million), while the preferred shares in StarMaker were measured at US$34,000 thousand55.0 million (December 31, 2018:2019: US$30,000 thousand)34.0 million). The preferred shares in OPay were acquired in 2019 for US$12,100 thousand,12.1 million, while the preferred shares in StarMaker were acquired in 2018 for US$30,000 thousand.30.0 million.

 

A key unobservable input in all the three methods was the discount for lack of marketability. Other key unobservable inputinputs included the weighted average cost of capital for the PWERM method and the value of equity for the OPM and CV methods. The tabletables below show the sensitivities to the key unobservable inputs in the measurement of the fair value of the preferred shares in OPay.

[US$ thousands]

     

WACC %

 

PWERM sensitivity - fair value of preferred shares

     20%  

22%

  24%  26%  28% 

 

  5%  65,529   61,957   57,991   55,572   52,715 
DLOM %  10%  62,080   58,696   54,939   52,647   49,941 
   15%  58,631   55,435   51,887   49,722   47,166 

[US$ thousands]

     

Value of equity in the company (US$ million)

 

OPM sensitivity - fair value of preferred shares

     

400

  

450

  

500

  

550

  

600

 

 

  5%  34,739   39,657   44,570   49,479   54,383 
DLOM %  10%  32,910   37,570   42,225   46,875   51,521 
   15%  31,082   35,482   39,879   44,271   48,659 

[US$ thousands]

     

Value of equity in the company (US$ million)

 

CVM sensitivity - fair value of preferred shares

     

400

  

450

  

500

  

550

  

600

 

 

  5%  33,870   38,734   43,598   48,462   53,327 
DLOM %  10%  32,087   36,696   41,304   45,912   50,520 
   15%  30,305   34,657   39,009   43,361   47,713 

The table below show the sensitivities to the key unobservable inputs in the measurement of the fair value of the preferred shares inOPay and StarMaker.

 

[US$ thousands]

     

WACC %

 

PWERM sensitivity - fair value of preferred shares

     

13%

  

15%

  

17%

  

19%

  

21%

 

 

  25%  32,151   31,332   30,552   29,809   29,101 
DLOM %  30%  30,008   29,243   28,515   27,822   27,161 
   35%  27,864   27,154   26,479   25,835   25,221 

[US$ thousands]

   

As of December 31, 2019

  

As of December 31, 2020

 

Effect on fair value measurement of preferred shares in OPay

 

Key unobservable input

 

Decrease

  

Increase

  

Decrease

  

Increase

 

Discount for lack of marketability (5 percentage points movement)

 

PWERM, OPM and CVM

  2,720   (2,409)  2,811   (2,811)

Weighted average cost of capital (2 percentage points movement)

 

PWERM

  1,408   (608)  1,087   (1,009)

Equity value of the company (10% movement)

 

OPM and CVM

  (3,597)  2,406   (3,093)  3,092 

 

[US$ thousands]

     

Value of equity in the company (US$ million)

 

OPM sensitivity - fair value of preferred shares

     

145

  

150

  

155

  

160

  

165

 

 

  25%  37,011   37,787   38,558   39,327   40,092 
DLOM %  30%  34,544   35,268   35,988   36,705   37,419 
   35%  32,076   32,749   33,417   34,083   34,746 

 

[US$ thousands]

     

Value of equity in the company (US$ million)

 

CVM sensitivity - fair value of preferred shares

     

145

  

150

  

155

  

160

  

165

 

 

  25%  39,194   39,919   40,645   41,371   42,097 
DLOM %  30%  36,581   37,258   37,935   38,613   39,290 
   35%  33,968   34,597   35,226   35,855   36,484 

[US$ thousands]

   

As of December 31, 2019

  

As of December 31, 2020

 

Effect on fair value measurement of preferred shares in StarMaker

 

Key unobservable input

 

Decrease

  

Increase

  

Decrease

  

Increase

 

Discount for lack of marketability (5 percentage points movement)

 

PWERM, OPM and CVM

  2,585   (2,293)  4,221   (4,221)

Weighted average cost of capital (2 percentage points movement)

 

PWERM

  389   (85)  367   (351)

Equity value of the company (10% movement)

 

OPM and CVM

  (1,449)  1,438   (2,947)  2,944 

 

The following table provides the fair value measurement hierarchy of the Group’s assets and liabilities.

 

Fair value measurement hierarchy for assets as at 31 December 2018:

Fair value measurement using

[US$ thousands]

Datehierarchy for assets as of valuation

Quoted prices in

active markets

(Level 1)

Significant

observable inputs

(Level 2)

Significant

unobservable inputs

(Level 3)

Assets measured at fair value

Preferred shares in associates

December 31, 20182019

--30,000

Loans to customers

December 31, 2018

--3,092

Listed equity instruments

December 31, 2018

1,165--

Fair value measurement hierarchy for liabilities as at 31 December 2018:

Fair value measurement using

[US$ thousands]

Date of valuation

Quoted prices in

active markets

(Level 1)

Significant

observable inputs

(Level 2)

Significant

unobservable inputs

(Level 3)

Liabilities measured at fair value

Short position

December 31, 2018

500--

Fair value measurement hierarchy for assets as at 31 December 2019:

    

Fair value measurement using

 

[US$ thousands]

 

Date of valuation

 

Quoted prices in

active markets

(Level 1)

  

Significant

observable inputs

(Level 2)

  

Significant

unobservable inputs

(Level 3)

 

Assets measured at fair value

              

Preferred shares in associates

 

December 31, 2019

  -   -   80,000 

Loans to customers

 

December 31, 2019

  -   -   93,115 

Listed equity instruments

 

December 31, 2019

  42,146   -   - 

 

Fair value measurement hierarchy for assets as of December 31, 2020

Fair value measurement using

[US$ thousands]

Date of valuation

Quoted prices in

active markets

(Level 1)

Significant

observable inputs

(Level 2)

Significant

unobservable inputs

(Level 3)

Assets measured at fair value

Preferred shares in associates

December 31, 2020

--104,000

For all financial liabilities recognized as of December 31, 2019, the estimates of fair values were not materially different from the carrying amounts.

Fair value measurement hierarchy for liabilities as of December 31, 2020

Fair value measurement using

[US$ thousands]

Date of valuation

Quoted prices in

active markets

(Level 1)

Significant

observable inputs

(Level 2)

Significant

unobservable inputs

(Level 3)

Liabilities measured at fair value

Short position in listed equity instruments

December 31, 2020

744--

There were no liabilities measured at fair value as of December 31, 2019.

 

There were no transfers between the fair value measurement levels during 20182019 and 2019.2020.

 

 

 

NOTE 17.

SCHEDULED MATURITIES OF FINANCIALLEASE LIABILITIES AND OTHER LOANS

 

The terms, including interest rates and maturities, and the total carrying amount of lease liabilities and interest-bearing loans are presented below.

[US$ thousands]

 

Less than

  1 to 3  

Over 3

     

As of December 31, 2018

 

12 months

  

years

  

years

  

Total

 

Non-current

                

Lease liabilities and other loans (Notes 12 and 13) including interest

  -   2,194   158   2,352 

Other liabilities

  -   -   212   212 

Current

                

Trade and other payables (Note 22)

  17,957   -   -   17,957 

Lease liabilities and other loans (Notes 12 and 13) including interest

  2,591   -   -   2,591 

Other liabilities (Note 15)

  9,701   -   -   9,701 

Total financial liabilities including interest

  30,249   2,194   370   32,813 

[US$ thousands]

      

As of December 31,

 

Lease liabilities and interest-bearing loans

 

Interest rate

 

Maturity

 

2019

  

2020

 

Lease liabilities

       12,003   7,800 

Interest-bearing loans

  4.00% 

January 2021 - July 2023

  43,904   801 

Total

       55,907   8,601 

Total lease liabilities and other loans, non-current and current are summarized below.

[US$ thousands]

 

As of December 31,

 

Non-current lease liabilities and other loans

 

2019

  

2020

 

Lease liabilities

  7,378   3,094 

Interest-bearing loans

  736   490 

Other loans

  1,067   - 

Total

  9,181   3,584 

 

[US$ thousands]

 

Less than

  

1 to 3

  

Over 3

     

As of December 31, 2019

 

12 months

  

years

  

years

  

Total

 

Non-current

                

Lease liabilities (Note 12)

  -   7,681   1,247   8,928 

Interest-bearing loans (Note 13) including interest

  -   1,840   -   1,840 

Other liabilities

  -   -   137   137 

Current

                

Trade and other payables (Note 22)

  57,125   -   -   57,125 

Lease liabilities (Note 12)

  4,930   -   -   4,930 

Interest-bearing loans (Note 13) including interest

  43,303   -   -   43,303 

Other liabilities (Note 15)

  15,142   -   -   15,142 

Total financial liabilities including interest

  120,500   9,521   1,384   131,405 

[US$ thousands]

 

As of December 31,

 

Current lease liabilities and other loans

 

2019

  

2020

 

Lease liabilities

  4,625   4,706 

Interest-bearing loans

  43,169   311 

Other loans

  -   371 

Total

  47,793   5,389 

See Note 20 for a maturity analysis of the financial liabilities.

The Group is the lessee for leases of office space, data centers and servers and other equipment used in its operations.

The Statement of Financial Position has the following amounts relating to leases.

[US$ thousands]

 

As of December 31,

 

Amounts recognized in the Statement of Financial Position

 

2019

  

2020

 

Right-of-use assets (1)

        

Office properties

  6,178   4,974 

Equipment

  5,528   2,335 

Total

  11,706   7,309 
         

Lease liabilities

        

Current

  4,625   4,706 

Non-current

  7,378   3,094 

Total

  12,003   7,800 

(1) Additions to and remeasurements of the right-of-use assets during the 2020 financial year were US$1.1 million. 

 

F-47F-49

The Statement of ContentsOperations has the following amounts relating to leases.

[US$ thousands]

 

Year ended December 31,

 

Amounts recognized in the Statement of Operations

 

2019

  

2020

 

Depreciation charge of right-of-use assets

        

Office properties

  1,752   2,221 

Equipment

  2,739   2,529 

Total

  4,491   4,750 
         

Interest expense (included in Finance expense)

  457   397 

Net foreign exchange gain (loss)

  -   (140)

The total cash outflow for leases in 2020 was US$7,639 thousand.

Lease contracts are typically made for fixed periods of 6 months up to 6 years but may have extension options as described below. Contracts may contain both lease and non-lease components, which are accounted for separately. The Group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. Lease terms are negotiated on an individual basis and are for a wide range of different terms and conditions. Some lease agreements required that the Group provide cash deposits as security for lease payments, while a guarantee is made by the Group in favor of Dell as security for all present and future lease liabilities, as disclosed in Note 22. Leased assets may not be used as security for borrowing purposes.

Prior to the adoption of IFRS 16 on January 1, 2019, as disclosed in Note 2, leases of office properties and equipment were classified as finance or operating leases. From January 1, 2019, leases other than those leases that have a lease term of 12 months or less and leases for which the underlying asset is of low value, are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Assets and liabilities arising from a lease are initially measured on a present value basis.

To determine the incremental borrowing rate, which was the basis on which lease payments were discounted, the Group:

Where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third-party financing was received.

Used a build-up approach that started with a risk-free interest rate adjusted for credit risk for leases held by the Group, which does not have recent third-party financing.

Made adjustments specific to the lease, e.g., term, country, currency and security.

Extension and termination options

Extension and termination options are included in a number of property and equipment leases across the Group. These are used to maximize operational flexibility in terms of managing the assets used in the Group’s operations. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.

F-50

 

 

NOTE 18.

TRADE AND OTHER PAYABLES

[US$ thousands]

 

As of December 31,

 

Trade and other payables

 

2019

  

2020

 

Trade payables due to related parties (1)

  28,864   4,685 

Other trade payables

  19,813   17,764 

Employee withholding tax

  325   1,044 

VAT

  7,361   1,162 

Payroll tax (2)

  761   799 

Total

  57,125   25,454 

(1) See Note 26 for more information.

(2) Includes accruals for social security costs related to share-based remuneration.

For a schedule of maturities for trade and other payables, see Note 20.

F-51

NOTE 19.

OTHER CURRENT LIABILITIES

[US$ thousands]

 

As of December 31,

 

Other current liabilities

 

2019

  

2020

 

Accrued personnel expenses

  10,472   11,985 

Trading liability (1)

  -   744 

Customer deposits

  2,694   - 

Other current liabilities

  1,976   310 

Total

  15,142   13,040 

(1) See Note 16 for additional information.

F-52

NOTE 20.

SCHEDULED MATURITIES OF FINANCIAL LIABILITIES

[US$ thousands]

 

Less than

  1 to 3  

Over 3

     

As of December 31, 2019

 

12 months

  

years

  

years

  

Total

 

Non-current

                

Lease liabilities (Note 17)

  -   7,681   1,247   8,928 

Interest-bearing loans including interest (Note 17)

  -   1,840   -   1,840 

Other non-current liabilities

  -   -   137   137 

Current

                

Trade and other payables (Note 18)

  57,125   -   -   57,125 

Lease liabilities (Note 17)

  4,930   -   -   4,930 

Interest-bearing loans including interest (Note 17)

  43,303   -   -   43,303 

Other current liabilities (Note 19)

  15,142   -   -   15,142 

Total financial liabilities including interest

  120,500   9,521   1,384   131,405 

[US$ thousands] 

Less than

  1 to 3  

Over 3

     

As of December 31, 2020

 

12 months

  

years

  

years

  

Total

 

Non-current

                

Lease liabilities (Note 17)

  -   3,224   -   3,224 

Interest-bearing loans including interest (Note 17)

  -   505   -   505 

Other non-current liabilities

  -   -   68   68 

Current

                

Trade and other payables (Note 18)

  25,454   -   -   25,454 

Lease liabilities (Note 17)

  4,914   -   -   4,914 

Interest-bearing loans including interest (Note 17)

  337   -   -   337 

Other current liabilities (Note 19)

  13,040   -   -   13,040 

Total financial liabilities including interest

  43,744   3,729   68   47,541 

F-53

NOTE 21.

CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES

Changes in liabilities arising from financing activities in 2019

                     

 

[US$ thousands]

 

As of

January 1, 2019

  

Impact of

adopting

IFRS 16

  

Cash flows

  

Foreign exchange

movement

  

Other (1)

  

As of

December 31, 2019

 

Interest-bearing loans and liabilities, non-current

  2,238   -   (1,509)  -   7   736 

Lease liabilities, non-current

  33   10,709   (1,693)  (33)  (1,638)  7,378 

Interest bearing loans and liabilities, current

  196   -   43,163   -   10   43,369 

Lease liabilities, current

  1,802   4,260   (1,062)  -   (375)  4,625 

Other loans

  492   (64)  -   -   439   867 

Total liabilities from financing activities

  4,761   14,905   38,899   (33)  (1,557)  56,975 

Changes in liabilities arising from financing activities in 2020

                 

 

[US$ thousands]

 

As of

January 1, 2020

  

Cash flows

  

Foreign exchange

movement

  

Other (1)

  

As of

December 31, 2020

 

Interest-bearing loans and liabilities, non-current

  736   (246)  -   -   490 

Lease liabilities, non-current

  7,378   (3,782)  -   (502)  3,094 

Interest bearing loans and liabilities, current

  43,369   (43,058)  -   -   311 

Lease liabilities, current

  4,625   (420)  -   502   4,707 

Other loans

  867   -   -   (496)  371 

Total liabilities from financing activities

  56,975   (47,506)  -   (496)  8,973 

(1) The "Other" column includes the effect of reclassification of the non-current portion of liabilities to current due to the passage of time and the effect of accrued but not yet paid interest on interest-bearing loans and borrowings, including lease liabilities.

All items of liabilities are included in "Non-current lease liabilities and other loans" or "Current lease liabilities and other loans" in the Statement of Financial Position.

F-54

NOTE 22.

GUARANTEES AND OTHER COMMITMENTS

A guarantee has been made by the Group in favor of Dell Bank International d.a.c. ("Dell") as a security for all present and future lease liabilities of the Group (as the lessee) to Dell. This guarantee is limited to a principal amount of US$11,660 thousand, with the addition of any interests, costs and/or expenses accruing on the liabilities and/or as a result of the Group’s non-fulfilment of the liabilities. The guarantee is valid for 10 years from January 17, 2017.

F-55

NOTE 23.

FINANCIAL RISK MANAGEMENT

 

Overview

 

The Group is exposed to market risk, liquidity risk and credit risk. The Group’s management seeks to minimize potential adverse effects of these risks through sound business practices and risk management. The Board of Directors, together with senior management, is involved in the risk assessment process. The Group has not utilized derivatives for hedging purposes.

 

Market risk

 

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Group is exposed to three types of market risk: Interestinterest rate risk, foreign currency risk and equity price risk. Financial instruments affected by market risk include loans and borrowings, trade receivables, trade payables, accrued liabilities and listed equity instruments.

 

Interest rate risk

 

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

 

In 2019, the Group obtained a credit facility from a financial institution. Loans under the credit facility, denominated in Indian Rupee, were used to partially fund the microlending business in India. As of December 31, 2019, the total amount of loans under the credit facility was US$42,247 thousand. The resulting positive impact to our financing cash flow was offset by the Group transferring US$52,878 thousand into an U.S. Dollar denominated escrow account as collateral for these loans; which has been classified as a receivable and as such, as a cash outflow under investing activities in the Statement of Cash Flows. The interest rate on these loans is based on the bank’s 6-month marginal cost of funds-based lending rate plus 0.3%. As of year-end 2019, that rate was in the range from 8.7% to 9.0%.

Except for the above, the Group’s exposure to interest risk is immaterial. Financiallimited because financial liabilities other than loans under the credit facility have fixed interest rates and future interest payments on these will thus not fluctuate. The Group expects to settle all financial liabilities at maturity, meaning changes in market interest rates will only impact their fair value temporarily. Financial assets are not interest-bearing, except for deposits with banks.

 

Foreign currency risk

 

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Our exposure to the risk of changes in foreign exchange rates relates primarily to our consolidated results being presented in U.S. Dollar, while our revenues are generated in nearly all global currencies, though often converted to USD or EUR before being paid to us from our partners. The Group incurs operating expenses in various currencies, including the Norwegian krone, Chinese renminbi, Polish zloty, Swedish krone,krona, Indian rupee, Kenyan shilling, Nigerian naira, Great British Pounds and the Euro. Additionally, the Group is exposed to foreign currency risk due to monetary items recognized inon the balance sheet being denominated in currencies other than the functional currency, which for most of the Group’s entities is the U.S. Dollar. Management is closely monitoring the Group’s exposure to foreign currency risk and seeks to minimize its exposure to such risk. The Group was not exposedGroup's exposure to material foreign currency risk in 2018 and 2019.related to cash on hand is limited.

 

Equity price risk

 

TheWhile the Group isdid not hold any investment in listed equity instruments as of December 31, 2020, the Group held such investments throughout 2020. Investments in listed equity instruments exposed the Group to equity price risk related to its holding of publicly traded equity securities. Suchrisk. Specifically, such holdings are susceptible to market price risk arising from uncertainties about future values of such securities.

 

Our investment activity in publicly traded securitieslisted equity instruments is managed by Kunlun Group Limited, a related party of the Group, and is overseen by the Group’s CEOCEO. The investment activity, including risk management, is subject to set requirements for performance monitoring, risk tolerance, investment strategies and conducted withindiversification. Under the applicable policies of the Group, the total capital allocated to investments in listed equity instruments is limited up to US$70 million. During 2020, the Group invested in shares listed on stock exchanges in mainland China, Hong Kong and the United States. The majority of the investments were in companies in the tech and electronics industries. The Group also wrote call options on listed equity instruments to a US$70 million capital allocation.

US$124 thousand in 2020. The written call options, representing a financial liability of the Group, had a fair value of US$744 thousand as of December 31, 2020. The written call options exposed the Group to equity price risk due to the counterparties' rights to buy the underlying listed equity instrument from the Group for a fixed price. This specific risk was managed by the Group only writing call options with relative short durations, by limiting the number of contracts entered into, and by preparing to purchase the underlying shares in the event of certain levels of adverse price movements. While the Group did not enter into short positions during 2020, the investment policies allow such positions to be entered into.    

 

As of December 31, 2019,2020, the fair valueGroup had no holdings of such holdings waspublicly traded equity instruments (2019: US$42,146 thousand (2018: US$667 thousand).

 

The net gain from publicly traded securitiesinstruments in 20192020 was US$13,033 thousand (2019: net gain of US$8,477 thousand (2018:thousand; 2018: net loss of US$1,485 thousand). The Group did not invest in publicly traded equity securities in 2017.

 

The primary objectivegoal of investing in listed equity instruments is to preserve capital while generating long-term capital growth by achievingachieve the highest possible return on invested capital relative to the risk taken. The companyGroup seeks to invest in liquid equity instruments in order to reduce costs when instruments are to be realized.

 

Liquidity risk

 

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The groupGroup's liquidity risk is not exposed to material liquidity risklimited given its significant cash position and low debt-to-equity ratio as of December 31, 2019.2020. See Note 1720 for an overview of maturity profile on the Group’s financial liabilities.

 

Credit risk

 

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss for the Group.

 

The Group is exposed to credit risk from its operating activities, primarily loans to customers and trade receivables, and from its cash management activities, including deposits with banks and financial institutions, and other receivables, such as loans to associates and joint ventures (details in Notes 27 and 28)Note 26). The Group’s revenue comes mainly from sales where settlement in cash generally takes place within 30-90 days of the invoice being issued, which is concurrently when the Group has an unconditional right to consideration. For some specific revenue streams, including those relating to OPay, and Powerbets, settlement is agreed to extend beyond 90 days. The management of credit risk related to trade receivables is handled as part of the business risk and is continuously monitored by the Group. Details of outstanding accounts receivablereceivables are disclosed in Notes 21 and 28. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets.

Credit risk for loans to customers

The Group is continuously monitoring its credit risk relating to microlending. Under the credit risk policies, the exposure is subject to regular reviews of risk tolerance levels. All operating decisions in terms of exposure and geographic profile are made in accordance with applicable risk management policies. Furthermore, the Group reviews the occurrence, progress and status of all credit risks, and takes appropriate actions to mitigate any adverse effects. Credit risk is measured by a variety of methods, including total outstanding loan balance, delinquency rates by aging, credit scorecards and by way of collection models. The objectives and policies to credit risk have not changed relative to 2018, though the processes and methods to measure and manage credit risk have been continuously evolving.

Management of risk concentration is conducted by using a variety of systems to monitor and track concentration. This enables quantification and analyzing of risks relating to concentration on a real-time basis.

Measurement of expected credit losses is calculated from analysis of the outstanding loans, including loan tenure and historical delinquency rates. When considering whether the credit risk has increased significantly, metrics including first payment delinquency and delinquency by aging are evaluated.

When considering whether loans are credit impaired, management considers market and borrower indicators. The disappearance of an active market for the financial asset is an indicator of the need for credit-impairment, as is transactions of comparable financial assets at steep discounts that reflect incurred credit losses. Borrower indicators of credit-impaired financial assets include observing that a borrower has significant financial difficulties, breaches the loan agreement or enters into, or the likely entrance into, a form of reorganization (such as bankruptcy). The Group finds that these indicators reduce the likelihood of receiving payment of the outstanding loan balance. Forward-looking information is not incorporated by the Group into the determination of expected credit losses, as reliable data supporting credit impairment is deemed not to be available in the markets the Group offers microloans.

For loans to customers that are more than 180 days past due, the Group has no reasonable expectations of recovering the assets. These loans are written off.  Note 14.

 

 

 

NOTE 19.24.

CAPITAL MANAGEMENT

 

The objectives of the Group’s capital management policy isare to maintain a strong capital base to support investor, creditor and market confidence and to sustain future development of the business in accordance with its growth plans.

In 2019, the Group observed significant growth for its microlending businesses in multiple countries, as disclosed in Notes 4 and 5. The microlending businesses are capital intensive by nature. As of December 31, 2019, the Group had loans due from customers with a carrying amount of US$93,115 thousand. The Group effectively used its balance of cash and cash equivalents to finance the microlending business, either directly or via local credit institutions. As of December 31, 2019, short-term loans denominated in Indian Rupee from the credit institution used to partially fund the microlending business totaled US$42,247 thousand. The loans from the credit institution are provided under a credit facility, which requires that the Group transfers cash representing at least 111% of the credit facility amount into a restricted U.S. Dollar escrow account as collateral for the credit institution. As of December 31, 2019, the Group had transferred US$52,878 thousand into the escrow account. The balance in the escrow account is classified as a receivable in the Statement of Financial Position due to it not being available to meet the Group’s short-term commitments. The balance in the escrow account is restricted for the duration of the credit facility term, which is one year, with an option to extend the term. Management of the Group is continuously monitoring and evaluating the capital needs of the microlending businesses and seeks to achieve a capital allocation that maximizes the expected return while minimizing the credit and foreign exchange risks. See Note 18 for information on the Group’s financial risk management.

 

As part of the Group's cash management policy, up to US$70 million of the Group’s capital may be used to invest in publicly traded securities in accordance with the applicable board instructions to the management of the Group. The CEOinvestment activity is managingmanaged by Kunlun Group Limited, a related party of the Group, and overseeing this investment activity.is overseen by the Group’s CEO. The primary objectivegoal of investing in publicly traded securitieslisted equity instruments is to preserve capital while generating long term capital growth by achievingachieve the highest possible return on invested capital relative to acceptable risk. In accordance with the board instructions, therisk taken. The Group may enterstarted writing call options in 2020, which resulted in a net gain of US$124 thousand. The Group did not have short positions during 2020. In 2019, short positions resulted in publicly traded securities, which was done to a limited extent in 2019. Total net loss from short positions wasof US$365 thousand and in 2019, compared to2018, a net gain of US$38 thousand. As of December 31, 2020, the fair value of the liability related to written call options was US$744 thousand, and as of the same date the Group did not hold any investments (long positions) in 2018.publicly traded equity securities. As of December 31, 2019, the Group had investments in publicly traded equity instruments with a fair value of US$42,146 thousand, an increase from US$667 thousand as of year-end 2018.thousand. The Group did not have any open short positions as of year-end 2019. Thecombined net gain in 20192020 on investments in publicly traded securitiesand written call options was US$13,033 thousand, compared to a net gain of US$8,477 thousand (2018:in 2019 and a net loss of US$1,485 thousand).thousand in 2018.

 

In February 2019,On January 17, 2020, the Group completed theboard of directors approved a share repurchase program, which was announcedauthorized management of the Group to execute the repurchase of up to US$50.0 million of ADSs by January 17, 2021, in November 2018. A totalany form that management may deem appropriate. As of 1.5 millionDecember 31, 2020, the Group had repurchased 5,893,139 ADSs, were repurchasedrepresenting 11,786,278 ordinary shares, for a total cost of US$5,78049,049 thousand. The treasury shares were transferred to employees in February 2019 under the share-based remuneration scheme.

In September and October 2019, the Group raised additional equity of US$81,269 thousand, net of underwriting discounts, commissions, and other transaction costs, through the successful completion of a follow-on offering of 8,625,000 ADSs at a public offering price of US$10.00 per ADS. Underwriting discounts, commission and other transaction costs totaled US$4,981 thousand. At the point in time of the follow-on offering, the Group intended to use the net proceeds for general corporate purposes.

 

As of December 31, 2019,2020, the Group had an equity ratio of 86%94% and working capital, as expressed by total current assets less total current liabilities, of US$289,757138,609 thousand. TotalThe total amount of cash and cash equivalents and marketable securities was US$181,633134,168 thousand.

 

See Note 1720 for a schedule of maturities for financial liabilities.

 

NOTE 20.

CASH AND CASH EQUIVALENTS

[US$ thousands]

 

As of December 31,

 

Cash and cash equivalents

 

2018

  

2019

 

Restricted cash

  229   216 

Cash and cash equivalents

  177,643   139,271 

Total

  177,873   139,487 

Restricted cash

Restricted cash is related to employee payroll tax withholdings for Norwegian employees, which are held in restricted deposit accounts under applicable regulations. The Group considers these balances to be cash equivalents because the related liabilities are settled from these accounts on a continuous basis.

NOTE 21.

TRADE RECEIVABLES, OTHER RECEIVABLES AND PREPAYMENTS

[US$ thousands]

 

As of December 31,

 

Trade receivables

 

2018

  

2019

 

Trade receivables

  24,594   39,981 

Unbilled receivables

  12,874   9,390 

Total

  37,468   49,371 

[US$ thousands]

 

As of December 31,

 

Other receivables

 

2018

  

2019

 

VAT

  754   1,232 

Receivable from Otello Corporation ASA

  1,267   924 

Deposit in restricted escrow account(1)

  -   52,878 

Other

  5,102   4,078 

Total

  7,123   59,112 

(1) As of December 31, 2019, the Group had transferred US$52,878 thousand into the escrow account as collateral for a credit facility. See Note 19 for more information.

[US$ thousands]

 

As of December 31,

 

Prepayments

 

2018

  

2019

 

Prepaid expenses (1)

  14,372   25,809 

Total

  14,372   25,809 

(1) See Note 28 for specification of amount of prepaid expenses with Mobimagic Digital Technology Ltd (formerly known as 360 Mobile Security).

[US$ thousands]

 

As of December 31,

 

Allowance for impairment of trade receivables

 

2018

  

2019

 

As of period start, as previously reported

  1,837   1,619 

Impact of IFRS 9

  100   - 

As of period start, restated

  1,937   1,619 

Change in the period (1)

  (318)  (173)

As of period end

  1,619   1,446 

(1) The change in loss allowance in the periods is recognized in the Statement of Operations.

As of period end, the aging of trade receivables was as follows.

[US$ thousands]

     

Neither past due

  

Past due

 

Aging analysis of trade receivables

 

Total

  nor impaired  

<30 days

  

31-60 days

  

61-90 days

  

>90 days (1) 

 

As of December 31, 2018

  24,594   15,603   3,252   2,588   690   2,460 

As of December 31, 2019

  39,981   22,125   8,761   657   341   8,097 

(1) As of year-end 2019, the total amount of trade receivables due from Powerbets, a joint venture, that were more than 90 days past due was US$5,946 thousand (December 31, 2018: US$0).

For trade receivables, the Group recognizes a loss allowance based on lifetime expected credit losses as of each reporting date. The Group makes specific loss provisions at the level of specific invoices where information exists that management can utilize in its determination of risk. For trade receivables where no specific risk information is identified, the Group uses a provision matrix that is based on the nature of the receivable, location of its invoicing and the age of the invoice relative to its due date, reflecting its historical credit loss experience and adjusting for forward-looking factors specific to the debtors and the economic environment. As at December 31, 2019, the loss allowance totaled US$1,446 thousand, corresponding to 2.9% of trade receivables (December 31, 2018: US$1,619 thousand, corresponding to 4.3% of trade receivables).

For details regarding the Group’s procedures on managing credit risk, please refer to Note 18.

NOTE 22.

TRADE AND OTHER PAYABLES

[US$ thousands]

 

As of December 31,

 

Trade and other payables

 

2018

  

2019

 

Trade payables due to related parties (1)

  624   28,864 
Other trade payables  14,290   19,813 

Sales tax payables

  9   - 

Employee withholding tax

  24   325 

VAT

  809   7,361 

Payroll tax (2)

  2,200   761 

Total

  17,957   57,125 

(1) See Note 28 for more information.

(2) Includes accruals for social security costs related to share-based remuneration.

For a schedule of maturities for trade and other payables, see Note 17.

NOTE 23.

FINANCE INCOME AND EXPENSE

[US$ thousands]

 

Year ended December 31,

 

Finance income

 

2017

  

2018

  

2019

 

Interest income

  54   1,386   2,045 

Other finance income

  1,000   251   8 

Net fair value gain related to listed equity instruments (1)

  -   -   8,477 

Total

  1,054   1,637   10,530 

[US$ thousands]

 

Year ended December 31,

 

Finance expense

 

2017

  

2018

  

2019

 

Interest expense

  238   184   1,242 

Other financial cost

  -   27   263 

Net fair value loss related to listed equity instruments (1)

  -   1,485   - 

Total

  238   1,695   1,505 

(1) The increase in fair value of listed equity instruments is the net gain from our investments of listed equity instruments in 2019. In 2018, the investments in listed equity instruments resulted in a net loss, classified as a finance expense. See Note 16 for more information.

[US$ thousands]

 

Year ended December 31,

 

Foreign exchange gain (loss)

 

2017

  

2018

  

2019

 

Unrealized foreign exchange gain (loss)

  (1,172)  (1,091)  194 

Realized foreign exchange gain (loss)

  (709)  736   (463)

Total

  (1,881)  (354)  (269)

NOTE 24.

CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES

Changes in liabilities arising from financing activities in 2018

[US$ thousands]

 

As of January 1, 2018

  

Impact of

adopting IFRS 16(1)

  

Cash flows

  

Foreign exchange movement

  

Other (1)

  

As of December 31, 2018

 

Interest-bearing loans and liabilities, non-current

  3,767   -   -   -   (1,529)  2,238 

Lease liabilities, non-current

  265   -   -   -   (232)  33 

Interest bearing loans and liabilities, current

  -   -   (1,739)  -   1,935   196 

Lease liabilities, current

  2,073   -   (2,042)  -   1,771   1,802 

Other loans

  -   -   -   -   492   492 

Total liabilities from financing activities

  6,106   -   (3,781)  -   2,437   4,761 

(1) The "Other" column includes the effect of reclassification of the non-current portion of liabilities to current due to the passage of time and the effect of accrued but not yet paid interest on interest-bearing loans and borrowings, including lease liabilities.

Changes in liabilities arising from financing activities in 2019

                      

 

[US$ thousands]

 

As of January 1, 2019

  

Impact of

adopting IFRS 16(1)

  

Cash flows

  

Foreign exchange movement

  

Other (2)

  

As of December 31, 2019

 

Interest-bearing loans and liabilities, non-current

  2,238       (1,509)  -   7   736 

Lease liabilities, non-current

  33   10,709   (1,693)  (33)  (1,638)  7,378 

Interest bearing loans and liabilities, current

  196       43,163   -   10   43,369 

Lease liabilities, current

  1,802   4,260   (1,062)  -   (375)  4,625 

Other loans

  492   (64)  -   -   439   867 

Total liabilities from financing activities

  4,761   14,905   38,899   (33)  (1,557)  56,975 

(1) See Note 3 for information about the implementation of IFRS 16.

(2) The "Other" column includes the effect of reclassification of the non-current portion of liabilities to current due to the passage of time and the effect of accrued but not yet paid interest on interest-bearing loans and borrowings, including lease liabilities.

All items of liabilities are included in "Lease liabilities and other loans" in the Statement of Financial Position.

 

 

NOTE 25.

INCOME TAX

A summary of income tax (expense) benefit is as follows.

[US$ thousands]

 

Year ended December 31,

 

Income tax (expense) benefit

 

2017

  

2018

  

2019

 

Current income taxes

  (5,449)  (4,322)  (5,112)

Currency effect on income tax (expense) benefit and adjustments recognized in the period for current tax of prior periods (1)

  -   (615)  (322)

Deferred taxes

  4,009   (1,544)  (168)

Income tax (expense) benefit

  (1,440)  (6,481)  (5,602)

(1) Currency effect on income tax (expense) benefit due to corporate income tax filing in NOK for Norwegian entities with USD as functional currency.

The Group’s parent company is domiciled in the Cayman Islands, where the applicable tax rate is zero. With the headquarter of the Group being located in Norway and a large share of the income from the browser and news segment being recognized by Opera Norway AS, the reconciliation of the expected to actual income tax (expense) benefit effective tax rate is consequently based on the applicable tax rate in Norway, which was 22% in 2019 (2018: 23% and 2017: 24%). The tax rate in Norway will remain 22% in 2020.

[US$ thousands]

 

Year ended December 31,

 

Reconciliation of tax (expense) benefit to Norwegian nominal statutory tax rate

 

2017

  

2018

  

2019

 

Net income (loss) before income taxes

  7,504   41,641   63,500 

Tax (expense) benefit at applicable tax rate in Norway

  (1,801)  (9,577)  (13,970)

Effect of different tax rates applied by subsidiaries

  1,120   (167)  (2,118)

Permanent differences

            

Tax effect of translation differences exempted for tax

  (1,287)  218   1,155 

Tax effect of financial items exempted from tax

  1,614   1,726   1,917 

Tax effects of losses in associates and joint ventures which are non-deductible

  (401)  (744)  383 

Withholding taxes paid

  -   -   (232)

Net other permanent differences (not) tax deductible

  2,289   (617)  4,269 

Other effects

            

Change to previously recognized deferred tax assets

  (1,812)  1,589   27 

Currency effect on income tax (expense) benefit and adjustments recognized in the period for current tax of prior periods

  -   (615)  3,162 

Change in unrecognized deferred tax assets

  (1,554)  1,144   (314)

Change in tax rate

  392   561   119 

Income tax (expense) benefit for the year

  (1,440)  (6,481)  (5,602)

Effective tax rate

  19.2%  15.6%  8.8%

The following summarizes the Group’s deferred tax assets and liabilities.

[US$ thousands]

 

As of December 31,

 

Deferred tax asset and deferred tax liability

 

2018

  

2019

 

Furniture, fixtures and equipment, and intangible assets

  22,201   22,703 
Loans to customers  -   (7,744)

Other

  (445)  (735)

Trade receivables

  (133)  (121)

Intercompany interest costs subject to limitations

  (5,243)  (7,714)

Withholding tax expected to be credited (credit method)

  (3,849)  (1,065)

Tax losses carried forward

  (117)  (1,003)

Net deferred tax liability (asset) recognized

  12,414   4,322 

The following summarizes the Group’s changes in deferred taxes during the periods.

[US$ thousands]

 

As of December 31,

 

Change in net deferred tax liability (asset)

 

2018

  

2019

 

Net deferred tax liability (asset) as of January 1

  10,870   12,414 

Expense (benefit) in Statement of Operations

  1,544   (8,092)

Net deferred tax liability (asset)

  12,414   4,322 

[US$ thousands]

 

As of December 31,

 

Deferred tax assets and liabilities

 

2018

  

2019

 

Deferred tax assets

  944   6,204 

Deferred tax liabilities

  13,358   10,526 

Net deferred tax liability (1)

  12,414   4,322 

(1) Deferred tax assets / liabilities are netted within each tax jurisdiction within the group.

Deferred tax liability related to furniture, fixtures and equipment

The deferred tax liability relates mainly to excess values identified in the purchase price allocation performed in accounting for the acquisition of the Consumer business in 2016.

Deferred tax assets on interest charges carried forward

Deferred tax assets relate to Norwegian limitations to interest deductions on intercompany loans, carried forward due to restrictions. The interest subject to limitations must be utilized within ten years.

Management has assessed that there is convincing evidence that future taxable profits will be available in order to utilize the interest charges within the time restriction period.

NOTE 26.

GROUP INFORMATION

 

The following subsidiaries are included in the Group’s consolidated financial statements.

 

Parent company

 

Registered office

 

Domicile

  

Opera Limited

 

George Town

 

Cayman Islands 

  

  

Registered 

   

Ownership interest

Group entities

 

office

 

Domicile

 

and voting rights

Kunhoo Software LLC 

 

George Town

 

Cayman Islands 

 

100%

Kunhoo Software Limited

 

Hong Kong

 

Hong Kong

 

100%

Kunhoo Software S.a.r.l.

 

Luxembourg

 

Luxembourg

 

100%

Kunhoo Software AS

 

Oslo

 

Norway

 

100%

Opera Norway AS

 

Oslo

 

Norway

 

100%

Opera Software Holdings LLC

San Mateo

USA

100%

Opera Software Americas LLC

 

San Mateo

 

USA

 

100%

Opera Software Ireland Ltd.

 

Dublin

 

Ireland

 

100%

Opera Sweden AB

 

Linköping

 

Sweden

 

100%

Opera Software International AS

 

Oslo

 

Norway

 

100%

Opera Software Netherlands B.V.

 

Amsterdam

 

Netherlands

 

100%

Opera Software India Pvt. Ltd.

 

Chandigarh

 

India

 

100%

Opera Software Poland sp. z.o.o.

 

Wroclaw

 

Poland

 

100%

Opera Software Technology (Beijing) Co. Ltd.

 

Beijing

 

China

 

100%

Beijing Aopula Software Co. Ltd. (1)

Beijing

China

100%

Opera Unite HK Limited(1)

 

Hong Kong

 

Hong Kong

 

100%

Opera Unite Pte. Ltd.(1)

 

Singapore

 

Singapore

 

100%

Opesa South Africa (Pty) Limited

 

Cape Town

 

South Africa

 

100%

O-Play Digital Services Ltd. 

 

Lagos

 

Nigeria

 

100%

O-Play Kenya Limited (2)

 

Nairobi

 

Kenya

 

80%

PhoneservicePhoneserve Technologies Co. Ltd. (2)

 

Nairobi

 

Kenya

 

80%

O-Play Zambia Limited

 

Lusaka

 

Zambia

 

100%

PT Inpesa Digital Teknologi (3)

 

Jakarta

 

Indonesia

 

100%

Opera Lifestyle(1)

 

George Town

 

Cayman Islands 

 

100%

Opera Lifestyle Nigeria Ltd.

Lagos

Nigeria

100%

OList Homes Ltd. (1)

 

Lagos

 

Nigeria

 

100%

TenSpot Pesa Limited OÜ PocoSys (1)

 

Hong KongTallinn

 

Hong KongEstonia

 

100%

LLC "Microcredit Company O-Pay Finance" 

St. Petersburg

Russia

100%

Neofin Malelane (Pty) Ltd. 

Johannesburg

South Africa

100%

Opay Finance India Pvt. Ltd. 

Mumbai

India

100%

Blue Ridge Micro Finance Bank Ltd. 

Lagos

Nigeria

100%

Oplay Digital Services S.A. De C.V. 

Mexico City

Mexico

100%

TenSpot Kenya Limited 

Nairobi

Kenya

100%

P C Financial Services Pvt. Ltd. 

Delhi

India

100%

PT Opay Finance Services 

Jakarta

Indonesia

100%

App de Préstamos, S.A. de C.V. (1)

Mexico City

Mexico

100%

Opera Financial TechnologiesP2C International Limited (1)

 

London

 

United Kingdom

100%

Dify Financial Technologies Iberia S.L.A. (1)

Barcelona

Spain

100%

Opera Financial Technologies Limited

London

United Kingdom

100%

Blueboard Limited (1)

Dublin

Ireland

 

100%

Beijing Yuega Software Tech. Srvc. Co. Ltd. (3)

 

Beijing

 

China

 

100%

 

(1) Entities were purchased or incorporated in 20192020.

 

(2) 20% is held by a nominee shareholder.

 

(3) Variable Interest Entity (VIE) contractually controlled by the Group.

 

The Group’s ownership interest and voting rights did not change in 2019.2020. There were no material non-controlling interests in the Group's subsidiaries.

 

Business combination

On January 17, 2020, the Group acquired 100% of OÜ PocoSys for US$5.0 million. PocoSys, a company incorporated in Estonia, provides banking technologies to fintech companies. In accounting for the business combination, the Group recognized US$1.7 million in identifiable intangible assets, primarily technology, and US$3.0 million in goodwill. The Group did not assume material liabilities in the business combination.

Acquisition of TenSpot Pesa Limited in 2018

On December 19, 2018, the Group acquired 100% of the shares and voting rights in TenSpot Pesa Limited (with subsidiaries, the “TenSpot Group”). The TenSpot Group is the owner of a microfinance business, which was active in Kenya in 2018, and which in 2019 was launched by the Group in India and Nigeria. A net cash consideration of US$9.5 million was transferred to Opay Digital Services Limited (“OPay”), the seller of TenSpot Pesa Limited. OPay, in which the Group had a 19.9% ownership share in 2018, which was reduced to 13.1% as of December 31, 2019, is an associate of the Group (see Note 27 for more information).

The Group determined that the combined businesses ultimately were controlled by the Group’s Chairman and CEO, both before and after the transaction. As such, it was a business combination under common control. The determination that Opera Limited is controlled by its Chairman and CEO was based on significant judgment, as disclosed in Note 2. IFRS does not prescribe how to account for business combinations under common control. In the absence of specific guidance in IFRS, management used judgment in developing and applying an accounting policy that is relevant and reliable. Other standard-setting bodies have issued guidance for common control business combinations and some allow or require predecessor accounting, or historical cost accounting as it is known in some jurisdictions, in accounting for business combinations involving entities under common control. Historical cost accounting is also supported by authoritative accounting literature. Based on this, the Group decided to adopt historical cost accounting in accounting for the acquisition of TenSpot Pesa Limited.

Under the predecessor method of accounting, as adopted by the Group, the assets and liabilities of the TenSpot Group were recognized at their carrying amounts as they were in the consolidated financial statements for TenSpot Pesa Limited. No adjustments were made to reflect fair values, or recognize any new assets or liabilities, at the date of the combination that would otherwise be done under the acquisition method. Moreover, no adjustments were necessary to align accounting policies of TenSpot Pesa Limited with those adopted by the Group.

In addition to the net cash consideration transferred to OPay, the Group had receivables due from TenSpot Pesa Limited with a carrying amount of US$2.0 million, which was effectively settled in the acquisition. The acquired companies had no material assets or liabilities except for cash and cash equivalents with a carrying amount of US$1.6 million. The difference between the consideration transferred, including the effective settlement of receivables, and the net assets acquired, was recognized as a reduction of retained earnings (US$9.9 million).

The Group decided not to re-present its comparatives and adjust its current reporting period before the date of the acquisition as if the business combination had occurred before the start of the earliest period presented. Consequently, the impact of transactions between the Group and the TenSpot Group prior to December 19, 2018 have not been eliminated.

 

 

NOTE 27.

INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

The Group has investments in associates and joint ventures, which are accounted for in accordance with the equity method, except for the preferred shares in OPay and Starmaker, as outlined below.

OPay Limited

OPay is an associate in which the Group had a 13.10% ownership interest, of which 10.24% is held in preferred shares and 2.86% in ordinary shares as of December 31, 2019. The investment in ordinary shares is accounted for in accordance with the equity method, while the preferred shares are accounted for as long-term interests in the associate and measured at fair value through profit or loss. For information about the measurement of the preferred shares, see Note 16.

In 2018, OPay launched a mobile wallet to customers in Nigeria, a market characterized by a large un-banked population with low mobile money penetration. In 2019, OPay launched multiple new initiatives in Nigeria, most notably the ridesharing service ORide and the food-delivery service OFood. ORide achieved in excess of 150,000 daily orders already from its first three months of operations, and more than 27,000 riders contributed to the platform model. Other new initiatives launched in 2019 include lending through OCredit and point of sale solutions for merchants through OPos. OPay’s goal is to become a one-stop mobile-based platform for financial and social inclusion.

In 2018, OPay also launched a microlending business in Kenya with Opera as its partner, branded OKash. On December 19, 2018, the Group paid US$9.5 million to OPay to acquire 100% of the shares in TenSpot Pesa Limited (“TenSpot”), the then owner of the OKash business. TenSpot had previously been established as an entity held directly by Mr. Yahui Zhou with the sole purpose of obtaining microlending licenses in select markets for OPay, while OPay had the option to acquire all the shares in TenSpot for US$1 (one dollar). By December 2018, TenSpot had subsidiaries, or had entered into agreements to acquire subsidiaries, with either licenses or pending license applications in several countries including India and Nigeria. Prior to OPay’s sale of the microlending business to Opera, OPay exercised its option to acquire TenSpot for $1, and assigned all intellectual property rights in OKash to TenSpot.

OPay recognized revenue of US$16.7 million in 2019, versus US$0.8 million in 2018. Establishing OPay as the leading provider of both mobile wallet and other services in Nigeria was given priority over near-term conversion of transaction value to revenue. Net loss for OPay during 2019 was US$71.5 million. Cost of revenue was US$41.1 million, of which US$36.0 million related to the launch and scaling of ORide to become the dominant ride-hailing service in Lagos, including incentives to attract drivers in this initial period of operations. Operating expenses were US$47.6 million, driven by, and supporting, the substantial growth that OPay saw across its business lines. These 2019 operating expenses included expenses incurred to expand the user base and business operations of OPay, such as marketing expenses of US$6.6 million, compensation to personnel of US$15.5 million and depreciation and amortization of US$5.9 million.

To fund its growth, OPay raised a total of US$170 million in new capital from investors in 2019 by issuing both ordinary and preferred shares. On June 14, 2019, the Group acquired 3,210,617 Series Seed+ preferred shares in OPay for US$7.5 million by converting loans to equity. On the same date, the Group also acquired 1,230,736 Series A preferred shares in OPay for US$4.6 million by converting US$2.67 million of debt to equity and by transferring US$1.93 million in cash. By the end of 2019, the accumulated investment made in OPay was US$12.1 million. Of the loans converted to equity in 2019, US$5.0 million was classified as part of the net investment in prior periods. In 2019, the Group recognized an unrealized gain on the preferred shares of US$33.9 million. See Note 16 for more details.

Summary information regarding OPay:

            
  

Year ended December 31,

 

[US$ thousands]

  2017(1)  2018   2019 

The Group’s interest

  19.9%  19.9%  13.1%(2)

Revenue

  -   848   16,687 

Other income

  -   9,500   339 
             

Cost of revenue

  -   (255)  (41,117)

Personnel expenses including share-based remuneration

  (2,331)  (5,738)  (15,490)

Marketing and distribution expenses

  -   (162)  (6,623)

Depreciation and amortization

  -   (260)  (5,858)

Other expenses

  (500)  (4,293)  (19,616)

Operating profit (loss)

  (2,831)  (359)  (71,678)

Finance income

  -   1   736 

Finance expense

  -   (25)  (417)

Income tax (expense) benefit

  -   -   (114)

Net income (loss)

  (2,831)  (384)  (71,474)

Other comprehensive income that may be reclassified to net income

  -   -   - 

Total comprehensive income

  (2,831)  (384)  (71,474)

Group's share of net income (loss)

  (563)  (76)  (2,938)

Gain on partial disposal (3)

  -   -   1,174 

Total share of net income (loss)

  (563)  (76)  (1,764)
             

Current assets

  5,600   4,302   99,238 

Non-current assets

  55   4,918   24,656 

Current liabilities

  8,431   12,043   28,870 

Non-current liabilities (4)

  -   453   170,015 

Equity

  (2,776)  (3,276)  (74,992)

(1) Period from November 1 to December 31, 2017.

(2) Reflects the total ownership interest in OPay as of December 31, 2019, 10.24% of which is held in preferred shares and 2.86% in ordinary shares. The ownership interest reduced during 2019. The share of net income (loss) recognized under the equity method was calculated based on the investment in ordinary shares, relative to the total number of shares outstanding. The Group owns 8.85% of the total number of ordinary shares issued by OPay. 

(3) In 2019, the Group sold some of its ordinary shares in OPay for the purpose of an employee equity program in the company. The gain on partial disposal is included in Share of net income (loss) of associates and joint ventures in the Statement of Operations. See Note 28 for more information. 

(4) Preferred shares issued by OPay are classified as financial liabilities in the financial statements of the company. 

StarMaker Inc.

StarMaker is an associate in which the Group had preferred shares representing a 19.35% ownership interest as of December 31, 2019. The preferred shares, accounted for as long-term interests and measured at fair value through profit or loss, have dividend and liquidation preference. In 2019, the Group recognized an unrealized gain on the preferred shares of US$4.0 million. The Group has an option to increase its ownership to 51% in the second half of the year 2020. The option, if exercised, will entail the Group acquiring the shares at either fair value, or at a proxy of fair value. Accordingly, the fair value of the option is immaterial as at December 31, 2019. For information about the measurement of the preferred shares, see Note 16.

StarMaker is a technology-driven social media company focused on music and entertainment. StarMaker enables users to record and share their own music videos, collaborate with other musicians, connect with other users and follow their idols on the social platform.

nHorizon

nHorizon is a joint venture in which the Group has a 29.09% ownership interest. nHorizon operates an Opera browser in China with monetization partners, including Baidu, Sogou and others. nHorizon consists of nHorizon Innovation (Beijing) Software Limited and nHorizon Infinite (Beijing) Software Limited (collectively, “nHorizon”). The joint venture was co-founded by Otello Corporation ASA and Telling Telecom in August 2011. The Group acquired the investment in nHorizon as a result of the acquisition of Opera Norway AS in 2016.

Powerbets Holdings Limited

Powerbets is a joint venture in which the Group has a 50.1% ownership interest. It is a joint venture with a group related to Supabets HL Limited. The joint venture was established on August 1, 2017. It provides a platform for sports betting, virtual sports betting, and gaming services throughout Africa. Having one of the largest gaming footprints in Africa, Powerbets is licensed in nine African markets and operational in eight.

2017 summary information regarding nHorizon and Powerbets:

  

Year ended

December 31, 2017

  

Period from

August 1 to

December 31, 2017

 

[US$ thousands]

 

nHorizon

  

Powerbets

 

The Group’s interest

  29.09%  50.10%

Revenue

  42,298   7,562 

Operating profit (loss)

  (2,219)  (505)

Net income (loss)

  (2,710)  (529)

Group’s share of net income (loss), before adjustment

  (788)  (265)

Adjustments related to amortization of intangible assets

  -   (54)

Group's share of net income (loss)

  (788)  (318)
         

Assets

  19,302   2,672 

Short-term liabilities

  15,720   5,649 

Equity

  3,583   (2,977)

2018 summary information regarding nHorizon, Powerbets and StarMaker:

  

Year ended December 31, 2018

 

[US$ thousands]

 

nHorizon

  

Powerbets

  

StarMaker

 

The Group’s interest

  29.09%  50.10%  19.35%(1)

Revenue

  48,992   4,498   12,332 

Operating profit (loss)

  (1,568)  (4,528)  (9,639)

Net income (loss)

  (2,056)  (4,735)  (8,602)

Other comprehensive income that may be reclassified to net income

  -   188   - 

Total comprehensive income

  (2,056)  (4,547)  (8,602)

Group's share of net income (loss)

  (598)  (2,372)  N/A 
             

Current assets

  9,761   2,751   21,366 

Non-current assets

  1,065   2,851   11,245 

Current liabilities

  3,818   7,818   30,163 

Non-current liabilities

  5,469   5,114   - 

Equity

  1,539   (7,331)  2,448 

2019 summary information regarding nHorizon, Powerbets and StarMaker:

  

Year ended December 31, 2019

 

[US$ thousands]

 

nHorizon

  

Powerbets

  

StarMaker

 

The Group’s interest

  29.09%  50.10%  19.35%(1)

Revenue

  43,335   4,990   29,035 

Operating profit (loss)

  1,821   (3,016)  (8,485)

Net income (loss)

  1,780   (5,134)  (8,485)

Other comprehensive income that may be reclassified to net income

  -   -   - 

Total comprehensive income

  1,780   (5,134)  (8,485)

Group's share of net income (loss)

  518   (2,572)  N/A 
             

Current assets

  8,225   4,447   13,869 

Non-current assets

  695   1,560   11,377 

Current liabilities

  5,875   13,074   29,870 

Non-current liabilities

  -   5,754   - 

Equity

  3,045   (12,822)  (4,624)

(1) The Group ownership interest in StarMaker is held through preferred shares, which are measured at fair value through profit or loss.

The following tables specify the carrying amounts for investments in associates and joint ventures.

  

Year ended December 31, 2018

 

[US$ thousands]

 

nHorizon

  

Powerbets

  

OPay

  

StarMaker

 

Carrying amount as of January 1, 2018

  1,110   -   4,406   - 

Investment during the year

  -   2,567   -   30,000 

FX adjustment

  (69)  -   -   - 

Share of net income (loss)

  (598)  (2,372)  (76)  - 

Share of other comprehensive income

  -   94   -   - 

Carrying amount as of December 31, 2018

  443   289   4,330   30,000 
                 

Groups share in %

  29.09%  50.10%  19.90%  19.35%

Groups share in equity

  448   (3,673)  (652)  N/A 

Unrecognized intangible assets

  -   1,492   -   N/A 

Equity method adjustments

  (5)  2,469   4,982   N/A 

Carrying amount as of December 31, 2018

  443   289   4,330   30,000 

  

Year ended December 31, 2019

 

[US$ thousands]

 

nHorizon

  

Powerbets

  

OPay

  

StarMaker

 

Carrying amount as of January 1, 2019

  443   289   4,330   30,000 

Investment during the year

  -   366   7,131   - 

Change in fair value of preferred shares (1)

  -   -   33,900   4,000 

FX adjustment

  3   -       - 

Other adjustments

  -   157   673   - 

Share of net income (loss)

  518   (2,572)  (2,938)  N/A 

Share of other comprehensive income

  -   -   -   N/A 

Carrying amount as of December 31, 2019

  963   (1,760)  43,096   34,000 
                 

Groups share in %

  29.09%  50.10%  13.1%  19.35%

Groups share in equity

  886   (6,424)  (2,145)  N/A 

Unrecognized intangible assets

  -   566   -   N/A 

Equity method adjustments

  77   4,097   (759)  N/A 

Fair value of preferred shares (1)

  -   -   46,000   34,000 

Carrying amount as of December 31, 2019

  963   (1,760)  43,096   34,000 

(1) The carrying amount of the preferred shares form part of the net investment in the associates.

In the Statement of Financial Position, the amount of Investments in associates and joint ventures includes both the carrying amount determined using the equity method and the fair value of the preferred shares.

NOTE 28.26.

RELATED PARTIES

 

At the time of the transactions described in this note, the Group’s Chairman and Chief Executive Officer had control or significant influence over Beijing Kunlun Online Network Tech OPay, Starmaker Interactive,Co Ltd, Beijing Kunlun Tech, Kunlun Group Limited, Mobimagic Digital Technology Ltd, Nanocred Cayman Company Limited, OPay Limited, Star Group Interactive Inc. (formerly known as 360 Mobile Security)StarMaker Interactive Inc.) and Balder Investment Inc.,Ying Liang Limited, either directly or through other investments.

 

The Group has significant influence over OPay Limited and StarmakerStar Group Interactive Inc. through ownership interests in those entities. Moreover, the Group has joint control over Powerbets and nHorizon by having contractually agreed to the sharing of control.

In 2018, the Group provided a revolving line of credit of US$6.0 million to Powerbets. The principal, together with all accrued and unpaid interest, shall be repaid on the date set by Powerbets’ board of directors, which effectively requires the consent of the other investor in Powerbets. As of December 31, 2019, a total of US$3.0 million was drawn under the credit facility (December 31, 2018: US$2.6 million). No repayment date has been set. No interest has been accrued. The long-term loan is accounted for as part of the Group’s long-term interest in Powerbets.

The Group and Powerbets entered into a software development and consultancy agreement in 2018. The Group has also provided advertising services to Powerbets. A total of US$2.2 million was recognized as revenue from Powerbets in 2019 (2018: US$4.4 million). As of December 31, 2019, the total outstanding balance on trade receivable was US$6.6 million, compared to US$4.4 million as of year-end 2018. We expect Powerbets to start repaying the receivables in 2020. 

On April 16, 2019, the Group sold 1,242,322 shares in OPay to Wisdom Connection III Holding Inc., a company controlled by Han Fang, a Director of the Group at the time, for a consideration of US$0.5 million, in parallel with OPay’s other founder, Balder Investment Inc., selling an equal portion of its shares at the same valuation. These transactions were carried out to establish an equity pool for OPay’s employees within Wisdom Connection III Holding Inc. ahead of new investor funding of OPay. On June 14, 2019, the Group acquired 3,210,617 Series Seed+ preferred shares in OPay for US$7.5 million by converting loan to equity. On the same date, the Group also acquired 1,230,736 Series A preferred shares in OPay for US$4.6 million by converting US$2.67 million of debt to equity and by transferring US$1.93 million in cash to the company. By the end of 2019, the accumulated investment made in OPay was US$12.1 million.

 

In mid-2019, the Group entered into service agreements with Mobimagic Cayman Co. Ltd. (formerly Mobi Magic (Beijing) Information Technology Co., Ltd.) and Hong Kong Fintango Limited under which these parties would provide app, systems and platform maintenance, and data processing services as well as managerial oversight to P C Financial Services, thean entity that provides microloans in India and which was a subsidiary of TenSpot Pesa Limited and the Group offering microloansuntil August 19, 2020, at which point in India.time it was disposed of as disclosed in Note 9. Under the agreements, the Group will paypaid a combination of fixed and variable fees and a variable fee that iswere calculated based on revenue less credit losses and indirect taxes.

 

On July 5, 2019, Blue Ridge Microfinance Bank Limited and Paycom Nigeria Limited, a subsidiary of OPay, entered a partnership to facilitate OPay’s launch of a savings product to its users. Under the agreement, depositsEffective from customers of OPay were transferred to Blue Ridge, which invested the funds in financial instruments, including microloans offered in Nigeria. Blue Ridge paid a fixed interest rate on deposits from Paycom.

On December 18, 2019,January 1, 2020, the Group entered into a salesan investment advisory and management agreement with OPayKunlun Group Limited. Under the agreement, Kunlun Group Limited provides investment management services to sell inventory representing mobile phonesthe Group, as disclosed in Notes 23 and 24. In exchange for the services provided, the Group is obligated to pay an investment management fee, subject to the discretion of the Group's Chairman and CEO but limited to 8% of the net gain from the investment activity. In 2020, the investment management fee was US$6.27 million. The transaction closed0.5 million, equivalent to 4% of the net gain in 2020.

 

On December 18, 2019March 3, 2020, the Group entered into an agreement with Putu Novi Financing Corporation,OPay Digital Services Limited, a company indirectly controlledsubsidiary of OPay Limited, for the sale of 100% of the shares in Neofin Malelane (PTY) Ltd., a subsidiary of the Group, in exchange for US$0.1 million. Moreover, on March 17, 2020, the Group entered into an agreement with the same entity in the OPay group for the sale of 100% of the shares in the Group's subsidiary Blue Ridge Microfinance Bank Ltd. in exchange for a consideration of US$5.0 million. While the Group has an unconditional right to payment in cash, the Group expects to settle the receivable by Opera’s Chairmanconverting it to equity in OPay Limited in a future funding round. The loss of control over Neofin Malelane (PTY) Ltd and CEO, under whichBlue Ridge Microfinance Bank resulted in the Group recognizing a gain of US$5.3 million in the Statement of Operations for 2020.

On May 19, 2020, the Group provided a revolving credit facility for 18 monthsloan of KES 200 million, equivalent to US$1.9 million, to OStream Credit Limited, a subsidiary of OPay Limited. The loan was provided with a simple interest of 8% per annum. The loan was repaid on October 19, 2020. In 2020, the Group recognized interest income of US$62 thousand from the loan.

On August 19, 2020, the board of directors of the Company approved a transaction in which TenSpot Pesa Limited, a wholly owned subsidiary at the time, was to be contributed to a subsidiary of NanoCred Cayman Company Limited (“Nanobank”) in exchange for the Group obtaining an ownership interest of interest42% in Nanobank. As part of the transaction, the Group agreed to transfer receivables due from TenSpot Pesa Limited to Nanobank. The transaction was completed on the same date. Prior to the transaction, Nanobank was controlled by the Group's Chairman and net revenue sharing fromCEO. Additional information on the company’s operations. As of December 31, 2019, no loans had beentransaction is provided under the credit facility.in Notes 9 and 13. 

 

The Group provides and receives professional services to a number of other related parties.

 

Services received from Beijing Kunlun Tech consist of shared office facilities in Beijing, China.

 

Services provided to OPay consist of development and key management personnel services and hashave been invoiced based on time used and with a 5-8% markup dependent of the type of service.

used. Services received from Mobimagic Digital Technology Ltd (formerly known as 360 Mobile Security) are related to distribution and promotion of the Group’s products worldwide. Mobimagic Digital Technology Ltd was initially a subsidiary of the Qihoo 360 group, later invested into by other investors, including Mr. Yahui Zhou. The Qihoo 360 group and Mr. Yahui Zhou were also two of the original shareholders of Opera Limited. Both Opera and Mobimagic Digital Technology Ltd have a need to promote their apps through mobile advertising on third partythird-party advertising inventory. As the two companies have operated under overlapping control, it was decided to take advantage of the combined volume of advertising to be procured in order to achieve the most attractive pricing from third parties; hence the partnership. AtAs of December 31, 2019,2020, the Group had provided prepayments to Mobimagic Digital Technology Ltd for distribution and promotion services as part of an agreement where Mobimagic Digital Technology acceptsLtd accepted financial risk related to the retention of acquired new users. The prepayments had a carrying amount of US$3.8 million as of December 31, 2020, compared to US$15.5 million as of December 31, 2019, compared towhile the carrying amount had reached US$10.4 million nil as of December 31, 2018. The growththe date of transactionsthis report.

On November 11, 2020, an addendum was made to the partnership agreement between the Group and balances relatedMobimagic Digital Technology Ltd., when the latter party assigned its rights and obligations under the existing agreement to this distribution partnership relates to Opera’s announced growth strategy for 2019, including increased investments inYing Liang Limited. In 2020, the Group purchased marketing and distribution.distribution-related services from Ying Liang Limited for US$3.7 million.

 

Additional information about transactions with associates and joint ventures is included in Note 27.   13.

 

 

Outstanding balances as of December 31, 20182019 and 20192020 are unsecured and interest free, except as outlined above, and settlement occurs in cash. There have been no guarantees provided or received for any related party receivable or payable.

 

[US$ thousands]

     

As of December 31, 2018

 

Balances with related parties

 

Category of related party

 

Type of balance

 

2018

  

2019

 

Mobimagic Digital Technology Ltd

 

Key management personnel

 

Accounts receivable

  770   - 

Mobimagic Digital Technology Ltd

 

Key management personnel

 

Distribution prepayment

  10,420   15,527 

Mobimagic Digital Technology Ltd

 

Key management personnel

 

Trade and other payables

  -   (2,760)

Beijing Kunlun Tech Co., Ltd.

 

Key management personnel

 

Other payables

  (169)  (177)
Kunlun Group Limited Key management personnel Trade payable  -   (436)

Mobi Magic (Beijing) Info. Tech. Co., Ltd / Hong Kong Fintango Limited

 

Key management personnel

 

Trade and other payables

  -   (25,598)

Mobi Magic (Beijing) Information Technology Co., Ltd.

 

Key management personnel

 

Trade receivable

  -   303 

nHorizon Innovation (Beijing) Software Ltd.

 

Joint venture

 

Revenue share liability

  -   (23)

nHorizon Innovation (Beijing) Software Ltd.

 

Joint venture

 

Trade receivable

  -   146 

nHorizon Innovation (Beijing) Software Ltd.

 

Joint venture

 

Professional service payable

  (979)  (543)

OPay Digital Services Limited (HK)

 

Associate / Key management personnel

 

Loans receivable

  1,779   - 

OPay Digital Services Limited (HK)

 

Associate / Key management personnel

 

Trade receivable

  4,271   17,450 

OPay Digital Services Limited (HK)

 

Associate / Key management personnel

 

Trade payable

  (455)  - 
OPay Digital Services Limited (HK) Associate / Key management personnel Contract liability  -   (6,274)

Paycom Nigeria Limited

 

Key management personnel

 

Trade receivable

  -   1,466 

Paycom Nigeria Limited

 

Key management personnel

 

Trade and other payables

  -   (26)

Powerbets Holding Limited

 

Joint venture

 

Loans receivable

  2,567   3,039 

Powerbets Holding Limited

 

Joint venture

 

Trade receivable

  4,369   6,579 

StarMaker Entertainment Technology India Pvt., Ltd.

 

Associate / Key management personnel

 

Trade receivable

  -   22 

Wisdom Connection III Holding Inc.

 

Key management personnel

 

Other receivables

  -   500 

[US$ thousands]

     

As of December 31,

 

Balances with related parties

 

Category of related party

 

Type of balance

 

2019

  

2020

 

Beijing Kunlun Lexiang Network Technology Co., Ltd.

 

Key management personnel

 

Other payables

  -   (15)

Beijing Kunlun Online Network Tech Co., Ltd.

 

Key management personnel

 

Other payables

  -   (45)

Beijing Kunlun Tech Co., Ltd.

 

Key management personnel

 

Other payables

  (177)  (773)

Beijing Kunlun Tech Co., Ltd.

 

Key management personnel

 

Trade receivables

  -   13 

Beijing OFY Co., Ltd.

 

Associate / Key management personnel

 

Trade receivables

  -   51 

Beijing Xianlaihuyu Network Tech Co., Ltd.

 

Key management personnel

 

Other payables

  -   (5)

Blue Ridge Micro Finance Bank Ltd.

 

Associate / Key management personnel

 

Trade payables

  -   (30)

Kunlun Global International Sdn. Bhd.

 

Key management personnel

 

Other payables

  -   (8)

Kunlun Group Ltd.

 

Key management personnel

 

Trade payables

  (436)  (520)

Kunlun Tech Ltd.

 

Key management personnel

 

Trade receivables

  -   568 

Mobimagic Digital Tech. Ltd.

 

Key management personnel

 

Distribution prepayment

  15,527   3,848 

Mobimagic Digital Tech. Ltd.

 

Key management personnel

 

Trade and other payables

  (2,760)  - 

Mobimagic Cayman Co. Ltd.

 

Key management personnel

 

Trade receivables

  303   - 
Mobimagic Cayman Co. Ltd. / Hong Kong Fintango Ltd. Key management personnel Trade and other payables  (25,598)   - 

Nanocred Cayman Company Limited and subsidiaries

 

Associate / Key management personnel

 

Other receivables

  -   138 

nHorizon Infinite (Beijing) Software Ltd.

 

Joint venture

 

Trade receivables

  -   278 

nHorizon Innovation (Beijing) Software Ltd.

 

Joint venture

 

Revenue share liability

  (23)  (23)

nHorizon Innovation (Beijing) Software Ltd.

 

Joint venture

 

Trade receivables

  146   - 

nHorizon Innovation (Beijing) Software Ltd.

 

Joint venture

 

Professional service payable

  (543)  (533)

OPay Digital Services Ltd.

 

Associate / Key management personnel

 

Loan receivable

  -   - 
OPay Digital Services Ltd. 

Associate / Key management personnel

 

Trade receivables

  17,450   615 
OPay Digital Services Ltd. 

Associate / Key management personnel

 

Contract liability

  (6,274)  - 
OPay Digital Services Ltd. 

Associate / Key management personnel

 

Other receivables

  -   5,000 

Paycom Nigeria Ltd.

 

Key management personnel

 

Trade receivables

  1,466   - 

Paycom Nigeria Ltd.

 

Key management personnel

 

Trade and other payables

  (26)  (136)
Powerbets Holdings Ltd. Joint venture Loan receivable  3,039   - 
Powerbets Holdings Ltd. Joint venture Trade receivable  6,579   - 

Starmaker Entertainment Technology India Pvt., Ltd.

 

Key management personnel

 

Trade receivables

  22   - 

Wisdom Connection III Holding Inc.

 

Key management personnel

 

Other receivables

  500   500 
Xinyu Kunnuo Investment Management Co., Ltd. Key management personnel Other payables  -   180 

Ying Liang Ltd.

 

Key management personnel

 

Distribution prepayment

  -   22 

Ying Liang Ltd.

 

Key management personnel

 

Trade and other payables

  -   (3,673)

Ying Liang Ltd.

 

Key management personnel

 

Trade receivables

  -   209 

 

 

[US$ thousands]

     

Year ended December 31,

 

Transactions with related parties

 

Category of related party

 

Type of transaction

 

2017

  

2018

  

2019

 

Mobimagic Digital Technology Ltd

 

Key management personnel

 

Technology licensing, advertising and other revenue

  -   3,069   - 

Mobimagic Digital Technology Ltd

 

Key management personnel

 

Marketing and distribution

  (8,416)  (7,522)  (25,767)

Mobimagic Digital Technology Ltd

 

Key management personnel

 

Software license fees

  -   -   (500)

Beijing Kunlun Tech Co., Ltd.

 

Key management personnel

 

Office facilities

  (1,425)  (1,072)  (1,545)

Beijing Kunlun Tech Co., Ltd.

 

Key management personnel

 

Technology licensing and other revenue

  -   -   13 

Beijing Kunlun Tech Co., Ltd.

 

Key management personnel

 

Professional services

  -   -   (30)
Kunlun Group Limited Key management personnel Professional investment advisory services  -   -   (436)

Beijing Kunlun Lexiang Network Technology Co., Ltd.

 

Key management personnel

 

Professional services

  -   -   (79)

Beijing Kunlun Online Network Tech Co., Ltd

 

Key management personnel

 

Professional services

  -   -   (125)

Beijing Xianlaihuyu Network Tech Co., Ltd

 

Key management personnel

 

Professional services

  -   -   (39)

KUNLUN GLOBAL INTERNATIONAL SDN. BHD.

 

Key management personnel

 

Advertising revenue

  -   68   2 

Mobi Magic (Beijing) Information Technology Co., Ltd.

 

Key management personnel

 

Technology licensing and other revenue

  -   -   303 

Mobi Magic (Beijing) Info.Tech. Co., Ltd / Hong Kong Fintango Limited

 

Key management personnel

 

Cost of revenue

  -   -   (25,598)

Mobi Magic (Beijing) Information Technology Co., Ltd

 

Key management personnel

 

Professional services

  -   -   (325)

nHorizon Innovation (Beijing) Software Ltd.

 

Joint venture

 

Technology licensing and other revenue

  387   (18)  146 

nHorizon Innovation (Beijing) Software Ltd.

 

Joint venture

 

Investment

  (770)  -   - 

nHorizon Innovation (Beijing) Software Ltd.

 

Joint venture

 

Cost of revenue

  (72)  (45)  (38)

nHorizon Infinite (Beijing) Software Ltd.

 

Joint venture

 

Professional services

  (513)  (941)  (156)

OPay Digital Services Limited (HK)

 

Associate / Key management personnel

 

Acquisition of business

  -   (9,500)  - 

OPay Digital Services Limited (HK)

 

Associate / Key management personnel

 

Investment (Note 27)

  (4,969)  -   (7,131)

OPay Digital Services Limited (HK)

 

Associate / Key management personnel

 

License fee (cost of revenue)

  -   (455)  - 

OPay Digital Services Limited (HK)

 

Associate / Key management personnel

 

Technology licensing and other revenue

  2,829   10,899   15,960 

OPay Digital Services Limited (HK)

 

Associate / Key management personnel

 

Interest income

  -   -   323 

Paycom Nigeria Limited

 

Associate / Key management personnel

 

Advertising revenue

  -   -   1,565 

Powerbets Holdings Limited

 

Joint venture

 

Technology licensing, advertising and other revenue

  -   4,369   2,210 

Powerbets Holdings Limited

 

Joint venture

 

Investment

  (310)  -   - 

StarMaker Interactive Inc.

 

Associate / Key management personnel

 

Investment

  -   (30,000)  - 

StarMaker Interactive Inc.

 

Associate / Key management personnel

 

Professional services

  16   175   150 

Wisdom Connection III Holding Inc.

 

Key management personnel

 

Other revenue

  -   -   8 

Wisdom Connection III Holding Inc.

 

Key management personnel

 

Disposal of shares in associates

  -   -   500 

[US$ thousands]

     

Year ended December 31,

 

Transactions with related parties

 

Category of related party

 

Type of transaction

 

2018

  

2019

  

2020

 

Beijing Kunlun Tech Co., Ltd.

 

Key management personnel

 

Office facilities

  (1,072)  (1,545)  (1,533)

Beijing Kunlun Tech Co., Ltd.

 

Key management personnel

 

Technology licensing and other revenue

  -   13   - 

Beijing Kunlun Tech Co., Ltd.

 

Key management personnel

 

Professional services

  -   (30)  - 

Beijing Kunlun Lexiang Network Technology Co., Ltd.

 

Key management personnel

 

Professional services

  -   (79)  (15)

Beijing Kunlun Online Network Tech Co., Ltd.

 

Key management personnel

 

Professional services

  -   (125)  (44)

Beijing Xianlaihuyu Network Tech Co., Ltd.

 

Key management personnel

 

Professional services

  -   (39)  (5)

Beijing OFY Co., Ltd.

 

Associate / Key management personnel

 

Technology licensing and other revenue

  -   -   543 
Kunlun Global International Sdn. Bhd. 

Key management personnel

 

Advertising revenue

  68   2   - 
Kunlun Global International Sdn. Bhd. 

Key management personnel

 

Professional services

  -   -   (8)

Kunlun Group Ltd.

 

Key management personnel

 

Professional investment advisory services

  -   (436)  (582)

Mobimagic Digital Tech. Ltd.

 

Key management personnel

 

Technology licensing, advertising and other revenue

  3,069   -   496 

Mobimagic Digital Tech. Ltd.

 

Key management personnel

 

Marketing and distribution

  (7,522)  (25,767)  (9,719)

Mobimagic Digital Tech. Ltd.

 

Key management personnel

 

Software license fees

  -   (500)  - 

Mobimagic Cayman Co. Ltd.

 

Key management personnel

 

Technology licensing and other revenue

  -   303   596 

Mobimagic Cayman Co. Ltd. / Hong Kong Fintango Ltd.

 

Key management personnel

 

Technology and platform fees

  -   (25,598)   (23,007)

Mobimagic Cayman Co. Ltd.

 

Key management personnel

 

Professional services

  -   (325)  - 

nHorizon Innovation (Beijing) Software Ltd.

 

Joint venture

 

Technology licensing and other revenue

  (18)  146   - 

nHorizon Innovation (Beijing) Software Ltd.

 

Joint venture

 

Content cost

  (45)  (38)  - 

nHorizon Infinite (Beijing) Software Ltd.

 

Joint venture

 

Professional services

  (941)  (156)  - 

nHorizon Infinite (Beijing) Software Ltd.

 

Joint venture

 

Technology licensing and other revenue

  -   -   133 

OPay Digital Services Ltd.

 

Associate / Key management personnel

 

Acquisition of business

  (9,500)  -   - 
OPay Digital Services Ltd. 

Associate / Key management personnel

 

Investment

  -   (7,131)  - 
OPay Digital Services Ltd. 

Associate / Key management personnel

 

Technology and platform fees

  (455)  -   - 
OPay Digital Services Ltd. 

Associate / Key management personnel

 

Technology licensing and other revenue

  10,899   15,960   7,626 
OPay Digital Services Ltd. 

Associate / Key management personnel

 

Interest income

  -   323   - 

OPay Digital Services Ltd.

 

Associate / Key management personnel

 

Other income

  -   -   5,289 

Paycom Nigeria Ltd.

 

Associate / Key management personnel

 

Advertising and other revenue

  -   1,565   866 
Powerbets Holdings Ltd. Joint venture Technology licensing, advertising and other revenue  4,369   2,210   - 
Puto Novi Financing Corporation Key management personnel Finance income  -   -   97 

StarMaker Interactive Inc.

 

Key management personnel

 

Investment

  (30,000)  -   - 

StarMaker Interactive Inc.

 

Key management personnel

 

Professional services

  175   150   - 

Wisdom Connection III Holding Inc.

 

Key management personnel

 

Other revenue

  -   8   - 

Wisdom Connection III Holding Inc.

 

Key management personnel

 

Disposal of shares in associates

  -   500   - 
Xinyu Kunnuo Investment Management Co., Ltd. Key management personnel Professional services  -   -   180 

Ying Liang Ltd.

 

Key management personnel

 

Marketing and distribution expenses

  -   -   (3,716)

Ying Liang Ltd.

 

Key management personnel

 

Technology licensing and other revenue

  -   -   209 

Following the acquisition of Opera Norway AS, the Group and Otello Corporation ASA entered into a time-restricted Transitional Service Agreement whereby individuals from each party provided support to one another in line with historical activity. These activities were tracked and invoiced based on actual cost, which have resulted in only minimal net payments. As of December 31, 2019, the net of receivables and payables was immaterial.

 

 

 

NOTE 29.

NET INCOME PER SHARE

Basic net income per share is calculated by dividing the net income for the year attributable to ordinary equity holders of Opera Limited by the weighted average number of ordinary shares outstanding during the year. Diluted net income per share is calculated by dividing the net income attributable to ordinary equity holders of Opera Limited by the weighted average number of ordinary shares outstanding during the year plus the number of ordinary shares that would be issued pursuant to our employee equity program based on period-average employee equity awards. The net dilutive effect of these awards is determined by application of the treasury stock method related to the share equivalents of unrecognized share compensation expense on employee equity grants outstanding at period end.

The net income per share calculation for all periods prior to the Initial Public Offering reflects 200 million shares as outstanding, less 9.75 million shares that were surrendered by two shareholders upon completion of the IPO. As of December 31, 2019, the total number of shares outstanding for Opera Limited was 237,826,326, each with a par value of US$0.0001.

The following tables show the income and share data used in the basic and diluted net income per share calculations.

[Net income in US$ thousands]

 

Year ended December 31,

 

Basic net income per share

 

2017

  

2018

  

2019

 

Net income attributable to the owners of the parent

  6,064   35,160   57,899 
             

Issued ordinary shares at beginning of period

  190,250,000   190,250,000   220,119,343 

Effect of shares issued

  -   12,504,070   7,422,487 

Effect of treasury shares held

  -   (133,681)  (2,913,330)

Basic weighted-average number of ordinary shares in the period

  190,250,000   202,620,388   224,628,500 
             

Basic net income per share, US$

  0.03   0.17   0.26 

[Net income in US$ thousands]

 

Year ended December 31,

 

Diluted net income per share

 

2017

  

2018

  

2019

 

Net income attributable to the owners of the parent

  6,064   35,160   57,899 
             

Basic weighted-average number of ordinary shares

  190,250,000   202,620,388   224,628,500 

Effect of employee equity grants

  2,449,186   6,107,813   4,437,167 

Diluted weighted-average number of ordinary shares in the period

  192,699,186   208,728,202   229,065,667 
             

Diluted net income per share, US$

  0.03   0.17   0.25 

Opera Limited, the parent, has American Depository Shares (ADSs) listed on Nasdaq, trading under the OPRA ticker symbol. Each ADS represents two ordinary shares in the parent. The table below specifies net income per ADS.

[Net income in US$ thousands]

 

Year ended December 31,

 

Net income per ADS, basic and diluted

 

2017

  

2018

  

2019

 

Net income attributable to the owners of the parent

  6,064   35,160   57,899 
             

ADS equivalent of basic weighted-average number of ordinary shares

  95,125,000   101,310,194   112,314,250 

ADS equivalent of diluted weighted-average number of ordinary shares

  96,349,593   104,364,101   114,532,833 
             

Basic net income per ADS, US$

  0.06   0.35   0.52 

Diluted net income per ADS, US$

  0.06   0.34   0.51 

NOTE 30.27.

EVENTS AFTER THE REPORTING PERIOD

 

The adverse impact from the global COVID-19 pandemic to revenue from the Group’s products and services during the first half of 2020 largely ceased during the second half of the year. Still, as the pandemic continues into 2021, the Group continues to observe some negative impacts from it, in particular to the amount of advertising revenue from companies in certain industries. The pandemic is also continuing to impact the financial performance of Nanobank, an associate of the Group, which has significant operations in India, where a recent surge in the rate of infections impacts Nanobank's planned timing for the launch of new products and services, and its scaling of existing services. The Group is continuing to monitor the impact of the pandemic, the measures taken to contain it and the effect of vaccination programs. The impact of the pandemic to financial performance and position of the Group in 2021 is highly uncertain.

On May 29, 2020, the Group entered into an investment agreement with AB Fjord Bank. Under the agreement, the Group was to acquire 9.9% of the share capital via a share subscription. On January 4, 2021, the capital increase in AB Fjord Bank was completed by the Group investing US$0.9 million. The Group has concluded that the investment in AB Fjord Bank is an associate to be accounted for under the equity method. AB Fjord Bank is a full-digital consumer finance bank that was founded in March 2017. In December 2019, it was granted a specialized bank license by the period from early 2020 untilEuropean Central Bank. AB Fjord Bank’s head office is in Vilnius, Lithuania.

On January 8, 2021, Kunlun Tech Limited, a subsidiary of Beijing Kunlun Tech Co., Limited, completed the acquisition of 19.5 million ordinary shares in Opera Limited, resulting in Kunlun Tech Limited holding 124.0 million of the ordinary shares outstanding, equivalent to 53.9% of the share capital at the time. Beijing Kunlun Tech Co., Limited is listed on the Shenzhen Stock Exchange.

On January 11, 2021, the Group acquired 100% of the shares in YoYo Games Limited for US$9.5 million, or US$9.0 million net of cash acquired. YoYo Games Limited owns GameMaker, a platform users can access to develop games. The acquisition forms the basis for Opera Gaming, a new division focused on expanding the Group's capabilities and monetization opportunities in gaming. The initial accounting for the business combination is incomplete as of the date these consolidated financial statements wereare authorized for issue the coronavirus (COVID-19) was classified as a global pandemic. The coronavirus did not have any impact on the consolidated financial statements for 2019. The Group continues to monitor developments closely as the COVID-19 pandemic develops and beginning in March the COVID-19 pandemic began to impact the Group’s business. This includes increased user traffic which has been offset by declines in user monetization and meaningfully reduced microlending volumes due to COVID-19 related lockdowns in our key markets. If the situation deteriorates or persists for an extended period in key geographies, the risk of a significant adverse impact to the Group’s business will increase. The impact of the COVID-19 pandemic to the Group’s business will depend on a range of factors whichbecause the Group is not able to accurately predict, includingstill assessing the duration and scopeinputs for determining the fair values of the pandemic,assets and liabilities acquired and assumed. Based on the geographies impacted, the impactpreliminary allocation of the pandemic on economic activity andpurchase price, goodwill from the nature and severity of measures adopted by governments. These factors include, but areacquisition is measured at US$6.4 million. The Group did not limited to:

Reductions or volatility in consumer demand for one or more of the Group’s products due to illness, quarantine or other travel restrictions, economic hardship, which may impact the Group’s market share.
The deterioration of socio-economic conditions and disruptions to the Group’s operations, such as advertising sales, value of monetization partnerships, distribution partnerships, ability to collect outstanding loans and ability to launch new products.

All of these factors may haveassume material adverse effects onliabilities from the Group’s results of operations and financial condition.business combination.

 

On January 17, 2020,2021, the Group announced that its board of directors had approved a share repurchase program which authorizeddisclosed in Note 24 was terminated. Under the Company’s management to executeprogram, the repurchase of up to US$50 million of its American Depositary Shares by January 17, 2021, in any form that management may deem fit. The Company’s management launched the repurchase in February 2020 and as of March 31, 2020,Group repurchased a total of 773,4865,976,455 ADSs had been repurchased for US$5,490 thousand. Additional repurchases will be made from time to time in an opportunistic manner and depending on market conditions.49.8 million.

 

Subsequent to February 25, 2021, the third exercise period of the Group’s equity program took place, including RSUs that had vested on January 1, 2021. A total of 1,086,340 RSUs were exchanged for an equivalent number of ADSs in Opera Limited. On May 25, 2021, the Group awarded 40,000 options and 1,965,825 RSUs that vest over 2022-2025. The awards were granted according to the Group’s existing share incentive plan and follow the final vesting period of the grants made in 2017. Combined, 22% of awarded options and RSUs are scheduled to vest in 2022, 24% in 2023, 27% in 2024 and 27% in 2025.

In January 24, 2020, Opera Limitedthe Company and certain of its directors and officers were named as defendants in a putative class action filed in the United States District Court for the Southern District of New York: Brown v. Opera Limited. et al., Case No. 20-cv-674 (S.D.N.Y.). The complaint, asserts violations of Sections 11 and 15 of the Securities Act of 1933, Section 10(b) and 20(a) of the Securities and Exchange Act of 1934, and SEC Rule 10b-5 promulgated under the Securities Exchange Act of 1934. The complaint allegesas amended, alleged that the Company had made certain material misstatements and/or omissions during the period from July 27, 2018 through January 15, 2020. The allegations relate to statements regarding the Company’s sustainable growth and market opportunity for its browser applications and the alleged business practicesin violation of certain loan service applications owned or controlled by the Company. The complaint seeks unspecified damages on behalf of all person and entities who purchased or acquired the Company’s (i) American depositary shares (“ADSs”) pursuant and/or traceable to the Company’s initial public offering commenced on or about July 27, 2018 (the “IPO” or “Offering”); and/or (ii) OperaUS securities between July 27, 2018 and January 15, 2020, both dates inclusive. Several individuals have sought to be appointed as the lead plaintiff to represent the putative class, but no lead plaintiff has been appointed yet. As the case remains in its preliminary stages, the Group is not able to express an opinion on the likelihood of any unfavorable outcome or any estimate of the amount or range of any potential loss.laws. The Company intendsannounced its decision to vigorously defend itself againstfrom these claims.allegations and moved to dismiss the complaint. On March 13, 2021, the court granted the Company’s motion to dismiss, dismissing all of the claims on multiple grounds. The plaintiffs in the action determined to forgo their right to file a further amended complaint and instead stipulated to dismissal of the litigation. The case was dismissed with prejudice in an order entered on April 22, 2021.

 

On January 27, 2020, the Group announced the completion of the acquisition of the Estonian-based company Pocosys, as well as an agreement to acquire Pocopay, its sister company, which holds a payment institution license and provides financial services in the European Union. Until the acquisition of Pocopay is completed, Opera has a commercial relationship with Pocopay. Based on a preliminary allocation of the purchase price of US$5.0 million, goodwill was measured at US$3.8 million. The Group did not assume material liabilities in the business combination.

Subsequent to February 25, 2020, the second exercise period of the Group’s equity program took place, including RSUs that had vested on January 1, 2020. A total of 1,121,000 RSUs were exchanged for an equivalent number of ADSs in Opera Limited.

On March 17, 2020,June 4, 2021, the Group entered into an agreement with OPay Digital Services Limited, a subsidiaryto sell 41,071,355 of OPay Limited, for the sale of 100% of theits preferred shares in OPay for a consideration of US$50 million. The transaction closed on the Group's subsidiary Blue Ridge Microfinance Bank Ltd. The consideration wassame date and resulted in a gain of US$5.031.1 million subject to certain price adjustment clauses. Completionversus the carrying amount of the transaction is pending changethese shares. Opera will retain 101,020,495 shares in OPay, consisting of control approval by the Central Bank of Nigeria.31,058,025 ordinary shares and 69,962,470 preferred shares.

 

F-62
F-67