Final Results

RNS Number : 2624Q

GB Group PLC

05 June 2018

 

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Embargoed until 7.00 a.m.

5th June 2018

GB GROUP PLC

("GBG", the "Group" or the "Company")

Annual Results for the Year Ended 31 March 2018

Strong organic revenue growth driven by international expansion, a growing customer base and great people

GB Group plc (AIM: GBG), the global identity data intelligence specialist, announces its annual results for the Year Ended 31 March 2018.

Financial highlights

	2018	2017	% change
Revenue	£119.7m	£87.5m	+37%
Organic revenue growth	17%	10%
Adjusted organic revenue growth1	15%	10%
Adjusted operating profit2	£26.3m	£17.0m	+55%
Adjusted basic earnings per share3	15.3p	13.1p	+17%
Group profit before tax	£13.4m	£10.1m	+33%
Deferred income balances	£28.3m	£19.0m	+49%
Net assets	£157.8m	£94.2m	+67%
Net cash4	£13.5m	£5.2m	160%
Dividend per share	2.65p	2.35p	13%

Strategic and Operational Highlights

Enhancing our customer offer

·      Broadening our existing global data portfolio with additional new and improved data identity for China, Australia, France and Sweden

·      Expanding our capabilities with new acquisitions to provide the best products, such as Verifeyed which will improve our digital anti-tampering offer

·      Creation of a new Customer Experience leadership role as part of our Executive Team

International Expansion

·      International revenues increased from 31% to 34% of our total business

·      Continuing to make significant progress across EMEA and APAC regions

·      Now employ over 800 people across 18 countries

Growing our customer base

·      Strong level of renewals building on our existing customer base

·      Attracting new high-quality customers to the portfolio including LEGO, KBC Ireland and Nordstrom

·      Our overall customer base now stands at over 17,000 businesses and organisations, across 79 countries

Outlook & growth opportunities

·      The market for identity data intelligence solutions continues to grow as do our capabilities

·      Recent acquisitions fully integrated and providing new growth opportunities

·      Clear plans for organic growth and a healthy focus on opportunities for acquisitions

·      The new financial year is trading in line with our expectations

Chris Clark, CEO, said:

"This has been another strong year for GBG across all of our core products and markets. We have a clear strategy for sustainable, long-term growth based on building ever-closer customer relationships while continuing our international expansion through both acquisitions and investment in our people and technology.

"GBG is becoming a truly global business with more than 34% of revenues coming from overseas markets. Today, our customers include more than 17,000 businesses and organisations, in 79 countries and we're continuing to expand and invest in our operations in APAC, North America and EMEA. We believe there are exciting opportunities across all our sectors, in all our markets and that gives us great confidence for the future."

 - Ends -

Notes:

¹ As we highlighted in the October 2017 trading update, the organic revenue growth includes £3.5m from the sale in September 2017 of a material perpetual licence to a leading European bank. Had this particular transaction been a fully delivered, 3-year agreement, payable in annual instalments then our revenue recognition policies would have resulted in an underlying organic growth rate of 15%.

² Adjusted operating profit means profit before amortisation of acquired intangibles, share-based payments, exceptional items, interest and tax. This measure is not defined under IFRS but Management believe that this Alternative Performance Measure (APM) is a more appropriate metric to understand the underlying performance of the Group. See "Alternative Performance Measures" in the Annual Report & Accounts for further details.

³ Adjusted earnings per share is defined as adjusted operating profit less net finance costs and tax divided by the basic weighted average number of ordinary shares of the Company. 

⁴ Net cash means cash and short-term deposits less loans.

For further information, please contact:

GBG Chris Clark, CEO Dave Wilson, CFO & COO	01244 657333
Peel Hunt LLP (Nominated Adviser and Broker) Edward Knight, Nick Prowting	020 7418 8900
Headland Consultancy Andy Rivett-Carnac, Chloe Francklin, Charlie Twigg	020 3805 4822
Website	www.gbgplc.com/investors

About GBG

GBG is a global specialist in Identity Data Intelligence. We help organisations make decisions about their customers and employees.

Through our fundamental belief that the digital economy relies on everyone having access to data they can trust, GBG enables companies and governments to fight fraud and cybercrime, to improve the customer experience and help to protect the more vulnerable people in our society.

Headquartered in Chester (UK) and with people in 18 countries, GBG has some of the world's biggest organisations as its customers, from established brands like HSBC, Zurich Insurance, Lego and Lufthansa, to disruptive newcomers such as Stripe and Plus500.

Find out more about how we use identity data intelligently by visiting www.gbgplc.com and our newsroom: www.gbgplc.com/newsroom or following us on Twitter @gbgplc.

 

Chairman's Statement

GBG has delivered another strong year with good progress in executing our strategy. Overall growth for the year was very solid, which demonstrates the Group's continued ability to move quickly and capitalise on opportunities in evolving markets.

Performance

GBG's financial performance in the year was ahead of market expectations. Revenues increased by 37% to £119.7 million (2017: £87.5 million), of which almost half (17%) was organic growth. Adjusted operating profitᶧ saw a 55% increase to £26.3 million (2017: £17.0 million) contributing to an increase in adjusted earnings per share of 17% to 15.3 pence (2017: 13.1 pence). Deferred revenue in the balance sheet (in respect of amounts already invoiced under annual or multi-year contracts, but which will be recognised in future periods) increased by £9.3 million to £28.3 million, providing us with clear revenue visibility for the first quarter and beyond.

GBG continues to be cash generative and cash balances at 31 March 2018 were £22.8 million (2017: £17.6 million).  Net cash balances were £13.5 million (2017: £5.2 million).

Dividend

We remain committed to delivering increasing returns to shareholders. Accordingly, the Board is recommending a final dividend of 2.65 pence per share, which we will propose to shareholders for approval at the Annual General Meeting in July. If approved, this will represent a tenth year of growth in dividends and the dividend will be paid on 24 August 2018.

Achievements and Strategic Outlook

There have been a number of highlights this year. We developed our existing products with the addition of Visualise, a capability within GBG Connexus, alongside improvements in other products. We further expanded our global data coverage and we have made good progress throughout the year implementing GDPR (General Data Protection Regulation). We have also seen a number of key international wins and have successfully integrated PCA Predict into the Group.

Looking forward there are good opportunities to continue our growth in all of our core markets. We expect to develop our business with existing customers, increase our share of existing markets and continue to expand internationally. We are investing in innovation and customer experience, as well as in sales and marketing capabilities. Our people are vital to our success and we will continue to build upon our special company culture with its high levels of staff engagement.

The year overall

2018 has been another successful year. It is testament to our team that we have once again delivered such a strong performance. On behalf of the Board, I would like to thank all of our people for being so passionate in their efforts in helping turn GBG's vision into action. I would also like to thank Chris Clark and his Executive Team for a good first year and to mention the seamless handover of the Audit Committee chair from Dick Linford to Liz Catchpole.

David A Rasche

Chairman

ᶧ Adjusted operating profit means profit before amortisation of acquired intangibles, share-based payment charges, exceptional items, net finance costs and tax.

 

 

Chief Executive's Statement

I'm really pleased to share our annual results with our shareholders.

Looking back it's been a year of building relationships. If I start with our customers, I've spent time meeting them all around the world and getting to understand the challenges they face. In particular, I've been learning about how they balance the need to manage risk with delivering a great experience for their own customers.

I've been encouraged by what I've seen. It makes me proud to see that we can support them with this challenge through new, compliant technology solutions that help reduce the risk of fraud, while making sure that their own customers have a smooth onboarding experience. The pace of change in the world is ever increasing and with this security, privacy and fraud are front of mind. The breadth of our data sources and strength of our tools provide increasingly valuable safeguards and mean we are well positioned in this dynamic environment.  

Turning to our team, I've really enjoyed working with and getting to know the business, its people, products and operations. We have a solid track record of delivering for both customers and shareholders and I'm encouraged to see those standards maintained with such a positive set of results this year.

Overview

This has been another year of healthy financial performance. Last year I expressed confidence that we could capitalise on market opportunities through our clear strategy, strong leadership, good customer relationships, new acquisitions, new products, and investment in our people. We've made good progress delivering sustained growth in our core business, with acquisitions from recent years playing a significant part. International growth has continued, with international revenues increasing from 31% to 34% of our total business.

Technology remains the key driver of change. We've increased our focus on how we can exploit technology-driven innovation through a range of 'build and buy' models. We're investing in our own platforms, to make us more agile and efficient, with cloud, microservices and InfoSec as key priorities. We've also been broadening the data sets we use, while enhancing our capabilities in product innovation.

In line with our strategy, we continue to explore potential acquisitions to expand our capabilities, datasets and geographic presence. One example is adding Verifeyed to the Group: while small, it's an example of how we're strengthening our capability to detect digital image-tampering. We've also successfully integrated two businesses we'd previously acquired - IDscan and PCA Predict - and it is pleasing to note that PCA Predict is growing even faster this year than it did before the acquisition.

Changes in regulation continue to provide opportunities and challenges. Our programme to implement GDPR has gone well leaving us well-positioned from a compliance perspective. It has also given us the chance to review and improve our data-supply relationships.

We've made progress with our identity assurance service. We are a certified provider on the UK Government's GOV.UK Verify platform, both indirectly as a technology partner of Royal Mail Group and directly with our own CitizenSafe^® brand. We've taken action to improve the service and the GOV.UK Verify project is certainly helping us to learn more about developing digital identity models, with wider opportunities emerging.  

We've managed risks effectively and as we refine our strategy and plans for the year ahead we will continue to ensure that changes to the market and international political uncertainties remain at the front of our minds.

Growth: New Business and International Expansion

We have a healthy renewal stream from our existing customer base - and we are continuing to attract new, high-quality customers to our portfolio. In November, we announced that LEGO was using our location intelligence services and KBC Ireland was using our IDscan technology. Nordstrom, in the USA, is using our address verification services to improve their customers' online experience during the checkout process.

Our fraud and risk management business continues to make progress in the EMEA and APAC regions. New customers using our fraud solutions include a major Indonesian bank, Bank Mega and Bank of Shanghai.

Customer Experience

Over the past year we've focussed even more on customer experience across our business. The feedback our customers have given demonstrates the strong and loyal customer relationships we have, but we recognise that there's always more we can do. With that in mind Customer Experience is now a leadership role on our Executive team for the first time. This makes it clear to everybody in the business how important this is to us and will help to speed up improvements to our customer facing programmes.

Specifically, in February we launched our first 'service status portal' for customers providing them with real time performance statistics of our eIDV service. We've also put in place measures to make sure customers get a consistent experience of GBG, regardless of how they contact us.

Looking to the future we'll be making improvements to our product experience, account management and helpdesks. Our aim is to make it easier and simpler for people to use our services.

We have also brought together our strategy, marketing and product teams under a single Executive Team role, focused on Customer Insight & Innovation. This will make sure that the needs of our customers directly inform the direction of the business and our investment in developing new products.

Products & Data

We have continued to broaden our global data portfolio. We have:

·      New and improved identity data for China, Australia, France and Spain;

·      Better location data for Malaysia, Singapore, Norway, Sweden, Denmark, Austria, Italy, Luxembourg and the Netherlands; and

·      A refreshed supply of mobile data in the UK.

As well as providing more data, we want to make it easier for our customers to use our products. We've worked with our suppliers to simplify the customer experience, reducing customer effort and improving reliability by migrating to higher performing platforms and contracts. We have also launched our advanced data visualisation tool, Visualise by GBG Connexus. This lets businesses interrogate and identify patterns, trends and correlations between people, properties, and places. Until now, these would all have been hidden. Visualise delivers simple, intuitive links between more than a billion records and presents the data clearly and concisely.

People

We now have more than 800 people in our team, working in 18 countries. We believe that if that team is happy and engaged they'll deliver great service and products for our customers and other stakeholders. Our employee engagement scores show that our people are proud of GBG and feel it is a great place to work.

However, we're not standing still; there's still more that we can improve, and we're investing and working hard to make GBG an even better place to work. This year, in learning and development, we've launched our program for people managers, accredited by the Institute of Leadership & Management. We've also simplified the processes for hiring and resourcing and we've refreshed our workplaces, including a new office in Melbourne. 

Current Trading & Outlook

The new financial year is trading in line with the Board's expectations. For the future, we have clear plans for organic growth and a healthy focus on opportunities for acquisitions. I'm excited about the prospects we have to develop our business further.

Chris Clark

Chief Executive

 

Finance Review

Principal Activities and Business Review

The principal activity of GB Group plc ('GBG') and its subsidiaries (together 'the Group') is the provision of identity data intelligence services. GBG helps organisations recognise and verify all elements of an individual's identity at key interactions in their business processes. Through the application of our proprietary technology, our vision is to inform business decisions between people and organisations globally.

In order to reflect how the Group presents its lines of business to its stakeholders, the naming and structure of the operating segments was amended with effect from 1 April 2017.  'Identity Proofing' became known as 'Fraud, Risk & Compliance' and 'Identity Solutions' became known as 'Customer & Location Intelligence'.  Furthermore, the 'ID Trace & Investigate' line of business transferred into 'Fraud, Risk & Compliance'.

The performance of the Group is reported by segment, reflecting how we run the business and the economic characteristics of each segment.  The Group's two operating segments were as follows:

·      Fraud, Risk & Compliance - which provides ID verification, ID Compliance and Fraud Solutions, ID trace & investigate and employment screening.

·      Customer & Location Intelligence - which provides ID Location Intelligence and ID engage solutions.

Postcode Anywhere (Holdings) Limited ('PCA'), which was acquired during the period, is reported within the Customer & Location Intelligence division.

Between them, the segments have six complementary lines of business:

·      ID Verification, which provides the ability to verify consumers' identities remotely, without the physical presentation of documentation, in order to combat ID fraud, money laundering and restrict access to under-age content, purchases and gambling.

·      ID Employ & Comply, which provides background checks through online verification and authentication of individuals, enabling organisations to safeguard, recruit and engage with confidence.

·      ID Compliance and Fraud Solutions, which provides fraud detection, risk management and consumer on-boarding solutions.

·      ID Location Intelligence, which includes software and services for quick and accurate consumer registration and validation of records.

·      ID Engage, which provides database services so our customers can better understand, target and retain their consumers and offers accurate and up-to-date identity information for their contact strategies.

·      ID Trace & Investigate, which provides the largest and most accurate picture of the UK's population and properties in order to locate and contact the right individual, first time.

The Group results are set out in the Consolidated Statement of Comprehensive Income and are explained in this Finance Review.  A review of the Group's business and future development is contained in the Chairman's Statement, Chief Executive's Statement and Finance Review.

Group Vision and Strategy

The Group's vision is to be the leader in identity data intelligence, informing business decisions between people and organisations globally.

The Group's strategy is to create and maintain unique online products and services which provide additional value for customers and are of sufficient strength to enable the Group to create new markets and consistently win new business against its competition. The Group achieves this through its investment in people, business and product development opportunities and the application of innovation, quality and excellence in everything it does.

Review of the Business

The Group uses adjusted figures as key performance measures in addition to those reported under adopted IFRS as they better reflect the underlying performance of the business. Adjusted figures exclude certain non-operational or exceptional items, which is consistent with prior year treatments. Adjusted measures are marked as such when used.

 

The following description of the Group's performance is complemented by the segmental analysis in note 4 to the accounts which shows the contributions from the Fraud, Risk & Compliance and Customer & Location Intelligence segments.  The overall impact of our acquisitions in the year will not be fully evident in our segments until 2019.

	2018	2017	Change	Change
	£'000	£'000	£'000	%
Revenue	119,702	87,486	32,216	37%
Adjusted operating profit	26,311	17,006	9,305	55%
Share-based payments	(2,375)	(994)	(1,381)	(139)%
Amortisation of acquired intangibles	(7,885)	(4,022)	(3,863)	(96)%
Operating profit before exceptional items	16,051	11,990	4,061	34%
Exceptional items	(2,143)	(1,410)	(733)	(52)%
Net finance costs	(508)	(498)	(10)	(2)%
Group profit before tax	13,400	10,082	3,318	33%
Total tax (charge)/credit	(2,746)	668	(3,414)	(511)%
Group profit for the year attributable to shareholders	10,654	10,750	(96)	(1)%
Adjusted earnings1	23,057	17,176	5,881	34%
Basic weighted average number of shares ('000)	150,553	131,609	18,944	14%
Adjusted basic earnings per share (pence) 1	15.3	13.1	2.2	17%

¹ Adjusted earnings and adjusted earnings per share ('EPS') are both non-GAAP measures determined with reference to the adjusted operating profit less net finance costs and tax.

The Group's overall profile has changed through acquisitions concluded during both this year and in the previous year.  These businesses have delivered strong performances in the 12 month period ended 31 March 2018 while being underpinned by solid organic revenue growth of 17 per cent.

Adjusted operating profit for the year increased by 55 per cent to £26.3 million, reflecting:

·      Revenue growth of 37 per cent to £119.7 million. This increase included organic growth of 17 per cent.

·      The adjusted operating profit margin increased from 19 per cent to 22 per cent, notwithstanding significant continued investment for growth made over the course of the year.

Group profit before taxation increased by 33 per cent in the year to £13.4 million. The total tax charge of £2.7 million compares to a tax credit of £0.7 million in the previous year and as a consequence of this tax change the Group profit for the year attributable to shareholders reduced by 1% to £10.7 million.

Adjusted basic earnings per share improved by 17 per cent to 15.3 pence (2017: 13.1 pence).  Basic earnings per share decreased by 13 per cent to 7.1 pence (2017: 8.2 pence).  Group cash conversion was strong with net cash generated from operating activities of £28.4 million (2017: £14.1 million) compared to operating profit before depreciation, amortisation, share-based payments and exceptional items (Adjusted EBITDA) of £28.7 million (2017: £18.7 million).

The Group's balance sheet and financing ability remain strong.

Adjusted EBITDA

Adjusted EBITDA was £28.7 million (2017: £18.7 million), consisting of adjusted operating profit of £26.3 million (2017: £17.0 million), depreciation of £1.4 million (2017: £1.0 million) and amortisation of purchased software and internally developed software of £1.0 million (2017: £0.7 million).

Exceptional Items

Exceptional costs of £2.1 million (2017: £1.4 million) were incurred by the Group in the year and have been detailed in note 7 to the accounts.

Net Finance Costs

The Group has incurred net finance costs for the year of £0.5 million (2017: £0.5 million).

Acquired Intangibles Amortisation

The charge for the year of £7.9 million (2017: £4.0 million) represents the non-cash cost of amortising separately identifiable intangible assets including technology-based assets and customer relationships that were acquired through business combinations.  The increased charge in the year is due to the impact of the acquisition of Postcode Anywhere (Holdings) Limited during the current year.

Taxation

The Group tax charge of £2.7 million (2017: £0.7 million credit) includes £4.4 million of current tax payable on the Group's profits in the year (2017: £1.7 million).

Dividend

The Board of Directors will propose a final ordinary dividend of 2.65 pence per share (2017: 2.35 pence per share), amounting to £4.0 million (2017: £3.6 million).  The final ordinary dividend with respect to the year ended 31 March 2018, if approved, will be paid on 24 August 2018 to ordinary shareholders whose names were on the register on 20 July 2018.   The Group continues to operate a Dividend Reinvestment Plan, allowing eligible shareholders to reinvest their dividends into GBG shares.
 

Earnings per Share

The earnings per share analysis in this report and in note 13 cover four measures: adjusted basic earnings per share (adjusted operating profit less net finance costs and tax); adjusted diluted earnings per share (adjusted operating profit less net finance costs and tax adjusting for the dilutive effect of share options); basic earnings per share (profit attributable to equity holders); and diluted earnings per share (adjusting for the dilutive effect of share options).  Adjusted earnings (adjusted operating profit less net finance costs and tax) was £23.0 million (2017: £17.2 million) resulting in a 17 per cent increase in adjusted basic earnings per share from 13.1 pence to 15.3 pence. Basic earnings per share decreased by 13 per cent from 8.2 pence to 7.1 pence reflecting the higher adjusted operating profit being offset by the increase in the amortisation in intangible assets, the costs of deferred consideration, the costs of acquisitions, higher taxes and a higher number of shares in issue. The weighted average number of shares at 31 March 2018 increased to 150.6 million (2017: 131.6 million).

Cash Flows

Group operating activities before tax payments generated £31.6 million of cash and cash equivalents (2017: £16.3 million) representing an increase of 94 per cent and an adjusted EBITDA to cash conversion ratio of 110 per cent (2017: 87 per cent).  Operating cash flows continue to be healthy and the Group continually monitors its measures of cash generation and collection.  Net cash generated by operating activities before working capital movements increased by 52 per cent to £23.7 million (2017: £15.6 million).  Group investing activities resulted in net outflows of £72.3 million (2017: £39.0 million) including £70.3 million (2017: £36.8 million) in respect of acquisitions/investments, £2.1 million (2017: £2.2 million) on plant and equipment and software purchases and £nil on product development (2017: £21,000).  Financing activities generated £49.7 million (2017: £29.6 million) of net cash in the year and included £3.6 million of dividends paid (2017: £2.8 million).   The Group's overall cash and cash equivalents increased by £5.1 million (2017: £5.2 million increase) in the year.  Further detailed analysis of this movement is included in the Consolidated Cash Flow Statement.

Acquisitions

During the year the Group acquired Postcode Anywhere (Holdings) Limited, an unlisted company based in the UK.  The total cash consideration paid, net of cash acquired, was £62.9 million. This acquisition was part-funded by the issue of 17.1 million shares as part of a placing that raised £56.3 million.  In addition, a total of £7.5 million of contingent consideration was paid out in the year relating to IDscan Biometrics Limited. Further information on these acquisitions and the contingent consideration can be found in notes 30 and 31 to the accounts.

Deferred Income

Deferred income balances at the end of the year increased by 49 per cent to £28.3 million (2017: £19.0 million).  This balance principally consists of contracted licence revenues and profits that are payable up front but recognised over time as the Group's revenue recognition criteria are met.  The increase has been driven by continued strong contracted sales growth which will deliver their revenues and profits in future years.

The deferred income balance does not represent the total contract value of any future unbilled annual or multi-year, non-cancellable agreements as the Group more typically invoices customers in annual or quarterly instalments.  Deferred income is influenced by several factors, including seasonality, the compounding effects of renewals, invoice duration, invoice timing and new business linearity within a reporting period.

Net Assets

Group net assets at the end of 2018 were £157.8 million, an increase of £63.6 million on the 2017 level of £94.2 million.  This growth is driven by the increase in equity capital of £56.7 million combined with the total comprehensive income for the year of £7.4 million, less dividends paid of £3.6 million and after adjusting for share-based payments and tax on share options of £2.4 million and £0.7 million, respectively.

Relationships

Other than our shareholders, the Group's performance and value are influenced by other stakeholders, principally our customers, suppliers, employees and our strategic partners.  Relationships are managed both on an individual basis and via representative groups. The Group participates in industry groups which give genuine access to customers, suppliers and decision makers in government and other regulatory bodies.

Treasury Policy and Financial Risk

The Group's treasury operation is managed within formally defined policies and reviewed by the Board. The Group finances its activities principally with cash, short-term deposits and borrowings but has the ability to draw down up to £50 million of further funding from a revolving credit facility that is in place. Other financial assets and liabilities, such as trade receivables and trade payables, arise directly from the Group's operating activities. Surplus funds of the Group are invested through the use of short-term deposits, with the objective of reasonable interest rate returns while still providing the flexibility to fund ongoing operations when required.  It is not the Group's policy to engage in speculative activity or to use complex financial instruments.

The Group is exposed to a variety of financial risks including: market risk (including foreign currency risk and cash flow interest rate risk), credit risk and liquidity risk which are described in note 24 to the accounts.

 

Use of non-GAAP Measures in the Group Financial Statements

The Group has identified certain measures that it believes will assist in understanding the performance of the business. The measures are not defined under IFRS and therefore may not be directly comparable with other companies' adjusted measures.  The non-GAAP measures are not intended to be a substitute for, or superior to, any IFRS measures of performance, however management considers them to be important comparatives and key measures used within the business for assessing performance. Further information can be found in note 32.

The following are the key non-GAAP measures identified by the Group and used in the Strategic Report and Financial Statements:

Organic Growth

Organic growth is defined by the Group as year-on-year continuing revenue growth, excluding acquisitions, until the date of their anniversary.

Adjusted Operating Profit

Adjusted operating profit means profits before amortisation of acquired intangibles, share-based payment charges, exceptional items, net finance costs and tax.

Adjusted EBITDA

Adjusted EBITDA means operating profit before depreciation, amortisation, share-based payment charges, exceptional items, net finance costs and tax.

Adjusted Earnings

Adjusted earnings represents adjusted operating profit less net finance costs and tax.

Adjusted Earnings Per Share ('Adjusted EPS')

Adjusted EPS represents adjusted earnings divided by a weighted average number of shares in issue, and is disclosed to indicate the underlying profitability of the Group.

Approved by the Board on 5 June 2018.

D J Wilson

CFO & COO

 

Key Performance Indicators

The Board monitors the Group's progress against its strategic objectives and the financial performance of the Group's operations on a regular basis.  Performance is assessed against the strategy and budgets using financial and non-financial measures.

The following details the principal Key Performance Indicators ('KPI's) used by the Group, giving the basis of calculation and the source of the underlying data.  A summary of performance against these KPIs is given below.

The Group uses the following primary measures to assess the performance of the Group and its propositions.

Financial

·      Revenue

Revenue and revenue growth are used for internal performance analysis to assess the execution of our strategies.  Organic growth is also measured, although the term 'organic' is not a defined term under IFRS and may not, therefore, be comparable with similarly titled measures reported by other companies.  Organic growth is defined by the Group as year-on-year continuing revenue growth, excluding acquisitions, until the date of their anniversary and will be reported at each reporting interval.

·      Adjusted Operating Profit

This is used throughout the Group by management for internal performance analysis and to assess the execution of our strategies. Management believe that this adjusted measure is a more appropriate metric to understand the underlying performance of the Group.

·      Adjusted EBITDA

This is used by the Group for internal performance analysis to assess the execution of our strategies. Management believe that this adjusted measure is a more appropriate metric to understand the underlying performance of the Group.

·      Earnings per Share

Earnings per share is calculated as basic earnings per share from continuing operations on both an adjusted and unadjusted basis.

·      Cash

Cash and cash equivalent balances are used by the Group for internal performance analysis and by investors to assess progress against outlook statements.

·      Deferred Income

Deferred income, which is included in our Consolidated Balance Sheet, is the amount of invoiced business in excess of the amount recognised as revenue.  This is an important internal measure for the business and represents the amount that we will record as revenue in our Consolidated Statement of Comprehensive Income in future periods.  Trends may vary as business conditions change.

·      International Revenue as a percentage of Total Revenue

This is an important internal measure for the Group to assess progress towards expanding our international operations.

Non-Financial

·      Employee Engagement

Employee engagement is a key focus area for the business in order to retain and grow what we believe is some of the best talent in our industry.

·      Number of Countries with an Active Customer Presence

This is an important internal measure for the Group to assess progress towards expanding our international operations.

 

Performance against KPIs

A summary of the Group's progress in achieving its objectives, as measured against KPIs, is set out below.

				Year ended 31 March
				2018		2017
Revenue growth				37%		19%
Organic revenue growth				17%		10%
Fraud, Risk & Compliance revenue growth				27%		29%
Customer & Location Intelligence revenue growth				53%		5%
Adjusted operating profit (£'000)				26,311		17,006
Adjusted operating profit %				22%		19%
Adjusted EBITDA (£'000)				28,688		18,734
Adjusted EBITDA %				24%		21%
Earnings per share - basic				7.1p		8.2p
Earnings per share - adjusted basic				15.3p		13.1p
Cash (£'000)				22,753		17,618
Deferred income (£'000)				28,347		18,997
International revenue as a percentage of total revenue				34%		31%
Employee engagement				>80%		>80%
Number of Countries with an active customer presence				79		71

 

Consolidated Statement of Comprehensive Income

Year ended 31 March 2018

	Note	2018		2017
		£'000		£'000
Revenue	3	119,702		87,486
Cost of sales		(27,092)		(20,320)
Gross profit		92,610		67,166
Operating expenses before amortisation of acquired intangibles, share-based payments and exceptional items		(66,299)		(50,178)
Other operating income		-		18
Operating profit before amortisation of acquired intangibles, share-based payments and exceptional items (adjusted operating profit)		26,311		17,006
Amortisation of acquired intangibles	15	(7,885)		(4,022)
Share-based payments charge	26	(2,375)		(994)
Exceptional items	7	(2,143)		(1,410)
Group operating profit		13,908		10,580
Finance revenue	9	37		19
Finance costs	10	(545)		(517)
Profit before tax		13,400		10,082
Income tax (charge)/credit	11	(2,746)		668
Profit for the year attributable to equity holders of the parent		10,654		10,750
Other comprehensive income:
Exchange differences on retranslation of foreign operations (net of tax)1		(3,206)		3,685
Total comprehensive income for the year attributable to equity holders of the parent		7,448		14,435
Earnings per share	13
- adjusted basic earnings per share for the year		15.3p		13.1p
- adjusted diluted earnings per share for the year		15.0p		12.8p
- basic earnings per share for the year		7.1p		8.2p
- diluted earnings per share for the year		7.0p		8.0p
1 Upon a disposal of a foreign operation, this would be recycled to the Income Statement

 

Consolidated Statement of Changes in Equity Year ended 31 March 2018

	Note		Equity share capital		Merger reserve		Capital redemption reserve		Foreign currency translation reserve		Retained earnings			Total equity
			£'000		£'000		£'000		£'000		£'000			£'000
Balance at 1 April 2016			27,208		6,575		3		412		22,203			56,401
Profit for the period			-		-		-		-		10,750			10,750
Other comprehensive income			-		-		-		3,685		-			3,685
Total comprehensive income for the period			-		-		-		3,685		10,750			14,435
Issue of share capital	20		25,505		-		-		-		-			25,505
Share issue costs	20		(750)		-		-		-		-			(750)
Share-based payments charge	26		-		-		-		-		994			994
Tax on share options			-		-		-		-		373			373
Equity dividend	12		-		-		-		-		(2,775)			(2,775)
Balance at 31 March 2017			51,963		6,575		3		4,097		31,545			94,183
Profit for the period			-		-		-		-		10,654			10,654
Other comprehensive income			-		-		-		(3,206)		-			(3,206)
Total comprehensive income for the period			-		-		-		(3,206)		10,654			7,448
Issue of share capital	20		58,408		-		-		-		-			58,408
Share issue costs	20		(1,740)		-		-		-		-			(1,740)
Share-based payments charge	26		-		-		-		-		2,375			2,375
Tax on share options			-		-		-		-		660			660
Equity dividend	12		-		-		-		-		(3,582)			(3,582)
Balance at 31 March 2018			108,631		6,575		3		891		41,652			157,752

 

 

Company Statement of Changes in Equity Year ended 31 March 2018

	Note		Equity share capital			Merger reserve			Capital redemption reserve		Other reserves		Retained earnings		Total equity
			£'000			£'000			£'000		£'000		£'000		£'000
Balance at 1 April 2016			27,208			6,575			3		-		25,889		59,675
Profit for the period			-			-			-		-		10,717		10,717
Total comprehensive income for the period			-			-			-		-		10,717		10,717
Issue of share capital	20		25,505			-			-		-		-		25,505
Share issue costs	20		(750)			-			-		-		-		(750)
Share-based payments charge	26		-			-			-		-		994		994
Tax on share options			-			-			-		-		373		373
Equity dividend	12		-			-			-		-		(2,775)		(2,775)
Balance at 31 March 2017			51,963			6,575			3		-		35,198		93,739
Profit for the period			-			-			-		-		5,153		5,153
Total comprehensive income for the period			-			-			-		-		5,153		5,153
Issue of share capital	20		58,408			-			-		-		-		58,408
Share issue costs	20		(1,740)			-			-		-		-		(1,740)
Resulting from hive-up transactions	30		-			-			-		4,543		-		4,543
Share-based payments charge	26		-			-			-		-		2,375		2,375
Tax on share options			-			-			-		-		651		651
Equity dividend	12		-			-			-		-		(3,582)		(3,582)
Balance at 31 March 2018			108,631			6,575			3		4,543		39,795		159,547

 

Consolidated Balance Sheet

As at 31 March 2018

			Note		2018		2017
					£'000		£'000
Assets
Non-current assets
Property, plant and equipment			14		4,700		2,856
Intangible assets			15		161,372		98,753
Deferred tax asset			11		4,212		4,044
					170,284		105,653
Current assets
Inventories					399		233
Trade and other receivables			18		37,969		30,569
Current tax					-		494
Cash and short-term deposits			19		22,753		17,618
					61,121		48,914
Total assets					231,405		154,567
Equity and liabilities
Capital and reserves
Equity share capital			20		108,631		51,963
Merger reserve					6,575		6,575
Capital redemption reserve					3		3
Foreign currency translation reserve					891		4,097
Retained earnings					41,652		31,545
Total equity attributable to equity holders of the parent					157,752		94,183
Non-current liabilities
Loans			21		8,451		11,499
Deferred tax liability			11		8,260		4,441
					16,711		15,940
Current liabilities
Loans			21		797		886
Trade and other payables			22		55,897		36,401
Contingent consideration			31		45		7,122
Provisions			23		25		35
Current tax					178		-
					56,942		44,444
Total liabilities					73,653		60,384
Total equity and liabilities					231,405		154,567

Approved by the Board on 5 June 2018

C G Clark - Director

D J Wilson - Director

Registered in England number 2415211
 

		Company Balance Sheet
		As at 31 March 2018
								Note			2018				2017
											£'000				£'000
	Assets
	Non-current assets
	Property, plant and equipment							14			3,714				1,975
	Intangible assets							15			113,174				1,701
	Investments							17			76,310				104,096
	Deferred tax asset							11			3,163				2,996
											196,361				110,768
	Current assets
	Inventories										399				-
	Trade and other receivables							18			31,351				21,846
	Current tax										-				614
	Cash and short-term deposits							19			14,778				11,011
											46,528				33,471
	Total assets										242,889				144,239
	Equity and liabilities
	Capital and reserves
	Equity share capital							20			108,631				51,963
	Merger reserve										6,575				6,575
	Capital redemption reserve										3				3
	Other reserves										4,543				-
	Retained earnings										39,795				35,198
	Total equity attributable to equity holders of the parent										159,547				93,739
Non-current liabilities
Deferred tax							11					6,319				-
Loans							21					7,000				9,000
												13,319				9,000
	Current liabilities
	Trade and other payables							22			69,541				34,343
	Contingent consideration							31			45				7,122
	Provisions							23			25				35
	Current tax										412				-
											70,023				41,500
	Total liabilities										83,342				50,500
	Total equity and liabilities										242,889				144,239

During the year the Company made a profit £5,153,000 (2017: £10,717,000).

Approved by the Board on 5 June 2018

C G Clark - Director

D J Wilson - Director

Registered in England number 2415211
 

Consolidated Cash Flow Statement Year ended 31 March 2018

	Note		2018		2017
			£'000		£'000
Group profit before tax			13,400		10,082
Adjustments to reconcile Group profit before tax to net cash flows
Finance revenue	9		(37)		(19)
Finance costs	10		545		517
Depreciation of plant and equipment	14		1,430		1,031
Amortisation of intangible assets	15		8,832		4,719
Loss on disposal of plant and equipment			38		2
Fair value adjustment on contingent consideration	31		383		471
Share-based payments	26		2,375		994
(Decrease)/increase in provisions	23		(10)		4
Increase in inventories			(166)		(78)
Increase in trade and other receivables			(5,390)		(3,690)
Increase in trade and other payables			10,220		2,272
Cash generated from operations			31,620		16,305
Income tax paid			(3,247)		(2,193)
Net cash generated from operating activities			28,373		14,112
Cash flows from/(used in) investing activities
Acquisition of subsidiaries, net of cash acquired	30		(70,363)		(36,840)
Purchase of plant and equipment	14		(1,902)		(1,437)
Purchase of software	15		(212)		(774)
Proceeds from disposal of plant and equipment			96		5
Expenditure on product development	15		-		(21)
Interest received	9		37		19
Net cash flows used in investing activities			(72,344)		(39,048)
Cash flows from/(used in) financing activities
Finance costs paid	10		(545)		(517)
Proceeds from issue of shares	20		58,408		25,505
Share issue costs	20		(1,740)		(750)
Proceeds from new borrowings	21		10,000		12,000
Repayment of borrowings	21		(12,839)		(3,838)
Dividends paid to equity shareholders	12		(3,582)		(2,775)
Net cash flows from financing activities			49,702		29,625
Net increase in cash and cash equivalents			5,731		4,689
Effect of exchange rates on cash and cash equivalents			(596)		514
Cash and cash equivalents at the beginning of the period			17,618		12,415
Cash and cash equivalents at the end of the period	19		22,753		17,618

 

Company Cash Flow Statement Year ended 31 March 2018

	Note		2018		2017
			£'000		£'000
Company profit before tax			6,303		10,831
Adjustments to reconcile Company profit before tax to net cash flows
Finance revenue			(16)		(12)
Finance costs			439		365
Depreciation of plant and equipment	14		856		784
Amortisation of intangible assets	15		1,851		689
Loss on disposal of plant and equipment			-		1
Fair value adjustment on contingent consideration	31		383		454
Share-based payments	26		2,375		994
Increase in inventories			(399)		-
(Decrease)/increase in provisions	23		(10)		4
Increase in trade and other receivables			(9,505)		(3,010)
Increase/(decrease) in trade and other payables			33,268		(1,160)
Cash generated from operations			35,545		9,940
Income tax paid			(399)		(676)
Net cash generated from operating activities			35,146		9,264
Cash flows from/(used in) investing activities
Acquisition of subsidiary undertakings	30		(81,312)		(37,000)
Purchase of plant and equipment	14		(585)		(748)
Purchase of software	15		(145)		(774)
Expenditure on product development	15		-		(21)
Interest received			16		12
Net cash flows used in investing activities			(82,026)		(38,531)
Cash flows from/(used in) financing activities
Finance costs paid			(439)		(365)
Proceeds from issue of shares	20		58,408		25,505
Share issue costs	20		(1,740)		(750)
Proceeds from new borrowings	21		10,000		12,000
Repayment of borrowings	21		(12,000)		(3,000)
Dividends paid to equity shareholders	12		(3,582)		(2,775)
Net cash flows from financing activities			50,647		30,615
Net increase in cash and cash equivalents			3,767		1,348
Cash and cash equivalents at the beginning of the period			11,011		9,663
Cash and cash equivalents at the end of the period	19		14,778		11,011

 

 

Notes to the Accounts

1.  Corporate Information

GB Group plc ('the Company'), its subsidiaries and associates (together 'the Group') provide identity data intelligence products and services helping organisations recognise and verify all elements of an individual's identity at key interactions in their business processes.  The nature of the Group's operations and its principal activities are set out in the Finance Review.

The Company is a public company limited by shares incorporated in the United Kingdom and is listed on the London Stock Exchange with its ordinary shares traded on the Alternative Investment Market.  The company registration number is 2415211. The address of its registered office is The Foundation, Herons Way, Chester Business Park, Chester, CH4 9GB.  A list of the investments in subsidiaries, including the name, country of incorporation, registered office address and proportion of ownership interest is given in note 17.

The financial information set out herein does not constitute the Company's statutory accounts for the years ended 31 March 2018 or 2017 but is derived from those accounts. The financial information has been prepared using accounting policies consistent with those set out in the annual report and accounts for the year ended 31 March 2018. Statutory accounts for 2017 have been delivered to the Registrar of Companies, and those for 2018 will be delivered in due course. The auditors have reported on those accounts; their report was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain any statements under Section 498(2) or (3) of the Companies Act 2006.

The Company's financial statements are included in the consolidated financial statements of GB Group plc.  As permitted by section 408 of the Companies Act 2006, the profit and loss account of the Company is not presented.

2.  Accounting Policies

Basis of Preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS's) as adopted by the European Union and IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.  The financial statements have been prepared under the historical cost convention, modified in respect of the revaluation of financial assets and liabilities at fair value.  A summary of the significant accounting policies is set out below.

The accounting policies that follow set out those policies that apply in preparing the financial statements for the year ended 31 March 2018 and the Group and Company have applied the same policies throughout the year.

The Group and Company financial statements are presented in pounds Sterling and all values are rounded to the nearest thousand pounds (£'000) except when otherwise indicated.

Basis of Consolidation

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 March each year.

Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.  Specifically, the Group controls an investee if, and only if, the Group has:

·      power over the investee (i.e. existing 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 returns.

Generally, there is a presumption that a majority of voting rights result in control.  To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

·      the contractual arrangement with the other vote holders of the investee;

·      rights arising from other contractual arrangements; and

·      the Group's voting rights and potential voting rights.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary.   Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of Other Comprehensive Income ('OCI') are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance.  When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies.  All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

 

 

Business Combinations

The Group uses the acquisition method of accounting to account for business combinations of entities not under common control.  The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group.  The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement.  Acquisition-related costs are expensed as incurred.  Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date.  Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 'Financial Instruments: Recognition and Measurement', is measured at fair value with the changes in fair value recognised in the statement of profit or loss.  If the contingent consideration is classified as equity, it is not remeasured until it is finally settled within equity.

The Group applies IFRS 3 'Business Combinations' and as a consequence of the acquisition of the remaining 73.3% of shares in Loqate, the area of the standard applicable to business combinations achieved in stages became relevant to the Group.  If the business combination is achieved in stages, the acquisition date fair value of the Group's previously held investment in the acquiree is remeasured to fair value at the acquisition date with any resultant gain or loss recognised through profit or loss.

Foreign Currencies

The Group's consolidated financial statements are presented in pounds Sterling, which is also the parent company's functional currency.  For each entity the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency.  The Group uses the direct method of consolidation and on disposal of a foreign operation, the gain or loss that is reclassified to profit or loss reflects the amount that arises from using this method.

Transactions and Balances

Transactions in foreign currencies are initially recorded by the Group's entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition.

Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date.  Differences arising on settlement or translation of monetary items are recognised in profit or loss with the exception of monetary items that are designated as part of the hedge of the Group's net investment of a foreign operation. These are recognised in OCI until the net investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in OCI.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.  Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.  The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e. translation differences on items whose fair value gain or loss is recognised in OCI or profit or loss are also recognised in OCI or profit or loss, respectively).

Group Companies

On consolidation, the assets and liabilities of foreign operations are translated into pounds Sterling at the rate of exchange prevailing at the reporting date and their statements of profit or loss are translated at average exchange rates for the period.  The exchange differences arising on translation for consolidation are recognised in OCI.  On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is recognised in profit or loss.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date.

Property, Plant and Equipment

Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value.  Depreciation is calculated to write off cost less estimated residual value based on prices prevailing at the balance sheet date on a straight-line basis over the estimated useful life of each asset as follows:

Plant and equipment                        - over 3 to 10 years

Freehold buildings                             - over 50 years             

Freehold land is not depreciated.

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.  If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.  Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the Statement of Comprehensive Income in the year the item is derecognised.

Residual values and estimated remaining lives are reviewed annually.

 

Impairment of Assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired.  If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount.  An asset's recoverable amount is the higher of an asset's or cash generating unit's ('CGU's) fair value less costs of disposal and its value in use and 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.  Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.  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. Impairment losses of continuing operations are recognised in the Statement of Comprehensive Income in those expense categories consistent with the function of the impaired asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased.  If such indication exists, the recoverable amount is estimated.  A previously recognised impairment loss is reversed only on assets other than goodwill if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised.  If that is the case the carrying amount of the asset is increased to its recoverable amount.  That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years.  Such reversal is recognised in profit or loss.  After such a reversal the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

Intangible Assets

Goodwill

Goodwill on acquisition is initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities.  Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.  Goodwill already carried in the balance sheet at 1 April 2004 or relating to acquisitions after that date is not amortised.  Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill is allocated to the CGU expected to benefit from the synergies.  Impairment is determined by assessing the recoverable amount of the CGU, including the related goodwill.  Where the recoverable amount of the CGU is less than the carrying amount, including goodwill, an impairment loss is recognised in the Statement of Comprehensive Income.  The carrying amount of goodwill allocated to a CGU is taken into account when determining the gain or loss on disposal of the unit, or an operation within it.  Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the CGU retained.

Research and Development Costs

Research costs are expensed as incurred. An intangible asset arising from development expenditure on an individual project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete and the availability to measure reliably the expenditure during the development. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure capitalised is amortised on a straight-line basis over 2 to 4 years.

Acquired Intangibles

Separately identifiable intangible assets such as patent fees, licence fees, trademarks and customer lists and relationships are capitalised on the balance sheet only when the value can be measured reliably, or the intangible asset is purchased as part of the acquisition of a business. Such intangible assets are amortised over their useful economic lives on a straight-line basis.

Separately identified intangible assets acquired in a business combination are initially recognised at their fair value.  Intangible assets are subsequently stated at fair value or cost less accumulated amortisation and any accumulated impairment losses.  Amortisation is recognised in the Consolidated Statement of Comprehensive Income on a straight-line basis over the estimated useful life of the asset.  The carrying value of intangible assets is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable.

Estimated useful lives typically applied are as follows:

Technology based assets              - over 2 to 4 years

Brands and trademarks                 - over 2 to 3 years

Customer relationships                 - over 10 years

Acquired Computer Software Licences

Acquired computer software licences comprise computer software licences purchased from third parties, and also the cost of internally developed software. Acquired computer software licences are initially capitalised at cost, which includes the purchase price (net of any discounts and rebates) and other directly attributable costs of preparing the asset for its intended use. Direct expenditure including employee costs, which enhances or extends the performance of computer software beyond its specifications and which can be reliably measured, is added to the original cost of the software.

Costs associated with maintaining the computer software are recognised as an expense when incurred. Computer software licences are subsequently carried at cost less accumulated amortisation and accumulated impairment losses. These costs are amortised to profit or loss using the straight-line method over their estimated useful lives of 3 to 5 years.

The amortisation period and amortisation method of intangible assets other than goodwill are reviewed at least at each balance sheet date. The effects of any revision are recognised in profit or loss when the changes arise.

 

The Company's Investments in Subsidiaries

In its separate financial statements the Company recognises its investments in subsidiaries at cost less any provision for impairment.

Interests in Associates

Associates are undertakings that are not subsidiaries or joint ventures over which the Group has significant influence and can participate in financial and operating policy decisions.  Investments in associated undertakings are accounted for using the equity method.  The Consolidated Statement of Comprehensive Income includes the Group's share of the profit or loss after tax of the associated undertakings.  Investments in associates include goodwill identified on acquisition and are carried in the Consolidated Balance Sheet at cost plus post-acquisition changes in the Group's share of the net assets of the associate, less any impairment in value.

Inventories

Inventories are valued at the lower of cost or net realisable value (net selling price less further costs to completion), after making due allowance for obsolete and slow moving items. Cost is determined by the first in first out ('FIFO') cost method.

Trade and Other Receivables

Trade receivables, which generally have 14 to 60 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectable amounts.  A provision is made against a trade receivable only when there is objective evidence that the Group may not be able to recover the entire amount due under the original terms of the invoice.  The carrying amount of the receivable is reduced through the use of a provision for doubtful debts account.  Impaired debts are derecognised when they are assessed as uncollectable.

Cash and Short-Term Deposits

Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity date of three months or less.

For the purpose of the cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of any outstanding bank overdrafts.

Borrowings

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate ('EIR') method.  Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.

Amortised 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 amortisation is included as finance costs in the statement of profit or loss.

Trade and Other Payables

Trade and other payables are initially recognised at their fair value and subsequently recorded using the effective interest method.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.  Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.  The expense relating to any provision is presented in the Statement of Comprehensive Income net of any reimbursement.  If the effect of the time value of money 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.  Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Pensions

The Group does not have a contributory pension scheme.  Payments are made to individual private defined contribution pension arrangements.  Contributions are charged in the Statement of Comprehensive Income as they become payable.

Revenue Recognition

Revenue is measured at the fair value of the consideration received from the sale of software and rendering of services, net of value-added tax, rebates and discounts and after the elimination of inter-company transactions within the Group.  Revenue is recognised as follows:

(a) Sale of Software Licences

Revenue in respect of software licences where the Group has no further obligations and the contract is non-cancellable is recognised at the time of sale.  Revenue in respect of software licences where there are further contractual obligations, in the form of additional services provided by the Group, such as software delivered online, is recognised over the duration of the licence in line with when the costs are incurred and delivery obligations fulfilled. 

(b) Rendering of Services

Revenue from the rendering of services is recognised by reference to the stage of completion.  Stage of completion of the specific transaction is assessed on the basis of the actual services provided as a proportion of the total services to be provided.  Where the Group is acting as an agent in a transaction and is not the primary obligor then revenue is reported net of amounts payable to the supplier.

(c) Interest Income

Revenue is recognised as interest accrues using the effective interest method. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to its net carrying amount.

 

 (d) Rental Income

Net rental income arising from the sub-let of properties under operating leases is reported as other operating income in the Statement of Comprehensive Income.

Exceptional Items

The Group presents as exceptional items on the face of the Statement of Comprehensive Income those material items of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance in the year, so as to facilitate comparison with prior periods and to assess better trends in financial performance.

Dividends

Dividend distribution to the Company's shareholders is recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Company's shareholders.

 

Share-based Payment Transactions

Employees (including Directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares ('equity-settled transactions').

Equity-settled Transactions

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted.  The fair value is determined by an external valuation specialist using a binomial model.  In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of GB Group plc ('market conditions') and non-vesting conditions, if applicable.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award ('the vesting date').  The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The Statement of Comprehensive Income charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting conditions were satisfied, provided that all other vesting conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum, an expense is recognised as if the terms had not been modified.  In addition, an expense is recognised over the remainder of the new vesting period for any modification which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately.  However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it was granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected in the computation of earnings per share (note 13).

Leases

Assets funded through finance leases and similar hire purchase contracts are capitalised as property, plant and equipment, where the Group assumes substantially all of the risks and rewards of ownership. Upon initial recognition, the leased asset is measured at the lower of its fair value and the present value of the minimum lease payments.  Future instalments under such leases, net of financing costs, are included within interest-bearing loans and borrowings.  Rental payments are apportioned between the finance element, which is included in finance costs, and the capital element which reduces the outstanding obligation for future instalments so as to give a constant charge on the outstanding obligation.

All other leases are accounted for as operating leases and the rental charges are charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over the life of the lease.

Lease incentives are primarily rent-free periods.  Lease incentives are amortised over the lease term against the relevant rental expense.

Taxes

Current Tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.  The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, by the reporting date, in the countries where the Group operates and generates taxable income.

 

Deferred Income Tax

Deferred tax is recognised in respect of all temporary differences between the carrying amounts of assets and liabilities included in the financial statements and the amounts used for tax purposes that will result in an obligation to pay more, or a right to pay less or to receive more tax, with the following exceptions:

·      No provision is made where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction which is not a business combination that at the time of the transaction affect neither accounting nor taxable profit.

·      No provision is made for deferred tax that would arise on all taxable temporary differences associated with investments in subsidiaries and interests in joint ventures, where the timing of the reversal of temporary differences can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

·      Deferred tax assets are recognised only to the extent that the Directors consider that it is probable that there will be suitable taxable profits from which the future reversal of the underlying temporary differences and unused tax losses and credits can be deducted.

·      Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which the asset is realised or liability settled, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

Finance Costs

Finance costs consist of interest and other costs that are incurred in connection with the borrowing of funds.  Finance costs are expensed in the period in which they are incurred.

New Accounting Standards and Interpretations Applied

The accounting policies adopted in the preparation of these financial statements are consistent with those followed in the preparation of the financial statements for the year ended 31 March 2017.

New Accounting Standards and Interpretations not Applied

During the year, the IASB and IFRIC have issued the following Standards and Interpretations with an effective and adoption date after the date of these financial statements:

International Accounting Standards (IAS/IFRS)		Effective date
IFRS 15	Revenue from Contracts with Customers	1 January 2018
IFRS 9	Financial Instruments	1 January 2018
IFRS 2	Classification and Measurement of Share-based Payment Transactions - Amendments to IFRS 2	1 January 2018
IAS 40	Transfers of Investment Property (Amendments to IAS 40)	1 January 2018
IFRIC 22	Foreign Currency Transactions and Advance Consideration	1 January 2018
Various	Annual Improvements to IFRS - 2014-2016 Cycle	1 January 2018
IFRS 16	Leases	1 January 2019
IFRIC 23	Uncertainty over Income Tax Treatments	1 January 2019
IFRS 9	Prepayment Features with Negative Compensation - Amendments to IFRS 9	1 January 2019
IAS 28	Long-term Interests in Associates and Joint Ventures - Amendments to IAS 28	1 January 2019

IFRS 15 'Revenue from Contracts with Customers' replaces IAS 18 'Revenue', IAS 11 'Construction Contracts' and related interpretations. For the Group, transition to IFRS 15 will take place on 1 April 2018. Half yearly and annual results in the 2018/19 financial year will be IFRS 15 compliant.  The standard requires entities to apportion revenue earned from contracts to individual promises, or performance obligations, on a relative standalone selling price basis, based upon a five-step revenue recognition model where revenue is recognised at the point that control of goods or services is transferred to the customer.

The Group has determined its planned revenue and cost accounting policies under IFRS 15. The Group has been engaged in determining accounting policies under the new standard, specifically in consideration of the application of the five steps to the individual business units, quantifying the transitional adjustments, considering suitable systems solutions, reviewing the impact on forecasting and the additional disclosure requirements required by IFRS 15. New processes and controls are being designed and implemented to complement the adoption of the accounting policies.

Whilst some further work is required to determine the impact on reported revenue across all the lines of business, based on the initial findings of this process, management do not currently anticipate that there will be a material change to the quantum and timing of profitability.  The new standard also introduces expanded disclosure requirements and these are expected to change the nature and extent of the group's disclosures about its revenue recognition in future reports, when the new standard is adopted.

When IFRS 15 is adopted, it can be applied either on a fully retrospective basis, requiring the restatement of the comparative periods presented in the financial statements, or with the cumulative retrospective impact of IFRS 15 applied as an adjustment to equity on the date of adoption. When the latter approach is applied it is necessary to disclose the impact of IFRS 15 on each line item in the financial statements in the reporting period. The Group is planning to reflect the cumulative impact of IFRS 15 in equity on the date of adoption. This decision depends on a number of factors considering the time, effort and cost involved in doing so when compared to the benefits to users of the financial statements.

The main areas of interest to the Group were:

Contracts with multiple year and multiple deliverables

IFRS 15 will require the Group to identify deliverables in contracts with customers that qualify as separate 'performance obligations'. The performance obligations identified will depend on the nature of individual customer contracts, but might typically be identified for customer set up fees, data disks, other equipment provided to customers and for services provided to customers such as professional services or post contract support ('PCS') obligations. The
 

transaction price receivable from customers must be allocated between the Group's performance obligations under the contracts on a relative stand-alone selling price basis, including the appropriate allocation of any implicit or explicit contractual discounts. Revenue will then be recognised either at a point in time or over time when the respective performance obligations in a contract are delivered to the customer. Stand-alone selling prices will be based on observable sales prices; however, where stand-alone selling prices are not directly observable, estimates of stand-alone selling prices will be required which will maximise the use of observable inputs.

The review undertaken by management across the lines of business indicates that the Group allocates revenue to the identifiable deliverables and allocates revenue on a relative stand-alone selling price basis in a manner that is consistent with IFRS 15. As a result, it is not currently anticipated that the adoption of IFRS 15 will materially change either the timing or value of revenue recognised. Alongside the adoption of IFRS 15, the group has instigated a review to confirm that the standalone selling price allocated to PCS continues to be appropriate.

Contracts with significant set up and customisation

Contracts that involve significant customisation and implementation work over a period of time are at risk of delayed revenue recognition if they do not meet the criteria set out in IFRS 15. Significant customisation work is currently recognised on the percentage of completion method under IAS18. Under IFRS 15, if the indicators for recognition over time are not present, particularly if there is an absence of contractual rights or proof of 'no alternative use', this may lead to a delay in revenue recognition for development/customisation work. The customisation work undertaken by the Group is considered to be highly specific supported by contractual rights to payment, and there is considered to be no material impact as a result of moving to IFRS 15.

Commissions and incremental costs incurred

Under IFRS 15, certain incremental costs incurred in acquiring a contract with a customer will be deferred on the consolidated statement of financial position and amortised as revenue is recognised under the related contract; this will generally lead to the later recognition of charges for some commissions payable to third party dealers and employees. Certain costs incurred in fulfilling customer contracts will be deferred on the consolidated statement of financial position under IFRS 15 and recognised as related revenue is recognised under the contract. Such deferred costs are likely to relate to the provision of deliverables to customers that do not qualify as performance obligations and for which revenue is not recognised; currently such costs are generally expensed as incurred. The review undertaken by management across the lines of business confirmed that the majority of commissions are paid in relation to annual contracts. IFRS 15 includes a practical expedient that allows an entity to recognise the incremental costs of obtaining a contract as an expense when incurred if the amortisation period of the asset that the entity would have recognised is one year or less. Where commission has been paid in advance on a multi-year deal, the element of the commission that is payable in relation to subsequent years is recognised at the start of each year. The review undertaken by management indicates this treatment is allowable under IFRS 15.

Software Licences

Revenue recognition of software licences delivered by the Group are assessed under IFRS 15 to determine whether they are either a right to use the software as it exists when the software license is granted, or a right to access the software as it exists throughout the licence period, and expectation that the Group will provide significant updates to the software over the contract term.

The Group considers for each contract that includes a separate software licence performance obligation all the facts and circumstances in determining whether the licence revenue is recognised over time or at a point in time from the date of the licence.  The review undertaken by management across the lines of business indicates that the Group generally recognises software licence revenue in a manner that is consistent with the principles of IFRS 15. As a result, it is not currently anticipated that the adoption of IFRS 15 will materially change either the timing or value of software licence revenue recognised.

IFRS 9 'Financial Instruments' replaces IAS 39. The standard is effective for the year ending 31 March 2019 and will impact the classification and measurement of financial instruments and will require certain additional disclosures. The Group is largely unaffected by IFRS 9 given the nature of its activities. However, management has reviewed the impact of IFRS 9 and the main areas of interest are:

Credit losses

IFRS 9 replaces the existing incurred loss model with a forward looking expected credit loss model. This may result in the earlier recognition of credit losses as it will no longer be appropriate for entities to wait for an incurred loss to have occurred before credit losses are recognised. For the Group, management currently expects the impact will be immaterial to the financial statements.  Due to the exemption in IFRS 9 it will not restate comparative periods in the year of initial application and as a consequence, any adjustments to the carrying amounts of financial assets or liabilities are to be recognised at 1 April 2018.

Modifications to financial liabilities

Under both IAS 39 and IFRS 9, when the terms of a financial liability are modified, for example, where the maturity date is extended, an entity must consider whether that modification is substantial or non-substantial. Under IAS 39, the Group did not recognise any gain or loss at the time of a non-substantial modification. However, under IFRS 9 it is a requirement to recognise a gain or loss at the time of the modification. On transition to IFRS 9, this change in policy will need to be applied retrospectively to all financial liabilities that are still recognised at the date of the initial application and an assessment of the impact of this change is ongoing.

Whilst an assessment of the new standard is ongoing, the changes to recognition and measurement of financial instruments and changes to hedge accounting rules are not currently considered likely to have any major impact on the Group's current accounting treatment or hedging activities.

 

IFRS 16 'Leases' was issued in January 2016 to replace IAS 17 'Leases'. The standard is effective for accounting periods beginning on or after 1 January 2019 and will be adopted by the Group on 1 April 2019. IFRS 16 will primarily change lease accounting for lessees; lease agreements will give rise to the recognition of an asset representing the right to use the leased item and a loan obligation for future lease payables. Lease costs will be recognised in the form of depreciation of the right to use asset and interest on the lease liability. Lessee accounting under IFRS 16 will be similar in many respects to existing IAS 17 accounting for finance leases, but will be substantively different to existing accounting for operating leases where rental charges are currently recognised on a straight-line basis and no lease asset or lease loan obligation is recognised.

Lessor accounting under IFRS 16 is similar to existing IAS 17 accounting and is not expected to have a material impact for the Group.

The Group is assessing the impact of the accounting changes that will arise under IFRS 16. However, the following changes to lessee accounting will have an impact as follows:

·      There is expected to be an increase in assets, specifically right-of-use assets will be recorded for assets that are leased by the Group; currently no lease assets are included on the Group's consolidated statement of financial position for operating leases.

·      There is expected to be an increase in debt as liabilities will be recorded for future lease payments in the Group's consolidated statement of financial position for the 'reasonably certain' period of the lease, which may include future lease periods for which the Group has extension options. Currently liabilities are generally not recorded for future operating lease payments, which are disclosed as commitments. The amount of lease liabilities will not equal the lease commitments reported in note 25 on 31 March 2019, but may not be dissimilar.

·      Operating lease expenditure will be reclassified and split between depreciation and finance costs, resulting in an increase in EBITDA. Lease expenses will be for depreciation of right-of-use assets and interest on lease liabilities; interest will typically be higher in the early stages of a lease and reduce over the term. Currently operating lease rentals are expensed on a straight-line basis over the lease term within operating expenses.

·      Operating lease cash flows are currently included within operating cash flows in the consolidated statement of cash flows; under IFRS 16 these will be recorded as cash flows from financing activities reflecting the repayment of lease liabilities (borrowings) and related interest.

When IFRS 16 is adopted, it can be applied either on a fully retrospective basis, requiring the restatement of the comparative periods presented in the financial statements, or with the cumulative retrospective impact of IFRS 16 applied as an adjustment to equity on the date of adoption; when the latter approach is applied it is necessary to disclose the impact of IFRS 16 on each line item in the financial statements in the reporting period. Depending on the adoption method that is utilised, certain practical expedients may be applied on adoption. The Group has not yet determined which adoption method will be adopted or which expedients will be applied on adoption.

Judgements and Key Sources of Estimation Uncertainty

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the year. However, the nature of estimation means that actual outcomes could differ from those estimates.

In the process of applying the Group's accounting policies, management has made the following judgements and estimates, which have the most significant effect on the amounts recognised in the financial statements:

Impairment of Goodwill

The Group tests annually whether goodwill has suffered any impairment in accordance with the accounting policy.  Determining whether goodwill is impaired requires an estimation of the value in use and/or the estimated recoverable amount of the asset derived from the business, or part of the business, CGU, to which the goodwill has been allocated. The value in use calculation requires an estimate of the present value of future cash flows expected to arise from the CGU, by applying an appropriate discount rate to the timing and amount of future cash flows.

Management are required to make judgements regarding the timing and amount of future cash flows applicable to the CGU, based on current budgets and forecasts, and extrapolated for an appropriate period taking into account growth rates and expected changes to sales and operating costs.  Management estimate the appropriate discount rate using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the business or the individual CGU.

An analysis of the Group's goodwill and the assumptions used to test for impairment are set out in note 16.

 

Deferred Tax Assets

The amount of the deferred tax asset included in the balance sheet of the Group is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.  A deferred tax asset is recognised when it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Recognition, therefore, involves management judgement regarding the prudent forecasting of future taxable profits of the business including considering appropriate levels of risk.  At the balance sheet date, management has forecast that the Group would generate future taxable profits against which certain decelerated tax losses, tax losses and other temporary differences could be relieved. Within that forecast, management considered the total amount of tax losses available across the Group and the relative restrictions in place for loss streaming and made a judgement not to recognise deferred tax assets on losses of £16,367,000.  The total amount of deferred tax assets that management had forecast as available at the year-end based on these forecasts and estimates was higher than the previous year and as a result the Group has increased the total value of the deferred tax asset being recognised. The carrying value of the recognised deferred tax asset at 31 March 2018 was £4,212,000 (2017: £4,044,000) and the unrecognised deferred tax asset at 31 March 2018 was £3,356,000 (2017: £3,217,000).  Further details are contained in note 11.

Share-based Payments

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Judgement is required in determining the most appropriate valuation model for a grant of equity instruments, depending on the terms and conditions of the grant.  Management are also required to use judgement in determining the most appropriate inputs to the valuation model including expected life of the option, volatility and dividend yield.  The assumptions and models used are disclosed in note 26.

Valuation and Asset Lives of Separately Identifiable Intangible Assets

In determining the fair value of intangible assets arising on acquisition, management are required to make judgements regarding the timing and amount of future cash flows applicable to the businesses being acquired, discounted using an appropriate discount rate.

Such judgements are based on current budgets and forecasts, extrapolated for an appropriate period taking into account growth rates and expected changes to selling prices and operating costs. During the year, the Company acquired Postcode Anywhere (Holdings) Limited and in valuing the separately identifiable intangible assets made specific judgements as to the life of those assets.  The most significant of those were the estimated useful lives of the customer relationship and technology IP assets of 10 and 5 years, respectively.  Judgements were made on these lives with reference to both historical indicators within the acquired business such as customer or technology lifecycles along with estimates of the impact on such lives that convergence of technology and relationships would have over time.

3.  Revenue

Revenue disclosed in the Consolidated Statement of Comprehensive Income is analysed as follows:

	2018		2017
	£'000		£'000
Sale of goods	50,964		42,132
Rendering of services	68,738		45,354
Revenue	119,702		87,486
Finance revenue	37		19
Total revenue	119,739		87,505

 

4.  Segmental Information

The Group's operating segments are internally reported to the Group's Chief Executive Officer as two operating segments: Fraud, Risk & Compliance - which provides ID Verification, ID Employ & Comply and ID Fraud & Risk Management services and Customer & Location Intelligence - which provides ID Registration, ID Engage and ID Trace & Investigate services.  The measure of performance of those segments that is reported to the Group's Chief Executive Officer is adjusted operating profit, being profits before amortisation of acquired intangibles, share-based payment charges, exceptional items, net finance costs and tax, as shown below.

Segment results include items directly attributable to either Fraud, Risk & Compliance or Customer & Location Intelligence.  Unallocated items for 2018 represent Group head office costs £1,196,000, exceptional costs £2,143,000, Group finance income £37,000, Group finance costs £545,000, Group income tax charge £2,746,000 and share-based payments charge £2,375,000.  Unallocated items for 2017 represent Group head office costs £675,000, exceptional costs £1,410,000, Group finance income £19,000, Group finance costs £517,000, Group income tax credit £668,000 and share-based payments charge £994,000.

As previously reported in the Annual Report and Accounts, in order to reflect how the Group is presenting its lines of business to its stakeholders going forward, the naming and structure of the operating segments were amended with effect from 1 April 2017.  Going forward 'Identity Proofing' is now known as 'Fraud, Risk & Compliance' and 'Identity Solutions' is known as 'Customer & Location Intelligence'.  Furthermore, the 'ID Trace & Investigate' line of business has transferred into Fraud, Risk & Compliance.

 

Information on segment assets and liabilities is not regularly provided to the Group's Chief Executive Officer and is therefore not disclosed below.

	Fraud, Risk & Compliance		Customer & Location  Intelligence		Unallocated		2018
Year ended 31 March 2018	£'000		£'000		£'000		£'000
Total revenue	69,767		49,935		-		119,702
Adjusted operating profit	16,049		11,458		(1,196)		26,311
Amortisation of acquired intangibles	(2,940)		(4,945)		-		(7,885)
Share-based payments charge	-		-		(2,375)		(2,375)
Exceptional items	-		-		(2,143)		(2,143)
Operating profit	13,109		6,513		(5,714)		13,908
Finance revenue							37
Finance costs							(545)
Income tax charge							(2,746)
Profit for the year							10,654

Postcode Anywhere (Holdings) Limited ('PCA'), which was acquired during the period, is reported within the Customer & Location Intelligence division.

	Fraud, Risk & Compliance		Customer & Location Intelligence		Unallocated		2017
Year ended 31 March 2017	£'000		£'000		£'000		£'000
Total revenue	54,814		32,672		-		87,486
Adjusted operating profit	12,923		4,758		(675)		17,006
Amortisation of acquired intangibles	(2,507)		(1,515)		-		(4,022)
Share-based payments charge	-		-		(994)		(994)
Exceptional items	-		-		(1,410)		(1,410)
Operating profit	10,416		3,243		(3,079)		10,580
Finance revenue					19		19
Finance costs					(517)		(517)
Income tax credit					668		668
Profit for the year							10,750

ID Scan Biometrics Limited, which was acquired during the period, is reported within the Fraud, Risk & Compliance operating segment.

Geographical Information

	Revenues from external customers				Non-current assets
	2018		2017		2018		2017
	£'000		£'000		£'000		£'000
United Kingdom	78,471		60,306		147,778		80,713
United States of America	11,836		7,468		163		123
Australia	2,559		1,489		17,797		20,308
Others	26,836		18,223		334		465
Total	119,702		87,486		166,072		101,609

The geographical revenue information above is based on the location of the customer.

Non-current assets for this purpose consist of plant and equipment and intangible assets and excludes the deferred tax asset.

 

5.  Operating Profit

This is stated after charging/(crediting):	2018		2017
	£'000		£'000
Research and development costs recognised as an expense	11,367		7,849
Depreciation of plant and equipment	1,430		1,031
Amortisation/impairment of intangible assets	8,832		4,719
Foreign exchange loss/(gain)	177		(180)
Operating lease payments  -  land and buildings	1,596		1,274
-  other	18		16

6.  Auditor's Remuneration

		2018			2017
		£'000			£'000
Audit of the financial statements 1		166			127
Other fees to auditor    -  other assurance services		24			23
-  tax compliance services		25			54
-  tax advisory services		13			19
		228			223
1 £133,000 (2017: £77,000) of this relates to the Company.

7.  Exceptional Items

		2018			2017
		£'000			£'000
Fair value adjustments to contingent consideration (note 31)		885			471
Acquisition related costs (note 30)		750			574
Costs associated with staff reorganisations		508			365
		2,143			1,410

Fair value adjustments to contingent consideration in the year to 31 March 2018 relate to the acquisition of IDscan and include £421,000 relating to a contingent purchase price adjustment along with a £457,000 charge relating to the partial unwinding of the discounting relating to the contingent consideration (note 31). This charge arises because contingent consideration due to be paid at a future date is discounted for the time value of money at the point of initial recognition and over the passage of time, this discount unwinds within the Consolidated Statement of Comprehensive Income. These are non-cash items.

Fair value adjustments to contingent consideration in the year to 31 March 2017 include a £92,000 adjustment relating to the contingent purchase price of IDscan (note 31) along with a £546,000 charge relating to the partial unwinding of the discounting relating to the contingent consideration of the acquisition of IDscan (note 31) and £17,000 relating to the unwind of the remaining discounted amount in relation to the contingent consideration that arose on the acquisition of DecTech Solutions Pty Ltd. This charge arises because contingent consideration due to be paid at a future date is discounted for the time value of money at the point of initial recognition and over the passage of time, this discount unwinds within the Consolidated Statement of Comprehensive Income. These are non-cash items.

Transaction costs of £735,000 relate to the acquisition of PCA (note 30). In prior periods, transaction costs of £513,000 were incurred in relation to the acquisition of IDscan (note 30). Such costs include those directly attributable to the transaction and exclude operating or integration costs relating to an acquired business, and due to the size and nature of these costs, management consider that they would distort the Group's underlying business performance.

As part of the Group's strategy to grow through acquisition it is essential that acquired businesses are restructured to integrate them fully into the Group's operations and deliver anticipated returns. Costs associated with staff reorganisations in both years relate primarily to exit costs of personnel leaving the business on an involuntary basis during the integration and restructuring period in order to implement more suitable post completion staff structures. In order to give a suitable representation of underlying earnings it is appropriate to show these costs as exceptional along with any other items which are exceptional in nature. The tax impact of the exceptional costs was £116,000 (2017: £73,000).

 

8.  Staff Costs and Directors' Emoluments

		Group							Company
a) Staff Costs	2018			2017		2018					2017
	£'000			£'000		£'000					£'000
Wages and salaries	41,162			31,385		27,033					23,051
Social security costs	4,904			3,852		3,504					3,007
Other pension costs	1,668			1,359		1,080					1,040
	47,734			36,596		31,617					27,098

Included in wages and salaries is a total charge of share-based payments of £2,375,000 (2017: £994,000) which arises from transactions accounted for as equity-settled share-based payment transactions.

The average monthly number of employees during the year within each category was as follows:

                                                                                                                                                                                       Group                                                           Company

		2018		2017		2018		2017
		No.		No.		No.		No.
Research and development		241		207		117		117
Production		117		99		44		44
Selling and administration		416		354		311		298
		774		660		472		459

b) Directors' Emoluments	2018		2017
	£'000		£'000
Wages and salaries	1,369		915
Pension	66		31
Bonuses	1,231		499
	2,666		1,445
Aggregate gains made by Directors on the exercise of options	954		1,212

The remuneration for the highest paid Director was as follows:

	2018		2017
	£'000		£'000
Wages and salaries	492		411
Bonus	527		288
	1,019		699

The highest paid Director has reached the maximum level permitted for a personal pension plan and receives a direct payment in lieu of his pension entitlement, which was £84,000 (2017: £70,000 that relates to the previous Chief Executive). The number of share options granted during the year for the highest paid Director was 1,400,000 (2017: nil) and the number of share options exercised during the year was nil (2017: 243,458)..

9.  Finance Revenue

	2018		2017
	£'000		£'000
Bank interest receivable	37		19
	37		19

10.  Finance Costs

	2018		2017
	£'000		£'000
Bank loan fees and interest	545		517
	545		517

 

11.  Taxation                                                                                                                                                                                                                                                                                      

a) Tax on Profit
The tax charge/(credit) in the Consolidated Statement of Comprehensive Income for the year is as follows:
	2018		2017
	£'000		£'000
Current income tax
UK corporation tax on profit for the year	2,926		1,325
Amounts underprovided/(overprovided) in previous years	67		(231)
Foreign tax	1,403		638
	4,396		1,732
Deferred tax
Origination and reversal of temporary differences	(1,540)		(2,492)
Impact of change in tax rates	(110)		92
	(1,650)		(2,400)
Tax charge/(credit) in the Statement of Comprehensive Income	2,746		(668)
b) Reconciliation of the Total Tax Charge/(Credit)
The profit before tax multiplied by the standard rate of corporation tax in the UK would result in a tax charge (2017: credit) as explained below:
	2018		2017
	£'000		£'000
Consolidated profit before tax	13,400		10,082
Consolidated profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 19% (2017: 20%)	2,546		2,016
Effect of:
Permanent differences	560		343
Rate changes	(179)		92
Utilisation of losses	(59)		(123)
Prior year items	63		(319)
Research and development tax relief	(353)		(477)
Patent Box relief	(382)		(334)
Recognition of unrecognised deferred tax assets	(104)		(1,498)
Effect of higher taxes on overseas earnings	654		(368)
Total tax charge/(credit) reported in the Statement of Comprehensive Income	2,746		(668)

The Group is entitled to current year tax relief of £954,000 (2017: £939,000), calculated at a tax rate of 19% (2017: 20%), in relation to the statutory deduction available on share options exercised in the year.

c) Tax Losses The Group has carried forward trading losses at 31 March 2018 of £17,329,000 (2017: £17,871,000).  To the extent that these losses are available for offset against future trading profits of the Group, it is expected that the future effective tax rate would be below the standard rate.  There were also capital losses carried forward at 31 March 2018 of £2,257,000 (2017: £2,257,000), which should be available for offset against future capital gains of the Group to the extent that they arise.

 

d) Deferred Tax - Group Deferred Tax Asset The recognised and unrecognised potential deferred tax asset of the Group is as follows:
Recognised						Unrecognised
	2018		2017		2018			2017
	£'000		£'000		£'000			£'000
Decelerated capital allowances	1,633		1,996		-			-
Share options	1,479		1,019		-			-
Other temporary differences	831		385		-			50
Capital losses	-		-		573			384
Trading losses	269		644		2,783			2,783
	4,212		4,044		3,356			3,217

The movement on the deferred tax asset of the Group is as follows:
	2018		2017
	£'000		£'000
Opening balance	4,044		3,017
Acquired on acquisition	440		-
Foreign currency adjustments	11		61
Origination and reversal of temporary differences	(415)		1,058
Impact of change in tax rates	132		(92)
	4,212		4,044

The deferred tax asset has been recognised to the extent it is anticipated to be recoverable out of future taxable profits based on profit forecasts for the foreseeable future.  The utilisation of the unrecognised deferred tax asset in future periods will reduce the future tax rate below the standard rate.

The Group has unrecognised deductible temporary differences of £16,367,000 (2017: £18,139,000) and unrecognised capital losses of £3,372,000 (2017: £2,257,000).

Deferred Tax Liability The deferred tax liability of the Group is as follows: 2018 2017 £'000 £'000 Intangible assets 8,260 4,441 8,260 4,441 The movement on the deferred tax liability of the Group is as follows: 2018 2017 £'000 £'000 Opening balance 4,441 3,433 Acquisition of intangibles in subsidiaries 5,676 1,818 Foreign currency adjustments (67) 149 Origination and reversal of temporary differences (1,548) (832) Impact of change in tax rates (242) (127) 8,260 4,441

 

e) Deferred Tax - Company Deferred Tax Asset The recognised and unrecognised potential deferred tax asset of the Company is as follows:
Recognised						Unrecognised
	2018		2017		2018			2017
	£'000		£'000		£'000			£'000
Decelerated capital allowances	1,633		1,977		-			-
Share options	1,479		1,019		-			-
Other temporary differences	51		-		-			50
Capital losses	-		-		384			384
Trading losses	-		-		2,783			2,783
	3,163		2,996		3,167			3,217

The movement on the deferred tax asset of the Company is as follows:
	2018		2017
	£'000		£'000
Opening balance	2,996		2,588
Acquired on acquisition	6		-
Origination and reversal of temporary differences	161		500
Impact of change in tax rates	-		(92)
	3,163		2,996

The deferred tax asset has been recognised to the extent it is anticipated to be recoverable out of future taxable profits based on profit forecasts for the foreseeable future.  The utilisation of the unrecognised deferred tax asset in future periods will reduce the future tax rate below the standard rate.

The Company has unrecognised deductible temporary differences of £16,635,000 (2017: £16,635,000) and unrecognised capital losses of £2,257,000 (2017: £2,257,000).

Deferred Tax Liability

The deferred tax liability of the Company is as follows:
	2018		2017
	£'000		£'000
Intangible assets	6,319		-
	6,319		-
The movement on the deferred tax liability of the Company is as follows:
	2018		2017
	£'000		£'000
Opening balance	-		-
Acquired on acquisition	6,378		-
Origination and reversal of temporary differences	(59)		-
	6,319		-

f) Change in corporation tax rate

As legislated in Finance (No. 2) Act 2015, which was substantively enacted on 26 October 2015, the UK corporation tax rate reduced from 20% to 19% from 1 April 2017.  A further reduction to 17% with effect from 1 April 2020 was enacted in the Finance Act 2016.  The reductions in future rates to 17% have been used in the calculation of the UK's deferred tax assets and liabilities as at 31 March 2018.

The recently enacted US Tax Cuts and Jobs Act which came into effect on 1 January 2018 reduced the headline US federal corporate tax rate from 35% to 21%, effective from 1 January 2018 and has been used in the calculation of US current and deferred taxes with effect from that date.

12.  Dividends Paid and Proposed

						2018 £'000		2017 £'000
Declared and paid during the year
Final dividend for 2017: 2.35p (2016: 2.08p)						3,582		2,775
Proposed for approval at AGM (not recognised as a liability at 31 March)
Final dividend for 2018: 2.65p (2017: 2.35p)						4,047		3,566

13.  Earnings Per Ordinary Share

Basic

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the basic weighted average number of ordinary shares in issue during the year.

		2018 pence per share		2018 £'000		2017 pence per share		2017 £'000
Profit attributable to equity holders of the Company		7.1		10,654		8.2		10,750

Diluted

Diluted earnings per share amounts are calculated by dividing the profit for the year attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

		2018		2017
		No.		No.
Basic weighted average number of shares in issue		150,552,605		131,608,788
Dilutive effect of share options		2,704,644		2,435,799
Diluted weighted average number of shares in issue		153,257,249		134,044,587

		2018 pence per share		2018 £'000		2017 pence per share		2017 £'000
Profit attributable to equity holders of the Company		7.0		10,654		8.0		10,750

Adjusted

Adjusted earnings per share is defined as adjusted operating profit less net finance costs and tax divided by the basic weighted average number of ordinary shares of the Company.

	Basic 2018 pence per share		Diluted 2018 pence per share		2018 £'000		Basic 2017 pence per share		Diluted 2017 pence per share		2017 £'000
Adjusted operating profit	17.5		17.2		26,311		12.9		12.7		17,006
Less net finance costs	(0.3)		(0.3)		(508)		(0.3)		(0.4)		(498)
(Less)/add tax	(1.9)		(1.9)		(2,746)		0.5		0.5		668
Adjusted earnings	15.3		15.0		23,057		13.1		12.8		17,176

 

14.  Property, Plant and Equipment

Group
			Land and buildings		Plant and equipment		Total
			£'000		£'000		£'000
Cost
At 1 April 2016			-		5,785		5,785
Acquired on acquisition			-		222		222
Additions			-		1,437		1,437
Disposals			-		(2,460)		(2,460)
Reclassification			-		(23)		(23)
Foreign currency adjustment			-		80		80
At 31 March 2017			-		5,041		5,041
Acquired on acquisition			1,251		341		1,592
Additions			-		1,902		1,902
Disposals			-		(189)		(189)
Foreign currency adjustment			-		(152)		(152)
At 31 March 2018			1,251		6,943		8,194
Depreciation and impairment
At 1 April 2016			-		3,551		3,551
Provided during the year			-		1,031		1,031
Disposals			-		(2,453)		(2,453)
Foreign currency adjustment			-		56		56
At 31 March 2017			-		2,185		2,185
Provided during the year			20		1,410		1,430
Disposals			-		(55)		(55)
Foreign currency adjustment			-		(66)		(66)
At 31 March 2018			20		3,474		3,494
Net book value
At 31 March 2018			1,231		3,469		4,700
At 31 March 2017			-		2,856		2,856
At 1 April 2016			-		2,234		2,234

During the period £nil (2017: £23,000) of purchased software assets (at net book value) were reclassified as intangible assets.

The net book value in respect of assets held under finance leases and hire purchase agreements is £nil (2017: £nil).

 

Company			Land and buildings		Plant and equipment		Total
			£'000		£'000		£'000
Cost
At 1 April 2016			-		5,254		5,254
Additions			-		748		748
Disposals			-		(2,437)		(2,437)
At 31 March 2017			-		3,565		3,565
Acquired on acquisition1, 2			1,233		777		2,010
Additions			-		585		585
At 31 March 2018			1,233		4,927		6,160
Depreciation and impairment
At 1 April 2016			-		3,242		3,242
Provided during the year			-		784		784
Disposals			-		(2,436)		(2,436)
At 31 March 2017			-		1,590		1,590
Provided during the year			2		854		856
At 31 March 2018			2		2,444		2,446
Net book value
At 31 March 2018			1,231		2,483		3,714
At 31 March 2017			-		1,975		1,975
At 1 April 2016			-		2,012		2,012

¹On 28 February 2018, the trade, assets and liabilities of Postcode Anywhere (Holdings) Limited and Postcode Anywhere (Europe) Limited were transferred to the Company.

²On 31 March 2018, the trade assets and liabilities of ID Scan Biometrics Limited were transferred to the Company.

The net book value in respect of assets held under finance leases and hire purchase agreements is £nil (2017: £nil).

 

15.  Intangible Assets

Group	Customer relationships £'000		Other acquisition intangibles £'000			Total acquisition intangibles £'000		Goodwill £'000		Purchased software £'000		Internally developed software £'000		Total £'000
Cost
At 1 April 2016	16,981		4,698			21,679		37,765		2,379		1,747			63,570
Foreign currency adjustment	878		358			1,236		2,934		-		3			4,173
Additions - business combinations	3,917		5,872			9,789		34,899		7		-			44,695
Additions - product development	-		-			-		-		-		21			21
Additions - purchased software	-		-			-		-		774		-			774
Disposals	-		-			-		-		(1,275)		-			(1,275)
Reclassification	-		-			-		-		23		-			23
At 31 March 2017	21,776		10,928			32,704		75,598		1,908		1,771			111,981
Foreign currency adjustment	(715)		(291)			(1,006)		(2,230)		(2)		-			(3,238)
Additions - business combinations	24,865		6,102			30,967		43,097		-		-			74,064
Additions - purchased software	-		-			-		-		212		-			212
At 31 March 2018	45,926		16,739			62,665		116,465		2,118		1,771			183,019
Amortisation and impairment
At 1 April 2016	4,449		2,469			6,918		-		1,700		839			9,457
Foreign currency adjustment	173		153			326		-		-		1			327
Amortisation during the year	2,046		1,976			4,022		-		330		367			4,719
Disposals	-		-			-		-		(1,275)		-			(1,275)
At 31 March 2017	6,668		4,598			11,266		-		755		1,207			13,228
Foreign currency adjustment	(218)		(193)			(411)		-		(2)		-			(413)
Amortisation during the year	4,419		3,466			7,885		-		442		505			8,832
At 31 March 2018	10,869		7,871			18,740		-		1,195		1,712			21,647
Net book value
At 31 March 2018	35,057		8,868			43,925		116,465		923		59			161,372
At 31 March 2017	15,108		6,330			21,438		75,598		1,153		564			98,753
At 1 April 2016	12,532		2,229			14,761		37,765		679		908			54,113

The customer relationships intangible asset acquired through the acquisition of Capscan Parent Limited has a carrying value of £1,689,000 and a remaining amortisation period of 3.6 years.  The customer relationships intangible asset acquired through the acquisition of TMG.tv Limited has a carrying value of £490,000 and a remaining amortisation period of 4.6 years.  The customer relationships intangible asset acquired through the acquisition of CRD (UK) Limited has a carrying value of £461,000 and a remaining amortisation period of 5.25 years.  The customer relationships intangible asset acquired through the acquisition of DecTech Solutions Pty Ltd has a carrying value of £2,590,000 and a remaining amortisation period of 6.1 years.  The customer relationships intangible asset acquired through the acquisition of CDMS Limited has a carrying value of £2,379,000 and a remaining amortisation period of 6.6 years.  The customer relationships intangible asset acquired through the acquisition of Loqate Inc. has a carrying value of £1,443,000 and a remaining amortisation period of 7.1 years. The customer relationships intangible asset acquired through the acquisition of ID Scan Biometrics Limited has a carrying value of £3,231,000 and a remaining amortisation period of 8.25 years. The customer relationships intangible asset acquired through the acquisition of Postcode Anywhere (Holdings) Limited has a carrying value of £22,586,000 and a remaining amortisation period of 9.1 years. Intangible assets categorised as 'other acquisition intangibles' include assets such as non-compete clauses and software technology.

Goodwill arose on the acquisition of GB Mailing Systems Limited, e-Ware Interactive Limited, Data Discoveries Holdings Limited, Advanced Checking Services Limited ('ACS'), Capscan Parent Limited, TMG.tv Limited, CRD (UK) Limited, DecTech Solutions Pty Ltd, CDMS Limited, Loqate Inc., ID Scan Biometrics Limited and Postcode Anywhere (Holdings) Limited.  Under IFRS, goodwill is not amortised and is tested annually for impairment (note 16).

During the period £nil (2017: £23,000) of purchased software assets (at net book value) were reclassified as intangible assets (previously classified as tangible assets).

 

Company	Customer relationships £'000		Other acquisition intangibles £'000			Total acquisition intangibles £'000		Goodwill £'000		Purchased software £'000		Internally developed software £'000		Total £'000
Cost
At 1 April 2016	-		-			-		-		2,402		1,716			4,118
Additions - product development	-		-			-		-		-		21			21
Additions - purchased software	-		-			-		-		774		-			774
Disposals	-		-			-		-		(1,275)		-			(1,275)
At 31 March 2017	-		-			-		-		1,901		1,737			3,638
Acquired on acquisition1, 2	26,078		8,279			34,357		78,154		52		616			113,179
Additions - purchased software	-		-			-		-		145		-			145
At 31 March 2018	26,078		8,279			34,357		78,154		2,098		2,353			116,962
Amortisation and impairment
At 1 April 2016	-		-			-		-		1,700		823			2,523
Amortisation during the year	-		-			-		-		327		362			689
Disposals	-		-			-		-		(1,275)		-			(1,275)
At 31 March 2017	-		-			-		-		752		1,185			1,937
Amortisation during the year	207		106			313		-		418		1,120			1,851
At 31 March 2018	207		106			313		-		1,170		2,305			3,788
Net book value
At 31 March 2018	25,871		8,173			34,044		78,154		928		48			113,174
At 31 March 2017	-		-			-		-		1,149		552			1,701
At 1 April 2016	-		-			-		-		702		893			1,595

¹On 28 February 2018, the trade, assets and liabilities of Postcode Anywhere (Holdings) Limited and Postcode Anywhere (Europe) Limited were transferred to the Company.

²On 31 March 2018, the trade assets and liabilities of ID Scan Biometrics Limited were transferred to the Company. This included internally generated software assets, valued within IDscan's financial statements at £616,000, that were immediately written down to £nil within the Company, the assets having previously been valued at £nil within the Group accounts.

The customer relationships intangible asset acquired through the acquisition of ID Scan Biometrics Limited has a carrying value of £3,231,000 and a remaining amortisation period of 8.25 years. The customer relationships intangible asset acquired through the acquisition of Postcode Anywhere (Holdings) Limited has a carrying value of £22,586,000 and a remaining amortisation period of 9.1 years. Intangible assets categorised as 'other acquisition intangibles' include assets such as non-compete clauses and software technology.

Goodwill arose on the acquisition of ID Scan Biometrics Limited and Postcode Anywhere (Holdings) Limited.  Under IFRS, goodwill is not amortised and is tested annually for impairment (note 16).

 

16.  Impairment Testing of Goodwill

Goodwill acquired through business combinations has been allocated for impairment testing purposes to five CGUs as follows:

§  Customer & Location Intelligence Unit (represented by the Customer & Location Intelligence operating segment excluding e-Ware and Loqate)

§  Fraud, Risk & Compliance Unit (represented by the Fraud, Risk & Compliance operating segment excluding DecTech)

§  e-Ware Interactive Unit (part of the Customer & Location Intelligence operating segment)

§  DecTech Unit (part of the Fraud, Risk & Intelligence operating segment)

§  Loqate Unit (part of the Customer & Location Intelligence operating segment)

This represents the lowest level within the Group at which goodwill is monitored for internal management purposes.  In previous years other entities were identified  as separate CGU's but following the transfer of the trade, assets and liabilities to the Company and the consequential integration of revenue streams these are now included within the appropriate group of CGU's.

During the year, the transfer of trade, assets and liabilities resulted in the IDscan CGU being included in the Fraud, Risk & Compliance group of CGU's and the PCA CGU being included in the Customer & Location Intelligence group of CGU's.

Where there are no indicators of impairment on the goodwill arising through business combinations made during the year they are tested for impairment no later than at the end of the year.

Carrying Amount of Goodwill Allocated to CGUs						2018		2017
						£'000		£'000
Customer & Location Intelligence Unit						54,494		11,672
Fraud, Risk & Compliance Unit						40,626		5,293
e-Ware Interactive Unit						79		79
IDscan Unit						-		34,899
DecTech Unit						14,367		15,972
Loqate Unit						6,899		7,683
						116,465		75,598

Key Assumptions Used in Value in Use Calculations

The Group prepares cash flow forecasts using budgets and forecasts approved by the Directors which cover a three year period and an appropriate extrapolation of cash flows beyond this using a long-term average growth rate not greater than the average long-term retail growth rate in the territory where the CGU is based.

The key assumptions for value in use calculations are those regarding the forecast cash flows, discount rates and growth rates.  The Directors estimate discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the individual CGU.  Growth rates reflect long-term growth rate prospects for the economy in which the CGU operates.

	2018				2017
	Pre-tax WACC		Growth rate (in perpetuity)		Pre-tax WACC		Growth rate (in perpetuity)
	%		%		%		%
Customer & Location Intelligence Unit	9.0%		1.8%		6.5%		2.0%
Fraud, Risk & Compliance Unit	9.0%		1.8%		6.5%		2.0%
e-Ware Interactive Unit	9.0%		-		6.5%		-
IDscan Unit	-		-		6.5%		2.0%
DecTech Unit	16.2%		2.8%		16.2%		2.7%
Loqate Unit	12.5%		2.0%		12.7%		2.3%

In the case of the enlarged Customer & Location Intelligence CGU, the annual impairment review as at 31 March 2018 indicated that the recoverable amount exceeded the carrying value of the CGU by £81,745,000 and that any decline in estimated value-in-use in excess of that amount would be liable to result in an impairment.  The sensitivities, which result in the recoverable amount equalling the carrying value, can be summarised as follows:

·      an absolute increase of 7% in the pre-tax weighted average cost of capital from 9% to 16%; or

·      a reduction of 52% in the forecast profit margins.

In the case of the enlarged Fraud, Risk & Compliance CGU, the annual impairment review as at 31 March 2018 indicated that the recoverable amount exceeded the carrying value of the CGU by £167,000,000 and that any decline in estimated value-in-use in excess of that amount would be liable to result in an impairment.  The sensitivities, which result in the recoverable amount equalling the carrying value, can be summarised as follows:

·      an absolute increase of 26% in the pre-tax weighted average cost of capital from 9% to 35%; or

·      a reduction of 79% in the forecast profit margins.     

In the case of the e-Ware Interactive CGU, the annual impairment review as at 31 March 2018 indicated that the recoverable amount exceeded the carrying value by £138,000 (2017: £150,000) after assuming an annual cash flow attrition of 20%.  In assessing the future recoverable amounts, cash flow attrition is assumed on the basis that the recoverable amount is associated with only single remaining customer attributable to that acquisition.  Any decline in estimated value-in-use in excess of that amount would be liable to result in an impairment. Since the value in use of the e-Ware Interactive CGU is based on a single client, its loss or a significant reduction in its cash flow would cause the carrying value of the unit to exceed its recoverable amount.

 

In the case of the DecTech CGU, the annual impairment review as at 31 March 2018 indicated that the recoverable amount exceeded the carrying value of by £8,100,000 (2017: £11,200,000) and that any decline in estimated value-in-use in excess of that amount would be liable to result in an impairment.  The sensitivities, which result in the recoverable amount equalling the carrying value, can be summarised as follows:

·      an absolute increase of 4% in the pre-tax weighted average cost of capital from 16% to 20%; or

·      a reduction of 24% in the forecast profit margins.

In the case of the Loqate CGU, the annual impairment review as at 31 March 2018 indicated that the recoverable amount exceeded the carrying value of by £25,300,000 (2017: £11,500,000) and that any decline in estimated value-in-use in excess of that amount would be liable to result in an impairment.  The sensitivities, which result in the recoverable amount equalling the carrying value, can be summarised as follows:

·      an absolute increase of 20% in the pre-tax weighted average cost of capital from 12.5% to 32%; or

·      a reduction of 24% in the forecast profit margins.

17.  Investments

Company
						£'000
Cost
At 1 April 2017						104,096
Acquisition of subsidiary undertakings						73,877
Transfer to goodwill and intangibles (note 30)						(101,663)
At 31 March 2018						76,310
Amounts written off
At 1 April 2017 and 31 March 2018						-
Net book value
At 31 March 2018						76,310
At 31 March 2017						104,096

The Company accounts for its investments in subsidiaries using the cost model.  The Company holds 100% of the ordinary share capital of all investments as follows:

Name of company	Proportion of voting rights and shares held	Country of incorporation	Registered office address
Capscan Parent Limited	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
Capscan Limited 1	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
Data Discoveries Holdings Limited	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
Data Discoveries Limited 1	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
Managed Analytics Limited 1	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
Fastrac Limited 1	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
e-Ware Interactive Limited	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
GB Information Management Limited	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
GB Datacare Limited	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
GB Mailing Systems Limited	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
Citizensafe Limited	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
TelMe.com Limited	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
Farebase Limited	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
TMG.tv Limited	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
CRD (UK) Limited	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
Postcode Anywhere (Holdings) Limited	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
Postcode Anywhere (Europe) Limited	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
Postcode Anywhere (North America) Limited	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
PCA Predict Inc.	100%	United States	National Registered Agents Inc., 106 Greentree Drive, Suite 101, Dover DE 19904
GBG (Australia) Holding Pty Ltd	100%	Australia	Co Sec Consulting Pty Ltd, 59 Gipps Street, Collingwood, VIC 3066
GBG (Australia) Pty Ltd 1	100%	Australia	Co Sec Consulting Pty Ltd, 59 Gipps Street, Collingwood, VIC 3066
GBG (Malaysia) Sdn Bhd1	100%	Malaysia	Level 7 Menara Millenium, Jalan Damanlela Pusat Bandar, Damansara Heights, 50490 Kuala Lumpur, Wilayah Persekutuan
GBG DecTech Solutions S.L1	100%	Spain	08002-Barcelona, Edifici The Triangle, 4th Floor, Placa de Catalunya, Barcelona, Spain
迪安科1	100%	China	Room 1714, Building 4, China Investment Center, No.9 Guangan Road, Fengtai District, Beijing, China

 

Name of company	Proportion of voting rights and shares held	Country of incorporation	Registered office address
Loqate Inc.	100%	United States	98-5 Veterans Blvd Ste 305, Redwood City CA 94063
Loqate Limited 1	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
ID Scan Biometrics Limited	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
IDscan Research Bilisim Teknolojileri Sanayi Ve Ticaret Limited Sirketi	100%	Turkey	Mersin Universitesi Çiftlikköy Kampüsü, Teknopark İdari Bina No: 106 Yenişehir - Mersin
IDScan Research (Pty) Ltd	100%	South Africa	145, 5th Avenue, Franklin Roosevelt Park, Johannesburg, Gauteng, 2195 South Africa
UAB IDscan Biometrics R&D	100%	Lithuania	Kauno m. Kauno m. I. Kanto g. 18-4B Lithuania
Safer Clubbing At Night Network (Scan Net) Ltd	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
Transactis Limited 1	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB
Inkfish Limited1	100%	United Kingdom	The Foundation, Herons Way, Chester Business Park, Chester CH4 9GB

¹ held indirectly.

18.  Trade and Other Receivables

Trade receivables are non-interest bearing and are generally on 14 to 60 day terms.  At 31 March 2018, the value of trade receivables outstanding in excess of the standard expected credit term but not impaired was £11,178,000 (2017: £7,468,000).

The credit quality of trade receivables that are neither past due nor impaired is assessed using a combination of historical information relating to counterparty default rates and external credit ratings where available.

	Group				Company
	2018 £'000		2017 £'000		2018 £'000		2017 £'000
Trade receivables	33,503		26,160		27,965		18,897
Amounts owed from subsidiary undertakings	-		-		7		251
Prepayments and accrued income	4,466		4,409		3,379		2,698
	37,969		30,569		31,351		21,846

Trade receivables are shown net of an allowance for unrecoverable amounts, movements on which are as follows:

	Group				Company
	2018 £'000		2017 £'000		2018 £'000		2017 £'000
Balance at 1 April	681		855		367		673
Acquired on acquisition	-		8		604		-
Additional provisions	951		261		380		137
Write-offs	(244)		(470)		(186)		(443)
Foreign exchange	(44)		27		-		-
Balance at 31 March	1,344		681		1,165		367

As at 31 March, the analysis of Group trade receivables that were past due but not impaired is as follows:

			Past due but not impaired
	Total £'000	Neither past due nor impaired £'000	< 30 days £'000	30 - 60 days £'000	> 60 days £'000
2018	33,503	22,325	7,816	1,235	2,127
2017	26,160	18,692	3,355	945	3,168

 

19.  Cash
		Group				Company
		2018 £'000		2017 £'000		2018 £'000		2017 £'000
Cash at bank and in hand		22,753		17,618		14,778		11,011
		22,753		17,618		14,778		11,011

Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates.

20.	Equity Share Capital
					2018		2017
					£'000		£'000
	Authorised
	147,663,704 (2017: 147,663,704) ordinary shares of 2.5p each				3,692		3,692
	Issued
	Allotted, called up and fully paid				3,817		3,368
	Share premium				104,814		48,595
					108,631		51,963
					2018		2017
					No.		No.
	Number of shares in issue at 1 April				134,702,937		123,886,390
	Issued on placing				17,058,824		9,090,910
	Issued on exercise of share options				906,937		1,725,637
	Number of shares in issue at 31 March				152,668,698		134,702,937

During the year 17,965,761 (2017: 10,816,547) ordinary shares with a nominal value of 2.5p were issued for an aggregate cash consideration of £58,408,000 (2017: £25,505,000).   The cost associated with the issue of shares in the year was £1,740,000 (2017: £750,000).

21.  Loans

In April 2014, the Group secured an Australian Dollar three year term loan of AUS$10,000,000.  The debt bears an interest rate of +1.90% above the Australian Dollar bank bill interest swap rate ('BBSW').  This term loan was extended during the year from its original maturity of April 2017 to November 2019. Security on the debt is provided by way of an all asset debenture.

The Group has a three year revolving credit facility agreement expiring in November 2019 which is subject to a limit of £50,000,000. The facility bears an initial interest rate of LIBOR +1.50%. This interest rate is subject to an increase of 0.25% should the business exceed certain leverage conditions.

	Group				Company
	2018 £'000		2017 £'000		2018 £'000		2017 £'000
Opening bank loan	12,385		3,742		9,000		-
New borrowings	10,000		12,000		10,000		12,000
Repayment of borrowings	(12,839)		(3,838)		(12,000)		(3,000)
Foreign currency translation adjustment	(298)		481		-		-
Closing bank loan	9,248		12,385		7,000		9,000
Analysed as:
Amounts falling due within 12 months	797		886		-		-
Amounts falling due after one year	8,451		11,499		7,000		9,000
	9,248		12,385		7,000		9,000

 

22.  Trade and Other Payables

	Group				Company
	2018 £'000		2017 £'000		2018 £'000		2017 £'000
Trade payables	4,307		2,748		3,363		2,363
Amounts owed to subsidiary undertakings	-		-		23,361		8,044
Other taxes and social security costs	4,236		3,014		4,202		2,578
Accruals	19,007		11,642		14,829		9,412
Deferred income	28,347		18,997		23,786		11,946
	55,897		36,401		69,541		34,343
23.  Provisions	Group				Company
	2018 £'000		2017 £'000		2018 £'000			2017 £'000
Opening balance	35		31		35			31
Provided for dilapidation obligations in less than 1 year	-		10		-			10
Utilised	(10)		(6)		(10)			(6)
Closing balance	25		35		25			35

Provisions associated with the costs of dilapidation obligations on certain leasehold properties within the Group are £25,000 (2017: £29,000).  The cash flows associated with these provisions are expected to occur in less than one year.

24.  Financial Instruments and Risk Management

The Group's activities expose it to a variety of financial risks including: market risk (including foreign currency risk and cash flow interest rate risk), credit risk, liquidity risk and capital management.  The Group's overall risk management programme considers the unpredictability of financial markets and seeks to reduce potential adverse effects on the Group's financial performance.  The Group does not currently use derivative financial instruments to hedge foreign exchange exposures.

Credit Risk

Credit risk is managed on a Group basis except for credit risk relating to accounts receivable balances which each entity is responsible for managing.  Credit risk arises from cash and cash equivalents, as well as credit exposures from outstanding customer receivables.  Management assesses the credit quality of the customer, taking into account its financial position, past experience and other factors.  For those sales considered higher risk, the Group operates a policy of cash in advance of delivery.  The Group regularly monitors its exposure to bad debts in order to minimise exposure.  Credit risk from cash and cash equivalents is managed via banking with well-established banks with a strong credit rating.

Foreign Currency Risk

The Group's foreign currency exposure arises from:

·      Transactions (sales/purchases) denominated in foreign currencies;

·      Monetary items (mainly cash receivables and borrowings) denominated in foreign currencies; and

·      Investments in foreign operations, whose net assets are exposed to foreign currency translation.

The Group has currency exposure on its investment in a foreign operation in Australia and partially offsets its exposure to fluctuations on the translation into Sterling by holding net borrowings in Australian Dollars.  In terms of sensitivities, the effect on equity of a 10% increase in the Australian Dollar and Sterling exchange rate would be an increase of £318,000 (2017: £88,000 increase).  The effect on equity of a 10% decrease in the Australian Dollar and Sterling exchange rate net of the effect of the net investment hedge in the foreign operation would be a decrease of £260,000 (2017: £107,000 decrease).

The Group has currency exposure on its investment in a foreign operation in the United States of America.  In terms of sensitivities, the effect on equity of a 10% increase in the US Dollar and Sterling exchange rate would be an increase of £247,000 (2017: £109,000 increase).  The effect on equity of a 10% decrease in the US Dollar and Sterling exchange rate would be a decrease of £202,000 (2017: £133,000 decrease).

The exposure to transactional foreign exchange risk within each company is monitored and managed at both an entity and a Group level.

Cash Flow Interest Rate Risk

The Group has financial assets and liabilities which are exposed to changes in market interest rates.  Changes in interest rates impact primarily on deposits and loans by changing their future cash flows (variable rate).  Management does not currently have a formal policy of determining how much of the Group's exposure should be at fixed or variable rates and the Group does not use hedging instruments to minimise its exposure.  However, at the time of taking new loans or borrowings, management uses its judgement to determine whether it believes that a fixed or variable rate would be more favourable for the Group over the expected period until maturity.  In terms of sensitivities, the effect on profit before taxation of an increase/decrease in the basis points on floating rate borrowings of 25 basis points would be £82,000 (2017: £84,000).

 

Liquidity Risk

Cash flow forecasting is performed on a Group basis by the monitoring of rolling forecasts of the Group's liquidity requirements to ensure that it has sufficient cash to meet operational needs and surplus funds are placed on deposit and available at very short notice.  The maturity date of the Group's loan is disclosed in note 21.

Capital Management

The Group manages its capital structure in order to safeguard the going concern of the Group and maximise shareholder value.  The capital structure of the Group consists of debt, which includes loans disclosed in note 21, cash and cash equivalents and equity attributable to equity holders of the Company, comprising issued capital, reserves and retained earnings.

The Group may maintain or adjust its capital structure by adjusting the amount of dividend paid to shareholders, returning capital to shareholders, issuing new shares or selling assets to reduce debt.

In order to achieve this overall objective, the Group's capital management, amongst other things, aims to ensure that it meets financial covenants attached to borrowings.  Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings.  There have been no breaches in the financial covenants of any borrowings in the current period.

No changes were made in the objectives, policies or processes for managing capital during the years ended 31 March 2018 and 2017.

The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments and includes contractual interest payments:

Year ended 31 March 2018	On demand		Less than 12 months		1 to 5 years		Total
	£'000		£'000		£'000		£'000
Loans	-		1,148		8,661		9,809
Contingent consideration (note 31)	-		45		-		45
Trade and other payables	4,307		23,243		-		27,550
	4,307		24,436		8,661		37,404

Year ended 31 March 2017	On demand		Less than 12 months		1 to 5 years		Total
	£'000		£'000		£'000		£'000
Loans	-		1,295		12,294		13,589
Contingent consideration (note 31)	-		7,575		-		7,575
Trade and other payables	2,748		14,656		-		17,404
	2,748		23,526		12,294		38,568

A summary of the Group's use of financial instruments is set out in the Finance Review.

Set out below is an overview of financial instruments, other than cash and short-term deposits, held by the Group at 31 March:

	2018				2017
	Loans and receivables		Fair value profit or loss		Loans and receivables		Fair value profit or loss
	£'000		£'000		£'000		£'000
Financial assets:
Trade and other receivables	33,503		-		26,160		-
Total current	33,503		-		26,160		-
Total	33,503		-		26,160		-
Financial liabilities:
Loans	8,451		-		11,499		-
Total non-current	8,451		-		11,499		-
Trade and other payables	27,550		-		17,404		-
Loans	797		-		886		-
Contingent consideration (note 31)	-		45		-		7,122
Total current	28,347		45		18,290		7,122
Total	36,798		45		29,789		7,122

 

Trade and other receivables exclude the value of any prepayments or accrued income.  Trade and other payables exclude the value of deferred income.  All financial assets and liabilities have a carrying value that approximates to fair value.  For trade and other receivables, allowances are made within the book value for credit risk.

The Group does not have any derivative financial instruments.

Use of Financial Instruments

Contingent Consideration

The fair value of contingent consideration is the present value of expected future cash flows based on the latest forecasts of future performance.

			31 March 2018		31 March 2017
			£'000		£'000
Fair value within current liabilities:
Contingent consideration (note 31)			45		7,122
Fair value within non-current liabilities:
Contingent consideration			-		-

Liabilities for contingent consideration are Level 3 financial instruments under IFRS 13.  The Group classifies fair value measurement using a fair value hierarchy that reflects the significance of inputs used in making measurements of fair value.  The fair value hierarchy has the following levels:

·      Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;

·      Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

·      Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

For financial instruments that are recognised at the fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Financial Liabilities

The Group has an Australian Dollar three year term loan of AUS$10,000,000 maturing in November 2019.  The debt bears an interest rate of +1.90% above the Australian Dollar bank bill interest swap rate ('BBSW').

The Group has a three year revolving credit facility agreement expiring in November 2020 which is subject to a limit of £50,000,000.  The facility bears an initial interest rate of LIBOR +1.50%.

The facilities are secured by way of an all asset debenture.

The Group is subject to a number of covenants in relation to its borrowings which, if breached, would result in loan balances becoming immediately repayable.  These covenants specify certain maximum limits in terms of the following:

·      Leverage

·      Interest cover

At 31 March 2018 and 31 March 2017, the Group was not in breach of any bank covenants.

25.  Obligations Under Leases

Payments made under operating leases are recognised in the income statement on a straight-line basis over the expected term of the lease.  Lease incentives received are recognised in the income statement as an integral part of the total lease expense over the term of the lease.

	Group				Company
Future minimum rentals payable under non-cancellable operating leases are as follows:	2018 £'000		2017 £'000		2018 £'000		2017 £'000
Not later than one year	1,339		836		720		486
After one year but not more than five years	1,342		1,284		373		778
After five years	-		-		-		-
	2,681		2,120		1,093		1,264

The Group leases various administrative offices and equipment under lease agreements which have varying terms and renewal rights.

A Group company sublet surplus space in a property during the prior year and this agreement ended in May 2016.

26.  Share-based Payments

Group and Company

The Group operates Executive Share Option Schemes under which Executive Directors, managers and staff of the Company are granted options over shares.

Executive Share Option Scheme

Options are granted to Executive Directors and employees on the basis of their performance.  Options are granted at the full market value of the Company's shares at the time of grant and are exercisable between three and ten years from the date of grant.  The options vest on the third anniversary of the grant subject to the Company's earnings per share ('EPS') growth being greater than the growth of the Retail Prices Index ('RPI') over a three year period prior to the vesting date.  There are no cash settlement alternatives.

Executive Share Option Scheme (Section C Scheme)

Options are granted to Executive Directors and employees on the basis of their performance.  Options are granted at the full market value of the Company's shares at the time of grant and are exercisable between three and ten years from the date of grant.  The percentage of an option that will vest and be capable of exercise will depend on the performance of the Company.  A minimum of 50% of the options will vest when the Total Shareholder Return ('TSR') performance of the Company, as compared to the TSR of the FTSE Computer Services Sub-Sector over a three-year period, matches or exceeds the median company.  The percentage of shares subject to an option in respect of which that option becomes capable of exercise will then increase on a sliding scale so that the option will become exercisable in full if top quartile performance is achieved.

Executive Share Option Scheme (Section D Scheme)

Options are granted to Executive Directors and employees on the basis of their performance.  Options are granted at the full market value of the Company's shares at the time of grant and are exercisable between three and ten years from the date of grant.  The vesting of awards under the Section D Scheme is subject to the achievement of a normalised EPS growth at an annual compound rate of 20% over the performance period.  The base year for the purposes of the EPS target will be the financial year of the Company ended immediately prior to the grant of the award.  The performance period will be the three financial years following the base year.  Section D Scheme options will only become exercisable to the extent they have vested in accordance with the EPS target.

Share Matching Plan

In the year ended 31 March 2012, the Remuneration Committee introduced the Share Matching Plan.  Participants who invest a proportion of their annual cash bonus in GBG shares can receive up to a multiple of their original investment in GBG shares, calculated on a pre-tax basis.  Any matching is conditional upon achieving pre-determined Adjusted EPS growth targets set by the Remuneration Committee for the following three years.  Share Matching Plan options will only become exercisable to the extent they have vested in accordance with the Adjusted EPS target.

Compensatory Options

In the year ended 31 March 2018, the Remuneration Committee granted Compensatory Options to the Chief Executive of the Company, as compensation for lost earnings and shares from his previous employer. The Compensatory Options vest in equal tranches over a period of 12 and 24 months, on each anniversary of the date of grant, provided he still holds the position of CEO of GBG on the respective dates. The Compensatory Options are valid for a period of 12 months from the vesting date.

GBG Sharesave Scheme

The Group has a savings-related share option plan, under which employees save on a monthly basis, over a three or five year period, towards the purchase of shares at a fixed price determined when the option is granted.  This price is usually set at a 20% discount to the market price at the time of grant.  The option must be exercised within six months of maturity of the savings contract, otherwise it lapses.

The charge recognised from equity-settled share-based payments in respect of employee services received during the year is £2,375,000 (2017: £994,000).

The following table illustrates the number and weighted average exercise prices ('WAEP') of, and movements in, share options during the year.

	2018 No.		2018 WAEP		2017 No.		2017 WAEP
Outstanding as at 1 April	3,341,470		54.93p		5,018,024		46.28p
Granted during the year	2,616,007		233.04p		522,880		38.98p
Forfeited during the year	(37,435)		200.35p		(451,004)		32.78p
Cancelled during the year	(15,275)		217.01p		(22,793)		163.0p
Exercised during the year	(906,967)		44.94p1		(1,725,637)		29.19p2
Expired during the year	-		-		-		-
Outstanding at 31 March	4,997,800		148.39p		3,341,470		54.93p
Exercisable at 31 March	2,675,668		23.69p		1,471,685		24.58p

¹ The weighted average share price at the date of exercise for the options exercised is 373.74p

² The weighted average share price at the date of exercise for the options exercised is 301.38p

For the shares outstanding as at 31 March 2018, the weighted average remaining contractual life is 4.0 years (2017: 6.5 years).

The weighted average fair value of options granted during the year was 160.73p (2017: 266.35p).  The range of exercise prices for options outstanding at the end of the year was 2.50p - 426p (2017: 2.50p - 275p).

 

The fair value of equity-settled share options granted is estimated as at the date of grant using a binomial model, taking into account the terms and conditions upon which the options were granted.  The following table lists the inputs to the model for the years ended 31 March 2018 and 31 March 2017.

		2018		2017
Dividend yield (%)		0.7 - 0.8		0.7
Expected share price volatility (%)		30		30
Risk-free interest rate (%)		0.2 - 0.8		0.2 - 0.6
Lapse rate (%)		5.0 - 10.0		5.0
Expected exercise behaviour		See below		See below
Market-based condition adjustment (%)		48.00		48.00
Expected life of option (years)		2.3 - 4.8		2.3 - 4.6
Exercise price (p)		2.50 - 426.0		2.50 - 275.0
Weighted average share price (p)		373.74		301.38

Other than for Matching Scheme options, it is assumed that 50% of options will be exercised by participants as soon as they are 20% or more 'in-the-money' (i.e. 120% of the exercise price) and the remaining 50% of options will be exercised gradually at the rate of 20% per annum for each year they remain at or above 20% 'in-the-money'.

For Matching Scheme options, it is assumed that participants will choose to exercise at the earliest opportunity (i.e. vesting date) since the exercise price is a nominal amount and is therefore not expected to influence the timing of a participant's decision to exercise the options.

The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome.

The market-based condition adjustment takes into account the likelihood of achieving market conditions, and allows for the fact that, if a Section C option vests, it does not always vest at 100%.

No other features of options granted were incorporated into the measurement of fair value.

27.  Profit Attributable to Members of the Parent Company

The profit dealt with in the financial statements of the Parent Company is £5,153,000 (2017: £10,717,000).  There are no OCI items in either financial year.

28.  Description of Reserves

Equity Share Capital

The balance classified as share capital includes the total net proceeds (both nominal value and share premium) on issue of the Company's equity share capital, comprising 2.5p ordinary shares.

Merger Reserve

The balance on the merger reserve represents the fair value of the consideration given in excess of the nominal value of the ordinary shares issued in the acquisition of GB Mailing Systems by the issue of shares.

Capital Redemption Reserve

The balance classified as capital redemption reserve includes the nominal value of own shares purchased back by the Company and subsequently cancelled.

 

29.  Related Party Transactions

During the year, the Group entered into transactions, in the ordinary course of business, with other related parties.  Transactions entered into and trading balances outstanding at 31 March are as follows:

Group		Sales to related parties		Purchases from related parties		Net amounts owed to/(by) related parties
		£'000		£'000		£'000
Directors (see below):
2018		-		-		-
2017		-		3		-
Other related parties (see below):
2018		6		-		-
2017		55		-		7

Company		Sales to related parties		Purchases from related parties		Net amounts owed to/(by) related parties
		£'000		£'000		£'000
Subsidiaries:
2018		3,535		2,049		23,354
2017		1,938		853		7,793
Directors (see below):
2018		-		-		-
2017		-		3		-
Other related parties (see below):
2018		6		-		-
2017		55		-		7

The Chairman of the Company incurred some expenses via his consultancy business Rasche Consulting Limited. 

Richard Law, the Chief Executive of the Company during the year ending 31 March 2017, is a Director of Zuto Limited which is a client of the Group.  Transactions with them have been reported under the heading of 'other related parties' in the table above.

In prior periods, a Non-Executive Director of the Company was a Director of Avanti Communications Group Plc which is a client of the Group.  A Non-Executive Director of the Company is a Director of Removal Stars Limited which is a client of the Group. Transactions with these companies have been reported under the heading of 'other related parties' in the table above.

Terms and Conditions of Transactions with Related Parties

Sales and balances between related parties are made at normal market prices.  Outstanding balances with entities other than subsidiaries are unsecured, interest free and cash settlement is expected within 30 days of invoice.  Terms and conditions for transactions with subsidiaries are the same, with the exception that balances are placed on intercompany accounts with no specified credit period.  During the year ended 31 March 2018, the Group has not made any provision for doubtful debts relating to amounts owed by related parties (2017: £nil).

Compensation of Key Management Personnel (including Directors)

Group and Company

			2018		2017
			£'000		£'000
Short-term employee benefits			2,944		1,731
Post-employment benefits			66		31
Fair value of share options awarded			2,983		393
			5,993		2,155

 

30.  Business Combinations

Acquisitions in the Year Ended 31 March 2018

Group

Acquisition of Postcode Anywhere (Holdings) Limited

On 11 May 2017, the Company acquired 100% of the voting shares of Postcode Anywhere (Holdings) Limited ('PCA'), a provider of UK and International address validation and data quality services, for a total consideration of £73,852,423. The combination of the two businesses represents a highly complementary capability alongside GBG's existing ID registration solutions. The Consolidated Statement of Comprehensive Income includes the results of PCA for the eleven month period from the acquisition date.

The fair value of the identifiable assets and liabilities of PCA as at the date of acquisition was:

		Fair value recognised on acquisition £'000
Assets
Technology intellectual property		5,733
Customer relationships		24,865
Non-compete agreements		369
Land and buildings		1,251
Plant and equipment		341
Deferred tax assets		440
Trade and other receivables		1,763
Cash		10,949
Trade and other payables		(9,280)
Deferred tax liabilities		(5,676)
Total identifiable net assets at fair value		30,755
Goodwill arising on acquisition		43,097
Total purchase consideration transferred		73,852
Purchase consideration:
Cash		73,852
Total purchase consideration		73,852

Analysis of cash flows on acquisition:
Transaction costs of the acquisition (included in cash flows from operating activities)		(735)
Net cash acquired with the subsidiary		10,949
Cash paid		(73,852)
Acquisition of subsidiaries, net of cash acquired (included in cash flows from investing activities)		(62,903)
Net cash outflow		(63,638)

The fair value of the acquired trade receivables amounts to £1,763,000. The gross amount of trade receivables is £1,763,000. None of the trade receivables have been impaired and it is expected that the full contractual amounts can be collected.

The goodwill recognised above is attributed to intangible assets that cannot be individually separated and reliably measured from PCA due to their nature.  These items include the capability for synergies from bringing the businesses together, combining propositions and capabilities that will help the business achieve accelerated consolidated growth from both cross-sell and up-sell.  None of the goodwill is expected to be deductible for income tax purposes.

The transaction costs of £735,000 associated with this acquisition have been expensed and are included in exceptional items in the Consolidated Statement of Comprehensive Income and are part of operating cash flows in the Cash Flow Statement.

From the date of acquisition, PCA has contributed £15,193,000 of revenue and operating profits of £5,325,000 to the Group.  If the combination had taken place at the beginning of the period, the Group revenue and operating profits would have been £121,141,000 and £14,754,000, respectively.

Contingent Consideration - IDscan

As part of the share sale and purchase agreement, a contingent consideration amount of up to £8,000,000 was agreed. This payment was subject to certain future revenue and EBITDA targets between 12 and 18 months from completion date. The obligation has been classed as a liability in accordance with the provisions of IAS 32. During the year, settlement of £7,460,000 was made resulting in a reduction in the contingent consideration liability on the balance sheet. At 31 March 2018, the value of the contingent consideration after partial unwinding of the discounting of £878,000 and a fair value adjustment to the contingent consideration of £495,000, was £45,000.

 

Company

Acquisition of Postcode Anywhere (Holdings) Limited

On 28 February 2018, the Company acquired the trade, assets and liabilities of Postcode Anywhere (Holdings) Limited, and its subsidiary company Postcode Anywhere (Europe) Limited, for consideration set at book value for recognised assets and liabilities. Details of the assets and liabilities that were transferred to the Company were as follows:

		Fair value £'000
Assets
Property, plant and equipment		1,740
Trade and other receivables		18,676
Cash		1,404
Trade and other payables		(12,002)
Deferred tax liability		(74)
Corporation tax liabilities		(194)
Total purchase consideration transferred		9,550

The Directors believe that the fair values of the recognised assets and liabilities were equal to the book values. Consideration for the transfer was equal to the book value of total net assets and was settled through intercompany accounts. In addition to the recognised assets and liabilities in Postcode Anywhere (Holdings) and its subsidiary, on which the consideration for the acquisition was based, the Company has recognised goodwill of £43,097,000 and intangible assets of £27,837,000 reflecting the carrying values recognised in GB Group plc consolidated accounts. This results in a credit to the cost of investment of £64,302,000, intercompany payable of £9,550,000 and other reserves of £1,501,000.

The fair value of the acquired trade receivables amounts to £1,669,000. The gross amount of trade receivables is £1,669,000. None of the trade receivables have been impaired and it is expected that the full contractual amounts can be collected. 

Acquisition of ID Scan Biometrics Limited

On 31 March 2018, the Company acquired the trade, assets and liabilities of ID Scan Biometrics Limited for consideration set at book value for recognised assets and liabilities. Details of the assets and liabilities that were transferred to the Company were as follows:

		Fair value £'000
Assets
Plant and equipment		271
Internally developed intangible assets		616
Purchased intangible assets		52
Investments		25
Inventory		399
Deferred tax assets		6
Trade and other receivables		8,352
Cash		1,096
Trade and other payables		(4,394)
Deferred tax liabilities		(117)
Total purchase consideration transferred		6,306

The Directors believe that the fair values of the recognised assets and liabilities were equal to the book values. Consideration for the transfer was equal to the book value of total net assets and was settled through intercompany accounts. In addition to the recognised assets and liabilities in IDscan Biometrics Limited, on which the consideration for the acquisition was based, the Company has recognised goodwill of £35,057,000 and intangible assets of £6,520,000 reflecting the carrying values recognised in GB Group plc consolidated accounts. This results in a credit to the cost of investment of £37,361,000, intercompany payable of £6,306,000 and other reserves of £3,042,000.

The fair value of the acquired trade receivables amounts to £3,534,000. The gross amount of trade receivables is £4,138,000. None of the trade receivables have been impaired and it is expected that the full contractual amounts can be collected. 

 

Acquisitions in the Year Ended 31 March 2017

Group

Acquisition of ID Scan Biometrics Limited

On 1 July 2016, the Company acquired 100% of the voting shares of ID Scan Biometrics Limited ('IDscan'), a provider of software that automates on-boarding of customers and employees by simplifying the identity verification and data capture process. IDscan helps authentication of documents including passports, visas, ID cards, driving licenses, utility bills and work permits while also capturing facial biometrics which provides proof that those documents are not stolen. The combination represents a highly complementary capability set alongside GBG's unique global Know Your Customer, Anti-Money Laundering and fraud detection solutions. The Consolidated Statement of Comprehensive Income for the year ending 31 March 2017 includes the results of IDscan for the nine month period from the acquisition date.

The fair value of the identifiable assets and liabilities of IDscan as at the date of acquisition was:

		Fair value recognised on acquisition £'000
Assets
Technology intellectual property		5,405
Customer relationships		3,917
Non-compete agreements		467
Plant and equipment		222
Purchased software		7
Inventory		155
Trade and other receivables		2,408
Cash		1,186
Trade and other payables		(2,911)
Corporation tax liabilities		(427)
Deferred tax liabilities		(1,818)
Total identifiable net assets at fair value		8,611
Goodwill arising on acquisition		35,057
Total purchase consideration transferred		43,668
Purchase consideration:
Cash		37,000
Contingent consideration adjustment		6,668
Total purchase consideration		43,668
Analysis of cash flows on acquisition:
Transaction costs of the acquisition (included in cash flows from operating activities)		(513)
Net cash acquired with the subsidiary		1,186
Cash paid		(37,000)
Acquisition of subsidiaries, net of cash acquired (included in cash flows from investing activities)		(35,814)
Net cash outflow		(36,327)

The fair value of the acquired trade receivables amounts to £2,200,000. The gross amount of trade receivables is £2,211,000. None of the trade receivables have been impaired and it is expected that the full contractual amounts can be collected.

The goodwill recognised above is attributed to intangible assets that cannot be individually separated and reliably measured from IDscan due to their nature.  These items include the expected value of synergies and an assembled workforce.  None of the goodwill is expected to be deductible for income tax purposes.

The transaction costs of £513,000 associated with this acquisition have been expensed and are included in exceptional items in the Consolidated Statement of Comprehensive Income and are part of operating cash flows in the Cash Flow Statement.

From the date of acquisition, for the year ending 31 March 2017, IDscan has contributed £6,076,000 of revenue and operating profits of £1,587,000 to the Group.  If the combination had taken place at the beginning of the year, the Group revenue and operating profits would have been £89,514,000 and £10,984,000, respectively.

The fair values reported in the 2017 Annual Report were provisional due to the ongoing determination of the fair value of certain assets.  As a consequence of the finalisation of these values, the identifiable net assets at fair value has reduced by £177,000 compared to that previously reported with a corresponding increase in the amount of goodwill.

 

Contingent Consideration - IDscan

As part of the share sale and purchase agreement, a contingent consideration amount of up to £8,000,000 has been agreed. This payment is subject to certain future revenue and EBITDA targets between 12 and 18 months from completion date. The obligation has been classed as a liability in accordance with the provisions of IAS 32.

At the acquisition date the discounted fair value of the contingent consideration was estimated at £6,668,000 having been determined from management's estimates of the range of outcomes and their respective likelihoods. At 31 March 2017, the value of the contingent consideration after partial unwinding of the discounting was £7,122,000. Adjustments to the fair value of the contingent consideration are made in the Consolidated Statement of Comprehensive Income under IFRS 3 (Revised) Business Combinations.

Contingent Consideration - DecTech

During the period ending 31 March 2017, final settlement of AUS$2,000,000 (£1,026,000) was made relating to the second tranche of the contingent consideration from the acquisition of DecTech.

31.  Contingent Consideration

Liabilities

Group				2018		2017
				£'000		£'000
At 1 April				7,122		1,050
Recognition on the acquisition of subsidiary undertakings				-		6,668
Fair value adjustment to contingent consideration				421		(92)
Amount forfeited by seller				(495)		-
Settlement of consideration				(7,460)		(1,026)
Unwinding of discount				457		563
Exchange differences on retranslation				-		(41)
At 31 March				45		7,122

Analysed as:
Amounts falling due within 12 months				45		7,122
Amounts falling due after one year				-		-
At 31 March				45		7,122

Both the opening balance at 1 April 2017 and the closing balance at 31 March 2018 represented contingent consideration amounts relating to the acquisition of IDscan. An amount of £495,000 was forfeited by the seller to allow payment to be made to employees of the acquired company. This amount has been accounted for within exceptional items (note 7).

The opening balance at 1 April 2016 represented contingent consideration amounts relating to the acquisition of DecTech.  During the year a final payment of AUS$2,000,000 (£1,026,000) was made to settle the outstanding obligation on DecTech.  The closing balance at 31 March 2017 relates to provisions for contingent consideration for IDscan. Exchange differences of £41,000 arose from the retranslation of DecTech into pounds Sterling for consolidation purposes and are not part of the fair value movement on the underlying contingent consideration.

Company				2018		2017
				£'000		£'000
At 1 April				7,122		-
Recognition on the acquisition of subsidiary undertakings				-		6,668
Fair value adjustment to contingent consideration				421		(92)
Amount forfeited by seller				(495)		-
Settlement of consideration				(7,460)		-
Unwinding of discount				457		546
At 31 March				45		7,122

Analysed as:
Amounts falling due within 12 months				45		7,122
Amounts falling due after one year				-		-
At 31 March				45		7,122

The fair value of contingent consideration is estimated having been determined from management's estimates of the range of outcomes to certain future revenue and EBITDA forecasts for periods between 12 and 18 months from completion date and their estimated respective likelihoods.  The contractual cash flows are therefore based on future trading activity, which is estimated based on latest forecasts (Level 3 as defined by IFRS 13).

 

32. Alternative Performance Measures

Management assess the performance of the group using a variety of alternative performance measures. In the discussion of the Group's reported operating results, alternative performance measures are presented to provide readers with additional financial information that is regularly reviewed by management. However, this additional information presented is not uniformly defined by all companies including those in the Group's industry. Accordingly, it may not be comparable with similarly titled measures and disclosures by other companies. Additionally, certain information presented is derived from amounts calculated in accordance with IFRS but is not itself an expressly permitted GAAP measure. Such measures are not defined under IFRS and are therefore termed 'non-GAAP' measures and should not be viewed in isolation or as an alternative to the equivalent GAAP measure.

The Group's income statement and segmental analysis separately identify trading results before certain items. The directors believe that presentation of the Group's results in this way is relevant to an understanding of the Group's financial performance, as such items are identified by virtue of their size, nature or incidence. This presentation is consistent with the way that financial performance is measured by management and reported to the Board and assists in providing a meaningful analysis of the trading results of the Group. In determining whether an event or transaction is presented separately, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence. Examples of charges or credits meeting the above definition and which have been presented separately in the current and/or prior years include amortisation of acquired intangibles, share-based payments charges, acquisition related costs and business restructuring programmes. In the event that other items meet the criteria, which are applied consistently from year to year, they are also presented separately.

The following are the key non-GAAP measures used by the Group:

Adjusted Operating Profit

Adjusted operating profit means profits before amortisation of acquired intangibles, share-based payment charges, exceptional items, net finance costs and tax. This is used throughout the Group by management for internal performance analysis and to assess the execution of our strategies. Management believe that it is both useful and necessary to report these measures as they are used for internal performance reporting, these measures are used in setting director and management remuneration and they are useful in connection with discussion with the investment analyst community and debt rating agencies.

Organic Growth

Organic growth is defined by the Group as year-on-year continuing revenue growth, excluding acquisitions, until the date of their anniversary and represents performance on a comparable basis. Whilst organic growth is neither intended to be a substitute for reported growth, nor is it superior to reported growth, the Group believes that these measures provide useful and necessary information to investors and other interested parties. Specifically, it provides additional information on the underlying growth of the business, it is used for internal performance analysis and it facilitates comparability of underlying growth with other companies (although the term 'organic' is not a defined term under IFRS and may not, therefore, be comparable with similarly titled measures reported by other companies).

Adjusted Earnings and Adjusted Earnings Per Share

Adjusted earnings represents adjusted operating profit less net finance costs and tax and adjusted EPS represents adjusted earnings divided by the weighted average number of shares in issue, and is disclosed to indicate the underlying profitability of the Group.

Adjusted EBITDA

Adjusted EBITDA means operating profit before depreciation, amortisation, share-based payment charges, exceptional items, net finance costs and tax, and is disclosed to indicate the underlying profitability of the Group.

 

Useful Information

Shareholder Information

The Investors section of the Company's website, www.gbgplc.com, contains detailed information on news, key financial information, annual reports, share price information, dividends and key contact details. The following is a summary and readers are encouraged to view the website for more detailed information.

Dividend Reinvestment Plan

The Company offers a Dividend Reinvestment Plan that enables shareholders to reinvest cash dividends into additional shares in the Company. Application forms can be obtained from Equiniti. You must arrange for your Dividend Reinvestment Plan application form to be received by Equiniti no later than 3 August 2018 to join the plan for the final dividend for the year ended 31 March 2018.

Share Price Information

The closing middle market price of a share of GB Group plc on 31 March 2018 was 403.5p. During the year, the share price fluctuated between 277.5p and 455.0p. The Company's share price is available on the website, www.gbgplc.com/investors , with a 15 minute delay, and from the London Stock Exchange website.

Share Scams

Shareholders should be aware that fraudsters may try and use high pressure tactics to lure investors into share scams. Information on share scams can be found on the Financial Conduct Authority's website, www.fca.org.uk/scams

Financial Calendar

Ex-dividend date for 2018 final dividend	19 July 2018
Record date for 2018 final dividend	20 July 2018
Annual General Meeting	26 July 2018
2018 final dividend payment date	24 August 2018
Announcement of 2018 half year results	November 2018

Shareholder Enquiries

GBG is aware that there may be times when shareholders may wish to contact the Company when there are changes in their circumstances (such as when they have moved house or have got married and have changed their name). There may also be occasions when a share certificate has been misplaced or lost and a duplicate copy is required. In such instances, GBG's registrar, Equiniti, is able to deal with these enquiries and take the necessary action.

Website: https://equiniti.com/contact/

Address:

Equiniti

Aspect House

Spencer Road

Lancing

West Sussex

BN99 6DA

Phone from UK: 0371 384 2030

Phone from overseas: [phone]

Website

In addition to accessing the latest information about the Company and its products and services, the following is also available from the GBG website:

• copies of announcements, press releases and case studies;

• copies of past and present annual and interim reports which can be viewed and downloaded.

 

END

 

 

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