Half Yearly Report

RNS Number : 3623Q

GB Group PLC

29 November 2016

 

Embargoed until 7.00 a.m.

29th November 2016

GB GROUP PLC

("GBG" or the "Group")

Half Yearly Report

GB Group plc (AIM: GBG), the global identity data intelligence specialist, announces its unaudited results for the six months ended 30 September 2016.

Summary & Outlook

·      The Group performed well in the six months to 30 September and the Board is confident of delivering full year results in line with market expectations.

Financial Highlights

·     Revenue up 16% to £37.5 million (2015: £32.4 million). Strong pipeline and inclusion of IDscan for the full second half provides confidence of an increased rate of growth in the second half.

·      Adjusted operating profits^† increased by 15% to £5.2 million (2015: £4.5 million) slightly ahead of market expectations of £5.0 million set in our trading update on 20 October 2016.

·     Adjusted basic earnings per share^‡ of 3.6p (2015: 3.4p).

·      Profit after tax of £1.2 million (2015: £2.3 million) after increased exceptional costs, when compared against the same period last year, relating to reorganisation costs and fees for the acquisition of IDscan.

·      Double digit organic growth expected to return in the second half.

·      Strong balance sheet

o  Deferred revenue balances increased to £15.5 million (2015: £11.2 million), giving good revenue visibility for the year ahead.

o  Net assets of the Group increased to £82.8 million (2015: £46.2 million).

o  Net debt at 30 September of £4.0 million (2015: £1.2 million cash) after borrowing £12 million to fund IDscan acquisition, the final £1.0 million earn out payment for DecTech and a dividend payment of £2.8 million. Cash conversion remains high and we expect cash balances will return to surplus at year end.

Operational Highlights

·      Our acquisition strategy is targeted at expanding our international and technical capabilities. IDscan, acquired in July 2016, is performing well and provides significant opportunities for the Group. Loqate, acquired in April 2015, continues to perform particularly well.

·      International revenues represented 31% of Group turnover compared to 26% for the same period last year with a number of global deals, including Barclays, signed in the period. Other key international wins include Bank of Beijing, taking the number of Chinese financial sector clients to 26; and Rizal Commercial Banking Corporation (RCBC), one of the Philippines' largest banks.

·      GBG ID3global now offers AML standard checks for 53 countries (2015: 40) and GBG products and services are installed in 70 countries around the world.

Richard Law, CEO, commented,

"The Group has continued to perform well and we have increased our identity data intelligence capabilities considerably through the acquisition of IDScan as well as with ongoing product development.  Our expanded product range now incorporates elements of artificial intelligence and machine learning technology, enhancing our position at the forefront of technology innovation in our rapidly growing markets."

Notes:

^†        Adjusted operating profit means profits before amortisation of acquired intangibles, share-based payments, exceptional items, interest and tax.

^††    Net (debt)/cash means cash and short-term deposits less borrowings. 

^‡        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. 

For further information, please contact:

GBG Richard Law, Chief Executive Dave Wilson, Group Finance Director & Operations Director	01244 657333
Peel Hunt LLP (Nominated Adviser and Broker) Richard Kauffer Euan Brown	020 7418 8900
Newgate Communications Bob Huxford Charlotte Coulson Ed Treadwell	020 7653 9850
Website	www.gbgplc.com

About GBG

GBG is a global specialist in Identity Data Intelligence. We help organisations make decisions about the customers they serve and the people they employ.

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 24 locations in 15 countries, GBG provides solutions to many of the world's biggest organisations, from established brands like HSBC and Zurich Insurance to disruptive newcomers such as Stripe and Xpress Money.

Find out more about how we use identity intelligently by visiting www.gbgplc.com, following us on Twitter @gbgplc and reading our blog: www.gbgplc.com/uk/blog

About GBG's solutions

We provide a number of business solutions aimed at informing decisions about customers or employees in key areas:

Employing people - we provide thorough background checks through the online verification of individuals and key documents such as a driver's licence, enabling organisations to safeguard, recruit and engage with confidence.

Registering identities - GBG solutions facilitate the registration of identity data, such as name and address, contact information and social network IDs, quickly and with minimum impact on the customer experience.

Verifying identities - we provide more innovative ways of confirming identity than simply relying on credit data. Our solutions check the identities of more than 4 billion people worldwide and also verify citizens of the world's largest economies to the rigorous standards set by the world's financial regulators.

Building relationships - we work collaboratively with clients to make sure they use the data their customers share with them to create personalised customer journeys for each individual, responding to every interaction in real time.

Fighting fraud - our fraud prevention solutions not only check new customer details in real time as they register but monitor and detect application and transaction fraud on an ongoing basis.

Locating people - GBG technology confirms and locates the people our clients need to connect with. It saves valuable time and resource and ensures that good customers don't incur the cost of inefficient processes.

GBG is listed on the London Stock Exchange (GBG). For more information visit www.gbgplc.com

CHAIRMAN'S STATEMENT

I'm pleased to report that GBG had a good first half year and the Board is confident in the outlook for the full year.

The business traded well in the first half with revenue growing by 16% to £37.5 million (2015: £32.4 million) and adjusted operating profit increasing to £5.2 million (2015: £4.5 million) which was slightly ahead of the market expectations set at the time of our trading update in October.

Our business is traditionally second-half weighted and our expectation, based on our strong pipeline; the inclusion of ID Scan Biometrics Limited ("IDscan") for the full second half; and a significantly higher level of deferred revenue balances than last year, is that our rate of revenue growth will increase in the second half.  We are confident that organic growth, which was 9% in the first half, will return to double digit in the second half.

Strategic progress in the year to date, as outlined in more detail below, was particularly encouraging with a number of new product launches, the acquisition of IDscan and the completion of a very positive succession exercise which has secured a new CEO of global calibre.

With recent political developments in Europe and the USA we believe that that there will be an increased demand for global Identity Data Intelligence solutions to address areas such as border controls, anti-terrorism, fraud prevention and corporate security. Our proven expertise in these areas stands us in good stead to take advantage of the opportunities that these developments will bring.

Strategic Progress

International Development and Strategic Relationships

During the period we further developed our international data relationships and increased the number of countries in which our products are deployed and can serve. GBG ID3 Global now offers AML standard checks for 53 countries (2015: 40) and our products and services are installed in 70 countries. Our contract for data supply with our data partner Equifax was also extended during the period. International clients now account for 31% of the Group's revenue (2015: 26%).

Alignment with our Global Markets & Customers

In July we reorganised the business along global product lines in recognition of our customers' increasing need for products and services that can be integrated once and then rolled out across multiple countries.  The aim of the reorganisation was to address this requirement and to provide a single point of contact. Simultaneously, the Group established a new sales team specifically targeting global businesses with multiple product propositions. This strategy has started well with early successes from two industry leading companies in the global banking and insurance sectors.

Succession and New CEO

Richard Law, who has led GBG's development for 14 years, announced in April 2016 his intention to retire early and requested that the Board find a successor. We were extremely pleased with the calibre of candidates who applied and that we were able to attract Chris Clark from Experian, where he was the CEO of Experian's operations across UK and EMEA, a business with revenues in excess of US$1 billion. Chris is a first class choice, a great fit for GBG and brings with him global sales and business development experience, which we believe will enable us to accelerate our future growth. Chris will start on 1^st April 2017 with Richard continuing until then and being available as needed for an orderly handover.

Acquisitions

In July 2016, GBG acquired IDscan, a high growth company which leads the market in providing technology to automate and improve the process of document and biometric identity verification. The technology is currently used by a wide variety of organisations across sectors including: banking; ecommerce; border control; and event security management. IDscan has traded well since joining GBG with a number of significant new client wins and its technology (which incorporates artificial intelligence capability) is being integrated into GBG's other products and services. There is a healthy and growing pipeline of high quality opportunities for these propositions.

Loqate, our San Francisco business acquired in 2015, is trading significantly ahead of our expectations and is seeing good growth in the USA, both through our major partnerships and our own efforts.

New Products

We increased the operational spend on product innovation and development which has kept us ahead of our competitors and resulted in a number of significant new product releases.  

GBG has developed a new federated identity product, Citizensafe, the first customers of which are the UK Government and Royal Mail via the GOV.UK Verify project.  As a result of the Government's delayed deployment, early volumes of identity checks were lower than they had forecast.  However, GBG is well placed to develop opportunities for this proposition in both the public and private sectors in the UK and internationally.

Results and Trading

The Group's profit performance in the first half of the year was slightly ahead of the pre-close trading update statement issued in October 2016.

Revenue grew by 16% year on year of which 9% was organic. Our organic revenue growth in the first half was lowered by the late launch of GOV.UK Verify and we are taking a prudent view on the Government's second half growth forecast for this project. GBG is a business with multiple products and territories and as always our team is focussed on ensuring our blend of propositions deliver a strong second half. Our promising pipeline, and substantially increased deferred revenue brought forward from the first half gives us confidence of organic revenue growth returning to double digit. This gives us added confidence in meeting year end expectations.

Our costs, which align with our revenue profile were also lower than expected in the first half and, as a result, overall margins were slightly higher than we had expected. The net result is that adjusted operating profit increased by 15% to £5.2 million (2015: £4.5 million).

Profits after tax were £1.2 million (2015: £2.3 million) after taking account of £3.4 million of costs associated with the amortisation of acquired intangibles, share-based payments and exceptional items (2015: £1.9 million).  Of these costs, £2.6 million (2015: £1.7 million) were non-cash items.

Our balance sheet is strong with revenue deferred to future periods up by £4.3 million and net assets increased to £82.8 million (2015 £46.2 million) following the acquisition of IDscan.

In addition to a new equity placing which raised £24.6 million, £12 million of new borrowings were used in the period to part fund the acquisition of IDscan. Together with the final earn out payment for DecTech and a dividend payment this resulted in a net debt^†† position at 30 September of £4.0 million compared to a net cash^†† position of £1.2 million last year. We expect our increased growth in the second half together with high cash conversion to return us to a cash surplus by the year end.

At a divisional level:

·      The Identity Proofing business which provides the Group's global fraud, risk and compliance solutions (including ID verification, IDA and employment screening) made very good progress with revenues increasing by 24% to £19.2 million (2015: £15.4 million).

·      The Identity Solutions business which provides our customer and location intelligence solutions (domestic and international registration, tracing and marketing services solutions) also performed well in the first half and grew revenues by 8% to £18.3 million (2015: £16.9 million).

Outlook

Our strong strategic progress in the year to date, the full year contribution from IDscan and improving performance across our existing business lines makes us confident of a good second half and enhanced long term prospects.

On behalf of the Board I would like to thank the Group's leadership team and employees for their continuing hard work.

David Rasche

Chairman

 

Interim Consolidated Statement of Comprehensive Income

For the six months ended 30 September 2016

		Note		Unaudited 6 months to 30 September		Unaudited 6 months to 30 September			Audited Year to 31 March
				2016		2015			2016
				£'000		£'000			£'000
	Revenue			37,512		32,368			73,401
	Cost of sales			(8,631)		(7,813)			(17,606)
	Gross profit			28,881		24,555			55,795
	Operating expenses before amortisation of acquired intangibles, share-based payments and exceptional items			(23,700)		(20,065)			(42,481)
	Other operating income			18		46			114
	Operating profit before amortisation of acquired intangibles, share-based payments and exceptional items (adjusted operating profit)			5,199		4,536			13,428
	Amortisation of acquired intangibles	11		(1,751)		(1,254)			(2,501)
	Share-based payments charge	12		(659)		(582)			(1,245)
	Exceptional items	5		(996)		(21)			(94)
	Group operating profit			1,793		2,679			9,588
	Finance revenue			11		8			12
	Finance costs			(244)		(117)			(282)
	Profit before tax			1,560		2,570			9,318
	Income tax expense	7		(328)		(311)			(178)
	Profit for the period attributable to equity holders of the parent			1,232		2,259			9,140
	Other comprehensive income:
	Exchange differences on retranslation of foreign operations (net of tax)*			2,564		(1,257)			1,096
	Total comprehensive income for the period attributable to equity holders of the parent			3,796		1,002			10,236
	Earnings per share
	- adjusted basic earnings per share for the period	8		3.6p		3.4p			10.6p
	- adjusted diluted earnings per share for the period	8		3.5p		3.3p			10.3p
	- basic earnings per share for the period	8		1.0p		1.8p			7.4p
	- diluted earnings per share for the period	8		0.9p		1.8p			7.2p
	* Upon a disposal of a foreign operation, this would be recycled to the Income Statement
Interim Consolidated Statement of Changes in Equity           For the six months ended 30 September 2016

	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 2015 (audited)			26,418		6,575		3		(684)		13,822			46,134
Profit for the period			-		-		-		-		2,259			2,259
Other comprehensive income									(1,257)		-			(1,257)
Total comprehensive income for the period			-		-		-		(1,257)		2,259			1,002
Issue of share capital	15		412		-		-		-		-			412
Share-based payments charge	12		-		-		-		-		582			582
Deferred tax on share options			-		-		-		-		371			371
Equity dividend	9		-		-		-		-		(2,277)			(2,277)
Balance at 30 September 2015 (unaudited)			26,830		6,575		3		(1,941)		14,757			46,224
Profit for the period			-		-		-		-		6,881			6,881
Other comprehensive income			-		-		-		2,353		-			2,353
Total comprehensive income for the period			-		-		-		2,353		6,881			9,234
Issue of share capital			378		-		-		-		-			378
Share-based payments charge			-		-		-		-		663			663
Deferred tax on share options			-		-		-		-		(98)			(98)
Balance at 1 April 2016 (audited)			27,208		6,575		3		412		22,203			56,401
Profit for the period			-		-		-		-		1,232			1,232
Other comprehensive income			-		-		-		2,564		-			2,564
Total comprehensive income for the period			-		-		-		2,564		1,232			3,796
Issue of share capital	15		25,321		-		-		-		-			25,321
Share issue costs	15		(750)		-		-		-		-			(750)
Share-based payments charge	12		-		-		-		-		659			659
Deferred tax on share options			-		-		-		-		103			103
Equity dividend	9		-		-		-		-		(2,775)			(2,775)
Balance at 30 September 2016 (unaudited)			51,779		6,575		3		2,976		21,422			82,755

 

Interim Consolidated Balance Sheet

As at 30 September 2016

	Note		Unaudited As at 30 September		Unaudited As at 30 September		Audited As at 31 March
			2016		2015		2016
			£'000		£'000		£'000
ASSETS
Non-current assets
Plant and equipment	10		2,796		2,688		2,234
Intangible assets	11		99,700		52,097		54,113
Deferred tax asset			3,014		2,891		3,017
			105,510		57,676		59,364
Current assets
Inventories			97		-		-
Trade and other receivables			21,746		17,109		23,774
Cash and short-term deposits			11,654		4,806		12,415
			33,497		21,915		36,189
TOTAL ASSETS			139,007		79,591		95,553
EQUITY AND LIABILITIES
Capital and reserves
Equity share capital			51,779		26,830		27,208
Merger reserve			6,575		6,575		6,575
Capital redemption reserve			3		3		3
Foreign currency translation reserve			2,976		(1,941)		412
Retained earnings			21,422		14,757		22,203
Total equity attributable to equity holders of the parent			82,755		46,224		56,401
Non-current liabilities
Loans	13		12,000		2,958		3,160
Contingent consideration	17		6,845		-		-
Deferred tax liability			4,860		3,522		3,433
			23,705		6,480		6,593
Current liabilities
Loans	13		3,701		675		582
Trade and other payables			28,328		24,045		30,543
Contingent consideration	17		-		1,850		1,050
Provisions			29		39		31
Current tax			489		278		353
			32,547		26,887		32,559
TOTAL LIABILITIES			56,252		33,367		39,152
TOTAL EQUITY AND LIABILITIES			139,007		79,591		95,553

 

Interim Consolidated Cash Flow Statement                                                                      For the six months ended 30 September 2016

		Note		Unaudited 6 months to 30 September 2016		Unaudited 6 months to 30 September 2015		Audited Year to 31 March 2016
				£'000		£'000		£'000
Group profit before tax				1,560		2,570		9,318
Adjustments to reconcile Group profit before tax to net cash flows
Finance revenue				(11)		(8)		(12)
Finance costs				246		115		282
Depreciation of plant and equipment		10		452		524		1,071
Amortisation of intangible assets		11		2,095		1,367		2,778
Loss on disposal of plant and equipment				2		-		-
Fair value adjustment on contingent consideration		5		194		148		78
Fair value gain on revaluation of associate investment		5		-		(247)		(247)
Share-based payments		12		659		582		1,245
Decrease in provisions				(2)		(9)		(17)
Decrease/(increase) in receivables				5,158		3,864		(981)
Decrease in payables				(5,735)		(3,255)		(118)
Cash generated from operations				4,618		5,651		13,397
Income tax (paid)/received				(973)		9		(248)
Net cash generated from operating activities				3,645		5,660		13,149
Cash flows from/(used in) investing activities
Acquisition of subsidiaries, net of cash acquired		16		(36,818)		(13,058)		(12,263)
Purchase of plant and equipment		10		(744)		(317)		(712)
Purchase of software		11		(211)		(231)		(426)
Proceeds from disposal of plant and equipment				4		-		-
Expenditure on product development		11		(21)		(421)		(624)
Interest received				11		8		12
Net cash flows used in investing activities				(37,779)		(14,019)		(14,013)
Cash flows from/(used in) financing activities
Finance costs paid				(246)		(115)		(282)
Proceeds from issue of shares		15		25,321		412		790
Share issue costs		15		(750)		-		-
Proceeds from new borrowings		13		12,000		-		-
Repayment of borrowings		13		(400)		(351)		(752)
Dividends paid to equity shareholders		9		(2,775)		(2,277)		(2,277)
Net cash flows from/(used in) financing activities				33,150		(2,331)		(2,521)
Net decrease in cash and cash equivalents				(984)		(10,690)		(3,385)
Effect of exchange rates on cash and cash equivalents				223		(282)		22
Cash and cash equivalents at the beginning of the period				12,415		15,778		15,778
Cash and cash equivalents at the end of the period				11,654		4,806		12,415
	Notes to the Interim Report

1.  CORPORATE INFORMATION

The interim condensed consolidated financial statements of GB Group plc ('the Group') for the six months ended 30 September 2016 were authorised for issue in accordance with a resolution of the directors on 28 November 2016.  GB Group plc is a public limited company incorporated in the United Kingdom whose shares are publicly traded on the Alternative Investment Market (AIM) of the London Stock Exchange.

2.  BASIS OF PREPARATION AND ACCOUNTING POLICIES

Basis of Preparation

These interim condensed consolidated financial statements for the six months ended 30 September 2016 have been prepared in accordance with IAS 34 'Interim Financial Reporting'.  The annual financial statements of the company are prepared in accordance with IFRSs as adopted by the European Union.

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

After making appropriate enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons, the Board continues to adopt the going concern basis in preparing the interim report.

The interim condensed consolidated financial statements do not constitute statutory financial statements as defined in section 435 of the Companies Act 2006 and therefore do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 March 2016.  The financial information for the preceding year is based on the statutory financial statements for the year ended 31 March 2016.  These financial statements, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies.  These financial statements did not require a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

Accounting Policies

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 March 2016. The IASB and IFRIC have issued the following Standards and Interpretations with an effective date after 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 16	Leases	1 January 2019

IFRS 15 'Revenue from Contracts with Customers' (effective for the year ending 31 March 2019) replaces IAS 18 'Revenue', IAS 11 'Construction Contracts' and related interpretations. The standard introduces a single, five-step revenue recognition model that is based upon the principle that revenue is recognised at the point that control of goods or services is transferred to the customer. The standard also updates revenue disclosure requirements. Whilst an assessment of this new standard is ongoing, the Group does not currently expect its adoption to have a material impact on the Group's financial performance or position.

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. 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' (effective for the year ending 31 March 2020) will require most leases to be recognised on the balance sheet.  The new standard brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases.  IFRS 16 supersedes IAS 17 'Leases' and related interpretations.  The Group has a number of operating lease arrangements and will consider the financial impact of IFRS 16 in due course.

 

Notes to the Interim Report

3.  CYCLICALITY

Due to the cyclicality of our software renewal business, higher renewals in the second half traditionally result in the Group's performance being biased towards the second half of the year.

4.  RISKS AND UNCERTAINTIES

Management identifies and assesses risks to the business using an established control model.  The Group has a number of exposures which can be summarised as follows: regulatory risk resulting from regulatory developments; changes in the Group's competitive position; non-supply by a major supplier; disaster recovery and business continuity; new product development; and intellectual property risk.  These risks and uncertainties facing our business were reported in detail in the 2016 Annual Report and Accounts and all of them are monitored closely by the Group.

The outcome of the recent UK referendum has caused uncertainty in both the political and economic environments in which we operate.  Our business model means that we are comparatively well-placed to manage the consequences of the result and of its effect on the economic environment but like all companies, we will need to continue to monitor and manage the practical implications as they occur.

Accounting Estimates

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 amounts reported for revenues and expenses during the year. However, the nature of estimation means that actual outcomes could differ from those estimates. The main judgements and key sources of estimation uncertainty applied in these interim consolidated financial statements are detailed in the Group's annual financial statements for the year ending 31 March 2016.

5.  EXCEPTIONAL ITEMS

		Unaudited 6 months to 30 Sept 2016		Unaudited 6 months to 30 Sept 2015		Audited Year to 31 March 2016
		£'000		£'000		£'000
Fair value adjustments to contingent consideration (note 17)		194		148		78
Fair value gain on revaluation of investment in associate		-		(247)		(247)
Acquisition related costs		574		120		119
Costs associated with staff reorganisations		228		-		178
Costs associated with the relocation of Group head office		-		-		(34)
		996		21		94

Fair value adjustments to contingent consideration in the six months to 30 September 2016 include a charge of £177,000 relating to the partial unwind of the discount applied to the contingent consideration arising on the acquisition of ID Scan Biometrics Limited (note 16) 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 (note 16).  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.

In prior periods an exceptional fair value gain of £247,000 was recognised as a consequence of the Group revaluing its previously held equity stake in Loqate at the date of its acquisition of the remaining 73.3% of shares in accordance with IFRS 3.  This is a non-cash item.

 

Notes to the Interim Report

6.  SEGMENTAL INFORMATION

The Group's operating segments are internally reported to the Group's Chief Executive Officer as two operating segments: Identity Proofing Division- which provides ID Verification, ID Employ & Comply services and ID Fraud and Risk Management Services and Identity Solutions Division - 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 before amortisation of acquired intangibles as shown below.

ID Scan Biometrics Ltd ("IDscan"), which was acquired during the period, is reported within the Identity Proofing Division.

Segment results include items directly attributable to either Identity Proofing or Identity Solutions. Unallocated items for the six months to 30 September 2016 represent Group head office costs £377,000 (2015: £492,000), exceptional items £996,000 (2015: £21,000), Group finance income £11,000 (2015: £8,000), Group finance costs £244,000 (2015: £117,000), Group income tax expense £328,000 (2015: £311,000) and share-based payments charge £659,000 (2015: £582,000).  Unallocated items for the year ended 31 March 2016 represent Group head office costs £886,000, exceptional costs £94,000, Group finance income £12,000, Group finance costs £282,000, Group income tax charge £178,000 and share-based payments charge £1,245,000.

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

	Identity Proofing		Identity Solutions		Unallocated		Total Unaudited 6 months to 30 September 2016
Six months ended 30 September 2016	£'000		£'000		£'000		£'000
Total revenue	19,199		18,313		-		37,512
Adjusted operating profit	2,636		2,940		(377)		5,199
Amortisation of acquired intangibles	(984)		(767)		-		(1,751)
Share-based payments charge	-		-		(659)		(659)
Exceptional items	-		-		(996)		(996)
Operating profit	1,652		2,173		(2,032)		1,793
Finance revenue							11
Finance costs							(244)
Income tax charge							(328)
Profit for the period							1,232

	Identity Proofing		Identity Solutions		Unallocated		Total Unaudited 6 months to 30 September 2015
Six months ended 30 September 2015	£'000		£'000		£'000		£'000
Total revenue	15,423		16,945		-		32,368
Adjusted operating profit	3,219		1,809		(492)		4,536
Amortisation of acquired intangibles	(545)		(709)		-		(1,254)
Share-based payments charge	-		-		(582)		(582)
Exceptional items	-		-		(21)		(21)
Operating profit	2,674		1,100		(1,095)		2,679
Finance revenue							8
Finance costs							(117)
Income tax charge							(311)
Profit for the period							2,259

 

Notes to the Interim Report

6.  SEGMENTAL INFORMATION (continued)

	Identity Proofing		Identity Solutions		Unallocated		Total Audited Year to 31 March 2016
Year ended 31 March 2016	£'000		£'000		£'000		£'000
Total revenue	33,213		40,188		-		73,401
Adjusted operating profit	6,629		7,685		(886)		13,428
Amortisation of acquired intangibles	(1,042)		(1,459)		-		(2,501)
Share-based payments charge	-		-		(1,245)		(1,245)
Exceptional items	-		-		(94)		(94)
Operating profit	5,587		6,226		(2,225)		9,588
Finance revenue							12
Finance costs							(282)
Income tax charge							(178)
Profit for the year							9,140

7.  TAXATION

The Group calculates the period income tax expense using a best estimate of the tax rate that would be applicable to the expected total earnings for the year ending 31 March 2017.

Notes to the Interim Report

8.  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 period.

Unaudited  6 months to 30 September 2016

Unaudited  6 months to 30 September 2015

Audited Year to 31 March 2016

Pence per share

£'000

Pence per share

£'000

Pence per share

£'000

Profit attributable to equity holders of the company

1.0

1,232

1.8

2,259

7.4

9,140

Diluted

Diluted earnings per share amounts are calculated by dividing the profit for the period attributable to equity holders of the company by the weighted average number of ordinary shares outstanding during the period 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.

		30 Sept 2016		30 Sept 2015			31 March 2016
		No.		No.			No.
Basic weighted average number of shares in issue		128,812,008		122,121,920				122,744,412
Dilutive effect of share options		3,174,680		4,127,693				3,770,597
Diluted weighted average number of shares in issue		131,986,688		126,249,613				126,515,009

Unaudited  6 months to 30 September 2016

Unaudited 6 months to 30 September 2015

Audited Year to 31 March 2016

Pence per share

£'000

Pence per share

£'000

Pence per share

£'000

Profit attributable to equity holders of the company

0.9

1,232

1.8

2,259

7.2

9,140

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.

		Unaudited 6 months to  30 September 2016						Unaudited 6 months to 30 September 2015						Audited Year to 31 March 2016
		Basic pence per share		Diluted pence per share		£'000		Basic pence per share		Diluted pence per share		£'000		Basic pence per share		Diluted pence per share		£'000
Adjusted operating profit		4.0		3.9		5,199		3.7		3.6		4,536		10.9		10.6		13,428
Less net finance costs		(0.2)		(0.2)		(233)		(0.1)		(0.1)		(109)		(0.2)		(0.2)		(270)
Less tax		(0.2)		(0.2)		(328)		(0.2)		(0.2)		(311)		(0.1)		(0.1)		(178)
Adjusted earnings		3.6		3.5		4,638		3.4		3.3		4,116		10.6		10.3		12,980

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

Notes to the Interim Report

9.  DIVIDENDS PAID AND PROPOSED

		Unaudited 6 months to 30 Sept 2016		Unaudited 6 months to 30 Sept 2015		Audited Year to 31 March 2016
		£'000		£'000		£'000
Declared and paid during the period
Final dividend for 2016: 2.08p per share (2015: 1.85p per share)		2,775		2,277		2,277
Proposed for approval at AGM (not recognised as a liability at 31 March 2016)
Final dividend for 2016: 2.08p per share		-		-		2,577

10.  PLANT AND EQUIPMENT

During the six months ended 30 September 2016, the Group acquired plant and equipment with a cost of £744,000 (2015: £317,000).

Plant and equipment with a fair value of £237,000 was acquired with the acquisition of ID Scan Biometrics Ltd (note 16).

Depreciation provided during the six months ended 30 September 2016 was £452,000 (2015: £524,000).

Assets with a net book value of £6,000 were disposed of during the six months ended 30 September 2016 (2015: none).

 

Notes to the Interim Report

11.  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 2015	14,839		3,786		18,625		30,505		-		1,104		50,234
Additions - business combinations	1,912		819		2,731		6,623		-		20		9,374
Additions - product development	-		-		-		-		231		421		652
Foreign exchange adjustments	(404)		(162)		(566)		(1,364)		-		(2)		(1,932)
At 30 September 2015	16,347		4,443		20,790		35,764		231		1,543		58,328
Additions - business combinations	-		-		-		(121)		-		(2)		(123)
Additions - product development	-		-		-		-		-		203		203
Additions - purchased software	-		-		-		-		195		-		195
Reclassification	-		-		-		-		1,953		-		1,953
Foreign exchange adjustments	634		255		889		2,122		-		3		3,014
At 31 March 2016	16,981		4,698		21,679		37,765		2,379		1,747		63,570
Additions - business combinations	3,917		5,872		9,789		34,853		9		-		44,651
Additions - product development	-		-		-		-		-		21		21
Additions - purchased software	-		-		-		-		211		-		211
Foreign exchange adjustments	638		259		897		2,129		-		2		3,028
At 30 September 2016	21,536		10,829		32,365		74,747		2,599		1,770		111,481
Amortisation and impairment
At 1 April 2015	2,754		1,558		4,312		-		-		626		4,938
Amortisation during the period	808		446		1,254		-		19		94		1,367
Foreign exchange adjustments	(41)		(33)		(74)		-		-		-		(74)
At 30 September 2015	3,521		1,971		5,492		-		19		720		6,231
Amortisation during the period	831		416		1,247		-		45		119		1,411
Reclassification	-		-		-		-		1,636		-		1,636
Foreign exchange adjustments	97		82		179		-		-		-		179
At 31 March 2016	4,449		2,469		6,918		-		1,700		839		9,457
Amortisation during the period	965		786		1,751		-		159		185		2,095
Foreign exchange adjustments	121		108		229		-		-		-		229
At 30 September 2016	5,535		3,363		8,898		-		1,859		1,024		11,781
Net book value
At 30 September 2016	16,001		7,466		23,467		74,747		740		746		99,700
At 31 March 2016	12,532		2,229		14,761		37,765		679		908		54,113
At 30 September 2015	12,826		2,472		15,298		35,764		212		823		52,097

Goodwill arose on the acquisition of GB Mailing Systems Limited, e-Ware Interactive Limited, Data Discoveries Holdings Limited, Advanced Checking Services Limited, Capscan Parent Limited, TMG.tv Limited, CRD (UK) Limited, DecTech Solutions Pty Ltd, CDMS Limited, Loqate Inc. and IDscan under IFRS, goodwill is annually tested for impairment.

Intangible assets categorised as 'other acquisition intangibles' include asset such as non-compete clauses and software technology.

During the year ending 31 March 2016, £317,000 of purchased software assets (at net book value) were reclassified as intangible assets (previously classified as tangible assets).

 

Notes to the Interim Report

12.  SHARE-BASED PAYMENTS

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

During the six months ended 30 September 2016, the following share options were granted to executive directors.

Scheme	Date	No. of options		Exercise price		Fair value
Executive Share Matching Plan	8 September 2016	287,290		2.5p		300.5p

The charge recognised from equity-settled share-based payments in respect of employee services received during the period was £659,000 (2015: £582,000).

13.  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') and matures in April 2017.  Security on the debt is provided by way of an all asset debenture.

The Group has a 3 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%. This interest rate is subject to an increase of 0.25% should the business exceed certain leverage conditions.

		30 Sept 2016		30 Sept 2015		31 March 2016
		£'000		£'000		£'000
Opening bank loan		3,742		4,389		4,389
New borrowings		12,000		-		-
Repayment of borrowings		(400)		(351)		(752)
Foreign currency translation adjustment		359		(405)		105
Closing bank loan		15,701		3,633		3,742
Analysed as:
Amounts falling due within 12 months		3,701		675		582
Amounts falling due after one year		12,000		2,958		3,160
		15,701		3,633		3,742

 

Notes to the Interim Report

14.  RELATED PARTY TRANSACTIONS

During the period, the Group entered into transactions, in the ordinary course of business, with other related parties.  Transactions entered into and trading balances outstanding at 30 September are as follows:

Group		Sales to related parties		Purchases from related parties		Net amounts owed by related parties
		£'000		£'000		£'000
Associates:
30 September 2016		-		-		-
30 September 2015		1		-		-
31 March 2016		-		-		-
Directors (see below):
30 September 2016		-		-		-
30 September 2015		-		1		-
31 March 2016		-		1		-
Other related parties (see below):
30 September 2016		23		-		(14)
30 September 2015		19		-		-
31 March 2016		33		-		(5)

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

The Chief Executive of the Company is a director of Zuto Limited which is a client of the Group.  Transactions with Zuto Limited have been reported under the heading of 'other related parties' in the table above.

A Non-Executive Director of the Company is a director of Avanti Communications Group Plc which is a client of the Group.  Transactions with Avanti Communications Group Plc 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.  During the six months ended 30 September 2016, the Group has not made any provision for doubtful debts relating to amounts owed by related parties (2015: nil).

Compensation of key management personnel (including directors)

		Unaudited 6 months to 30 Sept 2016		Unaudited 6 months to 30 Sept 2015		Audited Year to 31 March 2016
		£'000		£'000		£'000
Short-term employee benefits		579		440		1,520
Post-employment benefits		16		12		24
Fair value of share options awarded		393		929		929
		988		1,381		2,473

 

Notes to the Interim Report

15.  EQUITY SHARE CAPITAL

During the period 10,296,940 (2015: 2,332,024) ordinary shares with a nominal value of 2.5p were issued for an aggregate cash consideration of £25,321,000 (2015: £412,000).  The cost associated with the issue of shares was £750,000 (2015: £nil).

		30 Sept 2016		30 Sept 2015		31 March 2016
		£'000		£'000		£'000
Issued
Allotted, called up and fully paid		3,355		3,077		3,097
Share premium		48,424		23,753		24,111
		51,779		26,830		27,208

16.  BUSINESS COMBINATIONS

Acquisition of ID Scan Biometrics Ltd

On 1 July 2016, the Company acquired 100% of the voting shares of 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 whilst 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 includes the results of IDscan for the three 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		237
Purchased software		9
Acquired goodwill		12
Inventory		154
Trade and other receivables		2,559
Cash		1,208
Trade and other payables		(2,900)
Corporation tax liabilities		(427)
Deferred tax liabilities		(1,818)
Total identifiable net assets at fair value		8,827
Goodwill arising on acquisition		34,841
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 (included in cash flows from investing activities)		1,208
Cash paid		(37,000)
Net cash outflow		(35,279)

 

Notes to the Interim Report

16.  BUSINESS COMBINATIONS (continued)

The fair values above contain certain provisional amounts which will be finalised no later than one year after the date of acquisition.  Provisional amounts have been included at 30 September 2016 as a consequence of the timing and complexity of the acquisition.

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, IDscan has contributed £1,758,000 of revenue and operating profits of £504,000 to the Group.  If the combination had taken place at the beginning of the year, the Group revenue and operating profits would have been £39,540,000 and £2,198,000, respectively.

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 30 September 2016, the value of the contingent consideration after partial unwinding of the discounting was £6,845,000. 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 30 September 2016, 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.

Notes to the Interim Report

17.  CONTINGENT CONSIDERATION

ASSETS	Unaudited 30 Sept 2016		Unaudited 30 Sept 2015		Audited 31 March 2016
	£'000		£'000		£'000
Opening	-		-		-
Recognition on the acquisition of subsidiary undertakings	-		1,280		1,280
Fair value adjustment to contingent consideration	-		42		177
Settlement of consideration	-		-		(1,457)
Closing	-		1,322		-

Analysed as:
Amounts falling due within 12 months		-		1,322		-
		-		1,322		-

LIABILITIES	Unaudited 30 Sept 2016		Unaudited 30 Sept 2015		Audited 31 March 2016
	£'000		£'000		£'000
Opening	1,050		6,628		6,628
Recognition on the acquisition of subsidiary undertakings	6,668		-		-
Settlement of consideration	(1,026)		(4,745)		(5,745)
Unwinding of discount	194		190		255
Exchange differences on retranslation	(41)		(223)		(88)
Closing	6,845		1,850		1,050

Analysed as:
Amounts falling due within 12 months		-		1,850		1,050
Amounts falling due after one year		6,845		-		-
		6,845		1,850		1,050

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.

Notes to the Interim Report

18.  FINANCIAL INSTRUMENTS - FAIR VALUE MEASUREMENT

The objectives, policies and strategies pursued by the Group in relation to financial instruments are described within the 2016 Annual Report.  Set out below is an overview of financial instruments, other than cash and short-term deposits, held by the Group:

	30 September 2016				30 September 2015				31 March 2016
	Loans and receivables		Fair value profit or loss		Loans and receivables		Fair value profit or loss		Loans and receivables		Fair value profit or loss
	£'000		£'000		£'000		£'000		£'000		£'000
Financial assets:
Trade and other receivables	17,669		-		13,162		-		19,768		-
Contingent consideration	-		-		-		1,322		-		-
Total current	17,669		-		13,162		1,322		19,768		-
Total financial assets	17,669		-		13,162		1,322		19,768		-
Financial liabilities:
Loans	12,000		-		2,958		-		3,160		-
Contingent consideration	-		6,845		-		-		-		-
Total non-current	12,000		6,845		2,958		-		3,160		-
Trade and other payables	12,832		-		12,195		-		16,791		-
Loans	3,701		-		675		-		582		-
Contingent consideration	-		-		-		1,850		-		1,050
Total current	16,533		-		12,870		1,850		17,373		1,050
Total financial liabilities	28,533		6,845		15,828		1,850		20,533		1,050

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.

Contingent consideration

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

	Unaudited 30 Sept 2016		Unaudited 30 Sept 2015		Audited 31 March 2016
	£'000		£'000		£'000
Fair value within current assets:
Contingent consideration	-		1,322		-
Fair value within current liabilities:
Contingent consideration	-		1,850		1,050
Fair value within non-current liabilities:
Contingent consideration	6,845		-		-

Assets and 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).

Notes to the Interim Report

18.  FINANCIAL INSTRUMENTS - FAIR VALUE MEASUREMENT (continued)

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.  The debt bears an interest rate of +1.90% above the Australian Dollar bank bill interest swap rate ('BBSW').

The Group has a 3 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 30 September 2016 and 30 September 2015 the Group was not in breach of any bank covenants.

Independent Review Report to GB Group plc

Introduction

We have been engaged by the GB Group plc (the 'Company') to review the condensed set of consolidated financial statements in the half-yearly financial report for the 6 months ended 30 September 2016 which comprises Interim Consolidated Statement of Comprehensive Income, Interim Consolidated Statement of Changes in Equity, Interim Consolidated Balance Sheet, Interim Consolidated Cash Flow Statement and the related explanatory notes 1 to 18.  We have read the other information contained in the half- yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of consolidated financial statements.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with International Accounting Standards 34 'Interim Financial Reporting' as adopted by the European Union.

As disclosed in note 2, the annual financial statements of the company are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of consolidated financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standards 34 'Interim Financial Reporting' as adopted by the European Union. 

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of consolidated financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of consolidated financial statements in the half-yearly financial report for the 6 months ended 30 September 2016 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union.

Ernst & Young LLP

Manchester

28 November 2016

 

END

 

 

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