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GB Group PLC (GBG)

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Tuesday 30 June, 2020

GB Group PLC

Final Results

RNS Number : 4961R
GB Group PLC
30 June 2020
 

 

 

.

 

 

Embargoed until 7.00 a.m

30 June 2020

 

GB GROUP PLC

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

 

Annual Results for the Year Ended 31 March 2020

 

Successful year of growth and delivery against strategic objectives

 

GB Group plc (AIM: GBG), the global identity data intelligence specialist, announces its annual results for the year ended 31 March 2020.

 

Financial highlights

 

 

2020

2019

% change

Revenue

£199.1m

£143.5m

38.7%

Adjusted operating profit 1

£47.9m

£32.0m

49.7%

Adjusted basic earnings per share 1

21.8p

18.2p

19.8%

Profit before tax

£20.6m

£14.7m

40.0%

Deferred income balance

£38.4m

£36.6m

4.9%

Net assets

£344.9m

£321.5m

7.3%

Net (debt)/cash 1

£(35.0)m

£(66.3)m

-

Dividend per share

-

2.99p

-

 

 

 

2020

2019

Total Growth

2020 Organic Revenue

2019 Revenue (CCY) 1

 

Organic

Revenue

Growth (CCY) 1

Total revenue

£199.1m

£143.5m

38.7%

£158.3m

£143.0m

10.7%

Adjusted operating profit 1

 

£47.9m

£32.0m

49.7%

-

-

-

 

 

Strategic and operational highlights

 

Strong revenue and profit performance:

· Good growth from all geographies and GBG's three core solutions (Location, Identity and Fraud)

· International revenues now 56% of the business

· IDology is performing well and delivering on acquisition objectives

 

Continued investment in data, products and technology:

· Increasing breadth and depth of data in chosen markets

· Enhancement of product portfolio through internal development and partnerships

· Enhanced our capabilities in artificial intelligence, multi-modal authentication and validation methods

· Significant progress in the shift to a globally capable, cloud-based operational model

 

 

 Covid-19: early and decisive action:

· Focused on protecting team members, supporting our customers and positioning for the future

· Prompt actions taken early to maintain our organisational capacity whilst reducing discretionary spending

· Assisted by a strong balance sheet with available bank draw down facilities, good liquidity and a high proportion of annual recurring licence revenue

 

Current trading:

· We are witnessing varying levels of impact depending on customer vertical, product solution and geography with positive and negative effects

· To date customer churn, solvency and bad debt are at normal levels

· Continuing to win new business though some sales cycles are lengthening

 

Outlook:

· It is not yet possible to understand the ongoing impact of Covid-19 on the business

· Dividend and guidance currently suspended

· Long-term market drivers remain favourable and should be enhanced by accelerated digitalisation of customers' businesses

· Our strong balance sheet, leading technology and diversified customer base leaves GBG well-positioned for long-term success

 

Chris Clark, CEO, commented:

"I am extremely proud of our performance in the last 12 months, which saw profit and revenues exceed market expectations. This was driven by GBG's international expansion and innovative product offerings. Although it is hard to predict the full impact of Covid-19, we remain well-positioned to support our customers through the current environment and in the longer term.  

 

None of this would be possible without the incredible hardworking team at GBG. I want to pay tribute to the dedication of my colleagues through this challenging period. I am confident GBG is approaching the future from a position of strength ."

 

Notes:

 

1 These measures are defined within note 37 to the Annual Report.

 

Ends -

 

For further information, please contact:

 

GBG

Chris Clark, CEO

Dave Wilson, CFO & COO

 

01244 657333

Pe el Hunt LLP (Nominated Adviser and Broker)

Edward Knight

Nick Prowting

Ed Allsopp

 

020 7418 8900

Tulchan

James Macey White

Matt Low

Deborah Roney

 

020 7353 4200

[email protected]

Website

www.gbgplc.com/investors

 

 

 

 

 

 

Presentation and webcast

Chris Clark, Chief Executive, and David Wilson, Chief Financial Officer & Chief Operating Officer will be hosting an analyst webcast presentation at 9.00 a.m. on 30 June 2020.

 

Shortly following the presentation, an archived webcast will be available on the Investors page of GBG's website.

 

About GBG

 

GBG offers a range of solutions that help organisations quickly validate and verify the identity and location of their customers.

 

Our market-leading technology, data and expertise help our customers improve digital access, deliver a seamless experience and establish trust so that they can transact quickly, safely and securely with their customers online. 

 

Headquartered in the UK and with over 1,000 team members across 16 countries, we work with 20,000 customers in over 70 countries. Some of the world's best-known businesses rely on GBG to provide digital services and keep the economy moving, from US e-commerce giants to Asia's biggest banks and European household brands. 

 

To find out more about how we help our customers establish trust with their customers, visit  www.gbgplc.com  and follow us on LinkedIn and Twitter @gbgplc. 

 

 

 

Chairman's Statement

 

The past year has been a strong one for GBG. We have delivered on our strategic objectives, achieved record levels of revenue and profit and earned our best-ever levels of engagement for both team members and customers. The impact of Covid-19 means, however, that we have little time to celebrate our past success. Instead, we are focussing all our attention and skills on supporting our team members and customers during this demanding and uncertain time. We are taking actions to make sure our business remains strong throughout this period and we are confident that we will emerge from this crisis in a position to deliver against our long-term growth strategy.

 

Covid-19 Pandemic

On behalf of the Board, I want to say how grateful I am to our team members across the world for their commitment and dedication during the Covid-19 pandemic. While working remotely, they have maintained high levels of service to our customers as well as supporting the well-being of their families and colleagues. It is a credit to them and the senior management team that we have been able to operate so effectively in light of these challenging conditions, putting us in a strong position to maintain the prospects of the Group. I am justly proud of all their efforts.

 

The Chief Executive's report covers in more detail the steps and actions that GBG has taken to carry out its business continuity plans, ensuring the safety and well-being of our team members and supporting our customers. The Board has been holding virtual meetings on a weekly basis, where we have received updates from the Executive Directors on a range of matters relating to Covid-19. This is a very effective forum to make sure that we can continue to meet our obligations to all of our stakeholders. It has also given us the opportunity to identify and consider any potential challenges and opportunities at an early stage.

 

We are keenly aware of the challenges posed by the impact of Covid-19 on the global markets we operate in, as well as society at large. While it is still too early to assess the full impact of the pandemic, I am pleased with the pace of actions we have taken to mitigate the effects of the pandemic on our team members, customers and the business.

 

Financial performance

GBG's financial performance in the year was again ahead of market expectations. Revenues increased by 38.7 % to £199.1 million (2019: £143.5 million), with organic revenue growth at constant currency1 of 10.7%. Adjusted operating profit1 increased by 49.7% to £47.9 million (2019: £32.0 million) and adjusted earnings per share1 rose 19.8%% to 21.8 pence (2019: 18.2 pence).

 

We generated good levels of cash in the year which contributed to a significant improvement in our net debt position, down to £35.0 million from £66.3m in FY19. We enter FY21 in a robust financial position with a strong balance sheet, a cash generative business model and access to liquidity.

 

Achievements and strategic outlook

During the year we remained focused on the continued strategic development of our three core solutions: Location, Identity and Fraud. We have been effective in engaging with existing and potential customers, as well as responding to market trends and developments, while maintaining our long-standing commitment to innovation.

 

GBG is committed to building market-leading products that meet the evolving needs and requirements of our customers, helping them to operate securely and compliantly, at the same time as providing a high quality and seamless customer experience.

 

We have also continued to embrace new concepts, combining the best ideas from the markets we serve. This includes enhancing our capabilities in artificial intelligence, multi-modal authentication and validation methods including biometrics, voice and images. The increasing breadth, depth and scope of data in our products means we can offer our customers unique access to the most accurate information, enabling them to make more intelligent, commercial and risk-based decisions. In turn, this helps them to increase their revenues and improve operational efficiency.

 

Following its acquisition in 2019, IDology has integrated well into the Group, contributing significantly to our strategy to enhance our product capability and to expand geographically. It also further demonstrates our ability to identify, acquire and integrate businesses that are complementary to our growth strategy and that will increase GBG's value.

 

We also welcomed Natalie Gammon to the Board in November 2019. She brings a wealth of relevant experience and we look forward to the input and insights she will bring.

 

At the half year, I indicated that The Information Commissioner's Office, the data industry regulator in the UK, had announced in November 2018 that it was conducting audits on a number of companies to understand the use of data in their services. We were included in this review and we are continuing to work with the Commissioner to continue to improve privacy compliance. We will keep the market informed of any material developments.

 

AGM and Dividend

In light of current and anticipated Covid-19 public health guidelines, GBG is asking shareholders to comply with certain unprecedented but urgent measures for this year's AGM. These measures, which follow current best practice, are being taken to safeguard the safety and well-being of shareholders and other participants and to make the AGM as safe as possible.

 

As the UK Government has imposed measures restricting public gatherings, anyone seeking to attend the meeting in person (beyond the two persons designated by the Board as being necessary to form a quorum) will be refused entry to the AGM. Shareholders wishing to vote on any of the matters of business at the AGM are strongly encouraged to submit their votes in advance by proxy. Further details and instructions will be detailed in the AGM notice issued to shareholders. 

 

As indicated in our April 2020 trading and Covid-19 update, the Board does not intend to declare a final dividend in respect of financial year 2020. We have already taken steps to reduce costs and preserve liquidity, including a Group-wide pay freeze, halting all-but-essential recruitment and deferring Executive Directors' bonuses. This extra prudent step will help to both preserve short-term liquidity and provide GBG with additional financial flexibility to support and invest as we come out of the pandemic.

 

The year overall and outlook

FY2020 has been another successful year in terms of delivering on our strategic priorities and further growth of the Group. Whilst we are pleased at how GBG has responded to the immediate challenges presented by Covid-19, it still remains unclear how it will affect GBG in the coming months as each customer, sector and geography are impacted in different ways. However, consumers are carrying out more transactions online and organisations are responding to this by accelerating their plans to offer seamless, quick and secure digital services. These are healthy indications that we could see an increasing demand for our services in the medium-term. We look forward to playing our part in supporting businesses as economies recover from the effects of the pandemic. 

 

We remain confident in the longer-term prospects of the Group, thanks to a combination of a well-established growth strategy, a strong balance sheet, significant market opportunity, diversified sectors and customer base and world-class products.

 

On behalf of the Board, I would like to thank Chris Clark, his Executive Team and all of our team members for their hard work in achieving the result for 2020. I am very grateful for their commitment and dedication during this difficult time. I would also like thank our shareholders and customers for their continued support.

 

 

David Rasche

Chairman

 

1 These measures are defined within note 37 to the Annual Report

 

 

 

Chief Executive's Review

 

As you might imagine, our current focus and attention is on Covid-19. That said, I think it is important to acknowledge how strongly GBG performed in the year ending March 2020. We delivered record revenue and profit, ahead of market expectations, while also making strong progress against our key strategic objectives. This has strengthened GBG and gives us the confidence to face the challenges and embrace the opportunities ahead. Before addressing aspects of our performance, achievements and strategic progress in 2020, I will cover the actions we have taken in response to the Covid-19 pandemic.

 

Covid-19

The Covid-19 crisis had a limited financial impact on FY20, as it escalated towards the end of our financial year. As we said in our Covid-19 update in April 2020, our priorities have been to protect our team members and to support their health and well-being; to look after our customers; and to make our business secure, both financially and operationally. We took a number of swift actions, including:

 

· Achieving a smooth transition to full remote working for all of our global teams within a few days of local lockdowns being announced. Although our team members are already used to working from outside of the office, we have taken extra steps to enhance the way we engage with them and support them through the challenges of a sustained time in isolation.

 

· We took prudent and decisive action early in the process to preserve liquidity and reduce discretionary costs. This included an immediate Group-wide pay freeze, as well as pausing all non-essential recruitment. We are carefully assessing project spend and are restricting it to those areas critical to the long-term success of GBG. We have also deferred the payment of the accrued bonus for GBG's Executive Directors and we will not declare a final dividend in respect of the 2020 financial year.

 

· We formed a Covid Team in mid-March, drawn from the Group's senior management. The team met daily to assess the range of issues impacting GBG. They scoped and rapidly put in place a plan of action, assigning activities and responsibilities. The team continues to meet regularly each week to monitor progress and to consider whether to adapt and/or flex the plan of action in light of ongoing developments.

 

· Within the first week of being established, the Covid Team received daily statistics on usage volumes of all of our services together with updates on network service availability. This data has been provided throughout the period to identify trends and to support our activities.

 

· We have held a virtual Board meeting each week. The Board's regular agenda covers: team members; customers; financial health; operations; governance; and opportunities.

 

Although the impact of Covid-19 on GBG has not been as marked as with many other organisations, the full effect on the business is still unfolding. We are seeing different levels of impact depending on the customer vertical, product solution and geography.

 

In addition to the steps we have taken to reduce discretionary costs, we have been mindful also of our wider obligations to do the right thing to support our team members, customers and other stakeholders. We want to make sure that we are all well-placed to deal with whatever lies ahead as the world adapts to the impact of Covid-19. With that in mind, we will continue to invest in areas that support this longer-term objective. 

 

Overview

The strong financial performance in 2020 means GBG continues to have the capability and resources to make important investments across the Group to support further growth. We are committed to developing and launching additional world-class products, improving how we take these products to market and recruiting and developing the very best people. 

 

 

 

 

Market drivers

With over 30 years' market experience, as well as a suite of products that are truly innovative and global, we help our customers to benefit and succeed in the digital economy by interacting safely and securely with their consumers.

 

Our growth has been achieved by delivering innovative digital solutions to businesses around the world, helping them provide a frictionless customer experience, reduce online fraud and meet increasingly stringent compliance regulations. This is driven by:

 

  Continuing growth in e-commerce, particularly in mobile

  Increasing levels of fraud and data breaches

  A continued rise in the cost and complexity of local compliance requirements for a number of sectors we serve globally

  Consumers expecting simple, fast and safe online journeys

 

While it is too early to draw definitive conclusions on the impact of Covid-19, initial observations indicate that many of these drivers might well accelerate. For example, before Covid-19, many organisations had not yet fully digitalised their systems. Now, we are seeing customers speeding up the digitalisation of their offerings. We are helping them to address the opportunities and threats posed by the pandemic to make things easier, faster and more convenient for their customers and to protect and/or reinvent their business models. We are an essential partner on this journey, helping our customers establish trust in their digital operations.

 

Strategic focus areas

Our strategic focus is on expanding internationally through three complementary but, in most cases today, distinct solutions that underpin all our propositions: Location, Identity and Fraud. Each solution contributed to the strong performance in the period. We are pleased to see that revenues from our international operations continue to form a major part of our growth - up from 45% to 56% of our total business. 

 

In the current rapidly changing environment, our sector, product and geographical diversification lets us align our developments and resources with evolving customer demand and market trends. We continue to invest and strengthen the capabilities and skills of our teams to meet the growing needs of our customers around the world, especially as their own consumers are speeding up the pace at which they access services using mobile and online technologies. We are committed to supporting our customers as they develop their solutions to meet the demands being made of them, while also making sure that these developments are safe and secure, protecting their consumers from fraud and meeting regulatory requirements.

 

Corporate transactions

IDology has performed strongly. It has now met a key objective of the acquisition - to help us to secure our goal of providing leading identity data intelligence solutions globally by increasing the scope and coverage of one of our core propositions in North America, a key geography.

 

We are also making significant progress in our strategic objective to have a business of scale for all of our solution areas of Location, Identity and Fraud in our key regions.

 

Our financial position at the year-end, together with the steps we have taken to conserve our cash resources and protect access to debt financing, means that we continue to have the means and ability to consider acquisitions and investments when they arise. This gives us the option to increase the pace of our go to market initiatives and/or broaden our geographic reach and product capabilities.

 

Scale through technology

This year, under the stewardship of a new global technology leadership team, we have significantly advanced the technology and cyber defences underpinning our customer propositions and operations. We made it a strategic priority to shift to a globally capable, cloud-based operational model. We have begun to realise key platform capabilities that will deliver the scale, agility and compliance requirements demanded by our international customer base.

 

 

 

Growth: new business and international expansion

We have seen a good performance across all of our solution areas and geographies in terms of: winning new logos; additional business from existing customers; and customer retention. This includes:

 

· Location solution: Loqate secured a number of new customers in the year across Europe and USA. This included Adidas and Wish, together with John Lewis Partnership and GNC, which we secured in the first half of FY20. In addition, it secured a five-year contract with IBM towards year-end that both extended and expanded our existing relationship, worth a minimum of $13.5million.

 

· Identity solution: new business wins supported double-digit growth across all our main geographies. This included a deal with Rank Group in the UK to install our technology across their UK casino estate. Other new business wins in the year include PayPal, Adyen and Sky in addition to William Hill Group, announced at the half year.

 

· Fraud solution: in addition to building on our successes in the Asia Pacific region, we also saw encouraging growth in the year in EMEA. This was supported by new agreements in the second half of the year with First Abu Dhabi Bank and Volkswagen Payments S.A., along with an extension of our relationship with Arval, a subsidiary of BNP Paribas Fortis, to provide our Fraud solutions across another three European countries.

 

· Upsell and Cross-sell: we continue to see growth from existing customers increasing their use and number of services they take from GBG. Examples include Flexi Group in Australia now taking all our Identity and Fraud services in Australia and Domestic and General taking our Location and Identity services in the UK.

 

Team Members

Our global team now has over 1,000 people working in 16 countries. I want to thank each of them for their dedication and professionalism over the last 12 months and through the very recent period in particular. They have delivered against the key priorities we set and we have entered our new financial year in good shape as a result.

 

I was also very pleased that our employee engagement survey, completed in March 2020, recorded its best result. We saw an improvement on last year's high score and an even higher response rate. We continue to have more than 90% of the global team who would recommend GBG as a great place to work.

 

Current trading, guidance and outlook

Our operational performance in FY20, along with the recent actions we have taken to conserve cash, have helped place us in as optimal a position as we could hope, to withstand the impacts of the pandemic.

 

Given the global impact of Covid-19, we have been encouraged by some countercyclical opportunities. These have, to a certain extent, helped soften the impact of reduced underlying activity in some parts of our business in the first quarter of FY21 trading. Although it is still early in the pandemic, customer churn and levels of insolvency are at normal levels although we have started to see some customers taking more time to settle their invoices. There has been little impact on our suppliers. We have continued to win new business, although sales cycles are, understandably, lengthening.

 

It is not possible to predict how long the effects of the disruption caused by the pandemic will last.  While the Group has a high level of annual recurring licence revenue, which provides good visibility, the full impact on volume-based sales are harder to predict. This means we do not yet have sufficient visibility to provide guidance for the year ending 31 March 2021.

 

 

 

Despite what is happening to global economies, our drivers for growth remain the same and in some cases are more important as businesses have needed to adapt to new norms. We have confidence that the Group is well-positioned to face what might be ahead of us, thanks to a combination of our market-leading solutions, a diversified customer base and revenues not being reliant on a single customer or sector. Fundamentally, I believe that our long-term prospects in a post-Covid-19 environment remain as attractive as before.

 

 

 

Chris Clark

Chief Executive Officer

 

 

 

 

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 simply, safely and securely transact with their customers. Through the application of our proprietary technology, our vision is to be the leader in identity data intelligence, informing business decisions between people and organisations globally.

 

The performance of the Group is reported by segment, reflecting how we run the business and the economic characteristics of each segment.  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 2019. Going forward 'Fraud, Risk & Compliance' has been separated into two new segments - 'Identity' and 'Fraud'. The 'Location & Customer Intelligence' segment has been renamed as 'Location'.

 

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

 

Covid-19

Management has taken decisive action to reduce discretionary costs and preserve liquidity during the uncertainty during this period. These actions included an immediate Group-wide pay freeze and a pausing of all non-essential recruitment. Project spend is being carefully assessed and restricted to those areas critical to the long-term success of GBG. Executive Directors' bonus payments accrued for the year to 31 March 2020 have been deferred and as stated below, there will be no final dividend for 2020. An optional £10.0 million loan repayment that was planned for March 2020 was not made until May 2020 to ensure that the directors had been able to better assess the impact Covid-19 was likely to have on future cashflows.

 

Review of the Business

The Group uses adjusted figures as key performance indicators in addition to those reported under IFRS, as adopted by the European Union and IFRIC. Adjusted figures exclude certain non-operational or exceptional items, which is consistent with prior year treatments. Adjusted measures are marked as such when used and are explained in note 37. 

 

2020

2019

Change

Change

 

£'000

£'000

£'000

%

 

 

 

 

 

Revenue

199,101

143,504

55,597

38.7

Adjusted operating profit

47,945

32,031

15,914

49.7

Adjusted operating profit/revenue

24.1%

22.3%

1.8%

7.9

Share-based payments charge

(4,541)

(2,287)

(2,254)

98.6

Amortisation of acquired intangibles

(19,008)

(10,316)

(8,692)

84.3

Operating profit before exceptional items

24,396

19,428

4,968

25.6

Exceptional items

(1,552)

(4,003)

2,451

61.2

Operating profit

22,844

15,425

7,419

48.1

Net finance costs

(2,218)

(689)

(1,529)

221.9

Profit before tax

20,626

14,736

5,890

40.0

Total tax charge

(3,562)

(2,583)

(979)

37.9

Profit for the year

17,064

12,153

4,911

40.4

Dividend per share

Nil

2.99

n/a

n/a

Adjusted earnings

42,165

28,759

13,406

46.6

Basic weighted average number of shares ('000)

193,631

158,052

35,579

22.5

Basic earnings per share (pence)

8.8

7.7

1.1

14.3

Adjusted basic earnings per share (pence)

21.8

18.2

3.6

19.8

 

Following the significant acquisitions over the past couple of years, the focus during the current year was to ensure these acquisitions were successfully integrated into the Group, as well as continued investment in the existing businesses to drive sustainable organic growth. Both the newly acquired businesses delivered profitable growth during the year.

 

This period of integration has been successful and meant that when the Covid-19 outbreak occurred, the business as a whole was able to adapt quickly to minimise the impact on operations. The profitable growth and continued high cash generation during the year means that the Group's balance sheet and financing ability remain strong, underpinning the Group's ability to navigate successfully through the uncertainty caused by Covid-19.

 

Adjusted operating profit for the year increased by 49.7 per cent to £47.9 million, reflecting:

· Revenue growth of 38.7 per cent to £199.1 million. This increase included organic growth of 10.7 per cent on a constant currency basis (10.3 per cent on a reported basis).

· The adjusted operating profit margin increased from 22.3 per cent to 24.1 per cent, notwithstanding significant continued investment for growth made over the course of the year.

 

Adjusted EBITDA

Adjusted EBITDA was £51.7 million (2019: £34.1 million), consisting of adjusted operating profit of £47.9 million (2019: £32.0 million), depreciation (including right-of-use assets) of £3.6 million (2019: £1.5 million) and amortisation of purchased software and internally developed software of £0.2 million (2019: £0.5 million). Adjusted EBITDA has increased by £2.1 million due to the adoption of IFRS 16 as rent expenses previously within operating costs are now split between depreciation and interest and therefore not part of the EBITDA calculation.

 

Amortisation of Acquired Intangibles

The charge for the year of £19.0 million (2019: £10.3 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 full year impact of the acquisitions of VIX Verify and IDology in the prior year. As IDology, which is the largest acquisition the Group has made, completed towards the end of the prior year, this accounted for £9.0 million of the current year increase.

 

Exceptional Items

Exceptional costs of £1.6 million (2019: £4.0 million) were incurred by the Group in the year and have been detailed in note 7 to the accounts. The principal reason for the decrease compared to prior year is that £3.7 million was incurred on acquisition related costs last year, compared to less than £0.1 million in the current year. £0.9 million of the charge relates to an increase in contingent consideration in relation to IDology, as detailed in the tax section below.

 

Net Finance Costs

The Group has incurred net finance costs for the year of £2.2 million (2019: £0.7 million), the increase being interest on the new long-term loan which was taken out in February 2019. Also included within net finance costs is £0.2 million for interest on lease liabilities following the adoption of IFRS 16 in the year.

 

Taxation

The total tax charge of £3.6 million (2019: £2.6 million) includes £4.8 million of current tax payable on the Group's profits in the year (2019: £4.6 million). Included within the total tax charge is a credit of £0.8 million related to the increase in the deferred tax asset for pre-acquisition losses within IDology. The benefit of this asset is payable to the former shareholders of IDology and so there is a corresponding cost within exceptional items to reflect the increase in the contingent consideration liability.

 

 

 

Dividend

As communicated in the Pre-Close Trading Update on 22 April 2020, following the Covid-19 outbreak, the directors do not intend to declare a final dividend in respect of the 2020 financial year. This prudent step helps both preserve short term liquidity and also provides additional financial flexibility to support and invest in the business as we come out of the Covid-19 pandemic.

 

Earnings per Share

The earnings per share analysis in note 13 cover four measures:

· basic earnings per share (profit attributable to equity holders);

· diluted earnings per share (adjusting for the dilutive effect of share options);

· adjusted basic earnings per share (adjusted operating profit less net finance costs and tax); and

· 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 increased by 14.3 per cent from 7.7 pence to 8.8 pence reflecting the higher operating profit although offset by higher number of shares in issue. Adjusted earnings (adjusted operating profit less net finance costs and tax) was £42.2 million (2019: £28.8 million) resulting in a 19.8 per cent increase in adjusted basic earnings per share from 18.2 pence to 21.8 pence.

 

The basic weighted average number of shares at 31 March 2020 increased to 193.6 million (2019: 158.1 million), primarily due to the placing of 39.0 million shares to part fund the IDology acquisition in February 2019.

Cash Flows

Group operating activities before tax payments and exceptional items generated £49.3 million of cash and cash equivalents (2019: £31.6 million) representing Adjusted EBITDA to cash conversion ratio of 95.2 per cent (2019: 92.7 per cent). Operating cash flows continued to be strong and the Group continually monitors its measures of cash generation and collection, especially during the Covid-19 outbreak to assess the recoverability of receivables.

 

The cash generated from operations enabled debt repayments of £24.9 million to be made during the year, with leverage reducing to 0.68 from 1.94 in 2019. Further detailed analysis of this movement is included in the Consolidated Cash Flow Statement.

 

Post year-end a further loan repayment of £10.0 million has been made.

 

Acquisitions

As detailed in note 36, contingent consideration of £5.2 million in respect of the deferred tax losses in IDology was recognised as a measurement period adjustment. During the current year the liability increased by £0.8 million due to the CARES Act permitting the losses to be carried back to periods when the tax rate was higher. A further increase of £0.1 million to the liability was recognised due to movements in exchange rates.

 

A payment due in relation to the IDology acquisition, completed in February 2019, was made during the current financial year. This payment of £86,000 based on the final working capital position was included within the contingent consideration liability at 31 March 2019 at a value of £79,000. The variance was due to exchange rate fluctuations between the acquisition date and the final payment date.

 

Deferred Income

Deferred income at the end of the year increased by 4.9 per cent to £38.4 million (2019: £36.6 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 timing of invoicing for multi-year contracts within the Asia Pacific business meant that their deferred revenue balance decreased by 48%. Excluding Asia Pacific in both periods the deferred balance increased by 8.5 per cent.

 

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 determined by several factors, including seasonality, the compounding effects of renewals, invoice duration, invoice timing and new business linearity within a reporting period.

 

Treasury Policy and Financial Risk

The Group's treasury operation is managed within formally defined policies and reviewed by the Board. The Treasury Policy was updated during the year and this review also led to the establishment of a Treasury Committee. The Treasury Committee meets on a regular basis to review cash flow forecasts, covenant compliance, exposure to interest rate and foreign currency movements and make recommendations to the Board based on these reviews.

 

The Group finances its activities principally with cash, short-term deposits and borrowings but has the ability to draw down up to £47.5 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 27 to the accounts.

 

Approved by the Board on 30 June 2020.

 

 

 

Dave 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 ('KPIs') 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. Non-Statutory measures are defined within note 37.

 

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

 

Financial

· Revenue and Organic Revenue Growth at Constant Currency

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. Organic growth is measured on a constant currency basis to remove the impact of changes in exchange rates.

 

· Adjusted Operating Profit

This is used 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 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.

 

· Earnings per Share growth

This is calculated as the growth in year on year earnings per share on both an adjusted and unadjusted basis.

 

· Net Debt/Cash

This is calculated as cash and cash equivalent balances less outstanding external loans. Unamortised loan arrangement fees are netted against the loan balance in the financial statements but are excluded from the calculation of net cash/debt.

 

· Cash Conversion

This is calculated as cash generated from operations in the Consolidated Cash Flow Statement, adjusted to exclude cash payments for exceptional items, as a percentage of Adjusted EBITDA.

 

· Deferred Income

Deferred income, which is included in our Consolidated Balance Sheet within Trade and Other Payables, 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. This is measured twice a year through a group-wide employee survey conducted through an external provider

 

 

 

 

 

Performance against KPIs

A summary of the Group's progress in achieving its objectives, as measured against KPIs, is set out below. Non-Statutory measures are defined within note 37.

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended 31 March

 

 

 

 

2020

 

2019

 

 

 

 

 

 

 

 

 

 

 

Revenue Growth

 

 

 

38.7%

 

19.9%

 

 

Organic Revenue Growth at Constant Currency

 

 

 

10.7%

 

9.3%

 

 

Organic Revenue Growth

 

 

 

10.3%

 

8.7%

 

 

Fraud Organic Growth at Constant Currency

 

 

 

24.3%

 

15.8%

 

 

Identity Organic Growth at Constant Currency

 

 

 

11.5%

 

5.4%

 

 

Location Organic Growth at Constant Currency

 

 

 

6.8%

 

13.6%

 

 

 

 

 

 

 

 

 

 

 

Adjusted Operating Profit (£'000)

 

 

 

47,945

 

32,031

 

 

Adjusted Operating Profit %

 

 

 

24.1%

 

22.3%

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (£'000)

 

 

 

51,739

 

34,080

 

 

Adjusted EBITDA %

 

 

 

26.0%

 

23.7%

 

 

 

 

 

 

 

 

 

 

 

Earnings per Share - Basic

 

 

 

8.8p

 

7.7p

 

 

Earnings per Share - Adjusted Basic

 

 

 

21.8p

 

18.2p

 

 

 

 

 

 

 

 

 

 

 

Earnings per Share Growth - Basic

 

 

 

14.3%

 

8.5%

 

 

Earnings per Share Growth - Adjusted basic

 

 

 

19.8%

 

18.9%

 

 

 

 

 

 

 

 

 

 

 

Net (Debt)/Cash (£'000)

 

 

 

(35,001)

 

(66,252)

 

 

Cash Conversion %

 

 

 

95.2%

 

92.7%

 

 

 

 

 

 

 

 

 

 

 

Deferred Income (£'000)

 

 

 

38,414

 

36,637

 

 

 

 

 

 

 

 

 

 

 

International Revenue as a Percentage of Total Revenue

 

 

 

55.9%

 

44.7%

 

 

 

 

 

 

 

 

 

 

 

Employee Engagement

 

 

 

> 90%

 

> 90%

 

 

 

 

 

Consolidated Statement of Comprehensive Income

Year ended 31 March 2020

 

 

 

 

 

 

 

Note

2020

 

2019

 

 

£'000

 

£'000

 

 

 

 

 

 

 

 

 

 

Revenue

3

199,101

 

143,504

 

 

 

 

 

Cost of sales

 

(54,914)

 

(36,060)

 

 

 

 

 

 

 

 

 

 

Gross profit

 

144,187

 

107,444

 

 

 

 

 

Operating expenses before amortisation of acquired intangibles, equity-settled share-based payments and exceptional items

 

(96,242)

 

(75,413)

 

 

 

 

 

Operating profit before amortisation of acquired intangibles, equity-settled share-based payments and exceptional items (adjusted operating profit)

 

47,945

 

32,031

 

 

 

 

 

Amortisation of acquired intangibles

16

(19,008)

 

(10,316)

 

 

 

 

 

Equity-settled share-based payments charge

29

(4,541)

 

(2,287)

 

 

 

 

 

Exceptional items

7

(1,552)

 

(4,003)

 

 

 

 

 

 

 

 

 

 

Group operating profit

 

22,844

 

15,425

 

 

 

 

 

Finance revenue

3, 9

143

 

31

 

 

 

 

 

Finance costs

10

(2,361)

 

(720)

 

 

 

 

 

Profit before tax

 

20,626

 

14,736

 

 

 

 

 

Income tax charge

11

(3,562)

 

(2,583)

 

 

 

 

 

Profit for the year attributable to equity holders of the parent

 

17,064

 

12,153

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Exchange differences on retranslation of foreign operations (net of tax)1

 

6,756

 

(3,702)

 

 

 

 

 

Total comprehensive income for the year attributable to equity holders of the parent

 

23,820

 

8,451

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

13

 

 

 

  - basic earnings per share for the year

 

8.8p

 

7.7p

 

 

 

 

 

  - diluted earnings per share for the year

 

8.7p

 

7.6p

 

 

 

 

 

  - adjusted basic earnings per share for the year

 

21.8p

 

18.2p

 

 

 

 

 

  - adjusted diluted earnings per share for the year

 

21.4p

 

17.9p

 

 

 

 

 

 

 

 

 

 

1 Upon disposal of a foreign operation, the element associated to the disposed foreign operation will be recycled to the Income Statement

 

 

 

 

 

Consolidated Statement of Changes in Equity

Year ended 31 March 2020

 

 

 

 

 

Note

 

Equity

share

capital

 

Share premium

 

 

 

Merger reserve

 

 

Capital redemption reserve

 

Foreign currency translation reserve

 

 

 

Retained earnings

 

 

 

 

Total

equity

 

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

 

 

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 April 2018

 

3,817

 

104,814

 

6,575

 

3

 

891

 

40,594

 

 

156,694

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

-

 

-

 

-

 

-

 

-

 

12,153

 

 

12,153

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

-

 

-

 

-

 

-

 

(3,702)

 

-

 

 

(3,702)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

-

 

-

 

-

 

-

 

(3,702)

 

12,153

 

 

8,451

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issue of share capital

21

1,004

 

159,609

 

-

 

-

 

-

 

-

 

 

160,613

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share issue costs

21

-

 

(3,274)

 

-

 

-

 

-

 

-

 

 

(3,274)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based payments charge

29

-

 

-

 

-

 

-

 

-

 

2,287

 

 

2,287

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax on share options

 

-

 

-

 

-

 

-

 

-

 

738

 

 

738

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity dividend

12

-

 

-

 

-

 

-

 

-

 

(4,049)

 

 

(4,049)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 March 2019 (as reported)

 

4,821

 

261,149

 

6,575

 

3

 

(2,811)

 

  51,723

 

 

321,460

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impact of measurement period adjustments

2.3

-

 

-

 

-

 

-

 

8

 

-

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 March 2019 (as restated prior to IFRS 16 adoption)

 

4,821

 

261,149

 

6,575

 

3

 

(2,803)

 

51,723

 

 

321,468

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IFRS 16 transition adjustment

2.4

-

 

-

 

-

 

-

 

-

 

(446)

 

 

(446)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 March 2019 (after IFRS 16 adoption)

 

4,821

 

261,149

 

6,575

 

3

 

(2,803)

 

51,277

 

 

321,022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

-

 

-

 

-

 

-

 

-

 

17,064

 

 

17,064

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

-

 

-

 

-

 

-

 

6,756

 

-

 

 

6,756

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

-

 

-

 

-

 

-

 

6,756

 

17,064

 

 

23,820

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issue of share capital

21

34

 

499

 

-

 

-

 

-

 

-

 

 

533

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based payments charge

29

-

 

-

 

-

 

-

 

-

 

4,541

 

 

4,541

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax on share options

 

-

 

-

 

-

 

-

 

-

 

779

 

 

779

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity dividend

12

-

 

-

 

-

 

-

 

-

 

(5,761)

 

 

(5,761)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 March 2020

 

4,855

 

261,648

 

6,575

 

3

 

3,953

 

67,900

 

 

344,934

 

 

 

Company Statement of Changes in Equity

Year ended 31 March 2020

 

 

 

 

 

 

 

Note

Equity

share

capital

 

Share premium

 

 

Merger reserve

 

Capital redemption reserve

 

 

Other

reserves

 

 

Retained earnings

 

 

Total

equity

 

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 April 2018

 

3,817

 

104,814

 

6,575

 

3

 

4,543

 

38,737

 

158,489

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

-

 

-

 

-

 

-

 

-

 

7,275

 

7,275

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

-

 

-

 

-

 

-

 

-

 

7,275

 

7,275

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issue of share capital

21

1,004

 

159,609

 

-

 

-

 

-

 

-

 

160,613

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share issue costs

21

-

 

(3,274)

 

-

 

-

 

-

 

-

 

(3,274)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based payments charge

29

-

 

-

 

-

 

-

 

-

 

2,287

 

2,287

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax on share options

 

-

 

-

 

-

 

-

 

-

 

738

 

738

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity dividend

12

-

 

-

 

-

 

-

 

-

 

(4,049)

 

(4,049)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 March 2019 (as reported)

 

4,821

 

261,149

 

6,575

 

3

 

4,543

 

44,988

 

322,079

 

IFRS 16 transition adjustment

2.4

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(253)

 

 

(253)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 March 2019 (after IFRS 16 adoption)

 

4,821

 

261,149

 

6,575

 

3

 

4,543

 

44,735

 

321,826

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

-

 

-

 

-

 

-

 

-

 

23,271

 

23,271

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

-

 

-

 

-

 

-

 

-

 

23,271

 

23,271

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issue of share capital

21

34

 

499

 

-

 

-

 

-

 

-

 

533

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hive-up adjustment

16

-

 

-

 

-

 

-

 

(54)

 

-

 

(54)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based payments charge

29

-

 

-

 

-

 

-

 

-

 

4,541

 

4,541

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax on share options

 

-

 

-

 

-

 

-

 

-

 

779

 

779

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity dividend

12

-

 

-

 

-

 

-

 

-

 

(5,761)

 

(5,761)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 March 2020

 

4,855

 

261,648

 

6,575

 

3

 

4,489

 

67,565

 

345,135

 

 

 

 

Consolidated Balance Sheet

As at 31 March 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restated 1

 

 

 

Note

 

2020

 

2019

 

 

 

 

 

£'000

 

£'000

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

Property, plant and equipment

Right-of-use assets

 

 

14

15

 

4,653

4,767

 

4,815

-

Intangible assets

 

 

16

 

414,505

 

425,646

Deferred tax asset

 

 

11

 

6,294

 

8,222

 

 

 

 

 

 

 

 

 

 

 

 

 

430,219

 

438,683

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Inventories

 

 

 

 

128

 

341

Trade and other receivables

 

 

19

 

66,554

 

54,992

Current tax

 

 

 

 

1,803

 

-

Cash and short-term deposits

 

 

20

 

27,499

 

21,189

 

 

 

 

 

 

 

 

 

 

 

 

 

95,984

 

76,522

 

 

 

 

 

 

 

 

Total assets

 

 

 

 

526,203

 

515,205

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity and liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital and reserves

 

 

 

 

 

 

 

Equity share capital

 

 

21

 

4,855

 

4,821

Share premium

 

 

21

 

261,648

 

261,149

Merger reserve

 

 

31

 

6,575

 

6,575

Capital redemption reserve

 

 

31

 

3

 

3

Foreign currency translation reserve

 

 

31

 

3,953

 

(2,803)

Retained earnings

 

 

31

 

67,900

 

51,723

 

 

 

 

 

 

 

 

Total equity attributable to equity holders of the parent

 

 

 

 

344,934

 

321,468

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

Loans

Lease liabilities

 

 

22

23

 

62,139

3,713

 

85,447

-

Provisions

 

 

25

 

1,016

 

528

Deferred revenue

 

 

 

 

787

 

1,184

Deferred tax liability

 

 

11

 

27,155

 

29,548

 

 

 

 

 

 

 

 

 

 

 

 

 

94,810

 

116,707

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Loans

 

 

22

 

-

 

1,441

Lease liabilities

 

 

23

 

2,012

 

-

Trade and other payables

 

 

24

 

40,641

 

33,508

Deferred revenue

 

 

 

 

37,627

 

35,453

Contingent consideration

 

 

36

 

6,179

 

5,287

Current tax

 

 

 

 

-

 

1,341

 

 

 

 

 

 

 

 

 

 

 

 

 

86,459

 

77,030

 

 

 

 

 

 

 

 

Total liabilities

 

 

 

 

181,269

 

193,737

 

 

 

 

 

 

 

 

Total equity and liabilities

 

 

 

 

526,203

 

515,205

 

Approved by the Board on 30 June 2020

 

C G Clark - Director

D J Wilson - Director

 

Registered in England number 2415211

 1Refer to note 2.3
 

 

Company Balance Sheet

As at 31 March 2020

 

 

 

 

 

 

 

 

Restated 1

 

 

 

Note

 

2020

 

2019

 

 

 

 

 

£'000

 

£'000

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

Property, plant and equipment

Right-of-use assets

 

 

14

15

 

3,447

2,098

 

3,803

-

Intangible assets

 

 

16

 

133,289

 

139,139

Investments

 

 

18

 

303,483

 

303,476

Deferred tax asset

 

 

11

 

3,867

 

3,094

 

 

 

 

 

 

 

 

 

 

 

 

 

446,184

 

449,512

Current assets

 

 

 

 

 

 

 

Inventories

 

 

 

 

124

 

338

Trade and other receivables

 

 

19

 

41,290

 

35,899

Current tax

 

 

 

 

1,212

 

-

Cash and short-term deposits

 

 

20

 

15,031

 

7,791

 

 

 

 

 

 

 

 

 

 

 

 

 

57,657

 

44,028

 

 

 

 

 

 

 

 

Total assets

 

 

 

 

503,841

 

493,540

 

 

 

 

 

 

 

 

Equity and liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital and reserves

 

 

 

 

 

 

 

Equity share capital

 

 

21

 

4,855

 

4,821

Share premium

 

 

21

 

261,648

 

261,149

Merger reserve

 

 

31

 

6,575

 

6,575

Capital redemption reserve

 

 

31

 

3

 

3

Other reserves

 

 

31

 

4,489

 

4,543

Retained earnings

 

 

31

 

67,565

 

44,988

 

 

 

 

 

 

 

 

Total equity attributable to equity holders of the parent

 

 

 

 

345,135

 

322,079

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

External loans

Intercompany loans

Lease liabilities

 

 

22

22

23

 

62,139

4,156

1,978

 

85,447

-

-

Deferred revenue

 

 

 

 

467

 

863

Provisions

 

 

25

 

843

 

395

Deferred tax

 

 

11

 

4,474

 

5,020

 

 

 

 

 

 

 

 

 

 

 

 

 

74,057

 

91,725

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Trade and other payables

 

 

24

 

47,747

 

46,464

Deferred revenue

 

 

 

 

30,019

 

27,193

Lease liabilities

 

 

23

 

704

 

-

Contingent consideration

 

 

36

 

6,179

 

5,287

Current tax

 

 

 

 

-

 

792

 

 

 

 

 

 

 

 

 

 

 

 

 

84,649

 

79,736

 

 

 

 

 

 

 

 

Total liabilities

 

 

 

 

158,706

 

171,461

 

 

 

 

 

 

 

 

Total equity and liabilities

 

 

 

 

503,841

 

493,540

 

During the year the Company made a profit of £23,271,000 (2019: £7,275,000).

 

Approved by the Board on 30 June 2020

 

C G Clark - Director

D J Wilson - Director

 

Registered in England number 2415211

1 Refer to note 2.3

 

Consolidated Cash Flow Statement

Year ended 31 March 2020

 

 

 

 

 

 

 

 

Note

 

2020

 

2019

 

 

 

£'000

 

£'000

 

 

 

 

 

 

Group profit before tax

 

 

20,626

 

14,736

 

 

 

 

 

 

Adjustments to reconcile Group profit before tax to net cash flows

 

 

 

 

 

 

 

 

 

 

 

Finance revenue

9

 

(143)

 

(31)

Finance costs

10

 

2,361

 

720

Depreciation of plant and equipment

14

 

1,760

 

1,544

Depreciation of right-of-use assets

15

 

1,850

 

-

Amortisation of intangible assets

16

 

19,192

 

10,821

Loss on disposal of plant and equipment and intangible assets

 

 

260

 

46

Fair value adjustment on contingent consideration 

36

 

971

 

-

Share-based payments

29

 

4,541

 

2,287

Increase/(decrease) in provisions

25

 

-

 

(25)

Decrease in inventories

 

 

213

 

58

Increase in trade and other receivables

 

 

(5,725)

 

(9,904)

Increase in trade and other payables

 

 

2,592

 

7,527

 

 

 

 

 

 

Cash generated from operations

 

 

48,498

 

27,779

Income tax paid

 

 

(6,386)

 

(2,930)

 

 

 

 

 

 

Net cash generated from operating activities

 

 

42,112

 

24,849

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from/(used in) investing activities

 

 

 

 

 

 

 

 

 

 

 

Acquisition of subsidiaries, net of cash acquired

36

 

(86)

 

(255,107)

Purchase of plant and equipment

14

 

(1,199)

 

(1,453)

Purchase of software

16

 

(140)

 

(172)

Proceeds from disposal of property, plant and equipment

 

 

5

 

6

Interest received

9

 

143

 

31

 

 

 

 

 

 

Net cash flows used in investing activities

 

 

(1,277)

 

(256,695)

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows (used in)/from financing activities

 

 

 

 

 

 

 

 

 

 

 

Finance costs paid

10

 

(1,911)

 

(720)

Proceeds from issue of shares

21

 

490

 

160,613

Share issue costs

21

 

-

 

(3,274)

Proceeds from new borrowings

22

 

-

 

110,447

Repayment of borrowings

Repayment of lease liabilities

22

23

 

(24,914)

(2,043)

 

(32,807)

-

Dividends paid to equity shareholders

12

 

(5,761)

 

(4,049)

 

 

 

 

 

 

Net cash flows (used in)/from financing activities

 

 

(34,139)

 

230,210

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

 

6,696

 

(1,636)

Effect of exchange rates on cash and cash equivalents

 

 

(386)

 

72

Cash and cash equivalents at the beginning of the period

 

 

21,189

 

22,753

 

 

 

 

 

 

Cash and cash equivalents at the end of the period

20

 

27,499

 

21,189

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company Cash Flow Statement

Year ended 31 March 2020

 

 

 

 

 

 

 

 

Note

 

2020

 

2019

 

 

 

£'000

 

£'000

 

 

 

 

 

 

Company profit before tax

 

 

24,659

 

9,078

 

 

 

 

 

 

Adjustments to reconcile Company profit before tax to net cash flows

 

 

 

 

 

 

 

 

 

 

 

Finance costs

 

 

2,200

 

642

Depreciation of plant and equipment

14

 

1,214

 

1,125

Depreciation of right-of-use assets

15

 

675

 

-

Amortisation of intangible assets

16

 

5,720

 

6,116

Loss on disposal of plant and equipment

 

 

256

 

47

Fair value adjustment on contingent consideration

36

 

971

 

-

Dividends received recognised within income statement

 

 

(16,604)

 

-

Share-based payments

29

 

4,271

 

2,287

Decrease in inventories

 

 

214

 

61

Decrease in provisions

25

 

-

 

(25)

Increase in trade and other receivables

 

 

(4,325)

 

(4,548)

Increase in trade and other payables

 

 

3,069

 

4,074

 

 

 

 

 

 

Cash generated from operations

 

 

22,320

 

18,857

Income tax paid

 

 

(3,678)

 

(1,674)

 

 

 

 

 

 

Net cash generated from operating activities

 

 

18,642

 

17,183

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows used in investing activities

 

 

 

 

 

 

 

 

 

 

 

Acquisition of subsidiary undertakings

36

 

(86)

 

(256,348)

Dividends received

 

 

16,604

 

2,464

Purchase of plant and equipment

14

 

(452)

 

(1,214)

Purchase of software

16

 

(140)

 

(167)

Proceeds from disposal of plant and equipment

 

 

3

 

-

 

 

 

 

 

 

Net cash flows from/(used in) investing activities

 

 

15,929

 

(255,265)

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows (used in)/from financing activities

 

 

 

 

 

 

 

 

 

 

 

Finance costs paid

 

 

(1,884)

 

(642)

Proceeds from issue of shares

21

 

490

 

160,613

Share issue costs

21

 

-

 

(3,274)

Proceeds from new borrowings

22

 

4,156

 

110,447

Repayment of borrowings

Repayment of lease liabilities

22

23

 

(23,500)

(832)

 

(32,000)

-

Dividends paid to equity shareholders

12

 

(5,761)

 

(4,049)

 

 

 

 

 

 

Net cash flows (used in)/from financing activities

 

 

(27,331)

 

231,095

 

 

 

 

 

 

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

 

7,240

 

(6,987)

Cash and cash equivalents at the beginning of the period

 

 

7,791

 

14,778

 

 

 

 

 

 

Cash and cash equivalents at the end of the period

20

 

15,031

 

7,791

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to the Accounts

 

1.  Corporate Information

GB Group plc ('the Company') and its subsidiaries (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 Business Model.

 

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 18.

 

These consolidated financial statements have been approved for issue by the Board of Directors on 30 June 2020.

 

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.

 

The financial information set out herein does not constitute the Company's statutory accounts for the years ended 31 March 2020 or 2019 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 2020. Statutory accounts for 2019 have been delivered to the Registrar of Companies, and those for 2020 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.

 

2.  Accounting Policies

 

2.1 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 2020 and the Group and Company have applied the same policies throughout the year.

 

2.2 Going Concern

The assessment of going concern relies heavily on the ability to forecast future cashflows over the going concern assessment period which covered through to 30 September 2021. Although GBG has a robust budgeting and forecasting process, the current economic uncertainty caused by the Covid-19 pandemic means that additional sensitivities and analysis have been applied to test the going concern assumption under a range of downside and stress test scenarios. The following steps have been undertaken to allow the Directors to conclude on the appropriateness of the going concern assumption:

 

a)  Understand what could cause GBG not to be a going concern

b)  Consider the current customer and sector position, liquidity status and availability of additional funding if required

c)  Board review and challenge the base case forecast produced by management including comparison against external data sources available and potential downside scenarios

d)  Perform reverse stress tests to assess under what circumstances going concern would become a risk - and assess the likelihood of whether they could occur

e)  Examine what mitigating actions would be taken in the event of these stress test scenarios

f)  Conclude upon the going concern assumption

 

a)  Understand what could cause GBG not to be a going concern

The potential scenarios which could lead to GBG not being a going concern are considered to be:

• Not having sufficient cash to meet our liabilities as they fall due and therefore not being able to provide services to our customers, pay our employees or meet financing obligations.

• A non-remedied breach of the financial covenants within the Group Revolving Credit Facility (RCF) agreement (detailed in note 22). Under the terms of the agreement this would lead to the outstanding balance becoming due for immediate repayment.  These covenants are:

Leverage - consolidated net borrowings (outstanding loans less current cash balance) as a multiple of adjusted consolidated EBITDA for the last 12 months, assessed quarterly in arrears, must not exceed 3.00:1.00

Interest cover - adjusted consolidated EBITDA as a multiple of consolidated net finance charges, for the last 12 months , assessed quarterly in arrears, must not fall below 4.00:1.00

 

b)  Consider the current customer and sector position, liquidity status and availability of additional funding if required

In assessing the impact of Covid-19 it is important to consider the rate of growth prior to the pandemic so that the percentage impact can be put in context. Organic growth at constant currency in the current year to 31 March 2020 was 10.7%, and was 11.5% in the year to 31 March 2019. Analyst consensus prior to Covid-19 showed expected organic growth in the year to 31 March 2021 of 10.9%.

 

GBG does not have a high customer concentration risk with no individual customer generating more than 2% of Group revenue. The Group's customers operate in a range of different sectors which reduces the risk of a downturn in any particular sector. The financial services sector accounts for the largest percentage of customers, particularly within the Fraud and Identity segments, and there has not been a downturn in demand for these services since the pandemic began.

 

 

2.  Accounting Policies continued

 

GBG does have exposure to customers in sectors that have had a more direct impact from Covid-19 such as Travel & Leisure, Employment Agencies & Training and Sporting Activities. However these sectors in total account for less than 6% of Group revenue and as noted above there are no single customers across the Group that are a material credit risk on their own.

 

As a global company GBG operates in different countries and therefore is less exposed if particular countries recover from Covid-19 at different rates or suffer second waves of the pandemic. The breakdown of our revenue by country is shown in note 4.

 

There are also macro dynamics supporting the increased use of GBG products and services, both in general and within the context of the Covid-19 pandemic, such as:

• continued compliance requirements globally

• the ongoing existence of fraud globally, with Covid-19 giving fraudsters new opportunities, leading to increased cyber security risks and therefore demand for GBG anti-fraud solutions

• continued digitisation and rise of online versus physical transactions in both consumer and business to business settings;

• speed and quality of customer onboarding being a key differentiator, which is enhanced through the use of GBG's software

GBG is not reliant upon any one supplier to provide critical services either to support the services we provide to our customers or to our internal infrastructure. For these critical services, such as the provision of data, contingency plans exist in the event of supplier failure to be able to move to an alternative supplier with minimal disruption to customers or the wider business.

 

Liquidity

 

 

31 March 2020

31 March 2019

Variance

 

 

£'000

£'000

£'000

 

 

 

 

 

Operating cashflow before tax and exceptional items (note 37)

 

49,279

31,582

17,697

Adjusted EBITDA (note 37) 

 

51,739

34,080

17,659

Cash conversion %

 

95.2%

92.7%

2.5%

 

 

 

 

 

Cash

 

27,499

21,189

6,310

Loans (excluding unamortised loan fees)

 

(62,500)

(87,441)

24,941

Net Debt

 

(35,001)

(66,252)

31,251

 

 

 

 

 

Leverage

 

0.68

1.94

1.26

 

 

At 31 March 2020 the net debt position of the Group was £35.0 million, a decrease of £31.3 million since 31 March 2019. On 26 May 2020 the Company repaid £10.0m of the outstanding revolving credit facility liability.  At 31 May 2020 the net debt position had improved to £20.5m.

 

During the year to 31 March 2020, GBG remained highly cash generative with an EBITDA to operating cash ratio of 95.2%.

 

The RCF has a maximum level of £110 million and therefore there is committed available headroom of £47.5 million which could be drawn down for working capital purposes if required. There are no mandatory debt repayments on the RCF required to be made until February 2022 when the agreement expires and the full outstanding balance is due. 

 

c)  Board review and challenge the base case forecast produced by management including comparison against external data sources available and potential downside scenarios

Uncertainty around the scale, timing and impact of the coronavirus pandemic means it is impossible to give meaningful guidance for profits in the year ahead. Management have used the internal and external information available in addition to their industry knowledge to produce the base case forecast.

This base case forecast focuses on the impact of a potential decline in revenue against the year to 31 March 2020, as this is the component of the income statement that management has the least control over. The decline in revenue would result in a decrease in cost of sales and therefore in order to keep generating cash the remaining gross margin needs to be sufficient to cover the overhead base.

 

Management notes that analyst forecasts published after the Covid-19 outbreak estimate a decline in GBG revenue of between 7.6% and 12.8% in the year to 31 March 2021 compared to the prior year, with the consensus position being a decline of 10.3% which would be £175 million on a constant currency basis. While this is what we assumed, this is not a forecast, just an assumption for going concern.

 

The overhead base is the component of the income statement management has most control over with the majority of being people related costs. The base case forecast takes account of the cash preservation measures already taken which include cancellation of the dividend, recruitment frozen for all but essential hires, group-wide pay freeze, deferral of Executive Director bonuses for the year to 31 March 2020 and savings in travel. These measures will save cash of approximately £22m in the year to 31 March 2021, with £15m of these being operating cost savings (all excluding the dividend). No further reductions in operating expenditure are factored into this base case forecast.

 

Although a number of external economic forecasts suggest a return to overall GDP growth by Spring 2021 across each of the key territories GBG operates in, for prudence it has been assumed that the revenue position in the base case forecast at 31 March 2021 will remain throughout the year to 31 March 2022 (i.e. that year will see flat revenue). This provides robustness in the forecast in the event of a significant second wave of the pandemic.

 

This base case forecast showed continued significant headroom in the covenant compliance tests and sufficient liquidity to maintain operations. The base case forecast model was then adjusted to reflect a range of possible downside scenarios across different sectors and geographies, and under each of these the covenant compliance and liquidity position did not result in any risk to going concern.

 

Relative to the base case forecast produced by management there have not been any adverse variances in the overall trading performance since the year-end.

2.  Accounting Policies continued

 

d)  Perform reverse stress tests to assess under what circumstances going concern would become a risk - and assess the likelihood of whether they could occur

The base case forecast model was then further adjusted to establish at what point a covenant breach would occur without further mitigating actions. A covenant breach would occur before the available cash resources of the Group are fully exhausted and therefore the focus of the reverse stress test was on covenant compliance. In making this assessment it was assumed that management had reduced operating expenses by 20% which is the level that is considered possible without causing significant disruption to business operations. These savings would primarily be linked to people costs, net of any related redundancy costs.

 

With a 20% operating expenses saving introduced in Q3 of FY21 it would take a revenue decline of 42% for a covenant breach to occur (33% without any operating expenses savings). This breach would be as at 30 June 2021 although even at this point it would only take a net debt improvement of £400,000 or

EBITDA increase of £130,000 to remedy this breach. With the assumption of revenue being flat during the year to 31 March 2022 the breach would be remedied by 30 September 2021.

 

Based on the current trading performance and through reference to external market data a decline of anywhere near 42% is considered by the Directors to be highly unlikely. If this became even a remote possibility then deeper cost cutting measures would be implemented well in advance of a covenant breach as well as consideration of a range of other mitigation actions detailed in the next section.

 

e)  Look at what mitigating actions could be taken in the event of these reverse stress test scenarios

In the very unlikely event of the reverse stress test case scenario above a breach of covenants would occur on 30 June 2021 unless further mitigation steps were taken. Detailed below are the principal steps that would be taken (prior to the breach taking place) to avoid such a breach occurring:

 

· Make deeper cuts to overheads, primarily within the sales function if the market opportunities had declined to this extent. It would only take a reduction of 0.1% of overheads (based on the 31 March 2020 level) to increase EBITDA to remedy a covenant breach of £130,000.

· Request a delay to UK Corporation Tax, Employment Tax or Sales Tax payments under the HMRC 'Time to Pay' scheme. This would be in addition to the deferral of VAT payments announced by the UK Government on 20 March 2020. This announcement has meant that VAT which would have been due by the Group between 20 March 2020 and 30 June 2020 is not due until 31 March 2021. In the year to 31 March 2020 Corporation Tax payments averaged £900,000 per quarter, Employment Tax payments (including employee taxes) were approximately £1.2 million per month and Sales Tax payments were £2.5 million per quarter.

· Draw down on the £30 million Accordion facility within the Group's banking agreement. This facility is subject to credit approval from the syndicate banks.

· Request a covenant waiver or covenant reset from our bank syndicate. Even under this stress test scenario the forecast is that the Group would only be in breach for one quarter (quarter ending 30 June 2021) before returning to covenant compliance the following quarter. The business would still be EBITDA positive at this point and the directors have a reasonable expectation of achieving a temporary covenant waiver from the banks if needed.

· Raise cash through an equity placing. Under its Articles of Association GBG has the right to raise cash through an equity placing up to 10% of its market valuation at the date of the placing. Even factoring in a discount being applied to the share price, on the basis that the level of extra cash needed to remedy a breach at 30 June 2021 would be £400,000, the Directors are confident that funding well in excess of this level could be raised.

· Disposal of part of the business.

 

f)  Conclude upon the going concern assumption

Following consideration of the base case forecast and reverse stress test scenario, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Therefore, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing the consolidated financial statements.

 

 

2.3 Prior Year Measurement Period Adjustment

 

Under IFRS 3 Business Combinations there is a measurement period of no longer than twelve months in which to finalise the valuation of the acquired assets and liabilities. During the measurement period, the acquirer shall retrospectively adjust the provisional amounts recognised at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognised as of that date. During the measurement period, the acquirer shall also recognise additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date and, if known, would have resulted in the recognition of those assets and liabilities as of that date.

 

In the year to 31 March 2019 GBG completed two acquisitions, the measurement periods for which ended during the year to 31 March 2020.

 

No further adjustments were identified to the provisional fair values in respect of the acquisition of VIX Verify Pty Limited.

 

In respect of the acquisition of IDology Inc. adjustments to the provisional fair values were made during the measurement period, as set out in note 35.

 

 

 

 

 

2.  Accounting Policies continued

The impact of the measurement period adjustments have been applied retrospectively, meaning that the results and financial position for the year to 31 March 2019 have been restated as follows:

 

 

Impact on the statement of financial position of the Group as at 1 April 2019:

 

 

As previously reported

Impact of measurement period adjustments

Including measurement period adjustments

 

 

£'000

£'000

£'000

Assets

 

 

 

 

Property, plant and equipment

 

4,815

-

4,815

Intangible assets

 

420,137

5,509

425,646

Investments

 

411

(411)

-

Deferred tax assets

 

8,222

-

8,222

Current assets

 

76,404

118

76,522

Total assets

 

509,989

5,216

515,205

 

 

 

 

 

Equity

 

 

 

 

Share capital and share premium

 

265,970

-

265,970

Other reserves

 

6,578

-

6,578

Foreign currency translation reserve

 

(2,811)

8

(2,803)

Retained earnings

 

51,723

-

51,723

Total equity

 

321,460

8

321,468

 

 

 

 

 

Liabilities

 

 

 

 

Interest-bearing loans and borrowings

 

86,888

-

86,888

Trade payables and other liabilities

 

70,145

-

70,145

Contingent consideration

 

79

5,208

5,287

Provisions

 

528

-

528

Current tax

 

1,341

-

1,341

Deferred tax

 

29,548

-

29,548

Total liabilities

 

188,529

5,208

193,737

 

 

Impact on the statement of financial position of the Company as at 1 April 2019:

 

 

 

As previously reported

Impact of measurement period adjustments

Including measurement period adjustments

 

 

£'000

£'000

£'000

Assets

 

 

 

 

Property, plant and equipment

 

3,803

-

3,803

Intangible assets

 

139,139

-

139,139

Investments

 

298,268

5,208

303,476

Deferred tax assets

 

3,094

-

3,094

Current assets

 

44,028

-

44,028

Total assets

 

  488,332

5,208

493,540

 

 

 

 

 

Equity

 

 

 

 

Share capital and share premium

 

265,970

-

265,970

Other reserves

 

11,121

-

11,121

Retained earnings

 

44,988

-

44,988

Total equity

 

322,079

-

322,079

 

 

 

 

 

Liabilities

 

 

 

 

Interest-bearing loans and borrowings

 

85,447

-

85,447

Trade payables and other liabilities

 

74,520

-

74,520

Contingent consideration

 

79

5,208

5,287

Provisions

 

395

-

395

Current tax

 

792

-

792

Deferred tax

 

5,020

-

5,020

Total liabilities

 

166,253

5,208

171,461

 

 

 

 

 

 

 

 

2.  Accounting Policies continued

 

2.4 Changes to accounting policies

The following new IFRS standards relevant to the Group and Company have been adopting in these financial statements:

 

(i)  IFRS 16 Leases: The Group and Company has adopted IFRS 16 'Leases' with a date of initial application of 1 April 2019. IFRS 16 'Leases' replaces IAS 17 'Leases', IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases- Incentives and SIC-27 Evaluating the substance of transactions involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosures of leases and requires lessees to account for most leases under a single on-balance sheet model.
 

The Group and Company has adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application of 1 April 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognised in retained earnings at the date of initial application. Comparatives are not restated under this method of adoption.  The lease liability is calculated at the present value of remaining future payments using the related incremental borrowing rates at 1 April 2019.  The right-of-use asset is calculated from the lease commencement date, as if IFRS 16 had always been applied using the incremental borrowing rates at 1 April 2019.  The Group and Company also elected to use transition expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application.  The Group and Company also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option ('short-term leases'), and lease contracts for which underlying asset is of low value ('low value assets').

The effect of adoption of IFRS 16 on the Group and Company is as follows:

 

Impact on the statement of financial position of the Group as at 1 April 2019:

 

 

As previously reported

Impact of adoption of IFRS 16

Including adoption of IFRS 16

 

 

£'000

£'000

£'000

Assets

 

 

 

 

Property, plant and equipment

 

4,815

-

4,815

Right-of-use assets 

 

-

5,166

5,166

Intangible assets

 

420,137

-

420,137

Investments

 

411

-

411

Deferred tax assets

 

8,222

326

8,548

Current assets

 

76,404

-

76,404

Total assets

 

509,989

5,492

515,481

 

 

 

 

 

Equity

 

 

 

 

Share capital and share premium

 

265,970

-

265,970

Other reserves

 

3,767

-

3,767

Retained earnings

 

51,723

(446)

51,277

Total equity

 

321,460

(446)

321,014

 

 

 

 

 

Liabilities

 

 

 

 

Interest-bearing loans and borrowings

 

86,888

-

86,888

Lease liabilities

 

-

6,076

6,076

Trade payables and other liabilities

 

70,224

(327)

69,897

Provisions

 

528

-

528

Current tax

 

1,341

-

1,341

Deferred tax

 

29,548

189

29,737

Total liabilities

 

188,529

5,938

194,467

 

 

The impact of IFRS 16 on adoption has changed since reported at September 2019 to incorporate a revised valuation of lease assets and liabilities due to an updated assessment on the valuation of lease incentives and dilapidations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.  Accounting Policies continued

 

Impact on the statement of financial position of the Company as at 1 April 2019:

 

 

As previously reported

Impact of adoption of IFRS 16

Including adoption of IFRS 16

 

 

£'000

£'000

£'000

Assets

 

 

 

 

Property, plant and equipment

 

3,803

-

3,803

Right-of-use assets 

 

-

2,773

2,773

Intangible assets

 

139,139

-

139,139

Investments

 

298,268

-

298,268

Deferred tax assets

 

3,094

60

3,154

Current assets

 

44,028

-

44,028

Total assets

 

  488,332

2,833

491,165

 

 

 

 

 

Equity

 

 

 

 

Share capital and share premium

 

265,970

-

265,970

Other reserves

 

11,121

-

11,121

Retained earnings

 

44,988

(253)

44,735

Total equity

 

322,079

(253)

321,826

 

 

 

 

 

Liabilities

 

 

 

 

Interest-bearing loans and borrowings

 

85,447

-

85,447

Lease liabilities

 

-

3,406

3,406

Trade payables and other liabilities

 

74,599

(320)

74,279

Provisions

 

395

-

395

Current tax

 

792

-

792

Deferred tax

 

5,020

-

5,020

Total liabilities

 

166,253

3,086

169,339

 

Summary of new accounting policies

Set out below are the new accounting policies of the Group, which are consistent with the Company, upon adoption of IFRS 16:

 

Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made on or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment.

 

Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees.

 

The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as expense in the period on which the event or condition that triggers the payment occurs.

 

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

 

Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value (i.e. below £5,000).  Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.

 

Significant judgement in determining the lease term of contracts with renewal options

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

 

 

 

 

 

 

 

 

2.  Accounting Policies continued

 

Amounts recognised in the statement of financial position and in the consolidated statement of comprehensive income

 

Set out below, are the carrying amounts of the Group's right-of-use assets and lease liabilities and the movements during the year:

 

 

Right-of-use assets

 

Lease liabilities

 

Property

 

Other equipment

 

Total

 

Total

 

£'000

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

 

As at 1 April 2019

5,150

 

16

 

5,166

 

6,076

Additions

1,837

 

-

 

1,837

 

1,878

Disposals

(115)

 

-

 

(115)

 

(299)

Depreciation expense

(1,840)

 

(10)

 

(1,850)

 

-

Interest expense

-

 

-

 

-

 

245

Payments

-

 

-

 

-

 

(2,043)

Foreign currency adjustment

(272)

 

1

 

(271)

 

(132)

As at 31 March 2020

4,760

 

7

 

4,767

 

5,725

 

The lease liabilities as at 1 April 2019 can be reconciled to the operating lease commitments as of 31 March 2019 as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group

 

Company

 

£'000

 

£'000

 

 

 

 

Operating lease commitments as at 31 March 2019

5,307

 

2,450

Less: discounting of future lease commitments

(361)

 

(149)

Discounted operating lease commitments at 1 April 2019

4,946

 

2,301

Less: Commitments relating to leases of low value assets

(6)

 

(1)

Add: Payments in optional extension periods not recognised as at 31 March 2019

1,136

 

1,106

Lease liabilities as at 1 April 2019

6,076

 

3,406

 

 

 

 

Weighted average incremental borrowing rate as at 1 April 2019

4.01%

 

3.47%

 


 

(ii)  IFRIC 23 ' Uncertainty over Income Tax Treatments':  the IASB issued IFRIC 23 'Uncertainty over Income Tax Treatments' which is effective for financial years beginning on or after 1 January 2019 and is intended to clarify when and how to apply the recognition and measurement requirements of IAS 12 'Income Taxes' when there is uncertainty over income tax treatments.

 

(iii)  Amendment to IFRS 9 'Prepayment Features with Negative Compensation': the amendments are intended to clarify how IFRS 9 'Financial Instruments' classifies particular prepayable financial assets. In addition, the amendment intended to clarify an aspect of accounting for modification of financial liabilities. The amendments are to be applied retrospectively for fiscal years beginning on or after 1 January 2019.

 

(iv)  Amendment to IAS 19 'Plan Amendment, Curtailment or Settlement': the amendments are intended to clarify the accounting treatment around plans in order to provide more relevant information for decision making. An entity applies the amendments to plan amendments, curtailments or settlements occurring on or after the beginning of the first annual reporting period that begins on or after 1 January 2019.

Apart from IFRS 16, none of these pronouncements has had any impact for amounts recognised in these financial statements. 

 

2.5 Significant accounting policies

 

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

 

 

2.  Accounting Policies continued

 

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 is recognised at fair value at the acquisition date.  Contingent consideration classified as a financial liability within the scope of IFRS 9 '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 a 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.

 

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.

 

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).

 

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.

2.  Accounting Policies continued

 

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.

 

Investment in Subsidiaries

Investments in subsidiaries are held at cost, less provision for impairment.

 

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.

 

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:

 

Software technology assets  - over 2 to 5 years

Brands and trademarks   - over 2 to 3 years

Non-compete agreements  - over 3 to 5 years

Customer relationships   - over 10 years

 

 

 

 

2.  Accounting Policies continued

 

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.

 

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.

 

Financial Assets

Initial recognition and measurement

Financial assets are classified at initial recognition and subsequently as measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.

 

The classification of financial assets at initial recognition depends on the financial asset's contractual cash flow characteristics and the Group's business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15.

 

In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are 'solely payments of principal and interest (SPPI)' on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.

 

The Group's business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.

 

Subsequent measurement

For purposes of subsequent measurement, financial assets are classified in four categories:

· Financial assets at amortised cost (debt instruments)

· Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments)

· Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)

· Financial assets at fair value through profit or loss

 

The Group only has financial assets falling into the first two categories above and as such has only included the policy for these two below.

 

Financial assets at amortised cost (debt instruments)

This category is the most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met:

 

• The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows

And

• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding

Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

 

The Group's financial assets at amortised cost includes trade receivables.

 

Financial assets designated at fair value through OCI (equity instruments)

Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 'Financial Instruments: Presentation' and are not held for trading. The classification is determined on an instrument-by-instrument basis.

 

Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement of profit or loss when the right of payment has been established, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.

 

The Group elected to classify irrevocably its non-listed equity investments under this category.

 

 

 

 

 

2.  Accounting Policies continued

 

Derecognition

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e. removed from the Group's consolidated statement of financial position) when:

 

• The rights to receive cash flows from the asset have expired

Or

• The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset

 

Impairment of financial assets

The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

 

ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

 

For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

 

The Group recognises loss allowances for expected credit losses (ECL) on financial assets measured at amortised cost. Loss allowances for trade receivables are always measured at an amount equal to lifetime ECL. ECL are a probability-weighted estimate of credit losses. An assessment of ECL is calculated using a provision matrix model to estimate the loss rates to be applied to each trade receivable category. ECL are discounted at the effective interest rate of the financial asset. Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.  The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery.

 

The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

 

In the current year an additional management overlay to the ECL calculation has been applied as detailed in note 27.

 

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 fair value and subsequently recorded at amortised cost using the EIR 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.

 

 

2.  Accounting Policies continued

 

Dilapidation provisions

A dilapidation provision is recognised when there is an obligation to restore property to its original state at the end of the leasehold period. The provision is estimated as the cost of restoration at the balance sheet date, with the corresponding entry recognised in property plant and equipment. Depreciation is charged in line with the remaining leasehold period.

 

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 stated net of value-added tax, rebates and discounts and after the elimination of intercompany transactions within the Group.  The Group operates a number of different businesses offering a range of products and services and accordingly applies a variety of methods for revenue recognition, based on the principles set out in IFRS 15.

 

Revenue is recognised to represent the transfer of promised services to customers in a way that reflects the consideration expected to be received in return. Consideration from contracts with customers is allocated to the performance obligations identified based on their standalone selling price and is recognised when those performance obligations are satisfied and the control of goods or services is transferred to the customer, either over time or at a point in time.

 

In determining the amount of revenue and profits to record, and related balance sheet items (such as contract assets, contract liabilities, accrued income and deferred income) to recognise in the period, management is required to form a number of judgements and assumptions. These may include an assessment of the costs the Group incurs to deliver the contractual commitments and whether such costs should be expensed as incurred or capitalised. These judgements are inherently subjective and may cover future events such as the achievement of contractual milestones.  Please see Judgements - Revenue Recognition below for further detail.

 

a)  Software licences

Revenue from software licences is recognised when control is considered to have passed to the customer. Control can pass either at a point in time or over time depending on the performance obligations under the contract as further described below.

 

Web-service hosted software solutions

The performance obligation is to provide the customer a right to access the software throughout the licence period for which revenue is recognised over the licence period.

 

On-premise installation or data disk - Location segment

The performance obligations can include the provision of a software licence, data sets, updates to those data sets during the licence period and support and maintenance. There are instances where customers are provided a data set to use with their own software rather than the Group's.

 

The Group's software has no standalone value to the customer without the data as there is nothing to apply the algorithms to. The data file cannot be accessed outside of the software so has no standalone value (unless under the circumstance where it has been licenced for use on the

customer's system). As a result, the software and the data are considered one performance obligation as the customer cannot benefit from one without the other.

 

Customers are given a right-to-use the software and data as it exists at the point in time the licence is granted, for which revenue is recognised at the point in time the customer can first use and benefit from it.

 

A proportion of the transaction price is allocated to the provision of data updates and support and maintenance, which are considered separate performance obligations. This is either based on the stand-alone selling price for those services or, where the Group does not have a history of stand-alone selling prices for a particular software licence, a cost plus mark-up approach is applied.

 

Data disk - Fraud segment

The performance obligations can include the licence to use specific data sets, updates to those data sets during the licence period and support and maintenance.

 

The performance obligations over the period of the licence are satisfied by the provision of disk files to the customer in the same format on a monthly basis to ensure that the customer has access to the most relevant information throughout the contract period. This meets the series guidance under IFRS 15 paragraph 22: "a promise to transfer to the customer a series of distinct goods or services that are substantially the same and that have the same pattern of transfer". Accordingly, the revenue for the full licence period is recognised over the contractual term.

 

b)  Transactional

A number of GBG SaaS solutions provide for the provision of transactional identity data intelligence services with customer paying only for the number of searches they perform. The performance obligation is to provide this identity check and revenue in respect of those solutions is recognised based on usage. Customers are either invoiced in arrears for searches performed or make a prepayment giving them the right to a specific number of searches.

 

Where customers make a prepayment, which entitles them to perform a specific number of transactions over an agreed contract period, once this period has expired any unused transactions are forfeited. Based on a review of historic forfeitures an estimate is made of the expected percentage of transactions that will remain unused over their contracted life. This percentage is applied such that revenue for expected forfeitures is recognised at in proportion to the pattern of transactions performed by the customer. 

 

 

 

 

 

2.  Accounting Policies continued

 

c)  Rendering of services

Revenue from the rendering of services is recognised over time 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 services consist of the delivery of support and maintenance on software licence agreements, it is generally considered to be a separate performance obligation and revenue is recognised on a straight-line basis over the term of the support period.

 

d)  Contract assets and contract liabilities

Costs to obtain a contract in the Group typically include sales commissions and under IFRS 15 certain costs such as these are deferred as Contract Assets and are amortised on a systematic basis consistent with the pattern of transfer of the goods or services to which the asset relates. As a practical expedient, these costs are expensed if the amortisation period to which they relate is one year or less.

 

Where the Group completes performance obligations under a contract with a customer in advance of invoicing the customer, the value of the accrued revenue is initially recognised as a contract asset.

 

Any contract assets are disclosed within the trade and other receivables in the Consolidated Balance Sheet.

 

Where the Group receives a short-term prepayment or advance of consideration prior to completion of performance obligations under a contract with a customer, the value of the advance consideration received is initially recognised as a contract liability in liabilities. Revenue is subsequently recognised as the performance obligations are completed over the period of the contract (i.e. as control is passed to the customer). Contract liabilities are presented in deferred income within trade and other payables in the Consolidated Balance Sheet.

 

e)  Principal versus agent

The Group has arrangements with some of its customers whereby it needs to determine if it acts as a principal or an agent as more than one party is involved in providing the goods and services to the customer.

 

The Group is an agent if its role is to arrange for another entity to provide the goods or services. Factors considered in making this assessment are most notably the discretion the Group has in establishing the price for the specified good or service, whether the Group has inventory risk and whether the Group is bears the responsibility for fulfilling the promise to deliver the service or good. Where the Group is acting as an agent revenue is recorded at a net amount reflecting the margin earned.

 

The Group acts as a principal if it controls a promised good or service before transferring that good or service to the customer. Where the Group is acting as a principal, revenue is recorded on a gross basis.

 

This assessment of control requires some judgement in particular in relation to certain service contracts. An example is the provision of certain employment screening services where the Group may be assessed to be agent or principal dependent upon the facts and circumstances of the arrangement and the nature of the services being delivered.

 

f)  Contract modifications

Although infrequent, contracts may be modified for changes in contract terms or requirements. These modifications and amendments to contracts are always undertaken via an agreed formal process. Contract modifications exist when the amendment either creates new or changes the existing enforceable rights and obligations. The effect of a contract modification on the transaction price and the Group's measure of progress for the performance obligation to which it relates, is recognised as an adjustment to revenue in one of the following ways:

a.  Prospectively as an additional separate contract;

b.  Prospectively as a termination of the existing contract and creation of a new contract;

c.  As part of the original contract using a cumulative catch up; or

d.  As a combination of b) and c).

 

For contracts for which the Group has decided there is a series of distinct goods and services that are substantially the same and have the same pattern of transfer where revenue is recognised over time, the modification will always be treated under either a) or b). However, d) may arise when a contract has a part termination and a modification of the remaining performance obligations.

 

The facts and circumstances of any contract modification are considered individually as the types of modifications will vary contract by contract and may result in different accounting outcomes.

 

g)  Interest income

Revenue is recognised as interest accrues using the effective interest rate 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.

 

h)  Presentation and disclosure requirements

The Group has disaggregated revenue recognised from contracts into contract type (Licences, Transaction and Services) as management believe this best depicts how the nature, amount, timing and uncertainty of the Group's revenue and cash flows are affected by economic factors. The Group has also disclosed information about the relationship between the disclosure of disaggregated revenue and revenue information disclosed for each reportable segment. Refer to note 4 for the disclosure on disaggregated revenue.

 

Operating Profit

Operating profit is profits after amortisation of acquired intangibles, equity-settled share-based payments and exceptional items but before finance revenue, finance costs and tax.

 

 

 

2.  Accounting Policies continued

 

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).

 

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.

 

Finance costs also include the amortisation of bank loan arrangement fees, interest on long-service award liabilities and interest on lease liabilities.

 

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

 

New Accounting Standards and Interpretations not applied

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 3

  Definition of a business - Amendments to IFRS 3

1 January 2020

IFRS 9 & 7 IAS 39

  Interest Rate Benchmark Reform - Amendments to IFRS 9, IAS 39 and IFRS 7

1 January 2020

IAS 1, IAS 8

  Definition of Material - Amendments to IAS 1, IAS 8

1 January 2020

2.  Accounting Policies continued

 

2.6 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, which have the most significant effect on the amounts recognised in the financial statements:

 

Estimates

 

Impairment of Goodwill

The Group tests annually whether goodwill has suffered any impairment in accordance with the accounting policy stated earlier in note 2.5.  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.  In making these estimates management have reflected the uncertainty due to Covid-19 by assessing the sensitivity of the assets to a wider range of changes in the key inputs to consider if an impairment would arise within these ranges.

 

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 17.

 

Impairment of Investments in Subsidiary Undertakings

The Group tests for impairment of investments where there are indicators that the carrying value exceeds the recoverable value.

 

In order to perform this assessment, management are required to make estimates regarding the timing and amount of future cash flows applicable to the subsidiary, 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.

 

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 29.

 

Provisions

The Group provides for the costs of restoring property to its original state at the end of the leasehold period on right-of-use assets. Management are required to estimate these costs using market information regarding the costs to restore at the balance sheet date.

 

Allowance for Impairment Losses on Credit Exposures

The Group apply the IFRS 9 simplified lifetime expected credit loss approach in calculating expected credit losses (ECL). Under this method ECL provisions are determined using a combination of historical experience and forward-looking information based on management judgement. The Covid-19 pandemic has introduced unprecedented economic uncertainty which increases the likelihood of a higher level of ECL, but there is no historical comparative evidence to draw upon to build the impact of this pandemic into the normal ECL model used.

 

The Group has responded by calculating an additional level of provision to overlay the normal ECL calculation. This overlay has been based on management estimates taking into account an analysis of trade receivables broken down into customer sectors, using internal and external forecasts to assess the sectors which are likely to see the biggest impact of the pandemic, and comparing cash receipts received post year-end for customers in these sectors against historical averages. The impact of the overlay is detailed in note 27.

 

Judgements

 

Revenue Recognition

For contracts with multiple components to be delivered, management may have to apply judgement to consider whether those promised goods and services are (i) distinct - to be accounted for as separate performance obligations; (ii) not distinct - to be combined with other promised goods or services until a bundle is identified that is distinct or (iii) part of a series of distinct goods and services that are substantially the same and have the same pattern of transfer to the customer.

 

At contract inception the total transaction price is determined, and the Group allocates this to the identified performance obligations in proportion to their relative stand-alone selling prices and recognises revenue when (or as) those performance obligations are satisfied. Because of the bespoke nature of some solutions, judgement is sometimes required to determine and estimate an appropriate standalone selling price.

 

 

 

 

 

2.  Accounting Policies continued

 

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 £15,084,000 (2019: £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 lower than the previous year due to the element related to IDology transferring to a current tax asset. The carrying value of the recognised deferred tax asset at 31 March 2020 was £6,294,000 (2019: £8,222,000) and the unrecognised deferred tax asset at 31 March 2020 was £5,123,000 (2019: £3,166,000).  Further details are contained in note 11.

 

3.  Revenue

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

 

 

 

 

 

2020

 

2019

 

£'000

 

£'000

 

 

 

 

Licence

71,543

 

75,002

Transactional

112,079

 

56,191

Services

15,479

 

12,311

Revenue

199,101

 

143,504

 

 

 

 

Finance revenue

143

 

31

Total revenue

199,244

 

143,535

 

Significant changes in contract balances

 

Contract assets predominantly relate to software licence services, where revenue recognition for on premise arrangements occurs as the solution is transferred to the customer, whereas the invoicing pattern is often annually over the contract period. Contract assets recognised during the year totalled £6.0m (2019: £3.1 m). The contract asset balance for work completed but not invoiced on satisfaction of a performance obligation, unwinds over the contract term. Contract assets are transferred to receivables when the right to consideration becomes unconditional, or conditional over the passage of time.

 

Revenue recognised in the year of £35.4m (2019: £28.3m) was included in the opening contract liability. Cash received in advance not recognised as revenue in the year was £30.4m (2019: £33.4m). 

 

 

 

4.  Segmental Information

 

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 2019. Going forward 'Fraud, Risk & Compliance' has been separated into two new segments - 'Identity' and 'Fraud'. The 'Location & Customer Intelligence' segment has been renamed as 'Location'.  Accordingly, the comparative segmental reporting has been represented.

 

The Group's operating segments are internally reported to the Group's Chief Executive Officer as three operating segments: Location, Identity and Fraud.  Included within 'Unallocated' is the revenue and profit of the marketing services business (previously within Location & Customer Intelligence), as well as group operating costs such as compliance, finance, legal, people team, information security, directors' remuneration and PLC costs.

 

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, equity-settled share-based payments, exceptional items, net finance costs and tax, as shown below. 

 

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

 

 

Fraud

 

Identity

 

Location

 

Unallocated

 

Total

Year ended 31 March 2020

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

Licence

33,563

 

7,135

 

30,845

 

-

 

71,543

Transactional

-

 

95,489

 

16,590

 

-

 

112,079

Services

1,943

 

2,784

 

2,356

 

8,396

 

15,479

Total revenue

35,506

 

105,408

 

49,791

 

8,396

 

199,101

Adjusted operating profit

13,444

 

33,626

 

14,552

 

(13,677)

 

47,945

Amortisation of acquired intangibles

(477)

 

(14,171)

 

(3,999)

 

(361)

 

(19,008)

Share-based payments charge

-

 

-

 

-

 

(4,541)

 

(4,541)

Exceptional items

-

 

-

 

-

 

(1,552)

 

(1,552)

Operating profit

12,967

 

19,455

 

10,553

 

(20,131)

 

22,844

Finance revenue

 

 

 

 

 

 

143

 

143

Finance costs

 

 

 

 

 

 

(2,361)

 

(2,361)

Income tax expense

 

 

 

 

 

 

(3,562)

 

(3,562)

Profit for the year

 

 

 

 

 

 

 

 

17,064

 

 

 

(Represented)

Fraud

 

(Represented)

 Identity

 

(Represented)

Location

 

(Represented)

Unallocated

 

(Represented)

Total

Year ended 31 March 2019

£'000

 

£'000

 

£'000

 

£'000

 

£'000

Licence

27,644

 

12,137

 

35,221

 

-

 

75,002

Transactional

-

 

45,459

 

10,732

 

-

 

56,191

Services

1,490

 

633

 

320

 

9,868

 

12,311

Total revenue

29,134

 

58,229

 

46,273

 

9,868

 

143,504

Adjusted operating profit

9,029

 

15,219

 

16,683

 

(8,900)

 

32,031

Amortisation of acquired intangibles

(792)

 

(4,372)

 

(4,662)

 

(490)

 

(10,316)

Share-based payments charge

-

 

-

 

-

 

(2,287)

 

(2,287)

Exceptional items

-

 

-

 

-

 

(4,003)

 

(4,003)

Operating profit

8,237

 

10,847

 

12,021

 

(15,680)

 

15,425

Finance revenue

 

 

 

 

 

 

31

 

31

Finance costs

 

 

 

 

 

 

(720)

 

(720)

Income tax expense

 

 

 

 

 

 

(2,583)

 

(2,583)

Profit for the period

 

 

 

 

 

 

 

 

12,153

 

 

Geographical information

 

Revenues from external customers

 

Non-current assets

 

 

 

 

 

 

 

Restated1

 

2020

 

2019

 

2020

 

2019

 

£'000

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

 

United Kingdom

87,814

 

79,368

 

126,945

 

138,157

United States of America

52,386

 

20,525

 

259,558

 

252,461

Australia

19,063

 

10,241

 

37,374

 

39,789

Others

39,838

 

33,370

 

48

 

54

 

199,101

 

143,504

 

423,925

 

430,461

1 Refer to note 2.3

 

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):

2020

 

2019

 

£'000

 

£'000

 

 

 

 

Research and development costs recognised as an operating expense

16,821

 

10,370

Other Technology related costs recognised as an operating expense

13,043

 

13,284

Total Technology related costs recognised as an operating expense

29,864

 

23,654

 

 

 

 

Depreciation of property, plant and equipment (note 14)

Depreciation of right-of-use assets (note 15)

1,760

  1,850

 

1,544

  -

Expense relating to short term leases

447

 

-

Expense relating to low value leases

5

 

-

Expected credit losses of trade receivables (note 27)

2,532

 

852

Amortisation of intangible assets (note 16)

19,192

 

10,821

Foreign exchange loss/(gain)

69

 

(35)

 

 

6.  Auditor's Remuneration

 

2020

 

2019

 

£'000

 

£'000

 

 

 

 

Audit of the financial statements 1

262

 

266

 

 

 

 

Other fees to auditor  -  other assurance services

72

 

25

  -  tax compliance services

-

 

2

  -  tax advisory services

10

 

21

 

344

 

314

1 £159,000 (2019: £136,000) of this relates to the Company.

 

 

 

 

 

7.  Exceptional Items

 

2020

 

2019

 

£'000

 

£'000

 

 

 

 

Acquisition related costs

26

 

3,747

Costs associated with team member reorganisations

555

 

256

Fair value adjustments to contingent consideration (note 36)

829

 

-

Foreign exchange movement on contingent consideration (note 36)

142

 

-

 

1,552

 

4,003

 

Acquisition related costs of £26,000 (2019: £3,747,000) include legal and professional advisor costs directly attributable to the transactions and exclude operating or integration costs relating to an acquired business. In the current year these costs related to final costs in relation to the acquisition of IDology Inc. in the prior year in addition to costs relating to potential acquisitions that were either aborted or are not complete at the date of these financial statements. Due to the size and nature of these costs, management consider that they would distort the Group's underlying business performance. In the prior year these costs included £449,000 in relation to VIX Verify and £2,391,000 in relation to IDology Inc.

 

Costs associated with team member reorganisations relate to exit costs of personnel leaving the business on an involuntary basis, either as a result of integrating acquisitions or due to reorganisations within our operating divisions. Due to the nature of these costs, management deem them to be exceptional in order to better reflect our underlying performance. Exit costs outside of these circumstances are treated as an operating expense.

 

As detailed in note 36, under the terms of the IDology Inc acquisition the sellers are entitled to the benefit of the tax losses of the business at the date of the acquisition as and when GBG utilises them to reduce cash tax payments. On acquisition GBG recognised a Deferred Tax Asset (DTA) in relation to these losses which were expected to be utilised in future years and so the valuation of the DTA was based on the prevailing federal tax rate of 21%. An equivalent contingent consideration liability reflects that the benefit of this DTA is due to the sellers.

 

On 27 March 2020 the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress and signed into law by President Trump. This Act includes the entitlement for tax losses to now be carried back for up to five years. As the tax rate in the United States in the period 2014-2018 was 35% the value of these losses has increased. GBG has recorded an increase in the value of the DTA related to this new law with the benefit recognised within the income tax charge in the income statement (the DTA was then reclassified to a current tax asset as a cash refund is now available). The increase in the liability to the sellers has been recognised as an exceptional item as it arose outside of the 12 month hindsight period permitted for adjustments to the acquisition accounting.

 

The contingent liability related to these tax losses is based on the US Dollar value of the losses. As a result the liability was retranslated at the balance sheet date with a loss of £142,000 being treated as an exceptional item.

 

The tax impact of the exceptional costs was £969,000 (2019: £77,000). The largest element of this is the increase in the deferred tax asset of £829,000 related to the IDology tax losses.

 

 

 

 

 

 

8.  Staff Costs and Directors' Emoluments

 

Group

 

Company

a) Staff Costs

2020

 

2019

 

2020

 

2019

 

£'000

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

 

Wages and salaries

55,320

 

45,935

 

33,000

 

31,392

Social security costs

6,590

 

5,318

 

4,469

 

4,352

Other pension costs

2,473

 

2,007

 

1,668

 

1,486

 

64,383

 

53,260

 

39,137

 

37,230

 

Included in wages and salaries is a total charge of share-based payments of £4,541,000 (2019: £2,287,000) 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

 

 

2020

 

2019

 

2020

 

2019

 

 

No.

 

No.

 

No.

 

No.

 

 

 

 

 

 

 

 

 

Technology

 

395

 

356

 

226

 

227

General and administration

 

120

 

108

 

97

 

42

Sales and marketing

 

507

 

420

 

364

 

388

 

 

1,022

 

884

 

687

 

657

 

 

b) Directors' Emoluments

2020

 

2019

 

£'000

 

£'000

 

 

 

 

Wages and salaries

1,513

 

1,438

Pension

74

 

72

Bonuses

1,449

 

1,318

 

3,036

 

2,828

 

 

 

 

Aggregate gains made by Directors on the exercise of options

5,936

 

2,467

 

 

 

 

The remuneration for the highest paid Director was as follows:

 

2020

 

2019

 

£'000

 

£'000

 

 

 

 

Wages and salaries

607

 

589

Bonus

723

 

608

 

1,330

 

1,197

 

 

 

 

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 £90,353 (2019: £84,000). The number of share options granted during the year for the highest paid Director was 206,136 (2019: 128,853) and the number of share options exercised during the year was 200,000 (2019: 200,000).

 

 

9.  Finance Revenue

 

2020

 

2019

 

 

£'000

 

£'000

Bank interest receivable

143

 

31

 

 

 

 

 

143

 

31

 

10.  Finance Costs

 

2020

 

2019

 

 

£'000

 

£'000

Bank interest payable

1,911

 

613

Interest on long service award

13

 

9

Amortisation of bank loan fees

192

 

98

Lease liability interest

245

 

-

 

 

 

 

 

2,361

 

720

 

 

 

 

 

 

11.  Taxation

   

a) Tax on Profit

 

 

 

 

The tax charge in the Consolidated Statement of Comprehensive Income for the year is as follows:

 

 

 

 

2020

 

2019

 

£'000

 

£'000

Current income tax

 

 

 

UK corporation tax on profit for the year

2,760

 

2,765

Amounts underprovided/(overprovided) in previous years

120

 

(292)

Foreign tax

1,903

 

2,158

 

4,783

 

4,631

Deferred tax

 

 

 

Origination and reversal of temporary differences

(2,625)

 

(1,868)

Amounts underprovided in previous years

876

 

26

Impact of change in tax rates

528

 

(206)

 

(1,221)

 

(2,048)

 

 

 

 

Tax charge in the Statement of Comprehensive Income

 

3,562

 

 

2,583

 

b) Reconciliation of the Total Tax Charge

 

 

 

 

 

 

 

 

 

The profit before tax multiplied by the standard rate of corporation tax in the UK would result in a tax charge as explained below:

 

 

 

 

 

 

2020

 

2019

 

 

£'000

 

£'000

 

 

 

 

 

 

Consolidated profit before tax

20,626

 

14,736

 

 

 

 

 

 

Consolidated profit before tax multiplied by the standard rate of corporation tax in

the UK of 19% (2019: 19%)

 

3,919

 

 

2,800

 

 

 

 

 

 

Effect of:

 

 

 

 

Permanent differences

347

 

1,094

 

Non-taxable income

(489)

 

(11)

Rate changes

(1,283)

 

(120)

 

Utilisation of losses

(14)

 

-

 

Prior year items

996

 

(266)

 

Research and development tax relief

(880)

 

(492)

 

Patent Box relief

(545)

 

(460)

 

Share option relief

9

 

(67)

Recognition of unrecognised deferred tax assets

-

 

(698)

 

Effect of higher taxes on overseas earnings

1,502

 

803

 

Total tax charge reported in the Statement of Comprehensive Income

 

3,562

 

 

2,583

 

 

The Group is entitled to current year tax relief of £811,398 (2019: £1,023,000), calculated at a tax rate of 19% (2019: 19%), in relation to the statutory deduction available on share options exercised in the year.

 

 

11.  Taxation (continued)

 

c) Deferred Tax - Group

Deferred Tax Asset

 

The recognised and unrecognised potential deferred tax asset of the Group is as follows:

  Recognised

 

Unrecognised

 

2020

 

2019

 

2020

 

2019

 

£'000

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

 

Decelerated capital allowances

 1,259

 

1,283

 

-

 

-

Share options

1,848

 

1,627

 

-

 

-

Long service award

233

 

234

 

-

 

-

Accrued bonuses

522

 

728

 

-

 

-

Provision for bad debt

368

 

205

 

-

 

-

Other temporary differences

1,420

 

497

 

-

 

-

Leases

429

 

-

 

-

 

-

Capital losses

-

 

-

 

429

 

384

Trading losses

215

 

3,648

 

2,866

 

2,782

 

 

 

 

 

 

 

 

 

6,294

 

8,222

 

3,295

 

3,166

 

The movement on the deferred tax asset of the Group is as follows:

 

2020

 

2019

 

£'000

 

£'000

 

 

 

 

Opening balance - as reported

8,222

 

4,453

IFRS 16 transition adjustment

326

 

-

Opening balance - restated

8,548

 

4,453

 

 

 

 

Acquired on acquisition

-

 

3,955

Foreign currency adjustments

11

 

(73)

Origination and reversal of temporary differences

(2,265)

 

24

Impact of change in tax rates

-

 

(137)

 

 

 

 

 

6,294

 

8,222

 

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 £15,084,000(2019: £16,367,000) and unrecognised capital losses of £2,257,000 (2019: £2,257,000).

 

Deferred Tax Liability

 

 

The deferred tax liability of the Group is as follows:

 

 

 

2020

 

2019

 

 

 

£'000

 

£'000

 

 

 

 

 

 

 

 

Intangible assets

26,553

 

29,378

 

 

Land and buildings

186

 

108

 

 

Leases

277

 

-

 

 

Accelerated capital allowances

139

 

62

 

 

 

 

 

 

 

 

 

27,155

 

29,548

 

 

The movement on the deferred tax liability of the Group is as follows:

 

 

 

 

2020

 

2019

 

 

 

£'000

 

£'000

 

 

 

 

 

 

 

 

Opening balance

29,548

 

8,260

 

 

IFRS 16 transition adjustment

189

 

-

 

 

Opening balance - restated

29,737

 

8,260

 

 

 

 

 

 

Acquisition of intangibles in subsidiaries

-

 

23,913

 

 

Foreign currency adjustments

713

 

(359)

 

 

Origination and reversal of temporary differences

(3,823)

 

(1,923)

 

 

Impact of change in tax rates

528

 

(343)

 

 

 

 

 

 

 

 

 

 

27,155

 

29,548

 

 

11.  Taxation (continued)

 

d) Deferred Tax - Company

Deferred Tax Asset

 

The recognised and unrecognised potential deferred tax asset of the Company is as follows:

 

 

  Recognised

 

Unrecognised

 

 

2020

 

2019

 

2020

 

2019

 

 

£'000

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

 

 

 

Decelerated capital allowances

1,259

 

1,283

 

-

 

-

 

Share options

1,839

 

1,627

 

-

 

-

 

Long service award

105

 

100

 

-

 

-

 

Provision for bad debt

308

 

84

 

-

 

-

 

Other temporary differences

310

 

-

 

-

 

-

 

Leases

46

 

-

 

-

 

-

 

Capital losses

-

 

-

 

429

 

384

 

Trading losses

-

 

-

 

2,866

 

2,782

 

 

 

 

 

 

 

 

 

 

 

3,867

 

3,094

 

3,295

 

3,166

 

              

 

The movement on the deferred tax asset of the Company is as follows:

 

2020

 

2019

 

£'000

 

£'000

 

 

 

 

Opening balance - as reported

3,094

 

3,404

IFRS 16 transition adjustment

59

 

-

Opening balance - restated

3,153

 

3,404

 

 

 

 

Origination and reversal of temporary differences

714

 

(310)

 

 

 

 

 

3,867

 

3,094

 

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 £15,084,000 (2019: £16,367,000) and unrecognised capital losses of £2,257,000 (2019: £2,257,000).

 

Deferred Tax Liability

 

The deferred tax liability of the Company is as follows:

 

2020

 

2019

 

£'000

 

£'000

 

 

 

 

Intangible assets

4,362

 

4,912

Land and buildings

112

 

108

 

 

 

 

 

4,474

 

5,020

 

The movement on the deferred tax liability of the Company is as follows:

 

 

2020

 

2019

 

£'000

 

£'000

 

 

 

 

Opening balance

5,020

 

6,319

Origination and reversal of temporary differences

(1,014)

 

(1,179)

Impact of change in tax rates

468

 

(120)

 

 

 

 

 

4,474

 

5,020

e) Tax Losses

The Group has carried forward trading losses at 31 March 2020 of £15,591,000 (2019: £30,561,000).  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 2020 of £2,257,000 (2019: £2,257,000), which should be available for offset against future capital gains of the Group to the extent that they arise.

 

f) Change in corporation tax rate

A reduction in the UK corporation tax rate to 17% (from 19%) with effect from 1 April 2020 was enacted in the Finance Act 2016.  The deferred tax assets and liabilities as at 31 March 2019 were based on this rate.

 

In the UK Budget on 11 March 2020 it was announced that the rate would remain at 19%, with this change substantively enacted on 17 March 2020. The deferred tax assets and liabilities at 31 March 2020 are therefore based on the 19% rate.

12.  Dividends Paid and Proposed

 

 

 

 

 

 

 

2020

£'000

 

2019

£'000

 

 

 

 

 

 

 

 

 

Declared and paid during the year

 

 

 

 

 

 

 

 

Final dividend for 2019 (paid in 2020): 2.99p (2018 (paid in 2019): 2.65p)

 

 

 

 

 

5,782

 

4,049

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proposed for approval at AGM (not recognised as a liability at 31 March)

 

 

 

 

 

 

Final dividend for 2020: 0p(2019: 2.99p)

 

 

 

 

 

-

 

5,766

 

 

 

 

 

 

 

 

 

£21,000 was received during the year relating to a refund for dividends not claimed from previous years. The total net cash impact of dividends during the year was therefore £5,761,000.

 

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.

 

 

2020

pence per

share

 

2020

£'000

 

2019

pence per

share

 

2019

£'000

 

 

 

 

 

 

 

 

 

Profit attributable to equity holders of the Company

 

8.8

 

17,064

 

7.7

 

12,153

 

 

 

 

 

 

 

 

 

 

Diluted

Diluted earnings per share is 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.

 

 

 

2020

 

2019

 

 

No.

 

No.

 

 

 

 

 

Basic weighted average number of shares in issue

 

193,630,621

 

158,051,687

Dilutive effect of share options

 

3,144,641

 

2,754,605

Diluted weighted average number of shares in issue

 

196,775,262

 

160,806,292

 

 

 

 

2020

pence per

share

 

2020

£'000

 

2019

pence per

share

 

2019

£'000

 

 

 

 

 

 

 

 

 

Profit attributable to equity holders of the Company

 

8.7

 

17,064

 

7.6

 

12,153

 

 

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.

 

 

 

 

2020

£'000

Basic

2020

pence per share

 

Diluted

2020

pence per

share

 

 

 

 

2019

£'000

Basic

2019

pence per share

 

Diluted

2019

pence per

share

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted operating profit

47,945

24.8

 

24.4

 

 

32,031

20.3

 

19.9

 

Less net finance costs

(2,218)

(1.1)

 

(1.1)

 

 

(689)

(0.4)

 

(0.4)

 

Less tax

(3,562)

(1.9)

 

(1.9)

 

 

(2,583)

(1.7)

 

(1.6)

 

Adjusted earnings

42,165

21.8

 

21.4

 

 

 

17.9

 

 

 

 

14.  Property, Plant and Equipment

 

Group

 

 

 

 

 

 

 

 

 

 

Land and buildings

 

Plant and equipment

 

 

Total

 

 

 

£'000

 

£'000

 

£'000

Cost

 

 

 

 

 

 

 

At 1 April 2018

 

 

1,251

 

6,943

 

8,194

Acquired on acquisition

 

 

-

 

231

 

231

Additions

 

 

-

 

1,453

 

1,453

Disposals

 

 

-

 

(51)

 

(51)

Foreign currency adjustment

 

 

-

 

(35)

 

(35)

At 31 March 2019

 

 

1,251

 

8,541

 

9,792

 

 

 

 

 

 

 

 

Additions

 

 

-

 

1,653

 

1,653

Disposals

 

 

-

 

(881)

 

(881)

Foreign currency adjustment

 

 

-

 

(94)

 

(94)

At 31 March 2020

 

 

1,251

 

9,219

 

10,470

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and impairment

 

 

 

 

 

 

 

At 1 April 2018

 

 

20

 

3,474

 

3,494

Provided during the year

 

 

22

 

1,522

 

1,544

Disposals

 

 

-

 

(46)

 

(46)

Foreign currency adjustment

 

 

-

 

(15)

 

(15)

At 31 March 2019

 

 

42

 

4,935

 

4,977

 

 

 

 

 

 

 

 

Provided during the year

 

 

19

 

  1,741

 

1,760

Disposals

 

 

-

 

(875)

 

(875)

Foreign currency adjustment

 

 

-

 

  (45)

 

(45)

At 31 March 2020

 

 

61

 

5,756

 

5,817

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

 

At 31 March 2020

 

 

1,190

 

3,463

 

4,653

At 31 March 2019

 

 

1,209

 

3,606

 

4,815

At 1 April 2018

 

 

1,231

 

3,469

 

4,700

 

 

 

Company

 

 

 

 

Land and buildings

 

 

Plant and equipment

 

 

 

Total

 

 

 

£'000

 

£'000

 

£'000

Cost

 

 

 

 

 

 

 

At 1 April 2018

 

 

1,233

 

4,927

 

6,160

Additions

 

 

-

 

1,214

 

1,214

Disposals

 

 

-

 

(2)

 

(2)

At 31 March 2019

 

 

1,233

 

6,139

 

7,372

 

 

 

 

 

 

 

 

Additions

 

 

-

 

858

 

858

Disposals

 

 

-

 

(872)

 

(872)

At 31 March 2020

 

 

1,233

 

6,125

 

7,358

 

 

 

 

 

 

 

 

Depreciation and impairment

 

 

 

 

 

 

 

At 1 April 2018

 

 

2

 

2,444

 

2,446