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GB Group PLC (GBG)

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Tuesday 27 November, 2018

GB Group PLC

Half-year Report

RNS Number : 5500I
GB Group PLC
27 November 2018
 

 

Embargoed until 7.00 a.m.

27 November 2018

GB GROUP PLC

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

 

HALF YEAR RESULTS FOR SIX MONTHS ENDED 30 SEPTEMBER 2018

 

International expansion and organic growth drive revenue. 

GBG on track to meet full-year expectations.

 

GB Group plc (AIM: GBG), the global identity data intelligence specialist, announces its unaudited results for the six months ended 30 September 2018.

 

Financial highlights


2018

2017

Reported Growth

Revenue

£57.3m

£52.6m

+9%

Adjusted operating profit

£8.8m

£10.4m

-16%

Operating profit

£2.7m

£3.8m

-28%

Adjusted basic earnings per share

5.3p

6.1p

-13%

Profit after tax

£2.0m

£2.4m

-17%

Deferred revenue

£28.0m

£23.7m

+18%

Net assets

£157.8m

£149.2m

+6%

Net cash††

£18.6m

£4.1m

+£14.5m

 

Underlying Revenue and Operating Profit*


2017 Underlying*

Total Underlying  Growth*

Underlying

2018 Organic

Revenue Growth*

 

 

Total Revenue

£50.3m

+14%

+11%

 

 

Adjusted operating profit

£8.1m

+8%


 



*As highlighted in the September 2017 half year results, organic revenue growth during that period included £3.5m from the sale of a material perpetual licence to a leading European bank which was fully delivered in September 2017. Had this particular transaction been a 3-year agreement on extended payment terms, payable in annual instalments (as is normal), then our revenue recognition policies would have only recognised one third of this value and resulted in an underlying organic growth rate for the period ended 30 September 2017 of approximately 12%.

 

Chris Clark, CEO, commented:

"We've made pleasing progress over the period, balancing good organic revenue growth across the business with strategic investments in our products, technology and people to maintain competitive advantage.

 

"This strategy is delivering positive results. Our key focus areas of Identity Verification, Location Intelligence and Fraud, Risk and Compliance have all performed well. The Location Intelligence business (now operating under the solution brand of Loqate) has made good strategic progress, with strong growth in North America during the period and will be the focus of a capital markets update next month.

 

"Looking at the big picture, with good customer gains in the faster-growth markets in Asia, the rich potential in the USA and steady progress in Europe, there's a lot to be pleased about. We're continuing to deliver on our strategy of growing the business both organically and through acquisitions and in October we acquired VIX Verify in Australia and New Zealand. We are on track to meet our full-year revenue and profit expectations."

 

Operational highlights and outlook

 

Good international progress



International revenues increased from 30% to 36% of our total business.

New client wins across our business lines including: Kohl's, Abercrombie & Fitch, Hugo Boss, Aldi, Credit Harmony, PT Bank and CMBC.

Continued recruitment of new business development people in key markets such as US, Germany and Asia.



Enhanced products & data offering

 

 



Invested in platforms and infrastructure, including API developments that improve customer experience.

Continued progress with our adoption of cloud services including the migration of Loqate and Connexus.

Improved document verification in IDScan with the launch of digital tampering and liveness detection, supported by forensic document experts.

An additional 7 data suppliers in Loqate as we continuously enhance our algorithms to improve address match rates for our customers.



Acquisitions



Acquisition of VIX Verify Global Pty Limited ("VIX Verify") in Australia and New Zealand for A$38.3 million in October 2018, adding scale and capability in strategic growth markets.



People



Achieved best-ever employee engagement scores, with 89% saying they would recommend GBG as a great place to work.

Senior appointments in the areas of product and development.

Growth in APAC, both organically and through the acquisition of VIX Verify, adds a further 100 team members in total.



Positive outlook



Full-year outcome for both revenue and profit expected to be in line with our expectations.



 

Notes:

† Adjusted operating profit means profits before amortisation of acquired intangibles, share-based payments, exceptional items, net finance costs and tax. This is a non-GAAP or Adjusted Performance Measure (APM) which is a KPI used both internally and by the majority of our stakeholders . See "Alternative Performance Measures" in the Interim Consolidated Financial Statements for further details.

 

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

 

‡  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.

 

- Ends -

 

 

 

 

 

 

 

 

 

For further information, please contact:

 

GBG

Chris Clark, CEO

Dave Wilson, CFO & COO

 

01244 657333

Peel Hunt LLP (Nominated Adviser and Broker)

Edward Knight

Nick Prowting

 

020 7418 8900

Headland Consultancy

Andy Rivett-Carnac

Chloe Francklin

 

020 3805 4822

 

 

Website

www.gbgplc.com/investors

 

 

Presentation and live webcast

 

A presentation for analysts and investors will be held at 9.00am today at 99 Bishopsgate, London, EC2M 3XD.

 

The presentation will be webcast live and on demand at the following website: https://www.investis-live.com/gb-group/5bf3dbe2b1ff7f12004fe121/gbnv

 

 

About GBG

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

 

Our products are built on an unparalleled breadth of data obtained from over 200 global partners. Our innovative technology leads the world in location intelligence, detects fraud and enables us to verify the identity of 4.4 billion people globally.

 

GBG is headquartered in the UK, with over 900  team members across 18 countries. We work with clients in 79 countries, including some of the best-known businesses around the world, ranging from US e-commerce giants to Asia's biggest banks and European household brands.

 

Find out more about how we help our clients establish trust with their customers at www.gbgplc.com, by following us on Twitter @gbgplc or visiting our newsroom: www.gbgplc.com/newsroom.

 

 



 

 

CHAIRMAN'S STATEMENT

 

In the first six months of the year GBG has continued to perform well.  We are delivering on our strategic objectives and making the investments that will help us grow further in the future. We are also increasing our brand recognition in the expanding global identity data intelligence market.  

 

Financial performance

 

Our trading in the first half of the year is in line with the pre-close trading update we issued in October.

 

Revenue grew by 9% year-on-year on a reported basis. At the underlying level, GBG's organic revenue growth was 11%. As mentioned in October's trading update, the organic revenue growth during the same period last year included £3.5m from the sale of a perpetual licence to a leading European bank. Normally these kind of transactions are fully-delivered over a three-year period, payable in annual instalments. If this had been the case for this particular transaction then our revenue recognition policy would have recognised only one third of the total amount. This means first half revenues for 2017 would have been £50.3 million (the basis for underlying growth) rather than the reported £52.6 million.

 

At the headline level, adjusted operating profits were £8.8 million (2017: £10.4 million). However, on an underlying basis, when compared to last year (2017 underlying: £8.1 million), this represents an increase of 8%.

 

Profits after tax were £2.0 million (2017: £2.4 million) after taking account of £6.1 million of costs associated with the amortisation of acquired intangibles, share-based payments and exceptional items (2017: £6.6 million). Of these costs, £5.0 million (2017: £5.7 million) were non-cash items.

 

Our balance sheet is strong. Revenue deferred to future periods is up by £4.3 million to £28.0 million and net assets increased to £157.8 million (2017 £149.2 million).

 

GBG continues to be cash generative and cash balances at 30 September 2018 were £27.5 million (2017: £17.9 million).  Group operating activities before tax payments generated £10.4 million of cash and cash equivalents (2017: £10.5 million) and an adjusted EBITDA to cash conversion ratio of 106 per cent (2017: 92 per cent).  Net cash balances were £18.6 million (2017: £4.1 million).

 

Achievements and strategic developments

 

We have continued to make significant progress developing our international product lines. Our customers are looking for innovative digital solutions to reduce online fraud and meet increasingly stringent compliance regulations. These themes present an important opportunity for us and we are putting them at the centre of our strategy and our execution.

 

During the first half of the year our Identity Verification services grew as customers such as  Coinbase, Stripe and Western Union increased their usage of our international data sets. We saw a shift to digital access from on-premise scanners in our document verification services, which we expect to continue and contribute to future deferred income balances.

 

Our international Fraud, Risk and Compliance products also maintained strong growth, particularly in Malaysia, Indonesia and China.  We will continue to adapt these products to improve our fraud detection services and address our customers' compliance needs.

 

Our Location Intelligence business, which was rebranded in the year as Loqate, has made progress and saw good growth in the first half of the year.  We have continued to win new business in Germany, including contracts with Hugo Boss, Canyon Bikes and Aldi.  We are also pleased to report several new business wins in the USA including Kohl's, Abercrombie & Fitch and Ralph Lauren. As a result, we will be expanding our US East Coast team.

 

We are seeing strong growth through our partnership with Canada Post which provides its AddressComplete solution to Canadian businesses by white-labelling GBG's leading address capture technology. This is in line with a broader focus on partners including IBM, Oracle, Pitney Bowes and Reltio.

 

Acquisitions

 

Shortly after the period end, GBG acquired VIX Verify, a market-leading provider of identity verification and location intelligence solutions to the Australian and New Zealand markets. VIX Verify has a high-quality customer base in sectors like Financial Services and Gaming, where GBG has complementary strengths and products. This acquisition gives us a stronger presence in Australia. The immediate focus will be on its domestic market, but there is the product range and capability to extend further into Asia.  

 

With synergies, we expect the transaction to be earnings accretive in the first 12 months of consolidated GBG ownership.

 

People

 

I'm pleased that we have achieved our highest ever employee engagement scores, with 89% of team members saying at the end of this first half year that they would recommend GBG as a great place to work. This reflects the people focus we outlined in our annual report, including training for people managers and improving our workplaces. 

 

Since the beginning of the financial year, we have recruited a number of new people to GBG with a particular focus on strengthening our product and development teams. In addition, we welcome 74 new people from VIX Verify, who will bring their talent and expertise to key areas of the business.

 

Outlook

 

We have made good strategic and operational progress in the first half of the year and we are building on that by keeping our focus on delivering growth both organically and through strategic acquisitions. We are pleased to see positive momentum thanks to a number of big customer wins. Our business is weighted to the second half of the year and the Board is confident that we will meet our full year expectations for both revenue and profit growth.

 



 

Interim Consolidated Statement of Comprehensive Income

For the six months ended 30 September 2018


 









Note


Unaudited

6 months to

30 September


Unaudited

6 months to

30 September



Audited

Year to

31 March




2018


2017



2018




£'000


£'000



£'000










Revenue

6


57,279


52,626



119,702










Cost of sales



(13,963)


(11,281)



(27,092)










Gross profit



43,316


41,345



92,610










Operating expenses before amortisation of acquired intangibles,

share-based payments and exceptional items



 

(34,534)


 

(30,917)



 

(66,299)



















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

6


8,782


10,428



26,311










Amortisation of acquired intangibles

11


(4,077)


(3,802)



(7,885)










Share-based payments

12


(964)


(1,101)



(2,375)










Exceptional items

5


(1,030)


(1,741)



(2,143)



















Group operating profit



2,711


3,784



13,908










Finance revenue



29


17



37

 









Finance costs



(216)


(289)



(545)










Profit before tax



2,524


3,512



13,400










Income tax expense

7


(499)


(1,077)



(2,746)










Profit for the period attributable to equity holders of the parent



2,025


2,435



10,654



















Other comprehensive income:


















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



968


(1,554)



(3,206)










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



 

2,993


 

881



 

7,448



















Earnings per share

 









     - adjusted basic earnings per share for the period

8


5.3p


6.1p



15.3p

     - adjusted diluted earnings per share for the period

8


5.2p


6.0p



15.0p

     - basic earnings per share for the period

8


1.3p


1.6p



7.1p

     - diluted earnings per share for the period

8


1.3p


1.6p



7.0p

 

* Upon a disposal of a foreign operation, this would be recycled to the Income Statement

 



 

Interim Consolidated Statement of Changes in Equity

For the six months ended 30 September 2018




 

Equity

share

capital


 

 

Merger reserve


 

Capital redemption reserve


Foreign currency translation reserve


 

 

Retained earnings



 

 

Total

equity




£'000


£'000


£'000


£'000


£'000



£'000


Note














Balance at 1 April 2017 (audited)



51,963


6,575


3


4,097


31,545



94,183
















Profit for the period



-


-


-


-


2,435



2,435
















Other comprehensive income









(1,554)


-



(1,554)
















Total comprehensive income for the period



-


-


-


(1,554)


2,435



881
















Issue of share capital

15


58,255


-


-


-


-



58,255
















Share issue costs

15


(1,739)


-


-


-


-



(1,739)
















Share-based payments

12


-


-


-


-


1,101



1,101
















Tax on share options



-


-


-


-


51



51
















Equity dividend

9


-


-


-


-


(3,582)



(3,582)
















Balance at 30 September 2017 (unaudited)



108,479


6,575


3


2,543


31,550



149,150

 















Profit for the period



-


-


-


-


8,219



8,219
















Other comprehensive income



-


-


-


(1,652)


-



(1,652)
















Total comprehensive income for the period



-


-


-


(1,652)


8,219



6,567
















Issue of share capital



153


-


-


-


-



153
















Share issue costs



(1)


-


-


-


-



(1)
















Share-based payments



-


-


-


-


1,274



1,274
















Tax on share options



-


-


-


-


609



609
















Balance at 1 April 2018 (audited)



108,631


6,575


3


891


41,652



157,752
















Profit for the period



-


-


-


-


2,025



2,025
















Other comprehensive income



-


-


-


968


-



968
















Total comprehensive income for the period



-


-


-


968


2,025



2,993
















Issue of share capital

15


446


-


-


-


-



446
















Share-based payments

12


-


-


-


-


964



964
















Tax on share options



-


-


-


-


(343)



(343)
















Equity dividend

9


-


-


-


-


(4,049)



(4,049)
















Balance at 30 September 2018 (unaudited)



109,077


6,575


3


1,859


40,249



157,763



 

Interim Consolidated Balance Sheet

As at 30 September 2018










Note


Unaudited

As at

30 September


Unaudited

As at

30 September


Audited

As at

31 March




2018


2017


2018




£'000


£'000


£'000









ASSETS
















Non-current assets
















Plant and equipment

10


4,434


4,216


4,700

Intangible assets

11


157,991


167,551


161,372

Deferred tax asset



3,930


4,190


4,212












166,355


175,957


170,284









Current assets
















Inventories



395


211


399

Trade and other receivables



31,470


28,951


37,969

Cash and short-term deposits



27,507


17,923


22,753












59,372


47,085


61,121









TOTAL ASSETS



225,727


223,042


231,405

















EQUITY AND LIABILITIES
















Capital and reserves
















Equity share capital

15


109,077


108,479


108,631

Merger reserve



6,575


6,575


6,575

Capital redemption reserve



3


3


3

Foreign currency translation reserve



1,859


2,543


891

Retained earnings



40,249


31,550


41,652









Total equity attributable to equity holders of the parent



157,763


149,150


157,752









Non-current liabilities
















Loans

13


8,065


12,974


8,451

Trade and other payables



372


-


-

Deferred tax liability



7,447


9,431


8,260




15,884


22,405


16,711

Current liabilities
















Loans

13


806


850


797

Trade and other payables



50,784


42,111


55,897

Contingent consideration

17


-


7,929


45

Provisions



25


25


25

Current tax



465


572


178












52,080


51,487


56,942









TOTAL LIABILITIES



67,964


73,892


73,653









TOTAL EQUITY AND LIABILITIES



225,727


223,042


231,405

 

Interim Consolidated Cash Flow Statement

For the six months ended 30 September 2018










Note


Unaudited

6 months to

30 September

2018


Unaudited

6 months to

30 September

2017


Audited

Year to

31 March

2018




£'000


£'000


£'000









Group profit before tax



2,524


3,512


13,400









Adjustments to reconcile Group profit before tax to net cash flows








Finance revenue



(29)


(17)


(37)

Finance costs



216


289


545

Depreciation of plant and equipment

10


771


635


1,430

Amortisation of intangible assets

11


4,318


4,200


8,832

Loss on disposal of plant and equipment



-


36


38

Loss on disposal of intangible assets



47


-


-

Adjustments to contingent consideration

5


-


807


383

Share-based payments

12


964


1,101


2,375

Decrease in provisions



-


(10)


(10)

Decrease/(increase) in inventories



4


22


(166)

Decrease/(increase) in receivables



6,664


3,663


(5,390)

(Decrease)/increase in payables



(5,081)


(3,725)


10,220








Cash generated from operations



10,398


10,513


31,620

Income tax paid



(1,092)


(611)


(3,247)









Net cash generated from operating activities



9,306


9,902


28,373









Cash flows from/(used in) investing activities
















Acquisition of subsidiaries, net of cash acquired

16


-


(62,903)


(70,363)

Purchase of plant and equipment

10


(520)


(588)


(1,902)

Purchase of software

11


(157)


(82)


(212)

Proceeds from disposal of plant and equipment



-


96


96

Finance revenue



29


17


37








Net cash flows used in investing activities



(648)


(63,460)


(72,344)

















Cash flows from/(used in) financing activities
















Finance costs paid



(216)


(289)


(545)

Proceeds from issue of shares

15


446


58,255


58,408

Share issue costs

15


-


(1,739)


(1,740)

Proceeds from new borrowings

13


-


10,000


10,000

Repayment of borrowings

13


(406)


(8,430)


(12,839)

Dividends paid to equity shareholders

9


(4,049)


(3,582)


(3,582)








Net cash flows (used in)/ from financing activities



(4,225)


54,215


49,702









 








Net increase in cash and cash equivalents



4,433


657


5,731

Effect of exchange rates on cash and cash equivalents



321


(352)


(596)









Cash and cash equivalents at the beginning of the period



22,753


17,618


17,618









Cash and cash equivalents at the end of the period



27,507


17,923


22,753









 

Notes to the Interim Report

 

1.  CORPORATE INFORMATION

 

The interim condensed consolidated financial statements of GB Group plc ('the Group') for the six months ended 30 September 2018 were authorised for issue in accordance with a resolution of the directors on 27 November 2018.  GB Group plc is a public limited company incorporated in the United Kingdom whose shares are publicly traded on the Alternative Investment Market (AIM) of the London Stock Exchange.

 

2.  BASIS OF PREPARATION AND ACCOUNTING POLICIES

 

Basis of Preparation

These interim condensed consolidated financial statements for the six months ended 30 September 2018 have been prepared in accordance with IAS 34 'Interim Financial Reporting'.  The annual financial statements of the company are prepared in accordance with IFRSs as adopted by the European Union.

 

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

 

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

 

The interim condensed consolidated financial statements do not constitute statutory financial statements as defined in section 435 of the Companies Act 2006 and therefore do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 March 2018.  The financial information for the preceding year is based on the statutory financial statements for the year ended 31 March 2018.  These financial statements, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies.  These financial statements did not require a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

 

Accounting Policies

Except where disclosed below, the accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 March 2018.

 

New standards, amendments and interpretations adopted by the Group

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 March 2018, except for the adoption of new standards effective for the Group from 1 April 2018.  The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

The Group applies, for the first time, IFRS 15 'Revenue from Contracts with Customers' and IFRS 9 'Financial Instruments' that require restatement of previous financial statements. As required by IAS 34, the nature and effect of these changes are disclosed below.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations and it applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards.  The new standard establishes a five-step model to account for revenue arising from contracts with customers.  Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

 

The principles in IFRS 15 must be applied using the following 5 step model:

1.     Identify the contract(s) with a customer

2.     Identify the performance obligations in the contract

3.     Determine the transaction price

4.     Allocate the transaction price to the performance obligations in the contract

5.     Recognise revenue when or as the entity satisfies its performance obligations

The standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers.  The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract.

 

 

Notes to the Interim Report

 

2.  BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued)

 

The Group adopted IFRS 15 using the modified retrospective method of adoption but there were no material adjustments required to the accounts.  The following summarises the Group's accounting policy for revenue based on the principles of IFRS 15 for the current reporting period onwards.  The Group's adoption of IFRS 15 did not have any material impact on the policies and practices that were in effect within the Group.

 

Revenue Recognition

Revenue is stated net of value-added tax, rebates and discounts and after the elimination of inter-company 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.

 

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.

 

(a) Software Licences (Annual or Perpetual)

Software licences are primarily accounted for as a single performance obligation, with revenue being recognised when delivery to the customer takes place.  Software licences are distinguished between on-premise software licences (where revenue is recognised at a point in time based on delivery) and  web-service hosted software solutions (where revenue is spread over the period that the service is available to the customer). The adoption of IFRS 15 did not have an impact on the timing of revenue recognition against the Group's previous treatment.

 

(b) Transactional

A number of GBG SaaS solutions provide for the provision of transactional identity data intelligence services.  Revenue in respect of those solutions is recognised in the period in which the service is provided.  The adoption of IFRS 15 did not have an impact on the timing of revenue recognition against the Group's previous treatment.

 

(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 consisted 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.  The adoption of IFRS 15 did not have an impact on the timing of revenue recognition against the Group's previous treatment.

 

(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.  Any contract assets are disclosed within the trade and other receivables in the Consolidated Balance Sheet.  This is consistent with the previous application of such costs by the Group and consequently IFRS 15 did not have a material impact on the recognition of contract assets.

 



 

Notes to the Interim Report

 

2.  BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued)

 

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 line with 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 acts as a principal if it controls a promised good or service before transferring that good or service 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.

 

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.

 

Where the Group is acting as a principal, revenue is recorded on a gross basis. Where the Group is acting as an agent revenue is recorded at a net amount reflecting the margin earned.

 

(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). 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 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

As required for the condensed interim financial statements, 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 6 for the disclosure on disaggregated revenue.

 

 

IFRS 9 Financial Instruments

The Group has adopted IFRS 9 'Financial Instruments' with a date of initial application of 1 April 2018. IFRS 9 'Financial Instruments' replaces IAS 39 and impacts upon the classification and measurement of financial instruments and will require certain additional disclosures. Management have confirmed that there are no changes as a result of adopting IFRS 9. The following areas were identified as the main items of interest to the Group:

 

 

Notes to the Interim Report

 

2.  BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued)

 

Credit losses

IFRS 9 replaced the existing incurred loss model with a forward looking expected credit loss model. The expected credit losses on these financial assets are estimated using a provision matrix based on the Group's historical credit loss experience, adjusted for management judgement concerning factors that are specific to the receivables, general economic conditions and assessment of the current as well as the forecast direction of conditions at the reporting date based on reasonable and supportable information that is available, without undue cost or effort to obtain. Due to the exemption in IFRS 9 there will be will no requirement to restate comparative periods in the year of initial application and as a consequence, any adjustments to the carrying amounts of financial assets or liabilities are to be recognised at 1 April 2018. The change from an incurred loss model under IAS 39 to an expected loss model has not had a material impact.

 

Modifications to financial liabilities

Under both IAS 39 and IFRS 9, when the terms of a financial liability are modified, for example, where the maturity date is extended, an entity must consider whether that modification is substantial or non-substantial. Under IAS 39, the Group did not recognise any gain or loss at the time of a non-substantial modification. However, under IFRS 9 it is a requirement to recognise a gain or loss at the time of the non-substantial modification. On transition to IFRS 9, this change in policy was applied retrospectively to all financial liabilities that were still recognised at the date of the initial application. Management have confirmed that the changes to the accounting for non-substantial modifications had no material impact upon the Group at transition to IFRS 9.

 

The following reflect the new accounting policy for financial assets for the current reporting period onwards.

 

Financial Assets

Recognition and initial measurement

Trade receivables, which generally have 14 to 60 day terms, are initially recognised when they originated and are carried at original invoice amount.

 

Classification and subsequent measurement

All financial assets are classified as either being measured subsequently at fair value or measured at amortised cost. The classification depends on the Group's business model for managing the financial assets and the contractual terms of the cash flows. All financial assets of the Group are classified as measured at amortised cost. Financial assets at amortised cost are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairments are recognised in profit or loss. Any gain or loss on de-recognition is recognised in profit or loss.

 

Impairment of financial assets

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.

 

New standards, amendments and interpretations not yet adopted by the Group

The following standards, amendments and interpretations were in issue, but were not yet effective at the balance sheet date. These standards have not been applied when preparing the interim consolidated financial statements for the period ended 30 September 2018.

 

International Accounting Standards (IAS/IFRS)

        Effective date

 

IFRS 16

 

Leases

 

1 January 2019

 

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

 

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

Notes to the Interim Report

 

2.  BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued)

 

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

 

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

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

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

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

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

 

 

Judgements and Estimates

Full details of significant accounting judgements, estimates and assumptions used in the application of the Group's accounting policies can be found in the Annual Report and Accounts for the year ended 31 March 2018. IFRS 15 and IFRS 9 have a number of areas of judgement that have been commented on within the accounting policies section and other than those, there have been no changes to the principles or assumptions in these critical accounting estimate and judgement areas during the period.

 

 

3.  CYCLICALITY

 

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

 

4.  RISKS AND UNCERTAINTIES

 

Management identifies and assesses risks to the business using an established control model.  The Group has a number of exposures which can be summarised as follows: regulatory risk resulting from regulatory developments; changes in the Group's competitive position; non-supply by a major supplier; disaster recovery, business continuity and cyber risk; new product development; and intellectual property risk.  These risks and uncertainties facing our business were reported in detail in the 2018 Annual Report and Accounts and all of them are monitored closely by the Group.

 

The outcome of the recent UK referendum has caused uncertainty in both the political and economic environments in which we operate. Although headquartered in the UK, GBG has an established presence internationally, which last year comprised approximately a third of our group revenues. We believe our global infrastructure will assist the Group in its response to the ultimate changes in trading arrangements between the UK and the EU. Our business model means that we are comparatively well-placed to manage the consequences of the result and of its effect on the economic environment. However, there is the potential for our costs to increase, for example, through any changes required to our systems to reflect new taxes; regulatory risk to increase as a result of any future divergence with the EU regime; and supplier disruption to occur as a result of challenges in suppliers' own organisations and supply chains. At this time, the outcome of Brexit negotiations and post-Brexit arrangements remains unclear and as such, like all companies, we continue to monitor the situation and manage the practical implications as they occur.

 

Notes to the Interim Report

 

5.  EXCEPTIONAL ITEMS

 



Unaudited

6 months to

30 Sept

2018


Unaudited

6 months to

30 Sept

2017


Audited Year to

31 March

2018



£'000


£'000


£'000








Adjustments to contingent consideration (note 17)


                 -


807


885

Acquisition related costs


898


735


750

Costs associated with staff reorganisations


132


199


508










1,030


1,741


2,143

 

 

Fair value adjustments to contingent consideration in the period to 30 September 2017 relate to the acquisition of IDscan and include £421,000 relating to a contingent purchase price adjustment along with a £386,000 charge relating to the partial unwinding of the discounting relating to the contingent consideration (note 17). This charge arises because contingent consideration due to be paid at a future date is discounted for the time value of money at the point of initial recognition and over the passage of time, this discount unwinds within the Consolidated Statement of Comprehensive Income. These are non-cash items.

 

Fair value adjustments to contingent consideration in the year to 31 March 2018 relate to the acquisition of IDscan and include £421,000 relating to a contingent purchase price adjustment along with a £457,000 charge relating to the partial unwinding of the discounting in relation to the contingent consideration (note 17). 

 

Acquisition related costs of £898,000 include, but are not limited to, those incurred in relation to the acquisition of Vix Verify Global Pty Ltd (note 19). In prior periods, transaction costs of £735,000 were incurred in relation to the acquisition of PCA (note 16). Such costs include those directly attributable to the transaction and exclude operating or integration costs relating to an acquired business, and due to the size and nature of these costs, management consider that they would distort the Group's underlying business performance.

 

Costs associated with staff reorganisations in both years primarily relate to exit costs of personnel leaving the business on an involuntary basis due to reorganisations within our operating divisions as a result of integrating acquisitions. Due to the nature of these costs, management deem them to be exceptional in order to better reflect our underlying performance.

 

 



 

Notes to the Interim Report

 

6.  SEGMENTAL INFORMATION

 

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

 

Segment results include items directly attributable to either Fraud, Risk & Compliance or Customer & Location Intelligence. Unallocated items for the six months to 30 September 2018 represent Group head office costs £1,101,000 (2017: £707,000), exceptional items £1,030,000 (2017: £1,741,000), Group finance income £29,000 (2017: £17,000), Group finance costs £216,000 (2017: £289,000), Group income tax expense £499,000 (2017: £1,077,000) and share-based payments £964,000 (2017: £1,101,000).  Unallocated items for the year ended 31 March 2018 represent Group head office costs £1,196,000, exceptional costs £2,143,000, Group finance income £37,000, Group finance costs £545,000, Group income tax expense £2,746,000 and share-based payments £2,375,000.

 


 

 

 

Fraud, Risk & Compliance


 

 

Customer & Location Intelligence


 

 

 

 

Unallocated


Total Unaudited

6 months to

30 September 2018

Six months ended 30 September 2018

 

£'000


£'000


£'000


£'000

Licence

14,247


13,446


-


27,693

Transactional

18,500


5,853


-


24,353

Services

890


4,343


-


5,233

Total revenue

33,637


23,642


-


57,279

Adjusted operating profit

5,591


4,292


(1,101)


8,782

Amortisation of acquired intangibles

(1,454)


(2,623)


-


(4,077)

Share-based payments

-


-


(964)


(964)

Exceptional items

-


-


(1,030)


(1,030)

Operating profit

4,137


1,669


(3,095)


2,711

Finance revenue





29


29

Finance costs





(216)


(216)

Income tax expense





(499)


(499)

Profit for the period







2,025

 

 

 


 

 

 

Fraud, Risk & Compliance


 

 

Customer & Location Intelligence


 

 

 

 

Unallocated


Total Unaudited

6 months to

30 September 2017

Six months ended 30 September 2017

 

£'000


£'000


£'000


£'000

Licence

15,927


11,855


-


27,782

Transactional

14,811


4,656


-


19,467

Services

1,317


4,060


-


5,377

Total revenue

32,055


20,571


-


52,626

Adjusted operating profit

7,693


3,442


(707)


10,428

Amortisation of acquired intangibles

(1,480)


(2,322)


-


(3,802)

Share-based payments

-


-


(1,101)


(1,101)

Exceptional items

-


-


(1,741)


(1,741)

Operating profit

6,213


1,120


(3,549)


3,784

Finance revenue





17


17

Finance costs





(289)


(289)

Income tax expense





(1,077)


(1,077)

Profit for the period







2,435

 



 

Notes to the Interim Report

 

6.  SEGMENTAL INFORMATION (continued)


 

 

 

Fraud, Risk & Compliance


 

 

Customer & Location Intelligence


 

 

 

 

Unallocated


 

Total

Audited

Year to 31 March 2018

Year ended 31 March 2018

 

£'000


£'000


£'000


£'000

Licence

34,884


29,259


-


64,143

Transactional

32,388


10,189


-


42,577

Services

2,495


10,487


-


12,982

Total revenue

69,767


49,935


-


119,702

Adjusted operating profit

16,049


11,458


(1,196)


26,311

Amortisation of acquired intangibles

(2,940)


(4,945)


-


(7,885)

Share-based payments

-


-


(2,375)


(2,375)

Exceptional items

-


-


(2,143)


(2,143)

Operating profit

13,109


6,513


(5,714)


13,908

Finance revenue





37


37

Finance costs





(545)


(545)

Income tax expense





(2,746)


(2,746)

Profit for the year







10,654

 

 

7.  TAXATION

 

The Group calculates the period income tax expense using a best estimate of the tax rate that would be applicable to the expected total earnings for the year ending 31 March 2019.

 

 

8.  EARNINGS PER ORDINARY SHARE

 

Basic

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

 



Unaudited

 6 months to 30 September 2018


Unaudited

 6 months to 30 September 2017


Audited

Year to

31 March 2018



Pence per

share


 

 

£'000


Pence per

share


 

 

£'000


Pence per

share


 

 

£'000














 

Profit attributable to equity holders of the company


 

1.3


 

2,025


 

1.6


 

2,435


 

7.1


 

10,654














 



 

Notes to the Interim Report

 

8.  EARNINGS PER ORDINARY SHARE (continued)

 

Diluted

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

 



30 Sept

2018


30 Sept

2017


31 March

2018



No.


No.


No.








 

Basic weighted average number of shares in issue


152,793,746


148,506,098


150,552,605

Dilutive effect of share options


3,368,711


2,781,683


2,704,644

Diluted weighted average number of shares in issue


156,162,457


151,287,781


153,257,249

 



Unaudited

 6 months to 30 September 2018


Unaudited

6 months to 30 September 2017


Audited

Year to

31 March 2018



Pence per

share


 

 

£'000


Pence per

Share


 

 

£'000


Pence per

share


 

 

£'000














 

Profit attributable to equity holders of the company


 

1.3


 

2,025


 

1.6


 

2,435


 

7.0


 

10,654














 

Adjusted

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

 



Unaudited

6 months to

 30 September 2018


Unaudited

6 months to

30 September 2017


Audited

Year to

31 March 2018

 



Basic

pence per

share


Diluted

pence per

share


 

 

 

£'000


Basic

pence per

share


Diluted

pence per

share


 

 

 

£'000


Basic

pence per

share


Diluted

pence per

share


 

 

 

£'000

 

Adjusted operating profit


 

5.7


 

5.6


 

8,782


 

7.0


 

6.9


 

10,428


 

17.5


 

17.2


 

26,311

Less net finance costs


(0.1)


(0.1)


(187)


(0.2)


(0.2)


(272)


(0.3)


(0.3)


(508)

Less tax


(0.3)


(0.3)


(499)


(0.7)


(0.7)


(1,077)


(1.9)


(1.9)


(2,746)

Adjusted earnings


5.3


5.2


8,096


6.1


6.0


9,079


15.3


15.0


23,057




















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



 

Notes to the Interim Report

 

 

9.  DIVIDENDS PAID AND PROPOSED

 



Unaudited

6 months

to 30 Sept

2018


Unaudited

6 months

to 30 Sept

2017


Audited Year to

31 March

2018



£'000


£'000


£'000

Declared and paid during the period







Final dividend for 2018: 2.65p per share (2017: 2.35p per share)


4,049


3,582


3,582








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







Final dividend for 2018: 2.65p per share


-


-


4,047

 

 

10.  PLANT AND EQUIPMENT

 

During the six months ended 30 September 2018, the Group acquired plant and equipment with a cost of £520,000 (2017: £588,000).

 

In the prior period, land and buildings with a fair value of £1,251,000, and plant and equipment with a fair value of £341,000, were acquired with the acquisition of PCA (note 16).

 

Depreciation provided during the six months ended 30 September 2018 was £771,000 (2017: £635,000).

 

Assets with a net book value of £nil were disposed of during the six months ended 30 September 2018 (2017: £132,000).



 

Notes to the Interim Report

 

11.  INTANGIBLE ASSETS

 

 

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

 

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

 

 



 

Notes to the Interim Report

 

12.  SHARE-BASED PAYMENTS

 

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

 

During the six months ended 30 September 2018, the following share options were granted to executive directors and staff.

 

 

Scheme

 

Date

 

No. of options


 

Exercise price


 

Fair value

Section B options

10 April 2018

100,000


409.0p


120.27p

Matching options

13 August 2018

376,395


2.5p


539.10p

 

The charge recognised from equity-settled share-based payments in respect of employee services received during the period was £964,000 (2017: £1,101,000).

 

13.  LOANS

 

In April 2014, the Group secured an Australian dollar three year term loan of AUS$10,000,000.  The debt bears an interest rate of +1.90% above the Australian Dollar bank bill interest swap rate ('BBSW'). During the year ending 31 March 2018, this term loan was extended from its original maturity of April 2017 to November 2019.  Security on the debt is provided by way of an all asset debenture. During the period, £406,000 (2017: £430,000) was repaid in relation to the Australian dollar term loan.

 

The Group has a three year revolving credit facility agreement expiring in November 2020 which is subject to a limit of £50,000,000. The facility bears an initial interest rate of LIBOR +1.50%. This interest rate is subject to an increase of 0.25% should the business exceed certain leverage conditions.

 



30 Sept

2018


30 Sept

2017


31 March

2018



£'000


£'000


£'000








Opening bank loan


9,248


12,385


12,385

New borrowings


-


10,000


10,000

Repayment of borrowings


(406)


(8,430)


(12,839)

Foreign currency translation adjustment


29


(131)


(298)

Closing bank loan


8,871


13,824


9,248








Analysed as:







Amounts falling due within 12 months


806


850


797

Amounts falling due after one year


8,065


12,974


8,451



8,871


13,824


9,248

 



 

Notes to the Interim Report

 

14.  RELATED PARTY TRANSACTIONS

 

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

 

 

Group


 

 

 

Sales to related parties


 

 

Purchases from related parties


 

Net amounts owed

by related parties

 



£'000


£'000


   £'000








Directors (see below):







  30 September 2018


-


-


-

  30 September 2017


-


-


-

  31 March 2018


-


-


-








Other related parties (see below):







  30 September 2018


-


-


-

  30 September 2017


-


-


-

  31 March 2018


6


-


-








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

 

Terms and conditions of transactions with related parties

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

 

Compensation of key management personnel (including directors)



Unaudited

6 months to

30 Sept

2018


Unaudited

6 months to

30 Sept

2017


Audited Year to

31 March

2018



£'000


£'000


£'000








Short-term employee benefits


721


753


2,944

Post-employment benefits


36


31


66

Fair value of share options awarded


-


1,980


2,983



757


2,764


5,993

 

 



 

Notes to the Interim Report

 

15.  EQUITY SHARE CAPITAL

 

During the period 444,844 (2017: 17,793,273) ordinary shares with a nominal value of 2.5p were issued for an aggregate cash consideration of £446,138 (2017: £58,255,000).  The cost associated with the issue of shares was £nil (2017: £1,739,000).

 



30 Sept

2018


30 Sept

2017


31 March

2018



£'000


£'000


£'000

Issued







Allotted, called up and fully paid


3,828


3,812


3,817

Share premium


105,249


104,667


104,814



109,077


108,479


108,631








16.  BUSINESS COMBINATIONS

 

Acquisitions in the Period Ended 30 September 2018

 

There were no acquisitions in the period to 30 September 2018.

 

Contingent consideration IDscan Biometrics

As part of the share sale and purchase agreement, a contingent consideration amount of up to £8,000,000 was agreed. This payment was subject to certain future revenue and EBITDA targets between 12 and 18 months from completion date. The obligation has been classed as a liability in accordance with the provisions of IAS 32. During the period, final settlement of £45,000 was made (note 17).

 

Acquisitions in the Period Ended 30 September 2017

 

Acquisition of Postcode Anywhere (Holdings) Limited

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



 

 

Notes to the Interim Report

 

16.  BUSINESS COMBINATIONS (continued)

 

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



Fair value recognised on acquisition

£'000

Assets



Technology intellectual property


5,733

Customer relationships


24,865

Non-compete agreements


369

Land and buildings


1,251

Plant and equipment


341

Deferred tax assets


440

Trade and other receivables


1,763

Cash


10,949

Trade and other payables


(9,280)

Deferred tax liabilities


(5,676)

Total identifiable net assets at fair value


30,755

Goodwill arising on acquisition


43,097

Total purchase consideration transferred


73,852




Purchase consideration:



Cash


73,852

Total purchase consideration


73,852




Analysis of cash flows on acquisition:



Transaction costs of the acquisition (included in cash flows from operating activities)


(735)




Net cash acquired with the subsidiary


10,949

Cash paid


(73,852)

Acquisition of subsidiaries, net of cash acquired (included in cash flows from investing activities)


(62,903)




Net cash outflow


(63,638)

 

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

 

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

 

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

 

From the date of acquisition during the period ending 30 September 2017, PCA has contributed £6,599,000 of revenue and operating profits of £2,388,000 to the Group.  If the combination had taken place at the beginning of the six month period, the Group revenue and adjusted operating profits would have been £53,995,000 and £10,446,000, respectively.

 



 

Notes to the Interim Report

 

 

17.  CONTINGENT CONSIDERATION

 

LIABILITIES

 

Unaudited

30 Sept

2018


Unaudited

30 Sept

2017


Audited

31 March

2018


£'000


£'000


£'000







Opening

45


7,122


7,122

Fair value adjustment to contingent consideration

-


421


421

Amount foreited by seller

-


-


(495)

Settlement of consideration

(45)


-


(7,460)

Unwinding of discount

-


386


457

Closing

-


7,929


45

 

Analysed as:







Amounts falling due within 12 months


-


7,929


45

Amounts falling due after one year


-


-


-



-


7,929


45

 

The closing balance at 30 September 2017 and at 31 March 2018 relates to provisions for contingent consideration for IDscan. During the year ending 31 March 2018 an amount of £495,000 was forefeited by the seller to allow payment to be made to employees of the acquired company. This amount has been accounted for within exceptional items.

 

In prior periods, the fair value of contingent consideration was estimated having been determined from management's estimates of the range of outcomes to certain future revenue and EBITDA forecasts for periods between 12 and 18 months from completion date and their estimated respective likelihoods. The contractual cash flows were therefore based on future trading activity, which is estimated based on latest forecasts (Level 3 as defined by IFRS 13). In the current period, management have assessed that it is highly likely that the maximum contingent consideration amount will be payable.

 



 

 

Notes to the Interim Report

 

18.  FINANCIAL INSTRUMENTS - FAIR VALUE MEASUREMENT

 

The objectives, policies and strategies pursued by the Group in relation to financial instruments are described within the 2018 Annual Report.  Set out below is an overview of financial instruments, other than cash and short-term deposits, held by the Group:

 


30 September 2018


30 September 2017


31 March 2018


 

Loans and receivables


Fair value profit or

loss


 

Loans and receivables


Fair value profit or

loss


 

Loans and receivables


Fair value profit or loss


£'000


£'000


£'000


£'000


£'000


£'000













Financial assets:












Trade and other receivables

26,279


-


23,601


-


33,503


-

Total current

26,279


-


23,601


-


33,503


-













Total financial assets

26,279


-


23,601


-


33,503


-













Financial liabilities:












Loans

8,065


-


12,974


-


8,451


-

Total non-current

8,065


-


12,974


-


8,451


-













Trade and other payables

23,053


-


18,421


-


27,550


-

Loans

806


-


850


-


797


-

Contingent consideration

-


-


-


7,929


-


45

Total current

23,859


-


19,271


7,929


28,347


45













Total financial liabilities

31,924


-


32,245


7,929


36,798


45

 

Trade and other receivables exclude the value of any prepayments or accrued income.  Trade and other payables exclude the value of deferred income.  All financial assets and liabilities have a carrying value that approximates to fair value. For trade and other receivables, allowances are made within the book value for credit risk.  The Group does not have any derivative financial instruments.

 

Contingent consideration

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


Unaudited

30 Sept

2018


Unaudited

30 Sept

2017


Audited

31 March

2018


£'000


£'000


£'000







Fair value within current liabilities:






Contingent consideration

-


7,929


45







 

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

 

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

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

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



 

Notes to the Interim Report

 

18.  FINANCIAL INSTRUMENTS - FAIR VALUE MEASUREMENT (continued)

 

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

 

Financial Liabilities

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

 

The Group has a 3 year revolving credit facility agreement expiring in November 2020.  The facility is subject to a limit of £50,000,000 and bears an initial interest rate of LIBOR +1.50%.

 

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

 

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

 

·      Leverage

·      Interest cover

 

At 30 September 2018, 31 March 2018 and 30 September 2017 the Group was not in breach of any bank covenants.

 

 

19.  EVENTS AFTER THE BALANCE SHEET DATE

 

Acquisition of Vix Verify Global Pty Ltd

On 22 October 2018 the Group acquired 100% of the share capital of Vix Verify Global Pty Ltd ('VVG') an Australian provider of identity verification and location intelligence software, for a cash consideration of A$38.3 million (circa £21.2 million). The consideration was funded through a combination of existing cash deposits and a £10 million draw down on the Group's existing borrowing facilities.

 

The acquisition of VVG brings additional scale to GBG's identity verification and location intelligence solutions in Australia and New Zealand, two markets where GBG currently provides fraud detection solutions to customers.

 

As the completion accounts are yet to be finalised, no information has been disclosed at this time on the fair value of assets and liabilities acquired and goodwill arising.

 

Further details of the acquisition are set out in a separate regulatory announcement released on 22 October 2018.

 

 



 

Notes to the Interim Report

 

ALTERNATIVE PERFORMANCE MEASURES

 

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

 

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

 

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

 

Adjusted Operating Profit

 

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

 

Organic Growth

 

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

 

Adjusted Earnings and Adjusted Earnings Per Share

 

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

 



 

Independent Review Report to GB Group plc

 

Introduction

 

We have been engaged by the Company to review the condensed set of consolidated financial statements in the half-yearly financial report for the 6 months ended 30 September 2018 which comprises Interim Consolidated Statement of Comprehensive Income, Interim Consolidated Statement of Changes in Equity, Interim Consolidated Balance Sheet, Interim Consolidated Cash Flow Statement and the related explanatory notes 1 to 19.  We have read the other information contained in the half- yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of consolidated financial statements.

 

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

 

Directors' Responsibilities

 

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

 

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

 

Our Responsibility

 

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

 

Scope of Review

 

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

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of consolidated financial statements in the half-yearly financial report for the 6 months ended 30 September 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union.

 

 

 

Ernst & Young LLP

Manchester

27 November 2018

 

 

 

The maintenance and integrity of the GB Group plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial information since it was initially presented on the web site.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

 

 

 


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