REG - GB Group PLC - Half-year Report
29/11/2022 07:00
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RNS Number : 8514H GB Group PLC 29 November 2022
Embargoed until 7.00 a.m. 29 November 2022
GB GROUP PLC
("GBG", the "Group" or the "Company")
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2022
GB Group plc (AIM: GBG), the experts in digital location, identity and
identity fraud software, announces its unaudited results for the six months
ended 30 September 2022.
Financials
H1 FY23 H1 FY22 Growth(2)
Reported revenue £133.8m £109.2m 22.6%
Pro forma revenue(1) £134.9m £122.2m 10.4%
Pro forma constant currency revenue(1) £134.9m £130.4m 3.4%
Adjusted operating profit (1) £28.1m £27.8m 1.0%
Adjusted operating margin (1) 21.0% 25.5% (450bps)
Operating profit £2.5m £14.8m (83.0%)
(Loss) / profit before tax (£0.0m) £14.4m (100.2%)
Adjusted diluted earnings per share (3) 7.3p 10.9p (33.0%)
Diluted earnings per share (0.3p) 5.6p (105.4%)
Net assets £889.4m £378.2m 135.2%
Net (debt)/cash(1) (£132.6m) £39.5m n/a
Notes: (1)Defined within note 23 to the Half Year Results. (2)Growth
percentages are calculated with reference to the actual unrounded figures in
the primary financial statements and so might not tie directly to the rounded
figures in the table if recalculated. (3) This measure is defined within note
8 to the Half Year Results.
Chris Clark, CEO, commented:
"Excellent strategic progress has been made across the Group over the past six
months as we maintain our relentless focus to deliver against our long-term
growth strategy, bringing our market leading Location, Identity and Fraud
solutions together to address the ever-growing needs of customers in the
digital world.
Our fantastic people around the world are key to this success, and I would
like to thank them for their efforts. Their continued hard work and
dedication has underpinned GBG as it has evolved into one of the world's
leading pure play identity software providers.
The macro uncertainties have been well publicised, but with world class
technology, a diversified blue chip customer base and our strong cash
generative business model, the Board remains confident in the long-term
prospects of the business."
Financial summary
· Reported growth in revenue of 22.6% and adjusted operating profit
of 1.0%, despite tough first half comparators driven by the US Stimulus
project and exceptional cryptocurrency volumes last year
· Pro forma revenue of £134.9 million represents underlying growth
of 10.4% helped by FX; on a constant currency basis, pro forma revenue
increased by 3.4%
· 93.3% of our pro forma revenue is from subscription and
consumption revenue models which demonstrates GBG's attractive, repeatable and
cash generative business model
· Adjusted operating profits up 1.0% to £28.1 million, an adjusted
operating profit margin of 21.0%
· Expect margin improvement for the full year due to second half
weighted revenues, supported by our strong pipeline of opportunities and
disciplined cost control
· Focused on maintaining a strong balance sheet, using cash
generation to pay down debt. Net debt increased to £132.6 million as at 30
September 2022 primarily driven by a USD retranslation impact
Strategic progress drives a sustainable runway of growth
· Acuant integration completed; focused on realising the benefits.
Well-positioned to drive growth and on track to deliver £5 million synergies
through cost and cross-sell/up-sell revenue initiatives
· The combination of GBG and Acuant's document and biometric
capability is accelerating our R&D, and enhancing the fraud and
anti-tampering functionality delivered to customers
· Launched GBG GO, a low code/no code product that brings our
services into one platform, allowing customers to build their identity and
fraud prevention journey to capture new consumers
· Our ExpectID platform in the USA released the latest version of
FlexAPI for easy consumption of its services, launched a "Know your business"
service and enhanced its fraud consortium
· Accelerated releases in EMEA immediately building revenue with
the launch of Mobile Fraud intelligence and Multi Bureau; fraud alerts in ANZ
delivering value to customers impacted by recent data breaches
· Created fraud data sharing consortiums in APAC and a new release
of a location intelligence product globally building on our capabilities in
data science
· Maintained our record people engagement: 95% 'recommend GBG as a
great place to work'. Overall engagement score places GBG in the upper
quartile of global companies
Capital markets event in January 2023
On Thursday, 19th January 2023, GBG will host a capital markets event in
London for institutional investors and sell-side analysts starting at 1430hrs
GMT. The event will be held at Numis' office at 45 Gresham Street, London EC2V
7BF.
This event will focus on the strategic progress the Group has delivered to
drive differentiation across its powerful set of combined capabilities,
reinforcing its position as a global leader in digital location, identity and
identity fraud software with the ability to achieve sustainable and profitable
growth over the mid-term.
To register your interest in attending the event in person and any further
details, please contact the team at Tulchan: gbg@tulchangroup.com
(mailto:gbg@tulchangroup.com)
Today's results presentation
Management will be hosting a results presentation webcast this morning at
0900hrs GMT for sell-side analysts and institutional investors. The webcast
will also be available on-demand upon the investor section of our website
along with the presentation materials shortly after the event.
To register for the event directly, please use the following link:
https://stream.brrmedia.co.uk/broadcast/635b953c749387528d24536b
(https://stream.brrmedia.co.uk/broadcast/635b953c749387528d24536b)
For further information, please contact:
GBG
Chris Clark, CEO & David Ward, CFO +44 (0) 1244 657333
Richard Foster, Investor Relations +44 (0) 7816 124164
Numis (Nominated Adviser and Corporate Broker) +44 (0) 0207 260 1000
Simon Willis & Joshua Hughes
Barclays (Corporate Broker) +44 (0) 0207 029 8000
Robert Mayhew & Stuart Jempson
Tulchan Communications LLP (Financial PR) +44 (0) 20 7353 4200
James Macey White & Matt Low GBG@tulchangroup.com
Website www.gbgplc.com/investors
About GBG
We are the experts in digital location, identity and managing fraud risk and
compliance. Helping organisations across the globe eliminate customer friction
and fraud from their digital experiences. GBG develop and deliver digital
identity, address verification, fraud prevention and compliance software to
businesses globally.
Through the combination of the latest technology, the most accurate data and
our unrivalled expertise, GBG helps organisations ranging from start-ups to
the largest consumer and technology brands in the world deliver seamless
experiences, so their customers can transact online with greater
confidence.
To find out more about how we help our customers establish trust with their
customers visit www.gbgplc.com (http://www.gbgplc.com) and follow us on
LinkedIn and Twitter @gbgplc.
About GBG
We are the experts in digital location, identity and managing fraud risk and
compliance. Helping organisations across the globe eliminate customer friction
and fraud from their digital experiences. GBG develop and deliver digital
identity, address verification, fraud prevention and compliance software to
businesses globally.
Through the combination of the latest technology, the most accurate data and
our unrivalled expertise, GBG helps organisations ranging from start-ups to
the largest consumer and technology brands in the world deliver seamless
experiences, so their customers can transact online with greater
confidence.
To find out more about how we help our customers establish trust with their
customers visit www.gbgplc.com (http://www.gbgplc.com) and follow us on
LinkedIn and Twitter @gbgplc.
Chief Executive Officer's review
Overview
GBG has a relentless focus on delivering against its long-term growth strategy
to lead in the location, identity and fraud markets globally. We are motivated
by our clear purpose to create trust in a digital world where everyone can
transact online with confidence. As a result, we have already built a strong
reputation as a trusted digital identity specialist and this reputation is
accelerating GBG's progress to become the world leading pure-play identity
software provider.
As the world navigates the present macro uncertainties, the critical need to
detect and prevent fraud has become even more important for our customers and
consumers at large. With our trusted relationships and leading capabilities
and technologies, GBG is very well-positioned to help our customers with these
challenges.
In the first half of the year, the Group reported growth in revenue and
adjusted operating profit, despite, as previously flagged, tough comparators
driven by the US stimulus project and exceptional cryptocurrency volumes in
the prior year.
Both our Location and Fraud segments achieved double-digit constant currency
organic growth. Location successfully pursued cross-sell/up-sell initiatives,
in addition to price increases and new business wins that more than offset
lower volumes from some eCommerce customers. Demand for our identity fraud
services was underpinned both by new customers and important renewals,
reflecting our crucial role to mitigate the growing cost to society of on-line
fraud and financial crime.
In Identity, volumes were impacted by the well documented challenges faced by
cryptocurrency markets and internet-economy customers, primarily in the
Americas region where a significant number of these businesses operate.
Outside of these areas, Identity's performance was more resilient, in
particular, from established financial services and gaming.
Strategic progress drives a sustainable runway of growth
The Group has a diversified customer base with a vast range of use cases
across sectors and regions. We enjoy high retention rates as a result of
strong customer relationships and differentiated solutions. In the mid-term
GBG has a clear opportunity to accelerate cross-sell/upsell opportunities as
well as capture new business as we expand into new geographies and sectors.
The opportunities to create value for our customers will continue to be
extended as we bring GBG's product and technologies together, realising the
full benefits of the Acuant acquisition.
One such area of focus that has progressed well is the combination of GBG and
Acuant's document and biometric capability, to accelerate our R&D and
introduce machine learning to enhance the fraud and anti-tampering
functionality delivered to customers. Acuant technology also underpins GBG GO,
a new low code/no code product allowing businesses of all sizes to build their
own identity and fraud solutions journey to capture new consumers for digital
services. This brings our services into a single platform, where new customers
such as small/medium enterprises can easily consume and access our leading
fraud and identity services instantly.
We have continued to innovate and have added new features into our established
market leading identity products to protect from the rising risk of fraudulent
misuse. We responded to customer demand in EMEA by delivering features via an
accelerated release cycle to immediately build revenue, such as Mobile Fraud
intelligence and Multi Credit Bureau checks. Our ExpectID platform in the USA
released the latest version of FlexAPI for easy consumption of its services,
launched a "Know your business" service and enhanced its fraud consortium. In
ANZ a fraud alert service is delivering value to customers impacted by recent
data breaches.
Our capabilities in data, product and platform are being applied to our other
segments. We created fraud data sharing consortiums in APAC (leveraging our
Americas experience), and a new release of a location intelligence product
globally which exploits our capabilities in data science, creating an AI
Parsing engine that can improve match rates by up to 20%. All these features
extend the unique capabilities within GBG's portfolio.
These developments accelerate our technology and expertise and strengthen
GBG's ability to respond to the positive structural growth drivers in our
markets. Recent analysis from Kuppinger Cole named GBG as a market leader in
its Verified Identity 2022 report, recognising our work towards fully
integrating products and capabilities for a unified experience. Digital
transformation, an ever-increasing need to protect against fraud and
increasing regulation are enduring trends that create a clear runway of
opportunity for GBG to generate sustainable growth over the long-term.
Our success and ongoing progress is driven by our people and we are proud that
our latest Gallup Q12 survey, conducted in September indicates 95% of our team
recommended GBG as a great place to work. Our overall engagement score places
GBG in the upper quartile of global companies, setting us apart as an employer
of choice as we compete to retain and attract the talent and skills required
to deliver our vision.
Trading performance
Both revenue and adjusted operating profit are in line with the trading update
released on 20 October 2022. First half reported revenue of £133.8 million
(1H FY22: £109.2 million), represents growth of 22.6%. Contributions from our
recent acquisitions more than offset a tough prior period comparative that
benefitted from unusually high and non-repeating transaction volumes driven by
the US stimulus project and cryptocurrency trading described in previous
updates.
On a pro forma basis, growth in the first half was 10.4% which included the
benefit of more favourable translation to sterling of our revenue generated in
other currencies. On a constant currency basis, pro forma revenue increased by
3.4%. Revenue growth was impacted by macro-economic related reduction in
demand from cryptocurrency and 'internet economy' customers, predominantly in
the Americas.
Adjusted operating profit for the first half increased by 1.0% to £28.1
million, representing an adjusted operating profit margin of 21.0%. We expect
margin improvement for the full year as a result of our continued discipline
in cost control and traditionally stronger second half revenues, supported by
our opportunity pipeline.
Location (25.5% of the Group's revenues)
Location delivered a good performance with revenue growth of 10.4% on a
constant currency basis to £34.4 million. Our Loqate solution has a strong
proposition that supports multiple sectors and geographies and a resilient
business model demonstrated by new customer wins continued across multiple
sectors. Examples including Klarna and Wise (both enabled by success in
Identity), manufacturers such as Sonos and Pepsi supporting their move to
direct-to-consumer sales, and in ecommerce retail with New Balance and
Shoplazza. While some ecommerce customers are reporting lower volumes than
last year this has been more than compensated for by successful up-sell
initiatives and selective price increases.
Identity (61.0% of the Group's revenues)
Identity's reported revenue increased to £81.2 million benefitting from the
acquisitions of Acuant and Cloudcheck. However, on a pro forma and constant
currency basis, Identity declined by 1.4%, as volumes from cryptocurrency and
internet-economy customers were impacted by the macro-economic slowdown. These
customers had benefitted significantly from pandemic-related changes in
consumer behaviours. Cryptocurrency revenues in the first half normalised from
the prior year exceptional levels but at lower volumes than expected, as
consumer confidence in cryptocurrency investment declined more abruptly and
severely than anticipated. We now expect these lower volumes to continue
through the second half of the year.
Outside of these areas, demand has been more stable despite generally subdued
economic activity, this includes growth of 6.2% in Identity's EMEA and APAC
regions on a pro forma and constant currency basis. Customer retention
remained high and new customer wins for our identity verification services
continued to be strong. These include Makes Cents and Bally's Canada in the
Americas; Broadway Gaming and Slater & Gordon Lawyers in the UK and Spirit
Super, one of Australia's largest pension funds. Our new logos were from a
strong pipeline of opportunities, in areas with structural growth
opportunities such as North American gaming, US healthcare and digital
transformation in financial services.
Acuant integration completed; focused on realising the benefits
During the period we completed the integration of the Acuant team with our
Americas business, with the final step having been the full integration of the
sales teams during September. We expect this to deliver increased productivity
in H2 as the entire team have the ability and incentive to cross-sell the full
suite of GBG solutions.
Acuant performance in the first half of the financial year was also affected
by the reduced demand from cryptocurrency and internet-economy customers and
therefore, given these macro challenges, growth was lower than we had expected
at the time of the acquisition. However, Acuant's more broad-based sector
diversification meant that the impact of these sectors was felt less
significantly than in IDology and we remain encouraged that our expectations
for growth will be fulfilled when market conditions are less challenged.
Excluding the cryptocurrency headwind, Acuant's underlying software
subscription revenues grew by 20.8% year on year. We are also benefitting from
deploying Acuant technology across the Group's product families, such as our
document-powered identity solutions which achieved 30.4% revenue growth during
the period and the release of GBG GO, an example of accelerating new product
into new markets.
The work to achieve the anticipated products and technology benefits has
progressed at pace and we are on track to deliver £5 million of planned
synergy benefits. Cost synergies of over £3 million have been achieved and we
are confident the remainder will be delivered through cross-sell/up-sell
revenue initiatives with Klarna, Otto Financial and PayPal among thirty
IDology customers now consuming Acuant solutions. We have also achieved our
first Acuant cross-sells via our EMEA and APAC teams with good potential for
further opportunities.
Fraud (13.5% of the Group's revenues)
In the first half of the year, Fraud delivered £18.3 million, representing
strong organic growth of 14.4% in constant currency terms. We gained new
customers in multiple countries including Union Bank of the Philippines, PNB
Malaysia, Banque Marocaine and the UK's Department for Work & Pensions,
while successfully securing important renewals with existing financial
services customers in both APAC and EMEA.
New Chair appointment and board committee composition
In September 2022 we welcomed Richard Longdon as GBG's non‐executive Chair.
Richard's significant global leadership experience will enable him to lead the
Board through the next phase of GBG's global growth, where his deep
understanding and proven track record of expansion in the technology sector
will be highly relevant.
Environment, Social & Governance (ESG)
We continue to take action to drive meaningful change across our business and
ensure that the safeguarding of our customers from negative environmental and
social impacts is at the heart of the solutions we offer. Stakeholders
including our team, customers and investors recently contributed to our ESG
strategy, where responses signalled the importance of demonstrating progress
in areas such as business & data ethics, people development and inclusion,
diversity & equality. We are embedding this feedback into our strategy and
processes as we work towards our targets to reduce GBG's environmental impact
and increase diversity.
Our ethical approach to data use sits at the core of our solutions and
contributes to economic growth, improved customer satisfaction, and moves to a
more inclusive digital economy. An example is our recent Digital Identity
Service Provider certification against the UK Government's digital identity
and attributes trust framework. We have no material update on the Information
Commissioner's Office 2018 audit of data in GBG's services conducted along
with several companies, however we continue to differentiate in the market by
protecting our customers with rigorous attention to the highest standards of
data privacy.
Outlook
The start to the second half of the financial year has been in line with our
expectations despite macroeconomic pressures impacting some of our end
markets. Year to date, cryptocurrency and internet-economy customers have seen
the greatest slowdown, with customers in traditional financial services such
as banking, pensions and insurance more stable. We note that the second half
has so far seen cryptocurrency customer activity normalise at a similar
run-rate to the second quarter and for the remainder of the year we expect
these customers to account for around 2% of Group revenue.
Notwithstanding the tough comparator period driven by cryptocurrency
customers, we expect to deliver mid-single digit pro forma constant currency
revenue growth for the second half of the year, in-line with expectations. We
also expect to continue to benefit from foreign currency translation tailwinds
that increased our first half reported revenue by 7%. At prevailing currency
rates, we would expect this tailwind for the second half growth rate to be
around 6%.
The Group remains focused on prioritising activities that will drive growth.
We have maintained our disciplined investment in the business to maintain our
market leading position and capitalise on the significant potential in our
markets. In the second half of the year, we expect revenue growth acceleration
and cost control will together drive a stronger margin, in line with market
expectations, and remain confident in the strength of the pipeline.
The Board remains highly confident in the long-term opportunity. We believe
GBG's services are crucial for our customers to operate safely and efficiently
in a digital world, underpinning the resilience of our business and outlook
from an ever-increasing business presence online. We look forward to
discussing the long-term growth opportunities and how GBG is uniquely
positioned to capture them at our capital markets event in January 2023.
Chris Clark
Chief Executive Officer
On behalf of the Board
29 November 2022
Finance review
Group revenue
1H FY23 1H FY22 Growth
Reported revenue £133.8m £109.2m 22.6%
Impact of acquisitions and disposals - £21.8m (20.5)%
Deferred revenue haircut on Acuant £1.1m - 0.8%
Non-repeating revenue - £(8.8)m 7.4%
Pro forma revenue £134.9m £122.2m 10.4%
Constant currency adjustment - £8.2m (7.0%)
Pro forma revenue at constant currency £134.9m £130.4m 3.4%
Both revenue and adjusted operating profit are in line with the performance
outlined in the trading update issued on 20 October 2022. In the first half,
GBG delivered reported revenue of £133.8 million (1H FY22: £109.2 million),
representing growth of 22.6%. Growth in the half year included contributions
from the recently acquired Acuant and Cloudcheck businesses. This more than
offset a tough prior period comparative that included a benefit from unusually
high and non-repeating transaction volumes driven by the US stimulus project
and cryptocurrency trading.
On a pro forma basis, which for H1 FY22 includes the pre-acquisition revenue
but excludes the exceptional and non-repeating revenue, underlying revenue
growth in the current period was 10.4%. H1 FY23 has experienced volatile
foreign currency movements, particularly pound sterling versus the US dollar.
This caused a favourable effect on the translation of GBG's significant US
dollar denominated revenue that contributed 7.0% to the reported
period-on-period pro forma revenue growth.
In the first half, 93.3% of our pro forma revenue came from the combination of
subscription and consumption revenue models which demonstrates GBG's
attractive, repeatable and cash generative business model. Of this, software
subscription(1) revenue contributed £74.0 million, representing pro forma
growth of 19.5%. Revenue from transaction/consumption of our solutions added a
further £51.9 million, a pro forma increase of 3.6%. Non-repeatable revenue
streams, typically services, hardware and implementation fees, amounted to
£9.0 million in the period.
Group operating profit, finance costs and taxation
Flowing from the increased sales contributed by the Acuant and Cloudcheck
acquisitions, adjusted operating profit for the first half increased by 1.0%
to £28.1 million (2021: £27.8 million), which represents an adjusted
operating profit margin of 21.0% (2021: 25.5%). The prior year margin
benefitted from the one-off revenue impacts noted and slower than planned
recruitment related costs while the current period benefitted from an FX gain
on intercompany loans. Margin improvement is expected as our second half
revenues are traditionally stronger and supported by a healthy pipeline of
opportunities and disciplined cost control.
1H FY23 1H FY22 Increase
Reported operating expenses £99.2m £61.6m 61.3%
Amortisation of acquired intangibles (£21.3m) (£8.6m)
Equity-settled share-based payments (£2.7m) (£3.9m)
Exceptional items (£1.5m) (£0.5m)
Adjusted operating expenses £73.7m £48.6m 51.7%
Adjusted operating expenses increased in total by 51.7%. 28% of this was as a
result of the prior year acquisitions and 8% was due to the translation of
non-GBP expenses at less favourable FX rates than the prior year. The
remainder of the increase relates to new roles hired in the second half of the
last financial year and current year wage inflation, which averaged
approximately 6.5%. The effect of these factors was partially offset by the
effect of integration cost synergies and a reduction in bonus accruals to
reflect lower full year outturn assumptions.
Total headcount of 1,274 people on 30 September was flat compared with the
year-end, reflecting our ongoing efforts to actively manage the business with
discipline in response to the volume-driven slowdown seen in certain sectors
of our Identity business in the first half of the year.
On a reported basis, operating profit decreased to £2.5 million (2021: £14.8
million) after taking account of £25.5 million of costs (2021: £12.9
million), this includes £21.3 million related to amortisation of acquired
intangibles, £2.7 million related to share-based payments and £1.5 million
of exceptional items. Of these costs, £25.2 million (2021: £12.5 million)
were non-cash items including £1.1 million related to exceptional costs.
The net finance charge of £2.6 million was £2.1 million higher than the
prior year as a result of the debt financing drawn in November 2021 to finance
the Acuant acquisition.
The tax charge for the six-month period was £0.7 million (2021: £3.2
million). The tax charge on adjusted profit before tax was £6.7 million
(2021: £5.3 million), representing an effective tax rate of 26.4% (2021:
22.1%). The increase in the adjusted effective tax rate is due to higher
permanent differences in the US following changes to tax legislation which
increases the taxable profits of overseas subsidiaries that are carrying out
R&D functions.
Adjusted Diluted EPS of 7.3 pence per share represented a reduction on the
prior year period, due to the additional shares issued to fund the two prior
year acquisitions as well as the higher interest expense.
Group cash flow and balance sheet
GBG remains focused on maintaining a strong balance sheet to support
sustainable growth.
During the first six months of the year, the Group's operating activities
before tax payments generated £15.3 million of cash and cash equivalents
(2021: £32.5 million) with cash conversion on a rolling 12-month basis of 70%
at 30 September 2022 compared to 96% at 31 March 2022.
While this level represents a decline, there were some specific non-recurring
factors distorting cash conversion such as settlement of an acquired liability
related to the prior year acquisitions that reduced cash without a similar
EBITDA impact and reported FX gains on the retranslation of intercompany
balances, which improved EBITDA without a similar impact on cash. Adjusting
for the above would result in an EBITDA to operating cash conversion of 85%.
Cash conversion has also been negatively impacted by a lower level of bonus
accruals at the half-year relative to the amounts paid in respect of the prior
year.
Last November, $210 million of debt was drawn from the Group's revolving
credit facility to part fund the acquisition of Acuant. Upto 30 September
2022, $45 million of repayments had been made, resulting in an outstanding
balance of $165 million. However, on a sterling basis, our net debt at 30
September 2022 increased to £132.6 million. This primarily reflects a £22.3
million retranslation impact since the year end from the conversion of the US
dollar denominated debt into pound sterling. Other first half specific impacts
include £9.6 million for the full year dividend payment, £2.5 million of GBG
shares purchased for a new Employee Benefit Trust and a one-off payment of
£2.3 million for an acquired liability related to the prior year
acquisitions.
Between the end of the half year and the date of this report, further
repayments of $6m have been made, resulting in a net debt position of
approximately £118m. We expect to utilise our strong cash generation to
paydown debt in the second half, reducing the impact of increasing interest
rates. We were very pleased that on 18 November 2022, we agreed the first of
two one-year extension options on our existing revolving credit facility, so
that the facility now does not expire until July 2026.
David Ward
Chief Financial Officer
On behalf of the Board
29 November 2022
Notes
(1)Software subscriptions can be term-based where the agreement entitles the
customer to use a GBG solution for a fixed period of time (fair use volume
limits applies) or consumption-based, whereby a customer buys usage credits in
advance which entitle them to use of GBG's solutions up to a fixed quantity
(and within a fixed time period).
Condensed Consolidated Statement of Profit or Loss
For the six months ended 30 September 2022
Unaudited
Note
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2022 2021 2022
£'000 £'000 £'000
Revenue 5 133,816 109,154 242,480
Cost of sales (38,723) (32,241) (70,549)
Gross profit 95,093 76,913 171,931
Operating expenses (99,251) (61,535) (148,192)
Net gain/(loss) on foreign exchange 6,227 (178) (42)
Decrease/(increase) in expected credit losses of trade receivables 460 (353) (290)
Group operating profit 5, 6 2,529 14,847 23,407
Finance revenue 28 7 40
Finance costs (2,581) (469) (1,794)
(Loss)/profit before tax (24) 14,385 21,653
Income tax charge 7 (725) (3,195) (6,390)
(Loss)/profit after tax for the period attributable to equity holders of the (749) 11,190 15,263
parent
Group operating profit 2,529 14,847 23,407
Amortisation of acquired intangibles 21,296 8,581 24,735
Equity-settled share-based payments 18 2,727 3,865 6,171
Exceptional items 4 1,513 490 4,526
Adjusted operating profit 28,065 27,783 58,839
Earnings per share
- basic (loss)/earnings per share for the period 8 (0.3)p 5.7p 7.1p
- diluted (loss)/earnings per share for the period 8 (0.3)p 5.6p 6.9p
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 September 2022
Unaudited
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2022 2021 2022
£'000 £'000 £'000
(Loss)/profit after tax for the period attributable to equity holders of the (749) 11,190 15,263
parent
Other comprehensive income:
Fair value movement on investments 700 - -
Exchange differences on retranslation of foreign operations (net of tax) 111,237 4,229 18,029
Total comprehensive income for the period attributable to equity holders of 111,188 15,419
the parent
33,292
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 September 2022
Unaudited
Other reserves
Foreign currency translation reserve
Equity Share premium Capital redemption reserve Total other reserves
share Merger reserve Treasury shares Retained earnings Total
capital equity
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 April 2021 4,908 267,627 9,918 3 (16,606) - (6,685) 98,406 364,256
Profit for the period - - - - - - - 11,190 11,190
Other comprehensive income - - - - 4,229 - 4,229 - 4,229
Total comprehensive (expense)/income for the period - - - - 4,229 11,190 15,419
- 4,229
Issue of share capital 18 898 - - - - - - 916
Share-based payments 18 - - - - - - - 3,865 3,865
Tax on share options - - - - - - - 396 396
Share forfeiture refund - - - - - - - (5) (5)
Equity dividend 9 - - - - - - - (6,677) (6,677)
Balance at 30 September 2021 4,926 268,525 9,918 3 (12,377) - (2,456) 107,175 378,170
Profit for the period - - - - - - - 4,073 4,073
Other comprehensive expense - - - - 13,800 - 13,800 - 13,800
Total comprehensive (expense)/income for the period - - - - 13,800 - 13,800 4,073 17,873
1,371 298,244 90,081 - - - 90,081 - 389,696
Issue of share capital
Share-based payments - - - - - - - 2,306 2,306
Tax on share options - - - - - - - (894) (894)
Share forfeiture refund - - - - - - - (24) (24)
Equity dividend 9 - - - - - - - - -
Balance at 1 April 2022 6,297 566,769 99,999 3 1,423 - 101,425 112,636 787,127
(Loss)/profit for the period - - - - - - - (749) (749)
Other comprehensive income - - - - 111,237 - 111,237 700 111,937
Total comprehensive income for the period - - - - 111,237 - 111,237 (49) 111,188
Issue of share capital 11 519 - - - - - - 530
Investment in own shares 19 - - - - - (2,500) (2,500) - (2,500)
Cost of employee benefit trust shares issued to employees 19 - - - - - 945 945 (937) 8
Share-based payments 18 - - - - - - - 2,727 2,727
Tax on share options - - - - - - - (50) (50)
Equity dividend 9 - - - - - - - (9,600) (9,600)
Balance at 30 September 2022 6,308 567,288 99,999 3 112,660 (1,555) 211,107 104,727 889,430
Condensed Consolidated Balance Sheet
As at 30 September 2022
Unaudited
Note Restated(1)
Unaudited Unaudited Audited
As at As at As at
30 September 30 September 31 March
2022 2021 2022
£'000 £'000 £'000
ASSETS
Non-current assets
Goodwill 11 819,773 289,531 713,946
Other intangible assets 11 273,729 83,810 255,747
Property, plant and equipment 11 4,563 3,813 4,601
Right-of-use assets 11 2,116 2,545 2,742
Investments 3,026 2,289 2,326
Deferred tax asset 23,894 7,871 21,860
1,127,101 389,859 1,001,222
Current assets
Inventories 2,892 106 1,196
Trade and other receivables 13 61,727 48,851 69,626
Current tax 8,528 7,603 7,804
Cash and short-term deposits 15,683 39,499 22,302
88,830 96,059 100,928
TOTAL ASSETS 1,215,931 485,918 1,102,150
EQUITY AND LIABILITIES
Capital and reserves
Equity share capital 6,308 4,926 6,297
Share premium 567,288 268,525 566,769
Other reserves 211,107 (2,456) 101,425
Retained earnings 104,727 107,175 112,636
Total equity attributable to equity holders of the parent 889,430 378,170 787,127
Non-current liabilities
Loans 15 147,402 - 128,226
Lease liabilities 1,008 1,692 1,529
Provisions 777 1,496 866
Deferred revenue 1,739 552 1,805
Contingent consideration 16 1,890 - 1,920
Deferred tax liability 69,297 21,162 64,839
222,113 24,902 199,185
Current liabilities
Lease liabilities 1,749 1,719 1,842
Provisions 13 - -
Trade and other payables 14 37,612 33,187 49,615
Deferred revenue 56,448 44,188 57,018
Contingent consideration 16 6,521 3,752 5,856
Current tax 2,045 - 1,507
104,388 82,846 115,838
TOTAL LIABILITIES 326,501 107,748 315,023
TOTAL EQUITY AND LIABILITIES 1,215,931 485,918 1,102,150
( )
(1) For details of the prior year measurement period adjustment refer to note
10.
Condensed Consolidated Cash Flow Statement
For the six months ended 30 September 2022
Unaudited
Note
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2022 2021 2022
£'000 £'000 £'000
Group (loss)/profit before tax (24) 14,385 21,653
Adjustments to reconcile Group (loss)/profit before tax to net cash flows
Finance revenue (28) (7) (40)
Finance costs 2,581 469 1,794
Depreciation of plant and equipment 11 805 644 1,531
Depreciation of right-of-use assets 11 788 903 1,593
Amortisation of intangible assets 11 21,347 8,679 24,968
Impairment of right-of-use assets 4 202 - -
Loss on disposal of plant and equipment and intangible assets 193 7 34
Loss on disposal of businesses 4 18 126 330
Fair value adjustment on contingent consideration 4 483 90 188
Unrealised (gain)/loss on foreign exchange (5,605) - -
Share-based payments 18 2,727 3,865 6,171
(Increase)/decrease in inventories (1,437) 14 (27)
Increase/(decrease) in provisions 544 (40) (169)
Decrease/(increase) in receivables 13 11,749 8,635 (3,967)
(Decrease)/increase in payables 14 (19,005) (5,299) 2,197
Cash generated from operations 15,338 32,471 56,256
Income tax paid (4,117) (6,682) (11,610)
Net cash generated from operating activities 11,221 25,789 44,646
Cash flows (used in)/from investing activities
Acquisition of subsidiaries, net of cash acquired - - (460,383)
Purchase of plant and equipment 11 (593) (788) (1,611)
Purchase of software 11 (50) (46) (120)
Proceeds from disposal of plant and equipment 56 2 -
Net outflow from disposal of businesses (18) (60) (101)
Interest received 28 7 10
Net cash flows (used in)/from investing activities (577) (885) (462,205)
Cash flows (used in)/from financing activities
Finance costs paid (2,247) (279) (1,383)
Proceeds from issue of shares 535 916 305,997
Purchase of treasury shares 19 (2,500) - -
Share issue costs - - (5,780)
(Refund)/proceeds from share forfeiture - (5) (29)
Proceeds from new borrowings (net of arrangement fee) 15 10,000 - 155,591
Repayment of borrowings 15 (13,273) - (30,073)
Repayment of lease liabilities (1,075) (817) (1,969)
Dividends paid to equity shareholders 9 (9,600) (6,677) (6,677)
Net cash flows (used in)/from financing activities (18,160) (6,862) 415,677
Net increase/(decrease) in cash and cash equivalents (7,516) 18,042 (1,882)
Effect of exchange rates 897 322 3,049
Cash and cash equivalents at the beginning of the period 22,302 21,135 21,135
Cash and cash equivalents at the end of the period 15,683 39,499 22,302
Notes to the Condensed Consolidated Interim Financial Statements
( )
1. CORPORATE INFORMATION
The condensed consolidated interim financial statements of GB Group plc ('the
Group') for the six months ended 30 September 2022 were authorised for issue
in accordance with a resolution of the directors on 29 November 2022 and are
unaudited but have been reviewed by the auditor, Ernst & Young LLP and
their report to the Company is set out at the end of these condensed
consolidated interim financial statements.
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 condensed consolidated interim financial statements for the six months
ended 30 September 2022 have been prepared in accordance with UK-adopted IAS
34 'Interim Financial Reporting'. The annual financial statements of the Group
are prepared in accordance with UK-adopted international accounting standards,
as applied in accordance with the provisions of the Companies Act 2006.
The condensed consolidated interim financial statements are presented in
pounds Sterling and all values are rounded to the nearest thousand (£'000)
except when otherwise indicated.
The condensed consolidated interim 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 2022. The financial
information for the preceding year is based on the statutory financial
statements for the year ended 31 March 2022. 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.
Going Concern
An extensive review of the going concern assumption has been conducted through
to 31 March 2024 ('going concern period'), reflecting the actual Group results
for the first six months of FY23 as well as wider macro-economic changes,
including rising inflation, interest rates and risk of global recession
The potential scenarios which could lead to GBG not being a going concern,
which remain unchanged from the year-end, 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 15). 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
The performance in the first half is detailed in the CEO Report. Revenue
growth has been impacted by macro-economic uncertainty which has reduced
transaction volumes in the Identity businesses, although Location and Fraud
have continued to show strong underlying growth. The Group still expects
year-end revenues to be in line with expectations.
The Group's customers continue to 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 GBG's customers,
particularly within the Identity and Fraud segments, and although there has
been a downturn in transaction volumes during the period in some elements of
this sector (e.g. cryptocurrency and online payments), other elements have
been much more resilient and shown growth (e.g. traditional banking) and the
overall diversification of the Group means that this does not result in a risk
to the going concern assumption. We have reflected the current downturn in
parts of the identity business both in our base case scenario and range of
potential downside scenarios.
As a global company GBG operates in different countries and therefore is less
exposed if particular countries are impacted at different rates. The Group has
no operations or active customers or suppliers in Russia, Belarus or Ukraine.
There are macro factors supporting the increased use of GBG products and
services, such as:
· the continued compliance requirements globally;
· the ongoing existence of fraud globally, leading to increased
cyber security risks and therefore demand for GBG anti-fraud solutions;
· the continued digitisation and rise of online versus physical
transactions in both consumer and business-to-business settings; and
· the speed and quality of customer onboarding being a key
differentiator, which is enhanced through the use of GBG's software.
As expected, the adjusted operating profit margin for the six months declined
relative to the comparative period as this was positively impacted by the
revenue from the US stimulus project and spike in cryptocurrency trading. This
decline was further influenced by the underlying decline in transaction
volumes in the identity business during the period which has been reflected in
our base case and range of potential downside scenarios. It is expected that
the margin will improve in the second half, when revenue is traditionally more
heavily weighted.
Cashflow was negatively impacted by higher than expected increases to interest
rates (Secured Overnight Financing Rate (SOFR) increased by 2.72%) which has
led to higher interest payments on the RCF facility. We have updated our
models to reflect the expectation that rates will increase further in FY23
before beginning to reduce during FY24.
The increase in interest costs has increased the benefit of paying down to the
RCF facility with free cashflow. In the first half of the year free cashflow
is traditionally reduced by the payment of dividends and year-end bonuses, but
in FY23 this was further reduced by the purchase of £2.5m of GBG shares for
the new EBT. We would expect to repay more of the RCF in the second half of
the year than the £3.3m made in the first half, and post period end further
repayments of £6.3m have already been made.
In addition to the revenue (and adjusted operating profit) performance, the
Group has continued to successfully convert this trading performance into
cash. On a rolling 12-month basis, the cash conversion % was 70% at 30
September 2022 compared to 96% at 31 March 2022. Whilst the reported level has
declined there were some specific factors influencing this including
settlement of pre-acquisition non-recurring liabilities from acquisitions and
FX gains which improves EBITDA without having a similar impact on cash.
Adjusting for the above would result in an EBITDA to operating cash conversion
% of 85%, not accounting for changes in the level of bonus accruals at the
half year relative to the amounts paid in respect of the prior period which
have further reduced cash conversion. This demonstrates the continued ability
of GBG to convert profit into cash..
The RCF facility has a maximum level of £175 million which could be drawn
down for working capital purposes if required. As at 30 September 2022, the
available undrawn facility was £26.7 million compared to £45.7m at the
year-end. The reduction in the headroom is due to the significant change in
the USD/GBP exchange rate (as the loan is primarily drawn down in USD) and
does not give rise to a concern with regards to liquidity due to the continued
cash generation of the Group and the availability of additional financing if
required, such as requesting an increase to the RCF limit or new share issue.
At the period end the USD/GBP exchange rate was at a near record low and
movements in this rate since the period end have materially increased the
level of headroom. Management do not consider any reasonably possible changes
in exchange rate will have a material impact on the going concern assumption.
Following bank approval in November 2022 for the exercise of the one-year
extension on the facility it now does not expire until July 2026, with a
further one-year extension available in September 2023 (subject to approval
from the bank syndicate).
At 30 September 2022 the Group was in a net current liabilities position of
£15.6 million (31 March 2022: net current liabilities of £14.9 million).
However, within current liabilities is deferred revenue of £56.4 million (31
March 2022: £57.0 million) which represents a liability to provide a future
service rather than a direct cash liability. Whilst there is a cash cost to
providing these services (principally related data costs or employee wages)
these costs would be lower than the value of the deferred revenue liability,
and will unwind over the course of the year rather than being a liability
settled on demand. On this basis the net current liabilities position is not
considered to be a risk from a going concern perspective.
Under the base case, which reflects the actual Group results for the first six
months of FY23 and market consensus on future growth, and a range of potential
downside scenarios, the Group continues to have strong liquidity and financial
covenant headroom under its debt facilities. These downside scenarios included
modelling for potential increases in costs, increases in interest rates as
well as reduced revenue growth both on an overall group basis and specific to
certain areas of the business.
The model was then adjusted to assess what level of decline in revenue against
the base model would be required to result in a covenant breach. This shows
that it would take a decline of 18% in revenue (31 March 2022: 40%) to result
in a breach, which would occur as at 31 March 2024. This is on the assumption
that management implemented a reduction in overheads of 20% which is
considered possible without causing significant disruption to the business in
those circumstances. Whilst this headroom has reduced since the exercise
undertaken at the year-end, this is primarily caused by the change in FX rates
reducing the headroom on the facility rather than changes to the underlying
cashflows.
Based on the Group's five-year revenue CAGR of 22.5% through to 31 March 2022,
the current trading performance and through reference to the current forecast
and market consensus (market consensus shows 22.8% revenue growth in FY23 and
10.5% in FY24), a decline of anywhere near 18% is considered by the Directors
to be remote. In such a scenario, certain cash conservation measures in
management's control would be implemented well in advance of the covenant
breach. This includes either not declaring or reducing future final dividend
payments, pay and recruitment freezes, not paying bonuses and reductions to
the payroll cost base. In addition, the range of mitigating actions detailed
in the 2022 Annual Report remain available, albeit these are not within
management's control. This includes, for example, requesting a delay to UK tax
payments, raising cash through an equity placing and disposal of part of the
business.
Following review of future forecasts and applying reasonable and extreme
sensitivities, the Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the going concern
period. For these reasons, the Board continues to adopt the going concern
basis in preparing the interim financial statements.
Accounting Policies
The accounting policies adopted in the preparation of the condensed
consolidated interim financial statements are consistent with those followed
in the preparation of the Group's annual financial statements for the year
ended 31 March 2022. A new accounting policy was introduced following the
establishment of The GB Group Employee Benefit Trust in May 2022 and the
accounting policy in relation to transactions in foreign currencies has been
clarified as detailed below. The Group has not early adopted any standard,
interpretation or amendment that has been issued but is not yet effective. No
newly introduced standard or amendments to standards had a material impact on
the condensed consolidated interim financial statements.
Employee Benefit Trust (EBT)
The Group established an EBT (The GB Group Employee Benefit Trust) on 10 May
2022 to enable shares to be bought in the market to satisfy the demand from
share awards under the Group's employee share plans. The EBT is a separately
administered trust and is funded by loans from Group companies. The assets of
the trust comprise shares in GB Group plc and cash balances. The Group
recognises the assets and liabilities of the trust in the Consolidated
Financial Statements and shares held by the trust are recorded at cost as
Treasury Shares as a deduction from shareholders' equity.
Consideration received for the sale of shares held by the trust is recognised
in equity, with any difference between the proceeds from the sale and the
original cost being taken to retained earnings.
As at 30 September 2022, the EBT held 377,656 shares in the Company.
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 spot rates of exchange at the reporting date.
Differences arising on settlement or translation of monetary items are
recognised within operating expenses as part of profit or loss.
Judgements and Estimates
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from these 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 2022.
In preparing these condensed financial statements, the significant judgements
made by management in applying the Group's accounting policies and key sources
of estimation uncertainty were the same as those applied to the statutory
accounts for the year ended 31 March 2022 except as noted below.
Judgements
No judgement has been made in respect of the asset lives of separately
identifiable intangible assets since no acquisitions have taken place during
the period to 30 September 2022.
During the current period, the allocation of goodwill to cash generating units
('CGUs') following the Group's acquisitions of Acuant and Cloudcheck has been
completed, as this remained unallocated at 31 March 2022.
As part of this process, judgement was required in determining that the
existing CGUs, and the allocation of goodwill to groups of CGUs, remained
appropriate in the context of the Group's evolving business model and shift to
global product development. Following strategic and operational changes made
during the period to how the business is managed, and performance is monitored
for internal reporting purposes, a change has been made to combine the
Location and Loqate CGUs into one Location operating segment, to split the VIX
Verify CGU into Location - APAC and Identity - APAC and to combine the Fraud
and Transactis CGUs into one Fraud operating segment. In addition, a number of
the groups of CGUs, or operating segments, have been renamed which are
detailed below.
Judgement was also required in the allocation of the unallocated goodwill to
the Group's CGUs. The acquisition of Cloudcheck was a bolt-on acquisition for
global identity services which provided an opportunity to expand within the
APAC region. Goodwill arising on bolt-on acquisitions is combined with the
goodwill in the existing groups of CGUs and is not considered separately for
impairment purposes since acquisitions are quickly integrated. Cloudcheck has
therefore been integrated into the Identity - APAC operating segment since
this is the group of CGUs that is expected to benefit from the acquisition.
The integration of Acuant has continued to progress during the period and the
goodwill has been allocated proportionally based on the increase in the
cumulative return as a result of the acquisition by CGU using the forecast
used for going concern testing purposes. Following this exercise, Acuant has
been allocated to the Identity - Americas, Identity - APAC and the Identity -
EMEA operating segments on a proportional basis based on groups of CGUs that
are expected to benefit from the acquisition.
The following table shows the allocation of goodwill and acquired intangibles
assets by CGU:
CARRYING AMOUNT OF GOODWILL AND ACQUIRED INTANGIBLE ASSETS ALLOCATED TO CGUs
Restated(1)
Unaudited Unaudited Audited
30 September 30 September 31 March
2022 2021 2022
Revised Name Name at 31 March 22 (if different) £'000 £'000 £'000
Location Unit - 74,699 68,583 66,717
N/A (Combined into Location Unit) Loqate Unit - 7,928 8,012
Location - APAC Unit N/A (Split from VIX Verify Unit) 3,225 - -
Identity - EMEA Unit Identity Unit 144,433 36,918 36,723
Identity - APAC Unit VIX Verify Unit 100,942 20,904 21,699
Identity - Americas IDology Unit 747,216 215,232 215,194
Fraud - Investigate Unit Fraud Unit 7,035 7,592 7,022
Fraud - APAC Unit CAFS Unit 15,868 15,144 15,863
N/A (Combined into Fraud - Investigate Unit) Transactis Unit - 657 619
Unallocated
N/A - Now Allocated Acuant Unit - - 582,165
N/A - Now Allocated Cloudcheck Unit - - 15,340
1,093,418 372,958 969,354
(1) For details of the prior year measurement period adjustment refer to note
10.
Impairment of Goodwill
The Group's policy is to test goodwill for impairment annually, or if events
or changes in circumstances indicate that the carrying amount of these assets
may not be recoverable. The Group has considered whether there have been any
indicators of impairment during the 6 months to 30 September 2022, which would
require an impairment review to be performed. The Group has considered
indicators of impairment with regard to a number of factors, including those
outlined in IAS 36 Impairment of Assets.
As reported in the chief executive's officer's review, the performance of
GBG's Identity segment in Americas was below expectations. This was driven by
macro factors that reduced demand from cryptocurrency exchange customers and
internet-economy customers. While the Board are confident that these
influences that have detracted from growth will be short-lived it was deemed
appropriate that the carrying value of the goodwill and intangible assets
associated with this group of CGUs should be assessed for any potential
impairment.
Whilst the macro-economic impacts during this period could represent a
potential indicator of impairment for other CGUs, the overall Group has
continued to trade strongly throughout this period and therefore it was
concluded that whilst some CGUs had been temporarily impacted by the reduction
in activity linked to the macro-economic environment, there was insufficient
evidence of a significant change in the long term outlook for these CGUs to
indicate that a full impairment review was required.
Based upon this review, the Group has concluded that there were only
indicators of impairment in relation to the Identity - Americas group of CGUs
as at 30 September 2022.
Determining whether goodwill is impaired requires an estimation of the
recoverable amount of the group of CGUs to which the goodwill has been
allocated. Recoverable amount has been determined on the basis of value in
use, which requires an estimate of the present value of future cash flows
expected to arise from the group of CGUs, 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 assessed 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 group of CGUs.
An analysis of the goodwill allocated to the Identity Americas group of CGUs
and the assumptions used to test for impairment are set out in note 12. As
explained in note 12, in the current period, management has determined that
there are no reasonably possible changes to key assumptions in the impairment
model that would result in the impairment of goodwill.
Estimates
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 2022, GBG completed the acquisitions of Acuant and
Cloudcheck, and provisional values were reported in note 34 of the 2022 Annual
Report. The measurement periods for these acquisitions ends during the year to
31 March 2023.
To date, no further adjustments have been identified to the provisional fair
values in respect of the acquisition of Cloudcheck but the values for Acuant
have been revised in the six months to 30 September 2022 following the receipt
of additional information about facts and circumstances that existed at the
acquisition date which adjusted the provisional acquisition date values. The
revised fair values of identifiable assets acquired and liabilities assumed at
the acquisition date are set out in note 10. The impact of the measurement
period adjustments has been applied retrospectively, meaning that the
financial position for the year to 31 March 2022 has been restated. There was
no impact on the profit and loss for the year to 31 March 2022.
Allowance for impairment losses on credit exposures
The Group applies 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. In the period to 30 September 2022, management has
reviewed the historical rate of bad debts compared to revenue, in the context
of the expected credit loss provision against trade receivables. As a result
of this assessment, and whilst still taking into account forward-looking
information in the light of the current macroeconomic environment, management
has determined it appropriate to change the loss rates applied to each bracket
of trade receivables. In the period to 30 September 2022, this change of
estimate had the effect of reducing the expected credit loss charge by
£460,000.
3. 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: information security and the threat of cyber-attacks, the risk of
failure to integrate newly acquired businesses and deliver on benefits, the
risk of unplanned interruption on critical operations, the threat of
competition, people risks associated with the failure to attract and retain
top talent, non-compliance with privacy rules and regulations, technology risk
and loss, financial risks and third-party risk from a failure to manage a
third-party relationships appropriately. These risks and uncertainties facing
our business were reported in detail in the 2022 Annual Report and Accounts
and all of them are monitored closely by the Group.
For more details on the outlook for the Group and the risks and uncertainties
for the next 6 months see the Chief Executive Officer's Statement.
4. EXCEPTIONAL ITEMS
2 1 2
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2022 2021 2022
£'000 £'000 £'000
(a) Acquisition related costs 254 274 5,607
(b) Gain on forward contacts linked to acquisitions - - (3,053)
(c) Integration costs 539 - 422
(d) Costs associated with team member reorganisations - - 1,063
(e) Foreign exchange movement on contingent consideration 483 90 157
(f) Loss on disposal of businesses - 126 330
(g) Write off of cloud-based software 237 - -
Total exceptional costs 1,513 490 4,526
(a) Acquisition related costs of £254,000 (2021: £274,000) include legal
and professional advisor costs directly attributable to the acquisition of
Acuant and the possible offer by GTCR to acquire GBG. In the year to 31 March
2022, the costs related to the acquisitions of Acuant and Cloudcheck, as well
as costs which were incurred as part of a potential acquisition.
(b) During the prior year to 31 March 2022, a foreign exchange forward
contract was entered into to fix the value at which GBG could convert the GBP
proceeds from the equity raise into USD to part fund the Acuant acquisition.
On settlement of the forward contract a gain of £3,053,000 was recognised
which has been treated as an exceptional item. Due to the size and acquisition
related nature of this gain, management considered that it would not reflect
the Group's underlying business performance.
(c) Integration costs have been incurred in relation to the integration
of the Acuant and Cloudcheck acquisitions. This principally relates to
consultancy fees paid to advisors in running programmes to deliver revenue and
cost synergies from the acquisitions, travel for specific integration
meetings, costs relating to the alignment of global systems and business
operations and the costs of additional other temporary resources required for
the integration. In the period to 30 September 2022, the Group expensed
£539,000 (2021: £nil) relating to the integration of Acuant and Cloudcheck,
with £202,000 relating to the impairment of a right-of-use asset following
the exit of a leased building.
Due to the size and nature of acquisition and integration costs, management
consider that they do not reflect the Group's trading performance and so are
adjusted to ensure consistency between periods.
(d) 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.
(e) The contingent consideration liabilities related to IDology and
Cloudcheck are denominated in US Dollars and New Zealand dollars respectively.
As a result, the liabilities were retranslated at the balance sheet date with
a loss of £483,000 (2021: loss of £90,000) being treated as an exceptional
item.
(f) During the year to 31 March 2021, the business disposed of its
Marketing Services and Employ and Comply businesses which resulted in an
overall profit on disposal. The profit recognised on disposal of Employ and
Comply was £2,578,000. The loss on disposal of Marketing Services was
£1,175,000. In the year to 31 March 2022, additional costs of £330,000 were
incurred in relation to the finalisation of the disposal of these businesses.
(g) During the period to 30 September 2022, a write off of cloud-based
software of £237,000 has been recognised. A final agenda decision by the IFRS
Interpretations Committee clarified that configuration or customisation costs
from cloud computing arrangements do not usually meet the definition of
intangible assets under IAS 38 Intangible Assets and therefore should not be
capitalised. As a result, previously capitalised costs that did not satisfy
the clarified recognition criteria were written off.
5. SEGMENTAL INFORMATION
The Group's operating segments are aggregated and internally reported to the
Group's Chief Executive Officer as three reportable segments: Location,
Identity and Fraud on the basis that they provide similar products and
services. Included within 'Other' was the revenue and profit from the part of
the Marketing Services business disposed of in the year to 31 March 2021.
Following this disposal, the remaining portion was incorporated within Fraud
Operating segment.
'Central overheads' represents group operating costs such as technology,
compliance, finance, legal, people team, information security, premises,
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.
Location Identity Fraud Other Unaudited
Total
Six months ended 30 September 2022 £'000 £'000 £'000 £'000 £'000
Subscription revenues:
Consumption-based 8,041 13,273 414 - 21,728
Term-based 22,657 14,177 14,401 - 51,235
Total subscription revenues 30,698 27,450 14,815 - 72,963
Consumption 3,445 47,565 825 - 51,835
Other 217 6,187 2,614 - 9,018
Total revenue 34,360 81,202 18,254 - 133,816
Contribution 11,990 23,338 4,142 - 39,470
Central overheads (18,092)
Foreign exchange gain/(loss) 6,227
Expected credit losses of trade receivables 460
Adjusted operating profit 28,065
Amortisation of acquired intangibles (21,296)
Share-based payments charge (2,727)
Exceptional items (1,513)
Operating profit 2,529
Finance revenue 28
Finance costs (2,581)
Income tax expense (725)
Loss for the period (749)
Unaudited
Location Fraud Other Total
Identity
Six months ended 30 September 2021 £'000 £'000 £'000 £'000 £'000
Subscription revenues:
Consumption-based 8,423 6,586 439 - 15,448
Term-based 19,095 1,563 11,770 - 32,428
Total subscription revenues 27,518 8,149 12,209 - 47,876
Consumption 1,982 54,471 670 - 57,123
Other 405 1,108 2,604 38 4,155
Total revenue 29,905 63,728 15,483 38 109,154
Contribution 10,670 28,136 4,881 (214) 43,473
Central overheads (15,159)
Foreign exchange gain/(loss) (178)
Expected credit losses of trade receivables (353)
Adjusted operating profit 27,783
Amortisation of acquired intangibles (8,581)
Share-based payments charge (3,865)
Exceptional items (490)
Operating profit 14,847
Finance revenue 7
Finance costs (469)
Income tax expense (3,195)
Profit for the period 11,190
Location Identity Fraud Other Audited
Total
Year ended 31 March 2022 £'000 £'000 £'000 £'000 £'000
Subscription revenues:
Consumption-based 18,648 16,271 911 - 35,830
Term-based 43,129 9,465 23,871 - 76,465
Total subscription revenues 61,777 25,736 24,782 - 112,295
Consumption 3,877 109,842 1,493 - 115,212
Other 675 7,218 7,042 38 14,973
Total revenue 66,329 142,796 33,317 38 242,480
Contribution 24,601 57,030 8,025 (106) 89,550
Central overheads (30,379)
Foreign exchange gain/(loss) (42)
Expected credit losses of trade receivables (290)
Adjusted operating profit 58,839
Amortisation of acquired intangibles (24,735)
Share-based payments charge (6,171)
Exceptional items (4,526)
Operating profit 23,407
Finance revenue 40
Finance costs (1,794)
Income tax expense (6,390)
Profit for the year 15,263
6. OPERATING PROFIT
2 1 2
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
This is stated after charging/(crediting): 2022 2021 2022
£'000 £'000 £'000
Depreciation of property, plant and equipment (note 11) 805 644 1,531
Depreciation of right-of-use assets (note 11) 788 903 1,593
Expense relating to short term leases 534 259 558
Expense relating to low value leases 4 1 6
(Profit)/loss on disposal of plant and equipment and intangible assets (42) 7 34
Amortisation of intangible assets (note 11) 21,347 8,679 24,968
The above information does not include exceptional items which have been
disclosed in note 4.
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 2023.
The table below shows the adjusted effective tax rate as well as the impact on
the effective rate of tax of non-recurring tax items:
Unaudited Unaudited
6 months to 6 months to
30 September 2022 30 September 2021
Income tax charge Impact on effective tax rate % Income tax charge Impact on effective tax rate %
Profit before Tax Profit before Tax
£'000 £'000 £'000 £'000 £'000 £'000
Income statement (24) 725 (3,020.8%) 14,385 3,195 22.2%
Amortisation of acquired intangibles 21,296 5,254 3,048.9% 8,581 1,969 0.3%
Equity-settled share-based payments 2,727 559 (0.9%) 3,865 871 0.0%
Exceptional items 1,513 189 (0.8%) 490 - (0.4%)
Adjusted effective tax rate 25,512 6,727 26.4% 27,321 6,035 22.1%
The main reason for the increase in the adjusted effective rate of tax is due
to higher permanent differences in the US. Under US tax rules, there is a
requirement to compute tax on profits of controlled foreign companies as if
those companies were US tax resident. From 1 Jan 2022, there was a change in
US tax legislation relating to section 174 which effectively increases the
taxable profits of entities that are carrying out R&D functions. This
impacts the subsidiaries of the Acuant group which has led to an increase in
the US tax charge relative to the prior year when Acuant was not part of the
group.
8. EARNINGS PER ORDINARY SHARE
Unaudited Unaudited Audited
6 months to 30 September 2022 6 months to 30 September 2021 Year to
31 March 2022
Basic pence per Diluted pence per share Basic pence per Diluted pence per share Basic pence per share Diluted pence per share
share share
(Loss)/profit attributable to equity holders of the Company
(0.3) (0.3) 5.7 5.6 7.1 6.9
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.
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.
Unaudited Unaudited Audited
30 September 30 September 31 March
2022 2021 2022
No. No. No.
Basic weighted average number of shares in issue 252,065,584 196,570,487 216,155,932
Basic weighted average number of shares held by EBT (224,935) - -
Dilutive effect of share options 5,546,474 4,873,340 4,339,614
Diluted weighted average number of shares in issue 257,387,123 201,443,827 220,495,546
Adjusted
Adjusted earnings per share is defined as adjusted operating profit less net
finance costs and adjusted tax divided by the basic weighted average number of
ordinary shares of the Company.
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 2022 30 September 2021 31 March 2022
Basic Diluted Basic Diluted Basic Diluted
pence per pence per pence per pence per pence per pence per
share share share share share share
£'000 £'000 £'000
28,065 11.1 10.9 27,783 14.1 13.8 27.2 26.7
Adjusted operating profit 58,839
Less net finance costs (2,553) (1.0) (1.0) (462) (0.2) (0.2) (1,754) (0.8) (0.8)
Less adjusted tax (6,727) (2.6) (2.6) (5,309) (2.7) (2.7) (12,587) (5.8) (5.7)
Adjusted earnings 18,785 7.5 7.3 22,012 11.2 10.9 44,498 20.6 20.2
9. DIVIDENDS PAID AND PROPOSED
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2022 2021 2022
£'000 £'000 £'000
Declared and paid during the period
Final dividend for 2022: 3.81p (2021: 3.40p) 9,600 6,677 6,677
Proposed for approval at AGM (not recognised as a liability at 31 March)
Final dividend for 2022: 3.81p (2021: 3.40p) - - 9,596
10. ACQUISITIONS
There were no new business combinations within the period ended 30 September
2022.
In the year to 31 March 2022, GBG completed two acquisitions, the measurement
periods for which end during the year to 31 March 2023.
No further adjustments were identified to the provisional fair values in
respect of the acquisition of Cloudcheck.
In respect of the acquisition of Acuant, adjustments to the provisional fair
values were made during the measurement period, as follows:
· Reduce the fair value of intangibles to £nil. This adjustment
relates to the write-off of configuration and customisation costs for
cloud-based software. A final agenda decision by the IFRS Interpretations
Committee clarified that configuration or customisation costs from cloud
computing arrangements do not usually meet the definition of intangible assets
under IAS 38 Intangible Assets and therefore should not be capitalised.
· Reduce trade and other receivables by £88,000 to £7,415,000 and
increase trade and other payables by £43,000 to £21,213,000. The adjustments
to trade and other receivables and trade and other payables relate to matters
identified following balance sheet reviews which related to the
pre-acquisition period, including an omitted accrual for professional
services.
The overall impact of the measurement period adjustments was to increase
goodwill by £312,000 to £403,799,000.
The impact of the measurement period adjustments has been applied
retrospectively, meaning that the results and financial position for the year
to 31 March 2022 have been restated.
11. NON-CURRENT ASSETS
Property, plant & equipment Right-of-use assets
Goodwill Other intangible assets £'000 £'000
£'000 £'000
Cost
At 1 April 2022 - as reported 713,785 343,400 11,698 8,819
Additions - measurement period(1) 315 - - -
Disposals - measurement period(1) - (183) - -
As at 1 April 2022 - as restated 714,100 343,217 11,698 8,819
Additions - 50 593 186
Disposals - (472) (665) (623)
Foreign exchange adjustment 105,827 49,124 422 412
At 30 September 2022 819,927 391,919 12,048 8,794
Depreciation, impairment and amortisation
At 1 April 2022 154 87,470 7,097 6,077
Charge for the period - 21,347 805 788
Impairment - - - 202
Disposals - (233) (655) (623)
Foreign exchange adjustment - 9,606 238 234
At 30 September 2022 154 118,190 7,485 6,678
Net book value
At 30 September 2022 819,773 273,729 4,563 2,116
At 1 April 2022 - as restated(1) 713,946 255,747 4,601 2,742
(1) For details of the prior year measurement period adjustment refer to note
10.
12. IMPAIRMENT ASSESSMENT
Goodwill acquired through business combinations is allocated to the CGUs that
are expected to benefit from that business combination and has been allocated
for impairment testing purposes to seven groups of CGUs as outlined in note 2.
As reported in the chief executive's officer's review, the performance of
GBG's Identity segment in Americas was below expectations. This was driven by
macro factors that reduced demand from cryptocurrency exchange customers and
internet-economy customers. While the Board are confident that these
influences that have detracted from growth will be short-lived it was deemed
appropriate that the carrying value of the goodwill and intangible assets
associated with this group of CGUs should be assessed for any potential
impairment.
Whilst the macro-economic impacts during this period could represent a
potential indicator of impairment for other groups of CGUs, the overall Group
has continued to trade strongly throughout this period and therefore it was
concluded that whilst some groups of CGUs had been temporarily impacted by the
reduction in activity linked to the macro-economic environment, there was
insufficient evidence of a significant change in the long term outlook for
these groups of CGUs to indicate that a full impairment review was required.
Therefore, the Group has concluded that there were only indicators of
impairment in relation to the Identity - Americas group of CGUs as at 30
September 2022.
The carrying value of goodwill allocated to the Identity - Americas group of
CGUs at 30 September 2022 was £541,020,000.
Key Assumptions Used in Value in Use Calculations
The key assumptions for value in use calculations are those regarding the
forecast cash flows, discount rates and growth rates.
The Group prepares cash flow forecasts using:
· budgets and forecasts approved by the Directors covering a 5 year
period (of which 4.5 years remained at 30 September 2022 as the forecast is
based on full financial years);
· an appropriate extrapolation of cash flows beyond this using a
combination of industry analysis of market growth rates to 2032; and
· a long-term average growth rate to perpetuity for the geographic
market being assessed.
Forecast revenue growth rates, margins and cash flow conversion rates were
based on past experience, industry market analysis and strategic opportunities
specific to the group of CGUs being assessed.
It was considered that beyond the initial period covered by budgets and
forecasts, it was most appropriate to include a further period of 5 years of
growth rates that are higher than the long-term average growth rate for the
United States region. This was determined on the basis of multiple pieces of
industry and market research covering the Identity and Identity Fraud markets
which support that, over this period, this market is expected to grow at a
higher rate than the long-term growth rate of the geographic market as a
whole.
Beyond this forecast period, the long-term average growth rate is not greater
than the average long-term retail growth rate in the territory where the group
of CGUs is based (United States) of 2.5%. This was based on the average
historic United States GDP growth rate over the last 25 years.
The Directors estimate discount rates using pre-tax rates that reflect current
market assessments of the time value of money and the risks specific to the
individual group of CGUs. Growth rates reflect long-term growth rate
prospects for the economy in which the group of CGUs operates.
2022 2021
Pre-tax Revenue Growth rate Growth rate Pre-tax Revenue Growth rate Growth rate
Discount rate (2028 to 2032) (in perpetuity) Discount rate (2028 to 2032) (in perpetuity)
% % % % % %
Identity - Americas Unit 12.3% 14.7% 2.5% 12.0% n/a 2.2%
The Group has considered the impact of changes in future cash flows and key
assumptions on the base case value in use model and has run a number of
sensitivities to create sensitised value in use models that incorporate
movements in discrete assumptions. This has been included applying the
cumulative impact of:
· Increasing pre-tax discount rates by 50bps, to reflect potential
increases in government bond yields and associated risk-free rates;
· Decreasing average annual growth forecasts to between 2028 and
2032 by 200bps, to reflect the potential for a worse than predicted market
outlook; and
· Decreasing long term growth rates by 50bps, to reflect a worse
than predicted long term global economic outlook.
It was not deemed necessary to sensitise the operating margin of the CGU given
the strategy for growth. Despite the forecast growth the unsensitised forecast
cashflows do not assume any operating leverage which would increase operating
profit margins. Management determined that should growth be slower than
estimated then there was adequate headroom in the estimates of costs that
operating margins could be preserved.
It was concluded that the sensitised value in use model does not result in
impairment.
The headroom (i.e. the excess of the value of discounted future cash flows
over the carrying amount of the group of CGUs) under both the base case and
sensitised worst-case scenario is below:
2022 2021
Base Case(1) Sensitised(2) Base Case(1) Sensitised(2)
£'000 £'000 £'000 £'000
Identity - Americas Unit 141,414 22,486 57,487 6,422
(1) The excess of the recoverable amount over the carrying amount of the group
of CGUs before applying sensitivities
(2) Headroom after adjusting future cash flows and key assumptions to create a
sensitised value in use model
When considering goodwill impairment, the break-even rate at which headroom
within the group of CGUs is reduced to £nil, if all other assumptions remain
unchanged, has also been considered. This has been included for illustrative
purposes and does not reflect a reasonably foreseeable change in assumptions.
2022 2021
Pre-tax Decrease in Base Case Cashflows Revenue Growth Rate Pre-tax Decrease in Base Case Cashflows Revenue Growth Rate
Discount Rate (2028 to 2032) Discount Rate (2028 to 2032)
Identity - Americas Unit 13.9% 16.1% 9.0% 18.1% 36.0% n/a
The Directors do not believe that any reasonably possible changes in the value
of the key assumptions noted above would cause the group of CGUs carrying
amount to exceed its recoverable amount.
13. TRADE AND OTHER RECEIVABLES
Restated(2)
Unaudited Unaudited Audited
30 September 30 September 31 March
2022 2021 2022
£'000 £'000 £'000
Trade receivables 49,374 39,171 59,557
Allowance for unrecoverable amounts (2,067) (2,335) (3,968)
Net trade receivables 47,307 36,836 55,589
Prepayments 8,891 7,255 10,472
Accrued income 5,529 4,760 3,565
61,727 48,851 69,626
( )
(2) For details of the prior year measurement period adjustment refer to note
10.
14. TRADE AND OTHER PAYABLES
Restated(3)
Unaudited Unaudited Audited
30 September 30 September 31 March
2022 2021 2022
£'000 £'000 £'000
Trade payables 10,116 6,522 10,558
Other taxes and social security costs 3,206 3,263 4,785
Accruals 24,290 23,402 34,272
37,612 33,187 49,615
( )
(3) For details of the prior year measurement period adjustment refer to note
10.
15. LOANS
Bank Loans
During the current period the Group drew down an additional £10,000,000 and
made repayments of $15,000,000 (£12,273,000) and £1,000,000. The outstanding
balance on the loan facility at 30 September 2022 was £148,259,000 (31 March
2021: £129,254,000) representing £9,000,000 in GBP and $155,000,000 in USD.
During the period to 30 September 2021, loan arrangement fees on the previous
revolving credit facility were reclassified to prepayments due to the loan
value being £nil at 30 September 2021 and the net position was therefore an
asset rather than a liability. In the current period and the year to 31 March
2022 loan arrangement fees have been netted off the loan balance.
The debt bears an interest rate of Sterling Overnight Index Average (SONIA)
for British Pound Sterling drawdowns or Secured Overnight Financing Rate
(SOFR) for US Dollar drawdowns plus a margin of between 1.6% and 2.4%
depending on the Group's current leverage position.
The loan is secured by a fixed and floating charge over the assets of the
Group.
Unaudited Unaudited Audited
30 September 30 September 31 March
2022 2021 2022
£'000 £'000 £'000
Opening bank loan 128,226 - -
New borrowings 10,000 - 156,748
Loan arrangement fee - - (1,157)
Repayment of borrowings (13,273) - (30,073)
Loan fees paid for extension - - -
Amortisation of loan fees 170 - 129
Foreign currency translation adjustment 22,279 - 2,579
Closing bank loan 147,402 - 128,226
Analysed as:
Amounts falling due within 12 months - - -
Amounts falling due after one year 147,402 - 128,226
147,402 - 128,226
Unaudited Unaudited Audited
30 September 30 September 31 March
2022 2021 2022
£'000 £'000 £'000
Analysed as:
Bank loans 148,259 - 129,254
Unamortised loan fees (857) - (1,028)
147,402 - 128,226
16. CONTINGENT CONSIDERATION
Unaudited Unaudited Audited
30 September 30 September 31 March
2022 2021 2022
£'000 £'000 £'000
Opening 7,776 3,662 3,662
Recognition on the acquisition of subsidiary undertakings - - 3,618
Unwinding of discount 108 - 34
Foreign exchange movement 527 90 462
Closing 8,411 3,752 7,776
Analysed as:
Amounts falling due within 12 months 6,521 3,752 5,856
Amounts falling due after one year 1,890 - 1,920
8,411 3,752 7,776
The opening balance at 1 April 2021 and closing balance at 30 September 2021
represented contingent consideration in respect of the pre-acquisition tax
losses within IDology Inc. As and when GBG receives a cash benefit from these
losses, either through a reduction in tax payments or through a tax refund, an
amount equal to the cash benefit is due to the sellers.
The amount recognised on the acquisition of subsidiary undertakings in the
year to 31 March 2022 was in respect of the Cloudcheck acquisition. Since the
contingent consideration is payable in stages, it has been discounted to fair
value as at the acquisition date and subsequently unwound to profit and loss.
17. FINANCIAL INSTRUMENTS - FAIR VALUE MEASUREMENT
The objectives, policies and strategies pursued by the Group in relation to
financial instruments are described within the 2022 Annual Report.
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.
Financial instruments that are recognised at fair value subsequent to initial
recognition are classified using a fair value hierarchy that reflects the
significance of inputs used in making measurements of fair value.
The fair value hierarchy has the following levels:
· Level 1 - Quoted prices (unadjusted) in active markets for
identical assets or liabilities;
· Level 2 - Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices); and
· Level 3 - Inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
For financial instruments that are recognised at the fair value on a recurring
basis, the Group determines whether transfers have occurred between levels in
the hierarchy by re-assessing categorisation (based on the lowest level input
that is significant to the fair value measurement as a whole) at the end of
each reporting period.
At 30 September 2022, the Group had a non-listed equity investment and
contingent consideration which were measured at Level 3 fair value subsequent
to initial recognition.
The fair value of the non-listed equity investment was £2,989,000 (30
September 2021: £2,288,000) with the fair value gain of £700,000 being
recognised within other comprehensive income. Fair value of non-listed equity
investments is determined using the market-based approach. Factors considered
include movement in exchange rates, similar share transactions and revenue
performance.
The fair value of the contingent consideration was £8,411,000 (30 September
2021: £3,752,000) with the resulting gain or loss being recognised in the
consolidated income statement within operating expenses. The fair value of
contingent consideration is estimated having been determined from management's
estimates of the range of outcomes to certain future forecasts and their
estimated respective likelihoods. The contractual cash flows are therefore
based on future trading activity, which is estimated based on latest
forecasts.
Refer to note 15 for a breakdown of the movement.
18. SHARE-BASED PAYMENTS
The Group operates Executive Share Option Schemes under which Executive
Directors, managers and staff of the Group are granted options over shares.
During the six months ended 30 September 2022, the following share options
were granted to Executive Directors and team members.
Scheme Date No. of options Exercise price Fair value
LTIP 1 May 2022 - 1 June 2022 508,692 2.5p 357.0p - 578.0p
Performance Share Plan 8 September 2022 1,739,223 2,5p 400.0p - 631.0p
Restricted Share Plan 8 September 2022 320,603 2.5p 631.0p
SAYE (3 Year) 19 August 2022 593,351 353.0p - 473.0p 115.0p - 160,0p
SAYE (5 Year) 19 August 2022 155,754 353.0p - 473.0p 141.0p - 181.0p
The charge recognised from equity-settled share-based payments in respect of
employee services received during the period was £2,727,000 (2021:
£3,865,000).
19. TREASURY SHARES
The treasury share reserve represents the cost of the shares in GB Group plc
purchased in the open market and held by The GB Group Employee Benefit Trust
(EBT) to satisfy existing share options under the Group's long-term incentive
plans. During the period, 607,333 shares (2021: nil) were purchased by the EBT
at an average price of £4.12 (2021: £nil). 229,677 shares (2021: nil) with
an attributable cost of £4.12 (2021: nil) were issued to employees in
satisfying share options that were exercised.
£'000
At 1 April 2022 -
Own shares purchased 2,500
Shares issued to employees (945)
Balance at 30 September 2022 1,555
20. CONTINGENT LIABILITY
The Information Commissioner's Office ('ICO'), the data industry regulator in
the UK, announced in November 2018 that it was conducting audits on a number
of companies to understand the use of data in their services. GBG was included
in this review and has continued to engage and work with the ICO and has made
progress against their recommendations to continue to improve its privacy
compliance. As at the date of this report, there has been no significant
progress to note since Annual Report and Accounts for the year ended 31 March
2022. We will keep the market informed of any material developments.
21. RELATED PARTY TRANSACTIONS
During the period, the Group has not entered into transactions, in the
ordinary course of business, with other related parties (2021: £nil).
Compensation of key management personnel (including directors)
Unaudited Audited
Unaudited 6 months to Year to
6 months to 30 September 31 March
30 September 2021 2022
2022
£'000 £'000 £'000
Short-term employee benefits 1,209 1,622 3,392
Fair value of share options awarded 2,618 3,653 2,633
3,827 5,275 6,025
22. SUBSEQUENT EVENTS
On 18 November 2022, the Group exercised the first of the one-year extension
options on the existing revolving credit facility so that the facility is now
due to expire in July 2026. A further arrangement fee of £358,000 was payable
for this extension.
23. 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. These non-GAAP measures are not
considered to be a substitute for or superior to IFRS measures and should not
be viewed in isolation or as an alternative to the equivalent GAAP measure.
The Group's income statement and segmental analysis separately identify
trading results before certain items. The directors believe that presentation
of the Group's results in this way is relevant to an understanding of the
Group's financial performance, as such items are identified by virtue of their
size, nature or incidence. This presentation is consistent with the way that
financial performance is measured by management and reported to the Board and
assists in providing a meaningful analysis of the trading results of the
Group. In determining whether an event or transaction is presented separately,
management considers quantitative as well as qualitative factors such as the
frequency or predictability of occurrence. Examples of charges or credits
meeting the above definition, and which have been presented separately in the
current and/or prior years include amortisation of acquired intangibles,
share-based payments charges, acquisition related costs and business
restructuring programmes. In the event that other items meet the criteria,
which are applied consistently from year to year, they are also presented
separately.
The following are the key non-GAAP measures used by the Group:
Constant Currency
Constant currency means that non-Pound Sterling revenue in the comparative
period is translated at the same exchange rate applied to the current year
non-Pound Sterling revenue. This therefore eliminates the impact of
fluctuations in exchange rates on underlying performance and enables
measurement of performance on a comparable year-on-year basis without the
impact of foreign exchange movements.
Pro Forma Underlying Revenue
This includes adjustments to reported revenue for the pre-acquisition/disposal
revenue from acquisitions/disposals in the past twelve months and is presented
excluding non-underlying items. Underlying revenue is presented as we
believe this provides both management and investors with useful additional
information about the Group's performance and aids a more effective comparison
of the Group's trading performance from one period to the next.
Unaudited Unaudited
30 September 2022 30 September 2021 Growth
£'000 £'000 %
Reported revenue 133,816 109,154 22.6%
Pre-acquisition/disposal revenue - 21,861 (20.5)%
Post-acquisition unwind of deferred revenue haircut(1) on Acuant 1,081 - 0.8%
Non-repeating revenue(2) - (8,771) 7.4%
Pro forma revenue 134,897 122,244 10.4%
Constant currency adjustment - 8,193 (6.9%)
Pro forma revenue at constant currency 134,897 130,437 3.4%
( )
(1) The deferred revenue haircut represents the cost of providing the deferred
revenue service in the post-acquisition period.
(2) Non-repeating revenue represents revenue from the US government's stimulus
programme and exceptional cryptocurrency volume.
Normalised items
These are recurring items which management considers could affect the
underlying results of the Group.
These include:
· amortisation of acquired intangibles; and
· share-based payment charges
Normalised items are excluded from statutory measures to determine adjusted
results.
Adjusted Operating Profit
Adjusted operating profit means operating profit before exceptional items and
normalised items. Adjusted results allow for the comparison of results
year-on-year without the potential impact of significant one-off items or
items which do not relate to the underlying performance of the Group. Adjusted
operating profit is a measure of the underlying profitability of the Group.
Unaudited Unaudited
30 September 2022 30 September 2021
£'000 £'000
Operating profit 2,529 14,847
Amortisation of acquired intangibles 21,296 8,581
Share-based payment charges 2,727 3,865
Exceptional items 1,513 490
Adjusted Operating Profit 28,065 27,783
Adjusted Operating Profit Margin
Adjusted operating profit margin Adjusted Operating Profit as a percentage of
revenue.
Adjusted EBITDA
Adjusted EBITDA means Adjusted Operating Profit before depreciation and
amortisation of non-acquired intangibles.
Unaudited Unaudited
30 September 2022 30 September 2021
£'000 £'000
Adjusted Operating Profit 28,065 27,783
Depreciation of property, plant and equipment 805 644
Depreciation of right-of-use assets 788 903
Amortisation of non-acquired intangibles 51 98
Adjusted EBITDA 29,709 29,428
Adjusted Tax
Adjusted Tax means income tax charge before the tax impact of amortisation of
acquired intangibles, share-based payment charges and exceptional items. This
provides an indication of the ongoing tax rate across the Group.
Unaudited Unaudited
30 September 2022 30 September 2021
£'000 £'000
Income tax charge 725 3,195
Tax impact of amortisation of acquired intangibles 5,254 1,311
Tax impact of share-based payments charges 559 803
Tax impact of exceptional items 189 -
Adjusted Tax 6,727 5,309
Adjusted Effective Tax Rate
The Adjusted Effective Tax Rate means Adjusted Tax divided by Adjusted
Earnings.
Unaudited 30 September Unaudited 30 September
2022 2021
Profit before tax Income tax charge Effective tax rate Profit before tax Income tax charge Effective tax rate
£'000 £'000 % £'000 £'000 %
Reported Effective Tax Rate (24) 725 (3,020.8%) 14,385 3,195 22.2%
Add back:
Amortisation of acquired intangibles 21,296 5,254 3,048.9% 8,581 1,969 0.3%
Equity-settled share-based payments 2,727 559 (0.9%) 3,865 871 0.0%
Exceptional items 1,513 189 (0.8%) 490 - (0.4)%
Adjusted Effective Tax Rate 25,512 6,727 26.4% 27,321 6,035 22.1%
Adjusted Earnings Per Share ('Adjusted EPS')
Adjusted EPS represents adjusted earnings divided by a weighted average number
of shares in issue and is disclosed to indicate the underlying profitability
of the Group. Adjusted EPS is a measure of underlying earnings per share for
the Group. Adjusted earnings represents Adjusted Operating Profit less net
finance costs and income tax charges. Refer to note 8 for calculation.
Net Cash/Debt
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. Lease liabilities following the implementation of IFRS 16 are
also excluded from the calculation of net cash/debt since they are not
considered to be indicative of how the Group finances the business. This is a
measure of the strength of the Group's balance sheet.
2021 2020
Unaudited Audited
30 September 2022 31 March 2022
£'000 £'000
Cash and cash equivalents 15,683 22,302
Loans on balance sheet 147,402 128,226
Unamortised loan arrangement fees 857 1,028
External Loans 148,259 129,254
Net (Debt)/Cash (132,576) (106,952)
Debt Leverage
This is calculated as the ratio of net (debt)/cash to adjusted EBITDA. This
demonstrates the Group's liquidity and its ability to pay off its incurred
debt.
Unaudited Audited
30 September 31 March 2022
2022
£'000 £'000
Net (Debt)/Cash (132,576) (106,952)
Rolling 12 month Adjusted EBITDA 62,473 62,196
Debt Leverage 2.12 1.72
Cash Conversion %
This is calculated as cash generated from operations in the Consolidated Cash
Flow Statement, adjusted to exclude cash payments in the year for exceptional
items, as a percentage of Adjusted operating profit. This measures how
efficiently the Group's operating profit is converted into cash.
2021 2020
Unaudited Unaudited
30 September 2022 30 September 2021
£'000 £'000
Cash generated from operations before tax payments (from Consolidated Cash 15,338 32,471
Flow Statement)
Total exceptional items 1,513 490
Accrued cash exceptional items at the start of the period paid in the current 1,372 549
period
Accrued cash exceptional items at the end of the period (411) (273)
Non-cash exceptional items (720) (90)
Cash generated from operations before tax payments and exceptional items paid 17,092 33,147
Adjusted EBITDA 29,709 29,428
Cash Conversion % 57.5% 112.6%
Rolling 12 Month Cash Conversion %
This is cash conversion on a rolling 12-month basis and measures how
efficiently the Group's operating profit is converted into cash.
2021 2020
Unaudited Audited
30 September 2022 31 March 2022
£'000 £'000
Cash generated from operations before tax payments 39,123 56,256
Total exceptional items 5,549 4,526
Accrued cash exceptional items at the start of the period paid in the current 273 549
period
Accrued cash exceptional items at the end of the period (411) (427)
Non-cash exceptional items (1,057) (1,372)
Cash generated from operations before tax payments and exceptional items paid 43,477 59,532
Adjusted EBITDA 62,484 62,196
Rolling Cash Conversion % 69.6% 95.7%
Independent Review Report to GB Group plc
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2022 which comprises Condensed Consolidated Statement of Profit or
Loss, Condensed Consolidated Statement of Comprehensive Income, Condensed
Consolidated Statement of Changes in Equity, Condensed Consolidated Balance
Sheet, Condensed Consolidated Cash Flow Statement and the related explanatory
notes 1 to 22. 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
financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2022 is not prepared,
in all material respects, in accordance with UK adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. 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 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.
As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately
disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. 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.
Ernst & Young LLP
Leeds
29 November 2022
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