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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Gb Group Plc | LSE:GBG | London | Ordinary Share | GB0006870611 | ORD 2.5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 3.00 | 1.20% | 253.00 | 252.40 | 253.60 | 256.60 | 245.20 | 249.00 | 513,057 | 16:35:05 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Computer Programming Service | 278.81M | -119.79M | -0.4743 | -5.33 | 638.52M |
From Apr 2019 to Apr 2024
TIDMGBG
RNS Number : 1989H
GB Group PLC
06 June 2017
6 June 2017
GB GROUP PLC
("GBG", the "Group" or the "Company")
Annual Results for the Year Ended 31 March 2017
GBG (AIM: GBG), the identity data intelligence specialist, is pleased to announce its annual results for the year ended 31 March 2017.
Financial Highlights
-- Revenue growth of 19.2% to GBP87.5 million (2016: GBP73.4 million), including organic revenue growth(++) of 12%.
-- 26.6% increase in adjusted operating profits to GBP17.0 million (2016: GBP13.4 million).
-- 23.6% increase in adjusted basic earnings per share to 13.1p (2016: 10.6p) and a 10.8% increase in basic earnings per share to 8.2p.
-- 8.2% increase in profit before tax (after exceptional costs) to GBP10.1 million (2016: GBP9.3 million).
-- Solid balance sheet and strong cash generation, resulting in cash balances at 31 March 2017 of GBP17.6 million (2016: GBP12.4 million)(Yen) .
-- A progressive 13.0% increase to the proposed dividend for 2017 to 2.35 pence per share (2016: 2.08 pence).
Operational Highlights
-- IDscan, which was fully acquired in July 2016, has immediately become accretive for the Group and provides a strong pipeline of growth for the Identity Proofing operating segment.
-- Loqate continues to perform well as a fully integrated part of the Identity Solutions operating segment, also contributing to Group profitability.
-- Strong growth in international revenues, increasing to 31.1% of total revenues (2016: 26.4%).
-- Growing global footprint and strengthening international brand; clients including Citibank and DBS (Development Bank of Singapore) expanded throughout Asia Pacific and BNP Paribas into Europe and South Africa.
-- New business wins with blue chips including Saxo Bank A/S and Lufthansa.
-- Strong visibility for year ahead; deferred revenue balances increased to GBP19.0 million (2016: GBP13.8 million). Highly visible revenues are again over 70%.
-- Strengthened Board post year end with appointment of Nick Brown as Group Managing Director.
-- Significant acquisition of PCA Predict completed post year end, positioning GBG as a leader of UK and international address validation and data quality services.
Commenting, Chris Clark, Chief Executive, said: "We have made a positive start to the year, with trading in line with management expectations. We have also completed a successful acquisition and I am excited about the opportunities this brings.
"As this is my first statement as CEO I wanted to thank the GBG team for making me feel so welcome. I am committed to continuing to invest in our people, customers, products and services to provide another positive year for all our stakeholders. I am confident in the direction we are heading as a Group and I am looking forward to the year ahead."
Notes:
(++) After adjusting for revenue in the year ending 31 March 2016 relating to the recovery of start-up costs from the Gov.uk/verify service
Adjusted operating profit means profits before amortisation of acquired intangibles, share-based payment charges, exceptional items, net finance costs and tax.
Adjusted earnings per share is determined with reference to the adjusted operating profit less net finance costs and tax.
(Yen) Following cash payments of GBP35.8 million (net of cash acquired) for the purchase of ID Scan Biometrics ("IDscan"), the payment of GBP1.0 million contingent consideration for DecTech Solutions and the payment of a GBP2.8 million dividend to shareholders.
- Ends -
For further information, please contact:
GBG Chris Clark, CEO Dave Wilson, Group Finance Director & Operations Director 01244 657333 Peel Hunt LLP (Nominated Adviser and Broker) Richard Kauffer 020 7418 8900 Newgate Bob Huxford Ed Treadwell 020 7653 9850 Website www.gbgplc.com
About GBG
GBG is a global specialist in Identity Data Intelligence. We help organisations make decisions about the customers they serve and the people they employ.
Through our fundamental belief that the digital economy relies on everyone having access to data they can trust, GBG enables companies and governments to fight fraud and cybercrime, to improve the customer experience and help to protect the more vulnerable people in our society.
Headquartered in Chester (UK) and with people in 17 countries, GBG provides solutions to many of the world's biggest organisations, from established brands like HSBC and Zurich Insurance to disruptive newcomers such as Xpress Money and Stripe.
Find out more about how we use identity intelligently by visiting www.gbgplc.com, following us on Twitter @gbgplc and reading our newsroom: www.gbgplc.com/uk/newsroom
Chairman's Statement
It gives me great pleasure to report on another year of strong progress for GBG. Revenue has continued to show year-on-year growth and profit was in line with the Board's expectations demonstrating our strength as a Group.
We continue to follow our clearly defined strategy to the year 2020 by investing in innovative products, complementary acquisitions and our people. I believe our approach has put us in a stronger position than ever to address future opportunities. It has been a year of transition for GBG leading up to the retirement of Richard Law and the appointment of Chris Clark as our new CEO. I would like to thank Richard for his very successful tenure and I look forward to working with Chris and the rest of the senior management team as we continue to deliver on our strategy.
Performance
Revenues increased by 19.2% to GBP87.5 million (2016: GBP73.4 million), including like-for-like organic growth(++) of 12%. Adjusted operating profit saw a 26.6% increase to GBP17.0 million (2016: GBP13.4 million) with an increase in adjusted earnings per share of 23.6% to 13.1 pence (2016: 10.6 pence). Basic earnings per share increased by 10.8% to 8.2 pence. Deferred revenue in the balance sheet (in respect of amounts already invoiced under annual or multi-year contracts, but which will be recognised in future periods) increased by GBP5.2 million to GBP19.0 million. This, added to our other highly visible revenue streams, means that we go into another year with around three quarters of our revenue secured.
GBG continues to be cash generative with cash balances at 31 March 2017 of GBP17.6 million (2016: GBP12.4 million). Net cash balances were GBP5.2 million (2016: GBP8.7 million).
Our acquisitions have contributed positively to the Group result with our international growth being led by: DecTech in Asia Pacific through a number of new business wins in China; and Loqate in the USA through its major international IT partners. IDscan is settling in well and the prospects offered by its technology (with its artificial intelligence capabilities) provides an exciting future dynamic for the business.
Dividend
In line with our progressive dividend commitment, the Board is recommending a final dividend of 2.35 pence per share and subject to shareholder approval at the Annual General Meeting in July it will be paid on 25 August 2017. If accepted, this proposal will represent a ninth year of growth in dividends.
People
Our performance is testament to our team's commitment, professionalism and desire to succeed. At a leadership level the Board has been strengthened with the appointment in April 2017 of Nick Brown as Group Managing Director. Nick joined GBG in 2007, and having been a member of the Group's Executive Team since this time, brings with him significant experience and expertise.
As set out in our strategy, we are creating an environment where every team member is aware of our business plans, understands how they can have a personal impact on GBG's success and is recognised and rewarded for their contribution. The very high percentage of our teams who would recommend GBG as a place to work puts us very much in the top quartile of people engagement scores and shows our positive progress in building a world class team of high calibre talent.
Outlook
The market for identity data intelligence solutions continues to grow as does our capability, especially after the acquisitions of IDscan and PCA Predict. We have forged stronger relationships with existing customers and have continued to win significant new business in all territories. Our product portfolio has grown and we remain committed to developing our people and building a unique culture.
With Chris Clark in place as our new CEO, and as a result of the investments we've made, I believe we can respond even more effectively to the opportunities in the market, create further growth and build on our successes.
D A Rasche
Chairman
Adjusted operating profit means profits before amortisation of acquired intangibles, share-based payment charges, exceptional items, net finance costs and tax.
(++) After adjusting for revenue in the year ending 31 March 2016 relating to the recovery of start-up costs from the Gov.uk/verify service
Chief Executive's Statement
I am pleased to be able to present this Annual Report to shareholders, my first as CEO.
After two months in the role I have been able to meet with many of GBG's key stakeholders and customers. Throughout all of these meetings I have been struck by the consistent high regard in which the business is held as a leader in the rapidly growing identity data intelligence market. In no small part this is thanks to my predecessor, Richard Law. I would like to thank him for leading and developing such a strong company.
Since I started as CEO in April 2017, I have taken the time to get to know GBG's customers, team members and products. I have seen a strong business made up of talented and committed people throughout the organisation. They are led by an excellent executive leadership team with whom I will work closely over the coming months to further develop the Group's strategic priorities. I believe our key strengths are: our global reach and access to a wide breadth of global data; our product and technology leadership; and our people. This gives us a very strong platform upon which to build a successful future.
Overview of our business and the market
I am pleased to report another strong financial performance. Last year, the team talked about the growing market for identity data intelligence solutions and the opportunities this presented. The results show that GBG has turned this potential into growth and made good progress in its markets, both in the UK and globally.
I am confident that the year ahead offers more opportunities. GBG can capitalise on these thanks to a combination of a clear strategy, strong leadership, solid customer relationships, new acquisitions, new products and investment in our people. GBG also remains focused on developing its international business model, with international revenues now representing 31% of Group revenue.
Whilst there are many opportunities in our markets there are also a few challenges. Our CitizenSafe(R) identity assurance service, a certified provider on the UK Government's GOV.UK Verify platform, entered its second year of operation this year. Whilst we are clearly disappointed at the slow growth in this area, it remains a key area of competence for GBG, has offered valuable experience in working with government projects and provides significant potential opportunities, without affecting the overall growth of our other businesses. In addition, changes in regulation, including the upcoming EU GDPR (General Data Protection Regulation), mean that businesses will need to find new ways to manage and protect the data they hold presenting GBG with additional opportunities.
Technology advances are already paving the way for potential growth as biometrics and artificial intelligence build on traditional reference data sets. We are ideally positioned to capitalise on this and are strengthening our R&D capabilities to respond to these ever evolving markets, to take advantage of the opportunities presented and, at the same time, to help our customers feel more confident in the data they use and the decisions they make.
Growth: new business and international expansion
Throughout the course of the year, GBG has continued to win new customers and strengthen existing relationships.
We have seen our existing product ranges taken up by new customers such as Saxo Bank A/S who signed a long-term agreement with GBG to deploy a multi-product offering combining GBG's identity verification, address look-up and decision support technology. We have also seen new applications for GBG products with IDscan's technology deployed by Lufthansa to speed up passenger check-in and by Santander to speed up the process of document verification in its UK branches.
We have also renewed contracts with some significant GBG customers including Bet365 and Plus500 who have now added GBG Matchcode360 to their existing product portfolio in addition to GBG ID3global.
Internationally we have achieved important further expansion for the Group with CitiBank and DBS (Development Bank of Singapore) in the Asia-Pacific region and BNP Paribas signing new contracts in Europe and South Africa. Each of these contracts reflects GBG's growing global footprint and strengthening international brand.
Acquisitions
Last year, my predecessor talked about building on our track record of identifying, executing and successfully integrating acquisitions. We have continued to build on this throughout the financial year and post year end.
In June 2016 GBG acquired IDscan Biometrics Ltd, a high-growth company and market-leader in providing the technology to automate and improve document and biometric identity verification. The technology is currently used by a wide variety of organisations across sectors including banking, retail, and event security management. IDscan has traded well since joining GBG with a number of significant new customer wins. Its technology, which incorporates artificial intelligence capability, is being integrated into GBG's other products and services and there is a healthy and growing pipeline of high quality opportunities for these propositions.
In May 2017 we announced the acquisition of Postcode Anywhere (Holdings) Limited ("PCA Predict"). PCA Predict is a leading provider of UK and international address validation services. The combination represents a highly complementary capability set alongside GBG's existing solutions and will position GBG as a leader of UK and international address validation and data quality services. This opens up immediate upsell opportunities, is easily scalable and gives GBG access to an addressable market of over $1bn.
New products
We continue to strive to create leading products across our portfolio. Every area of our business has seen good progress against this core objective.
IDscan, for example, was granted a patent for its facial recognition system, Visage. This presents a unique way of verifying the facial component of a passport or ID card. Document forgery is a sophisticated business but with this new technology the team at IDscan will be able to extend protection to our customers by recognising known fraudsters.
We launched social affinity data into our GBG Matchcode360 proposition; this enhances the profile of a consumer based on their social media behaviour. We are also building expertise around the world so that GBG Matchcode360 can improve the speed and quality of our global location intelligence.
Alongside these developments, we have added new countries to our GBG ID3global identity verification service and enhanced the data available for countries we already support. GBG Instinct used for application fraud detection and previously a Windows-based application, is now fully web-enabled.
People
We have also continued to invest in our team through the priorities set out in the GBG People Plan. Across the business we now have over 750 people across 17 countries globally.
GBG is rightly proud of having excellent people engagement scores and we believe this has a fundamentally positive effect on the services we provide to our customers. Our strong execution is all down to our people and for this reason we continue to invest in our teams, ensuring that we can attract key talent to the business and that our existing team members have the skills and tools to assist the business as it scales. Examples of this include the introduction of a best-in-class e-learning platform, our global intranet for information sharing and collaboration, promoting job rotation internationally, and investment in in-house talent attraction.
Current Trading & Outlook
We have made a positive start to the year, with trading in line with management expectations. We have also successfully completed an acquisition and I am excited about the opportunities this brings.
As this is my first statement as CEO I want to thank the GBG team for making me feel so welcome. I am committed to continuing to invest in our people, customers, products and services to provide another positive year for all our stakeholders. I am confident in the direction we are heading as a Group and I am looking forward to the year ahead.
Chris Clark
Chief Executive
Finance Review
Principal Activities and Business Review
The principal activity of GB Group plc ('GBG') and its subsidiaries (together 'the Group') is the provision of identity data intelligence services. GBG helps organisations recognise and verify all elements of an individual's identity at key interactions in their business processes. Through the application of our proprietary technology, our vision is to inform business decisions between people and organisations globally.
The performance of the Group is reported by segment, reflecting how we run the business and the economic characteristics of each segment. The Group's two operating segments were as follows:
-- Identity Proofing - which provides electronic ID Verification services for combating ID fraud, money laundering and under-age gambling, ID Employ & Comply services for employee authentication and screening, and ID Fraud & Risk Management services.
-- Identity Solutions - which provides ID Registration, ID Engage and ID Trace & Investigate software and services that provide accurate and up-to-date consumer information and facilitate better understanding, targeting and retention of profitable consumers.
In order to reflect how the Group will present its lines of business to its stakeholders going forward, the naming and structure of the operating segments will be amended with effect from 1 April 2017. Going forward 'Identity Proofing' will become known as 'Fraud, Risk & Compliance' and 'Identity Solutions' will become known as 'Customer & Location Intelligence'. Furthermore, the 'ID Trace & Investigate' line of business will transfer into Fraud, Risk & Compliance. At the next reporting date, operating segments will be presented in the new structure with comparatives restated to allow appropriate comparisons to be made.
Between them, the segments have six complementary lines of business:
-- ID Verification, which provides the ability to verify consumers' identities remotely, without the physical presentation of documentation, in order to combat ID fraud, money laundering and restrict access to under-age content, purchases and gambling.
-- ID Employ & Comply, which provides background checks through online verification and authentication of individuals, enabling organisations to safeguard, recruit and engage with confidence.
-- ID Fraud & Risk Management, which provides fraud detection, risk management and consumer on-boarding solutions.
-- ID Registration, which includes software and services for quick and accurate consumer registration and validation of records.
-- ID Engage, which provides database services so our customers can better understand, target and retain their consumers and offers accurate and up-to-date identity information for their contact strategies.
-- ID Trace & Investigate, which provides the largest and most accurate picture of the UK's population and properties in order to locate and contact the right individual, first time.
The Group results are set out in the Consolidated Statement of Comprehensive Income and are explained in this Finance Review. A review of the Group's business and future development is contained in the Chairman's Statement, Chief Executive's Statement and the Finance Review.
Group Vision and Strategy
The Group's vision is to be the leader in identity data intelligence, informing business decisions between people and organisations globally.
The Group's strategy is to create and maintain unique online products and services which provide additional value for customers and are of sufficient strength to enable the Group to create new markets and consistently win new business against its competition. The Group achieves this through its investment in people, business and product development opportunities and the application of innovation, quality and excellence in everything it does.
Review of the Business
The Group uses adjusted figures as key performance measures in addition to those reported under adopted IFRS as they better reflect the underlying performance of the business. Adjusted figures exclude certain non-operational or exceptional items, which is consistent with prior year treatments. Adjusted measures are marked as such when used.
The following description of the Group's performance is complemented by the segmental analysis in note 4 to the accounts which shows the contributions from the Identity Proofing and Identity Solutions segments. The overall impact of our acquisitions in the year will not be fully evident in our segments until 2018.
Hot Features
Premium
2017 2016 Change Change
GBP'000 GBP'000 GBP'000 %
Revenue 87,486 73,401 14,085 19%
------------------------------------- -------- -------- -------- ---------
Adjusted operating profit 17,006 13,428 3,578 27%
------------------------------------- -------- -------- -------- ---------
Share-based payments (994) (1,245) 251 20%
------------------------------------- -------- -------- -------- ---------
Amortisation of acquired
intangibles (4,022) (2,501) (1,521) (61)%
------------------------------------- -------- -------- -------- ---------
Operating profit before exceptional
items 11,990 9,682 2,308 24%
------------------------------------- -------- -------- -------- ---------
Exceptional items (1,410) (94) (1,316) (1,400)%
------------------------------------- -------- -------- -------- ---------
Net finance costs (498) (270) (228) (84)%
------------------------------------- -------- -------- -------- ---------
Group profit before tax 10,082 9,318 764 8%
------------------------------------- -------- -------- -------- ---------
Total tax credit/(charge) 668 (178) 846 475%
------------------------------------- -------- -------- -------- ---------
Group profit for the year
attributable to shareholders 10,750 9,140 1,610 18%
------------------------------------- -------- -------- -------- ---------
Adjusted earnings(1) 17,176 12,980 4,196 32%
Basic weighted average number
of shares ('000) 131,609 122,744 8,865 7%
------------------------------------- -------- -------- -------- ---------
Adjusted basic earnings per
share (pence) (1) 13.1 10.6 2.5 24%
------------------------------------- -------- -------- -------- ---------
(1) Adjusted earnings and adjusted earnings per share ('EPS') are both non-GAAP measures determined with reference to the adjusted operating profit less net finance costs and tax.
The Group's overall profile has changed through acquisitions concluded during both this year and in the previous year. These businesses have delivered strong performances in the 12 month period ended 31 March 2017 while being underpinned by solid organic revenue growth of 10 per cent.
Adjusted operating profit for the year increased by 27 per cent to GBP17.0 million, reflecting:
-- Revenue growth of 19 per cent to GBP87.5 million. This increase included organic growth of 10 per cent.
-- The adjusted operating profit margin increased from 18 per cent to 19 per cent, notwithstanding significant continued investment for growth made over the course of the year.
Adjusted basic earnings per share improved by 24 per cent to 13.1 pence (2016: 10.6 pence). Basic earnings per share increased by 11 per cent to 8.2 pence (2016: 7.4 pence). Group cash conversion was strong with net cash generated from operating activities of GBP14.1 million (2016: GBP13.1 million) compared to operating profit before depreciation, amortisation, share-based payments and exceptional items (Adjusted EBITDA) of GBP18.7 million (2016: GBP14.8 million).
The Group's balance sheet and financing ability remain strong.
Adjusted EBITDA
Adjusted EBITDA was GBP18.7 million (2016: GBP14.8 million), consisting of adjusted operating profit of GBP17.0 million (2016: GBP13.4 million), depreciation of GBP1.0 million (2016: GBP1.1 million) and amortisation of purchased software and internally developed software of GBP0.7 million (2016: GBP0.3 million).
Exceptional Items
Exceptional costs of GBP1.4 million (2016: GBP0.1 million) were incurred by the Group in the year and have been detailed in note 7 to the accounts.
Net Finance Costs
The Group has incurred net finance costs for the year of GBP498,000 (2016: GBP270,000).
Acquired Intangibles Amortisation
The charge for the year of GBP4.0 million (2016: GBP2.5 million) represents the non-cash cost of amortising separately identifiable intangible assets including technology-based assets and customer relationships that were acquired through business combinations. The increased charge in the year is due to the impact of the acquisition during the current year.
Taxation
The Group tax credit of GBP0.7 million (2016: GBP0.2 million charge) reflects permanent differences arising in the year and the recognition of previously unrecognised deferred tax assets. There was GBP2,185,000 of current tax payable on the Group's profits in the year (2016: GBP309,000).
Dividend
The Board of Directors will propose a final ordinary dividend of 2.35 pence per share (2016: 2.08 pence per share), amounting to GBP3.6 million (2016: GBP2.8 million). The final ordinary dividend with respect to the year ended 31 March 2017, if approved, will be paid on 25 August 2017 to ordinary shareholders whose names were on the register on 21 July 2017. The Group continues to operate a Dividend Reinvestment Plan, allowing eligible shareholders to reinvest their dividends into GBG shares.
Earnings per Share
The earnings per share analysis in this report and in note 13 cover four measures: adjusted basic earnings per share (adjusted operating profit less net finance costs and tax); adjusted diluted earnings per share (adjusted operating profit less net finance costs and tax adjusting for the dilutive effect of share options); basic earnings per share (after all adjustments); and diluted earnings per share (adjusting for the dilutive effect of share options). Adjusted earnings (adjusted operating profit less net finance costs and tax) was GBP17.2 million (2016: GBP13.0 million) resulting in a 24 per cent increase in adjusted basic earnings per share from 10.6 pence to 13.1 pence. Basic earnings per share increased by 11 per cent from 7.4 pence to 8.2 pence. The weighted average number of shares at 31 March 2017 increased to 131.6 million (2016: 122.7 million).
Cash Flows
Group operating activities before tax payments generated GBP16.3 million of cash and cash equivalents (2016: GBP13.4 million) representing an increase of 22 per cent and an adjusted EBITDA to cash conversion ratio of 87 per cent (2016: 91 per cent). Operating cash flows continue to be healthy and the Group continually monitors its measures of cash generation and collection. Net cash generated by operating activities before working capital movements increased by 9 per cent to GBP15.6 million (2016: GBP14.3 million). Group investing activities resulted in net outflows of GBP39.0 million (2016: GBP14.0 million) including GBP36.8 million (2016: GBP12.3 million) in respect of acquisitions/investments, GBP2.2 million (2016: GBP1.1 million) on plant and equipment and software purchases and GBP21,000 on product development (2016: GBP0.6 million). Financing activities generated GBP29.6 million (2016: GBP2.5 million used) of net cash in the year and included GBP2.8 million of dividends paid (2016: GBP2.3 million). The Group's overall cash and cash equivalents increased by GBP5.2 million (2016: GBP3.4 million decrease) in the year. Further detailed analysis of this movement is included in the Consolidated Cash Flow Statement.
Acquisitions
During the year the Group acquired ID Scan Biometrics Limited, an unlisted company based in the UK. The total cash consideration paid, net of cash acquired, was GBP35.8 million. This acquisition was part-funded by the issue of 9.1 million shares as part of a placing. As part of the share sale and purchase agreement, a contingent consideration amount of up to GBP8.0 million has been agreed. This payment is subject to certain future revenue and EBITDA targets between 12 and 18 months from completion date. In addition to this payment, a total of GBP1.0 million of contingent consideration was paid out in the year relating to DecTech Solutions Pty Ltd. Further information on these acquisitions and the contingent consideration can be found in notes 31 and 32 to the accounts.
Deferred Income
Deferred income balances at the end of the year increased by 38 per cent to GBP19.0 million (2016: GBP13.8 million). This balance principally consists of contracted licence revenues and profits that are payable up front but recognised over time as the Group's revenue recognition criteria are met. The increase has been driven by continued strong contracted sales growth which will deliver their revenues and profits in future years.
The deferred income balance does not represent the total contract value of any future unbilled annual or multi-year, non-cancellable agreements as the Group more typically invoices customers in annual or quarterly instalments. Deferred income is influenced by several factors, including seasonality, the compounding effects of renewals, invoice duration, invoice timing and new business linearity within a reporting period.
Net Assets
Group net assets at the end of 2017 were GBP94.2 million, an increase of GBP37.8 million on the 2016 level of GBP56.4 million. This growth is driven by the increase in equity capital of GBP24.8 million combined with the total comprehensive income for the year of GBP14.4 million, less dividends paid of GBP2.8 million and after adjusting for share-based payments and tax on share-based payments of GBP1.0 million and GBP0.4 million, respectively.
Relationships
Other than our shareholders, the Group's performance and value are influenced by other stakeholders, principally our customers, suppliers, employees and our strategic partners. Relationships are managed both on an individual basis and via representative groups. The Group participates in industry groups which give genuine access to customers, suppliers and decision makers in government and other regulatory bodies.
Treasury Policy and Financial Risk
The Group's treasury operation is managed within formally defined policies and reviewed by the Board. The Group finances its activities principally with cash, short-term deposits and borrowings but has the ability to draw down up to GBP50 million of further funding from a revolving credit facility that is in place. Other financial assets and liabilities, such as trade receivables and trade payables, arise directly from the Group's operating activities. Surplus funds of the Group are invested through the use of short-term deposits, with the objective of reasonable interest rate returns while still providing the flexibility to fund ongoing operations when required. It is not the Group's policy to engage in speculative activity or to use complex financial instruments.
The Group is exposed to a variety of financial risks including: market risk (including foreign currency risk and cash flow interest rate risk), credit risk and liquidity risk which are described in note 25 to the accounts.
Use of non-GAAP Measures in the Group Financial Statements
The Group has identified certain measures that it believes will assist in understanding the performance of the business. The measures are not defined under IFRS and therefore may not be directly comparable with other companies' adjusted measures. The non-GAAP measures are not intended to be a substitute for, or superior to, any IFRS measures of performance, however management considers them to be important comparatives and key measures used within the business for assessing performance.
The following are the key non-GAAP measures identified by the Group and used in the Strategic Report and Financial Statements:
Organic Growth
Organic growth is defined by the Group as year-on-year continuing revenue growth, excluding acquisitions, until the date of their anniversary.
Adjusted Operating Profit
Adjusted operating profit means profits before amortisation of acquired intangibles, share-based payment charges, exceptional items, net finance costs and tax.
Adjusted EBITDA
Adjusted EBITDA means operating profit before depreciation, amortisation, share-based payment charges, exceptional items, net finance costs and tax.
Adjusted Earnings
Adjusted earnings represents adjusted operating profit less net finance costs and tax.
Adjusted Earnings Per Share ('Adjusted EPS')
Adjusted EPS represents adjusted earnings divided by a weighted average number of shares in issue, and is disclosed to indicate the underlying profitability of the Group.
Approved by the Board on 6 June 2017.
D J Wilson
Group Finance and Operations Director
Consolidated Statement of Comprehensive Income
Year ended 31 March 2017
-----------------------------------------------
Note 2017 2016
GBP'000 GBP'000
Revenue 3 87,486 73,401
Cost of sales (20,320) (17,606)
-------- --------
Gross profit 67,166 55,795
Operating expenses before amortisation
of acquired intangibles, share-based
payments and exceptional items (50,178) (42,481)
Other operating income 18 114
-------- --------
Operating profit before amortisation
of acquired intangibles, share-based
payments and exceptional items (adjusted
operating profit) 17,006 13,428
Amortisation of acquired intangibles 15 (4,022) (2,501)
Share-based payments charge 27 (994) (1,245)
Exceptional items 7 (1,410) (94)
Group operating profit 10,580 9,588
Finance revenue 9 19 12
Finance costs 10 (517) (282)
-------- --------
Profit before tax 10,082 9,318
Income tax credit/(charge) 11 668 (178)
-------- --------
Profit for the year attributable to
equity holders of the parent 10,750 9,140
-------- --------
Other comprehensive income:
Exchange differences on retranslation
of foreign operations (net of tax)(1) 3,685 1,096
-------- --------
Total comprehensive income for the
year attributable to equity holders
of the parent 14,435 10,236
-------- --------
Earnings per share 13
- adjusted basic earnings per share
for the year 13.1p 10.6p
- adjusted diluted earnings per share
for the year 12.8p 10.3p
- basic earnings per share for the
year 8.2p 7.4p
- diluted earnings per share for the
year 8.0p 7.2p
(1) Upon a disposal of a foreign operation,
this would be recycled to the Income
Statement
Consolidated Statement of Changes in Equity
Year ended 31 March 2017
----------------------------------------------
Foreign
Equity Capital currency
share Merger redemption translation Retained Total
Note capital reserve reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 April
2015 26,418 6,575 3 (684) 13,822 46,134
--------- --------- ------------ ------------ -------------- --------
Profit for the
period - - - - 9,140 9,140
Other
comprehensive
income - - - 1,096 - 1,096
--------- --------- ------------ ------------ -------------- --------
Total comprehensive
income for the
period - - - 1,096 9,140 10,236
Issue of share
capital 21 790 - - - - 790
Share-based payments
charge 27 - - - - 1,245 1,245
Tax on share options - - - - 273 273
Equity dividend 12 - - - - (2,277) (2,277)
--------- --------- ------------ ------------ -------------- --------
Balance at 31 March
2016 27,208 6,575 3 412 22,203 56,401
Profit for the
period - - - - 10,750 10,750
Other comprehensive
income - - - 3,685 - 3,685
Total comprehensive
income for the
period - - - 3,685 10,750 14,435
Issue of share
capital 21 25,505 - - - - 25,505
Share issue costs 21 (750) - - - - (750)
Share-based payments
charge 27 - - - - 994 994
Tax on share options - - - - 373 373
Equity dividend 12 - - - - (2,775) (2,775)
--------- --------- ------------ ------------ -------------- --------
Balance at 31 March
2017 51,963 6,575 3 4,097 31,545 94,183
--------- --------- ------------ ------------ -------------- --------
Company Statement of Changes in Equity
Year ended 31 March 2017
---------------------------------------
Equity Capital
share Merger redemption Retained Total
Note capital reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 April 2015 26,418 6,575 3 18,331 51,327
-------- --------- ----------- ---------- --------
Profit for the period - - - 8,317 8,317
-------- --------- ----------- ---------- --------
Total comprehensive
income for the period - - - 8,317 8,317
Issue of share capital 21 790 - - - 790
Share-based payments
charge 27 - - - 1,245 1,245
Tax on share options - - - 273 273
Equity dividend 12 - - - (2,277) (2,277)
-------- --------- ----------- ---------- --------
Balance at 31 March
2016 27,208 6,575 3 25,889 59,675
--------
Profit for the period - - - 10,717 10,717
-------- --------- ----------- ---------- --------
Total comprehensive
income for the period - - - 10,717 10,717
Issue of share capital 21 25,505 - - - 25,505
Share issue costs 21 (750) - - - (750)
Share-based payments
charge 27 - - - 994 994
Tax on share options - - - 373 373
Equity dividend 12 - - - (2,775) (2,775)
-------- --------- ----------- ---------- --------
Balance at 31 March
2017 51,963 6,575 3 35,198 93,739
-------- --------- ----------- ---------- --------
Consolidated Balance Sheet
As at 31 March 2017
---------------------------
Note 2017 2016
GBP'000 GBP'000
Assets
Non-current assets
Plant and equipment 14 2,856 2,234
Intangible assets 15 98,753 54,113
Deferred tax asset 11 4,044 3,017
105,653 59,364
------------------------- -------
Current assets
Inventories 233 -
Trade and other receivables 19 30,569 23,774
Current tax 494 -
Cash and short-term deposits 20 17,618 12,415
------------------------- -------
48,914 36,189
------------------------- -------
Total assets 154,567 95,553
------------------------- -------
Equity and liabilities
Capital and reserves
Equity share capital 21 51,963 27,208
Merger reserve 6,575 6,575
Capital redemption reserve 3 3
Foreign currency translation
reserve 4,097 412
Retained earnings 31,545 22,203
Total equity attributable
to equity holders of the
parent 94,183 56,401
------------------------- -------
Non-current liabilities
Loans 22 11,499 3,160
Deferred tax liability 11 4,441 3,433
------------------------- -------
15,940 6,593
Current liabilities
Loans 22 886 582
Trade and other payables 23 36,401 30,543
Contingent consideration 32 7,122 1,050
Provisions 24 35 31
Current tax - 353
44,444 32,559
------------------------- -------
Total liabilities 60,384 39,152
------------------------- -------
Total equity and liabilities 154,567 95,553
------------------------- -------
Approved by the Board on 6 June 2017
C G Clark - Director
D J Wilson - Director
Registered in England number 2415211
Company Balance Sheet
As at 31 March 2017
----------------------------------------------------------------------------------------
Note 2017 2016
GBP'000 GBP'000
Assets
Non-current assets
Plant and equipment 14 1,975 2,012
Intangible assets 15 1,701 1,595
Investments 17 104,096 60,428
Deferred tax asset 11 2,996 2,588
110,768 66,623
--------------------- ----------------------
Current assets
Trade and other receivables 19 21,846 18,836
Current tax 614 87
Cash and short-term deposits 20 11,011 9,663
--------------------- ----------------------
33,471 28,586
--------------------- ----------------------
Total assets 144,239 95,209
--------------------- ----------------------
Equity and liabilities
Capital and reserves
Equity share capital 21 51,963 27,208
Merger reserve 6,575 6,575
Capital redemption reserve 3 3
Retained earnings 35,198 25,889
Total equity attributable
to equity holders of the
parent 93,739 59,675
--------------------- ----------------------
Non-current liabilities
Loans 22 9,000 -
--------------------- ------------------------
9,000 -
Current liabilities
Trade and other payables 23 34,343 35,503
Contingent consideration 32 7,122 -
Provisions 24 35 31
41,500 35,534
--------------------- ----------------------
Total liabilities 50,500 35,534
--------------------- ----------------------
Total equity and liabilities 144,239 95,209
--------------------- ----------------------
During the year the Company made a profit GBP10,717,000 (2016: GBP8,317,000).
Approved by the Board on 6 June 2017
C G Clark - Director
D J Wilson - Director
Registered in England number 2415211
Consolidated Cash Flow Statement
Year ended 31 March 2017
---------------------------------
Note 2017 2016
GBP'000 GBP'000
Group profit before tax 10,082 9,318
Adjustments to reconcile Group profit
before tax to net cash flows
Finance revenue 9 (19) (12)
Finance costs 10 517 282
Depreciation of plant and equipment 14 1,031 1,071
Amortisation of intangible assets 15 4,719 2,778
Loss on disposal of plant and equipment 2 -
Fair value adjustment on contingent
consideration 32 471 78
Fair value gain on revaluation of
associate investment 31 - (247)
Share-based payments 27 994 1,245
Increase/(decrease) in provisions 24 4 (17)
Increase in inventories (78) -
Increase in trade and other receivables (3,690) (981)
Increase/(decrease) in trade and
other payables 2,272 (118)
-------- --------
Cash generated from operations 16,305 13,397
Income tax paid (2,193) (248)
-------- --------
Net cash generated from operating
activities 14,112 13,149
-------- --------
Cash flows from/(used in) investing
activities
Acquisition of subsidiaries, net
of cash acquired 31 (36,840) (12,263)
Purchase of plant and equipment 14 (1,437) (712)
Purchase of software 15 (774) (426)
Proceeds from disposal of plant
and equipment 5 -
Expenditure on product development 15 (21) (624)
Interest received 9 19 12
Net cash flows used in investing
activities (39,048) (14,013)
-------- --------
Cash flows from/(used in) financing
activities
Finance costs paid 10 (517) (282)
Proceeds from issue of shares 21 25,505 790
Share issue costs 21 (750) -
Proceeds from new borrowings 22 12,000 -
Repayment of borrowings 22 (3,838) (752)
Dividends paid to equity shareholders 12 (2,775) (2,277)
Net cash flows from/(used in) financing
activities 29,625 (2,521)
-------- --------
Net increase/(decrease) in cash
and cash equivalents 4,689 (3,385)
Effect of exchange rates on cash
and cash equivalents 514 22
Cash and cash equivalents at the
beginning of the period 12,415 15,778
-------- --------
Cash and cash equivalents at the
end of the period 20 17,618 12,415
-------- --------
Company Cash Flow Statement
Year ended 31 March 2017
----------------------------
Note 2017 2016
GBP'000 GBP'000
Company profit before tax 10,831 8,825
Adjustments to reconcile Company
profit before tax to net cash flows
Finance revenue (12) (7)
Finance costs 365 118
Depreciation of plant and equipment 14 784 1,020
Amortisation of intangible assets 15 689 273
Loss on disposal of plant and equipment 1 -
Fair value adjustment on contingent
consideration 32 454 (111)
Share-based payments 27 994 1,245
Increase/(decrease) in provisions 24 4 (17)
Increase in trade and other receivables (3,010) (5,259)
(Decrease)/increase in trade and
other payables (1,160) 7,428
Cash generated from operations 9,940 13,515
Income tax paid (676) (242)
-------- --------
Net cash generated from operating
activities 9,264 13,273
-------- --------
Cash flows from/(used in) investing
activities
Acquisition of subsidiary undertakings 31 (37,000) (14,183)
Purchase of plant and equipment 14 (748) (624)
Purchase of software 15 (774) (426)
Expenditure on product development 15 (21) (624)
Interest received 12 7
Net cash flows used in investing
activities (38,531) (15,850)
-------- --------
Cash flows from/(used in) financing
activities
Finance costs paid (365) (118)
Proceeds from issue of shares 21 25,505 790
Share issue costs 21 (750) -
Proceeds from new borrowings 12,000 -
Repayment of borrowings (3,000) -
Dividends paid to equity shareholders 12 (2,775) (2,277)
Net cash flows from/(used in) financing
activities 30,615 (1,605)
-------- --------
Net increase/(decrease) in cash
and cash equivalents 1,348 (4,182)
Cash and cash equivalents at the
beginning of the period 9,663 13,845
-------- --------
Cash and cash equivalents at the
end of the period 20 11,011 9,663
-------- --------
Notes to the Accounts
1. Corporate Information
GB Group plc ('the Company'), its subsidiaries and associates (together 'the Group') provide identity data intelligence products and services helping organisations recognise and verify all elements of an individual's identity at key interactions in their business processes. The nature of the Group's operations and its principal activities are set out in the Finance Review.
The Company is a public company limited by shares incorporated in the United Kingdom and is listed on the London Stock Exchange with its ordinary shares traded on the Alternative Investment Market. The company registration number is 2415211. The address of its registered office is The Foundation, Herons Way, Chester Business Park, Chester, CH4 9GB. A list of the investments in subsidiaries, including the name, country of incorporation, registered office address and proportion of ownership interest is given in note 17.
The financial information set out herein does not constitute the Company's statutory accounts for the years ended 31 March 2017 or 2016 but is derived from those accounts. The financial information has been prepared using accounting policies consistent with those set out in the annual report and accounts for the year ended 31 March 2017. Statutory accounts for 2016 have been delivered to the Registrar of Companies, and those for 2017 will be delivered in due course. The auditors have reported on those accounts; their report was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain any statements under Section 498(2) or (3) of the Companies Act 2006.
The Company's financial statements are included in the consolidated financial statements of GB Group plc. As permitted by section 408 of the Companies Act 2006, the profit and loss account of the Company is not presented.
2. Accounting Policies
Basis of Preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union and IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention, modified in respect of the revaluation of financial assets and liabilities at fair value. A summary of the significant accounting policies is set out below.
The accounting policies that follow set out those policies that apply in preparing the financial statements for the year ended 31 March 2017 and the Group and Company have applied the same policies throughout the year.
The Group and Company financial statements are presented in pounds Sterling and all values are rounded to the nearest thousand pounds (GBP'000) except when otherwise indicated.
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 March each year.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:
-- power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
-- exposure, or rights, to variable returns from its involvement with the investee; and -- the ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
-- the contractual arrangement with the other vote holders of the investee; -- rights arising from other contractual arrangements; and -- the Group's voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of Other Comprehensive Income ('OCI') are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.
Business Combinations
The Group uses the acquisition method of accounting to account for business combinations of entities not under common control. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 'Financial Instruments: Recognition and Measurement', is measured at fair value with the changes in fair value recognised in the statement of profit or loss. If the contingent consideration is classified as equity, it is not remeasured until it is finally settled within equity.
The Group applies IFRS 3 'Business Combinations' and as a consequence of the acquisition of the remaining 73.3% of shares in Loqate, the area of the standard applicable to business combinations achieved in stages became relevant to the Group. If the business combination is achieved in stages, the acquisition date fair value of the Group's previously held investment in the acquiree is remeasured to fair value at the acquisition date with any resultant gain or loss recognised through profit or loss.
Foreign Currencies
The Group's consolidated financial statements are presented in pounds Sterling, which is also the parent company's functional currency. For each entity the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. The Group uses the direct method of consolidation and on disposal of a foreign operation, the gain or loss that is reclassified to profit or loss reflects the amount that arises from using this method.
Transactions and Balances
Transactions in foreign currencies are initially recorded by the Group's entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items are recognised in profit or loss with the exception of monetary items that are designated as part of the hedge of the Group's net investment of a foreign operation. These are recognised in OCI until the net investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in OCI.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e. translation differences on items whose fair value gain or loss is recognised in OCI or profit or loss are also recognised in OCI or profit or loss, respectively).
Group Companies
On consolidation, the assets and liabilities of foreign operations are translated into pounds Sterling at the rate of exchange prevailing at the reporting date and their statements of profit or loss are translated at average exchange rates for the period. The exchange differences arising on translation for consolidation are recognised in OCI. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is recognised in profit or loss.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date.
Plant and Equipment
Plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated to write off cost less estimated residual value based on prices prevailing at the balance sheet date on a straight-line basis over the estimated useful life of each asset as follows:
Plant and equipment - over 3 to 10 years
The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount.
An item of plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the Statement of Comprehensive Income in the year the item is derecognised.
Residual values and estimated remaining lives are reviewed annually.
Impairment of Assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash generating unit's ('CGU's) fair value less costs of disposal and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of continuing operations are recognised in the Statement of Comprehensive Income in those expense categories consistent with the function of the impaired asset.
An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only on assets other than goodwill if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
Intangible Assets
Goodwill
Goodwill on acquisition is initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill already carried in the balance sheet at 1 April 2004 or relating to acquisitions after that date is not amortised. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.
For the purpose of impairment testing, goodwill is allocated to the CGU expected to benefit from the synergies. Impairment is determined by assessing the recoverable amount of the CGU, including the related goodwill. Where the recoverable amount of the CGU is less than the carrying amount, including goodwill, an impairment loss is recognised in the Statement of Comprehensive Income. The carrying amount of goodwill allocated to a CGU is taken into account when determining the gain or loss on disposal of the unit, or an operation within it. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the CGU retained.
Research and Development Costs
Research costs are expensed as incurred. An intangible asset arising from development expenditure on an individual project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete and the availability to measure reliably the expenditure during the development. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure capitalised is amortised on a straight-line basis over 2 to 4 years.
Acquired Intangibles
Separately identifiable intangible assets such as patent fees, licence fees, trademarks and customer lists and relationships are capitalised on the balance sheet only when the value can be measured reliably, or the intangible asset is purchased as part of the acquisition of a business. Such intangible assets are amortised over their useful economic lives on a straight-line basis.
Separately identified intangible assets acquired in a business combination are initially recognised at their fair value. Intangible assets are subsequently stated at fair value or cost less accumulated amortisation and any accumulated impairment losses. Amortisation is recognised in the Consolidated Statement of Comprehensive Income on a straight-line basis over the estimated useful life of the asset. The carrying value of intangible assets is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable.
Estimated useful lives typically applied are as follows:
Technology based assets - over 2 to 4 years Brands and trademarks - over 2 to 3 years Customer relationships - over 10 years
Acquired Computer Software Licences
Acquired computer software licences comprise computer software licences purchased from third parties, and also the cost of internally developed software. Acquired computer software licences are initially capitalised at cost, which includes the purchase price (net of any discounts and rebates) and other directly attributable costs of preparing the asset for its intended use. Direct expenditure including employee costs, which enhances or extends the performance of computer software beyond its specifications and which can be reliably measured, is added to the original cost of the software.
Costs associated with maintaining the computer software are recognised as an expense when incurred. Computer software licences are subsequently carried at cost less accumulated amortisation and accumulated impairment losses. These costs are amortised to profit or loss using the straight-line method over their estimated useful lives of 3 to 5 years.
The amortisation period and amortisation method of intangible assets other than goodwill are reviewed at least at each balance sheet date. The effects of any revision are recognised in profit or loss when the changes arise.
The Company's Investments in Subsidiaries
In its separate financial statements the Company recognises its investments in subsidiaries at cost less any provision for impairment.
Interests in Associates
Associates are undertakings that are not subsidiaries or joint ventures over which the Group has significant influence and can participate in financial and operating policy decisions. Investments in associated undertakings are accounted for using the equity method. The Consolidated Statement of Comprehensive Income includes the Group's share of the profit or loss after tax of the associated undertakings. Investments in associates include goodwill identified on acquisition and are carried in the Consolidated Balance Sheet at cost plus post-acquisition changes in the Group's share of the net assets of the associate, less any impairment in value.
Inventories
Inventories are valued at the lower of cost or net realisable value (net selling price less further costs to completion), after making due allowance for obsolete and slow moving items. Cost is determined by the first in first out ('FIFO') cost method.
Trade and Other Receivables
Trade receivables, which generally have 14 to 60 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectable amounts. A provision is made against a trade receivable only when there is objective evidence that the Group may not be able to recover the entire amount due under the original terms of the invoice. The carrying amount of the receivable is reduced through the use of a provision for doubtful debts account. Impaired debts are derecognised when they are assessed as uncollectable.
Cash and Short-Term Deposits
Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity date of three months or less.
For the purpose of the cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of any outstanding bank overdrafts.
Borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate ('EIR') method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss.
Trade and Other Payables
Trade and other payables are initially recognised at their fair value and subsequently recorded using the effective interest method.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the Statement of Comprehensive Income net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
Pensions
The Group does not have a contributory pension scheme. Payments are made to individual private defined contribution pension arrangements. Contributions are charged in the Statement of Comprehensive Income as they become payable.
Revenue Recognition
Revenue is measured at the fair value of the consideration received from the sale of software and rendering of services, net of value-added tax, rebates and discounts and after the elimination of inter-company transactions within the Group. Revenue is recognised as follows:
(a) Sale of Software Licences
Revenue in respect of software licences where the Group has no further obligations and the contract is non-cancellable is recognised at the time of sale. Revenue in respect of software licences where there are further contractual obligations, in the form of additional services provided by the Group, such as software delivered online, is recognised over the duration of the licence in line with when the costs are incurred and delivery obligations fulfilled.
(b) Rendering of Services
Revenue from the rendering of services is recognised by reference to the stage of completion. Stage of completion of the specific transaction is assessed on the basis of the actual services provided as a proportion of the total services to be provided. Where the Group is acting as an agent in a transaction and is not the primary obligor then revenue is reported net of amounts payable to the supplier.
(c) Interest Income
Revenue is recognised as interest accrues using the effective interest method. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to its net carrying amount.
(d) Rental Income
Net rental income arising from the sub-let of properties under operating leases is reported as other operating income in the Statement of Comprehensive Income.
Exceptional Items
The Group presents as exceptional items on the face of the Statement of Comprehensive Income those material items of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance in the year, so as to facilitate comparison with prior periods and to assess better trends in financial performance.
Dividends
Dividend distribution to the Company's shareholders is recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Company's shareholders.
Share-based Payment Transactions
Employees (including Directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares ('equity-settled transactions').
Equity-settled Transactions
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted. The fair value is determined by an external valuation specialist using a binomial model. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of GB Group plc ('market conditions') and non-vesting conditions, if applicable.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award ('the vesting date'). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The Statement of Comprehensive Income charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting conditions were satisfied, provided that all other vesting conditions are satisfied.
Where the terms of an equity-settled award are modified, as a minimum, an expense is recognised as if the terms had not been modified. In addition, an expense is recognised over the remainder of the new vesting period for any modification which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it was granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.
The dilutive effect of outstanding options is reflected in the computation of earnings per share (note 13).
Leases
Assets funded through finance leases and similar hire purchase contracts are capitalised as property, plant and equipment, where the Group assumes substantially all of the risks and rewards of ownership. Upon initial recognition, the leased asset is measured at the lower of its fair value and the present value of the minimum lease payments. Future instalments under such leases, net of financing costs, are included within interest-bearing loans and borrowings. Rental payments are apportioned between the finance element, which is included in finance costs, and the capital element which reduces the outstanding obligation for future instalments so as to give a constant charge on the outstanding obligation.
All other leases are accounted for as operating leases and the rental charges are charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over the life of the lease.
Lease incentives are primarily rent-free periods. Lease incentives are amortised over the lease term against the relevant rental expense.
Taxes
Current Tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, by the reporting date, in the countries where the Group operates and generates taxable income.
Deferred Income Tax
Deferred tax is recognised in respect of all temporary differences between the carrying amounts of assets and liabilities included in the financial statements and the amounts used for tax purposes that will result in an obligation to pay more, or a right to pay less or to receive more tax, with the following exceptions:
-- No provision is made where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction which is not a business combination that at the time of the transaction affect neither accounting nor taxable profit.
-- No provision is made for deferred tax that would arise on all taxable temporary differences associated with investments in subsidiaries and interests in joint ventures, where the timing of the reversal of temporary differences can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
-- Deferred tax assets are recognised only to the extent that the Directors consider that it is probable that there will be suitable taxable profits from which the future reversal of the underlying temporary differences and unused tax losses and credits can be deducted.
-- Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which the asset is realised or liability settled, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
Finance Costs
Finance costs consist of interest and other costs that are incurred in connection with the borrowing of funds. Finance costs are expensed in the period in which they are incurred.
New Accounting Standards and Interpretations Applied
The accounting policies adopted in the preparation of these financial statements are consistent with those followed in the preparation of the financial statements for the year ended 31 March 2016.
New Accounting Standards and Interpretations not Applied
During the year, the IASB and IFRIC have issued the following Standards and Interpretations with an effective and adoption date after the date of these financial statements:
International Accounting Standards (IAS/IFRS) Effective
date
IAS 7 Disclosure Initiative - Amendments 1 January
to IAS 7 2017
IAS 12 Recognition of Deferred Tax Assets 1 January
for Unrealised Losses - Amendments 2017
to IAS 12
IFRS 12 Disclosure of Interests in Other Entities 1 January
- Clarification of the scope of the 2017
disclosure requirements in IFRS 12
IFRS 15 Revenue from Contracts with Customers 1 January
2018
IFRS 9 Financial Instruments 1 January
2018
IFRS 2 Classification and Measurement of Share-based 1 January
Payment Transactions - Amendments to 2018
IFRS 2
IFRS 9 Applying IFRS 9 Financial Instruments 1 January
with IFRS 4 Insurance Contracts - Amendments 2018
to IFRS 4
IAS 40 Transfers of Investment Property (Amendments 1 January
to IAS 40) 2018
IFRIC Foreign Currency Transactions and Advance 1 January
22 Consideration 2018
Various Annual Improvements to IFRS - 2014-2016 1 January
Cycle 2018
IFRS 16 Leases 1 January
2019
IAS 10 Sale or Contribution of Assets between
and IAS an Investor and its Associate or Joint TBC
28 Venture - Amendments to
IFRS 10 and IAS 28
IFRS 15 'Revenue from Contracts with Customers' replaces IAS 18 'Revenue', IAS 11 'Construction Contracts' and related interpretations. For the Group, transition to IFRS 15 will take place on 1 April 2018. Half yearly and annual results in the 2018/19 financial year will be IFRS 15 compliant. The standard requires entities to apportion revenue earned from contracts to individual promises, or performance obligations, on a relative standalone selling price basis, based upon a five-step revenue recognition model where revenue is recognised at the point that control of goods or services is transferred to the customer. The standard also updates revenue disclosure requirements. Management have undertaken reviews of the revenue recognition treatments for each of the Group's lines of business and made initial assessments of the relative impact that the new standard would have to the existing policies and practices within the Group. Whilst the review and implementation planning of this new standard is ongoing, the preliminary conclusions are such that management remain of the belief that the adoption of IFRS 15 will not have a material impact on the Group's financial performance or position.
IFRS 9 'Financial Instruments' replaces IAS 39. The standard is effective for the year ending 31 March 2019 and will impact the classification and measurement of financial instruments and will require certain additional disclosures. While an assessment of the new standard is ongoing, the changes to recognition and measurement of financial instruments and changes to hedge accounting rules are not currently considered likely to have any major impact on the Group's current accounting treatment or hedging activities.
IFRS 16 'Leases' (effective for the year ending 31 March 2020) will require all leases to be recognised on the balance sheet. The new standard brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. IFRS 16 supersedes IAS 17 'Leases' and related interpretations. The Group has a number of operating lease arrangements and will consider the financial impact of IFRS 16 in due course but in broad terms the impact will be to recognise a lease liability and corresponding asset for the operating lease commitments set out in note 26.
Judgements and Key Sources of Estimation Uncertainty
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the year. However, the nature of estimation means that actual outcomes could differ from those estimates.
In the process of applying the Group's accounting policies, management has made the following judgements and estimates, which have the most significant effect on the amounts recognised in the financial statements:
Impairment of Goodwill
The Group tests annually whether goodwill has suffered any impairment. Determining whether goodwill is impaired requires an estimation of the value in use and/or the estimated recoverable amount of the asset derived from the business, or part of the business, CGU, to which the goodwill has been allocated. The value in use calculation requires an estimate of the present value of future cash flows expected to arise from the CGU, by applying an appropriate discount rate to the timing and amount of future cash flows.
Management are required to make judgements regarding the timing and amount of future cash flows applicable to the CGU, based on current budgets and forecasts, and extrapolated for an appropriate period taking into account growth rates and expected changes to sales and operating costs. Management estimate the appropriate discount rate using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the business or the individual CGU.
An analysis of the Group's goodwill and the assumptions used to test for impairment are set out in note 16.
Deferred Tax Assets
The amount of the deferred tax asset included in the balance sheet of the Group is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. A deferred tax asset is recognised when it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Recognition, therefore, involves management judgement regarding the prudent forecasting of future taxable profits of the business including considering appropriate levels of risk. At the balance sheet date, management has forecast that the Group would generate future taxable profits against which certain decelerated tax losses, tax losses and other temporary differences could be relieved. The total amount of deferred tax assets that management had forecast as available at the year-end based on these forecasts and estimates was higher than the previous year and as a result the Group has increased the total value of the deferred tax asset being recognised. The carrying value of the recognised deferred tax asset at 31 March 2017 was GBP4,044,000 (2016: GBP3,017,000) and the unrecognised deferred tax asset at 31 March 2017 was GBP3,217,000 (2016: GBP5,152,000). Further details are contained in note 11.
Share-based Payments
The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Judgement is required in determining the most appropriate valuation model for a grant of equity instruments, depending on the terms and conditions of the grant. Management are also required to use judgement in determining the most appropriate inputs to the valuation model including expected life of the option, volatility and dividend yield. The assumptions and models used are disclosed in note 27.
Valuation and Asset Lives of Separately Identifiable Intangible Assets
In determining the fair value of intangible assets arising on acquisition, management are required to make judgements regarding the timing and amount of future cash flows applicable to the businesses being acquired, discounted using an appropriate discount rate.
Such judgements are based on current budgets and forecasts, extrapolated for an appropriate period taking into account growth rates and expected changes to selling prices and operating costs. 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 businesses being acquired. An example of these judgements is that during the year, the Company acquired ID Scan Biometrics Limited and in valuing the separately identifiable intangible assets made specific judgements as to the life of those assets. The most significant of those were the estimated useful lives of the customer relationship and technology IP assets of 10 and 4 years, respectively. Judgements were made on these lives with reference to both historical indicators within the acquired business such as customer or technology lifecycles along with estimates of the impact on such lives that convergence of technology and relationships would have over time.
Contingent Consideration
Contingent consideration relating to acquisitions is included based on management estimates of the most likely outcome (note 32). Those judgements include the forecasting of a number of different outcomes against the performance targets and estimating a probability and risk of each outcome before arriving at a risk weighted value of contingent consideration.
Development Costs and Internally Generated Software
The Group capitalises development costs for a project in accordance with its policy. Careful judgement by management is applied when deciding whether the recognition requirements for development costs have been met and once management have satisfied themselves that policy criteria are met the development costs are carried as assets and amortised over the estimated revenue generating life of each asset. At 31 March 2017, the carrying value of the internally generated software assets was GBP564,000 (2016: GBP908,000) and the amount of research and development costs expensed was GBP7,849,000 (2016: GBP5,719,000).
3. Revenue
Revenue disclosed in the Consolidated Statement of Comprehensive Income is analysed as follows:
2017 2016
GBP'000 GBP'000
Sale of goods 42,132 31,661
Rendering of services 45,354 41,740
Revenue 87,486 73,401
-------- --------
Finance revenue 19 12
-------- --------
Total revenue 87,505 73,413
-------- --------
4. Segmental Information
The Group's operating segments are internally reported to the Group's Chief Executive Officer as two operating segments: Identity Proofing - which provides ID Verification, ID Employ & Comply and ID Fraud & Risk Management services and Identity Solutions - which provides ID Registration, ID Engage and ID Trace & Investigate services. The measure of performance of those segments that is reported to the Group's Chief Executive Officer is adjusted operating profit before amortisation of acquired intangibles as shown below.
Segment results include items directly attributable to either Identity Proofing or Identity Solutions. Unallocated items for 2017 represent Group head office costs GBP675,000, exceptional costs GBP1,410,000, Group finance income GBP19,000, Group finance costs GBP517,000, Group income tax credit GBP668,000 and share-based payments charge GBP994,000. Unallocated items for 2016 represent Group head office costs GBP886,000, exceptional costs GBP94,000, Group finance income GBP12,000, Group finance costs GBP282,000, Group income tax charge GBP178,000 and share-based payments charge GBP1,245,000.
Information on segment assets and liabilities is not regularly provided to the Group's Chief Executive Officer and is therefore not disclosed below.
Identity Identity
Proofing Solutions Unallocated 2017
Year ended 31 March GBP'000 GBP'000 GBP'000 GBP'000
2017
Total revenue 44,206 43,280 - 87,486
---------- ----------- -------------- --------
Adjusted operating profit 8,348 9,333 (675) 17,006
Amortisation of acquired
intangibles (2,469) (1,553) - (4,022)
Share-based payments
charge - - (994) (994)
Exceptional items - - (1,410) (1,410)
---------- ----------- -------------- --------
Operating profit 5,879 7,780 (3,079) 10,580
Finance revenue 19 19
Finance costs (517) (517)
Income tax credit 668 668
--------
Profit for the year 10,750
--------
ID Scan Biometrics, which was acquired during the period, is reported within the Identity Proofing operating segment.
Identity Identity
Proofing Solutions Unallocated 2016
Year ended 31 March GBP'000 GBP'000 GBP'000 GBP'000
2016
Total revenue 33,213 40,188 - 73,401
---------- ----------- -------------- --------
Adjusted operating profit 6,629 7,685 (886) 13,428
Amortisation of acquired
intangibles (1,042) (1,459) - (2,501)
Share-based payments
charge - - (1,245) (1,245)
Exceptional items - - (94) (94)
---------- ----------- -------------- --------
Operating profit 5,587 6,226 (2,225) 9,588
Finance revenue 12 12
Finance costs (282) (282)
Income tax charge (178) (178)
--------
Profit for the year 9,140
--------
Loqate, which was acquired during the period, is reported within the Identity Solutions operating segment.
Geographical Information
Revenues from Non-current
external customers assets
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
United Kingdom 60,306 54,045 80,713 36,461
United States of America 7,468 4,940 123 90
Australia 1,489 1,192 20,308 19,796
Others 18,223 13,224 465 -
---------- ---------- -------- --------
Total 87,486 73,401 101,609 56,347
---------- ---------- -------- --------
The geographical revenue information above is based on the location of the customer.
Non-current assets for this purpose consist of plant and equipment and intangible assets.
5. Operating Profit
This is stated after charging/(crediting): 2017 2016
GBP'000 GBP'000
Research and development expense written
off 7,849 5,719
Depreciation of plant and equipment 1,031 1,071
Amortisation/impairment of intangible
assets 4,719 2,778
Foreign exchange gain (180) (29)
Operating lease payments - land and buildings 1,274 889
- other 16 16
-------- --------
6. Auditor's Remuneration
2017 2016
GBP'000 GBP'000
Audit of the financial statements (1) 127 102
-------- --------
Other fees to auditors - other assurance
services 23 21
- taxation compliance services 54 24
- tax advisory services 19 4
223 151
-------- --------
(1) GBP77,000 (2016: GBP77,000) of this
relates to the Company.
7. Exceptional Items
2017 2016
GBP'000 GBP'000
Fair value adjustments to contingent
consideration (note 32) 471 78
Fair value gain on revaluation of investment
in associate (note 18) - (247)
Acquisition related costs (note 31) 574 119
Costs associated with staff reorganisations 365 178
Costs associated with the relocation
of the Group head office - (34)
1,410 94
-------- --------
Fair value adjustments to contingent consideration in the year to 31 March 2017 include a GBP92,000 adjustment relating to the contingent purchase price of IDscan (note 32) along with a GBP546,000 charge relating to the partial unwinding of the discounting relating to the contingent consideration of the acquisition of IDscan (note 32) and GBP17,000 relating to the unwind of the remaining discounted amount in relation to the contingent consideration that arose on the acquisition of DecTech Solutions Pty Ltd. This charge arises because contingent consideration due to be paid at a future date is discounted for the time value of money at the point of initial recognition and over the passage of time, this discount unwinds within the Consolidated Statement of Comprehensive Income. These are non-cash items.
Fair value adjustments to contingent consideration in the year to 31 March 2016 include a GBP177,000 adjustment relating to a contingent purchase price adjustment relating to Loqate (note 32) along with a GBP255,000 charge relating to the partial unwinding of the discounting relating to the contingent consideration of the acquisition of DecTech Solutions Pty Ltd and CDMS Limited (note 32). This charge arises because contingent consideration due to be paid at a future date is discounted for the time value of money at the point of initial recognition and over the passage of time, this discount unwinds within the Consolidated Statement of Comprehensive Income. These are non-cash items.
Costs associated with staff reorganisations in both years relate to exit costs of personnel leaving the business on an involuntary basis 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.
In the 2016 financial year an exceptional fair value gain of GBP247,000 was recognised as a consequence of the Group revaluing its previously held equity stake in Loqate at the date of its acquisition of the remaining 73.3% of shares in accordance with IFRS 3. This is a non-cash item.
The tax impact of the exceptional costs was GBP73,000 (2016:GBP29,000).
8. Staff Costs and Directors' Emoluments
Group Company
a) Staff Costs 2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Wages and salaries 31,385 26,435 23,051 21,509
Social security costs 3,852 3,125 3,007 2,794
Other pension costs 1,359 1,172 1,040 965
-------- -------- ------------ -----------
36,596 30,732 27,098 25,268
-------- -------- ------------ -----------
Included in wages and salaries is a total charge of share-based payments of GBP994,000 (2016: GBP1,245,000) which arises from transactions accounted for as equity-settled share-based payment transactions.
The average monthly number of employees during the year within each category was as follows:
Group Company
2017 2016 2017 2016
No. No. No. No.
Research and development 207 165 117 107
Production 99 67 44 48
Selling and administration 354 310 298 283
----- ----- ----- -----
660 542 459 438
----- ----- ----- -----
b) Directors' Emoluments 2017 2016
GBP'000 GBP'000
Wages and salaries 915 782
Pension 31 24
Bonuses 499 560
-------- --------
1,445 1,366
-------- --------
Aggregate gains made by Directors on
the exercise of options 1,212 2,772
-------- --------
The remuneration for the highest paid Director was as follows:
2017 2016
GBP'000 GBP'000
Wages and salaries 411 390
Bonus 288 346
-------- --------
699 736
-------- --------
The highest paid Director has reached the maximum level permitted for a personal pension plan and receives a direct payment in lieu of his pension entitlement, which was GBP70,000 (2016: GBP62,000).
The number of share options granted during the year for the highest paid Director was nil (2016: 296,562) and the number of share options exercised during the year was 243,458 (2016: 1,219,825).
9. Finance Revenue
2017 2016
GBP'000 GBP'000
Bank interest receivable 19 12
-------- --------
19 12
-------- --------
10. Finance Costs
2017 2016
GBP'000 GBP'000
Bank loan fees and interest 517 282
-------- --------
517 282
-------- --------
11. Taxation
a) Tax on Profit on Ordinary Activities
The tax (credit)/charge in the Consolidated
Statement of Comprehensive Income for
the year is as follows:
2017 2016
GBP'000 GBP'000
Current income tax
UK corporation tax on profit for the
year 1,325 145
Amounts overprovided in previous years (231) (404)
Foreign tax 638 568
1,732 309
Deferred tax
Origination and reversal of temporary
differences (2,492) (220)
Impact of change in tax rates 92 89
(2,400) (131)
Tax (credit)/charge in the Statement
of Comprehensive Income (668) 178
-------- --------
b) Reconciliation of the Total Tax Charge
The profit before tax multiplied by the standard
rate of corporation tax in the UK would result in
a tax charge (2016: charge) as explained below:
2017 2016
GBP'000 GBP'000
Consolidated profit before tax 10,082 9,318
-------- --------
Consolidated profit on ordinary activities
multiplied by the standard rate of corporation
tax in
the UK of 20% (2016: 20%) 2,016 1,864
Effect of:
Permanent differences 343 (924)
Rate changes 92 89
Utilisation of unrecognised losses (123) -
Prior year items (319) (357)
Research and development tax relief (477) (329)
Patent Box relief (334) -
Recognition of unrecognised deferred
tax assets (1,498) (197)
Effect of higher taxes on overseas earnings (368) 32
Total tax (credit)/charge reported in
the Statement of Comprehensive Income (668) 178
-------- --------
The Group is entitled to current year tax relief
of GBP939,000 (2016: GBP1,212,000), calculated at
a tax rate of 20% (2016: 20%), in relation to the
statutory deduction available on share options exercised
in the year.
c) Tax Losses
The Group has carried forward trading losses at 31
March 2017 of GBP17,871,000 (2016: GBP18,259,000).
To the extent that these losses are available for
offset against future trading profits of the Group,
it is expected that the future effective tax rate
would be below the standard rate. There were also
capital losses carried forward at 31 March 2017 of
GBP2,257,000 (2016: GBP2,257,000), which should be
available for offset against future capital gains
of the Group to the extent that they arise.
d) Deferred Tax - Group
Deferred Tax Asset
The recognised and unrecognised potential deferred
tax asset of the Group is as follows:
Recognised Unrecognised
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Decelerated capital allowances 1,996 1,200 - 1,032
Share options 1,019 1,460 - -
Other temporary differences 385 357 50 33
Capital losses - - 384 406
Trading losses 644 - 2,783 3,681
4,044 3,017 3,217 5,152
-------------------------------------- -------------------------------------- --------- --------
The movement on the deferred tax asset of the Group
is as follows:
2017 2016
GBP'000 GBP'000
Opening balance 3,017 3,113
Foreign currency adjustments 61 17
Origination and reversal of temporary
differences 1,058 4
Impact of change in tax rates (92) (117)
4,044 3,017
-------- --------
The deferred tax asset has been recognised to the extent it is anticipated to be recoverable out of future taxable profits based on profit forecasts for the foreseeable future. The utilisation of the unrecognised deferred tax asset in future periods will reduce the future tax rate below the standard rate.
The Group has unrecognised deductible temporary differences of GBP18,139,000 (2016: GBP24,107,000) and unrecognised capital losses of GBP2,257,000 (2016: GBP2,257,000).
Deferred Tax Liability
The deferred tax liability of the Group is as follows:
2017 2016
GBP'000 GBP'000
Intangible assets 4,441 3,433
4,441 3,433
-------- --------
The movement on the deferred tax liability of the
Group is as follows:
2017 2016
GBP'000 GBP'000
Opening balance 3,433 2,968
Acquisition of intangibles in subsidiaries 1,818 929
Foreign currency adjustments 149 63
Origination and reversal of temporary
differences (832) (527)
Impact of change in tax rates (127) -
4,441 3,433
-------- --------
e) Deferred Tax - Company
Deferred Tax Asset
The recognised and unrecognised potential deferred
tax asset of the Company is as follows:
Recognised Unrecognised
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Decelerated capital allowances 1,977 1,128 - 1,032
Share options 1,019 1,460 - -
Other temporary differences - - 50 33
Capital losses - - 384 406
Trading losses - - 2,783 2,946
2,996 2,588 3,217 4,417
------------------------------------- -------------------------------------- --------- --------
The movement on the deferred tax asset of the Company
is as follows:
2017 2016
GBP'000 GBP'000
Opening balance 2,588 1,585
Acquired on acquisition - 1,093
Origination and reversal of temporary
differences 500 27
Impact of change in tax rates (92) (117)
2,996 2,588
-------- --------
The deferred tax asset has been recognised to the extent it is anticipated to be recoverable out of future taxable profits based on profit forecasts for the foreseeable future. The utilisation of the unrecognised deferred tax asset in future periods will reduce the future tax rate below the standard rate.
The Company has unrecognised deductible temporary differences of GBP16,635,000 (2016: GBP22,216,000) and unrecognised capital losses of GBP2,257,000 (2016: GBP2,257,000).
f) Change in corporation tax rate
As legislated in Finance (No. 2) Act 2015, which was substantively enacted on 26 October 2015, the UK corporation tax rate will reduce from 20% to 19% from 1 April 2017. A further reduction to 17% with effect from 1 April 2020 was enacted in the Finance Act 2016. The reductions in future rates to 19% and then to 17% have been used in the calculation of the UK's deferred tax assets and liabilities as at 31 March 2017.
12. Dividends Paid and Proposed
2017 2016
GBP'000 GBP'000
Declared and paid during
the year
Final dividend for 2016:
2.08p (2015: 1.85p) 2,775 2,277
--------- ---------
Proposed for approval at AGM
(not recognised as a liability
at 31 March)
Final dividend for 2017:
2.35p (2016: 2.08p) 3,566 2,577
--------- ---------
13. Earnings Per Ordinary Share
Basic
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the basic weighted average number of ordinary shares in issue during the year.
2017 2017 2016 2016
pence GBP'000 pence GBP'000
per per
share share
Profit attributable to
equity holders of the Company 8.2 10,750 7.4 9,140
------- --------- ------- ---------
Diluted
Diluted earnings per share amounts are calculated by dividing the profit for the year attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
2017 2016
No. No.
Basic weighted average
number of shares in issue 131,608,788 122,744,412
Dilutive effect of share
options 2,435,799 3,770,597
Diluted weighted average
number of shares in issue 134,044,587 126,515,009
------------ ------------
2017 2017 2016 2016
pence GBP'000 pence GBP'000
per per
share share
Profit attributable to
equity holders of the Company 8.0 10,750 7.2 9,140
------- --------- ------- ---------
Adjusted
Adjusted earnings per share is defined as adjusted operating profit less net finance costs and tax divided by the basic weighted average number of ordinary shares of the Company.
Basic Diluted Basic Diluted
2017 2017 2016 2016
pence pence 2017 pence pence 2016
per per GBP'000 per per GBP'000
share share share share
Adjusted operating
profit 12.9 12.7 17,006 10.9 10.6 13,428
Less net finance
costs (0.3) (0.4) (498) (0.2) (0.2) (270)
Add/(less) tax 0.5 0.5 668 (0.1) (0.1) (178)
-------
Adjusted earnings 13.1 12.8 17,176 10.6 10.3 12,980
------- -------- ---------- ------- -------- ----------
14. Plant and Equipment
Group
Plant
and
equipment
GBP'000
Cost
At 1 April 2015 6,931
Acquired on acquisition 72
Additions 712
Reclassification (1,953)
Foreign currency adjustment 23
At 31 March 2016 5,785
Acquired on acquisition 222
Additions 1,437
Disposals (2,460)
Reclassification (23)
Foreign currency adjustment 80
At 31 March 2017 5,041
----------
Depreciation and impairment
At 1 April 2015 4,102
Provided during the year 1,071
Reclassification (1,636)
Foreign currency adjustment 14
At 31 March 2016 3,551
Provided during the year 1,031
Disposals (2,453)
Foreign currency adjustment 56
At 31 March 2017 2,185
----------
Net book value
At 31 March 2017 2,856
At 31 March 2016 2,234
----------
At 1 April 2015 2,829
----------
The net book value in respect of assets held under finance leases and hire purchase agreements is GBPnil (2016: GBPnil).
Company Plant
and
equipment
GBP'000
Cost
At 1 April 2015 6,446
Acquired on acquisition(1) 137
Additions 624
Reclassification (1,953)
At 31 March 2016 5,254
Additions 748
Disposals (2,437)
At 31 March 2017 3,565
-----------
Depreciation and impairment
At 1 April 2015 3,858
Provided during the year 1,020
Reclassification (1,636)
At 31 March 2016 3,242
Provided during the year 784
Disposals (2,436)
At 31 March 2017 1,590
-----------
Net book value
At 31 March 2017 1,975
-----------
At 31 March 2016 2,012
-----------
At 1 April 2015 2,588
-----------
During the period GBP23,000 (2016: GBP317,000) of purchased software assets (at net book value) were reclassified as intangible assets.
The net book value in respect of assets held under finance leases and hire purchase agreements is GBPnil (2016: GBPnil).
(1) On 1 April 2015, the trade, assets and liabilities of CDMS Limited were transferred to the Company.
15. Intangible Assets
Group Other Total Internally
Customer acquisition acquisition Purchased developed
relationships intangibles intangibles Goodwill software software Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 April
2015 14,839 3,786 18,625 30,505 - 1,104 50,234
Foreign currency
adjustment 230 93 323 758 - 1 1,082
Additions
- business
combinations 1,912 819 2,731 6,502 - 18 9,251
Additions
- product
development - - - - - 624 624
Additions
- purchased
software - - - - 426 - 426
Reclassification - - - - 1,953 - 1,953
--------------- ------------ ------------ ---------- -----------
At 31 March
2016 16,981 4,698 21,679 37,765 2,379 1,747 63,570
Foreign currency
adjustment 878 358 1,236 2,934 - 3 4,173
Additions
- business
combinations 3,917 5,872 9,789 34,899 7 - 44,695
Additions
- product
development - - - - - 21 21
Additions
- purchased
software - - - - 774 - 774
Disposals - - - - (1,275) - (1,275)
Reclassification - - - - 23 - 23
--------------- ------------ ------------ ---------- ----------- ----------- -----------
At 31 March
2017 21,776 10,928 32,704 75,598 1,908 1,771 111,981
Amortisation
and impairment
At 1 April
2015 2,754 1,558 4,312 - - 626 4,938
Foreign currency
adjustment 56 49 105 - - - 105
Amortisation
during the
year 1,639 862 2,501 - 64 213 2,778
Reclassification - - - - 1,636 - 1,636
--------------- ------------ ------------ ---------- ----------- ----------- -----------
At 31 March
2016 4,449 2,469 6,918 - 1,700 839 9,457
Foreign currency
adjustment 173 153 326 - - 1 327
Amortisation
during the
year 2,046 1,976 4,022 - 330 367 4,719
Disposals - - - - (1,275) - (1,275)
--------------- ------------ ------------ ---------- ----------- ----------- -----------
At 31 March
2017 6,668 4,598 11,266 - 755 1,207 13,228
Net book value
At 31 March
2017 15,108 6,330 21,438 75,598 1,153 564 98,753
--------------- ------------ ------------ ---------- ----------- ----------- -----------
At 31 March
2016 12,532 2,229 14,761 37,765 679 908 54,113
--------------- ------------ ------------ ---------- ----------- ----------- -----------
At 1 April
2015 12,085 2,228 14,313 30,505 - 478 45,296
--------------- ------------ ------------ ---------- ----------- ----------- -----------
The customer relationships intangible asset acquired through the acquisition of Capscan Parent Limited has a carrying value of GBP2,161,000 and a remaining amortisation period of 4.6 years. The customer relationships intangible asset acquired through the acquisition of TMG.tv Limited has a carrying value of GBP596,000 and a remaining amortisation period of 5.6 years. The customer relationships intangible asset acquired through the acquisition of CRD (UK) Limited has a carrying value of GBP549,000 and a remaining amortisation period of 6.25 years. The customer relationships intangible asset acquired through the acquisition of DecTech Solutions Pty Ltd has a carrying value of GBP3,353,000 and a remaining amortisation period of 7.1 years. The customer relationships intangible asset acquired through the acquisition of CDMS Limited has a carrying value of GBP2,740,000 and a remaining amortisation period of 7.6 years. The customer relationships intangible asset acquired through the acquisition of Loqate Inc. has a carrying value of GBP1,840,000 and a remaining amortisation period of 8.1 years. The customer relationships intangible asset acquired through the acquisition of ID Scan Biometrics Limited has a carrying value of GBP3,623,000 and a remaining amortisation period of 9.25 years. Intangible assets categorised as 'other acquisition intangibles' include assets such as non-compete clauses and software technology.
Goodwill arose on the acquisition of GB Mailing Systems Limited, e-Ware Interactive Limited, Data Discoveries Holdings Limited, Advanced Checking Services Limited ('ACS'), Capscan Parent Limited, TMG.tv Limited, CRD (UK) Limited, DecTech Solutions Pty Ltd, CDMS Limited and Loqate Inc.. Under IFRS, goodwill is not amortised and is tested annually for impairment (note 16).
During the period GBP23,000 (2016: GBP317,000) of purchased software assets (at net book value) were reclassified as intangible assets (previously classified as tangible assets).
Company Purchased software Development costs
Total
GBP'000 GBP'000 GBP'000
Cost
At 1 April 2015 - 1,092 1,092
Acquired on acquisition (1) 23 - 23
Additions - product development - 624 624
Additions - purchased software 426 - 426
Reclassification 1,953 - 1,953
At 31 March 2016 2,402 1,716 4,118
Additions - product development - 21 21
Additions - purchased software 774 - 774
Disposals (1,275) - (1,275)
At 31 March 2017 1,901 1,737 3,638
Amortisation and impairment
At 1 April 2015 - 614 614
Reclassification 1,636 - 1,636
Amortisation during the year 64 209 273
------------------- ------------------ --------
At 31 March 2016 1,700 823 2,523
Disposals (1,275) - (1,275)
Amortisation during the year 327 362 689
------------------- ------------------ --------
At 31 March 2017 752 1,185 1,937
Net book value
At 31 March 2017 1,149 552 1,701
At 31 March 2016 702 893 1,595
------------------- ------------------ --------
At 1 April 2015 - 478 478
------------------- ------------------ --------
(1) On 1 April 2015, the trade, assets and liabilities of CDMS Limited were transferred to the Company.
During the period GBPnil (2016: GBP317,000) of purchased software assets (at net book value) were reclassified as intangible assets (previously classified as tangible assets).
16. Impairment Testing of Goodwill
Goodwill acquired through business combinations has been allocated for impairment testing purposes to six CGUs as follows:
-- Identity Solutions Unit (represented by the Identity Solutions operating segment excluding e-Ware and Loqate)
-- Identity Proofing Unit (represented by the Identity Proofing operating segment excluding DecTech and IDscan)
-- e-Ware Interactive Unit (part of the Identity Solutions operating segment)
-- IDscan Unit (part of the Identity Proofing operating segment)
-- DecTech Unit (part of the Identity Proofing operating segment)
-- Loqate Unit (part of the Identity Solutions operating segment)
This represents the lowest level within the Group at which goodwill is monitored for internal management purposes. In previous years Data Discoveries, CDMS and Capscan were identified as separate CGUs but following the transfer of the trade, assets and liabilities to the Company, these are now included within the Identity Solutions Unit. TMG, CRD and ACS were identified as separate CGUs but following the transfer of the trade, assets and liabilities to the Company, these are now included within the Identity Proofing Unit.
Where there are no indicators of impairment on the goodwill arising through business combinations made during the year they are tested for impairment no later than at the end of the year.
Carrying Amount of Goodwill Allocated 2017 2016
to CGUs
GBP'000 GBP'000
Identity Solutions Unit 11,672 11,672
Identity Proofing Unit 5,293 5,293
e-Ware Interactive Unit 79 79
IDscan Unit 34,899 -
DecTech Unit 15,972 13,993
Loqate Unit 7,683 6,728
75,598 37,765
------- -------
Key Assumptions Used in Value in Use Calculations
The Group prepares cash flow forecasts using budgets and forecasts approved by the Directors which cover a three year period and an appropriate extrapolation of cash flows beyond this using a long-term average growth rate not greater than the average long-term retail growth rate in the territory where the CGU is based.
The key assumptions for value in use calculations are those regarding the forecast cash flows, discount rates and growth rates. The Directors estimate discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the individual CGU. Growth rates reflect long-term growth rate prospects for the economy in which the CGU operates.
2017 2016
Pre-tax Growth Pre-tax Growth
WACC rate WACC rate
(in perpetuity) (in perpetuity)
% % % %
Identity Solutions Unit 6.5% 2.0% 8.2% 2.3%
Identity Proofing Unit 6.5% 2.0% 8.2% 2.3%
e-Ware Interactive Unit 6.5% - 8.2% -
IDscan Unit 6.5% 2.0% - -
DecTech Unit 16.2% 2.7% 15.6% 2.7%
Loqate Unit 12.7% 2.3% 12.7% 2.3%
In the case of the e-Ware Interactive CGU, the annual impairment review as at 31 March 2017 indicated that the recoverable amount exceeded the carrying value by GBP150,000 (2016: GBP50,000) after assuming an annual cash flow attrition of 20%. In assessing the future recoverable amounts, cash flow attrition is assumed on the basis that the recoverable amount is associated with only single remaining customer attributable to that acquisition. Any decline in estimated value-in-use in excess of that amount would be liable to result in an impairment. Since the value in use of the e-Ware Interactive CGU is based on a single client, its loss or a significant reduction in its cash flow would cause the carrying value of the unit to exceed its recoverable amount.
In the case of the IDscan CGU, the annual impairment review as at 31 March 2017 indicated that the recoverable amount exceeded the carrying value of goodwill by GBP88,800,000 and that any decline in estimated value-in-use in excess of that amount would be liable to result in an impairment. The sensitivities, which result in the recoverable amount equalling the carrying value, can be summarised as follows:
-- an absolute increase of 10.7% in the pre-tax weighted average cost of capital from 6.5% to 17.2%; or
-- a reduction of 65% in the forecast profit margins.
In the case of the DecTech CGU, the annual impairment review as at 31 March 2017 indicated that the recoverable amount exceeded the carrying value of goodwill by GBP11,200,000 (2016: GBP14,900,000) and that any decline in estimated value-in-use in excess of that amount would be liable to result in an impairment. The sensitivities, which result in the recoverable amount equalling the carrying value, can be summarised as follows:
-- an absolute increase of 8.8% in the pre-tax weighted average cost of capital from 16.2% to 25%; or
-- a reduction of 41% in the forecast profit margins.
In the case of the Loqate CGU, the annual impairment review as at 31 March 2017 indicated that the recoverable amount exceeded the carrying value of goodwill by GBP11,500,000 (2016: GBP7,400,000) and that any decline in estimated value-in-use in excess of that amount would be liable to result in an impairment. The sensitivities, which result in the recoverable amount equalling the carrying value, can be summarised as follows:
-- an absolute increase of 13.2% in the pre-tax weighted average cost of capital from 12.7% to 25.9%; or
-- a reduction of 60% in the forecast profit margins.
The recoverable amount of the other CGUs exceed their carrying value on the basis of the respective assumptions shown above and any reasonably possible changes thereof.
17. Investments
Company
GBP'000
Cost
At 1 April 2016 60,428
Acquisition of subsidiary undertakings 43,668
-------
At 31 March 2017 104,096
-------
Amounts written off
At 1 April 2016 and 31 March 2017 -
-------
Net book value
At 31 March 2017 104,096
-------
At 31 March 2016 60,428
The Company accounts for its investments in subsidiaries using the cost model. The Company holds 100% of the ordinary share capital of all investments as follows:
Proportion
of voting
rights Country
Name of company and of incorporation Registered office address
shares
held
Capscan Parent 100% United The Foundation, Herons Way,
Limited Kingdom Chester Business Park, Chester
CH4 9GB
Capscan Limited 100% United The Foundation, Herons Way,
(1) Kingdom Chester Business Park, Chester
CH4 9GB
Data Discoveries 100% United The Foundation, Herons Way,
Holdings Limited Kingdom Chester Business Park, Chester
CH4 9GB
Data Discoveries 100% United The Foundation, Herons Way,
Limited (1) Kingdom Chester Business Park, Chester
CH4 9GB
Managed Analytics 100% United The Foundation, Herons Way,
Limited (1) Kingdom Chester Business Park, Chester
CH4 9GB
Fastrac Limited 100% United The Foundation, Herons Way,
(1) Kingdom Chester Business Park, Chester
CH4 9GB
e-Ware Interactive 100% United The Foundation, Herons Way,
Limited Kingdom Chester Business Park, Chester
CH4 9GB
GB Information 100% United The Foundation, Herons Way,
Management Limited Kingdom Chester Business Park, Chester
CH4 9GB
GB Datacare Limited 100% United The Foundation, Herons Way,
Kingdom Chester Business Park, Chester
CH4 9GB
GB Mailing Systems 100% United The Foundation, Herons Way,
Limited Kingdom Chester Business Park, Chester
CH4 9GB
Citizensafe Limited 100% United The Foundation, Herons Way,
Kingdom Chester Business Park, Chester
CH4 9GB
TelMe Global Traveller 100% United The Foundation, Herons Way,
Limited Kingdom Chester Business Park, Chester
CH4 9GB
TelMe.com Limited 100% United The Foundation, Herons Way,
Kingdom Chester Business Park, Chester
CH4 9GB
Ebetsafe Limited 100% United The Foundation, Herons Way,
Kingdom Chester Business Park, Chester
CH4 9GB
Farebase Limited 100% United The Foundation, Herons Way,
Kingdom Chester Business Park, Chester
CH4 9GB
TMG.tv Limited 100% United The Foundation, Herons Way,
Kingdom Chester Business Park, Chester
CH4 9GB
CRD (UK) Limited 100% United The Foundation, Herons Way,
Kingdom Chester Business Park, Chester
CH4 9GB
GBG DecTech Holding 100% Australia Co Sec Consulting Pty Ltd,
Pty Ltd 59 Gipps Street, Collingwood,
VIC 3066
GBG DecTech Pty 100% Australia Co Sec Consulting Pty Ltd,
Ltd (1) 59 Gipps Street, Collingwood,
VIC 3066
GBG DecTech Sdn 100% Malaysia Level 7 Menara Millenium,
Bhd(1) Jalan Damanlela Pusat Bandar,
Damansara Heights, 50490
Kuala Lumpur, Wilayah Persekutuan
GBG DecTech Solutions 100% Spain 08002-Barcelona, Edifici
S.L(1) The Triangle, 4th Floor,
Placa de Catalunya, Barcelona,
Spain
100% China Room 1714, Building 4, China
Investment Center, No.9 Guangan
Road, Fengtai District, Beijing,
China
Loqate Inc. 100% United 999 Baker Way Ste 320, San
States Mateo, CA 94404-1566
Loqate Limited 100% United The Foundation, Herons Way,
(1) Kingdom Chester Business Park, Chester
CH4 9GB
ID Scan Biometrics 100% United The Foundation, Herons Way,
Limited Kingdom Chester Business Park, Chester
CH4 9GB
IDscan Research 100% Turkey Mersin Universitesi Çiftlikköy
Bilisim Teknolojileri Kampüsü, Teknopark
Sanayi Ve Ticaret İdari Bina No: 106 Yeni
Limited Sirketi(1) ehir - Mersin
IDScan Research 100% South 145, 5th Avenue, Franklin
(Pty) Ltd(1) Africa Roosevelt Park, Johannesburg,
Gauteng, 2195 South Africa
UAB IDscan Biometrics 100% Lithuania Kauno m. Kauno m. I. Kanto
R&D(1) g. 18-4B Lithuania
Safer Clubbing 100% United The Foundation, Herons Way,
At Night Network Kingdom Chester Business Park, Chester
(Scan Net) Ltd(1) CH4 9GB
Transactis Limited 100% United The Foundation, Herons Way,
(1) Kingdom Chester Business Park, Chester
CH4 9GB
Inkfish Limited(1) 100% United The Foundation, Herons Way,
Kingdom Chester Business Park, Chester
CH4 9GB
(1) held indirectly.
18. Investments in Associates
The Group had a 26.7% interest in Loqate Inc., a private company based in the USA which develops international addressing solutions, geocoding solutions and location based services which are used in the Group's portfolio of products and services. The associated undertaking was accounted for using the equity method. On 27 April 2015, the Group acquired the remaining 73.3% of the shares in Loqate Inc. and its performance is included in the consolidated financial statements since that date.
At the acquisition date of the remaining 73.3% of shares in Loqate, the Group revalued its previously held equity stake in Loqate at its acquisition-date fair value in accordance with IFRS 3. The resulting gain of GBP247,000 has been recognised in the Consolidated Statement of Comprehensive Income for the year ended 31 March 2016.
19. Trade and Other Receivables
Trade receivables are non-interest bearing and are generally on 14 to 60 day terms. At 31 March 2017, the value of trade receivables outstanding in excess of the standard expected credit term but not impaired was GBP7,468,000 (2016: GBP6,661,000).
The credit quality of trade receivables that are neither past due nor impaired is assessed using a combination of historical information relating to counterparty default rates and external credit ratings where available.
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Trade receivables 26,160 19,768 18,897 15,519
Amounts owed from subsidiary - - 251 -
undertakings
Prepayments and accrued income 4,409 4,006 2,698 3,317
--------- --------- --------- ---------
30,569 23,774 21,846 18,836
--------- --------- --------- ---------
Trade receivables are shown net of an allowance for unrecoverable amounts, movements on which are as follows:
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 April 855 659 673 561
Acquired on acquisition 8 67 - 70
Additional provisions 261 226 137 139
Write-offs (470) (97) (443) (97)
Foreign exchange 27 - - -
--------- --------- ---------- ---------
Balance at 31 March 681 855 367 673
--------- --------- ---------- ---------
As at 31 March, the analysis of Group trade receivables that were past due but not impaired is as follows:
Past due but not
impaired
----------------------------------
Neither
Total past due < 30 30 - > 60
GBP'000 nor impaired days 60 days days
GBP'000 GBP'000 GBP'000 GBP'000
2017 26,160 18,692 3,355 945 3,168
2016 19,768 13,107 2,720 504 3,437
20. Cash
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Cash at bank and in hand 17,618 12,415 11,011 9,663
17,618 12,415 11,011 9,663
--------- --------- --------- ---------
Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates.
21. Equity Share Capital
2017 2016
GBP'000 GBP'000
Authorised
147,663,704 (2016: 147,663,704)
ordinary shares of 2.5p each 3,692 3,692
----------- -----------
Issued
Allotted, called up and fully
paid 3,368 3,097
Share premium 48,595 24,111
51,963 27,208
----------- -----------
2017 2016
No. No.
Number of shares in issue
at 1 April 123,886,390 120,735,364
Issued on placing 9,090,910 -
Issued on exercise of share
options 1,725,637 3,151,026
----------- -----------
Number of shares in issue
at 31 March 134,702,937 123,886,390
----------- -----------
During the year 10,816,547 (2016: 3,151,026) ordinary shares with a nominal value of 2.5p were issued for an aggregate cash consideration of GBP25,505,000 (2016: GBP790,000). The cost associated with the issue of shares in the year was GBP750,000 (2016: GBPnil).
22. Loans
In April 2014, the Group secured an Australian Dollar three year term loan of AUS$10,000,000. The debt bears an interest rate of +1.90% above the Australian Dollar bank bill interest swap rate ('BBSW'). This term loan was extended during the year from its original maturity of April 2017 to November 2018. Security on the debt is provided by way of an all asset debenture.
The Group has a three year revolving credit facility agreement expiring in November 2020 which is subject to a limit of GBP50,000,000. The facility bears an initial interest rate of LIBOR +1.50%. This interest rate is subject to an increase of 0.25% should the business exceed certain leverage conditions.
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Opening bank loan 3,742 4,389 - -
New borrowings 12,000 - 12,000 -
Repayment of borrowings (3,838) (752) (3,000) -
Foreign currency translation
adjustment 481 105 - -
Closing bank loan 12,385 3,742 9,000 -
--------- --------- --------- ---------
Analysed as:
Amounts falling due within
12 months 886 582 - -
Amounts falling due after
one year 11,499 3,160 9,000 -
12,385 3,742 9,000 -
--------- --------- --------- ---------
23. Trade and Other Payables
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Trade payables 2,748 5,572 2,363 5,051
Amounts owed to subsidiary
undertakings - - 8,044 10,276
Other taxes and social security
costs 3,014 3,019 2,578 2,824
Accruals 11,642 8,200 9,412 6,957
Deferred income 18,997 13,752 11,946 10,395
36,401 30,543 34,343 35,503
--------- --------- --------- -----------
24. Provisions
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Opening balance 31 48 31 48
Provided for dilapidation
obligations in less than
1 year 10 - 10 -
Utilised (6) (17) (6) (17)
Closing balance 35 31 35 31
--------- --------- --------- ---------
Provisions associated with the costs of dilapidation obligations on certain leasehold properties within the Group are GBP29,000 (2016: GBP25,000). The cash flows associated with these provisions are expected to occur in less than one year.
25. Financial Instruments and Risk Management
The Group's activities expose it to a variety of financial risks including: market risk (including foreign currency risk and cash flow interest rate risk), credit risk, liquidity risk and capital management. The Group's overall risk management programme considers the unpredictability of financial markets and seeks to reduce potential adverse effects on the Group's financial performance. The Group does not currently use derivative financial instruments to hedge foreign exchange exposures.
Credit Risk
Credit risk is managed on a Group basis except for credit risk relating to accounts receivable balances which each entity is responsible for managing. Credit risk arises from cash and cash equivalents, as well as credit exposures from outstanding customer receivables. Management assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. For those sales considered higher risk, the Group operates a policy of cash in advance of delivery. The Group regularly monitors its exposure to bad debts in order to minimise exposure. Credit risk from cash and cash equivalents is managed via banking with well-established banks with a strong credit rating.
Foreign Currency Risk
The Group's foreign currency exposure arises from:
-- Transactions (sales/purchases) denominated in foreign currencies;
-- Monetary items (mainly cash receivables and borrowings) denominated in foreign currencies; and
-- Investments in foreign operations, whose net assets are exposed to foreign currency translation.
The Group has currency exposure on its investment in a foreign operation in Australia and partially offsets its exposure to fluctuations on the translation into Sterling by holding net borrowings in Australian Dollars. In terms of sensitivities, the effect on equity of a 10% increase in the Australian Dollar and Sterling exchange rate would be an increase of GBP88,000 (2016: GBP155,000 increase). The effect on equity of a 10% decrease in the Australian Dollar and Sterling exchange rate net of the effect of the net investment hedge in the foreign operation would be a decrease of GBP107,000 (2016: GBP189,000 decrease).
The Group has currency exposure on its investment in a foreign operation in the United States of America. In terms of sensitivities, the effect on equity of a 10% increase in the US Dollar and Sterling exchange rate would be an increase of GBP109,000 (2016: GBP38,000 increase). The effect on equity of a 10% decrease in the US Dollar and Sterling exchange rate would be a decrease of GBP133,000 (2016: GBP46,000 decrease).
The exposure to transactional foreign exchange risk within each company is monitored and managed at both an entity and a Group level.
Cash Flow Interest Rate Risk
The Group has financial assets and liabilities which are exposed to changes in market interest rates. Changes in interest rates impact primarily on deposits and loans by changing their future cash flows (variable rate). Management does not currently have a formal policy of determining how much of the Group's exposure should be at fixed or variable rates and the Group does not use hedging instruments to minimise its exposure. However, at the time of taking new loans or borrowings, management uses its judgement to determine whether it believes that a fixed or variable rate would be more favourable for the Group over the expected period until maturity. In terms of sensitivities, the effect on profit before taxation of an increase/decrease in the basis points on floating rate borrowings of 25 basis points would be GBP84,000 (2016: GBP17,000).
Liquidity Risk
Cash flow forecasting is performed on a Group basis by the monitoring of rolling forecasts of the Group's liquidity requirements to ensure that it has sufficient cash to meet operational needs and surplus funds are placed on deposit and available at very short notice. The maturity date of the Group's loan is disclosed in note 22.
Capital Management
The Group manages its capital structure in order to safeguard the going concern of the Group and maximise shareholder value. The capital structure of the Group consists of debt, which includes loans disclosed in note 22, cash and cash equivalents and equity attributable to equity holders of the Company, comprising issued capital, reserves and retained earnings.
The Group may maintain or adjust its capital structure by adjusting the amount of dividend paid to shareholders, returning capital to shareholders, issuing new shares or selling assets to reduce debt.
In order to achieve this overall objective, the Group's capital management, amongst other things, aims to ensure that it meets financial covenants attached to borrowings. Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches in the financial covenants of any borrowings in the current period.
No changes were made in the objectives, policies or processes for managing capital during the years ended 31 March 2017 and 2016.
The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments and includes contractual interest payments:
Year ended 31 March 2017 On Less 1 to
demand than 5 Total
12 months years
GBP'000 GBP'000 GBP'000 GBP'000
Loans - - 13,589 13,589
Contingent consideration - 7,575 - 7,575
Trade and other payables 2,748 14,656 - 17,404
2,748 22,231 13,589 38,568
-------- ----------- -------- --------
Year ended 31 March 2016 On Less 1 to
demand than 5 Total
12 months years
GBP'000 GBP'000 GBP'000 GBP'000
Loans - - 3,895 3,895
Contingent consideration - 1,068 - 1,068
Trade and other payables 5,572 11,219 - 16,791
5,572 12,287 3,895 21,754
-------- ----------- -------- --------
A summary of the Group's use of financial instruments is set out in the Finance Review.
Set out below is an overview of financial instruments, other than cash and short-term deposits, held by the Group at 31 March:
2017 2016
Loans Fair Loans Fair
and receivables value and value
profit receivables profit
or loss or loss
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets:
Trade and other receivables 26,160 - 19,768 -
----------------- --------- ------------- ---------
Total current 26,160 - 19,768 -
Total 26,160 - 19,768 -
----------------- --------- ------------- ---------
Financial liabilities:
Loans 11,499 - 3,160 -
----------------- --------- ------------- ---------
Total non-current 11,499 - 3,160 -
Trade and other payables 17,404 - 16,791 -
Loans 886 - 582 -
Contingent consideration - 7,122 - 1,050
----------------- --------- ------------- ---------
Total current 18,290 7,122 17,373 1,050
Total 29,789 7,122 20,533 1,050
----------------- --------- ------------- ---------
Trade and other receivables exclude the value of any prepayments or accrued income. Trade and other payables exclude the value of deferred income. All financial assets and liabilities have a carrying value that approximates to fair value. For trade and other receivables, allowances are made within the book value for credit risk.
The Group does not have any derivative financial instruments.
Use of Financial Instruments
Contingent Consideration
The fair value of contingent consideration is the present value of expected future cash flows based on the latest forecasts of future performance.
31 March 31 March
2017 2016
GBP'000 GBP'000
Fair value within current liabilities:
Contingent consideration 7,122 1,050
--------- ---------
Fair value within non-current
liabilities:
Contingent consideration - -
--------- ---------
Liabilities for contingent consideration are Level 3 financial instruments under IFRS 13. The Group classifies fair value measurement using a fair value hierarchy that reflects the significance of inputs used in making measurements of fair value. The fair value hierarchy has the following levels:
-- Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;
-- Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
-- Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
For financial instruments that are recognised at the fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Financial Liabilities
The Group has an Australian Dollar three year term loan of AUS$10,000,000 maturing in November 2018. The debt bears an interest rate of +1.90% above the Australian Dollar bank bill interest swap rate ('BBSW').
The Group has a three year revolving credit facility agreement expiring in November 2020 which is subject to a limit of GBP50,000,000. The facility bears an initial interest rate of LIBOR +1.50%.
The facilities are secured by way of an all asset debenture.
The Group is subject to a number of covenants in relation to its borrowings which, if breached, would result in loan balances becoming immediately repayable. These covenants specify certain maximum limits in terms of the following:
-- Leverage -- Interest cover
At 31 March 2017 and 31 March 2016, the Group was not in breach of any bank covenants.
26. Obligations Under Leases
Payments made under operating leases are recognised in the income statement on a straight-line basis over the expected term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense over the term of the lease.
Group Company
Future minimum rentals payable 2017 2016 2017 2016
under non-cancellable operating GBP'000 GBP'000 GBP'000 GBP'000
leases are as follows:
Not later than one year 836 1,066 486 749
After one year but not more
than five years 1,284 1,585 778 1,232
After five years - - - -
2,120 2,651 1,264 1,981
-------- -------- -------- --------
The Group leases various administrative offices and equipment under lease agreements which have varying terms and renewal rights.
A Group company sublet surplus space in a property during the year and this agreement ended in May 2016.
27. Share-based Payments
Group and Company
The Group operates Executive Share Option Schemes under which Executive Directors, managers and staff of the Company are granted options over shares.
Executive Share Option Scheme
Options are granted to Executive Directors and employees on the basis of their performance. Options are granted at the full market value of the Company's shares at the time of grant and are exercisable between three and ten years from the date of grant. The options vest when the Company's earnings per share ('EPS') growth is greater than the growth of the Retail Prices Index ('RPI') over a three year period prior to the exercise date. There are no cash settlement alternatives.
Executive Share Option Scheme (Section C Scheme)
Options are granted to Executive Directors and employees on the basis of their performance. Options are granted at the full market value of the Company's shares at the time of grant and are exercisable between three and ten years from the date of grant. The percentage of an option that will vest and be capable of exercise will depend on the performance of the Company. A minimum of 50% of the options will vest when the Total Shareholder Return ('TSR') performance of the Company, as compared to the TSR of the FTSE Computer Services Sub-Sector over a three-year period, matches or exceeds the median company. The percentage of shares subject to an option in respect of which that option becomes capable of exercise will then increase on a sliding scale so that the option will become exercisable in full if top quartile performance is achieved.
Executive Share Option Scheme (Section D Scheme)
Options are granted to Executive Directors and employees on the basis of their performance. Options are granted at the full market value of the Company's shares at the time of grant and are exercisable between three and ten years from the date of grant. The vesting of awards under the Section D Scheme is subject to the achievement of a normalised EPS growth at an annual compound rate of 20% over the performance period. The base year for the purposes of the EPS target will be the financial year of the Company ended immediately prior to the grant of the award. The performance period will be the three financial years following the base year. Section D Scheme options will only become exercisable to the extent they have vested in accordance with the EPS target.
Share Matching Plan
In the year ended 31 March 2012, the Remuneration Committee introduced the Share Matching Plan. Participants who invest a proportion of their annual cash bonus in GBG shares can receive up to a multiple of their original investment in GBG shares, calculated on a pre-tax basis. Any matching is conditional upon achieving pre-determined Adjusted EPS growth targets set by the Remuneration Committee for the following three years. Share Matching Plan options will only become exercisable to the extent they have vested in accordance with the Adjusted EPS target.
GBG Sharesave Scheme
The Group has a savings-related share option plan, under which employees save on a monthly basis, over a three or five year period, towards the purchase of shares at a fixed price determined when the option is granted. This price is usually set at a 20% discount to the market price at the time of grant. The option must be exercised within six months of maturity of the savings contract, otherwise it lapses.
The charge recognised from equity-settled share-based payments in respect of employee services received during the year is GBP994,000 (2016: GBP1,245,000).
The following table illustrates the number and weighted average exercise prices ('WAEP') of, and movements in, share options during the year.
2017 2017 2016 2016
No. WAEP No. WAEP
Outstanding as at 1 April 5,018,024 46.28p 6,724,777 26.93p
Granted during the year 522,880 38.98p 1,561,245 87.73p
Forfeited during the year (451,004) 32.78p (13,298) 114.73p
Cancelled during the year (22,793) 163.0p (15,674) 127.43p
Exercised during the year (1,725,637) 29.19p(1) (3,151,026) 25.07p(2)
Expired during the year - - (88,000) 35.68p
Outstanding at 31 March 3,341,470 54.93p 5,018,024 46.28p
----------- --------- ----------- ---------
Exercisable at 31 March 1,471,685 24.58p 1,318,453 38.96p
----------- --------- ----------- ---------
(1) The weighted average share price at the date of exercise for the options exercised is 301.38p
(2) The weighted average share price at the date of exercise for the options exercised is 217.51p
For the shares outstanding as at 31 March 2017, the weighted average remaining contractual life is 6.5 years (2016: 5.9 years).
The weighted average fair value of options granted during the year was 266.35p (2016: 133.46p). The range of exercise prices for options outstanding at the end of the year was 2.5p - 275.0p (2016: 2.50p - 272.25p).
The fair value of equity-settled share options granted is estimated as at the date of grant using a binomial model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model for the years ended 31 March 2017 and 31 March 2016.
2017 2016
Dividend yield (%) 0.7 0.7 -
0.9
Expected share price volatility 20 -
(%) 30 25
Risk-free interest rate (%) 0.2 - 0.9 -
0.6 1.3
Lapse rate (%) 5.0 5.0
Expected exercise behaviour See below See below
Market-based condition adjustment
(%) 48.00 48.00
Expected life of option (years) 2.3 - 3.0 -
4.6 5.0
Exercise price (p) 2.50 - 2.50
275.0 - 272.25
Weighted average share price (p) 301.38 217.51
Other than for Matching Scheme options, it is assumed that 50% of options will be exercised by participants as soon as they are 20% or more 'in-the-money' (i.e. 120% of the exercise price) and the remaining 50% of options will be exercised gradually at the rate of 20% per annum for each year they remain at or above 20% 'in-the-money'.
For Matching Scheme options, it is assumed that participants will choose to exercise at the earliest opportunity (i.e. vesting date) since the exercise price is a nominal amount and is therefore not expected to influence the timing of a participant's decision to exercise the options.
The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome.
The market-based condition adjustment takes into account the likelihood of achieving market conditions, and allows for the fact that, if a Section C option vests, it does not always vest at 100%.
No other features of options granted were incorporated into the measurement of fair value.
28. Profit Attributable to Members of the Parent Company
The profit dealt with in the financial statements of the Parent Company is GBP10,717,000 (2016: GBP8,317,000). There are no OCI items in either financial year.
29. Description of Reserves
Equity Share Capital
The balance classified as share capital includes the total net proceeds (both nominal value and share premium) on issue of the Company's equity share capital, comprising 2.5p ordinary shares.
Merger Reserve
The balance on the merger reserve represents the fair value of the consideration given in excess of the nominal value of the ordinary shares issued in the acquisition of GB Mailing Systems by the issue of shares.
Capital Redemption Reserve
The balance classified as capital redemption reserve includes the nominal value of own shares purchased back by the Company and subsequently cancelled.
30. Related Party Transactions
During the year, the Group entered into transactions, in the ordinary course of business, with other related parties. Transactions entered into and trading balances outstanding at 31 March are as follows:
Group Purchases Net amounts
Sales from owed
to related related to/(by)
parties parties related
parties
GBP'000 GBP'000 GBP'000
Directors (see below):
2017 - 3 -
2016 - 1 -
Other related parties
(see below):
2017 55 - 7
2016 33 - (5)
Company Purchases Net amounts
Sales from owed
to related related to/(by)
parties parties related
parties
GBP'000 GBP'000 GBP'000
Subsidiaries:
2017 1,938 853 7,793
2016 915 714 10,276
Directors (see below):
2017 - 3 -
2016 - 1 -
Other related parties
(see below):
2017 55 - 7
2016 33 - (5)
The Chairman of the Company incurred some expenses via his consultancy business Rasche Consulting Limited.
Richard Law, the Chief Executive of the Company during the year, is a Director of Zuto Limited which is a client of the Group. Transactions with them have been reported under the heading of 'other related parties' in the table above.
For part of the year, a Non-Executive Director of the Company was a Director of Avanti Communications Group Plc which is a client of the Group. A Non-Executive Director of the Company is a Director of Removal Stars Limited which is a client of the Group. Transactions with these companies have been reported under the heading of 'other related parties' in the table above.
Terms and Conditions of Transactions with Related Parties
Sales and balances between related parties are made at normal market prices. Outstanding balances with entities other than subsidiaries are unsecured, interest free and cash settlement is expected within 30 days of invoice. Terms and conditions for transactions with subsidiaries are the same, with the exception that balances are placed on intercompany accounts with no specified credit period. During the year ended 31 March 2017, the Group has not made any provision for doubtful debts relating to amounts owed by related parties (2016: GBPnil).
Compensation of Key Management Personnel (including Directors)
Group and
Company
2017 2016
GBP'000 GBP'000
Short-term employee benefits 1,731 1,520
Post-employment benefits 31 24
Fair value of share options awarded 393 929
2,155 2,473
-------- --------
31. Business Combinations
Acquisitions in the Year Ended 31 March 2017
Group
Acquisition of ID Scan Biometrics Limited
On 1 July 2016, the Company acquired 100% of the voting shares of ID Scan Biometrics Limited ('IDscan'), a provider of software that automates on-boarding of customers and employees by simplifying the identity verification and data capture process. IDscan helps authentication of documents including passports, visas, ID cards, driving licenses, utility bills and work permits while also capturing facial biometrics which provides proof that those documents are not stolen. The combination represents a highly complementary capability set alongside GBG's unique global Know Your Customer, Anti-Money Laundering and fraud detection solutions. The Consolidated Statement of Comprehensive Income includes the results of IDscan for the nine month period from the acquisition date.
The fair value of the identifiable assets and liabilities of IDscan as at the date of acquisition was:
Fair value
recognised
on acquisition
GBP'000
Assets
Technology intellectual property 5,405
Customer relationships 3,917
Non-compete agreements 467
Plant and equipment 222
Purchased software 7
Acquired goodwill 19
Inventory 155
Trade and other receivables 2,551
Cash 1,186
Trade and other payables (2,896)
Corporation tax liabilities (427)
Deferred tax liabilities (1,818)
----------------
Total identifiable net assets at fair value 8,788
Goodwill arising on acquisition 34,880
----------------
Total purchase consideration transferred 43,668
----------------
Purchase consideration:
Cash 37,000
Contingent consideration adjustment 6,668
Total purchase consideration 43,668
----------------
Analysis of cash flows on acquisition:
Transaction costs of the acquisition (included
in cash flows from operating activities) 513
Net cash acquired with the subsidiary (included
in cash flows from investing activities) 1,186
Cash paid (37,000)
----------------
Net cash outflow (35,301)
----------------
The fair values above contain certain provisional amounts which will be finalised no later than one year after the date of acquisition. Provisional amounts have been included at 31 March 2017 as a consequence of the timing and complexity of the acquisition.
The fair value of the acquired trade receivables amounts to GBP2,200,000. The gross amount of trade receivables is GBP2,211,000. None of the trade receivables have been impaired and it is expected that the full contractual amounts can be collected.
The goodwill recognised above is attributed to intangible assets that cannot be individually separated and reliably measured from IDscan due to their nature. These items include the expected value of synergies and an assembled workforce. None of the goodwill is expected to be deductible for income tax purposes.
The transaction costs of GBP513,000 associated with this acquisition have been expensed and are included in exceptional items in the Consolidated Statement of Comprehensive Income and are part of operating cash flows in the Cash Flow Statement.
From the date of acquisition, IDscan has contributed GBP6,076,000 of revenue and operating profits of GBP1,587,000 to the Group. If the combination had taken place at the beginning of the year, the Group revenue and operating profits would have been GBP89,514,000 and GBP10,984,000, respectively.
The fair values reported in the Interim Report were provisional due to the ongoing determination of the fair value of certain assets. As a consequence of the finalisation of these values, the identifiable net assets at fair value has reduced by GBP39,000 compared to that previously reported with a corresponding increase in the amount of goodwill.
Contingent Consideration - IDscan
As part of the share sale and purchase agreement, a contingent consideration amount of up to GBP8,000,000 has been agreed. This payment is subject to certain future revenue and EBITDA targets between 12 and 18 months from completion date. The obligation has been classed as a liability in accordance with the provisions of IAS 32.
At the acquisition date the discounted fair value of the contingent consideration was estimated at GBP6,668,000 having been determined from management's estimates of the range of outcomes and their respective likelihoods. At 31 March 2017, the value of the contingent consideration after partial unwinding of the discounting was GBP7,122,000. Adjustments to the fair value of the contingent consideration are made in the Consolidated Statement of Comprehensive Income under IFRS 3 (Revised) Business Combinations.
Contingent Consideration - DecTech
During the period ending 31 March 2017, final settlement of AUS$2,000,000 (GBP1,026,000) was made relating to the second tranche of the contingent consideration from the acquisition of DecTech.
Acquisitions in the Year Ended 31 March 2016
Group
Acquisition of Loqate Inc.
On 27 April 2015, the Group acquired additional shares in Loqate Inc. ('Loqate') taking its shareholding to 100% of the voting shares. Loqate is an unlisted company based in the United States of America and is a leading provider of global location intelligence data and technology. The Company acquired Loqate to bring together all the data that sits behind its address and identity verification solutions into one common global platform - making for a seamless integration of registration, on-boarding and identity checking processes. It will also further support GBG's expansion by allowing access to the North American market through Loqate's significant partnerships with some of the world's largest software companies. The Consolidated Statement of Comprehensive Income includes the results of Loqate for the eleven month period from the acquisition date for the 2016 financial year.
The fair value of the identifiable assets and liabilities of Loqate as at the date of acquisition was:
Fair value
recognised
on acquisition
GBP'000
Assets
Technology intellectual property 756
Customer relationships 1,912
Non-compete agreements 63
Plant and equipment 72
Internally developed software 18
Trade and other receivables 1,106
Cash 667
Trade and other payables (2,559)
Deferred tax liabilities (929)
----------------
Total identifiable net assets at fair value 1,106
Goodwill arising on acquisition 6,502
----------------
Total purchase consideration transferred 7,608
----------------
Purchase consideration:
Cash 8,641
Value of original equity stake 247
Contingent consideration adjustment (1,280)
Total purchase consideration 7,608
----------------
Analysis of cash flows on acquisition:
Transaction costs of the acquisition (included
in cash flows from operating activities) (108)
Net cash acquired with the subsidiary (included
in cash flows from investing activities) 667
Cash paid (8,641)
----------------
Net cash outflow (8,082)
----------------
The fair value of the acquired trade receivables amounts to GBP627,000. The gross amount of trade receivables is GBP694,000. None of the trade receivables have been impaired and it is expected that the full contractual amounts can be collected.
The goodwill recognised above is attributed to intangible assets that cannot be individually separated and reliably measured from Loqate due to their nature. These items include the expected value of synergies and an assembled workforce. None of the goodwill is expected to be deductible for income tax purposes.
The transaction costs of GBP108,000 associated with this acquisition have been expensed and are included in exceptional items in the Consolidated Statement of Comprehensive Income and are part of operating cash flows in the Cash Flow Statement.
From the date of acquisition, Loqate has contributed GBP4,140,000 of revenue and operating profits of GBP296,000 to the Group. If the combination had taken place at the beginning of the year, the Group revenue and operating profits would have been GBP73,672,000 and GBP9,335,000, respectively.
Contingent Consideration - Loqate
As part of the share sale and purchase agreement, a purchase price adjustment mechanism was agreed which at the acquisition date had a fair value of a purchase price reduction of GBP1,280,000 having been determined from management's estimates of the ranges and their respective likelihoods. The contingent consideration adjustment was determined and settled with the sellers before the year end resulting in a repayment of GBP1,457,000. The difference was recognised as an exceptional gain item in the Consolidated Statement of Comprehensive Income (note 7).
Other Business Combination Adjustments - DecTech
During the year ended 31 March 2016, final settlement of AUS$9,500,000 (GBP4,700,000) was made relating to the first tranche of the contingent consideration on the acquisition of DecTech resulting in a reduction in the contingent consideration liability on the balance sheet. At 31 March 2016, the value of the second tranche of contingent consideration after partial unwinding of the discounting was AUS$1,970,000 (GBP1,050,000). Adjustments to the fair value of the contingent consideration are made in the Consolidated Statement of Comprehensive Income under IFRS 3 (Revised) Business Combinations (note 7).
Other Business Combination Adjustments - CDMS
During the year ended 31 March 2016, final settlement of GBP1,000,000 was made relating to the contingent consideration on the acquisition of CDMS resulting in a reduction in the contingent consideration liability on the balance sheet. Adjustments to the fair value of the contingent consideration for the unwinding of discounting was made in the Consolidated Statement of Comprehensive Income under IFRS 3 (Revised) 'Business Combinations' (note 7).
Company
Acquisition of CDMS Limited
On 1 April 2015, the Company acquired the trade, assets and liabilities of CDMS Limited at book value. Details of the assets and liabilities that were transferred to the Company were as follows:
Fair value
GBP'000
Assets
Plant and equipment 137
Intangible assets - purchased software 23
Deferred tax assets 1,093
Trade and other receivables 2,196
Cash 1,197
Trade and other payables (1,824)
Total net assets at fair value 2,822
The Directors believe that the fair values of the assets and liabilities were equal to the book values.
Consideration for the transfer was equal to the book value of total net assets and was settled through intercompany accounts.
The fair value of the acquired receivables amounts to GBP2,196,000. The gross amount of receivables is GBP2,266,000. None of the receivables have been impaired and it is expected that the full contractual amounts can be collected.
32. Contingent Consideration
Assets
Group and Company 2017 2016
GBP'000 GBP'000
At 1 April - -
Recognition on the acquisition
of subsidiary undertakings - 1,280
Fair value adjustment to
contingent consideration - 177
Settlement of consideration - (1,457)
At 31 March - -
------- -------
Liabilities
Group 2017 2016
GBP'000 GBP'000
At 1 April 1,050 6,628
Recognition on the acquisition
of subsidiary undertakings 6,668 -
Fair value adjustment to
contingent consideration (92) -
Settlement of consideration (1,026) (5,745)
Unwinding of discount 563 255
Exchange differences on retranslation (41) (88)
At 31 March 7,122 1,050
------- -------
Analysed as:
Amounts falling due within
12 months 7,122 1,050
Amounts falling due after - -
one year
At 31 March 7,122 1,050
----- -----
The opening balance at 1 April 2016 represented contingent consideration amounts relating to the acquisition of DecTech. During the year a final payment of AUS$2,000,000 (GBP1,026,000) was made to settle the outstanding obligation on DecTech. The closing balance at 31 March 2017 relates to provisions for contingent consideration for IDscan. Exchange differences of GBP41,000 arose from the retranslation of DecTech into pounds Sterling for consolidation purposes and are not part of the fair value movement on the underlying contingent consideration.
The opening balance at 1 April 2015 represented contingent consideration amounts relating to the acquisition of CDMS and DecTech. During the year a final payment of GBP1,000,000 was made to settle the outstanding obligation on CDMS and a payment of GBP4,745,000 for the first tranche on DecTech. The closing balance at 31 March 2016 relates to provisions for contingent consideration for DecTech. Exchange differences of GBP88,000 arose from the retranslation of DecTech into pounds Sterling for consolidation purposes and are not part of the fair value movement on the underlying contingent consideration.
Company 2017 2016
GBP'000 GBP'000
At 1 April - 934
Recognition on the acquisition
of subsidiary undertakings 6,668 -
Fair value adjustment to
contingent consideration (92) -
Settlement of consideration - (1,000)
Unwinding of discount 546 66
At 31 March 7,122 -
------- -------
Analysed as:
Amounts falling due within
12 months 7,122 -
Amounts falling due after - -
one year
At 31 March 7,122 -
-----
The fair value of contingent consideration is estimated having been determined from management's estimates of the range of outcomes to certain future revenue and EBITDA forecasts for periods between 12 and 18 months from completion date and their estimated respective likelihoods. The contractual cash flows are therefore based on future trading activity, which is estimated based on latest forecasts (Level 3 as defined by IFRS 13).
33. Events After the Reporting Period
Acquisition of Postcode Anywhere (Holdings) Limited
On 11 May 2017 the Group acquired 100% of the share capital of Postcode Anywhere (Holdings) Limited ('PCA Predict') a provider of UK and International address validation and data quality services, for a total consideration of GBP73,852,423 which included approximately GBP10,387,000 of cash on the balance sheet of PCA Predict. The combination of the two businesses represents a highly complementary capability alongside GBG's existing ID Registration solutions.
Part of the consideration was funded through a separate placing of 17,058,824 new ordinary shares in the capital of GB Group plc which were admitted to trading on 11 May 2017. This placing raised approximately GBP58 million. Part of the consideration was also funded through a GBP10 million draw down on the Group's existing borrowing facilities.
As the completion accounts are yet to be finalised, no information has been disclosed at this time on the fair value of assets and liabilities acquired and goodwill arising.
Further details of the acquisition are set out in a separate regulatory announcement released on 9 May 2017.
Other Information --------------------
Other Information
i. The financial information set out herein does not constitute the Company's statutory accounts for the years ended 31 March 2017 and 31 March 2016 but is derived from those accounts. The financial information has been prepared using accounting policies consistent with those set out in the annual report and accounts for the year ended 31 March 2017. Statutory accounts for 2016 have been delivered to the Registrar of Companies, and those for 2017 will be delivered in due course. The auditors have reported on those accounts; their report was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain any statements under Section 498(2) or (3) of the Companies Act 2006.
ii. The annual results announcement was approved by the Board of Directors of GB Group plc on 6 June 2017.
iii. The ex-dividend date is 20 July 2017; the record date is 21 July 2017; the payment date is 25 August 2017.
iv. In respect of this year's dividend, the Group will offer a Dividend Reinvestment Plan allowing eligible shareholders to reinvest their dividends into GB Group shares.
v. The AGM will take place on 25 July 2017.
vi. The 2017 interim results announcement is expected week commencing 27 November 2017.
vii. This report will also be available on the GB Group web site www.gbgplc.com from 6 June 2017.
viii. The Company intends to dispatch to shareholders copies of the full annual report and accounts for the year to 31 March 2017 and to make it available on the Group's website (www.gbgplc.com) by 30 June 2017.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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