Buy
Sell
Share Name Share Symbol Market Type Share ISIN Share Description
Boku Inc. LSE:BOKU London Ordinary Share CMN SHS USD0.0001 (DI) REG S CAT 3/144A
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  4.50 2.44% 189.00 186.00 192.00 189.00 185.00 185.00 571,409 16:14:29
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Mobile Telecommunications 41.3 -12.7 -5.0 - 559

Boku Inc Results for the year ended 31 December 2020

16/03/2021 7:01am

UK Regulatory (RNS & others)


Boku (LSE:BOKU)
Historical Stock Chart


From Jan 2021 to Jul 2021

Click Here for more Boku Charts.

TIDMBOKU

RNS Number : 3371S

Boku Inc

16 March 2021

16 March 2021

Boku Inc.

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

Results for the year ended 31 December 2020

Boku Inc (AIM: BOKU), the world's leading independent carrier commerce company, is pleased to announce its audited results for the year ended 31 December 2020.

Group Financial Highlights

   --   Adjusted EBITDA* increased 107% to $15.3 million (2019: $7.4 million) 
   --   Group revenues increased 20% to $56.4 million (2019: $46.8 million**) 

-- Net loss before tax of $17.3 million (2019: $1.3 million loss) primarily due to the goodwill impairment for Identity division of $20.8 million. This total includes a net Profit before tax from the Payments Division of $9.2 million

-- Cash generated from Operations before working capital changes during the year was $11.5 million (2019: $6.1 million)

-- Closing cash balances increased to $62.7 million at 31 December 2020 up from $35.6 million at 31 December 2019

Boku Payments Division

-- Acquisition of carrier billing company Fortumo Holdings Inc. for a maximum enterprise value of $41.0 million completed on 1 July 2020

-- Payments division revenue of $51.2 million, an increase of 27% on 2019's underlying figure of $40.2 million**

-- Payments division Adjusted EBITDA of $19.2 million (2019: $12.7 million) including $1.5 million from Fortumo

   --   Monthly Active Users (MAU) up 48% to 28.8m (2019: 17.8m) includes 4.6m MAUs from Fortumo 
   --   Total Payment Volume (TPV) of $6.9 billion in 2020 compared to $5.0 billion in 2019 

-- eWallet transactions processed from 13 accounts across 11 wallets in 7 countries in 2020. Further investment in 2021 to capture the significant eWallet opportunity

Boku Identity Division

-- Identity revenue of $5.2 million (2019: $6.7 million) - impacted by COVID-19 and local US supply headwinds resulting in carrying value of asset reappraised

   --   Identity reduced Adjusted EBITDA loss of $3.9 million (2019: $5.3 million EBITDA loss) 
   --   Identity carrier network expanded and now reaching more than 200 carriers in 60 countries 
   --   Contract wins include GDC, LexisNexis and FIS (owners of Worldpay) 

*Adjusted EBITDA: Earnings before interest, tax, depreciation and amortisation, impairment of goodwill, non-recurring payment revenue, stock option expenses, forex gains/losses and exceptional items

** 2019 comparative revenue excludes $3.3m of non-recurring payments revenue to better reflect underlying performance

*** TPV is the $ value of transactions processed by the Boku and Fortumo platforms

Jon Prideaux, Chief Executive of Boku Inc, commented, "Boku performed strongly in 2020 with revenues up and Adjusted EBITDA more than doubled compared to 2019, driven by the performance of Boku Payments but the central fact of 2020 was COVID-19.

"It has changed the way that we work and live and had an adverse impact on our Identity business, requiring its value to be re-assessed. Restrictions have affected the way that we travel, communicate and get entertained. Coronavirus has depressed spending, but that spikey ball of RNA has also changed the things we buy and the way we pay.

"Industries dependent on face-to-face contact have been decimated. Some - hospitality, for example - will bounce back when restrictions are released, but for others, the pandemic has accelerated pre-existing trends. It turns out that many people didn't really like driving into town to go shopping and for many types of goods the switch to online will be permanent.

"The way we entertain ourselves has been changing for a while. CDs have been cleared from the shelves and DVDs sent to the car boot sale, as we switch to digital consumption. Games, especially mobile games, were already growing rapidly pre-COVID-19.

"The COVID-19 related lockdowns have accelerated these trends and Boku's customers have benefited, but since the transition was already well developed, what we've seen is a boost, not a transformation of our business. Boku has long benefited from the tailwinds of mobile adoption and digital disruption and 2020 was no different.

"Boku can look to 2021 and beyond with a great deal of confidence. Boku Identity looks poised to grow as new customers are connected with unrivalled levels of supply. For our Payments division, we expect to cross sell wallets into more of our existing customers. With each launch, revenue will start to build, more materially in 2022. We will invest in our platform so as to be in a position to capture non digital revenues. All this is underpinned by a DCB business which is poised to continue its multi-year record of strong growth with exceptional operational gearing.

"We have made a flying start to 2021, with trading in line with our aggressive plans and I am confident in our ability to meet expectations."

Enquiries:

 
 Boku, Inc. 
  Jon Prideaux, Chief Executive Officer           +44 (0)20 3934 
  Keith Butcher, Chief Financial Officer           6630 
 Peel Hunt LLP (Nominated Adviser and Broker)    +44 (0)20 7418 
  Edward Knight / Paul Gillam / Nick Prowting     8900 
 IFC Advisory Limited (Financial PR & IR) 
  Tim Metcalfe / Graham Herring / Florence       +44 (0)20 3934 
  Chandler                                        6630 
 

Investor Presentation and Analyst Briefing

A briefing for analysts will take place at 9.30 am today. Analysts interested in attending the briefing should please contact florence.chandler@investor-focus.co.uk .

The Company will also provide a live investor presentation relating to the results via Zoom at 5.30 pm today. The presentation is open to all existing and potential shareholders. Those wishing to attend should register via the following link:

https://us02web.zoom.us/webinar/register/WN_AYu5O00jQcynTP6ENzhl0w

There will be the opportunity for participants to ask questions at the end of the presentation. Questions can also be emailed to boku@investor-focus.co.uk ahead of the presentation.

Notes to Editors

Boku Inc. (AIM: BOKU) is a leading global provider of mobile payment and identity solutions. Boku technology is integrated into over 220 mobile wallets and network operators worldwide powering mobile user authentication and mobile payments. Boku processes over 800 million transactions worth more than $7 billion annually in nearly 70 countries. Global leaders that rely on Boku to acquire, monetise, and protect digital consumer transactions include Apple, Discover, Experian, Facebook, FIS, Fiserv, Google, Microsoft, Netflix, Paypal, Sony, Spotify and Western Union.

Boku Inc. was incorporated in 2008 and is headquartered in London, UK, with offices in various locations globally including in the US, Mumbai, Estonia, Munich, Beijing, Paris, Sao Paulo, Singapore, Taipei, and Tokyo.

To learn more about Boku Inc., please visit: https://www.boku.com .

CHAIRMAN'S STATEMENT

For many organisations 2020 was a challenging year. Externally events were dominated by a global pandemic, but Boku was able to execute on its plan. At a Group level, revenues exceeded $56 million and Adjusted EBITDA* more than doubled to $15.3 million, up from last year's figures of $46.8 million** and $7.4 million respectively. The heart of our business is the Boku platform. This year we processed record numbers of transactions - peaking at more than 400 each second. The platform connects more than 220 mobile wallets and network operators for both payment and identity services to Boku's customers, including many of the world's largest companies.

The core Direct Carrier Billing ("DCB") business performed strongly during the year. As more people stayed at home during the pandemic, demand for home entertainment increased and Boku benefited, pushing up the value processed through the system in 2020 to just under $7 billion, 38% up on 2019. New users recruited in 2020 reached a new record as well at 25.9 million across our payments and bundling programmes. Adjusted EBITDA for the Payments division increased to over $19.2 million.

In 2020, Boku acquired Fortumo, the second most profitable DCB company behind Boku, which sells on a global scale. The transaction was well received by the market and has performed in line with expectations, contributing $4.5 million of revenue and $1.5 million of Adjusted EBITDA in the six months to 31st December, from which their figures were consolidated.

Boku Identity was not able to deliver the level of progress we had previously expected but despite negative impacts from the pandemic and supply issues in the US, was able to make some progress at a profitability level with Adjusted EBITDA losses reduced to $3.9 million.

We were pleased to welcome Charlotta Ginman to the Board as a Non-Executive Director during the year. She is an experienced Non-Executive Director, with executive experience at Nokia. She is already contributing to the Board and has joined the Audit and Remuneration Committees, allowing me to step back, in line with best corporate governance practices. I also wish to thank the other Non-Executive Directors, Stewart Roberts, who chairs the Audit Committee and Richard Hargreaves who chairs the Remuneration committee, for their service on the Board and contribution to the Company during the year.

In 2021, a key focus of the Company's management is to operationalise and scale our mobile wallet business. We have made a promising start with some big wins with important customers. Boku is well positioned to leverage these early successes as we build Boku into a mainstream, fintech payment platform specialising in next-generation payments.

Mark Britto

Non-Executive Chairman

15 March 2021

* Adjusted EBITDA: Earnings before interest, tax, depreciation and amortisation, impairment of goodwill, non-recurring payment revenue, stock option expenses, forex gains/losses and exceptional items. See Consolidated Statement of Comprehensive Income.

** 2019 comparative revenue excludes $3.3m of non-recurring payments revenue to better reflect underlying performance

CHIEF EXECUTIVE OFFICER'S REPORT

Group Performance

Boku performed strongly in 2020 with revenues up to $56.4 million and Adjusted EBITDA more than doubled compared to 2019, driven by the performance of Boku payments but the central fact of 2020 was COVID-19. It has changed the way that we work and live and had an adverse impact on our Identity business, requiring its value to be re-assessed. Restrictions have affected the way that we travel, communicate and get entertained. Coronavirus has depressed spending, but that spikey ball of RNA has also changed the things we buy and the way we pay.

Industries dependent on face-to-face contact have been decimated. Some - hospitality, for example - will bounce back when restrictions are released, but for others, the pandemic has accelerated pre-existing trends. It turns out that many people didn't really like driving into town to go shopping and for many types of goods the switch to online will be permanent.

The way we entertain ourselves has been changing for a while. CDs have been cleared from the shelves and DVDs sent to the car boot sale, as we switch to digital consumption. Games, especially mobile games, were already growing rapidly pre-COVID-19. The lockdowns have accelerated these trends and Boku's customers have benefited, but since the transition was already well developed, what we've seen is a boost, not a transformation of our business. Boku has long benefited from the tailwinds of mobile adoption and digital disruption and 2020 was no different.

Strong Organic Performance in Payments

In 2020, we have been able to help our customers acquire more than 25.9 million new users across payment and bundling programmes; more payment users are repeat users too, with that figure hitting a high of 91% averaged throughout the year. Value processed through our system increased to $6.9 billion, a 38.3% increase since last year. We exited the year on a run rate which exceeded $8.5 billion. Truly the lines on the charts are going up and to the right!

Our growth did not just come from existing connections in in a particular geography - new launches have been made for Apple, Sony, Spotify, Netflix, Tencent, Microsoft, Google and many other smaller merchants.

Boku takes a percentage of the value processed through its systems as revenue. We charge different prices depending on whether we provide a technical connection only or additionally handle the settlement of the funds. Over recent years the lower priced technical service has been growing faster than the higher priced settlement service, leading to lower reported take rates, despite stable pricing. This year, those trends stabilised as more settlement model business was processed through connections developed in prior years.

Acquisition of Fortumo

Scale is important in platform businesses. By being the largest, Boku is able to offer the most robust and feature-rich platform at the lowest unit cost in the industry. Most of our growth has been organic: quality inorganic opportunities are few and far between. In July 2020, we were delighted to acquire Fortumo, the second most profitable company in the DCB business, behind Boku. The enterprise value associated with the acquisition was a maximum of $41 million, with $5.4 million being dependent on the achievement of a demanding Adjusted EBITDA target in the 12 months ending June 2021. Since acquisition, the business has performed in line with our expectations, which will mean that the full earnout is unlikely to be payable.

Fortumo has brought impressive new capabilities into the Group: customer relationships with Amazon, Epic Games and more than 400 other, mostly settlement model, merchants, a platform with semi-automated onboarding capabilities, new carrier connections, especially in some emerging markets, and the best bundling platform in the market. Going forward we will concentrate new DCB and bundling investment in Fortumo's EU platform, whilst the original Boku US platform will focus on strategic merchants and new local payment methods, including wallets.

Strong Financial Performance in Payments

Taking Boku and Fortumo revenues together, revenue from the Payments division grew to $51.2 million up 27% from 2019's figure of $40.2 million*. Fortumo contributed $4.5 million, in line with expectations. Adjusted EBITDA leverage in the payments business is impressive with payments Adjusted EBITDA up 54% to $19.2 million (including $1.5 million contribution from Fortumo).

Progress on Identity

Boku Identity was able to post a narrower adjusted EBITDA loss of $3.9 million. Revenues at $5.2 million was lower than the previous year due to carrier supply issues and the impact of COVID-19. The business is still poised to grow but from a lower base and at a lower rate, meaning that the path to break even is longer than previously thought, resulting in an impairment to the carrying value of goodwill of $20.8 million.

Turning to non financial measures, the global carrier network now reaches more than 200 carriers in 60 countries. Contracts have been signed with customers like GDC, LexisNexis and FIS. The focus for 2021 is to connect these merchants to international markets and thus increase revenues.

Promise of Wallets

For Boku, DCB is the starter, the main course is local payments. We're using the connections that we have to all the world's leading digital merchants as a beachhead from which we can cross sell other payment methods. The first of these is mobile wallets. They are the payment phenomenon of the last five years. Popular with consumers, in demand from merchants.

Just like DCB, mobile wallets are highly fragmented, with multiple wallets in individual countries, battling for consumers, just like mobile operators. For our merchants, Boku has harmonised this complex, global infrastructure into a single payments network. The market is in need of a similar approach for mobile wallets; the value that Boku can deliver to merchants through a single mobile payments network is immense.

In 2020 we processed transactions from 13 accounts across 11 wallets in 7 countries. Pleasingly amongst these were major merchants in console games and streaming music. These accounts were won in competition with mainstream cards-first payment processors. We expect to be able to announce further progress during 2021. The significance is two-fold: firstly, with wallets we can process a larger share of our customers sales and, secondly, go outside digital and serve the general ecommerce market which is 20 times as big. That is the main course.

Actual experience has also been encouraging: volume growth has been material, albeit off a small base. Where wallets and DCB are connected to the same merchant in the same country we can see faster adoption, higher average transaction values and more users.

Helping Out Others during the Pandemic

At Boku we recognise that with our good fortune, comes responsibility. We have tried to do our bit to help those less fortunate than ourselves. We have claimed no Government money in any of the countries in which we operate (and have returned it in one instance where it was automatically credited to us), and we have continued to employ our office support staff and contractors despite offices being closed. Now is the time to support the support workers. We have used some of the savings that we have made from reduced travel on a "We Not Me" programme of donations to local causes nominated by employees.

Companies are not just collections of assets and intellectual property; technology companies like Boku are groups of people working towards a common aim, with belief and conviction. Without our people, without the right people, we are nothing. We are careful when we hire and we ensure that all, every single one of our employees wheresoever located and however senior or junior, gets the chance to be a shareholder in our company.

Through the crisis, our employees have repaid that trust in spades. They have been magnificent. The flexible working practices that we had in place before restrictions hit meant that we could adapt rapidly and continue to deliver for our customers. In 2020, we've been able to deliver a record number of new high quality connections: (69 vs. 42 in 2019). I want to place on record my sincere appreciation for the exceptional contribution that our people have made to our results.

Outlook

Boku can look into 2021 with a great deal of confidence. Boku Identity looks poised to grow as new customers are connected with unrivalled levels of supply. For our Payments division, we expect to cross sell wallets into more of our existing customers. With each launch, revenue will start to build, more materially in 2022. We will invest in our platform so as to be in a position to capture non digital revenues. We expect to board our first wallet-only, non-DCB payments customers in 2021. This will be an important signal of our ability to gain traction in this important segment. All this is underpinned by a DCB business which is poised to continue its multi-year record of strong growth with exceptional operational gearing. We have made a flying start to 2021, with trading in line with our aggressive plans -- I am confident in our ability to meet expectations.

Jon Prideaux

Chief Executive Officer

15 March 2021

* Adjusted for the impact of $3.3 million of non-recurring revenue

CHIEF FINANCIAL OFFICER'S REPORT

Strong growth in Payments Revenue and Adjusted EBITDA and progress in Identity

2020 was another year of significant achievement for Boku, in challenging circumstances given the coronavirus pandemic. Good revenue growth in Boku Payments drove an increase of over 100% in group Adjusted EBITDA to $15.3 million, proving again the operational gearing in our model, while the acquisition of Estonian based carrier billing company Fortumo Holdings Inc ("Fortumo") on 1 July 2020 for a maximum enterprise value of $41.0 million consolidated Boku's market leading position in Direct Carrier Billing ("DCB") as Fortumo was one of only three international DCB competitors. We have retained the Fortumo brand and organisational structure and consolidated Fortumo's financial results for the six month period from acquisition on 1 July 2020.

The Boku Payments division, excluding Fortumo, performed strongly with revenues increasing by $6.7 million (17%) to $46.8 million* which in turn delivered a substantial 40% increase in Adjusted EBITDA to $17.7 million (2019: $12.7 million) demonstrating the powerful operational leverage of our payments platform as additional incremental transaction revenues largely drop through to Adjusted EBITDA. This is most clearly illustrated by the fact that in 2016 Boku Payments made an Adjusted EBITDA loss of $12.3 million and in 2020 made an Adjusted EBITDA profit of $17.7 million - a turnaround of over $30 million in only four years. Newly acquired Fortumo performed well, with revenues for the six months to 31 December 2020 of $4.5 million and Adjusted EBITDA of $1.5 million, in line with expectations, taking total Payments division Adjusted EBITDA to $19.2 million. Fortumo brings primarily settlement model merchants where merchants are charged a higher percentage transaction fee, along with a low cost Estonian base.

The Boku Identity division, acquired in 2019, made good progress on building out its international supply to truly internationalise the product offering, signed a number of high-profile customers and saw its Adjusted EBITDA loss reduce further to $3.9 million (2019: $5.3 million loss). However revenues fell in the year to $5.2 million (2019: $6.7 million) as the business was impacted by both losing a major US carrier at the end of 2019 and from Covid-19 which impacted some customer activity and the division's ability to market and close new sales. As a result of lower than expected Identity revenues in 2020, future growth estimates were modified, which also showed a slower pathway to breakeven and a diminished carrying value of this asset, resulting in an impairment of goodwill of $20.8 million. As a result the Group, primarily taking account of this impairment charge, reported a Loss before Tax of $18.9 million compared to a loss of $1.3 million in 2019. This total includes a Net Profit before tax from the Payments Division of $9.2 million.

Group Revenue and Gross Margins

Group revenues for the year of $56.4 million were up by 27% on 2019 (2019: $46.8 million*) as the Company saw strong growth in its Payments business and added Fortumo results from 1 July 2020, however Identity revenues fell in the year.

Blended gross margins for the group increased to 91.3% (2019: 88.9%) as gross margins for Boku payments improved again to 97.2% (96.2%), we added Fortumo gross margin at 92.4% and Identity gross margins fell slightly to 37% (2019:41.2%).

Group Operating Expenditure

Adjusted Operating Expenditure (Operating Expenditure adjusted for depreciation, amortisation, foreign exchange, stock option expense, exceptional items, goodwill impairment and restructuring costs) increased to $36.2 million (2019: $33.9 million), mainly driven by the Group's acquisition of Fortumo in July 2020 which added adjusted operating expenditure of $2.7 million for the six month period to 31 December 2020. Boku Payments operating expenditure increased slightly to $27.6 million (2019: $25.9 million) primarily due to modest payroll increases and some costs incurred in migrating certain systems into a cloud based environment, while technology operations in lower costs locations such as India were expanded. Identity adjusted operating expenditure fell materially to $5.8 million (2019: $8.0 million) partly due to headcount reductions and lower marketing spend.

Both Identity and Payments benefited from material savings in travel and entertainment due to the impact of COVID-19 which reduced operating expenditure and increased Adjusted EBITDA, but it is expected that this expenditure will return when it becomes possible to travel freely again.

Payments division

The Payments division comprises Boku's Direct Carrier Billing ("DCB") business ("Boku Payments") which enables customers of Boku's merchants to charge payments to their phone bills, and Fortumo Payments which was acquired during the year.

Boku's Payments is the sole DCB provider to some of the world's largest digital merchants including Apple, Netflix, Facebook and Sony. It operates two revenue models both based on a percentage of the processed value: the higher take rate 'settlement model' - where Boku collects funds from carriers (MNOs) worldwide in multiple currencies before settling to the merchant, and the lower take rate 'transaction model' where we only provide the technical connectivity between the merchant and carrier.

In 2020, Boku Payments revenues grew by 16% to $46.8 million (2019: $40.2 million*). Growth comes from both existing merchants and carrier connections and also from adding new carrier connections to new and existing merchants.

Total Payments Volume ("TPV") for Boku Payments increased by 35% to $6.8 billion in 2020 from $5.0 billion while Monthly Active Users grew 48% to $28.8 million (2019: $17.8 million). The majority of growth again came from our lower margin/higher volume transaction model merchants and, as a result of this mix effect, the weighted average take rate reduced to 0.7% in 2020 (2019: 0.8%). However due to good growth from higher take rate settlement merchants where we made significant efforts to increase carrier connections, the second half take rate was broadly similar to the first half. When the additional volumes from Fortumo are included (see Fortumo section below), the blended average take rate increased in the second half.

Gross margins for Boku Payments improved from 96% to 97% in the year primarily driven by the volume growth of our transaction model merchants where there is no cost of sale (100% gross margin) along with the recovery of a previously fully provided for bad debt.

Adjusted operating expenditure for Boku Payments was slightly higher than 2019 at $27.7 million (2019: $25.9 million) mainly due to modest headcount increases and pay rises. Headcount is the majority of the cost base, however, as a result of the coronavirus pandemic, travel and entertainment ("T&E") costs were significantly reduced but are expected to return to previous levels once normal travel resumes.

We continued to invest in the Boku Payments platform and in 2020 completed the first phase of migrating our platform from two physical colocation facilities in the U.S. into a cloud-based infrastructure (AWS) as we decommissioned one facility and moved it into the cloud. The second phase will be completed in 2021. Although the total running costs are similar in the cloud, the 'pay as you go' nature of the cloud services means that we are able to capitalise less of the cost and so adjusted operating expense increased as a result. The Boku Payments Platform has the capacity to process volumes considerably in excess of today's peak message rates.

Acquisition of Fortumo

Boku completed the acquisition of carrier billing company Fortumo Holdings Inc ("Fortumo") on 1 July 2020 for a total maximum enterprise value of $41.0 million, further consolidating its market leadership in the niche carrier billing market. Fortumo is an Estonia based carrier billing business employing 77 employees and was one of three direct international competitors to Boku, and the only consistently profitable one. The majority of Fortumo's customers operate under the settlement model where Fortumo collects cash from carriers on behalf of its merchants and therefore charges a higher fee.

Total maximum consideration is $45.0 million which included $4.0 million of net working capital. $5.4 million of the total consideration is subject to performance conditions as explained in detail at the time of the acquisition, and in note 26, based on Adjusted EBITDA of Fortumo for the 12 month period following acquisition (1 July 2020 to 30 June 2021). Due to challenging earnout targets the maximum earnout consideration of $5.4 million is not expected to be paid and the fair value of the consideration was calculated at $3.2 million using the expected returns approach. Please refer to note 26 of the financial statements.

Boku Payments and Fortumo Payments together now form the Payments division and from 2021 onwards their results will be combined for reporting purposes. The separate results for Boku Payments and Fortumo Payments for 2020 are shown in the table below so that the underlying growth in Boku Payments can be understood.

 
 Payments division Income Statement by company                      Fortumo 
  for 12 months to 31 December 2020               Boku Payments    Payments   Total Payments 
                                                          $'000       $'000            $'000 
 Fee Revenue                                             46,755       4,476           51,231 
 Cost of sales                                          (1,329)       (340)          (1,669) 
                                                 --------------  ---------- 
 Gross Profit                                            45,426       4,136           49,562 
 Administrative Expenses                               (36,172)     (3,565)         (39,737) 
                                                 --------------  ---------- 
 Operating gain analysed as: 
 Adjusted EBITDA*                                        17,694       1,481           19,175 
 Payments Revenue Adjustment (non-recurring) 
 Depreciation and amortisation                          (4,013)       (712)          (4,725) 
 Stock Option expense                                   (3,728)       (282)          (4,010) 
 Foreign exchange gains                                     723          84              807 
 Exceptional items (included in administrative 
  expenses)                                             (1,422)           0          (1,422) 
                                                 --------------  ---------- 
 Operating gain                                           9,254         571            9,825 
 Finance income                                              63           7               70 
 Finance expense                                          (640)         (9)            (649) 
                                                 --------------  ---------- 
 Profit before tax                                        8,677         569            9,246 
 Tax expense                                            (1,301)       (168)          (1,469) 
-----------------------------------------------                  ---------- 
 Net gain for the period attributable to 
  equity holders of the parent company                    7,376         401            7,777 
                                                 --------------  ---------- 
 

Identity division

Boku's Identity division was formed in 2019 following the acquisition of Danal Inc on 1 January 2019 for $25.1 million. Identity revenues for the year were impacted by the coronavirus pandemic which made new sales difficult as well as the loss of one of its four US carriers at the end of 2019 and as a result 2020 revenues fell to $5.2 million (2019: $6.7 million). Identity revenues were mainly from the US. Gross margins were slightly lower at 37% for 2020 (2019: 41%) as some of the costs included in Cost of Sales have monthly minimums which are fixed as revenues fell. Identity Cost of Sales is primarily transaction related fees paid to carriers and other data providers. Adjusted operating expenses fell sharply in 2020 to $5.9 million (2019: $8.0 million) as headcount and T&E costs were reduced. Adjusted EBITDA for the year for the Identity division was therefore a further reduced Adjusted EBITDA loss of $3.9 million (2019: $5.3 million loss).

As a result of lower 2020 revenues, lower revenue growth is now expected in future years. This, together with a slower pathway to breakeven has resulted in the carrying value of this asset having diminished, resulting in an impairment of goodwill of $20.8 million which reduces the carrying value of goodwill from $23.6 million to $2.8 million.

Group Operating Losses and Adjusted EBITDA

Adjusted EBITDA increased by more than 100% to $15.3 million (2019: $7.4 million) illustrating the powerful operational gearing in the payments business. Adjusted EBITDA is earnings before interest, tax, depreciation and amortisation, adjusted for stock option expenses, forex gains/losses and exceptional items.

Reported Operating Losses for 2020 increased to $16.7 million (2019: $0.9 million) primarily due to the goodwill impairment for Identity division of $20.8 million. The Operating Loss can be broken down as follows:

-- Depreciation and Amortisation charges increased to $5.9 million (2019: $4.5 million) which included $0.7 million from Fortumo for the period 1 July to 31 December 2020.

   --   Foreign Exchange movements resulted in a gain of $1.0 million (2019: $0.1 million gain) 

-- Stock Option Expenses - stock option expenses fell to $4.9 million compared to $6.8 million in 2019. The 2020 total includes awards to Fortumo staff following the acquisition. Boku has a policy of issuing RSUs to all staff annually. RSU charges are spread over three years from date of grant based on the Black Scholes method and the lower charge in 2020 is as a result of fewer shares being issued to Boku staff partly offset by additional awards to Fortumo staff. Of the $4.9 million booked in 2020, $0.5 million was paid out cash (via employer's NI), the remainder was non-cash and expensed.

-- Impairment of goodwill - relating to the write down of the carrying value of the Identity division of $20.8 million.

-- Exceptional Items were $1.4 million (2019: $0.4 million) mainly costs relating to the acquisition of Fortumo on 1 July 2020.

-- Net financing expenses were $0.6 million in 2020 (2019: $0.4 million). These costs relate to Interest on operating leases and bank loans/overdraft.

Net Loss after Tax

The Company reported a net loss before tax of $17.3 million (2019: $1.3 million loss) primarily due to the goodwill impairment for Identity division of $20.8 million and net loss after tax for the year of $18.8 million (2019: $0.4 million profit).

Balance Sheet and Cashflow

-- Closing cash balances increased to $62.7 million (including restricted cash balances of $1.4 million) at the end of 2020 from $35.6 million on 31 December 2019.

-- Monthly average cash balances, which smooth the impact of intra-month flows of both carrier and merchant payments, were $46.7 million in December 2020 up from $22.4 million in December 2019.

-- Cash generated from Operations before working capital changes during the year was $11.5 million (2019: $6.1 million).

-- To part finance the acquisition of Fortumo, the Group took on $20 million of debt with Citibank, comprising a 3 year term loan of $10.0 million and a Revolving Credit Facility ("RCF") of GBP10.0 million. The existing overdraft facility with Silicon Valley Bank was terminated at the same time. At year end the RCF had been paid down by $7.0 million leaving a balance of $3.0 million and the term loan had been paid down by $0.3 million

-- Deferred tax assets of $0.5 million were recognised at 31(st) December 2020 (compared to $1.8 million at 31 December 2019) This reflects a re-appraisal of the usability of certain tax losses and future transaction volumes through its UK incorporated entities expected to reduce profitability, as a share of contracted and future revenues will now likely, taking account of Brexit, flow into other European companies in the group.

-- From a working capital perspective, Current Assets exceeded Current Liabilities at 31 December 2020 by $15.6 million compared with $7.4 million at the 2019 year end.

-- Intangible Assets increased to $65.6 million over the period, up from $46.8 million at December 2019 reflecting the acquisition of Fortumo Holdings Inc on 1 July 2020. The total includes other historical acquisitions including the acquisition of Danal Inc ("Danal") on 1 January 2019. This total includes $23.8 million of Goodwill emanating from the acquisition of Fortumo as well as other assets of $13.3 million, including customer contracts and the technology platform. Goodwill in relation to the acquisition of Danal on 1 January 2019 was reviewed for signs of impairment, and following the challenging year for revenues, an impairment to goodwill of $20.8 million was made which reduced the value of goodwill in relation to Danal from $23.6 million to $2.8 million (see Note 27).

*Adjusted EBITDA: Earnings before interest, tax, depreciation and amortisation, impairment of goodwill, non-recurring payment revenue, stock option expenses, forex gains/losses and exceptional items

** 2019 comparative revenue excludes $3.3 million of non-recurring payments revenue to better reflect underlying performance

Although COVID-19 has not negatively affected Boku's Payment business, the Identity division did not deliver the growth we hoped for and in fact saw some reduction in volume and found sales more challenging. Net Revenue since the year-end continues to be in line with our plans and expectations. It is not yet clear when global economic activity will return to normal, therefore we must prepare the business for varying levels of performance. To that end, we have modelled the effects of differing levels of sales decline along with the measures we can take to ensure that the Group remains within its available working capital, and we have prepared cash flow forecasts for a period in excess of 12 months.

The Directors have no reason to believe that customer revenue and receipts will decline to the point that the Group no longer has sufficient resources to fund its operations. However, in the unlikely event that this should occur, the Group will have to manage its working capital positions, as well as making significant reductions in its fixed cost expenses.

Keith Butcher

Chief Financial Officer

15 March 2021

STRATEGIC REPORT - INTO THE BIG POND

Moving Up

It's a feeling that everyone can recognise: the knot in your stomach the first day that you go to big school. Excitement mixed with trepidation. In your old school, you were the top of the tree, the big fish; in the new school you're the small fish, trying to make your way in a bigger pond. Boku too is a company in transition, building on its market leadership in one sector to enter a new and bigger market.

In 2020, Boku cemented its leadership in Direct Carrier Billing ('DCB') with 38% organic growth in the value processed through our platform, supplemented by the acquisition of Fortumo, the second most profitable company in the market (after Boku). We also started to expand beyond the bounds of DCB. We are at an inflection point: going from being the leading provider in the DCB niche to become a mainstream payments fintech which specialises in mobile-native next-generation payments.

In 2021 and beyond, we will continue in this direction: no longer constrained by the limits of putting charges onto phone bills, we will expand out of the 5% of e-commerce that is digital content into non-digital sectors with a carefully curated set of local payment methods. In years to come, if we execute successfully, over time, this new market will be many times bigger than our existing DCB business.

The Foundations: Direct Carrier Billing -- Strong and Growing

Because DCB is expensive compared to other payment methods, it earns its corn by recruiting new users for its customers. This is an imperative for the biggest digital companies in the world. As entertainment increasingly becomes digital, app stores, music, video streaming and games companies are fighting to acquire new customers and look to a partner like Boku to help them do so. Our super simple, frictionless, one tap to register products have built a customer base that includes all the digital giants: Apple, Amazon, Microsoft, Facebook, Sony, Spotify, Netflix and many more. They use us because we deliver: over the past two years we have successfully helped our merchants to recruit more than 50 million new users.

Dealing with global companies is a core strength of Boku. It is hard to think of any other company which simultaneously serves six of the seven most valuable companies in the world. This gives us scale and scale is important. Over the last decade, Boku has established a high-quality network of connections to more than 200 mobile network operators. Replicating this network is hard - carriers are choosy about which companies get the ability to add charges to their customers' bills and only grant this privilege to organisations through which they can make a return. Put simply, we have the carrier connections because we have the merchants and we recruit new merchants because we have the carrier connections.

It is this market position that has allowed Boku to triple its payment revenues from $17.2 million to $51.2 million over the last four years. Impressive growth to be sure, but, in the immortal words of Bachman Turner Overdrive, "You Ain't Seen Nothing Yet".

The average merchant on the Boku platform is connected to 32 out of the 204 carriers connected to its platform. For sure, not all carriers are the same size and scale and there is a tendency to activate the most lucrative connections first, nevertheless, this raw statistic gives an accurate sense that there is a lot of growth left in the DCB business. We have plenty of growth to come, plenty of white space into which we can expand.

This growth is easily accommodated by the Boku Platform. During the same period that payment revenues tripled, total costs for the Payments Business Unit (Operating Expenditure and Cost of Goods Sold) increased by only 15%. Roaring revenue growth, coupled with modest increases in expenses lead to extraordinary gearing: looking at the payment segment alone, Adjusted EBITDA rocketed from a loss of $12.3 million in 2016 to $19.2 million profit this year.

From Facebook to Fridges, Flights and Furniture

According to Statista, the digital commerce market was worth around $120 billion in 2019 and it's growing at double digit annual rates as consumers switch to digital and streaming and away from physical and broadcast. Our support for those digital merchants is what drives our DCB business forward.

But $120 billion is the small pond. Digital content is a mere 5% of global e-commerce. People spend more on food, fashion, fridges and furniture than they do on Facebook.

Boku is investing the money that we make in DCB not only to sustain that business, but also to grow into non digital sectors. We are investing to grab our share of the $2.4 trillion dollar e-commerce market.

We are attacking on two fronts: Identity and Wallets.

Exploiting the Carrier Connections: Boku Identity

Boku Identity uses carrier connections to solve problems in Identity. The magic ingredient is the rather unsurprising fact that your mobile network operator knows your phone number without having to ask. We can turn this into a number of applications: we can confirm the registered owner of a phone - useful if someone is trying to apply for a loan in your name, but using their mobile; silently verifying your phone number, obviating the need to copy the six digit number from one of those fiddly text messages.

Although COVID-19 has impacted the progress of our Identity business, it has also primed the world for greater adoption of digital identity services as we move forward. COVID-19 has been an accelerant for digital transformation, especially in sectors like financial services. With the need to create new accounts as well as operating them moved almost exclusively to digital channels, digital identity enables transactions to be executed seamlessly and securely.

Short term results have disappointed somewhat due to the impact of COVID-19 and supply issues in the US, the path to profitability for Identity has extended, requiring a re-evaluation of its asset value to the Group. However, behind the numbers, real progress has been made. We enter 2021 with a much wider network of supply internationally and with significant contract wins such as GDC, LexisNexis and FIS. The foundations for renewed growth are there. The challenge in 2021 is to activate the merchants that we've signed, across the network that we have built. Early signs are promising: Boku helps Americans to fill in their tax returns electronically, prevents fraud on ridesharing apps in Indonesia and simplifies the sign up of new users on social networks in the UK, Canada and Australia.

More Payment Methods for More Merchants

Whilst DCB is effectively confined to digital goods we have launched and will be adding many new payment methods that can service digital and non digital merchants. We are not looking to replicate the work of the many fine, card-centric, payment processors. Cards, whilst growing absolutely are losing share in the electronic payments market to new payment types like mobile wallets, 'buy now pay later' and real-time bank payment schemes. Boku's strategy is not to implement the widest possible range of local payment methods, rather we seek to work with a carefully curated set of fast-growing ones which, will help our customers to grow.

The payment phenomenon of the last few years is mobile wallets. For many people, especially in Asia, wallets were their first electronic payment method. Used face-to-face with a QR code and online with one tap access, mobile wallets are firmly established in many countries as the default way to pay. In Asia, it's brands like Alipay, Grabpay and Kakaopay that are the go to, not cards. Even in markets like Japan and South Korea, with some of the highest payment card penetration rates on earth, mobile wallets are cementing their status. Cards are seen as antiquated and inflexible. In Asia, wallets now account for a greater proportion of ecommerce spending than credit and debit cards combined.

But they are fragmented - there are approximately as many wallets per country in Asia as there are mobile network operators. Therein lies our opportunity -- wallets benefit from aggregation in the same way that DCB does. Moreover their unstandardised nature lends itself to Boku's skill set of taking disparate, unstandardised inputs and coalescing them into a single homogenous API which is easy to consume for large global merchants.

In 2019 we started to build connections to wallets, launching Grabpay and Gopay. In 2020 we started to cross sell them to our existing merchants, where we have the advantage of already being an incumbent payment processor. We were able to announce the launches of a Global Games Console provider in Korea and a Global Music Streaming service in Indonesia. These connections were won against significant competition from mainstream cards-first payment processors. These wins validate the thesis that Boku can compete and win, when we pick our battles carefully.

Swim lanes

On 1 July 2020, Boku bought Fortumo for a maximum consideration of $45m. Fortumo, based in Estonia, was the second most profitable global DCB company. Through the acquisition, the Group was able to consolidate its position as the market leader in DCB. Fortumo brought some very specific capabilities into the Group: the ability to deal with large numbers of merchants, a best-in-class bundling solution, key merchants such as Amazon and Epic Games, together with some new connections in emerging markets. Fortumo's capabilities complement Boku's existing business with its focus on a few global merchants and expansion into new payment types.

Going forward we will focus Fortumo on expanding the DCB business and exploit its bundling capabilities, whereas Boku will continue its support for strategic merchants and focus on the expansion into local payment methods, especially wallets. We have built a cross connect that allows Fortumo's EU Platform and Boku's US Platform to use the others carrier and wallet connections.

The US platform will receive investment in 2021 to make us a better local payment processor, with support for the features non digital merchants require. The EU platform will also receive investment to improve our bundling offer.

Diving in

Although it is not widely recognised, Boku has advantages over the large cards-first payment companies: we, uniquely, are an incumbent payment processor with all the world's largest digital brands. We can compete with the big players on level terms and win but there are potentially bigger wins to be had- wallets in Asia account for 65% of electronic spending, a multiple of DCB's market share.

But the real prize lies outside digital. In 2021 we will expand our reach - supporting wallets and other local payment methods --and enhance our system and start selling to merchants who will come to Boku for wallets alone. It will take some investment, but using our strong cashflow we are determined to seize this opportunity, determined to break out of digital, determined to be relevant to more payments for more merchants and determined to make Boku a mainstream payment processor. That is the mission henceforward.

To swim in the Big Pond.

FINANCIAL STATEMENTS

BOKU, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 
                                                                                           Year ended     Year ended 
                                                                                          31 December    31 December 
                                                                                                 2020           2019 
                                                                                  Note          $'000          $'000 
-------------------------------------------------------------------------------  -----  -------------  ------------- 
 Revenue*                                                                          4           56,402         50,148 
 Cost of sales                                                                                (4,925)        (5,563) 
                                                                                        -------------  ------------- 
 Gross profit                                                                                  51,477         44,585 
 Administrative expenses                                                           5         (68,200)       (45,469) 
-------------------------------------------------------------------------------  -----  -------------  ------------- 
 Operating loss analysed as: 
 Adjusted EBITDA**                                                                             15,268          7,403 
 Payment Revenue adjustment (non-recurring)*                                       4                -          3,255 
 Depreciation and amortisation                                                                (5,917)        (4,461) 
 Stock Option expense                                                              20         (4,925)        (6,771) 
 Foreign exchange gains                                                                         1,048            107 
 Impairment of goodwill                                                            11        (20,775)              - 
 Exceptional items (included in 
  administrative expenses)                                                         5          (1,422)          (417) 
-------------------------------------------------------------------------------  -----  -------------  ------------- 
 Operating loss                                                                              (16,723)          (884) 
 Finance income                                                                    7               70             56 
 Finance expense                                                                   7            (662)          (468) 
 Loss before tax                                                                             (17,315)        (1,296) 
 Tax (expense)/credit                                                              8          (1,470)          1,651 
-------------------------------------------------------------------------------  -----  -------------  ------------- 
 Net (loss)/ profit for the period attributable to equity holders of the parent 
  company                                                                                    (18,785)            355 
-------------------------------------------------------------------------------  -----  -------------  ------------- 
 
 Other comprehensive income/(losses) net of tax 
  Items that will or may be reclassified to profit or loss 
 Foreign currency translation profit/(loss)                                                     1,720          (160) 
 Net increase/(decrease) in fair value of cash flow hedge derivatives                               -            (3) 
-------------------------------------------------------------------------------  -----  -------------  ------------- 
 Total comprehensive profit/(loss) for the period                                               1,720          (163) 
-------------------------------------------------------------------------------  -----  -------------  ------------- 
 
   Total comprehensive loss/(profit) for the period attributable to equity 
   holders of the parent 
   company                                                                                   (17,065)            192 
-------------------------------------------------------------------------------  -----  -------------  ------------- 
 
 Loss/(profit) per share attributable to the owners of the parent during the 
 year 
 Basic and fully diluted ($)                                                       9          (0.069)          0.001 
-------------------------------------------------------------------------------  -----  -------------  ------------- 
 

*Includes $3.3million of non-recurring Payments Revenue in 2019; to better reflect underlying performance, this non-recurring revenue is excluded from Adjusted EBITDA. Further information on this non-recurring Payment Revenue is detailed in Note 2 and Note 4.

**Earnings before interest, tax, depreciation, amortisation, non-recurring payment revenue, stock option expense, foreign exchange gains/(losses), impairment of goodwill and exceptional items. Management has assessed this performance measure as relevant for the user of the accounts.

BOKU, INC.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 
                                         31 December   31 December 
                                                2020          2019 
                                  Note         $'000         $'000 
-------------------------------  -----  ------------  ------------ 
 Non-current assets 
 Property, plant and equipment    10           3,771         3,512 
 Intangible assets                11          65,559        46,819 
 Deferred income tax assets        8             483         1,826 
-------------------------------  -----  ------------  ------------ 
 Total non-current assets                     69,813        52,157 
-------------------------------  -----  ------------  ------------ 
 Current assets 
 Trade and other receivables      13          92,535        53,592 
 Cash and cash equivalents        14          61,290        34,747 
 Restricted cash                  14           1,414           876 
-------------------------------  -----  ------------  ------------ 
 Total current assets                        155,239        89,215 
-------------------------------  -----  ------------  ------------ 
 
 Total assets                                225,052       141,372 
-------------------------------  -----  ------------  ------------ 
 Current liabilities 
 Trade and other payables         16         136,779        77,995 
 Bank loans and overdrafts        17           1,438         2,098 
 Lease liabilities                15           1,436         1,723 
 Total current liabilities                   139,653        81,816 
-------------------------------  -----  ------------  ------------ 
 Non-current liabilities 
 Other payables                   16             862           791 
 Deferred tax liabilities          8             228           449 
 Loans and borrowings              17         10,813             - 
 Lease liabilities                15           1,742         1,358 
-------------------------------  -----  ------------  ------------ 
 Total non-current liabilities                13,645         2,598 
-------------------------------  -----  ------------  ------------ 
 Total liabilities                           153,298        84,414 
-------------------------------  -----  ------------  ------------ 
 Net assets                                   71,754        56,958 
-------------------------------  -----  ------------  ------------ 
 Equity attributable to equity 
  holders of the company 
 Share capital                    18              29            25 
 Share premium                               240,053       208,196 
 Foreign exchange reserve                      (307)       (2,027) 
 Retained losses                           (168,021)     (149,236) 
-------------------------------  -----  ------------  ------------ 
 Total equity                                 71,754        56,958 
-------------------------------  -----  ------------  ------------ 
 

The financial statements were approved by the Board for issue on 15 March 2021

   Jon Prideaux                                                         Keith Butcher 
   Chief Executive Officer                                       Chief Financial Officer 

BOKU, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 
                                                            Cash flow    Foreign exchange 
                     Share capital   Share premium    hedging reserve             reserve   Retained losses      Total 
                             $'000           $'000              $'000               $'000             $'000      $'000 
------------------  --------------  --------------  -----------------  ------------------  ----------------  --------- 
 Equity as at 1 
  January 2019                  22         178,079                  3             (1,867)         (149,591)     26,646 
------------------  --------------  --------------  -----------------  ------------------  ----------------  --------- 
 Profit for the 
  year                           -               -                  -                   -               355        355 
 Other 
  comprehensive 
  losses                         -               -                (3)               (160)                 -      (163) 
 Issue of share 
  capital upon 
  exercise of 
  4,750,898 stock 
  options and RSUs               -             571                  -                   -                 -        571 
 Share-based 
  payment(1)                     -           5,472                  -                   -                 -      5,472 
 Shares issued to 
  Danal Inc 
  shareholders                   3          21,532                  -                   -                 -     21,535 
 Other Reserves(2)                           2,542                  -                   -                 -      2,542 
------------------  --------------  --------------  -----------------  ------------------  ----------------  --------- 
 Equity as at 31 
  December 2019                 25         208,196                  -             (2,027)         (149,236)     56,958 
------------------  --------------  --------------  -----------------  ------------------  ----------------  --------- 
 Loss for the year               -               -                  -                   -          (18,785)   (18,785) 
 Other 
  comprehensive 
  income                         -               -                  -               1,720                 -      1,720 
 Issue of share 
  capital upon 
  exercise of 
  8,906,542 stock 
  options and RSUs               -           1,700                  -                (32)                 -      1,668 
 Share-based 
  payment(1)                     -           4,313                  -                                     -      4,313 
 Shares issued                   3          25,159                  -                  32                 -     25,194 
 Issue of RSU's 
  related to 
  Fortumo 
  acquisition                    -           1,340                  -                   -                 -      1,340 
 Share issue costs               -           (654)                                                               (654) 
 Other reserves                  -         (2,447)                                                             (2,447) 
 Share issued for 
  warrant                        1           2,446                                                               2,447 
 Equity as at 31 
  December 2020                 29         240,053                  -               (307)         (168,021)     71,754 
------------------  --------------  --------------  -----------------  ------------------  ----------------  --------- 
 

(1) Share based expense has been credited against share premium in accordance with the local company law and practice in US.

2 Other reserves include the warrants and held-back shares related to the acquisition of Danal, Inc.. The held back shares were issued during the year ended 31 December 2020 in the amount of $2,447 and transferred from other reserves to share capital and share premium.

BOKU, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

 
 
                                                                                Year ended     Year ended 
                                                                               31 December    31 December 
                                                                                      2020           2019 
                                                                       Note          $'000          $'000 
--------------------------------------------------------------------  -----  -------------  ------------- 
 
 Cash generated from operations                                          22         31,529          9,051 
 Income taxes paid                                                                   (269)          (131) 
--------------------------------------------------------------------  -----  -------------  ------------- 
 Net cash from operating activities                                                 31,260          8,920 
--------------------------------------------------------------------  -----  -------------  ------------- 
 Investing activities 
 Purchase of property, plant and equipment                                           (489)          (477) 
 Purchase of internally developed software                                         (2,920)        (1,575) 
 Purchased financial asset                                               26        (2,160)              - 
 Restricted cash                                                                     (538)            375 
 Investment in subsidiary, net of cash acquired                          26       (34,435)          (742) 
 Interest received                                                                      70             56 
 Net cash used in investing activities                                            (40,472)        (2,323) 
--------------------------------------------------------------------  -----  -------------  ------------- 
 Financing activities 
 Payment of principal to lease creditors                                           (2,045)        (1,868) 
 Payment of interest to lease creditors                                              (292)          (288) 
 Issue of common stock to employees                                                  1,700            571 
 Issue of new ordinary shares                                                       25,129              - 
 Share issue costs                                                                   (654)              - 
 Repayment of loan to shareholder                                                      793              - 
 Interest paid on borrowings                                                         (307)          (180) 
 Proceeds from bank overdraft                                                            -          2,098 
 Proceeds from bank loan                                                            20,000              - 
 Repayment of bank loan                                                            (7,313)              - 
 Borrowing costs                                                                     (500)              - 
 Repayment of bank overdraft                                                       (2,092)        (2,150) 
 Net cash from/(used) in financing activities                                       34,419        (1,817) 
--------------------------------------------------------------------  -----  -------------  ------------- 
 Net increase in cash and cash equivalents                                          25,207          4,742 
 Effect of foreign currency translation on cash and cash equivalent                  1,336        (1,068) 
 Cash and cash equivalents at beginning of period                                   34,747         31,073 
--------------------------------------------------------------------  -----  -------------  ------------- 
 Cash and cash equivalents at end of period                                         61,290         34,747 
--------------------------------------------------------------------  -----  -------------  ------------- 
 

BOKU, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

   1.   Corporate Information 

The consolidated financial information represents the results of Boku Inc. ("the Company") and its subsidiaries (together referred to as "the Group").

Boku Inc. is a company incorporated and domiciled in the United States of America. The registered office of the Company is located at 735 Battery St., 2nd Floor, and San Francisco, CA 94111, United States.

The principal business of the Group is the provision of mobile billing and payment solutions for mobile network operators and merchants. These solutions enable consumers to make online payments using their mobile devices

The financial information set out in this document does not constitute the Group's full annual Report and financial statements for the year ended 31 December 2020 or 31 December 2019. The annual report and financial statements for the year ended 31 December 2020 were approved by the Board of Directors on 25 March 2021, along with this preliminary announcement. The financial statements for the year ended 31 December 2020 have been reported on by the Independent Auditor. The Independent Auditor's report on the financial statements for the year ended 2020 was unqualified and did not draw attention to any matters by way of emphasis. The Annual Report for the year ended 31 December 2020 will be made available in due course on the Company's website: https://www.boku.com/investor-relations/

   2.   Accounting policies 

The financial information has been prepared using the historical cost convention, as stated in the accounting policies below. These policies have been consistently applied to all periods presented, unless otherwise stated.

Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) ("IFRS") and IFRIC Interpretations issued by the International Accounting Standards Board (IASB).

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed below in II, "Critical accounting estimates, assumptions and judgements". The accounting policies adopted in these results have been consistently applied to all the years presented and are consistent with the policies used in the preparation of the financial statements for the year ended 31 December 2019, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2019. There are deemed to be no new standards, amendments and interpretations to existing standards, which have been adopted by the Group, that have had a material impact on the financial statements

The principal accounting policies adopted by the Group in the preparation of the Consolidated financial statements are set out below.

The presentation currency of the consolidated financial statements is US Dollars, rounded to the nearest thousands ($'000) unless otherwise indicated. The main functional currencies for the Company's subsidiaries are the United States Dollar, Euro and Great Britain Pound.

Going concern

The consolidated financial statements have been prepared on a going concern basis. The ability of the Group to continue as a going concern is contingent on the ongoing viability of the Group. The Group meets its day-to-day working capital requirements through its cash balances and also has a bank facility that it can use. The current economic conditions continue to create uncertainty, particularly over (a) the level of consumer engagement; and (b) the level of new sales to new customers. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group expects to be able to operate within the level of its current cash resources and bank facilities. Further information on the Group's borrowings and available facilities is given in Note 17 to these consolidated financial statements.

Various sensitivity analyses have been performed to reflect a variety of possible cash flow scenarios, taking into account the continued Covid-19 pandemic, where the Group achieves significantly reduced revenues for the twelve months following the date of this Annual Report. Overall, the directors have prepared cash-flow forecasts covering a period of at least 12 months from the date of approval of the financial statements, which foresee that the Group will be able to operate within its existing facilities.

The Covid-19 pandemic has so far had limited impact on our business and the Board believes that the business is able to navigate through the continued impact of Covid-19 due to the strength of its customer proposition and business partnerships, statement of financial position and the net cash position of the Group.

However, the continued impact of the coronavirus pandemic has caused significant disruption to many businesses where the implementation of social distancing measures is not practical or is deemed ineffective and this had implication for the wider global economy and specifically to the supply chain within which we reside, particularly our consumers continued willingness to use our services in the volumes experienced and planned. The move to remote working and social distancing has increased the importance of mobile payment solutions to our customers, potential customers and wider consumer market base. There is however a risk that the Group will be impacted by reductions in consumer confidence. If sales and settlement of existing debts are not in line with cash flow forecasts, the directors have identified cost savings associated with the reduction in revenues and have the ability to identify further cost savings if necessary, to help mitigate the impact on cash outflows.

Having assessed the principal risks and the other matters discussed in connection with the going concern statement, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis of accounting, and deem there to be no emphasis over going concern, in preparing the financial information.

Basis of consolidation

Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

The consolidated financial information presents the results of the Company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.

The consolidated financial information incorporates the results of business combinations using the acquisition method. In the statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date on which control ceases. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill.

A list of the subsidiary undertakings is given in note 12 of the financial information.

Changes in accounting policies and disclosures

(a) New and amended standards adopted by the Group

The accounting policies adopted in these consolidated financial statements are consistent with those of the annual financial statements for the 12 months ended 31 December 2019. The Group adopted the amendments to the following existing standards during 2020:

 
     Amendments to Existing Standards                                          Issued date   IASB effective date 
 1   Amendments to References to the Conceptual Framework in IFRS Standards     29-Mar-18         01-Jan-20 
    ------------------------------------------------------------------------  ------------  -------------------- 
 2   Amendments to IFRS 3 Business Combinations: Definition of a Business       22-Oct-18         01-Jan-20 
    ------------------------------------------------------------------------  ------------  -------------------- 
 3   Amendments to IAS 1 and IAS 8: Definition of Material                      31-Oct-18         01-Jan-20 
    ------------------------------------------------------------------------  ------------  -------------------- 
 4   Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform   26-Sept-19         01-Jan-20 
    ------------------------------------------------------------------------  ------------  -------------------- 
 5   Amendment to IFRS 16 Leases Covid 19-Related Rent Concessions              28-May-20        01-June-20 
    ------------------------------------------------------------------------  ------------  -------------------- 
 
   1)    Amendments to References to the Conceptual Framework in IFRS Standards 

The International Accounting Standards Board (IASB) has issued a revised Conceptual Framework for Financial Reporting (Conceptual Framework)

The revised version introduces a number of new aspects compared to the previous version issued in 2010, specifically including:

- concepts on measurement, including factors to be considered when selecting a measurement basis

- concepts on presentation and disclosure, including when to classify income and expenses in other comprehensive income

   -       guidance on when assets and liabilities are removed from financial statements. 

It also updates the definitions of asset and liability and the criteria for recognising assets and liabilities in financial statements. It has clarified the guidance on prudence, stewardship, measurement uncertainty, and substance over form. The amendment is effective for periods beginning on or after 1 January 2020.

   2)    Amendments to IFRS3: Definition of a Business 

In October 2018, the International Accounting Standards Board (Board) issued Definition of a Business (Amendments to IFRS 3) to make it easier for companies to decide whether activities and assets they acquire are a business or merely a group of assets. The amendments confirmed that:

- that a business must include inputs and a process and clarified that the process must be substantive, and the inputs and process must together significantly contribute to creating outputs.

- narrowed the definitions of a business by focusing the definition of outputs on goods and services provided to customers and other income from ordinary activities, rather than on providing dividends or other economic benefits directly to investors or lowering costs; and

- added a test that makes it easier to conclude that a company has acquired a group of assets, rather than a - business, if the value of the assets acquired is substantially all concentrated in a single asset or group of similar assets.

The amendment is effective for periods beginning on or after 1 January 2020.

   3)    Amendments to IAS 1 and IAS 8: Definition of Material 

In October 2018, the International Accounting Standards Board (Board) issued 'Definition of Material (Amendments to IAS 1 and IAS 8)' to clarify the definition of 'material' and to align the definition used in the Conceptual Framework and the standards themselves. The amendment is effective for periods beginning on or after 1 January 2020.

- The proposed definition now makes reference to 'obscuring' information that may influence the decisions of primary users of general purpose financial statements;

- The existing definition made reference to 'could influence' whereas the proposed definition makes reference to 'could reasonably be expected to influence'; and

- The existing definition referred to 'users' of the financial statements whereas the proposed definition refers to 'primary users' of the financial statements.

The amendment is effective for periods beginning on or after 1 January 2020.

   4)    Amendments to IFRS 9, IAS 39 and IFRS7: Interest Rate Benchmark Reform 

In September 2019, the International Accounting Standards Board (IASB) amended IFRS 9, IAS 39 and IFRS 7 in response to uncertainty arising from the phasing out of interest-rate benchmarks such as interbank offered rates (IBORs).

The amendments modify the requirements relating to hedge accounting in order to provide relief from potential consequences of IBOR reform. Additionally, the standards were amended to require additional disclosures explaining how an entity's hedging relationships are affected by the uncertainties involving IBOR reform.

The amendment is effective for periods beginning on or after 1 January 2020 with early application permitted.

   5)    Amendment to IFRS 16 Leases Covid 19-Related Rent Concessions 

On 28 May 2020, the IASB issued final amendments to IFRS 16 related to COVID-19 rent concessions for lessees. The Group did not adopt this standard as no such concessions were applicable.

The amendments modify the requirements of IFRS 16 to permit lessees to not apply modification accounting to certain leases where the contractual terms have been affected due to COVID-19 (e.g. rent holidays or other rent concessions).

The amendments are effective for periods beginning on or after 1 June 2020, with earlier application permitted.

(a) New and amended standards not yet adopted by the Group

 
     Amendments to Existing Standards                                               Issued date    IASB effective date 
 1   Amendments to IAS 1: Classification of Liabilities as Current or Non-current    23-Jan-20          01-Jan-23 
    -----------------------------------------------------------------------------  -------------  -------------------- 
 2         Amendments to:                                                            14-May-20          01-Jan-22 
            -- IFRS 3 Business Combinations 
            -- IAS 16 Property, Plant and Equipment 
            -- IAS 37 Provisions, Contingent Liabilities and Contingent Assets 
    -----------------------------------------------------------------------------  -------------  -------------------- 
 3        Annual Improvements to IFRSs (2018-2020 Cycle):                            14-May-20          01-Jan-22 
           -- IFRS 1 
           -- IFRS 9 
           -- Illustrative Examples accompanying IFRS 16 
           -- IAS 41 
    -----------------------------------------------------------------------------  -------------  -------------------- 
 4   Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate         27-August-20        01-Jan-21 
     Benchmark Reform - 
     Phase 2 
    -----------------------------------------------------------------------------  -------------  -------------------- 
 

Management continues to monitor the issuance of new standards and any further amendments to the existing standards and considers that the application of the new amendments in the table above will not materially affect the Group after adoption.

Foreign currency translation

The presentation and functional currency for the group is US dollars. Items included in the financial statement of each of the Group's entities are measured in the functional currency of each entity.

Foreign currency transactions and balances

i) Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.

ii) Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the reporting period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement within administrative expenses.

iii) Non-monetary items that are measured in terms of historical costs in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments (including purchased intangible assets) 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 closing rate.

Consolidation of foreign entities

On consolidation, the results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

i) Assets and liabilities for each Consolidated statement of financial position presented are translated at the closing rate at the date of that Consolidated statement of financial position.

ii) Income and expenses for each Consolidated statement of comprehensive income item are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

   iii)           All resulting exchange differences are recognised as a separate component of equity. 

Exchange differences are recycled to profit or loss as a reclassification adjustment upon disposal of the foreign operation.

Revenue

Boku recognises revenue in accordance with IFRS 15 Revenue from Contracts with Customers by applying the required five steps: identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognise revenue when (or as) the entity satisfies a performance obligation. Revenue is allocated to the various performance obligations on a relative stand-alone selling price ("SSP") basis.

An analysis of the key considerations that IFRS 15 has on the Group's revenue streams is summarised below.

1. Payments Segment revenue

Boku's technology for the Payments segment delivers a low friction way for mobile phone users to buy things and charge them to their phone bill or pre-paid balance. The Group's revenue is principally its service fees which are earned from its merchants.

(i) Settlement Model: when it acts as an agent between a merchant and mobile network operators (MNOs) or an aggregator (a middleman between the Group and the MNO). Management has determined that it is acting as an agent under IFRS 15 because it does not have the primary responsibility for providing the services to the customer. Therefore, there has been no change in the classification as an agent from the previous assessment that there was no exposure to the risks and rewards. An additional fee is also earned when a merchant requires settlement in a different currency than the currency received, at contractual agreed rates, in line with IFRS 15.

(ii) Transactional Model: from larger virtual and digital merchants who receive the sale collections directly and pay a service fee to the Group.

Under both the transactional and settlement model (see point (i) and (ii) above), the Group's contracts with customers include one performance obligation only. This relates to an obligation to facilitate the payment for the transaction between the merchant and their end users. Under IFRS 15 revenues for this service is recognised under this contract at a point in time as the obligation is fulfilled at time when transaction happens, as the point of delivery of the performance obligation is the same as when the risks and rewards have been transferred. Payments are due once the Group receives the monthly statement of information from the Aggregator or the MNO.

(iii)) Other revenue: from special merchant integrations, subscription services and early settlement of funds.

A contract for special merchant integration was changed during 2019. This resulted in a change of the revenue recognition for special merchant integrations. Under the new contract after the special integration is performed, tested and approved by the customer, no further performance obligation is required of Boku. The customer decides whether Boku has to service further the special integration and keep it live and will pay this further performance obligation separately under a special obligation: "monthly maintenance obligation". Payments are due and recognised in full once the integrations are successfully tested and approved by the customer. The maintenance fees are due monthly and are recognised in full at each month end, in line with IFRS 15.

Contract assets and contract liabilities are included within 'trade and other receivables' and 'trade and other payables' respectively on the face of the statement of financial position.

In certain cases, the transaction price includes an estimate of variable consideration. Variable consideration is only included in the transaction price to the extent that it is highly probably that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved. In such cases, the estimated transaction price is updated each reporting period to reflect changes in circumstances and the adjustment is reflected in revenue in the period that the change occurs.

The Group's revenue is principally its service fees earned from its merchants. There are slight differences to contracts depending on the services provided. All revenue from the Payment segment is recognised at one point in time. Therefore, for the Payments segment, at 31 December 2019, the Group does not have deferred revenue on the balance sheet.

   2.   Identity Segment Revenue 

Boku's technology for the Identity segment provides identity services to customers by silently validating a mobile device using automatic mobile number verification, streamlining the Know Your Client ('KYC') processes by validating the name and address entered by a user against the MNOs data, and reduce fraud on marketing promotions by linking marketing promotions to secure SIM based user identities instead of email or unverified mobile numbers etc.

Identity merchants are charged either on a per user basis - for monitoring - or a per transaction basis, typically with monthly minimums.

For the Identity segment, deferred revenue consists of billings processed in advance of revenue recognition generated by Boku Identity's Mobile Identification/TCPA services. For these services, Boku bills its customers at the beginning of the contract term as a pre-payment for services which are billed at a set price per transaction. The revenue is recognised monthly, at a point in time, based on the amount of transactional volume processed during the month and services will continue to be performed until the full value of the contract is realised. For the period ended 31 December 2020, deferred revenue on the balance sheet for the Identity Segment was $443,585 (2019: $489,265).

Cost of sales

Cost of sales is primarily related to the monthly fees and service charges from MNOs and other providers, customer services fees, some marketing expenses and bad debt.

Operating Segments

In accordance with IFRS 8, "Operating Segments", the Group has derived the information for its segmental reporting using the information used by the Chief Operating Decision Maker ("CODM"), defined as the Executive Operating Committee (EOC). The segmental reporting is consistent with those used in internal management reporting and the measure used by the EOC is Adjusted EBITDA.

The Board considers that the Group's provision of a payment platform for the payment processing of virtual goods and digital goods purchases constitutes one operating and one reporting segment (Payments segment), and the provision of identity services another operating and reporting segment (Identity segment) as defined under IFRS 8. Management reviews the performance of the Group by reference to total results against budget as well as for each of the two operating segments.

Exceptional Items

Exceptional items are those significant items, which are separately disclosed by virtue of their size, nature or incidence to enable a full understanding of the Group's financial performance. In setting the policy for exceptional items, judgement is required to determine what the Group defines as "exceptional". The Group considers an item to be exceptional in nature if it is non-recurring or does not reflect the underlying performance of the business. Exceptional items are recorded separately below EBITDA.

Management of the Group evaluates Group strategic projects such as acquisitions, divestitures and integration activities, Group restructuring and other one-off events such as restructuring programmes. In determining whether an event or transaction is exceptional, management of the Group considers quantitative and qualitative factors such as its expected size, precedent for similar items and the commercial context for the particular transaction, while ensuring consistent treatment between favourable and unfavourable transactions impacting revenue, income and expense. Examples of transactions which may be considered of an exceptional nature include major restructuring programmes, cost of acquisitions, the cost of integrating acquired businesses or gains or losses on the disposal of discontinued operations.

Retirement Benefits: Defined contribution schemes

The Group operates various pension schemes in various jurisdictions, all being defined contribution schemes (pension plans). A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due.

In the U.S. the group has a 401(k) plan, a type of defined contribution scheme in the United States in which all employees are eligible to participate after meeting eligibility requirements. Participants may elect to have a portion of their salary deferred and contributed to the scheme up to the limit allowed by applicable income tax regulations. The Company has made a matching contribution to the scheme for the years ended 31 December 2020 and 2019.

Contributions to defined contribution schemes are charged to the consolidated statement of comprehensive income in the year to which they relate.

Share-based payments

Where equity settled share options and Restricted Stock Units ('RSUs') are awarded to employees, the fair value of the options or RSUs at the date of grant is charged to the consolidated statement of comprehensive income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options or RSUs that eventually vest.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the consolidated statement of comprehensive income over the remaining vesting period.

Where equity instruments are granted to persons other than employees, the consolidated statement of comprehensive income is charged with the fair value of goods and services received.

RSU's issued in connection with business combinations as replacements for instruments held by employees are treated as part of the consideration transferred to the extent that the Company is obliged to issue the replacement awards and that they compensate for service that has been provided pre-combination. To the extent awards are voluntary or that they relate to the provision of future services they are treated as a post-combination expense.

Share options and RSUs which will incur future employer payroll taxes on exercise, are accrued for the future cost of Employer's National Insurance from the point the options are granted over their vesting period. This liability is then amended at each subsequent balance sheet date under IFRS 2.

Intangible assets

   (i)            Goodwill 

The Group uses the acquisition method of accounting for the acquisition of a subsidiary. The consideration transferred is measured at the fair value of the assets given, equity instruments issued, and liabilities incurred or assumed at the date of exchange. Costs directly attributable to the acquisition are expensed in the period. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

In respect of business combinations that have occurred since January 2014, goodwill represents the excess of the cost of the acquisition and the Group's interest fair value of net identifiable assets and liabilities acquired. In respect of business combinations prior to this date, goodwill is included on the basis of its deemed cost, which represents the amount recorded under US GAAP. As permitted by IFRS 1, Goodwill arising on acquisitions prior to 1 January 2014 is stated in accordance with US GAAP and has not been remeasured on transition to IFRS. Goodwill is recognised and measured at the acquisition date.

Goodwill is capitalised as an intangible asset at cost less any accumulated impairment losses. Any impairment in carrying value is being charged to the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed.

Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive income on the acquisition date.

Goodwill is allocated to appropriate cash generating units (CGUs). Goodwill is not amortised but is tested annually for impairment or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the determination of a discount rate in order to calculate the present value of the cash flows. The major assumptions are disclosed in note 11.

   (ii)           Intangible assets acquired as part of a business combination 

Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset. All intangible assets acquired through business combinations, are amortised over their useful lives.

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses. The carrying values are tested for impairment when there is an indication that the value of the assets might be impaired.

   (iii)          Research and development 

Expenditure on research activities as defined in IFRS is recognised in the income statement as an expense as incurred.

Expenditure on internally developed software products and substantial enhancements to existing software product is recognised as intangible assets only when the following criteria are met:

   1.             it is technically feasible to develop the product to be used or sold; 
   2.             there is an intention to complete and use or sell the product; 
   3.             the Group is able to use or sell the product; 
   4.             use or sale of the product will generate future economic benefits; 
   5.             adequate resources are available to complete the development; and 
   6.             expenditure on the development of the product can be measured reliably. 

The capitalised expenditure represents costs directly attributable to the development of the asset from the point at which the above criteria are met up to the point at which the product is ready to use. The costs include external direct costs of materials and services consumed in developing and obtaining internal-use computer software, and payroll and payroll-related costs for employees who are directly associated with and who devote time to developing the internal-use software. If the qualifying conditions are not met, such development expenditure is recognised as an expense in the period in which it is incurred. Product development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

   (iv)          Amortisation rates 

The significant intangibles recognised by the Group and their useful economic lives are as follows:

 
 Intangible asset                 Useful economic life 
  Tradenames                       Indefinite life - not amortised 
  Acquired intangibles (Fortumo    10 years 
  acquisition)                     5 years 
  Merchant relationships           1 - 7 years 
  Developed technologies           5 years 
  Domain names                     3 - 6.75 years 
  Internally developed software 
 

The amortisation expense is recognised within administrative expenses in the consolidated statement of comprehensive income.

Property, plant and equipment

Property, plant and equipment are held under the cost model and are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance expenditures are charged to the Consolidated statement of comprehensive income during the financial year in which they are incurred. Depreciation is calculated using the straight-line method to write off the cost of each asset to its residual value over its estimated useful life as follows:

 
 Office equipment and furniture     3- 5 years on cost 
  Computer equipment and software    3- 5 years on cost 
  Leasehold improvement              6.5 years on cost 
  Right-of-use assets                Shorter of useful life of the asset or 
                                     lease term 
 
 

Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in the Consolidated statement of comprehensive income.

Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short term highly liquid investments with original maturities of three months or less. Bank overdrafts are shown with borrowings in currently liabilities on the Consolidated statement of comprehensive income.

Restricted cash

The restricted cash does not meet the definition of cash and cash equivalents and is therefore separately disclosed in the Group's statement of financial position and is not part of the cash and cash equivalents for cash flow purposes. These cash amounts are restricted as to withdrawal or use under the terms of certain contractual agreements.

Financial assets

The Group's financial assets mainly comprise cash, trade and other receivables.

Trade receivables are initially recognised at fair value and subsequently measured at amortised cost less provisions for impairment based upon an expected credit loss methodology. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance matrix for all trade receivables (including accrued receivables). A provision of the lifetime expected credit loss is established upon initial recognition of the underlying asset and are calculated using historical account payment profiles along with historical credit losses experienced. The loss allowance is adjusted for forward looking factors specific to the debtor and the economic environment. The amount of the provision is recognised in the Consolidated statement of comprehensive income.

A financial asset has also been recognised for the cash held into a third party escrow account that exceeds the fair value of contingent consideration expected to be paid and that is therefore expected to be returned to the Company in connection with the acquisition of Fortumo (see note 26).

Financial liabilities

Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. The Group's financial liabilities are categorised as loans and Trade and other payables.

At initial recognition,

-- Financial liabilities (trade and other payables, excluding other taxes and social security costs and deferred income), are measured at their fair value plus, if appropriate, any transaction costs that are directly attributable to the issue of the financial liability. These financial liabilities are subsequently carried at amortised cost.

-- Bank borrowings are initially recognised at fair value net any of transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently measured at amortised cost ensuring the interest element of the borrowing is expensed over the repayment period at a constant rate.

Leases

IFRS 16 "Leases"' sets out the principles for the recognition, measurement, presentation and disclosures of leases and requires lessees to account for most leases under a single on-balance sheet model. The Group has applied IFRS 16 'Leases' from 1 January 2019.

Right-of-use assets

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

Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as expense in the period on which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

Short-term leases and leases of low-value assets The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value (i.e., below GBP5,000). Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.

Incremental borrowing rate

IFRS 16 Leases requires that all the components of the lease liability (as described in section 5.1. Leases) are required to be discounted to reflect the present value of the payments. The discount rate to use is the rate implicit in the lease, unless this cannot readily be determined, in which case the lessee's incremental borrowing rate is used instead.

The definition of the lessee's incremental borrowing rate states that the rate should represent what the lessee 'would have to pay to borrow over a similar term and with similar security, the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment.' In applying the concept of 'similar security', a lessee uses the right-of-use asset granted by the lease and not the fair value of the underlying asset. This is because the rate should represent the amount that would be charged to acquire an asset of similar value for a similar period.

In practice, judgement may be needed to estimate an incremental borrowing rate in the context of a right-of-use asset, especially when the value of the underlying asset differs significantly from the value of the right-of-use asset.

The analysis showed that the incremental borrowing rate as at 1(st) January 2019 was 8.5% which was used as discount rate for all leases in all subsidiaries, which were acquired before 1(st) July 2020. The Group borrowed funds from its bankers in June 2020 and reviewed the incremental borrowing rate to be 4.285% and applied this rate to all leases acquired after 1(st) July 2020.

The discount rate will be revised, in line with IFRS 16, and the lease liability remeasured only when:

   -       there is a change in the lease term, 

- a change in the assessment of whether the lessee is reasonably certain to exercise an option to purchase the underlying asset or

- -a change in floating interest rates, resulting in a change in the future lease payments (this approach is consistent with IFRS 9's requirement for the measurement of a floating rate financial liabilities subsequently measured at amortised cost)

A lessee is not required to reassess the discount rate when there is a change in future lease payments due to a change in an index. - e.g. the consumer price index.

Share Capital

Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Group's ordinary share capital and share premium are classified as equity instruments.

Taxation

Current tax

Current taxes are based on the results shown in the financial statements and are calculated according to local tax rules, using tax rates enacted or substantially enacted at the balance sheet date.

Deferred tax

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differs from its tax base, except for differences arising on:

   --      the initial recognition of goodwill; 

-- the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and

-- investments in subsidiaries where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the deferred tax liabilities or assets are settled or recovered. Deferred tax balances are not discounted.

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:

   --      the same taxable group company; or 

-- different company entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets and liabilities are expected to be settled or recovered.

Business combinations

The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Costs related to acquisitions, other than those directly attributable to the issue of debt or equity, are expensed as incurred.

Goodwill arising on acquisition is recognised as an asset and 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 recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the profit or loss.

Critical accounting estimates and judgements

In preparing these Consolidated financial statements, the Group has made its best estimates and judgements of certain amounts included in the financial statements, giving due consideration to materiality. The Group regularly reviews these estimates and updates them as required. Actual results could differ from these estimates. Unless otherwise indicated, the Group does not believe that there is a significant risk of a material change to the carrying value of assets and liabilities within the next financial year related to the accounting estimates and assumptions described below. The Group considers the following to be a description of the most significant estimates and judgements, which require the Group to make subjective and complex judgements and matters that are inherently uncertain.

   (a)   Goodwill, Intangible assets acquired in a business combination 

As set out in the accounting policies above, intangible assets acquired in a business combination are capitalised and amortised over their useful lives. Both initial valuations and valuations for subsequent impairment tests are based on risk adjusted future cash flows discounted using appropriate discount rates. These future cash flows are based on forecasts which are inherently judgemental. Future events could cause the assumptions to change which could have an adverse effect on the future results of the Group. Refer to note 11 for a description of the specific estimates and judgements used including the critical accounting estimates and judgments used in the calculation of the goodwill impairment.

   (b)   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. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. Where such a model is required, the group is using the Black Scholes model to calculate its share-based compensation expenses. (Please refer to note 20 for full details).

   (c)   Taxation 

In recognising income tax assets and liabilities, management makes estimates of the likely outcome of decisions by tax authorities on transactions and events whose treatment for tax purposes is uncertain. Where the final outcome of such matters is different, or expected to be different, from previous assessments made by management, a change to the carrying value of income tax assets and liabilities will be recorded in the period in which such a determination is made. In recognising deferred tax assets and liabilities management also makes judgements about likely future taxable profits. The carrying values of current tax and deferred tax assets and liabilities are disclosed separately in the consolidated statement of financial position.

(d) Impairment of goodwill and other intangible assets

The Group has carried out an impairment review of its Identity cash generating unit ("CGU") and recognised an impairment loss on goodwill in the year. The recoverable amount of the CGU is based on estimates of future cash flows discounted using an appropriate discount rate. Estimates of future cash flows are inherently uncertain as the long-term impact of the Covid-19 pandemic on the general economy is unclear. To take account of this uncertainty, management have used the "expected cash flow approach" which involves probability weighting several alternate scenarios.

It is possible that changes in economic conditions or deviations in actual performance from forecast could result in a material adjustment to the carrying value of the CGU within the next financial year. The key estimates made by management are set out in note 11. The information in note 11 also provides an indication of the amount of any further impairment for other reasonably possible outcomes.

   3.    Financial instruments - Risk Management 

The Board has overall responsibility for the determination of the Group's risk management objectives and policies. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. The Group reports in US$. All funding requirements and financial risks are managed based on policies and procedures adopted by the Board of Directors. The Group does not issue or use financial instruments of a speculative nature.

The Group is exposed to the following financial risks:

   --      Market risk 
   --      Credit risk 
   --      Liquidity risk 

In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:

   --      Trade and other receivables 
   --      Cash and cash equivalents and restricted cash 
   --      Trade and other payables 
   --      Bank loans 

To the extent financial instruments are not carried at fair value in the consolidated statement of financial position, book value approximates to fair value at 31 December 2020 and 31 December 2019

Trade and other receivables are measured at book value and amortised cost. Book values and expected cash flows are reviewed by the Board and any impairment charged to the consolidated statement of comprehensive income in the relevant period.

Trade and other payables are measured at book value and amortised cost.

Financial instruments by category

 
                                                              31 December   31 December 
 Financial assets                                                    2020          2019 
                                                                    $'000         $'000 
-----------------------------------------   -----------------------------  ------------ 
 
 Cash and cash equivalents                                         61,290        34,747 
 Restricted cash                                                    1,414           876 
------------------------------------------  -----------------------------  ------------ 
 Total Cash                                                        62,704        35,623 
------------------------------------------  -----------------------------  ------------ 
 
   Accounts receivable (net)                                       86,360        50,165 
 Other receivables (including contingent 
  asset)                                                            3,100           373 
 Note receivable from shareholder                                       -           793 
------------------------------------------  -----------------------------  ------------ 
 Total other financial assets                                      89,460        51,331 
------------------------------------------  -----------------------------  ------------ 
 
 Cash, and other financial assets                                 152,164        86,954 
------------------------------------------  -----------------------------  ------------ 
 

Financial liabilities

 
                                        31 December   31 December 
                                               2020          2019 
                                              $'000         $'000 
------------------------------------   ------------  ------------ 
 
 Trade payables                             105,376        68,128 
 Accruals                                    28,135         7,799 
 Total other financial liabilities          133,511        75,927 
-------------------------------------  ------------  ------------ 
 Bank loans (secured)                        12,250         2,098 
 Lease liabilities                            3,178         1,723 
 Loans and borrowings                        15,428         3,821 
 Financial liabilities at amortised 
  cost                                      148,939        79,748 
-------------------------------------  ------------  ------------ 
 

The management of risk is a fundamental concern of the Group's management. This note summarises the key financial risks to the Group and the policies and procedures put in place by management to manage them.

a) Market risk

Market risk arises from the Group's use of interest bearing and foreign currency financial instruments. There is a risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk) or foreign exchange rates (currency risk).

Interest rate risk

The Group is exposed to cash flow interest rate risk from bank borrowings at variable rates but with a lower floor. The Group's bank borrowings and other borrowings are disclosed in note 17. The interest rates for the current Boku bank loan are based on LIBOR. LIBOR is currently expected to be phased out by the end of 2021. Various financial authorities including the Financial Conduct Authority ("FCA") announced that it will no longer compel the banks to submit to LIBOR after 2021. Therefore, the availability of LIBOR post December 31, 2021 is not guaranteed and could have an effect on the interest rates of the current loan. The management has been in discussion with its bankers and is expecting that the current contracts will be settled at similar or equivalent rates after transition and does not expect this change to have a material effect on the Group finances. The Group manages the interest rate risk centrally.

The following table demonstrates the sensitivity to a 1 percent change (higher only due to the fixed lower floor) to the interest rates of the following borrowings at 31 December 2020 to the profit before tax and net assets for the period:

 
                                                31 December 2020                                    31 December 2019 
                  Increase/(decrease) of loss before tax and net      Increase/(decrease) of loss before tax and net 
                                                          assets                                              assets 
                                                           $'000                                               $'000 
------------   -------------------------------------------------  -------------------------------------------------- 
 
 Bank loans                                                 +124                                               +/-20 
-------------  -------------------------------------------------  -------------------------------------------------- 
 

Foreign exchange risk

Foreign exchange risk is the risk that movements in exchange rates affect the profitability of the business. The company manages this risk through natural hedging and spot contracts.

The effect of fluctuations in exchange rates on the Euro and GBP denominated trade receivables is partially offset through the use of foreign exchange contracts to the extent that any remaining impact on profit after tax is not material.

As at December 31, 2020, the Company had no (2019: nil) foreign currency forward contracts totalling a notional amount of $Nil (2019: $Nil).

The Group aims to fund expenses and investments in the respective currency and to manage foreign exchange risk at a local level by matching the currency in which revenue is generated and expenses are incurred. The Group manages all treasury activities centrally, with the exception of the newly acquired Fortumo entities where treasury processes are in the process of being aligned with group treasury policies and procedures.

As of 31 December, the Group's gross exposure to foreign exchange risk was as follows:

 
                                     GBP       Euro      Other       Total 
 31 December 2020                  $'000      $'000      $'000       $'000 
-----------------------------  ---------  ---------  ---------  ---------- 
 
 Trade and other receivables      11,630     25,375     46,476      83,481 
 Cash and cash equivalents 
  and restricted cash             10,083     15,912     21,053      47,048 
 Trade and other payables       (21,138)   (60,967)   (41,542)   (123,647) 
 Financial assets                    575   (19,680)     25,987       6,882 
-----------------------------  ---------  ---------  ---------  ---------- 
 
 10% impact - +/-                     64    (2,187)      2,887         765 
 
 
                                     GBP       Euro      Other      Total 
 31 December 2019                  $'000      $'000      $'000      $'000 
-----------------------------  ---------  ---------  ---------  --------- 
 
 Trade and other receivables      14,856     19,180     15,198     49,234 
 Cash and cash equivalents 
  and restricted cash             13,307      8,445     10,308     32,060 
 Trade and other payables       (22,113)   (24,684)   (22,646)   (69,443) 
 Financial assets                  6,050      2,941      2,859     11,851 
 
 10% impact - +/-                    672        327        318      1,317 
 

The impact of 10% movement in foreign exchange rate of US$ will result in an increase/decrease of total comprehensive loss after tax and financial assets/(liabilities) of $765 thousands for December 2020 (2019: $1,317 thousands).

b) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from credit sales. The Group's net trade receivables for the three reported periods are disclosed in the financial assets table above.

The Group is exposed to credit risk in respect of these balances such that, if one or more the aggregators or MNOs encounters financial difficulties, this could materially and adversely affect the Group's financial results. The Group attempts to mitigate credit risk by assessing the credit rating of new customers prior to entering into contracts and by entering contracts with customers with agreed credit terms.

To minimise this credit risk, the Group endeavours only to deal with companies which are demonstrably creditworthy and this, together with the aggregate financial exposure, is continuously monitored. The maximum exposure to credit risk is the value of the outstanding amount.

At the reporting date, the largest exposure was represented by the carrying value of trade and other receivables, against which $1,323 is provided at 31 December 2020 (2019: $2,002). The provision represents an estimate of potential bad debt in respect of the year-end trade receivables, a review having been undertaken of each such year-end receivable. The Group's customers are spread across a broad range of sectors and consequently it is not otherwise exposed to significant concentrations of credit risk on its trade receivables.

A debt is considered to be bad when it is deemed irrecoverable, for example when the debtor goes into liquidation, or when a credit or partial credit is issued to the customer for goodwill or commercial reasons. The Group has applied the Simplified Approach applying a provision matrix based on number of days past due to measure lifetime expected credit losses and after taking into account customer sectors with different credit risk profiles and current and forecast trading conditions.

The Group's provision matrix is as follows:

 
         31-Dec-20                < 60 days          61-120         121-150   > 150 days     Total 
                                                       days            days 
---------------------------  --------------  --------------  --------------  -----------  -------- 
 
 Expected credit loss % 
  range                                  0%              0%              0%     95%-100% 
 Gross debtors ($'000)               82,597          1,880            1,883        1,323    87,683 
 Expected credit loss rate 
  ($'000)                                 -               -               -      (1,323)   (1,323) 
---------------------------  --------------  --------------  --------------  -----------  -------- 
                                                                                            86,360 
 

At 31 December 2019 the Group had a provision for $2 million of which $25 thousands was utilised and $705 thousands was fully reversed in the year - see Note 13 for full details of the movement in the year. The total provision for trade and accrued receivable as at 31 December 2020 was $1.3 million.

 
         31-Dec-19                < 60 days          61-120         121-150   > 150 days     Total 
                                                       days            days 
---------------------------  --------------  --------------  --------------  -----------  -------- 
 
 Expected credit loss % 
  range                                  0%              0%              0%     95%-100% 
 Gross debtors ($'000)               49,265           173               611        2,117    52,166 
 Expected credit loss rate 
  ($'000)                                 -               -               -      (2,002)   (2,002) 
---------------------------  --------------  --------------  --------------  -----------  -------- 
                                                                                            50,165 
 

At 31 December 2018 the Group had a provision for $1,958 of which $101 was fully written off during 2019. The total provision of trade and accrued receivables as at 31 December 2019 was $2,002.

Other receivables are considered to be low risk. The management do not consider that there is any concentration of risk within other receivables. No other receivables have been impaired.

Credit risk on cash and cash equivalents is considered to be small as the counterparties are all substantial banks with high credit ratings. The maximum exposure is however the amount of the deposit. To date, the Group has not experienced any losses on its cash and cash equivalent deposits.

c) Liquidity risk

Liquidity risk arises from the Group's management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. The table below analyses the Group's financial liabilities by contractual maturities (all amounts disclosed in the table are the undiscounted contractual cash flows):

 
 31 December 2020                          Within 1 year   2-5 years   More than 5 years 
                                                   $'000       $'000               $'000 
--------------------------------------  ----------------  ----------  ------------------ 
 Trade and other payables                        136,779         862                   - 
 Bank loans and overdrafts (secured)*              1,438      10,813                   - 
 Leases liabilities                                1,625       1,937                   - 
--------------------------------------  ----------------  ----------  ------------------ 
 Total                                           139,653      13,612                   - 
--------------------------------------  ----------------  ----------  ------------------ 
 
 

*No material difference between discounted and undiscounted fair value.

 
 31 December 2019                       Within 1 year   2-5 years   More than 5 years 
                                                $'000       $'000               $'000 
-------------------------------------  --------------  ----------  ------------------ 
 Trade and other payables                      77,995         791                   - 
 Bank loans and overdrafts (secured)            2,098           -                   - 
 Leases liabilities                             1,914       1,482                   - 
-------------------------------------  --------------  ----------  ------------------ 
 Total                                         80,007       2,273                   - 
-------------------------------------  --------------  ----------  ------------------ 
 
 

Capital Management

The Group's capital is made up of share capital, foreign exchange reserve and retained losses.

The Group's objectives when maintaining capital are:

-- To safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and

-- To provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

The capital structure of the Group consists of shareholders' equity as set out in the consolidated statement of changes in equity. All working capital requirements are financed from existing cash resources and borrowings.

   4.   Segmental analysis 
   (a)    Operating Segments - primary basis 

Prior to 1 Jan 2019, the Group considered that for executive management purposes, the Group had one reportable segment - provision of a payment platform for processing payments for virtual goods and digital goods purchases. Following the acquisition of Danal Inc on 1 January 2019, the Group revised its activities into two operating segments as disclosed below. The segments are based on the Group's main revenue generating activities. On 1(st) July 2020, the Group completed the acquisition of Fortumo Holdings Inc and its subsidiaries. Fortumo was a competitor to Boku and operates in the same space as the Boku existing payments business. Therefore, the results of the Fortumo O (the trading subsidiary of Fortumo Holdings Inc) and its subsidiaries together with the existing Boku Payments business are viewed by the management as one segment. The Group CEO and CFO review the management reports for both segments monthly before sending the results to the Board.

The following summary describes the operations in each of the Group's reportable segments:

Payments Segment - provision of payment platform which enables mobile phone users to buy goods and services and charge them to their mobile phone or prepaid balance.

Identity Segment - provision of Identity services which are used to simplify transactions or combat fraud.

Operating segment information under the primary reporting format is disclosed below:

 
                                                                   2020 
 Boku Income Statement by segment 
  for 12 months to 31 December 2020             Total Payments   Total Identity      Total 
                                               ---------------  --------------- 
                                                         $'000            $'000      $'000 
 Fee Revenue                                            51,231            5,171     56,402 
 Cost of sales                                         (1,669)          (3,256)    (4,925) 
                                               ---------------  ---------------  --------- 
 Gross Profit                                           49,562            1,915     51,477 
 Administrative Expenses                              (39,737)         (28,463)   (68,200) 
                                               ---------------  ---------------  --------- 
 Operating gain/(loss) analysed 
  as: 
 Adjusted EBITDA*                                       19,176          (3,908)     15,268 
 Payments Revenue Adjustment (non-recurring) 
 Depreciation and amortisation                         (4,726)          (1,191)    (5,917) 
 Stock Option expense                                  (4,010)            (915)    (4,925) 
 Goodwill impairment                                         -         (20,775)   (20,775) 
 Foreign exchange gains                                    807              241      1,048 
 Exceptional items (included in 
  administrative expenses)                             (1,422)                -    (1,422) 
                                               ---------------  ---------------  --------- 
 
 Operating gain/(loss)                                   9,825         (26,548)   (16,723) 
 Finance income                                             70                -         70 
 Finance expense                                         (649)             (13)      (662) 
                                               ---------------  ---------------  --------- 
 Profit/(Loss) before tax                                9,246         (26,561)   (17,315) 
 Tax expense                                           (1,469)              (1)    (1,470) 
---------------------------------------------  ---------------  ---------------  --------- 
 Net gain/(loss) for the period 
  attributable to equity holders 
  of the parent company                                  7,777         (26,562)   (18,785) 
                                               ---------------  ---------------  --------- 
 

*Earnings before interest, tax, depreciation, amortisation, non-recurring payment revenue, stock option expense, foreign exchange gains/(losses), impairment of goodwill and exceptional items. Management has assessed this performance measure as relevant for the user of the accounts.

 
 Boku Income Statement by segment 
  for 
  12 months to 31 December 2019                             2019 
                                              ------------------------------- 
                                               Payments   Identity      Total 
                                                  $'000      $'000      $'000 
 Fee Revenue                                     43,473      6,675     50,148 
 Cost of sales                                  (1,641)    (3,922)    (5,563) 
                                              ---------  ---------  --------- 
 Gross Profit                                    41,832      2,753     44,585 
 Administrative Expenses                       (36,053)    (9,416)   (45,469) 
                                              ---------  ---------  --------- 
 Operating Profit/(loss) analysed 
  as: 
 Adjusted EBITDA*                                12,687    (5,284)      7,403 
 Payment Revenue adjustment (non-recurring)       3,255          -      3,255 
 Depreciation and amortisation                  (3,968)      (493)    (4,461) 
 Stock Option expense                           (6,013)      (758)    (6,771) 
 Foreign exchange gains/(losses)                    112        (5)        107 
 Exceptional items (included in 
  administrative expenses)                        (294)      (123)      (417) 
                                              ---------  ---------  --------- 
 
 Operating Profit/(loss)                          5,779    (6,663)      (884) 
 Finance income                                      56          0         56 
 Finance expense                                  (432)       (36)      (468) 
                                              ---------  ---------  --------- 
 Profit/(Loss) before tax                         5,403    (6,699)    (1,296) 
 Tax (expense)/credit                             1,653        (2)      1,651 
                                                                    --------- 
 Net Profit/(loss) for the period 
  attributable to equity holders 
  of the parent company                           7,056    (6,701)        355 
                                              ---------  ---------  --------- 
 

During 2019, an adjustment of $3,255k has been recognised in payments revenue as a result of a change in the estimate of transaction price for a specific customer, and for whom the performance obligations were satisfied in a previous year. As this amount is non-recurring it has been excluded from 'Adjusted EBITDA', as noted on the Consolidated Statement of Comprehensive Income and in the table above.

The net assets for each segment are disclosed below:

 
 Net Assets by segment                                  2020 
                                  ----------------------------------------------- 
                                   Payments   Identity               Consolidated 
 Non-current assets                   $'000                 $'000           $'000 
 Property, plant, and equipment       3,749                    22           3,771 
 Intangible assets                   60,252                 5,307          65,559 
 Deferred tax assets                    483                     -             483 
 Total non-current assets            64,484                 5,329          69,813 
 
 Current Assets 
 Trade and other receivables         91,122                 1,413          92,535 
 Cash and cash equivalents           61,038                   252          61,290 
 Restricted cash                      1,414                     -           1,414 
                                  ---------  --------------------  -------------- 
 Total current assets               153,574                 1,665         155,239 
 Total assets                       218,058                 6,994         225,052 
 Current liabilities 
 Trade and other payables           135,203                 1,576         136,779 
 Loans and borrowings                 2,863                    11           2,874 
                                  ---------  --------------------  -------------- 
 Total current liabilities          138,066                 1,587         139,653 
 
 Non-current liabilities 
 Trade and other payables             1,090                     -           1,090 
 Loans and borrowings                12,560                   (5)          12,555 
                                  ---------  --------------------  -------------- 
 Total non- current liabilities      13,650                   (5)          13,645 
 
 Total liabilities                  151,716                 1,582         153,298 
 
 Net assets/(liabilities)            66,342                 5,412          71,754 
 
 
   (b)   Geographic segment - secondary basis 

The geographical analysis of the revenue by location of the users and segment is presented below:

 
 Group Revenue               Payments                        Identity                  Total 
  by Region 
  and Segment 
                 -------------------------------- 
                                  Dec-20        %               Dec-20        %   Dec-20        % 
 ' 000 USD                           YTD                           YTD               YTD 
                                          -------                       -------           ------- 
 Americas                          1,556     3.0%                4,847    93.7%    6,403    11.4% 
                 -----------------------  -------                       -------           ------- 
 APAC                             28,398    55.4%                   90     1.7%   28,488    50.3% 
                 -----------------------  -------                       -------           ------- 
 EMEA                             21,277    41.5%                  234     4.5%   21,511    38.1% 
                 -----------------------  -------                       -------           ------- 
 Grand Total                      51,231   100.0%                5,171   100.0%   56,402   100.0% 
                 -----------------------  -------                       -------           ------- 
 
 
 Group Revenue               Payments                        Identity                  Total 
  by Region 
  and Segment 
                 -------------------------------- 
                                  Dec-19        %               Dec-19        %   Dec-19        % 
 ' 000 USD                           YTD                           YTD               YTD 
                                          -------                       -------           ------- 
 Americas                          5,573    12.8%              6,460      96.8%   12,033    24.0% 
                 -----------------------  -------                       -------           ------- 
 APAC                             19,290    44.4%                    -        -   19,290    38.5% 
                 -----------------------  -------                       -------           ------- 
 EMEA                             13,410    30.8%                  215     3.2%   13,625    27.2% 
                 -----------------------  -------                       -------           ------- 
 UK/Ireland                        5,200    12.0%                    -        -    5,200    10.4% 
                 -----------------------  -------                       -------           ------- 
 Grand Total                      43,473   100.0%                6,675   100.0%   50,148   100.0% 
                 -----------------------  -------                       -------           ------- 
 

An analysis of non-current assets by geographical market is given below:

 
                                2020     2019 
                               $'000    $'000 
--------------------------   -------  ------- 
 United States of America     47,613   48,841 
  Europe                      20,996      526 
 Rest of the World               721      963 
---------------------------  -------  ------- 
 Total                        69,330   50,330 
---------------------------  -------  ------- 
 
   5.   Administrative expenses (including exceptional items) 
 
                                                        2020        2019 
                                                       $'000       $'000 
-----------------------------------------------   ----------  ---------- 
 Audit fees - BDO LLP                                    361         274 
 Third party audit fees specific to FY 
  2020- EY                                                45           - 
 Taxation services (not performed by auditor)            289         318 
 Professional services not performed by 
  auditor                                                122         157 
 Consultancy and compliance services                   1,005         730 
 Staff costs (excluding stock option expense 
  - note 6)                                           29,032      25,434 
 Travel & entertainment                                  343       1,859 
 Property occupancy costs                                935         928 
 Total IT, development and hosting                     2,721       1,917 
 Total banking costs                                      52         240 
 Legal fees                                              718       1,120 
 Other costs including marketing, support 
  & testing and other administration expenses            586         950 
------------------------------------------------  ----------  ---------- 
 Operating Expenses, excluding items in 
  Adjusted EBITDA                                     36,209      33,927 
------------------------------------------------  ----------  ---------- 
 Depreciation of property, plant and equipment         2,446       2,176 
 Amortisation of intangible assets                     3,471       2,285 
 Impairment of goodwill (Identity Business)           20,775           - 
 Foreign exchange gains                              (1,048)       (107) 
 Exceptional items - impairment of investments             -          13 
 Exceptional items - restructuring costs                 184         404 
 Exceptional items - acquisition costs                 1,238           - 
 Share - based expenses (note 20)                      4,925       6,771 
------------------------------------------------  ----------  ---------- 
 Total administrative expenses                        68,200      45,469 
------------------------------------------------  ----------  ---------- 
 
   6.   Staff costs 
 
                                          2020                      2019 
                                         $'000                     $'000 
-----------------------   --------------------  ------------------------ 
 Wages and salaries                     24,346                    20,664 
 Short-term benefits                     1,281                     1,350 
 Social security costs                   2,570                     1,858 
 Pension costs                             269                       397 
 Other staff costs                         566                     1,166 
------------------------  --------------------  ------------------------ 
 Total staff costs                      29,032                    25,434 
------------------------  --------------------  ------------------------ 
 Share-based costs                       4,925                     6,771 
------------------------  --------------------  ------------------------ 
 Total                                  33,957                    32,205 
------------------------  --------------------  ------------------------ 
 

Other staff costs include contractor costs, relocation, recruiting and training costs for the group.

Key management personnel compensation was made up as follows:

 
                                                2020                 2019 
                                               $'000                $'000 
-----------------------    -------------------------  ------------------- 
 Salaries                                      2,431                2,075 
 Short-term benefits                              41                   44 
 Social security costs                           240                  298 
 Stock option expense                          1,464                1,329 
 Pension costs                                     7                   35 
 Total                                         4,183                3,781 
-------------------------  -------------------------  ------------------- 
 

Directors' remuneration included in staff costs:

 
                                                  2020    2019 
                                                 $'000   $'000 
----------------------------   -----------------------  ------ 
 Salaries including bonuses                      1,077     917 
 Short-term benefits                                 3       4 
 Total                                           1,080     921 
-----------------------------  -----------------------  ------ 
 

The Information regarding the highest paid director is as follows:

 
                              2020    2019 
                             $'000   $'000 
-------------------------   ------  ------ 
 Total remuneration paid       515     385 
--------------------------  ------  ------ 
 

number of employees at the end of the period was as follows:

 
                                 2020   2019 
-----------------------------   -----  ----- 
 
 Management                         7      6 
 Operations & administration      298    208 
------------------------------  -----  ----- 
 Total                            305    214 
------------------------------  -----  ----- 
 
 
   7.   Finance income and expenses 
 
                                                          2020    2019 
                                                         $'000   $'000 
--------------------------------------------   ---------------  ------ 
 Finance income 
 Interest income from bank deposits                         70      56 
--------------------------------------------- 
 Total                                                      70      56 
---------------------------------------------  ---------------  ------ 
 
 Finance expenses 
 Interest on bank loans & overdrafts                       277     150 
 Other interest payable (including interest 
  paid for factoring)                                       31      30 
 Interest on lease liabilities                             292     288 
 Amortisation of debt costs                                 62 
 Total                                                     662     468 
---------------------------------------------  ---------------  ------ 
                                                             - 
 Net finance expenses                                      592     412 
---------------------------------------------  ---------------  ------ 
 
   8.   Income tax 
 
                                                         2020      2019 
                                                        $'000     $'000 
---------------------------------------------------   -------  -------- 
 Current tax 
 US tax                                                     2         2 
 Foreign tax                                              374       135 
 Total current tax                                        376       137 
----------------------------------------------------  -------  -------- 
 Deferred tax expense/(credit)                          1,094   (1,866) 
 Origination and reversal of temporary differences          -        78 
----------------------------------------------------  -------  -------- 
 Total tax expense/(credit)                             1,470   (1,651) 
----------------------------------------------------  -------  -------- 
 

The reasons for the difference between the actual tax charge for the period and the applicable rate of income tax of the US reporting entity applied to the result for the period are as follows:

 
 
                                                      2020      2019 
                                                     $'000     $'000 
----------------------------------------------   ---------  -------- 
 Loss before tax                                  (17,315)   (1,296) 
 Tax rate                                              21%       21% 
 Loss before tax multiplied by the applicable 
  rate of tax:                                     (3,636)     (272) 
 
 US state tax                                            -         1 
 Losses recognised/(not recognised)                    140   (1,498) 
 Expenses not deductible for tax purposes            4,628        54 
 Withholding taxes                                      68        69 
 Tax losses                                              -      (27) 
 Others                                                270        22 
-----------------------------------------------  ---------  -------- 
 Total tax expense/(credit)                          1,470   (1,651) 
-----------------------------------------------  ---------  -------- 
 
 
 Deferred Tax 
                                                              2020    2019 
                                                             $'000   $'000 
----------------------------------------------  ----  ------------  ------ 
 Net opening position                                        1,377   (417) 
     Arising from business combinations                          -       - 
     Recognition (de-recognition) / in the 
      year                                                 (1,094)   1,808 
     Foreign exchange revaluation                             (30)    (14) 
 
 Net closing position                                          253   1,377 
----------------------------------------------  ----  ------------  ------ 
 
 

The net closing position is made up of:

o A deferred tax liability of $227,956 (2019: $488,860): This constitutes tax positions connected with the Group's German subsidiary in relation to available losses and the deferred tax liability associated with intangible assets acquired as part of the legacy business combination with the group's now German business. The difference is the amount of $260,904 used in 2020.

   o    The deferred asset of $482,573 (2019: $1,826,570). This relates to losses primarily in UK tax jurisdictions. The difference is the amount reversed in 2020 taking account of management re-appraising the usability of certain tax losses and future transaction volumes through its UK incorporated entities expected to reduce profitability, as a share of contracted and future revenues will now likely, taking account of Brexit, flow into other European companies in the group. 
 
 
   A deferred tax asset (liability) has not been recognised 
   for the following: 
                                                                     2020 '000   2019 '000 
                                                           -------------------  ---------- 
 Non- deductible Reserves                                                  100         229 
 Accrued Compensation                                                      161          60 
 Stock Based Compensation                                                1,857       1,637 
 Other temporary and deductible differences                                648         829 
 Accelerated Capital Allowances                                        (1,000)       (401) 
 Acquired Intangibles                                                    (245)       (334) 
 Unused tax credits                                                        189         189 
 Unused tax losses                                                      30,816      30,448 
 
 Total deferred tax assets                                              32,526      32,657 
                                                           ===================  ========== 
 
 

The Group has carried forward losses and accelerated timing differences at the reporting date as shown below. In respect of its UK subsidiary, these can be carried forward and offset against UK taxable income indefinitely. In respect of its US entities, net operating loss carry forwards can be carried forward and offset against taxable income for 20 years for losses incurred up to and including 31 December 2017. All net operating loss carry forwards incurred after 31 December 2017 can be carried forward and offset against US taxable income indefinitely. Utilisation of net operating loss or tax credit carry forwards may be subject to annual limitations if an ownership change had occurred pursuant to the section 382 Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of net operating loss and tax credit carry forwards before utilisation. As the timing and extent of taxable profits are uncertain, the deferred tax asset arising on these losses and accelerated timing differences below has not been recognised in the financial statements.

 
                                                      2020      2019 
                                                     $'000     $'000 
-----------------------------------------------   --------  -------- 
 US losses and tax credit - federal and 
  states                                           181,516   177,843 
 Non-US losses (includes US entities 
  deemed to be under non-US tax jurisdictions)       5,021    10,602 
 Total                                             186,537   188,445 
------------------------------------------------  --------  -------- 
 

The unused tax losses must be utilised by various dates. German tax losses of $573,466 must be used before 2022. U.S. federal tax losses of $176,021,081 expire in various dates through 2027. Other unused losses of $5,494,733 do not expire.

   9.   Profit / (Loss) per share 
 
                                                        2020          2019 
---------------------------------------------   ------------  ------------ 
 (Loss)/ Profit attributable to shareholders 
  of the Company ($'000)                            (18,785)           355 
 Weighted average number of common shares        273,836,772   246,752,100 
----------------------------------------------  ------------  ------------ 
 Basic (loss)/ profit per share                      (0.069)         0.001 
----------------------------------------------  ------------  ------------ 
 

Profit or Loss per share is calculated based on the share capital of Boku, Inc. and the earnings of the Group.

In 2020, due to the loss in the reporting period diluted loss per share is the same as basic loss per share. Due to the small profit during 2019, the effect of the share options is immaterial and hence diluted profit per share is the same as the basic profit per share in 2019.

   10.            Property, plant and equipment 
 
                                                                Computer             Office equipment 
                                     Right of                  equipment                 and fixtures                Leasehold 
                                   use assets                 & software                 and fittings              improvement                   Total 
                                                                   $'000                        $'000                    $'000                   $'000 
------------------  -------------------------  -------------------------  ---------------------------  -----------------------  ---------------------- 
 COST 
 At 1 January 
  2019                                      -                        842                          534                       98                   1,474 
 Additions                              4,327                        383                           39                       55                   4,804 
 Acquisitions                             621                          -                        1,041                       36                   1,698 
 Disposals                                  -                       (10)                          (7)                      (5)                    (22) 
 Reclassification                          78                          -                         (78)                        -                       - 
 Exchange 
  Adjustment                             (34)                        (2)                          (4)                        -                    (40) 
------------------  -------------------------  -------------------------  ---------------------------  -----------------------  ---------------------- 
 As at 31December 
  2019                                  4,992                      1,213                        1,525                      184                   7,914 
------------------  -------------------------  -------------------------  ---------------------------  -----------------------  ---------------------- 
 Additions                              1,526                        215                          109                      171                   2,021 
 Acquisitions                             542                          2                           22                        -                     566 
 Disposals                               (30)                        (2)                         (37)                        -                    (69) 
 Exchange 
  adjustment                              192                          8                           26                        8                    234 
------------------  -------------------------  -------------------------  ---------------------------  -----------------------  ---------------------- 
 At 31 December 
  2020                                  7,222                      1,436                        1,645                      363                  10,666 
------------------  -------------------------  -------------------------  ---------------------------  -----------------------  ---------------------- 
 
 DEPRECIATION 
 At 1 January 
  2019                                      -                        707                          411                       70                   1,188 
 Acquisitions                               -                          -                        1,029                       29                   1,058 
 Charge for the 
  year                                  1,948                        110                          100                       18                   2,176 
 Disposals                                  -                       (10)                         (71)                      (5)                    (22) 
 Reclassification                          57                          -                         (57)                        -                       - 
 Exchange 
  adjustment                                4                        (7)                          (3)                        8                       2 
------------------  -------------------------  -------------------------  ---------------------------  -----------------------  ---------------------- 
 At 31 December 
  2019                                  2,009                        800                        1,473                      120                   4,402 
------------------  -------------------------  -------------------------  ---------------------------  -----------------------  ---------------------- 
 Acquisitions                               -                          -                            9                        -                       9 
 Charge for the 
  year                                  2,121                        227                           50                       48                   2,446 
 Disposals                               (30)                        (2)                         (37)                        -                    (69) 
 Exchange 
  adjustment                               54                          3                           48                        2                     107 
------------------  -------------------------  -------------------------  ---------------------------  -----------------------  ---------------------- 
 At 31 December 
  2020                                  4,154                      1,028                        1,543                      170                   6,895 
------------------  -------------------------  -------------------------  ---------------------------  -----------------------  ---------------------- 
 
 NET BOOK VALUE 
------------------  -------------------------  -------------------------  ---------------------------  -----------------------  ---------------------- 
 At 1 January 
  2019                                      -                        135                          123                       28                     286 
 At 31 December 
  2019                                  2,983                        413                           52                       64                   3,512 
 At 31 December 
  2020                                  3,068                        408                          102                      193                   3,771 
------------------  -------------------------  -------------------------  ---------------------------  -----------------------  ---------------------- 
 

The Group leases many assets including buildings and IT equipment. The information about leases for which the group is a lessee is presented below:

 
 Type of right-of-use assets - $'000(USD)    Property   IT Equipment     Total 
 
  Balance as at 1st January 2019                3,881          1,111     4,992 
                                            ---------  -------------  -------- 
 Depreciation charge for the year             (1,578)          (431)   (2,009) 
                                            ---------  -------------  -------- 
 NBV balance as at 31 December 2019             2,303            680     2,983 
                                            ---------  -------------  -------- 
 Additions                                      2,182             53     2,235 
                                            ---------  -------------  -------- 
 Disposals                                       (30)              -      (30) 
                                            ---------  -------------  -------- 
 Depreciation charge for the year             (1,677)          (443)   (2,120) 
                                            ---------  -------------  -------- 
 NBV balance as at 31 December2020              2,778            290     3,068 
                                            ---------  -------------  -------- 
 
   11.          Intangible assets 
 
                                                                                                 Internally 
                      Domain          Developed         Merchant         Trade                    developed 
                        name         technology    relationships         marks      Goodwill       software       Total 
                       $'000              $'000            $'000         $'000         $'000          $'000       $'000 
--------------  ------------  -----------------  ---------------  ------------  ------------  -------------  ---------- 
 COST 
 At 1 January 
  2019                   140              1,856            9,188           110        17,853          5,388      34,535 
 Additions 
  from 
  acquisitions             -              1,918                -             -        23,559              -      25,477 
 Additions                 -                  -                -             -             -          1,575       1,575 
 Exchange 
  adjustment               -                  -            (178)             -         (327)           (24)       (529) 
--------------  ------------  -----------------  ---------------  ------------  ------------  -------------  ---------- 
 At 31 
  December 
  2019                   140              3,774            9,010           110        41,085          6,939      61,058 
--------------  ------------  -----------------  ---------------  ------------  ------------  -------------  ---------- 
 Additions                 -                  -                -             -             -          2,920       2,920 
 Additions 
  from 
  acquisitions         1,834              4,343            7,172             -        25,068              -      38,417 
 Goodwill 
  Impairment               -                  -                -             -      (20,775)              -    (20,775) 
 Disposal                  -                  -                -             -             -          (257)       (257) 
 Exchange 
  adjustment               -                280              794             -         1,242             92       2,408 
 At 31 
  December 
  2020                 1,974              8,397           16,976           110        46,620          9,694      83,771 
 
 AMORTISATION 
 At 1 January 
  2019                   140              1,856            5,655             -             -          4,418      12,069 
 Charge for 
  period                   -                384            1,193             -             -            708       2,285 
 Exchange 
  adjustment               -                  -            (105)             -                         (10)       (115) 
--------------  ------------  -----------------  ---------------  ------------  ------------  -------------  ---------- 
 At 31 
  December 
  2019                   140              2,240            6,743             -             -          5,116      14,239 
--------------  ------------  -----------------  ---------------  ------------  ------------  -------------  ---------- 
 Charge for 
  the 
  period                  91                556            1,572             -             -          1,252       3,471 
 Disposal                  -                  -                -             -             -          (257)       (257) 
 Exchange 
  adjustment               1                 22              672             -             -             64         759 
--------------  ------------  -----------------  ---------------  ------------  ------------  -------------  ---------- 
 At 31 
  December 
  2020                   232              2,818            8,987             -             -          6,175      18,212 
--------------  ------------  -----------------  ---------------  ------------  ------------  -------------  ---------- 
 NET BOOK 
 VALUE 
 At 1 January 
  2019                     -                  -            3,533           110        17,853            970      22,466 
 At 31 
  December 
  2019                     -              1,534            2,267           110        41,085          1,823      46,819 
 At 31 
  December 
  2020                 1,742              5,579            7,989           110        46,620          3,519      65,559 
--------------  ------------  -----------------  ---------------  ------------  ------------  -------------  ---------- 
 

Management has reviewed goodwill and intangible assets on the balance sheet which mainly consist of the assets from the acquisition of Fortumo Holdings Inc. and Danal Inc (renamed Boku Identity Inc) on 1(st) January 2019 and with Mopay AG ("Mopay") in Oct 2014.

Fortumo Holdings Inc. was acquired by Boku on 1st July 2020 for cash and restricted stock units (RSUs) for a total maximum consideration of $45.0 million with a fair value of $42.3 million. The fair value measurement of Fortumo Holdings' Inc. intangible assets and goodwill arose from the purchase price allocation work which was undertaken in July 2020. As a result, several assets have been identified and their fair value has been determined in accordance with IFRS 3. The carrying value of the goodwill and other intangibles from the Fortumo acquisition are therefore assessed in total as part of the Boku Payments Segment (Payments CGU).

Danal Inc (Renamed Boku Identity Inc on 1(st) January 2019) was founded in 6(th) June 2006 and was acquired by Boku for a total value of $25.1 million. The fair value measurement of Danal's Inc intangible assets and goodwill arose from the purchase price allocation which was undertaken in January 2019. As a result, the Identity platform and contracts were determined to be one asset and have a fair value of $1.9m USD as at 1(st) January 2019. During 2019 the two platforms (Identity and Payments platforms) were operated independently and have independent cashflows. The carrying value of goodwill and the platform has been allocated to the Identity segment and has been assessed against the Identity segment future cashflows (Identity CGU).

Mopay was founded in 2000 and Boku Inc. acquired Mopay in October 2014 for a total value of $24.2 million in cash and shares. The initial fair value measurement of Mopay's intangible assets and goodwill arose from the purchase price allocation which was undertaken on January 21st, 2016. At 31/12/2016, it was determined that the trade names purchased as part of the transaction have a fair value less than the carrying amount as these trade names have ceased to be used in the Group, Therefore Management have taken the decision to write off the NBV of the trade names as at 31/12/2016.

After the merger in 2014, the Mopay business was reorganised and the main assets (customer contracts) expertise from the Boku engineering team and are now being implemented for use by a number of Boku group entities. The carrying value of the goodwill from the Mopay acquisition and other intangibles are therefore assessed in total as part of the Boku Payments Segment (Payments CGU).

Impairment of Goodwill

At the year-end date an impairment test has been undertaken by comparing the carrying values with the recoverable amount of the Group's two cash generating units (CGUs). The recoverable amount of the cash generating unit is based on value-in-use calculations. These calculations use cash flow projections covering future periods based on financial budgets and a calculation of the terminal value, for the period following these formal projections.

The key assumptions used for value-in-use calculations are those regarding projected cash flows, growth rates, increases in costs and discount rates. The discount rate used was the Weighted Average Cost of Capital. The discount rate is reviewed annually to take into account the current market assessment of the time value of money and the risks specific to the cash generating units and rates used by comparable companies. The pre-tax discount rate used for both CGU's to calculate value-in-use is the weighted average cost of capital (WACC) of 13.8% (2019: 14.9%). Growth rates for forecasts take into account historic experience and current market trends. Costs are reviewed and increased for various cost pressures. The terminal value calculation for 2020 was based on growth rate of post-tax free cashflow of 2% (2019:2%) for each CGU.

Identity CGU : During the year the Identity business revenues were impacted by Covid, this together with a lower pipeline conversion has resulted in lower expected revenue in the near term and growth in this business unit will be delayed. As a result, the Group reassessed the recoverability of goodwill and based on this has recorded an impairment of Goodwill of $20.8 million. As required by IAS 36, if an impairment is identified in a CGU to which goodwill has been allocated, the impairment is first attributed to the carrying value of the goodwill before the carrying value of any other assets are reduced. Therefore, the full amount of the impairment has been allocated to goodwill reducing it from $23.6 million to $2.8 million.

Management analysed various scenarios which projected cash flows over the next 6 years, with a cumulative annual growth rate of 29%, together with a terminal value using a 2% growth rate (2019: 2%). The six-year projections used in the base scenario are based on the Board approved budget which took into account the anticipated future impact of Covid-19 for FY 2021 performance. In each case a discount rate of 13.8% has been used based on management's evaluation of the weighted average cost of capital for the Group.

The determination of the recoverable amount and the resulting impairment charge is subject to significant estimates and judgments including the cumulative average growth rate, the terminal value growth rate and the discount rate. Given the sensitivity of the resulting impairment charge to changes in these inputs, the following table shows the impact on the impairment charge that would result from a 2% change in each of these significant assumptions:

 
                                                    Increase/(Decrease) 
                                                       on Impairment 
  ----------------------------------------------  ----------------------  ------ 
 
 Decrease in cumulative annual growth rate by                $3.7m 
 2%                                                          $2.8m 
 Increase in the WACC by 2%                                 $(1.8m) 
 Projected post tax free cash flow used for 
 terminal value reduced by 2% to zero 
 
 

Payment CGU : An annual impairment test was also performed for the Payments business (Payments CGU) which indicated that no impairment was needed as there were no indicators of impairment for this business unit and the net present value of future cashflows substantially exceed its carrying value by $210.2 million. Management has identified two key assumptions for which if any of the following changes were made to these key assumptions individually, this would cause the carrying amount of the CGU to equal to the recoverable amount of the goodwill for the year ended 31 December 2020:

 
                                             2020                                       2019 
 -----------------------------------------  -----  ----------------------------------------- 
 
  Projected post tax free cashflow used 
  for terminal value reduced by                                      130%                68% 
Terminal growth rate reduced from                                2% to 0%             2% to 0% 
 
 

12. Subsidiaries

The principal subsidiaries of the Company, all of which have been included in the consolidated financial information, are as follows:

 
                Name                     Principal activity                    Parent                     Location 
 Boku Payments Inc.                   Holding Company            Boku Inc.                                         USA 
                                     -------------------------  ------------------------------------  ---------------- 
 Boku Network Services Inc.           Holding Company            Boku Inc.                               Delaware, USA 
                                     -------------------------  ------------------------------------  ---------------- 
 Boku Account Services Inc.           Holding Company            Boku Inc.                               Virginia, USA 
                                     -------------------------  ------------------------------------  ---------------- 
                                                                 Boku Account Services Inc. 
 Boku Account Services UK, Ltd.       Mobile payment solutions   (Virginia)                                         UK 
                                     -------------------------  ------------------------------------  ---------------- 
 Paymo Brazil Servicios de                                       Boku Network Services Inc. 
 Pagamentos Ltd                       Mobile payment solutions   (Delaware)                                     Brazil 
                                     -------------------------  ------------------------------------  ---------------- 
 Boku Network Services AG             Holding Company            Boku Inc.                                     Germany 
                                     -------------------------  ------------------------------------  ---------------- 
                                                                 Boku Network Services Inc. 
 Boku Network Services UK, Ltd        Mobile payment solutions   (Delaware)                                         UK 
                                     -------------------------  ------------------------------------  ---------------- 
                                                                 Boku Network Services Inc. 
 Boku Network Services AU Pty Ltd     Mobile payment solutions   (Delaware)                                  Australia 
                                     -------------------------  ------------------------------------  ---------------- 
 Boku Network Services IN Privates                               Boku Network Services Inc. 
 Limited                              Mobile payment solutions   (Delaware)                                      India 
                                     -------------------------  ------------------------------------  ---------------- 
                                                                 Boku Network Services Inc. 
 Boku Network Services SG PTE. LTD    Mobile payment solutions   (Delaware)                                  Singapore 
                                     -------------------------  ------------------------------------  ---------------- 
                                                                 Boku Network Services Inc. 
 Boku Network Services HK LTD         Mobile payment solutions   (Delaware)                                  Hong Kong 
                                     -------------------------  ------------------------------------  ---------------- 
 Boku Network Services Taiwan                                    Boku Network Services Inc. 
 Branch Office                        Mobile payment solutions   (Delaware)                                     Taiwan 
                                     -------------------------  ------------------------------------  ---------------- 
 Boku Network Services Japan Branch                              Boku Network Services Inc. 
 Office                               Mobile payment solutions   (Delaware)                                      Japan 
                                     -------------------------  ------------------------------------  ---------------- 
 Mopay AG Beijing Representative 
 Branch                               Mobile payment solutions   Boku Network Services AG (Germany)              China 
                                     -------------------------  ------------------------------------  ---------------- 
 Boku Identity Inc.                   Identity solutions         Boku Inc.                             California, USA 
                                     -------------------------  ------------------------------------  ---------------- 
 Boku Mobile Solutions Ireland        Identity solutions         Boku Identity Inc.                    California, USA 
                                     -------------------------  ------------------------------------  ---------------- 
 Boku Network Services SG PTE. LTD.   Mobile payment solutions   Boku Network Services Inc.                  Singapore 
                                                                 (Delaware) 
                                     -------------------------  ------------------------------------  ---------------- 
 Boku Network Services HK LTD         Mobile payment solutions   Boku Network Services Inc.                  Hong Kong 
                                                                 (Delaware) 
                                     -------------------------  ------------------------------------  ---------------- 
 Boku Network Services IE Limited     Mobile payment solutions   Boku Network Services Inc.                    Ireland 
                                                                 (Delaware) 
                                     -------------------------  ------------------------------------  ---------------- 
 Boku Network Services Malaysia       Mobile payment solutions   Boku Network Services Inc.                   Malaysia 
                                                                 (Delaware) 
                                     -------------------------  ------------------------------------  ---------------- 
 Fortumo Holdings Inc                 Holding Company            Boku Network Services Inc.                        USA 
                                                                 (Delaware) 
                                     -------------------------  ------------------------------------  ---------------- 
 Fortumo OU                           Mobile payment solutions   Fortumo Holdings Inc                          Estonia 
                                     -------------------------  ------------------------------------  ---------------- 
 Fortumo Mobile Payments S.L          Mobile payment solutions   Fortumo OU                                      Spain 
                                     -------------------------  ------------------------------------  ---------------- 
 Fortumo Mobile Services              Mobile payment solutions   Fortumo OU                                      India 
                                     -------------------------  ------------------------------------  ---------------- 
 Fortumo Singapore Pte. Ltd           Mobile payment solutions   Fortumo OU                                  Singapore 
                                     -------------------------  ------------------------------------  ---------------- 
 
   13.          Trade and other receivables 
 
                                                31 December   31 December 
                                                       2020          2019 
                                                      $'000         $'000 
--------------------------------------------   ------------  ------------ 
 
 Trade receivables - gross                           28,087        17,623 
 Accrued income                                      59,596        34,544 
---------------------------------------------  ------------  ------------ 
 Accounts receivable - gross                         87,683        52,167 
 Less: provision for impairment                     (1,322)       (2,001) 
---------------------------------------------  ------------  ------------ 
 Accounts receivable - net                           86,361        50,166 
 Other receivables                                      190            57 
 Deposits held                                          749           316 
 Sales taxes receivable                               1,339         1,042 
 Financial asset - Contingent consideration 
  in escrow                                           2,160             - 
 Deferred cost of sales                                 256           270 
 Note receivable from a shareholder                       -           793 
--------------------------------------------- 
 Total financial assets classified 
  as loans and receivables                           91,055        52,644 
---------------------------------------------  ------------  ------------ 
 Prepayments                                          1,480           948 
---------------------------------------------  ------------  ------------ 
 Total                                               92,535        53,592 
---------------------------------------------  ------------  ------------ 
 

Provision for impairment

 
                                       31 December     31 December 
                                              2020          2019 
                                             $'000         $'000 
----------------------------------    ------------  ------------ 
 
 Opening balance                             2,001         1,958 
 Utilised during the period                   (25)         (101) 
 (decrease) / Increase during the 
  period                                     (705)           170 
 Foreign exchange movement                      51          (26) 
------------------------------------  ------------  ------------ 
 Closing balance                             1,322         2,001 
------------------------------------  ------------  ------------ 
 
 

In accordance with IFRS9, the Group reviews the amount of credit loss associated with its trade receivables based on forward looking estimates that take into account and forecast credit conditions as opposed to relaying on past default rates. The Group has applied the Simplified Approach, applying a provision matrix based on the number of days past due to measure lifetime expected credit losses and after taking into account customer sectors with different credit risk profiles and current and forecast trading conditions. Included in the receivables balance there is a $2.16m expected to be returned from the escrow account into which the contingent consideration related to the Fortumo acquisition was paid.

14. Cash and cash equivalents and restricted cash

 
                               31 December   31 December 
                                      2020          2019 
                                     $'000         $'000 
---------------------------   ------------  ------------ 
 
 Cash and cash equivalents          61,290        34,747 
----------------------------  ------------  ------------ 
 
 Restricted cash                     1,414           876 
----------------------------  ------------  ------------ 
 

The restricted cash primarily includes e-money received but not yet paid to merchants (in transit), cash held in the form of a letter of credit to secure a lease agreement for the Company's San Francisco office facility.

   15.   Lease liabilities 

Details of lease liabilities as at 31 December 2020, which includes the addition of two new leases in the year, the main addition for the Group's new head office in London:

 
 Lease liabilities                              Property                          IT Equipment                     Total 
 1st Jan 2019                                      2,794                                 1,112                     3,906 
 Additions                                         1,009                                     -                     1,009 
 
 Interest expense                                    224                                    64                       288 
  Payments to lease creditors                    (1,650)                                 (472)                   (2,122) 
                                ------------------------  ------------------------------------  ------------------------ 
 Lease liabilities as at 31 
  Dec 2019                                         2,377                                   704                     3,081 
                                ------------------------  ------------------------------------  ------------------------ 
 Additions                                         2,142                                     -                     2,142 
 Interest expense                                    229                                    63                       292 
  Payments to lease creditors                    (1,834)                                 (503)                   (2,337) 
                                ------------------------  ------------------------------------  ------------------------ 
 Lease liabilities as at 31 
  Dec 2020                                         2,914                                   264                     3,178 
                                ------------------------  ------------------------------------  ------------------------ 
 

The maturity analysis for lease liabilities is presented below:

 
 Lease liabilities - Maturity analysis 
  (contractual undiscounted cash flows) - $'000 
  (USD)                                               2020                   2019 
 
  Less than one year                                 1,625                  1,914 
------------------------------------------------  -------- 
 One to five years                                   1,937                  1,482 
------------------------------------------------  -------- 
 
 More than five years                                    -                      - 
------------------------------------------------  -------- 
 Total undiscounted lease liabilities as at 
  31 December                                        3,562                  3,396 
------------------------------------------------  -------- 
 

There are no leases with a term of more than 5 years

 
 Lease liabilities included in the 
  statement of financial position 
  at 31 December - $'000 (USD)                                                         2020                   2019 
-----------------------------------------  ------------------------------------------------  --------------------- 
 Current                                                                              1,436                  1,723 
-----------------------------------------  ------------------------------------------------  --------------------- 
 Non-current                                                                          1,742                  1,358 
-----------------------------------------  ------------------------------------------------  --------------------- 
 
 Amounts recognised in profit or loss- 
  $'000 
  (USD)                                                                                2020                   2019 
 Interest on lease liabilities                                                          292                    288 
-----------------------------------------  ------------------------------------------------ 
 Variable lease payment not included in                                                   - 
  the 
  measurement of lease payments                                                                                  - 
-----------------------------------------  ------------------------------------------------ 
 Expenses related to short term leases                                                   22                    129 
-----------------------------------------  ------------------------------------------------ 
 Expenses related to leases of low-value 
  assets, 
  excluding short-term leases of 
  low-value assets                                                                       21                     17 
-----------------------------------------  ------------------------------------------------ 
 Depreciation of right-of-use assets 
  (Note 
  10)                                                                                 2,121                  2,009 
-----------------------------------------  ------------------------------------------------ 
 

The amounts recognised in the Consolidated Statement of Cashflows are presented below:

 
 Amounts recognised in the statement of 
  cashflows- 
  $'000 (USD)                                                                              2020                   2019 
 Payment of principal                                                                     2,045                  1,868 
-------------------------------------------  -------------------------------------------------- 
 Payment of interest                                                                        292                    288 
-------------------------------------------  -------------------------------------------------- 
 Total cash outflows                                                                      2,337                  2,156 
-------------------------------------------  -------------------------------------------------- 
 

16. Trade and other payables

 
                                            31 December   31 December 
                                                   2020          2019 
 Current                                          $'000         $'000 
----------------------------------------   ------------  ------------ 
 Trade payables                                 105,376        68,128 
 Accruals                                        28,135         7,799 
-----------------------------------------  ------------  ------------ 
 Total financial liabilities classified 
  as financial liabilities 
  measured at amortised cost                    133,511        75,927 
 Other taxes and social security costs            1,353           327 
 Accrued tax on issued stock options              1,466         1,252 
 Other payables                                       5             - 
 Deferred revenue                                   444           489 
-----------------------------------------  ------------  ------------ 
 Total                                          136,779        77,995 
-----------------------------------------  ------------  ------------ 
 
 Non-current 
 Accrued taxes on issued stock options              862           791 
-----------------------------------------  ------------  ------------ 
 Total                                              862           791 
-----------------------------------------  ------------  ------------ 
 

The carrying values of trade and other payables approximate to fair values.

17. Loans and borrowings

 
                                         31 December   31 December 
                                                2020          2019 
                                               $'000         $'000 
-------------------------------------   ------------  ------------ 
 Current 
 Bank loans and overdrafts (secured)           1,438         2,098 
 Lease liabilities                             1,436         1,723 
--------------------------------------  ------------  ------------ 
 Total                                         2,874         3,821 
--------------------------------------  ------------  ------------ 
 
 Non-current 
 Bank loans                                   10,813             - 
 Lease liabilities                             1,742         1,358 
 Total                                        12,555         1,358 
--------------------------------------  ------------  ------------ 
 

Principal terms and the debt repayment schedule of the Group's loan and borrowings are as follows:

In December 26, 2019, the Group repaid in full ($2,000,000) the existing Loan and Security Agreement (the Agreement) and entered into an overdraft agreement for GBP5,000,000 for 3 years. At 31(st) December 2019 the Group had drawn GBP1,600,000 ($2,098,000 USD) under the agreement. The agreement has been repaid in full on the 9(th) January 2020 and has not been used since.

On 26 June 2020 the Group entered into a loan agreement with its bankers for $20m to finance the acquisition of Fortumo Holdings Inc, and its subsidiaries on 1(st) July 2020. The loan was structured as a $10m term loan repayable in 4 years and $10m revolving facility. The revolving facility has been paid down by $7m by 31 December 2020. Borrowing costs of $500,000 were incurred and are amortised over the life of the loan.

 
 Reconciliation of liabilities arising 
  from financing activities 
 
                               2019    Cash flows                Non-cash changes ($'000)                  2020 
                                                   ---------------------------------------------------- 
                                                                                              Lease 
                                                                         Foreign            Liabilities 
                                                    Converted            Exchange              (IFRS 
                               $'000    $'000        to shares           Movement               16)        $'000 
                              ------  -----------  -----------  ------------------------  -------------  ------- 
 
 Short-term borrowings         2,098        (563)            -                      (97)              -    1,438 
 Long-term borrowings              -       10,813                                      -              -   10,813 
 Short-term lease 
  liabilities                  1,723      (2,337)            -                      (18)          2,068    1,436 
 Long-term lease 
  liabilities                  1,358            -            -                         -            384    1,742 
                              ------  -----------  -----------  ------------------------  -------------  ------- 
 Total liabilities 
  from financial activities    5,179        7,913                                  (115)          2,452   15,429 
 
 
 Reconciliation of liabilities arising from financing activities 
 
 
                                           Cash 
                                  2018     flows         Non-cash changes ($'000)           2019 
                                                  -------------------------------------- 
                                                                               Lease 
                                                                 Foreign     Liabilities 
                                                   Converted     Exchange       (IFRS 
                                  $'000    $'000    to shares    Movement        16)        $'000 
                                -------  -------  -----------  ----------  -------------  ------- 
 
 Short-term borrowings            2,150    (150)            -       98           -          2,098 
 Short-term lease liabilities        43        -            -        -         1,680        1,723 
 Long-term lease liabilities          -        -            -        -         1,358        1,358 
                                -------  -------  -----------  ----------  -------------  ------- 
 Total liabilities from 
  financial activities            2,193    (150)            -      98          3,038        5,179 
 

18. Share capital

The Company's issued share capital is summarised in the table below:

 
                                              31 December              31 December 
                                              2020                     2019 
                                                                         Number 
                                              Number of                of shares 
                                            shares issued                issued 
                                              and fully                and fully 
                                                 paid                     paid 
                                                 '000          $'000      '000      $'000 
-------------------------------------    -------------------  ------  -----------  ------ 
 Common stock of $0.0001 each 
Opening balance                                      252,335      25      223,885      22 
 Issue of new ordinary shares                         23,600       3            -       - 
 Shares issued to Danal Shareholders                   2,724       1       23,699       3 
 Exercised stock options                               8,907                4,751 
Closing balance                                      287,566      29      252,335      25 
 
 

Common Stock

At December 31, 2020, the Company had 287,566,248 (2019: 252,335,207) common shares issued and outstanding.

19. Reserves

The share premium disclosed in the consolidated statement of financial position represents the difference between the issue price and nominal value of the shares issued by the Company.

Retained losses are the cumulative net profits / (losses) in the consolidated income statement.

Foreign exchange reserve stores the foreign exchange translation gains and losses on the translation of the financial statements from the functional to the presentation currency.

Cash flow hedging reserve contains changes in un-realised gains or losses on the valuation of derivatives designated as cash flow hedges at year-end.

Movements on these reserves are set out in the consolidated statement of changes in equity.

20. Share-based payment

The Group operates the following equity-settled share-based remuneration schemes for employees, directors and non-employees:

1. 2009 equity incentive plan (2009 Plan) for the granting of stock options (incentive or non-qualified), restricted stock awards (RSA) and restricted stock units (RSU). No options are available to be issued under this plan as at 31 December 2020 or 2019.

2. 2009 equity UK sub-plan (2009 UK plan) under the terms of the above plan for the granting of stock options and restricted stock units for qualifying participants who are resident in the United Kingdom. No options are available to be issued under this plan as at 31 December 2020 or 2019.

3. 2009 non-plan (not part of the above 2009 plan) for the granting of share options to purchase 897,000 (2017: 897,000) common shares at $0.022 (2016: $0.022) per share. These options vest with terms ranging from being fully vested at grant date to vesting over four years with a one-year cliff, where 25% of the options vest. The options expired in April 2019. The shares have been exercised in full during the year and there are no options outstanding as at 31 December 2019 for 31 December 2020.

4. 2009 BNS options (not part of the above 2009 plan) for the granting of share options to purchase 182,000 (2017: 182,000) common shares at $0.207 (2016: $0.207) per share in connection with the acquisition of BNS in June 2009. The options expired in June 2019. There are no options outstanding as at 31 December 2020.

5. 2017 Equity Incentive Plan (new plan started on the 7(th) November 2017) for the granting of stock options and restricted stock units (RSUs). The Group has reserved ten million shares of common stock for issue under the plan. The activity under this plan is presented separately from the rest of the plans. There are 1,112 options (2019: 1,281) and 8,962 (2019: 7,888) RSUs outstanding as at 31 December 2020.

Options under the 2017 Plan

Options under the 2009 Plan and UK plan may be outstanding for periods of up to ten years following the grant date. Outstanding options generally vest over four years and may contain a one-year cliff, where 25% of the options vest. Stock options with graded vesting is based on the graded vesting attribution approach, whereby, each instalment of vesting is treated as a separate stock option grant, because each instalment has a different vesting period.

RSUs under the 2017 Plan

RSUs under the 2017 Plan may be outstanding for periods of up to five years following the grant date. Outstanding RSU grants generally vest over three years in three equal portions.

Performance-based restricted stock units (RSU)

Performance-based RSUs vest upon the earlier of the completion of a specified service period and the achievement of certain performance targets, which may include individual and Company measures, and are converted into common stock upon vesting.

Share-based expense for RSUs is based on the fair value of the shares underlying the awards on the grant date and reflects the estimated probability that the performance and service conditions will be met. The share-based expense is adjusted in future periods for subsequent changes in the expected outcome of the performance related conditions until the vesting date. Performance-based RSUs vest after three years of issue, in one event, if the performance conditions are met, however these may also vest at the discretion of the board in the event that underlying performance conditions are not met.

Restricted stock awards (RSA)

RSAs are subject to repurchase based upon the terms of the individual restricted stock purchase agreements. These repurchase rights lapse over the vesting term of the individual award, generally over three to four years. There are no restricted stock award outstanding.

Options under the 2009 Plan and 2009 UK plan

Options under the 2009 Plan and UK plan may be outstanding for periods of up to ten years following the grant date. Outstanding options generally vest over four years and may contain a one-year cliff, where 25% of the options vest.

Stock options with graded vesting is based on the graded vesting attribution approach, whereby, each instalment of vesting is treated as a separate stock option grant, because each instalment has a different vesting period.

2009 non-plan options

The 2009 non-plan options vest with terms ranging from being fully vested at grant date to vesting over four years with a one-year cliff. The options expired in April 2019. Share-based expense in connection with the grant of Non-Plan options was not material in 2016 and 2017. In 2018 all options were exercised. The are no outstanding options at 31 December 2019 or 31(st) December 2020.

BNS plan options

In connection with the acquisition of BNS in June 2009, the Company granted options to purchase 182,000 common shares at a weighted-average exercise price of $0.207 per share (BNS Options). These options granted were separate from the 2009 Plan. The options expired in June 2019. A small amount of options were cancelled in 2018. There was no stock option activity related to these options in 2017. There are no shares outstanding as at 31 December 2019 or 31 December 2020.

The options activity under the 2009 Plan and its sub- Plans before 2017 (including RSA and RSU) are as follows:

 
 
                  Available 2009   2009 Plan (excl           2009 Plan       BNS Plan 
                  Plan             RSUs)                      (only RSUs)    Options                   Total 
                  Number of        Number of                                 Number of                 Number of 
                  options          options          WAEP(1)  Number of RSUs  options          WAEP(1)  options 
                  '000             '000                      '000            '000                      '000 
At 1 January 
 2019                              17,751           $0.444   1,959           35               $0.20    19,745 
Exercised         -                (1,894)          $0.269   (1,801)         (3)              -0.35    (3,699) 
Cancelled         -                (164)            $0.258   -               (32)             -        (196) 
At 31 December 
 2019             -                15,693           $0.268   157             -                $0.35    15,850 
Exercised         -                (5,224)          $0.346   (157)           -                -        (5,381) 
Cancelled         -                (2,163)          $0.281   -               -                -        (2,163) 
At 31 December 
 2020             -                8,306            $0.327   -               -                -        8,306 
 
 

(1) WAEP - weighted average exercise price

*RSUs are always granted at zero exercise price

 
2009 Plan                                                                                         December  December 
                                                                                                   2020      2019 
Outstanding options at reporting end date: 
   - total number of options (including RSA & RSU)                                                8,399     15,943 
   - weighted average remaining contractual life (all except 2017 Plan) (years) (excluding RSU 
    and RSA)                                                                                      4.43      5.05 
    - weighted average remaining contractual life - RSU (years)                                   -         0.25 
Vested and exercisable ('000):                                                                    8,275     15,679 
   - weighted average exercise price                                                              $0.384    $0.357 
   - weighted average remaining contractual life - all plans 
    (excluding RSU and RSA)                                                                       4.4       4.91 
Weighted average share price exercised during the period (excluding RSA and RSA)                  $0.35     $0.360 
Weighted average fair value of each option granted during the period (excluding RSA and RSU)      -         - 
 
Vested and exercisable - RSU and RSA                                                              -         157 
Share-based expense for the period ('000)                                                         $24       $242 
 

The following information is relevant in the determination of the fair value of options (excluding RSA and RSU) granted during the period under the equity- settled share-based remuneration schemes operated by the Group.

 
2009 Plan                                       December 2017 
Option pricing model used                       Black-Scholes 
Weighted average share price at grant 
 date (dollar)                                  $0.370 
Exercise price (options only)                   $0.370 
Weighted average contractual life (years)(1)    5.82(E*+ NE*) 
Weighted expected volatility (2)                45% (E*+ NE*) 
Expected dividend growth rate                   0% 
Weighted average Risk-free interest             1.9% (E*+ NE*) 
 rate(3) 
 

(1) Weighted average contractual life represents the period of time options are expected to be outstanding and is estimated considering vesting terms and employees' historical exercise and post-vesting employment termination behavior.

(2) Expected volatility is based on historical volatilities of public companies operating in the Company's industry.

(3) The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.

*E - employees NE - non-employees

The fair value of each option has been estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: expected terms ranging from 4.99 to 6.89 years; risk-free interest rates ranging from 0.73% to 3.05%; expected volatility of 58%; and no dividends during the expected term (2017: expected terms ranging from 5.04 to 6.01 years; risk-free interest rates ranging from 1.87% to 1.92%; volatility of 45%; and no dividends during the expected term).

The options activity under the 2017 Plan (including options and RSU) are as follows:

 
                 Options available  Options  WAEP(1)  RSUs      WAEP(1)  Total 
                 '000               '000              '000               '000 
At 1 January 
 2019                        4,432    1,386   $1.205  (4,182)     $2.24    5,568 
Authorised                  19,766 
Granted                    (6,894)        -        -    6,894         -    6,894 
Exercised                        -     (40)   $1.205  (1,012)         -  (1,052) 
Cancelled                    2,241     (65)   $1.205  (2,176)         -  (2,241) 
At 31 December 
 2019                       19,545    1,281   $1.205    7,888         -    9,169 
Authorised                  11,163        -        -        -                  - 
Granted                    (6,393)        -        -    6,393         -    6,393 
Exercised                        -     (39)   $1.205  (1,918)         -  (1,957) 
Cancelled                    3,402    (130)   $1.205  (3,402)         -  (3,531) 
At 31 December 
 2020                       27,717    1,112   $1.205    8,961         -   10,073 
 
 
2017 Plan                                                                           December  December 
                                                                                     2020      2019 
Outstanding options at reporting end date: 
   - total number of options (excluding RSUs) ('000)                                1,112     1,281 
   - weighted average remaining contractual life 
    (excluding RSUs) (years)                                                        6.91      8.01 
    - weighted average remaining contractual life - RSUs (years)                    6.85      6.07 
Vested and exercisable ('000): 
   - weighted average exercise price                                                $1.205    $1.205 
   - weighted average remaining contractual life 
    (excluding RSU) (years)                                                         6.91      8.01 
Weighted average share price exercised during the period (excluding RSUs)           -         - 
Weighted average fair value of options granted during the period (excluding RSU)    $0.44     $0.44 
 
Vested and exercisable - RSUs                                                           793   1,012 
Share-based expense for the period ('000)                                           $5,795    $5,229 
 

The following information is relevant in the determination of the fair value of options (excluding RSU's) granted during the period under the equity- settled share-based remuneration schemes operated by the Group. Only RSUs were granted in 2020.

 
2017 Plan                                       December 
                                                 2018 
Option pricing model used                       Black-Scholes 
Weighted average share price at grant 
 date (dollar)                                  $1.205 
Exercise price (options only)                   $1.205 
Weighted average contractual life (years)(1)    9.05 years 
Weighted expected volatility (2)                32.66% 
Expected dividend growth rate                   0% 
Weighted average Risk-free interest 
 rate(3)                                        2.49% 
 

(1) Weighted average contractual life represents the period of time options are expected to be outstanding and is estimated considering vesting terms and employees' historical exercise and post-vesting employment termination behavior.

(2) Expected volatility is based on historical volatilities of public companies operating in the Company's industry.

(3) The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.

Warrants for ordinary shares

A 5-year warrant to purchase 1,634,699 Boku shares at an exercise price of $1.8352 USD per share, exercisable at any time during the 5-year term was issued as part of the Danal acquisition, on 1(st) January 2019. This warrant was valued using the Binomial Lattice Model using the following inputs:

a) Term: 5 years

b) Starting share price: $0.8982 USD

c) Expected Annual Volatility: Used 5-year comparable companies equity volatilities from Capital IQ (26.6%)

d) Risk Free Rate: Five-year US risk-free rate (2.51%)

e) Strike Price: $1.8352 USD

Using the inputs above the warrant was valued at $94,606 USD and accounted as part of the purchase consideration as an equity instrument and credited to other reserves until such time when it is exercised when it will be reclassified to the share premium account.

Reconciliation of share-based payment expense

 
                                                December 2020  December 
                                                                2019 
                                                 $000's         $000's 
2009 Plan 
Options                                         23             90 
RSU's                                           -              152 
 
2017 Plan 
Options                                         154            152 
RSU's                                           4,136          5,077 
 
Total share-based expense (excluding national 
 insurance)                                     4,313          5,471 
National insurance accrued                      159            1,067 
National insurance paid in the year (see Note 
 4)                                             453            233 
Total share-based payment charge                4,925          6,771 
 

21. Dividends

No dividends were declared or paid in any of the periods.

22. Cash generated from operations

 
                                                              Year ended    Year ended 
                                                             31 December   31 December 
                                                                    2020          2019 
                                                                   $'000         $'000 
 
(Loss) /profit after tax                                        (18,785)           355 
Add back: 
Tax expense/ (credit)                                              1,470       (1,651) 
Amortisation of intangible assets                                  3,471         2,285 
Depreciation of property, plant and equipment                      2,446         2,176 
Restructuring write-offs                                             158             - 
Finance income                                                      (70)          (56) 
Finance expense (includes interest on lease liabilities)             662           468 
Exchange (gain) /loss                                            (3,130)            64 
Employer taxes on stock option (accrual)                             159         1,067 
Adjustment for previous year cash items                                -       (4,048) 
Impairment of goodwill                                            20,775             - 
Share based payment expense                                        4,313         5,471 
Cash from operations before working capital changes               11,469         6,131 
 (Increase)/ Decrease in trade and other receivables             (9,545)        11,047 
Increase/ (Decrease) in trade and other payables                  29,605       (8,127) 
 
Cash generated from operations                                    31,529         9,051 
 

23. Related party transactions

In 2020, the Group has been remitted $100,206,645 (2019: $151,336,427 - from 4 suppliers) in net payments from 5 suppliers who are shareholders of the Company. At December 31, 2020, the Company had receivables of $12,404,487 (2019: $20,459,254) due from these companies.

A director repaid in full a promissory note, issued to him in 2013, in the amount of $793,000.

24. Ultimate controlling party

There is no ultimate controlling party of the Company.

25. Contingent liabilities

In the normal course of business, the Group may receive inquiries or become involved in legal disputes regarding possible patent infringements. In the opinion of management, any potential liabilities resulting from such claims, if any, would not have a material adverse effect on the Group's consolidated statement of financial position or results of operations.

From time to time, in its normal course of business, the Group may indemnify other parties, with whom it enters into contractual relationships, including customers, Aggregators, MNOs, lessors and parties to other transactions with the Group. The Company has also indemnified its directors and executive officers, to the extent legally permissible, against all liabilities reasonably incurred in connection with any action in which such individual may be involved by reason of such individual being or having been a director or executive officer. The Group believes the estimated fair value of any obligation from these indemnification agreements is minimal; therefore, this consolidated financial information do not include a liability for any potential obligations at 31 December 2020 and 2019.

26. Business acquisition

On 1(st) July 2020, Boku completed the acquisition of Fortumo Holdings Inc., a United States incorporated private holding company and its subsidiaries from several investors for a total maximum consideration of $45 million, which included $4m of net working capital. Of the $45.0 million purchase price, $5.4 million is subject to Fortumo meeting EBITDA performance criteria in the 12 months period to 30 June 2021 and this amount has been placed into an escrow account by Boku. Boku raised $25m USD in a placing of shares in the UK public markets and borrowed $20m repayable over 4 years to fund the acquisition (please refer to the CFO report for more details).

Fortumo operates in the Direct Carrier Billing ('DCB') market with customers in Europe and Asia, focusing on the emerging markets. It is headquartered in Estonia, with 77 employees. Since inception, it has enabled user acquisition, monetisation and retention for digital service merchants through its payments platform .

The acquisition is a significant step in Boku's global DCB growth strategy, bringing together the two most profitable companies in the DCB market with complementary capabilities and customer bases. The acquisition cements the Group's positioning as a leading global mobile payment and mobile identity solutions company. Fortumo primarily focuses on providing mobile payment solutions to over 400 small-to-medium sized enterprises, but also services some larger merchants including Google, Amazon and Tencent.

The combination of Boku and Fortumo created an enlarged and differentiated customer base. Fortumo benefits from Boku's direct connections in the Americas, Europe and Asia and Boku benefits from Fortumo's direct connections in Asia, including Vietnam and Indonesia and their wider network. Boku considers this to be key in its strategy of expansion into key growth markets.

The combination of Boku's and Fortumo's platform is expected to drive efficiencies through the utilisation of Fortumo's semi-automated onboarding and settlement and their focused platform for small and medium enterprise merchants.

The senior management and wider team within Fortumo have a strong cultural fit with Boku, strengthening Boku's management capabilities further. Fortumo has an experienced technical team who complement Boku's existing technical team.

The purchase consideration included cash, company restricted stock and contingent consideration, as follows:

 
Consideration (USD'000)      Per agreement  Fair value 
Maximum consideration               45,000         n/a 
 per SPA 
 
Cash                                37,753      37,753 
Contingent consideration*            5,400       3,240 
Company RSUs**                       1,847       1,340 
Total purchase price 
 consideration                      45,000      42,333 
 

As part of the merger agreement, Boku settled in cash all fully vested but unexercised options. The unvested Fortumo options and RSUs were replaced with Boku RSUs representing the same market value of the unvested Fortumo options on the acquisition date.

*The contingent consideration of $5.4,million was paid on the date of acquisition into an escrow account. A payment from this escrow account will be made to the shareholders of Fortumo based on EBITDA achieved for 1 year period to 30(th) June 2021. The amount payable is a percentage of the $5.4 million, ranging from 0% to 100% for an EBITDA achievement between EUR2.0 million to EUR4.3 million. The fair value included the table above was calculated using the expected returns approach and the difference was recorded as a financial asset. The final value will be calculated at 30 June 2021 at the end of the earn-out period.

** the RSUs consideration relates to Boku Inc RSUs issued to employees in exchange for the existing options and RSUs in Fortumo Holdings Inc., which were part-vested as at the acquisition date. Given that these were options and RSUs with a remaining term and exercise price, the total value of these options at the valuation date was calculated using the Black Scholes model.

Details of the fair value of the purchase consideration of Fortumo Holdings Inc., the net assets acquired, and goodwill are as follows:

 
                                       $'000 
Cash consideration                    37,753 
Company (Boku) RSUs                    1,340 
Contingent Consideration               3,240 
Total purchase price 
 (fair value)                         42,333 
Trade and other receivables           25,703 
Cash and cash equivalents              6,558 
Prepaid expenses and 
 other assets                             82 
Property, plant and equipment 
 *                                       566 
Deposits held                             71 
Trade and other payables            (28,260) 
Lease liabilities                      (534) 
Tax payable                            (270) 
Domain Name - Fortumo                  1,834 
Technology platform (Fortumo)          4,343 
Customer contracts (Fortumo)           7,172 
Goodwill                              25,068 
Fair value of net assets 
 acquired                             42,333 
 

* The property, plant and equipment include $542,000 right-of-use assets.

Deferred tax was deemed not applicable as in Estonia tax is charge on distributions not on profits. The identified intangible assets are assumed to reside in Estonia from the perspective of a hypothetical market participant. Tax amortisation benefit is not applicable for intangible assets residing in Estonia. As a result, no deferred taxes have been included in the fair valuation of the intangible assets.

The cost of acquisition has been expensed during 2020 and has been included in exceptional costs in the statement of comprehensive income for the twelve-month ending 31 December 2020. The share issue costs have been recorded in equity and the cost incurred in obtaining the loan used to pay for the acquisition have been capitalised and amortised over the life of the loan.

27. Post balance sheet events

There have been no material post balance sheet events.

28. Cautionary Statement

This document contains certain forward-looking statements relating to Boku Inc (the "Group"). The Group considers any statements that are not historical facts as "forward-looking statements". They relate to events and trends that are subject to risk and uncertainty that may cause actual results and the financial performance of the Company to differ materially from those contained in any forward-looking statement. These statements are made by the Directors in good faith based on information available to them and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.

END

FR DKABKKBKKPND

(END) Dow Jones Newswires

March 16, 2021 03:01 ET (07:01 GMT)

1 Year Boku Chart

1 Year Boku Chart

1 Month Boku Chart

1 Month Boku Chart
ADVFN Advertorial
Your Recent History
LSE
BOKU
Boku
Register now to watch these stocks streaming on the ADVFN Monitor.

Monitor lets you view up to 110 of your favourite stocks at once and is completely free to use.

By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions

P: V:gb D:20210726 19:05:13