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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Safecharge International Group Limited | LSE:SCH | London | Ordinary Share | GG00BYMK4250 | ORD USD0.0001 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 435.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMSCH
RNS Number : 6574S
SafeCharge International Group Ltd
13 March 2019
SafeCharge International Group Limited
("SafeCharge", the "Company" and together with its subsidiaries, the "Group")
Results for the year ended 31 December 2018
Strong financial and operational performance with processed volume growth of 45%, revenue growth of 24% and an increase of 11% in Adjusted EBITDA from 2017; Successful entry into new markets and verticals as well as investment in sales and marketing to deliver further growth and expansion into new geographies
SafeCharge (AIM: SCH), a leading payments technology company, is pleased to announce its results for the year ended 31 December 2018.
Financial and operational summary
Hot Features
Premium
31 Dec 31 Dec
2018 2017 Change
------------------------------------ -------- -------- --------
Number of transactions (m) 255.1 173.8 +47%
Transaction value (US$m) 13,928 9,637 +45%
Own Acquiring transaction value
(US$m) 3,990 2,155 +85%
Revenue (US$m) 138.5 111.7 +24%
Gross profit (US$m) 73.8 64.5 +14%
Adjusted EBITDA(1) (US$m) 37.3 33.7 +11%
Cash flows from operations(2)
(US$m) 33.5 32.3 +4%
Reported profit after tax (US$m) 24.8 23.8 +4%
Cash conversion(3) 84% 83%
Cash balances at year end 93.1 108.9 -15%
Diluted earnings per share (US$c) 16.23 15.78 +3%
Recommended final dividend per
share (US$c) 9.45 9.20 +3%
Total dividend per share (US$c) 18.31 16.89 +8%
Financial highlights
-- Strong revenue growth of 24% to US$138.5 million (2017: US$111.7 million) driven by new customer wins and expanded relationships with existing customers -- Growth of 11% in Adjusted EBITDA(1) to US$37.3 million (2017: US$33.7 million) -- Continued robust cash conversion(3) of 84% (2017: 83%), and strong balance sheet with cash balances of US$93.1 million and no debt -- Increase of 8% in total dividend to 18.31 US$ cents per share for 2018 (2017: 16.89 US$ cents)
Operational highlights
-- Increase in processed volume by 45% to US$13.9 billion (2017:
US$9.6 billion)
-- Excellent growth in value of transactions processed through SafeCharge
Acquiring with 29% of the Group's transaction volumes processed through
its own acquiring platform during the year (2017: 22%)
-- Successful launch of new Tier 1 customers on our fully serviced
global payment solution, including the global ride sharing company
Gett, the online retail platform The Level Group, the national Danish
gaming operator Danske Spil and the Italian licensed gaming and betting
operator Snai
-- Global expansion continues with the opening of new offices in
Shenzhen and Mexico
-- Payment Institution licence granted by the UK Financial Conduct
Authority
David Avgi, CEO of SafeCharge, said:
"The year 2018 was another period of strong financial performance and continued growth. We demonstrated excellent performance and successful entry into new markets and verticals. We have continued to innovate, develop and deliver our payment products and technologies, enabling us to deepen our relationships and win new business with large scale customers.
During 2019 we will continue to invest in building our sales teams to accelerate our entry into new markets, as well as to invest further in innovative products to our customers. We are only at the beginning of our journey. Our highly scalable proprietary Payments Engine has been designed to deliver superior performance translating into a better user experience and increased revenues for our customers."
Current trading
Building on the record revenues and transaction processing volumes achieved in Q4 2018, the Group has made an excellent start to 2019 with a strong sales pipeline in both existing and new verticals.
Outlook
The Directors look forward with confidence to 2019 and beyond.
The Board is issuing guidance for 2019 with revenues expected to be in the range of US$155m to US$165m, and Adjusted EBITDA(1) between US$40m and US$42m. This will be driven by continued growth from our existing client base and new customers due to start processing in 2019.
Presentation
A results presentation for analysts and investors will be held today at 9.30am in the offices of FTI Consulting at 200 Aldersgate Street, 9th Floor, London, EC1A 4HD.
The presentation will be audiocast live at the following website:
https://www.investis-live.com/safecharge/5c7fc06f186fe71000bc1945/iopp
The presentation will also be accessible via a live conference call:
Dial-in no for UK: 020 3936 2999
Dial-in no for all other locations: +44 20 3936 2999
Conference password: 105551
- Ends -
(1) Adjusted EBITDA is a non-GAAP, company-specific measure which is earnings excluding finance income, finance expense, taxes, depreciation, amortisation, aborted acquisition costs and contingent remuneration, restructuring and settlement costs, share-based payments charge, unrealised fair value movements on equity investments recognised in the period income statement and share of post-tax loss of equity-accounted investments (See Consolidated Statement of Comprehensive Income).
(2) Cash flows from operations before working capital adjustments and tax.
(3) Free cash conversion is an alternative performance measure the Group has adopted to demonstrate our ability to convert our profit from operations into cash that can be reinvested in the business through investment, returned to shareholders, or used to support our M&A strategy. The cash conversion rate is before payments working capital.
For more information
SafeCharge International Group Limited David Avgi, Chief Executive Officer Tsach Einav, Chief Financial Officer c/o FTI Consulting +44 (0) 20 3727 1725 Jean Beaubois, Head of Investor Relations +44 (0) 7826 936619 Shore Capital Toby Gibbs Mark Percy +44 (0) 20 7408 4090 FTI Consulting Matthew O'Keeffe Elena Kalinskaya +44 (0) 20 3727 1725
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
Forward looking statements
This announcement includes statements that are, or may be deemed to be, "forward-looking statements". By their nature, forward-looking statements involve risk and uncertainty since they relate to future events and circumstances. Actual results may, and often do, differ materially from any forward-looking statements.
Any forward-looking statements in this announcement reflect SafeCharge's view with respect to future events as at the date of this announcement. Save as required by law or by the AIM Rules for Companies, SafeCharge undertakes no obligation to publicly revise any forward-looking statements in this announcement following any change in its expectations or to reflect events or circumstances after the date of this announcement.
About SafeCharge
SafeCharge International Group Limited (AIM: SCH) is the payment service partner for the world's most demanding businesses. SafeCharge provides global omni--channel payments services from card acquiring and issuing to payment processing and checkout, all underpinned by advanced risk management solutions. This fully featured proprietary payment platform connects directly to all major payment card schemes including Visa, MasterCard, American Express and Union Pay as well as over 150 local payment methods. With offices around the world, SafeCharge serves a diversified, blue chip client base and is a trusted payment partner for customers across a range of vertical markets. The Company has been listed on the AIM market of the London Stock Exchange since 2014.
www.safecharge.com
Chairman's statement
Introduction
I am delighted to report that 2018 was a further period of strong financial performance and growth for the Group. Revenue grew 24% to US$138.5 million and Adjusted EBITDA* increased by 11% to US$37.3 million compared to 2017, with the Group continuing to generate significant free cash flow from its operations. Once again, revenue growth has been driven through new customer wins and expanded relationships with existing customers. Furthermore, during the period we continued to successfully grow our acquiring business which delivered an excellent performance.
The Group remained highly cash generative. We closed the year after payment of dividends (US$26.8 million) and further investment in the cashless payments company Nayax (US$18.5 million), with US$93.1 million of cash and cash equivalents and no debt.
In addition to robust financial performance, we remain committed to advancing our technologies and expanding the Group's product offering, thereby strengthening customer engagement whilst growing and diversifying the business into new markets, industries and geographies.
The Board continues to focus on making effective use of the Group's cash resources, investigating the potential for strategic and complementary acquisitions, whilst continuing to apply strict criteria when assessing such acquisition opportunities.
Board and governance
The Board remains committed to ensuring a robust governance structure is in place and, whilst recognising the size of the Company, is working to comply with best practice corporate governance. I would like to welcome Susanne Chishti who joined the Board earlier this month as a non-executive director of the Company. Her extensive experience in the banking and FinTech sectors will further strengthen the Board and will be invaluable as we continue to grow the business.
The Company observes the UK Corporate Governance Code (the "Code"), and the Board considers that the Company has been compliant with the principles of the Code since the beginning of 2019.
Staff
On behalf of the Board, I would like to thank our employees, who have made a substantial contribution to our ongoing achievements, as well as welcoming our new colleagues who joined during 2018 and are already greatly contributing to the development of our business.
Dividend
Recognising the Group's continued strong cash generation, the Board has recommended a final dividend of 9.45 US$ cents per share, giving a total dividend of 18.31 US$ cents per share for the year (2017: 16.89 US$ cents). This represents 75% of Adjusted EBITDA* for the period, in line with the Company's current policy of paying 75% of Adjusted EBITDA* (as long as there is no material M&A transaction).
The dividend shall be paid in sterling and therefore it will be subject to a conversion exchange rate from US dollars based on a GBP/USD rate of 1.3085, being the rate at 4.30 pm on 12 March 2019. As a result, those shareholders entitled to the dividend will receive 7.22 pence per share. Subject to shareholder approval at the annual general meeting, to be held on 22 May 2019, the final dividend will become payable on 24 May 2019 to those shareholders on the Company's register as at the record date of 3 May 2019. The ex-dividend date is 2 May 2019.
Roger Withers
Chairman
12 March 2019
* Adjusted EBITDA is a non-GAAP, company-specific measure which is earnings excluding finance income, finance expense, taxes, depreciation, amortisation, aborted acquisition costs and contingent remuneration, restructuring and settlement costs, share-based payments charge, unrealised fair value movements on equity investments recognised in the period income statement and share of post-tax loss of equity-accounted investments (See Consolidated Statement of Comprehensive Income).
Chief Executive Officer's review
Introduction
The year 2018 was a period of further success for the Group. We continued to make significant progress and achieved financial and operational growth across the Group. Processed volume grew by 45% to US$13.9 billion, revenue grew by 24% reaching US$138.5 million and Adjusted EBITDA* increased by 11% to US$37.3 million. Of a particular note was the continued success and strong growth of SafeCharge Acquiring, with 29% of the Group's transaction volumes processed through our own acquiring platform during the year (2017: 22%). Across all our activities we continued to invest in our products and services, focusing on growing and diversifying the business into new markets, industries and geographies.
Strategy
The Group has a clear organic growth strategy targeting both its existing customer base and new customers with value-added products and services. SafeCharge distinguishes itself by its innovative solutions and products. We continue to focus on expanding our partner ecosystem to develop new products that allow the Group to strengthen its position in the market, and acquire new customers. SafeCharge has developed its own Native+ Payments Engine. Native, because it has been built from the ground-up as a platform to cover the full payment value chain, providing merchants with the superior performance of an end-to-end secure payment processing solution. And + because it enables connection to other payment and risk management partners. The combination of a proprietary solution with open access to third party partners defines the foundation of SafeCharge's value proposition - to put merchants in control and empower them to achieve more through the transformational capabilities of modern payments technology.
SafeCharge's unique value proposition is supported by three strong pillars which are global reach, omnichannel payments through a single unified platform, SafeCharge Native+ Payment Engine, and innovation.
Global Reach
SafeCharge offers one of the largest payment method portfolios in the market, with over 150 payment methods and growing, integrated alongside the traditional credit and debit cards solutions. This makes it easy for international customers to provide a seamless buying experience all around the world.
During the year, SafeCharge became one of the first partners of Visa to successfully enable merchants to support two new innovative Visa payment solutions: Visa Checkout and Visa Direct, both considerably improving the user's payment experience. In addition, SafeCharge has delivered solutions for merchants seeking to expand in North America, for the US market with local card acquiring as well as the popular ACH online bank payment method eCheck and Interac for the Canadian market. In Europe, SafeCharge is a leading partner for retailers to accept the most popular Chinese payment methods Alipay and WeChat Pay.
Other achievements during the period included the opening of new offices in Shenzhen and Mexico. Establishing new offices in these regions demonstrates our commitment to these important markets. Our intention is to grow these offices as the Group wins new clients in these regions.
Omnichannel
SafeCharge is one of the only players in the market able to provide merchants with a truly omnichannel solution connecting to one unified platform: SafeCharge Payments Engine. This makes it easy for merchants to process and manage payments through all channels - across online, mobile, and point of sale - through one contract and one technical interface. It also means merchants get a clear view of their payments activity across all channels and can track performance and streamline operations.
Innovation
With its Native+ Payment Engine, SafeCharge is bringing a new approach to payments by offering both an advanced proprietary technology as well as access to a broad range of partners. This new approach gives merchants flexibility and control to build a best-of-breed payments infrastructure that suits the most complex requirements and innovative business models. SafeCharge's open payments architecture enables connections to over 15 acquiring payments partners with total transparency into data, processes and pricing. Last but not least, SafeCharge enables fully-customisable risk management capabilities that provide the safest and most secure way to process multi-directional transactions. During the year SafeCharge launched Reconciliation Manager and, more recently, Identity Manager, two very innovative products leveraging the company's unique experience and expertise in the payments industry.
Infrastructure and technology
During 2018, the Group continued to invest in its infrastructure and to further develop its processing technologies. Our highly scalable payments platform is capable of handling rapidly increasing transaction volumes and offers our customers best-in-class technology with a comprehensive product suite.
Platform robustness is one of the key metrics evaluated by existing and potential new customers when deciding on which payments provider to use. It is therefore pleasing to report that our customers continued to benefit from our industry leading service uptime of above 99.99% maintained throughout the period. Another key measure for our customers is transaction duration. The SafeCharge platform continues to perform well on this metric, with transaction times competitive with best-in-class operators.
Customers
We successfully launched a number of significant new Tier 1 customers in the year, including the global ride sharing company Gett, the online retail platform The Level Group, the national Danish gaming operator Danske Spil and the Italian licensed gaming and betting operator Snai. Further new customers, including Kiwi.com, Intralot, OnlineStore.IT and World Duty Free, will be launched during 2019.
Partnerships
During the year, we invested a further US$18.5 million in Nayax, a leading global cashless payment solutions provider for the unattended machine industry. This investment followed the successful processing of Nayax's transactions through our platform in 2017. Our strategy has been to expand within the cashless payments industry in which Nayax specialises, support their growth and to strengthen the operational collaboration between the two companies, with expected processing of more than 500 million Euros of Nayax transactions through our Acquiring platform over the years 2018-2021. In light of the success of the partnership, in January 2019 we agreed to extend our acquiring agreement with Nayax to the end of 2024 and agreed that the Nayax's founding shareholders will, by the end of 2022, buyback SafeCharge's shareholding in Nayax for a consideration equal to the cumulative investment of US$24.5 million plus 9% interest per year calculated from 15 February 2018 until payment is received.
In addition, SafeCharge further developed its strategic partnership with Saxo Payments (Banking Circle), a global transactions services provider, to simplify cross border settlement accounts.
M&A
The Group continues to invest significant resources towards identifying and investigating potential acquisitions, including the procurement of external support for our due diligence processes as appropriate. These must have the potential to accelerate growth through identifiable synergies or add complementary products which would enhance SafeCharge's existing offering to its clients. Whilst a number of such opportunities were identified, investigated and reviewed over the period, none met the Group's strict investment criteria.
People
Our employees are at the heart of the Group's success and we are proud of the expertise and professionalism of our teams. During the year the Group successfully recruited a number of talented senior managers from well-established businesses in the payments sector, including senior personnel in sales and marketing. These new team members are already helping the Group win and manage sustainable, high quality business in both existing and target verticals and geographies. The Group ended the period with 390 employees (2017: 360) with approximately 54% in R&D and technology, 16% in sales and marketing, and 13% in risk and compliance.
Financial performance in 2018
The operational momentum built over recent years continued into 2018. This momentum enabled SafeCharge to deliver further growth and entry into new markets.
The number of processed transactions grew by 47%, reaching 255.1 million transactions for the full year (2017: 173.8 million), and the value of transactions grew by 45%, reaching US$13.9 billion (2017: US$9.6 billion). This increase in volumes was driven by growth from existing clients and new high-volume customers.
Revenue for the year ended 31 December 2018 grew by 24% to US$138.5 million, compared to the prior year. Gross Profit increased by 14% to US$73.8 million (2017: US$64.5 million) with the Gross Profit Margin decreasing to 53.3% (2017: 57.8%) due to our entry into new markets and verticals as well as our focus on Tier 1 customers. Adjusted EBITDA* grew by 11% to US$37.3 million (2017: US$33.7 million) with EBITDA margin of 26.9% for the full year (2017: 30.2%).
SafeCharge remained highly cash generative with US$33.5 million of cash flow from operating activities before working capital changes and tax paid in the period (2017: US$32.3 million), and free cash flow** of US$23.0 million (2017: US$20.5 million), representing cash conversion*** of 84% (2017: 83%).
SafeCharge Acquiring
A notable success during the year was the continued strong growth in our own acquiring services. SafeCharge Own Acquiring transaction value for the period totalled US$4.0 billion (2017: US$2.2 billion), with approximately 29% of the Group's transaction volumes processed through its own acquiring platform during the year (2017: 22%). SafeCharge Acquiring also enables the Group to provide benefits such as rapid onboarding for new customers and remains a key focus for the Group.
Using our best in class smart routing technology, we can route transactions to our own acquiring or third-party acquirers with the highest acceptance levels. This benefits our clients as fewer transactions are rejected. Smart routing also protects clients as we are able to route transactions to multiple acquirers, thereby enabling our clients to keep trading if their preferred acquirer temporarily fails.
Looking to the future
The Group has a robust and scalable platform that can accommodate transaction volumes over 10 times greater than currently processed. Management remains committed to rolling-out its technology-based solutions to new markets and, as such, has a number of priorities for 2019 and beyond:
Further investment in the platform to continue offering best in class
-- reliability and scalability;
Further investment in technology to continue bringing innovation to
-- the market;
Strengthening of the Group's sales force to accelerate our entrance
-- into new sectors and geographies; and
-- Further expansion of our global payments network.
Regulation
Through its membership of, and active involvement with, organisations such as the PCI Security Standards Council, the Electronic Money Association and the Merchant Risk Council, as well as on-going dialogue with all the major card schemes, SafeCharge is well-informed and well prepared to take advantage of many of the regulatory changes being introduced. The principal regulatory work currently undertaken by the Group includes:
PSD2: Strong Customer Authentication in accordance with European
-- Banking Authority guidelines;
-- Brexit: potential changes to the passporting rules; and
EU General Data Protection Regulations: contracts amendments
-- in accordance with regulations.
During the year, SafeCharge Financial Services Limited, a wholly owned UK subsidiary of the Company, was authorised by the Financial Conduct Authority (the "FCA") as a Payment Institution. This is in addition to SafeCharge Limited's existing authorisation as a European Electronic Money Institution. The authorisation allows SafeCharge Financial Services Limited to provide payments services in the UK in accordance with the Payment Services Regulations. It enables SafeCharge to continue expanding its services portfolio to its existing client base and to new clients, as well as future proofing the business post Brexit and in the event of potential changes to the passporting rules. Furthermore, in January 2019 SafeCharge Limited has secured permission under the UK FCA's Temporary Permissions Regime to continue to provide payment services to merchants in the UK even in the event of a "Hard Brexit".
In light of the continuously evolving regulatory environment, SafeCharge is tirelessly improving its practices, policies and procedures. As such, the Group is well placed to help its customers maximise the opportunities arising from regulatory change.
Current trading and outlook
The Group has enjoyed an excellent start to 2019, benefiting from continued growth from our existing customers and the launch of new clients. The Group is confident that its focus on Tier 1 customers and new markets driven by a healthy sales pipeline will yield profitable revenue growth in 2019 and beyond.
David Avgi
Chief Executive Officer
12 March 2019
* Adjusted EBITDA is a non-GAAP, company-specific measure which is earnings excluding finance income, finance expense, taxes, depreciation, amortisation, acquisition costs and contingent remuneration, restructuring and settlement costs, share-based payments charge, unrealised fair value movements on equity investments recognised in the period income statement and share of post-tax loss of equity-accounted investments (See Consolidated Statement of Comprehensive Income).
** Free cash flow is a non-GAAP figure defined as operating cash flow after working capital movements (excluding movements in payments working capital), interest, tax and capital expenditure
*** Free cash conversion is an alternative performance measure the Group has adopted to demonstrate our ability to convert our profit from operations into cash that can be reinvested in the business through investment, returned to shareholders, or used to support our M&A strategy. The cash conversion rate is before payments working capital.
Financial review
Highlights
Revenue for the year grew by 24% to US$138.5 million (2017: US$111.7 million), Gross profit increased by 14%, reaching US$73.8 million (2017: US$64.5 million) and Adjusted EBITDA* grew by 11%, reaching US$37.3 million (2017: US$33.7 million).
Cash conversion remained strong, with cash flows from operations (before working capital adjustments and tax paid) of US$33.5 million (2017: US$32.3 million) and free cash flow** of US$23.0 million (2017: US$20.5 million), reflecting cash conversion*** of 84% (2017: 83%). Profit after tax for the period increased by 4% to US$24.8 million (2017: US$23.8 million).
During the year, the Group paid US$26.8 million in dividends and invested US$18.5 million in the cashless payments company Nayax and US$6.0 million in capitalised development costs. The Group ended the period with US$93.1 million of cash and cash equivalents and US$36.5 million of equity investments. The Group remained debt free during the year.
Revenue
Revenue increased by 24% to US$138.5 million (2017: US$111.7 million) during the year, driven by new customer wins and expanded relationships with existing customers, reaching record levels in the fourth quarter. New clients (defined as those who began processing payments through the Group's systems in the last 12 months and where the relationship with them was concluded during this period) generated revenue of US$12.5 million during 2018 (2017: US$6.5 million).
Foreign currency exposure and impact
In order to reduce foreign exchange exposure, the majority of the Group's assets are held in US dollars, its functional and reporting currency.
The Group generates revenue in multiple currencies, the most significant being the US dollar, Euro and Sterling, accounting for approximately 65% of income in the period with the balance of revenue generated in a wide range of other currencies.
SafeCharge has operations in several jurisdictions and incurs the majority of its operating costs in US dollars, Euros, Israeli Shekels and Sterling (the most significant being Israeli Shekels accounting for approximately 33% of operating costs).
The Group's financial results for the year were positively impacted due to strengthening of certain currencies against the US dollar. The Directors estimate that revenue and Adjusted EBITDA* were approximately US$1.6 million and US$0.2 million, respectively, higher than would have been reported on a constant currency basis. Results stated on a constant currency basis, a non-IFRS measure, are calculated by applying the average exchange rate of the comparable period in the prior year to current period local currency results.
Margins
The gross profit margin decreased to 53.3% (2017: 57.8%) due to our entry into new markets and verticals as well as our focus on Tier 1 customers in accordance with our strategy. Adjusted EBITDA* margin decreased to 26.9% (2017: 30.2%) primarily due the reduction in the gross profit margin as well as hiring a number of senior personnel in sales and marketing and an increase in associated marketing costs as part of our growth strategy and in order to accelerate our entrance into new sectors and geographies.
Expenses
Employee related costs, which account for the majority of SafeCharge's operating expenses and equate to approximately 19% of revenue, increased by 21% in the year, amounting to US$26.2 million (2017: US$21.7 million) primarily as a result of increased headcount and salary increases. During the year the Group invested in additional resources, including hiring a number of senior personnel in sales and marketing to support growth and implement our strategy to enter new verticals and markets.
The Group incurred share-based payment charges totalling US$1.5 million in the period (2017: US$1.1 million). Depreciation and amortisation of US$7.3 million was charged in the period (2017: US$5.2 million), which included a US$1.9 million charge in respect of depreciation of computer equipment (2017: US$1.6 million) and US$5.3 million (2017: US$3.0 million) of amortisation of intangible assets, including amortisation of US$3.3 million relating to capitalised development costs (2017: US$1.1 million). Furthermore, during the year the Group incurred aborted acquisition costs and contingent remuneration of US$1.0 million (2017: US$0.4 million).
During 2018, the Group recorded an unrealised fair value gain on equity investments of US$1.9 million in accordance with the new accounting standard, IFRS 9. The Group's reported net finance expense of US$2.0 million (2017: US$1.5 million income) was primarily due to foreign exchange differences.
Tax
The Group's reported tax expense was US$2.3 million (2017: US$2.4 million) in respect of its operations across multiple jurisdictions, representing a blended tax rate of 9% on reported profit before tax.
Payments working capital items
During 2017, the Company completed the share acquisition of GTS, an online payment processing service, which was rebranded as SafeCharge Digital. In these operations, client money held on behalf of clients is included in the Group balances of cash and cash equivalents, settlement assets and merchant processing liabilities, since no legal right exists to offset between this cash and the corresponding merchant processing liabilities. As at the reporting date, the related cash balances amounted to US$7.9 million (2017: US$9.3 million), settlement assets amounted to US$1.6 million (2017: US$1.7 million), and merchant processing liabilities amounted to US$9.5 million (2017: US$11.0 million).
Cash flow
SafeCharge continues to be highly cash generative. In 2018 the Group generated US$32.3 million net cash from operating activities (excluding movements in payments working capital) (2017: US$29.9 million). Net cash from operating activities including movements in payments working capital amounted to US$30.9 million. Free cash flow** was US$23.0 million (2017: US$20.5 million), reflecting cash conversion*** of 84% (2017: 83%).
The Group's cash outflow in respect of investing activities was US$34.1 million (2017: US$10.1 million). This outflow included the following: (i) US$18.5 million of investment in the cashless payments company Nayax; (ii) US$6.3 million of investment in intangible assets (2017: US$6.1 million), with the majority being capitalised development expenses; (iii) US$3.5 million (2017: US$3.8 million) in payments for the acquisition of property, plant and equipment (primarily computer equipment for the data centres as well as leasehold improvements and office equipment for new offices of the Group); (iv) US$2.8 million related to the investments in Saxo Payments and Meshulam Payment Solutions; and (v) US$6.4 million of a deposit that is held as a collateral by card schemes; offset by repayment of a US$2.9 million working capital facility provided to a certain customer in the prior year.
The Group's cash outflow in respect of financing activities was US$12.6 million (2017: US$35.6 million) reflecting US$26.8 million of dividend payments, offset by US$14.2 million received from the exercise of share options.
Overall during the period there was a net decrease in cash and cash equivalents of US$15.8 million (2017: US$6.5 million) and the Group closed the year with US$93.1 million (2017: US$108.9 million) in cash and cash equivalents.
Financial position
The Group closed the year with total assets of US$192.2 million (2017: US$182.2 million), including US$93.1 million (2017: US$108.9 million) of cash and cash equivalents and US$36.5 million of equity investments (2017: US$13.9 million of available-for-sale investments and US$0.7 million of assets classified as held for sale; starting this year these assets are presented as equity investments in accordance with the new accounting standard, IFRS 9). The Company's cash was held in current accounts and on-call deposit accounts. The Directors believe that SafeCharge's strong balance sheet provides a high degree of operational flexibility as it implements its growth strategy.
The net book value of intangible assets held at 31 December 2018 was US$39.1 million (2017: US$39.2 million) of which US$9.9 million (2017: US$10.5 million) related to goodwill and US$8.0 million (2017: US$9.6 million) related to IP technology, licences and domains. During the year, the Group capitalised US$6.0 million (2017: US$5.8 million) relating to technology development costs.
Total current assets decreased to US$99.6 million (2017: US$ 118.4 million), with cash decreasing to US$93.1 million primarily as a result of the dividend payments and the additional investment in Nayax. Current liabilities decreased to US$23.1 million (2017: US$ 25.1 million) mainly due to a decrease in trade and other payables by US$0.6 million and decrease of US$1.6 million in merchant processing liabilities.
Total equity attributable to equity holders increased to US$168.1 million (2017: US$155.9 million) principally as a result of the earnings and exercise of share options during the year, offset by the dividends paid.
In January 2019, we agreed with the Nayax's founding shareholders that they will, by the end of 2022, buyback SafeCharge's shareholding in Nayax for a consideration equal to the cumulative investment of US$24.5 million plus 9% interest per year, calculated from 15 February 2018 until payment is received.
The Group closed the year with no debt and is well placed to secure further strategic investment opportunities as it seeks to grow its market-leading offer.
Dividend
Recognising the Group's continued strong cash generation, the Board has recommended a final dividend of 9.45 US$ cents per share, giving a total dividend of 18.31 US$ cents per share for the year (2017: 16.89 US$ cents). This represents 75% of Adjusted EBITDA* for the period, in line with the Company's current policy of paying 75% of Adjusted EBITDA* (as long as there is no material M&A transaction).
The dividend shall be paid in sterling and therefore it will be subject to a conversion exchange rate from US dollars based on a GBP/USD rate of 1.3085, being the rate at 4.30 pm on 12 March 2019. As a result, those shareholders entitled to the dividend will receive 7.22 pence per share. Subject to shareholder approval at the annual general meeting, to be held on 22 May 2019, the final dividend will become payable on 24 May 2019 to those shareholders on the Company's register as at the record date of 3 May 2019. The ex-dividend date is 2 May 2019.
Tsach Einav
Chief Financial Officer
12 March 2019
* Adjusted EBITDA is a non-GAAP, company-specific measure which is earnings excluding finance income, finance expense, taxes, depreciation, amortisation, aborted acquisition costs and contingent remuneration, restructuring and settlement costs, share-based payments charge, unrealised fair value movements on equity investments recognised in the period income statement and share of post-tax loss of equity-accounted investments (See Consolidated Statement of Comprehensive Income).
** Free cash flow is a non-GAAP figure defined as operating cash flow after working capital movements (excluding movements in payments working capital), interest, tax and capital expenditure.
*** Free cash conversion is an alternative performance measure the Group has adopted to demonstrate our ability to convert our profit from operations into cash that can be reinvested in the business through investment, returned to shareholders, or used to support our M&A strategy. The cash conversion rate is before payments working capital.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December 2018
Note 2018 2017
US$000s US$000s
Revenue 5 138,533 111,692
Cost of sales (64,747) (47,143)
---------- ----------
Gross profit 73,786 64,549
Salaries and employee expenses (26,162) (21,675)
Share-based payments charge 19 (1,489) (1,092)
Depreciation and amortisation 11,12 (7,328) (5,166)
Premises and other costs (3,003) (2,743)
Other expenses (7,366) (6,452)
Aborted acquisition costs and contingent
remuneration (1,048) (352)
Restructuring and settlement costs - (2,430)
---------- ----------
Total operating costs (46,396) (39,910)
------------------------------------------------- ------- ---------- ----------
Adjusted EBITDA* 37,255 33,679
Depreciation and amortisation (7,328) (5,166)
Share-based payments charge (1,489) (1,092)
Aborted acquisition costs and contingent
remuneration (1,048) (352)
Restructuring and settlement costs - (2,430)
------------------------------------------------- ------- ---------- ----------
Profit from operations 27,390 24,639
Unrealised fair value movements on
equity investments 18 1,879 -
Finance income 7 463 1,954
Finance expense 7 (2,461) (425)
Share of post-tax loss of equity-accounted
investments 16 (98) -
---------- ----------
Profit before tax 27,173 26,168
Tax expense 8 (2,327) (2,356)
---------- ----------
Profit after tax attributable to equity
holders of the parent 24,846 23,812
---------- ----------
Other comprehensive income for the
year
Items that will be reclassified subsequently
to profit or loss when specific conditions
are met:
Unrealised fair value movements on
available-for-sale investments 18 - 2,797
Exchange difference arising on the
translation and consolidation
of foreign companies' financial statements (1,570) 3,304
---------- ----------
Total comprehensive income for the
year 23,276 29,913
---------- ----------
Earnings per share for profit attributable
to the owners of the parent during
the year
Basic (cents) 9 16.68 16.14
---------- ----------
Diluted (cents) 9 16.23 15.78
---------- ----------
*Adjusted EBITDA is a non-GAAP, company-specific measure which is earnings excluding finance income, finance expense, taxes, depreciation, amortisation, aborted acquisition costs and contingent remuneration, restructuring and settlement costs, share-based payments charge, unrealised fair value movements on equity investments recognised in the period income statement and share of post-tax loss of equity-accounted investments. Where not explicitly mentioned, Adjusted EBITDA refers to Adjusted EBITDA from continuing operations.
The attached notes form an integral part of these consolidated financial statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 December 2018
31/12/2018 31/12/2017
Note US$000s US$000s
Assets
Non--current assets
Property, plant and equipment 11 5,908 6,197
Intangible assets 12 39,080 39,220
Investments in equity-accounted associates 16 1,185 -
Equity investments 18 36,523 -
Available-for-sale investments 18 - 13,934
Other receivables 15 9,837 3,789
------------ ------------
Total non-current assets 92,533 63,140
------------ ------------
Current assets
Trade and other receivables 14 4,982 7,346
Settlement assets 28 1,565 1,713
Cash and cash equivalents 17 93,076 108,858
Taxes receivable 24 - 442
------------ ------------
Total current assets 99,623 118,359
------------ ------------
Assets classified as held for sale 18 - 694
------------ ------------
Total assets 192,156 182,193
------------ ------------
Equity
Share capital 19 15 15
Share premium 20 126,030 126,030
Capital reserve 20 622 622
Available-for-sale reserve 20 - 3,950
Translation reserve 20 310 1,880
Share options reserve 20 3,393 3,632
Treasury shares reserve 19 - (16,900)
Retained earnings 20 37,720 36,690
------------ ------------
Total equity attributable to equity
holders of parent 168,090 155,919
------------ ------------
Non--current liabilities
Provisions 21 200 231
Deferred tax liability 22 795 957
------------ ------------
Total non-current liabilities 995 1,188
------------ ------------
Current liabilities
Trade and other payables 23 13,471 14,050
Merchant processing liabilities 28 9,484 11,036
Taxes payable 24 116 -
------------ ------------
Total current liabilities 23,071 25,086
------------ ------------
Total equity and liabilities 192,156 182,193
------------ ------------
On 12 March 2019 the Board of Directors of SafeCharge International Group Limited approved and authorised these consolidated financial statements for issue and they were signed on their behalf by:
.................................... .................................... David Avgi Tsach Einav Chief Executive Officer Chief Financial Officer
The attached notes form an integral part of these consolidated financial statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2018
Share Treasury Share Capital Available-for-sale Translation Share Retained Total
capital shares premium reserve reserve reserve options earnings equity
reserve reserve attributable
to equity
holders
of parent
Note US$000s US$000s US$000s US$000s US$000s US$000s US$000s US$000s US$000s
Balance at
1 January
2017 15 (6,281) 125,169 622 1,153 (1,424) 2,662 38,577 160,493
========= ========== ========= ========= ==================== ============= ========= ========== ==============
Comprehensive
income
Profit for
the year - - - - - - - 23,812 23,812
--------- ---------- --------- --------- -------------------- ------------- --------- ---------- --------------
Unrealised
fair value
movements
on
available-for-sale
investments 18 - - - - 2,797 - - - 2,797
Exchange difference
arising on
the translation
and consolidation
of foreign
companies'
financial
statements - - - - - 3,304 - - 3,304
--------- ---------- --------- --------- -------------------- ------------- --------- ---------- --------------
Total comprehensive
income for
the year - - - - 2,797 3,304 - 23,812 29,913
--------- ---------- --------- --------- -------------------- ------------- --------- ---------- --------------
Contributions
by and
distributions
to owners
Dividends 10 - - - - - - - (25,821) (25,821)
Exercise
of options * - 861 - - - (122) 122 861
Purchase
of own shares 19 (*) (10,619) - - - - - - (10,619)
Share-based
payments 19 - - - - - - 1,092 - 1,092
--------- ---------- --------- --------- -------------------- ------------- --------- ---------- --------------
Total contributions
by and
distributions
to owners - (10,619) 861 - - - 970 (25,699) (34,487)
--------- ---------- --------- --------- -------------------- ------------- --------- ---------- --------------
Balance at
31 December
2017 15 (16,900) 126,030 622 3,950 1,880 3,632 36,690 155,919
========= ========== ========= ========= ==================== ============= ========= ========== ==============
Comprehensive
income
Profit for
the year - - - - - - - 24,846 24,846
--------- ---------- --------- --------- -------------------- ------------- --------- ---------- --------------
Exchange
difference
arising on
the translation
and consolidation
of foreign
companies'
financial
statements - - - - - (1,570) - - (1,570)
--------- ---------- --------- --------- -------------------- ------------- --------- ---------- --------------
Total comprehensive
income for
the year - - - - - (1,570) - 24,846 23,276
--------- ---------- --------- --------- -------------------- ------------- --------- ---------- --------------
Reserves
transfer
upon transition
to IFRS 9 - - - - (3,950) - - 3,950 -
--------- ---------- --------- --------- -------------------- ------------- --------- ---------- --------------
Contributions
by and
distributions
to owners
Dividends 10 - - - - - - - (26,778) (26,778)
Exercise
of options * 16,900 - - - - (1,728) (988) 14,184
Share-based
payments 19 - - - - - - 1,489 - 1,489
--------- ---------- --------- --------- -------------------- ------------- --------- ---------- --------------
Total contributions
by and
distributions
to owners * 16,900 - - - - (239) (27,766) (11,105)
--------- ---------- --------- --------- -------------------- ------------- --------- ---------- --------------
Balance at
31 December
2018 15 - 126,030 622 - 310 3,393 37,720 168,090
========= ========== ========= ========= ==================== ============= ========= ========== ==============
(*) represents amount less than 1 thousand US$
The attached notes form an integral part of these consolidated financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 December 2018
2018 2017
Note US$000s US$000s
Cash flows from operating activities
Profit before tax 27,173 26,168
Adjustments for:
Depreciation of property, plant and equipment 11 2,078 2,122
Amortisation of intangible assets 12 5,250 3,044
Write-off of property, plant and equipment 11 - 60
Exchange difference arising on the translation
of non-current assets in foreign currencies (239) 370
Non-cash movements in provisions within
comprehensive income 21 (31) (29)
Unrealised fair value movements on equity
investments 18 (1,879) -
Share of loss from associates 16 98 -
Finance income 7 (463) (496)
Share-based payments charge 19 1,489 1,092
---------- ----------
Cash flows from operations before working
capital 33,476 32,331
Increase in trade and other receivables (196) (203)
Increase in trade and other payables 847 2,130
---------- ----------
Cash flows from operations before movements
in payments working capital 34,127 34,258
Decrease/(Increase) in settlement assets 28 148 (1,713)
(Decrease)/Increase in merchant processing
liabilities 28 (1,552) 11,036
---------- ----------
32,723 43,581
---------- ----------
Tax paid (1,809) (4,369)
---------- ----------
Net cash flows provided by operating activities 30,914 39,212
---------- ----------
Cash flows from investing activities
Payment for acquisition of intangible assets 12 (6,257) (6,083)
Payment for acquisition of property, plant
and equipment 11 (3,521) (3,812)
Acquisition of equity investments 18 (20,016) (2,797)
Investment in equity-accounted associates 16 (1,283) -
Loans granted - (2,936)
Loans repaid 2,936 5,000
Interest received 7 463 496
Increase in non-current deposits (6,424) -
---------- ----------
Net cash flows used in investing activities (34,102) (10,132)
---------- ----------
Cash flows from financing activities
Proceeds from exercise of stock options 14,184 861
Purchase of own shares to be held as treasury
shares 19 - (10,619)
Dividends paid 10 (26,778) (25,821)
---------- ----------
Net cash flows used in financing activities (12,594) (35,579)
---------- ----------
Decrease in cash and cash equivalents (15,782) (6,499)
Cash and cash equivalents at beginning of
the year 108,858 115,357
---------- ----------
Cash and cash equivalents at end of the
year 17 93,076 108,858
---------- ----------
The attached notes form an integral part of these consolidated financial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 December 2018
1. General information
SafeCharge International Group Limited (the 'Company') was incorporated in the British Virgin Islands on 4 May 2006 as a private company with limited liability. On 30 October 2015 the Company re-domiciled to Guernsey. Its registered office is at Dorey Court, Admiral Park, St Peter Port, Guernsey, GY1 2HT. The principal activities of the Group are the provision of global omni--channel payments services from card acquiring and issuing to payment processing and checkout, all underpinned by advanced risk management solutions.
2. Accounting policies
The principal accounting policies adopted in the preparation of these Consolidated Financial Statements are set out below. These policies have been consistently applied by the Group in all years presented in these Consolidated Financial Statements.
Basis of preparation
These Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.
The Company does not prepare stand-alone financial statements, as the Companies (Guernsey) Law, 2008 does not require it. The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates and requires Management to exercise its judgment in the process of applying the Group's accounting policies. It also requires the use of assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on Management's best knowledge of current events and actions, actual results may ultimately differ from those estimates.
Adoption of new and revised IFRSs
During the current year the Group adopted all the new and revised IFRSs that are relevant to its operations and are effective for accounting periods beginning on 1 January 2018.
Changes in accounting policies
a) New standards, interpretations and amendments effective from 1 January 2018
New standards impacting the Group that have been adopted in the annual financial statements for the year ended 31 December 2018, and which have given rise to changes in the Group's accounting policies are:
-- IFRS 9 Financial Instruments (IFRS 9) (see Note 30); and -- IFRS 15 Revenue from Contracts with Customers (IFRS 15)
IFRS 15 Revenue from Contracts with Customers: IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. Under IFRS 15, revenue is recognised when a customer obtains control of the goods or services.
Determining the timing of the transfer of control - at a point in time or over time - requires judgement. The Group has adopted IFRS 15 using the cumulative effect method (without practical expedients), with the effect of initially applying this standard recognised at the date of initial application (i.e. 1 January 2018). Accordingly, the information presented for 2017 has not been restated - i.e. it is presented, as previously reported, under IAS 18, IAS 11 and related interpretations. Additionally, the disclosure requirements in IFRS 15 have not generally been applied to comparative information.
Due to the nature of the revenue of the Group and the low number of fixed revenue contracts in existence, the transition to IFRS 15, net of tax, on retained earnings as at 1 January 2018 is not material. Hence, the impacts of adopting IFRS 15 on the Group's statement of financial position as at 31 December 2018 and its statement of profit or loss and OCI for the year then ended is also not material. IFRS 15 did not have a significant impact on the Group's accounting policies with respect to other revenue streams. For more detailed information about reportable segments, see Note 5.
Other new and amended standards and Interpretations issued by the International Accounting Standards Board (IASB) that will apply for the first time in the next annual financial statements are not expected to impact the Group as they are either not relevant to the Group's activities or require accounting which is consistent with the Group's current accounting policies.
b) New standards, interpretations and amendments not yet effective
There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the Group has decided not to adopt early. The most significant of these is:
-- IFRS 16 Leases (mandatorily effective for periods beginning on or after 1 January 2019) -- IFRIC 23 Uncertainty over Income Tax Positions (effective 1 January 2019).
IFRS 16 Leases: Adoption of IFRS 16 will result in the Group recognising right-of-use assets and lease liabilities for all contracts that are, or contain, a lease. For leases currently classified as operating leases, under current accounting requirements the Group does not recognise related assets or liabilities, and instead spreads the lease payments on a straight-line basis over the lease term, disclosing in its annual financial statements the total commitment.
The Board has decided it will apply the modified retrospective adoption method in IFRS 16, and, therefore, will only recognise leases on balance sheet as at 1 January 2019. In addition, it has decided to measure right-of-use assets by reference to the measurement of the lease liability on that date. This will ensure there is no immediate impact to net assets on that date. At 31 December 2018, operating lease commitments amounted to US$6,429,000 (see note 29), which is not expected to materially different to the anticipated position on 31 December 2019 or the amount which is expected to be disclosed at 31 December 2018. Assuming the Group's lease commitments remain at this level, the effect of discounting those commitments is anticipated to result in right-of-use assets and lease liabilities of approximately US$5,071,000 being recognised on 1 January 2019. However, further work still needs to be carried out to determine whether and when extension and termination options are likely to be exercised, which will result in the actual liability recognised being higher than this.
Instead of recognising an operating expense for its operating lease payments, the Group will instead recognise interest on its lease liabilities and amortisation on its right-of-use assets. This will increase reported EBITDA by the amount of its current operating lease cost, which for the year ended 31 December 2018 was approximately US$1,324,000.
IFRIC 23 Uncertainty over Income Tax Positions: IFRIC 23 clarifies how to recognise and measure current and deferred income tax assets and liabilities when there is uncertainty over income tax treatments. When there is uncertainty over income tax treatments.
Other: The Group does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on the Group.
Basis of consolidation
The Group consolidated financial statements comprise the financial statements of the parent company SafeCharge International Group Limited and the financial statements of the subsidiaries as shown in Note 13 of the consolidated financial statements.
Subsidiaries are considered to be controlled where the Group has the power to direct activities of the investee, as well as the exposure to variable returns from the subsidiary and the 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.
Subsidiaries are consolidated from the date that the Group gains control and de-consolidated from the date that control is lost.
The financial statements of all the Group companies are prepared using uniform accounting policies. All inter--company transactions and balances between Group companies have been eliminated during consolidation.
Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition--date fair values of the assets transferred by the Group, liabilities incurred by the Group and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition--related costs are generally recognised in the statement of comprehensive income as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that:
-- Deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;
-- Liabilities or equity instruments related to share--based payment arrangements of the acquiree or share--based payment arrangements of the Group entered into to replace share--based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share--based Payment at the acquisition date; and
-- Assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non--current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non--controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition--date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition--date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non--controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in the statement of comprehensive income as a bargain purchase gain.
Non--controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation may be initially measured either at fair value or at the non--controlling interests' proportionate share of the recognised amounts of the acquiree's identifiable net assets.
When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its fair value at acquisition date and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the 'measurement period' (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IAS 39, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognised in the statement of comprehensive income.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired undertaking at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets.
Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an undertaking include the carrying amount of goodwill relating to the undertaking sold. Goodwill is allocated to cash--generating units for the purpose of impairment testing.
Revenue recognition
Revenue comprises the invoiced amount for the sale of services net of Value Added Tax, rebates and discounts. Revenues earned by the Group are recognised on the following bases:
Service revenues are generated from fees charged to merchants for payment processing and risk management services. Revenues are generated by transaction related charges billed as both a percentage based discount fee of the payment volumes processed and a fee per transaction. In addition to this volume-dependent sales revenue, service revenues are derived from a variety of services fees, such as fees for monthly minimum transaction fee requirements, set up fees, and fees for other miscellaneous services. Discount and other fees related to payment transactions are recognised at the time the merchant's transactions are processed. Revenues are recognised gross, with any commission expenses paid to acquiring banks recognised as cost of sales. Revenues derived from service fees are recognised at the time the service is performed.
The majority of the Group's revenue is derived from selling services with revenue recognised at a point in time when services have been delivered to the customer.
Based on the services provided by the Group, excluding certain rebates provided to customers, no return, refund or other similar obligations exist. Moreover, no warranties and related obligations exist.
Finance income and finance expense
Finance income includes interest income which is recognised based on the effective interest rate basis.
Interest expense and other borrowing costs are charged to the statement of comprehensive income based on the effective interest rate basis. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the statement of comprehensive income for the period.
Foreign currency
The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates. For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in United States Dollars, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. Non--monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non--monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the statement of comprehensive income for the period. Exchange differences arising on the retranslation of non--monetary items carried at fair value are included in the statement of comprehensive income for the period except for differences arising on the retranslation of non--monetary items in respect of which gains and losses are recognised in other comprehensive income and then in equity. For such non--monetary items, any exchange component of that gain or loss is also recognised in other comprehensive income and then in equity.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are expressed in United States Dollars using exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used.
Exchange differences arising, if any, are classified as equity and transferred to the Group's translation reserve. Such translation differences are reclassified from other comprehensive income to profit or loss in the period in which the foreign operation is disposed of.
Tax
Income tax expense represents the current and deferred tax charges for the period.
Current tax liabilities and assets are measured at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and laws that have been enacted, or substantively enacted, by the reporting date.
Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred tax.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same fiscal authority.
Dividends
Dividends are recognised when they become legally payable. Interim dividends are recognised in equity in the period in which they are paid. In the case of final dividends, this is when approved by the shareholders at the Annual General Meeting.
Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses.
Depreciation is calculated on the straight--line method so as to write off the cost of each asset to its residual value over its estimated useful life. The annual depreciation rates used are as follows:
Useful economic
life
Furniture, fixtures and office equipment 10 years
Leasehold improvements 10 years
Motor Vehicles 5 years
Computer equipment 3 years
The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.
Where the carrying amount of an asset is greater than its estimated recoverable amount, the asset is written down immediately to its recoverable amount.
Expenditure for repairs and maintenance of property, plant and equipment is charged to the statement of comprehensive income of the year in which it is incurred. The cost of major renovations and other subsequent expenditure are included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the statement of comprehensive income.
Intangible assets
Internally--generated intangible assets -- research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
An internally--generated intangible asset arising from the Group's e--business development is recognised only if all of the following conditions are met:
-- an asset is created that can be identified (such as software and new processes); -- it is probable that the asset created will generate future economic benefits; and -- the development cost of the asset can be measured reliably.
Internally--generated intangible assets are amortised on a straight--line basis over their estimated useful lives once the development is completed and the asset is in use. Where no internally--generated intangible asset can be recognised, development expenditure is charged to the statement of comprehensive income in the period in which it is incurred.
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in the statement of comprehensive income when the asset is derecognised.
Externally acquired intangible assets
Externally acquired intangible assets comprise of licences, internet domains names, IP technology and customer contracts which are stated at cost less accumulated amortisation. Where intangible assets are acquired as part of a business combination they are recorded initially at their fair value. Carrying amounts are reviewed on each reporting date for impairment. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down to its recoverable amount.
Costs that are directly associated with identifiable and unique computer software products and internet domain names controlled by the Group and that will probably generate economic benefits exceeding costs beyond one year are recognised as intangible assets. Subsequently computer software is carried at cost less any accumulated amortisation and any accumulated impairment losses. Expenditure which enhances or extends the performance of computer software programs beyond their original specifications is recognised as a capital improvement and added to the original cost of the computer software. Costs associated with maintenance of computer software programs are recognised as an expense when incurred. Computer software costs are amortised using the straight-line method over their useful lives, not exceeding a period of five years. Amortisation commences when the computer software is available for use and is included within administrative expenses.
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in the statement of comprehensive income when the asset is derecognised.
Amortisation
Amortisation is calculated at annual rates estimated to write off the costs of the assets over their expected useful lives and is charged to operating expenses from the point the asset is brought into use.
The principal annual rates used for this purpose, which are consistent with those of the previous years, are as follows:
Useful economic
life
Domain names/Acquiring licences Indefinite
life
Internally generated capitalised development 5 years
costs
Other licences 1 year
Customer contracts and customer relationships 5-15 years
IP technology 5-10 years
Management believes that the useful life of the domain names and acquiring license is indefinite. Domain names and acquiring license are reviewed for impairment annually.
Financial instruments
Financial assets and financial liabilities are recognised in the Group's consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.
Financial assets
The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. Other than financial assets in a qualifying hedging relationship, the Group's accounting policy for each category is as follows:
Fair value through profit or loss
This category comprises only in-the-money derivatives. They are carried in the statement of financial position at fair value with changes in fair value recognised in the consolidated statement of comprehensive income in the finance income or expense line. Other than derivative financial instruments which are not designated as hedging instruments, the Group does not have any assets held for trading nor does it voluntarily classify any financial assets as being at fair value through profit or loss.
The Group has a number of strategic investments in listed and unlisted entities which are not accounted for as subsidiaries, associates or jointly controlled entities. For those investments, the Group classifies the investments at fair value through profit or loss rather than through other comprehensive income as the Group considers this measurement to be the most representative of the business model for these assets. They are carried at fair value with changes in fair value recognised in profit or loss.
Amortised cost
These assets arise principally from the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within cost of sales in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.
Impairment provisions for receivables from related parties and loans to related parties are recognised based on a forward looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses along with gross interest income are recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised.
The Group's financial assets measured at amortised cost comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position.
Dividends are recognised in profit or loss, unless the dividend clearly represents a recovery of part of the cost of the investment, in which case the full or partial amount of the dividend is recorded against the associated investments carrying amount.
Purchases and sales of financial assets measured at fair value through other comprehensive income are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in the fair value through other comprehensive income reserve. Starting 1(st) January 2018 upon adoption of the IFRS 9 purchases and sales of financial assets measured at fair value through profit and loss are recognised on settlement date with any changes in fair value between trade date and settlement date has been recognised in profit or loss.
Available--for--sale investments
Investments are recognised and de--recognised on trade date. The Group manages its investments with a view to profiting from the receipt of investment income and capital appreciation from changes in the fair value of equity investments. Quoted investments are designated as available--for--sale and subsequently carried in the statement of financial position at fair value with unrealised gain or loss being recognised in available--for--sale reserve within other comprehensive income. Fair value is measured using the closing bid price at the reporting date, where the investment is quoted on an active stock market. Unquoted investments are valued at the price of recent
Available--for--sale investments (continued)
transaction if this is representative of fair value or using other valuation techniques not based on observable inputs.
Available--for--sale investments accounting policy refer to 2017 comparatives.
Cash and cash equivalents
For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash at bank and short--term bank deposits with original maturities of three months or less.
Trade receivables
Trade receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the effective interest rate method. The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables and contract assets. To measure expected credit losses on a collective basis, trade receivables and contract assets are grouped based on similar credit risk and aging.
The contract assets have similar risk characteristics to the trade receivables for similar types of contracts.
The expected loss rates are based on the Group's historical credit losses. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group's customers.
Upon adoption of IFRS 9, the directors don't consider there to be a material expected credit loss.
Loans granted
Loans originated by the Group by providing money directly to the borrower are categorised as loans and are carried at amortised cost. Interest free advances are measured at the fair value of cash consideration given, discounted back to present value using a market rate of interest. All loans are recognised when cash is advanced to the borrower.
An allowance for loan impairment is established if there is objective evidence that the Group will not be able to collect all amounts due according to the original contractual terms of loans. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows including amounts recoverable from guarantees and collateral, discounted at the original effective interest rate of loans.
Financial liabilities
The Group has financial liabilities in the following category:
-- Trade payables
Trade payables and contingent consideration are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method.
-- Contingent consideration
Contingent consideration, resulting from business combinations, is recognised at fair value at the acquisition date as part of the business combination, and discounted where the time value of money is material. When the contingent consideration meets the definition of a financial liability, it is subsequently remeasured to fair value at each reporting date through the consolidated statement of comprehensive income, along with finance charges where discounting has been applied.
Derecognition of financial assets and liabilities
Financial assets
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:
-- the rights to receive cash flows from the asset have expired;
-- the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay
them in full without material delay to a third party under a 'pass through' arrangement; or
-- the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the statement of comprehensive income.
Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment.
Assets that are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash--generating units).
Share capital
Ordinary shares are classified as equity.
Treasury shares
Consideration paid for the purchase of own shares is recognised directly in equity. The cost of own purchased shares is presented as a separate reserve (the "treasury shares reserve").
Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.
Share--based compensation
The Group operates equity--settled, share--based compensation plans, under which the entity receives services from employees as consideration for the Company's equity instruments (options). The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non--market vesting conditions (for example, profitability and sales growth targets). Non--market vesting conditions are included in assumptions about the number of options that are expected to vest.
At each reporting date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the statement of comprehensive income, with a corresponding adjustment to equity. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and retained earnings when the options are exercised.
Clients' deposits
All money held on behalf of clients has been excluded from the balances of cash and cash equivalents and amounts due to clients, brokers and other counterparties. Client money is not held directly, but is placed on deposit in segregated bank accounts with a financial institution. The amounts held on behalf of the clients at the reporting date are included in Note 17.
Administrative expenses
Salaries and employee expenses, share-based payments charge, depreciation and amortisation, premises and other costs are considered as administrative expenses.
Other expenses
Other expenses charged in the consolidated statement of comprehensive income include marketing expenses, travel expenses, IT expenses and professional services.
Operating leases
Operating leases are recognised on a straight line method over the life of the lease.
3. Financial risk management
Financial risk factors
The Group is exposed to interest rate risk, credit risk, liquidity risk, currency risk, operational risk, compliance risk and capital risk management arising from the financial instruments it holds. The main risks arising from Financial Instruments are: Market risk, Credit risk, Liquidity risk, Operational risk, Compliance risk and Capital risk management. Each of these risks is examined in detail below.
3.1 Market risk
Interest rate risk
Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The Group's management monitors the interest rate fluctuations on a continuous basis and acts accordingly.
The Group is exposed to interest rate risk to the extent that investment revenue earned on cash and cash equivalents is subject to fluctuations in interest rates. The Group's exposure to interest rate risk is limited as investments are held in liquid and short-term bank deposits. A sensitivity analysis has been performed wherein a 0.25% change in deposit interest rates offered would impact the profit before tax by US$95,000 (2017: US$125,000). 0.25% has been used as a benchmark for sensitivity analysis as it reflects the estimated exposure in the coming year.
Currency risk
Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the Group's functional and presentation currency. The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the United States Dollars (the functional and presentation currency), the Euro, United Kingdom Pounds and the New Israeli Shekel. The Group's management monitors the exchange rate fluctuations on a continuous basis and acts accordingly.
The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:
Liabilities Assets
2018 2017 2018 2017
US$000s US$000s US$000s US$000s
Euro 6,732 8,062 34,164 27,858
United Kingdom Pounds 1,209 1,549 9,437 9,715
New Israeli Shekel 3,564 4,788 4,497 3,317
Other 684 922 11,047 11,288
----------- ----------- ----------- -----------
12,189 15,321 59,145 52,178
----------- ----------- ----------- -----------
Sensitivity analysis
A 10% strengthening of the United States Dollar against the following currencies at 31 December 2018 would have increased/(decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. For a 10% weakening of the United States Dollar against the relevant currency, there would be a materially equal and opposite impact on the profit and other equity. 10% has been used as a benchmark for the sensitivity analysis as it reflects the expected exposure in the coming year.
Profit or loss
2018 2017
US$000s US$000s
Euro (2,743) (1,980)
United Kingdom Pounds (823) (817)
New Israeli Shekel (93) 147
Other (1,036) (1,037)
--------- ---------
(4,695) (3,687)
--------- ---------
3.2 Credit risk
Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the reporting date. Cash balances are held with high credit quality financial institutions rated "Ba2" and above according to Moody's Investors Service's ratings, and the Group has policies to limit the amount of credit exposure to any financial institution.
As at the reporting date none of the Group financial assets were impaired or past due.
The Group has an established credit policy to ensure that it only transacts with counterparties that are able to meet satisfactory rating requirements. Counterparty limits are reviewed and set centrally by Management. Management is responsible for ensuring that it remains within these limits and the Risk function monitors and reports any exceptions to the policy. In individual cases, collateral is obtained for specific contractual relationships.
The Group provided loans and advances which are interest-free and with a fixed payment term of 12 months from issue. The loans and advances are secured on specified revenue volumes. The loans and advances were fully repaid during the year.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
2018 2017
US$000s US$000s
Trade and other receivables 4,982 4,410
Loans and advances - 2,936
Cash and cash equivalents 93,076 108,858
Other non--current receivables 9,837 3,789
--------- ---------
107,895 119,993
--------- ---------
3.3 Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The Group has procedures with the object of minimising losses such as maintaining sufficient cash and other highly liquid current assets and by having available an adequate amount of committed credit facilities.
The following tables detail the Group's remaining contractual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.
Between Between More
Carrying Contractual 3 months 3--12 1--5 than
31 December 2018 Amounts cash flows or less months years 5 years
US$000s US$000s US$000s US$000s US$000s US$000s
Trade and other
payables 13,471 13,471 13,471 - - -
Merchant processing
liabilities 9,484 9,484 9,484 - - -
---------- ------------- ---------- --------- --------- ----------
22,955 22,955 22,955 - - -
---------- ------------- ---------- --------- --------- ----------
Between Between More
Carrying Contractual 3 months 3--12 1--5 than
31 December 2017 amounts cash flows or less months years 5 years
US$000s US$000s US$000s US$000s US$000s US$000s
Trade and other
payables 14,050 14,050 14,050 - - -
Merchant processing
liabilities 11,036 11,036 11,036 - - -
---------- ------------- ---------- --------- --------- ----------
25,086 25,086 25,086 - - -
---------- ------------- ---------- --------- --------- ----------
3.4 Operational risk
Operational risk is the risk that derives from the deficiencies relating to the Group's information technology and control systems as well as the risk of human error and natural disasters. The Group's systems are evaluated, maintained and upgraded continuously.
3.5 Compliance risk
Compliance risk is the risk of financial loss, including fines and other penalties, which arises from non--compliance with laws and regulations of the Group Companies' states. The risk is limited to a significant extent due to the supervision applied by the Chief Risk Officer, as well as by the monitoring controls applied by the Group.
3.6 Capital risk management
The Group meets its objectives of managing capital and ensuring that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Group's overall strategy remains unchanged from last year.
The Group considers its share capital and reserves to constitute its total capital. The Group's policy in respect of capital risk management is to maintain a strong capital base so as to retain investor and market confidence. The Group maintains sufficient cash resources to meet its liabilities as and when they fall due, taking into account cash forecasts. Liquidity risk is mitigated by the high levels of cash balances in the business.
4. Critical accounting estimates and judgments
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.
The areas requiring the use of estimates and critical judgments that may potentially have a significant impact on the Group's earnings and financial position are impairment of goodwill, share-based payments, determination of fair value of intangible assets acquired and determination of fair value of contingent consideration.
-- Impairment of goodwill and other intangible assets
Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating units of the Group on which the goodwill together with the other intangible assets have been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash--generating units using a suitable discount rate in order to calculate present value (see Note 12).
-- Valuation of equity investments
The Group uses valuation techniques to derive the fair values of equity investments. The valuation methods include estimates and judgements in order to determine the most appropriate basis to be adopted (see Note 18).
5. Segmental analysis
Management considers that the Group's activity as a single source supplier of global omni--channel payments services from card acquiring and issuing to payment processing and checkout with advanced risk management solutions, constitutes one operating and reporting segment, as defined under IFRS 8.
Geographical analysis of revenue
Analysis of revenue by geographical region is made according to the jurisdiction of the Group's direct customer. This does not reflect the region of the end users of the Group's customers, whose locations are worldwide.
2018 2017
US$000s US$000s
Europe 115,325 96,962
Rest of the World 23,208 14,730
--------- ---------
138,533 111,692
--------- ---------
Geographical analysis of non-current assets
2018 2017
US$000s US$000s
Guernsey 1,638 13,783
Europe 39,577 23,377
Asia 42,122 23,653
North America 9,196 2,327
----------- -----------
92,533 63,140
----------- -----------
6. Auditors' remuneration
2018 2017
US$000s US$000s
Audit services
Parent company and Group audit 120 107
Audit of overseas subsidiaries 116 111
Non-audit services
Non-audit assurance and tax services 31 54
----------- -----------
267 272
----------- -----------
7. Finance income and expense
2018 2017
US$000s US$000s
Finance income
Interest received 463 496
Foreign exchange differences - 1,458
--------- ---------
463 1,954
--------- ---------
Finance expense
Bank fees (491) (425)
Foreign exchange differences (1,970) -
--------- ---------
(2,461) (425)
--------- ---------
Net finance (expense)/income (1,998) 1,529
--------- ---------
8. Tax Expense
2018 2017
US$000s US$000s
Current tax:
Charge for the year 2,411 1,660
Charge for previous years - 558
Deferred tax:
(Income)/Charge for the year (84) 138
--------- ---------
Total tax charge in the income statement 2,327 2,356
--------- ---------
The tax charge for the year can be reconciled to accounting profit as follows:
2018 2017
US$000s US$000s
Profit before taxation 27,173 26,168
--------- ---------
Tax at effective rate in Guernsey - -
Higher rates of current income tax in overseas
jurisdictions 2,411 2,218
Deferred tax on other timing differences (See
Note 22) (84) 138
--------- ---------
Total tax charge 2,327 2,356
--------- ---------
There was no tax effect on other comprehensive income in the current or prior year.
9. Earnings per share
2018 2017
US$ US$
Basic (cents) 16.68 16.14
Diluted (cents) 16.23 15.78
2018 2017
US$000s US$000s
Profit after tax for the year 24,846 23,812
---------- ----------
2018 2017
Number Number
Denominator- basic
Weighted average number of equity shares 148,973,730 147,551,477
--------------- ---------------
Denominator - diluted
Weighted average number of equity shares 148,973,730 147,551,477
Weighted average number of share options 4,143,951 3,362,412
--------------- ---------------
Weighted average number of shares 153,117,681 150,913,889
--------------- ---------------
10. Dividends
2018 2017
US$000s US$000s
Dividends 26,778 25,821
--------- -----------
26,778 25,821
--------- -----------
In May 2018, the Group distributed US$13,221,000, 9.20 US$ cents per share (2017: US$14,539,000, 9.47 US$ cents per share), as a final dividend for the year ended 31 December 2017.
In September 2018, the Board of Directors approved the payment of US$13,557,000, 8.86 US$ cents per share (2017: US$11,282,000, 7.69 US$ cents per share) as an interim dividend.
11. Property, plant and equipment
Furniture,
fixtures
and
Leasehold Motor office Computer
improvements vehicles equipment equipment Total
US$000s US$000s US$000s US$000s US$000s
Cost
Balance at 1 January 2017 697 214 655 6,665 8,231
Additions 2,302 100 717 2,651 5,770
Write-off - (42) (634) (927) (1,603)
Foreign exchange rate
movement 55 41 143 540 779
--------------- ----------- ------------ ------------ ---------
Balance at 31 December
2017 3,054 313 881 8,929 13,177
Additions 176 - 96 1,821 2,093
Write-off - - - (34) (34)
Foreign exchange rate
movement (26) (50) (210) (434) (720)
--------------- ----------- ------------ ------------ ---------
Balance at 31 December
2018 3,204 263 767 10,282 14,516
Depreciation
Balance at 1 January 2017 451 202 373 4,859 5,885
Charge for the year 205 23 289 1,605 2,122
Write-off - (39) (609) (895) (1,543)
Foreign exchange rate
movement 17 29 50 420 516
--------------- ----------- ------------ ------------ ---------
Balance at 31 December
2017 673 215 103 5,989 6,980
Charge for the year 116 31 76 1,855 2,078
Write-off - - - (34) (34)
Foreign exchange rate
movement (14) (10) (51) (341) (416)
--------------- ----------- ------------ ------------ ---------
Balance at 31 December
2018 775 236 128 7,469 8,608
Net book amount
Balance at 31 December
2018 2,429 27 639 2,813 5,908
--------------- ----------- ------------ ------------ ---------
Balance at 31 December
2017 2,381 98 778 2,940 6,197
--------------- ----------- ------------ ------------ ---------
12. Intangible assets
Customer Domains
Goodwill contracts IP technology and licenses Development Total
US$000s US$000s US$000s US$000s US$000s US$000s
Cost
Balance at 1 January
2017 9,324 5,009 10,196 2,122 11,992 38,643
Additions - - 169 162 5,752 6,083
Foreign exchange
rate movement 1,159 361 1,229 - 30 2,779
----------- ------------ --------------- --------------- ------------- -----------
Balance at 31 December
2017 10,483 5,370 11,594 2,284 17,774 47,505
Additions - - 168 49 6,040 6,257
Foreign exchange
rate movement (623) (259) (476) - 247 (1,111)
----------- ------------ --------------- --------------- ------------- -----------
Balance at 31 December
2018 9,860 5,111 11,286 2,333 24,061 52,651
Amortisation
Balance at 1 January
2017 - 1,450 2,919 - 833 5,202
Amortisation for
the year - 610 1,294 - 1,140 3,044
Foreign exchange
rate movement - - 39 - - 39
----------- ------------ --------------- --------------- ------------- -----------
Balance at 31 December
2017 - 2,060 4,252 - 1,973 8,285
Amortisation for
the year - 634 1,293 - 3,323 5,250
Foreign exchange
rate movement - (4) 40 - - 36
----------- ------------ --------------- --------------- ------------- -----------
Balance at 31 December
2018 - 2,690 5,585 - 5,296 13,571
Net book amount
Balance at 31 December
2018 9,860 2,421 5,701 2,333 18,765 39,080
----------- ------------ --------------- --------------- ------------- -----------
Balance at 31 December
2017 10,483 3,310 7,342 2,284 15,801 39,220
----------- ------------ --------------- --------------- ------------- -----------
Goodwill represents the premium paid to acquire investments by the Group which were purchased in 2015.
Goodwill is measured at cost less any accumulated impairment losses.
The Group has domain names and licences with an indefinite life with a carrying value of US$2,333,000 (2017: US$2,284,000). It is expected that these domain names and licenses with indefinite lives will be held for an indefinite period of time and are expected to generate economic benefits. There is no foreseeable limit on the period of time over which domain names and acquiring licenses are expected to contribute to the cash flows of the Group. Domain names and licences with an indefinite life are checked for impairment at each reporting date or more frequently if there are indicators that the carrying value is impaired. As of the reporting date no impairment was found. Management is committed to providing long term investment into these assets in order for them to continue to provide future economic benefits.
Impairment tests of intangible assets
The recoverable amount of all intangible assets was determined based on value--in--use calculations by discounting the future pre--tax cash flows generated from the continuing use of each cash generating unit and was based on the following key assumptions.
Management determined these key assumptions by assessing current market conditions and through the utilisation of forward looking external evidence:
The terminal value has been calculated assuming a long-term growth rate of 2% per annum in perpetuity, based on the Group's view of long-term nominal growth, which does not exceed market expectations.
Cash flows projections for the intangible assets derived from the CreditGuard Limited business combination were projected based on financial budgets approved by management covering 2019 to 2025 based on the use of the economic life of the acquired assets. Revenue rates for 2019 to 2025 had an average growth of 6% per annum and indefinite growth of 2% for the period after 2025. A pre--tax discount rate of 13% was applied in determining the recoverable amount of the intangible assets. The discount rate was estimated based on an industry average cost of capital and reflects specific risks relating to the relevant intangible assets.
Cash flows projections for the intangible assets derived from the SafeCharge Card Services Limited business combination were projected based on financial budgets approved by management covering from the first year of the start of operations to the fifth year of the start of operations, based on the economic life of the acquired assets. Revenue rates for the five year period had an average growth of 122% per annum and indefinite growth of 2% after the first 5 years based on the early life stage of the products and the forecasted growth within their market. A pre--tax discount rate of 12% was applied in determining the recoverable amount of the intangible assets. The discount rate was estimated based on an industry average cost of capital and reflects specific risks relating to the relevant intangible assets.
Sensitivity analysis was performed on the key inputs, being the growth and discount rates. A significant increase in the discount rate did not indicate impairment and no reasonable change in the growth rate led to impairment.
The discount rates applied would need to increase to 16% and 15% respectively before any impairment arose. The growth rates would need to reduce to 4% and 117% respectively before an impairment arose.
13. Subsidiaries
The details of the Company's subsidiaries as at 31 December 2018 are as follows:
Name Country Principal activities Holding
of incorporation %
XT Commerce International
Limited Cyprus Sales company 80
xt: Commerce GmbH Austria Sales company 80
British
SafeCharge Technologies Limited Virgin Islands Sales company 100
Electronic Money
SafeCharge Limited Cyprus Institution 100
Marketing and support
SafeCharge (UK) Limited United Kingdom company 100
Development and support
SafeCharge (Bulgaria) EOOD Bulgaria company 100
Development and support
SafeCharge (Israel) Limited Israel company 100
Sales, development
CreditGuard Limited Israel and support company 100
SafeCharge Card Services Sales, development
Limited Ireland and support company 100
SafeCharge Services Limited Cyprus Sales company 100
SafeCharge (USA) Inc. Delaware Sales company 100
SafeCharge Pte Ltd Singapore Sales company 100
SafeCharge Hong Kong Limited Hong Kong Sales company 100
British
GTS Online Solutions Ltd Virgin Islands Holding company 100
GTS Online (UK) Ltd United Kingdom Support company 100
SafeCharge Digital Limited Cyprus Sales company 100
SafeCharge Financial Services
Ltd United Kingdom Payment Institution 100
SafeCharge (Netherlands) Marketing and support
B.V. Netherlands company 100
Marketing and support
SafeCharge (Italy) s.r.l. Italy company 100
SafeCharge Payments Mexico,
S.A. de C.V. Mexico Sales company 50.1
XT Commerce International Limited and xt:Commerce GmbH are both loss making entities. All losses of these entities will be wholly suffered by the Group and therefore none of these losses have been transferred to non--controlling interests and therefore separate disclosure in respect of NCI has not been presented in the statement of comprehensive income or statement of financial position.
14. Trade and other receivables
2018 2017
US$000s US$000s
Trade receivables 3,023 3,109
Other receivables 1,959 1,301
Loans and advances - 2,936
----------- -----------
4,982 7,346
----------- -----------
The fair values of trade and other receivables due within one year approximate to their carrying amounts as presented above. The loans and advances in the amount of US$2,936,000 were fully repaid during the year.
The exposure of the Group to credit risk and impairment losses in relation to trade and other receivables is reported in Note 3 of the consolidated financial statements.
15. Other non--current receivables
2018 2017
US$000s US$000s
Deposits 9,837 3,789
----------- -----------
Other non--current receivables represent deposits that are held as collateral by card schemes, acquirers, rent bank guarantee and credit card guarantee as part of the Group's activities. In April 2018, the Group increased the deposits that are held as collateral by card schemes in the amount of EUR5.5 million. In July and September 2018, the Group issued guarantee letters to card schemes for a total of US$10 million without restrictions on the cash balances of the Group.
16. Investments in equity-accounted associate
The following entity has been included in the consolidated financial statements using the equity method:
Name Country of incorporation Proportion of ownership Proportion of
Principal place interest held ownership interest
of business held
2018 2017
US$000s US$000s
Meshulam Payment
Solutions Ltd Israel 36% 0%
In April 2018, the Group invested US$1.3 million in Meshulam Payment Solutions Ltd ("Meshulam"), an unquoted business which is a Payment Service Provider (PSP) for small businesses in Israel, in consideration of approximately 36% of its issued share capital. In January 2019, the Group invested in Meshulam an additional US$0.4 million which increased the holding to approximately 43%.
US$000s
---------
Total Fair value of net assets at acquisition 857
=========
Group's Share in Equity - 36.36% 312
Goodwill 610
Intangible Assets 361
Loss from continued operations (64)
Amortisation of Intangible Assets (34)
Group's Carrying Amount of the investment 1,185
=========
This investment has been accounted for as an associate in the consolidated statement of comprehensive income of the Group for the year ended 31 December 2018.
As part of the investment agreement, the Group holds an option to increase the holding rate. The option was deemed to be of nil value.
17. Cash and cash equivalents
Cash balances are analysed as follows:
2018 2017
US$000s US$000s
Cash and cash equivalents 93,076 108,858
----------- -----------
93,076 108,858
----------- -----------
The Group holds cash and cash equivalents amounting to US$162,364,000 as at 31 December 2018 (2017: US$106,743,000) on behalf of clients. The amounts represent cash received on transactions processed by the Group which is then paid on to its clients. In substance, the Group's management consider these transactions do not entitle the Group to an asset and have therefore not recorded the resulting asset or liability to clients in its statement of financial position.
The exposure of the Group to credit risk in relation to cash and cash equivalents is reported in Note 3 of the consolidated financial statements.
There are no changes in liabilities arising from financing activities or any significant non-cash transactions from investing activities.
18. Equity investments
Fair value hierarchy
Equity investments classified as FVTPL are carried at fair value after initial recognition.
The Group uses the following hierarchy for determining and disclosing the fair value of financial assets by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets,
Level 2: other techniques where all inputs, which have a significant effect on the recorded fair value, are observable either directly or indirectly; and
Level 3: techniques where inputs which have a significant effect on the recorded fair value that are not based on observable market data.
As at 1 January 2018 the available-for-sale investments have been reclassified as equity investments classified as FVTPL, following the IFRS 9 transition.
Level Level
Total 1 2 Level 3
US$000s US$000s US$000s US$000s
Equity investments classified
as FVTPL
Total at 31 December 2018 36,523 - 781 35,742
Available-for-sale investments 13,934 - - 13,934
Available-for-sale investments
classified as held for sale 694 - 694 -
Total at 31 December 2017 14,628 - 694 13,934
========= ========= ========= =========
There have been no transfers of financial instruments between levels during the year.
The following is a reconciliation of the movement in the Group financial assets classified at Level 3 during the year:
2018 2017
US$000s US$000s
Balance brought forward 13,934 267
Fair value movement recognised in the consolidated
statement of comprehensive income 1,792 2,633
Acquired during the period 20,016 2,797
Reclassification from Level 2 - 8,237
----------- -----------
Fair value at 31 December 35,742 13,934
----------- -----------
Overall, the total unrealised fair value movements on equity investments, recognised in the profit and loss for the year, amounted to US$1,879,000 (2017: nil). This is made up of US$87,000 of an unrealised gain on the Level 2 equity investment and US$1,792,000 of an unrealised gain on the Level 3 equity investments.
Equity investments classified as FVTPL include the Group's shares in Visa Europe and the valuation is based on an assessment of the consideration the Group is entitled to as part of the purchase of Visa Europe by Visa Inc in 2016. These are based on unobservable inputs due to a discount rate of 6% applied to market price of shares to be converted and estimated cash due to be received. The investment in Visa is considered a level 2 investment.
At 31 December 2017, the Level 2 available-for-sale investments were valued at US$694,000 and an unrealised gain of US$427,000 was recognised in other comprehensive income. Following the IFRS 9 adoption from 1 January 2018 the available-for-sale investments were reclassified as equity investments classified as FVTPL. At 31 December 2018, this equity investment classified as FVTPL was valued at US$781,000 and an unrealised gain of US$87,000 was recognised in profit or loss.
The remaining equity investments classified as FVTPL are held at fair value and measured based on Level 3 inputs:
In April 2015, the Group invested US$1,000,000 in 2C2P, an unquoted business based in South East Asia. This was in exchange for approximately 2% of issued share capital. 2C2P shares are unquoted. In August 2016, the Group invested an additional US$609,000. As of 31 December 2016, the shares value was adjusted based on the share price of recent transactions with the unrealised increase in valuation of US$895,000 recorded in the available-for-sale reserve. As of 31 December 2018, the investment fair value was based on the share price of recent transactions. The share price of recent transaction was verified based on valuation techniques using updated market inputs of gross revenue multiples. This investment is classified as Level 3 for the purpose of disclosure in the fair value hierarchy.
In December 2016, the Group invested US$6,000,000 in Nayax, an unquoted business based in Israel. This was in exchange for approximately 4% of issued share capital. Nayax shares are unquoted. This investment is classified as Level 3 for the purpose of disclosure in the fair value hierarchy. At 31 December 2017, the investment was valued at US$8,633,000 based on the share price of recent transaction and an unrealised gain of US$2,633,000 was recognised in other comprehensive income. The share price of the recent transaction was based on a valuation range subject to EBITDA performance and the revaluation of US$2,633,000 is based on the lower end of the valuation range. Should a valuation be achieved at the higher end of the range the carrying value could be uplifted by up to US$3,453,000 to US$12,086,000 based on specific performance measures being achieved by Nayax, which may result in a higher unrealised gain on this investment. The share price of recent transaction was deemed to be the fair value based on valuation techniques using updated market inputs of gross revenue multiples. In February 2018, the Company invested a further US$18.5 million in Nayax. This takes the total investment by SafeCharge to US$24.5 million, representing approximately 11% of the issued share capital. In January 2019, SafeCharge agreed with Nayax's founding shareholders that they will, by the end of 2022, buyback SafeCharge's shareholding in Nayax for a consideration equal to the cumulative investment of US$24.5 million plus 9% interest per year, calculated from 15 February 2018 until payment is received.
In 2017, the Group invested US$1,148,000 (EUR1,000,000) in Yello Company Limited, an unquoted business based in France, which has developed a new generation of payment terminals. Yello's product YelloPad, has been designed to service a wide range of industries including retail, hospitality and healthcare. This was in exchange for approximately 9.4% of issued share capital. As of 31 December 2018, the investment fair value was based on the share price of recent transactions. The share price of recent transaction was verified based on valuation techniques using updated market inputs. This investment is classified as Level 3 for the purpose of disclosure in the fair value hierarchy.
In June 2017, the Group entered into a strategic partnership and commitment to invest up to EUR3.3 million in Saxo Payments (Banking Circle), an unquoted banking services company offering banking transaction services based in Luxemburg. In October 2017, the Group invested US$1,649,000 (EUR1,402,500) in Saxo Payments in respect of the investment commitment. In 2018 the Company invested additional US$1,514,000 (EUR1,238,000) in respect of this investment agreement. At 31 December 2018, the equity investment classified as FVTPL was valued at US$4,955,000 and an unrealised gain of US$1,792,000 was recognised in profit or loss. As of 31 December 2018, the investment fair value was based on the share price of the recent transaction. The share price of the recent transaction was verified based on the current facts and circumstances, including changes in the market. Based on this the price of the recent transaction is deemed fair value. This investment is classified as Level 3 for the purpose of disclosure in the fair value hierarchy.
19. Share capital
2018 2018 2018 2018 2017 2017 2017 2017
Number
Number of Number Ordinary Treasury Number of Ordinary Treasury
Ordinary of Treasury shares shares of Ordinary Treasury shares shares
shares shares US$000s US$000s shares shares US$000s US$000s
Authorised
Ordinary
shares
of
US$0.0001
each unlimited - 15 * unlimited - 15 *
------------- ------------- ---------- ---------- ------------- ----------- ---------- ----------
Issued and
fully
paid
Balance at
1
January 146,857,244 5,123,928 15 * 150,093,662 1,887,510 15 *
Exercise of
options 284,054 - * - - - - -
Purchase of
own
shares - - - - (3,700,000) 3,700,000 (*) *
Exercise of
options
from
treasury 5,123,928 (5,123,928) * (*) 463,582 (463,582) * (*)
------------- ------------- ---------- ---------- ------------- ----------- ---------- ----------
Balance at
31
December 152,265,226 - 15 - 146,857,244 5,123,928 15 *
------------- ------------- ---------- ---------- ------------- ----------- ---------- ----------
(*) represents amount less than 1 thousand US$
In 2017 the Company purchased 3.7 million of ordinary shares in total consideration of US$10,619,000. No ordinary shares were purchased by the Company during 2018.
The Company operates an equity--settled share-based remuneration scheme for employees, executive Directors and certain senior management. The only vesting condition being that the individual remains an employee of the Group over an agreed period (vesting period).
In November 2016, the Company adopted a Long Term Incentive Plan (LTIP) for Executive Directors and certain senior management. The awards include nil-cost options and their vesting is subject to certain performance conditions.
The movement in share options was as follows:
2018 2018 2017 2017
Weighted average Weighted average
exercise price Number exercise price Number
US$ US$
Outstanding at the beginning
of the year 2.90 12,705,825 2.91 9,467,660
Granted during the year 3.15 1,899,328 2.70 4,332,285
Forfeited during the
year 3.50 (760,780) 1.97 (630,538)
Exercised during the
year 3.19 (5,407,982) 2.37 (463,582)
------------------ ------------- ------------------ ------------
Outstanding at the end
of the year 2.72 8,436,391 2.90 12,705,825
------------------ ------------- ------------------ ------------
The weighted average remaining contractual life of share options outstanding at 31 December 2018 equals to 7.59 years (2017: 7.47 years). The exercise price of the options outstanding at 31 December 2018 ranged between US$NIL and US$4.47 (2017: US$NIL and US$4.06).
Of the total number of options outstanding at 31 December 2018: 2,745,648 with a weighted average exercise price of US$3.112 (December 2017: 7,988,151 with weighted average price of US$3.18) had vested and were exercisable.
The share-based payment charge in the profit or loss amounts to US$1,489,000 (2017: US$1,092,000).
The total value of share options granted is calculated using the Black--Scholes model. The fair value determined at the grant date is expensed over the vesting period of the options. The calculation is based on:
2018 2017
Expected volatility 18%-25% 18%-25%
Weighted average exercise
price US$2.72 US$2.90
Risk free interest rate
ranging 0.25%-1.75% 0.25%-1.75%
Contractual life 10 years 10 years
Dividend yield rate 3%-5.5% 3%-5.5%
The expected volatility of the options is based on the implied volatility from exchange traded options of the company's shares, the historical volatility of the share price over the most recent that corresponds with the expected life of the option, and the historical or implied volatility of similar entities. The expected life of the option is based on the maturity date and is not necessarily indicative of exercise pattern that may occur. The options include a service condition as the individuals participating in the plan must be employed by the Company for a certain period of time in order to earn the right to exercise the share options. A sensitivity analysis has been performed based on other comparable companies wherein a 3% change in the expected volatility during 2018 would impact the statement of comprehensive income by US$18,000 (2017: US$44,000). As of reporting date the movement of the volatility is not expected to have a significant impact on the share options valuation, and the share options valuation will be reassessed at each reporting date.
20. Reserves
The following describes the nature and purpose of each reserve within owner's equity:
Share premium
Related to the issuance of shares at a premium.
Capital reserve
Relates to capital introduced by shareholders for assets contributed to the Group for no consideration and without the issue of shares.
Share options reserve
The reserve was created to record the cumulative amount recognised in respect of share-based payments.
Treasury shares reserve
The reserve was created to record the purchase of own shares.
Translation reserve
Exchange differences relating to the translation of the net assets of the Group's foreign operations from their functional currencies to the Group's presentation currency (i.e. United States Dollars) are recognised directly in other comprehensive income and accumulated in the foreign currency translation reserve. Exchange differences previously accumulated in the foreign currency translation reserve are reclassified to the statement of comprehensive income on the disposal or partial disposal of the foreign operation.
Available-for-sale reserve
The available-for-sale reserve represents the movement in fair value of the Group's holdings in investments classified as available-for-sale. As at 1 January 2018 the available-for-sale investments have been reclassified as equity investments classified as FVTPL, following the IFRS 9 transition.
Retained earnings reserve
The retained earnings reserve comprises:
-- results recognised through the consolidated and Company income statement; -- dividends paid to equity shareholders; and -- transactions relating to share-based payments.
21. Provisions for other liabilities and charges
Severance
Pay
US$000s
Balance at 1 January 2017 260
Credited to statement of comprehensive income (29)
-----------
Balance at 31 December 2017 231
Credited to statement of comprehensive income (31)
-----------
Balance at 31 December 2018 200
-----------
22. Deferred tax liability
2018 2017
US$000s US$000s
Balance at the beginning of the year 957 479
Recognised in statement of comprehensive income (84) 138
Recognised in other comprehensive income - 263
Foreign currency revaluation impact (78) 77
--------- ---------
795 957
--------- ---------
At the reporting date the Group has in respect of losses from subsidiaries and other temporary differences, a deferred tax asset which has not been recognised of US$4,513,000 (2017: US$4,667,000). The asset has not been recognised as the timing of its realisation remains uncertain or its use is dependent on the existence of future taxable profits against which the tax losses and other temporary differences can be utilised.
During the reporting period there was no tax charged directly to equity (2017: US$263,000).
There were no changes in the tax rates charged during 2018 and 2017.
23. Trade and other payables
2018 2017
US$000s US$000s
Trade payables 1,762 2,032
Other payables 11,506 12,018
Payables to Related Parties (Note 26) 203 -
--------- ---------
13,471 14,050
--------- ---------
The fair values of trade and other payables due within one year approximate to their carrying amounts as presented above.
24. Taxes payable / receivable
2018 2017
US$000s US$000s
Income tax and other taxes (payable)/receivable (116) 442
----------- -----------
(116) 442
----------- -----------
25. Contingent consideration
Contingent consideration related to acquisitions that took place during 2015.
Details of the determination of Level 3 fair value measurements are set out below.
Contingent consideration arrangements:
2018 2017
US$000s US$000s
At 1 January - 343
Contingent remuneration - 84
Foreign exchange rate movement - 3
Amounts paid - (430)
------------- -----------
At 31 December - -
------------- -----------
All amounts potentially payable are based on performance measures and contingent remuneration. In January 2015, the Group acquired SafeCharge Card Services Limited and CreditGuard Limited. The amounts due for the acquisition included contingent consideration and contingent remuneration. The contingent consideration was payable over one year if specified performance measures are achieved. The contingent remuneration is recognised over the period when services are provided.
The fair value is determined considering the expected payment, discounted to present value using a risk-adjusted discount rate of 5%. The expected payments are determined by considering the possible performance criteria, the amount to be paid under each scenario, and the probability of each scenario. The significant unobservable inputs are the forecast performance criteria and the risk-adjusted discount rate. The estimated fair value would increase if the forecast performance criteria rate was higher or the risk-adjusted discount rate was lower.
Sensitivity analysis was performed on the key inputs including the discount rate and probabilities applied. Changes in key inputs did not give rise to material impact.
During 2017 contingent remuneration of US$84,000 has been charged to acquisition costs in the statement of comprehensive income.
26. Related party transactions
The Company is controlled by Northenstar Investments Limited, the immediate parent company, which is domiciled in the Isle of Man. Northenstar Investments Limited is wholly owned by Mr. Teddy Sagi.
On 27 June 2017, the holdings of Mr. Teddy Sagi (held indirectly) in Playtech plc shares decreased to 6.3% (31 December 2016: 21.93%). From this date Playtech plc no longer meets the definition of a related party. Accordingly, Playtech plc and its subsidiaries are not accounted as related parties from the same date. The transaction amounts with Playtech plc and its subsidiaries which are included in this Note reflects the period ended 27 June 2017, when they ceased to be related parties.
The following transactions were carried out with related parties:
26.1 Related party transactions
2018 2017
US$000s US$000s
Remuneration paid to Directors (3,252) (4,112)
Services received from related party by virtue
of common control (686) (159)
Revenue from services provided to companies
related by virtue of common control 1,132 5,342
Share-based payments expense related to executive
Directors (1,072) (750)
--------- ---------
(3,878) 321
--------- ---------
The details of key management compensation (being the remuneration of the executive and non-executive Directors) are set out below:
Directors' compensation 2018 2017
US$000s US$000s
Short term benefits of Directors 1,718 1,662
Share-based benefits of executive Directors 1,072 750
Bonuses and compensation to executive Directors 1,534 2,450
--------- ---------
4,324 4,862
--------- ---------
26.2 Payables to related parties (Note 23)
2018 2017
Name Nature of transactions US$000s US$000s
Related party by virtue
of common control Trade payable (203) -
--------- ---------
(203) -
--------- ---------
26.3 Client monies held on behalf of related parties
2018 2017
Name Nature of transactions US$000s US$000s
Related parties by virtue
of common control Trade payable to clients 936 636
--------- ---------
936 636
--------- ---------
The above balances are not recognised in the statement of financial position since they relate to client monies held on their behalf.
All related party transactions conducted on an arm's length terms and on a normal commercial basis.
Amounts disclosed above as related party transactions by virtue of common control include transactions with companies with common significant shareholder.
27. Contingent liabilities
The Group had guarantees as at 31 December 2018 and 31 December 2017 (see Note 15). SafeCharge Card Services Limited is currently involved in litigation in Ireland which is at early stages and it is not possible for Directors to assess its potential impact (if any) at this point in time. The Group had no other contingent liabilities.
28. Settlement assets and merchant processing liabilities
Following the acquisition of the assets and liabilities of GTS Online Solutions Limited ('GTS') on 10 March 2014, 100% of the shares of GTS were transferred to the Company, in January 2017, with no additional consideration. GTS operates an online payment processing service.
Settlement assets
The settlement assets arise from the operations of GTS which amounted to US$1.6 million (2017: US$1.7 million). Settlement assets result from timing differences in the settlement process of GTS. These timing differences arise primarily as a result of settlement amounts due from financial institutions and other payment processors. These amounts are typically funded to the Group within days of the transaction processing date.
Merchant processing liabilities
The merchant processing liabilities arise from the operations of GTS which amounted to US$9.5 million (2017: US$11.0 million). In addition, an equivalent transient amount relating to merchant transactions processed via GTS operations is included in cash and cash equivalents and settlement assets. In these operations no legal right exists to offset between this cash and the corresponding merchant processing liabilities.
29. Commitments
Operating lease commitments
The Group has entered into operating leases with future aggregate minimum lease payments under non--cancellable operating leases of US$1,680,000 (2017: US$1,974,000) due in less than 1 year and US$4,749,000 (2017: US$5,999,000) due between 1 and 5 years.
Strategic partnership and investment commitment
In June 2017, the Group has entered into a strategic partnership and commitment to invest up to EUR3.3 million in Saxo Payments (Banking Circle), a banking services company offering banking transaction services based in Luxemburg. The remaining investment commitment as of 31 December 2018 amounted to EUR660,000.
30. Impact of the adoption of IFRS 9 - Financial Instruments
30.1 Introduction
IFRS 9 - Financial Instruments was adopted by the Group from 1 January 2018. The standard replaces IAS 39 - Financial Instruments: Recognition and Measurement and has three sections:
-- Classification and measurement - the standard introduces new categories for the classification and measurement of financial assets. The classification of assets requires an assessment of the Group's business model for managing the assets and of the contractual cash flow characteristics of the assets. This has resulted in some changes to the classification of assets for the Group (see Note 30.2) but has not had a material impact on carrying values in the Statement of Financial Position at 1 January 2018.
-- Impairment - under IAS 39, impairment loss provisions were calculated on an incurred loss model, whereby provisions were recognised once an impairment 'trigger' event had been identified. IFRS 9 changes this model to an expected credit loss (ECL) model which incorporates forward looking information such that when a financial asset is first recognised, an impairment loss allowance is made for the expected losses from defaults over the following 12 months (12 month ECL). If, at a later time, the Group determines that there has been a significant increase in the credit risk of the asset, this impairment loss is increased to cover the expected losses over the whole life of the asset (lifetime ECL). This change in the calculation of impairment losses did not have a material impact on the Group's provisions for impairment.
-- Hedge accounting - IFRS 9 alters the rules for the application of hedge accounting, although the rules in relation to portfolio fair value hedges are still under development. Consequently, the standard allows entities to continue to apply IAS 39 for all hedge accounting.
The Group did not restate comparative figures.
30.2 Changes to classification and measurement of financial instruments
The changes to measurement category and carrying amounts of financial assets and liabilities on initial adoption of IFRS 9 on 1 January 2018 are as follows:
Carrying Carrying
amount under amount under
Measurement Measurement IAS 39 at IFRS 9 at
category category 31 December 1 January
under IAS under IFRS 2017 2018
39 9 US$000s US$000s
Financial assets
Available-for-sale investments*/
Equity investments FVOCI FVTPL 13,934 13,934
Amortised Amortised
Other receivables cost cost 3,789 3,789
Amortised Amortised
Trade and other receivables cost cost 7,346 7,346
Amortised Amortised
Settlement assets cost cost 1,713 1,713
Amortised Amortised
Cash and cash equivalents cost cost 108,858 108,858
--------------- ---------------
Total financial assets 135,640 135,640
--------------- ---------------
Financial liabilities
Amortised Amortised
Provisions cost cost 231 231
Amortised Amortised
Trade and other payables cost cost 14,050 14,050
Amortised Amortised
Merchant processing liabilities cost cost 11,036 11,036
--------------- ---------------
Total financial Liabilities 25,317 25,317
--------------- ---------------
* On 1 January 2018 upon transition to IFRS 9 all available-for-sale investments were reclassified as equity investments.
31. Events after the reporting period
In January 2019, SafeCharge agreed with Nayax's founding shareholders that they will, by the end of 2022, buyback SafeCharge's shareholding in Nayax for a consideration equal to the cumulative investment of US$24.5 million plus 9% interest per year, calculated from 15 February 2018 until payment is received.
There were no other material events after the reporting period, which have a bearing on the understanding of the consolidated Financial Statements.
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.
END
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