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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| The Simplybiz Group Plc | LSE:SBIZ | London | Ordinary Share | GB00BG1THS43 | ORD GBP0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 195.00 | 190.00 | 200.00 | 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
TIDMSBIZ
RNS Number : 5201F
SimplyBiz Group PLC (The)
10 March 2020
10 March 2020
The SimplyBiz Group plc
("SimplyBiz", the "Company" or the "Group")
Full year results for the twelve months ended 31 December 2019
Strong growth in revenue, adjusted EBITDA and adjusted earnings per share
SimplyBiz (AIM: SBIZ), a leading independent provider of compliance and business services to financial advisers and financial institutions in the UK, today announces its audited results for the twelve months ended 31 December 2019.
Financial highlights:
-- Group Revenue up 24% to GBP62.8m (FY18: GBP50.7m) -- Operating profit increased by GBP5.2m to GBP12.0m -- Adjusted EBITDA*(1) up 49% to GBP17.0m (FY18: GBP11.4m) -- Adjusted EBITDA*(1) margin increased to 27.1% from 22.5% -- Adjusted earnings per share (EPS) *(1) increased by 15% to 13.4p
-- Net debt of GBP27.0m at 31 December 2019, with a comfortable net debt to adjusted EBITDA ratio of less than 1.6 times.
-- Final dividend proposed of 2.85p per share, resulting in a full year dividend of 4.26p per share.
Operational highlights:
-- Successful strategic acquisition of Defaqto -- Strong progress on software development and deployment -- Strong growth in value per intermediary customer -- Strong increase in mortgage completions -- Strong cost control maintaining strong operating margin
Matt Timmins, Joint Chief Executive Officer of The SimplyBiz Group, commented:
" We are delighted to have successfully completed the strategic acquisition and rapid integration of Defaqto and welcome these new colleagues into the SimplyBiz Group. This acquisition instantly expands the Group's customer base by over 50% and materially extended our software and service platform across all key sectors. The acquisition enhances the Group ' s strong and sustainable profit margins."
"The Board is confident and optimistic about 2020. We are guiding to marginally lower growth in revenues and EBITDA, particularly in employee benefits and valuations, with operational gearing flowing through to earnings. We expect both headline and underlying growth to remain strong."
*(1) Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation of intangible assets arising on acquisition and operating exceptional costs. Adjusted profit before and profit after tax exclude operating exceptional costs, exceptional finance charges and amortisation of intangible assets arising on acquisition. In the current year the measures have also been adjusted for the impact of adopting IFRS 16. A reconciliation of these metrics to GAAP measures is provided in note 5. Adjusted earnings per share is calculated based on adjusted profit after tax, as shown in note 9.
*(2) Organic growth is defined as the year on year increase in a financial metric, excluding the impact of acquisitions.
For further information please contact:
Hot Features
Premium
SimplyBiz via Instinctif Partners
Matt Timmins (Joint Chief Executive
Officer)
Neil Stevens (Joint Chief Executive
Officer)
Gareth Hague (Group Finance Director)
Zeus Capital (Nominated Adviser
and Joint Broker) +44 (0) 20 3829 5000
Martin Green
Andrew Jones
Dan Bate
Peel Hunt (Joint Broker) +44 (0) 20 7418 8900
Guy Wiehahn
Andrew Buchanan
Rishi Shah
Instinctif Partners +44 (0)20 7457 2020 /
SimplyBiz@instinctif.com
Catherine Wickman
Lewis Hill
Notes to editors
With over 3,700 member firms in the UK, SimplyBiz is a leading independent provider of compliance and business services to financial advisers, including directly authorised IFAs, directly authorised mortgage advisers, workplace consultants and directly authorised consumer credit brokers. It also provides marketing and promotion, product panelling and co-manufacturing services to more than 135 financial institutions, through access to its membership.
Defaqto is a financial services technology business operating a fintech platform for over 9,500 users, across 3,300 firms and providing independent ratings of 21,000 financial products and funds that are licensed by 250 brands.
For more information, please visit: www.simplybizgroup.co.uk/
Analyst presentation
An analyst briefing is being held at 10.30am on 10 March 2020 at the offices of Instinctif Partners, 65 Gresham Street, London, EC2V 7NQ. To register your attendance please contact SimplyBiz@instinctif.com .
JOINT CHIEF EXECUTIVES' STATEMENT
The SimplyBiz Group is a leading independent provider of support services and software to financial advisers and financial institutions. The Group serves over 5,600 intermediary firms and more than 350 financial institutions in the UK.
The Group delivers a platform for intermediary firms to run a compliant and successful business and enables product providers to reach the market more effectively. Our unique product data and market insights inform the purchase decisions of financial advisers and consumers and we enable product providers to design and optimise higher quality products for their markets.
Overview
2019 was another significant year for SimplyBiz. The strategic acquisition of Defaqto, completed in March, instantly expanded the Group's customer base by over 50% and materially extended our software and service platform across all key sectors. Defaqto has been a leading research and fintech provider for over 20 years and its brand is well known and respected amongst financial advisers, product providers and consumers. We are delighted to welcome these new colleagues into the SimplyBiz Group.
The Defaqto fintech platform is used by over 5,800 advisers from 1,900 intermediary firms who were not previously customers of the group and provides independent expert ratings of 21,000 financial products and funds. These product ratings are licensed by 250 financial services brands to help them communicate product quality to financial advisers and consumers. Defaqto has a proprietary, scalable and flexible digital platform. Its rich database of financial products and unique market insights assist with product design and inform financial adviser and end consumer purchase decisions.
The acquisition of Defaqto was completed through a combination of debt and equity. The Group remains confident of its ability to repay its borrowings as planned.
The strategic combination of SimplyBiz and Defaqto creates a single fintech and support services Group, which now benefits from a significantly increased customer base and an extension of the number and range of distribution channels. The acquisition has already enhanced the Group's already strong and sustainable profit margins.
The Group has also continued to invest in its people and services by developing its compliance and technical teams to serve an increasingly complex and regulated Intermediary Services market, and to extend the range of support for its Distribution Channels.
Revenue grew by 24% to GBP62.8 million, reflecting a first time GBP11.8 million contribution from the acquisition of Defaqto since the date of acquisition on 21 March 2019, and GBP0.3 million (1%) of organic growth*(2) . Strong growth in our core business was offset by the continuing softness in employee benefits and a slowdown of transactions in our valuations business.
Adjusted EBITDA margin increased to a strong and stable 27.1% from 22.5% in the prior year.
Divisional Performance
Following the acquisition of Defaqto the Group now operates as three divisions: Intermediary Services, Distribution Channels and Research & Fintech.
Intermediary Services Performance
The Intermediary Services division provides business services and software to over 3,700 individual intermediary firms through a comprehensive membership model. The Group's members, which includes financial advisers, mortgage advisers and consumer credit broker firms, conduct regulated activities that require that they are authorised and regulated by the FCA. The member firms pay a monthly subscription fee for a core package of services and software, and then purchase additional services and software licenses to suit their individual business needs. Revenues in this division grew to GBP24.2 million, (GBP23.3 million in 2018) and contributed 38% of Group revenue in the period. Adjusted EBITDA also grew to GBP5.6 million (GBP5.2 million in 2018).
Member Firms as at 31 December 2019 were 3,728 (3,726 as at 31 December 2018) and revenue from membership fees increased 9.4% to GBP10.3 million. Average income per member increased, primarily as a result of better penetration of services and bundled software to existing members, and by the launch of our 'Signature' proposition to support higher value and larger member firms. With an increase in regulation, including the preparation for the first stage of the Senior Managers and Certification Regime (SM&CR), the Group has seen higher member engagement in its additional services. Additional services income increased strongly by 16% to GBP5.2 million.
The Group has continued to invest in software development following the launch of Centra, developed on Defaqto's software platform, in March 2018. Centra delivers a highly efficient 'one-stop-shop' for financial planning that has been designed in consultation with our clients. The ongoing adoption and development of Centra delivers a key technology platform from which to launch future services. Furthermore, its integration to our 3(rd) party vendor 'back-office' software has helped grow software revenues strongly by 22% during the year, to GBP5.1 million.
The Group has invested in developing its SaaS employee benefits platform, Zest, over the previous 3 years. While it has secured several long-term contracts from well-known employer brands in the year, the revenue reduction from this non-core business has continued from GBP5.3m in 2018 to GBP3.6m in 2019.
Distributions Channels
The Distribution Channels division continues to provide a highly effective and efficient distribution channel for over 135 financial institutions to reach an otherwise fragmented intermediary sector. The member firms that the Group serves rely on SimplyBiz to provide them with relevant and timely information about product providers' services and products across the market, collectively informing and facilitating better outcomes for their businesses and for their clients. The product providers achieve greater efficiency from our activities in this area and are better able to comply with their regulatory requirements. Revenues in this division totalled GBP26.8 million (GBP27.4 million in 2018) and contributed 43% of Group revenue in the period.
The Group has continued to build on its extensive events programme to cater for the expanding needs of both our intermediary and product provider customers. As well as delivering a significant programme of events and seminars in the period, the Group also provided a broad range of digital and traditional materials to deliver product provider brand and product communications to its members. The Group's marketing services present product providers with access to over 25% of the total retail financial service marketplace. Income in the period increased by 5% to GBP7.2 million, from GBP6.9 million in FY18. During the year the Group also launched its outsourced distribution service, which provides product providers with an additional efficient distribution contact channel for targeted marketing.
SimplyBiz Mortgages is the UK's third largest mortgage club, with over 1,600 mortgage members benefitting from access to a dedicated support service and preferred products from key lenders. Despite overall market conditions, Mortgage Services revenues increased by 4% to GBP6.8 million, as a result of higher levels of lending through the Group's mortgage club. Mortgage completions increased to over GBP16 billion.
Growth in product provider and mortgage services income was offset by a 14% reduction in income from property valuations, due to a UK wide slowdown in the number of housing transactions. The overall impact on EBITDA was limited to less than GBP0.1m due to our flexible business operating model.
The Group's investment business, Verbatim, saw revenues grow to GBP2.3m from GBP2.2m (up 7%), in the year.
Research & Fintech performance
Revenues in this division were GBP11.8 million and Adjusted EBITDA was GBP4.9 million, wholly reflecting the strategic acquisition of Defaqto on 21 March 2019. There have been no allocations of other Group revenues or costs to this segment in the year.
The integration of Defaqto into the Group has been rapid and successful, with strong alignment of culture and objectives achieved early in the process. The strength of the customer relationships and the widespread ethos of delivering excellent service quality in Defaqto are highly aligned with that of the wider Group. Cross-business working has been established, resulting in the design and development of new software products and an exciting expanded suite of market-insight services ready to take to market.
The financial performance of Defaqto in the period since acquisition was strong and fully met our expectations.
The Defaqto fintech platform is used by over 9,500 users and provides independent ratings of 21,000 financial products and funds, licensed by 250 financial services brands. Defaqto has a proprietary, scalable and flexible digital platform, supporting a rich database of financial products and providing unique information and insights to aid consumer and adviser purchase decisions.
The core strength of Defaqto lies in both its large dual customer-base and its management team. The SimplyBiz Group had previously worked closely with Defaqto during the 18 months over which it developed its Centra software solution, which now serves to bring unique and valuable insight to the market.
Market Overview
Intermediary firms continue to grow revenue as the profession adapts and innovates to meet increasing customer demand and the need for a broader range of financial services. Client numbers are strong for the sector as a whole and data from the Office for Budget Responsibility ('OBR') suggests a period of rising saving ratios is likely.
Regulation continues to advance and 2020 will see the planned introduction of the 5(th) Money Laundering Directive and the requirements of SM&CR introduced for all solo-FCA regulated firms. The key challenges for financial advisers are likely to centre on the need to develop their advice and business models to meet more complex client needs efficiently, while managing continued regulatory changes in their business. Delays in processing new applications at the Financial Conduct Authority and a more difficult professional indemnity insurance market has increased the time and added complexity to our recruitment of new member firms from networks, but this remains healthy.
Product providers are responding as the regulator and the market continues to put downwards pressure on fees. We have seen, and anticipate a continuation of, consolidation in the product provider, asset manager and platform sectors of the market.
Market competition has generally increased in 2019. Our platform has expanded significantly
and the Group will serve both its direct members, as before, while also serving other financial intermediaries in whatever their chosen business structure through our provision of fintech software.
Strategic Priorities
The significantly increased customer scale and extension of our service and software platform achieved in 2019 places greater emphasis on increasing value from existing customers and serving new customers with our market leading fintech services.
Our unique product data and market insights will provide a valuable service for Product Providers to comply with regulations and be more effective in the market.
The breadth of the Group's core membership and fintech customers will in turn enable the expansion of its Distribution Channels.
Outlook
The Board is confident and optimistic about 2020. We are guiding to marginally lower growth in revenues and EBITDA, particularly in employee benefits and valuations. Operational gearing will flow through to earnings, partly mitigated by a reduction in the effective tax rate. No guidance is being provided other than for 2020.
Recognising that external challenges facing all companies at this moment are still developing, the Board expects both headline and underlying growth to remain strong.
Neil Stevens and Matt Timmins
Joint Chief Executive Officers
The SimplyBiz Group
Financial Results:
Dec-19 Dec-18
Group Revenue 62,774 50,686
Expenses (45,046) (39,267)
Impact of IFRS 16 accounting
standard * (724) -
Underlying operating expenses (45,770) (39,267)
Adjusted EBITDA 17,004 11,419
-------- --------
Adjusted EBITDA margin % 27.1% 22.5%
Depreciation (286) (256)
Amortisation of development
expenditure and software (633) (133)
Adjusted EBIT 16,085 11,030
-------- --------
Depreciation of lease asset (707) -
Operating costs of an exceptional
nature (2,009) (3,829)
Impact of IFRS 16 accounting
standard * 724 -
Share option charges (512) (320)
Amortisation of other intangible
assets (1,579) (124)
Net finance costs (1,158) (2,523)
Profit before tax 10,844 4,234
-------- --------
Taxation (2,218) (1,385)
Profit after tax 8,626 2,849
-------- --------
Adjusted earnings per share
(EPS) 13.40p 11.62p
* Adoption of IFRS 16 Leases using the modified retrospective approach resulted in a reduction in lease costs recognised in underlying expenses, offset by depreciation of the lease asset and finance charges on the lease liability. To provide comparable Adjusted EBITDA to 2018, the beneficial impact has been removed in the current year in the Adjusted EBITDA calculation.
Revenue
Revenue grew by 24% to GBP62.8m, reflecting an GBP11.8m first time contribution from the acquisition of Defaqto from 21 March 2019 and GBP0.3m (1%) of organic growth. Organic growth is calculated as the year on year increase in revenue, excluding the impact of the Defaqto acquisition.
The headline organic growth rate of 1% includes strong growth in our core revenue streams for membership fees (GBP0.9m, 9%), additional membership services (GBP0.7m, 16%) and software licence income (GBP0.9m, 22%). This growth is offset by a GBP1.3m (14%) reduction in valuation services revenues, due to lower volumes in line with a subdued housing market, and a GBP1.7m (32%) reduction in Employee Benefit Software revenues, largely due to the re-platforming of that business.
Operating profit and adjusted EBITDA margin
Operating profit increased by 78% to GBP12.0m, after exceptional charges of GBP2.0m (2018: GBP3.8m).
Adjusted EBITDA margin is calculated as adjusted EBITDA (as defined in note 5), divided by revenue. Whilst adjusted EBITDA is not a statutory measure, the Board believe it is a highly useful measure of the underlying trade and operations of the Group, excluding one-off and non-cash items.
Adjusted EBITDA margin increased to 27.1% (2018: 22.5%) largely as a result of the stronger margin revenues from Defaqto. In the organic business, margin grew from 22.5% in 2018 to 23.8%, as the Group was able to offset revenue reductions through strong and effective cost management, achieving good growth in operating margins across the core business.
Operating costs of an exceptional nature
Exceptional operating costs include GBP1.6m of professional fees in respect of the acquisition of Defaqto and GBP0.4m of termination costs. In addition, GBP0.9m of costs in respect of the equity raised for the transaction, which had been recognised within operating costs of an exceptional nature in the 2019 half year results, have now been charged to the Share Premium account with the revised treatment deemed to be more appropriate.
Share-based payments
Share-based payment charges of GBP0.5 million (2018: GBP0.3m) have been recognised in respect of the options issued on in the prior year, as well as the additional options issued in 2019. The increase in the charge reflects the full period of issue in 2019 and additional schemes issued in H2 2018 and 2019.
Financial income and expense
Finance expense in FY18 included one-off charges totalling GBP1.6 million on early settlement of retired debt and share warrants.
Taxation
The tax charge for the year includes the beneficial impact of research and development claims submitted in respect of FY18, offset by non-deductible costs incurred during the acquisition of Defaqto.
Earnings per share ('EPS')
Earnings per share has been calculated based on the weighted average number of shares in issue in both periods. The diluted weighted average number of shares, included in the diluted EPS calculations (note 9) have increased in 2019 as a result of the required equity hurdle in the Management Incentive Plan (note 14) being exceeded.
Dividends
The Board declared and paid an interim dividend of 1.41 pence per share in respect of FY19, and is proposing a final dividend of 2.85 pence per share. The full year dividend of 4.26 pence per share, compares to a dividend of 3.03 pence per share for the 9 months to 31 December 2018, post IPO. The final dividend will be paid on 4(th) May 2020, to shareholders on the register on 20(th) March 2020.
The Group will continue to apply its policy of paying one-third of adjusted profit after tax as a full year dividend to shareholders. Going forward the Group will pay its interim dividend equal to one third of the prior year adjusted profit after tax, with the final dividend balancing the total amount paid to one third of the current year adjusted profit after tax.
Cash flow and closing net cash
At 31 December 2019 the Group had net debt of GBP27.0m, as compared to GBP6.4m of net cash at 31 December 2018, prior to the acquisition of Defaqto in March 2019. Net debt is calculated as borrowings less cash and cash equivalents and amortised arrangement fees. Since the acquisition of Defaqto, the Group has repaid GBP7.0m of its Revolving Credit Facility, and finished the year with a comfortable adjusted EBITDA to net debt leverage ratio of 1.6 times.
Free cash flow conversion was 48% for 2019, vs 71% in 2018. Whilst free cash flow in the organic business remained strong, it was lower in 2019 as the cash profile in Defaqto is weighted higher to the first quarter of the year, which was prior to the acquisition.
Free cash flow conversion is calculated as adjusted EBITDA, less working capital movements, CAPEX, development expenditure, corporation tax paid and interest, as a percentage of Adjusted EBITDA. A reconciliation of free cash flow is provided in note 5.
Accounting policies
The Group's consolidated financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted in the EU. During the year, the Group adopted IFRS 16 Leases, using the modified retrospective approach, as explained further on pages 15 to 17.
Going Concern
On the basis of the Group's current and forecast profitability and cash flows, and the availability of committed funding, the Directors consider and have concluded that the Group will have adequate resources to continue in operational existence for the foreseeable future. On this basis they continue to adopt a going concern basis in the preparation of the financial statements.
Gareth Hague
Group Finance Director
Consolidated statement of profit or loss and other comprehensive income
for the year ended 31 December 2019
Note Year ended Year ended
31 December 31 December
2019 2018
GBP000 GBP000
Revenue 6 62,774 50,686
Operating expenses 7 (49,193) (43,805)
Amortisation of other intangible assets 10 (1,579) (124)
Operating profit 12,002 6,757
Finance income 8 123 79
Finance costs 8 (1,281) (2,602)
Profit before taxation 10,844 4,234
Taxation (2,218) (1,385)
Profit for the financial period 8,626 2,849
Profit attributable to shareholders:
Owners of the Company 8,547 2,849
Non-controlling interests 79 -
8,626 2,849
Earnings per share - basic 9 9.25p 3.96p
Earnings per share - diluted 9 8.96p 3.94p
There are no items to be included in other comprehensive income in the current year or preceding year.
Consolidated Statement of Financial Position
As at 31 December 2019
31 December 31 December
2019 2018
Note GBP000 GBP000
Assets
Non-current assets
Property, plant & equipment 454 375
Lease asset 2,653 -
Intangible assets and goodwill 10 106,210 23,137
Deferred tax asset, non-current 1,262 61
Total non-current assets 110,579 23,573
Current assets
Trade and other receivables 11,774 8,712
Deferred tax asset 194 55
Cash and cash equivalents 10,666 13,291
Cash and cash equivalents - restricted - 545
Total current assets 22,634 22,603
Total assets 133,213 46,176
Equity and liabilities
Equity
Share capital 12 968 765
Share premium account 12 64,755 36,791
Other reserves 13 (51,993) (61,067)
Retained earnings 55,695 50,081
Equity attributable to the owners
of the Company 69,425 26,570
Non-controlling interest 79 -
Total equity 69,504 26,570
Liabilities
Current liabilities
Loans and borrowings 11 - 7,433
Trade and other payables 17,195 10,254
Lease liabilities, current 540 -
Current tax liabilities 651 496
Total current liabilities 18,386 18,183
Non-current liabilities
Loans and borrowings 11 37,685 -
Trade and other payables - 725
Lease liabilities, non-current 2,176 -
Deferred tax liabilities 5,462 698
Total non-current liabilities 45,323 1,423
Total liabilities 63,709 19,606
Total equity and liabilities 133,213 46,176
Consolidated statement of changes in equity
for the year ended 31 December 2019
Non-controlling
Share Share Other Retained Total
capital premium reserves interest earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 January 2018 10 52,544 (61,387) - 2,982 (5,851)
Total comprehensive income
for year - - - - 2,849 2,849
Transactions with owners,
recorded directly in equity
Issue of shares 176 29,826 - - - 30,002
Bonus issue of shares 579 (579) - - - -
Transfer to retained earnings - (45,000) - - 45,000 -
Dividends - - - - (750) (750)
Share option charge - - 320 - - 320 Total contributions by and distribution to owners 755 (15,753) 320 - 44,250 29,572 Balance at 31 December 2018 765 36,791 (61,067) - 50,081 26,570 Total comprehensive income for year - - - 79 8,547 8,626 Transactions with owners, recorded directly in equity Issue of shares 203 28,909 7,449 - - 36,561 Cost of share issue - (945) - - - (945) Dividends - - - - (2,933) (2,933) Deferred tax on share options exceeding profit and loss charge - - 1,113 - - 1,113 Share option charge - - 512 - - 512 Total contributions by and distribution to owners 203 27,964 9,074 - (2,933) 34,308 Balance at 31 December 2019 968 64,755 (51,993) 79 55,695 69,504
Consolidated statement of cash flows
for the year ended 31 December 2019
Year ended Year ended
31 December 31 December
2019 2018
GBP000 GBP000
Net cash generated from operating activities
(note 15) 10,388 6,033
Cash flows from investing activities
Finance income 123 79
Purchase of property, plant and equipment (208) (109)
Proceeds from sale of property, plant
and equipment 58 -
Development expenditure (2,354) (657)
Acquisitions, net of cash received (38,864) (2,534)
Net cash used in investing activities (41,245) (3,221)
Cash flows from financing activities
Finance costs (1,104) (1,078)
Settlement of share warrant - (1,193)
Loan repayments made (31,676) (37,593)
Drawdown of loans 37,500 10,093
Transaction costs related to borrowing (420) -
Payment of lease liability (677) -
Payment of deferred and other consideration (1,130) -
Issue of share capital 29,072 30,002
Cost of issuing share capital (945) -
Dividends paid (2,933) (750)
Net cash generated from / (used in) financing
activities 27,687 (519)
Net (decrease) / increase in cash and
cash equivalents (3,170) 2,293
Cash and cash equivalents at start of
year 13,836 11,543
Cash and cash equivalents at end of year 10,666 13,836
Operating costs of an exceptional nature, as per note 7, are included in net cash generated from operating activities. Payment of deferred and other consideration include GBP725,000 of deferred consideration payable for the acquisition of Landmark Surveyors Limited and GBP405,000 in respect of the remaining share purchase for Zest Technology Limited. The deferred and other consideration is considered financing in nature given the time elapsed since the acquisition.
NOTES TO THE INTERIM FINANCIAL INFORMATION
1. General information and basis of preparation
The consolidated financial information has been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRSs), as adopted by the European Union.
The financial information for the period ended 31 December 2019 and the period ended 31 December 2018 does not constitute the Group's statutory accounts for those periods. Statutory accounts for the period ended 31 December 2018 have been delivered to the Registrar of Companies. The statutory accounts for the period ended 31 December 2019 will be delivered to the Registrar of Companies following the Group's Annual General Meeting.
The auditors' reports on the accounts for 31 December 2019 and 31 December 2018 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.
2. Going concern
The Group meets its day-to-day working capital requirements through operating cash flows, overdrafts and bank loan facilities. The Group's forecasts and projections, taking account of reasonable possible changes in trading performance, show that the Group is expected to have a sufficient level of financial resources available through facilities agreed and expected to be agreed when these fall due for renewal.
The Group has net current assets of GBP4,248,000 and net assets of GBP69,504,000 as at 31 December 2019 (31 December 2018: net current assets of GBP4,420,000 and net assets of GBP26,570,000).
On the basis of the Group's current and forecast profitability and cash flows, the Directors consider and have concluded that the Group will have adequate resources to continue in operational existence for the foreseeable future. For these reasons they continue to adopt a going concern basis in the preparation of the financial statements.
3. Accounting policies
The accounting policies adopted are consistent with those used in preparing the consolidated financial statements for the financial year ended 31 December 2018.
The Group has initially adopted IFRS 16 Leases from 1 January 2019. A number of other new standards are effective from 1 January 2019, but they do not have a material effect on the Group's financial statements.
IFRS 16 introduced a single, on-balance sheet accounting model for lessees. As a result, the Group, as a lessee, has recognised right of use assets representing its right to use the underlying asset and lease liabilities representing it obligation to make lease payments. The Group has applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 January 2019. Accordingly, the comparative information presented for 2018 has not been restated - i.e. it is presented, as previously reported, under IAS 17 and related interpretations. The details of the change in accounting policy is described below.
Definition of a lease
Previously, the Group determined at contract inception whether an arrangement was or contained a lease under IFRIC 4 Determining whether an arrangement contains a lease. The Group now assesses whether a contract is or contains a lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied IFRS 16 only to contracts that were previously identified as a lease. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed. Therefore, the definition of a lease under IFRS 16 has been applied only to contracts entered into or changed on or after 1 January 2019.
As a lessee
The Group leases many assets, including predominately properties and vehicles. As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under IFRS 16, the Group recognises right of use assets and lease liabilities for most leases - i.e. these leases are on-balance sheet. The Group has assessed the exemption allowable to low-value assets and considered that no categories of asset meet these criteria.
The Group presents right of use assets that do not meet the definition of investment property in 'property, plant and equipment', the same line item as it presents underlying assets of the same nature that it owns. The carrying amounts of right-of-use assets are as below:
Plant & Properties Total
equipment
GBP000 GBP000 GBP000
At 1 January 2019 225 343 568
At 31 December 2019 406 2,247 2,653
The Group presents lease liabilities separately on the face of the Balance Sheet.
The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right of use assets recognised.
Transition
Previously, the Group classified property leases as operating leases under IAS 17. The leases run for differing periods and some leases include options to renew the lease and / or rent-free periods.
At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group's incremental borrowing rate as at 1 January 2019. Right of use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.
The Group used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17:
-- Excluded initial direct costs from measuring the right of use asset at the date of initial application.
-- Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.
-- Applied a single discount rate to a portfolio of leases with reasonably similar characteristics.
On transition to IFRS 16, financial commitments of GBP1,246,000 as at 31 December 2018, previously disclosed, were considered to not meet the IFRS 16 criteria and therefore not recognised as right of use assets.
Impacts on financial statements
As a result of initially applying IFRS 16, in relation to the leases that were previously classified as operating leases, the Group recognised GBP568,000 of right of use assets and GBP568,000 of lease liabilities, after deduction of GBP5,000 discounting impact at the incremental borrowing rate of 3.1%. On acquisition of Defaqto the Group recognised GBP206,000 of right of use assets and lease liabilities on the opening balance sheet.
Amortisation of other intangible assets
Amortisation of other intangible assets is charged to the statement of profit or loss on a straight-line basis over their estimated useful lives. The basis for choosing these useful lives is with reference to the period over which they can continue to generate value for the Group. The estimated useful lives have been updated in the period to be:
-- Brand 10 - 15 years -- Intellectual property 8 - 15 years 4. Critical accounting estimates and judgements
The Company makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are discussed below.
Goodwill
The Group is required to test, on an annual basis, whether goodwill has suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows. The major source of estimation uncertainty relates to the estimation of future cash flows, particularly for the value-in-use calculation for the Defaqto CGU.
Identification and valuation of other intangible assets
Under IFRS accounting the Group is required to make an assessment of the identifiable intangible assets acquired in a business combination. Such an assessment involves the use of judgement, both in the identification of the assets and in the estimation of their value. The major source of judgement relates to the initial identification of the assets, due to the interconnected nature of them, particularly for the Defaqto acquisition.
5. Reconciliation of GAAP to Non-GAAP measures
The Group uses a number of "non-GAAP" figures as comparable key performance measures, as they exclude the impact of one-off items that are not considered part of ongoing trade. Amortisation of other intangible assets has been excluded on the basis that it is a non-cash amount, relating to acquisitions in the current and prior periods. Operating costs of an exceptional nature have been excluded as they are not considered part of the underlying trade.
The Group's "non-GAAP" measures are not defined performance measures in IFRS. The Group's definition of the reporting measures may not be comparable with similar titled performance measures in other entities.
Adjusted EBITDA is calculated as follows:
Year ended Year ended
31 December 31 December
2019 2018
GBP000 GBP000
Operating profit 12,002 6,757
Add back:
Depreciation 286 256
Depreciation of lease asset 707 -
Amortisation of other intangible assets
(note 10) 1,579 124
Amortisation of development costs and
software (note 10) 633 133
EBITDA 15,207 7,270
Add back:
Operating costs of exceptional nature
(note 7) 2,009 3,829
Share option charges 512 320
IFRS 16 impact (724) -
Adjusted EBITDA 17,004 11,419
The impact of applying IFRS 16 using the modified retrospective approach was to reduce the charge for operating leases in the profit and loss account by GBP724,000 for 2019. For the current year only, this benefit has been deducted within the calculation of Adjusted EBITDA, to provide comparability to the prior year.
Adjusted profit before tax is calculated as follows:
Year ended Year ended
31 December 31 December
2019 2018
GBP000 GBP000
Profit before tax 10,844 4,234
Add back:
Operating costs of exceptional nature
(note 7) 2,009 3,829
Finance costs of exceptional nature - 1,635
Impact of IFRS 16, net of depreciation 16 -
Amortisation of other intangible assets
(note 10) 1,579 124
Share option charges 512 320
Adjusted profit before tax 14,960 10,142
The impact of IFRS 16 accounting, net of depreciation is the offset of the beneficial impact of reducing lease charges in the profit and loss account, and the depreciation of lease assets and finance charge on the lease liability.
Finance costs of an exceptional nature in 2018 represent the one-off costs incurred on settlement of the previous loan facility and associated share warrant, including the accelerated release of capitalised arrangement fees.
Adjusted profit after tax is calculated as follows:
Year ended Year ended
31 December 31 December
2019 2018
GBP000 GBP000
Profit after tax 8,626 2,849
Add back:
Operating costs of exceptional nature (note
7) 2,009 3,829
Finance costs of exceptional nature, net
of tax - 1,324
Impact of IFRS 16 accounting, net of depreciation
and tax 13 -
Amortisation of other intangible assets,
net of deferred tax credit 1,306 100
Share option charges, net of deferred tax
credit 424 259
Adjusted profit after tax 12,378 8,361
Free cash flow conversion is calculated as follows:
Year ended Year ended
31 December 31 December
2019 2018
GBP000 GBP000
Net cash generated from operating activities 10,388 6,033
Adjusted for:
Operating costs of exceptional nature (note
7) 2,009 3,829
Finance income 123 79
Finance costs (1,104) (1,078)
Purchase of property, plant and equipment (208) (109)
Proceeds from sales of property, plant and
equipment 58 -
Payment of lease liability (677) -
Development expenditure (2,354) (657)
Free cash flow 8,235 8,097
Adjusted EBITDA (as above) 17,004 11,419
Free cash flow conversion 48% 71%
6. Segmental Information
During the year, the Company was domiciled in the UK and as such substantially all revenue is derived from external customers in the United Kingdom. Since the acquisition of Defaqto, the Group has an operation in Norway, which is wholly immaterial to the Group's revenues.
Subsequent to the acquisition of Defaqto, the Group has updated its segmental reporting assessment and now has three operating segments, which are considered to be reportable segments under IFRS. The three reportable segments are:
-- Intermediary Services; -- Distribution Channels; and -- Research & Fintech
Intermediary Services provides compliance and regulation services to individual financial intermediary Member Firms, including directly authorised IFAs, directly authorised mortgage advisers, workplace consultants and directly authorised consumer credit brokers.
Distribution Channels provides marketing and promotion, product panelling and co-manufacturing services to financial institutions. This division of the Group also undertakes survey panelling and surveying work for mortgage lenders.
The Research and Fintech segment provides a fintech platform for over 9,000 users, across 3,300 firms and providing independent ratings of 21,000 financial products and funds, licensed by 250 brands.
The reportable segments are derived on a product / customer type basis. Management have applied their judgement on application of IFRS 8, with operating segments reported in a manner consistent with the internal reporting produced to the chief operating decision makers ('CODM'). The chief operating decision makers are deemed to be the Joint CEOs. No aggregation of operating segments has occurred.
Segmental information is provided for Adjusted EBITDA, which is the measure used when reporting to the CODM.
The tables below present the segmental information.
Intermediary Distribution Research
Year ended 31 December 2019 Services Channels & Fintech Group
GBP000 GBP000 GBP000 GBP000
Revenue 24,153 26,838 11,783 62,774
Adjusted operating expenses, before
amortisation and depreciation (18,513) (20,349) (6,908) (45,770)
----------------------------------------- ------------ ------------ ---------- --------
Adjusted EBITDA 5,640 6,489 4,875 17,004
Operating costs of an exceptional nature (2,009)
Amortisation of other intangible assets (1,579)
Amortisation of development costs and
software (633)
Depreciation (286)
Depreciation of lease asset (707)
Beneficial impact of IFRS 16 adoption 724
Share option charges (512)
----------------------------------------- ------------ ------------ ---------- --------
Operating profit 12,002
----------------------------------------- ------------ ------------ ---------- --------
Intermediary Distribution Research
Year ended 31 December 2018 Services Channels & Fintech Group
GBP000 GBP000 GBP000 GBP000
Revenue 23,329 27,357 - 50,686
Adjusted operating expenses, before
amortisation and depreciation (18,135) (21,132) - (39,267)
---------------------------------------- ------------ ------------ ---------- --------
Adjusted EBITDA 5,194 6,225 - 11,419
Operating costs of an exceptional
nature (3,829)
Amortisation of other intangible assets (124)
Amortisation of development costs
and software (133)
Depreciation (256)
Depreciation of lease asset -
Share option charges (320)
---------------------------------------- ------------ ------------ ---------- --------
Operating Profit 6,757
---------------------------------------- ------------ ------------ ---------- --------
In determining the trading performance of the operating segments central costs are allocated based on the divisional contribution of revenue to the Group.
The statement of financial position is not analysed between the reporting segments for management and the chief operating decision makers consider the Group statement of financial position as a whole.
No customer has generated more than 10% of total revenue during the period covered by the financial information.
7. Operating Profit
Operating profit for the period has been arrived at after charging:
Year ended Year ended
31 December 31 December
2019 2018
GBP000 GBP000
Depreciation of tangible assets - owned 286 256
Depreciation of lease assets 707 -
Payments in respect of operating leases - 4,760
Research expenditure 472 161
Operating costs of exceptional nature:
Fees in relation to IPO process - 3,622
Restructuring costs - 77
Professional fees for acquisitions 1,621 130
Loss of office expense 388 -
2,009 3,829
Operating costs of exceptional nature
Professional fees for acquisitions relate to the purchase of Defaqto in 2019, and Landmark Surveyors in 2018. Loss of office expense relates to the redundancy of a senior employee and restructuring costs in 2018 relate to a programme of restructuring in a single legal entity. Fees in relation to the IPO process include professional fees incurred on listing on AIM in April 2018.
8. Finance Expense and Income
Year ended Year ended
31 December 31 December
2019 2018
GBP000 GBP000
Finance Expense
Interest payable on financial liabilities
at amortised cost (1,249) (967)
Finance charge on lease liability (32) -
Fair value loss on financial instruments - (345)
Accelerated arrangement fees on settlement
of previous loan - (775)
Accelerated implied interest charge on settlement
of previous loan - (515)
(1,281) (2,602)
Finance Income
Bank interest receivable 123 79
123 79
Net finance expense (1,158) (2,523)
9. Earnings per share
Basic Earnings Per Share Year ended Year ended
31 December 31 December
2019 2018
GBP000 GBP000
Profit attributable to equity shareholders
of the parent 8,547 2,849
Weighted average number of shares
in issue 92,386,063 71,974,191
Basic profit per share (pence) 9.25 3.96
Diluted Earnings Per Share Year ended Year ended
31 December 31 December
2019 2018
GBP000 GBP000
Profit attributable to equity shareholders
of the parent 8,547 2,849
Weighted average number of shares in issue 92,386,063 71,974,191
Diluted weighted average number of shares and
options for the year 2,973,289 369,892
95,359,352 72,344,083
Diluted profit per share (pence) 8.96 3.94
During 2019 and as at 31 December 2019, the Management Incentive Plan ("MIP"), as described in note 14, exceeded the required equity hurdle. Management have therefore assumed that the equity hurdle will be achieved at the end of the vesting period, increasing the number of diluting share options.
As at the 31 December 2019, 3,390,604 options issued to Members (intermediary customers) were less than the share price, making them 'in the money'. They have therefore been included in the diluted weighted average number of shares above.
An adjusted EPS has been calculated below based on the adjusted profit after tax, which removes one off items not considered to be part of underlying trading.
Adjusted basic Earnings Per Share Year ended Year ended
31 December 31 December
2019 2018
GBP000 GBP000
Adjusted profit after tax (note 5) 12,378 8,361
Weighted average number of shares
in issue 92,386,063 71,974,191
Adjusted earnings per share (pence) 13.40 11.62
10. Intangible assets
Other Intangible Assets
Goodwill Software Brand Customer Total Total
Relationships other
intangible Development
assets expenditure
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 1 January
2018 16,250 - - - - 2,133 18,383
Acquisitions 3,520 - 115 897 1,012 - 4,532
Additions - - - - - 657 657
At 31 December
2018 19,770 - 115 897 1,012 2,790 23,572
Acquisitions 56,406 34 2,940 23,551 26,491 - 82,931
Additions - - - - - 2,354 2,354
At 31 December
2019 76,176 34 3,055 24,448 27,503 5,144 108,857
Amortisation
and impairment
At 1 January
2018 178 - - - - - 178
Charge in the
period - - 12 112 124 133 257
At 31 December
2018 178 - 12 112 124 133 435
Charge in the
period - 14 241 1,338 1,579 619 2,212
At 31 December
2019 178 14 253 1,450 1,703 752 2,647
Net book value
At 31 December
2019 75,998 20 2,802 22,998 25,800 4,392 106,210
At 31 December
2018 19,592 - 103 785 888 2,657 23,137
Capitalised development expenditure relates to the development of the software platform in Zest Technologies Limited, and technologies in Defaqto.
The carrying amount of goodwill is allocated across operating segments, which are deemed to be cash-generating units ("CGUs") as follows:
Year ended Year ended
31 December 31 December
2019 2018
GBP000 GBP000
Intermediary services 15,049 12,823
Distribution channels 12,923 6,769
Research & Fintech 48,026 -
75,998 19,592
11. Borrowings
31 December 31 December
2019 2018
GBP000 GBP000
Current - 7,500
Less loan arrangement fees - (67)
Non-current 38,000 -
Less loan arrangement fees (315) -
37,685 7,433
On 5 April 2018, the Group repaid its previous loan in full and drew down GBP10.1m from a new GBP15.0m Revolving Credit Facility ('RCF') provided by Yorkshire Bank. The previous loan was due to be settled in June 2022. On settlement of the loan, GBP775,000 of capitalised loan arrangement fees were accelerated into the profit and loss account, along with GBP515,000 of implied interest (due to the discounting of the amount repayable to the present date). GBP90,000 of loan arrangement fees were incurred on the new RCF, which have been capitalised and amortised over 3 years.
On 21 March 2019, the Group repaid the loan facility provided by Yorkshire Bank and drew down GBP45.0m from an RCF provided in two equal amounts of GBP22.5m from Yorkshire Bank and NatWest. The drawdown from Yorkshire Bank was net of the settlement of the previous funding. The RCF is a four-year facility, with the option of a one-year extension. The margin payable on the RCF is based on the net leverage of the Group with a range of 1.5% to 2.6% above LIBOR.
On 21 March 2019, the Group repaid the acquired debt of Defaqto of GBP24,676,000 (including accrued interest).
On 21 June 2019, the Group repaid GBP3.0m of the RCF, and on 23 December 2019 repaid GBP4.0m.
12. Share Capital & Share Premium
Share capital
Ordinary Ordinary Ordinary Ordinary Ordinary
A shares B shares C shares D shares Shares Total
Number of fully
paid shares (nominal
value GBP0.01):
At 1 January 2018 8,349,148 332,232 1,331,112 230,899 - 10,243,391
Repurchase of
shares and cancellation - - - (1,093) - (1,093)
Bonus issue of
shares 75,142,332 2,990,088 11,980,008 2,068,254 - 92,180,682
Share consolidation (75,142,332) (2,990,088) (11,980,008) (2,068,254) - (92,180,682)
Bonus issue of
shares 45,295,619 1,802,410 1,275,069 208,043 - 48,581,141
Share conversion (53,644,767) (2,134,642) (2,606,181) (437,849) 58,823,439 -
Issue of share
capital - - - - 17,647,149 17,647,149
At 31 December
2018 - - - - 76,470,588 76,470,588
Issue of share
capital - - - - 20,311,708 20,311,708
At 31 December
2019 - - - - 96,782,296 96,782,296
During 2018, prior to the IPO listing, the Company bought back and cancelled 1,093 ordinary D shares.
As part of the IPO process, the following share restructuring took place on 4 April 2018:
-- an initial bonus issue of shares in the ratio of nine new shares to one existing share was issued across all share categories;
-- a share consolidation across all share categories, at a rate of 10 shares to one;
-- a second bonus issue of shares across all share categories at differing share ratios; and
-- a conversion of all categories of shares, in a ratio of one to one, into a new category of Ordinary Shares.
In addition to the above, an issue of 17,647,149 new Ordinary Shares was made on 4 April 2018, and the Company undertook a reduction of its share capital by cancelling GBP45,000,000 of its share premium account.
On 21 March 2019, the Company issued 20,311,708 new GBP0.01 ordinary shares for GBP1.80 per share, as part of the funding for the acquisition of Defaqto. 4,160,000 of these shares were issued in part consideration for the acquisition of Defaqto (note 16).
Share Premium
Share
Premium
GBP'000
At 1 January 2018 52,544
Issue of share capital 29,826
Transfer to retained
earnings (45,000)
Bonus issue (579)
At 31 December 2018 36,791
Issue of share capital 28,909
Cost of share issue (945)
At 31 December 2019 64,755
13. Other reserves
Merger Capital Share Total
Reserve redemption Option Other
reserve Reserve Reserves
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2018 (61,395) 8 - (61,387)
Share options charge - - 320 320
At 31 December 2018 (61,395) 8 320 (61,067)
Share option charge - - 512 512
Issue of shares 7,449 - - 7,449
Deferred tax on share options
exceeding profit and loss charge - - 1,113 1,113
At 31 December 2019 (53,946) 8 1,945 (51,993)
During the year the Company issued 4,160,600 new GBP0.01 ordinary shares at a value of GBP1.80 per share in part consideration for the acquisition of Defaqto, resulting in an increase in the merger reserve. The opening balance on the merger reserve arose during the introduction of a new ultimate parent company (The SimplyBiz Group plc) in 2015.
14. Share-based payment arrangements
At 31 December 2019, the Group had the following share-based payment arrangements.
Issued in 2018
Company Share Option Plan ("CSOP")
On 4 April 2018, the Group established the Company Share Option Plan ("CSOP"), which granted share options to certain key management personnel. The CSOP consists of two parts, and all options are to be settled by physical delivery of shares. The terms and conditions of the share option schemes granted during the year ended 31 December 2019 are as follows:
Number Contractual
Scheme Grant date of awards Vesting conditions life of options
----------------- ---------- --------- ------------------ ---------------
4 April 3 years' service
Approved Scheme 2018 229,412 from grant date 3 to 10 years
4 April 3 years' service
Unapproved Scheme 2018 250,000 from grant date 3 to 10 years
----------------- ---------- --------- ------------------ ---------------
During 2019 5,882 awards (2018: nil) under the above plans have been forfeited as a result of bad leavers.
Management Incentive Plan ("MIP")
On 4 April 2018, the Group established the Management Incentive Plan ("MIP") which invited eligible employees to subscribe for A shares in the Company's subsidiary SimplyBiz Limited. Participants have a put option to sell the A shares to the Company in exchange for Ordinary Shares of the Company at any point between three years and ten years after the date of grant, provided that they are still employed (or treated as a good leaver) and an equity hurdle is met. The terms and conditions of the MIP are as follows:
Number Contractual
Grant date of awards Vesting conditions life of options
------------ --------- ---------------------------------------- ---------------
3 years' service from grant date,
subject to an equity hurdle of
4 April 2018 2,250 40% above the IPO market capitalisation 3 to 10 years
------------ --------- ---------------------------------------- ---------------
If the equity hurdle is achieved, the A Shares are convertible into shares of the Company, based on 15% of the value created above 105% of the market capitalisation at IPO, subject to a 7.35% dilution cap on the issued share capital at the point of vesting.
During 2019 and as at 31 December 2019, the MIP, exceeded the required equity hurdle.
The fair value of services received in return for share options granted is based on the fair value of the share options granted. The fair value has been measured using the Black Scholes model for the unapproved CSOP scheme, and the Monte Carlo model for the MIP and approved CSOP scheme.
The following inputs were used in the measurement of the fair values at grant date of the share-based payment plans:
Approved Unapproved Management
Incentive
CSOP CSOP Plan
--------------------------------------------- -------- ---------- ----------
Fair value at grant date GBP0.64 GBP1.59 GBP290.22
Share price at grant date GBP1.70 GBP1.70 GBP1.70
Exercise price GBP1.70 GBP0.01 GBP1.785
Expected volatility 40% 40% 40%
Option life (expected weighted average
life) 3 3 3
Expected dividends 2% 2% 2%
Risk-free interest rate (based on government
bonds) 1.2% 1.2% 1.2%
--------------------------------------------- -------- ---------- ----------
Save As You Earn ("SAYE") scheme
On 24 September 2018, the Group established the Save As You Earn ("SAYE") scheme and invited all Group employees to enter into a three-year savings contract linked to an option which entitles them to acquire Ordinary Shares in the Company.
537,618 options were issued under the scheme, with an exercise price of GBP1.70. The fair value of the shares at date of grant (1 December 2018) was GBP0.70, and the share options are due to vest in three years. Expected volatility, dividends and the risk-free interest rate have been assumed to be consistent with the approved CSOP scheme noted above.
During 2019, 119,631 awards (2018: nil) under the above plans have been forfeited as a result of bad leavers. Assumed retention on the remaining options at 31 December 2019 is 90%.
Issued in 2019
Company Share Option Plan ("CSOP")
In September 2019, the Group established an additional Company Share Option Plan ("CSOP"), which granted share options to certain key management personnel. The CSOP consists of two parts, and all options are to be settled by physical delivery of shares. The terms and conditions of the share option schemes granted during the year ended 31 December 2019 are as follows:
Number Contractual
Scheme Grant date of awards Vesting conditions life of options
----------------- ------------ --------- ------------------- ---------------
26 September 3 years' service
Approved Scheme 2019 15,564 from grant date 3 to 10 years
26 September 2 years' service
Unapproved Scheme 2019 61,302 from grant date 3 to 10 years
26 September 1.52 years' service
Unapproved Scheme 2019 90,791 from grant date 3 to 10 years
----------------- ------------ --------- ------------------- ---------------
The fair value of services received in return for share options granted is based on the fair value of the share options granted. The fair value has been measured using the Black Scholes model.
The following inputs were used in the measurement of the fair values at grant date of the share-based payment plans:
Approved Unapproved Unapproved
CSOP CSOP CSOP
--------------------------------------------- -------- ---------- ----------
Fair value at grant date GBP0.54 GBP1.84 GBP1.86
Share price at grant date GBP1.93 GBP1.93 GBP1.93
Exercise price GBP1.93 GBP0.01 GBP0.01
Expected volatility 45% 45% 45%
Option life (expected weighted average
life) 3 2 1.52
Expected dividends 2% 2% 2%
Risk-free interest rate (based on government
bonds) 1.3% 1.3% 1.3%
--------------------------------------------- -------- ---------- ----------
Save As You Earn ("SAYE") scheme
On 26 September 2019, the Group established the 2019 Save As You Earn ("SAYE") scheme and invited all Group employees to enter into a three-year savings contract linked to an option which entitles them to acquire Ordinary Shares in the Company.
375,145 options were issued under the scheme, with an exercise price of GBP1.58. The fair value of the shares at date of grant (1 December 2019) was GBP0.70, and the share options are due to vest in three years. Expected volatility, dividends and the risk-free interest rate have been assumed to be consistent with the approved CSOP scheme noted above.
During 2019, 3,417 shares have been forfeited as a result of bad leavers. An assumed retention rate of 85% has been applied at 31 December 2019 on the outstanding shares.
Reconciliation of outstanding share options
The number and weighted average exercise prices of share options under the share option programmes were as follows:
Weighted
Weighted average
Number of average exercise Number of exercise
options price options price
31 December 31 December 31 December 31 December
2019 2019 2018 2018
GBP GBP
--------------------------- ----------- ----------------- ----------- -----------
Outstanding at 1 January 1,036,808 1.29 - -
Forfeited during the year (128,930) 1.70 - -
Exercised during the year - - - -
Granted during the year 542,802 1.15 1,036,808 1.29
--------------------------- ----------- ----------------- ----------- -----------
Outstanding at 31 December 1,450,680 1.20 1,036,808 1.29
--------------------------- ----------- ----------------- ----------- -----------
Exercisable at 31 December - - - -
--------------------------- ----------- ----------------- ----------- -----------
The options outstanding at 31 December 2019 had an exercise price in the range of GBP0.01 to GBP1.93 (2018: GBP0.01 to GBP1.785) and a weighted average contractual life of 2.9 years (2018: 3.0 years).
15. Notes to the cash flow statement
Year ended Year ended
31 December 31 December
2019 2018
GBP000 GBP000
Cash flow from operating activities
Profit after taxation 8,626 2,849
Add back / (deduct):
Finance income (123) (79)
Finance cost 1,281 2,257
Fair value losses on derivative financial
instruments - 345
Taxation 2,218 1,385
12,002 6,757
Adjustments for:
Amortisation of development expenditure
and software 633 133
Depreciation of property, plant and equipment 286 256
Depreciation of lease asset 707 -
Amortisation of other intangible assets 1,579 257
Share option charge 512 320
Operating cash flow before movements in
working capital 15,719 7,590
Increase in receivables (282) (1,186)
(Decrease) / increase in trade and other
payables (3,290) 620
Cash generated from operations 12,147 7,024
Income taxes paid (1,759) (991)
Net cash generated from operating activities 10,388 6,033
16. Acquisitions
On 21 March 2019, the Group purchased 100% of the share capital of Regulus Topco Limited, owner of Defaqto, a financial services tech business for total consideration of GBP51.4m. Acquired borrowings of GBP24.7m were settled soon after completion of the transaction.
The acquisition of Defaqto creates a single fintech and support service group, which will benefit from an increased number and range of distribution channels. In the period to 31 December 2019, Defaqto contributed revenue of GBP11.8m, adjusted EBITDA of GBP4.9m and operating profit of GBP4.7m. If the acquisition had occurred on 1 January 2019, management estimates that revenue would have been GBP15.1m, operating profit of GBP5.9m and adjusted EBITDA of GBP6.1m.
The Group incurred acquisition related costs of GBP2.5m relating to external legal, broker and professional fees. GBP1.6m of these costs have been included in 'operating expenses' in the consolidated statement of profit or loss and other comprehensive income and analysed separately as 'operating costs of an exceptional nature' in note 8. The remaining GBP0.9m relating to the equity raised for the transaction has been charged to Share Premium.
The following fair values have been determined provisionally, based on the Group's preliminary assessment. The Group will continue to review the fair values during the measurement period. If new information obtained within one year of the date of acquisition about facts and circumstances that existed at the date of acquisition identifies adjustments to the above amounts, or any additional provisions that existed at the date of acquisition, then the accounting for the acquisition will be revised. The fair values have been updated since the 2019 Half Year Results to remove capitalised development costs, as these are considered to be included within the Intellectual Property asset.
Provisional Fair
Value
GBP000
Net assets acquired
Property, plant & equipment 213
Lease asset 206
Other intangible assets - software 34
Trade and other receivables 2,791
Income tax receivable 578
Cash and cash equivalents 5,030
Trade and other payables (3,281)
Deferred revenue (7,360)
Borrowings (24,676)
Lease liability (206)
Intangible assets - Brands 2,940
Intangible assets - Intellectual property 23,551
Deferred tax liability (4,814)
(4,994)
Consideration paid
Cash price paid 43,894
Shares issued 7,489
51,383
Goodwill 56,377
The intellectual property asset is a single primary asset covering customer relationships, technology and data, which collectively meet the separability criteria in IAS 38.
Measurement of fair values
The valuation techniques used for measuring the fair value of material assets and liabilities acquired were as follows:
-- Property, plant and equipment - Market comparison technique and cost technique: The valuation model considers market prices for similar items when they are available, and depreciated replacement cost when appropriate. Depreciated replacement cost reflects adjustments for physical deterioration as well as functional and economic obsolescence.
-- Intangible assets - Relief-from-royalty method and multi-excess earnings method: The relief-from-royalty method considers the discounted estimated royalty payments that are expected to be avoided as a result of the patents being owned. The multi-period excess earnings method considers the present value of net cash flows expected to be generated by the customer relationships, by excluding any cash flows relates to contributory assets.
-- Deferred revenue - The deferred revenue has been recorded at book value on the basis that future cash outflows of a market participant would not be significantly different.
Goodwill acquired on the acquisition relates to the assembled workforce and the synergies expected to be achieved from integrating the company into the Group's existing business. None of the goodwill recognised is expected to be deductible for tax purposes. The acquisition significantly expands our customer base and breadth of proposition, whilst enhancing the Group's product margins. The strategic combination of SimplyBiz and Defaqto creates a single fintech and support services group, which now benefits from an increased number and range of distribution channels.
In January 2019, the Group finalised the fair value assessment for the acquisition of Landmark Surveyors and as a result goodwill was increased by GBP29,000.
17. Subsequent Events
On 28 January 2020, the Group entered into a new 15-year property lease with Portus Felix Limited, a company in which Ken Davy is a connected party. The right of use asset has been valued at GBP2.6m and will be offset by at GBP2.6m lease liability reflecting the discounted committed cash outflows.
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.
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March 10, 2020 03:00 ET (07:00 GMT)
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