TIDMBOKU
RNS Number : 9526T
Boku Inc
26 March 2019
26 March 2019
Boku, Inc.
("Boku" or the "Company" and, together with its subsidiaries,
the "Group")
Final Results
Boku (AIM: BOKU), the world's leading independent direct carrier
billing company, today announces its final audited results for the
year ended 31 December 2018.
Financial Highlights
-- Revenue up 45% to $35.3m (2017: $24.4m)
-- Adjusted EBITDA $6.3m vs. 2017 Adjusted EBITDA** loss
($2.3m)
-- Reported Net loss of $4.3m down 85% (2017: $28.1m)
-- $32.3m Gross cash at year end (31 December 2017: $20.2m)
-- Monthly average cash balances of $24.4m (2017: $19.2m)
Operational Highlights
-- Total Payment Volume (TPV) doubled to over $3.6bn (2017:
$1.7 billion)
-- 13.5 million Monthly Active Users (MAU) in December 2018
(December 2017: 8.0 million)
-- 70 new Boku Account connections for major customers such
as Apple, Microsoft and Spotify (2017: 45)
-- Acquisition of mobile identity business, Danal Inc.on
1 January 2019
**Adjusted EBITDA: Earnings before interest, tax, depreciation
and amortisation, adjusted for stock option expenses, forex
gains/losses and exceptional items
Jon Prideaux, Chief Executive of Boku Inc, commented: "2018 has
been a transformational year for Boku; two major milestones include
reporting our maiden positive Adjusted EBITDA for the whole year
and the acquisition of mobile identity business, Danal Inc. We've
delivered growth on all of our KPIs illustrated at both the top and
bottom lines.
"We believe that 2019 will be another year of exceptional growth
as we continue to build upon our strong Payments business, growing
Identity business, and our state of the art platform to deliver
further products and services to our customers."
Capital Markets Day
Boku will hold a Capital Markets Day for institutional investors
and analysts on Wednesday 22 May 2019. The event will be held in
London, with the venue and timing to be confirmed. Further details
will be provided in due course.
Enquiries:
Boku, Inc.
Jon Prideaux, Chief Executive Officer +44 (0)20 3934
Stuart Neal, Chief Financial Officer 6630
Peel Hunt LLP (Nominated Adviser and Broker) +44 (0)20 7418
Edward Knight / Peter Stewart / Nick Prowting 8900
IFC Advisory Limited (Financial PR & IR)
Tim Metcalfe / Heather Armstrong / Florence +44 (0)20 3934
Chandler 6630
Notes to Editors
Incorporated in 2008, Boku is the world's leading independent
carrier commerce company. Boku's Platform, which is linked to
billing, identity and sales systems of more than 170 mobile network
operators, simplifies transacting on mobile devices. Boku's Payment
products enable mobile phone users, of which there are more than
five billion worldwide, to buy goods and services and charge them
to their mobile phone bill or pre-pay balance. Its Identity
Products are used to verify user details. Companies like Apple,
Google, Facebook, Microsoft, PayPal, Spotify, Square, Sony and
Western Union use Boku to simplify sign-up, acquire new paying
users and prevent fraud.
Chairman's Statement
2018 has been a year of growth and expansion for Boku. Volumes
processed through the platform have more than doubled to $3.6
billion, further strengthening our lead as the world's largest
independent carrier billing company. New customers like Netflix and
Rakuten have started to use our platform and existing customers
like Sony, Spotify and Apple have expanded their use. Revenues have
increased by 45% and for the first time adjusted EBITDA was
positive for the whole year.
This increasing scale is a source of considerable competitive
advantage to the Company. As a platform business, where incremental
transactions can be processed for minimal marginal expense, higher
volumes drive lower unit costs. This makes Boku a difficult company
with which to compete.
The real value that we provide to our customers is to help them
acquire new paying users and so it is a source of real pride that
the number of Monthly Active Users making payments on the Boku
Platform has increased to more than 13.5 million in December 2018,
an increase of 66% over December 2017.
Last year I indicated that the Company was looking to invest in
new capabilities that would allow new value to be unlocked from the
platform. The acquisition of Danal Inc., completed on 1 January
2019, which makes the Company a leading player in the Mobile
Identity market is just such an opportunity. Boku, by virtue of
this acquisition, is now able to diversify its addressable market
beyond digitally downloaded content to also include electronic
remittances, mobile payments, on-demand services, online banking
and government services. This application of our platform will
drive future growth and lessen the risk of revenue
concentration.
I want to thank my fellow Non-Executive Directors for their
service throughout the year. Both Richard Hargreaves who chairs the
Remuneration Committee and Keith Butcher who performs a similar
function for the Audit Committee have been generous with their time
and expertise to help the Company make the most of its public
company position.
2019 will be another pivotal year. We have embarked on a course
designed to help us diversify from being a single product company
to become one with multiple products driven from our
state-of-the-art platform. The management have developed the
organisation to the point of profitability, and I have every
confidence in their ability to help it achieve its potential.
I look forward to seeing yet further significant growth over the
course of the next year.
Mark Britto
Non-Executive Chairman
25 March 2019
Chief Executive Officer's Report
2018 has been a stellar year for Boku. The volume of payments
processed by the Boku Platform more than doubled. Revenues
increased by 45%, costs grew only modestly, and the result was the
Company's maiden positive Adjusted EBITDA for the whole year.
Looking to the future, our Payments business is on a steady
growth trajectory. Operating in an expanding market, with most of
the largest digital companies as customers, our growth is
underpinned by their success. But, more than this, our business
will benefit from an increased number of connections; in 2018 the
number of our most advanced, Boku Account, connections increased to
177, enabling Boku payment for many millions of new
subscribers.
These connections have now only started to yield their potential
volume and revenue: once launched, subscribers only gradually
discover our service as they attempt to make purchases. As a
result, a two-year maturity cycle applies, meaning that the 109%
TPV growth that we reported for 2018 is a consequence of the
deployments that we made in the preceding two years, and the
deployments undertaken this year still have two more years of
growth to deliver.
Taken together, this provides a platform for steady growth with
a predictable profile.
The Boku Payments business is generating more recurring revenue
from returning users. Our users now fall into three categories,
one-off; regular subscriptions and pseudo-subscriptions, like the
app stores, where consumers repeatedly (though not necessarily
regularly) make transactions using their phone number as their
stored payment credential. This recurring revenue helps boost our
volume. Every month around 1.5 million users make their first Boku
transaction; with increasing numbers of them transacting
repeatedly, growth continues to compound.
With gross profit margins at 93% (2017: 91%) and plentiful
growth on predictable trends it would be easy to be complacent.
It's tempting to play things safe. Tempting, but wrong.
A company can strive to breakthrough to profitability for years.
On reaching profitability, a company is typically congratulated
however, the point of profitability is a dangerous time. The
company is faced with a choice: does it settle for what it has, or
carry on investing for growth? Does one reap or sow?
All things must pass. The growth achieved from pursuing one
application of Boku's platform will inevitably, eventually peak
over time. Not this year or next, but inevitably the S curve will
start to asymptote, level off, slow down.
So, Boku has chosen a path of growth: we have built a platform
which brings together the world's largest connected community and
for now, most of our revenue comes from using it to help people
sign up smoothly to digital services. We're powering app stores.
We're helping digital music services to grow their premium users,
streaming video companies come to us to help them grow their user
bases too. But collectively these sectors account for only 5% of
global e-commerce.
Our technology can help more than 5% of commerce - our
imperative is to build out our platform to be able to service new
merchant segments including Finance, Payments, Money Transfer,
Governments and On-demand services; to provide these organisations
with a way for their customers to transact on mobile with security
and ease of use; to address a bigger market and to embrace the
bigger trend, not just the movement to digital entertainment, but
to embrace the wider movement to mobile transactions.
Our acquisition of Danal Inc. should be seen in this context. It
is the springboard that will enable us to repeat our trick of
becoming the globally dominant player in our segment driven by our
access to carrier assets. With a great platform, strong channel
partners and identity connections already live with carriers in
North America and Europe, we have acquired a business at a point of
inflection that has signed up important customers and is ready to
deploy its services more broadly, within a market that is
experiencing substantial growth.
Faced with the choice of reaping or sowing, we have chosen the
path of investment; to expand our business, take some of the cash
that is being generated from the Payments Business and build a
second business line, Identity, on the Boku Platform; to utilise
the same skills, carrier connections and sales approach to build a
second strand of Carrier Commerce.
Outlook
We look forward to 2019 with enormous optimism. In the next 12
months, Boku will operate with multiple product lines across a
broader set of customers, adding value to a greater proportion of
mobile commerce. For 2019, we anticipate that continued growth in
our Payments Business and investment in Identity will deliver
Revenues of at least the current analyst consensus of $52 million,
with 15% to 20% of this coming from Identity. Trading in Identity
has so far been encouraging with a significant contract signed in
February. Gross Margins in Payments are projected to remain strong
at 93%, those in the Identity business will strengthen to
c.40%.
We expect Adjusted EBITDA to grow by 45-50%, driven by
underlying performance and the implementation of IFRS 16 ($1.9
million).
Our forecast is for a record year: record revenues, record
EBITDA, investment in new products and continued cash generation.
And this is just the start, our flexible platform allows us to roll
out new products into other sectors, to make more mobile
transactions simple. Truly, the journey has just begun.
Jon Prideaux
Chief Executive Officer
Date 25 March 2019
Chief Financial Officer's Report
2018 was the year that Boku became a multi-product business,
with significant investment in Mobile Identity services,
culminating in the acquisition of Danal Inc.
What is pleasing about our 2018 results is the degree of
predictability in our Payments division. We help our merchants to
acquire new paying users, these users in turn consume digital
products and this drives our TPV number. TPV is the raw material
from which we generate revenue. The other key ingredient to our
revenue is the take rate - for the year to December 2018 our
weighted average take rate fell at a far slower rate from 1.4% in
2017 (compared to 3.1% to 1.4% between 2016 and 2017). This decline
was fully anticipated and reflects a mix of business and volume
related discounts for certain clients.
Net Loss
The Company reported a Net Loss for the year of $4.3 million, an
improvement of 85% compared to the $28.7 million the net loss
posted in 2017 (2017 included costs of Admission to AIM and the
conversion of convertible notes. Net of these costs, 2017 Net Loss
would have been $7.4 million). Net Profitability in 2018 was
influenced by a change in accounting for Employee Long Term
Incentives (up $3.1 million on 2017 driven by a higher company
share price and a change in accounting policy for tax on
share-based payments), a write down of a deferred tax asset ($1.1
million), the costs of acquiring Danal Inc ($0.4 million) and some
internal restructuring costs ($0.6 million).
When adjusted for the above items, the Net Profit would have
been a $1.3 million for 2018 (please refer to note 4 to the
financial statements for further details).
Revenue and Gross Margin
Revenue for the year of $35.3 million was up by 45% on 2017.
This performance was driven by overall TPV growth and average
weighted take rates that held up at 1%.
Strong growth from our App Store clients was balanced with an
equally buoyant performance by our Settlement business portfolio.
The Company benefitted from exposure across all channels to market
phenomena such as FIFA, Fortnite and general growth in the market
for Digital products and services.
Having a mixed portfolio of customers in Music Subscriptions,
Movies, Games, Social Media, in addition to supporting both direct
and indirect channels, helps to maintain a reasonable margin
mix.
Mix of business combined with continued buying prowess helped
gross profit margin continue to increase to 93% up from 91% in the
previous year. Gross Profit therefore climbed 48% on revenue that
was up 45%.
Operating Expenditure
Adjusted Operating Expenditure (Operating Expenditure adjusted
for depreciation, amortisation, foreign exchange, stock option
expense, exceptional items, loss on disposal of property and
restructuring costs) increased by 8% to $26.4 million in 2018
(2017: $24.5 million). The 2018 increase was mostly driven by the
Group's GBP1.5 million of seed investment in Boku Labs and Boku
Mobile Identity. Please refer to note 5 for details.
Underlying expenditure in the core Payments Business grew by
just $0.4 million (2% higher than 2017). The majority of this
increase resulted from a modest investment in our core payments
infrastructure, more specifically a data centre upgrade project
which increased the latent processing capacity of the Boku platform
to now be capable of processing at up to 600 transactions per
second (TPS) (current highest peak is 216 TPS).
From 1(st) January 2019 onwards, costs relating to Operating
Leases will be required to be capitalised and amortised below
EBITDA under IFRS16. This will have the effect of increasing the
Company's EBITDA going forward (please refer to Note 1 of the
Financial Statements for further details).
Operating Result
Reported Operating Losses for 2018 of $2.4 million were down
from $9.0 million in 2017. This can be broken down as follows:
-- Foreign Exchange movements caused a small ($0.3 million)
charge to the P&L compared to a $0.4 million gain in 2017.
-- Stock Option Expenses - The Company recognised costs of $4.6
million in 2018 compared with $1.5 million in 2017. Of the $4.6
million booked in 2018, $1.0 million was paid out in cash (via
employers NI), the remainder was non-cash and expensed per
below:
o During 2018 the Company introduced a new Employee Equity
Scheme to retain and reward employees. Within the scheme, share
awards for senior management are deferred by 3 years and are "paid
out" in line with company performance against Adjusted EBITDA/share
targets.
o Due to the high share price on the date of issuing the RSU
grants (September 2018: $2.24; 2017: $0.37 pence per share) to the
employees and executives the share-based compensation expense is
far higher than in previous years (2018: $3.4 million; 2017:
$909,000).
o The 2018 expense is highly influenced by the change in
accounting policy for accrued employer payroll taxes on issued
share options (see note 2).
-- Exceptional Items improved from $2.6 million of cost to $1.1
million of cost between 2017 and 2018 In 2018. Exceptional Items
incorporated the cost of acquiring Danal Inc ($0.4 million, which
mostly includes the legal costs incurred prior to the acquisition
of Danal on 1January 2019) and the cost of closing a surplus legal
entity in Italy ($0.6 million). In 2017 exceptional items included
costs relating to the Admission on AIM ($2.1 million).
Adjusted EBITDA improved from a loss of $2.3 million in 2017 to
a profit off $6.3 million in 2018.
Financing Expenses
Net financing expense reduced significantly from $19.6 million
in 2017 to $0.6 million in 2018. The 2018 cost includes the
one-time costs of $0.1 million to early exit a German factoring
facility in Q1 2018.
In addition, the working capital debt facility was paid down to
minimum interest levels ($2.2 million) in Q1 2018.
Run rate interest expenses are just $15,000 per month as at
December 2018.
2017 Finance expenses include the finance costs related to
Convertible Notes which were converted into common stock at the
Admission to AIM ($17.1 million).
Balance Sheet and Cashflow
The Company strengthened its cashflow in 2018 which can be
demonstrated by its closing cash balances increasing to $32.3
million at the end of 2018 from $20.2 million at 31 December
2017.
Monthly average cash balances, which smooth the impact of
intra-month flows of both carrier and merchant payments, climbed to
$24.4 million in December 2018 from $19.2 million in December 2017,
proving that Adjusted EBITDA performance is starting to convert
into cash. Cash generated from Operations during the year was $13.5
million.
From a working capital perspective, Current Assets exceeded
Current Liabilities at 31 December 2018 by $4.4 million compared
with $1.3 million at the 2017 year end.
The working capital loan facility was reduced from $2.4 million
to $2.2 million during 2018. Net Cash was $30.1 million at the end
of 2018 (31 December 2017: $18.7 million).
Intangible Assets were reduced to $22.5 million over the period,
down from $25.8 million at December 2017 reflecting annual
amortisation. Remaining intangible assets include $17.9 million of
Goodwill emanating from historical acquisitions.
Looking Ahead and the Acquisition of Danal Inc
The Company successfully concluded the acquisition of Danal Inc,
effective 1 January 2019. The transaction will help the company to
springboard plans to widen its addressable target market
exponentially, beyond digitally downloaded content and into broader
m-commerce.
Danal was acquired for 26.7 million Boku shares (equal to 10.7%
of the enlarged share capital) with posted 2018 revenues of $5.3
million and expected strong revenue growth in2019 delivered through
a material sales pipeline. A further payment in Boku shares and
warrants will be made, on a ratcheted basis, should the acquired
business deliver above $10.0 million in revenues during 2019. Any
such payment or further issue of shares would be made in the
financial year ending 31 December 2020. As of the approval of the
Annual Report, the Group is finalizing its evaluation of the
purchase price accounting relating to the acquisition and an update
will be provided at the Group's forthcoming interim
announcement.
Revenue upside will be delivered through accelerated global roll
out to carriers with whom Boku already has a relationship and cross
sell opportunities into Boku's existing merchant base.
The Company expects the acquisition to be Group EBITDA accretive
from 2020 onwards.
Aside from investment in Mobile Identity, the Company expects to
see continued growth in its core Payments business and will be
making investments in new product developments in Payments to
sustain this growth. This will be funded through a modest increase
in Operating Expenses and by reallocating existing resources as
they roll off current projects.
Stuart Neal
Chief Financial Officer
Date: 25 March 2019
Market Review
Mobile Phones - the start of the usage revolution
Andreessen Horowitz, a leading venture capital firm and
shareholder in the company, made a presentation in 2016 called
"Mobile is eating the world" and another in 2018 called the "End of
the beginning". The thesis of the presentations was that whilst we
are well on the way to distributing smartphones to all adults on
the planet, the usage of those devices, which signals the start of
a new computing paradigm, has only just begun.
Use of the mobile device in commerce is growing rapidly - for
example, 40% of Amazon's sales in the US during the 2018 Holiday
season were initiated on a phone. In Asian countries, like India
and China, where internet adoption happened primarily on mobile,
not PC, the percentages are much higher. Despite this, Andreessen
Horowitz argues, we are still a long way short of achieving usage
to match the distribution.
This shift from distribution to usage is evident in Apple's
change of emphasis from a business that grows primarily by selling
new iPhones to one that grows by selling more services to the
existing base of iPhone customers.
The distribution task is basically over. But mass usage is just
beginning.
This unprecedented, global deployment of computing power has
created a new, mobile-centric economy. As usage increases, an
ever-wider selection of goods and services will be bought and sold
on the smart phone. Online retail, digital entertainment, on-demand
services, and even interactions with Governments are undertaken on
mobile, and every one of those interactions - which embrace the
whole lifecycle including enrolment, login, purchase, and regular
usage -- needs to be easy for the user and secure for the
supplier.
Mobile Phone vs PC - a different paradigm
Transacting on mobile is not the same as transacting on a PC,
just with a smaller screen. Many problems that have been solved for
the PC need to be solved again for mobile. To illustrate this in a
small way: most e-Commerce services use your email address as your
identifier. But many people who have come to the internet in a
mobile-first environment don't have an email address, or prefer not
to use it. They use WhatsApp or WeChat or Facebook Messenger to
communicate. The index of their digital identity is not their email
address, it's their mobile phone number.
The smartphone changes the user interface. It's hard enough to
type in 16 digits of your card number on a keyboard (and the
4-digit expiry date and the 3-digit CVV and quite possibly your
name and address too), but, on the glass of a smartphone, it's
positively painful.
On the other hand, mobile phones offer many unique advantages -
they are always with the user, they can be geo-located, they have
multiple sensors including built-in cameras, Bluetooth antennae,
biometric readers, and a network connection that allows the user to
download, install, and run countless apps from anywhere in a matter
of seconds. These advantages offer the potential for a completely
new user experience.
Disruption across Multiple Industries
This new mobile computing paradigm is disrupting industry after
industry at every stage of the customer lifecycle. How you get your
bank account; the way that transportation services are delivered;
the fact that you're prepared to register to consume music or watch
films; the way you play games and how you pay for them; how you
book hotel rooms how you book a restaurant or order a takeaway. All
these experiences are different today because we have in our
pockets a location aware, user-friendly computer that is connected
to the internet at all times.
The move to mobile has, in particular, disrupted entertainment:
the digitisation of games, music and video has proceeded apace. The
old media of CDs and DVDs have become all but obsolete. There is a
landgrab underway, with new and established players trying to sign
up as many new users as possible. Removing friction from the
sign-up process and accessing as many users as possible became
necessary parts of the armoury for any serious digital content
provider. Providing solutions for merchants in this area has been
Boku's initial focus.
But mobile disruption doesn't just apply to digital, it applies
to all types of transaction. As more business transactions across
more market sectors migrate to mobile, the same challenges that
faced digital content merchants now apply to a much wider range of
other businesses - the need to attract and retain high quality
users is universal.
Risk and fraud solutions developed for the PC world don't always
address the problems of mobile: One-time PINs can be intercepted
with social engineering or malware, apps can be hacked, logins can
be phished, and phones, especially those running Android, can be
rooted and compromised. The result: increasingly large-scale abuse
and fraud on mobile. Legacy anti-fraud solutions typically add
friction to transactions. What is needed is a way to deliver
security with low friction on mobile. This is the next area where
Boku is providing solutions.
The Value of Mobile Operator Networks
What these two examples show is that as more businesses
transition to mobile, the need will grow for simple, secure ways to
acquire new customers, verify their identity, provision services
onto the handset and detect threats in real time. Because these
transactions all happen on mobile devices, Mobile Network Operators
hold the key.
Central to the Mobile Network Operator's ability to secure and
authorise voice and data connections is the SIM card. The SIM card
provides every mobile phone in the world with a secure element
owned by the Mobile Operator. The Mobile Operator can verify that
secure element, silently, in real-time; they can detect your mobile
number without having to ask for it. In most instances, they also
know who you are, know information about your mobile device, know
information about your payment or top-up history, and can
facilitate financial transactions by leveraging the existing
billing relationship they've set up with each mobile subscriber.
These assets provide a powerful and essential collection of tools
for enabling this new era of mobile usage.
Mobile Network Operators may hold the keys that can unlock much
of this latent potential, but they need Boku's help to
commercialise these unique assets because, in practice, these
capabilities are inaccessible and fragmented behind the hundreds of
different back office systems. It's easy for consumers to make
phone calls and send text messages, but it is nearly impossible for
businesses trying to access any other Mobile Network capability to
independently connect to the multitude of different Mobile Operator
systems.
The Boku Platform
Boku has developed a platform to solve the problem of accessing
and monetising these hard-to-reach mobile assets. By connecting to
the user-facing systems of Mobile Operators around the world, we
build products, delivered via simple-to-use APIs that enable
enterprise customers to transform the mobile experience for their
users and power the growth of their business.
With Boku as the trusted intermediary, we can make the power of
Mobile Networks available to the world's app developers, businesses
and governments.
Other solutions try to deliver low friction approaches, but they
require registration; with Boku you registered when you got the
phone.
The Boku Platform can use Mobile Network Operator and other
systems silently to:
-- authenticate the handset;
-- gather information about the device;
-- check the user's eligibility for different services;
-- charge and credit the user;
-- collect and disburse aggregated funds in multiple currencies from multiple countries;
-- provide new services onto mobile subscriptions;
-- provide coarse or fine location data for devices;
-- expose certain characteristics of the customer profile
including pre-paid/post-paid and length of tenure;
-- send and receive messages
These raw ingredients can be combined in different ways to
produce a myriad of products that solve problems for merchants.
While it is carrier information that provides the Boku Platform
with much of its distinctive character, the platform is also
effective in aggregating and harmonizing mobile capabilities that
come from other non-carrier sources. In mobile payment, these
additional payment methods can enhance the offer by providing
alternative sources of funds when the carrier bill is not
appropriate or economic. Combining carrier identity data with other
sources can deliver an even higher level of security or
insight.
The Boku Platform: Mobile Transactions Made Simple
Our platform is a powerful asset. Initially used to help
companies distributing digital content acquire new customers, its
capabilities can just as easily be applied to other aspects of the
customer journey and to other industries. Whether it's retaining
customers through prompted messaging, preventing the abuse of
marketing promotions, validating the users that access a service or
delivering the service to the right device, all aspects of the
customer journey can be enhanced by the Boku Platform.
At scale. Globally. Across multiple industries.
Having applied our technology to solving customer acquisition
for digital content, we now have the tools and capabilities that
can be applied to other parts of the value chain and across
multiple other sectors. We have started already by delivering
mobile fraud and identity solutions for Banking, Money Transfer and
On-Demand Services, and, once we have established strong presence
in these markets, we will repeat the process again in new sectors,
applying the power of our Platform that connects billions of
consumers through their most personal ubiquitous device to simplify
more aspects of mobile commerce.
The Benefits of Scale
To attract the biggest merchants, Boku built a global
organisation and a high function platform which meets the needs of
many merchants. These merchants bring us the highest volumes of
transactions, which in turn, yield the lowest unit cost in the
industry. In the last two years, as the volume of successful
transactions processed through the Boku Platform has more than
tripled, unit costs have reduced by nearly three quarters. Further
growth is possible at modest cost: in the course of 2018, capacity
was increased by 55% for an expenditure of less than $330,000.
Bigger is also better: Boku's scale brings more data to optimise
performance. For example, the value of transactions processed
through a single merchant-carrier connection increased by 37% after
it was moved to the Boku Platform, through the use of Boku's
optimisation tools. On average, a Merchant that uses our Platform
can expect to see its volume increase by more than 20%. These
economies and advantages apply across multiple products - success
in Payments means better Identity products. Wider coverage for one
application helps another.
Carrier Network
The carrier network that Boku has built over 10 years with an
investment of more than $100m is hard to replicate. The
unparalleled level and quality of carrier connections that we enjoy
is a consequence of the merchant connections that we have been able
to acquire. Because each carrier connection is unique it would be
very hard, if not impossible, for anyone else, even had they the
resources, to be able to copy the breadth and depth of our carrier
network.
Global Merchant Base
Boku has developed an unrivalled network of Global brands as
customers. Companies like Apple, Facebook, Microsoft, Netflix,
PayPal, Rakuten, Sony, Spotify, Square, Uber and Western Union all
trust Boku to be their Partner. With 13 offices in 10 countries
Boku has developed the global coverage and the way of working that
makes us the natural choice for any organisation looking to access
the power of mobile operator networks globally.
Boku Payments For Digital Goods
The market for digital content paid for by carrier billing is
estimated by Ovum at $26 billion in 2018, growing at 11% CAGR
(Compound Average Growth Rate).
Target Merchants
Many of the world's largest digital retailers including app
stores, like Apple and Google, console makers like Microsoft and
Sony, and streaming companies like Spotify and Netflix, utilise
Boku, as do the leading MMO (massive multiplayer online) game
publishers such as Activision Blizzard and Tencent Riot, social
gaming platforms such as Facebook Games, and gaming PSPs (payment
service provider) such as Xsolla. We are also seeking to extend our
reach in Asia, targeting companies from China, Korea and Japan to
help them acquire new users, especially as they seek to expand
abroad.
Merchant Benefits
Boku Payments help digital merchants recruit new users.
Oftentimes, users only need a single tap to set their phone number
as their payment credential, improving conversion rates. Whilst
charging to your phone bill is an expensive means of payment for
merchants compared to bank-provided alternatives, it is a
cost-effective means of acquiring new users.
Business Model and Revenues
Boku Payments have processed over $3.6 billion of transactions
in 2018 and accounted for all the revenue generated by the Boku
Group in 2018 at $35.3 million, an increase of 45% compared to the
previous year.
Fees are charged as a percentage of the overall transaction
value with some differences between customers depending on whether
Boku handles the funds (the settlement model) or acts solely as a
technical processor (transaction model). Some merchants also
receive volume discounts as part of their pricing scheme. Take
rates (re divided by total payment volume) averaged 1% for the
year. The rate of reduction has stabilised, following reductions in
prior years driven by a change in the mix between the settlement
and transaction business models.
Growth Drivers
In 2018, Boku's volume grew by 109% to more than $3.6bn of value
processed, a relatively modest penetration of a large and growing
market. The disruption of digital has only just begun. App store
growth is forecast at 18% CAGR, which provides a strong tailwind
for Boku who already processes 40% of the carrier billed volume
coming from app stores. Further growth comes from Boku increasing
the number of Boku Account connections*, thereby making the service
more widely available. These connections increased to 177 by the
end of the year an increase of 65% on 2017's closing figure of 107.
Each new connection starts a process of discovery of the Boku
payment option amongst that carrier's customers, a process that
typically continues for two years. Further growth can also be
anticipated from new customers and new funding sources being added
to the Boku Platform. In short: super-normal growth is baked
in.
Competitive Advantage
Boku's advantage lies in its scale. Having more merchants helps
us get the best connections from carriers with the best commercial
conditions. In turn, this helps us to recruit more merchants which
drives up our transaction volumes and provides us a richer data set
for performance optimisation. Similarly, the fact that we have a
wider breadth of merchants and a larger scale of volume than any
other provider means that we can simultaneously have the broadest
range of functionality and the lowest unit costs.
*Connections relate to the link between the merchant and the
carrier
Boku Identity
The acquisition of Danal Inc., now renamed Boku Identity Inc.,
was completed on 1 January 2019.
McKinsey estimates the size of the Identity-as-a-Service at $10
billion in 2017, growing to $16 billion --$20 billion in 2022
(9-15% CAGR).
Geographically, all parts of the world are exhibiting growth,
but this is particularly pronounced in Asia, where identity data is
hard to source; mobile is the predominant channel for internet
access giving Mobile Operator data a distinct advantage.
Target Merchants
Any organisation transacting on a mobile device or wanting to
analyse the mobile behaviour of their users is a potential customer
for Boku Identity. Boku is particularly focused on organisations in
the Payments, Money Transfer, Banking, On-Demand Services and
Government sectors.
Customers of Danal Inc. include PayPal, Square, Western Union,
MoneyGram, JP Morgan Chase, BNP Paribas, Uber and the US
Government's Internal Revenue Service.
Merchant Benefits
Historically there has been a trade-off between ease of use and
security. Increase security and you introduce friction which can
drive away potential customers; provide a simple user experience
and leave yourself vulnerable to fraud. Boku Identity products
allow security with no friction, because the Mobile Operator knows
your phone number without having to ask. Using the secure SIM card
as your identity, combined with other back office data held by the
Mobile Operator, can reduce fraud and ensure compliance without
needing to inconvenience the end user.
Use cases:
- Secure, frictionless 2 Factor Authentication: Silently validate
a mobile device without the need for an SMS, using automatic
mobile number verification
- Know Your Customer: Streamline the KYC process by validating
the name and address entered by a user against Mobile Operator
data
- Promotion abuse: Reduce offer fraud by linking marketing
promotions to secure SIM-based user identities instead of
email or unverified mobile numbers
- Account Takeover Prevention: Pro-actively monitor and detect
SIM card changes to prevent SIM swap fraud
- Credit card and bank fraud: Reduce fraud by providing real-time
Mobile Operator data as risk inputs for enterprise risk
and fraud systems
- CRM data compliance: Ensure compliance with consumer regulations
by validating phone number ownership and monitoring for
phone deactivations and number transfers
Business Model and Revenues
Merchants are charged either on a per user basis - for
monitoring - or on a per transaction basis, typically with monthly
minimum amounts. In December 2018, 12.2 million numbers were being
monitored. 175 million billable transactions processed in 2018, a
95% increase on the number processed in 2017. At present charges
are predominantly for data elements, over time it is intended to
introduce premium pricing for higher value, packaged products.
Danal revenues amounted to $5.3 million in 2018 (pro-forma,
these unaudited revenues were reported by Danal Inc. prior to its
acquisition by Boku on 1 January), a modest increase from $5.1
million in 2017, generated from the provision of mobile identity
and compliance services to customers predominantly in the United
States.
Growth Drivers
As mobile transactions increase, demand for mobile identity
solutions is increasing in lockstep. There is plentiful demand.
Growth is constrained by supply of carrier data and sales capacity.
Both of these are addressed by integrating Boku Identity into the
Boku Group. Supply can be increased by Boku's capacity to source
and build new connections at global scale - 20 new connections are
planned for 2019. Sales capacity is being tripled, with more
account management and business development staff being hired.
Competitive advantage
Traditional identity providers have tended to connect to large
static databases, which are optimised for PC-based e-Commerce. Boku
Identity's connections provide access to the unique Mobile Operator
data set which provides real-time information about a customer's
status, all without interrupting the user experience.
Boku Identity is able to leverage the existing network of Mobile
Operator relationships and connection capabilities developed by
Boku Payments in order to expand into to new markets faster than
any competitor.
BOKU, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Restated*
Year ended Year ended
31 December 31 December
2018 2017
Note $'000 $'000
------------------------------------------------------------------------------- ----- ------------- -------------
Revenue 4 35,275 24,412
Cost of sales (2,512) (2,265)
------------- -------------
Gross profit 32,763 22,147
Administrative expenses 5 (35,179) (31,147)
Operating loss analysed as:
Adjusted EBITDA** 6,324 (2,319)
Depreciation and amortisation (2,794) (2,985)
Stock Option expense (4,593) (1,480)
Foreign exchange gains/(losses) (279) 428
Exceptional items (included in
administrative expenses) 5 (1,074) (2,644)
------------------------------------------------------------------------------- ----- ------------- -------------
Operating loss (2,416) (9,000)
Finance income 7 53 18
Finance expense 7 (631) (19,558)
Loss before tax (2,994) (28,540)
Tax expense 8 (1,339) (129)
------------------------------------------------------------------------------- ----- ------------- -------------
Net loss for the period attributable to equity holders of the parent company (4,333) (28,669)
------------------------------------------------------------------------------- ----- ------------- -------------
Other comprehensive income/(losses) net of tax
Items that will or may be reclassified to profit or loss
Foreign currency translation (loss)/gain (938) 2,269
Net increase/(decrease) in fair value of cash flow hedge derivatives 15 27 (38)
------------------------------------------------------------------------------- ----- ------------- -------------
Total comprehensive (loss)/gain for the period (911) 2,231
------------------------------------------------------------------------------- ----- ------------- -------------
Total comprehensive loss for the period attributable to equity holders of
the parent company (5,244) (26,438)
------------------------------------------------------------------------------- ----- ------------- -------------
Loss per share for loss attributable to the owners of the parent during the
year
Basic and fully diluted ($) 9 (0.02) (0.19)
------------------------------------------------------------------------------- ----- ------------- -------------
* the 2017 Income Statement was restated due to a change in
accounting policy to employer taxes for share options (and
RSUs).
**Earnings before interest, tax, depreciation, amortisation,
stock option expense, foreign exchange gains/(losses), and
exceptional items. Management has assessed this performance measure
as relevant for the user of the accounts
BOKU, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Restated*
31 December 31 December
2018 2017
Note $'000 $'000
--------------------------------- ----- ------------ ------------
Non-current assets
Property, plant and equipment 10 286 410
Intangible assets 11 22,466 25,799
Deferred income tax assets 8 254 714
--------------------------------- ----- ------------ ------------
Total non-current assets 23,006 26,923
--------------------------------- ----- ------------ ------------
Current assets
Trade and other receivables 13 51,658 59,115
Derivative financial instrument 15 3 -
Cash and cash equivalents 14 31,073 18,741
Restricted cash 14 1,251 1,439
--------------------------------- ----- ------------ ------------
Total current assets 83,985 79,295
--------------------------------- ----- ------------ ------------
Total assets 106,991 106,218
--------------------------------- ----- ------------ ------------
Current liabilities
Trade and other payables 16 77,374 75,514
Derivative financial instrument 15 - 24
Loans and borrowings 17 2,193 2,482
Total current liabilities 79,567 78,020
--------------------------------- ----- ------------ ------------
Non-current liabilities
Other payables 16 107 124
Deferred tax liabilities 8 671 -
Loans and borrowings 17 - 43
--------------------------------- ----- ------------ ------------
Total non-current liabilities 778 167
--------------------------------- ----- ------------ ------------
Total liabilities 80,345 78,187
--------------------------------- ----- ------------ ------------
Net assets/ (net liabilities) 26,646 28,031
--------------------------------- ----- ------------ ------------
Equity attributable to equity
holders of the company
Share capital 18 22 21
Share premium 178,079 174,220
Cash flow hedging reserve 3 (24)
Foreign exchange reserve (1,867) (928)
Retained losses (149,591) (145,258)
--------------------------------- ----- ------------ ------------
Total equity 26,646 28,031
--------------------------------- ----- ------------ ------------
* the restatement relates to a change in accounting policy to
employer taxes for share options (and RSUs).
BOKU, INC.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Cash flow Foreign
hedging exchange
Share capital Share premium reserve reserve Retained losses Total
$'000 $'000 $'000 $'000 $'000 $'000
----------------- -------------- ---------------- --------------- ---------------- ---------------- ----------
Equity as at 1
January 2017 15 119,315 14 (3,197) (116,589) (442)
----------------- -------------- ---------------- --------------- ---------------- ---------------- ----------
Loss for the
year restated* - - - - (28,669) (28,669)
Other
comprehensive
income/
(losses) - - (38) 2,269 - 2,231
Issue of new
shares on IPO 2 19,023 - - - 19,025
Shares issued
for convertible
note 4 33,772 - - - 33,776
Shares issued in
respect of
warrants - 462 - - - 462
Share issue
costs - (983) - - - (983)
Issue of share
capital upon
exercise of
3,357 stock
options 1,722 - - - 1,722
Share-based
payment(1) - 909 - - - 909
----------------- -------------- ---------------- --------------- ---------------- ---------------- ----------
Equity as at 31
December 2017 21 174,220 (24) (928) (145,258) 28,031
----------------- -------------- ---------------- --------------- ---------------- ---------------- ----------
Loss for the
year - - - - (4,333) (4,333)
Other
comprehensive
income/(losses) - - 27 (939) - (912)
Issue of share
capital upon
exercise of
9,710,341 stock
options 1 510 - - - 511
Share-based
payment(1) - 3,349 - - - 3,349
----------------- -------------- ---------------- --------------- ---------------- ---------------- ----------
Equity as at 31
December 2018 22 178,079 3 (1,867) (149,591) 26,646
----------------- -------------- ---------------- --------------- ---------------- ---------------- ----------
(1) Share based expense has been credited against share premium
in accordance with the local company law and practice in US.
Employer taxes paid on the exercise of shares as well as the
accrual for employer taxes has been recorded in the retained losses
reserve.
* the restatement relates to a change in accounting policy to
employer taxes for share options (and RSUs).
BOKU, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Restated*
Year ended Year ended
31 December 31 December
2018 2017
Note $'000 $'000
-------------------------------------------------------------------- ----- ------------- -------------
Cash generated from/ (used in) operations 23 13,742 (6,819)
Income taxes paid (248) -
-------------------------------------------------------------------- ----- ------------- -------------
Net cash from/ (used in) operating activities 13,494 (6,819)
-------------------------------------------------------------------- ----- ------------- -------------
Investing activities
Purchase of property, plant and equipment (91) (223)
Purchased of software development (238) (97)
Restricted cash (net) 188 (959)
Investments, net of cash acquired 12 (164) -
Interest received 53 18
Net cash used in investing activities (252) (1,261)
-------------------------------------------------------------------- ----- ------------- -------------
Financing activities
Payments to finance lease creditors (82) (117)
Share Issue Costs - (983)
Issue of common stock 510 20,747
Interest paid (631) (937)
Proceeds from line of credit - 2,321
Repayment of line of credit (250) (5,921)
Net cash from financing activities (453) 15,110
-------------------------------------------------------------------- ----- ------------- -------------
Net increase in cash and cash equivalents 12,789 7,030
Effect of foreign currency translation on cash and cash equivalent (457) 389
Cash and cash equivalents at beginning of period 18,741 11,322
-------------------------------------------------------------------- ----- ------------- -------------
Cash and cash equivalents at end of period 31,073 18,741
-------------------------------------------------------------------- ----- ------------- -------------
* the restatement relates to a change in accounting policy to
employer taxes for share options (and RSUs).
Notes to the Consolidated Financial Statements
1. Corporate Information
The consolidated financial information represents the results of
Boku Inc. ("the Company") and its subsidiaries (together referred
to as "the Group").
Boku Inc. is a company incorporated and domiciled in the United
States of America. The registered office of the Company is located
at 735 Battery St., 2nd Floor, and San Francisco, CA 94111, United
States.
On 20(th) November 2017, the Company's shares were listed on the
Alternative Investment Market of the London Stock Exchange
("AIM").
The principal business of the Group is the provision of mobile
billing and payment solutions for mobile network operators and
merchants. These solutions enable consumers to make online payments
using their mobile devices.
The financial information set out in this document does not
constitute the Group's full annual Report and financial statements
for the year ended 31 December 2018 or 31 December 2017. The annual
report and financial statements for the year ended 31 December 2018
were approved by the Board of Directors on 25 March 2018, along
with this preliminary announcement. The financial statements for
the year ended 31 December 2018 have been reported on by the
Independent Auditor. The Independent Auditor's report on the
financial statements for the year ended 2018 was unqualified and
did not draw attention to any matters by way of emphasis.
2. Accounting policies
The financial information has been prepared using the historical
cost convention, as modified by the revaluation of certain
derivative financial instruments, as stated in the accounting
policies below. These policies have been consistently applied to
all periods presented, unless otherwise stated.
Basis of preparation
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards as
adopted by the EU ("IFRS") and IFRIC Interpretations issued by the
International Accounting Standards Board (IASB).
The preparation of financial statements in compliance with IFRS
requires the use of certain critical accounting estimates. It also
requires Group management to exercise judgment in applying the
Group's accounting policies. The areas where significant judgments
and estimates have been made in preparing the financial statements
and their effect are disclosed below.
The presentation currency of the financial statements is US
Dollars, rounded to the nearest thousands ($'000) unless otherwise
indicated. The Company's functional currency is US Dollars.
Going concern
The Directors have prepared a cash flow forecast covering a
period extending beyond 12 months from the date of this financial
information.
The forecast contains certain assumptions about the performance
of the business including growth in future revenue which are deemed
high volume and low value in nature, the cost model and margins;
and importantly the level of cash recovery from trading.
Furthermore, investment in winning customers via marketing
expenditure, remains an important function of the forecasts. The
Group obtained additional funding through the placement of shares
on AIM in November 2017 which helped fund the business during 2018.
Boku has been cash generative during 2018 which helped provide
further working capital to cover all operating activities.
The Directors are aware of the risks and uncertainties facing
the business, but the assumptions used are the Directors' best
estimate of the future development of the business.
After considering the forecasts and the risks, the Directors
have a reasonable expectation that the Group has adequate resources
to continue in operational existence for the foreseeable future.
For these reasons, they continue to adopt the going concern basis
of accounting in preparing the financial information.
Basis of consolidation
Where the company has control over an investee, it is classified
as a subsidiary. The company controls an investee if all three of
the following elements are present: power over the investee,
exposure to variable returns from the investee, and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
The consolidated financial information presents the results of
the company and its subsidiaries ("the Group") as if they formed a
single entity. Intercompany transactions and balances between group
companies are therefore eliminated in full.
The consolidated financial information incorporates the results
of business combinations using the acquisition method. In the
statement of financial position, the acquiree's identifiable
assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date. The
results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is
obtained. They are deconsolidated from the date on which control
ceases.
A list of the subsidiary undertakings which, in the opinion of
the Directors, principally affected the amounts of profit or loss
and net assets of the Group is given in note 12 of the financial
information.
Changes in accounting policies and disclosures
(a) New and amended standards adopted by the Group
The Group has applied any applicable new standards, amendments
to standards and interpretations that are mandatory for the
financial year beginning on 1 January 2018. However, no adjustments
were required on transition.
-- The Group applied IFRS 15 Revenue from Contracts with
Customers, which was effective from 1 January 2018. IFRS 15 is
intended to clarify the principles of revenue recognition and
establish a single framework for revenue recognition. This standard
replaces the previous standard IAS 11 Construction Contracts, IAS18
Revenue and revenue related IFRICs. The core principle is that an
entity should recognise revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services.
An analysis of the key considerations that IFRS 15 has on the
Group's revenue streams is summarised below.
1. Settlement Model: when it acts as an agent between a merchant
and mobile network operators (MNOs) or an aggregator (a middleman
between the Group and the MNO). Management has determined that it
is acting as an agent under IFRS 15 because it does not have the
primary responsibility for providing the services to the customer.
Therefore, been no change in the classification as an agent from
the previous assessment that there was no exposure to the risks and
rewards.
2. Transactional Model: from larger virtual and digital
merchants who receive the sale collections directly and pay a
service fee to the Group.
Under both the transactional and settlement model (see point 1
and 2 above), revenue was previously recognised under IAS 18 once
the merchant transfers risks and rewards to the customer. Under
IFRS 15, the Group's contracts with customers include one
performance obligation only. This relates to an obligation to
facilitate the payment for the transaction between the merchant and
their end users. Under IFRS 15 revenues for this service is
recognised under this contract at a point in time as the obligation
is fulfilled at time when transaction happens. There has been no
change on the adoption of IFRS 15, as the point of delivery of the
performance obligation is the same as when the risks and rewards
have been transferred. . Payments are due once the Group receives
the monthly statement of information from the Aggregator or the
MNO. There is no financial effect of the change in policy for the
current and comparative periods, hence no adjustments were required
to the current or comparative periods.
3. Other revenue: from special merchant integrations,
subscription services and early settlement of funds.
Under IAS 18, the revenue earned from special merchant
integrations were previously spread over the term of the customer
contract. This is in line with the treatment under IFRS 15, as the
customer gets the benefit equally over the subscription period.
Payments are due once the integrations has successfully occurred.
There is no financial effect of the change in policy for the
current and comparative periods, hence no adjustments were required
to the current or comparative periods.
Under IAS 18, the revenue earned from early settlement of funds
is recognised when the early settlement is made by the merchant.
Under IFRS 15, the performance obligation is met once the early
termination of the agreement has been announced and BOKU is
entitled to the early termination fee. This is not different to the
previous treatment as the point when meeting the performance
obligation is the same as when risk and rewards. There is no
financial effect of the change in policy for the current and
comparative periods, hence no adjustments were required to the
current or comparative periods.
-- IFRS 9 Financial Instruments,
In adopting IFRS 9, the only changes made from the previous
reporting period is in relation to the impairment of financial
assets. The Group now reviews the amount of credit loss associated
with its trade receivables based on forward looking estimates that
take into account current and forecast credit conditions as opposed
to relying on past historical default rates. In adopting IFRS 9 the
Group has applied the Simplified Approach applying a provision
matrix based on number of days past due to measure lifetime
expected credit losses and after taking into account customer
sectors with different credit risk profiles and current and
forecast trading conditions. The impairment provision on
shareholders loan, measured at amortised cost, have been calculated
in accordance with IFRS 9's general approach,
The Group has elected to adopt the initial application date of 1
Jan 2018 and has not restated comparatives. The effect of IFRS 9 is
an increase to the provision of $548,000 on the current year and
the effect on the prior year was immaterial. For trade receivables,
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, as this is a directly
attributable to the operations. The Group has chosen to continue
applying the hedge accounting requirements of IAS 39.
(b) New, amended standards, interpretations not yet
effective
The following new standards, interpretations and amendments,
which are not yet effective and have not been adopted early in this
financial information, will or may have an effect on the Group's
future financial statements:
-- IFRS 16 Leases, effective date 1 January 2019 sets out the
principles for the recognition, measurement, presentation and
disclosure of leases for both parties to a contract, i.e. the
customer ('lessee') and the supplier ('lessor'). IFRS 16 completes
the IASB's project to improve the financial reporting of leases and
replaces the previous leases Standard, IAS 17 Leases, and related
Interpretations.
Adoption of IFRS 16 will result in the Group recognising the
right use of 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, disclosing
instead the total commitment in its annual financial statements. At
31 December 2018 the commitment disclosed was $4.3m. Assuming the
group's lease commitments remain at this level, the effect of
discounting those commitments might be expected to result in the
right-of-use assets and lease liabilities of approximately $3.8m
being recognized on 1 January 2019. Instead of recognising an
operating expense for its operating lease payments, the group will
instead recognize interest on its lease liabilities and
amortisation on its right of use assets. This will increase the
reported EBITDA by the amount of its current operating lease costs
(which for the year ended 31 December 2018 was $1.9m).
Since the Group last reported, the Board has decided to apply
the modified retrospective method when the standard is first
adopted in its financial statements for the year ended 31 December
2019. Therefore, there will be no impact on any comparative
accounting period (interim or annual) up to and including 31
December 2018, with any leases recognised on balance sheet on the
date of initial application of IFRS 16 (1 January 2019). In
applying the modifying retrospective approach, the Board has
further decided to measure the right of use assets by reference to
the amount at which lease liabilities are measured on 1 January
2019. Therefore, there is no immediate impact on these financial
statements as a result of adopting the standard on that date.
Changes to the accounting policy for national insurance on
share-based payments
The group has amended its accounting policy for national
insurance on share-based payments following a review with regards
to all options and restricted stock units currently available.
Following the adoption of this updated policy the Group now accrues
for employer's-based taxes (e.g. National Insurance, FICO) as part
of the share-based payments charge in line with IFRS 2, in each
accounting period. The prior year has been represented following
this change in accounting policy.
The impact in the change in accounting policy on the
consolidated income statement for 2017 is:
2017
Income statement impact $'000
------------------------- ---------
Total previous loss
before tax (27,969)
Share based payment
charge (571)
--------------------------- ---------
Updated loss before
tax (28,540)
--------------------------- ---------
The impact of the change in accounting policy on previously
reported total equity may be summarised as follows:
2017
Impact on equity $'000
---------------------------- -------
Total equity as previously
reported 28,602
Share based payment
charge (571)
------------------------------ -------
Updated loss before
tax 28,031
------------------------------ -------
The impact of the change in accounting policy on the previously
reported consolidated statement of financial position as at 31(st)
December 2017, is summarised as follows
31 December 31 December
2017 2017
$'000 $'000 $'000
---------------------------- -------------- ----------- ------------
As previously Change
reported in policy Updated
Current Trade and other
payables 74,981 533 75,514
Long term Trade and other
payables 86 38 124
------------------------------ -------------- ----------- ------------
Foreign Currency
The main functional currencies for the Company's subsidiaries
are the United States Dollar, Euro and Great Britain Pound.
Foreign currency transactions and balances
i) Foreign currency transactions are translated into the
functional currency using the exchange rates prevailing at the
dates of the transactions.
ii) Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at the
reporting period end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the
income statement.
iii) Share capital, share premium, brought forward earnings are
translated using the exchange rates prevailing at the dates of the
transactions.
Consolidation of foreign entities
On consolidation, results of the foreign entities are translated
from the local functional currency to US$ using average exchange
rates during the period. All asset and liabilities are translated
from the local functional currency to US$ using the reporting
period end exchange rates. These exchange differences arising from
the translation of the net investment in foreign entities are
recognised in other comprehensive income and accumulated in a
separate component of equity.
Exchange differences are recycled to profit or loss as a
reclassification adjustment upon disposal of the foreign
operation.
Revenue
The Group applied IFRS 15 Revenue from Contracts with Customers,
which was effective from 1 January 2018. IFRS 15 is intended to
clarify the principles of revenue recognition and establish a
single framework for revenue recognition. This standard replaces
the previous standard IAS 11 Construction Contracts, IAS18 Revenue
and revenue related IFRICs. The core principle is that an entity
should recognise revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services.
Boku Group recognises revenue in accordance with that core
principle by applying the following steps: identify the contract(s)
with a customer, identify the performance obligations in the
contract, determine the transaction price, allocate the transaction
price to the performance obligations in the contract and recognise
revenue when (or as) the entity satisfies a performance
obligation.
Contract assets and contract liabilities are included within
'trade and other receivables' and 'trade and other payables'
respectively on the face of the statement of financial
position.
The Group provides a payment platform to facilitate the mobile
payment processing of virtual and digital goods purchases and also
provides a collection service for amounts due to the merchants.
The Group's revenue is principally its service fees earned from
its merchants (we do not offer volume discounts). There are slight
differences to contracts depending on the services provided
Cost of sales
Cost of sales is primarily related to the costs incurred by the
Group to authorise the transactions of mobile device customers with
the associated MNOs.
Operating Segments
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker has been identified as the
executive management team including the Chief Executive Officer,
Chief Financial Officer, Chief Operating Officer and the Chief
Revenue Officer.
The Board considers that the Group's provision of a payment
platform for the payment processing of virtual goods and digital
goods purchases constitutes one operating and one reporting
segment, as defined under IFRS 8. Management reviews the
performance of the Group by reference to total results against
budget.
Retirement Benefits: Defined contribution schemes
The Company has a 401(k) plan, a type of defined contribution
scheme in the United States in which all employees are eligible to
participate after meeting eligibility requirements. Participants
may elect to have a portion of their salary deferred and
contributed to the scheme up to the limit allowed by applicable
income tax regulations. The Company has made a matching
contribution to the scheme for the year ended 31 December 2018.
Contributions to defined contribution schemes are charged to the
consolidated statement of comprehensive income in the year to which
they relate.
Share-based payments
Where equity settled share options are awarded to employees, the
fair value of the options at the date of grant is charged to the
consolidated statement of comprehensive income over the vesting
period. Non-market vesting conditions are taken into account by
adjusting the number of equity instruments expected to vest at each
reporting date so that, ultimately, the cumulative amount
recognised over the vesting period is based on the number of
options that eventually vest.
Where the terms and conditions of options are modified before
they vest, the increase in the fair value of the options, measured
immediately before and after the modification, is also charged to
the consolidated statement of comprehensive income over the
remaining vesting period.
Where equity instruments are granted to persons other than
employees, the consolidated statement of comprehensive income is
charged with the fair value of goods and services received.
Share options and RSUs (restricted stock units) which will incur
future employer payroll taxes on exercise, are accrued for the
future cost of National Insurance from the point the options are
granted over their vesting period. This accrual is then reviewed
and amended at each subsequent balance sheet date under IFRS 2.
Intangible assets
(i) Goodwill
The Group uses the acquisition method of accounting for the
acquisition of a subsidiary. The consideration transferred is
measured at the fair value of the assets given, equity instruments
issued, and liabilities incurred or assumed at the date of
exchange. Costs directly attributable to the acquisition are
expensed in the period. Identifiable assets acquired, liabilities
and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition
date.
In respect of business combinations that have occurred since 1
January 2014, goodwill represents the excess of the cost of the
acquisition and the Group's interest fair value of net identifiable
assets and liabilities acquired. In respect of business
combinations prior to this date, goodwill is included on the basis
of its deemed cost, which represents the amount recorded under US
GAAP. As permitted by IFRS 1, Goodwill arising on acquisitions
prior to 1 January 2014 is stated in accordance with US GAAP and
has not been remeasured on transition to IFRS. Goodwill is
recognised and measured at the acquisition date.
Goodwill is capitalised as an intangible asset at cost less any
accumulated impairment losses. Any impairment in carrying value is
being charged to the consolidated statement of comprehensive
income. An impairment loss recognised for goodwill is not
reversed.
Where the fair value of identifiable assets, liabilities and
contingent liabilities exceed the fair value of consideration paid,
the excess is credited in full to the consolidated statement of
comprehensive income on the acquisition date.
Goodwill is allocated to appropriate cash generating units
(CGUs). Goodwill is not amortised but is tested annually for
impairment or whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. The recoverable
amount is determined based on value in use calculations. The use of
this method requires the estimation of future cash flows and the
determination of a discount rate in order to calculate the present
value of the cash flows. The major assumptions are disclosed in
note 11.
(ii) Intangible assets acquired as part of a business combination
Intangible assets acquired in a business combination are
identified and recognised separately from goodwill where they
satisfy the definition of an intangible asset. The cost of such
intangible assets is their fair value at the acquisition date and
comprises Group's tradenames, merchant relationships and developed
technologies. All intangible assets acquired through business
combination are amortised over their useful lives.
Subsequent to initial recognition, intangible assets acquired in
a business combination are reported at cost less accumulated
amortisation and accumulated impairment losses. The carrying values
are tested for impairment when there is an indication that the
value of the assets might be impaired
(iii) Research and development
Expenditure on research activities as defined in IFRS is
recognised in the income statement as an expense as incurred.
Expenditure on internally developed software products and
substantial enhancements to existing software product is recognised
as intangible assets only when the following criteria are met:
1. it is technically feasible to develop the product to be used or sold;
2. there is an intention to complete and use or sell the product;
3. the Group is able to use or sell the product;
4. use or sale of the product will generate future economic benefits;
5. adequate resources are available to complete the development; and
6. expenditure on the development of the product can be measured reliably.
The capitalised expenditure represents costs directly
attributable to the development of the asset from the point at
which the above criteria are met up to the point at which the
product is ready to use. The costs include external direct costs of
materials and services consumed in developing and obtaining
internal-use computer software, and payroll and payroll-related
costs for employees who are directly associated with and who devote
time to developing the internal-use software. If the qualifying
conditions are not met, such development expenditure is recognised
as an expense in the period in which it is incurred.
(iv) Amortisation rates
The significant intangibles recognised by the Group and their
useful economic lives are as follows:
Intangible asset Useful economic life
Tradenames 10 years
Merchant relationships 5 years
Developed technologies 1 - 7 years
Domain names 5 years
Internally developed 3 - 6.75 years
software
Thee amortisation expense is recognised within administrative
expenses in the consolidated statement of comprehensive income.
Property, plant and equipment
Property, plant and equipment are held under the cost model and
are stated at historical cost less accumulated depreciation and any
accumulated impairment losses. Historical cost includes expenditure
that is directly attributable to bringing the asset to the location
and condition necessary for it to be capable of operating in the
manner intended by management.
Depreciation is charged so as to allocate the cost of assets
less their residual value over their estimated useful lives, using
the straight-line method. The estimated useful lives range as
follows:
Office equipment and furniture 3- 5 years on cost
Computer equipment and 3- 5 years on cost
software 6.5 years on cost
Leasehold improvement
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at
call with banks, other short term highly liquid investments with
original maturities of three months or less.
Restricted cash
The restricted cash does not meet the definition of cash and
cash equivalents and is therefore separately disclosed in the
Group's statement of financial position and not part of the cash
and cash equivalents for cash flow purposes. These cash amounts are
restricted as to withdrawal or use under the terms of certain
contractual agreements.
Financial assets
The Group's financial assets mainly comprise cash, trade and
other receivables.
Trade and other receivables are not interest bearing and are
stated at their amortised cost as reduced by appropriate allowances
for irrecoverable amounts or additional costs required to effect
recovery.
The Group reviews the amount of credit loss associated with its
trade receivables based on forward looking estimates that take into
account current and forecast credit conditions. The Group has
applied the Simplified Approach applying a provision matrix based
on number of days past due to measure lifetime expected credit
losses and after taking into account customer sectors with
different credit risk profiles and current and forecast trading
conditions. Trade and other payables are not interest bearing and
are stated at their amortised cost.
Financial liabilities
Financial liabilities are recognised when the Group becomes a
party to the contractual agreements of the instrument. The Group's
financial liabilities are categorised as loans and payables or
derivative financial instruments.
At initial recognition,
-- Financial liabilities (trade and other payables, excluding
other taxes and social security costs and deferred income), are
measured at their fair value plus, if appropriate, any transaction
costs that are directly attributable to the issue of the financial
liability. These financial liabilities are subsequently carried at
amortised cost.
-- Bank borrowings which are initially recognised at fair value
net any of transaction costs directly attributable to the issue of
the instrument. Such interest-bearing liabilities are subsequently
measured at amortised cost ensuring the interest element of the
borrowing is expensed over the repayment period at a constant
rate.
Derivative financial instruments
Hedge accounting is applied to financial assets and liabilities
only where all the following criteria are met:
-- At the inception of the hedge there is formal designation and
documentation of the hedging relationship and the Group's risk
management objective and strategy for undertaking the hedge.
-- For cash flow hedges, the hedged item in a forecast
transaction is highly probable and presents an exposure to
variations in cash flows that could ultimately affect profit or
loss.
-- The cumulative change in the fair value of the hedging
instrument is expected to be between 80-125% of the cumulative
change in the fair value or cash flows of the hedged item
attributable to the risk hedged (i.e. it is expected to be highly
effective).
-- The effectiveness of the hedge can be reliably measured.
-- The hedge remains highly effective on each date tested.
Cash flow hedges
The Group from time to time enters into derivative financial
instruments such as forward foreign exchange contracts to reduce
the potential impact of decreases in the value of the U.S. dollar
on receipt payments from Aggregator and MNO.
The effective part of the gain or loss of these forward
contracts designated as a hedge of the variability in cash flows of
foreign currency risk arising from the above firm commitments are
measured at fair value with changes in fair value recognised in
other comprehensive income and accumulated in the cash flow hedge
reserve. The ineffective portion of the gain or loss of these
contracts is recognised in the Group's profit or loss. The
associated gains or losses that were recognised in other
comprehensive income shall be reclassified from the cash flow hedge
reserve to profit or loss as a reclassification adjustment in the
same period during which the hedged forecast cash flows affect
profit or loss.
The value of the forward contracts within one year is disclosed
separately as derivatives under current assets or liabilities in
the Group's statement of financial positions.
Fair Value Hierarchy
All financial instruments measured at fair value must be
classified into one of the levels below:
-- Level 1: Quoted prices, in active markets.
-- Level 2: Fair Inputs other than quoted market prices included
within Level 1 that are observable for the asset or liability,
either directly or indirectly.
-- Level 3: Inputs that are not based on observable market data.
Share Capital
Financial instruments issued by the Group are treated as equity
only to the extent that they do not meet the definition of a
financial liability. The Group's ordinary share capital and
preference shares are classified as equity instruments.
Operating leases: lessee
Rentals paid under operating leases are charged to the profit or
loss on a straight-line basis over the period of the lease.
Leased assets: lessee
Where assets are financed by leasing agreements that give rights
approximating to ownership (finance leases), the assets are treated
as if they had been purchased outright. The amount capitalised is
the present value of the minimum lease payments payable over the
term of the lease. The corresponding leasing commitments are shown
as amounts payable to the lessor. Depreciation on the relevant
assets is charged to the income statement over the shorter of
estimated useful economic life and the term of the lease.
Lease payments are analysed between capital and interest
components so that the interest element of the payment is charged
to the income statement over the term of the lease and is
calculated on an effective interest rate basis. The capital part
reduces the amounts payable to the lessor.
Deferred taxation
Deferred tax assets and liabilities are recognised where the
carrying amount of an asset or liability in the consolidated
statement of financial position differs from its tax base, except
for differences arising on:
-- the initial recognition of goodwill;
-- the initial recognition of an asset or liability in a
transaction which is not a business combination and at the time of
the transaction affects neither accounting or taxable profit;
and
-- investments in subsidiaries where the Group is able to
control the timing of the reversal of the difference and it is
probable that the difference will not reverse in the foreseeable
future.
Recognition of deferred tax assets is restricted to those
instances where it is probable that taxable profit will be
available against which the difference can be utilised.
The amount of the asset or liability is determined using tax
rates that have been enacted or substantively enacted by the
balance sheet date and are expected to apply when the deferred tax
liabilities or assets are settled or recovered. Deferred tax
balances are not discounted.
Deferred tax assets and liabilities are offset when the Group
has a legally enforceable right to offset current tax assets and
liabilities and the deferred tax assets and liabilities relate to
taxes levied by the same tax authority on either:
-- the same taxable group company; or
-- different company entities which intend either to settle
current tax assets and liabilities on a net basis, or to realise
the assets and settle the liabilities simultaneously, in each
future period in which significant amounts of deferred tax assets
and liabilities are expected to be settled or recovered.
Critical accounting estimates and judgements
The Group makes certain estimates and assumptions regarding the
future. Estimates and judgements are continually evaluated based on
historical experience and other factors, including the 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 within the next
financial year are discussed below.
(a) Goodwill, Intangible assets acquired in a business combination
As set in the accounting policies above, intangible assets
acquired in a business combination are capitalised and amortised
over their useful lives. Both initial valuations and valuations for
subsequent impairment tests are based on risk adjusted future cash
flows discounted using appropriate discount rates. These future
cash flows will be based on forecasts which are inherently
judgemental. Future events could cause the assumptions to change
which could have an adverse effect on the future results of the
Group. Refer to note 11 for a description of the specific estimates
and judgements used and the net book values of intangible
assets.
(b) Share-based payments (see note 20)
The Group measures the cost of equity-settled transactions with
employees by reference to the fair value of the equity instruments
at the date at which they are granted. Estimating fair value for
share-based payment transactions requires determining the most
appropriate valuation model, which is dependent on the terms and
conditions of the grant. This estimate also requires determining
the most appropriate inputs to the valuation model including the
expected life of the share option, volatility and dividend yield
and making assumptions about them.
(c) Taxation
In recognising income tax assets and liabilities, management
makes estimates of the likely outcome of decisions by tax
authorities on transactions and events whose treatment for tax
purposes is uncertain. Where the final outcome of such matters is
different, or expected to be different, from previous assessments
made by management, a change to the carrying value of income tax
assets and liabilities will be recorded in the period in which such
a determination is made. In recognising deferred tax assets and
liabilities management also makes judgements about likely future
taxable profits. The carrying values of current tax and deferred
tax assets and liabilities are disclosed separately in the
consolidated statement of financial position.
d) Acquisition of entities
The group determines the acquisition date for when a business
acquisition is consummated, to be when it is deemed unconditional.
This involves the group considering all pertinent facts and
circumstances, which include the date on which it obtains control
of the acquiree and acts of law that are required to be fully
executed.
3.Financial instruments - Risk Management
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies. The overall
objective of the Board is to set policies that seek to reduce risk
as far as possible without unduly affecting the Group's
competitiveness and flexibility. The Group reports in US$. All
funding requirements and financial risks are managed based on
policies and procedures adopted by the Board of Directors. The
Group does not issue or use financial instruments of a speculative
nature.
The Group is exposed to the following financial risks:
-- Market risk
-- Credit risk
-- Liquidity risk
In common with all other businesses, the Group is exposed to
risks that arise from its use of financial instruments. The
principal financial instruments used by the Group, from which
financial instrument risk arises, are as follows:
-- Trade and other receivables
-- Cash and cash equivalents and restricted cash
-- Trade and other payables
-- Bank loans
To the extent financial instruments are not carried at fair
value in the consolidated statement of financial position, book
value approximates to fair value at 31 December 2018 and December
2017.
Trade and other receivables are measured at book value and
amortised cost. Book values and expected cash flows are reviewed by
the Board and any impairment charged to the consolidated statement
of comprehensive income in the relevant period.
Trade and other payables are measured at book value and
amortised cost.
Financial instruments by category
31 December 31 December
Financial assets 2018 2017
$'000 $'000
----------------------------------------- ------------ ------------
Cash and cash equivalents 31,073 18,741
Restricted cash 1,251 1,439
------------------------------------------ ------------ ------------
Total Cash 32,324 20,180
------------------------------------------ ------------ ------------
Accounts receivable (net) 48,979 56,360
Other receivables 300 199
Note receivable from shareholder 793 793
------------------------------------------ ------------ ------------
Total other financial assets classified
as loans and receivables 50,072 57,352
------------------------------------------ ------------ ------------
Loans and receivables 82,397 77,532
------------------------------------------ ------------ ------------
Derivative financial assets designated
as hedging instrument 3 -
------------------------------------------ ------------ ------------
Financial liabilities
31 December 31 December
2018 2017
$'000 $'000
--------------------------------------------- ------------ ------------
Trade payables 69,064 64,275
Accruals 6,402 7,641
Total other financial liabilities 75,466 71,916
---------------------------------------------- ------------ ------------
Bank loans (secured) 2,150 2,400
Finance lease payables 43 125
Loans and borrowings 2,193 2,525
Financial liabilities at amortised
cost 77,659 74,441
---------------------------------------------- ------------ ------------
Derivative financial liabilities designated
as hedging instrument - 24
---------------------------------------------- ------------ ------------
The management of risk is a fundamental concern of the Group's
management. This note summarises the key risks to the Group and the
policies and procedures put in place by management to manage
them.
a) Market risk
Market risk arises from the Group's use of interest bearing and
foreign currency financial instruments. It is the risk that the
fair value or future cash flows of a financial instrument will
fluctuate because of changes in interest rates (interest rate risk)
or foreign exchange rates (currency risk).
Interest rate risk
The Group is exposed to cash flow interest rate risk from bank
borrowings at variable rates. The Group's bank borrowings and other
borrowings are disclosed in note 17. The Group's exposure to
interest rate risk on the finance leases is considered low as the
outstanding balance at year-end is not significant. The Group
manages the interest rate risk centrally.
The following table demonstrates the sensitivity to a 1 percent
change (lower/higher) to the interest rates of the following
borrowings at 31 December 2018 to the profit before tax and net
assets for the period:
31 December 2018 31 December 2017
Increase/(decrease) of loss before tax and net Increase/(decrease) of loss before tax and net
assets assets
$'000 $'000
------------ ------------------------------------------------- --------------------------------------------------
Bank loans +/-22 +/-24
------------- ------------------------------------------------- --------------------------------------------------
Foreign exchange risk
Foreign exchange risk is the risk that movements in exchange
rates affect the profitability of the business. The company manages
this risk through natural hedging and forward contracts.
The effect of fluctuations in exchange rates on the Euro and GBP
denominated trade receivables is partially offset through the use
of foreign exchange contracts to the extent that any remaining
impact on profit after tax is not material.
At December 31, 2018, the Company had entered into 1 (2017: 31)
foreign currency forward contracts totalling a notional amount of
$141,783 (2016: $1,004,306). These instruments were used to hedge
the variable cash flows predominantly associated with monthly
Aggregator payments. All the Company's hedges are designated as
cash flow hedges.
The Company's objective in using derivatives is to add stability
to Aggregator payments and to manage its exposure to foreign
currency movements or other identified risks. To accomplish this
objective, the Company primarily uses foreign currency forward
contracts as part of its cash flow hedging strategy which is
managed centrally. The Group aims to fund expenses and investments
in the respective currency and to manage foreign exchange risk at a
local level by matching the currency in which revenue is generated
and expenses are incurred.
As of 31 December, the Group's gross exposure to foreign
exchange risk was as follows:
GBP Euro Other Total
31 December 2018 $'000 $'000 $'000 $'000
-------------------------------- --------- --------- --------- ---------
Trade and other receivables 12,818 20,808 16,120 49,746
Cash and cash equivalents and
restricted cash 11,052 9,402 8,102 28,556
Trade and other payables (22,906) (26,118) (19,760) (68,784)
Financial assets/(liabilities) 964 4,092 4,462 9,518
-------------------------------- --------- --------- --------- ---------
10% impact - +/- 107 455 496 1,058
GBP Euro Other Total
-------------------------------- --------- --------- --------- ---------
31 December 2017 $'000 $'000 $'000 $'000
-------------------------------- --------- --------- --------- ---------
Trade and other receivables 17,305 24,578 15,046 56,929
Cash and cash equivalents and
restricted cash 10,926 2,002 4,088 17,016
Trade and other payables (23,283) (26,694) (17,459) (67,436)
-------------------------------- --------- --------- --------- ---------
Financial assets/(liabilities) 4,948 (114) 1,675 6,509
-------------------------------- --------- --------- --------- ---------
10% impact - +/- 551 (13) 185 723
The impact of 10% movement in foreign exchange rate of US$ will
result in an increase/decrease of total comprehensive loss after
tax and financial assets/(liabilities) by $1,057,518 for December
2018 (2017: $723,151).
b) Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations. The Group is mainly exposed to credit
risk from credit sales. The Group's net trade receivables for the
three reported periods are disclosed in the financial assets table
above.
The Group is exposed to credit risk in respect of these balances
such that, if one or more the aggregators or MNOs encounters
financial difficulties, this could materially and adversely affect
the Group's financial results. The Group attempts to mitigate
credit risk by assessing the credit rating of new customers prior
to entering into contracts and by entering contracts with customers
with agreed credit terms.
To minimise this credit risk, the Group endeavours only to deal
with companies which are demonstrably creditworthy and this,
together with the aggregate financial exposure, is continuously
monitored. The maximum exposure to credit risk is the value of the
outstanding amount.
The Company evaluates the collectability of its accounts
receivable and provides an allowance for potential credit losses as
necessary. The Company has factored accounts receivable as a means
of financing until April 2018 and at 31 December 2018 the facility
was completely closed factored (2017: 7% of group accounts
receivable were factored). The Group can draw down to a maximum of
85% of the trade receivables and paid factoring, collection fee and
interest on the drawdown. The fee charged during the year was
$345,380 (2017: $542,989). This fee was charged to the profit and
loss account, under finance expense and includes a penalty charge
for terminating the agreement early of EUR160,00 ($197,315).
At the reporting date, the largest exposure was represented by
the carrying value of trade and other receivables, against which
$1.959m is provided at 31 December 2018 (2017: $1.410m). The
provision represents an estimate of potential bad debt in respect
of the year-end trade receivables, a review having been undertaken
of each such year-end receivable. The Group's customers are spread
across a broad range of sectors and consequently it is not
otherwise exposed to significant concentrations of credit risk on
its trade receivables.
A debt is considered to be bad when it is deemed irrecoverable,
for example when the debtor goes into liquidation, or when a credit
or partial credit is issued to the customer for goodwill or
commercial reasons. The Group has applied the Simplified Approach
applying a provision matrix based on number of days past due to
measure lifetime expected credit losses and after taking into
account customer sectors with different credit risk profiles and
current and forecast trading conditions. The Group's provision
matrix is as follows:
31-Dec-18 < 60 days 61-120 121-150 > 150 days Total
days days
--------------------------- ---------- ------- -------- ----------- -------
Expected credit loss %
range 0% 0% 0% 98%-100%
Gross debtors ($'000) 47,625 829 494 1,987 50,935
Expected credit loss rate
($'000) -1,956 -1,956
--------------------------- ---------- ------- -------- ----------- -------
48,979
At 31 December 2018 Group had a specific provision as well as
the provision made in accordance with the credit loss matrix above.
This provision was for two thousand dollars - which was considered
to be 100% irrecoverable due to potential business closure. The
total provision for trade and accrued receivable as at 31 December
2018 was $1,958.
< 60 days 61-120 121-150 > 150 days Total
days days
31-Dec-17
Expected credit loss
% range 0% 0% 0% 85%-90%
Gross debtors ($'000) 51,838 1,437 2,861 1,599 57,734
Expected credit loss
rate ('000) -1,374 -1,374
----------------------- ---------- ------- -------- ----------- -------
56,360
At 31 December 2017 the Group had a specific provision for $37k
of which $34k was fully written off during 2018. The total
provision of trade and accrued receivables as at 31 December 2017
was $1,410.
Other receivables are considered to be low risk. The management
do not consider that there is any concentration of risk within
other receivables. No other receivables have been impaired.
Credit risk on cash and cash equivalents is considered to be
small as the counterparties are all substantial banks with high
credit ratings. At times, domestic deposits may be in excess of the
amount of insurance provided on such deposits. At December 31 2018,
cash and cash equivalents of $31,073,215 held in foreign
institutions are not insured (2017: $18,740,583). The maximum
exposure is the amount of the deposit. To date, the Group has not
experienced any losses on its cash and cash equivalent
deposits.
c) Liquidity risk
Liquidity risk arises from the Group's management of working
capital. It is the risk that the Group will encounter difficulty in
meeting its financial obligations as they fall due. The Group's
policy is to ensure that it will always have sufficient cash to
allow it to meet its liabilities when they become due. The Group
also uses an invoice discounting facility to help manage this risk.
The invoice discounting facility has been cancelled as at 30(th)
April 2018. The table below analyses the Group's financial
liabilities by contractual maturities and all amounts disclosed in
the table are the undiscounted contractual cash flows:
31 December 2018 Within 1 year 1-2 years 2-5 years More than 5 years
$'000 $'000 $'000 $'000
-------------------------- -------------- ---------- ---------- ------------------
Trade and other payables 77,374 107 - -
Bank loans (secured) 2,150 - - -
Finance leases 43 - - -
-------------------------- -------------- ---------- ---------- ------------------
Total 79,567 107 - -
-------------------------- -------------- ---------- ---------- ------------------
31 December 2017 Within 1 year 1-2 years 2-5 years More than 5 years
$'000 $'000 $'000 $'000
---------------------------------- -------------- ---------- ---------- ------------------
Trade and other payables 75,514 124 - -
Bank loans (secured) 2,400 - - -
Derivative financial liabilities 24 - - -
Finance leases 82 43 - -
---------------------------------- -------------- ---------- ---------- ------------------
Total 78,020 167 - -
---------------------------------- -------------- ---------- ---------- ------------------
Capital Management
The Group's capital is made up of share capital, foreign
exchange reserve and retained losses.
The Group's objectives when maintaining capital are:
-- To safeguard the entity's ability to continue as a going
concern, so that it can continue to provide returns for
shareholders and benefits for other stakeholders; and
-- To provide an adequate return to shareholders by pricing
products and services commensurately with the level of risk.
The capital structure of the Group consists of shareholders'
equity as set out in the consolidated statement of changes in
equity. All working capital requirements are financed from existing
cash resources and borrowings.
4. Segmental analysis
(a) Revenue from operations
2018 2017
$'000 $'000
----------------------- ------- -------
Revenue arises from:
Provision of services 35,275 24,412
------------------------ ------- -------
In 2018, there were 4 customers with revenue amounting to $28.4m
and where three of these customers represent more than 10% of group
revenues each (2017: 4 customers ($16.6m)).
(b) Operating segment
For executive management purposes, the Group has one reportable
segment - provision of a payment platform for the payment
processing of virtual goods and digital goods purchases and
categorizes all revenue from operations to this segment.
Operating segment information under the primary reporting format
is disclosed below:
Restated*
2018 2017
$'000 $'000
---------------------------------------- -------- ----------
Revenue 35,275 24,412
Depreciation (213) (221)
Amortisation (2,581) (2,764)
Segment loss before exceptional items (1,342) (5,785)
Segment loss - exceptional items (note
5) (1,074) (2,644)
----------------------------------------- -------- ----------
Segment loss (2,416) (8,429)
Finance income 53 18
Finance expense (631) (19,558)
Group loss before tax (2,994) (27,969)
----------------------------------------- -------- ----------
*the restatement relates t to a change in accounting policy to
employer taxes for share options (and RSUs).
(c) Geographic segment - secondary basis
The geographical analysis of the revenue by location of the
users is presented below:
2018 2018 2017 2017
Revenue by Market $ '000 % $ '000 %
-------------------- ------- ----- ------- -----
Americas 2,655 7.5 2,187 9.0
APAC 14,021 39.7 7,520 30.8
EMEA 18,599 52.8 14,705 60.2
Total 35,275 24,412
--------------------- ------- ------- -----
An analysis of non-current assets by geographical market is
given below:
2018 2017
$'000 $'000
------------------------------------- ------- -------
United States of America 22,133 25,714
Germany 557 818
Other European countries (including
UK) 165 162
Rest of the World 151 229
-------------------------------------- ------- -------
Total 23,006 26,923
-------------------------------------- ------- -------
5. Administrative expenses (including exceptional items)
Restated*
2018 2017
$'000 $'000
----------------------------------------------- ---------- ----------
Audit fees 277 502
Non-audit fees - taxation 516 161
Accounting services 108 145
Consultancy and compliance services 898 529
Staff costs (excluding stock option expense
- note 6) 18,117 17,264
Travel & entertainment 1,072 910
Rent and occupancy costs 2,030 1,869
Total IT, development and hosting 1,777 1,531
Total banking costs 254 273
Legal fees 688 651
Other costs including marketing, support
& testing and other administration expenses 701 632
------------------------------------------------ ---------- ----------
Adj. Operating Expenses 26,438 24,466
------------------------------------------------ ---------- ----------
Depreciation of property, plant and equipment 213 221
Amortisation of intangible assets 2,581 2,764
Loss on disposal of property, plant and 1 -
equipment
Foreign exchange gains/(losses) 279 (428)
Exceptional items - impairment of investments 164 -
Exceptional items - restructuring costs 910 478
Exceptional items - IPO costs - 2,166
Share - based expenses 4,593 1,480
------------------------------------------------ ---------- ----------
35,179 31,147
----------------------------------------------- ---------- ----------
6. Staff costs
Total staff costs 2018 2017
$'000 $'000
----------------------- ------------------------ ------------------
Wages and salaries 14,730 13,782
Short-term benefits 774 785
Social security costs 1,398 1,467
Pension costs 164 140
Other staff costs 1,051 1,090
------------------------ ------------------------ ------------------
Total staff costs 18,117 17,264
------------------------ ------------------------ ------------------
Other staff costs include contractor costs, relocation,
recruiting and training costs for the group.
* the restatement relates to a change in accounting policy to
employer taxes for share options (and RSUs).
Key management personnel compensation was made up as
follows:
2018 2017
$'000 $'000
----------------------- ------ ------
Salaries 1,849 1,545
Short-term benefits 39 51
Social security costs 160 113
Pension costs 6 1
Total 2,054 1,710
------------------------ ------ ------
Directors' remuneration included in staff costs:
2018 2017
$'000 $'000
---------------------------- ------ ------
Salaries including bonuses 989 706
Short-term benefits 4 28
Total 993 734
----------------------------- ------ ------
Information regarding the highest paid director is as
follows:
2018 2017
$'000 $'000
------------------------- ------ ------
Total remuneration paid 459 388
-------------------------- ------ ------
The average monthly number of employees during the period was as
follows:
2018 2017
------------------------------ ----- -----
Management 4 4
Operations & administration 148 140
------------------------------ ----- -----
Total 152 144
------------------------------ ----- -----
7. Finance income and expenses
2018 2017
$'000 $'000
-------------------------------------------- ---------------------- -------
Finance income
Interest income from bank deposits 53 18
---------------------------------------------
Total 53 18
--------------------------------------------- ---------------------- -------
Finance expenses
Interest on bank loans & overdrafts 234 394
Interest on finance leases and hire
purchase contracts 9 21
Other interest payable (including interest
paid for factoring) 380 543
Amortisation of debt discount - 89
Interest on convertible loan notes (note
17) 8 18,511
Total 631 19,558
--------------------------------------------- ---------------------- -------
Net finance expenses 578 19,540
--------------------------------------------- ---------------------- -------
8. Income tax
2018 2017
$'000 $'000
--------------------------------------------------- ------- -------
Current tax
US tax 4 28
Foreign tax 349 125
Total current tax 353 153
---------------------------------------------------- ------- -------
Deferred tax expense 1,064 -
Origination and reversal of temporary differences (78) (24)
---------------------------------------------------- ------- -------
Total tax expense 1,339 129
---------------------------------------------------- ------- -------
The reasons for the difference between the actual tax charge for
the period and the applicable rate of income tax of the US
reporting entity applied to the result for the period are as
follows:
Restated*
2018 2017
$'000 $'000
---------------------------------------------- -------- ----------
Loss before tax (2,994) (28,540)
Tax rate 21% 34%
Loss before tax multiplied by the applicable
rate of tax: (629) (9,703)
US state tax 4 28
Overseas tax 1,129 22
Expenses not deductible for tax purposes 326 7,278
Withholding taxes 150 34
Tax losses 336 2,470
Others 23 -
---------------------------------------------- -------- ----------
Total tax expense 1,339 129
----------------------------------------------- -------- ----------
Deferred Tax
Details of the deferred tax liability, amounts recognized in profit
or loss and amounts recognized in other
comprehensive income are as
follows:
2018 2017
$'000 $'000
---------------------------------------------------------------- ---- ------------ --------
Net opening position 714 647
Arising from business combinations 310 310
(de-recognition) / recognition in the
year (1,296) (334)
Foreign exchange revaluation (145) 91
Net closing position (417) 714
---------------------------------------------------------------- ---- ------------ --------
The year end net closing position is made up of:
o A deferred tax liability of $671k. This constitutes tax
positions connected with the Group's German subsidiary in relation
to available losses and the deferred tax liability associated with
intangible assets acquired as part of the legacy business
combination with the group's now German business.
o The deferred asset of $254k: This relates to certain non-US
and non-German subsidiaries which will be realised as management is
expecting these subsidiaries to be profitable as a result of
intercompany transfer pricing agreements.
A deferred tax asset (liability)
has not been recognized for the
following:
2018 2017
'000 '000
Non- deductible Reserves 103 55
Accrued Compensation 68 75
Stock Based Compensation 1,144 1,375
Other temporary and deductible differences 852 298
Accelerated Capital Allowances (22) (201)
Unused tax credits 189 189
Unused tax losses 24,497 27,316
Total deferred tax assets offset
by valuation allowance 26,831 29,107
======= =========
The Group has carried forward losses and accelerated timing
differences at the reporting date as shown below. In respect of its
UK subsidiary, these can be carried forward and offset against UK
taxable income indefinitely. In respect of its US entities, net
operating loss carryforwards can be carried forward and offset
against taxable income for 20 years for losses incurred up to and
including 31 December 2018. Utilisation of net operating loss or
tax credit carryforwards may be subject to annual limitations if an
ownership change had occurred pursuant to the section 382 Internal
Revenue Code and similar state provisions. Such an annual
limitation could result in the expiration of net operating loss and
tax credit carryforwards before utilisation. As the timing and
extent of taxable profits are uncertain, the deferred tax asset
arising on these losses and accelerated timing differences below
has not been recognised in the financial statements.
2018 2017
$'000 $'000
---------------------------------------- -------- --------
US losses and tax credit - federal and
states 134,947 135,811
Non-US losses 2,867 15,972
Total 137,814 151,783
----------------------------------------- -------- --------
The unused tax losses, as of 31 December 2018, must be utilised
by various dates. U.S. Federal tax losses of $107,069k and US state
tax losses of $27,878k expire in various dates through 2027. German
tax losses of $1,499k must be used before 2022 and other unused
losses of $1,368k do not expire.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the
"Tax Act") was signed into law making significant changes to the
Internal Revenue Code. Changes include, but are not limited to, a
corporate tax rate decrease from 34% to 21% effective for tax years
beginning after December 31, 2017, the transition of U.S.
international taxation from a worldwide tax system to a territorial
system, and a one-time transition tax on the mandatory deemed
repatriation of cumulative foreign earnings as of December 31,
2017
At 31(st) December 2017, the Group made adjustments to reduce
its deferred tax assets and liabilities, based on the reduction of
the U.S. federal corporate tax rate from 34% to 21% and assessed
the realizability of its deferred tax assets. As of 31(st) December
2018, the Group completed its assessment of the impact of the Act
and determined no additional adjustments are required. In addition,
during the year, the deferred tax assets in other territories have
been re-assessed based on country specific tax legislation
developments
9. Loss per share
Restated*
------------------------------------------ ------------ ------------
2018 2017
------------------------------------------ ------------ ------------
Loss attributable to shareholders on
the Company ($'000) (4,333) (28,669)
Weighted average number of common shares 217,069,055 150,316,262
------------------------------------------- ------------ ------------
Basic loss per share (0.02) (0.19)
------------------------------------------- ------------ ------------
Loss per share is calculated based on the share capital of Boku,
Inc. and the earnings of the Group.
Due to the loss reporting period the effect of the share options
was considered anti-dilutive and hence diluted loss per share is
the same as the basic loss per share in 2017 and 2018.
* the restatement relates to a change in accounting policy to
employer taxes for share options (and RSUs).
10. Property, plant and equipment
Office equipment
Computer equipment and fixtures Leasehold
& software and fittings improvement Total
$'000 $'000 $'000 $'000
--------------------- ------------------- ---------------------------------- ------------- -------
COST
At 1 January 2017 665 530 93 1,288
Additions 148 75 - 223
Disposals (36) (1) - (37)
Exchange adjustment - 1 2 3
--------------------- ------------------- ---------------------------------- ------------- -------
At 31 December 2017 777 605 95 1,477
Additions 84 2 5 91
Disposals (2) (61) - (63)
Exchange Adjustment (17) (12) (2) (31)
--------------------- ------------------- ---------------------------------- ------------- -------
As at December 2018 842 534 98 1,474
--------------------- ------------------- ---------------------------------- ------------- -------
DEPRECIATION
At 1 January 2017 511 221 41 773
Charge for the year 110 98 13 221
Disposals (37) - - (37)
Exchange adjustment 33 75 2 110
--------------------- ------------------- ---------------------------------- ------------- -------
At 31 December 2017 617 394 56 1,067
Charge for the year 104 93 16 213
Disposals (1) (61) - (62)
Exchange adjustment (13) (15) (2) (31)
--------------------- ------------------- ---------------------------------- ------------- -------
At 31 December 2018 707 411 70 1,188
--------------------- ------------------- ---------------------------------- ------------- -------
NET BOOK VALUE
--------------------- ------------------- ---------------------------------- ------------- -------
At 1 January 2017 154 309 52 515
At 31 December 2017 160 211 39 410
At 31 December 2018 135 123 28 286
--------------------- ------------------- ---------------------------------- ------------- -------
The net book value of assets held under finance leases or hire
purchase contracts, included above, are as follows:
2018 2017
Cost $'000 $'000
Furniture 134 192
Computer Hardware 17 37
--------------------
Total 151 229
-------------------- ------ ------
Depreciation charge
Furniture 57 57
Computer Hardware 17 20
----------------------
Total 74 77
---------------------- ------- ----
Net book Value
Furniture 78 134
Computer Hardware 0 17
----------------------
Total 78 151
---------------------- ------- ----
11. Intangible assets
Internally
Domain Developed Merchant Trade developed
name technology relationships marks Goodwill software Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000
--------------------- ------- --------------------- ---------------- -------- ----------- ----------- --------
COST
At 1 January
2017 140 1,906 8,504 110 16,602 4,973 32,235
Additions - - - - - 97 97
Exchange adjustment - (37) 1,101 - 2,013 133 3,210
--------------------- ------- --------------------- ---------------- -------- ----------- ----------- --------
At 31 December
2017 140 1,869 9,605 110 18,615 5,203 35,542
--------------------- ------- --------------------- ---------------- -------- ----------- ----------- --------
Additions - - - - - 238 238
Exchange adjustment - (13) (417) - (762) (53) (1,245)
140 1,856 9,188 110 17,853 5,388 34,535
AMORTISATION
At 1 January
2017 140 1,890 2,908 - - 1,636 6,574
Charge for period - 27 1,252 - - 1,485 2,764
Exchange adjustment - (48) 409 - - 44 405
--------------------- ------- --------------------- ---------------- -------- ----------- ----------- --------
At 31 December
2017 140 1,869 4,569 - - 3,165 9,743
Charge for the
period - 30 1,280 - - 1,271 2,581
Exchange adjustment - (43) (194) - - (18) (255)
--------------------- ------- --------------------- ---------------- -------- ----------- ----------- --------
At 31 December
2018 140 1,856 5,655 - - 4,418 12,069
--------------------- ------- --------------------- ---------------- -------- ----------- ----------- --------
NET BOOK VALUE
At 1 January
2017 - 16 5,596 110 16,602 3,337 25,661
At 31 December
2017 - - 5,036 110 18,615 2,038 25,799
At 31 December
2018 - - 3,533 110 17,853 970 22,466
--------------------- ------- --------------------- ---------------- -------- ----------- ----------- --------
While there are separate geographical locations for contractual
or legal purposes, all of the operations are centralized, and
assets and resources cannot be separately distinguished from the
group's single operations and cash inflows are not largely
independent from other assets or group of assets. Therefore, the
carrying value of the goodwill and other intangibles are assessed
in total as part of the overall Boku group (one CGU). At the
year-end date an impairment test has been undertaken by comparing
the carrying values of goodwill with the recoverable amount of the
Group's one cash generating unit (CGU) which is the provision of a
mobile payment platform for the payment processing of virtual goods
and digital goods purchases to which the goodwill has been
allocated. The recoverable amount of the cash generating unit is
based on value-in-use calculations. These calculations use cash
flow projections covering a two-year period based on financial
budgets and a calculation of the terminal value, for the period
following these formal projections. Furthermore, the carrying
amount of the CGU has been compared to the recoverable amount of
the CGU which indicated no impairment losses.
The key assumptions used for value-in-use calculations are those
regarding growth rates, increases in costs and discount rates. The
discount rate is reviewed annually to take into account the current
market assessment of the time value of money and the risks specific
to the cash generating units and rates used by comparable
companies. The discount rate has been calculated as the weighted
average cost of capital. The pre-tax discount rate used to
calculate value-in-use is 27% (2017: 28.1%). Growth rates for
forecasts take into account historic experience and current market
trends. Costs are reviewed and increased for inflation and other
cost pressures. The terminal value calculation for 2018 was based
on growth rate of post-tax free cashflow of 2% (2016:2%) for the
CGU.
The impairment test resulted in a decision not to impair the
intangible assets at 31 December 2018 nor at 2017 year end.
Sensitivity to changes in assumptions
Management has identified two key assumptions for which if any
of the following changes were made to these key assumptions
individually, this would cause the carrying amount to equal to the
recoverable amount of the goodwill for the CGU for the year ended
31 December 2018:
2018 2017
Projected post tax free cashflow used for
terminal value reduced by 92% 96%
Terminal growth rate reduced from 2% to -175.7% 2% to -344%
12. Subsidiaries
The principal subsidiaries of the Company, all of which have
been included in the consolidated financial information, are as
follows:
The proportion of share capital directly held by the parent
company in each subsidiary is 100%.
Name Principal activity Parent Location
Boku Payments Inc. Holding Company Boku Inc. USA
------------------------- ------------------------------------- --------------
Boku Network Services Inc. Holding Company Boku Inc. Delaware, USA
------------------------- ------------------------------------- --------------
Boku Account Services Inc. Holding Company Boku Inc. Virginia, USA
------------------------- ------------------------------------- --------------
Boku Network Services AG Holding Company Boku Inc. Germany
------------------------- ------------------------------------- --------------
Paymo Brazil Servicios de
Pagamentos Ltd Mobile payment solutions Boku Network Services Inc.(Delaware) Brazil
------------------------- ------------------------------------- --------------
Boku Network Services UK, Ltd Mobile payment solutions Boku Network Services Inc.(Delaware) UK
------------------------- ------------------------------------- --------------
Boku Network Services AU Pty Ltd Mobile payment solutions Boku Network Services Inc.(Delaware) Australia
------------------------- ------------------------------------- --------------
Boku Network Services IN Privates
Limited Mobile payment solutions Boku Network Services Inc.(Delaware) India
------------------------- ------------------------------------- --------------
Boku Network Services Japan Branch
Office Mobile payment solutions Boku Network Services Inc.(Delaware) Japan
------------------------- ------------------------------------- --------------
Boku Network Services Taiwan Branch
Office Mobile payment solutions Boku Network Services Inc.(Delaware) Taiwan
------------------------- ------------------------------------- --------------
Boku Account Services Inc.
Boku Account Services UK, Ltd. Mobile payment solutions (Virginia) UK
------------------------- ------------------------------------- --------------
Mindmatics Labs SRL* Mobile payment solutions Boku Network Services AG (Germany) Romania
------------------------- ------------------------------------- --------------
Mopay AG Beijing Representative
Branch Mobile payment solutions Boku Network Services AG (Germany) China
------------------------- ------------------------------------- --------------
Mobileview Italia S.r.l Mobile payment solutions Boku Network Services AG (Germany) Italy
------------------------- ------------------------------------- --------------
* Closed in February 2018
In March 2018 the Company acquired 5% of Phronesis for an amount
of $164,000 which has been accounted as a cost method investment.
As at 31 December 2018 this investment was fully impaired.
Trade and other receivables
31 December 31 December
2018 2017
$'000 $'000
----------------------------------------- ------------ ------------
Trade receivables - gross 17,612 36,710
Accrued income 33,325 21,060
------------------------------------------ ------------ ------------
Accounts receivable - gross 50,937 57,770
Less: provision for impairment (1,958) (1,410)
------------------------------------------ ------------ ------------
Accounts receivable - net 48,979 56,360
Other receivables 45 48
Deposits held 255 151
Taxes receivable 972 1,117
Note receivable from a shareholder 793 793
------------------------------------------
Total financial assets classified
as loans and receivables 51,044 58,469
------------------------------------------ ------------ ------------
Prepayments 614 646
------------------------------------------ ------------ ------------
Total 51,658 59,115
------------------------------------------ ------------ ------------
** both trade receivables and accrued
income
Provision for impairment
31 December 31 December
2018 2017
$'000 $'000
---------------------------- ------------ ------------
Opening balance 1,410 715
Utilised during the period (34) (111)
Increase during the period 619 806
Foreign exchange movement (37) -
---------------------------- ------------ ------------
Closing balance 1,958 1,410
------------------------------ ------------ ------------
In adopting IFRS9, the Group now reviews the amount of credit
loss associated with its trade receivables based on forward looking
estimates that take into account and forecast credit conditions as
opposed to relaying on past default rates. In adopting IFRS 9, the
Group has applied the Simplified Approach, applying a provision
matrix based on the number of days past due to measure lifetime
expected credit losses and after taking into account customer
sectors with different credit risk profiles and current and
forecast trading conditions.
14. Cash and cash equivalents and restricted cash
31 December 31 December
2018 2017
$'000 $'000
--------------------------- ------------ ------------
Cash and cash equivalents 31,073 18,741
---------------------------- ------------ ------------
Restricted cash 1,251 1,439
---------------------------- ------------ ------------
The restricted cash primarily includes e-money received but not
yet paid to merchants (in transit), cash held in the form of a
letter of credit to secure a lease agreement for the Company's San
Francisco office facility and a certificate of deposit held at a
financial institution to collateralise Company credit cards.
15. Derivative financial instruments
31 December 31 December
2018 2017
$'000 $'000
----------------------------------------------- ------------ ------------
Derivative financial assets (liabilities)
Derivatives designated as hedging instruments
Forward foreign exchange swaps 3 (24)
------------------------------------------------ ------------ ------------
The maximum exposure to credit risk at the reporting date is the
fair value of the derivative assets in the consolidated statement
of financial position
The Group's objective in using derivatives is to hedge the
variability of cash flows associated with monthly Aggregator
payments and to manage its exposure to foreign currency movements
or other identified risks. To accomplish this objective, the
Company primarily uses foreign currency contracts as part of its
cash flow hedging strategy.
The notional principal amounts of outstanding forward foreign
exchange rate swaps at 31 December 2018 were $141,783 (2017:
$1,004,306). Their fair value in 2018 is $2,646 asset (2017:
$23,865 liability).
The hedged transactions denominated in various foreign
currencies are expected to occur at various dates within the next
12 months. The change in net un-realised gains and losses on the
fair value of these forward foreign exchange swaps are recognised
in the hedging reserve in equity at year ended December 2018 of
$27,000 gain (2017: loss $38,000). The realised gains of these
swaps re-cycled from the hedging reserve to profit or loss were
2018: $150,515 (2017: $56,641).
16. Trade and other payables
Restated*
31 December 31 December
2018 2017
Current $'000 $'000
---------------------------------------- ------------ ------------
Trade payables 69,064 64,275
Accruals 6,402 7,641
----------------------------------------- ------------ ------------
Total financial liabilities classified
as financial liabilities
measured at amortised cost 75,466 71,916
Other taxes and social security costs 350 2,203
Accrued tax on issued stock options 811 533
Deferred revenue 747 862
----------------------------------------- ------------ ------------
Total 77,374 75,514
----------------------------------------- ------------ ------------
Non-current
Deferred rent 86 86
Accrued taxes on issued stock options 21 38
----------------------------------------- ------------ ------------
Total 107 124
----------------------------------------- ------------ ------------
* the restatement relates t to a change in accounting policy to
employer taxes for share options (and RSUs).
Contract liabilities are included within 'trade payables' and
'accruals' depending if the merchant payable is just accrued or
already invoiced. The carrying values of trade and other payables
approximate to fair values.
17. Loans and borrowings
31 December 31 December
2018 2017
$'000 $'000
------------------------------------- ------------ ------------
Current
Bank loans (secured) 2,150 2,400
Obligations under finance lease and
hire purchase contracts 43 82
-------------------------------------- ------------ ------------
Total 2,193 2,482
-------------------------------------- ------------ ------------
Non-current
Obligations under finance lease and
hire purchase - 43
Total - 43
-------------------------------------- ------------ ------------
Principal terms and the debt repayment schedule of the Group's
loan and borrowings are as follows:
In November 2013, the Company entered into a Loan and Security
Agreement (the Agreement) with a financial institution that allows
for borrowings of up to $15,000,000 under a revolving line of
credit through to February 2015. This was extended first, through
to March 2017 and subsequently through to March 2019. However, the
amounts borrowed under this Agreement were partially repaid after
the IPO and a further $0.25m during 2018; the balance outstanding
at year end was $2.2m (2017: $2.4m).
The line of credit is secured by the Company's trade receivables
and allows for borrowings of up to (a) 80% of outstanding eligible
trade receivables from United States or Western Europe debtors plus
(b) sixty-five percent (65.0%) of outstanding eligible trade
receivables from debtors other than those from the United States or
Western Europe plus (ii) 50% of outstanding eligible accrued income
provided that (a) aggregate advances secured by trade receivables
due from Aggregators does not exceed $7,500,000 at any time and (b)
aggregate advances secured by eligible accrued receivables does not
exceed $7,500,000 at any time. The Agreement requires a minimum
monthly interest payment of $12,500 should interest paid on
outstanding borrowings be less than $12,500 in any given month.
Advances under the line of credit bear interest at prime plus 3.25%
or prime plus 1.75%, depending on the net cash balances held with
the financial institution (2018: 7.50%; 2017: 6.50%). Outstanding
borrowings under the line of credit at each year-end are as
disclosed in the above table.
Reconciliation of liabilities arising
from financing activities
Cash
2017 flows Non-cash changes 2018
----------------------------------
Foreign Fair
Converted Exchange Value
to shares Movement Changes
------ ------- ----------- ---------- --------- ------
Short-term borrowings 2,400 (250) - 2,150
Lease liabilities 125 (82) 43
------ ------- ----------- ---------- --------- ------
Total liabilities from
financial activities 2,525 (332) - - - 2,193
18. Share capital
The Company's issued share capital is summarised in the table
below:
31 December 31 December
2018 2017
Number Number
of shares of shares
issued issued
and fully and fully
paid paid
'000 $'000 '000 $'000
------------------------------ --- ----------- ------ ----------- ------
Common stock of $0.0001
each
Opening balance 213,582 21 27,559 3
------------------------------------ ----------- ------ ----------- ------
Preference shares converted
to common shares - - 112,596 11
New shares issued on IPO - - 25,424 3
Shares issued for conversion
of loan notes - - 44,052 4
Shares issued for warrants 544 - 594 -
Exercised stock options 9,650 1 3,357 -
Re-purchase of shares - - - -
------------------------------ --- ----------- ------ ----------- ------
Closing balance 223,776 22 213,582 21
------------------------------------ ----------- ------ ----------- ------
Common Stock
At December 31, 2018, the Company had 223,775,735 (2017:
213,582,467) common shares issued and outstanding, of which
1,150,000 (2017: 1,150,000) where unpaid.
Convertible preferred shares
At December 31, 2018, the Company had no (2017: Nil) convertible
preferred shares issued or outstanding as they have all been
converted into common stock pari-passu upon the admission to
AIM.
The Company did not repurchase any shares in 2018 or 2017 which
is related to the Company's right to repurchase shares that were
issued following early exercise of options prior to vesting. There
were no shares subject to repurchase in 2018 or 2017.
19. Reserves
The share premium disclosed in the consolidated statement of
financial position represents the difference between the issue
price and nominal value of the shares issued by the Company.
Retained earnings are the cumulative net profits in the
consolidated income statement.
Foreign exchange reserve is foreign exchange translation gains
and losses on the translation of the financial statements from the
functional to the presentation currency.
Cash flow hedging reserve is changes in unrealised gains or
losses on the valuation of derivatives designated as cash flow
hedges at year-end.
Movements on these reserves are set out in the consolidated
statement of changes in equity.
20. Share-based payment
The Group operates the following equity-settled share-based
remuneration schemes for employees, directors and
non-employees:
1. 2009 equity incentive plan (2009 Plan) for the granting of
stock options (incentive or non-qualified), restricted stock awards
(RSA) and restricted stock units (RSU). No options are available to
be issued under this plan as at 31 December 2018.
2. 2009 equity UK sub-plan (2009 UK plan) under the terms of the
above plan for the granting of stock options and restricted stock
units for qualifying participants who are resident in the United
Kingdom. No options are available to be issued under this plan as
at 31 December 2018.
3. 2009 non-plan (not part of the above 2009 plan) for the
granting of share options to purchase 897,000 (2017: 897,000)
common shares at $0.022(2016: $0.022) per share. These options vest
with terms ranging from being fully vested at grant date to vesting
over four years with a one-year cliff, where 25% of the options
vest. The options expire in April 2019. The shares have been
exercised in full during the year and there are no options
outstanding as at 31 December 2018.
4. 2009 BNS options (not part of the above 2009 plan) for the
granting of share options to purchase 182,000 (2017: 182,000)
common shares at $0.207 (2016: $0.207) per share in connection with
the acquisition of BNS in June 2009. The options expire in June
2019.
5. 2017 Equity Incentive Plan (new plan started on the 7(th)
November 2017) for the granting of stock options and restricted
stock units (RSUs). The Group has reserved ten million shares of
common stock for issue under the plan. The activity under this plan
will be presented separately from the rest of the plans. There are
5,567,552 options and RSUs outstanding as at 31 December 2018.
Options under the 2017 Plan
Options under the 2009 Plan and UK plan may be outstanding for
periods of up to ten years following the grant date. Outstanding
options generally vest over four years and may contain a one-year
cliff, where 25% of the options vest. Stock options with graded
vesting is based on the graded vesting attribution approach,
whereby, each instalment of vesting is treated as a separate stock
option grant, because each instalment has a different vesting
period.
RSUs under the 2017 Plan
RSUs under the 2017 Plan may be outstanding for periods of up to
ten years following the grant date. Outstanding RSU grants
generally vest over three years in three equal portions.
Performance-based Restricted stock units (RSU)
Performance-based RSUs vest upon the earlier of the completion
of a specified service period and the achievement of certain
performance targets, which may include individual and Company
measures, and are converted into common stock upon vesting.
Share-based expense for RSUs is based on the fair value of the
shares underlying the awards on the grant date and reflects the
estimated probability that the performance and service conditions
will be met. The share-based expense is adjusted in future periods
for subsequent changes in the expected outcome of the performance
related conditions until the vesting date. Performance-based RSUs
vest after three years of issue, in one event, only if the
performance conditions are met.
Restricted stock awards (RSA)
RSAs are subject to repurchase based upon the terms of the
individual restricted stock purchase agreements. These repurchase
rights lapse over the vesting term of the individual award,
generally over three to four years.
Options under the 2009 Plan and 2009 UK plan
Options under the 2009 Plan and UK plan may be outstanding for
periods of up to ten years following the grant date. Outstanding
options generally vest over four years and may contain a one-year
cliff, where 25% of the options vest.
Stock options with graded vesting is based on the graded vesting
attribution approach, whereby, each instalment of vesting is
treated as a separate stock option grant, because each instalment
has a different vesting period.
2009 non-plan options
The 2009 non-plan options vest with terms ranging from being
fully vested at grant date to vesting over four years with a
one-year cliff. The options expire in April 2019. Share-based
expense in connection with the grant of Non-Plan options was not
material in 2016 and 2017. In 2018 all options were exercised. The
are no outstanding options at 31 December 2018.
BNS plan options
In connection with the acquisition of BNS in June 2009, the
Company granted options to purchase 182,000 common shares at a
weighted-average exercise price of $0.207 per share (BNS Options).
These options granted were separate from the 2009 Plan. The options
expire in June 2019.A small amount of options were cancelled in
2018. There was no stock option activity related to these options
in 2017. At 31 December 2018 35,424 (2017: 37,029) options were
outstanding at a weighted-average exercise price of $0.197 (2017:
$0.203) per share. At December 31, 2017 and 2018 all BNS Options
were fully vested and exercisable.
The options activity under the 2009 Plan (including RSA and RSU)
are as follows:
Options
available
for grant 2009 Plan (including UK
- All plan, (excluding RSA & Non-Plan BNS plan Total
plans RSU) RSA RSU* Options options
------------ ---------- ------------------------- ------------------ ------------------ --------- -------- -------------------
Number Number Number Number Number Number
Number of of of of of of of
options options WAEP(1) options WAEP(1) options options WAEP(1) options WAEP(1) options
'000 '000 '000 '000 '000 '000 '000
------------ ---------- -------- --------------- -------- -------- -------- -------- --------- -------- -------- ---------
At 1
January
2016 2,677 18,312 $0.610 7,206 $0.30 4,649 196 $0.022 37 $0.203 30,400
Authorised 8,206 - - - - - - - - - -
Granted (12,668) 7,599 $0.266 - - 5,068 - - - - 12,667
Exercised - (203) $0.367 - - - - - - - (203)
Cancelled 1,785 (1,619) $0.537 - - (166) (146) $(0.022) - - (1,931)
------------ ---------- -------- --------------- -------- -------- -------- -------- --------- -------- -------- ---------
At 1
January
2017 - 24,089 $0.511 7,206 $0.30 9,551 50 $0.022 37 $0.203 40,933
Authorised 10,000 - - - - - - - - -
Granted - 4,052 $0.370 - - 700 - - - - 4,752
Exercised - (3,357) $0.512 (7,206) $0.30 - - - - - (10,563)
Cancelled - (4,175) $0.298 - - (712) - - - - (4,887)
------------ ---------- -------- --------------- -------- -------- -------- -------- --------- -------- -------- ---------
At 31
December
2017 10,000 20,609 $0.470 - - 9,539 50 $0.022 37 $0.203 30,235
Authorised - - - - - - - - - - -
Granted - - - - - - - - - - -
Exercised - (2,130) $0.247 - - (7,580) (50) $0.022 (2) - (9,762)
Cancelled (10,000) (728) $0.269 - - - - - - $0.35 (728)
------------ ---------- -------- --------------- -------- -------- -------- -------- --------- -------- -------- ---------
At 31
December
2018 - 17,751 $0.444 - - 1,959 - - 35 $0.202 19,745
------------ ---------- -------- --------------- -------- -------- -------- -------- --------- -------- -------- ---------
(1) WAEP - weighted average exercise price
*RSUs are always granted at zero exercise price
2009 Plan December December
2018 2017
--------------------------------------------------------------------------------------------- --------- ---------
Outstanding options at reporting end date:
--------- ---------
* total number of options (including RSA & RSU) 19,745 30,235
--------- ---------
* weighted average remaining contractual life (all
except 2017 Plan)
(excluding RSU and RSA) 4.46 6.15
--------- ---------
* weighted average remaining contractual life - RSU 5.58 6.68
--------- ---------
* weighted average remaining contractual life - RSA - 6.78
--------- ---------
Vested and exercisable ('000): 15,106 12,856
--------- ---------
* weighted average exercise price $0.369 $0.374
--------- ---------
* weighted average remaining contractual life - all
plans
(excluding RSU and RSA) 5.71 5.56
--------- ---------
Weighted average share price exercised during the period (excluding RSA and RSA) $0.324 $0.349
--------- ---------
Weighted average fair value of each option granted during the period (excluding RSA and RSU) - 0.165
--------- ---------
Vested and exercisable - RSU and RSA 7,154 8,880
--------- ---------
Share-based expense for the period ('000) $1,233 $1,481
--------- ---------
In October 2016, the Company's Board of Directors repriced the
exercise price of certain outstanding stock options. This repricing
was accounted for as a modification of all outstanding options. The
Company calculated the fair value of the original options
immediately prior to the modification and again after the
modification occurred using the Black-Scholes option pricing model.
The fair value of the modified options, less the fair value of the
original options immediately before the modification, will be
recorded over the remaining vesting period. For options that were
fully vested as of the modification date, the Company recorded all
of the incremental share-based expense as of that date. A total of
14,254,000 options were modified in 2016 resulting in incremental
value of $771,000, of which $665,000 was recognised and included in
share-based expenses in 2016. The remainder will be recognised over
a weighted-average requisite service period of 0.864 years.
The following information is relevant in the determination of
the fair value of options (excluding RSA and RSU) granted during
the period under the equity- settled share-based remuneration
schemes operated by the Group.
2009 Plan December 2017
Option pricing model used Black-Scholes
---------------------------------------------- ---------------
Weighted average share price at grant
date (dollar) $0.370
----------------------------------------------- ---------------
Exercise price (options only) $0.370
----------------------------------------------- ---------------
Weighted average contractual life (years)(1) 5.82(E*+ NE*)
Weighted expected volatility (2) 45% (E*+ NE*)
Expected dividend growth rate 0%
Weighted average Risk-free interest 1.9% (E*+ NE*)
rate(3)
(1) Weighted average contractual life represents the period of
time options are expected to be outstanding and is estimated
considering vesting terms and employees' historical exercise and
post-vesting employment termination behavior.
(2) Expected volatility is based on historical volatilities of
public companies operating in the Company's industry.
(3) The risk-free rate is based on the U.S. Treasury yield curve
in effect at the time of grant.
*E - employees NE - non-employees
The fair value of each option has been estimated on the date of
grant using the Black-Scholes option pricing model with the
following assumptions: expected terms ranging from 4.99 to 6.89
years; risk-free interest rates ranging from 0.73% to 3.05%;
expected volatility of 58%; and no dividends during the expected
term (2017: expected terms ranging from 5.04 to 6.01 years;
risk-free interest rates ranging from 1.87% to 1.92%; volatility of
45%; and no dividends during the expected term).
The options activity under the 2017 Plan (including options and
RSU) are as follows:
Options
available Options WAEP(1) RSUs WAEP(1) Total
'000 '000 '000 '000
---------------- ----------- -------- -------- -------- ----------- ------------
At 1 January - - - - - -
2018
---------------- ----------- -------- -------- -------- ----------- ------------
Authorised 10,000 - - - - -
Granted 1,459 $1.205 4,299 $2.24 5,758
Exercised - - - -
Cancelled (73) $1.205 (117) $2.24 (190)
---------------- ----------- -------- -------- -------- ----------- ------------
At 31 December
2017 10,000 1,386 $1.205 (4,182) $2.24 5,568
---------------- ----------- -------- -------- -------- ----------- ------------
2017 Plan December
2018
---------------------------------------------------------------------------------- ---------
Outstanding options at reporting end date:
- total number of options (including RSUs) ('000) 1,386
- weighted average remaining contractual life
(excluding RSUs) (years) 9.05
- weighted average remaining contractual life - RSUs (years) 6.06
Vested and exercisable ('000): 113
- weighted average exercise price $1.205
- weighted average remaining contractual life
(excluding RSU) (years) 8.92
Weighted average share price exercised during the period (excluding RSUs) -
Weighted average fair value of options granted during the period (excluding RSU) $0.44
Vested and exercisable - RSUs -
Share-based expense for the period ('000) $2,103
----------------------------------------------------------------------------------- ---------
The following information is relevant in the determination of
the fair value of options (excluding RSU) granted during the period
under the equity- settled share-based remuneration schemes operated
by the Group.
2017 Plan December
2018
Option pricing model used Black-Scholes
---------------------------------------------- --------------
Weighted average share price at grant
date (dollar) $1.205
----------------------------------------------- --------------
Exercise price (options only) $1.205
----------------------------------------------- --------------
Weighted average contractual life (years)(1) 9.05 years
Weighted expected volatility (2) 32.66%
Expected dividend growth rate 0%
Weighted average Risk-free interest
rate(3) 2.49%
(1) Weighted average contractual life represents the period of
time options are expected to be outstanding and is estimated
considering vesting terms and employees' historical exercise and
post-vesting employment termination behavior.
(2) Expected volatility is based on historical volatilities of
public companies operating in the Company's industry.
(3) The risk-free rate is based on the U.S. Treasury yield curve
in effect at the time of grant.
*E - employees NE - non-employees
Warrants for ordinary shares
February 2013 Warrant
In February 2013, in connection with a financing arrangement
with SVB bank, the Company issued a warrant to purchase 872,093
common shares at an exercise price of $0.86 per share. The warrant
was immediately exercisable and expires in February 2023. As the
fair value of the warrant cannot be estimated reliably relating to
the financing arrangement, the Company determined the fair value of
the warrant to be $392,000 using the Black-Scholes option pricing
model, assuming a contractual life of 10 years, risk free rate of
1.88%, volatility of 60% and no dividends. The fair value of the
warrant was recorded within other receivables and the corresponding
amount in share premium. The fair value was amortized to interest
expense over 2 years by 2015, which was the term of the agreement.
This warrant was exercised in September 2018 when it was converted
into 543,760 common shares. As at 31 December 2018 there is nothing
outstanding under this warrant.
Reconciliation of share based payment expense
December 2018 December 2017
$000's $000's
-------------------------------------- -------------- --------------
2009 Plan
Options 564 570
RSU's 683 339
2017 Plan
Options 310 -
RSU's 1,792 -
Total share-based expense (excluding
national insurance) 3,349 909
National insurance (see Note 2) 1,244 572
-------------------------------------- -------------- --------------
Total share based payment charge 4,593 1,481
-------------------------------------- -------------- --------------
21. Commitments
Operating leases
The Company leases office facilities under several
non-cancelable operating lease agreements, which expire at various
dates through 2021. In addition to the base rent, the Company is
responsible for certain maintenance expenses under the leases.
Certain lease agreements contain scheduled net increases over the
lease term. The related rent expenses for these leases are
calculated on a straight-line basis with the difference recorded as
deferred rent. Rent expense was $1,268,564 in 2018 (2017:
$1,494,593).
The total value of minimum lease payments due until the next
lease break is payable as follows:
2018 2017
$'000 $'000
----------------------------------- ------ ------
Not later than one year 1,811 872
Later than one year and not later
than five years 2,497 2,093
Later than five years - -
----------------------------------- ------ ------
Total 4,308 2,965
------------------------------------ ------ ------
Finance leases
During 2015 the Company entered into several capital lease
agreements with leasing companies for the financing of equipment
purchases of $400,000. The lease payments expire at various dates
through December 2019.
Minimum Present
2018 lease payments Interest value
Within one year 45 2 43
Between one and five years - - -
Total 45 2 43
---------
Minimum Present
2017 lease payments Interest value
---------
Within one year 91 9 82
Between one and five years 45 2 43
---------
Total 136 11 125
---------
22. Dividends
No dividends were declared or paid in any of the periods.
23. Cash used in/generated from operations
Restated*
Year ended Year ended
31 December 31 December
2018 2017
$'000 $'000
Loss after tax (4,333) (28,669)
Add back:
Tax expense 1,339 129
Amortisation of intangible assets 2,581 2,764
Depreciation of property, plant and equipment 213 221
Amortisation of prepaid warrants - -
Loss on disposal of property, plant and equipment 1 -
Finance income (53) (18)
Finance expense 631 19,558
Exchange (gain)loss 2,376 (3,251)
Impairment of intangible assets 164 -
Share based payment expense 3,610 1,481
Operating loss before working capital changes 6,529 (7,785)
Decrease in trade and other receivables 4,336 (18,751)
Decrease in trade and other payables 2,877 19,717
Cash (used in) /generated from operations 13,742 (6,819)
*the restatement relates to the employee taxes accrued for all
stock options issued to 31 Dec 2017 ($0.6m).
24. Related party transactions
In 2018, the Company has been remitted $168,713,114 (2016:
$111,458,148 from 3 suppliers) in net payments from 4 suppliers who
are shareholders of the Company. At December 31, 2018, the Company
had receivables of $22,699,237 (2017: $20,899,203) due from these
companies.
A director issued a full recourse promissory note in the amount
of $793,000 for the purchase of 1,150,000 common shares at $0.69
per share in Dec 2013. This is disclosed as 'note receivable from a
shareholder' in note 13 - trade and other receivables in 31
December 2018 and 2017.
25. Ultimate controlling party
There is no ultimate controlling party of the Company.
26. Contingent liabilities
In the normal course of business, the Group may receive
inquiries or become involved in legal disputes regarding possible
patent infringements. In the opinion of management, any potential
liabilities resulting from such claims, if any, would not have a
material adverse effect on the Group's consolidated statement of
financial position or results of operations.
From time to time, in its normal course of business, the Group
may indemnify other parties, with whom it enters into contractual
relationships, including customers, Aggregators, MNOs, lessors and
parties to other transactions with the Group. The Company has also
indemnified its directors and executive officers, to the extent
legally permissible, against all liabilities reasonably incurred in
connection with any action in which such individual may be involved
by reason of such individual being or having been a director or
executive officer. The Group believes the estimated fair value of
any obligation from these indemnification agreements is minimal;
therefore, this consolidated financial information do not include a
liability for any potential obligations at 31 December 2018 and
2017.
27. Post balance sheet events
Boku Inc completed the acquisition of 100% of the outstanding
shares of Danal Inc on 1 January 2019 following the announcement of
the deal on 6 December 2018. Subsequent to the completion of the
acquisition, Danal Inc was renamed Boku Identity Inc.
Headquartered in San Jose, California, Danal Inc is a provider
of mobile identity and authentication solutions through real-time
connections to mobile operator networks and data. It has employees
in the US and Ireland. In Europe it operates through a subsidiary
Danal Mobile Solutions Ireland Ltd (renamed to Boku Mobile
Solutions Ireland Ltd).
The purchase consideration included the following: 26.7 million
Boku shares (10.7% of the total Boku Inc shares) valued at 1 Jan
2019 share price, $1.0m in cash, a five year warrant exercisable at
$1.8352 share price, and an additional deferred consideration of up
to $64 million in shares payable in shares and warrants depending
on Danal's future performance as follows (and only if the Danal's
revenue exceeds $10 million in the audited 2019 results):
The Earn-Out may be paid in either shares or cash at Boku's
discretion:
a. If revenue is between $10 million and $14 million, the
earn-out is (Revenue-$10 million) x 3=$12m maximum;
b. If Revenue is greater than $14 million and less than or equal to $16 million, the earn-out is
(Revenue-$14 million) x 7+12 million=$26m maximum ;
c. If Revenue is greater than $16 million and less than or equal to $18 million, the earn-out is
(Revenue-$16 million) x 8+$26 million=$42m maximum ;
d. If Revenue is greater than $18 million, the earn-out is
(Revenue-$18 million) x10+$42 million= 62m maximum;
If shares are used to settle the Earn-Out consideration, the
value of the shares will be the Volume Weighted Average Share Price
for the 30 trading days preceding the fifth trading day prior to
the date that such consideration is finalised, provided that the
shares are valued at no more than GBP 1.70 and no less than GBP
1.20.
Earn-out paid in warrants:
Earn-out warrants to purchase an additional number of Boku
shares (calculated as follows) at an exercise price of $1.8352:
a. If Revenue is between $10 million and $14 million, the number of warrants is
(Revenue-$10million) ÷ $4 million x $0.5 million ÷GBP1.45= $0.5
million (in shares at GBP1.45/$1.8352)
b. If Revenue is greater than $14 million and less than or equal
to $16 million, the number of shares is [(Revenue-$14million) ÷ $2
million x $0.5 million + $0.5 million] ÷GBP1.45= $1.0 million (in
shares at GBP1.45/$1.8352)
c. If Revenue is greater than $16 million and less than or equal
to $18 million, the number of shares is
[(Revenue-$16million) ÷ $2 million x $0.5 million + $1.0
million] ÷GBP1.45= $1.5 million (in shares at GBP1.45/$1.8352)
d. If Revenue is greater than $18 million, the number of shares is
[(Revenue-$18million) ÷ $2 million x $0.5 million + $1.5
million] ÷GBP1.45= $2.0 million (in shares at GBP1.45/$1.8352)
Total maximum number of shares that can be obtained under the
warrant at GBP1.45 ($1.8352) are $2.0 million (in shares at
GBP1.45/$1.8352)
Purchase consideration and valuation
1. The 26.7m shares have been valued as at 1 January 2019, using
the market value of Boku's shares (GBP0.7045/$0.8982) at
$23.4m.
2. The 5-year warrant has been valued at $1.5m. The valuation
was done using the Binomial Lattice Model which employs a nominal
tree to show different paths the price of the underlying asset may
take over the derivative's life. The model takes into account
expected changes in various parameters such as volatility over the
life of the options, providing more accurate estimates of options
prices than the Black Scholes model.
3. The earn-out paid in shares has been provisionally valued at
$37,544 using the Monte Carlo simulation with the following inputs
and discounting back at the WACC of 17.5%:
a) Term 1 year
b) FY2018 revenue: $5,249,873
c) Expected annual volatility: used 5-year comparable companies
revenue volatilities from Capital IQ (27.3%)
d) Forecasted revenue growth: one-year US risk free rate
(2.63%)
For the Monte Carlo valuation a random value is selected for
each of the tasks, based on the range of estimates. The model is
calculated based on this random value. The result of the model is
recorded, and the process is repeated. A typical Monte Carlo
simulation calculates the model hundreds of thousands of times,
each time using different randomly selected values. The results are
used to describe the likelihood, or probability, of reaching
various results in the model.
4. The earn-out warrants have been provisionally valued at
$2,009. The warrants have been valued in two steps: the first step
was using the Monte Carlo simulation in order to determine the
number of shares that can be purchased under the warrants using a
price per share of $1.8482 equivalent with GBP1.45 at a USD/GBP
exchange rate of 1.2746 determined in accordance with the Merger
Agreement using Capital IQ rather than the Financial Times (the
difference between the two sources was expected). The first step is
determined with the same inputs at point 3 above. Using the results
from the first step, we have performed a warrant valuation using a
binomial lattice model using the following inputs:
a) Term: 5 years
b) Starting Stock price: we determine the 1 year forward stock price.
c) Expected annual volatility: used 5-year comparable companies
equity volatilities from Capital IQ (26.6%)
d) Risk free rate: 1 year forward risk-free rate (2.63%)
e) Strike price: $1.8352
Therefore, the total purchase consideration (including all
deferred consideration) for the Danal Inc group has been
provisionally valued at $26.5 million.
19,067,093 common shares have been issued for Danal Inc
acquisition on 31(st) January 2019.
4,631,648 Common Shares and the Warrants to Danal Company Ltd.
("Danal Korea"), the parent company of Danal Inc prior to the
Acquisition, have been withheld. Danal Company Ltd. is currently
obligated to repay to Citibank (USA) a loan of US$8,500,000 and
funds from Danal Korea to guarantee this loan are currently being
held in escrow with Citibank Korea and will be transferred to Boku
following receipt of the regulatory approvals required under Korean
law, at which point the Common Shares and Warrants will be issued
to Danal Korea. Boku expects this loan to be cleared and the shares
and warrants to be payable to Danal Korea before the end of June
2019. Danal Korea is paying the interest costs on the loan until
such date until the loan is repaid.
In addition, 2,724,499 Common Shares are currently subject to
holdback for 12 months to satisfy any potential indemnification
claims.
With the exception of 1,930,414 Common Shares which are subject
to an Orderly Marketing Arrangement, fifty percent of the Common
Shares issued as part of the Initial Consideration are subject to a
lock-in until 30 June 2019 and fifty percent are subject to a
lock-in until 31 December 2019. Following the Acquisition, Jon
Prideaux, Mark Britto and Paul McGuire will also be subject to the
same lock-in terms in respect of their entire Boku shareholdings
with the exception of any share sale which may be required to meet
income tax liabilities on the vesting of Restricted Stock
Units.
There are no other post balance sheet events to report.
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
FR UVRARKAAOUUR
(END) Dow Jones Newswires
March 26, 2019 03:01 ET (07:01 GMT)
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