TIDMBOKU
RNS Number : 6395H
Boku Inc
26 March 2020
26 March 2020
Boku Inc.
("Boku", the "Company" or the "Group")
Results for the year ended 31 December 2019
Boku (AIM: BOKU), the world's leading independent carrier
commerce company, today announces its audited results for the year
ended 31 December 2019.
Financial Highlights
-- Revenue of $50.1 million up 42% on 2018 (2018: $35.3 million)
-- Adjusted EBITDA* 17% higher at $7.4 million (2018: $6.3
million). Revenue includes $3.3m of non-recurring Payments
Revenue; to better reflect underlying performance, this
non-recurring revenue is excluded from Adjusted EBITDA
-- Payments division performed well with Revenues increasing
to $43.5 million, delivering a 100% increase in Adjusted
EBITDA of $12.8 million (2018: $6.3 million)
-- Net Profit after Tax of $0.4 million compared with Net
Loss after tax of $4.3 million for 2018
-- Closing cash balances as at 31 December 2019 were $35.6
million - compared with $32.3 million at 31 December 2018
-- Monthly average cash balances in December 2019 were $22.4
million, compared with $22.2 in June 2019 and $24.4 million
in December 2018
Operational Highlights
-- Total Payment Volumes ("TPV")** of $5.0bn for 2019 compares
with $3.6bn in 2018. Growth was steady throughout the
year with volume in H2 2019 $418 million higher than
in H1 2019
-- Monthly Active Users ("MAU") of the Boku Payments Platform
in December 2019 increased to 17.8 million, up 2.6 million
from the half year and 4.4 million higher than December
2018
-- During 2019 nearly 19 million end-users made their first
transaction through Boku
-- Good progress on building out Mobile Wallets
-- Integration of Identity business which was created following
the acquisition of Danal Inc on 1 January 2019, for a
total finalised cost of $25.1 million
-- Identity billable transactions up by 45% to 253 million
* Adjusted EBITDA: Earnings before interest, tax, depreciation,
amortisation, non-recurring payments revenue adjustment, stock
option expense, foreign exchange gains/(losses), and exceptional
items
** TPV is the US$ value of transactions processed by the Boku
platform
Post-period end Highlights
-- Strong start to the year. In January and February 2020
TPV grew to $966 million, an increase of 30% compared
to the same period last year, a slightly larger increase
than anticipated
-- In February 2020 daily volumes showed an increase over
January 2020 against the background of the increasing
prevalence of COVID-19 worldwide. Average TPV per day
increased by 2.5% in February 2020 compared to January
2020 and Daily Average Users ("DAU") were 4% higher in
February 2020 than January 2020
-- Trends seen in January and February 2020 have continued
into March 2020 with significant increases in new users
of the Boku Payments Platform, particularly for streaming
video services and gaming in those countries hardest hit
by COVID-19
Jon Prideaux, Chief Executive of Boku Inc, commented : "2019 has
proven to be another year of exceptional growth for Boku. The Group
has continued to build upon the strength and depth of the Boku
Platform, which has allowed the Company to report a maiden profit
after tax. There has been a focus on integrating and growing our
Identity business which was created following the acquisition of
Danal Inc at the beginning of the year and I am pleased with how
things are progressing in this division, billable transactions have
increased by 45% to 253 million and Identity revenues up 26% on
2018 to of $6.7m. Our state-of-the-art Platform now connects most
of the world's largest digital merchants and more than 190 carriers
worldwide and we continue focus on delivering first class products
and services to our customers.
" Boku is a business where much of the growth is built in. A lot
of groundwork has been done in 2019 to set us up for success in
2020. Volumes and revenues in one year are, barring accidents,
largely the result of efforts made in the previous one. Just such a
shock, COVID-19, has cast a long shadow over many businesses. Boku
however is very well placed: operations are unaffected -- our team
is used to working remotely. New implementations are mostly
proceeding with, at worst, minor delays. New sales and business
development are more difficult without face to face contact, though
opportunities are being pursued. As our services are delivered
digitally, supply has not been disrupted; on the demand-side, the
more people stay at home the more they play games, download apps
and use streaming services. We have seen definite evidence of
recent increased volumes in countries with social distancing
measures in place.
"In Payments, our existing merchants and connections will
continue to perform strongly for as long as lockdown measures are
in place. There is a strong pipeline of new deployments, especially
from higher margin settlement model merchants to be implemented. As
yet, our DCB deployment plans have not been materially affected.
There is also potential material upside from Mobile Wallets.
"On Identity, our focus in 2020 is continuing to build out our
international carrier connections to create a truly global
offering. Demand remains strong, including from global customers.
Transaction processing on existing customers is continuing
unaffected. Identity has a greater dependence on new business to
hit full year expectations and so is unlikely to perform as
strongly as Payments, with its larger installed base.
"There will be a time when we can look back at the COVID-19
pandemic and take stock of its impact. For now, it's too soon to
tell. We know not how long it will last nor how it will end, but at
least for Boku, its employees, customers and suppliers we are able
to say with confidence that Boku is well positioned in difficult
times."
Enquiries:
Boku, Inc.
Jon Prideaux, Chief Executive Officer +44 (0)20 3934
Keith Butcher, Chief Financial Officer 6630
Peel Hunt LLP (Nominated Adviser and Broker)
Edward Knight / Nick Prowting / Christopher +44 (0)20 7418
Golden 8900
IFC Advisory Limited (Financial PR & IR)
Tim Metcalfe / Graham Herring / Florence +44 (0)20 3934
Chandler 6630
About Boku
Boku Inc. (AIM: BOKU) is one of the world's leading providers of
carrier commerce and mobile identity solutions. Boku's technology
platform, which is linked to more than 190 mobile network operators
worldwide, verifies user identity, executes payments, and
provisions new services, simplifying daily mobile interactions
between consumers and digital organizations.
Boku's technology platform is used in over 59 countries with
over 815 million verified transactions in 2019, contributing $5
billion to the digital economy. Businesses that currently employ
Boku's platform to simplify sign-up, acquire new paying users and
prevent fraud include global leaders such as Apple, Discover,
Experian, Facebook, Fiserv, Google, Microsoft, Netflix, Paypal,
Sony, Spotify, Uber and Western Union.
Boku Inc. was incorporated in 2008 and is headquartered in
London, UK, with offices in various locations globally including in
the US, Mumbai, Munich, Beijing, Paris, Sao Paulo, Singapore,
Taipei, and Tokyo.
To learn more about Boku Inc., please visit:
https://www.boku.com
Chief Executive Officer's Report
2019 has been another year of significant growth.
At the Group level, revenues increased by 42% to $50.1 million
and Adjusted EBITDA was up by 17% to $7.4 million. This Adjusted
EBITDA number excludes $3.3 million of non-recurring Payment
revenue relating to a change in the estimate of a transaction price
related to a performance obligation satisfied in a prior period. As
a non-recurring item we excluded it from our EBITDA presentation to
better show the underlying performance of the business. Our
Payments division delivered a very solid performance with revenues
growing to $43.5 million and Adjusted EBITDA growing by over 100%
to $12.7 million (once again, excluding the impact of the $3.3
million non-recurring item). Within our Identity division, which we
acquired on 1(st) January 2019, revenues grew by 26% to stand at
$6.7 million and Adjusted EBITDA improved to a $5.3 million loss,
down from an unaudited $6.4 million loss in the year prior to Boku
acquiring the company.
We have built an incredible asset in the Boku Platform. It has
taken 10 years and cost us more than $100 million, and it is very
difficult for anyone else to replicate. It now connects 190 mobile
network operators around the world to most of the world's largest
digital merchants in app stores, streaming music, streaming video
and games. The Platform is extremely reliable and can support high
volumes of transactions (volumes have peaked at more than 400
transactions per second) and is capable of supporting many
more.
The primary product run through the Platform is Boku's Direct
Carrier Billing (DCB) Payments business. Users of this service are
many of the world's largest digital companies, including Apple,
Sony, Spotify, Netflix, Facebook, Google and Microsoft who come to
Boku for a simple reason - we help them to acquire new paying
users. Underpinning Boku's products is a key capability that only
mobile network operators possess: they know your telephone number
without having to ask. With Boku Payments we convert this knowledge
into one-tap-to-pay technology, or better yet, one-tap-to-register,
removing friction not only from the time of the transaction, but
also from the registration process.
This technology helped nearly 18 million people made their very
first Boku payment transaction in 2019 - around one and a half
million new paying users a month, helping to drive the growth of
our customers as more people play games and watch movies on their
phones and listen to music on the move.
In December 2019 alone, 17.8 million users bought a product
through the Platform - 4.3 million more than in the same period
last year - generating more than $500 million in transaction value.
Over the course of the whole year more than $5 billion was spent
through the Boku Platform, 40% up from last year's figure of $3.6
billion.
We convert this processed value into revenue for Boku by taking
a percentage based fee. We operate two models: the settlement model
- a full service offering where we provide technical processing
services and are involved in the flow of funds and the transaction
model where we only provide the technical connectivity. The former
attracts higher fees than the latter which has more volume.
This growth has mostly been driven by connecting our merchants
to carriers within our network. Each new connection reaches
maturity over a two-year period. Meaning that much of our growth is
baked in. A big effort this year has been to improve network
quality, to get more carriers able to support Boku's
one-tap-to-register offering, Boku Account. These new connections
have been to transaction model merchants at lower margins - in 2020
and beyond these connections can be reused by higher settlement
model customers.
Growth is underpinned by the growth in popularity of the
services that our merchants offer as digital services displace
physical products in the music, film and games industries. We also
get a boost from cross selling into other divisions of our
customers, for example, being used for Office 365 subscriptions by
Microsoft as well as Xbox.
2019 has also been a year in which we laid a lot of groundwork
for future growth with Mobile Wallets which are a second distinct
payment network available to our merchants through their existing
Boku connection.
Mobile Wallets have emerged as the mainstream payment mechanism
in most mobile first markets. In Asia, for example, companies like
Alipay, Wechatpay and Paytm account for 58% of electronic spending
and have around 2.5 billion customers. For wallets which have a
strong domestic presence, Boku is a valuable partner- as we are
connected to an unrivalled portfolio of global digital merchants.
By the same token, global merchants value the benefit of using
their existing connection to the Boku Platform to provide their
users with a new way to pay.
To date, Boku has contracted with 10 wallets in 9 countries
reaching approximately 1.4 billion customers. We are now live with
three wallets and during 2020 we will activate more, building, in
effect, a second payment network connected to the Boku Platform.
This can be achieved without significant extra cost. Connecting the
Boku payments platform to wallets is similar to connecting to
carriers and the cost of an incremental transaction is close to
zero. Therefore any extra gross margin generated from wallets will
largely flow through to Adjusted EBITDA. It's early days for
wallets, and 2020 revenues are not expected to be material, but
they clearly have significant potential.
While wallets are an example of growth by exploiting the Boku
Platform and our existing merchant base, our efforts in Identity
are a demonstration of how we can exploit our carrier network to
launch new products reaching new customers.
To kick start the Identity business, we bought Danal Inc., for
$25.1m on 1st January 2019. The plan was to strengthen sales in its
US domestic market and use the funds generated to help build out a
global carrier identity network, building on our existing global
carrier billing network.
Progress in the US can best be described as respectable rather
than spectacular and certainly less than we would have liked.
Volumes of billable transactions were up by 45% to 253 million and
revenues increased by 26% to $6.7 million compared to 2018's
unaudited figure (the year prior to Boku acquiring the company). We
were affected by supply side issues in the US, in particular, the
loss of a carrier.
Despite results falling below our expectations, I retain a
strong conviction about the Identity business. We didn't buy Danal
for it to continue be a US focused company, we have ambitions for
it to be global. Building out the supply side through our
international carrier network is in progress but takes time
Our key Identity product offering uses the same core technology
as payments, the fact that the carrier knows your phone number
without having to ask. In Identity this manifests as silent
authentication - checking your phone number matches the one on file
without the user having to do anything. To verify your phone number
today, people are put through the ordeal of receiving a 6-digit
code by text message. It's not a fun experience. Text messages get
lost and transactions don't get completed. Worse, far from being a
secure system, the SMS message itself can act as a source of fraud
when the genuine user is induced by a fraudster to give away the
code.
Demand for a better solution, a silent validation, is strong.
Our challenge is to build the supply network internationally. While
it was disappointing to make slower progress than we wanted in the
US during 2019, the milestones marking progress on this business
are about internationalisation, activating more carriers outside
the US. In this regard, it is good to be able to report that we
have activated new connections in India and Indonesia, but there is
still further work for us to do.
Outlook
Boku is a business where much of the growth is built in. A lot
of groundwork has been done in 2019 to set us up for success in
2020. Volumes and revenues in one year are, barring accidents,
largely the result of efforts made in the previous one. Just such a
shock, the Coronavirus, has cast a long shadow over many
businesses. Boku however is very well placed: operations are
unaffected -- our team is used to working remotely. New
implementations are mostly proceeding with, at worst, minor delays.
New sales and business development are more difficult without face
to face contact, though opportunities are being pursued. As our
services are delivered digitally, supply has not been disrupted; on
the demand-side, the more people stay at home the more they play
games, download apps and use streaming services. We have seen
definite evidence of increased volumes in countries with social
distancing measures in place.
In Payments, our existing merchants and connections will
continue to perform strongly for as long as lockdown measures are
in place. There is a strong pipeline of new deployments, especially
from higher margin settlement model merchants to be implemented. As
yet, our DCB deployment plans have not been materially affected.
There is also potential material upside from mobile wallets.
On Identity, our focus in 2020 is continuing to build out our
international carrier connections to create a truly global
offering. Demand remains strong, including from global customers.
Transaction processing on existing customers is continuing
unaffected. Identity has a greater dependence on new business to
hit full year expectations and so is unlikely to perform as
strongly as Payments, with its larger installed base.
We remain confident that Boku is well positioned in difficult
times.
Jon Prideaux
Chief Executive Officer
Chief Financial Officer's Report
Strong growth in Payments Adjusted EBITDA and progress in
Identity
2019 was a year of significant change for Boku following the
acquisition of US based mobile Identity business Danal Inc on 1st
January 2019 for $25.1 million which turned Boku into a two product
global business. Danal was renamed Boku Identity and we report on
the first full year of our Identity business here for the first
time. The Payments division performed well with revenues increasing
to $43.5 million which in turn delivered a 100% increase in
Adjusted EBITDA of $12.7 million (2018: $6.3 million) demonstrating
the operational leverage of our payments platform as additional
incremental transaction revenues largely drop through to Adjusted
EBITDA. The newly acquired Identity division was loss making prior
to acquisition and we saw progress in 2019 as revenues grew by 26%
to $6.7 million while Adjusted EBITDA losses reduced from $6.3
million to $5.3 million. These losses are expected to further
reduce in 2020 and we are aiming to reach monthly breakeven in
2021.
Net Profit after Tax
The Company reported a Net Profit after tax for the year of $0.4
million (2018: $4.3 million loss) and a net loss before tax of $1.3
million (2018: $3.0 million loss)
Group Revenue and Gross Margins
Revenue for the year of $50.1 million was up by 42% on 2018
(2018: $35.3 million) as the Company saw growth in its Payments
business and added Danal Inc to form its Identity division on 1st
January 2019. Noting that the balance includes a non-recurring
Payment revenue of $3.3m relating to a change in the estimate of a
transaction price related to a performance obligation satisfied in
a prior period. Payments revenues, including the non-recurring item
noted in the previous sentence, were $43.5 million (87% of total
revenues) with Identity revenues of $6.7 million (13%). Gross
margins on the payments side improved from 93% to 96% as volumes
from our transaction model merchants, which has 100% gross margins,
increased. The newly formed Identity business had gross margins of
41% for 2019.
Group Operating Expenditure
Adjusted Operating Expenditure (Operating Expenditure adjusted
for depreciation, amortisation, foreign exchange, stock option
expense, exceptional items, and restructuring costs) increased to
$33.9 million (2018: $26.4 million), mostly driven by the Group's
acquisition of Danal Inc in January 2019 which added operating
expenditure of $8.0 million in the year (2018 pro forma; $7.4
million). Payments operating expenditure fell slightly to $25.9
million (2018: $26.4 million) as we continued to expand our
technology operations in lower costs locations such as India while
continuing to invest in our platform. The Boku platform is now
capable of processing up to 800 transactions per second (TPS) more
than double the highest TPS the platform has ever had to
process.
From 1st January 2019 onwards, costs relating to 'Right-of-Use
Assets (operating leases) have been required to be capitalised and
depreciated under IFRS16. This had the effect of reducing the
company's adjusted operating expenses and increasing its Adjusted
EBITDA in 2019 by $1.9 million (please refer to Note 2 & 10 of
the Financial Statements for details).
Payments division
The Payments division comprises Boku's Direct Carrier Billing
('DCB') business which enables customers of Boku's merchants to
charge payments to their phone bills. Boku's Payments division is
the sole DCB provider to some of the world's largest digital
merchants including Apple, Netflix, Facebook and Sony
In 2019 revenues grew by 23% to $43.5 million (2018: $35.3
million). Growth comes from existing merchants and carrier
connections but also from adding new carrier connections to new and
existing merchants and this growth continued in 2019. Revenues
included a one-off amount of $3.3 million relating to a change in
the estimate of a transaction price related to a performance
obligation satisfied in a prior period..
Boku Payments operates two revenue models both based on a
percentage of the processed value: the higher margin 'settlement
model' - where Boku collects funds from carriers worldwide in
multiple currencies before settling to the merchant, and the lower
margin 'transaction model' where we only provide the technical
connectivity.
Total Payments Volume ('TPV') for the year increased to $5.0
billion in 2019 from $3.6 billion. The majority of growth came from
our lower margin/higher volume transaction model merchants. As a
result of this mix effect the weighted average take rate reduced to
0.8% in 2019 (2018: 1.0%). Since IPO, Boku has not reduced its
rates to any of its merchants nor has it lost a material
merchant.
Gross margins for the Payments division improved from 93% to 96%
in the year primarily driven by the volume growth of our
transaction model merchants where there is no cost of sale (100%
gross margin).
Adjusted operating expenditure for the Payments division was
slightly lower than 2018 at $25.9 million. Under IFRS16, leases
over one year are now required to be capitalised and depreciated.
This reduced operating expenditure and increased Adjusted EBITDA by
approximately $1.9m (Note 10). Adjusted operating expenditure for
Payments is expected to increase modestly in 2020.
Identity division
Boku's Identity division was formed at the start of 2019
following the acquisition of Danal Inc on 1st January 2019 for
$25.1 million, including $24.1 million of equity and $1 million of
cash (see footnote 26).
Identity revenues for the year increased by 25% to $6.7 million
(2018 pro forma: $5.5m). Almost all of this came from the US where
the business operates. Gross margin for the year was 41.3%.
Identity Cost of Sales is primarily transaction related fees paid
to carriers and other data providers.
Adjusted operating expenses were $8.0 million in the year (2018
pro forma: $7.4 million) as we expanded our US salesforce and added
additional non-US heads as we move to internationalise our
offering.
Adjusted EBITDA for the year for the Identity division was a
loss of $5.3 million (2018 pro forma: $6.3 million loss) and is
expected to further reduce during 2020.
Acquisition of Danal Inc
Boku completed the acquisition of Danal Inc on 1st January 2019
for a total consideration of $25.1m. Danal Inc is a US based mobile
Identity business. As announced on 6th January 2020 no additional
consideration was payable following the performance of Danal Inc
during 2019.
Group Operating Profit and Adjusted EBITDA
Adjusted EBITDA increased by 17% to $7.4 million in 2019, from
$6.3 million in 2018. Adjusted EBITDA is earnings before interest,
tax, depreciation and amortisation, adjusted for stock option
expenses, forex gains/losses and exceptional items. It also
excludes $3.3 million of non-recurring Payment revenue so as to
show the underlying performance of the business.
Reported Operating Losses for 2019 were reduced at $0.9 million
(2018: $2.4 million). This can be broken down as follows:
-- Foreign Exchange movements resulted in a small gain of $0.1 million (2018: $0.3 million loss)
-- Stock Option Expenses - stock option expenses were $6.8
million in 2019 compared with $4.6 million in 2018. Boku has issued
either RSUs or share options to all staff annually. RSU and stock
option charges are spread over three and four years respectively
from date of grant based on the Black Scholes method and the
increase in the 2019 charge over 2018 is as a result of 2019 having
costs from both the 2018 and 2019 awards. Of the $6.8 million
booked in 2019, $0.2 million was paid out cash (via employers NI),
the remainder was non-cash and expensed.
-- Exceptional Items were reduced at $0.4 million (2018: $1.1
million). Exceptional Items in 2019 related to the closure of our
Italian entity and restructuring costs relating to our Irish
entity.
-- Net financing expenses were reduced to $0.5 million in 2019
(2018: $0.6 million). These costs relate to Interest on operating
leases and bank loans/overdraft.
Balance Sheet and Cashflow
-- Closing cash balances increased to $35.6 million (including
restricted cash balances of $0.9 million) at the end of 2019 from
$27.9 million at 30 June 2019 and $32.3 million at 31 December
2018.
-- Monthly average cash balances, which smooth the impact of
intra-month flows of both carrier and merchant payments, were $22.4
million in December 2019 from $22.2 million in June 2019. Cash
generated from Operations during the year was $8.9 million (2018:
$13.5m).
-- The Group's Revolving Credit Facility of GBP15.0 million with
Silicon Valley Bank ('SVB') was terminated on 26(th) December 2019.
It was replaced with an overdraft facility of GBP5.0 million with
SVB. At year end $2.1 million was drawn down on this overdraft
facility and this was repaid in full on 9(th) January 2020.
-- As a result of the implementation of IFRS 16 (see note 1)
resulted in $4.9 million of right of use assets and corresponding
lease liabilities being recognized on 1(st) January, 2019, with
$3.0 million and $3.1 million respectively included on the balance
sheet at 31(st) December 2019.
-- Deferred tax assets of $1.4 million were recognized at 31(st)
December, 2019 compared to deferred tax liabilities in 2018. This
reflects the expectation that operating losses will be utilized
over the next two years primarily in our UK tax jurisdictions.
-- From a working capital perspective, Current Assets exceeded
Current Liabilities at 31 December 2019 by $7.4 million compared
with $4.4 million at the 2018 year end.
-- Intangible Assets increased to $46.8 million over the period,
up from $22.5 million at December 2018 reflecting the acquisition
of Danal Inc on 1 January 2019. This total includes $41.1 million
of Goodwill emanating from the acquisition of Danal and other
historical acquisitions ($ 23.5 million Goodwill from Danal
acquisition - Note 27).
Keith Butcher
Chief Financial Officer
STRATEGY REPORT
Mobile: you ain't seen nothing yet
There are more active SIMs on the planet than there are humans.
Smartphone penetration is not far behind, with approximately 4
billion in use worldwide, ranging from the most upmarket expensive
iPhones to cheap Android devices.
From its dawn with mainframes, computing moved to the PC age,
which in its turn yielded to the march of the mobile device.
Computing is no longer the province of governments and big
companies, nor middle class families. It's available to everyone.
And the computing capabilities of these devices are different to
those that have preceded it.
Driven on by the remorseless logic of Moore's law, the computer
in your pocket knows where you are, can see through its camera and
communicate both locally and over the internet. Although the
distribution phase of the mobile computing revolution is nearing
completion, the usage phase, the phase in which we figure out what
to do with these things, is only just getting started. The phone
has already displaced the PC as the most popular way to buy things
online yet purchases from mobiles are still only a fraction of the
total opportunity.
One of the things holding back growth is that the tools that
support online business -- in payment, in identity, in fraud
management -- have not really been able to keep pace.
The World is Flat, and Hedgehogs are beating Foxes
In about 650 B.C., the Greek philosopher and poet Archilochus
wrote about the Fox and the Hedgehog. He said, "The fox knows many
things; the hedgehog one big thing". The business guru, Theodore
Levitt, took this analogy and applied it to business: in his
account, Foxes are multinational companies operating in many
countries around the world, adapting their offering to the local
market conditions and working through a series of operating
subsidiaries, doing many things. The Hedgehogs are global
companies, as far as possible, doing the same thing all around the
world, treating the planet as a single marketplace.
Levitt argued that Hedgehogs beat Foxes. National preferences
turn out to be mostly illusory and catering for them just adds cost
and complexity. As he was writing in 1983, people were drinking
Coke, eating at McDonalds, wearing Levi jeans and sleeping on Ikea
beds. Global manufacturing uses global supply chains.
As in products, more in services. The world is flat, barriers
are being removed. We drink coffee in Starbucks, work in Excel and
Powerpoint and use iPhone and Android phones. We communicate using
WhatsApp, foregoing the global SMS infrastructure. Netflix appears
to be beating the BBC and NBC.
These Hedgehog companies like Spotify, Netflix and WhatsApp win
when they compete with Mobile Network Operators ("MNO"), who, in
theory should have a lot of natural advantages. MNOs hold a
privileged place in the mobile ecosystem. They literally own the
(cryptographic) keys to the kingdom, they control the SIM. With it
they can provide connectivity and securely identify the user and
charge them. They have a billing relationship with all their
customers, rich and poor, with more distribution than the banks.
They have highly skilled sales forces who can sell hardware and
service plans to the public.
So why have they been displaced? Why is it not the mobile
company's music service, messaging or TV service that we
consume?
It is because they are Foxes competing with Hedgehogs.
Even when they operate in many countries they do not do so as a
global business. Their licences and spectrum are allocated by
national governments, the competition law and other regulations
that they must follow means that, in practice, global telecoms
groups operate a portfolio of national businesses. Two operators in
two different countries from the same group may share little other
than a brand and the fact that their accounts are consolidated by a
holding company. Their pricing, platform and systems will likely be
very different.
The wheels of mobile commerce would spin more smoothly if there
was a way to access the capabilities of the mobile network
operators, masking the complexity and providing a single simple
interface. That is the role that Boku plays.
The Boku Platform
Global companies want the efficiency of dealing with global
suppliers. Mobile businesses benefit from being able to leverage
the capabilities of MNOs. The Boku Platform provides that
connection, allowing MNOs to earn revenue from the boom in mobile
commerce.
The Boku Platform connects 190 of the world's mobile network
operators with the world's largest digital merchants, companies
like Apple, Google, Sony, Spotify and Netflix. These companies use
our platform to acquire new paying users that cannot be acquired
through other means. Our products now allow payment or registration
to take place in as little as a single tap.
But it has not always been that easy. Building the Boku Platform
has been a lengthy process. In the beginning, connections were made
and information exchanged through Premium SMS messages. They were
an imperfect means of payment. Messages didn't get through and
transactions failed. Now we have a system with capabilities broadly
equivalent to regular payment methods.
Connections are not only through an API - a feature known as
Direct Carrier Billing or DCB - but also include features like
duplicate transaction protection, the ability to offer multiple
partial refunds, and daily reconciliation. The scale and quality of
our DCB network is unmatched.
Our Platform is high capacity and performant too. It has
processed volumes as high as 400 transactions per second (with room
to more than double). Average latency on these transactions is
about a tenth of a second. Reliability is assured through an
active-active configuration allowing customers to continue to
process even in the event of a catastrophic failure of one data
centre.
The volumes processed are also material: more than $5bn in value
was processed through the Platform in 2019, an increase of more
than 40% on 2018. This value has increased nine-fold since 2016.
December 2019 was our highest ever month with more than $500m going
through the system.
Size is important
This scale is not just about bragging rights: it is because
scale is important to our proposition. Despite the fact that
volumes have increased so fast, operating expenses have stayed
reasonably stable. The incremental cost of processing each new
extra transaction is negligible. New revenue falls through to the
bottom line.
Our scale means that we can simultaneously have the lowest unit
cost in the industry and the cost base that allows us to serve the
world's largest customers.
Although our merchants are growing their businesses, helping us,
in turn, to grow, most growth has been driven by connecting our
merchants to more carriers in our network. We have a considerable
way to go. Most of our large merchants have 20 - 30 carrier
connections live. Albeit that there's a tendency to connect larger
carriers early, there's still a considerable way to go. Saturation
is probably somewhere around 150 carriers for each merchant. New
connections mean that the carrier's subscribers have the
opportunity to pay, an opportunity that gradually is adopted over a
two-year period leading to predictable growth in users and
processed value.
As well as organic growth from more deployments, we will
continue to pursue accretive opportunities to push extra scale
through our Platform. More transactions mean more revenue and more
revenue means more profit.
Nevertheless, although not immediately in view, there is clearly
some kind of limit to the potential revenue that can be generated
from carrier billing. In many countries, DCB is limited to digital
content, excluding physical goods. DCB operates at a premium to
other payment types as Boku is a cheap way of acquiring new users.
But our merchants are watchful to ensure that DCB does not simply
recruit users who would have paid anyway. In practice, that places
a ceiling on our growth at around 15%-20% share of checkout.
15%-20% of the world's digital commerce (estimated at $125 billion)
is a fairly respectable Total Available Market ("TAM"), but the
Boku platform is capable of supporting other products which can
expand this further.
Mobile First Markets - Mobile Wallets
Mobile Wallets are a phenomenon that has emerged in those
countries which skipped the PC age and went straight to mobile.
Located mainly in Asia, in these countries it was mostly a few rich
people who used payment cards for travel and entertainment. The
mass of the emerging middle class didn't have an electronic payment
method. As apps like WeChat and Alipay sought to monetise they were
essentially compelled to develop a payment method alongside their
other functionality.
Collectively Mobile Wallets are now the mainstream payment
method in Asia, accounting for more than 50% of electronic
payments. Whether it's face-to-face using QR codes or online from
within the app, most people in China and other mobile first markets
turn to their Mobile Wallet to pay digitally.
Mobile Wallets are a hybrid method of payment. They are priced
competitively against cards and are not restricted to digital,
being used for all merchant sectors. But they also are domestic and
unstandardized and not interoperable. Money is not conveniently
remitted to the merchant's home territory in the currency of their
choice, but rather settled locally in the wallet's local currency.
They are Foxes and, like MNOs need to be aggregated for global
merchants to be able to use them at scale.
The skills that Boku developed working with MNOs are easily
transferable to connecting Mobile Wallets. And there is a
considerable appetite from both wallets to access Boku's existing
merchant base and from Boku's merchants to access the customers of
the Mobile Wallets.
We have made good progress in signing up wallets and are hopeful
that the extra volumes, processed at marginal extra cost will
provide a new pathway for growth with a Total Addressable Market of
approximately the same size as DCB.
It's early days, but our success to date in setting up a Mobile
Wallet network including 10 wallets in 9 countries reaching more
than 1.4 billion users gives us cause for optimism. New revenues
generated through this channel will drop through to Adjusted EBITDA
in the same way that the existing carrier billing payment gross
profit does.
Who likes typing in SMS Passcodes?
If Mobile Wallets are a way for Boku to leverage its merchant
network, then our Identity business is a way for us to leverage the
carrier network. With new technology come new ways of committing
fraud, tools developed in the PC era are not able to address the
very real problems experienced by many mobile businesses.
One problem that needs solving is reliably understanding that
the person attempting a transaction or to access a system is
authorised to do so. The technology being used to address this
problem -- as in the early days of Carrier Billing -- is the SMS
message. SMS One Time Passcodes (or OTPs) are sent in their
billions.
It's the technology that's used because it is the only global
solution available. But there's a problem. It's unreliable (with
messages sometimes not arriving), inconvenient (typing a six-digit
code across is never a fun experience) and, worst of all, insecure.
Victims can be induced to hand over the code, Android phones have
been infected with malware and, in extreme cases, SIMs can be
comprised by identity stealing fraudsters fooling the phone
company.
In Payments we use the technology that allows the MNO to know
your number without having to ask as a way to deliver a one tap
payment, in Identity the same basic technology is used to deliver a
no-tap authentication check, reassuring the company that it's in
session with the right phone and that its SIM has not been
compromised.
It's our vision to deliver these services globally, to global
companies. The acquisition of Danal gave us a base in Identity in
the US and whilst revenues there have not grown as quickly as
anticipated we've grown the network with new connections made to
carriers in India, Indonesia and the UK to supplement those
acquired in the USA and Canada. A global silent authentication
network cannot be created overnight -- though Boku starts with
advantages derived from its payment network -- but the prize for
doing so is significant
Summary
Boku's core business of Direct Carrier Billing is secure,
profitable and growing. As the scale player, we will continue to
expand through rollout of our existing merchants and through adding
further volume to our Platform.
Having positioned ourselves at the intersection of important
secular trends - the growth of mobile, the needs of global
companies, the growth of digital subscriptions - we are developing
our payments business by supplementing our existing DCB network
with a second Mobile Wallet payment network of equivalent size and
in identity services by helping to secure mobile commerce. Our
Platform has the chance to enhance every mobile interaction and to
play a meaningful role in the expansion of mobile commerce around
the world.
BOKU, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended Year ended
31 December 31 December
2019 2018
Note $'000 $'000
------------------------------------------------------------------------------- ----- ------------- -------------
Revenue* 4 50,148 35,275
Cost of sales (5,563) (2,512)
------------- -------------
Gross profit 44,585 32,763
Administrative expenses 5 (45,469) (35,179)
Operating loss analysed as:
Adjusted EBITDA** 7,403 6,324
Payments Revenue adjustment (non-recurring) 4 3,255 -
Depreciation and amortisation (4,461) (2,794)
Stock Option expense 27 (6,771) (4,593)
Foreign exchange gains/(losses) 107 (279)
Exceptional items (included in
administrative expenses) 5 (417) (1,074)
------------------------------------------------------------------------------- ----- ------------- -------------
Operating loss (884) (2,416)
Finance income 7 56 53
Finance expense 7 (468) (631)
Loss before tax (1,296) (2,994)
Tax credit / (expense) 8 1,651 (1,339)
------------------------------------------------------------------------------- ----- ------------- -------------
Net profit/(loss) for the period attributable to equity holders of the parent
company 355 (4,333)
------------------------------------------------------------------------------- ----- ------------- -------------
Other comprehensive income/(losses) net of tax
Items that will or may be reclassified to profit or loss
Foreign currency translation loss (160) (938)
Net increase/(decrease) in fair value of cash flow hedge derivatives 15 (3) 27
------------------------------------------------------------------------------- ----- ------------- -------------
Total comprehensive loss for the period (163) (911)
------------------------------------------------------------------------------- ----- ------------- -------------
Total comprehensive profit/(loss) for the period attributable to equity
holders of the parent
company 192 (5,244)
------------------------------------------------------------------------------- ----- ------------- -------------
Profit/ (Loss) per share attributable to the owners of the parent during the
year
Basic and fully diluted ($) 9 0.001 (0.02)
------------------------------------------------------------------------------- ----- ------------- -------------
* includes $3.3m of non-recurring Payments Revenue; to better
reflect underlying performance, this non-recurring revenue is
excluded from Adjusted EBITDA. Further information on this
non-recurring Payments Revenue is detailed in Note 2 and Note
4.
** Earnings before interest, tax, depreciation, amortisation,
non-recurring payments revenue adjustment, 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
31 December 31 December
2019 2018
Note $'000 $'000
--------------------------------- ----- ------------ ------------
Non-current assets
Property, plant and equipment 10 3,512 286
Intangible assets 11 46,819 22,466
Deferred income tax assets 8 1,826 254
--------------------------------- ----- ------------ ------------
Total non-current assets 52,157 23,006
--------------------------------- ----- ------------ ------------
Current assets
Trade and other receivables 13 53,592 51,658
Derivative financial instrument 15 - 3
Cash and cash equivalents 14 34,747 31,073
Restricted cash 14 876 1,251
--------------------------------- ----- ------------ ------------
Total current assets 89,215 83,985
--------------------------------- ----- ------------ ------------
Total assets 141,372 106,991
--------------------------------- ----- ------------ ------------
Current liabilities
Trade and other payables 16 77,995 77,374
Bank loans and overdrafts 17 2,098 2,193
Lease liabilities 17 1,723 -
Total current liabilities 81,816 79,567
--------------------------------- ----- ------------ ------------
Non-current liabilities
Other payables 16 791 107
Deferred tax liabilities 8 449 671
Lease liabilities 17 1,358 -
--------------------------------- ----- ------------ ------------
Total non-current liabilities 2,598 778
--------------------------------- ----- ------------ ------------
Total liabilities 84,414 80,345
--------------------------------- ----- ------------ ------------
Net assets 56,958 26,646
--------------------------------- ----- ------------ ------------
Equity attributable to equity
holders of the company
Share capital 18 25 22
Share premium 208,196 178,079
Cash flow hedging reserve 15 - 3
Foreign exchange reserve (2,027) (1,867)
Retained losses (149,236) (149,591)
--------------------------------- ----- ------------ ------------
Total equity 56,958 26,646
--------------------------------- ----- ------------ ------------
BOKU, INC.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Cash flow Foreign exchange
Share capital Share premium hedging reserve reserve Retained losses Total
$'000 $'000 $'000 $'000 $'000 $'000
------------------ -------------- -------------- ----------------- ----------------- ---------------- --------
Equity as at 1
January 2018 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
------------------ -------------- -------------- ----------------- ----------------- ---------------- --------
Profit for the
year - - - - 355 355
Other
comprehensive
income/(losses) - - (3) (160) - (163)
Issue of share
capital upon
exercise of
4,750,898 stock
options and RSUs - 571 - - - 571
Share-based
payment(1) - 5,472 - - - 5,472
Shares issued to
Danal Inc
shareholders 3 21,532 - - - 21,535
Other Reserves(2) 2,542 - - - 2,542
------------------ -------------- -------------- ----------------- ----------------- ---------------- --------
Equity as at 31
December 2019 25 208,196 - (2,027) (149,236) 56,958
------------------ -------------- -------------- ----------------- ----------------- ---------------- --------
(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.
(2) Other reserves includes the warrants and held-back shares
related to the acquisition of Danal, Inc. (see note 27) .
BOKU, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended Year ended
31 December 31 December
2019 2018
Note $'000 $'000
-------------------------------------------------------------------- ----- ------------- -------------
Cash generated from operations 23 9,051 13,742
Income taxes paid (131) (248)
-------------------------------------------------------------------- ----- ------------- -------------
Net cash from operating activities 8,920 13,494
-------------------------------------------------------------------- ----- ------------- -------------
Investing activities
Purchase of property, plant and equipment (477) (91)
Purchase of internally developed software (1,575) (238)
Restricted cash 375 188
Investment in subsidiary, net of cash acquired 27 (742) (164)
Interest received 56 53
Net cash used in investing activities (2,363) (252)
-------------------------------------------------------------------- ----- ------------- -------------
Financing activities
Payment of principal to lease creditors (1,868) (82)
Payment of interest to lease creditors (288)
Issue of common stock 571 510
Interest paid - borrowings (180) (631)
Proceeds from bank overdraft 2,098 -
Repayment of line of credit (2,150) (250)
Net cash used in financing activities (1,817) (453)
-------------------------------------------------------------------- ----- ------------- -------------
Net increase in cash and cash equivalents 4,740 12,789
Effect of foreign currency translation on cash and cash equivalent (1,066) (457)
Cash and cash equivalents at beginning of period 31,073 18,741
-------------------------------------------------------------------- ----- ------------- -------------
Cash and cash equivalents at end of period 34,747 31,073
-------------------------------------------------------------------- ----- ------------- -------------
BOKU, INC.
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
1. Corporate Information
The consolidated financial information represents the results of
Boku Inc. ("the Company") and its subsidiaries (together referred
to as "the Group").
Boku Inc. is a company incorporated and domiciled in the United
States of America. The registered office of the Company is located
at 735 Battery St., 2nd Floor, and San Francisco, CA 94111, United
States.
The principal business of the Group is the provision of mobile
billing and payment solutions for mobile network operators and
merchants. These solutions enable consumers to make online payments
using their mobile devices.
The financial information set out in this document does not
constitute the Group's full annual Report and financial statements
for the year ended 31 December 2019 or 31 December 2018. The annual
report and financial statements for the year ended 31 December 2019
were approved by the Board of Directors on 25 March 2020, along
with this preliminary announcement. The financial statements for
the year ended 31 December 2019 have been reported on by the
Independent Auditor. The Independent Auditor's report on the
financial statements for the year ended 2019 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 stated in the accounting policies below. These
policies have been consistently applied to all periods presented,
unless otherwise stated.
Basis of preparation
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board (IASB)
("IFRS") and IFRIC Interpretations issued by the International
Accounting Standards Board (IASB).
The Consolidated financial statements have been prepared on a
going concern basis under the historical cost convention. These
financial statements have been prepared for a 12 month period.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements are disclosed below in II, "Critical
accounting estimates, assumptions and judgements".
The principal accounting policies adopted by the Group in the
preparation of the Consolidated financial statements are set out
below.
The presentation currency of the consolidated financial
statements is US Dollars, rounded to the nearest thousands ($'000)
unless otherwise indicated. The main functional currencies for the
Company's subsidiaries are the United States Dollar, Euro and Great
Britain Pound.
Going concern
The Directors have prepared a cash flow forecast covering a
period extending beyond 12 months from the date of approval of
these financial statements.
The forecast contains certain assumptions about the performance
of the business including growth in future revenue, the cost model
and margins, and importantly the level of cash recovery from
trading. Boku has been operationally cash generative during 2018
and 2019, which provided 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 Group company has control over an investee, it is
classified as a subsidiary. The Group 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 Group company and its subsidiaries ("the Group") as if they
formed a single entity. Intercompany transactions and balances
between group companies are therefore eliminated in full.
The consolidated financial information incorporates the results
of business combinations using the acquisition method. In the
statement of financial position, the acquiree's identifiable
assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date. The
results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is
obtained. They are deconsolidated from the date on which control
ceases. The excess of the cost of acquisition over the fair value
of the Group's share of the identifiable net assets acquired is
recorded as goodwill.
A list of the subsidiary undertakings is given in note 12 of the
financial information.
Changes in accounting policies and disclosures
(a) New and amended standards adopted by the Group
The accounting policies adopted in these consolidated financial
statements are consistent with those of the annual financial
statements for the 12 months ended 31 December 2019, with the
exception of the following standards, amendments to, or
interpretations of published standards that are now effective and
have been adopted during the period:
IFRS 16 Leases
Policy applicable from 1 January 2019
The Group elected to implement IFRS 16 using the modified
retrospective method when the standard was first adopted in its
financial statements for the year ended 31 December 2019.
Therefore, there is no impact on any comparative accounting periods
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 modified retrospective approach, the
Group 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.
The modified retrospective approach, recognises the right-of-use
asset at the date of initial application (1 January 2019) at an
amount equal to the lease liability, using the applicable
incremental borrowing rate.
The lease liability is calculated based on the remaining
payments, and then sets the right-of-use asset as an amount equal
to that figure (adjusted for any accrued or prepaid amounts
recognised under IAS 17). Therefore, there is no impact on equity
at the date of initial application.
The discount rate under the modified retrospective approach is
always the incremental borrowing rate as at the date of initial
application even if the rate implicit in the lease is readily
determinable.
Right-of-use assets recognition and measurement
At inception of a contract, the Group assesses whether a
contract is, or contains a lease. A contract is, or contains a
lease, if the contract conveys the right to control the use of an
identified asset, for a period of time, in exchange for
consideration. To assess whether a contract conveys the right to
control the use of an identified asset, the Group assesses
whether:
- the contract involves the use of an identified asset - this
may be specified explicitly or implicitly and should be physically
distinct or represent substantially all of the capacity of a
physically distinct asset. If the supplier has a substantive
substitution right, then the asset is not identified.
- the Group has the right to obtain substantially all of the
economic benefits from use of the asset throughout the period of
use: and
- the Group has the right to direct the use of the asset. The
Group has the right when it has the decision-making rights that are
most relevant to changing how and for what purposes the asset is
used. In rare cases where the decision about how and for what
purpose the assets is used is predetermined, the Group has the
right to direct the use of the asset if either:
- the Group has the right to operate the asset; or
- the Group designed the asset in a way that predetermines how
and for what purpose it will be used.
At inception or on reassessment of a contract that contains a
lease component, the Group allocates the consideration in the
contract to each lease component on the basis of their relative
stand-alone prices.
Lease liability recognition and measurement
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the incremental borrowing
rate. The Group used its incremental borrowing rate as the discount
rate.
The lease payment included in the measurement of the lease
liability comprise the following:
- fixed payments, including in-substance fixed payments.
- variable lease payments that depend on an index or are ate,
initially measured using the index or rate as at the commencement
date (if any);
- amount expected to be payable under a residual value guarantee (if any); and
- the exercise price under a purchase option that the Group is
reasonably certain to exercise (if any),
- lease payments in an optional renewal period if the Group is
reasonably certain to exercise and extension option (if any),
- and penalties for early termination of a lease unless the
Group is reasonably certain not to terminate early.
The lease liability is subsequently measured at amortized cost
using the effective interest method. It is remeasured when there is
a change in future lease payments arising from a change in an index
or rate, if there is a change in the Group's estimate of the amount
expected to be payable under a residual value guarantee, or if the
Group changes its assessment of whether it will exercise a
purchase, extension or termination option.
When the lease liability is remeasured in this way, a
corresponding adjustment is made to the carrying amount of the
right-of-use asset or, is recorded in profit or loss if the
carrying amount of the right-of-use asset has been reduced to
zero.
The right-of-use asset is subsequently depreciated using the
straight-line method from the commencement date to the earlier of
the end of the useful life of the right-of-use asset or the end of
the lease term. The estimated useful lives of right-of-use assets
are determined on the same basis as those of property and
equipment. In addition, the right-of-use asset is periodically
reduced by impairment losses, if any, and adjusted for certain
remeasurements of the lease liability.
The Group presents right-of-use assets that do not meet the
definition of investment property in "property, plant and
equipment" and lease liabilities in "loans and borrowings" in the
statement of financial position.
Practical expedients
In applying the modified retrospective approach, the Group has
taken advantage of the following practical expedients:
- - a single discount rate (incremental borrowing rate) has been
applied to portfolios of leases with reasonably similar
characteristics.
- leases with a remaining term of twelve months or less from the
date of application and a leases of low-value assets, including IT
equipment (less than $5,000 USD) have been accounted for as
short-term leases (i.e. not recognised on the balance sheet) even
though the initial term of the leases from lease commencement date
may have been more than twelve months.
- for the purposes of measuring the right-of-use asset hindsight
has been used. Therefore, it has been measured based on prevailing
estimates at the date of initial application and not
retrospectively by making estimates and judgements (such as the
term of leases) based on circumstances on or after the lease
commencement date.
Incremental borrowing rate
IFRS 16 Leases requires that all the components of the lease
liability (as described in section 5.1. Leases) are required to be
discounted to reflect the present value of the payments. The
discount rate to use is the rate implicit in the lease, unless this
cannot readily be determined, in which case the lessee's
incremental borrowing rate is used instead.
The definition of the lessee's incremental borrowing rate states
that the rate should represent what the lessee 'would have to pay
to borrow over a similar term and with similar security, the funds
necessary to obtain an asset of similar value to the right-of-use
asset in a similar economic environment.' In applying the concept
of 'similar security', a lessee uses the right-of-use asset granted
by the lease and not the fair value of the underlying asset. This
is because the rate should represent the amount that would be
charged to acquire an asset of similar value for a similar
period.
In practice, judgement may be needed to estimate an incremental
borrowing rate in the context of a right-of-use asset, especially
when the value of the underlying asset differs significantly from
the value of the right-of-use asset.
The analysis showed that the incremental borrowing rate as at
1(st) January 2019 was 8.5% which was used as discount rate for all
leases in all subsidiaries.
The discount rate will be revised, in line with IFRS 16, and the
lease liability remeasured only when:
- there is a change in the lease term,
- a change in the assessment of whether the lessee is reasonably
certain to exercise an option to purchase the underlying asset
or
- -a change in floating interest rates, resulting in a change in
the future lease payments (this approach is consistent with IFRS
9's requirement for the measurement of a floating rate financial
liabilities subsequently measured at amortized cost)
A lessee is not required to reassess the discount rate when
there is a change in future lease payments due to a change in an
index. - e.g. the consumer price index .
The policy is applied to contracts entered into, or changed, on
or after 1 January 2019.
Policy applicable before 1 January 2019
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.
Effect of IFRS 16 on the Consolidated Statement of Financial
Position
The "Property, plant and equipment" fixed asset class comprise
of owned and leased assets that do not meet the definition of
investment property. The summary information is presented
below:
Property, Plant and Equipment
$'000 (USD) 2019
----------------------------------------------------- -----------
Property, plant and equipment
owned 529
Right-of-use assets, except for investment property 2,983
------------------------------------------------------ -----------
Total Property, Plant and Equipment
(note 10) 3,512
The Group leases many assets including buildings and IT
equipment. The information about leases for which the group is a
lessee is presented below:
Type of right-of-use assets - $'000(USD) Property IT Equipment Total
Balance as at 1st January 2019 3,881 1,111 4,992
--------- ------------- --------
Depreciation charge for the year (1,578) (431) (2,009)
--------- ------------- --------
NBV balance as at 31 December 2019 2,303 680 2,983
--------- ------------- --------
There are no leases with a term of more than 5 years.
The following is a reconciliation of lease commitments to lease
liability as at 1(st) January, 2019:
Total
Operating lease commitments as at 1st January 2019 4,308
------
Impact of discounting (207)
------
Acquired leases 617
------
Existing finance ease liabilities 78
------
Other leases and adjustments to lease term 196
------
Lease liabilities at 1(st) January 2019 4,992
------
The maturity analysis for lease liabilities is presented
below:
Lease liabilities - Maturity analysis
(contractual undiscounted cash flows) - $'000 (USD) 2019
Less than one year 1,914
----------------------------------------------------------
One to five years 1,482
----------------------------------------------------------
More than five years -
----------------------------------------------------------
Total undiscounted lease liabilities as at 31 December
2019 3,396
----------------------------------------------------------
Lease liabilities included in the statement of financial
position at 31 December 2019 - $'000 (USD) 3,081
----------------------------------------------------------
Current 1,723
----------------------------------------------------------
Non-current 1,358
----------------------------------------------------------
Effect of IFRS 16 on the Consolidated Statement of Comprehensive
Income
The amounts recognized in the Consolidated Statement of
Comprehensive Income for the twelve-month period ending 31 December
2019 is presented below:
Amounts recognized in profit or loss - $'000 (USD) 2019
--------------------------------------------------------- -----------------
Interest lease liabilities (note 7) 288
-----------------
Variable lease payments not included in the measurement -
of lease payments
-----------------
Expenses related to short-term leases 129
-----------------
Expenses related to leases of low-value assets,
excluding short-term leases of low-value assets 17
-----------------
Depreciation - right-of-use assets (note 10) 2,009
-----------------
Effect of IFRS 16 on the Consolidated Statement Cash Flows
The amounts recognized in the Consolidated Statement of Cash
Flows for the twelve-month period ending 31 December 2019 is
presented below
Amounts recognised in the statement of cash flows
$'000 (USD) 2019
Cash outflow for lease liabilities 1,868
---------------------------------------------------
Interest paid to lease creditors 288
---------------------------------------------------
IFRIC 23 Uncertainty over Income Tax Treatments
IFRIC 23 "Uncertainty over Income Tax Treatments" clarifies how
to apply the recognition and measurement requirements in IAS 12
when there is uncertainty over income tax treatments
IFRIC 23 provides guidance on the accounting for current and
deferred tax liabilities and assets in
circumstances in which there is uncertainty over income tax
treatments. The Interpretation requires:
-- The Group to determine whether uncertain tax treatments
should be considered separately, or together as a group, based on
which approach provides better predictions of the resolution;
-- The Group to determine if it is probable that the tax
authorities will accept the uncertain tax treatment; and
-- If it is not probable that the uncertain tax treatment will
be accepted, measure the tax uncertainty based on the most likely
amount or expected value, depending on whichever method better
predicts the resolution of the uncertainty. This measurement is
required to be based on the assumption that each of the tax
authorities will examine amounts they have a right to examine and
have full knowledge of all related information when making those
examinations.
The Group elected to apply IFRIC 23 retrospectively with the
cumulative effect recorded in retained earnings as at the date of
initial application, 1 January 2019. The adoption of IFRIC 23 had
no impact on retained earnings or on corporate tax liabilities.
(b) New, amended standards, interpretations not yet
effective
New standards, interpretations and amendments not yet
effective
There are a number of standards, amendments to standards, and
interpretations which have been issued by the IASB that are
effective in future accounting periods that the group has decided
not to adopt early. The following amendments are effective for the
period beginning 1 January 2020:
-- IAS 1 Presentation of Financial Statements and IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors
(Amendment - Definition of Material)
-- IFRS 3 Business Combinations (Amendment - Definition of Business)
-- Revised Conceptual Framework for Financial Reporting
In January 2020, the IASB issued amendments to IAS 1, which
clarify the criteria used to determine whether liabilities are
classified as current or non-current. These amendments clarify that
current or non-current classification is based on whether an entity
has a right at the end of the reporting period to defer settlement
of the liability for at least twelve months after the reporting
period. The amendments also clarify that 'settlement' includes the
transfer of cash, goods, services, or equity instruments unless the
obligation to transfer equity instruments arises from a conversion
feature classified as an equity instrument separately from the
liability component of a compound financial instrument. The
amendments are effective for annual reporting periods beginning on
or after 1 January 2022.
The Group is currently assessing the impact of these new
accounting standards and amendments. The Group does not believe
that the amendments to IAS 1 will have a significant impact on the
classification of its liabilities.
Foreign currency translation
The presentation currency for the group is US dollars. Items
included in the financial statement of each of the Group's entities
are measured in the functional currency of each entity..
Foreign currency transactions and balances
i) Foreign currency transactions are translated into the
functional currency using the exchange rates prevailing at the
dates of the transactions.
ii) Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at the
reporting period end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the
income statement within administrative expenses.
iii) Non-monetary items that are measured in terms of historical
costs in a foreign currency are translated using the exchange rates
as at the dates of the initial transactions. Any goodwill arising
on the acquisition of a foreign operation and any fair value
adjustments (including purchased intangible assets) to the carrying
amounts of assets and liabilities arising on the acquisition are
treated as assets and liabilities of the foreign operation and
translated at the closing rate.
Consolidation of foreign entities
On consolidation, the results and financial position of all the
Group entities that have a functional currency different from the
presentation currency are translated into the presentation currency
as follows:
i) Assets and liabilities for each Consolidated statement of
financial position presented are translated at the closing rate at
the date of that Consolidated statement of financial position.
ii) Income and expenses for each Consolidated statement of
comprehensive income item are translated at average exchange rates
(unless this average is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates,
in which case income and expenses are translated at the dates of
the transactions); and
iii) All resulting exchange differences are recognised as a separate component of equity.
Exchange differences are recycled to profit or loss as a
reclassification adjustment upon disposal of the foreign
operation.
Revenue
Boku recognises revenue in accordance with IFRS 15 Revenue from
Contracts with Customers by applying the required five steps:
identify the contract(s) with a customer, identify the performance
obligations in the contract, determine the transaction price,
allocate the transaction price to the performance obligations in
the contract and recognise revenue when (or as) the entity
satisfies a performance obligation. Revenue is allocated to the
various performance obligations on a relative stand-alone selling
price ("SSP") basis.
An analysis of the key considerations that IFRS 15 has on the
Group's revenue streams is summarised below.
1. Payments Segment revenue
Boku's technology for the Payments segment delivers a low
friction way for mobile phone users to buy things and charge them
to their phone bill or pre-paid balance. The Group's revenue is
principally its service fees which are earned from its
merchants.
(i) Settlement Model: when it acts as an agent between a
merchant and mobile network operators (MNOs) or an aggregator (a
middleman between the Group and the MNO). Management has determined
that it is acting as an agent under IFRS 15 because it does not
have the primary responsibility for providing the services to the
customer. Therefore, there has been no change in the classification
as an agent from the previous assessment that there was no exposure
to the risks and rewards.
(ii) Transactional Model: from larger virtual and digital
merchants who receive the sale collections directly and pay a
service fee to the Group.
Under both the transactional and settlement model (see point (i)
and (ii) above), the Group's contracts with customers include one
performance obligation only. This relates to an obligation to
facilitate the payment for the transaction between the merchant and
their end users. Under IFRS 15 revenues for this service is
recognised under this contract at a point in time as the obligation
is fulfilled at time when transaction happens. 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.
(iii) Other revenue: from special merchant integrations,
subscription services and early settlement of funds.
The contract for special merchant integration was changed during
2019. This resulted in a change of the revenue recognition for
special merchant integrations. Under the new contract after the
special integration is performed, tested and approved by the
customer, no further performance obligation is required of Boku.
The customer decides whether Boku has to service further the
special integration and keep it live and will pay this further
performance obligation separately under a special obligation:
"monthly maintenance obligation". Payments are due and recognized
in full once the integrations are successfully tested and approved
by the customer. The maintenance fees are due monthly and are
recognized in full at each month end, in line with IFRS 15.
Contract assets and contract liabilities are included within
'trade and other receivables' and 'trade and other payables'
respectively on the face of the statement of financial
position.
In certain cases, the transaction price includes an estimate of
variable consideration. Variable consideration is only included in
the transaction price to the extent that it is highly probably that
a significant reversal in the amount of cumulative revenue
recognised will not occur when the uncertainty associated with the
variable consideration is subsequently resolved. In such cases, the
estimated transaction price is updated each reporting period to
reflect changes in circumstances and the adjustment is reflected in
revenue in the period that the change occurs.
The Group's revenue is principally its service fees earned from
its merchants. There are slight differences to contracts depending
on the services provided. All revenue from the Payment segment is
recognized at one point in time. Therefore, for the Payments
segment, at 31 December 2019, the Group does not have deferred
revenue on the balance sheet.
2. Identity Segment Revenue
Boku's technology for the Identity segment provides identity
services to customers by silently validating a mobile device using
automatic mobile number verification, streamlining the Know Your
Client ('KYC') processes by validating the name and address entered
by a user against the MNOs data, and reduce fraud on marketing
promotions by linking marketing promotions to secure SIM based user
identities instead of email or unverified mobile numbers etc.
Identity merchants are charged either on a per user basis - for
monitoring - or a per transaction basis, typically with monthly
minimums.
For the Identity segment, deferred revenue consists of billings
processed in advance of revenue recognition generated by Boku
Identity's Mobile Identification/TCPA services. For these services,
Boku bills its customers at the beginning of the contract term as a
pre-payment for services which are billed at a set price per
transaction. The revenue is recognized monthly, at a point in time,
based on the amount of transactional volume processed during the
month and services will continue to be performed until the full
value of the contract is realized. For the period ended 31 December
2019, deferred revenue on the balance sheet for the Identity
Segment was $489,265.
Cost of sales
Cost of sales is primarily related to the monthly fees and
service charges from MNOs and other providers, customer services
fees, some marketing expenses and bad debt.
Operating Segments
In accordance with IFRS 8, "Operating Segments", the Group has
derived the information for its segmental reporting using the
information used by the Chief Operating Decision Maker ("CODM"),
defined as the Executive Operating Committee (EOC). The segmental
reporting is consistent with those used in internal management
reporting and the measure used by the EOC is Adjusted EBITDA.
The Board considers that the Group's provision of a payment
platform for the payment processing of virtual goods and digital
goods purchases constitutes one operating and one reporting segment
(Payments segment), and the provision of identity services another
operating and reporting segment (Identity segment) as defined under
IFRS 8. Management reviews the performance of the Group by
reference to total results against budget as well as for each of
the two operating segments .
Exceptional Items
Exceptional items are those significant items, which are
separately disclosed by virtue of their size, nature or incidence
to enable a full understanding of the Group's financial
performance. In setting the policy for exceptional items, judgement
is required to determine what the Group defines as "exceptional".
The Group considers an item to be exceptional in nature if it is
non-recurring or does not reflect the underlying performance of the
business. Exceptional items are recorded separately below
EBITDA.
Management of the Group evaluates Group strategic projects such
as acquisitions, divestitures and integration activities, Group
restructuring and other one-off events such as restructuring
programmes. In determining whether an event or transaction is
exceptional, management of the Group considers quantitative and
qualitative factors such as its expected size, precedent for
similar items and the commercial context for the particular
transaction, while ensuring consistent treatment between favourable
and unfavourable transactions impacting revenue, income and
expense. Examples of transactions which may be considered of an
exceptional nature include major restructuring programmes, cost of
acquisitions, the cost of integrating acquired businesses or gains
or losses on the disposal of discontinued operations.
Retirement Benefits: Defined contribution schemes
The Group operates various pension schemes in various
jurisdictions, all being defined contribution schemes (pension
plans). A defined contribution plan is a pension plan under which
the Group pays fixed contributions into a separate entity. The
Group has no legal or constructive obligations to pay further
contributions if the fund does not hold sufficient assets to pay
all employees the benefits relating to employee service in the
current and prior periods.
For defined contribution plans, the Group pays contributions to
publicly or privately administered pension insurance plans on a
mandatory, contractual or voluntary basis. The Group has no further
payment obligations once the contributions have been paid. The
contributions are recognised as an employee benefit expense when
they are due.
In the U.S. the group has a 401(k) plan, a type of defined
contribution scheme in the United States in which all employees are
eligible to participate after meeting eligibility requirements.
Participants may elect to have a portion of their salary deferred
and contributed to the scheme up to the limit allowed by applicable
income tax regulations. The Company has made a matching
contribution to the scheme for the year ended 31 December 2019.
Contributions to defined contribution schemes are charged to the
consolidated statement of comprehensive income in the year to which
they relate.
Share-based payments
Where equity settled share options and Restricted Stock Units
('RSUs') are awarded to employees, the fair value of the options or
RSUs at the date of grant is charged to the consolidated statement
of comprehensive income over the vesting period. Non-market vesting
conditions are taken into account by adjusting the number of equity
instruments expected to vest at each reporting date so that,
ultimately, the cumulative amount recognised over the vesting
period is based on the number of options or RSUs that eventually
vest.
Where the terms and conditions of options are modified before
they vest, the increase in the fair value of the options, measured
immediately before and after the modification, is also charged to
the consolidated statement of comprehensive income over the
remaining vesting period.
Where equity instruments are granted to persons other than
employees, the consolidated statement of comprehensive income is
charged with the fair value of goods and services received.
Share options and RSUs 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 liability is then amended at each subsequent balance
sheet date under IFRS 2.
Intangible assets
(i) Goodwill
The Group uses the acquisition method of accounting for the
acquisition of a subsidiary. The consideration transferred is
measured at the fair value of the assets given, equity instruments
issued, and liabilities incurred or assumed at the date of
exchange. Costs directly attributable to the acquisition are
expensed in the period. Identifiable assets acquired, liabilities
and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition
date.
In respect of business combinations that have occurred since
January 2014, goodwill represents the excess of the cost of the
acquisition and the Group's interest fair value of net identifiable
assets and liabilities acquired. In respect of business
combinations prior to this date, goodwill is included on the basis
of its deemed cost, which represents the amount recorded under US
GAAP. As permitted by IFRS 1, Goodwill arising on acquisitions
prior to 1 January 2014 is stated in accordance with US GAAP and
has not been remeasured on transition to IFRS. Goodwill is
recognised and measured at the acquisition date.
Goodwill is capitalised as an intangible asset at cost less any
accumulated impairment losses. Any impairment in carrying value is
being charged to the consolidated statement of comprehensive
income. An impairment loss recognised for goodwill is not
reversed.
Where the fair value of identifiable assets, liabilities and
contingent liabilities exceed the fair value of consideration paid,
the excess is credited in full to the consolidated statement of
comprehensive income on the acquisition date.
Goodwill is allocated to appropriate cash generating units
(CGUs). Goodwill is not amortised but is tested annually for
impairment or whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. The recoverable
amount is determined based on value in use calculations. The use of
this method requires the estimation of future cash flows and the
determination of a discount rate in order to calculate the present
value of the cash flows. The major assumptions are disclosed in
note 11.
(ii) Intangible assets acquired as part of a business combination
Intangible assets acquired in a business combination are
identified and recognised separately from goodwill where they
satisfy the definition of an intangible asset. All intangible
assets acquired through business combinations, are amortised over
their useful lives.
Subsequent to initial recognition, intangible assets acquired in
a business combination are reported at cost less accumulated
amortisation and accumulated impairment losses. The carrying values
are tested for impairment when there is an indication that the
value of the assets might be impaired
(iii) Research and development
Expenditure on research activities as defined in IFRS is
recognised in the income statement as an expense as incurred.
Expenditure on internally developed software products and
substantial enhancements to existing software product is recognised
as intangible assets only when the following criteria are met:
1. it is technically feasible to develop the product to be used or sold;
2. there is an intention to complete and use or sell the product;
3. the Group is able to use or sell the product;
4. use or sale of the product will generate future economic benefits;
5. adequate resources are available to complete the development; and
6. expenditure on the development of the product can be measured reliably.
The capitalised expenditure represents costs directly
attributable to the development of the asset from the point at
which the above criteria are met up to the point at which the
product is ready to use. The costs include external direct costs of
materials and services consumed in developing and obtaining
internal-use computer software, and payroll and payroll-related
costs for employees who are directly associated with and who devote
time to developing the internal-use software. If the qualifying
conditions are not met, such development expenditure is recognised
as an expense in the period in which it is incurred. Product
development costs previously recognised as an expense are not
recognised as an asset in a subsequent period.
(iv) Amortisation rates
The significant intangibles recognised by the Group and their
useful economic lives are as follows:
Intangible asset Useful economic life
Tradenames Indefinite life - not amortized
Merchant relationships 5 years
Developed technologies 1 - 7 years
Domain names 5 years
Internally developed software 3 - 6.75 years
The amortisation expense is recognised within administrative
expenses in the consolidated statement of comprehensive income.
Property, plant and equipment
Property, plant and equipment are held under the cost model and
are stated at historical cost less accumulated depreciation and any
accumulated impairment losses. Historical cost includes expenditure
that is directly attributable to bringing the asset to the location
and condition necessary for it to be capable of operating in the
manner intended by management.
Subsequent costs are included in the asset's carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured
reliably. All other repairs and maintenance expenditures are
charged to the Consolidated statement of comprehensive income
during the financial year in which they are incurred. Depreciation
is calculated using the straight-line method to write off the cost
of each asset to its residual value over its estimated useful life
as follows:
Office equipment and furniture 3- 5 years on cost
Computer equipment and software 3- 5 years on cost
Leasehold improvement 6.5 years on cost
Right-of-use assets Shorter of useful life of the asset or
lease term
Gains and losses on disposals are determined by comparing the
disposal proceeds with the carrying amount and are included in the
Consolidated statement of comprehensive income.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at
call with banks, and other short term highly liquid investments
with original maturities of three months or less. Bank overdrafts
are shown with borrowings in currently liabilities on the
Consolidated statement of comprehensive income.
Restricted cash
The restricted cash does not meet the definition of cash and
cash equivalents and is therefore separately disclosed in the
Group's statement of financial position and is not part of the cash
and cash equivalents for cash flow purposes. These cash amounts are
restricted as to withdrawal or use under the terms of certain
contractual agreements.
Financial assets
The Group's financial assets mainly comprise cash, trade and
other receivables.
Trade receivables are initially recognised at fair value and
subsequently measured at amortised cost less provisions for
impairment based upon an expected credit loss methodology. The
Group applies the IFRS 9 simplified approach to measuring expected
credit losses which uses a lifetime expected loss allowance matrix
for all trade receivables (including accrued receivables). A
provision of the lifetime expected credit loss is established upon
initial recognition of the underlying asset and are calculated
using historical account payment profiles along with historical
credit losses experienced. The loss allowance is adjusted for
forward looking factors specific to the debtor and the economic
environment. The amount of the provision is recognised in the
Consolidated statement of comprehensive income.
Financial liabilities
Financial liabilities are recognised when the Group becomes a
party to the contractual agreements of the instrument. The Group's
financial liabilities are categorised as loans and Trade and other
payables.
At initial recognition,
-- Financial liabilities (trade and other payables, excluding
other taxes and social security costs and deferred income), are
measured at their fair value plus, if appropriate, any transaction
costs that are directly attributable to the issue of the financial
liability. These financial liabilities are subsequently carried at
amortised cost.
-- Bank borrowings are initially recognised at fair value net
any of transaction costs directly attributable to the issue of the
instrument. Such interest-bearing liabilities are subsequently
measured at amortised cost ensuring the interest element of the
borrowing is expensed over the repayment period at a constant
rate.
Leases
IFRS 16 "Leases"' supersedes IAS 17 'Leases', IFRIC 4
Determining whether an Arrangement contains a Lease, SIC-15
Operating Leases-Incentives and SIC-27 Evaluating the substance of
transactions involving the Legal Form of a Lease. The standard sets
out the principles for the recognition, measurement, presentation
and disclosures of leases and requires lessees to account for most
leases under a single on-balance sheet model. The Group has applied
IFRS 16 'Leases' from 1 January 2019.
Right-of-use assets
The Group recognises right-of-use assets at the commencement
date of the lease (i.e. the date the underlying asset is available
for use). Right-of-use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted for
any remeasurement of lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognised, initial
direct costs incurred, and lease payments made on or before the
commencement date less any lease incentives received. Unless the
Group is reasonably certain to obtain ownership of the leased asset
at the end of the lease term, the recognised right-of-use assets
are depreciated on a straight-line basis over the shorter of its
estimated useful life and the lease term. Right-of-use assets are
subject to impairment.
Lease liabilities
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments (including in-substance fixed payments) less any lease
incentives receivable, variable lease payments that depend on an
index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise
price of a purchase option reasonably certain to be exercised by
the Group and payments of penalties for terminating a lease, if the
lease term reflects the Group exercising the option to terminate.
The variable lease payments that do not depend on an index or a
rate are recognised as expense in the period on which the event or
condition that triggers the payment occurs. In calculating the
present value of lease payments, the Group uses the incremental
borrowing rate at the lease commencement date if the interest rate
implicit in the lease is not readily determinable. After the
commencement date, the amount of lease liabilities is increased to
reflect the accretion of interest and reduced for the lease
payments made. In addition, the carrying amount of lease
liabilities is remeasured if there is a modification, a change in
the lease term, a change in the in-substance fixed lease payments
or a change in the assessment to purchase the underlying asset.
Short-term leases and leases of low-value assets The Group
applies the short-term lease recognition exemption to its
short-term leases of machinery and equipment (i.e., those leases
that have a lease term of 12 months or less from the commencement
date and do not contain a purchase option). It also applies the
lease of low-value assets recognition exemption to leases of office
equipment that are considered of low value (i.e., below GBP5,000).
Lease payments on short-term leases and leases of low-value assets
are recognised as an expense on a straight-line basis over the
lease term.
Share Capital
Financial instruments issued by the Group are treated as equity
only to the extent that they do not meet the definition of a
financial liability. The Group's ordinary share capital and share
premium are classified as equity instruments.
Taxation
Current tax
Current taxes are based on the results shown in the financial
statements and are calculated according to local tax rules, using
tax rates enacted or substantially enacted at the balance sheet
date.
Deferred tax
Deferred tax assets and liabilities are recognised where the
carrying amount of an asset or liability in the consolidated
statement of financial position differs from its tax base, except
for differences arising on:
-- the initial recognition of goodwill;
-- the initial recognition of an asset or liability in a
transaction which is not a business combination and at the time of
the transaction affects neither accounting or taxable profit;
and
-- investments in subsidiaries where the Group is able to
control the timing of the reversal of the difference and it is
probable that the difference will not reverse in the foreseeable
future.
Recognition of deferred tax assets is restricted to those
instances where it is probable that taxable profit will be
available against which the difference can be utilised.
The amount of the asset or liability is determined using tax
rates that have been enacted or substantively enacted by the
balance sheet date and are expected to apply when the deferred tax
liabilities or assets are settled or recovered. Deferred tax
balances are not discounted.
Deferred tax assets and liabilities are offset when the Group
has a legally enforceable right to offset current tax assets and
liabilities and the deferred tax assets and liabilities relate to
taxes levied by the same tax authority on either:
-- the same taxable group company; or
-- different company entities which intend either to settle
current tax assets and liabilities on a net basis, or to realise
the assets and settle the liabilities simultaneously, in each
future period in which significant amounts of deferred tax assets
and liabilities are expected to be settled or recovered.
Business combinations
The acquisition of subsidiaries is accounted for using the
acquisition method. The cost of the acquisition is measured at the
aggregate of the fair values, at the date of exchange, of assets
given, liabilities incurred or assumed, and equity instruments
issued by the Group in exchange for control of the acquiree. Costs
related to acquisitions, other than those directly attributable to
the issue of debt or equity, are expensed as incurred.
Goodwill arising on acquisition is recognised as an asset and
initially measured at cost, being the excess of the cost of the
business combination over the Group's interest in the net fair
value of the identifiable assets, liabilities and contingent
liabilities recognised. If, after reassessment, the Group's
interest in the net fair value of the acquiree's identifiable
assets, liabilities and contingent liabilities exceeds the cost of
the business combination, the excess is recognised immediately in
the profit or loss
Critical accounting estimates and judgements
In preparing these Consolidated financial statements, the Group
has made its best estimates and judgements of certain amounts
included in the financial statements, giving due consideration to
materiality. The Group regularly reviews these estimates and
updates them as required. Actual results could differ from these
estimates. Unless otherwise indicated, the Group does not believe
that there is a significant risk of a material change to the
carrying value of assets and liabilities within the next financial
year related to the accounting estimates and assumptions described
below. The Group considers the following to be a description of the
most significant estimates and judgements, which require the Group
to make subjective and complex judgements and matters that are
inherently uncertain.
(a) Goodwill, Intangible assets acquired in a business combination
As set out in the accounting policies above, intangible assets
acquired in a business combination are capitalised and amortised
over their useful lives. Both initial valuations and valuations for
subsequent impairment tests are based on risk adjusted future cash
flows discounted using appropriate discount rates. These future
cash flows are based on forecasts which are inherently judgemental.
Future events could cause the assumptions to change which could
have an adverse effect on the future results of the Group. Refer to
note 11 for a description of the specific estimates and judgements
used and the net book values of intangible assets.
(b) Share-based payments
The Group measures the cost of equity-settled transactions with
employees by reference to the fair value of the equity instruments
at the date at which they are granted. Estimating fair value for
share-based payment transactions requires determining the most
appropriate valuation model, which is dependent on the terms and
conditions of the grant. This estimate also requires determining
the most appropriate inputs to the valuation model including the
expected life of the share option, volatility and dividend yield
and making assumptions about them. The group is using the Black
Scholes model to calculate all of its share-based compensation
expenses. (Please refer to note 20 for full details).
(c) Taxation
In recognising income tax assets and liabilities, management
makes estimates of the likely outcome of decisions by tax
authorities on transactions and events whose treatment for tax
purposes is uncertain. Where the final outcome of such matters is
different, or expected to be different, from previous assessments
made by management, a change to the carrying value of income tax
assets and liabilities will be recorded in the period in which such
a determination is made. In recognising deferred tax assets and
liabilities management also makes judgements about likely future
taxable profits. The carrying values of current tax and deferred
tax assets and liabilities are disclosed separately in the
consolidated statement of financial position.
(d) Revenue Recognition
The key areas of judgement in respect of recognising revenue are
the timing of recognition and how the different elements of
contracts are identified, for example between transactional and
maintenance revenues. Revenue recognition under IFRS 15 is
significantly more complex than under previous reporting
requirements and necessitates the use of management judgements and
estimates to produce financial information. IFRS 15 also introduces
management judgement in relation to the timing of recognition of
certain categories of cost. The most significant accounting
judgements in applying IFRS 15 are disclosed below.
Revenue recognition requires significant judgement in
identifying each distinct performance obligation requiring separate
recognition in a multi-element contract. This judgement impacts the
timing of revenue recognition, as certain performance obligations
are recognised at a point in time and others are recognised over
the life of the contract, and therefore the quantum of revenue and
profit recognised in each period.
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 2019 and 31
December 2018.
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 2019 2018
$'000 $'000
---------------------------------------- ------------ ------------
Cash and cash equivalents 34,747 31,073
Restricted cash 876 1,251
----------------------------------------- ------------ ------------
Total Cash 35,623 32,324
----------------------------------------- ------------ ------------
Accounts receivable (net) 50,165 48,979
Other receivables 373 300
Note receivable from shareholder 793 793
----------------------------------------- ------------ ------------
Total other financial assets 51,331 50,072
----------------------------------------- ------------ ------------
Cash, and other financial assets 86,954 82,397
----------------------------------------- ------------ ------------
Derivative financial assets designated
as hedging instrument - 3
----------------------------------------- ------------ ------------
Financial liabilities
31 December 31 December
2019 2018
$'000 $'000
------------------------------------ ------------ ------------
Trade payables 68,128 69,064
Accruals 7,799 6,402
Total other financial liabilities 75,927 75,466
------------------------------------- ------------ ------------
Bank loans (secured) 2,098 2,150
Lease liabilities 1,723 43
Loans and borrowings 3,821 2,193
Financial liabilities at amortised
cost 79,748 77,659
------------------------------------- ------------ ------------
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. There is a risk that the
fair value or future cash flows of a financial instrument will
fluctuate because of changes in interest rates (interest rate risk)
or foreign exchange rates (currency risk).
Interest rate risk
The Group is exposed to cash flow interest rate risk from bank
borrowings at variable rates. 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 2019 to the profit before tax and net
assets for the period:
31 December 2019 31 December 2018
Increase/(decrease) of loss before tax and net Increase/(decrease) of loss before tax and net
assets assets
$'000 $'000
------------ ------------------------------------------------- --------------------------------------------------
Bank loans +/-20 +/-22
------------- ------------------------------------------------- --------------------------------------------------
Foreign exchange risk
Foreign exchange risk is the risk that movements in exchange
rates affect the profitability of the business. The company manages
this risk through natural hedging and spot contracts.
The effect of fluctuations in exchange rates on the Euro and GBP
denominated trade receivables is partially offset through the use
of foreign exchange contracts to the extent that any remaining
impact on profit after tax is not material.
At December 31, 2019, the Company had no (2018: 1) foreign
currency forward contracts totaling a notional amount of $Nil
(2018: $141,783). These instruments were used to hedge the variable
cash flows predominantly associated with monthly Aggregator
payments.
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 2019 $'000 $'000 $'000 $'000
------------------------------- --------- --------- --------- ---------
Trade and other receivables 14,856 19,180 15,198 49,234
Cash and cash equivalents and
restricted cash 13,307 8,445 10,308 32,060
Trade and other payables (22,113) (24,684) (22,646) (69,443)
Financial assets 6,050 2,941 2,859 11,851
------------------------------- --------- --------- --------- ---------
10% impact - +/- 672 327 318 1,317
GBP Euro Other Total
------------------------------- --------- --------- --------- ---------
31 December 2018 $'000 $'000 $'000 $'000
------------------------------- --------- --------- --------- ---------
Trade and other receivables 12,818 20,808 16,120 49,746
Cash and cash equivalents and
restricted cash 11,052 9,402 8,102 28,556
Trade and other payables (22,906) (26,118) (19,760) (68,784)
------------------------------- --------- --------- --------- ---------
Financial assets 965 4,092 4,462 9,518
------------------------------- --------- --------- --------- ---------
10% impact - +/- 107 455 496 1,058
The impact of 10% movement in foreign exchange rate of US$ will
result in an increase/decrease of total comprehensive loss after
tax and financial assets/(liabilities) of $1,317 for December 2019
(2018: $1,058).
b) Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations. The Group is mainly exposed to credit
risk from credit sales. The Group's net trade receivables for the
three reported periods are disclosed in the financial assets table
above.
The Group is exposed to credit risk in respect of these balances
such that, if one or more the aggregators or MNOs encounters
financial difficulties, this could materially and adversely affect
the Group's financial results. The Group attempts to mitigate
credit risk by assessing the credit rating of new customers prior
to entering into contracts and by entering contracts with customers
with agreed credit terms.
To minimise this credit risk, the Group endeavours only to deal
with companies which are demonstrably creditworthy and this,
together with the aggregate financial exposure, is continuously
monitored. The maximum exposure to credit risk is the value of the
outstanding amount.
At the reporting date, the largest exposure was represented by
the carrying value of trade and other receivables, against which
$2,001 is provided at 31 December 2019 (2018: $1,956). The
provision represents an estimate of potential bad debt in respect
of the year-end trade receivables, a review having been undertaken
of each such year-end receivable. The Group's customers are spread
across a broad range of sectors and consequently it is not
otherwise exposed to significant concentrations of credit risk on its trade receivables.
A debt is considered to be bad when it is deemed irrecoverable,
for example when the debtor goes into liquidation, or when a credit
or partial credit is issued to the customer for goodwill or
commercial reasons. The Group has applied the Simplified Approach
applying a provision matrix based on number of days past due to
measure lifetime expected credit losses and after taking into
account customer sectors with different credit risk profiles and
current and forecast trading conditions.
The Group's provision matrix is as follows:
31-Dec-19 < 60 days 61-120 121-150 > 150 days Total
days days
--------------------------- -------------- -------------- -------------- ----------- --------
Expected credit loss %
range 0% 0% 0% 95%-100%
Gross debtors ($'000) 49,265 173 611 2,117 52,166
Expected credit loss rate
($'000) - - - (2,001) (2,001)
--------------------------- -------------- -------------- -------------- ----------- --------
50,165
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 $1,958k .
31-Dec-18 < 60 days 61-120 121-150 > 150 days Total
days days
Expected credit loss
% range 0% 0% 0% 98%-100%
Gross debtors ($'000) 47,625 829 494 1,987 50,935
Expected credit loss
rate ($'000) - - - (1,956) (1,956)
----------------------- ---------------- ---------------- ---------------- ----------- --------
48,979
At 31 December 2018 the Group had a provision for $1,958 of
which $101 was fully written off during 2019. The total provision
of trade and accrued receivables as at 31 December 2019 was
$2,001.
Other receivables are considered to be low risk. The management
do not consider that there is any concentration of risk within
other receivables. No other receivables have been impaired.
Credit risk on cash and cash equivalents is considered to be
small as the counterparties are all substantial banks with high
credit ratings. The maximum exposure is however the amount of the
deposit. To date, the Group has not experienced any losses on its
cash and cash equivalent deposits.
c) Liquidity risk
Liquidity risk arises from the Group's management of working
capital. It is the risk that the Group will encounter difficulty in
meeting its financial obligations as they fall due. The Group's
policy is to ensure that it will always have sufficient cash to
allow it to meet its liabilities when they become due. The table
below analyses the Group's financial liabilities by contractual
maturities and all amounts disclosed in the table are the
undiscounted contractual cash flows:
31 December 2019 Within 1 year 1-2 years 2-5 years More than 5 years
$'000 $'000 $'000 $'000
------------------------------------- -------------- ---------- ---------- ------------------
Trade and other payables 77,995 791 - -
Bank loans and overdrafts (secured) 2,098 - - -
Leases liabilities 1,723 1,358 - -
------------------------------------- -------------- ---------- ---------- ------------------
Total 81,816 2,149 - -
------------------------------------- -------------- ---------- ---------- ------------------
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 and overdrafts (secured) 2,150 - - -
Finance leases 43 - - -
Total 79,567 107 - -
------------------------------------- -------------- ---------- ---------- ------------------
Capital Management
The Group's capital is made up of share capital, foreign
exchange reserve and retained losses.
The Group's objectives when maintaining capital are:
-- To safeguard the entity's ability to continue as a going
concern, so that it can continue to provide returns for
shareholders and benefits for other stakeholders; and
-- To provide an adequate return to shareholders by pricing
products and services commensurately with the level of risk.
The capital structure of the Group consists of shareholders'
equity as set out in the consolidated statement of changes in
equity. All working capital requirements are financed from existing
cash resources and borrowings.
4. Segmental analysis
(a) Operating Segments - primary basis
Prior to 1 Jan 2019, the Group considered that for executive
management purposes, the Group had one reportable segment -
provision of a payment platform for processing payments for virtual
goods and digital goods purchases. Following the acquisition of
Danal Inc. on 1 January 2019, (Note 27) the Group revised its
activities into two operating segments as disclosed below. The
segments are based on the Group's main revenue generating
activities. For each of the segments, the Group CEO and CFO reviews
the management reports monthly before sending the results to the
Board.
The following summary describes the operations in each of the
Group's reportable segments:
Payments Segment - provision of payment platform which enables
mobile phone users to buy goods and services and charge them to
their mobile phone or prepaid balance.
Identity Segment - provision of Identity services which are used
to simplify transactions or combat fraud.
Operating segment information under the primary reporting format
is disclosed below:
Boku Income Statement by
segment for
12 months to 31 December
2019 2019 2018
----------------------------------------------------
Payments Identity Total Payments
$'000 $'000 $'000 $'000
Fee Revenue 43,473 6,675 50,148 35,275
Cost of sales (1,641) (3,922) (5,563) (2,512)
-------------- ------------------- ---------------
Gross Profit 41,832 2,753 44,585 32,764
Administrative Expenses (36,053) (9,416) (45,469) (35,179)
-------------- ------------------- ---------------
Operating Profit/(loss) analysed
as:
Adjusted EBITDA* 12,687 (5,284) 7,403 6,324
Payments Revenue adjustment
(non-recurring) 3,255 - 3,255 -
Depreciation and amortisation (3,968) (493) (4,461) (2,794)
Stock Option expense (6,013) (758) (6,771) (4,593)
Foreign exchange gains/(losses) 112 (5) 107 (279)
Exceptional items (included
in administrative expenses) (294) (123) (417) (1,074)
-------------- ------------------- ---------------
Operating Profit/(loss) 5,779 (6,663) (884) (2,415)
Finance income 56 0 56 53
Finance expense (432) (35) (467) (631)
-------------- ------------------- ---------------
Profit/(Loss) before tax 5,403 (6,699) (1,296) (2,993)
Tax (expense)/credit 1,653 (2) 1,651 (1,339)
---------------
Net Profit/(loss) for the
period attributable to equity
holders of the parent company 7,056 (6,701) 355 (4,332)
-------------- ------------------- ---------------
In 2019 two customers represented more than 10% each of group
revenues. In 2018 four customers represented more than 15% each of
group revenues.
During 2019, an adjustment of $3,255k has been recognised in
payments revenue as a result of a change in the estimate of
transaction price for a specific customer, and for whom the
performance obligations were satisfied in a previous year. As this
amount is non-recurring it has been excluded from 'Adjusted
EBITDA', as noted on the Consolidated Statement of Comprehensive
Income and in the table above.
Consolidated Statement of
Financial
Position by segment 2019 2018
--------------------------------------------------------------------
Payments Identity Consolidated Payments
Non-current assets
Property, plant, and equipment 3,213 299 3,512 286
Intangible assets 46,819 - 46,819 22,466
Deferred tax assets 1,826 - 1,826 254
Total non-current assets 51,858 299 52,157 23,007
Current Assets
Trade and other receivables 51,793 1,799 53,592 51,658
Derivative financial instrument - - - 3
Cash and cash equivalents 34,409 338 34,747 31,073
Restricted cash 876 - 876 1,251
--------------------- -------------------- -----------------------
Total current assets 87,078 2,137 89,215 83,985
Total assets 138,936 2,436 141,372 106,992
Current liabilities
Trade and other payables 75,506 2,489 77,995 77,374
Loans and borrowings 3,530 291 3,821 2,193
--------------------- -------------------- -----------------------
Total current liabilities 79,036 2,780 81,816 79,567
Non-current liabilities
Trade and other payables 1,240 - 1,240 107
Loans and borrowings 1,353 5 1,358 671
--------------------- -------------------- -----------------------
Total non- current liabilities 2,592 5 2,598 778
Total liabilities 81,629 2,785 84,414 80,345
Net assets/(liabilities) 57,307 (349) 56,958 26,646
(c) Geographic segment - secondary basis
The geographical analysis of the revenue by location of the
users and segment is presented below:
Group Payments Identity Total Total (Payments
Revenue only)
by Region
and
Segment
' 000 USD Dec-19 Dec-19 Dec-19 Dec-18
YTD % YTD % YTD % YTD %
----------------- -------- --------------------- -------- --------- -------- ------------------- --------
Americas 5,574 12.8% 6,460 96.8% 12,034 24.0% 2,655 7.5%
----------------- -------- --------------------- -------- --------- -------- ------------------- --------
APAC 19,290 44.4% - - 19,290 38.5% 14,021 39.7%
----------------- -------- --------------------- -------- --------- -------- ------------------- --------
EMEA 18,610 42.8% 215 3.2% 18,825 37.5% 18,599 52.7%
----------------- -------- --------------------- -------- --------- -------- ------------------- --------
Grand
Total 43,473 100.0% 6,675 100.0% 50,149 100.0% 35,275 100.0%
----------------- -------- --------------------- -------- --------- -------- ------------------- --------
An analysis of non-current assets by geographical market is
given below:
2019 2018
$'000 $'000
------------------------------------- ------- -------
United States of America 48,841 21,133
Germany 432 557
Other European countries (including
UK) 94 6
Rest of the World 963 56
-------------------------------------- ------- -------
Total 50,330 22,752
-------------------------------------- ------- -------
5. Administrative expenses (including exceptional items)
2019 2018
$'000 $'000
----------------------------------------------- ---------- ----------
Audit fees 274 175
Taxation services 318 516
Accounting services 157 108
Consultancy and compliance services 730 898
Staff costs (excluding stock option expense
- note 6) 25,434 18,117
Travel & entertainment 1,859 1,072
Rent and occupancy costs 928 2,030
Total IT, development and hosting 1,917 1,777
Total banking costs 240 254
Legal fees 1,120 688
Other costs including marketing, support
& testing and other administration expenses 950 599
------------------------------------------------ ---------- ----------
Operating Expenses, excluding items in
Adjusted EBITDA 33,928 26,438
------------------------------------------------ ---------- ----------
Depreciation of property, plant and equipment 2,176 213
Amortisation of intangible assets 2,285 2,581
Loss on disposal of property, plant and
equipment - 1
Foreign exchange gains/(losses) (107) 279
Exceptional items - impairment of investments 13 164
Exceptional items - restructuring costs 404 910
Share - based expenses 6,771 4,593
------------------------------------------------ ---------- ----------
Total administrative expenses 45,469 35,179
------------------------------------------------ ---------- ----------
6. Staff costs
2019 2018
$'000 $'000
----------------------- ------------------------ ------------------------
Wages and salaries 20,664 14,730
Short-term benefits 1,350 774
Social security costs 1,858 1,398
Pension costs 397 164
Other staff costs 1,166 1,051
------------------------ ------------------------ ------------------------
Total staff costs 25,434 18,117
------------------------ ------------------------ ------------------------
Share-based costs 6,771 4,593
------------------------ ------------------------ ------------------------
Total 32,205 22,710
------------------------ ------------------------ ------------------------
Other staff costs include contractor costs, relocation,
recruiting and training costs for the group.
Key management personnel compensation was made up as
follows:
2019 2018
$'000 $'000
----------------------- ------ ------
Salaries 2,075 1,849
Short-term benefits 44 39
Social security costs 298 160
Pension costs 35 6
Total 2,452 2,054
------------------------- ------ ------
Directors' remuneration included in staff costs:
2019 2018
$'000 $'000
---------------------------- ------ ------
Salaries including bonuses 917 989
Short-term benefits 4 4
Total 921 993
----------------------------- ------ ------
Information regarding the highest paid director is as
follows:
2019 2018
$'000 $'000
------------------------- ------ ------
Total remuneration paid 385 459
-------------------------- ------ ------
The number of employees at the end of the period was as
follows:
2019 2018
----------------------------- ----- -----
Management 6 4
Operations & administration 208 148
------------------------------ ----- -----
Total 214 152
------------------------------ ----- -----
7. Finance income and expenses
2019 2018
$'000 $'000
-------------------------------------------- ------ ------
Finance income
Interest income from bank deposits 56 53
---------------------------------------------
Total 56 53
--------------------------------------------- ------ ------
Finance expenses
Interest on bank loans & overdrafts 150 234
Interest on finance leases and hire
purchase contracts - 9
Other interest payable (including interest
paid for factoring) 30 380
Interest on lease liabilities 288 -
Total 468 631
--------------------------------------------- ------ ------
Net finance expenses 412 578
--------------------------------------------- ------ ------
8. Income tax
2019 2018
$'000 $'000
--------------------------------------------------- -------- -------
Current tax
US tax 2 4
Foreign tax 135 349
Total current tax 137 353
---------------------------------------------------- -------- -------
Deferred tax (credit)/expense (1,866) 1,064
Origination and reversal of temporary differences 78 (78)
---------------------------------------------------- -------- -------
Total tax (credit)/expense (1,651) 1,339
---------------------------------------------------- -------- -------
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:
2019 2018
$'000 $'000
---------------------------------------------- -------- --------
Loss before tax (1,296) (2,994)
Tax rate 21% 21%
Loss before tax multiplied by the applicable
rate of tax: (272) (629)
US state tax 1 4
Losses recognized/(not recognized) (1,498) 1,129
Expenses not deductible for tax purposes 54 326
Withholding taxes 69 150
Tax losses (27) 336
Others 22 23
----------------------------------------------- -------- --------
Total tax (credit) / expense (1,651) 1,339
----------------------------------------------- -------- --------
Deferred Tax
2019 2018
$'000 $'000
---------------------------------------------- ---- ---------- --------
Net opening position (417) 714
Arising from business combinations - 310
Recognition (de-recognition) / in the
year 1,808 (1,296)
Foreign exchange revaluation (14) (145)
Net closing position 1,377 (417)
---------------------------------------------- ---- ---------- --------
The net closing position is made up of:
o A deferred tax liability of $488,860 (2018: $671,473): This
constitutes tax positions connected with the Group's German
subsidiary in relation to available losses and the deferred tax
liability associated with intangible assets acquired as part of the
legacy business combination with the group's now German business.
The difference is the amount of $222,613 used in 2019.
o The deferred asset of $1,826,570. This relates to losses
primarily in UK tax jurisdictions which management expects will be
realised.
A deferred tax asset (liability) has not been recognized
for the following:
2019 '000 2018 '000
------------------- ----------
Non- deductible Reserves 229 103
Accrued Compensation 60 68
Stock Based Compensation 1,637 1,144
Other temporary and deductible differences 829 852
Accelerated Capital Allowances (401) (22)
Acquired Intangibles (334) -
Unused tax credits 189 189
Unused tax losses 30,448 24,497
Total deferred tax assets 32,657 26,831
=================== ==========
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 2017. All net operating loss carry forwards
incurred after 31 December 2017 can be carried forward and offset
against US taxable income indefinitely. Utilization 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 utilization. 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.
2019 2018
$'000 $'000
----------------------------------------------- -------- --------
US losses and tax credit - federal and
states 177,843 134,947
Non-US losses (includes US entities
deemed to be under non-US tax jurisdictions) 10,602 2,867
Total 188,445 137,814
------------------------------------------------ -------- --------
The unused tax losses must be utilised by various dates. German
tax losses of $1,498,665 must be used before 2022. U.S. tax losses
of $107,068,585 expire in various dates through 2027. Other unused
losses of ($1,368,012) do not expire.
9. Profit / Loss per share
2019 2018
-------------------------------------------- ------------ ------------
Profit/(Loss) attributable to shareholders
of the Company ($'000) 355 (4,333)
Weighted average number of common shares 246,752,100 217,069,055
--------------------------------------------- ------------ ------------
Basic profit/ (loss) per share 0.001 (0.02)
--------------------------------------------- ------------ ------------
Profit or Loss per share is calculated based on the share
capital of Boku, Inc. and the earnings of the Group.
Due to the small profit during the reporting period, the effect
of the share options is small and hence diluted loss per share is
the same as the basic loss per share in 2019. In 2018, due to the
loss reporting period the effect of the share options was
considered anti-dilutive and hence diluted loss per share was the
same as basic loss per share.
10. Property, plant and equipment
Right of Computer Office equipment
use assets equipment and fixtures Leasehold
& software and fittings improvement Total
$'000 $'000 $'000 $'000
--------------------- ------------ ------------ ----------------- ------------- ------
COST
At 1 January
2018 - 777 605 95 1,477
Additions - 84 2 5 91
Disposals - (2) (61) - (63)
Exchange adjustment - (17) (12) (2) (31)
--------------------- ------------ ------------ ----------------- ------------- ------
At 31 December
2018 - 842 534 98 1,474
--------------------- ------------ ------------ ----------------- ------------- ------
Additions 4,327 383 39 55 4,804
Acquisitions 621 - 1,041 36 1,698
Disposals - (10) (7) (5) (22)
Reclassification 78 - (78) - -
Exchange Adjustment (34) (2) (4) - (40)
--------------------- ------------ ------------ ----------------- ------------- ------
As at December
2019 4,992 1,213 1,525 184 7,914
--------------------- ------------ ------------ ----------------- ------------- ------
DEPRECIATION
At 1 January
2018 - 617 394 56 1,067
Charge for the
year - 104 93 16 213
Disposals - (1) (61) - (62)
Exchange adjustment - (13) (15) (2) (30)
--------------------- ------------ ------------ ----------------- ------------- ------
At 31 December
2018 - 707 411 70 1,188
--------------------- ------------ ------------ ----------------- ------------- ------
Acquisitions - - 1,029 29 1,058
Charge for the
year 1,948 110 100 18 2,176
Disposals - (10) (7) (5) (22)
Reclassification 57 - (57) - -
Exchange adjustment 4 (7) (3) 8 2
--------------------- ------------ ------------ ----------------- ------------- ------
At 31 December
2019 2,009 800 1,473 120 4,402
--------------------- ------------ ------------ ----------------- ------------- ------
NET BOOK VALUE
--------------------- ------------ ------------ ----------------- ------------- ------
At 1 January
2018 160 211 39 410
At 31 December
2018 135 123 28 286
At 31 December
2019 2,983 413 52 64 3,512
--------------------- ------------ ------------ ----------------- ------------- ------
The net book value of Right of use assets as at 31st December,
2019, includes Property ($2,282) and IT Equipment ($680).
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
2018 140 1,869 9,605 110 18,615 5,203 35,542
Additions - - - - - 238 238
Exchange adjustment - (13) (417) - (762) (53) (1,245)
--------------------- ------- -------------------- ---------------- -------- ----------- ----------- --------
At 31 December
2018 140 1,856 9,188 110 17,853 5,388 34,535
--------------------- ------- -------------------- ---------------- -------- ----------- ----------- --------
Additions from
acquisitions - 1,918 - - 23,559 25,477
Additions 1,575 1,575
Exchange adjustment - - (178) - (327) (24) (529)
At 31 December
2019 140 3,774 9,010 110 41,085 6.939 61,058
AMORTISATION
At 1 January
2018 140 1,869 4,569 - - 3,165 9,743
Charge for 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
--------------------- ------- -------------------- ---------------- -------- ----------- ----------- --------
Charge for the
period - 384 1,193 - - 708 2,285
Exchange adjustment - - (105) - (10) (115)
--------------------- ------- -------------------- ---------------- -------- ----------- ----------- --------
At 31 December
2019 140 2,240 6,743 - - 5,116 14,239
--------------------- ------- -------------------- ---------------- -------- ----------- ----------- --------
NET BOOK VALUE
At 1 January
2018 - - 5,036 110 18,615 2,038 25,799
At 31 December
2018 - - 3,533 110 17,853 970 22,466
At 31 December
2019 - 1,534 2,267 110 41,085 1,823 46,819
--------------------- ------- -------------------- ---------------- -------- ----------- ----------- --------
Management has reviewed goodwill and intangible assets on the
balance sheet which mainly consist of the assets from the merger
with Danal Inc (renamed Boku Identity Inc) on 1(st) January 2019
and with Mopay AG ("Mopay") in Oct 2014.
Danal Inc (Renamed Boku Identity Inc on 1(st) January 2019) was
founded in 6(th) June 2006 and was acquired by Boku for a total
value of $25.1 million. The fair value measurement of Danal's Inc
intangible assets and goodwill arose from the purchase price
allocation which was undertaken in January 2019. As a result, the
Identity platform and contracts were determined to be one asset and
have a fair value of $1.9m USD as at 1(st) January 2019. During
2019 the two platforms (Identity and Payments platforms) were
operated independently and have independent cashflows. The carrying
value of goodwill and the platform has been allocated to the
Identity segment and has been assessed against the Identity segment
future cashflows (Identity CGU).
Mopay was founded in 2000 and Boku Inc. acquired Mopay in
October 2014 for a total value of $24.2 million in cash and shares.
The initial fair value measurement of Mopay's intangible assets and
goodwill arose from the purchase price allocation which was
undertaken on January 21st, 2016. At 31/12/2016, it was determined
that the trade names purchased as part of the transaction have a
fair value less than the carrying amount as these trade names have
ceased to be used in the Group, Therefore Management have taken the
decision to write off the NBV of the trade names as at
31/12/2016.
After the merger in 2014, the Mopay business was reorganized and
the main assets (customer contracts)
expertise from the Boku engineering team and are now being
implemented for use by a number of Boku group entities. The
carrying value of the goodwill from the Mopay acquisition and other
intangibles are therefore assessed in total as part of the Boku
Payments Segment (Payments CGU).
At the year-end date an impairment test has been undertaken by
comparing the carrying values with the recoverable amount of the
Group's cash generating units (CGUs). The recoverable amount of the
cash generating unit is based on value-in-use calculations. These
calculations use cash flow projections covering a three-year period
based on financial budgets and a calculation of the terminal value,
for the period following these formal projections.
The key assumptions used for value-in-use calculations are those
regarding projected cash flows, growth rates, increases in costs
and discount rates. The discount rate used was the Weighted Average
Cost of Capital. The discount rate is reviewed annually to take
into account the current market assessment of the time value of
money and the risks specific to the cash generating units and rates
used by comparable companies. The discount rate has been calculated
as the weighted average cost of capital. The pre-tax discount rate
used for both CGU's to calculate value-in-use is 21% (2018: 27%).
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 2019 was based on growth rate of post-tax free cashflow of 2%
(2018:2%) for each CGU.
The impairment test resulted in a decision not to impair the
intangible assets at 31 December 2019 for either CGUs, or at 2018
year-end.
Sensitivity to changes in assumptions
For the Payments CGU, an excess fair value over carrying value
of $34.1 million was determined. 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
year ended 31 December 2019:
2019 2018
----------------------------------------- ----- ------------------
Projected post tax free cashflow used
for terminal value reduced by 68% 92%
Terminal growth rate reduced from 2% to 0% 2% to 0%
For the Identity CGU, an excess fair value over carrying value
of $7.4 million was determined. Management has identified the same
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 year ended 31 December 2019:
2019 2018
------------------------------------------- ------- --------------------------------
Projected post tax free cashflow used 25% -
for terminal value reduced by
Terminal growth rate reduced from 2% to -7.8% -
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 Account Services Inc.
Boku Account Services UK, Ltd. Mobile payment solutions (Virginia) UK
------------------------- ------------------------------------ ----------------
Paymo Brazil Servicios de Boku Network Services Inc.
Pagamentos Ltd Mobile payment solutions (Delaware) Brazil
------------------------- ------------------------------------ ----------------
Boku Network Services AG Holding Company Boku Inc. Germany
------------------------- ------------------------------------ ----------------
Boku Network Services Inc.
Boku Network Services UK, Ltd Mobile payment solutions (Delaware) UK
------------------------- ------------------------------------ ----------------
Boku Network Services Inc.
Boku Network Services AU Pty Ltd Mobile payment solutions (Delaware) Australia
------------------------- ------------------------------------ ----------------
Boku Network Services IN Privates Boku Network Services Inc.
Limited Mobile payment solutions (Delaware) India
------------------------- ------------------------------------ ----------------
Boku Network Services Inc.
Boku Network Services SG PTE. LTD Mobile payment solutions (Delaware) Singapore
------------------------- ------------------------------------ ----------------
Boku Network Services Inc.
Boku Network Services HK LTD Mobile payment solutions (Delaware) Hong Kong
------------------------- ------------------------------------ ----------------
Boku Network Services Taiwan Boku Network Services Inc.
Branch Office Mobile payment solutions (Delaware) Taiwan
------------------------- ------------------------------------ ----------------
Boku Network Services Japan Branch Boku Network Services Inc.
Office Mobile payment solutions (Delaware) Japan
------------------------- ------------------------------------ ----------------
Mopay AG Beijing Representative
Branch Mobile payment solutions Boku Network Services AG (Germany) China
------------------------- ------------------------------------ ----------------
Boku Identity Inc. Identity solutions Boku Inc. California, USA
------------------------- ------------------------------------ ----------------
Boku Mobile Solutions Ireland Identity solutions Boku Identity Inc. California, USA
------------------------- ------------------------------------ ----------------
Mobileview Italia S.r.l Mobile payment solutions Boku Network Services AG (Germany) Italy
------------------------- ------------------------------------ ----------------
13. Trade and other receivables
31 December 31 December
2019 2018
$'000 $'000
------------------------------------ ------------ ------------
Trade receivables - gross 17,623 17,612
Accrued income 34,544 33,325
------------------------------------- ------------ ------------
Accounts receivable - gross 52,166 50,937
Less: provision for impairment (2,002) (1,958)
------------------------------------- ------------ ------------
Accounts receivable - net 50,165 48,979
Other receivables 57 45
Deposits held 316 255
Sales taxes receivable 1,042 972
Deferred cost of sales 270 -
Note receivable from a shareholder 793 793
-------------------------------------
Total financial assets classified
as loans and receivables 52,644 51,044
------------------------------------- ------------ ------------
Prepayments 949 614
------------------------------------- ------------ ------------
Total 53,593 51,658
------------------------------------- ------------ ------------
Provision for impairment
31 December 31 December
2019 2018
$'000 $'000
---------------------------- ------------ ------------
Opening balance 1,958 1,410
Utilised during the period (101) (34)
Increase during the period 170 619
Foreign exchange movement (26) (37)
------------------------------ ------------ ------------
Closing balance 2,002 1,958
------------------------------ ------------ ------------
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
2019 2018
$'000 $'000
--------------------------- ------------ ------------
Cash and cash equivalents 34,747 31,073
---------------------------- ------------ ------------
Restricted cash 876 1,251
---------------------------- ------------ ------------
The restricted cash primarily includes e-money received but not
yet paid to merchants (in transit), cash held in the form of a
letter of credit to secure a lease agreement for the Company's San
Francisco office facility.
15. Derivative financial instruments
31 December 31 December
2019 2018
$'000 $'000
----------------------------------------------- ------------- ------------
Derivative financial assets (liabilities)
Derivatives designated as hedging instruments
Forward foreign exchange swaps - 3
------------------------------------------------ ------------ ------------
The notional principal amounts of outstanding forward foreign
exchange rate swaps at 31 December 2019 were $Nil (2018: $141,783).
Their fair value in 2019 was $Nil (2018: $2,646 asset).
The hedged transactions denominated in various foreign
currencies were expected to occur at various dates within the next
12 months. The change in net un-realized 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 2019 of
$3,000 gain (2018: loss $27,000).
16. Trade and other payables
31 December 31 December
2019 2018
Current $'000 $'000
---------------------------------------- ------------ ------------
Trade payables 68,128 69,064
Accruals 7,799 6,402
----------------------------------------- ------------ ------------
Total financial liabilities classified
as financial liabilities
measured at amortised cost 75,927 75,466
Other taxes and social security costs 327 350
Accrued tax on issued stock options 1,252 811
Deferred revenue 489 747
----------------------------------------- ------------ ------------
Total 77,995 77,374
----------------------------------------- ------------ ------------
Non-current
Deferred rent - 86
Accrued taxes on issued stock options 791 21
----------------------------------------- ------------ ------------
Total 791 107
----------------------------------------- ------------ ------------
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
2019 2018
$'000 $'000
------------------------------------------ ------------ ------------
Current
Bank loans and overdrafts (secured) 2,098 2,150
Lease liabilities (2018: finance leases) 1,723 43
------------------------------------------- ------------ ------------
Total 3,821 2,193
------------------------------------------- ------------ ------------
Non-current
Lease liabilities 1,358 -
Total 1,358 -
------------------------------------------- ------------ ------------
Principal terms and the debt repayment schedule of the Group's
loan and borrowings are as follows:
In December 26, 2019, the Group repaid in full ($2,000,000) the
existing Loan and Security Agreement (the Agreement) and entered
into an overdraft agreement for GBP5,000,000 for 3 years. At 31(st)
December 2019 the Group had drawn GBP1,600,000 ($2,098,000 USD)
under the agreement. The agreement has been repaid in full on the
9(th) January 2020 and has not been used since. As such, during the
year there was a net cash outflow of $150,000.
Reconciliation of liabilities arising
from financing activities
Cash
2018 flows Non-cash changes 2019
--------------------------------------
Lease
Foreign Liabilities
Converted Exchange (IFRS
to shares Movement 16)
------ ------- ----------- ---------- ------------- ------
Short-term borrowings 2,150 (150) - 98 - 2,098
Long-term lease liabilities - - - - 1,358 1,358
Short-term lease liabilities 43 - - - 1,680 1,723
------ ------- ----------- ---------- ------------- ------
Total liabilities from
financial activities 2,193 (150) - 98 3,038 5,179
Cash
2017 flows Non-cash changes 2018
------------------------------------
Foreign
Converted Exchange Fair value
to shares Movement changes
------ ------- ----------- ---------- ----------- ------
Short-term borrowings 2,400 (250) - 2,150
Short-term 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 summarized in the table
below:
31 December 31 December
2019 2018
Number
Number of of shares
shares issued issued
and fully and fully
paid paid
'000 $'000 '000 $'000
------------------------------------- ------------------- ------ ----------- ------
Common stock of $0.0001 each
Opening balance 223,885 22 213,582 21
--------------------------------------- ------------------- ------ ----------- ------
Shares issued for warrants - - 544 -
Shares issued to Danal Shareholders 23,699 3 - -
Exercised stock options 4,751 9,759 1
Closing balance 252,335 25 223,885 22
--------------------------------------- ------------------- ------ ----------- ------
Common Stock
At December 31, 2019, the Company had 252,335,207 (2018:
223,775,735) common shares issued and outstanding, of which
1,150,000 (2018: 1,150,000) where unpaid.
19. Reserves
The share premium disclosed in the consolidated statement of
financial position represents the difference between the issue
price and nominal value of the shares issued by the Company.
Retained losses are the cumulative net profits / (losses) in the
consolidated income statement.
Foreign exchange reserve stores the foreign exchange translation
gains and losses on the translation of the financial statements
from the functional to the presentation currency.
Cash flow hedging reserve contains changes in un-realised gains
or losses on the valuation of derivatives designated as cash flow
hedges at year-end.
Movements on these reserves are set out in the consolidated
statement of changes in equity.
20. Share-based payment
The Group operates the following equity-settled share-based
remuneration schemes for employees, directors and
non-employees:
1. 2009 equity incentive plan (2009 Plan) for the granting of
stock options (incentive or non-qualified), restricted stock awards
(RSA) and restricted stock units (RSU). No options are available to
be issued under this plan as at 31 December 2019.
2. 2009 equity UK sub-plan (2009 UK plan) under the terms of the
above plan for the granting of stock options and restricted stock
units for qualifying participants who are resident in the United
Kingdom. No options are available to be issued under this plan as
at 31 December 2019.
3. 2009 non-plan (not part of the above 2009 plan) for the
granting of share options to purchase 897,000 (2017: 897,000)
common shares at $0.022 (2016: $0.022) per share. These options
vest with terms ranging from being fully vested at grant date to
vesting over four years with a one-year cliff, where 25% of the
options vest. The options expired in April 2019. The shares have
been exercised in full during the year and there are no options
outstanding as at 31 December 2019.
4. 2009 BNS options (not part of the above 2009 plan) for the
granting of share options to purchase 182,000 (2017: 182,000)
common shares at $0.207 (2016: $0.207) per share in connection with
the acquisition of BNS in June 2009. The options expired in June
2019.
5. 2017 Equity Incentive Plan (new plan started on the 7(th)
November 2017) for the granting of stock options and restricted
stock units (RSUs). The Group has reserved ten million shares of
common stock for issue under the plan. The activity under this plan
is presented separately from the rest of the plans. There are 1,281
options and 7,888 RSUs outstanding as at 31 December 2019.
Options under the 2017 Plan
Options under the 2009 Plan and UK plan may be outstanding for
periods of up to ten years following the grant date. Outstanding
options generally vest over four years and may contain a one-year
cliff, where 25% of the options vest. Stock options with graded
vesting is based on the graded vesting attribution approach,
whereby, each instalment of vesting is treated as a separate stock
option grant, because each instalment has a different vesting
period.
RSUs under the 2017 Plan
RSUs under the 2017 Plan may be outstanding for periods of up to
five years following the grant date. Outstanding RSU grants
generally vest over three years in three equal portions.
Performance-based restricted stock units (RSU)
Performance-based RSUs vest upon the earlier of the completion
of a specified service period and the achievement of certain
performance targets, which may include individual and Company
measures, and are converted into common stock upon vesting.
Share-based expense for RSUs is based on the fair value of the
shares underlying the awards on the grant date and reflects the
estimated probability that the performance and service conditions
will be met. The share-based expense is adjusted in future periods
for subsequent changes in the expected outcome of the performance
related conditions until the vesting date. Performance-based RSUs
vest after three years of issue, in one event, 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 expired in April 2019. Share-based
expense in connection with the grant of Non-Plan options was not
material in 2016 and 2017. In 2018 all options were exercised. The
are no outstanding options at 31 December 2019 .
BNS plan options
In connection with the acquisition of BNS in June 2009, the
Company granted options to purchase 182,000 common shares at a
weighted-average exercise price of $0.207 per share (BNS Options).
These options granted were separate from the 2009 Plan. The options
expired in June 2019. A small amount of options were cancelled in
2018. There was no stock option activity related to these options
in 2017. There are no shares outstanding as at 31 December
2019.
The options activity under the 2009 Plan and its sub- Plans
before 2017 (including RSA and RSU) are as follows:
2009 Plan
Available 2009 Plan Non Plan BNS Plan
All Plans (exc RSUs) (only RSUs) Options Options Total
------------
Number of Number of Number of Number of Number of Number of
options options WAEP(1) RSUs options WAEP(1) options WAEP(1) options
'000 '000 '000 '000 '000 '000
----------- ---------- ----------- -------- ------------ ---------- -------- ----------- -------- -----------
At 1
January
2018 10,000 20,609 $0.470 9,539 50 $0.022 37 $0.203 30,235
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
Exercised - (1,894) $0.269 (1,801) - - (3) -0.35 (3,698))
Cancelled - (164) $0.258 - - - (32) - (196)
At 31
December
2019 - 15,786 $0.268 157 - - - $0.35 15,943
(1) WAEP - weighted average exercise price
*RSUs are always granted at zero exercise price
2009 Plan December December
2019 2018
Outstanding options at reporting end date:
- total number of options (including RSA & RSU) 15,943 19,745
- weighted average remaining contractual life (all except 2017 Plan) (years) (excluding RSU
and RSA) 5.05 4.46
- weighted average remaining contractual life - RSU (years) 0.25 5.58
Vested and exercisable ('000): 15,679 15,106
- weighted average exercise price $0.357 $0.369
- weighted average remaining contractual life - all plans
(excluding RSU and RSA) 4.91 5.71
Weighted average share price exercised during the period (excluding RSA and RSA) $0.360 $0.324
Weighted average fair value of each option granted during the period (excluding RSA and RSU) - -
Vested and exercisable - RSU and RSA 157 7,154
Share-based expense for the period ('000) $242 $1,233
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 (5,758) 1,459 $1.205 4,299 $2.24 5,758
Exercised - - - -
Cancelled 190 (73) $1.205 (117) $2.24 (190)
At 31 December
2018 4.432 1,386 $1.205 (4,182) $2.24 5,568
Authorized 19,766
Granted (6,894) - - 6,894 - 6,894
Exercised (40) $1.205 (1,012) - (1,052)
Cancelled 2,241 (65) $1.205 (2,176) - (2,241)
At 31 December
2019 19,545 1,281 $1.205 7,888 - 9,169
2017 Plan December December
2019 2018
Outstanding options at reporting end date:
- total number of options (excluding RSUs) ('000) 1,281 1,386
- weighted average remaining contractual life
(excluding RSUs) (years) 8.01 9.05
- weighted average remaining contractual life - RSUs (years) 6.07 6.06
Vested and exercisable ('000):
- weighted average exercise price $1.205 $1.205
- weighted average remaining contractual life
(excluding RSU) (years) 8.01 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 $0.44
Vested and exercisable - RSUs 1,012 -
Share-based expense for the period ('000) $5,229 $2,103
The following information is relevant in the determination of
the fair value of options (excluding RSU's) granted during the
period under the equity- settled share-based remuneration schemes
operated by the Group. Only RSUs were granted in 2019.
2017 Plan December
2018
Option pricing model used Black-Scholes
Weighted average share price at grant
date (dollar) $1.205
Exercise price (options only) $1.205
Weighted average contractual life (years)(1) 9.05 years
Weighted expected volatility (2) 32.66%
Expected dividend growth rate 0%
Weighted average Risk-free interest
rate(3) 2.49%
(1) Weighted average contractual life represents the period of
time options are expected to be outstanding and is estimated
considering vesting terms and employees' historical exercise and
post-vesting employment termination behavior.
(2) Expected volatility is based on historical volatilities of
public companies operating in the Company's industry.
(3) The risk-free rate is based on the U.S. Treasury yield curve
in effect at the time of grant.
Warrants for ordinary shares
A 5-year warrant to purchase 1,634,699 Boku shares at an
exercise price of $1.8352 USD per share, exercisable at any time
during the 5-year term was issued as part of the Danal acquisition,
on 1(st) January 2019. This warrant was valued using the Binomial
Lattice Model using the following inputs:
a) Term: 5 years
b) Starting share price: $0.8982 USD
c) Expected Annual Volatility: Used 5-year comparable companies
equity volatilities from Capital IQ (26.6%)
d) Risk Free Rate: Five-year US risk-free rate (2.51%)
e) Strike Price: $1.8352 USD.
Using the inputs above the warrant was valued at $94,606 USD and
accounted as part of the purchase consideration as an equity
instrument and charged to the warrant reserve until such time when
it is exercised when it will charged to the share premium account
.
Additional earn-out warrants to purchase an additional number of
Boku shares (calculated as follows) at an exercise price of $1.8352
were also part of the purchase consideration on the acquisition of
Danal.
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)
The earn-out warrants were valued at $108 USD. 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 using the
following inputs:
a) Term 1 year
b) FY 2018 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%)
Using the results from the first step, a warrant valuation was
performed 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
As the earnout revenue condition was not satisfied the value of
this warrant was expensed to the P&L.
Reconciliation of share-based payment expense
December 2019 December
2018
$000's $000's
2009 Plan
Options 90 564
RSU's 152 683
2017 Plan
Options 152 310
RSU's 5,077 1,792
Total share-based expense (excluding national
insurance) 5,471 3,349
National insurance accrued (see Note 2) 1,067 1,244
National insurance paid in the year 233
Total share-based payment charge 6,771 4,593
22. Dividends
No dividends were declared or paid in any of the periods.
23. Cash generated from operations
Year ended Year ended
31 December 31 December
2019 2018
$'000 $'000
Profit /(loss) after tax 355 (4,333)
Add back:
Tax (credit) /expense (1,651) 1,339
Amortisation of intangible assets 2,285 2,581
Depreciation of property, plant and equipment 2,176 213
Loss on disposal of property, plant and equipment - 1
Finance income (56) (53)
Finance expense (includes interest on lease liabilities) 468 631
Exchange loss 64 2,376
Employer taxes on stock option accrual 1,067 260
Adjustment for previous year cash items (4,048) -
Impairment of intangible assets - 164
Share based payment expense 5,471 3,350
Cash from Operations before working capital changes 6,131 6,529
Decrease in trade and other receivables 11,047 4,336
(Increase)/ Decrease in trade and other payables (8,127) 2,877
Cash generated from operations 9,051 13,742
24. Related party transactions
In 2019, the Company has been remitted $151,336,427 (2018:
$168,713,114 from 3 suppliers) in net payments from 4 suppliers who
are shareholders of the Company. At December 31, 2019, the Company
had receivables of $20,459,254 (2017: $22,699,237) 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 2019 and 2018.
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 2019 and
2018.
27. Business acquisition
On 1st January 2019 the Group acquired a 100% interest in the
Danal Inc. Group from Danal Korea and other shareholders.
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). Subsequent to the completion of the
acquisition, Danal Inc was renamed Boku Identity Inc.
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, $1.0 million in cash and a five year warrant
exercisable at $1.8352 share price. Included in the 26.7 million
shares are 5 million shares that were held back until certain
conditions in the purchase agreement were met.
Details of the purchase consideration of Danal Inc., the net
assets acquired, and goodwill are as follows:
$'000
Cash consideration 1,000
Equity consideration 24,077
Total purchase price 25,077
Trade and other receivables* 9,299
Cash and cash equivalents 258
Prepaid expenses and other assets 444
Property, plant and equipment ** 641
Deposits held 71
Trade and other payables*** (11,112)
Developed Technology 1,918
Goodwill 23,558
Fair value of net assets acquired 25,077
*The trade and other receivable include $8.5m receivable from
Danal Korea, which was received in June 2019
** The property, plant and equipment include $620,909
right-of-use assets.
*** Trade and other payables include $8.5m bank loan, which was
repaid in June 2019 and $620,909 lease liabilities.
Deferred tax liabilities arising as a result of the acquisition
are fully offset by deferred tax assets, resulting in a net
deferred tax asset. The net deferred tax asset has not been
recognised as it is not considered to be currently recoverable
within a reasonable period of time.
The equity consideration included an earn-out warrant and
earn-out payment valued at $25k.
The transaction will help the company to widen its addressable
target market, beyond digitally downloaded content and into broader
m-commerce.
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 as well as
through a material Identity sales pipeline.
The cost of acquisition has been expensed during 2018 and have
been included in exceptional costs in the statement of
comprehensive income for the twelve month ending 31 December
2018.
28. Post balance sheet events
There have been no material post balance sheet events.
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 KKPBNBBKBONB
(END) Dow Jones Newswires
March 26, 2020 03:00 ET (07:00 GMT)
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