TIDMSBIZ
RNS Number : 7349L
SimplyBiz Group PLC (The)
10 September 2019
10 September 2019
The SimplyBiz Group plc
("SimplyBiz", the "Company" or the "Group")
Half-year results for the six months ended 30 June 2019
Strong growth in revenue and adjusted EBITDA
SimplyBiz (AIM: SBIZ), the independent provider of compliance
and business services to financial advisers and financial
institutions in the UK, today announces its unaudited results for
the six months ended 30 June 2019.
Financial highlights:
-- Group Revenue up 20% to GBP29.1m (H1 FY18: GBP24.2m)
-- Operating profit up to GBP3.2m (H1 FY18: GBP1.3m)
-- Adjusted EBITDA*(1) up 30% to GBP6.8m (H1 FY18: GBP5.2m)
-- Adjusted EBITDA*(1) margin increased to 23.4% (H1 2018: 21.6%)
-- Adjusted profit after tax*(1) increased 41% to GBP4.9m
-- Adjusted earnings per share (EPS) *(1) increased by 8% to 5.52p
-- Group net debt of GBP30.1m at 30 June 2019
-- Interim dividend of 1.41p per share
Operational highlights:
-- Acquisition and integration of Defaqto increases customer
base to almost 6,000 intermediary firms and over 350 financial
institutions
-- Centra financial planning software surpasses 3,000 users, up from 2,300 at 31 December 2018
-- Mortgage completions increased by 19% to GBP7.4bn in H1 2019
-- Important contract wins in both divisions including Nucleus and Vanguard.
-- Awarded Service Company of the Year by both Money Marketing and Professional Adviser
Matt Timmins, Joint CEO of The SimplyBiz Group plc, said:
"The Group has delivered a positive first half performance, and
we are delighted to have completed the acquisition of Defaqto in
March 2019. The integration of the business is progressing well and
in line with management expectations.
"As well as delivering the acquisition of Defaqto, which has
made a strong contribution to revenue and profit, we have continued
to grow the organic*(2) revenues and adjusted EBITDA of the Group,
with increasing average revenues per member, an expanded membership
base, and an enlarged service offering more than offsetting the
impact of a slowdown in the housing market.
"The Board is pleased to declare an interim dividend of 1.41
pence per share in line with our dividend policy and remains
confident of delivering against full year earnings
expectations.
"I would like to thank everyone in the enlarged SimplyBiz team
for their dedication in delivering a successful first half of
2019."
*(1) Adjusted EBITDA is earnings before interest, tax,
depreciation, amortisation of intangible assets arising on
acquisition and operating exceptional costs. Adjusted profit before
and profit after tax exclude operating exceptional costs,
exceptional finance charges and amortisation of intangible assets
arising on acquisition. In the current year the measures have also
been adjusted for the impact of adopting IFRS 16. A reconciliation
of these metrics to GAAP measures is provided in note 5. Adjusted
earnings per share is calculated based on adjusted profit after
tax, as shown in note 11.
*(2) Organic growth is defined as the year on year increase in a
financial metric, excluding the impact of acquisitions.
For further information please contact:
SimplyBiz via Instinctif Partners
Matt Timmins (Joint Chief Executive
Officer)
Neil Stevens (Joint Chief Executive
Officer)
Gareth Hague (Group Finance Director)
Zeus Capital (Nominated Adviser
and Joint Broker) +44 (0) 20 3829 5000
Martin Green
Andrew Jones
Pippa Hamnett
Peel Hunt (Joint Broker)
Guy Wiehahn
Andrew Buchanan
Rishi Shah +44 (0) 20 7418 8900
Instinctif Partners +44 (0)20 7457 2831 /
SimplyBiz@instinctif.com
Catherine Wickman
Katie Bairsto
Notes to editors
Serving almost 6,000 intermediary firms, The SimplyBiz Group plc
is an independent provider of compliance, distribution and
technology services to financial intermediaries and financial
institutions
The Group provides compliance and business services to over
3,700 firms of financial advisers, including directly authorised
IFAs, directly authorised mortgage advisers, workplace consultants
and directly authorised consumer credit brokers. With the
acquisition of Defaqto, the Group also provides a fintech platform
to 2,300 firms, comprising 8,500 advisers.
Through its Distribution Channels, the Group provides marketing
and promotion, product panelling and co-manufacturing services to
more than 350 financial institutions. Defaqto also provides
independent ratings of 21,000 financial products and funds,
licenced by 230 brands.
For more information, please visit:
www.simplybizgroup.co.uk/
Analyst presentation
An analyst briefing is being held at 10.30am on 10 September
2019 at the offices of Instinctif Partners, 65 Gresham Street,
London, EC2V 7NQ. To register your attendance please contact
SimplyBiz@instinctif.com
JOINT CHIEF EXECUTIVES' STATEMENT
Overview
During the six months to 30 June 2019, the Group delivered a
strong operational and financial performance, comprising the
acquisition of Defaqto and continued organic growth.
Revenue growth of 20.2% to GBP29.1m included a GBP4.2m revenue
contribution from the acquisition of Defaqto (from 21 March 2019).
The headline organic revenue growth of 3.0% included double-digit
growth in several key income lines that deliver strong and
sustainable future revenue streams, notably software licence
income, membership income and marketing service agreements, which
more than offset the reduced business received by the Group's Panel
Manager and Surveying businesses as a result of an industry -wide
reduction in the volume of housing transactions.
Adjusted EBITDA increased by GBP1.6m to GBP6.8m, representing a
strong and sustainable 23.4% (2018: 21.6%) margin. The increase in
EBITDA margin reflects the inclusion of Defaqto's higher margin
revenues, as well as a continuation in the margin growth of the
organic business (defined as the Group prior to the impact of the
current year acquisition).
Divisional Performance
The Intermediary Services Division provides compliance and
business services to over 3,700 individual intermediary firms
through a comprehensive membership model. Our members, including
Financial advisers, mortgage advisers, and consumer credit broker
firms, conduct regulated activities that require authorisation and
regulation by the FCA.
Membership fee income in the organic business increased by 12.9%
to GBP5.1m, compared to H1 2018, with average membership fees
growing by 5.3% to GBP221.26 per month as at 30 June 2019 (31
December 2018: GBP210.18). Membership numbers at 30 June 2019 were
3,704, as compared to 3,629 at 30 June 2018 and 3,726 at 31
December 2018. Since the IPO, the Group has pursued a strategy of
focussing on the recruitment of larger firms, and while the number
of firms joining has remained consistent with prior periods, and
the average income per member has increased as a result of this
strategy, the Group has also experienced an increase in the number
of customers lost during the period, particularly in the nascent
Consumer Credit market.
Increased regulation is a tailwind for our business. New
regulation creates opportunities for the Group to engage and
provide support to its members through additional paid-for service
offerings. Additional services income increased by 9.0% to GBP2.4m
(GBP2.2m in H1 2018). To further enhance our service proposition,
the Group invested in expanding the Compliance and Policy teams
during H2 2018 and H1 2019, ensuring that the Group is well placed
to support members through the impending Senior Managers &
Certification Regime ("SM&CR") and beyond.
In March 2018, the Group launched 'Centra', an end-to-end
financial planning system in partnership with Defaqto, that brings
together a number of existing advisor software tools into one
integrated service. Strong growth in the number of Centra users has
continued, with over 3,000 users creating over GBP4bn of annualised
run rate of client recommendations through our software platform.
As well as providing our members with industry leading software,
and enabling face to face engagement with the members through
training workshops, the introduction of Centra has continued to
support the Group's software licence income, whereby the Group is
able to provide its members with a customised version of the
sector's leading third party specialist practice management and
Customer Relationship Management ('CRM') applications at attractive
rates. Software licence users increased from 3,504 at 30 June 2018
to 4,106 (30 June 2019), contributing to a 25.6% increase in
software licence income from H1 2018.
Revenues in Zest Technologies, the Group's employee benefits
software solution, reduced from GBP2.6m in H1 2018 to GBP1.7m in H1
2019, with the prior period including GBP0.9m of 'discontinuing'
revenues from customers not moving over to the new platform. Since
the launch of the Zest platform in November 2017, feedback has been
very positive and the Group has seen positive recent momentum in
securing several new contracts with companies such as Unum, Taylor
Wimpey and Aviva.
The Distribution Channels Division continues to provide a highly
effective, efficient distribution channel for c.135 financial
institutions to reach an otherwise fragmented independent
intermediary sector. The Group generates revenue from product
providers when it successfully engages its membership in the
channels offered.
The Group's extensive events programme has been developed to
cater for the needs of its members and allows product providers to
deliver engaging information that will enhance advisers' knowledge
and continue to improve customer outcomes. In addition to events
and seminars, the Group also distributed a broad suite of
electronic and printed materials, delivering product provider brand
and product communications to our relevant members. Income in the
period from marketing service agreements with our product provider
clients increased by 17.1% to GBP3.6m, from GBP3.0m in H1 2018.
The Group has launched its Insights product during the period,
and the interest amongst fund managers has been positive, with the
first contract signed in July 2019, and several others well
progressed.
SimplyBiz Mortgages is the UK's third largest mortgage club,
with over 1,700 members benefitting from access to a dedicated
support service and preferred products from key lenders. Mortgage
completions through the club increased by 18.6% to GBP7.4bn in H1
2019, resulting in an 8.8% increase in income to GBP1.6m.
The slowdown in housing transactions in the UK reduced the
volume of business received by the Group's Panel Manager and
Surveying businesses, decreasing income by cGBP0.6m compared to H1
2018. As a result of our flexible operating model, the Group was
able to mitigate the impact of the reduced revenue to less than a
GBP0.1m decline in EBITDA from this area. The Group's operating
model retains further capacity to mitigate reductions in volume,
should the market worsen.
During the period, assets under management within the Group's
packaged investment service Verbatim, increased from GBP600m at 31
December 2018, to GBP640m at 30 June 2019, generating revenues of
GBP1.1m, a 14.4% increase from H1 2018.
Defaqto contributed GBP4.2m of revenue in the three months post
acquisition, with GBP1.4m from its Ratings product, GBP1.4m from
the Matrix and Compare products and GBP1.2m from the 'Engage'
software platform and data services. The majority of Ratings
products are sold in February each year, with revenue recognised
over the following 12-month period, providing strong future revenue
visibility.
Strategy
The Group's growth strategy focuses on both organic and
acquisitive growth. Organic growth is expected to be driven by
growth in the Group's service offering to members, its average
revenue per member and its membership base. The integration of
Defaqto and the Group's enhanced ability to provide products and
services through a scalable, technology led platform, will help to
further improve the Group's strong and sustainable EBITDA
margin.
Management will also continue to pursue selective acquisitions
to enhance the scale of the Group, building on its proven ability
to execute and integrate acquisitions.
FINANCIAL REVIEW
Six months ended June 2019 June 2019 June 2018 June 2018
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ---------- ---------- ---------- ----------
Group Revenue 29,086 24,207
Operating Expenses (21,091) (18,839)
Impact of IFRS 16 accounting (385) -
standard *
Share option charges (307) (132)
Amortisation of development (490) -
expenditure
Underlying operating expenses (22,273) (18,971)
Adjusted EBITDA 6,813 5,236
Adjusted EBITDA margin % 23.4% 21.6%
Operating costs of an exceptional
nature (2,997) (3,790)
Impact of IFRS 16 accounting 385 -
standard *
EBITDA 4,201 1,446
Depreciation (133) (129)
Depreciation of lease asset (321) -
Amortisation of other intangible
assets (554) (62)
Minority interest (11) -
Net finance costs (521) (2,410)
Profit / (loss) before tax 2,661 (1,155)
Taxation (1,234) (570)
Profit / (loss) after tax 1,427 (1,725)
Adjusted EPS 5.52p 5.12p
Revenue growth (%) 20.2%
Adjusted EBITDA growth (%) 30.1%
*Added back to current year, to provide comparability to prior
year operating expenses and adjusted EBITDA.
Revenue
Revenue grew by 20.2% to GBP29.1m, reflecting a GBP4.2m
contribution from the acquisition of Defaqto (from 21 March 2019)
and GBP0.7m (3.0%) of organic growth.
The Distribution Channels Division contributed 60% of revenue in
the period, compared to 54% in H1 2018, as a result of the Defaqto
acquisition.
Adjusted EBITDA and Adjusted EBITDA margin
Underlying operating expenses exclude costs of an exceptional
nature, depreciation (of tangible fixed assets and lease assets),
amortisation of assets arising from acquisitions and minority
interest charges. Given the inclusion of Defaqto and a second
reporting period post IPO, the calculation of adjusted EBITDA has
been amended to include both share option charges and amortisation
of development costs. To aid comparability in the current year, the
Group has also excluded the beneficial impact on conversion to IFRS
16 Leases, given that there has been no restatement of the prior
year on transition.
Underlying operating expenses increased by GBP3.3m (17.4%) to
GBP22.3m, as compared to H1 2018. Defaqto contributed GBP2.5m
(including GBP0.2m of amortisation of development costs) of the
increase, with organic growth in operating expenses of 4.2%.
Reductions in operating expenses within valuation services and
employee benefit software, both attached to reducing revenues, have
been offset by increased software licence costs aligned to the
increased revenues, investment in our compliance proposition and
the inclusion of share option charges and amortisation of
development costs in this metric. Excluding the latter two items,
organic operating expenses increased by 2.0%.
Adjusted EBITDA is used by management as a key measure of
financial performance to understand the underlying performance of
the Group. Adjusted EBITDA growth of GBP1.6m (30.1%) included
GBP0.3m of organic growth (5.0%), and GBP1.9m from the
post-acquisition trading of Defaqto, offset by the inclusion of
share-based payments and amortised development expenditure in this
measure.
Operating costs of an exceptional nature
Operating costs of an exceptional nature include GBP2.5m of
professional fees in respect of the equity raise and acquisition of
Defaqto, GBP0.4m of loss of office costs and GBP0.1m of
restructuring costs.
Share based payments
Share based payment charges of GBP0.3m (H1 2018: GBP0.1m) have
been recognised in respect of the options in issue. The increase in
the charge reflects the full period of issue in H1 2019 and
additional Save as You Earn options issued in H2 2018.
Financial income and expense
Finance expense in H1 2018 included one off charges of GBP1.6m
on early settlement of the retired debt and share warrant, held
prior to the IPO.
Taxation
The tax charge for the period has been accrued using the tax
rate that would be applicable to the total earnings chargeable to
tax. The tax charge includes a deferred tax credit of GBP0.1m, as
the deferred tax liability which arose on the intangible assets
acquired from the Defaqto deal begins to be released into the
P&L.
Earnings per share
Earnings per share has been calculated based on the weighted
average number of shares in issue in both periods.
Dividend
The Group remains committed to the dividend policy set out at
IPO in its Admission Document of paying one third of retained
profits as a dividend, payable one third at interim and two thirds
as a final dividend. The Board declares an interim dividend of
1.41p per share in respect of the trading for the 12-month period
to 31 December 2019. The dividend will be paid on 24 October 2019,
to Shareholders on the register on 20 September 2019, with an
ex-dividend date of 19 September 2019.
Cash flow and Closing Net Cash
As at 30 June 2019, the Group has net debt of GBP30.1m, compared
to GBP31.1m at the point of the Defaqto acquisition and GBP6.2m of
net cash at 31 December 2018. Since the acquisition of Defaqto, the
Group has generated free cash flow of GBP4.0m, paid the scheduled
FY18 final dividend of GBP1.6m and repaid GBP3.0m of the Revolving
Credit Facility in June 2019.
OUTLOOK
Trading has continued in line with the Board's expectations,
since the end of the period. The Group remains on track to achieve
market expectations for earnings for the full year.
Matt Timmins and Neil Stevens
Joint Chief Executive Officers
Consolidated statement of profit or loss and other comprehensive
income
for the six months ended 30 June 2019
Note 6 months 6 months
ended ended
30 June 2019 30 June
2018
GBP000 GBP000
Revenue 7 29,086 24,207
Operating expenses 8 (25,350) (22,890)
Amortisation of other intangible
assets 12 (554) (62)
Operating profit 3,182 1,255
Finance income 9 41 41
Finance costs 9 (562) (2,451)
Profit / (loss) before
taxation 2,661 (1,155)
Taxation 10 (1,234) (570)
Profit / (loss) for the
financial period 1,427 (1,725)
Profit / (loss) attributable
to:
Owners of the Company 1,438 (1,725)
Non-controlling interests (11) -
1,427 (1,725)
Earnings per share - basic 11 1.62p (2.56p)
Earnings per share - diluted 11 1.60p (2.55p)
There are no items to be included in other comprehensive income
in the current or preceding period.
Consolidated Statement of Financial Position
As at 30 June 2019
Audited
Unaudited Unaudited 31 December
Note 30 June 2019 30 June 2018 2018
GBP000 GBP000 GBP000
Assets
Non-current assets
Property, plant & equipment 492 439 375
Lease asset 4 1,511 - -
Intangible assets 12 106,644 23,111 23,137
Total non-current assets 108,647 23,550 23,512
Current assets
Trade and other receivables 11,023 9,065 8,712
Deferred tax asset 116 34 116
Cash and cash equivalents
-unrestricted 11,010 10,691 13,291
Cash and cash equivalents
- restricted 545 545 545
Total current assets 22,694 20,335 22,664
Total assets 131,341 43,885 46,176
Equity and liabilities
Equity attributable to the
owners of the Company
Share capital 14 968 765 765
Share premium account 14 73,148 36,791 36,791
Other reserves 15 (60,749) (61,255) (61,067)
Retained earnings 49,939 46,257 50,081
Total equity 63,306 22,558 26,570
Liabilities
Current liabilities
Financial liabilities - borrowings 13 - 10,010 7,433
Trade and other payables 18,176 9,130 10,254
Income tax liabilities 1,315 446 496
Total current liabilities 19,491 19,586 18,183
Non-current liabilities
Financial liabilities - borrowings 13 41,615 - -
Trade and other payables - 1,125 725
Lease liability 4 1,450 - -
Deferred tax liabilities 5,479 616 698
Total non-current liabilities 48,544 1,741 1,423
Total liabilities 68,035 21,327 19,606
Total equity and liabilities 131,341 43,885 46,176
Consolidated statement of changes in equity
Share Share Other Retained Total
capital premium reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 January 2018 10 52,544 (61,387) 2,982 (5,851)
Total comprehensive income for
period - - - (1,725) (1,725)
Transactions with owners, recorded
directly in equity
Issue of share capital 176 29,826 - - 30,002
Bonus issue of shares 579 (579) - - -
Transfer to retained earnings - (45,000) - 45,000 -
Share option charge - - 132 - 132
Total contributions by and distribution
to owners 755 (15,753) 132 45,000 30,134
Balance at 30 June 2018 765 36,791 (61,255) 46,257 22,558
Total comprehensive income for
period - - - 4,574 4,574
Transactions with owners, recorded
directly in equity
Share option charge - - 188 - 188
Dividends - - - (750) (750)
Total contributions by and distribution
to owners - - 188 (750) (562)
Balance at 31 December 2018 765 36,791 (61,067) 50,081 26,570
Total comprehensive income for
period - - - 1,427 1,427
Transactions with owners, recorded
directly in equity
Issue of share capital 203 36,357 - - 36,560
Dividends - - - (1,569) (1,569)
Share option charge - - 307 - 307
Minority Interest - - 11 - 11
Total contributions by and distribution
to owners 203 36,357 318 (1,569) 35,309
Balance at 30 June 2019 968 73,148 (60,749) 49,939 63,306
Consolidated statement of cash flows
for the 6 months ended 30 June 2019
6 months 6 months
ended ended
30 June 30 June
2019 2018
GBP000 GBP000
Net cash generated from / (used in) operating
activities (note 17) 2,214 (530)
Cash flows from investing activities
Finance income 41 41
Purchase of property, plant and equipment (42) (46)
Development expenditure (930) (437)
Acquisitions, net of cash received (47,099) (2,333)
Net cash used in investing activities (48,030) (2,775)
Cash flows from financing activities
Finance costs (475) (922)
Loan repayments made (27,676) (36,193)
Drawdown of loans 37,500 10,093
Transaction costs related to borrowing (420) -
Payment of lease liability (385) -
Issue of share capital 36,560 30,020
Dividends paid (1,569) -
Net cash generated from financing activities 43,535 2,998
Net decrease in cash and cash equivalents (2,281) (307)
Cash and cash equivalents at start of
period 13,836 11,543
Cash and cash equivalents at end of period 11,555 11,236
NOTES TO THE INTERIM FINANCIAL INFORMATION
1. Reporting entity
The SimplyBiz Group plc is a company domiciled in the UK. These
condensed consolidated interim financial statements ('interim
financial statements') as at and for the six months ended 30 June
2019 comprise the Company and its subsidiaries (together referred
to as 'the Group'). The Group is primarily involved in the
provision of compliance and business services to financial
advisers, including directly authorised IFAs, directly authorised
mortgage advisers, workplace consultants and directly authorised
consumer credit brokers. It also provides marketing and promotion,
product panelling and co-manufacturing services to more than 135
financial institutions, through access to its membership.
2. Basis of accounting
These interim financial statements have been prepared in
accordance with IAS 34 Interim financial reporting and should be
read in conjunction with the Group's last annual consolidated
financial statements as at and for the year ended 31 December 2018
('last annual financial statements'). They do not include all of
the information required for a complete set of IFRS financial
statements. However, selected explanatory notes are included to
explain events and transactions that are significant to an
understanding of the Group's financial position and performance
since the last annual financial statements.
The financial information set out in these interim financial
statements for the six months ended 30 June 2019 and the
comparative figures for the six months ended 30 June 2018 are
unaudited. The comparative financial information for the period
ended 31 December 2018 in this interim report does not constitute
statutory accounts for that period under 435 of the Companies Act
2006.
Statutory accounts for the period ended 31 December 2018 have
been delivered to the Registrar of Companies. The auditors' report
on the accounts for 31 December 2018 was unqualified, did not draw
attention to any matters by way of emphasis, and did not contain a
statement under 498(2) or 498(3) of the Companies Act 2006.
The interim financial statements comprise the financial
statements of the Group and its subsidiaries at 30 June 2019.
Subsidiaries are consolidated from the date of acquisition, being
the date on which the Group obtained control, and continue to be
consolidated until the date when such control ceases.
The interim financial statements incorporate the results of
business combinations using the acquisition method. In the
consolidated balance sheet, the acquiree's identifiable assets,
liabilities and contingent liabilities are initially recognised at
their fair values at the acquisition date.
This is the first set of the Group's financial statements in
which IFRS 16 has been applied. Changes to significant accounting
policies are described in note 4.
These interim financial statements were authorised for issue by
the Company's Board of Directors on 5 September 2019.
3. Use of Judgements and Estimates
In preparing these interim financial statements, management has
made judgements and estimates that affect the application of
accounting policies and the reported amounts of assets and
liabilities, income and expense. Actual results may differ from
these estimates.
The significant judgements made by management in applying the
Group's accounting policies and the key sources of estimation
uncertainty were the same as those described in the last annual
financial statements, except for the new significant judgements
related to lessee accounting under IFRS 16, as described in note
4.
4. Changes in significant accounting policies
Except as described below, the accounting policies applied in
these interim financial statements are the same as those applied in
the last annual financial statements. The policy for recognising
and measuring income taxes in the interim period is described in
note 10. The changes in accounting policies are also expected to be
reflected in the Group's consolidated financial statements as at
and for the year ended 31 December 2019.
Amortisation of other intangible assets is charged to the
statement of profit or loss on a straight-line basis over their
estimated useful lives. The basis for choosing these useful lives
is with reference to the period over which they can continue to
generate value for the Group. The estimated useful lives have been
updated in the period to be:
-- Brand 15 years
-- Intellectual property 8 - 15 years
The Group has initially adopted IFRS 16 Leases from 1 January
2019. A number of other new standards are effective from 1 January
2019, but they do not have a material effect on the Group's
financial statements.
IFRS 16 introduced a single, on-balance sheet accounting model
for lessees. As a result, the Group, as a lessee, has recognised
right of use assets representing its right to use the underlying
asset and lease liabilities representing it obligation to make
lease payments. The Group has applied IFRS 16 using the modified
retrospective approach, under which the cumulative effect of
initial application is recognised in retained earnings at 1 January
2019. Accordingly, the comparative information presented for 2018
has not been restated - i.e. it is presented, as previously
reported, under IAS 17 and related interpretations. The details of
the change in accounting policy is described below.
Definition of a lease
Previously, the Group determined at contract inception whether
an arrangement was or contained a lease under IFRIC 4 Determining
whether an arrangement contains a lease. The Group now assesses
whether a contract is or contains a lease based on the new
definition of a lease. Under IFRS 16, a contract is, or contains, a
lease if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for
consideration.
On transition to IFRS 16, the Group elected to apply the
practical expedient to grandfather the assessment of which
transactions are leases. It applied IFRS 16 only to contracts that
were previously identified as a lease. Contracts that were not
identified as leases under IAS 17 and IFRIC 4 were not reassessed.
Therefore, the definition of a lease under IFRS 16 has been applied
only to contracts entered into or changed on or after 1 January
2019.
As a lessee
The Group leases many assets, including predominately properties
and vehicles. As a lessee, the Group previously classified leases
as operating or finance leases based on its assessment of whether
the lease transferred substantially all of the risks and rewards of
ownership. Under IFRS 16, the Group recognises right of use assets
and lease liabilities for most leases - i.e. these leases are
on-balance sheet. The Group has assessed the exemption allowable to
low-value assets and considered that no categories of asset meet
these criteria.
The Group presents right of use assets that do not meet the
definition of investment property in 'property, plant and
equipment', the same line item as it presents underlying assets of
the same nature that it owns. The carrying amounts of right-of-use
assets are as below:
Office Properties Vehicles Total
equipment
GBP000 GBP000 GBP000 GBP000
At 1 January 2019 37 360 169 566
At 30 June 2019 78 1,163 270 1,511
The Group presents lease liabilities separately on the face of
the Balance Sheet.
Significant accounting policies
The Group recognises a right of use asset and a lease liability
at the lease commencement date. The right of use asset is initially
measured at cost, and subsequently at cost less any accumulated
deprecation and impairment losses, and adjusted for certain
remeasurements of the lease liability.
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 Group incremental
borrowing rate. Generally, the Group uses its incremental borrowing
rate as the discount rate.
The lease liability is subsequently increased by the interest
cost on the lease liability and decreased by lease payments made.
It is remeasured when there is a change in future lease payments
arising from a change in an index or rate, a change in the estimate
of the amount expected to be payable under residual value
guarantees, or as appropriate, changes in the assessment of whether
a purchase or an extension option is reasonably certain to be
exercised or a termination option is reasonably certain not to be
exercised.
The Group has applied judgement to determine the lease term for
some lease contracts in which it is a lessee that include renewal
options. The assessment of whether the Group is reasonably certain
to exercise such options impacts the lease term, which
significantly affects the amount of lease liabilities and right of
use assets recognised.
Transition
Previously, the Group classified property leases as operating
leases under IAS 17. The leases run for differing periods and some
leases include options to renew the lease and / or rent-free
periods.
At transition, for leases classified as operating leases under
IAS 17, lease liabilities were measured at the present value of the
remaining lease payments, discounted at the Group's incremental
borrowing rate as at 1 January 2019. Right of use assets are
measured at an amount equal to the lease liability, adjusted by the
amount of any prepaid or accrued lease payments.
The Group used the following practical expedients when applying
IFRS 16 to leases previously classified as operating leases under
ISA 17:
-- Excluded initial direct costs from measuring the right of use
asset at the date of initial application.
-- Used hindsight when determining the lease term if the
contract contains options to extend or terminate the lease.
On transition to IFRS 16, financial commitments of GBP1,246,000
as at 31 December 2018, previously disclosed, were considered to
not meet the IFRS 16 criteria and therefore not recognised as right
to use assets.
Impacts on financial statements
As a result of initially applying IFRS 16, in relation to the
leases that were previously classified as operating leases, the
Group recognised GBP566,000 of right of use assets and GBP566,000
of lease liabilities, after deduction of GBP5,000 discounting
impact at the incremental borrowing rate of 3.1%. On acquisition of
Defaqto the Group recognised GBP206,000 of right of use assets and
lease liabilities on the opening balance sheet, and has
subsequently recognised GBP1,060,000 in respect of new lease
arrangements.
The Group has also recognised depreciation and interest costs,
instead of operating lease expenses. During the six months ended 30
June 2019, the Group recognised GBP321,000 of depreciation charges
and GBP3,000 of interest costs from these leases.
5. Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Joint Chief Executives' statement.
The Directors have considered these factors, the likely
performance of the business and possible alternative outcomes and
the financing activities available to the Group. Having taken all
of these factors into consideration, including the impact on
covenants relating to the external borrowing facility, the
Directors confirm that forecasts and projections indicate that the
Group and its Parent Company have adequate resources for the
foreseeable future and at least for the period of 12 months from
the date of signing the half year report. Accordingly, the
financial information has been prepared on the going concern
basis.
6. Reconciliation of GAAP to Non-GAAP measures
The Group uses a number of 'Non-GAAP' figures as comparable key
performance measures, as they exclude the impact of one off items
that are not considered part of on-going trade.
Adjusted EBITDA is calculated as follows:
6 months 6 months
ended 30 ended 30
June 2019 June 2018
GBP000 GBP000
Operating profit 3,182 1,255
add back:
Depreciation 133 129
Depreciation of IFRS 16 lease asset 321 -
Impact of IFRS 16 Leases accounting (385) -
Amortisation of other intangible assets
(note 12) 554 62
Operating costs of exceptional nature
(note 8) 2,997 3,790
Minority interest 11 -
Adjusted EBITDA 6,813 5,236
The impact of applying IFRS 16 has been adjusted for to provide
comparability to the prior year, given that the standard has been
applied under the modified retrospective approach.
Adjusted profit before tax is calculated as follows:
6 months 6 months
ended 30 ended 30
June 2019 June 2018
GBP000 GBP000
Profit / (loss) before tax 2,661 (1,155)
add back:
Operating costs of exceptional nature
(note 8) 2,997 3,790
Finance costs of exceptional nature
(note 9) - 1,635
Impact of IFRS 16 Leases accounting,
net of depreciation (64) -
Amortisation of other intangible assets
(note 12) 554 62
Minority interest 11 -
Adjusted profit before tax 6,159 4,332
Finance costs of an exceptional nature in 2018 represent the
one-off costs incurred on settlement of the previous loan facility
and associated share warrant, including the accelerated release of
capitalised arrangement fees.
Adjusted profit after tax is calculated as follows:
6 months 6 months
ended 30 ended 30
June 2019 June 2018
GBP000 GBP000
Profit / (loss) after tax 1,427 (1,725)
add back:
Operating costs of exceptional nature
(note 8) 2,997 3,790
Finance costs of exceptional nature,
net of tax (note 9) - 1,324
Impact of IFRS 16 Leases accounting,
net of depreciation and tax (51) -
Amortisation of other intangible assets
(note 12) 554 62
Minority interest 11 -
Deferred tax credit on other intangible
assets (83) -
Adjusted profit after tax 4,855 3,451
Finance costs of an exceptional nature, net of tax, represent
the one-off costs incurred on settlement of the previous loan
facility and associated share warrant, including the accelerated
release of capitalised arrangement fees in 2018.
7. Segmental Information
During the year, the Company was domiciled in the UK and as such
all revenue is derived from external customers in the United
Kingdom.
The Group has two operating segments, which are considered to be
reportable segments under IFRS. The two reportable segments
are:
-- Intermediary Services; and
-- Distribution Channels.
Intermediary Services provides compliance and regulation
services to individual financial intermediary Member Firms,
including directly authorised IFAs, directly authorised mortgage
advisers, workplace consultants and directly authorised consumer
credit brokers.
Distribution Channels provides marketing and promotion, product
panelling and co-manufacturing services to financial institutions.
This division of the Group also undertakes survey panelling and
surveying work for mortgage lenders. Through the acquisition of
Defaqto, this operating segment also now provides independent
ratings of financial products and data services to financial
institutions.
The reportable segments are strategic business units that offer
different products and services. Operating segments are reported in
a manner consistent with the internal reporting produced to the
chief operating decision makers.
The tables below present the segmental information for the
periods ended 30 June 2019 and 2018.
6 months 6 months
ended 30 ended 30
June June
2019 2018
GBP000 GBP000
Intermediary Services
Revenue 11,599 11,185
Operating expenses, before amortisation and
depreciation (9,691) (8,835)
Intermediary Services (pre operating exceptional
costs) 2,387 2,350
Operating costs of exceptional nature (1,195) (1,751)
Intermediary Services 1,192 599
Distribution Channels
Revenue 17,487 13,022
Operating expenses, before amortisation and
depreciation (11,400) (10,004)
Distribution Channels (pre operating exceptional
costs) 5,608 3,018
Operating costs of exceptional nature (1,802) (2,039)
Distribution Channels 3,806 979
Divisional performance (after operating exceptional
costs) 4,998 1,578
Amortisation of development expenditure (490) -
Amortisation of other intangible assets (554) (62)
Depreciation (133) (129)
Depreciation of lease asset (321) -
Share option charges (307) (132)
Minority Interest (11) -
Operating profit 3,182 1,255
The Defaqto group has been run as one operating segment and
whilst its customer base fall into the Group's reporting segments,
historical performance was not measured in this way and costs could
not be appropriately allocated to each customer base. Therefore,
since the majority of the Defaqto group revenues fall within the
Distribution customer base the performance has been reported in the
Distribution Channel reporting segment. This includes revenues of
GBP1.2m relating to Intermediary Services.
In determining the trading performance of the operating segments
central costs are allocated based on the divisional contribution of
revenue to the Group.
The statement of financial position is not analysed between
reporting segments for management and the chief decision-makers
consider the Group statement of financial position as a whole.
No customer has generated more than 10% of total revenue during
the period covered by the financial information.
8. Operating Profit
Operating profit for the period has been arrived at after
charging:
6 months ended 6 months ended
30 June 2019 30 June 2018
GBP000 GBP000
Depreciation of tangible assets 133 129
Depreciation of lease asset 321 -
Operating costs of exceptional nature:
Restructuring costs 59 65
Professional fees for acquisitions 2,549 120
Loss of office expense 389 -
Fees in relation to IPO process - 3,605
2,997 3,790
Professional fees for acquisitions relate to the purchase of
Defaqto in 2019, and Landmark Surveyors in 2018. Loss of office
expense relates to the redundancy of a senior employee, and
restructuring costs in 2018 and 2019 relate to a programme of
restructuring in a single legal entity. Fees in relation to the IPO
process include professional fees incurred on listing on AIM in
April 2018.
9. Finance Expense and Income
6 months ended 6 months ended
30 June 2019 30 June 2018
GBP000 GBP000
Finance Expense
Bank interest payable (559) (816)
Finance charge on lease liability (3) -
Fair value loss on financial instruments - (345)
Accelerated arrangement fees on settlement
of previous loan - (775)
Accelerated implied interest charge on settlement
of previous loan - (515)
(562) (2,451)
Finance Income
Bank interest receivable 41 41
41 41
Net finance expense (521) (2,410)
10. Taxation
6 months ended 6 months ended
30 June 2019 30 June 2018
GBP000 GBP000
Current tax charge 1,291 570
Deferred tax credit (57) -
Tax charge for the period 1,234 570
Current income tax expense is recognised at an amount determined
by multiplying the profit / (loss) before tax for the interim
reporting period by management's best estimate of the
weighted-average annual income tax rate for the full financial
year, adjusted for the tax effect of certain items recognised in
full in the interim period. As such, the effective tax rate in the
interim financial statements may differ from management's estimate
of the effective tax rate for the annual financial statements.
11. Earnings per share
Basic Earnings Per Share ('EPS') 6 months 6 months
ended ended
30 June 2019 30 June 2018
GBP000 GBP000
Profit / (loss) attributable to equity
shareholders of the parent 1,427 (1,725)
Weighted average number of shares
in issue 87,867,713 67,352,894
Basic profit / (loss) per share (pence) 1.62p (2.56p)
Earnings per share has been calculated based on the weighted
average number of shares in issue in both periods.
Diluted Earnings Per Share 6 months 6 months
ended ended
30 June 2019 30 June 2018
GBP000 GBP000
Profit / (loss) attributable to equity
shareholders of the parent 1,427 (1,725)
Weighted average number of shares in
issue 87,867,713 67,352,894
Diluted weighted average number of shares
and options for the period 1,203,045 431,223
89,070,758 67,784,117
Diluted profit / (loss) per share (pence) 1.60p (2.55p)
An adjusted EPS has been calculated below based on the adjusted
profit after tax, which removes one of items not considered to be
part of underlying trading.
Adjusted basic Earnings Per Share 6 months 6 months
ended ended
30 June 2019 30 June 2018
GBP000 GBP000
Adjusted profit after tax (note 6) 4,855 3,451
Weighted average number of shares
in issue 87,867,713 67,352,894
Adjusted earnings per share (pence) 5.52p 5.12p
12. Intangible assets
Intangible Assets
Goodwill Brand Software Intellectual Development Total
property expenditure
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 1 January
2018 16,250 - - - 2,133 18,383
Additions 3,520 115 - 897 436 4,968
At 30 June 2018 19,770 115 - 897 2,569 23,351
Additions - - - - 221 221
At 31 December
2018 19,770 115 - 897 2,790 23,572
Additions 54,737 2,904 - 23,551 930 82,122
Acquisition - - 34 - 2,395 2,429
At 30 June 2019 74,507 3,019 34 24,448 6,115 108,123
Amortisation
and impairment
At 1 January
2018 178 - - - - 178
Charge in the
period - 6 - 56 - 62
At 30 June 2018 178 6 - 56 - 240
Charge in the
period - 6 - 56 133 195
At 31 December
2018 178 12 - 112 133 435
Charge in the
period - 60 4 490 490 1,044
At 30 June 2019 178 72 4 602 623 1,479
Net book value
At 30 June 2019 74,329 2,947 30 23,846 5,492 106,644
At 31 December
2018 19,592 103 - 785 2,657 23,137
At 30 June 2018 19,592 109 - 841 2,569 23,111
Intellectual property is a single asset covering the three
elements of customer relationships, technology and data.
13. Borrowings
30 June 2019 30 June 2018
GBP000 GBP000
Secured bank loan:
Current - 10,093
Non-current 42,000 -
Less loan arrangement fees (385) (83)
41,615 10,010
On 5 April 2018, the Group repaid its previous loan in full and
drew down GBP10.1m from a new GBP15.0m Revolving Credit Facility
('RCF') provided by Yorkshire Bank. The previous loan was due to be
settled in June 2022. On settlement of the loan, GBP776k of
capitalised loan arrangement fees were accelerated into the profit
and loss account, along with GBP515k of implied interest (due to
the discounting of the amount repayable to the present date).
GBP90k of loan arrangement fees were incurred on the new RCF, which
have been capitalised and amortised over 3 years.
On 21 March 2019, the Group repaid the loan facility provided by
Yorkshire Bank and drew down GBP45.0m from an RCF provided in two
equal amounts of GBP22.5m from Yorkshire Bank and NatWest. The RCF
is a four year facility, with the option of a one year extension.
The margin payable on the RCF is based on the net leverage of the
Group with a range of 1.5% to 2.6% above LIBOR.
On 21 June 2019, the Group repaid GBP3.0m of the RCF.
14. Share Capital & Share Premium
Share capital
Ordinary Ordinary Ordinary Ordinary Ordinary
A shares B shares C shares D shares Shares Total
Number of fully
paid shares:
At 1 January 2018 8,349,148 332,232 1,331,112 230,899 - 10,243,391
Repurchase of
shares and cancellation - - - (1,093) - (1,093)
Bonus issue of
shares 75,142,332 2,990,088 11,980,008 2,068,254 - 92,180,682
Share consolidation (75,142,332) (2,990,088) (11,980,008) (2,068,254) - (92,180,682)
Bonus issue of
shares 45,295,619 1,802,410 1,275,069 208,043 - 48,581,141
Share conversion (53,644,767) (2,134,642) (2,606,181) (437,849) 58,823,439 -
Issue of share
capital - - - - 17,647,149 17,649,149
At 30 June 2018 - - - - 76,470,588 76,470,588
Issue of share - - - - - -
capital
At 31 December
2018 - - - - 76,470,588 76,470,588
Issue of share
capital - - - - 20,311,708 20,311,708
At 30 June 2019 - - - - 96,782,296 96,782,296
During 2018 the Company bought back and cancelled 26,075 D
ordinary shares. On 5 December 2018, the company issued 281,380 B
ordinary shares.
During 2018, prior to the IPO listing, the Company bought back
and cancelled 1,093 D ordinary shares.
As part of the IPO process, the following share restructuring
took place on 4 April 2018:
-- An initial bonus issue of shares in the ratio of 9 new shares
to 1 existing share was issued across all share categories.
-- A share consolidation across all share categories, at a rate of 10 shares to 1.
-- A second bonus issue of shares across all share categories at differing share ratios.
-- A conversion of all categories of shares, in a ratio of 1 to
1, into a new category of Ordinary shares.
In addition to the above, an issue of 17,647,149 new ordinary
shares was made on 4 April 2018, and the Company undertook a
reduction of its share capital by cancelling GBP45,000,000 of its
share premium account.
On 21 March 2019, the Company issued 20,311,708 new shares as
part of the funding for the acquisition of Defaqto (note 18).
The nominal value of the Ordinary Shares is GBP0.01.
Share Premium
Share
Premium
GBP'000
At 1 January 2018 52,544
Issue of share capital 29,826
Transfer to retained earnings (45,000)
Bonus issue (579)
At 30 June 2018 and 31 December
2018 36,791
Issue of share capital 36,357
At 30 June 2019 73,148
15. Other reserves
Merger Capital Share Total
Reserve redemption Non-controlling Option Other
reserve interest Reserve Reserves
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2018 (61,395) 8 - - (61,387)
Share option charge - - - 132 132
At 30 June 2018 (61,395) 8 - 132 (61,255)
Share option charge - - - 188 188
At 31 December 2018 (61,395) 8 - 320 (61,067)
Share option charge - - - 307 307
Minority interest charge - - 11 - 11
At 30 June 2019 (61,395) 8 11 627 (60,749)
16. Share-based payment arrangements
At 30 June 2019, the Group had the following share-based payment
arrangements.
Company Share Option Plan ("CSOP")
On 4 April 2018, the Group established the Company Share Option
Plan ("CSOP"), which granted share options to certain key
management personnel. The CSOP consists of two parts, and all
options are to be settled by physical delivery of shares. The terms
and conditions of the share option schemes are as follows:
Scheme Grant Date Number of Vesting conditions Contractual
awards life of options
---------------- ------------- ---------- ------------------- -----------------
Approved Scheme 4 April 2018 229,412 3 years' service 3 to 10 years
from grant
date
Unapproved 4 April 2018 250,000 3 years' service 3 to 10 years
Scheme from grant
date
---------------- ------------- ---------- ------------------- -----------------
Management Incentive Plan ("MIP")
On 4 April 2018, the Group established the Management Incentive
Plan ("MIP") which invited eligible employees to subscribe for A
Shares in the Company's subsidiary SimplyBiz Limited. Participants
have a put option to sell the A shares to the Company in exchange
for ordinary shares of the Company at any point between 3 years and
10 years after the date of grant, provided that they are still
employed and an equity hurdle is met. The terms and conditions of
the MIP are as follows:
Grant Date Number of awards Vesting conditions Contractual life
of options
------------- ----------------- ------------------- -----------------
4 April 2018 2,250 3 years' service 3 to 10 years
from grant date,
subject to an
equity hurdle
of 40% above
the IPO price.
------------- ----------------- ------------------- -----------------
The fair value of services received in return for share options
granted is based on the fair value of the share options granted.
The fair value has been measured using the Black-Scholes model for
the unapproved CSOP scheme, and the Monte Carlo model for the MIP
and approved CSOP scheme.
The following inputs were used in the measurement of the fair
values at grant date of the share-based payment plans.
Approved Unapproved Management
CSOP CSOP incentive
plan
-------------------------------- --------- ----------- -----------
Fair value at grant date GBP0.64 GBP1.59 GBP290.22
Share price at grant date GBP1.70 GBP1.70 GBP1.70
Exercise price GBP1.70 GBP0.01 GBP1.785
Expected volatility 40% 40% 40%
Option life (expected weighted
average life) 3 3 3
Expected dividends 2% 2% 2%
Risk-free interest rate (based
on government bonds) 1.2% 1.2% 1.2%
-------------------------------- --------- ----------- -----------
Save As You Earn ("SAYE") scheme
On 24 September 2018, the Group established the Save As You Earn
("SAYE") scheme and invited all Group employees to enter into a
three-year savings contract linked to an option which entitles them
to acquire Ordinary Shares in the Company.
537,618 options were issued under the scheme, with an exercise
price of GBP1.70. The fair value of the shares at date of grant (1
December 2018) was GBP0.70, and the share options are due to vest
in three years. Expected volatility, dividends and the risk-free
interest rate have been assumed to be consistent with the approved
CSOP scheme noted above.
17. Notes to the cash flow statement
6 months 6 months ended
ended 30 30 June 2018
June 2019
GBP000 GBP000
Cash flow from operating activities
Profit / (loss) after taxation 1,427 (1,725)
Add back / (deduct):
Finance income (41) (41)
Finance cost 562 2,451
Taxation 1,234 570
3,182 1,255
Adjustments for:
Amortisation of development expenditure 490 -
Depreciation of property, plant and equipment 133 129
Depreciation of lease asset 321 -
Amortisation of other intangible assets 554 62
Share option charge 307 132
Minority interest 11 -
Operating cash flow before movements in
working capital 4,998 1,578
Decrease / (increase) in receivables 480 (1,301)
Decrease in trade and other payables (2,906) (581)
Cash generated from / (used in) operations 2,572 (304)
Income taxes paid (358) (226)
Net cash generated from / (used in) operating
activities 2,214 (530)
18. Acquisitions
On 21 March 2019, the Group purchased 100% of the share capital
of Regulus Topco Limited, owner of Defaqto, a financial services
tech business for total consideration of GBP51.4m. Acquired
borrowings of GBP24.7m were settled soon after completion of the
transaction.
The acquisition of Defaqto creates a single fintech and support
service group, which will benefit from an increased number and
range of distribution channels. In the period to 30 June 2019,
Defaqto contributed revenue of GBP4.2m and adjusted EBITDA of
GBP2.0m. If the acquisition had occurred on 1 January 2019,
management estimates that revenue would have been GBP7.0m and
adjusted EBITDA of GBP3.2m.
The Group incurred acquisition related costs of GBP2.5m relating
to external legal, broker and professional fees. These costs have
been included in 'operating expenses' in the consolidated statement
of profit or loss and other comprehensive income and analysed
separately as 'operating costs of an exceptional nature' in note
8.
The following fair values have been determined provisionally,
based on the Group's preliminary assessment. The Group will
continue to review the fair values during the measurement
period.
Book value Fair value Provisional
adjustment Fair Value
GBP'000 GBP'000 GBP'000
Net assets acquired
Property, plant & equipment 213 - 213
Lease asset 206 - 206
Other intangible assets -
software 34 - 34
Capitalised development costs 2,395 - 2,395
Trade and other receivables 2,791 - 2,791
Income tax receivable 114 - 114
Cash and cash equivalents 5,030 - 5,030
Trade and other payables (3,281) - (3,281)
Deferred revenue (7,360) - (7,360)
Borrowings (24,676) - (24,676)
Lease liability (206) - (206)
Intangible assets - Brands - 2,904 2,904
Intangible assets - Intellectual
property - 23,551 23,551
Net deferred tax liability (341) (4,497) (4,838)
(25,081) 21,958 (3,123)
Consideration paid
Cash price paid 43,894
Shares issued 7,489
Total Consideration 51,383
Goodwill 54,506
Goodwill acquired on the acquisition relates to the assembled
workforce and the synergies expected to be achieved from
integrating the company into the Group's existing business.
In addition to the above, and additional payment was made in the
period with respect to the acquisition of Landmark Surveyors,
resulting in an increase in goodwill of GBP25,000.
19. Subsequent Events
No material subsequent events have arisen since the balance
sheet date.
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
IR GMGGLGLVGLZZ
(END) Dow Jones Newswires
September 10, 2019 02:01 ET (06:01 GMT)
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