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