TIDMBOKU
RNS Number : 3371S
Boku Inc
16 March 2021
16 March 2021
Boku Inc.
("Boku", the "Company" or the "Group")
Results for the year ended 31 December 2020
Boku Inc (AIM: BOKU), the world's leading independent carrier
commerce company, is pleased to announce its audited results for
the year ended 31 December 2020.
Group Financial Highlights
-- Adjusted EBITDA* increased 107% to $15.3 million (2019: $7.4 million)
-- Group revenues increased 20% to $56.4 million (2019: $46.8 million**)
-- Net loss before tax of $17.3 million (2019: $1.3 million
loss) primarily due to the goodwill impairment for Identity
division of $20.8 million. This total includes a net Profit before
tax from the Payments Division of $9.2 million
-- Cash generated from Operations before working capital changes
during the year was $11.5 million (2019: $6.1 million)
-- Closing cash balances increased to $62.7 million at 31
December 2020 up from $35.6 million at 31 December 2019
Boku Payments Division
-- Acquisition of carrier billing company Fortumo Holdings Inc.
for a maximum enterprise value of $41.0 million completed on 1 July
2020
-- Payments division revenue of $51.2 million, an increase of
27% on 2019's underlying figure of $40.2 million**
-- Payments division Adjusted EBITDA of $19.2 million (2019:
$12.7 million) including $1.5 million from Fortumo
-- Monthly Active Users (MAU) up 48% to 28.8m (2019: 17.8m) includes 4.6m MAUs from Fortumo
-- Total Payment Volume (TPV) of $6.9 billion in 2020 compared to $5.0 billion in 2019
-- eWallet transactions processed from 13 accounts across 11
wallets in 7 countries in 2020. Further investment in 2021 to
capture the significant eWallet opportunity
Boku Identity Division
-- Identity revenue of $5.2 million (2019: $6.7 million) -
impacted by COVID-19 and local US supply headwinds resulting in
carrying value of asset reappraised
-- Identity reduced Adjusted EBITDA loss of $3.9 million (2019: $5.3 million EBITDA loss)
-- Identity carrier network expanded and now reaching more than 200 carriers in 60 countries
-- Contract wins include GDC, LexisNexis and FIS (owners of Worldpay)
*Adjusted EBITDA: Earnings before interest, tax, depreciation
and amortisation, impairment of goodwill, non-recurring payment
revenue, stock option expenses, forex gains/losses and exceptional
items
** 2019 comparative revenue excludes $3.3m of non-recurring
payments revenue to better reflect underlying performance
*** TPV is the $ value of transactions processed by the Boku and
Fortumo platforms
Jon Prideaux, Chief Executive of Boku Inc, commented, "Boku
performed strongly in 2020 with revenues up and Adjusted EBITDA
more than doubled compared to 2019, driven by the performance of
Boku Payments but the central fact of 2020 was COVID-19.
"It has changed the way that we work and live and had an adverse
impact on our Identity business, requiring its value to be
re-assessed. Restrictions have affected the way that we travel,
communicate and get entertained. Coronavirus has depressed
spending, but that spikey ball of RNA has also changed the things
we buy and the way we pay.
"Industries dependent on face-to-face contact have been
decimated. Some - hospitality, for example - will bounce back when
restrictions are released, but for others, the pandemic has
accelerated pre-existing trends. It turns out that many people
didn't really like driving into town to go shopping and for many
types of goods the switch to online will be permanent.
"The way we entertain ourselves has been changing for a while.
CDs have been cleared from the shelves and DVDs sent to the car
boot sale, as we switch to digital consumption. Games, especially
mobile games, were already growing rapidly pre-COVID-19.
"The COVID-19 related lockdowns have accelerated these trends
and Boku's customers have benefited, but since the transition was
already well developed, what we've seen is a boost, not a
transformation of our business. Boku has long benefited from the
tailwinds of mobile adoption and digital disruption and 2020 was no
different.
"Boku can look to 2021 and beyond with a great deal of
confidence. Boku Identity looks poised to grow as new customers are
connected with unrivalled levels of supply. For our Payments
division, we expect to cross sell wallets into more of our existing
customers. With each launch, revenue will start to build, more
materially in 2022. We will invest in our platform so as to be in a
position to capture non digital revenues. All this is underpinned
by a DCB business which is poised to continue its multi-year record
of strong growth with exceptional operational gearing.
"We have made a flying start to 2021, with trading in line with
our aggressive plans and I am confident in our ability to meet
expectations."
Enquiries:
Boku, Inc.
Jon Prideaux, Chief Executive Officer +44 (0)20 3934
Keith Butcher, Chief Financial Officer 6630
Peel Hunt LLP (Nominated Adviser and Broker) +44 (0)20 7418
Edward Knight / Paul Gillam / Nick Prowting 8900
IFC Advisory Limited (Financial PR & IR)
Tim Metcalfe / Graham Herring / Florence +44 (0)20 3934
Chandler 6630
Investor Presentation and Analyst Briefing
A briefing for analysts will take place at 9.30 am today.
Analysts interested in attending the briefing should please contact
florence.chandler@investor-focus.co.uk .
The Company will also provide a live investor presentation
relating to the results via Zoom at 5.30 pm today. The presentation
is open to all existing and potential shareholders. Those wishing
to attend should register via the following link:
https://us02web.zoom.us/webinar/register/WN_AYu5O00jQcynTP6ENzhl0w
There will be the opportunity for participants to ask questions
at the end of the presentation. Questions can also be emailed to
boku@investor-focus.co.uk ahead of the presentation.
Notes to Editors
Boku Inc. (AIM: BOKU) is a leading global provider of mobile
payment and identity solutions. Boku technology is integrated into
over 220 mobile wallets and network operators worldwide powering
mobile user authentication and mobile payments. Boku processes over
800 million transactions worth more than $7 billion annually in
nearly 70 countries. Global leaders that rely on Boku to acquire,
monetise, and protect digital consumer transactions include Apple,
Discover, Experian, Facebook, FIS, Fiserv, Google, Microsoft,
Netflix, Paypal, Sony, Spotify and Western Union.
Boku Inc. was incorporated in 2008 and is headquartered in
London, UK, with offices in various locations globally including in
the US, Mumbai, Estonia, Munich, Beijing, Paris, Sao Paulo,
Singapore, Taipei, and Tokyo.
To learn more about Boku Inc., please visit:
https://www.boku.com .
CHAIRMAN'S STATEMENT
For many organisations 2020 was a challenging year. Externally
events were dominated by a global pandemic, but Boku was able to
execute on its plan. At a Group level, revenues exceeded $56
million and Adjusted EBITDA* more than doubled to $15.3 million, up
from last year's figures of $46.8 million** and $7.4 million
respectively. The heart of our business is the Boku platform. This
year we processed record numbers of transactions - peaking at more
than 400 each second. The platform connects more than 220 mobile
wallets and network operators for both payment and identity
services to Boku's customers, including many of the world's largest
companies.
The core Direct Carrier Billing ("DCB") business performed
strongly during the year. As more people stayed at home during the
pandemic, demand for home entertainment increased and Boku
benefited, pushing up the value processed through the system in
2020 to just under $7 billion, 38% up on 2019. New users recruited
in 2020 reached a new record as well at 25.9 million across our
payments and bundling programmes. Adjusted EBITDA for the Payments
division increased to over $19.2 million.
In 2020, Boku acquired Fortumo, the second most profitable DCB
company behind Boku, which sells on a global scale. The transaction
was well received by the market and has performed in line with
expectations, contributing $4.5 million of revenue and $1.5 million
of Adjusted EBITDA in the six months to 31st December, from which
their figures were consolidated.
Boku Identity was not able to deliver the level of progress we
had previously expected but despite negative impacts from the
pandemic and supply issues in the US, was able to make some
progress at a profitability level with Adjusted EBITDA losses
reduced to $3.9 million.
We were pleased to welcome Charlotta Ginman to the Board as a
Non-Executive Director during the year. She is an experienced
Non-Executive Director, with executive experience at Nokia. She is
already contributing to the Board and has joined the Audit and
Remuneration Committees, allowing me to step back, in line with
best corporate governance practices. I also wish to thank the other
Non-Executive Directors, Stewart Roberts, who chairs the Audit
Committee and Richard Hargreaves who chairs the Remuneration
committee, for their service on the Board and contribution to the
Company during the year.
In 2021, a key focus of the Company's management is to
operationalise and scale our mobile wallet business. We have made a
promising start with some big wins with important customers. Boku
is well positioned to leverage these early successes as we build
Boku into a mainstream, fintech payment platform specialising in
next-generation payments.
Mark Britto
Non-Executive Chairman
15 March 2021
* Adjusted EBITDA: Earnings before interest, tax, depreciation
and amortisation, impairment of goodwill, non-recurring payment
revenue, stock option expenses, forex gains/losses and exceptional
items. See Consolidated Statement of Comprehensive Income.
** 2019 comparative revenue excludes $3.3m of non-recurring
payments revenue to better reflect underlying performance
CHIEF EXECUTIVE OFFICER'S REPORT
Group Performance
Boku performed strongly in 2020 with revenues up to $56.4
million and Adjusted EBITDA more than doubled compared to 2019,
driven by the performance of Boku payments but the central fact of
2020 was COVID-19. It has changed the way that we work and live and
had an adverse impact on our Identity business, requiring its value
to be re-assessed. Restrictions have affected the way that we
travel, communicate and get entertained. Coronavirus has depressed
spending, but that spikey ball of RNA has also changed the things
we buy and the way we pay.
Industries dependent on face-to-face contact have been
decimated. Some - hospitality, for example - will bounce back when
restrictions are released, but for others, the pandemic has
accelerated pre-existing trends. It turns out that many people
didn't really like driving into town to go shopping and for many
types of goods the switch to online will be permanent.
The way we entertain ourselves has been changing for a while.
CDs have been cleared from the shelves and DVDs sent to the car
boot sale, as we switch to digital consumption. Games, especially
mobile games, were already growing rapidly pre-COVID-19. The
lockdowns have accelerated these trends and Boku's customers have
benefited, but since the transition was already well developed,
what we've seen is a boost, not a transformation of our business.
Boku has long benefited from the tailwinds of mobile adoption and
digital disruption and 2020 was no different.
Strong Organic Performance in Payments
In 2020, we have been able to help our customers acquire more
than 25.9 million new users across payment and bundling programmes;
more payment users are repeat users too, with that figure hitting a
high of 91% averaged throughout the year. Value processed through
our system increased to $6.9 billion, a 38.3% increase since last
year. We exited the year on a run rate which exceeded $8.5 billion.
Truly the lines on the charts are going up and to the right!
Our growth did not just come from existing connections in in a
particular geography - new launches have been made for Apple, Sony,
Spotify, Netflix, Tencent, Microsoft, Google and many other smaller
merchants.
Boku takes a percentage of the value processed through its
systems as revenue. We charge different prices depending on whether
we provide a technical connection only or additionally handle the
settlement of the funds. Over recent years the lower priced
technical service has been growing faster than the higher priced
settlement service, leading to lower reported take rates, despite
stable pricing. This year, those trends stabilised as more
settlement model business was processed through connections
developed in prior years.
Acquisition of Fortumo
Scale is important in platform businesses. By being the largest,
Boku is able to offer the most robust and feature-rich platform at
the lowest unit cost in the industry. Most of our growth has been
organic: quality inorganic opportunities are few and far between.
In July 2020, we were delighted to acquire Fortumo, the second most
profitable company in the DCB business, behind Boku. The enterprise
value associated with the acquisition was a maximum of $41 million,
with $5.4 million being dependent on the achievement of a demanding
Adjusted EBITDA target in the 12 months ending June 2021. Since
acquisition, the business has performed in line with our
expectations, which will mean that the full earnout is unlikely to
be payable.
Fortumo has brought impressive new capabilities into the Group:
customer relationships with Amazon, Epic Games and more than 400
other, mostly settlement model, merchants, a platform with
semi-automated onboarding capabilities, new carrier connections,
especially in some emerging markets, and the best bundling platform
in the market. Going forward we will concentrate new DCB and
bundling investment in Fortumo's EU platform, whilst the original
Boku US platform will focus on strategic merchants and new local
payment methods, including wallets.
Strong Financial Performance in Payments
Taking Boku and Fortumo revenues together, revenue from the
Payments division grew to $51.2 million up 27% from 2019's figure
of $40.2 million*. Fortumo contributed $4.5 million, in line with
expectations. Adjusted EBITDA leverage in the payments business is
impressive with payments Adjusted EBITDA up 54% to $19.2 million
(including $1.5 million contribution from Fortumo).
Progress on Identity
Boku Identity was able to post a narrower adjusted EBITDA loss
of $3.9 million. Revenues at $5.2 million was lower than the
previous year due to carrier supply issues and the impact of
COVID-19. The business is still poised to grow but from a lower
base and at a lower rate, meaning that the path to break even is
longer than previously thought, resulting in an impairment to the
carrying value of goodwill of $20.8 million.
Turning to non financial measures, the global carrier network
now reaches more than 200 carriers in 60 countries. Contracts have
been signed with customers like GDC, LexisNexis and FIS. The focus
for 2021 is to connect these merchants to international markets and
thus increase revenues.
Promise of Wallets
For Boku, DCB is the starter, the main course is local payments.
We're using the connections that we have to all the world's leading
digital merchants as a beachhead from which we can cross sell other
payment methods. The first of these is mobile wallets. They are the
payment phenomenon of the last five years. Popular with consumers,
in demand from merchants.
Just like DCB, mobile wallets are highly fragmented, with
multiple wallets in individual countries, battling for consumers,
just like mobile operators. For our merchants, Boku has harmonised
this complex, global infrastructure into a single payments network.
The market is in need of a similar approach for mobile wallets; the
value that Boku can deliver to merchants through a single mobile
payments network is immense.
In 2020 we processed transactions from 13 accounts across 11
wallets in 7 countries. Pleasingly amongst these were major
merchants in console games and streaming music. These accounts were
won in competition with mainstream cards-first payment processors.
We expect to be able to announce further progress during 2021. The
significance is two-fold: firstly, with wallets we can process a
larger share of our customers sales and, secondly, go outside
digital and serve the general ecommerce market which is 20 times as
big. That is the main course.
Actual experience has also been encouraging: volume growth has
been material, albeit off a small base. Where wallets and DCB are
connected to the same merchant in the same country we can see
faster adoption, higher average transaction values and more
users.
Helping Out Others during the Pandemic
At Boku we recognise that with our good fortune, comes
responsibility. We have tried to do our bit to help those less
fortunate than ourselves. We have claimed no Government money in
any of the countries in which we operate (and have returned it in
one instance where it was automatically credited to us), and we
have continued to employ our office support staff and contractors
despite offices being closed. Now is the time to support the
support workers. We have used some of the savings that we have made
from reduced travel on a "We Not Me" programme of donations to
local causes nominated by employees.
Companies are not just collections of assets and intellectual
property; technology companies like Boku are groups of people
working towards a common aim, with belief and conviction. Without
our people, without the right people, we are nothing. We are
careful when we hire and we ensure that all, every single one of
our employees wheresoever located and however senior or junior,
gets the chance to be a shareholder in our company.
Through the crisis, our employees have repaid that trust in
spades. They have been magnificent. The flexible working practices
that we had in place before restrictions hit meant that we could
adapt rapidly and continue to deliver for our customers. In 2020,
we've been able to deliver a record number of new high quality
connections: (69 vs. 42 in 2019). I want to place on record my
sincere appreciation for the exceptional contribution that our
people have made to our results.
Outlook
Boku can look into 2021 with a great deal of confidence. Boku
Identity looks poised to grow as new customers are connected with
unrivalled levels of supply. For our Payments division, we expect
to cross sell wallets into more of our existing customers. With
each launch, revenue will start to build, more materially in 2022.
We will invest in our platform so as to be in a position to capture
non digital revenues. We expect to board our first wallet-only,
non-DCB payments customers in 2021. This will be an important
signal of our ability to gain traction in this important segment.
All this is underpinned by a DCB business which is poised to
continue its multi-year record of strong growth with exceptional
operational gearing. We have made a flying start to 2021, with
trading in line with our aggressive plans -- I am confident in our
ability to meet expectations.
Jon Prideaux
Chief Executive Officer
15 March 2021
* Adjusted for the impact of $3.3 million of non-recurring
revenue
CHIEF FINANCIAL OFFICER'S REPORT
Strong growth in Payments Revenue and Adjusted EBITDA and
progress in Identity
2020 was another year of significant achievement for Boku, in
challenging circumstances given the coronavirus pandemic. Good
revenue growth in Boku Payments drove an increase of over 100% in
group Adjusted EBITDA to $15.3 million, proving again the
operational gearing in our model, while the acquisition of Estonian
based carrier billing company Fortumo Holdings Inc ("Fortumo") on 1
July 2020 for a maximum enterprise value of $41.0 million
consolidated Boku's market leading position in Direct Carrier
Billing ("DCB") as Fortumo was one of only three international DCB
competitors. We have retained the Fortumo brand and organisational
structure and consolidated Fortumo's financial results for the six
month period from acquisition on 1 July 2020.
The Boku Payments division, excluding Fortumo, performed
strongly with revenues increasing by $6.7 million (17%) to $46.8
million* which in turn delivered a substantial 40% increase in
Adjusted EBITDA to $17.7 million (2019: $12.7 million)
demonstrating the powerful operational leverage of our payments
platform as additional incremental transaction revenues largely
drop through to Adjusted EBITDA. This is most clearly illustrated
by the fact that in 2016 Boku Payments made an Adjusted EBITDA loss
of $12.3 million and in 2020 made an Adjusted EBITDA profit of
$17.7 million - a turnaround of over $30 million in only four
years. Newly acquired Fortumo performed well, with revenues for the
six months to 31 December 2020 of $4.5 million and Adjusted EBITDA
of $1.5 million, in line with expectations, taking total Payments
division Adjusted EBITDA to $19.2 million. Fortumo brings primarily
settlement model merchants where merchants are charged a higher
percentage transaction fee, along with a low cost Estonian
base.
The Boku Identity division, acquired in 2019, made good progress
on building out its international supply to truly internationalise
the product offering, signed a number of high-profile customers and
saw its Adjusted EBITDA loss reduce further to $3.9 million (2019:
$5.3 million loss). However revenues fell in the year to $5.2
million (2019: $6.7 million) as the business was impacted by both
losing a major US carrier at the end of 2019 and from Covid-19
which impacted some customer activity and the division's ability to
market and close new sales. As a result of lower than expected
Identity revenues in 2020, future growth estimates were modified,
which also showed a slower pathway to breakeven and a diminished
carrying value of this asset, resulting in an impairment of
goodwill of $20.8 million. As a result the Group, primarily taking
account of this impairment charge, reported a Loss before Tax of
$18.9 million compared to a loss of $1.3 million in 2019. This
total includes a Net Profit before tax from the Payments Division
of $9.2 million.
Group Revenue and Gross Margins
Group revenues for the year of $56.4 million were up by 27% on
2019 (2019: $46.8 million*) as the Company saw strong growth in its
Payments business and added Fortumo results from 1 July 2020,
however Identity revenues fell in the year.
Blended gross margins for the group increased to 91.3% (2019:
88.9%) as gross margins for Boku payments improved again to 97.2%
(96.2%), we added Fortumo gross margin at 92.4% and Identity gross
margins fell slightly to 37% (2019:41.2%).
Group Operating Expenditure
Adjusted Operating Expenditure (Operating Expenditure adjusted
for depreciation, amortisation, foreign exchange, stock option
expense, exceptional items, goodwill impairment and restructuring
costs) increased to $36.2 million (2019: $33.9 million), mainly
driven by the Group's acquisition of Fortumo in July 2020 which
added adjusted operating expenditure of $2.7 million for the six
month period to 31 December 2020. Boku Payments operating
expenditure increased slightly to $27.6 million (2019: $25.9
million) primarily due to modest payroll increases and some costs
incurred in migrating certain systems into a cloud based
environment, while technology operations in lower costs locations
such as India were expanded. Identity adjusted operating
expenditure fell materially to $5.8 million (2019: $8.0 million)
partly due to headcount reductions and lower marketing spend.
Both Identity and Payments benefited from material savings in
travel and entertainment due to the impact of COVID-19 which
reduced operating expenditure and increased Adjusted EBITDA, but it
is expected that this expenditure will return when it becomes
possible to travel freely again.
Payments division
The Payments division comprises Boku's Direct Carrier Billing
("DCB") business ("Boku Payments") which enables customers of
Boku's merchants to charge payments to their phone bills, and
Fortumo Payments which was acquired during the year.
Boku's Payments is the sole DCB provider to some of the world's
largest digital merchants including Apple, Netflix, Facebook and
Sony. It operates two revenue models both based on a percentage of
the processed value: the higher take rate 'settlement model' -
where Boku collects funds from carriers (MNOs) worldwide in
multiple currencies before settling to the merchant, and the lower
take rate 'transaction model' where we only provide the technical
connectivity between the merchant and carrier.
In 2020, Boku Payments revenues grew by 16% to $46.8 million
(2019: $40.2 million*). Growth comes from both existing merchants
and carrier connections and also from adding new carrier
connections to new and existing merchants.
Total Payments Volume ("TPV") for Boku Payments increased by 35%
to $6.8 billion in 2020 from $5.0 billion while Monthly Active
Users grew 48% to $28.8 million (2019: $17.8 million). The majority
of growth again came from our lower margin/higher volume
transaction model merchants and, as a result of this mix effect,
the weighted average take rate reduced to 0.7% in 2020 (2019:
0.8%). However due to good growth from higher take rate settlement
merchants where we made significant efforts to increase carrier
connections, the second half take rate was broadly similar to the
first half. When the additional volumes from Fortumo are included
(see Fortumo section below), the blended average take rate
increased in the second half.
Gross margins for Boku Payments improved from 96% to 97% in the
year primarily driven by the volume growth of our transaction model
merchants where there is no cost of sale (100% gross margin) along
with the recovery of a previously fully provided for bad debt.
Adjusted operating expenditure for Boku Payments was slightly
higher than 2019 at $27.7 million (2019: $25.9 million) mainly due
to modest headcount increases and pay rises. Headcount is the
majority of the cost base, however, as a result of the coronavirus
pandemic, travel and entertainment ("T&E") costs were
significantly reduced but are expected to return to previous levels
once normal travel resumes.
We continued to invest in the Boku Payments platform and in 2020
completed the first phase of migrating our platform from two
physical colocation facilities in the U.S. into a cloud-based
infrastructure (AWS) as we decommissioned one facility and moved it
into the cloud. The second phase will be completed in 2021.
Although the total running costs are similar in the cloud, the 'pay
as you go' nature of the cloud services means that we are able to
capitalise less of the cost and so adjusted operating expense
increased as a result. The Boku Payments Platform has the capacity
to process volumes considerably in excess of today's peak message
rates.
Acquisition of Fortumo
Boku completed the acquisition of carrier billing company
Fortumo Holdings Inc ("Fortumo") on 1 July 2020 for a total maximum
enterprise value of $41.0 million, further consolidating its market
leadership in the niche carrier billing market. Fortumo is an
Estonia based carrier billing business employing 77 employees and
was one of three direct international competitors to Boku, and the
only consistently profitable one. The majority of Fortumo's
customers operate under the settlement model where Fortumo collects
cash from carriers on behalf of its merchants and therefore charges
a higher fee.
Total maximum consideration is $45.0 million which included $4.0
million of net working capital. $5.4 million of the total
consideration is subject to performance conditions as explained in
detail at the time of the acquisition, and in note 26, based on
Adjusted EBITDA of Fortumo for the 12 month period following
acquisition (1 July 2020 to 30 June 2021). Due to challenging
earnout targets the maximum earnout consideration of $5.4 million
is not expected to be paid and the fair value of the consideration
was calculated at $3.2 million using the expected returns approach.
Please refer to note 26 of the financial statements.
Boku Payments and Fortumo Payments together now form the
Payments division and from 2021 onwards their results will be
combined for reporting purposes. The separate results for Boku
Payments and Fortumo Payments for 2020 are shown in the table below
so that the underlying growth in Boku Payments can be
understood.
Payments division Income Statement by company Fortumo
for 12 months to 31 December 2020 Boku Payments Payments Total Payments
$'000 $'000 $'000
Fee Revenue 46,755 4,476 51,231
Cost of sales (1,329) (340) (1,669)
-------------- ----------
Gross Profit 45,426 4,136 49,562
Administrative Expenses (36,172) (3,565) (39,737)
-------------- ----------
Operating gain analysed as:
Adjusted EBITDA* 17,694 1,481 19,175
Payments Revenue Adjustment (non-recurring)
Depreciation and amortisation (4,013) (712) (4,725)
Stock Option expense (3,728) (282) (4,010)
Foreign exchange gains 723 84 807
Exceptional items (included in administrative
expenses) (1,422) 0 (1,422)
-------------- ----------
Operating gain 9,254 571 9,825
Finance income 63 7 70
Finance expense (640) (9) (649)
-------------- ----------
Profit before tax 8,677 569 9,246
Tax expense (1,301) (168) (1,469)
----------------------------------------------- ----------
Net gain for the period attributable to
equity holders of the parent company 7,376 401 7,777
-------------- ----------
Identity division
Boku's Identity division was formed in 2019 following the
acquisition of Danal Inc on 1 January 2019 for $25.1 million.
Identity revenues for the year were impacted by the coronavirus
pandemic which made new sales difficult as well as the loss of one
of its four US carriers at the end of 2019 and as a result 2020
revenues fell to $5.2 million (2019: $6.7 million). Identity
revenues were mainly from the US. Gross margins were slightly lower
at 37% for 2020 (2019: 41%) as some of the costs included in Cost
of Sales have monthly minimums which are fixed as revenues fell.
Identity Cost of Sales is primarily transaction related fees paid
to carriers and other data providers. Adjusted operating expenses
fell sharply in 2020 to $5.9 million (2019: $8.0 million) as
headcount and T&E costs were reduced. Adjusted EBITDA for the
year for the Identity division was therefore a further reduced
Adjusted EBITDA loss of $3.9 million (2019: $5.3 million loss).
As a result of lower 2020 revenues, lower revenue growth is now
expected in future years. This, together with a slower pathway to
breakeven has resulted in the carrying value of this asset having
diminished, resulting in an impairment of goodwill of $20.8 million
which reduces the carrying value of goodwill from $23.6 million to
$2.8 million.
Group Operating Losses and Adjusted EBITDA
Adjusted EBITDA increased by more than 100% to $15.3 million
(2019: $7.4 million) illustrating the powerful operational gearing
in the payments business. Adjusted EBITDA is earnings before
interest, tax, depreciation and amortisation, adjusted for stock
option expenses, forex gains/losses and exceptional items.
Reported Operating Losses for 2020 increased to $16.7 million
(2019: $0.9 million) primarily due to the goodwill impairment for
Identity division of $20.8 million. The Operating Loss can be
broken down as follows:
-- Depreciation and Amortisation charges increased to $5.9
million (2019: $4.5 million) which included $0.7 million from
Fortumo for the period 1 July to 31 December 2020.
-- Foreign Exchange movements resulted in a gain of $1.0 million (2019: $0.1 million gain)
-- Stock Option Expenses - stock option expenses fell to $4.9
million compared to $6.8 million in 2019. The 2020 total includes
awards to Fortumo staff following the acquisition. Boku has a
policy of issuing RSUs to all staff annually. RSU charges are
spread over three years from date of grant based on the Black
Scholes method and the lower charge in 2020 is as a result of fewer
shares being issued to Boku staff partly offset by additional
awards to Fortumo staff. Of the $4.9 million booked in 2020, $0.5
million was paid out cash (via employer's NI), the remainder was
non-cash and expensed.
-- Impairment of goodwill - relating to the write down of the
carrying value of the Identity division of $20.8 million.
-- Exceptional Items were $1.4 million (2019: $0.4 million)
mainly costs relating to the acquisition of Fortumo on 1 July
2020.
-- Net financing expenses were $0.6 million in 2020 (2019: $0.4
million). These costs relate to Interest on operating leases and
bank loans/overdraft.
Net Loss after Tax
The Company reported a net loss before tax of $17.3 million
(2019: $1.3 million loss) primarily due to the goodwill impairment
for Identity division of $20.8 million and net loss after tax for
the year of $18.8 million (2019: $0.4 million profit).
Balance Sheet and Cashflow
-- Closing cash balances increased to $62.7 million (including
restricted cash balances of $1.4 million) at the end of 2020 from
$35.6 million on 31 December 2019.
-- Monthly average cash balances, which smooth the impact of
intra-month flows of both carrier and merchant payments, were $46.7
million in December 2020 up from $22.4 million in December
2019.
-- Cash generated from Operations before working capital changes
during the year was $11.5 million (2019: $6.1 million).
-- To part finance the acquisition of Fortumo, the Group took on
$20 million of debt with Citibank, comprising a 3 year term loan of
$10.0 million and a Revolving Credit Facility ("RCF") of GBP10.0
million. The existing overdraft facility with Silicon Valley Bank
was terminated at the same time. At year end the RCF had been paid
down by $7.0 million leaving a balance of $3.0 million and the term
loan had been paid down by $0.3 million
-- Deferred tax assets of $0.5 million were recognised at 31(st)
December 2020 (compared to $1.8 million at 31 December 2019) This
reflects a re-appraisal of the usability of certain tax losses and
future transaction volumes through its UK incorporated entities
expected to reduce profitability, as a share of contracted and
future revenues will now likely, taking account of Brexit, flow
into other European companies in the group.
-- From a working capital perspective, Current Assets exceeded
Current Liabilities at 31 December 2020 by $15.6 million compared
with $7.4 million at the 2019 year end.
-- Intangible Assets increased to $65.6 million over the period,
up from $46.8 million at December 2019 reflecting the acquisition
of Fortumo Holdings Inc on 1 July 2020. The total includes other
historical acquisitions including the acquisition of Danal Inc
("Danal") on 1 January 2019. This total includes $23.8 million of
Goodwill emanating from the acquisition of Fortumo as well as other
assets of $13.3 million, including customer contracts and the
technology platform. Goodwill in relation to the acquisition of
Danal on 1 January 2019 was reviewed for signs of impairment, and
following the challenging year for revenues, an impairment to
goodwill of $20.8 million was made which reduced the value of
goodwill in relation to Danal from $23.6 million to $2.8 million
(see Note 27).
*Adjusted EBITDA: Earnings before interest, tax, depreciation
and amortisation, impairment of goodwill, non-recurring payment
revenue, stock option expenses, forex gains/losses and exceptional
items
** 2019 comparative revenue excludes $3.3 million of
non-recurring payments revenue to better reflect underlying
performance
Although COVID-19 has not negatively affected Boku's Payment
business, the Identity division did not deliver the growth we hoped
for and in fact saw some reduction in volume and found sales more
challenging. Net Revenue since the year-end continues to be in line
with our plans and expectations. It is not yet clear when global
economic activity will return to normal, therefore we must prepare
the business for varying levels of performance. To that end, we
have modelled the effects of differing levels of sales decline
along with the measures we can take to ensure that the Group
remains within its available working capital, and we have prepared
cash flow forecasts for a period in excess of 12 months.
The Directors have no reason to believe that customer revenue
and receipts will decline to the point that the Group no longer has
sufficient resources to fund its operations. However, in the
unlikely event that this should occur, the Group will have to
manage its working capital positions, as well as making significant
reductions in its fixed cost expenses.
Keith Butcher
Chief Financial Officer
15 March 2021
STRATEGIC REPORT - INTO THE BIG POND
Moving Up
It's a feeling that everyone can recognise: the knot in your
stomach the first day that you go to big school. Excitement mixed
with trepidation. In your old school, you were the top of the tree,
the big fish; in the new school you're the small fish, trying to
make your way in a bigger pond. Boku too is a company in
transition, building on its market leadership in one sector to
enter a new and bigger market.
In 2020, Boku cemented its leadership in Direct Carrier Billing
('DCB') with 38% organic growth in the value processed through our
platform, supplemented by the acquisition of Fortumo, the second
most profitable company in the market (after Boku). We also started
to expand beyond the bounds of DCB. We are at an inflection point:
going from being the leading provider in the DCB niche to become a
mainstream payments fintech which specialises in mobile-native
next-generation payments.
In 2021 and beyond, we will continue in this direction: no
longer constrained by the limits of putting charges onto phone
bills, we will expand out of the 5% of e-commerce that is digital
content into non-digital sectors with a carefully curated set of
local payment methods. In years to come, if we execute
successfully, over time, this new market will be many times bigger
than our existing DCB business.
The Foundations: Direct Carrier Billing -- Strong and
Growing
Because DCB is expensive compared to other payment methods, it
earns its corn by recruiting new users for its customers. This is
an imperative for the biggest digital companies in the world. As
entertainment increasingly becomes digital, app stores, music,
video streaming and games companies are fighting to acquire new
customers and look to a partner like Boku to help them do so. Our
super simple, frictionless, one tap to register products have built
a customer base that includes all the digital giants: Apple,
Amazon, Microsoft, Facebook, Sony, Spotify, Netflix and many more.
They use us because we deliver: over the past two years we have
successfully helped our merchants to recruit more than 50 million
new users.
Dealing with global companies is a core strength of Boku. It is
hard to think of any other company which simultaneously serves six
of the seven most valuable companies in the world. This gives us
scale and scale is important. Over the last decade, Boku has
established a high-quality network of connections to more than 200
mobile network operators. Replicating this network is hard -
carriers are choosy about which companies get the ability to add
charges to their customers' bills and only grant this privilege to
organisations through which they can make a return. Put simply, we
have the carrier connections because we have the merchants and we
recruit new merchants because we have the carrier connections.
It is this market position that has allowed Boku to triple its
payment revenues from $17.2 million to $51.2 million over the last
four years. Impressive growth to be sure, but, in the immortal
words of Bachman Turner Overdrive, "You Ain't Seen Nothing
Yet".
The average merchant on the Boku platform is connected to 32 out
of the 204 carriers connected to its platform. For sure, not all
carriers are the same size and scale and there is a tendency to
activate the most lucrative connections first, nevertheless, this
raw statistic gives an accurate sense that there is a lot of growth
left in the DCB business. We have plenty of growth to come, plenty
of white space into which we can expand.
This growth is easily accommodated by the Boku Platform. During
the same period that payment revenues tripled, total costs for the
Payments Business Unit (Operating Expenditure and Cost of Goods
Sold) increased by only 15%. Roaring revenue growth, coupled with
modest increases in expenses lead to extraordinary gearing: looking
at the payment segment alone, Adjusted EBITDA rocketed from a loss
of $12.3 million in 2016 to $19.2 million profit this year.
From Facebook to Fridges, Flights and Furniture
According to Statista, the digital commerce market was worth
around $120 billion in 2019 and it's growing at double digit annual
rates as consumers switch to digital and streaming and away from
physical and broadcast. Our support for those digital merchants is
what drives our DCB business forward.
But $120 billion is the small pond. Digital content is a mere 5%
of global e-commerce. People spend more on food, fashion, fridges
and furniture than they do on Facebook.
Boku is investing the money that we make in DCB not only to
sustain that business, but also to grow into non digital sectors.
We are investing to grab our share of the $2.4 trillion dollar
e-commerce market.
We are attacking on two fronts: Identity and Wallets.
Exploiting the Carrier Connections: Boku Identity
Boku Identity uses carrier connections to solve problems in
Identity. The magic ingredient is the rather unsurprising fact that
your mobile network operator knows your phone number without having
to ask. We can turn this into a number of applications: we can
confirm the registered owner of a phone - useful if someone is
trying to apply for a loan in your name, but using their mobile;
silently verifying your phone number, obviating the need to copy
the six digit number from one of those fiddly text messages.
Although COVID-19 has impacted the progress of our Identity
business, it has also primed the world for greater adoption of
digital identity services as we move forward. COVID-19 has been an
accelerant for digital transformation, especially in sectors like
financial services. With the need to create new accounts as well as
operating them moved almost exclusively to digital channels,
digital identity enables transactions to be executed seamlessly and
securely.
Short term results have disappointed somewhat due to the impact
of COVID-19 and supply issues in the US, the path to profitability
for Identity has extended, requiring a re-evaluation of its asset
value to the Group. However, behind the numbers, real progress has
been made. We enter 2021 with a much wider network of supply
internationally and with significant contract wins such as GDC,
LexisNexis and FIS. The foundations for renewed growth are there.
The challenge in 2021 is to activate the merchants that we've
signed, across the network that we have built. Early signs are
promising: Boku helps Americans to fill in their tax returns
electronically, prevents fraud on ridesharing apps in Indonesia and
simplifies the sign up of new users on social networks in the UK,
Canada and Australia.
More Payment Methods for More Merchants
Whilst DCB is effectively confined to digital goods we have
launched and will be adding many new payment methods that can
service digital and non digital merchants. We are not looking to
replicate the work of the many fine, card-centric, payment
processors. Cards, whilst growing absolutely are losing share in
the electronic payments market to new payment types like mobile
wallets, 'buy now pay later' and real-time bank payment schemes.
Boku's strategy is not to implement the widest possible range of
local payment methods, rather we seek to work with a carefully
curated set of fast-growing ones which, will help our customers to
grow.
The payment phenomenon of the last few years is mobile wallets.
For many people, especially in Asia, wallets were their first
electronic payment method. Used face-to-face with a QR code and
online with one tap access, mobile wallets are firmly established
in many countries as the default way to pay. In Asia, it's brands
like Alipay, Grabpay and Kakaopay that are the go to, not cards.
Even in markets like Japan and South Korea, with some of the
highest payment card penetration rates on earth, mobile wallets are
cementing their status. Cards are seen as antiquated and
inflexible. In Asia, wallets now account for a greater proportion
of ecommerce spending than credit and debit cards combined.
But they are fragmented - there are approximately as many
wallets per country in Asia as there are mobile network operators.
Therein lies our opportunity -- wallets benefit from aggregation in
the same way that DCB does. Moreover their unstandardised nature
lends itself to Boku's skill set of taking disparate,
unstandardised inputs and coalescing them into a single homogenous
API which is easy to consume for large global merchants.
In 2019 we started to build connections to wallets, launching
Grabpay and Gopay. In 2020 we started to cross sell them to our
existing merchants, where we have the advantage of already being an
incumbent payment processor. We were able to announce the launches
of a Global Games Console provider in Korea and a Global Music
Streaming service in Indonesia. These connections were won against
significant competition from mainstream cards-first payment
processors. These wins validate the thesis that Boku can compete
and win, when we pick our battles carefully.
Swim lanes
On 1 July 2020, Boku bought Fortumo for a maximum consideration
of $45m. Fortumo, based in Estonia, was the second most profitable
global DCB company. Through the acquisition, the Group was able to
consolidate its position as the market leader in DCB. Fortumo
brought some very specific capabilities into the Group: the ability
to deal with large numbers of merchants, a best-in-class bundling
solution, key merchants such as Amazon and Epic Games, together
with some new connections in emerging markets. Fortumo's
capabilities complement Boku's existing business with its focus on
a few global merchants and expansion into new payment types.
Going forward we will focus Fortumo on expanding the DCB
business and exploit its bundling capabilities, whereas Boku will
continue its support for strategic merchants and focus on the
expansion into local payment methods, especially wallets. We have
built a cross connect that allows Fortumo's EU Platform and Boku's
US Platform to use the others carrier and wallet connections.
The US platform will receive investment in 2021 to make us a
better local payment processor, with support for the features non
digital merchants require. The EU platform will also receive
investment to improve our bundling offer.
Diving in
Although it is not widely recognised, Boku has advantages over
the large cards-first payment companies: we, uniquely, are an
incumbent payment processor with all the world's largest digital
brands. We can compete with the big players on level terms and win
but there are potentially bigger wins to be had- wallets in Asia
account for 65% of electronic spending, a multiple of DCB's market
share.
But the real prize lies outside digital. In 2021 we will expand
our reach - supporting wallets and other local payment methods
--and enhance our system and start selling to merchants who will
come to Boku for wallets alone. It will take some investment, but
using our strong cashflow we are determined to seize this
opportunity, determined to break out of digital, determined to be
relevant to more payments for more merchants and determined to make
Boku a mainstream payment processor. That is the mission
henceforward.
To swim in the Big Pond.
FINANCIAL STATEMENTS
BOKU, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended Year ended
31 December 31 December
2020 2019
Note $'000 $'000
------------------------------------------------------------------------------- ----- ------------- -------------
Revenue* 4 56,402 50,148
Cost of sales (4,925) (5,563)
------------- -------------
Gross profit 51,477 44,585
Administrative expenses 5 (68,200) (45,469)
------------------------------------------------------------------------------- ----- ------------- -------------
Operating loss analysed as:
Adjusted EBITDA** 15,268 7,403
Payment Revenue adjustment (non-recurring)* 4 - 3,255
Depreciation and amortisation (5,917) (4,461)
Stock Option expense 20 (4,925) (6,771)
Foreign exchange gains 1,048 107
Impairment of goodwill 11 (20,775) -
Exceptional items (included in
administrative expenses) 5 (1,422) (417)
------------------------------------------------------------------------------- ----- ------------- -------------
Operating loss (16,723) (884)
Finance income 7 70 56
Finance expense 7 (662) (468)
Loss before tax (17,315) (1,296)
Tax (expense)/credit 8 (1,470) 1,651
------------------------------------------------------------------------------- ----- ------------- -------------
Net (loss)/ profit for the period attributable to equity holders of the parent
company (18,785) 355
------------------------------------------------------------------------------- ----- ------------- -------------
Other comprehensive income/(losses) net of tax
Items that will or may be reclassified to profit or loss
Foreign currency translation profit/(loss) 1,720 (160)
Net increase/(decrease) in fair value of cash flow hedge derivatives - (3)
------------------------------------------------------------------------------- ----- ------------- -------------
Total comprehensive profit/(loss) for the period 1,720 (163)
------------------------------------------------------------------------------- ----- ------------- -------------
Total comprehensive loss/(profit) for the period attributable to equity
holders of the parent
company (17,065) 192
------------------------------------------------------------------------------- ----- ------------- -------------
Loss/(profit) per share attributable to the owners of the parent during the
year
Basic and fully diluted ($) 9 (0.069) 0.001
------------------------------------------------------------------------------- ----- ------------- -------------
*Includes $3.3million of non-recurring Payments Revenue in 2019;
to better reflect underlying performance, this non-recurring
revenue is excluded from Adjusted EBITDA. Further information on
this non-recurring Payment Revenue is detailed in Note 2 and Note
4.
**Earnings before interest, tax, depreciation, amortisation,
non-recurring payment revenue, stock option expense, foreign
exchange gains/(losses), impairment of goodwill and exceptional
items. Management has assessed this performance measure as relevant
for the user of the accounts.
BOKU, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 December 31 December
2020 2019
Note $'000 $'000
------------------------------- ----- ------------ ------------
Non-current assets
Property, plant and equipment 10 3,771 3,512
Intangible assets 11 65,559 46,819
Deferred income tax assets 8 483 1,826
------------------------------- ----- ------------ ------------
Total non-current assets 69,813 52,157
------------------------------- ----- ------------ ------------
Current assets
Trade and other receivables 13 92,535 53,592
Cash and cash equivalents 14 61,290 34,747
Restricted cash 14 1,414 876
------------------------------- ----- ------------ ------------
Total current assets 155,239 89,215
------------------------------- ----- ------------ ------------
Total assets 225,052 141,372
------------------------------- ----- ------------ ------------
Current liabilities
Trade and other payables 16 136,779 77,995
Bank loans and overdrafts 17 1,438 2,098
Lease liabilities 15 1,436 1,723
Total current liabilities 139,653 81,816
------------------------------- ----- ------------ ------------
Non-current liabilities
Other payables 16 862 791
Deferred tax liabilities 8 228 449
Loans and borrowings 17 10,813 -
Lease liabilities 15 1,742 1,358
------------------------------- ----- ------------ ------------
Total non-current liabilities 13,645 2,598
------------------------------- ----- ------------ ------------
Total liabilities 153,298 84,414
------------------------------- ----- ------------ ------------
Net assets 71,754 56,958
------------------------------- ----- ------------ ------------
Equity attributable to equity
holders of the company
Share capital 18 29 25
Share premium 240,053 208,196
Foreign exchange reserve (307) (2,027)
Retained losses (168,021) (149,236)
------------------------------- ----- ------------ ------------
Total equity 71,754 56,958
------------------------------- ----- ------------ ------------
The financial statements were approved by the Board for issue on
15 March 2021
Jon Prideaux Keith Butcher
Chief Executive Officer Chief Financial Officer
BOKU, INC.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Cash flow Foreign exchange
Share capital Share premium hedging reserve reserve Retained losses Total
$'000 $'000 $'000 $'000 $'000 $'000
------------------ -------------- -------------- ----------------- ------------------ ---------------- ---------
Equity as at 1
January 2019 22 178,079 3 (1,867) (149,591) 26,646
------------------ -------------- -------------- ----------------- ------------------ ---------------- ---------
Profit for the
year - - - - 355 355
Other
comprehensive
losses - - (3) (160) - (163)
Issue of share
capital upon
exercise of
4,750,898 stock
options and RSUs - 571 - - - 571
Share-based
payment(1) - 5,472 - - - 5,472
Shares issued to
Danal Inc
shareholders 3 21,532 - - - 21,535
Other Reserves(2) 2,542 - - - 2,542
------------------ -------------- -------------- ----------------- ------------------ ---------------- ---------
Equity as at 31
December 2019 25 208,196 - (2,027) (149,236) 56,958
------------------ -------------- -------------- ----------------- ------------------ ---------------- ---------
Loss for the year - - - - (18,785) (18,785)
Other
comprehensive
income - - - 1,720 - 1,720
Issue of share
capital upon
exercise of
8,906,542 stock
options and RSUs - 1,700 - (32) - 1,668
Share-based
payment(1) - 4,313 - - 4,313
Shares issued 3 25,159 - 32 - 25,194
Issue of RSU's
related to
Fortumo
acquisition - 1,340 - - - 1,340
Share issue costs - (654) (654)
Other reserves - (2,447) (2,447)
Share issued for
warrant 1 2,446 2,447
Equity as at 31
December 2020 29 240,053 - (307) (168,021) 71,754
------------------ -------------- -------------- ----------------- ------------------ ---------------- ---------
(1) Share based expense has been credited against share premium
in accordance with the local company law and practice in US.
2 Other reserves include the warrants and held-back shares
related to the acquisition of Danal, Inc.. The held back shares
were issued during the year ended 31 December 2020 in the amount of
$2,447 and transferred from other reserves to share capital and
share premium.
BOKU, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended Year ended
31 December 31 December
2020 2019
Note $'000 $'000
-------------------------------------------------------------------- ----- ------------- -------------
Cash generated from operations 22 31,529 9,051
Income taxes paid (269) (131)
-------------------------------------------------------------------- ----- ------------- -------------
Net cash from operating activities 31,260 8,920
-------------------------------------------------------------------- ----- ------------- -------------
Investing activities
Purchase of property, plant and equipment (489) (477)
Purchase of internally developed software (2,920) (1,575)
Purchased financial asset 26 (2,160) -
Restricted cash (538) 375
Investment in subsidiary, net of cash acquired 26 (34,435) (742)
Interest received 70 56
Net cash used in investing activities (40,472) (2,323)
-------------------------------------------------------------------- ----- ------------- -------------
Financing activities
Payment of principal to lease creditors (2,045) (1,868)
Payment of interest to lease creditors (292) (288)
Issue of common stock to employees 1,700 571
Issue of new ordinary shares 25,129 -
Share issue costs (654) -
Repayment of loan to shareholder 793 -
Interest paid on borrowings (307) (180)
Proceeds from bank overdraft - 2,098
Proceeds from bank loan 20,000 -
Repayment of bank loan (7,313) -
Borrowing costs (500) -
Repayment of bank overdraft (2,092) (2,150)
Net cash from/(used) in financing activities 34,419 (1,817)
-------------------------------------------------------------------- ----- ------------- -------------
Net increase in cash and cash equivalents 25,207 4,742
Effect of foreign currency translation on cash and cash equivalent 1,336 (1,068)
Cash and cash equivalents at beginning of period 34,747 31,073
-------------------------------------------------------------------- ----- ------------- -------------
Cash and cash equivalents at end of period 61,290 34,747
-------------------------------------------------------------------- ----- ------------- -------------
BOKU, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information
The consolidated financial information represents the results of
Boku Inc. ("the Company") and its subsidiaries (together referred
to as "the Group").
Boku Inc. is a company incorporated and domiciled in the United
States of America. The registered office of the Company is located
at 735 Battery St., 2nd Floor, and San Francisco, CA 94111, United
States.
The principal business of the Group is the provision of mobile
billing and payment solutions for mobile network operators and
merchants. These solutions enable consumers to make online payments
using their mobile devices
The financial information set out in this document does not
constitute the Group's full annual Report and financial statements
for the year ended 31 December 2020 or 31 December 2019. The annual
report and financial statements for the year ended 31 December 2020
were approved by the Board of Directors on 25 March 2021, along
with this preliminary announcement. The financial statements for
the year ended 31 December 2020 have been reported on by the
Independent Auditor. The Independent Auditor's report on the
financial statements for the year ended 2020 was unqualified and
did not draw attention to any matters by way of emphasis. The
Annual Report for the year ended 31 December 2020 will be made
available in due course on the Company's website:
https://www.boku.com/investor-relations/
2. Accounting policies
The financial information has been prepared using the historical
cost convention, as stated in the accounting policies below. These
policies have been consistently applied to all periods presented,
unless otherwise stated.
Basis of preparation
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board (IASB)
("IFRS") and IFRIC Interpretations issued by the International
Accounting Standards Board (IASB).
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements are disclosed below in II, "Critical
accounting estimates, assumptions and judgements". The accounting
policies adopted in these results have been consistently applied to
all the years presented and are consistent with the policies used
in the preparation of the financial statements for the year ended
31 December 2019, except for those that relate to new standards and
interpretations effective for the first time for periods beginning
on (or after) 1 January 2019. There are deemed to be no new
standards, amendments and interpretations to existing standards,
which have been adopted by the Group, that have had a material
impact on the financial statements
The principal accounting policies adopted by the Group in the
preparation of the Consolidated financial statements are set out
below.
The presentation currency of the consolidated financial
statements is US Dollars, rounded to the nearest thousands ($'000)
unless otherwise indicated. The main functional currencies for the
Company's subsidiaries are the United States Dollar, Euro and Great
Britain Pound.
Going concern
The consolidated financial statements have been prepared on a
going concern basis. The ability of the Group to continue as a
going concern is contingent on the ongoing viability of the Group.
The Group meets its day-to-day working capital requirements through
its cash balances and also has a bank facility that it can use. The
current economic conditions continue to create uncertainty,
particularly over (a) the level of consumer engagement; and (b) the
level of new sales to new customers. The Group's forecasts and
projections, taking account of reasonably possible changes in
trading performance, show that the Group expects to be able to
operate within the level of its current cash resources and bank
facilities. Further information on the Group's borrowings and
available facilities is given in Note 17 to these consolidated
financial statements.
Various sensitivity analyses have been performed to reflect a
variety of possible cash flow scenarios, taking into account the
continued Covid-19 pandemic, where the Group achieves significantly
reduced revenues for the twelve months following the date of this
Annual Report. Overall, the directors have prepared cash-flow
forecasts covering a period of at least 12 months from the date of
approval of the financial statements, which foresee that the Group
will be able to operate within its existing facilities.
The Covid-19 pandemic has so far had limited impact on our
business and the Board believes that the business is able to
navigate through the continued impact of Covid-19 due to the
strength of its customer proposition and business partnerships,
statement of financial position and the net cash position of the
Group.
However, the continued impact of the coronavirus pandemic has
caused significant disruption to many businesses where the
implementation of social distancing measures is not practical or is
deemed ineffective and this had implication for the wider global
economy and specifically to the supply chain within which we
reside, particularly our consumers continued willingness to use our
services in the volumes experienced and planned. The move to remote
working and social distancing has increased the importance of
mobile payment solutions to our customers, potential customers and
wider consumer market base. There is however a risk that the Group
will be impacted by reductions in consumer confidence. If sales and
settlement of existing debts are not in line with cash flow
forecasts, the directors have identified cost savings associated
with the reduction in revenues and have the ability to identify
further cost savings if necessary, to help mitigate the impact on
cash outflows.
Having assessed the principal risks and the other matters
discussed in connection with the going concern statement, the
Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future. For these reasons, they continue to adopt the going concern
basis of accounting, and deem there to be no emphasis over going
concern, in preparing the financial information.
Basis of consolidation
Where the Company has control over an investee, it is classified
as a subsidiary. The Company controls an investee if all three of
the following elements are present: power over the investee,
exposure to variable returns from the investee, and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
The consolidated financial information presents the results of
the Company and its subsidiaries ("the Group") as if they formed a
single entity. Intercompany transactions and balances between group
companies are therefore eliminated in full.
The consolidated financial information incorporates the results
of business combinations using the acquisition method. In the
statement of financial position, the acquiree's identifiable
assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date. The
results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is
obtained. They are deconsolidated from the date on which control
ceases. The excess of the cost of acquisition over the fair value
of the Group's share of the identifiable net assets acquired is
recorded as goodwill.
A list of the subsidiary undertakings is given in note 12 of the
financial information.
Changes in accounting policies and disclosures
(a) New and amended standards adopted by the Group
The accounting policies adopted in these consolidated financial
statements are consistent with those of the annual financial
statements for the 12 months ended 31 December 2019. The Group
adopted the amendments to the following existing standards during
2020:
Amendments to Existing Standards Issued date IASB effective date
1 Amendments to References to the Conceptual Framework in IFRS Standards 29-Mar-18 01-Jan-20
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2 Amendments to IFRS 3 Business Combinations: Definition of a Business 22-Oct-18 01-Jan-20
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3 Amendments to IAS 1 and IAS 8: Definition of Material 31-Oct-18 01-Jan-20
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4 Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform 26-Sept-19 01-Jan-20
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5 Amendment to IFRS 16 Leases Covid 19-Related Rent Concessions 28-May-20 01-June-20
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1) Amendments to References to the Conceptual Framework in IFRS Standards
The International Accounting Standards Board (IASB) has issued a
revised Conceptual Framework for Financial Reporting (Conceptual
Framework)
The revised version introduces a number of new aspects compared
to the previous version issued in 2010, specifically including:
- concepts on measurement, including factors to be considered
when selecting a measurement basis
- concepts on presentation and disclosure, including when to
classify income and expenses in other comprehensive income
- guidance on when assets and liabilities are removed from financial statements.
It also updates the definitions of asset and liability and the
criteria for recognising assets and liabilities in financial
statements. It has clarified the guidance on prudence, stewardship,
measurement uncertainty, and substance over form. The amendment is
effective for periods beginning on or after 1 January 2020.
2) Amendments to IFRS3: Definition of a Business
In October 2018, the International Accounting Standards Board
(Board) issued Definition of a Business (Amendments to IFRS 3) to
make it easier for companies to decide whether activities and
assets they acquire are a business or merely a group of assets. The
amendments confirmed that:
- that a business must include inputs and a process and
clarified that the process must be substantive, and the inputs and
process must together significantly contribute to creating
outputs.
- narrowed the definitions of a business by focusing the
definition of outputs on goods and services provided to customers
and other income from ordinary activities, rather than on providing
dividends or other economic benefits directly to investors or
lowering costs; and
- added a test that makes it easier to conclude that a company
has acquired a group of assets, rather than a - business, if the
value of the assets acquired is substantially all concentrated in a
single asset or group of similar assets.
The amendment is effective for periods beginning on or after 1
January 2020.
3) Amendments to IAS 1 and IAS 8: Definition of Material
In October 2018, the International Accounting Standards Board
(Board) issued 'Definition of Material (Amendments to IAS 1 and IAS
8)' to clarify the definition of 'material' and to align the
definition used in the Conceptual Framework and the standards
themselves. The amendment is effective for periods beginning on or
after 1 January 2020.
- The proposed definition now makes reference to 'obscuring'
information that may influence the decisions of primary users of
general purpose financial statements;
- The existing definition made reference to 'could influence'
whereas the proposed definition makes reference to 'could
reasonably be expected to influence'; and
- The existing definition referred to 'users' of the financial
statements whereas the proposed definition refers to 'primary
users' of the financial statements.
The amendment is effective for periods beginning on or after 1
January 2020.
4) Amendments to IFRS 9, IAS 39 and IFRS7: Interest Rate Benchmark Reform
In September 2019, the International Accounting Standards Board
(IASB) amended IFRS 9, IAS 39 and IFRS 7 in response to uncertainty
arising from the phasing out of interest-rate benchmarks such as
interbank offered rates (IBORs).
The amendments modify the requirements relating to hedge
accounting in order to provide relief from potential consequences
of IBOR reform. Additionally, the standards were amended to require
additional disclosures explaining how an entity's hedging
relationships are affected by the uncertainties involving IBOR
reform.
The amendment is effective for periods beginning on or after 1
January 2020 with early application permitted.
5) Amendment to IFRS 16 Leases Covid 19-Related Rent Concessions
On 28 May 2020, the IASB issued final amendments to IFRS 16
related to COVID-19 rent concessions for lessees. The Group did not
adopt this standard as no such concessions were applicable.
The amendments modify the requirements of IFRS 16 to permit
lessees to not apply modification accounting to certain leases
where the contractual terms have been affected due to COVID-19
(e.g. rent holidays or other rent concessions).
The amendments are effective for periods beginning on or after 1
June 2020, with earlier application permitted.
(a) New and amended standards not yet adopted by the Group
Amendments to Existing Standards Issued date IASB effective date
1 Amendments to IAS 1: Classification of Liabilities as Current or Non-current 23-Jan-20 01-Jan-23
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2 Amendments to: 14-May-20 01-Jan-22
-- IFRS 3 Business Combinations
-- IAS 16 Property, Plant and Equipment
-- IAS 37 Provisions, Contingent Liabilities and Contingent Assets
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3 Annual Improvements to IFRSs (2018-2020 Cycle): 14-May-20 01-Jan-22
-- IFRS 1
-- IFRS 9
-- Illustrative Examples accompanying IFRS 16
-- IAS 41
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4 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate 27-August-20 01-Jan-21
Benchmark Reform -
Phase 2
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Management continues to monitor the issuance of new standards
and any further amendments to the existing standards and considers
that the application of the new amendments in the table above will
not materially affect the Group after adoption.
Foreign currency translation
The presentation and functional currency for the group is US
dollars. Items included in the financial statement of each of the
Group's entities are measured in the functional currency of each
entity.
Foreign currency transactions and balances
i) Foreign currency transactions are translated into the
functional currency using the exchange rates prevailing at the
dates of the transactions.
ii) Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at the
reporting period end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the
income statement within administrative expenses.
iii) Non-monetary items that are measured in terms of historical
costs in a foreign currency are translated using the exchange rates
as at the dates of the initial transactions. Any goodwill arising
on the acquisition of a foreign operation and any fair value
adjustments (including purchased intangible assets) to the carrying
amounts of assets and liabilities arising on the acquisition are
treated as assets and liabilities of the foreign operation and
translated at the closing rate.
Consolidation of foreign entities
On consolidation, the results and financial position of all the
Group entities that have a functional currency different from the
presentation currency are translated into the presentation currency
as follows:
i) Assets and liabilities for each Consolidated statement of
financial position presented are translated at the closing rate at
the date of that Consolidated statement of financial position.
ii) Income and expenses for each Consolidated statement of
comprehensive income item are translated at average exchange rates
(unless this average is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates,
in which case income and expenses are translated at the dates of
the transactions); and
iii) All resulting exchange differences are recognised as a separate component of equity.
Exchange differences are recycled to profit or loss as a
reclassification adjustment upon disposal of the foreign
operation.
Revenue
Boku recognises revenue in accordance with IFRS 15 Revenue from
Contracts with Customers by applying the required five steps:
identify the contract(s) with a customer, identify the performance
obligations in the contract, determine the transaction price,
allocate the transaction price to the performance obligations in
the contract and recognise revenue when (or as) the entity
satisfies a performance obligation. Revenue is allocated to the
various performance obligations on a relative stand-alone selling
price ("SSP") basis.
An analysis of the key considerations that IFRS 15 has on the
Group's revenue streams is summarised below.
1. Payments Segment revenue
Boku's technology for the Payments segment delivers a low
friction way for mobile phone users to buy things and charge them
to their phone bill or pre-paid balance. The Group's revenue is
principally its service fees which are earned from its
merchants.
(i) Settlement Model: when it acts as an agent between a
merchant and mobile network operators (MNOs) or an aggregator (a
middleman between the Group and the MNO). Management has determined
that it is acting as an agent under IFRS 15 because it does not
have the primary responsibility for providing the services to the
customer. Therefore, there has been no change in the classification
as an agent from the previous assessment that there was no exposure
to the risks and rewards. An additional fee is also earned when a
merchant requires settlement in a different currency than the
currency received, at contractual agreed rates, in line with IFRS
15.
(ii) Transactional Model: from larger virtual and digital
merchants who receive the sale collections directly and pay a
service fee to the Group.
Under both the transactional and settlement model (see point (i)
and (ii) above), the Group's contracts with customers include one
performance obligation only. This relates to an obligation to
facilitate the payment for the transaction between the merchant and
their end users. Under IFRS 15 revenues for this service is
recognised under this contract at a point in time as the obligation
is fulfilled at time when transaction happens, as the point of
delivery of the performance obligation is the same as when the
risks and rewards have been transferred. Payments are due once the
Group receives the monthly statement of information from the
Aggregator or the MNO.
(iii)) Other revenue: from special merchant integrations,
subscription services and early settlement of funds.
A contract for special merchant integration was changed during
2019. This resulted in a change of the revenue recognition for
special merchant integrations. Under the new contract after the
special integration is performed, tested and approved by the
customer, no further performance obligation is required of Boku.
The customer decides whether Boku has to service further the
special integration and keep it live and will pay this further
performance obligation separately under a special obligation:
"monthly maintenance obligation". Payments are due and recognised
in full once the integrations are successfully tested and approved
by the customer. The maintenance fees are due monthly and are
recognised in full at each month end, in line with IFRS 15.
Contract assets and contract liabilities are included within
'trade and other receivables' and 'trade and other payables'
respectively on the face of the statement of financial
position.
In certain cases, the transaction price includes an estimate of
variable consideration. Variable consideration is only included in
the transaction price to the extent that it is highly probably that
a significant reversal in the amount of cumulative revenue
recognised will not occur when the uncertainty associated with the
variable consideration is subsequently resolved. In such cases, the
estimated transaction price is updated each reporting period to
reflect changes in circumstances and the adjustment is reflected in
revenue in the period that the change occurs.
The Group's revenue is principally its service fees earned from
its merchants. There are slight differences to contracts depending
on the services provided. All revenue from the Payment segment is
recognised at one point in time. Therefore, for the Payments
segment, at 31 December 2019, the Group does not have deferred
revenue on the balance sheet.
2. Identity Segment Revenue
Boku's technology for the Identity segment provides identity
services to customers by silently validating a mobile device using
automatic mobile number verification, streamlining the Know Your
Client ('KYC') processes by validating the name and address entered
by a user against the MNOs data, and reduce fraud on marketing
promotions by linking marketing promotions to secure SIM based user
identities instead of email or unverified mobile numbers etc.
Identity merchants are charged either on a per user basis - for
monitoring - or a per transaction basis, typically with monthly
minimums.
For the Identity segment, deferred revenue consists of billings
processed in advance of revenue recognition generated by Boku
Identity's Mobile Identification/TCPA services. For these services,
Boku bills its customers at the beginning of the contract term as a
pre-payment for services which are billed at a set price per
transaction. The revenue is recognised monthly, at a point in time,
based on the amount of transactional volume processed during the
month and services will continue to be performed until the full
value of the contract is realised. For the period ended 31 December
2020, deferred revenue on the balance sheet for the Identity
Segment was $443,585 (2019: $489,265).
Cost of sales
Cost of sales is primarily related to the monthly fees and
service charges from MNOs and other providers, customer services
fees, some marketing expenses and bad debt.
Operating Segments
In accordance with IFRS 8, "Operating Segments", the Group has
derived the information for its segmental reporting using the
information used by the Chief Operating Decision Maker ("CODM"),
defined as the Executive Operating Committee (EOC). The segmental
reporting is consistent with those used in internal management
reporting and the measure used by the EOC is Adjusted EBITDA.
The Board considers that the Group's provision of a payment
platform for the payment processing of virtual goods and digital
goods purchases constitutes one operating and one reporting segment
(Payments segment), and the provision of identity services another
operating and reporting segment (Identity segment) as defined under
IFRS 8. Management reviews the performance of the Group by
reference to total results against budget as well as for each of
the two operating segments.
Exceptional Items
Exceptional items are those significant items, which are
separately disclosed by virtue of their size, nature or incidence
to enable a full understanding of the Group's financial
performance. In setting the policy for exceptional items, judgement
is required to determine what the Group defines as "exceptional".
The Group considers an item to be exceptional in nature if it is
non-recurring or does not reflect the underlying performance of the
business. Exceptional items are recorded separately below
EBITDA.
Management of the Group evaluates Group strategic projects such
as acquisitions, divestitures and integration activities, Group
restructuring and other one-off events such as restructuring
programmes. In determining whether an event or transaction is
exceptional, management of the Group considers quantitative and
qualitative factors such as its expected size, precedent for
similar items and the commercial context for the particular
transaction, while ensuring consistent treatment between favourable
and unfavourable transactions impacting revenue, income and
expense. Examples of transactions which may be considered of an
exceptional nature include major restructuring programmes, cost of
acquisitions, the cost of integrating acquired businesses or gains
or losses on the disposal of discontinued operations.
Retirement Benefits: Defined contribution schemes
The Group operates various pension schemes in various
jurisdictions, all being defined contribution schemes (pension
plans). A defined contribution plan is a pension plan under which
the Group pays fixed contributions into a separate entity. The
Group has no legal or constructive obligations to pay further
contributions if the fund does not hold sufficient assets to pay
all employees the benefits relating to employee service in the
current and prior periods.
For defined contribution plans, the Group pays contributions to
publicly or privately administered pension insurance plans on a
mandatory, contractual or voluntary basis. The Group has no further
payment obligations once the contributions have been paid. The
contributions are recognised as an employee benefit expense when
they are due.
In the U.S. the group has a 401(k) plan, a type of defined
contribution scheme in the United States in which all employees are
eligible to participate after meeting eligibility requirements.
Participants may elect to have a portion of their salary deferred
and contributed to the scheme up to the limit allowed by applicable
income tax regulations. The Company has made a matching
contribution to the scheme for the years ended 31 December 2020 and
2019.
Contributions to defined contribution schemes are charged to the
consolidated statement of comprehensive income in the year to which
they relate.
Share-based payments
Where equity settled share options and Restricted Stock Units
('RSUs') are awarded to employees, the fair value of the options or
RSUs at the date of grant is charged to the consolidated statement
of comprehensive income over the vesting period. Non-market vesting
conditions are taken into account by adjusting the number of equity
instruments expected to vest at each reporting date so that,
ultimately, the cumulative amount recognised over the vesting
period is based on the number of options or RSUs that eventually
vest.
Where the terms and conditions of options are modified before
they vest, the increase in the fair value of the options, measured
immediately before and after the modification, is also charged to
the consolidated statement of comprehensive income over the
remaining vesting period.
Where equity instruments are granted to persons other than
employees, the consolidated statement of comprehensive income is
charged with the fair value of goods and services received.
RSU's issued in connection with business combinations as
replacements for instruments held by employees are treated as part
of the consideration transferred to the extent that the Company is
obliged to issue the replacement awards and that they compensate
for service that has been provided pre-combination. To the extent
awards are voluntary or that they relate to the provision of future
services they are treated as a post-combination expense.
Share options and RSUs which will incur future employer payroll
taxes on exercise, are accrued for the future cost of Employer's
National Insurance from the point the options are granted over
their vesting period. This liability is then amended at each
subsequent balance sheet date under IFRS 2.
Intangible assets
(i) Goodwill
The Group uses the acquisition method of accounting for the
acquisition of a subsidiary. The consideration transferred is
measured at the fair value of the assets given, equity instruments
issued, and liabilities incurred or assumed at the date of
exchange. Costs directly attributable to the acquisition are
expensed in the period. Identifiable assets acquired, liabilities
and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition
date.
In respect of business combinations that have occurred since
January 2014, goodwill represents the excess of the cost of the
acquisition and the Group's interest fair value of net identifiable
assets and liabilities acquired. In respect of business
combinations prior to this date, goodwill is included on the basis
of its deemed cost, which represents the amount recorded under US
GAAP. As permitted by IFRS 1, Goodwill arising on acquisitions
prior to 1 January 2014 is stated in accordance with US GAAP and
has not been remeasured on transition to IFRS. Goodwill is
recognised and measured at the acquisition date.
Goodwill is capitalised as an intangible asset at cost less any
accumulated impairment losses. Any impairment in carrying value is
being charged to the consolidated statement of comprehensive
income. An impairment loss recognised for goodwill is not
reversed.
Where the fair value of identifiable assets, liabilities and
contingent liabilities exceed the fair value of consideration paid,
the excess is credited in full to the consolidated statement of
comprehensive income on the acquisition date.
Goodwill is allocated to appropriate cash generating units
(CGUs). Goodwill is not amortised but is tested annually for
impairment or whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. The recoverable
amount is determined based on value in use calculations. The use of
this method requires the estimation of future cash flows and the
determination of a discount rate in order to calculate the present
value of the cash flows. The major assumptions are disclosed in
note 11.
(ii) Intangible assets acquired as part of a business combination
Intangible assets acquired in a business combination are
identified and recognised separately from goodwill where they
satisfy the definition of an intangible asset. All intangible
assets acquired through business combinations, are amortised over
their useful lives.
Subsequent to initial recognition, intangible assets acquired in
a business combination are reported at cost less accumulated
amortisation and accumulated impairment losses. The carrying values
are tested for impairment when there is an indication that the
value of the assets might be impaired.
(iii) Research and development
Expenditure on research activities as defined in IFRS is
recognised in the income statement as an expense as incurred.
Expenditure on internally developed software products and
substantial enhancements to existing software product is recognised
as intangible assets only when the following criteria are met:
1. it is technically feasible to develop the product to be used or sold;
2. there is an intention to complete and use or sell the product;
3. the Group is able to use or sell the product;
4. use or sale of the product will generate future economic benefits;
5. adequate resources are available to complete the development; and
6. expenditure on the development of the product can be measured reliably.
The capitalised expenditure represents costs directly
attributable to the development of the asset from the point at
which the above criteria are met up to the point at which the
product is ready to use. The costs include external direct costs of
materials and services consumed in developing and obtaining
internal-use computer software, and payroll and payroll-related
costs for employees who are directly associated with and who devote
time to developing the internal-use software. If the qualifying
conditions are not met, such development expenditure is recognised
as an expense in the period in which it is incurred. Product
development costs previously recognised as an expense are not
recognised as an asset in a subsequent period.
(iv) Amortisation rates
The significant intangibles recognised by the Group and their
useful economic lives are as follows:
Intangible asset Useful economic life
Tradenames Indefinite life - not amortised
Acquired intangibles (Fortumo 10 years
acquisition) 5 years
Merchant relationships 1 - 7 years
Developed technologies 5 years
Domain names 3 - 6.75 years
Internally developed software
The amortisation expense is recognised within administrative
expenses in the consolidated statement of comprehensive income.
Property, plant and equipment
Property, plant and equipment are held under the cost model and
are stated at historical cost less accumulated depreciation and any
accumulated impairment losses. Historical cost includes expenditure
that is directly attributable to bringing the asset to the location
and condition necessary for it to be capable of operating in the
manner intended by management.
Subsequent costs are included in the asset's carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured
reliably. All other repairs and maintenance expenditures are
charged to the Consolidated statement of comprehensive income
during the financial year in which they are incurred. Depreciation
is calculated using the straight-line method to write off the cost
of each asset to its residual value over its estimated useful life
as follows:
Office equipment and furniture 3- 5 years on cost
Computer equipment and software 3- 5 years on cost
Leasehold improvement 6.5 years on cost
Right-of-use assets Shorter of useful life of the asset or
lease term
Gains and losses on disposals are determined by comparing the
disposal proceeds with the carrying amount and are included in the
Consolidated statement of comprehensive income.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at
call with banks, and other short term highly liquid investments
with original maturities of three months or less. Bank overdrafts
are shown with borrowings in currently liabilities on the
Consolidated statement of comprehensive income.
Restricted cash
The restricted cash does not meet the definition of cash and
cash equivalents and is therefore separately disclosed in the
Group's statement of financial position and is not part of the cash
and cash equivalents for cash flow purposes. These cash amounts are
restricted as to withdrawal or use under the terms of certain
contractual agreements.
Financial assets
The Group's financial assets mainly comprise cash, trade and
other receivables.
Trade receivables are initially recognised at fair value and
subsequently measured at amortised cost less provisions for
impairment based upon an expected credit loss methodology. The
Group applies the IFRS 9 simplified approach to measuring expected
credit losses which uses a lifetime expected loss allowance matrix
for all trade receivables (including accrued receivables). A
provision of the lifetime expected credit loss is established upon
initial recognition of the underlying asset and are calculated
using historical account payment profiles along with historical
credit losses experienced. The loss allowance is adjusted for
forward looking factors specific to the debtor and the economic
environment. The amount of the provision is recognised in the
Consolidated statement of comprehensive income.
A financial asset has also been recognised for the cash held
into a third party escrow account that exceeds the fair value of
contingent consideration expected to be paid and that is therefore
expected to be returned to the Company in connection with the
acquisition of Fortumo (see note 26).
Financial liabilities
Financial liabilities are recognised when the Group becomes a
party to the contractual agreements of the instrument. The Group's
financial liabilities are categorised as loans and Trade and other
payables.
At initial recognition,
-- Financial liabilities (trade and other payables, excluding
other taxes and social security costs and deferred income), are
measured at their fair value plus, if appropriate, any transaction
costs that are directly attributable to the issue of the financial
liability. These financial liabilities are subsequently carried at
amortised cost.
-- Bank borrowings are initially recognised at fair value net
any of transaction costs directly attributable to the issue of the
instrument. Such interest-bearing liabilities are subsequently
measured at amortised cost ensuring the interest element of the
borrowing is expensed over the repayment period at a constant
rate.
Leases
IFRS 16 "Leases"' sets out the principles for the recognition,
measurement, presentation and disclosures of leases and requires
lessees to account for most leases under a single on-balance sheet
model. The Group has applied IFRS 16 'Leases' from 1 January
2019.
Right-of-use assets
The Group recognises right-of-use assets at the commencement
date of the lease (i.e. the date the underlying asset is available
for use). Right-of-use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted for
any remeasurement of lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognised, initial
direct costs incurred, and lease payments made on or before the
commencement date less any lease incentives received. Unless the
Group is reasonably certain to obtain ownership of the leased asset
at the end of the lease term, the recognised right-of-use assets
are depreciated on a straight-line basis over the shorter of its
estimated useful life and the lease term. Right-of-use assets are
subject to impairment.
Lease liabilities
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments (including in-substance fixed payments) less any lease
incentives receivable, variable lease payments that depend on an
index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise
price of a purchase option reasonably certain to be exercised by
the Group and payments of penalties for terminating a lease, if the
lease term reflects the Group exercising the option to terminate.
The variable lease payments that do not depend on an index or a
rate are recognised as expense in the period on which the event or
condition that triggers the payment occurs. In calculating the
present value of lease payments, the Group uses the incremental
borrowing rate at the lease commencement date if the interest rate
implicit in the lease is not readily determinable. After the
commencement date, the amount of lease liabilities is increased to
reflect the accretion of interest and reduced for the lease
payments made. In addition, the carrying amount of lease
liabilities is remeasured if there is a modification, a change in
the lease term, a change in the in-substance fixed lease payments
or a change in the assessment to purchase the underlying asset.
Short-term leases and leases of low-value assets The Group
applies the short-term lease recognition exemption to its
short-term leases of machinery and equipment (i.e., those leases
that have a lease term of 12 months or less from the commencement
date and do not contain a purchase option). It also applies the
lease of low-value assets recognition exemption to leases of office
equipment that are considered of low value (i.e., below GBP5,000).
Lease payments on short-term leases and leases of low-value assets
are recognised as an expense on a straight-line basis over the
lease term.
Incremental borrowing rate
IFRS 16 Leases requires that all the components of the lease
liability (as described in section 5.1. Leases) are required to be
discounted to reflect the present value of the payments. The
discount rate to use is the rate implicit in the lease, unless this
cannot readily be determined, in which case the lessee's
incremental borrowing rate is used instead.
The definition of the lessee's incremental borrowing rate states
that the rate should represent what the lessee 'would have to pay
to borrow over a similar term and with similar security, the funds
necessary to obtain an asset of similar value to the right-of-use
asset in a similar economic environment.' In applying the concept
of 'similar security', a lessee uses the right-of-use asset granted
by the lease and not the fair value of the underlying asset. This
is because the rate should represent the amount that would be
charged to acquire an asset of similar value for a similar
period.
In practice, judgement may be needed to estimate an incremental
borrowing rate in the context of a right-of-use asset, especially
when the value of the underlying asset differs significantly from
the value of the right-of-use asset.
The analysis showed that the incremental borrowing rate as at
1(st) January 2019 was 8.5% which was used as discount rate for all
leases in all subsidiaries, which were acquired before 1(st) July
2020. The Group borrowed funds from its bankers in June 2020 and
reviewed the incremental borrowing rate to be 4.285% and applied
this rate to all leases acquired after 1(st) July 2020.
The discount rate will be revised, in line with IFRS 16, and the
lease liability remeasured only when:
- there is a change in the lease term,
- a change in the assessment of whether the lessee is reasonably
certain to exercise an option to purchase the underlying asset
or
- -a change in floating interest rates, resulting in a change in
the future lease payments (this approach is consistent with IFRS
9's requirement for the measurement of a floating rate financial
liabilities subsequently measured at amortised cost)
A lessee is not required to reassess the discount rate when
there is a change in future lease payments due to a change in an
index. - e.g. the consumer price index.
Share Capital
Financial instruments issued by the Group are treated as equity
only to the extent that they do not meet the definition of a
financial liability. The Group's ordinary share capital and share
premium are classified as equity instruments.
Taxation
Current tax
Current taxes are based on the results shown in the financial
statements and are calculated according to local tax rules, using
tax rates enacted or substantially enacted at the balance sheet
date.
Deferred tax
Deferred tax assets and liabilities are recognised where the
carrying amount of an asset or liability in the consolidated
statement of financial position differs from its tax base, except
for differences arising on:
-- the initial recognition of goodwill;
-- the initial recognition of an asset or liability in a
transaction which is not a business combination and at the time of
the transaction affects neither accounting or taxable profit;
and
-- investments in subsidiaries where the Group is able to
control the timing of the reversal of the difference and it is
probable that the difference will not reverse in the foreseeable
future.
Recognition of deferred tax assets is restricted to those
instances where it is probable that taxable profit will be
available against which the difference can be utilised.
The amount of the asset or liability is determined using tax
rates that have been enacted or substantively enacted by the
balance sheet date and are expected to apply when the deferred tax
liabilities or assets are settled or recovered. Deferred tax
balances are not discounted.
Deferred tax assets and liabilities are offset when the Group
has a legally enforceable right to offset current tax assets and
liabilities and the deferred tax assets and liabilities relate to
taxes levied by the same tax authority on either:
-- the same taxable group company; or
-- different company entities which intend either to settle
current tax assets and liabilities on a net basis, or to realise
the assets and settle the liabilities simultaneously, in each
future period in which significant amounts of deferred tax assets
and liabilities are expected to be settled or recovered.
Business combinations
The acquisition of subsidiaries is accounted for using the
acquisition method. The cost of the acquisition is measured at the
aggregate of the fair values, at the date of exchange, of assets
given, liabilities incurred or assumed, and equity instruments
issued by the Group in exchange for control of the acquiree. Costs
related to acquisitions, other than those directly attributable to
the issue of debt or equity, are expensed as incurred.
Goodwill arising on acquisition is recognised as an asset and
initially measured at cost, being the excess of the cost of the
business combination over the Group's interest in the net fair
value of the identifiable assets, liabilities and contingent
liabilities recognised. If, after reassessment, the Group's
interest in the net fair value of the acquiree's identifiable
assets, liabilities and contingent liabilities exceeds the cost of
the business combination, the excess is recognised immediately in
the profit or loss.
Critical accounting estimates and judgements
In preparing these Consolidated financial statements, the Group
has made its best estimates and judgements of certain amounts
included in the financial statements, giving due consideration to
materiality. The Group regularly reviews these estimates and
updates them as required. Actual results could differ from these
estimates. Unless otherwise indicated, the Group does not believe
that there is a significant risk of a material change to the
carrying value of assets and liabilities within the next financial
year related to the accounting estimates and assumptions described
below. The Group considers the following to be a description of the
most significant estimates and judgements, which require the Group
to make subjective and complex judgements and matters that are
inherently uncertain.
(a) Goodwill, Intangible assets acquired in a business combination
As set out in the accounting policies above, intangible assets
acquired in a business combination are capitalised and amortised
over their useful lives. Both initial valuations and valuations for
subsequent impairment tests are based on risk adjusted future cash
flows discounted using appropriate discount rates. These future
cash flows are based on forecasts which are inherently judgemental.
Future events could cause the assumptions to change which could
have an adverse effect on the future results of the Group. Refer to
note 11 for a description of the specific estimates and judgements
used including the critical accounting estimates and judgments used
in the calculation of the goodwill impairment.
(b) Share-based payments
The Group measures the cost of equity-settled transactions with
employees by reference to the fair value of the equity instruments
at the date at which they are granted. Estimating fair value for
share-based payment transactions requires determining the most
appropriate valuation model, which is dependent on the terms and
conditions of the grant. This estimate also requires determining
the most appropriate inputs to the valuation model including the
expected life of the share option, volatility and dividend yield
and making assumptions about them. Where such a model is required,
the group is using the Black Scholes model to calculate its
share-based compensation expenses. (Please refer to note 20 for
full details).
(c) Taxation
In recognising income tax assets and liabilities, management
makes estimates of the likely outcome of decisions by tax
authorities on transactions and events whose treatment for tax
purposes is uncertain. Where the final outcome of such matters is
different, or expected to be different, from previous assessments
made by management, a change to the carrying value of income tax
assets and liabilities will be recorded in the period in which such
a determination is made. In recognising deferred tax assets and
liabilities management also makes judgements about likely future
taxable profits. The carrying values of current tax and deferred
tax assets and liabilities are disclosed separately in the
consolidated statement of financial position.
(d) Impairment of goodwill and other intangible assets
The Group has carried out an impairment review of its Identity
cash generating unit ("CGU") and recognised an impairment loss on
goodwill in the year. The recoverable amount of the CGU is based on
estimates of future cash flows discounted using an appropriate
discount rate. Estimates of future cash flows are inherently
uncertain as the long-term impact of the Covid-19 pandemic on the
general economy is unclear. To take account of this uncertainty,
management have used the "expected cash flow approach" which
involves probability weighting several alternate scenarios.
It is possible that changes in economic conditions or deviations
in actual performance from forecast could result in a material
adjustment to the carrying value of the CGU within the next
financial year. The key estimates made by management are set out in
note 11. The information in note 11 also provides an indication of
the amount of any further impairment for other reasonably possible
outcomes.
3. Financial instruments - Risk Management
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies. The overall
objective of the Board is to set policies that seek to reduce risk
as far as possible without unduly affecting the Group's
competitiveness and flexibility. The Group reports in US$. All
funding requirements and financial risks are managed based on
policies and procedures adopted by the Board of Directors. The
Group does not issue or use financial instruments of a speculative
nature.
The Group is exposed to the following financial risks:
-- Market risk
-- Credit risk
-- Liquidity risk
In common with all other businesses, the Group is exposed to
risks that arise from its use of financial instruments. The
principal financial instruments used by the Group, from which
financial instrument risk arises, are as follows:
-- Trade and other receivables
-- Cash and cash equivalents and restricted cash
-- Trade and other payables
-- Bank loans
To the extent financial instruments are not carried at fair
value in the consolidated statement of financial position, book
value approximates to fair value at 31 December 2020 and 31
December 2019
Trade and other receivables are measured at book value and
amortised cost. Book values and expected cash flows are reviewed by
the Board and any impairment charged to the consolidated statement
of comprehensive income in the relevant period.
Trade and other payables are measured at book value and
amortised cost.
Financial instruments by category
31 December 31 December
Financial assets 2020 2019
$'000 $'000
----------------------------------------- ----------------------------- ------------
Cash and cash equivalents 61,290 34,747
Restricted cash 1,414 876
------------------------------------------ ----------------------------- ------------
Total Cash 62,704 35,623
------------------------------------------ ----------------------------- ------------
Accounts receivable (net) 86,360 50,165
Other receivables (including contingent
asset) 3,100 373
Note receivable from shareholder - 793
------------------------------------------ ----------------------------- ------------
Total other financial assets 89,460 51,331
------------------------------------------ ----------------------------- ------------
Cash, and other financial assets 152,164 86,954
------------------------------------------ ----------------------------- ------------
Financial liabilities
31 December 31 December
2020 2019
$'000 $'000
------------------------------------ ------------ ------------
Trade payables 105,376 68,128
Accruals 28,135 7,799
Total other financial liabilities 133,511 75,927
------------------------------------- ------------ ------------
Bank loans (secured) 12,250 2,098
Lease liabilities 3,178 1,723
Loans and borrowings 15,428 3,821
Financial liabilities at amortised
cost 148,939 79,748
------------------------------------- ------------ ------------
The management of risk is a fundamental concern of the Group's
management. This note summarises the key financial risks to the
Group and the policies and procedures put in place by management to
manage them.
a) Market risk
Market risk arises from the Group's use of interest bearing and
foreign currency financial instruments. There is a risk that the
fair value or future cash flows of a financial instrument will
fluctuate because of changes in interest rates (interest rate risk)
or foreign exchange rates (currency risk).
Interest rate risk
The Group is exposed to cash flow interest rate risk from bank
borrowings at variable rates but with a lower floor. The Group's
bank borrowings and other borrowings are disclosed in note 17. The
interest rates for the current Boku bank loan are based on LIBOR.
LIBOR is currently expected to be phased out by the end of 2021.
Various financial authorities including the Financial Conduct
Authority ("FCA") announced that it will no longer compel the banks
to submit to LIBOR after 2021. Therefore, the availability of LIBOR
post December 31, 2021 is not guaranteed and could have an effect
on the interest rates of the current loan. The management has been
in discussion with its bankers and is expecting that the current
contracts will be settled at similar or equivalent rates after
transition and does not expect this change to have a material
effect on the Group finances. The Group manages the interest rate
risk centrally.
The following table demonstrates the sensitivity to a 1 percent
change (higher only due to the fixed lower floor) to the interest
rates of the following borrowings at 31 December 2020 to the profit
before tax and net assets for the period:
31 December 2020 31 December 2019
Increase/(decrease) of loss before tax and net Increase/(decrease) of loss before tax and net
assets assets
$'000 $'000
------------ ------------------------------------------------- --------------------------------------------------
Bank loans +124 +/-20
------------- ------------------------------------------------- --------------------------------------------------
Foreign exchange risk
Foreign exchange risk is the risk that movements in exchange
rates affect the profitability of the business. The company manages
this risk through natural hedging and spot contracts.
The effect of fluctuations in exchange rates on the Euro and GBP
denominated trade receivables is partially offset through the use
of foreign exchange contracts to the extent that any remaining
impact on profit after tax is not material.
As at December 31, 2020, the Company had no (2019: nil) foreign
currency forward contracts totalling a notional amount of $Nil
(2019: $Nil).
The Group aims to fund expenses and investments in the
respective currency and to manage foreign exchange risk at a local
level by matching the currency in which revenue is generated and
expenses are incurred. The Group manages all treasury activities
centrally, with the exception of the newly acquired Fortumo
entities where treasury processes are in the process of being
aligned with group treasury policies and procedures.
As of 31 December, the Group's gross exposure to foreign
exchange risk was as follows:
GBP Euro Other Total
31 December 2020 $'000 $'000 $'000 $'000
----------------------------- --------- --------- --------- ----------
Trade and other receivables 11,630 25,375 46,476 83,481
Cash and cash equivalents
and restricted cash 10,083 15,912 21,053 47,048
Trade and other payables (21,138) (60,967) (41,542) (123,647)
Financial assets 575 (19,680) 25,987 6,882
----------------------------- --------- --------- --------- ----------
10% impact - +/- 64 (2,187) 2,887 765
GBP Euro Other Total
31 December 2019 $'000 $'000 $'000 $'000
----------------------------- --------- --------- --------- ---------
Trade and other receivables 14,856 19,180 15,198 49,234
Cash and cash equivalents
and restricted cash 13,307 8,445 10,308 32,060
Trade and other payables (22,113) (24,684) (22,646) (69,443)
Financial assets 6,050 2,941 2,859 11,851
10% impact - +/- 672 327 318 1,317
The impact of 10% movement in foreign exchange rate of US$ will
result in an increase/decrease of total comprehensive loss after
tax and financial assets/(liabilities) of $765 thousands for
December 2020 (2019: $1,317 thousands).
b) Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations. The Group is mainly exposed to credit
risk from credit sales. The Group's net trade receivables for the
three reported periods are disclosed in the financial assets table
above.
The Group is exposed to credit risk in respect of these balances
such that, if one or more the aggregators or MNOs encounters
financial difficulties, this could materially and adversely affect
the Group's financial results. The Group attempts to mitigate
credit risk by assessing the credit rating of new customers prior
to entering into contracts and by entering contracts with customers
with agreed credit terms.
To minimise this credit risk, the Group endeavours only to deal
with companies which are demonstrably creditworthy and this,
together with the aggregate financial exposure, is continuously
monitored. The maximum exposure to credit risk is the value of the
outstanding amount.
At the reporting date, the largest exposure was represented by
the carrying value of trade and other receivables, against which
$1,323 is provided at 31 December 2020 (2019: $2,002). The
provision represents an estimate of potential bad debt in respect
of the year-end trade receivables, a review having been undertaken
of each such year-end receivable. The Group's customers are spread
across a broad range of sectors and consequently it is not
otherwise exposed to significant concentrations of credit risk on
its trade receivables.
A debt is considered to be bad when it is deemed irrecoverable,
for example when the debtor goes into liquidation, or when a credit
or partial credit is issued to the customer for goodwill or
commercial reasons. The Group has applied the Simplified Approach
applying a provision matrix based on number of days past due to
measure lifetime expected credit losses and after taking into
account customer sectors with different credit risk profiles and
current and forecast trading conditions.
The Group's provision matrix is as follows:
31-Dec-20 < 60 days 61-120 121-150 > 150 days Total
days days
--------------------------- -------------- -------------- -------------- ----------- --------
Expected credit loss %
range 0% 0% 0% 95%-100%
Gross debtors ($'000) 82,597 1,880 1,883 1,323 87,683
Expected credit loss rate
($'000) - - - (1,323) (1,323)
--------------------------- -------------- -------------- -------------- ----------- --------
86,360
At 31 December 2019 the Group had a provision for $2 million of
which $25 thousands was utilised and $705 thousands was fully
reversed in the year - see Note 13 for full details of the movement
in the year. The total provision for trade and accrued receivable
as at 31 December 2020 was $1.3 million.
31-Dec-19 < 60 days 61-120 121-150 > 150 days Total
days days
--------------------------- -------------- -------------- -------------- ----------- --------
Expected credit loss %
range 0% 0% 0% 95%-100%
Gross debtors ($'000) 49,265 173 611 2,117 52,166
Expected credit loss rate
($'000) - - - (2,002) (2,002)
--------------------------- -------------- -------------- -------------- ----------- --------
50,165
At 31 December 2018 the Group had a provision for $1,958 of
which $101 was fully written off during 2019. The total provision
of trade and accrued receivables as at 31 December 2019 was
$2,002.
Other receivables are considered to be low risk. The management
do not consider that there is any concentration of risk within
other receivables. No other receivables have been impaired.
Credit risk on cash and cash equivalents is considered to be
small as the counterparties are all substantial banks with high
credit ratings. The maximum exposure is however the amount of the
deposit. To date, the Group has not experienced any losses on its
cash and cash equivalent deposits.
c) Liquidity risk
Liquidity risk arises from the Group's management of working
capital. It is the risk that the Group will encounter difficulty in
meeting its financial obligations as they fall due. The Group's
policy is to ensure that it will always have sufficient cash to
allow it to meet its liabilities when they become due. The table
below analyses the Group's financial liabilities by contractual
maturities (all amounts disclosed in the table are the undiscounted
contractual cash flows):
31 December 2020 Within 1 year 2-5 years More than 5 years
$'000 $'000 $'000
-------------------------------------- ---------------- ---------- ------------------
Trade and other payables 136,779 862 -
Bank loans and overdrafts (secured)* 1,438 10,813 -
Leases liabilities 1,625 1,937 -
-------------------------------------- ---------------- ---------- ------------------
Total 139,653 13,612 -
-------------------------------------- ---------------- ---------- ------------------
*No material difference between discounted and undiscounted fair
value.
31 December 2019 Within 1 year 2-5 years More than 5 years
$'000 $'000 $'000
------------------------------------- -------------- ---------- ------------------
Trade and other payables 77,995 791 -
Bank loans and overdrafts (secured) 2,098 - -
Leases liabilities 1,914 1,482 -
------------------------------------- -------------- ---------- ------------------
Total 80,007 2,273 -
------------------------------------- -------------- ---------- ------------------
Capital Management
The Group's capital is made up of share capital, foreign
exchange reserve and retained losses.
The Group's objectives when maintaining capital are:
-- To safeguard the entity's ability to continue as a going
concern, so that it can continue to provide returns for
shareholders and benefits for other stakeholders; and
-- To provide an adequate return to shareholders by pricing
products and services commensurately with the level of risk.
The capital structure of the Group consists of shareholders'
equity as set out in the consolidated statement of changes in
equity. All working capital requirements are financed from existing
cash resources and borrowings.
4. Segmental analysis
(a) Operating Segments - primary basis
Prior to 1 Jan 2019, the Group considered that for executive
management purposes, the Group had one reportable segment -
provision of a payment platform for processing payments for virtual
goods and digital goods purchases. Following the acquisition of
Danal Inc on 1 January 2019, the Group revised its activities into
two operating segments as disclosed below. The segments are based
on the Group's main revenue generating activities. On 1(st) July
2020, the Group completed the acquisition of Fortumo Holdings Inc
and its subsidiaries. Fortumo was a competitor to Boku and operates
in the same space as the Boku existing payments business.
Therefore, the results of the Fortumo O (the trading subsidiary of
Fortumo Holdings Inc) and its subsidiaries together with the
existing Boku Payments business are viewed by the management as one
segment. The Group CEO and CFO review the management reports for
both segments monthly before sending the results to the Board.
The following summary describes the operations in each of the
Group's reportable segments:
Payments Segment - provision of payment platform which enables
mobile phone users to buy goods and services and charge them to
their mobile phone or prepaid balance.
Identity Segment - provision of Identity services which are used
to simplify transactions or combat fraud.
Operating segment information under the primary reporting format
is disclosed below:
2020
Boku Income Statement by segment
for 12 months to 31 December 2020 Total Payments Total Identity Total
--------------- ---------------
$'000 $'000 $'000
Fee Revenue 51,231 5,171 56,402
Cost of sales (1,669) (3,256) (4,925)
--------------- --------------- ---------
Gross Profit 49,562 1,915 51,477
Administrative Expenses (39,737) (28,463) (68,200)
--------------- --------------- ---------
Operating gain/(loss) analysed
as:
Adjusted EBITDA* 19,176 (3,908) 15,268
Payments Revenue Adjustment (non-recurring)
Depreciation and amortisation (4,726) (1,191) (5,917)
Stock Option expense (4,010) (915) (4,925)
Goodwill impairment - (20,775) (20,775)
Foreign exchange gains 807 241 1,048
Exceptional items (included in
administrative expenses) (1,422) - (1,422)
--------------- --------------- ---------
Operating gain/(loss) 9,825 (26,548) (16,723)
Finance income 70 - 70
Finance expense (649) (13) (662)
--------------- --------------- ---------
Profit/(Loss) before tax 9,246 (26,561) (17,315)
Tax expense (1,469) (1) (1,470)
--------------------------------------------- --------------- --------------- ---------
Net gain/(loss) for the period
attributable to equity holders
of the parent company 7,777 (26,562) (18,785)
--------------- --------------- ---------
*Earnings before interest, tax, depreciation, amortisation,
non-recurring payment revenue, stock option expense, foreign
exchange gains/(losses), impairment of goodwill and exceptional
items. Management has assessed this performance measure as relevant
for the user of the accounts.
Boku Income Statement by segment
for
12 months to 31 December 2019 2019
-------------------------------
Payments Identity Total
$'000 $'000 $'000
Fee Revenue 43,473 6,675 50,148
Cost of sales (1,641) (3,922) (5,563)
--------- --------- ---------
Gross Profit 41,832 2,753 44,585
Administrative Expenses (36,053) (9,416) (45,469)
--------- --------- ---------
Operating Profit/(loss) analysed
as:
Adjusted EBITDA* 12,687 (5,284) 7,403
Payment Revenue adjustment (non-recurring) 3,255 - 3,255
Depreciation and amortisation (3,968) (493) (4,461)
Stock Option expense (6,013) (758) (6,771)
Foreign exchange gains/(losses) 112 (5) 107
Exceptional items (included in
administrative expenses) (294) (123) (417)
--------- --------- ---------
Operating Profit/(loss) 5,779 (6,663) (884)
Finance income 56 0 56
Finance expense (432) (36) (468)
--------- --------- ---------
Profit/(Loss) before tax 5,403 (6,699) (1,296)
Tax (expense)/credit 1,653 (2) 1,651
---------
Net Profit/(loss) for the period
attributable to equity holders
of the parent company 7,056 (6,701) 355
--------- --------- ---------
During 2019, an adjustment of $3,255k has been recognised in
payments revenue as a result of a change in the estimate of
transaction price for a specific customer, and for whom the
performance obligations were satisfied in a previous year. As this
amount is non-recurring it has been excluded from 'Adjusted
EBITDA', as noted on the Consolidated Statement of Comprehensive
Income and in the table above.
The net assets for each segment are disclosed below:
Net Assets by segment 2020
-----------------------------------------------
Payments Identity Consolidated
Non-current assets $'000 $'000 $'000
Property, plant, and equipment 3,749 22 3,771
Intangible assets 60,252 5,307 65,559
Deferred tax assets 483 - 483
Total non-current assets 64,484 5,329 69,813
Current Assets
Trade and other receivables 91,122 1,413 92,535
Cash and cash equivalents 61,038 252 61,290
Restricted cash 1,414 - 1,414
--------- -------------------- --------------
Total current assets 153,574 1,665 155,239
Total assets 218,058 6,994 225,052
Current liabilities
Trade and other payables 135,203 1,576 136,779
Loans and borrowings 2,863 11 2,874
--------- -------------------- --------------
Total current liabilities 138,066 1,587 139,653
Non-current liabilities
Trade and other payables 1,090 - 1,090
Loans and borrowings 12,560 (5) 12,555
--------- -------------------- --------------
Total non- current liabilities 13,650 (5) 13,645
Total liabilities 151,716 1,582 153,298
Net assets/(liabilities) 66,342 5,412 71,754
(b) Geographic segment - secondary basis
The geographical analysis of the revenue by location of the
users and segment is presented below:
Group Revenue Payments Identity Total
by Region
and Segment
--------------------------------
Dec-20 % Dec-20 % Dec-20 %
' 000 USD YTD YTD YTD
------- ------- -------
Americas 1,556 3.0% 4,847 93.7% 6,403 11.4%
----------------------- ------- ------- -------
APAC 28,398 55.4% 90 1.7% 28,488 50.3%
----------------------- ------- ------- -------
EMEA 21,277 41.5% 234 4.5% 21,511 38.1%
----------------------- ------- ------- -------
Grand Total 51,231 100.0% 5,171 100.0% 56,402 100.0%
----------------------- ------- ------- -------
Group Revenue Payments Identity Total
by Region
and Segment
--------------------------------
Dec-19 % Dec-19 % Dec-19 %
' 000 USD YTD YTD YTD
------- ------- -------
Americas 5,573 12.8% 6,460 96.8% 12,033 24.0%
----------------------- ------- ------- -------
APAC 19,290 44.4% - - 19,290 38.5%
----------------------- ------- ------- -------
EMEA 13,410 30.8% 215 3.2% 13,625 27.2%
----------------------- ------- ------- -------
UK/Ireland 5,200 12.0% - - 5,200 10.4%
----------------------- ------- ------- -------
Grand Total 43,473 100.0% 6,675 100.0% 50,148 100.0%
----------------------- ------- ------- -------
An analysis of non-current assets by geographical market is
given below:
2020 2019
$'000 $'000
-------------------------- ------- -------
United States of America 47,613 48,841
Europe 20,996 526
Rest of the World 721 963
--------------------------- ------- -------
Total 69,330 50,330
--------------------------- ------- -------
5. Administrative expenses (including exceptional items)
2020 2019
$'000 $'000
----------------------------------------------- ---------- ----------
Audit fees - BDO LLP 361 274
Third party audit fees specific to FY
2020- EY 45 -
Taxation services (not performed by auditor) 289 318
Professional services not performed by
auditor 122 157
Consultancy and compliance services 1,005 730
Staff costs (excluding stock option expense
- note 6) 29,032 25,434
Travel & entertainment 343 1,859
Property occupancy costs 935 928
Total IT, development and hosting 2,721 1,917
Total banking costs 52 240
Legal fees 718 1,120
Other costs including marketing, support
& testing and other administration expenses 586 950
------------------------------------------------ ---------- ----------
Operating Expenses, excluding items in
Adjusted EBITDA 36,209 33,927
------------------------------------------------ ---------- ----------
Depreciation of property, plant and equipment 2,446 2,176
Amortisation of intangible assets 3,471 2,285
Impairment of goodwill (Identity Business) 20,775 -
Foreign exchange gains (1,048) (107)
Exceptional items - impairment of investments - 13
Exceptional items - restructuring costs 184 404
Exceptional items - acquisition costs 1,238 -
Share - based expenses (note 20) 4,925 6,771
------------------------------------------------ ---------- ----------
Total administrative expenses 68,200 45,469
------------------------------------------------ ---------- ----------
6. Staff costs
2020 2019
$'000 $'000
----------------------- -------------------- ------------------------
Wages and salaries 24,346 20,664
Short-term benefits 1,281 1,350
Social security costs 2,570 1,858
Pension costs 269 397
Other staff costs 566 1,166
------------------------ -------------------- ------------------------
Total staff costs 29,032 25,434
------------------------ -------------------- ------------------------
Share-based costs 4,925 6,771
------------------------ -------------------- ------------------------
Total 33,957 32,205
------------------------ -------------------- ------------------------
Other staff costs include contractor costs, relocation,
recruiting and training costs for the group.
Key management personnel compensation was made up as
follows:
2020 2019
$'000 $'000
----------------------- ------------------------- -------------------
Salaries 2,431 2,075
Short-term benefits 41 44
Social security costs 240 298
Stock option expense 1,464 1,329
Pension costs 7 35
Total 4,183 3,781
------------------------- ------------------------- -------------------
Directors' remuneration included in staff costs:
2020 2019
$'000 $'000
---------------------------- ----------------------- ------
Salaries including bonuses 1,077 917
Short-term benefits 3 4
Total 1,080 921
----------------------------- ----------------------- ------
The Information regarding the highest paid director is as
follows:
2020 2019
$'000 $'000
------------------------- ------ ------
Total remuneration paid 515 385
-------------------------- ------ ------
number of employees at the end of the period was as follows:
2020 2019
----------------------------- ----- -----
Management 7 6
Operations & administration 298 208
------------------------------ ----- -----
Total 305 214
------------------------------ ----- -----
7. Finance income and expenses
2020 2019
$'000 $'000
-------------------------------------------- --------------- ------
Finance income
Interest income from bank deposits 70 56
---------------------------------------------
Total 70 56
--------------------------------------------- --------------- ------
Finance expenses
Interest on bank loans & overdrafts 277 150
Other interest payable (including interest
paid for factoring) 31 30
Interest on lease liabilities 292 288
Amortisation of debt costs 62
Total 662 468
--------------------------------------------- --------------- ------
-
Net finance expenses 592 412
--------------------------------------------- --------------- ------
8. Income tax
2020 2019
$'000 $'000
--------------------------------------------------- ------- --------
Current tax
US tax 2 2
Foreign tax 374 135
Total current tax 376 137
---------------------------------------------------- ------- --------
Deferred tax expense/(credit) 1,094 (1,866)
Origination and reversal of temporary differences - 78
---------------------------------------------------- ------- --------
Total tax expense/(credit) 1,470 (1,651)
---------------------------------------------------- ------- --------
The reasons for the difference between the actual tax charge for
the period and the applicable rate of income tax of the US
reporting entity applied to the result for the period are as
follows:
2020 2019
$'000 $'000
---------------------------------------------- --------- --------
Loss before tax (17,315) (1,296)
Tax rate 21% 21%
Loss before tax multiplied by the applicable
rate of tax: (3,636) (272)
US state tax - 1
Losses recognised/(not recognised) 140 (1,498)
Expenses not deductible for tax purposes 4,628 54
Withholding taxes 68 69
Tax losses - (27)
Others 270 22
----------------------------------------------- --------- --------
Total tax expense/(credit) 1,470 (1,651)
----------------------------------------------- --------- --------
Deferred Tax
2020 2019
$'000 $'000
---------------------------------------------- ---- ------------ ------
Net opening position 1,377 (417)
Arising from business combinations - -
Recognition (de-recognition) / in the
year (1,094) 1,808
Foreign exchange revaluation (30) (14)
Net closing position 253 1,377
---------------------------------------------- ---- ------------ ------
The net closing position is made up of:
o A deferred tax liability of $227,956 (2019: $488,860): This
constitutes tax positions connected with the Group's German
subsidiary in relation to available losses and the deferred tax
liability associated with intangible assets acquired as part of the
legacy business combination with the group's now German business.
The difference is the amount of $260,904 used in 2020.
o The deferred asset of $482,573 (2019: $1,826,570). This relates to losses primarily in UK tax jurisdictions. The difference is the amount reversed in 2020 taking account of management re-appraising the usability of certain tax losses and future transaction volumes through its UK incorporated entities expected to reduce profitability, as a share of contracted and future revenues will now likely, taking account of Brexit, flow into other European companies in the group.
A deferred tax asset (liability) has not been recognised
for the following:
2020 '000 2019 '000
------------------- ----------
Non- deductible Reserves 100 229
Accrued Compensation 161 60
Stock Based Compensation 1,857 1,637
Other temporary and deductible differences 648 829
Accelerated Capital Allowances (1,000) (401)
Acquired Intangibles (245) (334)
Unused tax credits 189 189
Unused tax losses 30,816 30,448
Total deferred tax assets 32,526 32,657
=================== ==========
The Group has carried forward losses and accelerated timing
differences at the reporting date as shown below. In respect of its
UK subsidiary, these can be carried forward and offset against UK
taxable income indefinitely. In respect of its US entities, net
operating loss carry forwards can be carried forward and offset
against taxable income for 20 years for losses incurred up to and
including 31 December 2017. All net operating loss carry forwards
incurred after 31 December 2017 can be carried forward and offset
against US taxable income indefinitely. Utilisation of net
operating loss or tax credit carry forwards may be subject to
annual limitations if an ownership change had occurred pursuant to
the section 382 Internal Revenue Code and similar state provisions.
Such an annual limitation could result in the expiration of net
operating loss and tax credit carry forwards before utilisation. As
the timing and extent of taxable profits are uncertain, the
deferred tax asset arising on these losses and accelerated timing
differences below has not been recognised in the financial
statements.
2020 2019
$'000 $'000
----------------------------------------------- -------- --------
US losses and tax credit - federal and
states 181,516 177,843
Non-US losses (includes US entities
deemed to be under non-US tax jurisdictions) 5,021 10,602
Total 186,537 188,445
------------------------------------------------ -------- --------
The unused tax losses must be utilised by various dates. German
tax losses of $573,466 must be used before 2022. U.S. federal tax
losses of $176,021,081 expire in various dates through 2027. Other
unused losses of $5,494,733 do not expire.
9. Profit / (Loss) per share
2020 2019
--------------------------------------------- ------------ ------------
(Loss)/ Profit attributable to shareholders
of the Company ($'000) (18,785) 355
Weighted average number of common shares 273,836,772 246,752,100
---------------------------------------------- ------------ ------------
Basic (loss)/ profit per share (0.069) 0.001
---------------------------------------------- ------------ ------------
Profit or Loss per share is calculated based on the share
capital of Boku, Inc. and the earnings of the Group.
In 2020, due to the loss in the reporting period diluted loss
per share is the same as basic loss per share. Due to the small
profit during 2019, the effect of the share options is immaterial
and hence diluted profit per share is the same as the basic profit
per share in 2019.
10. Property, plant and equipment
Computer Office equipment
Right of equipment and fixtures Leasehold
use assets & software and fittings improvement Total
$'000 $'000 $'000 $'000
------------------ ------------------------- ------------------------- --------------------------- ----------------------- ----------------------
COST
At 1 January
2019 - 842 534 98 1,474
Additions 4,327 383 39 55 4,804
Acquisitions 621 - 1,041 36 1,698
Disposals - (10) (7) (5) (22)
Reclassification 78 - (78) - -
Exchange
Adjustment (34) (2) (4) - (40)
------------------ ------------------------- ------------------------- --------------------------- ----------------------- ----------------------
As at 31December
2019 4,992 1,213 1,525 184 7,914
------------------ ------------------------- ------------------------- --------------------------- ----------------------- ----------------------
Additions 1,526 215 109 171 2,021
Acquisitions 542 2 22 - 566
Disposals (30) (2) (37) - (69)
Exchange
adjustment 192 8 26 8 234
------------------ ------------------------- ------------------------- --------------------------- ----------------------- ----------------------
At 31 December
2020 7,222 1,436 1,645 363 10,666
------------------ ------------------------- ------------------------- --------------------------- ----------------------- ----------------------
DEPRECIATION
At 1 January
2019 - 707 411 70 1,188
Acquisitions - - 1,029 29 1,058
Charge for the
year 1,948 110 100 18 2,176
Disposals - (10) (71) (5) (22)
Reclassification 57 - (57) - -
Exchange
adjustment 4 (7) (3) 8 2
------------------ ------------------------- ------------------------- --------------------------- ----------------------- ----------------------
At 31 December
2019 2,009 800 1,473 120 4,402
------------------ ------------------------- ------------------------- --------------------------- ----------------------- ----------------------
Acquisitions - - 9 - 9
Charge for the
year 2,121 227 50 48 2,446
Disposals (30) (2) (37) - (69)
Exchange
adjustment 54 3 48 2 107
------------------ ------------------------- ------------------------- --------------------------- ----------------------- ----------------------
At 31 December
2020 4,154 1,028 1,543 170 6,895
------------------ ------------------------- ------------------------- --------------------------- ----------------------- ----------------------
NET BOOK VALUE
------------------ ------------------------- ------------------------- --------------------------- ----------------------- ----------------------
At 1 January
2019 - 135 123 28 286
At 31 December
2019 2,983 413 52 64 3,512
At 31 December
2020 3,068 408 102 193 3,771
------------------ ------------------------- ------------------------- --------------------------- ----------------------- ----------------------
The Group leases many assets including buildings and IT
equipment. The information about leases for which the group is a
lessee is presented below:
Type of right-of-use assets - $'000(USD) Property IT Equipment Total
Balance as at 1st January 2019 3,881 1,111 4,992
--------- ------------- --------
Depreciation charge for the year (1,578) (431) (2,009)
--------- ------------- --------
NBV balance as at 31 December 2019 2,303 680 2,983
--------- ------------- --------
Additions 2,182 53 2,235
--------- ------------- --------
Disposals (30) - (30)
--------- ------------- --------
Depreciation charge for the year (1,677) (443) (2,120)
--------- ------------- --------
NBV balance as at 31 December2020 2,778 290 3,068
--------- ------------- --------
11. Intangible assets
Internally
Domain Developed Merchant Trade developed
name technology relationships marks Goodwill software Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000
-------------- ------------ ----------------- --------------- ------------ ------------ ------------- ----------
COST
At 1 January
2019 140 1,856 9,188 110 17,853 5,388 34,535
Additions
from
acquisitions - 1,918 - - 23,559 - 25,477
Additions - - - - - 1,575 1,575
Exchange
adjustment - - (178) - (327) (24) (529)
-------------- ------------ ----------------- --------------- ------------ ------------ ------------- ----------
At 31
December
2019 140 3,774 9,010 110 41,085 6,939 61,058
-------------- ------------ ----------------- --------------- ------------ ------------ ------------- ----------
Additions - - - - - 2,920 2,920
Additions
from
acquisitions 1,834 4,343 7,172 - 25,068 - 38,417
Goodwill
Impairment - - - - (20,775) - (20,775)
Disposal - - - - - (257) (257)
Exchange
adjustment - 280 794 - 1,242 92 2,408
At 31
December
2020 1,974 8,397 16,976 110 46,620 9,694 83,771
AMORTISATION
At 1 January
2019 140 1,856 5,655 - - 4,418 12,069
Charge for
period - 384 1,193 - - 708 2,285
Exchange
adjustment - - (105) - (10) (115)
-------------- ------------ ----------------- --------------- ------------ ------------ ------------- ----------
At 31
December
2019 140 2,240 6,743 - - 5,116 14,239
-------------- ------------ ----------------- --------------- ------------ ------------ ------------- ----------
Charge for
the
period 91 556 1,572 - - 1,252 3,471
Disposal - - - - - (257) (257)
Exchange
adjustment 1 22 672 - - 64 759
-------------- ------------ ----------------- --------------- ------------ ------------ ------------- ----------
At 31
December
2020 232 2,818 8,987 - - 6,175 18,212
-------------- ------------ ----------------- --------------- ------------ ------------ ------------- ----------
NET BOOK
VALUE
At 1 January
2019 - - 3,533 110 17,853 970 22,466
At 31
December
2019 - 1,534 2,267 110 41,085 1,823 46,819
At 31
December
2020 1,742 5,579 7,989 110 46,620 3,519 65,559
-------------- ------------ ----------------- --------------- ------------ ------------ ------------- ----------
Management has reviewed goodwill and intangible assets on the
balance sheet which mainly consist of the assets from the
acquisition of Fortumo Holdings Inc. and Danal Inc (renamed Boku
Identity Inc) on 1(st) January 2019 and with Mopay AG ("Mopay") in
Oct 2014.
Fortumo Holdings Inc. was acquired by Boku on 1st July 2020 for
cash and restricted stock units (RSUs) for a total maximum
consideration of $45.0 million with a fair value of $42.3 million.
The fair value measurement of Fortumo Holdings' Inc. intangible
assets and goodwill arose from the purchase price allocation work
which was undertaken in July 2020. As a result, several assets have
been identified and their fair value has been determined in
accordance with IFRS 3. The carrying value of the goodwill and
other intangibles from the Fortumo acquisition are therefore
assessed in total as part of the Boku Payments Segment (Payments
CGU).
Danal Inc (Renamed Boku Identity Inc on 1(st) January 2019) was
founded in 6(th) June 2006 and was acquired by Boku for a total
value of $25.1 million. The fair value measurement of Danal's Inc
intangible assets and goodwill arose from the purchase price
allocation which was undertaken in January 2019. As a result, the
Identity platform and contracts were determined to be one asset and
have a fair value of $1.9m USD as at 1(st) January 2019. During
2019 the two platforms (Identity and Payments platforms) were
operated independently and have independent cashflows. The carrying
value of goodwill and the platform has been allocated to the
Identity segment and has been assessed against the Identity segment
future cashflows (Identity CGU).
Mopay was founded in 2000 and Boku Inc. acquired Mopay in
October 2014 for a total value of $24.2 million in cash and shares.
The initial fair value measurement of Mopay's intangible assets and
goodwill arose from the purchase price allocation which was
undertaken on January 21st, 2016. At 31/12/2016, it was determined
that the trade names purchased as part of the transaction have a
fair value less than the carrying amount as these trade names have
ceased to be used in the Group, Therefore Management have taken the
decision to write off the NBV of the trade names as at
31/12/2016.
After the merger in 2014, the Mopay business was reorganised and
the main assets (customer contracts) expertise from the Boku
engineering team and are now being implemented for use by a number
of Boku group entities. The carrying value of the goodwill from the
Mopay acquisition and other intangibles are therefore assessed in
total as part of the Boku Payments Segment (Payments CGU).
Impairment of Goodwill
At the year-end date an impairment test has been undertaken by
comparing the carrying values with the recoverable amount of the
Group's two cash generating units (CGUs). The recoverable amount of
the cash generating unit is based on value-in-use calculations.
These calculations use cash flow projections covering future
periods based on financial budgets and a calculation of the
terminal value, for the period following these formal
projections.
The key assumptions used for value-in-use calculations are those
regarding projected cash flows, growth rates, increases in costs
and discount rates. The discount rate used was the Weighted Average
Cost of Capital. The discount rate is reviewed annually to take
into account the current market assessment of the time value of
money and the risks specific to the cash generating units and rates
used by comparable companies. The pre-tax discount rate used for
both CGU's to calculate value-in-use is the weighted average cost
of capital (WACC) of 13.8% (2019: 14.9%). Growth rates for
forecasts take into account historic experience and current market
trends. Costs are reviewed and increased for various cost
pressures. The terminal value calculation for 2020 was based on
growth rate of post-tax free cashflow of 2% (2019:2%) for each
CGU.
Identity CGU : During the year the Identity business revenues
were impacted by Covid, this together with a lower pipeline
conversion has resulted in lower expected revenue in the near term
and growth in this business unit will be delayed. As a result, the
Group reassessed the recoverability of goodwill and based on this
has recorded an impairment of Goodwill of $20.8 million. As
required by IAS 36, if an impairment is identified in a CGU to
which goodwill has been allocated, the impairment is first
attributed to the carrying value of the goodwill before the
carrying value of any other assets are reduced. Therefore, the full
amount of the impairment has been allocated to goodwill reducing it
from $23.6 million to $2.8 million.
Management analysed various scenarios which projected cash flows
over the next 6 years, with a cumulative annual growth rate of 29%,
together with a terminal value using a 2% growth rate (2019: 2%).
The six-year projections used in the base scenario are based on the
Board approved budget which took into account the anticipated
future impact of Covid-19 for FY 2021 performance. In each case a
discount rate of 13.8% has been used based on management's
evaluation of the weighted average cost of capital for the
Group.
The determination of the recoverable amount and the resulting
impairment charge is subject to significant estimates and judgments
including the cumulative average growth rate, the terminal value
growth rate and the discount rate. Given the sensitivity of the
resulting impairment charge to changes in these inputs, the
following table shows the impact on the impairment charge that
would result from a 2% change in each of these significant
assumptions:
Increase/(Decrease)
on Impairment
---------------------------------------------- ---------------------- ------
Decrease in cumulative annual growth rate by $3.7m
2% $2.8m
Increase in the WACC by 2% $(1.8m)
Projected post tax free cash flow used for
terminal value reduced by 2% to zero
Payment CGU : An annual impairment test was also performed for
the Payments business (Payments CGU) which indicated that no
impairment was needed as there were no indicators of impairment for
this business unit and the net present value of future cashflows
substantially exceed its carrying value by $210.2 million.
Management has identified two key assumptions for which if any of
the following changes were made to these key assumptions
individually, this would cause the carrying amount of the CGU to
equal to the recoverable amount of the goodwill for the year ended
31 December 2020:
2020 2019
----------------------------------------- ----- -----------------------------------------
Projected post tax free cashflow used
for terminal value reduced by 130% 68%
Terminal growth rate reduced from 2% to 0% 2% to 0%
12. Subsidiaries
The principal subsidiaries of the Company, all of which have
been included in the consolidated financial information, are as
follows:
Name Principal activity Parent Location
Boku Payments Inc. Holding Company Boku Inc. USA
------------------------- ------------------------------------ ----------------
Boku Network Services Inc. Holding Company Boku Inc. Delaware, USA
------------------------- ------------------------------------ ----------------
Boku Account Services Inc. Holding Company Boku Inc. Virginia, USA
------------------------- ------------------------------------ ----------------
Boku Account Services Inc.
Boku Account Services UK, Ltd. Mobile payment solutions (Virginia) UK
------------------------- ------------------------------------ ----------------
Paymo Brazil Servicios de Boku Network Services Inc.
Pagamentos Ltd Mobile payment solutions (Delaware) Brazil
------------------------- ------------------------------------ ----------------
Boku Network Services AG Holding Company Boku Inc. Germany
------------------------- ------------------------------------ ----------------
Boku Network Services Inc.
Boku Network Services UK, Ltd Mobile payment solutions (Delaware) UK
------------------------- ------------------------------------ ----------------
Boku Network Services Inc.
Boku Network Services AU Pty Ltd Mobile payment solutions (Delaware) Australia
------------------------- ------------------------------------ ----------------
Boku Network Services IN Privates Boku Network Services Inc.
Limited Mobile payment solutions (Delaware) India
------------------------- ------------------------------------ ----------------
Boku Network Services Inc.
Boku Network Services SG PTE. LTD Mobile payment solutions (Delaware) Singapore
------------------------- ------------------------------------ ----------------
Boku Network Services Inc.
Boku Network Services HK LTD Mobile payment solutions (Delaware) Hong Kong
------------------------- ------------------------------------ ----------------
Boku Network Services Taiwan Boku Network Services Inc.
Branch Office Mobile payment solutions (Delaware) Taiwan
------------------------- ------------------------------------ ----------------
Boku Network Services Japan Branch Boku Network Services Inc.
Office Mobile payment solutions (Delaware) Japan
------------------------- ------------------------------------ ----------------
Mopay AG Beijing Representative
Branch Mobile payment solutions Boku Network Services AG (Germany) China
------------------------- ------------------------------------ ----------------
Boku Identity Inc. Identity solutions Boku Inc. California, USA
------------------------- ------------------------------------ ----------------
Boku Mobile Solutions Ireland Identity solutions Boku Identity Inc. California, USA
------------------------- ------------------------------------ ----------------
Boku Network Services SG PTE. LTD. Mobile payment solutions Boku Network Services Inc. Singapore
(Delaware)
------------------------- ------------------------------------ ----------------
Boku Network Services HK LTD Mobile payment solutions Boku Network Services Inc. Hong Kong
(Delaware)
------------------------- ------------------------------------ ----------------
Boku Network Services IE Limited Mobile payment solutions Boku Network Services Inc. Ireland
(Delaware)
------------------------- ------------------------------------ ----------------
Boku Network Services Malaysia Mobile payment solutions Boku Network Services Inc. Malaysia
(Delaware)
------------------------- ------------------------------------ ----------------
Fortumo Holdings Inc Holding Company Boku Network Services Inc. USA
(Delaware)
------------------------- ------------------------------------ ----------------
Fortumo OU Mobile payment solutions Fortumo Holdings Inc Estonia
------------------------- ------------------------------------ ----------------
Fortumo Mobile Payments S.L Mobile payment solutions Fortumo OU Spain
------------------------- ------------------------------------ ----------------
Fortumo Mobile Services Mobile payment solutions Fortumo OU India
------------------------- ------------------------------------ ----------------
Fortumo Singapore Pte. Ltd Mobile payment solutions Fortumo OU Singapore
------------------------- ------------------------------------ ----------------
13. Trade and other receivables
31 December 31 December
2020 2019
$'000 $'000
-------------------------------------------- ------------ ------------
Trade receivables - gross 28,087 17,623
Accrued income 59,596 34,544
--------------------------------------------- ------------ ------------
Accounts receivable - gross 87,683 52,167
Less: provision for impairment (1,322) (2,001)
--------------------------------------------- ------------ ------------
Accounts receivable - net 86,361 50,166
Other receivables 190 57
Deposits held 749 316
Sales taxes receivable 1,339 1,042
Financial asset - Contingent consideration
in escrow 2,160 -
Deferred cost of sales 256 270
Note receivable from a shareholder - 793
---------------------------------------------
Total financial assets classified
as loans and receivables 91,055 52,644
--------------------------------------------- ------------ ------------
Prepayments 1,480 948
--------------------------------------------- ------------ ------------
Total 92,535 53,592
--------------------------------------------- ------------ ------------
Provision for impairment
31 December 31 December
2020 2019
$'000 $'000
---------------------------------- ------------ ------------
Opening balance 2,001 1,958
Utilised during the period (25) (101)
(decrease) / Increase during the
period (705) 170
Foreign exchange movement 51 (26)
------------------------------------ ------------ ------------
Closing balance 1,322 2,001
------------------------------------ ------------ ------------
In accordance with IFRS9, the Group reviews the amount of credit
loss associated with its trade receivables based on forward looking
estimates that take into account and forecast credit conditions as
opposed to relaying on past default rates. The Group has applied
the Simplified Approach, applying a provision matrix based on the
number of days past due to measure lifetime expected credit losses
and after taking into account customer sectors with different
credit risk profiles and current and forecast trading conditions.
Included in the receivables balance there is a $2.16m expected to
be returned from the escrow account into which the contingent
consideration related to the Fortumo acquisition was paid.
14. Cash and cash equivalents and restricted cash
31 December 31 December
2020 2019
$'000 $'000
--------------------------- ------------ ------------
Cash and cash equivalents 61,290 34,747
---------------------------- ------------ ------------
Restricted cash 1,414 876
---------------------------- ------------ ------------
The restricted cash primarily includes e-money received but not
yet paid to merchants (in transit), cash held in the form of a
letter of credit to secure a lease agreement for the Company's San
Francisco office facility.
15. Lease liabilities
Details of lease liabilities as at 31 December 2020, which
includes the addition of two new leases in the year, the main
addition for the Group's new head office in London:
Lease liabilities Property IT Equipment Total
1st Jan 2019 2,794 1,112 3,906
Additions 1,009 - 1,009
Interest expense 224 64 288
Payments to lease creditors (1,650) (472) (2,122)
------------------------ ------------------------------------ ------------------------
Lease liabilities as at 31
Dec 2019 2,377 704 3,081
------------------------ ------------------------------------ ------------------------
Additions 2,142 - 2,142
Interest expense 229 63 292
Payments to lease creditors (1,834) (503) (2,337)
------------------------ ------------------------------------ ------------------------
Lease liabilities as at 31
Dec 2020 2,914 264 3,178
------------------------ ------------------------------------ ------------------------
The maturity analysis for lease liabilities is presented
below:
Lease liabilities - Maturity analysis
(contractual undiscounted cash flows) - $'000
(USD) 2020 2019
Less than one year 1,625 1,914
------------------------------------------------ --------
One to five years 1,937 1,482
------------------------------------------------ --------
More than five years - -
------------------------------------------------ --------
Total undiscounted lease liabilities as at
31 December 3,562 3,396
------------------------------------------------ --------
There are no leases with a term of more than 5 years
Lease liabilities included in the
statement of financial position
at 31 December - $'000 (USD) 2020 2019
----------------------------------------- ------------------------------------------------ ---------------------
Current 1,436 1,723
----------------------------------------- ------------------------------------------------ ---------------------
Non-current 1,742 1,358
----------------------------------------- ------------------------------------------------ ---------------------
Amounts recognised in profit or loss-
$'000
(USD) 2020 2019
Interest on lease liabilities 292 288
----------------------------------------- ------------------------------------------------
Variable lease payment not included in -
the
measurement of lease payments -
----------------------------------------- ------------------------------------------------
Expenses related to short term leases 22 129
----------------------------------------- ------------------------------------------------
Expenses related to leases of low-value
assets,
excluding short-term leases of
low-value assets 21 17
----------------------------------------- ------------------------------------------------
Depreciation of right-of-use assets
(Note
10) 2,121 2,009
----------------------------------------- ------------------------------------------------
The amounts recognised in the Consolidated Statement of
Cashflows are presented below:
Amounts recognised in the statement of
cashflows-
$'000 (USD) 2020 2019
Payment of principal 2,045 1,868
------------------------------------------- --------------------------------------------------
Payment of interest 292 288
------------------------------------------- --------------------------------------------------
Total cash outflows 2,337 2,156
------------------------------------------- --------------------------------------------------
16. Trade and other payables
31 December 31 December
2020 2019
Current $'000 $'000
---------------------------------------- ------------ ------------
Trade payables 105,376 68,128
Accruals 28,135 7,799
----------------------------------------- ------------ ------------
Total financial liabilities classified
as financial liabilities
measured at amortised cost 133,511 75,927
Other taxes and social security costs 1,353 327
Accrued tax on issued stock options 1,466 1,252
Other payables 5 -
Deferred revenue 444 489
----------------------------------------- ------------ ------------
Total 136,779 77,995
----------------------------------------- ------------ ------------
Non-current
Accrued taxes on issued stock options 862 791
----------------------------------------- ------------ ------------
Total 862 791
----------------------------------------- ------------ ------------
The carrying values of trade and other payables approximate to
fair values.
17. Loans and borrowings
31 December 31 December
2020 2019
$'000 $'000
------------------------------------- ------------ ------------
Current
Bank loans and overdrafts (secured) 1,438 2,098
Lease liabilities 1,436 1,723
-------------------------------------- ------------ ------------
Total 2,874 3,821
-------------------------------------- ------------ ------------
Non-current
Bank loans 10,813 -
Lease liabilities 1,742 1,358
Total 12,555 1,358
-------------------------------------- ------------ ------------
Principal terms and the debt repayment schedule of the Group's
loan and borrowings are as follows:
In December 26, 2019, the Group repaid in full ($2,000,000) the
existing Loan and Security Agreement (the Agreement) and entered
into an overdraft agreement for GBP5,000,000 for 3 years. At 31(st)
December 2019 the Group had drawn GBP1,600,000 ($2,098,000 USD)
under the agreement. The agreement has been repaid in full on the
9(th) January 2020 and has not been used since.
On 26 June 2020 the Group entered into a loan agreement with its
bankers for $20m to finance the acquisition of Fortumo Holdings
Inc, and its subsidiaries on 1(st) July 2020. The loan was
structured as a $10m term loan repayable in 4 years and $10m
revolving facility. The revolving facility has been paid down by
$7m by 31 December 2020. Borrowing costs of $500,000 were incurred
and are amortised over the life of the loan.
Reconciliation of liabilities arising
from financing activities
2019 Cash flows Non-cash changes ($'000) 2020
----------------------------------------------------
Lease
Foreign Liabilities
Converted Exchange (IFRS
$'000 $'000 to shares Movement 16) $'000
------ ----------- ----------- ------------------------ ------------- -------
Short-term borrowings 2,098 (563) - (97) - 1,438
Long-term borrowings - 10,813 - - 10,813
Short-term lease
liabilities 1,723 (2,337) - (18) 2,068 1,436
Long-term lease
liabilities 1,358 - - - 384 1,742
------ ----------- ----------- ------------------------ ------------- -------
Total liabilities
from financial activities 5,179 7,913 (115) 2,452 15,429
Reconciliation of liabilities arising from financing activities
Cash
2018 flows Non-cash changes ($'000) 2019
--------------------------------------
Lease
Foreign Liabilities
Converted Exchange (IFRS
$'000 $'000 to shares Movement 16) $'000
------- ------- ----------- ---------- ------------- -------
Short-term borrowings 2,150 (150) - 98 - 2,098
Short-term lease liabilities 43 - - - 1,680 1,723
Long-term lease liabilities - - - - 1,358 1,358
------- ------- ----------- ---------- ------------- -------
Total liabilities from
financial activities 2,193 (150) - 98 3,038 5,179
18. Share capital
The Company's issued share capital is summarised in the table
below:
31 December 31 December
2020 2019
Number
Number of of shares
shares issued issued
and fully and fully
paid paid
'000 $'000 '000 $'000
------------------------------------- ------------------- ------ ----------- ------
Common stock of $0.0001 each
Opening balance 252,335 25 223,885 22
Issue of new ordinary shares 23,600 3 - -
Shares issued to Danal Shareholders 2,724 1 23,699 3
Exercised stock options 8,907 4,751
Closing balance 287,566 29 252,335 25
Common Stock
At December 31, 2020, the Company had 287,566,248 (2019:
252,335,207) common shares issued and outstanding.
19. Reserves
The share premium disclosed in the consolidated statement of
financial position represents the difference between the issue
price and nominal value of the shares issued by the Company.
Retained losses are the cumulative net profits / (losses) in the
consolidated income statement.
Foreign exchange reserve stores the foreign exchange translation
gains and losses on the translation of the financial statements
from the functional to the presentation currency.
Cash flow hedging reserve contains changes in un-realised gains
or losses on the valuation of derivatives designated as cash flow
hedges at year-end.
Movements on these reserves are set out in the consolidated
statement of changes in equity.
20. Share-based payment
The Group operates the following equity-settled share-based
remuneration schemes for employees, directors and
non-employees:
1. 2009 equity incentive plan (2009 Plan) for the granting of
stock options (incentive or non-qualified), restricted stock awards
(RSA) and restricted stock units (RSU). No options are available to
be issued under this plan as at 31 December 2020 or 2019.
2. 2009 equity UK sub-plan (2009 UK plan) under the terms of the
above plan for the granting of stock options and restricted stock
units for qualifying participants who are resident in the United
Kingdom. No options are available to be issued under this plan as
at 31 December 2020 or 2019.
3. 2009 non-plan (not part of the above 2009 plan) for the
granting of share options to purchase 897,000 (2017: 897,000)
common shares at $0.022 (2016: $0.022) per share. These options
vest with terms ranging from being fully vested at grant date to
vesting over four years with a one-year cliff, where 25% of the
options vest. The options expired in April 2019. The shares have
been exercised in full during the year and there are no options
outstanding as at 31 December 2019 for 31 December 2020.
4. 2009 BNS options (not part of the above 2009 plan) for the
granting of share options to purchase 182,000 (2017: 182,000)
common shares at $0.207 (2016: $0.207) per share in connection with
the acquisition of BNS in June 2009. The options expired in June
2019. There are no options outstanding as at 31 December 2020.
5. 2017 Equity Incentive Plan (new plan started on the 7(th)
November 2017) for the granting of stock options and restricted
stock units (RSUs). The Group has reserved ten million shares of
common stock for issue under the plan. The activity under this plan
is presented separately from the rest of the plans. There are 1,112
options (2019: 1,281) and 8,962 (2019: 7,888) RSUs outstanding as
at 31 December 2020.
Options under the 2017 Plan
Options under the 2009 Plan and UK plan may be outstanding for
periods of up to ten years following the grant date. Outstanding
options generally vest over four years and may contain a one-year
cliff, where 25% of the options vest. Stock options with graded
vesting is based on the graded vesting attribution approach,
whereby, each instalment of vesting is treated as a separate stock
option grant, because each instalment has a different vesting
period.
RSUs under the 2017 Plan
RSUs under the 2017 Plan may be outstanding for periods of up to
five years following the grant date. Outstanding RSU grants
generally vest over three years in three equal portions.
Performance-based restricted stock units (RSU)
Performance-based RSUs vest upon the earlier of the completion
of a specified service period and the achievement of certain
performance targets, which may include individual and Company
measures, and are converted into common stock upon vesting.
Share-based expense for RSUs is based on the fair value of the
shares underlying the awards on the grant date and reflects the
estimated probability that the performance and service conditions
will be met. The share-based expense is adjusted in future periods
for subsequent changes in the expected outcome of the performance
related conditions until the vesting date. Performance-based RSUs
vest after three years of issue, in one event, if the performance
conditions are met, however these may also vest at the discretion
of the board in the event that underlying performance conditions
are not met.
Restricted stock awards (RSA)
RSAs are subject to repurchase based upon the terms of the
individual restricted stock purchase agreements. These repurchase
rights lapse over the vesting term of the individual award,
generally over three to four years. There are no restricted stock
award outstanding.
Options under the 2009 Plan and 2009 UK plan
Options under the 2009 Plan and UK plan may be outstanding for
periods of up to ten years following the grant date. Outstanding
options generally vest over four years and may contain a one-year
cliff, where 25% of the options vest.
Stock options with graded vesting is based on the graded vesting
attribution approach, whereby, each instalment of vesting is
treated as a separate stock option grant, because each instalment
has a different vesting period.
2009 non-plan options
The 2009 non-plan options vest with terms ranging from being
fully vested at grant date to vesting over four years with a
one-year cliff. The options expired in April 2019. Share-based
expense in connection with the grant of Non-Plan options was not
material in 2016 and 2017. In 2018 all options were exercised. The
are no outstanding options at 31 December 2019 or 31(st) December
2020.
BNS plan options
In connection with the acquisition of BNS in June 2009, the
Company granted options to purchase 182,000 common shares at a
weighted-average exercise price of $0.207 per share (BNS Options).
These options granted were separate from the 2009 Plan. The options
expired in June 2019. A small amount of options were cancelled in
2018. There was no stock option activity related to these options
in 2017. There are no shares outstanding as at 31 December 2019 or
31 December 2020.
The options activity under the 2009 Plan and its sub- Plans
before 2017 (including RSA and RSU) are as follows:
Available 2009 2009 Plan (excl 2009 Plan BNS Plan
Plan RSUs) (only RSUs) Options Total
Number of Number of Number of Number of
options options WAEP(1) Number of RSUs options WAEP(1) options
'000 '000 '000 '000 '000
At 1 January
2019 17,751 $0.444 1,959 35 $0.20 19,745
Exercised - (1,894) $0.269 (1,801) (3) -0.35 (3,699)
Cancelled - (164) $0.258 - (32) - (196)
At 31 December
2019 - 15,693 $0.268 157 - $0.35 15,850
Exercised - (5,224) $0.346 (157) - - (5,381)
Cancelled - (2,163) $0.281 - - - (2,163)
At 31 December
2020 - 8,306 $0.327 - - - 8,306
(1) WAEP - weighted average exercise price
*RSUs are always granted at zero exercise price
2009 Plan December December
2020 2019
Outstanding options at reporting end date:
- total number of options (including RSA & RSU) 8,399 15,943
- weighted average remaining contractual life (all except 2017 Plan) (years) (excluding RSU
and RSA) 4.43 5.05
- weighted average remaining contractual life - RSU (years) - 0.25
Vested and exercisable ('000): 8,275 15,679
- weighted average exercise price $0.384 $0.357
- weighted average remaining contractual life - all plans
(excluding RSU and RSA) 4.4 4.91
Weighted average share price exercised during the period (excluding RSA and RSA) $0.35 $0.360
Weighted average fair value of each option granted during the period (excluding RSA and RSU) - -
Vested and exercisable - RSU and RSA - 157
Share-based expense for the period ('000) $24 $242
The following information is relevant in the determination of
the fair value of options (excluding RSA and RSU) granted during
the period under the equity- settled share-based remuneration
schemes operated by the Group.
2009 Plan December 2017
Option pricing model used Black-Scholes
Weighted average share price at grant
date (dollar) $0.370
Exercise price (options only) $0.370
Weighted average contractual life (years)(1) 5.82(E*+ NE*)
Weighted expected volatility (2) 45% (E*+ NE*)
Expected dividend growth rate 0%
Weighted average Risk-free interest 1.9% (E*+ NE*)
rate(3)
(1) Weighted average contractual life represents the period of
time options are expected to be outstanding and is estimated
considering vesting terms and employees' historical exercise and
post-vesting employment termination behavior.
(2) Expected volatility is based on historical volatilities of
public companies operating in the Company's industry.
(3) The risk-free rate is based on the U.S. Treasury yield curve
in effect at the time of grant.
*E - employees NE - non-employees
The fair value of each option has been estimated on the date of
grant using the Black-Scholes option pricing model with the
following assumptions: expected terms ranging from 4.99 to 6.89
years; risk-free interest rates ranging from 0.73% to 3.05%;
expected volatility of 58%; and no dividends during the expected
term (2017: expected terms ranging from 5.04 to 6.01 years;
risk-free interest rates ranging from 1.87% to 1.92%; volatility of
45%; and no dividends during the expected term).
The options activity under the 2017 Plan (including options and
RSU) are as follows:
Options available Options WAEP(1) RSUs WAEP(1) Total
'000 '000 '000 '000
At 1 January
2019 4,432 1,386 $1.205 (4,182) $2.24 5,568
Authorised 19,766
Granted (6,894) - - 6,894 - 6,894
Exercised - (40) $1.205 (1,012) - (1,052)
Cancelled 2,241 (65) $1.205 (2,176) - (2,241)
At 31 December
2019 19,545 1,281 $1.205 7,888 - 9,169
Authorised 11,163 - - - -
Granted (6,393) - - 6,393 - 6,393
Exercised - (39) $1.205 (1,918) - (1,957)
Cancelled 3,402 (130) $1.205 (3,402) - (3,531)
At 31 December
2020 27,717 1,112 $1.205 8,961 - 10,073
2017 Plan December December
2020 2019
Outstanding options at reporting end date:
- total number of options (excluding RSUs) ('000) 1,112 1,281
- weighted average remaining contractual life
(excluding RSUs) (years) 6.91 8.01
- weighted average remaining contractual life - RSUs (years) 6.85 6.07
Vested and exercisable ('000):
- weighted average exercise price $1.205 $1.205
- weighted average remaining contractual life
(excluding RSU) (years) 6.91 8.01
Weighted average share price exercised during the period (excluding RSUs) - -
Weighted average fair value of options granted during the period (excluding RSU) $0.44 $0.44
Vested and exercisable - RSUs 793 1,012
Share-based expense for the period ('000) $5,795 $5,229
The following information is relevant in the determination of
the fair value of options (excluding RSU's) granted during the
period under the equity- settled share-based remuneration schemes
operated by the Group. Only RSUs were granted in 2020.
2017 Plan December
2018
Option pricing model used Black-Scholes
Weighted average share price at grant
date (dollar) $1.205
Exercise price (options only) $1.205
Weighted average contractual life (years)(1) 9.05 years
Weighted expected volatility (2) 32.66%
Expected dividend growth rate 0%
Weighted average Risk-free interest
rate(3) 2.49%
(1) Weighted average contractual life represents the period of
time options are expected to be outstanding and is estimated
considering vesting terms and employees' historical exercise and
post-vesting employment termination behavior.
(2) Expected volatility is based on historical volatilities of
public companies operating in the Company's industry.
(3) The risk-free rate is based on the U.S. Treasury yield curve
in effect at the time of grant.
Warrants for ordinary shares
A 5-year warrant to purchase 1,634,699 Boku shares at an
exercise price of $1.8352 USD per share, exercisable at any time
during the 5-year term was issued as part of the Danal acquisition,
on 1(st) January 2019. This warrant was valued using the Binomial
Lattice Model using the following inputs:
a) Term: 5 years
b) Starting share price: $0.8982 USD
c) Expected Annual Volatility: Used 5-year comparable companies
equity volatilities from Capital IQ (26.6%)
d) Risk Free Rate: Five-year US risk-free rate (2.51%)
e) Strike Price: $1.8352 USD
Using the inputs above the warrant was valued at $94,606 USD and
accounted as part of the purchase consideration as an equity
instrument and credited to other reserves until such time when it
is exercised when it will be reclassified to the share premium
account.
Reconciliation of share-based payment expense
December 2020 December
2019
$000's $000's
2009 Plan
Options 23 90
RSU's - 152
2017 Plan
Options 154 152
RSU's 4,136 5,077
Total share-based expense (excluding national
insurance) 4,313 5,471
National insurance accrued 159 1,067
National insurance paid in the year (see Note
4) 453 233
Total share-based payment charge 4,925 6,771
21. Dividends
No dividends were declared or paid in any of the periods.
22. Cash generated from operations
Year ended Year ended
31 December 31 December
2020 2019
$'000 $'000
(Loss) /profit after tax (18,785) 355
Add back:
Tax expense/ (credit) 1,470 (1,651)
Amortisation of intangible assets 3,471 2,285
Depreciation of property, plant and equipment 2,446 2,176
Restructuring write-offs 158 -
Finance income (70) (56)
Finance expense (includes interest on lease liabilities) 662 468
Exchange (gain) /loss (3,130) 64
Employer taxes on stock option (accrual) 159 1,067
Adjustment for previous year cash items - (4,048)
Impairment of goodwill 20,775 -
Share based payment expense 4,313 5,471
Cash from operations before working capital changes 11,469 6,131
(Increase)/ Decrease in trade and other receivables (9,545) 11,047
Increase/ (Decrease) in trade and other payables 29,605 (8,127)
Cash generated from operations 31,529 9,051
23. Related party transactions
In 2020, the Group has been remitted $100,206,645 (2019:
$151,336,427 - from 4 suppliers) in net payments from 5 suppliers
who are shareholders of the Company. At December 31, 2020, the
Company had receivables of $12,404,487 (2019: $20,459,254) due from
these companies.
A director repaid in full a promissory note, issued to him in
2013, in the amount of $793,000.
24. Ultimate controlling party
There is no ultimate controlling party of the Company.
25. Contingent liabilities
In the normal course of business, the Group may receive
inquiries or become involved in legal disputes regarding possible
patent infringements. In the opinion of management, any potential
liabilities resulting from such claims, if any, would not have a
material adverse effect on the Group's consolidated statement of
financial position or results of operations.
From time to time, in its normal course of business, the Group
may indemnify other parties, with whom it enters into contractual
relationships, including customers, Aggregators, MNOs, lessors and
parties to other transactions with the Group. The Company has also
indemnified its directors and executive officers, to the extent
legally permissible, against all liabilities reasonably incurred in
connection with any action in which such individual may be involved
by reason of such individual being or having been a director or
executive officer. The Group believes the estimated fair value of
any obligation from these indemnification agreements is minimal;
therefore, this consolidated financial information do not include a
liability for any potential obligations at 31 December 2020 and
2019.
26. Business acquisition
On 1(st) July 2020, Boku completed the acquisition of Fortumo
Holdings Inc., a United States incorporated private holding company
and its subsidiaries from several investors for a total maximum
consideration of $45 million, which included $4m of net working
capital. Of the $45.0 million purchase price, $5.4 million is
subject to Fortumo meeting EBITDA performance criteria in the 12
months period to 30 June 2021 and this amount has been placed into
an escrow account by Boku. Boku raised $25m USD in a placing of
shares in the UK public markets and borrowed $20m repayable over 4
years to fund the acquisition (please refer to the CFO report for
more details).
Fortumo operates in the Direct Carrier Billing ('DCB') market
with customers in Europe and Asia, focusing on the emerging
markets. It is headquartered in Estonia, with 77 employees. Since
inception, it has enabled user acquisition, monetisation and
retention for digital service merchants through its payments
platform .
The acquisition is a significant step in Boku's global DCB
growth strategy, bringing together the two most profitable
companies in the DCB market with complementary capabilities and
customer bases. The acquisition cements the Group's positioning as
a leading global mobile payment and mobile identity solutions
company. Fortumo primarily focuses on providing mobile payment
solutions to over 400 small-to-medium sized enterprises, but also
services some larger merchants including Google, Amazon and
Tencent.
The combination of Boku and Fortumo created an enlarged and
differentiated customer base. Fortumo benefits from Boku's direct
connections in the Americas, Europe and Asia and Boku benefits from
Fortumo's direct connections in Asia, including Vietnam and
Indonesia and their wider network. Boku considers this to be key in
its strategy of expansion into key growth markets.
The combination of Boku's and Fortumo's platform is expected to
drive efficiencies through the utilisation of Fortumo's
semi-automated onboarding and settlement and their focused platform
for small and medium enterprise merchants.
The senior management and wider team within Fortumo have a
strong cultural fit with Boku, strengthening Boku's management
capabilities further. Fortumo has an experienced technical team who
complement Boku's existing technical team.
The purchase consideration included cash, company restricted
stock and contingent consideration, as follows:
Consideration (USD'000) Per agreement Fair value
Maximum consideration 45,000 n/a
per SPA
Cash 37,753 37,753
Contingent consideration* 5,400 3,240
Company RSUs** 1,847 1,340
Total purchase price
consideration 45,000 42,333
As part of the merger agreement, Boku settled in cash all fully
vested but unexercised options. The unvested Fortumo options and
RSUs were replaced with Boku RSUs representing the same market
value of the unvested Fortumo options on the acquisition date.
*The contingent consideration of $5.4,million was paid on the
date of acquisition into an escrow account. A payment from this
escrow account will be made to the shareholders of Fortumo based on
EBITDA achieved for 1 year period to 30(th) June 2021. The amount
payable is a percentage of the $5.4 million, ranging from 0% to
100% for an EBITDA achievement between EUR2.0 million to EUR4.3
million. The fair value included the table above was calculated
using the expected returns approach and the difference was recorded
as a financial asset. The final value will be calculated at 30 June
2021 at the end of the earn-out period.
** the RSUs consideration relates to Boku Inc RSUs issued to
employees in exchange for the existing options and RSUs in Fortumo
Holdings Inc., which were part-vested as at the acquisition date.
Given that these were options and RSUs with a remaining term and
exercise price, the total value of these options at the valuation
date was calculated using the Black Scholes model.
Details of the fair value of the purchase consideration of
Fortumo Holdings Inc., the net assets acquired, and goodwill are as
follows:
$'000
Cash consideration 37,753
Company (Boku) RSUs 1,340
Contingent Consideration 3,240
Total purchase price
(fair value) 42,333
Trade and other receivables 25,703
Cash and cash equivalents 6,558
Prepaid expenses and
other assets 82
Property, plant and equipment
* 566
Deposits held 71
Trade and other payables (28,260)
Lease liabilities (534)
Tax payable (270)
Domain Name - Fortumo 1,834
Technology platform (Fortumo) 4,343
Customer contracts (Fortumo) 7,172
Goodwill 25,068
Fair value of net assets
acquired 42,333
* The property, plant and equipment include $542,000
right-of-use assets.
Deferred tax was deemed not applicable as in Estonia tax is
charge on distributions not on profits. The identified intangible
assets are assumed to reside in Estonia from the perspective of a
hypothetical market participant. Tax amortisation benefit is not
applicable for intangible assets residing in Estonia. As a result,
no deferred taxes have been included in the fair valuation of the
intangible assets.
The cost of acquisition has been expensed during 2020 and has
been included in exceptional costs in the statement of
comprehensive income for the twelve-month ending 31 December 2020.
The share issue costs have been recorded in equity and the cost
incurred in obtaining the loan used to pay for the acquisition have
been capitalised and amortised over the life of the loan.
27. Post balance sheet events
There have been no material post balance sheet events.
28. Cautionary Statement
This document contains certain forward-looking statements
relating to Boku Inc (the "Group"). The Group considers any
statements that are not historical facts as "forward-looking
statements". They relate to events and trends that are subject to
risk and uncertainty that may cause actual results and the
financial performance of the Company to differ materially from
those contained in any forward-looking statement. These statements
are made by the Directors in good faith based on information
available to them and such statements should be treated with
caution due to the inherent uncertainties, including both economic
and business risk factors, underlying any such forward-looking
information.
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END
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