Roundtable Discussion; The Future of Mineral Sands. Watch the video here.

Less Ads, More Data, More Tools Register for FREE

Pin to quick picksBoku Regulatory News (BOKU)

Share Price Information for Boku (BOKU)

London Stock Exchange
Share Price is delayed by 15 minutes
Get Live Data
Share Price: 172.50
Bid: 170.00
Ask: 175.00
Change: -0.50 (-0.29%)
Spread: 5.00 (2.941%)
Open: 172.50
High: 172.50
Low: 172.50
Prev. Close: 173.00
BOKU Live PriceLast checked at -

Watchlists are a member only feature

Login to your account

Alerts are a premium feature

Login to your account

Results for the year ended 31 December 2019

26 Mar 2020 07:00

RNS Number : 6395H
Boku Inc
26 March 2020
 

26 March 2020

 

Boku Inc.

("Boku", the "Company" or the "Group")

 

Results for the year ended 31 December 2019

 

Boku (AIM: BOKU), the world's leading independent carrier commerce company, today announces its audited results for the year ended 31 December 2019.

Financial Highlights

·

Revenue of $50.1 million up 42% on 2018 (2018: $35.3 million)

·

Adjusted EBITDA* 17% higher at $7.4 million (2018: $6.3 million). Revenue includes $3.3m of non-recurring Payments Revenue; to better reflect underlying performance, this non-recurring revenue is excluded from Adjusted EBITDA

·

Payments division performed well with Revenues increasing to $43.5 million, delivering a 100% increase in Adjusted EBITDA of $12.8 million (2018: $6.3 million)

·

Net Profit after Tax of $0.4 million compared with Net Loss after tax of $4.3 million for 2018

·

Closing cash balances as at 31 December 2019 were $35.6 million - compared with $32.3 million at 31 December 2018

·

Monthly average cash balances in December 2019 were $22.4 million, compared with $22.2 in June 2019 and $24.4 million in December 2018

 

Operational Highlights

·

Total Payment Volumes ("TPV")** of $5.0bn for 2019 compares with $3.6bn in 2018. Growth was steady throughout the year with volume in H2 2019 $418 million higher than in H1 2019

·

Monthly Active Users ("MAU") of the Boku Payments Platform in December 2019 increased to 17.8 million, up 2.6 million from the half year and 4.4 million higher than December 2018

·

During 2019 nearly 19 million end-users made their first transaction through Boku

·

Good progress on building out Mobile Wallets

·

Integration of Identity business which was created following the acquisition of Danal Inc on 1 January 2019, for a total finalised cost of $25.1 million

·

Identity billable transactions up by 45% to 253 million

 

* Adjusted EBITDA: Earnings before interest, tax, depreciation, amortisation, non-recurring payments revenue adjustment, stock option expense, foreign exchange gains/(losses), and exceptional items

 ** TPV is the US$ value of transactions processed by the Boku platform

 

Post-period end Highlights

·

Strong start to the year. In January and February 2020 TPV grew to $966 million, an increase of 30% compared to the same period last year, a slightly larger increase than anticipated

·

In February 2020 daily volumes showed an increase over January 2020 against the background of the increasing prevalence of COVID-19 worldwide. Average TPV per day increased by 2.5% in February 2020 compared to January 2020 and Daily Average Users ("DAU") were 4% higher in February 2020 than January 2020

·

Trends seen in January and February 2020 have continued into March 2020 with significant increases in new users of the Boku Payments Platform, particularly for streaming video services and gaming in those countries hardest hit by COVID-19

 

Jon Prideaux, Chief Executive of Boku Inc, commented: "2019 has proven to be another year of exceptional growth for Boku. The Group has continued to build upon the strength and depth of the Boku Platform, which has allowed the Company to report a maiden profit after tax. There has been a focus on integrating and growing our Identity business which was created following the acquisition of Danal Inc at the beginning of the year and I am pleased with how things are progressing in this division, billable transactions have increased by 45% to 253 million and Identity revenues up 26% on 2018 to of $6.7m. Our state-of-the-art Platform now connects most of the world's largest digital merchants and more than 190 carriers worldwide and we continue focus on delivering first class products and services to our customers.

"Boku is a business where much of the growth is built in. A lot of groundwork has been done in 2019 to set us up for success in 2020. Volumes and revenues in one year are, barring accidents, largely the result of efforts made in the previous one. Just such a shock, COVID-19, has cast a long shadow over many businesses. Boku however is very well placed: operations are unaffected -- our team is used to working remotely. New implementations are mostly proceeding with, at worst, minor delays. New sales and business development are more difficult without face to face contact, though opportunities are being pursued. As our services are delivered digitally, supply has not been disrupted; on the demand-side, the more people stay at home the more they play games, download apps and use streaming services. We have seen definite evidence of recent increased volumes in countries with social distancing measures in place.

"In Payments, our existing merchants and connections will continue to perform strongly for as long as lockdown measures are in place. There is a strong pipeline of new deployments, especially from higher margin settlement model merchants to be implemented. As yet, our DCB deployment plans have not been materially affected. There is also potential material upside from Mobile Wallets.

"On Identity, our focus in 2020 is continuing to build out our international carrier connections to create a truly global offering. Demand remains strong, including from global customers. Transaction processing on existing customers is continuing unaffected. Identity has a greater dependence on new business to hit full year expectations and so is unlikely to perform as strongly as Payments, with its larger installed base.

"There will be a time when we can look back at the COVID-19 pandemic and take stock of its impact. For now, it's too soon to tell. We know not how long it will last nor how it will end, but at least for Boku, its employees, customers and suppliers we are able to say with confidence that Boku is well positioned in difficult times."

 

Enquiries:

 Boku, Inc.

Jon Prideaux, Chief Executive Officer

Keith Butcher, Chief Financial Officer

 

+44 (0)20 3934 6630

 

Peel Hunt LLP (Nominated Adviser and Broker)

Edward Knight / Nick Prowting / Christopher Golden

+44 (0)20 7418 8900

IFC Advisory Limited (Financial PR & IR)

Tim Metcalfe / Graham Herring / Florence Chandler

+44 (0)20 3934 6630

 

 

About Boku

 

Boku Inc. (AIM: BOKU) is one of the world's leading providers of carrier commerce and mobile identity solutions. Boku's technology platform, which is linked to more than 190 mobile network operators worldwide, verifies user identity, executes payments, and provisions new services, simplifying daily mobile interactions between consumers and digital organizations.

Boku's technology platform is used in over 59 countries with over 815 million verified transactions in 2019, contributing $5 billion to the digital economy. Businesses that currently employ Boku's platform to simplify sign-up, acquire new paying users and prevent fraud include global leaders such as Apple, Discover, Experian, Facebook, Fiserv, Google, Microsoft, Netflix, Paypal, Sony, Spotify, Uber and Western Union.

Boku Inc. was incorporated in 2008 and is headquartered in London, UK, with offices in various locations globally including in the US, Mumbai, Munich, Beijing, Paris, Sao Paulo, Singapore, Taipei, and Tokyo.

To learn more about Boku Inc., please visit: https://www.boku.com 

 

Chief Executive Officer's Report

 

2019 has been another year of significant growth.

At the Group level, revenues increased by 42% to $50.1 million and Adjusted EBITDA was up by 17% to $7.4 million. This Adjusted EBITDA number excludes $3.3 million of non-recurring Payment revenue relating to a change in the estimate of a transaction price related to a performance obligation satisfied in a prior period. As a non-recurring item we excluded it from our EBITDA presentation to better show the underlying performance of the business. Our Payments division delivered a very solid performance with revenues growing to $43.5 million and Adjusted EBITDA growing by over 100% to $12.7 million (once again, excluding the impact of the $3.3 million non-recurring item). Within our Identity division, which we acquired on 1st January 2019, revenues grew by 26% to stand at $6.7 million and Adjusted EBITDA improved to a $5.3 million loss, down from an unaudited $6.4 million loss in the year prior to Boku acquiring the company.

We have built an incredible asset in the Boku Platform. It has taken 10 years and cost us more than $100 million, and it is very difficult for anyone else to replicate. It now connects 190 mobile network operators around the world to most of the world's largest digital merchants in app stores, streaming music, streaming video and games. The Platform is extremely reliable and can support high volumes of transactions (volumes have peaked at more than 400 transactions per second) and is capable of supporting many more.

The primary product run through the Platform is Boku's Direct Carrier Billing (DCB) Payments business. Users of this service are many of the world's largest digital companies, including Apple, Sony, Spotify, Netflix, Facebook, Google and Microsoft who come to Boku for a simple reason - we help them to acquire new paying users. Underpinning Boku's products is a key capability that only mobile network operators possess: they know your telephone number without having to ask. With Boku Payments we convert this knowledge into one-tap-to-pay technology, or better yet, one-tap-to-register, removing friction not only from the time of the transaction, but also from the registration process.

This technology helped nearly 18 million people made their very first Boku payment transaction in 2019 - around one and a half million new paying users a month, helping to drive the growth of our customers as more people play games and watch movies on their phones and listen to music on the move.

In December 2019 alone, 17.8 million users bought a product through the Platform - 4.3 million more than in the same period last year - generating more than $500 million in transaction value. Over the course of the whole year more than $5 billion was spent through the Boku Platform, 40% up from last year's figure of $3.6 billion.

We convert this processed value into revenue for Boku by taking a percentage based fee. We operate two models: the settlement model - a full service offering where we provide technical processing services and are involved in the flow of funds and the transaction model where we only provide the technical connectivity. The former attracts higher fees than the latter which has more volume.

This growth has mostly been driven by connecting our merchants to carriers within our network. Each new connection reaches maturity over a two-year period. Meaning that much of our growth is baked in. A big effort this year has been to improve network quality, to get more carriers able to support Boku's one-tap-to-register offering, Boku Account. These new connections have been to transaction model merchants at lower margins - in 2020 and beyond these connections can be reused by higher settlement model customers.

Growth is underpinned by the growth in popularity of the services that our merchants offer as digital services displace physical products in the music, film and games industries. We also get a boost from cross selling into other divisions of our customers, for example, being used for Office 365 subscriptions by Microsoft as well as Xbox.

2019 has also been a year in which we laid a lot of groundwork for future growth with Mobile Wallets which are a second distinct payment network available to our merchants through their existing Boku connection.

Mobile Wallets have emerged as the mainstream payment mechanism in most mobile first markets. In Asia, for example, companies like Alipay, Wechatpay and Paytm account for 58% of electronic spending and have around 2.5 billion customers. For wallets which have a strong domestic presence, Boku is a valuable partner- as we are connected to an unrivalled portfolio of global digital merchants. By the same token, global merchants value the benefit of using their existing connection to the Boku Platform to provide their users with a new way to pay.

To date, Boku has contracted with 10 wallets in 9 countries reaching approximately 1.4 billion customers. We are now live with three wallets and during 2020 we will activate more, building, in effect, a second payment network connected to the Boku Platform. This can be achieved without significant extra cost. Connecting the Boku payments platform to wallets is similar to connecting to carriers and the cost of an incremental transaction is close to zero. Therefore any extra gross margin generated from wallets will largely flow through to Adjusted EBITDA. It's early days for wallets, and 2020 revenues are not expected to be material, but they clearly have significant potential.

While wallets are an example of growth by exploiting the Boku Platform and our existing merchant base, our efforts in Identity are a demonstration of how we can exploit our carrier network to launch new products reaching new customers.

To kick start the Identity business, we bought Danal Inc., for $25.1m on 1st January 2019. The plan was to strengthen sales in its US domestic market and use the funds generated to help build out a global carrier identity network, building on our existing global carrier billing network.

Progress in the US can best be described as respectable rather than spectacular and certainly less than we would have liked. Volumes of billable transactions were up by 45% to 253 million and revenues increased by 26% to $6.7 million compared to 2018's unaudited figure (the year prior to Boku acquiring the company). We were affected by supply side issues in the US, in particular, the loss of a carrier.

Despite results falling below our expectations, I retain a strong conviction about the Identity business. We didn't buy Danal for it to continue be a US focused company, we have ambitions for it to be global. Building out the supply side through our international carrier network is in progress but takes time

Our key Identity product offering uses the same core technology as payments, the fact that the carrier knows your phone number without having to ask. In Identity this manifests as silent authentication - checking your phone number matches the one on file without the user having to do anything. To verify your phone number today, people are put through the ordeal of receiving a 6-digit code by text message. It's not a fun experience. Text messages get lost and transactions don't get completed. Worse, far from being a secure system, the SMS message itself can act as a source of fraud when the genuine user is induced by a fraudster to give away the code.

Demand for a better solution, a silent validation, is strong. Our challenge is to build the supply network internationally. While it was disappointing to make slower progress than we wanted in the US during 2019, the milestones marking progress on this business are about internationalisation, activating more carriers outside the US. In this regard, it is good to be able to report that we have activated new connections in India and Indonesia, but there is still further work for us to do.

Outlook

Boku is a business where much of the growth is built in. A lot of groundwork has been done in 2019 to set us up for success in 2020. Volumes and revenues in one year are, barring accidents, largely the result of efforts made in the previous one. Just such a shock, the Coronavirus, has cast a long shadow over many businesses. Boku however is very well placed: operations are unaffected -- our team is used to working remotely. New implementations are mostly proceeding with, at worst, minor delays. New sales and business development are more difficult without face to face contact, though opportunities are being pursued. As our services are delivered digitally, supply has not been disrupted; on the demand-side, the more people stay at home the more they play games, download apps and use streaming services. We have seen definite evidence of increased volumes in countries with social distancing measures in place.

In Payments, our existing merchants and connections will continue to perform strongly for as long as lockdown measures are in place. There is a strong pipeline of new deployments, especially from higher margin settlement model merchants to be implemented. As yet, our DCB deployment plans have not been materially affected. There is also potential material upside from mobile wallets.

On Identity, our focus in 2020 is continuing to build out our international carrier connections to create a truly global offering. Demand remains strong, including from global customers. Transaction processing on existing customers is continuing unaffected. Identity has a greater dependence on new business to hit full year expectations and so is unlikely to perform as strongly as Payments, with its larger installed base.

We remain confident that Boku is well positioned in difficult times.

Jon Prideaux

Chief Executive Officer

 

Chief Financial Officer's Report

 

Strong growth in Payments Adjusted EBITDA and progress in Identity

2019 was a year of significant change for Boku following the acquisition of US based mobile Identity business Danal Inc on 1st January 2019 for $25.1 million which turned Boku into a two product global business. Danal was renamed Boku Identity and we report on the first full year of our Identity business here for the first time. The Payments division performed well with revenues increasing to $43.5 million which in turn delivered a 100% increase in Adjusted EBITDA of $12.7 million (2018: $6.3 million) demonstrating the operational leverage of our payments platform as additional incremental transaction revenues largely drop through to Adjusted EBITDA. The newly acquired Identity division was loss making prior to acquisition and we saw progress in 2019 as revenues grew by 26% to $6.7 million while Adjusted EBITDA losses reduced from $6.3 million to $5.3 million. These losses are expected to further reduce in 2020 and we are aiming to reach monthly breakeven in 2021.

Net Profit after Tax

The Company reported a Net Profit after tax for the year of $0.4 million (2018: $4.3 million loss) and a net loss before tax of $1.3 million (2018: $3.0 million loss)

Group Revenue and Gross Margins

Revenue for the year of $50.1 million was up by 42% on 2018 (2018: $35.3 million) as the Company saw growth in its Payments business and added Danal Inc to form its Identity division on 1st January 2019. Noting that the balance includes a non-recurring Payment revenue of $3.3m relating to a change in the estimate of a transaction price related to a performance obligation satisfied in a prior period. Payments revenues, including the non-recurring item noted in the previous sentence, were $43.5 million (87% of total revenues) with Identity revenues of $6.7 million (13%). Gross margins on the payments side improved from 93% to 96% as volumes from our transaction model merchants, which has 100% gross margins, increased. The newly formed Identity business had gross margins of 41% for 2019.

Group Operating Expenditure

Adjusted Operating Expenditure (Operating Expenditure adjusted for depreciation, amortisation, foreign exchange, stock option expense, exceptional items, and restructuring costs) increased to $33.9 million (2018: $26.4 million), mostly driven by the Group's acquisition of Danal Inc in January 2019 which added operating expenditure of $8.0 million in the year (2018 pro forma; $7.4 million). Payments operating expenditure fell slightly to $25.9 million (2018: $26.4 million) as we continued to expand our technology operations in lower costs locations such as India while continuing to invest in our platform. The Boku platform is now capable of processing up to 800 transactions per second (TPS) more than double the highest TPS the platform has ever had to process.

From 1st January 2019 onwards, costs relating to 'Right-of-Use Assets (operating leases) have been required to be capitalised and depreciated under IFRS16. This had the effect of reducing the company's adjusted operating expenses and increasing its Adjusted EBITDA in 2019 by $1.9 million (please refer to Note 2 & 10 of the Financial Statements for details).

Payments division

The Payments division comprises Boku's Direct Carrier Billing ('DCB') business which enables customers of Boku's merchants to charge payments to their phone bills. Boku's Payments division is the sole DCB provider to some of the world's largest digital merchants including Apple, Netflix, Facebook and Sony

In 2019 revenues grew by 23% to $43.5 million (2018: $35.3 million). Growth comes from existing merchants and carrier connections but also from adding new carrier connections to new and existing merchants and this growth continued in 2019. Revenues included a one-off amount of $3.3 million relating to a change in the estimate of a transaction price related to a performance obligation satisfied in a prior period..

Boku Payments operates two revenue models both based on a percentage of the processed value: the higher margin 'settlement model' - where Boku collects funds from carriers worldwide in multiple currencies before settling to the merchant, and the lower margin 'transaction model' where we only provide the technical connectivity.

Total Payments Volume ('TPV') for the year increased to $5.0 billion in 2019 from $3.6 billion. The majority of growth came from our lower margin/higher volume transaction model merchants. As a result of this mix effect the weighted average take rate reduced to 0.8% in 2019 (2018: 1.0%). Since IPO, Boku has not reduced its rates to any of its merchants nor has it lost a material merchant.

Gross margins for the Payments division improved from 93% to 96% in the year primarily driven by the volume growth of our transaction model merchants where there is no cost of sale (100% gross margin).

Adjusted operating expenditure for the Payments division was slightly lower than 2018 at $25.9 million. Under IFRS16, leases over one year are now required to be capitalised and depreciated. This reduced operating expenditure and increased Adjusted EBITDA by approximately $1.9m (Note 10). Adjusted operating expenditure for Payments is expected to increase modestly in 2020.

Identity division

Boku's Identity division was formed at the start of 2019 following the acquisition of Danal Inc on 1st January 2019 for $25.1 million, including $24.1 million of equity and $1 million of cash (see footnote 26).

 

Identity revenues for the year increased by 25% to $6.7 million (2018 pro forma: $5.5m). Almost all of this came from the US where the business operates. Gross margin for the year was 41.3%. Identity Cost of Sales is primarily transaction related fees paid to carriers and other data providers.

Adjusted operating expenses were $8.0 million in the year (2018 pro forma: $7.4 million) as we expanded our US salesforce and added additional non-US heads as we move to internationalise our offering.

Adjusted EBITDA for the year for the Identity division was a loss of $5.3 million (2018 pro forma: $6.3 million loss) and is expected to further reduce during 2020.

Acquisition of Danal Inc

Boku completed the acquisition of Danal Inc on 1st January 2019 for a total consideration of $25.1m. Danal Inc is a US based mobile Identity business. As announced on 6th January 2020 no additional consideration was payable following the performance of Danal Inc during 2019.

 

Group Operating Profit and Adjusted EBITDA

Adjusted EBITDA increased by 17% to $7.4 million in 2019, from $6.3 million in 2018. Adjusted EBITDA is earnings before interest, tax, depreciation and amortisation, adjusted for stock option expenses, forex gains/losses and exceptional items. It also excludes $3.3 million of non-recurring Payment revenue so as to show the underlying performance of the business.

 

Reported Operating Losses for 2019 were reduced at $0.9 million (2018: $2.4 million). This can be broken down as follows:

· Foreign Exchange movements resulted in a small gain of $0.1 million (2018: $0.3 million loss)

· Stock Option Expenses - stock option expenses were $6.8 million in 2019 compared with $4.6 million in 2018. Boku has issued either RSUs or share options to all staff annually. RSU and stock option charges are spread over three and four years respectively from date of grant based on the Black Scholes method and the increase in the 2019 charge over 2018 is as a result of 2019 having costs from both the 2018 and 2019 awards. Of the $6.8 million booked in 2019, $0.2 million was paid out cash (via employers NI), the remainder was non-cash and expensed.

· Exceptional Items were reduced at $0.4 million (2018: $1.1 million). Exceptional Items in 2019 related to the closure of our Italian entity and restructuring costs relating to our Irish entity.

· Net financing expenses were reduced to $0.5 million in 2019 (2018: $0.6 million). These costs relate to Interest on operating leases and bank loans/overdraft.

Balance Sheet and Cashflow

· Closing cash balances increased to $35.6 million (including restricted cash balances of $0.9 million) at the end of 2019 from $27.9 million at 30 June 2019 and $32.3 million at 31 December 2018.

· Monthly average cash balances, which smooth the impact of intra-month flows of both carrier and merchant payments, were $22.4 million in December 2019 from $22.2 million in June 2019. Cash generated from Operations during the year was $8.9 million (2018: $13.5m).

· The Group's Revolving Credit Facility of £15.0 million with Silicon Valley Bank ('SVB') was terminated on 26th December 2019. It was replaced with an overdraft facility of £5.0 million with SVB. At year end $2.1 million was drawn down on this overdraft facility and this was repaid in full on 9th January 2020.

· As a result of the implementation of IFRS 16 (see note 1) resulted in $4.9 million of right of use assets and corresponding lease liabilities being recognized on 1st January, 2019, with $3.0 million and $3.1 million respectively included on the balance sheet at 31st December 2019.

· Deferred tax assets of $1.4 million were recognized at 31st December, 2019 compared to deferred tax liabilities in 2018. This reflects the expectation that operating losses will be utilized over the next two years primarily in our UK tax jurisdictions.

· From a working capital perspective, Current Assets exceeded Current Liabilities at 31 December 2019 by $7.4 million compared with $4.4 million at the 2018 year end.

· Intangible Assets increased to $46.8 million over the period, up from $22.5 million at December 2018 reflecting the acquisition of Danal Inc on 1 January 2019. This total includes $41.1 million of Goodwill emanating from the acquisition of Danal and other historical acquisitions ($ 23.5 million Goodwill from Danal acquisition - Note 27).

 

Keith Butcher

Chief Financial Officer

 

 

STRATEGY REPORT

Mobile: you ain't seen nothing yet

There are more active SIMs on the planet than there are humans. Smartphone penetration is not far behind, with approximately 4 billion in use worldwide, ranging from the most upmarket expensive iPhones to cheap Android devices.

From its dawn with mainframes, computing moved to the PC age, which in its turn yielded to the march of the mobile device. Computing is no longer the province of governments and big companies, nor middle class families. It's available to everyone. And the computing capabilities of these devices are different to those that have preceded it.

Driven on by the remorseless logic of Moore's law, the computer in your pocket knows where you are, can see through its camera and communicate both locally and over the internet. Although the distribution phase of the mobile computing revolution is nearing completion, the usage phase, the phase in which we figure out what to do with these things, is only just getting started. The phone has already displaced the PC as the most popular way to buy things online yet purchases from mobiles are still only a fraction of the total opportunity.

One of the things holding back growth is that the tools that support online business -- in payment, in identity, in fraud management -- have not really been able to keep pace.

 

The World is Flat, and Hedgehogs are beating Foxes

In about 650 B.C., the Greek philosopher and poet Archilochus wrote about the Fox and the Hedgehog. He said, "The fox knows many things; the hedgehog one big thing". The business guru, Theodore Levitt, took this analogy and applied it to business: in his account, Foxes are multinational companies operating in many countries around the world, adapting their offering to the local market conditions and working through a series of operating subsidiaries, doing many things. The Hedgehogs are global companies, as far as possible, doing the same thing all around the world, treating the planet as a single marketplace.

Levitt argued that Hedgehogs beat Foxes. National preferences turn out to be mostly illusory and catering for them just adds cost and complexity. As he was writing in 1983, people were drinking Coke, eating at McDonalds, wearing Levi jeans and sleeping on Ikea beds. Global manufacturing uses global supply chains.

As in products, more in services. The world is flat, barriers are being removed. We drink coffee in Starbucks, work in Excel and Powerpoint and use iPhone and Android phones. We communicate using WhatsApp, foregoing the global SMS infrastructure. Netflix appears to be beating the BBC and NBC.

These Hedgehog companies like Spotify, Netflix and WhatsApp win when they compete with Mobile Network Operators ("MNO"), who, in theory should have a lot of natural advantages. MNOs hold a privileged place in the mobile ecosystem. They literally own the (cryptographic) keys to the kingdom, they control the SIM. With it they can provide connectivity and securely identify the user and charge them. They have a billing relationship with all their customers, rich and poor, with more distribution than the banks. They have highly skilled sales forces who can sell hardware and service plans to the public.

So why have they been displaced? Why is it not the mobile company's music service, messaging or TV service that we consume?

It is because they are Foxes competing with Hedgehogs.

Even when they operate in many countries they do not do so as a global business. Their licences and spectrum are allocated by national governments, the competition law and other regulations that they must follow means that, in practice, global telecoms groups operate a portfolio of national businesses. Two operators in two different countries from the same group may share little other than a brand and the fact that their accounts are consolidated by a holding company. Their pricing, platform and systems will likely be very different.

The wheels of mobile commerce would spin more smoothly if there was a way to access the capabilities of the mobile network operators, masking the complexity and providing a single simple interface. That is the role that Boku plays.

 

The Boku Platform

Global companies want the efficiency of dealing with global suppliers. Mobile businesses benefit from being able to leverage the capabilities of MNOs. The Boku Platform provides that connection, allowing MNOs to earn revenue from the boom in mobile commerce.

The Boku Platform connects 190 of the world's mobile network operators with the world's largest digital merchants, companies like Apple, Google, Sony, Spotify and Netflix. These companies use our platform to acquire new paying users that cannot be acquired through other means. Our products now allow payment or registration to take place in as little as a single tap.

But it has not always been that easy. Building the Boku Platform has been a lengthy process. In the beginning, connections were made and information exchanged through Premium SMS messages. They were an imperfect means of payment. Messages didn't get through and transactions failed. Now we have a system with capabilities broadly equivalent to regular payment methods.

Connections are not only through an API - a feature known as Direct Carrier Billing or DCB - but also include features like duplicate transaction protection, the ability to offer multiple partial refunds, and daily reconciliation. The scale and quality of our DCB network is unmatched.

Our Platform is high capacity and performant too. It has processed volumes as high as 400 transactions per second (with room to more than double). Average latency on these transactions is about a tenth of a second. Reliability is assured through an active-active configuration allowing customers to continue to process even in the event of a catastrophic failure of one data centre.

The volumes processed are also material: more than $5bn in value was processed through the Platform in 2019, an increase of more than 40% on 2018. This value has increased nine-fold since 2016. December 2019 was our highest ever month with more than $500m going through the system.

Size is important

This scale is not just about bragging rights: it is because scale is important to our proposition. Despite the fact that volumes have increased so fast, operating expenses have stayed reasonably stable. The incremental cost of processing each new extra transaction is negligible. New revenue falls through to the bottom line.

Our scale means that we can simultaneously have the lowest unit cost in the industry and the cost base that allows us to serve the world's largest customers.

Although our merchants are growing their businesses, helping us, in turn, to grow, most growth has been driven by connecting our merchants to more carriers in our network. We have a considerable way to go. Most of our large merchants have 20 - 30 carrier connections live. Albeit that there's a tendency to connect larger carriers early, there's still a considerable way to go. Saturation is probably somewhere around 150 carriers for each merchant. New connections mean that the carrier's subscribers have the opportunity to pay, an opportunity that gradually is adopted over a two-year period leading to predictable growth in users and processed value.

As well as organic growth from more deployments, we will continue to pursue accretive opportunities to push extra scale through our Platform. More transactions mean more revenue and more revenue means more profit.

Nevertheless, although not immediately in view, there is clearly some kind of limit to the potential revenue that can be generated from carrier billing. In many countries, DCB is limited to digital content, excluding physical goods. DCB operates at a premium to other payment types as Boku is a cheap way of acquiring new users. But our merchants are watchful to ensure that DCB does not simply recruit users who would have paid anyway. In practice, that places a ceiling on our growth at around 15%-20% share of checkout. 15%-20% of the world's digital commerce (estimated at $125 billion) is a fairly respectable Total Available Market ("TAM"), but the Boku platform is capable of supporting other products which can expand this further.

 

Mobile First Markets - Mobile Wallets

Mobile Wallets are a phenomenon that has emerged in those countries which skipped the PC age and went straight to mobile. Located mainly in Asia, in these countries it was mostly a few rich people who used payment cards for travel and entertainment. The mass of the emerging middle class didn't have an electronic payment method. As apps like WeChat and Alipay sought to monetise they were essentially compelled to develop a payment method alongside their other functionality.

Collectively Mobile Wallets are now the mainstream payment method in Asia, accounting for more than 50% of electronic payments. Whether it's face-to-face using QR codes or online from within the app, most people in China and other mobile first markets turn to their Mobile Wallet to pay digitally.

Mobile Wallets are a hybrid method of payment. They are priced competitively against cards and are not restricted to digital, being used for all merchant sectors. But they also are domestic and unstandardized and not interoperable. Money is not conveniently remitted to the merchant's home territory in the currency of their choice, but rather settled locally in the wallet's local currency. They are Foxes and, like MNOs need to be aggregated for global merchants to be able to use them at scale.

The skills that Boku developed working with MNOs are easily transferable to connecting Mobile Wallets. And there is a considerable appetite from both wallets to access Boku's existing merchant base and from Boku's merchants to access the customers of the Mobile Wallets.

We have made good progress in signing up wallets and are hopeful that the extra volumes, processed at marginal extra cost will provide a new pathway for growth with a Total Addressable Market of approximately the same size as DCB.

It's early days, but our success to date in setting up a Mobile Wallet network including 10 wallets in 9 countries reaching more than 1.4 billion users gives us cause for optimism. New revenues generated through this channel will drop through to Adjusted EBITDA in the same way that the existing carrier billing payment gross profit does.

 

Who likes typing in SMS Passcodes?

If Mobile Wallets are a way for Boku to leverage its merchant network, then our Identity business is a way for us to leverage the carrier network. With new technology come new ways of committing fraud, tools developed in the PC era are not able to address the very real problems experienced by many mobile businesses.

One problem that needs solving is reliably understanding that the person attempting a transaction or to access a system is authorised to do so. The technology being used to address this problem -- as in the early days of Carrier Billing -- is the SMS message. SMS One Time Passcodes (or OTPs) are sent in their billions.

It's the technology that's used because it is the only global solution available. But there's a problem. It's unreliable (with messages sometimes not arriving), inconvenient (typing a six-digit code across is never a fun experience) and, worst of all, insecure. Victims can be induced to hand over the code, Android phones have been infected with malware and, in extreme cases, SIMs can be comprised by identity stealing fraudsters fooling the phone company.

In Payments we use the technology that allows the MNO to know your number without having to ask as a way to deliver a one tap payment, in Identity the same basic technology is used to deliver a no-tap authentication check, reassuring the company that it's in session with the right phone and that its SIM has not been compromised.

It's our vision to deliver these services globally, to global companies. The acquisition of Danal gave us a base in Identity in the US and whilst revenues there have not grown as quickly as anticipated we've grown the network with new connections made to carriers in India, Indonesia and the UK to supplement those acquired in the USA and Canada. A global silent authentication network cannot be created overnight -- though Boku starts with advantages derived from its payment network -- but the prize for doing so is significant

Summary

Boku's core business of Direct Carrier Billing is secure, profitable and growing. As the scale player, we will continue to expand through rollout of our existing merchants and through adding further volume to our Platform.

Having positioned ourselves at the intersection of important secular trends - the growth of mobile, the needs of global companies, the growth of digital subscriptions - we are developing our payments business by supplementing our existing DCB network with a second Mobile Wallet payment network of equivalent size and in identity services by helping to secure mobile commerce. Our Platform has the chance to enhance every mobile interaction and to play a meaningful role in the expansion of mobile commerce around the world.

 

BOKU, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

 

Year ended

31 December

Year ended

31 December

 

 

 

2019

2018

 

Note

 

$'000

$'000

 

 

 

 

 

Revenue*

4

 

50,148

35,275

Cost of sales

 

 

(5,563)

(2,512)

Gross profit

 

 

44,585

32,763

Administrative expenses

5

 

(45,469)

(35,179)

 

 

 

 

 

Operating loss analysed as:

 

 

 

 

Adjusted EBITDA**

 

 

7,403

6,324

Payments Revenue adjustment (non-recurring)

4

 

3,255

-

Depreciation and amortisation

 

 

(4,461)

(2,794)

Stock Option expense

27

 

(6,771)

(4,593)

Foreign exchange gains/(losses)

 

 

107

(279)

Exceptional items (included in

administrative expenses)

5

 

 

(417)

 

(1,074)

 

 

 

 

 

 

Operating loss

 

 

(884)

(2,416)

Finance income

7

 

56

53

Finance expense

7

 

(468)

(631)

Loss before tax

 

 

(1,296)

(2,994)

Tax credit / (expense)

8

 

1,651

(1,339)

Net profit/(loss) for the period attributable to equity holders of the parent company

 

 

355

(4,333)

 

 

 

 

 

Other comprehensive income/(losses) net of tax

Items that will or may be reclassified to profit or loss

 

 

 

 

Foreign currency translation loss

 

 

(160)

(938)

Net increase/(decrease) in fair value of cash flow hedge derivatives

15

 

(3)

27

Total comprehensive loss for the period

 

 

(163)

(911)

 

Total comprehensive profit/(loss) for the period attributable to equity holders of the parent company

 

 

192

(5,244)

 

 

 

 

 

Profit/ (Loss) per share attributable to the owners of the parent during the year

 

 

 

 

Basic and fully diluted ($)

9

 

0.001

(0.02)

 

* includes $3.3m of non-recurring Payments Revenue; to better reflect underlying performance, this non-recurring revenue is excluded from Adjusted EBITDA. Further information on this non-recurring Payments Revenue is detailed in Note 2 and Note 4.

** Earnings before interest, tax, depreciation, amortisation, non-recurring payments revenue adjustment, stock option expense, foreign exchange gains/(losses), and exceptional items. Management has assessed this performance measure as relevant for the user of the accounts

 

BOKU, INC.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

 

 

31 December

31 December

 

 

 

2019

2018

 

Note

 

$'000

$'000

Non-current assets

 

 

 

 

Property, plant and equipment

10

 

3,512

286

Intangible assets

11

 

46,819

22,466

Deferred income tax assets

8

 

1,826

254

Total non-current assets

 

 

52,157

23,006

 

 

 

 

 

Current assets

 

 

 

 

Trade and other receivables

13

 

53,592

51,658

Derivative financial instrument

15

 

-

3

Cash and cash equivalents

14

 

34,747

31,073

Restricted cash

14

 

876

1,251

Total current assets

 

 

89,215

83,985

 

 

 

 

 

Total assets

 

 

141,372

106,991

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

16

 

77,995

77,374

Bank loans and overdrafts

17

 

2,098

2,193

Lease liabilities

17

 

1,723

-

Total current liabilities

 

 

81,816

79,567

 

 

 

 

 

Non-current liabilities

 

 

 

 

Other payables

16

 

791

107

Deferred tax liabilities

8

 

449

671

Lease liabilities

17

 

1,358

-

Total non-current liabilities

 

 

2,598

778

 

 

 

 

 

Total liabilities

 

 

84,414

80,345

 

 

 

 

 

Net assets

 

 

56,958

26,646

 

 

 

 

 

Equity attributable to equity holders of the company

 

 

 

 

Share capital

18

 

25

22

Share premium

 

 

208,196

178,079

Cash flow hedging reserve

15

 

-

3

Foreign exchange reserve

 

 

(2,027)

(1,867)

Retained losses

 

 

(149,236)

(149,591)

Total equity

 

 

56,958

26,646

 

 

 

BOKU, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

Share capital

Share premium

Cash flow hedging reserve

Foreign exchange reserve

Retained losses

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

Equity as at 1 January 2018

21

174,220

(24)

(928)

(145,258)

28,031

Loss for the year

-

-

-

-

(4,333)

(4,333)

Other comprehensive income/(losses)

-

-

27

(939)

-

(912)

Issue of share capital upon exercise of 9,710,341 stock options

1

510

-

-

-

511

Share-based payment1

-

3,349

-

-

-

3,349

Equity as at 31 December 2018

22

178,079

3

(1,867)

(149,591)

26,646

Profit for the year

-

-

-

-

355

355

Other comprehensive income/(losses)

-

-

(3)

(160)

-

(163)

Issue of share capital upon exercise of 4,750,898 stock options and RSUs

-

571

-

-

-

571

Share-based payment1

-

5,472

-

-

-

5,472

Shares issued to Danal Inc shareholders

3

21,532

-

-

-

21,535

Other Reserves2

 

2,542

-

-

-

2,542

Equity as at 31 December 2019

25

208,196

-

(2,027)

(149,236)

56,958

        

 

1 Share based expense has been credited against share premium in accordance with the local company law and practice in US.

Employer taxes paid on the exercise of shares as well as the accrual for employer taxes has been recorded in the retained losses reserve.

 

2 Other reserves includes the warrants and held-back shares related to the acquisition of Danal, Inc. (see note 27).

 

 

BOKU, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

 

 

 

 

 

 

Year ended

31 December

Year ended

31 December

 

 

 

2019

2018

 

Note

 

$'000

$'000

 

 

 

 

 

Cash generated from operations

23

 

9,051

13,742

Income taxes paid

 

 

(131)

(248)

Net cash from operating activities

 

 

8,920

13,494

Investing activities

 

 

 

 

Purchase of property, plant and equipment

 

 

(477)

(91)

Purchase of internally developed software

 

 

(1,575)

(238)

Restricted cash

 

 

375

188

Investment in subsidiary, net of cash acquired

27

 

(742)

(164)

Interest received

 

 

56

53

Net cash used in investing activities

 

 

(2,363)

(252)

Financing activities

 

 

 

 

Payment of principal to lease creditors

 

 

(1,868)

(82)

Payment of interest to lease creditors

 

 

(288)

 

Issue of common stock

 

 

571

510

Interest paid - borrowings

 

 

(180)

(631)

Proceeds from bank overdraft

 

 

2,098

-

Repayment of line of credit

 

 

(2,150)

(250)

Net cash used in financing activities

 

 

(1,817)

(453)

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

4,740

12,789

Effect of foreign currency translation on cash and cash equivalent

 

 

(1,066)

(457)

Cash and cash equivalents at beginning of period

 

 

31,073

18,741

Cash and cash equivalents at end of period

 

 

34,747

31,073

 

 

BOKU, INC.

NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION

 

1. Corporate Information

 

The consolidated financial information represents the results of Boku Inc. ("the Company") and its subsidiaries (together referred to as "the Group").

 

Boku Inc. is a company incorporated and domiciled in the United States of America. The registered office of the Company is located at 735 Battery St., 2nd Floor, and San Francisco, CA 94111, United States.

 

The principal business of the Group is the provision of mobile billing and payment solutions for mobile network operators and merchants. These solutions enable consumers to make online payments using their mobile devices.

 

The financial information set out in this document does not constitute the Group's full annual Report and financial statements for the year ended 31 December 2019 or 31 December 2018. The annual report and financial statements for the year ended 31 December 2019 were approved by the Board of Directors on 25 March 2020, along with this preliminary announcement. The financial statements for the year ended 31 December 2019 have been reported on by the Independent Auditor. The Independent Auditor's report on the financial statements for the year ended 2019 was unqualified and did not draw attention to any matters by way of emphasis.

 

2. Accounting policies

The financial information has been prepared using the historical cost convention, as stated in the accounting policies below. These policies have been consistently applied to all periods presented, unless otherwise stated.

Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) ("IFRS") and IFRIC Interpretations issued by the International Accounting Standards Board (IASB).

The Consolidated financial statements have been prepared on a going concern basis under the historical cost convention. These financial statements have been prepared for a 12 month period.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed below in II, "Critical accounting estimates, assumptions and judgements".

The principal accounting policies adopted by the Group in the preparation of the Consolidated financial statements are set out below.

The presentation currency of the consolidated financial statements is US Dollars, rounded to the nearest thousands ($'000) unless otherwise indicated. The main functional currencies for the Company's subsidiaries are the United States Dollar, Euro and Great Britain Pound.

Going concern

The Directors have prepared a cash flow forecast covering a period extending beyond 12 months from the date of approval of these financial statements.

The forecast contains certain assumptions about the performance of the business including growth in future revenue, the cost model and margins, and importantly the level of cash recovery from trading. Boku has been operationally cash generative during 2018 and 2019, which provided further working capital to cover all operating activities. 

The Directors are aware of the risks and uncertainties facing the business, but the assumptions used are the Directors' best estimate of the future development of the business.

After considering the forecasts and the risks, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis of accounting in preparing the financial information.

Basis of consolidation

Where the Group company has control over an investee, it is classified as a subsidiary. The Group company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

The consolidated financial information presents the results of the Group company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.

 

The consolidated financial information incorporates the results of business combinations using the acquisition method. In the statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date on which control ceases. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill.

 

A list of the subsidiary undertakings is given in note 12 of the financial information.

Changes in accounting policies and disclosures

(a) New and amended standards adopted by the Group

 

The accounting policies adopted in these consolidated financial statements are consistent with those of the annual financial statements for the 12 months ended 31 December 2019, with the exception of the following standards, amendments to, or interpretations of published standards that are now effective and have been adopted during the period:

 

IFRS 16 Leases 

Policy applicable from 1 January 2019

The Group elected to implement IFRS 16 using the modified retrospective method when the standard was first adopted in its financial statements for the year ended 31 December 2019. Therefore, there is no impact on any comparative accounting periods up to and including 31 December 2018, with any leases recognised on balance sheet on the date of initial application of IFRS 16 (1 January 2019). In applying the modified retrospective approach, the Group has further decided to measure the right of use assets by reference to the amount at which lease liabilities are measured on 1 January 2019.

The modified retrospective approach, recognises the right-of-use asset at the date of initial application (1 January 2019) at an amount equal to the lease liability, using the applicable incremental borrowing rate.

The lease liability is calculated based on the remaining payments, and then sets the right-of-use asset as an amount equal to that figure (adjusted for any accrued or prepaid amounts recognised under IAS 17). Therefore, there is no impact on equity at the date of initial application.

The discount rate under the modified retrospective approach is always the incremental borrowing rate as at the date of initial application even if the rate implicit in the lease is readily determinable.

Right-of-use assets recognition and measurement

At inception of a contract, the Group assesses whether a contract is, or contains a lease. A contract is, or contains a lease, if the contract conveys the right to control the use of an identified asset, for a period of time, in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group assesses whether:

- the contract involves the use of an identified asset - this may be specified explicitly or implicitly and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified.

- the Group has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use: and

- the Group has the right to direct the use of the asset. The Group has the right when it has the decision-making rights that are most relevant to changing how and for what purposes the asset is used. In rare cases where the decision about how and for what purpose the assets is used is predetermined, the Group has the right to direct the use of the asset if either:

- the Group has the right to operate the asset; or

- the Group designed the asset in a way that predetermines how and for what purpose it will be used.

 

At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.

 

Lease liability recognition and measurement

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate. The Group used its incremental borrowing rate as the discount rate.

The lease payment included in the measurement of the lease liability comprise the following:

- fixed payments, including in-substance fixed payments.

- variable lease payments that depend on an index or are ate, initially measured using the index or rate as at the commencement date (if any);

- amount expected to be payable under a residual value guarantee (if any); and

- the exercise price under a purchase option that the Group is reasonably certain to exercise (if any),

- lease payments in an optional renewal period if the Group is reasonably certain to exercise and extension option (if any),

- and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.

The lease liability is subsequently measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or, is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The Group presents right-of-use assets that do not meet the definition of investment property in "property, plant and equipment" and lease liabilities in "loans and borrowings" in the statement of financial position.

Practical expedients

 

In applying the modified retrospective approach, the Group has taken advantage of the following practical expedients:

- - a single discount rate (incremental borrowing rate) has been applied to portfolios of leases with reasonably similar characteristics.

- leases with a remaining term of twelve months or less from the date of application and a leases of low-value assets, including IT equipment (less than $5,000 USD) have been accounted for as short-term leases (i.e. not recognised on the balance sheet) even though the initial term of the leases from lease commencement date may have been more than twelve months.

- for the purposes of measuring the right-of-use asset hindsight has been used. Therefore, it has been measured based on prevailing estimates at the date of initial application and not retrospectively by making estimates and judgements (such as the term of leases) based on circumstances on or after the lease commencement date.

 

Incremental borrowing rate

 

IFRS 16 Leases requires that all the components of the lease liability (as described in section 5.1. Leases) are required to be discounted to reflect the present value of the payments. The discount rate to use is the rate implicit in the lease, unless this cannot readily be determined, in which case the lessee's incremental borrowing rate is used instead.

The definition of the lessee's incremental borrowing rate states that the rate should represent what the lessee 'would have to pay to borrow over a similar term and with similar security, the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment.' In applying the concept of 'similar security', a lessee uses the right-of-use asset granted by the lease and not the fair value of the underlying asset. This is because the rate should represent the amount that would be charged to acquire an asset of similar value for a similar period.

In practice, judgement may be needed to estimate an incremental borrowing rate in the context of a right-of-use asset, especially when the value of the underlying asset differs significantly from the value of the right-of-use asset.

The analysis showed that the incremental borrowing rate as at 1st January 2019 was 8.5% which was used as discount rate for all leases in all subsidiaries.

 

The discount rate will be revised, in line with IFRS 16, and the lease liability remeasured only when:

- there is a change in the lease term,

- a change in the assessment of whether the lessee is reasonably certain to exercise an option to purchase the underlying asset or

- -a change in floating interest rates, resulting in a change in the future lease payments (this approach is consistent with IFRS 9's requirement for the measurement of a floating rate financial liabilities subsequently measured at amortized cost)

A lessee is not required to reassess the discount rate when there is a change in future lease payments due to a change in an index. - e.g. the consumer price index.

The policy is applied to contracts entered into, or changed, on or after 1 January 2019.

 

Policy applicable before 1 January 2019

Operating leases: lessee

Rentals paid under operating leases are charged to the profit or loss on a straight-line basis over the period of the lease.

 Leased assets: lessee

Where assets are financed by leasing agreements that give rights approximating to ownership (finance leases), the assets are treated as if they had been purchased outright. The amount capitalised is the present value of the minimum lease payments payable over the term of the lease. The corresponding leasing commitments are shown as amounts payable to the lessor. Depreciation on the relevant assets is charged to the income statement over the shorter of estimated useful economic life and the term of the lease.

 Lease payments are analysed between capital and interest components so that the interest element of the payment is charged to the income statement over the term of the lease and is calculated on an effective interest rate basis. The capital part reduces the amounts payable to the lessor.

 

Effect of IFRS 16 on the Consolidated Statement of Financial Position

The "Property, plant and equipment" fixed asset class comprise of owned and leased assets that do not meet the definition of investment property. The summary information is presented below:

 

Property, Plant and Equipment $'000 (USD)

 

2019

 

 

 

Property, plant and equipment owned

 

529

Right-of-use assets, except for investment property

2,983

Total Property, Plant and Equipment (note 10)

 

3,512

 

The Group leases many assets including buildings and IT equipment. The information about leases for which the group is a lessee is presented below:

 

Type of right-of-use assets - $'000(USD)

Property

IT Equipment

Total

Balance as at 1st January 2019

3,881

1,111

4,992

Depreciation charge for the year

(1,578)

(431)

(2,009)

NBV balance as at 31 December 2019

2,303

680

2,983

 

There are no leases with a term of more than 5 years.

 

The following is a reconciliation of lease commitments to lease liability as at 1st January, 2019:

 

Total

Operating lease commitments as at 1st January 2019

4,308

Impact of discounting

(207)

Acquired leases

617

Existing finance ease liabilities

78

Other leases and adjustments to lease term

196

Lease liabilities at 1st January 2019

4,992

 

The maturity analysis for lease liabilities is presented below:

Lease liabilities - Maturity analysis

(contractual undiscounted cash flows) - $'000 (USD)

2019

Less than one year

1,914

One to five years

1,482

More than five years

-

Total undiscounted lease liabilities as at 31 December 2019

3,396

 

 

Lease liabilities included in the statement of financial position at 31 December 2019 - $'000 (USD)

3,081

Current

1,723

Non-current

1,358

 

Effect of IFRS 16 on the Consolidated Statement of Comprehensive Income

The amounts recognized in the Consolidated Statement of Comprehensive Income for the twelve-month period ending 31 December 2019 is presented below:

Amounts recognized in profit or loss - $'000 (USD)

2019

 
 

Interest lease liabilities (note 7)

288

 

Variable lease payments not included in the measurement of lease payments

-

 

Expenses related to short-term leases

129

 

Expenses related to leases of low-value assets, excluding short-term leases of low-value assets

17

 

Depreciation - right-of-use assets (note 10)

2,009

 

 

Effect of IFRS 16 on the Consolidated Statement Cash Flows

 

The amounts recognized in the Consolidated Statement of Cash Flows for the twelve-month period ending 31 December 2019 is presented below

Amounts recognised in the statement of cash flows

 $'000 (USD)

2019

Cash outflow for lease liabilities

1,868

Interest paid to lease creditors

288

 

IFRIC 23 Uncertainty over Income Tax Treatments 

 

IFRIC 23 "Uncertainty over Income Tax Treatments" clarifies how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments

IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in

circumstances in which there is uncertainty over income tax treatments. The Interpretation requires:

· The Group to determine whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution;

· The Group to determine if it is probable that the tax authorities will accept the uncertain tax treatment; and

· If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty. This measurement is required to be based on the assumption that each of the tax authorities will examine amounts they have a right to examine and have full knowledge of all related information when making those examinations.

 

The Group elected to apply IFRIC 23 retrospectively with the cumulative effect recorded in retained earnings as at the date of initial application, 1 January 2019. The adoption of IFRIC 23 had no impact on retained earnings or on corporate tax liabilities.

(b) New, amended standards, interpretations not yet effective

 

New standards, interpretations and amendments not yet effective

There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the group has decided not to adopt early. The following amendments are effective for the period beginning 1 January 2020:

· IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment - Definition of Material)

· IFRS 3 Business Combinations (Amendment - Definition of Business)

· Revised Conceptual Framework for Financial Reporting

 

In January 2020, the IASB issued amendments to IAS 1, which clarify the criteria used to determine whether liabilities are classified as current or non-current. These amendments clarify that current or non-current classification is based on whether an entity has a right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period. The amendments also clarify that 'settlement' includes the transfer of cash, goods, services, or equity instruments unless the obligation to transfer equity instruments arises from a conversion feature classified as an equity instrument separately from the liability component of a compound financial instrument. The amendments are effective for annual reporting periods beginning on or after 1 January 2022.

The Group is currently assessing the impact of these new accounting standards and amendments. The Group does not believe that the amendments to IAS 1 will have a significant impact on the classification of its liabilities.

Foreign currency translation

The presentation currency for the group is US dollars. Items included in the financial statement of each of the Group's entities are measured in the functional currency of each entity..

Foreign currency transactions and balances

i) Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.

ii) Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the reporting period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement within administrative expenses.

iii) Non-monetary items that are measured in terms of historical costs in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments (including purchased intangible assets) to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

 

Consolidation of foreign entities

On consolidation, the results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

i) Assets and liabilities for each Consolidated statement of financial position presented are translated at the closing rate at the date of that Consolidated statement of financial position.

ii) Income and expenses for each Consolidated statement of comprehensive income item are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

iii) All resulting exchange differences are recognised as a separate component of equity.

Exchange differences are recycled to profit or loss as a reclassification adjustment upon disposal of the foreign operation.

Revenue

Boku recognises revenue in accordance with IFRS 15 Revenue from Contracts with Customers by applying the required five steps: identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognise revenue when (or as) the entity satisfies a performance obligation. Revenue is allocated to the various performance obligations on a relative stand-alone selling price ("SSP") basis.

An analysis of the key considerations that IFRS 15 has on the Group's revenue streams is summarised below.

1. Payments Segment revenue

Boku's technology for the Payments segment delivers a low friction way for mobile phone users to buy things and charge them to their phone bill or pre-paid balance. The Group's revenue is principally its service fees which are earned from its merchants.

(i) Settlement Model: when it acts as an agent between a merchant and mobile network operators (MNOs) or an aggregator (a middleman between the Group and the MNO). Management has determined that it is acting as an agent under IFRS 15 because it does not have the primary responsibility for providing the services to the customer. Therefore, there has been no change in the classification as an agent from the previous assessment that there was no exposure to the risks and rewards.

(ii) Transactional Model: from larger virtual and digital merchants who receive the sale collections directly and pay a service fee to the Group.

Under both the transactional and settlement model (see point (i) and (ii) above), the Group's contracts with customers include one performance obligation only. This relates to an obligation to facilitate the payment for the transaction between the merchant and their end users. Under IFRS 15 revenues for this service is recognised under this contract at a point in time as the obligation is fulfilled at time when transaction happens. There has been no change on the adoption of IFRS 15, as the point of delivery of the performance obligation is the same as when the risks and rewards have been transferred. Payments are due once the Group receives the monthly statement of information from the Aggregator or the MNO.

 

(iii) Other revenue: from special merchant integrations, subscription services and early settlement of funds.

 

The contract for special merchant integration was changed during 2019. This resulted in a change of the revenue recognition for special merchant integrations. Under the new contract after the special integration is performed, tested and approved by the customer, no further performance obligation is required of Boku. The customer decides whether Boku has to service further the special integration and keep it live and will pay this further performance obligation separately under a special obligation: "monthly maintenance obligation". Payments are due and recognized in full once the integrations are successfully tested and approved by the customer. The maintenance fees are due monthly and are recognized in full at each month end, in line with IFRS 15.

Contract assets and contract liabilities are included within 'trade and other receivables' and 'trade and other payables' respectively on the face of the statement of financial position.

In certain cases, the transaction price includes an estimate of variable consideration. Variable consideration is only included in the transaction price to the extent that it is highly probably that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved. In such cases, the estimated transaction price is updated each reporting period to reflect changes in circumstances and the adjustment is reflected in revenue in the period that the change occurs.

The Group's revenue is principally its service fees earned from its merchants. There are slight differences to contracts depending on the services provided. All revenue from the Payment segment is recognized at one point in time. Therefore, for the Payments segment, at 31 December 2019, the Group does not have deferred revenue on the balance sheet.

2. Identity Segment Revenue

Boku's technology for the Identity segment provides identity services to customers by silently validating a mobile device using automatic mobile number verification, streamlining the Know Your Client ('KYC') processes by validating the name and address entered by a user against the MNOs data, and reduce fraud on marketing promotions by linking marketing promotions to secure SIM based user identities instead of email or unverified mobile numbers etc.

Identity merchants are charged either on a per user basis - for monitoring - or a per transaction basis, typically with monthly minimums.

For the Identity segment, deferred revenue consists of billings processed in advance of revenue recognition generated by Boku Identity's Mobile Identification/TCPA services. For these services, Boku bills its customers at the beginning of the contract term as a pre-payment for services which are billed at a set price per transaction. The revenue is recognized monthly, at a point in time, based on the amount of transactional volume processed during the month and services will continue to be performed until the full value of the contract is realized. For the period ended 31 December 2019, deferred revenue on the balance sheet for the Identity Segment was $489,265.

 

Cost of sales

Cost of sales is primarily related to the monthly fees and service charges from MNOs and other providers, customer services fees, some marketing expenses and bad debt.

Operating Segments

In accordance with IFRS 8, "Operating Segments", the Group has derived the information for its segmental reporting using the information used by the Chief Operating Decision Maker ("CODM"), defined as the Executive Operating Committee (EOC). The segmental reporting is consistent with those used in internal management reporting and the measure used by the EOC is Adjusted EBITDA.

The Board considers that the Group's provision of a payment platform for the payment processing of virtual goods and digital goods purchases constitutes one operating and one reporting segment (Payments segment), and the provision of identity services another operating and reporting segment (Identity segment) as defined under IFRS 8. Management reviews the performance of the Group by reference to total results against budget as well as for each of the two operating segments.

Exceptional Items

Exceptional items are those significant items, which are separately disclosed by virtue of their size, nature or incidence to enable a full understanding of the Group's financial performance. In setting the policy for exceptional items, judgement is required to determine what the Group defines as "exceptional". The Group considers an item to be exceptional in nature if it is non-recurring or does not reflect the underlying performance of the business. Exceptional items are recorded separately below EBITDA.

Management of the Group evaluates Group strategic projects such as acquisitions, divestitures and integration activities, Group restructuring and other one-off events such as restructuring programmes. In determining whether an event or transaction is exceptional, management of the Group considers quantitative and qualitative factors such as its expected size, precedent for similar items and the commercial context for the particular transaction, while ensuring consistent treatment between favourable and unfavourable transactions impacting revenue, income and expense. Examples of transactions which may be considered of an exceptional nature include major restructuring programmes, cost of acquisitions, the cost of integrating acquired businesses or gains or losses on the disposal of discontinued operations.

Retirement Benefits: Defined contribution schemes

The Group operates various pension schemes in various jurisdictions, all being defined contribution schemes (pension plans). A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

 

For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due.

 

In the U.S. the group has a 401(k) plan, a type of defined contribution scheme in the United States in which all employees are eligible to participate after meeting eligibility requirements. Participants may elect to have a portion of their salary deferred and contributed to the scheme up to the limit allowed by applicable income tax regulations. The Company has made a matching contribution to the scheme for the year ended 31 December 2019.

Contributions to defined contribution schemes are charged to the consolidated statement of comprehensive income in the year to which they relate.

Share-based payments

Where equity settled share options and Restricted Stock Units ('RSUs') are awarded to employees, the fair value of the options or RSUs at the date of grant is charged to the consolidated statement of comprehensive income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options or RSUs that eventually vest.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the consolidated statement of comprehensive income over the remaining vesting period.

Where equity instruments are granted to persons other than employees, the consolidated statement of comprehensive income is charged with the fair value of goods and services received.

Share options and RSUs which will incur future employer payroll taxes on exercise, are accrued for the future cost of National Insurance from the point the options are granted over their vesting period. This liability is then amended at each subsequent balance sheet date under IFRS 2.

Intangible assets

(i) Goodwill

The Group uses the acquisition method of accounting for the acquisition of a subsidiary. The consideration transferred is measured at the fair value of the assets given, equity instruments issued, and liabilities incurred or assumed at the date of exchange. Costs directly attributable to the acquisition are expensed in the period. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

In respect of business combinations that have occurred since January 2014, goodwill represents the excess of the cost of the acquisition and the Group's interest fair value of net identifiable assets and liabilities acquired. In respect of business combinations prior to this date, goodwill is included on the basis of its deemed cost, which represents the amount recorded under US GAAP. As permitted by IFRS 1, Goodwill arising on acquisitions prior to 1 January 2014 is stated in accordance with US GAAP and has not been remeasured on transition to IFRS. Goodwill is recognised and measured at the acquisition date.

Goodwill is capitalised as an intangible asset at cost less any accumulated impairment losses. Any impairment in carrying value is being charged to the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed.

Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive income on the acquisition date.

Goodwill is allocated to appropriate cash generating units (CGUs). Goodwill is not amortised but is tested annually for impairment or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the determination of a discount rate in order to calculate the present value of the cash flows. The major assumptions are disclosed in note 11.

(ii) Intangible assets acquired as part of a business combination

Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset. All intangible assets acquired through business combinations, are amortised over their useful lives.

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses. The carrying values are tested for impairment when there is an indication that the value of the assets might be impaired

(iii) Research and development

Expenditure on research activities as defined in IFRS is recognised in the income statement as an expense as incurred.

Expenditure on internally developed software products and substantial enhancements to existing software product is recognised as intangible assets only when the following criteria are met:

1. it is technically feasible to develop the product to be used or sold;

2. there is an intention to complete and use or sell the product;

3. the Group is able to use or sell the product;

4. use or sale of the product will generate future economic benefits;

5. adequate resources are available to complete the development; and

6. expenditure on the development of the product can be measured reliably.

The capitalised expenditure represents costs directly attributable to the development of the asset from the point at which the above criteria are met up to the point at which the product is ready to use. The costs include external direct costs of materials and services consumed in developing and obtaining internal-use computer software, and payroll and payroll-related costs for employees who are directly associated with and who devote time to developing the internal-use software. If the qualifying conditions are not met, such development expenditure is recognised as an expense in the period in which it is incurred. Product development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

 

(iv) Amortisation rates

The significant intangibles recognised by the Group and their useful economic lives are as follows:

Intangible asset

Tradenames

Merchant relationships

Developed technologies

Domain names

Internally developed software

Useful economic life

Indefinite life - not amortized

5 years

1 - 7 years

5 years

3 - 6.75 years

 

The amortisation expense is recognised within administrative expenses in the consolidated statement of comprehensive income.

Property, plant and equipment

Property, plant and equipment are held under the cost model and are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance expenditures are charged to the Consolidated statement of comprehensive income during the financial year in which they are incurred. Depreciation is calculated using the straight-line method to write off the cost of each asset to its residual value over its estimated useful life as follows:

Office equipment and furniture

Computer equipment and software

Leasehold improvement

Right-of-use assets

3- 5 years on cost

3- 5 years on cost

6.5 years on cost

Shorter of useful life of the asset or lease term

 

 

Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in the Consolidated statement of comprehensive income.

 

Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short term highly liquid investments with original maturities of three months or less. Bank overdrafts are shown with borrowings in currently liabilities on the Consolidated statement of comprehensive income.

Restricted cash

The restricted cash does not meet the definition of cash and cash equivalents and is therefore separately disclosed in the Group's statement of financial position and is not part of the cash and cash equivalents for cash flow purposes. These cash amounts are restricted as to withdrawal or use under the terms of certain contractual agreements.

Financial assets

The Group's financial assets mainly comprise cash, trade and other receivables.

Trade receivables are initially recognised at fair value and subsequently measured at amortised cost less provisions for impairment based upon an expected credit loss methodology. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance matrix for all trade receivables (including accrued receivables). A provision of the lifetime expected credit loss is established upon initial recognition of the underlying asset and are calculated using historical account payment profiles along with historical credit losses experienced. The loss allowance is adjusted for forward looking factors specific to the debtor and the economic environment. The amount of the provision is recognised in the Consolidated statement of comprehensive income.

 

Financial liabilities

Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. The Group's financial liabilities are categorised as loans and Trade and other payables.

At initial recognition,

· Financial liabilities (trade and other payables, excluding other taxes and social security costs and deferred income), are measured at their fair value plus, if appropriate, any transaction costs that are directly attributable to the issue of the financial liability. These financial liabilities are subsequently carried at amortised cost.

· Bank borrowings are initially recognised at fair value net any of transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently measured at amortised cost ensuring the interest element of the borrowing is expensed over the repayment period at a constant rate.

 

Leases

IFRS 16 "Leases"' supersedes IAS 17 'Leases', IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the substance of transactions involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosures of leases and requires lessees to account for most leases under a single on-balance sheet model. The Group has applied IFRS 16 'Leases' from 1 January 2019.

Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made on or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment.

Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as expense in the period on which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

Short-term leases and leases of low-value assets The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value (i.e., below £5,000). Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.

Share Capital

Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Group's ordinary share capital and share premium are classified as equity instruments.

Taxation

Current tax

Current taxes are based on the results shown in the financial statements and are calculated according to local tax rules, using tax rates enacted or substantially enacted at the balance sheet date.

Deferred tax

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differs from its tax base, except for differences arising on:

· the initial recognition of goodwill;

· the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and

· investments in subsidiaries where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

 

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the deferred tax liabilities or assets are settled or recovered. Deferred tax balances are not discounted.

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:

· the same taxable group company; or

· different company entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets and liabilities are expected to be settled or recovered.

 

Business combinations

The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Costs related to acquisitions, other than those directly attributable to the issue of debt or equity, are expensed as incurred.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the profit or loss

Critical accounting estimates and judgements

In preparing these Consolidated financial statements, the Group has made its best estimates and judgements of certain amounts included in the financial statements, giving due consideration to materiality. The Group regularly reviews these estimates and updates them as required. Actual results could differ from these estimates. Unless otherwise indicated, the Group does not believe that there is a significant risk of a material change to the carrying value of assets and liabilities within the next financial year related to the accounting estimates and assumptions described below. The Group considers the following to be a description of the most significant estimates and judgements, which require the Group to make subjective and complex judgements and matters that are inherently uncertain.

 

(a) Goodwill, Intangible assets acquired in a business combination

As set out in the accounting policies above, intangible assets acquired in a business combination are capitalised and amortised over their useful lives. Both initial valuations and valuations for subsequent impairment tests are based on risk adjusted future cash flows discounted using appropriate discount rates. These future cash flows are based on forecasts which are inherently judgemental. Future events could cause the assumptions to change which could have an adverse effect on the future results of the Group. Refer to note 11 for a description of the specific estimates and judgements used and the net book values of intangible assets.

(b) Share-based payments

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The group is using the Black Scholes model to calculate all of its share-based compensation expenses. (Please refer to note 20 for full details).

(c) Taxation

In recognising income tax assets and liabilities, management makes estimates of the likely outcome of decisions by tax authorities on transactions and events whose treatment for tax purposes is uncertain. Where the final outcome of such matters is different, or expected to be different, from previous assessments made by management, a change to the carrying value of income tax assets and liabilities will be recorded in the period in which such a determination is made. In recognising deferred tax assets and liabilities management also makes judgements about likely future taxable profits. The carrying values of current tax and deferred tax assets and liabilities are disclosed separately in the consolidated statement of financial position.

(d) Revenue Recognition

The key areas of judgement in respect of recognising revenue are the timing of recognition and how the different elements of contracts are identified, for example between transactional and maintenance revenues. Revenue recognition under IFRS 15 is significantly more complex than under previous reporting requirements and necessitates the use of management judgements and estimates to produce financial information. IFRS 15 also introduces management judgement in relation to the timing of recognition of certain categories of cost. The most significant accounting judgements in applying IFRS 15 are disclosed below.

 

Revenue recognition requires significant judgement in identifying each distinct performance obligation requiring separate recognition in a multi-element contract. This judgement impacts the timing of revenue recognition, as certain performance obligations are recognised at a point in time and others are recognised over the life of the contract, and therefore the quantum of revenue and profit recognised in each period.

 

3. Financial instruments - Risk Management

The Board has overall responsibility for the determination of the Group's risk management objectives and policies. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. The Group reports in US$. All funding requirements and financial risks are managed based on policies and procedures adopted by the Board of Directors. The Group does not issue or use financial instruments of a speculative nature.

The Group is exposed to the following financial risks:

· Market risk

· Credit risk

· Liquidity risk

 

In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:

· Trade and other receivables

· Cash and cash equivalents and restricted cash

· Trade and other payables

· Bank loans

 

To the extent financial instruments are not carried at fair value in the consolidated statement of financial position, book value approximates to fair value at 31 December 2019 and 31 December 2018.

Trade and other receivables are measured at book value and amortised cost. Book values and expected cash flows are reviewed by the Board and any impairment charged to the consolidated statement of comprehensive income in the relevant period.

Trade and other payables are measured at book value and amortised cost.

Financial instruments by category

Financial assets

 

 

 

31 December 2019

31 December 2018

 

 

$'000

$'000

 

 

 

 

Cash and cash equivalents

 

34,747

31,073

Restricted cash

 

876

1,251

Total Cash

 

35,623

32,324

 

Accounts receivable (net)

 

50,165

48,979

Other receivables

 

373

300

Note receivable from shareholder

 

793

793

Total other financial assets

 

51,331

50,072

Cash, and other financial assets

 

 

 

86,954

 

82,397

Derivative financial assets designated as hedging instrument

 

-

3

Financial liabilities

 

 

31 December 2019

31 December 2018

 

 

$'000

$'000

 

 

 

 

Trade payables

 

68,128

69,064

Accruals

 

7,799

6,402

Total other financial liabilities

 

75,927

75,466

Bank loans (secured)

 

2,098

2,150

Lease liabilities

 

1,723

43

Loans and borrowings

 

3,821

2,193

Financial liabilities at amortised cost

 

79,748

77,659

 

The management of risk is a fundamental concern of the Group's management. This note summarises the key risks to the Group and the policies and procedures put in place by management to manage them.

a) Market risk

Market risk arises from the Group's use of interest bearing and foreign currency financial instruments. There is a risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk) or foreign exchange rates (currency risk).

Interest rate risk

The Group is exposed to cash flow interest rate risk from bank borrowings at variable rates. The Group's bank borrowings and other borrowings are disclosed in note 17. The Group's exposure to interest rate risk on the finance leases is considered low as the outstanding balance at year-end is not significant. The Group manages the interest rate risk centrally.

The following table demonstrates the sensitivity to a 1 percent change (lower/higher) to the interest rates of the following borrowings at 31 December 2019 to the profit before tax and net assets for the period:

 

 

31 December 2019

31 December 2018

 

 

Increase/(decrease) of loss before tax and net assets

Increase/(decrease) of loss before tax and net assets

 

 

$'000

$'000

 

 

 

 

Bank loans

 

+/-20

+/-22

 

Foreign exchange risk

Foreign exchange risk is the risk that movements in exchange rates affect the profitability of the business. The company manages this risk through natural hedging and spot contracts.

The effect of fluctuations in exchange rates on the Euro and GBP denominated trade receivables is partially offset through the use of foreign exchange contracts to the extent that any remaining impact on profit after tax is not material.

At December 31, 2019, the Company had no (2018: 1) foreign currency forward contracts totaling a notional amount of $Nil (2018: $141,783). These instruments were used to hedge the variable cash flows predominantly associated with monthly Aggregator payments.

The Group aims to fund expenses and investments in the respective currency and to manage foreign exchange risk at a local level by matching the currency in which revenue is generated and expenses are incurred.

As of 31 December, the Group's gross exposure to foreign exchange risk was as follows:

 

GBP

Euro

Other

Total

31 December 2019

$'000

$'000

$'000

$'000

 

 

 

 

 

Trade and other receivables

14,856

19,180

15,198

49,234

Cash and cash equivalents and restricted cash

13,307

8,445

10,308

32,060

Trade and other payables

(22,113)

(24,684)

(22,646)

(69,443)

Financial assets

6,050

2,941

2,859

11,851

 

 

 

 

 

10% impact - +/-

672

327

318

1,317

 

 

 

 

 

 

 

GBP

Euro

Other

Total

31 December 2018

$'000

$'000

$'000

$'000

 

 

 

 

 

Trade and other receivables

12,818

20,808

16,120

49,746

Cash and cash equivalents and restricted cash

11,052

9,402

8,102

28,556

Trade and other payables

(22,906)

(26,118)

(19,760)

(68,784)

Financial assets

965

4,092

4,462

9,518

 

 

 

 

 

10% impact - +/-

107

455

496

1,058

 

The impact of 10% movement in foreign exchange rate of US$ will result in an increase/decrease of total comprehensive loss after tax and financial assets/(liabilities) of $1,317 for December 2019 (2018: $1,058).

b) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from credit sales. The Group's net trade receivables for the three reported periods are disclosed in the financial assets table above.

The Group is exposed to credit risk in respect of these balances such that, if one or more the aggregators or MNOs encounters financial difficulties, this could materially and adversely affect the Group's financial results. The Group attempts to mitigate credit risk by assessing the credit rating of new customers prior to entering into contracts and by entering contracts with customers with agreed credit terms.

To minimise this credit risk, the Group endeavours only to deal with companies which are demonstrably creditworthy and this, together with the aggregate financial exposure, is continuously monitored. The maximum exposure to credit risk is the value of the outstanding amount.

At the reporting date, the largest exposure was represented by the carrying value of trade and other receivables, against which $2,001 is provided at 31 December 2019 (2018: $1,956). The provision represents an estimate of potential bad debt in respect of the year-end trade receivables, a review having been undertaken of each such year-end receivable. The Group's customers are spread across a broad range of sectors and consequently it is not otherwise exposed to significant concentrations of credit risk on its trade receivables. 

A debt is considered to be bad when it is deemed irrecoverable, for example when the debtor goes into liquidation, or when a credit or partial credit is issued to the customer for goodwill or commercial reasons. The Group has applied the Simplified Approach applying a provision matrix based on number of days past due to measure lifetime expected credit losses and after taking into account customer sectors with different credit risk profiles and current and forecast trading conditions.

The Group's provision matrix is as follows:

31-Dec-19

< 60 days

61-120 days

121-150 days

> 150 days

Total

 

 

 

 

 

 

Expected credit loss % range

0%

0%

0%

95%-100%

 

Gross debtors ($'000)

49,265

173

611

2,117

52,166

Expected credit loss rate ($'000)

 -

 -

 -

(2,001)

(2,001)

 

 

 

 

 

50,165

At 31 December 2018 Group had a specific provision as well as the provision made in accordance with the credit loss matrix above. This provision was for two thousand dollars - which was considered to be 100% irrecoverable due to potential business closure. The total provision for trade and accrued receivable as at 31 December 2018 was $1,958k.

 

31-Dec-18

< 60 days

61-120 days

121-150 days

> 150 days

Total

 

 

 

 

 

 

Expected credit loss % range

0%

0%

0%

98%-100%

 

Gross debtors ($'000)

47,625

829

494

1,987

50,935

Expected credit loss rate ($'000)

-

-

-

(1,956)

(1,956)

 

 

 

 

 

48,979

 

At 31 December 2018 the Group had a provision for $1,958 of which $101 was fully written off during 2019. The total provision of trade and accrued receivables as at 31 December 2019 was $2,001.

Other receivables are considered to be low risk. The management do not consider that there is any concentration of risk within other receivables. No other receivables have been impaired.

Credit risk on cash and cash equivalents is considered to be small as the counterparties are all substantial banks with high credit ratings. The maximum exposure is however the amount of the deposit. To date, the Group has not experienced any losses on its cash and cash equivalent deposits.

c) Liquidity risk

Liquidity risk arises from the Group's management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. The table below analyses the Group's financial liabilities by contractual maturities and all amounts disclosed in the table are the undiscounted contractual cash flows:

31 December 2019

Within 1 year

1-2 years

2-5 years

More than 5 years

 

$'000

$'000

$'000

$'000

Trade and other payables

77,995

791

-

-

Bank loans and overdrafts (secured)

2,098

-

-

-

Leases liabilities

1,723

1,358

-

-

Total

81,816

2,149

-

-

 

 

 

 

 

 

31 December 2018

Within 1 year

1-2 years

2-5 years

More than 5 years

 

 

$'000

$'000

$'000

$'000

 

Trade and other payables

77,374

107

-

-

 

Bank loans and overdrafts (secured)

2,150

-

-

-

 

Finance leases

43

-

-

-

 

Total

79,567

107

-

-

 

 

 

 

 

 

Capital Management

The Group's capital is made up of share capital, foreign exchange reserve and retained losses.

The Group's objectives when maintaining capital are:

· To safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and

· To provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

 

The capital structure of the Group consists of shareholders' equity as set out in the consolidated statement of changes in equity. All working capital requirements are financed from existing cash resources and borrowings.

 

4. Segmental analysis

 

(a) Operating Segments - primary basis

 

Prior to 1 Jan 2019, the Group considered that for executive management purposes, the Group had one reportable segment - provision of a payment platform for processing payments for virtual goods and digital goods purchases. Following the acquisition of Danal Inc. on 1 January 2019, (Note 27) the Group revised its activities into two operating segments as disclosed below. The segments are based on the Group's main revenue generating activities. For each of the segments, the Group CEO and CFO reviews the management reports monthly before sending the results to the Board.

The following summary describes the operations in each of the Group's reportable segments:

Payments Segment - provision of payment platform which enables mobile phone users to buy goods and services and charge them to their mobile phone or prepaid balance.

Identity Segment - provision of Identity services which are used to simplify transactions or combat fraud.

Operating segment information under the primary reporting format is disclosed below:

Boku Income Statement by segment for

12 months to 31 December 2019

2019

 

2018

 

Payments

Identity

Total

 

Payments

 

$'000

$'000

$'000

 

$'000

Fee Revenue

43,473

6,675

50,148

 

35,275

Cost of sales

(1,641)

(3,922)

(5,563)

 

(2,512)

Gross Profit

41,832

2,753

44,585

 

32,764

Administrative Expenses

(36,053)

(9,416)

(45,469)

 

(35,179)

Operating Profit/(loss) analysed as:

 

 

 

 

 

Adjusted EBITDA*

12,687

(5,284)

7,403

 

6,324

Payments Revenue adjustment (non-recurring)

3,255

-

3,255

 

-

Depreciation and amortisation

(3,968)

(493)

(4,461)

 

(2,794)

Stock Option expense

(6,013)

(758)

(6,771)

 

(4,593)

Foreign exchange gains/(losses)

112

(5)

107

 

(279)

Exceptional items (included in administrative expenses)

(294)

(123)

(417)

 

(1,074)

 

 

 

 

 

 

Operating Profit/(loss)

5,779

(6,663)

(884)

 

(2,415)

Finance income

56

0

56

 

53

Finance expense

(432)

(35)

(467)

 

(631)

Profit/(Loss) before tax

5,403

(6,699)

(1,296)

 

(2,993)

Tax (expense)/credit

1,653

(2)

1,651

 

(1,339)

Net Profit/(loss) for the period attributable to equity holders of the parent company

7,056

(6,701)

355

 

(4,332)

 

In 2019 two customers represented more than 10% each of group revenues. In 2018 four customers represented more than 15% each of group revenues.

During 2019, an adjustment of $3,255k has been recognised in payments revenue as a result of a change in the estimate of transaction price for a specific customer, and for whom the performance obligations were satisfied in a previous year. As this amount is non-recurring it has been excluded from 'Adjusted EBITDA', as noted on the Consolidated Statement of Comprehensive Income and in the table above.

 

Consolidated Statement of Financial Position by segment

2019

 

2018

 

Payments

Identity

Consolidated

 

Payments

Non-current assets

 

 

 

 

 

Property, plant, and equipment

3,213

299

3,512

 

286

Intangible assets

46,819

-

46,819

 

22,466

Deferred tax assets

1,826

-

1,826

 

254

Total non-current assets

51,858

299

52,157

 

23,007

 

 

 

 

 

 

Current Assets

 

 

 

 

 

Trade and other receivables

51,793

1,799

53,592

 

51,658

Derivative financial instrument

-

-

-

 

3

Cash and cash equivalents

34,409

338

34,747

 

31,073

Restricted cash

876

-

876

 

1,251

Total current assets

87,078

2,137

89,215

 

83,985

 

 

 

 

 

 

Total assets

138,936

2,436

141,372

 

106,992

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

75,506

2,489

77,995

 

77,374

Loans and borrowings

3,530

291

3,821

 

2,193

Total current liabilities

79,036

2,780

81,816

 

79,567

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Trade and other payables

1,240

-

1,240

 

107

Loans and borrowings

1,353

5

1,358

 

671

Total non- current liabilities

2,592

5

2,598

 

778

 

 

 

 

 

 

Total liabilities

81,629

2,785

84,414

 

80,345

 

 

 

 

 

 

Net assets/(liabilities)

57,307

(349)

56,958

 

26,646

 

 

 

 

 

 

 

 

(c) Geographic segment - secondary basis

The geographical analysis of the revenue by location of the users and segment is presented below:

Group Revenue by Region and Segment

Payments

Identity

Total

Total (Payments only)

' 000 USD

Dec-19 YTD

 

%

Dec-19 YTD

 

%

Dec-19 YTD

 

%

Dec-18 YTD

 

%

 

Americas

5,574

 

12.8%

6,460

 

96.8%

 

12,034

 

24.0%

2,655

 

7.5%

 

APAC

19,290

 

44.4%

 

-

 

-

 

19,290

 

38.5%

14,021

 

39.7%

 

EMEA

18,610

 

42.8%

215

 

3.2%

 

18,825

 

37.5%

18,599

 

52.7%

Grand Total

43,473

100.0%

6,675

100.0%

50,149

100.0%

35,275

100.0%

 

An analysis of non-current assets by geographical market is given below:

 

 

2019

2018

 

 

$'000

$'000

United States of America

 

48,841

21,133

Germany

 

432

557

Other European countries (including UK)

 

94

6

Rest of the World

 

963

56

Total

 

50,330

22,752

 

5. Administrative expenses (including exceptional items)

 

 

2019

2018

 

 

$'000

$'000

Audit fees

 

274

175

Taxation services

 

318

516

Accounting services

 

157

108

Consultancy and compliance services

 

730

898

Staff costs (excluding stock option expense - note 6)

 

25,434

18,117

Travel & entertainment

 

1,859

1,072

Rent and occupancy costs

 

928

2,030

Total IT, development and hosting

 

1,917

1,777

Total banking costs

 

240

254

Legal fees

 

1,120

688

Other costs including marketing, support & testing and other administration expenses

 

950

599

Operating Expenses, excluding items in Adjusted EBITDA

 

33,928

26,438

Depreciation of property, plant and equipment

 

2,176

213

Amortisation of intangible assets

 

2,285

2,581

Loss on disposal of property, plant and equipment

 

-

1

Foreign exchange gains/(losses)

 

(107)

279

Exceptional items - impairment of investments

 

13

164

Exceptional items - restructuring costs

 

404

910

 

 

 

 

Share - based expenses

 

6,771

4,593

Total administrative expenses

45,469

35,179

 

6. Staff costs

 

 

2019

2018

 

 

$'000

$'000

Wages and salaries

 

20,664

14,730

Short-term benefits

 

1,350

774

Social security costs

 

1,858

1,398

Pension costs

 

397

164

Other staff costs

 

1,166

1,051

Total staff costs

 

25,434

18,117

Share-based costs

 

6,771

4,593

Total

 

32,205

22,710

 

Other staff costs include contractor costs, relocation, recruiting and training costs for the group.

Key management personnel compensation was made up as follows:

 

 

 

2019

2018

 

 

 

$'000

$'000

Salaries

 

 

2,075

1,849

Short-term benefits

 

 

44

39

Social security costs

 

 

298

160

Pension costs

 

 

35

6

Total

 

 

2,452

2,054

 

Directors' remuneration included in staff costs:

 

 

2019

2018

 

 

$'000

$'000

Salaries including bonuses

 

917

989

Short-term benefits

 

4

4

Total

 

921

993

 

Information regarding the highest paid director is as follows:

 

 

2019

2018

 

 

$'000

$'000

Total remuneration paid

 

385

459

 

The number of employees at the end of the period was as follows:

 

 

 

 

 

 

2019

2018

 

 

 

 

Management

 

6

4

Operations & administration

 

208

148

Total 

 

214

152

 

 

 

 

 

 

 

 

7. Finance income and expenses

 

 

2019

2018

 

 

$'000

$'000

Finance income

 

 

 

Interest income from bank deposits

 

56

53

Total

 

56

53

 

 

 

 

Finance expenses

 

 

 

Interest on bank loans & overdrafts

 

150

234

Interest on finance leases and hire purchase contracts

 

-

9

Other interest payable (including interest paid for factoring)

 

30

380

Interest on lease liabilities

 

288

-

 

 

 

 

Total

 

468

631

 

 

 

 

Net finance expenses

 

412

578

 

8. Income tax

 

 

2019

2018

 

 

$'000

$'000

Current tax

 

 

 

US tax

 

2

4

Foreign tax

 

135

349

Total current tax

 

137

353

Deferred tax (credit)/expense

 

(1,866)

1,064

Origination and reversal of temporary differences

 

78

(78)

Total tax (credit)/expense

 

(1,651)

1,339

 

The reasons for the difference between the actual tax charge for the period and the applicable rate of income tax of the US reporting entity applied to the result for the period are as follows:

 

 

 

 

 

 

2019

2018

 

 

$'000

$'000

Loss before tax

 

(1,296)

(2,994)

Tax rate

 

21%

21%

Loss before tax multiplied by the applicable rate of tax:

 

(272)

(629)

 

 

 

 

US state tax

 

1

4

Losses recognized/(not recognized)

 

(1,498)

1,129

Expenses not deductible for tax purposes

 

54

326

Withholding taxes

 

69

150

Tax losses

 

(27)

336

Others

 

22

23

Total tax (credit) / expense

 

(1,651)

1,339

 

Deferred Tax

 

 

 

 

 

 

 

2019

2018

 

 

$'000

$'000

Net opening position

 

(417)

714

Arising from business combinations

 

-

310

Recognition (de-recognition) / in the year

 

1,808

(1,296)

Foreign exchange revaluation

 

(14)

(145)

 

 

 

 

Net closing position

 

1,377

(417)

         

 

The net closing position is made up of:

o A deferred tax liability of $488,860 (2018: $671,473): This constitutes tax positions connected with the Group's German subsidiary in relation to available losses and the deferred tax liability associated with intangible assets acquired as part of the legacy business combination with the group's now German business. The difference is the amount of $222,613 used in 2019.

o The deferred asset of $1,826,570. This relates to losses primarily in UK tax jurisdictions which management expects will be realised.

A deferred tax asset (liability) has not been recognized for the following:

 

 

 

 

 

2019 '000

2018 '000

Non- deductible Reserves

 

 

 

229

103

Accrued Compensation

 

 

 

60

68

Stock Based Compensation

 

 

 

1,637

1,144

Other temporary and deductible differences

 

 

 

829

852

Accelerated Capital Allowances

 

 

 

(401)

(22)

Acquired Intangibles

 

 

 

(334)

-

Unused tax credits

 

 

 

189

189

Unused tax losses

 

 

 

30,448

24,497

 

 

 

 

 

 

Total deferred tax assets

 

32,657

26,831

        

 

The Group has carried forward losses and accelerated timing differences at the reporting date as shown below. In respect of its UK subsidiary, these can be carried forward and offset against UK taxable income indefinitely. In respect of its US entities, net operating loss carryforwards can be carried forward and offset against taxable income for 20 years for losses incurred up to and including 31 December 2017. All net operating loss carry forwards incurred after 31 December 2017 can be carried forward and offset against US taxable income indefinitely. Utilization of net operating loss or tax credit carryforwards may be subject to annual limitations if an ownership change had occurred pursuant to the section 382 Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of net operating loss and tax credit carryforwards before utilization. As the timing and extent of taxable profits are uncertain, the deferred tax asset arising on these losses and accelerated timing differences below has not been recognised in the financial statements.

 

 

 

2019

2018

 

 

$'000

$'000

US losses and tax credit - federal and states

 

177,843

134,947

Non-US losses (includes US entities deemed to be under non-US tax jurisdictions)

 

10,602

2,867

Total

 

188,445

137,814

 

The unused tax losses must be utilised by various dates. German tax losses of $1,498,665 must be used before 2022. U.S. tax losses of $107,068,585 expire in various dates through 2027. Other unused losses of ($1,368,012) do not expire.

9. Profit / Loss per share

 

 

2019

2018

Profit/(Loss) attributable to shareholders of the Company ($'000)

 

355

(4,333)

Weighted average number of common shares

 

246,752,100

217,069,055

Basic profit/ (loss) per share

 

0.001

(0.02)

 

Profit or Loss per share is calculated based on the share capital of Boku, Inc. and the earnings of the Group.

 

Due to the small profit during the reporting period, the effect of the share options is small and hence diluted loss per share is the same as the basic loss per share in 2019. In 2018, due to the loss reporting period the effect of the share options was considered anti-dilutive and hence diluted loss per share was the same as basic loss per share.

 

10. Property, plant and equipment

 

Right of use assets

Computer equipment & software

Office equipment and fixtures and fittings

Leasehold improvement

Total

 

 

$'000

$'000

$'000

$'000

COST

 

 

 

 

 

At 1 January 2018

-

777

605

95

1,477

Additions

-

84

2

5

91

Disposals

-

(2)

(61)

-

(63)

Exchange adjustment

-

(17)

(12)

(2)

(31)

At 31 December 2018

-

842

534

98

1,474

Additions

4,327

383

39

55

4,804

Acquisitions

621

-

1,041

36

1,698

Disposals

-

(10)

(7)

(5)

(22)

Reclassification

78

-

(78)

-

-

Exchange Adjustment

(34)

(2)

(4)

-

(40)

As at December 2019

4,992

1,213

1,525

184

7,914

 

 

 

 

 

 

DEPRECIATION

 

 

 

 

 

At 1 January 2018

-

617

394

56

1,067

Charge for the year

-

104

93

16

213

Disposals

-

(1)

(61)

-

(62)

Exchange adjustment

-

(13)

(15)

(2)

(30)

At 31 December 2018

-

707

411

70

1,188

Acquisitions

-

-

1,029

29

1,058

Charge for the year

1,948

110

100

18

2,176

Disposals

-

(10)

(7)

(5)

(22)

Reclassification

57

-

(57)

-

-

Exchange adjustment

4

(7)

(3)

8

2

At 31 December 2019

2,009

800

1,473

120

4,402

 

 

 

 

 

 

NET BOOK VALUE

 

 

 

 

 

At 1 January 2018

 

160

211

39

410

At 31 December 2018

 

135

123

28

286

At 31 December 2019

2,983

413

52

64

3,512

The net book value of Right of use assets as at 31st December, 2019, includes Property ($2,282) and IT Equipment ($680). 

 

11. Intangible assets

 

Domain name

Developed technology

 

Merchant relationships

 

Trade marks

 

 

Goodwill

Internally developed software

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

$'000

COST

 

 

 

 

 

 

 

At 1 January 2018

140

1,869

9,605

110

18,615

5,203

35,542

Additions

-

-

-

-

-

238

238

Exchange adjustment

-

(13)

(417)

-

(762)

(53)

(1,245)

At 31 December 2018

140

1,856

9,188

110

17,853

5,388

34,535

Additions from acquisitions

-

1,918

-

-

23,559

 

25,477

Additions

 

 

 

 

 

1,575

1,575

Exchange adjustment

-

-

(178)

-

(327)

(24)

(529)

At 31 December 2019

140

3,774

9,010

110

41,085

6.939

61,058

 

 

 

 

 

 

 

 

AMORTISATION

 

 

 

 

 

 

 

At 1 January 2018

140

1,869

4,569

-

-

3,165

9,743

Charge for period

-

30

1,280

-

-

1,271

2,581

Exchange adjustment

-

(43)

(194)

-

-

(18)

(255)

At 31 December 2018

140

1,856

5,655

-

-

4,418

12,069

Charge for the period

-

384

1,193

-

-

708

2,285

Exchange adjustment

-

-

(105)

-

 

(10)

(115)

At 31 December 2019

140

2,240

6,743

-

-

5,116

14,239

 

 

 

 

 

 

 

 

NET BOOK VALUE

 

 

 

 

 

 

 

At 1 January 2018

-

-

5,036

110

18,615

2,038

25,799

At 31 December 2018

-

-

3,533

110

17,853

970

22,466

At 31 December 2019

-

1,534

2,267

110

41,085

1,823

46,819

 

Management has reviewed goodwill and intangible assets on the balance sheet which mainly consist of the assets from the merger with Danal Inc (renamed Boku Identity Inc) on 1st January 2019 and with Mopay AG ("Mopay") in Oct 2014.

Danal Inc (Renamed Boku Identity Inc on 1st January 2019) was founded in 6th 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 1st January 2019. During 2019 the two platforms (Identity and Payments platforms) were operated independently and have independent cashflows. The carrying value of goodwill and the platform has been allocated to the Identity segment and has been assessed against the Identity segment future cashflows (Identity CGU).

Mopay was founded in 2000 and Boku Inc. acquired Mopay in October 2014 for a total value of $24.2 million in cash and shares. The initial fair value measurement of Mopay's intangible assets and goodwill arose from the purchase price allocation which was undertaken on January 21st, 2016. At 31/12/2016, it was determined that the trade names purchased as part of the transaction have a fair value less than the carrying amount as these trade names have ceased to be used in the Group, Therefore Management have taken the decision to write off the NBV of the trade names as at 31/12/2016.

After the merger in 2014, the Mopay business was reorganized and the main assets (customer contracts)

expertise from the Boku engineering team and are now being implemented for use by a number of Boku group entities. The carrying value of the goodwill from the Mopay acquisition and other intangibles are therefore assessed in total as part of the Boku Payments Segment (Payments CGU).

At the year-end date an impairment test has been undertaken by comparing the carrying values with the recoverable amount of the Group's cash generating units (CGUs). The recoverable amount of the cash generating unit is based on value-in-use calculations. These calculations use cash flow projections covering a three-year period based on financial budgets and a calculation of the terminal value, for the period following these formal projections.

The key assumptions used for value-in-use calculations are those regarding projected cash flows, growth rates, increases in costs and discount rates. The discount rate used was the Weighted Average Cost of Capital. The discount rate is reviewed annually to take into account the current market assessment of the time value of money and the risks specific to the cash generating units and rates used by comparable companies. The discount rate has been calculated as the weighted average cost of capital. The pre-tax discount rate used for both CGU's to calculate value-in-use is 21% (2018: 27%). Growth rates for forecasts take into account historic experience and current market trends. Costs are reviewed and increased for inflation and other cost pressures. The terminal value calculation for 2019 was based on growth rate of post-tax free cashflow of 2% (2018:2%) for each CGU.

The impairment test resulted in a decision not to impair the intangible assets at 31 December 2019 for either CGUs, or at 2018 year-end.

Sensitivity to changes in assumptions

For the Payments CGU, an excess fair value over carrying value of $34.1 million was determined. Management has identified two key assumptions for which if any of the following changes were made to these key assumptions individually, this would cause the carrying amount to equal to the recoverable amount of the goodwill for the year ended 31 December 2019:

 

 

2019

2018

 

 

Projected post tax free cashflow used for terminal value reduced by

 

 

 

68%

 

92%

 

Terminal growth rate reduced from

 

2% to 0%

2% to 0%

          

 

For the Identity CGU, an excess fair value over carrying value of $7.4 million was determined. Management has identified the same key assumptions for which if any of the following changes were made to these key assumptions individually, this would cause the carrying amount to equal to the recoverable amount of the goodwill for the year ended 31 December 2019:

 

 

2019

2018

 

 

Projected post tax free cashflow used for terminal value reduced by

 

 

 

25%

 

-

 

Terminal growth rate reduced from

 

2% to -7.8%

-

          

 

12. Subsidiaries

The principal subsidiaries of the Company, all of which have been included in the consolidated financial information, are as follows:

The proportion of share capital directly held by the parent company in each subsidiary is 100%.

Name

Principal activity

Parent

Location

Boku Payments Inc.

Holding Company

Boku Inc.

USA

Boku Network Services Inc.

Holding Company

Boku Inc.

Delaware, USA

Boku Account Services Inc.

Holding Company

Boku Inc.

Virginia, USA

Boku Account Services UK, Ltd.

Mobile payment solutions

Boku Account Services Inc. (Virginia)

UK

Paymo Brazil Servicios de Pagamentos Ltd

Mobile payment solutions

Boku Network Services Inc. (Delaware)

Brazil

Boku Network Services AG

Holding Company

Boku Inc.

Germany

Boku Network Services UK, Ltd

Mobile payment solutions

Boku Network Services Inc. (Delaware)

UK

Boku Network Services AU Pty Ltd

Mobile payment solutions

Boku Network Services Inc. (Delaware)

Australia

Boku Network Services IN Privates Limited

Mobile payment solutions

Boku Network Services Inc. (Delaware)

India

Boku Network Services SG PTE. LTD

 

Mobile payment solutions

Boku Network Services Inc. (Delaware)

Singapore

Boku Network Services HK LTD

 

Mobile payment solutions

Boku Network Services Inc. (Delaware)

Hong Kong

Boku Network Services Taiwan Branch Office

Mobile payment solutions

Boku Network Services Inc. (Delaware)

Taiwan

Boku Network Services Japan Branch Office

Mobile payment solutions

Boku Network Services Inc. (Delaware)

Japan

Mopay AG Beijing Representative Branch

Mobile payment solutions

Boku Network Services AG (Germany)

China

Boku Identity Inc.

Identity solutions

Boku Inc.

California, USA

Boku Mobile Solutions Ireland

Identity solutions

Boku Identity Inc.

California, USA

Mobileview Italia S.r.l

Mobile payment solutions

Boku Network Services AG (Germany)

Italy

 

 

 

 

13. Trade and other receivables

 

 

31 December

31 December

 

 

2019

2018

 

 

$'000

$'000

 

 

 

 

Trade receivables - gross

 

17,623

17,612

Accrued income

 

34,544

33,325

Accounts receivable - gross

 

52,166

50,937

Less: provision for impairment

 

(2,002)

(1,958)

Accounts receivable - net

 

50,165

48,979

Other receivables

 

57

45

Deposits held

 

316

255

Sales taxes receivable

 

1,042

972

Deferred cost of sales

 

270

-

Note receivable from a shareholder

 

793

793

Total financial assets classified as loans and receivables

 

52,644

51,044

Prepayments

 

949

614

Total

 

53,593

51,658

 

 

 

 

 

 

 

 

 

Provision for impairment

 

 

 

31 December

31 December

 

 

 

2019

2018

 

 

 

 

$'000

$'000

 

 

 

 

 

 

 

Opening balance

 

 

1,958

1,410

 

Utilised during the period

 

 

(101)

(34)

 

Increase during the period

 

 

170

619

 

Foreign exchange movement

 

 

(26)

(37)

 

Closing balance

 

 

2,002

1,958

 

       

 

In adopting IFRS9, the Group now reviews the amount of credit loss associated with its trade receivables based on forward looking estimates that take into account and forecast credit conditions as opposed to relaying on past default rates. In adopting IFRS 9, the Group has applied the Simplified Approach, applying a provision matrix based on the number of days past due to measure lifetime expected credit losses and after taking into account customer sectors with different credit risk profiles and current and forecast trading conditions.

 

14. Cash and cash equivalents and restricted cash

 

 

31 December

31 December

 

 

2019

2018

 

 

$'000

$'000

 

 

 

 

Cash and cash equivalents

 

34,747

31,073

 

 

 

 

Restricted cash

 

876

1,251

 

The restricted cash primarily includes e-money received but not yet paid to merchants (in transit), cash held in the form of a letter of credit to secure a lease agreement for the Company's San Francisco office facility.

 

15. Derivative financial instruments

 

 

31 December

31 December

 

 

2019

2018

 

 

$'000

$'000

Derivative financial assets (liabilities)

 

 

 

Derivatives designated as hedging instruments

 

 

 

Forward foreign exchange swaps

 

-

3

 

 

 

 

The notional principal amounts of outstanding forward foreign exchange rate swaps at 31 December 2019 were $Nil (2018: $141,783). Their fair value in 2019 was $Nil (2018: $2,646 asset).

The hedged transactions denominated in various foreign currencies were expected to occur at various dates within the next 12 months. The change in net un-realized gains and losses on the fair value of these forward foreign exchange swaps are recognised in the hedging reserve in equity at year ended December 2019 of $3,000 gain (2018: loss $27,000).

 

16. Trade and other payables

 

 

 

 

 

 

31 December

31 December

 

 

2019

2018

Current

 

$'000

$'000

Trade payables

 

68,128

69,064

Accruals

 

7,799

6,402

Total financial liabilities classified as financial liabilities

measured at amortised cost

 

75,927

75,466

Other taxes and social security costs

 

327

350

Accrued tax on issued stock options

 

1,252

811

Deferred revenue

 

489

747

Total

 

77,995

77,374

 

 

 

 

Non-current

 

 

 

Deferred rent

 

-

86

Accrued taxes on issued stock options

 

791

21

Total

 

791

107

 

Contract liabilities are included within 'trade payables' and 'accruals' depending if the merchant payable is just accrued or already invoiced. The carrying values of trade and other payables approximate to fair values.

 

 

17. Loans and borrowings

 

 

31 December

31 December

 

 

2019

2018

 

 

$'000

$'000

Current

 

 

 

 

 

 

 

Bank loans and overdrafts (secured)

 

2,098

2,150

Lease liabilities (2018: finance leases)

 

1,723

43

Total

 

3,821

2,193

 

 

 

 

Non-current

 

 

 

Lease liabilities

 

1,358

-

Total

 

1,358

-

 

Principal terms and the debt repayment schedule of the Group's loan and borrowings are as follows:

In December 26, 2019, the Group repaid in full ($2,000,000) the existing Loan and Security Agreement (the Agreement) and entered into an overdraft agreement for £5,000,000 for 3 years. At 31st December 2019 the Group had drawn £1,600,000 ($2,098,000 USD) under the agreement. The agreement has been repaid in full on the 9th January 2020 and has not been used since. As such, during the year there was a net cash outflow of $150,000.

 

Reconciliation of liabilities arising from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2018

Cash flows

Non-cash changes

2019

 

 

 

Converted to shares

Foreign Exchange Movement

Lease Liabilities (IFRS 16)

 

 

 

 

 

 

 

 

Short-term borrowings

2,150

(150)

 -

98

-

2,098

Long-term lease liabilities

-

-

-

-

1,358

1,358

Short-term lease liabilities

43

-

 -

-

1,680

1,723

Total liabilities from financial activities

2,193

(150)

-

98

3,038

5,179

 

 

 

2017

Cash flows

Non-cash changes

2018

 

 

 

Converted to shares

Foreign Exchange Movement

Fair value changes

 

 

 

 

 

 

 

 

Short-term borrowings

2,400

(250)

 

 

-

2,150

Short-term lease liabilities

125

(82)

 

 

-

43

Total liabilities from financial activities

2,525

(332)

-

-

-

2,193

 

18. Share capital

The Company's issued share capital is summarized in the table below:

 

 

31 December

31 December

 

 

2019

2018

 

 

 

Number of shares issued and fully paid

'000

$'000

Number of shares issued and fully paid

'000

$'000

 

Common stock of $0.0001 each

 

 

 

 

 

 

 

Opening balance

 

 

223,885

22

213,582

21

 

Shares issued for warrants

 

 

-

-

544

-

 

Shares issued to Danal Shareholders

 

 

23,699

3

-

-

 

Exercised stock options

 

 

4,751

 

9,759

1

 

Closing balance

 

 

252,335

25

223,885

22

 

          

 

Common Stock

 

At December 31, 2019, the Company had 252,335,207 (2018: 223,775,735) common shares issued and outstanding, of which 1,150,000 (2018: 1,150,000) where unpaid.

 

19. Reserves

 

The share premium disclosed in the consolidated statement of financial position represents the difference between the issue price and nominal value of the shares issued by the Company.

Retained losses are the cumulative net profits / (losses) in the consolidated income statement.

Foreign exchange reserve stores the foreign exchange translation gains and losses on the translation of the financial statements from the functional to the presentation currency.

Cash flow hedging reserve contains changes in un-realised gains or losses on the valuation of derivatives designated as cash flow hedges at year-end.

Movements on these reserves are set out in the consolidated statement of changes in equity.

20. Share-based payment

 

The Group operates the following equity-settled share-based remuneration schemes for employees, directors and non-employees:

1. 2009 equity incentive plan (2009 Plan) for the granting of stock options (incentive or non-qualified), restricted stock awards (RSA) and restricted stock units (RSU). No options are available to be issued under this plan as at 31 December 2019.

 

2. 2009 equity UK sub-plan (2009 UK plan) under the terms of the above plan for the granting of stock options and restricted stock units for qualifying participants who are resident in the United Kingdom. No options are available to be issued under this plan as at 31 December 2019.

 

3. 2009 non-plan (not part of the above 2009 plan) for the granting of share options to purchase 897,000 (2017: 897,000) common shares at $0.022 (2016: $0.022) per share. These options vest with terms ranging from being fully vested at grant date to vesting over four years with a one-year cliff, where 25% of the options vest. The options expired in April 2019. The shares have been exercised in full during the year and there are no options outstanding as at 31 December 2019.

 

4. 2009 BNS options (not part of the above 2009 plan) for the granting of share options to purchase 182,000 (2017: 182,000) common shares at $0.207 (2016: $0.207) per share in connection with the acquisition of BNS in June 2009. The options expired in June 2019.

 

5. 2017 Equity Incentive Plan (new plan started on the 7th November 2017) for the granting of stock options and restricted stock units (RSUs). The Group has reserved ten million shares of common stock for issue under the plan. The activity under this plan is presented separately from the rest of the plans. There are 1,281 options and 7,888 RSUs outstanding as at 31 December 2019.

Options under the 2017 Plan

Options under the 2009 Plan and UK plan may be outstanding for periods of up to ten years following the grant date. Outstanding options generally vest over four years and may contain a one-year cliff, where 25% of the options vest. Stock options with graded vesting is based on the graded vesting attribution approach, whereby, each instalment of vesting is treated as a separate stock option grant, because each instalment has a different vesting period.

RSUs under the 2017 Plan

RSUs under the 2017 Plan may be outstanding for periods of up to five years following the grant date. Outstanding RSU grants generally vest over three years in three equal portions.

Performance-based restricted stock units (RSU)

Performance-based RSUs vest upon the earlier of the completion of a specified service period and the achievement of certain performance targets, which may include individual and Company measures, and are converted into common stock upon vesting.

Share-based expense for RSUs is based on the fair value of the shares underlying the awards on the grant date and reflects the estimated probability that the performance and service conditions will be met. The share-based expense is adjusted in future periods for subsequent changes in the expected outcome of the performance related conditions until the vesting date. Performance-based RSUs vest after three years of issue, in one event, only if the performance conditions are met.

Restricted stock awards (RSA)

RSAs are subject to repurchase based upon the terms of the individual restricted stock purchase agreements. These repurchase rights lapse over the vesting term of the individual award, generally over three to four years.

Options under the 2009 Plan and 2009 UK plan

Options under the 2009 Plan and UK plan may be outstanding for periods of up to ten years following the grant date. Outstanding options generally vest over four years and may contain a one-year cliff, where 25% of the options vest.

Stock options with graded vesting is based on the graded vesting attribution approach, whereby, each instalment of vesting is treated as a separate stock option grant, because each instalment has a different vesting period.

2009 non-plan options

The 2009 non-plan options vest with terms ranging from being fully vested at grant date to vesting over four years with a one-year cliff. The options expired in April 2019. Share-based expense in connection with the grant of Non-Plan options was not material in 2016 and 2017. In 2018 all options were exercised. The are no outstanding options at 31 December 2019.

BNS plan options

In connection with the acquisition of BNS in June 2009, the Company granted options to purchase 182,000 common shares at a weighted-average exercise price of $0.207 per share (BNS Options). These options granted were separate from the 2009 Plan. The options expired in June 2019. A small amount of options were cancelled in 2018. There was no stock option activity related to these options in 2017. There are no shares outstanding as at 31 December 2019.

The options activity under the 2009 Plan and its sub- Plans before 2017 (including RSA and RSU) are as follows:

 

 

 

 

 

 

 

 

 

 

 

Available All Plans

2009 Plan (exc RSUs)

 

2009 Plan

(only RSUs)

Non Plan Options

 

BNS Plan Options

 

Total

 

Number of options

Number of options

WAEP1

Number of RSUs

Number of options

WAEP1

Number of options

WAEP1

Number of options

 

'000

'000

 

'000

'000

 

'000

 

'000

At 1 January 2018

10,000

20,609

$0.470

9,539

50

$0.022

37

$0.203

30,235

Exercised

-

(2,130)

$0.247

(7,580)

(50)

$0.022

(2)

-

(9,762)

Cancelled

(10,000)

(728)

$0.269

-

-

-

-

$0.35

(728)

At 31 December 2018

-

17,751

$0.444

1,959

-

-

35

$0.202

19,745

Exercised

-

(1,894)

$0.269

(1,801)

-

-

(3)

-0.35

(3,698))

Cancelled

-

(164)

$0.258

-

-

-

(32)

-

(196)

At 31 December 2019

-

15,786

 

$0.268

157

-

-

-

$0.35

15,943

 

 

 

 

 

 

 

 

 

 

1WAEP - weighted average exercise price

*RSUs are always granted at zero exercise price

2009 Plan

 

December

2019

December

2018

Outstanding options at reporting end date:

 

 

 

- total number of options (including RSA & RSU)

 

15,943

19,745

- weighted average remaining contractual life (all except 2017 Plan) (years) (excluding RSU and RSA)

 

5.05

4.46

- weighted average remaining contractual life - RSU (years)

 

0.25

5.58

Vested and exercisable ('000):

 

15,679

15,106

- weighted average exercise price

 

$0.357

$0.369

- weighted average remaining contractual life - all plans

(excluding RSU and RSA)

 

4.91

5.71

Weighted average share price exercised during the period (excluding RSA and RSA)

 

$0.360

$0.324

Weighted average fair value of each option granted during the period (excluding RSA and RSU)

 

-

-

 

 

 

 

Vested and exercisable - RSU and RSA

 

157

7,154

Share-based expense for the period ('000)

 

$242

$1,233

 

The following information is relevant in the determination of the fair value of options (excluding RSA and RSU) granted during the period under the equity- settled share-based remuneration schemes operated by the Group.

2009 Plan

 

December 2017

Option pricing model used

 

Black-Scholes

Weighted average share price at grant date (dollar)

 

$0.370

Exercise price (options only)

 

$0.370

Weighted average contractual life (years)1

 

5.82(E*+ NE*)

Weighted expected volatility 2

 

45% (E*+ NE*)

Expected dividend growth rate

 

0%

Weighted average Risk-free interest rate3

 

1.9% (E*+ NE*)

 

1Weighted 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.

2Expected volatility is based on historical volatilities of public companies operating in the Company's industry.

3The 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

WAEP1

RSUs

WAEP1

Total

 

'000

'000

 

'000

 

'000

At 1 January 2018

-

-

-

-

-

-

Authorised

10,000

-

-

-

-

-

Granted

(5,758)

1,459

$1.205

4,299

$2.24

5,758

Exercised

 

 

-

-

-

-

Cancelled

190

(73)

$1.205

(117)

$2.24

(190)

At 31 December 2018

4.432

1,386

$1.205

(4,182)

$2.24

5,568

Authorized

19,766

 

 

 

 

 

Granted

(6,894)

-

-

6,894

-

6,894

Exercised

 

(40)

$1.205

(1,012)

-

(1,052)

Cancelled

2,241

(65)

$1.205

(2,176)

-

(2,241)

At 31 December 2019

19,545

1,281

$1.205

7,888

-

9,169

 

2017 Plan

 

December

2019

December

2018

Outstanding options at reporting end date:

 

 

 

- total number of options (excluding RSUs) ('000)

 

1,281

1,386

- weighted average remaining contractual life

(excluding RSUs) (years)

 

8.01

9.05

- weighted average remaining contractual life - RSUs (years)

 

6.07

6.06

Vested and exercisable ('000):

 

 

 

- weighted average exercise price

 

$1.205

$1.205

- weighted average remaining contractual life

(excluding RSU) (years)

 

8.01

8.92

Weighted average share price exercised during the period (excluding RSUs)

 

-

-

Weighted average fair value of options granted during the period (excluding RSU)

 

$0.44

$0.44

 

 

 

 

Vested and exercisable - RSUs

 

1,012

-

Share-based expense for the period ('000)

 

$5,229

$2,103

 

The following information is relevant in the determination of the fair value of options (excluding RSU's) granted during the period under the equity- settled share-based remuneration schemes operated by the Group. Only RSUs were granted in 2019.

2017 Plan

 

 

December

2018

Option pricing model used

 

 

Black-Scholes

Weighted average share price at grant date (dollar)

 

 

$1.205

Exercise price (options only)

 

 

$1.205

Weighted average contractual life (years)1

 

 

9.05 years

Weighted expected volatility 2

 

 

32.66%

Expected dividend growth rate

 

 

0%

Weighted average Risk-free interest rate3

 

 

2.49%

 

1Weighted 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.

2Expected volatility is based on historical volatilities of public companies operating in the Company's industry.

3The 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 1st January 2019. This warrant was valued using the Binomial Lattice Model using the following inputs:

a) Term: 5 years

b) Starting share price: $0.8982 USD

c) Expected Annual Volatility: Used 5-year comparable companies equity volatilities from Capital IQ (26.6%)

d) Risk Free Rate: Five-year US risk-free rate (2.51%)

e) Strike Price: $1.8352 USD.

Using the inputs above the warrant was valued at $94,606 USD and accounted as part of the purchase consideration as an equity instrument and charged to the warrant reserve until such time when it is exercised when it will charged to the share premium account.

Additional earn-out warrants to purchase an additional number of Boku shares (calculated as follows) at an exercise price of $1.8352 were also part of the purchase consideration on the acquisition of Danal.

a. If Revenue is between $10 million and $14 million, the number of warrants is

(Revenue-$10million) ÷ $4 million x $0.5 million ÷GBP1.45= $0.5 million (in shares at £1.45/$1.8352)

b. If Revenue is greater than $14 million and less than or equal to $16 million, the number of shares is [(Revenue-$14million) ÷ $2 million x $0.5 million + $0.5 million] ÷GBP1.45= $1.0 million (in shares at £1.45/$1.8352)

c. If Revenue is greater than $16 million and less than or equal to $18 million, the number of shares is

[(Revenue-$16million) ÷ $2 million x $0.5 million + $1.0 million] ÷GBP1.45= $1.5 million (in shares at £1.45/$1.8352)

d. If Revenue is greater than $18 million, the number of shares is

[(Revenue-$18million) ÷ $2 million x $0.5 million + $1.5 million] ÷GBP1.45= $2.0 million (in shares at £1.45/$1.8352)

 

The earn-out warrants were valued at $108 USD. The warrants have been valued in two steps: the first step was using the Monte Carlo simulation in order to determine the number of shares that can be purchased under the warrants using a price per share of $1.8482 equivalent with £1.45 at a USD/GBP exchange rate of 1.2746 determined in accordance with the Merger Agreement using Capital IQ rather than the Financial Times (the difference between the two sources was expected). The first step is determined using the following inputs:

a) Term 1 year

b) FY 2018 revenue $5,249,873,

c) expected annual volatility: used 5-year comparable companies revenue volatilities from Capital IQ (27.3%);

d) Forecasted Revenue Growth: One-year US risk free rate (2.63%)

Using the results from the first step, a warrant valuation was performed using a binomial lattice model using the following inputs:

a) Term: 5 years

b) Starting Stock price: we determine the 1 year forward stock price.

c) Expected annual volatility: used 5-year comparable companies equity volatilities from Capital IQ (26.6%)

d) Risk free rate: 1 year forward risk-free rate (2.63%)

e) Strike price: $1.8352

 

As the earnout revenue condition was not satisfied the value of this warrant was expensed to the P&L.

Reconciliation of share-based payment expense

 

December 2019

$000's

December 2018

$000's

2009 Plan

 

 

Options

90

564

RSU's

152

683

 

 

 

2017 Plan

 

 

Options

152

310

RSU's

5,077

1,792

 

 

 

Total share-based expense (excluding national insurance)

5,471

3,349

National insurance accrued (see Note 2)

1,067

1,244

National insurance paid in the year

233

 

Total share-based payment charge

6,771

4,593

 

22. Dividends

 

No dividends were declared or paid in any of the periods.

 

23. Cash generated from operations

 

 

Year ended

31 December

Year ended

31 December

 

 

2019

2018

 

 

$'000

$'000

 

 

 

 

Profit /(loss) after tax

 

 355

 (4,333)

Add back:

 

 

 

Tax (credit) /expense

 

(1,651)

1,339

Amortisation of intangible assets

 

2,285

2,581

Depreciation of property, plant and equipment

 

2,176

213

Loss on disposal of property, plant and equipment

 

-

1

Finance income

 

(56)

(53)

Finance expense (includes interest on lease liabilities)

 

468

631

Exchange loss

 

64

2,376

Employer taxes on stock option accrual

 

1,067

260

Adjustment for previous year cash items

 

(4,048)

-

Impairment of intangible assets

 

-

164

Share based payment expense

 

5,471

3,350

Cash from Operations before working capital changes

 

6,131

6,529

Decrease in trade and other receivables

 

11,047

4,336

(Increase)/ Decrease in trade and other payables

 

(8,127)

2,877

 

 

 

 

Cash generated from operations

 

9,051

13,742

 

24. Related party transactions

 

In 2019, the Company has been remitted $151,336,427 (2018: $168,713,114 from 3 suppliers) in net payments from 4 suppliers who are shareholders of the Company. At December 31, 2019, the Company had receivables of $20,459,254 (2017: $22,699,237) due from these companies.

A director issued a full recourse promissory note in the amount of $793,000 for the purchase of 1,150,000 common shares at $0.69 per share in Dec 2013. This is disclosed as 'note receivable from a shareholder' in note 13 - trade and other receivables in 31 December 2019 and 2018.

 

25. Ultimate controlling party

 

There is no ultimate controlling party of the Company.

 

26. Contingent liabilities

In the normal course of business, the Group may receive inquiries or become involved in legal disputes regarding possible patent infringements. In the opinion of management, any potential liabilities resulting from such claims, if any, would not have a material adverse effect on the Group's consolidated statement of financial position or results of operations.

 

From time to time, in its normal course of business, the Group may indemnify other parties, with whom it enters into contractual relationships, including customers, Aggregators, MNOs, lessors and parties to other transactions with the Group. The Company has also indemnified its directors and executive officers, to the extent legally permissible, against all liabilities reasonably incurred in connection with any action in which such individual may be involved by reason of such individual being or having been a director or executive officer. The Group believes the estimated fair value of any obligation from these indemnification agreements is minimal; therefore, this consolidated financial information do not include a liability for any potential obligations at 31 December 2019 and 2018.

 

27. Business acquisition

 

On 1st January 2019 the Group acquired a 100% interest in the Danal Inc. Group from Danal Korea and other shareholders.

 

Headquartered in San Jose, California, Danal Inc is a provider of mobile identity and authentication solutions through real-time connections to mobile operator networks and data. It has employees in the US and Ireland. In Europe it operates through a subsidiary Danal Mobile Solutions Ireland Ltd (renamed to Boku Mobile Solutions Ireland Ltd). Subsequent to the completion of the acquisition, Danal Inc was renamed Boku Identity Inc.

 

The purchase consideration included the following: 26.7 million Boku shares (10.7% of the total Boku Inc shares) valued at 1 Jan 2019 share price, $1.0 million in cash and a five year warrant exercisable at $1.8352 share price. Included in the 26.7 million shares are 5 million shares that were held back until certain conditions in the purchase agreement were met.

 

Details of the purchase consideration of Danal Inc., the net assets acquired, and goodwill are as follows:

 

 

$'000

Cash consideration

1,000

Equity consideration

24,077

Total purchase price

25,077

Trade and other receivables*

9,299

Cash and cash equivalents

258

Prepaid expenses and other assets

444

Property, plant and equipment **

641

Deposits held

71

Trade and other payables***

(11,112)

Developed Technology

1,918

Goodwill

23,558

Fair value of net assets acquired

25,077

 

\* The trade and other receivable include $8.5m receivable from Danal Korea, which was received in June 2019

** The property, plant and equipment include $620,909 right-of-use assets.

*** Trade and other payables include $8.5m bank loan, which was repaid in June 2019 and $620,909 lease liabilities.

 

Deferred tax liabilities arising as a result of the acquisition are fully offset by deferred tax assets, resulting in a net deferred tax asset. The net deferred tax asset has not been recognised as it is not considered to be currently recoverable within a reasonable period of time.

 

The equity consideration included an earn-out warrant and earn-out payment valued at $25k.

 

The transaction will help the company to widen its addressable target market, beyond digitally downloaded content and into broader m-commerce.

 

Revenue upside will be delivered through accelerated global roll out to carriers with whom Boku already has a relationship and cross sell opportunities into Boku's existing merchant base as well as through a material Identity sales pipeline.

 

The cost of acquisition has been expensed during 2018 and have been included in exceptional costs in the statement of comprehensive income for the twelve month ending 31 December 2018.

 

28. Post balance sheet events

 

There have been no material post balance sheet events.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
FR KKPBNBBKBONB
Date   Source Headline
1st May 20247:00 amRNSRetirement of CFO
1st May 20247:00 amRNSTotal Voting Rights and Share Capital
23rd Apr 20247:00 amRNSNotice of AGM
9th Apr 20247:00 amRNSPayment Aggregator Authorisation in India
2nd Apr 202411:35 amRNSHolding(s) in Company
28th Mar 20245:46 pmRNSHolding(s) in Company
28th Mar 20242:17 pmRNSTotal Voting Rights
27th Mar 20247:00 amRNSVesting of Restricted Stock Units & PDMR Dealings
27th Mar 20247:00 amRNSTransaction in Own Shares
26th Mar 20244:09 pmRNSHolding(s) in Company
20th Mar 20242:37 pmEQSEdison issues outlook on Boku (BOKU): Making the complex simple for global merchants
19th Mar 20247:00 amRNSResults for the year ended 31 December 2023
29th Feb 20242:16 pmRNSTotal Voting Rights and Share Capital
22nd Feb 20243:45 pmRNSHolding(s) in Company
1st Feb 20247:00 amRNSBoard Change
31st Jan 202411:16 amRNSTotal Voting Rights
26th Jan 20247:00 amRNSAppointment of Nominated Adviser and Joint Broker
25th Jan 20245:30 pmRNSAdditional Directorship Disclosures
25th Jan 20245:00 pmRNSHolding(s) in Company
23rd Jan 20247:00 amRNSTrading Update
18th Jan 20247:01 amRNSConfirmation of Board Change
18th Jan 20247:00 amRNSBlock Listing Six Monthly Return
5th Jan 20247:00 amRNSConfirmation of CEO Appointment
29th Dec 202311:52 amRNSTotal Voting Rights
22nd Dec 20237:00 amRNSTransaction in Own Shares
20th Dec 20235:45 pmRNSTransaction in Own Shares
20th Dec 20237:01 amRNSTransaction in Own Shares
20th Dec 20237:00 amRNSPDMR Dealing and Total Voting Rights
30th Nov 20234:06 pmRNSTotal Voting Rights and Share Capital
14th Nov 20233:37 pmRNSHolding(s) in Company
6th Nov 20235:13 pmRNSHolding(s) in Company
31st Oct 20235:17 pmRNSTotal Voting Rights and Share Capital
18th Oct 20236:03 pmRNSTransaction in Own Shares
18th Oct 20235:59 pmRNSPDMR Dealing
18th Oct 20237:00 amRNSTransaction in Own Shares
9th Oct 20231:49 pmRNSHolding(s) in Company
4th Oct 20237:00 amRNSTransaction in Own Shares
28th Sep 20235:11 pmRNSTransaction in Own Shares
26th Sep 20237:00 amRNSInterim results
25th Sep 20237:00 amRNSMalaysian Approval as a Non-Bank Merchant Acquirer
18th Sep 20237:00 amRNSNotice of Results
14th Sep 20231:40 pmRNSHolding(s) in Company
6th Sep 20237:00 amRNSReceipt of final holdback payment re Boku Identity
31st Aug 202311:10 amRNSTotal Voting Rights and Share Capital
29th Aug 20237:00 amRNSMigration of Microsoft DCB Service
21st Aug 20234:21 pmRNSTransaction in Own Shares
15th Aug 20235:55 pmRNSTransaction in Own Shares
14th Aug 20235:26 pmRNSTransaction in Own Shares
11th Aug 20237:00 amRNSTransaction in Own Shares
9th Aug 20235:25 pmRNSTransaction in Own Shares

Due to London Stock Exchange licensing terms, we stipulate that you must be a private investor. We apologise for the inconvenience.

To access our Live RNS you must confirm you are a private investor by using the button below.

Login to your account

Don't have an account? Click here to register.

Quickpicks are a member only feature

Login to your account

Don't have an account? Click here to register.