IMO.L Regulatory News (IMO)

IMIMOBILE PLC

("IMI" or the "Company" or the "Group")

Preliminary Results for the year ended 31 March 2020

IMImobile PLC (AIM:IMO), the global cloud communications software and solutions provider, is pleased to announce its audited Preliminary Results for the year ended 31 March 2020.

Key financial highlights

Operational highlights

[1] Excluding acquired business of Impact Mobile and ExpressPigeon in the current and prior years and 3Cinteractive and Rostrvm in the current year

2 Adjusted for costs which management do not consider reflect underlying business performance - see note 7 for details of adjusted performance measures, adjusting items and a reconciliation of statutory results to adjusted results

3 Restated prior year adjusted performance measure had IFRS 16 been adopted from 1 April 2018

4 Cash conversion is defined as adjusted cash generated from operations (see note 7) as a percentage of adjusted EBITDA

5 Bank borrowings (excluding capitalised borrowing costs) net of cash and cash equivalents

COVID-19 update

Further detail on the Group's response to the COVID-19 pandemic is provided in the Chairman's Statement.

Current trading and Outlook

As previously reported in our announcement on 9 July, the Group has delivered a resilient performance in Q1 FY21 despite the operational challenges presented by the COVID-19 pandemic. Notwithstanding the impact to businesses globally, we strongly believe that current trends will benefit IMImobile, evidenced by Group gross profit being up approximately 20% year-on-year for the quarter, with the cloud communications product set showing year-on-year gross profit growth of over 30%.

Following period end, the Group has seen clear positive momentum across its regions. Alongside seeing a steady recovery of client activity in the worst-impacted industry sectors since late May 2020, the Group has been focused on strategic deployments, as existing and new blue-chip clients look to accelerate their adoption of digital communication strategies, that will help drive future revenues. Performance in North America, the largest addressable and growth market for the Group's product set, continues to be encouraging, with new strategic deployments for large US retailers having continued during the first quarter.

As previously disclosed, the results for Q1 FY21, together with a good and growing visibility of earnings, underpins the Company's confidence in achieving good year-on-year gross profit growth, subject to the impact of any second wave of the pandemic, including further organic growth in the cloud communications products business, in the full year to 31 March 2021.

With an established leading position in a number of our markets, and substantial opportunities for further growth, we are at an exciting juncture for the business as companies increasingly focus on digital transformation for customer engagement. Our execution of strategy is proven, and we look forward to delivering yet another year of growth ahead.

Jay Patel, Chief Executive Officer of IMImobile PLC, commented:

"We have delivered another year of strong progress, with double digit revenue growth across all sectors and regions for our core cloud communications product set.

We had many significant achievements in the year, including the winning of one of the world's largest retailers as a new client through to the acquisition and integration of 3Cinteractive Corp and the renewal of all major contracts falling due during the period. We have received continued recognition from leading customers and analysts that we have a globally leading and relevant set of customer engagement products.

The arrival of the pandemic in the final months of the year saw us take decisive action. Through prudent cost management and our teams' ability to identify opportunities for future revenue generation amongst the rapidly changing environment, we have managed to limit the short-term impact on our business whilst positioning ourselves for continued strong growth in the medium and longer term.

Many exciting and substantial opportunities are available to us, not least the potential for expansion in North America where our sales pipeline continues to expand. As one of the established leaders in our industry, with a high proportion of recurring revenues, we are confident of gathering further momentum."

An analyst call will be held at 11.30am today. If you would like the details for this call, please contact Alma PR at IMImobile@almapr.co.uk 

The Group will also be hosting a webinar for retail investors at 10.30am on 5 August 2020. If you would like to register for this presentation, please contact IMImobile@almapr.co.uk.

Cautionary statement

This announcement contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could, is confident, or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this document and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and IMImobile's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements.

There are a number of factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are; increased competition, the loss of or damage to one or more key customer relationships, the outcome of business or industry restructuring, changes in economic conditions, currency fluctuations, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines, technological developments, the failure to retain key management, or the key timing and success of future acquisition opportunities or major investment projects.

IMImobile undertakes no obligation to revise or update any forward-looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulations.

For further information, please contact:

About IMImobile PLC

IMImobile is a communications software provider whose solutions enable enterprises to automate digital customer communications and interactions to improve customer experience and reduce operating costs.

IMImobile's enterprise cloud communications software platform orchestrates customer interactions, connecting existing business systems with digital communications channels. Organisations that trust us to deliver smarter digital customer engagement include Hermes, Centrica, AA, O2, EE, BT, Walgreens, Tracfone, Ooredoo, Best Buy, Express, three of the major retail banks in the UK and public-sector organisations globally.

IMImobile is headquartered in London with offices across the UK, Hyderabad, Toronto, Boca Raton, Dubai and Johannesburg and has over 1,100 employees worldwide. IMImobile is quoted on the London Stock Exchange's AIM market with the TIDM code IMO.

Chairman's Statement

I am delighted to introduce these results, which reflect another year of strong delivery against our strategy. The year to 31 March 2020 was another period where the Group made notable financial and operational progress. The Company has continued to maintain strong positive momentum for the last six years, with a revenue CAGR1 of 26% and gross profit CAGR1 of 19% since listing. Pleasingly, growth has been derived from all geographic regions and driven by adoption of our core cloud communication product set.

During the period, we took the decision to separate the activities of our Group into two units;

1. Cloud communications products, platforms and services, which contributed 82% of Group gross profit, grew by more than 38% year on year

2. Operator value added services (VAS) and mobile payments, which contributed 18% of Group gross profit, declined by 8% year on year

The business model and market dynamics are different for each unit. There are significant variations in how we go to market and serve our customers for each set of products. The reorganisation allows us to capitalise better on market opportunities and enables us to have greater focus on product and service innovation.

Probably the most significant development in the year was our milestone acquisition of US-based company, 3C. The addition of a new blue-chip, enterprise customer base, an experienced leadership team and approximately 100 colleagues to our North American business unit significantly progresses our ambitions to further accelerate the growth of our operations in the region. The combination has also given the Group a leadership position in deploying rich communication services (RCS) business messaging solutions for large brands and enterprises globally.

In other markets we have also made good progress in maintaining existing customer relationships and winning new clients across multiple industry sectors. Continued investment in R&D evolves our product, platform and service offering and we have seen our strategy validated through the winning of several competitive new opportunities across the regions in which we operate.

COVID-19

Following a strong year, we have had to adapt to the challenges presented by the COVID-19 pandemic. Whilst recognising that this is an unprecedented challenge for our colleagues, customers, partners, shareholders and the global economy, we are pleased with the efficacy of our response so far and the resilience of the business performance.

We have adapted to remote working very quickly, with over 1,100 colleagues moving to work from home in just a few days. Our business continuity plans have worked well, as expected, with the Group able to support emergency communications initiatives for customers at very short notice.

The Company took swift action in the early days of the pandemic, introducing a hiring freeze and early travel restrictions as well as temporary salary reductions, including 33% for the Board. We also took the prudent step of strengthening the balance sheet through the share placing to existing and new institutional shareholders announced on 9 April 2020, raising gross proceeds of £22.2m.

More recently, we have begun to see a steady recovery in the activity of clients in the worst impacted sectors, alongside continued momentum in our work with core sectors such as banking, mobile operators and logistics. In line with these encouraging developments, the Company has begun to return furloughed employees to the business and since 1 July 2020, has returned all salaries, except those of the Board, to normal levels. The Company will also review the repayment of salary reductions based on its full year 2021 performance.

Our people

During the year we have strengthened our exceptional team through both hiring and the acquisitions of 3C and Rostrvm, and I am confident that we have the right people to continue to deliver on our strategic objectives in all regions in which we operate.

 On behalf of the Board, I want to acknowledge the contribution made by all members of the growing IMImobile family. The team have delivered another strong set of results, and risen to the challenges of lockdown and remote working. I am incredibly grateful for the ongoing commitment and hard work of our people.

Summary and Outlook

IMImobile is now a large, diversified business and one of the established leaders in our industry. We currently employ over 1,100 staff and have 21 offices around the World. During the reporting period, we took another key step on that journey, with the acquisition of 3C which has provided us with a strong foothold in the US, our largest addressable growth market. This strategic move has been further validated by the signing of our largest contract to date with one of the world's largest retailers.

Notwithstanding the challenges associated with COVID-19, our response has been decisive and the business has performed strongly. In the longer term, we anticipate that the significant disruption caused will drive and accelerate uptake of our leading technology and services as large global enterprises increasingly adopt digital transformation initiatives to improve customer engagement strategies. We have an excellent team, cutting-edge technology and products, good brand penetration in all our chosen markets and a significant growth opportunity in North America.

[1] Compound annual growth rate, calculated against revenue of £43.4m and gross profit of £27.9m in the year ended 31 March 2014

John Allwood

Non-Executive Chairman

Chief Executive's Report

We have delivered another very strong trading performance over the year to 31 March 2020 with growth across all sectors and regions for our core cloud communication platform, products and services.

We achieved numerous new client wins, enhanced partner acquisition and achieved the renewal of all major contracts falling due during the period. Consequently, we have delivered strong gross profit growth of 26% (7% organic) and adjusted EBITDA growth of 13%.

It has also been a particularly strong period of strategic and commercial progress for the Group's cloud communication product set, which in the period represented 82% of Group gross profit. The broader market for cloud-based communication products (Communication Platform as a Service - "CPaaS") continues to grow strongly with increased global adoption, reflected in our 'cloud communication products' business growing organically by 15% during the period.

We have also made extremely pleasing further progress in the North American market, following the landmark acquisition of US-based company, 3C, in August 2019 which provided solid foundations for US expansion and a very significant new client win in the retail sector. There is a strong and growing pipeline of growth opportunities in the region and we remain excited by the significant potential in North America in the years ahead.

Growth strategy

Continued delivery

The Company has consistently delivered on its long-term growth strategy which focuses on four clear objectives:

1. To grow our share of customer interactions within existing clients;

2. To accelerate market penetration of our technologies through partnerships;

3. To be at the forefront of introducing new innovative customer engagement technologies; and

4. To leverage acquisitions for market distribution.

The Group is able to progress against these aims due to the strength of its broad product offering, its owned IP and proven ability to innovate, alongside its international presence and experienced global management team.

Interactions

Developing relationships with existing customers

One of our key strategies for growth involves up-selling new products, channels or technologies to existing customer accounts. During the year to 31 March 2020, the number of clients that provide more than £500k per annum revenue increased to 46 (40 in FY19) and clients with revenues between £100k per annum and £500k per annum increased to 118 (83 in FY19).

For example, we have successfully grown our share of interactions for a major UK operator, a longstanding existing client. During the year, we have launched new channels for this mobile operator, including RCS and email, and expanded our services across their sub-brands. This has resulted in the number of customer interactions within that account increasing by more than double. We have also increased our share of interactions within an existing client in the logistics sector by more than double in the last year by launching new customer journeys, providing them with an additional channel (in-app push) and due to an increase in parcels being sent during the lockdown period.

The focus since the acquisition of 3C last year has been to introduce the Group's core cloud communication product set to 3C's largest customers and several are now being progressed in order to grow the share of customer interactions within those existing accounts.

Partnerships

Reaping the reward of further investment in partnerships

We have continued to invest in our partnerships programme in order to target new enterprise clients and sectors and have expanded the partnerships team during the last year. We have strengthened existing partnerships during the period, notably expanding our product offering with BT and generating a number of pipeline opportunities as well as across broader geographies with Scandinavian mobile operator, Telia, who have added the Textlocal product to their reseller agreement.

We have also secured new partnerships with Communisis, a print and messaging business, who want to digitise communications for their customers and fast-growing cloud contact centre businesses. We have also increasingly partnered with global network infrastructure and systems integrators on specific commercial opportunities.

Innovation

Building on the Group's reputation for innovation

In the past year, we have seen our clients start to realise the potential of and to implement new, richer communication channels such as RCS, WhatsApp Business and Apple Business Chat as part of their customer communication strategies. The momentum for large consumer-facing businesses starting to use these channels and see their improved customer engagement rates continues to grow and we have a strong pipeline of opportunities from existing clients.

We have deployed RCS for major mobile operator clients across Europe, North America and a new mobile operator client in Brazil as well as for enterprises such as Pizza Hut, Sweaty Betty, Best Buy and Walgreens. In addition, we have launched Apple Business Chat for Vauxhall, npower, O2 and our largest banking client. WhatsApp Business has also been a popular channel to provide customer service amongst our enterprise clients including Hyundai, Skoda, Britannia and two banking clients.

Furthermore, in October 2019, we launched eClinic to support the NHS in meeting their long-term plan of offering 30 million virtual appointments by 2022. eClinic is powered by our WebRTC solution, IMIassist, which enables enterprises to transform their customer interactions with real-time video assistance. eClinic is currently being used by three NHS trusts in the UK and, due to the impact of COVID-19, has generated a number of opportunities with clients and partners across international markets. We were also pleased that eClinic was recognised at the 2020 National Innovation Awards, winning the 'Service Personalisation' category.

Acquisitions

Two strategically important acquisitions completed

During the period, we successfully completed two acquisitions. We acquired US-based company, 3C, in order to provide us with additional distribution capabilities in North America, a strong client base of enterprise clients and to consolidate our global leadership position in RCS Business Messaging. Since acquisition, the North America team have introduced the Group cloud communication products over a series of twenty workshops to existing 3C strategic accounts. These have yielded an immediate pipeline of opportunities in the region.

Most recently, we acquired UK-based, cloud contact centre provider, Rostrvm. The core reason for this acquisition was to provide the Group with additional voice capabilities to enhance its cloud contact centre offering. The technical integration work has now been substantially completed and we have successfully sold the enhanced contact centre product and we have a number of other opportunities moving forward.

We have completed a number of successful acquisitions since IPO in 2014 and continue to explore strategic acquisitions that meet our criteria, which has remained the same in that we look to acquire businesses that provide similar communication software and services as the Group and have strong long-term relationships with major blue chip clients therefore providing an opportunity to upsell the Group's broader portfolio of capabilities.

Trading performance to 31 March 2020

All regions delivered double digit gross profit growth or more for the core communication product set

This year, we have more formally reorganised the business into two differentiated areas based upon their respective product sets. The core area of the business is 'Cloud Communication Products' which in the period represented 82% of Group gross profit at year end. The remainder of the business is referred to as 'Operator VAS and Mobile Payments' which represented 18% of the business in the period. The Board considers that gross profit is the key operational measure of performance in the business.

Cloud Communication Products - 82% of Group gross profit

This business unit focuses on a core set of customer communication products, targeted at large enterprises and supplemented by propositions for developers and small and medium-sized business (SMB) customers.

Europe - gross profit up 13% to £37.8m (2019: £33.3m)

The region has delivered organic gross profit growth of 12%, driven by new client wins and cross selling to existing accounts of additional cloud communications products. In the UK, the telco business continues to perform well, and we have launched RCS campaigns for three of the major mobile operators. The enterprise business has also seen new client wins and upsell of additional products across the banking, utilities and public sector.

The healthcare division of the Group, Healthcare Communications, which provides communication products to NHS trusts, signed 11 new trusts during the period, prior to the impact of COVID-19 and implementation of the national lockdown, and experienced a 27% growth in year on year volumes. As previously mentioned, we have launched a new eClinic product for the NHS to enable clinicians to have video consultations with patients and we anticipate that the COVID-19 outbreak may accelerate the need for this type of product and general digital transformation initiatives within the NHS.

We have also seen progress across mainland Europe, where our enhanced RCS solution has provided us with the opportunity to build more commercial opportunities with mobile operators as messaging standards evolve. We have also renewed a significant contract with one of the leading Spanish mobile operators during the period.

The business has also invested further in partnerships and signed, through competitive tender processes, new partnerships with telecom and business services companies.

We are pleased to see continued good momentum at the start of the new financial year and there is a strong pipeline of new business opportunities in the region.

Americas - gross profit up 152% to £18.4m (2019: £7.3m)

The region continues to make good progress, achieving 10% organic gross profit growth for the cloud communications products set. The Board is significantly encouraged of the growth opportunity presented having been selected by one of the world's largest retailers for its CPaaS offering ('IMIconnect') following a competitive tender process. This project is now in deployment and provides clear evidence of the relevance of the product suite in North America, the largest addressable market for the Group's product set.

In August 2019, the Company acquired 3C, a US cloud-based business with a leading RCS offering, and the integration of that acquisition is now substantially complete, with the consolidation of all North American operations under one team and management structure as well as common business systems and processes. The focus since acquisition has been to introduce the Group's communication product set to 3C's customers and, as aforementioned, we have held over twenty workshops with existing customers whereby several opportunities are now being progressed. We remain excited by the growth potential of the North American market moving forward.

Middle East & Africa (MEA) - gross profit up 29% to £4.4m (2019: £3.4m)

The region has experienced a solid trading performance enhanced by the growth of new messaging channels and the implementation of automation technologies. We have had a significant number of new contract wins across the banking, mobile operator and utilities sectors during the period for the Group's cloud communication products set.

These include significant new contracts for banking clients including Absa, Old Mutual and the largest bank in the Middle East. We have also signed new contracts with the leading mobile operator in the Middle East; Dubai Electricity & Water Authority (DEWA) and TV services company, Multichoice.

Asia-Pacific (APAC) - gross profit up 45% to £4.0m (2019: £2.8m)

The region has experienced good momentum selling the Group's cloud communications products. We have seen a significant acceleration in the number of customers wanting to use WhatsApp Business in the region due to the reach and popularity of the channel in specific markets. We have successfully onboarded a number of clients across the automotive, retail and banking sectors onto IMIconnect to enable them to communicate with their customers via WhatsApp.

The SMB business in the region has also continued to perform well. The self-serve Textlocal platform has added approximately 1,000 new customers per month and sent over 1.5 billion SMS messages during the period which is a growth of 59% year on year.

Operator VAS & mobile payments - 18% of Group gross profit

As previously disclosed, the Group's operator VAS and mobile payments business experienced a decline of 8% in line with management expectations. Excluding the acquired payments business in the Americas region, contributing gross profit of £1.1m, gross profit declined by 15%.

The mobile payments business in the UK continues to experience declines due to regulations and changes in consumer habits, with gross profit in the region falling by 35% from £4.0m to £2.6m.

In APAC, gross profit was flat at £6.0m reflecting growth from the usage of IMIdigital for self-care applications for mobile operator portals offsetting the one-off licence fees achieved last year. In MEA, gross profit was down 14% from £5.7m to £4.9m, with continued decline in the revenues for certain content services. However, our long term, trusted relationships with leading telecom groups does provide a foundation for future growth.

Market developments

Customers increasingly moving to rich messaging channels and self-service

Technology has and will continue to fundamentally change how businesses engage with their customers. New communication channels and the possibilities of intelligent automation allow businesses to improve customer experience and reduce operational costs.

However, many large, consumer-facing businesses across all sectors face challenges in meeting customer expectations for seamless interactions; often held back by existing legacy systems, siloed data and long development cycles. As a result, businesses are increasingly leveraging CPaaS software to manage their customer interactions across a growing number of channels and touchpoints. With customer engagement becoming paramount to business success, the CPaaS market is predicted to grow to more than $17.2 billion by 2023, representing a CAGR of nearly 40% from $3.3 billion in 2018.1 We have always believed in a world in which consumers are delivered great customer experiences through continuous, seamless engagement and our CPaaS offering, IMIconnect, helps large enterprises achieve this goal.

In the past year, we have seen both new and existing clients realise the potential of new channels such as RCS, WhatsApp Business and Apple Business Chat to transform their business to customer interactions. We are one of only a few official technology providers approved by Google, Apple and Facebook to provide blue-chip companies with these channels. Following the 3C acquisition last year, the Group is now the global leader for RCS Business Messaging and we anticipate that this will be a key area for growth moving forward as the addressable number of RCS-enabled handsets increases.

Following the COVID-19 outbreak towards the end of the period and throughout the current financial year to date, the Company has seen increased demand from the market for certain remote communication solutions. We are confident that this trend in increased demand will continue over the long term, and that the crisis will ultimately lead to an acceleration in digital transformation initiatives within enterprises, giving us great optimism for the future.

[1] IDC, Worldwide Communications Platform-as-a-Service Forecast, 2019-2023, https://www.idc.com/getdoc.jsp?containerId=US45534219.

Products, technology and infrastructure

Continuous innovation to maintain our leading position

For B2C companies, transforming customer experience (CX) has become a strategic imperative. Delivering great CX requires customer interactions, on any channel, to be seamlessly connected to existing backend systems and orchestrated across departments, business units and geographies.

Our integrated, yet modular Customer Interaction Management (CIM) suite enables businesses to manage, automate and orchestrate customer interactions - from simple communication flows to complex multi-step interactive journeys. Our CIM products cater to the needs of a wide set of user personas in an enterprise - communications APIs (application programming interfaces) and SDKs (software development kits) for developers, low-code platforms for technical users and pre-packaged application software for users in marketing, contact centres and operations. The modular design and interoperability across products enable flexibility in how clients use our products, starting with a single solution or use case and upgrading to the full CIM suite over time.

Providing rich application and platform functionality to enable the end-to-end management, orchestration and automation of customer interactions remains central to our strategy. This includes providing developers access to communication channels but is not limited to that, as is the case with most pure play CPaaS providers. Our strategy is validated by a leading industry analyst who commented that rather than "the usual catalog of SDKs and APIs, the company … is focused around end-to-end automation of customer journeys across digital touch points".

We continue to invest in our products suite as we lead the way in shaping the evolution of the customer interaction management category. Key roadmap themes include:

Organisation and systems

Progressing integration of acquisitions and enabling global collaboration

The Group has continued to grow in the last year, with the landmark US acquisition of 3C as well as the acquisition of UK contact centre provider, Rostrvm. The integration of both acquisitions is now substantially complete with all global employees collaborating using internal systems such as Microsoft Teams, SharePoint and Workplace. These systems also enabled us to transition all global employees to remote working due to the COVID-19 crisis. We are also currently implementing a global HR system for all employees to centrally manage onboarding/offboarding, recruitment and performance management processes.

As previously mentioned, we have also reorganised the business into two separate business units based upon the product set. The 'Cloud Communications Products' and 'Operator VAS and mobile payments' business units will now operate independently with separate roadmaps and management teams. This reorganisation will enable us to have a greater focus on product and service innovation and further capitalise on market opportunities.

Current trading and Outlook

As previously reported in our announcement on 9 July, the Group has delivered a resilient performance in Q1 FY21 despite the operational challenges presented by the COVID-19 pandemic. Notwithstanding the impact to businesses globally, we strongly believe that current trends will benefit IMImobile, evidenced by Group gross profit being up approximately 20% year-on-year for the quarter, with the cloud communications product set showing year-on-year gross profit growth of over 30%.

Following period end, the Group has seen clear positive momentum across its regions. Alongside seeing a steady recovery of client activity in the worst-impacted industry sectors since late May 2020, the Group has been focused on strategic deployments, as existing and new blue-chip clients look to accelerate their adoption of digital communication strategies, that will help drive future revenues. Performance in North America, the largest addressable and growth market for the Group's product set, continues to be encouraging, with new strategic deployments for large US retailers having continued during the first quarter.

As previously disclosed, the results for Q1 FY21, together with a good and growing visibility of earnings, underpins the Company's confidence in achieving good year-on-year gross profit growth, subject to the impact of any second wave of the pandemic, including further organic growth in the cloud communications products business, in the full year to 31 March 2021.

With an established leading position in a number of our markets, and substantial opportunities for further growth, we are at an exciting juncture for the business as companies increasingly focus on digital transformation initiatives for customer engagement. Our execution of strategy is proven, and we look forward to delivering yet another year of growth ahead.

Jay Patel

Group Chief Executive

Financial Review

Group performance at a glance

[1] Adjusted for costs which management do not consider reflect underlying business performance - see note 7 for details of adjusted performance measures, adjusting items and a reconciliation of statutory results to adjusted results.

2 Restated prior year adjusted performance measure had IFRS 16 been adopted from 1 April 2018

3 Adjusted EBITDA margin calculated as adjusted EBITDA divided by gross profit.

Key performance indicators (KPIs)

This section sets out the KPIs for the Group during the year ended 31 March 2020.

Revenue and gross profit

For the year ended 31 March 2020 total revenue increased by 20% to £171.2m (2019: £142.7m) and gross profit increased by 26% to £79.1m (2019: £62.6m). The Board considers that gross profit is the key operational measure of performance in the business.

Group geographical split of revenues and gross profit by operating division is as follows:

Revenue

Gross profit

Cloud communication products

The cloud communication products contributed 82% of the Group's gross profit and grew by 38% in the year. When excluding the impact of acquisitions gross profit grew by over 15% in the year. All regions delivered double digit organic gross profit growth from cloud communications products.

Gross margin increased from 38.9% to 42.8% as a result of the increase in the relative contribution from the higher margin Americas region and improving margins from APAC and MEA which grew as a result of new higher margin messaging channels and increased mix in software licenses in those regions.

Operator VAS and mobile payments

18% of the Group's gross profit comes from Operator VAS and mobile payments. Gross profit from this unit fell by 8% in the year. Excluding the impact of acquisitions gross profit declined by 15%.

Gross margin increased from 69.7% to 71.8% as a result of acquired line of business from the 3C acquisition and reduced content related costs in the MEA region.

Adjusted operating costs1

Adjusted operating costs1 in the year were £63.1m (2019: £48.5m2). This reflects the full year inclusion of Impact Mobile and ExpressPigeon and the post-acquisition costs of 3Cinterative and Rostrvm as well as additional investment in product development, partnerships and sales and marketing across the Group.

[1] Adjusted for costs which management do not consider reflect underlying business performance - see note 7 for details of adjusted performance measures, adjusting items and a reconciliation of statutory results to adjusted results.

2 Restated prior year adjusted performance measure had IFRS 16 been adopted from 1 April 2018

Adjusted EBITDA1

Adjusted EBITDA1 for the year ended 31 March 2020 was £21.6m (2019: £19.1m2) representing an increase of 13% against the prior year mainly due to the organic growth in the Europe and Americas region and the full year inclusion of Impact Mobile and the post-acquisition contribution of 3C. Due to the difficulty in identifying incremental costs arising across the Group following acquisitions, adjusted EBITDA1 is not assessed at an organic level.

Client concentration

The number of clients that provide more than £500k p.a. revenue increased to 46 (2019: 40) and clients with revenues between £100k p.a. and £500k p.a. increased to 118 (2019: 83).

Adjusted 'cash generated from operations'1 and cash conversion3

Adjusted 'cash generated from operations'1 was £24.0m (2019: £18.0m2) and represents an operating cash flow conversion3 of 111% of adjusted EBITDA1 (2019: 94%2).

Group cash flow and working capital

During the year the Group raised £19.6m (after expenses) from a share placing and agreed new UK bank loan facilities with Silicon Valley Bank and HSBC, increasing total bank borrowings by £26.8m after principal repayments in the year, which were used to fund the acquisitions of 3C and Rostrvm. Year-end cash and cash equivalents were £25.1m (2019: £13.2m) and total bank borrowings (excluding capitalised borrowing costs) at 31 March 2020 were £47.3m (2019: £20.8m). Cash less bank debt was £22.2m (2019: £7.6m).

Group working capital is made up as follows:

Trade receivables and payables include "pass through" amounts generated from mobile payment transactions. The receivables are from mobile operators and payables to customers who use IMImobile's payment APIs. The gross value of these transactions is excluded from revenues and cost of sales as the Group accounts only for the commission earned on such transactions within revenue as it is not the principal obligor in the arrangement. The value of pass through transactions included in trade and other receivables at 31 March 2020 is £2.1m (2019: £3.3m) and £4.4m (2019: £5.1m) in trade and other payables.

The value of trade and other receivables included from the new acquisitions in the year, 3C and Rostrvm, at 31 March 2020 is £4.4m. Of the remaining movement, trade receivables has decreased by £6.9m primarily due to the timing of receipts from a major customer (see note 10), higher monthly recurring revenues in Europe compared to the previous year offset by the write off of debt due from an operator VAS customer in the Middle East (see note 10) contributed to a £0.5m increase in contract assets and pass through transactions have decreased by £1.2m, as referred to above. The Group made a loan of £1.0m inclusive of accrued interest to the management of IMImobile North America Inc, secured against the shares issued in November 2018 as consideration when the Group exercised its call option to acquire the remaining 20% share of IMImobile North America Inc. The remaining movement is mainly attributable to the £1.4m increase in the tax receivable.

An increase in cost of sales, as a result of higher monthly recurring revenues in the Europe & Americas region compared to the previous year, has contributed £1.0m to the overall increase in trade and other payables (excluding deferred income), offset by the reversal of £1.0m of accrued costs related to the write off of debt due from an operator VAS customer in the Middle East (see note 10). Pass through transactions have decreased by £0.7m, as referred to above. The value of trade and other payables (excluding deferred income) included from the new acquisitions in the year, 3C and Rostrvm, at 31 March 2020 is £4.9m. The remaining movement is mainly attributable to the decrease in the put option on the acquisition of IMImobile South Africa (formerly Archer).

Profit after tax and adjusted profit after tax1

Profit after tax was £2.0m (2019: loss of £1.3m) after the net of tax impact of acquisition costs of £3.3m (2019: £0.9m), acquisition-related share-based payment charges of £0.9m (2019: £8.1m), share-based payment charges of £1.6m (2019: £0.7m) and amortisation of acquired intangibles of £4.5m (2019: £2.4m). Adjusted profit after tax1 was £12.3m (2019: £10.8m) which is 14% higher than the prior year.

Earnings/loss per share

Diluted earnings per share was 2.5p (2019: loss per share of 1.9p). Diluted adjusted EPS1 increased by 3% to 15.5p (2019: 15.1p).

Other financial information

Group taxation

The tax charge for the year was £1.1m (2019: £2.0m). The adjusted effective rate of tax4 for the year was 15.9% (2019: 21.1%).

[1] Adjusted for costs which management do not consider reflect underlying business performance - see note 7 for details of adjusted performance measures, adjusting items and a reconciliation of statutory results to adjusted results.

2 Restated prior year adjusted performance measure had IFRS 16 been adopted from 1 April 2018

3 Cash conversion is defined as adjusted cash generated from operations (see note 7) as a percentage of adjusted EBITDA

4 Adjusted tax as a proportion of adjusted profit before tax, as reconciled in note 7.

Other intangible assets

During the year ended 31 March 2020 the Group capitalised £6.0m of development costs (2019: £6.3m), of which £5.5m (2019: £5.3m) were internally generated, and acquired £25.4m of intangible assets as a result of the acquisitions of 3C and Rostrvm. In addition to this, expenditure during the year on software and trademarks and licenses was £0.3m (2019: £0.2m).

Property, plant and equipment

Capital expenditure on property, plant and equipment during the year was £0.7m (2019: £1.2m) and the Group acquired £0.8m of property, plant and equipment as a result of the acquisitions of 3C and Rostrvm. The adoption of IFRS 16 resulted in right-of-use assets of £2.8m.

Goodwill

Goodwill held at 31 March 2020 was £70.0m (2019: £43.6m) which increased following the acquisitions of 3C and Rostrvm.

Deferred tax

Deferred tax assets at 31 March 2020 were £0.7m (2019: £0.6m) and deferred tax liabilities at 31 March 2020 were £7.1m (2019: £3.9m) including the amount recognised on identifiable intangible assets acquired in 3C and Rostrvm.

Non-current liabilities

As well as the deferred tax liabilities and bank borrowings above, the provision for defined benefit gratuity obligation increased to £1.3m (2019: £1.0m) and the provision for contingent consideration due in more than one year increased to £4.9m following the acquisition of 3C. The adoption of IFRS 16 resulted in long term lease liabilities of £1.2m.

Consolidated Income Statement

For the year ended 31 March 2020

[1] Adjusted for costs which management do not consider reflect underlying business performance - see note 7 for details of adjusted performance measures, adjusting items and a reconciliation of statutory results to adjusted results.

2 Restated prior year adjusted performance measure had IFRS 16 been adopted from 1 April 2018

Consolidated Statement of Comprehensive Income

For the year ended 31 March 2020

The figures included above are stated net of corporate taxation.

Consolidated Statement of Financial Position

As at 31 March 2020

Statement of Changes in Equity

For the year ended 31 March 2020

Consolidated Cash Flow Statement

For the year ended 31 March 2020

1. Basis of preparation

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards as adopted for use by the EU ("IFRS"), this announcement does not itself contain sufficient information to comply with IFRS. The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 March 2020 or 31 March 2019 within the meaning of section 434(3) of the Companies Act 2006. Statutory accounts for 2019 have been delivered to the Registrar of Companies and those for 2020 will be delivered following the Company's annual general meeting.

New and amended standards adopted by the Group

The Group has applied IFRS 16 Leases for the first time for the period commencing 1 April 2019. This has resulted in the Group recognising right-of-use assets and lease liabilities. For leases previously classified as operating leases, under previous accounting requirements the Group did not recognise related assets or liabilities, and instead spread the lease payments on a straight-line basis over the lease term. The Group has applied the modified retrospective approach and has only recognised leases on the statement of financial position as at 1 April 2019. Comparative amounts for the year prior to the first adoption have not been restated.

2. Basis of consolidation and accounting policies

The principal accounting policies set out below have been applied consistently by the Group in preparing the financial statements from which the financial information herein has been exacted.

Basis of consolidation

The Group financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 March each year. Control is achieved when the Company:

· has the power over the investee;

· is exposed, or has rights, to a variable return from its involvement with the investee; and

· has the ability to use its power to affect its returns.

The results of subsidiaries acquired or disposed of in any year are included in the consolidated income statement from the date of acquisition or up to the date of disposal.

Goodwill is measured as the excess of the sum of consideration transferred. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment.

Where necessary, adjustments are made to the financial information of subsidiaries to bring the accounting policies into line with those used by the Group. Inter-company balances and transactions, including inter-company profits and unrealised profits and losses are eliminated on consolidation.

Business combinations

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis. When the Group ceases to have control, any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognised in the income statement.

Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

Impairment of assets

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill for each CGU is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised immediately as an expense and is not subsequently reversed.

Other intangible assets not ready to use are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows. Prior impairments of non-financial assets are reviewed for possible reversal at each reporting date.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately in the consolidated income statement.

Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (CODM). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors that makes strategic decisions.

During the current year the CODM started to consider results principally by operating division split between services sold on cloud communication products and operator VAS and mobile payment services, which are further split by geographical region. This forms the Group's operating and reporting segments. This is a change from prior years when the results were principally considered by geographical region only. Geographically, the operating segments are defined as Europe, Americas, Asia-Pacific (APAC) and Middle East and Africa (MEA).

The performance of the operating segments is assessed based on a measure of revenue and gross profit (the result for the segment). Any sales between segments are carried out at arm's length. As operating costs are shared across regions, results from gross profit to adjusted EBITDA are assessed between services sold on cloud communication products, operator VAS and mobile payment services, and central adjusted operating costs. Results from adjusted EBITDA to profit after tax are assessed on a consolidated basis only in the current year. As prior year results were only reviewed geographically it is not possible to allocate operating costs by operating division, so prior year results from gross profit to profit after tax are assessed on a consolidated basis only.

The Group does not regularly provide information in relation to the assets or liabilities of operating segments to management.

Revenue recognition

Revenue is recognised in accordance with the requirements of IFRS 15 Revenue from Contracts with Customers. The Group recognises revenue to depict the transfer of promised services to customers in an amount that reflects the consideration to which the Group expects to be entitled in exchange for those services. This core principle is delivered in a five-step model framework:

· Identify the contract(s) with the 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 measured based on the consideration to which the Group expects to be entitled in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers or provides control of a product or service to a customer.

Where the Group enters into arrangements to deliver multiple elements (such as a perpetual license together with a period of servicing and maintenance), such elements are separated for recognition based on stand-alone value where sold and delivered as separate performance obligations. If such elements cannot be separated they are treated as a single performance obligation and recognised over the period of delivery when the criteria for recognition have been met. Amounts incurred but not yet billed are classified as contract assets. Revenues are typically billed up to 60 days after month end and classified as contract assets until this point.

Monthly recurring revenue

Revenues from hosting and for access to the Group's cloud-based communications and CPaaS software, including the use of shortcodes to run the service, form a single performance obligation and is recognised over the period of the contract as the customer simultaneously receives and consumes the service.

Revenue share from content related sales and usage-based revenue from messages sent across multiple channels is triggered by the actions of the Group's customers (or their end users) using the relevant platform they are connected to. Revenue is recognised at a point in time as the content sale or message delivery is generated.

Revenue generated from the provision of professional services to manage software applications for customers are recognised pro-rata over the period the services are provided.

Where the Group provides services to mobile network operators which enable the delivery of wholesale messages, revenue is reported on a gross basis where the Group acts as principal and controls the right to perform the service and successfully deliver the messages at a point in time.

The Group acts as agent when providing carrier billing or payments made via mobile devices services so revenue and payments to suppliers are recorded in revenue on a net basis, representing the margin earned. Revenue recognised within turnover relate only to the commission earned on hosting each service and are recognised at the point the message or content is delivered to the end user. Amounts billed and collected on behalf of third parties (also known as pass through revenues) are not recognised within revenue as the Group doesn't control or handle the content or set the price charged to the end user.

Non-recurring revenue

License revenues are derived from the sale of perpetual end user licenses for the right to use software as it exists at the point the customer is able to use the service for its intended purpose. The Group assesses whether ongoing contractual obligations, such as annual maintenance charges, represent a performance obligation that is distinct from the license. If the licence is distinct it is recognised separately from the other performance obligations on customer acceptance following installation at the customer's locations as per contracted terms.

Non-recurring professional service revenues relate to one-time configuration, setup and change requests and are recognised at the point the customer is able to use the service for its intended purpose, or upon completion of designated milestones where the Group has an enforceable right to payment.

Goodwill

Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the Group's interest in the net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling interest in the acquiree.

Goodwill acquired in a business combination is allocated to each cash generating unit ("CGU"), or groups of CGUs, that is expected to benefit from the synergies of the combination. Each CGU or group of CGUs to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the CGU level.

Employee benefits

Defined benefit gratuity plan

The Group has a post-employment unfunded gratuity plan in place for all IMI Mobile Private Limited employees ("defined benefit gratuity plan"). An employee who has completed five years of service is entitled to a cash bonus calculated as a fraction of the employee's last drawn salary multiplied by the number of completed years of service, capped at INR 2,000,000.

The expected costs of these benefits are accrued over the period of employment using the same accounting methodology as used for defined benefit pension plans. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged to other comprehensive income in the period in which they arise.

The Projected Unit Credit Method is used to determine the present value of the defined benefit obligation and the related current service cost and, where applicable, past service cost.

These obligations are valued periodically by independent qualified actuaries.

Defined contribution plan

The Group operates defined contribution plans for certain employees. 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. These contributions are expensed in the period they are incurred.

Employee share-based payments

The Group operates a number of equity-settled, share-based payment plans, under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense in the income statement with a corresponding increase in equity. The total amount to be expensed is measured at the grant date by reference to the fair value of the options granted measured using the Black-Scholes option valuation model:

· including any market performance conditions (for example, an entity's share price);

· excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and remaining an employee of the entity over a specified time period); and

· including the impact of any non-vesting conditions (for example, the requirement for employees to save).

Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied and the employees become unconditionally entitled to the options.

At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on expected leavers and estimated achievement for the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the consolidated income statement, with a corresponding adjustment to equity.

When the options are exercised, the Group issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.

The social security contributions payable in connection with the grant of the share options are included in the share-based payment charge except where they are payable by the employee.

Where options are cancelled by the Group and settled in cash the expense is accelerated in the period in which the options are settled, with the cash payment recognised in the share-based payment reserve.

Accounting policies adopted in relation to the valuation of specific acquisition related contingent consideration and put/call options are provided in note 14.

Company share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Taxation

The Group's tax charge is the sum of total current and deferred tax charges.

Current tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the consolidated income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interest in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The recognition of deferred tax assets is determined by reference to the Group's estimate of recoverability, using models where appropriate to forecast future taxable profits. Deferred tax assets have only been recognised for territories where the Group considers that it is probable there would be sufficient taxable profits for the future deductions to be utilised. If it is probable that some portion of these assets will not be realised, then no asset is recognised in relation to that portion.

The carrying amount is reviewed at each balance sheet date. If market conditions improve and future results of operations exceed our current expectations, our existing recognised deferred tax assets may be adjusted, resulting in future tax benefits. Alternatively, if market conditions deteriorate or future results of operations are less than expected, future assessments may result in a determination that some or all of the deferred tax assets are not realisable. As a result, all or a portion of the deferred tax assets may need to be reversed.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws and rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited in the statement of income, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

3. Critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affects the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates. The critical accounting judgements and key sources of estimation uncertainty at the reporting date derive from management assumptions in respect of:

Critical accounting judgements

Business combinations

The recognition of business combinations requires the excess of the purchase price of acquisitions over the net book value of assets acquired to be allocated to the assets and liabilities of the acquired entity. The Group makes judgements in relation to the fair value allocation of the purchase price. If any unallocated portion is positive it is recognised as goodwill and if negative, it is recognised in the consolidated income statement.

Judgement is required in determining the fair value of identifiable assets, liabilities and contingent assets and liabilities assumed in a business combination and the fair value of the consideration payable. Calculating the fair values involves the use of significant judgement around the assumptions applied, including expectations about future cash flows, discount rates and the lives of assets following purchase.

Revenue recognition

When the Group sells services as a principal, income and payments to suppliers are reported on a gross basis in revenue and cost of sales. If the Group sells services as an agent, revenue and payments to suppliers are recorded in revenue on a net basis, representing the margin earned. Whether the Group is considered to be the principal or an agent in the transaction depends on analysis by management of both the legal form and substance of the agreement between the Group and its business partners. Such judgements impact the amount of reported revenue and cost of sales but do not impact reported assets, liabilities or cash flows.

The Group would have recognised pass through revenues totalling £23,828,000 (2019: £30,311,000) within revenue and cost of sales had management judged that the Group were principal, rather than agent, in billing revenue transactions where amounts are billed and collected on behalf of third parties.

Key sources of estimation uncertainty

Impairment reviews

Management undertake periodic tests for impairment of goodwill if events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment testing is an area involving management judgement, requiring assessment as to whether the carrying value of goodwill can be supported by the net present value of future cash flows. In calculating the net present value of the future cash flows, certain assumptions are required to be made in respect of highly uncertain matters.

Management consider the cash flow growth rate, expressed as the compound annual growth rates in the initial five years of the business plans and forecasts, to be the key source of estimation uncertainty. The growth rates used across the cash-generating units would need to decrease as follows before impairment would be required:

Taxation including deferred taxation

The calculation of the Group's total tax charge necessarily involves a degree of estimation and judgement in respect of certain items. Provisions for tax contingencies require management to make judgements and estimates in relation to tax audit issues and exposures. Tax benefits are not recognised unless it is probable that the tax position will be sustained.

Management must also assess the probability that the deferred tax assets will be recovered from future taxable income. Deferred tax assets relating to losses and other timing differences of £2,781,000 (2019: £2,314,000) have not been recognised. Of this balance, management consider there to be particular uncertainty over the range of £nil to £783,000 (2019: £nil to £433,000) relating to the estimation of forecast future taxable income in IMI Mobile Private Limited.

As at 31 March 2019 the carrying amount of deferred tax assets was £724,000 (2019: £550,000) and the carrying amount of deferred tax liabilities was £7,121,000 (2019: £3,872,000).

The accounting policies in relation to these items are disclosed in note 2.

4. Operating segments

The following is an analysis of the Group's revenue and results by operating segment:

The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 2 for each period. The revenue reported is measured in a manner consistent with that in the consolidated income statement. Revenues are attributed to countries on the basis of the customer's location. The Group measures segment profit and loss as gross profit as reported.

[1] Adjusted for costs which management do not consider reflect underlying business performance - see note 7 for details of adjusted performance measures, adjusting items and a reconciliation of statutory results to adjusted results.

2 Restated prior year adjusted performance measure had IFRS 16 been adopted from 1 April 2018

The following is an analysis of the revenue and gross profit of the Group's top 5 customers (based on gross profit):

Revenue

The Group derives its revenue from contracts with customers for the transfer of services over time and at a point in time in the following major product lines. This is consistent with the revenue information that is disclosed above for each reportable segment under IFRS 8 Operating Segments.

During the year the Group recognised revenue of £8,355,000 (2019: £6,095,000) related to contract liabilities carried-forward from the prior year. No revenue was recognised in the either year from performance obligations satisfied (or partially satisfied) in prior years. All remaining performance obligations are comprised of contact liabilities of £10,437,000 at 31 March 2020 (2019: £8,637,000).

Additional voluntary disclosures

The following disclosures are provided for additional purposes only and does not form part of the Group's segmental reporting under IFRS 8. In addition to reviewing operating division and geographical performance, the Chief Operating Decision Maker also considers the performance of the Group in line with its revenue model, as disclosed in note 2.

The following is an analysis of the Group's revenue and result by revenue model:

5. Tax

The total tax charge for the year can be reconciled to the result per consolidated income statement as follows:

Taxation for each region is calculated at the rates prevailing in the respective jurisdictions. Prior year adjustments relate to the routine confirmation and agreement of the final tax position in local jurisdictions.

The main rate of UK corporation tax in the period was 19%. In March 2020, the Chancellor announced that the planned reduction in the corporation tax rate to 17% from 1 April 2020 would no longer take place, and the rate would remain at 19% going forwards. Following a Budget resolution on 17 March 2020, the 19% rate was substantively enacted. Accordingly, UK deferred balances have been recognised at 19% in the period.

6. Earnings per share ('EPS')

See note 7 for a reconciliation of statutory results to adjusted results. The adjusted profit after tax earnings measure is used for the purpose of calculating adjusted earnings per share.

7. Adjusted performance measures

A number of adjusted performance measures are used in this announcement and financial statements which are not defined or specified under the requirements of International Financial Reporting Standards (IFRS). Adjusting items are excluded from our headline performance measures by virtue of their size and nature, in order to reflect management's view of the performance of the Group and facilitate the reader to compare performance against prior years more easily.

The Group believes that alternative performance measures such as adjusted EBITDA are commonly reported by companies in the markets in which it competes and are widely used by investors in comparing performance on a consistent basis without regard to factors such as depreciation and amortisation, which can vary significantly depending upon accounting methods (particularly when acquisitions have occurred), or based on factors which do not reflect the underlying performance of the business.

In particular, the Group presents on the face of the income statement those material items of expenditure which, because of their nature and/or expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand the elements of financial performance in the period. The measures used are adjusted EBITDA, adjusted operating profit, adjusted profit before tax, adjusted profit after tax, adjusted diluted EPS and adjusted cash generated from operations.

Summarised below is a reconciliation from statutory results to adjusted results.

Adjustments for costs which management do not consider reflect underlying business performance:

A Share-based payment charge net of tax

· £1,035,000 (2019: £5,639,000) relates to contingent consideration arising from acquisition activities

· £147,000 credit (2019: £2,480,000 charge) relates to put options on acquisitions

· £223,000 (2019: £4,000) relates to employee share schemes granted as part of the Group's listing in June 2014

· £183,000 (2019: £111,000) relates to employee share schemes granted as a means of retention for key employees joining the Group as a result of an acquisition

· £1,168,000 (2019: £522,000) relates to on-going employee incentive share schemes

Share-based payment charges are commonly adjusted from headline results by similar companies which operate in the same markets as the Group. Management believe that share-based payments linked to acquisitions and the Company's IPO should be considered one-off in nature and do not reflect the underlying performance of the Group. On-going employee incentive share schemes have not been consistently granted to employees since IPO and the share-based payment expense in the income statement has therefore not been consistent over this period and the effect on profits do not reflect the underlying performance of the Group.

B Costs directly relating to acquisitions including retention bonuses payable to key management personnel of the acquired entity agreed at the time of acquisition.

C Amortisation of acquired intangibles. The majority of intangible assets acquired via acquisitions relate to value which has been created prior to acquisition, the cost of which has been expensed over time. Had the Group chosen to create these assets instead of acquiring them the related costs would have been expensed in prior periods. It is therefore considered appropriate to exclude the amortisation of these historic expenses from the adjusted results of the Group.

D Restatement of prior year adjusted performance measures had IFRS 16 been adopted from 1 April 2018.

E Exchange losses incurred on the Nigerian Naira following its unpegging against the US Dollar on 20 June 2016. As this is no longer a material amount it is not being included as an adjusting item from 1 April 2019.

F Basic adjusted EPS and diluted adjusted EPS includes profit attributable to non-controlling interests not included in the calculation of statutory basic and diluted EPS. Diluted adjusted EPS also includes the dilutive effect of share options not included in statutory diluted EPS when they have an anti-dilutive effect.

[1] Unadjusted EBITDA is operating profit plus depreciation and amortisation.

8. Goodwill

Goodwill is monitored by management at the CGU level by region and delivery model. The group restructured its CGUs following the final contingent consideration payment relating to the Infracast acquisition, combining Infracast with Europe1 and adding Rostrvm during the year to form a single CGU. The acquisition of 3C during the year also resulted in a restructuring of operations in the North America region, combining the existing CGUs with the acquisition. The following is a summary of goodwill allocation for each CGU, all of which relate to the cloud communication products operating division:

The recoverable amount of all CGUs has been determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. The long-term growth rates are management's estimates. The discount rates used are pre-tax and reflect specific risks relating to the relevant CGU.

[1] Excluding Textlocal, Infracast and Healthcare in the prior year.

CGUs serve a common group of customers such that the key assumptions used for value-in-use calculations for all CGUs are as follows:

Value in use is calculated for the various CGUs based on approved business plans and forecasts taking into account certain variables for each CGU. Below is a description of the principal variables that have been considered for each CGU with significant goodwill.

Cash flow growth rate and long-term growth rate

Cash flow growth rate is expressed as the compound annual growth rates in the initial five years for all cash-generating units of the business plans and forecasts used for impairment testing.

Impairment tests are performed using the projected cash flows based on Board approved forecasts and strategic plans over a five-year period. Cash flow projections from the sixth year are calculated using an expected constant growth rate.

Discount rate

The discount rates used are disclosed above and take into account the market risk rate associated with the company. A discount factor is calculated using the discount rate and applied to future projected cash flows.

Sensitivity analysis

The principal variables used across the cash-generating units would need to change to the following levels before impairment would be required:

9. Cash and cash equivalents