GBG, (AIM: GBG) the experts in digital location, identity verification and fraud software, provides an update on its trading performance for the six months to 30 September 2022, ahead of releasing its half-year results on Tuesday, 29 November 2022.
- Growth in revenue and adjusted operating profit, despite tough H1 comparators driven by cryptocurrency volumes last year
- Full year expectations remain unchanged despite macro-economic uncertainty; assisted by FX benefits
- Continued good progress with Acuant integration, delivering an acceleration in our solutions alongside planned cost and revenue synergies
- Planned new year capital markets event will expand on our enhanced capabilities and our strategy to capitalise on the structural opportunity in our markets
Overview and performance update
The Group expects to report first half revenue of £133.8 million1 (1H FY22: £109.2 million), representing growth of approximately 22.5%. Growth in the half year included contributions from the recently acquired Acuant and Cloudcheck businesses. This more than offsets a tough prior period comparative that included a c.£8.8 million benefit from unusually high and non-repeating transaction volumes driven by the US stimulus project and cryptocurrency trading.
On a pro forma basis2, which for H1 FY22 includes the pre-acquisition revenue but excludes the non-repeating revenue noted above, growth in the current period was approximately 10%. H1 FY23 has experienced volatile foreign currency movements, particularly pound sterling versus the US dollar. This caused a favourable effect on the translation of GBG’s significant US dollar denominated revenue, contributing approximately 6.5% to the reported period-on-period pro forma revenue growth.
Our Location and Fraud segments both performed well with double-digit constant currency growth. In Location, successful cross-sell/up-sell initiatives and increased pricing compensated for lower volumes seen from some eCommerce customers. In Fraud we gained new customers and secured important renewals in APAC and EMEA. There is good momentum in these segments as we enter the second half.
Our Identity segment was particularly impacted by the reduction in activity from cryptocurrency and ‘gig-economy’ fintech customers in the Americas. Cryptocurrency revenues normalised from the prior year’s exceptional levels, but at lower volumes than we had expected, and we anticipate this impact will continue in the second half. Our wider regions and sectors continued to perform well, and we are encouraged by the pipeline of opportunities to offset this impact over the next six months.
We are pleased with our progress to integrate Acuant. Although revenue comparatives are impacted in the period by its own exposure to the reduction in cryptocurrency and fintech volumes, Acuant has enabled cross sell to existing GBG customers and has a good pipeline of new opportunities to support its growth in H2. Our teams have worked at pace to realise the anticipated product and technology benefits throughout the group and as previously announced we have delivered all planned cost synergies. By combining our US sales teams, we are now driving efficiency and accelerating entry into new market segments and expect to see the early benefits of this approach in the second half. Encouraging cross sell opportunities for Acuant products are also being pursued in both APAC and EMEA.
We continue to make disciplined investment in the business to maintain our market leading position and to capitalise on the significant long term growth opportunities. The Group’s adjusted operating profit margin in the first half is expected to be approximately 21%. We expect that the margin will improve in the second half of the year as revenues are traditionally stronger and we close some of the significant opportunities in our pipeline.
GBG has a strong cash generative business model and this has enabled further repayment against the $210 million of debt drawn to finance the Acuant acquisition. Total repayments of $45 million have now been made resulting in an outstanding balance of $165 million. However, on a sterling basis, net debt at 30 September 2022 increased to £132.6 million, reflecting a £22.2 million retranslation impact since the year end from the conversion of the US dollar denominated debt into pound sterling. The first half also saw the impact of the £9.6 million dividend payment and £2.5 million used for on-market share purchases related to a newly created Employee Benefit Trust. We will continue to use our strong cash generation to paydown debt in the second half of the year.
The Board remains positive about the long-term prospects for GBG. The ongoing digitalisation of global economies continues to drive demand for digital identity and fraud solutions, despite periodic softness in subsectors such as fintech and cryptocurrency. The Group’s strategy to create global capability that can be adapted to localised regulatory environments has been enhanced by the addition of Acuant’s globally relevant products. This model will allow GBG to deploy products quickly and generate significant upsell and cross-sell opportunities across the geographies we operate in.
As we look forward to the second half of the year, which typically sees a greater revenue weighting, growth is expected to accelerate as we execute our strong pipeline of new business across our diverse geographic footprint and customer sectors. Despite the macroeconomic conditions the Board’s expectation for the full year remains unchanged and, given the long-term structural growth drivers at work in our markets, the Board remains highly confident in the long-term opportunities ahead.
Chris Clark, GBG’s CEO, commented: “I am proud of the way that the GBG team have delivered excellent service and support for our customers despite the challenging economic backdrop over the past six months.
Good progress has been made against our long-term growth strategy, which continues to focus on bringing together our market-leading Location, Identity and Fraud solutions to address the needs of the digital world. We are pleased with how Acuant has strengthened our competitive positioning and customer proposition and remain confident it will make a valuable contribution going forward.
GBG has evolved as a business over the past eighteen months and is now one of the world’s leading pure-play identity software providers. Details will be shared at our half year results in November for a Capital Markets event that will take place early in 2023 for investors and analysts. The event will include an update on Acuant and further detail on how we are capitalising on the structural growth opportunities in front of us.”
2)1H FY22 pro forma underlying revenue of £122.2 million consists of £109.2 million reported revenue, £21.8 million of net revenue from M&A, less c.£8.8 million of non-repeating revenue which includes £1.8 million of exceptional cryptocurrency volume related to Acuant in the pre-acquisition period.
Source: GBG Press Release