Interim Results

30 July 2020 || GoCo Group plc interim results for the six months ended 30 June 2020

Rapid growth continues at AutoSave and strong rebound at GoCompare

Sir Peter Wood CBE, Chairman said: 

"Given the huge challenge that Covid-19 has presented to this country, our business and our customers, there has never been a more important moment for the Group to make it easy for people to save money. Our work on the current Autosave business, and the innovation we are working on, are great examples of how we are achieving this.

The Board and I believe that a first half AOP of £11.1m is an impressive performance in these extraordinary times and remain supportive of the medium term growth plans that management have laid out."

Matthew Crummack, Chief Executive Officer said: 

"As a Group, we have responded well to the challenges presented by Covid-19 and I'm pleased with the continued efforts of the team and the results they have produced. We are in a strong position and this is testimony to the hard work of my colleagues across the Group.

Sustainably scaling AutoSave customers and delivering trading profit is a huge achievement; the sheer scale of the addressable market is now clear as we continue to grow customer numbers, expand our marketing options and make further operational improvements. We are delighted to be able to leverage Sir Peter's incredible financial services knowledge in our Group product innovation work.

Our £250 excess proposition on GoCompare demonstrates our ability to innovate in established businesses too, and it has already started to improve preference as we look to drive customer retention. We enter H2 in a strong position as our strategy continues to deliver."

Outlook:

The Group has seen an improvement in performance since the middle of May, however, we are aware that the consumer environment remains vulnerable and uncertain with a broad range of outcomes for the year still possible. We are therefore continuing to suspend formal guidance for 2020 but we maintain our commitment to keep the market apprised of our position.

Results Presentation:

There will be a presentation for investors and analysts at 8.30am on 30 July 2020. To watch the presentation being streamed live, please visit: http://www.gocogroup.com/. The presentation will also be available on the website at 08.30am.

Cautionary statements

Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and assumptions and are subject to a number of known and unknown risks and uncertainties that may cause actual results, performance or achievements of the Group or industry results to differ materially from any future events, results, performance or achievements expressed or implied by such forward-looking statements. Persons receiving this announcement should not place undue reliance on any forward-looking statements. Unless otherwise required by applicable law, regulation or accounting standard, GoCompare disclaims any obligation or undertaking to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

Business review

GoCo Group continues to diversify and grow, as we continue our transformation into a higher & more sustainable margin business over the medium-term. We are transforming into a data-led, tech enabled business powered by our SaveStack™ platform, helping more people find more of the right products, saving them more time and more money.

A disciplined approach to financial performance has resulted in a strong operational cash flow on GoCompare, self-funded investment into AutoSave and versatility in Rewards. In a challenging global environment, we've delivered an impressive financial performance with Group trading profit +16%, Group revenue +9% and leverage remaining broadly consistent at 2.3x, well below the covenant of 3.0x.

Revenue growth across key GoCompare verticals

Despite a temporary impact from Covid-19, our core price comparison business delivered a solid performance for H1 2020. Covid-19 resulted in temporary declines on quote volume, however, conversion increased, thus mitigating revenue impact. We saw reassuring recovery in May and June as search and quote volumes returned encouragingly; conversion remained ahead of Q1 levels, driving strong revenue performance and growth on GoCompare in June.

We delivered revenue growth of 1.3% on GoCompare excluding travel insurance, and car insurance growth of 4%, ahead of the market. Early in the government enforced lockdown across the UK, we made the decision to remove travel insurance from our website, which was the right thing to do for our customers but has unsurprisingly affected revenue.

We diverted marketing spend to invest into TV to drive medium term growth, leveraging the £250 excess proposition. Our £250 excess proposition is proving successful in driving awareness, and brand preference as customers know we are there for them when the worst happens. It is now 12 months since we introduced this innovative proposition and we continue to build on the loyalty and increased retention we have established over this period in H2. As we evolve GoCompare we will look to drive greater recurring revenue, thereby increasing the lifetime value of our GoCompare customers.

Rewards showing versatility but Covid-19 stalled profit stabilisation

Our Rewards business has diversified post lockdown, with significant change in sector revenue. We saw a rise in fashion, home and garden but understandably travel commission revenue fell. Covid-19 impacted non-commission-based advertising revenue, with rapid reduction impacting H1 profit. Marketing margin remained broadly similar and the team showed adaptability with diversification towards more retailers. We continue to optimise this part of the business with greater focus on speed of response and to leverage synergies across other segments within the Group.

AutoSave surpasses expectations

Our goal has always been to deliver long-term shareholder value through the creation of our AutoSave segment, as we transform into a higher and more sustainable margin business over the medium term. AutoSave has delivered momentum in H1 growing the switching market and supporting the continued transformation of the Group. The segment has generated £10.8m of revenue over the period, +370% vs. 2019 H1 and +64% vs. 2019 H2. AutoSave delivered £1.5m trading profit in line with guidance.

We acquired 183,000 new customers in H1, this affirms the significant growth opportunity and the very attractive business model which has higher margin potential with good customer retention and lower marketing costs. We continue to run two brands cost-effectively, Look After My Bills and weflip, around one integrated AutoSave team. We are focused on transforming the huge addressable auto-switching opportunity, generating savings for consumers, and have confidence we will continue to sustainably scale the business through H2 2020.

Group resilience

I am proud of the financial strength and operational resilience of the Group through the first six months of 2020 meaning we have not needed to call on any Government assisted schemes, nor have we made any redundancies through the Covid-19 pandemic. This strong financial position is reflected in us continuing to pay our 2019 dividend in H1; I am pleased to announce we are declaring an interim dividend of 0.4 pence per share.

All our employees have worked from home with no impact to business operations, we have continued to recruit and onboard into the business throughout lockdown, whilst offering considerable flexibility and support focussed on mental health and wellbeing.

Matthew Crummack - Chief Executive Officer

Financial Review

Revenue grew strongly during the period, with total Group revenue of £82.8m being 9% higher than H1 19 (£76.0m) driven by the performance of the AutoSave segment. Adjusted operating profit of £11.1m reduced by 11% compared to H1 19 (£12.5m) reflecting the adverse impact of Covid-19 on the Price Comparison and Rewards segments and an increase in total Administration costs, partly offset by a significant improvement in the trading profit of the AutoSave business.

The Directors have declared an interim dividend of 0.4 pence per share, which represents a pay-out ratio of approximately 22% of profit after tax (excluding adjusting items and their tax effect).

Operating segments

Price Comparison

The Price Comparison segment relates to the GoCompare price comparison business and the Energylinx price comparison business.

Overall, Price Comparison revenue of £69.7m was broadly flat on H1 19 (£70.1m). The period saw volatility in the number of UK consumers using price comparison sites as a result of the Covid-19 pandemic and the UK lockdown which led to a reduction in revenue in April and May relative to the same period in 2019. Travel Insurance comparison was unavailable on the GoCompare site for most of Q2 and revenue from this vertical was nil during the quarter (Q2 19: £1.5m). However, despite this backdrop, the business performance has been resilient, and the month of June saw a return to strong year-on year revenue growth.

Cost of sales of £14.5m were £6.2m lower than H1 19 as a result of a significant reduction in generic paid search spend on GoCompare, continuing the trend seen during H2 19. Distribution costs of £25.0m were £8.1m higher than H1 19 as a result of higher brand paid search costs and increased investment in GoCompare above-the-line advertising.

Trading profit of £30.2m was £2.3m lower than H1 19, reflecting the impact of Covid-19 and the ongoing increased investment in above-the-line advertising, which has a longer payback than digital marketing spend.

The Price Comparison segment reporting for 2019 has been restated following the acquisition of Look After My Bills. Revenue and cost of sales relating to Look After My Bills was included in the Price Comparison segment as an external affiliate in H1 19. This is now shown un the AutoSave segment in both H1 19 and H1 20 to enable a like for like comparison. Price Comparison H1 19 revenue has therefore been restated to £70.1m (previously reported as £72.0m) and Cost of sales has been restated to £20.7m (previously reported as £22.3m).

AutoSave

The AutoSave segment comprises the Group's weflip proposition, together with Look After My Bills which was acquired in July 2019. During the period, consumer demand for the Group's AutoSave proposition has remained very strong with no material impact from Covid-19. This strong demand is reflected in the customer numbers which have grown from 300,000 to 483,000. Revenue of £10.8m was significantly higher than the £2.3m delivered in H1 19 which reflects revenue generated from switching new customers energy provider as well as revenue from switching customers who signed up to the service in previous years.

Trading profit in the period was £1.5m compared to a loss of £6.0m in H1 19. The improvement in performance reflects lower customer acquisition costs as well as the positive impact of revenue generated from customers signed up in previous periods that have no associated marketing costs in the current period.

The AutoSave segment includes Look After My Bills revenue and cost of sales recognised by the Group in Price Comparison in H1 2019 prior to the acquisition. AutoSave H1 19 revenue has therefore been restated to £2.3m (previously reported as £0.4m) and Cost of sales has been restated to £2.0m (previously reported as £0.4m) to enable a like for like comparison.

Rewards

The Rewards segment generated revenue of £2.3m and a trading profit of £1.3m. The performance during the period was adversely impacted by Covid-19 with a significant reduction in advertising revenue generated during the period as retailers pulled back their marketing spend as a result of reduced consumer demand. Whilst advertising revenue was lower, the trading performance of commission based income for the business was resilient and the loss of revenue from travel providers was offset by significant growth in other categories such as Home & Garden.

Administrative expenses

Administrative expenses excluding adjusting items, depreciation and amortisation of £18.9m are £4.9m higher than in H1 19. The increase primarily reflects the costs of operating the AutoSave segment and in particular the Look After My Bills business which was not part of the Group during H1 19, along with an increase in Group costs.

Adjusted operating profit, Adjusted EBITDA, and Profit before tax

Adjusted operating profit, calculated as operating profit for the period after adding back the adjusting items, reduced by 11% to £11.1m.

Adjusted EBITDA for the period, calculated as Adjusted operating profit for the period after adding back depreciation and amortisation, reduced by 3% to £14.2m.

Depreciation and Amortisation of £3.1m has increased (H1 19: £2.2m) and reflects the impact of the amortisation of development costs capitalised during 2019. Amortisation of acquired intangibles of £2.0m (H1 19: £1.3m) relates to the Group's acquisitions of The Global Voucher Group Limited, Energylinx Limited, Energylinx for Business Limited (and its subsidiaries), and This Is The Big Deal Inc. (along with its subsidiaries).

The integration, restructuring and other corporate costs of £0.9m (H1 19: £1.5m) include £0.4m in relation to deferred consideration arising from the Energylinx acquisition that is deemed to be remuneration related. Also included within this category is £0.4m of costs in relation to the closure of the Group's Alloa office and other restructuring and £0.1m for onerous contracts that the Group has cancelled in the period and is no longer able to derive benefit from. The reassessment of deferred consideration of £0.5m relates to the contingent consideration due on the acquisition of This Is The Big Deal Inc.

The Group incurred net finance costs of £1.6m during the period, an increase of £0.1m compared to H1 19.

Profit before tax for H1 20 of £6.1m is £1.5m lower than H1 19, reflecting the adverse impact of Covid-19 on the Price Comparison and Rewards segments and an increase in total Administration costs, partly offset by a significant improvement in the trading profit of the AutoSave business.

Income tax expense

The Group's tax charge of £1.3m is based on an expected effective income tax rate for the year to December 2020 of 19.0% (H1 19: 19.0%).

Earnings per share

Basic earnings per share for H1 20 is 1.1 pence, a reduction of 0.4 pence (27%) compared to H1 19. Adjusted earnings per share, which excludes the impact of the adjusting items noted above (net of tax), is 1.8 pence, a reduction of 0.2 pence (10%) on H1 19 and better reflects the earnings generated by the underlying core business.

Cash and leverage

The Group delivered a positive operating cash flow during H1 20 of £10.6m. Net cash used in investing activities of £7.0m includes the capitalisation of internal and external development costs, the purchase of tangible fixed assets and the payment of the remaining deferred consideration attributable to the acquisition of Energylinx.

The total increase in cash and cash equivalents during the period was £0.1m resulting in total cash and cash equivalents at the end of the period of £11.5m. During the period, the Group made an additional £15.0m drawdown from the borrowing facilities, however this was fully repaid before the end of the period. After allowing for working capital requirements and the cost of the interim dividend, surplus cash at the end of the period is approximately £4.0m.

Borrowings at 30 June 2020 were £83.0m, which, after allowing for cash and cash equivalents of £11.5m results in net debt of £71.5m. Net debt is £0.1m lower than 31 December 2019. Adjusted EBITDA for the 12 months to 30 June 2020 of £31.7m is £0.5m lower than in the 12 months to 31 December 2019. Leverage of 2.3x remains broadly unchanged since 31 December 2019.

The Board does not target a specific leverage ratio but instead looks to optimise the capital structure of the Group ensuring that cash is available for investment in opportunities that will drive shareholder value over the medium term as well as for paying dividends in line with the dividend policy.

Balance sheet

Non-current assets have decreased due to additional amortisation during the period, broadly offset by capitalised development. Borrowings have remained consistent with FY19 at £83.0m.

Dividends

The Board has declared an interim dividend of 0.4 pence per share. The dividend is equivalent to a pay-out ratio of approximately 22% of profit after tax (excluding adjusting items and their tax effect), which is at the lower end of the Group's target pay-out ratio of 20%-40%. The pay-out ratio balances cash returns to shareholders with our ability to fund ongoing investment into the AutoSave business.

The ex-dividend date is 10 September 2020, with a record date of 11 September 2020 and a payment date of 2 October 2020.

Principal risks and uncertainties

The principal risks and uncertainties faced by the Group are unchanged from those disclosed in the 2019 Annual Report (pages 32 to 35) which is available to view at www.gocogroup.com. These cover certain key areas of risk which have been summarised below.

The Board ensures that measures are in place to provide independent and objective identification and management of risks through the Audit and Risk Committee. The Committee is responsible for reviewing the effectiveness of internal control and assurance through the reports from internal audit, compliance and risk functions.

Statement of Directors' Responsibilities

The Directors' confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

The Directors of Goco Group plc are listed in the Goco Group plc Annual Report for 31 December 2019. There have been no changes since the publication of that Annual Report to the date of this interim report.

INDEPENDENT REVIEW REPORT TO GOCO GROUP PLC

Conclusion

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 which comprises the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 1, the annual consolidated financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Kate Teal

for and on behalf of KPMG LLP

Chartered Accountants

66 Queen Square

Bristol

BS1 4BE

29 July 2020

Condensed Consolidated Statement of Comprehensive Income

For the period ended 30 June 2020

Notes 1 to 14 are an integral part of these condensed consolidated interim financial statements

Condensed Consolidated Statement of Financial Position

As at 30 June 2020

Notes 1 to 14 are an integral part of these condensed consolidated interim financial statements

Condensed Consolidated Statement of Changes in Equity

For the period ended 30 June 2020

Notes 1 to 14 are an integral part of these condensed consolidated interim financial statements

Condensed Consolidated Statement of Cash Flows

For the period ended 30 June 2020

Notes 1 to 14 are an integral part of these condensed consolidated interim financial statements

Notes to the financial statements

For the period ended 30 June 2020

1. General information

Goco Group plc ("the Company") and its subsidiaries (together, "the Group") provide internet based platforms which enable consumers to save time and money on financial and non-financial products.

The company is a public limited company, which is listed on the London Stock Exchange and is incorporated in England and Wales. Its registered office is Imperial House, Imperial Way, Newport, NP10 8UH.

All of the Company's subsidiaries are located in the United Kingdom, with the exception of This Is The Big Deal Inc., which is incorporated in Delaware, United States of America.

These condensed interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2019 were approved by the Board of Directors on 2 March 2020 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 (2) and (3) of the Companies Act 2006. These condensed interim financial statements have been reviewed, not audited.

2. Summary of significant accounting policies

These condensed interim financial statements for the six months ended 30 June 2020 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS34, 'Interim financial reporting', as adopted by the European Union. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2019, which have been prepared in accordance with IFRSs as adopted by the European Union.

The accounting policies adopted are consistent with those applied to the consolidated financial statements for the year ended 31 December 2019.

The financial statements have been presented in Sterling and rounded to the nearest hundred thousand. Throughout these financial statements any amounts which are less than £0.05m are shown by 0.0, whereas a dash (-) represents that no balance exists.

New accounting standards and interpretations

A number of new standards, amendments to standards and interpretations will be applicable to the consolidated financial statements in future years. The adoption of these standards are not expected to have a material impact on the Group financial results or disclosures.

Going concern

In considering the appropriateness of the going concern assumption, the Directors' have taken into account the Group's forecasts, projections and reasonably possible changes in trading performance and cash flows. Consideration of cash flows includes those arising from operating activities, repayment of debt and dividends.

The recent threat of COVID-19 has seen significant challenges and implications for businesses both in the UK and globally, the duration and magnitude of which remains unknown. The Group continues to focus closely on working capital and cash management, including regular review of outstanding debtors, prompt invoicing and assessing the need for any discretionary or variable marketing spend. The Group also has sufficient other mitigating actions available in order to offset any future shortfall in revenue and/or operating profit, as set out in the viability statement within the 2019 Annual Report and Accounts. These actions are available in order for the Group to meet its liabilities as they fall due and continue as a going concern.

Notes to the financial statements

For the period ended 30 June 2020

As part of the going concern assessment for these interim accounts, scenarios have been modelled which include a significant downturn in demand for the Group's core services resulting in a significant reduction in revenue. Even in these stress scenarios, the Group would still have sufficient liquidity to continue to operate, meet obligations as they fall due and comply with the covenants required as part of the debt facility. 

The Group also has sufficient mitigating actions available in order to offset any future shortfall in revenue and/or operating profit, as set out in the viability statement within the 2019 Annual Report and Accounts. These actions are available in order for the Group to meet its liabilities as they fall due and continue as a going concern. There are no significant judgements which have been made in arriving at this conclusion and therefore a material uncertainty with regards to the Group's ability to continue as a going concern is not considered to exist at the point of approving these interim financial statements.

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least twelve months from the date of approval of the financial statements. Having reassessed the principal risks, the directors considered it appropriate to adopt the going concern basis of accounting in preparing its condensed interim financial statements.

Use of non-GAAP performance measures

In the analysis of the Group's results, certain financial performance measures are presented which may be prepared on a non-GAAP basis. The Board believes that these measures provide a useful analysis, allow comparability of performance and present results in a way that is consistent with how information is reported internally.

The key non-GAAP measures presented by the Group are:

- Adjusted Operating profit: defined as Operating profit after adding back amortisation of acquired intangibles, transaction costs, other exceptional corporate costs, fair value changes in contingent consideration and Foundation Award share-based payment charges.

- Adjusted EBITDA: defined as Adjusted Operating profit after adding back depreciation and amortisation.

- Adjusted basic EPS: defined as Profit for the period, excluding adjusting items (after their tax effect) divided by the weighted average number of shares in issue for the period.

- Marketing margin: calculated as trading profit as a percentage of revenue. Trading profit is defined as revenue less cost of sales and distribution costs.

Adjusted EBITDA is a measure which is used in calculating one of the Group's financial covenants on its borrowings as well as a factor in determining the coupon rate. Adjusted Operating profit is one of the factors used in assessing performance to determine remuneration for the Executive Directors and Senior Management. Marketing margin is used as a measure of the return the business makes on its marketing costs and therefore can be used to assess the effectiveness of the Group's marketing expense to generate revenue.

3. Critical accounting judgements and estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty include those applied to the consolidated financial statements for the year ended 31 December 2019.

4. Notes to the financial statements

For the period ended 30 June 2020

Segment information

The information reported to the Board (the Chief Operating Decision Maker) for the purposes of the assessment of segment performance reflects the operating structure of the Group. The Group's reportable segments under IFRS 8 are as follows:

The identification and disclosure of the Group's segments is consistent with those detailed in the consolidated financial statements of the Group for the year ended 31 December 2019 and the Comparative information for 30 June 2019, with the exception of the AutoSave segment. Look After My Bills revenue and cost of sales were recognised by the Group in Price Comparison in H1 2019 prior to the acquisition. Price Comparison H1 19 revenue has therefore been restated to £70.1m (previously reported as £72.0m) and Cost of sales has been restated to £20.7m (previously reported as £22.3m). AutoSave H1 19 revenue has been restated to £2.3m (previously reported as £0.4m) and Cost of sales has been restated to £2.0m (previously reported as £0.4m) to enable a like for like comparison.

Period ended 30 June 2020

Period ended 30 June 2019

Notes to the financial statements

For the period ended 30 June 2020

The consolidated revenue recognised in the 6 months to 30 June 2020 includes £81.3m of revenue recognised at a point in time (2019: £74.2m) and £1.5m (2019: £1.8m) of revenue that is recognised over time. The revenue that is recognised over time relates to tenancy income received for advertising in the Rewards segment, as well as tenancy revenue and licence fees related to the Energylinx businesses.

5. Adjusted operating profit

The following transactions occurred during the year which have been added back to operating profit in arriving at adjusted operating profit: