Interim Results

25 July 2019

GoCo Group plc (The "Group" or "GoCo") announces its results for H1 2019, reflecting its continued disciplined approach to financial performance and investment into innovation to unlock growth. The Group is excited to announce the acquisition of Look After My Bills which, together with weflip, strengthens our proposition in energy savings.

Financial highlights and KPIs:

Business highlights:

Delivering our strategy:

Acquisition overview:

GoCo Group plc today announces that it has acquired This Is The Big Deal Limited (trading as Look After My Bills), one of the fastest growing energy savings services in the UK. Look After My Bills have already built a significant customer base in excess of 150,000 live customers7; following the acquisition, GoCo Group now has in excess of 175,000 live customers 7. We believe that, like weflip, the business benefits from a transformative business model with deeper customer relationships, leading to greater loyalty that should deliver sustainable recurring revenue and higher customer lifetime value. Look After My Bills has operational and marketing expertise; a proven capability for switching customers, delivering a strong customer experience and acquiring a significant customer base at low cost of acquisition. We expect weflip and Look After My Bills to lead to a significantly higher EBITDA margin profile for GoCo Group and be transformative to Group earnings by 2022.

The acquisition complements GoCo Group's mission of saving people time and money, helping the Group to continue to find new ways to free customers from the boredom of sorting household bills.

Sir Peter Wood, Chairman, said:

"The Group's H1 2019 results reflect the disciplined performance of the core business alongside the strategic deployment of capital to grow weflip. Matthew and the leadership team are progressing at pace, delivering an exciting strategy that meaningfully helps consumers save time and money. The acquisition of Look After My Bills positions the Group as one of the UK's fastest growing energy savings services, providing a strong platform from which to continue to significantly grow our customer base and deliver value for our shareholders."

Matthew Crummack, Chief Executive Officer, said: "The first six months of 2019 continued our transformation into a tech-led business. We maintained our disciplined approach in our Price Comparison business whilst working on the development of our new consumer-led proposition, offering up to £250 excess protection for customers.

"AutoSave is building momentum and is in a great position to address the needs of infrequent switchers. Our ambition is to rapidly scale customers and build our energy savings business to grow live customer7 numbers by at least 25% in the next five months to the end of the year.

"We continue to develop SaveStack, our proprietary technology platform, which is able to power both our own brands and other people's, as demonstrated in our partnership with CYBG/Virgin Money, providing in app energy switching to banking customers."

Outlook

Following the acquisition of Look After My Bills, the Board expects to spend up to a further £4m on marketing and up to a further £3m on admin costs in H2, and to grow live AutoSave customer7 numbers by at least 25% in the next five months to 31st December 2019. There are no other changes to the Board's expectations for the full year 2019.

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, the Group 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 transform into a tech-led business, powered by our SaveStack platform. Our exciting acquisition of Look After My Bills, means GoCo Group now comprises five leading brands all focusing on saving people everywhere, time and money. Through the first half of 2019, we continued to take a disciplined approach to our financial performance with revenue flat at £76.0m. In a competitive environment, we've delivered first-half adjusted operating profit of £12.5m (H1 18: £21.0m), reflecting our investment in weflip. Excluding our investment into weflip, adjusted operating profit was stable Year on Year at £20.6m (H1 18: £21.2m).

It has been a busy H1, and I'm pleased with the Group's developments, but there is plenty more to do in H2. Our core Comparison business operates in a demanding market and we continue to take controlled decisions to benefit the Group. With the launch of our new customer-led brand proposition to drive awareness and preference we are well placed for H2 and expect the car insurance switching market to return to growth. Together with weflip, our acquisition of Look After My Bills, means we are now one of the fastest growing energy savings services in the UK with over 175,000 live customers7. This provides us with the perfect springboard to continue to rapidly scale the business through H2 2019 and we are confident our strategy will deliver shareholder value over the medium-term.

Disciplined performance on core Price Comparison business with the launch of our innovative proposition to grow in H2

On the core Comparison and Rewards businesses, we continued to take a controlled approach in a highly competitive environment. As the price comparison market goes through a down-cycle, the competition has been increasingly intense driving up the cost of customer acquisition. Against this backdrop we maintained a stable marketing margin of 45.6% reflecting further improvements to conversion and a targeted approach to marketing.

In H1 we developed a new GoCompare proposition, positioning ourselves to grow revenue in H2. Our new research driven proposition will drive awareness and brand preference; we are offering up to £250 excess protection for customers, providing consumers with motivation to switch through GoCompare. We recognise the importance of trust for our customers and are working to improve the insurance industry for the better, supporting our belief that the right insurance always costs you less.

As we focus on delivery of this initiative in H2, we believe it should help both grow the switching market and increase our share, due to; increased engagement, improved loyalty, greater competitor differentiation and driving purchase preference for the GoCompare brand. Importantly, this initiative shows our customers we are there for them when the worst does happen; "When it matters, GoCompare"

Significant growth of AutoSave business

We believe there is a significant opportunity in addressing the needs of the infrequent switchers, 'Switching Resignists', representing approximately 60% of the population whose needs are not being adequately met by the existing price comparison offerings. Our AutoSave segment has the ability to address this consumer inertia and target the saving opportunities that still exists for consumers.

Following our acquisition of Look After My Bills, we are now well positioned to continue to grow rapidly, with a combined customer base across both brands in excess of 175,000 live customers7, which we are bringing together into a single AutoSave segment. We are unique in delivering innovation in the Price Comparison industry, which we expect to unlock a medium-term growth opportunity with a sustainable recurring revenue model providing a higher EBITDA margin profile for the Group. Our goal is to deliver long-term shareholder value and create a segment that is transformative to Group earnings by 2022.

B2B partnerships using our SaveStack technology

We developed our first partnership with CYBG/Virgin Money to bring market-leading energy switching to their digital banking service with over 300,000 users nationwide. The service is powered by SaveStack, GoCo Group's proprietary tech platform, enabling us to innovate at speed and reach consumers wherever they are, however and whenever they want.

Financial Review

Revenue remained broadly flat compared to H1 18 at £76.0m (H1 18: £75.8m) and adjusted operating profit reduced by 40% to £12.5m (H1 18: £21.0m) compared to the same period last year. The fall in adjusted operating profit reflects the investment in weflip during H1 19 of £8.1m.

The Directors have declared an interim dividend of 0.4 pence per share, which represents a pay-out ratio of approximately 20% 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 that the Group acquired in June 2018. Overall, the Price Comparison segment delivered flat revenue in H1 19. The core GoCompare revenues are lower as a result of the downward trend in car insurance premiums, leading to lower switching volumes, alongside lower customer interactions, reflecting a focus on targeting profitable customers. Whilst interactions were down, revenue per interaction increased by 8% compared to H1 2018, primarily driven by an improvement in conversion but also higher income per transaction. The lower revenue for GoCompare has been offset by the additional revenues from the Energylinx business acquired in June 2018, which has continued to perform well.

Cost of sales of £22.3m is £1.1m higher than H1 18 as a result of inflation in marketing spend, particularly paid search. We continue to focus on improving efficiency in paid search and targeting profitable customers. Distribution costs of £16.9m are £0.6m lower than H1 18 as a result of the timing of new marketing initiatives. H1 2018 saw the launch of a new advertising campaign, but this will fall into H2 for 2019.

Rewards

The Rewards segment generated broadly flat revenue of £3.6m and a trading profit of £2.1m in H1 19 compared to £2.4m for H1 18. Adjusted admin costs have reduced to £0.9m (H1 2018 £1.8m) primarily as a result of lower headcount and lower systems costs compared to the prior year. Following the integration with the wider GoCo Group, the businesss now has a reduced cost base with efficiencies being gained with the staff and systems spend in particular.

AutoSave

The AutoSave segment relates to the Group's weflip proposition, launched in October 2018. Total marketing costs of £6.7m reflects the cost of launching the marketing campaign in H1 2019, with customer numbers building over the period. A significant proportion of the weflip transactions are with suppliers who pay their fees on a monthly tenancy basis over time, rather than an annual upfront fee, which leads to a lag in revenue recognition. All marketing costs are expensed as they are incurred.

Administrative expenses

Administrative expenses excluding adjusting items, depreciation and amortisation of £14.0m are £0.1m higher than in H1 18. Higher staff and system costs have been offset by an improved VAT recovery, while charges for the Group's property leases are now reflected as a depreciation expense under IFRS 16, which is presented separately.

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 40% to £12.5m.

Adjusted EBITDA for the period, calculated as Adjusted operating profit for the period after adding back depreciation and amortisation, reduced by 33% to £14.7m. The reduction is primarily driven by marketing spend which has increased by £7.3m to £47.3m, primarily as a result of investment in the launch of weflip.

Depreciation and Amortisation of £2.2m has increased (H1 18: £0.9m) and reflects the impact of the amortisation of development costs capitalised during 2018 along with the impact of the adoption of IFRS16 which means charges previously recognised as operating costs are now a depreciation expense. Amortisation of acquired intangibles of £1.3m (H1 18: £1.1m) relates to the Group's acquisitions of The Global Voucher Group Limited as well as Energylinx Limited, Energylinx for Business Limited and its subsidiaries.

The integration, restructuring and other corporate costs of £1.5m (H1 18: £1.3m) 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 £0.8m of costs in relation to the restructuring of the Group's marketing function and £0.3m for onerous contracts that the Group has cancelled in the period and is no longer able to derive benefit from.

The Group incurred net finance costs of £1.5m during H1 19, an increase of £0.1m compared to H1 18, reflecting the £0.1m IFRS 16 finance charge.

The share of loss of associate reflects the Group's share of losses from Mortgage Gym Limited, while it was accounted for as an associate of the Group, up until 5 June 2019.

Profit before tax for H1 19 of £7.6m is £8.3m lower than H1 18. This primarily reflects the costs incurred in marketing the launch of weflip £6.8m, higher depreciation and amortisation costs £3.5m (H1 2018: £2.0m) and the share of loss in the Group's associate investment in MortgageGym Limited.

Income tax expense

The Group's tax charge of £1.5m is based on an expected effective income tax rate for the year to December 2019 of 19.0% (H1 18: 19.0%).

Earnings per share

Basic earnings per share for H1 19 is 1.5 pence, a reduction of 1.6 pence (52%) compared to H1 18. Adjusted earnings per share, which excludes the impact of the adjusting items noted above (net of tax), is 2.0 pence, a reduction of 1.8 pence (47%) on H1 18 and better reflects the earnings generated by the underlying core business.

Cash and leverage

The Group delivered a positive operating cash flow during H1 19 of £7.6m. Net cash used in investing activities of £4.8m includes the capitalisation of internal development costs as well as the purchase of tangible assets and external development spend.

The total increase in cash and cash equivalents during the period was £3.1m resulting in total cash and cash equivalents at the end of the period of £15.0m. During H1, the Group used surplus cash generated from operations along with a £5.0m drawdown from the borrowing facilities in order to support the Group's investment in weflip. After allowing for working capital requirements and the cost of the interim dividend, surplus cash at the end of the period is approximately £8.0m.

Borrowings at 30 June 2019 were £84.6m, which, after allowing for cash and cash equivalents of £15.0m results in net debt of £69.6m. Net debt is £2.1m higher than at 31 December 2018. Adjusted EBITDA for the 12 months to 30 June 2019 of £37.7m is £8.6m lower than in the 12 months to 31 December 2018. The combination of the increased net debt and reduction in Adjusted EBITDA results in leverage being 1.8x compared to 1.5x at 31 December 2018.

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 increased due to additional capitalised development costs for 2019 and the recognition of the Group's property leases as tangible assets with the adoption of IFRS 16. This has also resulted in the recognition of a lease liability. Borrowings have increased to £84.6m (H1 2018: £79.4m), reflecting a net £5m draw down on the facility.

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 20% 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 potential investments.

The ex-dividend date is 12 September 2019, with a record date of 13 September 2019 and a payment date of 4 October 2019.

Principal risks and uncertainties

The principal risks and uncertainties faced by the Group are unchanged from those disclosed in the 2018 Annual Report (pages 21 to 23) 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:

·; An indication of the important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·; Material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report.

The Directors of Goco Group plc are listed in the Goco Group plc Annual Report for 31 December 2018. 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

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 2019 which comprises the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of changes in equity, the condensed 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 2019 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").

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.

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 2, the annual consolidated financial statements of the Company 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

Condensed Consolidated Statement of Comprehensive Income

For the period ended 30 June 2019

Notes 1 to 16 are an integral part of these condensed consolidated interim financial statements

Condensed Consolidated Statement of Financial Position

As at 30 June 2019

Notes 1 to 16 are an integral part of these condensed consolidated interim financial statements

Condensed Consolidated Statement of Changes in Equity

For the period ended 30 June 2019

Notes 1 to 16 are an integral part of these condensed consolidated interim financial statements

Condensed Consolidated Statement of Cash Flows

For the period ended 30 June 2019

Notes 1 to 16 are an integral part of these condensed consolidated interim financial statements

Notes to the financial statements

For the period ended 30 June 2019

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.

At the balance sheet date all of the Company's subsidiaries were located in the United Kingdom.

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 2018 were approved by the Board of Directors on 27 February 2019 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 2019 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 2018, 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 2018, with the exception of the adoption of IFRS16 as set out below.

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.

The Group has applied IFRS 16 (Leases) from 1 January 2019 using the modified retrospective approach and therefore the comparative information has not been restated.

The impact has been assessed as recognising total lease assets of £4.4m, lease liabilities of £5.2m and an adjustment to equity at 1 January 2019. The new standard has been applied to the Group's existing property leases in Newport and London.

The Group recognises a right of use asset and a lease liability at the lease commencement date. The right of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease repayments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or the site on which it is located, less any lease incentives received. The Group presents right of use assets within tangible assets.

The right of use asset is subsequently depreciated using the straight line method from the commencement date to the earlier of the end of the useful life of the right of use asset or the end of the lease term. The estimated useful lives of right of use assets are determined on the same basis as those of tangible assets.

Notes to the financial statements

For the period ended 30 June 2019

2. Summary of significant accounting policies (continued)

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the groups incremental borrowing rate. The lease liability is measured at amortised cost using the effective interest method.

Short term leases and leases of low value assets

The Group has elected not to recognise right of use assets and lease liabilities for short term leases of machinery that have a lease term of less than 12 months or less and leases of low value assets including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight line basis over the lease term.

The amount charged within administrative expenses as rent prior to adoption of IFRS 16 in both H1 2018 and H1 2019 would have been £0.4m.

Going concern

The Group meets its day to day working capital requirements through it bank facilities and cash balances held. 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. 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 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.

Notes to the financial statements

For the period ended 30 June 2019

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 2018.

4. 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 weflip segment as presented in the Group's 2018 year end financial reporting has been renamed AutoSave. AutoSave includes the revenue and costs relating to the Group's "weflip" brand. Following the acquisition of, Look After My Bills, on 9 July 2019, revenue and costs from this brand will also be included in future periods.

Other than the segment name change, 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 2018. Comparative information for 30 June 2018 has been restated in order to present the segments on a comparable basis as that for 31 December 2018.

Period ended 30 June 2019

Notes to the financial statements

For the period ended 30 June 2019

4. Segment information (continued)

Period ended 30 June 2018

The consolidated revenue recognised in the 6 months to 30 June 2019 includes £74.2m of revenue recognised at a point in time (2018: £75.0m) and £1.8m (2018: £0.8m) 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, AutoSave 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:

The Group acquired The Global Voucher Group Limited in January 2018 and recognised acquired intangible assets of £10.8m as a result of this transaction. In June 2018 the Group acquired Energylinx Limited and Energylinx for Business Limited in relation to which intangible assets of £3.1m were recognised. The intangible assets are being amortised over 5 or 10 years depending on their nature and the accounting charge, a non-cash item which arises on consolidation, is excluded from our Adjusted operating profit.

Included within the acquisition purchase price of Energylinx Limited is £1.8m of deferred consideration payable to the former shareholders of the company. This payment will be made 2 years post completion date subject to the former Director remaining employed by GoCompare at that point in time. Owing to this condition, the substance of this arrangement is deemed to be remuneration related and is therefore expensed over the two year period of employment. In the period to 30 June 2019, an amount of £0.4m has been recognised in respect of this.

Notes to the financial statements

For the period ended 30 June 2019

5. Adjusted operating profit (continued)

This charge has been excluded in arriving at adjusted operating profit on the basis that it relates directly to the acquisition of the Energylinx businesses, represents a one off remuneration arrangement that is outside of the Group's normal policies and will not recur once the contingent consideration is paid at the end of the earnout period. The charge has been included within the category of integration, restructuring and other corporate costs, which is consistent with 31 December 2018.

Integration, restructuring and other corporate costs also includes £0.8m recognised in relation to restructuring of the Group's marketing function. A further £0.3m has also been recognised for onerous contracts that the Group has cancelled in the period and is not able to drive any benefit from.

In November 2016, the Group issued a number of Foundation Awards in the form of free shares to the Executive Directors and Senior Management. These vested in February 2019 and a final charge of £0.2m was recognised in the period. The Awards have been treated as an adjusting item by the Group in arriving at adjusted operating profit, by virtue of their association with the listing, the quantum of shares and individual size of the Awards made in addition to the fact that they vest over a shorter 2 year period. This is consistent with their treatment in previous reporting periods.

6. Taxation

Income tax expense is recognised based on management's estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the year to 31 December 2019 is 19.0%. The estimated tax rate used for the six months ended 30 June 2018 was 19.0%.

7. Earnings per share

a) Basic

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the period.

b) Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume the conversion of all dilutive potential ordinary shares at their vesting levels.

Notes to the financial statements

For the period ended 30 June 2019

7. Earnings per share (continued)

c) Adjusted basic

d) Adjusted diluted EPS

8. Financial instruments

The following table sets out the financial assets and financial liabilities of the Group at the period end. The carrying amounts of the Group's financial instruments are considered to be a reasonable approximation of their fair value and therefore no separate disclosure of fair values is given.

Notes to the financial statements

For the period ended 30 June 2019

9. Financial risk management

The Group's activities expose it to a variety of financial risks: credit risk, liquidity risk, interest rate risk.

The condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as at 31 December 2018.

10. Investments in equity instruments

The Group's investment in equity instruments are identified as follows:

On 30 June 2017 the Group acquired a minority shareholding in Mortgage Gym Limited ("MGL") for consideration of £1.0m. On 10 October 2017 the Group acquired a minority shareholding in Souqalmal Holdings Limited ("SHL") for consideration of £1.5m.

On 30 July 2018 the Group acquired additional shares in MGL, increasing the shareholding to 26%. As a result the investment in MGL was recognised as an associate from this point.

On 5 June 2019 MGL issued convertible loan notes to the majority shareholder, and warrants to the Group which can be fully exercised in 3 years time. If the loan notes are converted in full the Group will hold only 6% of the voting rights, until the warrant is exercised to bring the share holding back to 26%. The loan notes are subject to a debenture giving the holder of the loan notes first priority ranking over the assets of the company.

On balance, the Group is judged to have lost significant influence following the refinancing, therefore the investment has been reclassified as an investment in equity instruments.

Both of the investments are classified as equity investments recognised at fair value through other comprehensive income, held at fair value and are both unquoted. Fair value is classified as level 3 within the IFRS7 fair value hierarchy, as the inputs for their fair values are not based on observable market data. At period end, fair value of MGL has been determined based on the consideration paid by the majority shareholder to increase its proportion of the voting rights. SHL continues to trade in line with budgeted performance, so there is no adjustment to fair value. The total fair value movement recognised through other comprehensive income in the period is £nil (2017: £nil).

Notes to the financial statements

For the period ended 30 June 2019

11. Investments in associates

On 30 July 2018, the Group's equity interest in Mortgage Gym Limited (MGL) increased to 26% and it became an associate of the Group from that date, until the Group lost significant influence as per note 10, on 5 June 2019.

MGL is a digital mortgage robo-adviser based in the UK and is a private entity that is not listed on any public exchange.

The Group's interest in MGL was accounted for using the equity method in the consolidated financial statements up until 5 June 2019. The table below reconciles the carrying amount of the Group's interest in MGL from 31 December 2018, to the date that the Group lost significant influence on 5 June 2019, and through the transfer of the carrying value of the investment.