GB Group plc (GBG) Earnings Call Transcript & Summary

Good day, and welcome to the GB Group plc Half Year Results 2021 Conference Call. At this time, I would like to turn the conference over to Chris Clark. Please go ahead.

Thank you, Sergei, and a very good morning to you all, and a warm welcome from myself, Chris and from David. Delighted also to be joined on the bridge today by our new Investor Relations Manager, Richard, Richard Foster, who joined us just a few weeks ago. So in terms of agenda, firstly, David and I will spend a little bit of time going through the highlights, both strategic and financial of the first half. And then we'll turn our attention to the news that broke more recently on the acquisition of Acuant. And I'm delighted to report that as of yesterday, we closed the transaction. So overall, we're very pleased with the progress and performance in the first half of the year. We showed good growth, 12.6% constant currency organic growth across the group and with all 3 segments showing double-digit growth equally delighted that we achieved record people and customer engagement scores. In fact, 94% of the GBG team would recommend GBG as a Great Place to Work in our most recent engagement survey, and we achieved record customer Net Promoter Scores of over 50, which is world-class. At the same time, we continue to deliver innovative new solutions for our customers right across the world. And whilst post half year, we're delighted that we've now -- that the Acuant team have joined the GBG family. The markets that we serve continues to grow and grow strongly driven by a number of factors: ever-increasing online transactions, ever increasing risk of fraud, increased compliance requirements, and that's underpinned by consumers demanding a frictionless experience when they transact with the business online, but also to be protected. So our market, it's growing, growing well and that creates significant opportunity for us. Looking a little bit closer at both strategic progress and results. As I've already said, overall, we saw good robust growth right across the business at 12.6%. Interestingly, 2/3 of the growth came from existing customers and 1/3 from new. And that's actually more in line with what we saw pre-pandemic and a number of euro calls during the pandemic, that was shifted a little bit more to 80% from existing and 20% from new. And I think that does show an indication that the business has returned to some sort of pre-COVID normal trends, albeit no one never quite knows what's going to happen tomorrow. Looking at location, which is 27% of the group, which showed strong growth of 15%, driven by good growth across all geographies and all sectors. Wins that we secured in the second half of last year is starting to transact significantly, such as Just Eat as well as some recovery in what we called COVID troubled sectors and a slight softening in some of the sectors that we saw exaggerated growth at the height of lockdowns around the world. We continue to win new business, whether that's GoPro, Garmin, Spotify, Jools, Harper Collins, and we saw strong renewal rates. In the first half, we were also delighted to launch the next generation addressed capture service, extending our competitive advantage. Turning to identity, which is 58% of growth. We're really pleased that we posted double-digit growth of 10% because as a number of you know, we were against -- up against very strong comparables with particularly the U.S. stimulus. Overall, we saw good growth from our existing customers. We saw good growth from new business that we secured. And we were helped by firstly, GBP 3 million from the U.S. stimulus that we didn't expect to continue, and that compares to GBP 10 million in the first half last year and actually very strong crypto volumes, particularly at the beginning of the period, April and May, which accounted for about GBP 4 million. We won a number of new customers such as Welcome Technologies or Cuna Mutual in the U.S. or Zilch Technologies, a new U.K. start-up Buy Now Pay Later, and that is gaining good momentum. And we continue to innovate with the launch of our no code, light touch ID verification solution in the U.K. called Rapid ID and continue to enhance our services in the U.S. with Flex API offering, which means that our customers can access different elements of the service along the customer life cycle. And then last but not least, our fraud division, which is 14% of the growth group grew at 17%, albeit against a weak comparative last first half and really a number of factors at play. Firstly, as a reminder, there's 2 core elements to our fraud offerings. There's our U.K. investigate service, which is about half that 14% of group. You will recall that at exactly a year ago, we acquired HooYu. And we're delighted to report that we're ahead of plan on the integration, and that's playing through both in terms of wins and upsell. For example, we won E.O.N in the first half, and we saw good upsell with John Lewis. And then our compliance and fraud solutions that we traditionally sell across Asia Pacific. We saw good recovery with some significant renewals, with some of the world's largest financial institutions and some good wins in our target geographies such as Vietnam and Indonesia. So overall, really strong performance, and we're very pleased with the progress we've made. And now to talk to you in a little bit more detail, I'll hand it to David.

Thanks, Chris and good morning everyone. As Chris said, I'll now take you through the financial review in a little more detail. So as Chris has said, it was a 6-month period in which GBG delivered a very strong financial performance. Our revenue for the half year was GBP 109.2 million, which represents 5.4% increase over last year, and this translates into an increase of 12.6% in organic constant currency terms. We delivered adjusted operating profit of GBP 27.8 million, up 3.5% on last year and adjusted earnings per share of 10.9p, which was 4.8% higher than last year. And we did this while maintaining our strong cash generation. At the end of September, we had a cash balance of GBP 39.5 million, and we converted our adjusted EBITDA to cash flows at a conversion rate of 113%. So now let's take a look at the income statement in a bit more detail. As I said, revenue increased 5.4% in reported terms and 12.6% in organic constant currency terms. But there are a number of moving parts to the revenue trends, and we had the benefit, as Chris has already mentioned, of approximately GBP 7 million of one-off revenue items in the first half. And so I'll cover that in a bit more detail in a moment or 2. The second with the income statement, our gross margin held steady at 70%. We had an increase in operating expenses year-over-year of 7.3%. This increase reflects the fact that the prior year comparative was a period of significant uncertainty due to COVID. And as a result, we curved our spend in that period quite successfully. So in the current H1 period, we have seen some return of that spend, in particular, areas such as marketing, and we have also had some limited travel cost return. The increase also obviously reflects our annual salary review where, on average, the increase across the group was around 4.5% plus slightly higher bonus accruals given the relatively strong first half performance. Bringing that all together, that led to an adjusted operating profit of GBP 27.8 million, which represents an increase of 3.5% over last year and an operating profit margin of 25.5%. This operating margin is slightly higher than our target range of 22% to 23% due to the one-off revenue items of GBP 7 million that we've already mentioned. Plus, we got off to a slightly slower than expected start to planned investment hires this year. But I'm pleased to say that in that respect, we're now back on track. And so our margin for H2 as a discrete period is expected to be more closely in line with the target range. We have exceptional normalized expense items totaling GBP 12.9 million with exceptional items making up only a very small part of that at GBP 490,000. The majority of this is the amortization of acquired intangibles at GBP 8.6 million and share-based payment charge of GBP 3.9 million. The share-based payment charge increased by approximately GBP 1.8 million period-over-period because of an increase in the share awards made to team members. Our finance costs were lower than last year after we fully repaid the previous RCF in the prior year. And on tax, our charge for the 6 months was GBP 3.2 million, and this represented an effective rate of 22.2%. And on an adjusted basis, this was 19.4%. So slightly lower than our guidance due to the revenue mix in the period and also some catch-ups on R&D-related incentives. Adjusted Diluted EPS for the 6-month period was 10.9% -- 10.9p, sorry, and this represented an increase of 3.8% over the prior year. I should point out at this point that having listened to feedback from analysts particularly, we have amended the way we calculate adjusted earnings per share to bring this more closely in line with how other companies calculate it. We have previously used the statutory tax charge in this calculation. But from now on, we will use a tax charge that has been adjusted for the exceptional and normalized items for symmetry with the determination of adjusted operating profit. We've restated the comparative for this improvement. Okay. So next, as promised, I wanted to provide more detail on the various moving parts within our revenue growth trend. Firstly, the main differences between our reported growth rate and the organic constant currency rate of 12.6%. This comes from 2 factors: the impact of the businesses we divested last year and the foreign currency translation effect, particularly for our revenues that come from the U.S. And then to try and help you all understand the underlying growth trends for the first 6 months. We need to work through the one-off revenue impacts from which there are just 2. The first thing there was a significant revenue from a customer project last year to assist the U.S. government with the distribution of COVID-support payments. This was worth GBP 10 million last year in constant currency terms, and we were slightly surprised by the level of revenue we continue to see from this in the current period. And this was much less but still worth $3 million. And then the other unusual item we thought we should call out is the exceptional cryptocurrency customer volumes that we saw in Q4 of last year and that continued into April and May of '22, as Chris has already mentioned. In general, we have seen an increase from these customers over the last couple of years. But even that said, the consumption volumes in these particular months were extraordinarily high, and we got a boost for mix of approximately GBP 4 million in H1. So underlying all of these moving parts, we had a growth rate of more like 17.6% in H1. Okay. And then on this next slide, I've provided a breakdown of our revenue and growth by revenue models. This really underlines why our business model drives very high cash generation and cash conversion. The majority of GBG's revenue comes from either subscriptions represented upfront commitments, and these can either be time limited or volume limited or transaction or consumption arrangements where our customers pay more likely monthly in arrears based on the usage. The strong growth seen in term-based subscriptions year-over-year was fueled by somewhat recovered performance of our fraud segment from the very COVID affected position of last year and the 11.5% growth in transactions or consumption basically has been particularly strong given this growth rate includes the net $3 million headwind from the Identity segment, one-off revenue impacts I described just a moment ago. In total, 96% of our revenue comes from either subscriptions or consumption-based revenue models. In terms of the markets in which we operate, we didn't really see any significant changes in the 6 months. Growth remained strong in retail and technology sectors, and this was fueled by structural drivers, Chris has already mentioned, and obviously, increasing digital adoption in all sectors. Our revenue from gaming recovered somewhat having been impacted last year by COVID and the suspension of live sport for several months. For our geographic lens, in reported terms, the U.S. revenue actually decreased as a percentage of the total, but this really just reflects the reduced revenue from the one-off project as well as currency translation effects. On an underlying basis, our U.S. identity business continued its strong run with growth of 30% plus. And then lastly from me in this section, here is a review of the balance sheet. There weren't really any significant changes up to the 30th of September. Intangible assets were affected by amortization and foreign currency translation. And as I've already mentioned, our cash performance was strong, and net cash increased by GBP 18.4 to GBP 39.5 million at the end of the period, and that was after the payment of our final dividend do we expect of last year of GBP 6.7 million. Obviously, our net debt position has changed since the end of September as a result of the acquisition, and I'll talk more about that later in the presentation. With that, I'll now hand back to Chris.

Thank you, David. And now turning our attention to the acquisition of Acuant. Our growth strategy has been consistent for a number of years, and I think is well known to a number of you. But in summary, it's about expanding our capabilities internationally, continuing to increase the customer numbers in key geographies and over time across sectors, continuing to increase our competitive advantage from a data product and technology perspective and underpinned by having a great team. M&A has been a core part of our strategy for a number of years. And in fact, Acuant is our 14th acquisition in the last 10 years. And the reason we are so excited that yesterday, we completed the acquisition and that the Acuant team of 210 very skilled team members joined the GBG family is Acuant is entirely complementary, not only to our growth strategy, but also to our data product technology and people. In summary, because of that complementary nature, we believe that the acquisition will accelerate our organic growth strategy by approximately 2 years and will be enhancing to our growth by approximately 2 percentage points. So what we mean by that is where historically, we've guided to low double-digit organic growth of 10% to 12%, we're now saying we expect to grow in the region of 12% to 14% and enhance margins, as David will describe. And that really is down to the fact that it is complementary in terms of international expansion, drives us into new sectors, accelerates our data products and technology road maps and brings, as I said, 210 highly skilled team members to the GBG family. Just touching on Acuant. Acuant is a business that GBG has known very well and worked with for a number of years, and in fact, has been in our acquisition pipeline for a number of years. We are both pioneers in the identity verification market. Acuant was founded out of Los Angeles in 1999 and very much originally focused its technology and capability on document-led verification and went to market through an indirect means working with partners. Fast forward to today and like ourselves, Acuant have done a couple of big things, both organically and inorganically. They've expanded their service offering, and they've more recently created direct sales capabilities, particularly in North America. They are still predominantly U.S. business with 83% of the revenues in the U.S. and the majority of the team but also R&D centers in Tel Aviv and here in Manchester. But at heart, they are a technology organization with 130 of the 210 team members being technologists and I think also exemplified by the fact that they have 30 plus patents. The market to which we serve both GBG and Acuant is the core ID verification market. The market estimated to be worth USD 15.8 billion by 2025 and growing at mid-teens. What we're really excited about, however, is this accelerates our bringing together of our density and fraud to address the adjacent market of identity fraud, 1 of the fastest-growing subsectors of the broader fraud market. And that market is estimated to be worth USD 9.6 billion. growing at 15.8%. So turning into a little bit more detail about the strategic rationale. Firstly, geographic expansion. There's 3 core benefits from a GBG perspective of this acquisition geographically. Firstly, it gives us a greater exposure to the world's largest identity and fraud market, the United States. The U.S. accounts for 40% of the global IDV and identity fraud market. We've had a great deal of success since we first entered the U.S. IDM fraud market through the acquisition of IDology nearly 3 years ago. And with the complementary nature of IDology and Acuant, we believe having a greater exposure to the world's largest market is a good thing to do. Secondly, because of the global technologies that Acuant have created and our go-to-market capabilities in Europe and Asia Pacific, specifically Southeast Asia and Australasia, we believe we can accelerate GBG's growth in those geographies, but also negate the need for Acuant to create direct capability in those markets because we can use our own capability set. And last but not least, I've already mentioned that Acuant historically was an indirect operator and indirect go-to-market model. And about 40% of their business today is indirect. We believe that GBG can use those indirect partners to provide greater services but also accelerate our further international expansion over time. Looking at the customer perspective, GBG has over 20,000 customers in -- around the world in over 70 countries, and Acuant has over 1,000 direct customers predominantly in North America. The good news is there is very little customer overlap, less -- they're probably about 10%. So therefore, there's a major cross-sell and upsell opportunity, particularly in the United States to start with. The other really positive is sector diversification has been a core part of our growth strategy for a number of years. And actually, Acuant's history means that they are exposed significant exposure to actually some what we believe are core strategic sectors for our marketplace, that being health care, automotive and government. And then looking at data products and technology. I already mentioned that we believe that this deal accelerates us by a couple of years. But just perhaps giving a little bit more color to that. One of GBG's greatest strengths is our access to global data. And like we have on a number of acquisitions historically, we can use our data and plug that into the global technology that Acuant has created accelerating not only GBG's organic plans, but actually Acuant's plans as well. Secondly, Acuant themselves do have unique data capabilities with the world's largest document library, with access to over 6,000 document types in over 200 countries, which can benefit our GBG's customers. And then from a product perspective, we have highly complementary road maps, which means that by joining up our future road maps, we cannot only accelerate our development time scales, but also, we believe, enhance our competitive advantage. And I'll use one example of that. I've just mentioned briefly that in the first half, in the United Kingdom, we launched a no-code light touch ID verification solution talking with the small enterprise. Acuant themselves did something similar 6 months ago in the United States called AcuantGO. And unsurprisingly, when one looks through due diligence, the relative strengths and weaknesses of both offerings, we believe that we can share learning and accelerate that competitive differentiation. And then last but not least, from a technology road map perspective, I've already mentioned that Acuant at heart are a technology organization, and they've done -- they've built some very strong global technology capabilities such as what a product called EDNA, which is a global data graph that will allow us to -- with our data, allow us to accelerate some of our AI and machine learning initiatives, providing greater insight to our customer base. And another example would be some of the work that Acuant has done over the last couple of years and SaaS enabling some of their capabilities, which is highly complementary to our own development roadmaps. So overall, we couldn't be more excited about how these 2 things come together. And bringing that all together, what this really means is that we can better serve customers requirements from customer onboarding right through to in-life fraud detection. It is the coming together of identity verification and fraud prevention from a customer perspective. And given the complementary nature of our capabilities, we believe, extends our competitive advantage. So on that note, I will pause again and hand to David.

Thanks, Chris. So first for me, a summary of the acquisition financing itself. As Chris has already said, we have acquired Acuant for an enterprise value of $736 million, which has been satisfied through a mix of equity issued to the sellers and cash, which was sourced from a combination of cash on our balance sheet, a new revolving credit facility and the proceeds of an equity placing. The relative split of these sources are illustrated by the left-hand bar on this slide. As I said earlier, we have agreed a new larger revolving credit facility that has replaced our previous facility. This new one is for GBP 175 million. It's a multi-currency facility, and we have an initial term of 44 months with 2, 1-year extension options. We're really pleased to have been able to secure this facility, which we feel will be valuable to GBG for many years. And for me, it was great to see the banking support that GBG has and the faith in our strategy. I would also like to point out that in determining the financing strategy for this deal, we have been mindful to maintain GBG's prudent and conservative capital allocation policy, with the debt drawdown required for this acquisition, taking us to a net debt leverage of 2x. And due to both of the combining businesses being highly cash generative, we have significant opportunity to delever from that position really quite rapidly. Okay. Moving to the next slide. Next, I wanted to provide an overview of Acuant's standalone financial profile, which as Chris has said, is attractive to us and has some similarities with GBG's own profile. However, Acuant is growing faster and therefore, will be additive to the GBG growth rate. Revenue in the last 12 months to September up was $58.1 million, which represents a year-on-year growth rate of 22%. For the calendar year '21, we expect revenues of approximately $60 million. It's important to note that even fast -- that even more important and -- than the fast and impressive growth is the subscription and transaction revenue growth, and they've been growing at a CAGR of more like 35% across the last 3.5 years. As we first increase the business today derives 84% of its revenues from the U.S. And so we're really excited about the opportunity to double down on this geography that has been growing fastest for us over the last 2 years as well as the opportunity to leverage Acuant Solutions internationally, which we feel have not yet been fully exploited. In terms of margin and profitability, Acuant has operating margins somewhat similar to GBG. In 2020 and 2021, Acuant had adjusted operating margins of approximately 20%, and this is despite the strong investments that have been made in R&D and go-to-market functions. So we know that the business has been well invested in and also that there are good opportunities for operating leverage in the medium term. Acuant is also highly cash-generative and has strong cash conversion just like GBG, and this is due to the business model, which is now predominantly subscription revenue streams and whereby revenue and profits are converted to cash quickly. Okay. Turning to my next slide. So now how do we think about the combination and the integration. My first point here is that, as Chris said, we do know the Acuant team very well. It's through our relationships with many years that we have confidence that these businesses will be a great fit together. There is a consent of culture and a shared technology vision. And of course, we will be appropriately incentivizing the Acuant team to retain and motivate the team for future growth. And that's obviously helped by the fact that a number of the management team are rolling their stock cover into GBG stock. And of course, the GBG team is experienced in integrations with most of our senior team having been involved in our previous deals, and I myself was very heavily involved in my previous role at Aviva in planning and overseeing the integration of Aviva's very large acquisitions. We have a clear line-by-line plan of key integration steps with responsibility clearly assigned and our integration plan has been designed to ensure that we don't lose any momentum in either the Acuant or GBG teams and so that we make the most of the immediate cross-sell opportunities while also balancing that with extracting the medium-term technology benefits. We've committed to GBP 5 million of synergy benefits at the operating profit level from a combination of cost and revenue initiatives. And therefore, we expect the acquisition will be no worse than earnings neutral in FY '23, our first full year of ownership and accretive thereafter. This acquisition will also be enhancing to GBG's growth rate, which we expect to be 2 percentage points higher as a result of the acquisition and also enhancing to our operating margin by 1 point as the benefits of the combination are fully realized. So with that, I'd like to hand back to Chris for a few closing comments.

Thank you, David. And in summary, looking back at the first half of the year, we are really pleased with the progress we've made and the results we've delivered I think once again, the standout is the performance of our talented team around the world, who showed immense creativity and resilience, which given the latest news could well be required again. In terms of looking forward with the acquisition of Acuant and the way the core business is performing. We're excited about the opportunities, both for the rest of the year and into the future. The Board is confident that we will deliver in line with expectations, and we believe that we are well set to enjoy a number of strong years ahead. I'd now like to thank my dogs for welcoming the delivery driver, but more seriously, hand back to Sergei for any questions that we might have.

[Operator Instructions] We'll now take our first question from Tintin Stormont from Numis.

A couple of questions from me. In terms of pricing of new deals in identity and location, if you compare that against pricing of new deals in previous years. Are you seeing any discernible trends, any pressure from -- any pricing pressure you're seeing with new players that have come on board? And then secondly, on Acuant's strength in document verification. You mentioned obviously 6,000 documents covering 200 countries. Are these specific new geographies that have caught your eye where you think you can really leverage their strength there and speed up your market entry?

Thank you, Tintin. So taking those questions in turn. In terms of price across location and identity and actually I'd add fraud as well. I think it is safe to say that over the last couple of years, we have seen pricing pressure I think that's down to a number of factors. They're not -- I think it starts actually less to do with competition and more to do with the fact that our service is becoming even more mission-critical for our customers. So if you think that the amount that we're transacting with customers or the relationship we have has gone up in orders of magnitude. And that's the way that we think about that if people are expecting to get more volume discounts. So we're seeing -- we're definitely seen that as a trend as people use more services, it becomes a bigger part of spend, now that people expect to get something back. And I guess we deal with that because the way that we think about that is, firstly, not a problem, but actually also expanding the services we offer to customers in terms of upsell. Yes. And then so then looking at it competitively, in some markets, yes, we do see people leading on price because, frankly, they don't have the offering that we do. And I think we just think about that as part and parcel of doing business in a growth market and our sales people being well versed and bound to sell the benefits of a premium offering. Turning to Acuant. I think the way I'd sort of personally reflect on that question. Tintin is I think the biggest challenge we'll have in our integration plans is one of prioritization because the opportunities are significant and whether it's new geography enhanced offer, new sector, I think one of our biggest challenges will be to prioritize. So as an example, do we try and suddenly do something in Latin America because of the document capability. So yes, we are excited about the opportunity that Acuant finds for expansion into new geographies. But actually, I think that's for us, we're thinking about that as probably a benefit that we'll look to exploit over time as opposed to initially focus given -- focusing on other areas that have perhaps lower hanging fruit.

We'll take our next question from Kai Korschelt from Canaccord.

Chris and David, quick -- two quick questions. Really, the first one was on the Acuant acquisition. So particularly the end markets for automated biometric and document verification. My understanding is there's 3 -- and I think you've put it on your slides that are pretty large and well funded start-up type companies in there. And obviously, COVID has probably accelerated the sort of greenfield opportunity, right, in terms of sort of new companies onboarding, et cetera. So I'm just wondering how do you think about the greenfield opportunity in that markets? And how much more growth is there on a sort of 3 to 5 year basis? That's my first question. And the second question was, I think, one for David. In terms of the organic growth that is baked into your second half expectations. Could you just shed a bit more light on that number because you obviously had a fantastic first half on an underlying basis. So just curious what level of organic growth you're baking in for the second half?

Thank you, Kai. Hope you are well? I think I understood your first question correctly, which is sort of you talked about end markets, I think you meant sectors. But if I've misinterpreted please do shout. But I think the way we think about -- sorry, -- the way we think about this is pre-Acuant we've talked as GBG about having a number of growth vectors, be that geography, sector and product enhancement. And we always -- and I think over the last couple of years, you've seen us focus on not only FS and some of the subsets has been in FS as a growth pillar but also expanding our capability sets across technology retail. What we saw in the pandemic was a number of sectors health care, I think, is perhaps a really good example and automotive, who we always felt we're going to be an opportunity down track, but because the pandemic forced companies to learn -- sorry to not learn to digitalize their capabilities, those sector -- that sector opportunity moved further forward, which is why we're excited did by the sector presence that Acuant offers us. So what does that mean? I think it accelerates some of the growth opportunities or perhaps put another way, is we wouldn't have able to get all of those organically. And there's definitely going to be a first mover advantage in some of these greenfields. So we think it's a great foothold in some key sectors that we wouldn't be able to get to ourselves. And we think that, that plays out over numerous years as more and more sectors need the type of services that we offer. And I hope that does answer the question Kai. And on that note, I'll hand to David to catch it, to answer the second half.

Yes. Thanks, Chris, and thanks Kai for the question. So I think the way we think about growth really for the full year, as we came into the year as we faced a couple of known headwinds we had. The U.S. stimulus work that we've talked about in the presentation to say that had a larger impact on the first half, but had a smaller impact on the second half. So we knew we were coming in that headwind. We are also somewhat expecting a continuing headwind from currency translation in the second half. But stripping away the more unusual effects. On an underlying basis, we would still expect our growth to be in line with our guidance. So on a stand-alone GBG basis, is still in that 10% to 12% range, 10% to 12% range. But there are still these moving parts as we came in as we face these headwinds. And as we've also talked about, at the end of last year, particularly in Q4, we had some strong impacts on cryptocurrency that initiate at least so far, as we've seen more in the first half. So yes, a few moving parts, but overall, we do expect to be able to come in line on a full year basis with that 10% to 12% growth rate.

Our next question comes from Julian Yates from Investec.

Just a couple of questions from me. Firstly, on the deal. Could you tell us sort of realistic on the ground, practically, the customers, where they are asking you for the capability of document verification as well as your traditional data verification? I'm trying to understand how much of this is coming from customers asking or you'll feel that you need to do this deal to acquire that technology and to remain competitive and differentiated? Or is it sort of just an attractive sort of growth asset in its own right, that is a nice complement to your current underlying organic growth sort of helping on the overall business. And on that, are there any other areas of the GBG portfolio that you feel that is lacking that could gain sort of help with additional sort of M&A from a capability point of view. So that's the first one, a couple of ones in there, I guess. And the second one is very much more bigger picture, looking 3 to 5 years out, margin sort of potential aspirations for the business. Does this change your thought process in any way? I see your smiling there is my perennial question of can this business scale beyond the 25% margin towards 30% on a long-term view, assuming your revenue growth sort of tracks now towards sort of mid-teens growth rate, clearly, just aspirations and ideas as opposed to guidance.

Thanks, Julian. And maybe I'll take the both, and then David can talk a little bit more about margin. Firstly, our customers specifically asking for document verification. I think the answer to that, Julian, is actually very straightforward. What customers -- being a little bit generic when we're talking about 21,000 customers across the world, across multiple sectors. But being -- if you forgive me for being rather generic, what customers are absolutely asking for is capabilities that serve the end-to-end life cycle from onboarding right through to in-life management and actually ideally through orchestration that they want to use as few suppliers as possible because that reduces their own risk cost. So I think it's less about specific document versus data because that part of the industry has been sort of merging actually over a number of years based on the principle I've talked about previously, which is ultimately one isn't better than the other because they all have strengths and they all have weaknesses. And actually, in a world where so many credentials are available on the dark web, then actually the more validation one can do, whether it's a document or data is a good thing. But what customers are absolutely saying is this problem that we are facing, which is how do we offer a frictionless customer journey but protect our consumers. We need to look at this end-to-end is something that our customers are absolutely saying. So that's kind of how we think about that part. I think on the margin piece, as I said, I'll cover it and then hand to David to give a little bit more color. I mean I think we've been very consistent, and I don't think the acquisition of Acuant really changes the message, which is we believe we can drive margins up if required. And I think the evidence of last year shows that where we were cautious in the first half of FY '21 as we're in the eye of the pandemic. And pushing, I think margins were up to 27% for the last full year. So we know we can do that. But actually, ultimately, we're not guiding all saying that we think that's the right thing to do because we do believe that -- and we do believe that investing in this business is the right thing for all of our stakeholder groups, predominantly because the problem we're trying to solve, which is stopped bad guys. And actually, we don't keep investing, then the problem for our customers gets bigger. And I think that ties into your capability question, Julian, which is we do believe with the coming together with GBG and Acuant, we have significant assets at our disposal to meet the customers' requirements. What we can't predict, though, is what bad guys are going to do in the next 6, 12 months. And therefore, what other technologies might be necessary. But right now, we feel confident that we have the capabilities in our shop, but actually, what we can predict is what we may need in 12 months' time. So I hope that covers those questions. And David, is there anything else you want to add on the margin side?

We will now move to our next question from James Zaremba from Barclays. Apologies.

I think we lost David there. He froze on my screen. So we'll go to James.

Shall we move to the next question?

Yes, please.

James Zaremba from Barclays.

I had a couple of questions, please. One, just following up on Tintin's one about the kind of competitive environment. Clearly, a lot of funding continues to go into the space. So I was just wondering maybe if you could talk from the kind of technology and talent perspective, how you see that evolving? Has there been a high level of attrition to kind of private peers over the period? Or has that sort of been consistent over the last few years? And then, I guess, in terms of margin, to your point around kind of volume discounts, obviously, Acuant will change the gross margin. But beyond that, how should we expect gross margin to evolve over the next few years? And then the last one again on Acuant would be -- in terms of share-based payments, I guess, what levels sort of should we expect for that in FY '23, once it's fully been integrated.

Thanks, James and David, welcome back. I'm not sure if you've got the -- it's 2 further questions, but I'll answer the first question and then perhaps pass to David for the second 2. So firstly, from a competitive perspective on technology impact on technology and talent. I think firstly, we are operating in a fast and large market. So I don't think it doesn't surprise us in the least that we see right around the world, new competition. And I guess it's reassuring actually in many respects that significant money is being plowed into the space. Equally, we're certainly not complacent, and we remain incredibly focused on our competitive differentiators. And actually, I think that's just on that, it's one of the reasons that we're so pleased about the Acuant deal because we think it does increase our differentiation on a number of categories, not least the actual international piece. In terms of technology, there's nothing that we're really seeing in the private world new on the technology front. And I'd share a lot of the spend, which I think perhaps James plays to your second part of that question is going into to hiring and a lot in marketing, actually. And are we seeing that impact our talent? It's very difficult in all honesty to tell how much attrition -- people attrition levels have been impacted by that point versus the great resonation because we have seen a tick up in attrition in the last 12 months. But equally, I would say a lot of that is to do with broader points as opposed to competitive points actually. But only time will tell. And I think we feel very good that although we've seen a tick up in attrition, this firstly, it's stabilized and come down in the last couple of months. And secondly, it's still, we believe, well below market averages. But certainly not anything we take complacently and why we have such a focus on making sure we have the best and most engaged and we innovate with things like our -- in one way you want policy, which has been incredibly well received from existing talent but also tenant attraction. So I guess that's a rather long-winded way of answering that question, James. And On that point, I'll hand to David to talk about the gross margin and share-based payments.

Yes. Thanks, Chris and first of all, apologies. I dropped out there. No idea what the technical issue was, but apologies on back. I did catch Chris' answer to Julian's question, though, on margin expectations. And full marks to Chris, I would have said exactly the same. So I didn't have anything to add. So then, James, on your question. First of all, on share-based payments. I think there's a degree of one-off awards that were -- that contributed to the slightly higher charge that we've seen in the first half. That was something that we felt was appropriate to do an all employee share award. That's not to say we'd necessarily consistently do that, but it was the right thing to do at the right time. But looking forward, I think the easiest way to be able to think about share-based payments as we move forward is probably model that in line with how our head count might grow. I think that we would expect a similar balance to the share-based payment charge as we move forward. And first of all, there a question on gross margin because apologies, I'd probably joined just as that was being asked.

Yes. I think James might want to jump back in. But I think broadly, David, the question is how do we think about gross margin trending with Acuant.

Right. Okay. Yes. So Acuant has a slightly different gross margin model to GBG. It has a higher gross margin. So it's closer to 80%, high 70s. It does somewhat depend on the revenue mix, but we would expect that to stick around 78%. So also on a weighted average basis, we will see a slightly -- slight improvement to the group GBG gross margin over time.

Yes. Sorry, I just kind of -- if I could follow up quickly, Chris. I guess just one thing I was impressed in the statement was about more engagement going up to, I guess, 94%, more already a very high 90%, but I guess higher attrition in the period. Is that -- is it just a case that you kind of -- you can't please anyone? I guess, when I see more broadly companies talking about working policies and et cetera. And again, one of the risks is people feel are less attached to each other. And therefore, maybe you do have a risk of losing more people because they have a great work-life balance, but maybe they're not as friendly with their colleagues. Is that kind of an ongoing risk and how you're trying to kind of manage that?

So James, this is a topic that has a number of people in the call know, I'm incredibly passionate about and can talk about for hours. So quite happy to pick it up off-line. But I would actually humbly say that any business that isn't worried about the cultures and dynamics and it posts or whether post is the right word, but in a post-pandemic world needs to have their head examined. I think there's a change at every workplace base is, how do you meet the needs of a evolving and rapidly changing employee base. And I think our view of that is, firstly, you can't is all the people at the time. Secondly, actually, we don't have the answers that our teams have the answers and a lot of our people policies are actually built bottom up. And I think as much as we introduced our work when and where your work, when and where you want policy, as you say, James, that equally has a knock on effect that perhaps some of the culture is dissipated. So how do you make your workplace environment, how do you get people to engage come together change of spaces. It's a complex topic. And I'd argue no one has the answers, but it's something that we feel that we're innovator in and -- but equally certainly not complacent. And I also think that we're far from anyone as far from understanding what the answer is because I think individuals' preferences are and will continue to change over the next couple of years, actually. Sergei, do we have any further questions?

Yes we have Paul Kratz from Jefferies.

Just 2 questions on my end. You presented this TAM figure in the identity market, I think that showed the market was valued today, something around like $9 billion. I guess with Acuant, how does that change your ability to address that? And maybe the other way to ask that is, if I were to take Acuant out, what was your TAM previously of that $9 billion? Or what could you directly address? And then maybe the second question is you talk about the identity the fraud side of the business, it's closely interlinked I guess, with your application fraud business in the APAC region. Can you kind of walk us through the motions of how you integrate those 2 businesses? Because my understanding is, I guess, the fraud business in the APAC region is primarily on-prem, whereas Acuant you're looking at largely a cloud-based business. I just would like to kind of understand what are the investments you need to make to integrate those 2 products and to get that cross-sell or to realize that cross-sell opportunity in the first place?

Thanks, Paul. On that trunk it is brief because I think we're coming to the top of the hour. But the total addressable markets that I quoted are in the slides are, firstly, the core identity verification is according to markets and markets -- a market that's valued at USD 15.8 billion, growing at mid teens. What does the acquisition do? I think your question, Paul, was what does the acquisition do in terms of increasing that? I think the way to think about it really simply is 40% of the market is in north of -- is in the U.S. So what we've done is increased our exposure to more of the market, particularly in the U.S., that's probably the way to simply answer that question. And then in terms of the sub -- the adjacent subsector of fraud, identity fraud, again, we talked, I think, consistently about our vision in bringing identity and fraud together because in reality, they aren't really separate, which starts to place some of your integration questions as well, actually, Paul. And now what's interesting is that we've got market analysis actually talking and defining that market and defining it as identity fraud and talk about that being a market growing at 15.8% (sic) [ USD 15.8 billion ] and valued at USD 9.6 billion. What that -- what the acquisition and we believe of Acuant does is just put us in a stronger position to be a leader in the emerging identity fraud market because it is really about the coming together. So it cements our -- I think it cements our ambition, but actually, we believe, creates a real leader in that adjacent subsector. And then in terms of integration, I think, Paul, the way to think about it is all these things are components. So there's components of the technology stack that Acuant have that we can plug into our offerings, the existing offerings. It's not a case of one product. It's more about technology build because ultimately, what we're trying to do is solve that end-to-end customer life cycle. So there's components of the Acuant fraud suite that we can plug and play into our own offerings for our banks in Malaysia. And if -- I guess if you think about that from a customer perspective, what we see in our space and what everyone sees in our space isn't particularly in sectors that have used a variety of identity and fraud services historically isn't a rip and replace, it's layering solutions. And actually, we can do similarly in terms of our offerings. So we believe that there's components of the Acuant offering we can offer to our customers in Asia pretty down quick and we're in detailed planning as we speak. And this team is actually the U.S. this week going through some of that.

And our last question in the queue comes from Bharath Nagaraj from Berenberg.

I'm just trying to understand how the Acuant acquisition helps bring about this common journey or the orchestration layer, as you said? I mean maybe the other way to ask the question is, what's your integration plan with regards to the technology and the front end and the back end? And the second question that I have is, do you think that the data-driven solution can it all be cannibalized in the future by the document-driven one? Because ultimately, they're trying to do the same thing and maybe the data-driven solution is, I don't know, has more friction compared to the document driven one. So I just wanted to understand your thoughts on that.

Yes. Thank you. I'll do the second question first. I think anyone in the industry, whether you're from a document world or a data world, would actually very consistently say there's pros and cons of both, and they are entirely complementary, not competitive. So for a variety of reasons, most notably is that no one system has been approved. So they're entirely complementary and this is why you see people making moves. In terms of the technology integration, I'm not sure I have time to do justice to the huge amounts of work we've done over the last number of months given there's integration plans. But actually, I'll come back to sort of perhaps one of the answers. I gave to the Tintin's question about geography. Our biggest challenge is actually prioritization. And we're busy working through that now in terms of what is simple and very simple is how you plug data into technologies. We've done that time and time again in acquisitions over the last decade, and we know it gives a major uplift to our customers. So it starts with the data layer. And then from a technology perspective, really building on actually my response to Paul's question. It's actually more about components. And what we've got is a sort of 3-year technology integration road map in terms of using different components from single restful APIs right through to some of the cloud services. And as I said, I can't really do justice to the detailed planning, but it starts with data. And then the technology, it's from how do you make it easy for customers to consume right through to how do you ensure that the products provide better insights to our customers, but more than happy to pick them up in more depth if required. So again, I'll assume that no further questions. Once we're run up on the hour. So let me close by thanking everyone for their time today. Sorry, we've had to keep the Q&A relatively brief. Clearly a lot to talk about today with the acquisition of Acuant, but clearly, if anyone wants to further follow up, David and I and Richard would be more than happy to spend more time. Thanks all very much, and stay safe.