GB Group plc (GBG) Earnings Call Transcript & Summary

Good morning, and thank you very much for joining GBG for our full year results presentation. I'm Chris Clark, CEO of GBG plc, and I'm delighted today to be joined on the call by our CFO, David Ward. In terms of agenda, I'll start by giving an overview of our trading results and strategic progress we've made during the period. I'll then hand to David, who will do a deep dive into the financials. And then I'll wrap up with a summary and a forward view of our priorities for this financial year. And of course, we'll close with a Q&A session. In summary, FY '23 has been a challenging year for all of GBG's stakeholders. However, we've made significant strategic progress and delivered some very strong growth, particularly in Location and Fraud. The challenge was primarily driven by a specific contained issue with regards to Internet economy customers impacting our Identity business in the United States that saw significant post-pandemic corrections. In terms of the important strategic progress we've made during the period, firstly, we're delighted that the Acuant integration is now fully integrated and complete, and we have delivered the GBP 5 million worth of synergies weighted more to cost and revenue given the external environment. This integration has allowed us to simplify and rationalize both our products and portfolio, that I'll talk more about and our go-to-market capability and model. For example, we now have a single Identity and Fraud brand in the United States, that's IDology and a single sales capability under a single CRO in that business. That simplification and rationalization has helped margins but also allowed us to accelerate our product innovation. And we're delighted with the progress we've made on bringing new products to market that I'll talk more about. At the same time, we've continued to deliver good new logo growth, strong customer retention, positive momentum in cross-sell and upsell as well as continued sector diversification and geographic expansion. I'm delighted that we have continued to deliver excellent customer and people engagement scores. Turning to the trading performance. First thing I'll say is the results are as our April pre-trade. That's revenue of GBP 279.8 million, on a increase in our underlying constant currency basis of 3.7%, that of course, David will talk about more. But I think the key in terms of revenue is that we saw strong new logo growth of 4.8%. And for those of you who have known us for a long time, you know that we expect about 1/3 of revenue growth from new logo and 2/3 from existing. So our real challenge has been net revenue retention that David will talk more about. In terms of operating profit, we delivered GBP 59.8 million, up 1.7%. As a result of our annual impairment review, we have taken a noncash goodwill impairment charge of GBP 122 million. Against our Identity businesses in the U.S., the former IDology and Acuant businesses. In effect, this is the accounting catching up with the trading performance and headwinds we described over the course of the last 12 months, and it is 19% of the pre-impairment carrying value, goodwill value. The Board is delighted to propose a dividend of 4p per share, an increase of 5%, which we believe demonstrates the confidence we have in the long-term opportunity for all of GBG stakeholders. Looking in more detail at the progress we've made during the course of the last 12 months across our 3 key solution areas of Location, Identity and Fraud, I'll start with location. Location accounts to 28% of the group and grew a very strong nearly 12%. This growth was driven by continued geographic expansion, good new logo wins across diverse sectors, cross-sell and upsell, as well as pricing. And these initiatives more than offset some volume decline that we saw, particularly from our e-commerce customers. We continue to innovate and differentiate our products. For those of you who were at the Capital Markets event, you would have heard Kartik talk about our AI Parsing, driving our next-generation address type-ahead services that provides increase in match rates of up to 19%, that is resonating well right across the world with our customers and helping us win new customers and taking competitive wins as well. And Bet365 is a great example of a differentiated product displacing a competitor as well as cross-sell from our Identity division. In addition, more recently, we have launched our digital-first capabilities in our SaaS platform in the U.S. that allows us to target smaller customers more efficiently and effectively by using marketing and self-serve capabilities. As I've already mentioned, we've seen good geographic expansion and good sector wins right across the world. We've continued to do well in retail with upsell in Nike Group, into Converse as well as great cross-sell with people like -- into financial services and gaming, where we have traditional strength in Identity with people like Lloyds Banking Group, Klarna as I've already mentioned, Bet365. And we're really pleased that we've extended our long-term relationship with IBM as they use our location tools to power some of their solutions. Turning to Identity, which accounts for 58% of group. We did see a decline on an underlying basis of 1.9%. Despite strong new logo growth right across the world and strong customer retention, as David will talk about, we did see revenue decline as a result of specific challenges with Internet economies as they adjusted from the pandemic. I guess this is the most obvious when one looks at the underlyings due to our sector exposure, we were most impacted by the Americas. Elsewhere in Identity, we actually grew at just over 9% because of our more diverse sector exposure. We have been able to simplify, as I've already mentioned, our portfolio and drive efficiency. But the real goal here is to accelerate our differentiation and we're delighted that we've been able to launch a number of new products and features to our existing customers and to help us win new customers. Examples include mobile fraud signals, multi-bureau in the Canada and Australia following our success in the U.K., the strengthening of our documents and biometrics capability using AI to help thumbprint detection. And as we talked about and a new number of you would have seen the Capital Markets event, GBG GO, which we launched first in the U.S., and we're delighted that a number of customers are now using the service, both in the United States and in Europe. As I've already mentioned, we've won a number of new logos across a variety of different sectors from traditional financial services, continue in gaming and public sector. and we've got growing momentum in cross-sell with over 100 customers in the United States now using both the former Acuant and IDology services. Finishing with Fraud, which accounts for 14% of our business and grew at a very strong 15%. The first thing I'd say is the convergence between Identity and Fraud continues at a pace, which plays to GBG's strengths, which is all about eliminating Identity Fraud. Strong growth for the areas that we count in our Fraud portfolio were driven by strong new logo acquisition, strong geographic expansion, particularly in the Asia Pacific area which you will note from the -- you'll recall from the Capital Markets area is a market -- is in a geography that we think has significant long-term potential and quite a strong renewal base. We won customers Tier 1 banks in places like the Philippines, Indonesia, and we continue to roll out fraud consortiums in Southeast Asia. We're also delighted to be able to have used our global technologies to create an AI-powered fraud alert system in Australia as to meet the requirements in the Australian market as a result of significant data breaches in Australia that have -- we now have 8 large financial institutions using in Australia that helps detect changes in behavioral patterns by using AI. Before handing to David, last but not least, I do want to touch on our ESG strategy. GBG is a -- a company that makes a difference to the world in which we live. We help bad, stop bad people doing bad things. As I think most of you know, our purpose is helping create trust in a digital world. We've made good progress over the course of the last 12 months across our ESG strategy, which is based on 3 pillars: Environment, Everyone and Ethics. A couple of examples. We're delighted that we've become carbon neutral in our own operations during the year. And as I'm sure a number of you know from us in the past, we're hugely proud of our 1,250 team members right around the world and commit a lot of time on making sure that we truly have the best engage and to be recognized during the year by Gallup for being a great place to work. We're incredibly proud of. We are one of only 57 organizations around the world that were recognized externally and only 2 U.K. headquartered companies. On that note, I'll pause and hand the call to David.

Thank you, Chris, and hello, and good morning, everyone. Thank you for joining us. I will now take you through a more detailed review of the financial results. In reported terms, our revenue increased 15% to GBP 278.8 million. But of course, that was helped by both the acquisitions that we made in FY '22 and the more favorable rates of foreign currency. On a pro forma basis, where we have also stripped out the exceptional revenues in FY '22 from the U.S. public stimulus projects and crypto currency trading volumes, our growth was 3.7%. We accelerated our integration and simplification projects, which not only allowed us to drive focused investment into key customer-driven product initiatives, which Chris has already mentioned, but also became more efficient and which ultimately helped us protect our FY '23 profit margins. Adjusted operating profit margin was 21.5% in the year and adjusted operating profit increased marginally to GBP 59.8 million. As Chris had mentioned, we have taken a noncash exceptional impairment charge on our goodwill balance, more on that in a moment or two, and we ended the year with net debt of GBP 105.9 million, which represents a net debt-to-EBITDA ratio of 1.7x. Moving on to the income statement in a bit more detail. As I said, reported revenue increased 15%, but there are quite a few interesting moving parts to the revenue. So I'll cover that in more detail in a minute using a separate slide in a moment or two. Our gross margin remained steady at 71%. We had an increase in operating expenses on an adjusted basis year-over-year of 25% with the effect of the 2 acquisitions in the last year, causing 15% of this and a further 7% arose from the translation of our non-GBP expenses at less favorable FX rates than the prior year. So the increase was only 2.5% in pro forma constant currency terms which in a higher cost inflation environment reflects our efficiency and optimization initiatives plus, unfortunately, a lower variable pay outcome for the team. Bringing that all together, that led to an adjusted operating profit margin of GBP 59.8 million, which represents an adjusted operating profit margin of 21.5% versus the prior year at 24.3%. That does include the benefit of some FX retranslation gains. But as expected, those were cumulatively much less significant at GBP 3 million that they were in the first half when you remember that the period end GBP, USD rate was particularly weak. On a more normalized basis, our adjusted profit margin in FY '23 was 20.7%. Moving below adjusted operating profit, the share-based payment charge for the year of GBP 2.3 million was lower due to a combination of the fair value of the current year awards being lower as the group's share price has fallen and some prior year awards now not predicted to vest in full due to the performance conditions not now expected to be fully met. The amortization charge for the year of GBP 42.8 million represents the noncash cost of amortizing separately identifiable intangible assets including technology-based assets and customer relationships that were acquired through business combinations. And the charge increased year-on-year due to the full year impact of the acquisitions of Acuant and Cloudcheck that we made in the prior year. As I said, I do have a slide in just a second, covering exceptional items, so I'll wait to cover that. On our net finance costs increased over the prior year as a result of the new debt facility that we put in place and utilized in November '21 to part from the acquisition of Acuant. We've obviously seen the impact of rising interest rates through the financial year. And we do expect the net finance cost will unfortunately be even higher in FY '24, more on that later in the presentation. And on tax, our charge for the year was just GBP 1 million. On an adjusted basis, the effective rate was 21.3%, which was similar but a little lower than the prior year. In FY '24 and beyond, as you know, we will face a higher statutory rate of tax in the U.K. at 25%. And as a result, we believe that the effective rate for the group will increase to between 25% and 27%. So as I had a slide on exceptional items. In total, we have exceptional items of GBP 127.2 million, and of course, the largest item by far is the impairment write-down to goodwill. We had, prior to the impairment, a total value of goodwill and intangible assets on the balance sheet of GBP 973 million. And on goodwill specifically, the accounting standards, as you know, require us to do an impairment review annually. As you know, GBG has been negatively impacted in the last 12 months by macroeconomic conditions, particularly in the U.S., and this has impacted revenue performance and cash flows, which have, as a consequence, been lower than our acquisition business cases have expected. This led to a goodwill write-down under IAS 36. The impairment recognized is GBP 122.2 million, and this represents 19% of the pre-impairment of carrying values and intangible assets associated with the IDology and Acuant acquisitions, which, as you know, are now combined and integrated. Just a reminder that there is no cash impact to this write-down. We did also have a few other exceptional items totaling a net GBP 5 million. Broadly, these exceptional charges came about from either M&A activities, mostly in prior years or were incurred to enable our initiatives to achieve operational efficiency. And then on to the balance sheet. And there really isn't too much new news there, but the reduction in the intangible assets reflects the net effect of the goodwill write-down and a foreign currency translation effect as a number of the assets are U.S. dollar-denominated. Our receivables remain healthy and the quality and aging is strong. Deferred revenue was GBP 56.5 million and is quite similar to the balance last year. There have been a number of movements in working capital, and these will obviously also have impacted our cash conversion, which on an reported basis was relatively low for us at 67.3%. And the main impacts, the highlight here are we settled a GBP 2.3 million liability that was part of the acquired balance sheet of Acuant, so no profit impact, but the cash outflow. Cash conversion was also impacted by a much larger than usual FX gain, which I've already talked about, which was included in profit but doesn't have a cash impact. And we always pay our bonuses and the majority of our commissions just after the year-end. So in FY '23, we paid the team bonuses related to FY '22 and these haven't been replaced by accruals of anywhere near the same magnitude for FY '23. This is a major part of the reduced current liabilities balance. Overall, given that some of these are timing differences, we should expect that their effects mostly will reverse, and cash conversion should be stronger in FY '24. Overall, our net debt at the March 31, 2023 decreased to GBP 105.9 million, and this was despite the negative GBP 8.6 million translation impact from the conversion of the U.S. dollar denominated debt into pound sterling. It includes the GBP 9.6 million full year dividend payment and it also includes GBP 2.5 million that we used to purchase GBG shares for the new Employee Benefit Trust. And just a reminder that following the additional 12 months of term that our RCF that we agreed with our lending banks during the year, our facility is now committed until July 2026. Okay. As I posed in my introduction on this slide, I've provided more detail on the various moving parts within our headline growth rate of 15%. Firstly, and moving left to right. The main difference between our reported revenue and the underlying growth was the impact of M&A that we completed last year. Ahead of revenue impact of GBP 31.3 million. And then to try and help you all understand the underlying growth trends, we also need to deduct the exceptional on non-repeating revenue from last year. Those 2 items being firstly, the U.S. stimulus projects, that, you'll remember, was GBP 4.2 million in FY '22. And second, the year-on-year crypto currency revenue decline. As a percentage of group revenue, that went from 7% to just 2% of group revenue in FY '23, a drop of some GBP 15.4 million. And it seems likely that based on the H2 run rate, which was lower than the first half, but it will most likely represent more like 1% of group revenue in FY '24. Next, 6.1% or GBP 15.7 million was the impact from the benefit of a more favorable FX translation rate for our non-U.K. businesses and particularly versus the U.S. dollar with approximately 40% of our group revenues generated in the U.S. That gives us the FY '22 pro forma revenue of GBP 269.9 million and versus that starting point that we've achieved 3.7% of growth. Now I'd like to draw your attention to the box on the right-hand side of this slide which I think contains critical details that demonstrate both in the element of our success in a difficult market during FY '23, but also our revenue challenges in the year were really quite contained. But first, I want to remind you of what we said at the Capital Markets event back in January about how our midterm guidance for revenue growth of 12% to 14% breaks down. Based on our financial history, GBG expects approximately 1/3 of our growth to come from new logos, and then 2/3 of our growth is expected to come from the expansion with existing customers. In FY '23, we achieved 4.8% of growth from new customer logos, and that is absolutely in line to slightly ahead actually of our midterm guidance. But unfortunately, while the customer retention rate remained at 95%, that's the percent of customers that remained a customer 12 months later. And net revenue retention, or NRR, declined to 98.5%, and that is the comparison of the revenue from those existing customers year-on-year. Our history has been for this to be more like 105% to 108% in the 3 years prior to FY '23. And so it was this decline that was the cause of our lower growth in the year as existing customers reduced their volumes due to market cyclicality. And we can actually pin a reasonable piece of this reduction to 98.5% on a relatively small number of identity customers that we're relatively well known to have decelerated post the pandemic. The data for FY '22 used on this next chart, on this next slide, sorry, has been adjusted to include the revenue of both Acuant and Cloudcheck for the full year. It shows that a total of 94% of our revenue came from the combination of our repeatable revenue streams being subscriptions and consumption with the continuing strength of growth in our Location and Fraud segments we've been able to deliver good growth in our subscription revenues. These increased 17% over last year and in FY '23, represented an increased 57% of total revenue. Chris and I both mentioned the factors that impacted growth in the U.S. in FY '23, and you can see those on this slide through a number of points. First, you can see the change in consumption revenues, which remains the predominant model for our Identity business. You can see the decline in crypto currency, technology and retail revenues in the bottom left chart, and you can see the weakness in the U.S.A. in the bottom right chart. Conversely, you can also see the relative strength in our APAC business, which grew year-on-year. You can also see the overall growth in total financial services, which despite the weakness for fintech customers and therefore, represent strong success with our more traditional FS customers. And the growth in our other sector where there was good growth from partners, including IBM, LexisNexis and Experian and a long list of other partners that have helped us broaden our reach into new sectors or geos. The gaming sector remained a strong market for GBG and our revenue increased year-over-year. Overall, and as we have always said, our diversification is a real strength to GBG and an indicator of our resilience. Clearly, it was disappointing, but the decline in crypto currency has been so severe and abrupt, but we know that many of our competitors who have less diverse businesses than us have been feeling this impact much more severely. As I said earlier, in FY '23, we managed to keep our operating expenses to an increase of just 2.5%. And that really is a symptom of our intense focus on efficiency and optimization. On this slide, we have set out some of the key initiatives that we are engaged in. These not only helped us protect our margin in FY '23, but more importantly, will deliver significant longer-term benefits for GBG and ensure that we can continue to invest in our technology. Our expenditure on technology in FY '23 was actually slightly higher than our norm at 19% of revenue and increased 22.8% year-on-year. There is quite a lot of content on this slide around our programs. And so I'll just pick out a couple of examples of some of the optimization initiatives. As you know, GBG has a flexible working policy, with most of our teams now working in a hybrid of time in the office and time working at home. And as we've settled into these patterns, our office leases -- and our office leases have come up for renewal, we've taken the opportunity to rightsize our footprint and deliver savings while also at the same time, taken the opportunity to provide a better office environment that's more suitable for hybrid working styles. We have a clear focus on ensuring operating leverage from our central corporate functions. And during FY '23, we did have a few team members leave the business as we simplified structures and reporting lines. In products and technology, after the number of acquisitions that GBG has made, we do have some opportunity for simplification and optimization. A number of our products in tech -- and we just talked about this at our Capital Markets event in January. And we are pleased with the progress we are making in this regard. The sharp prioritization has allowed us the space to put more investment into the areas of technology that is going to be most valued by our customers. And you heard from Chris earlier about a number of the new fraud prevention solutions that we launched during the year. And finally, in sales and marketing, our primary focus in FY '23 was in Americas, where we have combined the teams, hired a new CRO and expanded our direct zone team. And we also then harmonized the whole business in that region under the very well-regarded IDology brand. And just before we leave this slide and move on to our outlook, I thought it would be helpful if I remind you that variable cost levers that GBG has and which we use under tight control to regulate the investment in short-term margin protection. Those levers have been summarized in the purple boxes on the bottom of this chart. So that takes me nicely onto my final slide. Well, I wanted to take you through our comments made this morning on our outlook. First of all, using the boxes on the left-hand side of this slide, just a reminder of our midterm guidance that we set out again at the Capital Markets event in January. Since we last commented on the FY '24 outlook in the February trading update, we haven't really seen any change in the macro environment. It isn't materially better or worse. We remain happy with our sales pipeline, but it's just a fact that deals and implementations are taking longer to close. These factors do mean that predicting the timing for our growth acceleration is something that we cannot be precise about at this stage. However, hopefully, through this presentation, you've taken comfort that GBG still has high customer retention, and we are still winning new business in line with our midterm guidance. The one ingredient we're missing is a more stable macro so that our net revenue retention can return to above 100%. You've also heard from Chris a lot about our strong focus on a number of operational efficiency initiatives that have already delivered benefit through increased focus and cost discipline. And we expect that through the continuation of these through FY '24 will give us sufficient levers over our costs such that we remain confident in delivering our profit expectations for the year. There are some technical updates that we expect most analysts will need to consider for their models. And in addition, right now, we expect FX rates to be approximately a 2.5% headwind to headline growth. This presentation is available on our Investor web pages, and we have 3 slides in the appendices which should help analysts and shareholders understand or model these impacts. We remain confident that in FY '24, we have strong cash generation such that we can reduce our debt leverage to approximately 1.25x. And we remain optimistic about the longer-term prospects for the business. It is for these reasons that Board remains very confident and was very happy to propose an increase in the dividend to 4p per share. That's subject to approval at the AGM and will be paid in August. With that, I'll now hand back to Chris.

Thank you, David. So in summary, FY '23 has been a challenging year for all of GBG stakeholders, as both David and I have described. However, in the period, we have delivered important strategic progress and seen some very strong performances, particularly around location and fraud. We recognize the changes being constrained, particularly around Internet economy customers, particularly in the United States. But as David has just said, we do remain confident about the long term and believe we are very well positioned because of the important strategic progress we've made to succeed in a very substantial market. The structural tailwinds that have driven the market in the past and drive it in the future remain well and truly intact such things as digitalization, ever-increasing amounts of fraud, increasing amounts of regulation and the need for our customers to help try and reduce friction for their consumers. And in fact, one could argue with recent developments in technology, particularly generative AI, these challenges and threats for our customers increase. I want to give you one small example. You may have seen in the media in early April that in the United States, a mother in Arizona, through the use of generative AI was coned into convincing -- being convinced her teenage daughter had called her and told her she had been taken hostage in Mexico by voice imitation. She was actually enjoying a ski holiday in the U.S. When a mother can be convinced by AI, the her daughter is -- her daughter when she is not really, I think it shows the threats that exists through some of these new technologies. And we are well positioned to help our customers manage against some of those increased risks through our layered solutions. So the structural growth drivers are well and truly intact, and we are very well positioned in that market to succeed in the market. However, we do recognize we are operating in volatile times. And so we will remain during the course of this year, incredibly focused on continuing to drive simplification and efficiency, continuing to innovate to meet our customers' requirements as they change rapidly. And from a growth perspective, continue to expand geographically, penetrate resilient sectors, as well as build on the momentum of cross-sell and up-sell that we've seen right across the group. Thank you all very much for your time this morning. I'll now hand back to Saskia to take any questions that we have on the call.

[Operator Instructions] Our first question comes from Tintin Stormont of Numis.

Three questions for me. First, your view on market share and if you could contextualize this in 2 aspects. First, with existing customers that multisource, do you get a sense you're getting the same share of volume? And secondly, in terms of win rates in new logos, do you feel that you're still retaining that or getting better? Second is probably this one is really for Dave, comparators. At what point in the year do we really start overlapping weaker comps on the Internet economy customers? And thirdly, on the breakdown of Financial Services, David, you talked about the relative resilience of the more traditional FS within that mix. Could you give us a sense of how that mix has changed between your traditional FS versus the fintechs?

Thank you, Tintin. Why don't I take the first question, and then I'll hand to David to take 2 and 3, and I perhaps can add some color. And so as we've all talked about often, market share and market dynamics in our space are regrettably very difficult to be precise about. However, what I'll try and do is give some color from what we are seeing in the market. In terms of our share with existing customers, I think in the main, we're seeing increasing share in existing customers through our strategy of using our differentiated end-to-end capabilities and packaging around that. And that -- perhaps the best indicator of that is the stat I provided earlier around 100 customers in the U.S. now using both former IDology and Acuant services. So our strategy is very much -- we are having the most complete end-to-end solution using that to provide additional services to our customers. So overall, generally, I think we are growing our share of existing customers. We are seeing, I think, unsurprisingly though, in some cases, customers looking solely at price. And therefore, there are examples where we're doing slightly less with some existing customers, frankly. But our long-term strategy to fight against that is the end-to-end capability set. And in terms of win rates, I think one thing that's very clear to us is the market from a competitive perspective, is changing very rapidly and unsurprisingly, as a number of our competitors are facing unique challenges in terms of having to focus a little bit more on how they spend and cash. And therefore, actually, at the same time, they're becoming more focused on what they go after and what they don't. So we do believe -- yes and I think, again, best evidenced by the statistic that both David and I have referred to this morning, which is new logo at 4.8%. Actually, that suggests that we're winning more than we were before. But generally I think it's relatively stable. So hopefully, that provides some color. David?

Yes, Chris, yes I'll pick up the next 2 questions. First one being the comment or question there, Tintin on comparators. You're right and it's a key consideration for sure, we will, as the year progresses, face some less challenging comparators particularly in the U.S. and Identity. I think the one thing I would say is that there isn't one pattern. I mentioned earlier that there was a relatively small cohort of customers where we've seen reasonably sizable impacts. But actually, within that small cohort of customers, they're actually all quite different businesses that all felt the effects at slightly different times. So I think I would say so it's a gradual softening of the comparatives through the second half is the way I would explain it rather than sort of a particular point in time. But for sure, by the time we get to the end of the year, we are facing softer comparatives. And I think that is some reassurance around our expectations that growth rates will accelerate at some point. It's just the timing of those at this point. As I said, it's hard to be precise about. And then your second question -- second part of the question for me was about the breakdown of our FS customers. We've never really broken down that, and there's a number of reasons for it. But obviously, in the year just past, we have split out crypto for obvious reasons. And hopefully, that's been helpful. But what I can say is that -- and also our breakdown would vary across our businesses. And as you've heard about today, we do have a higher concentration of, for example, some of the fintech businesses in our U.S. business than we do elsewhere in the world. But I would say, if we go back to last year, fintechs were no more than 10% of that 40% over 1/2 of the 40% is probably down to fintech last year. And obviously, in the year just finished, that would be even less than that. As I said, the more traditional FS businesses have been the ones where we've seen pretty resilient performance.

And we're moving on to James Zaremba of Barclays.

Yes, 3 questions for me, please, on new logo, location margin and the cost base. So firstly, on the 4.8% new logo, how does that differ across geographies, divisions and your different routes to market? And then on location margin, there was quite a big step up half-on-half and year-on-year in the second half I assume on the back of the kind of price increases you put through. Should we view this as a kind of permanent step up in margin in that division? And then lastly, on the cost base and your efficiency initiatives, you're obviously night and day versus your private peers, but was there some faster trim going into FY '23? And then again, if growth steps up in FY '25 back to your kind of medium-term levels, do we get a further step-up in bonus payments kind of recovering maybe closer to FY '22 levels?

Thanks, James. I'll take the first question and I'll pass the next 2 to David. But actually, I'm going to start with the third one just briefly on costs. So the reason I've actually said I'll just start with that one is again, for people who've known GBG for a long time, and myself and David more recently and Dave Wilson before, have always said that there is some room to drive efficiency if time is required. And I think it's safe to say that given that there is some changes time is required. So yes, absolutely. I think that there is always back to cut having grown up in the telco world, I'll tell you that I don't think any business in the world can tell you there isn't. So yes, there's always stuff to cut. And particularly given we've been an acquisitive business and there is further integration one can do. So I just wanted to make that sort of general comment. And really on that point as well, absolutely, we hope bonuses get paid this year for the sake of our teams. So -- but I'll let David perhaps talk a bit more about -- on the detail of that. Coming back to the first question on new logos, the devil really is in the detail and it's very difficult to generalize. I guess it does vary by geography, by solution area, but actually, a lot of that is due to the rev/rec model. Clearly, software -- forward software is -- more of it's recognized upfront, whereas identity and, in most cases, location is spread over a period. So part of it you -- don't be fooled by the accounting because of the trends. I would generally say, though, in terms of your question is actually when we look right around the world across all of the different solution areas, new business has been healthy and particularly strong in Asia Pacific, where we have absolutely not seen quite the same impact on sort of its expand elongated decision-making, but generally, new business has been strong right across the patch. David, do you want to pick up on the location margins and maybe a bit more cost?

Yes, certainly can, Chris. So margins in location, as you rightly observed, James, there were strong gap in the year, but particularly in the second half reflective of exactly the point you made. We had some good cross-sells, but also we did have some pricing impact and that has helped improve our margins in that business. I think actually, location -- there's a lot to be proud of for the location business in that year. We talked about retail and e-commerce, particularly being a sector that understandably would have been under pressure in the current environment, but actually to still achieve double-digit growth, I think, is a fantastic achievement. So would we expect it in the longer term? I think it will depend on the growth rate, truthfully I think the growth rate we saw last year was probably slightly higher than we would -- we would expect sort of on an average basis. So I think perhaps we'll see some normalization from that exceptional margin last year. I totally agree with Chris' comments on cost base. I think the other point I would just make is when you think about our cost base, you might remember that -- and I'm going to take you back a little bit further in the history. But if we go back to FY '21 we were actually struggling to hire some of the roles we really wanted to. And actually, we ended up bringing in a number of new investment roles in the second half of '21. And so then as we progressed through '22, overall, our headcount in FY '20 -- sorry, FY '23 overall, I'm losing my years now. In FY '23, actually, we had a relatively flat headcount. So we ended the year with a very similar number of heads to we started the year ever so slightly down. And I think that's reflective of the fact that we had put some investment in, in the previous year. We have made the acquisition -- acquisitions. And that, as Chris has said, gave us some flexibility in terms of how we manage the cost base, how fast we integrated some of those teams. And I think we use some of those levers to protect the margin. As we think about moving forward, I think you could probably expect a relatively similar pattern for total headcount, it is probably unlikely to move very much through the year, although we expect probably quite more significant changes within teams. So as we continue to really prioritize on the areas of our portfolio that we see the greatest opportunity, there will be some changes, but overall, probably from a cost base perspective, a similar number of heads and -- yes, Chris has already talked about bonus point, so i won't reiterate it.

And up next, we have Kai Korschelt from Canaccord.

I just wanted to drill down a bit more into the -- or I guess, growth market share and pricing discussion. And if I look at Mitek, I think they're guiding for a 14% growth, I think Onfido has been saying they're still growing so it does feel like certainly, your current sort of revenue run rate, perhaps you're growing slower than some of your competitors. I'm just wondering, is that a conscious decision to give up market share because of pricing. And I think we all remember pricing featured quite prominently at the Capital Markets Day. And I was just wondering if you -- how you think about the business in terms of volumes versus pricing, sort of what level of like-for-like price erosion do you -- are you seeing right now? And what do you expect going forward? Because clearly, to get back to low teens revenue growth, it would probably require some sort of high teens, perhaps 20% volume growth with some pricing to offset. So I just kind of, yes, wondering how you think about these 2 things.

Thanks, Kai. So really back to the market share and competitive dynamics, so building on the answer I gave to Tintin's question, absolutely don't think that we're losing market share. You pulled out a couple of companies. I could pull out several more that perhaps suggest otherwise, I'm intrigued by what Mitek announced earlier this week. Looking forward to the detail. I think their mobile deposit business is doing very well. But yes, Mitek's a strong business and yes -- but we actually don't think we're losing market share. And actually think that if you look across relative geographies and sectors that people's growth rates are actually some very similar patterns. That said, none of us can be sure. So I'm never going to -- don't want to sound defensive about that. In terms of volumes and transactions, I think the key for us and what we're ruthlessly focused at is our point of differentiation which is having this unique leading capability to provide end-to-end services. And we're not going to try chase price down if someone wants to do a cheap check. What we're going to do is really try and focus on where we can differentiate, which is actually helping customers eliminate as much as possible fraud as well as create a frictionless journey. So I guess reading to that, we're very much focusing on both our existing customers and our new logo on long-term relationships where we can provide our end-to-end capabilities to help them really try and delight their customers by -- their consumers by offering a frictionless experience whilst helping manage the risk. And if that means that some business people are just buying on price for a tick-box and then that's fine because it's for us, it's all about unique capability, long-term relationships, which actually also plays to the whole sort of long-term pricing debate, we're not looking -- we're always looking at pricing, and we're investing a lot more time on that, but it's actually about long-term relationships and differentiating from the end-to-end capability set.

And we're moving on to Charlie Brennan of Jefferies.

Just a few questions from me. Firstly, just in terms of the revenue trends, you've attributed a lot of the weakness to the U.S. Internet sector, but you actually haven't quantified the impact. Can you give us some numbers around that so we can help understand what sort of drag that's been to the business with Europe and Asia growing 9%, particularly in Identity? I struggle to see how the Internet sector can be that bad. And then can you just help us understand what's going on within the cost base at the moment? It looks like the overall OpEx is broadly flat for the year at roughly GBP 140 million. Within that, you've had to absorb what looks like a GBP 10 million increase in development spend that implies sales and marketing and G&A must have fallen by around GBP 10 million to provide the offset. I guess, in the context of slowing revenue growth, the most important elements of that sales and marketing. Can you just give us some color around that?

Sure, Charlie. Why don't I sort of start on the first one and then David can build on the first question and then cover the OpEx point. Look, as David has alluded to, I think, hopefully, we've been as transparent and clear as possible on today's call around where our challenges to growth have been and today and previously, I've referred to this sort of basket of customers that really we've seen the challenges from -- as Internet economy. But as David said, in his talk track that we're not going to talk about names for obvious reasons, but it goes from companies that have been well publicized are seeing volume declines as well as -- as a result of post-pandemic corrections as well as, I'd say, companies taking quite dramatic action in terms of their own focus. And therefore, again, I'm not going to give specifics, albeit I could but where companies have actually said we're not doing this piece of business where we were before. So there are a number of factors. And I think the key point is, as Dave referred to, there's a couple of handfuls of customers we've seen a dramatic change but really as a result of 3 things from an end customer perspective, either they've seen massive transactional volume declines. That's -- I think those companies are fairly obvious or they make business decisions around what they are and aren't going to do in terms of the businesses they're offering. And the third sort of factor is where companies have decided that they're going to perhaps look at their own risk profile slightly differently in a way of actually managing their own cost base and not check everything. And again, I'm not going to get into detail on that it would be inappropriate. But hopefully, that gives you some context. And hopefully, we've given quite a lot of color around the dynamics of that piece. David, why don't you pick up on that and take the OpEx? Charlie's OpEx question.

Yes. It's a good question, Charlie, and apologies if it hasn't been clear, but I think we try to be as clear as we can through this year, I'd add that in addition to the sort of population of customers Chris was talking about there. Obviously, there's also -- that has more heavily impacted the U.S. We've got the U.S. stimulus project that they we were doing over the last 2 financial years. And obviously crypto where actually there was a higher prevalence of crypto revenue in our U.S. business as well. So those things, I think we've been pretty clear on. It wouldn't be fair for us, as Chris says, to mention specific customers and some of the actions they've taken. But I think that most of the names you would expect to see because actually, a lot of these are a very well-known companies that themselves have seen some post-pandemic corrections. So that's on the revenue growth. On the cost base, I think, as we've said, there were a number of different initiatives we took during the year that helped us manage our cost base we had. Clearly, we wanted to capitalize in the year on some of the technology opportunities we had following the acquisition of Acuant, and we talked a lot at the time of that acquisition about the technology advancement that offered us. And actually, it was really important for us to not cut back on any spend there to make sure that we got the benefit of it. And we have -- just as an example, we have talked about the combination of the 2 document libraries that are pre GBG and the Acuant document library into one, and that's already delivering significant benefits for customers. And there are many other things that we needed to capitalize on following that. So that's one of the reasons why we really wanted to protect technology spend. But as we said, there are always opportunities for us to streamline other areas, and particularly after quite a busy run of organic growth and M&A over the last 10 years, certainly the last 5, there's always opportunity for us to streamline some of our corporate functions and make sure that we're focused on the right things. And we took that opportunity during the year. And that has helped us as I said, headcount relatively flat through the year, but actually, it's allowed us to just rebalance that into some of those technology areas that we felt were really important.

And we're moving on to Julian Yates from Investec.

Two questions from me. One on revenue one on costs. In terms of the revenue, last year, location obviously very strong, fraud very strong, Identity up 9% in Europe. They're all pretty good numbers. If we're going into this year with sort of mid-single digits, and you're getting the -- I guess, the slight bounce back in the areas of Identity, you said well last year in the States. It kind of implies all these sort of stronger areas are decelerating in terms of momentum. So I'm just trying to understand where the sort of one-offs in there? Or are you seeing a deceleration in momentum in all those sort of other parts of the market because of the macro backdrop and you are -- are you just trying to be prudent and conservative and just -- because it's just difficult to judge it. Just trying to understand sort of square that -- that sort of circle in terms of those -- the stronger areas of that business? The second question is, again, on costs. H2 was below H1 in terms of OpEx, a few million pounds. Should we take that H2 as a run rate going into the following year? Because if you're looking for a flat OpEx number, I guess, should we see that as a run rate and then add on a little bit of inflation on there? Just trying to understand if that -- or was that influenced by no bonuses and some one-offs in there and actually the underlying run rate is higher than that H2 number?

Thanks, Julian. Why don't I start and David then I'll turn to you. So yes, I think on the revenue, you gave a lot of options there, Julian, and my simple response given time is all of the above. Look, there's -- I think, firstly, a number of people on this call are far better positioned to comment than either Dave or I, but I think it's safe to say, and I think it's exactly what David said in his talk track that when we look externally, the environment ain't getting any easier and actually forecasting what the next 9 months look like from an external environment is anyone's guess. But I think the one thing we can say is probably it's with a -- especially with the U.S. last night, it's with the interest rates, it's probably not going to get any easier. So yes we're looking -- when we look ahead and we think about revenue projections, we're sort of saying, no, we don't think we're going to be helped by any stretch of the imagination with what's happening externally. We also -- David made the comment and I'll only reiterate it, our location performance was outstanding and above what we've historically said we'd expect to do in location. We talked about 11.7% growth. Again, those of you who've known us for a while we'll say that we talk about high single-digit growth. So yes, we would expect location to see some moderation, absolutely actually. And the fraud software, we're very much focused from an innovation perspective about the integration of fraud and identity and that's -- as I use the Australia example in terms of the identity fraud alert service that we've offered. And actually, yes, that's where our focus is, that's where our sweet spot is because it plays to our end-to-end offering. And then if -- some of that modeling is different to perhaps the one-off software historic. So -- we have -- so yes, I think it's all of the above. We would -- we -- and we can't be sure, especially when I sort of think about that how I just went with Charlie's question, we have seen some very dramatic change in customer behavior and decisions they've taken and we can't be certain of when -- if we got to the end of that. So hopefully, that answers the revenue question. David?

Yes. Thank you, Chris. And Julian, thanks for your question. Nothing really to add on the revenue. I think Chris has covered that. On the costs, you're right, H2 was lower than H1 and obviously, hopefully, that you recognize that you need to strip out the FX gain, which was rather large in the first half and actually turned to a slight cost in the second half. But underlying that, you're actually right, H2 costs were lower than H1. I don't think you should see -- you shouldn't really see H2 as the run rate because actually, as you suggested, there was some bonus costs that we reversed in the second half. So actually, on a constant currency basis, I think the run rate of the first half is probably more indicative on a constant currency basis. And then as I talked about, just as there is a 2.5% we estimate headwind for revenue and there's probably a 2.5% tailwind for costs in the new year from FX.

And our next question comes from Andrew Ripper of Liberum.

I wonder if I could make it a 2 parter there, if I'm allowed. Just wanted to start with maybe the partners that you've been working with, I think Dave referenced it in the presentation, Experian and LexisNexis both growing in fraud and ID. Just tell us what you're doing for them and whether there's scope to do more going forward that will help the growth?

Yes. Thanks, Andrew. I think I said time for one more question, not 2, no sorry, I was being a bit cheeky, yes I mean, David did reference the fact that we've seen good growth in partners and actually isn't just identity, fraud and location as well. I referenced the extension and building of the relationship with IBM. So we've always talked about our go-to-market strategy evolving over time. So based on direct, self-serve and partners, and we're pleased with the momentum we're getting with partners right around the world actually. And yes, we absolutely believe there is opportunity to do more with a number of our partners in terms of opening up new geographies, new customer sectors that we think is a more efficient way of getting too, and that's by providing additional services that we have in our kit bag very simply and Saskia, I think Andrew had one other part to his question, which we will -- right.

Yes. Yes, and Chris, just can you just give us an illustration, for example, of what Experian and LexisNexis are using you for? Which bits of the product suite?

Some of our document and biometric capability as an example.

Yes. Okay. And then the second question I had was just going back to FS just -- obviously, we've seen a big change in rates. And you've been talking about it today in terms of your interest cost. But just in terms of sort of thinking about traditional banking, which is your biggest vertical, credit conditions are tightening. Are you sort of a little bit nervous about what that means for sort of origination-related demand to what degree should we be wary of that? Or do you feel that there is churn and enough activity in the market?

Yes. It's a good question, Andrew. Actually, we're -- I wouldn't say we're not worried about it because I think it's reflected the whole macro. But actually, we're not specifically worried about it with regards to Julian's question on revenue really because I think there is -- when we look across our financial services customer base, there's definitely a flight to quality and -- that we're seeing. But equally, I'm ready to share in some of those Financial Services segment isn't -- that we've got opportunity to grow. So we think that -- whilst there might be tightening in credit conditions around the world, equally, we don't think that, that will impact our transactional volumes. Hopefully, that answers that question. Andrew, consciously we've overrun. So I will close the call. Thank you very much for taking time out on a busy day to join David and I. Thank you for your ongoing support, and we look forward to catch up with you soon. Bye for now.