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Final Results

26th Oct 2016 07:00

RNS Number : 4524N
Earthport PLC
26 October 2016
 

26 October 2016

Earthport plc

("Earthport", the "Company" or the "Group")

 

Final Results

 Earthport (AIM: EPO.L), the leading payment network for cross-border payments, is pleased to announce its final results for the year ended 30 June 2016.

 

Financial Highlights

• Revenues increased 18% to £22.8 million, within the range referenced at the Capital Markets Day held on 27 April 2016 (available at www.earthport.com/investors)

• Transactional revenues comprised approximately 91% of total revenue

• Adjusted gross margin of 70% resulting in adjusted gross profit of £15.9 million*

• Gross margin of 67.4% after impact of warrant charge, resulting in gross profit of £15.3 million

• Cash and cash equivalents at 30 June 2016 of £14.4 million and consistent with guidance at the Capital Markets Day

* Impacted by elevated transaction costs related to building resilience of the Earthport network.

 

Operational and Transactional Highlights

Payment volume increased to more than $11 billion, 64% increase versus prior financial year

Record number of transactions at 6.6 million, 89% increase versus prior financial year:

o June 2016 set a record for number of transactions in a single month - a run rate of 8.5M transactions

Average revenue per transaction of £3.12

Gaining traction with European-based global Banks:

o Experiencing increasing transaction volumes and multiple engagements with existing clients

o Large eCommerce provider now live in three markets and already a top five client by volume. Additional markets in discussion

US Markets:

o Substantially completed integration of a current client's core payment processing platform into Earthport's network. This is a top 10 global Bank

o Anticipated grant of state licensing in North America will accelerate growth in this sector

Emerging Markets:

o Contracted with major Japanese Bank and Signed Memorandums of Understanding with major Banks in India, Indonesia and other markets

o Engaged with Regulators in multiple countries, expecting approvals in key Asian markets to originate 'out-bound' business

Earthport subsidiary, Baydonhill, rebranded and relaunched as EarthportFX, aligning the business with Earthport's core model, and expanding its services to corporate clients

Advancement of Distributed Ledger ("DL") Strategy with Earthport executing the first cross-border transaction via DL by a major financial Institution on behalf of a large European Bank

John B. McCoy, retired Chairman and CEO of Bank One (merged with JPMorgan Chase in 2004), joined the Board in February 2016

Post-Period Highlights

· Baydonhill Earnout - Amendment to CVR Deed

o On 19 October 2016 (see RNS 8882M), Earthport announced that an Amendment was agreed by Earthport and the CVR Committee regarding the contingent consideration in response to the impact of the February loss at Baydonhill ("Loss Incident"), as announced on 25 February 2016 (see RNS 1396Q), in accordance with the terms of the ("Original Agreement"). Both parties have agreed that, the aggregate free-cash-flow figure used to calculate the current CVR Entitlement will bear a partial impact of the £5 million Baydonhill loss resulting from the Loss Incident and the amended CVR Entitlement shall be a maximum of £2,295,400. As a result of the Amendment, approximately £700,000 in cash will be returned to Earthport from an escrow account established and funded for meeting its obligations under the Original Agreement.

 

Strong Entry into FY17

o The Company is executing on its strategic plan and budget for FY17, and is tracking to expectations in key areas. During the first 3 months of FY17, Earthport achieved the following;

- Processed 2.3 million in Transactions, £2.9 billion in Payment Volume

- Number of transactions increased 91% over same period in FY16

- Payment Volume increased 110% over same period in FY16

o Total revenues increased 34% from the same period in FY16 with transactional revenues comprising 95% of total revenues

o Regional Revenue and New/Existing Clients Mix consistent with expectations and in line with FY16 mix

 

Hank Uberoi, CEO of Earthport, commented: "The changes in the payments landscape are picking up speed, driven by trade and business flows and the impact of regulations. Earthport is well positioned to act as a facilitator of change in the cross-border payment market.

 

We continue to develop the world's leading cross-border payments platform; to provide our clients with access to a network that reaches any bank account, in any currency, through one connection with world-class compliance, resilience, trust and cost optimisation.

 

The investments made during FY16 have improved traction with key European and North American banks and business enterprises, with volume growth continuing into the first quarter with a healthy pipeline. We remain positive regarding the growth prospects for Earthport and believe we have the potential to build and hold a significant share of the multi-trillion dollar cross-border payments market.

 

We are committed to meeting market forecasts for the 2017 fiscal year and achieving our target of becoming cash flow positive during the fourth quarter of the financial year."

 

 

For further information, please contact:

 

Earthport plc 020 7220 9700

Hank Uberoi, Chief Executive Officer

Simon Adamiyatt, Chief Financial Officer

 

Newgate 020 7653 9848

Bob Huxford / Helena Bogle

020 7653 9848

 

Panmure Gordon (Nominated Adviser and Joint Broker) 020 7886 2500

Dominic Morley / Fabien Holler / Charles Leigh-Pemberton

 

N+1 Singer (Joint Broker) 020 7496 3000

Mark Taylor / James White

 

Shore Capital (Joint Broker) 020 7408 4090

Bidhi Bhoma/ Toby Gibbs

 

 

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ('MAR'). Upon the publication of this announcement via Regulatory Information Service ('RIS'), this inside information is now considered to be in the public domain.

 

 

Chairman's Statement

 

The 2016 financial year has been challenging for a number of reasons: volatile market conditions surrounding Brexit, increasing regulatory scrutiny, slower than expected growth and the unforeseen loss of £5 million within our subsidiary, EarthportFX (formerly Baydonhill).

 

Our financial performance was impacted negatively by those internal and external events leading management to revise expectations for revenue, costs and cash position as we announced at our Capital Markets Day in April 2016. I am therefore pleased to report that, despite these challenges, we increased revenues by 18% during the year and we are confident that the strategy we have embarked upon and changes within our management team will lead to further substantial revenue growth in the current year.

 

Following the fraud incident at Earthport's FX subsidiary, Baydonhill, an internal investigation was initiated and concurrently amended controls were applied across the Baydonhill portfolio to ensure losses were finite and any exposure curtailed. A number of parallel engagements were initiated including an independent investigation, the findings of which supported the early assumption of fraud. A formal claim remains extant as we pursue all potential avenues of recovery.

 

The emphasis on compliance, both internally and externally, has always been a central pillar of the Earthport culture and a key competitive differentiator. In order to develop relationships with our major banking customers, we have to comply with the many rigorous international compliance regimes that they operate under and we are proud of the extremely high standards we apply. As a result, we routinely decline opportunities that do not measure up to our compliance standards and we will not jeopardise key relationships purely to build short-term volume. Further information on the risk and regulatory aspects of our business can be found in the Risk Management section of the

Annual Report.

 

The highly regulated environment here in the UK and in most of the jurisdictions in which we operate is undoubtedly increasing the complexity for Earthport and our customers. There are two major impacts of this development. Firstly, we are increasingly having to improve our resilience in a number of our network corridors while maintaining much greater interaction with these foreign settlement banks. Secondly, our major banking clients are finding difficulties in their own relationships in certain countries, and increasingly they are approaching us to handle more of their business in selective routes. These challenges further highlight the significant value that the Earthport model brings to clients by providing a solution to these complexities.

 

We now have a presence in London, New York, Singapore, Miami and Dubai. A key function of these offices is to maintain the close relationships with our corresponding banking partners and also further extend the relationship by motivating them to use our network for their outbound cross-border payments. Having people on the ground in these regions is of immense importance to help develop and maintain our international network.

 

Our focus in the coming financial year is, as planned, to leverage our existing clients and harvest the investment we have made in developing these relationships. The business remains committed to meeting stated expectations for the coming year, with the objective that we will attain cashflow break-even during Q4 FY17.

 

During the year, there were a number of changes at the Board and executive level. In February 2016, we were delighted to welcome John McCoy to the Board who retired as Chairman and Chief Executive Officer of Bank One Corporation, the fourth largest bank in the US at the time. His successful banking background in the United States coupled with his extensive network of contacts, will provide a new dimension to our business.

 

Also in June, Chris Cowlard left us after five years of service as Chief Operating Officer as well as Executive Director. We wish him well in his new career. Daniel Marovitz, who joined the Company in 2015, has stepped into the Chief Operating Officer role and I am confident that his extensive knowledge and experience will add considerable value to the Company.

 

In May, Mohit Davar stepped down as a Non- Executive Director and the Board offers him its sincere thanks for the contribution he made during his tenure.

 

I would stress that we are always sympathetic and empathetic to the positions of all our stakeholders and appreciate the financial performance to date has been below expectations. I do offer our sincere thanks for the patience that they have shown over the years but look forward to demonstrating that the strategy we are following continues to be right for the complex nature of our business.

 

Finally, I would like to extend my gratitude to the management team and all the staff who continue to work tirelessly to help Earthport achieve its undoubted potential.

 

 

Chief Executive's Statement

 

Despite the 2016 financial year presenting a number of challenges, we have grown revenues and expanded as a business and we are positive regarding the further growth prospects of the Company.

 

During this challenging year, we have managed to continue to build and solidify our strong positioning in the cross-border payments market as we are uniquely positioned in the rapidly changing global payments eco-system.

 

We are committed to meeting market forecasts for the 2017 financial year and achieving our target of becoming cashflow positive during the fourth quarter of the current financial year. Everything we do across the firm will be carried out with these commitments in mind and, as such, we are very focused on our costs. Our aim is to have a lean and efficient organisation aligned with the business opportunity.

 

Our focus for 2017 financial year will be on harvesting relationships with key clients in order to fully reap the benefits from the investments we have made in them and our wider network. The investments in our expanded local presence in several regions during 2016 are already beginning to bear fruit and we are better able to support our global network as well as capture emerging opportunities with our clearing network partners.

 

Earthport is very well positioned to act as a facilitator of change within its market as greater regulatory scrutiny and complexity, diminishing margins and increasing competition are currently weighing heavily on the incumbents.

 

Furthermore, as expanding business and trade flows and geopolitics alter the landscape of the cross-border payments world, there is a growing imperative to construct an appropriate and effective system using a new model, such as that provided by Earthport, which can facilitate the flow of global payments.

 

We have set forth, and are continuing to execute towards, a plan to be the leading cross-border payments network.

 

In order to meet the demands of our customers, who are financial institutions and business enterprises, Earthport is forging the path for a new breed of intermediary that sits between a new profile of demand driven by global trade and online commerce and the banks that wish to service this demand, delivering high levels of efficiency, reliability and transparency.

 

Partnerships between the financial technology sector, dynamic payment providers and traditional banks born from models such as ours can create compelling and exciting offerings that reap benefits for all parties. No other non-bank cross-border payment company has achieved Earthport's acceptance across industry segments that include global banks, eCommerce enterprises, as well as traditional and emerging money transfer companies.

 

FY16 Highlights

 

Financial and Transactional Highlights

While clearly lower than what we expected at the start of the year, we are pleased to have delivered 18% revenue growth during the year, in line with the projections stated at our Capital Markets Day on 27 April 2016. In addition, we have delivered growth both in the number of transactions we have completed and our payment volumes; two critical Key Performance Indicators for our business. We have seen a strong start to FY17 and remain on track to meet our target to become cashflow positive during Q4 2017.

 

In FY16, our revenues were £22.8 million with transactional revenues comprising approximately 91% of the total. The increasing contribution of transactional revenues to overall revenues, compared to the prior years, is a testament to the improving quality of our revenues even as revenue growth rates follow a slower trajectory than transaction growth rates. As we gain scale, it is our expectation that revenue growth rates will approach transaction growth rates. Our adjusted gross margin was approximately 70%, with an adjusted gross profit of £15.9 million. Gross margin was 67.4% after impact of warrant charge, resulting in a gross profit of £15.3 million. The revenue mix by region has remained relatively stable, with Europe contributing approximately 75% of the revenues, North America 22% and the rest of the world the remaining 3%. We expect this mix to evolve as our business outside of Europe matures.

 

Our client mix is evolving in line with our long-term strategy of strengthening our presence in a number of industries including banking, traditional and 'challenger' money transfer organisations, international payment companies, gaming and some of the most prominent eCommerce brands and service providers. Our payment transactions have followed a strong upwards trajectory. The number of transactions processed by our platform reached 6.6 million, up 89%, whereas the payment volume was over $11 billion presenting an increase of 64% over the previous year. The first months of FY17 are continuing at a similar pace and we expect good growth during the year.

 

Business Development Highlights In line with our growth strategy, we continue to diversify and grow our client base across industries and geographies. Our commitment to our clients to be a utility solution provider, as we respect their request to remain unnamed, shapes our engagement with them. Our payment solutions have been adopted by a number of leading market participants, across industries, including:

 

• 6 out of the top 25 global banks

• 9 of the top traditional and emerging Money Transfer Organisations

• 7 of the key 'challenger' international payment companies

• Processing payments for some of the fastest growing and leading eCommerce and 'sharing economy' platforms

 

European Markets

We continue to gain traction with European global banks and are increasingly involved in multiple engagements with existing clients, which are in part responsible for our growing transaction volumes. With our enhanced product offerings and payment methods, including Distributed Ledger (DL) and Faster Payments, we are in discussions with an increasing number of European banks and financial institutions with regard to cross-border payment solutions.

 

Contract wins in Europe during FY16 include a large eCommerce provider which is now live in three markets and already a top five client by volume. We have also commenced transactions on behalf of two new top five global Money Transfer Organisations. Furthermore, we are extending into new market segments having signed a recent contract with a leading global travel booking portal, which is currently in implementation.

 

In addition, Earthport's partnership with Ripple led to the first use of DL technology for live transactions in a Fiat currency and is currently in operation at a large European Bank.

 

North American Markets

In North America, Earthport has made good progress in mining its existing client base while targeting specific strategic opportunities. Examples of this include the substantial integration of an existing client's core payment processing platform into Earthport's network.

 

This client is a top 10 global bank. We also commenced transactions on behalf of two other North American banks and increased transaction volumes from one of the world's fastest growing eCommerce payment platforms.

 

Emerging Markets

We have a unique opportunity to develop business in emerging markets resulting from the global network we have developed which provides access into an extensive number of countries.

 

In 2016, we contracted with a major Japanese bank to process payments to six countries. We also contracted with three out of the four major Money Transfer Organisations in Israel, two of which are already live, with the third currently in implementation. In addition, we are in active discussion with major banks in India, Indonesia and other markets. Our deal pipeline is strong, currently consisting of banks from over ten new countries across the region.

 

Given our need for local presence to support our global clearing network, we are finding promising opportunities in the region which are being driven by significant pressures due to new regulations and reduction in risk appetite by the global banks who are withdrawing from some markets/businesses.

 

EarthportFX Launch

In June 2016, Earthport's subsidiary, Baydonhill, rebranded and relaunched as EarthportFX, better aligning the business with Earthport's core model, and expanding its services to corporate clients. Further progress was also made in integrating of our FX capability into the broader Earthport payment offering.

 

Distributed Ledger Strategy

Earthport announced its gateway partnership with Ripple in August 2015 which led to the launch of the Earthport Distributed Ledger Hub, announced in January 2016. This is planned to provide connectivity to additional distributed ledgers as they emerge, all available via a single connect to Earthport.

 

In addition, in April 2016, Earthport executed the first cross-border payment transaction via distributed ledger. As mentioned above, this was carried out by a major European bank using our platform in conjunction with the Ripple Distributed Ledger.

 

Network Enhancement

Our extensive global network is a core and unique asset. During 2016, we launched our services in several key geographies in the Asian and Caribbean markets, including Sri Lanka, the Bahamas and the Dominican Republic.

 

We also continue to enhance our network, further strengthening our payment capabilities into India and Pakistan. In addition, we placed an increased focus during the year onto building resilience in our network.

 

Risk Management Changes and Initiatives

In February 2016, Earthport's FX subsidiary, Baydonhill, experienced a material financial loss amounting to £5 million, resulting from a fraud perpetrated by a corporate client. Immediately upon discovery of the loss event, an internal investigation commenced, and concurrently, amended controls were applied across the Baydonhill portfolio to ensure losses were finite and any exposure curtailed. A number of external engagements were initiated in parallel to identify all potential avenues of recovery.

 

At the conclusion of the internal investigation and in recognition of the requirement to focus on recovery, the Company retained the services of Promontory Advisory Services, to undertake an independent investigation into the design and operation of the control framework and associated management accountabilities, throughout the period during which decisions were made or actions undertaken, which ultimately led to the loss event.

 

The findings of the Promontory investigation and insight gained through engagement with the Administrator supported the early assumptions of fraud. Continued engagement with law enforcement and the bilateral sharing of relevant information led to the Metropolitan Police Service Special Organised Crime Command Unit SC07 undertaking to investigate the client entity.

 

A formal claim has been initiated under the Company's Financial Crime Insurance (which remains extant) and we are supported in this claim by specialist insurance claim legal advisers.

 

The recovery of the claim is uncertain and therefore has not been included in the financial statements.

 

Market Environment

Market Positioning

Earthport has gained broad recognition as a superior alternative to the traditional model of correspondent banking for managing high volumes of low-value payments, enabling banks and businesses to manage payments globally via a single point of access with improved cost and operational efficiency. This has been evidenced in the strength of our expanded client base and the health and composition of our new business pipelines across established and new development regions.

 

Over the past two years the competitive landscape has began to change as the industry's understanding of the inherent need correspondent for an alternative to the traditional correspondent banking model has matured. As new solutions enter the market, many of which are powered by our services, we see it as further validation that our solutions are key to solving the inherent inefficiencies within the correspondent banking industry.

 

A healthy mix of competition will only drive further demand for change and innovation and we are confident that this will enable our success. Developing bank partnerships is a cost and labour intensive process that Earthport now has a multi-year lead on and the resultant payments expertise and market-specific understanding is the core IP now embedded in our offering.

 

 

Regulations and Compliance

While the traditional function of regulation in the payments space has been to set the rules for activities which are already occurring, the Second Payments Services Directive (PSD2) has the potential to drive change in the industry. With protection of the customer in mind, incentives have been placed on banks to innovate, and on technology companies to submit to regulatory oversight.

 

With scale advantages and customer confidence held by the banks, and the technology companies having the agility needed to innovate quickly, the industry as a whole is incentivised to collaborate. As a company with a market offering enabling both groups to better service their consumers, Earthport is well placed to support the innovation encouraged by the regulators.

 

As well as adapting to PSD2, banks must also fall into line with the tightening regulation around capital adequacy brought by Basel III. Most commentators agree that this regulatory development will necessitate improvements in liquidity management efficiency. The outcome of this should be to focus banks more keenly on the problems inherent in the traditional correspondent banking system: opacity around individual liquidity positions that are spread across the globe; settlement time uncertainties and lack of transparency or predictability of charges by the many participants in the chain.

 

Earthport's centralised management of client liquidity and transparency around settlement times and charges is therefore proving to be a highly attractive feature for banks chasing liquidity visibility, transparency and efficiencies.

 

A less welcome response to the increase in global regulation is 'de-risking', the process by which banks terminate client relationships because the regulatory risk that relationship poses (and the ensuing administrative burden) is perceived by such institutions as an unbalanced risk/reward ratio. From the regulator's point of view, the effect of this is counterproductive with money flowing to the informal sector, reducing the visibility of any illicit transactions. Moreover, de-risking stalls the velocity of trade and business flows, thereby impacting global economic growth.

 

It is clear that a more pragmatic risk/reward ratio needs to be identified, and it is likely that this will involve the consolidation of relationships that can be channelled through a utility provider with proven regulatory compliance controls. Earthport's service can aggregate legitimate business from smaller players into a business line that is easier to manage.

 

Effects of Brexit

Earthport recognises that stakeholders including clients, partners, and investors may have an interest in how Brexit may affect our business, particularly the possible changes to Regulatory Passporting arrangements across the EU. Our strong relationships with Financial Institutions in Europe and across the globe alleviate any immediate concerns for the business.

 

As a business operating in more than 60 jurisdictions, monitoring and responding to regulatory change is business as usual for Earthport and something we already manage in more than 30 of those jurisdictions. In the event that the Company does need to respond to altered regulatory obligations, such as by locating an office within the EU. If this becomes apparent, then we will act accordingly.

 

Awards and Recognitions

In FY16, we continued our success in winning awards, demonstrating industry recognition of our solutions. These included the:

 

• Barry Holland Memorial Award for Outstanding Individual Achievement to CEO, Hank Uberoi at the FS Tech Awards 2016

• Technology Company of the Year at the Grant Thornton Quoted Company Awards 2015

• Best Cross-Border Money Transfer Solution 2015 at the Cfi.co Finance Awards

• Cross-Border Payment Network of the Year Fintech Excellence Awards 2015

• Best Alternative Payments Project at the Payments Awards 2015

• Payment Pioneer Award for Earthport CEO Hank Uberoi at the Payments Awards 2015

 

Strategy

Building for scalability is central to our strategy, with Earthport carving out a unique position as the leading cross-border payments company globally. This is supported by fast growing recognition and acceptance of our cross-border payments model. As an Authorised Payment Institution (API) regulated by the UK FCA, Earthport is uniquely positioned to service clients globally across several industry segments. Further investment into the development of a strong integrated FX product offering is integral to the Earthport model and core to our strategic mission.

 

In addition, we are focusing our sales and marketing efforts on capturing more of the global eCommerce opportunity, leveraging our existing traction in this space. Our anticipated grant of licensing in several states in the USA is expected to accelerate growth in this sector.

 

We are also focused on nurturing growth within our existing client base. As our global banking clients transition from the implementation stage to going fully live with our solutions, significant opportunities emerge to broaden relationships. As a result of this we are currently experiencing increasing transaction volumes and multiple engagements with existing clients.

 

Geographical expansion is also core to our strategy, particularly in India and emerging markets where we foresee strong growth potential. We are currently engaged with regulators in multiple countries and expect to launch offerings in key Asian markets to enable us to originate 'outbound' business.

 

The ongoing building of our network of partnerships in emerging regions such as Latin America, Africa and Asia Pacific continues apace. In response to increasing regulatory pressures globally and growing transaction volumes, it is essential we build resilience into our network. Secondary and tertiary supplier relationships will be a key focus for FY17 with emphasis on key regions such as Asia, where client demand and potential for significant scale is strong. Ensuring our network remains robust and responsive to client and market demand will place us in good stead as recognition of the market need matures and new players enter the segment.

 

We will also continue our investment into future-proofing our platform. This involves enhancing our technology infrastructure in order to support the growth trends we are currently witnessing. Investing into fully automating our Target Operating Model is also a priority. This model involves real-time processing of payments without manual intervention, improved and seamless customer service providing visibility of transactions, and enhanced control and clarity of liquidity flows.

 

Outlook

Market incumbents currently have to cope with increasing regulatory scrutiny and complexity, diminishing margins and growing competition. This leaves Earthport well positioned to act as a facilitator of change in the cross-border payment market. The payments world is fast altering, as trade and business flows impacting global economic growth shift, there is an imperative to construct an efficient and effective system that facilitates the flow of global payments.

 

We are committed to a long-term strategy of continuing to develop the world's leading cross-border payments platform; to provide our clients with access to a network that reaches any account, in any currency, through one connection with world-class compliance, resilience, trust and cost optimisation. Above all, we place emphasis on enhancing the customer experience by harmonising our suite of products and services, re-engineering our internal processes, and simplifying implementation.

 

In order to meet these commitments and opportunities we will continue to enhance our business and enter into new markets based on volume growth and client need. The investments made during FY16 have improved traction with key European and North American banks and we look forward to reporting further contracts in the coming months. We remain positive regarding the growth prospects for Earthport and believe we have the potential to build and hold a significant share of the multi-trillion dollar cross-border payments market.

 

 

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2016

 

 

 

Notes

2016

£'000

2015

£'000

Continuing operations:

 

 

 

Revenue

3

22,772

19,267

Cost of sales - before warrant charge

 

(6,849)

(3,612)

Adjusted gross profit

 

15,923

15,655

Cost of sales - warrant charge

 

(578)

(728)

Gross profit

 

15,345

14,927

Administrative expenses

5

(25,780)

(19,941)

Adjusted operating loss

 

(10,435)

(5,014)

Share-based payment charge

 

(620)

(3,289)

Unrealised fair value adjustment

12

8,224

345

Exceptional item - Baydonhill loss

13

(5,000)

-

Exceptional item - Impairment of available for sale investment

13

(250)

-

Operating loss

 

(8,081)

(7,958)

Finance income

 

20

52

Reduction in contingent consideration liability due to amendment as per the CVR deed

14

842

(803)

Loss before taxation

 

(7,219)

(8,709)

Income tax (expense)/income

6

(996)

18

Loss for the year and total comprehensive income attributable to owners of the Parent

 

(8,215)

(8,691)

 

Loss per share - basic and fully diluted

7

(1.74p)

(1.91p)

 

 

There were no items of other comprehensive income for the year.

 

 

Consolidated Statement of Financial Position

As at 30 June 2016

 

Notes

2016

£'000

2015

£'000

Assets

 

 

 

Non-current assets

 

 

 

Goodwill

 

2,709

2,709

Intangible assets

 

6,249

6,406

Investment

 

-

250

Deferred tax asset

10

-

327

Property, plant and equipment

 

597

709

 

 

9,555

10,401

Current assets

 

 

 

Trade and other receivables

8

11,290

8,329

Derivative financial assets

 

6,253

976

Cash and cash equivalents

 

14,429

30,195

 

 

31,972

39,500

Total assets

 

41,527

49,901

 

Liabilities

 

 

 

Current liabilities

 

 

 

Trade and other payables

9

(5,676)

(5,711)

Derivative financial liabilities

 

(1,368)

(2,766)

Contingent consideration

14

(2,295)

-

 

 

(9,339)

(8,477)

Non-current liabilities

 

 

 

Contingent consideration

 

-

(3,292)

Deferred tax liability

10

(1,676)

(737)

 

 

(1,676)

(4,029)

Total liabilities

 

(11,015)

(12,506)

Net assets

 

30,512

37,395

 

Equity

 

 

 

Share capital

 

70,738

70,695

Share premium

 

78,064

78,272

Interest in own shares

 

(953)

(1,252)

Merger reserve

 

9,200

9,200

Share-based payment reserve

 

12,164

12,557

Warrant reserve

 

1,623

1,045

Retained earnings

 

(140,324)

(133,122)

Equity attributable to owners of the Parent

 

30,512

37,395

 

 

 

 

Consolidated Statement of Cashflows

For the year ended 30 June 2016

 

 

Notes

2016

£'000

2015

£'000

Net cash used in operating activities

11

(13,088)

(2,903)

 

Investing activities

 

 

 

Purchase of property, plant and equipment

 

(392)

(757)

Capitalised intangible fixed assets

 

(2,265)

(1,916)

Purchase of trade investment

 

-

(25)

Part payment of contingent consideration

 

(155)

-

Net cash used in investing activities

 

(2,812)

(2,698)

 

Financing activities

 

 

 

Proceeds on issuance of ordinary shares (net of costs paid)

 

-

26,567

Proceeds on exercise of options

 

134

-

Proceeds on exercise of options through Joint Share Ownership Plan

 

-

112

Repayment of loan

 

-

(344)

Net cash from financing activities

 

134

26,335

Net (decrease)/increase in cash and cash equivalents

 

(15,766)

20,734

Cash and cash equivalents at the beginning of the year

 

30,195

9,461

Cash and cash equivalents at the end of the year

 

14,429

30,195

 

 

Consolidated Statement of Changes in Equity

For the year ended 30 June 2016

 

 

 

Attributable to owners of the Parent

 

 

Share

capital

£'000

Share

premium

£'000

Interest

in own

shares

£'000

Merger

reserve

£'000

Share-based payment reserve

£'000

Warrant reserve

£'000

Retained earnings

£'000

Total

£'000

Balance at 30 June 2014

64,016

58,213

(1,456)

9,200

9,632

317

(124,795)

15,127

Loss for the year, being total comprehensive income for the year

-

-

-

-

-

-

(8,691)

(8,691)

Transactions with owners

 

 

 

 

 

 

 

 

Share-based payments

 

 

 

 

 

 

 

 

- exercise of share options

101

63

204

-

(364)

-

364

368

- employee share options charge

-

-

-

-

3,289

-

-

3,289

- warrant charge

-

-

-

-

-

728

-

728

Issue of ordinary shares

6,578

20,295

-

-

-

-

-

26,873

Cost of share issues

-

(299)

-

-

-

-

-

(299)

Total transactions with owners of the Parent, recognised directly in equity

6,679

20,059

204

-

2,925

728

(8,327)

22,268

Balance at 30 June 2015

70,695

78,272

(1,252)

9,200

12,557

1,045

(133,122)

37,395

Loss for the year, being total comprehensive income for the year

-

-

-

-

-

-

(8,215)

(8,215)

Transactions with owners

 

 

 

 

 

 

 

 

Share-based payments

 

 

 

 

 

 

 

 

- exercise of share options

43

(208)

299

-

(1,013)

-

1,013

134

- employee share options charge

-

-

-

-

620

-

-

620

- warrant charge

-

-

-

-

-

578

-

578

Total transactions with owners of the Parent, recognised directly in equity

43

(208)

299

-

(393)

578

(7,202)

(6,883)

Balance at 30 June 2016

70,738

78,064

(953)

9,200

12,164

1,623

(140,324)

30,512

 

 

Merger Reserve

The merger reserve represents the premium attributable to shares issued in consolidation of the costs of acquisition of subsidiaries in prior years.

 

Share-based Payment Reserve

The share-based payment reserve represents the cumulative charge to date in respect of unexercised share options at the balance sheet date.

 

Warrant Reserve

The warrant reserve represents the cumulative charge to date in respect of unexercised share warrants at the balance sheet date.

 

Retained Earnings

The retained earnings represent the cumulative profit and loss net of distribution to owners.

 

 

Notes to the Financial Statements

For the year ended 30 June 2016

 

1. General Information

Earthport plc is a public limited company incorporated and domiciled in England and Wales under the Companies Act 2006. The address of its principle place of business and registered office is 21 New Street, London EC2M 4TP.

 

The preliminary financial information does not constitute full accounts within the meaning of section 434 of the Companies Act 2006 but is derived from accounts for the years ended 30 June 2016 and 30 June 2015, both of which are audited. The preliminary announcement is prepared on the same basis as set out in the statutory accounts for the year ended 30 June 2016. While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), this announcement does not in itself contain sufficient information to comply with IFRSs.

 

The statutory accounts for the year ended 30 June 2016 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. Statutory accounts for the year ended 30 June 2015 have been filed with the Registrar of Companies. The auditor's report for the year ended 30 June 2016 was unqualified and did not contain any statement under section 498(2) or (3) of the Companies Act 2006.

 

2. Going Concern

The Directors believe that the Group has demonstrated further progress in achieving its objective of positioning itself as an infrastructure supplier to the global payments industry. The Directors have prepared a cash flow forecast covering a period extending beyond 12 months from the date of these financial statements after taking account of anticipated overhead costs and revenue, the Directors are confident that sufficient funds are in place to support the going concern status of the Group. Therefore, the Directors consider that it is appropriate to prepare the Group's financial statements on a going concern basis, which assumes that the Group is to continue in operational existence for the foreseeable future.

 

 

3. Segment Information

Revenue, loss and net assets/liabilities are all attributable to two business segments operating from the Group's headquarters in London, United Kingdom. This is consistent with the information reviewed by the chief operating decision maker. Revenue categories and segmental analysis by location of customers is as follows:

 

Revenue

2016£'000

2015£'000

Transactional

20,689

16,266

Professional services

2,083

3,001

 

22,772

19,267

 

Revenue

2016£'000

2015£'000

United Kingdom

12,507

12,275

Europe

1,496

1,106

North America

7,284

4,642

Rest of the world

1,485

1,244

 

22,772

19,267

 

 

4. Loss Before Taxation

 

 

2016£'000

2015£'000

Loss before taxation is stated after charging:

 

 

Amortisation of intangible assets

2,422

1,904

Depreciation of property, plant and equipment

504

342

Development costs

233

151

Operating leases:

 

 

- property

480

359

Fees payable to the Company's Auditor:

 

 

For the statutory audit of the:

 

 

- Parent and consolidated financial statements

52

43

- subsidiary financial statements

30

30

- additional fee in respect of the prior year audit

-

30

Fees payable to associates of the Company's Auditor:

 

 

- for tax compliance

12

7

- for other services

16

12

- interim agreed upon procedure

10

-

 

 

5. Administrative Expenses

 

 

2016£'000

2015£'000

Staff and contractor costs

14,569

10,913

Travel and entertainment costs

1,182

1,091

Professional services costs

1,294

1,281

Sales and marketing costs

693

514

IT operational costs

2,303

1,469

Other operational costs

622

432

Other overheads

2,191

1,995

Depreciation of property, plant and equipment

504

342

Amortisation of intangible assets

2,422

1,904

 

25,780

19,941

 

 

Cost of sales includes bank transaction charges and sales commission.

 

 

6. Income Tax Expense

 

 

2016

£'000

2015

£'000

Current tax charge

(270)

4

Deferred tax charge

1,266

84

R&D tax (credit) received

-

(106)

Total tax charge/(credit)

996

(18)

Factors affecting the tax charge for the year:

 

 

Loss before taxation

(7,219)

(8,709)

Loss before tax multiplied by effective standard rate of corporation tax in the UK of 20% (FY 2015: 21%)

(1,444)

(1,829)

Tax effect of:

 

 

Expenses not deductible for tax purposes

7

5

Temporary differences not recognised for deferred tax purposes

19

14

Share-based payment charge not recognised for deferred tax purposes

535

397

Losses not recognised for deferred tax purposes

1,879

1,395

Tax charge for the year

996

(18)

 

 

No deferred tax asset has been recognised in relation to trading loss carried forward of £99.91 million (FY 2015: £91.69 million) due to uncertainty over the timing of its recovery.

 

 

 

 

 

 

 

 

7. Loss Per Share

 

The loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.

 

 

2016£'000

2015£'000

Loss attributable to equity shareholders of the Company

(8,215)

(8,691)

 

 

 

2016Number

2015Number

Weighted average number of ordinary shares in issue (thousands)

476,674

461,444

Less: own shares held (thousands)

(5,369)

(7,113)

 

471,305

454,331

 

 

 

2016

2015

Basic and fully diluted loss per share (pence)

(1.74p)

(1.91p)

 

 

The loss attributable to ordinary shareholders and weighted average number of ordinary shares for the purposes of calculating the diluted loss per share are identical to those used for basic loss per ordinary share. This is because the exercise of share options and other benefits would have the effect of reducing loss per share and is therefore not dilutive under the terms of IAS 33, Earnings Per Share.

 

 

8. Trade and Other Receivables

 

 

 

 

2016

£'000

2015

£'000

Trade receivables

8,349

6,464

Other receivables

2,246

1,098

Prepayments

695

767

At 30 June

11,290

8,329

 

 

Trade receivables amounted to £8,349,000 (FY 2015: £6,464,000), net of a provision of £nil (FY 2015: £100,000) for impairment. Movement on the Group provisions for impairment were as follows:

 

 

2016

£'000

2015

£'000

At 1 July

100

129

Provision for impairment

5,231

-

Receivables written off during the year

(5,331)

(29)

At 30 June

-

100

 

 

The average credit period taken on sales of services is 30 days (2015: 30 days). No interest is charged on overdue balances. The Directors consider that the carrying amount of trade receivables approximates their fair value.

 

 

9. Trade and Other Payables

 

 

 

2016

£'000

2015

£'000

Trade payables

2,117

3,662

Other payables

312

4

Other taxation and social security

334

356

Accruals and deferred income

2,913

1,689

 

5,676

5,711

 

Trade payables and accruals principally comprise amounts outstanding in respect of operating costs. The average credit period taken for trade purchases is 35 days (FY 2015: 33 days). The Directors consider that the carrying amounts for trade and other payables and accruals approximate their fair value.

 

10. Deferred Tax

 

Deferred tax asset

2016

£'000

2015

£'000

1 July

327

541

Deferred tax charge released to income statement

(327)

(214)

30 June

-

327

 

Deferred tax liability

2016

£'000

2015

£'000

1 July

(737)

(867)

Deferred tax credit released to income statement

(939)

130

30 June

(1,676)

(737)

Deferred tax liabilities (net)

(1,676)

(410)

 

The gross movement on the deferred tax is as follows:

 

2016

£'000

2015

£'000

1 July

(410)

(326)

Accelerated capital allowances

(92)

92

Tax losses relieved during the year

-

(541)

Deferred tax credit released to the income statement

150

130

Tax credit on derivative financial assets and liabilities

(1,324)

235

30 June

(1,676)

(410)

 

The deferred tax reconciliation on category basis of assets and liabilities is as follows:

 

Deferred tax assets

Accelerated Capital Allowances £'000

Tax Losses

£'000

Net Derivative Financial Liabilities

£'000

Total

£'000

1 July 2014

-

541

-

541

Acquisition of subsidiary

-

-

-

-

(Charged)/credited to the income statement

92

(541)

235

(214)

30 June 2015

92

-

235

327

 

 

 

 

 

Credited/(charged) to the income statement

(92)

-

(235)

(327)

30 June 2016

-

-

-

-

 

Deferred tax liabilities

 

 

Intangible Assets arising on Acquisition

£'000

Net Derivative Financial Assets

£'000

Total

£'000

1 July 2014

 

 

(867)

-

(867)

Acquisition of subsidiary

 

 

-

-

-

Credited to the income statement

 

 

130

-

130

30 June 2015

 

 

(737)

-

(737)

 

 

 

 

 

 

Credited/(charged) to the income statement

 

 

150

(1,089)

(939)

30 June 2016

 

 

(587)

(1,089)

(1,676)

 

The potential deferred tax asset arising on the cumulative losses carried forward is £20.34 million (FY 2015: £18.34 million) has not been recognised owning to uncertainty as to its recoverability.

 

 

11. Reconciliation of Loss Before Tax to Net Cash Used in Operating Activities

Group

2016

£'000

2015

£'000

Loss before tax

(7,219)

(8,709)

Amortisation of intangible assets

2,422

1,904

Depreciation of property, plant and equipment

504

342

Share-based payment and warrants charge

1,198

4,017

Shares issue in lieu of fee

-

263

R&D tax credit receivable/received

270

106

Finance income

(20)

(52)

Current year tax charge

-

(4)

Unwinding of discount on deferred consideration

(842)

803

Impairment of available for sale investment

250

-

Operating cash outflow before movements in working capital

(3,437)

(1,330)

Increase in receivables

(8,238)

(1,640)

(Decrease)/increase in payables

(1,433)

15

Cash used by operations

(13,108)

(2,955)

Finance income

20

52

Net cash used in operating activities

(13,088)

(2,903)

 

 

 

 

 

 

12. Unrealised Fair Value Adjustment

 

In accordance with IAS 39, the Group fair valued all currency bank accounts, which include client segregated and company accounts, as well as forward foreign exchange contracts. The fair value revaluation of such receivables, payables and currency accounts gave rise to an unrealised gain of £1.55 million (FY 2015: £1.1 million). All forward foreign exchange contracts executed with clients are matched with bank forward foreign exchange contracts and as a result, the fair value revaluation generated a net derivative unrealised gain of £6.68 million (FY 2015: loss of £0.75 million).

 

2016

£'000

2015

£'000

Foreign exchange gain

1,549

1,093

Fair value gain/(loss) on derivatives

6,675

(748)

Total

8,224

345

The above mentioned unrealised gains and losses would only be realised in the unlikely event that any party to the transaction would default.

 

 

13. Exceptional Items

 

Baydonhill loss

In February 2016, Company experienced a material financial loss amounting to £5 million, resulting from a fraud perpetrated by a corporate client. Immediately upon discovery of the loss event, an internal investigation commenced, and concurrently, amended controls were applied across the whole organisation to ensure losses were finite and any exposure curtailed. A number of external engagements were initiated in parallel to identify all potential avenues of recovery.

 

A formal claim has been initiated under the Company's Financial Crime Insurance (which remains extant) and we are supported in this claim by specialist insurance claim legal advisers. The recovery of the claim is uncertain and therefore has not been included in the financial statements.

 

Impairment of available for sale investment

This was a trade investment with an option to take an equity stake in the future and licensing rights to technologies that will assist business development. The business is now in liquidation and therefore investment has been impaired in full.

 

 

14. Contingent Consideration

 

On 19 October 2016 (see RNS 8882M), Earthport announced that an Amendment was agreed by Earthport and the CVR Committee regarding the contingent consideration in response to the impact of the February loss at Baydonhill ("Loss Incident"), as announced on 25 February 2016 (see RNS 1396Q), in accordance with the terms of the ("Original Agreement"). Both parties have agreed that, the aggregate free-cash-flow figure used to calculate the current CVR Entitlement will bear a partial impact of the £5 million Baydonhill loss resulting from the Loss Incident and the amended CVR Entitlement shall be a maximum of £2,295,400. As a result of the Amendment, approximately £700,000 in cash will be returned to Earthport from an escrow account established and funded for meeting its obligations under the Original Agreement.

 

Group and Company

2016

£'000

2015

£'000

At 1 July

3,292

2,489

Unwinding of discount

923

803

Part payment of consideration

(855)

-

Cash receivable due to amendment to contingent consideration as per the CVR deed

700

-

Reduction in contingent consideration liability due to amendment as per the CVR deed

(1,765)

-

At 30 June

2,295

3,292

 

 

15. Annual Report and Accounts

 

Copies of the Annual Report will be available as of 26 October 2016 on the Group's website, www.earthport.com and from the Group's registered office.

 

 

 

 

This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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