30th Apr 2009 07:00
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Press release |
For immediate release |
NEOVIA Financial Plc
2008 Audited Results
Thursday, 30 April 2009 - NEOVIA Financial Plc (LSE: NEO) ("NEOVIA" or the "Group"), the independent global online payments business, presents its audited results for the year ended 31 December 2008.
Financial Summary
Group revenue of $75.6m up 9% - excluding North America (2007: $69.1m);
Fee revenue (excluding North America) of $69.5m in 2008, up 26% (2007: $55.1m);
Gross margin improved to 61.8% in 2008 due to cost management (2007: 55.6%);
Profit before tax and other items of $6.4m (2007: loss $12.8m);
Total Group cash was $82.3m at 31 December 2008; and
No dividend payable as Group seeks to preserve cash to retain financial flexibility.
Key performance indicators
Active e-wallet users (ex North America) totalled 97,673 in Q4 2008 (Q4 2007: 99,984);
E-wallet fee revenue per active e-wallet user $128 for 2008 (2007: $111);
Average daily sign ups were 981 for 2008 (2007: 985); and
Average daily receipts $457,442 for 2008, (2007: $656,809) (including North American receipts).
Operational Highlights
Enhanced core e-wallet functionality in 2008 for customer and merchant improvements;
Successful launch of Net+ card to existing e-wallet customers in October 2008; and
Rebrand of Group to NEOVIA Financial completed in November 2008.
Current trading
First quarter trading disappointing reflecting weakening trend in Europe;
Q1 2009 revenue of $16.4m down 3% compared to Q1 2008 of $17.0m; and
Average daily receipts down 11% and active e-wallet users down 8% (from Q1 2008).
Dale Johnson, Chairman, commented: "During 2008 progress was made by the NEOVIA Group in building the foundations to be a pre-eminent provider of bold online payment solutions to selected e-commerce communities. Creditable financial performance was achieved, in line with market expectations, despite a sharp deterioration in economic conditions worldwide. Nonetheless, the Board is not fully satisfied with the Group's progress towards its strategic aims. Trading in the year to date has been disappointing and reflects a weakening trend in Europe, due to an increasingly competitive market, challenging economic conditions, volatile currency markets and limitations in new product introductions until Newteller (NEOVIA's new business platform) is launched in Q3 2009. While the Board remains confident about the Group's prospects, the overarching themes for 2009 will be leveraging high potential initiatives, cost control and prudent cash management."
For further information contact:
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NEOVIA Financial Plc |
Email: [email protected] |
+ 44 (0) 207 638 9571 (30 April) |
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Dale Johnson |
Chairman |
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Ron Martin |
President & CEO |
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Doug Terry |
CFO |
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Andrew Gilchrist |
VP Communications |
+ 44 (0) 1624 698 713 |
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Citigate Dewe Rogerson |
+ 44 (0) 207 638 9571 |
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Sarah Gestetner / George Cazenove |
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Daniel Stewart & Co Plc |
+ 44 (0) 207 776 6550 |
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Paul Shackleton |
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Conference call details and further information
NEOVIA will hold a briefing for invited UK-based analysts at the offices of Citigate Dewe Rogerson, 3 London Wall Buildings, London, EC2M 5SY, later this morning at 9.30 a.m. From this time, copies of the analyst presentation and the Group's annual report and accounts will be available on the Company's website, www.neovia.com.
NEOVIA management will also host a conference call on 30 April 2009 at 2.00 pm BST (9.00 a.m. EST) for analysts and institutional investors that can be accessed by dialling 0808 109 0700 (UK free call) or +44 203 003 2666 (International) or 1 866 966 5335 (USA free-call). This call will take the format of a short introduction by management, followed by a Question and Answer session. A recording of the conference call will be available for a period of 7 days from 30 April 2009 (until 7 May 2009). To access the recording please dial the following replay telephone number: +44 (0) 208 196 1998. The passcode for this replay is 4728303#.
For any other information please contact NEOVIA Investor Relations at [email protected].
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About NEOVIA Financial
Trusted by consumers and merchants in over 160 countries to move and manage billions of dollars each year, NEOVIA Financial Plc (formerly NETELLER Plc) operates the world's leading independent online payments business. Through its Payment Suite, featuring NETELLER®, NETBANX®, Net+™ and 1-PAY™ brands, NEOVIA Financial specialises in providing innovative and instant payment services where money transfer is difficult or risky due to identity, trust, currency exchange, or distance. Being independent has allowed the company to support thousands of retailers and merchants in many geographies and across multiple industries.
NEOVIA Financial Plc (formerly NETELLER plc) is quoted on the London Stock Exchange's AIM market, with a ticker symbol of NEO. Subsidiary company NETELLER (UK) Ltd is authorised by the Financial Services Authority (FSA) to operate as a regulated e-money issuer. For more information about NEOVIA Financial visit www.neovia.com or contact us by email at [email protected].
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Disclaimer
This document contains forward-looking statements relating to future events and future performance. In some cases, forward looking statements can be identified by terminology such as "may", "will", "should", "expects", "projects", "plans", "anticipates" and similar expressions. These statements represent management's expectations or beliefs concerning among other things, future operating results and various components thereof or the economic performance of the NEOVIA Group. The projections, estimates and beliefs contained in such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause the actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted.
Chairman's Statement
During 2008, progress was made by the NEOVIA Group in building the foundations to be a pre-eminent provider of bold online payment solutions to selected e-commerce communities. Creditable financial performance was achieved, in line with market expectations, despite a sharp deterioration in economic conditions worldwide. Nonetheless, whilst recognising the exemplary effort of the NEOVIA team, the Board is not fully satisfied with the Group's progress during the year towards its strategic aims.
The NEOVIA Group revenues (excluding North America) grew to $75.6 million from $69.1 million in 2007. Following withdrawal from the North American market in early 2007, a dramatic downsizing was undertaken to reflect the loss of the Group's primary market. In 2008, the Group continued to pursue efficiencies and appropriate resourcing and overhead levels for the current and anticipated revenues of the business. There is still some distance to go, particularly in the current difficult economic environment, and we will resolutely focus on ensuring that this work continues to achieve a cost structure that provides competitive advantage. While reporting a loss after tax for 2008 of $8.1 million, profit before other items (such as restructuring costs) improved to $6.4 million, a turnaround from the $12.8 million loss reported in 2007.
An important change during the year to better reflect the Group's strategy and evolving market positioning was the change of name of its parent from NETELLER Plc to NEOVIA Financial Plc. Other milestones in 2008 included the launch of the Net+ card suite in October, with both physical and virtual prepaid MasterCard® products being made available to existing e-wallet users; the continuing broadening of payment options and localisation functionalities (languages and currencies); and the integration of individual product lines into a single offering - the NEOVIA Payment Suite. A focus on large corporate sales led to a number of significant contract wins with UK household names for the NETBANX payment gateway business to complement a continued stream of smaller online merchant sign ups.
CONTINUED INVESTMENT IN OUR STRATEGY
As highlighted in my 2007 statement, the Board has been focused on strategically investing in the business. Following some setbacks and resulting delays with the new business platform programme ("Newteller") in late 2007 and early 2008, the programme progressed well during the latter half of 2008 and remains on target for deployment within budget by the third quarter of 2009. When implemented, Newteller will enable further efficiencies and cost savings throughout the Group. We have also examined numerous strategic opportunities ranging from partnerships to acquisitions, and the availability of such opportunities has increased in the current market environment.
The proposed acquisition of the European Payments Products business of IDT Corporation announced on 1 December 2008 is a good example of such a strategic opportunity. This transaction was intended to accelerate our card strategy, drive scale into the e-wallet, and provide a levered platform to offer prepaid cards under both the Prime and Net+ brands. The transaction failed to receive the consent of the Gibraltar Financial Services Commission due to the unwillingness of a substantial shareholder (with controller status) to support the transaction, as announced on 20 March 2009. We continue to pursue our strategy, particularly around the existing prepaid cards business, which is fundamental to our core e-wallet offering.
BOARD AND SHAREHOLDER CHANGES
We were informed on 12 December 2008 that Dermot Desmond, an Irish financier, had declared a stake of 26.03% in the Company through his holding company, Primatur Limited. The Company engaged in dialogue with Mr Desmond and his representatives, which resulted in the appointment in January 2009 of John Bateson and Jonathan Comerford to the Board as Non-Executive Directors. Messrs Bateson and Comerford bring considerable experience and contacts in board roles, finance and payments.
I would also like to express the Board's thanks to Ron Martin, President & CEO, who announced on 13 March 2009 his intention to step down from that position and from the NEOVIA Board. Ron has made a significant contribution to NEOVIA since he joined as Chief Operating Officer in July 2005 and subsequently became President & CEO on 1 January 2006. His focus on achieving the Company's resolution with the US authorities, the consequent restructuring arising from withdrawal from the North American market, and the development of the Group's vision and strategy have been key to building NEOVIA's current position. The Board is engaged in a process to identify and evaluate potential successors for the CEO position, and progress is being made. In the meantime, Ron is assisting during a transition period, I am assuming a more active role and, together with a very capable executive management team and a committed Board, we continue to focus on driving the business forward in line with the Group's strategic aims.
CURRENT TRADING AND OUTLOOK
We expect 2009 to be a year of both significant challenge and exciting opportunity. Investment in the business will continue, especially for completion of the Newteller programme. Strategic opportunities are being examined, particularly in support of the Group's card strategy. The work to create greater differentiation, accompanied by a cost structure that creates competitive advantage, will be accelerated.
During these times of increased challenge and opportunity, the Board seeks to preserve cash to provide sufficient flexibility to take advantage of changing conditions in line with the Group's strategy and to provide value to shareholders. Taking account of the current market conditions and anticipated continuing difficult trading environment, resulting in slower than expected growth in recent months, the Board is not recommending the payment of a dividend. The Board will continue to review the appropriate dividend policy for the Group.
On behalf of the Board, a sincere thank you to our employees, customers, merchants and shareholders for their continued support of the Group. I commend our staff across the world who respond to the many challenges with a commitment and dedication that are unwavering.
Dale Johnson
Chairman
29 April 2009
Business Review
The Group made progress during 2008 with continued revenue growth from both the e-wallet and gateway businesses, despite a relatively flat year for active e-wallet user growth. Group revenue for 2008 was $75.9 million, excluding North America, fee revenue increased to $69.5 million from $55.1 million in 2007, an increase of 26%.
INTRODUCTION
The NEOVIA Group consists of the NETELLER e-wallet business, the payment processing operations of NETBANX and NETBANX Asia (together, the "gateway" businesses) and the Net+ card operations. The Group's principal source of revenue is fees paid by either end-user customers or merchants for the Group's services, and interest income is also generated from balances held on behalf of customers or merchants as well as on the Group's own cash. The Group's businesses are supported by operations in the Isle of Man, Calgary in Canada, Cambridge in the UK, and Macau and Hong Kong in Asia. The Group reports in US dollars as this is the principal operating and settlement currency for merchants. The 2008 results reflect the first full year in which the Group had no US business. The Group continues to service the Canadian market for non-gaming transactions only, resulting in minimal North American revenue in 2008.
2008 RESULTS
Group revenue for 2008 was $75.9 million, compared with $84.0 million in 2007. Excluding North America, fee revenue increased to $69.5 million from $55.1 million in 2007, an increase of 26%. Core e-wallet fees increased, with Europe showing an increase of 20% from 2007 and Asia growing by 26%. Gateway revenues showed strong growth in 2008, increasing from $11.9 million in 2007 to $17.6 million, an increase of 48%. This growth was driven by a 115% increase in the NETBANX Asia gateway revenue. The European NETBANX revenue declined slightly, as a result of the depreciation of sterling against the US dollar.
Gross margin improved to 61.8% in 2008 compared with 55.6% in 2007 reflecting improvements in managing supplier costs. The Group reported a profit before tax and other items of $6.4 million, compared with a loss before tax and other items of $12.8 million in 2007.
Net loss after tax for 2008 was $8.1 million, compared with a loss of $185.8 million in 2007. The loss in 2007 included a $136 million forfeiture to the USAO as well as related restructuring and professional expenses. The loss per share based on weighted average shares outstanding of 119,920,953 is $0.07 compared with the prior year loss per share of $1.55.
KEY PERFORMANCE INDICATORS
The Group's primary driver of fee revenue from its e-wallet is the active e-wallet user base. An active e-wallet user is defined as a customer whose e-wallet account balance has changed during the past quarter. The change in balance may be due to adding, removing, transferring or receiving funds. The Group reports its active e-wallet user numbers by region for each quarter to allow comparison of regional growth rates. By also disclosing fee revenue for each primary geographic region where e-wallet services are offered, investors are able to determine the fee revenue per active e-wallet user by region.
During the fourth quarter of 2008, a yearly inactivity fee was applied against e-wallet accounts that did not have any activity for the preceding 14 month period. The fee resulted in additional revenue of $1.5 million. The inactivity fee also resulted in a significant increase in active e-wallets in the quarter which has been stripped out of the reported KPIs. For the remainder of this report, the number of active e-wallets and fees per active e-wallet are stated net of the impact of inactivity fees.
The number of active e-wallets at the end of 2008 was 97,673 - a decrease of 2% from 99,984 in 2007. European e-wallets accounted for 77,916 (flat from 2007) while Asian e-wallets accounted for 13,794 (a 20% decrease from 2007). The economic slowdown adversely impacted member activity. The table below sets out the Group's active e-wallet users by region, excluding those from North America:
|
Active customers |
Q4 2008 |
Q4 2007 |
% growth |
Q3 2008 |
% growth |
|
Europe |
77,916 |
77,937 |
- % |
77,231 |
1 % |
|
Asia Pacific |
13,794 |
17,252 |
-20 % |
14,967 |
-8 % |
|
Rest of World |
5,963 |
4,795 |
24 % |
5,250 |
14 % |
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Total ex North America |
97,673 |
99,984 |
-2 % |
97,448 |
- % |
Additionally, in certain of the Group's targeted markets, the explosion in real time debit payments has dramatically increased use of the NETBANX Asia gateway solution while limiting demand for e-wallet functionality. In spite of this decrease, fees generated from e-wallets increased to an average of $131 per active e-wallet for Europe (increase of 14%). This is due to the success of new marketing programmes and a new pricing structure established in Q2 that includes higher fees for value added services such as foreign exchange and customer withdrawals. The table below shows by region the Group's e-wallet revenue per active e-wallet user based on the average quarterly fee revenue per user for the relevant periods in 2008 and prior year:
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E-wallet revenue per active e-wallet user ($) |
2008 |
2007 |
Q4 2008 |
Q4 2007 |
% growth |
|
Europe |
131 |
114 |
138 |
112 |
23 % |
|
Asia Pacific |
123 |
93 |
137 |
87 |
58 % |
|
Rest of World |
93 |
104 |
97 |
83 |
16 % |
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Total ex North America |
128 |
111 |
135 |
106 |
27 % |
Average daily receipts from customers were $457,442 during 2008 (2007: $656,809) including receipts relating to North American e-wallet transactions. Average daily receipts in the second half of 2008 of $440,307 were up 18% from $372,410 for the same period for 2007. This increase was principally due to new deposit options (iDeal, POLi UK), entry into new geographic markets, offering new wallet currencies and providing better payment functionality with debit card programmes. Total receipts from customers during the year totalled $167.4 million (2007: $239.7 million) including North American receipts. Average daily sign-ups of new customers excluding North America were 981 during 2008 (2007: 985).
The table below shows the Group's sign ups by region:
|
Average daily sign ups |
Q1 2008 |
Q2 2008 |
Q3 2008 |
Q4 2008 |
FY 2008 |
|
Europe |
819 |
694 |
641 |
669 |
706 |
|
Asia Pacific |
176 |
190 |
147 |
129 |
160 |
|
Rest of World |
106 |
109 |
113 |
130 |
115 |
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Total ex North America |
1,101 |
993 |
901 |
928 |
981 |
|
North America |
21 |
24 |
28 |
18 |
22 |
|
Total |
1,122 |
1,017 |
929 |
946 |
1,003 |
The Group also generates revenue from non e-wallet related sources, such as its NETBANX gateway business and interest income on its own cash balances as well as those held on behalf of members and merchants in trust accounts. The reduction of interest rates globally had an adverse impact on interest income in 2008, which is expected to continue in 2009.
OBJECTIVES AND STRATEGY
The Group adopted an updated and detailed three year plan at the end of 2007. The focus on providing bold payment solutions was driven by two key objectives in 2008 - first, to build towards the Group's pre-eminence in providing payment solutions for the online gaming sector and, second, to drive diversification of the business around a common consumer demographic. A critical success factor for both objectives is increased scale as reflected by the number of active e-wallet users, as this underpins the Group's revenue generation capabilities.
A balanced scorecard was introduced to measure the Group's performance against these objectives, and selected targets were shared with the market at the time of the Group's 2007 results. The balanced scorecard forms a key determinant of management compensation to align individual executive rewards with the performance of the business as a whole within an agreed framework. The results for the 2008 year in relation to these targets are set out in the table below:
|
Objective |
Measures include |
Target-by end of 2010 |
FY 2008 |
H1 2008 |
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|
Gaming sector pre-eminence |
Active e-wallet users (1) |
More than 250,000 |
97,673 |
100,560 |
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Diversification |
Non e-gaming revenue (2) |
More than 30% |
16% |
17% |
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Profitable business |
Operating margins (3) |
Greater than 35% |
22% |
19% |
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(1) Active e-wallet users are those that make any transaction with their e-wallet or Net+ card within the previous 90 day period. (2) Non e-gaming revenue is classified as revenues earned from non e-gaming merchants, NETBANX (excluding e-gaming merchants), P2P transactions, member dormancy fees and non-gaming member related investment income as a percentage of total reported revenue. (3) Operating margin is defined as operating profit before depreciation and amortisation, stock option expense, foreign exchange gain/loss, restructuring costs, impairment costs and investment gains or losses. |
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It is disappointing that the Group did not make as much progress as anticipated in increasing the number of active e-wallet users over the past twelve months, partially as a result of more challenging market conditions and intensifying competition. Also, during this period the Group encountered delays in delivering certain products, particularly the Net+ programme. Efforts are being redoubled in 2009 to increase the number of active e-wallet users, including assignment of a team to focus specifically on improving this critical KPI in both the short and longer term.
The Group continued to make steady progress towards its other primary objectives of diversification into new market sectors and improving the Group's operating profitability. This includes continued focus on reducing the cost base through continued restructuring, geographical cost centre optimisation and other initiatives. The Newteller platform redevelopment initiative, scheduled for first release in Q3 2009, should enable the Group to derive significant efficiencies and cost reductions, and to flexibly accommodate scaling the business for the anticipated increased levels of active e-wallet users and consequential revenue generation opportunities.
REBRANDING THE GROUP
On 11 November 2008, the Company's shareholders overwhelmingly voted in favour of changing the name of NETELLER plc to NEOVIA Financial Plc. This, together with a change of ticker symbol from NLR to NEO, became effective on 17 November 2008. The new name represents a strategically important evolution for the Group. It builds on a year long rebranding process to differentiate the parent company from the Group's operating brands of NETELLER, NETBANX and Net+, each of which has a strongly established brand identity and reputation. The new name, meaning "new way", supports the Group's strategic vision of providing differentiated, bold and exciting online payment solutions that target merchants and their "online generation" customers.
Earlier this year the Group revitalised both its NETELLER customer-facing and NETBANX business brands, and recently announced the launch of its Net+ card brand. The name change is expected to provide a broader umbrella for future growth, as well as enhancing the Group's credibility with both merchant and end user customers, partners and regulators.
2008 BUSINESS DEVELOPMENTS
The Group has made progress during 2008 in terms of revenue growth from both the e-wallet and gateway businesses, despite a flat year for active e-wallet user growth. The Group has improved the functionality of the core e-wallet offering, with 8 additional countries now supported, 14 new currencies added, 5 new localised deposit options and extended payout options for customers, particularly with the launch of the Net+ physical and virtual MasterCard® prepaid cards in the third quarter of 2008. The focus on the NEOVIA Payment Suite, bringing together the NETELLER e-wallet, NETBANX payment processing expertise, and the Net+ card as a payout option, is gaining acceptance with larger merchants. Success in providing bold payment solutions has been recognised publicly with the awarding of the 2008 Best Payment Network for Affiliates by CAP (Casino Affiliate Program), and the inclusion of the Net+ prepaid card programme within the Finextra Innovation Showcase, which highlights some of the most interesting financial technology developments in the past 12 months.
FOCUS ON BROADENING THE LOCAL OFFERING TO CUSTOMERS AND MERCHANTS
Building on the foundations of the NETELLER Payment Network, NEOVIA continued to develop innovative products and solutions for its merchants and customers within the limitations of its existing technology platform. New European payment options for the NETELLER e-wallet launched or signed up in 2008 included Giropay, iDeal, Carta Si, Carte Bleue domestic and international, DirectPay24, Ukash and POLi, the latter providing instant payment and customer conversions in the key UK market. The Group introduced three new currency options for its e-wallet during the first half: Danish Kroner, Norwegian Kroner and Polish Zloty, and added Hungary as a new country with localised payment options. During the second half, the NETELLER service was extended to key emerging Eastern European markets including Romania and Bulgaria. Five new currencies were also added: Bulgarian Lev (BGN), Estonian Kroon (EEK), Lithuanian Litas (LTL), Latvian Lats (LVL) and Romanian New Leu (RON). These improvements to the NETELLER e-wallet have been very well received by merchants seeking solutions in these markets.
Further investment in the NETBANX business included significant improvements to the NETBANX payments gateway for merchants targeting European customers, including local language, payment and foreign exchange/currency enhancements. The Group's new payments gateway merchant application, NETCENTRE, with significantly enhanced reporting and payment management capabilities, went live in May 2008. In the first half the Group also embarked on a significant investment programme for the core NETBANX platform to deliver enhanced performance, capacity and resilience for its large corporate-client merchants. Second half developments included the launch of the Unified PayPage ("UPP"), designed to be the most flexible payment checkout page on the market and the addition of 12 new currencies to the NETBANX offering, bringing the total to 35. UPP is available to all NEOVIA merchants - including gaming merchants - using the NETBANX gateway and currently the UPP offers credit and debit cards, the NETELLER e-wallet, POLi UK, Ukash and DIRECTebanking.com.
The Net+ Virtual Prepaid Card by MasterCard® and the Net+ Prepaid Card by MasterCard® were launched in October 2008. These products provide the Group's existing e-wallet users with functional and secure payment options, allowing direct online payments to be made anywhere MasterCard® is accepted using a NETELLER e-wallet and, through the physical card, at many POS outlets and ATMs. Adoption of the Net+ products has been in line with expectations and the Group continues to explore the optimal way to leverage this highly regarded product to a broader potential customer base through its prepaid card strategy.
INVESTING IN THE BUSINESS
NEOVIA has also continued to invest in its business, in line with its strategic objectives, with further progress achieved on the Newteller platform development project, which is currently scheduled for deployment in Q3 2009. The future benefits of Newteller will include cost savings and greater operating efficiencies within the Group. In addition, Newteller will provide enhanced capability in such key areas as disaster recovery, service availability, flexibility, risk management and dramatically improved new product development and deployment times.
During 2008, the Group restructured its investments in Centricom Pty Limited ("Centricom") and Centricom Europe Limited to simplify management of the POLi roll out across Europe, Centricom's primary strategic focus. POLi is an instant online bank transfer solution with concurrent validation of funds being available. Through a further investment of US$ 1.7 million, NEOVIA now owns a share of Centricom Pty Limited equal to that of the other shareholder, Jagen, at 42.83% on a fully diluted basis (after allowing for employee options), and Centricom Europe Limited is now a 100% subsidiary of Centricom. Centricom is currently performing ahead of budget, albeit still loss making, as a result of successful adoption of the POLi product in Centricom's original focus markets of Australia and New Zealand.
MARKET RISK ASSESSMENT AND COMPLIANCE
The Group continues to apply its enhanced Market Risk Assessment process adopted in early 2008 for assessing the legal and regulatory requirements of jurisdictions in which the Group conducts significant business or intends to target in the future. As part of its broader risk management approach, the Group also continues to monitor regulatory and other developments in those markets and take appropriate action should the risks in any particular market change significantly.
The Group continued to invest in compliance and internal audit functions to enhance its capabilities in assessing and monitoring the risks facing the Group, and, where appropriate, implementing measures to manage or eliminate these. The FSA authorised subsidiary, NETELLER (UK) Ltd, continues to serve European members as a regulated e-money issuer. Members from other regions are served by NETELLER Operations Limited, an Isle of Man based e-money issuer.
CASH MANAGEMENT
As at 31 December 2008, total Group cash was approximately US$ 82.3 million, which includes restricted cash surpluses and the excess of EU customers' qualifying liquid assets held in respect of e-money issued to European customers over balances payable. The working capital position of the Group, defined as current assets less current liabilities, was approximately US$ 67.4 million. Required cash inventory comprising amounts held at processors, operating account balances to cover payouts and the buffer on trust accounts is approximately US$ 30.0 million, resulting in available "free cash" of about US$ 37.4 million. A substantial portion of this available cash is earmarked for capital expenditures in 2009 (including the completion of the Newteller platform). The Group regards any cash surplus to operational requirements as providing financial flexibility to consider opportunities, both organic and external, to grow the Group's business in line with its strategic vision.
DIVIDEND
In light of the Group's ongoing working capital and investment requirements, slower than expected growth in recent months, and the need to retain sufficient financial flexibility in the current challenging economic environment, the Board is not recommending the payment of a final dividend. The Board will continue to review the appropriate dividend policy for the Group.
DIRECTORS
There have been several changes to the Board since the year end. On 20 January 2009, two Non-Executive Directors, John Bateson and Jonathan Comerford, were appointed to the Board. On 13 March 2009, Ron Martin announced his intention to leave the Group and the Board. The Group has commenced a process to identify and appoint a successor to Mr Martin and in the meantime he will continue in his role for a transitional period.
KEY OBJECTIVES FOR 2009
The Board remains committed to the Group's existing strategic vision and believes that the objectives currently being pursued will lead to improvement in the Group's business performance and results over the medium term. The challenging economic conditions currently being experienced have increased the focus on leveraging near-term revenue uplift opportunities and ensuring that the Group has an appropriate cost structure to support its revenue generation expectations. Initiatives are underway to identify and achieve the most cost-effective operational capability in a number of specific areas, such as contact centre support and payout processing.
The Group announced on 20 March 2009 that the Gibraltar Financial Services Commission ("Gibraltar FSC") would not grant consent for the proposed acquisition of IDT Financial Services ("IDTFS"), a prepaid card business, due to the unwillingness of a substantial shareholder (with controller status) in NEOVIA to provide the requisite information to the Gibraltar FSC. This acquisition had been announced on 1 December 2008 subject to regulatory consent and would have cost the Group $15.05 million consideration, of which approximately $10 million was regulatory banking capital. The Group remains committed to developing its prepaid card business, building on the existing Net+ card operations. The Group continues to explore strategic alternatives to further this objective.
CURRENT TRADING AND OUTLOOK
Trading during the first three months of 2009 reflects a weakening trend in Europe due to an increasingly competitive market, challenging economic conditions, volatile currency markets and limitations in new product introductions until Newteller is launched in Q3 2009.
The Group ended the quarter with 92,757 active e-wallet users, compared to 97,673 at the end of 2008, a decrease of approximately 5% quarter on quarter. Average daily sign ups for the first quarter were 1,023, compared to 928 in Q4 2008, an increase of 10%. Average daily deposits into the e-wallet for the first quarter 2009 were $396,413 compared to $444,758 in the same period of 2008 (Q4 2008: $413,565). The Group now tracks customer receipts (and has restated prior period comparatives) to include receipts from its Canadian non-gambling related transactions and also from the NETELLER (1-Pay) e-wallet in Asia, which has grown successfully to become a significant contributor to both e-wallet transaction volumes and associated fees.
While the Board remains confident about the Group's prospects, the overarching themes for 2009 will be leveraging high potential initiatives, cost control and prudent cash management.
Financial Review
The Group worked diligently in 2008 to lay a solid foundation for the future through product innovation and market expansion, despite the challenges of regulatory compliance and general economic deterioration. Following are the results for the Company and the consolidated results for the Group for the year ended 31 December 2008.
HIGHLIGHTS
The consolidated results of the Group for the year ended 31 December 2008 represent the first full fiscal year without North American operations. Despite deteriorating economic conditions, revenues remained in line with market expectations while gross margin improved and cash flow was maintained. Net income improved from a loss of $185.8 million in 2007 to a loss of $8.1 million in 2008. The loss in 2007 included the $136 million forfeiture to the USAO, as well as restructuring costs associated with the North American withdrawal. 2008 profit before other items increased to $6.4 million, up from a $12.8 million loss in 2007. Increased fee revenue and cost control in 2008 both contributed to the improvement.
REVENUE
Total non-North American revenue in 2008 of $75.6 million (total revenue of $75.9 million) increased 9% from $69.1 million in 2007 (total revenue of $84.0 million), despite increased competition and a global economic downturn. Excluding North America, fee revenue increased to $69.5 million from $55.1 million in 2007. Fee revenue is comprised of charges paid by customers and merchants to use either the e-wallet services or the gateway services.
|
Revenue ($ millions) |
2008 |
2007 |
% growth |
Q4 2008 |
Q4 2007 |
% growth |
|
Europe |
42.2 |
35.1 |
20 % |
11.6 |
8.7 |
33 % |
|
Asia Pacific |
7.7 |
6.1 |
26 % |
2.1 |
1.5 |
40 % |
|
Rest of World |
2.0 |
1.9 |
6 % |
0.6 |
0.4 |
50 % |
|
North America (1) |
0.3 |
- |
nm |
0.3 |
- |
nm |
|
Total e-wallet revenue |
52.2 |
43.1 |
21 % |
14.7 |
10.6 |
39 % |
|
NETBANX |
6.2 |
6.6 |
-6 % |
1.2 |
1.7 |
-29 % |
|
NETBANX Asia |
11.4 |
5.3 |
115 % |
3.6 |
1.5 |
140 % |
|
Total fee revenue |
69.8 |
55.1 |
27 % |
19.5 |
13.8 |
41 % |
|
Interest |
6.1 |
14.1 |
-57 % |
1.5 |
2.4 |
-38 % |
|
Total |
75.9 |
69.1 |
10 % |
21.0 |
16.2 |
30 % |
i) Includes fee revenue earned from Group's Canadian customers related to non-gambling transactions but excluding any US revenue earned prior to withdrawal from US market during Q1 2007
Transaction fee revenue from our top five countries represented 53% of the total for 2008 (2007: 50%) while the top ten countries accounted for approximately 79% (2007: 75%) of total transaction fees (excluding North America).
E-wallet fee revenue
In 2008, European e-wallet revenue increased 20% from $35.1 million to $42.2 million. Asian e-wallet revenue also increased 26% from $6.1 million to $7.7 million in 2007 to 2008 respectively. Marketing programs such as targeted bonuses and VIP fee rebates boosted e-wallet use during the year. The updated pricing structure established in Q2 increased fees for services such as payments and foreign exchange. Furthermore, new fees were generated from a full year of the GlobeWallet debit card program and the Q4 launch of the Net+ prepaid card program. In Q4 2008, inactivity fees were levied on all e-wallet accounts that had no activity for the preceding 14 month period, resulting in $1.5 million of additional fees. Going forward, inactivity fees will be levied every month as new accounts reach the inactivity time threshold. As a result, Q4 fee revenue will continue to 'spike' annually with the majority of inactive accounts being levied the yearly fee in the fourth quarter.
Gateway fee revenue
Gateway fee revenue is earned from NETBANX and NETBANX Asia (formerly1-Pay Direct). NETBANX revenue in Europe decreased 6% from $6.6 million in 2007 to $6.2 million in 2008. NETBANX mainly operates in the UK and the depreciation of Sterling relative to the US dollar in the year resulted in this decline, as well as fee pressure, delays in major contracts, and the economic recession. NETBANX Asia earned $11.4 million in revenue in 2008 compared with $5.3 million in 2007. The 115% increase can be attributed to several factors including first-to-market advantage, introduction of an innovative pricing structure in early 2008, and significant increases in Internet connectivity in the markets served. The NETBANX gateway businesses are becoming an increasingly important source of revenue for the Group. However, Netbanx Limited, acquired in 2005, has performed below management's expectations and an impairment charge has been recognised in 2008.
Interest revenue
As expected, interest revenue decreased by 56% from $14.1 million in 2007 to $6.1 million in 2008. In January 2008, the final forfeiture payment to the USAO was made of $38.25 million. In February 2008, approximately $11.2 million of cash representing e-wallet balances of US residents was transferred to a trustee for continued return to customers as appropriate. These cash outflows significantly reduced the cash on which interest revenue was generated during 2008. The sale of the Group's principal Canadian property in July generated CAD $33.5 million (before sale related costs) which was held as cash, partially offsetting lower cash balances. Interest revenue was also adversely impacted by declining interest rates. US dollar investments earning approximately 4% at the beginning of the year earned less than 1% by the year end. Other currencies such as the Euro and Sterling also featured rate cuts. Low interest rates are expected to continue throughout 2009.
GROSS MARGIN
Gross margin improved to 61.8% in 2008 from 55.6% on 2007 due to successful efforts to lower costs. Customer support is comprised of call centre services such as live chat, phone support, translation services and verification services. Diverting the majority of customer contacts away from telephone towards live chat reduced long distance costs. Negotiating reduced rates on contracts for both telephone and translation augmented the decrease in costs. In addition, these services are mostly provided by the Group's Canadian operations. In 2008, the Canadian dollar depreciated relative to the US dollar from parity in January to 0.80:1 by December, decreasing the cost of customer support salaries and services. In total, customer support costs in 2008 decreased from $12.4 million to $10.0 million, a decrease of 19.4%. Further cost improvements related to customer support will result in 2009 from relocation of certain services to the Company's offices in Asia.
Website maintenance decreased 44.4% from $7.2 million in 2007 to $4.0 million in 2008 due primarily to renegotiated supplier contracts. The devalued Canadian dollar further reduced this cost via the impact on IT salaries for website support. In 2007 and prior years, marketing and promotion expenditures were insignificant and grouped within customer support. In 2008, new promotions of significant size resulted in $1.5 million being separately identified as a direct cost, including $1.3 million of rebates associated with a successful program based on providing e-wallet member bonuses for achieving increased transaction volume goals.
Deposit and withdrawal fees represent the cost of facilitating cash settlement within the traditional banking system in conjunction with third party processors. Deposit and withdrawal fees increased from $10.1 million in 2007 to $13.3 million in 2008, an increase of 31.7%. As a percentage of revenue, these costs increased from 12.1% in 2007 to 17.5% in 2008. The significant growth in NETBANX Asia accounts for a major portion of this increase. NETBANX Asia's 2008 processing costs were $7.7 million, up from $3.3 million in 2007. The 133% increase is consistent with the growth in revenue and decrease in margin due to competitor pricing pressures. The remainder of the increase is attributed to the successful launch of the Net+ prepaid card platform. Costs such as card purchases, software licensing and transaction costs have been incurred throughout 2008. The Net+ platform does not produce high margins - however, it is important in driving volume and scale in the e-wallet business.
Bad debts and collection expenses have decreased from $7.5 million in 2007 to $0.2 million in 2008. The 2007 expense arose due to North American instaCASH and Direct Accept products, and the write-down of North American customer receivables. One-time successful recoveries of previously written off e-wallet accounts reduced these expenses in 2008. The Group expects a nominal increase in bad debt in 2009.
OPERATING EXPENSES
General and administrative
General and administrative expenses decreased by 11.2% from $34.0 million in 2007 to $30.2 million in 2008. Salary expenses were reduced by the impact of depreciation of the Canadian dollar in 2008 as well as the capitalisation of certain Net+ and Newteller development labour costs. The Group implemented an updated market presence policy in 2008 that mandated increased due diligence and monitoring of regulatory, legal and political compliance in all countries in which the Group operates currently and prospectively. This approach to risk assessment and mitigation measures required significant costs related to legal and professional reviews, which are included within G&A expenses. These expenses are expected to decline in 2009 since most of the related activity should be limited to monitoring.
Share option expense
Share option expense decreased 79.8% as expected to $2.7 million in 2008 from $13.5 million in 2007. In December 2007, the Board approved a proposal to cancel employee stock options that were significantly "out of the money". This cancellation resulted in additional accelerated stock option expense of approximately $5 million in 2007, while significantly decreasing the annual expense going forward.
Foreign exchange gain
The results from the Group's subsidiaries in Canada, the UK and Macau are reported in local functional currencies. As required under IFRS, foreign exchange on consolidation of a subsidiary's balance sheet is captured in equity, but the subsidiary's individual exposure to foreign currency is captured in income. During 2008, foreign exchange gains of $0.3 million were generated compared to losses of $0.5 million in 2007. The Group employs forward foreign exchange contracts to mitigate exposure of financial risk associated with foreign currency balances.
Depreciation and amortisation
In 2008, $6.4 million of depreciation and amortisation includes $3.4 million of amortisation of intangible assets and $3.0 million in depreciation of capital assets. This compared to $8.6 million in 2007, made up of $4.0 million of amortisation of intangible assets and $4.6 million in depreciation of capital assets. The large decrease in 2008 for depreciation relates to the sale of the Calgary property mid year. 2008 depreciation expense relating to the building was $nil (2007 - $1.4 million).
Impairment loss
At each balance sheet date, the Group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. At 31 December 2008, impairment testing was performed on goodwill and intangible assets created on the purchase of NETBANX Limited. These tests revealed that goodwill of $8.6 million and unamortised intangible assets of $5.9 million may not have a recoverable value. Impairment losses of $14.5 million were therefore recognised in the consolidated statement of income for 2008.
Restructuring costs
Restructuring costs decreased 97% from $37.0 million in 2007 to $1.1 million in 2008 as the majority of North American withdrawal costs occurred in the months immediately following market exit. 2008 costs include provisions against contracts and deposits with suppliers related to the former North American facing business.
Impairment of acquisition costs
On 1 December 2008, the Group entered into an agreement to acquire IDT Corporation's European prepaid payment services division, IDT Financial Services Holdings Limited (IDTFSH). The acquisition was conditional on Gibraltar FSC regulatory approval, which NEOVIA became aware would not be granted on 20 March 2009. The Group incurred $0.6 million of acquisition costs including professional and legal fees, travel expenses and internal labour to 31 December 2008. All of these costs have been recognised as an expense in the year. Acquisition costs incurred subsequent to 31 December 2008 will be reflected as expense in 2009.
Taxes
The tax model is based on the mark-up of services provided by various subsidiaries to the Group's parent in the Isle of Man, where source revenues are non-taxable because of the zero rate of tax on companies other than banks. In 2008, the provision for income taxes was a recovery of $1.8 million compared to tax provision of $nil in 2007. The restructuring in 2007 resulted in significantly reduced services provided from NT Services Limited to the Company. In 2007, tax instalments to Canadian authorities were paid as assessed based on 2006 operating levels. Excess tax instalments of $2.1 million have been refunded in 2008 as a result. As a result of the restructuring, the Group reviewed the mark-up of services between NT Services Limited and the Company with an updated transfer pricing study and report prepared in 2008. The report determined that the proportions of services provided had changed compared to previous years, resulting in a significant reduction in the mark-up. Accordingly, the 2008 tax provision was further reduced by $1.8 million.
BALANCE SHEET
The cash and cash equivalents balance at 31 December 2008 of $76.2 million represents the unrestricted cash of the Group (2007: $80.8 million). Included in cash and cash equivalents is a transient cash balance that relates to merchant transactions processed via the NETBANX and NETBANX Asia gateway operations. The gateway operations do not fall within the EU definition of "e-money" nor does a legal right of offset exist between this cash and the corresponding merchant liabilities. The cash and the merchant liabilities relating to gateway operations are therefore both recognised, in accordance with IFRS, on the face of the balance sheet as cash and cash equivalents and trade and other payables respectively.
The gross quantum of cash available to the Group, including restricted cash surpluses and the excess of qualifying liquid assets held in respect of e-money issued to European customers over balances payable, totalled $82.3 million. This compared with $96.4 million at 31 December 2007. These cash figures are before deduction of current liabilities. The decline in cash is due to the final forfeiture to the USAO of $38.25 million in January of 2008, which was largely offset by the proceeds from the sale of the principal Calgary property for CAD $33.5 million. The Group maintains bank accounts which are segregated from operating funds and contain funds held on behalf of merchants and non-European customers, representing pooled customer funds. The bank accounts are designated as client accounts. Balances in the segregated client accounts are maintained at a sufficient level to fully offset amounts owing to the Group's merchants and non-European customers. A legal right of offset exists between the balances owing to the merchants and non-European customers and the cash balances segregated in the client accounts. As such, only the net balance of surplus cash is disclosed on the balance sheet as Restricted Cash. The Group, as a matter of policy, holds small amounts of excess cash in the accounts to ensure intraday balance movements do not result in a shortfall in the cash position. The net excess is disclosed as a corporate asset.
In compliance with FSA regulations, the Group held qualifying liquid assets in respect of e-money issued to European customers totalling $63.4 million as at 31 December 2008. These funds are segregated from operating funds. The balances are maintained at levels which are at least equal to the amounts owing to European customers, totalling $60.3 million as at 31 December 2008. These qualifying liquid assets and the amounts payable to European customers are reported gross on the balance sheet.
Total current liabilities of $80.5 million have decreased from $120.5 million in 2007 due to the payment of the final forfeiture to the USAO. This has resulted in a current ratio of 1.84 to 1 in 2008, an improvement from 1.31 to 1 in 2007.
On 10 July 2008, the Group completed the sale of its principal property in Calgary. The Group continues to lease two areas of the property on usual commercial terms for a period of three years and five years respectively following the sale. The total consideration of the sale was CAD $33.5 million which was $0.1 million below the net book value of the property, after sale related expenses. The net book value of intangible assets at 31 December 2007 and 2008 remained approximately the same at $17.9 million. In the year, the Group recorded a full impairment loss on NETBANX intangible assets of $5.9 million, while at the same time incurring significant development costs on the Newteller platform and the Net+ prepaid card platform for a net nil change.
In Q3 2008, the Group increased its stake in Centricom Pty Limited with a further investment of $1.7 million. The Group now holds 42.83% (fully diluted) of Centricom Pty Limited, and this is classified on the Company and Group balance sheets as an "Investment in associate". Consideration for the increased stake was a combination of cash and the Group's 50% holding in Centricom Europe Limited, a joint venture established in the UK.
FOREIGN CURRENCY EXPOSURE
Global operations have necessitated an increasing foreign currency exposure. The Group's treasury policy objective is to identify material foreign currency exposures and to manage those exposures to minimise the potential effects of currency fluctuations on consolidated cash flow and results of operations.
OFF BALANCE SHEET ARRANGEMENTS
As of 31 December 2008, the Group had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Group's consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources. All e-wallet related merchant and non-European customer funds are held in designated client accounts and excluded from the Group's consolidated balance sheet. There are no investments held at 31 December 2008 that are part of US subprime investment vehicles.
* * *
The Group's audited consolidated financial statements and accompanying notes are set out in Part 2 of the Audited Results statement and are also available at www.neovia.com.
The Group's 2008 annual report and audited accounts is today published on the Company's website and is being sent to shareholders accordingly. The Company will hold its sixth annual general meeting in the Isle of Man on Thursday 17 June 2009. For further information, please contact [email protected].
|
Consolidated Balance Sheet as at 31 December 2008 |
||
|
31 DECEMBER 2008 |
31 DECEMBER 2007 |
|
|
$ |
$ |
|
|
ASSETS |
||
|
Current |
||
|
Cash and cash equivalents |
76,246,169 |
80,750,283 |
|
Restricted cash (Note 4) |
2,941,543 |
10,817,605 |
|
Qualifying Liquid Assets held for European customers (Note 5) |
63,444,278 |
61,885,103 |
|
Receivable from customers (Note 6) |
702,000 |
475,000 |
|
Trade and other receivables |
1,253,586 |
735,399 |
|
Prepaid expenses and deposits |
3,309,125 |
2,708,248 |
|
147,896,701 |
157,371,638 |
|
|
Non-current assets |
||
|
Mortgage receivable (Note 7) |
616,119 |
764,550 |
|
Property, plant & equipment (Note 8) |
8,759,068 |
44,305,153 |
|
Intangible assets (Note 9) |
17,872,820 |
17,885,728 |
|
Goodwill (Note 10) |
- |
11,802,162 |
|
Investment in associate (Note 11) |
5,085,074 |
4,115,626 |
|
Interest in joint venture (Note 12) |
- |
50,258 |
|
180,229,782 |
236,295,115 |
|
|
LIABILITIES |
||
|
Current |
||
|
Trade and other payables (Note 13) |
18,318,683 |
22,901,237 |
|
Payable to European customers (Note 5) |
60,307,346 |
57,032,664 |
|
Forfeiture payable (Note 14) |
- |
38,250,415 |
|
Taxes payable (Note 15) |
1,904,472 |
2,326,889 |
|
80,530,501 |
120,511,205 |
|
|
SHAREHOLDERS' EQUITY |
||
|
Share capital (Note 16) |
39,725 |
39,725 |
|
Share premium |
50,554,492 |
50,554,492 |
|
Capital redemption reserve |
147 |
147 |
|
Equity reserve on share option issuance |
5,954,728 |
3,219,506 |
|
Translation reserve (Note 17) |
(1,320,417) |
9,412,813 |
|
Retained earnings |
44,470,606 |
52,557,227 |
|
99,699,281 |
115,783,910 |
|
|
180,229,782 |
236,295,115 |
|
|
Consolidated Income Statement
for the Year Ended 31 December 2008
|
|
||
|
|
YEAR ENDED 31 DECEMBER 2008
$
|
YEAR ENDED
31 DECEMBER
2007
$
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
Transaction fees
|
69,803,341
|
69,930,071
|
|
|
Investment income
|
6,141,380
|
14,072,368
|
|
|
|
75,944,721
|
84,002,439
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
Customer support
|
9,996,766
|
12,427,967
|
|
|
Website maintenance
|
3,959,698
|
7,172,417
|
|
|
Marketing and promotions (Note 18)
|
1,538,955
|
-
|
|
|
Deposit and withdrawal fees
|
13,309,669
|
10,143,891
|
|
|
Bad debts (Note 6)
|
174,399
|
7,534,553
|
|
|
Gross profit
|
46,965,234
|
46,723,611
|
|
|
|
|
|
|
|
Operating expenses/(income)
|
|
|
|
|
General and administrative
|
30,170,128
|
33,992,095
|
|
|
Share option expense (Note 23)
|
2,735,222
|
13,523,346
|
|
|
Management bonus
|
799,212
|
2,643,030
|
|
|
Foreign exchange (gain)/loss
|
(289,991)
|
516,466
|
|
|
Depreciation and amortisation (Note 19)
|
6,351,788
|
8,582,983
|
|
|
Investment loss (Note 11)
|
773,143
|
243,536
|
|
|
Profit/(loss) before other items
|
6,425,732
|
(12,777,845)
|
|
|
|
|
|
|
|
Other items
|
|
|
|
|
Impairment loss (Notes 9 & 10)
|
14,498,163
|
-
|
|
|
Restructuring costs (Note 20)
|
1,113,927
|
36,981,517
|
|
|
Loss on disposal of assets (Note 8)
|
110,753
|
-
|
|
|
Forfeiture of profits related to US withdrawal (Note 14)
|
-
|
136,000,000
|
|
|
Acquisition costs impairment (Note 26)
|
620,439
|
-
|
|
|
Loss before tax
|
(9,917,550)
|
(185,759,362)
|
|
|
|
|
|
|
|
Income tax (recovery)/expense (Note 15)
|
(1,830,929)
|
14,734
|
|
|
|
|
|
|
|
Net loss for the year
|
(8,086,621)
|
(185,774,096)
|
|
|
|
|
|
|
|
Basic (loss) per share (Note 21)
|
$(0.07)
|
$(1.55)
|
|
|
|
|
|
|
|
Diluted (loss) per share (Note 21)
|
$(0.07)
|
$(1.55)
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Changes in Equity
for the Year Ended 31 December 2008
|
|||
|
SHARE CAPITAL - ORDINARY SHARES $ |
SHARE CAPITAL - DEFERRED SHARES $ |
TOTAL SHARE CAPITAL $ |
SHARE PREMIUM $ |
EQUITY RESERVE ON SHARE OPTION ISSUANCE $ |
TRANSLATION RESERVE ON FOREIGN OPERATIONS $ |
CAPITAL REDEMPTION RESERVE $ |
RETAINED EARNINGS $ |
TOTAL $ |
|
|
Balance as at 1 January 2007 |
21,725 |
18,000 |
39,725 |
50,554,492 |
9,683,697 |
1,349,198 |
147 |
218,343,785 |
279,971,044 |
|
|
|
||||||||
|
Equity reserve on option issuance |
- |
- |
- |
- |
13,523,347 |
- |
- |
- |
13,523,347 |
|
Translation reserve on foreign operations |
- |
- |
- |
- |
- |
8,063,615 |
- |
- |
8,063,615 |
|
Transfer on expiry |
- |
- |
- |
- |
(19,987,538) |
- |
- |
19,987,538 |
- |
|
Net profit for the year |
- |
- |
- |
- |
- |
- |
- |
(185,774,096) |
(185,774,096) |
|
Balance as at 31 December 2007 |
21,725 |
18,000 |
39,725 |
50,554,492 |
3,219,506 |
9,412,813 |
147 |
52,557,227 |
115,783,910 |
|
Balance as at 1 January 2008 |
21,725 |
18,000 |
39,725 |
50,554,492 |
3,219,506 |
9,412,813 |
147 |
52,557,227 |
115,783,910 |
|
Equity reserve on option issuance |
- |
- |
- |
- |
2,735,222 |
- |
- |
- |
2,735,222 |
|
Translation reserve on foreign operations |
- |
- |
- |
- |
- |
(10,733,230) |
- |
- |
(10,733,230) |
|
Net loss for the year |
- |
- |
- |
- |
- |
- |
- |
(8,086,621) |
(8,086,621) |
|
Balance as at 31 December 2008 |
21,725 |
18,000 |
39,725 |
50,554,492 |
5,954,728 |
(1,320,417) |
147 |
44,470,606 |
99,699,281 |
|
Consolidated Statement of Cash Flows for the Year Ended 31 December 2008 |
YEAR ENDED 31 DECEMBER 2008 |
YEAR ENDED 31 DECEMBER 2007 |
|
$ |
$ |
|
|
OPERATING ACTIVITIES |
||
|
Loss before tax |
(9,917,550) |
(185,759,362) |
|
Adjustments for: |
||
|
Depreciation and amortisation |
6,351,788 |
8,582,983 |
|
Unrealised foreign exchange loss/(gain) |
7,158,047 |
(667,866) |
|
Share option expense |
2,735,222 |
13,523,346 |
|
Investment loss (Note 11) |
773,143 |
243,536 |
|
Impairment loss (Notes 9 & 10) |
14,498,163 |
- |
|
Asset write down and disposal on restructuring (Note 20) |
- |
13,213,027 |
|
Asset disposal (Note 8) |
110,753 |
- |
|
Operating cash flows before movements in working capital |
21,709,566 |
(150,864,336) |
|
Increase in receivable from customers |
(227,000) |
2,146,319 |
|
Increase in trade and other receivables |
(518,186) |
130,710 |
|
Increase in prepaid expenses and deposits |
(600,878) |
566,229 |
|
Decrease in trade and other payables |
(4,859,987) |
4,428,565 |
|
Forfeiture payable (Note 14) |
(38,250,415) |
38,250,415 |
|
Cash consumed by operations |
(22,746,900) |
(105,342,099) |
|
Tax paid |
1,408,512 |
(2,589,141) |
|
Net cash consumed by operating activities |
(21,338,388) |
(107,931,240) |
|
INVESTING ACTIVITIES |
||
|
Increase in payable to European customers |
3,274,682 |
2,974,617 |
|
Purchase of property, plant & equipment and intangible assets |
(14,774,124) |
(30,203,134) |
|
Proceeds from disposal of property, plant & equipment |
32,894,740 |
3,789,672 |
|
Decrease in restricted cash accounts |
7,876,062 |
1,177,612 |
|
Increase in Qualifying Liquid Assets held for European customers |
(1,559,175) |
1,540,579 |
|
Investment in associate (Note 11) |
(1,486,768) |
(4,359,162) |
|
Investment in joint venture (Note 12) |
(205,564) |
(50,258) |
|
Net cash generated/(consumed) by investing activities |
26,019,853 |
(25,130,074) |
|
FINANCING ACTIVITIES |
||
|
Mortgage receivable |
148,432 |
(764,550) |
|
Conditional consideration |
- |
(2,482,330) |
|
Net cash generated/(consumed) by financing activities |
148,432 |
(3,246,880) |
|
Increase/(decrease) in cash and cash equivalents during the year |
4,829,897 |
(136,308,194) |
|
Net effect of foreign exchange on cash and cash equivalents |
(3,716,493) |
674,450 |
|
Translation of foreign operations |
(5,617,518) |
218,862 |
|
Cash and cash equivalents, beginning of year |
80,750,283 |
216,165,165 |
|
Cash and cash equivalents, end of year |
76,246,169 |
80,750,283 |
Notes to Consolidated Financial Statements for the Year Ended 31 December 2008
1. GENERAL
NETELLER plc (the "Company") was a private company incorporated under the laws of the Isle of Man ("IOM") on 31 October 2003 and was registered as a public company on 1 April 2004. NETELLER plc changed its name to NEOVIA Financial Plc on 17 November 2008. The principal activities of the Company and the Group are described in Note 2. The Group includes the Company and its wholly owned subsidiaries as set out under "Principles of consolidation" in note 3 below.
These financial statements are presented in US dollars ("$") since that is the currency in which the majority of the Group's transactions are denominated.
At 31 December 2008, the Group had 450 employees (2007: 419 employees).
2. NATURE OF OPERATIONS
The Group provides services to businesses and individuals to allow the processing of direct debit, electronic cheque and credit card payments. The Group processes direct debit, electronic cheque and credit card payments for internet merchants. NETELLER (UK) Ltd (a wholly-owned subsidiary of NEOVIA Financial Plc) is authorised and regulated by the Financial Services Authority in the United Kingdom as an e-money issuer.
3. SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with applicable IOM law and International Financial Reporting Standards ("IFRS"). The following principal accounting policies have been applied:
Principles of consolidation
The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (and its subsidiaries) as at the year end. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. The consolidated financial statements include the accounts of the Company and its principal wholly owned subsidiaries, NETELLER Operations Limited, NetAdmin Limited, Net ID Limited, NT Services Limited, NETELLER (UK) Ltd, NetBanx Limited, Quick Access International Limited, 1155259 Alberta Limited, NT Services Building Corporation, NETELLER Express Limited and Cardload Incorporated. All inter-company transactions and balances between Group enterprises are eliminated on consolidation.
In the non-consolidated financial statements of the Company, investments in subsidiaries are stated at cost.
Investments in associates
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group's share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group's interest in that associate (which includes any long-term interests that, in substance, form part of the Group's net investment in the associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.
Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group's interest in the relevant associate.
Interests in joint ventures
A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control that is when the strategic financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control.
Joint venture arrangements that involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities. The Group has significant influence on the entity and reports its interests in jointly controlled entities using the equity method of accounting. Under the equity method, investments in joint ventures are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group's share of the net assets of the entity, less any impairment in the value of individual investments.
Where the Group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the extent of the Group's interest in the joint venture.
Cash and cash equivalents
Cash equivalents are defined as short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Intangible assets
Intellectual property is recorded at cost and is amortised on a straight-line basis over its estimated useful life which is assessed to be three years.
Website development costs are recorded at cost and are amortised over their estimated useful life using the declining-balance method at 30%.
Intangible assets resulting from acquisitions are amortised straight line over 8-10 years.
Property, plant & equipment
Land is not depreciated. Property, plant & equipment are recorded at cost and are amortised over their estimated useful lives, using the declining-balance method, on the following basis:
Communication equipment 20%
Furniture and equipment 20%
Computer equipment 30%
Other assets are depreciated over their estimated useful lives, using the straight-line method, on the following basis:
Computer software 2 years
Building & Leasehold Improvements 4% and 10 years respectively
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income.
Impairment
The carrying amount of the Group's assets, other than deferred tax assets (see accounting policy below) are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of subsidiaries at the date of acquisition.
Goodwill is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Receivable from customers
Trade and other receivables, including receivables from customers, are stated at their amortised cost less impairment losses and doubtful accounts.
Deferred tax
The Group uses the balance sheet liability method of accounting for income taxes. Temporary differences arising from the difference between the tax basis of an asset or liability and its carrying amount on the balance sheet are used to calculate deferred tax assets or liabilities. Deferred tax assets or liabilities are calculated using tax rates anticipated to exist in the periods that the temporary differences are expected to reverse.
Segment information
No analysis related to segmented profit and loss information is disclosed, as the Directors of the Company are of the opinion that all of the Group's activities arise from online transactions where the production is singular and all economic and geographic environments are subject to similar risks and returns.
Revenue recognition
The Group is involved in transaction processing services. Revenues from transaction processing services are recognised at the time services are rendered. Customer revenue is recognised either as a fee calculated as a percentage of funds processed or as a charge per transaction, pursuant to the respective customer agreements. Merchant revenue is recognised as a fee calculated as a percentage of funds processed on behalf of merchants.
Interest income is accrued on a monthly basis, by reference to the principal outstanding and at the effective interest rate applicable.
Leases
All leases are classified as operating leases as the terms of the lease do not transfer substantially all the risks and rewards of ownership to the lessee.
Foreign exchange
The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in United States dollars, which is the functional currency of NEOVIA Financial Plc, and the presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period, except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations (including comparatives) are expressed in United States dollars using exchange rates prevailing on the balance sheet date. Income and expense items (including comparatives) are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised in profit or loss in the period in which the foreign operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of foreign operations are treated as assets and liabilities of the foreign operation and translated at the closing rate.
Related party transactions
Monetary related party transactions in the normal course of operations are recorded at fair value, and transactions between related parties, not in the normal course of operations, are recorded at the carrying value as recorded by the transferor.
Use of estimates
The preparation of the Group's financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingencies at the date of the Group's financial statements, and revenue and expenses during the reporting period. Actual results could differ from those estimated. Significant estimates in the Group's financial statements include the amount recorded for provision for doubtful accounts, commitments and contingencies. By their nature, these estimates and assumptions are subject to measurement uncertainty and the effect on the Group's financial statements of changes in estimates in future periods could be significant.
Foreign exchange contracts
The Group uses foreign exchange contracts to reduce its exposure to adverse fluctuations in foreign exchange rates. These financial instruments are presented in the accompanying consolidated financial statements at fair value. Fair values are based on market quotes, current foreign exchange rates or management estimates, as appropriate, and gains and losses on the foreign exchange contracts are reflected in the consolidated income statement. The increase or decrease in the fair value of the contracts has been taken to income.
Research and development
Research expenditure is written off to the income statement in the period in which it is incurred.
Development expenditure is written off in the same way unless management is satisfied as to the technical, commercial and financial viability of the individual projects. In this situation, the expenditure is capitalised at cost, less a provision for any impairment in value, and is amortised on the commencement of use over the period in which benefits are expected to be received by the Group.
Share-based payments
The company issues share options to certain employees, including Directors. Share options are measured at fair value at the date of grant. The fair value determined at the grant date of the share option is expensed on a straight-line basis over the vesting period, based on the Company's estimate of shares that will eventually vest. Fair value is measured using the Trinomial Lattice pricing model. When necessary, the expected life used in the model is adjusted, based on management's best estimates, for the effects of non-transferability, exercise restrictions and behavioural considerations.
Offsetting
Financial assets and liabilities are set off and the net amount presented in the balance sheet when, and only when, the Group has a legal enforceable right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arising from a group of similar transactions such as in the Group's trading activity.
Defined contribution pension plans
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.
4. RESTRICTED CASH
For merchants and non-European customers, the Group maintains bank accounts with the Company's principal bankers which are segregated from operating funds and which contain funds held on behalf of customers, representing pooled customer funds. Balances in the segregated accounts are maintained at a sufficient level to fully offset amounts owing to the Group's merchants and customers. A legal right of offset exists between the balances owing to the merchants (excluding NetBanx & Netbanx Asia merchant liabilities, see Note 13) and customers and the cash balances segregated in the client accounts. As such, only the net balance of surplus cash is disclosed on the balance sheet as Restricted Cash.
At 31 December 2008, the Group had the following balances:
|
CLIENT ACCOUNT FUNDS |
BALANCE OWING |
RESTRICTED CASH |
|
|
$ |
$ |
$ |
|
|
Non-European Customers |
24,062,805 |
23,489,751 |
573,054 |
|
Merchants |
61,934,429 |
59,565,940 |
2,368,489 |
|
85,997,234 |
83,055,691 |
2,941,543 |
At 31 December 2007, the Group had the following balances:
|
CLIENT ACCOUNT FUNDS |
BALANCE OWING |
RESTRICTED CASH |
|
|
$ |
$ |
$ |
|
|
Non-European Customers |
41,755,492 |
34,350,329 |
7,405,163 |
|
Merchants |
48,957,085 |
45,544,643 |
3,412,442 |
|
90,712,577 |
79,894,972 |
10,817,605 |
5. QUALIFYING LIQUID ASSETS HELD FOR EUROPEAN CUSTOMERS
In compliance with the Financial Services Authority rules and regulations, the Group holds Qualifying Liquid Assets at least equal to the amounts owing to European customers. These amounts are maintained in accounts which are segregated from operating funds.
The Group had the following balances:
|
AS AT 31 DECEMBER 2008 $ |
AS AT 31 DECEMBER 2007 $ |
|
|
Qualifying Liquid Assets held for European customers |
63,444,278 |
61,885,103 |
|
Payable to European customers |
(60,307,346) |
(57,032,664) |
|
3,136,932 |
4,852,439 |
|
6. RECEIVABLE FROM CUSTOMERS
The Group had the following balances:
|
AS AT 31 DECEMBER 2008 |
AS AT 31 DECEMBER 2007 |
|
|
$ |
$ |
|
|
Receivable from customers |
994,765 |
16,296,289 |
|
Provision for doubtful accounts |
(292,765) |
(15,821,289) |
|
702,000 |
475,000 |
Receivable from customers consists of balances that are due from customers and are in the process of collection. The net receivable from customers represents the amounts which are expected to be collected through the normal course of business. Balances in 2007 represent accounts due from North American customers with corresponding bad debt expense recognized in 2007. The balances were written off during 2008 as a result of the withdrawal from the North American market. The 2008 balances represent amounts due from NetBanx's merchant customers.
7. MORTGAGE RECEIVABLE
The Group holds a mortgage as a portion of the proceeds on the sale of the Group's 41st Avenue property in Calgary. Interest at a rate of 6% is charged with the principal receivable on 1 October 2010. The payment schedule is as follows:
|
INTEREST |
PRINCIPAL |
PRINCIPAL |
|
|
CAD $ |
CAD $ |
USD $ |
|
|
2009 |
45,000 |
- |
- |
|
2010 |
33,750 |
750,000 |
616,119 |
|
78,750 |
750,000 |
616,119 |
8. PROPERTY, PLANT & EQUIPMENT
The Group has the following balances:
|
COMMUNICATION EQUIPMENT $ |
FURNITURE AND EQUIPMENT $ |
COMPUTER EQUIPMENT $ |
COMPUTER SOFTWARE $ |
BUILDING AND IMPROVEMENTS $ |
LAND $ |
TOTAL $ |
|
|
Cost |
|||||||
|
As at 31 December 2006 |
3,099,761 |
2,312,105 |
4,191,037 |
8,257,663 |
12,848,216 |
936,396 |
31,645,178 |
|
Additions |
530,598 |
351,883 |
87,201 |
3,380,556 |
14,113,828 |
5,622,351 |
24,086,417 |
|
Write down |
- |
- |
(747,848) |
(4,476,328) |
- |
- |
(5,224,176) |
|
Disposals |
- |
- |
(135,685) |
(36,776) |
(3,191,530) |
(1,169,777) |
(4,533,768) |
|
Re-classification |
- |
(510,872) |
- |
118,156 |
510,872 |
- |
118,156 |
|
Exchange difference |
542,853 |
409,048 |
788,213 |
710,802 |
5,298,769 |
1,237,130 |
8,986,815 |
|
As at 31 December 2007 |
4,173,212 |
2,562,164 |
4,182,918 |
7,954,073 |
29,580,155 |
6,626,100 |
55,078,622 |
|
Additions |
150,706 |
133,197 |
315,885 |
1,921,057 |
42,826 |
- |
2,563,671 |
|
Disposals |
- |
(44,649) |
(13,421) |
(96,863) |
(28,261,507) |
(6,434,350) |
(34,850,790) |
|
Exchange difference |
(1,117,703) |
(471,646) |
(797,452) |
(940,614) |
(929,710) |
(191,750) |
(4,448,875) |
|
As at 31 December 2008 |
3,206,215 |
2,179,066 |
3,687,930 |
8,837,653 |
431,764 |
- |
18,342,628 |
|
Accumulated depreciation |
|||||||
|
As at 31 December 2006 |
569,757 |
425,328 |
1,721,531 |
2,661,985 |
726,121 |
- |
6,104,722 |
|
Charge for the year |
685,244 |
418,995 |
691,654 |
1,405,093 |
1,420,714 |
- |
4,621,700 |
|
Write down |
- |
- |
- |
(856,531) |
- |
- |
(856,531) |
|
Disposals |
- |
- |
(49,811) |
(24,211) |
(474,413) |
- |
(548,435) |
|
Re-classification |
- |
(82,354) |
- |
120,656 |
82,354 |
- |
120,656 |
|
Exchange difference |
209,319 |
104,067 |
376,761 |
405,868 |
235,342 |
- |
1,331,357 |
|
As at 31 December 2007 |
1,464,320 |
866,036 |
2,740,135 |
3,712,860 |
1,990,118 |
- |
10,773,469 |
|
Charge for the year |
659,070 |
343,740 |
417,684 |
1,514,372 |
21,663 |
- |
2,956,529 |
|
Disposals |
- |
(13,217) |
(9,905) |
(96,863) |
(1,877,097) |
- |
(1,997,082) |
|
Exchange Difference |
(610,897) |
(206,410) |
(556,217) |
(712,364) |
(63,468) |
- |
(2,149,356) |
|
As at 31 December 2008 |
1,512,493 |
990,149 |
2,591,697 |
4,418,005 |
71,216 |
- |
9,583,560 |
|
Net book value |
|||||||
|
As at 31 December 2006 |
2,530,004 |
1,886,777 |
2,469,506 |
5,595,678 |
12,122,095 |
936,396 |
25,540,456 |
|
Net book value |
|||||||
|
As at 31 December 2007 |
2,708,892 |
1,696,128 |
1,442,783 |
4,241,213 |
27,590,037 |
6,626,100 |
44,305,153 |
|
Net book value |
|||||||
|
As at 31 December 2008 |
1,693,722 |
1,188,917 |
1,096,233 |
4,419,648 |
360,548 |
- |
8,759,068 |
2007
Computer equipment and computer software write down
The Group recorded a write down of $4.4 million (net of accumulated depreciation) related to computer equipment and computer software assets in the year ended 31 December 2007. The Group identified the cessation of transaction processing in the North American market and the resultant significant restructuring of the Group's cost base as indication of asset impairment. Excess computer equipment was disposed for nominal proceeds and written down to nil net book value. The carrying amount of computer software was written down to the estimated recoverable amount based on future cash flows expected from non-North American markets.
Asset disposal
The Group has sold its Calgary property located on 41st Avenue on 4 September 2007. Proceeds of approximately CAD $4 million were received with CAD $0.75 million payable as a vendor take back mortgage over three years as set out in Note 7 to the Financial Statements.
2008
Disposal of property, furniture and equipment
The Group completed the sale of its principal property at 27th Avenue in Calgary, Canada on 10 July 2008 for total consideration of CAD $33.5 million. A loss of $75,805 was recorded on disposition. The Group will continue to lease two areas of the property from the purchaser on usual commercial terms for a period of three years and five years respectively following the sale. The Group also disposed of furniture during the year with a carrying value of $34,948 for net proceeds of $Nil. The total loss on disposal of assets was $110,753 for the year.
9. INTANGIBLE ASSETS
The Group has the following balances:
|
INTELLECTUAL PROPERTY $ |
WEBSITE DEVELOPMENT $ |
TOTAL $ |
|
|
Cost |
|||
|
As at 31 December 2006 |
18,056,199 |
17,804,251 |
35,860,450 |
|
Additions |
369,151 |
5,747,567 |
6,116,718 |
|
Write down |
- |
(11,866,305) |
(11,866,305) |
|
Exchange difference |
- |
567,781 |
567,781 |
|
As at 31 December 2007 |
18,425,350 |
12,253,294 |
30,678,644 |
|
Additions |
118,787 |
11,939,882 |
12,058,669 |
|
Impairment loss (Note 10) |
(8,638,038) |
- |
(8,638,038) |
|
Exchange difference |
(3,164,125) |
(1,951,368) |
(5,115,493) |
|
As at 31 December 2008 |
6,741,974 |
22,241,808 |
28,983,782 |
|
Accumulated amortisation |
|||
|
As at 31 December 2006 |
7,844,469 |
4,135,423 |
11,979,892 |
|
Charge for the year |
1,286,416 |
2,674,868 |
3,961,284 |
|
Write down |
- |
(3,526,747) |
(3,526,747) |
|
Exchange difference |
- |
378,487 |
378,487 |
|
As at 31 December 2007 |
9,130,885 |
3,662,031 |
12,792,916 |
|
Charge for the year |
1,142,334 |
2,252,925 |
3,395,259 |
|
Impairment loss (Note 10) |
(2,777,914) |
- |
(2,777,914) |
|
Exchange difference |
(946,568) |
(1,352,731) |
(2,299,299) |
|
As at 31 December 2008 |
6,548,737 |
4,562,225 |
11,110,962 |
|
Net book value |
|||
|
As at 31 December 2006 |
10,211,730 |
13,668,828 |
23,880,558 |
|
Net book value |
|||
|
As at 31 December 2007 |
9,294,465 |
8,591,263 |
17,885,728 |
|
Net book value |
|||
|
As at 31 December 2008 |
193,237 |
17,679,583 |
17,872,820 |
Intangible asset write down
The Group recorded a write down of $8.3 million (net of accumulated amortisation) related to website development assets in 2007. The Group identified the cessation of transaction processing in the North American market and the resultant significant restructuring of the Group's cost base as an indication of asset impairment. The carrying amount was written down to the estimated recoverable amount based on future cash flows expected from non-North American markets.
10. GOODWILL
The Group has the following balances:
|
QUICK ACCESS INTERNATIONAL LIMITED $ |
NETBANX LIMITED $ |
TOTAL $ |
|
|
Cost |
|||
|
Balance at 31 December 2006 |
5,766,012 |
11,646,188 |
17,412,200 |
|
Exchange differences |
- |
155,974 |
155,974 |
|
Balance at 31 December 2007 |
5,766,012 |
11,802,162 |
17,568,174 |
|
Exchange differences |
- |
(3,164,124) |
(3,164,124) |
|
Balance at 31 December 2008 |
5,766,012 |
8,638,038 |
14,404,050 |
|
Accumulated impairment losses |
|||
|
Balance at 31 December 2006 |
5,766,012 |
- |
5,766,012 |
|
Impairment loss recognised in the year |
- |
- |
- |
|
Balance at 31 December 2007 |
5,766,012 |
- |
5,766,012 |
|
Impairment loss recognised in the year |
- |
8,638,038 |
8,638,038 |
|
Balance at 31 December 2008 |
5,766,012 |
8,638,038 |
14,404,050 |
|
Carrying amount |
|||
|
As at 31 December 2007 |
- |
11,802,162 |
11,802,162 |
|
Carrying amount |
|||
|
As at 31 December 2008 |
- |
- |
- |
The Group performs goodwill and intangible impairment tests at least annually or whenever events or changes in circumstances indicate that the goodwill and intangible carrying value for a business unit may not be recoverable.
In the fourth quarter of fiscal 2008, the Group recorded goodwill and intangible asset impairment of $8.6 million and $5.9 million respectively (net of any related accumulated amortisation) representing complete impairment of goodwill and intangible assets acquired on the purchase of NetBanx Limited in 2005. In accordance with IAS 36, an impairment loss should be recognised when the recoverable amount of an asset is less than its carrying amount. The recoverable amount was deemed to be zero, based on an analysis of the unit's future cash flow projections and management's best estimate of the set of economic conditions that will exist over the remaining useful life of the assets.
The recoverable amount of NetBanx Limited ('the cash-generating unit') is based on value-in-use calculations. Those calculations use cash flow projections based on actual operating results. A pre-tax discount rate of 5.5% has been used in discounting the projected cash flows. The recoverable amount of the cash-generating unit exceeds its carrying amount. The Board believes that any reasonably possible change in the key assumptions on which the cash-generating unit's recoverable amount is based would not cause the cash-generating unit's carrying amount to exceed its recoverable amount.
11. INVESTMENT IN ASSOCIATE
|
Name of Associate |
Principal Activity |
Place of incorporation and operation |
Ownership Interest |
|
|
|
|
31 December 2008 |
|
Centricom Pty Limited |
Electronic payment processing |
Australia |
51% |
On 24 November 2008, the Group increased its investment in Centricom Pty to a majority ownership interest of 51%. However, the Group is unable to exercise control as it holds 50% of the voting shares (42.83% on a fully diluted basis).. As such, the Group is only able to exercise significant influence over Centricom Pty and the investment is accordingly accounted for under the Equity Method of accounting and not proportionately consolidated.
|
AS AT 31 DECEMBER 2008 $ |
AS AT 31 DECEMBER 2007 $ |
|
|
Cost |
||
|
Opening balance |
4,115,626 |
- |
|
Share purchase |
1,742,591 |
4,359,162 |
|
Group and Company's share of loss |
(773,143) |
(243,536) |
|
5,085,074 |
4,115,626 |
Summarised financial information in respect of the Group's associate is set out below:
|
AS AT 31 DECEMBER 2008 $ |
AS AT 31 DECEMBER 2007 $ |
|
|
Total assets |
3,247,665 |
2,610,856 |
|
Total liabilities |
(2,456,722) |
(658,839) |
|
Net assets |
790,943 |
1,952,017 |
|
Total revenue |
417,079 |
146,978 |
|
Total (loss) for the period |
(2,438,910) |
(1,373,594) |
12. INTEREST IN JOINT VENTURE
On 24 November 2008, the Group disposed of its 50% interest in Centricom Europe Limited with a carrying value of $255,823
(2007: $50,258), combined with cash of $1,486,768, for shares in Centricom Pty. During the year, the Group contributed $205,564
to the operations of the joint venture.
13. TRADE AND OTHER PAYABLES
The Group had the following balances:
|
AS AT 31 DECEMBER 2008 $ |
AS AT 31 DECEMBER 2007 $ |
|
|
Accounts payable |
11,741,354 |
11,706,014 |
|
Accrued accounts payable |
6,029,454 |
10,106,701 |
|
Payroll liabilities |
547,875 |
1,088,522 |
|
18,318,683 |
22,901,237 |
Included in Group accounts payable are merchant processing liabilities arising from the gateway operations of NetBanx and
NetBanx Asia (1-Pay Direct). In addition, included in cash and cash equivalents is a transient cash balance that relates to
merchant transactions processed via the gateway operations. The gateway operations do not fall within the EU definition of
"e-money" nor does a legal right of offset exist between this cash and the corresponding merchant liabilities.
14. FORFEITURE PAYABLE
On 18 July 2007, the Company entered into a Deferred Prosecution Agreement ("DPA") with the United States Attorney's
Office for the Southern District of New York ("USAO"). Pursuant to the DPA, the Company forfeited $136 million to the USAO as disgorgement of certain profits received by the Group from the activities described in the Statement of Admitted Facts attached to the DPA. This amount included approximately $57.7 million which the USAO previously seized. The Company satisfied the remaining portion of its forfeiture obligation with a payment of $40 million on 15 October 2007, and $38.25 million paid on 16 January 2008. Full terms of the DPA are available on the Group's website at www.neovia.com.
The following details have been recorded:
|
YEAR ENDED 31 DECEMBER 2008 |
YEAR ENDED 31 DECEMBER 2007 |
|
|
US$ |
US$ |
|
|
Opening balance |
(38,250,415) |
- |
|
Forfeiture of profits |
- |
136,000,000 |
|
Credit for funds seized |
- |
(57,749,585) |
|
15 October 2007 payment |
- |
(40,000,000) |
|
16 January 2008 payment |
38,250,415 |
- |
|
Forfeiture payable at the end of the period |
- |
(38,250,415) |
During 2008, NEOVIA Financial Plc reallocated $13,252,615 of the forfeiture to NT Services Limited in recognition of NT Services Limited's share of related profits in 2004 and 2005. On a consolidated basis, there were no additional penalties assessed or recovered in 2008.
15. TAX
The Company is incorporated in the IOM and is subject to a tax rate of zero percent and accordingly pays no tax in the IOM.
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
The charge for the year can be reconciled to the profit per the consolidated income statement as follows:
|
YEAR ENDED 2008 $ |
YEAR ENDED 2007 $ |
|
|
Loss before tax |
(9,917,550) |
(185,759,362) |
|
Effect of different tax rates of subsidiaries operating in other jurisdictions |
1,830,929 |
14,734 |
|
Effective tax rate for the year |
-18.46% |
-% |
At 31 December 2008, foreign taxes of $1,904,472 (2007: $2,326,889) were outstanding.
16. SHARE CAPITAL
|
AS AT 31 DECEMBER 2008 |
AS AT 31 DECEMBER 2007 |
|
|
£ |
£ |
|
|
Authorised: |
||
|
200,000,000 ordinary shares of £0.0001 per share (At 31 December 2007: 200,000,000 ordinary shares of £0.0001 per share) |
20,000 |
20,000 |
|
1,000,000 deferred shares of £0.01 per share (At 31 December 2007: 1,000,000 deferred shares £0.01 per share) |
10,000 |
10,000 |
|
Issued and fully paid |
$ |
$ |
|
119,920,953 ordinary shares of £0.0001 per share (At 31 December 2007: 119,920,953 ordinary shares of £0.0001 per share) |
21,725 |
21,725 |
|
1,000,000 deferred shares of £0.01 per share (At 31 December 2007: 1,000,000 deferred shares of £0.01 per share) |
18,000 |
18,000 |
|
Total share capital |
39,725 |
39,725 |
Holders of the ordinary shares are entitled to receive dividends and other distributions, to attend and vote at any general meeting, and to participate in all returns of capital on winding up or otherwise.
Holders of the deferred shares are not entitled to vote at any annual general meeting of the Company and are only entitled to receive the amount paid up on the shares after the holders of the ordinary shares have received the sum of £1,000,000 for each ordinary share held by them and shall have no other right to participate in assets of the Company.
17. TRANSLATION RESERVE
|
YEAR ENDED 31 DECEMBER 2008 $ |
YEAR ENDED 31 DECEMBER 2007 $ |
|
|
Balance at beginning of year |
9,412,813 |
1,349,198 |
|
Arising on translation of foreign operations |
(10,733,230) |
8,063,615 |
|
Balance at end of year |
(1,320,417) |
9,412,813 |
Exchange differences relating to the translation from the functional currencies of the Group's foreign subsidiaries into US dollars are brought to account by entries made directly to the foreign currency translation reserve.
18. MARKETING AND PROMOTIONS
The Group recorded significant marketing and promotions costs during 2008 which necessitated the creation of a new Cost of
Goods Sold line. During 2008, $1,297,989 (2007: Nil) of VIP Targeted Rebates were issued to members who increased their
transaction volumes above individually targeted amounts. In addition, $240,966 (2007: $243,704) was spent on other marketing
and promotions. The costs were based on successfully achieving volume targets, which created additional revenue and a
profitable marketing campaign. Marketing and Promotions costs were grouped with Customer Support costs in 2007.
19. PROFIT FROM OPERATIONS
Profit from operations has been arrived at after charging:
|
GROUP |
COMPANY |
|||
|
YEAR ENDED 31 DECEMBER 2008 $ |
YEAR ENDED 31 DECEMBER 2007 $ |
YEAR ENDED 31 DECEMBER 2008 $ |
YEAR ENDED 31 DECEMBER 2007 $ |
|
|
Depreciation of property, plant and equipment |
2,956,529 |
4,621,700 |
341,597 |
525,620 |
|
Amortisation of intellectual property |
3,395,259 |
3,961,284 |
1,278,244 |
1,745,043 |
|
6,351,788 |
8,582,984 |
1,619,841 |
2,270,663 |
|
Remuneration of the auditors for audit, advisory and other services has been recorded as follows:
|
YEAR ENDED 31 DECEMBER 2008 $ |
YEAR ENDED 31 DECEMBER 2007 $ |
|
|
Audit services |
||
|
Statutory audit |
445,000 |
389,000 |
|
Non-audit services |
||
|
Tax and other advisory services |
71,000 |
282,000 |
|
Total |
516,000 |
671,000 |
20. RESTRUCTURING COSTS
The Group incurred certain costs in 2007 and 2008 pertaining to the cessation of its North American-facing business in the
first quarter of 2007. These costs included severance payments, retention costs for certain key employees, the write down
and disposal of assets, amending and settling vendor contracts and professional and legal fees incurred in the resolution of
the US situation (including the distribution of funds to US customers and negotiating potential sanctions against the
Group culminating in the DPA on 18 July 2007).
The Group has incurred the following costs:
|
YEAR ENDED 31 DECEMBER 2008 $ |
YEAR ENDED 31 DECEMBER 2007 $ |
|
|
Severance and retention |
- |
3,249,032 |
|
Supplier contract renegotiation |
421,363 |
1,868,435 |
|
Provision for supplier receivable |
600,080 |
- |
|
Settlement of third party litigation |
6,523 |
1,775,548 |
|
Asset write downs and disposal net of proceeds |
- |
13,329,640 |
|
Professional and legal fees and expenses |
82,784 |
16,168,363 |
|
Other restructuring costs |
3,177 |
590,499 |
|
1,113,927 |
36,981,517 |
The Group's asset write downs and disposals consist of:
|
YEAR ENDED 31 DECEMBER 2008 $ |
YEAR ENDED 31 DECEMBER 2007 $ |
|
|
Non cash items |
||
|
Write down of prepaid US patents, trademarks and licences |
- |
307,663 |
|
Write down of computer equipment and software, net of accumulated depreciation |
- |
4,367,645 |
|
Disposal of computer equipment and software, net of accumulated depreciation |
- |
98,439 |
|
Disposal of 41st Avenue property, net of proceeds and accumulated depreciation |
- |
99,722 |
|
Write down of intangible assets, net of accumulated depreciation |
- |
8,339,558 |
|
Total non cash items |
- |
13,213,027 |
|
Cash expenses on disposal of 41st Avenue property |
- |
116,613 |
|
- |
13,329,640 |
21. EARNINGS/(LOSS) PER SHARE
From continuing operations
The calculation of the basic and diluted earnings or loss per share is based on the following data:
|
|
YEAR ENDED 31 DECEMBER 2008 |
YEAR ENDED 31 DECEMBER 2007 |
|
|
$ |
$ |
|
Earnings/(loss) |
|
|
|
Earnings/(loss) for the purposes of basic and diluted earnings per share being net profit/(loss) attributable to equity share holders of the parent |
(8,086,621) |
(185,774,096) |
|
Number of shares |
||
|
Weighted average number of ordinary shares for the purpose |
||
|
of basic earnings per share |
119,920,953 |
119,920,953 |
|
Effect of dilutive potential ordinary shares due to employee share options |
- |
- |
|
Weighted average number of ordinary shares for the purpose |
||
|
of diluted earnings per share |
119,920,953 |
119,920,953 |
|
|
||
|
Basic earnings/(loss) per share |
$(0.07) |
$(1.55) |
|
Fully diluted earnings/(loss) per share |
$(0.07) |
$(1.55) |
22. OPERATING LEASE ARRANGEMENTS
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments, which fall due as follows:
|
YEAR ENDED 31 DECEMBER 2008 |
YEAR ENDED 31 DECEMBER 2007 |
|
|
$ |
$ |
|
|
Within one year |
1,651,017 |
238,582 |
|
In the second to fifth years inclusive |
2,722,187 |
461,135 |
|
After five years |
179,042 |
- |
Operating lease payments represent rentals payable by the Group for certain of its office properties. Leases are negotiated for an average term of four years. The lease payments recognised in expense for the year are $965,746 (2007:$1,126,095).
23. SHARE BASED PAYMENTS
The Company's share option plan was adopted pursuant to a resolution passed on 7 April 2004 and amended by the Board
on 15 September 2008. The 2008 amendment included the addition of a new 'approved' plan for UK based employees. .Under
the 'approved' and 'unapproved' plans, the Board of Directors of the Company may grant share options to eligible employees
including Directors of Group companies to subscribe for ordinary shares of the Company.
No consideration is payable on the grant of an option. Options may generally be exercised to the extent that they have vested.
Options vest according to the relevant schedule over the grant period following the date of grant. Typically, options have
been granted for a three and a half year grant period and have vested in equal thirds on or about the anniversary of the grant
date. However, the Directors are permitted under the Plan Rules to alter the vesting schedule and the grant period. The
exercise price is determined by the Board of Directors of the Company, and shall not be less than the market value at the date
of grant. The option plan provides for a grant price to equal the average quoted market price of the Company shares on the
three days prior to the date of grant. Share options are forfeited if the employee leaves the Group before the options vest. A
participant of the share option plan has 30 days following the date of grant to surrender the option and if surrendered, the
option will not be deemed granted.
On 5 December 2008, the Company granted 2,789,100 share options to Directors and eligible employees to acquire ordinary
shares at an exercise price of £0.53 per share. 2,950 of the mentioned options expire on 5 June 2012 and the remaining 2,786,150
expire on 5 December 2012.
On 15 April 2008, a total of 211,077 options granted on 14 October 2004 with an exercise price of £2.485 expired.
On 14 October 2008, a total of 364,775 options granted on 15 April 2005 with an exercise price of £6.59 expired.
Options recorded under share option expense may not agree to the total options granted in the period. The accounting for
options coincides with the day following the last day for acceptance of the option, which is subsequent to their date of grant.
Equity-settled share option plan
|
YEAR ENDED 31 DECEMBER 2008 WEIGHTED AVERAGE EXERCISE PRICE |
YEAR ENDED 31 DECEMBER 2008 OPTIONS |
YEAR ENDED 31 DECEMBER 2007 WEIGHTED AVERAGE EXERCISE PRICE |
YEAR ENDED 31 DECEMBER 2007 OPTIONS |
|
|
£ |
£ |
|||
|
Outstanding at the beginning of year |
1.50 |
6,699,116 |
6.00 |
6,458,350 |
|
Granted during the year |
0.53 |
2,789,100 |
1.06 |
7,200,467 |
|
Forfeited during the year |
1.34 |
(696,149) |
5.85 |
(5,837,324) |
|
Exercised during the year |
- |
- |
- |
- |
|
Expired during the year |
5.09 |
(575,852) |
2.00 |
(1,122,377) |
|
Outstanding at the end of year |
1.49 |
8,216,215 |
1.50 |
6,699,116 |
|
Exercisable at the end of the year |
1.36 |
2,799,126 |
3.06 |
1,640,885 |
The weighted average share price at the date of exercise for share options exercised during the year was £nil as no options were exercised in the year. The options outstanding at the end of the period had a weighted average remaining contractual life of 2.71 years (31 December 2007: 2.79 years).
The options granted in 2008 are priced using a trinomial lattice model to better reflect factors including employee exercise behaviour, option life and option forfeitures.
The inputs into the model are as follows:
|
|
YEAR ENDED 31 DECEMBER 2008 |
YEAR ENDED 31 DECEMBER 2007 |
|
Weighted average exercise price |
£0.53 |
£1.14 |
|
Expected volatility |
56% |
77% |
|
Expected life |
4 years |
3 years |
|
Risk free interest rate |
2% |
4.91% |
|
Expected dividends |
- |
- |
|
Employee exit rate |
6.2% |
7% |
Expected volatility was determined by calculating the historical volatility of the Company's share price from the time of issue to the date of grant. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.
The Company recognised total expenses of $2,735,222 (2007: $13,523,346) related to the equity-settled share-based payments transactions in 2008. Share options surrendered in 2007 resulted in the recognition of the options' remaining expense from the time of surrender to their stated expiration date. Accelerated option expense was $nil (2007: $4,972,739) in the year ended 31 December 2008 which is included in the total share option expense.
24. FINANCIAL INSTRUMENTS
Financial instruments consist of cash and cash equivalents, restricted cash, Qualifying Liquid Assets held for European
customers, receivable from customers, trade and other receivables, payable to customers and merchants, payable to European
customers and trade and other payables.
i) Fair values
The fair values of cash and cash equivalents, restricted cash, Qualifying Liquid Assets held for European customers, receivable
from customers, trade and other receivables, payable to European customers and trade and other payables approximate the
carrying values due to the short-term nature of these instruments.
ii) Credit risk and concentrations
The Group is exposed to credit risk to the extent that its customers may charge back credit card purchases. The Group manages
the exposure to credit risk by employing various online identification verification techniques, enacted transaction limits and
having significant number of customers. As these customers are geographically widespread and the merchants are active in
various industries, the exposure to credit risk and concentration is mitigated.
iii) Interest rate risk
The Group is exposed to interest rate risk to the extent that investment revenue earned on cash and cash equivalents, client
account funds, and Qualifying Liquid Assets held for European customers is subject to fluctuations in interest rates. The Group
is limited in managing this exposure as investments are held in liquid and short-term vehicles
iv) Currency risk
The Group is not significantly exposed to foreign currency exchange risk, as the majority of the transactions are denominated in
US dollars. The Group manages the exposure to currency risk by commercially transacting in US dollars and by limiting the use of
other currencies for operating expenses, thereby minimising the realised and unrealised foreign exchange gain (loss) (Note 3).
v) Market risk
Market risk may arise due to adverse changes in legislation relating to internet, payment processing or on-line gambling. The
Group is exposed to market risk to the extent that legislation impacts operational presence and related revenue streams, which may
be significant. The Group manages this exposure through geographical diversification and participation in non gambling sources
of revenue. The Group closely monitors local legislation in key markets (new or existing) and does not have economic reliance on
any one country.
vi) Liquidity risk
Liquidity risk is the risk that the Group will be unable to meet its financial obligations as they fall due. The Group's major exposure
relates to trade payables and amounts owed to European customers. The latter are fully supported by qualifying liquid assets
(see note 4 for further details). Management controls and monitors the Group's cashflow on a regular basis, including forecasting
future cashflows.
25. SUBSIDIARIES
Details of the Company's principal subsidiaries as at 31 December 2008 are as follows:
|
NAME OF SUBSIDIARY |
PLACE OF INCORPORATION AND OPERATION |
PROPORTION OF OWNERSHIP INTEREST |
PROPORTION OF VOTING POWER HELD |
PRINCIPAL ACTIVITY |
|
NETELLER (UK) Ltd |
United Kingdom |
100% |
100% |
Authorised e-money issuer |
|
NT Services Limited |
Canada |
100% |
100% |
Processing payments on behalf of the Company |
|
NetBanx Limited |
United Kingdom |
100% |
100% |
Full service payment processing |
|
Quick Access International Limited |
Macau |
100% |
100% |
Debit card payment processing |
|
1155259 Alberta Limited |
Canada |
100% |
100% |
Financing |
|
NT Services Building Corporation |
Canada |
100% |
100% |
Property leasing company |
|
Cardload Incorporated |
Canada |
100% |
100% |
Dormant |
|
NETELLER Express Limited |
Isle of Man |
100% |
100% |
Dormant |
|
Lime Enterprises Limited |
Isle of Man |
100% |
100% |
Holding company |
|
Jade Enterprises Limited |
Isle of Man |
100% |
100% |
Holding company |
|
Net Group Holdings Limited |
Isle of Man |
100% |
100% |
Holding company |
|
NetAdmin Limited |
Isle of Man |
100% |
100% |
Employment & Administration |
|
Neteller Operations Limited |
Isle of Man |
100% |
100% |
e-money issuer |
|
Net ID Limited |
Isle of Man |
100% |
100% |
Identification verification |
|
NetB Limited |
Isle of Man |
100% |
100% |
Dormant |
|
Cardload Europe Limited |
Isle of Man |
100% |
100% |
Processing company |
|
Greenscroft Limited |
Isle of Man |
100% |
100% |
Holding company |
|
NX Systems UK Limited |
United Kingdom |
100% |
100% |
Dormant |
|
Netinvest Limited |
United Kingdom |
100% |
100% |
Holding company |
|
Netpro Limited |
United Kingdom |
100% |
100% |
Dormant |
|
Netbanx BV Limited |
Netherlands |
100% |
100% |
Holding company |
|
Charter Access Limited |
Hong Kong |
100% |
100% |
Property Leasing Company |
|
Peakluck International Limited |
British Virgin Islands |
100% |
100% |
Holding company |
|
365 Access Pte Limited |
Singapore |
100% |
100% |
Holding company |
|
NEOVIA (Gibraltar) Limited |
Gibraltar |
100% |
100% |
Holding Company |
26. ACQUISITION COSTS IMPAIRMENT
On 1 December 2008, the Group entered into an agreement to acquire IDT Corporation's (NYSE: IDT; IDT.C) European Prepaid
Payment Services Division, IDT Financial Services Holdings Limited (IDTFSH). The proposed acquisition was subject to the
approval of the Gibraltar FSC and MasterCard accepting the proposed change of control of IDTFSH. On 20 March 2009, the
Gibraltar FSC advised the Group that it was unable to consent to the acquisition. A substantial underlying shareholder of the
Company, who under Gibraltar banking law was to become a controller of IDTFSH and about whom information therefore
needed to be provided to the FSC in connection with the approval process, refused to provide the requisite notification to the
FSC. The FSC in these circumstances determined that it was unable to consent to the change of control of IDTFSH
from IDT Corporation to the Company.
The carrying value of acquisition costs at 31 December 2008 was $620,439. They are considered to have no future economic
benefit and have accordingly been expensed in the year. Acquisition costs incurred subsequent to 31 December 2008 will be
expensed in the first quarter of 2009.
27. RELATED PARTIES
During the year, the Group and Company entered into the following transactions with related parties who are not members of the Group or Company:
|
Purchase of goods and services in 2008 £ |
Amounts owed to related parties 2008 £ |
Purchase of goods and services in 2007 £ |
Amounts owed to related parties 2007 £ |
|
|
Amber Business Limited |
41,979 |
5,031 |
9,537 |
3,975 |
Amber Business Limited was a related party of the Group and Company as John Webster, A director and majority shareholder of Amber Business Limited, was a Director of the Company throughout the period. All transactions were at fair market value.
During the year, Dale Johnson (Non-Executive Chairman) provided consulting services to the Group amounting to £75,416 (2007: £60,003).
28. CONTINGENT LIABILITIES
From time to time the Group is subject to legal claims and actions. The Group takes legal advice as to the likelihood of success
of the claims and actions and no provision or disclosure is made where the Directors feel, based on that advice, the action is
unlikely to result in a material loss or a sufficiently reliable estimate of the potential obligation cannot be made.
As at 31 December 2008, NetBanx Limited, a wholly owned subsidiary, has net current liabilities. NEOVIA Financial Plc will
continue to provide financial support to enable it to meet its existing and future liabilities and continue as a going concern.
Related Shares:
Paysafe Group