Interim Results

3rd Sep 2008 07:00



3 September 2008

NETELLER Plc

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2008

First half of 2008 shows continued growth 

Wednesday, 3 September 2008 - NETELLER Plc (LSE: NLR), the independent global online payments business, is pleased to publish its interim results for the six months ended 30 June 2008.

Operational Highlights

Continued investment in improving product offering in core European and Asia Pacific markets.

Delivery of new integrated Merchant Payment Suite with the focus of driving contract wins across all segments of Group's business, including e-wallet, payments gateway and financial services.

E-wallet revenue per active e-wallet user was $130 in Q2 2008, up 15% from $113 in Q1 2008, and up 18% from the same quarter in 2007.

Active e-wallet users (ex North America) totalled 100,760, a decrease of 1% from 101,301 in Q1 2008, and an increase of 4% from the same quarter in 2007.

Sale of principal Calgary property completed on 10 July 2008 for CAD$33.5 million.

 

Financial Highlights

Fee revenue in H1 2008 grew 18% to $32.8 million from H1 2007 - e-wallet revenue increased 10% to $24.5 million over the same period. Total revenue in H1 2008 was $35.9 million.

European revenue (including NETBANX) was $23.4 million, an increase of 10% from H1 2007; Asia Pacific (including 1-PAY Direct) grew 58% to $8.6 million over the same period.

Gross margin of 61.6% in H1 2008 (H1 2007: 54.6%); EBITDA in H1 2008 $5.9 million before stock option expense and other items.

Profit before tax of $1.2 million (H1 2007: $24.7 million loss).

Cash flow from operations: positive for H1 2008. 

Solid balance sheet at 30 June 2008 with $61.7 million cash and cash equivalents (before proceeds from sale of Calgary property of CAD$33.5 million).

On track to announce maiden dividend with full year results.

Ron Martin, President & CEO, commented "The business has delivered a solid performance in the first half of 2008. We have made significant steps in repositioning our business and the adoption of our Merchant Solution Suite amongst both gaming and non-gaming customers is beginning to drive tangible benefits. Growth in our key European and Asia Pacific markets remains encouraging. We have a number of significant developments targeted for launch in the second half of 2008 including the Net+ card and merchant joint marketing products and programs. Through these and our continued efforts to add innovative payment solutions in our chosen markets, we expect to see this momentum continue. The Board looks forward to continued progress and remains confident about prospects for the business."

Enquiries:

NETELLER Plc

Ron Martin	President & CEO	(3rd September only)	+44 (0) 207 638 9571
Doug Terry	CFO
Andrew Gilchrist	VP Communications		+ 44 (0) 1624 698 713
Email: [email protected]
Citigate Dewe Rogerson			+ 44 (0) 207 638 9571
Seb Hoyle / George Cazenove
Daniel Stewart & Co Plc			+ 44 (0) 207 776 6550
Paul Shackleton

Analyst meeting

NETELLER 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 11.00 a.m. From this time, copies of the analyst presentation will be available on the Company's website, www.netellergroup.com. The Company will not be holding a conference call for investors at this stage but shareholders are welcome to email [email protected] should they have specific questions or wish to arrange a one-to-one conference call with the Company.

Notes to Editors

The NETELLER Group 

Trusted by consumers and merchants in over 160 countries to move and manage billions of dollars each year, the NETELLER Group operates the world's leading independent online payments business. Through its NETELLER, NETBANX, and 1-Pay brands, the Group 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 Group to support thousands of retailers and merchants in many geographies and across multiple industries.

NETELLER Plc is quoted on the London Stock Exchange's AIM market, with a ticker symbol of NLR. NETELLER (UK) Limited is authorised by the Financial Services Authority (FSA) to operate as a regulated e-money issuer. For more information about the Group visit www.netellergroup.com or contact us by email at [email protected]. 

This discussion and analysis 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 NETELLER. 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.

PRESIDENT & CEO'S REPORT 

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2008

The first six months of 2008 have seen good growth across all the Group's businesses, principally as a result of the renewed focus on delivering innovative payment products to merchants and e-wallet users. The reorganisation and rebranding of the Group's key businesses early in 2008 is now delivering as merchants appreciate the benefits from the integrated approach of the Group's product suite. In addition, e-wallet users are benefiting from enhanced functionality of the e-wallet, through new currencies, new funding and payout options and a cleaner, easier user experience.

The business has grown significantly in the first half of 2008 compared to the same period in 2007, with total fee revenue increasing 18% to $32.8 million. In Q2 2008, the Group had 100,760 active customers from Europe, Asia Pacific and the Rest of World which represents an increase of 4% from 97,216 active customers as at 30 June 2007 (like-for-like basis). During the same period the number of European, Asian Pacific and Rest of World active e-wallet users showed increases of 2%, 11% and 12% respectively. The decrease seen in Q2 2008 of 1% compared with Q1 2008 is in line with typical seasonal variations. Active customers are the key driver of the NETELLER e-wallet business as explained further in the Financial Review.

Revenue for the first six months of 2008 of $35.9 million compared to $50.8 million for the same period in 2007. Excluding North American revenue, revenue was in line with the prior year despite significantly higher interest income of $8.2 million recorded in the first six months of 2007. The results for the first six months of 2007 included contributions from the US market prior to the Group's withdrawal from that market and a full quarter's contribution from the Canadian business.

Total fee revenue (including e-wallet revenues and fees earned by the Group's gateway businesses, NETBANX and 1 PAY Direct) grew 18% to $32.8 million, while e-wallet fee revenue increased 10% from $22.3 million to $24.5 million, in the first half of 2008. Interest revenue of $3.1 million was significantly lower from $8.2 million reported for the first half of 2007. E-wallet fee revenue in Q2 2008 was $13.1 million, an increase of 14% from that recorded in Q1 2008 of $11.4 million.

During the first half of 2008, Europe (including NETBANX) accounted for approximately $23.4 million in revenue before interest (an increase of 10% over $21.2 million in H1 2007), and Asia Pacific (including 1-PAY Direct) accounted for $8.6 million during H1 2008 (an increase of 58% over $5.4 million during the first half of 2007).

Gross margin improved to 61.6% for the first half of 2008 compared to 54.6% during the same period in 2007. The Group recorded a profit before tax of $1.2 million in the first half of 2008 compared to a loss before tax of $24.7 million for the same period in 2007. The earnings per share was $0.01 compared to a loss per share of $0.20 for the first six months of 2007.

The Group's total cash available at 30 June 2008 was $61.7 million (compared to $210.5 million as at 30 June 2007). The Group completed its payments to the US authorities in January 2008. Cash flow from operations was positive for the first six months of 2008. On 10 July 2008, the Group closed the sale of its principal Calgary property and agreed a lease for certain areas of the property. Proceeds from the sale were approximately CAD$33.5 million which is not included in the cash available figure above. The Group regards any cash surplus to operational requirements as providing financial flexibility in consideration of opportunities, both organic and external, to grow the Group's business in line with its strategic vision. 

Operational highlights

The Group has made progress during the first half of 2008 to support its strategic goal of providing bold payment solutions for online communities. The Group's revitalised consumer offering at www.neteller.com, the NETBANX payments gateway and the NETELLER Payment Network were relaunched with refreshed branding, aligning the Group's consumer offering of a suite of lifestyle financial services for the online generation more closely with its target demographic.

The Group has also invested in improving its merchant value proposition through product enhancements including the launch of the Group's new integrated Merchant Payment Suite that combines the Group's NETBANX gateway and NETELLER e-wallet into a single product offering for merchants. There has been promising initial success in offering the Group's product suite to both gaming and non-gaming merchants who appreciate the benefits that the integrated payments solution delivers them.

The Group has also launched the first release of a significant new merchant joint marketing program, featuring a number of new product features to drive member acquisition and funding conversions.

Further investment in the NETBANX business included significant enhancements to the NETBANX payments gateway for merchants targeting European consumers, 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 program for the core NETBANX platform to deliver enhanced performance, capacity and resilience for its large corporate-client merchants. A large portion of this program was deployed in Q2, with the rest of the program planned over the second half of 2008.

During the first half a number of new gaming and non-gaming merchants have signed contracts for the Group's Merchant Payment Suite services. In aggregate the new merchants are expected to deliver tens-of-millions of incremental transactions to the business. Key contract wins included Sureterm Direct Insurance, Anthony Nolan Bone Marrow Trust, Calor Gas, InkJet Direct, Student Click, ASDA Furniture and the UK Environment Agency.

Extending our product offering

The Group has continued to develop innovative products and solutions across its entire Merchant Payment Suite for both its e-wallet consumers and gateway merchants in its core European and Asian Pacific markets. New European payment options for the e-wallet launched or signed up in the first half of 2008 included Giropay (Germany), iDeal (Netherlands), Carta Si (Italy), Carte Bleue domestic and international (France), DirectPay24 (Germany, Austria), Ukash (UK) and POLi (UK), to drive instant payment and consumer conversions in this key region. 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. Additional deposit/payout options, currencies and countries are scheduled to be introduced to the e-wallet throughout the second half.

The Group also announced in March 2008 the establishment of its 50:50 joint venture, Centricom Europe Limited, to distribute the POLi service in Europe. Under the joint venture, the Group also announced the launch of the POLi payment service for the UK market, distributed through NETELLER's payment processing arm, NETBANX. In August 2007, the NETELLER Group announced it had taken a 25% strategic stake in Australian POLi operator, Centricom Pty Ltd. The European joint venture is a 50/50 joint venture between both parties.

The Group has a number of strategically important developments targeted for launch during the second half of 2008 including the Net+ prepaid card, roll out of joint marketing capabilities and straight through processing (the ability to create a wallet for all merchant gateway transactions). Further announcements regarding these will be made in due course but these initiatives continue to demonstrate the Group's focus on delivering innovative solutions for both merchants and consumers.

Strategic objectives

In line with the Group's corporate objectives which were outlined at the time of the full year results in March 2008, the Group has continued to diversify its revenue away from online gaming. Approximately 17% of the Group's revenue in the first half of 2008 was derived from non-online gaming sources. This compares to the Group's target of 30% of revenue by year end 2010. The Group anticipates that significant progress will be made towards increasing the number of active e-wallet users during the next twelve to eighteen months as the initiatives outlined above begin to generate new e-wallet users for the Group. The Group's operating margin was 19% for the first half of 2008. The target for operating margin of 35% for 2010 is aggressive but anticipated revenue growth combined with strong control over costs both direct and overheads should enable this target to be achieved within the timeframe.

FINANCIAL REVIEW

The Group's financial performance in the six months ended 30 June 2008 is ahead of market expectations. Solid growth in Europe and Asia Pacific continues as expected with new marketing initiatives, continued investment into product offerings, and a refreshed brand. Management of expenditures has increased margins and reduced general and administrative costs as planned. The proceeds from closing the property sale on 10 July 2008 will give the Group additional financial flexibility during the current difficult economic environment to consider strategic investments such as the NewTeller platform redevelopment and opportunistic acquisitions and alliances to achieve the Group's vision. 

Key performance indicators

Active e-wallet users decreased slightly in Q2 2008 compared to Q1 2008 in line with anticipated seasonal trends which typically see a weaker second quarter. However, year on year growth of 4% for the second quarter to 100,760 active e-wallet users demonstrates the continuing appeal of the NETELLER e-wallet in competitive market conditions. Compared to Q1 2008, actives in Asia have increased by 17%. Europe increased 2% to 78,280 in Q2 2008 from 76,964 in the same period in 2007.

The table below sets out the Group's active e-wallet users by region, excluding those from North America:

Active e-wallet users (1)	Q2 2008	Q1 2008	% change Q2 2008 vs Q1 2008	Q2 2007	% change Q2 2008 vs Q2 2007
Europe	78,280	81,552	-4%	76,964	2%
Asia Pacific	17,490	14,984	17%	15,792	11%
Rest of World	4,990	4,765	5%	4,460	12%
Total	100,760	101,310	-1%	97,216	4%
Total signed up e-wallet users	1,187,812	1,097,456	8%	815,910	46%

(1) An active e-wallet user is defined as a customer whose e-wallet balance has changed during the quarter. The change in balance may be due to adding, removing, transferring or receiving funds.

The marginal quarterly decrease in active e-wallet users was offset by the increase in average daily deposits. In H1 2008 daily deposits of $391,524 were received versus $315,279 in H1 2007, representing an increase of 24%. Average daily deposits in Q2 2008 was $418,047, an increase of 15% on $365,001 recorded for Q1 2008.

E-wallet fees per active e-wallet user also showed healthy increases. Europe increased to $133 per active e-wallet user for the quarter which is up 14% from Q1 2008 and up 18% over the same period in 2007. Asia's increases were 20% and 29% respectively. 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 quarters in 2008 and 2007:

E-wallet revenue  per active e-wallet  user ($)	Q2 2008	Q1 2008	% change Q2 2008 vs Q1 2008	Q2 2007	% change Q2 2008 vs Q2 2007
Europe	133	117	14%	113	18%
Asia Pacific	122	102	20%	94	29%
Rest of World	99	81	21%	112	-12%
Total	130	113	15%	110	18%

 

In the first half of 2008, the Group signed up an average of 1,047 customers per day (excluding North American sign-ups). This is up from an average of 1,024 per day in H1 2007. The Group's sign ups and active customer growth have followed past trends whereby the second quarter traditionally exhibits slower growth than the first quarter. The total e-wallet user base (excluding North America) increased to 1,187,812 in H1 2008 from 815,910 e-wallet users in H1 2007. The table below shows the Group's sign ups by region (excluding North America):

Average daily sign ups	Q2 2008	Q1 2008	% change Q2 2008 vs Q1 2008	H1 2008	H1 2007	% change H1 2008 vs H1 2007
Europe	694	819	-15%	756	765	-1%
Asia Pacific	190	176	8%	183	171	7%
Rest of World	109	106	3%	108	89	22%
Total	993	1,101	-10%	1,047	1,024	2%

Revenue

Fee revenue increased in H1 2008 to $32.8 million from H1 2007 revenue of $27.7 million (net of North American revenue of $14.9 million). The revenue growth of 18.4% was fuelled by the Group's refreshed branding and image initiative, targeting customers with new, innovative marketing programs, and competitively revising the fee schedule for consumers and merchants. The table below sets out our e-wallet fee revenue by region and revenue from NETBANX, 1-PAY Direct and interest income: 

Revenue  ($ millions)	H1 2008	H1 2007	% growth	Q2 2008	Q1 2008	% growth
Europe (ex NETBANX)	19.9	18.1	10%	10.4	9.5	10%
Asia Pacific	3.7	3.1	18%	2.1	1.5	40%
Rest of World	0.9	1.1	-20%	0.5	0.4	27%
E-wallet revenue	24.5	22.3	10%	13.1	11.4	15%
NETBANX	3.4	3.1	10%	1.6	1.8	-8%
1-PAY Direct	4.9	2.3	113%	2.8	2.1	33%
Fee revenue	32.8	27.7	18%	17.5	15.3	14%
Interest	3.1	8.2	-63%	1.4	1.7	-16%
Total	35.9	35.9	0%	18.9	17.0	11%
North America (1)	-	14.9		-	-
Total	35.9	50.8	-29%	18.9	17.0	11%

(1) Some residual revenue was earned from North American operations during H1 2007 prior to the Group's withdrawal from the US and subsequently Canada.

E-wallet revenue includes transaction fees from consumers and merchants and excludes revenue from NETBANX and 1-PAY Direct, the Group's gateway businesses. Of this, H1 2008 European revenue increased 10% to $19.9 million from $18.1 million in H1 2007. Asia Pacific revenues of $3.7 million in H1 2008 increased 18% compared to $3.1 million in H1 2007. E-wallet revenue growth comes from a revised fee structure, new payment solutions including local deposit options (such as iDeal in the Netherlands), new e-wallet currencies (DKK, SEK and NOK) and new marketing programs such as the VIP rebate program. Euro 2008 also helped to lift overall e-wallet revenue.

The performance of the Group's gateway businesses was satisfactory during the first half of 2008. The NETBANX business increased revenues to $3.4 million, up 10% from the same period in 2007, although seasonality and delays in certain larger contracts going live meant quarter on quarter revenue fell by 8%. 1-PAY Direct, the Group's Asian gateway business, performed very strongly with revenue increasing by 113% to $4.9 million in H1 2008. 1-PAY Direct quarter on quarter growth of 33% in 2008 was due to increased transaction volumes resulting from new 24/7 merchant support service and continued momentum from the free local payout service offered to customers in that region.

Interest revenue of $3.1 million in H1 2008 is down 62.6% from $8.2 million in H1 of 2007. There are two primary causes for the decline. Significant cash payments to the USAO ($136 million) and US customers ($94 million) have been made since 30 June 2007. As a result, the total cash (including cash held in trust for consumers and merchants of the Group has decreased by 52% to $201.8 million at 30 June 2008 from $419.2 million at 30 June 2007. Interest rates on US$ currency investments also dropped from an average rate of 5.25% in H1 2007 to approximately 2.6% in H1 2008. The Group continues to focus on maximising investment returns in the current climate of reduced rates.

Gross margin

Gross margin improved to 61.6% in H1 2008 from 54.6% in H1 2007. The Group continues to seek higher margins by controlling costs where possible. Savings in H1 2008 have come from website maintenance and bad debt while there has been some increases in customer support, deposit and withdrawal fees and marketing and promotions. As anticipated, gross margin in Q2 2008 of 61.1% was slightly lower than that recorded in Q1 2008 of 62.2%, due in part to the marketing and promotion costs referred to in more detail below.

Website maintenance costs have decreased to 5.2% of revenue in H1 2008 from 7.1% of revenue in H1 2007 due to a new server hosting contract entered into at the end of 2007 that more efficiently serves the Group's needs.

Bad debt in H1 2008 declined to 0.1% of revenue from 13.6% in H1 2007. H1 2007 includes bad debt from the North American InstaCASH product and the write-down of North American customer receivables on withdrawal from that market. H1 2008 bad debt is further reduced by successful one-time recoveries of previously written off accounts.

Customer support has increased as a percentage of revenue to 14.5% in H1 2008 from 13.7% of revenue in H1 2007. The payroll currency of Canadian Dollars has increased in strength by 11.3% relative to the reporting currency of US Dollars offsetting our cost savings on restructuring and re-sizing the call centre. The Group anticipates customer support costs to remain stable for the remainder of the year as service levels are maintained.

Deposit and withdrawal fees have increased to 16.4% of revenue in H1 2008 from 11.0% in H1 2007. Low processing cost revenue streams in North America in H1 2007 are lost in H1 2008, resulting in a lower margins. European processing costs are higher as a result of the fragmented and localised markets in which the Group operates.

Marketing and promotions expenses prior to 2008 have been grouped within Customer Support as the expense has not been significant. In H1 2008, special marketing programs were introduced - such as the VIP rebate program and targeted bonuses which cost $0.7 million, or 2.1% of revenue, principally in the second quarter.

Operating expenses and other

General and administrative expenses decreased to $15.1 million in H1 2008 from $17.2 million in H1 2007. Expense controls and reductions have realised savings in nearly all categories. Continued investment on compliance and global market analysis will result in further professional and consulting fees for the remainder of 2008.

Employee share option expense decreased as expected to $1.4 million in H1 2008 from $4.4 million in H1 2007. This is a result of the share option surrender that took place in December 2007.

Income tax expense

The provision for income taxes at 30 June 2008 of $nil is due to a recovery of tax payments made in prior periods. The core tax model is based on a mark-up of services provided by various Group companies to those group companies based in the Isle of Man, where source revenues are non-taxable. The UK companies are taxed on worldwide profits.

Cash position of the Group

Total cash available to the Group at 30 June 2008 is $61.7 million (prior to final proceeds from sale of Canadian property), down from $210.5 million at June 30, 2007 as the Group has made all scheduled payments to the US authorities (totalling $136 million). Cash available to the Group is the total of cash, "Restricted Cash" (funds held in trust for Non EU consumers and merchants in excess of relevant liabilities) and the excess of qualifying liquid assets over EU consumer liabilities.

Cash flow from operations remains positive for the six months ended 30 June 2008.

The Group has also repaid $81 million to US customers out of a possible total of $94 million. The remaining funds have been transferred to a Trustee as required under the Deferred Prosecution Agreement. These funds were previously held by the Group in trust accounts.

Subsequent property sale

On 10 July 2008 the Group completed the sale of its principal property in Calgary. The Group will continue 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 is CAD $33.5 million which is approximately the net book value of the property, after sale related expenses. Any gain or loss on sale will be not be material and will be included in the financial statements for the year ending 31 December 2008.

Current trading and outlook

During the first two months of the third quarter the Group has generated steady revenues. July and August were relatively flat months with unaudited e-wallet fee revenues up approximately 9% in July and down approximately 5% in August (both compared to $4.0 million recorded in June 2008), in line with typical seasonal variations. Sign ups for the period from 1 July 2008 to 28 August 2008 averaged 905 per day, compared to 993 for Q2 2008, a slight decrease which was anticipated.

The Board is pleased with the progress made during the first half of 2008 and remains confident about prospects for the business. The Board continues to evaluate the most appropriate use of the Group's cash resources including organic investments such as the NewTeller project, and strategic acquisitions and alliances in line with the Group's vision and mission. The Company is currently on track to announce its maiden dividend payment with the 2008 final results in line with its previously communicated intent to commence a progressive dividend policy, subject to Company's strategic investment requirements and satisfactory performance of the business for the remainder of 2008.

The strategic focus of the Group towards its member and merchant customers and the adoption of the Merchant Payment Suite are being evidenced by new contract wins in both the NETELLER e-wallet and the NETBANX gateway business and continuing improvements in the Group's key performance indicators, building on the strength of the first quarter performance. The anticipated launches scheduled for the second half of 2008 will generate further improvements to the e-wallet functionality and services and also enhance the Group's merchant value proposition.

The Group has for a number of months been engaged in an exercise to rename the Company from NETELLER Plc. This is part of the rebranding and repositioning of the Group as a broader online payments provider to e-commerce communities, in line with the Group's vision and mission, supporting the Group's key brands of NETELLER, NETBANX, NET+ and 1-PAY. The Company expects to be able to announce the new name in due course at which time shareholders will be asked to approve the change at an extraordinary general meeting.

I look forward to being able to provide you with further updates on our progress in due course.

RON MARTIN

President & CEO

3 September 2008

NETELLER PLC Consolidated Balance Sheet (Unaudited) As at 30 June 2008

	30 June 2008	31 December 2007
	US$	US$
ASSETS
CURRENT ASSETS
Cash and cash equivalents	56,630,928	80,750,283
Restricted cash (Note 3)	2,474,229	10,817,605
Qualifying Liquid Assets held for European consumers (Note 4)	67,397,965	61,885,103
Receivable from customers	575,000	475,000
Trade and other receivables	371,024	735,399
Prepaid expenses and deposits	2,481,487	2,708,248
Property held for sale (Note 5)	32,818,759	-
	162,749,392	157,371,638
NON-CURRENT ASSETS
Loan receivable	738,198	764,550
Property, plant & equipment (Note 6)	10,253,040	44,305,153
Intangible assets (Note 7)	19,875,691	17,885,728
Goodwill	11,817,448	11,802,162
Investment in associate	3,733,106	4,115,626
Interest in joint venture	207,050	50,258
	209,373,925	236,295,115
LIABILITIES
CURRENT LIABILITIES
Trade and other payables	25,108,089	22,901,237
Payable to European consumers (Note 4)	64,799,104	57,032,664
Forfeiture payable (Note 8)	-	38,250,415
Income taxes payable	1,931,538	2,326,889
	91,838,731	120,511,205
SHAREHOLDERS' EQUITY
Share capital (Note 9)	39,725	39,725
Share premium	50,554,492	50,554,492
Capital redemption reserve	147	147
Equity reserve on share option issuance	4,661,740	3,219,506
Translation reserve	8,574,079	9,412,813
Accumulated profits	53,705,011	52,557,227
	117,535,194	115,783,910
	209,373,925	236,295,115

See accompanying notes to the consolidated financial statements

NETELLER PLC Consolidated Income Statement for the six month period ended 30 June 2008 (Unaudited)

	Six month period ended 30 June 2008 US$	Six month period ended 30 June 2007 US$
Revenue
Transaction fees	32,790,083	42,609,981
Investment income	3,099,848	8,234,489
	35,889,931	50,844,470
Cost of sales
Customer support	5,205,101	6,960,267
Marketing and promotions	765,306	-
Website maintenance	1,867,983	3,589,352
Deposit and withdrawal fees	5,901,655	5,601,638
Bad debts and collections	31,949	6,931,165
Gross profit	22,117,937	27,762,048
Operating expenses
General and administrative	15,126,559	17,176,345
Share option expense (Note 12)	1,442,235	4,448,033
Management bonus	899,971	712,657
Foreign exchange (gain) loss	(150,638)	685,315
Depreciation and amortisation	3,172,613	4,778,644
Investment loss	382,520	-
Profit (Loss) before other items	1,244,677	(38,946)
Other item
Restructuring costs (Notes 6, 7 & 10)	92,484	24,626,385
Profit (loss) before tax	1,152,193	(24,665,331)
Income tax expense (recovery)	4,409	(160,398)
Net profit (loss) for the period	1,147,784	(24,504,933)
Basic earnings (loss) per share (Note 11)	$0.01	$ (0.20)
Fully diluted earnings (loss) per share (Note 11)	$0.01	$ (0.20)

See accompanying notes to the consolidated financial statements.

NETELLER PLC Consolidated Statement of Changes in Equity (Unaudited) For the six month period ended 30 June 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		Accumulated profits		Total (US$)
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	-	-	-	-	4,448,033		-		-		-		4,448,033
Translation reserve on foreign operations	-	-	-	-	-		(17,015)		-		-		(17,015)
Net profit for the period	-	-	-	-	-		-		-		(24,504,933)		(24,504,933)
Balance as at 30 June 2007	21,725	18,000	39,725	50,554,492	14,131,730		1,332,183		147		193,838,852		259,897,129
Equity reserve on option issuance	-	-	-	-	9,075,314		-		-		-		9,075,314
Translation reserve on foreign operations	-	-	-	-	-		8,080,630		-		-		8,080,630
Transfer on expiry	-	-	-	-	(19,987,538)						19,987,538		-
Net loss for the period	-	-	-	-	-		-		-		(161,269,163)		(161,269,163)
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	-	-	-	-	1,442,234		-		-		-		1,442,234
Translation reserve on foreign operations	-	-	-	-	-		(838,734)		-		-		(838,734)
Net profit for the period	-	-	-	-	-		-		-		1,147,784		1,147,784
Balance as at 30 June 2008	21,725	18,000	39,725	50,554,492	4,661,740		8,574,079		147		53,705,011		117,535,194

See accompanying notes to the consolidated financial statements

  

NETELLER PLC Consolidated Statement of Cash Flows (Unaudited) For the six month period ended 30 June 2008

	Six months ended 30 June 2008	Six months ended 30 June 2007
	US$	US$
OPERATING ACTIVITIES
Profit (loss) before tax	1,152,193	(24,665,331)
Adjustments for:
Depreciation and amortisation	3,172,613	4,778,644
Unrealised foreign exchange loss (gain)	1,784,305	(26,336)
Share option expense	1,442,235	4,448,033
Investment loss	382,520	-
Asset write down (Notes 6, 7 & 10)	-	13,014,866
Operating cash flows before movements in working capital	7,933,866	(2,450,124)
(Increase) /decrease in receivable from customers	(100,000)	2,218,385
Decrease in trade and other receivables	364,375	10,136
Decrease / (increase) in prepaid expenses and deposits	226,759	(1,021,888)
Increase in trade and other payables	1,917,981	2,217,159
Forfeiture payable (Note 8)	(38,250,415)	-
Cash generated by operations	(27,907,434)	973,668
Income tax paid	(399,759)	(1,314,305)
Net cash used in operating activities	(28,307,193)	(340,637)
INVESTING ACTIVITIES
Increase / (decrease) in payable to European consumers	7,766,440	(3,753,855)
Purchase of capital and intangible assets	(5,073,922)	(23,919,344)
Decrease / (increase) in restricted cash accounts	8,343,376	(44,483,810)
Increase in Qualifying Liquid Assets held for European consumers	(5,512,862)	(3,872,927)
Investment in joint venture	(156,791)	-
Net cash generated from (used in) investing activities	5,366,241	(76,029,936)
FINANCING ACTIVITIES
Loan receivable	26,352	-
Conditional consideration payable	-	(2,482,330)
Net cash generated from (used in) financing activities	26,352	(2,482,330)
DECREASE IN CASH AND CASH EQUIVALENTS
DURING THE PERIOD	(22,914,600)	(78,852,903)
NET EFFECT OF FOREIGN EXCHANGE ON:
CASH AND CASH EQUIVALENTS	(1,510,721)	(305,351)
TRANSLATION OF FOREIGN OPERATIONS	305,966	(17,015)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	80,750,283	216,165,164
CASH AND CASH EQUIVALENTS, END OF PERIOD	56,630,928	136,989,895

See accompanying notes to the consolidated financial statements

NETELLER PLC Notes to the Consolidated Financial Statements For the six month period ended 30 June 2008 (Unaudited)

1.	Basis of presentation

The principal operating currency of the Group is US dollars and accordingly the financial statements have been prepared in US dollars. The interim results for the period ended 30 June 2008 are unaudited and do not constitute statutory accounts within the meaning of the Companies Acts 1931 to 2004. The statutory accounts of NETELLER PLC for the year ended 31 December 2007 contain an unqualified audit report. Further copies can be obtained from the Registered Office of the Company, Audax House, Finch Road, Douglas, Isle of Man, IM1 2PT

2.	Significant accounting policies

The interim results for the period ended 30 June 2008 have been prepared in accordance with the accounting policies adopted in the accounts for the year ended 31 December 2007 and in accordance with IAS 34 "Interim Financial Reporting".

3.	Restricted cash

For merchants and non-European consumers, the Group maintains bank accounts which are segregated from operating funds and which contain funds held on behalf of customers, representing their pooled funds. Balances in the segregated accounts are maintained at a sufficient level to fully offset amounts owing to the Group's merchants and consumers. A legal right of offset exists between the balances owing to the merchants and consumers and the cash balances segregated in the trust accounts. As such, only the net balance of surplus cash is disclosed on the balance sheet as Restricted Cash.

At 30 June 2008, the Group has the following balances:

	TRUST ACCOUNT FUNDS	BALANCE  OWING	RESTRICTED CASH
	US$	US$	US$
Non-European consumers	24,477,597	24,115,357	362,240
Merchants	53,270,308	51,158,319	2,111,989
	77,747,905	75,273,676	2,474,229

At 31 December 2007, the Group has the following balances:

	TRUST ACCOUNT  FUNDS	BALANCE OWING	RESTRICTED CASH
	US$	US$	US$
Non-European consumers	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

4.	Qualifying Liquid Assets held for European Consumers

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 consumers. These amounts are maintained in accounts which are segregated from operating funds.

The Group has the following balances:

	As at 30  June 2008 US$	As at 31  December 2007 US$
Qualifying Liquid Assets held for European consumers	67,397,965	61,885,103
Payable to European consumers	(64,799,104)	(57,032,664)
	2,598,861	4,852,439

5.	Property Held for Sale

The Group has re-classified the principal property in Calgary as held for sale in anticipation of the sale completion on 10 July 2008. No impairment loss was recognised on re-classification.

6.	Property, Plant & Equipment

The Group has the following balances:

	COMMUNICATION EQUIPMENT US$	FURNITURE AND EQUIPMENT US$	COMPUTER EQUIPMENT US$	COMPUTER SOFTWARE US$	BUILDING AND IMPROVEMENTS US$	LAND US$	TOTAL US$
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	166,333	192,416	41,178	1,310,368	13,873,655	5,622,351	21,206,301
Write-down	-	-	(747,848)	(4,476,328)	-	-	(5,224,176)
As at 30 June 2007	3,266,094	2,504,521	3,484,367	5,091,703	26,721,871	6,558,747	47,627,303
Additions	364,265	159,467	46,023	2,070,188	240,173	-	2,880,116
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	129,621	110,414	233,782	933,993	34,303	-	1,442,113
Property held for sale	-	-	-	-	(28,261,507)	(6,434,350)	(34,695,857)
Exchange difference	(68,586)	(62,852)	(114,501)	(124,335)	(855,167)	(191,750)	(1,417,191)
As at 30 June 2008	4,234,247	2,609,726	4,302,199	8,763,731	497,784	-	20,407,687
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 period	327,854	227,805	376,741	868,508	736,650	-	2,537,557
Write-down	-	-	-	(856,531)	-	-	(856,531)
As at 30 June 2007	897,611	653,133	2,098,272	2,673,962	1,462,771	-	7,785,748
Charge for the period	357,390	191,190	314,913	536,585	684,064	-	2,084,143
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 period	394,611	207,818	308,908	597,100	14,127	-	1,522,564
Property held for sale	-	-	-	-	(1,877,097)	-	(1,877,097)
Exchange difference	(22,998)	(22,206)	(75,630)	(86,669)	(56,786)	-	(264,289)
As at 30 June 2008	1,835,933	1,051,648	2,973,413	4,223,291	70,362	-	10,154,647
Net book value
As at 30 June 2007	2,368,483	1,851,388	1,386,095	2,417,741	25,259,100	6,558,747	39,841,555
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 30 June 2008	2,398,314	1,558,078	1,328,786	4,540,440	427,422	-	10,253,040

  Computer equipment and computer software write down

In the first half of fiscal 2007, the Group recorded a write down of $4.4 million related to computer equipment and computer software assets. The Group identified the cost of restructuring arising from the North American market withdrawal as an indication of asset impairment. Excess computer equipment was disposed of 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. 

7.	Intangible Assets

The Group has the following balances:

	INTELLECTUAL PROPERTY  US$	WEBSITE DEVELOPMENT  US$	TOTAL  US$
Cost
As at 31 December 2006	18,056,199	17,804,251	35,860,450
Additions	334,311	2,524,471	2,858,782
Write-down	-	(11,866,305)	(11,866,305)
As at 30 June 2007	18,390,510	8,462,417	26,852,927
Additions	34,840	3,223,096	3,257,936
Exchange difference	-	567,781	567,781
As at 31 December 2007	18,425,350	12,253,294	30,678,644
Additions	6,061	3,625,748	3,631,809
Exchange difference	15,286	11,360	26,646
As at 30 June 2008	18,446,697	15,890,402	34,337,099
Accumulated amortisation
As at 31 December 2006	7,844,469	4,135,423	11,979,892
Charge for the period	711,637	1,675,188	2,386,825
Write-down	-	(3,526,747)	(3,526,747)
As at 30 June 2007	8,556,106	2,283,864	10,839,970
Charge for the period	574,779	999,680	1,574,459
Exchange difference	-	378,487	378,487
As at 31 December 2007	9,130,885	3,662,031	12,792,916
Charge for the period	599,418	1,050,631	1,650,049
Exchange difference	8,530	9,913	18,443
As at 30 June 2008	9,738,833	4,722,575	14,461,408
Net book value
As at 30 June 2007	9,834,404	6,178,553	16,012,957
Net book value
As at 31 December 2007	9,294,465	8,591,263	17,885,728
Net book value
As at 30 June 2008	8,707,864	11,167,827	19,875,691

Intangible asset write down

In the first half of fiscal 2007, the Group recorded a write down of $8.3 million related to website development assets. The Group identified the cessation of transaction processing in the North American market 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. 

8.	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 had previously seized. The Company agreed that it would satisfy the remaining portion of its forfeiture obligation with a payment of $40 million to be paid on or before 15 October 2007, and the remaining balance to be paid on or before 17 January 2008. The full terms of the DPA are available on the Group's website at www.neteller-group.com.

The following details have been recorded:

	Six months ended 30 June 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)
17 January 2008 payment	38,250,415	-
Forfeiture payable at the end of the period	-	(38,250,415)

9.	Share capital

	As at 30 June 2008	As at 31 December 2007
	£	£
Authorised:
200,000,000 ordinary shares of £0.0001 per share	20,000	20,000
1,000,000 deferred shares of £0.01 per share	10,000	10,000
Issued and fully paid	US$	US$
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	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.

10.	Restructuring costs

The Group incurred certain costs pertaining to the cessation of its North American-facing business during the year ended 31 December 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 incurred minimal costs in the six months ended 30 June 2008.

The Group has incurred the following costs:

	Six months ended 30 June 2008 $	Six months ended 30 June 2007 $
Severance and retention	-	2,721,612
Asset write downs and property disposal net of proceeds	-	13,014,866
Professional and legal fees and expenses	82,784	8,889,907
Other restructuring costs	9,700	-
	92,484	24,626,385

The Group's asset write downs and disposals consist of:

	Six months ended 30 June 2008 $	Six months ended 30 June 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
Write down of intangible assets, net of accumulated depreciation	-	8,339,558
Total non cash items	-	13,014,866

11.	Earnings (loss) per share

From continuing operations 

The calculation of the basic and diluted earnings per share is based on the following data:

	Six months ended 30 June 2008	Six months ended 30 June 2007
	US$	US$
Earnings (loss)
Earnings (loss) for the purposes of basic and diluted earnings per share being
net profit attributable to equity share holders of the parent	1,147,784	(24,504,933)
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	$0.01	$(0.20)
Fully diluted earnings (loss) per share	$0.01	$(0.20)

12.	Share-based payments

The Group's share option plan was adopted pursuant to a resolution passed on 7 April 2004. Under this plan, the Board of Directors of the Company may grant share options to eligible employees including directors to subscribe for ordinary shares of the Group.

No consideration is payable on the grant of an option. Options may generally be exercised to the extent that it has vested. Options vest equally over a three year term following date of grant. The exercise price is determined by the Board of Directors of the Group, and shall not be less than the market value at the date of grant. The Group 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 15 April, 2008, a total of 211,077 options granted on 15 October 2004 with an exercise price of £2.49 expired.

Equity-settled share option plan

	Six months ended 30 June 2008  Weighted	Six months ended 30 June 2008	Year ended 31 December 2007  Weighted	Year ended 31 December 2007
	average exercise price	Options	average exercise price	Options
Outstanding at the beginning of period	£1.50	6,699,116	£6.00	6,458,350
Granted during the period	-	-	£1.06	7,200,467
Forfeited during the period	£1.55	(433,031)	£5.85	(5,837,324)
Exercised during the period	-	-	-	-
Expired during the period	£2.49	(211,077)	£2.00	(1,122,377)
Outstanding at the end of period	£1.46	6,055,008	£1.50	6,699,116
Exercisable at the end of the period	£2.71	1,845,383	£3.06	1,640,885

  The options outstanding at the end of the period had a weighted average remaining contractual life of 2.35 years (31 December 2007: 2.79 years). 

The options granted are priced using a trinomial lattice model to reflect factors including employee exercise behaviour, option life and option forfeitures. No options were granted in the six months ended 30 June 2008. The inputs into the model are as follows:

	Six months ended 30 June 2008	Year ended 31 December 2007
Weighted average exercise price	n/a	£1.14
Expected volatility	n/a	77%
Expected life	n/a	3 years
Risk free interest rate	n/a	4.91%
Expected dividends	n/a	-
Employee exit rate	n/a	7%

Expected volatility was determined by calculating the historical volatility of the Group'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 Group recognised total expenses of US$1,442,235 (Six months ended June 30, 2007: US$4,448,033) related to the equity-settled share-based payments transactions in the period. 

13.	Subsequent Event

Property sale

The Group completed the sale of its principal property at 27th Avenue in Calgary, Canada on 10 July 2008. 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.

Total consideration of the sale is CAD $33.5 million which is approximately equal to the net book value of the property, after sale related expenses. Any gain or loss on the sale is nominal and will be reflected in the financial statements for the year ended 31 December 2008.

  

NETELLER PLC Additional Financial Information For the six month period ended 30 June 2008

Additional Financial Information
The additional information presented below has been prepared for information purposes only.
Please note that this information is outside of the scope of the unaudited financial statements.
		Q2 - 2008	Q1 - 2008		Q2 - 2007		Q2 2008 vs Q1 2008		Q2 2008 vs Q2 2007
		US$	US$		US$		% change		% change
Revenue		18,903,049	16,986,882		18,180,298		11%		4%
Direct Costs		(7,354,479)	(6,417,515)		(7,201,988)		15%		2%
Gross profit		11,548,570	10,569,367		10,978,310		9%		5%
General and Admin		(6,943,207)	(8,183,353)		(7,423,138)		-15%		-6%
Operating income		4,605,363	2,386,014		3,555,172		93%		30%
Other income (expense)
Foreign exchange gain (loss)		163,490	(12,852)		(375,964)		nm		nm
Management bonus		(448,455)	(451,515)		(337,878)		-1%		33%
Depreciation and
Amortisation		(1,603,809)	(1,568,804)		(1,920,405)		2%		-16%
Stock option expense		(691,688)	(750,546)		(2,224,016)		-8%		-69%
Investment loss		(282,520)	(100,000)		-		nm		nm
Restructuring costs		803	(93,287)		(9,265,664)		nm		nm
Income before tax		1,743,184	(590,991)		(10,568,755)		nm		nm
Income taxes		493,225	(497,633)		(1,089,757)		nm		nm
Net income after tax		2,236,408	(1,088,624)		(9,478,998)		nm		nm
KEY PERFORMANCE INDICATORS  (excluding North America)
		Q2 - 2008	Q1 - 2008		Q2 - 2007		Q2 2008 vs Q1 2008		Q2 2008 vs Q2 2007
Total active e-wallet users in quarter (1)		100,760	101,301		97,216		-1%		4%
E-wallet revenue per active e-wallet user		$ 130	$ 113		$ 110		15%		18%
Daily sign ups		993	1,101		909		-10%		9%
Total customers (at period end)		1,187,812	1,097,456		815,910		8%		46%
Average daily receipts from customers		$ 418,047	$ 365,001		$ 339,314		15%		23%
Total customer receipts		$ 38,042,306	$ 33,215,070		$ 30,877,606		15%		23%
(1)	Active e-wallet user is defined as a consumer whose e-wallet account balance has changed during the quarter. The change in balance may be due to adding, removing, transferring or receiving funds. nm not meaningful

ENDIR MGGGLNZLGRZM

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