2nd Sep 2005 07:00
NETeller PLC02 September 2005 30 JUNE 2005 HALF YEARLY REPORT NETELLER PLC (the "Company" or "NETELLER") is a global electronic money issuer.The Company operates an electronic wallet that provides secure, instant andindemnified funds transfers related to online transactions. The Companycurrently has a strong market presence in the Internet Gaming market. NETELLER's shares are quoted on AIM, a market operated by the London StockExchange, and trade under the symbol NLR. The Company is capitalised atapproximately £1 billion and is one of the largest companies on AIM. TheCompany is headquartered in the Isle of Man. TABLE OF CONTENTS 2 TABLE OF CONTENTS 3 HIGHLIGHTS 4 CHIEF EXECUTIVE'S REPORT 7 INDEPENDENT REVIEW REPORT 8 UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 12 NOTES TO INTERIM FINANCIAL STATEMENTS 19 ADDITIONAL FINANCIAL INFORMATION This discussion and analysis contains forward-looking statements relating tofuture events and future performance. In some cases, forward-looking statementscan be identified by terminology such as "may", "will", "should" "expects", "projects", "plans", "anticipates", and similar expressions. These statementsrepresent management's expectations or beliefs concerning, among other things,future operating results and various components thereof or the economicperformance of NETELLER. The projections, estimates and beliefs contained insuch forward-looking statements necessarily involve known and unknown risks anduncertainties, which may cause the actual performance and financial results infuture periods to differ materially from any projections of future performanceor results expressed or implied by such forward-looking statements.Accordingly, readers are cautioned that events or circumstances could causeresults to differ materially from those predicted. HIGHLIGHTS FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2005 All figures in US$ unless otherwise stated. Percentage changes shown are versushalf year 2004*. • Average daily sign ups: 2,732 (up 82%)• Total half year end members: 1.75 million (up 101%)• Average daily receipts $3.0 million (up 103%)• Revenue $73.5 million (up 122%)• Gross margin: 73.2% (69% in HY 2004)• Profit before tax: $40.6 million (up 126%)• Net profit: $37.0 million (up 210%)• EPS: $0.31 H1 - 2005 H1 - 2004 % change Average daily sign ups 2,732 1,497 82%Total members 1,745,602 868,335 101% Average daily receipts from members $2,998,741 $1,473,944 103% * Please refer to page 19 for supplementary 2nd quarter information. Gord Herman, Chief Executive Officer, commented: "We are pleased with the strong performance that NETELLER continues todemonstrate, with significant growth in customers, merchants, revenue andprofitability. The next six months will be key to our expansion in Europe,strengthening our foothold in Asia, and the implementation of the nextgeneration web-based platform. Our recent senior appointments and continualinvestment in quality people have positioned us for the next phase of theCompany's development. We are excited by the opportunities and challengesNETELLER faces and look forward to the future with confidence." Enquiries: NETELLER PLC 0207 638 9571 (2nd Sept)Gord Herman, Chief Executive Officer 01624 698 702 (after 2nd Sept)Dale Johnson, Executive Vice PresidentEric Hughes, Chief Financial OfficerAndrew Gilchrist, Vice President, Communications Citigate Dewe Rogerson 0207 638 9571Sarah Gestetner/Seb Hoyle/George Cazenove NETELLER will hold a conference call on 2 September 2005 at 2.00 pm (BST) foranalysts and institutional investors. A replay of the call may be heard from 6:00 pm (BST) onwards on 2 September 2005 by dialling 001 718 354 1112 (US) or +44(0) 20 7784 1024 (UK/Europe), passcode 4774327 #, and will be available until 8September 2005. CHIEF EXECUTIVE'S REPORT FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2005 Dear Shareholders, Continued strong growth characterised the first half of 2005 for NETELLER.Increased investor focus on the online gaming and online payment industriesincreased the profile and created awareness that neither industry had previouslyexperienced. During this time, NETELLER has advanced towards its vision ofbecoming the world's leading money transfer service provider. The following paragraphs set out our vision and highlight NETELLER's recentachievements and developments. STRATEGY Our vision is to become the global leader in providing online money transferproducts and the provision of e-money. Our priorities for growth in the shortand medium term focus on the following three key areas: 1. Continue to build out our global money transfer platform throughgeographic expansion. 2. Develop a "whole product" service (i.e. expand the benefits of aNETELLER account). It is contemplated that this will include one or more bankpartnerships. 3. Continue to develop enhanced identification, fraud prevention andknow-your-customer capabilities. Superior identification competencies are acornerstone of our leadership position in providing safe and secure onlinepayments. GROWTH The strong market demand for NETELLER's online payment services experienced in2004 carried over into the first half of 2005. Our customer base more thandoubled from 868,335 at 30 June 2004 to 1,745,602 at 30 June 2005, with averagedaily sign-ups of 2,732 (2,862 in Q1 and 2,604 in Q2). In the same period, ouraverage daily receipts from customers grew 103%, from $1.5 million to $3.0million ($2.9 million in Q1 and $3.1 million in Q2). Growth in new membersign-ups has historically been strongest in the first and third quarters. The expansion of our customer base in this period has been accompanied by growthin our merchant base which exceeded 1,700 as at 30 June 2005 (compared toapproximately 1,400 at 31 December 2004). In this period we have added two majormerchants, Betfair, the world's leading-betting exchange, and Expekt.com, aleading international bookmaking group with betting licenses in Malta, UK andAustria. We continue to attract new online gaming merchants by providingtrusted, secure and innovative payment services. The significant growth in our customer and merchant bases necessitated aproportional and coordinated growth in our employee base, which grew over 40% inthe first six months of 2005, from 320 at 31 December 2004 to 450 at 30 June2005. New processes and standards have been established in parallel with theaddition of employees in key departments such as Finance, InformationTechnology, Information Security, Quality Assurance, User Experience, Marketingand Administration. These have enabled us to identify and eliminate operationalconstraints as well as to bolster our ability to capitalise on emergingopportunities. The skills and experience of our team are pivotal to our futuresuccess, and the Company will therefore continue to invest heavily inrecruitment and training. GEOGRAPHIC EXPANSION Effective January 2005, the Company acquired Quick Access International Limited,a debit card payment processor owned by CTM, a Macau telecom service provider.Quick Access was targeted for its strategic business relationships in China.This acquisition positions NETELLER and its merchants with an early foothold inthe emerging Chinese online money transfer market. As previously announced, asimplified e-wallet independent of the main NETELLER system will be integratedwithin the Quick Access processing system by Q4 2005. This will enhancefunctionality and profitability associated with Quick Access. In May, NETELLER successfully completed beta-testing of the first of manyplanned localised versions of our global website. This test launch included astreamlined version of the global website translated into Japanese and provedthe high demand for NETELLER's services in the Japanese market. A full launch inthis large market is planned for Q4 2005. In June, the Company launched a site specifically tailored for the Europeanmarketplace to capitalise on the Financial Services Authority's authorisation ofour UK subsidiary, NETeller (UK) Limited, as an e-money issuer. This launch wascombined with a successful email campaign which has resulted in improved signupsand revenues from the European region. The Company's highest strategic priority continues to be the development of aglobal money transfer business. An evaluation of our progress to date hasreinforced our view that global expansion is a long-term initiative, requiringsignificant planning and investment. A "next-generation" web-based technologyplatform has been under intense development since our IPO to facilitatecontinued global expansion. This new platform features enhanced functionality,scalability and flexibility to overcome limitations associated with the existingplatform which has been adapted for growth as the Company's customer andmerchant bases have expanded. The new platform is expected to be implemented instages over the coming 12 months. DIRECTOR, EXECUTIVE AND AUDITOR APPOINTMENTS In April, the Company appointed Dale Johnson to the Board of Directors. Mr.Johnson is Executive Vice President, Corporate Development of the Company andhas over 30 years of experience that includes corporate leadership, operationsmanagement, business development, project management and turnarounds in bothprivate and public companies. In July, the Company welcomed Ronald Martin as Chief Operating Officer. Mr.Martin has extensive management experience in service, outsourcing and highgrowth software firms. He will be a valuable addition in facilitating theCompany's global expansion and continuing growth. He has held varied executivepositions with companies such as FirstService Corporation, Job Advantage.com,Salesnet Inc and, most recently, Globoforce Ltd. In August, Andrew Gilchrist joined the Company as Vice President - CorporateDevelopment and Communications. He has widespread investment banking expertise,most recently as a corporate financier with Canaccord, the Company's nominatedadviser and joint broker. He has previously worked for Credit LyonnaisSecurities, Bear Stearns and HSBC. Mr. Gilchrist will play a significant roleliaising with the investment community. In July, the Company announced the appointment of KPMG Audit LLC to act as theCompany's auditors with immediate effect. The decision was based principally onthe strength of KPMG's Isle of Man team, represented by more than 80 partners,managers and professional staff. CUSTOMER SERVICE AWARD Excellence in customer service is of paramount importance to NETELLER. We weretherefore pleased to announce in July that our customer service team in Calgaryachieved the prestigious Contact Centre Employer of ChoiceTM (CCEOC) Gold LevelAward. This award distinguishes NETELLER's customer service team as one of thebest contact centre operations to work for in North America. The CCEOC Award isfast becoming an industry standard for recognising people-centric contactcentres. The award enables us to enhance public perception and promoteexceptional work environments while attracting, retaining and engaginghigh-performing, culturally-aligned employees. REGULATORY ENVIRONMENT NETELLER is subject to a variety of regulations in jurisdictions in which itoperates and monitors international legislation that may have an impact on itsbusiness. NETELLER has implemented an internal anti-money laundering andanti-terrorist financing program in order to comply with legislation in thecountries in which it operates. NETELLER also monitors international legislativedevelopments concerning online gaming, an industry that utilises NETELLER'sservices. * * * FINANCIAL REVIEW Sign Ups After signing up our one-millionth member last September, we surpassed 1.7million members in June 2005, adding an average of 2,732 members per day for thehalf year, up 82% from half year 2004. The Company added 494,536 new members inthe half year, bringing our total member base to 1,745,602 as of 30 June 2005, a101% year-over-year gain. Revenue Revenue for the half year of $73.5 million was up 122% from half year 2004, withQ2 2005 revenue of $39.3 million up 15% and 123% over Q1 2005 and Q2 2004respectively. Revenue increased due to improvements in several areas, includingthe increase in receipts from members to $3 million per day (up 103% from 2004)and the combination of increased foreign exchange and interest revenue resultedin the improved top line. The extent that members used their e-wallet totransfer funds to merchants also improved in the half year resulting inincreased transfer fees. Gross margin Gross margin was 73% for the half year, a four percentage point increase overhalf year 2004, mostly due to a reduction in bad debts, the Company's largestexpense. Bad debts as a percentage of sales fell from over 15.1% in half year2004 to 12.6% due primarily to improved processes in fraud prevention. Expenses General and administrative (G & A) expenses as a percentage of sales increasedslightly to 13% in Q2 from 12% in Q1. G & A in the first half to 30 June 2005was 12% of sales, up from 9% in 2004. This increase is partially due to anincrease in share option expenses to $1.2 million from nil in 2004. As expected,income tax expense for the half year was lower than half year 2004 due to theCompany's relocation of corporate headquarters and transaction processing anddata management systems to the Isle of Man in 2004 and early 2005. Depreciation and amortisation expenses increased over half year 2004 due to thepurchase of computer software and hardware, a strategic focus on new productdevelopment necessary to fuel company growth, and the amortisation of intangibleassets obtained on the acquisition of Quick Access. Earnings per share Continued business growth, increases in interest income on cash balances andinvestments, and operational improvements pushed earnings per share to $0.31 forthe half year compared to $0.20 in half year 2004, an increase of 55%. Secondquarter earnings per share was $0.17 compared to $0.05 for the same period in2004, a 240% increase (note that the weighted number of shares outstanding forhalf year 2005 is significantly higher than half year 2004 as the Company wentpublic on 14 April 2004 - refer to Note 7). Balance sheet NETELLER ended the half year with $86 million in cash and cash equivalentscompared to $77 million at the fiscal 2004 year end. The Company retained itsstrong working capital position in the half year and built its asset base withsoftware and hardware acquisitions as well as ongoing software development forthe Company's next generation electronic money transfer platform. The Companyalso paid its outstanding $9.3 million tax liability during the half year. TheCompany's acquisition of Quick Access in March 2005 added significantly to the40% increase in the Company's asset base. * * * Our recent success would not have been possible without the skill and dedicationof the entire NETELLER team, the trust of our customers and the support of ourshareholders. With these key assets in place and the continuing growth in theonline gaming sector, the board is confident that NETELLER will continue to makesignificant progress in the second half of 2005. GORD HERMANChief Executive Officer2 September 2005 INDEPENDENT REVIEW REPORT TO NETELLER PLC We have reviewed the accompanying consolidated balance sheet of NETELLER PLC at30 June 2005 and the related consolidated statements of income, cash flows andchanges in equity for the six month period then ended. These financialstatements are the responsibility of the Company's management. Ourresponsibility is to issue a report on these financial statements based on ourreview. This report is made solely to the Company, in accordance with the InternationalStandard on Review Engagements (ISRE) 2400. Our work has been undertaken so thatwe might state to the Company those matters we are required to state to them inan independent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company, for our review work, for this report, or for the conclusions wehave formed. We conducted our review in accordance with the International Standard on ReviewEngagements (ISRE) 2400. This Standard requires that we plan and perform thereview to obtain moderate assurance as to whether the financial statements arefree of material misstatement. A review is limited primarily to inquiries ofCompany personnel and analytical procedures applied to financial data and thusprovides less assurance than an audit. We have not performed an audit and,accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believethat the accompanying financial statements do not give a true and fair view inaccordance with International Financial Reporting Standards. KPMG Audit LLCChartered AccountantsDouglasIsle of Man 2 September 2005 CONSOLIDATED INCOME STATEMENT UNAUDITED Six month period Six month % Change ended period ended 30 June 2005 30 June 2004 US$ US$ Revenue 73,484,674 33,124,074 122%Cost of salesCustomer support 5,037,403 2,802,487 80%Website maintenance 1,590,533 884,522 80%Deposit and withdrawal fees 3,804,087 1,559,936 144%Bad debts and collections 9,275,496 4,997,811 86% Gross profit 53,777,155 22,879,318 135%Operating expensesGeneral and administrative 9,150,334 3,005,250 204%Management bonus 1,795,622 1,058,000 70%Foreign exchange gain (163,484) (357,466) -54%Depreciation and amortisation 2,277,109 1,222,858 86%Loss on investment 75,000 - naProfit before tax 40,642,574 17,950,676 126% Income tax expense 3,675,208 6,018,198 -39% Net profit for the period 36,967,366 11,932,478 210% Basic earnings per share (Note 7) $0.31 $0.20 55% Fully diluted earningsper share (Note 7) $0.30 $0.20 50% CONSOLIDATED BALANCE SHEET AS OF 30 JUNE 2005 30 June 2005 31 December 2004 US$ US$ (Unaudited) (Audited) ASSETSCURRENT ASSETSCash and cash equivalents 85,968,228 76,969,314Restricted cash (Note 3) 9,776,094 1,783,787Receivable from members 1,780,000 1,655,000Trade and other receivables 899,953 32,499Income taxes receivable 2,360,155 -Prepaid expenses and deposits 1,176,628 837,810 101,961,058 81,278,410 NON-CURRENT ASSETSCapital assets 8,188,321 5,714,265Intangible assets 12,114,040 4,850,810Portfolio investment - 75,000Goodwill (Note 4) 5,814,800 - 128,078,219 91,918,485LIABILITIESCURRENT LIABILITIESTrade and other payables 3,622,593 2,616,196Income taxes payable - 9,209,356Conditional consideration payable (Note 6) 2,605,999 - 6,228,592 11,825,552 NON-CURRENT LIABILITIESConditional consideration payable (Note 6) 2,602,742 - 8,831,334 11,825,552 SHAREHOLDERS' EQUITYShare capital (Note 5) 39,770 39,708Share premium 47,888,887 46,651,224Equity reserve on share option issuance 1,548,786 380,742Translation reserve (219,183) -Accumulated profits 69,988,625 33,021,259 119,246,885 80,092,933 128,078,219 91,918,485 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2005 UNAUDITED Share Share Total Equity Translation capital - capital - share reserve on reserve on ordinary deferred capital share foreign shares shares option operations Share issuance Accumulated Total premium profits Balance as at1 January 2004 1 - 1 - - - - 1 Issue of ordinary 21,707 - 21,707 53,169,341 - - - 53,191,048shares during theyearIssue of deferred shares during theyear - 18,000 18,000 - - - - 18,000Share issuance costs on ordinaryshares issuedduring the year - - - (6,518,117) - - - (6,518,117) Net profit for the - - - - - - 11,932,478 11,932,478period Balance as at 30 21,708 18,000 39,708 46,651,224 - - 11,932,478 58,623,410June 2004(Unaudited) Equity reserve on option issuance - - - - 380,742 - - 380,742 Net profit for the period - - - - - - 21,088,781 21,088,781 Balance as at 1 January 2005 21,708 18,000 39,708 46,651,224 380,742 - 33,021,259 80,092,933(Audited) Issue of ordinary 62 - 62 1,237,663 - - - 1,237,725shares during the periodEquity reserve on option issuance - - - - 1,168,044 - - 1,168,044 Translation reserve onforeign operations - - - - - (219,183) - (219,183) Net profit for the period - - - - - - 36,967,366 36,967,366 Balance as at 30June 2005(Unaudited) 21,770 18,000 39,770 47,888,887 1,548,786 (219,183) 69,988,625 119,246,885 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2005 UNAUDITED Six months ended 30 Six months ended June 2005 30 June 2004 US$ US$OPERATING ACTIVITIESProfit before tax 40,642,574 17,950,676 Adjustments for:Depreciation and amortization 2,277,109 1,222,858Unrealised foreign exchange loss 264,362 347,092Loss on sale of capital assets - (522)Loss on investment 75,000 -Share option expense 1,168,044 -Operating cash flows before movements in working capital 44,427,089 19,520,104 Increase in receivable from members (137,663) (385,000)Increase in trade and other receivables (867,454) (54,016)Increase in prepaid expenses and deposits (338,818) (449,062)Increase in trade and other payables 972,283 1,421,500Increase in payable to members and merchants - 17,979,873Cash generated by operations 44,055,437 38,033,399 Income tax paid (15,244,719) - Net cash from operating activities 28,810,718 38,033,399 INVESTING ACTIVITIESPurchase of capital and intangible assets (12,014,394) (2,523,197)Proceeds on sale of capital assets - 6,411Purchase of portfolio investment - (50,000)Increase in restricted cash accounts (7,992,307) -Acquisition of subsidiary (Note 6) (5,402,436) - Net cash used in the investing activities (25,409,137) (2,566,786) FINANCING ACTIVITIESConditional consideration payable (Note 6) 5,132,791 -Proceeds on issuance of shares, net of share issuance costs 1,237,725 46,690,931Receivable from NETELLER Inc. - 17,081,598Funds held in trust - 6,500,000Repayment of amounts due to shareholders - (6,500,099)Repayment of notes payable to NETELLER Inc. - (7,473,633) Net cash generated from financing activities 6,370,516 56,298,797 INCREASE IN CASH AND CASH EQUIVALENTS DURING PERIOD 9,772,097 91,765,410 NET EFFECT OF FOREIGN EXCHANGE ON:CASH AND CASH EQUIVALENTS (554,000) (357,561)TRANSLATION OF FOREIGN OPERATIONS (219,183) - CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 76,969,314 31,030,455 CASH AND CASH EQUIVALENTS, END OF PERIOD 85,968,228 122,438,304 In addition to the increase in cash and cash equivalents during the period,restricted cash increased by US$7,992,307. NOTES TO THE INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2005 (UNAUDITED) 1. Basis of presentation The principal operating currency of the Group is US dollars and accordingly thefinancial statements have been prepared in US dollars. The interim results forthe period ended 30 June 2005 are unaudited and do not constitute statutoryaccounts within the meaning of the Isle of Man Companies Acts 1931 to 1993. Thestatutory accounts of NETELLER PLC for the year ended 31 December 2004 have beenfiled with the Registrar of Companies and contain an unqualified audit report.Further copies can be obtained from the Registered Office of the Company, 4thFloor, Standard Bank Building, 1 Circular Road, Douglas, Isle of Man, IM1 1AF. 2. Significant accounting policies The interim results for the period ended 30 June 2005 have been prepared inaccordance with the accounting policies adopted in the accounts for the yearended 31 December 2004 and in accordance with IAS 34 "Interim FinancialReporting". New accounting policies adopted during the six month period ended 30June 2005 are disclosed below. Goodwill Goodwill arising on consolidation represents the excess of the cost ofacquisition over the Group's interest in the fair value of the identifiableassets and liabilities of a subsidiary at the date of acquisition. Goodwill is recognised as an asset and reviewed for impairment at leastannually. Any impairment is recognised immediately in profit or loss and is notsubsequently reversed. On disposal of a subsidiary, the attributable amount of goodwill is included inthe determination of the profit or loss on disposal. Foreign currencies The individual financial statements of each group entity are presented in thecurrency of the primary economic environment in which the entity operates (itsfunctional currency). For the purpose of the consolidated financial statements,the results and financial position of each entity are expressed in United Statesdollars, which is the functional currency of NETELLER PLC, and the presentationcurrency for the consolidated financial statements. In preparing the financial statements of the individual entities, transactionsin currencies other than the entity's functional currency (foreign currencies)are recorded at the rates of exchange prevailing on the dates of thetransactions. At each balance sheet date, monetary items denominated in foreigncurrencies are retranslated at the rates prevailing on the balance sheet date.Non-monetary items carried at fair value that are denominated in foreigncurrencies are retranslated at the rates prevailing on the date when the fairvalue was determined. Non-monetary items that are measured in terms ofhistorical cost in a foreign currency are not retranslated Exchange differences arising on the settlement of monetary items, and on theretranslation of monetary items, are included in profit or loss for the period.Exchange differences arising on the retranslation of non-monetary items carriedat fair value are included in profit or loss for the period except fordifferences arising on the retranslation of non-monetary items in respect ofwhich gains and losses are recognised directly in equity. For such non-monetaryitems, any exchange component of that gain or loss is also recognised directlyin equity. For the purpose of presenting consolidated financial statements, the assets andliabilities of the Group's foreign operations (including comparatives) areexpressed in United States dollars using exchange rates prevailing on thebalance sheet date. Income and expense items (including comparatives) aretranslated at the average exchange rates for the period, unless exchange ratesfluctuated significantly during that period, in which case the exchange rates atthe 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 inwhich the foreign operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreignoperation are treated as assets and liabilities of the foreign operation andtranslated at the closing rate. Segment information In the opinion of the Directors, all of the Group's activities arise fromon-line transactions and the majority of the revenue and results arises fromoperations in the Isle of Man. 3. Restricted Cash The Company holds trust accounts with its principal banker, which are segregatedfrom operating funds. Balances in the trust accounts are maintained at asufficient level to fully offset amounts owing to NETELLER merchants andmembers. There exists a legal right of offset between the balances owing to themembers and merchants and the cash balances segregated in the trust accounts. Assuch only the net balance of surplus cash is disclosed on the balance sheet asRestricted Cash. The Company, as a matter of policy, holds amounts of excesscash in the trust accounts to ensure intraday balance movements do not result ina shortfall in the cash position. At 30 June 2005, the Group has the following balances: Trust Account Funds Balance Owing Restricted Cash US$ US$ US$ Members 93,652,400 91,348,217 2,304,183 Merchants 75,817,104 68,345,193 7,471,911 169,469,504 159,693,410 9,776,094 At 31 December 2004, the Company had the following balances: Trust Account Funds Balance Owing Restricted Cash US$ US$ US$ Members 56,309,576 55,831,314 478,262 Merchants 53,137,533 51,832,008 1,305,525 109,447,109 107,663,322 1,783,787 As at 30 June 2005, an amount of US$21,447,898 was held in trust accounts in theUK subsidiary company (2004: US$ nil). 4. Goodwill Six months ended 30 June 2005 US$Cost and carrying amount At 1 January 2005 -Arising on acquisition of Quick Access International Limited 5,402,436Exchange differences 412,364 Balance at 30 June 2005 5,814,800 In the current period, the Group has determined that goodwill has no indicationsof impairment. 5. Share capital Six months ended Year ended 30 June 2005 31 December 2004 £ £Authorised:200,000,000 ordinary shares of £0.0001 per share 20,000 20,000 1,000,000 deferred shares of £0.01 per share 10,000 10,000 Issued and fully paid US$ US$120,134,356 ordinary shares of £0.0001 per share (At 31 December 2004: 119,800,00 ordinary shares of £0.0001 21,770 21,708per share) 1,000,000 deferred shares of £0.01 per share 18,000 18,000 Total share capital 39,770 39,708 Holders of the ordinary shares are entitled to receive dividends and otherdistributions, to attend and vote at any general meeting, and to participate inall returns of capital on winding up or otherwise. Holders of the deferred shares are not entitled to vote at any annual generalmeeting of the Company, and are only entitled to receive the amount paid up onthe shares after the holders of the ordinary shares have received the sum of£1,000,000 for each ordinary share held by them and shall have no other right toparticipate in assets of the Company. 6. Acquisition of subsidiary On 1 January 2005, the Group acquired 100 per cent of the issued share capitalof Quick Access International Limited (Quick Access) for total consideration ofMacau Patacas (MOP) 100 million. Cash of MOP60.025 million was paid as initialconsideration, with a remaining MOP20 million and MOP19.975 million to be paidon the first and second anniversary of acquisition respectively on a conditionalbasis. The conditions involve maintaining service contracts between Quick Accessand various parties providing electronic payment and communication equipmentservices. The Group believes these conditions to be probable and has includedthe conditional consideration in the cost of the purchase. This transaction hasbeen accounted for using the purchase method. Acquiree's Fair value Fair value Fair value carrying amount adjustments before MOP MOP US$ ** combination MOP Net assets acquired: Cash and cash equivalents 30,083,753 - 30,083,753 3,907,879Trade and other receivables 54,229 - 54,229 7,044Prepaid expenses and deposits 12,062 - 12,062 1,568Capital assets 221,363 - 221,363 28,755Intangible assets - 56,966,898 56,966,898 7,400,000Trade and other payables (611,995) - (611,995) (79,498)Income taxes payable (340,699) - (340,699) (44,257)Due to merchants (31,011,877) - (31,011,877) (4,028,443) (1,593,164) 56,966,898 55,373,734 7,193,048 Goodwill 44,626,266 5,402,436 Total Consideration 100,000,000 12,595,484 Net cash outflow arising onacquisition: Cash consideration (60,025,000) (7,462,693) Conditional considerationDue within 1 year (20,000,000) (2,568,001)Due after 1 year (19,975,000) (2,564,790)Total Consideration (100,000,000) (12,595,484) Cash & cash equivalents acquired 30,083,753 3,907,879 (69,916,247) (8,687,605) ** Based on an exchange rate of 1 MOP = US$0.1299 Amounts in Note 6 may not agree to the balance sheet due to the foreign currencyfluctuation between the date of the acquisition and the balance sheet date.Intangible assets acquired include existing contracts with merchants andprocessors, and intellectual property consisting of material software necessaryto operate the Quick Access payment system and website and the Company's URL. The goodwill arising on the acquisition of Quick Access is attributable to theanticipated profitability of the company, as well as securing the Group'sentrance into the Asian market. 7. Earnings per share From continuing operations The calculation of the basic and diluted earnings per share is based on thefollowing data: Six months ended Six months ended 30 June 2005 30 June 2004 US$ US$ EarningsEarnings for the purposes of basic and diluted earnings per 36,967,366 11,932,478share being net profit attributable to equity share holdersof the parent Number of sharesWeighted average number of ordinary shares for the purpose 119,881,367 59,306,593of basic earnings per share Effect of dilutive potential ordinary shares due to employee 1,750,522 -share options Weighted average number of ordinary shares for the purpose 121,631,889 59,306,593of diluted earnings per share Basic earnings per share $0.31 $0.20 Fully diluted earnings per share $0.30 $0.20 8. Share-based payments The Group's share option scheme was adopted pursuant to a resolution passed on 7April 2004. Under this scheme, the Board of Directors of the Group may grantshare options to eligible employees including directors to subscribe forordinary shares of the Group. No consideration is payable on the grant of an option. An option may generallybe exercised to the extent that it has vested. Options vest equally over athree-year term following date of grant. The exercise price is determined by theBoard of Directors of the Group, and shall not be less than the market value atthe date of grant. The Group plan provides for a grant price to equal theaverage quoted market price of the Company shares on the three days prior to thedate of grant. Share options are forfeited if the employee leaves the Groupbefore the options vest. A participant of the share option scheme has 170 daysfollowing the date of grant to surrender the option and if surrendered, theoption will not be deemed granted. On 14 April 2005, the Company proposed the granting of 2,875,800 share optionsto eligible employees including directors to acquire ordinary shares at anexercise price of £6.59 per share, expiring on 14 October 2008. On 1 June 2005, the Company proposed the granting of 200,000 share options to anemployee to acquire ordinary shares at an exercise price of £5.55 per share,expiring on 1 December 2008. Equity-settled share option plan Six months ended Six months ended Year ended Year ended 30 June 2005 30 June 2005 31 December 2004 31 December 2004 Weighted average Options Weighted average Options exercise price exercise price Outstanding at the beginning of year £2.09 2,712,000 - - Granted during the year £6.52 3,043,100 £2.09 2,792,500 Forfeited during the year £2.24 (51,000) £2.30 (100,500) Exercised during the year £2.00 (334,356) - - Outstanding at the end of period £4.60 5,369,744 £2.09 2,692,000 Exercisable at the end of the period £2.00 1,850,144 - - 8. Share-based payments (continued) The weighted average share price at the date of exercise for share optionsexercised during the year was £6.28. The options outstanding at the end of theperiod had a weighted average remaining contractual life of 2.9 years (31December 2004: 2.4 years). The options granted in 2005 are priced using a trinomial lattice model to betterreflect factors including employee exercise behaviour, option life and optionforfeitures. In 2004, the Black-Scholes model was used. The inputs into bothmodels are as follows: Six months ended Year ended 30 June 2005 31 December 2004 Average share price £3.43 £2.29Weighted average exercise price £6.52 £2.09Expected volatility 54% 42%Expected life 3 years 3 yearsRisk free interest rate 4.75% 4.34%Expected dividends - -Employee exit rate 10.60% 12.12% Expected volatility was determined by calculating the historical volatility ofthe Group's share price from the time of issue to 14 April 2005. The expectedlife used in the model has been adjusted, based on management's best estimate,for the effects of non-transferability, exercise restrictions, and behaviouralconsiderations. The Group recognised total expenses of US$1,168,044 (2004: US$380,742) relatedto the equity-settled share-based payments transactions in 2005. ADDITIONAL FINANCIAL INFORMATION The additional information presented below has been prepared for informationpurposes only. please note that this information is outside of the scope OF THE independent review opinion Q2 - 2005 Q1 - 2005 Q2 - 2004 Q2 2005 vs Q1 Q2 2005 vs Q2 2005 2004 US$ US$ US$ % change % change Revenue 39,291,120 34,193,554 17,632,621 15% 123%Cost of sales 10,376,466 9,331,053 5,542,670 11% 87% Gross profit 28,914,654 24,862,501 12,089,951 16% 139%Operating expensesGeneral and administrative 5,091,596 4,058,738 1,670,921 25% 205%Management bonus 17,613 1,778,009 58,000 -99% -70%Foreign exchange gain (96,053) (67,431) (508,351) 42% -81%Depreciation and amortisation 1,363,911 913,198 617,500 49% 121%Loss on investment 75,000 - - na naProfit before tax 22,462,587 18,179,987 10,251,881 24% 119% Income tax expense 1,859,682 1,815,526 4,670,909 2% -60% Net profit for the period 20,602,905 16,364,461 5,580,972 26% 269% Average daily sign ups 2,604 2,862 1,361 -9% 91%Total membersat period end 1,745,602 1,508,659 868,335 16% 101% Average dailyreceipts from members $3,152,212 $2,865,878 $1,522,991 10% 107% This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Paysafe Group