Interim Results

16 September 2015

Embargoed until 07:00

Mi-Pay Group plc

('Mi-Pay', the 'Group', or the 'Company')

Interim Results

Mi-Pay Group plc (AIM: MPAY), the leading provider of mobile payment solutions to Mobile Network Operators and Mobile Virtual Network Operators, is pleased to present its unaudited Interim Results for the six months ended 30 June 2015. 

Operational Highlights

· The volume of transactions processed in the period increased by 48% in the period versus H1 2014 after adjustment for the terminated client in 2013. (22% before adjustment)

· The trial of full on-line and on-device top up solutions with a major UK Mobile Network is ongoing.

· Contract extensions with our two largest customers have been secured for an additional two years.

· We have continued to deliver high payment success rates and low fraud levels in line with internal targets during the period.

· 38% reduction in headcount over the 12 month period to 30 June 2015

· Delivery of new global data centre infrastructure providing enhanced flexibility, scalability and redundancy across both Europe and Asia Pacific.

Financial Highlights

· Total revenue increased 10% to £1.5 million (H1 2014: £1.4 million).

· Underlying total Revenue (excluding the client terminated in 2013) increased to £1.47 million (H1 2014: £1.11 million) an increase of 33%.

· Gross margin increased to 49% (H1 2014: 45%) following delivery of the internally developed fraud solution.

· General and administration expenses reduced by £0.7 million to £1.2 million (H1 2014: £1.9 million).

· Reduction of Operating loss to £1.1 million for the period (H1 2014: £3.0 million). Significantly reduced Adjusted Operating Loss* of £0.8 million (H1 2014: £1.5 million).

· Raised additional investment funding of £1.75 million in March 2015 (£1.6 million net of costs).

· Cash & cash equivalents as at 30 June 2015 were £3.8 million (H1 2014: £2.2 million).

· Net cash flows from operating activities £0.2 million. (H1 2014: Net cash outflow £2.4 million)

· Basic and diluted loss per share 3 pence (H1 2014: 12 pence loss per share).

Seamus Keating, Chairman of Mi-Pay Group plc commented:

"Following the investment and restructuring in 2014, the Board is pleased to report the improvement in the Group's financial performance. We have continued to see core transaction volumes grow driving increased revenues, primarily from developing our relationships with existing clients. Gross margins have increased as we have insourced our fraud management capability and we have delivered a material reduction in general and administration expenses. These reductions have all combined to deliver a £0.7 million improvement in Adjusted Operating Loss* over the period when compared to the same period in 2014. The continued month by month reduction in losses and cash burn, combined with the £1.75 million new equity investment in March 2015 and £0.3 million research and development tax credit for 2014 (received in August 2015), provides us with a strong cash platform which will enable us to continue to grow and invest and as such we remain on target to deliver positive trading cash flow in 2016"

*Adjusted Operating loss defined as Operating Loss for the period before charging share based payments and non-recurring expenses directly attributable to the listing transaction and subsequent group reorganisation

For further information please contact:

Founded in 2003, Mi-Pay Group plc delivers fully outsourced online and related payment solutions to digital ecommerce clients, primarily in the mobile sector. Mi-Pay provides the infrastructure to enable pre-paid mobile devices to be topped up via a variety of channels such as websites, mobile applications and social media applications, and customers include Mobile Network Operators (MNOs) and Mobile Virtual Network Operators (MVNOs). Mi-Pay sells, integrates and operates its products and solutions on a global basis. For further information, please visit www.Mi-Pay.com or use the contact details above.

Chief Executive Officer's review

H1 2015 Overview

Mi-Pay has delivered significant improvement in H1 2015 trading performance following the investments and restructuring in 2014 and is trading in-line with management's expectations. We have continued to deliver growth in our core proposition of Transaction Services Revenues and have maintained consistent levels of Professional Services Revenues whilst driving improved gross profits and reduced administration expenses.

We are continuing to see the migration of consumers to the direct, online channel and expect this to continue as our clients look to drive more digital volumes. Our ability to provide a market leading payment experience, whilst removing our clients' risks keeps us in a strong position to take advantage of this continuing migration trend.

Strategy

Our strategy is to deliver outsourced online payment solutions, primarily to Mobile Operators enabling them to better serve their pre-paid subscriber base. Our value proposition provides an excellent and complete outsourced end-user experience and where required, indemnifies our clients against fraudulent transactions. Mi-Pay's products also increase revenue through better customer payment experience maximising payment success rates. In addition our products provide an invaluable tool for customer relationship management - reducing churn rates and enabling online payment solutions as a marketing tool. Critically we are payment agnostic and will facilitate across our client base the relevant market leading payment methods, applying our own experience and optimisation techniques to enhance the existing customer experience. This approach both improves the customer journey and future proofs our clients' payment, security and risk management capabilities.

We aim to offer our clients a multi-faceted payment solution to enhance their customer retention strategies. This will enable them to deliver long term direct channel strategies transitioning their customers from traditional unregistered 'card' payment solution, to 'one click', recurring, secure, multi-channel payment solutions. As a result our clients will also be able to market directly to their consumers via our channels, helping them to drive long term value.

Having now been connected to major operators in the UK and Europe we continue to see strong migration onto the digital channel. We are targeting growth in volumes from existing clients as they continue to look for competitive solutions to retain and better manage their consumer bases. The changing world of payments further enhances our position as a consolidator of the market to de-risk our client's future access to their customers.

Asia Pacific is a market of significant potential, where the penetration of consumers with both smartphones and bank accounts is growing to a level of critical mass. The global investments of Visa, MasterCard and subsequent payment experts such as PayPal continue to drive the unbanked consumers to become banked, facilitating our future growth in Asia Pacific and enabling us to engage with clients across the region.

Our solution provides a high value and risk free option to the Mobile Operators, whilst at the same time it provides our payment partners with access to growing markets. In Asia specifically our experience in optimising online payment solutions whilst managing fraud is unique and provides a clear competitive advantage as the market develops.

Operational Review

Trading

Revenue in the half-year amounted to £1.5 million (H1 2014: £1.4 million). However, this masks the loss of a client in 2013 which reduced comparable revenues by £0.2 million. Excluding this client, we delivered a 33% improvement in total revenues.

Our growth was primarily delivered from our existing European clients through the implementation of new services and the natural migration of their consumers to the on-line channel. This delivered transaction volumes above management's expectations.

During H1 2015 we saw strong growth from the ongoing trial of full on-line and on-device top up solutions with a major UK Mobile Network. This trial has proved successful, leading to transaction volumes increasing from 5,000 to the current run-rate of 70,000 per calendar month. The client is now clearly demonstrating a strategic focus on improving the digital experience to drive more consumers toward the digital channel. We are particularly pleased to have delivered top-up services within the client's mobile 'app' and to have delivered new payment methods and channels, such as PayPal and PowaTag, to its customers, thereby further enhancing our mobile wallet and on device solutions.

In the Philippines the Mi-Pay service is live with a major Mobile Operator, but we do not expect a meaningful build-up of transaction revenues until the Mobile Operator launches its marketing campaign, which we currently understand will be commencing later this year.

The successful delivery of our internal fraud engine resulted in a 4% improvement in gross margins for the period, with no adverse impact to our levels of fraud incurred. In addition the business restructure delivered a £0.7 million reduction in general and administration costs, which has enabled us to materially reduce our loss from continuing operations to £1.0 million for the 6 months ended 30 June 2015 (£2.8 million for the 6 month period ended 30 June 2014 which, as noted below included £1.2 million of exceptional costs related to the listing on AIM).

Investment in the Business

Despite the reduction in headcount, we have continued to invest in the Mi-Pay infrastructure, solutions and products. During the period we:-

· Delivered new solutions to our clients that enable top-up payment via mobile Applications and on device solutions.

· Integrated with PowaTag to enable consumers to top up their credit via QR codes.

· Continued to develop new payment solutions focusing on social media and next generation payment methods.

· Designed and built a new global Data Centre infrastructure, supported by the next generation IBM Softlayer technology. This has delivered live service from August 2015 and provides:-

o Dual data centres in Europe and Asia to support regional growth.

o Enhances redundancy and fail over capability for all of our clients.

o Real flexibility for global growth and the ability to efficiently migrate our solution anywhere globally as required.

· Continued to achieve historic low fraud levels and improved top-up success rates for our clients. We are also pleased that the implementation of our internal fraud management engine has not negatively impacted performance. We continue to invest in developing software and fraud management capabilities which enable us to enhance both business performance and intellectual property.

· Invested in our platform security to successfully deliver the enhanced requirements of PCI:DSS level 1 compliance for the 6th consecutive year. Critically this is across our new global infrastructure. (July 2015)

· Maintained a consistent level of research and development expenditure

Financial Review

During the six month period to 30 June 2015 and in comparison to the six month period to 30 June 2014:

· We have seen improvement in both our Transactions Services and our Professional Service gross margin, delivering an overall 4% improvement. This was directly attributed to the delivery of our in house fraud solution and a more efficient project delivery model. Additional opportunities exist to increase these further through:-

o Growth in transaction volume driving natural efficiencies with better supplier terms.

o Growth in transaction volumes and a wider roll out of our products enabling us to further mitigate fraud risks.

o A change in mix towards higher margin business.

· General and administration costs reduced by £0.7 million, as we resized the business and successfully restructured the delivery model. We have continued to deliver the same levels of growth and revenues, including the enhancement of our solutions despite the headcount reductions.

· In line with expectation we incurred £0.1 million non-recurring restructuring costs during the period.

The Group ended the period with £3.8 million in cash and cash equivalents (£2.2 million at 30 June 2014), noting that of this balance £2.3 million related to the operation of managing client payments (£1.1 million at 30 June 2014). We were pleased to deliver a small but positive net cash flow from operating activities during the period of £0.2 million (£2.4 million net cash outflow for the 6 months ended 30 June 2014), primarily due to the reduced losses and the more efficient management of working capital arising from improvements in the settlement times of client monies.

Additionally, in August 2015 the Group received £0.3 million for research and development tax credits relating to the 12 month period to 31 December 2014. This increase to our cash and cash equivalents will, the Directors believe, provide the Group with sufficient funds to continue to invest and organically grow the business towards achieving our target of being cash positive in 2016.

Fundraising

On 9 March 2015, the Group completed further investment for working capital raising £1.75 million (before expenses) through the issue and allotment of 7,608,696 ordinary shares at 23 pence each.

Employees

We recognise that the performance achieved in this period would not have been possible without the support and continued dedication of our staff who have supported the new delivery model and continued to deliver solutions to our clients, support the strong transaction growth and develop improved, secure technologies despite the restructure during the period. They are our most valuable resource and we would like to thank them for their efforts.

Outlook

Mi-Pay has made significant progress towards delivering its short term objective of becoming cash generative in 2016. Having invested heavily in 2014 the benefits of this are now being demonstrated in the Groups performance at every level with increased revenues, gross profits and reduced administrative expenses. We expect to continue to reduce cash burn on a month-by-month basis, see continued revenue growth from all of our clients and continue to improve our gross margins.

Continued investment into our fraud management capabilities and delivery in 2015 of a flexible, security compliant global infrastructure environment, will provide us with a platform to grow more effectively and with greater stability. Our focus for the rest of 2015 and 2016 is to achieve profitability, continue to support and grow our existing client bases and deliver new clients, specifically targeting the increasing need for more mobile and social media based payment experiences in a safe, secure and fully managed environment.

The Board remains confident that our total market opportunity continues to increase as the on-line payments market expands globally, and our growing relationship with all of our clients keeps us in a strong position to take advantage of this. The key market of Asia remains an opportunity and one that we expect to deliver growth for us over the longer term.

Consolidated Statement of Changes in Equity

For the period of six months ended 30 June 2015

Notes to the Financial Statements

1 Basis of preparation

The unaudited interim financial statements have been prepared on the basis of the accounting policies expected to apply for the financial year to 31 December 2015 and in accordance with recognition and measurement principles of International Financial Reporting Standards (IFRSs) as endorsed by the European Union. The accounting policies applied in the preparation of these interim financial statements are consistent with those used in the financial statements for the year ended 31 December 2014. These financial statements are unaudited, have not been reviewed by the Group's auditors, and do not constitute statutory accounts within the meaning of the Companies Act 2006.

The interim financial statements do not include all of the information required for full annual financial statements and do not comply with all of the disclosures in IAS34 'Interim Financial Reporting'. Accordingly while the interim financial statements have been prepared in accordance with IFRS they cannot be construed as being in full compliance with IFRS.

The financial information for the year ended 31 December 2014 does not constitute the full statutory accounts for that period. The Annual Report and Accounts for 31 December 2014 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Accounts for 2014 was unqualified and did not include references to any matters which the auditors drew attention to by way of emphasis without qualifying their report and did not contain statements under Section 498(2) or 498(3) of the Companies Act 2006.

2 Segmental analysis

The chief operating decision maker has been identified as the Chief Executive Officer (CEO) of the group. The chief operating decision maker is responsible for regularly assessing the performance of the group's operating segments and performing the function of allocating resources. To assist the chief operating decision maker in this process, internally generated reporting is prepared for each operating segment.

The group has two operating segments that it reports on. These operating segments are:

· Transaction Services Revenues: This segment generates revenue from the processing of transactions on behalf of clients and is Mi-Pay Group plc's core business.

· Professional Services Revenues: This segment generates revenue from the development, delivery and hosting of our platform and client solutions.

The CEO assesses the performance of the operating segments based on revenue and gross profit. The CEO uses these measures to assess performance because they are quick to analyse and directly relevant to evaluating the results of each segment. ¹

Both segments are continuing operations and results are as follows:

¹ There is no inter segment trading and assets and liabilities are not allocated to segments.

3 Exceptional items - acquisition costs

For the period ended 30 June 2014 and the year ended 31 December 2014, there is a line item 'Exceptional items - acquisition costs' included within administrative expenses. This includes £930,536 arising from the deemed share based-payment resulting from the reverse acquisition. It also includes those deal costs amounting to £235,981 that have been expensed to Mi-Pay Ltd directly.

4 Taxation

5 Loss per share

The numerators shown above represent the total loss from continuing operations for the period or year.

The weighted-average number of common shares outstanding (the denominators of the earnings-per-share [EPS] calculation) during the period to 30 June 2014 and the year ended 31 December 2014, the period/year in which the reverse acquisition took place, have been calculated by adding together the following:

· The number of common shares outstanding from the beginning of the period (01 January 2014) to the acquisition date (29 April 2014) is computed on the basis of the weighted-average number of common shares of the legal acquiree (accounting acquirer) outstanding during the period, multiplied by the exchange ratio established in the acquisition agreement.

· The number of common shares outstanding from the acquisition date to the end of the period/year is the weighted average number of common shares of the legal acquirer (the accounting acquiree) outstanding during that period.

The weighted-average number of common shares outstanding (the denominator of the earnings-per-share [EPS] calculation) during the period to 30 June 2015 has been calculated by simply using the weighted average number of common shares of the legal acquirer (the accounting acquiree) outstanding during the period.

Since the Company was in a loss making position for all three periods presented, there was no difference between the weighted average number of shares used to calculate basic and diluted net loss per share.