Interim Results

NEOVIA Financial Plc

Interim Results for the six months ended 30 June 2010

Tuesday, 28 September 2010 - NEOVIA Financial Plc ("NEOVIA" or the "Group"), (NEO.L), the leading alternative payments business, today announces its results for the six months ended 30 June 2010.

Highlights

·; EBITDA (1) up 25% to $6.1m (H1 2009: $4.9m).

·; Total revenues down 6% to $30.8m (H1 2009: $32.6m); trading revenues in line on a like-for-like basis.(2)

·; Core stored value business (e-wallet and Net+) revenues up 5% to $23.3m (H1 2009: $22.3m).

·; Balance Sheet remains strong. Group cash & cash equivalents of $61.7m (31 December 2009: $61.1m).

·; Strong cost control from Business Transformation programme driving EBITDA improvement - headcount down by 77 (17%) to 370.

·; New stored value platform 'Newteller' now live.

·; Strengthening of Board with senior appointments including new CFO.

Financial summary (unaudited)

Six months ended 30 June 2010 2009

US$ million US$ million

Revenue

Stored Value (NETELLER e-wallet and Net+ cards) 23.3 22.3

Straight Through Processing (2) (NETBANX gateway & bureau) 7.1 9.2

Investment income 0.4   1.1

Total revenue 30.8 32.6

Gross profit margin 57.0% 56.2%

EBITDA (1) 6.1 4.9

Profit before other items 2.2 0.1

Loss after tax (0.2) (6.7)

(1) EBITDA shown before other items including share option expense, foreign exchange gain/loss, loss on investment, impairment loss and restructuring costs. 

(2) Difference due to revised presentation in 2010. Revenues now shown net of rebates. On a like-for-like basis H1 2010 revenues were in line with H1 2009.

Commenting on today's results announcement, Mark Mayhew, NEOVIA's President & CEO, said:

"The trading results reflect the success of our Business Transformation programme to control costs but also the continuing difficult market conditions which impacted clients in our core e-gaming vertical as the half unfolded. As a result EBITDA was up 25% to $6.1m on total revenues down 6% to $30.8m. Trading revenues were down 3% but on a like-for-like basis trading revenues were in line with H1 2009 (2). Our Balance sheet remains strong. Group cash & cash equivalents at 30 June 2010 were $61.7m and we have no debt.

The World Cup depressed some sectors of the e-gaming market, particularly poker as reported widely elsewhere. However revenues in our Stored Value businesses (NETELLER and Net+) held up well in the first half, despite these difficult conditions and a lack of new products resulting from the delayed launch of our Newteller platform. Our NETBANX Straight Through Processing business was impacted by presentational re-pricing in H2 2009 and is otherwise in line with 2009. We were also pleased to announce a major client win in Shop Direct Group recently.

After an extended period of development it is particularly pleasing to report live status for our new stored value platform 'Newteller', and the process to enhance our stored value product suite can now begin in earnest. The investment in Newteller, while essential, has also meant that development of new revenue generating products has been stalled. This situation should change now Newteller is live and we expect to see the revenue benefits from new products in 2011.

Current trading and outlook

The softness in our e-gaming derived revenue that emerged during the second quarter of this year has continued into the second half however we expect to deliver a small improvement in total revenue this half year. The continued focus on our Business Transformation programme will see further improvements to our cost base, which should positively impact EBITDA in the second half and beyond.

The Board acknowledges the continued broader market uncertainties and recessionary concerns but, in noting the ever changing regulatory climate and increased corporate activity in alternative payments (both considered positive factors longer term), remains confident about the Group's future."

For further information contact:

NEOVIA Financial Plc

Mark Mayhew President & CEO + 44 (0) 207 638 9571

Keith Butcher CFO + 44 (0) 7584 344 784

Andrew Gilchrist VP Communications + 44 (0) 1624 698 713

Email: [email protected]

Twitter: https://twitter.com/neovia

Citigate Dewe Rogerson + 44 (0) 207 638 9571

Sarah Gestetner / George Cazenove / Michael Berryman

Daniel Stewart & Co Plc + 44 (0) 207 776 6550

Paul Shackleton

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The Group will host a meeting for invited UK-based analysts this morning to be held at the offices of Citigate Dewe Rogerson at 9.30 a.m. A copy of the slide presentation given at the meeting will be available on the Group's website later today. In addition, there will be a conference call for international investors and analysts on Tuesday 28 September 2010 starting at 2.00 p.m. BST (9.00 a.m. EST), details of which are set out below:

Participant Dial-in numbers: UK (local): 0845 634 0041

International: +44 208 817 9301

Participant PIN: 3558089

In order to ensure access to the call, attendees should please confirm their attendance in advance by emailing NEOVIA Investor Relations at: [email protected]. A recording of the conference call will be available for 7 days following the call.

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About NEOVIA Financial

Trusted by consumers and merchants in over 160 countries to move and manage billions of dollars each year, NEOVIA Financial Plc operates the world's leading independent online payments business. Through its Payment Suite, featuring NETELLER®, NETBANX® and Net+™ brands, NEOVIA 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 NEOVIA to support thousands of retailers and merchants in many geographies and across multiple industries.

NEOVIA Financial Plc is quoted on the London Stock Exchange's AIM market, with a ticker symbol of NEO. Subsidiary company NETELLER (UK) Limited is authorised by the Financial Services Authority (FSA) to operate as a regulated e-money issuer. For more information about NEOVIA Financial visit www.neovia.com or subscribe at www.neovia.com/feeds/.

CHIEF EXECUTIVE'S REPORT

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2010

I am pleased to report that in my first full twelve months, the Group has made significant progress with EBITDA performance improved on the first half of 2009. The first six months of trading in 2010 has demonstrated, in challenging market conditions, the continuing resilience of NEOVIA's business model which brings together gateway, e-wallet and card businesses under the NEOVIA Payment Suite. Our principal offerings and brands are:

Stored Value services NETELLER e-wallet and Net+ card business

Straight Through Processing (STP) NETBANX payment gateway and bureau service

Our focus has been on simplification of our business, processes and products, given continued pressure from clients and competitors alike. Our Business Transformation programme is already bearing fruit as we saw improvements in EBITDA, up 25% to $6.1m, arising from significant headcount reductions (approximately 17%) and the streamlining of operations, which we expect to continue into the second half of 2010 and beyond.

Fee revenues in the first half were $30.4 million (H1 2009: $31.5 million). Revenues from our Stored Value business (e-wallet and Net+ prepaid cards) rose 5% however Straight Through Processing revenues (gateway and bureau) from NETBANX were down 23% overall, compared to the same period in 2009. Within this NETBANX Europe revenues grew slightly and that growth is expected to continue in the second half. The decrease in NETBANX Asia revenues was caused by a pricing change at the start of H2 2009 that lowered fee rates charged to merchants, but also reduced rebates, thereby maintaining gross margins. On a like-for-like basis NETBANX Asia revenues were in line with H1 2009. Low interest rates worldwide continued to have an impact on investment income, which was $0.4 million in H1 2010 compared to $1.1 million for the same period in 2009. The table below sets out the breakdown of Group revenues for the first half of 2010:

(1) Difference due to revised presentation in 2010. Revenues now shown net of rebates. On a like-for-like basis H1 2010 revenues were in line with H1 2009.

The Group's Stored Value business grew 5% in the first half arising from a greater number of active members and as revenues generated from the Net+ prepaid card continued to improve. However, later delivery than planned of the Group's Newteller replatforming initiative delayed a number of revenue uplift programmes.

Continued focus on business simplification should yield further improvement in the second half, in addition to reduced expenditure on the Newteller development programme.

The Group achieved income from operations of $6.1 million in H1 2010, up 25% on H1 2009 ($4.9 million). Gross margin improved to 57.0% from 56.2% for H1 2009 as the contribution from the lower margin Asian Gateway business was reduced. General and Administrative expenses decreased by 15% to $11.4 million (H1 2009: $13.4 million) largely resulting from targeted headcount reduction. In total, Group headcount was reduced from 447 at 31 December 2009 to 370 by 30 June 2010. Total restructuring expenses, including severance payments and legal fees were $2.4 million (H1 2009: $1.6 million).

The cash and cash equivalents balance at 30 June 2010 of $61.7 million represented the unrestricted cash of the Group. Cash available to the Group of $69.7 million was the total of "Cash and cash equivalents", "Restricted cash" and the excess of "Qualifying liquid assets" over "Payable to European customers".

The working capital position of the Group, defined as current assets less current liabilities, was approximately $49.3 million. Required cash inventory comprising amounts held at processors, operating account balances to cover payouts and the buffer on trust accounts was approximately $30 million, resulting in available "free cash" of approximately $20 million.

Cash flow from operations remained positive in H1 2010 at $8.3 million, up from $3.0 million in H1 2009. Notwithstanding the continuing cash spend on development of the Newteller replatforming and restructuring costs related to the Business Transformation programme, the Group recorded an overall net increase in cash of $0.7 million from 31 December 2009. The Board has recommended that no dividend is paid.

Business update

The Group continued to expand its merchant customer base in both the core e-gaming vertical and broader e-commerce markets. The online gaming market has shown modest growth in the first half of the year, despite a significant number of regulatory developments impacting our clients' operations in key countries such as France, Denmark and Norway. We see the outlook as more positive as a number of European markets move towards regulated status for online gaming and we are well positioned to take advantage of any growth as a result of our merchant focus. We added a number of new countries to our e-wallet offering, including India, Brazil and New Zealand, and added the Dineromail deposit option which has been well received by our Latin American members.

A number of contract wins for the NETELLER e-wallet, were announced in the first half including Bet-at-home, CAI Games, Littlewoods Game On, Buzzluck and Play'n'go. Our gaming focus was further evidenced by member-targeted promotions around the World Cup and also a partnership promotion with Virgin Bingo, a leading UK bingo operator. In our straight through processing gateway business, we continued to build on our blue-chip customer base with the addition of Seesaw's IPTV service, where we are processing payments for their paid content, Perform, for their Big Brother IPTV streaming paid content, as well as extending our services with Shop Direct Group across their numerous UK retail websites. The Net+ Prepaid MasterCard programme continued to successfully complement our NETELLER e-wallet solution, with over 100,000 physical and virtual prepaid cards issued to date. Volumes transacted via the Net+ Cards have now exceeded $300 million since programme launch in October 2008, and our efforts to market the card to our existing members have been recognised with a nomination for "Best Prepaid Marketing Campaign" at the forthcoming prestigious Prepaid Awards 2010 event.

The Group also introduced a new bureau service to its NETBANX service, allowing merchants to accept and settle card payments directly without the complexity and cost of managing an additional bank direct acquiring relationship. A number of merchants have already adopted this service and we continue to transition other existing merchants as part of a scheduled programme. This represents a significant upgrade to our straight through processing business.

Newteller platform investment

The Group has invested heavily in building a new stored value platform, Newteller, to provide a more scalable, stable infrastructure for existing e-wallet services and facilitate bringing new services to market more quickly. The Newteller platform went live in Q3 2010 after a development period of approximately 30 months and has performed well to date.

Our capabilities in such key areas as disaster recovery, service availability and risk management will be enhanced, with significantly reduced new product development and deployment lead times; a number of product initiatives are in process to take advantage of this.

We anticipate some cost savings from Newteller before the end of 2010 as a result of improved operational efficiencies but the full impact will be seen from 2011.

Board changes

Following the Company's AGM on 29 April 2010, Don Lindsay and John Webster stepped down from the Board. We were pleased to announce the appointment of Keith Butcher as Chief Financial Officer and board director on 20 May 2010. Ian Francis was appointed as a non-executive director on 1 September 2010, and subsequently was appointed as chairman of the Audit Committee.

Current trading and outlook

The softness in our e-gaming derived revenue that emerged during the second quarter of this year has continued into the second half however we expect to deliver a small improvement in total revenue this half year. The continued focus on our Business Transformation programme will see further improvements to our cost base, which should positively impact EBITDA in the second half and beyond.

The Board acknowledges the continued broader market uncertainties and recessionary concerns but, in noting the ever changing regulatory climate and increased corporate activity in alternative payments (both considered positive factors longer term), remains confident about the Group's future.

Key Performance Indicators

The table below sets out those KPIs which the Group regards as important in monitoring the performance of the business:

Active e-wallet users increased 17% in H1 2010 to 110,160 from 94,125 in H1 2009, and up 11% from 99,168 in H2 2009. This increase was driven principally by member targeted marketing promotions to improve activity in the period, as well as better market penetration, particularly in European markets. However, the overall actives figure of 110,160 was below expectations, and reflective of adverse economic and regulatory factors impacting the online gaming sector.

Average daily deposits increased to $492,755 in H1 2010 from $436,057 in H1 2009. Increased deposit volume has allowed revenue to remain stable while revenue per active e-wallet user has declined. In Europe, H1 2010 fees per active user of $109 were down 6% from H1 2009, in part because of fee rebate programmes run throughout the first half. The more developed European market is more competitive, necessitating more active marketing programmes.

Average daily sign ups of 1,358 in H1 2010 improved from 1,017 in H1 2009 (an increase of 34%) and 1,078 in H2 2009 (increase of 26%). This reflects the trend seen in the first quarter where sign ups improved as a result of increasing member promotion activities including the Ryanair Net+ promotion and specific country-targeted campaigns with a number of poker merchants. In addition, we saw positive growth in our Rest of World performance.

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 2010 are unaudited and do not constitute statutory accounts within the meaning of the Companies Acts 1931 to 2004. The statutory accounts of NEOVIA Financial Plc for the year ended 31 December 2009 contain an unqualified audit report. Copies can be obtained from the Registered Office of the Company, Audax House, Finch Road, Douglas, Isle of Man, IM1 2PT

2. Statement of compliance

The condensed consolidated interim financial statements have been prepared in accordance with applicable IOM law and with IAS 34 "Interim Financial Reporting". They do not include all of the information required for the full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2009.

These condensed consolidated interim financial statements were approved by the Board of Directors on 27 September 2010.

3. Restricted cash

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

At 30 June 2010, the Group had the following balances:

At 31 December 2009, the Group had the following balances:

4. Qualifying Liquid Assets held for European Members

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

The Group had the following balances:

5. Segmented Reporting

The Group has two reportable segments as disclosed below.

Stored Value(eWallet and Net+): fees are generated on transactions between members and merchants using the Neteller and Neteller Asia wallet systems and from the use of Net+ prepaid cards by members.

Straight Through Processing: fees are generated through the Netbanx and Netbanx Asia gateway platforms where customers send money directly to merchants.

Information regarding the results of each reportable segment is included below. Performance is measured based on revenue only given the transaction based business model of the Group in which cost of sales and operating expenses are shared across all products and regions and cannot be reasonably allocated amongst the segments.

Reportable segments:

Geographical information:

Major customer

The Group has one merchant who represented 14% of total fee revenue in the six months ended 30 June 2010 (2009: 13%) across all reportable segments and geographies.

6. Property, Plant & Equipment

During the period, intangible assets with a net book value of $734,832 were reclassified to Property, Plant and equipment. There were no significant disposals or write downs.

7. Intangible Assets

During the period, intangible assets with a net book value of $734,832 were reclassified to Property, Plant and equipment. In addition, an amount of $6,397,550 was spent on the Newteller project (the re-platforming of the core operating systems for our stored value products). Amounts of $54,030 in unrelated capital projects were identified as having no future economic benefit and accordingly have been written off.

8. Restructuring costs

The Group incurred the following costs:

The severance and retention costs for the period were incurred for employees laid off in 2010.

The lease impairment is for unoccupied space at the Calgary office that the Group has been unsuccessful in subleasing due to a large over supply of commercial rental space available in the Calgary market. In addition, since it is unlikely that the unoccupied space will be subleased in the future, the restructuring costs also reflect an accrual of costs expected to be paid up until the end of the lease term on 2 July 2011.

9. Share-based payments

The Company's share option plan was adopted pursuant to a resolution passed on 7 April 2004 and amended by the Board on 15 September 2008. The 2008 amendment included the addition of a new 'approved' plan for UK based employees. Under the 'approved' and 'unapproved' plans, the Board of Directors of the Company may grant share options to eligible employees including Directors of Group companies to subscribe for ordinary shares of the Company. As stated in the Company's 2009 annual report, it is not intended that further awards will be made pursuant to the share option plan following the introduction of the Group's Long Term Incentive Plan ("LTIP") (see below).

No consideration is payable on the grant of an option. Options may generally be exercised to the extent that they have vested. Options vest according to the relevant schedule over the grant period following the date of grant. Typically, options have been granted for a three and a half year grant period and have vested in equal thirds on or about the anniversary of the grant date. However, the Directors are permitted under the Plan Rules to alter the vesting schedule and the grant period. The exercise price is determined by the Board of Directors of the Company, and shall not be less than the market value at the date of grant. The option plan provides for a grant price to equal the average quoted market price of the Company shares on the three days prior to the date of grant. Share options are forfeited if the employee leaves the Group before the options vest. A participant of the share option plan has 30 days following the date of grant to surrender the option and if surrendered, the option will not be deemed granted. On 14 April, 2010, 2,369,157 options granted on 20 November 2006 with an exercise price of £1.38 expired.

The Company adopted a LTIP which took effect from 1 January 2010. On 18 March 2010, certain executives and managers of the Group were awarded 2,182,393 LTIP options to acquire ordinary shares in the capital of the Company for £0.0001 per share. The LTIP options vest in three equal tranches over each of the 2010, 2011 and 2012 financial years of the Company based on performance conditions to be determined for each year, based on annual "stretch" EBITDA targets. In the six months ended 30 June 2010 no expense related to the LTIP was recognised.

The Group recognised total expenses of $384,541 (Six months ended 30 June 2009: $1,358,479) related to the equity-settled share-based payments transactions in the period.

Equity-settled share option plan

The options outstanding at the end of the period had a weighted average remaining contractual life of 1.72 years (31 December 2009: 1.65 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 2010 and hence no inputs are shown for this period. The inputs into the model are as follows:

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.

10. EBITDA

The Group defines EBITDA as earnings before interest, taxes, depreciation and amortisation, share option expense, foreign exchange gain/loss, investment loss, impairment loss, restructuring costs, loss on disposal of assets and acquisition costs impairment.

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