6th Nov 2007 07:01
NETeller PLC06 November 2007 NETELLER Plc THIRD QUARTER TRADING UPDATE SHOWS CONTINUED SOLID PROGRESS Tuesday, 6 November 2007 - NETELLER Plc (LSE: NLR), the world's leadingindependent global online payments business, today announces its trading updatefor the three months ended 30 September 2007. Highlights • Continued progress to be pre-eminent provider of online gaming sector related payments solutions • Active customers (ex North America) up 14% to 94,925 in Q3 2007 from 83,627 (Q3 2006) • Total revenue in Q3 2007 was $16.9m - fee revenue ex-interest increased 25% from Q3 2006 • European revenue in Q3 2007 grew 19% to $8.4m and Asia Pacific revenue grew 41% to $3.0m both compared to Q3 2006 figures (ex-interest) • Gross margin in Q3 2007 was 60%, compared to 55% in H1 2007 • Loss before tax in Q3 2007 was $145.9m due to US forfeiture and related US expenses • Cash at 30 September 2007 was $149.4m; $40m paid to US authorities on 15 October 2007 • Cash flow from operations positive in Q3 2007 Ron Martin, President & Chief Executive Officer of NETELLER, said "The thirdquarter has demonstrated the resilience of the NETELLER business and the resultsfrom our European and Asia Pacific businesses show that we are regaining thetrust of customers and continuing to deliver innovative solutions to ourmerchants. Geographic diversification remains a key part of our growth strategyalthough the Board continues to be mindful of regulatory concerns in certainmarkets. Our strong presence at EiG in Barcelona reiterated our commitment and focus tothe online gaming sector and I believe we are progressing well in one of ourcore mission objectives, to be the pre-eminent provider of payment solutions forselected markets in the online gaming sector. The launch of the first phase ofour global card programme is proceeding as planned and we are on track to offeradditional card-related services during the first half of 2008. The Board remains confident about prospects for the business for the full yearand beyond." Enquiries: NETELLER Plc (for 6 November at Citigate) + 44 (0) 207 638 9571Ron Martin President & CEODoug Terry CFOAndrew Gilchrist VP Communications + 44 (0) 7824 385 829 Daniel Stewart & Co Plc + 44 (0) 207 776 6550Paul Shackleton Citigate Dewe Rogerson + 44 (0) 207 638 9571Sarah Gestetner / Sebastian Hoyle / George Cazenove Notes to Editors About the NETELLER Group The NETELLER Group operates the world's leading independent online paymentsbusiness and specialises in providing innovative and instant payment serviceswhere money transfer is difficult or risky due to identity, trust, currencyexchange or distance. Being independent has allowed the Group to supportthousands of retailers and merchants in many geographies and across multipleindustries. NETELLER Plc is quoted on the London Stock Exchange's AIM market, with a tickersymbol of NLR. NETELLER (UK) Limited is authorised and regulated by theFinancial Services Authority (FSA) to operate as a regulated e-money issuer. Formore information about the Group visit www.netellergroup.com. * * * 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. * * * * Operational and Financial Highlights All financial figures in US$ unless otherwise noted. Customers and Sign ups The Group's active customer base in Q3 2007 increased to 142,153 from the117,056 active customers recorded in Q2 2007. The Q3 2007 figure included47,150 active customers in North America whose only "active" transaction was awithdrawal of funds from their NETELLER e-wallet. The number of non-NorthAmerican active customers at the end of Q3 2007 was 94,925, an increase of 14%from the end of Q3 2006. The regional distribution of active customers included72,849 in Europe (an increase of 12% over the corresponding period in 2006) and17,638 in Asia Pacific (up 21% from the same period in 2006). These resultsdemonstrate the Group's continued focus on the markets of Europe and AsiaPacific. The table below sets out our active customers by region: Active customers Q3 2007 Q3 2006 Q3 '07 vs Q2 2007 Q3 '07 vs Q3 '06 % Q2 '07 %Europe 72,849 64,964 12% 76,964 -5%Asia Pacific 17,638 14,533 21% 15,792 4%Rest of World 4,438 4,130 7% 4,460 0%Total ex North America 94,925 83,627 14% 97,216 -2%Total customers ex North 895,334 555,259 61% 815,910 10%America The Group's total customer base (including North American customers) at end ofQ3 2007 was 3,839,807. The total, excluding North America, was 895,334customers, an increase of 61% from the figure at 30 September 2006. Average daily receipts from customers were approximately $295k during Q3 2007(Q3 2006: $5.31 million). The decrease of 94% was principally due to thewithdrawal from the North American market during the first quarter of 2007.Total receipts from customers during the period totalled $27.2 million. Average daily sign-ups of new customers was 900 during Q3 2007 (Q3 2006: 3,218)representing a decrease of 72%. Again, this decrease was almost entirelyattributable to the withdrawal from servicing the North American market duringQ1 2007. In Q2 2007, 937 new customers per day signed up for the Group'se-wallet. Revenue Revenue for the third quarter of $16.9 million represented a decrease of 75%from $66.7 million for Q3 2006. Excluding North America, fee revenue, whichincludes charges paid by individual and merchant customers of both the e-walletand Netbanx, increased 25% from $10.8 million to $13.5 million in Q3 2007.Interest revenue of $3.4 million was significantly lower compared with $5.3million in Q3 2006 due to the repayment of over $75 million in funds owed to UScustomers under the Distribution Plan. Interest revenue is expected to declinefurther during Q4 2007 following the initial payment of $40 million to the USauthorities on 15 October 2007 from the Group's cash resources. During Q3 2007, Europe accounted for approximately $8.4 million in revenuebefore interest (an increase of 19% over $7.1 million in Q3 2006), and AsiaPacific accounted for $3.0 million during Q3 2007 (an increase of 41% over $2.1million during Q3 2006). The table below sets out our fee revenue by region and revenue from NetBanx andinterest income: Revenue Q3 2007 Q3 2006 Q3 '07 vs YTD 2007 Q2 2007 Q3 '07 vs Q1 2007 Q3'06 % Q2 '07 %($ millions)Europe (ex NetBanx) 8.4 7.1 19% 26.5 8.7 -3% 9.4Asia Pacific 3.0 2.1 41% 8.4 2.9 2% 2.5Rest of World 0.4 0.3 17% 1.5 0.5 -30% 0.6Total Fee revenue 11.8 9.5 24% 36.4 12.1 -3% 12.5NetBanx 1.8 1.3 36% 4.9 1.6 10% 1.5Interest 3.4 5.3 -35% 11.7 3.9 -12% 4.3Total 16.9 16.1 5% 52.9 17.6 -4% 18.3North America (1) 0.0 50.6 -100% 14.9 0.5 -98% 14.4Total 16.9 66.7 -75% 67.8 18.1 -6% 32.7 (1) Some residual revenue was earned from North American operations duringH1 2007 prior to the Group's withdrawal from the US and subsequently Canada. Gross margin Due to recent events and the resulting significant change in marketconcentration, gross margin has decreased to 60% (compared to 71.8 % during thesame period in 2006). This is flat compared to Q2 2007 (60%) and represented anincrease from the 51% recorded in Q1 2007. Q1 2007 margin was lower due toincreased bad debt incurred on the withdrawal from North America. Customer support costs continued to represent the largest proportion of directcosts at 15.6% of revenue, as the strength of the Canadian dollar vs the USdollar continues. Website maintenance costs were 10.6% of revenues. Bothexpense categories are largely fixed being labour-related expenses principallyfocused in our Calgary operations. Deposit and withdrawal fees decreased to11.1% of revenue compared to 13.6% in Q2. Although the Group incurred certaincharges in returning funds to its US customers, it has been successful inreducing processing costs and local banking fees, particularly in Europe. Baddebts and collections represented 2.4% of revenues in Q3 2007, a reduction whichwas anticipated following the withdrawal from the North American market andcessation of Instacash products. Operating expenses and restructuring costs The Group incurred an operating loss before tax of $145.9 million. Thisincludes the forfeiture to the US authorities as announced earlier this year of$136 million which was taken through the profit and loss account in thisquarter. General and administrative expenses increased to $7.5 million up from$7.4 million in Q2 2007. This was largely due to a strong Canadian Dollar,higher professional fees in the quarter and costs related to the launch of theGroup's European debit card program. The Group announced in its interim results statement of 23 August 2007 thatreorganisation and restructuring costs (including professional and legal feesincurred in the resolution of the US situation) and write-downs of assetsdirectly relating to the North American business were expected to total between$35 million and $40 million. Included in this estimate is a charge ofapproximately $2 million paid during Q3 2007 in relation to the cessation of asignificant supply contract. However, this will have a positive ongoing impactas the related monthly expenditure will be reduced. Share option expense is included in general and administrative expense. For Q32007, the share option expense was $2.2 million. As stated in the Company'sannouncement of 1 November 2007, the Group is looking to cancel a significantnumber of out-of-the-money options and replace them, subject to the agreement ofcertain executives. This will likely result in a further write-off in Q4 2007but will substantially reduce the ongoing cost of the options in the profit andloss account going forward in 2008. The Group sold its property at 41st Avenue, Calgary, in September 2007 for $3.3million. The sale resulted in a loss on disposal of fixed assets of $216,336.The Group continues to progress discussions regarding the sale of its principalproperty at 27th Avenue in Calgary and hopes to achieve a sale in line withprevious estimates in the first quarter of 2008. Cash position of the Group The total amount of cash available to the Group totalled $149.4 million at 30September 2007 which is stated after deducting the $60 million of funds seizedby the US authorities in January 2007 and thereafter, which forms part of theresolution with the US authorities announced in July 2007. Under thisresolution, the Company agreed to forfeit a total of $136 million to the US. TheGroup made a scheduled payment of $40 million on 15 October 2007, and theremaining balance (approximately $36 million) will be paid on or before 17January 2008. As part of the US resolution, the Group implemented the Distribution Plan toreturn approximately $94 million of funds owed to US customers. The Group hasto date repaid approximately $78 million of this amount owing. Any unpaidamounts are currently held in trust accounts with the Group's European bankers. Business highlights The Group made progress in Q3 2007 with its product development programme andalso in furthering its payment options. A key update introduced at the end ofthe quarter was a simplification of the sign up process designed to improve newcustomer conversions. Other developments have included a flexible merchant rateplan, additional customer funds top up features, and a pilot of an affiliateprogramme (developed from the successful "Refer-a-friend" programme NETELLERalready offers). The Group's "Ludicrous" marketing promotion has beensuccessful in generating additional revenue during the traditionally quietersummer months. The Group has successfully migrated its Japanese site to the core e-walletplatform, and further integration between the e-wallet and the NetBanxoperations continue to improve internal payment processing capabilities. A keyelement of NETELLER's diversification into financial services, the launch of theGroup's debit card scheme in early Q3 2007 has seen a strong take up of the newcards, with over 18,000 new pre-paid debit cards being issued to customers todate. Further progress is expected in the first half of 2008. The $4 million investment in Centricom in July demonstrated the Group'scommitment to delivering innovative payment solutions to its customers. TheGroup continues to examine investment opportunities in line with its strategicvision. Current trading Since the end of September trading has continued to show positive growth trendsin both sign ups and average daily receipts, in line with typical seasonalvariations. Average daily revenue has been in the region of $100,000 per dayand unadjusted fees for October are expected to be approximately 7% higher thanSeptember. The Group is continuing to introduce new product features asscheduled and the development pipeline for the fourth quarter should furtherenhance the offering to both merchants and customers. The Board remainsconfident about prospects for the business for the full year and beyond. Third Quarter 2007 Unaudited Financial Information Q3 - 2007 9 months 2007 Q3 - 2006 9 months 2006 Q2 -2007 2007 to 2006 2007 US $ US $ US $ US $ US $ Q3 YTD Q3 to Q2 Revenue 16,945,542 67,790,011 66,671,914 185,566,463 18,180,298 -75 % -63 % -7 % Direct Costs (6,730,292) (29,812,715) (18,784,956) (52,322,452) (7,201,988) -64 % -43 % -7 %Gross profit 10,215,250 37,977,297 47,886,958 133,244,011 10,978,310 -79 % -71% -7 % General and Admin (7,489,513) (24,665,858) (10,367,105) (28,562,310) (7,423,138) -28 % -14 % 1 %Operating income 2,725,737 13,311,438 37,519,853 104,681,700 3,555,171 -93 % -87 % -23 % Other income(expense) Foreign exchange 19,192 (661,123) (231,456) 71,995 (375,963) gain Management bonus (300,000) (1,012,657) - (1,949,710) (337,878) Depreciation and (1,805,629) (6,584,272) (3,040,454) (7,977,411) (1,920,405)Amortisation Stock option (2,224,016) (6,672,049) (1,774,135) (4,348,951) (2,224,016)expense Impairment loss - - - - - Restructuring (2,039,535) (4,761,146) - - (1,951,620)costs Asset write down - (13,014,866) - - (1,003,098) US related costs (6,066,595) (14,956,502) - - (6,310,946) US forfeiture (136,000,000) (136,000,000) - - - Loss on disposal (216,336) (216,336) - - -of assets Income before tax (145,907,182) (170,572,514) 32,473,808 90,477,623 (10,568,755) Income taxes (612,037) (451,639) (1,713,599) 3,840,006 1,089,757 Net income after tax (146,519,219) (171,024,153) 30,760,209 86,637,617 (9,478,998) Daily sign ups 900 1,208 3,218 3,239 937 -72 % -63 % -4 %Total customers (at 3,839,807 3,839,807 3,188,650 3,188,650 3,756,983 20 % 20 % 2 %period end)Total active 142,153 nm 619,550 nm 117,056 -77 % nm 21 %customers (inquarter) (1)Revenue per active $ 119 nm $ 108 nm $ 155 10 % nm -23%customerAverage daily 295,365 764,984 5,314,631 4,892,434 339,314 -94 % -84 % -13 %receipts fromcustomersTotal customer 27,173,582 208,840,583 488,946,070 1,335,634,373 30,877,606 -94 % -84 % -12 %receipts (1) An active customers are defined as a customer whose e-wallet accountbalance has changed during the quarter. nm not meaningful This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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