Results for the year ended 31 December 2013

Optimal Payments Plc

Audited Results for the year ended 31 December 2013

Exceptional 2013 performance - exciting opportunities in 2014

Friday, 28 March 2014 - Optimal Payments Plc (LSE: OPAY) (the "Group"), a leading global provider of online payments, today announces its results for the year ended 31 December 2013.

Highlights

· Exceptional full year performance:

o EBITDA(1) up 89% to $52.2m (2012: $27.6m);

o Revenues up 41% to $253.4m (2012: $179.1m);

o Net Profit after tax $31.5m (2012: $1.2m).

· Significant turnaround in NETELLER Stored Value ("SV") business:

o Revenues up 54% to $59.8m (2012: $38.8m) as initiatives started in 2012 continue to deliver benefits.

· Strong organic growth from NETBANX Straight Through Processing ("STP") business:

o Revenues up 39% to $193.0m (2012: $138.9m) with continued strong growth in Asia.

· Balance sheet strengthened at year end:

o Group cash (net of merchant cash) of $93.8m (31 December 2012: $57.9m). Free cash of approximately $38.0m(4) (31 December 2012: $15.0m);

o Group loans reduced to $9.5m at year end 31 December 2013 (31 December 2012: $25.8m) and subsequently cleared as of 28 January 2014. Group now materially debt free (3).

· Strategic initiatives progressing well:

o Principal Membership with Visa Europe and MasterCard Europe granted enabling Optimal Payments to offer acquiring services to merchants in the European Union from the second half of 2014 and to benefit from competitive rates and increased market opportunity;

o New NETELLER and Net+ products launched in the US in March 2014 and US office opened.

§ More US states including California, New York and Pennsylvania considering licensing online gaming following recent New Jersey, Delaware and Nevada regulation and rollout.

§ Revenue impact depends upon the timing of the opening of individual states;

o Continued focus on identifying possible M&A candidates.

· Significant investment in people and technology planned in 2014 in delivering on our strategic objectives including payments services for regulated US online gaming, payment acquiring, mobile payment technologies and card issuing.

· Excellent start to new financial year - strong current trading and sales pipeline underpin prospects for further growth in 2014.

Commenting on today's results, Joel Leonoff, President & CEO, said:  

"2013 was an exceptional year for Optimal Payments and represents the completion of the turnaround phase of the Group that started with the acquisition of OP Inc. in February 2011 and has resulted in substantial increases in revenue, profitability, cash and our market capitalisation.

Looking forward, we have a number of exciting opportunities including our new US NETELLER and Net+ prepaid offering and our ability to offer competitive acquiring services to European merchants. These opportunities will require continued investment in 2014 which we believe will deliver long term material returns.

The Board remains excited about these opportunities and remains confident about the future."

Financial summary (audited)

(1) EBITDA is defined as results of operating activities before depreciation and amortisation and exceptional non-recurring items which are defined as items of income and expense of such size, nature or incidence that, in the view of management, should be disclosed to explain the performance of the Group.

(2) Tax charge in 2012 relates to expected reassessment of 2004/5 Canadian taxes following a review commenced in 2005 by the Canadian Revenue Agency. The Board has made a full provision for the amount it believes it is likely to be required to pay in respect of withholding taxes and interest.

(3) Excluding finances leases totalling $1.4m included in the Statement of Financial Position

(4) Free cash is own cash less cash tied up in running the business. This includes Restricted NETELLER Member and Merchant cash, security deposits with certain acquiring banks and cash in transit. This totals approximately $55.8m at 31 December 2013 leaving free cash of approximately $38.0m at year end (2012: $15.0m) which is available for long term investment.

For further information contact:

Head of Investor Relations

Jessica Stalley

Optimal Payments Plc

+ 44 207 182 1707

[email protected] 

Simon Bridges

Cameron Duncan

Canaccord Genuity Limited

 + 44 207 523 8000

Media Contacts - United Kingdom:

Caroline Merrell / Shelly Chadda / Georgia Colkin

Citigate Dewe Rogerson

+ 44 207 638 9571 / +44 785 221 0329

[email protected]

Media Contacts - Canada:

Erin Cudmore

Zenergy Communications

+1 416-591-5461

[email protected]

Media Contacts - United States:

Richard Anderson/Emily Simmons

Feintuch Communications

+1 718-986-1596 / +1 212-808-4904

[email protected]

Analyst meeting and further information

Optimal Payments will hold a briefing for analysts and investors at the offices of Canaccord Genuity, 88 Wood Street, London, EC2V 7QR at 9.30 am (GMT) today. A conference call facility is available at: +44 203 427 1905 (Participant code 3611786#).

The presentation slides and, a webcast of the presentation will be available as a replay on the Group's website at: http://www.optimalpayments.com/investor-relations/results-reports-presentations. 

Optimal Payments is a global provider of online payment solutions, trusted by businesses and consumers in over 200 countries and territories to move and manage billions of dollars each year. Merchants use the NETBANX® platform and services to simplify how they accept credit and debit card, direct-from-bank, and alternative and local payments; and the NETELLER® service to increase revenues and capture new customers. Consumers use the multilingual and multicurrency NETELLER and Net+® Card stored-value offering to make secure and convenient payments. Optimal Payments Plc is quoted on the London Stock Exchange’s AIM, with a ticker symbol of OPAY. Subsidiary company Optimal Payments Ltd is authorised and regulated as an e-money issuer by the UK’s Financial Conduct Authority (FRN: 900015). For more information on Optimal Payments visit www.optimalpayments.com or subscribe at http://www.optimalpayments.com/media/email-alerts  

CEO's Review

Introduction

2013 was an exceptional year for Optimal Payments as NETELLER and NETBANX performed strongly, delivering revenues up 41% to $253.4m (2012: $179.1m) with EBITDA up 89% to $52.2m (2012: $27.6m) and profit after tax of $31.5m (2012: $1.2m). These results translated into strong share price performance during 2013 which has continued into 2014 and has seen the Group's market capitalisation exceed $1bn.

This success culminated in Optimal Payments winning a number of prestigious awards, including the 'International Company of the Year' at the AIM Awards in London in October 2013.

In January 2014, we successfully placed all of our major shareholder's shares into the market with the resulting transformation of our shareholder base with 72 institutional shareholders participating in the placing of 44.6m shares (25.2% of issued share capital).

In recent weeks we have announced two significant achievements in the Group's development. The launch of our new NETELLER and Net+ offering for the US market as well as achieving Principal Membership status with Visa Europe and MasterCard Europe, enabling us to offer more competitive and efficient acquiring services directly to merchants in the European Union from the second half of 2014. We believe the material investment we have made and will continue to make in both areas will help to drive further growth.

The substantial improvement in the performance of NETELLER that began in the second half of 2012 continued throughout 2013 with monthly revenues more than doubling from H1 2012. NETELLER is a high margin business and this ongoing improvement is one of the major factors in the substantial improvement in EBITDA in 2013. NETBANX also continued to grow strongly in 2013, particularly in Asia, however we did see a reduction in highmargin revenuesfrom a small number of our merchants in the second half.

We again saw strong growth from our largest merchant, who now represents 41.4% of revenues to whom we provide NETELLER and NETBANX services worldwide. Our relationship with this customer remains strong and we continue to fortify this relationship through a highly personalised service at all levels of the organisation.

Costs rose in 2013 as we increased both headcount and software to build out our technology platforms that underpin our offerings and added employees in our NETELLER call centre and risk teams as a direct result of the substantial increase in member signups and revenues. We also incurred setup costs in relation to our US offerings and Principal Membership (covered further below) as we invest in the future development of our business.

The Group was significantly cash generative during the year, with our 'own cash' (excluding any merchant cash) increasing to $93.8m at year end (31 Dec 2012: $587.9m) with free cash (available for long term investment) of approximately $38.0m.The remaining shareholder loans of $9.5m that were related to the 2011 acquisition of OP Inc, converted into equity shortly after year end. As a result we now have no material debt on our Balance Sheet.

The regulatory environment has continued to evolve and, while this has not materially impacted our revenues in 2013, some corresponding uncertainty about the regulatory landscape persists.

NETELLER Stored Value

The Group's NETELLER SV business (comprising the NETELLER and Net+ prepaid card stored value offering) performed strongly throughout 2013 with revenues up 54% to $59.8m (2012: $38.8m) as initiatives started in 2012 continue to enhance growth. Our NETELLER gross margin percentage also improved to 84% (2012: 78%). Monthly revenues are now more than double the low point in H1 2012. The strong top line growth coupled with a high gross margin have been a significant contributor to the EBITDA improvement of the Group.

We have seen a substantial increase in the number of users of NETELLER (members) with daily signups up 44%driven by aggressive marketing, VIP focused initiatives, enhanced growth of our affiliate base as well as significant geographical expansion. We improved our merchant relationship management, working closely with merchants to drive the use of NETELLER through joint initiatives including aggressive promotions in conjunction with our merchants.

These have all contributed to increased market share, primarily in the European gaming market where NETELLER is one of the two major stored value solutions. Key lead indicators such as number of member signups and conversion rates continue to be encouraging. Our focus has been on the online gaming market where NETELLER has a strong market position; however we believe there are also opportunities outside of gaming which can contribute to continued growth.

In 2013, we built upon our Principal Issuer membership of MasterCard through improvement of existing products and the development of a wider product suite. We have seen consistent growth with our award winning Net+ product, with over 450,000 Net+ cards issued and an average of 35,000 cardholders active every month. In 2013, we processed more than $324m of cardholder activity, a 25% increase from 2012, with over 2.4 million transactions.

NETBANX Straight Through Processing

The Group's NETBANX STP businesses saw strong growth, particularly in Asia where we continue to realise impressive results. Full year revenues were up 39% to $193.0m (2012: $138.9m). The second half demonstrated its typical seasonal uplift with Q4 growth in travel and online retail. We also saw organic growth from existing gaming and non-gaming customers in Asia and Europe as well as from new customers launched during the year.

Our partnership with Bank Desjardins, the leading cooperative financial group in Canada, for whom we operate and manage a white label version of our payments gateway solution, continues to grow.

The NETBANX business had a gross margin of 42% in 2013 with the bulk of the direct processing costs being fees to acquiring banks. The underlying platform is scalable and we continue to invest in an enhanced STP platform to provide even greater functionality as well as increased stability and uptime in order to maintain our competitive edge in the marketplace.

Customer retention remains high as NETBANX provides a wide range of payment and fraud prevention services through a single customer integration as well as access to more than a dozen acquiring banks worldwide.

In January 2014, we announced that we had secured Principal Membership with Visa Europe and MasterCard Europe, enabling us to offer competitive acquiring services to merchants in the European Union from H2 2014. This is a significant achievement for the Group as it increases the addressable market for our NETBANX offering enabling us to compete on a level playing field with banks that also benefit from interchange pricing from Visa and MasterCard. We expect to be more competitive in the lower risk processing markets whereas to date we have mainly focused on moderate to high risk markets. Our lower cost base should result in a more balanced mix of merchants. We will incur some set up costs in 2014 and we expect the full benefits of Principal Membership to start to be realised in late 2014. This business model, together with investment in an expanded sales team, underpins our confidence that NETBANX can continue to win business in all territories, particularly in Europe.

US gaming

In our interim results announcement in September, I provided an update on the Group's positioning for the newly regulated market pertaining to online gambling in the US. We are now processing NETBANX transactions for a number of US gaming operators in regulated states including 888, Bally's and Caesars. We continue to pursue relationships with business partners, industry contacts and potential merchants in those and other states.

Earlier this month we also announced the launch of our new NETELLER and NET+ prepaid card stored value solution for the US market. The NETELLER brand, which is a dominant payment provider to the European markets and still widely recognised and trusted in the US, places us in a very strong position to gain market share in this emerging regulated US gaming market. More US states including California, New York and Pennsylvania are considering licensing online gaming following recent New Jersey, Delaware and Nevada regulation.

We are excited about the opportunities for future growth as the US market expands on a state by state basis and have invested significant resources in the second half of 2013 including establishing a US office and will continue to do so in 2014. The major revenue impact of these developments depends upon the regulatory landscape in particular timing of the re-opening of individual states.

Strategic investment

In order to build on the Group's recent growth we plan to continue the investment in the business that started last year in order to leverage our major opportunities, such as regulated US online gaming, payment acquiring, card issuing, white label wallet and mobile payment technologies to provide a true omni channel solution. Consequently, we will see an increase in development resources and costs in 2014.

Our mobile payment strategy for 2014 is well underway with key products that will launch during 2014 for both NETELLER and NETBANX as the percentage of transactions originating from mobile devices and tablets grow. We also continue to invest in building out our product infrastructure with specific focus on our private white label strategy including the next phases of our wallet platform to provide etailers and retailers with the tools necessary to improve the end to end shopping experience for their customers. 

These initiatives should begin to see material benefits in 2015 and are part of our strategy to mitigate our customer concentration risk, which also includes M&A where we continue to assess opportunities that provide a strategic fit at the right valuation to further accelerate growth.

Recognition

The Group's considerable achievements were acknowledged through the prestigious AIM Award for 'International Company of the Year' in 2013 and Keith Butcher was presented with the respected Grant Thornton Quoted Company Award for 'Finance Director of the Year'.

We also secured 'Corporate Services Supplier of the Year' at the International Gaming Awards which recognised our continued contribution as a provider of outsourced technology solutions to the online gaming industry; NETELLER won 'Best Financial Affiliate Manager' at the iGaming Business Affiliate Awards and Optimal Payments won 'Regional Payments Solution of the Year' at the eGaming Review and our Net+ card achieved 'Best General Spend Prepaid Card', 'Best Free Prepaid Card', 'Best Prepaid Card' and 'Best Gaming Prepaid Card' at the Prepaid 365 Awards.

We have had two further accolades at the start of 2014, winning the 'Payments Solution Provider Company of the Year Award' at the International Gaming Awards in January and the 'Best Payment System for Affiliates Award' at the iGB Affiliate Awards in February, demonstrating the excellent service which Optimal Payments deliver to customers in both the gaming payments market and the affiliates industry globally.

Current trading and outlook

Trading since year end has been strong and we are particularly encouraged by the continued improved performance of NETELLER.

Our investment focus in 2014 is on leveraging key opportunities including European acquiring and the emerging regulated US gaming market. We continue to assess M&A opportunities that provide a strategic fit at the right valuation to further accelerate growth and diversify our business.

Joel Leonoff

President & CEO

28 March 2014

Business Overview

Optimal Payments has two main lines of business:

NETELLER Stored Value ("SV") comprised of the NETELLER and Net+ prepaid card stored value service.

NETBANX Straight Through Processing ("STP") comprised of payment gateway and bureau services.

NETELLER SV

The NETELLER and Net+ stored value offering allows consumers to store monetary value, which can then be used to pay for transactions at merchant's online sites. NETELLER, established in 1999, has attracted millions of consumers who value simplicity, convenience, anonymity and security. Consumers deposit funds into their NETELLER and Net+ accounts via one of over 100 payment options, such as credit or debit cards, internet bank transfers and vouchers, and then use those funds to pay directly for goods or services online.

The NETELLER and Net+ prepaid card stored value account allows members to withdraw funds directly from their NETELLER accounts via ATMs or to pay for goods and services.

NETELLER derives its revenues by charging transaction fees to customers (members) as they deposit funds into their NETELLER account. It also charges fees to merchants when funds in the NETELLER account are moved to that merchant's site.

NETBANX STP

The Group's STP business, NETBANX, provides payment processing services for gaming and non-gaming merchants whose customers transact principally online. These services are provided on two platforms - one for Europe and North America, and the other for Asia.

In Europe and North America, NETBANX processes both card and non-card payments for a very diverse set of e-commerce businesses. This is a fully PCI DSS Level 1 compliant and certified service for multi-channel cardholder not present transactions, including web, IVR, call centre, mail order, and telephone order purchases. NETBANX processes all major credit and debit cards including Visa and MasterCard, with additional payment support for global processing of American Express, NETELLER, PayPal, Ukash, and direct from bank payments such as iDEAL, Giropay and Direct Debit - all through a single integration, via multiple acquiring banks.

In Asia, NETBANX provides a bespoke gateway service that leverages in-country processors to facilitate payments to merchants. Most of these payments are initiated via debit cards.

NETBANX earns fees for processing online transactions either as a fixed fee per transaction (the "gateway" model) or as a percentage of the transaction value (the "bureau" model, where the Group takes on the risk of managing the transaction process instead of an acquiring bank). NETBANX processed over $10 billion in transaction value in 2013 with over 100 million transactions completed.

Financial Review

The consolidated Group results for the year ended 31 December 2013 are presented below.

Highlights

The Group reported substantially improved EBITDA up 89% to $52.2m (2012: $27.6m), a $24.6m increase from 2012. Group revenues increased by $74.3m to $253.4m (2012: $179.1m), driven by strong revenue growth from both NETBANX and NETELLER businesses.

The Group reported profit after tax for 2013 of $31.5m (2012: $1.2m).

Revenue and gross margin

Group revenues increased from $179.1m in 2012 to $253.4m in 2013, driven by strong organic growth in the NETBANX STP division and a substantial improvement in high margin NETELLER revenues. Revenues for the second half of 2013 totalled $135.0m, compared to $118.4m for the first half.

NETBANX STP

Through its NETBANX brand, the Group is a leading provider of STP solutions to merchants worldwide, processing over $10 billion in transaction value annually. NETBANX STP revenues increased by 39% to $193.0m (2012: $138.9m).  

The NETBANX gross margin in 2013 was 42% (2012: 42%). Processing costs and bad debts are the only costs that are directly variable in line with revenues in the STP division. STP costs and bad debts were 58% and 0.1% of revenue respectively in 2013, in line with 2012.

NETELLER SV

NETELLER SV revenues were strongly ahead of 2012 at $59.8m (2012: $38.8m) as the number of new member monthly signups increased by 44% between December 2012 and December 2013 and monthly conversions increased by 96%. Overall we converted 36% more members in 2013 than 2012.

Growth has been driven by a number of factors including:

· Launch of a member loyalty programme - we introduced a cashback based VIP loyalty programme in the first half of 2012 to reward use of the NETELLER wallet, which has been successful in recapturing and retaining our higher spending VIPs;

· Enhanced affiliate programme - we considerably expanded and enhanced our affiliate programme;

· Key hires - several key NETELLER hires made;

· Strengthened NETELLER merchant account management team - our merchants have more regular contact and much stronger operational and marketing support;

· Improved deposit options - we made a number of changes to deposit options for members by adding new options and improving existing methods while extending the number of countries we serve; and

· Revised pricing structure - we reduced or eliminated some fees and raised others to increase transaction volumes and margins.

The NETELLER SV gross margin in 2013 was 84% (2012: 78%). The principal direct costs of this division that vary directly with revenue (included in cost of sales) are transaction related deposit and withdrawal fees and bad debts. Additionally, with growth in customer signups, there are 'stepped' costs of additional headcount in the call centre and the risk department and marketing and promotions fees where VIP loyalty 'cashback' costs vary in line with VIP revenues. Deposit and withdrawal fees arise on facilitating the movement and settlement of cash in and out of the members' NETELLER account via the banking system and third party processors. These fees increased in 2013 in line with revenue growth as a result of the successful addition of a number of deposit options to broaden the Group's offering to customers - mainly through broadening the number of countries in which NETELLER is able to accept local deposit methods.

Interest income

Interest income was $0.5m in 2013 (2012: $1.4m) as a result of lower available deposit rates. Interest revenue is earned on the Group's cash and the cash held by the Group on behalf of merchants and members.

Group revenue

The Group has one merchant who represents 41.4% of total fee revenue in 2013 (2012: 33.6%) across all reportable segments and geographies. The majority of this revenue comes from Asia Pacific. The next largest merchant represented less than 2% of Group revenues.

Operating expenses

Operating expenses saw increases in wages and salaries due to our investment in additional headcount to drive further growth and in success related variable compensation (LTIPs), in variable marketing costs directly related to the new NETELLER loyalty program targeted at VIP members, in software costs as we invested in our technology and in office costs. We expanded our headcount considerably in 2013, opening a new NETELLER call centre office in Bulgaria and a small US office. We also saw an increase in legal and professional fees largely due to work associated with our US offering.

Share option expenses

Share option expenses in 2013 were $4.5m (2012: $3.9m). The Group continues to use share options and LTIPs to incentivise its employees and management team. The performance conditions for the 2012 LTIP award were met in 2013 and the cost has therefore been recognised in 2013. We have also recognised some of the cost of the 2013 award based on an expected outturn.

Foreign exchange gains

The results from the Group's subsidiaries in Canada, UK and Bulgaria are reported in local functional currencies. As required under IFRS, foreign exchange on consolidation of a subsidiary's balance sheet is captured in equity, but the subsidiary's individual exposure to foreign currency is captured in income. The Group employs forward exchange contracts to mitigate some of the exposure of financial risk associated with foreign currency balances. During 2013, a foreign exchange gain of $0.9m was generated (2012: gain of $0.7m). Large balances in a number of currencies are held on deposit for members and merchants and these balances fluctuate due to members and merchants not always choosing to deposit and withdraw funds in the same source currency. While these tendencies benefit the Group through the generation of foreign exchange revenue, it is impossible to perfectly predict balances to hedge.

Depreciation and amortisation

Depreciation and amortisation was $13.5m in 2013 (2012: $12.3m - note 19) which included $9.3m of amortisation of intangible assets (2012: $8.7m) and $4.2m in depreciation of capital assets (2012: $3.6m). Approximately $4.1m of the depreciation and amortisation charge in 2013 relates to the assets acquired through the acquisition of OP Inc.in 2011 (2012: $4.1m). The Group's new NETELLER SV platform was launched at the end of 2010 and is being amortised over five years on a straight line basis.

Impairment

There are no impairment charges for 2013.

Restructuring costs

Restructuring costs were $0.8m (2012: $0.7m). The majority of this related to three long standing employees who left in 2013. Restructuring costs are not expected to be material going forward.

Taxes

The tax model is based on the mark-up of services provided by various subsidiaries to the Group's parent in the Isle of Man, where source revenues are non-taxable because of the zero rate of tax on companies other than banks. The 2013 provision is $1.3m (2012: $2.46m).

The 2012 provision for income taxes of $2.46m included $2.9m in relation to Canadian withholding taxes that were deemed to have arisen on the relocation of assets to the Isle of Man from Canada in the 2004 and 2005 taxation years. Following a seven year investigation, the Canadian Revenue Agency (CRA) claimed that additional withholding taxes were payable by the Group. Management provided in full for the amount it believes it is likely to be required to pay in respect of such withholding taxes and interest. Without this charge there would have been an income tax recovery of $0.6m in 2012.

Balance Sheet

Cash

Total gross cash available to the Group was $170.6m at 31 December 2013 (2012: $95.4m). This included cash and cash equivalents, plus restricted merchant cash balances and restricted member cash balances (the excess of qualifying liquid assets held in respect of e-money issued to members over member balances payable). These cash figures are before the deduction of current liabilities as shown in the table below.

The cash and cash equivalents balance at 31 December 2013 of $164.4m represents the unrestricted cash of the Group (2012: $82.2m). Included in cash and cash equivalents is a transient cash balance totalling $76.8m that relates to merchant transactions processed via the NETBANX gateway operations and security deposits held from the Group's bureau merchants. These gateway operations do not fall within the EU definition of "e-money" nor does a legal right of offset exist between this cash and the corresponding merchant liabilities. The cash and the merchant liabilities relating to gateway operations and merchant security deposits are therefore recognised both on the face of the balance sheet as cash and cash equivalents and as a liability in trade and other payables respectively.

The Group's cash position at 31 December 2013 after deducting merchant cash balances of $76.8m (2012: $37.5m) was $93.8m (2012: $57.9m) as set out in the table below.

Cash reconciliation summary

Group "own cash" of $93.8m (2012: $57.9m) does not represent the "free cash" of the business as a significant portion is tied up in various payment processing channels and security deposits. Free cash at 31 December 2013 was approximately $38.0m (31 Dec 2012 $15.0m).

NETELLER Member Funds:In compliance with the UK Financial Conduct Authority ("FCA") rules and regulations, the Group held Qualifying Liquid Assets in excess of the amounts owing to NETELLER members. These amounts are maintained in accounts that are segregated from operating funds. All Qualifying Liquid Assets are held in Optimal Payments Ltd which is an FCA regulated entity. These Qualifying Liquid Assets and the amounts payable to members are reported gross on the balance sheet. See also Note 6 of the Consolidated Financial statements.

NETELLER Merchant Funds:The Group maintains bank accounts that are segregated from operating funds and which contain funds held on behalf of NETELLER merchants, representing pooled merchant funds. The bank accounts are designated as segregated client accounts. Balances in the segregated client accounts are maintained at a sufficient level to at least fully offset amounts owing to the Group's merchants. All NETELLER merchant funds are held by Optimal Payments Merchant Services Ltd, an Isle of Man based subsidiary, licensed by the Isle of Man Financial Services Commission ('FSC') with which all merchants contract. A legal right of offset exists between the balances owing to the merchants and the cash balances segregated in the client accounts. The Group, as a matter of policy, holds excess cash in the accounts to ensure intraday balance movements do not result in a shortfall in the cash position. The net excess is disclosed as Restricted Merchant Cash. See also Note 5 of the Consolidated Financial statements.

Intangible assets

The net book value of intangible assets at 31 December 2013 was $22.8m compared to $28.0m as at 31 December 2012. This includes the assets acquired from OP Inc. on 1 February 2011 for $50.0m. Management considered that the carrying value of these acquired assets did not need to be impaired. During the year, the Group incurred development costs to add new functionality to the NETELLER SV platform. Management determined that no impairment was required at 31 December 2013 in relation to this platform.

Liabilities

At 31 December 2013 the Group had convertible loans from two shareholders of $9.5m (including accrued interest) (2012: $8.97m), which subsequently converted into shares in the Company at 66.248 pence on 28 January 2014. Further information regarding these liabilities is set out in Note 31 of the Group's financial statements.

Total current liabilities have increased to $241.0m at 31 December 2013, up from $192.1m at the end of 2012. The balance includes $123.4m (2012: $110.2m) of 'due to members' balances being held in FCA regulated Optimal Payments Ltd, the increase being a direct result of the increase in the number of active members of NETELLER in 2013 and corresponding member deposits. The increase in total current liabilities is also explained by an increase in merchant cash included in Cash with an equal and opposite liability included in trade and other payables - as a result of increased NETBANX revenues.

Non-current liabilities fell from $9.4m to $0.8m at year end as the shareholder loans moved to current liabilities (subsequently converted into equity after year end).

Off Balance Sheet arrangements

As of 31 December 2013, the Group had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.

These consolidated financial statements were approved by the Board of Directors and authorised for issue on 27 March 2014 and were signed on its behalf by:

…………………….. ……………………..

Director Director

J Leonoff K Butcher

The Directors consider that all results derive from continuing activities.

These financial statements were approved by the Board of Directors and authorised for issue on 27 March 2014 and were signed on its behalf by:

…………………….. ……………………..

Director Director

J Leonoff K Butcher

The Directors consider that all results derive from continuing activities.

Notes to the Consolidated Financial Statements for the Year ended 31 December 2013

1. GENERAL INFORMATION

NETELLER plc was a private company incorporated under the laws of the Isle of Man ("IOM") on 31 October 2003 and was registered as a public company on 1 April 2004. NETELLER plc changed its name to NEOVIA Financial Plc on 17 November 2008. On 1 March 2011 NEOVIA Financial Plc changed its name to Optimal Payments Plc (the "Company"). The principal activities of the Company and the Group are described in Note 2. The Group includes the Company and its wholly owned subsidiaries as set out under "Basis of consolidation" in note 4 and "Investment in subsidiaries" in note 25.

At 31 December 2013, the Group had 516 employees (2012: 387 employees).

2. NATURE OF OPERATIONS

The Group provides services to businesses and individuals to allow the processing of direct debit, electronic cheque and credit card payments. The Group processes direct debit, electronic cheque and credit card payments, principally for internet Merchants. Optimal Payments Limited (formerly NETELLER (UK) Ltd), a wholly-owned subsidiary of Optimal Payments Plc, is authorised by the United Kingdom's Financial Conduct Authority under the Electronic Money Regulations 2011 (FRN:900015) for the issuing of electronic money and payment instruments. Optimal Payments Merchant Services Ltd. (formerly NETELLER Operations Limited) is licensed by the Financial Supervision Commission of the Isle of Man (Ref. 1357) to carry on money transmission services.

3. BASIS OF PREPARATION

Statement of compliance

The financial statements have been prepared in accordance with applicable IOM law and International Financial Reporting Standards ("IFRS") as adopted by the EU and the AIM rules of the London Stock Exchange.

The consolidated financial statements were authorised for issue by the Board of Directors on 27 March 2014.

Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position:

· Share-based payments are measured at fair value

Statement of going concern

The consolidated financial statements are prepared on a going concern basis, as the Board of Directors are satisfied that the Group and parent company have the resources to continue in business for the foreseeable future. In making this assessment, the Board have considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows and capital resources. Following the conversion of the shareholder loans into equity after year-end (note 32), which did not impact operating cash flows, the Group has demonstrated it has sufficient financial resources in place to meet its needs.

The Group's principal activities, business and operating models, strategic direction and key and emerging risks are described in the CEO's Review, Business Overview and Business Risk sections. A financial summary, including a review of the consolidated income statement and consolidated balance sheet, is provided in the Financial Review section. The Group's objectives, policies and processes for managing credit, liquidity and market risk along with the Group's approach to capital management and allocation are described in the note 24 of the financial statements.

Use of estimates and judgements

The preparation of the Group's financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingencies at the date of the Group's financial statements, and revenue and expenses during the reporting period. Actual results could differ from those estimated. Significant estimates in the Group's financial statements include depreciation and amortisation, impairment testing of long-lived assets, share based payments and income taxes. By their nature, these estimates and assumptions are subject to estimation uncertainty and the effect on the Group's financial statements of changes in estimates in future periods could be significant.

Functional and presentation currency

These consolidated financial statements are presented in US dollars, which is the functional currency of the Company.

4. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities. The following principal accounting policies have been applied:

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (and its subsidiaries) as at the year end. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. The consolidated financial statements include the accounts of the Company and its principal wholly owned subsidiaries as identified in note 25. All inter-company transactions and balances between Group enterprises are eliminated on consolidation.

In the financial statements of the Company, investments in subsidiaries are stated at cost.

Cash and cash equivalents

Cash equivalents are defined as short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Intangible assets

Intellectual property is recorded at cost and is amortised on a straight-line basis over its estimated useful life which is assessed to be three to five years.

Website and platform development costs are recorded at cost and amortised over their estimated useful life using the declining-balance method at 30%.

Property, plant & equipment

Land is not depreciated. Property, plant & equipment are recorded at cost and is depreciated over their estimated useful lives, using the declining-balance method, on the following basis:

Communication equipment 20%

Furniture and equipment 20%

Computer equipment 30%

Other assets are depreciated over their estimated useful lives, using the straight-line method, on the following basis:

Computer software 2 years

Building & Leasehold Improvements 4% and 10 years respectively

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income.

Impairment

The carrying amounts of the Group's non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit (CGU) exceeds its estimated recoverable amounts.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGU. Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from synergies of the combination.

The Group's corporate assets do not generate separate cash inflows and are utilised by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated.

Impairment losses are recognised in the Statement of Comprehensive Income. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss has been recognised.

The Group performs impairment tests at least annually or whenever events or changes in circumstances indicate that the goodwill and intangible assets that have indefinite useful lives or are not yet in use carrying values for a business unit may not be recoverable.

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of subsidiaries at the date of acquisition.

Goodwill is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the Statement of Comprehensive Income and is not subsequently reversed.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Receivable from Merchants

Trade and other receivables, including receivables from Merchants, are stated at their amortised cost less impairment losses and doubtful accounts.

Income tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in the Statement of Comprehensive Income except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

The Group uses the balance sheet liability method of accounting for income taxes. Temporary differences arising from the difference between the tax basis of an asset or liability and its carrying amount on the balance sheet are used to calculate deferred tax assets or liabilities. Deferred tax assets or liabilities are calculated using tax rates anticipated to exist in the periods that the temporary differences are expected to reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. All operating segments' operating results are reviewed regularly by the Group's CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

Revenue recognition

The Group is involved in transaction processing services. Revenues from transaction processing services are recognised at the time services are rendered. Member revenue is recognised either as a fee calculated as a percentage of funds processed or as a charge per transaction, pursuant to the respective Member agreements. Merchant revenue is recognised as a fee calculated as a percentage of funds processed or as a charge per transaction on behalf of Merchants.

Interest income is accrued on a monthly basis, by reference to the principal outstanding and at the effective interest rate applicable.

The Company renders services to various subsidiaries within the Group including Franchise Rights and Platform Service Fees. Revenue from rendering of services is recognised in profit or loss at the time the services are rendered.

Leases

(i) Leased assets

Assets held by the Group under leases which transfer to the Group substantially all of the risks and rewards of ownership are classified as finance leases. On initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Assets held under other leases are classified as operating leases and are not recognised in the Group's statement of financial position.

(ii) Lease payments

Payments made under operating leases are recognised in the Statement of Comprehensive Income on a straight-line basis over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Foreign exchange

The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in US dollars, which is the functional currency of Optimal Payments Plc, and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual entities, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the Statement of Comprehensive Income for the period, except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations (including comparatives) are expressed in United States dollars using exchange rates prevailing on the balance sheet date. Income and expense items (including comparatives) are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the 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 in which the foreign operation is disposed of.

Goodwill and fair value adjustments arising on the acquisition of foreign operations are treated as assets and liabilities of the foreign operation and translated at the closing rate.

Related party transactions

Monetary related party transactions in the normal course of operations are recorded at fair value, and transactions between related parties, not in the normal course of operations, are recorded at the carrying value as recorded by the transferor.

Foreign exchange contracts

The Group uses foreign exchange contracts to reduce its exposure to adverse fluctuations in foreign exchange rates. These financial instruments are presented in the accompanying consolidated financial statements at fair value. Fair values are based on market quotes, current foreign exchange rates or management estimates, as appropriate, and gains and losses on the foreign exchange contracts are reflected in the consolidated income statement. The increase or decrease in the fair value of the contracts has been taken to income.

Research and development

Research expenditure is written off to the income statement in the period in which it is incurred.

Development expenditure is written off in the same way unless management is satisfied as to the technical, commercial and financial viability of the individual projects generating future economic benefits, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. In this situation, the expenditure is capitalised at cost, less a provision for any impairment in value, and is amortised on the commencement of use over the period in which benefits are expected to be received by the Group. The expenditure capitalised includes the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use.

Share-based payments

The Company issues share options to certain employees, including Directors. Equity-settled share options are measured at fair value at the date of grant. In valuing equity-settled share options, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the Company (market conditions).

The fair value determined at the grant date of the share option is expensed over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award (the vesting date). The cumulative expense recognised for equity-settled share options at each reporting date reflects the extent to which the vesting period has expired and the Company's best estimate of the number of equity instruments that will ultimately vest (or in the case of a market condition, be treated as vesting). The movement in cumulative expense since the previous reporting date is recognised in the income statement, with a corresponding entry in equity.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market vesting condition or a non-vesting condition, which are treated as vesting irrespective of whether or not the condition is satisfied, provided that all other non-market vesting conditions are satisfied.

Where the terms of an equity-settled award are modified, the minimum expense recognised is the expense as if the terms had not been modified. An additional expense is recognised over the remainder of the new vesting period for the incremental fair value of the modification, based on the difference between the fair value of the original award and the fair value of the modified award, both as measured on the date of the modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the income statement for the award is expensed immediately. Any compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from equity, with any excess over fair value being treated as an expense in the income statement.

Offsetting

Financial assets and liabilities are set off and the net amount presented in the Statement of Financial Position when, and only when, the Group has a legal enforceable right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arising from a group of similar transactions such as in the Group's trading activity.

Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held and for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.

Change in Accounting Policies

Except for the changes below, the Group has consistently applied the accounting policies set out in Note 4 to all periods presented in these consolidated financial statements.

The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 January 2013.

i) IFRS 13 - Fair value measurement

IFRS 13 establishes a single framework for measuring fair value and making disclosures about fair value measurements when such measurements are required or permitted by other IFRSs. IFRS 13 is required to be applied prospectively from the beginning of the first annual period in which it is applied. The disclosure requirements of IFRS 13 do not require comparative information to be provided for periods prior to initial application. Notwithstanding the above, the change had no significant impact on the measurement of the Group's assets and liabilities.

ii) Amendments to IFRS 7 -Disclosures - Offsetting financial assets and financial liabilities

Amendments to IFRS 7 require disclosure of the effect or potential effects of netting arrangements on an entity's financial position. The amendment requires disclosure of recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement. The amendments did not have a material effect on the disclosure contained in these consolidated financial statements.

New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2014, and have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early. None of these is expected to have a significant effect on the consolidated annual financial statements of the Group except as noted below.

i) IFRS 9 Financial Instruments (2010), IFRS 9 Financial Instruments (2009)

IFRS 9 (2009) introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2009), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. IFRS 9 (2010) introduces additions relating to financial liabilities. The IASB currently has an active project to make limited amendments to the classification and measurement requirements of IFRS 9 and add new requirements to address the impairment of financial assets and hedge accounting.

ii) IFRS 10 - Consolidated financial statements (2011)

IFRS 10 introduces a single approach for determining consolidation of all entities, based on the concept of power, variability of returns and their linkage. The previous approach emphasised legal control or exposure to risks and rewards, depending on the nature of the entity.

iii) IFRS 11 - Joint arrangements

IFRS 11 places more focus on the investors' rights and obligations than on the structure of the arrangement when determining the type of joint arrangement with which the group is involved, unlike the previous approach, and introduces the concept of a joint operation.

iv) IFRS 12 - Disclosure of interests in other entities

IFRS 12 is a comprehensive standard on disclosure requirements for all forms of interests in other entities, including for unconsolidated structured entities. The disclosure requirements of IFRS 12 do not require comparative information to be provided for periods prior to initial application.

5. RESTRICTED NETELLER MERCHANT CASH

The Group maintains bank accounts with the Group's principal bankers which are segregated from operating funds and which contain funds held on behalf of Merchants, representing pooled Merchant funds. Balances in the segregated accounts are maintained at a sufficient level to fully offset amounts owing to the Group's Merchants. A legal right of offset exists between the balances owing to the Merchants and the cash balances segregated in the client accounts. As such, only the net balance of surplus cash is disclosed on the Statement of Financial Position as Restricted NETELLER Merchant Cash.

At 31 December 2013, the Group had the following balances:

6. RESTRICTED NETELLER MEMBER CASH

In compliance with the Financial Conduct Authority (FCA) rules and regulations, the Group holds Qualifying Liquid Assets at least equal to the amounts owing to Members. These amounts are maintained in accounts which are segregated from operating funds.

All Qualifying Liquid assets are held in Optimal Payments Limited, which is an FCA regulated entity.

The Group had the following balances:

7. PROPERTY, PLANT & EQUIPMENT

The Group had the following balances:

The Company had the following balances:

8. INTANGIBLE ASSETS

The Group had the following balances: