31st Oct 2008 07:13
THIRD QUARTER TRADING UPDATE
E-wallet growth continues despite tough markets
Solid balance sheet provides platform for opportunistic investments
Friday, 31 October 2008 - NETELLER Plc (LSE: NLR), the independent global online payments business, is pleased to provide a trading update in respect of its performance during the third quarter to 30 September 2008.
Highlights
E-wallet continues to show growth, with revenue up 27% from Q3 2007, at $13.0 million.
European revenue (including NETBANX) was $12.1 million, an increase of 20% from Q3 2007; Asia Pacific (including NETBANX Asia) grew 61% to $4.9 million over the same period.
Active e-wallet users totalled 97,447 in Q3 2008, up 3% from Q3 2007.
E-wallet revenue per active e-wallet user continued to improve, reaching $134 in Q3 2008, up 23% from $109 in Q3 2007 and up 3% from Q2 2008.
Average daily sign ups and average daily receipts in Q3 2008 showed growth of 3% and 31% respectively from Q3 2007.
Gross margin of 60% (Q2 2008: 61%) and operating income of $3.8 million (Q3 2007: $2.7 million).
Solid balance sheet at 30 September 2008 with $89.4 million cash and cash equivalents.
Launch of Net+ prepaid physical and virtual cards to Group's existing e-wallet users.
Proposed renaming of Group to NEOVIA Financial Plc subject to shareholder approval.
Ron Martin, President & CEO, commented "Despite the challenging economic environment, the Group has continued to show underlying growth in its core e-wallet business both in Europe and Asia Pacific. Our efforts to target key merchants with our integrated Payment Suite are beginning to bear fruit and we have improved our consumer offering with further enhancements to the e-wallet and the launch of our Net+ prepaid cards. The current market conditions are producing a number of interesting investment opportunities which we are actively pursuing and we hope to provide further updates in due course. We anticipate the core business will continue growing into the fourth quarter, and the Board believes the Group is on track to meet current market expectations for the full year."
The Company is holding an extraordinary General Meeting in the Isle of Man on Tuesday 11 November 2008 to approve the change of name of the Company to NEOVIA Financial Plc. For further information, please visit http://www.neteller-group.com/doorway /neovianamechange.html.
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Enquiries: |
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Andrew Gilchrist |
+ 44 (0) 1624 698 713 |
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VP Communications, NETELLER Plc |
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Email: [email protected] |
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Citigate Dewe Rogerson |
+ 44 (0) 207 638 9571 |
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Sarah Gestetner / George Cazenove |
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Daniel Stewart & Co Plc |
+ 44 (0) 207 776 6550 |
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Paul Shackleton |
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Notes to Editors
The NETELLER Group
Trusted by consumers and merchants in over 160 countries to move and manage billions of dollars each year, the NETELLER Group operates the world's leading independent online payments business. Through its Payment Suite, featuring the NETELLER®, NETBANX®, Net+™ and 1-PAY™ brands, the Group 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 the Group to support thousands of retailers and merchants in many geographies and across multiple industries.
NETELLER Plc is quoted on the London Stock Exchange's AIM market, with a ticker symbol of NLR. NETELLER (UK) Limited is authorised by the Financial Services Authority (FSA) to operate as a regulated e-money issuer. For more information about the Group visit www.netellergroup.com or contact us by email at [email protected].
The Group is currently in the process of changing its name to NEOVIA Financial Plc. For more information see http://www.neteller-group.com/doorway/neovianamechange.html.
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This discussion and analysis contains forward-looking statements relating to future events and future performance. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should" "expects", "projects", "plans", "anticipates", and similar expressions. These statements represent management's expectations or beliefs concerning, among other things, future operating results and various components thereof or the economic performance of the NETELLER Group. The projections, estimates and beliefs contained in such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause the actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted.
Key performance indicators
The Group saw modest improvement in its principal KPIs during the third quarter of 2008, with active e-wallet users growing by 3% compared to the same quarter in 2007, although this showed a decrease by 3% quarter on quarter, due to typical seasonality exhibited in this quarter. Given the current uncertain economic environment in the Group's core markets of Europe and Asia Pacific, the Group believes this is a creditable performance.
Average daily receipts from e-wallet users were $385,714, an increase of 31% on a like-for-like basis for Q3 2007, although a decrease of 8% from the $418,047 reported in Q2 2008. Total receipts from e-wallet users during Q3 2008 totalled $35.5 million compared to $38.0 million in Q2 2008.
The table below sets out the Group's active e-wallet users by region, excluding those from North America:
|
Active e-wallet users |
Q3 2008 |
Q3 2007 |
% change Q3 2008 vs Q3 2007 |
Q2 2008 |
% change Q3 2008 vs Q2 2008 |
|
Europe |
77,230 |
72,849 |
6% |
78,280 |
-1% |
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Asia Pacific |
14,967 |
17,638 |
-15% |
17,490 |
-14% |
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Rest of World |
5,520 |
4,438 |
18% |
4,990 |
5% |
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Total |
97,447 |
94,925 |
3% |
100,760 |
-3% |
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Total signed up e-wallet users |
1,273,317 |
895,334 |
42% |
1,187,812 |
7% |
In line with the Group's strategy to bring additional scale to the e-wallet, the Group expects to see an improvement in the growth trajectory of the active e-wallet user base in 2009.
The Group has recorded encouraging growth of 23% year-on-year in its e-wallet revenue per active e-wallet user, with growth in its key markets of Europe and Asia Pacific, showing increases of 19% and 51% for Q3 2008 against Q3 2007 respectively. The table below shows by region the Group's e-wallet revenue per active e-wallet user based on the average quarterly fee revenue per user for the relevant quarters in 2008 and 2007:
|
E-wallet revenue per active e-wallet user ($) |
Q3 2008 |
Q3 2007 |
% change Q3 2008 vs Q3 2007 |
Q2 2008 |
% change Q3 2008 vs Q2 2008 |
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Europe |
137 |
115 |
19% |
133 |
3% |
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Asia Pacific |
129 |
85 |
51% |
122 |
5% |
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Rest of World |
95 |
90 |
5% |
99 |
-4% |
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Total |
134 |
109 |
23% |
130 |
3% |
Revenue from the Group's gateway businesses in Europe (NETBANX) and Asia Pacific (NETBANX Asia, formerly 1-PAY Direct), has been stripped out of the fee revenue in calculating the e-wallet revenue per active e-wallet user.
Average daily sign ups in Q3 2008 (including North American sign ups) were 929 compared to 900 in Q3 2007, an increase of 3%. This included growth of 8% from Europe in Q3 2008 compared to Q3 2007. The table below shows the Group's sign ups by region (excluding North America):
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Average daily sign ups |
Q3 2008 |
Q3 2007 |
% change Q3 2008 vs Q3 2007 |
Q2 2008 |
% change Q3 2008 vs Q2 2008 |
|
Europe |
641 |
596 |
8% |
694 |
-8% |
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Asia Pacific |
147 |
188 |
-22% |
190 |
-23% |
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Rest of World |
113 |
79 |
43% |
109 |
4% |
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Total |
901 |
863 |
4% |
993 |
-9% |
Financial highlights
Revenue
Revenue for the third quarter 2008 of $19.1 million represented an increase of 1% from $18.9 million for Q2 2008. Compared to Q3 2007, consolidated revenue grew by 12% in Q3 2008 resulting from substantial growth of more than 25% in e-wallet revenues across all regions.
E-wallet revenue, which comprises merchant and consumer fees generated from the use of the e-wallet, totalled $13.0 million in Q3 2008, an increase of 27% from Q3 2007. The Group separately discloses revenue from its Gateway businesses, as this revenue is not directly related to usage of the Group's e-wallet.
Revenue from the NETBANX Europe business is below management's expectations due to the current economic conditions and a longer lead time to bring merchants live. However, the Board believes that NETBANX Europe's performance will improve as recent client wins begin to contribute to top line growth in 2009
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Revenue ($ millions) |
Q3 2008 |
Q3 2007 |
Q3 '08 vs Q3 '07 % |
YTD 2008 |
Q2 2008 |
Q3 '08 vs Q2 '08 % |
Q1 2008 |
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Europe |
10.6 |
8.4 |
26% |
30.5 |
10.4 |
2% |
9.5 |
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Asia Pacific |
1.9 |
1.5 |
29% |
5.6 |
2.1 |
-10% |
1.5 |
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Rest of World |
0.5 |
0.4 |
25% |
1.4 |
0.5 |
1% |
0.4 |
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E-wallet revenue |
13.0 |
10.3 |
27% |
37.5 |
13.1 |
0% |
11.4 |
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NETBANX Europe |
1.6 |
1.8 |
-12% |
5.0 |
1.6 |
-3% |
1.8 |
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NETBANX Asia |
2.9 |
1.5 |
93% |
7.8 |
2.8 |
4% |
2.1 |
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Fee revenue |
17.5 |
13.6 |
29% |
50.3 |
17.5 |
0% |
15.3 |
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Interest |
1.6 |
3.4 |
-54% |
4.7 |
1.4 |
12% |
1.7 |
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Total |
19.1 |
17.0 |
12% |
55.0 |
18.9 |
1% |
17.0 |
Interest revenue is up 12% compared to Q2 2008 as a result of higher interest yields on GBP and EUR deposits, and the additional funds invested from the sale of the Group's Calgary property. Compared to Q3 2007, interest revenue is 54% lower due to final forfeiture payments of $40 million made on 15 October 2007 and $38.3 million on 17 January 2008 which reduced the amount of Group cash balances.
Gross margin
Gross margin for Q3 2008 of 60.0% remained relatively flat compared to 61.1% in Q2 2008 and 60.3% in Q3 2007.
Direct costs were up slightly in Q3 2008. Based on increased demand for our debit card product, additional card issuance expenses were incurred. Although front end costs of issuing debit and prepaid cards are more expensive than wire charges, the long term effect will be favorable as we migrate our e-wallet users to this more efficient and convenient withdrawal method. Website maintenance costs were also slightly higher in Q3 2008 as the Group moved server hosting to a new provider in a different location. The costs associated with changing providers will not be a recurring expense. Marketing and promotion expenses were reduced in Q3 2008 as the scale of the related program was smaller than our rebate program launch delivered in Q2 2008.
Operating expenses
The Group achieved income from operations of $3.8 million in Q3 2008. General and administrative expenses increased to $7.6 million from $6.9 million in Q2 2008. Wages and salaries were lower in Q2 due to a reclassification of Q1 2008 development expenses to capital during the quarter. Compared to the blended H1 quarterly run rate, wages and salary costs in Q3 2008 have been reduced by approximately 3%, primarily due to the continuing weakness of the Canadian Dollar vs the US dollar, the Group's reporting currency.
Cash position of the Group
The total amount of cash available to the Group totalled $89.4 million at 30 September 2008, compared to $61.7 million at June 30, 2008. On 10 July 2008, the Group closed the sale of its principal Calgary property and agreed a lease for certain areas of the property. Cash flow from operations has continued to be positive throughout the third quarter of 2008. The Group maintains all customer and merchant funds in segregated accounts with tier 1 European banks, retaining a margin over and above the regulatory required surplus to ensure that all customer and merchant funds are appropriately managed during the current period of market volatility.
Business highlights
The Group has continued to develop its integrated offering to consumers and merchants through the NETELLER Payment Network and its key products, the NETELLER e-wallet and the NETBANX payments gateway. A number of major initiatives were announced in the third quarter including the adoption by Cardsave, with 28,000 merchants, of the NETELLER Payment Suite as its preferred payment partner; a five-year co-branding and joint marketing agreement with the Born Group for the provision of the NETELLER e-wallet to its sports-focused online community; and significant new gaming-segment contract wins announced at EiG, with BetClick and Genting Stanley signing up for the NETELLER e-wallet as a deposit method, and joint market agreements with Bet365, Betfred and Purple Lounge. These initiatives demonstrated the Group's commitment to its merchants as the pre-eminent payment solutions provider in the gaming sector, and also the Group's renewed focus on driving scale to the e-wallet in the medium term.
The third quarter also saw further product enhancements to the Group's key e-wallet offering including:
New countries - customers now accepted from Estonia, Hungary, Latvia, Lithuania, Slovakia and Slovenia. Bulgaria and Romania are anticipated to be available shortly.
New deposit methods - customers can top up their e-wallets using local deposit methods including Carte Bleue, Carta Si, DirectPay24 and Ukash.
New currencies - e-wallet accounts available in Euro, SEK, GBP, NOK, HUF, PLN and DKK European currencies, as well as US$, CAN$, JPY and Aus$, reducing foreign exchange costs for customers and merchants.
The Group’s NETBANX international payments gateway business continues to underpin the NETELLER Payment Network, providing payment processing solutions to its merchant customers, such as CardSave, nPower, Companies House and Time Etc, and forming the deposits engine behind the NETELLER e-wallet. NETBANX, one of the first payment companies in the UK to be PCI (Payment Card Industry) DSS compliant, has also recently passed its annual PCI DSS recertification, so ensuring the highest level of security for its customers’ transactions. The Group rebranded its Asian gateway business 1 PAY Direct as NETBANX Asia during the quarter and this has been well received in its local markets.
The Group launched the Net+ prepaid card for its e-wallet customers, offering them the flexibility of a physical prepaid MasterCard for withdrawals from the e-wallet (through cash withdrawals at ATMs or through spending at any of MasterCard's 27.3 million acceptance locations), and the Net+ virtual prepaid card by MasterCard, for use online. The Net+ virtual card offers the convenience of paying online (everywhere MasterCard is accepted) with a high level of security and privacy, through the single use, unique card number generated via the virtual card application, NETELLER Desktop. The Net+ cards have been developed in partnership with TransSend Payment Services and, for the virtual card, Orbiscom, a leading financial technology company.
Trading outlook
Given the challenging market conditions, the Board is pleased with the satisfactory performance of the business in the third quarter. The growth of the core e-wallet product is anticipated to continue into the fourth quarter of 2008 and the board believes that the Group is on track to meet market expectations for the full year.
The Group's launch of the Net+ prepaid card is being well received by e-wallet customers and the development pipeline for the fourth quarter should further enhance the offering to both merchants and customers. Despite the disappointing performance of NETBANX Europe in the second half of 2008, the Board remains confident about prospects for the business for the full year and beyond.
The current market environment is producing some interesting investment opportunities and, as a result, the Group is investigating a number of strategic investments at present. As part of its broader commitment to maximise value for all shareholders, the Board continues to investigate the most appropriate use of the Group's cash resources including investments both organic and external and the return of cash to shareholders. Further updates will be provided in due course as appropriate.
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Third Quarter 2008 Unaudited Financial Information
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Q3 - 2008 |
9 months 2008 |
Q3 - 2007 |
9 months 2007 |
Q2 -2008 |
2008 to 2007 |
2008 |
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US $ |
US $ |
US $ |
US $ |
US $ |
Q3 |
YTD |
Q3 to Q2 |
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Revenue |
19,093,520 |
54,983,451 |
16,945,542 |
67,790,011 |
18,903,049 |
13 % |
-19 % |
1 % |
|
Direct Costs |
(7,648,510) |
(21,420,504) |
(6,730,292) |
(29,812,715) |
(7,354,479) |
14 % |
-28 % |
4 % |
|
Gross profit |
11,445,011 |
33,562,947 |
10,215,250 |
37,977,297 |
11,548,570 |
12 % |
-12 % |
-1 % |
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General and Admin |
(7,634,905) |
(22,761,465) |
(7,489,513) |
(24,665,858) |
(6,943,207) |
2 % |
-8 % |
10 % |
|
Operating income |
3,810,106 |
10,801,483 |
2,725,737 |
13,311,438 |
4,605,363 |
40 % |
-19% |
-17 % |
|
Other income (expense) |
||||||||
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Foreign exchange gain/(loss) |
(105,519) |
45,119 |
19,192 |
(666,123) |
163,490 |
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Management bonus |
(500,000) |
(1,399,971) |
(300,000) |
(1,012,657) |
(448,455) |
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Depreciation and amortisation |
(1,593,655) |
(4,766,268) |
(1,805,629) |
(6,584,272) |
(1,603,809) |
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Stock option expense |
(651,697) |
(2,093,932) |
(2,224,016) |
(6,672,049) |
(691,688) |
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Restructuring costs |
- |
(92,484) |
(144,106,130) |
(168,732,515) |
803 |
|||
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Loss on disposal of assets |
(77,123) |
(77,123) |
(216,336) |
(216,336) |
- |
|||
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Investment loss |
(73,790) |
(456,309) |
- |
- |
(282,500) |
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Income before tax |
808,332 |
1,960,515 |
(145,907,182) |
(170,572,514) |
1,743,184 |
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Income taxes |
(560,716) |
(565,124) |
(612,037) |
(451,639) |
493,224 |
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|
|
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Net income after tax |
247,606 |
1,395,390 |
(146,519,219) |
(171,024,153) |
2,236,408 |
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KEY PERFORMANCE INDICATORS |
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Q3 - 2008 |
Q3 - 2007 |
Q2 -2008 |
2008 to 2007 |
2008 |
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US $ |
US $ |
US $ |
Q3 |
Q3 to Q2 |
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Total active e-wallet users (in quarter) (1) |
97,447 |
94,925 |
100,760 |
3 % |
-3 % |
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E-wallet revenue per active e-wallet user |
$ 134 |
$ 109 |
$ 130 |
23 % |
3 % |
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Daily sign ups (ex NA) |
901 |
863 |
993 |
4 % |
-9 % |
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Total e-wallet users (at period end) |
1,273,317 |
895,334 |
1,187,812 |
42 % |
7 % |
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Average daily receipts from e-wallet users |
385,714 |
295,365 |
418,047 |
31 % |
-8 % |
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Total e-wallet user receipts |
35,485,647 |
27,173,582 |
38,042,306 |
31 % |
-7 % |
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(1) Active e-wallet user is defined as a consumer whose e-wallet account balance has changed during the quarter.
nm not meaningful
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