18th Jan 2007 07:10
NETeller PLC18 January 2007 ("NETELLER" or "the Company" and, together with its subsidiaries, the "Group") TRADING UPDATE NETELLER Plc (LSE: NLR), the leading independent online money transfer business,today issued the following update regarding its position in the US market in thelight of the Unlawful Internet Gaming Enforcement Act of 2006 (the "Act" or"UIGEA") and the Act's associated anticipated regulations. US market withdrawal •Withdrawal of US Transfers to Gambling Merchants: The Board confirms that the Group will cease processing online transactions related to gambling for the US market with effect from today in light of the passing of the UIGEA and the uncertainties and likely delays relating to the drafting and implementing of regulations. •Phased Compliance: This announcement reflects the culmination of a series of deliberations and steps the Group has taken since the passing of the UIGEA in October 2006. Previous steps have included the development of country blocking and instant funds transfer restriction enhancements to the Group's software platform. •Timeline: As of today Thursday 18 January 2007, at 12:01AM GMT, US resident customers were no longer able to transfer funds using NETELLER's services to or from any online gambling site. •Continued Safe Choice: Customer funds, including those of US residents, are held in segregated trust accounts and are fully secure and will be available for withdrawal by customers, on demand. US customers continue to be able to use their e-wallet accounts for non-gambling transactions. •Group's Future Focus: These decisions will allow the Group to focus on opportunities available in the growing markets of Europe, Asia and the Americas outside of the United States. Recent US developments •On 16 January 2007 shares in the Company were temporarily suspended pending clarification of the situation surrounding the detention, by US authorities, of Mr Stephen Lawrence and Mr John Lefebvre, two founder shareholders and former directors of the Company. •On 16 January 2007 the US Attorney's office in the Southern District of New York charged Mssrs. Lawrence and Lefebvre with conspiring to transfer funds with the intent to promote illegal gambling. The charges are a matter of public record. As of this point, neither of Mssrs. Lawrence nor Lefebvre has responded to the charges. The federal authorities allege as one of the bases in the complaints against Mssrs. Lawrence and Lefebvre that NETELLER's involvement in handling financial transactions between gambling customers in the United States and numerous offshore online gaming businesses constitutes illegal conduct. •As noted above, today's withdrawal from the US market by NETELLER is the culmination of months of careful planning. Along with this action, the Group is actively assessing what further steps it may take in light of the two arrests made earlier this week to clarify the Company's position in this matter. •Pending further clarification of this the shares of the Company will remain suspended. Trading highlights • Following the passage of the UIGEA and as preparations for a withdrawal of services to US residents were being completed, the Group experienced slowing fourth quarter growth in terms of customer receipts and new customer sign ups. • Average daily receipts from customers in Q4 2006: US $5.75m; average daily new customer sign ups for Q4 2006: 3,493; total customers at 31 December 2006: 3,526,325. • Active customers in Q4 2006: 640,701, with a growing percentage from outside of the United States. • Revenue for the full year 2006 expected to be between US$ 255 million and US$ 260 million. • Continued focus on geographic diversification through further product launches in response to customer and merchant demand, in particular in Europe and Asia. • Realignment of Group's cost base commenced in Q4 2006. Enquiries: Citigate Dewe Rogerson + 44 (0) 207 638 9571Sarah Gestetner / Sebastian Hoyle / George Cazenove * * * * * Voluntary withdrawal from US The Board today confirms that the Group has voluntarily ceased processing fundstransfers between NETELLER e-wallets and online gambling merchants on behalf ofUS residents. This decision represents the culmination of a series ofdeliberations over recent months by the Board which, in light of impendingregulations related to the Act, believed that NETELLER's position in the USmarket was no longer sustainable. Since the passing of the Act, the Company hasbeen working diligently on a programme of operational and technical planningmeasures and procedures to allow implementation of any such decision at theearliest opportunity. NETELLER has committed to an orderly withdrawal for thebenefit of its customers and will endeavour to maintain a high degree of servicethroughout the process. With immediate effect, as of today Thursday 18 January 2007, at 12:01AM GMT, USresident customers were no longer able to transfer funds using their NETELLERe-wallets to or from any online gambling site. In line with the Group's standard business practices for all customers, thefunds of US resident customers are held in segregated trust accounts and arefully secure and will be available for withdrawal by customers, on demand. Theability to withdraw funds will exist regardless of the customer's location orability to transfer to any site. All US resident customers will continue to beable to use their NETELLER e-wallet accounts to safely transfer funds to andfrom non-gambling merchants and are not required to close their accounts orwithdraw their funds. NETELLER customers not resident in the US are not affected at all by thiswithdrawal from the US market. The Group will continue to operate its non-USbusiness as normal, maintaining existing customer and merchant support acrossall the markets it currently serves. In order to be able to support this US withdrawal, NETELLER has dedicated thelast few months to developing product enhancements to its software platform inorder to be able to block automatically transfers to online gambling merchantsfrom US residents. These features are now fully deployed and integrated into theGroup's core platform. Today's updated position with respect to the US market leaves the Group able tofocus on its continuing business and the opportunities available in the growingmarkets of Europe, Asia and the Americas outside of the United States. NETELLERremains focused on developing its business in line with its stated strategicobjectives, including geographical and product diversification for all markets.The Group will continue to launch localised services within the global marketand a number of new product launches are scheduled for early this year. Operational Highlights Average daily receipts from customers was approximately US $5.75 million duringQ4 2006 (Q4 2005: US $4.18 million) - representing an increase of 38 %. Q4average daily receipts from customers were up by 8 % on the Q3 2006 averagedaily receipts of US $5.31 million. Average daily receipts from customers forthe full year 2006 were US $5.11 million, up by 50% on average daily receiptsfor 2005 of US $3.44 million. As at 31 December 2006, NETELLER had 3,526,325 signed-up customers, an increaseof 1,205,656 or 52 % from 2,320,670 since 31 December 2005. Average dailysign-ups of new customers was 3,493 during Q4 2006 (Q3 2006: 3,197) -representing an increase of 9 %. North American sign ups were 74 % of total signups in the fourth quarter, with the Americas outside the United Statesaccounting for 8 %. European sign ups represented 20 % of total Q4 2006 signups, while Asia / ROW represented 6 %. Average daily sign-ups were 3,303 for theyear to 31 December 2006 compared to 2,930 for 2005 - representing an increaseof 13%. Total active customers in the quarter were 640,701, an increase of 29 % from Q42005 and an increase of 3 % from Q3 2006. Of these, 24 % of our active customersin Q4 2006 came from outside of the US, compared with 23 % in Q3 2006. 548,870were from North America, including 59,335 from the Americas outside the UnitedStates (9 % of the total), 11 % (71,421) were from Europe, and 3 % (20,410) werefrom Asia / ROW. Financial Highlights Performance during the fourth quarter of 2006 is slightly lower than seasonaltrends as a result of the passing of the Act on 13 October 2006. As a result,the Company expects that revenue for the full year is likely to be between US$255 million and US $260 million. Fee income will likely represent between US$237 million and US $242 million of this total, with interest income making upthe balance. This 2006 revenue estimate is unaudited and is subject to change inconjunction with the Company's final close procedures and external audit. Since 13 October 2006, a programme to realign the Group's cost base wascommenced which identified staff reductions and other initiatives to realisecost savings on an annualised basis. These will continue in line with expectedreductions in volumes of transfers and customer enquiries through the Group'scontact centres since the Company has ceased processing funds transfers for USresidents related to online gambling. The total cash costs associated with staff restructuring are expected to be inthe region of US$ 1.1 million in 2006 and a further US$ 3.7 million in 2007. Baddebt is expected to temporarily spike by approximately US$10 million to US$ 12million in 2007 due to unavoidable events associated with withdrawing itse-wallet services to the US online gambling market. Other 2007 non-cash writedowns associated with US withdrawal are expected to total between approximatelyUS$ 18 million and US$ 20 million, related to impairment of assets includingwebsite development, leasehold improvements, redundant servers and unamortizedportion of licenses and trademarks. The Company took an impairment charge in the fourth quarter of 2006 related tothe carrying amount of its goodwill and intangible assets. Based upon theimpairment analysis, a charge of $11.7 million (approximately 9.7 pence pershare) was recorded for the impairment of goodwill and intangible assets,measured as the amount that the carrying value exceeded the estimated fairvalue. Other highlights NETELLER has continued to make progress diversifying its products for customersand merchants in the fourth quarter, with launches of its localised languageservices in Sweden, Denmark, Turkey and Poland. This has helped contribute to anincreasing number of active customers from European countries. The"Refer-a-Friend" referral program is continuing to drive non-US customer signups. The Company has also recently rolled out a service on its platform which allowsmerchants to maintain country black-lists to block any money transfers fromcustomers in those countries. A number of online gambling merchants are alreadyusing this feature to block transfers from US residents in the light of the Act. Despite the challenges to the business after the passing of the Act, NETELLERand its employees remain focused on the opportunities ahead. The Group hasrecently received several awards - the Contact Centre Employer of Choice (R)award from the CCEOC Institute recognising our Calgary-based contact centre asone of the best operations to work for in North America; and the JD Power &Associates Call Center Certification designation, acknowledging the quality andexperience of the Group's contact centre and its staff. The Company has recently launched a new version of its corporate website atwww.netellergroup.com to provide further information on the Group and itsactivities, while distinguishing from the customer facing websitewww.neteller.com. Further communication In the light of recent events, the Company has cancelled the conference callpreviously scheduled for 3pm GMT later today. The Company currently intends torelease its preliminary announcement of results for the 12 months ended 31December 2006 towards the end of February 2007. The Company will provide furtherupdates in due course. Notes to Editors The NETELLER GroupWith over 3.5 million customers in 160 countries, 3,500 merchants, and over $7billion in annual transactions, the NETELLER Group operates the largestindependent online money transfer business in the world. The Group specializesin providing innovative and instant payment services where money transfer isdifficult or risky due to identity, trust, currency exchange, or distance. Beingindependent has allowed the Group to support thousands of retailers andmerchants in many geographies and across multiple industries. The Group is quoted on the London Stock Exchange's AIM market, with a tickersymbol of NLR. NETELLER UK Limited is authorised by the Financial ServicesAuthority (FSA) to operate as a regulated e-money issuer. For more informationabout the Group visit www.netellergroup.com. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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