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Earthport PLC (EPO)

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Tuesday 31 October, 2017

Earthport PLC

Final Results

RNS Number : 0263V
Earthport PLC
31 October 2017
 

31 October 2017

Earthport plc

("Earthport", the "Company" or the "Group")

 

Final Results

 
Earthport (AIM: EPO.L), the leading payment network for cross-border payments, is pleased to announce its final results for the year ended 30 June 2017.

 

Financial Highlights

•      Revenues increased by 33% to £30.3 million (FY2016: £22.8 million), in line with market expectations

•      Transactional revenues comprised approximately 95% (FY2016: 91%) of total revenue

•      Adjusted gross profit1 increased by 30% to £20.7 million (FY2016: £15.9 million)

•      Adjusted gross margin1 of 68% (FY2016: 70%)

•      Adjusted EBITDA2 loss decreased by 58% to £2.9 million (FY2016: £6.9 million)

•      Adjusted operating loss (before share based payments charge, exceptional items and unrealised fair value adjustments) decreased by 39% to £6.3 million (FY2016: £10.4 million) mainly due to increase in revenue and achievement of cost efficiency objectives

•      Loss after tax increased by 47% to £12.1 million (FY2016: £8.2 million), mainly due to unrealised fair value loss of £4.8 million, compared to a gain of £8.2 million in FY2016

•      Cash and cash equivalents at £11.9 million (FY2016: £14.4 million)

 

1.   Adjusted gross profit and margin figures are before warrant charge of £0.5m (FY2016: £0.6m), share based payment charge, unrealised fair value adjustment and exceptional items

2.   Adjusted EBITDA is before warrant charge of £0.5m (FY2016: £0.6m), share based payment charge, unrealised fair value adjustment and exceptional items

 

Operational and Transactional Highlights

•      Number of transactions processed reached 11.0 million (FY2016: 6.6 million), up by 67%

•      Payment volume was $17.5 billion3, an increase of 48% over prior year

•      Average revenue per transaction of £2.64

•      Gaining traction with European-based global Banks:

Experiencing increasing transaction volumes and multiple engagements with existing clients

Extending relationships with current clients, and now have some multiple-product relationships

•      US Markets:

Increased our operations with Bank of America Merrill Lynch ("BAML"), launching Cashpro service in multiple currencies and countries

•      Emerging Markets:

Gained approval from the Reserve Bank of India to provide out bound cross-border payment services

Signed agreements with Axis Bank, Kotak Mahindra Bank and DBS Bank in Singapore.

 

3.   Figure shown in US dollars to conform with market practice

 

Post-Period Highlights

•      Successful equity placing raising gross proceeds of £25 million to capture growing pipeline in Asia and invest further in operating efficiencies and product development as volumes continue to grow.

 

Hank Uberoi, CEO of Earthport, commented: "FY2017 has been a positive year for Earthport, with good progress made across the business. We are committed to a long-term strategy of continuing to develop the world's leading cross-border payment platform, enabling global commerce through effortless money movement. Through our services we can enable our clients and partners to accelerate the growth of their cross-border payments businesses without taking on additional business complexities. Above all, we place emphasis on enhancing the customer experience by harmonising our suite of products and services, further streamlining our internal processes, and simplifying products for our customer base.

 

"We believe that the wider macro-economic environment is favourable, and that opportunities for growth remain in both established markets and developing economies. The progress made in FY2017 has established a solid platform from which we can continue to grow, and we look forward to FY2018 with confidence in both our operational and financial performance.

"Lastly, I would like to take this opportunity to thank everyone at Earthport for their continuing hard work. It is the people that make this business, and our team is positioned for many more successful years."

 

 

Enquiries: Earthport plc

Hank Uberoi, Chief Executive Officer

Simon Adamiyatt, Chief Financial Officer

+44 20 7220 9700

N+1 Singer (Nominated Adviser & Joint Broker)

Mark Taylor / Michael Taylor / James White

+44 20 7496 3000

Shore Capital (Joint Broker)

Toby Gibbs / Stephane Auton

+44 20 7408 4090

Newgate

Bob Huxford / James Ash

+44 20 7653 9848

 

Notes to Editors

 

About Earthport

 

Earthport provides cross-border payment services to banks and businesses. Through a single relationship with Earthport, clients can seamlessly manage payments to almost any bank account in the world, reducing costs and complexity to meet their customers' evolving expectations of price, speed and transparency.

 

Earthport offers clients access to global payment capability in 190+ countries and territories, with local ACH options in 65+ countries and an evolving suite of currencies and settlement options.

Earthport continues to invest in the establishment of in-country bank partnerships across the world, bringing together its deep market and regulatory expertise in order to maintain compliant and commercially competitive services.

 

The result - a global payments network accessed via a single relationship, delivering significant cost and operating efficiencies for banks and businesses servicing high volumes of lower value payments.

 

Headquartered in London with regional offices in New York, Dubai, Miami and Singapore, Earthport is a public company traded on the London Stock Exchange (AIM: EPO).

 

Please visit www.earthport.com for more information. 

 

 

Chairman's Statement

 

Our market positioning remains strong and we are increasing our focus on key geographies, both in the developed world and emerging markets.

 

I am delighted to report that Earthport has had another good year delivering revenue growth of a further 33% with continued investment to deliver our strategy. As flagged at the interim results, we did not achieve cash flow break-even by the year-end, as we continued to invest in the growth opportunities recognised by the Group. Our use of cash resources has been well managed with the overall cost of administration having increased marginally year-on-year. During the year we processed over 11 million transactions with a monetary value in excess of $17.5 billion, representing an increase of 67% and 48% respectively from 2016.

 

Our market positioning remains strong and we are increasing our focus on key geographies, both in the developed world and emerging markets. We do live in politically uncertain times. The vote to leave the European Union last summer created uncertainty across many of our key markets, but the stronger than anticipated economic performance within the UK has defied expectations. The Brexit vote, followed by the hung parliament result following the general election in May complicates the negotiating stance that the UK has with the European Union (EU). We continuously monitor the progress made at the EU negotiating table, to assess the lasting impact for Earthport. We must plan for all eventualities in order to maintain our ability to transact within the Single Euro Payments Area (SEPA). If we were to lose our intra-country ability to passport our regulatory status across all the countries within the European Economic Area (EEA), Earthport and other cross-border payment providers would need to have some form of physical licenced operation in an EU member country in order to operate effectively. These uncertainties will continue to play out over the coming years, and we remain vigilant of any significant change.

 

Our network is one of our most prized asset and we now have routes in over 65 countries. Developing the robustness and resilience in the relationships with our banking network partners across the globe is an on-going process and remains one of our key area of focus. On the commercial side, we remain particularly focused on India as a significant market opportunity, and our partnerships with Axis Bank and Kotak Mahindra Bank emphasises progress made here, as announced in August this year.

 

The core executive team remains strong and we are confident that the resources we have provide the necessary skills, expertise and experience to fulfil our ongoing business strategy.

 

The international regulatory environment for payments continues to evolve. However, such changes are mostly predictable and Earthport is able to avoid unnecessary disruption through its own program of external legal and regulatory monitoring, a continued commitment to best practice which pre-empts many supervisory changes, and by embracing its values as a collaborative partner with all the stakeholders in the end-to-end international payment chain, from clients to regulators.

 

The scale of the opportunity for Earthport is significant and we remain committed to our growth strategy. Delivering complex services in a highly-regulated space has its challenges and costs, and in the short term can put pressure on operating margins. This same complexity and related expertise is creating competitive barriers to entry and enhancing our platform and positioning, which we expect will open up additional revenue streams. We must remain fully committed to our fastidious approach to compliance and regulatory requirements both in the UK as well as in all the other jurisdictions in which we operate. This comes with increasing costs but remains central to our operating model and uniquely differentiates us from many of our major competitors. We will continue to invest in this domain.

 

Many of our major banking customers are facing increasing regulatory and operational complexities (amongst other factors), and this is causing them to retrench from various regions in an effort to focus on core markets. As this takes effect, there are significant opportunities for independent payment companies to supplement the banks' own networks around the world. We are having more in-depth discussions with a number of our customers which are showing encouraging signs, but we still need to see greater volumes from these key customers. This is a key area of development for Earthport and we have seen an increase in our percentage of revenues generated from existing customers in FY2017.

 

The negotiations to recover the loss we sustained in our Baydonhill (EarthportFX) subsidiary in February 2016 continue and in July this year, the file was passed to the Crown Prosecution Service by the Law Enforcement Agencies. We remain committed to the belief that there was a deliberate act by our customer to defraud us. This recent development will hopefully give more strength to our case with our insurers, but there can be no certainty about the likelihood, amount or timing of any recovery in connection with this loss.

 

In January, the Board was pleased to welcome Dr. Caroline Brown as a Non-Executive Director. Her accounting and financial skills and experience are providing further strength in the area of governance and with effect from June, Caroline has assumed the Chair of the Audit, Risk and Compliance Committee. We are very grateful for her contribution to the Group and are delighted to have her on board.

 

We are pleased to welcome Mike Steinharter as our new Chief Commercial Officer and were sorry to see four of our key Executive members leave the firm this year. They have moved on for various reasons and we wish them all the best in their future endeavours. These departures illustrate the competitive nature of our market and demonstrates that Earthport is seen as a place to find exceptional talent. We now have a streamlined global commercial organisation and overall the core executive team remains strong and we are confident that the resources we have provide the necessary skills, expertise and experience to fulfil our ongoing business strategy.

 

I would like to thank our shareholders for their continued support. Our cash position remained healthy throughout the year and since the year-end, in October 2017, we announced the placement of shares raising gross proceeds of £25 million. Net proceeds will be used to drive expansion in current and new geographical territories, product development and investment in the Group's operational platform to ensure revenue growth, realise efficiencies, and attract new clients to its payments platform in the eCommerce and banking sectors which will accelerate the Group's progression to profitability and deliver shareholder value.

 

Earthport's success is driven by the commitment of our people. On behalf of the Board, I would like to thank Hank and his team for their contribution to the performance of the Group and we look forward to working with them in the coming year. The foundations we have built and the progress we have made during FY2017 gives me confidence for a successful year ahead.

 


 

Chief Executive's Statement

 

We are well positioned to build on our progress from this past year. Our goal is to balance our short term targets with our long term opportunity. Everything we do across the firm will be carried out with a focus on achieving these goals by making prudent investments and a continued focus on costs.

 

FY2017 has been a year of progress for Earthport, which has resulted in an improved financial performance across the business. We have confirmed some important partnerships in strategically significant geographies which will begin to yield positive results in the coming years. We have plans to seize further growth opportunities to continue Earthport's strong position as a market leader in the cross-border payments industry.

 

We are well positioned to build on our progress from this past year. Our goal is to balance our short term targets with our long term opportunity. Everything we do across the firm will be carried out with a focus on achieving these goals by making prudent investments and a continued focus on costs.

 

Throughout the year, we have focussed our efforts on not only reinforcing our presence in established markets, but also breaking into new markets. One of the consequences of this pursuit of growth, is that we have not achieved our target to become cash flow break-even. As a company that hasn't reached maturity yet and operating in a rapidly growing market, we must constantly strive to balance the utilisation of resources at hand against the opportunity that is presented, and remain flexible without constraining customer acquisition. We remain committed to achieving this goal, and our growth progress in FY2017 and the opportunities on the horizon provide the best positive momentum to lead us to significant success.

 

A key tenet to our success in FY2018 will be building and maintaining valuable relationships with our existing client base in order to capitalise on the ongoing investments made with them, and across our expanding banking partner network. Existing clients are becoming stronger partners as they realise the long-term benefits and the convenience of having a one-stop shop for all cross-border payments. A result of this client loyalty is increased transaction volume in FY2017, across 190+ destination countries in 49 different currencies, which is more than ever before in the history of the Company.

 

Our payment transactions have followed a strong upwards trajectory. The number of transactions processed by our platform reached 11.0 million (FY2016: 6.6 million), up 67%, whereas the payment volume was over $17 billion presenting an increase of 48% over the previous year. Our state of the art platform, offering scale to manage millions of cross-border payment transactions is complemented by versatile interface structures and formats that ensures Straight Through Processing (STP) rates of greater than 99.5%.

 

The diversity of our client base is developing in line with our long-term strategy, and the major banks remain a core target of the business. These banks drive the majority of our new contract opportunities and we see further room for expansion. As global banks continue to reduce their global footprint, consolidating their core operations, new opportunities arise for a partner that can deliver a superior service whilst simultaneously reducing operational complexities within the bank. This is an area where Earthport sees capacity for long-term growth. In addition, established and upcoming eCommerce companies and Money Transfer Organisations continue to fuel our growth and present a segment that will continue to increasingly drive our business and expansion strategy in the near future. Finally, traditional players in other industries such as gaming and retail SMEs continue to support our business and, as they adjust to the demands of their respective markets, they find our service to be indispensable to their business operations.

 

New client growth has been slightly more muted in FY2017, yet continues to expand despite being impacted by fluctuations in the customer acquisition cycle, the often ad-hoc circumstances that must satisfy the necessary on-boarding and integration requirements, and the final go-live phase. We have made significant improvements in streamlining the integration process for larger institutional clients, and we expect to see the manifestation of this effort in the customer acquisition rate in FY2018. Furthermore, eCommerce platforms are more important than ever given the shorter sales cycles, large customer base, and the ability of these technology-focussed firms to adopt Earthport's technology.

 

Earthport remains well positioned to act as a facilitator of change in a market that is constantly moving. The increasing regulatory and compliance burdens placed on financial organisations, coupled with increasing competition are driving margins down for the incumbents. It is therefore beneficial for extant large businesses as well as growing challengers to adopt an effective and appropriate platform to facilitate a seamless flow of global payments.

 

Key Performance Indicators (KPIs)

To measure and control both financial and operational performance, we consider that the appropriate key performance indicators for the business are:

·    No. of transactions and payments volume

·    Average revenue per transaction

·    Gross revenue

·    Gross margin

·    Administrative expenses

·    Straight Through Processing (STP) ratio

 

Financial and Operational Highlights

FY2017 has been a period of significant growth for the Company. Prudent financial management kept the cost base flat while achieving a significant increase in revenues. Operating loss increased by 57% to £12.7 million (FY2016: £8.1 million) and our adjusted operating loss (loss before share based payments charge, exceptional items and unrealised fair value adjustments) decreased by 39% to £6.3 million (FY2016: £10.4 million).

 

As flagged at the interim results in March, we did not achieve our targeted cash flow break-even this year which was a target established at the beginning of the year. This is a reflection of the direction of the business throughout the year: focussed on growing our client base, and our transaction volumes and entering into new markets.

 

In FY2017, our revenues were £30.3 million (FY2016: £22.7 million) with transactional revenues comprising approximately 95% of the total. Despite a drop in average revenue per transaction to £2.64 (FY2016: £3.12), the increasing contribution of transactional revenues to overall revenues, compared to the prior years, is a testament to the improving quality of our revenues. 90% of the revenue growth was driven by the existing client base. This demonstrates that our clients are seeing increasing value from the service provided by Earthport. The rate at which we signed new clients has slowed when compared with FY2016, but we are still seeing good levels of growth.

 

Our adjusted gross margin decreased by 2% to 68%, compared to 70% in FY2016, with an adjusted gross profit (gross profit before warrant charge) of £20.7 million (FY2016: £15.9 million), which was impacted by elevated transaction costs. This is in line with our expectations.

 

Gross margin was 67% (FY2016: 67%) after the impact of the warrant charge, resulting in a gross profit of £20.2 million (FY2016: £15.3 million).

 

Administrative expenses marginally increased by £0.6 million to £26.4 million (FY2016: £25.8 million). Administrative expenses as a percentage of revenue were 87%, compared to 113% for the previous year, mainly due to increase in revenues and cost efficiency.

 

Loss after tax increased by 47% to £12.1 million (FY2016: £8.2 million). This was mainly driven by unrealised fair value loss of £4.8 million (FY2016: Gain £8.2 million) caused primarily due to lower derivative financial assets at the year end.

 

Cash balance at 30 June 2017 amounted to £11.9 million, compared to £14.4 million at 30 June 2016.

 

Net Assets in FY2017 were £22.9 million (FY2016: £30.5 million), a decrease of 25%, mainly driven by unrealised fair value loss of £4.8 million (FY2016: Gain £8.2 million). The loss of £4.8 million was mainly due to lower amount of open contracts held with banks and clients compared to prior year, resulting in lower Derivative Financial assets of £7.3 million (FY2016: £11.0 million) and higher Derivative Financial liabilities of £3.3 million (FY 2016: £2.3 million). The unrealised fair value loss was also impacted by weaker sterling post Brexit. The unrealised losses or gains would only be realised in the unlikely event that any party to the transaction would default.

 

Research and Development expenditure was £2.8 million (FY2016: £2.2 million), an increase of 30% year on year. This investment will further enhance client experience and efficiency of our payments platform.

 

Recovery activities related to the £5 million Baydonhill (EarthportFX) loss continue, involving law enforcement agencies and insurance companies. Despite all the efforts, there can be no certainty about the likelihood, amount or timing of any recovery in connection with this loss.

 

Business Development Highlight

European Markets

Throughout FY2017 we have continued to make significant progress in Europe, and have multiple engagements with several European banks, some of which have more than one product engagement with Earthport, and we are continuing to see healthy growth in this market. Ongoing discussions with various existing clients for multiple product offerings, including Distributed Ledger (DL) and Faster Payments, are progressing well and we expect our presence in this market to continue to expand.

 

Europe is still Earthport's largest market, and represents 55.5% of Group revenues. The political and economic challenges facing the European markets are being carefully monitored and we always remain abreast of the regulatory changes.

 

North American Markets

We have had a successful year in North America with highlights including the broadening of our strategic partnership with Bank of America Merrill Lynch (BAML), by expanding the service which adds numerous new countries and currencies on the Bank's Cashpro® service. BAML is now able to reach many more payment destinations by partnering with Earthport, and we are particularly proud of this high-profile relationship.

 

Emerging Markets

Earthport has made substantial progress in the emerging markets. In FY2017, India has been a country where we have achieved many important milestones. We have gained approval from the Reserve Bank of India to provide out bound cross-border payment services for banks.

 

During the year we signed agreements with Axis Bank and Kotak Mahindra Bank and expect to add additional bank clients in the coming year. We also signed an agreement with DBS Bank in Singapore.

 

We have a healthy pipeline of prospects across various countries in Asia. In particular, ongoing regulatory pressures and reduction in risk appetite by global correspondent banks in the developed countries are presenting new opportunities for Earthport to serve emerging markets.

 

EarthportFX Launch

We continue to make progress aligning our FX capabilities with our core model, being a principal goal of the relaunching of EarthportFX. Our corporate clients now benefit from a fully integrated FX service offering, and the improvement of Treasury Management and pricing strategy has started to bear fruit, with more Earthport clients additionally relying on us for the FX portion of their transactions, thereby increasing the FX attachment rate.

 

Partner Bank Network and Product Update

Our partner bank network around the world has been strengthened with multiple new additions primarily in the Asia-Pacific region. We are now reaching 65+ countries where we have local clearing capabilities, and our overall network reaches 190+ countries and territories, making us the leading provider in the cross-border payments industry. In FY2017, we added new routes in Bangladesh, Australia, Nigeria and The Dominican Republic. We aim to have local clearing capabilities in more than 85 countries by the end of the 2017 calendar year, with the addition of new destinations in Africa and the Middle East.

 

Our core product has been enhanced with a number of improvements, mainly around easier and more simplified integration of new clients to our platform, by offering a more flexible Application Programming Interface (API) and streamlining a number of on-boarding steps. In addition, our Distributed Ledger (DL) product offering has seen increased adoption and successful internal testing and launch by one of our largest banking clients, thereby cementing our unique position in offering a DL service which can deliver payments globally today. Furthermore, we are now in a position to offer a receivables capability in a subset of the countries we service, allowing our clients to receive payments through our platform with the same agility and ease as when sending payments. Finally, we have completed the first phase of upgrading our Treasury Management service, which will further integrate our FX capabilities to our core product offering.

 

Market Environment

Market Positioning

Earthport continues to gain recognition as a leading provider of cross-border payment services, providing an alternative to the traditional model of correspondent banking. This is evidenced by our ongoing client wins and our growing pipeline across established and new geographies.

 

The cross-border payments industry is a rapidly evolving market, and Earthport strives to remain ahead of the curve with industry developments. As the non-cash payment industry grows ever larger, the scale of the opportunity for Earthport increases. Capgemini's world payment report documented that the global non-cash transactions in 2015 jumped to 433 billion.  Earthport is well positioned to act as a facilitator of change in the cross border payment market. The payments world is fast altering, as trade and business flows impacting global economic growth shift, there is an imperative to construct an efficient and effective system that facilitates the flow of global payments. This is where we have gained an advantage over potential competitors, as our network is truly global.

 

Our established partner bank network is a prized asset and has given the Group a leading market position. The network is inherently difficult to replicate and is a significant hurdle for challengers. The operational experience we have is a product of fully understanding the intricacies of each market in which we operate and the regions we serve. This can only be gained with time, and is a significant competitive barrier to entry.

 

Risk Management and Initiatives

In FY2017, internal promotions within the firm lead structural changes allowing the Head of Compliance, Andrew Brown to take on the newly created wider-reaching Chief Risk Officer (CRO) role. The new CRO, with Board's active support, has determined to develop and implement an Enterprise Risk Management (ERM) function, to embed further the culture of effective risk ownership and management across the organisation. The ERM model to be adopted will align with ISO: 31000 (Risk Management). The standard does not require certification, but referring to the standard in developing and implementing the framework will allow the Group to prioritise resources and check progress against externally validated deliverables, on the road to the fully realised ERM control framework.

 

Regulations and Compliance

The international regulatory environment for payments continues to change. As a subject matter expert, Earthport is able to avoid unnecessary disruption through its own program of external legal and regulatory monitoring, a continued commitment to best practice which pre-empts many supervisory changes, and by endorsing its values as a collaborative partner with all the stakeholders in the end-to-end international payment chain, from clients to regulators. Earthport is ensuring we continue to monitor and satisfy regulatory and legislative requirements, by proactively working to comply with the requirements of regulations, directives, and standards such as the Fourth Anti-Money Laundering Directive (4AMLD), Second Wire Transfer Regulation (WTR2), Second Payments Services Directive (PSD2), General Data Protection Regulation (GDPR), Senior Managers Regime (SMCR, effective 2018), and other requirements such as stronger user authentication standards.

 

Safeguarding of Client Funds

The Group's chosen method of safeguarding is 'segregation' of client funds where possible in a separate 'trust' account with an authorised credit institution.

 

Funds held in segregated accounts must be:

·    Client funds only and identified as such

·    Sufficiently distinguished from any account containing Earthport monies

 

Funds held in segregated accounts cannot:

·    Form any part of Earthport's assets or be recognised on Earthport's balance sheet

·    Be used by the credit institution to offset against Earthport's liabilities or obligations

·    Be attached in the event of the default or insolvency of either the credit institution or Earthport

 

Client credit risk is therefore almost fully mitigated for the Group.

 

Brexit Update

The UK leaving the EU exposes the business to a number of key risks; mainly the loss of our intra-country ability to passport our regulatory status across all the countries within the EEA (European Economic Area), and the loss of the protections afforded to us and passed on to our customers (core to our offering) as part of our location within SEPA (Single European Payments Area).

 

We are committed to providing the necessary assurance on continuity of business and same service level to our customers, despite any adverse implications from Brexit. As such, we are researching options to ensure we have a 'live' alternative regulatory status (to our FCA status) should Brexit ultimately mean the loss of either or both of the above abilities/protections. This will require significant resource commitment, which we are prepared to address. Finally, although EU regulators state that "brass-plating" is not permissible, initial analysis shows that alternative favourable options are available for passporting.

 

Management Changes

During the year we saw a number of changes to the structure and composition of our senior management team. We now have a global commercial organisation under the leadership of Mike Steinharter as the new Chief Commercial Officer. This replaces the regional sales structure that existed previously. Sajeev Vishwanathan, Peter Klein, and Jon Lear left the firm during the year and Daniel Marovitz left on 6 October 2017. We established an enterprise risk function under Andrew Brown as the new Chief Risk Officer.

 

Awards and Recognitions

FY2017 has been a successful year for Earthport in winning and being nominated for several awards. These awards demonstrate industry's recognition and excellence of our solutions, and include:

·    'NACHA Best Innovation in ACH', won by Bank of America Merrill Lynch powered by Earthport, March 2017

·    NACHA Excellence in Payments Award 2017, April 2017

·    Winner of 'Payment Innovation of the Year' 2017 FSTech Awards, March 2017

·    'Silver' Award in Fintech Finance magazine's inaugural prize-giving for blockchain offering, January 2017

·    Winner of 'Best International Money Transfer Solution' 2016 Payments Awards, October 2016

 

Post Year End Placing

On 4 October 2017, Earthport announced that it has successfully raised gross proceeds of £25 million (net £24 million) by way of a placing of 125 million new ordinary shares at a price of 20 pence per ordinary share. Earthport will use the net proceeds to drive additional growth through expanding its market presence in existing as well as new areas such as eCommerce, Asia and India where we have a strong existing pipeline; further product development and innovation to leverage commercial opportunities with existing and new clients; and investment in the Group's operational platform to ensure scalability and efficiency as well as further strengthening the Group's balance sheet.

 

Outlook

FY2017 has been a positive year for Earthport, with good progress made across the business. We are committed to a long-term strategy of continuing to develop the world's leading cross-border payment platform, enabling global commerce through effortless money movement. Through our services we can enable our clients and partners to accelerate the growth of their cross-border payments businesses without taking on additional business complexities. Above all, we place emphasis on enhancing the customer experience by harmonising our suite of products and services, further streamlining our internal processes, and simplifying products for our customer base.

 

We believe that the wider macro-economic environment is favourable, and that opportunities for growth remain in both established markets and developing economies. Current trading, including core operational metrics in the first quarter of FY 2018, are broadly in-line with management's expectations and ahead of the same period in FY 2017. The progress made in FY2017 has established a solid platform from which we can continue to grow, and we look forward to FY2018 with confidence in both our operational and financial performance.

 

Lastly, I would like to take this opportunity to thank everyone at Earthport for their continuing hard work. It is the people that make this business, and our team is positioned for many more successful years.

 

 

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2017

 

 

Notes

2017
£'000

2016
£'000

Continuing operations:

 

 

 

Revenue

3

30,305

22,772

Cost of sales - before warrant charge

 

(9,620)

(6,849)

Adjusted gross profit

 

20,685

15,923

Cost of sales - warrant charge

 

(514)

(578)

Gross profit

 

20,171

15,345

Administrative expenses

5

(26,439)

(25,780)

Adjusted operating loss

 

(6,268)

(10,435)

Share-based payment charge

 

(1,664)

(620)

Unrealised fair value adjustment

12

(4,797)

8,224

Exceptional item - EarthportFX loss

 

-

(5,000)

Exceptional item - Impairment of available for sale investment

 

-

(250)

Operating loss

 

(12,729)

(8,081)

Finance income

 

3

20

Decrease in contingent consideration liability due to amendment as per the CVR deed

 

136

842

Loss before taxation

4

(12,590)

(7,219)

Income tax income/(expense)

6

532

(996)

Loss for the year and total comprehensive income attributable to owners of the Parent

 

(12,058)

(8,215)

Loss per share attributable to the owners of the Parent - basic and fully diluted

7

(2.51p)

(1.74p)

 

 

There were no items of other comprehensive income for the year.

 

 

Consolidated Statement of Financial Position

As at 30 June 2017
Company number 03428888

 

 

Notes

2017
£'000

2016
£'000

Assets

 

 

 

Non-current assets

 

 

 

Goodwill

 

2,709

2,709

Intangible assets

 

5,089

6,249

Property, plant and equipment

 

371

597

 

 

8,169

9,555

Current assets

 

 

 

Trade and other receivables

8

5,028

6,510

Derivative financial assets

13

7,293

11,033

Cash and cash equivalents

 

11,891

14,429

 

 

24,212

31,972

Total assets

 

32,381

41,527

 

 

 

 

Liabilities

 

 

 

Current liabilities

 

 

 

Trade and other payables

9

(4,765)

(4,794)

Derivative financial liabilities

13

(3,335)

(2,250)

Contingent consideration

 

-

(2,295)

 

 

(8,100)

(9,339)

Non-current liabilities

 

 

 

Deferred tax liability

10

(1,348)

(1,676)

 

 

(1,348)

(1,676)

Total liabilities

 

(9,448)

(11,015)

Net assets

 

22,933

30,512

 

 

 

 

Equity

 

 

 

Share capital

 

71,878

70,738

Share premium

 

78,799

78,064

Interest in own shares

 

(527)

(953)

Merger reserve

 

9,200

9,200

Share-based payment reserve

 

13,430

12,164

Warrant reserve

 

2,137

1,623

Retained earnings

 

(151,984)

(140,324)

Equity attributable to owners of the Parent

 

22,933

30,512

 

 

Consolidated Statement of Cashflows

For the year ended 30 June 2017

 

 

Notes

2017
£'000

Restated

2016
£'000

Net cash used in operating activities

11

(1,720)

(12,388)

 

 

 

 

Investing activities

 

 

 

Purchase of property, plant and equipment

 

(187)

(392)

Capitalised intangible fixed assets

 

(1,331)

(2,265)

Part refund/(payment) of contingent consideration

 

700

(855)

Net cash used in investing activities

 

(818)

(3,512)

 

 

 

 

Financing activities

 

 

 

Proceeds on exercise of options

 

-

134

Net cash from financing activities

 

-

134

Net (decrease) in cash and cash equivalents

 

(2,538)

(15,766)

Cash and cash equivalents at the beginning of the year

 

14,429

30,195

Cash and cash equivalents at the end of the year

 

11,891

14,429

 

 

Consolidated Statement of Changes in Equity

For the year ended 30 June 2017

 

 

Attributable to owners of the Parent

Balance at 30 June 2015

70,695

78,272

(1,252)

9,200

12,557

1,045

(133,122)

37,395

Loss for the year, being total comprehensive income for the year

-

-

-

-

-

-

(8,215)

(8,215)

Transactions with owners

 

 

 

 

 

 

 

 

Share-based payments

 

 

 

 

 

 

 

 

- exercise of share options

43

(208)

299

-

(1,013)

-

1,013

134

- employee share options charge

-

-

-

-

620

-

-

620

- warrant charge

-

-

-

-

-

578

-

578

Total transactions with owners of the Parent, recognised directly in equity

43

(208)

299

-

(393)

578

(7,202)

(6,883)

Balance at 30 June 2016

70,738

78,064

(953)

9,200

12,164

1,623

(140,324)

30,512

Loss for the year, being total comprehensive income for the year

-

-

-

-

-

-

(12,058)

(12,058)

Transactions with owners

 

 

 

 

 

 

 

 

Share-based payments

 

 

 

 

 

 

 

 

- exercise of share options

-

(426)

426

-

(398)

-

398

-

- employee share options charge

-

-

-

-

1,664

-

-

1,664

- warrant charge

-

-

-

-

-

514

-

514

Issue of ordinary shares

1,140

1,161

-

-

-

-

-

2,301

Total transactions with owners of the Parent, recognised directly in equity

1,140

735

426

-

1,266

514

(11,660)

(7,579)

Balance at 30 June 2017

71,878

78,799

(527)

9,200

13,430

2,137

(151,984)

22,933

 

Merger Reserve

The merger reserve represents the premium attributable to shares issued in consolidation of the costs of acquisition of subsidiaries in prior years.

 

Share-based Payment Reserve

The share-based payment reserve represents the cumulative charge to date in respect of unexercised share options at the balance sheet date.

 

Warrant Reserve

The warrant reserve represents the cumulative charge to date in respect of unexercised share warrants at the balance sheet date.

 

Retained Earnings

The retained earnings represent the cumulative profit and loss net of distribution to owners.

 

 

 

 

Notes to the Preliminary Announcement

For the year ended 30 June 2017

1. General Information

Earthport plc is a public limited company incorporated and domiciled in England and Wales under the Companies Act 2006. The address of its principal place of business and registered office is 140 Aldersgate Street, London, EC1A 4HY and company's registered number is 03428888.

 

The preliminary financial information does not constitute full accounts within the meaning of section 434 of the Companies Act 2006 but is derived from accounts for the years ended 30 June 2017 and 30 June 2016, both of which are audited. The preliminary announcement is prepared on the same basis as set out in the statutory accounts for the year ended 30 June 2017. While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), this announcement does not in itself contain sufficient information to comply with IFRSs.  

The statutory accounts for the year ended 30 June 2017 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. Statutory accounts for the year ended 30 June 2016 have been filed with the Registrar of Companies. The auditor's report for the year ended 30 June 2017 was unqualified and did not contain any statement under section 498(2) or (3) of the Companies Act 2006.

2. Going Concern

The Directors believe that the Group has demonstrated further progress in achieving its objective of positioning itself as an infrastructure supplier to the global payments industry. Since the year end, the Group has raised gross proceeds of £25 million (net £24 million) through the placing and subscription of 125 million ordinary shares, The Directors have prepared a cash flow forecast covering a period extending beyond 12 months from the date of these financial statements after taking account of anticipated overhead costs and revenue. Therefore, the Directors consider that it is appropriate to prepare the Group's financial statements on a going concern basis, which assumes that the Group is to continue in operational existence for the foreseeable future.

3. Segment Information

Revenue, loss and net assets/liabilities are all attributable to two business segments operating from the Group's headquarters in London, United Kingdom, but measure of profit or loss for each reportable segment and allocation of assets and liabilities would be an extremely time intensive task due to the limitation of the management information system used and the evolving nature of the business. This is consistent with the information reviewed by the chief operating decision maker. Revenue categories and segmental analysis by location of customers is as follows:

Revenue

2017
£'000

2016
£'000

Transactional

28,929

20,689

Professional services

1,376

2,083

 

30,305

22,772

 

Revenue

2017
£'000

2016
£'000

United Kingdom

14,181

12,507

Europe

2,651

1,496

North America

11,734

7,284

Rest of the world

1,739

1,485

 

30,305

22,772

 

The Group had one (FY2016: one) customer who individually accounted for more than 10% of the Group's external revenue during the year.

4. Loss Before Taxation

 

2017
£'000

2016
£'000

Loss before taxation is stated after charging:

 

 

Amortisation of intangible assets

2,491

2,422

Depreciation of property, plant and equipment

413

504

Development costs

1,458

233

Foreign exchange gain

(242)

(262)

Operating leases:

 

 

- property

670

480

Fees payable to the Company's Auditor:

 

 

For the statutory audit of the:

 

 

- parent and consolidated financial statements

52

52

- subsidiary financial statements

30

30

- interim agreed upon procedures

8

10

- Other services

 

 

As provided by RSM UK Audit LLP

11

-

Fees payable to associates of the Company's Auditor:

 

 

- for tax compliance

13

12

- for other services

15

16

5. Administrative Expenses

 

2017
£'000

2016
£'000

Staff and contractor costs

15,284

14,569

Travel and entertainment costs

1,148

1,182

Professional services costs

1,345

1,294

Sales and marketing costs

665

693

IT operational costs

2,212

2,303

Other operational costs

456

622

Other overheads

2,425

2,191

Depreciation of property, plant and equipment

413

504

Amortisation of intangible assets

2,491

2,422

 

26,439

25,780

 

 

 

 

6. Income Tax Expense

 

2017
£'000

2016
£'000

Current tax (credit)

(204)

(270)

Deferred tax (credit)/charge

(328)

1,266

Total tax (credit)/charge

(532)

996

Factors affecting the tax charge for the year:

 

 

Loss before taxation

(12,590)

(7,219)

Loss before tax multiplied by effective standard rate of corporation tax in the UK of 20% (FY2016: 20%)

(2,518)

(1,444)

Tax effect of:

 

 

Expenses not deductible for tax purposes

6

7

Temporary differences not recognised for deferred tax purposes

15

19

Share-based payment charge not recognised for deferred tax purposes

436

535

Losses not recognised for deferred tax purposes

1,529

1,879

Tax (credit)/charge for the year

(532)

996

 

No deferred tax asset has been recognised in relation to trading loss carried forward of £106 million (FY2016: £99.9 million) due to uncertainty over the timing of its recovery.

7. Loss Per Share

The loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.

 

 

2017
£'000

2016
£'000

Loss attributable to equity shareholders of the Company

(12,058)

(8,215)

 

 

 

2017
Number

2016
Number

Weighted average number of ordinary shares in issue (thousands)

483,771

476,674

Less: own shares held (thousands)

(2,763)

(5,369)

 

481,008

471,305

 

 

 

2017

2016

Basic and fully diluted loss per share (pence)

(2.51p)

(1.74p)

 

The loss attributable to ordinary shareholders and weighted average number of ordinary shares for the purposes of calculating the diluted loss per share are identical to those used for basic loss per ordinary share. This is because the exercise of share options and other benefits would have the effect of reducing loss per share and is therefore not dilutive under the terms of IAS 33, Earnings Per Share.

 

 

 

 

8. Trade and Other Receivables

 

2017
£'000

Restated
2016
£'000

Trade receivables

2,658

3,569

Other receivables

1,243

2,246

Amount due from subsidiary undertakings

-

-

Prepayments

1,127

695

At 30 June

5,028

6,510

 

Trade receivables balance of £4.8 million as at 30 June 2016 relating to client forward foreign exchange contracts was restated as Derivative financial Assets per IAS39 Trade receivables amounted to £2.7 million (FY2016: £3.6 million), net of a provision of £nil (FY 2016: £nil) for impairment. Movement on the Group provisions for impairment were as follows:

 

 

2017
£'000

2016
£'000

At 1 July

-

100

Provision for impairment

141

5,231

Receivables written off during the year

(141)

(5,331)

At 30 June

-

-

 

The average credit period taken on sales of services is 30 days (FY2016:30 days). No interest is charged on overdue balances. The Directors consider that the carrying amount of trade receivables approximates their fair value.

 

The ageing analysis of trade receivables is as follows:

 

2017
£'000

2016
£'000

Up to 6 months

2,276

2,900

6 to 12 months

157

345

Over 1 year

225

324

 

2,658

3,569

9. Trade and Other Payables

 

2017
£'000

Restated
2016
£'000

Trade payables

1,588

1,235

Other payables

59

312

Amount due to subsidiary undertakings

-

-

Other taxation and social security

603

334

Accruals and deferred income

2,515

2,913

At 30 June

4,765

4,794

 

Trade payables balance of £0.9 million as at 30 June 2016 relating to client forward foreign exchange contracts was restated as Derivative Financial Liabilities per IAS39. Trade payables and accruals principally comprise amounts outstanding in respect of operating costs. The average credit period taken for trade purchases is 33 days (FY2016: 35 days). The Directors consider that the carrying amounts for trade and other payables and accruals approximate their fair value.

 

10. Deferred Tax

Deferred tax asset

2017
£'000

2016
£'000

At 1 July

-

327

Deferred tax charge released to income statement

-

(327)

At 30 June

-

-

 

Deferred tax liability

2017
£'000

2016
£'000

At 1 July

(1,676)

(737)

Deferred tax credit released to income statement

328

(939)

At 30 June

(1,348)

(1,676)

Deferred tax liabilities (net)

(1,348)

(1,676)

 

The gross movement on the deferred tax is as follows:

 

2017
£'000

2016
£'000

At 1 July

(1,676)

(410)

Accelerated capital allowances

-

(92)

Deferred tax credit released to the income statement

150

150

Tax credit on derivative financial assets and liabilities

178

(1,324)

At 30 June

(1,348)

(1,676)

 

The deferred tax reconciliation on category basis of assets and liabilities is as follows:

Deferred tax assets

Accelerated
Capital Allowances
£'000

Tax Losses
£'000

Net Derivative Financial Liabilities
£'000

Total
£'000

At 1 July 2015

92

-

235

327

Acquisition of subsidiary

(92)

-

(235)

(327)

(Charged)/credited to the income statement

-

-

-

-

At 30 June 2016

-

-

-

-

Credited/(charged) to the income statement

-

-

-

-

At 30 June 2017

-

-

-

-

 

Deferred tax liabilities

Intangible Assets arising on Acquisition £'000

Net Derivative Financial Assets £'000

Total
£'000

At 1 July 2015

(737)

-

(737)

Credited/(charged) to the income statement

150

(1,089)

(939)

At 30 June 2016

(587)

(1,089)

(1,676)

Credited/(charged) to the income statement

150

178

328

At 30 June 2017

(437)

(911)

(1,348)

 

The potential deferred tax asset arising on the cumulative losses carried forward is £ 22.3 million (FY2016: £20.3 million) has not been recognised owning to uncertainty as to its recoverability.

 

 

 

11. Reconciliation of Loss Before Tax to Net Cash Used in Operating Activities

 

2017
£'000

Restated
2016
£'000

Loss before tax

(12,590)

(7,219)

Amortisation of intangible assets

2,491

2,422

Depreciation of property, plant and equipment

413

504

Share-based payment and warrants charge

2,178

1,198

Shares issue in lieu of fee

141

-

R&D tax credit received

205

270

Finance income

(3)

(20)

Decrease of contingent consideration liability due to amendment as per the CVR deed

(136)

(842)

Impairment of available for sale investment

-

250

Operating cash outflow before movements in working capital

(7,301)

(3,437)

Decrease/(increase) in receivables

4,522

(7,538)

Increase/(decrease) in payables

1,056

(1,433)

Cash used by operations

(1,723)

(12,408)

Finance income

3

20

Net cash used in operating activities

(1,720)

(12,388)

 

Prior year adjustment - Initially £855,000 was paid during FY2016 into the Escrow account and once the Company agreed to the settlement after the year end, £700,000 was allocated to other receivables and £155,000 was shown as part payment of the contingent consideration. Directors confirm that, £700,000 was not treated as cash inflow during the year and it has not distorted the cash balances at the year end. There was no impact on income statement and statement of financial position.

 

A correction has been made in relation to immaterial presentational error in movement in operating cash flows and investing cash flows.

12. Unrealised Fair Value Adjustment

In accordance with IAS 39, the Group fair valued all currency bank accounts, which include client segregated and company accounts, as well as forward foreign exchange contracts. The fair value revaluation of financial derivatives resulted in a net derivative unrealised loss of £4.8 million (FY2016: gain of £8.2 million).

 

2017
£'000

2016
£'000

Unrealised fair value (loss)/gain on derivatives

(4,797)

8,224

Total

(4,797)

8,224

 

The above mentioned unrealised gains and losses would only be realised in the unlikely event that any party to the transaction would default.

 

 

 

 

13. Derivative Financial instruments

Derivatives Financial Instruments held for trading are classified as current Asset or Liability. Derivatives financial assets and liabilities are amounts not yet due under forward foreign exchange contracts payments executed with clients maturing between a period of 3 days to 12 months. All Derivative financial instruments are recognised and measured at fair value through income statements. Forward foreign exchange contracts held for trading were as follows:

 

2017

2016 Restated

 

Assets

Liabilities

Assets

Liabilities

Forward foreign exchange contracts - held for trading

7,293

(3,335)

11,033

(2,250)

Total

7,293

(3,335)

11,033

(2,250)

 

As at 30 June 2016, the fair value of client contracts was classified as trade receivables or payables. The treatment of these contracts was subsequently reviewed and it was concluded that these contracts fall within the definition of Derivative Assets and Liabilities per para 9 of IAS39. This resulted in restatement of 2016 Derivative Assets and liabilities.

14. Events after the Reporting Period

Post year end placing

On 4 October 2017, Earthport announced that it has successfully raised gross proceeds of £25 million (net £24 million) by way of a placing of 125 million new ordinary shares at a price of 20 pence per ordinary share. Earthport will use the net proceeds to drive additional growth through expanding its market presence in existing as well as new areas such as Ecommerce, Asia and India where we have a strong pipeline; further product development and innovation to leverage commercial opportunities with existing and new clients; and investment in the Group's operational platform to ensure scalability and efficiency as well as further strengthening the Group's balance sheet.

15. Annual report and accounts

Copies of the Annual Report will be available as of 31 October 2017 on the Group's website, www.earthport.com and from the Group's registered office.

 

 


This information is provided by RNS
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