Information  X 
Enter a valid email address

Earthport PLC (EPO)

  Print      Mail a friend       Annual reports

Friday 30 November, 2018

Earthport PLC

Final Results

RNS Number : 9841I
Earthport PLC
30 November 2018
 

30 November 2018

Earthport plc

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

 

Final Results

 

Earthport (AIM: EPO.L), the leading payment network for cross-border transactions, is pleased to announce its final results for the year ended 30 June 2018.

 

Financial highlights

·     Total revenues grew by 5.3% to £31.9 million (FY2017: £30.3 million)

·     Core payment business revenues, which comprise payment transaction revenues and specifically attached foreign exchange ("FX") revenues, were 1.6% higher at £19.6 million (FY2017: £19.3 million), reflecting the loss of a major payment partner during the year, significantly offset by increased volumes processed for other payment customers

·     FX business revenues, comprising spot and forward FX transactions conducted for customers separately from the core payment business, increased 6.3% to £10.2 million (FY2017: £9.6 million)

·     Professional services revenues, earned from the development of payment routes for specific customers, grew by 50% in the year to £2.1 million (FY2017: £1.4 million)

·     Gross profit was broadly flat year-on-year at £20.3 million (FY2017: £20.2 million), with a resulting fall in gross margin from 67% (FY2017) to 64%, due to increased cost of sales driven by higher transaction related banking costs

·     Adjusted operating loss (before share-based payments, exceptional items and fair value adjustments) increased by 33% to £8.4 million (FY2017: £6.3 million), driven by an increase in administrative expenses due to an increase in staff numbers and IT operational costs as a result of technology upgrade projects and investment spending to extend the Earthport payment network

·     Loss after tax decreased by 11% to £8.4 million (FY2017 (restated): £9.4 million), mainly due to the fair value gain of £0.8 million (FY2017 (restated): fair value loss of £2.4 million)

·     Cash and cash equivalents at 30 June 2018 of £28.3 million (FY2017: £11.9 million), following the capital raising in October 2017 of £24 million

 

Operational highlights

·     4 new payment business customers added in the year

·     Payment business transaction volumes totalled 10.4 million (FY2017: 10.8 million), due to the loss of a single very large payment customer, offset by payment transaction growth in the rest of the customer base

·     Value of payments processed by payment business reduced slightly to £10.8 billion (FY2017: £11.3 billion)

·     Added new payment routes, including 18 countries in Africa and five new countries in Latin America, growing the network by 35% to 86 routes in total at period end

·     Obtained a New York transmitter licence, allowing the Company to develop new commercial opportunities in the US - additional State licence applications are in progress

 

Post period end highlights

·     Appointment of new CEO, CFO and executive management team

·     Signed contract with BNPI, went live with Indusind Bank and expanded route usage for multiple key clients, recognising the unique payment capabilities Earthport is able to deliver and adding new transaction volume growth to the business

·     Monthly payment business transaction volumes now back above the previous highest recorded levels

·     2 new payment routes have been enabled to existing customers with more to come in the current year as new routes become fully activated

·     Investment has continued in upgrading technology and building the organisational capabilities to allow Earthport to continue building scale in its core payment business

 

Amanda Mesler, CEO of Earthport, commented: "Having been appointed as Earthport's CEO in July this is my first report in this role.  Taking on this new role my focus is to address Earthport's challenges head on in a clear and transparent way and in doing so give Earthport the best opportunity to achieve the underlying potential I firmly believe it has. 

 

"Since joining I have established a new Executive team which greatly improves our breadth and depth of experience.  This team will enable us to rapidly implement the transformational growth strategy I have also put in place following a full strategic review. This strategy involves a redefined "go to market", investment in our technology platform, capability enhancement and a new operating model for scale, all of which will strengthen our position as a global payments business.

 

"The financial year ending 30 June 2018 presented significant challenges for Earthport. Nevertheless, our core capabilities remain strong and our Company ended the year with a strengthened balance sheet, giving us the ability to invest in our redefined strategy. I therefore believe we are well positioned to deliver the potential Earthport has always possessed and look forward to the coming year with confidence."

 

 

For further information, please contact:

 

Earthport Plc                                                                                                   020 7220 9700

Amanda Mesler, Chief Executive Officer

Alexander Filshie, Chief Financial Officer

 

Newgate                                                                                                          020 7653 9840

Bob Huxford / Ian Silvera / Imogen Humphreys

 

N+1 Singer (Nomad & Joint Broker)                                                           020 7496 3000

Mark Taylor / James White                                                

 

Shore Capital (Joint Broker)                                                                         020 7408 4090

Toby Gibbs / Stephane Auton

 

 

 

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 200+ countries and territories, with local automated clearing house ("ACH") options in 88 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, San Francisco, Miami and Singapore, Earthport is a public company traded on AIM, the London Stock Exchange's international market for smaller, growing companies (AIM: EPO).

Please visit www.earthport.com for more information.  

 

 

Chairman's Statement

The financial year under review marked a transitional period for Earthport Plc. The Company entered the year with ambitions of significant progress based on its strategy but was not able to execute successfully against it.  As the year progressed it became clear that a changed set of circumstances required new thinking and new responses.

In this report, as Interim Chairman, I have set out high level reflections on the year and certain areas relating to the governance of the Earthport group, whereas the Performance Report provides a more detailed review of the business together with the financial and operational commentary.

Board and Executive management changes

The combination of losing our largest payment customer and the failure to conclude a particular major contract produced a situation where results for the full year would not match market expectations and so, on 18 December 2017, the Directors issued a statement revising expected revenue numbers to a more conservative outlook and took decisions at that time to make certain Board and leadership changes.

Phil Hickman, who had previously served as non-executive Chairman of the Group since 2011 became interim CEO on 1 January 2018, whilst Hank Uberoi, who had served as Chief Executive Officer since 2012 became Executive Chairman. On 1 July 2018, Phil Hickman returned to the role of non-executive Chairman and Hank Uberoi became a non-executive director at that date. On 22 October 2018 both Phil and Hank stepped down from the Board. The Board is grateful to Phil and to Hank for the work they have done over several years to build the key strategic assets on which Earthport can continue to operate.  The Board has recognised and clearly acted upon a different requirement for the next phase of growth of the business.

I joined the Board on 4 September 2018 as a non-executive Director and was appointed interim Chairman on 19 October 2018. On behalf of the Board and the Nominations Committee, I have a specific remit to conduct a process in line with best practice to identify a permanent non-executive Chairman and new non-executive Directors.  This process is underway.

Amanda Mesler joined the Board on 1 July 2018 as Chief Executive Officer, followed by Alexander Filshie who joined the Board on 25 July 2018 as Chief Financial Officer.

They have been joined on the executive team by Helen Smith (Chief Operating Officer) and John Farrell (Chief Technology Officer), expanding the breadth of business leadership experience we now have in place. I welcome them all to the team and look forward to the results they will achieve together.

Daniel Marovitz stepped down as Chief Operating Officer in October 2017 and Simon Adamiyatt resigned from the Board and as Chief Financial Officer in January 2018. In February 2018, John McCoy, a non-executive Director, stepped down from the Board. Since the end of the financial year, Mike Steinharter and Andrew Brown have stepped down as Chief Commercial Officer and Chief Risk Officer, respectively, to pursue other opportunities and I thank them all for the contributions they have made to the Company.

 

Corporate governance and reporting

The Earthport Board recognises the need for robust and consistent governance standards appropriate to the nature, scale and complexity of the Earthport group. In September 2018, the Board formally adopted the corporate governance standards of the Quoted Companies Alliance ("QCA") Corporate Governance Code (the "QCA Code") as being appropriate to our status and maturity as a business. These standards will guide the governance of Earthport going forward and the Corporate Governance Report in the Company's 2018 Annual Report and Accounts will set out a summary of progress so far. There is further work to do in order to ensure Earthport operates fully in line with the QCA Code and we will communicate progress through future reporting and on the Company's website.

The Board has considered carefully the way Earthport reports its performance and progress, in light of new standards and market practice, and have introduced a number of additional disclosures with the aim of increasing the level of transparency we present in our reporting, including the restatement of prior period results set out in more detail in note 3 to the financial statements and as previously announced on 1 November 2018. A key priority for management and the Board is to address internal controls, oversight and risk management.

Strategy and outlook

Earthport closed the previous financial year with strong growth in its core payment business and early in the financial year under review the Board recognised that new investment was necessary to develop the global business Earthport had built. In October 2017, the Company raised £24 million of new capital net of expenses. Whilst the justifications the Board made at the time for raising capital were strong, it later became clear our positioning and strategy were not delivering at the pace the Board had expected and more fundamental change was required.

I am encouraged by the new strategic direction Amanda and her team are setting out and I am pleased the Group has the resources in place to make a transition to become a bigger and more technologically enabled player in the global payments market.

I would like to thank our shareholders for their continued support. I feel confident that our new experienced management team will accelerate the Group's progression to deliver shareholder value through driving forward the strategy agreed and supported by the Board.

Finally, I want to recognise this has been a challenging year for Earthport staff who faced a number of issues, challenges and leadership transitions as we navigated some difficult waters. I would like to thank them all for their commitment and contributions, without which we would not be in the position we now are to move forward and re-shape our business and the cross-border payments industry.

 

Sunil Sabharwal

Interim Non-Executive Chairman

 

 

Chief Executive Officer's Statement

On 1 July 2018, I became Earthport's CEO and this is my first report in that capacity. I chose to join and lead Earthport as I could see that, despite the challenges the Company had faced, it also possessed huge potential. My belief has only been reinforced in my first few months with the business. Realising this potential is not without its challenges and there is much to do to reposition and scale our business quickly. My focus will be on addressing these challenges head on in a clear and transparent way and in doing so giving Earthport the best opportunity to achieve the underlying potential I firmly believe it has.

During the year under review my predecessor Hank Uberoi stepped down as CEO and was replaced by Phil Hickman as Interim CEO. Phil led the Company for the second half of financial year 2018 in addition to driving the process to recruit me as CEO. Phil has now stepped down from the Board and I thank him for the support and guidance he has given me.

The financial year ended 30 June 2018 presented significant challenges for Earthport, as is laid out more fully in the Performance Report. Nevertheless, our core capabilities remain strong and our Company ended the year with a strengthened balance sheet, giving us the ability to invest for the future in our technology, people and partner network.

One of my first priorities was to augment the Executive team with experienced individuals that could help bring the Company forward quickly. I am pleased that I now have a newly hired Chief Financial Officer (Alexander Filshie), Chief Operating Officer (Helen Smith) and Chief Technology Officer (John Farrell) in place who bring together expertise in payments, finance and strategy, business transformation and organisational effectiveness, technology and cloud solutions. Having this breadth and depth of experience to draw upon will enable us to move at pace with our transformational growth plans for the Company.

The first task set out for the new Executive team was a full strategic review of every part of the business and our operations from end to end, assessing the strengths and weaknesses of the organisation, core and non-core activities, and the opportunities and threats the Company faces.  The results of this review underpin a resetting of our strategy including a redefined "go to market", investment into our technology platform, a new operating model for scale, and capability enhancement. This transformation and the future strategy of the Earthport group is fully supported by the Board and will enable us to strengthen our position as a global payments business.

Future strategy

Earthport is and will remain a payments company, specialising in the settlement of payments across the globe through our unique and extensive network of banking partners. The payment landscape continues to evolve around the world embracing new technologies, protocols and platforms for payments and Earthport will seek to be at the heart of the industry, investing in our capabilities and providing enhanced payment solutions to our customers and clients.

Our network of partners and the payment solutions we can offer is extensive, spanning 88 countries. Building this network has been one of the most significant achievements of Earthport to date and represents a formidable competitive advantage. In future I expect we will selectively expand our existing network to meet the needs of our customers and continue to invest in upgrading the speed and capacity of our connections around the world.

Drawing on my prior experience in delivering transformational change we will advance with pace towards a larger, sustainable and profitable business.  I recognise this will not happen overnight and that quality, professionalism and governance are key to delivering sustainable growth and real scale.

Communication with our stakeholders

I believe it is vital that Earthport continues to provide clear and well-presented information to all of our stakeholders. We have seen multiple recent examples of the need for transparency in corporate reporting and messaging. The Board and I are pleased to extend certain aspects of our reporting within this document with the intent of allowing the reader to understand more clearly our recent results, the drivers of our business and the way the business is operated. We will spend time presenting our results and future plans to shareholders through investor meetings and at the Annual General Meeting.

This is no doubt a challenging chapter in Earthport's story, one that carries both obstacles and opportunities. I am, however, with the support of our new Executive team and the Board, confident that now more than ever we are well positioned to deliver the potential Earthport has always possessed.

 

Amanda Mesler

Chief Executive Officer

 

 

Performance Report

Operational and Financial Review

The Directors present their operational and financial review for the year ended 30 June 2018.

This year was a transitional year for Earthport where the underlying core payment business performed well despite the material setback of losing the business of a single large customer in Europe. The Board made significant changes to the leadership of the Company reflecting a change in business priorities and strategy, all of which continue into the early part of financial year 2019 as Earthport transitions into a lean and more tightly focused payment business, with a culture of strong execution and appropriate emphasis on performance, whilst retaining the compliance standards that have been established in the operation of the business.

In preparing these results and the financial statements, the Directors have taken steps to improve transparency to the underlying business performance and progress, including additional disclosures and explanations as appropriate to ensure our stakeholders are able to understand the nature of our business and the strategy we are pursuing. The Board recognises best practice is continually changing and improving but remains committed to strengthening these processes over time.

Prior year restatement

As we announced on 1 November 2018, Earthport has restated previously reported figures for prior years. This is more fully explained in note 3 to the financial statements. The commentary that follows compares results for the year ended 30 June 2018 with the restated prior year's financial results.

Financial review

The financial year 2018 began strongly and with high expectations for the year ahead, following a period of business growth in the previous year. In order to build on the expected momentum, the Company raised new capital to finance investment plans in capabilities and technology. However, it became apparent during the year that revenue was under pressure due to the loss of a major strategic payment customer and material delays occurred in the implementation process for another strategic partner. The full year negative impacts to revenue were £0.9 million and £0.5 million respectively.

Despite these challenges, Earthport delivered 5.3% overall growth in revenue during the year. Total revenues were £31.9 million (FY2017: £30.3 million).

·     Core payment business revenues, which comprise payment transaction revenues and specifically attached FX revenues, were 1.6% higher at £19.6 million (FY2017: £19.3 million), reflecting the loss of a major payment partner during the year, significantly offset by increased volumes processed for other payment customers.

·     FX business revenues, comprising spot and forward FX transactions conducted for customers separately from the core payment business, increased 6.3% to £10.2 million (FY2017: £9.6 million).

The payment business and FX business were previously reported as a single segment (transactional business) which together represented 93% of total revenues (FY2017: 95%), contributing revenue of £29.8 million (FY2017: £28.9 million), an increase of 3.1%.

The two elements of transactional business are operated as connected but separate businesses under the Earthport Payment Network and Earthport FX brands and have been reported separately to increase transparency to the underlying performance of these businesses.

·     Professional services revenues, which were earned from the development of payment routes for specific customers grew 50% in the year to £2.1 million (FY2017: £1.4 million), the largest component of the reported increase in revenue over the prior year. A significant component of this revenue stream related to the development work completed for one large financial services customer and is not expected to be repeated.

Cost of sales increased 15% to £11.6 million (FY2017: £10.1 million) due to higher transaction related banking costs, offset partly by lower money transmission charges, reflecting the addition of new settlement routes and re-instatement of routes previously suspended in 2017. Cost of sales includes warrant charges of £0.9 million (FY2017: £0.5 million) relating to revenues earned from one financial institution customer under a multi-year commercial agreement linked to payment business revenues.

Gross profit was broadly flat year-on-year at £20.3 million (FY2017: £20.2 million), with a resulting fall in gross margin from 67% (FY2017) to 64%.

Administrative expenses increased 8.7% to £28.7 million (FY2017: £26.4 million), primarily due to increased staff costs of £16.3 million (FY2017: £15.3 million) and IT operational costs of £2.8 million (FY2017: £2.2 million). The ratio of administrative expenses to revenue increased to 90% (FY2017: 87%).

The increase in staff costs was driven by an increase in overall employee numbers and contractor resources deployed during the year. IT operational costs increased as a result of technology upgrade projects and investment spending to extend the Earthport payment network.

Spending on professional services of £1.8 million (FY2017: £1.3 million) included certain one-off costs associated with strategic projects.

The resulting adjusted operating loss (before share-based payments, exceptional items and fair value adjustments) increased by 33% to £8.4 million (FY2017: £6.3 million), driven by the increase in administrative expenses.

Fair value adjustments for the year resulted in a gain of £0.8 million (FY2017: loss of £2.4 million), as more fully explained in note 14 to the financial statements.

Loss after tax decreased by 11% to £8.4 million (FY2017: £9.4 million), mainly due to the fair value gain reported.

Net cash used in operating activities increased to £5.6 million (FY2017: £1.7 million) as a result of increased operating losses and net cash used in investing activities increased to £2.2 million (FY2017: £0.8 million) as a result of higher spending on computer equipment deployed within the payment business. During the year £24 million was received as net proceeds on the issuance of ordinary shares. As a consequence the cash balance as at 30 June 2018 amounted to £28.3 million, compared to £11.9 million at 30 June 2017.

 

Consolidated net assets as at 30 June 2018 were £36.3 million (FY2017: £18.3 million), primarily due to the £24 million net capital raised in October 2017.

 

Operational review

 

In addition to financial indicators and ratios set out in the financial review above, management also tracks a range of operational performance measures including, principally, customer numbers by type, transaction volumes, route usage and costing, foreign exchange spreads and attachment rates to payment transactions.

 

The events of the year ended 30 June 2018 saw significant change during the year and post period end in the leadership and operational focus of the organisation in response to delivered performance and changes in the business environment, increasing the emphasis on key performance indicators for the core payment business and the capabilities being created and extended in support of payment customers.

 

In the year 4 new payment customers were added to the business.

 

Payment business transaction volumes for the year were 10.4 million (FY2017:10.8 million), due to the loss of a single very large payment customer, offset by payment transaction growth in the rest of the customer base. The value of payments processed by the payment business reduced slightly to £10.8 billion (FY2017: £11.3 billion).

 

Earthport added new payment routes to serve existing and prospective future customers, including 18 countries in Africa, and five new countries in Central and South America. By the end of the financial year, the network had grown by 35% to 86 routes in total. The Group continued to invest in its sales and relationship management teams to support its expanding network and clients.

 

In March 2018, Earthport North America Inc. obtained a New York transmitter licence which will allow Earthport to send and receive money on behalf of clients from New York State to any location globally across our Automated Clearing House (ACH) network, and enable the Company to develop new commercial opportunities in the US. Additional State licence applications are in progress.

 

Remediation of financial accounting and reporting controls

The Board acknowledges that management accounting control and reporting errors took place in prior periods and changes to these processes and other decisive actions are currently underway to address the underlying issues. This includes increased monitoring of the FX business, increased controls and checks, stronger review processes and specific internal reporting changes.

The restatements the Group has been required to make do not impact either the strength or current liquidity of the Group's balance sheet, the trading position of the Group or the revised strategy of the Group going forward.

Outlook

Despite the setback of losing a very significant payment customer in the year ended 30 June 2018, reducing transaction volumes materially, and the consequent distractions and management changes, the payment business performed well, adding new volume from other parts of the customer base. This trend has continued into the current year with monthly payment business transaction volumes now back above the previous highest recorded levels.

Since the end of June 2018, we have signed a contract with BNPI, went live with Indusind Bank and expanded route usage for multiple key clients, recognising the unique payment capabilities Earthport is able to deliver and adding new transaction volume growth to the business. In addition 2 new routes have been enabled to existing customers with more to come in the current year as new routes become fully activated.

The FX business continues to face strong competition from an increasing number of providers. Our strategy of offering a broad range of currencies and the potential to combine with international settlement across our network, allow this business to compete successfully and grow in a focused way.

As explained in the financial review, the professional services business was important in the year ended 30 June 2018 and providing implementation capabilities to our new and existing customers will continue in the current year in support of the growth in the payment business.

Investment has also continued in upgrading technology and building the organisational capabilities that will allow Earthport to continue building scale in its core payment business.

 

 

 

 

 

 

Consolidated Statement of Comprehensive Income

For  the  year ended 30   June 2018

 

 

Notes

 

2018
£'000

Restated

2017
£'000

Continuing operations:

 

 

 

Revenue

4

31,857

30,305

Cost of sales

 

(11,607)

(10,134)

Gross profit

 

20,250

20,171

Administrative expenses

5

(28,691)

(26,439)

Adjusted operating loss

 

(8,441)

(6,268)

Share-based payment charge

 

(1,367)

(1,664)

Fair value adjustments

14

757

(2,383)

Exceptional item - EarthportFX loss recovery

 

600

-

Operating loss

 

(8,451)

(10,315)

Finance income

 

33

3

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

 

 

-

136

Loss before taxation

6

(8,418)

(10,176)

Income tax credit

7

40

756

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

 

 

(8,378)

(9,420)

Loss per share - basic and fully diluted

8

(1.45p)

(1.96p)

 

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

 

 

 

 

 

 

 

 

Consolidated Statement of Financial Position

As at 30 June 2018

Company number 03428888

 

 

Notes

 

2018
£'000

Restated

2017
£'000

Restated

2016
£'000

Assets

 

 

 

 

Non-current assets

 

 

 

 

Goodwill

 

2,709

2,709

2,709

Intangible assets

 

4,521

5,089

6,249

Deferred tax asset

 

318

370

-

Property, plant and equipment

 

473

371

597

 

 

8,021

8,539

9,555

Current assets

 

 

 

 

Trade and other receivables

9

6,224

5,028

6,510

Derivative financial assets

15

2,453

3,281

9,111

Cash and cash equivalents

 

28,279

11,891

14,429

 

 

36,956

20,200

30,050

Total assets

 

44,977

28,739

39,605

 

 

 

 

 

Liabilities

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

10

(4,128)

(4,765)

(4,794)

Derivative financial liabilities

15

(4,042)

(5,132)

(8,552)

Contingent consideration

 

-

-

(2,295)

 

 

(8,170)

(9,897)

(15,641)

Non-current liabilities

 

 

 

 

Deferred tax liability

11

(464)

(556)

(737)

 

 

(464)

(556)

(737)

Total liabilities

 

(8,634)

(10,453)

(16,378)

Net assets

 

36,343

18,286

23,227

 

 

 

 

 

Equity

 

 

 

 

Share capital

12

85,409

71,878

70,738

Share premium

 

89,707

78,799

78,064

Interest in own shares

 

(768)

(527)

(953)

Merger reserve

 

9,200

9,200

9,200

Share-based payment reserve

 

13,186

13,430

12,164

Warrant reserve

 

3,007

2,137

1,623

Retained earnings

 

(163,398)

(156,631)

(147,609)

Equity attributable to owners of the Parent

 

36,343

18,286

23,227

 

 

Consolidated Statement of Cashflows

For  the  year ended 30     June 2018

 

 

Notes

2018
£'000

2017
£'000

Net cash used in operating activities

13

(5,561)

(1,720)

 

 

 

 

Investing activities

 

 

 

Purchase of property, plant and equipment

 

(507)

(187)

Capitalised intangible fixed assets

 

(1,661)

(1,331)

Part refund of contingent consideration

 

-

700

Net cash used in investing activities

 

(2,168)

(818)

 

 

 

 

Financing activities

 

 

 

Proceeds on issuance of ordinary share capital (net of costs paid)

 

 

24,117

-

Net cash from financing activities

 

24,117

-

Net increase/(decrease) in cash and cash equivalents

 

 

16,388

(2,538)

Cash and cash equivalents at the beginning of the year

 

 

11,891

14,429

Cash and cash equivalents at the end of the year

 

 

28,279

11,891

 

 

 

 

 

 

Consolidated Statement of Changes in Equity

For  the  year ended 30 June 2018

 

 

Attributable to owners of the Parent

 

 

 

Share capital

£'000

 

 

Share premium

£'000

 

Interest in own shares

£'000

 

 

Merger reserve

£'000

Share-based payment reserve

£'000

 

 

Warrant reserve

£'000

 

Restated retained earnings

£'000

 

 

 

Total

£'000

Balance at 30 June 2016

70,738

78,064

(953)

9,200

12,164

1,623

(147,609)

23,227

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

-

-

-

-

-

-

(9,420)

(9,420)

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

(9,022)

(4,941)

Balance at 30 June 2017

71,878

78,799

(527)

9,200

13,430

2,137

(156,631)

18,286

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

-

-

-

-

-

-

(8,378)

(8,378)

Transactions with owners

 

 

 

 

 

 

 

 

Share-based payments

 

 

 

 

 

 

 

 

- exercise of share options

-

(857)

857

-

(1,611)

-

1,611

-

- employee share options charge

-

-

-

-

1,367

-

-

1,367

- warrant charge

-

-

-

-

-

870

-

870

Issue of ordinary shares

13,531

12,648

(1,098)

-

-

-

-

25,081

Cost of share issues

-

(883)

-

-

-

-

-

(883)

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

13,531

10,908

(241)

-

(244)

870

(6,767)

(18,057)

Balance at 30 June 2018

85,409

89,707

(768)

9,200

13,186

3,007

(163,398)

36,343

 

 

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. Retained earnings were restated for FY2016 and FY2017 (see note 3).

 

 

 

Notes to the Financial Statements

For  the  year ended 30 June 2018

 

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 the Company's registered number is 03428888. The principal activities of the Group comprise the provision of cross-border payment services and the provision of foreign currency exchange related products.

 

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 2018 and 30 June 2017, 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 2018. 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 2018 will be delivered to the Registrar of Companies. Statutory accounts for the year ended 30 June 2017 have been filed with the Registrar of Companies. The auditor's reports for the years ended 30 June 2018 and June 2017 were unqualified, did not include a reference to any matter to which the auditor drew attention by way of emphasis 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. During the year, the Group has raised gross proceeds of £25 million (net £24 million) through the placing and subscription of 125 million ordinary shares, taking the cash balance as at 30 June 2018 in excess of £28 million. 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. Prior Period Adjustments

Accounting for Derivative Financial Assets and Liabilities

 

Further to a review of accounting for Derivative Financial Assets and Liabilities, a number of errors were identified which related to FY2017, FY2016 and earlier periods. These errors arose mainly from a failure to reverse certain opening balances relating to FX revaluation together with certain systematic accounting errors, which were not previously detected due to inadequate controls over the reconciliation of the related general ledger balances to the source system. A remediation project is currently underway to enhance the accounting procedures for FX transactions and strengthen the related controls and reporting procedures.

 

IAS 8 sets out that a material misstatement in relation to a prior period shall be corrected by retrospective restatement except to the extent that it is impracticable to determine either the period-specific effects or the cumulative effect of the errors. After a detailed review of the Derivative Financial Assets' and Liabilities' accounting, errors were quantified and allocated to each of FY2017, FY2016 and earlier. In accordance with IAS 1, this prior period adjustment requires the presentation of a third Statement of Financial Position to present the restated 2016 position as well as the 2017 comparatives and shows the corrected retained earnings as at 30 June 2016. Per IAS 8, no additional Statement of Comprehensive Income is being presented.

As a result of the above based on IAS 8 requirements, Fair Value Gains and Losses reported in FY2017 and prior periods were restated. Derivative financial assets and liabilities, deferred tax and liabilities, income tax credit, retained earnings and earnings per share were also restated. The impact of the prior period adjustments is detailed in the tables below:

 

The following line items in the Consolidated Statement of Comprehensive Income were impacted:

 

Fair Value Adjustment

Restated

2017
£'000

Fair value movement as reported in 2017 annual report

(4,797)

Prior period restatement: correction of accounting errors

2,414

Fair value movement as restated in financial statements

(2,383)

 

Income Tax Credit

Restated

2017
£'000

Income tax credit as reported in 2017 annual report

532

Income tax credit arising from prior period restatement

224

Income tax movement as restated in financial statements

756

 

The following line items in the Consolidated Statement of Financial Position were impacted:

 

 

Financial Assets

Financial Liabilities

Derivative financial assets/(liabilities)

2017

£'000

2016

£'000

2017

£'000

2016

£'000

Balance as reported in 2017 annual report

7,293

11,033

(3,335)

(2,250)

Prior period restatement: correction of accounting errors

(4,012)

(1,922)

(1,797)

(6,302)

Balance as per restated financial statements

3,281

9,111

(5,132)

(8,552)

 

 

Deferred Tax Assets

Deferred Tax Liabilities

Deferred tax

2017

£'000

2016

£'000

2017

£'000

2016

£'000

Balance as reported in 2017 annual report

-

-

(1,348)

(1,676)

Prior period restatement: correction of accounting errors

370

-

792

939

Balance as per restated financial statements

370

-

(556)

(737)

 

 

Retained earnings

2017
£'000

2016

£'000

Balance as reported in 2017 annual report

(151,984)

(140,324)

Prior period restatement: correction of accounting errors

(4,647)

(7,285)

Balance as per restated financial statements

(156,631)

(147,609)

               

 

 

Earnings per share - basic and fully diluted

 

2017

Earnings per share as reported in 2017 annual report

(2.51p)

Earnings per share restated

(1.96p)

 

4. Segment Information

 

The Group operates in three business segments operating from its headquarters in London, United Kingdom. Whilst revenue is attributed to each segment for internal reporting purposes, administrative expenses, operating profit and net assets are not measured or allocated between the Payment and Professional services segments. The administrative expenses and net assets of the Professional services segment are not considered to be significant.

 

The three reportable segments are as follows:

 

·     Payment business is defined as the provision of payment services to customers including any directly related foreign exchange earnings associated with the payment transactions.

 

·     FX business is defined as the provision of spot and forward foreign exchange products separately from the payment business.

 

·     Professional services represents revenues earned from the provision of implementation services to customers. In 2018 and 2017 the largest portion of this revenue earned related to one multi-year contract which was completed in June 2018 and is not expected to recur.

 

Additional disclosure is provided for FY2018 and FY2017 to further explain the business segments within the Group.  This is consistent with the information reviewed by the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the business segments and making strategic decisions, has been identified as the Board of Directors.  Revenue categories and segmental analysis by location of customers is as follows:

 

Total Revenue

2018
£'000

2017
£'000

Payment business

19,595

19,301

FX business

10,184

9,628

Professional services

2,078

1,376

 

31,857

30,305

 

 

Revenue

2018
£'000

2017
£'000

United Kingdom

14,457

14,181

Europe

2,555

2,651

North America

13,027

11,734

Rest of the world

1,818

1,739

 

31,857

30,305

 

 

The Group had two (FY2017: one) customers who individually accounted for more than 10% of the Group's external revenue during the year.

 

The provision of all the Payment, FX and Professional services stated above are provided from the United Kingdom and the regional split in the table above is based on addresses stated in client contracts. This is to illustrate the geographical location of the clients.  

 

Segmental Admin Expenses

2018
£'000

2017
£'000

Payment business and Professional services

23,033

20,163

FX business

5,193

5,526

Less: Inter company elimination

465

750

Total Admin Expenses

28,691

26,439

 

 

Segmental Adjusted Operating (Loss)/Profit by Segment

2018
£'000

2017
£'000

Payment business and Professional services

(10,950)

(7,542)

FX business

2,974

2,024

Less: Inter company elimination

(465)

(750)

Total

(8,441)

(6,268)

 

 

 

Segmental Total Assets

2018
£'000

2017
£'000

Payment business and Professional services

46,509

30,221

FX business

10,768

11,900

Less: Inter company elimination

(12,300)

(13,382)

Total Assets

44,977

28,739

 

 

Segmental Total Liabilities

2018
£'000

2017
£'000

Payment business and Professional services

(13,381)

(11,254)

FX business

(5,694)

(11,094)

Less: Inter company elimination

10,441

11,895

Total Liabilities

(8,634)

(10,453)

 

 

Assets and liabilities of the Professional services segment have been included with those of the Payment business segment as Professional services relates to the implementation of payment services for customers.

 

 

 

5. Administrative Expenses

 

 

2018
£'000

2017
£'000

Staff and contractor costs

16,334

15,284

Travel and entertainment costs

993

1,148

Professional services costs

1,759

1,345

Sales and marketing costs

821

665

IT operational costs

2,767

2,212

Other operational costs

768

456

Other overheads

2,615

2,425

Depreciation of property, plant and equipment

405

413

Amortisation of intangible assets

2,229

2,491

 

28,691

26,439

 

 

6. Loss Before Taxation

 

 

2018
£'000

2017
£'000

Loss before taxation is stated after charging/(crediting):

 

 

Amortisation of intangible assets

2,229

2,491

Depreciation of property, plant and equipment

405

413

Loss recovery EarthportFX

(600)

-

Development costs not capitalised

2,397

1,458

Foreign exchange loss/(gain)

21

(242)

Operating leases:

 

 

- property

731

670

Fees payable to the Company's Auditor:

 

 

For the statutory audit of the:

 

 

- parent and consolidated financial statements

52

52

- subsidiary financial statements

33

30

- interim agreed upon procedures

6

8

- Other services

 

 

As provided by RSM UK Audit LLP

-

11

Fees payable to associates of the Company's Auditor:

 

 

- for tax compliance

12

13

- for other services

-

15

 

7. Income Tax Credit

 

 

 

2018

£'000

Restated

2017
£'000

Current tax credit

-

(204)

Deferred tax credit

(40)

(552)

Total tax credit

(40)

(756)

Factors affecting the tax charge for the year:

 

 

Loss before taxation

(8,418)

(10,176)

Loss before tax multiplied by effective standard rate of corporation tax in the UK of 19% (FY2017: 20%)

(1,599)

(2,035)

Tax effect of:

 

 

Expenses not deductible for tax purposes

4

3

Temporary differences not recognised for deferred tax purposes

12

10

Share-based payment charge not recognised for deferred tax purposes

344

274

Losses not recognised for deferred tax purposes

1,199

992

Tax credit for the year

(40)

(756)

No deferred tax asset has been recognised in relation to trading losses carried forward of £107 million (FY2017: £103 million) due to uncertainty over the timing of their recovery.

 

8. 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.

 

 

 

2018

£'000

Restated

2017
£'000

Loss attributable to equity shareholders of the Company

(8,378)

(9,420)

 

 

2018

Number

2017
Number

Weighted average number of ordinary shares in issue (thousands)

 

582,771

483,771

Less: own shares held (thousands)

(5,610)

(2,763)

 

577,161

481,008

 

 

2018

2017

Basic and fully diluted loss per share (pence)

(1.45p)

(1.96p)

 

 

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.

 

 

9. Trade and Other Receivables

 

 

Group

Company

2018

£'000

2017

£'000

2018

£'000

2017
£'000

Trade receivables

3,399

2,658

3,399

2,658

Other receivables

1,543

1,243

1,331

1,061

Amount due from subsidiary undertakings

-

-

3,333

12,449

Prepayments

1,282

1,127

822

809

At 30 June

6,224

5,028

8,885

16,977

 

Trade receivables amounted to £3.4 million (FY2017: £2.7 million), net of a provision of £nil (FY2017: £nil) for impairment. There were no provisions in the Company accounts. Movement on the Group provisions for impairment were as follows:

 

 

2018

£'000

2017
£'000

At 1 July

-

-

Provision for impairment

(245)

(141)

Receivables written off during the year

245

141

At 30 June

-

-

 

The average credit period taken on sales of services is 31 days (2017: 30 days). No interest is charged on overdue balances. The Directors consider that the carrying amount of trade receivables approximates to their fair value. The age profile of receivables as at the year-end is as follows:

 

 

2018

£'000

2017
£'000

Up to 6 months

3,054

2,276

6 to 12 months

42

157

Over 1 year

303

225

 

3,399

2,658

 

10. Trade and Other Payables

 

 

Group

Company

2018

£'000

2017

£'000

2018
£'000

2017
£'000

Trade payables

1,920

1,588

1,491

1,122

Other payables

21

59

8

49

Amount due to subsidiary undertakings

-

-

3

1

Other taxation and social security

413

603

366

470

Accruals and deferred income

1,774

2,515

1,410

2,231

At 30 June

4,128

4,765

3,278

3,873

 

Trade payables and accruals principally comprise of amounts outstanding in respect of operating costs. The average credit period taken for trade purchases is 35 days (FY2017: 33 days). The Directors consider that the carrying amounts for trade and other payables and accruals approximate to their fair value.

 

11. Deferred Tax

Deferred tax asset

2018
£'000

Restated

2017
£'000

At 1 July

370

-

Deferred tax (credit)/debit released to income statement

(52)

370

At 30 June

318

370

 

Deferred tax liability

2018
£'000

Restated

2017
£'000

At 1 July

(556)

(737)

Deferred tax debit released to income statement

92

181

At 30 June

(464)

(556)

Deferred tax liabilities (net)

(146)

(186)

 

The gross movement on the deferred tax is as follows:

 

2018
£'000

Restated

2017
£'000

At 1 July

(186)

(737)

Accelerated capital allowances

-

-

Deferred tax debit released to the income statement

92

149

Tax (credit)/debit on derivative financial assets and liabilities

(52)

402

At 30 June

(146)

(186)

 

 

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

 

Deferred tax assets

Net Derivative Financial Liabilities
£'000

Total
£'000

At 1 July 2016 - restated

-

-

Credited to the income statement

370

370

At 30 June 2017 - restated

370

370

Charged to the income statement

(52)

(52)

At 30 June 2018

318

318

 

Deferred tax liabilities

Intangible Assets arising on Acquisition £'000

Net Derivative Financial Assets £'000

Total
£'000

At 1 July 2016 - restated

(706)

(31)

(737)

Credited to the income statement

150

31

181

At 30 June 2017 - restated

(556)

-

(556)

Credited to the income statement

92

-

92

At 30 June 2018

(464)

-

(464)

 

The potential deferred tax asset arising on the cumulative losses carried forward of £21.4 million (FY2017: £20.5 million) has not been recognised owning to uncertainty as to its recoverability. No deferred tax asset has been recognised on share based payments due to uncertainty over the timing of its recovery.

 

 

12. Share Capital

 

Issued

2018
£'000

2017
£'000

At start of year: 488,190,410 (FY2017: 476,796,903) ordinary shares of 10p each

 

48,819

47,679

Shares issued in the year: 125,000,000 (FY2017: 10,797,671) ordinary shares of 10p each

 

12,500

1,080

Shares issued to JSOP: 10,000,000 (FY2017: Nil) ordinary shares of 10p each

 

1,000

-

Shares issued in lieu of fee: 309,944 (FY2017: 595,836) ordinary shares of 10p each

 

31

60

At end of year: 623,500,354 (FY2017: 488,190,410) ordinary shares of 10p each

 

62,350

48,819

307,449,792 deferred shares of 7.5p each

23,059

23,059

At end of year

85,409

71,878

 

During the year to 30 June 2018, a total of 125,000,000 (FY2017: 10,797,671) new ordinary shares of 10 pence each were issued to investors. 10,000,000 new ordinary shares of 10 pence each were issued to the Joint Share Ownership Plan (JSOP) (FY2017: Nil) in relation to an employees share options scheme. A further 309,944 (FY2017: 595,836) shares of 10 pence each were issued in lieu of fees amounting to £81,000 (FY2017: £141,000).

 

Ordinary shares in issue are fully paid up at par. The holders of ordinary shares are entitled to dividends and one vote per share at meetings of the Company. The Company has one class of ordinary shares which carries no rights to fixed income.

 

Deferred shares carry no rights to receive any dividend or other distribution. The holders of the deferred shares have no rights to receive notice, attend, speak or vote at any general meeting of the Company. On a return of capital on liquidation or otherwise, the holders of the deferred shares are entitled to receive the nominal amount paid up on the deferred shares after the repayment of £10,000,000 per ordinary share.

 

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

Group

2018
£'000

Restated
2017
£'000

Loss before tax

(8,418)

(10,716)

Amortisation of intangible assets

2,229

2,492

Depreciation of property, plant and equipment

405

413

Share-based payment and warrants charge

2,237

2,178

Shares issued in lieu of fee

81

141

R&D tax credit received

-

204

Finance income

(33)

(3)

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

-

(136)

Operating cash outflow before movements in working capital

(3,499)

(4,887)

(Increase)/decrease in receivables

(368)

6,612

Decrease in payables

(1,727)

(3,448)

Cash used in operations

(5,594)

(1,723)

Finance income

33

3

Net cash used in operating activities

(5,561)

(1,720)

 

14. Fair Value Adjustment

In accordance with IAS 39, the Group retranslated 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 gain of £0.8 million (FY2017 (restated): loss of £2.4 million).   

 

2018
£'000

Restated

2017
£'000

Fair value gain/(loss) on derivatives

757

(2,383)

Total

757

(2,383)

 

 

15. Derivative Financial Instruments

Derivative financial instruments held for trading are classified as current assets or liabilities. Derivative financial assets and liabilities are amounts not yet due under forward foreign exchange contracts executed with clients maturing between a period of 3 days to 18 months. All derivative financial instruments are recognised and measured at fair value through the income statement. Forward foreign exchange contracts held for trading were as follows:

 

 

2018

2017 Restated

 

Assets

£'000

Liabilities

£'000

Assets

£'000

Liabilities

£'000

Forward foreign exchange contracts - held for trading

2,453

(4,042)

3,281

(5,132)

Total

2,453

(4,042)

3,281

(5,132)

 

 

 

 

16. Events After the Reporting Period

 

Post year end capital contribution

 

On 20 September 2018, the Board authorised the conversion of loan balances with Earthport North America Inc., a wholly owned subsidiary of Earthport plc incorporated in the State of Delaware, into equity by way of capital contribution up to the amount of £7.6 million (US$10 million). This is to ensure that it maintains a minimum net worth and any other amount that is set by the state regulators as part of the licensing process in the USA.

 

17. Annual Report and Accounts

A copy of this preliminary statement will be available to download on the Group's website www.earthport.com

 

Copies of the Annual Report and Accounts will be posted to shareholders on 4 December 2018 at which time the Annual Report and Accounts will be made available to download on the Group's website www.earthport.com in accordance with AIM Rule 26, and will be delivered to the Registrar of Companies in due course.

 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
END
 
 
FR DDBDBUGDBGIC

a d v e r t i s e m e n t