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Optimal Payments PLC (PAYS)

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Monday 23 March, 2015

Optimal Payments PLC

Final Results

RNS Number : 1174I
Optimal Payments PLC
23 March 2015
 

Optimal Payments Plc

 

Audited Results for the year ended 31 December 2014

 

Significant growth with progress on all strategic objectives achieved in 2014

 

Monday, 23 March 2015 - Optimal Payments Plc (LSE: OPAY) (the "Group"), a leading global provider of online payments, today announces its results for the year ended 31 December 2014.

Highlights

Full year performance reflects significant organic and inorganic growth:


Revenues up 44% to $365.0m (2013: $253.4m).


EBITDA up 65% to $86.1m (2013: $52.2m).


Profit after tax increased by 83% to $57.7m (2013: $31.5m).


Adjusted diluted EPS increased 50% to $0.38 (2013: $0.25); statutory EPS increased 64% to $0.36 (2013: $0.22).


Revenue and profitability significantly boosted by the World Cup in the first half.


Successful acquisition of the Meritus and GMA businesses in the US in July 2014, contributing to the growth and diversification of the Group.

Substantial improvement in NETELLER Stored Value ("SV") business: revenues up 50% to $89.6m (2013: $59.8m) driven by underlying improvements in customer conversion and development of VIP programs.

Strong growth from NETBANX Straight Through Processing ("STP") business: revenues up 42% to $274.7m (2013: $193.0m), incorporating revenue from the acquired US businesses, underlying growth of 19% excluding Meritus and GMA revenues incorporated in the second half of 2014.

Highly cash generative with Group cash (net of merchant cash) of $106.5m (31 December 2013: $93.8m).


Free cash of approximately $44.0m (31 December 2013: $38.0m) - after funding $26.6m in part consideration and acquisitions costs for the US businesses.


Net debt position of $26.3m - bank facility of $150m was secured to fund US acquisitions; remaining shareholder loans cleared in January 2014.

Significant progress on key strategic initiatives:


Principal Membership with Visa Europe and MasterCard Europe achieved; this service was launched to merchants in the European Union in Q4 2014 and positions our NETBANX offering to service more of the payment value chain and provide an efficient, cost effective proposition to the market.


NETELLER and Net+ products launched in the US in March 2014 with good adoption by merchants in the three states which have regulated online gambling.


Successful partnerships forged in the rapidly developing area of fantasy sports leagues, confident of the prospects for growth in payment processing in this market.


Launch of a new card issuing services division and the NETELLERGO! offering for ecommerce merchants outside of gaming to contribute to continued growth.


Integration of the US businesses acquired in July 2014 progressing well.

Dennis Jones appointed as Non-Executive Chairman with Andrew Dark and Ian Jenks appointed as Non-Executive Directors of the Board in July 2014 to strengthen governance. Brian McArthur-Muscroft appointed as CFO, with effect from 1 January 2015, to contribute to the continued growth of the Group.

 

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

"2014 was a year of significant growth for Optimal Payments with substantial increases in revenue and profitability. Having accomplished all of our stated goals during the year, we are excited about the year ahead and the evolving opportunities for Optimal Payments. Specifically, NETBANX is well positioned for continued success through our Principal Membership status with Visa and MasterCard and NETELLER and Net+ continue to demonstrate impressive growth internationally whilst establishing a solid foundation for our future in the evolving regulated US online gambling market."

 

 

Financial summary (audited)

Year ended 31 December

2014 

2013 


US $m 

US $m 

Revenue



NETBANX Straight Through Processing (STP)

274.7 

193.0 

NETELLER Stored Value (SV)

89.6 

59.8 

Investment income

    0.7 

     0.6 

Total revenue

365.0

253.4 

EBITDA (1)

86.1 

52.2 

Profit before tax

59.0 

32.7 

Taxation

   (1.3)

   (1.2)

Net profit after tax

  57.7 

  31.5 

 

(1)

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

 

 

* * * * *

 

Presentation to analysts and investors

 

Optimal Payments will hold a conference call for analysts and investors at 9am (UK time) today, a conference call dial in and audiocast of the presentation is available at:

http://www.axisto-live.com/investis/clients/optimal-payments/presentations/5509929c3eb8a3300b1fed99/14fy

 

The presentation slides will be available on the Optimal Payments Group's website at: http://www.optimalpayments.com/investor-relations/results-reports-presentations

 

 

About Optimal Payments Plc

Optimal Payments is a global provider of online payment solutions, trusted by businesses and consumers in over 200 countries and territories to move and manage billions of dollars each year. Merchants use the NETBANX® platform and services to simplify how they accept credit and debit card, direct-from-bank, and alternative and local payments; and the NETELLER® service to increase revenues and capture new customers. Consumers use the multilingual and multicurrency NETELLER and Net+® Card stored-value offering to make secure and convenient payments. In addition, Card Services, another division of Optimal Payments, provides innovative prepaid products and services to merchants. Optimal Payments Plc is quoted on the London Stock Exchange's AIM market, with a ticker symbol of OPAY. Subsidiary company Optimal Payments Ltd is authorised and regulated as an e-money issuer by the UK's Financial Conduct Authority (FRN: 900015).

 

For more information on Optimal Payments visit www.optimalpayments.com or subscribe at http://www.optimalpayments.com/media/email-alerts.

 

For further information contact:

Optimal Payments Plc

Jessica Stalley, Head of Investor Relations 

+ 44 (0) 20 7182 1707 / [email protected] 

 

Canaccord Genuity Limited (Nominated Adviser & Broker)

Simon Bridges / Cameron Duncan

+44 (0) 20 7523 8000

 

Media Contacts - United Kingdom:

Tavistock Communications

Simon Hudson/Andrew Dunn/Simon Fluendy

+44 (0) 20 7920 3150 / [email protected]

 

 

* * * * *

 

 

CEO's Review

Introduction

We are extremely pleased with the significant growth and strong performances across the business in 2014 with revenues up 44% to $365.0m (2013: $253.4m) and EBITDA increasing 65% to $86.1m (2013: $52.2m); this resulted in the Group's profit after tax increasing by 83% to $57.7m (2013: $31.5m), which was also favourably impacted by an unrealised fair value gain of $18.8m during the current year.

We also achieved a number of significant milestones in 2014: the launch of the NETELLER and NET+ offerings in the US to enhance our position in the regulated online gambling market, attaining Principal Membership status with Visa and MasterCard to strengthen our NETBANX offering in the European Union and the successful acquisition and ongoing integration of the Meritus and GMA online payments companiesto our NETBANX business to establish a significant presence and merchant base in the US.  More recently, we have launched of a new card issuing services division and our NETELLERGO! offering for ecommerce merchants outside of gambling to contribute to continued growth. These achievements have all been important strategic goals as we continue to deliver on our stated objectives. We believe that the investment we have made in these and other areas will help to drive further growth.

The NETELLER Stored Value business continued to perform well through 2014, driven by underlying growth in customer metrics and an improvement in the gross margin which has significantly contributed to the increase in EBITDA. The NETBANX Straight Through Processing business also performed strongly, revenues from the US businesses were incorporated in the second half of the year following the completion of the acquisitions in July. Our largest merchant contributed 36.7% of overall revenue, significantly boosted by the World Cup in the first half; this contribution was diluted by the inclusion of revenues from the US businesses in the second half of 2014. We continue to provide NETELLER and NETBANX services to this customer worldwide. The regulatory environment has continued to evolve and while this did not materially impact our revenues in 2014, some uncertainty persists in this regard.

The Group was highly cash generative during the year, enabling us to acquire Meritus and GMA for a combined cost of $225m payable in cash and shares, partly financed by new bank debt of $150m. The Group's 'own cash' (excluding any merchant cash) increased to $106.5m at year end (31 Dec 2013: $93.8m) with free cash of approximately $44.0m.

In January 2014, we successfully placed our then major shareholder's entire stake (25.2% of the then issued share capital) into the market with the resulting transformation of our shareholder base, with 72 institutional shareholders participating in the placement. The remaining shareholder loans of $9.5m that were related to the 2011 acquisition of OP Inc. were converted into equity and formed part of this placement.

NETELLER Stored Value ("SV")

The Group's NETELLER SV business (comprising the NETELLER and Net+ prepaid card stored value offering) performed strongly throughout 2014 with revenues up 50% to $89.6m (2013: $59.8m) and the gross margin improved to 85% (2013: 84%).

The improved cash-back based VIP member loyalty program, a strengthened sales team, an enhanced affiliate program and numerous additions to deposit options for members worldwide have contributed to increased market share, primarily in the European online gambling market where NETELLER remains one of the two major providers of stored-value offerings. Key lead indicators such as number of member signups and member conversion rates continued to improve.

In 2014, we built upon our Principal Issuer membership of MasterCard through improvement of existing products and the development of a wider product suite.  We have seen consistent growth with our award winning Net+ product, with over 450,000 Net+ prepaid cards issued and an average of 35,000 cardholders active every month. Our Issuing business made good progress in 2014 with the continued organic growth of our Net+ programme with transaction value of $376m (2013: $324m). A new card issuing services division was launched in October 2014 to offer a variety of different programmes from white labelled cards to fully customised prepaid and multi-channel payment solutions, leveraging the Group's extensive experience in multi-currency issuance and settlement to create repeatable scalable processes to merchants.  Key strategic projects for 2015 are to enhance the offering with a pooled accounts solution to support real time loading of consumer funds and an agency banking solution which will allow prepaid card programmes to offer a more comprehensive banking experience to their clients (including internet banking and electronic payments).

In July we announced the shirt sponsorship of UK Premier League football club Crystal Palace FC which has given extensive exposure to and raised the awareness of the NETELLER brand in the UK and internationally. Our focus has traditionally been on the online gambling market where NETELLER has a strong market position however, we recently launched NETELLERGO! for ecommerce merchants to offer their consumers the flexibility of access to indemnified alternative payment types to complete their purchases.

NETBANX Straight Through Processing ("STP")

The Group's NETBANX STP business also showed strong growth with full year revenues up 42% to $274.7m (2013: $193.0m). The growth was due to increasing demand from gambling and non-gambling customers alike, including our largest merchant whose revenue increased significantly during the World Cup. The gross margin in NETBANX was stable at 41% (2013: 42%) with the bulk of the direct processing costs being fees to acquiring banks and other intermediate processors. Customer retention remains high as NETBANX provides a wide range of payment and fraud prevention services through a single customer integration point as well as access to more than a dozen acquiring banks worldwide. The underlying platform is scalable, and can accommodate a large number of new customers. 

The integration of the Meritus and GMA businesses is progressing well, contributing to the growth of the NETBANX division in the second half of the year. Acquisition of these profitable, fast growing and cash generative businesses will significantly accelerating Optimal Payments' expansion into the rapidly expanding US ecommerce market by providing it with a diversified merchant client base, a highly agile multi-channel sales force operating in complimentary and new vertical markets and, partnerships with leading US acquiring banks.

Having secured Principal Membership with Visa and MasterCard in the European Union, we are now able to offer competitive acquiring services to merchants which gives us the opportunity to increase the addressable market for our NETBANX offering. Principal Membership allows us to compete with banks and also benefit from interchange pricing from Visa and MasterCard. We expect to be more competitive in the lower risk processing markets whereas, to date, we have mainly focused on moderate to high risk markets. Our lower cost base should result in a more balanced mix of merchants in our portfolio. This business model underpins our confidence that NETBANX can continue to win business in all territories.

We have also continued to invest in building out our product infrastructure with the specific focus of providing etailers and retailers with the tools necessary to integrate technologies, such as our Developer centre giving code examples and test access to developers. In addition, we have the tools to enable merchants to access alternative payment types such as Apple Pay, MasterPass and Pingit to enhance the shopping experience for their customers using the most secure payment solutions available.

US gaming

NETELLER and Net+ products launched in the US in March 2014 and we have seen wide acceptance and adoption by merchants in New Jersey, Nevada and Delaware where online gambling has been regulated. Larger and more populous US states, including California and Pennsylvania, are currently considering licensing online gambling in 2015 and beyond.

We are well positioned to gain market share in the US market, having acquired significant US operations through our California based businesses Meritus and GMA. We have continued to develop our relationships with current and potential merchants and have forged successful partnerships in the rapidly developing area of fantasy sports leagues.

Recognition

We have won a number of awards across the business in the past year demonstrating the excellent service which we deliver to customers globally and the Group's continued contribution as a provider of outsourced technology solutions to the online gaming industry.

NETELLER most recently won 'Best Payment System for Affiliates' at the iGB Affiliate Awards and 'Corporate Services Supplier of the Year' at the International Gaming Awards in February 2015. Our Net+ card achieved 'Best General Spend Prepaid Card', 'Best Free Prepaid Card', 'Best Prepaid Card' and 'Best Gaming Prepaid Card' at the Prepaid 365 Awards. Optimal Payments won 'Regional Payments Solution of the Year' at the eGaming Review and was recognised as the leading ecommerce platform gateway provider at the Card not Present (CNP) Awards.

In October 2014, Danny Chazonoff (our Chief Operations Officer) and I were honoured to be named as the winners of Ernst & Young's Entrepreneur of the Year Quebec's Information Technology category. Most recently we were proud to announce that Elliott Wiseman, our General Counsel, won the Individual Award in the Regulatory (Financial Services) category at the European Counsel Awards 2015 in recognition of the considerable expertise he has shown in leading our legal and compliance functions from joining the Group in 2011.

Current trading and outlook

The underlying business continues to perform well. Having accomplished all we set out to do during the year, both financially and operationally, we have emerged with a solid foundation for 2015 and look forward to maintaining the momentum established in 2014.

Our Executive Management Team has been strengthened through the addition of talented and experienced executives from Meritus and GMA and the recent appointment of Brian McArthur-Muscroft as CFO provides us with FTSE 250 level experience and pedigree as well as great leadership, discipline and value for our growing business.

We continue to assess M&A opportunities that provide a strategic fit at the right valuation to further accelerate earnings growth, diversify our business and, most importantly, deliver value to shareholders. I would like to thank the management team and all staff for their outstanding contributions, without which the Group's success today could not have been achieved.

 

Joel Leonoff

President & Chief Executive Officer

22 March 2015

 

* * * * *

 

Financial Review

Strengthening the Group through diversification and growth

This is the first review following my appointment as Chief Financial Officer and I am pleased to present the consolidated Group results for the year ended 31 December 2014. I will continue to focus on generating controlled, sustainable and profitable growth across the business.

EBITDA increased 65% to $86.1m (2013: $52.2m) and profit after tax increased by 83% to $57.7m (2013: $31.5m); adjusted diluted EPS increased 50% to $0.38 (2013: $0.25) with basic EPS increased 64% to $0.36 (2013: $0.22).

Gross profit

Full year revenues increased by 44% to $365m in 2014 (2013: $253.4m) driven by a substantial improvement in high margin NETELLER SV revenues and strong growth in the NETBANX STP division. Revenues for the H2 totalled $205.9m (2013: $135.0m) incorporating revenues from Meritus and GMA following the completion of these acquisitions on 23 July; revenues in the H1 were $159.1m (2013: $118.4m) boosted by c$5m from the World Cup.

NETELLER SV performed strongly, with revenues increased by 50% to $89.6m (2013: $59.8m) and the gross margin improved to 85% in 2013 (2013: 84%) as the number of new member monthly signups increased by 78% between December 2013 and December 2014 and monthly conversions increased by 109% resulting in the conversion of 95% more members in 2014 than 2013. The principal direct costs of the NETELLER SV division that vary directly with revenue (included in cost of sales) are transaction related deposit and withdrawal fees and bad debts, accounting for 13% and 2% of revenue respectively in 2014, in line with 2013. Additionally, with growth in customer signups, there are 'stepped' costs of additional headcount in the call centre and the risk department and marketing and promotions fees where VIP loyalty 'cash back' costs vary in line with VIP revenues. 

NETBANX STP revenues increased by 42% to $274.7m (2013: $193.0m) and the gross margin adjusted to 41% in 2014 (2013: 42%), incorporating revenue and processing costs derived from the US businesses in H2. Processing costs and bad debts are the only costs that are directly variable in line with revenues in the STP division, accounting for 59% and 0.2% of revenue respectively in 2014, in line with 2013. Meritus and GMA revenues of $45 million and net earnings incurred of $8.9 million are included in NETBANX STP revenues from the date of acquisition (23 July 2014), with a gross margin of 34%.

The Group has one merchant, located and licensed in Europe, who represented 36.7% of total fee revenue in 2014 (2013: 41.4%) across all reportable segments and geographies. The majority of this revenue comes from the merchant's activities in Asia. In 2014, the proportion of revenue contributed by this merchant increased significantly as a result of the World Cup in H1 but slowed in the following months to contribute 29% overall in H2 (further diluted by the inclusion of revenues from the US acquisitions). Overall, H2 saw a slowdown in revenues generated from the Group's merchants' activities in Asia which has now stabilised. We would expect the concentration of Asian based revenues to reduce further in the years ahead as the Group continues to diversify.

 

Group revenue - by business

($ millions)

FY 2014

FY 2013

Growth

H1 2014

H2 2014

Growth








NETELLER SV fees

89.6

59.8

50%

41.4

48.2

16%

NETBANX STP fees

274.7

193.0

42%

117.4

157.3

34%

Fee revenue

364.3

252.8

44%

158.8

205.5

29%

Investment income

0.7

0.5

24%




Total revenue

365.0

253.4

44%




Group revenue - by geography

($ millions)

FY 2014

FY 2013






Asia & Rest of World

187.6

52%

137.5

54%

North America

98.8

27%

50.9

20%

Europe

77.9

21%

64.4

25%

Fee revenue

364.3

100%

252.8

100%

Investment income of $0.7m in 2014 (2013: $0.5m) of revenue was derived from interest earned on the Group's cash and the cash held by the Group on behalf of merchants and members.

The Group's gross profit, incorporating investment income and cost of sale expenses, is reported at $189.1m in 2014 (2013: $131.8m). The overall gross margin remained stable at 52% in 2014 (2013: 52%).

Operating expenses

Operating expenses increased by 50% to $146.9m in 2014 (2013: $98.2m) due primarily to consolidating more than five months of operations of the US acquisitions.

Salaries and employee expenses increased by approximately $13.7m as we increased our headcount by approximately 200 heads to over 700 full-time employees as at 31 December 2014. The NETBANX division now incorporates employees at the US businesses acquired in July, additions to headcount beyond this was mainly in technology as we continue to invest in our STP platform and product offerings on both sides of the business. The continued growth in NETELLER necessitated that we added staff in our call centre and risk operations to handle the higher number of NETELLER member applications and enquiries (which have doubled since June 2012). Share option expenses in 2014 were $8.3m (2013: $4.5m), the Group continues to use share options and LTIPs to incentivise its employees and management team. The performance conditions for the LTIP awards granted in 2012 were met in 2014 and the cost has therefore been recognised in 2014.  We have also recognised some of the cost of the 2014 award based on an expected outturn.  The share options available to employees in 2011 also vested in December 2014.

Technology and Software costs increased by $2.1m as we invested in both platforms and our outsourced third party costs for our Asia operations increased in line with the growth in that business through 2014. Marketing and promotions increased by $7.2m to $15.2m incorporating costs associated with the NETELLER loyalty programme and cash back costs plus costs associated with the sponsorship of Crystal Palace.

A foreign exchange loss of $3.0m was incurred in 2014 (2013: gain of $0.9m) due primarily to the fact that each of the EURO and GBP weakened against the USD in 2014 while the Group maintained significant cash balances in EURO and GBP in excess of what was owed to members and merchants. The Group employs forward exchange contracts to mitigate some of the exposure of financial risk associated with foreign currency balances.  Large balances in a number of currencies are held on deposit for members and merchants and these balances fluctuate due to members and merchants not always choosing to deposit and withdraw funds in the same source currency, whilst this benefits the Group through the generation of foreign exchange revenue, it is impossible to perfectly predict balances to hedge. Furthermore, the results from the Group's subsidiaries in Canada, UK and Bulgaria are reported in local functional currencies; as required under IFRS, foreign exchange on consolidation of a subsidiary's balance sheet is captured in equity, but the subsidiary's individual exposure to foreign currency is captured in income.

There were no restructuring costs in 2014 (2013: $0.8m) and, impairment charges were not incurred.

EBITDA

EBITDA increased 65% to $86.1m (2013: $52.2m) with the EBITDA margin increased to 24% (2013: 21%) due to the addition of the US businesses and the continued scalability of operations. Cash conversion remains strong and the Group was highly cash generative.

Profit after tax

Depreciation and amortisation was $21m in 2014 (2013: $13.5m) which included $15.6m of amortisation of intangible assets (2013: $9.3m) and $5.5m in depreciation of capital assets (2013: $4.2m). Approximately $4.1m of the depreciation and amortisation charge in 2014 relates to the assets acquired through the acquisition of OP Inc. in 2011 (2013: $4.2m) and an additional $5.9m relates to the assets acquired through the acquisitions of Meritus and GMA in 2014; the NETELLER SV platform was launched at the end of 2010 and is being amortised over five years on a straight line basis.

Finance costs were $2m in 2014 (2013: $1m), due to the debt incurred to fund the acquisitions of the US businesses in July 2014.

The Group earns income and pays tax principally in Canada, the USA, the UK and the Isle of Man.  Tax liabilities in these countries are calculated on an arm's length basis in line with internationally recognised transfer pricing principles.  The 2014 tax charge is $1.3m (2013: $1.2m).

The 2014 year-end provision for income taxes of $4.84m (2013: $5.12m) includes $4.8m (2013: $4.8m) in relation to Canadian withholding taxes that were deemed to have arisen on the relocation of assets to the Isle of Man from Canada in the 2004 and 2005 taxation years. Following a seven year investigation, the Canadian Revenue Agency (CRA) claimed that additional withholding taxes were payable by the Group.  The provision in place at the beginning of the year has not been increased during the year as it is believed to represent the amount the group will likely be required to pay in respect of such withholding taxes and interest. Without this provision the group's income tax liability at the balance sheet date would have been $0.04m.

The Group's profit for the year, adjusting for these expenses and taxation paid is reported at $57.7m in 2014 (2013: $31.5m).

Earnings per share

The significant growth in revenue and EBITDA has resulted in an increase of adjusted diluted earnings per share of 50% to $0.38 (2013: $0.25) as compared to basic EPS which increased 64% to $0.36 (2013: $0.22). Adjusted EPS is calculated based on adjusted profit after tax, reconciliation to unadjusted earnings is shown below. 


FY 2014

FY 2013


FY 2014

FY 2013


Result ($m)

Result ($m)


EPS ($)

EPS ($)







Reported profit before tax / diluted EPS*

59.0

32.7


0.32

0.20

FX gains (losses)

3.0

(0.9)


0.02

(0.0)

Exceptionals - acquisition costs

11.6

1.4


0.06

0.01

Share based payments

8.3

4.5


0.05

0.03

Fair value gains on share consideration payable

(18.8)

0.0


(0.1)

0.00

Amortisation on acquired intangibles(1)

9.2

3.3


0.05

0.02

Adjusted profit before tax / adjusted diluted EPS*

72.2

41.0


0.40

0.26

Adjusted Tax

4.2

1.5


0.02

0.01

Adjusted profit after tax / diluted EPS*

68.0

39.5


0.38

0.25

*Weighted average of shares in issue - diluted (million)




178.5

155.0

(1) Includes: Meritus (acquired in July 2014) & Optimal Payments (acquired in 2011)




 

Cash position

Total gross cash available to the Group was $151.1m at 31 December 2014 (2013: $170.6m). This includes the unrestricted cash and cash equivalents of $142.3m (2013: $164.4m) plus restricted merchant cash balances and restricted member cash balances which is the excess of qualifying liquid assets held in respect of e-money issued to members over member balances payable. 

Included in cash and cash equivalents is a transient cash balance totalling $44.6m (2013: $76.8) that relates to merchant transactions processed via the NETBANX gateway operations and security deposits held from the Group's bureau merchants.  These gateway operations do not fall within the EU definition of "e-money" nor does a legal right of offset exist between this cash and the corresponding merchant liabilities.  The cash and the merchant liabilities relating to gateway operations and merchant security deposits are therefore recognised both on the face of the balance sheet as cash and cash equivalents and as a liability in trade and other payables respectively.

Group "own cash" position is $106.5m (2013: $93.8m) after deducting merchant cash balances, this does not represent the free cash of the business as a significant portion is tied up in various payment processing channels and security deposits. Free cash, available for long term investment, was approximately $44.0m (2013: $38.0m) at 31 December 2014.

Intangible assets

The net book value of intangible assets at 31 December 2014 was $76.1m (2013: $22.8m). This includes assets of $50m acquired from OP Inc. on 1 February 2011 and assets of $63.6m acquired from Meritus and GMA in 2014 (per note 16 of the Group's financial statements). Management considered that the carrying value of these acquired assets did not need to be impaired. During the year, the Group incurred development costs to add new functionality to the NETELLER SV and NETBANX platforms. Management determined that no impairment was required at 31 December 2013 in relation to this platform.

Liabilities

The remaining shareholder loans of $9.5m (as at end 2013, including accrued interest) were converted into equity in the Company at 66.248 pence per share and formed part of the placement on 28 January 2014, these loans were related to the 2011 acquisition of OP Inc.

Total current liabilities have decreased to $113.6m at 31 December 2014 (2013: $117.6m) despite new debt instruments added in 2014 related to the acquisition of the Meritus and GMA.  This is attributed in large part to the decrease in NETBANX merchant cash processing liabilities (to $44.6m at end 2014 from $76.8m at end 2013) relating to large sums of transient cash due to NETBANX merchants which has an equal and opposite liability included in trade and other payables.

Net debt

The Group was highly cash generative during the year and was effectively debt free at 30 June 2014, enabling us to acquire Meritus and GMA for a combined cost of $225m in July. These acquisitions were partly funded by a new bank debt facility of $150m provided by the Bank of Montreal, consisting of a $100m term loan facility and a $50 million revolving loan facility that are repayable over three years. The balance was funded by cash of $26.6m and shares.

Year end net debt was $26.3m, the increase of $109.2m is due to the debt facilities taken to finance the US acquisitions, the Group was in full compliance with its debt covenants and has capacity for additional debt finance should this be required to capitalise any further acquisition opportunities that arise.

Off balance sheet arrangements

As of 31 December 2014, the Group had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources. 

 

Brian McArthur-Muscroft

Chief Financial Officer

22 March 2015

 

 

 

 

Consolidated Statement of Financial Position

as at 31 December 2014





2014

2013


US$

US$

ASSETS



Current assets



    Cash and cash equivalents

142,325,454

164,379,331

    Restricted NETELLER merchant cash (Note 5)

2,232,596

1,635,858

    Restricted NETELLER member cash (Note 6)

6,543,680

4,561,566

    Trade and other receivables

14,711,829

4,760,843

    Prepaid expenses and deposits

11,459,755

9,152,159


177,273,314

184,489,757

Non-current assets



    Property, plant & equipment (Note 7)

13,357,689

12,319,580

    Intangible assets (Note 8)

76,140,609

22,739,053

    Goodwill (Note 9)

205,339,002

30,492,122


472,110,614

250,040,512




LIABILITIES



Current liabilities



    Trade and other payables (Note 10)

67,328,017

100,763,462

    NETELLER loyalty program liability (Note 11)

1,159,980

1,721,956

    Provision for losses on NETBANX merchant accounts (Note 12)

1,183,492

733,362

    Taxes payable (Note 13)

4,044,775

4,305,778

    Shareholder loans (Note 14)

-

9,525,814

    Contingent consideration (Note 16)

5,000,000

-

    Share consideration payable (Note 16)

14,322,500

-

    Obligations under finance lease

578,797

584,134

    Current portion of long-term debt (Note 15)

20,000,000

-


113,617,561

117,634,506

Non-current liabilities



    Obligations under finance lease

204,808

800,643

    Share consideration payable (Note 16)

42,967,500

-

    Long-term debt (Note 15)

107,000,000

-


263,789,869

118,435,149




SHAREHOLDERS' EQUITY



    Share capital (Note 17)

46,575

44,604

    Share premium

86,934,889

77,054,253

    Capital redemption reserve

147

147

    Equity reserve on share option issuance (Note 18)

27,311,337

19,036,989

    Translation reserve (Note 19)

(968,561)

(1,851,482)

    Retained earnings

94,996,358

37,320,852


208,320,745

131,605,363


472,110,614

250,040,512

 

The notes that follow form an integral part of these financial statements.

 

These consolidated financial statements were approved by the Board of Directors and authorised for issue on 22 March 2015 and were signed on its behalf by:

 

J Leonoff                                                                                                B McArthur-Muscroft

 

 

 

Consolidated Statement of Comprehensive Income

for the Year ended 31 December 2014


 

2014

US$

 

2013

US$

Revenue



    NETBANX Straight Through Processing fees

274,712,856

193,033,333

    NETELLER Stored Value fees

89,572,183

59,792,540

Investment income

669,325

540,811


364,954,364

253,366,684

Cost of Sales



    Straight Through Processing expenses

162,256,162

111,975,929

    Stored Value expenses

13,574,425

9,508,168


175,830,587

121,484,097




Gross profit (Note 22)

189,123,777

131,882,587




Non Fee Expenses



 

Salaries and employee expenses

54,785,709

41,051,487

 

Technology and software

20,531,371

18,411,850

 

Premises and office costs

11,096,937

9,047,688

 

Professional fees

5,186,257

4,339,478

 

Marketing and promotions (Note 23)

15,194,281

7,950,375

 

Travel and entertainment

3,889,394

2,703,378

 

Bank charges

651,369

678,590

 

Depreciation and amortisation (Note 24)

20,986,740

13,517,802

 

Acquisition costs

11,568,700

-

 

Restructuring costs

-

831,605

 

Foreign exchange loss / (gain)

3,018,777

(893,409)

 

Net fair value gain on share consideration payable  (Note 16)

(18,800,000)

-

 

Other expenses (Note 32)

11,888

535,762




Results from operating activities

61,002,354

33,707,981



Finance costs

2,023,756

994,926




Profit for the year before tax

58,978,598

32,713,055




Income tax expense (Note 13)

1,303,092

1,235,453




Profit for the year after tax attributable to the owners

  of the Group

 

57,675,506

 

31,477,602

 

Other comprehensive income

    Foreign currency translation differences for





    foreign operations, net of income tax

882,921

(890,738)

 

Total comprehensive profit for the year attributable to

  the owners of the Group

 

58,558,427

 

30,586,864

 

Basic profit per share (Note 20)

$0.36

    $0.22




Fully diluted profit per share (Note 20)

$0.32

$0.20

 

The notes that follow form an integral part of these financial statements.

The Directors consider that all results derive from continuing activities.

 

 

 

Consolidated Statement of Changes in Equity

for the Year ended 31 December 2014


SHARE CAPITAL - ORDINARY SHARES (Note 17)

US$

SHARE CAPITAL - DEFERRED SHARES

US$

TOTAL

SHARE CAPITAL

US$

 

 

SHARE

PREMIUM

US$

EQUITY

RESERVE ON SHARE OPTION ISSUANCE

US$

TRANSLATION RESERVE ON FOREIGN OPERATIONS

US$

CAPITAL REDEMPTION RESERVE

US$

 

RETAINED EARNINGS

US$

 

 

TOTAL

US$

Balance as at
1 January 2013

 

24,329

 

18,000

 

42,329

 

65,612,241

 

14,525,006

 

(960,744)

 

147

 

5,843,250

 

85,062,229











Profit for the year

-    

-     

-    

-     

-    

-     

-     

31,477,602

31,477,602

Foreign currency translation differences

 

-    

 

-     

 

-    

 

-     

 

-    

 

(890,738)    

 

-     

 

-    

 

(890,738)    

 

Total comprehensive income

 

-    

 

-     

 

-    

 

-     

 

           - 

 

(890,738)    

 

-     

 

31,477,602

 

30,586,864

 

Transactions with owners of the Group, recognised directly in equity

 

Contributions by and distributions to owners of the Group

 










Share option expense

(Note 21)





 

4,511,983




 

4,511,983

 

Issue of shares (Note 17)

 

 

2,275    

 

 

-     

 

 

2,275    

 

 

11,442,012     

 

 

-     

 

 

-     

 

 

-     

 

 

-    

 

 

11,444,287





















Balance as at 31 December 2013

 

26,604

 

18,000

 

44,604

 

77,054,253

 

19,036,989

 

(1,851,482)     

 

147

 

37,320,852

 

131,605,363











Balance as at
1 January 2014

 

26,604

 

18,000

 

44,604

 

77,054,253

 

19,036,989

 

(1,851,482)     

 

147

 

37,320,852

 

131,605,363

Profit for the year

-

-

-

-

-

-

-

57,675,506

57,675,506

Foreign currency translation differences

-

-

-

-

-

882,921

-

-

882,921











Total comprehensive income

-

-

-

-

-

882,921

-

57,675,506

58,558,427

 

Transactions with owners of the Group, recognised directly in equity

 

Contributions by and distributions to owners of the Group

 










Share option expense

(Note 21)

-

-

-

-

8,274,348

-

-

-

8,274,348

   Issue of shares

   (Note   17)

1,971

-

1,971

9,880,636

-

-

-

-

9,882,607











Balance as at 31 December 2014

28,575

18,000

46,575

86,934,889

27,311,337

(968,561)

147

94,996,358

208,320,745

 

 

The notes that follow form an integral part of these financial statements.

 

 

 

Consolidated Statement of Cash Flows

for the Year ended 31 December 2014


2014

2013


US$

US$

OPERATING ACTIVITIES



Profit before tax

58,978,598

32,713,055

Adjustments for non-cash items:



Depreciation and amortisation

21,084,837

13,517,802

Unrealised foreign exchange loss/(gain)

5,761,591

2,044,649

Share option expense  (Note 21)

8,274,348

4,511,983

Acquisition costs

11,568,700

-

Net fair value gain on share consideration payable

(18,800,000)

-

Interest expense

1,996,210

837,224

Loss on disposal of assets

11,888

552,357

Operating cash flows before movements in working capital

88,876,172

54,177,070




(Increase) / decrease in restricted NETELLER merchant cash

(596,738)

3,787,158

(Increase) / decrease in restricted NETELLER member cash

(1,982,114)

3,282,017

(Increase) / decrease in trade and other receivables

(6,589,959)

1,242,376

Increase in prepaid expenses and deposits

(2,052,601)

(1,676,626)

(Decrease) / increase in trade and other payables

(28,581,691)

39,929,386

(Decrease) / increase in NETELLER loyalty program liability

(561,976)

772,723

Increase / (decrease) in provision for losses on NETBANX merchant accounts

450,130

(60,052)


48,961,223

101,454,052

Taxes paid

(1,564,095)

(1,191,344)

Cash flows from operating activities

47,397,128

100,262,708




INVESTING ACTIVITIES



Purchase of property, plant & equipment and intangible assets

(11,094,687)

(13,567,378)

Acquisition cost

(11,512,408)

-

Business acquisitions

(157,680,270)

-

Proceeds from disposal of property, plant & equipment

390

442,645

Cash flows used in investing activities

(180,286,975)

(13,124,733)




FINANCING ACTIVITIES



Equity issuance

365,561

13,766

Repayment of contingent consideration

-

(5,724,203)

Proceeds from long-term debt (Note 15)

141,000,000

-

Repayment of principal

(14,000,000)


Interest paid on long-term debt

(1,873,448)


Repayment of obligations under finance lease

(601,170)

(396,873)

Cash flows from  / (used in) financing activities

124,890,943

(6,107,310)




(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS DURING THE YEAR

(7,998,904)

81,030,666

EFFECT OF MOVEMENT IN FOREIGN EXCHANGE ON

  CASH AND CASH EQUIVALENTS

(15,388,712)

25,395

 


TRANSLATION OF FOREIGN OPERATIONS

1,333,739

1,148,890

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

164,379,331

82,174,380

CASH AND CASH EQUIVALENTS, END OF YEAR

142,325,454

164,379,331

 

The notes that follow form an integral part of these financial statements.

 

 

 

Notes to the Consolidated Financial Statements for the Year ended 31 December 2014

 

1.             GENERAL INFORMATION

 

NETELLER plc was a private company incorporated under the laws of the Isle of Man ("IOM") on 31 October 2003 and was registered as a public company on 1 April 2004.  NETELLER plc changed its name to NEOVIA Financial Plc on 17 November 2008. On 1 March 2011 NEOVIA Financial Plc changed its name to Optimal Payments Plc (the "Company"). The principal activities of the Company and the Group are described in Note 2. The Group includes the Company and its wholly owned subsidiaries as set out under "Basis of consolidation" in Note 4 and "Investment in subsidiaries" in Note 28.

 

At 31 December 2014, the Group had 712 employees (2013: 516 employees).

 

2.             NATURE OF OPERATIONS

 

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

 

3.             BASIS OF PREPARATION

 

Statement of compliance

 

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

 

The consolidated financial statements were authorised for issue by the Board of Directors on 22 March 2015. 

 

Statement of going concern

 

The consolidated financial statements are prepared on a going concern basis, as the Board of Directors are satisfied that the Group and parent company have the resources to continue in business for the foreseeable future.  In making this assessment, the Board have considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows and capital resources. 

 

The Group borrowed $141 million in July 2014 to finance the acquisition of California-based payment processing businesses Meritus Payment Solutions and Global Merchant Advisors, Inc. The acquisition of these profitable, fast growing and cash generative businesses is expected to enhance earnings, and the Group has demonstrated it has sufficient financial resources in place to meet its new debt requirements.

 

The Group's principal activities, business and operating models, strategic direction and key and emerging risks are described in the CEO's Review, Business Overview and Business Risk sections. A financial summary, including a review of the consolidated statement of comprehensive income and consolidated statement of financial position, is provided in the Financial Review section. The Group's objectives, policies and processes for managing credit, liquidity and market risk along with the Group's approach to capital management and allocation are described in the Note 27 of the financial statements.

 

Use of estimates and judgements

 

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

 

Functional and presentation currency

 

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

 

4.             SIGNIFICANT ACCOUNTING POLICIES

 

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

 

Basis of consolidation

 

The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (and its subsidiaries) as at the year end. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. The consolidated financial statements include the accounts of the Company and its principal wholly owned subsidiaries as identified in Note 28.  All inter-company transactions and balances between Group enterprises are eliminated on consolidation.

 

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

 

Cash and cash equivalents

 

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

 

Intangible assets

 

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

 

Other intangible assets, including customer relationships, trade names and non-compete agreements that are acquired by the group and have finite useful lives are recognised at fair value at the acquisition date ("cost")  and subsequently measured at cost less accumulated amortisation and any accumulated impairment losses. Amortisation is calculated using the straight-line method over the expected life of the intangible asset, which is 3 to five years.

 

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

 

Property, plant & equipment

 

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

               

Communication equipment

20%

Furniture and equipment

20%

Computer equipment

30%

 

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

               

Computer software

2 years

Building & Leasehold Improvements

4% and 10 years respectively

 

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

 

Impairment

 

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

 

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

 

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

 

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

 

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

 

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

 

Goodwill

 

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

 

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

 

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

 

Trade and other receivables

 

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

 

Financial liabilities

 

The Group classifies its financial liabilities at fair value through profit or loss, and as other financial liabilities measured at amortised cost depending on the purpose for which the financial liabilities were acquired or incurred. Management determines the classification of its financial liabilities at the initial recognition.

 

Share consideration payable meets the definition of a financial liability under IAS 32 and therefore classified as such. The fair value of share consideration is determined through single-factor Monte Carlo valuation model at reporting date. Movements in fair value at any one reporting date are measured through profit and loss.


The Group's other financial liabilities measured at amortised cost comprise 'trade and other payables' and 'Long term-debt' in the balance sheet.

 

Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

 

Long-term debt are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the Long-term debt using the effective interest method. Finance charges are accounted for on an accruals basis and charged to the statement of comprehensive income using the effective interest rate method.


Trade and other payables and Long-term debt are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

 

Income tax

 

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

 

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

 

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

 

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

 

Segment reporting

 

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

 

Revenue recognition

 

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

 

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

 

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

 

Leases

 

(i)            Leased assets

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

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

 

(ii)           Lease payments

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

 

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

 

Foreign exchange

 

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

 

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

 

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

 

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations (including comparatives) are expressed in United States dollars using exchange rates prevailing on the balance sheet date. Income and expense items (including comparatives) are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

 

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

 

Related party transactions

 

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

 

Foreign exchange contracts

               

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

 

Research and development

 

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

 

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

 

Share-based payments

 

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

 

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

 

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

 

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

 

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

 

Offsetting

 

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

 

Gross settlement is equivalent to net settlement if and only if the gross settlement mechanism has features that eliminate or result in insignificant credit and liquidity risk and processes receivables and payables in a single settlement cycle.

 

The balances owing to the Members and merchants and the related cash balances segregated in the members and merchant's accounts are presented net in the statement of financial position as the Company considered these gross settlement as equivalent to net settlement in accordance with IAS 32.

 

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

 

Earnings per share

 

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

 

Application of new and revised accounting policies

 

In the current year, the Group has applied a number of amendments to IFRSs and a new Interpretation issued by the International Accounting Standards Board ("IASB") that are mandatorily effective for an accounting period that begins on or after 1 January 2014.

 

Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities

The amendments to IFRS 10 define an investment entity and require a reporting entity that meets the definition of an investment entity not to consolidate its subsidiaries but instead to measure its subsidiaries at fair value through profit or loss in its consolidated and separate financial statements. Consequential amendments have been made to IFRS 12 and IAS 27 to introduce new disclosure requirements for investment entities. As the Company is not an investment entity (assessed based on the criteria set out in IFRS 10 as at 1 January 2014), the application of the amendments has had no impact on the disclosures or the amounts recognised in the Group's consolidated financial statements.

 

Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities

The Group has applied the amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities for the first time in the current year. The amendments to IAS 32 clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of 'currently has a legally enforceable right of set-off' and 'simultaneous realisation and settlement'. The Group has assessed whether certain of its financial assets and financial liabilities qualify for offset based on the criteria set out in the amendments and concluded that the application of the amendments has had no impact on the amounts recognised in the Group's consolidated financial statements other than consistency of accounting policy application for restricted members cash and amounts owing to members as disclosed in Note 6.

 

Amendments to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets

The Group has applied the amendments to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets for the first time in the current year. The amendments to IAS 36 remove the requirement to disclose the recoverable amount of a cash-generating unit (CGU) to which goodwill or other intangible assets with indefinite useful lives had been allocated when there has been no impairment or reversal of impairment of the related CGU. Furthermore, the amendments introduce additional disclosure requirements applicable to when the recoverable amount of an asset or a CGU is measured at fair value less costs of disposal. These new disclosures include the fair value hierarchy, key assumptions and valuation techniques used which are in line with the disclosure required by IFRS 13 Fair Value Measurements.

 

The application of these amendments has had no material impact on the disclosures in the Group's consolidated financial statements

 

Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting

The amendments to IAS 39 provide relief from the requirement to discontinue hedge accounting when a derivative designated as a hedging instrument is novated under certain circumstances. The amendments also clarify that any change to the fair value of the derivative designated as a hedging instrument arising from the novation should be included in the assessment and measurement of hedge effectiveness. As the Group does not have any derivatives that are subject to novation, the application of these amendments has had no impact on the disclosures or on the amounts recognised in the Group's consolidated financial statements.

 

Future changes to accounting standards

 

The Group has not applied the following new and revised IFRSs that have been issued but are not yet effective:

 

IFRS 9 Financial Instruments

The IASB issued IFRS 9 in November 2009, introducing new requirements for the classification and measurement of financial assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition, and in November 2013 to include the new requirements for general hedge accounting. Another revised version of IFRS 9 was issued in July 2014 mainly to include a) impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by introducing a 'fair value through other comprehensive income' (FVTOCI) measurement category for certain simple debt instruments. IFRS 9 is effective for annual periods beginning on or after 1 January 2018.

 

It is not practicable to provide a reasonable estimate of the effect of IFRS 9 until the Group undertakes a detailed review.

 

IFRS 15 Revenue from Contracts with Customers

In May 2014, IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related Interpretations when it becomes effective for annual periods beginning on or after 1 January 2017. The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition:

 

Step 1: Identify the contract(s) with a customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

 

Extensive disclosures are required by IFRS 15. The directors of the Group do not anticipate that the application of IFRS 15 in the future will have a material impact on the amounts reported and disclosures made in the Group's consolidated financial statements. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 15 until the Group performs a detailed review.

 

Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations

The amendments to IFRS 11 provide guidance on how to account for the acquisition of a joint operation that constitutes a business as defined in IFRS 3 Business Combinations. Specifically, the amendments state that the relevant principles on accounting for business combinations in IFRS 3 and other standards (e.g. IAS 36 Impairment of Assets regarding impairment testing of a cash generating unit to which goodwill on acquisition of a joint operation has been allocated) should be applied. The same requirements should be applied to the formation of a joint operation if and only if an existing business is contributed to the joint operation by one of the parties that participate in the joint operation.

 

A joint operator is also required to disclose the relevant information required by IFRS 3 and other standards for business combinations.

 

The amendments to IFRS 11 apply prospectively for annual periods beginning on or after 1 January 2016.The directors of the Group do not anticipate that the application of these amendments to IFRS 11 will have a material impact on the Group's consolidated financial statements.

 

Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets

The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items of property, plant and equipment. The amendments to IAS 38 introduce a rebuttable presumption that revenue is not an appropriate basis for amortisation of an intangible asset. The amendments apply prospectively for annual periods beginning on or after 1 January 2016. Currently, the Group uses the declining balance method for depreciation for its property, plant and equipment, and declining balance and straight line methods for amortisation for its intangible assets. The directors of the Group believe that these methods are the most appropriate method to reflect the consumption of economic benefits inherent in the respective assets and accordingly, the directors of the Group do not anticipate that the application of these amendments to IAS 16 and IAS 38 will have a material impact on the Group's consolidated financial statements.

 

5.             RESTRICTED NETELLER MERCHANT CASH

 

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

 

At 31 December 2014, the Group had the following balances:

 


As at 31

December 2014

$

As at 31

December 2013

$

Segregated account funds

102,069,054

81,806,623

Payable to NETELLER Merchants

(99,836,458)

(80,170,765)

Restricted NETELLER Merchant Cash

2,232,596

1,635,858

 

6.             RESTRICTED NETELLER MEMBER CASH

 

In compliance with the Financial Conduct Authority (FCA) rules and regulations, the Group holds Qualifying Liquid Assets at least equal to the amounts owing to Members. These amounts are maintained in accounts which are segregated from operating funds. As a legal right of offset exists between the balances owing to the Members and the cash balances segregated in the member accounts, the prior year presentation in the Consolidated Statement of Financial Position has been updated and only the net balance of surplus cash is disclosed on the Consolidated Statement of Financial Position as Restricted NETELLER Member cash.

 

 

At 31 December 2014, The Group had the following balances:

 


As at 31

December 2014

$

As at 31

December 2013

$




Qualifying Liquid Assets held for NETELLER Members

143,639,792

127,974,097

Payable to NETELLER Members

(137,096,112)

(123,412,531)

Restricted NETELLER Member Cash

6,543,680

4,561,566

 

Prior year presentation has been updated to conform to current year presentation and classification where appropriate. The effect of the change in presentation from the prior year has resulted in a decrease in current liabilities and current assets respectively to the amount of $ 123,412,531 on the face of the Statement of Financial Position. The Presentation and disclosure per the Statement of Cash flows has been updated accordingly.

 

7.             PROPERTY, PLANT & EQUIPMENT

 

The Group had the following balances:

               


COMMUNICATION

EQUIPMENT

$

FURNITURE AND EQUIPMENT

$

COMPUTER

EQUIPMENT

$

COMPUTER

SOFTWARE

$

BUILDING AND LEASEHOLD IMPROVEMENTS

$

 

TOTAL

$

Cost







As at 31 December 2012

185,920

1,764,564

11,474,954

20,990,609

1,016,433

35,432,480

Additions

92,319

1,373,321

2,605,758

2,443,411

2,236,234

8,751,043

Disposals

(74,352)

(663,121)

(2,372,345)

(7,602,234)

(673,149)

(11,385,201)

Exchange difference

(2,363)

(71,613)

(284,831)

(807,754)

(78,874)

(1,245,435)

As at 31 December 2013

201,524

2,403,151

11,423,536

15,024,032

2,500,644

31,552,887








As at 31 December 2013

201,524

2,403,151

11,423,536

15,024,032

2,500,644

31,552,887

Additions

132,443

876,411

2,101,084

2,431,089

156,285

5,697,312

Disposals

(83,716)

(1,312)

-

(835,798)

-

(920,826)

Acquisition (Note 16)

-

566,689

288,600

347,089

87,902

1,290,280

Exchange difference

(6,156)

(168,995)

(378,473)

(614,438)

(148,017)

(1,316,079)

As at 31 December 2014

244,095

3,675,944

13,434,747

16,351,974

2,596,814

36,303,574








Accumulated depreciation







As at 31 December 2012

133,168

1,238,792

6,641,582

18,124,229

427,650

26,565,421

Charge for the year

16,312

551,922

1,221,604

2,036,475

366,425

4,192,738

Disposals

(54,205)

(515,223)

(2,112,403)

(7,557,398)

(298,877)

(10,538,106)

Exchange Difference

(1,685)

(53,256)

(181,198)

(744,557)

(6,050)

(986,746)

93,590

1,222,235

5,569,585

11,858,749

489,148

19,233,307








As at 31 December 2013

93,590

1,222,235

5,569,585

11,858,749

489,148

19,233,307

Charge for the year

104,723

1,182,645

1,041,395

2,607,223

570,899

5,506,885

Disposals

(76,898)

(1,108)

-

(830,541)

-

(908,547)

Exchange Difference

(3,429)

(64,589)

(256,189)

(526,985)

(34,568)

(885,760)

117,986

2,339,183

6,354,791

13,108,446

1,025,479

22,945,885







Net book value







As at 31 December 2013

107,934

1,180,916

5,853,951

3,165,283

2,011,496

12,319,580

Net book value







As at 31 December 2014

126,109

1,336,761

7,079,956

3,243,528

1,571,335

13,357,689

 

 

8.             INTANGIBLE ASSETS

 

The Group had the following balances:

 


 

INTELLECTUAL PROPERTY

$

WEBSITE AND PLATFORM DEVELOPMENT

$

 

CUSTOMER RELATIONSHIPS

$

 

NON-COMPETE

$

 

 

TRADE NAME

$

 

 

TOTAL

 $

Cost







As at 31 December 2012

30,140,782

20,036,413

-

-

-

50,177,195

Additions

-

4,177,811

-

-

-

4,177,811

Disposals

-

(360,763)

-

-

-

(360,763)

Exchange difference

348

-

-

-

-

348

As at 31 December 2013

30,141,130

23,853,461

-

-

-

53,994,591

Additions

2,463

5,394,912

-

-

-

5,397,375

Disposals

-

-

-

-

-

-

Acquisition (Note 16)

3,753,158

-

51,286,314

6,738,772

1,824,386

63,602,630

Exchange difference

(915)

-

-

-

-

(915)

As at 31 December 2014

33,895,836

29,248,373

51,286,314

6,738,772

1,824,386

122,993,681

 

Accumulated amortisation





As at 31 December 2012

15,855,940

6,287,028




22,142,968

Charge for the year

4,804,686

4,520,378




9,325,064

Disposals

-

(212,856)




(212,856)

Exchange difference

362

-

-

-

-

362

As at 31 December 2013

20,660,988

10,594,550

-

-

-

31,255,538

Charge for the year

4,949,947

5,235,495

4,494,446

738,185

159,879

15,577,952

Disposals

-

-

-

-

-

-

Exchange difference

19,387

195

-

-

-

19,582

As at 31 December 2014

25,630,322

15,830,240

4,494,446

738,185

159,879

46,853,072

Net book value







As at 31 December 2013

9,480,143

13,258,909




22,739,053

Net book value







As at 31 December 2014

8,265,514

13,418,133

46,791,868

6,000,587

1,664,507

76,140,609

 

Impairment Analysis

 

The Board have determined that there has not been any indication of an impairment required in the current year.

 

9.             GOODWILL

 

The Group had the following balances

 


GROUP

$

Cost

Balance at 1 January 2013

30,492,122

Additions during the year

-

Balance at 31 December 2013

30,492,122

Additions during the year

174,846,880

Balance at 31 December 2014

205,339,002



Carrying amount


As at 31 December 2013

30,492,122

Carrying amount


As at 31 December 2014

205,339,002

 

The Group performs goodwill asset impairment tests at least annually or whenever events or changes in circumstances indicate that the goodwill carrying value for a business unit might not be recoverable. The recoverable amount is defined as the higher of fair value less costs to sell and value in use.

 

Key assumptions used in the calculation of recoverable amounts are discount rates and EBITDA growth rate. The values assigned to the key assumptions represented management's assessment of future trends in the e-commerce industry impacting the NETBANX straight-through processing business and were based on both external and internal sources (historical data). The key assumptions were as follows, and reflect a weighted average of this CGU comprising the respective operating divisions: 

 

 

 

 

Weighted average (in percent)

Year ended

 31 December

2014

 $

Year ended

31 December

2013

 $

Discount rate

5%

8%

Terminal value growth rate

1.35%

1.35%

Budgeted EBITDA growth rate (average 5 years)

5%

5%

 

The discount rate is an estimate based on past experience and the expected average weighted average cost of capital.

 

Five years of cash flows were included in the discounted cash flow model. A long-term growth rate into perpetuity was determined based on management's estimate of the terminal value growth rate in EBITDA, which management believed was consistent with the assumption that a market participant would make.  Budgeted EBITDA was based on expectation of future outcomes taking into account past experiences.

 

10.          TRADE AND OTHER PAYABLES

 

The Group had the following balances:

 


As at 31

December

 2014

 $

As at 31

December

2013

$

NETBANX Merchant processing liabilities

44,591,159

76,792,100

Accounts payable

7,693,960

5,710,876

Accrued liabilities

12,080,024

16,435,718

Payroll liabilities

2,962,874

1,824,768


67,328,017

100,763,462

 

NETBANX Merchant processing liabilities arise from the operations of the NETBANX division totaling $44,591,159 (2013: $76,792,100).  In addition, included in cash and cash equivalents is an equivalent transient cash balance that relates to Merchant transactions processed via the straight-through processing operations. The operations do not fall within the EU definition of "e-money" nor does a legal right of offset exist between this cash and the corresponding NETBANX Merchant liabilities

 

11.          LOYALTY PROGRAM

 

The Group launched the NETELLER Reward Points Program (the "Program") in February 2012. The Program allows members to earn points on their transactions in the NETELLER eWallet accounts. Members can redeem these points for merchandise, cash exchange, and other NETELLER provided services.

 

When points are earned by Members, the Group establishes a liability for future redemptions by multiplying the number of points issued by the estimated cost per point. The actual cost of merchandise redemptions is applied against this liability.  The expense has been included in Marketing and promotions.

 

The estimated cost per point is determined based on many factors, primarily related to expected future redemption patterns and associated costs. The Group monitors, on an ongoing basis, trends in redemption rates and net cost per point redeemed. Adjustments to the estimated cost per point are made based upon expected future Program activities.

 

Any variance in the cost per point is recognised in marketing and promotions expenses in the Group's consolidated Statement of Comprehensive Income. The liability account is adjusted based on the outstanding balance of points issued on a monthly basis. The Company continues to evaluate and revise certain assumptions used to calculate the Program liability, based on redemption experience and expected future activities.

 

12.          PROVISION FOR LOSSES ON NETBANX MERCHANT ACCOUNTS

 

In certain cases, transactions may be charged back to merchants, which mean the transaction amount is refunded to the consumer and, in certain instances, charged to the merchant. If the merchant has insufficient funds, the Group must bear the credit risk for the full amount of the transaction. Management evaluates the risk for such transactions and estimates the loss for the disputed transactions based primarily on historical experience and other relevant factors. A provision is maintained for merchant losses in order to absorb charge backs and other losses for merchant transactions that have been previously processed and on which revenue has been recorded. Management analyses and regularly reviews the adequacy of its provision for merchant losses. The provision for merchant losses comprises specifically identifiable provisions for merchant transactions for which losses can be estimated based on historical experience.

 

The net charge for the provision for merchant losses is included under the caption Straight Through Processing expenses in the statement of comprehensive income and can be reconciled as follows:

 



$

Balance at 31 December 2012


793,414

Provisions made during the year


44,912

Provisions used during the year


(104,964)

Balance at 31 December 2013


733,362

Provisions made during the year


450,130

Provisions used during the year


-

Balance at 31 December 2014


1,183,492



13.          TAX

 

The Company is incorporated in the IOM and is subject to a tax rate of zero percent.  No provision for IOM taxation is therefore required.  Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

 

The Group charge for the year can be reconciled to the profit shown per the Statement of Comprehensive Income as follows:

 

 

Tax recognised in profit

Year ended

 31 December

2014

 $

Year ended

31 December

2013

 $

Current tax



  Current year

1,985,537

1,561,808

  Adjustment for prior years

(709,942)

(220,745)


1,275,595

1,341,063

Deferred tax



  Current year

(23,374)

(86,022)

  Adjustment for prior years

50,871

(19,588)


27,497

(105,610)

Total tax expense

1,303,092

1,235,453

 

Reconciliation of effective tax rate



Current year's expense as a % of profit before tax

2.2%

3.78%

Adjustment from prior years

1.1%

0.73%

Expenses not deductible for tax purposes

(6.6%)

(8.11%)

Effect of different tax rates

of subsidiaries operating in other jurisdictions

3.3%

3.6%

Isle of Man corporate tax rate

0%

0%

 

At 31 December 2014, foreign taxes of $4,044,775 (2013: $4,305,778) were outstanding. 

 

A total liability of approximately $4.8 million remains outstanding as at 31 December 2014 in relation to an ongoing investigation by the Canadian Revenue Agency ("CRA") regarding Canadian withholding taxes which are deemed to have arisen on the relocation of assets to the Isle of Man from Canada in the 2004 and 2005 taxation years. This liability represents management's estimate of the maximum amount the Group is likely to be required to pay in respect of such withholding taxes and interest.

 

Movement in deferred tax balances:




As at 31 December 2014


Net balance as at 1 January

$

Recognised in profit or loss

$

 

Net

$

Deferred Tax Asset

$

Property, plant and equipment

(371,411)

45,990

(325,421)

(325,421)

Intangible assets

897,967

(12,962)

885,005

885,005

Carryforward tax losses

293,103

(201,436)

91,667

91,667

Deferred stock options

-

140,911

140,911

140,911

Deferred tax assets

819,659

(27,497)

792,162

792,162

 

 




As at 31 December 2013


Net balance as at 1 January

$

Recognised in profit or loss

$

 

Net

$

Deferred Tax Asset

$

Property, plant and equipment

(382,931)

11,520

(371,411)

(371,411)

Intangible assets

586,246

311,721

897,967

897,967

Carryforward tax losses

510,734

(217,631)

293,103

293,103

Deferred tax assets

714,049

105,610

819,659

819,659

 

The deferred tax assets as noted above amounting to $792,162 (2013: $819,659) have been presented with taxes payable on the Statement of Financial Position.

 

Deferred tax assets have not been recognised in respect of carryforward tax losses amounting to approximately $1,714,000 (2013: $4,000,000) in certain companies within the Group since it is not probable that future taxable profit will be available against which the Group can use the benefits therefrom.

 

14.          SHAREHOLDER LOANS

 

Two shareholders, Aurum Nominees Ltd and IIU Nominees Ltd, gave notice to the Company that they each wished to convert the shareholder loans amounting to $9,525,814 (including accrued interest) into ordinary shares pursuant to the loan agreement. As a result, in January 2014, the Company issued 4,348,503 and 4,330,406 Ordinary Shares to Aurum Nominees Ltd. and IIU Nominees Ltd. respectively.

 

On 24 January 2014, following the conversion of the shareholder loans into ordinary shares, the Company completed a placing of 44,634,535ordinary shares to 72 institutions which resulted in the sale of all of the shares of the Company's largest shareholder; IIU Nominees Ltd.

 

15.          LONG-TERM DEBT

 


As at 31

December

 2014

 $

As at 31

December

2013

$

Term facility

90,000,000

-

Revolving facility

37,000,000

-


127,000,000


Current portion

20,000,000



107,000,000

-

 

On 23 July 2014, the Group amended its $9 million credit facility which consisted of letters of guarantee to a $150 million Credit Facility consisting of a $100 million term facility and a $50 million revolving facility. The term facility bears interest at US prime rate plus a premium varying from 0.25% to 1.50% or at a LIBO rate plus a premium varying from 1.75% to 3.00%, matures on 23 July 2017, and is repayable in quarterly instalments of $5 million starting in September 2014 up to the maturity date. The revolving facility can be used for the financing of a portion of the permitted acquisitions in a maximum amount of $41 million and general corporate purposes including the issuance of letters of credit. The revolving facility has no specified terms of repayment and it bears interest and matures on the same basis as the term facility. Amounts of $100 million and $41 million were drawn down from the term facility and revolving facility, respectively, on 23 July 2014 in order to fund the Meritus and GMA acquisitions (see Note 16). Principal repayments have amounted to $10 million and $4 million on the term facility and revolving facility, respectively, as at 31 December 2014.

 

As at 31 December 2014, the Group has approximately $9 million outstanding in issued letters of guarantee in relation to various performance bonds drawn from the revolving facility.

 

Under the terms of the loan agreement, the Group must satisfy certain restrictive covenants including minimum financial ratios. These restrictions are composed of ratios of funded debt to EBITDA, funded debt to capitalization and fixed charge coverage ratio. EBITDA, a non IFRS measure, is defined in the Credit Facility on a consolidated basis, as total comprehensive profit attributable to the owners of the Group before interest expense, income taxes, depreciation, amortization, gains or losses from asset dispositions, gains or losses from extraordinary items and non-recurring transaction costs related to the acquisition of Meritus and GMA, non-cash share option expenses and gains or losses relative to foreign exchange or derivative instruments, plus (or minus) the historical EBITDA of any businesses acquired (or sold) during the reporting period. As at 31 December 2014, all debt covenant requirements and exemptions have been respected.

 

16.          BUSINESS ACQUISITIONS

 

On 23 July 2014, Optimal Payments Plc, through its subsidiaries, NBX Services Corp and NetBX Services LLC acquired all of the partnership interests of TK Global Partners L.P. (doing business as Meritus Payment Solutions or "Meritus"), a California based payment processing entity. The total consideration agreed upon of $210 million on the closing date consists of $150 million in cash and $60 million of Optimal Payment shares and/or cash to be issued in equal tranches over four years commencing on the first anniversary of the closing date, subject to customary closing adjustments ("Deferred consideration"). Concurrent with the execution of the Meritus purchase agreement, NBX Services Corp. ("the Buyer") bought all the outstanding limited and general partnership interest of Meritus ( "the Seller") in Global Merchant Advisors, Inc ("GMA"), a US based online payments company.

 
On the same date, NETBX Services LLC acquired the trade and assets of GMA for $15 million in cash, $10 million of which was paid at closing date and the balance of $5 million to be paid based on future performance of the business ("Contingent consideration").

 

Acquisition of these profitable, fast growing and cash generative businesses is expected to enhance earnings by significantly accelerating Optimal Payments' expansion into the rapidly expanding US ecommerce market by providing it with a diversified merchant client base; a highly agile multi-channel sales force operating in complimentary and new vertical markets; and partnerships with leading US acquiring banks.

 

The acquisitions will also allow Optimal Payments to offer Meritus' and GMA clients access to its global network and the ability to more easily sell products and services online virtually anywhere in the world. Similarly, Optimal Payments' international clients will gain greater access to the US market.

 

Consideration

The purchase price allocation was determined using the information available, evaluations obtained and fair value assessments performed by the Company's management. The following table summarises the consideration paid for Meritus and GMA and the fair value of the assets acquired and liabilities assumed recognised at the acquisition date.

 

 

 

Meritus

$

GMA

$

Total

$

Cash consideration

150,000,000

10,000,000

160,000,000

Fair value of Deferred consideration at acquisition datea

76,090,000

-

76,090,000

Fair value of Contingent consideration at acquisition dateb

-

5,000,000

5,000,000

Total estimated purchase price

226,090,000

15,000,000

241,090,000





Trade and other receivables

2,825,955

503,911

3,329,866

Cash and cash equivalents

3,281,329

226,032

3,507,361

Prepaid expenses and deposits

225,978

29,019

254,997

Property, plant & equipment (Note 7)

1,278,000

12,280

1,290,280

Trade and other payables

(4,295,420)

(258,962)

(4,554,382)

Finite-life intangible assets (Note 8

54,910,000

8,692,630

63,602,630

Fair value of net assets acquired

58,225,842

9,204,910

67,430,752





Goodwillc

167,864,158

5,795,090

173,659,248

 

 

a

At closing date, the number of Optimal Payments shares equal to $60,000,000 was determined to be 8,954,621 shares. The estimated fair value of this deferred consideration at the acquisition date was determined using a single-factor Monte Carlo valuation model. As at 31 December 2014, fair value of the share consideration payable is $57,290,000 of which $14,322,500 represents the 1st tranche payable in July 2015. The Group recognised the movement in fair value of $18,800,000 as Net fair value gain on share consideration payable in the Consolidated Statement of Comprehensive Income.

b

On 23 July 2015, the Group shall make a cash payment to the Seller in an aggregate amount equal to $5,000,000 should GMA meet certain performance targets as prescribed in the Purchase Agreement. As the minimum performance target was met as at 31 December 2014, the fair value of the contingent consideration is valued at $5,000,000.

c

The goodwill recognised is expected to be deductible for income tax purposes (see Note 9)

 

 

Meritus and GMA revenues of $45 million and net earnings incurred of $8.9 million are included in the consolidated income statement from the date of acquisition. The Group's consolidated revenues and net earnings for the year ended 31 December 2014 would have included $100.6 million and $21.7 million, respectively, had the Meritus and GMA acquisitions occurred on 1 January 2014.

 

The Group incurred acquisition-related costs of approximately $7,600,000 to 31 December 2014 which were expensed in the period relating to these transactions.

 

17.          SHARE CAPITAL

 


As at 31

December 2014

As at 31

December 2013


£

£

Authorised:



200,000,000 ordinary shares of £0.0001 per share

(2013: 200,000,000 ordinary shares of £0.0001 per share)

20,000

20,000




1,000,000 deferred shares of £0.01 per share

(2013: 1,000,000 deferred shares £0.01 per share)

10,000

10,000




Issued and fully paid

$

$

163,019,614 ordinary shares of £0.0001 per share

(2013: 151,104,164 ordinary shares of £0.0001 per share)

 

28,575

 

26,604




1,000,000 deferred shares of £0.01 per share

(2013: 1,000,000 deferred shares of £0.01 per share)

18,000

18,000




Total share capital

46,575

44,604

 

During the year ended 31 December 2014, the Group issued 11,915,450 ordinary shares for a total value of $1,971 (2013: 14,825,463 ordinary shares - $2,275).

 

Holders of the ordinary shares are entitled to receive dividends and other distributions, to attend and vote at any general meeting, and to participate in all returns of capital on winding up or otherwise.

 

Holders of the deferred shares are not entitled to vote at any annual general meeting of the Company and are only entitled to receive the amount paid up on the shares after the holders of the ordinary shares have received the sum of £1,000,000 for each ordinary share held by them and shall have no other right to participate in assets of the Company.

 

18.          EQUITY RESERVE ON SHARE OPTION ISSUANCE

 


As at 31

December 2014

$

As at 31

December 2013

$

Balance at beginning of year

19,036,989

14,525,006

Share option expense (Note 21)

8,274,348

4,511,983

Balance at end of year

27,311,337

19,036,989

 

The equity reserve on share option issuance comprises the cost to the Company related to the equity-settled share-based payments transactions.

 

19.          TRANSLATION RESERVE


As at 31

December 2014

$

As at 31

December 2013

$

Balance at beginning of year

(1,851,482)

(960,744)

Arising on translation of foreign operations

882,921

(890,738)

Balance at end of year

(968,561)

(1,851,482)

 

Exchange differences relating to the translation from the functional currencies of the Group's foreign subsidiaries into US dollars are brought to account by entries made directly to the foreign currency translation reserve.

 

20.          EARNINGS PER SHARE

 

The calculation of the basic and diluted earnings per share is based on the following data:

 


Year ended

 31 December

2014

 $

Year ended

31 December

2013

 $

Profit


 

Profit attributable to equity shareholders of the parent - basic

57,675,506

31,477,602

Interest charge for conversion of shareholder loan

33,764

-

Profit attributable to equity shareholders of the parent - diluted

57,709,270

31,477,602




Number of shares



Weighted average number of ordinary shares outstanding - basic

161,223,532

146,396,260

Effect of dilutive potential ordinary shares due to employee share options

8,842,392

8,566,153

Convertible shareholder loan

Share consideration payable (Note 16)

454,714

7,990,970

-

-

Weighted average number of ordinary shares outstanding - diluted

178,511,608

154,962,413

 

Earnings per share

Basic earnings per share

$0.36

$0.22

Fully diluted earnings per share

$0.32

$0.20

 

The average market value of the Company's shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were outstanding.

 

21.          SHARE BASED PAYMENTS

 

The Company adopted the unapproved equity-settled share option plan ("ESOS") pursuant to a resolution passed on 7 April 2004 and amended by the Board on 15 September 2008. The 2008 amendment included the addition of a new 'approved' plan for UK based employees. Under the 'approved' and 'unapproved' plans, the Board of Directors of the Company may grant share options to eligible employees including directors of Group companies to subscribe for ordinary shares of the Company.

No consideration is payable on the grant of an option. Options may generally be exercised to the extent that they have vested. Options vest according to the relevant schedule over the grant period following the date of grant. The exercise price is determined by the Board of Directors of the Company, and shall not be less than the average quoted market price of the Company shares on the three days prior to the date of grant. Subject to the discretion of the Board share options are forfeited if the employee leaves the Group before the options vest. The ESOS options granted vest on the third anniversary of the date of grant and lapse a further six months after vesting.

The Company also adopted the Long Term Incentive Plan ("LTIP") which took effect from 1 January 2010. These LTIP options vest in one tranche based on future performance related to EBITDA targets determined each year and subject to continued employment over the remaining vesting period. Vested options lapse on the tenth anniversary of the date of grant. On July 9, 2014, the board granted 3,000,000 "special" LTIP options which vest in three tranches based on future performance related to share price targets.

For the year ended 31 December 2014, the Group recognised total expenses of $8,274,348 (2013: $4,511,983) related to share-based payments transactions which are included in salaries and employee expenses.

The following tables show the change in outstanding ESOS and LTIP options for the year ended 31 December 2014:

ESOS

 


31 December 2014 Weighted Average Exercise Price

£

Year ended 31 December 2014

Options

31 December 2013 Weighted Average Exercise Price

£

Year ended 31 December 2013   Options

Outstanding at the beginning of the year

0.85

1,564,250

0.57

1,072,600

Granted during the year

3.35

495,500

1.21

720,750

Forfeited during the year

1.15

(213,050)

0.68

(229,100)

Exercised during the year

0.57

(389,950)

-

-

Outstanding at the end of the year

1.73

1,456,750

0.85

1,564,250

Exercisable at the end of the year

0.57

390,000

-

-

 

The ESOS options outstanding at the end of the period had a weighted average exercise price of £1.73 and a weighted average remaining contractual life of 1.66 years (2013: 2.31 years). The weighted average share price of ESOS options exercised in the year ended 31 December 2014 based on the date of exercise was £3.95.

LTIP

 


31 December 2014 Weighted Average Exercise Price

£

Year ended 31 December 2014

Options

31 December 2013 Weighted Average Exercise Price

£

Year ended 31 December 2013   Options

Outstanding at the beginning of the year

0.0001

5,529,157

0.0001

6,881,092

Granted during the year

0.0000

4,066,993

0.0001

2,277,800

Forfeited during the year

0.0001

(20,000)

0.0001

(212,892)

Exercised during the year

0.0001

(2,846,591)

0.0001

(3,416,843)

Outstanding at the end of the year

0.0001

6,729,559

0.0001

5,529,157

Exercisable at the end of the year

0.0001

674,800

0.0001

185,394

 

The LTIP options outstanding at the end of the year had an exercise price of £0.0001 and a weighted average remaining contractual life of 8.8 years (2013: 8.5 years). The weighted average share price of LTIP options exercised in the year ended 31 December 2014 based on the date of exercise was £4.33 (2013: £2.35).

Assumptions used in ESOS and LTIP options pricing model

 

The fair value of options granted under the ESOS was determined using the Black-Scholes pricing model that takes into account factors specific to this plan, such as the expected life and vesting period. The following table shows the principal assumptions used in the valuation:

 


Year ended

31 December 2014

Year ended

31 December 2013

Weighted average exercise price

£3.35

£1.21

Expected volatility

40.0%

36.5%

Expected life

3.25 years

3.25 years

Risk free interest rate

0.92%

0.63%

Dividend yield

0%

-

Weighted average fair value per option granted

£1.00

£0.31

 

The fair value of the "special" options granted under the LTIP was determined using a bespoke Monte Carlo pricing model that takes into account the market-based performance conditions specific to this plan. The following table shows the principal assumptions used in the valuation:

 


Year ended

31 December 2014

Year ended

31 December 2013

Weighted average exercise price

£0.00

-

Expected volatility

41.9%

-

Expected life

2.31 years

-

Risk free interest rate

1.20%

-

Dividend yield

0%

-

Weighted average fair value per option granted

£3.49

-

 

Expected volatility was determined by calculating the historical volatility of the Company's share price from the time of issue to the date of grant.

Due to the nominal exercise price of the LTIP options and that option holders are entitled to receive a benefit by reference to the value of dividends that would have been paid on vested shares during the vesting period, the regular options granted under the 2014 LTIP were valued based on the share price at the date of grant. The weighted average fair value per option granted for the year ended 31 December 2014 based on share price at the date of grant was £3.58 (31 December 2013: £1.19).

 

22.          OPERATING SEGMENTS

 

The Group has two operating segments as disclosed below. For each of the segments, the Group's CEO reviews internal management reports on at least a quarterly basis. The following summary describes the operations in each of the Group's reportable segments.

 

NETELLER: fees are generated on transactions between Members and Merchants using the NETELLER service and Net+ prepaid cards.

 

NETBANX: fees are generated through the NETBANX and NETBANX Asia straight-through processing platforms where customers send money directly to Merchants.

 

Information regarding the results of each reportable segment is included below.

 

 

Segmented reporting for the year ended 31 December 2014:

 


NETELLER

$

NETBANX

$

TOTAL

 $





Revenue

89,572,183

274,712,856

364,285,039

Variable costs




   Processing costs

11,862,487

161,788,024

173,650,511

   Bad debt

1,711,938

468,138

2,180,076

Total variable costs

13,574,425

162,256,162

175,830,587

Variable margin

75,997,758

112,456,694

188,454,452




Variable margin percentage

85%

41%

52%

 

Segmented reporting for the year ended 31 December 2013:

 


NETELLER

$

NETBANX

$

TOTAL

 $





Revenue

59,792,540

193,033,333

252,825,873

Variable costs




   Processing costs

8,748,094

111,743,015

120,491,109

   Bad debt

760,074

232,914

992,988

Total variable costs

9,508,168

111,975,929

121,484,097

Variable margin

50,284,372

81,057,404

131,341,776




Variable margin percentage

84%

42%

52%

 

Processing costs and bad debt are the only two costs which vary directly with revenue, and accordingly have been shown separately as variable costs. For 2014, variable costs for NETELLER and NETBANX were 15% (2013: 16%) and 59% (2013: 58%) of revenue respectively.

 

Net assets have not been presented in the segmented information since significant assets and resources throughout the Group serve both reporting segments and would not reasonably be allocable between the two.

 

The amounts reported are based on the financial information used to produce the consolidated financial statements.

 

Major Merchants

 

The Group has one Merchant who represents 36.7% (2013: 41.4%) of total fee revenue across all reportable segments and geographies. The majority of this revenue comes from Asia. 

 

23.          MARKETING AND PROMOTIONS

 

Total marketing and promotions including advertising costs for the year were $15,194,281 (2013: $7,950,375).  These consisted of targeted NETELLER Loyalty Program costs, VIP rebates, fee rebates to Merchants, advertising and tradeshows.

 

24.          DEPRECIATION AND AMORTISATION

 


GROUP


Year ended

 31 December

 2014

$

Year ended

31 December

 2013

$

Depreciation of tangible assets (Note 7)

5,506,885

4,192,738

Amortisation of intangible assets (Note 8)

15,577,952

9,325,064


21,084,837

13,517,802

 

In the year ended 31 December 2014, $98,097 of Investment Tax Credits (ITCs) received were recorded against depreciation and amortisation expense since the assets giving rise to the ITCs were fully amortised.

 

25.          RESTRUCTURING COSTS

 

The Group incurred restructuring costs relating the reorganisation of its cost structure. Severance was paid to employees as a result of operational changes to the Group's business in order to streamline operations and remain competitive in challenging markets.

 

The Group incurred the following costs:


Year ended

 31 December

2014

 $

Year ended

31 December

2013

 $

Severance and retention payments

-

831,605

 

26.          COMMITMENTS

 

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments, which fall due as follows:

 


As at

31 December

 2014

As at

31 December

2013


$

$

Within one year

1,556,185

1,454,783

In the second to fifth years inclusive

2,196,899

3,266,481

After five years

1,152,552

1,549,757

 

Operating lease payments represent rentals payable by the Group for certain of its office properties. Current leases have a remaining average life of 2.4 years. The lease payments recognised in expense for the year are $1,552,929 (2013: $1,525,855).

 

27.          FINANCIAL INSTRUMENTS

 

Financial instruments consist of cash and cash equivalents, restricted NETELLER Merchant cash, restricted NETELLER Member cash, trade and other receivables, and trade and other payables. All financial instruments are classified as held for trading except for accounts receivable and accounts payable which are classified as loans and receivables.

 

i)              Fair values

 

The Group estimates the fair value of its financial instruments based on current interest rates, market value and pricing of financial instruments with comparable terms.

 

The fair values of cash and cash equivalents, restricted NETELLER Merchant cash, restricted NETELLER Member cash, trade and other receivables, and trade and other payables approximate the carrying values due to the short-term nature of these instruments.

 

The fair value of the obligations under finance lease as at 31 December 2014 has been established by discounting the future cash flows using interest rates corresponding to those which the Group would currently be able to obtain for leases with similar maturity dates and terms.

 

The fair value of the of the shareholder loans has not been prepared as fair value cannot be measured reliably as there is no market for such instruments.

 

ii)             Credit risk and concentrations

 

Credit risk is the risk of financial loss to the Group if a member or merchant counter party to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's cash and cash equivalents, restricted NETELLER merchant cash, restricted NETELLER member cash, and trade and other receivables. The cash and cash equivalents, restricted NETELLER merchant cash and restricted NETELLER member cash are deposited with major financial institutions which the Group's management believes to be financially sound and, accordingly, minimal credit risks exist with respect to these assets.

 

The Group is exposed to credit risk to the extent that its members and merchants may charge back credit card purchases.  The Group manages the exposure to credit risk by employing various online identification verification techniques, enacted transaction limits and having a significant number of members and merchants.   As these members are geographically widespread and the merchants are active in various industries, the exposure to credit risk and concentration is mitigated. 

 

As at the reporting date, the maximum credit exposure of the Group's financial assets exposed to credit risk amounted to the following:

 

 

 

 

As at 31 December 2014

Neither past due or impaired

$

 

Past due:

1-30 days

$

 

Past due:
31-90 days

$

Past due: more than 90 days

$

Cash and cash equivalents

142,352,454

-

-

-

Restricted NETELLER merchant cash

2,232,596

-

-

-

Restricted NETELLER member cash

6,543,680




Trade and other receivables

13,289,769

388,081

342,946

691,033

Total

164,418,499

388,081

342,946

691,033

 

 

 

 

 

As at 31 December 2013

Neither past due or impaired

$

 

Past due:

1-30 days

$

 

Past due:
31-90 days

$

Past due: more than 90 days

$

Cash and cash equivalents

164,379,331

-

-

-

Restricted NETELLER merchant cash

1,635,858

-

-

-

Restricted NETELLER member cash

4,561,566




Trade and other receivables

4,360,299

76,999

236,001

87,544

Total

174,937,054

76,999

236,001

87,544

 

iii)            Interest rate risk

 

The Group is exposed to interest rate risk to the extent that investment revenue earned on cash and cash equivalents, client account funds, and restricted NETELLER member cash and interest expense incurred on debt owing are subject to fluctuations in interest rates. The Group's exposure to interest rate risk is limited as investments are held in liquid and short-term funds. A sensitivity analysis has been performed wherein 1% increase in interest rates offered would result in a $2,613,188 (2013: $3,309,654) favourable impact on net earnings while a 1% decrease would result in a $688,377 (2013: 540,811) unfavourable impact on net earnings.

 

iv)            Currency risk

 

The Group is exposed to currency risk due to financial assets and liabilities denominated in a currency other than the functional currency, primarily the Great Britain Pound ("GBP"), the EURO ("EUR"), the Canadian dollar ("CAD"), and the Hong Kong Dollar ("HKD"). The Group manages the exposure to currency risk by commercially transacting in US dollars and by limiting the use of other currencies for operating expenses, wherever possible, thereby minimising the realised and unrealised foreign exchange gain/(loss). Where limited exposures exist, these are managed through entering into forward foreign exchange contracts as appropriate (Note 3). 

 

The Group's exposure as at the reporting date was as follows:

 

As at 31 December 2014

GBP

£

EUR

CAD

$

HKD

$

Cash and cash equivalents

27,554,535

19,324,491

5,472,761

225,849,620

Segregated account funds (Note 5)

8,138,040

28,245,285

-

-

Qualifying liquid assets held for NETELLER members (Note 6)

7,437,580

49,560,936

1,197

-

Trade and other receivables

1,014,290

163,944

1,523,807

-

Trade and other payables

(9,765,296)

(25,380)

(6,122,941)

(240,179,678)

Payable to NETELLER Merchants (Note 5)

(8,582,082)

(27,543,340)

(410,332)

(1)

Payable to NETELLER Members (Note 6)

(7,151,487)

(49,340,705)

(152,062)

-

Obligations under finance lease

-

-

(655,411)

-

Total

18,645,580

20,385,231

(342,981)

(14,330,059)

 

 

As at 31 December 2013

GBP

£

EUR

CAD

$

HKD

$

Cash and cash equivalents

5,963,083

15,959,215

4,215,169

401,701,790

Segregated account funds (Note 5)

7,423,424

23,894,331

-

-

Qualifying liquid assets held for NETELLER members (Note 6)

6,339,041

39,201,320

1,202

-

Trade and other receivables

583,608

42,533

347,495

-

Trade and other payables

(7,720,939)

(313,349)

(9,257,911)

(230,145,105)

Payable to NETELLER Merchants (Note 5)

(8,109,509)

(24,153,819)

(383,583)

(766,072)

Payable to NETELLER Members (Note 6)

(5,910,254)

(38,168,813)

(85,366)

-

Obligations under finance lease

-

-

(1,020,125)

-

Total

(1,431,546)

16,461,418

(6,183,119)

170,790,613

 

As at 31 December 2014, had the US Dollar strengthened by 1% in relation to all the other currencies, with all other variables held constant, the net assets of the Group would have been decreased in both profit and equity by US $470,618 (2013: $364,119). A weakening of the US Dollar by 1% against the above currencies would have had an equal and opposite effect.

 

v)             Market segment risk

 

Market segment risk may arise due to adverse changes in legislation relating to internet, payment processing or on-line gambling.  The Group is exposed to market segment risk to the extent that legislation impacts operational presence and related revenue streams, which may be significant. The Group manages this exposure through geographical diversification and participation in non gambling sources of revenue.  The Group closely monitors local legislation in key markets (new or existing) and does not have economic reliance on any one country.

 

vi)            Liquidity risk

 

Liquidity risk is the risk that the Group will be unable to meet its financial obligations as they fall due.    Management controls and monitors the Group's cash flow on a regular basis, including forecasting future cash flows. The Group's objective to managing liquidity is to ensure that, as far as possible, that it will always have sufficient liquidity to meet the liabilities when they become due. 

 

The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments:

 

 

 

As at 31 December 2014

 

On demand

$

Less than 3 months

$

 

3 to 12 months

$

 

1 to 5 years

$

Long-term debt

-

5,000,000

15,000,000

107,000,000

Trade and other payables

48,782,573

12,693,194

5,457,579

394,671

NETELLER loyalty program

1,159,980

-

-

-

Provision for losses on NETBANX

   merchant accounts

 

1,183,492

 

-

 

-

 

-

Contingent consideration

-

-

5,000,000

-

Obligations under finance lease

-

144,697

434,100

204,808

Total

51,126,045

17,837,891

25,891,679

107,599,479

 

 

 

As at 31 December 2013

 

On demand

$

Less than 3 Less than 3 months

$

 

3 to 12 months

$

 

1 to 5 years

$

Trade and other payables

52,465,002

39,206,645

9,091,815

-

NETELLER loyalty program

1,721,956

-

-

-

Provision for losses on NETBANX

   merchant accounts

 

733,362

 

-

 

-

 

-

Shareholder loans (Note 14)

-

9,525,814

-

-

Obligations under finance lease

-

146,034

438,100

800,643

Total

54,920,320

48,878,493

9,529,915

800,643

 

vii)           Risk management assets and liabilities

 

Risks are identified, evaluated and mitigated through a combination of a "top down" approach driven by both the Audit Committee and Board of Directors. These are aggregated into a Risk Management framework where the risks are prioritised and assigned to the executive for monitoring and risk mitigation. The Group Internal Audit function undertakes regular reviews of the controls that are in place to mitigate risk. The Group enters into financial instruments through forward currency contracts that fix the net asset or liability position for significant currencies held on the Statement of Financial Position.

 

viii)          Capital disclosure

 

The Group's capital structure is comprised of shareholders' equity, deferred and contingent consideration as well as secured credit facilities as required to fund business and asset acquisitions. The Group's objective when managing its capital structure is to finance internally generated growth and maintain financial flexibility including access to capital markets. To manage its capital structure the Group may adjust capital spending, issue new shares, or acquire short-term financing.

 

ix)            Capital risk management

 

The Group manages its capital to ensure that the entities in the Group will be able to continue as a going concern, while maximising the return to stakeholders through optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the borrowings as disclosed in Note 15, and equity attributable to owners of the parent, comprising reserves and retained earnings as disclosed. The board reviews the capital structure and as part of this review, considers the cost of capital and the risks associated with each class of capital. In addition the board of directors considers the liquidity and solvency of the Group on an ongoing basis. The primarily measure used by the Group to monitor its financial leverage is its ratio of net debt to equity. The net-debt-to equity ratios as at 31 December 2014 are as follows:

 

 

 

 

As at

31 December

 2014

As at

31 December

2013

Contingent consideration

5,000,000

-

Shareholder loans

-

9,525,814

Obligations under finance lease

783,605

1,384,777

Long term debt (Note 15)

127,000,000

-

Cash and cash equivalents

(142,325,454)

(164,379,331)

Restricted NETELLER Merchant cash (Note 5)

(2,232,596)

(1,635,858)

Restricted NETELLER Member cash (Note 6)

(6,543,680)

(4,561,566)

NETBANX Merchant processing liabilities (Note 10)

44,591,159

76,792,100

Net debt

26,273,034

(82,874,064)

Equity

265,610,745

131,605,363

Net debt-to-equity

0.10:1

(0.63:1)

 

In accordance with the terms of the Group's credit facility (see Note 15), the Share Consideration Payable of $57,290,000 (see Note 16) has been included in Equity for the purposes of the Net debt-to-equity calculation above.

 

28.          RELATED PARTY TRANSACTIONS

 

Investment in subsidiaries

 

Details of the Company's principal subsidiaries as at 31 December 2014 are as follows:

 

NAME OF SUBSIDIARY

PLACE OF INCORPORATION AND OPERATION

PROPORTION OF OWNERSHIP INTEREST

PROPORTION OF VOTING POWER HELD

PRINCIPAL ACTIVITY

Optimal Payments Limited

United Kingdom

100%

100%

Authorised e-money issuer

NetBanx Limited

United Kingdom

100%

100%

Full service payment processing

Optimal Payments Services Limited

United Kingdom

100%

100%

Dormant

Netinvest Limited

United Kingdom

100%

100%

Holding company

Netpro Limited

United Kingdom

100%

100%

Dormant

Optimal Payments (UK) Limited

United Kingdom

100%

100%

Sales and administration services

Optimal Payments (Bulgaria) EOOD

Bulgaria

100%

100%

NETELLER call centre and customer support

NT Services Limited

Canada

91%

100%

Employment and administration

NT Services Building Corporation

Canada

100%

100%

Property leasing company

1155259 Alberta Limited

Canada

100%

100%

Financing

Cardload Incorporated

Canada

100%

100%

Dormant

NBX Checkout Inc.

Canada

100%

100%

Canadian sales company

NetBX Services Inc.

Canada

100%

100%

Canadian support company

NetBX Technologies Inc.

Canada

100%

100%

Canadian technology/development company

NBX Merchant Services Inc.

Canada

100%

100%

Canadian sales company

NBX Merchant Services (Australia) PTY Limited

Australia

100%

100%

Australian sales company

NBX Merchant Services Corporation

United States

100%

100%

US sales company

Optimal Payments Services Inc.

United States

100%

100%

US-based money transmission services (applicable licenses pending)

OPL Payment Services LLC

United States

100%

100%

US sales company

NBX Holdings Corporation

United States

100%

100%

Holding company

NBX Services Corporation

United States

100%

100%

Full service payment processing

NetBX Services LLC

United States

100%

100%

US sales company

TK Global Partners LP

United States

100%

100%

Full service payment processing

Optimal Payments Merchant Services Limited

Isle of Man

100%

100%

Licensed to carry on money transmission services

Net Group Holdings Limited

Isle of Man

100%

100%

Holding company

NetAdmin Limited

Isle of Man

100%

100%

Employment & administration

Net ID Limited

Isle of Man

100%

100%

Identification verification

NetB Limited

Isle of Man

100%

100%

Dormant

Optimal Payments Merchant Services (Mauritius) Limited

Mauritius

100%

100%

Mauritius sales company

Netbanx BV Limited

Netherlands

100%

100%

Holding company

 

Compensation of key management personnel

 

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Group. The compensation expense for transactions with the Group's key management personnel consists of the following:

 

 

 

Year ended

31 December 2014

$

Year  ended

31 December 2013

$

  Short-term employee benefits

2,530,845

2,555,174

  Post-employment benefits

39,012

12,541

  Share-based payments

4,763,435

1,822,862


7,333,292

4,390,577

 

Intercompany transactions

 

The franchise and platform rights fees are earned from subsidiary companies. All revenues are transferred to the Company in exchange for transaction processing services and the right to operate the platforms owned by the Company. 

 

The administrative and platform service fees as noted in the Company financial statements are paid entirely to subsidiaries of the Company.

 

The intercompany transactions are recorded on an arm's length basis and deemed to be at fair value. All intercompany balances and transactions have been eliminated upon consolidation.

 

Intercompany balances

 

Details of the Company's intercompany balances are as follows:


Year ended

31 December

2014

$

Year ended

 31 December

2013

 $

Receivable from subsidiaries



 

Receivable from Optimal Payments Ltd.

4,107,063

 

24,470,626

Receivable from NetBanx Limited

43,659,809

33,055,957

Receivable from 1155259 Alberta Limited

164,959

164,959

Receivable from NetAdmin Limited

32,657

35,819

Receivable from Net ID Limited

325,406

230,103

Receivable from Optimal Payments (UK) Ltd.

4,622,741

5,215,641

Receivable from NBX Merchant Services Inc.

2,398,735

-

Receivable from NBX Merchant Services Corp.

5,923,968

5,923,968

Receivable from NBX Checkout Inc.

16,881

16,881

Receivable from NetBX Services Inc.

3,624,184

1,863,976

Receivable from Optimal Payments Services Inc.

43,018

87,500

Receivable from OPL Payment Services LLC

-

87,500


64,919,421

71,152,930

Investment in subsidiaries



 

Investment in NetInvest Limited

 

115,390,000

 

-

Investment in Optimal Payments Ltd.

44,295,275

29,295,275

Investment in NT Services Limited

100

100

Investment in NetBanx Limited

8,435,634

8,435,634

Investment in 1155259 Alberta Limited

67,001

67,001


168,188,010

37,798,010

 

Due to subsidiaries

 



Due to NetInvest Limited

71,590,000

-

Due to NT Services Limited

21,538,898

9,217,715

Due to Optimal Payments Merchant Services Ltd.

1,117,588

34,098,096

Due to NetBX Technologies Inc.

10,830,894

4,923,775

Due to NBX Merchant Services Inc.

-

2,029,060


105,077,379

50,268,646




 

29.          CONTINGENT LIABILITIES

 

From time to time the Group is subject to legal claims and actions. The Group takes legal advice as to the likelihood of success of the claims and actions and no provision or disclosure is made where the Directors feel, based on that advice, the action is unlikely to result in a material loss or a sufficiently reliable estimate of the potential obligation cannot be made. 

 

As at 31 December 2014, NetBanx Limited, a wholly owned subsidiary, has net current liabilities. Optimal Payments Plc will continue to provide financial support to enable NetBanx Limited to meet its existing and future liabilities and continue as a going concern.

 

30.          EBITDA

               

EBITDA is defined as results of operating activities before depreciation and amortisation and exceptional non-recurring items which are defined as items of income and expense of such size, nature or incidence, that in the view of management their disclosure is relevant to explain the performance of the Group for the period.

 

EBITDA is not a financial measure calculated in accordance with IFRS as adopted by the EU. The presentation on these financial measures may not be comparable to similarly titled measures reported by other companies due to the differences in the ways the measures are calculated.

 

 

 

Year ended

31 December 2014

$

Year ended

31 December 2013

$

Income before provision for income taxes

58,978,598

32,713,055




  Depreciation and amortisation (Note 24)

20,986,740

13,517,802

  Share option expense (Note 21)

8,274,348

4,511,983

  Finance costs

2,023,756

994,926

  Restructuring costs)

-

831,605

  Loss on disposal of assets (Note 32)

11,888

552,357

  Foreign exchange gain / (loss)

3,018,777

(893,409)

  Net fair value gain on share consideration payable (Note 16)

(18,800,000)

-

  Acquisition costs

11,568,700

-

  Legal costs relating to US exit

-

(16,595)

EBITDA

86,062,807

52,211,724

 

31.          AUDITOR REMUNERATION

 

Remuneration of the auditors for audit, advisory and other services has been recorded as follows:

 

 

 

Year ended

31 December

2014

$

Year ended

31 December

2013

$

Audit services



Statutory audit

758,000

536,000




Non-audit services



Other advisory services

311,000

-

Total

861,000

536,000

 

32.          OTHER EXPENSES

 

Management includes certain balances in other as identified below: 

 

 

 

Year ended

31 December

2014

$

Year ended

31 December

2013

$

 Loss on disposal of assets (Note 7, 8)

11,888

552,357

 Recoveries of legal costs relating to US exit

-

(16,595)

Other Expenses

11,888

535,762

 

-ends-

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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