Earthport PLC (EPO) - Final Results RNS Number : 8382R Earthport PLC 23 November 2012 23 November 2012 Earthport plc ("Earthport" or the "Company") Final Results Earthport plc, the cross-border payments service provider, announces its final results for the year ended 30 June 2012. FY12 Financial Highlights · Revenue increased by 21% to £3,017,000 (2011: £2,488,000) · Gross profit increased by 22% to £2,347,000 (2011: £1,926,000) · Gross margin improved to 78% from 77% · Cash at 31 October 2012 of £10.3 million, following successful placing of £8.0 million in October 2012 FY12 Operational Highlights · Transaction volumes increased 53% year-on-year, accelerating through the year: o Increase in June 2012 of 103% compared to June 2011 o Growth has continued, with October 2012 being 143% higher compared to June 2011 · Country network expanded to a total of 54 countries, with several more in progress · 19 new customers were signed in the financial year, 12 customer implementations went live while an additional 13 customers are contracted but not yet live · Significant partnerships signed, including: o Fiserv in North America o NEC Decillion in Singapore · Further investment made in infrastructure and people to align the business with its growth opportunities · New regulations, such as the Dodd Frank Act (DFS 1073) driving additional opportunities Hank Uberoi, Executive Director of Earthport commented, "This has been a year of strong progress for Earthport, which has seen the Company deliver on many of its strategic objectives, having completed the restructuring and reorganisation which began in 2010. Earthport is at a pivotal stage of its development, as transaction levels continue to gain momentum and the Company continues to gain traction with global industry leaders as customers and channel partners." For further information, please contact: Earthport plc 020 7220 9700 Hank Uberoi / Asif Ali Panmure Gordon 020 7886 2500 Katherine Roe / Victoria Boxall Charles Stanley Securities 020 7149 6000 Mark Taylor / Paul Brotherhood Newgate Threadneedle 020 7653 9850 Caroline Evans-Jones/ Josh Royston/ Fiona Conroy About Earthport Earthport plc, a regulated global financial services organisation, specialises in the provision of a white label cross-border payments service. Through its innovative payments framework, specifically designed for high volumes of low value cross-border payments, Earthport provides a cost-effective and transparent service for secure international payments. Earthport's customers include banks, foreign exchange businesses, money transfer organisations, payment aggregators and e-commerce businesses. Through Earthport's well established payments infrastructure, customers can clear and settle payments directly to banked beneficiaries in over 50 countries. The company is headquartered in London and is listed on the Alternative Investment Market (AIM) on the London Stock Exchange. It operates globally with additional regional offices in Dubai and New York. Earthport plc is authorised and regulated by the Financial Services Authority under the Payment Service Regulations 2009 for the provision of payment services. To learn more, please visit www.earthport.com and follow us on Twitter @Earthport. BOARD STATEMENT Introduction Earthport plc ("Earthport") provides a transparent and cost-effective white-labelled cross-border payments service, specifically designed to process high volumes of low value payments with a straight-through-processing efficiency rate of 99+%. In the 2012 financial year, Earthport made strong progress. While transaction volume growth was slower than we would have predicted at the start of the year, we exceeded our expectations in terms of the nature and size of new customers, signing contracts with some of the leading businesses in financial services and signing channel partner deals with large financial services technology companies. Many of these relationships are only in the early stages of implementation, which bodes well for accelerated growth going forward. Therefore, while we are relatively pleased with the growth achieved in transaction volumes in the year, an increase of 53%, we believe this does not entirely reflect the progress that has been made. We have entered the current financial year in an excellent position, which has been demonstrated through the continued growth in transaction volumes in recent months, with October 2012 being 143% ahead of June 2011. In total 19 new customers were signed in the year, including Yandex.Money, Italbank and Active Management Services Ltd ("AMS"). 12 customer implementations went live, including notable accounts such as Western Union and AMS. Also notable are two multi-national corporate customers, who went live via our client IBM in the year, with a further three having gone live since the end of the financial year. We significantly increased our market reach through the signing of two key channel partners, Fiserv in North America and NEC Decillion in Singapore and expanded our network coverage to reach 54 countries. Earthport finished the year with 13 contracted customers which had not yet launched, underpinning the Company's growth prospects in FY13 and beyond. Earthport continued to broaden its reach and consolidate its market position in the year, taking part in steering committees, industry presentations and hosting webinars alongside some of the world's largest banks and technology providers. Our presence exceeds that which is typical of a company of our size, reflecting our position as thought leaders in the international payments industry. Financial Review Transaction volumes for the year ended 30 June 2012 were up by 53% compared to the prior year. Total revenue for the year ended 30 June 2012 was up 21% to £3,017,000 (2011: £2,488,000). Gross profit was up 22% to £2,347,000 (2011: £1,926,000). Gross margin was slightly higher at 78% (2011: 77%). Administrative expenses increased by 60% to £10,825,000 (2011: £6,763,000). This increase was due to Earthport's reorganisation and investment for growth. The primary reason for the rise was an increase in staff and contractor costs (excluding non-cash share-based payments) for the year ended 30 June 2012 which were up 55% to £6,520,000 (2011: £4,218,000). The other main items contributing to the increase were IT operational costs, other operational costs and general overheads. The share-based payment charge of £1,110,000 (2011: £2,368,000) is a non-cash item. This relates to options granted to employees and Directors during the year and in the past. Operating loss before share-based payment charge increased by 75% to £8,478,000 (2011: £4,837,000). Including the share-based payment charge of £1,110,000 (2011: £2,368,000), operating loss increased by 33% to £9,588,000 (2011: £7,205,000). Overall, the loss for the year before share-based payment charge increased by 65% to £8,519,000 (2011: £5,151,000). Including the share-based payment charge of £1,110,000 (2011: £2,368,000), loss before taxation rose 28% to £9,629,000 (2011: £7,519,000). Cash and cash equivalents at the year-end were £5,766,000 (2011: £3,826,000). With the recent post balance sheet successful fundraising of £8 million (gross), the cash and cash equivalents position of the Company as at 31 October 2012 was £10.3 million. Successful Fundraises We have been delighted by the level of investor support shown during the year and post year end, enabling the Company to carry out two fundraisings providing capital for future growth, particularly to accelerate the Group's expansion of country coverage through regional representation and presence. In November 2011, the Company raised gross proceeds of £10.6 million through a placing and the issue of £1.6 million of Convertible Loan Notes which automatically converted to equity after permission being obtained to issue sufficient equity in the Annual General Meeting. In October 2012, the Company raised £8.0 million through a placing. Market Developments During FY12, Earthport has been focussed on key 'send markets', such as North America and areas within the European Union and Middle East. These geographies alone represent a vast potential market. The Board believes there are four main trends driving the need for and uptake of, Earthport's payments service: Increases in global trade Global trade has grown dramatically over the last few years. According to a report from the World Trade Organisation export volumes grew by 14.5% in 2010 and were expected to expand by 6.5% in 2011, with a shift to lower average value per transaction. Increases in remittances Remittance payments are increasingly becoming bank-to-bank payments as opposed to cash delivery. This trend is due to an ever-increasing globally mobile workforce. The World Bank Migration and Remittances Factbook 2011 reported that International migration has doubled in the last 25 years, to more than 200 million people who now generate over 2 billion individual transactions per annum. These worldwide migrant remittances amount to over $440bn by value, at an average value of $200 - $250. Earthport's service is particularly effective for high volume, low value payments. Increases in eCommerce eCommerce has experienced significant growth through the proliferation of the internet. The World Payments Report 2011 forecasts that by 2013, the number of e-payment transactions is expected to total 30.3 billion. According to research from Glenbrook Partners, 15% of eCommerce transactions are made by overseas buyers and suppliers. The introduction of new regulations Regulation is playing an increasingly prominent role within the market. An example of this was the implementation of the Dodd Frank Act ('DFS1073') in North America. DFS1073 seeks to protect and inform consumers by providing greater transparency and predictability relating to the cost and delivery of international payments. Earthport's highly transparent cross-border payments service is being enhanced to address the specific requirements outlined in the regulation and provide a solution to Banks in the US. Sales and Marketing Sales We have maintained our focus on selling to regulated providers, and as a result banks now represent a large part of our sales pipeline. This is particularly so in our European and North American territories where many bank opportunities are those nearest to contract. Although the sales cycle is longer than we had anticipated, we are engaged in several contractual discussions and revenue earning relationships with leading regional and global banks. Regulatory change in North America with the introduction of the Dodd Frank Act, specifically Section 1073 in February 2013, is having a significant impact on institutions that transmit consumer originated payments out of North America and we are pleased to now be engaged in revenue generating opportunities in this space. During the course of the fiscal year we have also adopted a strategy to complement our direct to market sales activity through a channel partner program, where a partner offers products and services that represent synergies to the core Earthport proposition. We are confident this strategy will leverage channel partners' existing relationships and support a drive to reduce the sales cycle. This program has already resulted in partners funding the integration to the Earthport service and investing in go to market activities. We are pleased to be able to show that we have signed a number of regionally focussed partnerships, the most significant of which is with Fiserv in North America. We have also extended our sales reach through business development expertise in Asia and in Russia and the Commonwealth of Independent States (CIS) made up of former Soviet Republics on a retained basis, to help manage direct sales initiatives as well as channel partner activity. Post the year end, professional services engagements have become a new source of revenue, with Earthport developing a revenue stream through consultancy and funded developments. Marketing During the financial year we completed a brand refresh, updating the Company's brand proposition and introducing a new website. We have commissioned a series of thought leadership pieces which are published on our website and have been invited to speak at most of the major payment conferences, including post the year end at Sibos with PNC Bank and Vocalink. To support a campaign in North America to position solutions to meet the challenges of the implementation of the Dodd Frank Act we have also hosted an industry webinar, supported by leading industry professionals and attended by over 180 executives from US banks, money transfer organisations and their advisers. Customers In total 19 new customers were signed and 12 customers went live during the year, with a further 13 customers contracted but not yet live. Key new customers integrated during the course of the year have contributed to transaction growth and are outlined below. Since 2009 Earthport has provided a global payments service for IBM's Global Expense Reporting Solution (GERS) product which enables it to provide the final settlement of employees' individual expense reports. We were delighted to secure two multi-national corporate customers who went live via IBM with a further three since the end of the financial year. Legitas, a market leading provider of outsourced payroll services, facilitates payments to over 15,000 employees per week within the UK and was signed as a client in March 2011. The service went live at the end of FY11 and started generating initial revenues in early FY12. Over the year Earthport has been increasing the number of transactions it processes for Legitas on a weekly basis. This growth is expected to continue as there is significant potential within this relationship. Further key customer launches: · Western Union went live in October 2011, with the marketing launch towards the end of the financial year. We have seen a noticeable increase in transaction flows as a result of the launch. · In June 2011, Earthport signed Active Management Services Ltd ("AMS"), the global facilities management company, and in November 2011 the service went live to support the delivery of payroll services for AMS' corporate customers. · Italbank went live in May 2012. Based in Puerto Rico, Italbank has automated and enhanced its payments services through Earthport's service. · In July 2012, Earthport went live with Yandex.Money, the leading e-wallet service in Russia and the CIS. The service provides Yandex.Money's e-wallet holders with a range of enhanced international payment options. · Two top ten Money Transfer Operators are in the process of going live since the end of the financial year. The Company is currently working on opportunities with several top global and regional banks and other significant payment provider companies, which are not yet formally contracted, but are being already developed to decrease the time to market. These opportunities are expected to contract in this financial year. The pipeline remains large by number and size of clients. Channel Partnerships During the course of the financial year we have been pleased with the development of our channel partner programme. In May 2012, Earthport announced a partnership with Fiserv (NASDAQ: FISV), a leading global provider of financial services technology solutions to provide a solution for international payments. This partnership enables Fiserv clients to seamlessly process low value, cross-border payments through Fiserv's PEP+ application. PEP+ is Fiserv's leading domestic ACH processing solution and the partnership with Earthport has now expanded the reach of the solution globally, creating one solution for both domestic and international cross-border payments processing. The joint offering is in its initial stages; however Earthport anticipates that the partnership represents a significant opportunity. Recognised as the industry standard in ACH processing for nearly three decades, more than 10 billion, or roughly 50%, of all domestic ACH transactions in North America, were processed through Fiserv in 2011. In June 2012, Earthport announced a strategic partnership with Decillion Group, a subsidiary of NEC and leading systems integrator and SWIFT Service Bureau operator, which is headquartered in Singapore, and has local offices in Australia, China, Vietnam, Indonesia, Malaysia and Thailand. Under the agreement, Earthport's service is to be introduced to Decillion's 160-strong banking customer base throughout the region. We are very pleased with pipeline development activities through NEC Decillion's existing relationships in Asia. NEC Decillion invited Earthport to participate with them in the recent SWIFT annual conference, Sibos in Osaka Japan. As a member of SWIFT, Earthport attends Sibos on a regular basis, but this was a unique opportunity to participate as an official partner and expose the Earthport brand through a booth presence. Decillion Group can now offer its customers a dedicated payments service for low value cross-border payments which complement its existing systems and services for Anti-Money Laundering and international payments. In May 2012, Earthport announced a partnership in Japan with Global Winning Technologies ("GWT"). Tokyo-based GWT provides its customers, which include banks, hedge funds and securities firms, with an extensive portfolio of advanced intelligence software. GWT will act as an extension of the existing Earthport sales team. In October 2012, post the year end, Earthport entered into an agreement with ebpSource, the leading specialists in electronic bill presentment and payment. ebpSource has a global network of clients in the international electronic billing and payments industry and is therefore ideally positioned to introduce Earthport to support the launch of payments servicers into new territories. The collaboration provides ebpSource customers with the ability to quickly launch competitive white label services internationally due to Earthport's network of more than 54 countries and growing. Banking Network Earthport's network expansion strategy continued to demonstrate steady progress throughout the financial year, completing several critical territory initiatives and paving the way for further growth phases to follow. The available territory coverage now encompasses 54 markets, with further expansion in process. Banking Network activity is focussed on adding new capability in a number of developing markets, especially in Latin America, Africa and Asia, together with putting in place additional resilience processing relationships in certain strategic and/or high volume routes and enhancing capabilities on existing routes. Service Enhancements A number of significant service enhancements have been completed in the period: · Client Integrations - Improving the ease of client onboarding, particularly focused on the banking and processor segments, through the provision of additional services, tools and formats aligned to this segment. · Operational Efficiency - An increasing focus on efficiency improvements, facilitating later payment cut-off times during the processing day and reducing settlement periods for payments on a number of key routes, which has enabled us to process an increasing number of transactions while exceeding our SLA requirements. · Bank Partner Integrations - Additional automation of processing links with key banking partners, improving service levels, volume scalability and resilience. · IT Development & Infrastructure - Significant upgrades to system availability, including the move to new active datacentres. · Compliance - Further strengthened the capacity of the function by increasing the headcount and by committing to the professional development of the compliance team by supporting employees in undertaking the leading financial services industry compliance qualification. In addition, new automated screening tools were implemented in the period, which have enabled the growth of transaction volumes, by providing efficient and accurate screening and issue resolution. Board Changes In July 2012, Lady Olga Maitland stepped down from the Board having served as a Non-Executive Director at the Company for three years. Mohit Davar was appointed to the Board in July 2012 as a Non-Executive Director. Mohit has over 16 years of experience in the payments sector, through setting up, managing and leading global teams and operations and managing relationships within banks/financial institutions and regulators, at the senior most level. Since 1997 Mohit has held senior level positions such as CFO and CEO, helping the formation of and leading several money transfer companies such as the MoneyGram and Thomas Cook JV and Travelex Money Transfer, both of which were subsequently acquired. Mohit is now on the Board of several companies, and is also the Chairman of the Advisory Committee of the International Association of Money Transfer Networks. At the end of October 2012, Zafarullah (Zafar) Karim stepped down from his position as Chief Financial Officer and Executive Director, though he continues to assist the Company in a transition period through to the end of December 2012. Zafar leaves to pursue other business interests after several years at Earthport, having contributed significantly to its restructuring and turn around. In October 2012, Earthport was pleased to announce that Chief Operating Officer, Christopher (Chris) Cowlard, joined the Board as an Executive Director. Chris joined Earthport in January 2011 and has overseen much of Earthport's operational expansion and increasing sophistication of the offering. Company Development & Strategy Earthport has undergone a significant transformation in recent years, passing through a year of stabilisation in 2010 following the appointment of the new Board, in which the focus was on proving the concept behind the technology and the recapitalisation of the business. In 2011 a new management team was appointed, bringing highly experienced executives from the industry into the Company, products were further developed and the education of the market began. The appointment of Paul Thomas as Head of Sales in early 2011 saw the growth of sales team and steady increase in the sales pipeline. The strength of our sales pipeline means our main focus is now the closure and implementation of deals in our core geographies of North America, Europe, Russia and the CIS. This will continue into 2013 and once we are someway along this path we will consider further geographical expansion. Outlook The Board believes the size of Earthport's addressable market to be significant and while early transaction volume increases have been encouraging, they do not fully represent the potential scope of the business. Those customers that are signed and live are still only at the earliest stage of their evolution and are expected to grow for many years to come. In addition to this, there are several significant customers signed and yet to go live, and many more on-going discussions with potential customers. The timing of growth in each customer is difficult to predict, given that the sales process and implementation can be protracted. Indeed, growth in volumes although satisfactory has been slower than predicted, largely due to the challenge Earthport has faced in replacing an incumbent process within a conservative market that is historically reticent to implement change. Nonetheless, expansion is now taking place at an increasing pace and leading financial services business are adopting the Earthport solution. The focus in the year ahead will be on further expansion in the current markets of the US, Europe and the CIS. Other opportunities relatively unexploited thus far by the Company include Asia, Latin America and Africa, in which Earthport intends to build a presence through partners ahead of a possible direct expansion into these regions in future years. The Board believes the Company is well positioned to exploit its significant market opportunity and looks to the future with confidence. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 30 June 2012 Notes 2012 2011 £'000 £'000 Continuing operations: Revenue 4 3,017 2,488 Cost of sales (670) (562) Gross profit 2,347 1,926 Administrative expenses 8 (10,825) (6,763) Operating loss before (8,478) (4,837) share-based payment charge Share-based payment charge (1,110) (2,368) Operating loss (9,588) (7,205) Finance costs 6 (41) (314) Loss before taxation 7 (9,629) (7,519) Income tax expense 9 - - Loss for the year and total (9,629) (7,519) comprehensive income Loss per share - basic and fully 10 (3.87p) (4.42p) diluted There were no items of other Comprehensive Income for the year. CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 30 June 2012 Notes 2012 2011 £'000 £'000 Assets Non-current assets Intangible assets 11 535 - Property, plant and equipment 12 213 133 748 133 Current assets Trade and other receivables 14 1,472 671 Cash and cash equivalents 15 5,766 3,826 7,238 4,497 Total assets 7,986 4,630 Liabilities Current liabilities Trade and other payables 16 (581) (892) Borrowings 17 - (500) Total liabilities (581) (1,392) NET ASSETS 7,405 3,238 Equity Share capital 18 51,571 43,317 Share premium 19 51,318 46,886 Interest in own shares 20 (954) (954) Merger reserve 9,200 9,200 Share-based payment reserve 7,331 6,221 Warrant reserve 1,312 1,956 Retained earnings (112,373) (103,388) EQUITY ATTRIBUTABLE TO OWNERS 7,405 3,238 OF THE PARENT COMPANY STATEMENT OF FINANCIAL POSITION as at 30 June 2012 Notes 2012 2011 £'000 £'000 Assets Non-current assets Intangible assets 11 535 - Property, plant and equipment 12 213 133 Investments 13 2 1 750 134 Current assets Trade and other receivables 14 1,553 709 Cash and cash equivalents 15 5,727 3,822 7,280 4,531 Total assets 8,030 4,665 Liabilities Current liabilities Trade and other payables 16 (577) (1,637) Borrowings 17 - (500) Total liabilities (577) (2,137) NET ASSETS 7,453 2,528 Equity Share capital 18 51,571 43,317 Share premium 19 51,318 46,886 Interest in own shares 20 (853) (853) Merger reserve 9,200 9,200 Share-based payment reserve 7,331 6,221 Warrant reserve 1,312 1,956 Retained earnings (112,426) (104,199) EQUITY ATTRIBUTABLE TO OWNERS 7,453 2,528 OF THE PARENT CONSOLIDATED STATEMENT OF CASHFLOWS for the year ended 30 June 2012 Notes 2012 2011 £'000 £'000 NET CASH USED IN OPERATING ACTIVITIES 25 (9,442) (4,088) INVESTING ACTIVITIES Purchase of property, plant and equipment (193) (78) Capitalised development costs (611) - NET CASH USED IN INVESTING ACTIVITIES (804) (78) FINANCING ACTIVITIES Proceeds on issuance of ordinary shares (net of 8,669 7,419 costs paid) Issue of shares on exercise of warrants 1,815 - Proceeds on issue of convertible loan notes 1,702 - Proceeds on issue of loan notes - 100 Repayment of term loans - (86) Net cash from financing ACTIVITIES 12,186 7,433 NET INCREASE IN CASH AND CASH EQUIVALENTS 1,940 3,267 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 3,826 559 CASH AND CASH EQUIVALENTS AT THE END OF THE 5,766 3,826 YEAR COMPANY STATEMENT OF CASHFLOWS for the year ended 30 June 2012 Notes 2012 2011 £'000 £'000 NET CASH USED IN OPERATING ACTIVITIES 25 (9,477) (4,092) INVESTING ACTIVITIES Purchase of property, plant and equipment (193) (78) Capitalised development costs (611) - NET CASH USED IN INVESTING ACTIVITIES (804) (78) FINANCING ACTIVITIES Proceeds on issuance of ordinary shares (net of 8,669 7,419 costs paid) Issue of shares on exercise of warrants 1,815 - Proceeds on issue of convertible loan notes 1,702 - Proceeds on issue of loan notes - 100 Repayment of term loans - (86) Net cash from financing ACTIVITIES 12,186 7,433 NET INCREASE IN CASH AND CASH EQUIVALENTS 1,905 3,263 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 3,822 559 CASH AND CASH EQUIVALENTS AT THE END OF THE 5,727 3,822 YEAR CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 30 June 2012 Interest Share-based Share Share in own Merger payment Warrant Retained Capital premium shares reserve reserve reserve earnings Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 30 36,457 45,375 (101) June 2010 9,200 3,853 1,688 (95,869) 603 Loss for the year, being total comprehensive income for - - - - - - (7,519) (7,519) the year Share-based payments - 268 - warrants - - - - 268 - Issue of 6,777 1,577 (853) 7,501 ordinary - - - - shares Conversion of 17 - 100 loan notes 83 - - - - Cost of share - issues - (83) - - - - (83) Total 6,860 1,511 (853) transactions - - 268 (7,519) 267 with owners Share-based payments - employee - 2,368 share options - - - 2,368 - - Balance at 30 43,317 46,886 (954) 9,200 3,238 June 2011 6,221 1,956 (103,388) Loss for the year, being total comprehensive income for - - - - - - (9,629) (9,629) the year Share-based payments 1,650 1,815 - warrants 165 - - - (644) 644 Issue of 5,270 3,689 8,959 ordinary - - - - - shares Conversion of 1,334 2,202 loan notes 868 - - - - - Cost of share issues - (290) - - - - - (290) Total 8,254 4,432 3,057 transactions - - - (644) (8,985) with owners Share-based payments - employee 1,110 share options - - - - 1,110 - - Balance at 30 51,571 51,318 7,405 June 2012 (954) 9,200 7,331 1,312 (112,373) Merger reserve The merger reserve represents the premium attributable to shares issued in consolidation of the costs of acquisition of subsidiaries in prior years. Share-based payment reserve The share-based payment reserve represents the cumulative charge to date in respect of unexercised share options at the balance sheet date. Warrant reserve The warrant reserve represents the cumulative charge to date in respect of unexercised share warrants at the balance sheet date. Retained earnings The retained earnings represent the cumulative profit and loss net of distribution to owners. COMPANY STATEMENT OF CHANGES IN EQUITY for the year ended 30 June 2012 Interest Share-based Share Share in own Merger payment Warrant Retained capital premium shares reserve reserve reserve earnings Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 30 36,457 9,200 1,688 (96,617) June 2010 45,375 - 3,853 (44) Loss for the year, being total comprehensive - - - (7,582) income for - - - (7,582) the year Share-based payments - - 268 - warrants - - - - 268 Issue of 6,777 (853) ordinary 1,577 - - - - 7,501 shares Conversion of loan notes 83 17 - - - - - 100 Cost of share issues - (83) - - - - - (83) Total 6,860 (853) 268 transactions 1,511 - - (7,582) 204 with owners Share-based payments - employee - - share options - - - 2,368 - 2,368 Balance at 30 43,317 (853) 9,200 1,956 (104,199) June 2011 46,886 6,221 2,528 Loss for the year, being total comprehensive income for - - - - - - (8,871) (8,871) the year Share-based payments 1,650 644 - warrants 165 - - - (644) 1,815 Issue of 5,270 ordinary 3,689 - - - - - 8,959 shares Conversion of 1,334 2,202 loan notes 868 - - - - - Cost of share issues - (290) - - - - - (290) Total 8,254 3,815 transactions 4,432 - - - (644) (8,227) with owners Share-based payments - employee share options - - - - 1,110 - - 1,110 Balance at 30 51,571 51,318 9,200 1,312 (112,426) 7,453 June 2012 (853) 7,331 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2012 1. GENERAL INFORMATION Earthport plc is a public limited company incorporated and domiciled in England and Wales under the Companies Act 2006. The address of its principal place of business and registered office is 21 New Street, London EC2M 4TP. The nature of the Group's operations and its principal activities are set out in the Directors' Report within the Annual Report. 2. GOING CONCERN The Directors believe that the Group has demonstrated further progress in achieving its objective of positioning itself as an infrastructure supplier to the global payments industry. The Group raised £10.6m during the year through issuance of equity and convertible loan notes and £1.8m due to exercise of warrants. In addition, the Group has raised £8.0 million of funding through the issue of equity since the year end. The Directors have prepared a cash flow forecast covering a period extending beyond 12 months from the date of these financial statements. After taking account of anticipated overhead costs and revenue, the Directors are confident that sufficient funds are in place to support the going concern status of the Group. Therefore the Directors consider that it is appropriate to prepare the Group's financial statements on a going concern basis, which assumes that the Group is to continue in operational existence for the foreseeable future. When assessing the foreseeable future, the Directors have looked at a period of at least twelve months from the date of approval of the financial statements. 3. ACCOUNTING POLICIES Basis of accounting The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS') as adopted by the European Union and the requirement of the Companies Act applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention and the principal accounting policies are set out below: Company Statement of Comprehensive Income As permitted by s.408 Companies Act 2006, the company has not presented its own Statement of Comprehensive Income. The Company's loss for the financial year was £8,871,000 (2011: £7,582,000). New and amended standards adopted by the Group The following standards have been adopted in these financial statements and the Directors do not consider that there was any material impact: · IFRS 2 - Group cash settled share-based payment transactions · IAS 36 - Impairment of Assets · IFRIC 17 - Distribution of non-cash assets to owners · The amendments to IFRS 3 relating to (a) transition for contingent consideration from business acquired under IFRS 3 (2004), (b) measurement of Non-Controlling Interests, and (c) un-replaced and voluntarily replaced Share-based Payment awards. · IAS 27 - Describing the transition for amendments resulting from IAS 27 (2008). · IAS 32 - Financial Instruments: Presentation - Amendments relating to classification of rights issues. · IFRIC 19 - Extinguishing liabilities with equity instruments. At the date of authorisation of these financial statements, the following Standards and Interpretations relevant to the group operations that have been applied in these financial statements were in issue but not yet effective or endorsed (unless otherwise stated). All amendments, except where otherwise stated, are applicable for periods commencing on or after 1 January 2013: · IFRS 7 - Financial Instruments - Disclosure - Amendment. (Effective 1 January 2015) · IFRS 9 - Financial Instruments - Classification and Measurement. · IFRS 10 - Consolidated Financial Statements. · IFRS 12 - Disclosure of Interests in Other Entities. · IFRS 13 - Fair Value Measurement. · IAS 1 - Clarification of the Statement of Changes in Equity (SOCE) · IAS 19 - Employee Benefits - Amendments · IAS 24 - Related Party Disclosures - Revised definition of related parties. · IAS 27 - Separate Financial Statements (as amended 2011). The Directors anticipate that the adoption of these Standards and Interpretations as appropriate in future periods will have no material impact on the financial statements of the group. Basis of consolidation The Group financial statements consolidate the financial statements of Earthport plc and all of its subsidiaries for the year ended 30 June 2012. The results of subsidiaries acquired or sold are included in the Group financial statements from the date control passes, until control ceases. Profits and balances arising on trading between Group companies are excluded from the financial statements. All companies in the Group make up their financial statements to the same date. Revenue recognition Revenue from client transactions is recognised on completion of the transactions as they occur. Revenue from foreign exchange is recognised on completion of the associated transactions. Revenue from client implementation and consultancy is recognised as the services are performed. In the normal course of business, certain balances arise which are not allocable to any client. Efforts are made to allocate such balances. If such balances remain unallocated for a period of at least six months, then, in accordance with client contracts, they are recognised as revenue. Foreign currency translation The functional and presentational currency of the parent Company and its subsidiaries is the UK Pound Sterling. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date and exchange differences taken to the income statement. Share-based payments and warrants The Group offers executive and employee share schemes. For all grants of share options and warrants, the fair value as at the date of grant is calculated using an option pricing model and the corresponding expense is recognised either in the income statement or within equity over the vesting period. The expense of options granted is recognised as a staff cost and the associated credit is made against equity and included in the share-based payment reserve. The fair value of warrants granted in respect of equity fundraising activities is offset against the share premium account. Current and deferred income tax Current tax is the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date and any adjustments to tax payable in respect of previous years. Deferred tax expected to be payable or recoverable on differences at the balance sheet date between the tax bases and liabilities and their carrying amounts for financial reporting purposes is accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible differences can be utilised. Deferred tax is calculated at the rates of taxation which are expected to apply when the deferred tax asset or liability is realised or settled based on the rates of taxation enacted or substantively enacted at the balance sheet date. Deferred tax is measured on an undiscounted basis. Impairment of non-financial assets The carrying amounts of the Group's property, plant and equipment are reviewed at each balance sheet date to determine whether there is any indication of impairment. If such an indication exists, the asset's recoverable amount is estimated and compared to its carrying value. Where the asset does not generate cashflows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where the carrying value exceeds the recoverable amount, a provision for the impairment loss is established with a charge being made to the income statement. Intangible assets Development costs are only recognised as an intangible asset if each of the following conditions have been met: · It is technically feasible to complete the asset so that it will be available for use; · It is reasonably expected that the asset is likely to generate net future economic benefits; · Development costs in relation to the asset can be reliably measured; · Management intends to complete the asset and use or sell it. Capitalised development costs are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the income statement on a straight line basis over their useful lives (4 years). Where no intangible asset can be recognised, development expenditure is treated as expenditure in the period in which it is incurred. Property, plant and equipment and depreciation Property, plant and equipment are stated at cost less depreciation and provision for impairment. Depreciation is provided at rates calculated to write down assets to their estimated residual values over their expected useful life as follows: Leasehold improvements: short lease - straight line per annum over lease term Fixture, fittings and equipment - 20% - 33% straight line per annum Computer equipment - 33% straight line per annum The carrying values of property, plant and equipment are reviewed for impairment annually and when events or changes in circumstances indicate that the carrying value may be impaired. Any impairment is taken direct to the income statement. Leasing Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Rentals payable under operating leases are charged against income on a straight-line basis over the lease term. Pensions The Group offers a stakeholder pension scheme to all employees and the contributions are charged to the income statement as they are incurred. Financial risk management and financial instruments Financial assets and liabilities are recognised in the Group's balance sheet when the Group becomes party to the contractual provisions of the instrument. The Group's principal financial instruments comprise secured and unsecured short-term creditors, cash, short-term deposits and loans. The main purpose of these financial instruments is to finance the Group's operations, including any acquisitions where relevant. The Group has various other financial instruments, such as trade receivables and trade payables that arise directly from its operations. It is the Group's policy that no trading in financial instruments is undertaken. The Group borrows at both fixed and floating rates of interest. The Group's policy in relation to the finance is to ensure that sufficient liquid funds are maintained for operations. Trade receivables are initially measured at fair value and subsequently at amortised cost using the effective interest rate method, if material. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is evidence that the asset is impaired. Cash and cash equivalents comprise cash in hand, demand deposits and other short-term highly liquid investments that are readily converted into a known amount of cash and are subject to insignificant changes in value. Trade payables are initially measured at fair value and subsequently at amortised cost using the effective interest rate method, if material. Compound financial instruments: the fair value of the liability portion of a convertible loan is determined using a market interest rate for an equivalent non-convertible loan. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion. The remainder of the proceeds is allocated to the conversion option. This is recognised and included in shareholders' equity. Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as pre-payment for liquidity services and amortised over the period of the facility to which it relates. Equity instruments issued by the Company are recognised at the proceeds received net of direct issue costs. Employee benefit trust Shares to be awarded, and those that have been awarded, but have yet to vest unconditionally are held at cost by an employee benefit trust and shown as a deduction from equity, shareholders' fund in the Group balance sheet and included in a separate, negative reserve described as an interest in own shares. Exceptional items Exceptional items are non-recurring items which are disclosed separately because of their size or nature. Interest bearing loans and borrowings All interest bearing loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the amortisation process. Significant judgements and estimates Capitalisation of development costs In determining whether development costs should be capitalised, the Company makes estimates and assumptions based on the ability to reliably measure the costs and on the expected future economic benefits generated by products that are the result of these development costs. It is the Directors judgement that currently costs and future economic benefit can be measured with sufficient reliability to capitalise these cost at this time. In the past, a high proportion of systems development work was related to migration of functionality, making it impractical to track time and effort spent on enhancements. Since the start of 2012, the Company has been able to measure reliably the enhancement expenditure attributable to the development of new systems and therefore has capitalised the costs from 1 January 2012. Share-based payment Recognition and measurement of share-based payments require estimation of the fair value of awards at the date of grant. Judgement is also exercised when estimating the number of awards that will ultimately vest. Both of these judgements have a significant impact on the amounts recognised in the profit or loss and in the balance sheet. To assist in determining each award's fair value, the Directors engage a qualified and independent valuation expert. Estimation of the number of awards that will ultimately vest is based on historic vesting trends for similar awards, taking into consideration specific features of the awards and the current intrinsic value of those awards. Substance over form Historically and recently the Company has funded itself primarily with the use of equity. On certain occasions the Company has not had sufficient permissions to issue the required amount of equity. In these instances the Company has issued convertible loan notes which mandatorily convert to equity upon the granting of permissions to issue sufficient equity and disapply sufficient pre-emptive rights. In the Directors' judgement the substance of the transactions in which such convertible loan notes have been issued is that the issuance was one of equity and not of debt. Consequently, such issuances have been accounted for as the issuance of equity. Further details are included in note 18. 4. REVENUE Revenue, loss and net assets/liabilities are all attributable to one business segment operating from the Group's headquarters in London, United Kingdom. This is consistent with the information reviewed by the chief operating decision maker. The segmental analysis by location of customers is as follows: 2012 2011 £'000 £'000 United Kingdom 2,132 1,828 Europe 227 357 North America 482 219 Rest of the world 176 84 3,017 2,488 There are two customers who individually contribute 15% and 10% respectively towards the total revenue (2011: two; 15% and 16%). 5. EMPLOYEES 2012 2011 No. No. The average monthly number of persons (including Executive Directors) employed by the Group during the year was: Directors 3 3 Other employees (excluding contractors) 73 47 76 50 2012 2011 Staff costs for the above persons: £'000 £'000 Wages, salaries, commission and other 5,382 3,101 Social security costs 582 334 Share-based payment 1,110 2,368 Other pension costs 177 100 7,251 5,903 Of the staff costs shown above, £60,000 (2011: £14,000) is included in cost of sales. 5. EMPLOYEES (continued) Directors' emoluments Basic 2012 2011 salary and fees Pension Total Total £'000 £'000 £'000 £'000 Non-Executive Chairman: M Harrison (resigned - - - 33 18 November 2010) P Hickman 40 - 40 25 Non-Executive Vice Chairman: L Browne (resigned - - - 15 18 November 2010) Executive Directors: Z Karim 137 7 144 105 H Uberoi * - - - - P Thomas 145 6 151 81 The story has been truncated, [TRUNCATED]
Earthport PLC EPO Final Results
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