Bango Regulatory News (BGO)

10 March 2015

BANGO PLC

("Bango")

Final Results

Bango (AIM: BGO), the mobile payments company, today announces its Final Results for the year ended 31 December 2014.

FY2014 Financial highlights

· End user spend increased to £25.2m (FY2013: £15.6m), up 62%

· Gross profit on end user spend grew by 71% to £0.60m (FY2013: £0.35m)

· Total gross profit of £1.3m (FY2013: £2.1m)

· Loss before tax increased to £5.4m (FY2013: £4.9m), due to switch from up front activation fees to monthly fee basis

· Stable operational cost base of £5.0m (FY2013: £5.1m)

· Adjusted LBITDA* £3.7m (FY2013: £3.0m)

· Cash balance of £6.3m (FY2013: £5.1m)

o £6.0m oversubscribed placing and open offer in October 2014

* Adjusted LBITDA is operating loss before depreciation, amortization and share based payments

FY2014 Operational highlights

· Significant progress in transition from up-front activation fees to ongoing monthly fee

· Global expansion continued, with new activations across Europe, Latin America and Middle East

· Bango Platform tested at £650m ($1bn) annualized spend levels with existing platform capacity able to support well beyond likely cash flow positive spend levels

Forward guidance

· Based on end user spending trend data from 2014, Bango expects end user spend from activations live in December 2014 to grow by at least 100% to over £65m ($101m) annualized run rate by December 2015.

· In addition to this run rate Bango has more than 30 activations already scheduled for launch in 2015 which are expected to contribute further to end user spend growth, and a pipeline of more than 100 further activation opportunities in 2015. The current guidance on end user spend does not include any impact from these activations, nor from Amazon or Samsung business.

Ray Anderson, Chief Executive Officer of Bango, commented:

"The digital content market is continuing to move in the direction anticipated and pioneered by Bango - with app stores increasing their sales of digital content using Direct Carrier Billing. In 2014 Bango focused on maximizing market presence, and success was demonstrated by the fact that every major app store that has moved to offer Direct Carrier Billing has chosen to work with Bango.

With these agreements, and a strong market position, Bango is now focused on the completion of new activations between Mobile Network Operators (MNOs) and app stores to enable them to benefit from higher conversion rates with Bango. 2015 will be a year of delivery for Bango, as end user spend on digital content increases through both existing and new partnerships. We now have sufficient data from several quarters of growing end user activity across the countries and markets in which we are present, to be able to provide forward guidance on the growth of end user spend. Together with the anticipated additional end user spend generated from new activations, we have high confidence of increasing financial success in the coming year."

For further information please contact:

About Bango

The Bango mobile payment platform is vital to the global growth in digital content sales. The giants of mobile choose the Bango Payment Platform to provide a delightful and immediate payment experience that maximizes sales of digital content.

With over 140 markets activated by Bango partners, the Bango Payment Platform is established as the global standard for app stores to offer carrier billing. As the next billion consumers pick up their first smartphone, Bango technology will be there to unlock the universe of apps, video, games and other content that bring those smartphones to life. Global leaders plugging into Bango include Amazon (NASDAQ: AMZN), BlackBerry (NASDAQ: BBRY), Facebook (NASDAQ: FB), Google (NASDAQ: GOOG), Samsung (005930: Korea SE), Microsoft (NASDAQ: MSFT) and Mozilla. Visit: bango.com

Chairman's statement

Over the past two years, Bango has made significant investment into its platform, both in terms of capacity and robustness. This has enabled the team to secure partnerships with many of the world's leading app stores. 2014 was the year that these investments and customer wins started to show a return, as evidenced by the increased transaction volumes and end user spend through the Bango Platform. Crucially, end user spend is now rising without the need to increase the cost base of the business.

The Bango Payment Platform has been tested with loads in excess of £650m ($1bn) per year of end user spend. Bango announced and launched two new app store partnerships, with Amazon and Samsung, during the final few months of 2014. With additional potential volumes of end user spend coming from these in addition to the existing relationships with Google, Microsoft, BlackBerry and Mozilla, and with the Bango Payment Platform able to process this growth within current cost base, Bango is now well positioned to benefit financially from its strategic position in the market. 

After achieving success in providing payment services for independent content providers in the UK and USA - resulting in a maiden profit in 2010, Bango made the strategic decision to invest in product development for the app stores which are at the heart of digital content sales in a market increasingly dominated by smartphones.

App stores have adopted carrier billing at varying rates, beginning with BlackBerry in 2011 and with Samsung, the world's largest smartphone vendor, the most recent to embrace the technology. These stores have all chosen to integrate with the Bango Payment Platform.

Key partnerships with many of the giants of mobile are in place. End user spend is starting to rise rapidly and the platform is demonstrating its ability to scale while the Bango cost base remains stable.

The global market for paid content is growing and it is now clear that carrier billing will take a meaningful share of that market. Bango fulfils a vital industry role, delivering carrier billing for app stores. I look forward to Bango's next stage of growth.

I would like to thank the Bango team for their impressive work in securing 140 live activations, across 60 countries for six of the world's largest app stores. Thanks also to shareholders in Bango for their continued support as we see the investments Bango has made in technology and partnerships starting to bear fruit in its financial outlook.

David Sear

Chairman

CEO's Statement

2014 overview

2014 was a year of strong progress for Bango. App stores continue to fuel the rapid growth in digital content sales, with the Bango Payment Platform enabling app store purchases to be charged to a user's phone bill. Bango has now emerged as the de facto standard for carrier billing in app stores, uniting the industry behind a common platform that drives up revenues, while providing the best consumer purchasing experience. 

All major app stores that have chosen to deploy Direct Carrier Billing (DCB) have chosen to partner with Bango, and Bango is now the natural partner for Mobile Network Operators (MNOs) seeking to harness revenue from the digital content sales passing over their networks.

The Bango model and opportunity

Bango's objective is to enable one-click mobile payment at massive scale, maximizing conversion rates and driving revenues for app stores, mobile operators and content developers. Bango's proven platform acts as a single point of integration for app stores and MNOs around the world, enabling them to effectively use Direct Carrier Billing to monetize digital content. Partnerships are in place with many of the world's largest app stores and Bango is now focused on activating Direct Carrier Billing for app stores across the wide range of integrated mobile operators through the Bango Platform.

Bango generates revenue from payment transactions in two ways: Firstly, in a mode where Bango collects the payment from the user, and passes it on to the app store while retaining a portion - this is called "acting as principal". Secondly where the app store receives the payment enabled by Bango technology directly from the user, and pays a fee to Bango - this is called the "agency model".

The Bango Payment Platform enables app stores to increase their sales by making payment easier and faster. Bango data shows that if consumers are only presented with a credit/debit card payment option, conversion rates can be as low as 0.5% in developing markets, and rarely exceed 40% even in markets where card penetration is high. Data from the first 8 months of 2014 showed an average conversion rate for carrier billing for five app stores using the Bango Payment Platform of 82% (excluding transactions limited by monthly spend caps for specific users). This powerful advantage was one of the key factors motivating new app store and MNO sign ups during FY2014.

Continued momentum with app stores and ongoing activations with Mobile Network Operators

Bango made significant progress in FY2014, completing new activations for a number of app stores. These included new Google activations, the first Amazon activation and the first Samsung activations. There also more activations across BlackBerry, Microsoft, Mozilla and others.

Bango was delighted to announce two entirely new app store integrations during the year. Amazon and Bango launched carrier billing for Amazon Appstore in September 2014 and, in October 2014, Samsung, the world's largest smartphone manufacturer, announced a global carrier billing partnership with Bango, with plans to roll out immediately across a wide range of MNOs. These relationships will drive additional growth in 2015.

Almost 100 MNOs have now integrated with the Bango Payment Platform and are using it to provide their billing services to one or more app stores. During FY2014, Bango was pleased to secure a number of mobile operator group deals - including with Etisalat and Deutsche - which expand the pipeline of future activations faster than one-by-one agreements, and speed up the activation of app stores across multinational mobile operators.

Google

As expected, the majority of end user spend growth in FY2014 came from the initial ramp up of Google Play transactions which are expected to continue and accelerate into 2015. Google Play is the content store available on Android, which powers the most smartphones worldwide. Many early Google Play carrier billing deployments were completed directly between MNOs and Google, but Bango has been able to win an increasing share of new MNO deployments. Bango offers several key commercial and technical advantages to MNOs, compared with a direct integration with Google, including speed to market, compatibility with other app stores, uniquely valuable analytics, and centrally managed operational support.

Mozilla

Bango provides carrier billing, collection and settlement for Firefox Marketplace, which is part of a completely new hardware, software and content ecosystem from Mozilla, targeted at emerging markets and based around HTML5 open web technology. The service was initially launched during summer 2013 in several Latin American countries, as well as in Spain and Poland and during FY2014 the service was launched in additional markets in Germany, Mexico and Hungary.

Microsoft

After launching the first integration with Microsoft's Windows Phone Store in summer 2013, Bango continued to develop its partnership with Microsoft during FY2014. New launches during the year included both MNOs in the UAE, Etisalat and du. Bango is confident that it will secure an increasing share of Microsoft's future DCB business. Microsoft has high hopes that the arrival of Windows 10 in FY2015 will help Microsoft gain momentum in mobile.

BlackBerry

Bango powers carrier billing for users of BlackBerry World with more than 75 MNOs. BlackBerry remains a major player in many populous, developing world markets, including in Indonesia and Saudi Arabia. BlackBerry recently started deploying BlackBerry Messenger (BBM) across Android, Windows and iPhone and has recently started using Bango technology to collect payments for valuable BBM based services driving incremental revenues and giving Bango useful exposure and experience in markets that may become attractive to other larger customers.

Amazon

The first Bango activation with Amazon Appstore was in September 2014, with O2 in Germany. While as expected this initial integration did not generate significant revenue during FY2014, Bango anticipates a broader rollout during FY2015 as Amazon seeks to mirror its success in physical goods in the digital goods space.

Samsung

Samsung GALAXY Apps is the Samsung global content store. It was initially established using Premium SMS (PSMS) technology for payment in a number of markets. PSMS is an outdated technology associated with consumer harm which is being regulated out of existence in many major markets. Samsung's global partnership with Bango supports its move towards more modern and consumer friendly Direct Carrier Billing technology.

Bango and Samsung were able to launch several markets very quickly after agreement. Bango launched 4 carrier billing activations for Samsung in 3 markets in late 2014, in Canada, South Africa and the UAE, and there is a busy program of integrations and activations underway for FY2015.

Prepared for high growth in transaction volumes

The current Bango Platform and systems have been designed and tested to transaction volumes equivalent to end user spend of approximately £650m per year - with no increase in cost. Administrative expenses for the period were £5.0m (FY2013: £5.1m) showing that, although end user spend has grown rapidly; the cost base is stable as planned.

Product development and the platform effect

In FY2014 Bango focused its highly experienced development team on innovations in the Bango Payment Platform, to capitalize on the unique and considerable opportunities presented as the platform has emerged as a global hub for mobile commerce. Bango's analytics capabilities were deployed to MNOs as the Bango Dashboard, offering partners a unique view of the digital content purchase process - including successes and failures - enabling MNOs and app stores to increase their digital content sales.

In addition, technology is being developed to speed up the path from the early stages of discussion between MNOs and app stores to the first live transactions by using relationships and capabilities that are unique to Bango. The first fruits of this development were made available to app stores as Bango Grid which was launched on 2 March 2015.

The strategic value of the Bango Payment Platform increases as more app stores and MNOs integrate with it. The platform provides a common point of integration between the wide range of MNO billing systems, alternative payment instruments (including credit cards, mobile wallets and tomorrow's emergent technologies) and the giant digital content merchants, mainly app stores. For each app store or MNO, Bango offers a highly efficient single route to reach multiple partners, without needing to build out integrations one-by-one.

In addition, the Bango Payment Platform enables app stores and MNOs to sell more digital content, alongside the use of credit cards. Bango's BillRank and cloud-based identification and authentication technology BangoID ensure unrivalled precision across mobile platforms, authenticating users on a massive scale for frictionless, one-click payment. Bango has the ability to authenticate users even when they're connected via Wi-Fi, outside the operator network. This is another unique element of the Bango Platform that works to maximize sales.

Current trading

We are pleased to announce that since the financial year end, Bango has activated payment routes with a number of MNOs, including O2 and Etisalat. These activations started delivering end user spend in 2015.

Outlook

Bango has made good progress this year in integrating app stores and subsequently activating them with multiple mobile operators. Data gathered by Bango over the last two years across multiple countries and app stores, indicates that revenue in the market for digital content that is purchased via app stores is growing at a steady and sustainable pace.

Bango finished FY2014 with annualized end user spend generated from existing activations of £32.9m. Based on the data that Bango holds regarding the increase in end user spend from activations that were live as at 31 December 2014, Bango expects end user spend to increase by at least 100% to over £65m ($101m) for FY2015. With February 2015 annualized end user spend at £36.1m, Bango is confident in meeting this guidance.

In addition to this growth from existing activations, Bango has more than 30 activations already scheduled for launch in 2015 and a strong pipeline of over 100 further activation opportunities for the remainder of 2015. Taking account of the possible end user spend from these potential activations gives management a high level of confidence in the Groups' ability to exceed the 100% forecast growth in end user spend generating from current activations alone in the current financial year.

With a stable cost-base and rapidly increasing end user spend, Bango continues to believe that it can become cash flow positive comfortably within the current capacity of the Bango Payment Platform.

Ray Anderson

Chief Executive Officer

CFO's statement

End user spend

End user spend is the most significant Key Performance Indicator (KPI) for Bango as it shows how much business is being transacted through the Bango Platform for the app stores. End user spend for the year was £25.2m, up 62% from prior 2013 spend of £15.6m. Furthermore, annualized end user spend at the end of 2014 was £32.9m demonstrating the rapid growth of the business. Bango has invested in a platform to process end user spend at scale. The growth in end user spend is an indicator that our strategy of connecting major app stores to MNOs, whilst in its infancy, is working.

Bango now has sufficient data points to estimate end user spend once Bango has activated an app store with a MNO. From this data, Bango management is in a position to predict that the annualized rate of end user spend from the app store / mobile operator activations that were live in December 2014 will double to approximately £65m by the end of December 2015.

This estimate excludes end user spend generated from our new app store relationships with Samsung and Amazon as these have only been live for an initial few months and spending data is insufficient to provide reliable and verifiable predictions, and does not include end user spend arising from Bango's pipeline of more than 30 activations already scheduled for launch in 2015, nor from the pipeline of more than 100 further activations which are likely to be activated in 2015. (In 2014 there were more than 30 activations).

Turnover

Bango generates turnover either as principal or agent. The turnover for the year ended 31 December 2014 was £5.1m. End user spend generated under the agency model, where Bango only recognizes the agency fee charged, was 84% of all end user spend. 16% of end user spend was transacted with Bango as principal in the transaction - where the whole of the end user spend is recognized. This was a significant shift from the year ended 31 December 2013 when 55% of end user spend was generated as agency, and 45% as principal. This accounts for the reduction in turnover from £8.8m in the previous year. The proportion of agency end user spend will vary with the volumes transacted by each app store.

Turnover also includes £0.7m of platform fees (FY2013: £1.7m) which have decreased with the planned migration from one-off integration fees to recurring monthly fees to remove barriers to activations with the MNOs. Going forward, Bango expects platform fees to remain at a level that is broadly consistent with FY2014, further demonstrating that end user spend is the most significant KPI for the company.

Overall margin on end user spend

Gross margin on end user activity for the period was 2.4%, an improvement compared with FY2013 (FY2013: 2.3% see note 4 in the accounts). This is within Bango's longer term target range of between 2% and 5% based on a mix of agency and principal models.

Trading results from operations

With the growth in end user spend and the small increase in margin generated from end user spend, the margin on end user spend increased 71% to £0.60m (FY2013: £0.35m).

There was a 59% decrease in platform fees to £0.7m (FY2013: £1.7m). This reflects the change in the business model and corresponding revenue recognition away from up front activation fees to monthly transaction or support fees as previously announced.

As a result, gross profit was £1.3m for the year compared to £2.1m for the FY2013.

Administrative expenses

Administrative expenses were stable at £5.0m (FY2013: £5.1m) confirming that the Bango cost base should not need to increase as end user spend grows. The operating loss for the year was £5.4m (FY2013: £4.9m). Amortization of intangible assets in the year was £0.8m (FY2013: £1.0m) as more of the previously capitalized R&D came into use during the period. FY2013 included an accelerated amortization charge of £0.3m not needed in FY2014. Depreciation for the year totalled £0.5m (FY2013: £0.4m).

Share based payments costs of £0.4m in 2014 (FY2013: £0.5m) are part of the compensation package Bango uses to attract and retain key employees.

Bango reported a net loss before tax for the year of £5.4m (FY2013: £4.9m). The loss after tax totalled £5.1m for the year compared with £4.7m for the previous year.

Taxation

The tax credit for the year was £0.2m (FY2013: £0.2m) and relates to R&D tax credits receivable.

At the year-end Bango had not recognized a deferred tax asset in the balance sheet of £4.8m (FY2013: £3.1m), due to the unpredictability of future taxable trading profits against which the losses may be utilized.

Loss per share

Basic and diluted loss per share was 10.96 pence (FY2013: 10.53 pence).

Balance sheet

Net assets of the Group were £9.8m at 31 December 2014 (at 31 December 2013: £8.9m).

Cash balances increased to £6.3m at 31 December 2014 (at 31 December 2013: £5.1m).

Intangible assets increased to £3.5m (at 31 December 2013: £3.4m) as a result of on-going internal development work being capitalized.

Trade receivables are significantly down to £1.1m (at 31 December 2013: £2.0m) reflecting the rapid growth in agency based end user spend.

Current liabilities as at 31 December 2014 were £1.8m (at 31 December 2013: £2.2m). Total borrowings are £0.6m (at 31 December 2013: £0.4m), and consist only of finance lease liabilities. Of the total borrowings, £0.3m is classed as current (at 31 December 2013: £0.1m) and £0.3m is classed as non-current (at 31 December 2013: £0.3m).

Raising of additional capital

In October 2014, Bango raised £6.0m before expenses in an oversubscribed placing and open offer of 6,250,000 new ordinary shares at a price of 96p, with both new and existing institutional investors. The funding has provided support for Bango's strategy of being positioned to take advantage of developing opportunities in emerging markets and further business development with major MNOs. It also provided valuable comfort to customers like Samsung of Bango's long term support from shareholders.

Cash flow

Cash used by operating activities was £3.2m (FY2013: £2.6m).

Bango managed significant working capital improvements during 2015 including:

· Reductions in receivables of £0.9m, driven by the shift to the agency business model

· Reduction in payables of £0.6m also caused by a shift to the agency business model

Net capital expenditure outflows totalled £0.1m in the year (FY2013: £0.1m) and were largely attributable to acquisition of computing equipment. The addition of intangible assets totalled £0.9m (FY2013: £1.1m) and was attributable to the capitalization of internal development costs. These were part of a major hardware and software platform deployment in a new primary data center to upscale capacity, resilience and security.

Bango's cash balances included balances denominated in foreign currencies (primarily US Dollars and Euros).

At 31 December 2014 Bango had cash balances of £6.3m (at 31 December 2013: £5.1m) and total finance lease liabilities £0.6m (at 31 December 2013: £0.4m).

Gerry Tucker

Chief Financial Officer

Audited results for the year ending 31 December 2014

Consolidated statement of comprehensive income

Alternative performance measure (Non-IFRS)

Loss per share attributable to the equity holders of the parent

All of the activities of the Group are classed as continuing.

Consolidated balance sheet

Consolidated cash flow statement

Consolidated statement of changes in equity

Notes to the financial statements

1 General information

Bango PLC ("the Company") was incorporated on 8 March 2005 in the United Kingdom. The Company is domiciled in the United Kingdom. The Company's shares are listed on the Alternative Investment Market of the London Stock Exchange ("AIM").

The preliminary statements are for the year ended 31 December 2014 (including the comparatives for the year ended 31 December 2013).

2 Basis of preparation

The consolidated financial statements have been prepared under the historical cost convention and under the basis of going concern.

Bango has prepared its Report and accounts for the year ended 31 December 2014, in accordance with International Financial Reporting Standards ("IFRS") as adopted in the European Union and as applied in accordance with the provisions of the Companies Act 2006. IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies.

These preliminary statements are presented in pounds sterling (GBP) because that is the presentation currency of Bango.

The Board of Bango PLC approved the release of this preliminary announcement on 9 March 2015.

The preliminary financial information does not constitute statutory financial statements for the year ended 31 December 2014 within the meaning of section 435 of the Companies Act 2006, but is extracted from those financial statements. Statutory accounts for Bango PLC for the year ended 31 December 2013 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31 December 2014 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and (iii) did not contain statements under section 498(2) or (3) of the Companies Act 2006.

3 Segment reporting

(a) End user spend

Bango has identified end user spend as a non IFRS alternative performance measure as its key performance indicator on which all management decisions surrounding investment in the platform and development of intangible assets are based. Due to the complex contracts in place the turnover figure in the accounts is a mixture of gross transaction value where Bango is principal and margin only where Bango is the agent. This is to comply with relevant accounting rules, however, the key business decisions are based on the total value and volume of transactions that Bango has processed in each month through its payment platform. Therefore, to give additional information to key stakeholders of our accounts, we have included this additional reporting in order to assist users of our financial statements.

(b) Turnover and gross profit

Bango, based on the information reviewed by the chief operating decision maker, identifies two operating segments. Management reporting is based principally on the type of customer and strategic decisions are made on the basis of the gross profit generated from each segment. The segments are not separately managed and therefore the Group's headquarters and its Research and Development activity are considered Group operations and are not allocated to any operating segment. Segment information can be analyzed as follows for the reporting periods under review.

12 months to 31 December 2014

12 months to 31 December 2013

Included within the end user segment turnover is £3.94m (31 December 2013 £6.33m) relating to a major strategic partner, and included within platform fees there was £0.34m (31 December 2013 £0.81m) relating to one strategic partner.

End user activity is the content access fees paid by end users for accessing chargeable content provided by digital merchants, adjusted to take account of whether Bango is agent or principal in the transactions. Gross profit for this segment is after both digital merchant and payment provider charges. Assets for this segment are amounts due from payment providers. Liabilities for this segment are mainly fees payable to payment providers for provision of services and fees payable to digital merchants for provision of content sold by Bango to end users.

Platform fees are the amounts paid to Bango by digital merchants and others for package fees and other services including analytics and operator integrations. Assets for this segment are amounts due for package fees and other services. Liabilities for this segment represent deferred income for package fees. Group assets include non-current assets and cash and cash equivalents. Group liabilities relate to administrative expenses.

Non-current assets are based in the UK, except for £0.05m of property, plant and equipment held at the US office and data centre.

(c) Geographical analysis

Bango's turnover from external customers is divided into the following geographical areas.

Segment turnover is based on the location of the customers. Of which in platform fees £0.34m (FY2013: £0.81m) came from a strategic partner based in the USA and Canada. All turnover from end users is spread over many territories.

All of the other notes to the accounts are included in the "Annual Report 2014" which is available for download from bango.com