Earthport Regulatory News (EPO)

7 Dec 2006 09:48

Earthport PLC07 December 2006 Embargoed until 07.00, 7 December 2006 PRELIMINARY RESULTS For the year ended 30 June 2006 • A year of reconstruction, repositioning and refocusing. • Operating loss reduced by 30% to £4.1m (2005: £5.9m) • Loss on ordinary activities reduced by 70% to £2.1m (2005: £7.1m as restated) due to reduced interest costs and an exceptional gain of £2.6m arising from the reorganisation of debt. • Restructuring of balance sheet key element of strategy to ensure sufficient funding to enable the Group to complete its move towards profitability. £6.1m raised through equity during the year and a further £0.7m through the issue of convertible loan notes to facilitate restructuring of operations. • Further expansion during the year in Earthport's international banking network in terms of reach and capacity to cover over 190 countries, which will be further enhanced by Earthport's membership of SWIFT. • Adoption of the IBM WebSphere architecture, which is truly scalable and provides the Company with an IBM end-to-end solution enabling accelerated client integration. It will also reduce associated development costs, significantly enhancing the Company's abilities to implement new business functions. • Appointment of David Fife as Chief Executive Officer effective from 1 November 2006. Mike Harrison, Executive Chairman of Earthport, commented: "The next stage ofthe repositioning of Earthport is well under way and is further enhanced by theimprovements that we have made in upgrading our UPN and our success in gainingmembership of SWIFT. The Company is positioned to transact both within SEPA and where FX currencyconversion is required. The delivery of cross border funds in local currency ata commercial rate is a feature of the Earthport Service and will enhance ourrevenue and profit performance. We are expanding our customer base with the securing of new contracts and nowhave the improved flexibility to benefit from developments within our markets.This will flow into increased transaction volumes to be reflected in the Group'sresults for the current financial year. Because of these activities I will bemaking a trading announcement early in 2007." For further information: Mike Harrison Chairman - Earthport plc +44 20 7220 9700 Mark Ashurst - Canaccord Adams Limited +44 20 7050 6500 Lulu Bridges/Paul Dulieu - Tavistock Communications +44 20 7920 3150 EARTHPORT PLC Preliminary Results for the year ended 30 June 2006 STATEMENT BY THE BOARD OF DIRECTORS The year to 30 June 2006 has been one of reconstruction, repositioning andrefocusing. The strategic review, initiated following the appointment of MikeHarrison as Executive Chairman in May 2005, addressed some key legacy issues,resulted in the restructuring of the balance sheet, the raising of new equityfunds and established a funding strategy to support focused investment indeveloping the Group's banking network, technical infrastructure and its salesand marketing team. RESULTS Turnover for the year ended 30 June 2006 reduced to £0.7m (2005: £0.9m). After asharp fall in transaction volumes in the final quarter of the previous financialyear, underlying international transaction volumes have risen throughout theyear and the fall in revenue reflects the market requirements for atransactional fee that is no longer directly correlated to the amount of fundstransferred. The Group's operating loss fell by 30% to £4.1m (2005: £5.9m).Interest costs have fallen 50% to £0.6m (2005 as restated: £1.2m) and thecurrent year includes an exceptional gain arising on the debt reorganisation of£2.6m. As a result, the loss on ordinary activities before tax reduced 70% to£2.1m (2005 as restated: £7.1m). OPERATIONS During the year, the Group continued to expand the reach and capacity of itsinternational banking network which supports the ability to make payments toover 190 countries through more than 80 segregated trust accounts. This reachwill be further enhanced by access to the SWIFT network, whose integration isexpected to be complete by early December 2006. SWIFT membership will alsoprovide improved efficiencies in reporting, processing and integration of newbanking relationships. The banking network is leveraged by our technology platform, the UniversalPayments Network (UPN). The existing architecture and code, whilst meetingcurrent functional requirements, would not meet the key requirements ofresilience and scalability to support the future growth of the business.Investment has been made to move to an IBM WebSphere application serverplatform, providing improved availability, reliability, security and scalability. In parallel to the existing Java based system, further significant investment has been made in developing a new architecture required to support our market opportunity. The new architecture will be easier to maintain and will cut the development cost and time to extend the UPN and to implement new business functions. The initial deployment of this new architecture was made last month and provides enhanced functionality, and improved operating efficiencies. BALANCE SHEET RESTRUCTURING AND FUNDRAISING The capital reorganisation approved by shareholders at an Extraordinary GeneralMeeting held on 29 July 2005 regularised the Company's capital structure. InDecember 2005, £3.9m of secured loans and unsecured finance leases were settledfor £1m in cash and £0.25m in unsecured loan notes. The cash element wasfinanced by a £1.25m loan facility, repayable over 5 years thereby reducingobligations by £2.6m and extending the maturity profile of the debt. In additionthe Group has adopted FRS 25 Financial instruments: disclosure and presentationwhich requires the valuation of convertible loan notes to reflect theirunderlying debt and equity components. As a result a further £1.4m of debt hasbeen treated as equity at 30 June 2006 (2005 as restated: £1.9m). The completionof the balance sheet restructuring was a key component of the board's strategyto ensure sufficient funding to enable the Group to complete its move towardsprofitability. During the year, the Company raised £6.1m equity for cashconsideration and £0.7m of convertible loan notes. Follow on funding of afurther £4.7m had been secured in the form of warrants. As a result of theCompany's share price performance since May 2006, these warrants were not takenup and have lapsed. Since the year end, the Company has secured additional longterm debt of £0.4m and raised £0.8m of new equity. OUTLOOK Following the appointment of David Fife as CEO on 1 November 2006, the sales andmarketing functions have been reorganised to focus on targeting markets wherethere is a proven and increasing demand for our services and developing channelpartners with an established track record servicing the payments market,particularly for US companies expanding overseas. The next stage of the repositioning of Earthport is well under way and isfurther enhanced by the improvements that we have made in upgrading ourUniversal Payments Network and our success in gaining SWIFT membership. Your Company is well positioned to carry out payments and collections bothwithin SEPA and globally. A key feature of the Earthport offering and anopportunity to leverage our international funds transfer services, is theability to accept and deliver funds in multiple currencies. We are, therefore, confident that we are geared to expand further our customerbase with the securing of new contracts and now have the improved flexibility tobenefit from developments within our markets. This should flow into increasedtransaction volumes to be reflected in the Group's results for the currentfinancial year. Earthport plc CONSOLIDATED PROFIT AND LOSS ACCOUNTfor the year ended 30 June 2006 Notes 2006 2005 £'000 £'000 As restated Turnover 3 661 888 Administrative expenses (4,776) (6,744) -------- --------Operating loss (4,115) (5,856) Interest payable 4 (569) (1,203)Exceptional income 5 2,570 - -------- --------Loss on ordinary activities before taxation (2,114) (7,059) Taxation - - -------- --------Loss on ordinary activities after taxation (2,114) (7,059) ======== ======== Loss per share - basic 6 (10.1p) (96.7p) - fully diluted 6 (10.1p) (96.7p) ======== ======== All activities are classed as continuing. STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESFor the year ended 30 June 2006 2006 2005 £'000 £'000 As restated Loss for the financial year (2,114) (7,059)Prior year adjustment - FRS 25 Financial Instruments: disclosure and presentation 11 54 - -------- --------Total gains and losses recognised since last annual report (2,060) (7,059) ======== ======== Earthport plcCONSOLIDATED BALANCE SHEETat 30 June 2006 Notes 2006 2005 £'000 £'000 As restated Fixed assets Tangible assets 184 185 Investments 160 - -------- -------- 344 185 -------- --------Current assets Debtors 1,240 1,351 Cash at bank and in hand 65 8 -------- -------- 1,305 1,359 Creditors: Amounts falling due within one year 7 (5,482) (10,250) -------- --------Net current liabilities (4,177) (8,891) -------- -------- Total assets less current liabilities (3,833) (8,706) Creditors: Amounts falling due after more than one year 8 (973) (1,010) -------- -------- (4,806) (9,716) ======== ======== Capital and reserves Ordinary share capital 10 26,269 23,898 Share premium account 11 35,161 29,827 Other reserves 11 10,564 11,131 Profit and loss account 11 (76,800) (74,572) -------- --------Equity shareholders' funds 12 (4,806) (9,716) ======== ======== Earthport plcCONSOLIDATED CASH FLOW STATEMENTfor the year ended 30 June 2006 Notes 2006 2005 £'000 £'000 Net cash outflow from operating activities 13 (5,781) (3,253) -------- --------Returns on investments and servicing of finance Interest paid (200) (769) -------- -------- Net cash outflow from returns on investments and servicing of finance (200) (769) -------- -------- Capital expenditure and financial investment Payments to acquire tangible fixed assets (110) (97)Purchase of trade investment (160) - Proceeds of disposals of tangible fixed assets 15 - -------- --------Net cash outflow from capital expenditure and financial investment (255) (97) -------- --------Cash outflow before financing (6,236) (4,119) Financing Issue of ordinary share capital (net of costs) 5,859 300 Capital element of finance lease rental payments 14 - (325)Net movement in borrowings 14 434 4,129 -------- --------Net cash inflow from financing 6,293 4,104 -------- --------Increase/(decrease) in cash in the year 57 (15) ======== ======== Earthport plcNOTES TO FINANCIAL STATEMENTS 1 FUNDAMENTAL ACCOUNTING CONCEPT The financial statements have been prepared on the assumption that the Group isa going concern. Since the balance sheet date, the Company has raised additional finance throughthe issue of additional long-term debt of £0.41m and new equity of £0.76m. When assessing the foreseeable future the directors have looked at a period oftwelve months from the date of approval of the financial statements. Theforecast cash-flow requirement of the business is contingent upon the ability ofthe Group to generate future sales. The uncertainty as to the timing of thefuture growth in sales, together with the potential impact on the follow-onfunding arrangements, require the directors to consider the Group's ability tocontinue as a going concern. Notwithstanding this uncertainty, the directorsbelieve that the Group has demonstrated progress in achieving its objective ofpositioning the Group as an infrastructure supplier to the global paymentsindustry, and therefore consider that it is appropriate to prepare the Group'sfinancial statements on a going concern basis, which assumes that the Company isto continue in operational existence for the foreseeable future. The financial statements do not include any adjustment that would result shouldthe Group not generate sufficient revenues, free cash flow or raise additionalfinance through further injections of debt or equity. It is not practical toquantify the adjustments that might be required, but should any adjustments berequired they may be significant. 2 ACCOUNTING POLICIES Basis of preparation The financial statements are prepared under the historical cost convention andin accordance with applicable United Kingdom accounting standards. Compound financial instruments The Company has adopted FRS25 Financial Instruments: disclosure andpresentation. Convertible loan notes are treated as debt where the conversionterms of the notes state that the conversion is at the choice of the noteholder.Certain notes convert at the maturity date into ordinary shares of 10p each atthe option of the Company and are treated as compound financial instruments. Insuch cases the discounted value of the interest income is treated as debt, withthe balance of the principal taken to equity and accounted for in otherreserves. Upon conversion, the appropriate transfer is made from reserves toordinary share capital. 3 TURNOVER AND SEGMENTAL ANALYSIS All activities are classed as continuing. Turnover, loss and net liabilities areall attributable to one business segment. Turnover may be analysed as follows: 2006 2005 £'000 £'000 Transaction services 262 195 Transaction fees 238 637 Development, licence fees, implementation and other services 161 56 ------- ------- 661 888 ======= ======= 4 INTEREST PAYABLE 2006 2005 £'000 £'000 As restated Interest payable - secured loans and convertible loan notes 566 771 Loan arrangement fees and other finance costs 3 432 ------- ------- 569 1,203 ======= ======= 5 EXCEPTIONAL INCOME 2006 2005 £'000 £'000 Debt restructuring 2,570 - ======= ======= On 9 December 2005, the Company announced the completion of the restructuring ofits secured loans and unsecured finance leases, whereby £3.9m of debt wassettled for £1.3m, financed with a new £1.25m secured loan facility, repayableover five years. 6 LOSS PER SHARE The calculation of the basic and headline loss per share is based on thefollowing data Weighted average number of shares 2006 2005 Number Number As restatedWeighted average number of shares in issue for basic and headline loss per share 20,994,679 7,297,775 ========== ========= The comparative weighted average number of shares has been adjusted to reflectthe capital reorganisation following the extraordinary general meeting held on29 July 2005 (see note 10). Loss attributable to shareholders 2006 2005 £'000 £'000 As restatedLoss attributable to shareholders (2,114) (7,059)Less: exceptional income (2,570) - ------- -------Headline loss (4,684) (7,059) ======== ======= The comparative loss per share has been restated following the adoption of FRS25Financial instruments: disclosure and presentation The fully diluted loss per share is the same as the basic loss per share 2006 2005 As restatedBasic loss per share (10.1p) (96.7p)Fully diluted loss per share (10.1p) (96.7p)Headline loss per share (22.3p) (96.7p) ======== ======= 7 CREDITORS: Amounts falling due with one year 2006 2005 £'000 £'000 As restated Secured loans (note 9) 196 1,287Unsecured loans 270 195Trade creditors 877 1,745 Other Creditors 963 - ------- -------Amount due to subsidiary undertakings Other taxation and social security 1,790 2,278 Accruals and deferred income 619 2,116 Obligations under finance lease contracts - 1,509 (note 9)Convertible loan notes 767 1,120 ------- ------- 5,482 10,250 ======= ======= At 1 July 2005, the convertible loan notes in issue were subject to thefollowing terms: Series Principal Conversion terms Maturity date Liability element £'000 No. of 10p shares per £'000 £1 loan note No. 1 2004 600 0.526 31 August 2005 600No. 3 2004 1,130 2.395 31 December 2005 55No. 4 2004 375 1.053 31 December 2005 375No. 1 2005 500 2.395 31 May 2006 43No. 1 2005 500 2.395 30 June 2006 47 ------- ------- 3,105 1,120 ------- ------- The No. 1 loan notes 2004 are convertible into shares at the option of the noteholder. All other notes convert at the maturity date into shares, at the optionof the Company and have been treated as compound financial instruments. Allnotes have a coupon of 10% payable in arrears in cash or shares at the option ofthe Company. The directors have estimated the fair value of the liability component bydiscounting the anticipated cash flows to the note holder at 15% per annum,being the interest rate accruing on the Company's long term debt During the year ended 30 June 2006 the conversion terms of the No. 1 loan notes2004 were revised as shown below; the No. 3 2004 loan notes were converted intoequity; and the No. 4 loan notes 2004 were redeemed by way of set off. Prior tothe Extraordinary General Meeting held on 29 July 2005, a further £600,000 ofNo. 1 loan notes 2005 were issued. On 9 January 2006, £167,000 No. 1 loan notes2006 were issued. On 30 June 2006, the maturity date of all the No. 1 loan notes2005 was extended to 31 December 2006, though the notes cease to carry a couponfrom their original maturity date. At 30 June 2006, the convertible loan notes in issue were subject to thefollowing terms: Series Principal Conversion terms Maturity date Liability element £'000 No. of 10p shares per £'000 £1 loan note No. 1 2004 600 2.857 30 June 2007 600 No. 1 2005 1,500 2.395 31 December 2006 Nil No. 1 2006 167 2.857 30 June 2006 167 ------- ------- 2,267 767 ------- ------- The No.1 loan notes 2005 convert at the maturity date into shares, at the optionof the Company. The remaining loan notes convert at the option of the noteholder. 8 CREDITORS: Amounts falling due after more than one year 2006 2005 £'000 £'000 GROUP AND COMPANY Secured loans (see note 9) 973 1,010 ======= ======= 9 SECURED LOANS AND OBLIGATIONS UNDER FINANCE LEASE CONTRACTS On 9 December 2005, secured loans and unsecured finance leases amounting to£3.9m were settled for £1m in cash and £0.25m 7% unsecured loan note 2007. Thesettlement has been financed by a new facility of £1.25m repayable over 5 years,secured by means of an all monies mortgage debenture over the Company's assets. 10 SHARE CAPITAL 2006 2005 £'000 £'000 Authorised Ordinary shares of 2.5p each: Nil - 16,053 (2005: 642,110,352) Ordinary shares of 10p each: 6,941 - 69,412,642 (2005: Nil) Deferred shares of 7.5p each: 23,059 7,947 307,449,810 (2005: 105,963,216) -------- -------- 30,000 24,000 ======== ========Issued Ordinary shares of 2.5p each: Nil - 15,951 (2005: 638,040,880) Ordinary shares of 10p each : 3,210 - 32,099,988 (2005: Nil) Deferred shares of 7.5p each: 23,059 7,947 307,449,792 (2005: 105,963,216) -------- -------- 26,269 23,898 ======== ======== At the Extraordinary General Meeting held on 29 July 2005 the shareholdersapproved a capital reorganisation whereby the 638,040,880 ordinary shares of2.5p each in issue at 30 June 2005 were consolidated and converted into newconsolidated shares of 190p each at a rate of 1 consolidated share for 76ordinary shares of 2.5p each. Each consolidated share of 190p each was thensub-divided into 24 deferred shares of 7.5p each and 1 new ordinary share of 10peach. At the same time, the authorised but un-issued share capital of 4,069,472ordinary shares of 2.5p each were consolidated and converted into new ordinaryshares of 10p each at the rate of 1 new ordinary share of 10p each for every 4ordinary shares of 2.5p each. The authorised share capital was also increased to £30,000,000 by the creationof 60,000,000 new ordinary shares of 10p each. Immediately following the consolidation and sub-division, the issued sharecapital comprised 8,395,275 new ordinary shares of 10p each and 307,449,972deferred shares of 7.5p each. The deferred shares carry no rights to receive any dividend or otherdistribution. The holders of the deferred shares have no rights to receivenotice, attend, speak or vote at any general meeting of the Company. On a returnof capital on liquidation or otherwise, the holders of the deferred shares areentitled to receive the nominal amount paid up on the deferred shares after therepayment of £10,000,000 per ordinary share. Consequently a value of £nil hasbeen ascribed to the deferred shares. During the year to 30 June 2006 a total of 23,704,713 ordinary shares of 10peach were allotted, of which 19,119,237 were allotted for cash consideration of£6,121,189; a further 1,640,657 were allotted in satisfaction of creditorsamounting to £615,900 and 2,944,819 upon conversion of £1,229,695 of convertibleloan notes. 11 RESERVES Share Profit and premium Other loss GROUP account reserves account Total £'000 £'000 £'000 £'000 At 1 July 2005 (as previously stated) 29,827 9,200 (74,626) (35,599)Prior year adjustment (see below) - 1,931 54 1,985 ------- ------- -------- -------At 1 July 2005 (as restated) 29,827 11,131 (74,572) (33,614)Loss for the year - - (2,114) (2,114)Premium on shares issued 5,334 - - 5,334 Equity component of loan notes issued - 548 - 548 Conversion of loan notes - (1,115) (114) (1,229) ------- ------- -------- -------At 30 June 2006 35,161 10,564 (76,800) (31,075) ======= ======= ======== ======= The prior year adjustment reflects the adoption of FRS 25 Financial instruments:disclosure and presentation, whereby the equity component of those convertibleloan notes (note 7), which convert into equity at the option of the Company, hasbeen included in other reserves. 12 MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS 2006 2005 £'000 £'000 At 1 July (as previously stated) (11,701) (6,785Prior period adjustment 1,985 - At 1 July (as restated) (9,716) (6,785)Loss for the financial year (2,114) (7,059)Arising on issue of shares 7,705 2,197Arising on the issue and conversion of loan notes (681) 1,931 ------- ------- At 30 June (4,806) (9,716) ======= ======= The impact of the adoption of FRS 25 Financial instruments: disclosure andpresentation, has been to reduce the loss for the year by £196,000 (2005:£54,000) and to increase equity shareholders' funds at 30 June 2006 by£1,500,000 (2005: £1,985,000) 13 RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES 2006 2005 £'000 £'000 As restated Operating loss (4,115) (5,856)Depreciation of tangible assets 90 301 Loss on disposal of fixed assets 6 - (Increase)/decrease in debtors (149) 261 (Decrease)/increase in creditors (1,613) 2,041 -------- --------Net cash outflow from operating activities (5,781) (3,253) ======== ======== 14 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 2006 2005 £'000 £'000 As restated Increase / (decrease) in cash in the year 57 (15)Cash inflow from change in debt and lease financing (434) (3,804) ------- -------Change in net debt resulting from cash flows (377) (3,819)Non cash movements Conversion of loans into share capital - 875 Convertible loan notes 744 1,985 Debt restructuring 2,570 - Other non cash movements 15 (163) ------- -------Movement in the year 2,952 (1,122)Net debt at beginning of year (as previously stated) (7,078) (3,971)Prior year adjustment 1,985 - ------- -------Net debt at beginning of year (as restated) (5,093) (3,971) ------- -------Net debt at end of year (2,141) (5,093) ======= ======= Other non cash movements relates to unpaid interest rolled into principaloutstanding. 15 ANALYSIS OF NET DEBT At At 1 July Non cash 30 June 2006 2005 Cash flow movements £'000 £'000 £'000 £'000 As restated Cash 8 57 - 65 Secured and unsecured loans (2,472) (127) 1,160 (1,439)Finance lease obligations (1,509) 293 1,216 - Convertible loan notes (1,120) (600) 953 (767) ------- ------- ------- ------- (5,093) (377) 3,329 (2,141) ======= ======= ======= ======= 16 EVENTS SINCE THE BALANCE SHEET DATE Since the year end , the Company has secured additional £0.41m long term debt and raised new equity of £0.76m. As part of this funding strategy, the directors have issued warrants to subscribe for £0.5m of ordinary shares with exercise prices from 31.5p to 35p with an expiry dates no later than 31 October 2007, with a further £0.1m with an expiry date no later than 31 December 2008. This information is provided by RNS The company news service from the London Stock Exchange