Earthport Regulatory News (EPO)

23 October 2014

Earthport plc

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

Final Results

Earthport (AIM: EPO.L), the global payments service provider, is pleased to announce its final results for the year ended 30 June 2014.

Financial Highlights

· 161% growth in revenue to £10.82 million (FY 2013: £4.14 million)

o Includes eight months contribution from Baydonhill ltd ("Baydonhill") acquisition. On a like-for-like basis, revenue increased by 67% demonstrating an acceleration in underlying business performance

o Significantly increased revenue growth in the second half of the year

o Approximately 11% of revenues were attributable to professional services (FY 2013: approximately 19%)

o The growth in revenue from the ten largest clients was up 119% (FY 2013: 34%)

· 159% growth in gross profit to £8.25 million (FY 2013: £3.18 million)

· Net cash used in operating activities decreased to £4.36 million (FY 2013: £5.91 million), including £0.44 million of exceptional acquisition costs

o Excluding acquisition costs the net cash used decreased by 34%

· Loss before taxation decreased to £6.33 million (FY 2013: £8.13 million), this includes:

o Administrative costs of £14.37 million (FY 2013: £9.68 million) which increased primarily due to the acquisition of Baydonhill, warrant costs of £0.32 million (FY 2013: £nil), share-based payment charge of £1.75 million (FY 2013: £1.65 million), exceptional items of £0.44 million (FY 2013: £nil) and an adjustment of unrealised fair value gain amounting to £2.27 million (FY 2013: £nil)

· Loss before tax excluding the unrealised fair value adjustment of £2.27 million arising on the year end translation of unsettled transactions, amounted to £8.60 million (FY 2013: £8.13 million)

· Cash and cash equivalents at 30 June 2014 of £9.46 million (at 31 December 2013: £8.19 million, at 30 June 2013: £13.42 million)

Operational Highlights

· Execution of the transformation strategy covering client acquisition, network enhancement and operational performance on track

· Earthport positioned as a leading global payments network covering 63 countries as at 30 June 2014 (FY 2013: 58)

· The year marked the establishment of Earthport as service provider of choice in the banking sector, with 2 of the top 5 global banks, and 4 of the top 20 US banks being added to its client base

· 33 new clients signed during the year (FY 2013: 21), including Bank of America Merrill Lynch, HSBC, State Street Corporation, PNC Bank, Aktif Bank and World Remit

· 14 clients went live during the year (FY 2013: 13), with another 25 clients under contract and in implementation stage ahead of going live (FY 2013: 7) demonstrating significant embedded revenue potential

Post Year Highlights

· Membership agreement signed to partner with Eurogiro, in July 2014

· Forward purchase agreement of minority stake in ASPOne to reinforce existing supplier relationship, in August 2014

· Successful equity placing raising gross proceeds of £26.6 million ($43.43 million), in September 2014

· Contract with Standard Chartered, in October 2014

· Contract in new market segment - prepaid cards - with Banco do Brasil, in October 2014

Hank Uberoi, CEO of Earthport plc, commented: "The strategy that Earthport embarked on back in 2010 is now showing strong results. Over the last 18 months Earthport has been investing in its people, technology, banking network, and operational infrastructure. At the same time, we have significantly accelerated our efforts towards client acquisition. Today, we are proud to be embarking on partnerships with some of the leaders in the banking industry, the global remittances industry and the e-commerce industry.

"Our product positioning, extensive market opportunity and prospects within our global client base, provide us with ongoing confidence for accelerated growth going forward. Earthport is well positioned to achieve the status of being the de facto industry standard for global high volume payments in the coming years."

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About Earthport

Earthport plc is a regulated financial services organisation and one of the largest open networks for global bank payments through its cross-border payments infrastructure.

Through a single connection to Earthport's highly sophisticated payments network, customers can quickly and transparently deliver payments to over 190 countries and 63 low-value clearing systems around the world in a highly cost-effective and secure manner. Earthport's clients include banks, e-commerce providers, money transfer companies and payment administrators.

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 Conduct Authority under the Payment Service Regulations 2009 for the provision of payment services. To learn more, please visit www.earthport.com and follow us via RSS or on social channels, Twitter @Earthport, LinkedIn, Youtube and Slideshare.

STRATEGIC REPORT

Introduction

Earthport is a global financial services organisation providing direct access into financial systems within several countries for a range of clients including banks, payment companies, e-commerce companies and payment aggregators. Earthport, regulated by the Financial Conduct Authority (FCA) and Her Majesty's Revenue & Customs (HMRC) in the UK, provides a seamless, integrated and efficient utility to deliver payments cross border into any bank account in over 60 countries across the world.

The market opportunity is driven by the following factors;

o Growth in global trade - both in the traditional corridors and the emerging new corridors (global import values amounted to $13-15 trillion)

o Structural shift toward lower average value per transaction

o Growth in cross-border e-commerce

o Increasingly mobile workforce

Earthport's pioneering solutions provide an opportunity for a wide range of institutions to respond swiftly to these opportunities by simplifying their operations and partnering with Earthport to efficiently optimise the non-core, but essential activity of cross border payment processing.

The Board believes that Earthport now has the opportunity to successfully evolve as a fundamental ecosystem for the industry providing a non-competitive, but highly disruptive international payments infrastructure.

Chairman's Statement

This has been a transformational period for Earthport and I am delighted to report a successful year of significant progress in the evolution of the Company as a major force in the international payments arena.

Earthport operates in a highly regulated global environment and it is crucial that our internal and external governance and compliance functions stand up to the scrutiny of top-tier banking and other clients. We recognise that this aspect of our business proposition is paramount to our association with the calibre of customers we have in our portfolio today. The Board, through the Audit & Compliance Committee has regular independent reviews of these activities.

Earthport successfully completed the acquisition of Baydonhill, a specialist FX company in November 2013. The joining of the two businesses has proven very effective and the synergies are already being realised. The combined growth over the period delivered an overall 161% increase in revenues and 159% increase in gross profits, and we are on course to achieve a positive cash flow for existing business on a monthly run-rate by the end of the current financial year.

During the financial year, we were delighted to announce the appointment of Jorge Moran as a Non-Executive Director; his recent banking expertise is providing a very valuable contribution to the Board. Prior to joining Earthport, Jorge was CEO and President of Sovereign Bank and Santander's US country head. Jorge also spent time as CEO of Santander's insurance and asset management business. In June 2014, Earthport also strengthened its management team through the appointment of Sajeev Viswanathan as President and Global Head of Strategy. On 15 October 2014 Sajeev Viswanathan was appointed to the Board and it was announced that Paul Thomas has stepped down as an Executive Director of the Company and remains with Earthport as Non-Executive Director.

I would like to thank our shareholders for their continued support. Our cash position remained healthy throughout the year and since the year-end, in September 2014, we announced the placement of shares raising gross proceeds of £26.6 million. Earthport's strong balance sheet provides confidence to our banking partners and the regulators around the world.

I would also like to thank all employees whose hard work and commitment has created the growth that we have enjoyed and our shareholders who have provided continued loyalty over the years.

This financial year has shown the culmination of all our efforts being achieved, and we are excited to enter the next phase of growth driven by an increasing and high calibre customer base. We are proud to be a leader and Earthport is ideally positioned to take advantage of the changing payments ecosystem. We are confident that our strategy will fuel further growth over the coming years and look forward to addressing the many and increasing number of opportunities for the Group.

Phil Hickman

Chairman

22 October 2014

Chief Executive's Review

Over the last 18 months, Earthport has engaged with 2 of the top 5 global banks and 4 of the top 20 US banks, which is testimony to the growth momentum being achieved by the Group. Overall, new customers gained in the year rose by 57% to 33 (FY 2013: 21). This includes significant names such as Bank of America Merrill Lynch, HSBC, State Street Corporation, PNC Bank, Aktif Bank and World Remit. Post year end, in October 2014, Earthport was delighted to announce a new agreement with Standard Chartered bank and Banco do Brasil.

During the financial year, 14 new clients commenced operations with Earthport, while a further 25 clients are under various stages of implementation; reflecting significant embedded revenue potential.

Revenues increased substantially year on year, driven mainly by transactional fees and also by professional services fees; approximately 11% of revenues were attributable to professional services (FY 2013: approximately 19%). The decrease in cash consumption reflects a pivotal point, and net cash used in the second half of the year continued to decrease. Cash used in operating activities, excluding acquisition costs, decreased by 34%. The Group cash position at 30 June 2014 was £9.46 million and the post year end addition of £26.6 million (net £26.3 million) provides a strong platform underpinning the business as it continues its path to profitability.

In line with its strategy to evolve as the industry's cross border payments ecosystem, Earthport continues to strengthen its five key pillars of its growth strategy; these are outlined in the strategy section of this report. The acquisition of Baydonhill in November 2013 is complementary to the Group's objectives and has enhanced Earthport's foreign exchange and Treasury Service capabilities. Post year end, in August 2014, Earthport entered into a forward purchase agreement for a minority stake of ASPOne limited. ASPOne develops and provides IT and communications solutions for the finance industry from five global offices located in Istanbul, Moscow, Singapore, Hong Kong and London. This transaction reinforces the customer-supplier relationship, and represents an opportunity for Earthport to leverage ASPOne's development capabilities to achieve scale at pace and enhance its platform to deliver superior client experience.

The addition of £26.6 million of new capital from sophisticated new and existing global institutions from the US and Europe in September 2014, is a significant vote of confidence in our strategy and positioning. The funds will be used to accelerate geographical expansion. In particular, Earthport will bring forward plans to develop a presence and capability to address the significant and fast growing intra-Asian and Asia-outbound opportunity.

Banking Network

The traction Earthport has gained with the largest organisations in the global financial services industry demonstrates the uniqueness of the Company's core infrastructure offering. Central to Earthport's offering is its unrivalled international bank payment routes and global reach.

Earthport's network expansion continued during the financial year, completing several critical territory initiatives and paving the way for further growth phases to follow. The territory coverage at 30 June 2014 encompassed 63 markets, with further expansion in process (FY 2013: 58). The new territories added in the financial year were Bosnia, China, Colombia, Egypt and Mexico. These additions enable Earthport to service a majority of the trade and remittances corridors globally; a key differentiator of the Group's offering.

In the prior financial year, Earthport received investment from the IFC, the world's largest private sector development institution, to expand Earthport's global presence and payments service infrastructure, particularly in developing countries to drive financial inclusion. The relationship with the IFC continues to prove fruitful in progressing in countries that for others would be largely inaccessible.

Service Enhancements

Earthport brings together a platform specifically developed to process high volume, low monetary value transactions. Its worldwide payment network and team with deep domain expertise together provide transaction processing services on a white-label basis. Earthport has an unparalleled offering in terms of efficiency, accuracy, product capability and geographic footprint in the area of white-labelled international payments.

The Company is continually expanding its product capabilities to better leverage assets and serve clients with additional payment-related services. The acquisition of Baydonhill is in-line with this objective and enables Earthport to deliver on the increasing demand from existing and prospective customers for greater FX capabilities. Other enhancements during the year include:

· Client integrations: Earthport has continued to make system enhancements focused on facilitating ease of integration for major customer segments, including the banking sector

· Platform operational efficiency: Earthport has continued to make improvements to efficiency and straight-through-processing. These improvements facilitate better cut-off times and a reduction of settlement periods, and support an increase in transaction volumes to consistently meet Service Level Agreements

· Screening and monitoring: Developing and enhancing compliance screening functionality and transaction monitoring capability to support Earthport's growth in transaction volumes

· Professional services engagements: The number of professional services engagements continues to grow and a formalisation of new robust processes has been developed to underpin consultancy, scoping requirements and the management of funded service changes

· FX enhancement from use of the Baydonhill service: the acquisition of Baydonhill enables us to deliver on the increasing demand from existing and prospective customers for greater FX capabilities

Strong Compliance

Earthport understands that a key requirement of our customers is consistent and credible assurance regarding direct and/or indirect exposure to regulatory compliance and financial crime risk.

In international financial services today, such assurance is business critical.

The Earthport compliance function applies a risk-based approach to the development and implementation of compliance controls designed to ensure that the letter and the spirit of the legislative and regulatory environment is met.

Earthport applies a comprehensive and detailed approach to further strengthen our counterparty's own control regimes by adopting a transparent partnership approach, listening, learning and happily providing evidence of the effectiveness of our controls on an on-going basis, through third party audit and/or review, and by really getting to know client business activities.

Core to the Earthport product, are the compliance deliverables of sound counterparty due diligence, comprehensive sanction screening and customised transaction monitoring.

Effective compliance controls manage risk and ensure the safe growth of Earthport's business, our clients business and the businesses of our partner banks. Every counterparty relationship is a public statement of confidence in how Earthport manage multi-jurisdictional compliance.

Management Changes

In May 2014, Earthport announced the appointment of Jorge Moran to the Board as Non-Executive Director. Jorge, an accomplished banker with significant stature in the global financial services industry, was formerly the CEO of Bank Santander, USA. Prior to that, he also held several senior positions in eminent institutions such as Morgan Stanley and Citibank. Jorge's international exposure and experience within regulated global businesses aligns well with Earthport.

In June 2014, Earthport also strengthened its management team through the appointment of Sajeev Viswanathan as President and Global Head of Strategy. Sajeev, an entrepreneur and a banker with wide ranging management experience across, retail, corporate, transaction banking and development finance in several geographies across the world, worked with Citigroup for over 18 years and was Managing Director, Global Transaction Services, in charge of the Global Receivables and Trade Finance business based in London. More recently he served as CEO & Managing Director of Bhartiya Samrudhi Finance Ltd a microfinance company in India.

Sajeev brings significant domain knowledge and will focus on developing Earthport's global strategy, initially for expansion into Asia and will also manage Earthport's global network and product management functions. On 15 October 2014 Sajeev was appointed to the Board; at the same time it was announced that Paul Thomas has stepped down as an Executive Director of the Company and remains with Earthport as Non-Executive Director.

Financial Review

Total revenue for the year ended 30 June 2014 increased 161% to £10.82 million (FY 2013: £4.14 million). These results also include an eight month contribution following the acquisition of Baydonhill in November 2013. Like-for-like revenue growth was 67%, demonstrating acceleration in the underlying business.

The increase in underlying revenues has been driven by payment transactions as existing clients increase activity and as new customers go-live, minimum revenue contracts with significant partners and consulting engagements that generate professional services fees.

Adjusted gross profit rose 159% to £8.25 million (FY 2013: £3.18 million). Adjusted gross margin was broadly consistent at 76% (FY 2013: 77%). Gross profit was up 149% to £7.93 million (FY 2013: £3.18 million) and gross margin was 73% (FY 2013: 77%).

Administrative expenses increased to £14.37 million (FY 2013: £9.68 million), primarily due to the acquisition of Baydonhill, increased personnel costs as the sales team and general headcount has been increased in-line with growth and to provide the internal resource necessary for the Company's increasing customer base, pipeline and implementation projects underway.

Adjusted operating loss, before acquisition costs, share based payment charge of £1.75 million (FY 2013: £1.65 million) and unrealised fair value adjustment of £2.27 million arising on the year end translation of unsettled transactions (FY 2013: £nil), decreased by approximately 1% to £6.44 million (FY 2013: £6.50 million). The operating loss was £6.35 million (FY 2013: £8.14 million). A charge of £0.32 million has been recognised for warrants granted to Bank of America Merrill Lynch (FY 2013: £nil). The Group loss before taxation decreased to £6.33 million (FY 2013: £8.13 million). Overall, loss after taxation decreased to £6.70 million (FY 2013: £8.13 million).

Cash and cash equivalents at 30 June 2014 were £9.46 million (at 31 December 2013: £8.19 million, at 30 June 2013: £13.42 million).

Like-for-like net cash used in operating activities decreased to £4.36 million (FY 2013: £5.91 million), including £0.44 million of exceptional acquisition costs. Excluding the acquisition costs the net cash used decreased by 34%. The continued decrease in net cash used in operating activities continues to demonstrate that a turning point in terms of cash used versus revenue growth has been reached; particularly, given the larger decrease in the second half of the year.

Bank of America Merrill Lynch Warrants

Earthport signed a multi-year agreement with Bank of America Merrill Lynch in December 2013; commercial terms included minimum revenue of $11.3 million. Earthport granted warrants at a strike price of £0.242 per ordinary share over 17.3 million new ordinary shares to Bank of America Merrill Lynch, exercisable if this minimum revenue level is achieved. They may receive additional warrants over a further maximum of 19.3 million new ordinary shares at a strike price of £0.31 if they deliver payment revenues to Earthport that materially exceed the minimums under the commercial contract.

The terms of the warrants include limited anti-dilution provisions for the benefit of Bank of America Merrill Lynch in certain circumstances. The Board considers that any such provisions are unlikely to be triggered.

Acquisition of Baydonhill Ltd

Earthport completed the acquisition of Baydonhill in November 2013. The cash offer valued Baydonhill at approximately £6.42 million on the basis of a fully diluted share capital of Baydonhill. Since 84.3% of the Baydonhill shareholders accepted the earn-out offer, the upfront cash amounted to £3.31 million. If the full earn-out is achieved, an additional £1.28 million in cash and 13,808,993 Earthport shares will be issued; the additional cash will be funded from Baydonhill's future cash flows. Baydonhill had an outstanding loan amounting to £474,000 which Earthport also attained through the acquisition.

This was a major strategic move for Earthport. Earthport had worked with Baydonhill for several years and the product offering and expertise represented an ideal fit with Earthport's strategy to provide a comprehensive, white-labelled cross-border payment service to over 60 countries and 100+ currencies.

Post Year End Minority Stake in ASPOne Limited

In August 2014, Earthport and ASPOne Limited reinforced their customer-supplier relationship by the entry into an agreement for Earthport to purchase a 45% stake in ASPOne in four years' time for a maximum consideration of £2.7 million. The structure of the deal is performance-based and includes flexible provisions should Earthport take a larger stake in ASPOne.

The forward purchase represents a strategic opportunity for Earthport to leverage ASPOne's talented technology team and its sophisticated and highly scalable development capabilities to achieve scale at pace; accelerating usage with new and existing customers that are in various stages of roll out.

ASPOne develops and provides IT and communications solutions for the finance industry from five global offices located in Istanbul, Moscow, Singapore, Hong Kong and London. Last year (March 2013), ASPOne had sales of £5.2m, a loss before tax of £0.8m, and net liabilities of £2.6m.

Post Year End Placing

Earthport announced on 18 September 2014 that it has successfully placed 65,136,464 new ordinary shares at 40.85 pence per share with both new and existing institutional investors. The gross proceeds of £26.6 million ($43.43 million) will be used to accelerate geographic expansion and presence in Asia, as well as to strengthen the balance sheet in support of significant client and product opportunities in the pipeline and to invest behind the growth and momentum achieved in North America and Europe.

Oppenheimer Funds Inc. of New York was the cornerstone investor in the round and now holds 8.62% of the enlarged issued share capital of the Company. The strengthened balance sheet will allow Earthport to accelerate expansion plans in Asia to address the significant intra-Asian as well as the Asia out-bound opportunity. It will also further accelerate client acquisition and make regulators around the world more comfortable with the Company's model and positioning. There are several revenue opportunities, such as US licencing and increased forward FX lines that will benefit from the stronger balance sheet where not all of them will involve an actual increase in the use of cash.

Strategy

Earthport has successfully transformed itself since 2010 and has gained credibility as a viable and better alternative to existing global payment infrastructures. The Company's consequent momentum in the marketplace positions Earthport strategically to evolve as the de-facto ecosystem for the cross border low-value, high volume payments industry. In line with this strategic intent, Earthport will continue to invest in its 5 key pillars with the following objectives;

1. Platform

State-of-the-art platform, offering scale to manage millions of cross border payment transactions complemented by versatile interface structures and formats ensuring Straight Through Processing (STP) rates of 99.5%+

2. Network

A growing network of over 100 Countries where Earthport will deliver payments through an interface into the local clearing system

3. Domain Expertise

Unparalleled domain expertise across all markets in the Earthport Network, providing automated access to arguably the world's largest Validation Database for payment formats, and an up to date knowledge base on payment systems across the world

4. Compliance

A robust and fully integrated compliance process which ensures supplementary enhanced protection and risk mitigation to meet existing and evolving regulatory requirements

5. Treasury Services

Efficient treasury services offering liquidity management structures to optimise the journey of the payment in over 120 Currencies

Proof points have now been achieved across each of these pillars, establishing Earthport's foundation for expansion of its regional footprint and growing its client base, whilst enriching its product suite and platform capability to cover emerging areas such as mobile payments, card/POS payments, collections, payment tracking, receivables matching etc.

Outlook

Earthport has entered the current financial year in an excellent position, with established relationships with some of the largest financial institutions in the world and a strong balance sheet. The current pipeline of opportunities is very strong within our core banking client market as well as in adjacent areas of the international payments ecosystem. Earthport's product positioning, extensive market opportunity and prospects within the existing client base as well as outside of it, provide us with ongoing confidence in accelerated growth over the coming years. We are entering a truly exciting phase in the evolution of the Company.

By order of the Board

Hank Uberoi

Chief Executive Officer

22 October 2014

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30 June 2014

There were no items of other Comprehensive Income for the year.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CASHFLOWS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 30 June 2014

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.

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 30 June 2014

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 principle 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 Strategic Report.

The preliminary financial information does not constitute full accounts within the meaning of section 434 of the Companies Act 2006 but is derived from accounts for the years ended 30 June 2014 and 30 June 2013, both of which are audited. The preliminary announcement is prepared on the same basis as set out in the statutory accounts for the year ended 30 June 2014. While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), this announcement does not in itself contain sufficient information to comply with IFRSs.

The statutory accounts for the year ended 30 June 2014 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. Statutory accounts for the year ended 30 June 2013 have been filed with the Registrar of Companies. The auditor's report for the year ended 30 June 2014 was unqualified and did not contain any statement under section 498(2) or (3) of the Companies Act 2006.

2. GOING CONCERN

The Directors believe that the Group has demonstrated further progress in achieving its objective of positioning itself as an infrastructure supplier to the global payments industry. The Group raised £3.9 million during the year through issuance of equity, exercise of options and warrants. Since the year end, the Group raised gross proceeds of £26.6 million (net £26.3 million) through the placing and subscription of 65 million ordinary shares. 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.

3. SEGMENT INFORMATION

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. During the year the Group was evolving and management did not segment the revenues into discrete business segments. We are now analysing our business performance in different categories and will be reported in future annual accounts. The segmental analysis by location of customers is as follows:

4. LOSS BEFORE TAXATION

5. ADMINISTRATIVE EXPENSES

Cost of sales includes bank transaction charges and sales commission.

6. INCOME TAX EXPENSE

No deferred tax asset has been recognised in relation to trading loss carried forward of £83 million (FY 2013: £77 million).

The loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.

The loss attributable to ordinary shareholders and weighted average number of ordinary shares for the purposes of calculating the diluted loss per share are identical to those used for basic loss per ordinary share. This is because the exercise of share options and other benefits would have the effect of reducing loss per share and is therefore not dilutive under the terms of IAS33, Earnings Per Share.

Trade receivables amounted to £6,427,000 (2013: £618,000), net of a provision of £129,000 (FY 2013: £Nil) for impairment. Movement on the group and company provisions for impairment were as follows:

The average credit period taken on sales of services is 27 days (2013: 30 days). No interest is charged on overdue balances. The Directors consider that the carrying amount of trade receivables approximates their fair value.

Trade payables and accruals principally comprise amounts outstanding in respect of operating costs. The average credit period taken for trade purchases is 35 days (FY 2013: 36 days). The Directors consider that the carrying amounts for trade and other payables and accruals approximate their fair value.

The potential deferred tax asset arising on the cumulative losses carried forward is £16.6 million (FY 2013: £15.4 million) and has not been recognised owing to uncertainty as to its recoverability.

12. BUSINESS COMBINATION

On 1 November 2013, the Company acquired 100% of the share capital of Baydonhill Limited, a cross border payment and foreign currency exchange provider for an initial cash consideration of £3.3 million and a deferred contingent consideration of £2.5 million depending on Free Cash Flow of Baydonhill under the Earn-out Offer.

Earthport plc executes cross-border transactions in a cost-effective, transparent manner and provides its services to financial institutions, aggregators, money service businesses and FX houses in over 60 territories. Earthport brings together the platform specifically developed to process high-volume, low monetary value transactions; a world-wide payment network; and a team with deep domain expertise that together provide unique transaction processing services to clients on a white-label basis.

On these strengths, Earthport's objective is to increase its product set to better leverage its assets and serve its clients.

Over the past several years Earthport has provided transaction-processing services to Baydonhill. Through this relationship Earthport appreciated the potential synergies that the acquisition could generate. The acquisition will enable Earthport to increase its foreign exchange capabilities and expertise to better serve its customers and to improve its margins and product offering to existing and new customers. The Baydonhill business will benefit from Earthport's processing capabilities, trading volume and global footprint.

The Group has established the fair value of the assets and liabilities acquired, and the fair value of the consideration paid over the book value of the net assets acquired is comprised of customer relationships, online systems and goodwill representing the value attributable to new business, the assembled and trained workforce. The table below summarises the fair value of assets and liabilities of Baydonhill at the date of acquisition.

*During the year £130,000 was paid and the remaining balance of £344,000 was settled post year end.

Acquisition costs amounting to £439,000 have been expensed in the income statement as an exceptional item for the year ended 30 June 2014.

Provisional values were presented at the time of 2013 interim reporting, whilst the exercise of fair value accounting was on-going. The Group continued to evaluate the purchase price allocation, including online system, customer relationships and brand name. More was learnt about the data available during the process of in-depth calculations to reach final fair values of the identifiable assets and liabilities assumed at the date of acquisition.

Contingent consideration refers to the present value of the consideration payable after 30 June 2016 to ex-Baydonhill shareholders who accepted the earn out offer during acquisition, if the cumulative adjusted free cash flows of Baydonhill as at 30 June 2016 are above £3.55 million or prorated otherwise. The fair value of contingent consideration was calculated by independent valuation experts based on the best estimate, provided by the Group, of the probability of Baydonhill meeting the Earn Out conditions which were discounted at 15%.

13. EXCEPTIONAL ITEMS

Acquisition costs amounting to £0.44 million are related to the legal and professional services received by the Group in order to facilitate the acquisition of Baydonhill.

In accordance with IAS 39, Group fair valued its client's contracts and all currency bank accounts as at spot rate. The revaluation of debtors, creditors and currency segregated accounts gave rise to a foreign exchange gain of £3.4 million. All client contracts are covered with bank contracts and as a result, the revaluation of the bank contracts generated a net derivative loss of £1.1 million. These gains and losses would only crystallise in the unlikely event that any party of the transaction would default.

14. ANNUAL REPORT AND ACCOUNTS

Copies of the Annual Report will be available as of 13 November 2014 on the Group's website, and from the Group's headquarters.