Earthport Regulatory News (EPO)

28 March 2012

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

Interim Results

Earthport plc, the global payments utility, announces its interim results for the six months ended 31 December 2011.

Highlights

·; Number of transactions processed rose 35% compared with the prior period.

·; Transaction related revenue rose 23% compared with the prior period.

·; Seven new clients integrated during the period.

·; Bank coverage extended to 51 countries, with the ability to access over 200.

·; Client pipeline continues to grow and now exceeds 250 opportunities.

·; Strategy and services broadened to include e-commerce businesses, with the first client in this sector having already been signed and currently going through integration.

·; Two fully redundant and scalable datacentres designed to handle high volumes of business now online.

Results

Revenue for the six months ended 31 December 2011, increased 5.3% to £1,387,000 (2010: £1,317,000). The number of transactions processed increased by 34.6% compared to the prior period. Recurring transaction related revenue of £1,359,000 increased 22.8% over the prior period. The higher growth in transaction revenues versus total revenue was due to lower non-recurring revenue (including integration fees) in the current period and reflects an improvement in revenue quality. The higher growth in the number of transactions processed versus transaction related revenue was primarily due to the addition of domestic transfers as a product offering, which have a lower per transaction revenue but similar margins.

Gross profit for the period was unchanged at £1,049,000 compared to the prior period. Gross margin fell to 75.6% from 79.7% compared with the prior period due to lower non-recurring revenue.

Administrative expenses rose 93.3% to £5,551,000 (2010: £2,872,000) due to the planned and continued build out of the Earthport team, across all areas, in order to prepare and drive forward opportunities in the pipeline.

Staff and contractor costs rose by 85.0% compared to the prior period and represented 62% of administrative expenses. In December 2011, Earthport had 103 staff and contractors compared 50 in December 2010. Staff additions also gave rise to associated recruitment fees.

To support the increase in sales opportunities currently being targeted by Earthport, sales and marketing costs increased compared to the prior period. Technology infrastructure and resilience was significantly improved with the provision and running of a new data centre which gives Earthport two fully redundant and scalable data centres designed to handle high volumes of business. This led to a rise in IT operational costs compared to the prior period. With expansion across the Group, overheads increased compared to the prior period.

Operating loss before share based payment charges for the 6 months ended 31 December 2011 increased to £4,502,000 (2010: £1,823,000). The share based payment charge increased to £662,000 (2010: £255,000). Financing costs fell to £23,000 (2010: £28,000).

Overall, Earthport's loss before and after taxation rose to £5,187,000 (2010: £2,106,000).

Cash as at 31 December 2011 was £10.9million (2010: £6.5million).

Review of the Period

The first half was characterised by continued and rapid build out of Earthport capabilities across all areas as the foundation for Earthport's strategy of becoming a high volume global cross border payments utility. The nature of Earthport's business is that significant upfront investment is required before rewards are realised.

The period to 31 December 2011 witnessed a number of successes which were the culmination of many months of work undertaken in the period under review and previous periods:

·; Several new clients went live, including Western Union and a number of clients using the IBM GERS solution, one in the global consumer personal care industry and the other in the global hotel and lodging industry. Many of the new clients are in the early stages of their volume ramp up.

·; A partnership was established with Bank of America to expand Earthport's banking coverage.

·; EpExchange was launched. EpExchange is a web based user interface for clients that require manual entry of data.

Earthport significantly expanded its sales initiative and function during this period with renewed focus on a series of core client segments including: banks, corporate and retail foreign exchange businesses, payment outsourcers (including business process outsourcers) and e-commerce businesses (following the initial signing of a substantial company in this space).

In Europe, as a result of pipeline traction in the banking and foreign exchange segment, additional resources have been added to address new markets including French speaking Europe, Russia and the CIS states. This is already showing results with the growth in new business opportunities in mainland Europe and Russia.

There has been significant strengthening in the talent of the North American team, with the addition of more senior sales and relationship management resources. This has allowed Earthport to support growing demand in US tier one banking institutions and explore channel opportunities with organisations who provide complementary services to the North American banking community.

The sales focus in the Middle East has diversified in the first half of this fiscal year. In addition to supporting retail foreign exchange businesses, Earthport now has a bank focused sales resource. This has enabled it to grow its bank pipeline dramatically, from minimal activity in August 2011 to 50 opportunities by the close of the calendar year.

Earthport has also undertaken a re-branding exercise which has included a new messaging platform to support Earthport's target segments, new brand identity and a new client focussed website.

Operations continued to be improved with the hiring of experienced heads of departments and further improvements in procedures and processes.

In November 2011, Earthport raised £10.6m of funding from institutional and other investors. Of the £10.6m, £1.6m was raised in convertible debt and £1.5m was equity conditional on shareholders' approval being obtained for its issuance. Permissions were obtained at the shareholders meeting in December 2011 to convert the debt to equity and draw down the conditional equity.

With the conversion of the funding related debt to equity and an earlier conversion of debt to equity in August 2011, Earthport had zero debt as at 31 December 2011. This continues to be the case.

Outlook

It is estimated that there will be 10.5 billion cross border payments by 2015. Earthport currently handles single digit millions of transaction per year so the market opportunity for Earthport as a white labelled provider of high volume cross border payments globally is very large. The scalability of Earthport's model is clear, as is Earthport's potential to grow. Significant investment has been made in the platform and organization and Earthport is well positioned to address this opportunity.

The growth in the pipeline of potential clients continues to be rapid and encouraging. Of the 250 plus opportunities in the current pipeline, 46 are in later stages of the sales process. While it is difficult to predict the percentage or timing of converting these late stage opportunities, if 50% of them were to contract and go live it would result in an estimated additional £3m of recurring revenue per annum. These late stage opportunities constitute only 18% of the pipeline and the pipeline itself is growing. Virtually all the late stage opportunities are in the core segments of Banks, Corporate FX, Retail FX and Processor relationships, where the Group's sales function continues to focus. This does not take into consideration the anticipated growth from our existing client base.

In addition to its core sectors, Earthport has recently expanded its focus to the e-commerce area where the revenue opportunity for high volume cross border payments is significant. The first client in this space has been contracted but is not yet live. Several other e-commerce opportunities are in the pipeline though not yet in the late stage numbers referenced above.

The above has been achieved with a relatively new sales team. The average tenure of the sales function is just over seven months.

Hank Uberoi, Executive Director of Earthport, commented:

"Significant investment has been made to bring Earthport to the point where it is well positioned to take advantage of what one of the leading payments consultants described as "…[arguably]…today's largest unsatisfied opportunity in the payments industry…".

"The Board remain confident of Earthport's future and look forward to updating shareholders of progress in due course."

For further information, please contact:

About Earthport

Earthport plc, a global financial services organisation, is a market leader in the provision of white-label cross border payment services. Through its international platform, Earthport provides low cost, secure, high volume global payment capabilities in 200 countries worldwide.

The company has been making national and international payments and collections since 1998, and is regulated through its UK Financial Services Authority (FSA) status and SWIFT membership. Providing a transparent and reliable service, partners include some of the largest financial institutions and corporations in the world.

Earthport operates worldwide and is listed on the Alternative Investment Market (AIM) on the London Stock Exchange. To learn more, please visit www.earthport.com and follow us on Twitter @Earthport.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 31 December 2011

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 31 December 2011

CONSOLIDATED STATEMENT OF CASH FLOWS

for the six months ended 31 December 2011

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Six months ended 31 December 2010 (Unaudited)

Six months ended 31 December 2011 (Unaudited)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 30 June 2011 (Audited)

notes to the INTERIM results

for the six months ended 31 December 2011

1. GENERAL INFORMATION

Earthport plc is a public limited company incorporated and domiciled in the 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.

2. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

The interim financial information has been prepared on the assumption that the Group is a going concern.

When assessing the foreseeable future the directors have looked at a period of twelve months from the date of approval of the financial statements. The forecast cash-flow requirement of the business is contingent upon the ability of the Group to generate future sales. The uncertainty as to the timing of the future growth in sales, together with the potential impact on the follow-on funding arrangements require the directors to consider the Group's ability to continue as a going concern. Notwithstanding this uncertainly, the directors believe that the Group has demonstrated progress in achieving its objective of positioning the Group as an infrastructure supplier to the global payments industry, and therefore consider that it is appropriate to prepare the Group's financial statements on a going concern basis, which assumes that the Company is to continue in operational existence for the foreseeable future.

3. ACCOUNTING POLICIES

Basis of preparation

The interim financial information is prepared using accounting policies consistent with International Financial Reporting Standards ("IFRS'') as adopted by the European Union.

The financial statements have been prepared under the historical cost convention and the principal accounting policies are set out in the 30 June 2011 financial statements.

4. FINANCE COSTS

5. LOSS PER SHARE

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 period.

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".

6. TRADE AND OTHER RECEIVABLES

7. TRADE AND OTHER PAYABLES

Trade payables and accruals principally comprise amounts outstanding in respect of operating costs. The directors consider that the carrying amounts for trade and other payables approximate their fair value.

8. BORROWINGS

9. SHARE CAPITAL

On 8 November 2011, the Company issued Convertible Loan Notes amounting to £1,638,000 convertible into ordinary shares automatically on the approval of shareholders. This approval was obtained and as a result these Convertible Loan Notes converted into 9,633,882 Ordinary Shares on 21 December 2011.

Deferred shares carry no rights to receive any dividend nor other distribution. The holders of the deferred shares have no rights to receive notice, nor attend, speak or vote at any general meeting of the Company. On a return of capital on liquidation or otherwise, the holders of the deferred shares are entitled to receive the nominal amount paid up on the deferred shares after the repayment of £10,000,000 per ordinary share.

The Articles of Association were amended on 24 March 2010. The Company now has no authorised share capital limit.

10. SHARE PREMIUM

11. OWN SHARES RESERVE

12. RECONCILIATION OF LOSS BEFORE TAX TO NET CASH OUTFLOW FROM

OPERATING ACTIVITIES

13. PUBLICATION OF NON-STATUTORY FINANCIAL STATEMENTS

The results for the six months ended 31 December 2011 and 31 December 2010 are unaudited and have not been reviewed by the auditor. The results for the year ended 30 June 2011 do not constitute statutory financial statements as defined in section 434 of the Companies Act 2006, but have been derived from the full audited financial statements for the year ended 30 June 2011. The report of the auditor on the financial statements for the year ended 30 June 2011 was unqualified.