Earthport Regulatory News (EPO)

18 March 2015 Embargoed until 07:00

Earthport plc

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

Unaudited Interim Results

Earthport (AIM: EPO.L), the global payments company, is pleased to announce its unaudited interim results for the six month period ended 31 December 2014.

Financial Highlights

· Revenue grew by 172% to £9.02 million (H1 2014: £3.32 million)

o On a like-for-like basis, revenue increased by 102%, demonstrating an acceleration in underlying business performance

· Net cash used in operating activities decreased by 30% to £2.10 million (H1 2014: £3.02 million)

· Gross profit increased by 175% to £7.04 million (H1 2014: £2.56 million)

· Gross margin broadly consistent at 78% (H1 2014: 77%)

· Adjusted operating loss decreased by 32% to £2.26 million (H1 2014: £3.30 million)

· Loss before taxation excluding the unrealised fair value loss adjustment of £1.25 million arising on the period end translation of unsettled transactions, decreased by 15% to £4.12 million (H1 2014: £4.83 million)

· Loss before taxation increased by 11% to £5.37 million (H1 2014: £4.83 million). This includes:

o Administrative costs of £9.29 million (H1 2014: £5.87 million), share based payment charge of £1.89 million (H1 2014: £1.03 million) and an adjustment of unrealised fair value loss amounting to £1.25 million (H1 2014: Nil, FY 2014: unrealised fair value gain £2.27 million). These adjustments represent the mark to market of open positions at the period and year end. These gains and losses would only crystallise in the unlikely event that any parties to the transactions default. The board does not expect this loss to be realised as was the case for the unrealised fair value gain of £2.27 million at 30 June 2014

· Cash balance at 31 December 2014 amounted to £32.52 million (31 December 2013: £8.19 million)

Operational Highlights

· Strong operational progress:

o 17 new customers were signed in the period (H1 2014: 12), including some of the world's largest global institutions

o 8 customers went live in the period (H1 2014: 8)

· Growing pipeline of 32 customers under contract and in implementation stage ahead of going live (H1 2014: 20)

o With many clients yet to be fully implemented, and with several in advanced stages in the pipeline, there is significant embedded revenue potential

o Diversification of client categories, including digital commerce gateways and mobile wallets, are expected to bring new sources of revenue

· Robust network and product expansion continues

o 5 new payment corridors were added to Earthport's network

· Recent awards confirm Earthport's status in the Fintech industry

o Quoted Company Awards 2015 - Technology company of the year

o FS Tech - B2B Payments Innovation of the year

o FinTech 50 - Game-changers "transforming the future of finance"

Post Period Highlights

· New additions to the senior executive team include:

o Daniel Marovitz (President of Europe)

o Mia Shernoff (Global Head of Marketing and Market Development)

Hank Uberoi, CEO Earthport plc commented: "We are delighted with the continued progress that Earthport has made in the period resulting in accelerated revenue growth and decreased cash consumption. Whilst transactional and professional service revenues have increased, we have also made significant progress in the expansion of our network, payment capabilities and world-class leadership team. Our pipeline of new customers continues to grow whilst significant embedded revenue potential remains a large opportunity with existing clients. We are therefore confident of a successful full year and beyond."

For further information, please contact:

About Earthport:

Earthport plc is a financial services organisation providing cross-border payments services to banks, e-commerce providers, money transfer companies and payment administrators. Earthport is headquartered in London with a regional office in New York.

Earthport provides the industry with the largest open network for global bank payments. Worldwide, over 50 banks are connected into Earthport's network for the efficient clearing of low value payments. With one connection to Earthport's network, clients benefit from sophisticated validation and compliance services, efficiently serving their customers with more innovative payment products.

One of the FinTech50 2015 - judged to be the game-changers transforming the future of finance. Earthport is also winner of the Grant Thornton Quoted Company Awards 2015 Technology company of the year award and FStech/Retail Systems' B2B Payments Innovation of the Year (2014).

Earthport is listed on the Alternative Investment Market (AIM) on the London Stock Exchange. Earthport plc is authorised and regulated by the Financial Conduct Authority under the Payment Service Regulations 2009 for the provision of payment services. Find out more at www.earthport.com and on Twitter @Earthport, LinkedIn, Youtube, Slideshare and Google+.

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, authorised and regulated by the Financial Conduct Authority (FCA) under the Payment Service Regulations 2009 and Her Majesty's Revenue & Customs (HMRC) in the UK, provides a seamless, integrated and cost efficient processes to deliver cross border payments into any bank account in over 60 countries across the world.

Earthport has a highly disruptive yet complementary offering in cross border payments, enabling clients to partner with an outsource provider as an alternative to continued investment in upgrading their traditional technologies. Earthport's primary business model is the provision of a white-labelled solution, supporting an agnostic and non-competitive partnership with its clients. For commercial entities, the Earthport model responds to the needs of specific verticals for whom payment solutions are critical to their offering and traditional payment methods are ineffective.

Earthport, as an alternative to traditional bank payment models, has quickly secured its place as the largest open bank network for cross border payments, capturing clients who seek a more efficient means to deliver high volume low value payments via a regulated and compliant financial services organisation.

The addressable market for high volume, low value payments is significant, and there are considerable positive drivers underpinning the industry, including globalisation, international trade and the escalating cost and complexity of meeting regulatory requirements.

As a regulated entity, Earthport operates stringent compliance processes and controls, conducting a risk based analysis of all clients. The adoption and enforcement of strict compliance procedures is received positively and is increasingly requested as a distinct service to support the highly regulated nature of the Company's customer base.

Operational Review

Earthport continues to gain strong traction in its core verticals of banks, digital-commerce providers, money transfer organisations and payments administrators.

Earthport's heightened profile, together with attractive market drivers have continued to add to the Company's momentum during the six month period ended 31 December 2014. The Company's strong revenue growth continues, driven by both transaction revenue and professional service fees.

With the integration of Baydonhill, the foreign exchange provider acquired in 2013, Earthport's ability to realise incremental revenue and cost saving synergies primarily through a pooling of shared resources and assets, represents a positive component of the Company's financial model.

Customer momentum continues

Earthport is fast gaining recognition as a leading innovator in the cross border payments sector, a fact borne out by the adoption of its business model by some of the world's largest financial services organisations to whom payments are a critical component of their operations.

Business development remains robust at Earthport, and during the six months ended 31 December 2014, significant client activity progressed including:

· 17 new customers

· 8 of which are live and transacting

· 32 qualified leads in the pipeline

New clients signed include:

· HSBC, Santander, Banco do Brazil NA, Standard Chartered and United Nations Credit Union.

· Revenue from existing clients continues to grow, and the impact of this will be realised in the coming months and years.

Our core payments model remains unique

Earthport is enjoying considerable success in engaging and signing contracts with some of the leading businesses across a number of key sectors, notably financial institutions, corporations, digital commerce entities and payment platforms. Earthport's core payment service solves a number of business challenges for these large global entities, often to enable market expansion, gain greater cost efficiencies and improve their ability to compete. Many of these relationships are in the early stages of implementation, and the Company has in place the systems and process in anticipation of accelerated transaction growth in the future.

The pipeline of business with both new and existing customers continues to grow and diversify to ensure a continuous flow of new revenue to offset the reality of lengthy sales cycles represented by large enterprise clients. Examples of new business during this period include:

· Financial Institutions: The signing of Bank of America Merrill Lynch in 2013 has signalled our emergence as a credible payment provider, and assisted in the closing of other large banks in this period including Santander, Standard Chartered, HSBC, Banco do Brazil North America and Cassis Desjardins.The expectation is that material transaction volumes from these institutions will flow in future quarters in keeping with the complexities of system and business integrations within global bank clients.

A notable non-bank financial institution that signed and implemented in the period is the United Nations Federal Credit Union, generating outbound payments for and on behalf of its employees in North American operations.

· Unique Commercial Entities: During the last six months, Earthport has been involved with and has received commitment from a range of world class brands, for whom our service is an ingredient for developing their strategic business models and new products. This includes diversified applications such as mobile wallet, digital gateway and aggregation of digital payments.

Banking network continues to expand

Earthport's banking network is one of its core assets. Global organisations such as HSBC have chosen Earthport because of its extensive and growing country coverage. During this period Earthport has continued to expand its banking network of over 60 countries. Further network expansion continues to broaden the Company's footprint in critical locations, prioritised by its client requirements. In addition, Earthport's relationship with the International Finance Corporation continues to be a key strategic arrangement through which the Company is part of the IFC's extensive network of over 900 financial institutions. Earthport will continue to leverage this relationship as it builds further partnerships with clients and bank network members in critical geographies.

Service enhancements realised

Earthport's platform has been specifically developed to process high-volume, low monetary value transactions. The Company's worldwide operations and supporting resources provide an unparalleled service that processes transactions efficiently while exceeding the straight through performance of 99%. Functional and service improvements across the Earthport payments platform have centred on both strategic initiatives and customer requested enhancements. The Company will continue to invest to improve the scalability, robustness and functionality of its platform as client integrations continue.

Earthport is continuing to expand the product capabilities to better leverage its assets and serve its clients with additional payment related services. The acquisition of Baydonhill has been an example of an asset that enhances the Company's core service with integrated foreign exchange capabilities for Earthport's customers so that they can effectively outsource the entirety of a cross-border payment to Earthport on a white-labelled basis.

Strategic relationship with ASPone

The strategic relationship and forward purchase announced in August 2014 in ASPone, an IT and communications solutions company dedicated to the financial services industry, has proved to be an important asset to Earthport. In addition to the IT development services and expertise provided to Earthport, ASPone's offices in locations such as Istanbul, Moscow, Singapore and Hong Kong provide the Company with local expertise and knowledge as it builds out Earthport's global network.

Compliance expertise in a world of regulatory complexity

Earthport generates widespread acclaim as a provider of compliance expertise required to enable banks to meet the measures being put in place to oversee international transfers. The very nature of other, traditional open-loop (correspondent banking or wire) payment systems makes it extremely difficult for any institution to understand and easily disclose to the consumer when a payment will arrive, what the upfront charges are and how much the beneficiary will receive.

Healthy pipeline and client diversification 

Earthport's expertise in supporting bank clients has propelled the development of a pipeline of notable financial institutions which will continue to be a core growth driver for Earthport. The Company continues to recruit seasoned experienced sales and relationship management talent to provide a consultative approach to new business discussions with senior bankers as well as manage the post sales requirements associated with implementation and solving additional clients' internal challenges.

Earthport is also experiencing the emergence of new categories of clients who are typically large corporations with unique and critical needs for high volume cross border payments that are currently unmet by current providers. As global transformation toward digital commerce accelerates, the need for Earthport's broad, efficient and compliant payment solutions is becoming a widely sought after service to these corporate clients and Earthport is ready to serve them.

Investment in senior leadership

In line with its continuing efforts to enhance the leadership team, Earthport recently announced the appointment of Daniel Marovitz, an industry veteran highly experienced in transaction banking and ecommerce to lead the Company's European Commercial business lines. In addition, Earthport also announced the appointment of Mia Shernoff as Global Head of Marketing and Market Development. Mia joins Earthport after a successful ten years as Chief Marketing Officer at Chase Paymentech. With these additions to the leadership team, and other talent across the organisation, Earthport's headcount stands at 183, an increase of 18%.

Strong, industry-leading presence

Earthport continues to be highly visible among industry leaders by partaking in steering committees, presentations at industry conferences and by hosting events and webinars alongside some of the world's largest banks and technology innovators. During the period, Earthport participated at some of the largest and most notable financial services industry events. A highlight was contributing to various sessions at SIBOS, as a panellist at Money 2020, a speaker at NACHA and at numerous industry events and symposiums. These opportunities, which expose our thought leadership and provide us access to potential clients and network partnerships, are a part of our business development and brand building strategy for 2015. 

Industry accolades generated

During and after the period, Earthport has proudly been awarded enviable industry recognition including:

· FS Tech:B2B Payments Innovator of the Year

· FinTech 50 Inclusion: "Game changer transforming the industry"

· Quoted Company Awards 2015: Technology Company of the Year 

Financial Review 

Revenue increased by 172% to £9.02 million (H1 2014: £3.32 million). During the six months ended 31 December 2014, the increase in revenues has been driven by payment transactions, minimum revenue contracts and consulting engagements that generate professional services fees. Like-for-like revenue growth was 102% demonstrating acceleration in the underlying business.

Adjusted gross profit for the period was up 188% to £7.36 million (H1 2014: £2.56 million). Gross profit for the period was up 175% to £7.04 million (H1 2014: £2.56 million) and gross margin was broadly consistent at 78%, compared to 77% in the prior period.

Administrative expenses increased by 58% to £9.29 million (H1 2014: £5.87 million). This is mainly due to the full six months of Baydonhill costs compared to two months in the previous period. Earthport has increased the headcount and will continue to invest in line with growth, its increasing customer base, pipeline and implementation projects underway.

Adjusted operating loss, before share based payment charge of £1.89 million (H1 2014: £1.03 million), and unrealised fair value loss of £1.25 million arising on the period end translation of unsettled transactions (H1 2014: nil) decreased by 32% to £2.26 million (H1 2014: £3.30 million). A charge of £0.33 million has been recognised for warrants granted to Bank of America Merrill Lynch (H1 2014: £0.07 million). Overall, Earthport's loss before and after taxation increased by 11% to £5.37 million (H1 2014: £4.83 million). This is partially due to the measurement of outstanding client contracts. At 31 December 2014, the difference between the book value and fair value of these items resulted in unrealised loss of £1.25 million. These items represent the mark to market of open positions at the period and year end. These gains and losses would only crystallise in the unlikely event that any parties to the transactions default. The board does not expect this loss to be realised as was the case for the unrealised fair value gain of £2.27 million at 30 June 2014.

Cash and cash equivalents as at 31 December 2014 were £32.52 million, after a successful equity placing of £26.6 million in September 2014 (30 June 2014: £9.46 million, 31 December 2013: £8.19m).

Net cash used in operating activities decreased to £2.10 million (H1 2014: £3.02 million) representing further progress in terms of cash used versus revenue growth. Base costs continue to be stable and are not expected to increase other than when related to specific revenue producing activities such as delivery of professional services.

Outlook

Earthport continues to be a leading disruptive and positive force in the payments industry, becoming synonymous with an improved method of facilitating high volumes of low value cross border transactions with a very large addressable market

Earthport is becoming known across financial services and in selective commercial entities as the de facto preferred provider for compliant low value payments, globally. There is a growing acceptance of our model of providing outsourced payment services and infrastructure, and the industry is experiencing a shift towards collaboration.

Earthport's traction with some of the most notable and sophisticated global banks confirms the opportunity, and while the accelerating rates of growth are encouraging, the business has significant further potential. Earthport has a robust implementation queue and a strong pipeline of qualified customer prospects, including a growing demand from commercial and digital commerce providers.

Earthport's significant market opportunities are confirmed by these and other strong drivers including regulatory change and high barriers to entry. Although the sales cycle timings for large financial institutions can be a challenge to precisely predict, they are certainly typical and in keeping with timelines associated with large enterprise client situations. We expect our diversified commercial client activity to offset this challenge in the year ahead.

The Board therefore remains confident of the Company's ability to achieve positive cash flow position within the expected timeframe for our existing business. Current triple digit growth rates indicate that we are on track to deliver on our forecasted objectives for the full year. The focus over the second half of the year and beyond will be to accelerate revenue realisation from existing and new clients, adding countries to the payment network, further product innovation and continuing to implement consultancy projects with non-signed potential customers ahead of anticipated formal relationships. Earthport will continue to leverage its partnerships to seek new opportunities for short and long term revenue and will drive brand-building efforts to our targeted markets. Earthport now has a respected leadership team, with scalable systems in place, key customers, extensive marketing, a corporate profile and growing network reach to produce accelerated growth in the years to come and continues to view the future with confidence.

Hank Uberoi

18 March 2015

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 31 December 2014

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 31 December 2014

CONSOLIDATED STATEMENT OF CASH FLOWS

for the six months ended 31 December 2014

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Six months ended 31 December 2013 (Unaudited)

Attributable to the owners of the Parent

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Six months ended 31 December 2014 (Unaudited)

Attributable to the owners of the Parent

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 30 June 2014 (Audited)

notes to the UNAUDITED INTERIM results

for the six months ended 31 December 2014

1. GENERAL INFORMATION

Earthport plc is a public limited company listed on Alternative Investment Market (AIM), 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. GOING CONCERN

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 interim financial information. 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 interim financial information 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 2014 financial statements.  

4. 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".

5. TRADE AND OTHER RECEIVABLES

6. 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.

7. SHARE CAPITAL

Authorised

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

Issued

During the period ended 31 December 2014: 65,136,464 ordinary shares of 10p were issued against cash consideration, 484,283 in lieu of consultancy fee and 601,953 against exercise of share options. 

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.

8. SHARE PREMIUM

9. OWN SHARES

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

OPERATING ACTIVITIES

11. PUBLICATION OF NON-STATUTORY FINANCIAL STATEMENTS

The results for the six months ended 31 December 2014 and 31 December 2013 are unaudited and have not been reviewed by the auditor. The results for the year ended 30 June 2014 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 2014. Statutory accounts for the year ended 30 June 2014, on which the auditors gave an audit report which was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006, have been filed with the Registrar of Companies.

The interim financial information has been prepared on the basis of the same accounting policies as published in the audited financial statements for the year ended 30 June 2014 and the accounting policies to be adopted in the financial statements for the year ended 30 June 2015. The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards and International Financial Reporting Interpretations Committee ("IFRIC") pronouncements as adopted by the European Union. Comparative figures for the year ended 30 June 2014 have been extracted from the statutory financial statements for that period.

12. The interim results for the six months ended 31 December 2014 are available on the Company's website: www.earthport.com.