Earthport Regulatory News (EPO)

21 March 2017

Earthport plc

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

Unaudited Interim Results

Earthport (AIM: EPO.L), the leading network for cross-border payments, is pleased to announce its unaudited interim results for the six month period ended 31 December 2016.

Financial Highlights

· Revenues grew by 34.9% to £14.3 million (H1 FY 2016: £10.6 million)

o Transactional revenues comprised 95% of H1 FY 2017 total revenues

· Gross profit increased by 33.8% to £9.9 million (H1 FY 2016: £7.4 million). Gross profit margin decreased by 0.6% to 69.2% (H1 FY 2016: 69.8%)

· Adjusted Gross Margin1 decreased by 3.1% to 70.4% (H1 FY 2016: 73.5%), due to increases in network costs but is in line with management expectations and those achieved in the financial year ended 30 June 2016

· Adjusted Gross Profit1 increased by 29.5% to £10.1 million (H1 FY 2016: £7.8million)

· Administrative expenses decreased by 7.8% to £13.0 million (H1 FY 2016: £14.1 million) and represent 90.9% of revenues (H1 FY 2016: 133.0%)

· Adjusted loss before taxation2 decreased by 52.2 % to £3.2 million (H1 FY 2016: £6.7 million)

· Loss before taxation decreased by 41.1% to £3.3 million (H1 FY 2016: £5.6 million)

· Loss per share of 0.61 pence (H1 FY 2016: 1.30 pence)

· Cash Balance at 31 December 2016 amounted to £11.4 million, compared to £14.4 million at 30 June 2016

1. Excludes warrant charge of £0.23 million (H1 FY2016: £0.38 million)

2. Adjusted loss before taxation is stated before the unrealised fair value gain adjustment of £0.94 million (H1 FY 2016: 1.3 million) and share based payment charge of £1.1 million (H1 FY 2016: 0.3 million)

Operational Highlights

· Transactions and payment volume grew significantly in the period with December 2016 setting a record month in the Company's history

o Number of transactions reached 5 million, a growth of approximately 85% over the prior year period (H1 FY 2016: 2.7 million)

o Payment volume increased by 97% to $7.80 billion (H1 FY 2016: $3.95 billion)

§ The variation in growth rates of number of transactions and revenues principally reflects the geographical mix of transactions and the associated variability in transaction price per corridor

o Revenue per transaction in the period was £2.70 (H1 FY 2016: £3.26)

· Bank of America Merrill Lynch (BofAML) CashPro® offering using the Earthport network went live in February 2017 as part of the broader strategic relationship with Bank of America Merrill Lynch

· In November 2016, Earthport announced the approval from the Reserve Bank of India to operate cross-border payment services for banks in India

o Axis Bank, India's third largest private sector bank is the first bank in the region to connect with Earthport

Hank Uberoi, CEO of Earthport plc, commented:

"We accomplished a number of important developments in the six months under review, including expanding our strategic relationship with BofAML and gaining approval to provide outbound payment services for the extensive Indian market. The performance of the business in the past six months has been encouraging with a substantial increase in the number of transactions and payment volumes resulting in strong revenue growth. This positive momentum, coupled with our unique market positioning, gives us confidence in our continued growth and prospects."

For further information, please contact:

Earthport plc 020 7220 9700

Hank Uberoi, Chief Executive Officer

Simon Adamiyatt, Chief Financial Officer

Newgate  020 7653 9848

Bob Huxford / James Ash

N+1 Singer (Nomad and Joint Broker) 020 7496 3000

Mark Taylor / James White

Shore Capital (Joint Broker) 020 7408 4090

Bidhi Bhoma/ Toby Gibbs

About Earthport:

Earthport provides cross-border payment services to banks and businesses. Through a single relationship with Earthport, clients can seamlessly manage payments to almost any bank account in the world, reducing costs and complexity to meet their customers' evolving expectations of price, speed and transparency.

Earthport offers clients access to global payment capability in 190+ countries and territories, with local ACH (Automated Clearing House) options in 60+ countries and an evolving suite of currencies and settlement options.

Earthport continues to invest in the establishment of in-country bank partnerships across the world, bringing together its deep market and regulatory expertise in order to maintain compliant and commercially competitive services.

The result - a global payments network accessed via a single relationship, delivering significant cost and operating efficiencies for banks and businesses servicing high volumes of lower value payments.

Headquartered in London with regional offices in New York, Dubai, Miami and Singapore, Earthport is a public company, traded on the London Stock Exchange (AIM: EPO.L) with an institutional investor base including World Bank IFC, Oppenheimer, Blackrock, Henderson. 

Please visit www.earthport.com for more information.

Overview

In H1 FY 2017, we delivered strong revenue growth and continue to make consistent progress on our strategy, by further deepening our relationships with customers, extending our market reach, and developing our technology, unique product offerings, compliance processes and people capabilities. We are continuing to capitalise on our strong market position as the leading cross-border payment solutions provider.

Our strategy is focused on helping our customers to prosper, by using our payments expertise and insight to increase their sales, and reduce their costs and risk. It is designed to ensure the continued success of our business in a competitive and rapidly changing market, in order to deliver sustainable value to our customers, colleagues and shareholders.

During the period Earthport successfully extended its global network across different geographies and industries and is developing a strong pipeline of opportunities. We expect that realising the full potential of our business model and strategy will drive robust, visible and recurring organic revenue growth over the medium and long term.

Financial Review

During the period the number of transactions increased by approximately 85% to 5 million (H1 FY 2016: 2.7 million) and payment volumes grew by 97% to $7.80 billion (H1 FY 2016: $3.95 billion). Transactional and payment volumes were the highest in the Company's history in December 2016 and have continued to increase during the first two months of H2 FY 2017.

Revenues grew by 35% to £14.3 million (H1 FY 2016: £10.6 million) with 95% of H1 FY 2017 revenues being transactional revenues. The increase is predominantly from existing customers, as the service becomes more robust, as well as the continued expansion of our global network and a significant growth of ecommerce payments. The variation in growth rates of number of transactions and revenues principally reflects the geographical mix of transactions and the associated variability in transaction price per corridor. During the period, the Company saw a significant contribution from the European corridor which has a lower price per transaction. It is important to note that the company's gross margin has remained consistent at approximately 70%.

The Adjusted Gross Margin decreased by 3.1% to 70.4% (H1 FY 2016: 73.5%) due to increases in network costs, but is in-line with the management expectations and those achieved in the financial year ended 30 June 2016. Gross Profit for the period increased by 34% to £9.9 million (H1 FY 2016: £7.4 million).

Administrative expenses decreased by 7.8% to £13.0 million (H1 FY 2016: £14.1 million), mainly resulting from operational efficiency and the restructuring of certain parts of the business completed in the prior financial year.

Adjusted Loss before Taxation, excluding share based payment charges of £1.1 million (H1 FY 2016: £0.3 million) and unrealised fair gain value of £0.94 million (H1 FY 2016: £1.3 million) decreased by 52.2% to £3.2 million (H1 FY 2016: £6.7 million).The unrealised fair value adjustment of £0.9 million arises on the translation of unsettled transactions at 31 December 2016 and this gain would only crystallise in the event that any parties to the transactions defaulted. 

The reported loss before taxation decreased by 41.1% to £3.3 million (H1 FY 2016: £5.6 million).

Loss per share decreased by 53.1% to 0.61 pence (H1 FY 2016: 1.30 pence).

Net cash used in operating activities decreased by 59.2% to £2.0 million (H1 FY 2016: £4.9 million), reflecting the Board's focus on cash used in operations versus revenue growth. The Cash Balance at 31 December 2016 amounted to £11.4 million, compared to £14.4 million at 30 June 2016 (H1 FY 2016: £24.1 million).

Recovery activities related to the £5m loss continue, involving law enforcement and insurance companies. There can be no certainty about the likelihood, amount or timing of any recovery in connection with this loss.

Operational and Network Review

Earthport continues to hold the premier position as one of the most versatile and trusted cross-border payments provider among banks, eCommerce companies, Money Transfer Organisations, and payments aggregators.

The Company launched client relationships with a number of new banks and business enterprises across the world in H1 FY17.

In November 2016, the Reserve Bank of India ("RBI") granted Earthport approval for operating outbound cross border payment services for banks in India. The subsequent agreement with Axis Bank, one of India's most prominent systemic financial institutions, was the first organisation in the region to entrust Earthport with their cross-border payments business.

Bank of America Merrill Lynch launched its CashPro® service, which utilises the Earthport network, in February 2017. This service will add new countries and currencies to the bank's online and file-based banking portal, CashPro®, further expanding the bank's international ACH payment capabilities. BofAML clients can now access cross currency payments in more than 60 countries and nearly 25 currencies. This expanded access represents a significant development of the strategic relationship between Earthport and BofAML that was first announced in 2013.

The Company continues to execute upon its growth strategy to:

o Expand geographically including India and other Emerging Markets

o Improve internal processes and enhance technology infrastructure

o Augment our network resilience by establishing relationships with additional partner banks

o Enhance our service offerings with the development of new products such as an Enhanced FX Offering, Faster Payments, Global Receivables, Alias Payments, Global Treasury Netting, and further expanding the Distributed Ledger offering

Earthport continues to grow its network, providing its clients with additional routes and destinations. The Company executes payments across 181 countries and destinations in 51 currencies.

Board and Management changes

During the period, Sajeev Viswanathan stepped down from the board on 3rd November 2016 as an Executive Director to pursue other opportunities and Dr Caroline A. Brown joined Earthport's Board on 17 January 2017 as an Independent Non-Executive Director.

Dr Brown is an experienced finance executive and board member of listed companies. She currently chairs the audit committee of Luceco plc, an industrial technology business, which was admitted to trading on the Main Market of the London Stock Exchange in October 2016. Dr Brown is a qualified accountant and has also worked in corporate finance at Merrill Lynch, UBS and HSBC.

Michael R. Steinharter also joined Earthport on 3 November 2016 in the new position of Chief Commercial Officer. Mike brings a great range of experience to Earthport, building, managing and growing successful sales organisations at some of the largest and most respected technology service companies. Among his many roles, Mike spent over 20 years selling to the financial services sector at IBM with significant management responsibility in New York, London, and Sydney. Mike has also served as president of Reuters America and built a significant financial services practice at Computer Sciences Corporation (CSC).

Outlook

Earthport's performance in H1 FY 2017 reflects its continued progress as the leading cross-border payments company and the Company will continue to invest in its operational platform to ensure platform scalability and resilience as well as expanding its geographical presence and product capabilities.

The number of transactions processed and payments volumes have continued to increase month on month in January and February 2017 and the Board expects these core operational metrics to continue to improve in the second half of the fiscal year.

Given current business and operational trajectory, the Board remains confident that FY 2017 revenues and year end cash balance will be broadly in-line with market projections. In addition, the Board is focused on balancing its objective of becoming cash flow breakeven whilst addressing the significant demand emerging due to our strong market position. While cash usage is continuing to decrease, we will not achieve cash flow breakeven in Q4 FY 2017, as previously communicated in order to capitalise on these opportunities.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 31 December 2016

There were no items of other comprehensive income for the year.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 31 December 2016

CONSOLIDATED STATEMENT OF CASH FLOWS

for the six months ended 31 December 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six months ended 31 December 2015 (Unaudited)

Attributable to the owners of the Parent

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six months ended 31 December 2016 (Unaudited)

Attributable to the owners of the Parent

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 30 June 2016 (Audited)

notes to the UNAUDITED INTERIM results

for the six months ended 31 December 2016

1. GENERAL INFORMATION

Earthport plc is a public limited company listed on the AIM Market of London Stock Exchange, 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 140 Aldersgate Street, London EC1A 4HY.

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 further progress in achieving its objective of positioning the Group as an infrastructure supplier to the global payments industry, and with net cash used in the operating activities having decreased significantly to £2.0 million in the six month period to 31 December 2016 compared with £4.9 million for the six month period to 31 December 2015 as well as revenue growth of 35%, the directors 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 2016 financial statements.

notes to the UNAUDITED INTERIM results

for the six months ended 31 December 2016

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".

notes to the UNAUDITED INTERIM results

for the six months ended 31 December 2016

5. TRADE AND OTHER RECEIVABLES

Trade receivables are comprised of two components; amounts receivable from clients in the normal course of business (£2.9 million), as well as amounts related to forward foreign exchange contract payments executed with clients with the notional (£6.5 million) amount. These forward foreign exchange contracts are fair valued in accordance with IAS 39 Financial Instruments: IAS 39 outlines the requirements for the recognition and measurement of financial assets, financial liabilities, and some contracts to buy or sell non-financial items. Financial instruments are initially recognised when an entity becomes a party to the contractual provisions of the instrument, and are classified into various categories depending upon the type of instrument, which then determines the subsequent measurement of the instrument.

6. TRADE AND OTHER PAYABLES

Trade payables and accruals principally comprise amounts outstanding in respect of operating costs. The average credit period taken for trade purchases is 35 days (H1 FY 2016: 33 days). The directors consider that the carrying amounts for trade and other payables approximate their fair value.

notes to the UNAUDITED INTERIM results

for the six months ended 31 December 2016

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 on 15 November 2016: 10,797,671 (H1 FY 2016: 432,488) ordinary shares of 10p were issued to the holders of Contingent Value Rights from the 2013 acquisition of Baydonhill plc (On 1 July 2016, the name was changed to EarthportFX Limited), and 155,836 (H1 FY 2016: Nil) ordinary shares of 10p were issued in lieu of consultancy fees.

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.

notes to the UNAUDITED INTERIM results

for the six months ended 31 December 2016

8. SHARE PREMIUM

9. INTEREST IN OWN SHARES

notes to the UNAUDITED INTERIM results

for the six months ended 31 December 2016

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

OPERATING ACTIVITIES

notes to the UNAUDITED INTERIM results

for the six months ended 31 December 2016

11. UNREALISED FAIR VALUE ADJUSTMENT

In accordance with IAS 39, the Group fair valued all currency bank accounts (excluding client bank accounts) and forward foreign exchange contracts. The fair value revaluation of such receivables, payables and currency accounts gave rise to an unrealised gain of £2.6 million (H1 FY 2016: loss of £1.9 million). All forward foreign exchange contracts executed with clients are hedged with bank forward foreign exchange contracts and as a result, the fair value revaluation generated a net derivative unrealised loss of £1.6 million (H1 FY 2016: gain of £3.2 million).

Treasury hedge client forward transactions through mirror hedge bank trades on the amount, however the maturity date of these hedge trades can sometimes differ from date of the original client trade. This is industry practice to ensure the business manages the open drawdown schedule nature associated with these client forward transactions in combination with remaining within prescribed credit line limits provided by the bank liquidity providers. On settlement/maturity of the contract there is no P&L effect, however while the contracts are open and the hedge has a different maturity date, there is a mark to market which leads to an unrealised fair value gain or loss. These gains and losses would only crystallise in the event that any parties to the transaction default.

notes to the UNAUDITED INTERIM results

for the six months ended 31 December 2016

12. PUBLICATION OF NON-STATUTORY FINANCIAL STATEMENTS

The results for the six months ended 31 December 2016 and 31 December 2015 are unaudited and have not been reviewed by the auditor. The results for the year ended 30 June 2016 included in this announcement 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 2016. Statutory accounts for the year ended 30 June 2016, 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 2016 and the accounting policies to be adopted in the financial statements for the year ended 30 June 2017. 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 2016 have been extracted from the statutory financial statements for that period.

13. The interim results for the six months ended 31 December 2016 are available on the Company's website: www.earthport.com.