Earthport Regulatory News (EPO)

27 March 2018

Earthport plc

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

Unaudited Interim Results

Earthport (AIM: EPO.L), the leading cross border payment services utility, is pleased to announce its unaudited interim results for the six-month period ended 31 December 2017 (H1 FY 2018).

Financial Highlights

· Revenues grew by 8% to £15.4 million (H1 FY 2017: £14.3 million)

o Transactional revenues comprised 94% of H1 FY 2018 total revenues

· Adjusted Gross Profit1 decreased by 3.0% to £9.8 million (H1 FY 2017: £10.1 million)

o Adjusted Gross Margin decreased to 64% (H1 FY 2017: 70%), due to increase in network delivery costs and business mix

· Gross margin of 62% (H1 FY 2017: 69%) after the impact of warrant charge, resulting in gross profit of £9.5 million (H1 FY 2017: £9.9 million)

· Administrative expenses increased by 10% to £14.3 million (H1 FY 2017: £13.0 million) and represented 93% of revenues (H1 FY 2017: 91%)

· Adjusted EBITDA loss increased by approximately £1.7 million to £3.2 million (H1 FY 2017: £1.5 million)

· Adjusted operating loss2 increased by £1.6 million to £4.8 million (H1 FY 2017: £3.2 million), in line with management's expectations as announced in February 2018

· Loss after taxation increased by £1.9 million to £4.8 million (H1 FY 2017: £2.9 million)

· Loss per share increased to 0.93 pence (H1 FY 2017: 0.61 pence)

· Cash Balance at 31 December 2017 amounted to £30.6 million, compared to £11.9 million at 30 June 2017, which includes net proceeds of £24 million from the fundraising completed in October 2017

Operational Highlights

· Transactions and payment volume continued to be robust through the period

o Number of transactions was approximately 5 million, in line with the prior year period (H1 FY 2017: 5 million). Excluding the recent change at one of our leading e-commerce clients announced in December 2017, the number of transactions increased by 11%

o Payment volume increased by 12% to $8.7 billion (H1 FY 2017: $7.8 billion)

o Average revenue per transaction increased by 9% to £2.87 (H1 FY 2017: £2.64), caused by the discontinuation of the low-value e-commerce business

· Earthport now has over 65 countries in its local banking network, with the ability to deliver payments to 200 countries in total

· The Company enters H2 FY 2018 with a record pipeline

Phil Hickman, Interim CEO of Earthport plc, commented: "While there have been clear challenges as we announced in December 2017, Earthport's core offering and market positioning remains strong. We continue to deliver growth in revenue, expand our geographic presence and deliver an increasingly relevant service to our clients. We currently have a strong pipeline with increasing opportunities within the banking and ecommerce sectors, as well as in new geographies. This, coupled with continued growth in our existing client base, gives us confidence in meeting our expectations for FY 2018 and becoming cash flow breakeven by the end of FY 2019."

1. Adjusted gross profit and margin figures exclude a warrant charge of £0.33 million (H1 FY2017: £0.23 million)

2. Adjusted loss before taxation is stated before the unrealised fair gain adjustment of £1.2 million (H1 FY2017: £0.94 million) and share based payment charge of £1.0 million (H1 FY2017: £1.1 million)

For further information, please contact:

Earthport Plc 020 7220 9700

Phil Hickman, Chief Executive Officer (Interim)

Hank Uberoi, Executive Chairman

Newgate Communications 020 7653 9848

Bob Huxford/James Ash

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

Mark Taylor/James White

Shore Capital (Joint Broker) 020 7408 4090

Toby Gibbs/Stephane Auton

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 200+ countries and territories, with local ACH options in 65+ 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).

Please visit www.earthport.com for more information.

Overview

The first half of FY 2018 has not been without its challenges. Key changes in our senior management, board and client base have defined a period of change for Earthport. Despite this, and in line with our December update, we remain positive with good cause. Revenue from our existing clients has increased and continues to grow in line with expectations. As a consequence of this, we recently had an all-time record day of transactions processed.

The pipeline is stronger than it has ever been, with more new clients on boarded and meaningful prospects engaged than at any time previously. We expect to see the revenue benefits of this in the next financial year as the transactional volumes increase significantly over a 12-18 month period. Banks and international businesses are increasingly recognising the need to improve their payment capabilities, global reach and regulatory understanding. We are well positioned to deliver against this as validated by our continued growth from both new and existing clients.

Our focus is now firmly on optimising our operational efficiency and reducing our administration costs. Delivering key improvements in our technology to increase automation and process simplification is a high priority. We expect to see significant change across our business as a whole, delivering real reductions in overall cost. An internal review of all costs is already underway and is a key priority for us going forward.

Our model continues to remain relevant in the growing cross border payments market, offering significant value to our clients via our truly global reach, unmatched regulatory and risk experience and secure, predictable payments. Operating in over 200 countries and with direct local banking relationships in over 65 countries, we remain at the forefront of the ever evolving cross border payments market.

Financial and Transactional Review

Despite the challenges of delays in expected contracts, client implementations and a change at one of our leading e-commerce clients, revenues grew by 8% to £15.4 million (H1 FY 2017: £14.3 million) with 94% of 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 significant growth in ecommerce payments. The number of transactions was in line with H1 FY 2017 at approximately 5 million, this is due to the recent change at one of our leading e-commerce clients announced in December. Excluding that, transactions were up 11% compared to H1 FY 2017 with Straight Through Processing (STP) rates of greater than 99.5%. Monetary value of transactions processed increased by 12% to $8.7 billion (H1 FY 2017: $7.8 billion).

The Adjusted Gross Margin decreased to 64% (H1 FY 2017: 70%) due to network delivery costs, geographical mix of transactions and the associated differences in transaction price per corridor, this is in-line with management expectations. Adjusted Gross Profit decreased by 3.0% to £9.8 million (H1 FY 2017: £10.1 million). Gross margin for the period decreased to 62% (H1 FY 2017: 69%) after the impact of warrant charge, resulting in gross profit of £9.5 million (H1 FY 2017: £9.9 million).

Administrative expenses increased by 10% to £14.3 million (H1 FY 2017: £13.0 million), this is mainly due to investment in capturing the growing opportunities pipeline in existing clients and sales capacity, in the e-commerce vertical and in Asia. Administrative expenses were reported as £13.9m in our 15 February 2018 trading update.

Adjusted Loss before Taxation, excluding share based payment charges of £1.0 million (H1 FY 2017: £1.1 million) and unrealised fair gain value of £1.2 million (H1 FY 2017: £0.94 million) increased by 50% to £4.8 million (H1 FY 2017: £3.2 million). The unrealised fair value adjustment of £1.2 million arises on the translation of unsettled transactions at 31 December 2017 and this gain will only materialise in the event that any parties to the transactions default. 

The reported loss before taxation increased by 42% to £4.7 million (H1 FY 2017: £3.3 million).

Loss per share increased by 53% to 0.93 pence (H1 FY 2017: 0.61 pence).

Net cash used in operating activities increased by 145 % to £4.9 million (H1 FY 2017: £2.0 million), this is in line with management's investment plan as detailed in October 2017. The Cash Balance at 31 December 2017 amounted to £30.6 million, compared to £11.9 million at 30 June 2017 (H1 FY 2017: £11.4 million), which includes the net proceeds of £24 million from the fundraising in October 2017.

Operational and Network Review

Earthport is one of the most trusted providers of cross-border payments in the world. Our compliance and regulatory function is second to none, offering an in-depth understanding of local requirements and potential risks. Our decision to prioritise building a bank grade compliance function is increasingly becoming a key differentiator for us. Receiving our New York money transfer licence in March 2018 exemplifies our continued drive in this key area and will now enable us to offer local treasury services to our North American clients.

With our pipeline stronger than at any time in the past, the Company secured numerous new customers and partnerships during the period under review. In addition to this, we have seen significant extensions to existing client relationships including Bank of America Merrill Lynch (BAML), Payoneer and Japan Post Bank.

In order to deliver payments for our clients and their clients to anywhere in the world, we continue our focus on new technologies to enhance our services both internally and externally. Our well documented early involvement in distributed ledger continues to expand, with a significant initiative to go live in the second half of FY 2018 with a Tier 1 global bank.

With £30.6 million of cash on our balance sheet as at 31 December 2017, we are well financed to deliver against our longer-term growth strategy. We are further investing in our global sales function and product enhancements. In addition, we are investing in technology, predominantly with the aim of reducing operational costs through further automation and innovation.

Board and Management changes

As announced in December, Hank Uberoi has been appointed as Executive Chairman of Earthport and is concentrating on working with the leadership team to identify wider strategic, commercial and investment opportunities.

With effect from 1st January, Phil Hickman, previously Non-Executive Chairman, has taken on the role of interim CEO whilst the Company looks for a permanent CEO replacement. Phil has significant banking and management experience, having spent over 32 years with HSBC.

Post period end it was announced that Simon Adamiyatt would step down from his role as Earthport's Chief Financial Officer and that John McCoy would step down from his position as a Non-Executive Director of Earthport. The Company thanks Simon and John for their contributions.

Earthport's search for a new permanent CEO and CFO is progressing well. The Company is in active discussions with various candidates and looks forward to announcing appointments in the near future.

Outlook

While there have been challenges during the period, Earthport's core offering and market positioning remain strong. Alongside growth opportunities, we are focused on delivering operational efficiencies, global expansion and continued innovation. With continued growth in revenue from existing clients, our strongest pipeline ever and a solid balance sheet supporting further expansion and strategic initiatives, the board remains confident in meeting its expectations for FY 2018 and reaching cash flow breakeven by the end of FY 2019.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 31 December 2017

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

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 31 December 2017

CONSOLIDATED STATEMENT OF CASH FLOWS

for the six months ended 31 December 2017

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

for the six months ended 31 December 2017 (Unaudited)

Attributable to the owners of the Parent

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 30 June 2017 (Audited)

notes to the UNAUDITED INTERIM results

for the six months ended 31 December 2017

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.

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. During the period, the Group has raised gross proceeds of £25 million (net £24 million) through the placing and subscription of 125 million ordinary shares. The Directors have prepared a cash flow forecast covering a period extending beyond 12 months from the date of these interim financial statements after taking account of anticipated overhead costs and revenue. Therefore, the Directors consider that it is appropriate to prepare the Group's interims financial statements on a going concern basis, which assumes that the Group 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, as modified by the revaluation of certain financial assets at fair value as required by IAS39 and the principal accounting policies are set out in the 30 June 2017 financial statements.

notes to the UNAUDITED INTERIM results

for the six months ended 31 December 2017

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 2017

5. TRADE AND OTHER RECEIVABLES

Trade receivables amounted to £2.3 million (H1 FY 2017: £2.9 million), net of a provision of £nil

(FY2016: £nil) for impairment. There were no provisions in the Company accounts.

In accordance with IAS 39 Financial Instruments, as at 31 December 2016 the amounts related to forward foreign exchange contract executed with clients with the notional value of £6.5 million have been reclassified as Derivative Financial Assets.

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 34 days (H1 FY 2017: 35 days). The directors consider that the carrying amounts for trade and other payables approximate their fair value.

In accordance with IAS 39 Financial Instruments, as at 31 December 2016 the amounts related to forward foreign exchange contract executed with clients with the notional value of £0.2 million have been reclassified as Derivative Financial Liabilities.

notes to the UNAUDITED INTERIM results

for the six months ended 31 December 2017

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 4 October 2017: 125,000,000 (H1 FY 2017: 10,797,671) ordinary shares of 10p were issued to existing investors and new institutional shareholders and Nil (H1 FY 2017: 155,836) 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 2017

8. SHARE PREMIUM

9. INTEREST IN OWN SHARES

notes to the UNAUDITED INTERIM results

for the six months ended 31 December 2017

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 2017

11. UNREALISED FAIR VALUE ADJUSTMENT

In accordance with IAS 39, the Group fair valued all currency bank accounts, which include client segregated and company accounts, as well as forward foreign exchange contracts. The fair value revaluation of financial derivatives resulted in a net derivative unrealised gain of £1.2 million (H1 FY 2017: gain of £0.9 million).

The above mentioned unrealised gain and losses would only be realised in the unlikely event that any party to the transaction would default.

notes to the UNAUDITED INTERIM results

for the six months ended 31 December 2017

12. PUBLICATION OF NON-STATUTORY FINANCIAL STATEMENTS

The results for the six months ended 31 December 2017 and 31 December 2016 are unaudited and have not been reviewed by the auditor. The financial information contained herein does not comprise statutory financial information within the meaning of section 434 of the Companies Act 2006. The information for the year ended 30th June 2017 has been extracted from the latest published accounts. Statutory accounts for the year ended 30 June 2017, 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 2017 and the accounting policies to be adopted in the financial statements for the year ended 30 June 2018. 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 2017 have been extracted from the statutory financial statements for that period.

13. The interim results for the six months ended 31 December 2017 are available on the Company's website: www.earthport.com.