MPAY.L Regulatory News (MPAY)

The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain

24 April 2019

Mi-Pay Group plc

('Mi-Pay', the 'Group', or the 'Company')

Final Results

Mi-Pay (AIM: MPAY), a leading provider of digital transformation and mobile payment solutions, is pleased to present its Final Results for the year ended 31 December 2018.

Financial Highlights

Operational Highlights

Michael Dickerson, Executive Chairman of Mi-Pay Group plc commented on the results:

"2018 has been a year of strong progress for Mi-Pay in which key milestones have been achieved. We processed over £100 million in fully managed payment transactions for the first time and successfully delivered indemnified payment fraud management services driving £0.3 million of profitable new revenue. This, combined with a continuing ability to scale efficiently and improve our cost base, delivered a material reduction in losses for the year and a profit after interest, tax, depreciation, amortisation and share based payments in H2 2018. We enter 2019 having secured long term contractual extensions for clients representing 43% of our 2018 revenue and long-term infrastructure relationships which will provide real stability as we grow and as such a strong platform for the future."

"The market we operate in continues to change as new European payment compliance directives impact solution providers and our clients consolidate their offerings and vendors, especially as they increasingly focus on the transition to digital solutions, our core offering. This offers both opportunities and risks, however our knowledge, in house solutions and efficiencies in digital e-commerce provides a strong platform to build from."

Both the full Annual Report and Financial Statements and the notice of AGM, convening a general meeting of the Company, to be held at 30 Crown Place, London, EC2A 4ES on the 21st May 2019 at 11 a.m. are available on our website at www.mi-pay.com/investor-document-centre/ and will be posted to Shareholders shortly.

For further information please contact:

About Mi‐Pay Group

Founded in 2003, Mi-Pay Group plc delivers fully outsourced online and related payment and fraud management solutions to digital ecommerce clients, primarily in the mobile and digital content sector. Its product offering provides the infrastructure to enable pre-paid mobile devices to be topped up via a variety of channels such as websites, mobile applications and social media applications and customers include Mobile Network Operators (MNOs) and Mobile Virtual Network Operators (MNVOs), additionally managing and indemnifying the data security and payment fraud risks. Mi-Pay sells, integrates and operates its products and solutions on a global basis. For further information, please visit www.Mi-Pay.com or contact details as shown above.

Chairman's Statement

I am delighted to write a very positive Chairman's statement following a good transitional year for Mi-Pay. During the year the business passed a number of milestones and delivered on a number of fronts.

Firstly, the new Board structure that was announced on the 1 March 2018 has been bedded in and has delivered the predicted savings. I would like to thank my fellow Board members for making this a successful transition and for entering into their new roles with an enthusiasm that has helped deliver tangible benefits to the Company.

I am also delighted to have welcomed Huub Sparnaaij to the Board of the Company as a non-executive director. Huub brings to the Board a wealth of experience of mobile payment solutions and digital content sales in mainland Europe. I believe that Huub's knowledge and experience - from a digital content, product and geographical perspective, will bring increased value to the Group.

In summary, the Company has used 2018 to set in place the bedrock for future growth, building on and enhancing its previous investments in solutions and efficiencies. We have secured key client relationships, delivered new products and ensured the stability of our infrastructure resulting in the delivery of adjusted EBITDA (earnings before interest, tax, depreciation, amortisation and share based payments) profit and cashflow positive trading in the second half of 2018.

Outlook

The changes implemented in 2018 have continued to deliver improvements in the Company's performance. We expect this to continue into 2019 and drive future growth from existing clients and deliver new ones, underpinned by:

We now have an efficient cost structure, an ongoing ability to invest and an enhanced revenue growth potential. This is underpinned by our recent announcements of two contract extensions securing major client revenue beyond 2022.

We remain proud of our record on platform security and compliance and will continue to focus on this in 2019 ensuring that we are PSD2 ready and that our systems remain secure and robust.

On behalf of the Board I would like to thank all of our employees, clients, investors and partners who have enabled Mi-Pay to deliver on its core targets for 2018 and continue to support our growth in 2019.

Michael DickersonExecutive Chairman23 April 2019

CEO Review of Operations

We are focused on enabling our clients to digitally transform their customer interactions, improve customer experience and mitigate their risks. Our solutions directly resolve these challenges:

We will continue to invest, learn, experience and build solutions to simplify these challenges for our clients.

Revenue

We deliver three core revenue streams from our clients:

Total revenue increased by £0.2 million to £3.3 million (2017: £3.1 million) with the increase driven by a £0.3 million rise in revenue from the commencement of our fraud monitoring service, offsetting a slight decrease in our transaction revenue as new rates from extended contracts came into effect. Whilst our Fraud Services revenue will deliver lower revenue per transaction than our full indemnified payment solution revenues, its easier implementation and wider market opportunity offers new growth opportunities for us outside of our traditional verticals and territories. We expect this to ultimately deliver gross margins comparable with those of our traditional full payment solution.

For our core Transaction Services product, we focussed on driving volume growth within our key clients which crucially included the successful integration with our largest client' new infrastructure resulting in Mi-Pay becoming their single digital payment partner. As a result, our Payment Transaction value processed increased in the year to £106 million from £94 million. For the first time in our history we processed over £100 million of fully managed payment transactions on behalf of our clients which continued to grow throughout the period. As at 31 December 2018 we were processing annualised payments in excess of £110 million as the naturally recurring and growing nature of our model underpins our longer-term opportunities.

Our Transaction Services Revenue remained flat at £2.6 million despite the transaction growth. Whilst our client's digital transactions are driving our growth this in turn ultimately leads to commercially improved offers. Our percentage revenue per transaction has decreased from 3.5% in 2014 to 2.5% in 2018 which has limited transaction revenue growth, however we have offset this at gross profit level with improved commercial terms with our payment partners, growing gross margins from 36% to 63% over the same period. This in turn has led to longer term relationships with our clients. In early 2019 we successfully extended contracts relating to 43% of our 2018 revenue to 2022 and beyond. This gives us a stable, growing and investable annuity-based revenue model.

Professional Services Revenue remained flat at £0.4 million, in line with expectations, as we continue to deliver our in house hosted secure vault and card tokenisation solution that underpins this annually recurring revenue stream. We expect this to continue in the coming period.

Underlying Revenue Trends

Key Performance Metrics & Operational Investments

Our major contracts indemnify our clients from fraudulent transactions and we only charge for those successfully completed. This offering is more strategically aligned with our clients than that of the general payments market. As such, it is critical that we continue to deliver world-class payment fraud management and payment transaction optimisation rates to both protect our gross profit margins but also deliver real business value to our clients and their customers. It is here that we target our investments. Our in-house fraud service and our existing European client base gives us further insight and knowledge in the management of payment fraud.

We continued to see high levels of transaction success rates at 88%, (2017: 89%) and we again delivered excellent performance in payment fraud management for our internal fraud management services achieving 0.04% (2017: 0.06%) of transaction value. This has enabled us to maintain our Transaction Services gross margin at 63% (2017: 63%) despite the reduction in pricing with our largest client.

Our direct managed Fraud Service incurred a higher fraud rate than our internal fully indemnified service as we managed higher risk transactions, however we expect this to improve as our data sets, experience and technology develops.

The Group also considers its revenues, gross profit margins and administration expenses as key performance metrics and these are reviewed in the Financial Review.

Infrastructure Investments

We continue to invest in the development of our solutions and maintained our Research and Development expenditure at £0.6 million in 2018 despite a reduction in general and administrative costs. We remain at the forefront of compliance and security and have invested to deepen relationships with existing clients and target growth into new vertical and geographical markets ensuring what we do is built to scale efficiently. Our key areas of focus are:

· Security and Compliance. The management of payments in e-commerce is increasingly complex and risky with both payment fraud and legislative burden increasing. Under the 'Payment Services Directive 2 (PSD2)', to be implemented in 2019, material changes will occur in how payment transactions will need to be managed. This area will drive continued investment in 2019 and beyond.

- Our investment in payment fraud management solutions continues to deliver excellent performance and our experience and improvements in delivering services directly to our new client in Europe has enhanced our solution and market understanding. We will continue to expand our knowledge and develop new fraud detection technologies to enable us to scale and enhance our solution;

- Under new European wide legislation to be implemented in 2019, we will deliver enhanced customer authentication and security solutions (3DS2.0) to improve and protect the customer experience and ensure our clients remain fully compliant with all legislation;

· Data Security. The security of the data we hold is critical to our success. We continue to invest in our infrastructure and people from a cyber-security perspective to protect the consumer data we hold. We remain PCI/DSS 3.2 compliant and continue to ensure we remain fully compliant with the General Data Protection Regulation.

· Platform Stability. During the year we renewed the five year lease for our core transaction processing platform on similar terms and with an increased scalability capability renewing and enhancing our global data centre infrastructure for a further three years. Both of these events will deliver long term cost savings as we take advantage of new technologies, remove the need for material capital investments and enhance our platform stability with full system failover and disaster recovery solutions to protect our Clients.

· New Channels. During the year we delivered the capability of new payment methods such as Apple Pay, Sofort and Giropay and will continue to ensure our payment capabilities remain in line with the market requirements. We continue to assist our clients in enhancing their e-commerce customer journeys and mobile application solutions and will develop new services such as Voice Activated Services (for example Amazon Alexa) to drive new growth;

· Data & Content. As data usage continues to grow exponentially, we have enhanced our capability to work with operators and content providers to manage real time data bundles and responsive top-ups alongside developing business intelligence solutions to enhance our client's abilities to manage their customers' needs. The data we hold and how we manage it is critical to our ability to better manage and optimise the payment experience as we increasingly work with the marketing teams of our clients to drive their growth.

These investments are primarily delivered by our own people, which enables us to retain intellectual property and ensure the solution is applicable across all of our clients. This increasing customer data provides us with more experience and knowledge to build on. In 2018, we built on our market relevance and delivered solutions that are of increasing strategic importance to our clients. We now offer a full suite of fully managed digital customer channels and payment solutions and will continue to expand them - most importantly, we do so in a fully secure environment with an underlying profit to support continued investment with strong, growing client relationships. Our investments and technology developments continue to ensure we scale efficiently as demonstrated in recent years and expect to build on these efficiencies in the future.

We will look to build on this in 2019 and have clear targets to deliver new growth, improve efficiencies and develop wider opportunities with mobile operators and digital content providers in new geographies and services. All of this built upon a scalable, secure platform.

The knowledge and skills, hard work and dedication of our employees have built this capability and I look forward to working with them over the coming years to deliver further success and sincerely thank them for their support in my role as CEO. They are our most valuable resource and continue to create the platform and environment for success.

John BealeChief Executive Officer23 April 2019

Financial Review

We continue to deliver a growing annuity-based revenue stream with strong gross margins whilst controlling the risks and demonstrating an ability to scale within existing cost levels.

Trading Results

· £3.3 million total revenue for the year ended 31 December 2018 (2017: £3.1 million).

· £2.1 million Gross Profit (2017: £2.0 million).

· £0.6 million research and development investment, net of £0.3 million tax recovery paid in August 2018.

· £0.3 million reduction in total administrative expenses.

· £0.2 million Operating Loss (2017: £0.6 million).

· 0.5p Loss per share (2017: 1.5p Loss).

Assets, Liabilities and Reserves

· £0.3 million increase in non-current assets due to 5-year operating lease commitment from 1 July 2018, payable quarterly over the term. Offset by lease liability.

· £0.1 million deferred salary accrual (2017: £0.4 million).

· £0.2 million expected tax credit recovery for research and development.

· £3.5 million Cash (2017: £2.9 million).

· £0.6 million Share options reserve written off to Retained deficit as previous share options issued were cancelled in March 2018.

Transaction Services performance

Payment transactions processed increased as we saw our largest client grow following our successful integration into their centralised infrastructure and further natural migration to our digital e-commerce channels across our wider client base.

We continue to see an increasing average transaction value as more consumers look for larger data bundles and we look to increase the volume of digital bill payment transactions that drive a higher transaction value. This enables us to drive higher margins and better control our payment fraud risks.

Our Transaction Services Revenues reduced to £2.6 million from £2.7 million in 2017 due to the impact of reduced pricing with our largest client, which will be offset by the incremental growth in transaction volumes over the longer term. We do expect to see strong growth in the coming periods as we fully deliver our new contracts.

Our percentage revenues per transaction declined to 2.5% (2017: 2.8%), due to:

· improved commercial contracts with our clients as they sign longer term, higher volume contracts;

· increased bill payment transactions which deliver lower % fees per transaction but lower risk; and

· reduced market pricing for payment processing which we pass onto our clients.

We maintained our gross profit margin as we continued to deliver strong payment optimisation, see low payment fraud levels, but also were able to mitigate commercial pressures as we deliver improved relationships with our payment partners. The continuing pressure on margins will be compensated by larger volume growth and improved commercial terms with our partners.

Fraud Services performance

No revenue in 2017 during trial period

Our new Fraud Service, initially launched in October 2017 as a trial, saw its first full year of transactions and operation, delivering a new profitable revenue stream. The direct fraud management solution in Europe, reviewed over £43 million payment transactions and delivered a gross margin of 39% over the year. In the six month period to 30 June 2018 the revenue stream was break-even as we deployed, developed and enhanced the solution and in the second half of 2018 delivered profit from the service. We expect this to continue and deliver increased benefits in the future.

Professional Services performance

Our Professional Services Revenues remained constant at £0.4 million (2017: £0.4 million) with stable gross profits at £0.3 million (2017: £0.3 million). We will continue to drive more growth through existing delivered channels and see larger transaction based relationships develop where there is limited upfront revenue. As a result, our reliance on this revenue stream has reduced from 25% of total revenues in 2015 to 12% in 2018.

Our total gross profits grew to £2.1 million (2017: £2.0 million) and closed the period with a stronger underlying annuity-based revenue stream, a proven new fraud product and strong total gross margins at 62%. We expect these to be consistent across geographies, however, our revenue segments drive differing gross profit margins and as such, our revenue mix impacts our overall performance.

Operating Loss

During the year, the business continued to deliver savings whilst at the same time looking to maintain and continue with investment in key areas. We invested in Research and Development at similar levels to 2017 and saw a reduction of £0.3 million in Total administrative expenses due to our previously announced restructure and an extension of our global, PCI secure infrastructure in August 2018 - these savings are ongoing in nature. Our focus on delivering business efficiency has reduced our Total administrative expenses from £3.1 million in 2014 to £2.3 million in 2018, an £0.8 million reduction. These costs savings when combined with the small increase in gross profits helped to reduce our losses by 62% to £0.2m (2017:£0.6 million loss). Crucially in the six month period to 31 December 2018 we made a profit before interest, tax, depreciation, amortisation and Share Based payments. A milestone for the Group.

Cash flow, assets and liabilities

The Group ended the year with £3.5 million in cash and cash equivalents (2017: £2.9 million). £2.9 million (2017: £2.5 million) of this balance related to the client related funds and £0.6 million (2017: £0.6 million) related to our core trading and operating cash. Total cash movement in the year was £0.6 million. This is reconciled as:

· Client related funds increased by £0.6 million during the period as we grew our transactions processed. We expect to look to settle funds quicker in the future to ensure we remain competitive in the market.

· There was no change in our core trading and operating cash balances during the period, however we note there was a:

- £0.1 million outflow related to expenditure on our core business operation and working capital. This included a £0.3 million inflow from Research and Development Tax credits (2017: £0.3 million). We expect to recover in excess of £0.2 million in 2019.

- £0.1 million outflow related to capital expenditure and finance lease payments in respect of our core transactional infrastructure and technology investment. This lease was renewed for five years on 1 July 2018 on similar terms, payable quarterly over the life of the lease. We do not capitalise development costs from our employees.

- These outflows were offset by a £0.2 million inflow related to the new issue of share capital on 1 March 2018 as part of the Board restructure previously announced.

The Group had limited capital expenditure exposure and does not meet the IAS 38 criteria to enable it to capitalise its internal development costs. The Group now services a finance lease related to the five-year licence arrangement for our core transaction-processing platform, effective from 1 July 2018 of which £0.3 million remained outstanding as at 31 December 2018. This ensures continuity to the Group in infrastructure and service levels.

Excluding the increase in client funds, there were no other material movements in working capital with the Group being protected from risk in this area as its debtor fees relating to its core Transaction Services Revenues are deducted at source before net payments are made to clients. The Group has no external borrowings.

The net assets of the Group increased to £0.3 million (2017: nil) due primarily to the positive impact of the Board restructure on 1 March 2018. This led to:

· £0.3 million reduction in non-current liabilities as previously deferred salaries and bonuses were converted to Ordinary shares in conjunction with the placing.

· £0.3 million incremental cash for the Group through the placing offset by £0.1 million of costs.

In March 2018, 3,763,425 share options with an exercise price of 41 pence were cancelled, leading to £0.6 million reduction in Share Options Reserve and crediting Retained Deficit. The Company issued new options over a total of 3,750,000 Ordinary Shares (under the terms of the Company's existing share option scheme), with an exercise price of 13 pence per Ordinary Share, this created a Share based payment expense of £0.04 million in administrative expenses.

We enter 2019 with higher annuity based revenues, stable gross margins and a lower run rate cost base. This is underpinned by a stronger cash position, reduced liabilities and strong contractual relationships with both our clients and our core infrastructure partners.

John BealeChief Executive Officer, Company Secretary23 April 2019

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2018

Consolidated Statement of Financial Position

For the year ended 31 December 2018

Consolidated Statement of Cash Flows

For the year ended 31 December 2018

Consolidated Statement of Changes in Equity

For the year ended 31 December 2018

Notes to the Financial Statements

1. Accounting policies

General information

Mi-Pay Group plc quoted on the AIM - London Stock Exchange on 29 April 2014, registered at 30 Crown Place, Earl Street, London, EC2A 4ES. Mi-Pay Group plc was incorporated in England and Wales under the Companies Act 2006. The principal activity of the Group for the year continued to be specialising in delivering fully outsourced on-line and related payment solutions to digital e-commerce clients, primarily in the mobile sector, enabling them to monetise their on-line proposition risk free.

Basis of preparation

The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs), as adopted by the European Union, and with those parts of the Companies Act 2006 applicable to Groups preparing financial statements under IFRSs.

The accounting policies applied in the preparation of these Financial Statements are consistent with those used in the prior year.

Basis of consolidation

Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

The Consolidated Financial Statements present the results of the Company and its subsidiaries ('the Group') as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.

New International Financial Reporting standards in the year

The adoption of the new standards and amendments effective from 1 January 2018 have not impacted the classification or measurement of the Group's assets and liabilities.

IFRS 9 (Financial Instruments) - IFRS 9 is effective for annual periods beginning on or after 1 January 2018. The standard introduced a new approach to how financial assets and liabilities are classified and an expected loss impairment model. 

 As a result of adopting IFRS 9, the Group adopts a simplified approach using a provision matrix in the determination of lifetime expected credit losses. This approach takes into consideration both historic credit losses and future factors. However, as trade debtors are paid via an automatic mechanism whereby the company has control over the payment dates and process via the requirement to transfer client money, impairment losses on such balances are not expected.

The standard was applied on 1 January 2018, considering the cumulative impact at this date in assessing whether an adjustment to opening reserves is required. However, the application of the standard had no impact on the current or previous reporting periods.

The first set of interim accounts that was prepared in accordance with IFRS 9 was the 30 June 2018 interims.

IFRS 15 (Revenue from Contracts with Customers) - IFRS 15 became effective for annual periods beginning on or after 1 January 2018. The Group has transitioned to the new standard through means of the cumulative effect method as at 1 January 2018 (the date of initial application). It has performed an impact assessment, taking advantage of the practical expedient not to apply IFRS 15 to any contracts that were completed contracts at that date. There has been no impact on revenues reported nor assets and liabilities as a result of adopting the standard. Revenues for the group is growing but the contracts with clients are not complex. Transactional revenues are recognised as commissions when the transactions being the performance obligations complete and as a result recognition of revenue did not change under IFRS 15. Project revenues are already broken down to performance obligations components of the contract and then measured on a percentage completion basis. Adoption of IFRS 15 has not impacted on the timing of revenue recognition and reported revenues for this category. Revenues derived from the Fraud Services are again based on delivery of transactions and a commission on the delivery of the transaction. The income from this new stream of revenue is not impacted by the implementation of IFRS15.

New International Financial Reporting standards and interpretations issued but not yet effective

The IASB have issued the following relevant standards which became mandatory or are not mandatory for the current period. 

IFRS 16 (Leases) - IFRS 16 is effective for annual periods beginning on or after 1 January 2019 and has been endorsed by the EU. The standard establishes principles for the recognition, measurement, presentation and disclosure of leases and involves the recognition of a right-of-use asset and corresponding lease liability. 

· The Group has exposure to an operating leases with a contractual liability of €21,000 in 2019 with the lease termination in April 2022

· Instead of recognising an operating expense for its operating lease payments, the Group will instead recognise interest on its lease liabilities and amortisation on its right to use assets

The Group does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on the Group.

Research and Development Tax Credits

Research and Development tax credits are included within and offset against the Research and Development line within administrative expenses. 

During the year ended 31 December 2018, the Group has invested £900,630 (2017: £846,332) in Research and Development activities. When deducting the Research and Development credit of £254,081 (2017: £267,516) the net effect and total within the Research and Development line of the Consolidated Statement of Comprehensive Income is £646,549 (2017: £578,816).

Going concern

The Group made a total comprehensive loss of £231,769 for the year ending 31 December 2018 (year ended 31 December 2017: Loss of £616,386). As at the year end the Group does however have healthy cash balances, with cash and cash equivalent balances totalling £3,487,185 and in addition expects to receive at least £200,000 during 2019 in relation to annual Research and Development tax reclaims, an annual recovery, paid in cash it expects to continue in future periods until profitable.

The Directors have prepared a cash flow forecast covering a period extending beyond 12 months from the date of approval of these Financial Statements with this plan demonstrating that the Group will be able to fully settle its liabilities over the period. The renewal and expected growth with our biggest client, new delivery of fraud service and other opportunities, combined with our continuing growth in transaction volumes in 2018 which we expect to continue, combined with the additional reduction in the operating cost base of the business due to the restructure gives the Directors confidence that the Group will move to a monthly positive cash flow position without requiring further investment. 

The Directors therefore are confident that sufficient funds are in place to support the going concern status of the Group and as such consider that it is appropriate to prepare the Group's Financial Statements on a going concern basis.

Use of estimates

The preparation of the Financial Statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates. The areas involving higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 2, critical accounting estimates and judgements.

Property, plant and equipment

Property, plant and equipment are initially recognised at cost and subsequently measured under the 'cost model' at cost less accumulated depreciation. Cost comprises the purchase price plus any directly attributable costs. If required, cost will also include the estimated present value of any future avoidable costs such as dismantling and removing items, with the corresponding liability recognised within provisions. 

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset. The gain or loss is recognised in the consolidated statement of comprehensive income.

Depreciation is provided to write off the cost less estimated residual value, in equal instalments over the estimated economic useful life as follows:

· Fixtures and fittings The shorter of three years or the life of the building lease

· Computer equipment 33% per annum straight-line

Depreciation of computer equipment held under a finance lease is depreciated over the shorter of the lease term and the estimated economic useful life:

· Computer equipment Finance lease 5 years (lease term)

Revenue recognition

Revenue represents amounts chargeable for the transactional services and other related professional services rendered in the normal course of business and measured when, and to the extent that, the associated performance obligations have been fulfilled.

Transactional revenues are predominantly derived from the management of transaction processing services for mobile operators, virtual network operators and pre-paid calling card companies around the world. Transactional revenues represent commissions earned on the successful completion of the processing of each individual transaction, and thus commissions are recognised in revenues at the point of the successful completion of the transaction.

Professional Services Revenues are derived from the provision of professional services, such as implementation, platform hosting services, development, training and consultancy. These are recognised over time on a percentage-of-completion basis. Professional services revenues are recognised over time as the client simultaneously receives and consumes the benefit from Mi-Pay's service delivery and that the Group has an enforceable right to payment.

The transaction price is determined by the contractual agreement in place for the delivery of the services and revenues are recognised to the extent that this performance obligation is considered to be satisfied with reference to costs incurred as a proportion of total costs to complete.

At each reporting period, receivables are recognised for revenues yet to be invoiced or settled to the extent that it is highly probable that there will not be a significant reversal of the amounts accrued in the future.

Where invoices are raised to the client in excess of the value of the consideration recognised as revenue based on the stage of completion, deferred income balances are recorded that represent unfulfilled performance obligations.

Provisions - customer refunds

A provision in respect of customer refunds is recognised when the Company has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle an obligation. Expected costs of customer refunds arise:

· By way of chargebacks made by credit cards and debit card companies where the card holder disputes the charge taken;

· As indemnity payments against contested direct debit payments;

· As other customer refunds when a transaction is subsequently reversed because the transaction has failed to complete; and

· Goodwill in nature where service has not been delivered to a suitable standard.

Any differences between provisions recognised and amounts actually paid are taken directly to the Consolidated Statement of Comprehensive Income.

The provision in respect of customer refunds is not material in 2018 or the prior year and is included within accruals.

Leased assets

Where substantially all of the risks and rewards incident to ownership of a leased asset are transferred to the Company, the lease will be treated as a finance lease, with the asset treated as if it had been purchased outright. The asset is capitalised and a corresponding liability recognised at fair value or; if lower, the present value of the minimum lease payments. The asset is depreciated over the shorter of the useful life and the lease term (useful life if reasonably certain the Company will obtain ownership). Interest finance is charged to the Consolidated Statement of Comprehensive Income and calculated and applied to give a constant rate on the outstanding liability. Lease payments are analysed between capital and the interest finance charge and reduce the liability and accrued interest accordingly. The non-current and current portions of the liability are disclosed separately.

Where substantially all of the risks and rewards incident to ownership of a leased asset are not transferred to the Company, the lease will be treated as an operating lease. Rentals payable under operating leases are charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over the term of the relevant lease except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. 

Foreign currency

Transactions entered into by the Company other than the currency of the primary economic environment in which the Company operates ('their functional currency') are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. 

On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations are translated at the rate ruling at the reporting date. 

Employee benefits

All employee benefit costs, notably holiday pay, bonuses and contributions to the Company defined contribution pension scheme are charged to the Consolidated Statement of Comprehensive Income on an accruals basis.

Research and Development

Expenditure on Research and Development is recognised as an expense and charged to the Consolidated Statement of Comprehensive Income in the period in which it is incurred.

Development expenditure relating to specific projects intended for commercial exploitation is capitalised as an intangible fixed asset where the following conditions are met:

· It is technically feasible to complete the intangible asset so that it will be available for use or sale;

· It is the intention of the Company to complete the intangible asset and use or sell it,

· The Company has the ability to use or sell the intangible asset;

· The intangible asset will generate probable future economic benefits;

· The technical, financial and other resources needed to complete the development and to use or sell the intangible asset are available to the Company; and

· The expenditure attributable to the intangible asset during its development can be measured reliably.

The criteria required to capitalise Research and Development expenditure has not been met and as such all expenditure has been recognised in the Consolidated Statement of Comprehensive Income.

Share-based payment

The Company issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of the grant. The fair value determined at the grant date of the equity-settled share-based payment is expensed on a straight-line basis over the vesting period. At each reporting date, the Company revises its estimate of the number of share options expected to vest as a result of the effect of non-market vesting conditions. The impact of the revision of the original estimate, if any, is recognised in the Consolidated Statement of Comprehensive Income with a corresponding adjustment to equity so that the cumulative amount recognised in equity over the vesting period is based on the number of share options that eventually vest. Fair value is measured by use of the Black-Scholes model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

Current taxation

Current tax is the amount of income taxes payable or recoverable in respect of taxable profit or loss for a period. Current tax contains the current period charge, the reversal of the under or over provision relating to the previous period and the deferred tax movement.

Current tax is recognised in the profit or loss, or in other comprehensive income/directly to equity if it relates to items that have been credited or charged to other comprehensive income/directly to equity.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the relevant taxation authorities, based on tax rates and laws that are enacted by the Statement of Financial Position date. 

Deferred taxation

Deferred tax is the tax attributable to temporary differences. Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the Consolidated Statement of Financial Position differs from the tax base used in the computation of taxable profit and thus creating a temporary difference. 

Deferred tax assets are recognised only to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities can only be offset when a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority.

Cash and cash equivalents

Cash and cash equivalents include cash in hand and deposits held at call with banks.

Financial instruments

Financial assets and financial liabilities are recognised in the Statement of Financial Position when the Company becomes party to the contractual provisions of the instrument.

The Group's financial assets are all classified within the amortised cost category. The Group's accounting policy for this category is as follows:

Assets carried at amortised cost These assets arise principally from the provision of services to clients (eg trade receivables), but also incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within cost of sales in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the profit and loss account to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

The Group's financial assets measured at amortised cost comprise trade receivables, other receivables, client receivables and cash and cash equivalents in the consolidated statement of financial position. Cash and cash equivalents is comprised solely of cash in hand

The Company assesses at each year end date whether there is objective evidence that a financial asset or a group of financial assets is impaired. 

Segmental reporting

The Group provides segmental reporting on a basis consistent with the provision of internal financial information used for decision making purposes by the Chief Operating Decision maker. The Group determines geographical information on the basis of the location of the client.

2. Financial instruments

General objectives, policies and processes

The Board has overall responsibility for the determination of the Mi-Pay Group's risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Mi-Pay Group's finance function. The Board receives monthly reports from the Chief Financial Officer through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Mi-Pay Group's competitiveness and flexibility.

Financial liabilities in the prior year have been restated to include deferred salaries within 'Other payables and accruals'.

The fair value of the Group's financial assets and financial liabilities is not materially different to their carrying value as shown above and in the Statement of Financial Position.

3. Segmental analysis

The Chief Operating Decision maker has been identified as the Chief Executive Officer (CEO) of the Group. The Chief Operating Decision maker is responsible for regularly assessing the performance of the Group's operating segments and performing the function of allocating resources. To assist the Chief Operating Decision maker in this process, internally generated reporting is prepared for each operating segment.

The Group has three operating segments that it reports on. These operating segments are:

· Transaction Services Revenues: This segment generates revenue from the processing of payment transactions on behalf of clients and is Mi-Pay Group plc's core business. For the majority of clients, Mi-Pay Group plc collects gross transaction top up values from acquirers less their acquirer fees, on behalf of client mobile operators. Mi-Pay Group plc generates net commission revenue through charging clients a commission percentage on transaction value as per each individual client contract, with operators then receiving the remainder.

· Fraud Services Revenues: This segment generates revenue from the assessment of transactions as to the likelyhood of being fraudulent and processes or rejects based on this assessment with the company taking a risk as to the potential fraud.

· Professional Services Revenues: This segment generates revenue from the development, delivery and hosting of our platform and client solutions.

The CEO assesses the performance of the operating segments based on revenue and gross profit. The CEO uses these measures to assess performance because they are quick to analyse and directly relevant to evaluating the results of each segment. The measure of assets and liabilities attributable to each segment is not regularly provided to the Chief Operating Decision maker of the Group, and as such, are not disclosed below. 

Both segments are continuing operations and results are as follows:

Operating segments

Geographical information

All material non-current assets owned by the Group are held in the United Kingdom.

In presenting the consolidated revenue information on a geographical basis, revenue is based on the geographical location of clients. The United Kingdom is the place of domicile of the Parent Company.

Revenue by location:

Major clients

During the year, there were 3 (2017: 4) clients that individually made up at least 10% of total revenue. In aggregate, this accounted for 56% (individually 31%, 12%, 13%) (2016: 67% (individually 28%, 19%,10% and 10%)) of total revenue.

Accrued/Deferred Income

There is deferred income of £18,933 (2017: £27,866; 2016: £15,408) that represents unfulfilled performance obligations on service contracts to be satisfied within the next twelve months.

There is also accrued income of £24,532 (2017: £9,638; 2016: £63,898) as recognised in trade and other receivables. The amounts relate to performance obligations satisfied but not invoiced, all of which is due to be invoiced and settled within the next twelve months.

4. Operating loss

This is arrived at after charging/(crediting):

5. Staff costs

In 2017, wages and salaries and aggregate emoluments include £157,500 accrued bonus in recognition for a reduction in salary. This was unpaid as at 31 December 2017 and was subsequently converted into Ordinary Shares, along with £42,500 of previously deferred salary on 1 March 2018, and net of the release of £108,333 of deferred salary previously accrued in relation to Seamus Keating with was forgone as at 31 December 2017.

There was 1 Director (2017: 2) in the Group's money purchase pension scheme during the year.

The highest paid Director received emoluments for the year ended 31 December 2018 of £161,697 (31 December 2017: £302,105). Pension contributions in relation to the highest paid Director were £6,000 (2017: £6,000).

6. Loss per share

The numerators shown above represent the total loss from continuing operations for the year.

As none of the share options in place at the Statement of Financial Position date or shares after the year end were dilutive, there was no difference between the weighted-average number of shares used to calculate basic and diluted net loss per share.

7. Trade and other receivables

Client receivables are amounts due from consumers using our service and subsequently paid on to our clients, net of our fees.

8. Trade and other payables

9. Loans and borrowings (secured and held at amortised cost)

During the year the company entered into a lease in relation to certain assets. The lease is secured against the funded asset.

Maturity of debt:

10. Share capital and premium

On the 1 March 2018 Mi-Pay placed 4,141,048 new ordinary shares of 10p nominal value each ("Placing Shares") at a placing price of 12.5p per share (the "Placing Price").

11. Related party transactions

Remuneration of key management personnel

It is considered that the statutory Directors are also the key management personnel of the Group. Details of their remuneration under IAS 24 is set out below:

Consultancy fees of £81,000 were paid to Digitalia Consulting a company owned by Allen Atwell for IT services.

Included in revenue was £329,602 charged to Alphacomm B.V for amounts due under the Fraud Management contract signed on 17 December 2018. Hubertus Sparnaaij is a director of Alphacomm B.V.

Deferred Directors' Remuneration

As at 31 December 2018 the amounts deferred and owing to current and former Directors is as follows:

A Atwell: £nil (31 December 2017: £45,000)

J Beale: £49,667 (31 December 2017: £49,667)

M Dickerson: £nil (31 December 2017: £200,000)

E Lascelles: £nil (31 December 2017: £32,500)

M Stone: £65,000 (31 December 2017: £65,000)

G Breeze: £21,250 (31 December 2017: £21,250)

These amounts have been fully charged to administrative expenses in the Consolidated Statement of Comprehensive Income in previous years and accrued as trade and other payables in the consolidated statement of financial position.

On 1 March 2018 the deferred amounts deferred and owing to A Atwell, M Dickerson and E Lascelles were converted into new Ordinary Shares, reducing the amounts so owed by £277,500.