MPAY.L Regulatory News (MPAY)

17 September 2014

Embargoed until 07:00

Mi-Pay Group Plc

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

Interim Results

Mi-Pay Group Plc (AIM: MPAY), the leading provider of mobile payment solutions to Tier 1 Mobile Network Operators and Mobile Virtual Network Operators, is pleased to present its interim results for the six months ended 30 June 2014. 

Financial Highlights

· Revenues from continuing operations £1.4 million (H1 2013: £1.6 million) reflecting a client contract ended in 2013.

o Revenue increased by 11% across all existing clients, excluding the ended contract.

· Gross margin strong at 45% (H1 2013: 52%) reflecting a change in the sales mix.

· Adjusted Operating loss* £1.5 million after adjusting for listing transaction related costs and expenses. (H1 2013: £0.8 million)

· Operating loss £3.0 million (H1 2013: £0.8 million) reflecting the increased costs related to the listing transaction and business integration costs.

· Cash & cash equivalents £2.2 million (H1 2013: £0.8 million).

· Ongoing management of the cost base to align cash flow breakeven with revenue development.

Operational Highlights

· Completed reverse takeover of AIM cash shell and successful relisting on 29 April 2014.

· Sales momentum increases number of clients by 38%.

o 8 new clients delivered and 3 in delivery phase since June 2013.

o New clients include Mobile by Sainsbury and the Post Office as core UK retail offerings.

o Impending go-live with major mobile operator in the Philippines targeting 20 million consumers initially, growing to 60 million consumers by 2015.

· 37% annualised growth in transaction volumes delivered via existing and new clients.

· Entered into and developed partnerships with Chase Paymentech, Paypal and AsiaPay.

· Subsidiaries opened in Singapore and the Philippines. 

· Strengthened board, management and sales team.

· Platform capability enhancements include fraud management, new payment methods, data mining, google analytics and "on device" top-up improving payment success rates by over 10%.

Seamus Keating, Chairman of Mi-Pay Group plc commented:

"I am pleased to announce our first Interim Results as a publicly quoted company. The successful reverse takeover and listing completed in April 2014 has provided us the resources to deliver on Mi-Pay's potential. The Board is pleased with the progress made by the Company during this period and the achievements recorded against the operational targets that we set ourselves. The very positive feedback from both new and existing clients represents clear validation of our vision and the global scale of the large commercial opportunity."

"Mi-Pay is entering a new phase, having invested heavily in technical solutions, its commercial proposition, and global delivery capability and anticipates seeing the benefits of this to be demonstrated in 2015. Mi-Pay has a strong platform and we are ideally positioned to execute on the significant global opportunity ahead."

*Adjusted Operating loss defined as Operating loss for the period after removing non-recurring expenses directly attributable to the listing transaction and group subsequent reorganisation

For further information please contact:

About Mi-Pay Group

Founded in 2003, Mi-Pay Group delivers fully outsourced online and related payment solutions to digital ecommerce clients, primarily in the mobile 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). Mi-Pay sells, integrates and operates its products and solutions on a global basis from its four offices; UK, Romania, Dubai and the Philippines. For further information, please visit www.Mi-Pay.com or contact details as shown above.

Chairman and Chief Executive Officer's statement

Introduction

Mi-Pay is a recognised pioneer in the $500 billion mobile payment solutions market. The Company has developed an extensive portfolio of mobile payment services for Mobile Network Operators and MVNOs. Mi-Pay has particular expertise in assessing and mitigating fraud risks whilst optimising the direct top-up journey for consumers and reducing non-fraudulent transaction rejection rates. This expertise allows Mi-Pay to offer outsourced services that fully indemnify top-up prepayment (subject in most cases to certain limits) against fraud, which adds significant value to the Mi-Pay proposition for its customers, and is believed to be a key competitive advantage.

Mi-Pay's service allows end customers to top-up using multiple payment methods, such as credit/debit card, Paypal™, bank transfer and direct debit across all channels including: web, on-device, Interactive Voice Response, and most recently launched, social media applications which have been shown to increase top-up transaction values for Operators by up to 20%. A key benefit to Operators of using Mi-Pay's services is that by increasing the number of available channels, and therefore making it easier to top-up, Operators can improve the retention rate of their pre-paid customers significantly.

The Mi-Pay product is a sophisticated and comprehensive service platform, including a fully certified PCI:DSS Level 1 compliant payment gateway and BACS approved direct debit bureau. Mi-Pay is PCI:DSS Level 1 certified as both a service provider and a merchant. This certification is essential for any merchant or service provider processing card transactions. PCI compliance and certification is a complex and lengthy process, increasing the attractiveness of outsourcing top-up services to a third party such as Mi-Pay.

H1 2014 Overview

The first half of 2014 has been an exciting time for Mi-Pay having completed its listing, invested in global growth opportunities and enhanced its technology platform. This significant investment is reflected in the results recorded for the first six month period. At an underlying level, trading is in-line with management expectations, our KPI metrics continue to perform strongly and our core proposition is growing - as evidenced by the 38% growth in existing and new clients. The Company's revenue consists primarily of transaction fees ensuring a healthy stream of recurring, secure revenue with a steady underlying organic growth pattern across all customers.

We are continuing to see the migration of consumers to the direct, online channel and expect this to continue. Mi-Pay continues to demonstrate its ability to provide digital ecommerce clients, primarily in the mobile sector, market leading industry payment success combined with below industry average fraud.

Operational Review

Investment in the Business

The increase in assets as a result of completing the listing transaction in April 2014 has enabled Mi-Pay to accelerate its investment in both technology and people.

The following investments have been made during the half-year period:

· Rebranding of the existing portfolio as we invest in new markets and drive increased penetration into existing markets.

· Enhancement of the global commercial and technology teams to target new opportunities in UK, Europe and Asia. Specifically this includes new local resources in UK and Asia to provide focussed and targeted delivery of the existing pipelines.

In addition, Mi-Pay recruited key senior employees in both the Technical and Commercial teams to develop its global proposition. As part of the increased expansion into Asia, Mi-Pay opened subsidiaries in Singapore and the Philippines to provide a local solution to improve the sales cycle and enable a more efficient and scalable solution in the region. This combined with the new appointments at Board level has resulted in a materially stronger strategic focus across the Company.

These investments combined resulted in an increase in general and administration and research, development and technology costs of £0.7 million for the period. This is in line with expectations and in the coming 12 months we expect to see the benefits of these investments reflected in incremental growth.

Infrastructure, Product Development and Risk management

Following the recruitment in December 2013 of a new Chief Technical Officer, Mi-Pay has continued its investment in infrastructure, products and research and development, demonstrated in a 55% increase in its annual recovery of tax which the Mi-Pay expects to maintain over the coming periods. These technical investments have resulted in increased research and development costs over the half-year period. We expect the development work undertaken to deliver incremental benefits over the coming periods both in new products but also material improvements in efficiency of service.

During the half-year period, Mi-Pay delivered new products and solutions including:

· New payment methods to attract a wider global market. During the half, Mi-Pay entered into and developed partnerships with Chase Paymentech, Paypal and AsiaPay. (SEPA / PayPal / domestic Asian acquiring)

· Next generation 'on device' and 'social media' payment solutions to enhance the natural rate of growth.

· Website analytics to drive increased success management.

Whilst delivering these products and strengthening the core business through the investments outlined above, Mi-Pay is pleased to have successfully:

· Developed unique experiences and regional capabilities in the fast growing Asia Pacific new markets, which has resulted in contracts being signed in Asia.

· Achieved historic fraud lows for its clients and improved top-up success rates for its clients as they deliver a heightened user experience to their end customers. Mi-Pay continues to have its operational metrics in fraud and optimisation of payment metrics benchmarked as world class.

· Achieved its PCI:DSS level 1 compliance for the 5th consecutive year.

Trading

Revenue in the half-year amounted to £1.4 million (H1 2013: £1.6 million). The reduction compared to the same period last year was due to the loss of a client, which resulted in £0.4 million comparative loss in revenue over the period. Whilst the loss of the client and revenue was disappointing it has resulted in a significant improvement in the spread of our client base and revenues. The Directors are pleased that, excluding the ended contract, Mi-Pay has delivered an 11% increase in underlying revenue growth as all existing clients showed growth and new clients were delivered. Over the last 12 months, Mi-Pay grew its number of live clients by 8 to 21, greatly reducing the Company's reliance on individual clients and we expect these clients to deliver continued growth as they develop their online channel.

Period highlights include:

· 11 new clients delivered or in delivery since June 2013 including major UK retail mobile offerings.

· Live services in the Philippines targeting 20m consumers initially, growing to 60m consumers by 2015.

· 37% annualised growth in transactions delivered via existing and new clients.

New clients signed in the half year are in implementation stage and their ongoing delivery provides a strong base for continued growth. In addition we expect to see further growth driven by the increased investment in commercial support and re-branding.

Gross margin was in-line with targets, with the reduction in comparison to H1 2013 due to reduced high margin professional services revenues. Increased investment in our technology solution is expected to improve gross margin over the coming 12 months. In addition, we anticipate that increasing global volumes will enable Mi-Pay to take further advantage of the fragmented marketplace and drive improved margins.

Market Overview

The Directors believe that market dynamics provide a significant opportunity for Mi-Pay to grow. The pre-paid mobile market is expanding in terms of both the number of connections in existence and mobile usage driven primarily by data. Within the market, the Asia Pacific region is one of the fastest growing, and Mi-Pay has a strong customer pipeline. Mi-Pay also has existing connections to several major European Operators, which offers exposure to the European market where direct top-up is well established and supported by a predominantly well banked population.

In addition to this, electronic and mobile payment penetration is forecast to rise, increasing the number of end users likely to top-up via channels provided by Mi-Pay. The global number of mobile connections reached 7.4 billion in 2013 and is forecast to grow to 9.7 billion by 2017. Emerging markets are driving this growth, with the Asia Pacific region generating 57% of all [mobile] connections between 2008 and 2012, and forecast to account for nearly half of all new connections between 2013 and 2017. Europe and North America combined are forecast to account for 22% of new connections in this time period. Asia Pacific had total connections in 2012 of 3.3 billion and is forecast to reach 4.7 billion by 2017.

Drivers of the growth in mobile connections in emerging markets include:

· Falling prices and rising disposable income;

· The lack of sophisticated fixed line communication networks; and

· Mobile Operators investing in infrastructure for rural communities.

The Pre-paid market

The pre-paid mobile market is expanding. Globally, approximately 77% of all connections are pre-paid as opposed to those on a post-paid contract basis (data for 2012). This statistic differs significantly across regions, with more developed regions tending to have fewer pre-paid customers and emerging markets having more. Mobile units globally reached 7.4 billion in 2013, and are forecast to reach 9.7 billion by 2017; the Asia Pacific region and other emerging markets in particular are driving this growth.

Mobile data

Mobile data consumption is growing rapidly. Between 2010 and 2012, data consumption grew at a CAGR of 78% and is forecast to increase at a CAGR of 66% between 2013 and 2017, with total data consumption growing from 1.5 exabytes per month in 2013 to 11 exabytes per month in 2017.

Geographically, all regions are showing strong growth in mobile data consumption, with Asia Pacific and Africa forecast to be the fastest growing regional markets at 76% and 79% CAGR respectively. The Asia Pacific market is significantly larger however and is forecast to account for 47% of global traffic by 2017. In certain geographies due to the infrastructure it is acknowledged that the mobile infrastructure is the most efficient and most cost efficient method of delivering internet access.

Fundraising and listing on AIM

On 29 April 2014, Mi-Pay completed its investment whereby AimShell Acquistions plc acquired 100% of the share capital of Mi-Pay ltd. Due to its size this constituted a Reverse Takeover under AIM Rules and was satisfied by the issue of the Consideration Shares credited as fully paid to Mi-Pay Ltd shareholders (see www.mi-pay.comfor more information). At that time, Mi-Pay's equity was valued at £9 million and AimShell's equity was valued at £4.27 million, a 22.7% premium to AimShell's share price immediately prior to the transaction. As a result of the transaction, AimShell Acquisitions plc was renamed Mi-Pay Group plc and relisted with the transaction delivering £4 million of new cash and assets on the 29th April 2014 to the Group to provide working capital:-

· £2.8 million existing cash within AimShell Acquistions plc.

· £0.7 million raised from management, new and existing shareholders.

· £0.6 million loan notes due to the Group, repayable quarterly to November 2015.

· £(0.1) million net liabilities.

Board and Management

The Mi-Pay Board was strengthened following the listing transaction to include Seamus Keating as Non-Executive Chairman and Michael Stone as Non-Executive Director and audit committee chair. The management team has been broadened with the addition of Allen Atwell as Chief Technology Officer who has also joined the Board. During 2014, Mi-Pay has added two additional sales resources to capitalise on the increasing global market opportunities and reorganised the teams to locally support our key growth areas.

Strategy

Ourstrategy is to deliver outsourced online digital payment solutions, primarily to mobile Operators enabling them to better serve their pre-paid subscriber base. Our value proposition provides an excellent and complete outsourced end-user experience and where required indemnifies the operator against fraudulent transactions. Mi-Pay's products also increase revenue through better customer payment experience both maximising payment success rates and providing an invaluable tool for customer relationship management - reducing churn rates and enabling the online payment solution as a marketing tool. Critically we are payment agnostic and will facilitate across our customer base the relevant market leading payment methods, applying our own experience and optimisation techniques to enhance the existing customer experience. This approach both improves the customer journey but also future proofs the Operator.

We aim to offer our customers a multi-faceted payment solution to enhance their customer retention strategies and enable them to deliver long term direct channel strategies transitioning their consumers from the traditional unregistered 'card' payment solution, to the 'one click', recurring, secure, multi-channel payment solutions. This enables the operator to market directly to consumer via our channels driving long term value.

Having now been connected to major Operators in the UK and Europe we continue to see strong migration onto the digital channel and target growth in volumes from existing customers' growth as they continue to look for competitive solutions to retain and better manage their client base. The changing world of payments further enhances our position as a consolidator of the market to de-risk our customer's future access to their consumers.

A market of significant potential is Asia Pacific where consumers are fast becoming technology 'on device' driven, which, combined with the growing market of consumers holding bank accounts, enables a continued growth in the online channel to a level of critical mass. The global investments of Visa, MasterCard and subsequent payment experts such as PayPal continue to drive the unbanked consumers to become banked, facilitating our growth in Asia Pacific and enabling us to engage with clients across the region.

Our solution provides a high value and risk free option to the mobile Operators, whilst at the same time it provides our payment partners with access to growing markets. In Asia specifically our experience in optimising online payment solutions whilst managing fraud is unique and provides a clear competitive advantage as the market develops.

Outlook

Mi-Pay is entering a new phase. We have invested heavily in our products and offerings, commercial proposition, technical solutions and global delivery capability and anticipate seeing the benefits of this to be demonstrated in 2015. Following these investments we expect to deliver a reduced cost base for longer term scalable growth as our new technology solutions are delivered. The focus for the remainder of 2014 is therefore on growth and operational efficiencies. We are already seeing the fruits of this investment as we deliver new contracts in the UK and Philippines in 2014, and implement new customer products relevant to all clients, to drive increased penetration.

Given the investment in the first half of the year, the Board believes that this was well timed in terms of the increasing value of our global payment solutions and the continuing evidenced trend towards the online market for consumers. In addition to the rapid growth of global mobile and consumers holding bank accounts in the Asian market, we continue to see increased risk aversion with merchants in respect of the risk of digital fraud and security, of which Mi-Pay's indemnified solution is a benchmarked global leader. We anticipate this will provide a strong platform and capability for exceptional growth.

Financial Review

During the six month period to 30 June 2014 and in comparison to the six month period to 30 June 2013:

· General and administration costs increased by £0.6 million, £0.3 million of this was due to the integration of the Group companies and investment in new commercial and Board structures, and £0.3 million due to other non-recurring costs related to business restructuring.

· The Group increased its investment in research and development by £0.1 million due primarily to the recruitment of the Chief Technology Officer and new architecture support. These costs are expected to be offset in future periods by increased automation and efficiencies following the investments.

· £0.1 million increase in depreciation charges following the long term lease agreement for its core transaction processing platform entered into in July 2013.

· £0.1 million charges related to the issue of Share Options to key senior employees.

· £1.2 million of acquisition related costs in which £0.2 million of direct investment expenses were included (see note 3).

Pre listing, £0.2 million of debt was raised which, together with existing debt carried forward, was converted as part of the transaction and subsequent listing. In addition, the reverse acquisition of AimShell Acquisitions plc and subsequent listing further delivered additional new cash to Mi-Pay of £2.8 million from existing cash balances, £0.7 million of new investment and loan note assets of £0.6 million, repayable quarterly over the period to November 15 (£0.5 million outstanding at 30 June 2014). This enabled the net asset position of the Group to increase by £2.8 million over the period 30 June 2013 to 30 June 2014, after accounting for investment expenditure and losses for the period. We close the period with £2.2 million of cash and equivalents (of which £0.7 million is due to clients) and £0.5 million of loan notes due to the Group.

In August 2014 Mi-Pay recovered £0.3 million research and development tax credits for the period 1 Jan 2013 - 31 December 2013. This is recognised as a tax credit and demonstrates the continued investment in this area.

We would like to thank all the Mi-Pay staff for their continued dedication and commitment to our clients and the successful delivery of our solutions.

Michael Dickerson Seamus Keating

CEO Chairman

Notes to the Financial Statements

1 Basis of preparation

Mi-Pay Group plc is newly listed on the AIM - London Stock Exchange, headquartered at Red House, Brookwood, Surrey, GU24 0BL. The principal activity of the Company for the period continued to be specialising in delivering fully outsourced online and related payment solutions to digital e-commerce clients, primarily in the mobile sector, enabling them to monetise their online proposition risk free.

Historically, prior to the Company's AIM flotation, the financial statements were prepared under UK Generally Accepted Accounting Principles ('UK GAAP'). Following the Company's admission to trading on AIM, the financial statements are now prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. There have been no material changes under UK GAAP to IFRS and therefore there are no reconciling items.

These interim financial statements are unaudited, have not been reviewed by the Group's auditors, and do not constitute statutory accounts within the meaning of the Companies Act 2006.

On 29 April 2014, AimShell Acquisitions plc acquired the entire share capital of Mi-Pay Limited by way of a share for share exchange. As a result, the former shareholders of Mi-Pay Limited obtained control of AimShell Acquisitions plc.

AimShell Acquisitions plc was a non-operating entity, and thus did not qualify as a reverse acquisition and is therefore outside the scope of IFRS 3 'Business Combinations". In accordance with guidance given by the International Interpretations Committee, the transaction is accounted for as a share based payment in accordance with IFRS 2 'Share based payment'.

The legal subsidiary, Mi-Pay Limited, was treated as the accounting acquirer and the legal parent company, AimShell Acquisitions plc, was treated as the accounting subsidiary. The difference in the fair value of the shares deemed to have been issued by Mi-Pay Limited and the fair value of AimShell Acquisitions plc identifiable net assets represents a payment for a service of a stock exchange listing for its shares and has been charged to the Statement of Comprehensive Income.

AimShell Acquisitions plc subsequently changed its name to Mi-Pay Group plc.

The consolidated results for the period ended 30 June 2014 comprise the results of Mi-Pay Limited for the period ended 30 June 2014 consolidated with those of Mi-Pay Group plc from 29 April 2014. Comparative figures for the year ended 31 December 2013 and the period ended 30 June 2013 are those of Mi-Pay Limited.

The accounting policies applied in the preparation of these interim financial statements are consistent with those used in preparing the Mi-Pay Group plc results for the year ended 31 December 2013, for inclusion in the AIM admission document.

2 Share- based payments

The Company operates two equity-settled share-based remuneration (share options) schemes for employees: a United Kingdom tax authority approved EMI share options scheme and an unapproved share option scheme. The granting of options to employees in the reporting period was decided upon by the Company and no legal or constructive obligation exists to grant further options in future periods.

The only vesting condition for employees awarded share options to adhere to, being that the individual remains an employee of the Company over the vesting period of 18 months from the date of the grant. The contractual life of the options is ten years and there are no cash settlement alternatives.

At 30 June 2014 the outstanding share options, which include share options granted to Directors, are shown below:

The movement in the number of share options in the period is set out below:

On 21 November 2013 further share options totalling 29,408 were issued in Mi-Pay Ltd, resulting in total share options as at 31 December 2013 and brought forward in the period of £140,128. In accordance with their terms these share options lapsed on successful completion of the acquisition of Mi-Pay Ltd by Aimshell Acquisitions plc on 29 April 2014. Upon acquisition, 3,988,425 new share options were issued in Mi-Pay Group plc (formerly Aimshell Acquisitions plc) to executive directors and senior management.

3 Exceptional items - acquisition costs

Included within administrative expenses is a line item 'Exceptional items - acquisition costs'. This includes £930,536 arising from the deemed share based-payment resulting from the acquisition as outlined in the notes to the financial statements on page 12 under 'Basis of preparation'. It also includes those deal costs amounting to £235,981 that have been expensed to Mi-Pay Ltd directly.

4 Finance Expense

Included within finance expenses is £107,284, being the agreed discount relating to the redemption of loan notes as a result of the acquisition, which did not affect any cash balances.

5 Taxation

The adjustment for the under provision in the prior period of £169,895 as at 30 June 2014 is as a result of an unanticipated increase in the recovery of research and development tax credits for the period to 31 December 2013.

6 Earnings per share

The numerator shown above represents the total loss for the period or year.

The weighted-average number of common shares outstanding (the denominator of the earnings-per-share [EPS] calculation) during the period to 30 June 2014, the period in which the reverse acquisition took place, has been calculated by adding together the following:

· The number of common shares outstanding from the beginning of the period to the acquisition date is computed on the basis of the weighted-average number of common shares of the legal acquiree (accounting acquirer) outstanding during the period, multiplied by the exchange ratio established in the acquisition agreement.

· The number of common shares outstanding from the acquisition date to the end of the period is the weighted average number of common shares of the legal acquirer (the accounting acquiree) outstanding during that period.

The basic EPS for each comparative period before the acquisition date presented in the consolidated financial statements following the reverse acquisition has been restated and calculated by dividing (a) by (b):

a. The income of the legal acquiree attributable to common shareholders in each of the com periods.

b. The legal acquiree's historical weighted average number of common shares outstanding multiplied by the exchange ratio established in the acquisition agreement.

Since the Company was in a loss making position for all three periods presented, there was no difference between the weighted average number of shares used to calculate basic and diluted net loss per share.