MPAY.L Regulatory News (MPAY)

29 April 2015

Mi-Pay Group plc

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

Preliminary 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, presents its preliminary results for the 12 months ended 31 December 2014.

2014 Financial Highlights:

· Total Revenue £2.7 million for the year (2013 - £3.3 million).

- Transaction Services Revenue £2.0 million (2013 - £2.4 million).

- Professional Services Revenue £0.7 million(2013 - £0.9 million).

· Transaction Services Revenue growth 44% p.a. (2013 - 41%) from £1.2 million to £1.7 million after adjusting for terminated contract in 2013.

· Operating loss for the year of £4.7 million. Adjusted Operating loss1 of £2.9 million (2013 - £1.8 million).

· Basic and diluted loss per share 15 pence (2013 - 11 pence).

· 33% reduction in headcount since January 2014 leading to a c£1.0 million annualised cost savings as at 31 December 2014.

· £50.1 million of client funds managed in 2014 from 4 million processed transactions (2013 - £51 million and 4 million respectively).

1Adjusted Operating loss defined as Operating loss for the year after removing non-recurring expenses directly attributable to the listing transaction, subsequent group reorganisation and share-based payments.

2014 Operational Highlights:

· On 29 April 2014, the Group successfully relisted via the completion of the reverse takeover of AimShell Acquisitions plc, an AIM listed cash shell.

· On 9 March 2015, raised additional investment funding of £1.75 million.

· Delivery of an internally developed fraud solution in December  2014 to improve our fraud management services and provide a 7% increase in Transaction Services gross margins.

· Continued year on year improvement in our key performance indicators of payment success and fraud management rates.

· Five new clients on boarded during the year, including live service delivered in the Philippines, opening access to 20 million existing pre-paid consumers.

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

"We have invested in our product offerings, commercial proposition, technical solutions and global delivery capability and anticipate seeing the benefits of this demonstrated in 2015 with further Transaction Service Revenue growth. Our operating model review has delivered a significantly reduced and more flexible cost base for longer-term scalable growth which will be supported by the delivery of our new technology solutions and our insourcing of fraud management services, a key function of our product which should drive an increase in gross profits. This is expected to drive a significant reduction in the adjusted operating loss for 2015 and achieve positive cash flow in 2016"

The full Annual Report and Financial Statements 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 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's Statement

2014 was a transformational year and one of significant change for the Group where we have increased investment to enhance our client proposition and our sales and delivery capability.

· On 29 April 2014, the Group successfully relisted via the completion of the reverse takeover of AimShell Acquisitions plc, an AIM listed cash shell. This has provided the platform to continue to invest and deliver our strategy.

· On 9 March 2015, the Group successfully completed a placing and raised £1.75 million. This provides the funds to continue to finance working capital and further invest in our platform, solutions, people and geographical reach as we now deliver live services in the Philippines.

As a part of the listing process I am pleased that as I joined the Board as Non-Executive Chairman we further strengthened the Mi-Pay board with the addition of Michael Stone, as Non-Executive Director and Audit Committee Chairman. Allen Atwell also joined as CTO in December 2013 to enhance the Executive management team and refocus our technology, product development and service delivery capability.

With greater management capability and band width during the second half of 2014, we rationalised our operating model and reduced our annualised costs by over £1 million, representing a 30% reduction. Importantly this has increased our market focus and brings forward our cash flow break even point. Our results for the year showed strong growth from existing and new clients but were affected by the loss of a client in 2013 which reduced our revenue in 2014 by £0.9 million.

The Directors believe that the market dynamics provide a significant opportunity for Mi-Pay to grow and achieve profitability. The pre-paid mobile market is expanding in terms of both the number of mobile connections and mobile usage driven primarily by increasing global data consumption. Within the total market, the Asia Pacific region is one of the fastest growing with the majority of the population often having no other means of accessing the internet. In Europe Mi-Pay continues to have existing long-term connections to several major operators, which offers exposure to the European market where direct top-up is well established and supported by a predominantly well banked population. Here we expect to see the operators drive more consumers to the 'digital channel' to build deeper relationships.

Our focus in 2015 is on growing existing clients, delivering the new growth opportunities, particularly in Asia and the continual delivery of operational efficiencies supported by a new global data centre infrastructure. We were already seeing the fruits of this investment at the close of 2014.

On behalf of the Board, I would like to thank all our employees, clients, investors and partners that have continued to support Mi-Pay through this year of investment and change. We are excited about the future and looking forward to continuing to be a key player in the growth of digital on-line payments.

Outlook

We have invested in our product offerings, commercial proposition, technical solutions and global delivery capability and anticipate seeing the benefits of this demonstrated in 2015 with further Transaction Service Revenue growth. Our operating model review has delivered a significantly reduced and more flexible cost base for longer-term scalable growth which will be supported by the delivery of our new technology solutions and our insourcing of fraud management services, a key function of our product which should drive an increase in gross profits. This is expected to drive a significant reduction in the adjusted operating loss for 2015 and achieve positive cash flow in 2016.

Seamus Keating

Non-Executive Chairman 

28 April 2015

CEO Review of Operations

Revenue

Our core strategy is to drive annuity based Transaction Services Revenues. Whilst total revenues have reduced from £3.3 million to £2.7 million we have continued to see strong underlying growth of 44% for the year to December 2014 (41% for the year to December 2013), after adjusting for the loss of a contract in August 2013 and we remain pleased with the year on year growth. The loss of the client in 2013 was a disappointment, following their decision to insource their payments model, however we recovered the lost volumes by March 2015.

We deliver two core revenue streams for our clients:

· Transaction Service Revenues are driven from the processing of transactions on behalf of our clients. This is our core business and can deliver margins in excess of 40% which in turn creates recurring, annuity based revenue in a naturally growing market. This provides a solid, sustainable and growing source of revenue.

· Professional Service Revenues relate to the development, delivery and hosting of our platform and client solutions. Critically this revenue traditionally relates to the implementation of new services for clients which in turn increases our long-term transaction service revenues.

We continue to be particularly pleased with our ability to retain and develop existing clients. During the year we both increased our opportunity for growth and reduced our business risks in the following areas:

· Successfully delivered a further five new clients during 2014.

· In December 2014, we delivered live service on behalf of a major network operator in the Philippines with an existing base of c20 million pre-paid mobile users.

· The cross client growth has additionally reduced our reliance on a single client to 14% of total revenues as at 31 December 2014 (23% as at 31 December 2013).

· Growth was seen across all of our clients with 75% of our Transaction Services Revenues being delivered from clients with whom we have worked for an average of over four years. These clients all continue to show year on year growth, having grown annual revenues to £1.4 million in 2014 from £0.5 million in 2011.

· We remain a European focused business where we currently process 94% of our revenues across five countries within the European Union, the majority from the United Kingdom and Ireland. Whilst we expect our European revenues to continue to grow, we target our ongoing investments in Asia to support our medium and longer-term growth given the dominant volumes of pre-paid mobile users in that market.

Looking forward, whilst Mobile Operators, particularly the larger ones, can be slow to make decisions for change, consumer migration to the on-line channel is developing. We expect to continue this growth story with our longer-term expectations being supported by our existing deep relationships and existing integrated connections with our clients.

Key Performance Metrics

Our commercial proposition includes the indemnification of fraud on behalf of our clients and our commercial model is such that we only charge our clients for successful transactions. It is therefore critical that we deliver world class fraud management and payment transaction optimisation rates to protect our margins and deliver real business value to our clients. We are delighted that both metrics have remained strong throughout 2014, again achieving year on year continual improvement with both metrics benchmarked as market leading. This is driven by investment in our products, the support of our partners, experience of our people and our proven success at transitioning our clients from higher risk 'one-time' payment experiences to recurring, registered and managed customer relationships.

The Group also considers its revenues, gross margins and administration costs as key performance metrics and these are 

reviewed in the FinancialReview below.

2014 Investment

2014 was a planned year of investment which is reflected in our increased losses for the year to £4.3 million which we expect to drive incremental long-term value for the Group as we enter 2015. Our principle investments have been:

· Internally developed and, in December 2014, insourced the technical processing of our fraud service. We expect to drive gross margins up and retain tighter control of our client's data, critically bringing in-house the complete process of managing customers' payments and delivering new intellectual property for the Group. Over 90% of clients were successfully migrated onto the service by December 2014.

· Delivered new payment methods (SEPA/PayPal) for our clients which ensures we continue to deliver the payment methods of choice for the end consumer and continue to future proof our clients. We also now deliver local acquiring solutions both in Europe and Asia, critical for regional success.

· Closed the year in the process of delivering a new data centre solution to provide a dual sited, fully resilient platform in the UK and Singapore. This solution materially enhances the Group's ability to grow efficiently and effectively in the Asia region and adds incremental value to the sales proposition. This is expected to be live by 30 June 2015.

· In addition, we have also strengthened the commercial teams during the year with senior commercial resource now based in the UK, UAE and the Philippines. This is part of the wider investment in delivering local subsidiaries, banking services and local payment partners in both Singapore and the Philippines to facilitate our regional growth.

· Re-branded the existing portfolio and simplified the project delivery process resulting in a restructure which has deliveredc£1 million per annum reduction in employee costs from December 2014, reducing the number of our employees from 70 to 47 during the year, a 33% reduction.

Our employees, their experience and dedication remains our most valuable resource and we would particularly like to thank them for their efforts, support and commitment in delivering these challenging projects successfully and adapting with the Group. We believe that all of these investments will deliver a positive return in 2015 and beyond, supporting and enhancing our international growth expectations, commercial competitiveness and targeted Group profitability.

Michael Dickerson

Chief Executive Officer 

28 April 2015

Financial Review

The 2014 financial performance reflects the one-off costs of joining AIM, the levels of investment made during the year, and the effect of the loss of a contract in August 2013.

However, we exit the year having transformed the business outlook and provided a more efficient cost base from which to grow.

Revenues and Gross Profits

Total revenue was £2.7 million for the year ended 31 December 2014, in line with expectations, of which £2.0 million related to Transaction Services Revenues and £0.7 million to Professional Services Revenues.

The year on year reduction in overall revenues masks the underlying growth achieved in our core business. When adjusting for the loss of the contract (£0.3 million 2014, £1.2 million 2013), our core Transaction Services Revenues increased 44% year on year (£1.2 million to £1.7 million), following the 41% increase in 2013 (£0.9m to £1.2m). Primarily this growth was driven from processing four million transactions driving £50.1 million of our clients' mobile top-ups.

Professional Services Revenues reduced during the year following the strong 2013 performance delivering £0.7m for the year to 31 December 2014 (£0.9m for the 12 months ended 31 December 2013) due to the development of our Card Vault Solution during 2013, which now provides a hosted solution and a longer-term recurring, revenue stream. Whilst Professional Services Revenues achieves a higher gross margin (usually in excess of 70%), they are primarily non-recurring one-off project based.

We expect our margins to be consistent across geographies, however our revenue segments drive differing margins and as such our revenue mix impacts our overall performance. For the year ended 31 December 2014, gross margins reduced to 45% (54% for the year to 31 December 2013) due to the reduced high margin Professional Services Revenues for the year and the impact of the terminated client. We remain pleased, however, that we have sustained margin improvement over the long-term, delivering an 11% improvement since 2011 (16% since 2010) as our solutions become more efficient through investment and volume. We expect to improve gross margins further in 2015 following the investments completed by 31 December 2014.

Mi-Pay's Operating loss for the year of £4.7 million (£1.8 million 2013) was increased by:

· £1.2 million related to the one-off exceptional costs of listing and the issuance of shares by Mi-Pay Limited as part of the reverse acquisition. £0.6 million related to fees paid directly to 3rd parties as part of the listing process.

· £0.3 million for share-based payments relating to the provision of share options for key management.

· £0.4 million related to non-recurring restructuring costs.

· £0.6 million additional infrastructure, governance and operational investments during the year.

The Group has therefore invested £2.5 million during the year on the listing, enhancing its solutions, infrastructure and governance which is seen in the increase in administration expenses. This was partly offset by research and development tax credits to the profit and loss account of £0.5 million for the year (£0.3 million cash received). Through these investments and restructure we enter 2015 with an enhanced product, improved gross margin and reduced cost base.

Assets and Liabilities

On 29 April 2014, Mi-Pay completed its investment whereby AimShell Acquisitions plc acquired 100% of the share capital of Mi-Pay Limited. 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 Limited shareholders (see www.mi-pay.com for 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 £4.0 million of new cash and assets on 29 April 2014 to the Group to provide working capital:

· £2.8 million existing cash within AimShell Acquisitions 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. These were fully settled by 31 December 2014.

· £(0.1) million net liabilities.

To provide further investment for working capital the Group delivered a further successful fund raise on 9 March 2015, raising £1.75 million (before expenses) by the issue and allotment of 7,608,696 ordinary shares at 23 pence each.

The Group received £0.3 million in research and development tax credits, paid as cash, during the year which we expect to replicate in 2015 and also received £0.6 million in capital and interest repayments during the year in respect of the full settlement of outstanding loan notes due to the Group.

The Group ended the year with £2.0 million in cash and cash equivalents, noting that £1.4 million of this balance related to the operation of managing client payments.

The Group has limited capital expenditure exposure and does not capitalise its internal development costs. The Group continues to service a finance lease related to the five year licence arrangement for our core transaction processing platform, effective from 28 June 2013 of which £0.2 million remained outstanding as at 31 December 2014.

There were no material movements in working capital with the Group being well 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. Improved settlement terms with our payment partners reduced trade receivables by £0.5 million which in turn enables us to settle our clients more efficiently, enhancing our commercial proposition. This led to a reduced trade and other payables figure of £0.6 million. The Group has no external financing and the successful listing in April 2014 resulted in the previous convertible debt of £1.0 million loan being converted into ordinary shares, removing the liability. These transactions have driven the increase in shareholder funds by £2.3 million over the year.

John Beale

Chief Financial Officer, Company Secretary

28 April 2015

Notes to the Financial Statements

1. Accounting policies

Basis of preparation and consolidation

The financial information of the Group set out above does not constitute "statutory accounts" for the purposes of Section 435 of the Companies Act 2006. The financial information for the year ended 31 December 2014 has been extracted from the Group's audited financial statements which were approved by the Board of directors on 28 April 2015 and will be delivered to the Registrar of Companies for England and Wales in due course. The financial information for the year ended 31 December 2013 has been extracted from Mi-Pay Limited's audited financial statements for that period which have been delivered to the Registrar of Companies for England and Wales. The reports of the auditors on both these financial statements were unqualified, did not include any references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under Section 498(2) or Section 498(3) of the Companies Act 2006. Whilst the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ('IFRSs') as adopted by the European Union, this announcement does not itself contain sufficient information to comply with those IFRSs. The financial information has been prepared in accordance with the accounting policies set out in the 31 December 2014 annual report and financial statements published at www.mi-pay.com

2. 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 two operating segments that it reports on. These operating segments are:

· Transaction Services Revenues: This segment generatesrevenue from the processing of transactions on behalf of clients and is Mi-Pay Group plc's core business.

· Professional Services Revenues: This segment generatesrevenue 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 resultsof each segment.1

Both segments are continuing operations and results are as follows:

Operating Segments

1 There is no inter segment trading and assets and liabilities are not allocated to 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

For the year ended 31 December 2014, three clients individually made up at least 10% of total revenue (31 December 2013: two clients individually made up at least 10% of total revenue). Rounded to two decimal places, these are as follows:

When aggregated, those clients that individually make up at least 10% of total revenue, represent 46.92% (2013: 33.84%) of total revenue.

3. Taxation

4. Loss per share

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

The weighted-average number of common shares outstanding (the denominator of the loss-per-share [EPS] calculation) during the year ended 31 December 2014, the year 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 year to the acquisition date of 29 April 2014 is computed on the basis of the weighted-average number of common shares of the legal acquiree (accounting acquirer) outstanding during this year, 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 year is the weighted-average number of common shares of the legal acquirer (the accounting acquiree) outstanding during this year.

The weighted-average number of common shares outstanding (the denominator of the loss-per-share [EPS] calculation) during the comparative year ended 31 December 2013, before the acquisition, has been restated and calculated by dividing (a) by (b):

a. The loss of the legal acquiree attributable to common shareholders in the year.

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 both years presented, there was no difference between the weighted-average number of shares used to calculate basic and diluted net loss per share.

5. Trade and other receivables

6. Trade and other payables

7. Share capital and premium

1 21,912,583 ordinary shares of 10p were issued on 29 April 2014 as consideration for the entire share capital of Mi-Pay Limited as part of the acquisition. The issue price per consideration share was 41.07p.

2 1,428,027 ordinary shares of 10p were issued on 29 April 2014 as placing shares, as part of the acquisition. These shares were issued at a premium of 31p per share, to provide further working capital for the company. Funds raised from the placing shares amounted to £585,491.

Post 29 April 2014 but during the year on 2 May 2014, 243,903 additional ordinary 10p shares were issued. These shares were issued at a premium of 31p per share, to provide further working capital for the Company. Funds raised from the placing shares amounted to £100,000.

8. 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 under 'Basis of preparation'. It also includes those deal costs amounting to £236,280 that have been expensed to Mi-Pay Limited directly.