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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Paysafe Gp | LSE:PAYS | London | Ordinary Share | GB0034264548 | ORD 0.01P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 590.00 | 589.00 | 590.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMOPAY
RNS Number : 1094X
Optimal Payments PLC
26 August 2015
Optimal Payments Plc
Results for the half year ended 30 June 2015
Strong performance in first half, post period end completion of Skrill acquisition
LONDON, MONTREAL and NEW YORK (26 August, 2015) - Optimal Payments Plc (LSE AIM: OPAY, "Optimal Payments", the "Group" or the "Company") today announces its results for the six months ended 30 June 2015. Note the performance for the period does not include any contribution from Skrill, which completed after the period end.
Highlights Strong performance in line with expectations:
o Revenues up 40.2% to $223.0m (H1 2014: $159.1m)
o Adjusted EBITDA(1) up 27.9% to $49.9m (H1 2014: $39.0m)
o Adjusted profit after tax increased by 18.7% to $37.3m (H1 2014: $31.4m); statutory profit after tax reported at $2.4m (H1 2014: $27.5m).
o Adjusted diluted EPS(2) increased 11.4% to $0.12 (H1 2014: $0.11); statutory fully diluted EPS at $0.01 (H1 2014: $0.10)
-- NETELLER Stored Value ("SV") business: revenues up 20.1% to $49.8m (H1 2014: $41.4m) in spite of the weakness of the Euro against the USD.
-- NETBANX Straight Through Processing ("STP") business: revenues up 47.4% to $173.0m (H1 2014: $117.4m), incorporating revenue from the acquired US businesses.
-- Group cash and cash equivalents of $113.3m (31 December 2014: $109.9m) - excludes cash raised on rights issues of $685.3m:
o Reporting of cash and cash equivalents restated to exclude settlement assets and restricted cash (held for NETELLER members and merchants) and cash held as reserves(3) to provide a more transparent analysis of the Group's cash position
o Free cash flow(4) of $29.9m (H1 2014: $10.9m).
-- Significant progress on key strategic initiatives:
o The acquisition of Skrill, announced on 23 March 2015 and completed 10 August 2015, positions the Group as a market leader in the fast growing and profitable stored value, payment processing and prepaid sectors with the ability to process over 100 payment types in more than 20 languages and over 40 currencies. The enlarged Group will have an increased customer and geographic diversification with further upside potential from cross selling opportunities. The integration of Skrill and subsequent delivery of synergy benefits is proceeding in accordance with our plans.
o Successful integration of US businesses Meritus and GMA (acquired H2 2014) into NETBANX STP division - with both businesses trading strongly.
o Acquisition of FANS Entertainment ('FANS'), a mobile platform developer based in Montreal, to offer an application with analytics for merchants to engage more directly with their customers.
o During H1 2015, as a result of these initiatives, we have incurred restructuring costs of $4.1m and acquisition costs of $12.4m.
o Good progress made in acquiring and card issuing services divisions and NETELLERGO! (for ecommerce merchants outside of gaming) contributing to further growth and diversification of the business.
Main market listing
As previously announced and, having completed the acquisition of Skrill, the Group will be seeking the admission of its ordinary shares to listing on the premium segment of the Official List of the UK Listing Authority and admission to trading on the London Stock Exchange's Main Market for listed securities. It is expected that the Company's ordinary shares would then be eligible for inclusion in the FTSE 250 Index of the London Stock Exchange.
Capital Markets Day
The Group intends to host a Capital Markets Day during Q4 for investors, analysts and lenders. At the event, management will set out its strategy for the combined businesses of Optimal Payments and Skrill and report on integration progress. This event will take place on 10 November 2015 in London and will be accompanied by a trading update.
Commenting on today's results, Joel Leonoff, President & CEO, said:
"Our first half results show continued strong performance with growth in NETELLER and NETBANX including a significant contribution from the integration of Meritus & GMA, the US centric businesses we acquired last year. This was achieved in the period in which we also completed the negotiations to acquire Skrill, a transformational transaction for us and for our shareholders and one which positions us as a key player in the global payments industry. I would like to thank the team for their hard work and commitment in delivering impressive results and positioning the company for future growth."
"Current trading continues to be strong and we believe that the consolidated business places us in a much stronger position in the payments landscape and are eagerly looking forward to our future as a combined entity."
(1) Adjusted EBITDA is defined as results of operating activities before depreciation and amortisation and adjusted for exceptional non-recurring items which are defined as items of income and expense of such size, nature or incidence that, in the view of management, should be disclosed to explain the performance of the Group.
(2) Adjusted diluted EPS is computed using the share count excluding the impact of the rights issue (completed in May 2015) since reported figures do not include earnings from the acquisition of Skrill which completed on 10 August 2015.
(3) Restricted NETELLER merchant and member cash balances are the excess of funds held that the Group is required to maintain in respect of the e-money issued to members and merchants over balances payable which are held in segregated accounts; cash held as reserves represents the cash the Group is required to deposit with counterparties, which would include acquiring partners and card schemes, in order to transact with these institutions; settlement assets represent gross transaction cash at acquirers and processors which will be remitted to the Group.
(4) Free cash flow (non IFRS) is shown as cash flows from operating activities (after working capital movements), after cash flows used for interest and capital expenditures.
* * * * *
Presentation to analysts and investors
Optimal Payments will hold a conference call for analysts and investors at 9am (UK time) today, access details as below.
UK Toll Number: 02031394830 UK Toll-Free Number: 08082370030
US Toll Number: +1 718 873 9077
Pin code: 61164043#
Audiocast: http://www.anywhereconference.com?UserAudioMode=DATA&Name=&Conference=131661207&PIN=61164043
The presentation slides will be available on the Optimal Payments Group's website at: http://www.optimalpayments.com/investor-relations/results-reports-presentations
About Optimal Payments Plc
Optimal Payments is a global provider of online payment solutions, trusted by businesses and consumers in over 200 countries and territories to move and manage billions of dollars each year. Merchants use the NETBANX(R) platform and services to simplify how they accept credit and debit card, direct-from-bank, and alternative and local payments; and the NETELLER(R) service to increase revenues and capture new customers. Consumers use the multilingual and multicurrency NETELLER and Net+(R) Card stored-value offering to make secure and convenient payments. Optimal Payments completed the acquisition of Skrill Group in August 2015, a leading digital payments business providing digital wallet solutions and online payment processing capabilities in addition to providing pre-paid online vouchers in Europe with its paysafecard and Ukash brands. Optimal Payments Plc is quoted on the London Stock Exchange's AIM, with a ticker symbol of OPAY. Subsidiary company Optimal Payments Ltd is authorised and regulated as an e-money issuer by the UK's Financial Conduct Authority (FRN: 900015).
For more information on Optimal Payments visit www.optimalpayments.com or subscribe at http://www.optimalpayments.com/media/email-alerts.
--
For further information contact:
Head of Investor Relations
Jessica Stalley
Optimal Payments Plc
+ 44 207 182 1707
investorrelations@optimalpayments.com
Canaccord Genuity Limited (Nominated Adviser & Broker)
Simon Bridges / Mark Whitmore
Tel: +44 (0) 20 7523 8000
Media Contacts - United Kingdom:
Simon Hudson/Andrew Dunn/Simon Fluendy
Tavistock Communications
+44 20 7920 3150
optimal@tavistock.co.uk
* * * * *
CEO's Review
Introduction
We are pleased to report a strong performance across the business in the first half of the year with revenues up 40.2% to $223.0m (H1 2014: $159.1m) and adjusted EBITDA increasing 27.9% to $49.9m (H1 2014: $39.0m); this resulted in a 18.7% uplift of the Group's adjusted profit after tax to $37.3m (H1 2014: $31.4m). Reported profit after tax was $2.4m (H1 2014: $27.5m).
We have continued to deliver on a number of our key objectives, notably the integration of the US businesses we acquired last year which have significantly contributed to the growth of the Group and more recently completion of the acquisition of Skrill which is set to transform the business on a number of levels. In addition to this, we acquired the FANS business which has the potential to significantly enhance our mobile offering and capability and, have made good progress in the acquiring and issuing services divisions and a very positive response to the NETELLERGO! offering from ecommerce merchants outside of gambling which contribute to continued growth and diversification of revenue through time. These achievements have all been important strategic goals and we believe that the investment we have made in these and other areas will help to drive further growth.
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The Group has one merchant, located and licensed in Europe, who represented 29.0% of total fee revenue in H1 2015 across all reportable segments and geographies. The majority of this revenue derives from the merchant's activities in Asia and has stabilised, having increased to 46.8% in H1 2014 as a result of the World Cup, and has been diluted by the inclusion of revenues from the US acquisitions. The Group provides services to this customer worldwide, the regulatory environment has continued to evolve and while this did not materially impact our revenues H1 2015, some uncertainty persists in this regard.
The Group derived approximately 46.2% of its revenue in H1 2015 from online gambling merchants with 53.8% from non-gambling merchants across a number of sectors, particularly within the NETBANX STP division with the incorporation of the portfolio of non-gambling merchants of Meritus last year. The acquisition of the US businesses has also balanced our geographic concentration with 43.2% of revenue generated in North America in H1 2015, 38.0% in Asia and the rest of the world and 18.8% in Europe.
NETELLER Stored Value ("SV")
The NETELLER SV business (comprising the NETELLER and Net+ prepaid card stored value offering) continued to perform well, despite the weakening of the Euro to the USD, with revenues up 20.1% to $49.8m (H1 2014: $41.4m) and a gross margin of 87.3% with underlying growth in customer metrics.
The card issuing services division (launched in toward the end of 2014) offers a variety of different programmes from white labelled cards to fully customised prepaid and multi-channel payment solutions, leveraging the Group's extensive experience in multi-currency issuance and settlement to create repeatable scalable processes to merchants. We recently announced our partnership with Revolut for the Launch of an Innovative Currency Exchange Solution. Optimal Payments delivers multi-currency, globally-accepted MasterCard enabling Revolut's customers to access their funds using either a virtual or physical card. Over the coming months we have a number of exciting programmes that are launching in the loyalty, sports and travel sectors which will ensure we close out 2015 with a number of successfully launched white-label prepaid programmes. Our Net+ product continues to grow with 190,000 cards issued and 90,000 cardholders active every month. NETELLERGO! which allows ecommerce merchants to offer their consumers the flexibility of access to indemnified alternative payment types to complete their purchases has been well received.
NETBANX Straight Through Processing ("STP")
The NETBANX STP business showed strong growth overall with revenue up 47.4% to $173.0m (H1 2014: $117.4m) and the gross margin adjusting to 37.1% weighted by the fast growing Meritus and GMA businesses and the contribution of our largest merchant. This increase was primarily attributable to strong growth from existing gambling and non-gambling merchants, as well as from new merchants launched during the year.
Principal Membership with Visa and MasterCard has enabled us to offer competitive acquiring services to merchants in the European Union. This business model underpins our confidence that NETBANX can continue to win business in all territories. In addition, we have the tools to enable merchants to access alternative payment types such as Apple Pay, MasterPass and Pingit to enhance the shopping experience for their customers using the most secure payment solutions available. We have continued to develop our acquiring services and will end the year ahead of the volume forecasts with the acquisition of new merchants that provide more a balanced mix to our portfolio.
Recognition
The Group's considerable achievements have been acknowledged in 2015 with a number of awards.
In June, the Net+ card was chosen as the top card in five categories at the Prepaid 365 Awards: Best Prepaid Card; Best General Spend Prepaid Card; Best Prepaid e-Wallet and Card; Best Gaming and Pay As You Go Prepaid Card. In May, NETBANX was named Best Payment Service Provider and NETELLER as Best Alternative Payment Solution at the Card not Present (CNP) Awards. Optimal Payments won 'Best Payments Company of the Year' at the eGaming Review North America Awards ceremony in April. NETELLER won 'Best Payment System' at the iGB Affiliate Awards and 'Corporate Services Supplier of the Year' at the International Gaming Awards in February.
We were proud to announce that Elliott Wiseman, our General Counsel & Chief Compliance Officer, won the Individual Award in the Regulatory (Financial Services) category at the European Counsel Awards 2015 in recognition of the considerable expertise he has shown in leading our legal and compliance functions since he joined the Group in 2011.
Acquisitions
The principal focus of corporate activity in this financial year has been on the acquisition of Skrill for a total consideration of EUR1.1bn ($1.2bn) and its associated funding. Skrill is one of Europe's leading digital payments businesses providing digital wallet solutions and online payment processing capabilities and is one of the largest pre-paid online voucher providers in Europe with its paysafecard brand.
In the period since the announcement of the transaction in March 2015, the equity element of the funding was accomplished through a fully underwritten rights issue with acceptances received from qualifying shareholders for almost 97% of the total new ordinary shares being offered, raising approximately GBP463m ($702m). In addition, a funding term loan of EUR500m ($548m) was successfully raised together with the arrangement of a $85m revolving credit facility. The acquisition completed on 10 August 2015, following receipt of regulatory approval from the UK's FCA, at which time the vendors of Skrill received the agreed cash consideration of EUR720m ($790m) and approximately 37.5 million new ordinary shares in Optimal Payments, representing 7.9% of the enlarged issued share capital of the Group. These shares are subject to lock-in arrangements for a period of 180 days from the date of issue.
Skrill's unaudited revenue was EUR155m ($173m) in the first half, representing year on year growth of 26% including Ukash, giving group pro forma revenue of approximately $400m in H1 2015. Skrill's growth is lower when reported in USD due to the adverse movement between the Euro and USD exchange rate during the period.
Management has continued to plan the integration of Skrill into the Group with a dedicated internal team addressing all aspects of combining the two groups and focusing in particular on the combination of Skrill's Stored Value businesses with NETELLER. Skrill's acquisition of Ukash, a pre-paid e-money payment provider, completed on 31 March 2015 and has been merged into the paysafecard business. As originally announced, the Group expects to generate some $40m of synergy benefits by the end of the first full year of ownership to 31 December 2016.
In addition to Skrill, the acquisition of Montreal based mobile platform developer FANS was concluded in May 2015, for a share consideration of approximately $13m. FANS' proven technology platform provides the Group with a white label, multi-level mobile wallet system including software to identify and analyse users based on their mobile behaviour. FANS has leading clients in the sports and entertainment sectors in Canada and other high profile venues and events including the Bell Centre in Montreal, one of the highest-traffic venues in the world with more than 1.5 million spectators annually.
The acquisitions are set to significantly enhance the product offerings and the scale and market presence of the enlarged Group in addition to the benefit of customer and geographic diversification. We continue to assess M&A opportunities that provide a strategic fit at the right valuation to further accelerate earnings growth, diversify our business and, most importantly, deliver value to shareholders.
Current trading and outlook
The underlying business has continued to perform well in the second half, in line with full year expectations, and has been strengthened with the acquisition of Skrill in August 2015. We are now in a position to focus on seeking admission to the main market and inclusion in the FTSE 250 thereafter; I look forward to providing a further trading update on our performance at the Capital Markets Day in November.
Following the combination with Skrill, it is our intention to change the Group name and create a more distinctive brand for the combined business as a global payment and e-wallet provider. Work is well underway on a new name and visual identity for the combined Group and we expect that this will be finalised and communicated in the coming months.
Our Executive Management Team was strengthened through the appointment of Brian McArthur-Muscroft as Chief Financial Officer at the beginning of the year and, the enlarged Group will continue to have strong leadership, augmented by senior executives from Skrill. I would also like to acknowledge Stephen Shaper, who stepped down as a non-executive Director in August, and thank him for being a friend and trusted adviser over a number of years.
Finally, congratulations to the management team and all staff for their outstanding contributions, without which the Group's considerable successes of the past six months could not have been achieved.
Joel Leonoff
President & Chief Executive Officer
25 August 2015
* * * * *
Financial Review
Introduction
The Group has delivered a strong performance in the first half of 2015 and we will continue to focus on generating controlled, sustainable and profitable growth across the enlarged business.
Group revenues increased by 40.2% to $223.0m (H1 2014: $159.1m) substantiated by the incorporation of revenues from Meritus and GMA in the US. Group revenues increased 10.9% on an organic constant currency basis (1) .
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Adjusted EBITDA increased 27.9% to $49.9m (H1 2014: $39.0m) and profit after tax increased by 18.7% to $37.3m (H1 2014: $31.4m); adjusted diluted EPS of $0.12 (H1 2014: $0.11); statutory fully diluted EPS of $0.01 (H1 2014: $0.10).
Revenue & gross profit
Group revenues increased by 40.2% to $223.0m (H1 2014: $159.1m), this growth was enhanced by the integration of the US businesses Meritus and GMA (acquired H2 2014) into the NETBANX STP division with both businesses trading strongly. Our largest merchant contributed 29.0% of overall revenue, diluted by the inclusion of revenues from the US businesses; we would expect the concentration of this revenue to reduce substantially as the Group continues to diversify. The Group's underlying growth was 23.8% on an organic constant currency basis excluding the volatility of the growth in the major merchant year on year.
NETELLER SV revenues increased by 20.1% to $49.8m (H1 2014: $41.4m) with underlying growth of 34.6% on a constant currency basis. The gross margin is reported at 87.3% which is consistent to H1 2014 - the principal direct costs of the NETELLER SV division that vary directly with revenue (included in cost of sales) are transaction related deposit and withdrawal fees and bad debts. Additionally, with the growth in customer signups, there are 'stepped' costs of additional headcount in the call centre and the risk department and marketing and promotions fees where VIP loyalty 'cash back' costs vary in line with VIP revenues.
NETBANX STP revenues increased by 47.4% to $173.0m (H1 2014: $117.4m) with underlying growth of 20.5% on an organic constant currency basis excluding the major merchant's revenue year on year. The gross margin fell to 37.1% (from 43.1% in H1 2014) incorporating the comparatively lower gross margin of the fast growing US businesses with the bulk of the direct processing costs being fees to acquiring banks and other intermediate processors.
Group revenue - by geography
Hot Features
Premium
H1 2015 H1 2014
--------------- ---------------
($m) ($m)
North America 96.3 43.2% 25.2 15.9%
Asia & Rest
of World 84.6 38.0% 96.4 60.7%
Europe 41.9 18.8% 37.2 23.4%
------ ------- ------ -------
Fee revenue 222.8 100.0% 158.8 100.0%
====== ======= ====== =======
Investment income of $0.2m (H1 2014: $0.3m) was derived from interest earned on the Group's cash and the cash held by the Group on behalf of merchants and members. The Group's gross profit, including investment income and cost of sale expenses, is reported at $107.9m (H1 2014: $86.8m). The overall gross margin is reported at 48.4% (H1 2014: 54.6%).
Non fee expenses
Operating expenses (salaries and employee expenses, technology and software, premises and office costs, professional fees, marketing and promotions, travel and entertainment, and bank charges) were $65.2m (H1 2014: $50.6m) largely driven by the US acquisitions. As a percentage of Group Revenues, operating expenses were 29.2% (H1 2014: 31.8%).
Salaries and employee expenses excluding share option expenses increased by approximately $5.9m with our headcount increasing by 186 heads year on year as at 30 June 2015 to 741 full-time employees, incorporating employees at the North American businesses (FANS, GMA & Meritus), with additions to headcount to strengthen our Finance, Operations, Risk and Compliance divisions overall. Share option expenses were $7.1m (H1 2014: $2.8m) related to share based payment transactions on the Group's LTIP and share options allocated to the management team and employees.
A foreign exchange loss of $5.8m was incurred (H1 2014: gain of $0.1m) due primarily to the unrealised loss recognised on forward exchange contracts entered into to hedge the Group's exposure to currency fluctuations on the cash raised in the rights offering versus the cash consideration payable for the Skrill group (per note 9 to the Group's financial statements).
Acquisition and restructuring costs of $16.5m incurred in the six months ended 30 June 2015 related primarily to the acquisition of Skrill.
Adjusted EBITDA
Adjusted EBITDA increased 27.9% to $49.9m (H1 2014: $39.0m) adjusted for exceptional non-recurring items, the current period has been impacted by exceptional items including expenses related to M&A and foreign exchange movements. The adjusted EBITDA margin at 22.4% (H1 2014: 24.5%) was slightly lower due to the incorporation of the high growth lower margin US businesses which impacted the mix overall.
Profit after tax
Depreciation and amortisation was $14.8m (H1 2014: $7.3m) which included $12.0m of amortisation of intangible assets (H1 2014: $4.8m) and $2.8m in depreciation of capital assets (H1 2014: $2.5m). Approximately $8.2m of the depreciation and amortisation charge relates to the assets acquired through the business acquisitions since 2011 (H1 2014: $1.6m); the NETELLER SV platform was launched at the end of 2010 and is being amortised over five years on a straight line basis. Finance costs were $2.7m (H1 2014: $0.0m), due to the debt incurred to fund the acquisitions of the US businesses in July 2014.
The Group earns income and pays tax principally in Canada, the USA, the UK and the Isle of Man. Tax liabilities in these countries are calculated on an arm's length basis in line with internationally recognised transfer pricing principles. The H1 2015 tax charge is $2.2m (H1 2014: $0.04m). The provision for income taxes at $3.5m (H1 2014: $4.0m) includes $4.0m in relation to Canadian withholding taxes that were deemed to have arisen on the relocation of assets to the Isle of Man from Canada in the 2004 and 2005 taxation years. Following a seven year investigation, the Canadian Revenue Agency (CRA) claimed that additional withholding taxes were payable by the Group. The provision in place at the beginning of the year has not been increased during the year as it is believed to represent the amount the group will likely be required to pay in respect of such withholding taxes and interest. Without this provision the Group's income tax asset at the balance sheet date would have been $0.5m.
The Group's adjusted profit after tax for the year increased by 18.7% to $37.3m (H1 2014: $31.4m); statutory profit after tax is reported at $2.4m (H1 2014: $27.5m).
Earnings per share
The growth in revenue and adjusted EBITDA has resulted in an increase of adjusted diluted EPS of 11.4% to $0.12 (H1 2014: $0.11) as compared to statutory fully diluted EPS which is reported at $0.01 (H1 2014: $0.10).
Adjusted diluted EPS is calculated based on adjusted profit after tax, reconciliation to unadjusted earnings is shown below. The weighted average number of shares in issue has been adjusted to exclude the impact of the rights issue (completed in May 2015) to finance the acquisition of Skrill which completed on 10 August 2015.
H1 2015 H1 2014
-------- --------
Result Result
($m) ($m)
Reported profit before
tax 4.6 27.5
FX gains (losses) 5.8 (0.1)
Acquisition, restructuring
and other exceptional
costs 16.5 1.5
Share based payments 7.1 2.8
Fair value gains on share
consideration payable (1.6) -
Amortisation on acquired
intangibles 8.2 1.6
-------- --------
Adjusted profit before
tax 40.6 33.3
Adjusted tax (3.3) (1.9)
Adjusted profit after
tax 37.3 31.4
======== ========
Adjusted diluted EPS $0.12 $0.11
-------- --------
Adjusted weighted average
of shares in issue - diluted
(million) 306.5 287.5
-------- --------
Cash position
Group cash and cash equivalents was $113.3m at 30 June 2015 (31 December 2014: $109.0m) - excluding cash raised on the rights issue of $685.3m to fund the acquisition of Skrill.
The reporting of cash and cash equivalents has been adjusted to include two new line items, settlement assets and cash held as reserves which are now separately disclosed in the financial statement to provide a more transparent analysis of the Group's cash position. As a result, cash and cash equivalents more accurately represents the cash that is in the Group's bank accounts and immediately available to the business. Cash held as reserves also includes processor and card scheme deposits that were previously disclosed in prepaid expenses and deposits.
Restricted NETELLER merchant and member cash balances are the excess of funds held that the Group is required to maintain in respect of the e-money issued to members and merchants over balances payable which are held in segregated accounts. Cash held as reserves represents the cash the Group is required to deposit with counterparties, which would include acquiring partners and card schemes, in order to transact with these institutions. Settlement assets represent gross transaction cash at acquirers and processors which will be remitted to the Group. There would ordinarily be a timing difference from the time that the transaction is confirmed to the remittance of these funds, the risk associated to this delay is managed via guarantees from banks and card issuers. Previously included in trade and other payables is a transient cash liability balance totalling $35.5m (H1 2014: $30.6m) that relates to transactions processed via the NETBANX gateway operations and security deposits held from the Group's bureau merchants. This item is now disclosed as a separate line item on the balance sheet, having previously being disclosed in
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the notes to the accounts; this represents gross transaction cash that has been received by the Group but not yet forwarded to the merchant.
Free cash flow was $29.9m at the end of H1 2015 (31 December 2014: $10.9m). Free cash flow is a non IFRS figure defined as operating cash flow after working capital movements, interest, tax and capital expenditure. In the consolidated statement of cash flows, working capital cash flow disclosure has been segmented to show movements relating to member and merchant cash which we refer to as payments working capital. Payments working capital represents cash flows that are not revenue or costs to the Group, constituted by movements in restricted cash balances, cash held as reserves, settlement assets and NETBANX merchant processing liabilities. Excluding payments working capital cash flows, free cash flow was $34.1m (H1 2014: $29.6m).
Long term debt
The Group's long term debt position was $117.0m at 30 June 2015 (31 December 2014: $127.0m) with principal payments of $10.0m made on the credit facility of $150.0m drawn in H2 2014 to partly fund the US acquisitions, consisting of a $100.0m term loan facility and a $50.0m revolving loan facility. The Group's long term debt position increased to $548.0m as at 10 August 2015 - to incorporate the credit facility of EUR500.0m secured to fund the acquisition of Skrill. The Group's original debt facility (of $150.0m) has been fully re-financed within this debt facility. The Group was in full compliance with its debt covenants.
Assets
Total current assets have increased to $877.8m (31 December 2014: $177.3m) incorporating the cash of $685.3m raised on the rights issue to fund the acquisition of Skrill and increased settlement assets. The balance of trade and other receivables increased to $17.1m (31 December 2014: $14.7m).
The net book value of intangible assets at 30 June 2015 was $75.1m (31 December 2014: $76.1m). This includes intangibles acquired from OP Inc. in 2011, from Meritus and GMA in 2014, and most recently, FANS in May 2015 (per note 16 to the Group's financial statements). Management considered that the carrying value of these acquired assets did not need to be impaired. During the period, the Group continued to incur development costs to add new functionality to the NETELLER SV and NETBANX STP platforms and have determined that no impairment was required in relation to its platforms.
Liabilities
Total current liabilities increased to $152.6m at 30 June 2015 (31 December 2014: $113.6m) attributed in large part to the recognition of a $28.9m liability on the forward exchange contract described above (per note 9 to the Group's financial statements). In addition, there was an increase in the current portion of the share consideration payable of approximately $4m resulting from the acquisition of FANS during the period (see note 16). The balance of the increase in current liabilities is due to the volatile nature of the NETBANX merchant cash processing liabilities (to $35.5m at end June from $30.5m at end 2014) relating to the remittance of transient cash to NETBANX merchants.
Off balance sheet arrangements
As of 30 June 2015, the Group had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.
(1) Organic growth is stated assuming acquired businesses were owned in the prior period. Constant currency growth is calculated assuming foreign exchange rates remain unchanged from the prior period.
Brian McArthur-Muscroft
Chief Financial Officer
25 August 2015
Condensed Consolidated Interim Statement of Financial
Position
as at 30 June 2015
(Unaudited)
--------------------------------------------------------------------------
30 JUNE 31 DECEMBER
2015 2014
Unaudited Audited
$ $
-------------- ------------
ASSETS
Non-current assets
Goodwill 208,714,292 205,339,002
Intangible assets (Note 3) 75,108,101 76,140,609
Property, plant & equipment (Note
4) 14,182,372 13,357,689
-------------- ------------
Total non-current assets 298,004,765 294,837,300
-------------- ------------
Current assets
Prepaid expenses and deposits 4,752,181 5,285,561
Trade and other receivables 17,115,709 14,711,829
Cash held as reserves 8,922,879 8,757,914
Restricted NETELLER merchant cash
(Note 5) 290,118 2,232,596
Restricted NETELLER member cash
(Note 6) 8,083,567 6,543,680
Settlement assets 40,080,913 29,849,176
Cash and cash equivalents (Note
9) 798,562,168 109,892,558
Total current assets 877,807,535 177,273,314
Total assets 1,175,812,300 472,110,614
============== ============
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY
Share capital (Note 7) 88,088 46,575
Share premium 748,245,447 86,934,889
Capital redemption reserve 147 147
Equity reserve on share option
issuance 34,405,958 27,311,337
Translation reserve (1,106,252) (968,561)
Retained earnings 97,404,983 94,996,358
-------------- ------------
Total shareholders' equity 879,038,371 208,320,745
-------------- ------------
LIABILITIES
Non-current liabilities
Long-term debt (Note 0) 97,000,000 107,000,000
Share consideration payable 44,887,000 42,967,500
Contingent consideration (Note 2,084,000 -
16)
Obligations under capital lease 192,488 204,808
-------------- ------------
Total non-current liabilities 144,163,488 150,172,308
-------------- ------------
Current liabilities
Forward exchange contracts (Note 28,940,000 -
9)
Current portion of long-term debt 20,000,000 20,000,000
Share consideration payable 18,142,959 14,322,500
Contingent consideration 5,000,000 5,000,000
NETELLER loyalty program liability 1,214,085 1,159,980
Provision for losses on NETBANX
merchant accounts 1,183,480 1,183,492
Taxes payable 3,528,272 4,044,775
Obligations under capital lease 281,261 578,797
Trade and other payables (Note
10) 38,793,481 36,736,858
NETBANX merchant processing liabilities
(Note 11) 35,526,903 30,591,159
-------------- ------------
Total current liabilities 152,610,441 113,617,561
-------------- ------------
Total Shareholders' equity and liabilities 1,175,812,300 472,110,614
============== ============
Accompanying notes form part of these condensed consolidated interim financial statements
Condensed Consolidated Interim Statement of Comprehensive
Income
For the six month period ended 30 June 2015
(Unaudited)
-------------------------------------------------------------------------
Six month period Six month period
ended 30 ended 30
June 2015 June 2014
$ $
----------------- -----------------
Revenue
Straight Through Processing
fees 173,033,711 117,355,497
Stored Value fees 49,756,862 41,426,120
Investment income 232,399 274,002
----------------- -----------------
223,022,972 159,055,619
----------------- -----------------
Cost of Sales
Straight Through Processing
expenses 108,782,499 66,769,565
Stored Value expenses 6,317,198 5,447,362
115,099,697 72,216,927
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August 26, 2015 02:01 ET (06:01 GMT)
----------------- -----------------
Gross profit 107,923,275 86,838,692
----------------- -----------------
Non Fee Expenses
Salaries and employee expenses 34,708,699 24,466,661
Technology and software 11,002,590 10,643,223
Premises and office costs 5,762,071 4,550,183
Professional fees 2,395,729 2,015,675
Marketing and promotions 9,205,585 7,020,778
Travel and entertainment 1,739,340 1,572,375
Bank charges 351,877 334,628
Depreciation and amortisation
(Note 4) 14,784,369 7,269,757
Acquisition costs (Notes
16 and 17) 12,377,267 1,521,355
Restructuring costs (Note 4,133,813 -
14)
Foreign exchange loss /
(gain) 5,788,670 (94,502)
Net fair value gain on (1,610,000) -
share consideration payable
Loss on disposal of assets - 6,632
----------------- -----------------
Results from operating activities 7,283,265 27,531,927
Finance costs 2,691,125 9,036
----------------- -----------------
Profit for the period before
tax 4,592,140 27,522,891
Income tax expense 2,183,515 38,282
----------------- -----------------
Profit for the period after
tax attributable
to owners of the Group 2,408,625 27,484,609
----------------- -----------------
Other comprehensive income
Items that are or may be
reclassified subsequently
to profit or loss
Foreign currency translation
differences for
foreign operations, net
of income tax (137,691) 49,528
Total comprehensive income
for the period attributable
to owners of the Group 2,270,934 27,534,137
================= =================
Basic earnings per share $0.01 $0.10
================= =================
Fully diluted earnings per
share $0.01 $0.10
================= =================
Accompanying notes form part of these condensed consolidated interim financial statements
The directors consider that all results derive from continuing operations
Condensed Consolidated Interim Statement of Changes in
Equity
For the six month period ended 30 June 2015
(Unaudited)
----------------------------------------------------------------------------------------------------------------------------------------------
EQUITY
SHARE SHARE RESERVE TRANSLATION
CAPITAL CAPITAL ON RESERVE
- - TOTAL SHARE ON CAPITAL
ORDINARY DEFERRED SHARE SHARE OPTION FOREIGN REDEMPTION RETAINED
SHARES SHARES CAPITAL PREMIUM ISSUANCE OPERATIONS RESERVE EARNINGS TOTAL
$ $ $ $ $ $ $ $ $
--------- --------- --------- --------------- ------------- -------------- ----------- ------------- ---------------
Balance
as at
1 January
2015 28,575 18,000 46,575 86,934,889 27,311,337 (968,561) 147 94,996,358 208,320,745
Profit
for the
period 2,408,625 2,408,625
Other
comprehensive
income - - - - - (137,691) - - (137,691)
--------- --------- --------- --------------- ------------- -------------- ----------- ------------- ---------------
Total
comprehensive
income - - - - - (137,691) - 2,408,625 2,270,934
Transactions
with owners
of the
Company,
recognised
directly
in equity
Contributions
by and
distributions
to owners
of the
Company
Share
option
expense
(Note
13) - - - - 7,094,621 - - - 7,094,621
Issue
of shares
(Note
7) 41,465 - 41,465 701,698,824 - - - - 701,740,289
Share
issuance
costs
(Note
7) - - - (41,636,258) - - - - (41,636,258)
Shares
issued
on
acquisition
of business
(Note
16) 48 - 48 1,247,992 - - - - 1,248,040
Balance
as at
30 June
2015 70,088 18,000 88,088 748,245,447 34,405,958 (1,106,252) 147 97,404,983 879,038,371
========= ========= ========= =============== ============= ============== =========== ============= ===============
Balance
as at
1 January
2014 26,604 18,000 44,604 77,054,253 19,036,989 (1,851,482) 147 37,320,852 131,605,363
Profit
for the
period 27,484,609 27,484,609
Other
comprehensive
income - - - - - 49,528 - - 49,528
--------- --------- --------- --------------- ------------- -------------- ----------- ------------- ---------------
Total
comprehensive
income - - - - - 49,528 - 27,484,609 27,534,137
Transactions
with owners
of the
Company,
recognised
directly
in equity
Contributions
by and
distributions
to owners
of the
Company
Share
option
expense - - - - 2,756,833 - - - 2,756,833
Issue
of shares 1,697 - 1,697 9,515,644 - - - - 9,517,341
--------- --------- --------- --------------- ------------- -------------- ----------- ------------- ---------------
Balance
as at
30 June
2014 28,301 18,000 46,301 86,569,897 21,793,822 (1,801,954) 147 64,805,461 171,413,674
--------- --------- --------- --------------- ------------- -------------- ----------- ------------- ---------------
Accompanying notes form part of these condensed consolidated interim financial statements
Condensed Consolidated Interim Statement of Cash
Flows
For the six month period ended 30 June 2015
(Unaudited)
-------------------------------------------------------------------------------------------
Six months Six months
ended 30 ended 30 June
June 2014
2015
$ $
------------------------ ------------------------
OPERATING ACTIVITIES
Profit for the period before
tax 4,592,140 27,522,891
Adjustments for non-cash items:
Depreciation and amortisation 14,841,747 7,368,658
Unrealised foreign exchange
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loss/(gain) 4,960,147 (312,605)
Acquisition costs 12,377,267 1,521,355
Net fair value gain on share (1,610,000) -
consideration payable
Share option expense (Note
13) 7,094,621 2,756,833
Finance costs 2,691,125 (8,768)
Loss on disposal of assets - 6,632
Operating cash flows before
movements in working capital
and
member and merchant funds 44,947,047 38,854,996
Increase in trade and other
receivables (2,223,450) (492,023)
Decrease/(increase) in prepaid
expenses and deposits 547,497 (661,528)
Increase/(decrease) in trade
and other payables 1,871,280 (2,171,161)
Increase in NETELLER loyalty
program liability 54,105 333,153
Increase in provision for
losses on merchant accounts (12) (60)
------------------------ ------------------------
Cash flows from operations
before movements in member
and
merchant funds 45,196,467 35,863,377
Decrease in restricted NETELLER
merchant cash 1,654,428 203,892
(Increase)/decrease in restricted
NETELLER member cash (1,314,804) 1,557,532
Increase in settlement assets (9,300,952) (19,351,567)
Increase in cash held as reserves (164,965) (892,008)
Increase/(decrease) in Netbanx
merchant processing liabilities 4,935,743 (169,488)
41,005,917 17,211,738
Taxes paid (2,125,606) (932,203)
------------------------ ------------------------
Cash flows from operating
activities 38,880,311 16,279,535
------------------------ ------------------------
INVESTING ACTIVITIES
Purchase of property, plant
& equipment, goodwill and intangible
assets (7,049,981) (5,368,821)
Proceeds from disposal of property,
plant & equipment - 3,279
Acquisition costs (13,283,389) (317,639)
Business acquisitions (894,368) -
Cash flows used in investing
activities (21,227,738) (5,683,181)
------------------------ ------------------------
FINANCING ACTIVITIES
Equity issuance (Note 7) 660,104,031 295
Repayment of long-term debt (10,000,000) -
Repayment of obligations under
capital lease (315,726) (256,972)
Finance costs (1,968,575) -
Cash flows from/(used in) financing
activities 647,819,730 (256,677)
------------------------ ------------------------
INCREASE IN CASH AND CASH EQUIVALENTS
DURING THE PERIOD 665,472,303 10,339,677
EFFECT OF MOVEMENT IN FOREIGN
EXCHANGE ON
CASH AND CASH EQUIVALENTS 23,148,971 104,856
TRANSLATION OF FOREIGN OPERATIONS 48,336 49,528
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 109,892,558 129,289,923
------------------------ ------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD 798,562,168 139,783,984
======================== ========================
Accompanying notes form part of these condensed consolidated interim financial statements
1. BASIS OF PREPARATION
These condensed consolidated interim financial statements of Optimal Payments PLC ("the Company") and its subsidiaries (together referred to as "the Group") have been prepared on the going concern basis. The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.
The principal operating currency of the Group is US dollars and accordingly the financial statements have been prepared in US dollars. The interim results for the period ended 30 June 2015 are unaudited and do not constitute statutory accounts within the meaning of the Companies Acts 1931 to 2004. The statutory accounts of Optimal Payments Plc for the year ended 31 December 2014 contain an unqualified audit report. Copies can be obtained from the Registered Office of the Company, Audax House, Finch Road, Douglas, Isle of Man, IM1 2PT.
2. STATEMENT OF COMPLIANCE
The condensed consolidated interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting". They do not include all of the information required for the full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2014. However, selected explanatory notes are included to explain events and transactions that are significant to gain an understanding of the Group's financial position and performance since the last annual consolidated financial statements. The accounting policies and methods of computation used in the condensed interim consolidated financial statements are consistent with the most recent annual financial statements with the exception of changes made in the period relating to the presentation of various transient funds resulting from transaction processing previously grouped within cash and cash equivalents.
The following accounting policies have been included in the condensed interim consolidated financial statements:
Settlement assets
Settlement assets result from timing differences in the Group's settlement process. These timing differences arise primarily as a result of settlement amounts due from financial institutions and other payment processors. These amounts are typically funded to the Group within days from the transaction processing date.
Cash held as reserves
The Group has agreements with various financial institutions for the settlement of payment transactions. Under the terms of these agreements, the Group is required to maintain certain amounts as reserves, which may be applied against any amounts for which the financial institutions would be entitled for reimbursement.
Prior year financial information has been represented to conform with current year presentation where applicable.
These condensed consolidated interim financial statements were approved by the Board of Directors on 25 August 2015.
3. INTANGIBLE ASSETS
$3,309,250 was incurred on the ongoing development of the Group's online payment processing platforms for the six months ended 30 June 2015 (2014: $2,463,493).
An additional $7,700,000 of intellectual property was acquired through the business acquisition described in Note 16.
The Board have determined that there has not been any indication of impairment in the six month period ended 30 June 2015 given the continued strong performance of the Group's payments processing platforms.
4. PROPERTY, PLANT & EQUIPMENT
There were $3,740,731 of additions to property, plant & equipment for the six months ended 30 June 2015 (2014: $2,905,328) related to the expansion of the Group's facilities and data processing equipment. An additional $69,965 of property, plant & equipment was acquired pursuant to the business acquisition described in Note 16.
In the six months ended 30 June 2015, $57,378 (2014: $98,901) of investment tax credits (ITCs) received were recorded against depreciation and amortisation expense since the assets giving rise to the ITCs were fully amortised.
5. RESTRICTED NETELLER MERCHANT CASH
The Group maintains bank accounts with the Group's principal bankers which are segregated from operating funds and which contain funds held on behalf of Merchants, representing pooled Merchant funds. Balances in the segregated accounts are maintained at a sufficient level to fully offset amounts owing to the Group's Merchants. A legal right of offset exists between the balances owing to the Merchants and the cash balances segregated in the client accounts. As such, only the net balance of surplus cash is disclosed on the Statement of Financial Position as Restricted NETELLER Merchant Cash.
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The Group had the following balances:
As at 30 As at 31
June 2015 December
2014
$ $
--------------- -------------
Segregated account funds 101,904,477 102,069,054
Payable to NETELLER Merchants (101,614,359) (99,836,458)
--------------- -------------
Restricted NETELLER Merchant
Cash 290,118 2,232,596
=============== =============
6. RESTRICTED NETELLER MEMBER CASH
In compliance with the Financial Conduct Authority (FCA) rules and regulations, the Group holds Qualifying Liquid Assets at least equal to the amounts owing to Members. These amounts are maintained in accounts which are segregated from operating funds. As a legal right of offset exists between the balances owing to the Members and the cash balances segregated in the member accounts, the prior year presentation in the Consolidated Statement of Financial Position has been updated and only the net balance of surplus cash is disclosed on the Consolidated Statement of Financial Position as Restricted NETELLER Member cash.
The Group had the following balances:
As at 30 As at 31
June 2015 December 2014
$ $
-------------- ---------------
Qualifying Liquid Assets
held for NETELLER Members 160,122,048 143,639,792
Payable to NETELLER Members (152,038,481) (137,096,112)
-------------- ---------------
Restricted NETELLER Member
Cash 8,083,567 6,543,680
============== ===============
7. SHARE CAPITAL
As at As at
30 June 31 December
2015 2014
GBP GBP
--------- -------------
Authorised:
600,000,000 ordinary shares of
GBP0.0001 per share
(At 31 December 2014: 200,000,000
ordinary shares of GBP0.0001 per
share) 60,000 20,000
========= =============
1,000,000 deferred shares of GBP0.01
per share
(At 31 December 2014: 1,000,000
deferred shares GBP0.01 per share) 10,000 10,000
========= =============
Issued and fully paid $ $
--------- -------------
437,238,429 ordinary shares of
GBP0.0001 per share
(At 31 December 2014: 163,019,614
ordinary shares of GBP0.0001 per
share) 70,088 28,575
1,000,000 deferred shares of GBP0.01
per share
(At 31 December 2014: 1,000,000
deferred shares of GBP0.01 per
share) 18,000 18,000
Total share capital 88,088 46,575
========= =============
Holders of the ordinary shares are entitled to receive dividends and other distributions, to attend and vote at any general meeting, and to participate in all returns of capital on winding up or otherwise.
Holders of the deferred shares are not entitled to vote at any annual general meeting of the Company and are only entitled to receive the amount paid up on the shares after the holders of the ordinary shares have received the sum of GBP1,000,000 for each ordinary share held by them and shall have no other right to participate in assets of the Company.
Issue of ordinary shares
The Company raised total gross proceeds of approximately GBP463 million (approximately GBP436 million net of expenses of the Rights Issue) (approximately $702 million and $660 million respectively) through the issue of 272,495,506 New Ordinary Shares by way of the Rights Issue and the subsequent Rump Placing.
Pursuant to the Rights Issue, 263,685,643 New Ordinary Shares were issued by way of rights to Qualifying Shareholders (other than, subject to certain exceptions, to Excluded Shareholders) to subscribe for New Ordinary Shares at an Offer Price of 166 pence per New Ordinary Share payable in full on acceptance by no later than 11.00 a.m. on 1 May 2015. The Offer Price represents:
-- a 34 per cent. discount to the theoretical
ex-rights price of an Existing Ordinary
Share, when calculated by reference to
the volume weighted average price of
398 pence per Existing Ordinary Share
during the 5 day period between 16 March
2015 and 20 March 2015 (being the last
practicable Business Day before the announcement
of the Rights Issue);
-- a 36 per cent. discount to the theoretical
ex-rights price of an Existing Ordinary
Share, when calculated by reference to
the Closing Price of 419 pence per Existing
Ordinary Share on 20 March 2015; and
-- a 60 per cent. discount to the Closing
Price of 419 pence per Existing Ordinary
Share on 20 March 2015.
The Rights Issue was made on the basis of 5 New Ordinary Shares at 166 pence per New Ordinary Share
for every 3 Existing Ordinary Shares held by and registered in the name of each Qualifying Shareholder at 5.00 p.m. on the Record Date, and in proportion to any other number of Existing Ordinary Shares each Qualifying Shareholder then holds.
An additional 8,809,863 New Ordinary Shares were issued at a price of 290 pence per New Ordinary Share by way of a Rump Placing to subscribers for shares not validly taken up in the Rights Issue.
Additionally, 1,382,412 ordinary shares were issued during the six months ended 30 June 2015 as a result of the exercise of vested options under the ESOS and LTIP plans (see Note 13).
303,097 ordinary shares were also issued during the six months ended 30 June 2015 as a result of the acquisition of FANS Entertainment Inc. (see Note 16)
8. LONG-TERM DEBT
The Group had the following balances:
As at 30 As at 31
June December
2015 2014
$ $
------------ ------------
Term facility 80,000,000 90,000,000
Revolving facility 37,000,000 37,000,000
------------ ------------
117,000,000 127,000,000
Current portion 20,000,000 20,000,000
------------ ------------
97,000,000 107,000,000
============ ============
The Group's credit facility of $150 million provided by Bank of Montreal consists of a $100 million term facility and a $50 million revolving facility. The term facility bears interest at US prime rate plus a premium varying from 0.25% to 1.50% or at a LIBO rate plus a premium varying from 1.75% to 3.00%, matures on 23 July 2017, and is repayable in quarterly instalments of $5 million starting in September 2014 up to the maturity date. The revolving facility can be used for the financing of a portion of the permitted acquisitions in a maximum amount of $41 million and general corporate purposes including the issuance of letters of credit. The revolving facility has no specified terms of repayment and it bears interest and matures on the same basis as the term facility. Amounts of $100 million and $41 million were drawn down from the term facility and revolving facility, respectively, on 23 July 2014 in order to fund the Meritus and GMA acquisitions. For the six months ended 30 June 2015, principal repayments amounted to $10 million and $Nil on the term facility and revolving facility, respectively (31 December 2014 - $10 million and $4 million respectively).
As at 30 June 2015, the Group has approximately $9 million outstanding in issued letters of guarantee in relation to various performance bonds drawn from the revolving facility.
Under the terms of the loan agreement, the Group must satisfy certain restrictive covenants including minimum financial ratios. These restrictions are composed of ratios of funded debt to EBITDA, funded debt to capitalization and fixed charge coverage ratio. EBITDA, a non IFRS measure, is defined in the Credit Facility on a consolidated basis, as total comprehensive profit attributable to the owners of the Group before interest expense, income taxes, depreciation, amortization, gains or losses from asset dispositions, gains or losses from extraordinary items and non-recurring transaction costs related to the acquisition of Meritus and GMA, non-cash share option expenses and gains or losses relative to foreign exchange or derivative instruments, plus (or minus) the historical EBITDA of any businesses acquired (or sold) during the reporting period. As at 30 June 2015, all debt covenant requirements and exemptions have been respected.
The Group's credit facility was refinanced on 10 August 2015 (Note 17).
9. FORWARD EXCHANGE CONTRACTS
On 23 March 2015, the Group entered into certain forward exchange contracts to hedge its cash flow exposure with respect to currency fluctuations between the cash raised through the Rights Offering (Note 7) in Great Britain Pound ("GBP") vs the cash consideration payable for the anticipated business acquisition (Note 17) in EURO ("EUR").
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The forward exchange contracts entered into included commitments to buy EUR515 million and $82 million in exchange for GBP at varying rates ranging from 1.36308 to 1.35239 GBP:EURO and 1.47947 to 1.47344 GBP:USD between the period of 11 May 2015 and 23 September. The contract include a variable timing settlement feature to allow for the then unknown completion date of the transaction, which was 10 August 2015 as disclosed in Note 17. The contracts were contingent upon completion of the acquisition and would otherwise expire at no cost to the Group in the event the transaction had not completed.
The Group has not elected to adopt hedge accounting for this transaction in accordance with IAS 39.
The instrument is carried at fair value using a currency valuation model and is classified as a level 2 investment in accordance with IFRS fair value hierarchy. As at 30 June 2015, an unrealized loss of approximately $29 million on the forward exchange contract was recognized in the accounts and included in foreign exchange loss. During the same period, the Group recognized an unrealized foreign exchange gain of approximately $25 million on the GBP436 million ($685 million) cash position raised from the Rights Offering and held in GBP in anticipation of the settlement of the forward exchange contracts described above.
10. TRADE AND OTHER PAYABLES
The Group had the following balances:
As at 30 As at 31
June December
2015 2014
$ $
----------- -----------
Accounts payable 2,615,865 7,693,960
Accrued liabilities 31,885,789 26,080,024
Payroll liabilities 4,291,827 2,962,874
----------- -----------
38,793,481 36,736,858
=========== ===========
11. NETBANX MERCHANT PROCESSING LIABILITIES
The NETBANX Merchant processing liabilities arise from the operations of the NETBANX division totaling $35,526,903 (31 December 2014: $30,591,159). In addition, an equivalent transient amount relating to Merchant transactions processed via the straight-through processing operations is included in cash and cash equivalents and settlement assets. The operations do not fall within the EU definition of "e-money" nor does a legal right of offset exist between this cash and the corresponding NETBANX Merchant liabilities.
12. OPERATING SEGMENTS
The Group has two operating segments as disclosed below. For each of the segments, the Group's CEO reviews internal management reports on at least a quarterly basis. The following summary describes the operations in each of the Group's reportable segments.
NETELLER: fees are generated on transactions between Members and Merchants using the NETELLER service and Net+ prepaid cards.
NETBANX: fees are generated through the NETBANX and NETBANX Asia straight-through processing platforms where customers send money directly to Merchants.
Information regarding the results of each reportable segment is included below.
Segmented reporting for the six months ended 30 June 2015:
NETELLER NETBANX Total
$ $ $
------------- ------------- -------------
Revenue 49,756,862 173,033,711 222,790,573
Variable costs
Processing costs 6,217,956 106,966,305 113,184,261
Bad debts 99,242 1,816,194 1,915,436
------------- ------------- -------------
Total variable
costs 6,317,198 108,782,499 115,099,697
------------- ------------- -------------
Variable margin 43,439,664 64,251,212 107,690,876
------------- ------------- -------------
Variable margin
percentage 87% 37% 48%
Segmented reporting for the six months ended 30 June 2014:
NETELLER NETBANX Total
$ $ $
------------- ------------- -------------
Revenue 41,426,120 117,355,497 158,781,617
Variable costs
Processing costs 5,294,091 66,767,894 72,061,985
Bad debts 153,271 1,671 154,942
------------- ------------- -------------
Total variable
costs 5,447,362 66,769,565 72,216,927
------------- ------------- -------------
Variable margin 35,978,758 50,585,932 86,564,690
------------- ------------- -------------
Variable margin
percentage 87% 43% 55%
Processing costs and bad debts are the only two costs which vary directly with revenue, and accordingly have been shown separately as variable costs. For the six months ended 30 June 2015, variable costs for NETELLER and NETBANX were 13% (2014: 13%) and 63% (2014: 57%) of revenue respectively.
Net assets have not been presented in the segmented information since significant assets and resources throughout the Group serve both reporting segments and would not reasonably be allocable between the two.
Major Merchants
The Group has one Merchant who represented 29% of total fee revenue for the six months ended 30 June 2015 (2014: 47%) across all reportable segments and geographies. The majority of this revenue comes from Asia.
13. SHARE BASED PAYMENTS
The Company adopted the unapproved equity-settled share option plan ("ESOS") pursuant to a resolution passed on 7 April 2004 and amended by the Board on 15 September 2008. The 2008 amendment included the addition of a new 'approved' plan for UK based employees. Under the 'approved' and 'unapproved' plans, the Board of Directors of the Company may grant share options to eligible employees including directors of Group companies to subscribe for ordinary shares of the Company.
No consideration is payable on the grant of an option. Options may generally be exercised to the extent that they have vested. Options vest according to the relevant schedule over the grant period following the date of grant. The exercise price is determined by the Board of Directors of the Company, and shall not be less than the average quoted market price of the Company shares on the three days prior to the date of grant. Subject to the discretion of the Board share options are forfeited if the employee leaves the Group before the options vest. The ESOS options granted vest on the third anniversary of the date of grant and lapse a further six months after vesting.
The Company also adopted the Long Term Incentive Plan ("LTIP") which took effect from 1 January 2010. These LTIP options vest in one tranche based on future performance related to EBITDA targets determined each year and subject to continued employment over the remaining vesting period. Vested options lapse on the tenth anniversary of the date of grant. On July 9, 2014, the board granted 3,000,000 "special" LTIP options which vest in three tranches based on future performance related to share price targets.
For the six month ended 30 June 2015, the Group recognised total expenses of $7,094,621 (2014: $2,756,833) related to share-based payments transactions which are included in salaries and employee expenses.
Changes in the number of ESOS and LTIP options outstanding are detailed in the tables below:
ESOS
Six Months
Ended
30 June 31 December
2015 2014
Weighted Six Months Weighted Year
Average Ended Average ended
Exercise 30 June Exercise 31 December
Price 2015 Price 2014
GBP Options GBP Options
-------------------- ----------- ----------- ------------ -------------
Outstanding at the
beginning of the
period 1.73 1,456,750 0.85 1,564,250
Granted during the
period 1.15 762,797 3.35 495,500
Forfeited during
the period 0.57 (195,796) 1.15 (213,050)
Exercised during
the period 0.57 (437,706) 0.57 (389,950)
Outstanding at the
end of the period 1.25 1,586,045 1.73 1,456,750
-------------------- ----------- ----------- ------------ -------------
Exercisable at the
end of the period - - 0.57 390,000
-------------------- ----------- ----------- ------------ -------------
The ESOS options outstanding at the end of the period had a weighted average exercise price of GBP1.25 (31 December 2014: GBP1.73) and a weighted average remaining contractual life of 1.64 years (31 December 2014: 1.66 years). The weighted average share price of ESOS options exercised in the period based on the date of exercise was GBP4.36 (31 December 2014: GBP3.95).
During the period, 762,797 additional options were granted to holders of ESOS options previously granted as a result of the Rights Offering (Note 7).
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LTIP
Six Months
Ended
30 June 31 December
2015 2014
Weighted Six Months Weighted Year
Average Ended Average ended
Exercise 30 June Exercise 31 December
Price 2015 Price 2014
GBP Options GBP Options
------------------- ----------- ----------- ------------ -------------
Outstanding at
the beginning of
the period 0.0001 6,729,559 0.0001 5,529,157
Granted during
the period 0.0001 6,243,422 0.0001 4,066,993
Forfeited during
the period 0.0001 (22,970) 0.0001 (20,000)
Exercised during
the period 0.0001 (944,706) 0.0001 (2,846,591)
Outstanding at
the end of the
period 0.0001 12,005,305 0.0001 6,729,559
------------------- ----------- ----------- ------------ -------------
Exercisable at
the end of the
period 0.0001 3,558,299 0.0001 674,800
------------------- ----------- ----------- ------------ -------------
The LTIP options outstanding at the end of the period had an exercise price of GBP0.0001 and a weighted average remaining contractual life of 8.5 years (31 December 2014: 8.8 years). The weighted average share price of LTIP options exercised in the period based on the date of exercise was GBP4.49 (31 December 2014: GBP4.33).
During the period, 4,737,050 additional options were granted to holders of LTIP options previously granted as a result of the Rights Offering (Note 7).
Assumptions used in ESOS and LTIP options pricing model
The fair value of options granted under the ESOS was determined using the Black-Scholes pricing model that takes into account factors specific to this plan, such as the expected life and vesting period. The following table shows the principal assumptions used in the valuation:
Six months Year ended
ended 31 December
30 June 2014
2015
----------------------------- -----------
Weighted average exercise GBP3.35 GBP3.35
price
Expected volatility 40.0% 40.0%
Expected life 3.25 years 3.25 years
Risk free interest rate 0.92% 0.92%
Dividend yield 0% 0%
Weighted average fair value GBP1.00 GBP1.00
per option granted
The fair value of the "special" options granted under the LTIP was determined using a bespoke Monte Carlo pricing model that takes into account the market-based performance conditions specific to this plan. The following table shows the principal assumptions used in the valuation:
Six months Year ended
ended 31 December
30 June 2014
2015
----------------------------- ----------- -------------
Weighted average exercise GBP0.00 GBP0.00
price
Expected volatility 41.9% 41.9%
Expected life 2.31 years 2.31 years
Risk free interest rate 1.20% 1.20%
Dividend yield 0% 0%
Weighted average fair value GBP3.49 GBP3.49
per option granted
Expected volatility was determined by calculating the historical volatility of the Company's share price from the time of issue to the date of grant.
Due to the nominal exercise price of the LTIP options and that option holders are entitled to receive a benefit by reference to the value of dividends that would have been paid on vested shares during the vesting period, the regular options granted under the 2014 LTIP were valued based on the share price at the date of grant.
14. RESTRUCTURING COSTS
The Group incurred certain restructuring costs relating the reorganisation of its cost structure. Severance was paid to employees as a result of operational changes to the Group's business in order to streamline operations and remain competitive in challenging markets. Additional restructuring costs were incurred in the period for specific persons hired to reorganise the business and various professional fees relating to the anticipated acquisition described in Note 17.
The Group incurred the following costs:
Six months
ended
30 June
2015
$
-----------
Severance and retention payments 1,144,557
Professional fees 2,989,256
4,133,813
===========
15. ADJUSTED EBITDA
Adjusted EBITDA is defined as results of operating activities before depreciation and amortisation and exceptional non-recurring items which are defined as items of income and expense of such size, nature or incidence, that in the view of management their disclosure is relevant to explain the performance of the Group for the period.
Adjusted EBITDA is not a financial measure calculated in accordance with IFRS as adopted by the EU. The presentation on these financial measures may not be comparable to similarly titled measures reported by other companies due to the differences in the ways the measures are calculated.
Six months Six months
ended ended
30 June 2015 30 June
2014
$ $
-------------- -----------
Profit before provision for income taxes 4,592,140 27,522,891
Depreciation and amortisation 14,784,369 7,269,757
Finance costs 2,691,125 9,036
Share option expense (Note 13) 7,094,621 2,756,833
Foreign exchange loss / (gain) 5,788,670 (94,502)
Loss on disposal of assets - 6,632
Acquisition costs 12,377,267 1,521,355
Restructuring costs (Note 14) 4,133,813 -
Net fair value gain on share
consideration payable (1,610,000) -
Adjusted EBITDA 49,852,005 38,992,002
============== ===========
16. BUSINESS ACQUISITION
On 22 May 2015, the Group acquired 100% of the shares of FANS Entertainment Inc. ("FANS"), a Montreal-based mobile platform developer founded in 2011, for a consideration of CAD$16 million (approx. US$13 million), payable to the vendors by issuing shares in a subsidiary of Optimal Payments (the "Consideration Shares") which are exchangeable on a one-for-one basis into shares of Optimal Payments over the next three years, a portion of which are subject to the satisfaction of certain financial performance criteria. The total number of Consideration Shares issued to the vendors was 3,163,633.
The FANS Platform is a fully-integrated solution which helps venues and content providers engage their fans while monetising these services. It is a white-label, multi-level mobile wallet system including a management software and analytics suite, as well as operational and public apps. It can identify users based on mobile behaviour, providing invaluable consumption metrics.
FANS provides the Group with a proven technology platform and an experienced management team that will remain in place. FANS has leading clients in the sports and entertainment sectors in Canada and other high-profile venues and events. The acquisition further strengthens Optimal Payments' position in the mobile sector of the online payments industry and also provides an entry point into the events market.
Consideration
The purchase price allocation was determined using the information available, evaluations obtained and fair value assessments performed by the Group's management. The following table summarises the consideration paid for FANS and the fair value of the assets acquired and liabilities assumed recognised at the acquisition date.
$
------------
Cash consideration -
Fair value of Deferred consideration
at acquisition date(a) 8,598,000
Fair value of Contingent consideration
at acquisition date(a) 2,084,000
------------
Total estimated purchase price 10,682,000
------------
Trade and other receivables 669,980
Cash and cash equivalents 278,477
Prepaid expenses and deposits 14,117
Property, plant & equipment
(Note 4) 69,965
Trade and other payables (313,477)
Amounts payable to a company
under common control (b) (1,112,352)
Finite-life intangible assets
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