Neteller Share Discussion Threads

[baghdad bomber] 17/9/2007 08:26

That makes sense - apparently he tried to grab some when they were suspended.

You seem very well tuned in Richardsj - sounds like you're in the hedge business.

[richardsj] 17/9/2007 08:24

BID ANNOUNCEMENT IMMINENT.

[richardsj] 16/9/2007 13:04

The word is that D Desmond is going to take a tilt.

[tipsytoad] 15/9/2007 17:21

10sept sky news reported
888 in takeover talks with 2 smaller companies

could nlr be one of them?

[richardsj] 15/9/2007 17:07

Baghdad - if these babies dont announce an approach by the end of the month I'm a chocolate teapot...
The approach is an open 'secret' in certain quarters of the City and 130p seems to be the level. Its a matter of waiting for a forced announcement....

[baghdad bomber] 15/9/2007 10:47

FWIW I think a bid is imminent and I suspect its PRTY. Mitch Garber has made it no secret that he thinks NLR will be taken over this year and is very familiar with the management I am told.

[richardsj] 14/9/2007 18:05

130p next week. BID.

[dan1man] 14/9/2007 17:26

Don't think its obvious there is a bid coming. What is obvious is if you have an undervalued stock, the price will go up.

Probably need to bear in mind that the last time we hit £1 it was not long after the share price had been hovvering at just over 60p. Would have been quite sensible for a lot a selling at that level as people realised gains of 50%+

Now we can get back on the track towards fair value again.

[richardsj] 14/9/2007 16:54

BID IMMINENT. OBVIOUS.

[davidlloyd] 14/9/2007 16:38

very strong finish to the week given overall sentiment.

DL

[richardsj] 14/9/2007 12:49

Interesting.......market down 140pts these in the blue.
If that isnt the next big clue to an imminent bid I don't know what is!

[richardsj] 14/9/2007 11:33

And the buyers there again at 90p.

[maestro4] 13/9/2007 16:17

osaka/binary

please give us a insight on why you think nlr will be at 30p.

your are embarrasing yourself. you haven't been to the rpl board yet.

[richardsj] 13/9/2007 13:43

130p seems a fair level.

[moormoney] 13/9/2007 13:25

Rumours of a bid have been going round for a couple of weeks now---look back on this thread. If so I hope it's much higher than todays price.

[richardsj] 13/9/2007 13:05

There is a determined buyer of these at 90p - been there for the past 4 days now and must have soaked up nearly 2m shares..........not the company so an institution or predator or 'someone in the know?'

[mlangton1] 11/9/2007 10:16

Well thats the morning tree shake out of the way.

[stewjames] 08/9/2007 21:40

ANDREW MIDLER: You make mention in the release that you've restructured the operation down to 425 employees. Can you give us a sense of the going forward level of operating expenses below the gross profit line?

RON MARTIN: I'll let Doug take a stab at that; then I'll add to it if I can.

DOUG TERRY: The quarter two results are quite reflective of what we're going to see going forward in terms of operational expense. So I believe the quarter two results are released, and I think that that's a good starting point.

ANDREW MIDLER: Maybe I missed something. In the release you put in the first-half results. Did I miss the second-quarter results being broken out?

ANDREW GILCHRIST, VP COMMUNICATIONS, NETELLER: The back page of the results contains the additional financial information, which includes the quarter two analysis.

Anyone with these quarter 2 results able to say what the operating expenses were?

[catandcrow] 08/9/2007 21:22

Interim 2007 NETELLER plc Earnings Conference Call - Final

8,237 words
23 August 2007
Voxant FD (FAIR DISCLOSURE) WIRE
English
© Voxant Inc. All rights reserved.

OPERATOR: Thank you for standing by, and welcome to the NETELLER interim results conference call. (OPERATOR INSTRUCTIONS). I must advise you the conference is being recorded today, Thursday the 23rd of August, 2007. I would now like to hand the conference over to your speaker today, Mr. Ron Martin.

RON MARTIN, PRESIDENT AND CEO, NETELLER: Thank you. Good afternoon or morning, and welcome to NETELLER's H1 investor update. I'm Ron Martin, President and CEO of NETELLER, and I'm joined by Doug Terry, NETELLER's new CFO, and Andrew Gilchrist, VP Communications. I'm very pleased to be able to resume these conference calls as we aim to continue our open and transparent approach to communication with the investment community.

NETELLER's performance across business and financial metrics in the first half of 2007 has clearly been impacted by the developments in the US and our recently announced resolution of the US authorities' investigation into US business activities. Given that, we are pleased with the performance we have achieved in the first half, and in particular the growth we are seeing in our target markets of Europe and Asia Pacific.

We issued a rather detailed report this morning, and rather than repeat the entire content in this call, I will instead provide a brief overview of the half year, followed by Doug, who will focus on the financial results. I will then conclude with some comments on our plans for the second half of the year. We will then open it up for questions you may have.

The first six months of 2007 represented a challenging period for NETELLER -- the NETELLER Group, during which the efforts and focus of management were split between achieving a resolution to the Company's US situation, while working to ensure the Group's ongoing business outside North America continued to develop in line with our strategic objectives.

The resolution with US authorities announced on 18th July 2007 allowed the Company to close that chapter and refocus the Group's energy on the growing markets of Europe and Asia Pacific. The second-quarter figures released today are the first set of results without significant residual North American generated revenue. The Group voluntarily ceased processing funds transfers between US residents and online gaming sites on 18th January 2007. Further, during the first half, the Group has ceased processing online gaming-related transfers for customers resident in Canada, Turkey and Israel.

Despite this, our business ex-North America has grown substantially in the first half of 2007 compared with the same period in 2006. At 30th June 2007, we had 97,216 active customers from Europe, Asia, Asia Pacific and the rest of the world, which represents an increase of 29% from the 75,381 active customers as at 30th June 2006, on a like-for-like basis. Active customers are the key driver of our revenue. And just to define that for everyone, an active customer is a customer whose e-wallet account balance has changed during the quarter. We have, therefore, significantly increased the transparency of our reporting with the addition of active member analysis by region and regional revenue reporting. This supplements our existing already extensive reporting. We hope to be able to provide in the future further detailed breakdowns of this metric.

In terms of other business KPIs, total customer receipts for the first half-year 2007 were 152 million, up 92%. Average daily receipts, 1 million, down 79%, principally due to the withdrawal from the North American market during the first quarter. Average daily signups at 1364 declined 58% from the 3251 in H1 2006. Total signed up customers at the end of June '07 were 3.75 million, or 815,910 excluding North American customers. In Q2 2007, 937 new customers per day signed up for the Group's e-wallet.

Let me provide you with just a quick snapshot of the financial KPIs of the business. Revenue for the first half of 2007 was 50.8 million, down 57% over the same period in '06. This is due to the withdrawal from the US market. European revenue in H1 grew 46% to 21.2 million. Asia Pacific grew 46% to 5.4 million.

Gross margins were 55% versus 72% for the first half-year '06. We recorded a loss before tax of 24.7 million due to US restructuring and legal related expenses, compared to a profit before tax of 58 million in H1 2006. Loss per share for the first half of '07 was 0.20 compared with a diluted EPS of 0.46 for the prior-year period.

The second quarter is traditionally weaker than the first quarter, principally due to the seasonal nature of the online gaming market, which NETELLER serves. However, the Board believes the extent of the decline experienced in the second quarter of 2007 is more pronounced than usual as a result of several factors, including the Company's US situation, which prevailed throughout the quarter. This is likely to have had an impact on our business and customers outside of North America. Also, certain merchants have reported their business declined in the second quarter relative to the same quarter in 2006.

The net cash of the Group at 30 June 2007 was 210.5 million, which is before the 136 million due to US authorities. As part of the US resolution, the Group has implemented a distribution plan to return approximately 94 million of funds owed to US customers. To date, over 72 million of these funds have been requested and is currently in the process of being repaid or has already been repaid to our US customers. This achievement is a great credit to our employees.

That's a snapshot of the key numbers, and Doug will spend some more time on some aspects of those numbers. I just want to summarize where we see the business going now that we have put the US situation behind us.

Our vision over the next three years is to provide innovative payment solutions to e-commerce communities. These results represent the first stage of rebuilding the business into a platform for growth within the European and Asia Pacific markets. We are energetically implementing our strategy to develop further innovative payment solutions for our customers and merchants within our selected markets for the remainder of 2007 and beyond, and to restore the Group's preeminence in providing payment services for the online gaming sector outside of North America, through continued investment in product solutions and technology development.

We will initially focus on our core market of online gaming, where we have developed considerable expertise. In the medium-term, however, we will look at further offerings for our customers that add value to the e-wallet proposition, such as payment cards and other payment features. We believe online payment is a rapidly growing market, and NETELLER is well positioned to benefit from this, and we are confident about the Group's prospects for the next six months and beyond.

I'm going to now hand it over to Doug, who will spend some time on an overview of the financials.

DOUG TERRY, CFO, NETELLER: Thanks, Ron. Good afternoon or good morning. This morning we released our half-year results, and I'd just like to take some time to go through the various figures.

As Ron has indicated, active member stats have become one of the most important performance indicators. To properly reflect on the business in the first half of 2007, we must look at the relative growth in areas of our ongoing operations outside of North America.

In the second quarter of 2007 we had about 97,000 active customers, which is off 29% from the same period in 2006, where we had approximately 75,000 active customers. European actives are up 33%, while Asia is up 13% over last year.

Revenue in the first half of the year of 51 million reflects a significant decline from 2006, resulting from withdrawal from the North American market. Our pre-interest revenue of approximately 43 million reflects or includes 21.2 million from Europe and 5.4 million from Asia. Revenues in these regions are both up by 46% over last year, which is very encouraging in light of the Group's continued focus to expand in Europe and Asia.

Included in the revenue figure for the first half of 2007 is 14.9 million in North American revenues, which is now discontinued. Revenue split in the second quarter, which was post-North American withdrawal, was 44% from our merchants, 9% from NetBanx, 5% from customers, 19% from foreign exchange fees, and 24% from interest revenue.

Due to recent events and the resulting significant change in market focus, gross margin has decreased to 55%. The Group's contact center operations are based in Canada, where during the first half of 2007, direct costs have been exposed to the strengthening Canadian dollar by over 9% against the US reported currency. This has contributed to a higher cost of labor, which has become the major component of direct costs.

Deposit and withdrawal fees have increased to 11% in 2007, which reflects the increasing use of deposit and withdrawal options in Europe, where banking solutions are significantly more expensive than the traditional EFTs seen in North America.

Bad debts and collections were 6.9 million in the first half of 2007, which primarily relate to the first half of January prior to the US withdrawal, and the subsequent write-down of remaining North American customer receivables. Bad debt expense is anticipated to decline as a percent of revenue during the remainder of the year.

As previously announced, the Group has substantially completed the necessary reorganization and restructuring of its operations to reduce its headcount and align the related costs with anticipated revenues of its worldwide business. Following these staff reductions, which were principally in Calgary but also in the UK, the Group continues to employ approximately 425 staff across its European, Americas and Asia Pacific operations.

During the first half of 2007, the Group completed a comprehensive $13 million write-down of all assets directly relating to the North American facing business. Assets written down included computer software, Web site development, computer hardware and software licenses. Related reorganization and restructuring costs of 2.7 million were also incurred during this period. 9 million in professional and legal fees were incurred in the resolution of the US situation, and an additional 10 to 15 million of legal and professional fees are expected to be incurred in the remainder of the year. Cash flow from operations during the first half was broadly neutral.

Although the Group withstood a tremendous hit on financial resources during the North American withdrawal process, we still have a healthy balance sheet. At June 30, we had a net cash position of 210.5 million, consisting of 137 million in cash and 73.5 million in excess funds held in trust with the Group's bankers against customer and merchant liabilities.

Total cash under management at June 30 was 419 million. The 136 million forfeiture to the USAO will be paid from the Group's net cash position. As part of the US resolution, the Group recently implemented the distribution plan to return approximately 94 million of funds owed to US customers, and to date, has repaid 73 million of that amount. This amount will not impact the Group's net cash position, as all customer funds in trust are not classified as cash.

In February of 2007, the Group purchased the building in Calgary, where its principal operations are based, for a cost of 20 million, which was augmented approximately -- sorry -- which augmented approximately 12 million in improvements the Company had capitalized in 2006.

As part of the resolution with the US authorities in July 2007, the Company agreed to forfeit a total of 136 million to the US authorities. This amount included up to 60 million which was seized by the US authorities and which shall be applied to satisfy a portion of the NETELLER forfeiture obligation. NETELLER agreed that it will pay a further amount of 40 million on or before October 15, with the remaining balance to be paid in January of 2008.

The Group has weathered a very challenging period, and has successfully stabilized the business to provide a solid foundation for future growth and continued globalization. As many of these challenging events are behind us, the Group is excited about redirecting focus to its prospects and delivering strong results in future. I will now turn the call back to Ron Martin.

RON MARTIN: Thanks, Doug. Before I turn to your questions, I wanted to make a statement in advance with regard to the Deferred Prosecution Agreement which the Company agreed with US authorities on 18 July 2007.

The DPA represents a resolution of the US Attorney's Office investigation into the Company. Pursuant to the DPA, the Company has consented to the filing of criminal information relating to transactions between Internet gaming merchants and persons located in the United States. The settlement takes the form of a two-year DPA with the US Attorney's Office. In the DPA, NETELLER has consented to the filing with the United States District Court for the Southern District of New York of a criminal information charging NETELLER with participating in a conspiracy in violation of certain US laws. If NETELLER fulfills its obligations under the DPA, the criminal information will be dismissed following the two-year term. The Company has also agreed to forfeit 136 million, and a number of further conditions, which we have previously set out in our press releases.

This agreement revolves the US Attorney's Office investigation relating to the Company's former US business activities. We strongly believe that the settlement is in the best interest of NETELLER and its shareholders. Copies of the DPA are available on the Company's Web site in full. We cannot comment further than we have publicly stated in our press release and our annual report regarding the DPA.

Let me preempt one question that we expect. In terms of our available cash on the balance sheet and how we will employ it, NETELLER continues to view the best use of this cash to be strategic acquisitions that facilitate the strategy of the Company. However, the Board of Directors continually reviews other alternatives, such as additional share buybacks and/or a dividend policy, that are in the best interest of shareholders and the long-term health of the Company.

Finally, I would like to repeat a statement made by Dale Johnson, our Chairman, at the Company's AGM held on Monday.

"I am grateful for the support and patience of our stakeholders since January 2007 while we have worked to resolve our situation, and I am confident that NETELLER will continue to provide the services and products that our customers and merchants have come to expect. I assure you that the Board understands and appreciates the adverse impacts experienced by our shareholders, employees and other stakeholders as a result of the unexpected events earlier this year."

I will now open it up for questions.

OPERATOR: (OPERATOR INSTRUCTIONS). Andrew Midler, Standard Pacific.

ANDREW MIDLER, ANALYST, STANDARD PACIFIC: A couple of questions. In the release you talk about a 10 to 15 million of additional legal expenses in the second half. Could you explain a little bit more what that is for, given that the consent decree has been completed? Second, there's a couple lines towards the bottom about sale of a couple of physical assets in Canada, which amount to a little over 40 million. Are those free and clear, and should we add 40 million to the cash because of that? And the third question, you talk in the release a little bit about that the restructuring has taken place in terms of people. Can you talk a little bit about the run rate going forward for operating expenses, the expense level below the gross profit line?

RON MARTIN: I'll take part of that and then ask Doug to address it. In terms of the legal expenses, part of that is these are, obviously, statements ending July 30th -- excuse me -- June 30th '07, and we have substantial expenses still relating to resolution that run into July. We also have ongoing expenses relating to the cooperation effort that is required under the DPA that will also consume dollars as we roll forward, hopefully most of which will be completed in '07, which may fall into '08 as well.

The second part of your question around the building -- we're a little -- we're trying to find where it is. You're referring to the letter of intent, aren't you?

ANDREW MIDLER: Yes. The property (inaudible) I think there's a list of two. One for 39 and one for 4, I think it was.

RON MARTIN: The two assets that we have in Calgary, one of which is under contract for sale, and one that we have a letter of intent in regard to.

ANDREW MIDLER: Did I read that right? So you sell the two properties (inaudible) (technical difficulty) are there mortgages against the property, or should we add the transaction (multiple speakers)

RON MARTIN: They are assets that are free and clear.

ANDREW MIDLER: So the assets are sold and we should add -- everything else being equal adds 42, 43 million to the cash balance.

RON MARTIN: That's correct, although we would have an increase in operational -- some operational expenses as we would replace some of that with a lease expense.

ANDREW MIDLER: Okay.

RON MARTIN: Can you repeat your final question? I'm sorry.

ANDREW MIDLER: You make mention in the release that you've restructured the operation down to 425 employees. Can you give us a sense of the going forward level of operating expenses below the gross profit line?

RON MARTIN: I'll let Doug take a stab at that; then I'll add to it if I can.

DOUG TERRY: The quarter two results are quite reflective of what we're going to see going forward in terms of operational expense. So I believe the quarter two results are released, and I think that that's a good starting point.

ANDREW MIDLER: Maybe I missed something. In the release you put in the first-half results. Did I miss the second-quarter results being broken out?

ANDREW GILCHRIST, VP COMMUNICATIONS, NETELLER: The back page of the results contains the additional financial information, which includes the quarter two analysis.

ANDREW MIDLER: Thank you.

OPERATOR: Fred Woollard, Samuel Terry Asset.

FRED WOOLLARD, ANALYST, SAMUEL TERRY ASSET: I've got a couple of questions. The first is, do you guys have some sort of feel for market share between yourselves and your various competitors? I'm really trying to get a feel for whether that's gained or been lost with all the American problems that you've had in the last six to 12 months. I'm also interested as to why the percentage of restricted cash went up so much in the last six months?

RON MARTIN: Let me take the -- the market share question is a good one, but one that is very difficult for us to be very confident that we are on the mark with. I certainly believe we have not lost share to our competitors in Europe and Asia over the prevailing six months. I think our growth rates are an indication of that, and benefiting from the substantial investment we made in '06 in localizing our products into a half-dozen European and other markets that enabled us to expand our offering in ways that we didn't have in the past. So whether we gained share substantially or not, I think, is also a question mark on the other side. We certainly intend to -- as we pursue the strategy that I've articulated here, we certainly intend to go after not only the growth rate of the business, of the industry, but also share from our competitors as we bring, I think, our considerable expertise to focus on European and Asia Pacific markets. But more specific than that is very difficult to determine. You want to address the --?

DOUG TERRY: Could you repeat the second half of that question?

FRED WOOLLARD: The other question was about the restricted cash. The percentage of restricted cash as a percentage of the total amount owed to customers and merchants has increased during the half. What's the reason for that?

DOUG TERRY: That's right. Back when the UIGA Bill was passed, some of our banking partners requested us to move our US dollars to other institutions. So we had other banking partners who were able to do this. But the sophistication of the investment opportunities at the newer institution wasn't at the level of the previous one. So unfortunately, we had to move a lot of those funds into the trust accounts where we maximized on interest income. This excess and restricted cash in excess of surplus of qualifying liquid assets, that has been reduced subsequent to June 30th, and back into a level that we're comfortable with in terms of 5 to 10% in [buffers], which is required under FSA and FSE. So the total cash position that should be looked at is the 210.5 million at June 30th, which reflects the cash available to the Group.

FRED WOOLLARD: My final question for you is do you see -- obviously, don't tell us who they are, but are there opportunities for you to buy distressed or weak competitors to add to your market share and competitive position, acquisition targets?

RON MARTIN: I think I would broaden the answer to that question to include other opportunities we see in terms of specific products and services that we may want to add regionally or by market. But, yes; I would agree. I think the investment that we made in [Centercom] that you saw recently is an indication that we are looking to enhance our solutions in a joint venture or acquisition or partnering approach that will allow us to improve our solution more rapidly than solely internal development, and look at that on a global basis. So I think you can expect to see more of that as we find opportunities that fit the criteria.

OPERATOR: (OPERATOR INSTRUCTIONS). Andrew Midler, Standard Pacific.

ANDREW MIDLER: Just a couple of follow-ups. In terms of the -- the gross margin in the first half was closer to 55%. Given the mix of business, has that sort of ranged the way we should think about it going forward? And the second question, in regard to the bank, NetBanx, could you talk a little bit about your plans with NetBanx and the opportunities there to grow it? Is that sort of a focal point, or how should we think about that? Because it, obviously, remains rather small.

RON MARTIN: In terms of the gross margin question, we see opportunities to improve the 55% that we just reported, principally in improved efficiencies in our contact center. We are looking at a very specific segmentation model that, I think, will get us better and better at providing the services to the members who are driving the revenue, or are the potential to drive the revenue. That's taking our VIP modeling and taking it down much deeper into a better understanding of who our active customers are. And in our materials that we talked about we would start to share some of that when we thought it was appropriate because it will improve, I think, the modeling that investors can do with the business as well.

The other area that, I think, is an opportunity to get better there is our infrastructure costs. While people can come out quite quickly, infrastructure takes some time to wind down. We have a substantial number of boxes in our data center in Calgary, for instance, that are no longer required. And as we can unwind those boxes, we can see significant savings. So I think there are opportunities to get better there as time rolls on. And certainly, Doug and his team, and really the whole entire management focus will be in seeing what we can do to improve those areas.

The second part around NetBanx; you're right. NetBanx we haven't talked a lot about in the past. Several things are different, I think. One, just on a practical level, it's obviously a more material part of the group, and so should get more attention. But we see a real opportunity with NetBanx. It's been put under new leadership since last year in the form of David Gagie, who has some very aggressive plans to expand NetBanx's PSP business on its own. But the strategic value we see with NETELLER -- excuse me -- with NetBanx and NETELLER has got several dimensions to it.

One, we see an opportunity for NetBanx to become the payment hub for the wallet, where we can leverage more efficiency and expertise at NetBanx and allow the wallet business to focus on innovation and bringing solutions to merchants that enhance our competitiveness in the merchant sector. So specialization between the two companies in which NetBanx plays a strategic role for NETELLER is one that we have very much in our plans for early '08.

And in the opposite way, NetBanx is rapidly expanding its number of merchants its servicing; its winning some interesting business. There is an interest by, obviously, NetBanx, but also its merchants, to embed the NETELLER wallet as a part of the offering of the NetBanx payment platform, so that we will begin to cross-sell the wallet into merchants who may wish to use it as a payment mark on their online sites. So the short answer is yes; I think there is a more strategic use of NetBanx, and an opportunity to expand the synergies between the two companies.

OPERATOR: Jonathan Comerford, IIU.

JONATHAN COMERFORD, ANALYST, IIU: I'm just wondering about -- I noticed in the annual report the write-off of the Macau business. I'm just wondering what actually happened there. And probably the second element is that I noticed the note on the litigation. Can you comment on what is actually happening on the litigation, what the potential liability is?

DOUG TERRY: In terms of the Macau operation, under IFRS and accounting principles, we're required to test for impairment once per year. When we tested for impairment at the end of 2006, impairment cash flows were nowhere close to where they were originally estimated. And our auditors confirmed that it was the correct treatment to write that asset down to its recoverable value, which is zero.

JONATHAN COMERFORD: So we only paid them an earn-out in January of this year, so the earn-out -- but we still wrote off the entire business, [didn't] we?

DOUG TERRY: We wrote off the intangible piece. And the payout, the remaining piece to be paid out to the vendors was a completely separate component of that deal. And they have met the conditions necessary for that last payment to be made.

JONATHAN COMERFORD: But what actually happened to the business if we're writing it off?

RON MARTIN: It's kind of not the clearest way to explain this, but principally, as you may know, you may saw, we re-released a platform, a Chinese platform to face the market. And thus, the portions that we wrote off reflected the platform that came with the deal, or the majority of what we wrote off was some of the platform that came with the original acquisition that we found wasn't up to the capability that we wanted, and thus we released the platform under a NETELLER development.

The litigation that you referred to, Jonathan, while we can't go into specifics, is with a vendor. It's at early stages; we just felt we needed to get it onto the statements. It may develop. But just because of our new materiality realities, you're seeing it there; you wouldn't have seen it there last year.

JONATHAN COMERFORD: Is it material, do you think?

RON MARTIN: Well, you know the rules here; there's the potential that it could involve above our materiality level at today, and felt we needed to disclose it. I'm not unduly concerned about it, however.

JONATHAN COMERFORD: Finally, the new acquisition we did; I can't see much details as to what kind of percentage we got of the company. Can you give any more light on that?

RON MARTIN: It is in the materials we released today. We acquired a 25% stake in the company.

OPERATOR: [Hamil Leval], Millennium Investment.

HAMIL LEVAL, ANALYST, MILLENNIUM INVESTMENT: In light of the bankruptcy filing from cash manager Sentinel in Chicago, can you clarify exactly where your cash is held, the credit rating of the institutions, and the types of securities that they would be allowed to invest in? Is it just treasury bills? (inaudible) looking to maximize the interest, and it sounds like you're probably taking on some credit risk. And in that case, are your AAAs backed by sub-prime mortgages?

DOUG TERRY: That's a very good question. Our trust accounts are held in a European bank, a very large European bank. Any kind of investment we have is very short-term cash investments, fixed deposits for one week. There's no mortgage-backed securities. There's no liens or encumbrances on any of the cash that we have invested.

HAMIL LEVAL: Right. Can you say which European bank it is?

RON MARTIN: No.

ANDREW GILCHRIST: All we could say to that is it's a tier 1 bank within Europe.

OPERATOR: (OPERATOR INSTRUCTIONS). Fred Woollard, Samuel Terry Asset.

FRED WOOLLARD: I've got a couple of questions. The first is, can you talk me through what caused the departure from the Canadian market, and whether or not there's some risk of Canadians becoming seriously (inaudible) (technical difficulty) Calgary or something as the Americans might have done? And also, is there any market potential for the Company in Latin America? I've heard people talk about the Brazilians getting excited about online gaming.

RON MARTIN: Let me do that. In regards to the Canadian question, first of all, we ceased processing online gaming-related transactions and suspended our instaCASH service for Canadian resident customers. However, Canadian resident customers can continue to use their e-wallet for non-gambling-related transactions. So I just want to -- we do still service the Canadian market, just not the online gaming-related aspects of it.

Our decision to withdraw from Canada was made after careful consideration, and was intended to ensure that our activities in that market did not present unnecessary risk to the overall operation. So the decision was based on a number of recent actions taken by other payment processors, merchants and regulators, and just the increased uncertainty around online gaming in general due to the US environment. Payment processors FirePay, Citadel all ceased processing for Canadian customers. And based on our analysis, we followed suit.

I think the overarching issue there, in addition to that, was that any action -- as potentially remote as it may have been, any action taken against the Canadian business, where we had substantial assets and employees, would have had a very detrimental effect on our ability to service the rest of world, and just felt that -- the Board felt that the right decision was to withdraw from the market; not an easy decision, but one that, we felt, we needed to make.

As it relates to other markets in your question, Latin America, we are continuing to look at markets around the world, obviously, for many factors that we take a look at as we seek to enter some of these markets. We see Latin America as a tremendous opportunity. I think many of the merchants do. And we are exploring, and we have some limited offerings in that part of the world. It's not on our initial focus of the Asian and European markets. But nevertheless, it is on the radar screen, and we will continue to review what opportunities we see there.

I would add that there's something that is kind of a related point. There's something that's been a little bit overlooked, or perhaps overlooked, is that the agreement we have with the US authorities does not prohibit NETELLER from reentering the US market -- clearly, not to offer online gaming payment services, or legal online gaming payment services. But we see opportunities to reenter the US market on our broader diversification efforts. And we'll be talking more about that as we explore our options.

OPERATOR: Andrew Midler, Standard Pacific.

ANDREW MIDLER: Ron, just a broader question. The focus the last few years has, obviously, been almost solely on the online gaming market because of the size of the opportunity. Talk a little bit, if you would, sort of strategy-wise, about the focus and the corporate development strategy going forward. Where will you be putting the dollars? What do you think the business mix looks like in sort of a three-year period? How much gaming versus sort of just a more broad-based e-wallet? Where are the development dollars going, the acquisitions or strategic dollars?

RON MARTIN: Let me do my best there. The second part we are still -- I am committed to putting some goals out there for the organization in terms of -- that we can share with the market on our goals around diversification. Today 10% of our revenues are non-gaming, and we certainly see aggressively changing that over the next couple years.

I should say that will not be -- for good reasons, that will not be the simplest task, because we see the online gaming part of our business continuing to grow quite rapidly as well. So to diversify the business means we need to develop other parts of it quite rapidly, and we will be working to do so. And we'll come back very likely in the September timeframe with some specific objectives that you can track our progress on as we report over the next subsequent quarters.

The initial focus here, in terms of our investment of our IT and product teams and, potentially, additional acquisitions, is really on -- we believe it's substantial low-hanging fruit, or mid-hanging fruit, on improving our service to the i-gaming space, particularly in Europe, where NETELLER has a (inaudible) of experience in providing KYC and significant IVS capabilities, identity verification services, that allow us to provide a very comprehensive solution for merchants, including higher limits, including instant-in and instant-out. One of our major releases coming up in the next little while will be what we call a top-up feature, which will allow a direct accept-like experience for selected European markets.

So initially -- long-winded answer -- but initially the focus is putting our product, the development expertise and platform toward improving our product in these markets, and believe that there is substantial share we can pick up in so doing that.

Acquisitions -- for example, the Centercom, acquisition is really dual-use, in the sense that it provides -- in that case provides additional methods to fund the wallet. We've been using POLi in Australia quite successfully for some time now. Looking -- that also facilitates broad wallet use as we use -- utilize the wallet in different directions with additional ways to experience the wallet other than just transferring to and from gaming operations. So we'll see more dual-use acquisitions, I think, as we look at just improving our functionality and (technical difficulty) market or a particular vertical.

OPERATOR: (OPERATOR INSTRUCTIONS). Fred Woollard, Samuel Terry Asset.

FRED WOOLLARD: A couple of quick final questions. First, I can see NETELLER's advantage in the online gaming space. You've got, frankly, a pretty compelling product there. Going in the non-gaming area, you're up against people like PayPal. What competitive advantages to merchants or to customers does NETELLER have over -- well, most obviously, PayPal is the market leader in online payment systems. Secondly, going back to the accounts. In the second quarter you're showing SG&A expense of, I think, about $7.5 million. Back in the old -- looking back a couple of years, looking back at 2004, when revenues were $82 million, G&A expense was only $9.2 million. Even the following year, '05, when revenues were 172 million, we managed to (technical difficulty) general and admin expense of only $21 million. Is there scope for significant reduction in the G&A from the second-quarter level? Those two questions are my final ones today.

RON MARTIN: I'm sorry; I'm obviously a little tired. What was the first one?

FRED WOOLLARD: First one was NETELLER versus PayPal.

RON MARTIN: Thank you. It's a fair question. And I think we need to be pretty specific on what we're talking about here. Initially, in addition to, obviously, the primary focus, which Doug articulated, of the next six 12 months will be almost a complete effort on online gaming. So we're certainly not straying very far from our backyard here. However, there are initial diversification efforts that, I think, also can benefit our service to the online gaming space, but also start to treat the wallet in a more multidimensional way in the minds of our consumers, in the minds of our customers. Bear in mind that most of the requests and most of the product initiatives have come from strong member requests in order to use their wallet this way.

So let me talk about some of the initial things that will becoming out in late '07, early '08, and that is really around a card strategy that will attach to the wallet credit, debit and virtual card capability, so that you, as a user of the NETELLER wallet, can purchase online and off-line credit and debit and have it be withdrawn from the wallet directly.

You can also provide -- we are also providing travel cards that will be attached to the wallet, and provide you the ability to send cards to relatives or what have you, in order to withdraw set amounts or pre-loaded cards that you can transfer to from your wallet. So we see these cards -- and maybe most importantly, the virtual card allows you to purchase online, having generated a onetime use credit card that allows you to purchase wherever a credit card is accepted, and yet have that experience be rather anonymous at the merchants, so that your credit card details are not resident with the merchant, and they're safely contained within the NETELLER wallet environment.

So we see substantial opportunity for those programs. They benefit the online gaming space in that anytime you make withdrawal mechanisms more effective for consumers, you improve their desire to use the wallet in the first place. Because getting money out is, obviously, as important as getting money in. It also allows us to have a relationship with the consumer that is evolved into a more broad use of the wallet, and generate revenues as such. And I think we'll be able to offer the economics we've looked at. We'll be able to offer these products very competitively in the marketplace because of our low cost of acquisition of the consumer, and the fact that we see this as incremental revenue, not the prime revenue source from the consumer, at least initially.

I think the point I'll take as you go further out into focusing on new merchant verticals, if you like, PayPal has taken -- is taking, and very successfully taking, a very broad approach, where most sectors get the same product offering, NETELLER would take a very deep best total solution approach. So we would not seek to be dominant or try and conquer the world in terms of different types of businesses. We would focus on certain verticals that, we believe, we can bring a complete solution to, and thus generate some traction in that vertical. And we've been talking about this for some time, and we've had some early conversations. We've been sidetracked for the last -- for some of the last quarter on other issues. We are now returning to this opportunity, and we'll be conducting some tests over the next six to eight months on verticals that, we think, may be a ripe area for us to bring those kind of services to bear.

So if that answers your question, I would look at it that way. Very much a -- what have we got to do to make sure that we are dominant in gaming in our selected markets, but how can we improve the flexibility and the versatility of the wallet so that consumers (A) want to choose the wallet to begin with (2) stay longer, and (3) use it in ways that generates additional fees for us.

We ultimately see and we'll be releasing some information at the end of this year on a whole card branding program that we've kept under wraps fairly tightly for some time that will be ready for prime time in and around the new year that will have a bank using our program on our facilities to provide direct debit cards or store value cards to complete third parties, but need -- you can load it through the NETELLER wallet; perhaps a private-label version of the wallet. But nevertheless, NETELLER will capture a customer as well. So, these are ways that we see leveraging the wallet as the core of the experience. But nevertheless, adding more value. And potentially -- and I think this is still yet to be proven -- but adding substantial customers that do not come from the vertical side of the business from the merchants. And your second question, because I rambled on so long here, Doug probably can't remember. (multiple speakers)

DOUG TERRY: I think I understand your question. I think it is a very good question in relation to G&A has changed significantly as a percentage of revenues from 2005, 2006 and then 2007. Is that a correct summation of your question?

FRED WOOLLARD: I'll just run through the numbers again. Because frankly, I find them pretty stark. Last year, the business ran at G&A of about $45 million, (inaudible) $46 million. Back in 2004, when revenues were running at $82 million, which I think is certainly going to be more than we'll be running at this year, G&A in '04 was $9.2 million. Even in '05 when revenues were $172 million, G&A expense was 21.7. My question is, is there significant scope for G&A to be cut back to those kind of ratios?

DOUG TERRY: I think you have to take a look at the way the business was growing in 2004, '05 and '06. It was a maximum growth curve. And it's very difficult for the Company to keep up human resources and a platform to sustain those levels of revenues.

By the time we hit 2007, we now have world-class controls and service levels, and we're at a much higher standard than we were, say, in 2004 or 2005. In addition, the revenues related to the North American instaCASH product -- the revenues are very high, and the costs are quite low, as we're very, very efficient at processing (inaudible) transactions in the instaCASH model.

Now that we're in Europe, we don't necessarily have the same focus and same efficiencies as we had in the US and the US facing business. A prime example of that is the $13 million we had invested in a Web site facing business that was just recently written off now that we've withdrawn from North American. So at the end of the day, there's a lot of opportunity to increase our efficiencies on our European and Asia-Pacific facing business, and we are working very hard to reduce those expenses.

OPERATOR: Jonathan Comerford, IIU.

JONATHAN COMERFORD: Given the size of the Company now, with an GBP80 million market cap compared to a $1 billion company -- or a GBP1 billion company a few years ago, can we expect a remuneration package of the senior executives which is about GBP1 million a year to be reduced to be more representative of the size of the Company we now have?

RON MARTIN: Yes, you can. I guess I would look at it two ways. We've certainly cut -- the management team is substantially reduced at NETELLER, in line with, really, the broader reduction in headcount that the business now has. And we are looking at compensation schemes that reward executives for three-year performance and return to the profitability of the Company and the growth of the Company that we'd all like to see. So, I think, Jonathan, the answer to your question is yes. We are looking at making sure that executives are rewarded in the right ways for the long-term growth of the Company, in addition to getting options reissued so that there is, again, a long-term view with management.

That said -- and I think that's appropriate. That said, we have to strike a balance between those concerns, which are very legitimate, and retaining the right people. At the end of the day we need to have the right skill sets to drive the business forward, and those come at a cost. And so we need to work to strike that balance.

OPERATOR: (OPERATOR INSTRUCTIONS). Andrew Midler, Standard Pacific.

ANDREW MIDLER: In terms of the share buyback, is there a plan in terms of a timeframe over which to complete it? And once completed, given the share price, should we expect to see sort of further buybacks?

RON MARTIN: I think, just to be clear, the Board is -- it requires AGM approval. And we renewed that approval this year, so that the Board has in its capability the decision to buy back shares without having to go for shareholder approval. As I said in my statement, however, we continue to believe that the best use of the cash the Company has is in strategic investment in the future to deliver on some of the things that I've been talking about here today. However, the Board continually reviews that, both in terms of share buyback or a dividend. And we'll continue to debate that and discuss that as we go forward.

OPERATOR: (OPERATOR INSTRUCTIONS). There are no further questions at this time. Please continue.

RON MARTIN: We'd like to thank everybody, and we'll close it off now. Thanks for your time and good questions today, and we'll be communicating as we move forward. Thank you.

[hitchinhoncho] 08/9/2007 13:31

Encouraging article in Money Week on the potential online gambling boom in Asia. China is expected to regulate the industry, starting in Macao - where NLR bought a credit company - but if China baulks others, like the Philippines, will step in. In fact, the Philippines is already offering licences for online casinos.What's holding things up is the low rate of Asian internet penetration, 10.5% v. 69.6% in the US but, of course, that will change with the rapid industrialisation.

[catandcrow] 08/9/2007 00:19

neteller is in play

[hitchinhoncho] 07/9/2007 18:30

If there's a share without US exposure it's this one. Let's hope the market realises.

[dan1man] 05/9/2007 15:50

Not as stupid as cackwell though lol!