RNS Number : 5951C
NETeller PLC
03 September 2008
3 September 2008
NETELLER Plc
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2008
First half of 2008 shows continued growth
Wednesday, 3 September 2008 - NETELLER Plc (LSE: NLR), the independent global online payments business, is pleased to publish its
interim results for the six months ended 30 June 2008.
Operational Highlights
* Continued investment in improving product offering in core European and Asia Pacific markets.
* Delivery of new integrated Merchant Payment Suite with the focus of driving contract wins across all segments of Group's business,
including e-wallet, payments gateway and financial services.
* E-wallet revenue per active e-wallet user was $130 in Q2 2008, up 15% from $113 in Q1 2008, and up 18% from the same quarter in
2007.
* Active e-wallet users (ex North America) totalled 100,760, a decrease of 1% from 101,301 in Q1 2008, and an increase of 4% from
the same quarter in 2007.
* Sale of principal Calgary property completed on 10 July 2008 for CAD$33.5 million.
Financial Highlights
* Fee revenue in H1 2008 grew 18% to $32.8 million from H1 2007 - e-wallet revenue increased 10% to $24.5 million over the same
period. Total revenue in H1 2008 was $35.9 million.
* European revenue (including NETBANX) was $23.4 million, an increase of 10% from H1 2007; Asia Pacific (including 1-PAY Direct)
grew 58% to $8.6 million over the same period.
* Gross margin of 61.6% in H1 2008 (H1 2007: 54.6%); EBITDA in H1 2008 $5.9 million before stock option expense and other items.
* Profit before tax of $1.2 million (H1 2007: $24.7 million loss).
* Cash flow from operations: positive for H1 2008.
* Solid balance sheet at 30 June 2008 with $61.7 million cash and cash equivalents (before proceeds from sale of Calgary property of
CAD$33.5 million).
* On track to announce maiden dividend with full year results.
Ron Martin, President & CEO, commented "The business has delivered a solid performance in the first half of 2008. We have made
significant steps in repositioning our business and the adoption of our Merchant Solution Suite amongst both gaming and non-gaming customers
is beginning to drive tangible benefits. Growth in our key European and Asia Pacific markets remains encouraging. We have a number of
significant developments targeted for launch in the second half of 2008 including the Net+ card and merchant joint marketing products and
programs. Through these and our continued efforts to add innovative payment solutions in our chosen markets, we expect to see this momentum
continue. The Board looks forward to continued progress and remains confident about prospects for the business."
Enquiries:
NETELLER Plc
Ron Martin President & CEO (3rd September only) +44 (0) 207 638 9571
Doug Terry CFO
Andrew Gilchrist VP Communications + 44 (0) 1624 698 713
Email:
investorrelations@neteller.com
Citigate Dewe Rogerson + 44 (0) 207 638 9571
Seb Hoyle / George Cazenove
Daniel Stewart & Co Plc + 44 (0) 207 776 6550
Paul Shackleton
Analyst meeting
NETELLER will hold a briefing for invited UK-based analysts at the offices of Citigate Dewe Rogerson, 3 London Wall Buildings, London,
EC2M 5SY, later this morning at 11.00 a.m. From this time, copies of the analyst presentation will be available on the Company's website,
www.netellergroup.com. The Company will not be holding a conference call for investors at this stage but shareholders are welcome to email
investorrelations@neteller.com should they have specific questions or wish to arrange a one-to-one conference call with the Company.
Notes to Editors
The NETELLER Group
Trusted by consumers and merchants in over 160 countries to move and manage billions of dollars each year, the NETELLER Group operates
the world's leading independent online payments business. Through its NETELLER, NETBANX, and 1-Pay brands, the Group specialises in
providing innovative and instant payment services where money transfer is difficult or risky due to identity, trust, currency exchange, or
distance. Being independent has allowed the Group to support thousands of retailers and merchants in many geographies and across multiple
industries.
NETELLER Plc is quoted on the London Stock Exchange's AIM market, with a ticker symbol of NLR. NETELLER (UK) Limited is authorised by
the Financial Services Authority (FSA) to operate as a regulated e-money issuer. For more information about the Group visit
www.netellergroup.com or contact us by email at investorrelations@neteller.com.
This discussion and analysis contains forward-looking statements relating to future events and future performance. In some cases,
forward-looking statements can be identified by terminology such as "may", "will", "should" "expects", "projects", "plans", "anticipates",
and similar expressions. These statements represent management's expectations or beliefs concerning, among other things, future operating
results and various components thereof or the economic performance of NETELLER. The projections, estimates and beliefs contained in such
forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause the actual performance and
financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such
forward-looking statements. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from
those predicted.
PRESIDENT & CEO'S REPORT
FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2008
The first six months of 2008 have seen good growth across all the Group's businesses, principally as a result of the renewed focus on
delivering innovative payment products to merchants and e-wallet users. The reorganisation and rebranding of the Group's key businesses
early in 2008 is now delivering as merchants appreciate the benefits from the integrated approach of the Group's product suite. In addition,
e-wallet users are benefiting from enhanced functionality of the e-wallet, through new currencies, new funding and payout options and a
cleaner, easier user experience.
The business has grown significantly in the first half of 2008 compared to the same period in 2007, with total fee revenue increasing
18% to $32.8 million. In Q2 2008, the Group had 100,760 active customers from Europe, Asia Pacific and the Rest of World which represents an
increase of 4% from 97,216 active customers as at 30 June 2007 (like-for-like basis). During the same period the number of European, Asian
Pacific and Rest of World active e-wallet users showed increases of 2%, 11% and 12% respectively. The decrease seen in Q2 2008 of 1%
compared with Q1 2008 is in line with typical seasonal variations. Active customers are the key driver of the NETELLER e-wallet business as
explained further in the Financial Review.
Revenue for the first six months of 2008 of $35.9 million compared to $50.8 million for the same period in 2007. Excluding North
American revenue, revenue was in line with the prior year despite significantly higher interest income of $8.2 million recorded in the first
six months of 2007. The results for the first six months of 2007 included contributions from the US market prior to the Group's withdrawal
from that market and a full quarter's contribution from the Canadian business.
Total fee revenue (including e-wallet revenues and fees earned by the Group's gateway businesses, NETBANX and 1 PAY Direct) grew 18% to
$32.8 million, while e-wallet fee revenue increased 10% from $22.3 million to $24.5 million, in the first half of 2008. Interest revenue of
$3.1 million was significantly lower from $8.2 million reported for the first half of 2007. E-wallet fee revenue in Q2 2008 was $13.1
million, an increase of 14% from that recorded in Q1 2008 of $11.4 million.
During the first half of 2008, Europe (including NETBANX) accounted for approximately $23.4 million in revenue before interest (an
increase of 10% over $21.2 million in H1 2007), and Asia Pacific (including 1-PAY Direct) accounted for $8.6 million during H1 2008 (an
increase of 58% over $5.4 million during the first half of 2007).
Gross margin improved to 61.6% for the first half of 2008 compared to 54.6% during the same period in 2007. The Group recorded a profit
before tax of $1.2 million in the first half of 2008 compared to a loss before tax of $24.7 million for the same period in 2007. The
earnings per share was $0.01 compared to a loss per share of $0.20 for the first six months of 2007.
The Group's total cash available at 30 June 2008 was $61.7 million (compared to $210.5 million as at 30 June 2007). The Group completed
its payments to the US authorities in January 2008. Cash flow from operations was positive for the first six months of 2008. On 10 July
2008, the Group closed the sale of its principal Calgary property and agreed a lease for certain areas of the property. Proceeds from the
sale were approximately CAD$33.5 million which is not included in the cash available figure above. The Group regards any cash surplus to
operational requirements as providing financial flexibility in consideration of opportunities, both organic and external, to grow the
Group's business in line with its strategic vision.
Operational highlights
The Group has made progress during the first half of 2008 to support its strategic goal of providing bold payment solutions for online
communities. The Group's revitalised consumer offering at www.neteller.com, the NETBANX payments gateway and the NETELLER Payment Network
were relaunched with refreshed branding, aligning the Group's consumer offering of a suite of lifestyle financial services for the online
generation more closely with its target demographic.
The Group has also invested in improving its merchant value proposition through product enhancements including the launch of the Group's
new integrated Merchant Payment Suite that combines the Group's NETBANX gateway and NETELLER e-wallet into a single product offering for
merchants. There has been promising initial success in offering the Group's product suite to both gaming and non-gaming merchants who
appreciate the benefits that the integrated payments solution delivers them.
The Group has also launched the first release of a significant new merchant joint marketing program, featuring a number of new product
features to drive member acquisition and funding conversions.
Further investment in the NETBANX business included significant enhancements to the NETBANX payments gateway for merchants targeting
European consumers, including local language, payment and foreign exchange/currency enhancements. The Group's new payments gateway merchant
application, NETCENTRE, with significantly enhanced reporting and payment management capabilities, went live in May 2008. In the first half
the Group also embarked on a significant investment program for the core NETBANX platform to deliver enhanced performance, capacity and
resilience for its large corporate-client merchants. A large portion of this program was deployed in Q2, with the rest of the program
planned over the second half of 2008.
During the first half a number of new gaming and non-gaming merchants have signed contracts for the Group's Merchant Payment Suite
services. In aggregate the new merchants are expected to deliver tens-of-millions of incremental transactions to the business. Key contract
wins included Sureterm Direct Insurance, Anthony Nolan Bone Marrow Trust, Calor Gas, InkJet Direct, Student Click, ASDA Furniture and the UK
Environment Agency.
Extending our product offering
The Group has continued to develop innovative products and solutions across its entire Merchant Payment Suite for both its e-wallet
consumers and gateway merchants in its core European and Asian Pacific markets. New European payment options for the e-wallet launched or
signed up in the first half of 2008 included Giropay (Germany), iDeal (Netherlands), Carta Si (Italy), Carte Bleue domestic and
international (France), DirectPay24 (Germany, Austria), Ukash (UK) and POLi (UK), to drive instant payment and consumer conversions in this
key region. The Group introduced three new currency options for its e-wallet during the first half, Danish Kroner, Norwegian Kroner and
Polish Zloty, and added Hungary as a new country with localised payment options. Additional deposit/payout options, currencies and countries
are scheduled to be introduced to the e-wallet throughout the second half.
The Group also announced in March 2008 the establishment of its 50:50 joint venture, Centricom Europe Limited, to distribute the POLi
service in Europe. Under the joint venture, the Group also announced the launch of the POLi payment service for the UK market, distributed
through NETELLER's payment processing arm, NETBANX. In August 2007, the NETELLER Group announced it had taken a 25% strategic stake in
Australian POLi operator, Centricom Pty Ltd. The European joint venture is a 50/50 joint venture between both parties.
The Group has a number of strategically important developments targeted for launch during the second half of 2008 including the Net+
prepaid card, roll out of joint marketing capabilities and straight through processing (the ability to create a wallet for all merchant
gateway transactions). Further announcements regarding these will be made in due course but these initiatives continue to demonstrate the
Group's focus on delivering innovative solutions for both merchants and consumers.
Strategic objectives
In line with the Group's corporate objectives which were outlined at the time of the full year results in March 2008, the Group has
continued to diversify its revenue away from online gaming. Approximately 17% of the Group's revenue in the first half of 2008 was derived
from non-online gaming sources. This compares to the Group's target of 30% of revenue by year end 2010. The Group anticipates that
significant progress will be made towards increasing the number of active e-wallet users during the next twelve to eighteen months as the
initiatives outlined above begin to generate new e-wallet users for the Group. The Group's operating margin was 19% for the first half of
2008. The target for operating margin of 35% for 2010 is aggressive but anticipated revenue growth combined with strong control over costs
both direct and overheads should enable this target to be achieved within the timeframe.
FINANCIAL REVIEW
The Group's financial performance in the six months ended 30 June 2008 is ahead of market expectations. Solid growth in Europe and Asia
Pacific continues as expected with new marketing initiatives, continued investment into product offerings, and a refreshed brand. Management
of expenditures has increased margins and reduced general and administrative costs as planned. The proceeds from closing the property sale
on 10 July 2008 will give the Group additional financial flexibility during the current difficult economic environment to consider strategic
investments such as the NewTeller platform redevelopment and opportunistic acquisitions and alliances to achieve the Group's vision.
Key performance indicators
Active e-wallet users decreased slightly in Q2 2008 compared to Q1 2008 in line with anticipated seasonal trends which typically see a
weaker second quarter. However, year on year growth of 4% for the second quarter to 100,760 active e-wallet users demonstrates the
continuing appeal of the NETELLER e-wallet in competitive market conditions. Compared to Q1 2008, actives in Asia have increased by 17%.
Europe increased 2% to 78,280 in Q2 2008 from 76,964 in the same period in 2007.
The table below sets out the Group's active e-wallet users by region, excluding those from North America:
Active e-wallet users (1) Q2 2008 Q1 2008 % change Q2 2008 vs Q2 2007 % change Q2 2008 vs
Q1 2008 Q2 2007
Europe 78,280 81,552 -4% 76,964 2%
Asia Pacific 17,490 14,984 17% 15,792 11%
Rest of World 4,990 4,765 5% 4,460 12%
Total 100,760 101,310 -1% 97,216 4%
Total signed up 1,187,812 1,097,456 8% 815,910 46%
e-wallet users
(1) An active e-wallet user is defined as a customer whose e-wallet balance has changed during the quarter. The change in balance may be
due to adding, removing, transferring or receiving funds.
The marginal quarterly decrease in active e-wallet users was offset by the increase in average daily deposits. In H1 2008 daily deposits
of $391,524 were received versus $315,279 in H1 2007, representing an increase of 24%. Average daily deposits in Q2 2008 was $418,047, an
increase of 15% on $365,001 recorded for Q1 2008.
E-wallet fees per active e-wallet user also showed healthy increases. Europe increased to $133 per active e-wallet user for the quarter
which is up 14% from Q1 2008 and up 18% over the same period in 2007. Asia's increases were 20% and 29% respectively. The table below shows
by region the Group's e-wallet revenue per active e-wallet user based on the average quarterly fee revenue per user for the relevant
quarters in 2008 and 2007:
E-wallet revenue Q2 2008 Q1 2008 % change Q2 2008 vs Q2 2007 % change Q2 2008 vs Q2
per active Q1 2008 2007
e-wallet
user ($)
Europe 133 117 14% 113 18%
Asia Pacific 122 102 20% 94 29%
Rest of World 99 81 21% 112 -12%
Total 130 113 15% 110 18%
In the first half of 2008, the Group signed up an average of 1,047 customers per day (excluding North American sign-ups). This is up
from an average of 1,024 per day in H1 2007. The Group's sign ups and active customer growth have followed past trends whereby the second
quarter traditionally exhibits slower growth than the first quarter. The total e-wallet user base (excluding North America) increased to
1,187,812 in H1 2008 from 815,910 e-wallet users in H1 2007. The table below shows the Group's sign ups by region (excluding North
America):
Average daily sign ups Q2 2008 Q1 2008 % change Q2 2008 vs H1 2008 H1 2007 % change H1 2008 vs
Q1 2008 H1 2007
Europe 694 819 -15% 756 765 -1%
Asia Pacific 190 176 8% 183 171 7%
Rest of World 109 106 3% 108 89 22%
Total 993 1,101 -10% 1,047 1,024 2%
Revenue
Fee revenue increased in H1 2008 to $32.8 million from H1 2007 revenue of $27.7 million (net of North American revenue of $14.9
million). The revenue growth of 18.4% was fuelled by the Group's refreshed branding and image initiative, targeting customers with new,
innovative marketing programs, and competitively revising the fee schedule for consumers and merchants. The table below sets out our
e-wallet fee revenue by region and revenue from NETBANX, 1-PAY Direct and interest income:
Revenue H1 2008 H1 2007 % growth Q2 2008 Q1 2008 % growth
($ millions)
Europe (ex NETBANX) 19.9 18.1 10% 10.4 9.5 10%
Asia Pacific 3.7 3.1 18% 2.1 1.5 40%
Rest of World 0.9 1.1 -20% 0.5 0.4 27%
E-wallet revenue 24.5 22.3 10% 13.1 11.4 15%
NETBANX 3.4 3.1 10% 1.6 1.8 -8%
1-PAY Direct 4.9 2.3 113% 2.8 2.1 33%
Fee revenue 32.8 27.7 18% 17.5 15.3 14%
Interest 3.1 8.2 -63% 1.4 1.7 -16%
Total 35.9 35.9 0% 18.9 17.0 11%
North America (1) - 14.9 - -
Total 35.9 50.8 -29% 18.9 17.0 11%
(1) Some residual revenue was earned from North American operations during H1 2007 prior to the Group's withdrawal from the US and
subsequently Canada.
E-wallet revenue includes transaction fees from consumers and merchants and excludes revenue from NETBANX and 1-PAY Direct, the Group's
gateway businesses. Of this, H1 2008 European revenue increased 10% to $19.9 million from $18.1 million in H1 2007. Asia Pacific revenues of
$3.7 million in H1 2008 increased 18% compared to $3.1 million in H1 2007. E-wallet revenue growth comes from a revised fee structure, new
payment solutions including local deposit options (such as iDeal in the Netherlands), new e-wallet currencies (DKK, SEK and NOK) and new
marketing programs such as the VIP rebate program. Euro 2008 also helped to lift overall e-wallet revenue.
The performance of the Group's gateway businesses was satisfactory during the first half of 2008. The NETBANX business increased
revenues to $3.4 million, up 10% from the same period in 2007, although seasonality and delays in certain larger contracts going live meant
quarter on quarter revenue fell by 8%. 1-PAY Direct, the Group's Asian gateway business, performed very strongly with revenue increasing by
113% to $4.9 million in H1 2008. 1-PAY Direct quarter on quarter growth of 33% in 2008 was due to increased transaction volumes resulting
from new 24/7 merchant support service and continued momentum from the free local payout service offered to customers in that region.
Interest revenue of $3.1 million in H1 2008 is down 62.6% from $8.2 million in H1 of 2007. There are two primary causes for the decline.
Significant cash payments to the USAO ($136 million) and US customers ($94 million) have been made since 30 June 2007. As a result, the
total cash (including cash held in trust for consumers and merchants of the Group has decreased by 52% to $201.8 million at 30 June 2008
from $419.2 million at 30 June 2007. Interest rates on US$ currency investments also dropped from an average rate of 5.25% in H1 2007 to
approximately 2.6% in H1 2008. The Group continues to focus on maximising investment returns in the current climate of reduced rates.
Gross margin
Gross margin improved to 61.6% in H1 2008 from 54.6% in H1 2007. The Group continues to seek higher margins by controlling costs where
possible. Savings in H1 2008 have come from website maintenance and bad debt while there has been some increases in customer support,
deposit and withdrawal fees and marketing and promotions. As anticipated, gross margin in Q2 2008 of 61.1% was slightly lower than that
recorded in Q1 2008 of 62.2%, due in part to the marketing and promotion costs referred to in more detail below.
Website maintenance costs have decreased to 5.2% of revenue in H1 2008 from 7.1% of revenue in H1 2007 due to a new server hosting
contract entered into at the end of 2007 that more efficiently serves the Group's needs.
Bad debt in H1 2008 declined to 0.1% of revenue from 13.6% in H1 2007. H1 2007 includes bad debt from the North American InstaCASH
product and the write-down of North American customer receivables on withdrawal from that market. H1 2008 bad debt is further reduced by
successful one-time recoveries of previously written off accounts.
Customer support has increased as a percentage of revenue to 14.5% in H1 2008 from 13.7% of revenue in H1 2007. The payroll currency of
Canadian Dollars has increased in strength by 11.3% relative to the reporting currency of US Dollars offsetting our cost savings on
restructuring and re-sizing the call centre. The Group anticipates customer support costs to remain stable for the remainder of the year as
service levels are maintained.
Deposit and withdrawal fees have increased to 16.4% of revenue in H1 2008 from 11.0% in H1 2007. Low processing cost revenue streams in
North America in H1 2007 are lost in H1 2008, resulting in a lower margins. European processing costs are higher as a result of the
fragmented and localised markets in which the Group operates.
Marketing and promotions expenses prior to 2008 have been grouped within Customer Support as the expense has not been significant. In H1
2008, special marketing programs were introduced - such as the VIP rebate program and targeted bonuses which cost $0.7 million, or 2.1% of
revenue, principally in the second quarter.
Operating expenses and other
General and administrative expenses decreased to $15.1 million in H1 2008 from $17.2 million in H1 2007. Expense controls and reductions
have realised savings in nearly all categories. Continued investment on compliance and global market analysis will result in further
professional and consulting fees for the remainder of 2008.
Employee share option expense decreased as expected to $1.4 million in H1 2008 from $4.4 million in H1 2007. This is a result of the
share option surrender that took place in December 2007.
Income tax expense
The provision for income taxes at 30 June 2008 of $nil is due to a recovery of tax payments made in prior periods. The core tax model is
based on a mark-up of services provided by various Group companies to those group companies based in the Isle of Man, where source revenues
are non-taxable. The UK companies are taxed on worldwide profits.
Cash position of the Group
Total cash available to the Group at 30 June 2008 is $61.7 million (prior to final proceeds from sale of Canadian property), down from
$210.5 million at June 30, 2007 as the Group has made all scheduled payments to the US authorities (totalling $136 million). Cash available
to the Group is the total of cash, "Restricted Cash" (funds held in trust for Non EU consumers and merchants in excess of relevant
liabilities) and the excess of qualifying liquid assets over EU consumer liabilities.
Cash flow from operations remains positive for the six months ended 30 June 2008.
The Group has also repaid $81 million to US customers out of a possible total of $94 million. The remaining funds have been transferred
to a Trustee as required under the Deferred Prosecution Agreement. These funds were previously held by the Group in trust accounts.
Subsequent property sale
On 10 July 2008 the Group completed the sale of its principal property in Calgary. The Group will continue to lease two areas of the
property on usual commercial terms for a period of three years and five years respectively following the sale. The total consideration of
the sale is CAD $33.5 million which is approximately the net book value of the property, after sale related expenses. Any gain or loss on
sale will be not be material and will be included in the financial statements for the year ending 31 December 2008.
Current trading and outlook
During the first two months of the third quarter the Group has generated steady revenues. July and August were relatively flat months
with unaudited e-wallet fee revenues up approximately 9% in July and down approximately 5% in August (both compared to $4.0 million recorded
in June 2008), in line with typical seasonal variations. Sign ups for the period from 1 July 2008 to 28 August 2008 averaged 905 per day,
compared to 993 for Q2 2008, a slight decrease which was anticipated.
The Board is pleased with the progress made during the first half of 2008 and remains confident about prospects for the business. The
Board continues to evaluate the most appropriate use of the Group's cash resources including organic investments such as the NewTeller
project, and strategic acquisitions and alliances in line with the Group's vision and mission. The Company is currently on track to announce
its maiden dividend payment with the 2008 final results in line with its previously communicated intent to commence a progressive dividend
policy, subject to Company's strategic investment requirements and satisfactory performance of the business for the remainder of 2008.
The strategic focus of the Group towards its member and merchant customers and the adoption of the Merchant Payment Suite are being
evidenced by new contract wins in both the NETELLER e-wallet and the NETBANX gateway business and continuing improvements in the Group's key
performance indicators, building on the strength of the first quarter performance. The anticipated launches scheduled for the second half of
2008 will generate further improvements to the e-wallet functionality and services and also enhance the Group's merchant value proposition.
The Group has for a number of months been engaged in an exercise to rename the Company from NETELLER Plc. This is part of the
rebranding and repositioning of the Group as a broader online payments provider to e-commerce communities, in line with the Group's vision
and mission, supporting the Group's key brands of NETELLER, NETBANX, NET+ and 1-PAY. The Company expects to be able to announce the new
name in due course at which time shareholders will be asked to approve the change at an extraordinary general meeting.
I look forward to being able to provide you with further updates on our progress in due course.
RON MARTIN
President & CEO
3 September 2008
NETELLER PLC
Consolidated Balance
Sheet
(Unaudited)
As at 30 June 2008
30 June 2008 31 December 2007
US$ US$
ASSETS
CURRENT ASSETS
Cash and cash equivalents 56,630,928 80,750,283
Restricted cash (Note 3) 2,474,229 10,817,605
Qualifying Liquid Assets held for European 67,397,965 61,885,103
consumers (Note 4)
Receivable from customers 575,000 475,000
Trade and other receivables 371,024 735,399
Prepaid expenses and deposits 2,481,487 2,708,248
Property held for sale (Note 5) 32,818,759 -
162,749,392 157,371,638
NON-CURRENT ASSETS
Loan receivable 738,198 764,550
Property, plant & equipment (Note 6) 10,253,040 44,305,153
Intangible assets (Note 7) 19,875,691 17,885,728
Goodwill 11,817,448 11,802,162
Investment in associate 3,733,106 4,115,626
Interest in joint venture 207,050 50,258
209,373,925 236,295,115
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 25,108,089 22,901,237
Payable to European consumers (Note 4) 64,799,104 57,032,664
Forfeiture payable (Note 8) - 38,250,415
Income taxes payable 1,931,538 2,326,889
91,838,731 120,511,205
SHAREHOLDERS' EQUITY
Share capital (Note 9) 39,725 39,725
Share premium 50,554,492 50,554,492
Capital redemption reserve 147 147
Equity reserve on share option issuance 4,661,740 3,219,506
Translation reserve 8,574,079 9,412,813
Accumulated profits 53,705,011 52,557,227
117,535,194 115,783,910
209,373,925 236,295,115
See accompanying notes to the consolidated financial statements
NETELLER PLC
Consolidated Income Statement for the six month period ended
30 June 2008
(Unaudited)
Six month period Six month period ended 30 June 2007
ended 30 June 2008 US$
US$
Revenue
Transaction fees 32,790,083 42,609,981
Investment income 3,099,848 8,234,489
35,889,931 50,844,470
Cost of sales
Customer support 5,205,101 6,960,267
Marketing and promotions 765,306 -
Website maintenance 1,867,983 3,589,352
Deposit and withdrawal 5,901,655 5,601,638
fees
Bad debts and collections 31,949 6,931,165
Gross profit 22,117,937 27,762,048
Operating expenses
General and administrative 15,126,559 17,176,345
Share option expense (Note 1,442,235 4,448,033
12)
Management bonus 899,971 712,657
Foreign exchange (gain) (150,638) 685,315
loss
Depreciation and 3,172,613 4,778,644
amortisation
Investment loss 382,520 -
Profit (Loss) before other 1,244,677 (38,946)
items
Other item
Restructuring costs (Notes 92,484 24,626,385
6, 7 & 10)
Profit (loss) before tax 1,152,193 (24,665,331)
Income tax expense (recovery) 4,409 (160,398)
Net profit (loss) for the 1,147,784 (24,504,933)
period
Basic earnings (loss) per $0.01 $ (0.20)
share (Note 11)
Fully diluted earnings (loss) $0.01 $ (0.20)
per share (Note 11)
See accompanying notes to the consolidated financial statements.
NETELLER PLC
Consolidated Statement of Changes in Equity
(Unaudited)
For the six month period ended 30 June 2008
Share capital - Share capital - Total share capital Equity reserve on share
option issuance Translation reserve on foreign operations
ordinary shares deferred shares
Capital redemption reserve
Share premium
Accumulated profits
Total (US$)
Balance as at
1 January 2007 21,725 18,000 39,725 50,554,492 9,683,697
1,349,198 147 218,343,785 279,971,044
Equity reserve on option - - - - 4,448,033
- - - 4,448,033
issuance
Translation reserve on foreign - - - - -
(17,015) - - (17,015)
operations
Net profit for the period - - - - -
- - (24,504,933) (24,504,933)
Balance as at 30 June 2007 21,725 18,000 39,725 50,554,492 14,131,730
1,332,183 147 193,838,852 259,897,129
Equity reserve on option 9,075,314
9,075,314
issuance - - - -
- - -
Translation reserve on foreign - -
operations - - -
8,080,630 - - 8,080,630
Transfer on expiry - - - - (19,987,538)
19,987,538 -
Net loss for the period - - - - -
- - (161,269,163) (161,269,163)
Balance as at
1 January 2008 21,725 18,000 39,725 50,554,492 3,219,506
9,412,813 147 52,557,227 115,783,910
Equity reserve on option - - - - 1,442,234
- - - 1,442,234
issuance
Translation reserve on foreign - - - - -
(838,734) - - (838,734)
operations
Net profit for the period - - - - -
- - 1,147,784 1,147,784
Balance as at 30 June 2008
21,725 18,000 39,725 50,554,492 4,661,740
8,574,079 147 53,705,011 117,535,194
See accompanying notes to the consolidated financial statements
NETELLER PLC
Consolidated Statement of Cash Flows
(Unaudited)
For the six month period ended 30 June 2008
Six months ended 30 Six months ended 30 June
June 2008 2007
US$ US$
OPERATING ACTIVITIES
Profit (loss) before tax 1,152,193 (24,665,331)
Adjustments for:
Depreciation and 3,172,613 4,778,644
amortisation
Unrealised foreign 1,784,305 (26,336)
exchange loss (gain)
Share option expense 1,442,235 4,448,033
Investment loss 382,520 -
Asset write down (Notes 6, - 13,014,866
7 & 10)
Operating cash flows before 7,933,866 (2,450,124)
movements in working capital
(Increase) /decrease in (100,000) 2,218,385
receivable from customers
Decrease in trade and 364,375 10,136
other receivables
Decrease / (increase) in 226,759 (1,021,888)
prepaid expenses and deposits
Increase in trade and 1,917,981 2,217,159
other payables
Forfeiture payable (Note (38,250,415) -
8)
Cash generated by operations (27,907,434) 973,668
Income tax paid (399,759) (1,314,305)
Net cash used in operating (28,307,193) (340,637)
activities
INVESTING ACTIVITIES
Increase / (decrease) in 7,766,440 (3,753,855)
payable to European consumers
Purchase of capital and (5,073,922) (23,919,344)
intangible assets
Decrease / (increase) in 8,343,376 (44,483,810)
restricted cash accounts
Increase in Qualifying (5,512,862) (3,872,927)
Liquid Assets held for
European consumers
Investment in joint (156,791) -
venture
Net cash generated from (used 5,366,241 (76,029,936)
in) investing activities
FINANCING ACTIVITIES
Loan receivable 26,352 -
Conditional consideration - (2,482,330)
payable
Net cash generated from (used 26,352 (2,482,330)
in) financing activities
DECREASE IN CASH AND CASH
EQUIVALENTS
DURING THE PERIOD (22,914,600) (78,852,903)
NET EFFECT OF FOREIGN EXCHANGE
ON:
CASH AND CASH EQUIVALENTS (1,510,721) (305,351)
TRANSLATION OF FOREIGN 305,966 (17,015)
OPERATIONS
CASH AND CASH EQUIVALENTS, 80,750,283 216,165,164
BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS, END 56,630,928 136,989,895
OF PERIOD
See accompanying notes to the consolidated financial statements
NETELLER PLC
Notes to the Consolidated
Financial Statements
For the six month period ended 30
June 2008
(Unaudited)
1. Basis of presentation
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 2008 are unaudited and do not constitute statutory accounts within the meaning of the
Companies Acts 1931 to 2004. The statutory accounts of NETELLER PLC for the year ended 31 December 2007 contain an unqualified audit report.
Further copies can be obtained from the Registered Office of the Company, Audax House, Finch Road, Douglas, Isle of Man, IM1 2PT
2. Significant accounting policies
The interim results for the period ended 30 June 2008 have been prepared in accordance with the accounting policies adopted in the
accounts for the year ended 31 December 2007 and in accordance with IAS 34 "Interim Financial Reporting".
3. Restricted cash
For merchants and non-European consumers, the Group maintains bank accounts which are segregated from operating funds and which contain
funds held on behalf of customers, representing their pooled funds. Balances in the segregated accounts are maintained at a sufficient level
to fully offset amounts owing to the Group's merchants and consumers. A legal right of offset exists between the balances owing to the
merchants and consumers and the cash balances segregated in the trust accounts. As such, only the net balance of surplus cash is disclosed
on the balance sheet as Restricted Cash.
At 30 June 2008, the Group has the following balances:
TRUST BALANCE RESTRICTED
ACCOUNT OWING CASH
FUNDS
US$ US$ US$
Non-European consumers 24,477,597 24,115,357 362,240
Merchants 53,270,308 51,158,319 2,111,989
77,747,905 75,273,676 2,474,229
At 31 December 2007, the Group has the following balances:
TRUST BALANCE RESTRICTED CASH
ACCOUNT OWING
FUNDS
US$ US$ US$
Non-European consumers 41,755,492 34,350,329 7,405,163
Merchants 48,957,085 45,544,643 3,412,442
90,712,577 79,894,972 10,817,605
4. Qualifying Liquid Assets held for European Consumers
In compliance with the Financial Services Authority rules and regulations, the Group holds Qualifying Liquid Assets at least equal to
the amounts owing to European consumers. These amounts are maintained in accounts which are segregated from operating funds.
The Group has the following balances:
As at 30 As at 31
June 2008 December
US$ 2007
US$
Qualifying Liquid Assets held for European 67,397,965 61,885,103
consumers
Payable to European consumers (64,799,104) (57,032,664)
2,598,861 4,852,439
5. Property Held for Sale
The Group has re-classified the principal property in Calgary as held for sale in anticipation of the sale completion on 10 July 2008.
No impairment loss was recognised on re-classification.
6. Property, Plant & Equipment
The Group has the following balances:
COMMUNICATION FURNITURE AND COMPUTER COMPUTER BUILDING AND LAND TOTAL
EQUIPMENT EQUIPMENT EQUIPMENT SOFTWARE IMPROVEMENTS US$ US$
US$ US$ US$ US$ US$
Cost
As at 31 December 2006 3,099,761 2,312,105 4,191,037 8,257,663 12,848,216 936,396 31,645,178
Additions 166,333 192,416 41,178 1,310,368 13,873,655 5,622,351 21,206,301
Write-down - - (747,848) (4,476,328) - - (5,224,176)
As at 30 June 2007 3,266,094 2,504,521 3,484,367 5,091,703 26,721,871 6,558,747 47,627,303
Additions 364,265 159,467 46,023 2,070,188 240,173 - 2,880,116
Disposals - - (135,685) (36,776) (3,191,530) (1,169,777) (4,533,768)
Re-classification - (510,872) - 118,156 510,872 - 118,156
Exchange difference 542,853 409,048 788,213 710,802 5,298,769 1,237,130 8,986,815
As at 31 December 2007 4,173,212 2,562,164 4,182,918 7,954,073 29,580,155 6,626,100 55,078,622
Additions 129,621 110,414 233,782 933,993 34,303 - 1,442,113
Property held for sale - - - - (28,261,507) (6,434,350) (34,695,857)
Exchange difference (68,586) (62,852) (114,501) (124,335) (855,167) (191,750) (1,417,191)
As at 30 June 2008 4,234,247 2,609,726 4,302,199 8,763,731 497,784 - 20,407,687
Accumulated depreciation
As at 31 December 2006 569,757 425,328 1,721,531 2,661,985 726,121 - 6,104,722
Charge for the period 327,854 227,805 376,741 868,508 736,650 - 2,537,557
Write-down - - - (856,531) - - (856,531)
As at 30 June 2007 897,611 653,133 2,098,272 2,673,962 1,462,771 - 7,785,748
Charge for the period 357,390 191,190 314,913 536,585 684,064 - 2,084,143
Disposals - - (49,811) (24,211) (474,413) - (548,435)
Re-classification - (82,354) - 120,656 82,354 - 120,656
Exchange difference 209,319 104,067 376,761 405,868 235,342 - 1,331,357
As at 31 December 2007 1,464,320 866,036 2,740,135 3,712,860 1,990,118 - 10,773,469
Charge for the period 394,611 207,818 308,908 597,100 14,127 - 1,522,564
Property held for sale - - - - (1,877,097) - (1,877,097)
Exchange difference (22,998) (22,206) (75,630) (86,669) (56,786) - (264,289)
As at 30 June 2008 1,835,933 1,051,648 2,973,413 4,223,291 70,362 - 10,154,647
Net book value
As at 30 June 2007 2,368,483 1,851,388 1,386,095 2,417,741 25,259,100 6,558,747 39,841,555
Net book value
As at 31 December 2007 2,708,892 1,696,128 1,442,783 4,241,213 27,590,037 6,626,100 44,305,153
Net book value
As at 30 June 2008 2,398,314 1,558,078 1,328,786 4,540,440 427,422 - 10,253,040
Computer equipment and computer software write down
In the first half of fiscal 2007, the Group recorded a write down of $4.4 million related to computer equipment and computer software
assets. The Group identified the cost of restructuring arising from the North American market withdrawal as an indication of asset
impairment. Excess computer equipment was disposed of for nominal proceeds and written down to nil net book value. The carrying amount of
computer software was written down to the estimated recoverable amount based on future cash flows expected from non-North American markets.
7. Intangible Assets
The Group has the following balances:
INTELLECTUAL WEBSITE DEVELOPMENT TOTAL
PROPERTY US$ US$
US$
Cost
As at 31 December 2006 18,056,199 17,804,251 35,860,450
Additions 334,311 2,524,471 2,858,782
Write-down - (11,866,305) (11,866,305)
As at 30 June 2007 18,390,510 8,462,417 26,852,927
Additions 34,840 3,223,096 3,257,936
Exchange difference - 567,781 567,781
As at 31 December 2007 18,425,350 12,253,294 30,678,644
Additions 6,061 3,625,748 3,631,809
Exchange difference 15,286 11,360 26,646
As at 30 June 2008 18,446,697 15,890,402 34,337,099
Accumulated amortisation
As at 31 December 2006 7,844,469 4,135,423 11,979,892
Charge for the period 711,637 1,675,188 2,386,825
Write-down - (3,526,747) (3,526,747)
As at 30 June 2007 8,556,106 2,283,864 10,839,970
Charge for the period 574,779 999,680 1,574,459
Exchange difference - 378,487 378,487
As at 31 December 2007 9,130,885 3,662,031 12,792,916
Charge for the period 599,418 1,050,631 1,650,049
Exchange difference 8,530 9,913 18,443
As at 30 June 2008 9,738,833 4,722,575 14,461,408
Net book value
As at 30 June 2007 9,834,404 6,178,553 16,012,957
Net book value
As at 31 December 2007 9,294,465 8,591,263 17,885,728
Net book value
As at 30 June 2008 8,707,864 11,167,827 19,875,691
Intangible asset write down
In the first half of fiscal 2007, the Group recorded a write down of $8.3 million related to website development assets. The Group
identified the cessation of transaction processing in the North American market as an indication of asset impairment. The carrying amount
was written down to the estimated recoverable amount based on future cash flows expected from non-North American markets.
8. Forfeiture Payable
On 18 July 2007, the Company entered into a Deferred Prosecution Agreement ("DPA") with the United States Attorney's Office for the
Southern District of New York ("USAO"). Pursuant to the DPA, the Company forfeited $136 million to the USAO as disgorgement of certain
profits received by the Group from the activities described in the Statement of Admitted Facts attached to the DPA. This amount included
approximately $57.7 million which the USAO had previously seized. The Company agreed that it would satisfy the remaining portion of its
forfeiture obligation with a payment of $40 million to be paid on or before 15 October 2007, and the remaining balance to be paid on or
before 17 January 2008. The full terms of the DPA are available on the Group's website at www.neteller-group.com.
The following details have been recorded:
Six months ended Year ended
30 June 2008 31 December
2007
US$ US$
Opening balance (38,250,415) -
Forfeiture of profits - 136,000,000
Credit for funds seized - (57,749,585)
15 October 2007 payment - (40,000,000)
17 January 2008 payment 38,250,415 -
Forfeiture payable at the end of the period - (38,250,415)
9. Share capital
As at As at
30 June 31 December
2008 2007
� �
Authorised:
200,000,000 ordinary shares of �0.0001 per share 20,000 20,000
1,000,000 deferred shares of �0.01 per share 10,000 10,000
Issued and fully paid US$ US$
119,920,953 ordinary shares of �0.0001 per share
(At 31 December 2007: 119,920,953 ordinary 21,725 21,725
shares of �0.0001 per share)
1,000,000 deferred shares of �0.01 per share 18,000 18,000
Total share capital 39,725 39,725
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 �1,000,000 for each ordinary share held
by them and shall have no other right to participate in assets of the Company.
10. Restructuring costs
The Group incurred certain costs pertaining to the cessation of its North American-facing business during the year ended 31 December
2007. These costs included severance payments, retention costs for certain key employees, the write down and disposal of assets, amending
and settling vendor contracts and professional and legal fees incurred in the resolution of the US situation (including the distribution of
funds to US customers and negotiating potential sanctions against the Group culminating in the DPA on 18 July 2007). The Group incurred
minimal costs in the six months ended 30 June 2008.
The Group has incurred the following costs:
Six months ended 30 Six months ended 30 June 2007
June 2008 $
$
Severance and retention - 2,721,612
Asset write downs and property - 13,014,866
disposal net of proceeds
Professional and legal fees 82,784 8,889,907
and expenses
Other restructuring costs 9,700 -
92,484 24,626,385
The Group's asset write downs and disposals consist of:
Six months ended 30 Six months ended 30
June 2008 June 2007
$ $
Non cash items
Write down of prepaid US - 307,663
patents, trademarks and
licences
Write down of computer - 4,367,645
equipment and software, net of
accumulated depreciation
Write down of intangible - 8,339,558
assets, net of accumulated
depreciation
Total non cash items - 13,014,866
11. Earnings (loss) per share
From continuing operations
The calculation of the basic and diluted earnings per share is based on the following data:
Six months ended 30 Six months ended 30
June 2008 June 2007
US$ US$
Earnings (loss)
Earnings (loss) for the
purposes of basic and diluted
earnings per share being
net profit attributable to 1,147,784 (24,504,933)
equity share holders of the
parent
Number of shares
Weighted average number of
ordinary shares for the
purpose
of basic earnings per 119,920,953 119,920,953
share
Effect of dilutive potential - -
ordinary shares due to
employee share options
Weighted average number of
ordinary shares for the
purpose
of diluted earnings per 119,920,953 119,920,953
share
Basic earnings (loss) per $0.01 $(0.20)
share
Fully diluted earnings (loss) $0.01 $(0.20)
per share
12. Share-based payments
The Group's share option plan was adopted pursuant to a resolution passed on 7 April 2004. Under this plan, the Board of Directors of
the Company may grant share options to eligible employees including directors to subscribe for ordinary shares of the Group.
No consideration is payable on the grant of an option. Options may generally be exercised to the extent that it has vested. Options vest
equally over a three year term following date of grant. The exercise price is determined by the Board of Directors of the Group, and shall
not be less than the market value at the date of grant. The Group plan provides for a grant price to equal the average quoted market price
of the Company shares on the three days prior to the date of grant. Share options are forfeited if the employee leaves the Group before the
options vest. A participant of the share option plan has 30 days following the date of grant to surrender the option and if surrendered, the
option will not be deemed granted.
On 15 April, 2008, a total of 211,077 options granted on 15 October 2004 with an exercise price of �2.49 expired.
Equity-settled share option plan
Six months ended 30 Six months ended 30 Year ended 31 Year ended 31 December 2007
June 2008 June 2008 December 2007
Weighted Weighted
average exercise Options average exercise Options
price price
Outstanding at the beginning �1.50 6,699,116 �6.00 6,458,350
of period
Granted during the period - - �1.06 7,200,467
Forfeited during the period �1.55 (433,031) �5.85 (5,837,324)
Exercised during the period - - - -
Expired during the period �2.49 (211,077) �2.00 (1,122,377)
Outstanding at the end of �1.46 6,055,008 �1.50 6,699,116
period
Exercisable at the end of the �2.71 1,845,383 �3.06 1,640,885
period
The options outstanding at the end of the period had a weighted average remaining contractual life of 2.35 years (31 December 2007:
2.79 years).
The options granted are priced using a trinomial lattice model to reflect factors including employee exercise behaviour, option life and
option forfeitures. No options were granted in the six months ended 30 June 2008. The inputs into the model are as follows:
Six months ended 30 June 2008 Year ended 31 December 2007
Weighted average exercise n/a �1.14
price
Expected volatility n/a 77%
Expected life n/a 3 years
Risk free interest rate n/a 4.91%
Expected dividends n/a -
Employee exit rate n/a 7%
Expected volatility was determined by calculating the historical volatility of the Group's share price from the time of issue to the
date of grant. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions, and behavioural considerations.
The Group recognised total expenses of US$1,442,235 (Six months ended June 30, 2007: US$4,448,033) related to the equity-settled
share-based payments transactions in the period.
13. Subsequent Event
Property sale
The Group completed the sale of its principal property at 27th Avenue in Calgary, Canada on 10 July 2008. The Group will continue to
lease two areas of the property from the purchaser on usual commercial terms for a period of three years and five years respectively
following the sale.
Total consideration of the sale is CAD $33.5 million which is approximately equal to the net book value of the property, after sale
related expenses. Any gain or loss on the sale is nominal and will be reflected in the financial statements for the year ended 31 December
2008.
NETELLER PLC
Additional Financial
Information
For the six month
period ended 30 June
2008
Additional Financial Information
The additional information presented below has been prepared for information purposes only.
Please note that this information is outside of the scope of the unaudited financial statements.
Q2 - 2008 Q1 - 2008 Q2 - 2007
Q2 2008 vs Q1 2008 Q2 2008 vs Q2 2007
US$ US$ US$ % change
% change
Revenue 18,903,049 16,986,882 18,180,298
11% 4%
Direct Costs (7,354,479) (6,417,515) (7,201,988)
15% 2%
Gross profit 11,548,570 10,569,367 10,978,310
9% 5%
General and Admin (6,943,207) (8,183,353) (7,423,138)
-15% -6%
Operating income 4,605,363 2,386,014 3,555,172
93% 30%
Other income (expense)
Foreign exchange gain (loss) 163,490 (12,852) (375,964)
nm nm
Management bonus (448,455) (451,515) (337,878)
-1% 33%
Depreciation and
Amortisation (1,603,809) (1,568,804) (1,920,405)
2% -16%
Stock option expense (691,688) (750,546) (2,224,016)
-8% -69%
Investment loss (282,520) (100,000) -
nm nm
Restructuring costs 803 (93,287) (9,265,664)
nm nm
Income before tax 1,743,184 (590,991) (10,568,755)
nm nm
Income taxes 493,225 (497,633) (1,089,757)
nm nm
Net income after tax 2,236,408 (1,088,624) (9,478,998)
nm nm
KEY PERFORMANCE INDICATORS
(excluding North America)
Q2 - 2008 Q1 - 2008 Q2 - 2007
Q2 2008 vs Q1 2008 Q2 2008 vs Q2 2007
Total active e-wallet users in quarter (1) 100,760 101,301
97,216 -1% 4%
E-wallet revenue per active e-wallet user $ 130 $ 113
$ 110 15% 18%
Daily sign ups 993 1,101
909 -10% 9%
Total customers (at period end) 1,187,812 1,097,456
815,910 8% 46%
Average daily receipts from customers $ 418,047 $ 365,001 $
339,314 15% 23%
Total customer receipts $ 38,042,306 $ 33,215,070 $
30,877,606 15% 23%
(1) Active e-wallet user is defined as a consumer whose e-wallet account balance has changed during the quarter. The
change in balance may be due to adding, removing, transferring or receiving funds. nm not
meaningful
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR MGGGLNZLGRZM
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