Mi-Pay Group plc (LON:MPAY), the leading provider of mobile payment solutions to Tier 1 Mobile Network Operators and Mobile Virtual Network Operators, presents its preliminary results for the 12 months ended 31 December 2015.
Financial Highlights
· Total Revenue £3.0 million for the year (2014: £2.7 million)
o Transaction Services Revenue £2.3 million (2014: £2.0 million)
o Professional Services Revenue £0.7 million (2014: £0.7 million)
· Transaction Services Revenue growth at 31% per annum (2014: 44%) from £1.7 million to £2.2 million after adjusting for terminated contract in 2013.
· Gross profit margin increased from 45% in 2014 to 56% in 2015 through increased efficiencies, driving a £0.5 million Gross profit increase to £1.7 million. (2014: £1.2 million).
· £1.2 million reduction in our delivery cost base from 2014, reducing administrative expenses to £2.9 million (2014: 4.1 million)¹.
· £1.7 million reduction in adjusted Operating loss¹ to £1.2 million. Delivered continual month on month trading improvement during the year.
· On 9th March 2015, raised additional funding of £1.75 million (£1.6 million net of costs).
· Cash and cash equivalents as at 31 December 2015 £3.5 million (2014: £2.0 million).
· Basic diluted loss per share 3.6 pence (2014: 15.1 pence).
Operational Highlights
· £64.7 million of client funds processed in 2015 from 5.2 million processed transactions (2014 – £50.1 million and 4.0 million respectively.
· Continued trial of full on-line and on-device top up solution with a major UK mobile network and contract extensions with our 2 largest clients.
· Successful implementation of internally developed fraud engine in December 2014. Fraud levels decreased, contributing an 8% increase in Transaction Services Gross profits in the period.
• Delivery of new, PCI accredited, global data centre infrastructure providing enhanced flexibility, scalability and redundancy across both Europe and Asia Pacific.
¹After removing share based payment, research and development tax credits and non-recurring expenses.
Seamus Keating, Chairman of Mi-Pay Group plc commented on the results: “2015 has been a year of significant progress for Mi-Pay which has seen a major improvement in trading performance following the reorganisation of the business, increased investment in our platform and cost reductions undertaken in 2014. Our financial performance improved significantly through 2015, with operating cash outflow reduced in the second half by 50% to £0.4 million. Our monthly operating cash outflow has now further reduced to approximately £30k per month as transaction volume growth continues. Mi-Pay is well positioned to deliver further revenue growth and improved financial performance.
Our key focus remains on continuing to develop our customer relationships and position ourselves as a strategic partner to our clients. We believe that our core technology and suite of products meet the needs of a fast growing market and we look forward to cementing our position as a key player in the growth of digital on-line payments in 2016.”
Both the full Annual Report and Financial Statements and the notice of AGM, convening a general meeting of the Company, to be held at 30 Crown Place, London, EC2A 4ES on the 17th May 2016 at 11 a.m. are available on our website at www.mi-pay.com/investor-document-centre/ and will be posted to Shareholders shortly.
Founded in 2003, Mi-Pay Group delivers fully outsourced online and related payment solutions to digital ecommerce clients, primarily in the mobile sector. Its product offering provides the infrastructure to enable pre-paid mobile devices to be topped up via a variety of channels such as websites, mobile applications and social media applications and customers include Mobile Network Operators (MNOs) and Mobile Virtual Network Operators (MNVOs). Mi-Pay sells, integrates and operates its products and solutions on a global basis. For further information, please visit www.Mi-Pay.com or contact details as shown above.
Chairman’s Statement
2015 has been a year of operational progress and major improvement in trading performance at M-Pay which has seen a major improvement in trading performance following a reorganisation of the business, increased investment in our platform and the cost reductions undertaken in 2014.
We raised additional capital of £1.75 million (gross) on 9th March 2015 to allow the Group to stabilise after the investments and restructure in 2014 and provide additional working capital to support growth. All Board members participated in the placing and continued to defer remuneration during the 2015 period in support of our short term core objective to achieve operating cash flow break even.
Following the rationalisation of our operating model in 2014 significant progress has been made in driving Mi-Pay to profitability and the Group now has a strong and efficient platform from which to grow. We have now delivered processed transaction value growth in excess of 40% per annum for 3 consecutive years (after adjusting for a lost client in 2013) which has continued to deliver a consistent increase in revenue. During the period we:-
· Further enhanced the efficiency and competitiveness of our trading model, driving our gross profit margin up by 11% to 56% primarily due to the implementation of our internal fraud management solution.
· Have seen the full benefit of the simplification of our delivery processes reducing our administrative cost base by £1.2 million on an annualised basis, after excluding the exceptional listing costs, Share based payments, research and development tax credits and reorganisation costs.
· Delivered a new multi-sited infrastructure to enable a secure, efficient, flexible, and scalable platform for global growth.
The Directors believe that the Group now has a strong commercial proposition combined with a globally secure platform which is increasingly relevant as on-line mobile and tablet devices become the ‘method of choice’ for customers to securely order and pay for digital services.
Our Market
Customer Needs
Customers continue to move away from traditional ‘in store’ purchases towards the use of devices (mobile phones and tablets) and are driving exponential growth in mobile-commerce and digital content services – this drives our natural growth levels. The ever increasing mobile usage from data is more than compensating for the reduction in voice related usage, and we therefore see the average transaction values and the value of a pre-paid customer increasing.
Payments Solutions
The new influx of ‘payment wallet’ solutions and alternative payment methods such as PayPal, Amazon Payments, Apple Pay etc. are increasingly becoming the payment methods of choice as customers look for secure, ‘one-click’ payment solutions, flexible on all devices. Our investments in this space are key to our success providing simple, integrated order and payment journeys which allow the payment method of choice for the customer – whilst removing the risk for the Mobile Operator. Our white labelled product suite and deep integration with Mobile Operator platforms, along with our payment agnostic approach to payment partners enables us to answer the market’s requirements.
Geographies
Whilst the European market is mature in terms of mobile ownership our opportunity lies in the customer migration to the on-line / on-device solutions. In addition we continue to target long term growth in the Asian market. Although traction remains slower than we had originally anticipated, with over 80% of mobile users in Asia Pacific being Pre-Paid customers versus 60% in Europe the region is now larger than Europe in terms of mobile ownership at over 1.8bn users. Our proven ability to deliver risk free solutions puts us in a strong position to be a first mover in this market.
Operator Needs – Business Intelligence, Risk Management and Customer Retention
The European market is increasingly competitive and in 2015 we have seen a number of major integrations between global operators as they have a need to manage falling margins and deliver a wider range of digital solutions to customers including data, voice, content, TV and music etc. Customer retention and delivery of new solutions to their customers is becoming crucial for success, with the on-line direct channel bringing certain benefits, namely the ability to market directly to customers, deliver on- demand data services and offer multiple ways to connect and order services. Our solutions enable direct marketing, retention programmes and access to business intelligence. Our experience in processing over £0.5 billion in transaction value makes us a leading expert in the pre-paid services market. Our ability to indemnify and de-risk both the customer and the operator creates value in our proposition.
Security
A key shift in focus during 2015 was the increased number of high profile personal data breaches in the digital commerce market which forced mobile operators and retailers to re-evaluate the importance of the protection of their customer’s data; an increasingly complicated and expensive exercise. Our core offering is security focused with a fully encrypted, PCI accredited platform and crucially fully segregated from their infrastructure. As such, we believe our solution is valuable to operators and we believe this change in market dynamics will be beneficial for outsourced solutions like ours in the longer term.
Outlook
2016 and beyond will target these market changes in our solutions and we believe we have the core technology and product suite to continue to grow by meeting the market’s needs. Our key focus is to continue to develop relationships with our existing clients, especially in the areas of mobile and on device risk free payment solutions, and to be deeply integrated so that where consolidation exists we are a key strategic partner. We expect to continue to secure new clients who have ever increasing security, compliance and on device and on-line payment needs and look to drive new revenue streams from new digital commerce markets with new products.
We will do this through continuing to directly target the migration from the retail voucher channel to on-device and on-line solutions, building relationships with the market leading on-device payment solution providers and by incrementally investing in our security services including the commercialisation of our in-house fraud solutions.
The South East Asia region remains a target for longer term growth, in which we will continue to invest.
Our financial performance improved significantly through 2015, with operating cash outflow reduced in the second half by 50% to £0.4 million. Our monthly operating cash outflow has now further reduced to approx. £30k per month as transaction volume growth continues. Mi-Pay is well positioned to deliver further revenue growth and improved financial performance.
On behalf of the board I would like to thank all our employees, clients, investors and partners who have enabled Mi-Pay to deliver on its core targets and continue to support growth. We remain excited about the future and look forward to remaining a key player in the growth of digital on-line payments in 2016.
Seamus Keating
Non-Executive Chairman
12 April 2016
CEO Review of Operations
We deliver two core revenue streams for our clients:-
· Transaction Services Revenues are driven from the processing of transactions on behalf of our clients. This is our core business and can deliver gross profit margins in excess of 40%, which in turn creates recurring, annuity based revenue in a naturally expanding market. This provides a solid, sustainable and growing source of revenue.
· Professional Services Revenues relate to the development, delivery and hosting of our platform and client solutions. Critically this revenue traditionally relates to the implementation of new services for clients which in turn increases our long-term Transaction Services Revenues.
We have continued to deliver strong growth in our core annuity based Transaction Services Revenues, seeing a further 31% increase on 2014 to £2.2 million from £1.7 million, after adjusting for the loss of a contract in August 2013. This is a third year of positive, consistent growth from our core European market as customers migrate to the on-line channel. We still expect our opportunities in Asia to deliver over the longer term, however they remain slow in growing at this stage. It was also pleasing that following the restructure in 2014 we continued to deliver strong Professional Service Revenues at £0.7 million following the implementation of new services to our clients and further in house development of our card vault solution. Total revenues rose to £3.0m from £2.7 million in 2014.
Underlying Revenue Trends
· The majority of our growth in 2015 was driven from existing clients with whom we have built strong, long term relationships in the European market as the need for outsourcing increases.
· Our revenues remain well spread across our client base with our largest at 13% of total revenue. During the year we became the on-line top up service provider to the Post Office in their launch of their MVNO brand in the UK and re-signed our 2 largest clients for a further 2 years. Importantly to us, over 75% of our clients have each shown growth during the period. This growth was partly offset by the closure of the Mobile by Sainsbury network in December 2015.
· We have continued to develop our relationships in Asia, and saw our first revenues from the Philippines which remains a potentially high growth market. Despite slow growth during 2015 we remain optimistic in its long term growth prospects.
· We have seen real traction from the delivery of on-device ‘payment applications’ and mobile wallet payment solutions with our partners which we expect to continue to invest in and integrate with. Our solutions allow us to embed within our clients’ own ‘mobile app’ strategies and become a core strategic partner to them.
Key Performance Metrics & Operational Investments
We will deliver long term success from providing flexible secure, risk free solutions targeted at increasing customer expenditure and enhancing customer retention whilst removing our client’s risks.
Our major contracts indemnify our clients from fraudulent transactions and only charge for successfully completed ones, an offering more strategically aligned with our clients than that of the general payments market. As such it is critical that we deliver world class fraud management and payment transaction optimisation rates to both protect our gross profit margins but also deliver real business value to our clients and keep their data safe. It is here that we target our investments.
We continue to invest in our internal fraud management platform which was successfully rolled out to over 90% of our clients during the year and its success is key to achieving our key performance indicators. Our target was to:-
· Improve our commercial proposition and drive up gross profit margins for every transaction processed.
· Exert full control, visibility, learnings and management experience for all customer data we process, especially as we move into the developing Asian market.
· Deliver new technological intellectual property
· Improve the scalability, real time visibility and flexibility of our fraud management service to create a new core product offering to drive new revenue streams outside of our existing markets.
We are very pleased that during 2015 we achieved our targets, seeing continued high levels of transaction success rates, consistent with 2014 figures at 86%. Critically we delivered a further 0.02% reduction in our fraud levels to 0.09% of transaction value which we see as market leading. The £0.2 million reduced cost of sales as a result of this insource was a core driver of our overall 12% increase in Transaction Services gross profit margins to 48% which we expect to continue.
In addition we continue to add new functionality; including improved fraud agent controls, fraud rule reversal management and real time reporting. We will continue this investment programme in 2016 by delivering real time visual interfaces to track fraudsters globally, utilise social media and IP address information to better screen customers and improve our business intelligence to better utilise the 0.5 billion transaction history we have accumulated. When completed we expect this to become a fully commercialised service offering to our clients to use directly in addition to our core indemnified payment solution.
The Group also considers its revenues, gross profit margins and administration expenses as key performance metrics and these are reviewed in the Financial Review.
Infrastructure Investments
A core target for Mi-Pay throughout 2015 has been to deliver global flexibility in an efficient and scalable way, combined with market leading security services. With the increasing risks around the security of personal data we have placed its protection at the heart of our infrastructure investments whilst creating a platform to flexibly support our opportunities in Asia. In August 2015 we successfully migrated our clients onto a new infrastructure platform which delivered this target for us. The solution has enabled us to:
· Transfer our core payments platform to a managed IBM cloud environment, standardising the underlying technology to enable us to be flexible in scaling our global services ‘on demand’ and rapidly deploy new geographies when required.
· Using this architecture we have delivered a secondary data centre in Singapore which allows faster responsive rates to our Asian clients but critically also provides the dual site redundancy, essential for our client’s needs.
· This migration also included the upgrade of our PCI DSS certification to the new standard 3.1, across both locations, with the IBM cloud environment facilitating the outsource of some of the core technical competencies of the security standard as part of our ongoing target to improve efficiencies and use best in industry experts to protect our clients data.
· Deliver this within our previous cost structures as part of our continued drive to profitability.
This investment will ultimately lead to a fully data encrypted, managed platform that delivers security levels above and beyond our payment compliance requirements and enables us to remain a leader in the storage and processing of personal and payment customer data, critical for our clients.
We have also seen an increasing requirement for multi-device solutions that require ubiquitous payment options and give the end customers choice, security and flexibility. We have worked with our clients in enhancing their ‘on-device’ strategies and payment solutions with 3 core investments during the year.
1. Providing secure, device optimised payment solutions within our clients’ existing mobile applications.
2. Developing and delivering bespoke mobile applications to support optimised ‘in APP’ purchases.
3. Partnering with market leading optimised mobile payment and mobile wallet solutions such as PayPal and Amazon Payments to provide our clients with the best ‘on device’ payment solution. We have seen these payment options grow by over 180% over the 12 month period.
All of our investments in the growth of revenues, new markets, operational efficiency and infrastructures are reliant on the support and dedication of our employees. As 2014 was a period of change for the Group we are pleased that our employees have remained stable and supportive during 2015. Their experience and dedication remains our most valuable resource and we would particularly like to thank them for their efforts, support and commitment in delivering these challenging projects successfully which has created the platform and environment for success.
Michael Dickerson
Chief Executive Officer
12 April 2016
Financial Review
The 2015 financial performance reflects the impact of the reorganisation and infrastructure investment made in 2014. We have now delivered an improved commercial trading model supported by a more efficient delivery of infrastructure which has resulted in increased gross profit margins, reduced costs, and subsequent reduced losses for the year.
Revenues & Gross Profits
Total revenue was £3.0 million for the year ended 31 December 2015, in line with management expectations and 12% ahead of the prior year.
The 12% growth was achieved despite the continued year on year impact of £0.3 million reduced revenues due to the loss of the contract in 2013 which has continued to generate sales. The effect of this is now marginal in 2015, however, when adjusting for the loss of the contract our core Transaction Services Revenues increased 31% year on year to £2.2m (2014: £1.7 million), following the 44% increase in 2013 and 42% in 2014. This growth was driven from processing 5.2 million transactions which generate £64.7 million of customer’s payments. (2014: 4 million transactions and £50.1 million of customer’s payments).
Professional Services Revenues were in line with the prior year at £0.7 million (2014: £0.7 million) as we developed new services to our clients and we continued to deliver chargeable enhancements to our Card Vault Solution during the year, which accounted for 63% of this revenue stream. Whilst Professional Services Revenues achieved a higher gross margin (usually in excess of 70%), they are primarily non-recurring one-off project based payments for existing clients and over the longer term we expect this part of the business to reduce as our Transaction Services Revenues grow.
We continued our key focus of improving our gross profit margins during 2015 with good success. We expect these to be consistent across geographies, however, our revenue segments drive differing gross profit margins and as such our revenue mix impacts our overall performance. For the year ended 31 December 2015, gross profit margins increased to 56% (2014: 45%) due to:
· 6% improvement following the successful insource of our fraud processing. We expect this to continue and enable each transaction processed to be more profitable.
· 3% improvement in Transaction Services Margins due to improved fraud levels and improved commercial terms with our payment partners as volumes increase.
· 2% improvement in Professional Services Margins following the more efficient delivery model implemented in 2014 and improved contractual terms with clients.
This continues the positive trend since 2011 where we have seen gross profit margins increase from 34% to 56%. Our major Transaction Services growth in 2015 was delivered from existing clients with market competitive pricing and as such we have demonstrated an ability to maintain and grow profits against commercial pressures in the mature European market. Our increasing transaction volumes, low fraud levels, high transaction success rates and continued strong relationships with our payment partners have all been critical in this improvement in underlying profitability.
Operating Loss
During the period we have restated our performance against prior years to net off the research and development tax credits (£0.2 million) with our research and development investment costs in line with current accounting best practice, resulting in an Operating loss for the year of £1.4 million (2014: £4.2 million). This includes £0.1 million related to non-recurring restructuring costs, a process that is now complete and £0.3 million for share-based payments relating to the provision of share options for key management. We do not expect further charges to the Consolidated Statement of Comprehensive Income from these share options. No share options were exercised during the period.
Overall the Group delivered a £1.7 million reduction in Adjusted Operating Losses for the period due to the £0.5 million increase in Gross margins and £1.2 million reduction in general and administration, depreciation and research and development costs.
We are pleased that 2015 has therefore been a period of positive trading improvement for Mi-Pay. We have seen consistent month on month growth during the year with consistent key performance indicators delivering improved financial performance. Our core business model is based upon monthly growth, high margin, annuity based revenue streams in combination with low working capital and capital investment requirements. We enter 2016 in a significantly stronger position than in 2015 and are particularly encouraged with the continued month on month improvements to the business as our revenue growth continues. In the 6 months period to June 2015 our operating loss was £1.0 million, for the 6 month period to December 2015 this was reduced to £0.4 million demonstrating this progression.
Cash Flow, Assets and Liabilities.
The Group ended the year with £3.5 million in cash and cash equivalents (2014: £2.0 million), noting that £2.2 million of this balance related to the operation of managing client payments. The increase to the cash position of £1.5 million during the period delivered stability to the Group.
· £1.6 million (net proceeds after costs) raised to provide further investment for working capital via a successful fund raise on 9 March 2015 by the issue and allotment of 7,608,696 Ordinary Shares at 23 pence each.
· £0.8 million increase in client related funds due to the growth in transaction volumes and improved payment terms with our payment partners, however over the longer term we expect this growth to reverse as we look to improve our client repayment terms to closer align ourselves with our clients.
· £0.9 million decrease of cash flows from operating activities, working capital movements excluding client related impacts, capital investment, interest tax income and finance lease expenditure.
In relation to the £0.9 million decrease of cash flows from operating activities defined above, we were pleased to see continual month on month reductions in our cash outflow with the 6 month period to June 2015 showing a £0.8 million outflow and 6 month period to December 2015 showing a £0.1 million outflow after the inflow of £0.3 million in research and development tax credits relating to 2014, paid as cash in August 2015.
The Group had limited capital expenditure exposure at less than £0.1 million and does not meet the IAS 38 criteria to enable it to capitalise its internal development costs. The Group continues to service a finance lease related to the five year licence arrangement for our core transaction processing platform, effective from 28 June 2013 of which £0.2 million remained outstanding as at 31 December 2015.
Excluding the increase in client funds, there were no other material movements in working capital with the Group being well protected from risk in this area as its debtor fees relating to its core Transaction Services Revenues are deducted at source before net payments are made to clients. Trade and other payables increased by £0.8 million due to the growth in amounts due to our clients for payments received and slower settlement terms and is offset by the increased cash holding. The Group has no external borrowings.
John Beale
Chief Financial Officer, Company Secretary
12 April 2016
Zeus Capital Analysts said this morning:
“Mi – Pay has announced a good set of FY15 results morning showing significant operational development. The group has delivered a good trading performance with underlying revenue increasing 25.9% to £3.0m (FY14: £2.4m), with both transaction services (+12.6%) and professional services (13.8%) showing underlying YoY growth. Importantly revenue was in line expectations while Gross Profit was ahead due to an 11% improvement in margin. The group’s strong underlying trading performance has been driven by the reorganisation of the business, increased investment in the platform and cost reductions implemented in 2014. The business remains on track to become cash flow positive in FY16 and forecasts for FY16 and FY17 unchanged off the back of these encouraging results.
§ Good final results: Headline revenue was in line estimates at £3.0m, showing an 11% improvement on the previous year, but up an impressive 25.9% underlying. This was driven by growth in both professional and transaction services. Gross profit was 17.9% ahead of our forecasts at £1.7m, with an 11% improvement in gross margins on the previous year, continuing the trends of H115. Gross margins have steadily improved from 34% in FY11 to 56% in FY15, demonstrating the group’s ability to consistently generate annual improvements. As a result, confidence in the business ability to grow profitability increases. The company made an operating loss for the year of £1.4m (FY14: -£4.2m) a substantial improvement on the previous year and provides confidence that management will meet its target of becoming cash flow positive during FY16.
§ Operational improvements: Transaction volumes increased 48%, in line with the performance reported at the interims. Management has made targeted investment in the platform infrastructure, implementing an in house fraud management system, which has now been rolled out to over 90% of the group’s clients during the year. Despite these operational upheavals, the group maintained transaction success rates at 86%, in line FY14, while managing to reduce fraud levels by 0.02% to 0.09% of transaction value. The insource of the fraud engine and development of their own technology solution and the subsequent reduction in fraudulent transactions was a key driver of the c. 11% Group gross margin improvement. The group also successfully migrated its customers to a new infrastructure platform, which allowed for the standardisation of the underlying technology, this will enable the group to achieve further scaling of the business in a cost efficient manner.
§ Outlook: Forecasts remain unchanged, noting that underlying assumptions for FY16 are challenging with an assumed 50% increase in transaction volumes and growth in revenue from professional services. Strong operational and financial performance of the group in 2015 is encouraging and provides confidence that it will deliver further improvements in margins and transaction volumes in 2016.
