Earthport - interim results statement

Source: Earthport

Earthport (AIM: EPO.L), the cross-border payments company, is pleased to announce its unaudited interim results for the six month period ended 31 December 2015.

Financial and Transactional Highlights
• Significant growth in transaction volumes and transaction monetary values
o Transaction volume growth of 70%+
* 75%+ of the increase emanating from pre-existing customers
o Transaction monetary value growth of 60%
* Almost all of the increase driven by pre-existing customers
• Monetary value transacted exceeded an annual run rate of $11 billion at period end
• 17.6% growth in revenue to £10.6 million (H1 FY 2015: £9.0 million)

The revenue growth is impacted by the effect of previously disclosed restructuring initiatives in certain non-core business lines, resulting in foregone short-term revenue
o 74% of revenue growth emanated from pre-existing clients
o Transactional revenue was approximately 86% of the total revenue
• Gross Profit increased by 5.4% to £7.4 million (H1 FY 2015: £7.0 million)
• Adjusted Gross Margin at 73.5% is consistent with long term average (H1 FY 2015 81.6%)
• Loss before taxation increased by 4.6% to £5.6 million (H1 FY 2015: £5.3 million)
o Excluding the unrealised fair value gain adjustment, the loss before taxation increased by 68.5%, the loss is attributed to unrealised fair value gain and loss from adjustments on FX and derivatives. These gains and losses would only crystallise in the event that any parties to the transactions default
o The increase is the result of the previously announced strategic decision to invest in global geographic expansion, product development including the Distributed Ledger (“DL”) strategy, enhancement of the leadership team and foregone revenues resulting from previously disclosed restructuring initiatives
• Cash balance at 31 December 2015 amounted to £24.1 million (H1 FY 2015: £32.5 million)
o Despite the Baydonhill incident (see “Post Period Material Event” below), Earthport retains a well-funded balance sheet and possesses sufficient capital to execute its growth strategy

Operational Highlights
• Strong operational progress:
o 11 new customers were signed during H1 FY 2016 (H1 FY 2015: 17)
o 9 customers went live in the period (H1 FY 2015: 8)
o Customer base now includes six of the world’s largest global Banks by asset size, nine of the top traditional and emerging Money Transfer Organisations, seven of the key “challenger” international payment companies, some of the fastest growing leading eCommerce and sharing economy companies
• Growing pipeline of 35 customers under contract and in implementation stage ahead of go-live
• Significant growth in transaction volume from existing non-Bank and Bank clients expanding into new countries, with immediate revenue opportunities
• An increasing number of deals being originated beyond the traditional markets of the US and Europe, signifying early traction from the geographic expansion strategy.
o Non-Europe/US pipeline is expected to be an increasing contributor to revenue growth in FY 17 and FY 18

Distributed Ledger Strategy
o Earthport continues to cement its uniquely strong competitive position in realising the potential of DL for cross-border payments in partnership with Ripple (a DL based settlement network specialist):
* Earthport’s Distributed Ledger Hub (DLH) for multiple ledgers was announced in January 2016. This has been designed to provide full connectivity to additional DLs as they emerge, all available via a single Earthport Application Programming Interface (API)
* The Company has commenced DL pilot programme with a major Bank and with additional ones in the pipeline with a clear roadmap to implementation

Post Period Material Event
• Baydonhill Loss (as reported in the RNS dated 25th February 2016):
o Earthport’s wholly owned foreign exchange subsidiary, Baydonhill, experienced a material financial loss relating to a potential fraud by one of its corporate customers. As a result of this incident, the Company is exposed to a maximum potential loss of £5 million (See Baydonhill Material Event and Response):
 While the potential loss is significant, no client funds were affected by this loss, nor are any other client funds at risk of future loss in connection to this incident. Baydonhill’s activities continue as normal
* Earthport’s core business is unaffected and continues to experience significant traction as it is based on a wholly “pre-funded” payments model
* The average daily transaction volume post the Baydonhill incident to date is more than 15% greater than the average daily transaction volume in December 2015 and January 2016
* A full risk review has been initiated and additional controls identified and implemented; including the closure of the legacy programme that precipitated the above incident

Post Period Highlights
• Enhancing the Board of Directors and Management Team:
o John B. McCoy, the former Chairman and Chief Executive Officer of Bank One Corporation, has joined Earthport's Board as a Non-Executive Director. John McCoy is currently a director of AT&T (NYSE:T) and Onex Corporation (TSE:OCX)
o Peter Klein, former Global Head of Foreign Exchange Prime Brokerage & Clearing at Bank of America, joined Earthport as Global Head of FX, in charge of all FX products across the Group

Hank Uberoi, CEO Earthport plc commented:
“Earthport’s model continues to see strong traction in the market, evidenced by the growth of existing client relationships and scope and scale of opportunities in the pipeline. From this juncture, the potential for Earthport to address the flaws of the traditional cross-border payments model is clear and the opportunity is significant. We remain committed to our investment in geographic expansion and product development to secure our position and maximise the medium and long term prospects.”

Comments: (0)