Earthport releases trading update

Source: Earthport

Earthport (AIM: EPO.L), the leading payment network for cross-border payments, is pleased to provide an unaudited trading update for the fiscal year ended 30 June 2016 (“FY16”).

 Financial and Transactional Highlights

  • Revenues of approximately £22.7 million, up 18% versus prior year and within the range referenced at the Capital Markets Day held on 27 April 2016
  • Transactional revenues comprised approximately 90% of total revenue
  • Adjusted gross margin of approximately 70% resulting in adjusted gross profit of £16.2 million
    • Impacted by elevated transaction costs related to ongoing improvements of the Earthport network
  • Cash balance at FY16 year-end of approximately £14.4 million, with cash and cash equivalents of £14.9 million and consistent with guidance at the Capital Markets Day:
    • Includes the loss from the alleged fraud incident (see "Baydonhill Loss Event" below)
  • Payment volume increased to more than $11 billion, 73% increase versus prior fiscal year
  • Record number of transactions at 6.7 million, 89% increase versus prior fiscal year:
    • June 2016 set a record for number of transactions processed in the month
    • Annualised year-end run-rate of 8.5 million transactions and $14.5 billion in payment volume
  • Executed payments in over 180 destination countries, in 54 currencies
  • Average revenue per transaction of £3.12

Diversified Growth Prospects on Multiple Fronts

Controlled expansion strategy anchored in ‘proof-points’ informs investment across all regions:

European Markets:

  • Gaining traction with European-based global Banks:
    • Experiencing increasing transaction volumes and multiple engagements with existing clients
    • Enhanced product offerings and payment methods (i.e. Distributed Ledger “DL”, Faster Payments etc.)
    • Ripple peer-to-peer remittance application launched April 2016, a global first using DL technology for live transactions in fiat currency for a large European Bank
  • Large eCommerce provider now live in three markets and already a top five client by volume. Additional markets in discussion
  • Commenced transactions on behalf of two new top five global Money Transfer Organisations
  • Extending to new market segments: Recent contract with leading global travel booking portal currently in implementation

North American Market – Mining existing clients and targeted strategic opportunities:

  • Substantially completed integration of a current clients’s core payment processing platform into Earthport’s network. This is a top 10 global Bank
  • Commenced transactions on behalf of two other North American Banks
  • Increasing transaction volumes from one of the fastest growing eCommerce payment platforms:
    • Anticipated grant of state licensing in North America will accelerate growth in this sector

Emerging Markets - Unique opportunity leveraging our access into network countries:

  • Contracted with major Japanese Bank to process payments to six countries
  • Israel: Contracted with three out of the four major Money Transfer Organisations – two are live, with the third currently in implementation
  • Signed MOUs with major Banks in India, Indonesia and other markets
  • Engaged with Regulators in multiple countries, expecting approvals in key Asian markets to originate ‘out-bound’ business
  • Deal pipeline consists of Banks from over 10 new countries across the region

EarthportFX:

  • Earthport subsidiary, Baydonhill, rebranded and relaunched as EarthportFX, aligning the business with Earthport’s core model, and expanding its services to corporate clients
  • Further integration of FX capability into the broader Earthport payment offering

Advancement of DL Strategy:

  • Earthport Ripple gateway partnership announced August 2015 and Earthport Distributed Ledger Hub for multiple ledgers announced January 2016. This is planned to provide connectivity to additional DL’s as they emerge, all available via a single connection to Earthport

In April 2016, Earthport executed the first cross-border transaction via DL by a major financial Institution on behalf of a large European Bank

Enhancing the Board of Directors

  • John B. McCoy, retired Chairman and CEO of Bank One (merged with JPMorgan Chase in 2004), joined the Board in February 2016

 Baydonhill Loss Event

  • In February 2016, Earthport’s FX subsidiary, Baydonhill, experienced a material financial loss of approximately £5 million, resulting from a potential fraud in relation to a corporate client
  • The Board retained Promontory Advisory Services to conduct a full and independent investigation into the circumstances within the Baydonhill business which led to the client loss event
  • Separately, a complaint submitted to law enforcement ultimately led to their current and continuing investigation into activity at the corporate client, which appears (prima facie) to be the alleged fraud that precipitated the loss:
    • Work continues to ensure that all avenues of recovery are pursued, including:
      • Co-ordinating between the appointed Administrator and Law Enforcement
      • Furthering claim under our Financial Crime Insurance, which provides coverage of up to £5 million
      • Supporting Administrator led options:
        • Claiming against the client’s own D&O insurance
        • Civil recovery action against one or more of the client’s principal

Summary:

As an Authorised Payment Institution (“API”) regulated by the UK Financial Conduct Authority, Earthport is uniquely positioned to service the cross-border payments of clients across several industry segments, including Banks, Money Transfer Organisations, sharing economy companies and eCommerce businesses.

Market recognition of our brand and broad acceptance of the model is accelerating, as evidenced by increasing demand for its services within key segments and across regions. Growing transaction volumes, both from existing clients and from newly implemented customers, demonstrate the strength of the product and the Company’s capacity to successfully process and sustain this growth is a testament to the business’ scalability. Recent investments in Asia-focused expansion are showing encouraging early results. As the business continues to scale over the next few years, the Earthport network will add further value via access to more diversified payment methods and destination geographies.

Earthport will continue to invest in client acquisition across select geographies while remaining focused on achieving the short term operational and financial goals shared at the Capital Markets Day on 27 April 2016 – namely, prudent management of Company cash resources, targeted cash break-even during the second half of fiscal year 2017, and positive cash generation thereafter.

Hank Uberoi, CEO Earthport plc commented: “FY16 presented challenges with extended implementation times at our large Bank clients compounded by the fraud incident. However, we are pleased with the continued and growing acceptance of the Earthport Payment Network as a valuable and innovative solution in the multi-trillion dollar cross-border payments market. Our roster of active clients - which includes global banks in multiple geographies, some of the fastest growing eCommerce companies, and the largest money transfer organisations - demonstrate the uniqueness of our market position and universality of our product.

We are seeing new demand for our offering as our existing clients continue to grow their use of our network into complementary areas of their business. Our proven product offering, highly respected compliance processes, world-class customer base and experienced leadership team have placed us in a unique position in the world of cross-border payments. The true growth opportunity for this business is now beginning to be realised.”

Contributed | what does this mean?
This content is contributed or sourced from third parties but has been subject to Finextra editorial review.

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