[URL="http://www.hemscott.com/news/rna/item.do?newsId=52587579834666"]NETeller PLC - Q3 Trading Update[/URL]
RNS Number:0846H
NETeller PLC
06 November 2007
NETELLER Plc
THIRD QUARTER TRADING UPDATE SHOWS CONTINUED SOLID PROGRESS
Tuesday, 6 November 2007 - NETELLER Plc (LSE: NLR), the world's leading
independent global online payments business, today announces its trading update
for the three months ended 30 September 2007.
Highlights
* Continued progress to be pre-eminent provider of online gaming sector
related payments solutions
* Active customers (ex North America) up 14% to 94,925 in Q3 2007 from
83,627 (Q3 2006)
* Total revenue in Q3 2007 was $16.9m - fee revenue ex-interest increased
25% from Q3 2006
* European revenue in Q3 2007 grew 19% to $8.4m and Asia Pacific revenue
grew 41% to $3.0m both compared to Q3 2006 figures (ex-interest)
* Gross margin in Q3 2007 was 60%, compared to 55% in H1 2007
* Loss before tax in Q3 2007 was $145.9m due to US forfeiture and related US
expenses
* Cash at 30 September 2007 was $149.4m; $40m paid to US authorities on 15
October 2007
* Cash flow from operations positive in Q3 2007
Ron Martin, President & Chief Executive Officer of NETELLER, said 'The third
quarter has demonstrated the resilience of the NETELLER business and the results
from our European and Asia Pacific businesses show that we are regaining the
trust of customers and continuing to deliver innovative solutions to our
merchants. Geographic diversification remains a key part of our growth strategy
although the Board continues to be mindful of regulatory concerns in certain
markets.
Our strong presence at EiG in Barcelona reiterated our commitment and focus to
the online gaming sector and I believe we are progressing well in one of our
core mission objectives, to be the pre-eminent provider of payment solutions for
selected markets in the online gaming sector. The launch of the first phase of
our global card programme is proceeding as planned and we are on track to offer
additional card-related services during the first half of 2008.
The Board remains confident about prospects for the business for the full year
and beyond.'
Enquiries:
NETELLER Plc (for 6 November at Citigate) + 44 (0) 207 638 9571
Ron Martin President & CEO
Doug Terry CFO
Andrew Gilchrist VP Communications + 44 (0) 7824 385 829
Daniel Stewart & Co Plc + 44 (0) 207 776 6550
Paul Shackleton
Citigate Dewe Rogerson + 44 (0) 207 638 9571
Sarah Gestetner / Sebastian Hoyle / George Cazenove
Notes to Editors
About the NETELLER Group
The NETELLER Group operates the world's leading independent online payments
business and 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 and regulated by the
Financial Services Authority (FSA) to operate as a regulated e-money issuer. For
more information about the Group visit [url]www.netellergroup.com[/url].
* * *
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.
* * * *
Operational and Financial Highlights
All financial figures in US$ unless otherwise noted.
Customers and Sign ups
The Group's active customer base in Q3 2007 increased to 142,153 from the
117,056 active customers recorded in Q2 2007. The Q3 2007 figure included
47,150 active customers in North America whose only 'active' transaction was a
withdrawal of funds from their NETELLER e-wallet. The number of non-North
American active customers at the end of Q3 2007 was 94,925, an increase of 14%
from the end of Q3 2006. The regional distribution of active customers included
72,849 in Europe (an increase of 12% over the corresponding period in 2006) and
17,638 in Asia Pacific (up 21% from the same period in 2006). These results
demonstrate the Group's continued focus on the markets of Europe and Asia
Pacific.
The table below sets out our active customers by region:
Active customers Q3 2007 Q3 2006 Q3 '07 vs Q2 2007 Q3 '07 vs
Q3 '06 % Q2 '07 %
Europe 72,849 64,964 12% 76,964 -5%
Asia Pacific 17,638 14,533 21% 15,792 4%
Rest of World 4,438 4,130 7% 4,460 0%
Total ex North America 94,925 83,627 14% 97,216 -2%
Total customers ex North 895,334 555,259 61% 815,910 10%
America
The Group's total customer base (including North American customers) at end of
Q3 2007 was 3,839,807. The total, excluding North America, was 895,334
customers, an increase of 61% from the figure at 30 September 2006.
Average daily receipts from customers were approximately $295k during Q3 2007
(Q3 2006: $5.31 million). The decrease of 94% was principally due to the
withdrawal from the North American market during the first quarter of 2007.
Total receipts from customers during the period totalled $27.2 million.
Average daily sign-ups of new customers was 900 during Q3 2007 (Q3 2006: 3,218)
representing a decrease of 72%. Again, this decrease was almost entirely
attributable to the withdrawal from servicing the North American market during
Q1 2007. In Q2 2007, 937 new customers per day signed up for the Group's
e-wallet.
Revenue
Revenue for the third quarter of $16.9 million represented a decrease of 75%
from $66.7 million for Q3 2006. Excluding North America, fee revenue, which
includes charges paid by individual and merchant customers of both the e-wallet
and Netbanx, increased 25% from $10.8 million to $13.5 million in Q3 2007.
Interest revenue of $3.4 million was significantly lower compared with $5.3
million in Q3 2006 due to the repayment of over $75 million in funds owed to US
customers under the Distribution Plan. Interest revenue is expected to decline
further during Q4 2007 following the initial payment of $40 million to the US
authorities on 15 October 2007 from the Group's cash resources.
During Q3 2007, Europe accounted for approximately $8.4 million in revenue
before interest (an increase of 19% over $7.1 million in Q3 2006), and Asia
Pacific accounted for $3.0 million during Q3 2007 (an increase of 41% over $2.1
million during Q3 2006).
The table below sets out our fee revenue by region and revenue from NetBanx and
interest income:
Revenue Q3 2007 Q3 2006 Q3 '07 vs YTD 2007 Q2 2007 Q3 '07 vs Q1 2007
Q3'06 % Q2 '07 %
($ millions)
Europe (ex NetBanx) 8.4 7.1 19% 26.5 8.7 -3% 9.4
Asia Pacific 3.0 2.1 41% 8.4 2.9 2% 2.5
Rest of World 0.4 0.3 17% 1.5 0.5 -30% 0.6
Total Fee revenue 11.8 9.5 24% 36.4 12.1 -3% 12.5
NetBanx 1.8 1.3 36% 4.9 1.6 10% 1.5
Interest 3.4 5.3 -35% 11.7 3.9 -12% 4.3
Total 16.9 16.1 5% 52.9 17.6 -4% 18.3
North America (1) 0.0 50.6 -100% 14.9 0.5 -98% 14.4
Total 16.9 66.7 -75% 67.8 18.1 -6% 32.7
(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.
Gross margin
Due to recent events and the resulting significant change in market
concentration, gross margin has decreased to 60% (compared to 71.8 % during the
same period in 2006). This is flat compared to Q2 2007 (60%) and represented an
increase from the 51% recorded in Q1 2007. Q1 2007 margin was lower due to
increased bad debt incurred on the withdrawal from North America.
Customer support costs continued to represent the largest proportion of direct
costs at 15.6% of revenue, as the strength of the Canadian dollar vs the US
dollar continues. Website maintenance costs were 10.6% of revenues. Both
expense categories are largely fixed being labour-related expenses principally
focused in our Calgary operations. Deposit and withdrawal fees decreased to
11.1% of revenue compared to 13.6% in Q2. Although the Group incurred certain
charges in returning funds to its US customers, it has been successful in
reducing processing costs and local banking fees, particularly in Europe. Bad
debts and collections represented 2.4% of revenues in Q3 2007, a reduction which
was anticipated following the withdrawal from the North American market and
cessation of Instacash products.
Operating expenses and restructuring costs
The Group incurred an operating loss before tax of $145.9 million. This
includes the forfeiture to the US authorities as announced earlier this year of
$136 million which was taken through the profit and loss account in this
quarter. General and administrative expenses increased to $7.5 million up from
$7.4 million in Q2 2007. This was largely due to a strong Canadian Dollar,
higher professional fees in the quarter and costs related to the launch of the
Group's European debit card program.
The Group announced in its interim results statement of 23 August 2007 that
reorganisation and restructuring costs (including professional and legal fees
incurred in the resolution of the US situation) and write-downs of assets
directly relating to the North American business were expected to total between
$35 million and $40 million. Included in this estimate is a charge of
approximately $2 million paid during Q3 2007 in relation to the cessation of a
significant supply contract. However, this will have a positive ongoing impact
as the related monthly expenditure will be reduced.
Share option expense is included in general and administrative expense. For Q3
2007, the share option expense was $2.2 million. As stated in the Company's
announcement of 1 November 2007, the Group is looking to cancel a significant
number of out-of-the-money options and replace them, subject to the agreement of
certain executives. This will likely result in a further write-off in Q4 2007
but will substantially reduce the ongoing cost of the options in the profit and
loss account going forward in 2008.
The Group sold its property at 41st Avenue, Calgary, in September 2007 for $3.3
million. The sale resulted in a loss on disposal of fixed assets of $216,336.
The Group continues to progress discussions regarding the sale of its principal
property at 27th Avenue in Calgary and hopes to achieve a sale in line with
previous estimates in the first quarter of 2008.
Cash position of the Group
The total amount of cash available to the Group totalled $149.4 million at 30
September 2007 which is stated after deducting the $60 million of funds seized
by the US authorities in January 2007 and thereafter, which forms part of the
resolution with the US authorities announced in July 2007. Under this
resolution, the Company agreed to forfeit a total of $136 million to the US. The
Group made a scheduled payment of $40 million on 15 October 2007, and the
remaining balance (approximately $36 million) will be paid on or before 17
January 2008.
As part of the US resolution, the Group implemented the Distribution Plan to
return approximately $94 million of funds owed to US customers. The Group has
to date repaid approximately $78 million of this amount owing. Any unpaid
amounts are currently held in trust accounts with the Group's European bankers.
Business highlights
The Group made progress in Q3 2007 with its product development programme and
also in furthering its payment options. A key update introduced at the end of
the quarter was a simplification of the sign up process designed to improve new
customer conversions. Other developments have included a flexible merchant rate
plan, additional customer funds top up features, and a pilot of an affiliate
programme (developed from the successful 'Refer-a-friend' programme NETELLER
already offers). The Group's 'Ludicrous' marketing promotion has been
successful in generating additional revenue during the traditionally quieter
summer months.
The Group has successfully migrated its Japanese site to the core e-wallet
platform, and further integration between the e-wallet and the NetBanx
operations continue to improve internal payment processing capabilities. A key
element of NETELLER's diversification into financial services, the launch of the
Group's debit card scheme in early Q3 2007 has seen a strong take up of the new
cards, with over 18,000 new pre-paid debit cards being issued to customers to
date. Further progress is expected in the first half of 2008.
The $4 million investment in Centricom in July demonstrated the Group's
commitment to delivering innovative payment solutions to its customers. The
Group continues to examine investment opportunities in line with its strategic
vision.
Current trading
Since the end of September trading has continued to show positive growth trends
in both sign ups and average daily receipts, in line with typical seasonal
variations. Average daily revenue has been in the region of $100,000 per day
and unadjusted fees for October are expected to be approximately 7% higher than
September. The Group is continuing to introduce new product features as
scheduled and the development pipeline for the fourth quarter should further
enhance the offering to both merchants and customers. The Board remains
confident about prospects for the business for the full year and beyond.
Third Quarter 2007 Unaudited Financial Information
Q3 - 2007 9 months 2007 Q3 - 2006 9 months 2006 Q2 -2007 2007 to 2006 2007
US $ US $ US $ US $ US $ Q3 YTD Q3 to Q2
Revenue 16,945,542 67,790,011 66,671,914 185,566,463 18,180,298 -75 % -63 % -7 %
Direct Costs (6,730,292) (29,812,715) (18,784,956) (52,322,452) (7,201,988) -64 % -43 % -7 %
Gross profit 10,215,250 37,977,297 47,886,958 133,244,011 10,978,310 -79 % -71% -7 %
General and Admin (7,489,513) (24,665,858) (10,367,105) (28,562,310) (7,423,138) -28 % -14 % 1 %
Operating income 2,725,737 13,311,438 37,519,853 104,681,700 3,555,171 -93 % -87 % -23 %
Other income
(expense)
Foreign exchange 19,192 (661,123) (231,456) 71,995 (375,963)
gain
Management bonus (300,000) (1,012,657) - (1,949,710) (337,878)
Depreciation and (1,805,629) (6,584,272) (3,040,454) (7,977,411) (1,920,405)
Amortisation
Stock option (2,224,016) (6,672,049) (1,774,135) (4,348,951) (2,224,016)
expense
Impairment loss - - - - -
Restructuring (2,039,535) (4,761,146) - - (1,951,620)
costs
Asset write down - (13,014,866) - - (1,003,098)
US related costs (6,066,595) (14,956,502) - - (6,310,946)
US forfeiture (136,000,000) (136,000,000) - - -
Loss on disposal (216,336) (216,336) - - -
of assets
Income before tax (145,907,182) (170,572,514) 32,473,808 90,477,623 (10,568,755)
Income taxes (612,037) (451,639) (1,713,599) 3,840,006 1,089,757
Net income after tax (146,519,219) (171,024,153) 30,760,209 86,637,617 (9,478,998)
Daily sign ups 900 1,208 3,218 3,239 937 -72 % -63 % -4 %
Total customers (at 3,839,807 3,839,807 3,188,650 3,188,650 3,756,983 20 % 20 % 2 %
period end)
Total active 142,153 nm 619,550 nm 117,056 -77 % nm 21 %
customers (in
quarter) (1)
Revenue per active $ 119 nm $ 108 nm $ 155 10 % nm -23%
customer
Average daily 295,365 764,984 5,314,631 4,892,434 339,314 -94 % -84 % -13 %
receipts from
customers
Total customer 27,173,582 208,840,583 488,946,070 1,335,634,373 30,877,606 -94 % -84 % -12 %
receipts
(1) An active customers are defined as a customer whose e-wallet account
balance has changed during the quarter.
nm not meaningful
This information is provided by RNS
The company news service from the London Stock Exchange
