MINOAN GROUP PLC — Earnings Release 2017

Apr 17, 2018

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RNS Number : 1005L

Mi-Pay Group PLC

17 April 2018

The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014.  Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain

17 April 2018

Mi-Pay Group plc

('Mi-Pay', the 'Group', or the 'Company')

Final Results

Mi-Pay (AIM: MPAY), a leading provider of digital transformation and mobile payment solutions to Tier 1 Mobile Network Operators and Mobile Virtual Network Operators, is pleased to present its Final Results for the year ended 31 December 2017. 

Financial Highlights

·      £94.0m of payment transaction value processed in 2017 from 6.7m processed transactions (2016: £83.4 million and 6.2 million respectively).

·      Total Revenue £3.1 million for the year (2016: £3.3 million).

o  Transaction Services Revenue £2.7 million (2016: £2.6 million).

o  New contract terms with largest client reduced Transaction Services revenues by £0.2 million. Increased revenue growth expected in the medium term.

o  Professional Services Revenue £0.4 million (2016: £0.7 million).

·      Transaction Services gross margin increased to 63% (2016: 60%).

·      A £0.1 million increase in Transaction Services Gross Profits offset by Professional Services Gross Profit reduction of £0.2 million as total Gross profits reduced by £0.1 million.

·      Operating loss of £0.6 million (2016: £0.4 million).

·      Cash and cash equivalents as at 31 December 2017 £2.9 million (31 December 2016: £3.5 million).

·      Basic diluted loss per share 1.5 pence (2016: 1.1 pence).

Operational Highlights

·      Re-contracted with our largest client for an incremental three years. Expect material growth in payment transaction value processed as our Client integrates a recently acquired customer base.

·      New contract win in the Philippines to develop and deliver a new international payment service during 2018.

·      Developed voice activated top up services to drive next generation customer channels.

·      Delivered our first direct fraud management service with a new European client.

·      Continued strong metrics from our in-house cyber security, fraud and content management solutions driving the growth in Transaction Services gross margins:

o  Average chargeback rate 0.06% (2016: 0.06%).

o  Average payment success percentage 89.2% (2016: 87.9%).

o  Increased consumer data consumption drove average revenue per transaction to £14.09 (2016: £13.50).

March 2018 restructure and placing impact improving financial performance

·      Michael Dickerson to Executive Chairman, John Beale to Chief Executive Officer. John will continue his duties as Chief Financial Officer in the interim until a suitable successor is appointed.

·      £0.2 million reduction in annual general and administration costs.

·      £0.3 million reduction in liabilities with no cash outflow.

·     £0.3 million new cash inflow from placing.

Michael Dickerson, Executive Chairman of Mi-Pay Group plc commented on the results:

"In 2017 we have been successful in delivering growth in our annuity-based Transaction Services revenues and continued to deliver strong gross margins. In winning the long-term contract to deliver services to our largest client, delivered our first fraud management client and strengthened our opportunities in Asia Pacific we expect to drive future growth.

On the 1st March 2018, we delivered a restructure and placing of new ordinary shares that reduced our administrative expenses, liabilities and provided increased cash for continued investment in our solutions. This will underpin our delivery of growth and profitability"

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 22nd May 2018 at 11 a.m. are available on our website at www.mi-pay.com/investor-document-centre/ and will be posted to Shareholders shortly.

For further information please contact:

Mi‐Pay Group plc         Tel: +44 207 112 2129    Michael Dickerson, Chairman John Beale, CEO and acting CFO	IFC Advisory Tel: +44 203 934 6600 Graham Herring Heather Armstrong Florence Chandler	Zeus Capital Tel +44 161 831 1512 Nick Cowles Jamie Peel

About Mi‐Pay Group

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

I am pleased to write my first Chairman statement following our restructure, announced on 1 March 2018. Firstly, I would like to thank Seamus Keating for his work as our Chairman since 2014 and his guidance through that period. I look forward to continue working closely with him as we deliver Mi-Pay to profitability and long-term growth.

Following a review of the Group, the Directors took the decision to restructure the Board which we feel will better support the business as it grows and improve the financial performance:

·	Taking the role as Executive Chairman and now based in Asia Pacific, I will assist the organisation in overseeing our commercial growth and directly manage our Asia Pacific opportunities.
·	John Beale has assumed the role as our Chief Executive Officer. With over 7 years of experience at Mi-Pay and located in Europe, John is well placed to directly support our European Clients and lead day to day Operations and employees. John will continue his duties as Chief Financial Officer in the interim until a suitable successor is appointed.
·	Allen Atwell will remain a Non-Executive Director as our technology advisor and importantly continue as a technology consultant to the Group in an operational capacity, Allen will focus on our technology, product roadmap and research and development investments.
·	Seamus Keating and Edward Lascelles will remain as Non-Executive Directors and continue to provide their guidance and support to the Board.

The changes also deliver positive financial benefits to the Group. We will deliver cost savings of £0.2 million per annum and the issue of £0.5 million of new shares enabled us to covert £0.2 million of previously deferred Directors salaries, reducing our liabilities and raise £0.3 million of new capital which will enable us to continue to invest in our solutions and people.

I would like to thank the directors for supporting this process and increasing their investment in the Group through the conversion of their current liabilities and new placings. We believe this strengthens the focus of the Board, management team and the financial stability of the Group.

Outlook

In 2017, our ability to deliver new services in the form of a major contract win, new fraud management solutions and Asia-pacific solutions demonstrates the relevance on Mi-Pay in our market. We expect to drive future growth above historic run rate levels as we look forward:

·	Continued growth in our payments processed as consumers naturally migrate to our digital channels from the retail environment.
·	Material growth from the contract extension with our largest client as we become their core digital payment solution across all customer channels.
·	The delivery of our fraud management solution as a stand-alone service driving new revenue streams and profitability.
·	Recently delivered opportunities in Asia will enhance our local experience and relevance with potential longer term growth opportunities.

Whilst this investment has affected short-term revenues and profits, primarily due to new commercial terms with our largest client, we expect this to underpin long-term growth. 2018 is therefore about delivering on the core foundations built and opportunities won.

These targets, when combined with cost savings following our restructure will underpin our progress towards profitability and we retain healthy cash balances to continue to invest and develop our solution and our people.

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 our growth.

Michael Dickerson

Executive Chairman

16 April 2018

CEO Review of Operations

We are focused on enabling our clients to digitally transform their customer interactions, improve customer experience and mitigate our clients' risks. Our solutions directly resolve these challenges:

1.   Increasing consumer demand and availability of digital content is driving an exponential increase in data consumption via the mobile device.

2.   Our customers require new ways to manage margin and retain customers via digital payment channels. Our solutions and low cost of delivery provide a single solution for clients.

3.   New customer contact services such as secure call centre payment solutions and voice activated payments with services such as Amazon Alexa require new solutions to address payments within these technologies.

4.   High profile data security breaches have driven the protection of customer data to be strategically critical to our clients' success and brand value.

5.   E-commerce payment fraud is increasing with the proliferation of new payment solutions adding complexity to risk management.

6.   In contrast, consumers now expect a quick, simple e-commerce experience with flexible payment solutions. 3rd party mobile friendly 'wallet' payment solutions such as PayPal, Amazon Payments and Apple Pay are increasingly the choice of consumers. Over time, this will become more complex as direct banking solutions and crypto-currencies enter the market.

We will continue to invest, build knowledge, experience and solutions to simplify these challenges for our customers.

Revenue

We deliver two core revenue streams from our clients:

·      Transaction Services Revenue is driven from the processing of transactions on behalf of our clients. This is our core business and can deliver strong gross margins, 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 Revenue relates 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.

Total revenue decreased by £0.2 million to £3.1 million (2016: £3.3 million) with the reduction driven by a £0.3 million reduction in our one time Professional Services Revenues as we focussed on driving Transaction Services growth. We are pleased however that our core Transaction Services Revenues increased by £0.1 million to £2.7 million despite being impacted by a reduction in the pricing to our largest client which reduced our revenue for July 2017 to December 2017 by £0.2 million. This protected our largest client and we expect to deliver material growth as our client integrates a recently acquired customer base which will offset our short-term reduction in revenues and further reduce our reliance in non-recurring Professional Services revenues.

We have also successfully delivered two new revenue streams in quarter four 2017. Growth remains slow in Asia, however a new payment service in the region that we hope to expand on in 2018 offers us the potential of further growth and following a successful trial of a direct fraud management solution we see this delivering a new revenue stream in 2018. Importantly both will help to diversify our revenues and margins and enable us to enhance our solutions for these new market areas through our learnings.

Underlying Revenue Trends

·	Our largest client has grown to 28% of our revenue as the processed volumes increased. We are pleased to have secured a further 3-year extension to this contract to deliver longer-term security and growth.
·	Our 10 largest clients equate to 84% of our revenues. We average over 6 years of contractual relationship with these clients.
·	During the year we delivered four new clients, including solutions in Romania, Asia Pacific, direct fraud management services within Europe and services into a new virtual mobile operator via an Energy provider as we look to grow our propositions outside of traditional UK based Mobile Top Up solutions. One client terminated due to the closure of their pre-pay services.
·	We continue to see consumers moving to device focussed and mobile wallet payment solutions and an increase in our customers appetite for more secure, compliant solutions as GDPR (General Data Protection Regulation) comes into force in 2018.
·	We saw our growth driven primarily from increasing volumes through mobile applications (Apps) and device-optimised websites with a continuing reduction in more traditional Interactive Voice Recognition (IVR). As we deliver all these channels we are well protected.

Key Performance Metrics & Operational Investments

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 payment fraud management and payment transaction optimisation rates to both protect our gross profit margins but also deliver real business value to our clients and their customers. It is here that we target our investments. Our in house fraud service and our new European client will give us a further insight and knowledge in the management of payment fraud.

We continued to see high levels of transaction success rates at 89%, improved against 2016 (88%) and we delivered excellent performance in payment fraud management achieving 0.06% of transaction value which we see as market leading. This has enabled us to increase our Transaction Services gross margin to 63% (2016: 60%) despite the reduction in pricing with our largest client.

The Group also considers its revenues, gross profit margins and administration expenses as key performance metrics and these are reviewed in the Financial Review.

The addition of new fraud management services will enable us to increasingly diversify our revenue stream and risks.

Infrastructure Investments

We continue to invest in the development of our solutions. We maintained our research and development expenditure at £0.6 million in 2017 and saw an increase of £0.1 million in general and administration costs as we invested more in the cyber security of our infrastructure. Our key areas of focus are:

·      Data Security. The security of the data we hold is critical to our success. We continue to invest in our infrastructure from a cyber-security perspective to protect the consumer data we hold. We remain PCI/DSS 3.2 compliant, delivered enhanced data encryption capability during the year and are on target to be fully compliant with the incoming General Data Protection Regulation. We will look to introduce new call centre secure payment technologies in 2018 to complement our existing contact channels;

·      Payment Security. Our investment in payment fraud management solution continues to deliver excellent performance and we will develop new features such as machine learning capabilities and more flexible client portal solutions. The delivery of our first direct indemnified fraud service will deliver a wealth of experience, knowledge and business information to enable us to continue to develop our product;

·      On-Device Solutions. We continue to look at enhancing our on-device payment capability delivering enhanced device optimised web solutions for existing clients, continuing to offer the best on device payment solutions (PayPal/Amazon Payments etc.) and will continue to bring new payment solutions such as Apple Pay and bank led payment solutions to the Operator community;

·      Voice Services. We see voice activated services (for example Amazon Alexa) as a longer-term growth opportunity and the next 'customer payment channel' to sit alongside our existing customer contact channels. During the year, we delivered prototype solutions to for secure payments over voice activated services and will continue to invest in this in 2018; and

·      Data & Content. As data usage continues to grow exponentially we have enhanced our capability to work with operators and content providers to manage real time data bundles and responsive top-ups alongside developing business intelligence solutions to enhance our client's abilities to manage their customers' needs. In addition we expect new cloud based technologies will allow us to improve our cost base and management of data in the future.

These investments are primarily delivered by our own people enabling us to retain intellectual property and ensure the solution is applicable across all of our customers.

In 2017, we demonstrated our market relevance and that our solutions are of strategic importance to our clients. We now offer a full suite of fully managed digital customer channels and payment solutions and will continue to expand them - most importantly, we do so in a fully secure environment. We will look to build on this in 2018 and have clear targets to deliver new growth and improve efficiencies along side the financial improvements following the restructure. The knowledge and skills, hard work and dedication of our employees have built this capability and I look forward to working with them over the coming years to deliver further success. They are our most valuable resource and continue to create the platform and environment for success.

John Beale

Chief Executive Officer

16 April 2018

Financial Review

We continue to deliver a growing annuity based revenue stream and deliver strong gross margins whilst controlling the risks and demonstrating an ability to scale whilst maintaining existing cost levels.

Transaction Services performance

Financial	2017	2016	2015
Payment transaction volume processed	6,668,732	6,180,119	5,225,148
Payment transaction value (£)	93,982,712	83,404,805	64,666,714
Average transaction value (£)	14.09	13.50	12.37
Transaction Services Revenue (£)	2,654,178	2,565,629	2,257,130
Transaction Services Gross Profit (£)	1,678,869	1,529,583	1,089,865
Gross Profit Margin %	63%	60%	48%
% of total revenue	87%	78%	75%
% revenue per transaction	2.8%	3.1%	3.5%

Payment transactions processed increased as we saw our largest client grow, further natural migration to our digital e-commerce channels across our client base and, in quarter four, began to process the new volumes from Asia Pacific and direct fraud management solution in Europe, which reviewed over £2 million payment transactions. We will see an increased benefit from these solutions over time.

We continue to see an increasing average transaction as more consumers look for larger data bundles and we look to increase the volume of digital bill pay transactions that drive a higher transaction value. This enables us to drive higher margins and better control our payment fraud risks.

Our Transaction Services revenues grew by £0.1 million to £2.7 million despite the impact of reduced pricing with our largest client, which reduced revenues and profits by £0.2 million. We do expect to see strong growth in the coming periods as we fully deliver our new contracts.

Our percentage revenues per transaction declined to 2.8% (2016: 3.1%), due to:

·      improved commercial contracts with our clients as they sign longer term, higher volume contracts;

·      increased bill pay transactions which deliver lower % fees per transaction but lower risk; and

·      reduced market pricing for payment processing which we pass onto our customers.

Crucially we continued to see growth in our gross profit margin as we continued to deliver strong payment optimisation and see low payment fraud levels but also were able to mitigate commercial pressures as we deliver improved relationships with our payment partners. We expect to see a longer-term decline in gross profit margin; however, this will be compensated by larger volume growth.

Professional Services performance

Financial	2017	2016	2015
Professional Services Revenue (£)	395,922	713,037	757,044
Professional Services Gross Profit (£)	285,309	576,414	601,737
Gross Profit Margin %	72%	81%	79%
% total revenue	13%	22%	25%

Our professional services revenues declined by £0.3 million to £0.4 million (2016: £0.7 million) with gross profits reducing to £0.3 million (2016: £0.6 million). We continue to see less professional services revenue as we drive more growth through existing delivered channels and see larger relationships develop where there is limited upfront revenues; offset by longer-term annuity based growth. As a result, our reliance on this revenue stream has reduced from 25% of total revenues in 2015 to 13% in 2017.

Our total gross profits reduced to £2.0 million (2016: £2.1 million) but closed the period with a stronger underlying annuity based revenue stream and overall we maintained total gross margins at 64%. 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.

Operating Loss

We invested in research and development at similar levels to 2016 and saw a £0.1 million increase in total administrative expenses due to increasing expenditure on our cyber security protection, which remains a critical feature of our solution. When combined with our £0.1 million reduction in gross profits our Operating Losses increased to £0.6 million (2016: £0.4 million).

During 2017, we invested £0.1 million in continuing to review merger and acquisition opportunities in what remains a fragmented payments market and will continue to keep these opportunities under review.

Cash flow, assets and liabilities

Financial	2017	2016	2015
Cash (including deposits) (£)	2,925,766	3,518,217	3,530,154
Total assets (£)	4,381,753	4,812,142	4,716,205
Total current liabilities (£)	(4,359,813)	(4,140,921)	(3,539,741)
Non-current liabilities (£)	(20)	(32,915)	(99,000)
Shareholders' funds (£)	21,920	638,306	1,077,464
Loss per share	(1.5)p	(1.1)p	(3.6)p

The Group ended the year with £2.9 million in cash and cash equivalents (2016: £3.5 million), noting that £2.3 million of this balance related to the operation of managing client payments. Within our cash balance:

·      Client related funds reduced by £0.1 million as we look to pay our clients more efficiently. We expect this trend to continue to ensure we remain market competitive.

·      Our cash outflow on operational activities was £0.5 million, of which:

-      £0.3 million related to expenditure on our core business operation and working capital noting that the Board continued to defer salaries during the year equating to £0.1 million. All of these costs are accrued in the consolidated statement of financial position.

-      £0.1 million related to capital expenditure and lease payments in respect of our core transactional infrastructure and technology investment. We do not capitalise development costs from our employees.

-      £0.1 million of non-recurring expenditure related to professional fees incurred on merger and acquisition activity.

During the period, we recovered £0.3 million in Research and Development tax credits (2016: £0.3 million) directly attributable to the development costs of the group and we expect to recover in excess of £0.2 million in 2018. In the 6-month period to 31 December 2017 our cash outflow excluding client related cash was £0.1 million.

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 £0.03 million remained outstanding as at 31 December 2017. A 5-year extension of this agreement was agreed, commencing July 2018 on similar terms, ensuring continuity to the group in infrastructure and service levels.

Excluding the increase in client funds, there were no other material movements in working capital with the Group being 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 receivables and Trade and other payables both increased by £0.25 million due to the growth in cash processed related to our clients transactions. The Group has no external borrowings.

Impact of board restructure

In May 2017, the Non-Executive Directors ceased to accrue further deferred salaries and the Executive Directors ceased to defer 10% of their salaries from December 2017. The total accrued deferred salaries, as at 31 December 2017 was £0.4 million.

On 1 March 2018, we announced a Board restructure. It is expected that this will affect the Financial Statements in the coming periods:

·      £0.2 million annual reduction in administrative costs as the Non-Executive Directors will continue to be unpaid for services and Michael Dickerson transfers to Executive Chairman role on reduced remuneration;

·      No further deferral of Director salaries;

·      £0.3 million reduction in non-current liabilities as previously deferred salaries and bonuses converted to Ordinary shares as part of the placing. £0.1 million remain accrued and unpaid as deferred salaries due to Directors. There was no cash outflow or net impact on the statement of comprehensive income;

·      £0.3 million incremental cash for the Group through the placing. This will support ongoing working capital and investment in our fraud solution; and

·      New issue of share options at 13p (previously 41 pence) which will affect future charges to the statement of comprehensive income in relation to share based payments. Total share options issued of 3.75m equivalent to the quantum previously issued that were cancelled. These will have no cash impact on the Group.

As a result, we expect a reduction in our administrative costs and a strengthened balance sheet to support our long-term growth aspirations.

John Beale

Chief Executive Officer, Company Secretary

16 April 2018

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2017

	Note	Year ended 31 Dec 2017 £	Year ended 31 Dec 2016 £
Payment Transaction Value Processed		93,982,712	83,404,805
Transaction Services Revenue		2,654,178	2,565,629
Professional Services Revenue		395,922	713,037
Revenue	3	3,050,100	3,278,666
Cost of sales		(1,085,922)	(1,172,669)
Gross profit	3	1,964,178	2,105,997
Administrative expenses
General and administration		(1,837,862)	(1,699,551)
Research and Development		(578,816)	(594,972)
Depreciation		(97,229)	(132,564)
Exceptional items		(71,758)	(121,581)
Total administrative expenses	4	(2,585,665)	(2,548,668)
Operating loss		(621,487)	(442,671)
Finance income		198	3,492
Finance expense		(25)	(67)
Loss before taxation		(621,314)	(439,246)
Taxation		(257)	-
Loss for the year from continuing operations		(621,571)	(439,246)
Other comprehensive expense for the year
Exchange differences on translation of foreign operations		5,185	88
Total comprehensive expense for the year attributable to the owners of the parent		(616,386)	(439,158)
Basic and diluted loss per ordinary share for continuing operations	6	(1.5)p	(1.1)p

Consolidated Statement of Financial Position

For the year ended 31 December 2017

	Note	31 Dec 2017 £	31 Dec 2016 £
ASSETS
Non-current assets
Property, plant and equipment		87,710	176,735
Total non-current assets		87,710	176,735
Current assets
Trade and other receivables	7	1,138,277	897,190
R&D credit receivable		230,000	220,000
Cash and cash equivalents		2,925,766	3,518,217
Total current assets		4,294,043	4,635,407
Total assets		4,381,753	4,812,142
LIABILITIES
Current liabilities
Trade and other payables	8	(4,326,813)	(4,074,921)
Obligations under finance lease		(33,000)	(66,000)
Total current liabilities		(4,359,813)	(4,140,921)
Non-current liabilities
Obligations under finance lease		(20)	(32,915)
Total non-current liabilities		(20)	(32,915)
Total liabilities		(4,359,833)	(4,173,836)
Net assets		21,920	638,306
Equity	9
Share capital		4,159,324	4,159,324
Share premium		1,403,923	1,403,923
Share options reserve		624,729	624,729
Reverse acquisition reserve		6,920,115	6,920,115
Merger reserve		6,808,742	6,808,742
Retained deficit		(19,894,913)	(19,278,527)
Total equity attributable to the equity shareholders of the parent		21,920	638,306

Consolidated Statement of Cash Flows

For the year ended 31 December 2017

	Note	Year ended 31 Dec 2017 £	Year ended 31 Dec 2016 £
Cash flows from operating activities
Loss before tax from continuing operations		(621,314)	(439,246)
Adjusted for:
Depreciation		97,229	132,564
Exchange differences on translation of foreign operations		5,185	-
Finance income		(198)	(3,492)
Finance expense		25	67
R&D credits		(267,516)	(308,710)
(Increase)/decrease in trade and other receivables		(241,087)	(172,855)
Increase in trade and other payables		281,892	601,180
Adjusted loss from operations after changes in working capital		(745,784)	(190,492)
Interest received		198	3,492
Interest paid		(25)	(67)
Income taxes paid		(257)	-
R&D credit (paid)/received		257,516	292,370
Net cash flows from operating activities		(488,352)	105,303
Cash flows from investing activities
Purchase of property, plant and equipment		(38,204)	(51,240)
Net cash flows from investing activities		(38,204)	(51,240)
Cash flows from financing activities
Finance lease payments		(65,895)	(66,000)
Net cash flows from financing activities		(65,895)	(66,000)
Net (decrease)/increase in cash and cash equivalents		(592,451)	(11,937)
Cash and cash equivalents at beginning of period		3,518,217	3,530,154
Cash and cash equivalents at end of period		2,925,766	3,518,217

Consolidated Statement of Changes in Equity

For the year ended 31 December 2017

For the year ended 31 December 2017	Share capital £	Share premium £	Share options reserve £	Reverse acquisition reserve £	Merger reserve £	Retained deficit £	Total £
At 1 January 2017	4,159,324	1,403,923	624,729	6,920,115	6,808,742	(19,278,527)	638,306
Loss for the year from continuing operations	-	-	-	-	-	(621,571)	(621,571)
Other comprehensive expense for the year	-	-	-	-	-	5,185	5,185
At 31 December 2017	4,159,324	1,403,923	624,729	6,920,115	6,808,742	(19,894,913)	21,920

For the year ended 31 December 2016	Share capital £	Share premium £	Share options reserve £	Reverse acquisition reserve £	Merger reserve £	Retained deficit £	Total £
At 1 January 2016	4,159,324	1,403,923	624,729	6,920,115	6,808,742	(18,839,369)	1,077,464
Loss for the year from continuing operations	-	-	-	-	-	(439,246)	(439,246)
Other comprehensive expense for the year	-	-		-	-	88	88
At 31 December 2016	4,159,324	1,403,923	624,729	6,920,115	6,808,742	(19,278,527)	638,306

Notes to the Financial Statements

1.     Accounting policies

General information

Mi-Pay Group plc listed on the AIM - London Stock Exchange on 29 April 2014, registered at Seal House, 56 London Road, Bagshot, Surrey GU19 5HL. Mi-Pay Group plc was incorporated in the United Kingdom under the Companies Act. The principal activity of the Group for the year continued to be specialising in delivering fully outsourced on-line and related payment solutions to digital e-commerce clients, primarily in the mobile sector, enabling them to monetise their on-line proposition risk free.

Basis of preparation

The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs), as adopted by the European Union, and with those parts of the Companies Act applicable to Groups preparing financial statements under IFRSs.

The accounting policies applied in the preparation of these Financial Statements are consistent with those used in the prior year.

Basis of consolidation

Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

The Consolidated Financial Statements present the results of the Company and its subsidiaries ('the Group') as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.

New International Financial Reporting standards in the year

The adoption of the new standards and amendments effective from 1 January 2017 have not impacted the classification or measurement of the Group's assets and liabilities, nor has it resulted in any additional disclosures.

New International Financial Reporting standards and interpretations issued but not yet effective

The IASB have issued the following relevant standards which are not mandatory for the current period.

IFRS 9 (Financial Instruments) - IFRS 9 is effective for annual periods beginning on or after 1 January 2018. The standard introduces a new approach to how financial assets and liabilities are classified and an expected loss impairment model.

Loans to third parties are classified as financial assets held at amortised cost. The Group expect this classification to remain under IFRS 9 and no adjustments on transition are anticipated. The Group has assessed the impact of adopting IFRS 9 and the requirement to review historic, current and forward-looking information when assessing the level of credit losses that may be incurred. Provisions for credit losses are currently measured in accordance with an incurred loss model under IAS 39. The Group does not consider that this change in approach will have a significant impact on the carrying value of these loans.

IFRS 9 will be applied retrospectively in accordance with IAS 8, however, it does not mandate re-statement of prior periods on transition. The Group has decided not to re-state prior periods, therefore, the difference between cost and fair value determined under IFRS 9 will be included in opening retained earnings for 2018. The first set of interim accounts that will be prepared in accordance with IFRS 9 will be 30 June 2018 interims.

IFRS 15 (Revenue from Contracts with Customers) - IFRS 15 is effective for annual periods beginning on or after 1 January 2018. Revenues for the group is growing but the contracts with customers are not complex. Transactional revenues are recognised as commissions when the transactions complete and this is not expected to change under IFRS 15. Project revenues are already broken down to the deliverable components of the contract and then measured on a cost completion basis. Again adoption of IFRS 15 is not expected to materially impact reported revenues.

IFRS 16 (Leases) - IFRS 16 is effective for annual periods beginning on or after 1 January 2019. The standard establishes principles for the recognition, measurement, presentation and disclosure of leases and expands the use of the right-of-use asset and corresponding lease liability.

·      The Group has minimal exposure to operating leases with a contractual liability of £9,000 in 2018 with one lease on a recurring one-month termination and the other terminating in May 2018, which is likely to be renewed at an expected annual liability of £18,000

·      Instead of recognising an operating expense for its operating lease payments, the Group will instead recognise interest on its lease liabilities and amortisation on its right to use assets

The Group does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on the Group.

Research and Development

Research and Development tax credits are included within and offset against the Research and Development line within administrative expenses. 

During the year ended 31 December 2017, the Group has invested £846,332 (2016: £903,682) in Research and Development activities. When deducting the Research and Development credit of £267,516 (2016: £308,710) the net effect and total within the Research and Development line of the Consolidated Statement of Comprehensive Income is £578,816 (2016: £594,972).

Going concern

The Group made a total comprehensive loss of £616,386 for the year ending 31 December 2017 (year ended 31 December 2016: Loss of £439,158). As at the year end the Group does however have healthy cash balances, with cash and cash equivalent balances totalling £2,925,766 and in addition expects to receive at least £230,000 during 2018 in relation to annual Research and Development tax reclaims, an annual recovery, paid in cash it expects to continue in future periods until profitable. In addition, on 1 March 2018 the Group received an incremental £260,000 of new investment under a new placing of ordinary shares.

The Directors have prepared a cash flow forecast covering a period extending beyond 12 months from the date of approval of these Financial Statements with this plan demonstrating that the Group will be able to fully settle its liabilities over the period. The renewal and expected growth with our biggest client, new delivery of fraud service and new opportunities in Asia Pacific, combined with our continuing growth in transaction volumes in 2017 which we expect to continue, combined with the additional reduction in the operating cost base of the business due to the restructure gives the Directors confidence that the Group will move to a monthly positive cash flow position without requiring further investment.

The Directors therefore are confident that sufficient funds are in place to support the going concern status of the Group and as such consider that it is appropriate to prepare the Group's Financial Statements on a going concern basis.

2.     Financial instruments

General objectives, policies and processes

The Board has overall responsibility for the determination of the Mi-Pay Group's risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Mi-Pay Group's finance function. The Board receives monthly reports from the Chief Financial Officer through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Mi-Pay Group's competitiveness and flexibility.

	2017 £	2016 £
Financial assets (amortised cost)
Trade receivables less impairment	88,796	80,116
Client receivables	938,546	642,922
Other receivables and deposits	35,011	99,958
Cash and bank balances	2,925,766	3,518,217
	3,988,119	4,341,213

	2017 £	2016 £
Financial liabilities (amortised cost)
Trade payables	196,420	186,343
Client payables	3,283,629	3,095,022
Other payables and accruals	744,598	724,753
Obligations under finance lease	33,020	98,915
	4,257,667	4,105,033

Financial liabilities in the prior year have been restated to include deferred salaries within Other payables and accruals.

The fair value of the Group's financial assets and financial liabilities is not materially different to their carrying value as shown above and in the Statement of Financial Position.

3.     Segmental analysis

The Chief Operating Decision maker has been identified as the Chief Executive Officer (CEO) of the Group. The Chief Operating Decision maker is responsible for regularly assessing the performance of the Group's operating segments and performing the function of allocating resources. To assist the Chief Operating Decision maker in this process, internally generated reporting is prepared for each operating segment.

The Group has two operating segments that it reports on. These operating segments are:

·      Transaction Services Revenues: This segment generates revenue from the processing of payment transactions on behalf of clients and is Mi-Pay Group plc's core business. For the majority of clients, Mi-Pay Group plc collects gross transaction top up values from acquirers less their acquirer fees, on behalf of client mobile operators. Mi-Pay Group plc generates net commission revenue through charging clients a commission percentage on transaction value as per each individual client contract, with operators then receiving the remainder.

·      Professional Services Revenues: This segment generates revenue from the development, delivery and hosting of our platform and client solutions.

The CEO assesses the performance of the operating segments based on revenue and gross profit. The CEO uses these measures to assess performance because they are quick to analyse and directly relevant to evaluating the results of each segment. The measure of assets and liabilities attributable to each segment is not regularly provided to the Chief Operating Decision maker of the Group, and as such, are not disclosed below.

Both segments are continuing operations and results are as follows:

Operating segments

	2017 £	2016 £
Payment Transaction Value Processed	93,982,712	83,404,805
Transaction Services Revenue	2,654,178	2,565,629
Professional Services Revenue	395,922	713,037
Total revenue	3,050,100	3,278,666
Transaction services cost of sales	975,309	1,036,046
Professional services cost of sales	110,613	136,623
Total cost of sales	1,085,922	1,172,669
Transaction services gross profit	1,678,869	1,529,583
Professional services gross profit	285,309	576,414
Total gross profit	1,964,178	2,105,997
Transaction services gross profit %	63%	60%
Professional services gross profit %	72%	81%
Total gross profit %	64%	64%

Geographical information

All material non-current assets owned by the Group are held in the United Kingdom.

In presenting the consolidated revenue information on a geographical basis, revenue is based on the geographical location of clients. The United Kingdom is the place of domicile of the Parent Company.

Revenue by location:

	2017 £	2016 £
Transaction Services Revenue
United Kingdom	1,458,010	1,424,913
Ireland	849,672	735,420
Rest of Europe	238,593	265,463
Rest of the world	107,903	139,833
Professional Services Revenue
United Kingdom	338,680	530,190
Ireland	40,917
Europe	3,453	4,895
Rest of the world	12,872	177,952
Total	3,050,100	3,278,666
The proportion of turnover that is attributable outside the UK	41%	40%

Major clients

During the year, there were 4 (2016: 3) clients that individually made up at least 10% of total revenue. In aggregate, this accounted for 67% (individually 28%, 19%, 10% and 10%) (2016: 50% (individually 22%, 15% and 13%)) of total revenue.

4.     Operating loss

This is arrived at after charging/(crediting):

	2017 £	2016 £
Expenses by nature
Total staff costs (see note 5)	1,754,833	1,634,502
Staff costs - operating and administration	873,414	676,613
Research and development (includes staff costs)	578,816	594,972
Depreciation of property, plant and equipment	97,229	132,564
Operating lease expense	32,722	37,454
Foreign exchange loss/(gain)	56,026	(47,505)
Exceptional items	71,758	121,581
Other administration expenses	872,700	1,032,989
Total administrative expenses	2,585,665	2,548,668

5.     Staff costs

	2017 £	2016 £
Staff costs (including Directors) comprise:
Wages and salaries	1,552,916	1,426,970
Defined contribution pension cost	35,087	54,054
Social security contributions and similar taxes	166,830	153,478
Total staff costs	1,754,833	1,634,502

	2017 £	2016 £
Directors' remuneration
Aggregate emoluments	619,018	547,038
Company pension contributions to money purchase pension scheme	11,233	17,200
	630,251	564,238

Wages and salaries and aggregate emoluments include £157,500 accrued bonus in recognition for a reduction in salary. This was unpaid as at 31 December 2017 and was subsequently converted into Ordinary Shares, along with £42,500 of previously deferred salary on 1 March 2018, and net of the release of £108,333 of deferred salary previously accrued in relation to Seamus Keating with was forgone as at 31 December 2017.

There were 2 Directors (2016: 3) in the Group's money purchase pension scheme during the year.

The highest paid Director received emoluments for the year ended 31 December 2017 of £302,105 (31 December 2016: £152,306) which includes the unpaid £157,500 bonus. Pension contributions in relation to the highest paid Director were £nil (2016: £6,000).

6.     Loss per share

	2017	2016
Loss for the year	(621,314)	(439,246)
Weighted-average shares outstanding	41,593,229	41,593,229
Basic EPS (pence)	(1.5)	(1.1)
Diluted EPS (pence)	(1.5)	(1.1)

The numerators shown above represent the total loss from continuing operations for the year.

As none of the share options in place at the Statement of Financial Position date or shares after the year end were dilutive, there was no difference between the weighted-average number of shares used to calculate basic and diluted net loss per share.

7.     Trade and other receivables

	2017 £	2016 £
Trade receivables	88,796	88,786
Less: Provision for impairment	-	(8,670)
Trade receivables - net	88,796	80,116
Client receivables	938,546	642,922
Prepayments	75,924	74,194
Other receivables	35,011	99,958
Total trade and other receivables	1,138,277	897,190

8.     Trade and other payables

	2017 £	2016 £
Trade payables	196,420	186,343
Client payables	3,283,629	3,095,022
Accruals	263,450	367,167
Deferred income	27,866	15,408
Deferred salaries	413,417	285,749
Other payables - tax and social security payments	74,300	53,395
Other payables	67,731	71,837
Total trade and other payables	4,326,813	4,074,921

The prior year comparatives in respect of Trade and other payables have been re-analysed to separately present deferred salaries, which were, included in Other payables - tax and social security payments in the prior year. This is considered a more accurate presentation.

9.     Share capital and premium

	Note	Number of shares	Share capital £	Share premium £
At 1 January 2016		41,593,229	4,159,324	1,403,923
At 31 December 2016		41,593,229	4,159,324	1,403,923
At 1 January 2017		41,593,229	4,159,324	1,403,923
At 31 December 2017		41,593,229	4,159,324	1,403,923

10.   Related party transactions

Remuneration of key management personnel

It is considered that the statutory Directors are also the key management personnel of the Group. Details of their remuneration under IAS 24 is set out below:

	2017 £	2016 £
Short-term employee benefits	619,018	547,038
Post-employment benefits	11,233	17,200
National insurance contributions	33,664	39,837
	663,915	604,075

Deferred Directors' Remuneration

As at 31 December 2017 the amounts deferred and owing to current and former Directors is as follows:

A Atwell:	£45,000 (31 December 2016: £26,833)
J Beale:	£49,667 (31 December 2016: £26,833)
M Dickerson:	£200,000 (31 December 2016: £28,750)
S Keating:	£nil (31 December 2016: £95,833)
E Lascelles:	£32,500 (31 December 2016: £28,750)
M Stone:	£65,000 (31 December 2016: £57,500)
G Breeze:	£21,250 (31 December 2016: £21,250)

These amounts have been fully charged to administrative expenses in the Consolidated Statement of Comprehensive Income and accrued as trade and other payables in the consolidated statement of financial position.

On 1 March 2018 the deferred amounts deferred and owing to A Atwell, M Dickerson and E Lascelles were converted into new Ordinary Shares, reducing the amounts so owed by £277,500.

During the year, deferred salary due to Seamus Keating of £108,333 was waived. This resulted in an equivalent credit to the consolidated statement of comprehensive income.

11.   Subsequent events

On 1 March 2018 Mi-Pay placed 4,141,048 new ordinary shares of 10p nominal value each ('Placing Shares') at a placing price of 12.5p per share (the "Placing Price") (the 'Placing').

The Placing delivered:

1.   Gross proceeds (before expenses) totaling £260,000, comprising of a £150,000 strategic investment by Huub Sparnaay (via his investment company No Blue Potato B.V), a £50,000 investment by Michael Dickerson and £60,000 investment by Helium Special Situations Fund Limited.

2.   The conversion to Placing Shares of £257,631 deferred salaries previously accrued that had not been paid to Directors of Mi-Pay, which has the beneficial effect of reducing Mi-Pay's liabilities. This included £200,000 of previously accrued emoluments due to Michael Dickerson, £25,131 due to Allen Atwell and £32,000 due to Albion Capital.

The Placing Shares rank pari passu with the Company's existing ordinary shares of 10 pence each. The Placing Shares were admitted to trading on AIM on 6 March 2018.

Use of proceeds

The new cash of £260,000 will be invested in the Company's fraud management platform and used for general working capital, including to support (following a successful trial) a new long-term fraud services contract with Alphacomm B.V. w

Total voting rights

Following the issue of the Placing Shares, the number of Ordinary Shares in the Company in issue increases to 45,734,277. There are no ordinary shares held in treasury. Therefore, in accordance with the FCA's Disclosure and Transparency Rule 5.6.1, the Company confirms that following Admission, the total number of voting rights in the Company will be 45,734,277.

Share options

On 1 March 2018 the Company issued options over a total of 3,750,000 Ordinary Shares (under the terms of the Company's existing share option scheme), with an exercise price of 13 pence per share. Existing share options over 3,763,425 Ordinary Shares with an exercise price of 41 pence have been cancelled, or forgone.

This information is provided by RNS

The company news service from the London Stock Exchange

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