TIDMNEO
RNS Number : 4250R
Neovia Financial PLC
30 April 2009
?
+---------------------------+---------------------------+---------------------------+
| Press release | | For immediate release |
+---------------------------+---------------------------+---------------------------+
NEOVIA Financial Plc
2008 Audited Results
Thursday, 30 April 2009 - NEOVIA Financial Plc (LSE: NEO) ("NEOVIA" or the
"Group"), the independent global online payments business, presents its audited
results for the year ended 31 December 2008.
Financial Summary
* Group revenue of $75.6m up 9% - excluding North America (2007: $69.1m);
* Fee revenue (excluding North America) of $69.5m in 2008, up 26% (2007: $55.1m);
* Gross margin improved to 61.8% in 2008 due to cost management (2007: 55.6%);
* Profit before tax and other items of $6.4m (2007: loss $12.8m);
* Total Group cash was $82.3m at 31 December 2008; and
* No dividend payable as Group seeks to preserve cash to retain financial
flexibility.
Key performance indicators
* Active e-wallet users (ex North America) totalled 97,673 in Q4 2008 (Q4 2007:
99,984);
* E-wallet fee revenue per active e-wallet user $128 for 2008 (2007: $111);
* Average daily sign ups were 981 for 2008 (2007: 985); and
* Average daily receipts $457,442 for 2008, (2007: $656,809) (including North
American receipts).
Operational Highlights
* Enhanced core e-wallet functionality in 2008 for customer and merchant
improvements;
* Successful launch of Net+ card to existing e-wallet customers in October 2008;
and
* Rebrand of Group to NEOVIA Financial completed in November 2008.
Current trading
* First quarter trading disappointing reflecting weakening trend in Europe;
* Q1 2009 revenue of $16.4m down 3% compared to Q1 2008 of $17.0m; and
* Average daily receipts down 11% and active e-wallet users down 8% (from Q1
2008).
Dale Johnson, Chairman, commented: "During 2008 progress was made by the NEOVIA
Group in building the foundations to be a pre-eminent provider of bold online
payment solutions to selected e-commerce communities. Creditable financial
performance was achieved, in line with market expectations, despite a sharp
deterioration in economic conditions worldwide. Nonetheless, the Board is not
fully satisfied with the Group's progress towards its strategic aims. Trading in
the year to date has been disappointing and reflects a weakening trend in
Europe, due to an increasingly competitive market, challenging economic
conditions, volatile currency markets and limitations in new product
introductions until Newteller (NEOVIA's new business platform) is launched in Q3
2009. While the Board remains confident about the Group's prospects, the
overarching themes for 2009 will be leveraging high potential initiatives, cost
control and prudent cash management."
For further information contact:
+------------------------------+------------------------------------+--------------------+
| NEOVIA Financial Plc | Email:investorrelations@neovia.com | + 44 (0) 207 638 |
| | | 9571 |
| | | (30 April) |
+------------------------------+------------------------------------+--------------------+
| Dale Johnson | Chairman | |
+------------------------------+------------------------------------+--------------------+
| Ron Martin | President & CEO | |
+------------------------------+------------------------------------+--------------------+
| Doug Terry | CFO | |
+------------------------------+------------------------------------+--------------------+
| Andrew Gilchrist | VP Communications | + 44 (0) 1624 698 |
| | | 713 |
+------------------------------+------------------------------------+--------------------+
| Citigate Dewe Rogerson | | + 44 (0) 207 638 |
| | | 9571 |
+------------------------------+------------------------------------+--------------------+
| Sarah Gestetner / George | | |
| Cazenove | | |
+------------------------------+------------------------------------+--------------------+
| | | |
+------------------------------+------------------------------------+--------------------+
| Daniel Stewart & Co Plc | | + 44 (0) 207 |
| | | 776 6550 |
+------------------------------+------------------------------------+--------------------+
| Paul Shackleton | |
+------------------------------+------------------------------------+--------------------+
Conference call details and further information
NEOVIA will hold a briefing for invited UK-based analysts at the offices of
Citigate Dewe Rogerson, 3 London Wall Buildings, London, EC2M 5SY, later this
morning at 9.30 a.m. From this time, copies of the analyst presentation and the
Group's annual report and accounts will be available on the Company's website,
www.neovia.com.
NEOVIA management will also host a conference call on 30 April 2009 at 2.00 pm
BST (9.00 a.m. EST) for analysts and institutional investors that can be
accessed by dialling 0808 109 0700 (UK free call) or +44 203 003 2666
(International) or 1 866 966 5335 (USA free-call). This call will take the
format of a short introduction by management, followed by a Question and Answer
session.A recording of the conference call will be available for a period of 7
days from 30 April 2009 (until 7 May 2009). To access the recording please dial
the following replay telephone number: +44 (0) 208 196 1998. The passcode for
this replay is 4728303#.
For any other information please contact NEOVIA Investor Relations at
investorrelations@neovia.com.
* * * * *
About NEOVIA Financial
Trusted by consumers and merchants in over 160 countries to move and manage
billions of dollars each year, NEOVIA Financial Plc (formerly NETELLER Plc)
operates the world's leading independent online payments business. Through its
Payment Suite, featuring NETELLER , NETBANX , Net+(TM) and 1-PAY(TM) brands,
NEOVIA Financial 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 company to
support thousands of retailers and merchants in many geographies and across
multiple industries.
NEOVIA Financial Plc (formerly NETELLER plc) is quoted on the London Stock
Exchange's AIM market, with a ticker symbol of NEO. Subsidiary company NETELLER
(UK) Ltd is authorised by the Financial Services Authority (FSA) to operate as a
regulated e-money issuer. For more information about NEOVIA Financial visit
www.neovia.com or contact us by email at investorrelations@neovia.com.
* * * * *
Disclaimer
This document 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 the NEOVIA Group.
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.
Chairman's Statement
During 2008, progress was made by the NEOVIA Group in building the foundations
to be a pre-eminent provider of bold online payment solutions to selected
e-commerce communities.Creditable financial performance was achieved, in line
with market expectations, despite a sharp deterioration in economic conditions
worldwide. Nonetheless, whilst recognising the exemplary effort of the NEOVIA
team, the Board is not fully satisfied with the Group's progress during the year
towards its strategic aims.
The NEOVIA Group revenues (excluding North America) grew to $75.6 million from
$69.1 million in 2007. Following withdrawal from the North American market in
early 2007, a dramatic downsizing was undertaken to reflect the loss of the
Group's primary market. In 2008, the Group continued to pursue efficiencies and
appropriate resourcing and overhead levels for the current and anticipated
revenues of the business. There is still some distance to go, particularly in
the current difficult economic environment, and we will resolutely focus on
ensuring that this work continues to achieve a cost structure that
provides competitive advantage. While reporting a loss after tax for 2008 of
$8.1 million, profit before other items (such as restructuring costs) improved
to $6.4 million, a turnaround from the $12.8 million loss reported in 2007.
An important change during the year to better reflect the Group's strategy and
evolving market positioning was the change of name of its parent from NETELLER
Plc to NEOVIA Financial Plc. Other milestones in 2008 included the launch of the
Net+ card suite in October, with both physical and virtual prepaid
MasterCard products being made available to existing e-wallet users;
the continuing broadening of payment options and localisation functionalities
(languages and currencies); and the integration of individual product lines into
a single offering - the NEOVIA Payment Suite. A focus on large corporate sales
led to a number of significant contract wins with UK household names for
the NETBANX payment gateway business to complement a continued stream of smaller
online merchant sign ups.
CONTINUED INVESTMENT IN OUR STRATEGY
As highlighted in my 2007 statement, the Board has been focused on strategically
investing in the business. Following some setbacks and resulting delays with the
new business platform programme ("Newteller") in late 2007 and early 2008, the
programme progressed well during the latter half of 2008 and remains on target
for deployment within budget by the third quarter of 2009. When implemented,
Newteller will enable further efficiencies and cost savings throughout the
Group. We have also examined numerous strategic opportunities ranging from
partnerships to acquisitions, and the availability of such opportunities has
increased in the current market environment.
The proposed acquisition of the European Payments Products business of IDT
Corporation announced on 1 December 2008 is a good example of such a strategic
opportunity. This transaction was intended to accelerate our card strategy,
drive scale into the e-wallet, and provide a levered platform to offer prepaid
cards under both the Prime and Net+ brands. The transaction failed to receive
the consent of the Gibraltar Financial Services Commission due to
the unwillingness of a substantial shareholder (with controller status) to
support the transaction, as announced on 20 March 2009. We continue to pursue
our strategy, particularly around the existing prepaid cards business, which is
fundamental to our core e-wallet offering.
BOARD AND SHAREHOLDER CHANGES
We were informed on 12 December 2008 that Dermot Desmond, an Irish financier,
had declared a stake of 26.03% in the Company through his holding company,
Primatur Limited. The Company engaged in dialogue with Mr Desmond and
his representatives, which resulted in the appointment in January 2009 of John
Bateson and Jonathan Comerford to the Board as Non-Executive Directors. Messrs
Bateson and Comerford bring considerable experience and contacts in board roles,
finance and payments.
I would also like to express the Board's thanks to Ron Martin, President & CEO,
who announced on 13 March 2009 his intention to step down from that position and
from the NEOVIA Board. Ron has made a significant contribution to NEOVIA
since he joined as Chief Operating Officer in July 2005 and subsequently
became President & CEO on 1 January 2006. His focus on achieving the Company's
resolution with the US authorities, the consequent restructuring arising from
withdrawal from the North American market, and the development of the Group's
vision and strategy have been key to building NEOVIA's current position. The
Board is engaged in a process to identify and evaluate potential successors for
the CEO position, and progress is being made. In the meantime, Ron is assisting
during a transition period, I am assuming a more active role and, together with
a very capable executive management team and a committed Board, we continue to
focus on driving the business forward in line with the Group's strategic aims.
CURRENT TRADING AND OUTLOOK
We expect 2009 to be a year of both significant challenge and exciting
opportunity. Investment in the business will continue, especially for completion
of the Newteller programme. Strategic opportunities are being examined,
particularly in support of the Group's card strategy. The work to create
greater differentiation, accompanied by a cost structure that creates
competitive advantage, will be accelerated.
During these times of increased challenge and opportunity, the Board seeks to
preserve cash to provide sufficient flexibility to take advantage of
changing conditions in line with the Group's strategy and to provide value to
shareholders. Taking account of the current market conditions and anticipated
continuing difficult trading environment, resulting in slower than expected
growth in recent months, the Board is not recommending the payment of a
dividend. The Board will continue to review the appropriate dividend policy for
the Group.
On behalf of the Board, a sincere thank you to our employees, customers,
merchants and shareholders for their continued support of the Group. I commend
our staff across the world who respond to the many challenges with a commitment
and dedication that are unwavering.
Dale Johnson
Chairman
29 April 2009
Business Review
The Group made progress during 2008 with continued revenue growth from both the
e-wallet and gateway businesses, despite a relatively flat year for active
e-wallet user growth. Group revenue for 2008 was $75.9 million, excluding North
America, fee revenue increased to $69.5 million from $55.1 million in 2007, an
increase of 26%.
INTRODUCTION
The NEOVIA Group consists of the NETELLER e-wallet business, the payment
processing operations of NETBANX and NETBANX Asia (together, the "gateway"
businesses) and the Net+ card operations. The Group's principal source of
revenue is fees paid by either end-user customers or merchants for the Group's
services, and interest income is also generated from balances held on behalf of
customers or merchants as well as on the Group's own cash. The
Group's businesses are supported by operations in the Isle of Man, Calgary in
Canada, Cambridge in the UK, and Macau and Hong Kong in Asia.The Group reports
in US dollars as this is the principal operating and settlement currency for
merchants. The 2008 results reflect the first full year in which the Group had
no US business. The Group continues to service the Canadian market for
non-gaming transactions only, resulting in minimal North American revenue in
2008.
2008 RESULTS
Group revenue for 2008 was $75.9 million, compared with $84.0 million in 2007.
Excluding North America, fee revenue increased to $69.5 million from $55.1
million in 2007, an increase of 26%. Core e-wallet fees increased, with Europe
showing an increase of 20% from 2007 and Asia growing by 26%. Gateway revenues
showed strong growth in 2008, increasing from $11.9 million in 2007 to $17.6
million, an increase of 48%. This growth was driven by a 115% increase in the
NETBANX Asia gateway revenue. The European NETBANX revenue declined slightly, as
a result of the depreciation of sterling against the US dollar.
Gross margin improved to 61.8% in 2008 compared with 55.6% in 2007 reflecting
improvements in managing supplier costs. The Group reported a profit before tax
and other items of $6.4 million, compared with a loss before tax and other items
of $12.8 million in 2007.
Net loss after tax for 2008 was $8.1 million, compared with a loss of $185.8
million in 2007. The loss in 2007 included a $136 million forfeiture to the USAO
as well as related restructuring and professional expenses. The loss per share
based on weighted average shares outstanding of 119,920,953 is $0.07
compared with the prior year loss per share of $1.55.
KEY PERFORMANCE INDICATORS
The Group's primary driver of fee revenue from its e-wallet is the active
e-wallet user base. An active e-wallet user is defined as a customer whose
e-wallet account balance has changed during the past quarter. The change in
balance may be due to adding, removing, transferring or receiving funds. The
Group reports its active e-wallet user numbers by region for each quarter to
allow comparison of regional growth rates. By also disclosing fee revenue for
each primary geographic region where e-wallet services are offered, investors
are able to determine the fee revenue per active e-wallet user by region.
During the fourth quarter of 2008, a yearly inactivity fee was applied against
e-wallet accounts that did not have any activity for the preceding 14 month
period. The fee resulted in additional revenue of $1.5 million. The inactivity
fee also resulted in a significant increase in active e-wallets in the quarter
which has been stripped out of the reported KPIs. For the remainder of
this report, the number of active e-wallets and fees per active e-wallet are
stated net of the impact of inactivity fees.
The number of active e-wallets at the end of 2008 was 97,673 - a decrease of 2%
from 99,984 in 2007. European e-wallets accounted for 77,916 (flat from 2007)
while Asian e-wallets accounted for 13,794 (a 20% decrease from 2007).
The economic slowdown adversely impacted member activity.The table below sets
out the Group's active e-wallet users by region, excluding those from North
America:
+-------------------+------------+------------+---------------------------------------+------------+----------------------------------------+
| Active customers | Q4 2008 | Q4 2007 | % growth | Q3 2008 | % growth |
+-------------------+------------+------------+---------------------------------------+------------+----------------------------------------+
| Europe | 77,916 | 77,937 | - | 77,231 | 1 % |
| | | | % | | |
+-------------------+------------+------------+---------------------------------------+------------+----------------------------------------+
| Asia Pacific | 13,794 | 17,252 | -20 % | 14,967 | -8 |
| | | | | | % |
+-------------------+------------+------------+---------------------------------------+------------+----------------------------------------+
| Rest of World | 5,963 | 4,795 | 24 % | 5,250 | 14 % |
+-------------------+------------+------------+---------------------------------------+------------+----------------------------------------+
| Total ex North | 97,673 | 99,984 | -2 % | 97,448 | - % |
| America | | | | | |
+-------------------+------------+------------+---------------------------------------+------------+----------------------------------------+
Additionally, in certain of the Group's targeted markets, the explosion in real
time debit payments has dramatically increased use of the NETBANX Asia gateway
solution while limiting demand for e-wallet functionality. In spite of this
decrease, fees generated from e-wallets increased to an average of $131 per
active e-wallet for Europe (increase of 14%). This is due to the success of new
marketing programmes and a new pricing structure established in Q2 that
includes higher fees for value added services such as foreign exchange and
customer withdrawals.The table below shows by region the Group's e-wallet
revenue per active e-wallet user based on the average quarterly fee revenue per
user for the relevant periods in 2008 and prior year:
+-------------------+----------+----------+----------+----------+----------+
| E-wallet revenue | 2008 | 2007 | Q4 2008 | Q4 2007 | % growth |
| per active | | | | | |
| e-wallet user ($) | | | | | |
+-------------------+----------+----------+----------+----------+----------+
| Europe | 131 | 114 | 138 | 112 | 23 % |
+-------------------+----------+----------+----------+----------+----------+
| Asia Pacific | 123 | 93 | 137 | 87 | 58 % |
+-------------------+----------+----------+----------+----------+----------+
| Rest of World | 93 | 104 | 97 | 83 | 16 % |
+-------------------+----------+----------+----------+----------+----------+
| Total ex North | 128 | 111 | 135 | 106 | 27 % |
| America | | | | | |
+-------------------+----------+----------+----------+----------+----------+
Average daily receipts from customers were $457,442 during 2008 (2007: $656,809)
including receipts relating to North American e-wallet transactions. Average
daily receipts in the second half of 2008 of $440,307 were up 18% from $372,410
for the same period for 2007. This increase was principally due to new deposit
options (iDeal, POLi UK), entry into new geographic markets, offering new wallet
currencies and providing better payment functionality with debit card
programmes. Total receipts from customers during the year totalled $167.4
million (2007: $239.7 million) including North American receipts. Average daily
sign-ups of new customers excluding North America were 981 during 2008 (2007:
985).
The table below shows the Group's sign ups by region:
+-------------------+------------+------------+------------+------------+------------+
| Average daily | Q1 2008 | Q2 2008 | Q3 2008 | Q4 2008 | FY 2008 |
| sign ups | | | | | |
+-------------------+------------+------------+------------+------------+------------+
| Europe | 819 | 694 | 641 | 669 | 706 |
+-------------------+------------+------------+------------+------------+------------+
| Asia Pacific | 176 | 190 | 147 | 129 | 160 |
+-------------------+------------+------------+------------+------------+------------+
| Rest of World | 106 | 109 | 113 | 130 | 115 |
+-------------------+------------+------------+------------+------------+------------+
| Total ex North | 1,101 | 993 | 901 | 928 | 981 |
| America | | | | | |
+-------------------+------------+------------+------------+------------+------------+
| North America | 21 | 24 | 28 | 18 | 22 |
+-------------------+------------+------------+------------+------------+------------+
| Total | 1,122 | 1,017 | 929 | 946 | 1,003 |
+-------------------+------------+------------+------------+------------+------------+
The Group also generates revenue from non e-wallet related sources, such as its
NETBANX gateway business and interest income on its own cash balances as well as
those held on behalf of members and merchants in trust accounts. The reduction
of interest rates globally had an adverse impact on interest income in 2008,
which is expected to continue in 2009.
OBJECTIVES AND STRATEGY
The Group adopted an updated and detailed three year plan at the end of 2007.
The focus on providing bold payment solutions was driven by two key objectives
in 2008 - first, to build towards the Group's pre-eminence in providing payment
solutions for the online gaming sector and, second, to drivediversification
of the business around a common consumer demographic. A critical success factor
for both objectives is increased scale as reflected by the number of active
e-wallet users, as this underpins the Group's revenue generation capabilities.
A balanced scorecard was introduced to measure the Group's performance against
these objectives, and selected targets were shared with the market at the time
of the Group's 2007 results. The balanced scorecard forms a key determinant of
management compensation to align individual executive rewards with
the performance of the business as a whole within an
agreed framework. The results for the 2008 year in relation to these targets are
set out in the table below:
+----------------+-------+-------+-------+-------+-------+-------+-------+-------+-------+
| Objective | Measures | Target-by end | FY 2008 | H1 2008 |
| | include | of 2010 | | |
+------------------------+---------------+---------------+---------------+---------------+
| Gaming sector | Active | More than | 97,673 | 100,560 |
| pre-eminence | e-wallet | 250,000 | | |
| | users (1) | | | |
+------------------------+---------------+---------------+---------------+---------------+
| Diversification | Non e-gaming | More than 30% | 16% | 17% |
| | revenue (2) | | | |
+------------------------+---------------+---------------+---------------+---------------+
| Profitable business | Operating | Greater than | 22% | 19% |
| | margins (3) | 35% | | |
+------------------------+---------------+---------------+---------------+---------------+
| | | | | |
+----------------+---------------+---------------+---------------+---------------+
| (1) Active e-wallet users are those that make any transaction |
| with their e-wallet or Net+ card within the previous 90 |
| day period. |
| (2) Non e-gaming revenue is classified as revenues earned from non |
| e-gaming merchants, NETBANX (excluding e-gaming |
| merchants), P2P transactions, member dormancy fees and |
| non-gaming member related investment income as a |
| percentage of total reported revenue. |
| (3) Operating margin is defined as operating profit before depreciation |
| and amortisation, stock option expense, |
| foreign exchange gain/loss, restructuring costs, impairment |
| costs and investment gains or losses. |
+----------------------------------------------------------------------------------------+
| |
+----------------+-------+-------+-------+-------+-------+-------+-------+-------+-------+
It is disappointing that the Group did not make as much progress as anticipated
in increasing the number of active e-wallet users over the past twelve months,
partially as a result of more challenging market conditions and intensifying
competition. Also, during this period the Group encountered delays in
delivering certain products, particularly the Net+ programme. Efforts are being
redoubled in 2009 to increase the number of active e-wallet users, including
assignment of a team to focus specifically on improving this critical KPI in
both the short and longer term.
The Group continued to make steady progress towards its other primary objectives
of diversification into new market sectors and improving the Group's operating
profitability. This includes continued focus on reducing the cost base through
continued restructuring, geographical cost centre optimisation and
other initiatives. The Newteller platform redevelopment initiative, scheduled
for first release in Q3 2009, should enable the Group to derive
significant efficiencies and cost reductions, and to flexibly
accommodate scaling the business for the anticipated increased levels of
active e-wallet users and consequential revenue generation opportunities.
REBRANDING THE GROUP
On 11 November 2008, the Company's shareholders overwhelmingly voted in favour
of changing the name of NETELLER plc to NEOVIA Financial Plc. This, together
with a change of ticker symbol from NLR to NEO, became effective on 17
November 2008. The new name represents a strategically important evolution for
the Group. It builds on a year long rebranding process to differentiate the
parent company from the Group's operating brands of NETELLER, NETBANX and Net+,
each of which has a strongly established brand identity and reputation. The new
name, meaning "new way", supports the Group's strategic vision of providing
differentiated, bold and exciting online payment solutions that target merchants
and their "online generation" customers.
Earlier this year the Group revitalised both its NETELLER customer-facing and
NETBANX business brands, and recently announced the launch of its Net+ card
brand. The name change is expected to provide a broader umbrella for future
growth, as well as enhancing the Group's credibility with both merchant and
end user customers, partners and regulators.
2008 BUSINESS DEVELOPMENTS
The Group has made progress during 2008 in terms of revenue growth from both the
e-wallet and gateway businesses, despite a flat year for active e-wallet user
growth. The Group has improved the functionality of the core e-wallet offering,
with 8 additional countries now supported, 14 new currencies added, 5
new localised deposit options and extended payout options for customers,
particularly with the launch of the Net+ physical and virtual MasterCard
prepaid cards in the third quarter of 2008. The focus on the NEOVIA Payment
Suite, bringing together the NETELLER e-wallet, NETBANX payment processing
expertise, and the Net+ card as a payout option, is gaining acceptance
with larger merchants. Success in providing bold payment solutions has been
recognised publicly with the awarding of the 2008 Best Payment Network for
Affiliates by CAP (Casino Affiliate Program), and the inclusion of the Net+
prepaid card programme within the Finextra Innovation Showcase, which highlights
some of the most interesting financial technology developments in the past 12
months.
FOCUS ON BROADENING THE LOCAL OFFERING TO CUSTOMERS AND MERCHANTS
Building on the foundations of the NETELLER Payment Network, NEOVIA continued to
develop innovative products and solutions for its merchants and customers within
the limitations of its existing technology platform. New European payment
options for the NETELLER e-wallet launched or signed up in 2008
included Giropay, iDeal, Carta Si, Carte Bleue domestic and international,
DirectPay24, Ukash and POLi, the latter providing instant payment and customer
conversions in the key UK market. The Group introduced three new currency
options for its e-wallet during the first half: Danish Kroner, Norwegian Kroner
and Polish Zloty, and added Hungary as a new country with localised payment
options. During the second half, the NETELLER service was extended to
key emerging Eastern European markets including Romania and Bulgaria. Five new
currencies were also added: Bulgarian Lev (BGN), Estonian Kroon (EEK),
Lithuanian Litas (LTL), Latvian Lats (LVL) and Romanian New Leu (RON). These
improvements to the NETELLER e-wallet have been very well received by
merchants seeking solutions in these markets.
Further investment in the NETBANX business included significant improvements to
the NETBANX payments gateway for merchants targeting European customers,
including local language, payment and foreign exchange/currency enhancements.
The Group's new payments gateway merchant application, NETCENTRE, with
significantly enhanced reporting and payment management capabilities, went live
in May 2008. In the first half the Group also embarked on a significant
investment programme for the core NETBANX platform to deliver enhanced
performance, capacity and resilience for its large corporate-client merchants.
Second half developments included the launch of the Unified PayPage
("UPP"), designed to be the most flexible payment checkout page on the market
and the addition of 12 new currencies to the NETBANX offering, bringing the
total to 35. UPP is available to all NEOVIA merchants - including gaming
merchants - using the NETBANX gateway and currently the UPP offers credit and
debit cards, the NETELLER e-wallet, POLi UK, Ukash and DIRECTebanking.com.
The Net+ Virtual Prepaid Card by MasterCard and the Net+ Prepaid Card by
MasterCard were launched in October 2008. These products provide the Group's
existing e-wallet users with functional and secure payment options, allowing
direct online payments to be made anywhere MasterCard is accepted using a
NETELLER e-wallet and, through the physical card, at many POS outlets and ATMs.
Adoption of the Net+ products has been in line with expectations and the Group
continues to explore the optimal way to leverage this highly regarded product to
a broader potential customer base through its prepaid card strategy.
INVESTING IN THE BUSINESS
NEOVIA has also continued to invest in its business, in line with its strategic
objectives, with further progress achieved on the Newteller platform
development project, which is currently scheduled for deployment in Q3 2009. The
future benefits of Newteller will include cost savings and greater operating
efficiencies within the Group. In addition, Newteller will provide
enhanced capability in such key areas as disaster recovery, service
availability, flexibility, risk management and dramatically improved new product
development and deployment times.
During 2008, the Group restructured its investments in Centricom Pty Limited
("Centricom") and Centricom Europe Limited to simplify management of the POLi
roll out across Europe, Centricom's primary strategic focus. POLi is an instant
online bank transfer solution with concurrent validation of funds being
available. Through a further investment of US$ 1.7 million, NEOVIA now owns a
share of Centricom Pty Limited equal to that of the other shareholder, Jagen, at
42.83% on a fully diluted basis (after allowing for employee options), and
Centricom Europe Limited is now a 100% subsidiary of Centricom. Centricom
is currently performing ahead of budget, albeit still loss making, as a result
of successful adoption of the POLi product in Centricom's original focus markets
of Australia and New Zealand.
MARKET RISK ASSESSMENT AND COMPLIANCE
The Group continues to apply its enhanced Market Risk Assessment process adopted
in early 2008 for assessing the legal and regulatory requirements of
jurisdictions in which the Group conducts significant business or intends to
target in the future. As part of its broader risk management approach, the Group
also continues to monitor regulatory and other developments in those markets
and take appropriate action should the risks in any particular market change
significantly.
The Group continued to invest in compliance and internal audit functions to
enhance its capabilities in assessing and monitoring the risks facing the Group,
and, where appropriate, implementing measures to manage or eliminate these. The
FSA authorised subsidiary, NETELLER (UK) Ltd, continues to serve
European members as a regulated e-money issuer. Members from other regions are
served by NETELLER Operations Limited, an Isle of Man based e-money issuer.
CASH MANAGEMENT
As at 31 December 2008, total Group cash was approximately US$ 82.3 million,
which includes restricted cash surpluses and the excess of EU customers'
qualifying liquid assets held in respect of e-money issued to European customers
over balances payable.The working capital position of the Group, defined as
current assets less current liabilities, was approximately US$ 67.4
million.Required cash inventory comprising amounts held at processors, operating
account balances to cover payouts and the buffer on trust accounts is
approximately US$ 30.0 million, resulting in available "free cash" of about US$
37.4 million. A substantial portion of this available cash is earmarked for
capital expenditures in 2009 (including the completion of the
Newteller platform). The Group regards any cash surplus to
operational requirements as providing financial flexibility
to consider opportunities, both organic and external, to grow the
Group's business in line with its strategic vision.
DIVIDEND
In light of the Group's ongoing working capital and investment requirements,
slower than expected growth in recent months, and the need to retain sufficient
financial flexibility in the current challenging economic environment, the Board
is not recommending the payment of a final dividend. The Board will continue to
review the appropriate dividend policy for the Group.
DIRECTORS
There have been several changes to the Board since the year end.On 20 January
2009, two Non-Executive Directors, John Bateson and Jonathan Comerford, were
appointed to the Board. On 13 March 2009, Ron Martin announced his intention to
leave the Group and the Board. The Group has commenced a process to identify and
appoint a successor to Mr Martin and in the meantime he will continue in his
role for a transitional period.
KEY OBJECTIVES FOR 2009
The Board remains committed to the Group's existing strategic vision and
believes that the objectives currently being pursued will lead to improvement in
the Group's business performance and results over the medium term.
The challenging economic conditions currently being experienced have increased
the focus on leveraging near-term revenue uplift opportunities and ensuring that
the Group has an appropriate cost structure to support its revenue
generation expectations. Initiatives are underway to identify and achieve the
most cost-effective operational capability in a number of specific areas, such
as contact centre support and payout processing.
The Group announced on 20 March 2009 that the Gibraltar Financial Services
Commission ("Gibraltar FSC") would not grant consent for the proposed
acquisition of IDT Financial Services ("IDTFS"), a prepaid card business, due to
the unwillingness of a substantial shareholder (with controller status) in
NEOVIA to provide the requisite information to the Gibraltar FSC. This
acquisition had been announced on 1 December 2008 subject to regulatory
consent and would have cost the Group $15.05 million consideration, of which
approximately $10 million was regulatory banking capital.The Group remains
committed to developing its prepaid card business, building on the existing Net+
card operations. The Group continues to explore strategic alternatives to
further this objective.
CURRENT TRADING AND OUTLOOK
Trading during the first three months of 2009 reflects a weakening trend in
Europe due to an increasingly competitive market, challenging economic
conditions, volatile currency markets and limitations in new product
introductions until Newteller is launched in Q3 2009.
The Group ended the quarter with 92,757 active e-wallet users, compared to
97,673 at the end of 2008, a decrease of approximately 5% quarter on quarter.
Average daily sign ups for the first quarter were 1,023, compared to 928 in
Q4 2008, an increase of 10%. Average daily deposits into the e-wallet for the
first quarter 2009 were $396,413 compared to $444,758 in the same period of 2008
(Q4 2008: $413,565). The Group now tracks customer receipts (and has restated
prior period comparatives) to include receipts from its Canadian
non-gambling related transactions and also from the NETELLER (1-Pay) e-wallet in
Asia, which has grown successfully to become a significant contributor to both
e-wallet transaction volumes and associated fees.
While the Board remains confident about the Group's prospects, the overarching
themes for 2009 will be leveraging high potential initiatives, cost control and
prudent cash management.
Financial Review
The Group worked diligently in 2008 to lay a solid foundation for the future
through product innovation and market expansion, despite the challenges of
regulatory compliance and general economic deterioration. Following are the
results for the Company and the consolidated results for the Group for the year
ended 31 December 2008.
HIGHLIGHTS
The consolidated results of the Group for the year ended 31 December 2008
represent the first full fiscal year without North American operations. Despite
deteriorating economic conditions, revenues remained in line with market
expectations while gross margin improved and cash flow was maintained. Net
income improved from a loss of $185.8 million in 2007 to a loss of $8.1 million
in 2008. The loss in 2007 included the $136 million forfeiture to the USAO, as
well as restructuring costs associated with the North American withdrawal. 2008
profit before other items increased to $6.4 million, up from a $12.8 million
loss in 2007. Increased fee revenue and cost control in 2008 both contributed
to the improvement.
REVENUE
Total non-North American revenue in 2008 of $75.6 million (total revenue of
$75.9 million) increased 9% from $69.1 million in 2007 (total revenue of $84.0
million), despite increased competition and a global economic downturn.
Excluding North America, fee revenue increased to $69.5 million from $55.1
million in 2007. Fee revenue is comprised of charges paid by customers and
merchants to use either the e-wallet services or the gateway services.
+-------------------+----------+----------+----------+------------+---------+----------+
| Revenue | 2008 | 2007 | % growth | Q4 2008 | Q4 2007 | % growth |
| ($ millions) | | | | | | |
+-------------------+----------+----------+----------+------------+---------+----------+
| Europe | 42.2 | 35.1 | 20 % | 11.6 | 8.7 | 33 % |
+-------------------+----------+----------+----------+------------+---------+----------+
| Asia Pacific | 7.7 | 6.1 | 26 % | 2.1 | 1.5 | 40 % |
+-------------------+----------+----------+----------+------------+---------+----------+
| Rest of World | 2.0 | 1.9 | 6 % | 0.6 | 0.4 | 50 % |
+-------------------+----------+----------+----------+------------+---------+----------+
| North America (1) | 0.3 | - | nm | 0.3 | - | nm |
+-------------------+----------+----------+----------+------------+---------+----------+
| Total e-wallet | 52.2 | 43.1 | 21 % | 14.7 | 10.6 | 39 % |
| revenue | | | | | | |
+-------------------+----------+----------+----------+------------+---------+----------+
| NETBANX | 6.2 | 6.6 | -6 % | 1.2 | 1.7 | -29 % |
+-------------------+----------+----------+----------+------------+---------+----------+
| NETBANX Asia | 11.4 | 5.3 | 115 % | 3.6 | 1.5 | 140 % |
+-------------------+----------+----------+----------+------------+---------+----------+
| Total fee revenue | 69.8 | 55.1 | 27 % | 19.5 | 13.8 | 41 % |
+-------------------+----------+----------+----------+------------+---------+----------+
| Interest | 6.1 | 14.1 | -57 % | 1.5 | 2.4 | -38 % |
+-------------------+----------+----------+----------+------------+---------+----------+
| Total | 75.9 | 69.1 | 10 % | 21.0 | 16.2 | 30 % |
+-------------------+----------+----------+----------+------------+---------+----------+
i) Includes fee revenue earned from Group's Canadian customers related to
non-gambling transactions but excluding any US revenue earned prior to
withdrawal from US market during Q1 2007
Transaction fee revenue from our top five countries represented 53% of the total
for 2008 (2007: 50%) while the top ten countries accounted for approximately 79%
(2007: 75%) of total transaction fees (excluding North America).
E-wallet fee revenue
In 2008, European e-wallet revenue increased 20% from $35.1 million to $42.2
million. Asian e-wallet revenue also increased 26% from $6.1 million to $7.7
million in 2007 to 2008 respectively. Marketing programs such as targeted
bonuses and VIP fee rebates boosted e-wallet use during the year. The updated
pricing structure established in Q2 increased fees for services such as payments
and foreign exchange. Furthermore, new fees were generated from a full year of
the GlobeWallet debit card program and the Q4 launch of the Net+ prepaid card
program. In Q4 2008, inactivity fees were levied on all e-wallet accounts
that had no activity for the preceding 14 month period, resulting in $1.5
million of additional fees. Going forward, inactivity fees will be levied every
month as new accounts reach the inactivity time threshold. As a result, Q4 fee
revenue will continue to 'spike' annually with the majority of inactive accounts
being levied the yearly fee in the fourth quarter.
Gateway fee revenue
Gateway fee revenue is earned from NETBANX and NETBANX Asia (formerly1-Pay
Direct). NETBANX revenue in Europe decreased 6% from $6.6 million in 2007 to
$6.2 million in 2008. NETBANX mainly operates in the UK and the depreciation of
Sterling relative to the US dollar in the year resulted in this decline, as well
as fee pressure, delays in major contracts, and the economic recession. NETBANX
Asia earned $11.4 million in revenue in 2008 compared with $5.3 million in 2007.
The 115% increase can be attributed to several factors including first-to-market
advantage, introduction of an innovative pricing structure in early 2008, and
significant increases in Internet connectivity in the markets served. The
NETBANX gateway businesses are becoming an increasingly important source of
revenue for the Group. However, Netbanx Limited, acquired in 2005, has performed
below management's expectations and an impairment charge has been recognised in
2008.
Interest revenue
As expected, interest revenue decreased by 56% from $14.1 million in 2007 to
$6.1 million in 2008. In January 2008, the final forfeiture payment to the USAO
was made of $38.25 million. In February 2008, approximately $11.2 million of
cash representing e-wallet balances of US residents was transferred to a trustee
for continued return to customers as appropriate. These cash outflows
significantly reduced the cash on which interest revenue was generated during
2008. The sale of the Group's principal Canadian property in July generated CAD
$33.5 million (before sale related costs) which was held as cash, partially
offsetting lower cash balances. Interest revenue was also adversely impacted by
declining interest rates. US dollar investments earning approximately 4% at the
beginning of the year earned less than 1% by the year end. Other currencies
such as the Euro and Sterling also featured rate cuts. Low interest rates are
expected to continue throughout 2009.
GROSS MARGIN
Gross margin improved to 61.8% in 2008 from 55.6% on 2007 due to successful
efforts to lower costs. Customer support is comprised of call centre services
such as live chat, phone support, translation services and verification
services. Diverting the majority of customer contacts away from telephone
towards live chat reduced long distance costs. Negotiating reduced rates on
contracts for both telephone and translation augmented the decrease in costs. In
addition, these services are mostly provided by the Group's Canadian operations.
In 2008, the Canadian dollar depreciated relative to the US dollar from parity
in January to 0.80:1 by December, decreasing the cost of customer support
salaries and services. In total, customer support costs in 2008 decreased from
$12.4 million to $10.0 million, a decrease of 19.4%. Further cost improvements
related to customer support will result in 2009 from relocation of
certain services to the Company's offices in Asia.
Website maintenance decreased 44.4% from $7.2 million in 2007 to $4.0 million in
2008 due primarily to renegotiated supplier contracts. The devalued Canadian
dollar further reduced this cost via the impact on IT salaries for website
support. In 2007 and prior years, marketing and promotion expenditures were
insignificant and grouped within customer support. In 2008, new promotions of
significant size resulted in $1.5 million being separately identified as a
direct cost, including $1.3 million of rebates associated with a successful
program based on providing e-wallet member bonuses for achieving increased
transaction volume goals.
Deposit and withdrawal fees represent the cost of facilitating cash settlement
within the traditional banking system in conjunction with third party
processors. Deposit and withdrawal fees increased from $10.1 million in 2007 to
$13.3 million in 2008, an increase of 31.7%. As a percentage of revenue, these
costs increased from 12.1% in 2007 to 17.5% in 2008. The significant growth
in NETBANX Asia accounts for a major portion of this increase. NETBANX Asia's
2008 processing costs were $7.7 million, up from $3.3 million in 2007. The 133%
increase is consistent with the growth in revenue and decrease in margin due to
competitor pricing pressures. The remainder of the increase is attributed to the
successful launch of the Net+ prepaid card platform. Costs such as
card purchases, software licensing and transaction costs have been incurred
throughout 2008. The Net+ platform does not produce high margins - however, it
is important in driving volume and scale in the e-wallet business.
Bad debts and collection expenses have decreased from $7.5 million in 2007 to
$0.2 million in 2008. The 2007 expense arose due to North American instaCASH and
Direct Accept products, and the write-down of North American customer
receivables. One-time successful recoveries of previously written off e-wallet
accounts reduced these expenses in 2008. The Group expects a nominal increase in
bad debt in 2009.
OPERATING EXPENSES
General and administrative
General and administrative expenses decreased by 11.2% from $34.0 million in
2007 to $30.2 million in 2008. Salary expenses were reduced by the impact of
depreciation of the Canadian dollar in 2008 as well as the capitalisation of
certain Net+ and Newteller development labour costs. The Group implemented an
updated market presence policy in 2008 that mandated increased due diligence and
monitoring of regulatory, legal and political compliance in all countries in
which the Group operates currently and prospectively. This approach to risk
assessment and mitigation measures required significant costs related to legal
and professional reviews, which are included within G&A expenses. These expenses
are expected to decline in 2009 since most of the related activity should be
limited to monitoring.
Share option expense
Share option expense decreased 79.8% as expected to $2.7 million in 2008 from
$13.5 million in 2007. In December 2007, the Board approved a proposal to cancel
employee stock options that were significantly "out of the money". This
cancellation resulted in additional accelerated stock option expense
of approximately $5 million in 2007, while significantly decreasing the annual
expense going forward.
Foreign exchange gain
The results from the Group's subsidiaries in Canada, the UK and Macau are
reported in local functional currencies. As required under IFRS, foreign
exchange on consolidation of a subsidiary's balance sheet is captured in
equity, but the subsidiary's individual exposure to foreign currency is captured
in income. During 2008, foreign exchange gains of $0.3 million were generated
compared to losses of $0.5 million in 2007. The Group employs forward foreign
exchange contracts to mitigate exposure of financial risk associated with
foreign currency balances.
Depreciation and amortisation
In 2008, $6.4 million of depreciation and amortisation includes $3.4 million of
amortisation of intangible assets and $3.0 million in depreciation of capital
assets. This compared to $8.6 million in 2007, made up of $4.0 million of
amortisation of intangible assets and $4.6 million in depreciation of capital
assets. The large decrease in 2008 for depreciation relates to the sale of the
Calgary property mid year. 2008 depreciation expense relating to the building
was $nil (2007 - $1.4 million).
Impairment loss
At each balance sheet date, the Group reviews the carrying values of its
tangible and intangible assets to determine whether there is any indication that
those assets have suffered an impairment loss. At 31 December 2008, impairment
testing was performed on goodwill and intangible assets created on the purchase
of NETBANX Limited. These tests revealed that goodwill of $8.6 million and
unamortised intangible assets of $5.9 million may not have a recoverable
value. Impairment losses of $14.5 million were therefore recognised in
the consolidated statement of income for 2008.
Restructuring costs
Restructuring costs decreased 97% from $37.0 million in 2007 to $1.1 million in
2008 as the majority of North American withdrawal costs occurred in the months
immediately following market exit. 2008 costs include provisions against
contracts and deposits with suppliers related to the former North American
facing business.
Impairment of acquisition costs
On 1 December 2008, the Group entered into an agreement to acquire IDT
Corporation's European prepaid payment services division, IDT Financial Services
Holdings Limited (IDTFSH). The acquisition was conditional on Gibraltar FSC
regulatory approval, which NEOVIA became aware would not be granted on 20
March 2009. The Group incurred $0.6 million of acquisition costs
including professional and legal fees, travel expenses and internal labour to
31 December 2008. All of these costs have been recognised as an expense in the
year. Acquisition costs incurred subsequent to 31 December 2008 will be
reflected as expense in 2009.
Taxes
The tax model is based on the mark-up of services provided by various
subsidiaries to the Group's parent in the Isle of Man, where source revenues
are non-taxable because of the zero rate of tax on companies other than banks.
In 2008, the provision for income taxes was a recovery of $1.8 million compared
to tax provision of $nil in 2007.The restructuring in 2007 resulted in
significantly reduced services provided from NT Services Limited to the Company.
In 2007, tax instalments to Canadian authorities were paid as assessed based on
2006 operating levels. Excess tax instalments of $2.1 million have been refunded
in 2008 as a result.As a result of the restructuring, the Group reviewed the
mark-up of services between NT Services Limited and the Company with an updated
transfer pricing study and report prepared in 2008. The report determined that
the proportions of services provided had changed compared to previous years,
resulting in a significant reduction in the mark-up. Accordingly, the 2008 tax
provision was further reduced by $1.8 million.
BALANCE SHEET
The cash and cash equivalents balance at 31 December 2008 of $76.2 million
represents the unrestricted cash of the Group (2007: $80.8 million). Included in
cash and cash equivalents is a transient cash balance that relates to merchant
transactions processed via the NETBANX and NETBANX Asia gateway operations.
The gateway operations do not fall within the EU definition of "e-money" nor
does a legal right of offset exist between this cash and the corresponding
merchant liabilities. The cash and the merchant liabilities relating to gateway
operations are therefore both recognised, in accordance with IFRS, on the face
of the balance sheet as cash and cash equivalents and trade and other
payables respectively.
The gross quantum of cash available to the Group, including restricted cash
surpluses and the excess of qualifying liquid assets held in respect of e-money
issued to European customers over balances payable, totalled $82.3 million. This
compared with $96.4 million at 31 December 2007. These cash figures are before
deduction of current liabilities. The decline in cash is due to the final
forfeiture to the USAO of $38.25 million in January of 2008, which was largely
offset by the proceeds from the sale of the principal Calgary property for CAD
$33.5 million. The Group maintains bank accounts which are segregated
from operating funds and contain funds held on behalf of merchants and
non-European customers, representing pooled customer funds. The bank accounts
are designated as client accounts. Balances in the segregated client accounts
are maintained at a sufficient level to fully offset amounts owing to the
Group's merchants and non-European customers. A legal right of offset exists
between the balances owing to the merchants and non-European customers and the
cash balances segregated in the client accounts. As such, only the net balance
of surplus cash is disclosed on the balance sheet as Restricted Cash. The Group,
as a matter of policy, holds small amounts of excess cash in the accounts to
ensure intraday balance movements do not result in a shortfall in the cash
position. The net excess is disclosed as a corporate asset.
In compliance with FSA regulations, the Group held qualifying liquid assets in
respect of e-money issued to European customers totalling $63.4 million as at 31
December 2008. These funds are segregated from operating funds. The balances
are maintained at levels which are at least equal to the amounts owing to
European customers, totalling $60.3 million as at 31 December 2008. These
qualifying liquid assets and the amounts payable to European customers are
reported gross on the balance sheet.
Total current liabilities of $80.5 million have decreased from $120.5 million in
2007 due to the payment of the final forfeiture to the USAO. This has resulted
in a current ratio of 1.84 to 1 in 2008, an improvement from 1.31 to 1 in 2007.
On 10 July 2008, the Group completed the sale of its principal property in
Calgary. The Group continues to lease two areas of the property on usual
commercial terms for a period of three years and five years respectively
following the sale. The total consideration of the sale was CAD $33.5 million
which was $0.1 million below the net book value of the property, after sale
related expenses. The net book value of intangible assets at 31 December 2007
and 2008 remained approximately the same at $17.9 million. In the year, the
Group recorded a full impairment loss on NETBANX intangible assets of $5.9
million, while at the same time incurring significant development costs on the
Newteller platform and the Net+ prepaid card platform for a net nil change.
In Q3 2008, the Group increased its stake in Centricom Pty Limited with a
further investment of $1.7 million. The Group now holds 42.83% (fully diluted)
of Centricom Pty Limited, and this is classified on the Company and Group
balance sheets as an "Investment in associate". Consideration for the increased
stake was a combination of cash and the Group's 50% holding in Centricom Europe
Limited, a joint venture established in the UK.
FOREIGN CURRENCY EXPOSURE
Global operations have necessitated an increasing foreign currency exposure. The
Group's treasury policy objective is to identify material foreign currency
exposures and to manage those exposures to minimise the potential effects of
currency fluctuations on consolidated cash flow and results of operations.
OFF BALANCE SHEET ARRANGEMENTS
As of 31 December 2008, the Group had no off-balance sheet arrangements that
have, or are reasonably likely to have, a current or future material effect on
the Group's consolidated financial condition, results of operations, liquidity,
capital expenditures or capital resources. All e-wallet related merchant and
non-European customer funds are held in designated client accounts and excluded
from the Group's consolidated balance sheet. There are no investments held at 31
December 2008 that are part of US subprime investment vehicles.
* * *
The Group's audited consolidated financial statements and accompanying notes are
set out in Part 2 of the Audited Results statement and are also available at
www.neovia.com.
The Group's 2008 annual report and audited accounts is today published on the
Company's website and is being sent to shareholders accordingly. The Company
will hold its sixth annual general meeting in the Isle of Man on Thursday 17
June 2009. For further information, please contact investorrelations@neovia.com.
+----------------------------------------------------------+--------------+-------------+
| Consolidated Balance Sheet |
| as at 31 December 2008 |
+---------------------------------------------------------------------------------------+
| | 31 DECEMBER |31 DECEMBER |
| | 2008 | 2007 |
+----------------------------------------------------------+--------------+-------------+
| | $ | $ |
+----------------------------------------------------------+--------------+-------------+
| ASSETS | | |
+----------------------------------------------------------+--------------+-------------+
| Current | | |
+----------------------------------------------------------+--------------+-------------+
| Cash and cash equivalents | 76,246,169 | 80,750,283 |
+----------------------------------------------------------+--------------+-------------+
| Restricted cash (Note 4) | 2,941,543 | 10,817,605 |
+----------------------------------------------------------+--------------+-------------+
| Qualifying Liquid Assets held for European customers | 63,444,278 | 61,885,103 |
| (Note 5) | | |
+----------------------------------------------------------+--------------+-------------+
| Receivable from customers (Note 6) | 702,000 | 475,000 |
+----------------------------------------------------------+--------------+-------------+
| Trade and other receivables | 1,253,586 | 735,399 |
+----------------------------------------------------------+--------------+-------------+
| Prepaid expenses and deposits | 3,309,125 | 2,708,248 |
+----------------------------------------------------------+--------------+-------------+
| | 147,896,701 | 157,371,638 |
+----------------------------------------------------------+--------------+-------------+
| Non-current assets | | |
+----------------------------------------------------------+--------------+-------------+
| Mortgage receivable (Note 7) | 616,119 | 764,550 |
+----------------------------------------------------------+--------------+-------------+
| Property, plant & equipment (Note 8) | 8,759,068 | 44,305,153 |
+----------------------------------------------------------+--------------+-------------+
| Intangible assets (Note 9) | 17,872,820 | 17,885,728 |
+----------------------------------------------------------+--------------+-------------+
| Goodwill (Note 10) | - | 11,802,162 |
+----------------------------------------------------------+--------------+-------------+
| Investment in associate (Note 11) | 5,085,074 | 4,115,626 |
+----------------------------------------------------------+--------------+-------------+
| Interest in joint venture (Note 12) | - | 50,258 |
+----------------------------------------------------------+--------------+-------------+
| | 180,229,782 | 236,295,115 |
+----------------------------------------------------------+--------------+-------------+
| | | |
+----------------------------------------------------------+--------------+-------------+
| LIABILITIES | | |
+----------------------------------------------------------+--------------+-------------+
| Current | | |
+----------------------------------------------------------+--------------+-------------+
| Trade and other payables (Note 13) | 18,318,683 | 22,901,237 |
+----------------------------------------------------------+--------------+-------------+
| Payable to European customers (Note 5) | 60,307,346 | 57,032,664 |
+----------------------------------------------------------+--------------+-------------+
| Forfeiture payable (Note 14) | - | 38,250,415 |
+----------------------------------------------------------+--------------+-------------+
| Taxes payable (Note 15) | 1,904,472 | 2,326,889 |
+----------------------------------------------------------+--------------+-------------+
| | 80,530,501 | 120,511,205 |
+----------------------------------------------------------+--------------+-------------+
| | | |
+----------------------------------------------------------+--------------+-------------+
| | | |
+----------------------------------------------------------+--------------+-------------+
| SHAREHOLDERS' EQUITY | | |
+----------------------------------------------------------+--------------+-------------+
| Share capital (Note 16) | 39,725 | 39,725 |
+----------------------------------------------------------+--------------+-------------+
| Share premium | 50,554,492 | 50,554,492 |
+----------------------------------------------------------+--------------+-------------+
| Capital redemption reserve | 147 | 147 |
+----------------------------------------------------------+--------------+-------------+
| Equity reserve on share option issuance | 5,954,728 | 3,219,506 |
+----------------------------------------------------------+--------------+-------------+
| Translation reserve (Note 17) | (1,320,417) | 9,412,813 |
+----------------------------------------------------------+--------------+-------------+
| Retained earnings | 44,470,606 | 52,557,227 |
+----------------------------------------------------------+--------------+-------------+
| | 99,699,281 | 115,783,910 |
+----------------------------------------------------------+--------------+-------------+
| | 180,229,782 | 236,295,115 |
+----------------------------------------------------------+--------------+-------------+
| | | |
+----------------------------------------------------------+--------------+-------------+
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Consolidated Income Statement | |
| for the Year Ended 31 December 2008 | |
+--------------------------------------------------------------------------------------------------------------------+-+
| | YEAR ENDED 31 | YEAR ENDED | |
| | DECEMBER 2008 | 31 DECEMBER | |
| | $ | 2007 | |
| | | $ | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| | | | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Revenue | | | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Transaction fees | 69,803,341 | 69,930,071 | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Investment income | 6,141,380 | 14,072,368 | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| | 75,944,721 | 84,002,439 | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| | | | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Cost of sales | | | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Customer support | 9,996,766 | 12,427,967 | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Website maintenance | 3,959,698 | 7,172,417 | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Marketing and promotions (Note 18) | 1,538,955 | - | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Deposit and withdrawal fees | 13,309,669 | 10,143,891 | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Bad debts (Note 6) | 174,399 | 7,534,553 | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Gross profit | 46,965,234 | 46,723,611 | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| | | | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Operating expenses/(income) | | | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| General and administrative | 30,170,128 | 33,992,095 | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Share option expense (Note 23) | 2,735,222 | 13,523,346 | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Management bonus | 799,212 | 2,643,030 | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Foreign exchange (gain)/loss | (289,991) | 516,466 | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Depreciation and amortisation (Note 19) | 6,351,788 | 8,582,983 | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Investment loss (Note 11) | 773,143 | 243,536 | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Profit/(loss) before other items | 6,425,732 | (12,777,845) | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| | | | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Other items | | | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Impairment loss (Notes 9 & 10) | 14,498,163 | - | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Restructuring costs (Note 20) | 1,113,927 | 36,981,517 | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Loss on disposal of assets (Note 8) | 110,753 | - | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Forfeiture of profits related to US withdrawal (Note 14) | - | 136,000,000 | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Acquisition costs impairment (Note 26) | 620,439 | - | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Loss before tax | (9,917,550) | (185,759,362) | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| | | | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Income tax (recovery)/expense (Note 15) | (1,830,929) | 14,734 | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| | | | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Net loss for the year | (8,086,621) | (185,774,096) | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| | | | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Basic (loss) per share (Note 21) | $(0.07) | $(1.55) | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| | | | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Diluted (loss) per share (Note 21) | $(0.07) | $(1.55) | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| | | | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| | | | |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
| Consolidated Statement of Changes in Equity |
| for the Year Ended 31 December 2008 |
| |
+--------------------------------------------------------------------------+-------------------+---------------------+-+
+-------------+----------+----------+---------+------------+----------------+--------------+------------+---------------+---------------+
| | SHARE | SHARE | TOTAL | SHARE | EQUITY | TRANSLATION | CAPITAL | RETAINED | TOTAL |
| | CAPITAL | CAPITAL | SHARE | PREMIUM | RESERVE | RESERVE ON |REDEMPTION | EARNINGS | $ |
| | - | - | CAPITAL | $ | ON | FOREIGN | RESERVE | $ | |
| | ORDINARY | DEFERRED | $ | | SHARE | OPERATIONS | $ | | |
| | SHARES | SHARES | | | OPTION | $ | | | |
| | $ | $ | | | ISSUANCE | | | | |
| | | | | | $ | | | | |
+-------------+----------+----------+---------+------------+----------------+--------------+------------+---------------+---------------+
| Balance as | 21,725 | 18,000 | 39,725 | 50,554,492 | 9,683,697 | 1,349,198 | 147 | 218,343,785 | 279,971,044 |
| at | | | | | | | | | |
| 1 January | | | | | | | | | |
| 2007 | | | | | | | | | |
+-------------+----------+----------+---------+------------+----------------+--------------+------------+---------------+---------------+
| | | | | | | | | | |
+-------------+----------+----------+---------+------------+----------------+--------------+------------+---------------+---------------+
| Equity | - | - | - | - | 13,523,347 | - | - | - | 13,523,347 |
| reserve on | | | | | | | | | |
| option | | | | | | | | | |
| issuance | | | | | | | | | |
+-------------+----------+----------+---------+------------+----------------+--------------+------------+---------------+---------------+
| Translation | - | - | - | - | - | 8,063,615 | - | - | 8,063,615 |
| reserve on | | | | | | | | | |
| foreign | | | | | | | | | |
| operations | | | | | | | | | |
+-------------+----------+----------+---------+------------+----------------+--------------+------------+---------------+---------------+
| Transfer | - | - | - | - | (19,987,538) | - | - | 19,987,538 | - |
| on expiry | | | | | | | | | |
+-------------+----------+----------+---------+------------+----------------+--------------+------------+---------------+---------------+
| Net profit | - | - | - | - | - | - | - | (185,774,096) | (185,774,096) |
| for the | | | | | | | | | |
| year | | | | | | | | | |
+-------------+----------+----------+---------+------------+----------------+--------------+------------+---------------+---------------+
| | | | | | | | | | |
+-------------+----------+----------+---------+------------+----------------+--------------+------------+---------------+---------------+
| Balance as | 21,725 | 18,000 | 39,725 | 50,554,492 | 3,219,506 | 9,412,813 | 147 | 52,557,227 | 115,783,910 |
| at 31 | | | | | | | | | |
| December | | | | | | | | | |
| 2007 | | | | | | | | | |
+-------------+----------+----------+---------+------------+----------------+--------------+------------+---------------+---------------+
| Balance as | 21,725 | 18,000 | 39,725 | 50,554,492 | 3,219,506 | 9,412,813 | 147 | 52,557,227 | 115,783,910 |
| at | | | | | | | | | |
| 1 January | | | | | | | | | |
| 2008 | | | | | | | | | |
+-------------+----------+----------+---------+------------+----------------+--------------+------------+---------------+---------------+
| | | | | | | | | | |
+-------------+----------+----------+---------+------------+----------------+--------------+------------+---------------+---------------+
| Equity | - | - | - | - | 2,735,222 | - | - | - | 2,735,222 |
| reserve on | | | | | | | | | |
| option | | | | | | | | | |
| issuance | | | | | | | | | |
+-------------+----------+----------+---------+------------+----------------+--------------+------------+---------------+---------------+
| Translation | - | - | - | - | - | (10,733,230) | - | - | (10,733,230) |
| reserve on | | | | | | | | | |
| foreign | | | | | | | | | |
| operations | | | | | | | | | |
+-------------+----------+----------+---------+------------+----------------+--------------+------------+---------------+---------------+
| Net loss | - | - | - | - | - | - | - | (8,086,621) | (8,086,621) |
| for the | | | | | | | | | |
| year | | | | | | | | | |
+-------------+----------+----------+---------+------------+----------------+--------------+------------+---------------+---------------+
| | | | | | | | | | |
+-------------+----------+----------+---------+------------+----------------+--------------+------------+---------------+---------------+
| Balance as | 21,725 | 18,000 | 39,725 | 50,554,492 | 5,954,728 | (1,320,417) | 147 | 44,470,606 | 99,699,281 |
| at 31 | | | | | | | | | |
| December | | | | | | | | | |
| 2008 | | | | | | | | | |
+-------------+----------+----------+---------+------------+----------------+--------------+------------+---------------+---------------+
| | | | | | | | | | |
+-------------+----------+----------+---------+------------+----------------+--------------+------------+---------------+---------------+
+--------------------------------------------------------+--------------+---------------+
| | | |
+--------------------------------------------------------+--------------+---------------+
| Consolidated Statement of Cash Flows | YEAR ENDED | YEAR ENDED |
| for the Year Ended 31 December 2008 | 31 DECEMBER | 31 DECEMBER |
| | 2008 | 2007 |
+--------------------------------------------------------+--------------+---------------+
| | $ | $ |
+--------------------------------------------------------+--------------+---------------+
| OPERATING ACTIVITIES | | |
+--------------------------------------------------------+--------------+---------------+
| Loss before tax | (9,917,550) | (185,759,362) |
+--------------------------------------------------------+--------------+---------------+
| | | |
+--------------------------------------------------------+--------------+---------------+
| Adjustments for: | | |
+--------------------------------------------------------+--------------+---------------+
| Depreciation and amortisation | 6,351,788 | 8,582,983 |
+--------------------------------------------------------+--------------+---------------+
| Unrealised foreign exchange loss/(gain) | 7,158,047 | (667,866) |
+--------------------------------------------------------+--------------+---------------+
| Share option expense | 2,735,222 | 13,523,346 |
+--------------------------------------------------------+--------------+---------------+
| Investment loss (Note 11) | 773,143 | 243,536 |
+--------------------------------------------------------+--------------+---------------+
| Impairment loss (Notes 9 & 10) | 14,498,163 | - |
+--------------------------------------------------------+--------------+---------------+
| Asset write down and disposal on restructuring | - | 13,213,027 |
| (Note 20) | | |
+--------------------------------------------------------+--------------+---------------+
| Asset disposal (Note 8) | 110,753 | - |
+--------------------------------------------------------+--------------+---------------+
| Operating cash flows before movements in working | 21,709,566 | (150,864,336) |
| capital | | |
+--------------------------------------------------------+--------------+---------------+
| | | |
+--------------------------------------------------------+--------------+---------------+
| Increase in receivable from customers | (227,000) | 2,146,319 |
+--------------------------------------------------------+--------------+---------------+
| Increase in trade and other receivables | (518,186) | 130,710 |
+--------------------------------------------------------+--------------+---------------+
| Increase in prepaid expenses and deposits | (600,878) | 566,229 |
+--------------------------------------------------------+--------------+---------------+
| Decrease in trade and other payables | (4,859,987) | 4,428,565 |
+--------------------------------------------------------+--------------+---------------+
| Forfeiture payable (Note 14) | (38,250,415) | 38,250,415 |
+--------------------------------------------------------+--------------+---------------+
| Cash consumed by operations | (22,746,900) | (105,342,099) |
+--------------------------------------------------------+--------------+---------------+
| | | |
+--------------------------------------------------------+--------------+---------------+
| Tax paid | 1,408,512 | (2,589,141) |
+--------------------------------------------------------+--------------+---------------+
| | | |
+--------------------------------------------------------+--------------+---------------+
| Net cash consumed by operating activities | (21,338,388) | (107,931,240) |
+--------------------------------------------------------+--------------+---------------+
| | | |
+--------------------------------------------------------+--------------+---------------+
| INVESTING ACTIVITIES | | |
+--------------------------------------------------------+--------------+---------------+
| Increase in payable to European customers | 3,274,682 | 2,974,617 |
+--------------------------------------------------------+--------------+---------------+
| Purchase of property, plant & equipment and | (14,774,124) | (30,203,134) |
| intangible assets | | |
+--------------------------------------------------------+--------------+---------------+
| Proceeds from disposal of property, plant & | 32,894,740 | 3,789,672 |
| equipment | | |
+--------------------------------------------------------+--------------+---------------+
| Decrease in restricted cash accounts | 7,876,062 | 1,177,612 |
+--------------------------------------------------------+--------------+---------------+
| Increase in Qualifying Liquid Assets held for | (1,559,175) | 1,540,579 |
| European customers | | |
+--------------------------------------------------------+--------------+---------------+
| Investment in associate (Note 11) | (1,486,768) | (4,359,162) |
+--------------------------------------------------------+--------------+---------------+
| Investment in joint venture (Note 12) | (205,564) | (50,258) |
+--------------------------------------------------------+--------------+---------------+
| | | |
+--------------------------------------------------------+--------------+---------------+
| Net cash generated/(consumed) by investing activities | 26,019,853 | (25,130,074) |
+--------------------------------------------------------+--------------+---------------+
| | | |
+--------------------------------------------------------+--------------+---------------+
| FINANCING ACTIVITIES | | |
+--------------------------------------------------------+--------------+---------------+
| Mortgage receivable | 148,432 | (764,550) |
+--------------------------------------------------------+--------------+---------------+
| Conditional consideration | - | (2,482,330) |
+--------------------------------------------------------+--------------+---------------+
| | | |
+--------------------------------------------------------+--------------+---------------+
| Net cash generated/(consumed) by financing activities | 148,432 | (3,246,880) |
+--------------------------------------------------------+--------------+---------------+
| | | |
+--------------------------------------------------------+--------------+---------------+
| Increase/(decrease) in cash and cash equivalents | 4,829,897 | (136,308,194) |
| during the year | | |
+--------------------------------------------------------+--------------+---------------+
| Net effect of foreign exchange on cash and cash | (3,716,493) | 674,450 |
| equivalents | | |
+--------------------------------------------------------+--------------+---------------+
| Translation of foreign operations | (5,617,518) | 218,862 |
+--------------------------------------------------------+--------------+---------------+
| | | |
+--------------------------------------------------------+--------------+---------------+
| Cash and cash equivalents, beginning of year | 80,750,283 | 216,165,165 |
+--------------------------------------------------------+--------------+---------------+
| | | |
+--------------------------------------------------------+--------------+---------------+
| Cash and cash equivalents, end of year | 76,246,169 | 80,750,283 |
+--------------------------------------------------------+--------------+---------------+
| | | |
+--------------------------------------------------------+--------------+---------------+
Notes to Consolidated Financial Statements for the Year Ended 31 December 2008
1. GENERAL
NETELLER plc (the "Company") was a private company incorporated under the laws
of the Isle of Man ("IOM") on 31 October 2003 and was registered as a public
company on 1 April 2004. NETELLER plc changed its name to NEOVIA Financial Plc
on 17 November 2008. The principal activities of the Company and the Group are
described in Note 2. The Group includes the Company and its wholly owned
subsidiaries as set out under "Principles of consolidation" in note 3 below.
These financial statements are presented in US dollars ("$") since that is the
currency in which the majority of the Group's transactions are denominated.
At 31 December 2008, the Group had 450 employees (2007: 419 employees).
2. NATURE OF OPERATIONS
The Group provides services to businesses and individuals to allow the
processing of direct debit, electronic cheque and credit card payments. The
Group processes direct debit, electronic cheque and credit card payments for
internet merchants. NETELLER (UK) Ltd (a wholly-owned subsidiary of NEOVIA
Financial Plc) is authorised and regulated by the Financial Services Authority
in the United Kingdom as an e-money issuer.
3. SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with applicable IOM
law and International Financial Reporting Standards ("IFRS"). The following
principal accounting policies have been applied:
Principles of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and enterprises controlled by the Company (and its subsidiaries) as
at the year end. Control is achieved where the Company has the power to govern
the financial and operating policies of an investee enterprise so as to obtain
benefits from its activities. The consolidated financial statements include the
accounts of the Company and its principal wholly owned subsidiaries, NETELLER
Operations Limited, NetAdmin Limited, Net ID Limited, NT Services Limited,
NETELLER (UK) Ltd, NetBanx Limited, Quick Access International Limited, 1155259
Alberta Limited, NT Services Building Corporation, NETELLER Express Limited and
Cardload Incorporated. All inter-company transactions and balances between Group
enterprises are eliminated on consolidation.
In the non-consolidated financial statements of the Company, investments in
subsidiaries are stated at cost.
Investments in associates
An associate is an entity over which the Group has significant influence and
that is neither a subsidiary nor an interest in a joint venture. Significant
influence is the power to participate in the financial and operating
policy decisions of the investee but is not control or joint control over those
policies.
The results and assets and liabilities of associates are incorporated in these
financial statements using the equity method of accounting. Under the equity
method, investments in associates are carried in the consolidated balance sheet
at cost as adjusted for post-acquisition changes in the Group's share of the net
assets of the associate, less any impairment in the value of
individual investments. Losses of an associate in excess of the Group's interest
in that associate (which includes any long-term interests that, in substance,
form part of the Group's net investment in the associate) are recognised only to
the extent that the Group has incurred legal or constructive obligations or made
payments on behalf of the associate.
Where a group entity transacts with an associate of the Group, profits and
losses are eliminated to the extent of the Group's interest in the relevant
associate.
Interests in joint ventures
A joint venture is a contractual arrangement whereby the Group and other parties
undertake an economic activity that is subject to joint control that is when the
strategic financial and operating policy decisions relating to the activities of
the joint venture require the unanimous consent of the parties sharing control.
Joint venture arrangements that involve the establishment of a separate entity
in which each venturer has an interest are referred to as jointly controlled
entities. The Group has significant influence on the entity and reports its
interests in jointly controlled entities using the equity method of accounting.
Under the equity method, investments in joint ventures are carried in the
consolidated balance sheet at cost as adjusted for post-acquisition changes in
the Group's share of the net assets of the entity, less any impairment in the
value of individual investments.
Where the Group transacts with its jointly controlled entities, unrealised
profits and losses are eliminated to the extent of the Group's interest in the
joint venture.
Cash and cash equivalents
Cash equivalents are defined as short-term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value.
Intangible assets
Intellectual property is recorded at cost and is amortised on a straight-line
basis over its estimated useful life which is assessed to be three years.
Website development costs are recorded at cost and are amortised over their
estimated useful life using the declining-balance method at 30%.
Intangible assets resulting from acquisitions are amortised straight line over
8-10 years.
Property, plant & equipment
Land is not depreciated. Property, plant & equipment are recorded at cost and
are amortised over their estimated useful lives, using the declining-balance
method, on the following basis:
Communication equipment 20%
Furniture and equipment 20%
Computer equipment 30%
Other assets are depreciated over their estimated useful lives, using the
straight-line method, on the following basis:
Computer software2 years
Building& Leasehold Improvements4% and 10 years respectively
The gain or loss arising on the disposal or retirement of an asset is determined
as the difference between the sales proceeds and the carrying amount of the
asset and is recognised in income.
Impairment
The carrying amount of the Group's assets, other than deferred tax assets (see
accounting policy below) are reviewed at each balance sheet date to determine
whether there is any indication of impairment.If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of
the impairment loss (if any). Where it is not possible to estimate the
recoverable amount of an individual asset, the Group estimates the recoverable
amount of the cash-generating unit to which the asset belongs.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of
acquisition over the Group's interest in the fair value of the identifiable
assets and liabilities of subsidiaries at the date of acquisition.
Goodwill is recognised as an asset and reviewed for impairment at least
annually. Any impairment is recognised immediately in the income statement and
is not subsequently reversed.
On disposal of a subsidiary, the attributable amount of goodwill is included in
the determination of the profit or loss on disposal.
Receivable from customers
Trade and other receivables, including receivables from customers, are stated at
their amortised cost less impairment losses and doubtful accounts.
Deferred tax
The Group uses the balance sheet liability method of accounting for income
taxes. Temporary differences arising from the difference between the tax basis
of an asset or liability and its carrying amount on the balance sheet are used
to calculate deferred tax assets or liabilities. Deferred tax assets or
liabilities are calculated using tax rates anticipated to exist in the periods
that the temporary differences are expected to reverse.
Segment information
No analysis related to segmented profit and loss information is disclosed, as
the Directors of the Company are of the opinion that all of the Group's
activities arise from online transactions where the production is singular and
all economic and geographic environments are subject to similar risks and
returns.
Revenue recognition
The Group is involved in transaction processing services. Revenues from
transaction processing services are recognised at the time services are
rendered. Customer revenue is recognised either as a fee calculated as a
percentage of funds processed or as a charge per transaction, pursuant to the
respective customer agreements. Merchant revenue is recognised as a fee
calculated as a percentage of funds processed on behalf of merchants.
Interest income is accrued on a monthly basis, by reference to the principal
outstanding and at the effective interest rate applicable.
Leases
All leases are classified as operating leases as the terms of the lease do not
transfer substantially all the risks and rewards of ownership to the lessee.
Foreign exchange
The individual financial statements of each Group entity are presented in the
currency of the primary economic environment in which the entity operates (its
functional currency). For the purpose of the consolidated financial statements,
the results and financial position of each entity are expressed in United States
dollars, which is the functional currency of NEOVIA Financial Plc, and the
presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual entities, transactions
in currencies other than the entity's functional currency (foreign currencies)
are recorded at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary items denominated in foreign
currencies are retranslated at the rates prevailing on the balance sheet date.
Non-monetary items carried at fair value that are denominated in foreign
currencies are retranslated at the rates prevailing on the date when the fair
value was determined. Non-monetary items that are measured in terms of
historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the
retranslation of monetary items, are included in profit or loss for the period.
Exchange differences arising on the retranslation of non-monetary items carried
at fair value are included in profit or loss for the period, except for
differences arising on the retranslation of non-monetary items in respect of
which gains and losses are recognised directly in equity. For such non-monetary
items, any exchange component of that gain or loss is also recognised directly
in equity.
For the purpose of presenting consolidated financial statements, the assets and
liabilities of the Group's foreign operations (including comparatives) are
expressed in United States dollars using exchange rates prevailing on the
balance sheet date. Income and expense items (including comparatives) are
translated at the average exchange rates for the period, unless exchange rates
fluctuated significantly during that period, in which case the exchange rates at
the dates of the transactions are used. Exchange differences arising, if any,
are classified as equity and transferred to the Group's translation reserve.
Such translation differences are recognised in profit or loss in the period in
which the foreign operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of foreign
operations are treated as assets and liabilities of the foreign operation and
translated at the closing rate.
Related party transactions
Monetary related party transactions in the normal course of operations are
recorded at fair value, and transactions between related parties, not in the
normal course of operations, are recorded at the carrying value as recorded by
the transferor.
Use of estimates
The preparation of the Group's financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and contingencies at the date of the Group's financial statements,
and revenue and expenses during the reporting period. Actual results could
differ from those estimated. Significant estimates in the Group's financial
statements include the amount recorded for provision for doubtful accounts,
commitments and contingencies. By their nature, these estimates and assumptions
are subject to measurement uncertainty and the effect on the Group's financial
statements of changes in estimates in future periods could be significant.
Foreign exchange contracts
The Group uses foreign exchange contracts to reduce its exposure to adverse
fluctuations in foreign exchange rates. These financial instruments are
presented in the accompanying consolidated financial statements at fair value.
Fair values are based on market quotes, current foreign exchange rates or
management estimates, as appropriate, and gains and losses on the foreign
exchange contracts are reflected in the consolidated income statement. The
increase or decrease in the fair value of the contracts has been taken to
income.
Research and development
Research expenditure is written off to the income statement in the period in
which it is incurred.
Development expenditure is written off in the same way unless management is
satisfied as to the technical, commercial and financial viability of the
individual projects. In this situation, the expenditure is capitalised at cost,
less a provision for any impairment in value, and is amortised on the
commencement of use over the period in which benefits are expected to be
received by the Group.
Share-based payments
The company issues share options to certain employees, including Directors.
Share options are measured at fair value at the date of grant. The fair value
determined at the grant date of the share option is expensed on a straight-line
basis over the vesting period, based on the Company's estimate of shares that
will eventually vest. Fair value is measured using the Trinomial Lattice pricing
model. When necessary, the expected life used in the model is adjusted, based on
management's best estimates, for the effects of non-transferability, exercise
restrictions and behavioural considerations.
Offsetting
Financial assets and liabilities are set off and the net amount presented in the
balance sheet when, and only when, the Group has a legal enforceable right to
set off the amounts and intends either to settle on a net basis or to realise
the asset and settle the liability simultaneously.
Income and expenses are presented on a net basis only when permitted by the
accounting standards, or for gains and losses arising from a group of similar
transactions such as in the Group's trading activity.
Defined contribution pension plans
Obligations for contributions to defined contribution pension plans are
recognised as an expense in the income statement as incurred.
4. RESTRICTED CASH
For merchants and non-European customers, the Group maintains bank accounts with
the Company's principal bankers which are segregated from operating funds and
which contain funds held on behalf of customers, representing pooled customer
funds. Balances in the segregated accounts are maintained at a sufficient level
to fully offset amounts owing to the Group's merchants and customers. A legal
right of offset exists between the balances owing to the merchants (excluding
NetBanx & Netbanx Asia merchant liabilities, see Note 13) and customers and the
cash balances segregated in the client accounts. As such, only the net balance
of surplus cash is disclosed on the balance sheet as Restricted Cash.
At 31 December 2008, the Group had the following balances:
+---------------------------------+--------------+--------------+--------------+
| | CLIENT | BALANCE | RESTRICTED |
| | ACCOUNT | OWING | CASH |
| | FUNDS | | |
+---------------------------------+--------------+--------------+--------------+
| | $ | $ | $ |
+---------------------------------+--------------+--------------+--------------+
| | | | |
+---------------------------------+--------------+--------------+--------------+
| Non-European Customers | 24,062,805 | 23,489,751 | 573,054 |
+---------------------------------+--------------+--------------+--------------+
| | | | |
+---------------------------------+--------------+--------------+--------------+
| Merchants | 61,934,429 | 59,565,940 | 2,368,489 |
+---------------------------------+--------------+--------------+--------------+
| | | | |
+---------------------------------+--------------+--------------+--------------+
| | 85,997,234 | 83,055,691 | 2,941,543 |
+---------------------------------+--------------+--------------+--------------+
At 31 December 2007, the Group had the following balances:
+---------------------------------+--------------+--------------+--------------+
| | CLIENT | BALANCE | RESTRICTED |
| | ACCOUNT | OWING | CASH |
| | FUNDS | | |
+---------------------------------+--------------+--------------+--------------+
| | $ | $ | $ |
+---------------------------------+--------------+--------------+--------------+
| | | | |
+---------------------------------+--------------+--------------+--------------+
| Non-European Customers | 41,755,492 | 34,350,329 | 7,405,163 |
+---------------------------------+--------------+--------------+--------------+
| | | | |
+---------------------------------+--------------+--------------+--------------+
| Merchants | 48,957,085 | 45,544,643 | 3,412,442 |
+---------------------------------+--------------+--------------+--------------+
| | | | |
+---------------------------------+--------------+--------------+--------------+
| | 90,712,577 | 79,894,972 | 10,817,605 |
+---------------------------------+--------------+--------------+--------------+
5. QUALIFYING LIQUID ASSETS HELD FOR EUROPEAN CUSTOMERS
In compliance with the Financial Services Authority rules and regulations, the
Group holds Qualifying Liquid Assets at least equal to the amounts owing to
European customers. These amounts are maintained in accounts which are
segregated from operating funds.
The Group had the following balances:
+--------------------------------------------+----------------+----------------+
| | AS AT 31 | AS AT 31 |
| | DECEMBER 2008 | DECEMBER 2007 |
| | $ | $ |
+--------------------------------------------+----------------+----------------+
| Qualifying Liquid Assets held for European | 63,444,278 | 61,885,103 |
| customers | | |
+--------------------------------------------+----------------+----------------+
| Payable to European customers | (60,307,346) | (57,032,664) |
+--------------------------------------------+----------------+----------------+
| | 3,136,932 | 4,852,439 |
+--------------------------------------------+----------------+----------------+
| | | |
+--------------------------------------------+----------------+----------------+
6. RECEIVABLE FROM CUSTOMERS
The Group had the following balances:
+-------------------------------------------+----------------+----------------+
| | AS AT 31 | AS AT 31 |
| | DECEMBER 2008 | DECEMBER 2007 |
+-------------------------------------------+----------------+----------------+
| | $ | $ |
+-------------------------------------------+----------------+----------------+
| | | |
+-------------------------------------------+----------------+----------------+
| Receivable from customers | 994,765 | 16,296,289 |
+-------------------------------------------+----------------+----------------+
| | | |
+-------------------------------------------+----------------+----------------+
| Provision for doubtful accounts | (292,765) | (15,821,289) |
+-------------------------------------------+----------------+----------------+
| | | |
+-------------------------------------------+----------------+----------------+
| | 702,000 | 475,000 |
+-------------------------------------------+----------------+----------------+
Receivable from customers consists of balances that are due from customers and
are in the process of collection. The net receivable from customers represents
the amounts which are expected to be collected through the normal course of
business.Balances in 2007 represent accounts due from North American customers
with corresponding bad debt expense recognized in 2007. The balances were
written off during 2008 as a result of the withdrawal from the North American
market. The 2008 balances represent amounts due from NetBanx's merchant
customers.
7. MORTGAGE RECEIVABLE
The Group holds a mortgage as a portion of the proceeds on the sale of the
Group's 41st Avenue property in Calgary. Interest at a rate of 6% is charged
with the principal receivable on 1 October 2010. The payment schedule is as
follows:
+---------+-----------+------------+-----------+
| | INTEREST | PRINCIPAL | PRINCIPAL |
+---------+-----------+------------+-----------+
| | CAD $ | CAD $ | USD $ |
+---------+-----------+------------+-----------+
| 2009 | 45,000 | - | - |
+---------+-----------+------------+-----------+
| 2010 | 33,750 | 750,000 | 616,119 |
+---------+-----------+------------+-----------+
| | 78,750 | 750,000 | |
| | | | 616,119 |
+---------+-----------+------------+-----------+
8. PROPERTY, PLANT & EQUIPMENT
The Group has the following balances:
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| | COMMUNICATION | FURNITURE | COMPUTER | COMPUTER | BUILDING AND | LAND | TOTAL |
| | EQUIPMENT | AND | EQUIPMENT | SOFTWARE | IMPROVEMENTS | $ | $ |
| | $ | EQUIPMENT | $ | $ | $ | | |
| | | $ | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Cost | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| As at 31 | 3,099,761 | 2,312,105 | 4,191,037 | 8,257,663 | 12,848,216 | 936,396 | 31,645,178 |
| December 2006 | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Additions | 530,598 | 351,883 | 87,201 | 3,380,556 | 14,113,828 | 5,622,351 | 24,086,417 |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Write down | - | - | (747,848) | (4,476,328) | - | - | (5,224,176) |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Disposals | - | - | (135,685) | (36,776) | (3,191,530) | (1,169,777) | (4,533,768) |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Re-classification | - | (510,872) | - | 118,156 | 510,872 | - | 118,156 |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Exchange | 542,853 | 409,048 | 788,213 | 710,802 | 5,298,769 | 1,237,130 | 8,986,815 |
| difference | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| As at 31 | 4,173,212 | 2,562,164 | 4,182,918 | 7,954,073 | 29,580,155 | 6,626,100 | 55,078,622 |
| December 2007 | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Additions | 150,706 | 133,197 | 315,885 | 1,921,057 | 42,826 | - | 2,563,671 |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Disposals | - | (44,649) | (13,421) | (96,863) | (28,261,507) | (6,434,350) | (34,850,790) |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Exchange | (1,117,703) | (471,646) | (797,452) | (940,614) | (929,710) | (191,750) | (4,448,875) |
| difference | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| As at 31 | 3,206,215 | 2,179,066 | 3,687,930 | 8,837,653 | 431,764 | - | 18,342,628 |
| December 2008 | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Accumulated | | | | | | | |
| depreciation | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| As at 31 | 569,757 | 425,328 | 1,721,531 | 2,661,985 | 726,121 | - | 6,104,722 |
| December 2006 | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Charge for the | 685,244 | 418,995 | 691,654 | 1,405,093 | 1,420,714 | - | 4,621,700 |
| year | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Write down | - | - | - | (856,531) | - | - | (856,531) |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Disposals | - | - | (49,811) | (24,211) | (474,413) | - | (548,435) |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Re-classification | - | (82,354) | - | 120,656 | 82,354 | - | 120,656 |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Exchange | 209,319 | 104,067 | 376,761 | 405,868 | 235,342 | - | 1,331,357 |
| difference | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| As at 31 | 1,464,320 | 866,036 | 2,740,135 | 3,712,860 | 1,990,118 | - | 10,773,469 |
| December 2007 | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Charge for the | 659,070 | 343,740 | 417,684 | 1,514,372 | 21,663 | - | 2,956,529 |
| year | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Disposals | - | (13,217) | (9,905) | (96,863) | (1,877,097) | - | (1,997,082) |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Exchange | (610,897) | (206,410) | (556,217) | (712,364) | (63,468) | - | (2,149,356) |
| Difference | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| As at 31 | 1,512,493 | 990,149 | 2,591,697 | 4,418,005 | 71,216 | - | 9,583,560 |
| December 2008 | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Net book value | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| As at 31 | 2,530,004 | 1,886,777 | 2,469,506 | 5,595,678 | 12,122,095 | 936,396 | 25,540,456 |
| December 2006 | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Net book value | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| As at 31 | 2,708,892 | 1,696,128 | 1,442,783 | 4,241,213 | 27,590,037 | 6,626,100 | 44,305,153 |
| December 2007 | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| Net book value | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
| As at 31 | 1,693,722 | 1,188,917 | 1,096,233 | 4,419,648 | 360,548 | - | 8,759,068 |
| December 2008 | | | | | | | |
+-------------------+---------------+-------------+------------+-------------+--------------+-------------+--------------+
2007
Computer equipment and computer software write down
The Group recorded a write down of $4.4 million (net of accumulated
depreciation) related to computer equipment and computer software assets in the
year ended 31 December 2007. The Group identified the cessation of transaction
processing in the North American market and the resultant significant
restructuring of the Group's cost base as indication of asset impairment.
Excess computer equipment was disposed for nominal proceeds and written down to
nil net book value. The carrying amount of computer software was written down to
the estimated recoverable amount based on future cash flows expected from
non-North American markets.
Asset disposal
The Group has sold its Calgary property located on 41st Avenue on 4 September
2007. Proceeds of approximately CAD $4 million were received with CAD $0.75
million payable as a vendor take back mortgage over three years as set out in
Note 7 to the Financial Statements.
2008
Disposal of property, furniture and equipment
The Group completed the sale of its principal property at 27th Avenue in
Calgary, Canada on 10 July 2008 for total consideration of CAD $33.5 million. A
loss of $75,805 was recorded on disposition. The Group will continue to lease
two areas of the property from the purchaser on usual commercial terms for a
period of three years and five years respectively following the sale. The Group
also disposed of furniture during the year with a carrying value of $34,948 for
net proceeds of $Nil. The total loss on disposal of assets was $110,753 for the
year.
9. INTANGIBLE ASSETS
The Group has the following balances:
+----------------------+------------------------+-----------------------+----------------+
| | INTELLECTUAL PROPERTY | WEBSITE DEVELOPMENT | TOTAL |
| | $ | $ | $ |
+----------------------+------------------------+-----------------------+----------------+
| Cost | | | |
+----------------------+------------------------+-----------------------+----------------+
| As at 31 December | 18,056,199 | 17,804,251 | 35,860,450 |
| 2006 | | | |
+----------------------+------------------------+-----------------------+----------------+
| Additions | 369,151 | 5,747,567 | 6,116,718 |
+----------------------+------------------------+-----------------------+----------------+
| Write down | - | (11,866,305) | (11,866,305) |
+----------------------+------------------------+-----------------------+----------------+
| Exchange difference | - | 567,781 | 567,781 |
+----------------------+------------------------+-----------------------+----------------+
| As at 31 December | 18,425,350 | 12,253,294 | 30,678,644 |
| 2007 | | | |
+----------------------+------------------------+-----------------------+----------------+
| Additions | 118,787 | 11,939,882 | 12,058,669 |
+----------------------+------------------------+-----------------------+----------------+
| Impairment loss | (8,638,038) | - | (8,638,038) |
| (Note 10) | | | |
+----------------------+------------------------+-----------------------+----------------+
| Exchange difference | (3,164,125) | (1,951,368) | (5,115,493) |
+----------------------+------------------------+-----------------------+----------------+
| As at 31 December | 6,741,974 | 22,241,808 | 28,983,782 |
| 2008 | | | |
+----------------------+------------------------+-----------------------+----------------+
| Accumulated amortisation | | |
+-----------------------------------------------+-----------------------+----------------+
| As at 31 December | 7,844,469 | 4,135,423 | 11,979,892 |
| 2006 | | | |
+----------------------+------------------------+-----------------------+----------------+
| Charge for the year | 1,286,416 | 2,674,868 | 3,961,284 |
+----------------------+------------------------+-----------------------+----------------+
| Write down | - | (3,526,747) | (3,526,747) |
+----------------------+------------------------+-----------------------+----------------+
| Exchange difference | - | 378,487 | 378,487 |
+----------------------+------------------------+-----------------------+----------------+
| As at 31 December | 9,130,885 | 3,662,031 | 12,792,916 |
| 2007 | | | |
+----------------------+------------------------+-----------------------+----------------+
| Charge for the year | 1,142,334 | 2,252,925 | 3,395,259 |
+----------------------+------------------------+-----------------------+----------------+
| Impairment loss | (2,777,914) | - | (2,777,914) |
| (Note 10) | | | |
+----------------------+------------------------+-----------------------+----------------+
| Exchange difference | (946,568) | (1,352,731) | (2,299,299) |
+----------------------+------------------------+-----------------------+----------------+
| As at 31 December | 6,548,737 | 4,562,225 | 11,110,962 |
| 2008 | | | |
+----------------------+------------------------+-----------------------+----------------+
| Net book value | | | |
+----------------------+------------------------+-----------------------+----------------+
| As at 31 December | 10,211,730 | 13,668,828 | 23,880,558 |
| 2006 | | | |
+----------------------+------------------------+-----------------------+----------------+
| Net book value | | | |
+----------------------+------------------------+-----------------------+----------------+
| As at 31 December | 9,294,465 | 8,591,263 | 17,885,728 |
| 2007 | | | |
+----------------------+------------------------+-----------------------+----------------+
| Net book value | | | |
+----------------------+------------------------+-----------------------+----------------+
| As at 31 December | 193,237 | 17,679,583 | 17,872,820 |
| 2008 | | | |
+----------------------+------------------------+-----------------------+----------------+
Intangible asset write down
The Group recorded a write down of $8.3 million (net of accumulated
amortisation) related to website development assets in 2007. The Group
identified the cessation of transaction processing in the North American market
and the resultant significant restructuring of the Group's cost base as an
indication of asset impairment. The carrying amount was written down to the
estimated recoverable amount based on future cash flows expected from non-North
American markets.
10. GOODWILL
The Group has the following balances:
+---------------------------------+--------------------+-----------------+--------------+
| | QUICK ACCESS | NETBANX LIMITED | TOTAL |
| | INTERNATIONAL | | $ |
| | LIMITED | $ | |
| | $ | | |
+---------------------------------+--------------------+-----------------+--------------+
| Cost | | |
+------------------------------------------------------+-----------------+--------------+
| Balance at 31 December 2006 | 5,766,012 | 11,646,188 | 17,412,200 |
+---------------------------------+--------------------+-----------------+--------------+
| Exchange differences | - | 155,974 | 155,974 |
+---------------------------------+--------------------+-----------------+--------------+
| Balance at 31 December 2007 | 5,766,012 | 11,802,162 | 17,568,174 |
+---------------------------------+--------------------+-----------------+--------------+
| Exchange differences | - | (3,164,124) | (3,164,124) |
+---------------------------------+--------------------+-----------------+--------------+
| Balance at 31 December 2008 | 5,766,012 | 8,638,038 | 14,404,050 |
+---------------------------------+--------------------+-----------------+--------------+
| | | | |
+---------------------------------+--------------------+-----------------+--------------+
| Accumulated impairment losses | | | |
+---------------------------------+--------------------+-----------------+--------------+
| Balance at 31 December 2006 | 5,766,012 | - | 5,766,012 |
+---------------------------------+--------------------+-----------------+--------------+
| Impairment loss recognised in | - | - | - |
| the year | | | |
+---------------------------------+--------------------+-----------------+--------------+
| Balance at 31 December 2007 | 5,766,012 | - | 5,766,012 |
+---------------------------------+--------------------+-----------------+--------------+
| Impairment loss recognised in | - | 8,638,038 | 8,638,038 |
| the year | | | |
+---------------------------------+--------------------+-----------------+--------------+
| Balance at 31 December 2008 | 5,766,012 | 8,638,038 | 14,404,050 |
+---------------------------------+--------------------+-----------------+--------------+
| | | | |
+---------------------------------+--------------------+-----------------+--------------+
| Carrying amount | | | |
+---------------------------------+--------------------+-----------------+--------------+
| As at 31 December 2007 | - | 11,802,162 | 11,802,162 |
+---------------------------------+--------------------+-----------------+--------------+
| Carrying amount | | | |
+---------------------------------+--------------------+-----------------+--------------+
| As at 31 December 2008 | - | - | - |
+---------------------------------+--------------------+-----------------+--------------+
The Group performs goodwill and intangible impairment tests at least annually or
whenever events or changes in circumstances indicate that the goodwill and
intangible carrying value for a business unit may not be recoverable.
In the fourth quarter of fiscal 2008, the Group recorded goodwill and intangible
asset impairment of $8.6 million and $5.9 million respectively (net of any
related accumulated amortisation) representing complete impairment of goodwill
and intangible assets acquired on the purchase of NetBanx Limited in 2005. In
accordance with IAS 36, an impairment loss should be recognised when the
recoverable amount of an asset is less than its carrying amount. The recoverable
amount was deemed to be zero, based on an analysis of the unit's future cash
flow projections and management's best estimate of the set of economic
conditions that will exist over the remaining useful life of the assets.
The recoverable amount of NetBanx Limited ('the cash-generating unit') is based
on value-in-use calculations. Those calculations use cash flow projections based
on actual operating results. A pre-tax discount rate of 5.5% has been used in
discounting the projected cash flows. The recoverable amount of the
cash-generating unit exceeds its carrying amount. The Board believes that any
reasonably possible change in the key assumptions on which the cash-generating
unit's recoverable amount is based would not cause the cash-generating unit's
carrying amount to exceed its recoverable amount.
11. INVESTMENT IN ASSOCIATE
+------------------------+------------------------+------------------+----------------+
| Name of Associate | Principal Activity | Place of | Ownership |
| | | incorporation | Interest |
| | | and operation | |
+------------------------+------------------------+------------------+----------------+
| | | | 31 December |
| | | | 2008 |
+------------------------+------------------------+------------------+----------------+
| Centricom Pty Limited | Electronic payment | Australia | 51% |
| | processing | | |
+------------------------+------------------------+------------------+----------------+
On 24 November 2008, the Group increased its investment in Centricom Pty to a
majority ownership interest of 51%. However, the Group is unable to exercise
control as it holds 50% of the voting shares (42.83% on a fully diluted basis)..
As such, the Group is only able to exercise significant influence over Centricom
Pty and the investment is accordingly accounted for under the Equity Method of
accounting and not proportionately consolidated.
+-------------------------------+-------------------+-----------------+
| | AS AT 31 | AS AT 31 |
| | DECEMBER | DECEMBER |
| | 2008 | 2007 |
| | $ | $ |
+-------------------------------+-------------------+-----------------+
| Cost | | |
+-------------------------------+-------------------+-----------------+
| Opening balance | 4,115,626 | - |
+-------------------------------+-------------------+-----------------+
| Share purchase | 1,742,591 | 4,359,162 |
+-------------------------------+-------------------+-----------------+
| Group and Company's share of | (773,143) | (243,536) |
| loss | | |
+-------------------------------+-------------------+-----------------+
| | 5,085,074 | 4,115,626 |
+-------------------------------+-------------------+-----------------+
Summarised financial information in respect of the Group's associate is set out
below:
+-------------------------------+-------------------+-----------------+
| | AS AT 31 | AS AT 31 |
| | DECEMBER | DECEMBER |
| | 2008 | 2007 |
| | $ | $ |
+-------------------------------+-------------------+-----------------+
| | | |
+-------------------------------+-------------------+-----------------+
| Total assets | 3,247,665 | 2,610,856 |
+-------------------------------+-------------------+-----------------+
| Total liabilities | (2,456,722) | (658,839) |
+-------------------------------+-------------------+-----------------+
| Net assets | 790,943 | 1,952,017 |
+-------------------------------+-------------------+-----------------+
| | | |
+-------------------------------+-------------------+-----------------+
| Total revenue | 417,079 | 146,978 |
+-------------------------------+-------------------+-----------------+
| Total (loss) for the period | (2,438,910) | (1,373,594) |
+-------------------------------+-------------------+-----------------+
| | | |
+-------------------------------+-------------------+-----------------+
12. INTEREST IN JOINT VENTURE
On 24 November 2008, the Group disposed of its 50% interest in
Centricom Europe Limited with a carrying value of $255,823
(2007: $50,258), combined with cash of $1,486,768, for shares in
Centricom Pty. During the year, the Group contributed $205,564
to the operations of the joint venture.
13. TRADE AND OTHER PAYABLES
The Group had the following balances:
+----------------------+------------+------------+
| | AS AT 31 | AS AT 31 |
| | DECEMBER | DECEMBER |
| | 2008 | 2007 |
| | $ | $ |
+----------------------+------------+------------+
| Accounts payable | 11,741,354 | 11,706,014 |
+----------------------+------------+------------+
| Accrued accounts | 6,029,454 | 10,106,701 |
| payable | | |
+----------------------+------------+------------+
| Payroll liabilities | 547,875 | 1,088,522 |
+----------------------+------------+------------+
| | 18,318,683 | 22,901,237 |
+----------------------+------------+------------+
Included in Group accounts payable are merchant processing
liabilities arising from the gateway operations of NetBanx and
NetBanx Asia (1-Pay Direct). In addition, included in cash
and cash equivalents is a transient cash balance that relates to
merchant transactions processed via the gateway operations.
The gateway operations do not fall within the EU definition of
"e-money" nor does a legal right of offset exist between this
cash and the corresponding merchant liabilities.
14. FORFEITURE PAYABLE
On 18 July 2007, the Company entered into a Deferred
Prosecution Agreement ("DPA") with the United States Attorney's
Office for the Southern District of New York ("USAO").
Pursuant to the DPA, the Company forfeited $136 million to the
USAO as disgorgement of certain profits received by the Group from the
activities described in the Statement of Admitted
Facts
attached to the DPA. This amount included approximately $57.7 million which the
USAO previously seized. The
Company satisfied the
remaining portion of its forfeiture obligation with a payment of $40 million
on 15 October 2007, and
$38.25 million paid on 16
January 2008. Full terms of the DPA are available on the Group's website at
www.neovia.com.
The following details have been recorded:
+------------------------------+-------------------+-------------------+
| | YEAR ENDED | YEAR ENDED |
| | 31 DECEMBER 2008 | 31 DECEMBER 2007 |
+------------------------------+-------------------+-------------------+
| | US$ | US$ |
+------------------------------+-------------------+-------------------+
| | | |
+------------------------------+-------------------+-------------------+
| Opening balance | (38,250,415) | - |
+------------------------------+-------------------+-------------------+
| Forfeiture of profits | - | 136,000,000 |
+------------------------------+-------------------+-------------------+
| Credit for funds seized | - | (57,749,585) |
+------------------------------+-------------------+-------------------+
| 15 October 2007 payment | - | (40,000,000) |
+------------------------------+-------------------+-------------------+
| 16 January 2008 payment | 38,250,415 | - |
+------------------------------+-------------------+-------------------+
| Forfeiture payable at the | - | (38,250,415) |
| end of the period | | |
+------------------------------+-------------------+-------------------+
During 2008, NEOVIA Financial Plc reallocated $13,252,615 of the forfeiture to
NT Services Limited in recognition of NT Services Limited's share of related
profits in 2004 and 2005. On a consolidated basis, there were no additional
penalties assessed or recovered in 2008.
15. TAX
The Company is incorporated in the IOM and is subject to a tax rate of zero
percent and accordingly pays no tax in the IOM.
Taxation for other jurisdictions is calculated at the rates prevailing in the
respective jurisdictions.
The charge for the year can be reconciled to the profit per the consolidated
income statement as follows:
+---------------+-------------+---------------+
| | YEAR | YEAR |
| | ENDED | ENDED |
| | 2008 | 2007 |
| | $ | $ |
+---------------+-------------+---------------+
| Loss | (9,917,550) | (185,759,362) |
| before | | |
| tax | | |
+---------------+-------------+---------------+
| Effect | 1,830,929 | 14,734 |
| of | | |
| different | | |
| tax rates | | |
| of | | |
| subsidiaries | | |
| operating in | | |
| other | | |
| jurisdictions | | |
+---------------+-------------+---------------+
| Effective | -18.46% | -% |
| tax rate | | |
| for the | | |
| year | | |
+---------------+-------------+---------------+
At 31 December 2008, foreign taxes of $1,904,472 (2007: $2,326,889) were
outstanding.
16. SHARE CAPITAL
+------------------------------------------------+--------------+----------------+
| | AS AT 31 | AS AT 31 |
| | DECEMBER | DECEMBER 2007 |
| | 2008 | |
+------------------------------------------------+--------------+----------------+
| | GBP | GBP |
+------------------------------------------------+--------------+----------------+
| Authorised: | | |
+------------------------------------------------+--------------+----------------+
| 200,000,000 ordinary shares of GBP0.0001 per | 20,000 | 20,000 |
| share | | |
| (At 31 December 2007: 200,000,000 ordinary | | |
| shares of GBP0.0001 per share) | | |
+------------------------------------------------+--------------+----------------+
| | | |
+------------------------------------------------+--------------+----------------+
| 1,000,000 deferred shares of GBP0.01 per | 10,000 | 10,000 |
| share | | |
| (At 31 December 2007: 1,000,000 deferred | | |
| shares GBP0.01 per share) | | |
+------------------------------------------------+--------------+----------------+
| | | |
+------------------------------------------------+--------------+----------------+
| Issued and fully paid | $ | $ |
+------------------------------------------------+--------------+----------------+
| 119,920,953 ordinary shares of GBP0.0001 | 21,725 | 21,725 |
| per share | | |
| (At 31 December 2007: 119,920,953 | | |
| ordinary shares of GBP0.0001 per share) | | |
+------------------------------------------------+--------------+----------------+
| | | |
+------------------------------------------------+--------------+----------------+
| 1,000,000 deferred shares of GBP0.01 per | 18,000 | 18,000 |
| share | | |
| (At 31 December 2007: 1,000,000 deferred | | |
| shares of GBP0.01 per share) | | |
+------------------------------------------------+--------------+----------------+
| | | |
+------------------------------------------------+--------------+----------------+
| Total share capital | 39,725 | 39,725 |
+------------------------------------------------+--------------+----------------+
Holders of the ordinary shares are entitled to receive dividends and other
distributions, to attend and vote at any general meeting, and to participate in
all returns of capital on winding up or otherwise.
Holders of the deferred shares are not entitled to vote at any annual general
meeting of the Company and are only entitled to receive the amount paid up on
the shares after the holders of the ordinary shares have received the sum of
GBP1,000,000 for each ordinary share held by them and shall have no other right
to participate in assets of the Company.
17.TRANSLATION RESERVE
+---------------------------------------------+----------------+---------------+
| | YEAR ENDED 31 | YEAR ENDED 31 |
| | DECEMBER 2008 | |
| | $ | DECEMBER 2007 |
| | | $ |
+---------------------------------------------+----------------+---------------+
| Balance at beginning of year | 9,412,813 | 1,349,198 |
+---------------------------------------------+----------------+---------------+
| Arising on translation of foreign | (10,733,230) | 8,063,615 |
| operations | | |
+---------------------------------------------+----------------+---------------+
| Balance at end of year | (1,320,417) | 9,412,813 |
+---------------------------------------------+----------------+---------------+
Exchange differences relating to the translation from the functional currencies
of the Group's foreign subsidiaries into US dollars are brought to account by
entries made directly to the foreign currency translation reserve.
18. MARKETING AND PROMOTIONS
The Group recorded significant marketing and promotions costs
during 2008 which necessitated the creation of a new Cost of
Goods Sold line. During 2008, $1,297,989 (2007: Nil) of VIP
Targeted Rebates were issued to members who increased their
transaction volumes above individually targeted amounts. In
addition, $240,966 (2007: $243,704) was spent on other marketing
and promotions. The costs were based on successfully achieving
volume targets, which created additional revenue and a
profitable marketing campaign. Marketing and Promotions costs
were grouped with Customer Support costs in 2007.
19. PROFIT FROM OPERATIONS
Profit from operations has been arrived at after charging:
+--------------+-----------+-----------+-----------+-----------+
| | GROUP | COMPANY |
+--------------+-----------------------+-----------------------+
| | YEAR | YEAR | YEAR | YEAR |
| | ENDED | ENDED | ENDED | ENDED |
| | 31 | 31 | 31 | 31 |
| | DECEMBER | DECEMBER | DECEMBER | DECEMBER |
| | 2008 | 2007 | 2008 | 2007 |
| | $ | $ | $ | $ |
+--------------+-----------+-----------+-----------+-----------+
| Depreciation | 2,956,529 | 4,621,700 | 341,597 | 525,620 |
| of property, | | | | |
| plant and | | | | |
| equipment | | | | |
+--------------+-----------+-----------+-----------+-----------+
| Amortisation | 3,395,259 | 3,961,284 | 1,278,244 | 1,745,043 |
| of | | | | |
| intellectual | | | | |
| property | | | | |
+--------------+-----------+-----------+-----------+-----------+
| | 6,351,788 | 8,582,984 | 1,619,841 | 2,270,663 |
+--------------+-----------+-----------+-----------+-----------+
Remuneration of the auditors for audit, advisory and other services has been
recorded as follows:
+-------------------------+---------------+---------------+
| | YEAR ENDED | YEAR ENDED |
| | 31 DECEMBER | 31 DECEMBER |
| | 2008 | 2007 |
| | $ | $ |
+-------------------------+---------------+---------------+
| Audit services | | |
+-------------------------+---------------+---------------+
| Statutory audit | 445,000 | 389,000 |
+-------------------------+---------------+---------------+
| | | |
+-------------------------+---------------+---------------+
| Non-audit services | | |
+-------------------------+---------------+---------------+
| Tax and other advisory | 71,000 | 282,000 |
| services | | |
+-------------------------+---------------+---------------+
| | | |
+-------------------------+---------------+---------------+
| Total | 516,000 | 671,000 |
+-------------------------+---------------+---------------+
20. RESTRUCTURING COSTS
The Group incurred certain costs in 2007 and 2008 pertaining
to the cessation of its North American-facing business in the
first quarter of 2007. These costs included severance
payments, retention costs for certain key employees, the write down
and disposal of assets, amending and settling vendor
contracts and professional and legal fees incurred in the resolution of
the US situation (including the distribution of funds to US
customers and negotiating potential sanctions against the
Group culminating in the DPA on 18 July 2007).
The Group has incurred the following costs:
+---------------------------------------------+----------------+---------------+
| | YEAR ENDED 31 | YEAR ENDED 31 |
| | DECEMBER 2008 | |
| | $ | DECEMBER 2007 |
| | | $ |
+---------------------------------------------+----------------+---------------+
| Severance and retention | - | 3,249,032 |
+---------------------------------------------+----------------+---------------+
| Supplier contract renegotiation | 421,363 | 1,868,435 |
+---------------------------------------------+----------------+---------------+
| Provision for supplier receivable | 600,080 | - |
+---------------------------------------------+----------------+---------------+
| Settlement of third party litigation | 6,523 | 1,775,548 |
+---------------------------------------------+----------------+---------------+
| Asset write downs and disposal net of | - | 13,329,640 |
| proceeds | | |
+---------------------------------------------+----------------+---------------+
| Professional and legal fees and expenses | 82,784 | 16,168,363 |
+---------------------------------------------+----------------+---------------+
| Other restructuring costs | 3,177 | 590,499 |
+---------------------------------------------+----------------+---------------+
| | 1,113,927 | 36,981,517 |
+---------------------------------------------+----------------+---------------+
The Group's asset write downs and disposals consist of:
+----------------------------------------------+---------------+----------------+
| | YEAR ENDED 31 | YEAR ENDED 31 |
| | | DECEMBER 2007 |
| | DECEMBER 2008 | $ |
| | $ | |
+----------------------------------------------+---------------+----------------+
| Non cash items | | |
+----------------------------------------------+---------------+----------------+
| Write down of prepaid US patents, | - | 307,663 |
| trademarks and licences | | |
+----------------------------------------------+---------------+----------------+
| Write down of computer equipment | - | 4,367,645 |
| and software, net of accumulated | | |
| depreciation | | |
+----------------------------------------------+---------------+----------------+
| Disposal of computer equipment | - | 98,439 |
| and software, net of accumulated | | |
| depreciation | | |
+----------------------------------------------+---------------+----------------+
| Disposal of 41st Avenue property, | - | 99,722 |
| net of proceeds and accumulated | | |
| depreciation | | |
+----------------------------------------------+---------------+----------------+
| Write down of intangible assets, | - | 8,339,558 |
| net of accumulated depreciation | | |
+----------------------------------------------+---------------+----------------+
| Total non cash items | - | 13,213,027 |
+----------------------------------------------+---------------+----------------+
| | | |
+----------------------------------------------+---------------+----------------+
| Cash expenses on disposal of 41st Avenue | - | 116,613 |
| property | | |
+----------------------------------------------+---------------+----------------+
| | | |
+----------------------------------------------+---------------+----------------+
| | - | 13,329,640 |
+----------------------------------------------+---------------+----------------+
21. EARNINGS/(LOSS) PER SHARE
From continuing operations
The calculation of the basic and diluted earnings or loss per share is based on
the following data:
+-------------------------------------+-----------------+------------------+
| | YEAR ENDED | YEAR ENDED |
| | 31 DECEMBER | 31 DECEMBER 2007 |
| | 2008 | |
+-------------------------------------+-----------------+------------------+
| | $ | $ |
+-------------------------------------+-----------------+------------------+
| Earnings/(loss) | | |
+-------------------------------------+-----------------+------------------+
| Earnings/(loss) for the purposes of | (8,086,621) | (185,774,096) |
| basic and diluted earnings per | | |
| share being net profit/(loss) | | |
| attributable to equity share | | |
| holders of the parent | | |
+-------------------------------------+-----------------+------------------+
| | | |
+-------------------------------------+-----------------+------------------+
| Number of shares | | |
+-------------------------------------+-----------------+------------------+
| Weighted average number of ordinary | | |
| shares for the purpose | | |
+-------------------------------------+-----------------+------------------+
| of basic earnings per share | 119,920,953 | 119,920,953 |
+-------------------------------------+-----------------+------------------+
| Effect of dilutive potential | - | - |
| ordinary shares due to employee | | |
| share options | | |
+-------------------------------------+-----------------+------------------+
| Weighted average number of ordinary | | |
| shares for the purpose | | |
+-------------------------------------+-----------------+------------------+
| of diluted earnings per share | 119,920,953 | 119,920,953 |
+-------------------------------------+-----------------+------------------+
| | | |
+-------------------------------------+-----------------+------------------+
| Basic earnings/(loss) per share | $(0.07) | $(1.55) |
+-------------------------------------+-----------------+------------------+
| Fully diluted earnings/(loss) per | $(0.07) | $(1.55) |
| share | | |
+-------------------------------------+-----------------+------------------+
22. OPERATING LEASE ARRANGEMENTS
At the balance sheet date, the Group had outstanding commitments for future
minimum lease payments, which fall due as follows:
+----------------------+------------+-------------+
| | YEAR ENDED | YEAR ENDED |
| | 31 | 31 DECEMBER |
| | DECEMBER | 2007 |
| | 2008 | |
+----------------------+------------+-------------+
| | $ | $ |
+----------------------+------------+-------------+
| Within one year | 1,651,017 | 238,582 |
+----------------------+------------+-------------+
| In the second to | 2,722,187 | 461,135 |
| fifth years | | |
| inclusive | | |
+----------------------+------------+-------------+
| After five years | 179,042 | - |
+----------------------+------------+-------------+
Operating lease payments represent rentals payable by the Group for certain of
its office properties. Leases are negotiated for an average term of four years.
The lease payments recognised in expense for the year are $965,746
(2007:$1,126,095).
23. SHARE BASED PAYMENTS
The Company's share option plan was adopted pursuant to a
resolution passed on 7 April 2004 and amended by the Board
on 15 September 2008. The 2008 amendment included the addition
of a new 'approved' plan for UK based employees. .Under
the 'approved' and 'unapproved' plans, the Board of Directors
of the Company may grant share options to eligible employees
including Directors of Group companies to subscribe for
ordinary shares of the Company.
No consideration is payable on the grant of an option. Options
may generally be exercised to the extent that they have vested.
Options vest according to the relevant schedule over the grant
period following the date of grant. Typically, options have
been granted for a three and a half year grant period and have
vested in equal thirds on or about the anniversary of the grant
date. However, the Directors are permitted under the Plan
Rules to alter the vesting schedule and the grant period. The
exercise price is determined by the Board of Directors of the
Company, and shall not be less than the market value at the date
of grant. The option plan provides for a grant price to equal
the average quoted market price of the Company shares on the
three days prior to the date of grant. Share options are
forfeited if the employee leaves the Group before the options vest. A
participant of the share option plan has 30 days following the
date of grant to surrender the option and if surrendered, the
option will not be deemed granted.
On 5 December 2008, the Company granted 2,789,100 share
options to Directors and eligible employees to acquire ordinary
shares at an exercise price of GBP0.53 per share. 2,950 of the
mentioned options expire on 5 June 2012 and the remaining 2,786,150
expire on 5 December 2012.
On 15 April 2008, a total of 211,077 options granted on 14
October 2004 with an exercise price of GBP2.485 expired.
On 14 October 2008, a total of 364,775 options granted on 15
April 2005 with an exercise price of GBP6.59 expired.
Options recorded under share option expense may not agree to
the total options granted in the period. The accounting for
options coincides with the day following the last day for
acceptance of the option, which is subsequent to their date of grant.
Equity-settled share option plan
+---------------------+---------------+--------------+--------------+--------------+
| | YEAR ENDED | YEAR ENDED | YEAR ENDED | YEAR ENDED |
| | 31 DECEMBER | 31 DECEMBER | 31 DECEMBER | 31 DECEMBER |
| | 2008 | 2008 | 2007 | 2007 |
| | WEIGHTED | OPTIONS | WEIGHTED | OPTIONS |
| | AVERAGE | | AVERAGE | |
| | EXERCISE | | EXERCISE | |
| | PRICE | | PRICE | |
+---------------------+---------------+--------------+--------------+--------------+
| | GBP | | GBP | |
+---------------------+---------------+--------------+--------------+--------------+
| Outstanding at the | 1.50 | 6,699,116 | 6.00 | 6,458,350 |
| beginning of year | | | | |
+---------------------+---------------+--------------+--------------+--------------+
| Granted during the | 0.53 | 2,789,100 | 1.06 | 7,200,467 |
| year | | | | |
+---------------------+---------------+--------------+--------------+--------------+
| Forfeited during | 1.34 | (696,149) | 5.85 | (5,837,324) |
| the year | | | | |
+---------------------+---------------+--------------+--------------+--------------+
| Exercised during | - | - | - | - |
| the year | | | | |
+---------------------+---------------+--------------+--------------+--------------+
| Expired during the | 5.09 | (575,852) | 2.00 | (1,122,377) |
| year | | | | |
+---------------------+---------------+--------------+--------------+--------------+
| Outstanding at the | 1.49 | 8,216,215 | 1.50 | 6,699,116 |
| end of year | | | | |
+---------------------+---------------+--------------+--------------+--------------+
| Exercisable at the | 1.36 | 2,799,126 | 3.06 | 1,640,885 |
| end of the year | | | | |
+---------------------+---------------+--------------+--------------+--------------+
The weighted average share price at the date of exercise for share options
exercised during the year was GBPnil as no options were exercised in the year.
The options outstanding at the end of the period had a weighted average
remaining contractual life of 2.71 years (31 December 2007: 2.79 years).
The options granted in 2008 are priced using a trinomial lattice model to better
reflect factors including employee exercise behaviour, option life and option
forfeitures.
The inputs into the model are as follows:
+--------------------+----------------------+----------------------+
| | YEAR ENDED | YEAR ENDED |
| | 31 DECEMBER 2008 | 31 DECEMBER 2007 |
| | | |
+--------------------+----------------------+----------------------+
| Weighted average | GBP0.53 | GBP1.14 |
| exercise price | | |
+--------------------+----------------------+----------------------+
| Expected | 56% | 77% |
| volatility | | |
+--------------------+----------------------+----------------------+
| Expected life | 4 years | 3 years |
+--------------------+----------------------+----------------------+
| Risk free interest | 2% | 4.91% |
| rate | | |
+--------------------+----------------------+----------------------+
| Expected dividends | - | - |
+--------------------+----------------------+----------------------+
| Employee exit rate | 6.2% | 7% |
+--------------------+----------------------+----------------------+
Expected volatility was determined by calculating the historical volatility of
the Company's share price from the time of issue to the date of grant. The
expected life used in the model has been adjusted, based on management's best
estimate, for the effects of non-transferability, exercise restrictions, and
behavioural considerations.
The Company recognised total expenses of $2,735,222 (2007: $13,523,346) related
to the equity-settled share-based payments transactions in 2008. Share options
surrendered in 2007 resulted in the recognition of the options' remaining
expense from the time of surrender to their stated expiration date. Accelerated
option expense was $nil (2007: $4,972,739) in the year ended 31 December 2008
which is included in the total share option expense.
24. FINANCIAL INSTRUMENTS
Financial instruments consist of cash and cash equivalents,
restricted cash, Qualifying Liquid Assets held for European
customers, receivable from customers, trade and other
receivables, payable to customers and merchants, payable to European
customers and trade and other payables.
i) Fair values
The fair values of cash and cash equivalents, restricted cash,
Qualifying Liquid Assets held for European customers, receivable
from customers, trade and other receivables, payable to European
customers and trade and other payables approximate the
carrying values due to the short-term nature of these
instruments.
ii) Credit risk and concentrations
The Group is exposed to credit risk to the extent that its
customers may charge back credit card purchases. The Group manages
the exposure to credit risk by employing various online
identification verification techniques, enacted transaction limits and
having significant number of customers. As these customers are
geographically widespread and the merchants are active in
various industries, the exposure to credit risk and concentration
is mitigated.
iii) Interest rate risk
The Group is exposed to interest rate risk to the extent that
investment revenue earned on cash and cash equivalents, client
account funds, and Qualifying Liquid Assets held for European
customers is subject to fluctuations in interest rates. The Group
is limited in managing this exposure as investments are held in
liquid and short-term vehicles
iv) Currency risk
The Group is not significantly exposed to foreign currency exchange
risk, as the majority of the transactions are denominated in
US dollars. The Group manages the exposure to currency risk by
commercially transacting in US dollars and by limiting the use of
other currencies for operating expenses, thereby minimising the
realised and unrealised foreign exchange gain (loss) (Note 3).
v) Market risk
Market risk may arise due to adverse changes in legislation relating
to internet, payment processing or on-line gambling. The
Group is exposed to market risk to the extent that legislation
impacts operational presence and related revenue streams, which may
be significant. The Group manages this exposure through
geographical diversification and participation in non gambling sources
of revenue. The Group closely monitors local legislation in key
markets (new or existing) and does not have economic reliance on
any one country.
vi) Liquidity risk
Liquidity risk is the risk that the Group will be unable to meet its
financial obligations as they fall due. The Group's major exposure
relates to trade payables and amounts owed to European customers.
The latter are fully supported by qualifying liquid assets
(see note 4 for further details). Management controls and monitors
the Group's cashflow on a regular basis, including forecasting
future cashflows.
25. SUBSIDIARIES
Details of the Company's principal subsidiaries as at 31 December 2008 are as
follows:
+------------------+-----------------+-------------+--------------+------------------+
| NAME OF | PLACE OF | PROPORTION | PROPORTION | PRINCIPAL |
| SUBSIDIARY | INCORPORATION | OF | OF VOTING | ACTIVITY |
| | AND OPERATION | OWNERSHIP | POWER HELD | |
| | | INTEREST | | |
+------------------+-----------------+-------------+--------------+------------------+
| NETELLER (UK) | United Kingdom | 100% | 100% | Authorised |
| Ltd | | | | e-money issuer |
+------------------+-----------------+-------------+--------------+------------------+
| NT Services | Canada | 100% | 100% | Processing |
| Limited | | | | payments on |
| | | | | behalf of the |
| | | | | Company |
+------------------+-----------------+-------------+--------------+------------------+
| NetBanx Limited | United Kingdom | 100% | 100% | Full service |
| | | | | payment |
| | | | | processing |
+------------------+-----------------+-------------+--------------+------------------+
| Quick Access | Macau | 100% | 100% | Debit card |
| International | | | | payment |
| Limited | | | | processing |
+------------------+-----------------+-------------+--------------+------------------+
| 1155259 Alberta | Canada | 100% | 100% | Financing |
| Limited | | | | |
+------------------+-----------------+-------------+--------------+------------------+
| NT Services | Canada | 100% | 100% | Property leasing |
| Building | | | | company |
| Corporation | | | | |
+------------------+-----------------+-------------+--------------+------------------+
| Cardload | Canada | 100% | 100% | Dormant |
| Incorporated | | | | |
+------------------+-----------------+-------------+--------------+------------------+
| NETELLER Express | Isle of Man | 100% | 100% | Dormant |
| Limited | | | | |
+------------------+-----------------+-------------+--------------+------------------+
| Lime Enterprises | Isle of Man | 100% | 100% | Holding company |
| Limited | | | | |
+------------------+-----------------+-------------+--------------+------------------+
| Jade Enterprises | Isle of Man | 100% | 100% | Holding company |
| Limited | | | | |
+------------------+-----------------+-------------+--------------+------------------+
| Net Group | Isle of Man | 100% | 100% | Holding company |
| Holdings Limited | | | | |
+------------------+-----------------+-------------+--------------+------------------+
| NetAdmin Limited | Isle of Man | 100% | 100% | Employment & |
| | | | | Administration |
+------------------+-----------------+-------------+--------------+------------------+
| Neteller | Isle of Man | 100% | 100% | e-money issuer |
| Operations | | | | |
| Limited | | | | |
+------------------+-----------------+-------------+--------------+------------------+
| Net ID Limited | Isle of Man | 100% | 100% | Identification |
| | | | | verification |
+------------------+-----------------+-------------+--------------+------------------+
| NetB Limited | Isle of Man | 100% | 100% | Dormant |
+------------------+-----------------+-------------+--------------+------------------+
| Cardload Europe | Isle of Man | 100% | 100% | Processing |
| Limited | | | | company |
+------------------+-----------------+-------------+--------------+------------------+
| Greenscroft | Isle of Man | 100% | 100% | Holding company |
| Limited | | | | |
+------------------+-----------------+-------------+--------------+------------------+
| NX Systems UK | United Kingdom | 100% | 100% | Dormant |
| Limited | | | | |
+------------------+-----------------+-------------+--------------+------------------+
| Netinvest | United Kingdom | 100% | 100% | Holding company |
| Limited | | | | |
+------------------+-----------------+-------------+--------------+------------------+
| Netpro Limited | United Kingdom | 100% | 100% | Dormant |
+------------------+-----------------+-------------+--------------+------------------+
| Netbanx BV | Netherlands | 100% | 100% | Holding company |
| Limited | | | | |
+------------------+-----------------+-------------+--------------+------------------+
| Charter Access | Hong Kong | 100% | 100% | Property Leasing |
| Limited | | | | Company |
+------------------+-----------------+-------------+--------------+------------------+
| Peakluck | British Virgin | 100% | 100% | Holding company |
| International | Islands | | | |
| Limited | | | | |
+------------------+-----------------+-------------+--------------+------------------+
| 365 Access Pte | Singapore | 100% | 100% | Holding company |
| Limited | | | | |
+------------------+-----------------+-------------+--------------+------------------+
| NEOVIA | Gibraltar | 100% | 100% | Holding Company |
| (Gibraltar) | | | | |
| Limited | | | | |
+------------------+-----------------+-------------+--------------+------------------+
| | | | | |
+------------------+-----------------+-------------+--------------+------------------+
26. ACQUISITION COSTS IMPAIRMENT
On 1 December 2008, the Group entered into an agreement to
acquire IDT Corporation's (NYSE: IDT; IDT.C) European Prepaid
Payment Services Division, IDT Financial Services Holdings
Limited (IDTFSH). The proposed acquisition was subject to the
approval of the Gibraltar FSC and MasterCard accepting the
proposed change of control of IDTFSH. On 20 March 2009, the
Gibraltar FSC advised the Group that it was unable to consent to
the acquisition. A substantial underlying shareholder of the
Company, who under Gibraltar banking law was to become a
controller of IDTFSH and about whom information therefore
needed to be provided to the FSC in connection with the approval
process, refused to provide the requisite notification to the
FSC. The FSC in these circumstances determined that it was
unable to consent to the change of control of IDTFSH
from IDT Corporation to the Company.
The carrying value of acquisition costs at 31 December 2008 was
$620,439. They are considered to have no future economic
benefit and have accordingly been expensed in the year.
Acquisition costs incurred subsequent to 31 December 2008 will be
expensed in the first quarter of 2009.
27. RELATED PARTIES
During the year, the Group and Company entered into the following transactions
with related parties who are not members of the Group or Company:
+-------------------+---------------+-------------+--------------+--------------+
| | Purchase of | Amounts | Purchase of | Amounts owed |
| | goods and | owed to | goods and | to related |
| | services in | related | services in | parties 2007 |
| | 2008 | parties | 2007 | GBP |
| | GBP | 2008 | GBP | |
| | | GBP | | |
+-------------------+---------------+-------------+--------------+--------------+
| Amber Business | 41,979 | 5,031 | 9,537 | 3,975 |
| Limited | | | | |
+-------------------+---------------+-------------+--------------+--------------+
Amber Business Limited was a related party of the Group and Company as John
Webster, A director and majority shareholder of Amber Business Limited, was a
Director of the Company throughout the period. All transactions were at fair
market value.
During the year, Dale Johnson (Non-Executive Chairman) provided consulting
services to the Group amounting to GBP75,416 (2007: GBP60,003).
28. CONTINGENT LIABILITIES
From time to time the Group is subject to legal claims and
actions. The Group takes legal advice as to the likelihood of success
of the claims and actions and no provision or disclosure is
made where the Directors feel, based on that advice, the action is
unlikely to result in a material loss or a sufficiently
reliable estimate of the potential obligation cannot be made.
As at 31 December 2008, NetBanx Limited, a wholly owned
subsidiary, has net current liabilities. NEOVIA Financial Plc will
continue to provide financial support to enable it to meet its
existing and future liabilities and continue as a going concern.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEDFUUSUSELL
Neo Energy Metals (LSE:NEO)
Historical Stock Chart
From Jun 2024 to Jul 2024
Neo Energy Metals (LSE:NEO)
Historical Stock Chart
From Jul 2023 to Jul 2024
