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RNS

Final Results

Released 07:00 21-Mar-2017

RNS Number : 0183A
SafeCharge International Group Ltd
21 March 2017
 

SafeCharge International Group Limited

 

 

('SafeCharge,' the 'Company' and together with its subsidiaries, the 'Group')

 

 

Results for the year ended 31 December 2016

 

Strong financial performance, platform development and focus on high quality customers sets foundations for stronger future growth

 

 

SafeCharge (AIM: SCH), a leader in advanced payment technologies, is pleased to announce its results for the year ended 31 December 2016.

 

Overview and current trading

 

Following a successful year to 31 December 2016 and building on the strong trading and operational momentum achieved in Q4, the Group has made a good start to 2017. Transaction volumes continue to grow in our core payment processing and acquiring platform and the Group has a strong sales pipeline. The company continues to generate significant free cash flow, which is being returned to shareholders through the company's dividend. The Directors look forward with confidence to 2017 and beyond.

 

The Board is issuing guidance for 2017 with revenues expected to be in the range of US$115m to US$118m, and Adjusted EBITDA between US$36m and US$38m. This will be driven by continued growth from our existing client base and over $1bn in annualised processing volumes from new clients due to start processing in 2017.

 

 

 

Financial highlights

 


31-Dec-16

US$m

31-Dec-15

US$m

Change %

Core Revenues (constant currency**)

101.5

91.5

11

Adjusted EBITDA* (constant currency**)

35.3

31.1

14

Processing Volumes

8,082

6,934

17

Own Acquiring volumes

970

191

>400





Statutory revenues

104.1

99.8

4

Revenues (constant currency**)

106.9

99.8

7

Statutory gross profit

60.7

57.7

5

Adjusted EBITDA*

33.3

31.1

7

Statutory profit after tax

16





Cash balances at year end

115.4

114.9

0





Earnings per share

17.57 US$c

15.10 US$c

16

Recommended final dividend

9.47 US$c

7.30 US$c

30

Total dividend

16.47 US$c

11.30 US$c

46





 

* Adjusted EBITDA is a non-GAAP, company-specific measure which is earnings excluding interest, taxes, depreciation, amortisation, acquisition costs and contingent remuneration, restructuring costs and share-based payments charge (See Consolidated Statement of Comprehensive Income).

 

** Results stated on a constant currency basis, a non-IFRS measure, are calculated by applying the average exchange rate of the comparable period in the prior year to current period local currency results. 

 

 

 

Operational highlights

 

·     

Successful launch of a fully serviced global payment solution to Tier 1 customers, including Sisal, Nayax, EL AL, Betfair, and SunBingo

·     

Reshaping of the existing customer base undertaken during 2016 to upgrade the quality of revenues

·     

A strong pipeline of new customers in digital services, online retail, video and travel to be launched during 2017

·     

Significant growth in volumes processed through SafeCharge Acquiring and completion of card present certification

·     

Multi-channel and airline solutions launched, global roll-out continues

·     

Key Board and senior staff appointments to strengthen the management team

·     

Expansion into Italian domestic market with recruitment of an experienced local business development team and first Tier 1 client wins

·     

Offices in SE Asia and United States opening in Q1 2017, with Singapore already operational

·     

Continued investment in infrastructure & technologies to support future growth

·     

Investment in Risk & Compliance to navigate the complex regulatory backdrop

 

 

David Avgi, CEO of SafeCharge, said:

 

 

"I am pleased to report a good set of results. It has been another year of strong performance in the core business and the Company has made positive steps with the implementation of its organic growth strategy.  We continue to invest in our payment and risk platform to support future growth and are delighted that our customers recognise the benefits that SafeCharge's payments solutions bring to them.

 

"The Group is confident that its focus on delivering high quality revenue combined with a substantial pipeline of new business will yield further revenue growth in 2017 and build stronger profitable momentum in 2018."

 

 

- Ends -

 

 

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

 

 

For more information

 

SafeCharge International Group Limited

David Avgi, Chief Executive Officer

Tim Mickley, Chief Financial Officer

c/o Bell Pottinger

 

+44 (0) 20 3772 2500

Shore Capital

Mark Percy

Toby Gibbs

 

+44 (0) 20 7408 4090



Bell Pottinger

David Rydell

Joanna Davidson

Anna Legge

 

+44 (0) 20 3772 2500

 

 

About SafeCharge

 

SafeCharge is a global provider of technology-based multichannel payments services and risk management solutions for demanding businesses. The Group has a diversified, blue chip client base and is a trusted payment partner for customers from several e-commerce verticals. SafeCharge has been Payment Card Industry Data Security Standard ("PCI-DSS") Level 1 certified since 2007 and is listed on the London Stock Exchange AIM market (AIM: SCH). The Company's wholly owned subsidiary, SafeCharge Limited, is an authorised Electronic Money Institution regulated by the Central Bank of Cyprus and a principal member of MasterCard Europe and VISA Europe. The Group has operations in the UK, Guernsey, Cyprus, Bulgaria, Israel, Austria, Singapore and Hong Kong.

 

www.safecharge.com

 

 

Chairman's statement

 

Introduction

 

It gives me great pleasure to report that 2016 was a further period of strong financial performance and development for the Group. Revenues grew 4% to US$104.1 million and Adjusted EBITDA* increased by 7% to US$33.3 million with the Group continuing to generate significant free cash flows from its operations.

 

These results are all the more pleasing given the progress management has made with reshaping the Group's customer base; diversifying the business into new sectors and geographic markets; and making our first moves into card-present and land-based payments acquiring. This has also been a year in which we focused on building quality across our business and attracting new and experienced staff who are already helping us to implement our strategy.

 

SafeCharge's impressive performance was primarily driven by its core business, which benefitted from approximately US$7.7 million of revenues generated from new customer wins. Core revenues (excluding 2015 acquisitions) grew by 11% on a constant currency basis, despite forgoing business as part of our strategy to reshape the Group's customer base.

 

In addition to a robust financial performance, we remain committed to advancing our technologies and expanding the Group's product offering, thereby strengthening customer engagement whilst growing and diversifying the business into new markets, industries and geographies.

 

The Board continues to focus on making effective use of the Group's cash resources, investigating the potential for strategic and complementary acquisitions, whilst continuing to apply strict criteria when assessing such acquisition opportunities.

 

Board and governance

 

The Board remains committed to ensuring a robust governance structure is in place and, whilst recognising the size of the Company, is working to comply with corporate best practice.

 

In October, we announced the strengthening of the Board with the appointments of Jeremy Nicholds and Robert Caplehorn as non-executive directors. Both Jeremy and Robert bring with them considerable experience from within the payments industry where they have held senior roles within multinational organisations.

 

Staff

 

On behalf of the Board, I would like to say a special thanks to our staff, all of whom who have made a substantial contribution to our achievements throughout the year and to welcome the new colleagues who joined in 2016, who are already making a big contribution to the development of our business.

 

Dividends

 

The Company's stated dividend policy is to pay-out at least 50% of Adjusted EBITDA. Given the Group's strong underlying growth in earnings and cash generation, the Board has recommended a final dividend of 9.47 US$ cents per share, giving a total dividend of 16.47 US$ cents per share for the year (2015: 11.30 US$ cents), representing 75% of Adjusted EBITDA* for the period.

 

The dividend will be paid in sterling and therefore it will be subject to a conversion exchange rate from US dollars based on a GBP/USD rate of 1.2396, being the rate at 4.30 pm on 20 March 2017. As a result, those shareholders entitled to the dividend will receive 7.64 pence per share. Subject to shareholder approval at the annual general meeting, to be held on 19 May 2017, the final dividend will become payable on 23 May 2017 to those shareholders on the Company's register as at the record date of 5 May 2017. The ex-dividend date is 4 May 2017.

 

 

Roger Withers

Chairman

21 March 2017

 

* Adjusted EBITDA is a non-GAAP, company-specific measure which is earnings excluding interest, taxes, depreciation, amortisation, acquisition costs and contingent remuneration, restructuring costs and share-based payments charge (See Consolidated Statement of Comprehensive Income).

 

 

Chief Executive's review

 

Introduction

 

We continued to make significant progress and achieve financial and operational success across the Group in 2016. Of particular note was the success and growth of SafeCharge Acquiring and our entry into the "card present" vertical. Across all our activities we continued to invest in our products and services, focusing on improved quality across all areas of our business.

 

Strategy

 

The Group has a clear organic growth strategy designed to expand and diversify the value added products and services offered to our clients. SafeCharge seeks to grow revenues from existing customers and attract new clients from within target sectors and verticals, such as online retail, travel and marketplaces. We have continued to invest in our technology-based solution, which has been welcomed by our clients. Through continued investment, SafeCharge aims to maximise its value proposition to customers, improving the acceptance, conversion and 'stickiness' of our products.

 

In late 2015 the Directors began a programme to reshape and improve the quality of the Group's customer base. This programme continued to be implemented throughout 2016 and included a planned reduction in exposure to certain sectors and verticals. The changes were made in anticipation of evolving regulatory, commercial and customer requirements. As a result of our work, we have improved the mix of high quality, low risk customers across a diverse range of industries.

 

In 2016, the Group also made substantial progress in its strategy to enter new sectors and geographies. A notable achievement was the entry into the "card present" environment, through our partnership with Nayax, a market leader in unattended contactless industry. Nayax's point of sale devices are installed in over 50,000 machines across Europe for which we have developed an integrated payments processing and acquiring solution. The Nayax solution has not just led to substantial transaction volumes being processed through our networks: it holds added significance as our first integration of off-line payments into our online environment and serves as an important case study. As such, it is pleasing to be able to report that it is attracting a great deal of interest from our customers. Other achievements included the on-going global roll-out of the Group's first airline customer in the travel vertical and the launch of new customers in Romania, Italy and Portugal.

 

The Group continues to invest significant resources identifying and investigating potential acquisitions. These must have the potential to accelerate growth through identifiable synergies or add complementary products which would enhance SafeCharge's existing offering to its clients. Whilst a number of such opportunities were identified and reviewed over the year none met the Group's strict investment criteria.

 

Focus on quality

 

Throughout 2016, we focused on building quality across all areas within the Group, including:

 

i.    Customers

The Group took active steps to reduce its exposure to certain sectors and verticals, where management felt the regulatory and commercial environments were likely to deteriorate. Although this necessitated the forgoing of over US$5 million revenues and associated profits, the Board felt this was in the best long term interest of the Company. Alongside this, the quality of revenues was enhanced from further Tier 1 client launches such as Sisal.it, the online gaming platform of Italian gaming operator Sisal, Israeli national airline, EL AL, SunBingo and Paddy Power Betfair, one of the world's leading sports betting groups.

 

ii.   Infrastructure and technology

The Group continues to invest in its infrastructure and further develop its core processing technologies. In 2016 a new data centre was deployed in the Netherlands adding new capacity and redundancy into the payments platform. Our highly scalable payments platform is capable of handling rapidly increasing transaction volumes and offers our customers a best-in-class technology with a comprehensive product suite. 

 

Platform robustness is one of the key metrics evaluated by existing and potential new customers when making a decision on which payments provider to use. It is therefore pleasing to report that our customers continued to benefit from our industry leading service uptime of above 99.99% throughout the year. Another key measure in the eyes of our customers is transaction duration. The SafeCharge platform continues to perform well on this metric, with transaction times competitive with best in class operators.

 

PAY.com received further investment during 2016 and in order to more effectively integrate it into the Group, it has now been merged into our core operation, resulting in the closure of the Dublin office. The move resulted in a lower cost base and a product that is more aligned to our customer offering. Over $3 million of non core, unprofitable revenue was closed down. The Board is optimistic for the future of PAY.com as a complementary product that can be offered to a range of customers.

 

The Group recently opened an office in Singapore and a satellite office in Hong Kong with a further satellite office planned for the United States during 2017. These will be small regional offices focused on sales and marketing to significant local clients. We have much to offer a range of high-transaction businesses in the Asian and US markets and establishing new offices in these geographies demonstrates our commitment to these important markets. Our intention is to grow these offices as the Group wins new clients in these regions.

 

iii.  People

Our staff are at the heart of the Group's success and we are proud of the expertise and professionalism of our teams. In 2016 the Group successfully recruited a number of talented senior managers from well-established businesses in the payments sector. Additions included senior personnel in sales; account management; and risk and compliance. These new team members are already helping the Group win and manage sustainable, high quality business in both existing and target verticals and geographies.

 

Investments in risk and compliance expertise will help the Group to manage, (and stay ahead of) the increasingly complex global regulatory and risk environment. The Group ended the year with 344 employees with over 50% in R&D and technology and 15% in risk and compliance.

 

Robert Caplehorn and Jeremy Nicholds, two veterans of the payments industry, joined during the Board this year, having worked for PayPal and Visa Europe respectively. The net addition of one new non-executive Board member brings the Group into compliance with the UK Corporate Governance Code on composition of the Board.

 

Financial performance in 2016

 

Transaction volumes grew by 17%, reaching US$8.1 billion for the full year (2015: US$6.9 billion). This growth in volumes was driven by the growth of existing clients and supplemented by the launch of new high volume customers.

 

Total Group revenues for the year ended 31 December 2016 increased 4.3% to US$104.1 million (2015: US$99.8 million). This was despite the closure of non-profitable card services business lines and a managed reduction of certain activities, which had a combined impact on revenues of over $8 million. The strength of the US dollar also served to dampen revenues when translated into the Group's reporting currency. Given these three factors, the Board was pleased with the reported outcome for the year.

 

Underlying gross profit margins improved slightly to 58.3% (2015: 57.8%) while Adjusted EBITDA margins strengthened to 32% (2015: 31.2%) for the full year, benefiting from the cost reduction initiatives including the restructuring of PAY.com. Cash generated from operating activities remained strong in 2016 at 80% of Adjusted EBITDA.

 

Core processing business performance

 

I am pleased to report that despite the steps taken to reduce exposure to certain sectors (and the effect of currency headwinds) the Group's core revenues grew 11% on a constant currency basis to US$101.5 million (2015: US$91.5 million) primarily driven by a number of new Tier 1 customers who launched in the period. Adjusted EBITDA on a constant currency basis grew to US$35.3 million (2015: U$31.1 million), up 13.5%.

 

The Group's payment platform and multi-channel cashier products remain at the heart of the business. Clients value the reliability and robustness of our platform, while our cashier product continues to lead the field in its high conversion / low abandonment rates and scores highly with customers for its user friendly features.

 

In order to speed up the on-boarding process for new clients, the Group has implemented an automated on-boarding process and developer's portal. This enables merchants to upload their account take-on and know-your-customer documents into our systems. The process is faster due to its automated nature and highlights which documents or processes still remain to be completed, giving the merchant complete visibility on where they are in the process.

 

Other value-added products include Payment Card Industry Data Security Standard (PCI DSS Level 1) de-scoping and fraud management. Every business or merchant that accepts payment via debit or credit card has a contractual obligation with its acquiring bank (or acquirer) to be PCI DSS compliant. SafeCharge reduces the time and financial cost of compliance to its clients by assuming responsibility for the handling and storage of the card data. SafeCharge's PCI solution supports full tokenisation, increasing the security of client details stored in the system. Additionally, our fraud management tool is becoming widely adopted by customers. Using a deep historical transaction dataset our fraud management tool conducts over 150 checks on each transaction before it is processed. The system is designed to manage and keep chargebacks below industry tolerance levels and the decision to proceed with the payment is made expeditiously, ensuring abandoned transactions are minimised.

 

The Group continues to expand the array of payment methods it accepts with over 100 Alternative Payment Methods (APMs) integrated alongside the traditional credit and debit card formats. Notable additions in 2016 include ApplePay, AndroidPay and, in China, China Union Pay, Alipay and WeChat Pay, which have high usage on Asian e-commerce sites. Expansion into Asia will be facilitated by our new offices in Singapore and Hong Kong.

 

SafeCharge Acquiring

 

SafeCharge Acquiring continued its strong growth trajectory throughout 2016, with own acquiring volumes for the year totalled US$970 million (2015: US$191 million) closing the year with a run-rate in excess of US$1.2 billion. Importantly, the approval ratios achieved were high and competitive against those of more established competitors. Acquiring also enables SafeCharge to provide benefits such as rapid on-boarding for new customers and remains a key focus for the Group.

 

Using our best in class smart routing technology, we are able to route transactions to our own acquiring or third-party acquirers with the highest acceptance levels. This benefits our clients as fewer transactions are rejected. Smart routing also protects clients as we are able to route transactions to multiple acquirers, thereby enabling our clients to keep trading if their preferred acquirer temporarily fails.

 

Looking to the future

 

The Group has a robust and scalable platform that can accommodate transaction volumes over 20  times greater than currently processed. Management remains committed to roll-out its technology-based solutions to new markets and, as such, has a number of priorities for 2017 and beyond:

 

·     

Further investment in the platform to accommodate the needs of emerging businesses in new economies, such as peer-to-peer payments; e-marketplaces; SME payments; and crowd funding;

·     

Strengthening of its service and sector expertise by adding local service and account teams with domain expertise in our target markets;

·     

A new website which will allow merchants to download Application Programming Interfaces (APIs) reducing the time to market; and

·     

A comprehensive marketing programme, including branding and communications to support the Group's strategic objectives.

 

Regulation

 

Through its membership and active involvement with organisations such as the PCI Security Standards Council, the Electronic Money Association and the Merchant Risk Council, as well as on-going dialogue with all the major card schemes, SafeCharge is well informed and well prepared to take advantage of many of the changes being introduced as a result of regulation. The principal regulatory work currently undertaken by the Group includes:

 

·     

European Banking Authority rules on Secure Customer Authentication;

·     

Brexit: potential changes to the passporting rules;

·     

4th AML Directive: the proposed risk-based approach and changes to due diligence requirements;

·     

Introduction of PSD2: open access and the increasingly competitive environment;

·     

EU General Data Protection Regulations: proposed changes.

 

 

In light of the continuously evolving regulatory environment SafeCharge is tirelessly improving its policies and procedures. As such, the Group is well placed to help its customers maximise the opportunities arising from regulatory change.

 

Outlook

 

The Group is confident that its focus on higher quality earnings from its healthy pipeline will yield revenue growth in 2017 and build even stronger profitable momentum in 2018 and beyond.

 

David Avgi

Chief Executive

21 March 2017

 

 

Financial review

 

Highlights

 

Group revenues in the period increased to US$104.1 million (2015: US$99.8 million) with Adjusted EBITDA* reaching US$33.3 million (2015: US$31.1 million). This growth was achieved despite the closure of non-profitable businesses acquired in the previous year; the steps taken to reduce exposure to certain sectors and markets; and the impact of foreign currency headwinds.

 

The conversion of Adjusted EBITDA* to cash remained strong, with cash flows from operations (before working capital and tax paid) of US$30.8 million (2015: US$27.3 million) up 12.8%. Profit after tax for the period increased to US$26.6 million (2015: US$22.9 million) up 16.2%.

 

During the period the Group paid US$21.9 million in dividends, acquired US$6.3million of its own shares which are held in treasury and invested US$5 million in capitalised development costs. The Group ended the financial year with US$115.4 million (2015: US$114.9 million) of cash and cash equivalents, US$8.5million in available-for-sale assets (2015: US$18.6 million). The Group additionally remained debt free during the period.

 

Revenues

 

Revenues increased across the Group's principal business lines during the year, reaching record levels in the fourth quarter. In the Group's core business revenues increased by 8% reaching US$98.7 million (2015: US$91.5 million) in the period. This performance was achieved despite the steps taken to reduce exposure to certain sectors and markets. The Directors estimate that these steps reduced the revenues that would otherwise have been achieved by Group by more than US$5 million in 2016.  New clients who began processing payments through the Group's systems amounted to US$7.7 million during 2016.

 

In line with management's strategy, the quality and diversification of the Group's client revenues improved during the year. Alongside significant Tier 1 new customer wins, the Directors focused on actively reshaping the Group's customer base, diversifying into new sectors and geographic markets; and making its first moves into card-present and land-based payments acquiring.

 

Foreign currency exposure and impact

 

In order to reduce foreign exchange exposure, the majority of the Group's assets are held in US dollars, its functional and reporting currency.

 

The Group generates revenues in multiple currencies, the most significant being the US dollar, euro and sterling, accounting for approximately 65% of income in the year with the balance of revenues generated in a wide range of other currencies.

 

SafeCharge has operations in a number of jurisdictions and incurs the majority of its operating costs in euros, Israeli shekels and sterling.

 

The Group's 2016 financial results were negatively impacted by the strengthening of the US dollar against certain currencies during the year. The Directors estimate that revenues and Adjusted EBITDA* were approximately US$2.8 million and US$2.0 million lower than would have been reported on a constant currency basis. Results stated on a constant currency basis, a non-IFRS measure, are calculated by applying the average exchange rate of the comparable period in the prior year to current period local currency results.

 

Margins

 

Gross profit margin strengthened slightly in the year to 58.3% (2015: 57.8%) benefiting from the transfer of volume from third party acquirers to SafeCharge's own platform. Consolidated Adjusted EBITDA margin improved to 32% (2015: 31.2%) whilst the EBITDA margin in the core business (core payments business, which accounted the majority of revenues and excludes 2015 acquisitions) increased to 33.2% as the Company's core cost base and operational capabilities enjoyed economies of scale from greater revenues and gross profit.

 

Profit from operations before finance income and tax in the period increased by 18%, reaching US$26.1 million (2015: US$22.2 million).

 

Expenses

 

Employee related costs, which account for the majority of SafeCharge's operating expenses and equate to approximately 19% of sales, increased by 8.5% primarily as a result of increased headcount and salary increases. Costs in the core business increased in the year as the Group invested in additional resources, including hiring a number of senior personnel to support growth and implement its strategy in existing and new sectors, verticals and markets.

 

The Group incurred share-based payment charges of US$672,000 in the year (2015: US$1.37 million). Furthermore, the Group incurred restructuring costs of US$2.1 million, primarily within the SafeCharge Card Services business, including costs relating to the transfer of the development and operations of PAY.com to the Group's Bulgarian operation and the closure of the Dublin office.

 

Net finance income of US$1.9 million (2015: US$0.6 million) primarily related to the net gain on the disposal of available for sale assets. Depreciation and amortisation of US$4.1 million was charged in the period (2015: US$3.2 million) which included a US$1.5 million charge in respect of depreciation of computer equipment (2015: US$1.2 million) and US$2.4 million (2015: US$1.9 million) amortisation of intangible assets including, for the first time, amortisation of capitalised development costs relating to the SafeCharge Acquiring platform.

 

Tax 

 

The Group reported a net tax expense of US$1.5 million (2015: tax income of US$124,000); a blended tax rate of 5.3% on reported profits before tax, representing income tax charges of US$1.3 million due on profits generated by the Company's subsidiary companies, and deferred tax on amortisation of intangibles of US$174,000.

 

Cash flow

 

SafeCharge continues to generate significant cash flows from its activities. During 2016 the Group generated US$30.8 million from operations before working capital and tax paid (2015: US$27.3 million).

 

Working capital movements produced a net cash outflow of US$3.0 million (2015: US$2.0 million inflow) with cash flows from operations of US$26.6 million (2015: US$ 27.7 million) in the period.

 

The Group generated a net inflow from investing activities of US$62,000 (2015: US$45.4 million outflow).  This inflow included US$11.9 million of cash provided by the sale of the stake held in FinTech AG, which realised a profit of US$643,000. Outflows included US$6.0 million related to the investment in Nayax, US$5.0 million of capitalised development expenses and US$1.3 million (2015: US$1.8 million) in payments for the acquisition of property, plant and equipment, (primarily computer hardware).

 

Net cash outflow from financing activities was US$26.2 million (2015: US$13.9 million) reflecting US$21.9 million of dividend payments, US$6.3 million in respect to the purchase of Company shares to be held in treasury, (offset by US$1.3 million received from the exercise of share options).

 

Overall there was a net increase in cash and cash equivalents of US$473,000 (2015: US$31.6 million decrease) during the year and the Group closed the period with US$115.4 million (2015: US$114.9 million) in cash and cash equivalents.

 

Financial position

 

The Group closed the year with total assets of US$172.9 million (2015: US$182.2 million) including US$115.4 million (2015: US$114.9 million) of cash and cash equivalents and US$8.5 million (2015: US$18.6 million) of available-for-sale investments. The majority of the Company's cash is held in current accounts and on-call deposit accounts, with US$53 million held on call deposit. The net book value of intangible assets held at 31 December 2016 was US$33.4 million (2015: US$31.0 million) which included US$5.0 million (2015: US$5.0 million) of capitalised technology development costs in the year. These costs included those in relation to development of the PAY.com platform, the major development of which is nearing completion.

 

Total current assets decreased to US$125.7 million (2015: US$127.3 million) with current liabilities decreasing to US$11.7 million (2015: US$14.1 million) due mainly to a fall in trade and other payables.

 

Total equity attributable to equity holders decreased to US$160.5 million (2015: US$167.3 million) primarily as a result of the increase in retained earnings during the year offset by a reduction in the value of available-for-sale reserves, following the sale of the FinTech AG stake and US$6.3 million in treasury stock reserves representing 2.4 million ordinary shares purchased by the Company during 2016.

 

As mentioned above, the Group closed the year free of debt.

 

Dividends

 

Following the announcement of the interim dividend paid in September, the Board has recommended a final dividend of 9.47 US$ cents per share giving a total dividend of 16.47 US$ cents per share (2015: 11.30 US$ cents per share) for the year, representing 75% of Adjusted EBITDA* for the period.

 

In order to facilitate simpler settlement, shareholders will be paid their dividends in sterling. The dividend will therefore be subject to a conversion exchange rate from US dollars based on a GBP/USD rate of 1.2396, being the rate at 4.30 pm on 20 March 2017. As a result those shareholders entitled to the final dividend will receive 7.64 pence per share.

 

Tim Mickley

Chief Financial Officer

21 March 2017

 

* Adjusted EBITDA is a non-GAAP, company-specific measure which is earnings excluding interest, taxes, depreciation, amortisation,  acquisition costs and contingent remuneration, restructuring costs and share-based payments charge (See Consolidated Statement of Comprehensive Income).

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 

Year ended 31 December 2016

 






Note

2016

2015



   US$000s

   US$000s





Revenue

5

104,139

99,818

Cost of sales


         (43,473)

       (42,168)

Gross profit


60,666

57,650





Salaries and employee expenses


(19,649)

(18,116)

Share-based payments charge

18

(672)

(1,373)

Depreciation and amortisation

11,12

(4,139)

(3,188)

Premises and other costs


(3,008)

(2,854)

Other expenses


(4,684)

(5,554)

Acquisition costs and contingent remuneration

25

(322)

(1,543)

Restructuring costs

25

           (2,070)

      (2,860)





Total operating costs


(34,544)

(35,488)

Adjusted EBITDA*


33,325

31,126

Depreciation and amortisation


(4,139)

(3,188)

Share-based payments charge


(672)

(1,373)

Acquisition costs and contingent remuneration


(322)

(1,543)

Restructuring costs


(2,070)

(2,860)

Profit from operations


26,122

22,162

Finance income

7

2,332

771

Finance expense

7

               (413)

       (203)

Profit before tax


28,041

22,730





Tax (expense)/income

8

           (1,487) 

           124





Profit after tax attributable to equity holders of the parent


            26,554

     22,854

 

Other comprehensive income for the year

 

Items that will be reclassified subsequently to profit or loss when specific conditions are met:




Unrealised fair value movements on available-for-sale investments

 

17

 

(4,805)

 

7,718

Realised fair value movements on available-for-sale investments

reclassified to profit or loss

 

7

 

(1,760)

 

-

Exchange difference arising on the translation and consolidation




of foreign companies' financial statements


               (618)

     (1,901)





Total comprehensive income for the year


            19,371

    28,671

Earnings per share for profit attributable to the owners of the parent during the year

 




Basic (cents)

9

        17.57

     15.10

Diluted (cents)

9

        17.32

    14.79





 

*Adjusted EBITDA is a non-GAAP, company-specific measure which is earnings excluding interest, taxes, depreciation, amortisation, share-based payments charge, acquisition costs and contingent remuneration, and restructuring costs. Where not explicitly mentioned, Adjusted EBITDA refers to Adjusted EBITDA from continuing operations.

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

31 December 2016

 






Note

31/12/2016

US$000s

31/12/2015

US$000s

Assets








Non‑current assets




Property, plant and equipment

11

2,346

2,848

Intangible assets

12

33,441

31,023

Available-for-sale investments

17

8,504

18,610

Other receivables

15

      2,665

       1,036

Total non-current assets


    46,956

     53,517





Current assets




Trade and other receivables

14

10,329

12,383

Cash and cash equivalents

16

  115,357

  114,884

Total current assets


 125,686

  127,267




 

Assets classified as held for sale

17

      267

     1,384





Total assets


 172,909

 182,168









Equity




Share capital

18

15

15

Share premium

19

125,169

123,828

Capital reserve

19

622

622

Available-for-sale reserve

19

1,153

7,718

Translation reserve

19

(1,424)

(806)

Share options reserve

19

2,662

2,221

Treasury shares reserve

18

(6,281)

-

Retained earnings


   38,577

   33,740

Total equity attributable to equity holders of parent


 160,493

 167,338





Non‑current liabilities




Provisions

20

260

243

Deferred tax liability

21

479

290

Contingent consideration

24

                 -

              168

Total non-current liabilities


            739

              701





Current liabilities




Trade and other payables

22

9,709

12,345

Contingent consideration

24

343

202

Taxes payable

23

     1,625

       1,582

Total current liabilities


   11,677

     14,129









Total equity and liabilities


   172,909

   182,168





 

On 21 March 2017 the Board of Directors of Safecharge International Group Limited approved and authorised these consolidated financial statements for issue and were signed on their behalf by:

 

David Avgi

Director

Timothy Simon Mickley

Director

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2016

 



Share capital

Treasury shares reserve

Share premium

Capital reserve

Available-for-sale reserve

Translation reserve

 

Share options reserve

Retained earnings

 

Total equity attributable to equity holders of parent

 


Note

US$000s

US$000s

US$000s

US$000s

US$000s

US$000s

US$000s

US$000s

US$000s























Balance at 1 January 2015


 

 

        15 

 

 

-

 

 

 123,182

 

 

        622

 

 

-

 

 

   1,095

 

 

      960

 

 

   25,324

 

 

  151,198












Comprehensive income











Profit for the year


-

-

-

-

-

-

-

   22,854

    22,854

Other comprehensive income/(loss) for the year

 

 

 

-

 

-

 

-

 

-

 

    7,718

 

    (1,901)

 

-

 

-

 

      5,817

Total comprehensive income for the year


 

-

 

-

 

-

 

-

 

    7,718

 

    (1,901)

 

-

 

   22,854

 

   28,671












Contributions by and distributions to owners











Dividends

10

-

-

-

-

-

-

-

(14,550)

(14,550)

Exercise of options


*

-

646

-

-

-

(112)

112

646

Share-based payments

18

-

-

-

-

-

-

     1,373

-

      1,373

Total contributions by and distributions to owners


 

 

*

 

 

-

 

 

646

 

 

-

 

 

-

 

 

-

 

 

      1,261

 

 

 (14,438)

 

 

  (12,531)












Balance at 31 December 2015


 

          15

 

-

 

 123,828

 

      622

 

    7,718

 

      (806)

 

     2,221

 

   33,740

 

  167,338












Comprehensive income











Profit for the year


-

-

-

-

-

-

-

   26,554

    26,554

Unrealised fair value movements on available-for-sale investments

 

 

 

17

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(4,805)

 

 

-

 

 

-

 

 

-

 

 

(4,805)

Realised fair value movements on available-for-sale investments reclassified to profit or loss

 

 

 

 

 

17

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

(1,760)

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

(1,760)

Exchange difference arising on the translation and consolidation of foreign companies' financial statements


 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

      (618)

 

 

 

 

-

 

 

 

 

-

 

 

 

 

      (618)

Total comprehensive income for the year


 

-

 

-

 

-

 

-

 

   (6,565)

 

      (618)

 

-

 

   26,554

 

    19,371












Contributions by and distributions to owners











Dividends

10

-

-

-

-

-

-

-

(21,948)

(21,948)

Exercise of options


*

-

1,341

-

-

-

(231)

231

1,341

Purchase of own shares

18

(*)

(6,281)

-

-

-

-

-

-

(6,281)

Share-based payments

18

-

-

-

-

-

-

      672

-

        672

Total contributions by and distributions to owners


 

 

-

 

 

  (6,281)

 

 

     1,341

 

 

-

 

 

-

 

 

-

 

 

        441

 

 

 (21,717)

 

 

 (26,216)












Balance at 31 December 2016


 

          15

 

  (6,281)

 

 125,169

 

 

     622

 

    1,153

 

    (1,424)

 

    2,662

 

   38,577

 

  160,493

(*) represents amount less than 1 thousand US$

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

Year ended 31 December 2016

 


Note

2016

US$000s

2015

US$000s

Cash flows from operating activities




Profit before tax


28,041

22,730

Adjustments for:




Depreciation of property, plant and equipment

11

1,739

1,316

Amortisation of intangible assets

12

2,400

1,872

Exchange difference arising on the translation of non-current assets in foreign currencies


(36)

165

Charge to statement of comprehensive income for provisions

20

17

82

Gain on sale of available-for-sale assets


(1,760)

-

Finance income

7

(244)

(242)

Share-based payments charge                                                   

18

         672

      1,373





Cash flows from operations before working capital


30,829

27,296

Decrease in trade and other receivables


425

2,468

(Decrease) in trade and other payables


     (3,394)

        (491)

Cash flows from operations


27,860

29,273





Tax paid


     (1,289)

     (1,588)

Net cash flows from operating activities


     26,571

     27,685





Cash flows from investing activities




Payment for acquisition of intangible assets

12

(5,330)

(5,359)

Payment for acquisition of property, plant and equipment

11

(1,279)

(1,774)

Acquisition of available-for-sale investments

17

(6,609)

(12,276)

Acquisition of subsidiaries, net of cash acquired

25

-

(21,271)

Loans granted

14

-

(5,000)

Interest received

7

244

242

Proceeds from disposal of property, plant and equipment


-

                     30

Proceeds from disposal of available-for-sale investments


     13,036

               -

Net cash flows provided by/(used in) investing activities


            62

   (45,408)





Cash flows from financing activities




Proceeds from exercise of stock options


1,341

646

Purchase of own shares to be held as treasury shares

18

(6,281)

-

Dividends paid

10

   (21,220)

   (14,550)

Net cash flows used in by financing activities


   (26,160)

   (13,904)





Increase/(decrease) in cash and cash equivalents


473

(31,627)





Cash and cash equivalents at beginning of the year


    114,884

    146,511

Cash and cash equivalents at end of the year

16

    115,357

    114,884

 

Acquisition of subsidiaries, net of cash acquired





 

Note

2016

US$000s

2015

US$000s





Acquisition of SafeCharge Card Services Limited (formerly named: 3V Transaction Services Limited)

25(A)

-

13,780

Acquisition of CreditGuard Limited

25(B)

-

7,491



-

21,271

 

 

Notes to the Accounts

 

1. General information 

 

Safecharge International Group Limited (hereinafter - the 'Company') was incorporated in British Virgin Islands on 4 May 2006 as a private company with limited liability. On 30 October 2015 the Company re-domiciled to Guernsey.  Its registered office is at Dorey Court, Admiral Park, St Peter Port, Guernsey, GY1 2HT. The principal activities of the Company and its subsidiaries (hereinafter - the 'Group') are the provision of payments services, technologies and risk management solutions for multi--channel businesses.

 

2. Accounting policies

 

The principal accounting policies adopted in the preparation of these Consolidated Financial Statements are set out below. These policies have been consistently applied by the Group in all years presented in these Consolidated Financial Statements.

 

Basis of preparation

 

These Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

 

The Company does not prepare stand-alone financial statements, as Guernsey law does not require it. The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates and requires Management to exercise its judgment in the process of applying the Group's accounting policies. It also requires the use of assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on Management's best knowledge of current events and actions, actual results may ultimately differ from those estimates.

 

 

These financial statements do not constitute the Group's statutory financial statements for the year ended 31 December 2016 or the year ended 31 December 2015.  Statutory accounts will be filed following the Company's Annual General Meeting.  The auditors have reported on these accounts and their report was unqualified.

 

Adoption of new and revised IFRSs 

 

During the current year the Group adopted all the new and revised IFRSs that are relevant to its operations and are effective for accounting periods beginning on 1 January 2016.

(i) Standards and Interpretations adopted by the EU

Amendments

IFRS Interpretations Committee

·     

Annual Improvements to IFRSs 2010-2012 Cycle (effective for annual periods beginning on or after 1 February 2015).

·     

Annual Improvements to IFRSs 2011-2013 Cycle (effective for annual periods beginning on or after 1 January 2015).

The impact of these standards on the consolidated financial statements of the Group has not yet been fully assessed by the Board of the Directors.

 

Basis of consolidation

 

The Group consolidated financial statements comprise the financial statements of the parent company Safecharge International Group Limited and the financial statements of the subsidiaries as shown in Note 13 of the consolidated financial statements.

 

Subsidiaries are considered to be controlled where the Group has the power to direct activities of the investee, as well as the exposure to variable returns from the subsidiary and the power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

 

Subsidiaries are consolidated from the date that the Group gains control and de-consolidated from the date that control is lost.

 

The financial statements of all the Group companies are prepared using uniform accounting policies. All inter‑company transactions and balances between Group companies have been eliminated during consolidation.

 

Business combinations

 

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition‑date fair values of the assets transferred by the Group, liabilities incurred by the Group and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition‑related costs are generally recognised in the statement of comprehensive income as incurred.

 

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that:

 

·     

deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;

·     

liabilities or equity instruments related to share‑based payment arrangements of the acquiree or share‑based payment arrangements of the Group entered into to replace share‑based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share‑based Payment at the acquisition date; and

·     

assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non‑current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.

 

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non‑controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition‑date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition‑date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non‑controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in the statement of comprehensive income as a bargain purchase gain.

 

Non‑controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation may be initially measured either at fair value or at the non‑controlling interests' proportionate share of the recognised amounts of the acquiree's identifiable net assets.

 

When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its fair value at acquisition date and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the 'measurement period' (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

 

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IAS 39, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognised in the statement of comprehensive income.

 

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date.

 

Goodwill 

 

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired undertaking at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets.

 

Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an undertaking include the carrying amount of goodwill relating to the undertaking sold. Goodwill is allocated to cash‑generating units for the purpose of impairment testing.

 

Revenue recognition

 

Revenue comprises the invoiced amount for the sale of services net of Value Added Tax, rebates and discounts. Revenues earned by the Group are recognised on the following bases:

 

Service revenues are generated from fees charged to merchants for payment processing and risk management services. Revenues are generated by transaction related charges billed as both a percentage based discount fee of the payment volumes processed and a fee per transaction. In addition to this volume-dependent sales revenue, service revenues are derived from a variety of services fees, such as fees for monthly minimum transaction fee requirements, set up fees, and fees for other miscellaneous services. Discount and other fees related to payment transactions are recognised at the time the merchant's transactions are processed. Revenues are recognised gross, with any commission expenses paid to acquiring banks recognised as cost of sales. Revenues derived from service fees are recognised at the time the service is performed.

 

Finance income and finance expense

 

Finance income includes interest income which is recognised based on the effective interest rate basis.

 

Interest expense and other borrowing costs are charged to the statement of comprehensive income based on the effective interest rate basis.

 

Foreign currency

 

The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates. 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 the Company, 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 reporting date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the reporting 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 the statement of comprehensive income for the period. Exchange differences arising on the retranslation of non‑monetary items carried at fair value are included in the statement of comprehensive income for the period except for differences arising on the retranslation of non‑monetary items in respect of which gains and losses are recognised in other comprehensive income and then in equity. For such non‑monetary items, any exchange component of that gain or loss is also recognised in other comprehensive income and then in equity.

 

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are expressed in United States Dollars using exchange rates prevailing on the reporting date. Income and expense items 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 reclassified from other comprehensive income to profit or loss in the period in which the foreign operation is disposed of.

 

Tax

 

Income tax expense represents the current and deferred tax charges for the period.

 

Current tax liabilities and assets are measured at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and laws that have been enacted, or substantively enacted, by the reporting date.

 

Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred tax.

 

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same fiscal authority.

 

Dividends

 

Dividends are recognised when they become legally payable. Interim dividends are recognised in equity in the period in which they are paid. In the case of final dividends, this is when approved by the shareholders at the Annual General Meeting.

 

Property, plant and equipment

 

Property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses.

 

Depreciation is calculated on the straight‑line method so as to write off the cost of each asset to its residual value over its estimated useful life. The annual depreciation rates used are as follows:

 


Useful economic life

Furniture, fixtures and office equipment

10 years

Leasehold improvements

10 years

Motor Vehicles

5 years

Computer equipment

3 years

 

The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

 

Where the carrying amount of an asset is greater than its estimated recoverable amount, the asset is written down immediately to its recoverable amount.

 

Expenditure for repairs and maintenance of property, plant and equipment is charged to the statement of comprehensive income of the year in which it is incurred. The cost of major renovations and other subsequent expenditure are included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset.

 

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the statement of comprehensive income.

 

Intangible assets

 

Internally‑generated intangible assets ‑ research and development expenditure 

 

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

 

An internally‑generated intangible asset arising from the Group's e‑business development is recognised only if all of the following conditions are met:

 

·     

an asset is created that can be identified (such as software and new processes);

·     

it is probable that the asset created will generate future economic benefits; and

·     

the development cost of the asset can be measured reliably.

 

Internally‑generated intangible assets are amortised on a straight‑line basis over their estimated useful lives once the development is completed and the asset is in use. Where no internally‑generated intangible asset can be recognised, development expenditure is charged to the statement of comprehensive income in the period in which it is incurred.

 

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in the statement of comprehensive income when the asset is derecognised.

 

Externally acquired intangible assets

 

Externally acquired intangible assets comprise of licences, internet domains names, IP technology and customer contracts which are stated at cost less accumulated amortisation. Where intangible assets are acquired as part of a business combination they are recorded initially at their fair value. Carrying amounts are reviewed on each reporting date for impairment. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down to its recoverable amount.

 

Costs that are directly associated with identifiable and unique computer software products and internet domain names controlled by the Group and that will probably generate economic benefits exceeding costs beyond one year are recognised as intangible assets. Subsequently computer software is carried at cost less any accumulated amortisation and any accumulated impairment losses. Expenditure which enhances or extends the performance of computer software programs beyond their original specifications is recognised as a capital improvement and added to the original cost of the computer software. Costs associated with maintenance of computer software programs are recognised as an expense when incurred. Computer software costs are amortised using the straight-line method over their useful lives, not exceeding a period of five years. Amortisation commences when the computer software is available for use and is included within administrative expenses.

 

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in the statement of comprehensive income when the asset is derecognised.

 

Amortisation

 

Amortisation is calculated at annual rates estimated to write off the costs of the assets over their expected useful lives and is charged to operating expenses from the point the asset is brought into use.

 

The principal annual rates used for this purpose, which are consistent with those of the previous years, are as follows:

 


Useful economic life

Domain names/Acquiring licences

Indefinite life

Internally generated capitalised development costs

5 years

Other licences

1 year

Customer contracts and customer relationships

5-15 years

IP technology

5-10 years

 

Management believes that the useful life of the domain names and acquiring license is indefinite. Domain names and acquiring license are reviewed for impairment annually.

 

Financial instruments 

 

Financial assets and financial liabilities are recognised in the Group's consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

 

Financial assets

 

(1) Classification

 

The Group has financial assets in the following categories. Management determines the classification of financial assets at initial recognition.

 

 

·     

Loans and receivables


Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and for which there is no intention of trading the receivable. They are included in current assets, except for maturities greater than twelve months after the reporting date. These are classified as non-current assets. The Group's loans and receivables comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position.

 

·     

Available-for-sale investments and assets classified as held for sale


Investments are recognised and de-recognised on trade date. The Group manages its investments with a view to profiting from the receipt of investment income and capital appreciation from changes in the fair value of equity investments. Quoted investments are designated as available-for-sale and subsequently carried in the statement of financial position at fair value with unrealised gain or loss being recognised in available-for-sale reserve within other comprehensive income. Fair value is measured using the closing bid price at the reporting date, where the investment is quoted on an active stock market. Unquoted investments are valued at the price of recent transaction if this is representative of fair value or using other valuation techniques based on unobservable inputs.

 

 

(2) Recognition and measurement

 

Regular way purchases and sales of financial assets are recognised on trade‑date which is the date on which the Group commits to purchase or sell the asset. Loans and receivables are carried at amortised cost using the effective interest rate method.

 

Where a fall in the value of an investment is prolonged or significant, it is considered an indication of impairment. In such an event, the investment is written down to fair value and the amounts previously recognised in the consolidated statement of comprehensive income in respect of cumulative changes in fair value, are taken to the consolidated income statement as an impairment charge.

 

Provision for specific doubtful debts is made when there is evidence that the Group may not be able to recover balances in full. Balances are written off when the receivable amount is deemed irrecoverable.

 

Available-for-sale financial assets are carried at fair value with changes in fair value generally recognised in other comprehensive income and accumulated in the available-for-sale reserve. In accordance with IAS 39, a significant or prolonged decline in the fair value of an available-for-sale financial asset is recognised in the consolidated statement of comprehensive income. Realised gains are reclassified from other comprehensive income to profit or loss on disposal of the asset.

 

Cash and cash equivalents

 

For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash at bank and short‑term bank deposits with original maturities of three months or less.

 

Trade receivables

 

Trade receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the statement of comprehensive income when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

 

Loans granted

 

Loans originated by the Group by providing money directly to the borrower are categorised as loans and are carried at amortised cost. Interest free advances are measured at the fair value of cash consideration given, discounted back to present value using a market rate of interest. All loans are recognised when cash is advanced to the borrower.

 

An allowance for loan impairment is established if there is objective evidence that the Group will not be able to collect all amounts due according to the original contractual terms of loans. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows including amounts recoverable from guarantees and collateral, discounted at the original effective interest rate of loans.

 

Financial liabilities

 

The Group has financial liabilities in the following category:

 

·     

Trade payables


Trade payables and contingent consideration are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method.

 

·     

Contingent consideration


Contingent consideration, resulting from business combinations, is recognised at fair value at the acquisition date as part of the business combination, and discounted where the time value of money is material. When the contingent consideration meets the definition of a financial liability, it is subsequently remeasured to fair value at each reporting date through the consolidated statement of comprehensive income, along with finance charges where discounting has been applied.

 

 

Derecognition of financial assets and liabilities

 

Financial assets

 

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

 

·     

the rights to receive cash flows from the asset have expired;

·     

the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay

them in full without material delay to a third party under a 'pass through' arrangement; or

·     

the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

 

 

Financial liabilities

 

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

 

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the statement of comprehensive income.

 

Impairment of non-financial assets

 

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment.

 

Assets that are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash‑generating units).

 

Share capital

 

Ordinary shares are classified as equity.

 

Treasury shares

 

Consideration paid for the purchase of own shares is recognised directly in equity. The cost of own purchased shares is presented as a separate reserve (the "treasury shares reserve").

 

Provisions

 

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

 

Share‑based compensation

 

The Group operates equity‑settled, share‑based compensation plans, under which the entity receives services from employees as consideration for the Company's equity instruments (options). The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non‑market vesting conditions (for example, profitability and sales growth targets). Non‑market vesting conditions are included in assumptions about the number of options that are expected to vest.


At each reporting date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the statement of comprehensive income, with a corresponding adjustment to equity. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and retained earnings when the options are exercised.

 

Clients' deposits

 

All money held on behalf of clients has been excluded from the balances of cash and cash equivalents and amounts due to clients, brokers and other counterparties. Client money is not held directly, but is placed on deposit in segregated bank accounts with a financial institution. The amounts held on behalf of the clients at the reporting date are included in Note 16.

 

Other expenses

 

Other expenses charged in the consolidated statement of comprehensive income include marketing expenses, travel expenses, IT expenses and professional services.

 

Operating leases

 

Operating leases are recognised on a straight line method over the life of the lease.

 

3. Financial risk management

 

Financial risk factors

 

The Group is exposed to interest rate risk, credit risk, liquidity risk, currency risk, operational risk, compliance risk and capital risk management arising from the financial instruments it holds. The main risks arising from Financial Instruments are: Market risk, Credit risk, Liquidity risk, Operational risk, Compliance risk and Capital risk management. Each of these risks is examined in detail below.

 

3.1 Market risk

 

Interest rate risk

 

Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The Group's management monitors the interest rate fluctuations on a continuous basis and acts accordingly.

The Group is exposed to interest rate risk to the extent that investment revenue earned on cash and cash equivalents is subject to fluctuations in interest rates. The Group's exposure to interest rate risk is limited as investments are held in liquid and short-term bank deposits. A sensitivity analysis has been performed wherein a 0.25% change in deposit interest rates offered would impact the profit before tax by US$133,000 (2015: US$150,000). 0.25% has been used as a benchmark for sensitivity analysis as it reflects the estimated exposure in the coming year.

 

Currency risk

 

Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the Group's functional and presentation currency. The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the United States Dollars (the functional and presentation currency), the Euro, the United Kingdom Pounds and the New Israeli Shekel. The Group's management monitors the exchange rate fluctuations on a continuous basis and acts accordingly.

 

The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:

 

 


                 Liabilities

                Assets





2016

2015

2016

2015


US$000s

US$000s

US$000s

US$000s

Euro

3,514

4,672

16,771

33,762

United Kingdom Pounds

1,205

1,488

6,473

5,525

New Israeli Shekel

3,476

3,630

3,319

2,079

Other

             361

                  43

             6,673

     6,772


          8,556

             9,833

           33,236

    48,138

 

Sensitivity analysis

 

A 10% strengthening of the United States Dollar against the following currencies at 31 December 2016 would have increased/(decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. For a 10% weakening of the United States Dollar against the relevant currency, there would be a materially equal and opposite impact on the profit and other equity. 10% has been used as a benchmark for the sensitivity analysis as it reflects the expected exposure in the coming year.

 


Profit or loss


2016

2015


US$000s

US$000s

Euro

(1,326)

(2,909)

United Kingdom Pounds

(527)

(404)

New Israeli Shekel

16

155

Other

     (631)

          (673)


   (2,468)

       (3,831)

 

3.2 Credit risk

 

Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the reporting date. Cash balances are held with high credit quality financial institutions rated "Baa1" and above according to Moody's Investors Service's ratings, and the Group has policies to limit the amount of credit exposure to any financial institution.

 

As of reporting date none of the Group financial assets were impaired or past due.

 

The Group has an established credit policy to ensure that it only transacts with counterparties that are able to meet satisfactory rating requirements. Counterparty limits are reviewed and set centrally by Management. Management is responsible for ensuring that it remains within these limits and the Risk function monitors and reports any exceptions to the policy. In individual cases, collateral is obtained for specific contractual relationships.

 

The Group has issued a working capital facility deed which is interest-free and with a fixed payment term of 12 months from issue. The facility is secured on specified revenue volumes.

 

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

 


2016

2015


US$000s

US$000s

Trade and other receivables

5,329

7,383

Working capital facility deed

5,000

5,000

Cash and cash equivalents

115,357

114,884

Other non‑current receivables

           2,665

           1,036


       128,351

       128,303

 

3.3 Liquidity risk

 

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The Group has procedures with the object of minimising losses such as maintaining sufficient cash and other highly liquid current assets and by having available an adequate amount of committed credit facilities.

 

The following tables detail the Group's remaining contractual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

 

 

31 December 2016

 

Carrying

Amounts

Contractual cash flows

3 months or less

Between
3‑12 months

Between
1‑5 years

More than
5 years


US$000s

US$000s

US$000s

US$000s

US$000s

US$000s

Trade and other payables

9,709

9,709

9,709

              - 

-

-

 

Contingent Consideration

          343

          343

               -

         343

              -

              -

 


     10,052

        10,052

          343

              -

              -

 

 

31 December 2015

 

Carrying

amounts

       

Contractual cash flows

                           

3 months or less

Between
3‑12 months

 

Between
1‑5 years

 

More than
5 years


US$000s

US$000s

US$000s

US$000s

US$000s

US$000s

Trade and other payables

12,345

12,345

12,345

-               

-

-

Contingent Consideration

       370

         370

               -

         202

        168

-


   12,715

      12,715

       12,345

         202

        168

-

 

3.4 Operational risk

 

Operational risk is the risk that derives from the deficiencies relating to the Group's information technology and control systems as well as the risk of human error and natural disasters. The Group's systems are evaluated, maintained and upgraded continuously.

 

3.5 Compliance risk

 

Compliance risk is the risk of financial loss, including fines and other penalties, which arises from non‑compliance with laws and regulations of the state. The risk is limited to a significant extent due to the supervision applied by the Compliance Officer, as well as by the monitoring controls applied by the Group.

 

3.6 Capital risk management

 

The Group meets its objectives of managing capital and ensuring that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Group's overall strategy remains unchanged from last year.

 

The Group considers its share capital and reserves to constitute its total capital. The Group's policy in respect of capital risk management is to maintain a strong capital base so as to retain investor and market confidence. The Group maintains sufficient cash resources to meet its liabilities as and when they fall due, taking into account cash forecasts. Liquidity risk is mitigated by the high levels of cash balances in the business.

 

4. Critical accounting estimates and judgments

 

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

 

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.

 

The areas requiring the use of estimates and critical judgments that may potentially have a significant impact on the Group's earnings and financial position are impairment of goodwill, share-based payments, determination of fair value of intangible assets acquired and determination of fair value of contingent consideration.

 

·     

Impairment of goodwill


Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating units of the Group on which the goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash‑generating units using a suitable discount rate in order to calculate present value (see Note 12).

 

 

5. Segmental analysis

 

Management considers that the Group's activity as a single source supplier of online payments services, technologies and risk management solutions, constitutes one operating and reporting segment, as defined under IFRS 8.

 

Geographical analysis of revenue

 

Analysis of revenue by geographical region is made according to the jurisdiction of the Group's direct customer. This does not reflect the region of the end users of the Group's customers, whose locations are worldwide.

 


2016

2015


US$000s

US$000s

Europe

97,383

96,452

Rest of the World

         6,756

           3,366


     104,139

         99,818




Geographical analysis of non-current assets


2016

2015


US$000s

US$000s




Guernsey

9,977

7,561

Europe

18,326

35,928

Asia

17,673

9,596

North America

            980

           432


       46,956

      53,517

 

6. Auditors' remuneration

 


2016

2015


US$000s

US$000s

Audit services



Parent company and Group audit

93

127

Audit of overseas subsidiaries

108

114

Audit related assurance services

29

26

Non-audit services



Non-audit assurance services

108

62

Tax compliance

                 -

              2


            338

          331

 

7. Finance income and expense  

 


2016

2015

                                      

US$000s

US$000s

Finance income



Interest received

244

242

Foreign exchange differences

328

                  529

Net gain on disposal of available-for-sale financial assets transferred from equity (See Note 17)

 

          1,760

 

                   -


          2,332

              771




Finance expense



Bank fees

          (413)

            (203)


          (413)

            (203)




Net finance income

         1,919

              568

 

8. Tax Expense

 


2016

2015


US$000s

US$000s

Current tax:

Charge for the year

1,313

1,163

 

Deferred tax:



Charge/(income) for the year

       174

            (1,287)

Total tax charge/(income) in the income statement

          1,487

               (124)

 

 

The tax charge for the year can be reconciled to accounting profit as follows:

 


2016

2015


US$000s

US$000s

Profit before taxation

          28,041

          22,730

Tax at effective rate in Guernsey

-

-

Higher rates of current income tax in overseas jurisdictions (See Note 21)

        1,313

            1,163

Deferred tax on other timing differences

               174

         (1,287)

Total tax charge/(income)

            1,487

            (124)

 

There was no tax effect on other comprehensive income in the current or prior year.

 

9. Earnings per share

 


2016

2015


US$

US$

Basic (cents)

17.57

15.10

Diluted (cents)

17.32

14.79








2016

2015


US$000s

US$000s

Profit after tax for the year                                                                                              

 

         26,554

 

         22,854

 

 

 

 

2016

2015


Number

Number

Denominator- basic

Weighted average number of equity shares

 

     151,156,990

 

    151,392,582




Denominator - diluted



Weighted average number of equity shares

151,156,990

151,392,582

Weighted average number of share options

       2,138,685

        3,122,231

Weighted average number of shares

   153,295,675

    154,514,813




 

10. Dividends

 


2016

2015


US$000s

US$000s

Dividends

        21,948

           14,550

                                                                                               

        21,948

           14,550

 

In May 2016 the Group distributed US$11,340,000, 7.30 US$ cents per share (2015: US$8,518,000, 5.28 US$ cents per share), as a final dividend for the year ended 31 December 2015.

 

In September 2016 the Board of Directors approved the payment of an interim dividend of US$10,608,000, 7.0 US$ cents per share (2015: US$6,032,000, 4.0 US$ cents per share) as an interim dividend.

 

The interim dividend included in the consolidated statement of changes in equity report was based on the conversion exchange rate as of dividend declaration date. The interim dividend included in the consolidated statement of cash flow was based on the conversion exchange rate as of dividend payment date, resulting in a foreign exchange difference of US$728,000 (2015: nil).

 

11. Property, plant and equipment 


Leasehold improvements

Motor vehicles

Furniture, fixtures and office equipment

Computer equipment

          Total


US$000s

US$000s

US$000s

US$000s

US$000s

Cost






Balance at 1 January 2015

                629

         264

             525

       3,881

      5,299

Additions

43

-

22

1,709

1,774

Additions through business acquisitions

16

-

150

320

486

Disposals

(81)

-

-

-

(81)

Foreign exchange rate movement

                 (31)

          (28)

              (59)

         (295)

        (413)

Balance at 31 December 2015

576

236

638

5,615

7,065

Additions

121

-

38

1,120

1,279

Foreign exchange rate movement

                      -

          (22)

              (21)

           (70)

        (113)

Balance at 31 December 2016

                 697

          214

              655

        6,665

       8,231







Depreciation






Balance at 1 January 2015

                332

         160

             240

       2,476

      3,208

Charge for the year

40

39

75

1,162

1,316

On disposals

(9)

-

-

-

(9)

Foreign exchange rate movement

                 (20)

          (11)

              (27)

         (240)

        (298)

Balance at 31 December 2015

343

188

288

3,398

4,217

Charge for the year

108

21

100

1,510

1,739

Foreign exchange rate movement

                      -

            (7)

              (15)

           (49)

          (71)

Balance at 31 December 2016

                 451

          202

              373

        4,859

       5,885







Net book amount






Balance at 31 December 2016

                 246

            12

              282

        1,806

       2,346

Balance at 31 December 2015

                 233

            48

              350

        2,217

       2,848

 

12. Intangible assets


 

 

Goodwill

 

Customer

contracts

 

 

IP technology

 

Domains and licenses

 

 

Development

 

 

Total


US$000s

US$000s

US$000s

US$000s

US$000s

US$000s

Cost







Balance at 1 January 2015

-

       1,776

                 682

2,034

2,173

     6,665

Assets acquired on business combinations

 

10,237

       

3,219

 

10,481

 

-

 

-

 

23,937

Additions

-

-

224

88

5,003

5,315

Foreign exchange rate movement

 

         (787)

 

          (10)

 

          (1,209)

 

                -

 

              (37)

 

       (2,043)

Balance at 31 December 2015

9,450

4,985

10,178

2,122

7,139

33,874

Additions

-

-

340

-

4,990

5,330

Foreign exchange rate movement

 

       (126)

 

         24

 

          (322)

 

                -

 

          (137)

 

          (561)

Balance at 31 December 2016

9,324

5,009

10,196

2,122

11,992

38,643








Amortisation







Balance at 1 January 2015

-

 265

 669

-

45

979

Amortisation for the year

               -

           603

         1,106

               -

         163

        1,872

Balance at 31 December 2015

-

868

1,775

-

208

2,851

Amortisation for the year

-

582

1,193

-

625

2,400

Foreign exchange rate movement

 

               -

 

               -

 

          (49)

 

               -

 

                 -

 

          (49)

Balance at 31 December 2016

-

1,450

2,919

-

833

5,202








Net book amount







Balance at 31 December 2016

        9,324

         3,559

         7,277

         2,122

         11,159

         33,441

Balance at 31 December 2015

         9,450

        4,117

         8,403

       2,122

          6,931

         31,023

 

Goodwill represents the premium paid to acquire investments by the Group which were purchased in 2015.

 

Goodwill is measured at cost less any accumulated impairment losses.

 

The Group has domain names and licences with an indefinite life with a carrying value of US$2,122,000 (2015: US$2,122,000). It is expected that these domain names and licenses with indefinite lives will be held for an indefinite period of time and are expected to generate economic benefits. There is no foreseeable limit on the period of time over which domain names and acquiring licenses are expected to contribute to the cash flows of the Group. Domain names and licences with an indefinite life are checked for impairments at each reporting date or more frequently if there are indicators that the carrying value is impaired. As of the reporting date no impairment was found. Management is committed to continue to provide long term investment into these assets in order for them to continue to provide future economic benefits.  

 

Impairment tests of intangible assets

 

The recoverable amount of all intangible assets was determined based on value‑in‑use calculations by discounting the future pre‑tax cash flows generated from the continuing use of the unit and was based on the following key assumptions.

 

Management determined these key assumptions by assessing current market conditions and through the utilisation of forward looking external evidence:

 

The terminal value has been calculated assuming a long-term growth rate of 2% per annum in perpetuity, based on the Group's view of long-term nominal growth, which does not exceed market expectations.

 

Cash flows projections for the intangible assets derived from CreditGuard Limited business combination were projected based on financial budgets approved by management covering 2017 to 2023 based on the use of the economic life of the acquired assets. Revenue rates for 2017 and onwards had an average growth of 8% per annum. A pre‑tax discount rate of 13% was applied in determining the recoverable amount of the intangible assets. The discount rate was estimated based on an industry average cost of capital and reflects specific risks relating to the relevant intangible assets.

 

Cash flows projections for the intangible assets derived from Safecharge Card Services Limited business combination were projected based on financial budgets approved by management covering 2017 to 2026 based on the use of the economic life of the acquired assets. Revenue rates for 2017 and onwards had an average growth of 67% per annum based on the early life stage of the products and the forecasted growth within their market. A pre‑tax discount rate of 15% was applied in determining the recoverable amount of the intangible assets. The discount rate was estimated based on an industry average cost of capital and reflects specific risks relating to the relevant intangible assets.

 

Sensitivity analysis was performed on the key inputs, being the growth and discount rates. A significant increase in the discount rate won't indicates impairment and no reasonable change in the growth rate led to impairment.

 

13. Subsidiaries

 

The details of the Company's subsidiaries as at 31 December 2016 are as follows: 

 

Name

 

Country of incorporation

Principal activities

Holding

%

ELoad Solutions Limited

British Virgin Islands

Holding company

100

XT Commerce International Limited

Cyprus

Sales company

80

xt: Commerce GmbH

Austria

Sales company

80

Safecharge Technologies Limited

British Virgin Islands

Sales company

100

Safecharge (Israel) Limited

Israel

Development and support company

100

Webcharge Limited

Israel

Dormant

100

Safecharge Limited

Cyprus

Payment Institution

100

Safecharge (UK) Limited

United Kingdom

Marketing and support company

100

Safecharge (Bulgaria) EOOD

Bulgaria

Development and support company

100

CreditGuard Limited

Israel

Sales, development and support company

100

Safecharge Card Services Limited

Ireland

Sales, development and support company

100

Safecharge Services Limited

Cyprus

Dormant

100

Safecharge (USA) Inc.

Delaware

Dormant

100

Safecharge Pte Ltd

Singapore

Dormant

100

Safecharge Hong Kong Limited

Hong Kong

Dormant

100





XT Commerce International Limited and xt:Commerce GmbH are both loss making entities. All losses of these entities will be wholly suffered by the Group and therefore none of these losses have been transferred to non‑controlling interests and therefore separate disclosure in respect of NCI has not been presented in the statement of comprehensive income or statement of financial position.

 

14. Trade and other receivables

 


2016

2015


US$000s

US$000s

Trade receivables

3,567

4,340

Receivables from related companies (Note 26)

343

391

Other receivables

1,419

2,652

Loans and advances

            5,000

          5,000


          10,329

        12,383

 

The fair values of trade and other receivables due within one year approximate to their carrying amounts as presented above.

 

The exposure of the Group to credit risk and impairment losses in relation to trade and other receivables is reported in Note 3 of the consolidated financial statements. As of reporting date none of the items in trade and other receivables have been impaired or are past due.

 

15. Other non‑current receivables

 


2016

2015


US$000s

US$000s

Deposits

            2,665

           1,036

Other non‑current receivables represent deposits that are held as collateral by card schemes, acquirers, rent bank guarantee and credit card guarantee as part of the Group's activities.

 

16. Cash and cash equivalents

 

Cash balances are analysed as follows:

 


2016

2015


US$000s

US$000s

Cash and cash equivalents

115,357

111,496

Bank deposits

                    -

           3,388


        115,357

       114,884

 

The Group holds cash and cash equivalents amounting to US$90,434,000 as at 31 December 2016 (2015: US$96,734,000) on behalf of clients. The amounts represent cash received on transactions processed by the Group which is then paid on to its clients. In substance, the Group's management consider these transactions do not entitle the Group to an asset and have therefore not recorded the resulting asset or liability to clients in its statement of financial position.

 

At 31 December 2016, the Group had contingent liabilities amounting to US$NIL (2015: US$3,209,000) in respect of guarantees issued by banks on behalf of a subsidiary in favour of third parties in the ordinary course of business. These guarantees are secured by bank deposits of that subsidiary of this amount.

 

The exposure of the Group to credit risk in relation to cash and cash equivalents is reported in Note 3 of the consolidated financial statements.

 

 

17. Available-for-sale investments including classified as held for sale

 

Fair value hierarchy

 

The following assets types are carried at fair value after initial recognition.

 

The group uses the following hierarchy for determining and disclosing the fair value of financial assets by valuation technique:

 

Level 1: quoted (unadjusted) prices in active markets for identical assets,

Level 2: other techniques where all inputs, which have a significant effect on the recorded fair value, are observable either directly or indirectly; and

Level 3: techniques where inputs which have a significant effect on the recorded fair value that are not based on observable market data.

 


Total

Level 1

Level 2

Level 3


US$000s

US$000s

US$000s

US$000s

Available-for-sale investments

8,504

-

8,504

-






Available-for-sale investments classified as held for sale

 

267

 

-

 

-

 

267






Total at 31 December 2016

8,771

-

8,504

267






Available-for-sale investments

18,610

17,610

1,000

-






Available-for-sale investments classified as held for sale

 

1,384

 

-

 

-

 

1,384






Total at 31 December 2015

19,994

17,610

1,000

1,384











 

18. Available-for-sale investments including classified as held for sale (continued)

 

There have been no transfers of financial instruments between levels during the year.

 

The following is a reconciliation of the movement in the group financials assets classified at Level 3 during the year:

 


2016

2015


US$000s

US$000s

Balance brought forward

1,384

-

Realised gain for the period recognised in profit or loss

(1,117)

-

Fair value movement recognised in the consolidated statement of comprehensive income

                  -

          1,384

Fair value at 31 December

            267

          1,384

 

Assets classified as held for sale include the Group's shares in Visa Europe and the valuation is based on assessment of the consideration entitled to the Group as part of the purchase of Visa Europe by Visa Inc in 2016. These are based on unobservable inputs due to a discount rate of 6% applied to market price of shares to be converted and estimated cash due to be received. In 2015 the unrealised increase in valuation of US$1,384,000 was recorded as an available-for-sale reserve. Sensitivity analysis has been performed on the key inputs of the valuation, being the discount rate and the future cash flows, but this did not result in material differences to fair values recognised or profit or loss. Accordingly, this analysis has not been presented.

 

In June 2016 the Group received payment of US$1,117,000 as part of the purchase of Visa Europe by Visa Inc. and therefore this realised gain was recycled to the income statement and included within finance income.

 

The remaining available-for-sale investments are held at fair value and measured based on Level 1 and Level 2 inputs:

 

In April 2015, the Group invested US$1,000,000 in 2C2P, an unquoted business based in South East Asia. This was in exchange for approximately 2% of issued share capital. 2C2P shares are unquoted. In August 2016, the Group invested an additional US$609,000. As of 31 December 2016 the shares value was adjusted based on the share price of recent transactions with the unrealised increase in valuation of US$895,000 recorded as an available-for-sale reserve.

 

In June 2015 the Group invested US$11,276,000 (€10,084,500) in FinTech Group AG, a business listed on the Frankfurt Stock exchange, for a 5% equity interest as part of a strategic partnership. As at 31 December 2015, the investment was valued at US$17,610,000 and an unrealised gain of US$6,334,000 was recognised in other comprehensive income. In May 2016 the value of the available-for-sale asset fell to US$11,919,000, and therefore an unrealised decrease in fair value of US$5,691,000 was recognised in other comprehensive income. Subsequently, the Group sold all the investment in FinTech Group AG, with an overall realised gain of US$643,000, which has been recycled to the profit or loss and included within finance income.

 

The total unrealised fair value movement of US$4,805,000 comprises a loss of US$5,691,000 on Fintech Group AG, a gain of US$895,000 on 2C2P, and an exchange difference of US$9,000.

 

In December 2016, the Group invested US$6,000,000 in Nayax Ltd & Dually Ltd, an unquoted business based in Israel. This was in exchange for approximately 4% of issued share capital. Nayax Ltd & Dually Ltd shares are unquoted. This investment is classified as Level 2 for the purposes of disclosure in the fair value hierarchy as the valuation is based on observable market prices from recent transaction.

 

19. Share capital

 


2016

2016

2016

2016

2015

2015


Number of Ordinary shares

Number of Treasury shares

Ordinary shares

US$000s

Treasury shares US$000s

Number of Ordinary shares

Ordinary shares

US$000s

Authorised







Ordinary shares of US$0.0001 each                                          

   unlimited

                 -

             15

-

      unlimited

            15








Issued and fully paid







Balance at 1 January

151,583,998

-

15

-

151,209,141

15

Exercise of options

397,174

-

*

-

        374,857

             (*)

Purchase of own shares

(2,400,000)

2,400,000

(*)

*

-

-

Exercise of options from treasury

      512,490

    (512,490)

               *

           (*)

                  -

              -

Balance at 31 December

150,093,662

       1,887,510

             15

             *

 151,583,998

            15

 

(*) represents amount less than 1 thousand US$

 

In 2016 the Company purchased 2.4 million of ordinary shares in total consideration of US$6,281,000.

 

The Company operates an equity‑settled share-based remuneration scheme for employees, executive Directors and certain senior management. The only vesting condition being that the individual remains an employee of the Group over an agreed period (vesting period). 

 

In November 2016 the Company adopted a Long Term Incentive Plan (LTIP) for executive Directors and certain senior management. The awards include nil-cost options and their vesting is subject to certain performance conditions.

 

The movement in share options was as follows:

 

                             

2016

2016

2015

2015

                             

Weighted average exercise price


Number

Weighted average exercise price


Number

                             

US$


US$


Outstanding at the beginning of the year                      

 

3.01

 

10,446,392

 

2.93

 

10,421,637

Granted during the year                      

 

2.68

 

555,809

 

3.81

 

660,000

Forfeited during the year                      

 

3.46

 

(624,877)

 

3.57

 

(260,388)

Exercised during the year

 

               1.94

 

(909,664)

 

                1.88

 

(374,857)

Outstanding at the end of the year       

             2.91

       9,467,660

                  3.01

  10,446,392 






 

The weighted average remaining contractual life of share options outstanding at 31 December 2016 is 7.56 years (2015: 8.37 years). The exercise price of the options outstanding at 31 December 2016 ranged between US$NIL and US$3.88 (2015: US$1 and US$3.88). The maximum term of the options granted is 10 years. 

 

Of the total number of options outstanding at 31 December 2016, 5,854,147 with a weighted average exercise price of US$3.07 (2015: 3,725,939 with weighted average price of US$2.75) had vested and were exercisable.

 

The share-based payment charge in the statement of comprehensive income amounts to US$672,000 (2015: US$1,373,000).

 

The total value of share options granted is calculated using the Black‑Scholes model. The fair value determined at the grant date is expensed over the vesting period of the options. The calculation is based on:

 

 

                                                  

 2016

2015

Expected volatility                       

18%-25%

18%-25% 

Weighted average exercise price   

US$3.01

US$3.01

Risk free interest rate ranging       

 0.25%-0.665%

 0.25%-0.665%

Contractual life                            

 10 years

 10 years

Dividend growth rate                     

  3%

3%

 

 

The expected volatility of the options is based on the implied volatility from exchange traded options of the company's shares, the historical volatility of the share price over the most recent that corresponds with the expected life of the option, and the historical or implied volatility of similar entities. The expected life of the option is based on the maturity date and is not necessarily indicative of exercise pattern that may occur. The options include a service condition as the individuals participating in the plan must be employed by the Company for a certain period of time in order to earn the right to exercise the share options. A sensitivity analysis has been performed based on other comparable companies wherein a 3% change in the expected volatility during 2016 would impact the statement of comprehensive income by US$NIL (2015: US$14,000). As of reporting date the movement of the volatility is not expected to have a significant impact on the share options valuation, and the share options valuation will be reassessed at each reporting date.

 

20. Reserves

 

The following describes the nature and purpose of each reserve within owner's equity:

 

Share premium

Related to the issuance of shares at a premium.

 

Capital reserve

Relates to capital introduced by shareholders for assets contributed to the Group for no consideration and without the issue of shares.

 

Share options reserve

The reserve was created to record the cumulative amount recognised in respect of share based payments.

 

Treasury shares reserve

The reserve was created to record the purchase of own shares.

 

Translation reserve

Exchange differences relating to the translation of the net assets of the Group's foreign operations from their functional currencies to the Group's presentation currency (i.e. United States Dollars) are recognised directly in other comprehensive income and accumulated in the foreign currency translation reserve. Exchange differences previously accumulated in the foreign currency translation reserve are reclassified to the statement of comprehensive income on the disposal or partial disposal of the foreign operation.

 

Available-for-sale reserve

The available-for-sale reserve represents the movement in fair value of the Group's holdings in investments classified as available-for-sale.

 

Retained earnings reserve

The retained earnings reserve comprises:

 

·     

results recognised through the consolidated and Company income statement;

·     

dividends paid to equity shareholders; and

·     

transactions relating to share-based payments.

 

 

21. Provisions for other liabilities and charges


Severance Pay


US$000s



Balance at 1 January 2015

               115

Arising on business combination

                 46

Charged to statement of comprehensive income

                   82

Balance at 31 December 2015

               243

Charged to statement of comprehensive income

                  17

Balance at 31 December 2016

                260

 

22. Deferred tax liability


2016

2015


US$000s

US$000s

Balance at the beginning of the year

290

                      -

Arising on business combination

-

               1,585

Recognised in statement of comprehensive income

174

(1,287)

Foreign currency revaluation impact

               15

                 (8)


             479

               290

 

At the reporting date, the Group has, in respect of losses from subsidiaries and other temporary differences, a deferred tax asset which has not been recognised of US$4,607,000 (2015: US$2,789,000). The asset has not been recognised as the timing of its realisation remains uncertain or its use is dependent on the existence of future taxable profits against which the tax losses and other temporary differences can be utilised.

 

During 2016 the Group recognised a deferred tax asset in respect of losses from subsidiaries acquired on business combinations in the amount of US$NIL (2015: US$1.3 million).

 

During the reporting period there was no tax charged or credited directly to equity.

 

There were no changes in the tax rates charged during 2015 and 2016.

 

23. Trade and other payables


2016

2015


US$000s

US$000s

Trade payables

828

               1,721

Other payables

8,879

             10,534

Payables to Related Parties (Note 26)

                 2

                    90


          9,709

          12,345

 

The fair values of trade and other payables due within one year approximate to their carrying amounts as presented above.

 

24. Taxes payable

 


2016

2015


US$000s

US$000s

Income tax and other taxes

         1,625

              1,582


         1,625

              1,582

 

25. Contingent consideration

 

Contingent consideration relates to acquisitions that took place during 2015 (see Note 25).

 

Details of the determination of Level 3 fair value measurements are set out below.

 

Contingent consideration arrangements:

 


2016

2015


US$000s

US$000s

At 1 January

                 370

                      -

Arising from business combination

-

               1,246

Contingent remuneration

170

1,344

Foreign exchange rate movement

13

(153)

Amounts paid

          (210)

            (2,067)

At 31 December

            343

          370

 

 

All amounts potentially payable are based on performance measures and contingent remuneration. In January 2015, the Group acquired SafeCharge Card Services Limited and CreditGuard Limited (see Note 25 for further details). The amounts due for the acquisition included contingent consideration and contingent remuneration. The contingent consideration was payable over one year if specified performance measures are achieved. The contingent remuneration is recognised over the period when services are provided.

 

The fair value is determined considering the expected payment, discounted to present value using a risk-adjusted discount rate of 5%. The expected payments are determined by considering the possible performance criteria, the amount to be paid under each scenario, and the probability of each scenario. The significant unobservable inputs are the forecast performance criteria and the risk-adjusted discount rate. The estimated fair value would increase if the forecast performance criteria rate was higher or the risk-adjusted discount rate was lower.

 

Sensitivity analysis was performed on the key inputs including the discount rate and probabilities applied. Changes in key inputs did not give rise to material impact.

 

Contingent remuneration of US$170,000 (2015: US$1,344,000) has been charged to acquisition costs in the statement of comprehensive income.

 

Further disclosure on contingent consideration is provided in Note 25.

 

26. Acquisitions during previous period

 

A. Acquisition of 3V Transaction Services Limited

 

On 8 January 2015, the Group acquired 100% of the share capital of 3V Transaction Services Limited (which later changed its name to Safecharge Card Services Limited) for a consideration of US$15.7 million (€14.5 million), of which US$13.8 million (€11.6 million) was paid on completion. In 2016 the Group finalised the agreement of net assets at completion and received a refund of €1 million as a working capital adjustment. Accordingly consideration and goodwill were reduced by US$1.1 million as at 31 December 2015. Safecharge Card Services Limited is a technology provider which specialises in tools for issuing, processing and management of pre-paid card programmes.

 

In the second half of 2015 the Group implemented a restructuring plan in Safecharge Card Services Limited and for the year ended 31 December 2016 incurred restructuring costs of US$1,900,000 (2015: US$2,900,000) (including costs relating to early settlement of deferred terms with 3V Transaction Services' founders, professional services and legal costs) recognised in the consolidated statement of comprehensive income.

 

In addition to cash paid on acquisition, a further amount of €NIL (2015: €2.9 million) was originally payable over the following three years to certain key individuals and was dependent on their continued employment. Therefore, as required by IFRS 3, this was being charged to consolidated statement of comprehensive income and not included as consideration for the purpose of the business combination. US$NIL (2015: US$974,000) was charged to acquisition costs for the year in relation to contingent remuneration. In the second half of 2015 the Group made a payment of €2 million in full settlement of the contingent remuneration and contingent consideration (see Note 24).

 

A. Acquisition of 3V Transaction Services Limited (continued)

 

A deferred tax asset of US$NIL (2015: US$1.3 million) was recognised on acquisition related to tax losses brought forward (upon which no asset was previously recognised) which has been set against an equivalent deferred tax liability on intangible assets arising on acquisition, included within tax payable (see Note 21).

 

B. Acquisition of CreditGuard Limited

 

On 9 January 2015, the Group acquired 100% of the share capital of CreditGuard Limited for an initial cash consideration of US$8 million and contingent consideration capped at US$0.4 million (not recognised during the reporting period). CreditGuard Limited is a payment service provider for a wide range of businesses.

 

In addition to cash paid on acquisition, a further amount of US$0.6 million was originally payable over the following three years to certain key individuals in their capacity of now being employees of the Group and was dependent on their continued employment. Therefore, as required by IFRS 3, this was charged to consolidated statement of comprehensive income and not included as consideration for the purpose of the business combination. US$170,000 (2015: US$370,000) has been charged to acquisition costs in relation to contingent remuneration for the year.

 

27. Related party transactions

 

The Company is controlled by Northenstar Investments Limited, the immediate parent company, which is incorporated in the British Virgin Islands. The ultimate parent company and controlling party is the Goodfidelity Trust, established under the laws of the Isle of Man. Mr. Teddy Sagi is the sole ultimate beneficiary of the Goodfidelity Trust.

 

The following transactions were carried out with related parties:

 

27.1 Related party transactions


2016

2015


US$000s

US$000s

Salaries and consultancy fees paid to executive Directors

(2,411)

(2,012)

Services received from related party by virtue of common control

(224)

(154)

Revenue from services provided to companies related by virtue of common control

 

10,522

 

11,380

Share-based payments expense related to executive Directors

          (500)

             (676)


         7,387

            8,538

The details of key management compensation (being the remuneration of the executive and non-executive Directors) are set out below:

 

Directors' compensation

 

2016

 

2015


US$000s

US$000s

Short term benefits of Directors

1,361

1,185

Share-based benefits of executive Directors

500

676

Bonuses to executive Directors

          1,050

                 827


          2,911

              2,688




 

27.2 Receivables from related parties (Note 14)



2016

2015

Name

Nature of transactions

US$000s

US$000s

Related party by virtue of common control

Provision of consulting services

             343

                391



             343

                391

 

27.3 Payables to related parties (Note 22)



2016

2015

Name

Nature of transactions

US$000s

US$000s

Related party by virtue of common control

Trade payable

                2

                 90



                2

                 90

 

27.4 Client monies held on behalf of related parties



2016

2015

Name

Nature of transactions

US$000s

US$000s

Related parties by virtue of common control

Trade payable to clients

          7,469

          8,691



          7,469

          8,691

 

The above balances are not recognised in the statement of financial position since they relate to client monies held on their behalf.

 

All related party transactions conducted on an arm's length terms and on a normal commercial basis.

 

Amounts disclosed above as related party transactions by virtue of common control include transactions with companies with common significant shareholder.

 

 

28. Contingent liabilities

The Group had guarantees as at 31 December 2016 and 31 December 2015 (see Note 16). The Group had no other contingent liabilities.

 

 

29. Commitments

 

Operating lease commitments 

 

The Group has entered into operating leases with future aggregate minimum lease payments under non‑cancellable operating leases of US$1,777,000 (2015: US$1,428,000) due in less than 1 year and US$6,489,000 (2015: US$3,115,000) due between 1 and 5 years.

 

 

30. Events after the reporting period

 

In January 2017 the Company purchased for treasury 2,200,000 shares of the Company, in total consideration of US$5,336,000.

 

There were no other material events after the reporting period, which have a bearing on the understanding of the consolidated Financial Statements.

 


This information is provided by RNS
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