Regulatory Story
Go to market news section View chart   Print
RNS
Paysafe Group PLC   -  PAYS   

Paysafe Group PLC Reports H1 2017 Results

Released 07:00 08-Aug-2017

RNS Number : 3408N
Paysafe Group PLC
08 August 2017
 

         

 

 

      This announcement contains inside information
     Paysafe Group plc
 Unaudited Interim Results for the 6 months ended 30 June 2017 

      Paysafe delivers robust first-half results, as growth normalises     

LONDON (8 August 2017) - Paysafe Group plc (LSE: PAYS, "Paysafe" or the "Group"), a leading global provider of payment solutions, announces its unaudited interim results for the six months ended 30 June 2017.

Financial highlights

$m

H1 2017

H1 2016

Revenue

538.7

486.7

Year-on-year revenue growth

11%

118%

Organic constant currency year‐on‐year revenue growth1

12%

20%

Adjusted EBITDA2

169.2

144.2

Adjusted EBITDA margin

31.4%

29.6%

Statutory operating profit

99.6

89.7

Adjusted profit after tax3

124.0

101.4

Statutory profit after tax

73.7

64.5

Adjusted fully diluted EPS ($)3

0.25

0.20

Statutory fully diluted EPS ($)

0.15

0.13

Adjusted cash conversion before payments working capital4

77%

78%

Adjusted cash conversion after payments working capital4

98%

74%

 

$m

30 Jun 17

31 Dec 16

Net debt5

259.9

279.8

Net debt to LTM adjusted EBITDA6

0.8x

0.9x

 

-       12% organic constant currency revenue growth in H1 2017 (11% statutory revenue growth), representing a return to low double-digit growth compared with the exceptional performance seen in 2016

-       31.4% adjusted EBITDA margin in H1 2017, compared to 30.5% in H2 2016 and 29.6% in H1 2016, the increase driven by improved gross margins in the Payment Processing and Digital Wallets divisions

-       Capitalised development cost was $16.9m, or 3.1% of sales, vs $13.0m (2.7% of sales) in H1 2016 and $14.5m (2.8% of sales) in H2 2016, driven by work on core platform development

-       The adjusted tax rate was 12.3% in H1 2017, compared to 11.1% in H1 2016 and 12.7% in H2 2016 (statutory tax rate H1 17 17.2%, H1 16 13.4%, H2 16 17.1%). The adjusted rate is lower than anticipated driven by the short-term effect of a tax ruling on the transfer of intellectual property from the Isle of Man to the UK. Excluding this, the adjusted tax rate would have been approximately 14%

-       Adjusted cash conversion remained strong at 77%/98% before/after payments working capital ("PWC") compared to 122%/97% in H2 2016

-       Leverage ratio, expressed as net debt to LTM adjusted EBITDA7 was 0.8x, compared to 0.9x at 31 December 2016. The reduction in leverage would have been more pronounced but for the impact of the translation of euro denominated debt into dollar reporting currency, the share buyback programme, and unusually high cash tax paid as described in the operating review

-       The largest customer represented 19% of H1 2017 group revenue, compared to 20% in H1 2016

Operational highlights

·      On 21 July 2017 Paysafe announced the acquisition of Merchants' Choice Payment Solutions ("MCPS") for $470m in an all-cash deal

·      Headcount increased by 9% to 2,299 from 2,116 at 31 December 2016, driven by Hyderabad, India (platform development) and Sofia, Bulgaria (operations, compliance, risk)

·      The Prepaid division launched "paysafecard direct", a QR code-based e-commerce platform enabling consumers to complete online purchases with a cash payment

·      Paysafe teamed up with Google to be one of the first payment service providers to launch in-app Android Pay capabilities to Paysafe merchants in Canada

·      Spain's state-owned postal company Correos chose Paysafe as a recommended payment provider for businesses using Comandia, its e-commerce platform

·      On 1 August 2017 Paysafe Group plc migrated its tax residence from the Isle of Man to the UK

Additional H1 2017 financial disclosure

In H1 2017, on a pro-forma basis assuming MCPS had been acquired for the period financed by $380m of debt, Paysafe Group revenue would have increased by $167m, adjusted EBITDA by $25m, adjusted EBIT by $18m, adjusted profit before tax by $9m, and adjusted profit after tax by $6m, representing approximately 5% of Paysafe adjusted profit after tax. MCPS consolidated revenue in H1 2017 increased 3% year-on-year. Paysafe continues to anticipate $7.5m per annum of cost synergies to be achieved by the end of 2018.

In light of the recommended offer for Paysafe by Blackstone and CVC and their entry into an agreement to sell the Asia Gateway business, Paysafe is publishing additional financial information on the Asia Gateway business. In H1 2017, the Asia Gateway revenue was $76m, up 20% year-on-year, adjusted EBITDA $30m, adjusted EBIT $29m and adjusted profit after tax $29m, representing approximately 23% of Paysafe adjusted profit after tax.

Outlook

Given the restrictions placed on forward-looking statements as a result of the recommended offer by Blackstone and CVC for Paysafe, it is not appropriate to provide the usual full-year 2017 guidance. For this reason, there will not be a conference call for analysts and investors. The usual finance slides on the H1 2017 results are available at https://www.paysafe.com/investors/results-presentations/ 

Commenting on the results, Paysafe Chairman Dennis Jones said:

"After exceptional trading in 2016, Paysafe Group has returned to a more sustainable level of low-double-digit revenue growth in the first half of 2017. This reflects our increasingly diversified set of businesses as the management team continues to build a stable and robust global payments platform. To that end, we were pleased to announce the acquisition of US-based MCPS in July, which strengthens our processing business, increases Paysafe Group's scale in North American acquiring and helps us to continue re-balancing our portfolio away from online gambling."

About Paysafe

Paysafe is a leading global provider of end to end payment solutions. Our core purpose is to enable businesses and consumers to connect and transact seamlessly through our industry-leading capabilities in payment processing, digital wallets and online cash solutions. Delivered through an integrated platform, our solutions are geared towards mobile-initiated transactions, real-time analytics and the convergence between bricks-and-mortar and online payments. With over 20 years of online payment experience, a combined transactional volume of US$48 billion in 2016 and over 2,300 staff located in 12 global locations, Paysafe connects businesses and consumers across 200 payment types in over 40 currencies around the world. Paysafe Group plc shares trade on the London Stock Exchange under the symbol (PAYS.L). For more information, visit: www.paysafe.com.

 

Follow Paysafe on Twitter / LinkedIn / Google + / stories.paysafe.com 

 

This announcement contains inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014.

 

The person who arranged for the release of this announcement on behalf of Paysafe was Andrew Griffin, SVP Market Intelligence and Investor Relations at Paysafe.

For further information, contact:

 

Paysafe Group plc

Andrew Griffin, SVP Market Intelligence and Investor Relations

JJ Aiston, Investor Relations Manager

+44 (0) 20 3826 9854 / investorrelations@paysafe.com

 

Brunswick Group LLP

Brian Buckley / Rowan Brown

+44 (0) 20 7404 5959 / paysafe@brunswickgroup.com

Certain statements in this announcement are forward-looking statements, for example, statements including the words "anticipate", "expects", "believe" or other similar words. These forward-looking statements speak only as at the date of this announcement. These statements concern, or may affect, future matters and include matters that are opinions. Such statements are based on current expectations and beliefs and, by their nature, are subject to a number of known and unknown risks and uncertainties that could cause actual results and outcomes to differ materially from any expected future results or performance expressed or implied by the forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements. The information and opinions expressed in this announcement are subject to change without notice and, except as required by law, neither Paysafe Group plc nor any other person assumes any responsibility or obligation to update publicly or review any of the forward-looking statements contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise.

Please note that due to rounding, numbers presented throughout this document may not add up precisely to the totals provided. Percentage changes are calculated on unrounded figures.

 

[1] Organic constant currency year-on-year revenue growth is an alternative performance measure that the Group uses to communicate the revenue performance of the Group excluding the impact of acquisitions and currency movements. Further information on our alternative performance measures, including definitions, explanations and reconciliations, is included at the end of this results release.

2Adjusted EBITDA is an alternative performance defined as results of operating activities before depreciation and amortisation, share-based payment expense, fair value gains and losses on contingent and share consideration payable, foreign exchange gains and losses, and gains and losses on disposals of assets. It is also adjusted for exceptional items which are defined as items of income and expense of such size, nature or incidence that, in the view of management, should be disclosed to explain the performance of the Group. Adjusted EBIT is adjusted EBITDA less depreciation and amortisation, excluding amortisation of acquired intangible assets.

3Adjusted profit after tax is defined as reported profit after tax excluding share-based payment expense, fair value gains and losses on contingent and share consideration payable, foreign exchange gains and losses, losses on disposals of assets and exceptional items as explained within the Adjusted EBITDA footnote above. It also excludes amortisation of acquired intangibles, and the tax effect of the adjustments set out above. No adjustments are made to reported fully diluted weighted average number of shares to calculate adjusted fully diluted earnings per share (EPS).

4Adjusted cash conversion is an alternative performance measure the Group has adopted to demonstrate our ability to convert our EBIT growth into cash that can be reinvested in the business through investment, returned to shareholders, or used to support our strategic pillar of bold M&A.

5Reported net debt includes long-term debt, the current portion thereof, deferred financing fees, deferred cash consideration payable and contingent cash consideration payable, less cash and cash equivalents.

6Net debt and net debt to LTM adjusted EBITDA are alternative performance measures which management uses to give investors and stakeholders an indication of the debt capacity of the Group.

7LTM (last-12-months) adjusted EBITDA

 

Operating review

Group reported revenue and margin by division

 

$m

H1 17

H1 16

Revenue

 

 

Payment Processing

264.4

231.2

Digital Wallets

159.1

146.7

Prepaid

110.8

105.5

Investment income

4.4

3.4

Total

538.7

486.7

 

 

 

Revenue growth organic constant currency

 

 

Payment Processing

16%

28%

Digital Wallets

9%

28%

Prepaid*

9%

11%

Total

12%

20%

 

 

 

Gross profit**

 

 

Payment Processing

110.9

90.7

Digital Wallets

128.2

111.4

Prepaid

58.0

55.2

Investment income

4.4

3.4

Total

301.5

260.6

 

 

 

Gross margin**

 

 

Payment Processing

42.0%

39.2%

Digital Wallets

80.6%

75.9%

Prepaid

52.4%

52.3%

Investment income

100.0%

100.0%

Total

56.0%

53.5%

* Prepaid H1 2016 organic constant currency growth rate excludes the estimated impact of discontinued Ukash territories and services in the prior period

** H1 2016 division gross profit and margin is re-presented for change in allocation of intercompany costs. See page 146 of the 2016 annual report for further details.

 

Group fee revenue - by geography

$m

H1 17

H1 16

Europe

44%

45%

North America

30%

29%

Asia & ROW

26%

26%

Total fee revenue*

100%

100%

* Fee revenue excludes investment income

 

On an organic constant currency basis, H1 2017 revenue increased 12% year-on-year (H1 16: 20%). All divisions grew, with Payment Processing, driven by the Asia Gateway business, outperforming the overall group. Excluding the Asia Gateway revenue, organic constant currency growth was 10% in H1 2017 (H1 16: 21%).

This compares with our reported revenue growth of 11% year-on-year (H1 16: 118%). The strong reported growth in H1 2016 was driven by the consolidation of the Skrill acquisition from August 2015.

Investment income revenue of $4.4m in H1 2017 (H1 16: $3.4m) was derived from interest earned on cash held by the Group on behalf of merchants and consumers, reflecting improved cash management.

Reported gross profit for H1 2017 was $301.5m (H1 16: $260.6m), with gross margin of 56.0% (H1 16: 53.5%). The increase in reported gross margin largely reflects the increase at the Digital Wallets and Payment Processing divisions.

 

Group adjusted EBITDA

Adjusted EBITDA increased 17% to $169.2m (H1 16: $144.2m), reflecting the revenue growth and higher group gross margin. Operating expenses increased slightly as a percentage of sales.  Adjusted EBITDA margin increased to 31.4% (H1 16: 29.6%) as a result.

This figure compares with our statutory operating profit, which grew 11% to $99.6m (H1 16: $89.7m), at a margin of 18% (H1 16: 18%).

A reconciliation of results from operating activities to adjusted EBITDA is shown below:

 

$m

H1 17

H1 16

Results from operating activities

99.6

89.7

Depreciation and amortisation

43.4

40.6

Share based payments

4.4

5.5

Acquisition costs

1.4

1.0

Restructuring costs

0.1

4.9

Foreign exchange loss

7.0

6.4

Net fair value (gain)/loss on share consideration payable

12.8

(4.5)

Loss on disposal of assets

0.0

0.6

Net loss on settlement of contingent consideration payable

0.5

-

Adjusted EBITDA

169.2

144.2

 

Operating expenses

Total operating expenses were $201.9m (H1 16: $170.9m). Information on components of operating expenses are set out below.

Adjusted EBITDA operating expenses

Adjusted EBITDA operating expenses were 25% of sales, in comparison to 24% of sales in H1 16. Salaries and employee expenses (excluding share-based payments) as a percentage of revenue were 14% (H1 16: 13%). Headcount increased by 9% to 2,299 from 2,116 at 31 December 2016, driven by Hyderabad, India (platform development) and Sofia, Bulgaria (operations, compliance, risk).

Share-based payments

Share-based payment expense fell to $4.4m in H1 2017 (H1 16: $5.5m), representing 6% of total employee expenses (H1 16: 8%). This expense related to the Group's LTIP and share options allocated to employees and management, and has been falling since FY 2015, following the full vesting of one--off new LTIP awards to support executive recruitment.

Foreign exchange

A foreign exchange loss of $7.0m was incurred (H1 16: $6.4m), largely relating to currency fluctuations on the cash balances held by the Group. As well as the Group's own cash and cash equivalents, balances in a number of currencies are held on deposit for consumers and merchants. These balances fluctuate and are not always offset by liabilities in the same currency, due to consumers and merchants not always choosing to deposit and withdraw funds in the same source currency. Unrealised foreign exchange gains and losses also arise on translation of cash held at reporting dates in entities with different functional currencies.

Depreciation and amortisation

Depreciation and amortisation was $43.4m (H1 16: $40.6m) which included amortisation of acquired intangible assets of $26.2m (H1 16: $25.7m). Amortisation of acquired intangible assets is excluded from our adjusted profit figures.

Other operating costs

Acquisition costs of $1.4m (H1 16: $1.0m) were incurred, largely due to the acquisition of Merchants' Choice Payments Solutions announced in July. Restructuring costs fell to $0.1m (H1 16: $4.9m).

An exceptional $12.8m non-cash net fair value loss was recognised on share consideration payable in relation to the Meritus acquisition (H1 16: $4.5m gain). This was due to the increase in value of the share consideration payable which is linked to the Paysafe share price.

Net finance costs

Net finance costs were $10.6m (H1 16: $15.2m). This included $7.6m (H1 16: $9.8m) of interest on long-term debt, as well as $2.6m (H1 16: $2.7m) of amortisation of deferred financing fees and $0.4m (H1 16: $2.6m) of net other finance costs. The net other finance cost includes fees on unused facilities and recognition of unrealised changes in the fair value of the outstanding interest rate swap.

Tax

The tax charge for H1 2017 was $15.3m (H1 16: $10.0m), comprising a current tax charge of $11.0m (H1 16: $15.0m) and a deferred tax charge of $4.4m (H1 16: credit of $(5.0)m). This gives a statutory tax rate of 17.2% (H1 16: 13.4%), a detailed reconciliation of which can be found in Note 16.

On an adjusted basis, the tax charge was approximately $17.5m (H1 16: $12.7m), with an adjusted tax rate of approximately 12.3% (H1 16: 11.1%).

During H1 2017, the Group's intellectual property was transferred from the Isle of Man to the UK. Going forward, the UK business will be the Group's intellectual property owner and profits associated with intellectual property ownership will arise in the UK where they will be taxed at the UK rate, compared to the zero-rate charged in the Isle of Man. 

In the short term, in line with UK tax rules, amortisation of the intellectual property will offset UK profits and reduce the Group's adjusted effective tax rate. This reduction is caused because amortisation is charged on a reducing balance basis, in line with the Group's accounting policies, and in the early years will exceed the UK profits associated with the intellectual property ownership.

Excluding the impact of the intellectual property transfer, the adjusted effective tax rate would have been approximately 14%.

Cash taxes paid in the period of $32.2m are higher than the $11.0m current period tax charge. This is primarily due to the payment of all US taxes in relation to 2016, and the payment of $3.8m in UK taxes following the finalisation of the UK/Bulgaria advance pricing agreement.  Going forward, the Group will pay all taxes in material jurisdictions via quarterly or monthly payments on account.

Statutory profit after tax and other comprehensive income

Statutory profit after tax was $73.7m (H1 16: $64.5m). Adjusted profit after tax was $124.0m (H1 16: $101.4m).

A gain of $45.6m (H1 16: gain of $7.5m) was recognised through other comprehensive income relating to translation differences on the results, assets and liabilities of non-US dollar denominated entities.

Earnings per share

Statutory basic earnings per share was $0.15 for H1 2017, compared to $0.13 in H1 2016. On a fully diluted basis, statutory earnings per share were $0.15 (H1 16: $0.13).

Adjusted fully diluted earnings per share were $0.25, 23% higher than the H1 2016 figure of $0.20.

A reconciliation of statutory profit after tax to adjusted fully diluted earnings per share is shown in the table below.

 

$m

H1 17

H1 16

Statutory profit after tax

73.7

64.5

Tax

15.3

10.0

Statutory profit before tax

89.0

74.6

Share based payments

4.4

5.5

Amortisation of acquired intangibles

26.2

25.7

Acquisition costs

1.4

1.0

Restructuring costs

0.1

4.9

Foreign exchange loss

7.0

6.4

Net fair value (gain) / loss on share consideration payable

12.8

(4.5)

Other costs

0.0

0.6

Net loss on settlement of contingent consideration payable

0.5

-

Adj. profit before tax

141.5

114.1

Adjusted tax

17.5

12.7

Adj. profit after tax

124.0

101.4

Adj. fully diluted EPS ($)

0.25

0.20

Weighted average number of shares in issue - diluted (million)

501.8

504.6

 

                Cash flow and cash position

Group cash and cash equivalents were $272.2m at 30 June 2017 (31 December 2016: $231.2m).

Free cash flow was $96.4m for H1 2017 (H1 16: $73.1m).

Free cash flow as a percentage of operating profit was 97% (H1 16: 81%).

Adjusted Cash conversion, measured as adjusted free cash flow as a percentage of adjusted EBIT as defined in the appendix to this document, was 98% compared to 74% in H1 2016. The increase was driven by payments working capital ("PWC") movements described below. Before PWC, cash conversion was 77%, compared to 78% in H1 2016 and 122% in H2 2016. The reduction compared to H2 2016 reflects the reversal of timing differences that led to the high figure in that period.

A reconciliation outlining the components of the cash conversion measure is as follows. A full reconciliation from free cash flow to adjusted free cash flow and the definition of PWC can be found at the end of this results release.

 

$m

H1 17

H1 16

Adj. EBIT

152.1

129.2

Adj. depreciation & amortisation

17.2

14.9

Adj. EBITDA

169.2

144.2

Working capital movement

(24.0)

(16.1)

Less restructuring cost not yet paid

-

0.4

Purchase of PP&E and intangible assets

(27.8)

(27.5)

Adj. free cash flow before payments working capital

117.4

101.0

Adj. cash conversion before payments working capital

77%

78%

Movement in payments working capital

31.2

(5.4)

Adj. free cash flow after payments working capital

148.6

95.5

Adj. cash conversion after payments working capital

98%

74%

During H1 2017, we paid cash consideration of $1.0m in total in relation to the acquisition of MeritCard. An amount of $0.7m was recorded as an exceptional gain in relation to financial performance targets that were not met.

Long-term debt

The Group's total long-term debt position (including the current portion of long-term debt) on the statement of financial position was $509.1m at 30 June 2017 (31 December 2016: $480.9m).

The debt facility includes a €280m Term A loan issued in 2015 which is repayable over five years. This loan bore interest of Euribor plus 3.0% until the end of May 2016 and Euribor plus 2.75% thereafter.

It also includes a €220m Term B loan, bearing interest at Euribor plus 4.0% until the end of May 2016 and Euribor plus 3.75% thereafter.

The lower level of interest followed the submission of compliance certificates, which showed that adjusted leverage at 31 December 2015 was below the 3.00:1 test set out under the agreements. The Term B loan is repayable at the discretion of the Group, without penalty, before the maturity date of 10 August 2022.

The increase in the total long-term debt position reflects the movement in foreign exchange rates. The euro-denominated long-term debt liability fell following a repayment on the Term A credit facility of $14.9m (€14m).

The Group also has a revolving credit facility available of $85.0m. Letters of guarantee to the value of $8.7m (31 Dec 16: $8.7m) are secured against this facility.

Covenants on the long-term debt include a net debt/adjusted EBITDA ratio and fixed charge cover. The Group was in full compliance with its debt covenants at 30 June 2017.

Net debt

Reported net debt at 30 June 2017 was $259.9m (31 December 2016: $279.8m). Net debt for the purposes of covenants approximates reported net debt. Reported net debt to LTM adjusted EBITDA was 0.8x times at 30 June 2017 (31 December 2016: 0.9x).

Net debt reduction was impacted in the half year by the appreciation in the euro compared to the US dollar, the share buyback, the payment of the 2016 staff bonus accrued for in the prior year, and the unusually high cash tax payment described above.

 

 

$m

30 Jun 17

31 Dec 16

Current portion of long-term debt

48.2

29.7

Long-term debt

460.9

451.2

Deferred financing fees

14.4

15.8

Deferred cash consideration payable

6.2

10.2

Contingent cash consideration payable

2.4

4.1

Total debt

532.0

511.0

Cash & cash equivalents

(272.2)

(231.2)

Net debt

259.9

279.8

Net debt to LTM adjusted EBITDA

0.8x

0.9x

 

Goodwill

Goodwill largely relates to the acquisitions of Meritus and GMA in July 2014, Skrill in August 2015, FANS Entertainment Inc. in May 2015, Meritcard in February 2016 and Income Access in August 2016. The goodwill balance increased by $81.1m during the period mainly due to the impact of the strengthening of the Euro against the U.S. dollar.

Intangible assets and property, plant and equipment

The net book value of intangible assets at 30 June 2017 was $364.8m (31 December 2016: $364.3m). This balance largely relates to intangible assets recognised on the acquisition of the Skrill Group in 2015 and Meritus and GMA in 2014.

The Group capitalised $16.9m of development costs over the period (H1 16: $13.0m) excluding the impact of acquisitions. Capitalisation as a percentage of sales increased to 3.1% (H1 16: 2.7%). This reflects investment in core platform development.

Property, plant and equipment spend was $5.7m, 1.1% of revenue (H1 16: 1.6%).

Management having considered all available factors has determined that no impairment review is required in relation to acquired intangibles, capitalised development costs, other intangibles and property, plant and equipment.

Current assets

Prepaid expenses and other deposits were $16.2m at 30 June 2017 (31 December 2016: $13.8m). Trade and other receivables were $55.3m (31 Dec 2016: $43.1m). The increase reflected growth in the Payolution consumer credit business, a sales tax receivable timing difference, and the revenue growth of the business as a whole.

Acquisition-related liabilities

Total period end share consideration payable was $43.3m (31 December 2016: $32.3m) including $0.6m payable in relation to the FANS acquisition and $42.7m in relation to Meritus.

At 30 June 2017, contingent consideration payable was $2.4m, down from $6.1m at 31 December 2016. In addition, deferred consideration payable decreased to $6.2m from $10.2m at 31 December 2016.

Subsequent to the period end, Paysafe paid $3.3m in cash to certain vendors of FANS in return for those vendors giving up their rights to be issued 790,908 shares in a subsidiary of Paysafe (the "Earn-out Shares").  The Earn-out Shares would have been exchangeable, on a one-for-one basis, for ordinary shares of Paysafe if certain financial performance criteria had been achieved over three years. Following this cash payment, the total number of Consideration Shares which have yet to be exchanged on a one-for-one basis into ordinary shares is 189,850.

Payment working capital items

Payment working capital is defined at the end of this report. Cash held as reserves, settlement assets and restricted cash balances have decreased to $92.7m at 30 June 2017 from $132.3m at 31 December 2016. The reduction was driven by higher than usual prior-period cash held as reserves and settlement assets, driven by timing differences and funding for holiday season spending. Merchant processing liabilities decreased to $14.5m at 30 June 2017 from $18.5m at 31 December 2016.

As detailed in Note 7, restricted cash of $20.7m at 30 June 2017 (31 December 2016 $31.8m) is a net figure, comprising $1,158.0m of segregated account funds and liquid assets and $1,137.2m of payables to members and merchants (31 December 2016: $1,154.8m and $1,123.0m respectively).

Other liabilities

Trade and other payables decreased to $112.9m at 30 June 2017 from $123.9m at 31 December 2016, reflecting the reduction in accrued liabilities which included accrued interest payable, a non-compete payment accrual, and the 2016 staff incentive award accrual.

The income tax provision liability has decreased during H1 2017 from $34.4m at 31 December 2016 to $18.1m at 30 June 2017, due to the higher cash tax payment in the period.

Net deferred tax liabilities were $40.3m at 30 June 2017 compared to $35.9m at 31 December 2016.

Equity

Share capital and share premium decreased during the year due to the share buyback programme. At 30 June 2017 the Group had purchased 6,523,707 shares at a volume weighted average price per share of 381.9p. This includes 5,813,486 shares that were purchased in H1 2017. All purchased shares were cancelled.

Off-balance sheet arrangements

Other than as disclosed above, as at 30 June 2017 the Group had no other off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.

 

 

Divisional Review

Payment Processing

$m

H1 17

H1 16

Reported revenue

264.4

231.2

Organic constant currency year-on-year revenue growth

16%

28%

Organic constant currency year-on-year revenue growth excluding Major Merchant Asia Gateway

11%

32%

Gross profit*

110.9

90.7

Gross margin (%)*

42.0%

39.2%

 

Non-financial KPIs:

 

 

Volume $bn

12.4

11.2

Revenue/volume

2.1%

2.1%

*H1 2016 gross profit and margin is re-presented for change in allocation of intercompany costs. See page 146 of the 2016 annual report for further details.

The Payment Processing division's reported revenue was $264.4m in H1 2017 compared to $231.2m in H1 2016. This represents 49% of the Group's reported fee revenue (H1 16: 48%).

On an organic constant currency basis, revenue grew 16% year-on-year (H1 16: 28%). Growth was driven by the Asia Gateway and US-based processing businesses. The nascent Payolution consumer credit business, and European acquiring businesses also grew strongly. Excluding Major Merchant Asia Gateway revenue, Payment Processing revenue grew 11% on an organic constant currency basis, compared to 32% in H1 2016.

Reported revenue growth was 14% (H1 16: 34%), including the impact of the Meritcard business acquired in H1 2016.

Volume for Payment Processing increased to $12.4bn (H1 16: $11.2bn). Volume represents all transactions including fee generating credits and chargebacks processed by the division. It excludes volume processed for other Group divisions. Revenue represented 2.1% of volume, in-line with H1 2016.

Reported gross margin for the Payment Processing division was 42.0% in H1 2017 (H1 16: 39.2%).

Payment Processing bad debt expense was 0.9% of sales in H1 2017, down from 2.2% in H1 2016 and roughly flat compared to 1.0% in H2 2016. The year-on-year decrease was driven by a merchant specific provision in the prior period.

Revenue by vertical

H1 2017

H2 2016

H1 2016

Gambling

31%

30%

28%

Gaming

1%

2%

2%

E-commerce and other

68%

68%

70%

Approximately 59% of Payment Processing's H1 2017 reported fee revenue is derived from North America, with 11% from Europe and the remaining 30% from Asia and the rest of the world. E-commerce is Payment Processing's largest vertical, representing 68% of H1 2017 divisional fee revenue. Online gambling, largely driven by the Major Merchant Asia Gateway, contributes another 31% to divisional fee revenues, with the balance from gaming.

E-commerce encompasses a number of end verticals, such as direct marketing, e-retail and professional services such as dentists, doctors and insurance companies. The announced acquisition of MCPS will substantially increase the bricks and mortar retail component of Payment Processing volume and revenue.

 

 

Digital Wallets

$m

H1 17

H1 16

Reported revenue

159.1

146.7

Organic constant currency year-on-year revenue growth

9%

28%

Gross profit*

128.2

111.4

Gross margin (%)*

80.6%

75.9%

 

Non-financial KPIs:

 

 

Volume $bn

10.7

11.3

Revenue/volume

1.5%

1.3%

*H1 2016 gross profit and margin is re-presented for change in allocation of intercompany costs. See page 146 of the 2016 annual report for further details.

The Digital Wallets division contributed $159.1m of reported revenue in H1 2017 (H1 16: $146.7m), representing 30% (H1 16: 30%) of the Group's reported fee revenue.

Year-on-year organic constant currency revenue growth was 9%, compared to 28% in H1 2016. The reduction in growth in part reflects a normalisation following exceptional growth in 2016, but also the impact of a number of individually small effects that as a whole drove a decline in volumes year-on-year. These included the withdrawal from online gambling in Japan due to local regulatory changes, restrictions on the issuance of prepaid cards linked to wallets in non-SEPA areas, and increased KYC measures implemented by Paysafe to improve the quality and sustainability of the business, or to satisfy local rules. 

These factors drive a 6% decline in year-on-year Digital Wallets transaction volume to $10.7bn (H1 16: $11.3bn). Digital Wallets volume includes uploads and withdrawals to and from wallets, and member-merchant and member-member transactions.

Reported revenue growth was 8% in H1 2017 (H1 16: 195%). H1 16 growth includes the impact of the Skrill acquisition which took place in August 2015.

Monetisation of transaction volumes increased during the period as fee increases were put in place during H2 2016 and H1 2017. In addition, growth in Issuing and consolidation of the Income Access acquisition added revenue but not Wallet transaction volume. Revenue divided by volume increased to 1.5% (H1 16: 1.3%).

The fee increases, coupled with the volume decline being driven by lower margin lines of business and a reduction in bad debt, led to an increase in reported gross margin for the Digital Wallet division to 80.6%. This compares to a gross margin of 75.9% in H1 2016.

Reported bad debt as a percentage of revenue decreased to 0.8% from 1.9% in H1 2016.

Revenue by vertical

H1 2017

H2 2016

H1 2016

Gambling

57%

60%

62%

Gaming

5%

5%

6%

E-commerce and other

39%

36%

32%

         

 

Digital Wallets' largest regional market is Europe, which accounted for 66% of the division's fee revenue in H1 2017. 34% comes from the rest of the world, including 1% from North America. Merchant fees from online gambling are the division's largest revenue stream, contributing 57% of H1 2017 fee revenue. Merchant revenues from online gaming were 5% of the division's total, with the remainder coming from consumer fees and e-commerce merchant fees.

The majority of e-commerce and other fees relate to consumer fees, which have increased as a percentage of revenue in part due to fee changes.

 

 

Prepaid

$m

H1 17

H1 16

Reported revenue

110.8

105.5

Organic constant currency year-on-year revenue growth excluding the impact of discontinued Ukash territories and services in H1 16

9%

11%

Gross profit*

58.0

55.2

Gross margin (%)*

52.4%

52.3%

 

Non-financial KPIs:

 

 

Volume $bn

1.4

1.4

Revenue/volume

7.7%

7.6%

*H1 2016 gross profit and margin is re-presented for change in allocation of intercompany costs. See page 146 of the 2016 annual report for further details.

The Prepaid division has been renamed "Cash Solutions" and will be referred to as such in future financial reports.

The Prepaid division contributed $110.8m of reported revenue in H1 2017 (H1 16: $105.5m). This represents 21% of the Group's reported fee revenue (H1 16: 22%).

Year-on-year organic constant currency revenue growth for Prepaid was approximately 9%, compared to 11% in H1 2016 excluding the impact of Ukash discussed in previous results. Reported revenue growth was 5% in H1 2017, lower because the majority of revenues are euro denominated.

In March 2017, paysafecard in Greece successfully implemented migration of volumes to the 'my paysafecard' platform to support local regulatory requirements.

Prepaid payments volume was $1.4bn (H1 16: $1.4bn). Volume represents merchant transactions paid for with a prepaid voucher provided by the division.

Prepaid revenue in H1 2017 was 7.7% of payment volume (H1 16: 7.6%).

H1 2017 gross margin for the division was 52.4%, compared to 52.3% in H1 2016.

Revenue by vertical

H1 2017

H2 2016

H1 2016

Gambling

62%

61%

61%

Gaming

16%

17%

18%

E-commerce and other

22%

22%

21%

         

Europe represents 92% of the division's total fee revenue. Online gambling is the strongest vertical for the division, accounting for 62% of H1 2017 fee revenue (H1 16: 61%). Gaming contributed 16% of H1 2017 fee revenue (H1 16: 18%), with remaining 22% of fee revenue coming from e-commerce and consumer fees.

E-commerce verticals include social and freelancer communities, online dating, music, film and entertainment, internet services and travel.

 

Principal risks and uncertainties

The principal risks facing the Group are incorporated in the Enterprise Risk Management framework which prioritises the risks and assigns responsibility to an executive for monitoring and risk mitigation. The Group has a comprehensive system of controls in place to manage the risks comprising the Enterprise Risk Management framework through a combination of a "top down" approach (driven by the Audit Committee and the Board) and a "bottom up" process (originating from operations).

There are a number of potential risks and uncertainties that could have a material impact on the Group's financial performance and position. These include risks relating to cyber security, data privacy, outsourcing, loss of a major customer, security, fraud and money laundering, transaction processing, product innovation, relationships with financial institutions, acquisitions and partnerships, attracting and retaining the best talent, changes in online gambling and payment processing regulations, failure of a major customer, and changes in the online gambling industry and competitive environment. These risks and our mitigating actions remain as set out in the 2016 Annual Report.

Directors' responsibility statements

We confirm that, to the best of our knowledge:

a.     the unaudited condensed consolidated interim financial statements have been presented in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union and give a true and fair view of the assets, liabilities, financial position and profit for the Group;

b.     the interim management report includes a fair review of the information required by 4.2.7R of the UK Financial Conduct Authority's Disclosure Guidance and Transparency Rules ("DTR") (indication of important events during the first six months of the financial year and their impact on the condensed financial statements, and description of principal risks and uncertainties for the remaining six months of the financial year); and

c.     the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions in the first six months of the financial year and any changes in the related parties transactions described in the last annual report).

This Half Year Report was approved by the Board of Directors and authorised for issue on 8 August 2017.

Cautionary statement

This Half Year Report (the "Report") has been prepared in accordance with the Disclosure Guidance and Transparency Rules of the UK Financial Conduct Authority and is not audited. No representation or warranty, express or implied, is or will be made in relation to the accuracy, fairness or completeness of the information or opinions contained in this Report. Statements in this Report reflect the knowledge and information available at the time of its preparation. Certain statements included or incorporated by reference within this Report may constitute "forward-looking statements" in respect of the Group's operations, performance, prospects and/or financial condition. By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions and actual results or events may differ materially from those expressed or implied by those statements. Accordingly, no assurance can be given that any particular expectation will be met and reliance should not be placed on any forward-looking statement. Additionally, forward-looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. The information contained in this Report is subject to change without notice and no responsibility or obligation is accepted to update or revise any forward-looking statement resulting from new information, future events or otherwise. Nothing in this Report should be construed as a profit forecast. This Report does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase or subscribe for any shares in the Company, nor should it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment or investment decisions relating thereto, nor does it constitute a recommendation regarding the shares of the Company or any invitation or inducement to engage in investment activity under section 21 of the Financial Services and Markets Act 2000. Past performance cannot be relied upon as a guide to future performance. To the extent permitted by law, neither the Company nor any of its affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this Report or its contents or otherwise arising in connection with this Report.

 

 

 

Unaudited Interim Condensed Consolidated Statements of Financial Position

As at

(in thousands of U.S. dollars)

 

 

 

 

30 June

2017

31 December

2016

 

$

$

ASSETS

 

 

Non-current assets

 

 

Goodwill (Note 4)

1,235,237

1,154,119

Intangible assets (Note 5)

364,848

364,326

Property, plant and equipment

27,322

23,452

Deferred tax assets

17,908

10,429

Total non-current assets

1,645,315

1,552,326

 

 

 

Current assets

 

 

Prepaid expenses and other

16,224

13,781

Trade and other receivables (Note 6)

55,330

43,062

Cash held as reserves

18,473

35,873

Restricted cash (Note 7)

20,713

31,854

Settlement assets

53,486

64,586

Cash and cash equivalents (Note 8)

272,162

231,157

Total current assets

436,388

420,313

Total assets

2,081,703

1,972,639

 

 

 

SHAREHOLDERS' EQUITY AND LIABILITIES

 

 

 

 

 

SHAREHOLDERS' EQUITY

 

 

    Share capital (Note 9)

95

96

    Share premium

928,163

953,853

    Capital redemption reserve

0

0

    Equity reserve on share option issuance

59,523

55,126

    Translation reserve

10,364

(35,261)

    Retained earnings

318,127

244,420

Total shareholders' equity

1,316,272

1,218,234

 

 

 

LIABILITIES

 

 

Non-current liabilities

 

 

    Long-term debt

460,916

451,195

Deferred tax liability

58,194

46,338

    Share consideration payable (Note 11)

21,373

15,173

    Contingent consideration

-

4,442

    Deferred consideration payable

-

2,975

    Derivative financial liability

823

1,665

Total non-current liabilities

541,306

521,788

 

 

 

Current liabilities

 

 

    Current portion of long-term debt

48,173

29,696

    Share consideration payable (Note 11)

21,965

17,110

    Contingent consideration (Note 13)

2,358

1,693

    Deferred consideration payable

6,161

7,217

    Taxes payable

18,079

34,411

    Trade and other payables (Note 12)

112,934

123,943

    Merchant processing liabilities

14,455

18,547

Total current liabilities     

224,125

232,617

Total shareholders' equity and liabilities

2,081,703

1,972,639

 

Accompanying notes form part of these unaudited interim condensed consolidated financial statements.

 

These financial statements were approved and authorised for issue by the Board of Directors and signed on its behalf by;

 

 

 

                                         Joel Leonoff                                                                                                    Brian McArthur-Muscroft

                                         President and Chief Executive Officer                                                        Chief Financial Officer

 

Unaudited Interim Condensed Consolidated Statements of Comprehensive Income

For the six month periods ended 30 June

(in thousands of U.S. dollars, except per share data)

 

 

 

 

 

 

 

2017

$

2016

$

Revenue

 

 

    Payment Processing fees

264,422

231,235

    Digital Wallets fees

159,086

146,655

    Prepaid fees

110,759

105,483

    Investment income

4,389

3,366

 

538,656

486,739

Cost of sales

 

 

    Payment Processing expenses

153,481

142,374

    Digital Wallets expenses

30,877

33,865

    Prepaid expenses

52,756

49,882

 

237,114

226,121

 

 

 

Gross profit (Note 14)

301,542

260,618

 

 

 

Non fee expenses

 

 

    Salaries and employee expenses

74,473

61,836

    Share option expense (Note 18)

4,397

5,490

    Other administrative expenses

57,827

54,602

    Depreciation and amortisation

43,394

40,619

    Acquisition costs

1,381

1,022

    Restructuring costs

136

4,870

    Foreign exchange loss

6,972

6,419

    Net loss on settlement of contingent consideration (Note 13)

534

-

    Net fair value loss/(gain) on share consideration payable (Note 11)

12,810

(4,544)

    Loss on disposal of assets

17

602

 

 

 

Results from operating activities

99,601

89,702

 

 

 

    Finance costs (Note 15)

10,554

15,151

 

 

 

Profit for the period before tax

89,047

74,551

 

 

    Income tax expense (Note 16)

15,340

10,012

 

 

 

Profit for the period after tax attributable

to owners of the Group

 

73,707

 

64,539

 

 

 

Other comprehensive income

  Items that are or may be reclassified subsequently

  to profit or loss    

   

 

 

 

 

Foreign currency translation differences on

foreign operations, net of income tax

 

45,625

 

7,503

 

 

 

Total comprehensive income for the period attributable

to owners of the Group

 

119,332

 

72,042

 

 

 

Basic earnings per share (Note 17)

$0.15

$0.13

Fully diluted earnings per share (Note 17)

$0.15

$0.13

 

Accompanying notes form part of these unaudited interim condensed consolidated financial statements.

 

The Directors consider that all results derive from continuing operations.

 

Unaudited Interim Condensed Consolidated Statements of Changes in Equity

For the six month periods ended 30 June

(in thousands of U.S. dollars)

 

SHARE

CAPITAL -

ORDINARY

SHARES

$

SHARE

CAPITAL -

DEFERRED

SHARES

$

TOTAL

SHARE

CAPITAL

$

 

 

SHARE

PREMIUM

$

EQUITY

RESERVE ON

SHARE

OPTION

ISSUANCE

$

TRANSLATION

RESERVE ON

FOREIGN

OPERATIONS

$

CAPITAL

REDEMPTION

RESERVE

$

 

RETAINED

EARNINGS

$

 

 

TOTAL

$

Balance as at 1 January 2017

 

78

 

18

 

96

 

953,853

 

55,126

 

(35,261)

 

0

 

244,420

 

1,218,234

 

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

-

-

73,707

73,707

 

Other comprehensive income

 

-

 

-

 

-

 

-

 

-

 

45,625

 

-

 

-

 

45,625

 

Total comprehensive income

 

-

 

-

 

-

 

-

 

-

 

45,625

 

-

 

73,707

 

119,332

 

Transactions with owners of the Company, recognised directly in equity

 

Contributions by and distributions to owners of the Company

 

 

 

 

 

 

 

 

 

 

Share option expense (Note 18)

 

-

 

-

 

-

 

-

 

4,397

 

-

 

-

 

-

 

4,397

 

Issue of shares (Note 9)

 

0

 

-

 

0

 

297

 

-

 

-

 

-

 

-

 

297

 

Repurchase of shares (Note 9)

 

(1)

-

 

(1)

 

(27,742)

 

-

 

-

 

-

 

-

 

(27,743)

 

Shares issued on acquisitions (Note 11)

 

0

 

-

 

0

 

1,755

 

-

 

-

 

-

 

-

 

1,755

 

Balance as at 30 June 2017

 

77

 

18

 

95

 

928,163

 

59,523

 

10,364

 

0

 

318,127

 

1,316,272

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as at 1 January 2016

 

77

 

18

 

95

 

932,995

 

41,400

 

(2,322)

 

0

 

102,399

 

1,074,567

 

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

-

-

64,539

64,539

 

Other comprehensive income

 

-

 

-

 

-

 

-

 

-

 

7,503

 

-

 

-

 

7,503

 

Total comprehensive income

 

-

 

-

 

-

 

-

 

-

 

7,503

 

-

 

64,539

 

72,042

 

Transactions with owners of the Company, recognised directly in equity

 

Contributions by and distributions to owners of the Company

 

 

 

 

 

 

 

 

 

 

Share option expense (Note 18)

 

-

 

-

 

-

 

-

 

5,490

 

-

 

-

 

-

 

5,490

 

Issue of shares

 

0

 

-

 

0

 

779

 

-

 

-

 

-

 

-

 

779

 

Shares issued on acquisitions

 

0

 

-

 

0

 

836

 

-

 

-

 

-

 

-

 

836

 

Balance as at 30 June 2016

 

77

 

18

 

95

 

934,610

 

46,890

 

5,181

 

0

 

166,938

 

1,153,714

 

 

 

 

 

 

 

 

 

 

 

Accompanying notes form part of these unaudited interim condensed consolidated financial statements.


 

 Unaudited Interim Condensed Consolidated Statements of Cash Flows

For the six month periods ended 30 June

(in thousands of U.S. dollars)

 

 

2017

 

2016

 

$

$

OPERATING ACTIVITIES

 

 

Profit for the period before tax

89,047

74,551

Adjustments for non-cash items:

 

 

    Depreciation and amortisation

43,394

40,619

    Unrealised foreign exchange loss/ (gain)

1,420

(4,495)

    Acquisition costs

1,381

1,022

    Net fair value loss/ (gain) on share consideration payable (Note 11)

12,810

(4,544)

    Share option expense (Note 18)

4,397

5,490

    Net loss on settlement of contingent consideration payable (Note 13)

534

-

    Finance costs

9,231

16,136

    Loss on disposal of assets

17

602

Cash flows from operations before movements in working capital

162,231

129,381

    Increase in trade and other receivables

(10,857)

(13,373)

    Increase in prepaid expenses and other

(552)

(275)

    Decrease in trade and other payables

(12,604)

(2,494)

Cash flows from operations before movements in payments working capital

138,218

113,239

    Decrease/(increase) in restricted cash

8,991

(12,618)

    Decrease in settlement assets

8,766

9,369

    Decrease/(increase) in cash held as reserves

17,590

(2,474)

    (Decrease)/increase in merchant processing liabilities

(4,167)

300

 

169,398

107,816

    Taxes paid (Note 16)

(32,201)

(1,366)

Net cash flows from operating activities

137,197

106,450

 

 

 

INVESTING ACTIVITIES

 

 

Purchase of property, plant and equipment

(5,748)

(7,940)

Purchase of intangible assets (Note 5)

(22,099)

(19,568)

Proceeds from disposal of property, plant and equipment

95

544

Acquisition costs

(1,381)

(872)

Contingent consideration paid (Note 13)

(996)

-

Deferred consideration paid

(4,284)

(1,259)

Business acquisitions

-

(15,951)

Net cash flows used in investing activities

(34,413)

(45,046)

 

 

 

FINANCING ACTIVITIES

 

 

Equity issuance (Note 9)

297

779

Repurchase of shares (Note 9)

(27,743)

-

Repayment of long-term debt (Note 10)

(14,905)

(15,839)

Repayment of obligations under finance lease

(58)

(142)

Interest paid

(12,979)

(5,873)

Net cash flows used in financing activities

(55,388)

(21,075)

INCREASE IN CASH AND CASH EQUIVALENTS DURING THE PERIOD

 

47,396

 

40,329

EFFECT OF FOREIGN EXCHANGE RATE CHANGES

(6,391)

2,007

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

231,157

117,875

CASH AND CASH EQUIVALENTS, END OF PERIOD

272,162

160,211

       

Accompanying notes form part of these unaudited interim condensed consolidated financial statements.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

for the six months ended 30 June 2017 and 2016

(tabular amounts only are in thousands of U.S. dollars, except per share data)

 

1.             REPORTING ENTITIES

NETELLER plc was a private company incorporated under the laws of the Isle of Man ("IOM") on 31 October 2003 and was registered as a public company on 1 April 2004.  NETELLER plc changed its name to NEOVIA Financial Plc on 17 November 2008. On 1 March 2011 NEOVIA Financial Plc changed its name to Optimal Payments Plc.  On 10 November 2015, Optimal Payments Plc changed its name to Paysafe Group Plc (the "Company"). The principal activities of the Company and its subsidiaries (together referred to as "the Group") are described in Note 2. The Group includes the Company and its wholly owned subsidiaries as set out under "Basis of consolidation" in Note 4 and "Investment in subsidiaries" in Note 27 to the Group's consolidated financial statements for the year ended 31 December 2016.

At 30 June 2017, the Group had 2,299 employees (31 December 2016: 2,116 employees).

 

2.             NATURE OF OPERATIONS

The Group provides services to businesses and individuals to allow the online processing of direct debit, credit card and alternative payments.  Included within the Group's suite of products and services are digital wallets which act as a store of value for e-money, and prepaid vouchers.  Paysafe Financial Services Limited (FRN:900015), Skrill Limited (FRN:900001), and Prepaid Services Company Limited (FRN:900021), all wholly-owned subsidiaries of Paysafe Group plc, are authorised by the United Kingdom's Financial Conduct Authority under the Electronic Money Regulations 2011 for the issuing of electronic money and payment instruments. Skrill International Payments Limited (FRN:536371), a wholly-owned subsidiary, is regulated by the Financial Conduct Authority as a payment institution.  Paysafe Merchant Services Limited, a wholly-owned subsidiary, is licensed by the Financial Services Authority of the Isle of Man (Ref. 1357) to carry on money transmission services, and paysafecard.com Schweiz GmbH, a wholly-owned subsidiary, is licensed by the Swiss Financial Market Authority as a financial intermediary.      

 

3.             BASIS OF PREPARATION

Statement of compliance

The interim condensed consolidated financial statements have been prepared in accordance with applicable IOM law and International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the annual consolidated financial statements of the Group for the year ended 31 December 2016. In addition, the interim condensed consolidated financial statements have been prepared in accordance with the accounting policies set out in Note 4 'Significant Accounting Policies' included in the Group's consolidated financial statements for the year ended 31 December  2016.

The interim condensed consolidated financial statements were authorised for issue by the Board of Directors on 1 August 2017.

 

Statement of going concern

These interim condensed consolidated financial statements of the Group have been prepared on the going concern basis, as the Board of Directors have a reasonable expectation that the Group and parent have the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows and capital resources.

                New standards

There are no new standards, interpretations or amendments that are effective for periods beginning on or before 1 January 2017 that have a material effect on the Group's financial information.

In Note 4 under "Future changes to accounting standards" of the consolidated financial statements for the year ended 31 December 2016, the Directors of the Group confirmed that they do not anticipate that the application of IFRS 9 or IFRS 15 in the future will have a material impact on the amounts reported in the Group's consolidated financial statements. The Directors of the Group confirm that this continues to be the case as at the balance sheet date.

 

4.             GOODWILL

The Group had the following balances by cash-generating unit (CGU):

 

 

Payment Processing

$

Digital Wallets

$

 

Prepaid

$

 

Group

$

 

Cost

 

 

 

 

 

Balance at 1 January 2016

208,714

595,669

373,958

1,178,341

 

Additions during the year

-

10,701

-

10,701

 

Foreign exchange

-

(21,511)

(13,412)

(34,923)

 

Balance at 31 December 2016

208,714

584,859

360,546

1,154,119

 

Foreign exchange

-

49,977

31,141

81,118

 

Balance at 30 June 2017

208,714

634,836

391,687

1,235,237

 

 

 

 

 

 

Carrying amount

 

 

 

 

As at 31 December 2016

 

 

 

 

1,154,119

 

Carrying amount

 

 

 

 

 

 

As at 30 June 2017

 

 

 

 

1,235,237

 

                     

 

5.             INTANGIBLE ASSETS

The Group had the following balances:

 

 

 

INTELLECTUAL PROPERTY

$

 WEBSITE AND PLATFORM DEVELOPMENT

$

 

CUSTOMER RELATIONSHIPS

$

 

NON-COMPETE

$

 

TRADE NAME

$

 

COMPUTER SOFTWARE

$

 

 

TOTAL

 $

Cost

 

 

 

 

 

 

 

As at 1 January 2016

41,597

73,017

316,554

6,739

13,817

23,427

475,151

Additions

-

-

-

10,000

-

6,270

16,270

Disposals

-

(2,550)

-

-

-

(1,309)

(3,859)

Additions - internally developed

-

27,482

-

-

-

-

27,482

Additions - business acquisition

17,089

-

21,153

-

305

97

38,644

Exchange difference

(101)

(1,975)

(10,954)

-

(900)

(954)

(14,884)

As at 31 December 2016

58,585

95,974

326,753

16,739

13,222

27,531

538,804

Additions

-

-

-

-

-

2,218

2,218

Disposals

-

-

-

-

-

(35)

(35)

Additions - internally developed

-

16,881

-

-

-

-

16,881

Exchange difference

11

4,141

26,400

-

1,452

2,045

34,049

 

As at 30 June 2017

58,596

116,996

353,153

16,739

14,674

31,759

591,917

Accumulated amortization

 

 

 

 

 

 

As at 1 January 2016

32,001

27,027

26,346

2,243

2,142

15,480

105,239

Charge for the year

3,854

19,672

42,363

2,785

2,943

5,978

77,595

Disposals

-

(1,873)

-

-

-

(1,247)

(3,120)

Exchange difference

(2)

(1,015)

(3,244)

-

(442)

(533)

(5,236)

As at 31 December 2016

35,853

43,811

65,465

5,028

4,643

19,678

174,478

Charge for the period

2,264

7,077

21,127

2,501

1,997

6,078

41,044

Exchange difference

-

2,064

7,337

-

969

1,177

11,547

As at 30 June 2017

38,117

52,952

93,929

7,529

7,609

26,933

227,069

Net book value

 

 

 

 

 

 

 

As at 31 December 2016

22,732

52,163

261,288

11,711

8,579

7,853

364,326

As at 30 June 2017

20,479

64,044

259,224

9,210

7,065

4,826

364,848

  

6.             TRADE AND OTHER RECEIVABLES

The Group had the following balances:

 

As at

30 June 2017

 $

As at

31 December 2016

$

Trade receivables

38,611

29,743

Other receivables

10,779

7,846

Receivable from related party 1

5,940

5,473

 

55,330

43,062

 

1 This balance relates to a receivable from a former U.S. subsidiary of Skrill Limited whose acquisition has not yet been concluded.

 

 

7.             RESTRICTED CASH

The Group had the following balances:

 

As at

30 June 2017

 $

As at

31 December 2016

$

Segregated account funds and liquid assets

1,157,975

1,154,818

Payables to members and merchants

(1,137,262)

  (1,122,964)

 

20,713

31,854

 

 

8.             CASH AND CASH EQUIVALENTS

The Group had the following balances:

 

As at

30 June 2017

$

As at

31 December 2016

$

Cash

271,364

230,394

Cash equivalents

798

763

 

272,162

231,157

 

 

9.             SHARE CAPITAL

 

As at

30 June 2017

As at

31 December 2016

 

£

£

Authorised:

 

 

600,000,000 ordinary shares of £0.0001 per share

(At 31 December 2016: 600,000,000 ordinary shares of £0.0001 per share)

60

60

1,000,000 deferred shares of £0.01 per share

(At 31 December 2016: 1,000,000 deferred shares £0.01 per share)

10

10

 

 

 

Issued and fully paid:

$

$

484,914,921 ordinary shares of £0.0001 per share

(At 31 December 2016: 489,795,281 ordinary shares of £0.0001 per share)

 

77

 

78

1,000,000 deferred shares of £0.01 per share

(At 31 December 2016: 1,000,000 deferred shares of £0.01 per share)

18

18

Total share capital

95

96

 

Holders of the ordinary shares are entitled to receive dividends and other distributions, to attend and vote at any general meeting, and to participate in all returns of capital on winding up or otherwise.

 

Holders of the deferred shares are not entitled to vote at any annual general meeting of the Company and are only entitled to receive the amount paid up on the shares after the holders of the ordinary shares have received the sum of £1,000,000 for each ordinary share held by them and shall have no other right to participate in assets of the Company.

 

 

Ordinary shares

Deferred shares

 

Number

Carrying value

$

Number

Carrying value

$

Outstanding at 1 January 2016

479,656,395

77

1,000,000

18

Repurchased and cancelled

(710,221)

(0)

-

-

Exercise of share options - ESOS (Note 18)

898,545

0

-

-

Exercise of share options - LTIP (Note 18)

5,669,200

0

-

-

Issued in business combinations

4,281,362

1

-

-

Outstanding at 31 December 2016

489,795,281

78

1,000,000

18

Repurchased and cancelled

(5,813,486)

(1)

-

-

Exercise of share options - ESOS (Note 18)

316,567

0

-

-

Exercise of share options - LTIP (Note 18)

116,309

0

-

-

Issued in a business combination

500,250

0

-

-

Outstanding at 30 June 2017

484,914,921

77

1,000,000

18

 

Issue and repurchase of ordinary shares

During the six months ended 30 June 2017, 432,876 (for the year ended 31 December 2016: 6,567,745) ordinary shares were issued as a result of the exercise of vested options under the ESOS and LTIP plans (see Note 18).

Additionally, during the six months ended 30 June 2017, 500,250 ordinary shares were issued as a result of the acquisition of FANS Entertainment Inc. (1,070,962 and 3,210,400 ordinary shares issued as a result of the acquisition of FANS Entertainment Inc. and Meritus Payment Solutions, respectively, for the year ended 31 December 2016).

During the six months ended 30 June 2017, the Company repurchased 5,813,486 ordinary shares under the current repurchase plan for consideration of £22,412,000 ($27,743,000) and the excess of the purchase price over the carrying value of approximately of £22,411,000 ($27,742,000) was charged to share premium (710,221 ordinary shares for consideration of £2,539,000 ($3,123,000) for the year ended 31 December 2016). As at 30 June 2017, all of the repurchased shares had been cancelled. 

 

10.          LONG-TERM DEBT

During the six months ended 30 June 2017, the Group made a repayment of $14,905,000 (14,000,000 Euro) on the Term A facility ($15,839,000 (14,000,000 Euro) was repaid on the Term A facility during the six months ended 30 June 2016).

 

11.          SHARE CONSIDERATION PAYABLE

 

 

Meritus

$

FANS

$

TOTAL

 $

As at 1 January 2016

56,020

6,366

62,386

Consideration issued

(18,950)

(3,981)

(22,931)

Net fair value gain

(7,172)

-

(7,172)

As at 31 December 2016

29,898

2,385

32,283

Current portion of share consideration payable

14,725

2,385

17,110

Non-current portion of share consideration payable

15,173

-

15,173

 

 

 

 

Consideration issued

-

(1,755)

(1,755)

Net fair value loss

12,810

-

12,810

As at 30 June 2017

42,708

630

43,338

Current portion of share consideration payable

21,335

630

21,965

Non-current portion of share consideration payable

21,373

-

21,373

 

 

12.          TRADE AND OTHER PAYABLES

The Group had the following balances:

 

As at

30 June 2017

 $

As at

31 December 2016

$

Accounts payable

28,379

27,186

Accrued liabilities

64,050

77,403

Payroll liabilities

15,409

14,578

Digital Wallets loyalty program liability

1,559

1,230

Provision for merchant losses

3,537

3,546

 

112,934

123,943

 

 

13.          CONTINGENT CONSIDERATION

During the six months ended 30 June 2017, the Group paid $996,000 of contingent cash consideration related to the acquisition of MeritCard Solutions LP upon achievement of certain financial performance targets. An amount of $697,000 was recorded as an exceptional gain for the financial performance targets that were not met. 

 

As part of the consideration for the Group's acquisition of FANS Entertainment Inc. ("FANS"), contingent consideration of $2,084,000 was being held as a liability on the statement of financial position. The contingent consideration represented 790,908 of shares ("earn out shares") that were to be issued to the vendors of FANS subject to the satisfaction of certain financial performance criteria. In the period, the Group agreed to settle the contingent consideration by paying $3,315,000 in cash to the vendors in exchange for those vendors giving up their rights to those shares. An exceptional loss of $1,231,000 was recorded as a result.

 

 

14.          OPERATING SEGMENTS

The Group's operating segments are based on its main revenue generating activities. For each of the segments, the Group's CEO reviews internal management reports to a gross margin level on a monthly basis. The following summary describes the operations in each of the Group's reportable segments.

Payment Processing: fees are generated through the Paysafe and Paysafe Asia straight-through processing platforms where customers send money directly to merchants, as well as payolution's online payment services, and the FANS white label technology solutions and consulting services.

Digital Wallets: fees are generated on transactions between members and merchants using the NETELLER service and Net+ prepaid cards, and the Skrill Wallet and Skrill prepaid cards.

Prepaid: fees are generated from merchants accepting payments made using paysafecard prepaid vouchers and charges to consumers.

There have been no changes to the Group's operating segments in the period.

Information regarding the results of each reportable segment is included below;

 

Segmented reporting for the six months ended 30 June 2017:

 

Payment

Processing

Digital

Wallets

 

Prepaid

Total

 

$

$

$

 $

 

 

 

 

 

Gross revenue

265,615

159,113

112,255

536,983

Intersegment revenue

(1,193)

(27)

(1,496)

(2,716)

Revenue

264,422

159,086

110,759

534,267

Cost of sales

 

 

 

 

                Variable costs

151,062

29,678

52,807

233,547

                Bad debts

2,419

1,199

(51)

3,567

Total cost of sales

153,481

30,877

52,756

237,114

Gross margin

110,941

128,209

58,003

297,153

Gross margin percentage

42%

81%

52%

56%

 

Segmented reporting for the six months ended 30 June 2016:

 

Payment

Processing

Digital

Wallets

Total

 

$

$

$

 $

 

 

 

 

 

Gross revenue

233,646

146,655

106,772

487,073

Intersegment revenue

(2,411)

-

(1,289)

(3,700)

Revenue

231,235

146,655

105,483

483,373

Cost of sales

 

 

 

 

                Variable costs

137,389

31,089

49,882

218,360

                Bad debts

4,985

2,776

-

7,761

Total cost of sales

142,374

33,865

49,882

226,121

Gross margin

88,861

112,790

55,601

257,252

Gross margin percentage

38%

77%

53%

53%

 

 

 

 

 

Investment income of $4,389,000 (2016: $3,366,000) is excluded from the measure of segment revenue and non fee expenses of $201,941,000 (2016: $170,916,000) and finance costs of $10,554,000 (2016: $15,151,000) are excluded from the measure of segment profit as these are not considered by management when assessing the performance of the segments.

Processing costs and bad debts are the only two costs which vary directly with revenue, and accordingly have been shown separately.  For the six months ended 30 June 2017, cost of sales for Payment Processing, Digital Wallets and Prepaid were 58% (2016: 62%), 19% (2016: 23%) and 48% (2016: 47%) of revenue, respectively.

 

  

14.          OPERATING SEGMENTS (continued)

 

Major Merchants

The Group has one merchant who represented 19% of total fee revenue for the six months ended 30 June 2017 (2016: 20%) across all reportable segments and geographies.  The majority of this revenue comes from Asia.

  

 

15.          FINANCE COSTS

 

 

Six months ended

30 June 2017

$

Six months ended

30 June 2016

$

 

 

 

Interest on long-term debt

7,572

9,826

Amortisation of financing fees

2,598

2,715

Other finance costs

384

2,610

Finance costs

10,554

15,151

 

 

16.          TAX

The Company is incorporated in the IOM and is subject to a tax rate of zero percent.  No provision for IOM taxation is therefore required.  Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

The Group charge for the period can be reconciled to the profit shown per the interim condensed consolidated statement of comprehensive income as follows:

 

 

Tax recognised in profit

Period ended

 30 June 2017

$

Period ended

30 June 2016

$

Current tax

 

 

  Current period

13,920

14,991

  Adjustment for prior periods

(2,939)

-

 

10,981

14,991

Deferred tax

 

 

  Current period

(309)

(5,319)

  Adjustment for prior periods

4,668

340

 

4,359

(4,979)

Total tax expense

15,340

10,012

 

Reconciliation of effective tax rate

 

 

Isle of Man corporate tax rate

0.0%

0.0%

Adjustment from prior periods

1.9%

-

Expenses not deductible for tax purposes

0.9%

-

Effect of different tax rates

   of subsidiaries operating in other jurisdictions

 

10.9%

 

13.4%

Other

3.5%

-

Current period's tax expense as a percentage of profit before tax

17.2%

13.4%

 

Cash taxes paid in the period of $32,201,000 are primarily due to the settlement of all US taxes in relation to 2016 and the payment of $3,800,000 in UK taxes following the finalisation of the UK/Bulgaria advance pricing agreement.  Going forward, the group will pay all taxes in material jurisdictions via quarterly or monthly payments on account.

 

 

17.          EARNINGS PER SHARE

 

                The calculation of the basic and diluted earnings per share is based on the following data:

 

 

Six months ended

30 June 2017

$

Six months ended

30 June 2016

$

Profit

 

 

Profit attributable to equity shareholders of the parent - basic

73,707

64,539

Profit attributable to equity shareholders of the parent - diluted

73,707

64,539

 

 

 

Number of shares

 

 

Weighted average number of ordinary shares outstanding - basic

485,033,228

480,730,504

Effect of dilutive potential ordinary shares due to employee share options

9,897,083

12,489,086

Share consideration payable

6,887,872

11,376,966

Weighted average number of ordinary shares outstanding - diluted

501,818,183

504,596,556

 

 

 

Earnings per share

 

 

Basic earnings per share

$0.15

$0.13

Fully diluted earnings per share

$0.15

$0.13

 

The average market value of the Company's shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were outstanding.

 

 

18.          SHARE BASED PAYMENTS

For the six months ended 30 June 2017, the Group recognised total expenses of $4,397,000 (2016: $5,490,000) related to share option transactions.

Changes in the number of equity-settled share options ("ESOS"), Long Term Incentive Plan ("LTIP") and Sharesave options outstanding are detailed in the tables below:

 

 

 

Six months ended 30 June 2017

Year ended 31 December 2016

 

ESOS

Weighted Average Exercise Price

£

 

 

Options

Weighted Average Exercise Price

£

 

 

Options

Outstanding at the beginning of the period

2.72

1,018,364

2.18

2,095,238

Granted during the period

-

-

-

-

Forfeited during the period

2.66

(60,621)

2.89

(178,329)

Exercised during the period

3.34

(316,567)

1.35

(898,545)

Outstanding at the end of the period

2.78

641,176

2.72

1,018,364

Exercisable at the end of the period

3.35

161,944

-

-

 

The ESOS options outstanding at the end of the period had a weighted average exercise price of £2.78 (31 December 2016: £2.72) and a weighted average remaining contractual life of 1.34 years (31 December 2016: 1.25 years). The weighted average share price of ESOS options exercised in the period based on the date of exercise was £4.35 (31 December 2016:  £3.98). 

 

 

Six months ended 30 June 2017

Year ended 31 December 2016

 

LTIP

Weighted Average Exercise Price

£

Options

Weighted Average Exercise Price

£

Options

Outstanding at the beginning of the period

0.0001

8,059,950

0.0001

12,169,162

Granted during the period

0.0001

2,236,534

0.0001

1,925,574

Forfeited during the period

0.0001

(10,886)

0.0001

(365,586)

Exercised during the period

0.0001

(116,309)

0.0001

(5,669,200)

Outstanding at the end of the period

0.0001

10,169,289

0.0001

8,059,950

Exercisable at the end of the period

0.0001

3,443,462

0.0001

4,051,330

The LTIP options outstanding at the end of the period had an exercise price of £0.0001 and a weighted average remaining contractual life of 8.04 years (31 December 2016: 7.93 years). The weighted average share price of LTIP options exercised in the period based on the date of exercise was £4.06 (31 December 2016: £4.35).

 

 

Six months ended 30 June 2017

Year ended 31 December 2016

 

Sharesave

Weighted Average Exercise Price

£

Options

Weighted Average Exercise Price

£

Options

Outstanding at the beginning of the period

3.00

395,068

-

-

Granted during the period

3.68

281,073

3.00

395,068

Forfeited during the period

3.00

(33,050)

-

-

Outstanding at the end of the period

3.28

643,091

3.00

395,068

Exercisable at the end of the period

-

-

-

-

The European Sharesave options outstanding at the end of the period had an exercise price of £3.28 (31 December 2016: £3.00) and a weighted average remaining contractual life of 2.86 years (31 December 2016: 3.42). No European Sharesave options were exercised in the period.

 

 

18.               SHARE BASED PAYMENTS (continued)

                    Assumptions used in LTIP and Sharesave options pricing model

The fair value of the "special" options granted under the LTIP was determined using a bespoke Monte Carlo pricing model that takes into account the market-based performance conditions specific to this plan. The following table shows the principal assumptions used in the valuation:

 

 

Six months ended

30 June 2017

Year ended

31 December 2016

Weighted average exercise price

£0.00

£0.00

Share price at grant date

£4.43

£4.07

Expected volatility

48%

48.0%

Expected life

3 years

2.85 years

Risk free interest rate

0.2%

0.50%

Dividend yield

0%

0%

Weighted average fair value per option granted

£3.70

£2.88

       

 

The fair value of options granted under the European Sharesave was determined using the Black Scholes pricing model that takes into account factors specific to this plan, such as the expected life and vesting period. The following table shows the principal assumptions used in the valuation:

 

 

Six months ended

30 June 2017

Year ended

31 December 2016

Weighted average exercise price

£3.22

£3.00

Share price at grant date

£4.02

£3.86

Expected volatility

34.1%

44.0%

Expected life

3 years

3.19 years

Risk free interest rate

1.0%

0.59%

Dividend yield

0%

0%

Weighted average fair value per option granted

£1.35

£1.56

       

 

 

19.          ADJUSTED EBITDA

Adjusted EBITDA is defined as results of operating activities before depreciation and amortisation, finance costs, share-based payment expense, foreign exchange gains and losses, gains and losses on disposals of assets and fair value gains and losses on share consideration payable. These adjustments generally relate to non-cash items, which by their nature are volatile and vary significantly based on factors outside the Group's control, including foreign exchange rates. It is also adjusted for exceptional items, which are defined as items of income and expense of such size, nature or incidence that, in the view of management, are not reflective of the underlying performance of the Group and should be disclosed to explain the performance of the Group. In the current period, these exceptional, non-recurring items include acquisition costs, restructuring costs and the net loss on settlement of the contingent consideration. In the prior period this included acquisition and restructuring costs, largely relating to the transformational acquisition of the Skrill Group in August 2015.

Adjusted EBITDA is not a financial measure calculated in accordance with IFRS as adopted by the European Union. The presentation of these financial measures may not be comparable to similarly titled measures reported by other companies due to the differences in the ways the measures are calculated.

 

 

 

 

Six months ended

30 June 2017

 $

Six months ended

30 June 2016

 $

Profit for the period before tax

 

89,047

74,551

 

 

 

 

   Depreciation and amortisation

 

43,394

40,619

   Finance costs (Note 15)

 

10,554

15,151

   Share option expense (Note 18)

 

4,397

5,490

   Foreign exchange loss

 

6,972

6,419

   Loss on disposal of assets

 

17

602

   Acquisition costs

 

1,381

1,022

   Restructuring costs

 

136

4,870

   Net fair value loss/ (gain) on share consideration payable

 

12,810

(4,544)

   Net loss on settlement of contingent consideration

 

534

-

Adjusted EBITDA

 

169,242

144,180

 

 

20.          FINANCIAL INSTRUMENTS

Fair values

The hierachy of the Group's financial instruments carried at fair value is as follows:

 

At 30 June 2017

At 31 December 2016

 

Financial instruments measured at fair value

Level 1

$

Level 2

$

Level 3

$

Total

$

Level 1

$

Level 2

$

Level 3

$

Total

$

Share consideration payable

-

43,338

-

43,338

-

32,283

-

32,283

Derivative financial liabilities

-

823

-

823

-

1,665

-

1,665

Total

-

44,161

-

44,161

-

33,948

 

33,948

                   

 

 

There have been no transfers between the fair value hierarchy levels for the six months ended 30 June 2017 and in the 12 months ended 31 December 2016.

The fair value of share consideration payable is determined through single-factor Monte Carlo valuation model at the reporting date. The fair value of the derivative financial liability is determined based on the present value of estimated cash flows, with the significant observable inputs being estimated cashflows, market interest rates and discount rates.

 

 

21.          RELATED PARTY TRANSACTIONS

 

Compensation of key management personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Group. The compensation expense for transactions with the Group's key management personnel consists of the following:

 

Six months ended

30 June 2017

 $

Six months ended

30 June 2016

 $

Short-term employee benefits

3,118

2,975

Post-employment benefits

53

65

Share based payments

1,483

3,933

 

4,654

6,973

 

 

22.          CONTINGENT LIABILITIES

 

On 18 November 2015 and 21 November 2015, a Paysafe Group entity was named in putative class action complaints filed in federal courts in New York and Florida, respectively, in relation to two daily fantasy sports operators.  The two complaints were consolidated into a single class action complaint which is currently pending in the US District Court for the District of Massachusetts.  The complaint names the two operators, the Paysafe Group entity and another processor as defendants.  The class action seeks damages stemming from losses that the plaintiffs claim to have suffered as a result of the actions of the defendants. The Group believes that the class action is without merit and intends to vigorously defend itself against it; however, there can be no assurance that the Group will be successful in its defence. No provision has been recorded regarding this matter.

 

  

23.          POST BALANCE SHEET EVENTS

 

Business Acquisition

On 21 July 2017, the Group announced that it signed an agreement to acquire substantially all the assets of Delta Card Services Inc., the holding company for Merchants' Choice Payment Solutions ("MCPS"). The consideration for the acquisition is $470,000,000 payable in cash. The acquisition is subject to the achievement of certain regulatory approvals.

 

The Group is currently in the process of determining the fair value of the assets acquired and as such, the disclosures required by IFRS 3 Business Combinations have not been prepared.

 

The consideration will be funded by a $380,000,000 Incremental Loan Facility drawn under the existing Senior Facility Agreement, underwritten by BMO Capital Markets, Deutsche Bank and other syndicate banks, plus $90,000,000 from existing cash funds.

 

Offer to Acquire

On 4th August 2017 it was announced that the boards of Paysafe Group plc and Pi UK Bidco Limited ("Bidco"), a newly incorporated company jointly-owned by funds managed by Blackstone and funds managed and/or advised by CVC, together with the Blackstone Funds, the "Consortium"), had reached agreement on the terms of a recommended cash offer to be made by Bidco for the entire issued and to be issued ordinary share capital of Paysafe. 

 

It is intended that the Acquisition be implemented by way of a Court-sanctioned scheme of arrangement under section 152 of the Isle of Man Companies Act 1931. In order to become effective, the Scheme must be approved by a majority in number of the Paysafe Independent Shareholders voting at the Court Meeting, either in person or by proxy, representing at least 75 per cent. in value of the Scheme Shares voted. The implementation of the Scheme must also be approved by Paysafe Shareholders at the General Meeting and the Paysafe Independent Shareholders will also be asked to approve the Director Manager Arrangements.

 

Appendix: Alternative Performance Measures

Alternative Performance Measures

In the discussion of the Group's reported operating results, alternative performance measures (APMs) are presented to provide readers with additional financial information that is regularly reviewed by management to assess the financial performance or financial health of the Group, or is useful to investors and stakeholders to assess the Group's performance and position. However, this additional information presented is not uniformly defined by all companies including those in the Group's industry. Accordingly, it may not be comparable with similarly titled measures and disclosures by other companies. Certain information presented is derived from amounts calculated in accordance with IFRS but is not itself an expressly permitted IFRS measure. Such measures should not be viewed in isolation or as an alternative to the equivalent IFRS measure. Below, we have outlined definitions and explanations for the APMs used throughout our investor communications, as well as reconciliations to the closest equivalent IFRS measure where appropriate.

Growth and financial performance measures

Group and divisional organic constant currency year-on-year revenue growth

Definition

Organic constant currency year-on-year revenue growth is an unaudited measure, and presents growth as if companies acquired in the prior 12 months had been owned for the whole of the current and comparable period. This is calculated for prior periods by applying prior period foreign exchange rates to current period revenue ("constant currency").

Explanation of relevance

Organic constant currency year-on-year revenue growth presents performance on a comparable basis in terms of merger and acquisition activity and foreign exchange rates. We believe that the measure provides useful and necessary information to investors and stakeholders as it enables them to assess the organic growth of the business excluding the impact of acquisitions, and it removes the favourable or unfavourable impact of changes in exchange rates to better reflect the local currency performance of the business.

Reconciliation to closest equivalent IFRS measure

 

 

Six months ended 30 June 2017:

Payment Processing

Digital Wallets

 

Prepaid

 

Group

Reported revenue growth

14%

8%

5%

11%

Impact of pre-acquisition revenues

(see definition above)

(1)%

(2)%

-%

(2)%

Impact of applying prior period exchange rates

3%

3%

4%

3%

Organic constant currency year-on-year revenue growth

16%

9%

9%

12%

 

Six months ended 30 June 2016:

 

Payment Processing

Digital Wallets


Prepaid


Group

Reported revenue growth

 

34%

195%

nm%

118%

Impact of pre-acquisition revenues

(see definition above)

 

(9)%

(168)%

na

(100)%

Impact of applying prior period exchange rates

 

3%

1%

1%

2%

Pro-forma constant currency year-on-year revenue growth

 

28%

28%

11%

20%

 

Group and Payment Processing organic constant currency year-on-year revenue growth excluding Major Merchant Asia Gateway

Definition

This measure is calculated in the same way as described above, but adjusted for the revenue contribution from the services we provide to our largest merchant through our Asia Gateway.

Explanation of relevance

These services make up a significant proportion of the revenue from the Payment Processing division and relate to the activities of one single customer through a service that is operationally different to the remainder of the Payment Processing division. We present the organic constant-currency growth of the business and the Payment Processing division excluding this customer to clarify the growth profile of the rest of that division.

Reconciliation to closest equivalent IFRS measure

As the Major Merchant Asia Gateway relates to the activities of one single customer, for reasons of commercial sensitivity we do not provide a reconciliation of this measure.

 

Prepaid organic constant currency year-on-year revenue growth excluding the impact of discontinued Ukash territories and services

Definition

This measure is calculated in the same way as described above, but adjusted to exclude an estimate of the effect of discontinued Ukash territories and services up to H1 2016, after which there was no impact.

Explanation of relevance

Ukash was acquired by Skrill in March 2015. As part of the valuation of this business, the Group took into account its expected withdrawal from certain territories and services that were previously provided by Ukash. The Ukash business was fully and successfully integrated in H2 2015, and the brand was retired.

However, for the purposes of presenting pro-forma revenue prior to 31 December 2015, in the interests of transparency we included all pre-acquisition Ukash revenues including those that related to discontinued territories and services. As such, our measure of constant currency year-on-year revenue growth was a negative growth figure for H2 2015. Following feedback from users of the accounts, we temporarily introduced this measure which excludes the estimated effect of the discontinued Ukash territories and services. This measure is an estimate only and is not intended to be a substitute for reported growth.

Reconciliation to closest equivalent IFRS measure

This figure is an estimate, and as it is only a temporary APM, a reconciliation has not been provided. The impact of the estimate was to increase organic and pro-forma constant currency year-on-year divisional growth by 11% in H1 2016. There is no impact to the H1 2017 growth figure.

Adjusted EBITDA

Definition

Adjusted EBITDA is defined as results of operating activities before depreciation and amortisation, share-based payment expense, fair value gains and losses on contingent and share consideration payable, foreign exchange gains and losses, and gains and losses on disposals of assets. These adjustments generally relate to non-cash items, which by their nature are volatile or vary significantly based on factors outside the Group's control, including foreign exchange rates.

It is also adjusted for exceptional items which are defined as items of income and expense of such size, nature or incidence that, in the view of management, should be adjusted for to explain the performance of the Group in the period. In the current and prior year, these exceptional items include acquisition costs relating to MCPS and restructuring costs in 2016 relating to the acquisition of Skrill Group.

Explanation of relevance

We use adjusted EBITDA, and adjusted EBITDA margin, in conjunction with other IFRS and non-IFRS financial measures, to assess the operating performance of our Group in the absence of exceptional items. As such we believe that it is both useful and necessary to report adjusted EBITDA as a performance measure for our investors and stakeholders.

Reconciliation to closest equivalent IFRS measure

Please see table below.

Adjusted profit after tax and adjusted fully diluted earnings per share

Definition

Adjusted profit after tax is defined as reported profit after tax excluding share-based payment expense, fair value gains and losses on contingent and share consideration payable, foreign exchange gains and losses, losses on disposals of assets and exceptional items as explained within the Adjusted EBITDA section above. It also excludes amortisation of acquired intangibles, and the tax effect of the adjustments set out above.

No adjustments are made to the reported fully diluted weighted average number of shares to calculate adjusted fully diluted earnings per share (EPS).

Explanation of relevance

Adjusted profit after tax is used by management and investors to assess adjusted EPS performance, excluding the effect of adjusting items made to operating profit discussed above. It excludes the effect of non-cash amortisation charges on assets recognised on consolidation in relation to acquisitions.

Reconciliation to closest equivalent IFRS measure

 

Six months ended 30 June 2017
$m

 

Six months ended 30 June 2016
$m

 

Statutory

Adjustments

Adjusted profit after tax

 

Statutory

Adjustments

Adjusted profit after tax

Gross profit

301.5

-

301.5

 

260.6

-

260.6

Non-fee expenses

 

 

 

 

 

 

Salaries and employee expenses

74.5

-

74.5

 

61.8

-

61.8

Share option expense

4.4

(4.4)

-

 

5.5

(5.5)

-

Other administrative expenses

57.8

-

57.8

 

54.6

-

54.6

Acquisition costs

1.4

(1.4)

-

 

1.0

(1.0)

-

Restructuring costs

0.1

(0.1)

-

 

4.9

(4.9)

-

Foreign exchange loss

7.0

(7.0)

-

 

6.4

(6.4)

-

Net fair value (gain)/loss on share consideration payable

12.8

(12.8)

-

 

(4.5)

4.5

-

Net fair value (gain)/loss on contingent consideration payable

0.5

(0.5)

-

 

-

-

-

Loss on disposal of assets

0.0

(0.0)

-

 

0.6

(0.6)

-

Adjusted EBITDA

 

 

169.2

 

 

144.2

Adjusted EBITDA margin

 

 

31.4%

 

 

 

29.6%

Depreciation and amortisation

43.4

(26.2)*

17.2

 

40.6

(25.7)*

14.9

Results from operating activities

99.6

 

 

 

89.7

 

Operating margin

18.5%

 

 

 

18.4%

 

 

Net finance costs

10.6

-

10.6

 

15.2

-

15.2

Profit for the year before tax

89.0

52.5

141.5

 

74.6

39.5

114.1

Income tax expense

15.3

2.1**

17.5

 

10.0

2.7**

12.7

Profit for the year after tax

73.7

50.3

124.0

 

64.5

101.4

Fully diluted earnings per share ($)

0.15

0.10

0.25

 

0.13

0.07

0.20

Weighted average number of shares in issue - diluted (m)

501.8

-

501.8

 

504.6

-

504.6

* Amortisation of acquisition-related intangible assets          ** Tax effect of the above adjustments

Financial position and cash flow measures

Net debt and net debt to LTM adjusted EBITDA

Definition

Reported net debt includes long-term debt, the current portion thereof, deferred financing fees, deferred cash consideration payable and contingent cash consideration payable, less cash and cash equivalents.

LTM adjusted EBITDA is the adjusted EBITDA for the last 12 months ("LTM") up to the reporting date.  

Explanation of relevance

Reported net debt is a non-IFRS figure which sets out the net indebtedness of the Group. Management believes that reporting net debt to LTM adjusted EBITDA gives investors and stakeholders an indication of the debt capacity of the Group at the balance sheet date and as such is an important measure of the Group's financial position. Reported net debt is approximate to net debt for the purposes of covenants.

Reconciliation to closest equivalent IFRS measure 

 

As at
30 June 2017
$m

As at
30 June 2016
$m

Non-current portion of long-term debt

460.9

489.3

Current portion of long-term debt

48.2

31.3

Deferred financing fees

14.4

19.3

Deferred cash consideration payable

6.2

2.1

Contingent cash consideration payable

2.4

4.1

Cash and cash equivalents

(272.2)

(160.2)

Net debt

259.9

385.9

 

Payments working capital

Definition

Payments working capital is defined as restricted cash, cash held as reserves, and settlement assets, less the merchant processing liability. These assets and liabilities do not represent revenue or costs to Paysafe. They are driven by merchant or consumer funds flowing through the Paysafe processing platform, or requirements to fund restricted or reserve accounts as required by regulators, card schemes, or other processors or acquirers.

The cash flows resulting from movements in these accounts are not linked to revenue or costs to the group income statement.

Explanation of relevance

Paysafe introduced the term "payments working capital" with its H1 2015 financial statements, and also promoted the component assets and liabilities to the face of the balance sheet at that time. The disclosure allows readers of the accounts to better segregate the cash flow impact of operations and trade receivables and payables from the timing differences caused by customer transaction volume passing through the balance sheet, and the restricted and reserve cash requirements of Paysafe's operations.

Free cash flow and free cash flow before payments working capital

Definition

Free cash flow is a non-IFRS figure defined as operating cash flow after working capital movements, interest, tax and capital expenditure.

Explanation of relevance

Free cash flow is a measure provided by management to demonstrate the cash flow available to the Group for reinvestment, reduction in the net debt position of the Group, or to return to shareholders.

 

Reconciliation to closest equivalent IFRS measure

 

H1 2017
$m

H1 2016
$m

Net cash flows from operating activities

137.2

106.4

Purchase of property, plant & equipment

(5.7)

(7.9)

Purchase of intangible assets

(22.1)

(19.6)

Interest paid

(13.0)

(5.9)

Free cash flow

96.4

73.1

Payments working capital

31.2

(5.4)

Free cash flow before payments working capital

65.2

78.5

 

Adjusted free cash conversion before and after payments working capital

Definition

Adjusted free cash conversion is measured as adjusted free cash flow as a percentage of adjusted EBIT.

Adjusted free cash flow after payments working capital is calculated as adjusted EBITDA, as defined above, less working capital movements and capex as reported in the IFRS cash flow. An adjustment is made to reported working capital movements to exclude cost accrual movements associated with non-adjusted-EBITDA expenses from reported working capital.

Adjusted free cash flow before payments working capital excludes payments working capital movements as reported in the IFRS cash flow.

Adjusted EBIT is defined as adjusted EBITDA less adjusted depreciation and amortisation, as set out above for adjusted profit after tax.

Explanation of relevance

Management believes that adjusted free cash conversion demonstrates our ability to convert our adjusted EBIT into cash that can be reinvested in the business or acquisitions, used to reduce debt, or returned to shareholders. Management discloses adjusted free cash conversion both before and after payments working capital, due to the volatility of payments working capital. Although payments working capital does not relate to our income or expenses, net increases and decreases in payments working capital represent use of shareholder funds and affect the cash and cash equivalents held by the Group.

Reconciliation to closest equivalent IFRS measure

A reconciliation is provided to free cash flow, which is derived entirely from IFRS cash flow line items. Please see above for a reconciliation from reported operating cash flow to free cash flow.

 

 

H1 2017
$m

H1 2016
$m

Free cash flow (see above)

96.4

73.1

Operating cash finance costs

1.3

(1.0)

    Finance costs per operating cash flow statement

(9.2)

(16.1)

    Finance cost within statement of comprehensive income

10.6

15.2

Realised foreign exchange (gain)/loss

5.6

10.9

    Unrealised foreign exchange gain/(loss)

(1.4)

4.5

    Foreign exchange loss within statement of comprehensive income

7.0

6.4

Tax paid

32.2

1.4

Finance costs paid

13.0

5.9

Loss on disposal of assets

(0.0)

(0.6)

Restructuring costs

0.1

4.9

Other costs

0.0

0.6

Less restructuring costs not yet paid

-

0.4

Adjusted free cash flow after payments working capital

148.6

95.5

Payments working capital

(31.2)

5.4

    (Decrease)/Increase in restricted cash

(9.0)

12.6

    (Decrease) in settlement assets

(8.8)

(9.4)

    (Decrease)/Increase in cash held as reserves

(17.6)

2.5

    Decrease/(Increase) in merchant processing liabilities

4.2

(0.3)

Adjusted free cash flow before payments working capital

117.4

101.0

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
IR UGUCARUPMPPM
Close


London Stock Exchange plc is not responsible for and does not check content on this Website. Website users are responsible for checking content. Any news item (including any prospectus) which is addressed solely to the persons and countries specified therein should not be relied upon other than by such persons and/or outside the specified countries. Terms and conditions, including restrictions on use and distribution apply.

 


Paysafe Group PLC Reports H1 2017 Results - RNS