Mi-Pay Group plc

("Mi-Pay" or the "Company")

Placing and Trading Update

Mi-Pay (AIM:MPAY), a specialist in delivering fully outsourced payment solutions to digital ecommerce clients, is pleased to provide a trading update in respect of the year ended 31 December 2014 and to announce that it has today conditionally placed 7,608,696 new ordinary shares of 10p each (the "Placing Shares") through Zeus Capital at a placing price of 23p per Placing Share to raise approximately £1,750,000 before expenses. The proceeds from the Placing will be used by the Company for general working capital purposes.

The Placing is conditional, inter alia, upon Shareholders approving applicable resolutions at a General Meeting to be held at 11:00am on 6 March 2015, that will grant to the Directors the authority to allot the Placing Shares and the power to disapply statutory pre-emption rights in respect of the Placing Shares. A circular setting out the background to, and reasons for the Placing, and containing the notice of general meeting will be posted to shareholders later today.

Application will be made for the Placing Shares to be admitted to trading on AIM and dealing in these shares is expected to commence on 9 March 2015. The Placing Shares will rank pari passu in all respects with the existing ordinary shares of 10p each in issue. Following admission, the Company's issued share capital will consist of 41,593,229 ordinary shares of 10p each.

Enquiries:

The following is an extract from the circular to be posted to shareholders later today. Defined terms used in the circular shall have the same meaning when used in this announcement.

Current trading and outlook

The Directors are encouraged that underlying transaction revenues (excluding the loss of a customer contract in 2013) have grown by approximately 44 per cent. in the financial year to 31 December 2014, driven by new client wins and increases in volumes from existing customers, including the natural migration of consumers to on-line propositions delivered by the Group. Against this background the Directors expect that revenues for the full year to 31 December 2014 will be around £2.7 million (2013: £3.3 million). The expected decrease of £0.6 million is primarily due to a strong underlying client growth in transactions of £0.5 million offset by the annualised effect of the loss of a customer in 2013 (£0.8 million) and reduction in income within the professional services division (around £0.3 million).

During the year the Group delivered five new clients with two further new projects ready for delivery in early 2015. New clients include the Post Office and China Telecom Europe. Critically, in December 2014 the Group delivered live service to Sun Cellular, a major Operator in the Philippines as a culmination of continual regional investment since 2010.

Performance against operational KPIs such as transaction success rate and number of fraudulent transactions has been strong throughout 2014, achieving year on year continual improvement while headcount has reduced by 33 per cent. over the year, reflecting the increased stability and efficiency of Mi-Pay's solutions.

Overall, the business has performed in line with the Board's expectations for the year ended 31 December 2014.

Investment and R&D

Since the Company's re-admission to trading on AIM in April 2014, the Group has refocused and optimised the cost base of the business, which has reduced operational overheads significantly, improved gross margins and yet allowed the business to maintain its commercial focus on opportunities in the UK, Europe and Asia. This has resulted in the business achieving annualised cost savings of approximately £1 million, whilst strengthening permanent local sales and account management resource in key markets.

The Group has continued to invest in its products and solutions in a number of ways throughout the year and is looking to continue this investment in the future, including:

·      Investment in developing an internal fraud monitoring solution. This will provide a number of benefits, including increased profitability and ownership and control of fraud data, which the Directors believe will create material long term value in the emerging Asian market. Additionally this enables the opportunity to provide fraud software services as a new product, giving the Group a new revenue stream. As at 31 December 2014 the new fraud system had been rolled out to customers representing approximately 91 per cent. of total transaction volume;

·      Investment in a new data centre solution to deliver a dual sited, fully redundant platform in the UK and Singapore. This solution materially enhances the Group's ability to grow efficiently and effectively in the Asian region and adds incremental value to the sales proposition. In addition, it will provide full, real time redundancy across the Group's infrastructure to reduce ongoing business risk.

·     Multiple smaller product and operational improvements such as: implementing local acquiring capability in Asia; delivering PayPal and SEPA as a payment method to clients and supporting the o2 wallet mobile payment solution via the use of its in house card vault solution.

The Group has also received £481,666 in capital repayments since June 2014 from Autoclenz Limited in respect of outstanding loan notes. This removes all outstanding Autoclenz liabilities due to the Group.

Outlook

The Directors are cautiously optimistic regarding the outlook for 2015. A number of factors influence this view - these include:

 ·      Growth in existing transaction volumes:

o  continued natural growth across all customers as consumers drive increased "on-line" buying behaviours globally;

o  upsell of new services and channels within existing customers; and

o  annualised effect of services that went live in the period July 2014 to December 2014.

·      Signing and delivering new customers in the target regions; and

 ·      M&A activity within the Group's client base is expected to result in increased transaction volumes and  
 consequently increased revenues for the Group.

During December 2014, services have gone live with Sun Cellular, a major mobile operator in Asia Pacific, which has approximately 20 million pre-paid users. The Company has the opportunity to develop this relationship to clients with an aggregate of 60 million pre-paid users during 2015. While the Directors expect take up of the Company's services to be gradual, this relationship has the potential to generate significant revenues for the Group.

Based on the factors above the Directors anticipate that the Group will achieve cash flow break even on a monthly basis by the end of 2015.

Information on the Placing

The Placing Shares have been conditionally placed by Zeus Capital, as agent for the Company, with institutional and other investors in accordance with the terms of the Placing Agreement. The Directors will participate in the Placing up to an aggregate amount of 241,474 Ordinary Shares, representing total Board investment of £55,539.

The Placing is conditional upon Admission of the Placing Shares and to the Placing Agreement not being terminated in accordance with its terms but is otherwise unconditional. The issue of the Placing Shares pursuant to the Placing will raise approximately £1.75 million, before expenses (which are estimated to be £0.1 million), which will be used for general working capital purposes.

Application will be made for the Placing Shares to be admitted to trading on AIM and Admission of these shares is expected to take place on 9 March 2015.  Immediately following their Admission, the Placing Shares will represent approximately 18.3 per cent. of the Enlarged Share Capital of the Company.

The Placing Shares will, following their Admission, rank in full for all dividends and distributions declared, made or paid in respect of the issued Ordinary Share capital of the Company and otherwise rank pari passu in all other respects with the Existing Ordinary Shares.

The Placing Price represents a discount of 16.36 per cent. to the closing mid-market price of 27.5 pence per Ordinary Share as at 17 February 2015 (being the latest practicable date prior to the date of this document).

The Placing is not underwritten.

EIS/VCT Status

The Company has obtained advance assurance from HMRC that it should be a qualifying company for EIS purposes and the Placing Shares should be eligible shares under the VCT provisions. However, investors should be aware that, whilst advance assurance has been obtained from HMRC, the Directors cannot guarantee that the Placing Shares or the Company will satisfy, and will continue to satisfy, the requirements for tax relief under EIS and VCT rules. The continuing status of the Placing as qualifying for EIS purposes will be conditional on the qualifying conditions being satisfied throughout the relevant period of ownership.

Neither the Company nor the Directors give any warranty, representation or undertaking that any investment in the Company by way of Placing Shares will be or will continue to be a qualifying investment for EIS or VCT purposes. EIS eligibility is also dependent on a Shareholder's own position and not just that of the Group. Accordingly, investors should take their own advice in this regard.

Related Party Transactions

The Board, Albion and IS Partners AG will subscribe for 241,474, 2,195,652 and 3,260,869 Placing Shares respectively pursuant to the Placing and will each enter into a placing letter with Zeus Capital. The Board's participation and that of Albion and IS Partners AG (being substantial shareholders) in the Placing, will constitute a "related party transaction" for the purpose of AIM Rule 13 (the 'Related Party Transactions').

As there are no independent directors for the purposes of providing the fair and reasonable statement required under Rule 13 of the AIM Rules, Zeus Capital, the Company's nominated adviser, considers that the terms of the Related Party Transactions are fair and reasonable insofar as Shareholders are concerned.

The level of participation in the Placing by each Director, and their resulting interest in the Company is shown below:

(1) Gavin Breeze's interests in Ordinary Shares are held through his investment vehicle, White Angle Limited

(2) Michael Dickerson's interests in 45,091 Ordinary Shares are held by Monsoon Associates Corporation, his investment vehicle

(3) The Ordinary Shares held, and acquired in the Placing, by John Beale, Allen Atwell and Michael Stone are held in the names of their respective wives

The Takeover Code

The Takeover Code governs, inter alia, transactions which may result in a change of control of a company to which the Takeover Code applies. Under Rule 9 of the Takeover Code ("Rule 9") any person who acquires, whether by a series of transactions over a period of time or not, an interest (as defined in the Takeover Code) in shares which, taken together with shares in which he is already interested or in which persons acting in concert with him are interested, carry 30 per cent. or more of the voting rights of a company which is subject to the Takeover Code, is normally required to make a general offer to all the remaining shareholders to acquire their shares.

Similarly, Rule 9 also provides that when any person, together with persons acting in concert with him, is interested in shares which in aggregate carry not less than 30 per cent. of the voting rights of a company but does not hold shares carrying more than 50 per cent. of such voting rights and such person, or any person acting in concert with him, acquires an interest in any other shares which increase the percentage of shares carrying voting rights in which he is interested, then a general offer will normally be required.

In order to permit the Acquisition whilst allowing any subsequent issue of shares to certain members of the Concert Party (upon exercise of options granted to them by the Company on 29 April 2014), without triggering an obligation on the part of Concert Party to make a general offer to the Shareholders, application was made to the Panel for a waiver of Rule 9. The Panel agreed to such a waiver, subject to independent shareholders' approval on a poll.

At a general meeting of the Company on 28 April 2014, independent Shareholders approved the waiver by the Panel in respect of the obligation of the Concert Party to make a general offer to shareholders as required by Rule 9 resulting from:

·      the Acquisition; and

·      the issue of shares pursuant to the exercise of any options granted to members of the Concert Party.

As at the date of this document, the options granted to members of the Concert Party remain unexercised.

At that time the waiver was granted, the maximum interest in the Ordinary Shares the Concert Party could hold was, in aggregate, 68.08 per cent. after the issue of the Mi-Pay Consideration Shares and after exercise in full of the options granted to members of the Concert Party.

As a result of the Proposals, the maximum interest the Concert Party may hold (after the exercise in full of all options granted to members of the concert party) is 27,437,399, equating to 61.24 per cent. of the diluted Enlarged Share Capital¹.

1: The diluted Enlarged Share Capital for this purpose is calculated as the Enlarged Share Capital diluted by the exercise of options held by members of the Concert Party only.

General Meeting

The General Meeting of the Company, notice of which is set out at the end of this document, is to be held at 11:00 a.m. on 6 March 2015 at the offices of Pinsent Masons LLP, 30 Crown Place, Earl Street, London EC2A 4ES.  The General Meeting is being held for the purpose of considering and, if thought fit, passing the Resolutions.

A summary and explanation of the Resolutions is set out below.  Please note that this is not the full text of the Resolutions and you should read this section in conjunction with the Resolutions contained in the Notice of General Meeting at the end of this document. The following Resolutions will be proposed at the General Meeting:

·      the first resolution is to authorise the Directors, pursuant to section 551 of the Act, to allot 7,608,696 new Ordinary Shares pursuant to the Placing;

·      the second resolution is to disapply the pre-emption rights conferred by the Act in respect of the Ordinary Shares to be allotted pursuant to the Placing.

As required by the Act when proposing a special resolution to disapply pre-emption rights, the Directors hereby confirm that:

·      the amount to be paid to the Company in respect of each Ordinary Share to be allotted pursuant to the Placing is 23 pence (before expenses);

·      the number of Ordinary Shares to be issued pursuant to the Placing is (a maximum of) 7,608,696;

·      the Placing Price represents, in the Board's view, the best price achievable by the Company given its funding requirements and the current overall market conditions for fundraisings; and

·      the Directors are recommending that Shareholders disapply pre-emption rights (in the terms set out in the second resolution) in order to permit the Placing to be effected on a timely basis and to avoid the timetabling, and uncertainty of funding, issues associated with effecting a pre-emptive offer.

Recommendation

The Directors consider the Placing to be in the best interests of the Company and its Shareholders as a whole and accordingly unanimously recommend that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting as they intend to do in respect of their own beneficial holdings amounting, in aggregate, to 1,305,598 Existing Ordinary Shares, representing approximately 3.84 per cent. of the Existing Ordinary Shares.

PLACING STATISTICS