Paysafe Group plc

Unaudited Interim Results for the 6 months ended 30 June 2016

Exceptional first-half results, further upgrades to FY 2016 revenue and adjusted EBITDA guidance

LONDON (10 August 2016) - Paysafe Group plc (LSE:PAYS, "Paysafe" or the "Group"), a leading global provider of payment solutions, today reports strong growth in the six months ended 30 June 2016.

Financial highlights

$m	H1 2016	H1 2015
Revenue	486.7	223.0
Pro-forma constant currency year-on-year revenue growth1	20%	12%
Adjusted EBITDA2	144.2	49.9
Adjusted EBITDA margin	29.6%	22.4%
Adjusted profit after tax3	101.4	37.3
Statutory profit after tax	64.5	2.4
Adjusted fully diluted EPS ($)3	0.20	0.11
Statutory fully diluted EPS ($)	0.13	0.01
	30 Jun 2016	31 Dec  2015
Reported net debt4	385.9	431.3
Net debt / pro-forma last twelve month EBITDA4	1.5x	2.1x

 

•	Reported H1 2016 revenue increased 118% to $487m (H1 2015: $223m); pro-forma constant currency revenue growth was 20%, up from 14% growth in H2 2015 and 12% in H1 2015.
•	Adjusted H1 2016 EBITDA increased 189% to $144m (H1 2015: $50m), reflecting the acquisition of Skrill and increasing profitability.
•	Adjusted H1 2016 EBITDA margin was 29.6% (H1 2015: 22.4%).
•	The Group generated $79m free cash flow before payments working capital in H1 20165  (H1 2015: $34m).
•	The integration of Skrill is complete. Over FY 2016, the Group expects to recognise in excess of the $40m synergies envisaged at the time of the transaction.
•	Group net debt to last twelve month pro-forma EBITDA ratio decreased to 1.5x from more than 3x at the time the Group announced its debt fund raise and acquisition of Skrill in March 2015.

Operational highlights

•	New partner collaborations, payment product enhancements and markets entered during H1 2016 across Payment Processing, Digital Wallets and Prepaid.
•	Headcount increased to 1,828 employees at the end of H1 2016 from 1,578 at the start of the year, reflecting the enlarged revenue-generating lines of the Group and ongoing targeted investment in compliance and risk management.
•	MeritCard, the Dallas-based merchant acquiring business, was acquired on 16 February 2016, integrated into the Group's payment processing division and continues to operate with its MeritCard brand. Paysafe continues to assess further acquisition opportunities in the payments sector.
•	Development of a next-generation global data platform to deliver enhanced real-time insights and analytics and a global merchant onboarding capability have commenced earlier than previously anticipated following the integration of Skrill into the Group ahead of schedule.
•	Leveraging the Group's FANS Entertainment technology, the soft launch of a new white-label mobile ordering technology for major merchants and companies and a new branded mobile ordering platform for small to medium-sized enterprises is scheduled for the second half of the year.

Current trading and outlook

•	The positive momentum in the business has continued during July 2016.
•	As a result of the exceptional half, the Group announces a further revenue upgrade for FY 2016 over that given on 25 May 2016.  Full year revenue is expected to be in the range of $970m to $990m, against current internally compiled consensus of $960m*.
•	Notwithstanding continued success-based re-investment in the business, the EBITDA margin in the first half was 29.6%. The Group expects to maintain this margin in the second half.  As such, adjusted EBITDA for FY 2016 is expected to be between $287m and $293m.

Commenting on the results, Paysafe President and Chief Executive Officer Joel Leonoff said:

"I am delighted with the Group's first half results. We have again delivered very strong growth as our increasingly diversified payments business expands further across pay-before, pay-now and pay-later products and services.

I am particularly pleased with the level of cash generated during the first half.  Additionally, by completing the integration of Skrill more rapidly than we initially expected, we have been able to start work on developing our next-generation data platform and global merchant onboarding capabilities earlier than anticipated.

With the exceptional performance delivered in the first half, as well as continued strong trading in the early part of the second half, management and the Board are confident in the Group's prospects for the full year."

^* Company compiled consensus, including nine analysts as at 5 August 2016.

¹ Pro-forma constant currency growth definition: in the full year 2015 financial results which included the material acquisition of Skrill Group, the Group included unaudited pro-forma constant currency revenue growth by half-year over 2013-2015 as if Skrill and other acquisitions in the period (Ukash, Meritus, GMA, and FANS) had all been owned over the period, and eliminating the impact of changing foreign exchange rates by applying prior period exchange rates to current period amounts. From 1 January 2016 the Group is reverting to the more usual definition of pro-forma  organic constant currency growth by showing growth as if companies acquired on or after 1 January 2016 had been owned in the comparative period, and using the same foreign exchange adjustment. This means that all Group pre-2016 published pro-forma growth rates remain the same.

² Adjusted EBITDA is defined as results of operating activities before depreciation and amortisation and adjusted for exceptional non-recurring 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. A reconciliation of Results from operating activities to Adjusted EBITDA can be found in the Group adjusted EBITDA section of the Financial review below.

³ Unaudited adjusted profit after tax and fully diluted earnings per share exclude the impact of foreign exchange losses and gains, acquisition, restructuring and other exceptional costs, share option expenses, fair value gains and losses on share consideration payable and amortisation of acquired intangibles.

⁴ Reported net debt includes short and long term debt (excluding deferred finance costs), finance leases, deferred cash consideration payable and contingent cash consideration payable offset by cash and cash equivalents. In accordance with IFRS, basic and diluted earnings per share for the comparative period have been re-presented to reflect the impact of the rights issue in May 2015. For the purposes of net debt/last twelve month pro-forma EBITDA calculations, MeritCard's contribution to last twelve month EBITDA has been included at 30 June 2016, following its acquisition on 16 February 2016.

⁵ Free cash generated before payments working capital.  Free cash flow is a non IFRS figure defined as operating cash flow after operating working capital movements, interest, tax and capital expenditure.  It excludes payments working capital, being cash flows that are not revenue or  costs to the Group, constituted by movements in restricted cash balances, cash held as reserves, settlement assets and merchant processing liabilities.  A reconciliation from profit after tax to free cash flow can be found in the cash flow and cash position section of the Financial review below.

Presentation to analysts and investors

President & Chief Executive Officer Joel Leonoff and Chief Financial Officer Brian McArthur-Muscroft will host an audiocast and conference call for analysts and investors at 2.00 pm BST today (9.00am EDT). Please dial in 5-10 minutes prior to the start time using the numbers and conference ID below.  The presentation will be available at www.paysafe.com shortly after the release of this announcement.

Webcast link:	http://edge.media-server.com/m/p/taooi7p9
Dial-in numbers:	UK Toll Number: +44(0)20 3364 5381   UK Toll-Free Number:  0800 279 4841   US Toll Number: +1 646 254 3367   US Toll-Free Number:  +1877 280 2342
Conference ID number:	3656284

A replay facility for the call will be available via the Investor Relations section of www.paysafe.com.

 

About Paysafe

Paysafe provides digital payments and transaction-related solutions to businesses and consumers around the world. Paysafe makes transactions easy by enabling fast, convenient and secure ways to pay-before, pay-now and pay-later through its digital wallets, prepaid solution, payment processing and card issuing & acquiring products and services. We believe that every point of every payment should be relevant, simple and secure. With nearly two decades of experience, Paysafe is trusted by merchants, and by consumers in more than 200 countries and territories, to move and manage money via more than 100 payment types and 40 currencies. Paysafe offers multi-platform products with an emphasis on emerging payment technologies including mobile. Paysafe's brand portfolio includes NETELLER® and Skrill®, MeritCard, paysafecard®, payolution® and FANS Entertainment. Paysafe Group plc shares trade on the London Stock Exchange under the symbol (PAYS.L). For more information, visit: www.paysafe.com

For further information, contact:

Paysafe Group plc

Michelle Singleton, VP Investor Relations

+44 (0) 20 3826 9800 / investorrelations@paysafe.com

Gavin Haycock, SVP Corporate Communications

+44 (0) 20 3826 9767 / gavin.haycock@paysafe.com

Tavistock (Financial PR)

Simon Hudson / Mike Bartlett / Andrew Dunn

+44 (0) 20 7920 3150 / paysafe@tavistock.co.uk

 

 

Operational review

Group reported revenue and gross margin by division:

$m	H1 16	H1 15
Revenue
Payment Processing	231.2	173.0
Digital Wallets	146.7	49.8
Prepaid	105.5	N/A
Interest income	3.4	0.2
Total	486.7	223.0
Gross margin
Payment Processing	38.4%	37.1%
Digital Wallets	76.9%	73.1%
Prepaid	52.7%	N/A
Interest income	100.0%	100.0%
Total	53.5%	45.2%

Group reported fee revenue - by geography:

Revenue % total	H1 16	H1 15
Europe	45%	19%
North America	29%	43%
Asia & Rest of world	26%	38%
Total7	100%		100%

Paysafe Group plc has reported strong growth during the first half of 2016 with reported revenue of $487m, up 20% year-on-year on a pro-forma constant currency basis. Adjusted EBITDA increased to $144m from $50m a year ago.

The Group's mission is to make every point of the payment experience relevant, simple and secure. To achieve this, Paysafe is using its evolving payments platform technology and broader capabilities to create further value for merchants and consumers, helping them better manage their money on the move as mobile and digital commerce become increasingly central to everyone's lives worldwide.

2015 was a transformational year for the business with the acquisition of Skrill, the move up to the main market from AIM and the launch of Paysafe's new brand identity in November 2015.

The H1 2016 results reflect the Group's ongoing positive momentum and success in leveraging an enlarged payment product and services offering. This has resulted in strong organic growth.

At an industry level, the regulatory environment continues to evolve and the situation with respect to the UK's decision to leave the European Union is expected to remain fluid for some considerable time. The Group does not expect the outcome of the recent UK referendum to have any material impact on revenue.

In terms of notable first-half business milestones, the Skrill business has been integrated into the Group more rapidly than initially anticipated. Over FY 2016, the Group expects to recognise in excess of the $40m synergies envisaged at the time of the transaction.

Building a platform for future growth

The Skrill integration has been largely completed ahead of schedule and given this the business was able to focus on further developing its technology platform earlier than previously planned. As part of this, the Group has begun development of its next-generation global data platform to deliver enhanced real-time insights and analytics and a global merchant onboarding service.

To support the data platform programme, in June 2016 Paysafe expanded its development hub capabilities, opening a new office in Hyderabad, India. With digital payment experts in open source and big data stack technology and in collaboration with the Group's existing technology development centres in Europe and the Americas, the team will support development of the integrated data platform, providing insights and analytics on consumer payments behaviour.

The data platform is designed to power real-time decision making for merchants to enhance the quality of payment-related services they provide for their end customers. The data capabilities will become part of a Paysafe development centre with integrations to not only payment gateways and the new global merchant onboarding capability but also services for developers to leverage unified APIs and SDKs. This will enable integrated payments through a single point of access into Paysafe's comprehensive and growing product suite.

Mobile payments technology

Ensuring Paysafe's product and service innovations are optimised for mobile is central to the Group's strategic priorities.

As an example of mobile innovation and drawing on the Group's FANS Entertainment mobile e-commerce platform developer and integrator team, Paysafe will shortly launch a new white-label mobile ordering technology for larger merchants and businesses as well as a new branded mobile ordering platform for small to medium-sized enterprises. A soft launch of the new ordering platforms is scheduled for H2 2016. The payment technology innovations are designed to provide a real-time channel for merchants, and particularly small to medium-sized businesses to secure higher revenues, increased operational efficiency, enhanced loyalty and customer retention as well as customised solutions and better insights into their customers' existing and future needs.

People, industry recognition and community engagement

The Group's H1 achievements reflect the drive, expertise and passion of Paysafe's senior management team and staff. This comprises over 30 nationalities across more than 20 locations including the Isle of Man where the Paysafe business is registered, as well as London, Cambridge, Vienna, Sofia, Gibraltar, Montreal, Calgary, Los Angeles, Irvine, Dallas, and Gatineau. During the half, the Group invested in its office infrastructure, including new offices in Hyderabad and Miami.

Paysafe was honoured during H1 2016 to receive further international recognition for its ongoing leadership in payment innovation. Industry accolades included:

•	Paysafe being named a Deal of the Year winner at the Quoted Company Awards in January for its 1.1bn euro acquisition of Skrill, which completed in August 2015.
•	paysafecard being named a Best-In-Category winner for Best Online or Mobile Commerce Solution at the 2016 All Payments Expo.
•	Andrea Dunlop, CEO of Paysafe Card Solutions and Acquiring being named No. 1 in PayExpo's Payments Power 10 list - the first woman to feature on the list. Andrea was also named the Emerging Payments Association's Individual Member of the Year.

Paysafe's values are centred on being open, focused, pioneering and courageous. The values speak to how employees work together within the company, active stakeholder management with the Group's partners and in the community. During the first half the Group's assistance for communities and people included support in North America for the Canadian Red Cross following the Alberta fires and the Montreal Children's Hospital Foundation, Help for Heroes in the UK, and Doctors Without Borders in Austria.

Divisional performance reviews

Paysafe has three divisions: Payment Processing, Digital Wallets and Prepaid.

 

Payment Processing

$m	H1 2016	H2 2015	H1 2015
Reported revenue	231.2	202.0	173.0
Pro-forma constant currency year-on-year revenue growth1	28%	25%	7%
Pro-forma constant currency year-on-year revenue growth excluding Major Merchant Asia Gateway	32%	33%	24%
Reported gross profit	88.9	74.3	64.2
Reported gross margin (%)	38.4%	36.8%	37.1%

Financial review

The Payment Processing division reported revenue increasing 34% from $173.0m in H1 2015 to $231.2m in H1 2016.  H1 2016 saw continued strong growth in volumes and revenue in the US business, alongside a small inorganic impact from the acquisition of MeritCard in February 2016.

On a pro-forma constant currency basis, revenue grew 28% year-on-year. Excluding major merchant Asia Gateway revenue, Payment Processing revenue grew 32% on a pro-forma constant currency basis.  The major merchant Asia Gateway revenue included revenue of c. $2-3m related to the UEFA European Championship in June 2016.

US dollar volume for Payment Processing increased to $11.2bn (H1 15: $8.2bn pro-forma). 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 (H1 15: 2.2% pro-forma), the decrease largely driven by the inclusion of MeritCard volumes with a lower risk profile.

Reported divisional gross margins were 38.4% in H1 2016 (H1 15: 37.1%).  Reported bad debt as a percentage of revenue has increased from 1.0% in H1 2015 to 2.2% in H1 2016, largely due to a provision for bad debt relating to a merchant and the inclusion of the acquired payolution business which, as a credit business, runs at a higher bad debt percentage.

Operational review

•	MeritCard: The acquisition of this Dallas-based business in February 2016 broadened and deepened the Group's sales capabilities and relationships in payment processing in the US.
•	Acquiring: The launch of a multi-currency cross-border acquiring capability in Europe was announced in May 2016, enabling the business to offer full-service processing solutions to more businesses across the European Economic Area.
•	payolution: The rollout of the white-label pay-later service offering in the Netherlands was announced in June 2016, the first time the payolution payments solution had been offered in a non-German language. The partner was German-based climbing specialist Bergfreunde, an online retailer for mountain sports gear, which payolution already works with in Austria, Germany and Switzerland.
•	FANS: New mobile ordering technology platforms developed with the FANS Entertainment business, which was acquired in May 2015 and integrated into the Group during the following year, will be launched during the second half.

 

Digital Wallets

$m	H1 2016	H2 2015	H1 2015
Reported revenue	146.7	109.4	49.8
Pro-forma constant currency year-on-year revenue growth1	28%	14%	20%
Reported gross profit	112.8	79.6	36.4
Reported gross margin (%)	76.9%	72.8%	73.1%

Financial review

Reported Digital Wallets revenue increased 195% from $49.8m in H1 2015 to $146.7m in H1 2016, driven by the Skrill acquisition. 

On a pro-forma constant currency basis, the Digital Wallets division saw 28% year-on-year revenue growth. There was strong growth in the core businesses alongside a c.$3.5m revenue upside due to the UEFA European Championship in June 2016.  Revenues from remittance (person-to-person money transfer) increased year-on-year due to the introduction of fees for this product in the NETELLER wallet brand during H2 2015. Remittance revenue has grown strongly year-on-year, but remains small as a percentage of overall Digital Wallets revenue.

Digital Wallets US dollar volume rose to $11.3bn (H1 15: $9.7bn pro-forma). Wallets volume includes uploads and withdrawals to and from wallets, and member-merchant and member-member transactions. Revenue divided by volume increased to 1.3% (H1 15: 1.2% pro-forma).

Reported gross profit for Digital Wallets for H1 2016 was $112.8m. Reported gross margin was 76.9% in H1 2016 (H1 15: 73.1%⁸). On a pro-forma basis, gross margin increased from 72% in H1 2015, largely driven by reductions in bad debt.

Reported bad debt as a percentage of revenue has increased from 0.2% in H1 2015 to 1.9% in H1 2016 due to the addition of Skrill's results.  However, on a pro-forma basis, bad debt as a percentage of revenue has reduced, reflecting actions taken in H1 2016 to reduce bad debt levels in the Skrill wallet.

Operational review

•	Product enhancements and partner collaborations included an ongoing programme to integrate further Skrill and NETELLER capabilities from each wallet into the other. As part of this:
		○	Functionality was introduced enabling users to move funds between both wallets in real time.
		○	Astropay, a cross-border payment services provider in Latin America, became a payment option within Skrill.
•	Remittance: In February 2016, an international money transfer collaboration was announced with payment and money transfer hub HomeSend. As part of that partnership, new corridors were opened involving mobile network operators and bank payment receive options for Paysafe digital wallet person-to-person remittance services in six new countries. This allows customers to easily send funds to more places across the globe.  The funds arrive fast and in local currency.
•	During the second half, the Group expects to launch new wallet and remittance payment services for both Skrill and NETELLER in more countries in Europe, Africa, Asia and Latin America.

 

Prepaid

$m	H1 2016	H2 2015	H1 2015
Reported revenue	105.5	76.4	N/A
Pro-forma constant currency year-on-year revenue growth excluding the impact of discontinued Ukash territories and services1	11%	10%	12%
Reported gross profit	55.6	39.2	N/A
Reported gross margin (%)	52.7%	51.3%	N/A

Financial review

The Prepaid division, comprising our paysafecard business which was acquired with Skrill, contributed $105.5m of reported revenue in H1 2016.

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. 

Excluding the estimated effect of the discontinued Ukash territories and services, year-on-year constant currency growth for Prepaid was approximately 11%, compared to 10% in H2 2015.  In Greece, paysafecard has continued to service merchants with local bank accounts, and as such has seen a recovery of volumes to approximately three quarters of pre-capital controls levels.

Prepaid volume was $1.4bn (H1 15: $1.4bn pro-forma). Volume represents merchant transactions paid for with a prepaid voucher provided by the division. The flat US dollar volume partly reflects the inclusion of discontinued Ukash volumes in the comparative figures.

Prepaid revenue in H1 2016 represented 7.6% of volume (H1 15: 7.7% pro-forma). This percentage is higher than the rest of the Group, and represents the division's position as a channel for online merchant clients to new consumers who might not otherwise wish to, or be able to, transact online.

Gross margin for the Prepaid division was 52.7%, compared to a pro-forma gross margin of 50% in H1 2015. Prepaid cost of sales primarily includes the costs of distribution of vouchers.

Operational review

•	In March 2016, Georgia became the 43rd country in which the paysafecard offering is available. The service is now being used across 25 languages and 24 currencies.
•	During the first half, paysafecard went live on the PlayStation®Store and PlayStation®4 games platform as a payment method in 19 countries, demonstrating the division's continued channel development and diversification.
•	The payment solution was also integrated as an alternative payment method into Switzerland's Safemoni app, an international mobile phone top-up service.
•	The payment solution's mobile app, which is available on Apple and Android devices, passed 1m downloads during the half.
•	In line with the Group's stated strategy of entering new markets, paysafecard is looking to launch its services further into Eastern Europe and the Middle East as well as Latin America, and Asia during the coming year.

 

Group review

The Group reported a statutory profit after tax of $64.5m (H1 15: $2.4m), basic earnings per share of $0.13 (H1 15: $0.01⁶), and fully diluted earnings per share of $0.13 (H1 15: $0.01).

Group revenue and gross profit

During the half, reported revenues increased by 118% year-on-year to $486.7m (H1 15: $223.0m).

On a pro-forma constant currency basis, H1 2016 revenue increased 20% year-on-year (H1 15: 12%). This increase reflects strong growth in the Processing and Digital Wallets divisions, and in Prepaid includes the effect of discontinued Ukash volumes included in the comparative pro-forma figures. 

H1 2016 reported fee revenue7 by geography shows revenue from Asia and the rest of the world (outside of Europe and North America) reducing to 26% in H1 2016 from 38% in H1 2015.  This reflects the inclusion  of Skrill's results in H1 2016.  H1 2016 is unchanged from pro-forma H2 2015 fee revenue by geography (45% Europe, 29% North America and 26% Asia and the rest of the world).

The Group earned 45% of its H1 2016 fee revenue7 from online gambling verticals, and 7% from online gaming (H2 15 pro-forma: 44% and 10% respectively).  The rest of the Group's fee revenue derives largely from other e-commerce verticals and consumer fees.

Investment income of $3.4m in H1 2016 (H1 15: $0.2m) was derived from interest earned on cash held by the Group on behalf of merchants and members. The increase year-on-year relates to the consolidation of investment income from the Skrill wallet in the current period.

The Group has one merchant representing more than 10% of revenue, which contributed 20% of revenue in H1 2016 (H1 15: 29%).

H1 16 reported gross profit was $260.6m (H1 15: $100.9m8), while gross margin rose to 53.5% from 45.2%8 in H1 2015. The year-on-year increase in reported gross margin reflects a combination of increasing gross margins in the Payment Processing and Digital Wallets divisions and the shift in revenue mix towards the higher margin Digital Wallets and Prepaid divisions on the acquisition of Skrill.  On a pro-forma basis, Group gross margin has increased from 51% in H1 2015.

Group adjusted EBITDA

Adjusted EBITDA increased 189% to $144.2m (H1 15: $49.9m) reflecting the acquisition of Skrill and revenue and gross margin growth, with the adjusted EBITDA margin increasing to 29.6% (H1 15: 22.4%), partially reflecting the impact of synergies.

The Group has completed the integration of Skrill ahead of schedule, with the integration team having moved back into business-as-usual operations.  Over FY 2016, the Group expects to recognise in excess of the $40m synergies envisaged at the time of the transaction.

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

$m	H1 16	H1 15
Results from operating activities	89.7	7.3
Foreign exchange loss	6.4	5.8
Acquisition, restructuring and other exceptional costs	6.5	16.5
Share option expenses	5.5	7.1
Fair value gains on share consideration payable	(4.5)	(1.6)
Depreciation and amortisation	40.6	14.8
Adjusted EBITDA	144.2	49.9

 

Adjusted EBITDA non-fee expenses

Excluding share option expenses and non-recurring items⁹, adjusted EBTIDA operating expenses were 24% of sales, up from 23% of sales in H1 2015.

Salaries and employee expenses as a percentage of revenue were 13%, up from 12% in H1 2015, driven by targeted investment and scaling up of the business partially offset by the realisation of synergy benefits relating to the acquisition of Skrill. In total, the business added c.250 net new heads during H1 2016 over operational and support functions, largely in Sofia.

There is a targeted investment programme in the business, in particular in relation to expansion into new territories and regulatory and security functions. During H1 2016, this programme continued to include investment in personnel in global compliance and risk functions, taking advantage of lower cost staffing locations such as Sofia where possible.  Investment in the Prepaid division's expansion into new territories in FY 2016 is expected to be weighted towards H2 2016.

Share-based payments

Share option expense reduced 23% to $5.5m in H1 2016, 8% of total employee expenses (H1 15: 20%). This expense related to the Group's long-term incentive plan (LTIP) and share options allocated to employees and management, and was impacted in the comparative period by one-off new LTIP awards to support executive recruitment which fully vested during FY 2015.

Exceptional expenses

A foreign exchange loss of $6.4m was incurred (H1 15: $5.8m), largely relating to currency fluctuations on the cash balances held by the Group. Balances in a number of currencies are held on deposit for members and merchants. These balances fluctuate due to members and merchants not always choosing to deposit and withdraw funds in the same source currency, and unrealised foreign exchange gains and losses also arise on translation of these amounts at reporting dates in entities with different functional currencies.

Restructuring costs of $4.9m (H1 15: $4.1m) related largely to the continued integration of the Skrill business. Restructuring costs primarily relate to personnel and consultancy costs, including the remaining costs of delivering headcount reductions.  Due to the acceleration of the synergies programme, H2 2016 restructuring costs are expected to be minimal, leading to a total restructuring cost significantly lower than the c.$26m originally outlined at the time of the acquisition.

Acquisition costs of $1.0m (H1 15: $12.4m) largely relate to continuing costs in relation to the acquisition of Skrill as well as costs relating to the acquisition of MeritCard and other related activity during the half.

An exceptional $4.5m non-cash net fair value gain was recognised on share consideration payable (H1 15: $1.6m gain). This amount relates to the share consideration payable to the former owners of Meritus.  The next payment is due in September 2016.

Depreciation, amortisation, net finance costs and tax

Depreciation and amortisation was $40.6m (H1 15: $14.8m) which included amortisation of acquired intangible assets of $25.7m (H1 15: $8.2m). Amortisation of acquired intangible assets is excluded from our adjusted profit figures.

Net finance costs were $15.2m (H1 15: $2.7m). This included $9.8m of interest costs on long-term debt. The remainder of the net finance charge includes amortisation of financing fees, fees on unused facilities, recognition of unrealised changes in the fair value of the outstanding interest rate swap and $1.0m of proceeds relating to the sale of Visa Europe to Visa Inc..

The tax charge for H1 2016 was $10.0m (H1 15: $2.2m), comprising a current tax charge of $15.0m offset by the unwinding of deferred tax liabilities of $5.0m. On an adjusted basis¹⁰, the tax charge was $12.7m (H1 15: $3.3m), an adjusted tax rate of 11.1% (H1 15: 8.0%).

Statutory profit after tax and other comprehensive income

Reflecting the impact of restructuring and acquisition-related costs and foreign exchange, statutory profit after tax was $64.5m (H1 15: $2.4m). Adjusted profit after tax¹⁰, excluding the impact of one-off and acquisition-related items, was $101.4m (H1 15: $37.3m).

A gain of $7.5m (H1 15: loss of $0.1m) 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 of $0.13 for H1 2016 (H1 15: $0.01) reflect the impact of acquisition, restructuring and exceptional charges. On a fully diluted basis, statutory earnings per share were $0.13 (H1 15: $0.01).

Due to the rights issue, recognised in May 2015, prior period basic and fully diluted earnings per share have been adjusted to take account of the bonus element of the rights issue.

Adjusted fully diluted earnings per share were $0.20, 91% higher than H1 2015. A reconciliation is shown in the table below.

$m	H1 16	H1 15
Statutory profit after tax	64.5	2.4
Tax charge	10.0	2.2
Statutory profit before tax	74.6	4.6
Foreign exchange loss	6.4	5.8
Acquisition, restructuring and other exceptional costs	6.5	16.5
Share option expenses	5.5	7.1
Fair value gains on share consideration payable	(4.5)	(1.6)
Amortisation of acquired intangibles	25.7	8.2
Adjusted profit before tax	114.1	40.6
Adjusted tax	12.7	3.3
Adjusted profit after tax	101.4	37.3
Adjusted fully diluted EPS	0.20	0.11
Weighted average number of shares in issue - diluted (million)	504.6	354.0

Cash flow and cash position

Group cash and cash equivalents were $160.2m at 30 June 2016 (31 Dec 2015: $117.9m).

Free cash flow¹¹ was $73.1m for H1 2016 (H1 15: $29.9m). Excluding payments working capital cash flows described more fully below, free cash flow was $78.5m (H1 15: $34.1m). Adjusted cash conversion before payments working capital as a percentage of adjusted EBIT was 78% in H1 2016.  Increased capital spending as a percentage of revenue contributed to the reduction in cash conversion from 98% in H1 2015.

A reconciliation outlining the components of the cash conversion measure is as follows:

$m	H1 16	H1 15
Adjusted EBIT	129.2	43.3
Adjusted depreciation and amortisation	14.9	6.6
Adjusted EBITDA	144.2	49.9
Working capital movements	(16.1)	0.2
Adjustment for exceptional expenses not yet paid12	0.4	(0.6)
Purchase of property, plant and equipment and intangible assets	(27.5)	(7.0)
Adjusted free cash flow before payments working capital13	101.0	42.5
Adjusted cash conversion before payments working capital13	78%	98%

 

A reconciliation between profit after tax and free cash flow is as follows:

$m	H1 16	H1 15
Profit after tax	64.5	2.4
Tax	10.0	2.2
Profit before tax	74.6	4.6
Depreciation and amortisation	40.6	14.8
FX, exceptional gains and losses	(1.9)	22.8
Finance cost	16.1	2.7
Op CF before movements in working capital	129.4	45.0
Working capital cash flow	(16.1)	0.2
Op CF before payments working capital	113.2	45.2
Payments working capital cash flow	(5.4)	(4.2)
Tax paid	(1.4)	(2.1)
Cash flows from operating activities	106.4	38.9
Purchase of PP&E and intangible assets	(27.5)	(7.0)
Finance costs	(5.9)	(2.0)
Free cash flow11	73.1	29.9
Free cash flow excl payments w/c11	78.5	34.1

Long term debt

The Group's total long term debt position was $539.9m at 30 June 2016 (31 Dec 2015: $545.4m), excluding deferred financing fees of $19.3m (31 Dec 2015: $21.6m).

The long term debt position reduced from 31 December 2015, due to a repayment in February 2016 of $15.8m, partially offset by a $9.7m increase in the period end balance due to changes in the Euro to US dollar exchange rate and amortisation of deferred financing fees of $2.7m.

During Q2 2016, the margins on the Term A and Term B loans were reduced from 3.00% and 4.00%, respectively, to 2.75% and 3.75%, respectively, following a reduction in adjusted leverage to less than 3x as at 31 December 2015.

In early July 2016, the Group received a reaffirmation of its BB/BB+ company/instrument ratings from Standard & Poor's.

The Group also has a revolving credit facility available of $85m. Letters of guarantee to the value of $9m are secured against this facility.

Covenants on the long term debt include net debt/EBITDA ratio and fixed charge cover. The Group was in full compliance with its debt covenants at 30 June 2016.

Net debt

$m	30 Jun 16	31 Dec 15
Long-term debt (net of deferred financing fees)	489.4	493.3
Current portion of long-term debt	31.3	30.9
Deferred financing fees add-back	19.3	21.6
Total long-term debt	539.9	545.8
Deferred cash consideration payable	2.1	3.3
Contingent cash consideration payable	4.1	-
Total debt	546.1	549.2
Cash & cash equivalents	(160.2)	(117.9)
Net debt	385.9	431.3
Net debt/ last 12 month adjusted EBITDA	1.5x	2.1x

Reported net debt at 30 June 2016 was $385.9m. Net debt for the purposes of covenants is comparable to reported net debt.  Reported net debt/last twelve month pro-forma EBITDA was 1.5 times at 30 June 2016 (2.1 times at 31 December 2015).  For the purposes of net debt/last twelve month pro-forma EBITDA calculations, MeritCard's contribution to last twelve month EBITDA has been included at 30 June 2016, following its acquisition on 16 February 2016.

Goodwill

Goodwill was not recognised on the acquisition of MeritCard on 16 February 2016, with virtually the entire purchase price of $20m allocated to finite-life intangible assets.  Movements in the goodwill balance of $1,196m at 30 June 2016 ($1,178m at 31 Dec 2015) relate to changes in the US dollar/Euro exchange rate during the period. No impairments were identified on the goodwill balances at 30 June 2016.

Intangible assets and property, plant and equipment

The net book value of intangible assets at 30 June 2016 was $382.4m (31 Dec 2015: $369.9m). During the period, $19.7m of additions related to customer relationships acquired with MeritCard. In addition, a multi-year non-compete asset was recognised in relation to changes in outsourcing arrangements with a strategic supplier. $3.8m of this asset was settled during the period, with $6.2m of deferred payments accrued as at 30 June 2016. Management considered that the carrying value of these and historic acquired assets did not need to be impaired.

During the period, the Group continued to incur development costs to add new functionality to the Group's platforms, and capitalised $13.0m of internal costs excluding the impact of acquisitions. Capitalisation as a percentage of sales increased to 2.7% (H1 2015: 1.5%), due to continued investment in the business.  Capitalised development included initial spend in relation to the next generation data platform, global merchant onboarding capability and mobile platform innovation, as well as ongoing enhancement of the core products and platforms.

Property, plant and equipment spend was $7.9m or 1.6% of revenue (H1 15: 1.7%), and included the refurbishment and improvement of a number of the Group's office spaces as part of a continued focus on attracting and retaining the best talent.

Management has determined that no impairment is required in relation to intangible assets.

Current assets

Prepaid expenses and deposits increased to $15.0m at 30 June 2016 from $14.6m at 31 December 2015. Trade and other receivables were $46.1m (31 Dec 2015: $31.2m), the increase including balances acquired with MeritCard and an increase in receivables from a related party.

Acquisition-related liabilities

Share consideration payable in relation to the acquisition of Meritus decreased 8% to $51.5m as at 30 June 2016, due to the revaluation discussed above. In addition, the total period-end share consideration payable balance of $57.0m includes $5.5m payable in relation to the FANS acquisition.

Contingent consideration payable increased to $6.1m from $2.1m at 31 December 2015. The increase reflected the addition of a $4.1m cash-based contingent consideration liability relating to the acquisition of MeritCard in February 2016.

Deferred consideration of $2.1m (31 Dec 2015: $3.3m) relates to cash payable in relation to Skrill's acquisition of Ukash in March 2015 and decreased during H1 2016 due to a scheduled payment to the former owners of Ukash.

Payments working capital items

Cash held as reserves represents the cash the Group is required to deposit with counterparties, which includes acquiring partners and card schemes, in order to transact with these institutions. 

Settlement assets represent gross transaction cash at third-party acquirers, banks and processors due to be paid to the Group en route to merchant clients or to fund digital wallets. 

Restricted cash balances are the excess of funds held in segregated accounts and certain liquid assets which the Group is required to maintain in respect of the e-money issued to members and merchants over the respective balances payable. 

Cash held as reserves, settlement assets and restricted cash balances have increased slightly to $98.1m from $95.4m at 31 December 2015.

The merchant processing liability represents gross transaction cash due to merchants. The liability increased slightly to  $17.1m (31 Dec 2015: $16.8m).

Other liabilities

Trade and other payables increased to $96.6m from $88.2m at 31 December 2015.  This increase included the addition of balances relating to MeritCard as well as a $6.2m accrued liability relating to the non-compete asset described above.

During H1 16, the income tax provision liability increased from $11.1m to $22.5m, largely due to the recognition of the current tax charge. Net deferred tax liabilities of $40.9m (31 Dec 2015: $42.9m) largely reflect deferred tax liabilities associated with intangible assets recognised on the acquisition of Skrill.

Equity

Ordinary shares were issued during the year in relation to deferred consideration paid on the FANS acquisition and the exercise of various share-based long-term employee incentive options, increasing share capital and share premium.

Off-balance sheet arrangements

Other than as disclosed above, as at 30 June 2016 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.

Performance and currency measures

Pro-forma constant currency

To provide a more transparent analysis of the performance of the Group following the material acquisition of Skrill in FY 2015, revenue commentary was included on a "pro-forma constant currency" basis in the Annual Results for FY 2015. This measure was unaudited, and was stated on an adjusted basis as if the Group had owned all acquisitions throughout the comparative periods ("pro-forma").  It was also calculated by applying prior period foreign exchange rates to current period amounts ("constant currency"). 

From 1 January 2016 the commentary reverts to the more usual definition of pro-forma organic constant currency growth by showing growth as if companies acquired on or after 1 January 2016 had been owned in the comparative period, and using the same foreign exchange adjustment. This means that all pre-2016 published pro-forma growth rates remain the same.   In relation to commentary for the Prepaid division, constant currency pro-forma growth rates are shown excluding the estimated impact of discontinued Ukash territories and services.

Absolute pro-forma revenue and volume dollar figures are only shown for 2013 to 2015 and include all acquisitions in that period.

Foreign exchange

The Group reports in US dollars. Approximately 30% of reported H1 2016 fee revenue⁷ is denominated in Euros, approximately 40% in US dollars and approximately 5% in British pounds (unchanged from H2 2015 pro-forma).

In addition, in the first five months of FY 2016, approximately 30% of reported total costs are denominated in Euros, approximately 35% in US dollars, approximately 15% in British pounds and approximately 10% in Canadian dollars.

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, changes in the online gambling industry and competitive environment, and daily fantasy sports.  These risks and our mitigating actions remain as set out on pages 24 to 29 of our 2015 Annual Report.

Directors' responsibility statements

We confirm that, to the best of our knowledge:

1.	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;
2.	the interim management report includes a fair review of the information required by DTR 4.2.7R (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
3.	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 9 August 2016.

Cautionary statement

This Half Year Report (the "Report") has been prepared in accordance with the Disclosure Rules 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.

---

⁶ In accordance with IFRS, basic and diluted earnings per share for the comparative period have been re-presented to reflect the impact of the rights issue in May 2015.

⁷ Interest income of $3.4m (30 Jun 2015: $0.2m) is not included in fee revenue.

⁸ Prior year cost of sales, gross profit and operating costs have been re-presented within the Digital Wallets division to align presentation of these costs following the acquisition of Skrill.  There was no impact to adjusted EBITDA from this re-presentation.  Cost of sales for the historic NETELLER business now includes various direct costs, including costs of loyalty, VIP and commission programmes.

⁹ Non-recurring acquisition and restructuring costs, gains and losses on share consideration payable and forex.

¹⁰ A reconciliation from reported profit after tax to adjusted profit after tax and related figures is shown in the Earnings per share section.

¹¹ Free cash flow is a non IFRS figure defined as operating cash flow after working capital movements, interest, tax and capital expenditure. In the consolidated statement of cash flows, working capital cash flow disclosure has been segmented to show movements relating to member and merchant cash which we refer to as payments working capital. Payments working capital represents cash flows that are not revenue or costs to the Group, constituted by movements in restricted cash balances, cash held as reserves, settlement assets and merchant processing liabilities.

¹² Adjustment to exclude restructuring cost accrual movements from statutory working capital movement.

¹³ Adjusted cash conversion is measured as percentage of adjusted EBIT. Adjusted free cash flow therefore excludes one off items, interest costs, and tax.

 

 

Interim Condensed Consolidated Statements of Financial Position As at (in thousands of U.S. dollars)
	30 June 2016	31 December 2015
	$	$
ASSETS
Non-current assets
Goodwill (Note 4)	1,195,900	1,178,341
Intangible assets (Note 5)	382,406	369,912
Property, plant and equipment	22,483	18,492
Deferred tax assets	1,374	2,524
Total non-current assets	1,602,163	1,569,269
Current assets
Prepaid expenses and other	14,965	14,561
Trade and other receivables (Note 6)	46,092	31,198
Cash held as reserves	16,948	14,473
Restricted cash (Note 7)	33,909	29,070
Settlement assets	47,268	51,868
Cash and cash equivalents (Note 8)	160,211	117,875
Total current assets	319,393	259,045
Total assets	1,921,556	1,828,314
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY
Share capital (Note 9)	95	95
Share premium	934,610	932,995
Capital redemption reserve	0	0
Equity reserve on share option issuance	46,890	41,400
Translation reserve	5,181	(2,322)
Retained earnings	166,938	102,399
Total shareholders' equity	1,153,714	1,074,567
LIABILITIES
Non-current liabilities
Long-term debt (Note 10)	489,372	493,306
Deferred tax liability	42,304	45,421
Share consideration payable (Note 11)	34,710	40,660
Contingent consideration	4,442	2,084
Deferred consideration payable	-	1,104
Derivative financial liability	3,469	229
Total non-current liabilities	574,297	582,804
Current liabilities
Current portion of long-term debt (Note 10)	31,318	30,907
Share consideration payable (Note 11)	22,296	21,726
Contingent consideration	1,693	-
Deferred consideration payable	2,054	2,208
Taxes payable	22,497	11,130
Trade and other payables (Note 12)	96,629	88,214
Merchant processing liabilities	17,058	16,758
Total current liabilities	193,545	170,943
Total shareholders' equity and liabilities	1,921,556	1,828,314

 

Accompanying notes form part of these 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 & Chief Executive Officer	Chief Financial Officer

 

 

 

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)
	2016 $	2015 $
Revenue
Payment Processing fees	231,235	173,034
Digital Wallets fees	146,655	49,757
Prepaid fees	105,483	-
Investment income	3,366	232
	486,739	223,023
Cost of sales
Payment Processing expenses	142,374	108,782
Digital Wallets expenses	33,865	13,381
Prepaid expenses	49,882	-
	226,121	122,163
Gross profit (Note 13)	260,618	100,860
Non fee expenses
Salaries and employee expenses	61,836	27,614
Share option expense (Note 17)	5,490	7,095
Other administrative expenses	54,602	23,393
Depreciation and amortisation	40,619	14,784
Acquisition costs	1,022	12,377
Restructuring costs (Note 18)	4,870	4,134
Foreign exchange loss	6,419	5,789
Net fair value gain on share consideration payable (Note 11)	(4,544)	(1,610)
Loss on disposal of assets	602	-
Results from operating activities	89,702	7,284
Net finance costs (Note 14)	15,151	2,691
Profit for the period before tax	74,551	4,593
Income tax expense (Note 15)	10,012	2,184
Profit for the period after tax attributable to owners of the Group	64,539	2,409
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	7,503	(138)
Total comprehensive income for the period attributable to owners of the Group	72,042	2,271
Basic earnings per share (Note 16)	$0.13	$0.01
Fully diluted earnings per share (Note 16)	$0.13	$0.01

 

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

 

The Directors consider that all results derive from continuing operations.

 

 

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 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 17)	-	-	-	-	5,490	-	-	-	5,490
Issue of shares (Note 9)	0	-	0	779	-	-	-	-	779
Shares issued on acquisitions (Note 11)	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
Balance as at 1 January 2015	28	18	46	86,935	27,311	(968)	0	94,996	208,320
Profit for the period	-	-	-	-	-	-	-	2,409	2,409
Other comprehensive income	-	-	-	-	-	(138)	-	-	(138)
Total comprehensive income	-	-	-	-	-	(138)	-	2,409	2,271
Transactions with owners of the Company, recognised directly in equity   Contributions by and distributions to owners of the Company
Share option expense (Note 17)	-	-	-	-	7,095	-	-	-	7,095
Issue of shares	42	-	42	701,698	-	-	-	-	701,740
Share issuance costs	-	-	-	(41,636)	-	-	-	-	(41,636)
Shares issued on acquisitions	0	-	0	1,248	-	-	-	-	1,248
Balance as at 30 June 2015	70	18	88	748,245	34,406	(1,106)	0	97,405	879,038

 

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

 

 

Interim Condensed Consolidated Statements of Cash Flows For the six month periods ended 30 June (in thousands of U.S. dollars)
	2016	2015
	$	$
OPERATING ACTIVITIES
Profit for the period before tax	74,551	4,593
Adjustments for non-cash items:
Depreciation and amortisation	40,619	14,841
Unrealised foreign exchange (gain)/loss	(4,495)	4,960
Acquisition costs	1,022	12,377
Net fair value gain on share consideration payable (Note 11)	(4,544)	(1,610)
Share option expense (Note 17)	5,490	7,095
Finance costs	16,136	2,691
Loss on disposal of assets	602	-
Cash flows from operations before movements in working capital	129,381	44,947
Increase in trade and other receivables	(13,373)	(2,223)
(Increase)/decrease in prepaid expenses and other	(275)	547
(Decrease)/increase in trade and other payables	(2,494)	1,925
Cash flows from operations before movements in payments working capital	113,239	45,196
(Increase)/decrease in restricted cash	(12,618)	339
Decrease/(increase) in settlement assets	9,369	(9,301)
Increase in cash held as reserves	(2,474)	(165)
Increase in merchant processing liabilities	300	4,936
	107,816	41,005
Taxes paid	(1,366)	(2,125)
Net cash flows from operating activities	106,450	38,880
INVESTING ACTIVITIES
Purchase of property, plant and equipment	(7,940)	(3,741)
Purchase of intangible assets	(19,568)	(3,309)
Proceeds from disposal of property, plant and equipment	544	-
Acquisition costs	(872)	(13,283)
Deferred consideration paid	(1,259)	-
Business acquisitions (Note 20)	(15,951)	(894)
Net cash flows used in investing activities	(45,046)	(21,227)
FINANCING ACTIVITIES
Equity issuance (Note 9)	779	660,104
Repayment of long-term debt (Note 10)	(15,839)	(10,000)
Repayment of obligations under capital lease	(142)	(316)
Interest paid	(5,873)	(1,968)
Net cash flows (used in)/from financing activities	(21,075)	647,820
INCREASE IN CASH AND CASH EQUIVALENTS DURING THE PERIOD	40,329	665,473
EFFECT OF FOREIGN EXCHANGE RATE CHANGES	2,007	23,197
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	117,875	109,892
CASH AND CASH EQUIVALENTS, END OF PERIOD	160,211	798,562

 

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

 

 

Notes to the Interim Condensed Consolidated Financial Statements

for the six months ended 30 June 2016 and 2015

(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 2015.

At 30 June 2016, the Group had 1,828 employees (31 December 2015: 1,578 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 (formerly Optimal Payments 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 (formerly Optimal Payments 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 EU. 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  2015.

These interim condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements of the Group for the year ended 31 December 2015.

The interim condensed consolidated financial statements were authorised for issue by the Board of Directors on 9 August 2016.

 

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.

Change in presentation

Presentation of certain items in the interim condensed consolidated financial statements has been changed in order to provide more reliable and relevant information, and the prior period presentation has been changed accordingly.

The share option expense previously presented as part of salaries and employee expenses is now separately disclosed in the statements of comprehensive income.

 

4.             GOODWILL

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

 

	Payment Processing $	Digital Wallets $		Prepaid $	Group $
Cost
Balance at 1 January 2015	205,339	-		-	205,339
Additions during the year	3,375	598,820		375,936	978,131
Foreign exchange	-	(3,151)		(1,978)	(5,129)
Balance at 31 December 2015	208,714	595,669		373,958	1,178,341
Foreign exchange	-	10,787		6,772	17,559
Balance at 30 June 2016	208,714		606,456	380,730	1,195,900
Carrying amount
As at 31 December 2015					1,178,341
Carrying amount
As at 30 June 2016					1,195,900

 

 

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 2015	33,897	29,248	51,286	6,739		1,824		16,352		139,346
Additions	-	-	-	-		-		5,118		5,118
Disposals	-	-	-	-		-		(96)		(96)
Additions - internally developed	-	12,895	-	-		-		-		12,895
Additions - business acquisition	7,700	31,008	266,074	-		12,056		3,913		320,751
Exchange difference	-	(134)	(806)	-		(63)		(1,860)		(2,863)
As at 31 December 2015	41,597	73,017	316,554	6,739		13,817		23,427		475,151
Additions	-	-	-	10,000		-		2,815		12,815
Disposals	-	(900)	-	-		-		(1,830)		(2,730)
Additions - internally developed	877	12,126	-	-		-		-		13,003
Additions - business acquisition (Note 20)	-	-	19,735	-		-		-		19,735
Exchange difference	(1)	1,131	5,411	-		287		626		7,454
As at 30 June 2016	42,473	85,374	341,700	16,739		14,104		25,038		525,428
Accumulated amortisation
As at 1 January 2015	25,630	15,830	4,494	739		160		13,109		59,962
Charge for the year	6,371	11,253	21,986	1,504		1,999		3,671		46,784
Disposals	-	-	-	-		-		(96)		(96)
Exchange difference	-	(56)	(134)	-		(17)		(1,204)		(1,411)
As at 31 December 2015	32,001	27,027	26,346	2,243		2,142		15,480		105,239
Charge for the period	1,616	8,894	20,869	1,942		1,256		2,973		37,550
Disposals	-	(3)	-	-		-		(1,722)		(1,725)
Exchange difference	22	516	768	-		108		544		1,958
As at 30 June 2016	33,639	36,434	47,983	4,185		3,506		17,275		143,022
Net book value
As at 31 December 2015	9,596	45,990	290,208	4,496		11,675		7,947		369,912
Net book value
As at 30 June 2016	8,834	48,940	293,717	12,554		10,598		7,763		382,406

 

6.             TRADE AND OTHER RECEIVABLES

The Group had the following balances:

	As at 30 June 2016  $	As at 31 December 2015 $
Trade receivables	28,088	17,991
Other receivables1	9,001	8,689
Receivable from related party 2	9,003	4,518
	46,092	31,198

 

¹ Other receivables are primarily composed of sales taxes receivable.

² 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 2016  $	As at 31 December 2015 $
Segregated account funds and liquid assets	1,140,535	1,055,368
Payables to members and merchants	(1,106,626)	(1,026,298)
	33,909	29,070

 

8.             CASH AND CASH EQUIVALENTS

The Group had the following balances:

	As at 30 June 2016 $	As at 31 December 2015 $
Cash	151,622	117,134
Cash equivalents	8,589	741
	160,211	117,875

 

9.             SHARE CAPITAL

	As at 30 June 2016	As at 31 December 2015
	£	£
Authorised:
600,000,000 ordinary shares of £0.0001 per share (At 31 December 2015: 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 2015: 1,000,000 deferred shares £0.01 per share)	10	10
Issued and fully paid:	$	$
481,534,509 ordinary shares of £0.0001 per share (At 31 December 2015: 479,656,395 ordinary shares of £0.0001 per share)	77	77
1,000,000 deferred shares of £0.01 per share (At 31 December 2015: 1,000,000 deferred shares of £0.01 per share)	18	18
Total share capital	95	95

 

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.

 

9.             SHARE CAPITAL (continued)

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 2015	163,019,614	28	1,000,000	18
Issued for cash	272,495,506	42	-	-
Exercise of share options - ESOS (Note 17)	485,795	0	-	-
Exercise of share options - LTIP (Note 17)	2,340,364	0	-	-
Issued in business combinations	41,315,116	7	-	-
Outstanding at 31 December 2015	479,656,395	77	1,000,000	18
Exercise of share options - ESOS (Note 17)	768,003	0	-	-
Exercise of share options - LTIP (Note 17)	936,111	0	-	-
Issued in a business combination	174,000	0	-	-
Outstanding at 30 June 2016	481,534,509	77	1,000,000	18

 

Issue of ordinary shares

During the six months ended 30 June 2016, 1,704,114 ordinary shares were issued as a result of the exercise of vested options under the ESOS and LTIP plans (see Note 17).

Additionally, during the six months ended 30 June 2016, 174,000 ordinary shares were issued as a result of the acquisition of FANS Entertainment Inc. (611,663, 3,210,400 and 37,493,053 ordinary shares issued as a result of the acquisition of FANS Entertainment Inc., Meritus Payment Solutions and Skrill Group, respectively, for the year ended 31 December 2015).

 

10.          LONG-TERM DEBT

During the six months ended 30 June 2016, the Group made a repayment of $15,839,000 (14,000,000 Euro) on the Term A facility ($10,000,000 was repaid on the Term facility during the six months ended 30 June 2015).

 

11.          SHARE CONSIDERATION PAYABLE

 

	Meritus $	FANS $	TOTAL  $
As at 1 January 2015	57,290	-	57,290
Fair value at acquisition date	-	8,598	8,598
Consideration issued	(14,868)	(2,232)	(17,100)
Net fair value loss	13,598	-	13,598
As at 31 December 2015	56,020	6,366	62,386
Current portion of share consideration payable	18,673	3,053	21,726
Non-current portion of share consideration payable	37,347	3,313	40,660
Consideration issued	-	(836)	(836)
Net fair value gain	(4,544)	-	(4,544)
As at 30 June 2016	51,476	5,530	57,006
Current portion of share consideration payable	16,766	5,530	22,296
Non-current portion of share consideration payable	34,710	-	34,710

 

12.          TRADE AND OTHER PAYABLES

The Group had the following balances:

	As at 30 June 2016  $	As at 31 December 2015 $
Accounts payable	24,395	18,783
Accrued liabilities	56,074	54,324
Payroll liabilities	10,848	11,035
Digital Wallets loyalty program liability	1,045	1,068
Provision for merchant losses	4,267	3,004
	96,629	88,214

 

 

13.          OPERATING SEGMENTS

The Group has three operating segments as disclosed below which are based on the Group's 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.

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

 

Segmented reporting for the six months ended 30 June 2016:

	Payment Processing	Digital Wallets	Prepaid	Total
	$	$	$	$
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%

 

 

Segmented reporting for the six months ended 30 June 2015:

	Payment Processing	Digital Wallets	Prepaid	Total
	$	$	$	$
Revenue	173,034	49,757	-	222,791
Cost of sales
Variable costs	106,966	13,282	-	120,248
Bad debts	1,816	99	-	1,915
Total cost of sales	108,782	13,381	-	122,163
Gross margin	64,252	36,376	-	100,628
Gross margin percentage	37%	73%	-	45%

 

13.          OPERATING SEGMENTS (continued)

Investment income of $3,366,000 (2015: $232,000) is excluded from the measure of segment revenue and non fee expenses of $170,916,000 (2015: $93,576,000) and finance costs of $15,151,000 (2015: $2,691,000) 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 2016, cost of sales for Payment Processing, Digital Wallets and Prepaid were 62% (2015: 63%), 23% (2015: 27%) and 47% (2015: nil) of revenue, respectively.

 

Major Merchants

The Group has one merchant who represented 20% of total fee revenue for the six months ended 30 June 2016 (2015: 29%) across all reportable segments and geographies.  The majority of this revenue comes from Asia.

 

14.          FINANCE INCOME AND COSTS

 

	Six months ended 30 June 2016 $	Six months ended 30 June 2015 $
Interest income on rights offering proceeds	-	(384)
Interest on long-term debt	9,826	1,870
Amortisation of financing fees	2,715	-
Other finance costs	2,610	1,205
Net Finance costs	15,151	2,691

 

15.          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 2016 $	Period ended 30 June 2015 $
Current tax
Current period	14,991	2,130
Adjustment for prior periods	-	-
	14,991	2,130
Deferred tax
Current period	(5,319)	(8)
Adjustment for prior periods	340	62
	(4,979)	54
Total tax expense	10,012	2,184
Reconciliation of effective tax rate
Isle of Man corporate tax rate	0.0%	0.0%
Adjustment from prior periods	-	3.8%
Effect of different tax rates    of subsidiaries operating in other jurisdictions	13.4%	43.8%
Current period's tax expense as a % of profit before tax	13.4%	47.6%

 

16.          EARNINGS PER SHARE

 

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

 

	Six months ended 30 June 2016 $	Six months ended 30 June 2015 $
Profit
Profit attributable to equity shareholders of the parent - basic	64,539	2,409
Profit attributable to equity shareholders of the parent - diluted	64,539	2,409
Number of shares
Weighted average number of ordinary shares outstanding - basic	480,730,504	329,310,142
Effect of dilutive potential ordinary shares due to employee share options	12,489,086	9,793,810
Share consideration payable	11,376,966	14,684,784
Weighted average number of ordinary shares outstanding - diluted	504,596,556	353,968,736
Earnings per share
Basic earnings per share	$0.13	$0.01
Fully diluted earnings per share	$0.13	$0.01

 

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.

 

17.          SHARE BASED PAYMENTS

The Company adopted the unapproved equity-settled share option plan ("ESOS") pursuant to a resolution passed on 7 April 2004 and amended by the Board on 15 September 2008. The 2008 amendment included the addition of a new 'approved' plan for UK based employees. Under the 'approved' and 'unapproved' plans, the Board of Directors of the Company may grant share options to eligible employees including Directors of Group companies to subscribe for ordinary shares of the Company. The ESOS options granted vest on the third anniversary of the date of grant and lapse a further six months after vesting.

No consideration is payable on the grant of an option. Options may generally be exercised to the extent that they have vested. The exercise price is determined by the Board of Directors of the Company, and shall not be less than the average quoted market price of the Company shares on the three days prior to the date of grant. Subject to the discretion of the Board share options are forfeited if the employee leaves the Group before the options vest.

The Company also adopted the Long Term Incentive Plan ("LTIP") which took effect from 1 January 2010 to eligible employees including Directors of Group companies to subscribe for ordinary shares of the Company. These LTIP options vest in one tranche based on future performance related to EPS and Total Shareholder Return ("TSR") targets determined each year and subject to continued employment over the remaining vesting period. Vested options lapse on the tenth anniversary of the date of grant.

No consideration is payable on the grant of an option. Options may generally be exercised to the extent that they have vested. The exercise price is determined by the Board of Directors of the Company. Subject to the discretion of the Board share options are forfeited if the employee leaves the Group before the options vest.

During the period, the Company adopted the European and North American Save As You Earn ("Sharesave") plans pursuant to a resolution passed on 1 June 2016. Under the European Sharesave plan, the Board of Directors of the Company may grant share options to eligible employees including Directors of Group companies to subscribe for ordinary shares of the Company. The European Sharesave options normally vest on the third anniversary of the date of grant and lapse a further six months after vesting. Under the North American Sharesave plan, eligible employees including Directors of Group companies can subscribe for ordinary shares in the Company at their market value. For every four 'Partnership' shares an eligible employee buys, the Company will grant one free 'Matching' share. The Matching shares normally vest on the third anniversary of the date of grant.

No consideration is payable on the grant of an option or Matching share. The exercise price of the European Sharesave options is determined by the Board of Directors of the Company, and shall not be less than 80% of the average market price of the Company shares prior to the invitation date. Subject to certain good leaver circumstances, share options and Matching shares are forfeited if the employee leaves the Group before the options or Matching shares vest.

For the six months ended 30 June 2016, the Group recognised total expenses of $5,490,000 (2015: $7,095,000) related to share option transactions.

                Changes in the number of ESOS, LTIP and Sharesave options outstanding are detailed in the tables below:

 

ESOS

	Six months ended 30 June 2016		Year ended 31 December 2015
	Weighted Average Exercise Price £	Options	Weighted Average Exercise Price £	Options
Outstanding at the beginning of the period	2.18	2,095,238	1.73	1,456,750
Granted during the period	-	-	2.25	1,413,050
Forfeited during the period	2.81	(99,682)	2.40	(288,767)
Exercised during the period	1.32	(768,003)	1.50	(485,795)
Outstanding at the end of the period	2.83	1,227,553	2.18	2,095,238
Exercisable at the end of the period	0.89	216,836	0.57	108,624

 

The ESOS options outstanding at the end of the period had a weighted average exercise price of £2.83 (31 December 2015: £2.18) and a weighted average remaining contractual life of 1.63 years (31 December 2015: 1.63 years). The weighted average share price of ESOS options exercised in the period based on the date of exercise was £3.97 (31 December 2015:  £3.81).

 

17.          SHARE BASED PAYMENTS (continued)

 

LTIP

	Six months ended 30 June 2016		Year ended 31 December 2015
	Weighted Average Exercise Price £	Options	Weighted Average Exercise Price £	Options
Outstanding at the beginning of the period	0.0001	12,169,162	0.0001	6,729,559
Granted during the period	0.0001	1,776,740	0.0001	8,046,625
Forfeited during the period	0.0001	(331,060)	0.0001	(266,658)
Exercised during the period	0.0001	(936,111)	0.0001	(2,340,364)
Outstanding at the end of the period	0.0001	12,678,731	0.0001	12,169,162
Exercisable at the end of the period	0.0001	3,056,427	0.0001	2,071,615

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 7.7 years (31 December 2015: 8.0 years). The weighted average share price of LTIP options exercised in the period based on the date of exercise was £4.03 (31 December 2015: £3.20).

 

Sharesave

	Six months ended 30 June 2016		Year ended 31 December 2015
	Weighted Average Exercise Price £	Options	Weighted Average Exercise Price £	Options
Outstanding at the beginning of the period	-	-	-	-
Granted during the period	3.00	395,068	-	-
Outstanding at the end of the period	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 £3.00 and a weighted average remaining contractual life of 3.42 years. No European Sharesave options were exercised in the period.

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 2016	Year ended 31 December  2015
Weighted average exercise price	£0.00	£0.00
Expected volatility	44.0%	45.0%
Expected life	2.85 years	2.72 years
Risk free interest rate	0.56%	0.89%
Dividend yield	0%	0%
Weighted average fair value per option granted	£2.88	£2.75

 

Due to the nominal exercise price of the LTIP options and that option holders are entitled to receive a benefit by reference to the value of dividends that would have been paid on vested shares during the vesting period, the regular options granted under the 2014 LTIP were valued based on the share price at the date of grant.

 

17.          SHARE BASED PAYMENTS (continued)

 

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 2016	Year ended 31 December  2015
Weighted average exercise price	£3.00	-
Expected volatility	44.0%	-
Expected life	3.19 years	-
Risk free interest rate	0.59%	-
Dividend yield	0%	-
Weighted average fair value per option granted	£1.56	-

 

The Matching shares granted under the North American Sharesave were valued based on the share price on the date of grant.

Expected volatility was determined by calculating the historical volatility of the Company's share price from the time of issue to the date of grant.

 

18.          RESTRUCTURING COSTS

The Group incurred certain restructuring costs relating to the reorganisation of its cost structure.  Severance was paid to employees as a result of operational changes to the Group's business in order to streamline operations and remain competitive in challenging markets. Additional restructuring costs were incurred in the period for specific persons hired to reorganise the business and various professional fees relating to the acquisitions described in Note 25 to the Group's consolidated financial statements for the year ended 31 December 2015.

The Group incurred the following costs:

	Six months ended 30 June 2016  $	Six months ended 30 June 2015  $
Severance and retention payments	1,457	1,145
Professional fees	3,413	2,989
	4,870	4,134

 

19.          ADJUSTED EBITDA

Adjusted EBITDA is defined as results of operating activities before depreciation and amortisation, non-operational items and exceptional non-recurring items which are defined as items of income and expense of such size, nature or incidence that in the view of management their disclosure is relevant to explain the performance of the Group for the period.

Adjusted EBITDA is not a financial measure calculated in accordance with IFRS as adopted by the EU. The presentation on 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 2016  $	Six months ended 30 June 2015  $
Profit for the period before tax		74,551	4,593
Depreciation and amortisation		40,619	14,784
Finance costs (Note 14)		15,151	2,691
Share option expense (Note 17)		5,490	7,095
Foreign exchange loss		6,419	5,789
Loss on disposal of assets		602	-
Acquisition costs		1,022	12,377
Restructuring costs (Note 18)		4,870	4,134
Net fair value gain on share consideration payable		(4,544)	(1,610)
Adjusted EBITDA		144,180	49,853

 

 

20.          BUSINESS ACQUISITION

On 16 February 2016, a subsidiary of the Group, Paysafe Services (US) Corp, purchased certain assets of MeritCard Solutions LP ('MeritCard'), in exchange for cash consideration of $15,951,000 and an additional $4,050,000 cash consideration subject to the achievement of certain financial performance targets. MeritCard is a Dallas-based payments business that specialises in building relationships with small to medium-sized independent sales organisations, sales and bank agents as well as third party vendors. The deal is expected to help the Group continue to expand its customer base while further diversifying its risk portfolio in the Payment Processing division.

The purchase price allocation shown below is preliminary and based on management's best estimates. The final purchase price is expected to be completed as soon as management has gathered all of the significant information available and considered necessary in order to finalise this allocation.

 

		$
Cash consideration		15,951
Contingent consideration		4,050
Total estimated purchase price		20,001
Prepaid expenses and other		50
Other working capital items		196
Property, plant and equipment		20
Finite-life intangible assets (Note 5)		19,735
Fair value of net assets acquired		20,001

MeritCard revenues of $6,030,000 and net earnings of $980,000 are included in the interim condensed consolidated statement of comprehensive income from the date of acquisition. The Group's consolidated revenues and net income for the six months ended 30 June 2016 would have included $7,387,000 and $1,334,000, respectively, had the MeritCard acquisition occurred on 1 January 2016.

The Group incurred acquisition-related costs of approximately $212,000 during the six months ended 30 June 2016 in respect of this acquisition which were expensed in the period relating to this transaction.

 

21.          FINANCIAL INSTRUMENTS

Fair values

The Group estimates the fair value of its financial instruments based on current interest rates, market value and pricing of financial instruments with comparable terms. 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 using market interest rates.

The carrying values of cash and cash equivalents, settlement assets, restricted cash, cash held as reserves, trade receivables, contingent consideration, merchant processing liabilities, and trade and other payables approximate their fair value due to the short-term nature of these instruments. The carrying value of long-term debt also approximates its fair value as there has been no significant movement in counterparty credit risk and market interest rates for debts and leases with similar maturity dates and terms.

The following table shows the carrying amounts and fair values of financial instruments, including their levels in the fair value hierarchy.

 

	Carrying Value		Fair Value	Fair Value Level
	Held-for-Trading $	Other financial liabilities $	$
As at 30 June 2016
Financial instruments measured at fair value
Share consideration payable	57,006	-	57,006	Level 2
Derivative financial liabilities	3,469	-	3,469	Level 2
	60,475	-	60,475

 

	Carrying Value		Fair Value		Fair Value Level
	Held-for-Trading $	Other financial liabilities $	$
As at 31 December 2015
Share consideration payable	62,386	-	62,386		Level 2
Derivative financial liabilities	229	-	229		Level 2
	62,615	-	62,615

 

There have been no transfers between Level 1 and Level 2 for the six months ended 30 June 2016 and 2015.

 

22.          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 2016  $	Six months ended 30 June 2015  $
Short-term employee benefits	2,975	2,728
Post-employment benefits	65	69
Share based payments	3,933	4,677
	6,973	7,474