26 September 2017

The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014.  Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain

Mi-Pay Group plc

('Mi-Pay', the 'Group', or the 'Company')

Interim Results

Mi-Pay (AIM: MPAY), a leading provider of digital transformation and mobile payment solutions to Tier 1 Mobile Network Operators and Mobile Virtual Network Operators, is pleased to present its unaudited Interim Results for the six months ended 30 June 2017. 

Operational Highlights

Financial Highlights

Seamus Keating, Chairman of Mi-Pay Group plc commented:

"The Board continues to see good progress at all levels in the Group with increased transaction revenues and margin improvements supported by continued control of operating costs.  This has enabled us to maintain cash balances above target and continue our focus on achieving profitability and stronger growth opportunities.

In the period, we secured and extended our existing seven-year relationship with our largest client for a further three years, which we expect to drive material revenue growth and profit over the life of the contract.

This investment, as announced previously, has reduced our non-recurring Professional Services revenues and the commercial terms within the new contract, will affect short-term Transaction Services revenues and margins as we integrate the new services and grow the transaction volumes. Thereafter we expect this to deliver long-term revenue and margin growth.

We are proving that our digital payment solutions and commercial flexibility is increasingly relevant in our market and we are becoming more important to our clients."

For further information, please contact:

Founded in 2003, Mi-Pay Group delivers fully outsourced online and related digital payment solutions to ecommerce clients, primarily in the mobile sector. Its product offering provides the infrastructure to enable pre-paid mobile devices to be topped up via a variety of channels such as websites, mobile applications and social media applications and customers include Mobile Network Operators (MNOs) and Mobile Virtual Network Operators (MNVOs). Mi-Pay sells, integrates and operates its products and solutions on a global basis. For further information, please visit www.Mi-Pay.com or contact details as shown above.

Chief Executive Officer's review

H1 2017 Overview

Having delivered continued growth, improved margins and a reduced cost base consistently over previous periods we are now focussing on driving long-term growth in our annuity based revenue solutions.

We continue drive the natural migration of consumers to the direct, on-line digital sales channel from that of the traditional retail store 'paper' voucher model and our clients increasingly recognise this channel as a strategic requirement for growth, customer retention and real-time communication. Our clients' digital transformation strategies, alongside financial risk aversion and an ever increasing cybersecurity risk increases the attractiveness of Mi-Pay as a partner to help drive this transition with our flexible, simple and secure outsourced solutions.  We believe that our proven solutions put us in a strong position to take advantage of this continuing migration trend.

Strategy

"Mi-Pay's solutions connect people and businesses digitally, transforming customer payment journeys and purchase behavior from the traditional paper retail environment to instant, digital delivery".

We make it simple for our clients to integrate and operate multiple digital payment options for their customers quickly and securely across the globe. Mi-Pay offers a fully outsourced, secure payment services platform for instant top up, digital content and bill payment services with our solutions targeted to improve the customer buying experience, choice, flexibility and security primarily for pre-paid customers. Our solutions:-

- increase client revenues;

- reduce customer churn;

- protect against fraud;

- secure customer data; and

- future proof their digital strategies.

Within our market customers continue to move away from traditional 'in store' purchases towards the use of devices (mobile phones and tablets) which is driving exponential growth in mobile-commerce and digital content services. This drives our natural growth levels with the additional value of ever-increasing mobile usage of data more than compensating for the reduction in voice usage, which in turns increases our revenue per transaction.  This creates a clear focus for us in which to invest as we facilitate and drive this trend.

Operator needs and consolidation - business intelligence, risk management and customer retention

The European market is increasingly competitive and in recent years we have seen a number of major integrations between global operators as they have addressed the need to manage falling margins at the same time of needing to deliver a wider range of digital content to customers including data/voice/content/TV/music etc. A multi-'Omni'-channel digital payment solution supporting this need, to reach customers is now crucial to their success as they look to improve customer retention, require an ability to quickly add new content and increasingly deliver on-demand data services. The digital channels bring certain benefits, namely the ability to market directly to customers, and offer multiple ways to connect and order services instantly at lower cost. Our solutions deliver the full Omni-channel experience and enable direct marketing, retention programmes and access to business intelligence. Our experience in processing over £1.1 billion in payment transaction value makes us a leading expert in the pre-paid services market. Our ability to indemnify and de-risk both the customer and the operator creates value in our proposition; crucially we offer the flexibility and technology to enable our clients who do consolidate and integrate their platforms to effectively manage this transition, minimize the risk on the consumer and materially reduce their cost base.

Digital Content & Payments solutions

Management of flexible data bundles, content packages and on-line streaming solutions within the pre-pay environment will drive the growth of the consumer, primarily from their device and over time, direct voice activated services solutions within the home. This needs to be integrated with the new influx of 'payment wallet' solutions and alternative payment methods such as PayPal, Amazon Payments, Apple Pay and Android Pay as customers look for secure, 'one-click' payment solutions flexible on all devices. Our investments in this space are key to our future success providing simple, integrated order and payment journeys, which support the payment method of choice for the customer - whilst removing the risk to the Mobile Operator.

Geographies

Whilst the European market is mature in terms of mobile ownership our opportunity lies in the customer migration to the on-line/on-device solutions. In addition, we continue to target long-term growth in the Asian market. Although traction remains slower than we had originally anticipated, with over 80% of mobile users in Asia Pacific being pre-paid customers versus 50% in Europe, the region is now larger than Europe in terms of mobile ownership at over 1.8bn users. Our proven ability to deliver risk free solutions puts us in a strong position to be a first mover in this market

Security & payment fraud

We have continued to see high profile personal data breaches in the digital commerce market which forced mobile operators and retailers to re-evaluate the importance of the protection of their customers' data; an increasingly complicated and expensive exercise. Global cybercrime cost the industry over $1 billion in 2015 and global digital payment fraud exceeded $19 billion. The increasing compliance requirements become more challenging - increasing PCI accreditation requirements together with the European General Data Protection Regulation (GDPR), enforceable from 2018. Our core offering offers a fully segregated infrastructure, which is compliant with all the global requirements and delivers in-house payment fraud management. As such, we believe our solution is valuable to operators and we believe this change in market dynamics will be beneficial for outsourced solutions like ours in the longer term and see real opportunities to offer these services as part of our core-outsourced offering but also as individual solutions.

Operational Review

Trading

We continue to focus on driving new transactions delivering a 16% increase in total transaction value processed to £45.4 million versus £39.1 million for the same period in 2016, continuing our prior year trends of delivering consistent growth.

Our total revenue reduced to £1.5 million (H1 2016: £1.6 million) as we targeted annuity based Transaction Services revenues which we expect will drive longer term revenue and profit growth for the group over that of our one-time Professional Services revenues. This focus is seen in our results as we continued to grow our Transaction Services Revenues in the period (12% since H1 2016) being offset by a reduction in our Professional Services revenues to £0.2 million for the period (H1 2016: £0.4 million). This investment in driving more strategic relationships with our clients has now delivered a 3-year extension with our existing largest client in a competitive bid environment. The new contract will continue our existing volumes processed but over time add material incremental growth as we connect to their new infrastructure over the coming 12 months and integrate their recently acquired new customer base. This integration will be a core focus and investment for us over the coming 12 months. Over the life of the contract, we expect this relationship to contribute to an overall doubling in total group transaction value processed, compared to the value processed in 2016. New commercial terms with the Client and our operational focus on delivery of these solutions will reduce revenue and margin in the short term; however, we expect this relationship to de-risk our long-term outlook and deliver long-term revenue and margin growth.

Across our wider client base, we see increased customer adoption of our digital solutions, with our customers choosing their devices to transact using Mobile Apps and Device Optimised Web pages over traditional Interactive Voice Recognition services and retail, in store based solutions. In addition, we see a continued increase in a preference for using mobile wallet payment devices such as PayPal and Amazon Payments and an increasing requirement for voice activated services and real time in-store digital solutions. These will remain core areas for investment over the coming period to ensure we remain market leading in delivering the most relevant digital payment solutions.

We have continued to invest in our in-house payment fraud management solution, also creating a new standalone Fraud as a Service product. We have again delivered year on year improvements in our performance, reducing our total fraud as a percentage of transaction value processed from 0.11% in H1 2016 to 0.04% in H1 2017. In addition, our investment has enabled us to reduce the volume of 'good' transactions that we reject in this process, delivering an increase in our overall transaction success rates from 87% to 89% since H1 2016. These elements combined to drive increased margin but more importantly increased customer satisfaction. As part of this investment, we have built the capability to deliver our internal fraud solution as a direct service to clients. We are pleased that in H2 2017 we expect to deliver our first trial with a European client to test this service which may drive longer term new revenue streams for the group.

Whilst our opportunities in Asia, and specifically the Philippines remains slow in growing, we have made progress during the period by delivering new contractual terms with our Client in the region for a multi-country payment solution. We expect to deliver this by early 2018. Revenue growth from this relationship remains uncertain however, we expect this will drive stronger longer-term relation;ships and incremental growth opportunities.

Security, stability and digital experience remains at our heart and the increasing risks that have been seen in the 'cyber community' in the last 24 months enhances our solutions value to our clients and their customers. We have continued to see strong infrastructure and employee stability over the period and we continue to invest in our data security, again achieving our PCI DSS (3.2) level 1 accreditation for 2017/ 2018. In addition, we have enhanced our overall data security proposition with wider data encryption, not simply payment data, across our whole infrastructure and enhanced DDOS protection to ensure all of our client's personal data is better protected, but also to future proof and protect our clients to the highest level.

Financial Review

¹Adjusted Net cash flow from operating activities excludes cash flows from the management of client payments and exceptional items

Our growth in Payment Transaction Value Processed, improved performance in fraud management and payment optimisation, together with improving terms with our partners as our volume grows, drove an increase in our Transaction Services Gross profits by £0.2 million adding a further 8% of Transaction Services Gross margin to 63% in the period (H1 2016: 55%). This was offset by the reduction in one-time Professional Services revenues and subsequent Gross profit reduction, overall maintaining our Gross profit at £1.0 million for the period. However, we believe this approach will deliver longer-term benefits to the group as our volumes grow, driven primarily by our new contract.

We continued to manage our administrative expenses, seeing a small increase since H1 2016 as we invested further in our data security solution.  This led to an increase in adjusted operating loss for the period to £0.2 million (H1 2016: £0.1 million) which was subsequently offset with our £0.3 million research and development recovery in July 2017.

In our balance sheet, as our Payment Transaction Value Processed increased we saw a £0.5 million increase across trade receivables and cash since December 31 2016 related to amounts due to our clients offset by an equal increase in Client payables. Outside of our client related transactions, there are no material movements to report in our balance sheet and our working capital requirements remain minimal due to our business model of collecting payments at source. Cumulative amounts due to Directors for deferred salaries unpaid closed the period at £0.3 million and we closed the period expecting to recover £0.4 million in cash for research and development tax credits due for the 18-month period to June 2017, £0.3 million of which was fully paid in July 2017.

The Group ended the period with £3.7 million in cash and cash equivalents (£3.5 million at 31 December 2016), noting that of this balance, £2.9 million related to the operation of managing client payments (£2.4 million as at 31 December 2016). Excluding the client related cash movements our cash outflow was £0.4 million in the period, which included £0.1 million outflow related to capital expenditure and infrastructure lease payments and £0.1 million expenditure on reviewing potential merger and acquisition opportunities. Our core trading therefore showed an outflow of £0.2 million for the period, against which we subsequently received a cash inflow of £0.3 million for research and development tax credits relating to the 12-month period to 31 December 2016, in July 2017.

Employees

We recognise that the performance achieved in this period would not have been possible without the support and continued dedication of our staff. They continue to support our delivery model and enhance our solutions to our clients, support the strong transaction growth and develop and deliver improved, secure technologies. They are our most valuable resource and we would like to thank them for their efforts and stability they give to the group. We encourage a strong, innovative culture encourage communication and as a result maintain a very high retention of employees.

Outlook

Mi-Pay has made significant progress in the period by delivering material new long-term annuity based sales opportunities with existing clients, a new contract in Asia Pacific and a new fraud solution trial. When combined with the continued natural migration of consumers to our digital channels and the strong gross margins we are delivering, we expect these will underpin our progress to profitability, cash generation and significantly de-risk our long-term outlook. The delivery of these new opportunities is our focus for the coming period.

We will continue to invest in our fraud management capabilities, data security solutions and enhancing our global infrastructure - specific focus in H2 2017 on implementing the best data protection and GDPR standards. In addition we will continue to develop of our mobile device and digital payment solutions that underpin the continued growth of our client solutions.

For the full year, we expect transaction value processed to be in the region of £95 million (2016: £83.4 million) but expect stronger growth to in 2018 through our existing contractual arrangements. Together with our current visibility of professional services projects, we expect total revenue for 2017 in the range of £3.1-3.4 million with gross profits expected to be in line with those experienced in H1 2017. Our research and development cash credit received in July 2017 more than offset the adjusted operating loss for the period giving the group the stability to continue to invest and grow.

The Board remains confident that our total market opportunity continues to increase as the digital payments market expands globally and our solutions become increasingly relevant to a wider set of customers, geographies and vertical markets. Our growing relationship with all of our clients and broader solutions keeps us in a strong position to take advantage of this consumer trend. The key market of Asia and other content and pre-pay markets outside of Mobile operators, together with a wider set of security and fraud management solutions remain opportunities to invest in, and ones that we will look to deliver further growth for us over the longer term.

Consolidated Statement of Comprehensive Income

For the period of six months ended 30 June 2017

The notes on pages 10 to 12 form part of these financial statements.

Consolidated Statement of Financial Position

As at 30 June 2017

The notes on pages 10 to 12 form part of these financial statements.

Michael Clay Dickerson

Chief executive officer

Consolidated Statement of Cash Flows

For the period of six months ended 30 June 2017