15 September 2014

MONITISE plc

Preliminary results for the year ended 30 June 2014

 

REVENUE GROWTH OF 31% TO £95.1M

VALUE OF TRANSFERS AND PAYMENTS ACROSS PLATFORMS SURGES 120% TO $88BN

TRANSFORMATIONAL YEAR LAYS FOUNDATION FOR PRODUCT-LED, SUBSCRIPTION BUSINESS

MONITISE ENTERS STRATEGIC PARTNERSHIP WITH SANTANDER

MONITISE TO RUN GLOBAL CLOUD-BASED SERVICES FROM IBM DATA CENTRES

 

LONDON - Monitise plc (LSE: MONI)("Monitise", the "Company" or the "Group") announces its audited preliminary results for the year ended 30 June 2014.

 

Financial Summary

 

·     Revenue grew 31%, rising to £95.1m from £72.8m.

 

·     Group EBITDA* loss was £31.4m for the year (FY 2013: £19.3m). The increase in loss, in line with management expectations, was driven by investment in product and sales in particular in the second half of the year as the strategy to accelerate user growth was put in place.

 

·     Adjusted** loss for the year was £43.7m (FY 2013: £32.8m) and adjusted loss per share was 2.6p (FY 2013: 2.4p). Statutory loss after tax in the year was £60.1m (FY 2013: £51.3m), with loss per share at 3.6p (FY 2013: 3.8p).

 

·     Group net cash of £146m as at 30 June 2014 (FY 2013: £86m), provides balance sheet strength to execute against our strategy. 

 

* EBITDA is defined as operating profit/loss before exceptional items, depreciation, amortisation, impairments and share-based payment charges.

** Adjustments comprise share-based payments, exceptional items, impairments and acquisition- related amortisation. A reconciliation is provided in note 6.

 

Operational Highlights 

 

·     Continued growth in business amid transformational year

 

o  Transition announced toward product-led, subscription-based business.

 

o  Strengthened partnerships, new business wins and launches.

 

§ A new milestone in the Group's Telefónica partnership with the launch of Yaap Shopping, a European mobile commerce collaboration deployed commercially between financial institutions and telecom operators. Monitise is the technology partner working behind the service. More than 200 businesses are already participating in the scheme. Yaap is a joint venture in Spain involving Telefónica, Santander and CaixaBank.

 

§ Partnership with IBM expanded into a multi-year global alliance to deliver cloud-based Mobile Money Solutions, building on a joint go-to-market pipeline, and a resourcing agreement that forms part of Monitise's path to profitability in FY 2016.

 

§ First Chinese-language cloud-based Mobile Money platform was rolled out to PCCW customers in Hong Kong, with Bank of China (Hong Kong) as its launch bank.

 

§ BlackBerry Messenger Money services enhanced in Indonesia with bill payments functionality developed by Monitise.

 

·     Global footprint, design and content capabilities enhanced

 

o  Acquisition of Pozitron in February 2014 established presence in Turkey and the Middle East, while acquisitions of Grapple Mobile in September 2013 and Markco Media businesses in June 2014 in the UK strengthened Group's international UX/UI and content offerings.

 

o  Buyout of Joint Venture (JV) partners in Hong Kong and Indonesia enabled Group to own 100% of its direct operations in Asia Pacific.

 

o  Assets acquired during Group's most active year of corporate development since listing have been successfully integrated into Monitise.

 

·     Foundations for future success

 

o  Registered users of 30m as at end June 2014, compared with 23m a year ago.

 

o  Overall users of Monitise software in excess of 60m, including apps designed by the Group's Monitise Create and MEA divisions.

 

o  Further growth in live transactions, with 4.0bn transactions on an annualised basis to end June 2014, compared with 2.4bn a year ago.

 

o  Processed payments and transfers worth US$88bn as at end June 2014 on annualised basis, compared with US$40bn a year ago.

 

o  New global Content division created, focused on sourcing loyalty, discount and offers programmes to augment Monitise's Buy Anything mobile commerce product offerings.

 

o  A growing retailer presence can now deliver content from 60,000+ brands and retailers across dozens of industry verticals such as restaurants, music and media, DIY, travel, health and beauty and utilities. Brands within the network include Burger King, Pizza Hut, Sky, Spar, B&Q, Tesco, ticketmaster, M&S, Home Depot, Target, Waterstone's, Boots, The Body Shop, Primark, iTunes, Nintendo and many more.

 

o  The Group's relationship with MasterCard continues to develop, with a number of initiatives in the pipeline.

 

o  As a result, Monitise expects to announce new customers and products in the coming weeks and months, including the first service for Santander, described below.

 

·     Strengthened executive management and Board appointments

 

o  Former Visa Europe CEO Peter Ayliffe appointed Non-Executive Chairman.

o  Elizabeth Buse appointed Monitise co-CEO on 4 June 2014, working alongside Monitise founder Alastair Lukies.

o  Mike Dreyer, former Global Head of Technology at Visa Inc., appointed President, Americas, on 1 September 2014.

o  Adam Banks, former CTO and head of IT at Visa Europe, joined Monitise to spearhead development of the Group's platform technology.

 

Post Year-End Highlights

 

·     Monitise announces today a strategic partnership with Santander to develop and deploy a series of mobile banking innovations which bring simple, easy and personalised user experiences to consumers and are set to transform how people manage their money and spending on the move. The first service launches this week. The announcement follows Monitise's collaboration with Santander on the launch of Yaap, the bank's Spanish mobile commerce joint venture with CaixaBank and Telefónica. Santander has 103 million account holders across Brazil and Latin America, Spain, UK, Germany, Poland, Portugal and NE United States.

 

·     Monitise announces today it will connect to IBM hosting facilities based in North Carolina. The cloud-based bank-grade infrastructure will give Monitise an enhanced ability to serve global processors, banks and mobile network operators from a US-based hub capable of scaling to handle Mobile Money services for hundreds of millions of subscribers. Initial target markets are North and Central America as well as South American markets such as Brazil. Monitise will qualify IBM data centres around the globe, according to its expanding customer bases' needs and to local data protection requirements.

 

·     On 27 August 2014, Monitise announced a global alliance with IBM that will see Monitise's technology being enabled, hosted and sold as an IBM cloud-delivered solution worldwide in the business-to-business space. As part of this, teams from Monitise's UK development and integration business will be transferred to IBM.

 

Outlook

 

The Group's transition to its product-led, subscription-based business and continually growing pipeline of mobile banking, payments and commerce opportunities underlines management's confidence. The Company's revenue and profit guidance remains unchanged:

 

·     Revenue growth of at least 25% in FY 2015.

·     Continued investment in the Group's global infrastructure with FY 2015 capex estimated at £35-45m.

·     The Group becoming EBITDA profitable in FY 2016, with revenue growth accelerating.

·     The following longer-term guidance for 2018 being maintained:

o  200m registered users at £2.50 ARPU

o  EBITDA margin of at least 30%

o  Sustainable gross margin above 70%

·     Monitise continues to consider a move to a main London Stock Exchange listing.

 

Monitise co-CEO Alastair Lukies said:

"This past year was an important and transformational period for Monitise. Our underlying performance reflects the proactive and bold steps we have taken to transition to a product-led subscription-based business operating in the global mobile banking, payments and commerce industry.

I am delighted to welcome Elizabeth, Mike and Adam to Monitise, business leaders who recognise the unique opportunity we have to evolve and capitalise on the value we can unlock for our partners and clients. The entire Monitise team around the world has worked to transform our business. We have established ourselves in a prime position to be the leading enabler via our platform, products and proven approach to innovation. Amid our drive to further develop our cloud-based platforms, we enter the new financial year focused on enhancing our market-leading position for the benefit of all key stakeholders."

Monitise co-CEO Elizabeth Buse said:

"Having joined Monitise in June I am deeply committed to building on the Group's foundations. Monitise delivered strong topline revenue growth during the year and is evolving to better serve the needs of our partners and clients and deliver against the ambitious targets we have for the year ahead and beyond.

The Group's core competitive advantages centre on: globally interoperable services; bank-grade technology; an agnostic approach to Mobile Money across financial institutions, mobile network operators, devices and technologies; and operating as an enabler, not a disintermediator or disruptor of other businesses. Our confident outlook underpins our guidance."

Monitise Chairman Peter Ayliffe added:

"Monitise has a clear core purpose: To help consumers bank anywhere, pay anyone and buy anything from their mobiles. It has developed capabilities and a positioning in a fast-moving marketplace, which gives it key competitive advantages that will enable us to deliver our long-term growth goals. The decision taken this year to transition Monitise to a product-led subscription-based business is a key step in enabling the Group to leverage its core strengths and help us deliver our ambitious growth plans.

On behalf of the Board I would like to thank our employees for their efforts over the past year and our shareholders for their continued support."

An analyst presentation will be held on Monday 15 September 2014 at 9.00am BST at the London Stock Exchange, London, EC4M 7LS. A live webcast of the presentation will be available to view online via investor relations on www.monitise.com. A replay facility will be accessible via www.monitise.com/investor_relations within 24 hours of the results presentation.

 

About Monitise

Monitise (LSE: MONI) is a world leader in Mobile Money - banking, paying and buying with a mobile device. Leading banks, payments companies, retailers and mobile networks utilise Monitise's technology platforms and services to securely connect people with their money.

 

More than 30 million users have registered for Monitise's patented technology to 'bank anywhere', 'pay anyone' and 'buy anything', accounting for $88bn of payments, purchases and transfers annually. Additionally, apps designed by the Group's Monitise Create and MEA divisions have been downloaded 30 million times. More information is available at www.monitise.com.

 

For further information   Investor Relations Andrew Griffin, Haya Herbert-Burns   investorrelations@monitise.com   Media Relations   Gavin Haycock                                           Gavin.haycock@monitise.com      Canaccord Genuity                                                                                        Simon Bridges, Cameron Duncan                                           FTI Consulting                                                                          Charles Palmer

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Forward-Looking Statements

 

This document includes forward-looking statements. Whilst these forward-looking statements are made in good faith they are based upon the information available to Monitise at the date of this document and upon current expectations, projections, market conditions and assumptions about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about the Group and should be treated with an appropriate degree of caution.

 

Chairman's Statement

 

The Board is pleased to report that in 2014 we made strong progress in our strategy to bring financial institutions, retailers and mobile network operators ever closer to their customers via our mobile technology.

 

Throughout the year we continued to make substantial improvements in our operational infrastructure, investing in technology to help scale our business to better help the needs of our Group and its growing global network of partners and clients. This has been a particularly transformational year for Monitise in terms of our business model, new partner and client wins, leadership team and industry recognition.

 

Our approach to Mobile Money

 

In March, we announced Monitise 2.0, our strategy to accelerate the adoption of our products and services via an open-Application Programming Interface (API)-based platform and subscription-based revenue model. Underpinning this shift is our strategic focus on establishing our position as the world's leading Mobile Money network. To achieve that goal, we are evolving the way our technology and products are made available by moving to a product-based offering. We are shifting our commercial model to go from primarily generating our revenue from product licence fees, and development and professional services activities, to a subscription-based model. 

 

A winning team

 

Having joined the Board of Monitise as Non-Executive Chairman from 1 October 2013, I would like to express my thanks to all the directors and employees for their efforts and assistance over the past year. We have a highly engaged and aligned team of people who continue to work together inspired by the vision that anything is possible when money is mobile.

 

Throughout the year, they have again helped us to deliver some of the most time-critical, complex Mobile Money solutions for our partners and clients. Their performance is a testament to the skills, energy, experience and professionalism of everyone involved in the business from our offices in the UK, the US, Turkey, India, Indonesia and Hong Kong.

 

Their hard work and commitment is also a key factor in the success of our business and it is thanks to them that Monitise is recognised internationally for its best-in-class approach to Mobile Money solutions around the world.

 

The Monitise Board has seen several changes over the past year that reflect the evolution of the Group business. Steve Chambers served as Visa Europe's nominated Board representative for five months until April when he was succeeded by Tom Houghton, Head of Core Payments at Visa Europe. Elizabeth Buse's appointment as co-CEO in June occurred as both Amanda Burton and Paulette Garafalo also joined in Non-Executive Director roles. The directors bring exceptional global experience across payments, retail, legal and financial services to our business and join at a time when we are driving deeper inroads into mobile commerce.

 

Post the year-end on 1 September, 2014, the Group announced that Monitise Chief Information Officer Mike Keyworth was standing down from his role as CIO and from the Board while remaining with the company as a technology advisor, and that Victor Dahir had resigned his role as Visa Inc.'s nominated Board director. David Dey, who has been a passionate supporter and Senior Independent Non-Executive since 2007, has announced that he will retire from the Monitise Board following the Group's Annual General Meeting on 4 November 2014. I would like to take this opportunity to welcome all the new directors who have joined us over the past year and wish those stepping down from the Board all the very best for the future.

 

Annual General Meeting

 

The Annual General Meeting ("AGM") of the Company will be held on 4 November at 2.00pm GMT at the offices of FTI Consulting, North Entrance, 200 Aldersgate, Aldersgate Street, London EC1A 4HD.

 

Peter Ayliffe

Monitise Group Chairman

 

Chief Executives' Business Review

 

Overview

 

This past year was an important and transformational period for Monitise. The underlying performance reflects the proactive, decisive and bold steps we have taken to transition the business to a product-led subscription-based business.

Monitise operates in a rapidly-evolving industry where most medium to large banks around the world have at least first-generation mobile solutions. However, the majority still view mobile as just a front end to their internet banking capabilities and do not have SME or segmented offerings or technology platforms architected to extend beyond their legacy internal capabilities. Many are only just beginning to see the revenue-enhancing opportunities arising from leveraging mobile as a direct customer engagement channel.

 

Across the industry, banks are investing more in mobile. This reflects a much wider trend as digital and financial services converge at an accelerating rate. CTOs, CIOs and CMOs of leading financial services companies are seeing first-hand how interoperable, well-designed mobile services enable them to deepen customer relationships, unlock commercial benefits and reflect the growing appetite consumers have to use mobile banking services significantly more than online banking.

 

The fast evolving landscape evidenced by the convergence of the digital and financial worlds is a huge opportunity for Monitise. Last week we saw a very important mobile platform, iOS, enter the mobile payment world with Apple Pay which adds another potential payment method to complement the many payment schemes and infrastructures that Monitise already agnostically connects to.

 

On 24 March 2014, major existing shareholders and new partner MasterCard took part in a fully-underwritten placing that raised gross proceeds of approximately £109m as part of the Group's transition to a product-led and subscription-based business model.  The Group's relationship with MasterCard continues to develop, with a number of initiatives in the pipeline.

 

A platform for growth

                           

We have established ourselves to be the leading global, trusted service partner via our platform, products and approach to innovation.

 

We have structured the Group to better serve the needs of partners and clients and deliver against the ambitious targets we have for the year ahead and beyond. Our goals will be achieved by increasing our business footprint, expanding our product set, simplifying our deployment model and adding new sales channels.

 

Monitise began collaborating with IBM in September 2013. In March 2014, Monitise announced its intention to accelerate its transition to a purer product business. In July, the Group provided details of a new multi-year alliance with IBM. Post year-end on 27 August 2014, IBM and Monitise announced a global digital commerce and resourcing alliance. As part of the collaboration, IBM's global go-to-market investment of dedicated resources and promotional initiatives, globally and in region, will pair with Monitise staff to pursue Mobile Money opportunities.

 

While commercial opportunities will initially be targeted at financial institutions, the alliance will also address the needs of mobile network operators, retailers and any industry vertical requiring simple API connectivity to mobile payment and commerce functionality and content. The collaboration will substantially increase Monitise's ability to handle larger custom projects globally, in addition to implementing standardised solutions. Equally, the resources will enhance IBM's ability to deliver Monitise-based Mobile Money solutions to customers.

 

UK and Europe

 

During the financial year, the Group's technology supported the commercial launch of Yaap Shopping, the Spanish mobile commerce service launched by the alliance of Telefónica, Santander and CaixaBank. Yaap Shopping enables retailers in Spain to generate revenue through digital interaction with consumers via offers, discounts and loyalty programmes within a state-of-the-art, cloud-based mobile commerce system. Yaap represents the first time in Europe that financial institutions and telecom operators have joined to innovate together in the creation of new digital services. More than 200 businesses are already participating in the scheme.  Monitise's involvement with the agreement follows on from a five-year alliance formed with Telefónica, announced on 1 July 2013.

 

Monitise continues to work with Visa Europe to deploy mobile services to its 3,000+ member banks and financial institutions across 37 countries. Monitise also extended its commercial contract with RBS, which now has more than 3m users of services developed by Monitise.

 

During the first half, Monitise entered into a five-year Mobile Money partnership with a leading UK bank and financial services company to design, build, and manage new banking, payments and shopping services. The new partnership, worth several million pounds, includes provisions for revenue-sharing arising from retail offers generated via the Group's growing mobile commerce network.

 

In the UK, mobile banking services for Clydesdale Bank and Yorkshire Bank were launched, generating strong customer adoption rates across iPhone, Android and BlackBerry devices.

 

The global mobile innovation and design agency Grapple Mobile Ltd, which was acquired in September 2013, has been successfully integrated into Monitise Create within the Group's Content business.

 

Among its increasing portfolio of clients, Monitise Create has been working with hotel group Premier Inn to develop new 'Hub' hotels where guests can manage their entire stay, as well as control room temperature, lighting and meals, via their mobiles. The 'Hub by Premier Inn' hotels, blending innovation and style, start opening later this year. During the year, the division also announced it had developed Samsung's 'My Galaxy', an application designed to help users get the most from their smartphones, including content and ticket offers, and iOSand Android apps to support fundraisers who want to 'give on the go' for Virgin Money Giving.

 

During the second half, Eurasian Bank launched its groundbreaking new mobile banking service, designed and developed by Monitise Create. The full-service, multi-language mobile banking app is available on iPhone and Android for the bank's customer base that will exceed one million this year, with iPad and Windows Phone versions to follow.

 

Monitise announced the acquisition of the Markco Media business on 26 June 2014, instantly enhancing the Group's international mobile commerce network. Most of the assets acquired are B2C-based, and include a growing number of B2B white-label initiatives including UK mobile network operator EE and MasterCard. While the majority of revenues are UK-based, the acquired business has operations in markets including the US, France, Germany and Brazil.

 

Create and the former Markco Media business have both been integrated into the Content division, which is focused on continuing to source content to augment Monitise's Buy Anything mobile commerce products comprising offers, discount and loyalty programmes. The retailer network within the Group business already has connections to 60,000+ brands and retailers across dozens of industry verticals such as restaurants, music and media, DIY, travel, health and beauty and utilities. Brands within the network include Burger King, Pizza Hut, Sky, Spar, B&Q, Tesco, ticketmaster, M&S, Home Depot, Target, Waterstone's, Boots, The Body Shop, Primark, iTunes, Nintendo and many more.

 

On 3 February 2014, Monitise announced the acquisition of Turkish Mobile Money innovator Pozitron. Following the acquisition, Monitise now works with three out of the five largest banks in the country. The Group has announced First Gulf Bank as its first customer in the UAE and mobile banking solutions developed from the company's Istanbul-based operations are now running in not only Turkey, but also the UAE, Saudi Arabia and Qatar. Monitise has carried out design and development work with Ziraat Bank, İş Bank, Yapı Kredi Bank and Turkcell.

 

During the period, a web-based digital wallet - BKM Express - that Monitise helped to develop for Turkey's national switch was extended to iOS, Android and mobile web HTML5. The service supports e-commerce and m-commerce payments and mobile person-to-person money transfers, only storing partial credit card information to deliver unparalleled security. Thanks to the participation of the country's major banks, the service covers 97% of Turkey's cards and has over 350,000 consumer members. Over 650 merchants support payment by BKM Express.

 

The Turkey-based team also  helped to launch a 'branchless banking' service, Nuvo, for Yapı Kredi Bank, one of Turkey's largest banks, and generated record adoption rates for its Pegasus Airlines service, the most downloaded travel app in Turkey's App Store. The app has led to more than 100,000 ticket sales so far during 2014. Elsewhere in the travel industry, the Group has been working with Turkish Airlines to develop new mobile services for the country's national carrier. The app, which allows travellers to book flights, check-in, track flights and timetables, has already had more than one million downloads.

 

Monitise has built on Pozitron's existing relationship with Intel Corporation, which dates back to 2012. Over the past several months, this has centred on integrating Intel's Identity Protection Technology (IPT) into mobile and PC hardware. On 26 June 2014, customers of İş Bank, the largest bank in Turkey, were able for the first time to perform transactions without typing a one-time password by using a mobile banking app that Monitise helped to develop running Intel Atom™ processors.

 

Americas

 

The Group's business in the Americas, where it has been operating since 2007, is anchored in its direct customer relationships, including eight of the top 20 North American financial institutions, and partnerships with businesses such as Visa Inc. and FIS.

 

While the Americas saw a decline in development and integration work in the period, the product portfolio was expanded with the launch of the industry-leading Vantage platform. This is an on-premise technology platform providing financial institutions in the Americas with the ability to rapidly deliver differentiated and world-class Bank Anywhere mobile capabilities, while enabling Pay Anyone and Buy Anything services to be delivered through the cloud to generate new revenue streams.

 

Alerting+ was also launched during the period. Alerting+ is a next-generation app messaging platform designed to help financial institutions connect more effectively with their customers - whether they are on smartphones, feature phones or tablets. The solution goes well beyond routine SMS notifications to include real-time mobile conversations between a financial institution and customer.

 

In addition to core infrastructure offerings, Monitise continued to expand its technological innovation by bringing best-in-class user experience and mobile strategy design services into North America via Monitise Create. U.S. Bank, a top five financial institution in the US, became Create's first customer in the Americas.

 

Among new customer wins and service enhancements during the period were U.S. Bank, Desjardins, American Savings Bank, Webster Bank, First Interstate Bank, and Card Services for Credit Unions.

 

India

 

During the year, Movida, Monitise's 50/50 Joint Venture with Visa in India, signed up ICICI bank, India's largest private bank, to make the Movida mobile payments functionalities available to its customers. The service is now live and available to ICICI bank customers. Movida can be accessed through SMS, IVR, web, USSD and the Android platform for smartphones. Movida is also live in the region with HDFC Bank, India's second-largest private bank.

 

Asia Pacific

 

Monitise took full ownership of its two joint ventures in Asia Pacific during the period to help streamline the business in order to capitalise on commercial opportunities in the region.

 

During the year, Monitise launched a Chinese-language version of its Mobile Money capabilities with the rollout of Easy TopUp for PCCW-HKT customers in Hong Kong. Bank of China (Hong Kong) was the launch bank for the service. Additional banks are set to roll out the solution, including one of the largest financial institutions in Hong Kong.

 

New functionality was also added to Monitise's BBM Money service, developed for BlackBerry in conjunction with PermataBank, in September 2013. The service now includes bill pay and cardless cash withdrawals. There are further plans to extend the service in Indonesia which will be announced in due course. 

 

Industry recognition

 

During the year, Monitise was proud to have been again recognised internationally for its ongoing innovations in digital banking, payments and commerce products and services. Among these Monitise was:

 

·     Rated in the top three of Forbes' World's Most Innovative Growth Companies.

·     Named High Performing New Business Partner at the 2014 IBM Choice Awards.

·     Crowned Peer-to-Peer winner in the Emerging Payments Awards for its Indonesian BlackBerry Messenger payments service.

·     Recognised as a Best-in-Class provider across all categories in a global CEB TowerGroup report.

·     Ranked in the top 15 of Deloitte's Technology Fast 50 for the third year running

·     Following the year-end, recognised with six international awards for its products and business success. These were: overall winner of The Banker's Technology Project of the Year, three awards at the Best in Biz International Awards and the Juniper Research Future Mobile Award for Mobile Payments.

 

Taken together, these achievements underscore the merits of our unique network approach to Mobile Money.

 

Summary and Outlook

The Group's transition to its product-led, subscription-based business and continually growing pipeline of mobile banking, payments and commerce opportunities underlines management's confidence. The Company's revenue and profit guidance remains unchanged:

 

·     Revenue growth of at least 25% in FY 2015.

·     Continued investment in the Group's global infrastructure with FY 2015 capex estimated at £35-45m.

·     The Group becoming EBITDA profitable in FY 2016, with revenue growth accelerating.

·     The following longer-term guidance for 2018 being maintained:

o  200m registered users at £2.50 ARPU

o  EBITDA margin of at least 30%

o  Sustainable gross margin above 70%

·     Monitise continues to consider a move to a main London Stock Exchange listing.

 

Amid our drive to further develop our platform technology, we enter the new financial year energised and focused on enhancing our market-leading position for the benefit of all key stakeholders.

 

Alastair Lukies                                                                                  Elizabeth Buse 

Monitise plc Chief Executive Officer                                      Monitise Group Chief Executive Officer

 

Chief Financial Officer Review

Financial Summary

 

The year to 30 June 2014 was a year of continued revenue growth for Monitise, a period in which the Group announced its transition to a subscription business model with limited upfront licence or integration costs.

 

Revenue

 

Revenue in FY 2014 grew by 31% to £95.1m from £72.8m in FY 2013. After strong triple-digit percentage growth in FY 2013, user generated revenue growth slowed to 17% at £50.6m, 53% of the Group total. Development & integration revenue by contrast accelerated 51% to £44.5m reflecting first phases of work on large contracts including Telefónica. 

 

User generated revenue comprised £19.3m of product licence revenue (FY 2013: £13.7m) and £31.3m of subscription revenue (FY 2013: £29.7m).  Subscription revenue in H2 FY 2014 was £15.0m and £16.3m in H1 FY 2014. The temporary half-on-half decline in subscription revenue is primarily attributable to the renewal of certain commercial terms which secure longer term user generated revenue.

 

Monitise is very focused on raising end-user count and subscription revenue through new wins and raising penetration at existing customers, in all geographies. We expect subscription revenue growth to accelerate later in FY 2015.

 

On a geographic basis, UK revenue rose 54% to £57.8m reflecting wins and the development & integration revenue growth. Americas revenue declined 9%, principally due to a decline in development & integration revenue. The strength of sterling compared to the US dollar also had a small negative impact on reported US revenue. 

 

Gross Margin

 

User generated margin remained strong at 91% compared to 90% in FY 2013. High margin licence revenue comprised 38% of user generated revenue in FY 2014 compared to 32% in FY 2013.

 

Group gross margin was 69% (FY 2013: 76%). The gross margin performance reflects development & integration margin of 43% in FY 2014 (FY 2013: 55%), with the decline due to the impact of certain large contracts, where bulk price commitments were made on development work. Barring other very large contract work, we anticipate that the development & integration gross margin in the medium term will be sustained at around 50%.

 

EBITDA  

 

The Group EBITDA loss was £31.4m in FY 2014 compared to £19.3m in FY 2013.

 

In line with the Group's strategy we continue to invest globally ahead of the growing opportunities in the Mobile Money market. Operating costs of £96.8m (FY 2013: £74.5m) reflect growing headcount,  including the enlarged cost base of the Group following the Grapple and Pozitron acquisitions, as well as increased sales, IT and corporate costs, as we continue to scale the business. These investments form part of the investment in productising our platform.  We expect cost growth half-on-half to slow and plateau in the next few reporting periods.

 

Other Movements

 

Depreciation, Amortisation and Impairments

 

Depreciation was £4.0m in the period (FY 2013: £3.3m). Amortisation of £15.7m (FY 2013: £11.8m) includes amortisation of acquired intangible assets of £8.2m and capitalised development costs of £5.0m. In addition, a £4.2m impairment was recorded relating to previously capitalised development spend, acquired technology and goodwill.

 

Share-Based Payments

 

The share-based payment charge of £9.8m in the period (FY 2013: £5.3m) includes share-based remuneration components relating to the acquisition of Grapple and Pozitron and Group employee share options grants. The rise in share-based payments is mainly driven by the requirement to include certain acquisition earn-out related share-based payments in the income statement.

 

Exceptionals

 

£1.9m of exceptional costs were recorded in the year, largely reflecting acquisition related expenses.

 

In addition, the Group recorded a one-off profit of £7.7m in respect of the acquisition of the remaining issued share capital in its Joint Ventures, Monitise Asia Pacific Limited and PT AGIT Monitise Indonesia.

 

Loss Before Tax

 

Group loss before tax was £63.4m, compared to a loss in FY 2013 of £51.1m.

 

Tax

 

A tax credit of £3.4m was recorded in the year (FY 2013: £0.3m charge) principally relating to non-cash movements on the unwinding of deferred tax recognised on acquired intangible assets. The Group has an unrecognised deferred tax asset of approximately £61.0m that is available for offset against future taxable profits of the companies in which the losses arose.

 

Attributable Loss

 

The reported loss for FY 2014 was £60.1m (FY 2013: £51.3m). On an adjusted basis excluding share-based payments, exceptional items, impairments and acquisition related amortisation, the attributable loss was £43.7m (FY 2013:  £32.8m). The increased loss was largely driven by growth in headcount and the impact of acquisitions in the year.

 

Loss Per Share

 

The basic and diluted loss per share was 3.6p (FY 2013: 3.8p). On an adjusted basis excluding share-based payments, exceptional items, impairments and acquisition-related amortisation, basic and diluted loss per share was 2.6p compared to 2.4p in FY 2013.

 

Cash Flow and Funds

 

The Group ended the year with a strong balance sheet, holding £146.0m of net cash at 30 June 2014 compared to £66.2m at 31 December 2013 and £85.6m at 30 June 2013. Free cash outflow excluding exceptional items, funding and acquired cash was £63.9m, compared to £35.9m in FY 2013, in line with our planned investments.  This was balanced by a net £105.6m (FY 2013: £117.3m) equity fundraise in the year, driving an increase in cash and short-term investments of £60.8m in the year, compared to £67.2m in FY 2013.

 

Joint Venture funding, comprising investments and loans, totalled £3.4m in the year, down from £4.0m in FY 2013. The reduction is principally driven by the buyout of the Monitise Asia Pacific Joint Venture in October 2013.

 

Capital spending, as guided, increased from £14.2m to £26.1m as the Group accelerated its investment in the productisation of its technology platform.  Capital spending included £4.8m (FY 2013: £5.1m) of tangible asset purchases and £21.3m (FY 2013: £9.1m) of intangible purchases and capitalisation. 

 

Post balance sheet events

 

On 27th August 2014, the Group entered into an alliance with IBM to combine the best of both companies' mobile banking, payments and commerce technology. As part of the collaboration, IBM's global go-to-market investment of dedicated resources and promotional initiatives will pair with the Group's staff to pursue Mobile Money opportunities.

 

As part of this agreement, teams from the Group's UK development and integration business, known as Professional Services, will be transferred to IBM, who will, in turn, deliver services back to the Group. The transfer will involve UK employees representing approximately 20% of the Group's global employee base. All Group contracts and client relationships, intellectual property, commitments and delivery remain unchanged.

 

Brad Petzer

Monitise Group Chief Financial Officer

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2014
				2014	2013
				£'000	£'000
Revenue				95,101	72,796
Cost of sales				(29,722)	(17,588)
Gross profit				65,379	55,208
Operating costs before depreciation, amortisation, impairments and share-based payments1				(96,748)	(74,513)
EBITDA2				(31,369)	(19,305)
Depreciation, amortisation and impairments1				(23,924)	(16,147)
Operating loss before share-based payments and exceptional items				(55,293)	(35,452)
Share-based payments1				(9,802)	(5,333)
Exceptional gain/(loss) on acquisition of subsidiary				7,692	(1,444)
Other exceptional items1				(1,909)	(4,210)
Operating loss				(59,312)	(46,439)
Finance income				522	390
Finance expense				(2,398)	(563)
Share of post-tax loss of joint ventures				(2,251)	(4,440)
Loss before income tax				(63,439)	(51,052)
Income tax				3,370	(251)
Loss for the year attributable to the owners of the parent				(60,069)	(51,303)
Other comprehensive income that may be reclassified subsequently to profit or loss:
Currency translation differences on consolidation				(13,494)	2,468
Total comprehensive expense for the year attributable to the owners of the parent				(73,563)	(48,835)
Loss per share attributable to owners of the parent during the year (expressed in pence per share):
- basic and diluted				(3.6)	(3.8)
1	Total Operating costs after depreciation, amortisation, impairments, share-based payments and exceptional expenses (including one-off costs of £112,000 (2013: £222,000) included in Exceptional gain/(loss) on acquisition of subsidiary) are £132,495,000 (2013: £100,425,000).
2	EBITDA is defined as Operating loss before exceptional items, depreciation, amortisation, impairments and share-based payments charge.

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2014
				2014	2013
				£'000	£'000
ASSETS
Non-current assets
Property, plant and equipment				10,136	8,049
Intangible assets				287,238	192,648
Investments in joint ventures				529	-
Deferred tax assets				-	44
				297,903	200,741
Current Assets
Trade and other receivables				37,207	17,363
Current tax assets				241	-
Cash and cash equivalents				146,828	86,770
				184,276	104,133
Total assets				482,179	304,874
LIABILITIES
Current Liabilities
Trade and other payables				(64,796)	(36,782)
Current tax liabilities				(209)	(160)
Provisions				(313)	(1,858)
Financial liabilities				(7,758)	(936)
				(73,076)	(39,736)
Non-current liabilities
Investments in joint ventures				-	(498)
Other payables				(4,403)	(2,333)
Provisions				-	(6,308)
Financial liabilities				(7,676)	(880)
Deferred tax liabilities				(13,828)	(14,170)
Total liabilities				(98,983)	(63,925)
Net assets				383,196	240,949
EQUITY
Capital and reserves attributable to owners of the parent
Ordinary shares				19,448	15,630
Ordinary shares to be issued				2,511	-
Share premium				336,990	216,594
Foreign exchange translation reserve				(10,771)	2,723
Other reserves				217,041	130,747
Accumulated losses				(182,023)	(124,745)
Total equity				383,196	240,949

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2014
			Ordinary				Reverse	Share-based					Foreign
		Ordinary	shares to be	Share		Merger	acquisition	payment		Accumulated			exchange
		shares	issued	premium		reserve	reserve	reserve		losses			translation	Total
		£'000	£'000	£'000		£'000	£'000	£'000		£'000			£'000	£'000
Balance at 1 July 2012		10,170	15,615	101,336		109,172	(25,321)	10,458		(76,533)			255	145,152
Loss for the year		-	-	-		-	-	-		(51,303)			-	(51,303)
Other comprehensive income		-	-	-		-	-	-		-			2,468	2,468
Total comprehensive (expense)/income		-	-	-		-	-	-		(51,303)			2,468	(48,835)
Issue of Ordinary shares (net of expenses)		4,754	-	113,323		17,600	-	-		-			-	135,677
Issue of Ordinary shares relating to prior year business combinations		473	(15,615)	-		15,142	-	-		-			-	-
Recognition of warrants		-	-	-		-	-	-		1,965			-	1,965
Share-based payments		-	-	-		-	-	4,822		-			-	4,822
Exercise of share options		233	-	1,935		-	-	(1,126)		1,126			-	2,168
Balance at 30 June 2013		15,630	-	216,594		141,914	(25,321)	14,154		(124,745)			2,723	240,949
Balance at 1 July 2013		15,630	-	216,594		141,914	(25,321)	14,154		(124,745)			2,723	240,949
Loss for the year		-	-	-		-	-	-		(60,069)			-	(60,069)
Other comprehensive expense		-	-	-		-	-	-		-			(13,494)	(13,494)
Total comprehensive expense		-	-	-		-	-	-		(60,069)			(13,494)	(73,563)
Issue of Ordinary shares (net of expenses)		3,030	-	104,435		79,340	-	-		-			-	186,805
Issue of Ordinary shares relating to prior year business combinations		9	-	-		285	-	(109)		-			-	185
Shares to be issued on acquisition		-	2,511	-		-	-	-		-			-	2,511
Issue of Ordinary shares relating to exercise of warrants		490	-	15,158		-	-	-		-			-	15,648
Share-based payments		-	-	-		-	-	9,569		-			-	9,569
Exercise of share options		289	-	803		-	-	(2,791)		2,791			-	1,092
Balance at 30 June 2014		19,448	2,511	336,990		221,539	(25,321)	20,823		(182,023)			(10,771)	383,196

 

CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 JUNE 2014
					2014	2013
					£'000	£'000
Cash flows used in operating activities
Cash used by operations					(34,784)	(17,063)
Exceptional expenses					(1,592)	(6,733)
Net income tax received/(paid)					415	(462)
Net cash used in operating activities					(35,961)	(24,258)
Investing activities
Cash acquired on acquisition of subsidiary net of cash consideration paid					4,179	749
Investments in joint ventures					(3,437)	(2,590)
Loan to joint venture parties and subsidiaries					-	(1,400)
Interest received					331	237
Purchases of property, plant and equipment					(4,819)	(5,071)
Purchase and capitalisation of intangible assets					(21,330)	(9,087)
Net cash used in investing activities					(25,076)	(17,162)
Financing activities
Proceeds from issuance of ordinary shares (net of expenses)					105,571	117,267
Share options and warrants exercised					16,740	2,168
Interest paid					(231)	(339)
Proceeds from long-term borrowings					-	139
Repayments of long-term borrowings					-	(10,376)
Repayments of finance lease liabilities					(231)	(191)
Net cash from financing activities					121,849	108,668
Net increase in cash and cash equivalents					60,812	67,248
Cash and cash equivalents at beginning of the year					86,770	19,566
Effect of exchange rate changes					(754)	(44)
Cash and cash equivalents at end of the year					146,828	86,770

 

1. Basis of Preparation

 

The financial information presented in this Preliminary Announcement is extracted from, and is consistent with, the Group's audited financial statements for the year ended 30 June 2014.

 

The preliminary announcement for the year ended 30 June 2014 was approved by the Board of Directors on 12 September 2014. The financial information set out above does not constitute the Company's statutory accounts for the year ended 30 June 2014 or 2013 but is derived from those accounts.   Statutory accounts for 2014 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their report was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

 

The Group's results have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.

 

2. Segmental information

n operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. At 30 June 2014, the Group has one operating segment.  The operating segment's operating results are reviewed regularly by the Board of Directors in order to make decisions about resources to be allocated to the segment and to assess its performance.

 

In presenting information on the basis of geography, revenue is based on the location of the customers. Non-current assets are based on the geographical location of those assets.

 

Geographical disclosures
		Revenues			Non-current assets
		2014	2013		2014		2013
		£'000	£'000		£'000		£'000
United Kingdom		57,779	37,506		112,595		46,284
Americas		29,228	32,249		133,640		154,413
Rest of World		8,094	3,041		51,668		-
Total		95,101	72,796		297,903		200,697
Products and services
					Revenues
					2014		2013
					£'000		£'000
Product licences					19,329		13,744
Subscription and transaction revenue					31,231		29,649
User generated revenue					50,560		43,393
Development and integration services					44,541		29,403
Total					95,101		72,796

 

3. Intangible assets
					Purchased
			Intellectual		and acquired	Capitalised
		Customer	property	Acquired	software	development
	Goodwill	contracts	rights	technology	licences	costs	Total
Group	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Cost:
As at 1 July 2012	118,168	26,965	222	11,920	3,993	12,263	173,531
Exchange differences	2,857	701	-	283	-	33	3,874
Additions	-	-	-	-	2,288	6,586	8,874
Acquisitions	16,638	-	-	6,422	264	-	23,324
Disposals	-	-	-	-	(356)	-	(356)
As at 30 June 2013	137,663	27,666	222	18,625	6,189	18,882	209,247
Accumulated amortisation:
As at 1 July 2012	-	737	183	-	1,184	1,839	3,943
Exchange differences	-	112	-	76	-	3	191
Charge	-	3,441	32	3,004	1,475	3,896	11,848
Impairment	-	-	-	-	-	973	973
Disposals	-	-	-	-	(356)	-	(356)
As at 30 June 2013	-	4,290	215	3,080	2,303	6,711	16,599
Net book value:
As at 1 July 2012	118,168	26,228	39	11,920	2,809	10,424	169,588
As at 30 June 2013	137,663	23,376	7	15,545	3,886	12,171	192,648
Cost:
As at 1 July 2013	137,663	27,666	222	18,625	6,189	18,882	209,247
Exchange differences	(13,135)	(2,866)	-	(1,204)	(20)	(116)	(17,341)
Additions	-	-	-	-	11,452	17,617	29,069
Acquisitions	76,282	16,984	55	8,022	128	-	101,471
Disposals	-	-	-	-	(763)	-	(763)
As at 30 June 2014	200,810	41,784	277	25,443	16,986	36,383	321,683
Accumulated amortisation:
As at 1 July 2013	-	4,290	215	3,080	2,303	6,711	16,599
Exchange differences	-	(624)	-	(623)	(13)	(23)	(1,283)
Charge	-	4,452	7	3,616	2,637	5,029	15,741
Impairment	1,546	-	-	476	-	2,129	4,151
Disposals	-	-	-	-	(763)	-	(763)
As at 30 June 2014	1,546	8,118	222	6,549	4,164	13,846	34,445
Net book value:
As at 1 July 2013	137,663	23,376	7	15,545	3,886	12,171	192,648
As at 30 June 2014	199,264	33,666	55	18,894	12,822	22,537	287,238

 

4. Loss per share

 

Basic and diluted

 

Basic loss per share is calculated by dividing the loss attributable to owners of the parent by the weighted average number of Ordinary shares in issue during the year. As the Group is loss-making, any share options in issue are considered to be 'anti-dilutive'. As such, there is no separate calculation for diluted loss per share.

 

Reconciliations of the loss and weighted average number of shares used in the calculation are set out below:

	2014					2013
		Weighted						Weighted
		average						average
	Loss for	number	Loss per			Loss for		number	Loss per
	the year	of shares	share			the year		of shares	share
	£'000	(thousands)	(pence)			£'000		(thousands)	(pence)
Loss attributable to owners of the parent	(60,069)	1,687,414	(3.6)			(51,303)		1,350,300	(3.8)

 

5. Reconciliation of net loss to net cash used in operating activities
		2014	2013
		£'000	£'000
Loss before income tax		(63,439)	(51,052)
Adjustments for:
Depreciation		4,032	3,326
Amortisation and impairments		19,892	12,821
Share-based payments		9,802	5,333
(Profit)/loss on acquisition of subsidiaries		(7,692)	1,444
Profit on disposal of property, plant and equipment		(361)	-
Finance costs - net		1,876	173
Exceptional costs		1,909	4,210
Share of post-tax loss of joint ventures		2,251	4,440
Operating cash flows before movements in working capital		(31,730)	(19,305)
Increase in receivables		(11,858)	(2,517)
Increase in payables		16,168	5,611
Decrease in provisions		(7,364)	(852)
Cash used in operations		(34,784)	(17,063)

 

6. Reconciliation of GAAP to non-GAAP items
						2014					2013
						£'000					£'000
Loss after income tax						(60,069)					(51,303)
Share-based payments						9,802					5,333
Exceptional (gain)/ loss on acquisition of subsidiary						(7,692)					1,444
Other exceptional items						1,909					4,210
Impairments						4,151					973
Acquisition related amortisation						8,185					6,555
Adjusted loss for the year						(43,714)					(32,788)
		2014							2013
				Weighted						Weighted
		Adjusted		average	Adjusted		Adjusted			average		Adjusted
		loss for		number	loss per		loss for			number		loss per
		the year		of shares	share		the year			of shares		share
		£'000		(thousands)	(pence)		£'000			(thousands)		(pence)
Adjusted loss for the year		(43,714)		1,687,414	(2.6)		(32,788)			1,350,300		(2.4)
7. Financial liabilities
										2014		2013
										£'000		£'000
Due within one year
Financial liabilities at fair value through profit or loss										7,476		682
Finance leases										282		254
Financial liabilities due within one year										7,758		936
Due after one year
Financial liabilities at fair value through profit or loss										7,080		-
Finance leases										596		880
Financial liabilities due after one year										7,676		880
Total financial liabilities										15,434		1,816

 

8. Acquisitions

 

Monitise Create Limited (formerly Grapple Mobile Limited)

 

On 4 September 2013, the Group acquired the entire issued share capital of Grapple Mobile Limited for a total potential consideration of £39,100,000.  The consideration used for the purposes of acquisition accounting of £27,614,000 is satisfied by the issuance of 28,640,748 shares in Monitise plc, cash and the fair value of contingent consideration payable. 

 

The remaining amount of contingent consideration relates to potential amounts payable in Monitise plc shares or cash at Monitise's option. The value of contingent consideration is dependent on Create achieving revenue and margin targets following the acquisition and has been calculated using the share price at the date of acquisition.

 

The amounts payable to former owners of Create are only payable should they remain employees of the Group for the relevant period and if Create achieves certain revenue and margin targets.  In accordance with IFRS 3, these amounts have been excluded from the calculation of goodwill and are expensed as share-based payments over the period of service.

 

Grapple Mobile Limited changed its trading name to Monitise Create Limited ("Create") on acquisition.  Create is a full service solution company that designs and builds mobile apps.

 

Create contributed revenue of £7,238,000 and a loss after tax of £682,000 to the Group for the period from acquisition to 30 June 2014.  If the acquisition had occurred on 1 July 2013, combined Group revenue and loss after tax for the year would have been £96,040,000 and £60,037,000.

 

The Group made this acquisition in order to benefit from the front-end design talent and capabilities of the Create team. This opportunity does not wholly translate into separately identifiable intangible assets, but represents synergies expected from integrating Create's offering and expertise within the Monitise offering.

 

Costs relating to the acquisition of £472,000 have been recognised in the Consolidated Statement of Comprehensive Income within 'Other exceptional items'.

 

The Directors have made a provisional assessment of the fair values of the assets and liabilities, pending finalisation of external valuation of intangible assets. The final amounts may be materially different from the provisional amounts stated. The fair values will be finalised during the year following acquisition.

 

The acquisition had the following effect on the Group's assets and liabilities:
					Provisional
					fair value
					£'000
Property, plant and equipment					96
Intangible assets					1,764
Cash					2,207
Trade and other receivables					4,199
Other acquired net liabilities					(4,746)
Deferred tax liability					(406)
Total					3,114
Provisional consideration					27,614
Provisional fair value of net assets acquired					(3,114)
Provisional goodwill recognised					24,500
Provisional consideration satisfied by:
- Issuance of shares					13,175
- Cash consideration					1,079
- Fair value of contingent consideration					13,360
					27,614

No adjustments for accounting policy alignments were required.      

                                                                                                                                                                                     

£1,764,000 of customer related intangible assets were capitalised as part of the acquisition of Create and will be amortised over one to five years.  A deferred tax liability of £406,000 on the capitalisation of the intangible assets has been created on acquisition.    

                                                                                                                                                

The calculation of provisional fair values of consideration, assets and liabilities such as goodwill and intangible assets as well as the assessment of any impairment to fair values generally, involve estimations of likely future cash flows delivering from or accruing to those assets and liabilities.                                                                                                                                                                                          

Judgement is also involved in selecting appropriate discount rates for determining the present value of those future cash flows. Final fair values may differ materially from those provisional values stated.        

                                                                                                                                                                               

Monitise Asia Pacific Limited                 

                                                                                                                                                                   

On 21 October 2013, the Group acquired the remaining 50% of the issued share capital in its joint venture, 
Monitise Asia Pacific Limited ("MAP"), from its joint venture partner for a consideration of £11,850,000 paid by the issuance of 20,000,000 shares in Monitise plc.  MAP provides mobile banking, payments and commerce networks in the Asia-Pacific region.   
                                                                                                                                                                             

Of the total consideration payable, £4,738,000 was deemed to be settlement of a pre-existing relationship and has not been included in the calculation of goodwill.  The settlement of the pre-existing relationship is included within 'Exceptional profit on acquisition' in the Consolidated Statement of Comprehensive Income.  The settlement amount was valued using a royalty-based method.  The total consideration paid for 50% of MAP was therefore £7,112,000.                                                                                                                                                                                       

MAP contributed revenue of £906,000 and a loss after tax of £885,000 to the Group for the period from acquisition to 30 June 2014.  If the acquisition had occurred on 1 July 2013, combined Group revenue and loss after tax for the year would have been £95,043,000 and £60,495,000.

                                                                                                                               

The Group made this acquisition in order to gain full control of MAP and, consequently, has greater flexibility in entering the Asia-Pacific market. This opportunity does not wholly translate into separately identifiable intangible assets, but represents much of the assessed value within MAP and the opportunity within the Asia-Pacific market, supporting the recognised  goodwill.      
                                                                                                                                                                              

The amount of the equity interest held by the Group in MAP immediately before the acquisition had a provisional fair value of £7,112,000 and resulted in a gain on provisional fair valuation of £7,528,000. The gain on acquisition, net of the settlement of the pre-existing relationship, was therefore £2,738,000. Offset against this was £52,000 of acquisition related costs.  The total amount has been recognised in the Consolidated Statement of Comprehensive Income as an exceptional gain on acquisition.     
                                                                                                                                                                                         

The Directors have made a provisional assessment of the fair values of the assets and liabilities, pending finalisation of external valuation of intangible assets. The final amounts may be materially different from the provisional amounts stated. The fair values will be finalised in the year following acquisition.        
                                                                                                                                                                                   

The acquisition had the following effect on the Group's assets and liabilities:

				Provisional
				fair value
				£'000
Property, plant and equipment				4
Intangible assets				898
Investment in joint venture				1,960
Cash				430
Other acquired net liabilities				(1,288)
Deferred tax liability				(148)
Total				1,856
Provisional fair value of 50% interest previously held				7,112
Provisional consideration				7,112
Provisional fair value of net assets acquired				(1,856)
Provisional goodwill recognised				12,368
Provisional consideration satisfied by:
- Issuance of shares				11,850
- Less: settlement of pre-existing relationship				(4,738)
				7,112

 

No adjustments for accounting policy alignments were required.

 

£898,000 of customer related intangible assets were capitalised as part of the acquisition of MAP and will be amortised over one to five years.  A deferred tax liability of £148,000 on the capitalisation of the intangible assets has been created on acquisition.

 

The calculation of provisional fair values of consideration, assets and liabilities such as goodwill and intangible assets as well as the assessment of any impairment to fair values generally, involve estimations of likely future cash flows delivering from or accruing to those assets and liabilities.

 

Judgement is also involved in selecting appropriate discount rates for determining the present value of those future cash flows. Final fair values may differ materially from those provisional values stated.

 

Pozitron Yazilim A.S.

 

On 31 January 2014, the Group acquired the entire issued share capital of Pozitron Yazilim A.S. ("Pozitron") for a total potential consideration of £60,210,000.  The consideration used for the purposes of acquisition accounting of £23,890,000 is satisfied by the issuance of 35,925,589 Ordinary shares in Monitise plc and the potential value of contingent remuneration payable.

 

The amounts payable to former owners of Pozitron are only payable should they remain employees of the Group for the relevant period and if Pozitron achieves certain revenue and margin targets.  In accordance with IFRS 3, these amounts have been excluded from the calculation of goodwill and are expensed as share-based payments over the period of service.

 

Pozitron is an internationally recognised company based in Turkey delivering mobile money solutions.

 

Pozitron contributed revenue of £2,321,000 and a profit after tax of £129,000 to the Group for the period from acquisition to 30 June 2014. If the acquisition had occurred on 1 July 2013, combined Group revenue and loss after tax for the year would have been £98,978,000 and £58,560,000.

 

The Group made this acquisition in order to accelerate Monitise's Mobile Money capabilities in Europe and the Middle East. This opportunity does not wholly translate into separately identifiable intangible assets, but represents synergies expected from integrating Pozitron's offering and expertise within the Monitise offering.

 

Costs relating to the acquisition of £587,000 have been recognised in the Consolidated Statement of Comprehensive Income within 'Other exceptional items'.

 

The Directors have made a provisional assessment of the fair values of the assets and liabilities, pending finalisation of external valuation of intangible assets. The final amounts may be materially different from the provisional amounts stated. The fair values will be finalised during the year following acquisition.

 

The acquisition had the following effect on the Group's assets and liabilities:

				Provisional
				fair value
				£'000
Property, plant and equipment				260
Intangible assets				9,402
Cash				2,032
Trade and other receivables				1,370
Trade and other payables				(62)
Total				13,002
Provisional consideration				23,890
Provisional fair value of net assets acquired				(13,002)
Provisional goodwill recognised				10,888
Provisional consideration satisfied by:
- Issuance of shares				23,890
				23,890
No adjustments for accounting policy alignments were required.
The intangible assets capitalised as part of the acquisition of Pozitron can be analysed as follows:
				£'000
Customer relationships - amortised over seven years				6,887
Technology related intangibles - amortised over five years				2,504
				9,391

The calculation of provisional fair values of consideration, assets and liabilities such as goodwill and intangible assets as well as the assessment of any impairment to fair values generally, involve estimations of likely future cash flows delivering from or accruing to those assets and liabilities.

 

Judgement is also involved in selecting appropriate discount rates for determining the present value of those future cash flows. Final fair values may differ materially from those provisional values stated.

 

Markco Media

 

On 26 June 2014, the Group acquired The Global Voucher Group Limited including the trade and certain assets and liabilities of Markco Media ("Markco"), and the entire issued share capital of Vouchacha Ltd and Last Second Ticketing Ltd for a total potential consideration of £54,400,000. The initial consideration used for the purposes of acquisition accounting of £26,361,000 is satisfied by the issuance of 43,729,676 Ordinary shares in Monitise plc,  a further 4,484,635 shares, which have been held back for a period of two years, and the fair value of contingent consideration payable.

 

The remaining amounts are payable to the former owner of Markco based on the achievement of certain revenue targets, as long as he remains an employee of the Group.  In accordance with IFRS 3, these amounts have been excluded from the calculation of goodwill and are expensed as share-based payments over the period of service.

 

The revenue and loss after tax contributed by Markco to the Group for the period from acquisition to 30 June 2014 was immaterial.       

                                                                                                                                                                

If the acquisition had occurred on 1 July 2013, combined Group revenue and loss after tax for the year would have been £100,716,000 and £59,804,000.

 

The Group made this acquisition in order to bring connections to thousands of brands and retailers to augment the Buy Anything product family, and to accelerate Monitise's mCommerce capabilities. This opportunity does not wholly translate into separately identifiable intangible assets, but represents synergies expected from integrating Markco's offering and expertise within the Monitise offering.

 

Costs relating to the acquisition of £654,000 have been recognised in the Consolidated Statement of Comprehensive Income within 'Other exceptional items'.

 

The Directors have made a provisional assessment of the fair values of the assets and liabilities, pending finalisation of external valuation of intangible assets. The final amounts may be materially different from the provisional amounts stated. The fair values will be finalised during the year following acquisition.

 

The acquisition had the following effect on the Group's assets and liabilities:

				Provisional
				fair value
				£'000
Property, plant and equipment				65
Intangible assets				11,308
Cash				(20)
Trade and other receivables				1,465
Corporation tax				46
Trade and other payables				(580)
Deferred tax liability				(2,250)
Total				10,034
Provisional consideration				26,361
Provisional fair value of net assets acquired				(10,034)
Provisional goodwill recognised				16,327
Provisional consideration satisfied by:
- Issuance of shares and shares to be issued				26,999
- Cash adjustment to consideration in respect of working capital				(638)
				26,361
The intangible assets capitalised as part of the acquisition of Markco can be analysed as follows:
				£'000
Customer relationships - amortised over three to ten years				5,734
Technology related intangibles - amortised over five years				5,518
				11,252

 

A deferred tax liability of £2,250,000 on the capitalisation of the intangible assets has been created on acquisition.

 

The calculation of provisional fair values of consideration, assets and liabilities such as goodwill and intangible assets as well as the assessment of any impairment to fair values generally, involve estimations of likely future cash flows delivering from or accruing to those assets and liabilities.

 

Judgement is also involved in selecting appropriate discount rates for determining the present value of those future cash flows. Final fair values may differ materially from those provisional values stated.

 

PT AGIT Monitise Indonesia

 

On 26 June 2014, the Group acquired the remaining 51% of the issued share capital in its joint venture, PT AGIT Monitise Indonesia ("PTMI"), from its joint venture partner, Astra Graphia Information Technology ("AGIT"), for a consideration of £7,349,000 paid by the issuance of 12,949,339 shares in Monitise plc.  Monitise Indonesia provides mobile banking, payments and commerce networks in Indonesia.

 

The Group made this acquisition in order to gain full control of PTMI, and consequently, capitalise on the global mobile money opportunity in Indonesia. This opportunity does not wholly translate into separately identifiable intangible assets, but represents much of the assessed value within PTMI and the opportunity within the Indonesian market, supporting the recognised goodwill.

 

PTMI contributed revenue of £8,000 and a loss after tax of £84,000 to the Group for the period from acquisition to 30 June 2014.

 

If the acquisition had occurred on 1 July 2013, the effect on combined Group revenue and loss after tax for the year would have been an immaterial.

 

The amount of the equity interest held by the Group in PTMI immediately before the acquisition had a provisional fair value of £7,061,000 and resulted in a gain on provisional fair valuation of £4,594,000.  Offset against this was £60,000 of acquisition related costs.  The total amount has been recognised in the Consolidated Statement of Comprehensive Income as 'Exceptional gain on acquisition'.

 

The Directors have made a provisional assessment of the fair values of the assets and liabilities, pending finalisation of external valuation of intangible assets. The final amounts may be materially different from the provisional amounts stated. The fair values will be finalised in the year following acquisition.

 

The acquisition had the following effect on the Group's assets and liabilities:

				Provisional
				fair value
				£'000
Property, plant and equipment				374
Intangible assets				1,817
Cash				609
Trade and other receivables				217
Trade and other payables				(380)
Deferred tax liability				(426)
Total				2,211
Provisional fair value of 49% interest previously held				7,061
Provisional consideration				7,349
Provisional fair value of net assets acquired				(2,211)
Provisional goodwill recognised				12,199
Provisional consideration satisfied by:
- Issuance of shares				7,349
				7,349

£1,703,000 of customer related intangible assets were capitalised as part of the acquisition of PTMI and will be amortised over one to five years.  A deferred tax liability of £426,000 on the capitalisation of the intangible assets has been created on acquisition.

 

The calculation of provisional fair values of consideration, assets and liabilities such as goodwill and intangible assets as well as the assessment of any impairment to fair values generally, involve estimations of likely future cash flows delivering from or accruing to those assets and liabilities.

 

Judgement is also involved in selecting appropriate discount rates for determining the present value of those future cash flows. Final fair values may differ materially from those provisional values stated.

 

9. Post balance sheet events

 

On 27 August 2014, the Group entered into an alliance with IBM to combine the best of both companies' mobile banking, payments and commerce technology.  As part of the collaboration, IBM's global go-to-market investment of dedicated resources and promotional initiatives will pair with the Group's staff to pursue Mobile Money opportunities.

 

As part of this agreement, teams from the Group's UK development and integration business, known as Professional Services, will be transferred to IBM, who will, in turn, deliver services back to the Group.  The transfer will involve UK employees representing approximately 20% of the Group's global employee base.  All Group contracts and client relationships, intellectual property, commitments and delivery remain unchanged.