Conference Call - Opening Script

Transcription

1 2009 AUDITED RESULTS Wednesday 17 th March 2010 Conference Call - Opening Script MARK MAYHEW, PRESIDENT & CEO Hello, and welcome to the NEOVIA 2009 audited results conference call. I m Mark Mayhew, CEO of NEOVIA. Thank you for joining us today to hear a little more about NEOVIA s results for 2009 as released earlier today and some more detail around our strategy for the business going into 2010 and beyond. I am joined by Doug Terry, CFO, Howard Lima, our Financial Controller, and Andrew Gilchrist, Vice President Communications. I propose to speak briefly to outline the headlines from our 2009 results, after which I will let Doug walk you through some of the financial highlights from I will then set out our updated strategy for the Group, talk briefly about current trading and outlook, and then I ll open up the call for your questions. During 2009 the Group produced a resilient performance in a challenging economic environment. Our financial results reflected generally weaker market conditions, however the business made solid progress in a number of key areas. Our focus for 2009 remained on revenue growth, cost control and cash management. We continued to diversify the business in line with the stated strategy, with a number of significant contract wins in both our core vertical of online gaming, and also adjacent market verticals. We broadened our traditional poker and casino focus with the signing of a number of sports betting, bingo, lottery and skill gaming merchants, such as JAXX, SBOBet and BeatYa, as well as the recently announced wins of SEGA and Sky. Estimates for growth in the online gaming market for 2010 range between zero and ten per cent, with key drivers being regulation of certain markets as well anticipated consolidation amongst the major operators to take advantage of economies of scope and scale in serving their customers. Outside of gaming, contract wins were announced with Mindark, the operator of the Entropia virtual universe, and with other merchants such as Travian, a leading MMOG games designer and Virwox, a virtual world currency exchange. The NETELLER payment account has helped affiliates to be paid simply and quickly. NETELLER won, for the third consecutive year, the igaming Business Affiliate Award for Best Payment System for Affiliates and our presence at the Affiliate Trade Shows this year generated substantial interest in our offering to affiliates. Similarly, the NETELLER payment account has proven an attractive alternative option for customers to bring (and withdraw) funds from online foreign exchange trading sites, with six merchants such as FxPro now using NETELLER. As an alternative payments business, our growth and prospects are closely allied to the growth and development of the broader e-commerce market. The trend for transactions moving online continued throughout 2009 despite the significant contractions in the broader economy, and it is estimated that the potential market for online e-commerce could be as large as US$450 billion (excluding North America) by We anticipate that our chosen markets could grow around 10% in 2010, as online purchasing activity is driven by increased broadband penetration and customer familiarity and trust in alternative payments. We have continued to invest in the NETELLER payment account during 2009 to ensure we offer our members and merchants the broadest range of payment solutions. We launched a number of new deposit options, enabling consumers in key European and Asian markets to more easily top up their e-wallets or pay on our hosted checkout pages. 1

2 The award winning Net+ prepaid MasterCard card, launched in October 2008, had a successful first year. NETELLER members use their Net+ physical and virtual MasterCard cards for instant payouts from their e-wallets and for making secure online purchases. More than 70,000 Net+ cards have been issued to date, with total spend via the Net+ card amounting to more than $200 million in more than 1 million transactions. We continue to improve the Net+ value proposition for our members with additional features. Our Net+ programme won a number of card industry awards during the year recognising the innovative nature of the product. Early in the first quarter, our Person-to-Person (P2P) service was extended to NETELLER Express-level members, allowing instant transfer of funds between NETELLER e-wallet members. Building on this, the NETELLER Money Transfer service ( went live in July 2009, building on the unique feature of our stored value account by integrating the e-wallet capabilities with the ease of use of the Net+ card and multi-account functionality. The Group s NETBANX business continues to make solid progress in developing a leading gateway processing solution. We announced a number of significant contract wins for NETBANX during 2009 including RSA MoreTH>N, a leading UK and international insurer, the renewal of npower s processing contract, and a number of smaller merchants who rely on NETBANX s capabilities to power their online commerce sites. The recently announced contract win with Arqiva s SeeSaw, the new IPTV service, to use the NETBANX international gateway for all its online payments, represents a major success in our strategy to broaden verticals from the traditional gaming market focus and extend NETELLER product capabilities into the newly emerging micropayments segment. We continued to invest in gateway processing via the NETBANX Unified PayPage, which allows merchants to offer multiple payment types through a single integration and with the continued addition of further payment options during the year (including PayPal) - therefore our merchants now have access to an unrivalled number of payment options to offer their customers. NETBANX Asia business continued to be successful in attracting new merchant business for its payment processing services across the region. We intend to continue to invest to ensure that we have a reliable, secure and efficient operation, and anticipate further growth as more merchants appreciate the capabilities we offer. Substantial progress was made during 2009 in the Group s Newteller technology replatforming, with parallel running with the OldTeller platform ongoing during the last two quarters of 2009 and as I speak. The Newteller platform is already running in production as part of the shadowing of the existing platform, and a planned and sequential cut-across is scheduled to be complete end of next month. A number of other initiatives were commenced in 2009 to reinforce our brand identity, including specifically tailored marketing and PR initiatives. We have continued to focus on improving operational aspects of our business, migrating some aspects of our customer support functions to Asia, and further opportunities are being investigated as part of our Business Transformation programme. We remain focused on managing and mitigating the key risks which the business faces, with further investment in this area in 2009 and expected to continue into 2010 in line with the evolution of the payments market. I will now hand over to Doug Terry, our CFO, who will take you through the financials for DOUG TERRY, CFO: Thanks Mark. I will set out some of the financial highlights of the Group s performance for the 2009 year. Total Group revenue was $64.5 million, down 15% on a like-for-like basis with Fee revenue was down 10% to $62.9 million, with revenues from the e-wallet business down 12% and down 4% 2

3 from the NETBANX gateway business, principally due to the repricing of the Asian product from July Interest revenue in 2009 was $1.6 million, a significant decrease of 73% from $6.1 million in This was from a combination of lower interest rates and also reduced cash balances on deposit as a result of spending on Newteller and other investments. Gross margin declined in 2009 from 61.8% in 2008 to 54.6% in Customer support costs were lower in 2009, as cost saving programmes initiated in 2008 have continued to produce benefits in The Canadian dollar depreciated relative to the US dollar by about 7% on average, thereby reducing costs. Website maintenance increased by 24% from $4.0 million in 2008 to $4.9 million in In mid- 2009, a new disaster recovery facility and server hosting were established for both the current OldTeller platform and to support Newteller on its completion making up the increase. Marketing and promotions decreased by 71% to $0.4 million from $1.5 million in The promotions in 2009 have been more focused which resulted in the savings. Deposit and withdrawal fees increased marginally to $13.7 million in 2009 from $13.3 million in During the year, the NETBANX Asia gateway was re-priced, eliminating the need for fee rebates. The decline in rebates was offset by the growth in volume through the NETBANX Asia gateway. The depreciation of the pound sterling relative to the US dollar and the general decline in volume through the NETBANX gateway in Europe also contributed to savings. This was offset by increased costs from the e-wallet. Payments outside of Europe are typically more expensive and both Asia and ROW regions had growing volumes in The use of the Net+ prepaid card grew throughout the year, contributing to the increase in costs. The Net+ card programme continues to support e-wallet growth, while diversifying the Group s business. Bad debt expense was $1.7 million in 2009, up from $0.2 million in Significant provisions were recorded against member and merchant accounts in the year. Approximately $1.0 million are non-recurring provisions that are required due to indications of receivables impairment that arose in the year. General and administrative expenses decreased by 12% to $26.5 million from $30.2 million. Salary costs in both the UK and Canada were reduced in the year due to the depreciation of the pound sterling (by 15%) and the Canadian dollar (by 7%) relative to the US dollar, as well as targeted headcount reductions where efficiencies could be found. Further savings in professional fees of $0.9 million are the result of reduced legal and professional work upon completion and full adoption of the Group s market presence policy in Overall, Group EBITDA was $8.0 million for 2009, down from the $15.9 million reported in The Group remained cash generative at the operating level throughout the year. In 2009, depreciation and amortisation of $6.3 million included $3.9 million of amortisation of intangible assets and $2.5 million in depreciation of capital assets. Depreciation of Newteller will begin on completion in Other items totalled $8.3 million in These comprise principally the impairment loss on the Group s investment in Centricom Pty Ltd of $4.6 million; restructuring costs of $2.4 million in 2009 (severance costs, and residual provisions against suppliers and professional and legal fees relating to the previous North American facing business); and the write off of acquisitions costs in relation to the aborted IDT prepaid cards acquisition of $0.9 million. The tax model is based on the mark-up of services provided by various subsidiaries to the Group s parent in the Isle of Man, where source revenues are non-taxable with a zero rate of tax on 3

4 companies other than banks. In 2009, the provision for income taxes was a recovery of $0.2 million compared to a recovery of $1.8 million in The Group s financial position remains solid with cash and cash equivalents at 31 December 2009 of $61.1 million (2008 was $76.2 million). The gross quantum of cash available to the Group, including restricted cash surpluses and the excess of qualifying liquid assets held in respect of e- money issued to European members over balances payable, totalled $73.5 million. This compared with $82.3 million at 31 December The decline in cash is due to decreased revenue in 2009 and continued investment into Newteller. The Group is committed to prudent cash management and will therefore not be declaring a dividend for 2009, taking into account the results for the year however the Board will keep this position under review. I will now hand back the call to Mark. Mark Mayhew: Thank you Doug. I would now like to turn to our revised strategy, a key subject we needed to address with vigour. The results of the review have led me to focus initially on the operational efficiency of the business. Despite many good things within our company, and progress on a number of fronts in 2009, the 2009 financial performance was not to the Board s expectations. My short term focus has been to develop and implement a plan to streamline NEOVIA s costs and processes throughout the current year (2010) with the aim of delivering a sustainable improvement in operating performance, specifically reported EBITDA. The first steps in this Business Transformation programme have already been taken, with a significant reduction in the employee count through reallocation, relocation or removal of roles. The second phase focuses on improving our processes, removing inefficiencies and simplifying dramatically how we operate. This will deliver some benefits in 2010 but 2011 will likely see the full financial benefit of this programme. We have hired additional executive resource to structure and lead this process and results to date are pleasing. NEOVIA has established three key objectives for 2010: first, to conclude, embed and leverage the Newteller platform development. We are on track to switch over our core e-wallet processing capabilities wholly to the new platform in April following an extensive testing regime. We will then look to embed the Newteller platform within our day-to-day operations, our products and programmes, enhancements which should see us taking full advantage of the capabilities Newteller provides. Later in 2010 should see the launch of a series of technology applications, neither feasible nor cost effective under the OldTeller platform. We have made a significant investment to provide improved functionality and offering to our customers and we will seek to leverage that. Second, we will drive the Business Transformation programme to ensure that material benefits can be achieved by end this year, and sustained into the future. This process will impact the entire Group, and we look to our people to help NEOVIA achieve the performance it is capable of. The third step however is to ensure that we are well positioned to achieving the longer term strategy for the business. NEOVIA is at its heart a payment network focused on two core propositions stored value services, (through our NETELLER e-wallet and Net+ prepaid cards - together, our NETELLER Payment Account) and straight through processing (STP) through our NETBANX gateway offering. These are our twin pillars. Success in the payments business is about achieving scale; payments is a supply-side innovative industry. Our revised strategy is to drive each of these two lines of business through organic growth and investment to achieve scale. Our historic focus has been largely on the e-wallet product. We will seek to give greater prominence going forward to STP. We will devote significant resources to developing our capabilities so that we provide market-leading offerings to compete effectively in the vertical, product and geographic markets we choose to focus on. 4

5 Traditionally, online gaming has been the strong focus for NEOVIA. Our expertise in this segment is well established (along with our brands), and we believe that we can leverage these skills across adjacent verticals. We will therefore seek to extend our offerings into additional e-commerce markets, particularly digital content and adjacent gaming markets (such as online multi-role player and video gaming) where our stored value offering has particular application with micropayments capability and we believe we can develop innovative products to meet the difficult payment challenges which more traditional methods do not achieve. In pursuit of growth we will adopt and strategies: we will not reduce our focus on online gaming as we continue to believe significant success is achievable here. The market has been tested in 2009 and even stronger players are emerging as a result of market conditioning and an evolving regulatory landscape. We stand ready to serve our merchants and as their business activities change see continued relevance of our knowledge, skills product and service offerings. But we need to go beyond a focus on gaming, to gaming and... Our focus since 2007 has been on Europe and our emerging Asian business. We have been successful at adding local payment and funding options across many European countries. However, no alternative payments business can be truly global without exposure to North American markets. We continue to explore the best means to re-enter a regulated online gaming market. The current regulatory situation in the US is complex and it would be premature to conclude definitively on if, when or how the US market might be regulated. However, this fluidity presents a substantial opportunity for those organisations that are well-positioned prior to any potential regulatory change and the NETELLER brand remains a power brand in our armoury were this market to regulate. NEOVIA has identified a number of key strategic and operational objectives to clarify our intent for 2010 and beyond in support of our adopted vision: to be the leader in frictionless payments. Our five strategic objectives are therefore: To deliver enhanced end-to-end straight through processing capability for merchants; To develop a meaningful North American market presence; To build greater scale in our stored value business; To broaden distribution by opening up our payment network; and To extend our verticals outside of gaming. And our four operational objectives are as follows: To complete our Business Transformation programme in 2010; To deepen penetration in online gaming market; To further enhance risk management processes; and To build awareness of our brand portfolio. As mentioned, we clearly are not going to achieve all of these objectives in 2010 some are longer term going into 2011 and beyond but the operational objectives are very much within our grasp in the short term. We will seek to identify appropriate scorecard measures to benchmark our progress in meeting these objectives, and share certain of these with the market in due course. In summary, I believe that we are at an exciting point in NEOVIA s evolution. It is 10 years since the original NETELLER e-wallet was created, and this seems an appropriate time to start the next chapter in our development. Before I open up the call for your questions, I will say a few words around our current trading. The Group ended 2009 with a stronger performance in the fourth quarter. Revenue from our e- wallet was $12.3 million in the fourth quarter compared to $11.4 million in the third quarter, driven largely growth in our European e-wallet of 10%. NETBANX also saw a promising improvement in revenue in the same period, with $4.2 million in Q4, an increase of 22% from the $3.5 million in Q3 5

6 2009 with European revenues growing 29% (21% after stripping out impact of currency translation). Overall, revenue for Q4 was $16.8 million compared to $15.2 million in Q3 2009, an increase of 11%. Revenue in the first two months of 2010 has been in line with our expectations. We have also seen an improving trend in certain of the key metrics such as average daily sign ups in the first quarter to date. The Newteller platform will launch fully in April 2010 following a period of extended testing, creating much needed flexibility for developing functional enhancements in our product offering. Following a transition year characterised by progress in dealing with internal and external challenges, including weaker market conditions, the Board has renewed confidence in its updated business strategy and executive leadership to deliver significantly improved shareholder value in 2010 and beyond. A relentless pursuit of improved operational efficiency, energetic organic revenue growth and a disciplined approach to strategic development opportunities are expected to drive materially improved financial performance. The Board continues to be optimistic about the outlook for NEOVIA and remains confident about the Group s prospects going forward with its adoption of a renewed strategy for growth. I would now invite you to ask any questions you have regarding today s results. Members of the management team are here with me today to assist in answering these questions. Thank you for your time. I will now hand back to the operator who will introduce the Question and Answer session. -END- 6