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Mi-Pay Group Plc

Mi-Pay Group plc Solid FY16 is very encouraging – Zeus Capital

Mi-Pay Group plc (LON:MPAY), the leading provider of mobile payment solutions to Tier 1 Mobile Network Operators and Mobile Virtual Network Operators, presents today its final results for the 12 months ended 31 December 2016.

Financial Highlights

· £83.4 million of payment transaction value processed in 2016 from 6.2 million processed transactions (2015: £64.7 million and 5.2 million respectively).

o Total Revenue £3.3 million for the year (2015: £3.0 million).

o Transaction Services Revenue £2.6 million (2015: £2.3 million).

o Professional Services Revenue £0.7 million (2015: £0.7 million).

· Gross Profits increased by 25% to £2.1 million as revenues increased together with an 8% year-on-year increase in efficiencies to deliver a gross profit margin of 64% for the year (2015: £1.7 million/56%).

· Significantly reduced delivery cost base from 2015, reducing administrative expenses by £0.6 million to £2.5 million (2015: £3.1 million).

· Operating loss of £0.4 million (2015: £1.4 million).

· Cash and cash equivalents as at 31 December 2016 £3.5 million (31 December 2015: £3.5 million).

· Basic diluted loss per share 1.1 pence (2015: 3.6 pence).

Operational Highlights

· Growth driven from continued migration of consumers to digital payment channels of our existing clients as 80% of our top 10 clients increased their payment transaction value processed.

· First delivery of Amazon Payments to the Mobile Operator community building on our mobile device expertise.

· IBM global Beacon award for ‘Outstanding Solution Hosted on IBM Cloud’.

· Developed our in-house cyber security, fraud and content management solutions driving the growth in margins.

Seamus Keating, Chairman of Mi-Pay Group plc commented on the results: “Mi-Pay has continued to make steady progress throughout 2016 as our market leading proposition becomes ever more relevant to Mobile Network Operators. We are pleased to see increased rates of migration to digital channels and we have continued to develop our growing suite of solutions.

The foundations we laid in 2015 to improve our operational efficiencies have continued and we are pleased to see our profit margin improve further. We plan to invest further in our core areas throughout 2017 and remain focused on aiding our clients in their strategy for digital transformation and moving towards profitability.”

Both the full Annual Report and Financial Statements and the notice of AGM, convening a general meeting of the Company, to be held at 30 Crown Place, London, EC2A 4ES on the 15th May 2017 at 11 a.m. are available on our website at www.mi-pay.com/investor-document-centre/ and will be posted to Shareholders shortly.

Zeus Capital Comments

Mi-Pay has announced a good set of FY16 results this morning delivering £3.3m of revenue, in line with the trading update released 30 January. The group has delivered a solid trading performance with underlying revenue increasing 8.8% to £3.3m (FY15: £3.0m), with healthy growth in transaction services (+13.7%) held back by an expected weaker performance in professional services (-5.8%). Gross profit was ahead of expectations driven by a c.810 bps improvement in gross margins to 64.2% (2015: 56.1%) delivering gross profit of £2.1m (2015: £1.7m). Despite the encouraging trading performance in FY16, ongoing consolidation in the company’s end markets and continued sluggish growth in APAC means we revise FY17E forecasts.

*  Results better than expected with significant progress made in FY16 –Operationally and financially the company made significant progress through the year. Operating costs were reduced to £2.3m or 70% of turnover (2015: £3.0m or 99% of turnover) resulting in an EBITDA loss of £0.2m (2015: £1.3m loss) vs expectations of a loss of £0.3m. At the adjusted PBT level the company made a £0.3m loss (2015: £1.4m loss) vs expectations of a £0.4m loss, again representing a substantial improvement on the previous year and coming in slightly ahead of expectations. The company saw a net cash outflow of £0.2m for the year (excluding movements in client funds) but importantly was break-even in H2.

*  Forecasts – Despite the good progress made in FY16A we revise our FY17E forecasts reflecting two key trends impacting current trading and the immediate growth profile. There is ongoing consolidation amongst European mobile operators which has slowed growth as newly merged companies consolidate their customer bases and digital payment solutions, while this has impacted FY17E negatively we believe this represents a growth opportunity in the longer term. Customer uptake in the APAC region has continued to be slow but remains a significant growth opportunity for the group in the medium to long term. We now expect the company to break even at the EBITDA level in FY17E vs previous forecasts of £0.2m profit. We also introduce forecasts for FY18E and FY19E. We expect top line growth of 27.5% in FY18E resulting in £0.1m EBITDA followed by 19.8% growth in revenue for FY19E delivering £0.5m of EBITDA.

*  Outlook – Progress made both operationally and financially in the business in FY16 is very encouraging. Despite marginally reducing our expectations for FY17E, we see significant growth potential in FY18E and FY19E. Having proven the business model over the last 18 months the management team must now execute on ambitious growth plans. Asia remains key to achieving this and any indication that growth in the Philippines is starting to come through would be taken positively.

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