Ann: FLLYR: SPY: FINAL RESULTS AND COMPLETION OF

• Release Date: 30/05/12 14:15
• Summary: FLLYR: SPY: FINAL RESULTS AND COMPLETION OF MAJOR RECAPITALISATION
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SPY
30/05/2012 12:15
FLLYR

REL: 1215 HRS Smartpay Holdings Limited

FLLYR: SPY: FINAL RESULTS AND COMPLETION OF MAJOR RECAPITALISATION

SMARTPAY ANNOUNCES 31 MARCH 2012 FINAL RESULTS AND IMMINENT COMPLETION OF
MAJOR RECAPITALISATION AND RESTRUCTURE FOLLOWING RECENT APPOINTMENT OF NEW
CHIEF EXECUTIVE

o 2012 results are reflective of the previous business model
o Restructure of the business substantially complete and recapitalisation
imminent
o NZ$13m of equity raised at NZ$0.115
o NZ$25m of committed banking facilities from ASB
o Appointment of Australian Chairman
o New Chief Operating Officer
o Board changes
o ASX Listing to proceed

AUCKLAND, 30 May 2012 - SmartPay (NZX: SPY), a leading provider of payments
and transactional solutions in New Zealand and Australia, today announced its
financial results for the year ended 31 March 2012 together with the
announcement that it has substantially completed a positive recapitalisation
and restructure of the business.  This restructure is consistent with the new
Chief Executive's previously advised strategy to move to a new business model
based on sustainable, annuity style revenue and cash flow.

2012 Full Year Result

The full year result has revenue down 39% to $28.9m; an EBITDA loss of $1.95m
and a Net Loss After Tax of $12.1m.

This result is a direct consequence of the following main components:

1. A maturing of the growth in the New Zealand terminal market following the
completion of an industry wide terminal upgrade cycle which saw strong growth
in the business in the prior period.

The previous business model and accounting policy required that the majority
of revenue from rental contracts be recognised at the time of signing the
contracts.  While this model generated significant revenue and profits in the
previous periods where the market was characterised by strong growth through
the large volume of terminals deployed to meet the industry upgrade program,
once this was completed the growth slowed dramatically making it difficult to
continue to generate the level of new contracts necessary to maintain the
previous level of revenue.

2. Slower than expected growth into the Australian market, largely due to
funding constraints.

3. The significant restructure of the business by the new Chief Executive
which included significant write-downs of balance sheet items to ensure that
the business goes forward into the new business model, after the capital
raising, with a strong balance sheet.

The total value of these adjustments amounts to $6.1m of which:
o $3.1m is reflected as a reduction in EBITDA including:
o write downs / write offs of stock ($1.5m);
o write downs / write offs of a number of other items including capital
raising fees; legal and consulting fees; employee restructuring costs ($1.6m
in aggregate);

o $3m is reflected as costs below EBITDA including:
o write downs / write offs of software ($1.4m)
o write down in the value of our FIVO Wifi assets ($0.5m);
o write off of finance charges capitalised under the previous model ($1.1m).

Importantly all these adjustments are non-cash in nature.  Without these
non-cash adjustments the business would have reported an EBITDA profit and a
much lower bottom line loss.

Recently appointed Chief Executive, Bradley Gerdis, commented as follows
"This result needs to be viewed in the context of the opportunity I saw when
I invested in the business around 5 months ago".

"What I identified was a business with an enviable position in the New
Zealand and Australian payments industry and which through its significant
deployed terminal fleet should be generating a significant level of cash flow
and profit. However this wasn't the case due to a combination of the
structure of the balance sheet and the revenue recognition policy which left
the company exposed with limited financial resources to grow outside the
maturing New Zealand market".

"The opportunity I identified was to restructure the business through a
combination of a balance sheet restructure / recapitalisation and a change in
the business model to retain the monthly contracted cash flows from terminal
rentals within the business.  I am pleased to announce today that in a
relatively short period of time we have achieved what we set out to do".

"Today we announce that we have secured both equity and debt commitments to
facilitate the complete recapitalisation and restructure of the business.
Through this recapitalisation we will be unwinding the previous rental
securitisation model and bringing all the cashflow from our extensive
terminal rental fleet back into the business.  Consistent with this change in
the nature of our business we will also be changing our accounting policy to
recognise our rental revenue when received which will move the company to a
stronger position with sustainable revenue and cashflow".

"This signals a significant and immediate turn-around of the business which
will unlock immediate value for shareholders and position the business for
the tremendous growth opportunity we have ahead of us, particularly in
Australia which is a market I have direct experience in and is our key focus
for growth."

"In addition to the recapitalisation of the business, we have made a number
of other significant changes in the business which strengthen it and position
it for growth, including:

o Board changes, including the proposed appointment of new Australia based
industry focused Chairman; and
o Senior management changes including the appointment of a new Chief
Operating Officer.

"It cannot be over emphasised that this is a "good news" story.  The result
announced today was simply a necessary conclusion to the previous model to
enable the positive re-launch of the business to capitalise on a growing
market opportunity.  This is supported by our ability to complete the
significant capital raising announced today where we have secured commitments
for NZ$13m of equity capital from professional and sophisticated investors at
a premium to recent trading levels."

It is worth noting that the consolidated result masks the positive progress
we have achieved in our Australian business over the period with Australian
revenue up 105% to $6.3m.

This is pleasing progress particularly given the challenging financial
constraints of the company over the period.

2013 Financial Guidance

As an illustration of the immediate benefits of the restructure and
recapitalisation of the business and the change in accounting policy as
reflected above, once the recapitalisation is complete and rental revenues
are brought back into the business, the Board expects the business to
generate revenue in the order of $17.5m and EBITDA of $7.5m on an annualised
basis.

These numbers are pre-growth in the business and are simply reflective of the
current revenue and cash flows generated by the existing terminal fleet and
other current revenue items once they are all brought back in-house and on
the basis that revenue is recognised as it is received.  Depending on the
nature and timing of the growth achieved the prospects are to materially grow
these numbers.

The key point to note is that these numbers represent a sustainable, annuity
style business model which provides a solid foundation from which to grow.

Completion of Equity Raising

The Board of SmartPay is pleased to announce that it has secured commitments
for subscriptions of NZ$13m of new shares at NZ$0.115 per share.

Subscribers to the placement include both institutional and private investors
across New Zealand and Australia.

Recently appointed Chief Executive, Bradley Gerdis, commented "the quality of
investors we were able to attract in this placement and the fact that we were
able to raise the money at a premium to recent trading levels is testament to
the solid foundation of the company and recent positive changes we have made
in the business and reflects the value to be released through this
recapitalisation and restructure of the business."

The placement of the shares is subject to shareholder approval which will be
sought at a Special General Meeting of shareholders due to be called shortly.

Completion of Debt Raising

The Board is further pleased to announce that it has secured NZ$25m of new
banking facilities from the ASB Bank to facilitate the capital restructure
and provide growth funding.

The banking facility consists of two components:

1. NZ$20m 3 year facility for the recapitalisation and restructure of the
balance sheet; and
2. NZ$5m growth capex facility.

The debt facility is fully committed and is subject only to shareholder
approval of the NZ$13m equity placement and the satisfaction of usual
conditions precedent which are largely procedural in nature.

Gerdis commented "the ASB have been fantastic in their rapid engagement and
understanding of our needs and the opportunity to create value".

"In addition to supporting our New Zealand business the bank is supporting
our Australia growth plans through the provision of a growth capex facility
to assist us in funding terminal growth into this large market".

Recapitalisation Plan

The funds raised under the equity placement and new debt facilities form the
final piece of a recapitalisation plan that will see a complete restructure
of the balance sheet including the repayment of high priced securitisation
and mezzanine debt.  The company also intends to redeem / convert the
company's convertible notes.  On this basis the only debt on the balance
sheet post the recapitalisation will be the ASB facility which is at a very
competitive interest rate.

The effect of this recapitalisation plan will be to maintain the contracted
monthly rental cash flows from the company's extensive EFTPOS terminal fleet
within the business resulting in a move away from the previous model of
lumpy, unpredictable cash flow to an annuity style recurring cash flow model.

Chief Executive, Bradley Gerdis, says "this is an outstanding result and
entirely consistent with our stated objectives when I joined the company
earlier this year."

"The recapitalisation of our balance sheet significantly reduces our cost of
capital and de-risks the business by moving away from the previous model of
discounting the rental book cash flows to external financiers which resulted
in lumpy and unpredictable cash flow".

"The high cost of capital of the previous funding model meant that a
significant amount of the value generated by the business was leaking to its
debt financiers with very little remaining for shareholders.  We are now able
to move to a model of maintaining the contracted rental cash flows within the
business which results in smoother, sustainable, annuity style cash flow and
sets the foundation for profitable growth and real shareholder value".

New Industry Focused Australian Chairman

The Board is pleased to announce the proposed appointment of Mr Ivan
Hammerschlag as its new Chairman.

It is intended that Mr Hammerschlag will join the Board following the Special
General Meeting of shareholders due to be called shortly to approve the
equity placement.

Mr Hammerschlag is an experienced and successful Australian businessman and
has chaired the boards of a number of successful Australian companies, both
private and publicly listed.

Mr Hammerschlag is currently the Executive Chairman of RCG Corporation which
is a retail conglomerate listed on the Australian Stock Exchange.  When Mr
Hammerschlag joined RCG in 2006 the company had a market cap of $8m and was
suffering severe financial stress.  Today the business is highly profitable
with a market cap in excess of $80m.

Mr Hammerschlag's previous experience includes:

o Owner of Freedom Furniture prior to its listing on the Australian Stock
Exchange;
o Co-owner of a retail software company, Divergent Technologies, which grew
through a number of acquisitions before finally listing on the NASDAQ; and
o Executive Chairman of five private equity backed companies in Australia.

Mr Hammerschlag has committed a substantial personal equity investment to
become a shareholder of SmartPay around the time of his appointment. In
connection with such subscription and Mr Hammerschlag's proposed appointment
to the Board of SmartPay, SmartPay intends to grant Mr Hammerschlag incentive
options comprising 2 million options at an exercise price of 15 cents per
share exercisable between 1 January 2013 and 31 December 2014, 2 million
options at an exercise price of 20 cents per share exercisable between 1
April 2013 and 31 March 2017 and 2 million options at an exercise price of 30
cents per share exercisable between 1 April 2014 and 31 March 2018. The terms
of the options will otherwise be similar to the terms applying to the options
granted to Haymaker Investments Pty Ltd (Bradley Gerdis) earlier this year.

Said Gerdis of Hammerschlag's appointment "We are extremely pleased to have
secured the services of a Chairman of the calibre of Ivan.  The core market
for our payments solutions is the retail industry so to have the skills and
profile of a leading Australian retailer on our Board will no doubt be a real
asset to the company going forward."

Mr Hammerschlag commented "I am delighted to be invited to join the Board of
SmartPay and in particular to support Brad in his vision for the company".

"In my many years of experience in the retail industry we are now seeing an
increasing demand from merchants for innovation and value add functionality
in their payments technology which creates a significant opportunity for
SmartPay as a leader in this field".

"With the recapitalisation of the business and new growth funding in place I
look forward to working with Brad and his team to take the business through
its next growth phase."

The Board would like to note their appreciation for outgoing Chairman Wayne
Johnson's long standing support of the business and particularly his
contribution in facilitating the recent events and changes within the
business.

Other Board Changes

Ian Bailey has today confirmed to the Board his resignation as a Director of
the Company.

Bradley Gerdis will join the board as Managing Director following the Special
General Meeting of shareholders due to be called shortly to approve the
equity placement.

The Board would like to note their appreciation for Ian's dedication and
leadership in building the business to its current position as a market
leader in the New Zealand payments industry and facilitating the recent
changes in the business.

Appointment of New Chief Operating Officer

The Company is pleased to announce the recent appointment of Mr Rod Severn to
the position of Chief Operating Officer.

Rod is the first senior appointment made by Bradley Gerdis since his
appointment as Chief Executive and is consistent with the previously stated
objective to make a small number of senior executive appointments to support
the evolving strategy for the business.

Rod joined SmartPay as Chief Operating Officer at the end of March 2012.  He
brings to SmartPay over 20 years of experience in the IT industry.

Prior to joining SmartPay, Rod's roles included:
o Sales Director for Maxnet, a NZ based full data centre and cloud
virtualisation company;
o State Manager, NSW for Sun Microsystems where he managed 135 people across
sales (hardware and software), technical, professional services and field
roles;
o Country Manager for Sun Microsystems New Zealand; and
o Other senior sales and management roles including: Computer Associates,
Fuji Xerox and Memorex Telex.

Said Gerdis of Severn's appointment "We are extremely pleased to have secured
the services of Rod to lead the operational development of our business".

"This is a critical role for the successful delivery of our strategy and
Rod's deep experience and track record of success in senior technology sales
roles is already evident in some of the positive outcomes he has achieved in
his short time in our business".

ASX Listing

The company has resumed its plans to list on the Australian Stock Exchange
and will proceed with the process immediately following the shareholders
meeting to approve the capital raising.

The Board anticipates that the Company's shares will be dual listed on the
ASX and NZX by the end of this calendar year.

Accounting Policies

The Company's previous accounting policy has been to recognise the majority
of the revenue from its rental contracts up front in the period in which the
contracts are signed.  Under this methodology revenue was recognised up front
on the signing of a contract as a finance lease transaction. This was
consistent with Generally Accepted Accounting Principles (GAAP) for the
nature of the business to date.

Going forward, following the restructure of the business, the business model
will reflect that of a service and operating lease model.  Accordingly the
Board intends to change the accounting policy to reflect this through
accounting for revenue when it is received over the life of a contract.

The benefit of the new accounting treatment will be to smooth revenue over
the term of the rental contracts and better match revenue to costs.

Importantly the financial results released today were based on the previous
accounting policy and revenue recognition model and as such will not be
comparable with the new basis going forward.

Gerdis commented "the previous revenue recognition policy, while consistent
with the nature of the business in the past as it followed the previous
funding structure, is not appropriate for the business going forward.  The
benefits of recognising revenue when received rather than up front will
facilitate the reporting of a more sustainable revenue line which will flow
through the financial statements.  It should also make our financial
statements easier to understand which should promote investor support".

Strategy Update and Outlook

As a significant participant in the New Zealand payments industry and with a
growing profile into Australia, SmartPay is now better placed than ever to
capitalise on an increasing opportunity set.

Chief Executive, Bradley Gerdis, comments: "This is a complete re-launch of
the business off a very solid operational foundation.  We go forward with a
new senior management team, a new Chairman, new board members, a number of
new and supportive shareholders and a restructured balance sheet".

"When I joined the business in January as both Chief Executive and a major
shareholder I saw a significant opportunity to build on the solid operational
foundation already in place to grow a substantial business in a space I know
well after having built a similar business from start-up to become a major
player in the Australian payments industry".

"At the time of my initial engagement with SmartPay I recognised that the
business faced some immediate challenges which needed to be addressed before
it would be able to properly capitalise on these opportunities, the most
pressing of which was its balance sheet and capital structure".

"In a relatively short space of time that work is now substantially complete
and with all these positive changes in place the business is now correctly
structured and well resourced for growth".

"Of course this is only the first step in a much broader strategy to create
value for all shareholders.  The next step is to add scale to extract the
benefits of the operational leverage inherent in the existing platform".

"In terms of the broader strategy, the opportunity into Australia is real,
sizable and immediate. This is expected to include strong organic growth
which will in all likelihood be accelerated through strategic acquisitions
aimed at fast tracking our capability, resources and scale into this market
which has the potential to significantly exceed our current New Zealand
business in terms of scale over time".

"The focus in New Zealand is to continue to build on our leading market
position with a particular focus on extracting incremental value from our
extensive existing merchant base".

"The business has an enviable reputation for technology innovation, a
function of our existing IP base and our internal technology development
capability.  This is a core differentiator and will form the basis for the
delivery of additional revenue generating products to our existing and
growing merchant base".

ENDS

For further information contact:

Bradley Gerdis, Chief Executive, SmartPay, + 64 9 442 2717

About SmartPay Holdings Limited
SmartPay is a leading provider of integrated merchant services utilising the
Internet and broadband connectivity.

SmartPay's product set includes:
1. The provision of EFTPOS terminals and related payments services.
2. Transactional processing services, including for the taxi industry;
Prepayment products; Bill payment solutions and Online Payments.
3. Audio and video, music, messaging and media via its Retail Radio product
set.

For more information visit - www.smartpayltd.com
End CA:00223410 For:SPY    Type:FLLYR      Time:2012-05-30 12:15:46