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iCash Payment Systems Limited (ASX:ICP) Update to Earnings Guidance for FY2011

Revised Earnings Guidance for FY 2011
 
- Full year revenue forecast remains in line with previous guidance
- EBITDA at $14.8 million up 124% on prior year, down 14% on prior guidance
- Underlying NPAT $9.1million up 107% on prior year, down 24% on prior guidance
- Increase in underlying adjustments for 1H11 – increased from $0.7 million to $2.4 million for full year
 
iCash Payment Systems Limited (ASX code: ICP) today updated earnings guidance for the 2010/11 financial year (FY 2011)
 
In October 2010, ICP issued earnings guidance for FY 2011. Over the past six months the prevailing conditions in Australia have continued to create a challenging market environment. Our full year revenue forecast remains in line with previously issued guidance. Previous guidance was $73 million including $3 million of intercompany sales which is now eliminated.
 
Continued strong revenue performance, on a year on year basis, has been partially offset by increased expenses relating to:
- System upgrades in preparation for significant fleet placements and expansion
- New product development
 
As a result iCash’s underlying earnings before interest, tax, depreciation and amortisation (EBITDA) is expected to be $14.8 million on a consolidated basis.
 
The current guidance continues to reflect strong increases in both revenue and EBITDA compared with the previous year.
 
iCash’s Chairman, Mr James Manny commented: “The Group’s outlook remains healthy with a significant forward order book in Korea and a strengthening presence elsewhere in Asia’s high cash dependent economies.”
 
He commented further, "While the domestic market conditions continue to be soft, the Board’s strategy of pursuing an Asian growth platform remains robust. We are starting to see the benefits of pursuing strong recurring revenue models and strategies that decouple earnings from uncertain retail cycles”.
 
Underlying Adjustments
 
The Board has reviewed contingent and other liabilities and resolved to expense a series of non-recurring costs. Additionally, the ATO and iCash have finalised prior year GST adjustments. The underlying NPAT has been adjusted to include:
- GST regulation amendment and associated costs (net of tax) $0.9 million
- Non-recurring corporate costs (net of tax) $1.5 million
 
GST regulation amendment
 
As previously advised in the Annual Report 2010, on 3 March 2009, the Reserve Bank of Australia amended the A New Tax System (Goods and Services Tax) regulations 1999 (the Principal Regulations) to define the supply of certain automatic teller machine (ATM) services as a “financial supply”.
 
iCash sought advice and subsequently made a voluntary disclosure of its tax treatment and the potential GST understatement. All costs associated with this review are included in the noted amount. No further issues are anticipated in this matter.
 
It has been acknowledged the changes in GST regulations had created a new level of complexity, particularly for iCash due to its international and broader market operations. However, the changes may potentially have significant repercussions within the ATM industry as a wider review of GST treatment is undertaken. iCash is positioned to capitalise on any resulting market re-alignment.
 
Non-recurring Corporate Costs
 
The December 2010 Half Year Results included non-recurring corporate costs (net of tax) incurred in connection with maximising the value of the Group’s investment in NEOICP of $0.7 million. A review of costs expected to be incurred in finalising this initiative, identified additional costs that will be expensed in 2nd half 2011 of $0.8 million after tax
 
Australian Operations
 
iCash has continued to grow its fleet and its transaction volumes. The Cashpod provides iCash customers with an attractive, high functionality ATM for independent retailers. However, we have experienced some margin compression on new business due to aggressive market discounting and increased merchant rebates.
 
While the outlook in Australia remains cautious, the Group has invested in platforms that will support significant fleet placements and alternative revenue models. This positions the Group advantageously for profitable growth as the market continues to consolidate and differentiate between value propositions.
 
Korean Operations
 
The forward order book remains strong, currently exceeding $40 million. Margins remain consistent.
 
The full year revenue growth will exceed 75%, with production continuing to be maintained at 500+ units per month.
 
Your Board remains confident of strong revenue and profit growth in this market and plan to leverage off existing contractual relationships to increase its footprint across Asia in the second half of this financial year and beyond.
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