FNX Fonix Mobile Plc

 12 March 2024

Fonix Mobile plc

("Fonix" or the "Company")

Interim Results for the six months ended 31 December 2023

Strong trading momentum continues with further international growth opportunities

Fonix, the UK focused mobile payments and messaging company, is pleased to announce its unaudited interim results for the six months to 31 December 2023 (the "Period").

Financial Highlights

Operational Highlights

·     Record levels of commercial trade were achieved in December.

·     New Subscription Manager product has now been released in preparation for major charity events in 2024.

·     Fonix continues to maintain high client retention, with over 99% of income of a repeating nature.

·     100% platform uptime throughout the Period whilst supporting record levels of transactions and consumer engagement.

·     Fonix's key service lines have each grown in the Period and the business retains a significant pipeline of enterprise prospects going into H2 FY24.

·     Increased interim dividend of 2.6p (FY23: 2.36p) per share, in line with the company's progressive dividend policy to pay out at least 75% of adjusted EPS.

·     Underlying free cash at £11.2m (H1 FY23: £8.4m) at the Period end, with the Board considering options for use of surplus cash, which may be returned to shareholders in the form of a special dividend or further share buy-backs.

Outlook

The second half of the year has started strongly with performance in line with recently upgraded expectations. As was the case in previous years, we are expecting gross profit to be slightly weighted towards the first half of this financial year, due to some seasonality in the trade of our significant media customers.

In line with our growth plans, we will continue to invest more in future growth, with further investment into product as well as investments in organic international growth, as we look to continue to deliver sustainable, highly profitable growth for our shareholders.

The Company has a strong pipeline of commercial opportunities, including significant enterprise deals in the UK and overseas, which provides the Board with confidence in the ongoing success of the business. We look forward to updating shareholders at the appropriate time as we progress through the current financial year.

Notes

¹ Adjusted EBITDA excludes share-based payment charges along with depreciation, amortisation, interest and tax from the measure of profit.

² Adjusted PBT is profit before tax excluding share-based payment charges.

³ Adjusted EPS is earnings per share excluding share-based payment charges.

⁴ Underlying cash is actual cash excluding cash held on behalf of customers.

Rob Weisz, CEO, commented:

"We've made excellent progress on our strategic priorities in the period, once again nurturing significant growth from both established clients and newly onboarded customers alike.

As we have begun to explore overseas markets we have identified territories with favourable market dynamics and exciting growth potential. At the same time we have continued to add significant additional depth to our product offering, expanding our competitive advantage and creating the founding dimensions for growth into the future."

Enquiries

Fonix Mobile plc                                                                                                          Tel: +44 20 8114 7000

Robert Weisz, CEO

Michael Foulkes, CFO

Cavendish Capital Markets Limited (Nomad and Broker)              Tel: +44 20 7220 0500

Jonny Franklin-Adams / Seamus Fricker (Corporate Finance)

Sunila de Silva (ECM)

About Fonix

Founded in 2006, Fonix provides mobile payments and messaging services for clients across media, telecoms, entertainment, enterprise and commerce.

When consumers make payments, they are charged to their mobile phone bill. This service can be used for ticketing, content, cash deposits and donations. Fonix's service works by charging digital payments to the mobile phone bill, either via carrier billing or SMS billing. Fonix also offers messaging solutions.

Based in London, Fonix is a fast growth business driven by blue chip clients such as ITV, Bauer Media, RTÉ, Global Media, Comic Relief and Children in Need to name a few.

CEO's review

Fonix has continued to make strong progress on its strategic and financial goals in the first six months of the financial year, achieving double-digit period-on-period growth in gross margins and profitability. Gross profit growth has been particularly strong outside the UK where customers onboarded in the previous financial year have continued to see substantial growth this financial year.

Fonix's two core business lines of mobile payments and mobile messaging have each grown strongly in the period, increasing by 14% and 53% year-on-year respectively. Mobile payments remains the business's primary commercial focus and represented 82% (H1 FY23: 84%) of gross profits. Mobile messaging continued to grow strongly due to higher demand from existing customers, who increased their adoption of Campaign Manager's marketing capabilities, as well as strong demand from new clients.

Total Payment Value (TPV) represents the gross value of consumer spend on both commercial and charity customer services. TPV growth from Fonix's commercial clients remained strong in the period and was largely proportional to the increase in gross profits. Charity TPV grew marginally year-on-year as we started to see a slight recovery in the level of consumer giving this financial year.

Market opportunity

The market for Fonix's services in our core markets continues to be significant and growing, with Fonix considered to be the leading provider of interactive services in both the UK & Ireland.

By maintaining our strategy of focusing on sectors where we see sustainable growth potential, we see many opportunities to expand our services into new geographical markets and broaden our business offering through the value chain of our existing customers. Through our collaborative customer relationships, our Campaign Manager product is gradually evolving to become agnostic to particular payment methods and messaging channels. This shift means that we increasingly view alternatives to mobile payments and SMS, such as debit card payments or WhatsApp messaging as opportunities for further growth and differentiation. Once again, working in partnership with our key customers, we are already on a journey of engineering these technologies into our core products.

Growth strategy

Fonix continues to take a balanced approach to sustainable growth, looking to achieve a material percentage growth in gross profits, whilst ensuring we allocate ample resources to enhancing our products and geographical presence. Guided by this strategy, the company has bolstered its planned investment in product development and dedicated resources to facilitate international expansion.

The business has made good progress with each of its growth strategy pillars, which continue to guide our decision making and how we invest:

1.         Grow & deepen existing relationships

Gross profits from key commercial customers have continued to grow solidly in the period, demonstrating the continued resilience of Fonix's business model in a challenging economic environment. We continue to forge deeper relationships with our biggest clients and find new commercial opportunities for growth from these accounts. At the same time, the majority of our larger customers now refer to Fonix as a 'partner' (rather than a supplier) signifying the collaborative nature of our relationship and emphasising the mutual trust, shared goals, and commitment to long-term success. These alliances remain one of Fonix's most understated competitive advantages. The company continues to have over 120 active customers.

In the Republic of Ireland we have further elevated our position in the market by helping coordinate the industry response to the proposed new gambling regulation bill, which has the potential to span into the governance of interactive services in the region. Whilst the new legislation may pose a risk to the operation of prize draw competition services in Ireland (as described in more detail on page 25 of the company's Annual report and Accounts 2023), our past experience of liaising with regulators in the UK has proved invaluable in helping us guide customers and operators on the best way to respond and engage with regulators.

2.         Take a disciplined sector focus

We continue to take a sector focused approach to growth, leveraging our significant reference clients and partnerships, as well as building sophisticated industry specific features into our products.

The media sector remains the cornerstone of our business, comprising 80% of gross profits during the period. As well as advancing customer prospects in the UK and Ireland, media broadcasters also represent our primary commercial focus when exploring new international markets. Leveraging over a decade of significant product investment in this domain, Fonix maintains a substantial competitive edge, positioning us favourably for expansion into new overseas territories.

This financial year has seen the beginning of a recovery in consumer donations to charity, suggesting the downward pressure from the cost of living crisis may be tapering off. The market for charity donations continues to be significant, and with carrier billing payments offering a 'near-free' commission model, coupled with Fonix's outstanding reference clients, there remains many more opportunities for expansion in this market.

Beyond media and charity, we continue to target a number of new opportunities in online services, particularly in gaming and e-mobility sectors, where we can clearly demonstrate the reduction in basket abandonment achieved by incorporating carrier billing as an alternative payment option in a consumer's checkout flow.

3.         Create sustainable, long-term profitability for shareholders

Fonix continues to achieve material growth in gross profits and adjusted EBITDA, with both growing 17.9% and 17.7% respectively year-on-year in the period. With our core commercial focus remaining on large, multinational clients with relatively long sales cycles, and our priority on nurturing new clients to ensure that they are transacting to their full potential, we continue to take a considered approach to growth by balancing new business wins and international expansion efforts with driving transactions with existing clients. We believe this remains the best approach for providing a long-term return to shareholders.

4.         Be client and partner led with international expansion

We continue to leverage our network of multinational clients and operator partnerships to establish direct connectivity in further overseas markets with the aim of launching services with a number of media clients in new international territories over the next few years. We are confident this is the best strategy for achieving sustainable, highly valued growth, where our domain expertise can be expanded into new markets.

As we explore international market opportunities, we have now identified several other European countries with well regulated markets, conducive to operating interactive services. These markets are typically characterised as having a few small incumbent providers with modest technological capabilities, often operating as minor divisions within larger organisations where interactive services are not a core strategic focus. These markets represent medium to long-term growth prospects for the business, instilling confidence in the board regarding the business' ability to sustain its international expansion strategy for years to come.

5.         Widen our technological and operational advantage

We have continued to make a substantial investment in our world leading interactive services product, Campaign Manager, making significant user interface improvements, alongside adding support for subscriptions, Interactive Voice Response (IVR) voting and enhanced promotional offers to consumers. Having onboarded several new enterprise scale clients in 2023, the platform has sustained 100% uptime during the period, processing record levels of consumer transactions and interactions without interruption. Once more, the robustness and reliability of our technology in supporting high profile live events remains one of our key competitive advantages.

The business has continued to build on its exemplary reputation for compliance in the industry, extending our strong relationships with mobile operators and regulators in the UK to counterparts in Ireland. We strongly believe this trusted relationship with our partners continues to provide a pivotal role when winning new business and increases the barriers to entry to new providers looking to enter the market.

People

The company takes immense pride in its reputation as a market leader, fostering a culture where our team members can truly thrive. Attracting and retaining the best industry leading talent continues to be a top priority for the business in maintaining this status. Our headcount grew by 10% year-on-year to an average of 45 in the period (H1 FY23: 41) and we continue to maintain a diverse workforce, with 45% of our staff identifying as female.

Like many businesses, we found it necessary to provide our staff with pay raises above the historic average in the latest pay review, acknowledging the continued challenges posed to people by the rising cost of living. However, I'm pleased to report that we successfully incorporated these increases into our existing growth projections and managed to offset any additional costs by implementing savings measures elsewhere. We continue to be mindful of inflation moving forward, and continue to be confident of managing additional costs within our existing plans.

Product

Driven by demand from our customers, during the period we launched the first iteration of our subscription manager add-on to Campaign Manager, which will allow our largest charity clients to maintain ongoing transactions with their supporters throughout the year and beyond their annual telethon events. At the same time we have rebuilt the interface of Campaign Manager, providing a more intuitive and faster experience to our users.

Financial Review