Were your FY10 financial results in line with management expectations ?





In Korea, sales revenue from our Korean subsidiary neoICP grew by 141% to $28.0m as production output increased to over 600 high value ATMs per month compared to 150 per month less than one year ago. Production covers a range of products including the cashPod for Australia, the cashPod for Korea and cash recycling ATMs to Lotte Group.

In Australia, sales revenue for the year improved by 92% to $14.4m driven by a full year operating under direct charge, an increase in transaction volumes across our ATM fleet, and the sale of 610 cashPod ATMs that resulted in the size of the ATM fleet under management rising from 720 to 1,330. The number of transactions processed during the year increased to 5.8 million with the majority of these priced at $2.00 per transaction.

The broker research papers released were considered to be in line with our expectations. As always, the reported result will be subject to the final audit recommendations particularly, regarding the treatment of certain issues and how aggressively we write down assets such as inventory and R&D. These issues had been well telegraphed and are consistent with our comments. On this basis, the published results were in line with iCash expectations and reported in line with accounting standards.

Can you provide details regarding your shareholding in neoICP ?

In September 2010, a convertible note issued by neoICP in April 2007 was exercised by investors and converted into shares in neoICP.

At June 30, ICP's shareholding in its Korean subsidiary neoICP was:
Voting interest 51.7%
Economic interest 48.4%

Following conversion of Convertible Bonds in September 2010, this shareholding was reduced to:
Voting interest 44.9% (-6.8%)
Economic interest 42.4% (-6.0%)

The Board has always, and will continue to look to maximize the value of the Company's investment in neoICP, and is evaluating a number of options at present.

Can you provide a more detailed breakdown of the Administration Expenses incurred ?

We have two major expenses items:

COGS - all direct costs

Admin Costs - all indirect costs (SG&A, corporate costs, writedown of R&D)

The table below summarises Admin Expenses for FY10.





The iCash Group grew its revenue by 121%. Our increases in administration expenses are entirely consistent for a business with this scale of growth.

In Australia, administration costs were $4.7m and included residual restructuring costs resulting from three previous acquisitions. Software development expenditure associated with the introduction of direct charge and increases to employee-related costs following the purchase of the business assets of Pulse International in Feb-10 are reflected in these accounts. The increased spending on infra-structure costs will enables us to adequately resource the growth of the company in FY11 and beyond.

In Korea, Admin Costs were $4.6m and were affected by Product Development expenditure of $1.4m related mainly to product development costs for our new cash recycling ATM contracts. There were also inventory writedowns of $0.3m as recommended by the auditor.

What were the details of the transfer of $1.3 million from the Share Option Reserve ?

There was a transfer of $1.3m from Equity Options reserve to Accumulated Profits and Losses (Reserve) as per AASB 2 - Share Based Payments. The transfer relates to director's options granted in 2007. During the year these options were exercised. This is not income and has no impact on P&L. The breakdown of the transfer is as under:

James Manny 1,146,800
Tony Teng 57,340
David McDonald 114,680
1,318,820

How much did ICP spend on R&D in Australia and separately in Korea ?

In Korea, we typically spend around 10-12 % of revenue on R&D. Last year, this fell to under 5% due to the high sales volumes recorded.

In Australia, our expenditure relates to modifications and design adaptations to meet specific Australian conditions such as compliance for APCA certification and ATM testing. Last year's spend was $1.5m.

Your borrowings increased to $9.3 million from $5.3 million, an increase of almost 100%. Can you provide details regarding this ?

All financial liabilities are secured by the Korean entity and loan amounts have no recourse to ICP (the parent entity), that is, if neoICP defaults on its loan obligations, there is no liability or recourse to ICP.

At Jun-10, debt of $9,331,195 comprising:
$7,998,850 - short term bank facilities to accommodate increased sales
$1,332,345 - convertible bonds, since converted to equity in Sep-10

These (see Note 19) are all short term borrowings from Korea and were used to fund forward ordering of components ahead of Lotte production that began in Nov-09. Current revenue from Korea is $6.0m per month, however, components must be funded two months in advance. These facilities were provided by Uniquest Inc, Industrial Bank of Korea and an import finance facility syndicated by the industrial Bank of Korea and Kook Min Bank. Some of these facilities were secured with interest ranging from 4.3% to 12%

What are the conversion terms of the Convertible Bonds that matured in September 2010 ?

The Convertible Bonds were issued on Apr-07 and matured in Sep-10. The terms were:
Interest rate - 4.5%
Periodic payments - not applicable
Repayment method - If not converted, principal and interest redeemed Sep 15, 2010.
Type of shares to be issued on conversion - Ordinary shares

Post-conversion, ICP's voting interest in neoICP reduced from 51.7% to 44.9%. and our economic interest fell from 48.4% to 42.4%.

ICP currently maintains both Board control and management control. In FY11, neoICP will still be consolidated into ICP's financial statements, and there will be no change to the Board and day-to-day management between the two companies.

Could you provide the terms and conditions of the loan to BCT and when is the borrower going to repay this loan ?

Our auditors have issued a Qualified Opinion on the basis that they were unable to satisfy themselves as to the recoverability of a Non Current amount receivable of $1.7m resulting from an agent negotiated agreement with Beijing Yinkatong Technology (BCT). The objective of iCash is to partner with a local expertise to establish our operations in China. BCT is an ATM deployment and banking software company. The amount relates to a convertible loan to BCT and is convertible into equity in BCT. The Board has no current intention to convert the loan and will be seeking repayment of this amount. Our agent has informed the Board that the loan amount is recoverable.

Neo-ICP lent $2.2 million to "third party Korean parties" and this loan is "secured over a Family Bank Inc shares". Could you provide details regarding this ?

Includes a loan of $2.2m to a non-related third party by the Korean subsidiary at an interest of 9%. The loan is secured by 560,000 Family Bank Inc. shares. Family Bank is a privately owned company and 50% of the loan has been repaid in Sept-10. This loan has been verified and signed off by the Korean auditors.

What steps are being taken to improve the standards of Corporate Governance ?

In Aug-10, we appointed Barry Sechos as a Non-Executive Director to assist the Board in bringing an external, alternative perspective to achieving our growth objectives now and in the future. An important part of his brief is to ensure that proper corporate governance process is followed with integrity, including financial reporting and disclosure and compliance with the law and other requirements (such as Securities Exchange Listing Rules). He will also provide input into approving overall strategy, budgets and large financial decisions such as capital expenditure and resource allocation.

In line with the Company's corporate development, we initiated the search three months ago and now we have two likely candidates for the role of Independent Non-Executive Chairman. They are agreeable to commence subject to them completing their own due diligence and relieving themselves of some of their current responsibilities. We anticipate their engagement and them acting as Head of the Audit Committee by the end of this calendar year.

What are terms and conditions surrounding the options issued in 2010 as part of the Lotte contract ?

The following options were issued for services rendered on the Lotte sale project:
7 million options have an exercise price of $1.50.
7 million options have an exercise price of $2.00.
7 million options have an exercise price of $2.50.

These options will only be exercised if the ICP share price reaches these prices. The vesting date is subject to final verification of the payment of 1,000 ATMs. This is expected in Nov-10. The vesting date is subject to that verification.

What was the strategy surrounding the acquisition of Pulse ?

Prior to the acquisition, all of ICP's transactions were switched via Pulse. Thus, there was a business risk that another party acquired Pulse and increased the transaction costs to us which may have made us unprofitable. So we effectively bought our own switching agreement back from Pulse protecting us from this situation.

Secondly, there was a benchmark transaction that valued the transaction at an arm's length basis. We were able to earn the revenues of a residual Pulse ATM contract for eight months. The substantial profit from this was offset against the purchase price.

Our Remote ATM Monitoring Solution (iRAMS) software application comes from the Pulse switching (TPII) technology. iRAMS allows users to visually monitor over 50 diagnostic parameters in real-time such as the operating status of an ATM, the number of notes in each cassette, and the location of any jams using any PC, an iPhone, a Symbian compatible mobile device, or the ATM screen.

Every ATM manufactured by neoICP has part of the TPII technology embedded to allow the group to process data at the machine level rather than at a switch environment. As an example, this application was instrumental in iCash selling over 600 ATMS in Australia in FY10. The purchase of the Pulse infra-structure enables us to adequately resource the growth of the company in FY11 and beyond.

What is the Contingent Liability per Note 35 in your Notes to the Accounts ?

Since Mar-09, the GST position regarding the sharing of ATM fees in unclear in the sharing of the $2.00 direct charge. We have adopted a conservative position similar to that of Customers Limited until we get greater clarity from the Australian Tax Office. There is no precedent on this which is why we have adopted this approach. The potential Contingency Liability of between $0.4-0.6m relating to GST payable to the Australian Tax office.

How can iCash be a major regional payments group if the markets in which you operate are already saturated?

Management believes saturated markets only refer to a snapshot in time. For example, demand may be matched at a price point of supply but will change as prices change. This is also true when technology changes.

iCash pursued its business plans in markets considered saturated by other participants but we used technology to change the competitive parameters. Our challenge is to maintain our technology edge.

If you are Number One in the retail non-bank sector in Korea, why hasn't this been reflected in your profile and earnings?

We have only just recently received consent from our major clients (with the exception of Lotte Group) to name them as our customers. Understandably, they were cautiously managing the reputation risk that may have arisen from entrusting part of their cash handling infrastructure to a microcap Australian company. We should not forget that iCash as a group has only been a full time ATM and cash handling business since late 2007.

iCash provided, as approved by the Board, sufficient information for investors to determine that the Group had achieved significant milestones both here and Korea. More recently, the group issued its first Earnings Guidance which it considers being a significant step in its business growth.

What is your strategy for expanding in the Asia region and how will you manage the risk?

iCash has grown within its financial means and has been defensive with its capital. Management prioritises its capital expenditure according to where it believes the best returns are achievable and sustainable.

Going forward, iCash will remain capital defensive. We will seek to leverage off our customers, where we have become commercially integrated and enter new markets by their side. We anticipate that we will have a presence in Taiwan, Indonesia, Malaysia and Vietnam along with China and New Zealand in the medium term. We are operating pilot trials already but meaningful rollout naturally depends on economic viability.

This strategy reduces what management refers to as 'frontier risk' in entering markets where our own local experience is limited.

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