Interim Results
PayPoint PLC
15 November 2006
PayPoint plc
Interim results
For the six months ended 30 September 2006
HIGHLIGHTS
6 months 6 months
ended ended
30 September 30 September
2006 2005
£million £million Increase
Revenue 71.0 54.1 31%
Net revenue (1,3) 25.8 21.3 21%
Operating profit 10.4 8.2 27%
Profit before tax 11.0 8.4 31%
11.3p 10.5p 8%
Basic earnings per share
Interim dividend 4.6p 3.0p 53%
• Consumer transactions processed up 27% at 178 million with strong growth in
all sectors
• Operating margins (2,3) increased to 40% from 38%
• PayPoint terminal outlets have increased to over 16,000 up 16% on September
2005 and up 7% on March 2006
• Exclusive TV licensing contract live since August 2006
• Prompted consumer awareness now 60% up from 36% in the previous year (4)
David Newlands, Chairman of PayPoint, said 'Transaction volumes have continued
to drive strong revenue growth and the operational gearing delivers strong
profit growth to the bottom line. PayPoint's investment in new signage and the
publicity surrounding the TV Licensing win have improved consumer-prompted brand
awareness to 60%, which is driving an increase in market share in all sectors.
PayPoint's retail network continues to expand, as do PayPoint's Epos
relationships, in which PayPoint connects to the retailers' till systems.
Investment in new communication infrastructure and expansion of our operating
base in Welwyn Garden City have given us a sound base for future growth.
Our acquisition of Metacharge will enable PayPoint to offer an internet payment
solution alongside our physical payment collection network, allowing our clients
a more comprehensive payment proposition. We are confident that this acquisition
will provide us with further growth opportunities.'
1 Net revenue is revenue less commissions paid to retail agents and the cost of
e-vouchers for mobile top-ups where PayPoint is the principal
2 Operating margins are operating profit as a percentage of net revenue
3 Net revenue and operating margins are measures which the directors believe
assist with a better understanding of the underlying performance of the group.
The reconciliation of net revenue to statutory amounts can be found in note 2
4 BMRB Omnibus survey October 2006
BUSINESS REVIEW
We continue to grow in all sectors particularly bill and general payments with
the introduction of the exclusive TV licence contract.
This growth has been achieved through the success of our strategy to:
• broaden our customer service proposition and increase the range of payments
through our network; and
• grow and optimize our network coverage.
Operational overview
In the first six months of the financial year, PayPoint processed 178 million
transactions, with a value of £2.3 billion (2005: 140 million transactions with
a value of £1.6 billion), an increase of 27% in transactions and 41% in value.
TV licence payments and an increase in the average transaction value for gas and
electricity, following rises in domestic prices, have contributed to an increase
in the average transaction value to over £12. Commissions paid to retail agents
were £35.9 million, up 23%.
There has been strong growth in transaction volumes across all sectors:
6 months 6 months Increase Year
ended ended % ended
30 September 30 September 31 March
2006 2005 2006
million million million
Bill and general 109.2 84.6 29 205.0
payments*
Mobile top-ups 63.2 51.7 22 108.2
ATMs 6.1 4.0 53 8.9
Total 178.5 140.3 27 322.1
*Includes debit/credit transactions
Bill and general payments
This sector has benefited from continued transaction volume growth, helped by
winning an exclusive contract with TV Licensing. Energy consumer price increases
have also continued to have a beneficial effect on PayPoint's transaction
volume, mitigated by an increase in the average value of payments. Whilst
current volumes in transport ticketing are relatively modest, there is potential
for long term growth. We have continued to sign contracts with regional
transport companies. We are on track to have five hundred retail agents with the
Western Union service operational by the end of the current financial year.
Mobile top-ups
Overall market share is c.28% (March 2006: c.27%) as a result of extending the
retail network and our agent re-branding programme through all our independent
outlets and over 1,200 of our multiple sites. The re-branding has contributed to
an improvement in prompted brand awareness of 24ppts year on year to 60% (1).
1 BMRB Omnibus survey October 2006
ATMs
New machines continue to be rolled out, albeit at a slower than planned rate
(average net increase of 34 per month). The quality of the installed estate has
been maintained and average transaction volume and revenue are better than
expected, with sites averaging 640 transactions per month split between cash
withdrawals and balance enquiries, with the latter representing slightly more
than half the transactions. Installed ATMs have grown to 1,655, an increase of
204 since the last year end.
Network growth
Strong demand continues for the new PayPoint terminal and the retail network has
grown to 16,325 sites, a net increase of 1,029 on the year end.
2,461 sites (2005: 2,000) with our terminals also have Epos connections, to
allow mobile top-up transactions over the retailers' own till systems and there
are a further 3,740 Epos only sites (2005: 2,880).
Financial overview
Revenue for the first six months was £71.0 million (2005: £54.1 million), up 31%
driven by a 27% increase in transaction volumes, and the increase in Irish
mobile volumes (1) the revenue from which has risen to £9.4 million (2005: £3.8
million). Cost of sales was £50.7 million (2005: £37.4 million), an increase of
36%. Cost of sales comprises commission paid to agents, the cost of mobile
top-ups where PayPoint is principal, depreciation and other items including
telecommunications. Agents' commission increased by 23% to £35.9 million (2005:
£29.1 million).
Depreciation has increased to £1.7 million (2005: £1.0 million) now that the new
terminal has been rolled out. Gross profit improved to £20.3 million (2005:
£16.7 million), 21% ahead of the same period last year, with a gross margin of
29% (2005: 31%). Eliminating the impact of acting as principal in Irish top-up
sales would have resulted in the gross margin reducing marginally from 33.2% in
the first six months of last year to 32.9% this year.
Net revenue (2) of £25.8 million (2005: £21.3 million) was up 21%, driven
primarily by volume growth. Operating margins3 were 40% (2005: 38%), benefiting
from operational gearing and also from a delay in the migration of mobile
top-ups, in one of our multiple retailers, from our terminals to the retailer's
own till systems.
1 In Ireland, PayPoint is principal in the sale of mobile top-ups and
accordingly the face value of the top-up is included in sales and
the corresponding costs in cost of sales
2 Net revenue is revenue less commissions paid to retail agents and the cost of
e-vouchers for mobile top-ups where PayPoint is
the principal
3 Operating margins are operating profit as a percentage of net revenue2
Financial overview (continued)
Operating costs (administrative expenses) have risen to £10.0 million as
expected (2005: £8.5 million), an increase of 16%, driven largely by the
increase in leased space at our operations base in Welwyn Garden City, merger
and acquisition activity and the expansion of the senior management team.
Operating profit was £10.4 million (2005: £8.2 million), up 27% with a
corresponding increase in operating margins (1).
Profit before tax was £11.0 million (2005: £8.4 million), up 31%. The tax charge
was £3.3 million (2005: £1.3 million) and the effective tax rate was 30% (2005:
16%).
Operating cash flow was £12.1 million including £0.8 million of client cash (3)
(2005: £3.2 million after an outflow of £6.9 million in respect of client
cash (3)), reflecting strong conversion of profit to cash. Capital expenditure of
£5.6 million (2005: £3.2 million) reflected spend on new terminals, ATMs and
infrastructure assets including the refurbishment of our operations base at
Welwyn Garden City. Net interest received was £0.7 million (2005: £0.3 million)
and equity dividends paid were £5.1 million (2005: £3.5 million).
Dividend
We propose to pay an interim dividend on 21 December of 4.6p per share (2005:
3.0p) to shareholders on the register at 24 November.
Outlook
There remains ample opportunity to grow revenue organically in the UK and
Ireland by increasing our market share in bill and general payments, mobile
top-ups and ATMs. We will also continue our focus in developing our new markets,
transport and money transfer (via Western Union), to drive transaction volumes
in the longer term. We are on track to exceed our target of 17,000 terminal
locations by the end of this financial year.
The acquisition of Metacharge offers substantial prospects for future growth by
extending our payment universe from cash into the internet and using this as a
platform to broaden our payment capability further.
David Newlands Dominic Taylor
Chairman Chief Executive
15 November 2006
1 Operating margins are operating profit as a percentage of net revenue2
2 Net revenue is revenue less commissions paid to retail agents and the cost of
e-vouchers for mobile top-ups where PayPoint is the principal
3 Client cash is cash held on behalf of clients where PayPoint has title to the
funds. An equivalent balance is included within trade payables
CONSOLIDATED INCOME STATEMENT
Continuing operations Note Unaudited Unaudited Audited
6 months 6 months year ended
ended ended 31 March
30 September 30 September 2006
2006 2005
£000 £000 £000
Revenue 2 70,974 54,113 119,968
Cost of sales 2 (50,661) (37,374) (83,409)
Gross profit 2 20,313 16,739 36,559
Administrative expenses (9,950) (8,552) (17,248)
Operating profit 10,363 8,187 19,311
Investment income 691 288 1,051
Finance costs (38) (34) (15)
Profit before tax 11,016 8,441 20,347
Tax 3 (3,341) (1,315) (3,440)
Profit for the period 7,675 7,126 16,907
Earnings per share
Basic 5 11.3p 10.5p 25.0p
Diluted 5 11.2p 10.4p 24.7p
There have been no gains or losses for the current or comparative periods other
than those reported in the income statement
CONSOLIDATED BALANCE SHEET
Note Unaudited Unaudited Audited
30 September 30 September 31 March
2006 2005 2006
£000 £000 £000
Non-current
assets
Property, 13,383 6,685 8,894
plant and
equipment
Deferred tax 1,174 1,331 1,184
asset
14,557 8,016 10,078
Current
assets
Inventories 908 673 1,119
Trade and 12,238 7,427 12,112
other
receivables
Cash and cash 6 31,456 22,760 29,295
equivalents
44,602 30,860 42,526
Total assets 59,159 38,876 52,604
Current
liabilities
Trade and 23,581 16,659 21,371
other
payables
Current tax 3,361 1,261 1,972
liabilities
Obligations - 138 67
under finance
leases
26,942 18,058 23,410
Non-current
liabilities
Other 396 - 344
liabilities
396 - 344
Total 27,338 18,058 23,754
liabilities
Net assets 31,821 20,818 28,850
Equity
Share capital 7 226 226 226
Share premium 23,976 23,976 23,976
account
Capital 14,193 14,193 14,193
redemption
reserve
Investment in (1) (1) (1)
own shares
Share option 7 1,110 457 738
and SIP
reserve
Retained 7 (7,683) (18,033) (10,282)
earnings
Total equity 8 31,821 20,818 28,850
attributable
to equity
holders of
the parent
CONSOLIDATED CASH FLOW STATEMENT
Note Unaudited Unaudited Audited
6 months 6 months
ended ended Year ended
31 March
30 September 30 September 2006
2005 £000
2006 £000
£000
Net cash from 9 12,109 3,195 14,318
operating activities
Investing activities
Interest received 739 288 1,051
Purchase of property, plant and (5,645) (3,224) (6,504)
equipment
Proceeds from disposal of 101 111 196
property, plant and equipment
Net cash used in investing (4,805) (2,825) (5,257)
activities
Financing activities
Repayments of obligations under (67) (87) (213)
finance leases
Dividends paid (5,076) (3,473) (5,503)
Net cash used in financing (5,143) (3,560) (5,716)
activities
Net increase/(decrease) 2,161 (3,190) 3,345
in cash and cash equivalents
Cash and cash equivalents 29,295 25,950 25,950
at beginning of period
Cash and cash equivalents 31,456 22,760 29,295
at end of period
NOTES TO ACCOUNTS
1. Accounting policies
These financial statements have been prepared on a historical cost basis and on
the policies set out below.
Basis of preparation
The financial information contained in this report is unaudited, but has been
formally reviewed by the auditors and their report to the Company is set out on
page 13. The information shown for the year ended 31 March 2006, which is
prepared under IFRS, does not constitute statutory accounts within the meaning
of section 240 of the Companies Act 1985. The report of the auditors on the
statutory accounts for the year ended 31 March 2006, prepared under IFRS, was
unqualified and did not contain a statement under section 237 of the Companies
Act 1985 and has been filed with the Registrar of Companies.
The financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS). The financial statements have also been
prepared in accordance with IFRS adopted for use in the European Union and
therefore comply with Article 4 of the EU IAS Regulation.
At the date of authorisation of these financial statements, the following
Standards and Interpretations which have not been applied in these financial
statements were in issue but not yet effective:
IFRS 7 Financial Instruments: Disclosures; and the related amendment to
IAS 1 on capital disclosures
IFRIC 8 Scope of IFRS 2
IFRIC 9 Reassessment of Embedded Derivatives
IFRIC 10 Interim Financial Reporting and Impairment
The directors do not anticipate that the adoption of these Standards and
Interpretations will have a material impact on the financial statements of the
Group. The financial statements are presented in pounds sterling because it is
the currency of the primary economic environment in which the Group operates.
The directors consider that there are no critical accounting judgements and key
sources of estimation uncertainty in applying the Group's accounting policies.
2. Revenue by sector, net revenue analysis and gross throughput
(i) Analysis of revenues by sector
Group revenue comprises the value of sales (excluding VAT) of services in the
normal course of business and includes amounts billed to customers to be passed
onto retail agents as commission payable. Cost of sales includes the cost to the
Group of the sale, including commission to retail agents and the cost of mobile
top-ups where PayPoint is the principal in the supply chain.
Revenue performance of the business is measured by net revenue which is
calculated as the total turnover from clients less commission payable to retail
agents and the cost of mobile top-ups where PayPoint is the principal in the
supply chain.
Although there is only one class of business, since the risks and returns are
similar across sectors in which the Group operates, the Group monitors net
revenue (see below) with reference to each sector.
6 months 6 months Year ended
ended ended 31 March
30 September 30 September 2006
2006 2005
£000 £000 £000
Revenue - transaction processing 70,304 53,564 118,909
- lease rental of ATMs 670 549 1,059
70,974 54,113 119,968
less:
Commission payable to retail agents (35,886) (29,073) (63,558)
Cost of mobile top-ups as principal (9,255) (3,709) (10,297)
Net revenue 25,833 21,331 46,113
Net revenue by sector
Bill payments 11,399 9,248 21,428
Mobile top-ups 10,741 9,413 18,966
ATMs 2,730 1,850 4,124
Other 963 820 1,595
Net revenue 25,833 21,331 46,113
Commission payable is included within cost of sales as shown below.
6 months 6 months Year ended
ended ended 31 March
30 September 30 September 2006
2006 2005 £000
£000 £000
Revenue 70,974 54,113 119,968
Cost of sales
Commission payable to retail agents (35,886) (29,073) (63,558)
Cost of mobile top-ups as principal (9,255) (3,709) (10,297)
Other (5,520) (4,592) (9,554)
Total cost of sales (50,661) (37,374) (83,409)
Gross profit 20,313 16,739 36,559
(ii) Gross throughput
6 months Year ended
6 months ended 31 March
ended 30 September 2006
30 September 2005
2006 £000 £000
£000
Gross throughput 2,303,610 1,635,102 3,784,824
Gross throughput represents payments made by consumers using the PayPoint
service and cash withdrawals from ATMs. Included within gross throughput is £144
million to 30 September 2006 (2005: £92.5 million) relating to the ATM business.
3. Tax on profit of ordinary activities
6 months 6 months Year ended
ended ended 31 March
30 September 30 September 2006
2006 2005
£000 £000 £000
Current tax 3,331 1,261 3,239
Deferred tax 10 54 201
Total 3,341 1,315 3,440
4. Dividend
The declared interim dividend is 4.6p (2005: 3.0p). The total dividends in
respect of the year ended 31 March 2006 were £7.1 million (10.5p per share).
The interim dividend was declared on 15 November 2006 and accordingly has not
been recorded as a liability as at 30 September 2006.
5. Earnings per share
(a) Basic and diluted earnings per share
The basic and diluted earnings per share are calculated on the following profits
and number of shares.
6 months 6 months Year ended
ended ended 31 March
30 September 30 September 2006
2006 2005
£000 £000 £000
Profit for the purposes of basic 7,675 7,126 16,907
earnings
per share being net profit
attributable
to equity holders of the parent
Earnings for the purposes of diluted 7,675 7,126 16,907
earnings per share
Number of Number of Number of
shares shares shares
Weighted average number of shares 67,678,074 67,665,908 67,671,307
(for basic earnings per share)
Potential dilutive ordinary shares:
Deferred share bonus 65,397 - 51,518
Long term incentive plan 887,737 624,118 733,347
Diluted basis 68,631,208 68,290,026 68,456,172
6. Cash and cash equivalents
Included within cash and cash equivalents is £6.4 million (September 2005: £4.6
million, March 2006: £5.6 million) relating to monies collected on behalf of
PayPoint clients where PayPoint has title to the funds (client cash). An
equivalent balance is included within trade payables.
7. Share capital, share option and SIP reserve and retained earnings
30 September 30 September 31 March
2006 2005 2006
£000 £000 £000
Authorised share capital
4,365,352,200 ordinary shares of 1/3 p 14,551 14,551 14,551
each
Called up, allotted and fully paid
share capital
67,678,283 ordinary shares of 1/3 p 226 226 226
each
Share option and SIP reserve
At start of period 738 219 219
Additions 372 238 519
At end of period 1,110 457 738
Retained earnings
At start of period (10,282) (21,686) (21,686)
Profit for the period 7,675 7,126 16,907
Dividends paid (5,076) (3,473) (5,503)
At end of period (7,683) (18,033) (10,282)
8. Statement of changes in equity
6 months 6 months Year ended
ended ended 31 March
30 September 30 September 2006
2006 2005
£000 £000 £000
Opening equity 28,850 16,927 16,927
Profit for the period 7,675 7,126 16,907
Dividends paid (5,076) (3,473) (5,503)
Share option and SIP reserve 372 238 519
Closing equity 31,821 20,818 28,850
9. Notes to the cash flow statement
6 months 6 months Year ended
ended ended 31 March
30 September 30 September 2006
2006 2005
£000 £000 £000
Operating profit 10,363 8,187 19,311
Adjustments for:
Depreciation 1,691 1,047 2,320
Loss on disposal of property, 67 - -
plant and equipment
Operating cash flows before 12,121 9,234 21,631
movements in working capital
Decrease/(increase) in inventories 211 (201) (647)
Increase in receivables (126) (1,072) (4,238)
Increase/(decrease) in payables
- client cash 780 (6,942) (5,524)
- other payables 611 1,947 4,008
Increase in share option and SIP 372 238 519
reserve
Cash generated by operations 13,969 3,204 15,749
Corporation tax paid (1,822) - (1,416)
Interest and commitment fees paid (38) (9) (15)
Net cash from operating activities 12,109 3,195 14,318
INDEPENDENT REVIEW REPORT TO PayPoint plc
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 30 September 2006 which comprises the consolidated income
statement, the consolidated balance sheet, the consolidated cash flow statement
and related notes 1 to 9. We have read the other information contained in the
interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with International Standards on Auditing (United Kingdom
and Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2006.
Deloitte & Touche LLP
Chartered Accountants
London
15 November 2006
Notes: A review does not provide assurance on the maintenance and integrity of
the website, including controls used to achieve this, and in particular on
whether any changes may have occurred to the financial information since first
published. These matters are the responsibility of the directors but no control
procedures can provide absolute assurance in this area. Legislation in the
United Kingdom governing the preparation and dissemination of financial
information differs from legislation in other jurisdictions.
DIRECTORS & KEY CONTACTS
Directors George Earle (Finance Director)
Kenneth Minton*
David Morrison*
David Newlands* (Chairman)
Andrew Robb*
Dominic Taylor (Chief Executive)
Tim Watkin-Rees (Business Development Director)
Roger Wood*
* non-executive directors
Registrars Capita Registrars
Registration Services
Northern House
Fenay Bridge
Huddersfield
West Yorkshire
BR3 4TU
Telephone
0870 162 3100
Press and investor Finsbury Group
relations enquiries Tenter House
45 Moorfields
London
EC2Y 9AE
Telephone
020 7251 3801
Enquiries:
PayPoint plc 01707 600 300
Dominic Taylor, Chief Executive
George Earle, Finance Director
Finsbury 020 7251 3801
Rollo Head
Don Hunter
This announcement is available on the PayPoint plc website: www.paypoint.co.uk.
About PayPoint
PayPoint is a leading branded payment collection network used, primarily, for
the cash payment of bills and services and prepayments for mobile telephones and
energy meters. There are over 16,000 retail outlets using PayPoint's payment
terminals.
PayPoint began trading in 1996 and initially collected payments through its
network of retail agents for its founder client investors, who included British
Gas, BT, BBC TV Licensing, London Electricity (now part of EDF Energy) and four
water companies.
Clients include many of the UK and Ireland's major energy, cable, mobile and
fixed line telephony companies. PayPoint's blue chip client list also extends to
numerous water companies, local authorities and housing associations and a
growing transport and travel base.
This information is provided by RNS
The company news service from the London Stock Exchange
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