REG-PayPoint plc: Preliminary Results <Origin Href="QuoteRef">PAYP.L</Origin>
26/05/2016 07:05
PayPoint plc
Preliminary results
Year ended 31 March 2016
HIGHLIGHTS
Year ended 31 March 2016 Year ended 31 March 2015 Change
Revenue £212.6m £218.5m (2.7%)
Net revenue 1 £123.6m £123.1m 0.4%
Gross margin 49.9% 48.1% 1.8ppts
Adjusted operating profit 2 £50.1m £49.5m 1.2%
Profit before tax £8.2m £49.6m (83.6%)
Adjusted earnings per share 3 58.4p 57.4p 1.9%
Ordinary dividend per share 42.4p 38.5p 10.1%
Disposal proceeds dividend per share 21.0p - -
Continued progress in our strategic priorities
* Success in MultiPay, our multi-channel payment solution, with 7 contracted,
including our first Big 6 energy client
* PayPoint One - next generation point-of-sale terminal, has now entered
commercial trials
* Sale of the online payments business in January 2016 for £14.4 million in
cash
* Negotiations for sale of the mobile payments business continue but
impairment of £30.8 million recorded in absence of sale
* Discussions continue with Yodel on Collect+, with reduced profitability
from temporary cost increases
* Special annual dividend of £25 million, one third from December 2016, two
thirds in July 2017
Operating highlights
* Retail services transactions grew by 17.8% to 140.0 million
* Romanian bill payments up by 12.7% to 60.2 million
* Total retail network sites increased to 39,000, with over 10,000 sites in
Romania
* Profit before tax £8.2 million after £42 million impairment net of profit
on sale of Online
Financial highlights
* Net revenue up 1.9% in retail networks
* Adjusted operating profit before impairment and profit on disposal grew by
1.2%
* Increase in adjusted diluted earnings per share by 1.9% to 58.4p
* Final dividend increased to 28.2p, a total ordinary dividend for the year
of 42.4p, an increase of 10.1%
* Online payments business sale gross proceeds distribution 21.0p, payable
with the final dividend
Enquiries PayPoint plc (telephone: 01707 600 317) Dominic Taylor, Chief Executive George Earle, Finance Director Finsbury (telephone:02072513 801) Rollo Head Andy Parnis
A presentation for analysts is being held at 11.45am today (26 May 2016) at
Finsbury Group, Tenter House, 45 Moorfields London EC2Y 9AE. This
announcement is available on the PayPoint plc website: www.paypoint.com
CHAIRMAN'S STATEMENT
I am pleased to report on a year of substantial change in the business.
Following our decision last year to dispose of our mobile and online payment
businesses, the executive team have begun the process of simplifying
structures, reviewing ways to improve efficiency, adopting values that will
help address our service to retailers and improving engagement generally
across the business.
We have concluded our review of the Company strategy, which recognises the
importance of our retail networks and our non-cash payment channels. We are
engaged in putting the retailer at the heart of our service offering,
improving our response times to retailers and the quality of our service. Our
new terminal, PayPoint One, now entering commercial trials, will help us to
gain a more central role in independent and symbol group retailers, providing
them with our payments and services solution and a retail electronic point of
sale system in one device, PayPoint One. We have developed our MultiPay
product, now performing well with our pilot client, Utilita. MultiPay is in
the process of being sold to others. It is important that we reach agreement
with our fellow shareholder in Collect+ and this remains a priority for this
year.
We have made changes to the board following the departures of Eric Anstee and
Stephen Rowley, the contributions from whom since joining the board in 2008
are greatly appreciated. We wish them well. During the year, we are pleased to
have found two experienced non-executives in Gill Barr and Giles Kerr. Gill
brings a wealth of experience in marketing and Giles, a seasoned finance
director, is chair of our Audit Committee. This has strengthened our board,
but conscious not to make too many changes in the context of much change in
the business, we have decided to defer further appointments until the annual
general meeting in 2017, when David Morrison will retire. This means we are
not able to meet the minimum number of independent non-executive directors
until then.
Following our decision to sell the mobile and online payments businesses, we
have reviewed our capital requirements and allocation. Focussing on
multi-channel payments where we have retail networks, simplifies our business
and reduces the capital headroom we require. Given the high level of current
changes in the business, we are adopting a cautious approach to the return of
capital and plan to release the surplus over a period of five years at £25
million per annum. We will continue with a progressive dividend policy. It is
our current intention not to borrow more than one times our earnings before
interest, taxes, depreciation and amortisation. The first special dividend is
planned for December this year. If there is a potential acquisition which
offers better returns, we may defer the special dividend as appropriate. In
addition, we will distribute the sale proceeds from the sale of online
payments business, together with the final dividend from the year under
review. We also intend to distribute sale proceeds from the mobile payments
business once the sale is completed.
Whilst we are still in transition, we are confident about our strategy,
excited by the prospects for PayPoint One and MultiPay and will continue to
drive value from the business for our shareholders.
Nick Wiles
Chairman
26 May 2016
CHIEF EXECUTIVE'S REVIEW
Review
We have made good progress in what has been a challenging year. Our
businesses have performed credibly, with growth in the UK being driven
primarily through our developing retail services. I am confident that delivery
of new products, in particular our next generation terminal and our MultiPay
platform, will provide the basis of continuing future growth in payments and
services.
Retail services in the UK and our Romanian business performed well, offset by
sluggish results in prepaid energy (warmer weather, lower energy prices and
slower prepayment meter roll out) and the continued decline of mobile top-ups.
Revenue decline in the online payments business and its inclusion for only
part of the year until its sale on 8 January 2016 were offset by growth in
revenue in the mobile payments business. These factors led to relatively low
growth in adjusted operating profits 4 of 1.2%, further exacerbated by the
adverse VAT ruling, in dispute with HMRC, which cost £2 million in the year
under review.
PayPoint serves millions of consumers in its day to day business operations
working on behalf of leading consumer organisations in the UK and Romania. At
the heart of our capability are our unique national retail networks,
unrivalled in their coverage, access and convenience. Whether part of a major
chain or individual shopkeepers, retailers are the lifeblood of our business
and it is fundamental to our success, that we serve them well, delivering
services that help to underpin the profitability of their businesses and the
service they provide to their local communities. We have been working hard to
engage with the retail community and we are developing a new retail pledge to
reinforce this commitment. It will take determination and time to show
retailers that we are committed to improving the relationships.
The refocusing of our business has allowed us to streamline the organisation
by reintegrating group and UK retail management. We have established a new
Executive Board and have set out clear values and cultural commitments across
all company activities. We have also been taking the opportunity to review our
business processes to improve our responsiveness to retailers and our
efficiency. As an example, we have been able to reduce the lead-time for
on-boarding new agents by 40%. We expect to deliver further process efficiency
gains as the review continues.
Product development
There has been substantial service progress during the year particularly in
respect of two new flagship developments - our ground-breaking new terminal
and MultiPay, our market leading multi-channel payment system for smart
metering and general billing.
PayPoint One
After over 12 years of success with our current terminal, our next generation
point-of-sale terminal, named PayPoint One, which will provide everything
needed to run in-store technology within one compact device, is currently in
commercial trials. The new terminal is based on cloud-enabled Android tablet
technology, which transforms the flexibility and ease of use of the device. It
has a full range of connectivity options including broadband, WiFi, Bluetooth
and beacon.
Above all, as well as providing a technologically advanced platform for
PayPoint's payments and services, the app capability of Android will allow us
to introduce new added value functionality, Electronic Point-of-Sale (EPoS,
retail till systems). This will enable retailers to use PayPoint One for
product and price scanning, replacing their tills, and later to run their full
back office stock control and replenishment. EPoS will become our latest
retail service offer building on the existing successful portfolio of ATMs,
card payments, Western Union, parcels and SIM card sales.
MultiPay
MultiPay, has been in development and introduced with encouraging early
success. The service combines payments in-store with web, app, IVR and SMS
payments. Our pilot client, Utilita is growing very strongly and is proving
our strategic intent to serve customers with a balance of retail and digital
payments, currently in a 70:30 ratio. Utilita's growth has been based on a
particular prepay specialism which is taking share from the Big 6.
We have also signed several smaller energy companies and a framework
agreement with Procurement for Housing, which should also serve smaller
clients. We have now secured our first Big 6 energy client for MultiPay, in
Scottish & Southern Energy, the UK's number two by size which will go live in
the next few months. We are also pursuing further Big 6 success and already
have an agreement with nPower to support smart meter code generation.
The roll out of smart meters will provide householders with up to date
information on their usage and provide alternative ways for them to pay. This
is a government mandated programme, which is expected to gain pace later this
year once the new central Data Communications Company goes live. However, it
is still subject to uncertainty as to its pace, phasing of the rollout and
therefore its impact on prepayment customers. With MultiPay, PayPoint is well
placed to address the market however it moves forward.
Romania
PayPoint Romania continues to lead the market in retail bill payments and has
made good progress in establishing retail services to complement the core
payments capability. Our Western Union partnership has performed strongly as
has the sale of road tax permits. We continue to build one of Romania's
strongest financial brands.
We completed the sale of our online payments business in January 2016 and are
in the process of selling our mobile payments business. Given that the sale is
not yet achieved, we have written down its carrying value by £30.8 million.
We have also been in long running discussions with our joint venture partners,
Yodel, about the future structure of Collect+, which we had hoped to conclude
by now. To encourage discussions we temporarily agreed to allow Yodel to
charge more for its carrier services to Collect+ and this has caused it to
make a small loss. We are positive about our prospects with such strong
products and platforms in our armoury and look to achieve further MultiPay
sales success and to roll out PayPoint One to thousands of retailers this
year.
Strategy
Our mission is to be the market leader in providing multi-channel payments
and retail services to major consumer organisations and retailers, delivered
through innovative technology and first class service. We are proud of our
good reputation, which underpins our contractual relationships with service
companies and retailers in both the UK and Romania.
We believe there is substantial opportunity for sustainable growth in
revenues from products and services to our convenience retailers and
introducing new capabilities that will help them grow their businesses
profitably. For example, the decline of the high street and growth in online
retailing leaves community based convenience stores in a strong position to
complement online service delivery. This is illustrated by our success in our
parcel service where goods are ordered online but collected and returned in
local stores.
The proportion of retail service based revenues relative to traditional
payments will continue to increase and there will be some displacement from
cash to digital payments through MultiPay. We have a proven track record of
innovation and differentiation in our retail networks, where we have clear
market leadership and generate strong returns on capital from our investments.
The payments capability of PayPoint continues to be fundamental to our
differentiation and success. PayPoint has had particular strength in cash
payments and cash has been and continues to be extremely resilient and is used
by millions of consumers for their essential services. PayPoint has grown
payment volumes strongly throughout two decades, in which cash has gradually
declined as a proportion of all payments.
Nonetheless, cash usage is in slow but long term decline. To address online
and cashless payment growth, we have developed solutions for multi-channel
payment systems for non-retail and card and contactless payments in-store, as
sources of future growth. We will continue to extend in-store card payments
functionality, currently in over 10,000 shops in which contactless payment
growth is particularly strong. We will also use MultiPay to establish a strong
position in digital payments for smart meters and other payments to complement
our unique strength in cash, enabling us to benefit across the board.
Our new tighter retail focus has allowed us to reshape the business enabling
us to restructure from a group approach to an integrated one, with renewed
emphasis on retail innovation and momentum in pushing forward our new retail
technology.
We will be driving our new solutions to provide the platform for deeper
integration into retail store operations and the introduction of further added
value applications and services, notably through EPoS.
In so doing, we will leverage our scale and capability and further extend our
geographic footprint, potentially into new countries as well, although
international prospecting will be of lower priority in the immediate future.
This is in addition to growing our existing retail services portfolio that has
performed well over many years, including ATMs, card payments, Western Union,
parcels and SIM card sales. In this context, we need to reach a mutually
satisfactory resolution with Yodel regarding Collect+.
In summary, we are committed to developing the business through our retail
network and our strong relationships with our clients. In so doing, we can
look forward to continuing growth in earnings per share and a progressive
dividend policy alongside returning excess capital over a five year period.
Dominic Taylor
Chief Executive
26 May 2016
KEY PERFORMANCE INDICATORS
In order to realise its strategic aims, PayPoint has identified areas of
strategic focus and records a number of KPIs to measure progress against them.
Whilst these KPIs are helpful in measuring the group's performance, they are
not exhaustive and the group uses many other measures to monitor progress.
Strategic focus KPI Description 2016 2015
Shareholder return Earnings per share (adjusted 1 ) Profit after tax attributable to equity holders of the parent divided by the weighted average number of ordinary shares in issue during the year (including the impact of shares which are likely to be issued under share schemes). 58.4p 57.4p
Dividends per share Proposed final dividend and interim dividend divided by the number of fully paid shares at the end of the year. 42.4p 38.5p
Economic profit Adjusted operating profit 5 (including our share of joint venture results) after tax and a charge for capital employed, excluding cash, based upon the group's cost of capital. £32.8 million £31.3 million
Growth Retail networks transactions Number of transactions processed in the year on our terminals, ATMs and on our retailers' EPoS systems. 668.2 million 667.3 million
Mobile and Online transactions Number of transactions processed in the year by Mobile and Online. 150.5 million 145.3 million
Transaction value The value of transactions processed via our terminals, retailers' EPoS systems, online merchants, ATMs, mobile payments and the sale of other retail services. £14.0 billion £14.8 billion
Net revenue Revenue less: commissions paid to retail agents; the cost of mobile top-ups and SIM cards where PayPoint is principal; acquiring bank charges and call centre costs recharged to clients. £123.6 million £123.1 million
Operating margin Adjusted operating profit 1 including our share of joint venture results, as a percentage of net revenue. 40.5% 40.2%
Asset optimisation Return on capital employed Adjusted operating profit 1 for the year divided by average month end capital employed (net assets including assets held for sale and excluding cash). 70.4% 63.6%
Growth / (decline) in retail networks yield per site Growth / (decline) in net revenue from retail networks divided by the average number of sites in the year. (2.9%) 4.3%
People Labour turnover Number of permanent employees who left during the year divided by average total permanent employees 33% 22%
REVIEW OF BUSINESS
The review of business presented includes highlights on page 1, the
Chairman's statement on page 2 and the Chief Executive's review on pages 3 to
5.
PayPoint processes consumer transactions and as such, has only one operating
segment. However, we include an analysis of the number and value of consumer
transactions, revenue and net revenue by product and an analysis of our
networks to help to explain our performance and strategy execution.
Growth opportunities include: the roll out of our new terminal PayPoint One,
which includes an EPoS application, provision of single solution,
multi-channel payments and services to new and existing clients; the extension
of services in each payment channel across our existing and prospective
clients, new and existing client development and retail services in the UK and
Romanian retail networks; the expansion of these retail networks; and once
Collect+ negotiations complete, parcels. There are also opportunities to
extend our services into other countries.
The channel and product analysis is as follows:
Retail payments and services:
Bill and general (prepaid energy, bills and cash out services)
Top-ups (mobile, e-money vouchers, prepaid debit cards and lottery)
Retail services (ATM, payment card, parcels, money transfer, SIMs, broadband,
receipt advertising, charges for failed direct debits and paper invoicing)
Collect+ parcels service
In addition, fees for early settlement, development and set up are attributed
to the client, to which they are billed and included above in the relevant
categories.
Mobile and Online:
Parking, permits, tolling, ticketing, bicycle rental transactions, consumer
transactions with merchants, pre-authorisations, optimisation of
authorisations, FraudGuard, where separately charged and real time management
reporting.
OPERATING REVIEW
Year ended 31 March 2016 Year ended 31 March 2015 Increase/ (decrease) %
Transactions '000 818,700 812,668 0.7
Transaction value £000 14,041,737 14,756,476 (4.8)
Revenue £000 212,556 218,495 (2.7)
Net revenue 1 £000 123,633 123,131 0.4
Transactions increased to 818.7 million (2015: 812.7 million), up 0.1% in the
retail networks and 3.6% in Mobile and Online. Excluding transactions from the
online payments business for the year ended 2015 and 2016, which was sold on 8
January 2016, transactions increased by 1.8% year on year.
Transaction value decreased to £14.0 billion (2015: £14.8 billion), up 2.1%
in the Retail Payments and Services (retail networks) but down 20.2% in Mobile
and Online, mainly attributable to only owning Online for nine months of the
current year.
Revenue has decreased to £212.6 million (2015: £218.5 million), down 2.5%
in the retail networks and down 4.9% in Mobile and Online. Revenue decline is
lower than transaction value decline due to higher transaction growth in some
larger merchants in our online business who benefit from lower pricing and
from charges to newer parking clients, which are lower than those to existing
clients. When excluding the online payments business transactions for the year
ended 2015 and 2016, revenue decreased by 1.5%.
Net revenue has increased to £123.6 million (2015: £123.1 million), up 1.9%
in the retail networks but down 10.7% in Mobile and Online. Net revenue growth
is better than the revenue decline in retail networks, as the commission
payable to retail agents has fallen as the group has adjusted the share of
commission with its retailers in response to competitor rates. Excluding net
revenue for the online payments business for the year ended 2015 and 2016, net
revenue grew by 2.9%.
Adjusted operating profit 2 , including our share of Collect+, was £50.1
million (2015: £49.5 million), an increase of 1.2%.
Bill and general
Year ended 31 March 2016 Year ended 31 March 2015 (Decrease)/ increase %
Transactions '000 449,170 459,018 (2.1)
Transaction value £000 8,557,707 8,485,736 0.8
Revenue £000 85,770 89,229 (3.9)
Net revenue 1 £000 59,480 58,954 0.9
Bill and general transactions were lower than the previous year by 2.1%. UK
and Irish bill and general transactions were down 4.1% due to lower energy
transactions. An apparent decrease in consumption, together with the effect of
higher average transaction values on prepaid energy transactions and lower
energy prices exceeded the impact of meter growth. Although not material in
the year under review, the multi-channel payment solution, MultiPay continues
to grow strongly and sales to further clients have been agreed, including our
first big six energy client. MultiPay is also attracting interest from other
sectors. The Romanian bill payment transactions grew year on year by 12.7%,
where we processed 60.2 million transactions (2015: 53.5 million). The growth
was the result of increasing market share, which in March for clients we serve
was 21.8% (2015: 20.0%), new clients and road tax payments.
Growth in net revenue of 0.9% contrasts with the decline in revenue, helped
by changes to our retail terms in response to competitor rates.
Top-ups
Year ended 31 March 2016 Year ended 31 March 2015 Decrease %
Transactions '000 79,041 89,482 (11.7)
Transaction value £000 767,376 821,049 (6.5)
Revenue £000 63,325 69,978 (9.5)
Net revenue 1 £000 20,885 23,154 (9.8)
Top-up transactions decreased from last year as a result of the continued
decline in mobile top-up volumes in the UK and Ireland of 12.9%. The reduction
in UK and Irish mobile top-up transactions was only partly offset by an
increase in other top-up transactions and Romanian mobile top-ups.
The reduction in top-up transaction value was lower than that of transaction
numbers as the average value of mobile top-ups increased. This also helped
mitigate the reduction in net revenue, along with the increase in other
top-ups.
Retail services
Year ended 31 March 2016 Year ended 31 March 2015 Increase %
Transactions '000 139,965 118,849 17.8
Transaction value £000 1,065,739 874,449 21.9
Revenue £000 47,301 42,294 11.8
Net revenue 1 £000 30,299 26,507 14.3
Retail services transaction volume has increased across all products. ATM
transactions increased by 22.1%, payment card transactions by 17.4%, money
transfer transactions by 25.7% and parcels by 10.1% over last year.
Higher average ATM transaction and money transfer values have driven an
increase in total transaction value in excess of the increase in transaction
volume.
Revenue growth is lower than transaction growth due to a greater proportion
of the mix of non-surcharge ATM machines in the estate and the impact of
tiered pricing for increased transaction volumes. Strong net revenue growth of
14.3% was driven by the increases in parcels, ATM transactions, payment card
and money transfer.
Collect+
PayPoint has a 50% equity interest in Drop and Collect Limited, trading as
Collect+, a 50:50 joint venture with Yodel. PayPoint does not consolidate the
results of the joint venture but does include its share of the profit or loss
of the joint venture in its consolidated income statement, after group
operating profit.
Collect+ at 100% Year ended 31 March 2016 Year ended 31 March 2015 Increase/ (decrease) %
Transactions '000 20,690 18,799 10.1
Revenue £000 49,588 46,059 7.7
Loss / (profit) £000 (448) 2,634 (117.0)
Collect+ is the market leading proposition for third party Click and Collect
services and its parcel returns activity also continues to grow strongly.
Within the consumer send market, there continues to be substantial price
competition and consequently the Collect+ management team has focussed on
developing Click & Collect and returns.
Following Yodel's proposed increase in charges to Collect+ we have continued
to discuss the future of Collect+. A temporary increase in Yodel's charges,
during these negotiations, has resulted in the reported loss.
Mobile and Online
Year ended 31 March 2016 Year ended 31 March 2015 Increase/ (decrease) %
Transactions '000 150,525 145,319 3.6
Transaction value £000 3,650,915 4,575,242 (20.2)
Revenue £000 16,160 16,994 (4.9)
Net revenue 1 £000 12,968 14,516 (10.7)
The year ended 31 March 2016 includes the mobile payments business for 12
months and the online payments business for the period up to its disposal on 8
January 2016. The previous year includes both businesses for 12 months.
Transactions increased by 3.6% with parking transactions of 51.3 million up
29.8% and online payment processing transactions of 99.2 million down 6.2%.
We have continued to add parking contracts with councils and parking
authorities, as we provide them with a more convenient and cost effective
method for collecting parking charges. The business has fully rolled out the
parking payment services in Paris during the year. A contract has been signed
to service a number of London underground car parks as part of a Transport for
London initiative, whilst local authorities such as Brighton and Manchester
have significantly reduced the use of pay & display machines.
Overall revenues decreased by 4.9% and net revenues by 10.7%. Online
decreased by 33.5% including the impact of its inclusion for only part of the
year for both revenue and net revenue. Revenue in Mobile increased by 23.6%
and net revenue by 21.4%, reflecting the significant increase in transaction
volumes referred to above as the business continues to win new clients and
increase its penetration into existing clients across all regions, most
notably in France where parking transactions increased by 155%.
The assets of the mobile payments business are shown as assets held for sale
within current assets on the statement of financial position for the year
ended 31 March 2016 and together with those of the online payments business
for year ended 31 March 2015. Further detail can be found in note 8.
In view of this uncertainty surrounding the sale process, we have recorded an
impairment of £30.8 million, reflecting our current best estimate of the
recoverable amount of these businesses. Consolidated net assets in Mobile
remain at £1.7 million, in addition to a deficit on translation reserves of
£2.0 million, which will be recognised through the profit and loss account on
the sale of Mobile.
Network growth
Analysis of sites / internet merchants Year ended 31 March 2016 Year ended 31 March 2015 Increase/ (decrease) %
UK & Ireland terminal sites 29,087 28,307 2.8
Romania terminal sites 10,141 9,234 9.8
Total terminal sites 39,228 37,541 4.5
Internet merchants - 4,662 (100.0)
Collect+ sites 5,936 5,831 1.8
Terminal sites overall have increased by 4.5% to 39,228
In the UK and Ireland, site numbers have expanded by 780, an increase of
2.8%. We provide payment card capability, including the functionality for
retailers to accept convenient contactless card transactions in 10,111 sites
(2015: 9,816 sites). During the year, we continued to roll out our PPoS
integrated solution to retailers, which combines a virtual terminal (our
software on the retailer's till system) with a plug in reader, to provide the
service at lower cost across all till lanes. As well as enhancing our service
to retailers, this allows us to redeploy terminals for use in Romania. In
addition to these 8,101 PPoS solutions (2015: 7,498 PPoS), there were 12,245
broadband enabled terminals (which offer a faster service than PSTN enabled
terminals for transactions where the terminal has to contact the client's
host) at 31 March 2016 (2015: 10,689 broadband terminals).
In Romania, we increased the number of terminal sites by 907 in the year, an
increase of 9.8%.
There are no internet merchants at 31 March 2016 because the online payments
business was disposed on 8 January 2016.
We increased the number of sites offering our Collect+ parcels service in the
year by 105, bringing the total to 5,936 sites. Site growth has been
constrained during the discussion of the future of Collect+ with Yodel.
FINANCIAL REVIEW
Income statement
Revenue for the year was £212.6 million (2015: £218.5 million). Cost of
sales reduced to £106.5 million (2015: £113.4 million). The cost of mobile
top-ups in Ireland and Romania 11 has fallen to £28.1 million (2015: £29.5
million). Retailers' commission decreased to £57.7 million (2015: £63.3
million) as mobile top-ups which attract high retail commission declined and
the group has adjusted the share of commission with its retailers in response
to competitor rates. Gross profit margin improved to 49.9% (2015: 48.1%)
mainly as a consequence of the reduction in cost of sales.
Net revenue 2 of £123.6 million (2015: £123.1 million) was slightly ahead
of last year from the growth in bill payment and retail services offset by a
reduction in mobile parking and in the current year nine months of revenue
from the online payments business.
Operating costs (administrative expenses) decreased 0.9% to £55.7 million
(2015: £56.9 million) reflecting:
· an increase in costs of £2.0 million driven
by the HMRC ruling,
· one off restructuring costs incurred in the
first half to gain efficiencies between group and our retail businesses;
offset by
· cost savings in the second half as a result of
the restructure; and
· the sale of the online payments business in
the second half.
Excluding Mobile and Online, net revenue increased 1.9% to £110.7 million,
other cost of sales decreased 1% to £16.0 million, administrative expenses
remained the same at £41.9 million and operating profit, excluding our share
of the Collect+ results rose 4.3% to £52.8 million.
Our share of the loss in our parcels joint venture, Collect+, was £0.2
million (2015: profit of £1.3 million). We continue to discuss with Yodel the
future of the joint venture as a result of the proposed increases in charges
put forward by Yodel. A portion of these charges have been allowed pending the
outcome of these discussions, which has caused the adverse impact on
profitability in Collect+.
Adjusted operating margin 3 rose to 40.5% (2015: 40.2%) as a consequence of
the performance of the retail networks.
Profit before tax was £8.2 million (2015: £49.6 million), which includes a
£49.0 million impairment in Mobile (£30.8 million) and Online (£18.2
million) and a profit on disposal of the online payments business of £7.0
million. The tax charge of £10.2 million (2015: £10.4 million) represents an
adjusted 14 effective tax rate of 20.5% (2015: 21.0%). The reduction in tax
rate reflects the decrease in the UK corporate tax rate in the current year,
which would have been larger but for the recognition of a reduction in the
deferred tax assets on finalisation of prior year tax returns.
Statement of financial position
Net assets of £87.9 million (2015: £115.3 million) includes £1.7 million
of net assets for the mobile payments business which have been classified as
assets held for sale (note 8 ). The group net assets reflect a strong
financial position, including cash of £80.8 million (including cash held for
settlement of obligations to our clients (client cash) of £21.5 million in
the UK, £8.6 million in Romania but excluding £2.4 million in Mobile
payments, which is reported within assets held for sale) higher than £43.9
million (including client cash of £3.8 million in the UK and £10.1 million
in Romania and including £3.3 million in Mobile and Online) at 31 March 2015.
The final dividend, subject to shareholder approval, together with the
proceeds of sale of the online payments business, will absorb £33.5 million
and is payable in July.
Cash flow
Cash generated by operations was £69.0 million (2015: £53.6 million),
reflecting strong conversion of profit to cash. Corporation tax of £9.9
million (2015: £8.6 million) was paid. Capital expenditure of £8.2 million
(2015: £10.1 million) comprised expenditure on IT infrastructure,
developments for new products and terminals. The amount paid for the
acquisition of Adaptis in the year was £nil million (2015: £0.2 million).
Share incentive schemes settled in cash absorbed £0.6 million (2015: £2.9
million). Equity dividends paid were £27.4 million (2015: £24.7 million).
Economic profit
PayPoint's own measure of economic profit (defined as operating profit
excluding impairment and profit on disposal, less tax and a nominal capital
charge of 10%) was £32.8 million (2015: £31.3 million), an increase of 4.7%.
Dividend
We propose to pay a final dividend of 28.2p per share on 29 July 2016 (2015:
26.1p) to shareholders on the register on 1 July 2016, subject to the approval
of the shareholders at the annual general meeting, together with 21.0p per
share representing the gross proceeds of the sale of Online. An interim
dividend of 14.2p (2015: 12.4p) was paid on 17 December 2015, making a total
ordinary dividend for the year of 42.4p per share (2015: 38.5p), up 10.1%.
Liquidity and going concern
PayPoint's business activities, together with factors likely to affect its
future development and performance, are described, in the Chief Executive's
review on pages 3 to 5. Principal risks and uncertainties are described on
pages 16 and 17.
The group has cash of £80.8 million, excluding £2.4 million of cash in
Mobile which is shown in assets held for sale, and has an undrawn £45.0
million revolving term credit facility expiring in May 2019. Cash includes
amounts held to settle short term client settlement obligations, which at the
year end, amounted to £21.5 million in the UK (2015: £3.8 million) and £8.6
million in Romania (2015: £10.1 million). The final dividend, if approved by
shareholders together with the dividend of the sale proceeds of online
payments business, will absorb £33.5 million of the cash balance. Cash and
borrowing capacity is adequate to meet the foreseeable needs of the group
including the special dividends, taking account of risks (pages 16 and 17).
The financial statements have, therefore, been prepared on a going concern
basis.
Viability statement
The directors have assessed PayPoint's viability over a three year period to
March 2019.
The group's plan has been tested for severe, but plausible, downside
scenarios. These include the loss of a major client, the bankruptcy of a major
retailer, a slower take up of new products in the market than anticipated, the
level of technical advancement increasing driving an increase in capital
expenditure, a delay in the launch of new products and the interruption in
business processes or systems and the cessation of the parcels business. The
assessment has considered the potential impacts of these risks on the business
model, future performance, mitigating actions that may be required, solvency
and liquidity over the period. The directors have taken into account the
group's robust balance sheet and its financial covenant headroom during the
period of assessment including planned distributions.
The directors have a reasonable expectation that the group remains viable
over the period of the assessment. This conclusion takes into account the
group's strategy detailed in the Chief Executive's review on pages 3 to 5, the
principal risks described on pages 16 and 17, the results of the scenario
planning on the group's financial plan detailed above together with available
cash and committed borrowings, financial covenants and any material
uncertainties. In reaching this conclusion, the directors have considered the
magnitude of potential impacts resulting from uncertain future events or
changes in conditions, the likelihood of their occurrence and the likely
effectiveness of mitigating actions that the directors would consider
undertaking.
Financing and treasury policy
The financing and treasury policy requires a prudent approach to the
investment of surplus funds, external financing, settlement, foreign exchange
risk and internal control structures. The policy prohibits the use of
financial derivatives and sets limits for gearing.
Charitable donations
During the year, the group made charitable donations of £21,110 (2015:
£32,556) to charities serving the communities in which the group operates. We
encourage employees to raise funds for charity and the Company matches funds
raised by the employees, subject to certain limits.
Our UK retail network acted as a collection agent for the BBC's Children in
Need telethon.
Employees
Our success depends upon the continuing support and commitment of all our
staff. We would like to take this opportunity to thank PayPoint's employees
for their commitment, energy and enthusiasm in the delivery of these results.
Economic climate
The company's bill and general payments service, which accounts for 48.1%
(2015: 47.9%) of our net revenue, has continued to be resilient, as consumers'
discretion in expenditure is limited for essential services and our service
continues to be popular. Utility providers continue to install new prepay gas
and electricity meters, which should have a beneficial impact on our
transaction volumes. There has been an adverse impact on our mobile top-ups as
mobile operators continue to offer more airtime at lower cost and to promote
prepay less than contract. Mobile is able to offer parking authorities a more
cost effective collection system for parking compared to pay and display
machines.
PayPoint's exposure to retail agent debt in the UK and Ireland is limited as
credit granted to retail agents is restricted by daily direct debiting for all
UK and Irish transactions, other than EPoS mobile top-ups (which are collected
weekly). There is some concentration of risk in multiple retail agents. Most
of PayPoint's clients in the UK, other than for top-ups, bear the cost of
retail agent bad debt. In PayPoint Romania, the risk of bad debt lies with the
company. In Mobile, exposure is limited to receivables from parking
authorities.
Trends and factors on future development
For the current financial year, trading is in line with the Company's
expectations, although investment in and the continuing losses of Mobile will
lower earnings until sold. Our retail networks in the UK and Romania should
continue to deliver profitable growth from our breadth of services and
extensive client base. We will continue to invest in network expansion, the
roll-out of PayPoint One and new services to improve retail network quality
further. We anticipate that this will enhance our competitive advantage and
increase retail yield. We continue to focus on growth and on evaluating new
opportunities to extend our business. The provision of multi-channel payments
and services to our client base remains an essential element of our strategy,
placing us in growing markets and providing a bridge from cash to electronic
payments. Discussions continue with our joint venture partner, Yodel, over the
future of Collect+, following its proposed increases in its charges.
RISKS AND UNCERTAINTIES
PayPoint's business, financial condition or operations could be materially
and adversely affected by the risks summarised below. Although management
takes steps to mitigate risks where possible or where the cost of doing so is
reasonable in relation to the probability and seriousness of the risk, it may
not be possible to avoid the crystallisation of some or all of such risks.
Risk area Potential impact Mitigation strategies
Loss or inappropriate usage of data The group's business requires the appropriate and secure use of consumer and other sensitive information. Mobile telephone and internet-based electronic commerce The group has established rigorous cyber security, anti-fraud and whistleblowing standards, procedures, and recruitment and training schemes, which are embedded throughout its business operations. The group also screens new employees carefully. Continued investments are made in cyber security infrastructure, including the significant use of data and communications encryption technology, improvements in e-mail and web filtering and the introduction of enhanced data leakage prevention tools. We have also developed plans as to how we would respond to a breach of security.
requires the secure transmission of confidential information over public networks, and several of our products are accessed through the internet. Fraudulent activity,
cyber-crime or security breaches in connection with maintaining data and the delivery of our products and services could harm our reputation, business and operating
results.
Dependence upon third parties to provide data and certain operational services The group's business model is dependent upon third parties to provide operational services, the loss of which could significantly impact the quality of our services. The group selects and negotiates agreements with strategic suppliers and agents based on criteria such as delivery assurance and reliability. Single points of failure are avoided, where practicable and economically feasible. Controls are regularly reviewed and improved to minimise risk of retailer churn caused by financial loss to retailers through fraudulent third party activity.
Similarly, if one of our outsource providers, including third parties with whom we have strategic relationships, were to experience financial or operational difficulties,
their services to us would suffer or they may no longer be able to provide services to us at all, significantly impacting delivery of our products or services.
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