REG-PayPoint plc : Preliminary Results <Origin Href="QuoteRef">PAYP.L</Origin>
25/05/2017 07:05
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PayPoint plc
Preliminary results
Year ended 31 March 2017
STATUTORY HIGHLIGHTS
Year ended 31 March 2017 Year ended 31 March 2016 Change
Revenue £211.9m £212.6m (0.3)%
Net revenue ( 1 ) £123.9m £123.6m 0.2%
Gross margin ( 2 ) 50.0% 49.9% 0.1ppts
Operating profit before impairments and business disposal £52.3m £50.3m 4.0%
Profit before tax £69.1m £8.2m -
Earnings per share 87.5p (3.1)p -
Ordinary dividend per share 45.0p 42.4p 6.1%
Disposal proceeds dividend per share 38.9p 21.0p 85.3%
Additional dividend per share 36.7p - -
Total dividend per share 120.6p 63.4p 90.2%
Mobile and Online are included in our statutory results up to the date of
their respective disposals resulting in this year's performance not being
directly comparable to last year. To more clearly review our financial
performance, we have included highlights of our ongoing Retail networks in
addition to the reported statutory highlights.
RETAIL NETWORKS HIGHLIGHTS( 3 )
Year ended 31 March 2017 Year ended 31 March 2016 Change
Revenue (3) £203.4m £196.4m 3.6%
Net revenue (1) £117.5m £110.7m 6.2%
Gross margin (2) 49.5% 48.2% 1.3ppts
Operating profit (3) £53.3m £52.8m 1.1%
Profit before tax (3) £53.3m £52.8m 1.0%
Earnings per share (3) 64.3p 62.5p 2.9%
Strong delivery against our strategic priorities
* PayPoint One, our new retail platform, successfully launched in June, with
3,600 sites at year end and 4,227 today
* Continued growth in Retail networks of 3.2% to 40,500 sites, including
11,300 in Romania
* Collect+ arrangement successfully restructured to allow PayPoint to serve
other UK carriers; expected to drive a step change in our parcels business
over time
* Sale of Mobile completed in December 2016 for £26.5 million, with gross
proceeds of 38.9 pence per share returned to shareholders
Financial highlights
* Good growth in core Retail networks * Gross revenue(3) grew by 3.6% to
£203.4 million
* Net revenue(1) grew by 6.2% to £117.5 million
* Operating profit(3) grew by 1.1% to £53.3 million
* Retail services net revenue(1) grew to £39.9 million, an increase of 31.6%
* Profit on sale of Mobile of £19.5 million. Mobile sale proceeds of £26.5
million returned to shareholders. Mobile goodwill of £30.8 million was fully
impaired in 2016
* Final ordinary dividend of 30.0 pence per share, total ordinary dividend of
45.0 pence per share, an increase of 6.1%
* Additional dividend of 36.7 pence per share paid as part of commitment to
return surplus cash to shareholders over a five year period to 2021. Total
dividends of 120.6 pence per share paid to shareholders in the year to 31
March 2017
* Cash and cash equivalents at year end of £53.1 million, net cash generated
from operating activities of £42.2 million
Dominic Taylor, Chief Executive Officer, commented:
"We have continued to deliver a significant transition in our business to
respond to the needs of our retail clients and the changing world of payments.
Our transition has involved the sale of our Mobile business, a renegotiated
agreement with our partner on Collect+ and, most importantly, launched our new
terminal PayPoint One, which includes an industry-leading EPoS solution. This
past year has seen further good growth in our core retail network, with net
revenue up 6% and an increase in sites of 3%, up to 40,500. Looking beyond the
current financial year, I see significant opportunities for our retail
services business, accelerating the growth of ATM's, parcels and EPoS and we
will continue to work to build our retailer relations. Our strategy is
supported by balance sheet strength and the ability to continue to make
superior returns to shareholders"
Enquiries
PayPoint plc Finsbury (telephone: 0207 2513 801)
Dominic Taylor, Chief Executive (telephone: 01707 600 317) Rollo Head
Rachel Kentleton, Finance Director (mobile: 07843 074 906) Andy Parnis
A presentation for analysts is being held at 11.45am today (25 May 2017) at
Canaccord Genuity Limited, 88 Wood Street, London, EC2V 7QR. This announcement
is available on the PayPoint plc website: www.paypoint.com
CHAIRMAN'S STATEMENT
Delivering our strategy
I am pleased to report that the past year has been one of further progress as
we seek to simplify and refocus the Group on our Retail network business, in
line with our declared strategy. The sale of our mobile payments business was
completed in December 2016 and concludes our programme of rationalisation. In
addition, we have restructured the Collect+ arrangements, enabling us to add
new carriers to our UK retail services offering. We also successfully launched
PayPoint One, our next generation PayPoint terminal with integrated Electronic
Point of Sale Solutions (EPoS), till and card functionality, and had rolled
out 3,600 by the end of this financial year. We also continue to drive
existing and new retail services while seeking to improve service delivery
throughout the network.
The business is now more streamlined and focused on driving value from the
strength of our established retail network. Whilst the board recognises there
are structural changes in UK cash payments and the energy sector, PayPoint is
well positioned to respond to these changes and to deliver continuing growth
in its UK retail services and Romanian businesses.
Delivering for our stakeholders
Total dividends declared in the year to 31 March 2017 will deliver a total of
£82.1 million or 120.6 pence per share to shareholders. This includes the
ordinary dividend of 45.0 pence per share, the first annual instalment of the
additional dividend of 36.7 pence per share and the gross proceeds from the
sale of Mobile of 38.9 pence per share.
The board recognises that successful execution of the PayPoint strategy is
dependent on delivering first class service to our retailers. To ensure we are
consistently measuring how we are performing against important key metrics, a
new 'Retailer Pledge' has been developed and published.
Our people are critical to the successful execution of the strategy and I
would like to thank all colleagues for their hard work and dedication over the
past year.
Board appointments
In early 2017, Rachel Kentleton joined the board as Finance Director following
George Earle's retirement. I would like to thank George for his significant
contribution over his 12 years of service since joining us upon our listing on
the London Stock Exchange in 2004. Two of our non-executive directors, Neil
Carson and David Morrison, will step down on 26 May 2017 and 26 July 2017
respectively. The board wishes them well and thanks them for their valued
contributions. David has served as a director since 1999 and has been
instrumental in the development of the Company. We welcome Rakesh Sharma, who
was appointed to the board on 12 May 2017 and will chair the Remuneration
Committee.
Conclusion
PayPoint is now a significantly more focused business. Looking ahead, our
priorities are to continue to drive growth in retail services, manage the
decline in cash payments through developing new payment channels, improve our
service delivery and to run our business more efficiently. We are also excited
by the growth opportunities for our Romanian business as we deepen and extend
our presence in a rapidly growing market.
Alongside this, we maintain our commitment to the capital allocation programme
outlined in May 2016, to return £125 million of surplus cash to shareholders
over five years to 2021 alongside our ordinary dividend. The board remains
confident in the prospects for the business and the value creation opportunity
for our shareholders.
Nick Wiles
Chairman
25 May 2017
CHIEF EXECUTIVE'S REVIEW
The past year has been one of significant strategic progress in reshaping and
simplifying the business. We have restructured the Group, with a new Executive
Board in place and a focused single company vision, set of values and culture
which together will drive ongoing improvements in effectiveness and customer
service. We have rationalised the portfolio of businesses within the Group,
with the sale of Online in January 2016 for £14.3 million being followed in
the year to 31 March 2017 by the sale of Mobile to VW Financial Services for
£26.5 million. We have also concluded our discussions with Yodel, with a new
Collect+ arrangement agreed that enables PayPoint to add new carriers to our
UK retail services offering.
We continue to focus on the needs of our retail customers. This year we
launched our next generation terminal, PayPoint One, which received positive
early feedback and at 31 March 2017 there were 3,600 sites operational. The
terminal, with enhanced functionality, changes the proposition we can offer
retailers and is a critical milestone for the business. We are excited about
the growth potential from the rollout of the new terminal across our retail
network alongside the other initiatives underway in the business.
Our financial results reflect the refocusing of the business with reported
profit before tax of £69.1 million (2016: £8.2 million), including the
profit on the sale of Mobile to VW Financial Services of £19.5 million
partially offset by the loss of £3.8 million on the restructure of the
Collect+ arrangement with Yodel. The 2016 year included impairment charges on
Mobile and Online of £49.0 million.
This financial year also saw several non-recurring items, some of which will
impact our operating profit performance in the financial year to 31 March
2018. These include a non-recurring VAT recovery of £2.0 million (included in
retail services), the agreement to reduce Yodel parcel fees by £3.0 million
over the next 3 years effective from December 2016, and the closure by the
Department for Work and Pensions ("DWP") of their Simple Payment Service which
has been generating over £4.0 million in net revenue per annum.
Our Retail networks business delivered a profit before tax( 4 ) of £53.3
million, an increase of £0.5 million. This was driven by growth in net
revenue( 5 ) from retail services of £9.6 million, but offset by a decline in
bill payments and top-ups of £2.8 million and additional investment costs
arising from PayPoint One, EPoS and MultiPay development and deployment.
In total this financial year we paid £78.5 million to shareholders by means
of the £29.5 million ordinary dividend, the first instalment of the
additional dividend of £8.3 million and the return of £40.7 million from the
proceeds of the sale of Online and Mobile. Our business model continues to be
highly cash generative with £42.2 million of cash generated from operating
activities in the year.
Business model
We have unrivalled strength in convenience retail payments and services with
over 40,000 outlets across the UK and Romania. In both markets our business
has two highly complementary business streams, payments and retail services.
These operate from a common retail servicing capability and secure technology
infrastructure. This technology platform and our site network form the
foundation from which we will drive future value.
Our first business stream, payments, provides convenient bill payment channels
for the customers of major utilities and service companies. The PayPoint
network supports the broadest range of payment types including bills, energy
prepayments, mobile and eMoney top-ups, licences, rents, taxes, transport
tickets, debt collection, deposits and repayments. We also pay out cash
benefits and rebates. In payments, our retail partners are our distributors,
earning commission and benefiting from the hundreds of millions of customer
visits we generate. Some customers prefer to pay online and our MultiPay
product extends to mobile app, web-site, IVR and text payments so we can help
our clients to help customers pay in the way that suits them best.
Our second business area builds on the strength of our retail networks and our
technology, enabling us to provide multiple retail services to retailers.
These additional services are highly competitive offers to retailers, charging
fees for some services and earning commission for others. The range of retail
services is already extensive but we continually innovate to generate new
revenue streams. Our retail partners, in turn, are able to offer their
customers a widening range of convenience payment products and services which
keeps them coming into the store. The principal retail services are ATMs, card
and other non-cash electronic payment solutions, Western Union agencies, SIM
card sales, parcels and EPoS. As noted above, we have recently renegotiated
the terms of our parcels joint arrangement with Yodel, to allow PayPoint to
open the Collect+ network to other carriers. Our intention is to create the
definitive industry solution, allowing consumers to pick up and drop off
parcels at their local shop irrespective of the carrier. Retail services have
continued to grow strongly in recent years and this business area is becoming
increasingly significant within our business mix.
In payments, we remain committed to delivering our strategy which is focused
on delivering multi-channel payments solutions and services to our customers
where we have retail networks. In retail services, we see significant growth
opportunities for our unique retailer network and our differentiated and
established technology platform to benefit from the high street evolution
towards convenience.
In order to execute our strategy we have set out five clear priorities for the
year ahead:
1. Drive profitable growth in UK retail services
Market context
PayPoint's services are particularly attractive to the convenience retail
sector which includes newsagents, general convenience stores, off licences and
petrol station forecourts. We are also complementary to the convenience offers
of larger format supermarkets. We build our relationship with retailers
through our field sales force of 50 professionals located throughout the UK
and through our contact centre which is situated in Welwyn Garden City. We
also hold quarterly Retailer Forums attended by PayPoint retailers and
management to ensure open dialogue and communication.
PayPoint has payment relationships extending to over 29,000 UK outlets drawn
from an available market of approximately 51,000 stores comprising 37,500
independents (of which 14,000 symbol-affiliated stores) and 13,500 multiple
and managed symbol stores. These 51,000 stores are PayPoint's core
marketplace, with growth and any extension beyond the convenience sector also
representing an opportunity for our retail services. Historically, PayPoint
has restricted supply of its branded payments footfall rather than looking to
achieve blanket coverage of the entire convenience retail sector. As a result,
PayPoint retailers are typically of good quality, desired by our clients and
envied by our competitors. Overall, PayPoint pays our retailers over £50
million annually in commission for their critical role in our payments and
retail services delivery.
Our retailers can be segmented into 3 broad sub-groups. We have 8,500 outlets
that are in multiple chains, including The Co-op, McColls, One Stop and many
other fuel and convenience chains. We also have coverage in all Asda stores,
many Sainsbury's Locals and increasingly in Tesco Express, as even the major
grocers see the power of our footfall generation. The balance of our network
is in independents, who may be unaffiliated or linked to a symbol group such
as Spar, Costcutter, Nisa or Booker Premier. We have 11,500 unaffiliated
independents, out of 23,500 in the UK and a further 9,000 symbol-affiliated
outlets out of 15,400 independent and managed symbol stores in the UK.
To serve multiples, we deploy our PPoS solution, a virtual terminal that
integrates into the retailer's own EPoS system for maximum operational
efficiency.
For independents, we offer a standalone terminal. Most of our retailers have
our second generation yellow machine (T2) that has been deployed since 2003.
Last year we launched PayPoint One, a transformational terminal platform, with
a full range of connectivity options including WiFi and Bluetooth, which we
will rollout across our estate over the next few years. With PayPoint One, we
have also introduced a new EPoS capability which has seen encouraging uptake
to date and that we expect to be a platform for significant future growth.
PayPoint One provides our retailers with the ability to serve customers
quickly, while providing advanced connectivity and improving business
efficiency all within a flexible and fully-supported technology platform.
Each of our retail services has its own market context and competitive
dynamics, which are explained briefly here:
ATMs - we provide 4,100 ATMs out of an overall population in the LINK network
of 70 million, of which 52 million are non-bank branch machines( i ). Our
machines are typically located in-store and are filled by our retailers using
their own cash, including much of the money collected from our bill payments.
We offer both free to use and surcharge machines with most new deployments
being free to use. In general, cash withdrawal volumes are expected to decline
steadily as the use of cash is eroded by contactless payments. However, while
this decline is reflected in a rise in bank branch closures, growth in
non-bank branch ATMs has continued and PayPoint's position in the market gives
us plenty of scope to grow.
Card Payments - we provide 10,000 of our retailers with in-store card payment
solutions including Chip and PIN and contactless cards and mobile schemes such
as Apple and Android Pay. We earn a margin on each payment through revenue
share arrangements with merchant acquirers. In common with the market
generally, we have been experiencing very strong contactless payment growth.
These payments have a lower transaction value, earning us slightly less per
transaction but for a much greater volume. This is a highly competitive market
with many offers from merchant acquirers and intermediaries.
Money Transfer - we provide 1,100 outlets in the UK with Western Union
agencies to serve the international money transfer market. This is a
value-added, rather than strategic, service and we expect to remain a minor
player.
SIM sales - we are selling mobile phone SIMs to 15,000 outlets and have
approximately a 6% market share, making a strong net revenue contribution. We
earn commissions based on the top-up values on activated SIMs which we share
with our retailers, and bonuses for achieving predetermined targets.
EPoS - this is a new market for PayPoint which we entered in June last year,
with a price scanning solution built on the Android tablet characteristics of
PayPoint One, with its large interactive screen, ergonomic design and advanced
scanning capability. PayPoint One provides an integrated all-in-one solution,
combining EPoS with card payments, bill payments, proprietary hardware, cloud
management, business intelligence, service support and Android applications to
support our retailers' businesses. We expect our EPoS solution to be
attractive to the independent sector, many of whom may be first time users,
but we also expect strong symbol group adoption when we launch our Pro version
in summer 2017. The Pro version will have sophisticated stock management and
ordering capability, managed in the cloud, representing a step change in EPoS
market technology. We are also currently putting in place the necessary links
to integrate with symbol group wholesalers, to make the product more
attractive.
There are numerous EPoS providers in the UK typically serving more than one
vertical, such as retail and hospitality. In convenience retailing, EPoS
provision is more fragmented outside of the suppliers to the multiple chains.
Suppliers service a few thousand locations at most and often work with legacy
software, sitting on older Microsoft Windows platforms, with localised back
office functions which do not take advantage of cloud technology. EPoS
products tend to carry an upfront hardware investment, with additional charges
for installation and ongoing fees for service, support and licensing. As a
consequence take up can be limited. With PayPoint's modern technology and no
upfront fees for the hardware, we expect to make inroads into this market and
have been encouraged by the early take up.
Overall, the launch of PayPoint One integrates PayPoint's payments stream with
card payments and EPoS into a single leading edge hardware device. Our retail
services success over many years has built a balanced portfolio of strong and
highly competitive products with a good mix of strategic and tactical services
across high growth and maturing markets. The market leading qualities of the
PayPoint One platform will enable us to significantly increase our revenue
over time by charging fees for the platform and its EPoS capabilities.
Progress in year
Overall, retail services accounted for 36% of UK net revenues, generating
£39.0 million net revenue which represented growth of 30.9% on the previous
year. We enjoyed continued growth in ATMs, card payments and SIMs net
revenues. We also secured a VAT recovery of £2.4 million in card payments.
The recurring net revenue benefit from the corrected treatment is
approximately £1.0 million per annum.
We launched PayPoint One and have installed over 3,600 new terminals of which
60% have EPoS activated, with the remainder opting just to upgrade from our
second generation terminal to use our Till App. We have also largely completed
our EPoS Pro development for testing ahead of launch in a few months' time and
have secured our first symbol group integration agreement.
Future Delivery
We expect to achieve a PayPoint One network size of 8,000 sites by March 2018,
with high EPoS and card payment attachment. This will include symbol retailers
as the Pro version of EPoS is launched and wholesaler links are implemented.
Nisa is the first symbol retailer to contract to be integrated with our EPoS
Pro platform and we expect to sign up others soon. Our card payments volume
should continue to grow strongly. We will focus on protecting margins in a
fiercely competitive market fuelled by the growth in contactless payments,
which has made the convenience sector increasingly attractive. This year we
plan to extend our net settlement capability from ATMs to card payments which
should be a unique differentiator for PayPoint by off-setting our retailers'
banking costs.
We will be investing in our ATM network to continue to expand our presence
throughout our retail network and to upgrade legacy hardware.
1. Deliver parcels volume growth in the UK
Market context
We provide 6,100 outlets with our Collect+ service, our joint arrangement with
Yodel, a leading carrier. Collect+ was the first successful parcel collections
and returns retail network in the UK, launched in 2009. The service has
subsequently been copied by several other carriers but has not been matched in
scale or customer popularity. This is a large market; IMRG states there are
250 million parcel returns a year and 165 million click & collect parcels,
both growing rapidly.
Progress in the year
Collect+ is available in over 6,100 sites and the number of parcels processed
in the year was over 23 million. Collect+ has gained a Trust Pilot score of
9.2 out of 10 and is now a trusted and well regarded consumer brand. The
restructured terms of the Collect+ joint arrangement are now in place. In
return for a reduced transaction fee, PayPoint is no longer exclusively tied
to using Yodel and now has the opportunity to extend the network of carriers
we work with.
Future delivery
PayPoint has an exciting opportunity to capture a significant share of the
market. We have appointed a new Parcel Services Director with a significant
track record in the parcels market to lead our efforts to capture new volumes.
In the coming years, we expect strong growth with many more outlets and
millions of extra parcels as the new approach beds in, supported by strong
continuing delivery from our existing partner, Yodel. The new approach has
come at a short-term cost as we have agreed to progressively reduce fees
received from Yodel by £3.0 million over three years. On a like-for-like
volume basis this is expected to impact the year to 31 March 2018 by £1.7
million with a further £1.0 million impact in the year to 31 March 2019.
1. Optimise profits in UK bill payments and top-ups
Market context
Payments have traditionally been PayPoint's most successful business area and
we have developed a market leadership position in payment collection through
convenience retail outlets. Our UK network numbers 29,100 sites, meaning that
we are in the majority of available convenience retail outlets and we handle
approximately 500 million transactions per annum through the network to a
value of £9.0 billion.
There are over 4.9 billion regular consumer payments a year( ii ), but the
majority of these are made by direct debit through the banks, which would be
the billers' preferred collection method. However, this does not suit all
customers. PayPoint's strength is in serving the millions of householders who
prefer to pay their bills in cash over the counter. This has been a resilient
sector which has fuelled our growth despite the long-term steady decline in
cash as a payment method in the UK economy, relative to electronic and card
payments.
PayPoint has always been particularly strong in energy payments as the breadth
of our coverage in convenience retail outlets, combined with extended opening
hours, provides an ideal solution for those who need to quickly and
conveniently switch their energy back on. Growth in the prepay energy sector
peaked four years ago when a combination of factors including high tariffs,
cold weather, high energy debts and high prepay meter installation rates
created strong demand. Recently however growth has slowed, as the impact of
these factors has reduced.
We expect that the introduction of smart meters, which has been subject to
delays in commissioning by the Data Communications Company (DCC), will open
more digital payment options for consumers, and that payments by app or
web-site will erode some cash volumes in prepay mode. As of 31 December 2016
there was a total of 22.8 million gas meters and 27.5 million electricity
meters( iii ) operated by large and small energy suppliers in domestic
properties across Great Britain. Active smart meters (gas and electric)
accounted for 4.9 million of the total number of meters, an increase of 2.9
million compared to 2015. In order to address this opportunity, PayPoint has
been developing its MultiPay service in recent years and is well placed to
serve retail and digital payments through an integrated platform for energy
clients.
From 1 April 2017 the Competition and Markets Authority has introduced a price
cap for prepayment customers which it estimates will reduce households'
heating bills by on average £75( iv ) a year. It is too early to fully
understand the impact this will have on PayPoint, however we estimate each
prepay customer's average top-up value is around £15 a visit.
The slowdown in the energy payments sector and uncertainty around smart
meters, combined with the longer term decline in mobile top-ups and in cash as
a payment method in the UK economy means that we anticipate reducing net
revenue in PayPoint's traditional sectors. As a result, our focus is on
maximising profitability in UK bill payments and top-ups, managing margins and
cashflow through both continuing innovation and a relentless focus on business
process and cost efficiency.
Progress in year
Bill payment volumes reduced by 6.6% in the year because of softening energy
prepay and a reduction in CashOut transactions. CashOut transactions reduced
as a consequence of the two year government electricity rebate scheme coming
to an end. Top-up transactions declined 15.3% as a result of the continuing
long-term decline in UK mobile top-ups. Payments account for 64% of overall UK
net revenues. Net revenues held up better than volumes as bigger clients lost
share to challengers, benefiting our pricing mix.
MultiPay volumes have been growing strongly and we handled 10.3 million
payments, up 4.9 million from last year, through our non-retail digital
channels. We have also recently completed the implementation for SSE, our
first big 6 energy client for MultiPay. The service is also proving
particularly attractive to some of the main challengers in the energy market
as well as smaller suppliers. At the end of the financial year 15 clients had
contracted to use the service.
We have had a steady stream of new business and have added 67 new schemes in
the year including, for the first time, local authorities deciding to work
with us directly and exclusively, having previously split their volumes across
the Post Office and PayPoint. We have also added clients for digital voucher
services, including a new arrangement with Amazon which is still in its early
days.
We also went live with our new FCA regulated Payment Institution, PayPoint
Payment Services Limited, which allows us to provide certain regulated payment
services and to extend the range of our CashOut services.
Future delivery
The payments business is likely to continue to be affected by the uncertainty
relating to smart meters and the general long-term decline of cash and
top-ups. However, there is a strong residual demand for cash payment that we
will continue to serve successfully and expand where possible, with new
schemes and products for our customers. As more challenger businesses take
share from the big traditional suppliers, we would also expect to see some
margin benefits through less revenue concentration. We have also been able to
renegotiate terms with retailers and symbol groups, improving margin, as a
result of the diminishing importance of mobile top-up volumes.
We expect the year ahead to be adversely affected by a recent decision of the
DWP to discontinue its Simple Payment Service from this summer, for which we
have been the retail partner. Unfortunately, the service has been a victim of
its own success in migrating customers away from the traditional girocheque
into other methods, giving the DWP the ability to close down the option. This
service has generated revenue for PayPoint of over £4 million per annum
historically.
PayPoint will continue to handle hundreds of millions of payments for the UK's
leading consumer service organisations and payments will remain a critical
element in our business mix going forward. Our unique payments portfolio is
central to the popularity of our brand with retailers and consumers and
provides the platform on which our retail services are thriving. In addition,
we are well placed to drive further MultiPay growth with more challengers, our
first volumes for a big 6 supplier and the potential to extend into other bill
payment sectors, including housing.
1. Drive continued organic growth in Romania
Market context
PayPoint Romania follows a similar business model to the UK, but in a market
in which cash bill payment is a mass market proposition. Over 10 years,
PayPoint has become one of Romania's most successful and popular financial
brands, handling on average 24% of our clients' payments. We expect cash to be
the dominant bill payment method well into the future. The range of payments
solutions offered by PayPoint is extensive including energy, telecoms and pay
TV bills, road tax, eMoney vouchers, insurance premiums and loan repayments.
As in the UK, we work with all the leading suppliers.
Romania is also a strong remittance market, mainly as receivers of payments
from overseas. As in the UK we work with the market leaders Western Union in
what is still a high growth sector.
Progress in year
We have continued to make strong organic progress in the year growing our net
revenues in Romania to £9.1 million, an increase of 28.2% on the prior year.
Our retail network has grown to 11,300 sites and includes strong
representation from independents and multiples, including Profi, Cora and
Carrefour. We enjoyed record volumes of 75 million transactions, including
growth in mobile top-ups, not just bill payments.
Future delivery
The Romanian payments market continues to evolve with clients moving away from
the local post office creating further opportunities for us. We will continue
to expand our market share with existing clients and to add new clients. In
the year we successfully added our first local authority which we will use as
a case study to entice other local authorities.
We plan to extend our retailer services offering in Romania. We are trialling
a parcels service, Colet Expres, in Bucharest, working with the leading
Romanian carrier, FAN courier. The home shopping market in Romania is still
developing and is generally based on cash on delivery, but we are excited
about the opportunity the parcels service presents. In addition, we are
trialling a card payment service for retailers.
We currently have an agreed offer to buy Payzone in Romania, which is subject
to competition authority approval.
1. Business optimisation
Our refocus on our retail businesses has highlighted opportunities for us to
invest in tools and capabilities to enable our client and field teams to more
effectively sell a portfolio of products. In conjunction with the rollout of
PayPoint One, we have also publicly pledged to our UK retailers that we intend
to deliver first class servicing of their requirements through the entire
lifecycle of on-boarding, operational support and status changes. This will
require us to invest in efficient workflow and billing systems with accurate
and timely supporting information, for our retailers and ourselves, so we can
serve them effectively. We are making a considerable investment of £4.0
million over 18 months in these tools and capabilities but are expecting
significant improvements in sales and operational efficiencies.
We are also reviewing our processes to ensure we are innovating efficiently
and driving maximum return from our investments in product and technology.
Outlook
We have made good progress in reshaping the business, including the disposal
of Mobile and Online. This enables greater focus on our retail network
specifically by providing EPoS solutions to our retailers and on pursuing a
multi-carrier strategy for parcels, both of which are exciting prospects going
forward. In time I believe there will be opportunities to further extend our
geographic footprint, leveraging the scale and capability of our platform,
however international expansion will be a lower priority for the immediate
future.
To support our growth agenda, we are making incremental investment in
capabilities and tools to improve our sales productivity, foster continued
innovation, accelerate commercial deployment and deliver greater operational
efficiencies.
For the current financial year, we expect robust net revenue growth in UK
retail services and Romania. This will broadly offset the impact of our
additional investments, the reduced fees earned from Yodel and the expected
continuing net revenue reduction in UK cash payments, including the ending of
the Simple Payment Scheme and the changing energy market dynamics.
We are confident that PayPoint is well positioned to continue to drive
sustainable medium-term earnings growth, generate cash and support superior
returns to shareholders.
Dominic Taylor
Chief Executive
25 May 2017
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.
The KPIs presented this year have changed in that they exclude the disposed
activities of Mobile and Online. 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 and purpose 2017 2016
Maximise shareholder return Earnings per share (Retail networks) ( 6 ) Retail earnings (see note 6) divided by the weighted average number of ordinary shares in issue during the year (including potential dilutive ordinary shares) Earnings per share is a measure of the profit of the ongoing business attributable to each share 64.3p 62.5p
Dividends per share Proposed final dividend and interim dividend divided by the number of fully paid shares at the end of the year Dividend per share provides a measure of the return to our shareholders 45.0p 42.4p
Economic profit (1) Operating profit before impairments and profit on business disposals after tax and a charge for capital employed, excluding cash, based upon the Group's cost of capital Economic profit provides a consistent measure of the profit aligned to the remuneration of management £39.2 million £32.8 million
Drive profitable growth in UK retail services and continued organic growth in Romania Retail networks transactions Number of transactions processed in the year on our terminals and ATMs Transaction volume provides a measure of the source of revenue which is earned on a per transaction basis 654.8 million 668.2 million
Retail networks transaction value The value of transactions processed via our terminals and ATMs Transaction value provides a measure of the source of revenue which is earned on a percentage of the transaction value £10.4 billion £10.4 billion
Retail networks net revenue (1) Revenue less: commissions paid to retail agents and the cost of mobile top-ups and SIM cards where PayPoint is principal Net revenue reflects the benefit attributable to PayPoint's performance eliminating pass-through costs and is a reliable indication of contribution from business operations £117.5 million £110.7 million
PayPoint One sites The number of sites with our PayPoint One platform This provides a measure of the source of service fee revenue from PayPoint One terminals and EPoS 3,601 38
Business optimisation Retail networks operating margin (1) Operating profit before impairments and profit on business disposals as a percentage of net revenue Operating margin provides a broad overview of the efficient and effective management of the cost base. 45.3% 47.7%
Return on capital employed (1) Operating profit before impairments and business disposal including our share of joint venture result for the year divided by average month end capital employed (net assets excluding cash) Return on capital employed provides a broad overview of the efficient and effective use of capital in our business 184.3% 70.4%
Growth/ (decline) in retail networks yield per site (1) Growth / (decline) in net revenue from retail networks divided by the average number of sites in the year Network yield provides a broad overview of the efficient and effective use of our network 2.2% (2.9%)
People Labour turnover Number of permanent employees who left during the year divided by average total permanent employees Labour turnover provides an indication of employee job satisfaction 29.0% 33%
REVIEW OF BUSINESS
The review of business presented includes highlights on page 1, the Chairman's
statement on page 3 and the Chief Executive's review on pages 4 to 8.
OPERATING REVIEW
PayPoint is a service provider for consumer transactions through various
distribution channels, involving the processing of high volume transactions,
the management of retailers and clients, the settlement of funds (collection
and transmission) and transmission of data in a secure environment, by the
application of technology.
The application of technology is directed on a Group basis by the Group's
Executive Board to develop products across the business, prioritised on an
economic value basis (generally by product), rather than on a subsidiary by
subsidiary basis and therefore the Group has only one operating segment.
We have however, included an analysis of the number and value of consumer
transactions, revenue and net revenue distinguishing between our Retail
networks and Mobile and Online.
Retail networks
The Group has established retail networks in the UK, Ireland and Romania which
continued to grow by 3.2% to 40,478 sites.
Year ended 31 March 2017 Year ended 31 March 2016 Change %
UK & Ireland Retail network 29,176 29,087 0.3
Romania Retail network 11,302 10,141 11.4
Total sites 40,478 39,228 3.2
In the first half of the year our focus was on the rollout of PayPoint One
terminals with 3,601 terminals installed at sites by 31 March 2017. Our focus
on rollout of PayPoint One to our existing sites resulted in low growth in the
total number of UK sites of 0.3%. PayPoint One will replace the previous
version of our terminal and is a platform from which we can launch and offer
new services to retailers.
We continue to rollout PPoS to symbol groups who want to provide PayPoint
services, but have their own till and EPoS applications and do not take our
PayPoint One platform. At year end there were 8,487 PPoS sites (2016: 8,101
PPoS).
In Romania, we increased the number of terminal sites by 1,161 in the year, an
increase of 11.4%.
Within retail networks we distinguish between three business categories,
namely bill and general, top-ups and retail services and each is reviewed
separately below. Overall transactions declined by 13.4 million to 654.8
million (2016: 668.2 million), with UK declining by 3.6% offset by robust
growth in Romania of 12.1%. Average transaction values in prepaid energy and
UK mobile top-ups continue to increase which has offset the declining
transaction volume. Transaction value of £10.4 billion (2016: £10.4 billion)
was broadly in line with last year.
Year ended 31 March 2017 Year ended 31 March 2016 Change %
UK transactions (million) 579.8 601.3 (3.6)
Romania transactions (million) 75.0 66.9 12.1
Total transactions (million) 654.8 668.2 (2.0)
Transaction value (£m) 10,409.6 10,390.8 0.2
Revenue (£m) ( 7 ) 203.4 196.4 3.6
Net revenue ( 8 )(£m) 117.5 110.7 6.2
Despite the decline in transactions, revenue(2 )increased £7.0 million to
£203.4 million (2016: £196.4 million) due to card payment VAT (discussed
below), change in mix of clients and growth in setup and service fees.
In prior years, card payment revenue was treated as standard rated for VAT
purposes with the VAT element deducted from revenue. To bring our treatment in
line with the industry practice, this was changed to be VAT exempt, resulting
in a VAT recovery from HMRC of £2.4 million relating to prior years. We
expect that on an annualised basis revenue will be approximately £1.0 million
higher than when treated as standard rated. As a result of the change in VAT
treatment, irrecoverable VAT, which is included as a cost in administrative
expenses, increased by £1.2 million including £0.4 million related to prior
years.
Net revenue has increased by £6.8 million to £117.5 million (2016: £110.7
million) for the same reasons as revenue set out above, plus a reduction of
retailer commission (£1.3 million).
Bill and general
Bill and general is our most established category and consists of prepaid
energy, bill payments and CashOut services.
Year ended 31 March 2017 Year ended 31 March 2016 Change %
Transactions (million) 430.5 449.2 (4.2)
Transaction value (£m) 8,489.9 8,557.7 (0.8)
Revenue (£m) 82.5 85.8 (3.7)
Net revenue ( 9 )(£m) 58.5 59.5 (1.7)
Bill and general transactions were lower than the previous year by 4.2%. UK
and Irish bill and general transactions were down 6.6% due to lower prepaid
and CashOut energy transactions. MultiPay continued to grow strongly with
transactions for the year ended 31 March 2017 reaching 10.3 million (2016: 5.4
million).
Growth in Romanian bill payment transactions continued with an increase of
11.6% to 67.2 million (2016: 60.2 million). Romania continued to expand its
market share with existing clients to 23.8% in March (2016: 21.8%) and also
continued to add new clients across new sectors, including its first local
authority.
Net revenue of £58.5 million was 1.7% down on last year's £59.5 million, the
mix of clients (increase in smaller but higher yielding clients) and changes
to our retail commission terms reduced the impact from the decline in
transaction volume.
Top-ups
Top-ups include transactions where consumers can top up their mobiles and
prepaid debit cards. They can also purchase eMoney vouchers and lottery
tickets. In Ireland and Romania, PayPoint is principal in the sale of mobile
top-ups and, accordingly, the face value of the top-up is included in revenue
and the corresponding costs deducted when deriving net revenue.
Year ended 31 March 2017 Year ended 31 March 2016 Change %
Transactions (million) 68.9 79.0 (12.8)
Transaction value (£m) 731.6 767.4 (4.7)
Revenue (£m) 63.6 63.3 0.4
Net revenue (1)(£m) 19.1 20.9 (8.4)
Top-up transactions decreased 12.8% to 68.9 million. The reduction in UK
mobile top-up transactions and The Health Lottery was only partly offset by an
increase in other UK and Romanian top-up transactions. Romania increased its
top-up transactions by 16% to 7.3 million.
The average value of UK mobile top-ups continued to increase which mitigated
the reduction in net revenue, which declined 8.4% to £19.1 million.
Retail services
Retail services are those we provide to retailers who form part of our
networks. Services include providing the PayPoint One platform, which has a
basic till application, EPoS, ATMs, card payment, parcels, money transfer and
SIMs.
Year ended 31 March 2017 Year ended 31 March 2016 Change %
Transactions (million) 155.4 140.0 11.0
Transaction value (£m) 1,188.1 1,065.7 11.5
Revenue (£m) 57.3 47.3 21.0
Net revenue (1)(£m) 39.9 30.3 31.6
Retail services transaction volume has increased across all major products:
ATM transactions increased by 8.0%, card payment transactions by 12.2% and
parcels by 12.6% over last year.
Net revenue growth of 31.6% to £39.9 million exceeded the growth in
transactions as a result of the benefit from the change in VAT rating in card
payments (see page 10 for further details), the growth of service fees from
PayPoint One, a reduction in the card payment wholesale rate and bonuses
earned on our SIM activations.
The number of sites in the UK with retail services is as follows:
Year ended 31 March 2017 Year ended 31 March 2016 Change %
PayPoint One 3,601 38 -
Collect+ 6,167 5,936 3.9
Card payment 10,024 10,111 (0.9)
ATM 4,165 4,120 1.1
Mobile and Online
The Group disposed of its online payments business on 8 January 2016 and its
mobile payments business on 23 December 2016. The results below reflect the
trading of these businesses up to the date of their respective disposals.
Year ended 31 March 2017 Year ended 31 March 2016 Change %
Transactions (million) 40.3 150.5 (73.2)
Transaction value (£m) 136.0 3,650.9 (96.3)
Revenue (£m) 8.5 16.2 (47.4)
Net revenue ( 10 )(£m) 6.3 13.0 (50.9)
FINANCIAL REVIEW
Mobile and Online are included in our statutory results up to the date of
their respective disposals resulting in this year's performance not being
directly comparable to last year. In order to assist users to more clearly
review our financial performance for the year we have provided an analysis of
our reported statutory results split between the ongoing Retail networks and
the now disposed of Mobile and Online.
Revenue
Revenue for the year was £211.9 million (2016: £212.6 million) and consists
of Retail networks revenue of £203.4 million (2016: £196.4 million) and
Mobile and Online revenue of £8.5 million (2016: £16.2 million) up to the
date of their respective disposals. Revenue and net revenue analysis is
included in the operating review on pages 10 to 12.
Cost of revenue
In the current year 'cost of sales' was renamed 'cost of revenue' to better
reflect the nature of the costs included in this category. The costs allocated
to this category are consistent with prior year's allocations.
Statutory
Cost of revenue reduced by £0.5 million to £106.0 million (2016: £106.5
million), with a reduction from Mobile and Online of £1.5 million offset by
an increase in Retail networks of £1.0 million.
Retail networks
Cost of revenue in Retail networks increased to £102.7 million (2016: £101.7
million). The revenue growth achieved in Romanian top-ups, where PayPoint acts
as principal, increased the cost of top-ups by £4.2 million to £32.3 million
(2016: £28.1 million). Depreciation and amortisation increased by £1.7
million principally due to the launch and rollout of PayPoint One. The above
increases were partially offset by a reduction in transaction costs from the
lower level of energy CashOut schemes and commissions paid to retailers
reducing to £53.7 million. Retailer commissions reduced as a result of the
decline in UK bill payments and top-up transactions and revenue and changRecent news on PayPoint
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