TIDMPAY
PayPoint plc
Preliminary results
Year ended 31 March 2019
FINANCIAL HIGHLIGHTS
Year ended 31 March 2019 2018 Change
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Revenue GBP211.6m GBP213.5m (0.9)%
Net revenue(1) GBP116.6m GBP119.6m (2.5)%
Operating margin(2) 46.3% 44.7% 1.6ppts
Profit before tax excluding exceptional
items GBP53.8m GBP52.9m 1.6%
Profit before tax GBP54.7m GBP52.9m 3.3%
Diluted earnings per share 64.8p 62.7p 3.3%
Cash generation(3) GBP62.8m GBP67.9m (7.5)%
Ordinary dividend paid per share 46.2p 45.3p 1.9%
Additional dividend paid per share 36.7p 36.7p -
Net corporate cash(4) GBP3.5m GBP18.5m (81.3)%
Cash and cash equivalents GBP37.5m GBP46.0m (18.6)%
----------------------------------------
Strategy execution
--Embed PayPoint at the heart of convenience retail
o The PayPoint One platform was live in 12,881 sites at 31 March
2019, ahead of the original target of 12,400 sites. 13,248 sites are
live today(5) . This means that over 74%(6) of PayPoint's independent
retailers are now using the new platform.
o Service fee revenue increased by GBP2.6 million (33.6%) to GBP10.3
million.
o Card payment rebate revenue increased 5.5% to GBP7.9 million.
--Become the definitive parcel point solution
o Four new parcel partnerships secured; five now signed-up.
o Collect+'s Trust Pilot rating of 9.2 reconfirms Collect+'s strong
consumer proposition.
--Sustain leadership in 'pay-as-you' go and grow digital bill payments
o UK bill payments and top-ups net revenue per transaction grew by
4.7%.
o 21 new clients launched including Monzo Bank and Anglian Water.
o MultiPay's net revenue increased by 48.3%.
o Romania's net revenue grew by 16.8% and 27 new clients were added.
1,500 of Payzone's highest transacting retailers have chosen to migrate
to the PayPoint platform and card payments was rolled out to 1,300
sites.
--Innovate for future growth and profits
o Developed and launched a pilot for card payments net settlement
which allows the offset of bill payments cash due from retailers against
funds due to retailers for card payments.
o Ready to commence with the initial trial of the LINK
Over-The-Counter service.
o MultiPay's direct debit payment capability developed to unlock
further penetration of the energy sector and other verticals.
Organisation and service delivery
-- Improved PayPoint One installation capacity by c.40% following the
introduction of Salesforce CRM to manage workflow.
-- Reduced the time to resolve retailers' claim for refunds by c.70% and
their time in automated call handling systems by c.80%.
Financial highlights
--Underlying revenue(7) (including the share of commission paid to
retailers) grew by 1.6%. Reported revenue declined by 0.9% to GBP211.6
million reflecting the GBP5.2 million headwinds from the Simple Payments
Service (SPS) closure and renegotiation of the Yodel contract.
--Underlying net revenue(8) grew by GBP2.2 million (2.0%) driven by the
roll out of PayPoint One and growth in MultiPay, eMoney and Romania's
transactions. Reported net revenue(1) declined by GBP3.0 million (2.5%)
to GBP116.6 million reflecting the GBP5.2 million headwinds described
above.
--Underlying costs(9) declined by GBP2.9 million driven by cost
efficiencies and savings. Total costs(10) declined by GBP3.8 million to
GBP62.8 million which includes a one-off VAT recovery of GBP2.4 million
related to prior years.
--Profit before tax excluding exceptional items grew by 1.6% to GBP53.8
million, profit before tax including exceptional items grew by 3.3% and
diluted earnings per share also increased by 3.3%.
--At the year end, net corporate cash was GBP3.5 million and the GBP75
million financing facility was unutilised.
--PayPoint remains committed to the additional dividend programme of
GBP25 million per annum until December 2021 alongside the ordinary
dividend. Final ordinary dividend of 23.6 pence per share to be paid to
shareholders in equal payments on 29 July 2019 and 30 September 2019.
Patrick Headon, CEO commented:
'I am delighted to have joined PayPoint as CEO at an exciting time in
its development. Key foundations have been set for future growth.
PayPoint One was rolled out to almost 13,000 sites and, in the future,
we will continue to enhance product features adding even more value to
retailers. Together with our four new parcel partners we can improve
online shoppers' experience by delivering their purchases to a PayPoint
store convenient to them. MultiPay enhancements allow our clients to
offer a full suite of payment options to their end consumers. At the
same time, our bill payments business has proved resilient in a rapidly
evolving market.
Delivery of the financial result for the year ending 31 March 2020
requires revenue growth across PayPoint One, MultiPay, Romania and
Parcels, as we scale up with our new partnerships, as well as continued
resilience in bill payments and vigilance on costs. Despite the final
year impact of the Yodel renegotiation (GBP0.7 million), investment in
customer service and improved business efficiency (GBP2 million) and the
uncertain broader economic environment, the Board is confident that
there will be a progression in profit before tax for the year ending 31
March 2020.'
Enquiries
PayPoint plc Finsbury (telephone: 0207 2513 801)
Patrick Headon, CEO (telephone: 01707 600 317)
Rollo Head
Rachel Kentleton, Finance Director (mobile: 07843 074 906)
Andy Parnis
A presentation for analysts is being held at 9:30am today (23 May 2019)
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
Dear Shareholders,
In last year's annual report, the Board identified the four key
strategic priorities for the business. These priorities were to: embed
PayPoint at the heart of convenience retail, become the definitive
parcel point solution, sustain leadership in pay-as-you-go & grow
digital bill payments, and innovate for future growth and profits. These
objectives centred around our growth drivers of PayPoint One, parcels,
Romania and MultiPay. I am pleased to report good progress against all
four of these initiatives. Our PayPoint One estate was extended by 4,331
sites to reach 12,881 sites on 31 March 2019, ahead of the original
target of 12,400 sites. We have signed four new significant parcel
partnerships. Romania's transactions grew, delivering a 16.8% increase
in net revenue. MultiPay also delivered strong growth of 48.3% in net
revenue whilst the over-the-counter bill payments business proved to be
resilient.
As a Board, we believe there is a significant opportunity to drive
further growth from our retail services offering through developing the
PayPoint One and parcel products, increasing the penetration of card
payments and by achieving a substantial improvement in our service
delivery to retail and client partners. To lead the next phase of
PayPoint's development, and to build on the success achieved in the
business over many years, Patrick Headon was appointed PayPoint's CEO on
1 April 2019. Patrick has a strong management track record in consumer,
digital and B2B organisations.
Patrick succeeds Dominic Taylor, who successfully led PayPoint for over
21 years from a start-up company to an organisation of substantial scale
and importance in the UK and Romania. The Board and I would like to
thank Dominic for his immense contribution and leadership of PayPoint
over this period and for the strong legacy he leaves behind in the
business.
Looking ahead, the Board remains confident in PayPoint's prospects given
its position at the heart of convenience retail. Our low cost, scalable
and efficient business model means that PayPoint will play an
increasingly important role in the UK by providing vital payment,
banking, cash out and parcel services to communities where banks and the
Post Office lack physical presence. We aim to fulfil our role in these
areas in a way that provides excellent service to clients and retailers,
enriching opportunities for all employees, and ensuring strong and
sustainable returns to shareholders. The Board remains committed to our
additional dividend programme of GBP25 million per annum which continues
up until December 2021 alongside our ordinary dividend programme.
Finally, our dedicated people and their commitment are vital to PayPoint
and drive our performance. I am highly appreciative of the work they
have done to deliver the results this year.
Nick Wiles
Chairman
22 May 2019
CHIEF EXECUTIVE'S STATEMENT
Introduction
Since joining PayPoint on 1 March 2019, I have spent considerable time
with retailers, clients, external stakeholders and PayPoint employees.
Four themes have come across clearly in these meetings:
-- PayPoint has a strong and scalable business model. It plays a vital role
in communities across the UK and Romania and has a strong record of
generating sustainable returns for shareholders.
-- Foundations for future growth are now established following the first
stage of the PayPoint One roll out, the securing of new parcel carrier
relationships and the continued adoption of our innovative products, such
as MultiPay.
-- There are significant changes occurring in the sectors in which PayPoint
operates, which present both substantial opportunities and exciting
challenges. To optimise performance, the business will need to adapt
further and move quickly.
-- PayPoint is fortunate to have highly committed employees who are focused
on delivering innovative products and services to our customers.
Looking ahead, I have a number of early priorities. These include a
strong focus on delivering good growth in retail services. We also need
to improve customer service further. The continuing development of
Salesforce CRM will support that objective. Finally, as well as
executing the existing strategic initiatives, we will look at how we can
add more value to the business.
2018/19 performance
Over the past 12 months, underlying net revenue grew by GBP2.2 million
(2.0%) to GBP115.9 million. Growth was driven by UK retail services,
which now represents 32% of group net revenue, and Romania. Service fee
revenue exceeded GBP10 million for the first time as PayPoint One was
rolled out to 12,881 sites ahead of the original target of 12,400 sites;
a significant achievement for this new product. Our parcel business
added three of the UK's largest carriers as well as eBay, which is the
UK's largest on-line marketplace. UK bill payments and top-ups revenue
demonstrated continued resilience in the face of the current decline in
cash payments in the UK. Reported net revenue, which reflects the
expected GBP5.2 million headwinds from the Department for Work and
Pensions (DWP) SPS service closure and the impact of the revised Yodel
commercial terms, decreased by GBP3.0 million to GBP116.6 million.
This financial year we grew pre-tax profits before exceptional items by
GBP0.9 million (1.6%) to GBP53.8 million, in line with the expectations
we set in our 2017/18 annual report. There was an additional benefit of
GBP0.9 million included in reported pre-tax profits of GBP54.7 million
relating to the PayByPhone business disposal in 2016. Reported profit
before tax grew by 3.3% with diluted earnings per share also increasing
by 3.3% to 64.8 pence. PayPoint remains highly cash generative with
profit before tax of GBP54.7 million converted into GBP62.8 million
cash. Net corporate cash declined by GBP15.0 million to GBP3.5 million
as a result of the additional dividend programme.
For 2019, the Board is proposing a final dividend of 23.6 pence per
share and an additional dividend of 18.4 pence per share which reflects
our confidence in the business and the outlook for 2019/20.
Outlook
In the past financial year our performance was driven by revenue growth
in PayPoint One, MultiPay and Romania, resilience in bill payments and
strong cost control. We also benefited from a non-recurring GBP2.4
million from improved VAT recoverability, relating to prior years. The
improvement in profit before tax was delivered despite significant
revenue headwinds from the closure of the DWP SPS service (GBP4.2
million) and the second year impact from the Yodel commercial
negotiation (GBP1.0 million).
Delivery of the financial result for the year ending 31 March 2020
requires revenue growth across PayPoint One, MultiPay, Romania and
Parcels, as we scale up with our new partnerships, as well as continued
resilience in bill payments and vigilance on costs. Despite the final
year impact of the Yodel renegotiation (GBP0.7 million), investment in
customer service and improved business efficiency (GBP2 million) and the
uncertain broader economic environment, the Board is confident that
there will be a progression in profit before tax for the year ending 31
March 2020.
Patrick Headon
CEO
22 May 2019
OUR MARKETS
In the UK, the retail sector comprises of over 63,500 retail sites and
is made up of the following segments:
UK retail PayPoint's
sector(11) network
Independents and symbol groups in convenience retail 34,000
Specialist and CTN stores (Confectionery, Tobacconist
and News) 6,000
Independent forecourts 3,000
Symbol and independent retailers 43,000 19,000
Multiple groups in convenience retail 8,000
Forecourt dealers 2,000
Supermarkets and discounters 10,500
Managed groups 20,500 9,000
Total UK sites 63,500 28,000
PayPoint's network is significantly larger than all the banks,
supermarkets or the Post Office. Our superior network means 99.5% of the
urban population live within one mile of a PayPoint retailer and 98.5%
of the rural population within five miles. This provides a convenient
place for consumers to pay their bills and utilise other PayPoint
services, including the collection and sending of parcels where
available.
Convenience retail
-- Total convenience sector sales are estimated to have grown by 2.5% in
2018 to over GBP40bn12.
-- Convenience retail growth is driven by consumers' habits changing towards
smaller but more frequent shopping trips at their local stores.
-- Convenience retailer sites declined by c.1.0%, mainly symbol groups,
driven by disruption in the wholesale supply chain caused by the Palmer &
Harvey collapse and consolidation within the sector.
Our PayPoint One technology is well suited for symbol and independent
convenience retailers. In conjunction with additional PayPoint services
such as parcels, it enables retailers to achieve higher footfall, serve
customers more quickly and improve business efficiency. This helps them
to grow their businesses profitably and remain competitive. Managed
groups which offer PayPoint services typically use the PPoS solution
which integrates into their own EPoS systems. As we develop our range of
services, we can drive additional growth from service fee revenue.
Card payments
-- Total UK card payments transactions increased by 24.1% in the six months
to January 201913 driven by consumers shifting towards contactless
payments.
-- As a result of this strong growth in lower value contactless payments,
average transaction values declined by 4.3%13.
-- Legislation banning surcharges on card payments became effective from
January 2018.
-- Over 88% of convenience retailers offer debit and credit card facilities
with 80% accepting contactless payments2.
PayPoint will benefit both from the market growth in UK card payments
and by increasing the penetration of its card payments product in its
retail network, assisted by our new unique net settlement feature.
ATMs
-- LINK's ATM transactions declined by 6.6% to 2,863 million transactions
and LINK's ATM network declined by 5,400 (7.8%) sites to 63,200 in
201814.
-- LINK's interchange fee reduced by 5% in July 2018 and by a further 5% in
January 2019 which accelerated the decline of ATMs in the current year.
Future interchange reductions are on hold15.
PayPoint's ATM merchant replenishment model allows retailers to recycle
cash received from bill payments into the ATM. This model is more cost
effective for both PayPoint and the retailer. It allows PayPoint to grow
its market share and creates additional revenue and footfall
opportunities for the retailer. The LINK Over-The-Counter opportunity
will eliminate the capital investment required in an ATM, allowing
sustained access to cash withdrawal facilities for consumers,
particularly in areas not justifying an ATM. This will further support
PayPoint's position and grow market share.
Parcels
-- IMRG continues to forecast UK parcel volumes to grow by 9% year-on-year
in 2019, although for the three months to March 2019 volumes were 1.9%
below 201816.
-- The pick-up and drop-off market comprises Click and Collect, returns and
send propositions. The Click and Collect market is c.118 million parcels
per year and is expected to double by 202517. Returns and send volumes
are estimated at c.185 million and c.380 million parcels per year
respectively18.
As PayPoint develops new parcel partnerships it will maximise its share
of this growing market. This will drive additional footfall and revenue
opportunities for convenience retailers and improve the Click and
Collect experience for shoppers.
Bill payments
-- The Post Office acquired Payzone's bill payment business following the
Competition and Markets Authority clearance in October 201819.
-- Cash payments in the UK declined by 14.7% in 201720.
-- Energy:
-- The price cap for pre-pay customers increased by GBP106 to
GBP1,242 per year in April 201921.
-- Non-Big Six energy providers combined market share is now c.25%.
-- 11 challenger energy companies went into administration in the
last eight months; Ofgem are introducing financial health tests
for new energy suppliers.
-- Number of pre-paid mobile subscriptions declined by 6.5% to 27.5 million
subscribers22, with more customers topping up online.
-- Big four banks market share of current accounts fell from 92% of all bank
customers in 2009 to around 70% today, with Fintech challenger banks such
as Monzo, Revolut, N26, Atom and Starling Bank growing market share23.
Despite falling transaction volumes, PayPoint will work to maintain its
leadership in this market and look to drive profitable growth
opportunities supporting new entrants in the energy and banking space.
Through MultiPay, and its improving range of services, PayPoint will
facilitate growth of online bill payment transactions in selected
verticals.
STRATEGIC PRIORITIES
PayPoint's strategy is to exploit the opportunities available from the
market developments described above by leveraging our leading retailer
network, scalable technology and payments platform. The strategy is
executed through the four key priorities described in last year's annual
report. We have set out our progress and future ambition for each
priority below.
PRIORITY 1: EMBED PAYPOINT AT THE HEART OF CONVENIENCE RETAIL
PayPoint will continue to provide and develop new products and services
which enhance our retailers' offer to their customers and help them
operate their businesses more effectively. Core to this priority is
PayPoint One which includes EPoS and bill payment functionality, and
other products such as card payments and ATMs.
Progress in 2018/19
PayPoint One sites increased by a net 4,331 in the year to reach 12,881
by 31 March 2019, ahead of the original target of 12,400. In the first
quarter of 2018/19 our focus was on the roll out of EPoS Pro following
its launch in January 2018 and at 31 March 2019 it was in 645 sites. The
average PayPoint One service fee remained stable at GBP15 per week.
During the year the PayPoint wholesaler links into Booker and Nisa were
developed and were in trial at selected retailers. An iOS version of the
PayPoint One mobile app was released in January 2019 to complement the
existing Android version.
Card payments sites declined by 456 to 9,796 driven by competitor
activity in this highly competitive segment of the market. Card rebate
revenue grew by 5.5% as card payment transactions increased by 20.1%
offsetting the decline in revenue per transaction due to lower average
transaction values. The card net settlement feature is in pilot with
early indications of success. This will enable retailers to offset their
bill payment settlement to PayPoint against their card settlements
thereby reducing their working capital requirements and cash banking
costs. Card net settlement will be ready for roll out at scale following
the go-live of the new Salesforce CRM lead to sales feature.
The ATM estate declined by 319 sites due to our strategy to optimise
capital expenditure. This strategy commenced in the current year with
ATMs from low transacting sites being removed. Some of these ATMs were
redeployed to more profitable sites with initial success evidenced by
the 2.9% increase in transactions despite the general decline
experienced in the wider market. Net revenue declined by GBP0.5 million
(3.9%) due to LINK's interchange rate reductions. The LINK
Over-The-Counter service (which enables cash withdrawals through the use
of a pinpad integrated with the PayPoint terminal) is ready for its
initial trial.
Ambition for 2019/20
For the year ahead, our emphasis will be on ensuring consistent progress
in revenue growth across all products. We intend to grow the PayPoint
One estate by a further 3,000 sites to 15,800 sites and to trade-up a
portion of the existing Base sites to Core and Pro EPoS versions. This,
together with the annual indexation increase, will drive an improvement
in the average weekly PayPoint One service fee per site. We will look to
reverse the decline in the card payments estate through better sales
force focus, roll out of the card net settlement feature and new pricing
structures to attract new and retain existing retailers. The ATM estate
will remain broadly flat as we use the existing ATM stock and optimise
capital expenditure. A successful trial of the LINK Over-The-Counter
service will enable future growth from this product.
PRIORITY 2: PAYPOINT BECOMES THE DEFINITIVE PARCEL POINT SOLUTION
Online retail shopping will continue to grow as retailers enhance their
offering with convenient delivery methods. Deliveries in the "last mile"
are difficult for carriers who are operating in a competitive low-margin
market. Our extensive network, which comprises over 7,000, sites brings
carriers and retailers together for their, and their customers',
benefit.
Progress in 2018/19
We successfully transitioned to a multi-carrier proposition by signing
up three of the UK's largest carriers and eBay, the UK's largest on-line
marketplace. Our parcel proposition traded under the Collect+ brand
which held its Trust Pilot score at 9.2. PayPoint maintained the
operational effectiveness of its in-store service. Parcel volumes
declined by 8.0% primarily due to lower volumes from our incumbent
partner. A parcel app for retailers was launched in December 2018 which
allows retailers to scan parcels away from their PayPoint terminal
improving both the retailer and customer experience.
Ambition for 2019/20
Our focus for the next financial year is to transition from delivery of
new partnerships to growing parcel volumes and revenue. Key to this will
be strong delivery of customer service as volumes scale, thereby
maintaining the Collect+ Trust Pilot score.
PRIORITY 3: SUSTAIN LEADERSHIP IN 'PAY-AS-YOU-GO' AND GROW DIGITAL BILL
PAYMENTS
UK
Over-the-counter payments will remain an important part of the UK
economy and we will continue to retain our leadership in this market.
This business remains highly cash generative and enables us to invest in
future growth and innovation. We intend to grow our presence in
omni-channel payments by evolving the MultiPay platform offering and
extending beyond the energy sector.
Progress in 2018/19
Bill payment (including MultiPay), top-up and eMoney transactions
declined by 6.4% to 361.7 million. This was partially offset by the 5.4%
improvement in average net revenue per transaction. The improved margin
was driven by growth in small clients' transactions. 21 new clients went
live including Monzo Bank which has over 1 million customers. eMoney
transactions grew by 11.4% to 7.8 million. The MultiPay platform
continued to grow strongly, increasing transactions by 40.7% to 27.3
million. The MultiPay platform now has a new direct debit feature. This
enables the service to be extended to other sectors; a new housing
association client has already been secured.
Ambition for 2019/20
PayPoint's intentions are to maintain leadership in this sector. This
will be achieved by renewing key contracts with existing clients and
targeting new clients specifically in the housing (MultiPay) and eMoney
sectors. We anticipate existing challenger energy and bank providers
will continue to take market share from the incumbents and mobile top-up
transaction values will increase. These trends are expected to partially
offset the net revenue impact from reducing transaction volumes.
Romania
Romania is an important growth driver for PayPoint. Its technology
platform, network strength and brand recognition make it uniquely placed
as the Romanian market evolves. This evolution will include, over time,
growth in automated, digital, parcel and card payments solutions. Cash
bill payments remain a mass market proposition and will continue to be a
robust category.
Progress in 2018/19
Romania continued to progress the Payzone integration with over 1,500 of
Payzone's highest transacting retailers choosing to migrate to the
PayPoint platform driving improved margins. PayPoint maintained its
leadership in the country with 27 new clients launched and keeping its
80% consumer awareness. Transactions in Romania increased by 16.4% to
112.2 million with the share of client bill payments steady at 34%
(2018: 34%). The card payment service was available in 1,300 sites at 31
March 2019.
Ambition for 2019/20
We intend to continue to grow PayPoint's share of client bill payments
and continue to secure new clients. Focus will also be on profitability
by improving the margins on transactions and from the Payzone
integration. PayPoint will commence with the development of a new
terminal which will replace the legacy T2 terminal over time. The card
payment solution will also be extended to a further 500 sites.
PRIORITY 4: INNOVATE FOR FUTURE GROWTH AND PROFITS
To maintain PayPoint's competitive advantage we must continually
innovate, drive new products and services, improve the retailer
experience and increase efficiency.
Progress in 2018/19
Achievements in the year are addressed in the three priorities above but
are repeated here for convenience and include:
-- Launched an iOS mobile app for PayPoint One to complement the existing
Android app which enables retailers to manage their stores remotely.
-- Developed and launched a pilot for card payments net settlement feature
allowing offset of bill payments cash due from retailers against funds
due to retailers for card payments. This reduces retailers' working
capital requirements and cash banking costs.
-- Developed the LINK Over-The-Counter service which is ready to commence
its initial trial.
-- Launched a parcel app enabling retailers to scan parcels away from the
PayPoint terminal which improves customer service at check-out.
-- MultiPay was enhanced with a direct debit feature extending the
capabilities beyond card payment via app, web or text. This also enables
the digital platform to be used outside of the energy sector.
Ambition for 2019/20
PayPoint will continue to invest in its PayPoint One product enabling it
to meet growing retailer requirements and prepare for future products
and services. We will work on extending the data analytics capabilities
which will, in time, provide further insight for retailers enabling them
to manage their stores even more effectively.
ORGANISATION AND SERVICE DELIVERY
Underpinning PayPoint's future success is the continued development and
investment in our people, systems and organisation with the aim to
create an efficient and high performance based culture with a focus on
empowerment, engagement and customer service.
Progress in 2018/19
In the year, the workflow feature of Salesforce CRM was launched. This
manages the process from acceptance of an order to installation of
services at the retailer, and increased installation capacity levels by
40%. New customer service systems and policies were implemented which
reduced both retailers' time in automated call handling systems by c.80%
and time to resolve retailers' claim for refunds by c.70%. Finally,
legacy terminal maintenance and repairs were transferred in-house which
has improved our control over repairs whilst reducing costs by GBP0.2
million in the year.
Ambition for 2019/20
A cornerstone to delivery of PayPoint's strategy is the continued
development of Salesforce CRM sales lead to sale feature. This will
enable paperless sign up supported by a system driven workflow. This
will improve data accuracy and will ultimately further reduce timeframes
from prospecting to installation. Included in the Salesforce CRM
development is a new billing engine which will also replace existing
manual processes and speed up and simplify delivery of retailers'
invoices.
We will also work with retailers to design a new multi-platform
self-service portal. This will replace several existing separate
portals. Ultimately, this will improve our retailers' experience and
reduce their need to call the contact centre.
PRINCIPAL RISKS AND UNCERTAINTIES
Strategy
Our formal approach to risk management is delivered through the
application of PayPoint's risk management and internal control framework
which is a defined process for identifying and escalating significant
risks. It applies throughout the group and the responsibility for
oversight of the process rests with the Board. Consideration of appetite
for risk forms part of the risk management process, in particular when
deciding how best to manage the risks that are identified. Having a
robust system of internal control using a combination of people, process
and technology helps to mitigate risk to a level acceptable to the
Board.
Risk appetite
The level of risk considered appropriate to achieving our business
objectives is determined by the Board. PayPoint has no appetite for risk
relating to the health, safety and welfare of employees, customers and
the wider community. There is a greater appetite for risk in relation to
activities which are directed towards creating additional demand for our
services to drive revenues and increase financial returns.
Risk identification and management
The risk management and internal control framework, as part of the wider
governance framework, aims to provide assurance and confidence to
stakeholders about PayPoint's ability to deliver its objectives and
manage principal risks. During the year, the Audit Committee received
and reviewed risk information relating to the key risk areas below,
together with details of actions taken and relevant mitigating controls,
prior to advising the Board in this regard. The Board then carried out
its formal assessment and gave final approval to the list of principal
risks which are as follows:
Risk area Potential impact Mitigation strategies Change
---------------- -------------------------------- ------------------------------------------ ------
Business
Innovation The group could fail The group monitors technological >
and market to adapt to changes and consumer trends through its
changes in consumer behaviour monthly strategy committee and
or to commercialise twice-yearly Board strategy reviews.
and develop innovation The group is committed to continued
that is scalable and research and investment in technology
meets the requirements and products to support its continued
of clients and retailers. growth. Our product portfolio
The inability to implement and the progress of new initiatives
new products and services are reviewed at the monthly product
effectively may impact committee that contains representatives
PayPoint's ability to from commercial, product, technology,
drive growth and profitability. finance and legal.
PayPoint also has an active sales
function and client teams which
are incentivised to promote and
sell PayPoint products and services
in the regions in which PayPoint
operates to expand its client
and retailer base.
>
Culture The strategic objectives The PayPoint strategic objectives
and values of the group and values are defined and advocated
are focused on retailer by the Executive Board. These
and consumer-centric values are linked to strategic,
products and services. team and individual employee
If employees are not objectives and performance appraisals.
aligned with the strategic The group's ethical principles
goals or empowered to are published on its website
realise opportunities, and intranet. A whistleblowing
deliver performance policy and procedures are published
or mitigate risks this and a third-party service is
could lead to poor service available for employees to report
quality, a loss in revenue, wrongdoing. The Retailer Pledge
increased cost or failure is published and all employees
by employees to escalate made aware of its requirements.
concerns or issues to Retailer and employee engagement
senior management and surveys are used to measure satisfaction
the Executive Board. and identify areas of concern.
>
Dependence The consolidation or The group monitors client and
on key clients loss of major clients retailer concentration risk to
and retailers or multiple retailers ensure that no one client or
could adversely affect retailer accounts for a disproportionate
revenue. Insolvency, share of the group's net revenue.
liquidation, administration In addition, the group continues
or receivership of retailers to acquire new clients and retailers
could lead to PayPoint to reduce reliance on existing
being unable to recover sources of revenue. All major
some or all the client clients are covered by specific
monies processed by contracts or agreements. Contract
the retailer. PayPoint end dates and start of notice
would be liable to account periods are scheduled and regularly
to those clients where reviewed by client management
PayPoint bears the risk teams. Retail teams maintain
of collection. and develop the relationship
with retailers.
Competitor Competitor activity Where there is concern that the >
activity in the market continues competitor activity may be unlawful
to evolve. There is, then PayPoint will challenge
however, no evidence this through the Competition
of an any increased and Markets Authority. Appropriate
impact to PayPoint from terms are included in client
clients and retailers and retailer contracts. PayPoint
switching to competitors. offers products and services
not available from competitors.
Retailer engagement surveys are
used to measure satisfaction
and identify areas of concern.
Risk area Potential impact Mitigation strategies Change
-------------------- ----------------------------------- ---------------------------------------- ----------
Partners Reliance on third parties The group selects and negotiates >
& suppliers for the provision of key agreements with strategic suppliers
parts of the PayPoint services and partners based on criteria
(e.g. Payment Service Providers) such as delivery assurance and
could lead to extended outages reliability. Single points of
if the supplier fails to failure are avoided, where practicable
meet required SLAs or goes and economically feasible. Controls
into administration. are regularly reviewed and improved
to minimise risk of retailer
churn caused by financial loss
to retailers through fraudulent
third-party activity. Suppliers
are selected on merit following
tendering, procurement and due
diligence processes.
Interruptions The group's ability to provide Resilience is built into systems >
in processes reliable services largely and contingency plans are in
and systems depends on the efficient place should systems fail. These
and uninterrupted operation plans are exercised regularly.
of our computer network Programmes are in place to remove
systems, financial settlement technical debt and to automate
systems, data and call centres, manual processes. Payment files
as well as maintaining sufficient are automatically imported into
staffing levels. settlement systems. All payments
System or network interruptions, are checked / authorised by nominated
recovery from fraud or security signatories. Segregation is maintained
incidents or the unavailability between settlement and corporate
of key staff or management accounts. Invoices are recorded
resulting from a pandemic and approved by authorised managers.
outbreak could delay and Daily reconciliation of client
disrupt our ability to develop, settlement accounts and weekly
deliver or maintain our reconciliation of PayPoint corporate
products and services, causing accounts are carried out. Audited
harm to our business and controls for supplier and client
reputation and resulting account set-up are in place.
in loss of customers or A programme is in place to upgrade
revenue. PayPoint's financial and back
office systems.
Operational
------------------------------------------ ------
Legislation or PayPoint is required to The group's legal department works >
regulatory reforms comply with relevant legal closely with senior managers to
and risk of and regulatory requirements. adopt strategies to educate legislature
non-compliance Any breach of these obligations regulators, consumer and privacy
could lead to costly and advocates and other stakeholders
damaging legal or corrective to support the public policy debate
actions to return to compliance and, where appropriate, to ensure
e.g. Health & Safety at regulation does not have unintended
Work Act, Data Protection consequences over the group's services.
Act / GDPR, Stock Market A central compliance department
listing rules, Financial co-ordinates all compliance monitoring
Conduct Authority requirements, and reporting. Subsidiary managing
anti-money laundering legislation, and finance directors are required
employment law etc. It could to sign annual compliance statements.
also lead to the prosecution
of individual company officers
or employees.
Cyber security, System or network interruptions, PayPoint has established a Cyber ^
data protection, recovery from fraud or cyber Security and IT Sub-committee to
resilience security incidents or poorly oversee cybersecurity and information
and business implemented change could technology matters pertaining to
continuity delay and disrupt our ability PayPoint.
to develop, deliver or maintain Service delivery is constantly
our products and services, monitored with technical support
causing harm to our business teams in place to address service
and reputation and resulting outages or errors. Contact Centre,
in loss of customers or Service Management and Technical
revenue. PayPoint's ability Services Helpdesk are in place
to provide reliable and to assist with and resolve issues.
secure services largely Client Management and Retail Management
depends on the availability teams are in place to interface
and uninterrupted operation with clients and retailers. Resilient
of its network of retailer systems are in place across the
terminals, computer systems, group. Disaster recovery and business
financial settlement and continuity plans are maintained
key business processes. and exercised regularly to ensure
Due to the heightened activity contingencies are in place in the
in the external environment case of failure.
the level of risk has been
increased.
Attracting Future success is substantially Effective recruitment programmes >
and retaining dependent on the continued are on-going across all business
key talent services and performance areas, as well as personal and
of executive directors, career development initiatives.
senior management, competent The executive management reviews
and qualified personnel. talent potential twice a year and
The failure to attract the retention plans are put in place
right candidates, loss of for individuals identified at risk
key personnel or failure of leaving. Compensation and benefits
to adequately train employees programmes are competitive and
could damage the group's reviewed regularly.
business or lead to non-compliance
with legal and regulatory
requirements.
Brexit The effect on inter-company PayPoint has carried out an assessment ^
relationships may be adversely of the impact of a no-deal Brexit
affected by the outcomes scenario and identified key risks
of the negotiations between to its operating model. Whilst
the UK government and the no business can mitigate against
other member countries during the impact of Brexit, actions to
the UK's exit from the European reduce disruption in the short
Union. term are in place including building
a buffer stock of PayPoint One
terminals, maximising intercompany
dividends and engaging with clients
and suppliers determining their
own readiness and impact assessments.
VIABILITY AND GOING CONCERN STATEMENTS
As part of the risk monitoring programme, each year the directors
consider the Group's viability over a three-year period. This aligns
with the financial planning cycle which, considering the dynamics of the
markets in which the business operates, is an appropriate time horizon
to use. The viability assessment includes consideration of the principal
risks, including those that would threaten its business model, future
performance, solvency and liquidity.
The business activities, its performance, future development are set out
on strategic priorities on pages 7 to 9 and market conditions are
described on pages 5 and 6. These together with the assessment of
principal risks set out on pages 10 and 11 are considered in determining
PayPoint's viability which is based on business plans with several
different, but plausible, principal risks crystallising. These include:
-- Business risk: the loss of large clients and retailers.
-- Business risk: slower than anticipated growth in retail services and a
quicker than expected decline in the cash payments business.
-- Operational risk: impact of a technical event resulting in the temporary
disturbance of usual operations.
-- Financial: impact on cash or financing facilities as a result of
viability assessment scenario.
-- Possible impact from Brexit.
In making the assessment, the directors have also considered PayPoint's
robust capital position, its cash-generative nature and mitigating
actions in the unlikely event of the described scenario materialising.
From this assessment, the directors have concluded the PayPoint will a
remain viable operation over the assessment period and have therefore
prepared the financial statements on a going concern basis.
KEY PERFORMANCE INDICATORS(24)
PayPoint has identified the following KPIs to measure progress of our
strategic priorities:
KPI Description, purpose and reference 2018/19 2017/18 2016/17
------------------- ---------------- ------------------------------------------------- ------- ------- -------
Revenue less commissions paid to retailers
and the cost of mobile top-ups and SIM
cards where PayPoint is principal. This
reflects the benefit attributable to
PayPoint's performance eliminating pass-through
costs and is an important measure of
Net revenue the overall success of our strategy.
Overall (GBP million) (See Finance review -- 'Overview' on
performance (Group) page 15) 116.6 119.6 117.5
------------------- ---------------- ------------------------------------------------- ------- ------- -------
Operating profit before exceptional items
as a percentage of net revenue. Operating
margin provides a broad overview of the
efficient and effective management of
Operating the cost base enabling shareholder returns
margin and investment in the business.
(%) (See Finance review -- 'Operating margin'
(Group) on page 18) 46.3 44.7 45.3
---------------- --------------------------------------------------------------------- ------- ------- -------
Earnings before exceptional items, tax,
depreciation and amortisation adjusted
for corporate working capital movements
(excludes movement in clients' funds
and retailers' deposits). This represents
the cash generated by operations which
is available for capex, taxation and
Cash generation dividend payments.
(GBP million) (See Finance review -- 'Cash flow and
(Group) liquidity' on page 19) 62.8 67.9 62.1
---------------- --------------------------------------------------------------------- ------- ------- -------
The number, at the reporting date, of
retailer sites in which at least one
PayPoint One terminal was operational.
Embed A site may have more than one terminal
PayPoint (multiple lanes). This provides a measure
at the PayPoint of the extent of our network into which
heart One sites services and features can be sold driving
of convenience (Number) future growth.
retail (UK) (See Strategic priorities on page 7) 12,881 8,550 3,601
------------------- ---------------- ------------------------------------------------- ------- ------- -------
The average weekly service fee across
PayPoint all PayPoint One sites based on the PayPoint
One average One devices in store at the reporting
weekly date. This provides a measure of the
fee per weekly value derived from PayPoint One
site and EPoS services from each PayPoint
(GBP) One site.
(UK) (See Strategic priorities on page 7) 15.1 14.9 14.2
---------------- --------------------------------------------------------------------- ------- ------- -------
Card payment net revenue represents the
rebate earned from card transactions
processed by retailers through PayPoint's
card payment service. This is an important
Card payment measure of the overall success of our
net revenue card payment solution.
(GBP million) (See Finance review -- 'Sector analysis'
(UK) on page 17) 7.9 7.5 7.0
---------------- --------------------------------------------------------------------- ------- ------- -------
ATM net revenue represents the fees earned
less the commissions paid to retailers
from consumers using PayPoint's ATMs
located inside a retailer's store. This
is an important measure of the overall
success of our ATM product. Fees are
earned from either interchange fees (from
free-to-use ATMs) or surcharge fees (from
ATM net pay-to-use ATMs) from cash withdrawals
revenue and balance enquiries.
(GBP million) (See Finance review -- 'Sector analysis'
(UK) on page 17) 12.3 12.8 13.1
---------------- --------------------------------------------------------------------- ------- ------- -------
The number, at the reporting date, of
sites where the parcel proposition was
enabled on PayPoint terminals. This currently
Become represents the number of Collect+ branded
the sites. This provides an indication of
definitive Parcel the coverage of our network with a larger
parcel sites coverage being more attractive to clients
point (Number) and consumers wanting to use the product.
solution (UK) (See Strategic priorities on page 7) 7,134 7,436 6,167
------------------- ---------------- ------------------------------------------------- ------- ------- -------
The number of parcels processed and registered
through a PayPoint terminal or mobile
app. Parcel volume provides a measure
Parcels of the source of revenue where revenue
processed is earned on a per parcel basis.
(Millions) (See Finance review -- 'Sector analysis'
(UK) on page 17) 21.8 23.7 23.3
---------------- --------------------------------------------------------------------- ------- ------- -------
KPI Description, purpose and reference 2018/19 2017/18 2016/17
---------------------- ------------------ ------------------------------------------------ ------- ------- -------
The value of bill payment (including MultiPay),
top-up and eMoney transactions processed
via our terminals or MultiPay platform
Sustain where PayPoint provides the collection
leadership and settlement of funds. Transaction value
in 'pay-as-you-go provides a measure of the extent of the
'and service PayPoint provides to clients.
grow Transaction In certain instances, it also provides
digital value a measure of the source of revenue where
bill (GBP million) revenue is based on a percentage of the
payments (Group) transaction value. 9,237 9,201 9,222
---------------------- ------------------ ------------------------------------------------ ------- ------- -------
The number of bill payment (including
MultiPay), top-up and eMoney transactions
processed in the year on our terminals
or MultiPay platform. Transactions processed
Transactions provides a measure of the source of revenue
processed which is earned on a per transaction basis.
(Millions) (See Finance review -- 'Sector analysis'
(Group) on page 17) 472.7 482.1 499.4
------------------ ----------------------------------------------------------------------- ------- ------- -------
The net revenue earned from bill payments
(including MultiPay, excluding SPS), top-ups
and eMoney divided by the annual number
of transactions processed on our terminals
Net revenue and MultiPay platform. This provides an
per transaction indication of profitability per transaction.
(Pence) (See Finance review -- 'Sector analysis'
(Group) on page 17) 16.4 15.9 14.7
------------------ ----------------------------------------------------------------------- ------- ------- -------
Diluted earnings divided by the weighted
average number of ordinary shares in issue
during the year (including potentially
Diluted dilutive ordinary shares). Earnings per
earnings share is a measure of the profit attributable
per share to each share.
Shareholder (Pence) (See note 7 to the financial statements
returns (Group) on page 20) 64.8 62.7 87.2
---------------------- ------------------ ------------------------------------------------ ------- ------- -------
Dividends (ordinary and additional) paid
during the financial year divided by number
Dividends of ordinary shares in issue at reporting
paid per date. Dividends paid per share provides
share a measure of the return to shareholders.
(Pence) (See Finance review -- 'Dividends' on
(Group) page 17) 82.9 82.0 115.2
------------------ ----------------------------------------------------------------------- ------- ------- -------
Employee Number of permanent employees who left
turnover during the year divided by average total
Non-financial (%) permanent employees. Labour turnover provides
KPIs (Group) an indication of employee job satisfaction. 25.9 26.8 29.0
----------------------- ----------------- ------------------------------------------------ ------- ------- -------
The number, at reporting date, of retailer
sites which had a least one PayPoint One
or legacy terminal or PPoS terminal which
was operational. This provides the extent
of PayPoint's network in which PayPoint
services are available to retailers, clients
PayPoint and consumers.
sites (For UK, see Market overview on page 5.
(Number) For Romania, see Strategic priorities
(Group) on page 8) 46,901 49,628 40,478
----------------- ----------------------------------------------------------------------- ------- ------- -------
FINANCIAL REVIEW
OVERVIEW
Change
Year ended 31 March (GBPm) 2019 2018 %
Net revenue
UK retail services 37.8 37.7 0.4%
UK bill payments and top-ups 64.9 70.0 (7.3%)
Romania 13.9 11.9 16.8%
Total net revenue 116.6 119.6 (2.5%)
Costs 62.8 66.6 (5.7%)
Profit before exceptional items and tax 53.8 52.9 1.6%
Profit before tax 54.7 52.9 3.3%
Cash generation 62.8 67.9 (7.5%)
Net corporate cash 3.5 18.5 (81.1%)
Profit before exceptional items and tax of GBP53.8 million reflects
headwinds of GBP5.2 million from the closure of the DWP SPS service and
the renegotiation of the Yodel commercial arrangement. It also includes
a one-off benefit from improved VAT recovery of GBP2.4 million.
Excluding these items underlying pre-tax profits grew by 11.3%.
Profit before tax of GBP54.7 million includes an exceptional item of
GBP0.9 million relating to a provision release which was held against
potential liabilities arising from the disposal of the PaybyPhone
business in the 2016/17 financial year. These are no longer considered
probable and have been reported separately as an exceptional item to
distinguish it from our underlying performance.
Net revenue decreased by GBP3.0 million to GBP116.6 million but reflects
headwinds of GBP5.2 million as mentioned above. Underlying net revenue
which excludes these items increased by GBP2.2 million (2.0%) driven by
growth in UK service fee revenue and Romania supported by a good
performance in the UK bill payments and top-up businesses.
UK retail services delivered underlying net revenue growth of GBP1.1
million (3.2%) after adjusting the GBP1.0 million impact in the current
year from the renegotiation of the Yodel commercial arrangement. The
growth was from increased service fee revenue driven by the roll out of
PayPoint One to a further 4,331 sites.
UK bill payments and top-up businesses delivered net revenue of GBP64.9
million (2018: GBP70.0 million), a decline of GBP5.1 million from prior
year, however this includes the GBP4.2 million impact from the closure
of the DWP SPS service. Excluding this, underlying net revenue declined
by 1.3% which was less than the 6.4% decline in transaction volumes. The
anticipated decline in transaction volumes was mitigated by margin
improvement driven by continued focus on adding new smaller clients with
higher yields. The digital payments platform, MultiPay, continued to
grow robustly, with transactions increasing by 40.7% to 27.3 million and
eMoney transactions also increased by 0.8 million (or 11.4%) to 7.8
million.
In Romania transactions grew by 15.8 million (16.4%) to 112.2 million.
The integration of Payzone continued and is evidenced by the net revenue
per transaction fee of 12.3p remaining flat despite including a full
year of Payzone which historically had a much lower net revenue per
transaction rate. Net revenue grew by 16.8% to GBP13.9 million (2018:
GBP11.9 million). Payzone was acquired in October 2017 and therefore was
included in the comparative figures for only six months.
Costs decreased by GBP3.8 million to GBP62.8 million which includes a
GBP2.4 million (2018: GBP1.5 million) VAT benefit related to prior
years. This benefit stems from the enhancement of VAT recovery and has
an estimated ongoing benefit of GBP0.7 million. Depreciation and
amortisation declined by GBP0.7 million as assets reached the end of
their useful lives. Other cost reductions of GBP1.0 million were driven
from sustainable efficiencies from the implementation of a new
interactive voice response system, reorganisation to implement the agile
development programme and bringing legacy terminal maintenance and
repairs inhouse. Underlying costs which excludes the VAT benefits
declined by 4.2%.
Cash generation declined by GBP5.1 million to GBP62.8 million. As
highlighted in last year's annual report, the 2017/18 year included a
working capital timing benefit of GBP3.4 million reflecting VAT receipts
from clients received in advance of the net payment to HMRC as a result
of the tribunal ruling. In the current year a net payment of GBP2.1
million was made to the HMRC. Excluding this, working capital improved
by GBP2.5 million driven by improved focus on debtor collections.
Net corporate cash declined by GBP15.0 million to GBP3.5 million as a
result of the additional dividend programme. The financing facility of
GBP75 million was unutilised at 31 March 2019, but was used during the
year where borrowings peaked at GBP12 million.
SECTOR ANALYSIS
We have continued to evolve the disclosures this year with additional
emphasis being placed on key drivers of business performance for each of
our main operating sectors namely, UK retail services, UK bill payments,
UK top-ups & eMoney and our Romanian operations.
UK retail services
UK retail services are services PayPoint provides to retailers which
form part of PayPoint's networks. Services include providing the
PayPoint One platform (which has a basic till application), EPoS, ATMs,
card payments, parcels, money transfer and SIMs.
Year ended 31 March 2019 2018 Change %
----------------------------------------------
Number of retailers 17,608 17,812 (1.1%)
PayPoint terminal sites (No.)
PayPoint One(25) 12,881 8,550 50.7%
Legacy (T2) 7,000 11,980(27) (41.6%)
PPoS(26) 8,554 8,584 (0.3%)
----------------------------------------------
Total sites 28,435 29,114(27) (2.3%)
Services in sites (No.)
PayPoint One Base 6,337 3,718 66.9%
EPoS Core 5,899 4,678 28.9%
EPoS Pro 645 154 318.8%
Card payments 9,796 10,252 (4.4%)
ATMs 3,827 4,146 (7.7%)
Parcels 7,134 7,436 (4.1%)
Transactions (Millions)
Card payments 113.5 94.5 20.1%
ATMs 42.1 40.9 2.9%
Parcels 21.8 23.7 (8.0%)
PayPoint One average weekly service fee per
site (GBP) 15.1 14.9 1.5%
Net revenue (GBPm)
Service fees 10.3 7.7 33.6%
Card payments rebate 7.9 7.5 5.5%
ATM 12.3 12.8 (3.9%)
Parcels and other 7.3 9.7 (24.4%)
----------------------------------------------
Total net revenue (GBPm) 37.8 37.7 0.4%
As at 31 March 2019, PayPoint had a terminal in 28,435 UK sites, a
reduction of 679 from 31 March 2018 reflecting the closure of the
Ireland network which had 450 terminals on 31 March 2018. The PayPoint
One roll-out continued resulting in PayPoint One sites increasing by
4,331 sites to 12,881 sites and, as a consequence, the number of UK
sites with the legacy terminal reduced by 4,530 sites to 7,000. The
sun-setting of the legacy terminal remains on track through specific
geographical cohorts and a planned service fee increase for the legacy
terminal early in 2020.
UK retail services underlying net revenue increased by GBP1.1 million
3.2% to GBP37.8 million excluding the impact of GBP1.0 million from the
revised commercial terms with Yodel. As presented in the prior year, the
net revenue of each of our key products is separately addressed below.
Service fees: This is a core growth area and consists of service fees
from PayPoint One and our legacy terminal. As PayPoint One extends
further into our existing network together with moving retailers up the
EPoS value chain, service fees will become a significant revenue item.
In the current year, service fee revenue increased by GBP2.6 million
(33.6%) to GBP10.3 million driven by the additional 4,331 PayPoint One
sites. The PayPoint One average weekly fee per site was broadly stable
at GBP15. Retailers taking the Core version of the product represent
45.8% (2018: 54.7%) of all PayPoint One sites and the Pro version
representing 5.0% (2018: 1.8%).
ATMs: Transactions increased by 2.9% to 42.1 million despite the overall
decline experienced across the LINK network. This was achieved through
the optimisation of PayPoint's ATM network by relocating existing
machines to better performing locations. ATM net revenue declined by
GBP0.5 million (3.9%) due to the reduction of LINKs interchange fee and
to a lesser extent by an increased share of non-surcharge machines from
which there is a lower net revenue rate per transaction.
Card payment rebate: Card payment transaction volumes grew by 20.1% to
113.5 million benefitting from the market trend of growing card payments,
in particular contactless payments. Across our network 9,796 retailers
were using the card payment solution, 456 sites lower than the prior
year driven by competitor activity in the convenience market. Net
revenue increased by 5.5% to GBP7.9 million, with the increased number
of transactions being offset by lower average transaction values due to
the growth in contactless payments. PayPoint's revenue rebate is broadly
based on a percentage of the transaction value processed.
Parcels & other: Parcel volumes declined by 8.0% to 21.8 million due to
lower volumes from our incumbent partner. This was slightly offset by
volumes from new parcel partners which joined the network in the second
half of the year. The strategy to expand the parcel service to other
partners was achieved by renegotiating Yodel's commercial arrangement
which had a GBP1.0 million net revenue impact in the current year. Other
services provided include SIM sales, money transfer services and other
adhoc items. SIM sales continue to be affected by the overall decline in
the mobile top-up market.
UK 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 2019 2018 Change %
--------------------------------------------
Total transactions (millions) 317.2 334.2 (5.1%)
Of which: MultiPay transactions (millions) 27.3 19.4 40.7%
Transaction value (GBPm) 6,390.2 6,717.6 (4.9%)
Net revenue (GBPm) 47.8 52.3 (8.6%)
Net revenue per transaction (pence)(28) 15.1 14.4 4.7%
UK bill and general net revenue declined by 0.6% (GBP0.3 million) to
GBP47.8 million excluding the impact of GBP4.2 million from the closure
of the DWP SPS service. The impact of the 5.1% (17.0 million) decline in
transaction volumes was offset by an improved mix of smaller but higher
yielding clients which drove the net revenue per transaction up by 0.7
pence (4.7%). MultiPay continued to grow strongly, transactions
increased by 7.9 million (40.7%) to 27.3 million and net revenue by
48.3% to GBP3.5 million.
UK top-ups & eMoney
Top-ups include transactions where consumers can top up their mobiles,
prepaid debit cards and lottery tickets. This sector also includes
eMoney transactions where PayPoint provides the physical network for
consumers to convert cash into electronic funds with online
organisations.
Year ended 31 March 2019 2018 Change %
------------------------------------------
Transactions (millions) 44.5 52.2 (14.8%)
Of which: eMoney transactions (millions) 7.8 7.0 11.4%
Transaction value (GBPm) 607.0 639.1 (5.0%)
Net revenue (GBPm) 17.1 17.7 (3.3%)
Net revenue per transaction (pence) 38.7 33.9 14.2%
UK top-ups continued to be affected by market trends whereby UK prepay
mobile transactions are being displaced by direct debit pay monthly
options. UK top-up transactions declined by 7.7 million to 44.5 million.
The impact of the lower level of transactions on net revenue was offset
by increased average top-up transaction values and growth in eMoney
transactions of 11.4%. eMoney transactions derive a substantially higher
fee per transaction than traditional top-up transactions.
Romania
The Romanian business comprises mainly of bill payments and top-ups
operating on a similar basis to our UK business. Cash payment remains a
mass market proposition in the country and is expected to be the
dominant payment method for the medium term.
Year ended 31 March 2019 2018 Change %
------------------------------------
PayPoint terminal sites (No.) 18,466 20,514 (10.0%)
Transaction value (GBPm) 2,312 1,913 20.9%
Transactions (millions)
Bill payments 99.1 85.3 16.2%
Top-ups 11.9 10.4 14.4%
Other 1.2 0.7 71.4%
------------------------------------
Total transactions 112.2 96.4 16.4%
Net revenue (GBPm) 13.9 11.9 16.8%
Net revenue per transaction (pence) 12.3 12.3 >0.1%
Romania's transactions grew by 15.8 million (16.4%) to 112.2 million
helped by the inclusion of Payzone for the full year. Payzone was
acquired in October 2017 which added over 10,000 sites to the network.
Romania's net revenue per transaction remained flat at 12.3 pence per
transaction with the inherited lower per transaction rate from Payzone
offset by the migration of 1,500 Payzone retailers onto the PayPoint
platform where client rates are higher for bill payment and top-up
transactions. Romania's sites declined by 2,048 sites as part of
management's focus to optimise the network by removing low performing
sites.
COSTS
Change
Year ended 31 March (GBPm) 2019 2018 %
Other costs of revenue 9.0 9.4 (4.6%)
Depreciation and amortisation 9.8 10.5 (7.3%)
Administrative costs 43.8 46.2 (4.8%)
Finance costs 0.2 0.5 (69.1%)
-------------------------------------------
Total costs 62.8 66.6 (5.7%)
Add back VAT recovery benefit related to
prior years 2.4 1.5 60.0%
-------------------------------------------
Underlying costs 65.2 68.1 (4.2%)
Costs decreased by GBP3.8 million to GBP62.8 million. Key drivers to the
decline include:
-- GBP2.4 million (2018: GBP1.5 million) VAT benefit which stems from
improved cost allocations when determining irrecoverable VAT.
-- GBP0.7 million ongoing benefit from the improved VAT recovery.
-- GBP0.7 million reduction in depreciation and amortisation as assets
reached the end of their useful lives.
-- Cost reductions of GBP1.0 million from sustainable efficiencies
including:
-- the implementation of a new interactive voice response system,
-- reorganisation to implement the agile development programme, and
-- bringing legacy terminal maintenance and repairs inhouse.
-- Other one-off cost reductions, partially offset by including Payzone's
overheads for a full year.
Excluding the one-off impact from prior year VAT recoveries, underlying
costs declined by 4.2%.
OPERATING MARGIN(29)
Operating margin of 46.3% (2018: 44.7%) improved by 1.6ppts benefiting
from the GBP2.4 million prior year VAT benefit described above.
PROFIT BEFORE TAX AND TAXATION
The tax charge of GBP10.3 million (2018: GBP10.0 million) on profit
before tax of GBP54.7 million (2018: GBP52.9 million) represents an
effective tax rate(30) of 18.8%, 0.1% lower than prior year due to the
non-taxable nature of the GBP0.9 million exceptional item. Excluding the
exceptional item, the effective tax rate would have been 19.1%, slightly
higher than prior year due to the tax deduction for vested share options
being lower than the expense recognised in the statement of profit and
loss and other non-deductible expenses.
STATEMENT OF FINANCIAL POSITION
Net assets of GBP50.2 million (2018: GBP61.3 million) declined by
GBP11.1 million as a result of the additional dividend programme to
return GBP25 million per year from December 2016 to December 2021 to
shareholders. Current assets declined by GBP31.7 million to GBP176.6
million due to funds in the course of collection reducing by GBP22.4
million as prior year end fell over Easter weekend which added an extra
two days of funds held by retailers. There is a corresponding decrease
in trade and other payables. Non-current assets increased by GBP0.7
million to GBP54.9 million, with capital expenditure of GBP11.0 million
largely offset by depreciation and amortisation of GBP9.8 million.
CASH FLOW AND LIQUIDITY
The following table summarises the cash flow movements during the year.
Change
Year ended 31 March (GBPm) 2019 2018 %
Profit before tax 54.7 52.9 3.3%
Exceptional items (0.9) - 0.0%
Depreciation and amortisation 9.8 10.5 (6.7%)
VAT and other non-cash items (2.3) (0.1) >100%
Share based payments and other items 1.1 1.2
Working capital changes (corporate) 0.4 3.4 (85.3%)
Cash generation 62.8 67.9 (7.5%)
Taxation payments (10.0) 10.3) (2.9%)
Capital expenditure (11.0) (13.4) (17.9%)
Acquisition of subsidiary - (0.9) (100.0%)
Dividends paid (56.6) (55.9) 1.2%
Net decrease in corporate cash and cash
equivalents (14.8) (12.6) 17.5%
Net change in clients' funds and retailers'
deposits 7.3 5.4 35.2%
Net decrease in cash and cash equivalents (7.5) (7.2) 4.2%
Cash and cash equivalents at the beginning
of year 46.0 53.1 (13.4%)
Effect of foreign exchange rate changes (1.0) 0.1 (1100.0%)
Cash and cash equivalents at the end of
year 37.5 46.0 (18.5%)
Comprising:
Net corporate cash 3.5 18.5 (81.1%)
Clients' funds and retailers' deposits 34.0 27.5 23.6%
---------
Cash generation declined by GBP5.1 million to GBP62.8 million. As
highlighted in last year's annual report, the 2017/18 working capital
movement included a timing benefit of GBP3.4 million reflecting the
temporary benefit from the VAT tribunal ruling where receipts from
clients were received in advance of the net payment to HMRC. This was
finalised in the current year with a net payment to the HMRC of GBP2.1
million. Excluding this working capital improved by GBP2.5 million
driven by improved focus on debtor collections.
Taxation payments of GBP10.0 million (2018: GBP10.3 million) represents
payments on account and is in line with the current tax charge for the
year. In 2019/20 tax payments will be c.GBP5 million higher due to HMRC
bringing forward payments on account by six months.
Capital expenditure of GBP11.0 million (2018: GBP13.4 million) consists
of PayPoint One terminals and EPoS and CRM development.
Net corporate cash declined by GBP15.0 million to GBP3.5 million at 31
March 2019. PayPoint also has a GBP75 million revolving credit facility
which was unutilised at year end but was used during the year where
borrowings peaked at GBP12 million.
DIVIDS
Year ended 31 March 2019 2018 Change %
--------------------------------------
Ordinary dividends per share (pence)
Interim (paid) 15.6 15.3 1.9%
Final (proposed) 23.6 30.6 (22.9%)
Additional dividend per share (pence)
Interim (paid) 12.2 12.2 -
Final 18.4 24.4 (24.6%)
--------------------------------------
Total dividend per share (pence) 69.8 82.5 (15.4%)
Total dividends paid in year (GBPm) 56.6 55.9 1.2%
From 1 April 2019 a programme of four equal dividends payable in July,
September, December and March was implemented. This change will not
alter the quantum of dividend that will be paid to shareholders within a
financial year, although it does reduce the reported dividends for the
current year.
We have declared a final dividend of 23.6 pence per share payable in
equal instalments of 11.8 pence per share on 29 July 2019 and 30
September 2019 to shareholders on the register on 5 July 2019 and 6
September 2019 respectively. The final dividend is subject to the
approval of the shareholders at the annual general meeting on 25 July
2019. We have also declared the additional dividend of 18.4 pence per
share payable in equal instalments of 9.2 pence per share on the same
dates as the ordinary dividend.
The final dividends will result in GBP28.8 million being paid to
shareholders from the standalone statement of financial position of the
Company which, as at 31 March 2019, had approximately GBP79.8 million of
distributable reserves.
An interim ordinary dividend of 15.6p and an additional interim ordinary
dividend of 12.2 were paid on 11 January 2019.
GOING CONCERN
The financial statements have been prepared on a going concern basis
having regard to the identified principal risks, uncertainties and
viability statement on pages 10 to 12. Our cash and borrowing capacity
provides sufficient funds to meet the foreseeable needs of the Group
including dividends.
Rachel Kentleton
Finance Director
22 May 2019
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
Year ended 31 March (GBP000) Note 2019 2018
Continuing operations
Revenue 3 211,576 213,515
Cost of revenue 4 (113,303) (113,565)
Gross profit 98,273 99,950
Administrative expenses (44,319) (46,489)
Operating profit 53,954 53,461
Finance income 427 95
Finance costs (586) (609)
Profit before tax before exceptional items 53,795 52,947
Exceptional items -- prior year business
disposals 922 -
Profit before tax 54,717 52,947
Tax 5 (10,285) (10,012)
Profit for the year attributable to equity
holders of the parent 44,432 42,935
------------------------------------------- ---- --------- ---------
Earnings per share
Basic 7 65.2p 63.0p
Diluted 7 64.8p 62.7p
------------------------------------------- ---- --------- ---------
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
Year ended 31 March (GBP000) 2019 2018
Items that may subsequently be reclassified
to the consolidated income statement:
Exchange differences on translation of
foreign operations (740) 67
Other comprehensive income for the year (740) 67
Profit for the year 44,432 42,935
Total comprehensive income for the year
attributable to equity holders of the
parent 43,692 43,002
--------------------------------------------- ------ ------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March (GBP000) Note 2019 2018
Non-current assets
Goodwill 11,618 12,171
Other intangible assets 15,875 13,586
Property, plant and equipment 26,665 28,047
Deferred tax asset 781 414
54,939 54,218
-------------------------------------------- ---- ------- -------
Current assets
Inventories 124 279
Trade and other receivables 8 139,010 161,987
Cash and cash equivalents 37,485 46,040
176,619 208,306
Total assets 231,558 262,524
-------------------------------------------- ---- ------- -------
Current liabilities
Trade and other payables 10 176,720 196,562
Current tax liabilities 4,455 4,213
181,175 200,775
-------------------------------------------- ---- ------- -------
Non-current liabilities
Trade and other payables 10 233 390
Deferred tax liability - 66
233 456
Total liabilities 181,408 201,231
-------------------------------------------- ---- ------- -------
Net assets 50,150 61,293
Equity
Share capital 11 227 227
Share premium 3,352 2,907
Share-based payment reserve 12 2,684 2,771
Translation reserve (989) (249)
Retained earnings 44,876 55,637
Total equity attributable to equity holders
of the parent 50,150 61,293
-------------------------------------------- ---- ------- -------
These financial statements were approved by the board of directors and
authorised for issue on 22 May 2019 and were signed on behalf of the
board of directors.
Patrick Headon
CEO
22 May 2019
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share based
Share Share payment Translation Retained
capital premium reserve reserve earnings Total equity
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Opening equity
1 April 2017 227 2,633 4,404 (316) 66,197 73,145
Profit for the year - - - - 42,935 42,935
Exchange differences
on translation of foreign
operations - - - 67 - 67
Comprehensive income
for the year - - - 67 42,935 43,002
Equity-settled share-based
payment expense - - 1,567 - - 1,567
Vesting of share scheme 12 - 274 (2,999) - 2,403 (322)
Deferred tax on share-based
payments - - (201) - - (201)
Dividends - - - - (55,898) (55,898)
Closing equity
31 March 2018 227 2,907 2,771 (249) 55,637 61,293
---------------------------- ---- -------- -------- ----------- ----------- --------- ------------
Profit for the year - - - - 44,432 44,432
Exchange differences
on translation of foreign
operations - - - (740) - (740)
Comprehensive income
for the year - - - (740) 44,432 43,692
Adoption of IFRS 15 - - - - 975 975
Equity-settled share-based
payment expense - - 1,466 - - 1,466
Vesting of share scheme 12 - 445 (1,563) - 393 (725)
Deferred tax on share-based
payments - - 10 - - 10
Dividends - - - - (56,561) (56,561)
Closing equity
31 March 2019 227 3,352 2,684 (989) 44,876 50,150
---------------------------- ---- -------- -------- ----------- ----------- --------- ------------
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 March (GBP000) Note 2019 2018
Net cash inflow from operating activities 13 59,563 62,990
Investing activities
Investment income 427 95
Purchases of property, plant and equipment (5,087) (7,112)
Purchases of intangible assets (5,894) (6,258)
Net proceeds from disposal of property,
plant and equipment 12 -
Acquisition of subsidiary - (2,480)
Acquisition of subsidiary -- clients'
funds and retailers' deposits - 1,554
Net cash used in investing activities (10,542) (14,201)
Financing activities
Dividends paid 6 (56,561) (55,898)
Net cash used in financing activities (56,561) (55,898)
Net decrease in cash and cash equivalents (7,540) (7,109)
Cash and cash equivalents at beginning
of year 46,040 53,080
Effect of foreign exchange rate changes (1,015) 69
Cash and cash equivalents at end of year 37,485 46,040
-------------------------------------------- ---- -------- --------
Reconciliation of cash and cash equivalents
As at 31 March (GBP000) 2019 2018
Corporate cash 3,471 18,547
Clients' funds and retailers' deposits 34,014 27,493
Cash and cash equivalents on the statement of
financial position 37,485 46,040
---------------------------------------------- ------ ------
NOTES TO THE FINANCIAL STATEMENTS
1. Significant accounting policies
Basis of preparation
This preliminary announcement does not constitute the Company's
statutory accounts for the years ended 31 March 2019 or 31 March 2018
but is derived from the statutory accounts and has complied with
International Financial Reporting Standards (IFRS). This announcement
does not contain sufficient information to fully comply with IFRS. The
Company expects to publish full financial statements that comply with
IFRS in due course.
Statutory accounts for 2018 have been delivered to the Registrar of
Companies and those for 2019 will be delivered following the Company's
annual general meeting. The auditors have reported on those accounts and
the report was unqualified, did not draw attention to any emphasis of
matters and did not contain statements under s498(2) or (3) of the
Companies Act 2006.
This preliminary announcement complies with the recognition and
measurement criteria of IFRS, and with the accounting policies of the
Group which were set out on pages 82 to 86 of the 2018 annual report and
accounts. No subsequent material changes have been made to the Group's
accounting policies with selected accounting policies included below.
The directors are satisfied that the Group has adequate resources to
continue in operational existence for the foreseeable future, a period
of not less than 12 months from the date of this report.
Alternative performance measures
Non-IFRS measures or alternative performance measures are used by the
directors and management for performance analysis, planning, reporting
and incentive setting purposes and have remained consistent with prior
years. These measures are included in these financial statements to
provide additional useful information on performance and trends to
shareholders.
These measures are not defined terms under IFRS and therefore they may
not be comparable with similarly titled measures reported by other
companies. They are not intended to be a substitute for, or superior to,
IFRS measures. These measures include net revenue, operating margin,
effective tax rate (note 5), reported dividends (note 6) and cash
generation.
Net revenue
Net revenue is revenue less commissions paid to retailers and the cost
of mobile top-ups and SIM cards where PayPoint is principal. This
reflects the benefit attributable to PayPoint's performance eliminating
pass-through costs and is an important measure of the overall success of
our strategy.
The reconciliation of revenue to net revenue is as follows:
Year ended 31 March (GBP000) 2019 2018
Service revenue 147,988 164,519
Sale of goods 62,557 47,809
Royalties 1,031 1,187
Revenue 211,576 213,515
less:
Retailers' commissions (46,434) (49,100)
Cost of mobile top-ups and SIM cards as
principal (48,507) (44,844)
Net revenue 116,635 119,571
--------------------------------------------- -------- --------
SPS revenue and Yodel contract renegotiation (706) (5,924)
Underlying net revenue 115,929 113,647
--------------------------------------------- -------- --------
Effective tax rate (non-IFRS measure)
Effective tax rate is the ongoing tax cost as a percentage of the net
profit before tax.
Reported dividends (Non-IFRS measure)
Reported dividends are based on a financial year's results from which
the dividend is declared and consist of an interim and final dividend.
This is different to statutory dividends as the final dividend on
ordinary shares is recognised in the following year when they are
approved by the Company's shareholders.
Cash generation (non-IFRS measure)
Cash generation reflects earnings before tax, depreciation, amortisation
and exceptional items adjusted for working capital (excluding movement
in clients' funds and retailers' deposits) as detailed in note 13 to the
financial statements. This measures the cash generated which can be used
for new investments and financing activities.
Operating margin (non-IFRS measure)
Operating margin is calculated by dividing operating profit by net
revenue. This measure reflects the efficiency of converting revenue into
profits.
Costs (non-IFRS measure)
Costs comprises of other cost of revenue (note 4), admin expenses,
financing income and financing costs. This represents the total
operating costs of the Group and is a key driver of profitability for
operating on a low-cost model.
Revenue accounting policy
Revenue represents the value of services and goods delivered or sold to
clients and retailers which is measured using the fair value of the
consideration received or receivable, net of value added tax.
Performance obligations are identified at contract inception and the
revenue is recognised once the performance obligations are satisfied.
Revenue from bill payments comprises fees from clients for providing an
over-the-counter payments, digital bill payments and CashOut services.
Over-the-counter and digital payments services are products where
customers of PayPoint's clients can pay their bills (due to the client)
at any of PayPoint's retailers or online. PayPoint provides the
technology for recording the payment of bills and transmission of that
payment data to the client. PayPoint also collects bill payment funds
from retailers and remits those funds to clients. Revenue is recognised
as performance obligations are satisfied which is usually at the point
in time each transaction is processed. Management fees, set-up fees or
up-front lump sum payments are deferred and recognised on a
straight-line basis over the contracted period with the client.
Top-ups and eMoney revenue comprises revenue from top ups for mobile
phones, e-vouchers, prepaid debit cards and lottery tickets. Revenue is
recognised at the point in time each top-up is sold. Other than as
described below, PayPoint is contracted as agent in the supply of
top-ups and accordingly the commission earned from clients is recognised
as revenue. In Ireland and Romania, PayPoint contracts as principal for
mobile top-ups and revenue is recognised at the gross sale price and
cost of revenue includes the related cost.
Retail services revenue comprises:
-- Service fees from retailers that use our technology to facilitate card
payments, PayPoint One and legacy terminals and EPoS, all of which are
charged for on a weekly or monthly basis, and recognised on a
straight-line basis over the period of the contract.
-- Commissions, rebates and fees from card payment, ATM transaction and
money transfer transactions are recognised when each transaction is
processed.
-- Fees earned for processing parcels is recognised when each parcel has
been delivered or returned through the PayPoint network.
-- Commissions from sale of SIM cards is primarily earned from the mobile
operators based on the value of top-ups after the initial activation.
This revenue is contingent on the customer actions and is recognised as
the consumer tops up the SIM card.
-- Fees for receipt advertising and failed Direct Debits are recognised at
the time the transaction occurs.
-- The Group's share of royalty income from the Collect+ joint operation,
and is recognised as the parcels are processed.
Use of judgements and estimates
In the application of the Group's accounting policies, the directors are
required to make judgements, estimates and assumptions about the
carrying amounts of assets and liabilities that are not readily apparent
from other sources. The estimates and associated assumptions are based
on historical experience and other factors that are considered to be
relevant. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an on-going basis.
Revisions to accounting estimates are recognised in the period in which
the estimate is revised if the revision affects only that period, or in
the period of the revision and future periods if the revision affects
both current and future periods.
Judgement: Capitalised development expenditure
An accounting judgement at the statement of financial position date that
has a risk of causing an adjustment to the carrying amount of assets and
liabilities through estimation uncertainty is the evaluation of
capitalised development expenditure shown in intangible assets.
Critical estimate: Useful economic lives of intangible assets
The useful life used to amortise intangible assets relates to the
expected future performance of the assets and management's judgement of
the period over which economic benefit will be derived from the asset.
For development costs, the Group has determined the useful life based on
historical experience with similar products and platforms controlled by
the Group as well as anticipation of future events which may impact
their life such as changes in technology. Development costs recognised
as an intangible asset could be amortised on a straight-line basis over
a period of three to ten years which could impact the annual
amortisation charge by GBP1.5 million to GBP2.3 million.
Significant judgement: agent vs principal
A critical judgement for revenue recognition is PayPoint's assessment of
whether it is acting as a principal or agent. This includes evaluating:
1. Which party was responsible for fulfilling the promise to provide the
service.
2. Inventory risk before the service is transferred to a customer.
3. Discretion in establishing the price for the service.
In most cases it was clear that PayPoint acts in the capacity of the
agent for clients. However the nature of Romania's mobile top-ups makes
this a key judgement area. Revenues are recognised on the principal
basis considering the level of service responsibility, inventory risk
and price discretion held by PayPoint. This is consistent with the
judgement in prior years. The cost of mobile top-ups and SIM cards as
principal was GBP48.5 million (2018: GBP44.8 million).
Significant judgement: recognition of cash and cash equivalents
The nature of bill payments services means that PayPoint collects and
holds funds on behalf of clients and also retains retailers' deposits as
security for those collections. The recognition of cash, retailer
receivables and the related client payables is a key judgement area as
those funds pass through the settlement process.
PayPoint uses the following criteria to determine whether clients' funds
and retailers' deposits are recognised on balance sheet:
1. Existence of a binding agreement clearly identifying the beneficiary of
the funds.
2. The identification, ability to allocate and separability of funds.
3. Identification of the holder of those funds at any point in time.
Where there is a binding agreement specifying that PayPoint holds funds
on behalf of the client (i.e. acting in the capacity of a trustee) and
those funds have been separately identified as belonging to that
beneficiary, the cash and the related liability is held off balance
sheet. In all other situations the cash and corresponding liability are
recognised on the balance sheet.
Judgement: Impact from Brexit
PayPoint has carried out an assessment of the impact of a no-deal Brexit
scenario by identifying key risks to its operating model. Whilst no
business can mitigate against the impact of Brexit, actions to reduce
disruption in the short term were undertaken. Details of these are
included in the principal risks and uncertainties found on page 10.
Furthermore as part of viability assessment (see page 12) a scenario of
a systematic risk in the markets we operate was assessed including the
impact on retailers and clients. The directors concluded that PayPoint
is a viable operation.
1. Segment reporting
The Group provides a number of different services and products, however
these do not meet the definition of different segments under IFRS 8 and
the Group has only one operating segment. A sector analysis has been
provided in the finance review on pages 16 to 18.
Geographical information
Year ended 31 March (GBP000) 2019 2018
Revenue
UK 143,294 152,225
Ireland 1,381 3,727
Romania 66,901 57,563
Total 211,576 213,515
Non-current assets
As at 31 March (GBP000) 2019 2018
UK and Ireland 41,759 40,411
Romania 13,180 13,807
Total 54,939 54,218
1. Revenue
Disaggregation of revenue
Year ended 31 March (GBP000) 2019 2018
Bill payments 78,095 82,478
Top-ups and eMoney 79,076 75,400
Retail services 54,405 55,637
Total 211,576 213,515
Seasonality of operations
PayPoint operates in many sectors each within their own form of
seasonality. The energy bill payment and parcel sectors are the most
seasonal sectors with the energy sector generating more transactions
during the winter months and parcels generating higher volumes in the
lead up to Christmas. As a result, higher revenue and operating profits
are usually expected in the second half of the year rather than in the
first six months. This does not constitute "highly seasonal" as
considered by IAS 34 Interim Financial Reporting.
Contract balances
As at 31 March (GBP000) 2019 2018
Trade receivables 15,271 18,425
Accrued income 2,047 3,644
Contract assets -- deferral of setup and
development fees 3,636 -
Contract liabilities (2,696) -
Deferred income (599) (721)
Total 17,659 21,348
1. Cost of revenue
Year ended 31 March (GBP000) 2019 2018
Retailers' commissions 46,434 49,100
Cost of mobile top-ups and SIM cards as
principal 48,507 44,844
Cost of revenue deducted to arrive at net
revenue 94,941 93,944
Depreciation and amortisation 9,365 10,195
Other 8,997 9,426
Other costs of revenue 18,362 19,621
Total cost of revenue 113,303 113,565
------------------------------------------ ------- -------
1. Tax
Year ended 31 March (GBP000) 2019 2018
Current tax
Charge for current year 10,475 10,224
Adjustment in respect of prior years 233 62
Current tax charge 10,708 10,286
------------------------------------- ------ ------
Deferred tax
Charge for current year (195) (262)
Adjustment in respect of prior years (228) (12)
Deferred tax charge (423) (274)
------------------------------------- ------ ------
Total income tax
Income tax charge 10,285 10,012
------------------------------------- ------ ------
The income tax charge is based primarily on the United Kingdom statutory
rate of corporation tax for the year of 19% (2018: 19%). The charge for
the year is reconciled below to the profit before tax as set out in the
consolidated income statement.
Year ended 31 March (GBP000) 2019 2018
Profit before tax 54,717 52,947
Tax at the UK corporation tax rate of 19%
(2018: 19%) 10,396 10,059
Tax effects of:
Effect of tax rates in other countries where
the rate is different to the UK (182) (130)
Disallowable expenses 103 49
Losses in companies where a deferred tax
asset is not recognised - 4
Adjustments in respect of prior years 5 50
Tax impact of share based payments 102 (22)
Revaluation of deferred tax asset 36 2
Non-taxable exceptional items (175) -
Actual amount of tax charge 10,285 10,012
--------------------------------------------- ------ ------
Profit before tax for purposes of calculating the effective tax rate is
as follows:
Year ended 31 March (GBP000) 2019 2018
Profit before tax 54,717 52,947
Exceptional items (922) -
Total for calculating the effective tax
rate excluding exceptional items 53,796 52,947
---------------------------------------- ------ ------
Year ended 31 March (GBP000) 2019 2018
Effective tax rate 18.8% 18.9%
Effective tax rate excluding exceptional
items 19.1% 18.9%
----------------------------------------- ----- -----
1. Dividends per share
Year ended 31 March 2019 2018
pence pence
GBP000 per share GBP000 per share
Reported dividends on ordinary shares:
Interim ordinary dividend 10,643 15.6 10,431 15.3
Proposed final ordinary dividend 16,105 23.6 20,863 30.6
Total ordinary dividends 26,748 39.2 31,294 45.9
Interim additional dividend 8,326 12.2 8,316 12.2
Proposed additional final dividend 12,557 18.4 16,636 24.4
Total additional dividend 20,883 30.6 24,952 36.6
Total reported dividends (Non-IFRS measure) 47,631 69.8 56,246 82.5
------------------------------------------------ ------ ---------- ------ ----------
Dividends paid on ordinary shares:
Final ordinary dividend for the prior year 20,867 30.6 20,450 30.0
Interim dividend for the current year 10,643 15.6 10,431 15.3
Total ordinary dividend paid 31,510 46.2 30,881 45.3
Final additional dividend for the prior
year 16,725 24.5 16,701 24.5
Additional interim dividend for the current
year 8,326 12.2 8,316 12.2
Total additional dividend paid 25,051 36.7 25,017 36.7
Total dividends paid 56,561 82.9 55,898 82.0
------------------------------------------------ ------ ---------- ------ ----------
Number of shares used for purposes of dividends
per share calculations 68,243,406 68,180,545
The proposed final ordinary dividend is subject to approval by
shareholders at the annual general meeting and has not been included as
a liability in these financial statements.
1. Earnings per share
Basic and diluted earnings per share are calculated on the following
profit and number of shares:
Year ended 31 March (GBP000) 2019 2018
Profit for basic and diluted earnings per
share is the net profit attributable to
equity holders of the parent 44,432 42,935
------------------------------------------ ------ ------
As at 31 March (Number of shares) 2019 2018
Weighted average number of ordinary shares
in issue (for basic earnings per share) 68,160 68,113
Potential dilutive ordinary shares:
Long-term incentive plan 361 260
Deferred annual bonus scheme 39 48
SIP and other 38 29
Weighted average number of ordinary shares
in issue (for diluted earnings per share) 68,598 68,450
------------------------------------------- ------ ------
Earnings per share (pence) 2019 2018
Basic 65.2 63.0
--------------------------- ---- ----
Diluted 64.8 62.7
--------------------------- ---- ----
1. Trade and other receivables
As at 31 March (GBP000) 2019 2018
Trade receivables 15,271 18,425
Items in the course of collection(1) 117,263 139,666
Revenue allowance (2,957) (3,862)
129,577 154,229
Other receivables 1,032 1,208
Contract assets 3,636 -
Accrued income 2,047 3,644
Prepayments 2,718 2,906
139,010 161,987
------------------------------------- ------- -------
1. Items in the course of collection represent amounts collected for
clients by retail agents. An equivalent balance is included within trade
and other payables.
1. Cash and cash equivalents
The Group operates cash pooling amongst its various bank accounts in the
UK and therefore individual accounts can be overdrawn without penalties
being incurred so long as the overall position is in credit.
Included within Group cash and cash equivalents of GBP37.5 million are
balances of GBP34.0 million relating to funds collected on behalf of
clients where PayPoint has title to the funds (clients' funds) and where
retailers have provided security deposits (retailers' deposits). An
equivalent balance is included within trade payables (note 10). Clients'
funds held in trust which are not included in cash and cash equivalents
amounted to GBP47.5 million at 31 March 2019.
1. Trade and other payables
As at 31 March (GBP000) 2019 2018
Amounts owed in respect of clients' funds
and retailers' deposits(1) 34,014 27,493
Settlement payables(2) 117,263 139,666
Client payables 151,277 167,159
Trade payables 7,536 8,010
Other taxes and social security 1,985 7,286
Other payables 5,939 2,823
Accruals 6,921 10,953
Deferred income 599 721
Contract liabilities 2,696 -
176,953 196,952
------------------------------------------ ------- -------
Disclosed as:
Current 176,720 196,562
Non-current 233 390
Total 176,953 196,952
------------ ------- -------
1 Relates to monies collected on behalf of clients where the Group has
title to the funds (clients' funds and retailers' deposits). An
equivalent balance is included within cash and cash equivalents.
2 Payable in respect of amounts collected for clients by retailers. An
equivalent balance is included within trade and other receivables.
11. Share capital
As at 31 March (GBP000) 2019 2018
Authorised share capital
4,365,352,200 ordinary shares of 1/3p each 14,551 14,551
Allotted and fully paid share capital
68,243,406 (2018: 68,180,545) ordinary shares
of 1/3p each 227 227
1. Share based payments
A total charge of GBP1.6 million (2018: GBP2.9 million) previously
recognised directly to equity for schemes which have now lapsed or
vested was transferred from the share-based payments reserve to retained
earnings during the period.
During the year 209,694 shares under the LTIP scheme were granted with
50% of the vesting based on total shareholder return (TSR) and 50% on
earnings per share (EPS) growth. The performance condition for the TSR
element is the same as the vesting period. The performance period for
the EPS element is for the three financial years up to 31 March 2020. A
further 48,444 shares were issued under the DABS scheme vesting over
three years to 4 June 2021.
Other share based payments include 62,196 restricted shares which were
issued to eligible employees which do not contain any performance
criteria. Half will vest over two years on 25 March 2021 with the second
half vesting over three years on 25 March 2022.
1. Notes to the consolidated statement of cash flows
Year ended 31 March (GBP000) 2019 2018
Profit before tax 54,717 52,947
Adjustments for:
Depreciation of property, plant and equipment 6,318 6,362
Amortisation of intangible assets 3,466 4,155
VAT and R&D credits (2,427) (166)
Exceptional items (922) -
Loss on disposal of fixed assets 110 52
Net finance costs 159 514
Share-based payment charge 1,730 1,567
Cash-settled share-based remuneration (725) (322)
Operating cash flows before movements in
corporate working capital 62,426 65,109
Movement in inventories 152 148
Movement in receivables 3,715 (424)
Movement in contract assets (614) -
Movement in contract liabilities 649 -
Movement in payables (3,482) 3,650
Cash generated by operations 62,846 68,483
Corporation tax paid (9,952) (10,285)
Finance charges paid (586) (609)
Net cash from operating activities (Corporate) 52,308 57,589
Movement in clients' funds and retailers'
deposits 7,255 5,401
Net cash from operating activities 59,563 62,990
Items in the course of collection and settlement payables are included
in this reconciliation on a net basis through the clients' funds and
retailers' deposits line. The directors have included these items on a
net basis to best reflect the operating cash flows of the business.
(1) Net revenue is an alternative performance measure. Refer to note 1
to the financial statements for a reconciliation to revenue.
(2) Operating margin % is an alternative performance measure and is
calculated by dividing operating profit by net revenue.
(3) Cash generation is an alternative performance measure. Refer to the
financial review -- cash flow and liquidity for a reconciliation from
profit before tax.
(4) Net corporate cash is cash and cash equivalents excluding clients'
funds and retailers' deposits of GBP34.0 million.
(5) As at 20 May 2019.
(6) Excludes retailers using the PPoS terminal and multiple retailers
using the legacy terminal.
(7) Underlying revenue excludes the current year impact from the Yodel
renegotiation of GBP1.0 million and SPS closure of GBP4.2 million.
(8) Underlying net revenue excludes the impact from the Yodel
renegotiation of GBP1.0 million and SPS closure of GBP4.2 million. See
note 1 to the financial statements.
(9) Underlying costs excludes the GBP2.4 million prior year VAT recovery
benefit included in the current year and GBP1.5 million prior year VAT
recovery in 2018. See costs section of the financial review.
(10) Comprising of GBP18.3 million other costs of revenue (see note 4 to
the financial statements), administrative expenses of GBP44.3 million
and net financing costs of GBP0.2 million.
(11) Data from the IDG retail analysis -- UK grocery store numbers 2018
(12) ACS local shop report 2018
(13) Derived from data in 'Total Market Data - Credit Card Statistics -
January 2019' available at
https://www.ukfinance.org.uk/data-and-research/data/cards/card-spending,
comparing seasonally adjusted figures from six months to July 2018 to
the six months to January 2019.
(14) https://www.link.co.uk/about/statistics-and-trends/ - 12 months to
March 2019.
(15)
https://www.link.co.uk/about/news/link-update-to-interchange-rate-implementation/
(16)
https://www.imrg.org/data-and-reports/imrg-metapack-delivery-indexes/mar-imrg-metapack-delivery-index-summary-february-2019/
(17)
https://www.imrg.org/uploads/media/default/0001/08/2477f50ad2fee946cdf5ed23ebb8df21f2489d09.pdf?st
(18) Internal management estimates.
(19)
https://www.gov.uk/cma-cases/post-office-limited-payzone-uk-limited-merger-inquiry
(20)
http://www.fasterpayments.org.uk/sites/default/files/Quarterly%20Statistical%20Report%202018%20Q4.pdf
(2018 data pending)
(21)
https://www.ofgem.gov.uk/publications-and-updates/higher-wholesale-costs-push-default-and-pre-payment-price-caps-april
(22)
https://www.ofcom.org.uk/research-and-data/multi-sector-research/cmr/cmr-2018/interactive
(23)
https://www.wired.co.uk/article/fintech-startups-taking-on-legacy-banks
- Big four are Barclays, Royal Bank of Scotland/NatWest, HSBC and Lloyds
(24) All these KPIs are non-IFRS measures or Alternative Performance
Measures ('APMs'). The definitions, calculations and reconciliations of
all APMs (including these KPIs) to IFRS are set out within the APMs
section on pages 25 and 26.
(25) PayPoint One will replace the legacy terminal and is the platform
from which we can grow our retail services by offering additional
products and services.
(26) PPoS is a plug-in device and a virtual PayPoint terminal used on
larger retailers' own EPoS systems who wish to use PayPoint services.
(27) The 2018 figures included 450 Ireland sites.
(28) Prior year net revenue per transaction excludes the impact of the
GBP4.2 million from the closure of the SPS service. This revenue was not
based on transaction levels.
* Ireland is included in the 2018 figures and in the 2019 figures up to
31 October 2018 when Ireland ceased operations.
(29) Operating margin % is an alternative performance measure and is
calculated by dividing operating profit by net revenue.
(30) Effective tax rate is the tax cost as a percentage of profit before
tax.
Attachment
-- FINALPreliminary results announcement final
https://ml-eu.globenewswire.com/Resource/Download/548d8b9f-b5cc-4e1b-b908-902065054424
(END) Dow Jones Newswires
May 23, 2019 02:00 ET (06:00 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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