PayPoint PlcResults for the half year ended 30 September 2021
A positive first half across the PayPoint Group in line with expectations, with early delivery from growth initiatives
FINANCIAL HIGHLIGHTS
Nick Wiles, Chief Executive of PayPoint plc, said:
“The Group has continued to perform well in the first half of the year, with further progress made on the numerous growth opportunities across our expanded business. We have delivered this positive performance against the backdrop of continued uncertainty in our energy markets and its impact on our clients, as well as responding in a number of areas of the business to the impact of changing consumer behaviours as Covid-19 restrictions have eased.
Good progress has been made on our strategic priorities: we’ve continued to enhance our proposition to help our retailer partners respond to key consumer demand trends, such as local store to door delivery and FMCG rewards, backed up by increased engagement with them and key trade associations. We have also commenced the rollout of our Counter Cash solution, providing vital access to cash in communities across the UK; we’ve secured more client wins for our digital payments solutions and i-movo has launched a major new service with the Department for Work and Pensions replacing the Post Office Card Account; and we’ve diversified our e-commerce offering to launch more services with existing clients whilst building out our consumer Parcel Send service. Many of these new services have underlined the need to grow consumer awareness directly for our expanded proposition, with a further shift away from the B2B2C model of our legacy markets.
Strategically, in the half year, we have continued to build on the transformative changes we delivered last year to expand growth opportunities and leverage our strengthened capabilities by completing the acquisition of RSM 2000 for an initial cash consideration of £5.9 million, enhancing our digital payments capability, and making a strategic £6.7 million investment in Snappy Group, positioning us to support the convenience sector in response to consumer demand for local store to door delivery.
Across our expanded universe of over 60,000 SME and retailer partner locations, we continue to be well-placed to support our partners in response to the wider trends that have accelerated through the pandemic, including the continued shift from cash to digital payments, the growing demand for online shopping fulfilment and the increase in shopping local. Overall, the Board’s expectations for the full year remain unchanged.”
OFGEM UPDATE
DIVISIONAL HIGHLIGHTS
Positive performance across the Group with continued shift away from legacy bill payment markets
Shopping
Shopping divisional net revenue increased by 51.0% to £29.3 million, driven by the net revenue contribution from the Handepay/Merchant Rentals card payments businesses of £9.8m and from the roll out of PayPoint One to additional retailer sites.
E-commerce
E-commerce divisional net revenue increased by 39.0% to £2.1 million (H1 FY21: £1.5m) and transactions increased by 27.6% (H1 FY21: 11.2 million) through our e-commerce technology platform, Collect+, driven by the continued growth and recovery in transaction volumes vs. the Covid-19 impacted H1 FY21 performance.
Payments & Banking
Payments & Banking divisional net revenue decreased by 3.1% to £24.7 million, driven by fewer cash bill payments and top up transactions, and margin erosion from client contract renewals but offset by continued growth in digital transactions.
BUSINESS DIVISION NET REVENUE AND MIX
EnquiriesPayPoint plc Finsbury Nick Wiles, Chief Executive (Mobile: 07442 968960) Rollo Head Alan Dale, Finance Director (Mobile: 07778043962) James Thompson (Telephone: 0207 251 3801) (Email: [email protected])
A presentation for analysts is being held at 9.30am today (25 November 2021) via webcast. This announcement, along with details for the webcast, is available on the PayPoint plc website: corporate.paypoint.com
CHIEF EXECUTIVE’S REVIEW
The Group has had a positive first half, with further progress made on the numerous growth opportunities across our expanded business and a good performance delivered against the backdrop of continued uncertainty in our energy markets and the impact of these on our clients, as well as responding in a number of areas of the business to how consumer behaviours will continue to adjust longer-term as Covid-19 restrictions have eased. We continue to be well-placed to take advantage of the wider trends that have accelerated through the pandemic, including the continued shift from cash to digital payments, the growing demand for online shopping fulfilment and the increase in shopping local, with the enlarged PayPoint Group now delivering a broader range of innovative services and technology connecting millions of consumers with an expanded universe of over 60,000 retailer partner and SME locations across multiple sectors.
As we indicated in our first quarter results, we continue to see a positive contribution from the Handepay/Merchant Rentals, i-movo and RSM 2000 acquisitions and overall trading has remained good with a continuation of the trends seen in the second half of the last financial year. Energy bill payment volumes have not recovered as we would have hoped, reflecting a combination of continued higher than average top up amounts and a shift to digital channels seen through Covid-19, while ATM volumes have remained similarly subdued. However, volumes in eMoney, digital payments and parcels have continued to grow year on year, and the expanded parcel Send service has now started to gather momentum but with volumes slower than originally anticipated.
Over the half year, given the number of new initiatives underway, there has been a greater demand for strong execution from the business, particularly in these new areas and growth opportunities where we are establishing operations for the first time. Like many businesses, we are navigating more challenges from a people perspective as labour markets and working habits continue to recover post-Covid restrictions, including adjusting to new working patterns, higher levels of Covid-related sickness in key areas such as field sales, higher levels of staff turnover and increased salary pressures to recruit and retain talent. We have taken positive actions to address these challenges, including our successful return to office programme in September 2021, with ongoing manager support and staff surveys; regular communication and support for teams on supporting Covid-affected individuals; and reviewing key role salaries and streamlining our recruitment process to remain competitive in the current market.
Strategically, in the half year, we have built on the transformative changes we delivered in the last financial year to expand our growth opportunities and leverage our strengthened capabilities by completing the acquisition of RSM 2000 and making a strategic £6.7m investment in Snappy Group, one of the UK’s leading local home delivery and click and collect operators. RSM 2000 enhances our digital payments capability, adding innovative mobile payment products and enabling reach into new and existing sectors, including charities, housing, not-for-profit organisations, events and SMEs in the UK. Our investment in Snappy Group builds on our previously announced commercial partnership, enabling the Group and its retailer partners to respond to consumer demand for rapid, local home delivery and remain at the forefront of retail and consumer trends. Furthermore, the performance of our expanded cards business continues to be strong, following the acquisition of Handepay/Merchant Rentals in February 2021, and we are continuing to innovate and enhance our merchant proposition to support SMEs as the economy continues to recover.
The Board has reconfirmed our core strategic priorities for the business: embedding PayPoint at the heart of SME and convenience retail businesses; becoming the definitive technology-based e-commerce delivery platform for first and last mile customer journeys; sustaining leadership in ‘pay-as-you-go’ and growing digital bill payments; building a delivery focused organisation and culture. Though the challenge of maintaining a consistent pace of delivery in new areas is key, we have seen some good early delivery in growth opportunities. Of particular note are two new initiatives supporting the Government in digitising benefit payments and providing vital access to cash in communities: we are now fully live with the Payment Exception Service, run for the Department for Work and Pensions via our i-movo business, to deliver payments to those without access to a standard bank account and replacing the Post Office Card Account, which is coming to an end. Furthermore, the PayPoint Counter Cash service, offering cashback without purchase and balance enquiries over the counter, has now gone live in over 900 stores and we expect to rollout to circa 5,000 stores by the end of the financial year. Both of these initiatives are significant additions to our retailer proposition and broaden the vital community services we offer.
Many of these new services have underlined the need to grow consumer awareness directly for our expanded proposition, with a further shift away from the B2B2C model of our legacy markets. We are developing better consumer data and insights to drive our marketing efforts through both digital and traditional channels to build awareness of the new products and services launching across our expanded universe of over 60,000 SME and convenience retail locations. Furthermore, in our E-commerce division, we are working closely with our carrier partners to grow further awareness of Pick Up and Drop Off (PUDO) services and the clear customer, community and climate benefits that they bring.
We have also taken significant steps to strengthen our engagement and relationships with our retailer partners, with increased direct communication, commitments and collaboration with key trade associations, including the Association of Convenience Stores (ACS), the Scottish Grocers’ Federation (SGF) and the National Federation of Retail Newsagents (NFRN). These organisations are all important partners for us as we continue to support our retailer partners in delivering vital community services for their customers and continue to champion the important role that local stores play across the UK. We are listening hard to the feedback given by the members of all of these organisations and their input is vital to our business as we continue to support the convenience sector in meeting changing consumer needs.
Finally, I am deeply grateful to our incredible people who have been working so tirelessly over the past six months, the senior team who have shown great leadership as we seek to deliver growth in challenging market conditions, and, most importantly, our retailer partners and clients who continue to work with us to deliver vital services and support consumers across the UK.
Nick WilesChief Executive 24 November 2021
MARKET OVERVIEW
Changing market dynamics are creating significant opportunities for PayPoint, with the business uniquely placed to take advantage of the continued shift from cash to digital payments, the growing demand for online shopping fulfilment and the increase in shopping local.
Key trends and changes since the end of the 20/21 financial year in the UK markets in which PayPoint operates include:
Convenience retail
Card payments
Cash Out
Parcels
Bill payments and top-ups
PROGRESS AGAINST OUR STRATEGIC PRIORITIES
SHOPPING BUSINESS DIVISION – H1 FY22 net revenue £29.3m (H1 FY21: £19.4m)
PRIORITY 1: EMBED PAYPOINT GROUP AT THE HEART OF SME AND CONVENIENCE RETAIL BUSINESSES
We enhance the retailer proposition and consumer experience, driving new commission opportunities, better store management tools and footfall for thousands of SMEs and retailer partners across the UK.
Retail services - we provide digital solutions to help our retailer and SME partners keep pace with changing shopper needs, service expectations and demographics. Our retail services platform, PayPoint One, is live in over 18,500 stores across the UK and offers everything a modern convenience store needs, including EPoS, parcel services, card and bill payments, home delivery and digital vouchering. This empowers our retailer partners to grow their businesses profitably, achieving higher footfall and increased spend. We also provide access to cash solutions via our network of circa 3,800 ATMs and our pioneering Counter Cash service, offering cashback without purchase and balance enquiries over the counter, has now gone live in over 900 stores and we expect to roll out to circa 5,000 stores by the end of the financial year.
Key to our progress here is the pace of delivery and execution as we establish new revenue streams and build a strong platform for success in future years.
Card payments – we provide card payments services for over 30,000 SMEs and convenience retailers across the hospitality, convenience retail, auto trade, clothing and household goods sectors via our PayPoint, Handepay and Merchant Rentals brands.
E-COMMERCE BUSINESS DIVISION – H1 FY22 net revenue £2.1m (H1 FY21: £1.5m)
PRIORITY 2: BECOME THE DEFINITIVE TECHNOLOGY-BASED E-COMMERCE DELIVERY PLATFORM FOR FIRST AND LAST MILE CUSTOMER JOURNEYS
We provide a technology-based platform to deliver best-in-class customer journeys for e-commerce brands and their customers over the ‘first and last mile’, leveraging our proprietary software capability and expertise with continuous investment and innovation in the in-store experience.
E-commerce - we deliver all of this in circa 10,100 locations through our Collect+ brand, helping consumers pick up and drop off online shopping or send parcels across the UK. We work with a comprehensive range of partners, including Amazon, eBay, Yodel, Fedex, DPD, DHL, Hubbox, Parcels2Go and Randox. Our proprietary PUDO software solutions are built inhouse, with a singular focus on the delivery of great consumer experiences and confidence in the crucial first and last mile of parcel journeys. These solutions are easily deployable in thousands of diverse locations across multiple sectors through the PayPoint Group. Our unique blend of in-depth parcel operations experience, consumer interaction and agile IT development capability has been built over years of delivering best-in-class customer experiences.
Key to our success here is continuing to leverage our network scale and technology expertise whilst building a better view of ongoing consumer habits and data to guide our growth plans and navigate the post-Covid e-commerce landscape.
PAYMENTS & BANKING BUSINESS DIVISION – H1 FY22 net revenue £24.7m (H1 FY21: £25.5m)
PRIORITY 3: SUSTAIN LEADERSHIP IN ‘PAY-AS-YOU-GO’ AND GROW DIGITAL BILL PAYMENTS
We help consumers conveniently make payments online and in-store for the biggest service brands in the UKDigital - we are developing new ways of using digital payments so organisations can seamlessly and effectively serve their customers. Our market-leading omnichannel solution – MultiPay – is an integrated solution offering a full suite of digital payments. It enables transactions online and through smartphone apps and text messages, as well as event payments, over the counter, over the phone and via interactive voice response (IVR) systems. It also supports a full range of Direct Debit options, including scheduling collections, as well as new product developments such as PayByLink, recurring payments and Event Streamer. MultiPay customers benefit from real-time visibility of all payments received, through one easy-to-use portal that is fully PCI compliant, and allows visibility of all payment channels - including cash. The platform is used by a growing number of organisations across the UK, including many housing associations, local government authorities and utility providers. Our Cash Out service also enables the rapid dispersal of funds through secure digital channels and is actively used by local authorities and charities to distribute emergency funds.
Cash through to digital – we enable consumers to access digital brands and services through a comprehensive portfolio of banking, e-Commerce, gaming and loyalty card partners, including Amazon, Xbox, Playstation, Paysafe, Monzo and the Appreciate Group. Consumers simply pay for a ‘pin on receipt’ code in cash in any of our 28,135 retail locations and then can use that value online with the digital brand or service chosen. For our digital banking partners, consumers can deposit cash into their accounts across our extensive retail network.
Cash - we provide vital access to cash payment services across the UK by helping millions of people every week control their household finances, make essential payments and access in-store services. Our UK retail network of more than 28,100 stores is bigger than all banks, supermarkets and Post Offices together, putting us at the heart of communities nationwide
PRIORITY 4: BUILDING A DELIVERY FOCUSED ORGANISATION AND CULTURE
PAYPOINT GROUP
Underpinning the PayPoint Group’s future success is the continued development and investment in our people, systems and organisation. We aim to create a dynamic place to work for our people, enabling us to deliver for our customers by collaborating and being good colleagues to each other, creating a positive and inclusive environment where everyone can learn, grow and shine.
OUTLOOK AND DIVIDEND
Our first half has been a particularly busy period for the business, with early delivery success in our growth opportunities against the backdrop of continued uncertainty in a number of our markets, including the dislocation in the energy sector and our need to respond in a number of areas of the business to how consumer behaviours will continue to adjust longer-term as Covid-19 restrictions have eased. Operationally, we have remained focused on supporting our people through the transition to new working patterns, executing with pace and precision in the numerous growth initiatives across the business and navigating the new challenges arising from the post-pandemic labour market.
Our core strategic priorities for the business remain unchanged: embedding PayPoint at the heart of SME and convenience retail businesses; becoming the definitive technology-based e-commerce delivery platform for first and last mile customer journeys; sustaining leadership in ‘pay-as-you-go’ and growing digital bill payments; building a delivery focused organisation and culture. During the half, we have continued to build on the transformative changes we delivered in the last financial year to expand our growth opportunities and leverage our strengthened capabilities by completing the acquisition of RSM 2000 and making a strategic £6.7 million investment in Snappy Group, one of the UK’s leading local home delivery and click and collect operators. These steps, along with our continued focus on the pace and precision of execution in our new initiatives, underpin our confidence in the accelerated growth opportunities we see for the business.
This year there is a higher level of uncertainty as to the outlook for the second half of the year. We expect the dislocation in energy markets and its impact on our energy clients to continue. The influence of parcel volumes during the important peak seasonal period, with the added uncertainty of customer behaviours post-pandemic, is an additional factor. As we continue to rollout our new growth initiatives that are less seasonally impacted, we expect a greater balance in the future between the two halves of our financial year.
Mindful of this market background, our confidence in the outlook for the second half is underpinned by the actions and discipline we have continued to apply in managing our costs, combined with a tight operational focus on the key delivery areas and our energy to deliver on our new business opportunities. We have declared a dividend of 17.0p per share, consistent with our dividend policy, which reflects our long-term confidence in the business, the strength of our underlying cash flow and the enhanced growth prospects from the steps we have taken in the past 18 months. Overall expectations for the full year remain unchanged.
FINANCIAL REVIEW
OVERVIEW OF CONTINUING OPERATIONS
In the same period last year, we saw the impact of the Covid-19 pandemic affect a number of our business lines which drove significant variances in that period. In the current period, a number of those business lines and sectors have partially recovered but the economy is still not back to pre Covid-19 levels. Given the disposal of the Romanian business on 8 April 2021 the focus of this review is predominately on the continuing operations of the Group.
Profit before tax from continuing operations excluding exceptional items of £21.9 million (September 2020: £16.8 million) increased by £5.1 million due to the contribution from our recent acquisitions.
Revenue from continuing operations increased by £9.5 million to £70.2 million (September 2020: £60.7 million). Net revenue from continuing operations increased by £9.7 million (20.9%) to £56.1 million (September 2020: £46.4 million). This was driven by net revenues generated by Handepay and Merchant Rentals card payments and leasing revenue which contributed £9.8m in the first six months of the year. There was also continued growth across service fees, parcels and cash through to digital (e-money), partially offset by decreases in cash bill payments and top-ups primarily due to the continued shift in consumer behaviour through Covid-19 and ongoing structural decline of the prepaid mobile sector.
Shopping net revenue increased by £9.9 million (51.0%) to £29.3 million (September 2020: £19.4 million). PayPoint card payments net revenue decreased by £1.2 million (17.6%) (September 2020: £6.9 million) maintaining strong transaction volumes seen in H1 FY21 but at a lower average transaction value. Handepay and Merchant Rentals contributed £9.8 million card payments and terminal leasing net revenue in the first half of the year. Service fee net revenue increased by £1.1 million (15.3%) to £8.2 million (September 2020: £7.1 million) driven by the roll out of PayPoint One to additional sites and the impact of the annual RPI increase. ATM net revenue decreased by £0.1 million (0.4%) to £4.9 million (September 2020: £5.0 million).
E-commerce net revenue increased by £0.6 million (39.0%) to £2.1 million (September 2020: £1.5 million), driven by strong growth in total transactions which increased by 27.6% with the easing of Covid-19 restrictions in the current period. This facilitated increased Pick Up/Drop Off activity combined with growth in volumes following our investment in thermal instore printers.
Payments & Banking net revenue decreased by £0.8 million (3.1%) to £24.7 million (September 2020: £25.5 million). Cash bill payments net revenue decreased by £1.3 million (9.5%) to £12.4 million (September 2020: £13.7 million), driven by a decrease in bill payment transactions primarily as a result of the continued switch to digital payment methods along with the impacts of Covid-19 where consumers are continuing to make larger payments, less frequently. Cash top-ups net revenue decreased by £0.4 million (9.3%) to £3.9 million (September 2020: £4.3 million) with volumes down 10.4% driven by the continuing structural declines in the prepaid mobile sector. Digital net revenue increased by £0.6 million (20.7%) to £3.5 million (September 2020: £2.9 million) driven by the £1.0 million net revenue contribution from RSM 2000 in the period. Multipay transactions decreased 10.6% due to Utilita moving customers to their own in-house app. Non-Utilita MultiPay business net revenue increased by £0.2 million (10.8%) as a result of more clients taking the digital services and contribution from the new functionalities of Direct Debit and PayByLink although at a lower net revenue per transaction. This has been partially offset by growth in Cash Out benefiting from the i-movo acquisition. eMoney net revenue increased by £0.4 million (11.1%) to £4.3 million (September 2020: £3.9 million), driven by a 15.5% increase in transactions.
Total costs from continuing operations of £34.2 million (September 2020: £29.6 million) increased by £4.6 million. The prior period includes £1.0 million one-off, non-recurring acquisition and disposal costs. Excluding this, the increase in costs from continuing operations was driven by the £7.1m additional cost base in relation to the newly acquired businesses partially offset by £1.5m reduction in operational costs.
Exceptional income of £2.9 million reflects the change in fair value of the deferred contingent consideration relating to the i-movo acquisition.
Cash generation reduced by £3.0 million to £22.1 million (September 2020: £25.1 million) delivered from profit before tax excluding exceptional items of £21.9 million from continuing operations (September 2020: £16.8 million from continuing operations). There was a working capital outflow of £5.7 million, of which £1.8 million relates to payment of the prior year HMRC VAT deferral and £3.0 million relating to timing impacts on working capital expected to unwind in the second half of this financial year.
The current period benefited from the £48.6 million cash proceeds received on sale of the Romanian business. Tax payments were £0.3 million lower than the prior period following the super deduction on capital allowances and dividend payments were £0.7 million higher compared to the prior period due to the increase in the final ordinary dividend per share. The current period includes net cash outflows of £4.5 million for the acquisition of RSM2000 and £6.7 million for the investment in Snappy Shopper Limited
Net corporate debt increased by £30.4 million to £36.5 million (September 2020: £6.1 million) although decreased by £31.7 million from the year end position. £37.5 million of the revolving credit facility was repaid since the year end using the proceeds received from the sale of the Romanian business. At 30 September 2021, £12.0 million (September 2020: £21.0 million) was drawn down from the revolving credit facility.
BUSINESS DIVISION ANALYSIS
SHOPPING
As at 30 September 2021, PayPoint had a live terminal in 28,135 sites (31 March 2021: 28,067), a slight increase of 68 sites since 31 March 2021. PayPoint One revenue generating sites increased by 504 (2.9%) to 17,966 sites (31 March 2021: 17,462) since 31 March 2021 due to new sales and fewer Covid-19 suspended sites.
Net revenue increased by £9.9 million (51.0%) to £29.3 million (September 2020: £19.4 million) primarily due to the inclusion of Handepay and Merchant Rentals revenues in the period. 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 terminals. Service fee net revenue increased by £1.1 million (15.3%) to £8.2 million (September 2020: £7.1 million) driven by the additional 1,100 PayPoint One revenue generating sites compared to 30 September 2020. The higher price point EPoS Core sites increased by 1,673 due to new sales and upselling whilst EPoS Pro sites reduced by 145 since 30 September 2020, with the ending of our 3 month try before you buy EPoS Pro offering. The PayPoint One average weekly service fee per site increased by 7.0% to £16.8 (September 2020: £15.7), benefiting from the increase in EPoS Core sites which are charged at a higher rate and the annual RPI increase. Retailers taking the Core version of the product represent 49.1% (September 2020: 43.9%) of all PayPoint One sites and the Pro version represent 6.4% (September 2020: 7.9%). Legacy terminals now just remain in our multiple retailer partners but are being replaced.
Card payments: Handepay and Merchant Rentals generated £9.8 million net revenue in the half year. Handepay contributed £6.5 million card payments net revenue and 72.1 million transactions, benefiting from the reopening of SMEs across key sectors with the easing of government restrictions. Handepay card payment services were live in 22,661 sites at 30 September 2021, an increase of 3,856 sites since 31 March 2021. Merchant Rentals contributed £3.3 million terminal leasing net revenue.
PayPoint card payments transactions increased by 0.2% to 112.6 million (September 2020: 112.3 million) and net revenue decreased by 17.6% to £5.7 million (September 2020: £6.9 million) maintaining strong transaction volumes seen in H1 FY21 but at a lower average transaction value £11.30 (H1 FY21: £12.50). Across our network there were 9,900 PayPoint card payments sites (31 March 2021: 9,930), a decrease of 30 sites since 31 March 2021.
ATMs: ATM net revenue decreased marginally by £0.1 million (0.4%) to £4.9 million (September 2020: £5.0 million). ATM transactions continue to be impacted by the reduced demand for cash across the economy, accentuated by the Covid-19 preference for card use. PayPoint continued to optimise its ATM network by relocating existing machines to better performing locations. ATM sites increased by 186 to 3,812 sites (31 March 2021: 3,626) since 31 March 2021 with fewer Covid-19 suspended sites.
Other Shopping net revenue includes the new PayPoint Counter Cash Service, for which a full rollout commences in November 2021.
E-COMMERCE
E-commerce net revenue increased by £0.6 million (39.0%) to £2.1 million (September 2020: £1.5 million), due to the increase in total parcels transactions by 27.6% to 14.3 million (September 2020: 11.2 million) with the easing of Covid-19 restrictions in the current period facilitating increased Pick Up/Drop Off activity. The prior period transactions were impacted by Covid-19 restrictions with consumers staying at home. Parcel sites decreased by 323 since 31 March 2021 to 10,186 sites (31 March 2021: 10,509 sites), due to stores being removed from our network.
PAYMENTS & BANKING
Payments & Banking divisional net revenue decreased by 3.1% to £24.7 million, driven by fewer cash bill payments and top up transactions, and margin erosion from client contract renewals but offset by continued growth in digital transactions
Cash bill payments net revenue decreased by £1.3 million (9.5%) to £12.4 million (September 2020: £13.7 million), primarily as a result of the impacts of Covid-19 where consumers are continuing to make larger payments, less frequently and the continued switch to digital payment methods. Cash bill payments transactions decreased by 4.7 million (6.1%) to 72.8 million (September 2020: 77.5 million). Cash bill payments net revenue per transaction decreased by 0.7 pence (3.6%) due to margin erosion from client contract renewals.
Cash top-ups net revenue decreased by £0.4 million (9.3%) to £3.9 million (September 2020: £4.3 million). Cash top-ups transactions decreased by 1.3 million (10.4%) to 11.2 million (September 2020: 12.5 million) due to further market declines in the prepaid mobile sector whereby UK direct debit pay monthly options displace UK prepay mobile and Covid-19 impacts where consumers are making larger payments and less frequently.
Digital (MultiPay, Cash Out and RSM 2000) net revenue increased by £0.6 million (20.7%) to £3.5 million (September 2020: £2.9 million) and digital transactions increased by 0.4 million (3.1%) to 13.5 million (September 2020: 13.1 million), driven by the £1.0 million contribution of RSM 2000 to this sector. MultiPay net revenue decreased by £0.7 million to £1.4 million (September 2020: £2.1 million), this was due to the expected volume reduction from Utilita moving customers to their in-house solutions. This was partially offset by Cash Out net revenue which increased by £0.3 million (32.3%), driven by continued demand from local authorities seeking to digitise their payments offering and despite Covid-19 meal voucher schemes winding down.
Cash through to digital (eMoney) net revenue increased by £0.4 million (11.1%) to £4.3 million (September 2020: £3.9 million) and transactions increased by 0.8 million (15.5%) to 5.8 million (September 2020: 5.0 million). eMoney transactions derive a substantially higher fee per transaction than traditional top-up transactions.
Other payments & banking net revenue includes SIM sales and other ad-hoc items which contributed £0.6 million (September 2020: £0.7 million) net revenue. The decrease reflects the continuing decline in SIM sales, accentuated by the impact of Covid-19 on tourism.TOTAL COSTS
Total costs from continuing operations increased by £4.6 million (15.5%) to £34.2 million (September 2020: £29.6 million). The prior period includes £1.0 million one-off, non-recurring acquisition and disposal costs. Excluding this, the increase in costs from continuing operations was driven by the cost base in relation to the newly acquired businesses of £7.1 million, included within this balance is £1.2 million for amortisation on acquired intangibles shown in administrative expenses. This was partially offset by operational cost reductions made in the group of £1.5 million. This included lower people costs of £0.5 million as a result of higher vacancies this year compared to last year, lower depreciation and amortisation with some legacy assets coming to the end of their life and a reduction in cost of revenue following the acquisition of i-movo and eliminating this transaction cost from our cost base.
DISCONTINUED OPERATION - ROMANIA
The revenues and net profit from the discontinued operation in the current period represents the revenue and costs from Romania between 1 and 8 April 2021 prior to disposal completion.
OPERATING MARGIN BEFORE EXCEPTIONAL ITEMS32
Operating margin before exceptional items of 40.8% (September 2020: 37.7% from continuing operations) increased by 3.1ppts following the increases in net revenue of 20.9% and operational costs being tightly managed increasing by 14.9%. Operating margin in the prior interim reporting period ended 30 September 2020 excluding the £1.0 million of acquisition and disposal costs was 39.9%.
PROFIT BEFORE TAX AND TAXATION
The tax charge of £4.6 million (September 2020: £3.7 million for continuing operations) on profit before tax from continuing operations £24.8 million (September 2020: £16.8 million from continuing operations) represents an effective tax rate33 for continuing operations of 18.4% (September 2020: 21.8%). The effective tax rate was 3.4ppts lower than the prior period due to the non-taxable exceptional item in the period and a decrease in disallowable expenses, with the prior year impacted by the one-off disallowable acquisition and disposal costs partially offset by the impact of the enacted new tax rate on our deferred tax liabilities.
STATEMENT OF FINANCIAL POSITION
Net assets of £80.3 million (September 2020: £45.0 million) increased by £35.3 million and increased by £40.8 million since the year end position, primarily as a result of the Romania disposal. Current assets decreased by £68.0 million to £95.3 million (September 2020: £163.3 million) mainly due to the disposal of the Romania assets. Non-current assets increased by £87.3 million to £132.3 million (September 2020: 45.0 million), mainly due to the businesses acquired in the second half of the financial year. Non-current liabilities of £21.7 million (September 2020: £nil) increased due to the refinancing in the second half of the prior financial year which included taking out a new three-year term loan.
CASH FLOW AND LIQUIDITY The following table summarises the cash flow movements during the period.
Cash generation reduced to £22.1 million (September 2020: £29.5 million) delivered from profit before tax from continuing operations excluding exceptional items of £21.9 million (September 2020: £20.6 million). There was a working capital outflow of £5.7 million, of which £1.8 million relates to the repayment of the prior year HMRC VAT deferral and £3.0 million relating to timing impacts on working capital expected to unwind in the second half of this financial year.
The current period benefited from the £47.6 million cash proceeds received on sale of the Romanian business, net of transaction costs. Taxation payments on account of £3.9 million (September 2020: £4.2 million) are lower compared to the prior period due to the expected benefit from the super deduction on capital allowances offered by the government. Dividend payments were higher compared to the prior period due to the increase in the final ordinary dividend paid per share for the prior year ended 31 March 2021.
Capital expenditure of £4.0 million (September 2020: £3.8 million, of which £3.1m related to continuing operations) was £0.2 million higher than the prior year. Capital expenditure primarily consists of IT hardware, PayPoint One terminals, EPoS development and the enhancement to the Direct Debit platform. The increase in capital expenditure is primarily driven by the enhancement to the Direct Debit platform.
At 30 September 2021 net corporate debt was £36.5 million (September 2020: £6.1 million) although decreased by £31.7 million from the year end position. Total loans and borrowings of £43.7 million consisted of a £27.1 million amortising term loan, £12.0 million drawdown of the £75.0 million revolving credit facility and £4.6 million of asset financing balances (September 2020: £21.0 million drawdown from the old revolving credit facility). The cash proceeds received on sale of the Romanian business in April 2021 were used to repay the majority of the revolving credit facility at year end of £37.5 million and so reduced net corporate debt since the prior year end.
DIVIDENDS
In the six months to 30 September 2021, total dividend payments of £11.4 million or 16.6 pence per share (September 2020: £10.7 million or 15.6 pence per share) were made, representing the final ordinary dividend for the year ended 31 March 2021. This is a 6.4% increase in the final dividend since last year.
We have declared an increased interim dividend of 17.0 pence per share (September 2020: 15.6 pence) payable in equal instalments of 8.5 pence per share on 30 December 2021 (to shareholders on the register on 3 December 2021) and 7 March 2022 (to shareholders on the register on 4 February 2022). This is an increase of 2.4% compared to the final dividend declared on 27 May 2021 of 16.6 pence per share, and an increase of 9.0% compared to the same period last year (September 2020: 15.6 pence).
Alan DaleFinance Director24 November 2021
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. Accounting policiesReporting entity PayPoint plc (‘PayPoint’ or the ‘Company’) is a public limited company and is incorporated and registered in England in the UK under the Companies Act 2006. The Company’s ordinary shares are traded on the London Stock Exchange. These condensed consolidated interim financial statements (‘interim financial statements’) as at and for the six months ended 30 September 2021 are made up of the Company, its subsidiaries and its interest in the equity-accounted associate (together referred to as the ‘Group’).
Basis of preparationThe interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK, and should be read in conjunction with the Group’s last annual financial statements as at and for the year ended 31 March 2021 (‘last annual financial statements’). They do not include all the information required for a complete set of financial statements which comply with International Financial Reporting Standards (‘IFRS’). However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group’s financial position and performance since the last annual financial statements. The interim financial statements contained in this report are unaudited, but have been formally reviewed by the auditor and their report to the Company is set out on page 42.
The information shown for the year ended 31 March 2021, which was prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and in accordance with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The report of the auditor on the statutory accounts for the year ended 31 March 2021 was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under sections 498 (2) or (3) of the Companies Act 2006 and has been filed with the Registrar of Companies.
By order of the Board, the interim financial statements were authorised for issue on 25 November 2021.
The interim financial statements have been prepared on a going concern basis. The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt to equity balance. The capital structure of the Group consists of debt, cash and cash equivalents and equity attributable to equity holders of the parent comprising capital, reserves and retained earnings. The Group’s policy is to borrow centrally to meet anticipated funding requirements. Our cash and borrowing capacity provides sufficient funds to meet the foreseeable needs of the Group. At 30 September 2021, the Group had cash and cash equivalents of £23.4 million, including £16.2 million of clients’ funds and retailer partners’ deposits. In addition, the Group has in place a three-year £27.1 million amortising term loan and a three-year unsecured £75.0 million revolving credit facility expiring in February 2024. At 30 September 2021, £12.0 million (31 March 2021: £49.5 million) was drawn down from the revolving credit facility. The cash proceeds received on the sale of the Romanian business were used to partly repay the revolving credit facility in April 2021. At 30 September 2021 the Group also had £4.6 million of block loan balances. The Group has a strengthened statement of financial position as at 30 September 2021, with net assets of £80.3 million, having made a profit for the period of £50.2 million and delivered net cash flows from operating activities of £8.1 million for the period then ended. The Group had net current liabilities of £30.3 million at 30 September 2021, mainly due to short-term loans and borrowings which have been used to finance acquisitions and investments in the current period and prior year and are periodically being repaid.
The Directors have prepared cash flow forecast scenarios for a period of at least 12 months from the date of this announcement, taking into account the Group’s current financial and trading position, the principal risks and uncertainties and the strategic plans that are reviewed at least annually by the Board. The cash flow forecasts included an analysis and stress test to ensure working capital movements within a reporting period do not trigger a covenant breach. Based on this assessment, the Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of not less than 12 months from the date of approval of these interim financial statements and therefore have prepared the interim financial statements on a going concern basis.
The accounting policies applied by the Group in the interim financial statements for the period ended 30 September 2021 are consistent with those set out in the Group’s Annual Report for the year ended 31 March 2021, apart from the addition of the accounting policy for investments in associates as detailed below.
Investments in associates are accounted for using the equity method and initially recognised at cost. The carrying amount of the associates are subsequently adjusted where material to recognise the Group’s share of the profit or loss after tax, distributions received and any impairment in value of the associates. Where the Group’s share of losses in associates exceeds the investment, the Group ceases to recognise further losses unless an obligation exists for the Group to fund the losses. Where a change in net assets has been recognised directly in the associate’s equity, the Group recognises its share of those changes in the condensed consolidated statement of changes in equity when applicable. Adjustments are made to align the accounting policies of the associates with the Group and to eliminate the Group’s share of unrealised gains and losses on transactions between the Group and its associates.
Reclassification of share premium balanceManagement has reviewed the treatment of the share premium balance as at 31 March 2021 and concluded that an amount of £5.0 million should have been presented within retained earnings. This balance was previously presented within share premium on the consolidated and Company statements of financial position and statements of changes in equity, and relates entirely to share awards which have vested and been recycled from the share-based payment reserve.
Management has decided not to re-present the prior year comparatives relating to the above item, as it has no impact on the condensed consolidated statement of profit or loss or the condensed consolidated statement of cash flows for the period ended 30 September 2021 and the adjustment is not considered significant compared to the overall amount in the condensed consolidated statement of financial position and/or the captions affected. The revision has not reduced distributable reserves and has not had any impact on operating profit, profit for the period, assets and liabilities or cash flows for the period ended 30 September 2021, where the revised presentation has been adopted, or periods prior to this current period.
Use of judgements and estimatesIn 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 ongoing 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.
Critical judgement: recognition of cash and cash equivalentsThe nature of bill payments services means that PayPoint collects and holds funds on behalf of clients as those funds pass through the settlement process and also retains retailer partners’ deposits as security for those collections.
A critical judgement in this area is whether clients’ funds and retailer partners’ deposits are recognised in the condensed consolidated statement of financial position. This includes evaluating:
(a) existence of a binding agreement clearly identifying the beneficiary of the funds(b) the identification, ability to allocate and separability of funds(c) identification of the holder of those funds at any point in time(d) whether PayPoint bears the credit risk
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 are not included in the statement of financial position. In all other situations the cash and corresponding liability are recognised on the statement of financial position.
Critical estimate: valuation of i-movo deferred, contingent consideration The i-movo sale and purchase agreement includes an element of deferred consideration which is contingent on future performance over the 29-month earnout period since the period following acquisition (December 2020) and is linked to four monthly revenue growth targets on two potential key revenue streams. At 30 September 2021, the Group recognised a £3.0 million deferred, contingent consideration liability on the consolidated statement of financial position, representing the discounted fair value of the estimated additional consideration payable at the reporting date. At each reporting date, the liability is measured against the contractually agreed performance targets with any fair value adjustments recognised in the consolidated statement of profit or loss. The estimation of the liability requires an estimate of future performance of the related business over the earnout period, based on management’s latest forecasts. In the current period there was a £2.9 million fair value gain recognised in the condensed consolidated statement of profit or loss due to the revaluation of part of the previously recognised liability based on management’s latest forecasts. The range of reasonably possible outcomes for the fair value of the undiscounted earnout is £3.0 million to £6.0 million, by applying a possible 70% sensitivity to the revenue forecasts of one of the key revenue streams.
Critical estimate: valuation of i-movo goodwillImpairment testing has been performed on the goodwill attributable to i-movo (£6.9 million) for the interim reporting period ended 30 September 2021. When testing for impairment, the recoverable amount of the cash generating unit (CGU) is measured at its value-in-use by discounting future expected cash flows from the carrying values of assets in that CGU. The key sources of estimation applied to future forecasts of the business in determining value-in-use are:
Sensitivity analysis has been applied to determine the impact of a reasonably possible change in the above assumptions in isolation and in aggregation on the valuation of i-movo goodwill in the financial statements. The below reasonably possible changes to the key inputs would not cause a material impairment of i-movo goodwill in isolation but would result in a material impairment of i-movo goodwill in aggregation.
Prior year critical estimatesRevenue recognition (agent vs principal) which was a critical estimate in the prior financial year ended 31 March 2021, is no longer considered to be a critical estimate. The Romanian business, which was where most of the Group’s revenue as principal was recognised, was disposed of in April 2021. The cost of mobile top-ups and SIM cards as principal was £1.0 million in the period (September 2020: £24.7 million), refer to note 4. Therefore, at 30 September 2021, this estimate no longer has a significant risk of resulting in material adjustment to the amount of revenue recognised within the next reporting period.
Business combinations (initial recognition of goodwill and intangible assets) which was a critical estimate in the prior financial year ended 31 March 2021, is no longer considered to be a critical estimate. The initial recognition of the fair values of intangible assets and goodwill relating to the acquisitions made in the prior financial year do not have a significant risk of resulting in material adjustment to the carrying amounts of intangible assets and goodwill within the next reporting period.
Alternative performance measuresNon-IFRS measures or alternative performance measures are used by the Directors and management for performance analysis, planning, reporting and incentive setting purposes which have remained consistent with the alternative performance measures disclosed in the Annual Report for the year ended 31 March 2021. These measures are included in these interim 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.
Underlying performance measures (non-IFRS measures)Underlying performance measures allow shareholders to better understand the underlying operational performance in the period, to facilitate comparison with prior periods and to better assess trends in financial performance. They usually exclude the impact of one-off, non-recurring and exceptional items (exceptional items are disclosed in note 5).
Net revenue (non-IFRS measure)Net revenue is revenue less commissions paid to retailer partners 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 which creates comparability where PayPoint is agent or principal and is an important measure of the overall success of our strategy.
The reconciliation of revenue to net revenue is as follows:
1The revenue and net revenue in the current period from the discontinued operation represents the revenue and net revenue from Romania between 1 and 8 April 2021 prior to disposal.
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 for an interim reporting period are based on that period’s results from which the dividend is declared and consist of the interim dividend declared. This is different to statutory dividends where the final dividend on ordinary shares is recognised in the following interim period when it is 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 20. This measures the cash generated which can be used for tax payments, new investments and financing activities.
Total costs (non-IFRS measure)Total costs comprise other cost of revenue (note 4), administrative expenses, financing income and financing costs. Total costs exclude exceptional costs.
Operating margin before exceptional items (non-IFRS measure)Operating margin before exceptional items is calculated by dividing operating profit before exceptional items from continuing operations by net revenue from continuing operations. This measure reflects the efficiency of converting revenue into profits. The calculation of operating margin before exceptional items is as follows:
Operating margin in the prior interim reporting period ended 30 September 2020 excluding the £1.0 million of acquisition and disposal costs was 39.9%. Operating profit in the prior interim reporting period included £1.0 million of acquisition and disposal costs. These were not presented as exceptional at 30 September 2020 but were reclassified to exceptional items at 31 March 2021 as they were one-off and non-recurring in nature (refer to the accounting policies disclosed in the 31 March 2021 Annual Report).
Net corporate debt (non-IFRS measure)Net corporate debt represents cash and cash equivalents excluding cash recognised as clients’ funds and retailer partners’ deposits, less amounts borrowed under financing facilities (excluding IFRS 16 liabilities).
The reconciliation of cash and cash equivalents to net corporate debt is as follows:
2. Segmental reporting The Group provides a number of different services and products, however these do not meet the definition of different segments under IFRS 8, as discrete financial information is not available for each and the chief operating decision maker, the Executive Board, does not review those separately for resource allocation purposes, therefore the Group has only one operating segment. A business division analysis has been provided in Note 3.
Geographical information
1The revenue in the current period from the discontinued operation represents the revenue from Romania between 1 and 8 April 2021 prior to disposal.
3. Revenue
Service fee revenue of £8.2 million (September 2020: £7.1 million) and management fees, set-up fees and up-front lump sum payments of £0.7 million (September 2020: £0.5 million) are recognised on a straight-line basis over the period of the contract. Terminal finance leasing revenue of £3.2 million (September 2020: £nil) is recognised over the lease term using the sum of digits method. The remainder of revenue is recognised at the point in time when each transaction is processed, with the usual timing of payment by customers on fourteen-day terms.
Revenue subject to variable consideration of £6.1 million (September 2020: £6.4 million) exists where the consideration which PayPoint is entitled to varies according to transaction volumes processed and rate per transaction. Management estimates the total transaction price using the expected value method at contract inception, which is reassessed at the end of each reporting period, by applying a blended rate per transaction to estimated transaction volumes. Any required adjustment is made against the transaction price in the period in which it occurred. The revenue is recognised at the constrained amount to the extent that it is highly probable that the inclusion will not result in a significant revenue reversal in the future, with the estimates based on projected transaction volumes and historical experience.
Seasonality of operationsPayPoint operates in many sectors, some with their own form of seasonality. This does not constitute “highly seasonal” as considered by IAS 34 Interim Financial Reporting. Historically energy bill payments typically generated more transactions and revenue during the winter months and e-commerce typically generated more transactions and revenue in the lead up to Christmas. However, in the current period bill payments transactions have decreased, primarily due to the continued shift in consumer behaviour towards making fewer, larger payments and structural changes in this market. Parcels transactions during the peak seasonal period will be impacted by the uncertainty of customer behaviours post-pandemic. The increase in card payments and terminal leasing revenue in the current period is due to the acquisitions of Handepay and Merchant Rentals which are less affected by seasonality. The business continues to rollout new growth initiatives that are less seasonally impacted, thus reducing the overall impact of seasonality on total revenue and operating profit between the two halves of the financial year.
The increase in contract balances since the comparative period primarily results from the business acquisitions in the second half of the prior financial year. PayPoint’s contract balances arise from differences between timing of cash flow and revenue recognition, which is usually at the point in time each transaction is processed or on a straight-line basis over the contracted period for management fees, set-up fees or up-front lump sum payments. • The accrued income represents PayPoint’s entitlement to consideration from clients and SME and retailer partners for services and goods delivered but not yet invoiced at the reporting date. • The accrued income is transferred to trade receivables when the entitlement to consideration becomes unconditional. • The net investment in finance lease receivables balance arose upon acquisition of Merchant Rentals in February 2021 and represents the total minimum lease payments receivable to PayPoint as lessor under leases discounted at the interest rate implicit in those leases.• The contract assets are mainly capitalised employee costs directly relating to the implementation services which are expected to be recovered from the customer and are amortised on a straight-line basis over the period of the contract. • The contract liabilities represent set-up and development fees which are released on a straight-line basis over the period of the contract. • The deferred income represents advance consideration received from clients and SME and retailer partners at the reporting date, which is released with revenue recognised upon delivery of the performance obligations.
4. Cost of revenue
1The cost of revenue from the discontinued operation in the current period represents the cost of revenue from Romania between 1 and 8 April 2021 prior to disposal.
5. Exceptional items
The prior interim reporting period ended 30 September 2020 included £1.0 million of acquisition and disposal costs. These were not presented as exceptional at 30 September 2020 but were reclassified to exceptional items at 31 March 2021 as they were one-off and non-recurring in nature (refer to the accounting policies disclosed in the 31 March 2021 Annual Report).
6. Tax
The tax charge was £4.6 million (September 2020: £3.7 million on continuing operations) resulting in an effective tax rate of 18.4% (September 2020: 21.8% on continuing operations). This is lower than the UK statutory rate of 19% due to the non-taxable exceptional item in the period. The effective tax rate is lower than the prior period due to the disallowable acquisition and disposal costs in the prior period.
During the period, an increase in the main rate of UK corporation tax from 19% to 25% with effect from 1 April 2023 was enacted. Deferred tax has been calculated based on the rate applicable at the date timing differences are expected to reverse.
The effective tax rate on the discontinued operation was 0.0% (September 2020: 14.7%) because the gain on disposal of the discontinued operation was exempt from UK corporation tax under the substantial shareholding exemption.
7. Earnings per shareBasic and diluted earnings per share are calculated on the following profit and number of shares.
8. Dividends
An interim dividend of 17.0 pence per share (September 2020: 15.6 pence) has been declared. The total dividend of 17.0 pence per share will be paid in equal instalments of 8.5 pence per share on 30 December 2021 (to shareholders on the register on 3 December 2021) and 7 March 2022 (to shareholders on the register on 4 February 2022). Total dividends of £11.4 million (16.6 pence per share) were paid during the period and comprised of the final ordinary dividend for the year ended 31 March 2021.
9. Goodwill
RSM 2000
On 12 April 2021, PayPoint acquired 100% of the share capital of RSM 2000 Limited for initial cash consideration of £5.9 million and deferred consideration of £1.0 million payable in cash on the first anniversary of completion. The deferred consideration is not contingent on future performance nor remuneration linked i.e. linked to continuing employment of the sellers. The acquisition resulted in a net £4.5 million cash outflow (net of cash acquired).
The primary reasons for the acquisition were to enhance PayPoint’s digital payments capability and enable reach into new sectors, including charities, housing, not-for-profit organisations, events and SMEs in the UK.
An RSM 2000 regulatory licences intangible asset of £0.2 million has been recognised and is being amortised over a useful life of 10 years. An RSM 2000 customer relationship intangible asset of £0.2 million has been recognised and is being amortised over a useful life of 12 years.
In the period since acquisition, RSM 2000 earned revenue of £1.0 million and reported profit before tax of £nil. The result for the period from 1 to 12 April 2021 is not considered material so RSM 2000 has been consolidated from 1 April 2021. Therefore, had the acquisition taken place on the first day of the financial year, revenue and reported profit before tax would be the same as the period since acquisition.
The following table summarises the provisional fair values of the identifiable assets purchased and liabilities assumed as at the date of acquisition:
The acquired identifiable assets and liabilities have been recognised at their fair values at acquisition date and in accordance with the Group’s accounting policies disclosed in the Annual Report for the year ended 31 March 2021:
• The acquired customer relationships have been valued using the multi-period excess earnings method (“MEEM approach”) by estimating the total expected income streams from the customer relationship and deducting portions of the cash flow that can be attributed to supporting, or contributory, assets (including workforce). The residual income streams are discounted. No tax amortisation benefit is applied. The key inputs to this method are the customer churn rate, revenue growth rate and discount rate applied to future forecasts of the businesses. • The acquired licences have been valued using the cost-to-recreate method, representing the cost of the process to attain the licenses. This requires an estimate of all the costs a typical market participant would incur to generate an exact replica of the intangible asset in the context of the acquired business. The cost-to-recreate method takes into account factors including economic and technological obsolescence.• Trade receivables and trade payables have been assessed at fair value on the basis of the contractual terms and economic conditions existing at the acquisition date, reflecting the best estimate at the acquisition date of contractual cash flows not expected to be collected.
The values presented above other than cash and cash equivalents represent the best estimate based on information available at the acquisition date and are therefore subject to adjustment within the measurement period if new information about facts and circumstances that existed at the acquisition date is obtained and, if known, would have resulted in the recognition of those assets and liabilities at that date.
Of the £5.6 million goodwill acquired during the period, no goodwill is expected to be deductible for tax purposes. The goodwill is attributable to workforce in place, know-how within the business (operating expertise and detailed knowledge of direct debit processing facilitating enhanced potential to grow digital payments capabilities), new customer relationships and the growth in new sectors that is anticipated to arise post-acquisition (including charities, not-for profit organisations, events, housing and SMEs in the UK), as well as the fair value of expected synergies from combining the operations of PayPoint and RSM 2000 (the ability of PayPoint to offer new customers the full scope of digital payments capabilities post-acquisition).
Prior year acquisitions There have been no adjustments in the current period to the goodwill and fair values of the identifiable assets purchased and liabilities assumed as presented for the Handepay, Merchant Rentals and i-movo acquisitions in the financial statements for the year ended 31 March 2021 but they remain provisional and subject to adjustment within the measurement period.
10. Investment in Snappy ShopperOn 7 July 2021, PayPoint plc subscribed to 9.35% of the ordinary share capital (13.04% of voting rights) in Snappy Shopper Ltd for a total cash consideration of £6.7 million. The investment will enable PayPoint to take advantage of the growth in consumer demand for local home delivery and its convenience retailer partners to remain at the forefront of retail and consumer trends.
An investment is treated as an associate where the investor has significant influence over the investment. Under IAS 28 significant influence may be evidenced by a number of factors, including representation on the Board of Directors of the investee. PayPoint is considered to have significant influence over Snappy Shopper as the Chief Executive of PayPoint, Nick Wiles, joined their Board as a Non-Executive Director. The investment has therefore been treated as an associate and recognised at its cost of £6.7 million under the equity method. PayPoint’s share of Snappy Shopper’s result was immaterial for the interim reporting period ended 30 September 2021 and has therefore not been recognised in the condensed consolidated statement of profit or loss or in the condensed consolidated statement of financial position against the carrying value of the investment. The principal place of business for Snappy Shopper Limited is in the United Kingdom.
11. Discontinued operationThe sale of the Romanian business, PayPoint Services SRL, to Innova Capital completed on 8 April 2021 following regulatory and other customary approvals. The sale was consistent with PayPoint’s focus on its key strategic priorities and the delivery of enhanced growth and value in its core UK markets.
Cash proceeds of £48.3 million were received in April 2021 and were used to repay the majority of the revolving credit facility and reduce net corporate debt. A further £0.3m working capital adjustment was received on 2 November 2021. The gain on sale of the discontinued operation was £29.9 million:
The gain on disposal of the discontinued operation is exempt from UK corporation tax under the substantial shareholding exemption.
The major classes of assets and liabilities comprising the carrying amount of net assets sold (and classified as held for sale in the prior period) were as follows:
The net assets of the discontinued operation were assessed to ensure their fair value less costs to sell were greater than their carrying value. The proceeds of the disposal substantially exceeded the carrying amount of the related net assets and accordingly no impairment loss was recognised prior to disposal.
The current period results of the discontinued operation up to the date of disposal and the gain on disposal after tax have been included in the total Group profit for the period as follows:
Net cash flows attributable to discontinued operation
12. Trade and other receivables
1 Items in the course of collection represent amounts collected for clients by retailers. An equivalent balance is included within trade and other payables.
13. Cash and cash equivalentsIncluded within cash and cash equivalents of £23.4 million (September 2020: £42.0 million) are balances of £16.2 million (September 2020: £27.2 million) relating to funds collected on behalf of clients where PayPoint has title to the funds (clients’ funds) and where retailer partners have provided security deposits (retailer partners’ deposits). An equivalent balance is included within trade payables (note 14). Clients’ funds held in trust which are not included in cash and cash equivalents amounted to £38.4 million at 30 September 2021 (September 2020: £51.0 million).
During the period the Group operated cash pooling amongst most of its bank accounts in the UK whereby individual accounts could be overdrawn without penalties being incurred so long as the overall position is in credit.
14. Trade and other payables
Relates to monies collected on behalf of clients where the Group has title to the funds (clients’ funds and retailer partners’ deposits). An equivalent balance is included within cash and cash equivalents.
2 Payable in respect of amounts collected for clients by retailer partners. An equivalent balance is included within trade and other receivables.
15. Share capital
16. Share-based paymentsThe Group’s share schemes are described in the Directors’ Remuneration Report in the Annual Report for the year ended 31 March 2021 and consist of the Long Term Incentive Plan (LTIP), Deferred Annual Bonus Scheme (DABS) and Restricted Share Awards (RSA) equity-settled share schemes.
45,594 share awards were granted under the DABS scheme in the period (September 2020: 2,532), vesting over three years to 13 August 2024. The DABS do not contain any IFRS 2 performance conditions.
202,781 share awards were granted under the RSA scheme in the period (September 2020: 190,733), vesting over two to five years, between 30 June 2023 and 30 August 2026. The RSAs do not contain any IFRS 2 performance conditions.
The LTIP scheme was replaced with the RSA scheme in the prior financial year and no new share awards are expected to be granted under the old LTIP scheme.
The amount charged to the statement of profit or loss in the year was £0.4 million (September 2020: £0.6 million). A total charge of £1.2 million (September 2020: £0.9 million) previously recognised directly to equity for schemes which have lapsed or vested was transferred from the share-based payments reserve to retained earnings during the period.
17. Deferred consideration liability
Of the total deferred consideration liability at 30 September 2021, £3.0 million relates to the acquisition of i-movo (30 September 2020: £nil) and £1.0 million relates to the acquisition of RSM 2000 (30 September 2020: £nil).
i-movoThe £3.0 million (30 September 2020: £nil) i-movo deferred, contingent consideration liability is contingent on future performance over the earnout period and is linked to four monthly revenue growth targets on two potential key revenue streams. It is categorised as Level 3 in the fair value hierarchy. The contingent consideration is capped at £6.0 million (£4.0 million cash and £2.0 million shares).
The carrying amount of the deferred, contingent consideration liability of £3.0 million is considered to approximate to its fair value. In the current period there was a £2.9 million fair value gain recognised in the condensed consolidated statement of profit or loss due to the revaluation of part of the previously recognised liability based on the latest forecasts.
The fair value of the expected earnout is updated at each reporting date, determined using a probability-weighted average best estimate of discrete scenarios, based on the latest revenue forecasts which are discounted to present value. The fair value of the discounted deferred, contingent consideration liability is determined using an estimate regarding the future results. Any subsequent revaluations to deferred, contingent consideration as a result of changes in such estimations are recognised in the condensed consolidated statement of profit or loss. The significant unobservable inputs used in the fair value measurement are the discount rate and the forecast future revenue of the acquired business.
RSM 2000The £1.0 million (30 September 2020: £nil) RSM 2000 deferred consideration liability is payable on the first anniversary of completion. It therefore has not been discounted to present value as the discounting impact would be immaterial. The deferred consideration is not contingent on any factors. It is measured at amortised cost.
18. Provision in relation to the Ofgem Statement of Objections
The £12.5 million (31 March 2021: £12.5 million) provision in relation to the Ofgem Statement of Objections which was recognised as a current liability in the prior year ended 31 March 2021 has been reclassed to a payable in the current period (note 14). On 23 November 2021, Ofgem published a ‘Notice of Decision to Accept Binding Commitments’, regarding voluntary commitments proposed by PayPoint to Ofgem to address the concerns raised in Ofgem’s Statement of Objections received on 29 September 2020. Ofgem has now accepted those commitments as a resolution of its concerns. PayPoint will now implement the commitments with all relevant stakeholders in a timetable agreed with Ofgem.
19. Fair value of financial assets and liabilitiesThe Directors consider there to be no material difference between the book value and the fair value of the Group’s financial instruments at 30 September 2021, 30 September 2020 and 31 March 2021.20. Notes to the condensed consolidated statement of cash flows
Items in the course of collection and settlement payables are included in this reconciliation on a net basis through the clients’ funds and retailer partners’ deposits line. The Directors have included these items on a net basis to best reflect the operating cash flows of the business.
21. Related partiesSnappy Shopper is a related party as an associate of PayPoint plc. In the period since the investment in the associate was made, related party transactions consisted of £3k revenue, with £3k of outstanding balances (accrued income) at 30 September 2021.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board considers these to be the most significant risks and uncertainties faced by the Group.
StrategyRisks are assessed through PayPoint’s risk management and internal control framework which are designed to identify and manage risk.
Processes apply throughout the Group and are designed to manage rather than eliminate risk. The Board is responsible for overseeing the risk management process and approves levels of acceptable risk. The Board is also responsible for maintaining an appropriate control environment to manage risk effectively. The Audit Committee supports the Board in reviewing the effectiveness of risk management and internal controls to the Audit Committee. The risk management and internal control frameworks aim to provide assurance and confidence to stakeholders about PayPoint’s ability to deliver its objectives and manage risks.
Risk appetitePayPoint’s risk appetite is set by the Board with the goal of aligning the level of risk considered appropriate to achieving strategic objectives, increasing financial returns and adhering with statutory requirements. The Board and the Chief Executive have key roles in implementing the risk appetite through PayPoint’s policies and procedures, delegated authorities and internal controls. Risk appetite is embedded in all core processes across the Group.
Risk identification and managementThe risk management process assesses strategic and operational risk across all areas of the business and functional risk registers are maintained which form an important component of our governance framework. Risks are identified by senior management and Executive Board members for each functional area and discussed with The Head of Risk and Internal Audit. Risks identified are documented in functional risk registers which contain a risk description, assessment of materiality, probability, mitigating controls, residual risk and risk owners.
In addition to bottom-up functional risk identification, the risk framework also encompasses top-down assessment processes and horizon scanning to identify emerging risks trends and technologies as well as identifying and preparing for new legislation and regulation. At least annually, risks are assessed and agreed with Executive Board members and form the basis of principal and emerging risks. The Audit Committee receives and reviews information on the risk framework and principal and emerging risks and advises the Board on risks.
The table below sets out our principal risks and emerging risks, the potential impact, mitigation strategies, status and their movement during the year. They do not comprise all risks faced by the Group and are not set out in order of priority.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
(a) the set of interim financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as contained in UK-adopted IFRS;(b) the half yearly financial report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first half and description of principal risks and uncertainties for the remaining half of the year); and(c) the half yearly financial report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties’ transactions and changes therein).
INDEPENDENT REVIEW REPORT TO PAYPOINT PLC
Conclusion
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2021 which comprises the condensed consolidated statement of profit or loss, condensed consolidated statement of comprehensive income, condensed consolidated statement of financial position, condensed consolidated statement of changes in equity, condensed consolidated statement of cash flows and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2021 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK and the Disclosure Guidance and Transparency Rules (“the DTR”) of the UK’s Financial Conduct Authority (“the UK FCA”).
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Directors’ responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
The latest annual financial statements of the group were prepared in accordance with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and the next annual financial statements will be prepared in accordance with UK-adopted international accounting standards. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted for use in the UK.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.
James Traceyfor and on behalf of KPMG LLP Chartered Accountants 15 Canada SquareCanary WharfLondonE14 5GL
24 November 2021
ABOUT PAYPOINT GROUP
For tens of thousands of businesses and millions of consumers, we deliver innovative technology and services that make life a little easier.
The PayPoint Group serves a diverse range of organisations, from SME and convenience retailer partners, to local authorities, multinational service providers and e-commerce brands. Our products are split across three core business divisions:
Together, these solutions enable the PayPoint Group to create long-term value for all stakeholders, including customers,communities and the world we live in.
DIRECTORS & KEY CONTACTS
1 Net revenue is an alternative performance measure. Refer to note 1 to the interim report for a reconciliation to revenue2 Profit before tax from continuing operations excluding exceptional items excludes the £30.0 million profit before tax from the discontinued operation and £2.9m revaluation gain of the i-movo deferred, contingent consideration liability 3 Total costs is an alternative performance measure as explained in note 1 to the interim report, and excludes exceptional costs/income. A reconciliation is included in the Financial Review on page 144 Net corporate debt (excluding IFRS 16 liabilities) is an alternative performance measure. Refer to note 1 to the interim report for a reconciliation to cash and cash equivalents5 Operating margin before exceptional items % is an alternative performance measure as explained in note 1 to the interim report and is calculated by dividing operating profit before exceptional items from continuing operations by net revenue from continuing operations6 Cash generation is an alternative performance measure. Refer to the Financial review on page 15 – cash flow and liquidity for a reconciliation from profit before tax7 Lumina Intelligence Convenience Market Report July 20218 PayPoint Consumer Research March 2021, 2k respondents, UK consumers9 PayPoint One Basket Data – April 2019 – September 202110 ACS Local Shop Report 202111 Lumina Intelligence Convenience Market Report July 202112 https://www.ukfinance.org.uk/system/files/Summary-UK-Payment-Markets-2018.pdf13 https://www.ukfinance.org.uk/sites/default/files/uploads/SUMMARY-UK-Payment-Markets-2021-FINAL.pdf14 https://www.fsb.org.uk/uk-small-business-statistics.html15 https://www.gov.uk/government/statistics/business-population-estimates-202116 https://www.link.co.uk/media/1729/monthly-report-mar-21-final.pdf17 IMRG Consumer Home Delivery Review 2020-2118 Metapack E-Commerce Delivery Benchmark Report 202119 https://www.imrg.org/uploads/media/default/0001/08/2477f50ad2fee946cdf5ed23ebb8df21f2489d09.pdf?st.20 OC&C analysis.21 https://www.ofgem.gov.uk/energy-policy-and-regulation/policy-and-regulatory-programmes/default-tariff-cap#:~:text=The%20Prepayment%20Meter%20Price%20Cap%20came%20into%20force,Price%20Cap%20expires%20at%20the%20end%20of%20202022 https://www.ofgem.gov.uk/data-portal/retail-market-indicators23 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1013006/Q2_2021_Smart_Meters_Statistics_Report.pdf24 https://www.ofcom.org.uk/data/assets/pdf_file/0023/222593/telecoms-data-update-q1-2021-.pdf25 Net revenue is an alternative performance measure. Refer to note 1 to the interim report for a reconciliation to revenue.26 Total costs is an alternative performance measure as explained in note 1 to the interim report, and excludes £16.1 million exceptional costs in the prior year. A reconciliation is included in the Financial review on page 1427 Profit before tax from continuing operations excluding exceptional items excludes the £30.0 million profit before tax from the discontinued operation and £2.9m revaluation gain of the i-movo deferred, contingent consideration liability28 Cash generation is an alternative performance measure. Refer to the Financial review – cash flow and liquidity on page 15 for a reconciliation from profit before tax.29 Net corporate debt (excluding IFRS 16 liabilities) is an alternative performance measure. Refer to note 1 to the interim report for a reconciliation to cash and cash equivalents.30 PayPoint One has replaced the legacy terminal in independent retailer partners. 31 PPoS is a plug-in device and a virtual PayPoint terminal used on larger retailer partners’ own EPoS systems who wish to use PayPoint services.32 Operating margin before exceptional items % is an alternative performance measure as explained in note 1 to the interim report and is calculated by dividing operating profit before exceptional items from continuing operations by net revenue from continuing operations.33 Effective tax rate is the tax cost as a percentage of profit before tax.34 Cash generation is an alternative performance measure which reflects earnings before tax, depreciation, amortisation and exceptional items adjusted for working capital (excluding movement in clients’ funds and retailers’ deposits). Refer to the Financial review – cash flow and liquidity for a reconciliation from profit before tax..
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