PayPoint PlcResults for the half year ended 30 September 2022
Positive half year for the PayPoint Group in line with expectations, with strong contribution from acquisitions
FINANCIAL HIGHLIGHTS
Nick Wiles, Chief Executive of PayPoint Plc, said:
“This has been a positive half year for the PayPoint Group where we have continued to build momentum across the business and remain confident in delivering further progress in the current year. The acquisitions made over the past two years have made a strong contribution to the results delivered across all three of our business divisions, whilst our continued focus remains on the delivery of our strategic priorities, a strong operational performance and maintaining a tight control of our cost base.
Strategically, we were particularly delighted to announce the proposed acquisition of Appreciate Group earlier this month, one of the UK’s leading financial services businesses specialising in gifting, prepayment, corporate engagement and incentivisation solutions. Appreciate Group has a well-established technology platform, more than 400,000 customers, a network of popular brand partners, and significant headroom for growth across the large and growing UK gift card and voucher market, which is valued in excess of £8 billion per annum. The acquisition is expected to be immediately earnings enhancing in FY24 and will deliver attractive returns for shareholders, with the enlarged Group targeting further growth in three broad areas: prepayment saving through Park Christmas Savings to support customers with budgeting tools for Christmas and other events; an enlarged full-service offering for gifting, employee rewards and benefits to Appreciate Group’s corporate clients; and an extended consumer gifting network for the Love2shop brand.
In Shopping, we have made further progress in improving engagement with our retailer partners and key trade associations as we enhance our proposition, with the further rollout of a number of key initiatives including Counter Cash, FMCG campaigns, a strengthened card proposition and a strong performance in Business Finance via YouLend, supporting our retailer and SME partners during the current economic challenges. Our sales momentum across the Group has built considerably over the half year across both Handepay and PayPoint, particularly in our Card services business, supported by our most competitive and attractive proposition ever and allied with a more detailed focus on customer retention, leveraging AI and data analytics.
In E-commerce, our year on year performance has been excellent, with a number of weeks reaching over 1 million parcel transactions, driven by our strength in clothing/fashion categories, the continued expansion of new services with carrier partners, including Amazon and Wish.com, and the in-store experience investment made in Zebra label printers over the past 18 months. We were also pleased to support Royal Mail business customers in 1,455 sites in September and October to keep mail moving during the recent industrial action.
In Payments and Banking, we continue to diversify our digital payments client base and strengthen our channel-agnostic payment platform as we expand the range of digital solutions we can deliver to support our clients across multiple sectors, including government, local authorities and housing associations. Our Cash Out service and the DWP Payment Exception Service, delivered via i-movo, continue to perform strongly, with over 4.5 million vouchers issued in the half year, and is an important disbursement channel for government support initiatives to financially vulnerable people across the UK, such as council tax rebates and the Energy Bills Support Scheme. Our partnership and previously announced investment in OBConnect has already yielded positive results, with 6 clients contracted for our new Open Banking services to help deliver cost of living support payments, working closely with Pay.UK and the Payments System Regulator, and a recent expansion of our authorisation opening up further opportunities in the second half.
In a challenging and unpredictable economic environment, the transformation of our business continues, reflecting a rebalancing towards growth opportunities and delivering improving returns to shareholders. In addition to the progress made in the first half, we have again demonstrated the role our retailer network plays in supporting their communities and providing a range of services vital to combatting the current Cost of Living crisis.
Against this uncertain market background, our compelling characteristics of strong cash flow, resilient earnings and growth mean we remain confident of the progress we are making in the transformation of our business and delivering expectations for the year”
DIVISIONAL HIGHLIGHTS
Strong performance across the Group with net revenue increases across all three divisions
Shopping
Shopping divisional net revenue increased by 3.2% to £30.8 million (H1 FY22: £29.8 million), driven by the growth of our PayPoint One estate, the annual RPI increase and further enhancements to our retailer and SME propositions, including the launch of the new Android terminal in the Handepay cards business and the continued rollout of Counter Cash.
E-commerce
E-commerce divisional net revenue increased strongly by 45.7% to £3.0 million (H1 FY22: £2.1 million) and transactions grew by 60.6% to 23.0 million (H1 FY22: 14.3 million) through our e-commerce technology platform, Collect+. This was driven by excellent volumes, including a number of weeks reaching over 1 million parcels processed, driven by our strength in clothing/fashion categories, the continued expansion of new services with carrier partners and the in-store experience investments made in Zebra label printers over the past 18 months.
Payments & Banking
Payments & Banking divisional net revenue increased by 6.1% to £25.7 million (H1 FY22: £24.2 million), driven by a strong performance in the energy sector and continued growth in digital transactions, partially offset by a reduction in cash through to digital volumes as consumer behaviour has continued to reset post Covid-19.
BUSINESS DIVISION NET REVENUE AND MIX
A presentation for analysts is being held at 9.30am today (24 November 2022) via webcast. This announcement, along with details for the webcast, is available on the PayPoint plc website: corporate.paypoint.comCHIEF EXECUTIVE’S REVIEW
This has been another positive half year for the PayPoint Group where we have continued to build on the strong momentum across the Group and remain confident in delivering further progress in the current year. Our focus remains on the delivery of our strategic priorities and a strong operational performance, while maintaining a tight control of our cost base. The transformation of the business continues apace, creating a significantly enhanced platform to drive strong shareholder returns and delivering a broader range of innovative services and technology connecting millions of consumers with our universe of over 60,000 retailer partner and SME locations across multiple sectors.
We have delivered a positive financial performance for the half year against the backdrop of continued macro-economic uncertainty. The acquisitions of i-movo, Handepay/Merchant Rentals, RSM 2000 and Collect+ have made a strong contribution to these results and the positive net revenue increases seen across all three of our business divisions.
The proposed acquisition of Appreciate Group complements our digital payments offering in the Payments & Banking division and further enhances our retailer partner proposition in the Shopping division: Appreciate Business Services adds capability and opens up further growth opportunities, including the roll out of B2B and B2C corporate gifting and rewards solutions across our extensive client base, as well as the reciprocal opportunity to cross-sell our digital payments solutions into the Appreciate Group client base; within the Shopping division, Park Christmas Savings enables the further enhancement of our expanded retailer partner proposition and provides support to anticipated consumer budgeting behaviour through the current cost of living crisis. Specifically, the acquisition provides Appreciate Group with a third distribution channel, establishing PayPoint retailer partners as agents, and expanding the geographical reach of the existing proposition.
Furthermore, we have also added further capability to our Payments and Banking division with the previously announced investment in OBConnect, our Open Banking partner, enhancing PayPoint’s digital payments offering by adding Open Banking services, offering payments and account information services directly to our customers, and has played a critical role in supporting large consumer organisations and local authorities in distributing cost of living support payments. This investment is opening up additional growth opportunities within our Payments and Banking division, particularly with the recent expansion of our authorisation for these services, and strengthens our position as the pre-eminent channel agnostic payments platform giving clients and consumers choice.
We have been relentlessly focused on operational excellence and the rapid delivery of our strategic priorities: 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.
In Shopping, our retailer partner and SME propositions have been enhanced further to help respond to consumer trends and drive revenue opportunities in a challenging cost environment: our new Counter Cash solution is now live in 4,563 sites, providing vital access to cash in communities across the UK, with over £22.8 million withdrawn since launch in November 2021; in Handepay, a new Android terminal was launched with positive merchant feedback, supported by one month contracts and next day settlement delivered in the last financial year; and in PayPoint, improved cards pricing and next day settlement were launched for new and existing merchants. Over the half year, our sales efforts across Handepay and PayPoint have sharpened with a proactive and systematic approach to targeting prospects, equipping our people with better data, AI tools and analytics to have quality conversations with retailer partners/SMEs and a stronger focus on retention and yielding improved conversion rates. We continue to monitor very closely the performance of merchants across different sectors to understand underlying consumer spending trends and to anticipate future changes in consumer behaviour. This analysis is showing both the resilience in a number of our important sector cohorts, including grocery, as well as weakness in bigger ticket areas, such as building supplies, where today we are under-represented. We have also continued to deepen our engagement with retailers and key trade associations to work in partnership to make the most of the new opportunities, yielding positive improvements in our retailer partner Net Promoter Score. The strong performance of Business Finance via YouLend across both PayPoint and Handepay was particularly pleasing, supporting our retailer and SME partners during the current economic challenges, with the lending proposition now expanded with our Funding Circle partnership launched in October 2022. On 13 October 2022, we sold our investment in Snappy Shopper for £5.5 million, with our well-established commercial partnership continuing, offering a home delivery platform to PayPoint retailer partners.
In E-commerce, our year on year performance has been excellent, driven by our strength in the clothing and fashion categories, the continued expansion of new services with carrier partners, including Amazon and Wish.com, and the in-store experience from investment made in Zebra label printers over the past 18 months. We were also pleased to support Royal Mail business customers in 1,455 sites in September and October to keep mail moving during the recent industrial action.
In Payments and Banking, we continue to diversify our digital payments client base and strengthen our channel-agnostic payment platform as we expand the range of digital solutions we can deliver to support our clients across multiple sectors, including government, local authorities and housing associations. Our Cash Out service and the DWP Payment Exception Service, delivered via i-movo, continue to perform strongly, with over 4.5 million vouchers issued in the half year, and is an important disbursement channel for government support initiatives to financially vulnerable people across the UK, such as council tax rebates and the Energy Bills Support Scheme. All of these efforts have been underpinned with greater engagement with key senior stakeholders across the sectors we operate in, including Ofgem, UK Finance, Pay.UK and the Department for Business, Energy and Industrial Strategy.
The need to grow further consumer awareness for our expanded propositions and services remains, whether leveraging our own channels or partnering with clients and carriers on marketing programmes, such as the in-store merchandising on our digital voucher category working with brands like Amazon, Paysafe, Playstation and Love2shop, which has now rolled out to over 9,000 stores ahead of the key Christmas trading period. Equally, we are well aware of the critical role that we and our retailer partners play delivering vital community services across the UK and we remain focused on ensuring that we continue to deliver an excellent service for our consumers, reflected in our high customer satisfaction score of 89%6, and to support them through the current energy crisis and economic challenges.
We have continued our extensive efforts to strengthen our retailer partner relationships and drive adoption of these new opportunities to earn, including regular face to face store visits and ‘cash and carry’ days, new retailer forums, more direct communications and our strengthened relationships with the key trade associations, including the Association of Convenience Stores (ACS), the Scottish Grocers’ Federation (SGF) and the National Federation of Retail Newsagents (NFRN). The feedback and support received from these organisations has been critical to our continued commitment to support our retailer partners in delivering vital community services across the UK and responding to changing consumer needs in the UK convenience sector.
Like many businesses, we are navigating more challenges from a cost perspective due to inflation, particularly in our supplier base and the increased salary pressures experienced in recruiting and retaining talent that we referenced in our full year results in May 2022. We are also mindful of the impact of these pressures on the consumers, clients and retailers that we serve and have sought to take action where we can to support them. As a business, we are continuing our tight cost management and capital discipline to address these challenges.
Our Environment, Social and Governance (ESG) strategy has also developed further in the year, as we consider our social responsibility and impact as a management team and business towards each of these key areas. In July 2022, we fulfilled our commitment to ensure all employees are paid a minimum of the Real Living Wage and Electric Vehicle charging points have now been installed at our head office, supporting the use of electric vehicles by our employees and visitors. An inaugural Pride Month programme was launched in June 2022, as part of our ‘Welcoming Everyone’ activities, providing educational content, further meetings of our LGBTQ+ network and events to bring colleagues together, building on our commitments to diversity, equity and inclusion and supporting our vision to create a dynamic place to work. We have also recently partnered with Citizens Advice and Advice Scotland to support important Cost of Living targeted consumer campaigns across our network, via receipt advertising, social media and retailer communications.
Outlook and dividend
In a challenging and unpredictable economic environment, the transformation of our business continues, reflecting a rebalancing towards growth opportunities and delivering improving returns to shareholders. In addition to the progress made in the first half, we have again demonstrated the role our retailer network plays in supporting their communities and providing a range of services vital to combatting the current Cost of Living crisis, including the Energy Bills Support Scheme which is being delivered in the second half. As the seasonal balance in our business returns post the impact of Covid-19, in the current financial year we expect a return to our more usual H2 weighted performance and its contribution to the year as a whole.
The Board has proposed an ordinary interim dividend of 18.4p per share, an increase of 2.2% vs the final dividend declared on 26 May 2022 of 18.0 pence per share and an increase of 8.2% vs the interim dividend declared on 25 November 2021 of 17.0p pence per share, consistent with our dividend policy of a target cover range of 1.2 to 1.5 times earnings from continuing operations excluding exceptional items, which reflects our long-term confidence in the business, the strength of our underlying cash flow, the mitigation plans in place for inflationary pressures and the enhanced growth prospects from the steps we have taken in the half year.
Against an uncertain market background in the second half, our compelling characteristics of strong cash flow, resilient earnings and growth mean we remain confident of the progress we are making in the transformation of our business and delivering expectations for the year.
Nick WilesChief Executive 23 November 2022
MARKET OVERVIEW
The current economic climate whilst challenging is creating opportunities for PayPoint Group. With recent acquisitions and investments, PayPoint is well positioned to capitalise on the continued shift from cash to digital payments, the growing demand for online shopping fulfilment, and the rise in local shopping. We remain equally committed to assisting our clients, retail partners, and consumers in resolving issues resulting from the current macroeconomic challenges.
Key trends and changes since the end of FY22 in the UK markets in which PayPoint operates include:
Macro economic factors
Convenience retail
Card payments
Cash Out
Parcels
Bill payments and top-ups
PROGRESS AGAINST OUR STRATEGIC PRIORITIES
SHOPPING BUSINESS DIVISION – H1 FY23 net revenue £30.8m (H1 FY22: £29.8m)PRIORITY 1: EMBED PAYPOINT GROUP AT THE HEART OF SME AND CONVENIENCE RETAIL BUSINESSES
H1 FY23 Progress
E-COMMERCE BUSINESS DIVISION – H1 FY23 net revenue £3.0m (H1 FY22: £2.1m)
PRIORITY 2: BECOME THE DEFINITIVE TECHNOLOGY-BASED E-COMMERCE DELIVERY PLATFORM FOR FIRST AND LAST MILE CUSTOMER JOURNEYS
PAYMENTS & BANKING BUSINESS DIVISION – H1 FY23 net revenue £25.7m (H1 FY22: £24.2m)
PRIORITY 3: SUSTAIN LEADERSHIP IN ‘PAY-AS-YOU-GO’ AND GROW DIGITAL BILL PAYMENTS
PRIORITY 4: BUILDING A DELIVERY FOCUSED ORGANISATION AND CULTURE
PAYPOINT GROUP
FINANCIAL REVIEW
OVERVIEW OF CONTINUING OPERATIONS
Profit before tax from continuing operations of £21.0 million (September 2021: £25.0 million) decreased by £4.0 million (15.9%). The current year reflects exceptional costs in relation to the disposal of our investment in Snappy Shopper of £1.2 million and £0.3 million of costs incurred to date in relation to the acquisition of Appreciate Group, whilst the prior year reflected exceptional income of £2.9 million relating to the change in fair value of the deferred contingent consideration for the i-movo acquisition.
The profit before tax from continuing operations excluding exceptional items, the underlying profit, increased by £0.4 million (2.1%) to £22.5 million (September 2021: £22.1 million). The September 2022 result includes a one-off provision of £0.7 million for the outstanding funds due from McColl’s with a claim being progressed with the administrator. Excluding the one-off provision the profit before tax from continuing operations excluding exceptional items increased by 5% or £1.1 million to £23.2 million (September 2021: £22.1 million).
Revenue from continuing operations increased by £5.2 million (7.4%) to £75.4 million (2021: £70.2 million). Net revenue from continuing operations increased by £3.4 million (6.0%) to £59.5 million (September 2021: £56.1 million). There has been steady growth in Shopping through service fees from additional sites whilst cards revenues were flat. The excellent 45.7% growth in e-commerce net revenue was driven by increased volumes benefiting from the investment in thermal printers and reflecting our strength in supporting clothing/fashion categories. Payments & Banking net revenue increased by 6.1% driven by the increase in digital transactions from the DWP Payment Exception Service and our other Cash Out services, delivered via i-movo.
Shopping net revenue increased by £1.0 million (3.2%) to £30.8 million (September 2021: £29.8 million). Service fees net revenue increased by £0.7 million (9.2%) driven by additional PayPoint One sites and implementing an annual RPI increase. ATM and Counter Cash net revenue decreased by 3.2% due to the reduction in transactions driven by the continuing trend of reduced demand for cash across the economy although Counter Cash continues to grow. Handepay/Merchant Rentals net revenue remained flat at £9.8 million (0.1%) as Handepay business slightly reduced to £2.28 billion in the half year (September 2021: £2.29 billion) although offset by an increase in Merchant Rentals net revenue as the new one month product continues to grow in the estate. PayPoint and RSM card payments net revenue decreased by £0.1 million (1.7%) with business slightly increased to £1.37 billion (September 2021: £1.36 billion).
E-commerce net revenue grew strongly by £0.9 million (45.7%) to £3.0 million (September 2021: £2.1 million) with total transactions increasing by 60.6%. This was driven by excellent volumes, including a number of weeks reaching over one million transactions, driven by the in-store experience from investment made in Zebra label printers, the continued expansion of new services with carrier partners and our strength in supporting clothing/fashion categories.
Payments & Banking net revenue increased by £1.5 million (6.1%) to £25.7 million (September 2021: £24.2 million). Cash bill payments net revenue only decreased by £0.1 million (0.6%) to £12.3 million, changing from the much larger decrease trends seen in recent years. This arose from a strong energy sector net revenue performance increasing by 8.1% year on year, offset by lower transactions in other sectors. Cash top-ups net revenue decreased by £0.3 million (7.0%) to £3.7 million with volumes down 13.3% driven by the continuing structural declines in the prepaid mobile sector. Digital net revenue increased by £2.9 million (95.5%) to £5.9 million driven by the DWP Payment Exception Service launched via the i-movo acquisition contributing an additional £2.0m of net revenue. MultiPay net revenue increased by £0.5 million to £1.9 million (September 2021: £1.4 million) and transactions increased 48.1% as a result of more clients taking the digital services and contribution from the new functionalities of Direct Debit although at a lower net revenue per transaction. Cash through to digital net revenue decreased by 21.2% to £3.4 million (September 2021: £4.3 million) and transactions decreased by 25.6% to 4.3 million (September 2021: 5.8 million), due to the resetting of consumer behaviour following the peaks experienced during Covid-19.
Total costs from continuing operations excluding exceptional costs increased by £3.0 million to £37.0 million (September 2021: £34.0 million). The increase in costs was mainly from a £1.6m higher cost of revenue following growth in certain revenue sectors which attract transactional costs and costs to sell. The result includes a one-off provision of £0.7 million for outstanding funds due from McColls with a claim for full recovery being progressed with the administrator. Prior year costs have been restated and reduced by £0.2 million by the retrospective application of the change in accounting policy on intangible assets following the April 2021 IFRIC agenda decision on costs incurred in implementing cloud computing SaaS arrangements.
Reconciliation from profit before tax from continuing operations to underlying profit before tax from continuing operations
The current year exceptional costs of £1.2 million are in relation to the impairment of the value of our investment in Snappy Shopper Ltd which was sold in October 2022 and £0.3 million of costs incurred to date in relation to the proposed acquisition of Appreciate Group whilst the prior year reflected exceptional income of £2.9 million which is as a result of the change in fair value of the deferred contingent consideration relating to the i-movo acquisition.
Cash generation from continuing operations excluding exceptional items improved to £28.3 million (September 2021: £21.8 million), delivered from profit before tax excluding exceptional items of £22.5 million (September 2021: £22.1 million). There was a net working capital inflow of £0.8 million, primarily as a result of the net investment in finance leases reducing as more terminal leasing merchants move onto the new one month deal.
Net corporate debt increased by £2.9 million to £39.4 million (September 2021: £36.5 million), although decreased by £4.5 million from the year end position following improved cash generation partially offset by investment in OBConnect, purchase of card terminals and increased dividend requirements. At 30 September 2022 loans and borrowings were £43.2 million (September 2021: £43.7 million, March 2022: £51.5)
SECTOR ANALYSIS
SHOPPING
Shopping consists of services PayPoint provides to retailer partners, which form part of PayPoint’s network, and SME partners. Services include providing the PayPoint One platform (which has a basic till application), EPoS, card payments, ATMs, Counter Cash and terminal leasing.
Net revenue increased by £1.0 million (3.2%) to £30.8 million (September 2021: £29.8 million) primarily due to the increase in service fees.
As at 30 September 2022, PayPoint had a live terminal in 28,395 UK sites, an increase of 0.9% primarily as a result of new sales. PayPoint One sites increased by 2.6% to 18,996 sites due to new sales and the continued migration from the legacy T2 terminal.
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 £0.7 million (9.2%) to £8.9 million driven by the additional 339 PayPoint One revenue generating sites compared to September 2021 and the annual RPI increase. PayPoint did not apply the full RPI increase to help support our Retailer Partners in these times of considerable increases in costs.
The PayPoint One average weekly service fee per site increased by 5.9% to £17.7, benefiting from the increase in EPoS Core sites which are charged at a higher rate than Base and the annual RPI increase. Retailers taking the Core version of the product represent 53.8% (September 2021: 49.1%) of all PayPoint One sites and the Pro version represent 5.2% (September 2021: 6.4%). Legacy terminals now just remain in a few of our multiple retailer partners but are being replaced.
Card payments: Handepay and Merchant Rentals generated £9.8 million net revenue in the six months to September 2022 which is in line with the comparable period. Handepay card payments transactions increased by 8.3% to 78.0 million, maintaining strong transaction volumes seen in FY21 but at a lower average transaction value of £29.2 (September 2021: £31.7). There were 22,065 Handepay card payments sites, a decrease of 731 sites (3.2%) since 31 March 2022. Handepay sales increased in the half year supported by the one month proposition but sites have been impacted by higher churn, particularly in our Worldpay back book in this very competitive market. In the second half new sales will benefit from the new Android terminal and retention focus is being enhanced.
PayPoint card payments transactions increased by 5.3% to 118.5 million although net revenue decreased by 4.3% to £5.5 million, maintaining strong transaction volumes seen in FY21 but at a lower average transaction value of £10.6 (September 2021: £11.3). Across our network there were 9,514 PayPoint card payments sites, a decrease of 152 sites (1.6%) since 31 March 2022. Next day settlement is now live across PayPoint and there is an increased focus on customer retention driven by AI and data analytics.
ATMs and Counter Cash: Net revenue reduced by £0.2m (3.2%) to £4.8 million (September 2021: £5.0 million) as transactions reduced by 0.5% to 15.5 million. This is attributable to the continued reduced demand for cash across the economy although our new product Counter Cash continues to grow. ATM and Counter Cash sites increased 110.6% to 8,060 mainly as a result of the continued roll out of Counter Cash sites and PayPoint continued to optimise its ATM network by relocating existing machines to better performing locations. Our recent Counter Cash functionality continues to be rolled out and contributed 5% of transactions.
Other: Other shopping services increased by £0.6 million (62.8%) to £1.2 million (September 2021: £0.6 million) this includes the partnership with Snappy Shopper and FMCG campaigns.
E-COMMERCE
E-commerce net revenue increased by £0.9 million (45.7%) to £3.0 million due to the increase in total parcels transactions by 60.6% to 23.0 million. This was driven by excellent volumes, including a number of weeks reaching over one million parcels processed, driven by the continued expansion of new services with carrier partners, the in-store experience from investments made in Zebra label printers over the past 18 months and reflecting our strength in supporting clothing/fashion categories. Net revenue did not increase as much as transactions due to the mix of transactions with parcel returns having a lower transaction rate.
PAYMENTS & BANKING
Payments & Banking divisional net revenue increased by 6.1% to £25.7 million, as a result of continued growth in digital payment transactions, in particular the DWP Payment Exception Service, partially offset by fewer cash through to digital transactions.
Cash - bill payments net revenue only decreased by £0.1 million (0.6%) to £12.3 million changing from the much larger decrease trends seen in recent years. This is primarily as a result of strong energy sector net revenue performance increasing by 8.1% year on year, partially offset by the consumers move to digital payment methods. The increase in Energy Price Cap has seen customers topping up more frequently and with increased average transaction values.
Cash - top-ups net revenue decreased by £0.2 million (7.0%) to £3.7 million. Cash top-ups transactions decreased by 1.5 million (13.3%) to 9.7 million due to further market declines in the prepaid mobile sector, whereby UK direct debit pay monthly options displace UK prepay mobile.
Digital (MultiPay, Cash Out and RSM 2000) net revenue increased by £2.9 million (87.1%) to £5.9 million and digital transactions increased by 10.0 million (74.6%) to 23.5 million driven by the DWP Payment Exception Service via the i-movo acquisition contributing an additional £2.0m of net revenue. MultiPay net revenue increased by £0.5 million to £1.9 million (September 2021: £1.4 million) this was due to increased volumes by 5.3 million transactions (48.1%) to 16.2 million. Net revenue per transaction has increased due to the cash out transactions.
Cash through to digital (eMoney) net revenue decreased by £0.9 million (21.2%) to £3.4 million (September 2021: £4.3 million) and transactions decreased by 1.5 million (25.6%) to 4.3 million (September 2021: 5.8 million) due to the continued resetting of consumer behaviour following the peaks experienced during Covid-19
Other payments & banking net revenue includes SIM sales and other ad-hoc items which contributed £1.0 million (September 2021: £1.2 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 £3.0 million (8.8%) to £37.0 million. The increase in costs was primarily driven by higher transactional, acquisition and depreciation costs incurred to support the growth in revenue in digital transations and Handepay & Merchant Rentals cards which are key growing revenue streams. The result includes a one-off provision of £0.7 million for outstanding funds due from McColls with a claim for full recovery being progressed with the administrator.
Prior year costs have been restated and reduced by £0.2 million by the retrospective application of the change in accounting policy on intangible assets following the April 2021 IFRIC agenda decision on costs incurred in implementing cloud computing SaaS arrangements. This is the net impact of reversing amortisation of previously capitalised intangible assets and expensing rather than capitalising SaaS type expenditure in the year.
OPERATING MARGIN BEFORE EXCEPTIONAL ITEMS42
Operating margin from continuing operations before exceptional items of 39.7% (September 2021: 41.2%) decreased by 1.5 ppts due to higher transactional, acquisition and depreciation costs incurred to support the growth in revenue, combined with a one-off provision of £0.7 million for outstanding funds due from McColls with a claim for full recovery being progressed with the administrator.
PROFIT BEFORE TAX AND TAXATION
The tax charge for continuing operations of £3.9 million (September 2021: £4.6 million) on profit before tax from continuing operations of £21.0 million (September 2021: £25.0 million) represents an effective tax rate43 of 18.7% (September 2021: 18.3%). 0.4ppts higher than prior year due to a decrease in disallowable expenses associated with the prior year one-off acquisition and disposal costs.
GROUP STATEMENT OF FINANCIAL POSITION
Net assets of £88.4 million (September 2021: £74.3 million) increased by £14.1 million. Current assets increased by £13.6 million to £108.3 million (September 2021: £94.8 million) as a result of higher balances held for items in the course of collection. Non-current assets of £124.0 million (September 2021: £126.8 million) decreased by £2.8 million mainly due to the movement of the Snappy Shopper investment to assets held for sale partially offset by the investment in convertibile loan notes issued by OBConnect.
Current liabilities increased £8.9 million as a result of higher short term borrowing on the revolving credit facility with £26.0 million borrowed at 30 September 2022 (September 2021: £12.0 million). Non-current liabilities of £9.5 million (September 2021: £21.7 million) decreased mainly by the non-current portion of the 3 year term loan being paid down over time.
GROUP CASH FLOW AND LIQUIDITY
The following table summarises the cash flow movements during the year.
Cash generation from continuing operations increased to £28.3 million (September 2021: £22.1 million) delivered from profit before tax from continuing and discontinued operations of £21.0 million (September 2021: £55.0 million). There was a net working capital inflow of £0.8 million, primarily as a result of the net investment in finance leases reducing as more terminal leasing merchants move onto the new one month deal.
Taxation payments on account of £1.3 million (September 2021: £3.9 million) are lower compared to the prior period due to a £3.2 million refund received following the submission of the FY21 tax computatons . Dividend payments were higher compared to the prior period due to the increase in the interim and final ordinary dividend paid per share compared to the prior year ended 31 March 2022.
Capital expenditure of £6.0 million (September 2021: £3.7 million) was £2.3 million higher than the prior year. Capital expenditure primarily consists of IT hardware, PayPoint One terminals, hardware for terminal leasing and the enhancement to the Direct Debit platform. The increase in capital expenditure is primarily driven by the launch of Merchant Rentals one month deal since October 2021 with £1.6 million being invested in terminals in the six months to September 2022.
At 30 September 2022 net corporate debt was £39.4 million (September 2021: £36.5 million) and has increased by £2.9 million from the prior period end position although decreased by £4.5 million from the year end position following positive cash generation partially offset by tax, capital and dividend requirements. Total loans and borrowings of £43.2 million which have decreased by £0.5 million consisted of a £16.3 million amortising term loan, £26.0 million drawdown of the £75.0 million revolving credit facility and £0.9 million of asset financing balances (September 2021: £12.0 million drawdown from the revolving credit facility, £27.1 million amortising term loan and £4.6 million of asset financing balances).
DIVIDENDS
In the six months to 30 September 2022, total dividend payments of £12.4 million or 18.0 pence per share (September 2021: £11.4 million or 16.6 pence per share) were made, representing the final ordinary dividend for the year ended 31 March 2022. This is a 8.4% increase in the final dividend since last year.
We have declared an increased interim dividend of 18.4 pence per share (September 2021: 17.0 pence) payable in equal instalments of 9.2 pence per share on 30 December 2022 and 6 March 2023 (to shareholders on the register on 2 December 2022) and 6 March 2023 (to shareholders on the register on 3 February 2023). This is an increase of 2.2% compared to the final dividend declared on 25 May 2022 of 18.0 pence per share, and an increase of 8.2% compared to the same period last year (September 2021: 17.0 pence).
The final dividends will result in £12.7 million (September 2021: £11.4 million) being paid to shareholders from the standalone statement of financial position of the Company which, as at 30 September 2022, had approximately £62.7 million (September 2021: £79.9 million) of distributable reserves.
CAPITAL ALLOCATION
The Board’s priority is to continue to preserve PayPoint’s balance sheet strength. The Group maintains a capital structure appropriate for current and prospective trading over the medium term that allows a healthy mix of dividends and cash for investment through capital expenditure and acquisitions. The Board’s approach to the setting of the ordinary dividend has not materially changed since the prior year end and follows the following capital allocation priorities:
GOING CONCERN
The financial statements have been prepared on a going concern basis having regard to the identified principal risks and uncertainties. Our cash and borrowing capacity provides sufficient funds to meet the foreseeable needs of the Group including dividends.
Alan DaleFinance Director
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS
1The prior period comparatives have been restated for the retrospective application of the Group’s change in accounting policy on intangible assets. Refer to note 1 and note 18.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
1The prior period comparatives have been restated for the retrospective application of the Group’s change in accounting policy on intangible assets. Refer to note 1 and note 18. The prior period comparatives have also been restated for a retrospective measurement period adjustment to goodwill and inventories as set out in the Annual Report for the year ended 31 March 2022.
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 2022 are made up of the Company and its subsidiaries (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 2022 (‘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 44.
The information shown for the year ended 31 March 2022, which was prepared in accordance with UK-adopted international accounting standards (UK-adopted IFRS), 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 2022 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 23 November 2022.
Adoption of standards and policiesThe accounting policies applied by the Group in the interim financial statements for the period ended 30 September 2022 are consistent with those set out in the Group’s Annual Report for the year ended 31 March 2022, apart from the addition of the accounting policy for purchases of convertible loan notes as detailed below.
Prior to conversion, purchases of convertible loan notes are accounted for under IFRS 9 Financial Instruments and carried at fair value through other comprehensive income, so long as control has been assessed not to exist. PayPoint has taken the irrevocable election available under IFRS 9 to designate convertible loan notes as fair value through other comprehensive income. Purchased convertible loan notes are revalued at each reporting date. Fair value adjustments are recognised through the statement of other comprehensive income and are not subsequently transferred to profit or loss. The purchased convertible loan notes are classified as Level 3 in the fair value hierarchy as the valuation inputs are unobservable (not based on observable market data). The fair value of purchased loan notes are valued using a combination of income approaches (discounted cash flow technique) and market approaches (valuation multiples market approach technique).
Prior period restatement for implementation costs of cloud computing SaaS arrangements During the prior year ended 31 March 2022, the Group updated its accounting policy on intangible assets following the April 2021 International Financial Reporting Interpretations Committee (“IFRIC”) agenda decision on the configuration and customisation costs incurred in implementing cloud computing SaaS arrangements. The Group’s previously capitalised SaaS related costs primarily relate to the implementation costs for PayPoint’s cloud–hosted SaaS CRM platform.
Under the revised accounting policy, costs incurred in the configuration and customisation of cloud–hosted SaaS arrangements are now expensed where they do not give rise to an identifiable intangible asset which the Group controls. Amounts paid to the cloud vendor for configuration and customisation that are not distinct from access to the cloud software are expensed over the SaaS contract term. In limited circumstances, configuration and customisation costs may give rise to an identifiable intangible asset, for example, where code is created that is controlled by the Group. The revision to the accounting policy has been accounted for retrospectively, resulting in a prior period restatement for the six months ended 30 September 2021. The restatement for the full financial year ended 31 March 2021 was set out in the Group’s Annual Report for the year ended 31 March 2022. See note 18 for the impacts of the restatement.
The restatement represents a non-cash adjustment. The Group prior period comparatives have been restated to derecognise previously capitalised SaaS related costs for additions amounting to £0.3 million and amortisation on previously capitalised intangible assets of £0.5 million for the six months ended 30 September 2021 which no longer meet the criteria for recognition as an asset under IAS 38. The impact of the restatements has decreased the restated opening Group retained earnings at 1 April 2021 by £6.2 million, increased the Group’s profit for the six months ended 30 September 2021 by £0.2 million and decreased total Group assets on the prior period balance sheet by £6.0 million.
Going concern 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 2022, the Group had cash and cash equivalents of £20.4 million, consisting of £16.6 million corporate cash and £3.8 million clients’ funds and retailer partners’ deposits. On the 7 November 2022 a one-year extension of PayPoint plc financing facility was secured along with a new term loan of £36.0 million starting from completion of the acquisiton of Appreciate Group plc. The Group’s borrowing facilities currently consist of a £16.3 million amortising term loan which is due to be repaid in full by February 2024 and an unsecured £75.0 million revolving credit facility with a £30.0 million accordion facility (uncommitted) expiring in February 2026. At 30 September 2022, £26.0 million (31 March 2022: £27.0 million) was drawn down from the revolving credit facility. At 30 September 2022 the Group also had £0.9 million of block loan balances.
The Group has a strengthened statement of financial position, with net assets of £88.4 million as at 30 September 2022 (30 September 2021 restated: £74.3 million), having made a profit for the period of £17.0 million (30 September 2021 restated: £20.4 million from continuing operations) and delivered net cash flows from operating activities of £26.9 million for the period then ended (30 September 2021 restated: £7.8 million). The Group had net current liabilities of £25.1 million at 30 September 2022 (30 September 2021 restated: £30.8 million), which included the drawn down revolving credit facility balance of £26.0 million (31 March 2022: £27.0 million) classified as a current liability.
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 cash flows required for the recommended acquisition of Appreciate Group plc, 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.
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 2022. 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 are useful to shareholders in understanding the underlying operational performance in the period, facilitating comparison with prior periods and assessing trends in financial performance. They usually exclude the impact of one-off, non-recurring and exceptional items (exceptional items are disclosed in note 6).
Net revenue (non-IFRS measure)Net revenue is revenue less commissions paid to retailer partners and the cost of 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. A reconciliation from revenue to net revenue is included in note 4.
Effective tax rate (non-IFRS measure)Effective tax rate (note 7) is the tax charge 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 12. 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 5), 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 from continuing operations before exceptional items 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:
Net corporate debt (non-IFRS measure)Net corporate debt represents corporate cash (cash and cash equivalents), less amounts borrowed under financing facilities (excluding IFRS 16 liabilities).
The reconciliation of cash and cash equivalents to net corporate debt is as follows:
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) the existence of a binding agreement clearly identifying the beneficiary of the funds(b) the identification of funds, ability to allocate and separability of funds(c) the identification of the holder of those funds at any point in time(d) whether PayPoint bears the credit risk
The Group evaluated the April 2022 IFRIC agenda decision on demand deposits with restrictions on use arising from a contract with a third party and concluded that it did not have any impact on the Group’s existing accounting policy for cash and cash equivalents. 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. Corporate cash and clients’ funds and retailer partners’ deposits are presented as separate line items within cash and cash equivalents on the statement of financial position.
Critical estimate: Valuation of goodwill relating to the Group’s cash generating unitsThe £35.6 million carrying value of goodwill which arose on the acquisition of Handepay Limited was a critical estimate at 30 September 2022. This goodwill was entirely allocated to the Handepay CGU at the 30 September 2022 reporting date, on the basis of independently managed cash flows. The Group tests goodwill for impairment annually and more frequently if there are indicators of impairment. The Handepay CGU was tested for impairment at the 30 September 2022 reporting date.
The recoverable amount of the Handepay CGU was measured at its value-in-use (VIU) by discounting the future expected cash flows to be generated by the assets in the CGU. A five-year cash flow forecast was derived from the most recent three-year financial forecasts approved by the Board which were extrapolated for a further two years using appropriate assumptions and subsequently extended to perpetuity. The key sources of estimation in calculating the VIU for the Handepay CGU were:• The impact of revenue growth prospects on the cash flow forecasts, which were determined using an estimate of future results based on the latest business forecasts and appropriately reflected expected performance of the CGU• The terminal value which was based on a long-term growth rate of 2%, appropriately reflecting the expected long-term rate of GDP growth in the UK• The pre-tax risk adjusted discount rate used to discount the forecast cash flows, which was calculated by reference to the weighted average cost of capital (‘WACC’).
The Handepay CGU generated a VIU in excess of its carrying value. Sensitivity analysis was applied to determine the impacts of reasonably possible changes in the assumptions used for the VIU calculation. Sensitivity analysis demonstrated that no reasonably possible change in any of the above assumptions caused the carrying value of the CGU to materially exceed its recoverable amount.
Prior year critical estimatesThe initial recognition at fair value of acquired intangible assets and goodwill arising on the acquisition of RSM 2000, which were critical estimates in the prior year ended 31 March 2022, are no longer considered to be critical estimates. The fair value of the acquired customer relationship intangible asset was valued using the multi period excess earnings method (MEEM) income approach and the fair value measurement of the acquired regulatory licences intangible asset was valued using the cost to recreate approach. The acquisition completed on 12 April 2021 and the acquisition accounting has since been finalised. In the current period no impairment indicators were identified which had a significant risk of resulting in a material adjustment to the carrying amounts of the acquired intangible assets and goodwill arising on the acquisition of RSM 2000 within the next financial year.
The valuation of the deferred, contingent consideration liability arising from the i-movo acquisition, which was a critical estimate in the prior year ended 31 March 2022, is no longer considered to be a critical estimate. The i-movo sale and purchase agreement includes four elements of deferred consideration which are contingent on future performance over the earnout period and are linked to four monthly revenue growth targets on two potential key revenue streams. The £nil valuation of the deferred, contingent consideration liability at 30 September 2022 (30 September 2021: £3.0 million and 31 March 2022: £nil) is based on estimated future performance of the related business over the earnout period using management’s latest forecasts and does not have a significant risk of resulting in a material adjustment to the carrying amount of the deferred, contingent consideration liability within the next financial year.
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 the chief operating decision maker, the Executive Board, does not review those separately to make decisions about resource allocation and performance. Therefore, the Group has only one operating segment. A business division analysis of revenue has been provided in note 3.
Geographical information
1The prior period revenue from the discontinued operation represents the revenue from Romania between 1 and 8 April 2021 prior to disposal.
The total £123.1 million (30 September 2021 restated: £126.8 million) non-current assets at 30 September 2022 are geographically located within the UK.
3. Revenue Disaggregation of revenue
Management fees, set-up fees and up-front lump sum payments of £0.3 million (September 2021: £0.7 million) are recognised on a straight-line basis over the period of the contract. Service fee revenue are recognised on a straight-line basis over the period of the contract. Card terminal leasing revenue is recognised over the expected lease term using the sum of digits method for finance leases and on a straight-line basis for operating leases. The remainder of revenue is recognised at the point in time when each transaction is processed. The usual timing of payment by customers is on fourteen-day terms.
Revenue subject to variable consideration of £7.0 million (September 2021: £6.1 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 prices in the period to which it relates. 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. The potential range in outcomes for revenue subject to variable consideration resulting from changes in these estimates is not material.
Seasonality of operationsPayPoint operates in many sectors, some with their own forms of seasonality. Overall, PayPoint’s performance is expected to be weighted towards the second half of the current financial year due to the impacts of seasonality, however this does not constitute “highly seasonal” as considered by IAS 34 Interim Financial Reporting. e-commerce typically generates more transactions and revenue in the lead up to Christmas (H2). Bill payments transactions, which were historically higher during the winter months (H2), continue to be impacted by the shift in consumer behaviour towards making fewer, larger payments and structural changes in this market. Card payments typically generates higher value processed and revenue in the summer months (H1). Card terminal leasing revenue is less affected by seasonality.
4. Net revenue (alternative performance measure)
5. Cost of revenue
1The prior period comparatives have been restated for the retrospective application of the Group’s change in accounting policy on intangible assets. Refer to note 1 and note 18.2The prior period revenue from the discontinued operation represents the revenue from Romania between 1 and 8 April 2021 prior to disposal.
6. Exceptional items
7. Tax
The tax charge was £3.9 million (September 2021: £4.6 million on continuing operations) resulting in an effective tax rate of 18.7% (September 2021: 18.3%). This is lower than the UK statutory rate of 19% due to expenditure qualifying for the capital allowances super deduction and research and development credits, partially offset by the current period non-taxable exceptional impairment loss. The effective tax rate is higher than the prior period due to the current period non-taxable exceptional impairment loss and the prior period non-taxable exceptional revaluation credit, partially offset by the prior period impact of the enacted new tax rate on our deferred tax liabilities.
An increase in the main rate of UK corporation tax from 19% to 25% was enacted in June 2021 with effect from 1 April 2023. Deferred tax has been calculated based on the rate applicable at the date timing differences are expected to reverse.
8. Earnings per shareBasic and diluted earnings per share are calculated on the net profit attributable to equity holders of the parent and the weighted average number of ordinary shares in issue as follows:
9. Dividends
An interim dividend of 18.4 pence per share (September 2021: 17.0 pence) has been declared. The total dividend of 18.4 pence per share will be paid in equal instalments of 9.2 pence per share on 30 December 2022 (to shareholders on the register on 2 December 2022) and 6 March 2023 (to shareholders on the register on 3 February 2023). Total dividends of £12.4 million (18.0 pence per share) were paid during the period and comprised of the final ordinary dividend for the year ended 31 March 2022.
10. Goodwill
In the prior year, the goodwill arising on the acquisition of Merchant Rentals during the year ended 31 March 2021 was restated for a retrospective measurement period adjustment which resulted in an increase in the goodwill attributable to the Merchant Rentals acquisition by £0.5 million. New information about facts and circumstances that existed at the acquisition date was obtained within the measurement period which, if known, would have resulted in an adjustment to reduce the fair value of inventories purchased at the acquisition date.
11. Convertible loan notes
The convertible loan notes are carried at fair value through other comprehensive income and classified as Level 3 in the fair value hierarchy. Fair value adjustments are recognised through the statement of other comprehensive income where material and are not subsequently transferred to profit or loss.
Following conversion into equity, a reassessment of the accounting treatment will be performed based on the extent to which significant influence or control exists.
OBConnect LtdOn 7 July 2022 PayPoint plc purchased a convertible loan note of nominal amount £3,000,000 from OBConnect Ltd.
The initial fair value of the convertible loan note instrument purchased from OBConnect was robustly negotiated in good faith between PayPoint and the seller and therefore reflects the price that would be received to sell the asset in an orderly transaction between market participants at the measurement date. There are no comparable market-based transactions to date and PayPoint did not develop quantitative unobservable inputs to measure fair value. Given the proximity of the timing of the purchase to 30 September 2022, the transaction price was considered to approximate to fair value at the reporting date.
Sensitivity analysis was performed on the fair value of the convertible loan note purchased from OBConnect as at 30 September 2022, by applying a range of comparable peer company trading multiples to the business forecasts (valuation multiples market approach technique). The sensitivity analysis demonstrated that changes in unobservable inputs (business forecasts and trading multiples) did not result in a significantly higher or lower fair value measurement.
Optus Homes LtdOn 25 March 2022 PayPoint Plc purchased a convertible loan note of nominal amount £750,000 from Optus Homes Ltd.
The initial fair value of the convertible loan note instrument purchased from Optus Homes was valued using the discounted cash flow income approach technique, by discounting the future cash flows of the business at a risk-adjusted discount rate. The significant unobservable inputs were the business forecasts and discount rate. The sensitivity analysis demonstrated that changes in unobservable inputs (business forecasts and trading multiples) did not result in a significantly higher or lower fair value measurement. Any change in the fair value of the convertible loan note instrument purchased from Optus Homes in the six months ended 30 September 2022 would not be material to recognise.
12. Cash and cash equivalentsTotal cash and cash equivalents from continuing operations of £20.4 million (September 2021: £23.4 million) consists of £3.8 million (September 2021: £7.2 million) corporate cash and £16.6 million (September 2021: £16.1 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). A balance equivalent to the latter amount is included within trade payables. Clients’ funds held in trust which are not included in cash and cash equivalents amounted to £68.3 million (September 2021: £38.4 million).
During the period the Group operated cash pooling amongst most of its bank accounts whereby individual accounts could be overdrawn without penalties being incurred so long as the overall position was in credit.
13. Asset held for saleThe sale of PayPoint plc’s investment in Snappy Shopper Limited to Highland Tech Limited completed on 13 October 2022, after the 30 September 2022 reporting date. At 30 September 2022, the Group’s investment in associate (Snappy Shopper Limited) was reclassified as held for sale, as completion of the sale was anticipated to take place within the current financial year, subject only to terms that are usual and customary for sales of such assets.
The carrying amount of the investment in associate immediately prior to reclassification as held for sale was £6.7 million. A sale price of £5.5 million was agreed through robust negotiation in good faith between the buyer and PayPoint. The sale price therefore reflects fair value of the asset held for sale at 30 September 2022, or the price that would be received to sell the asset in an orderly transaction between market participants at the measurement date. Costs to sell were £15k. Accordingly, an impairment loss of £1.2 million has been recognised as an exceptional item within administrative expenses in the current interim reporting period.
This impairment loss includes PayPoint’s share of Snappy Shopper’s result, which were not recognised separately in the consolidated financial statements for the current period or prior year as it was immaterial.
14. Deferred consideration liability
The total £1.0 million deferred consideration liability at 31 March 2022 related to the acquisition of RSM 2000. Of the total deferred consideration liability at 30 September 2021, £3.0 million related to the acquisition of i-movo and £1.0 million related to the acquisition of RSM 2000.
i-movoThere was no movement in the £nil fair value of the deferred, contingent consideration liability in relation to the i-movo acquisition since 31 March 2022 (September 2021: £3.0 million). The fair value of the liability is considered to approximate to its fair value and is categorised as Level 3 in the fair value hierarchy. The deferred consideration is contingent on two remaining monthly revenue growth targets on a potential key revenue stream and is capped at £3.0 million (£2.0 million cash and £1.0 million shares).
RSM 2000During the current period, the £1.0 million deferred consideration liability was paid out in cash on the first anniversary of completion. The deferred consideration was not contingent on any factors.
15. Loans and borrowings The following table reconciles the changes in loans and borrowings arising from financing activities:
16. Share capital, share premium and merger reserve
In the current period 47,899 shares were issued (of 1/3p each) for share awards which vested in the period and 14,799 matching shares were issued (of 1/3p each) under the Employee Share Incentive Plan.
The share premium of £1.0 million (September 2021: £nil) represents the payment of deferred, contingent share consideration in excess of the nominal value of shares issued in relation to the i-movo acquisition.
The merger reserve of £1.0 million (September 2021: £1.0 million) represents initial share consideration in excess of the nominal value of shares issued on the initial acquisition of i-movo.
17. Notes to the condensed consolidated statement of cash flows
1The prior period comparatives have been restated for the retrospective application of the Group’s change in accounting policy on intangible assets. Refer to note 1 and note 18.2 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.
18. Prior period restatement for implementation costs of cloud computing SaaS arrangements The below tables show the impacts of restating the prior period consolidated financial statements for the 6 months ended 30 September 2021 for the retrospective application of the change in the Group’s accounting policies on intangible assets to derecognise previously capitalised SaaS related costs and amortisation which no longer meet the criteria for recognition as an asset, following the April 2021 IFRIC agenda decision on the configuration and customisation costs incurred in implementing cloud computing SaaS arrangements, as disclosed in note 1. The restatements for the full financial year ended 31 March 2021 were disclosed in note 32 of the 31 March 2022 Annual Report.
Consolidated statement of profit or loss for the 6 months ended 30 September 2021
Selected extracts from the consolidated statement of financial position for the 6 months ended 30 September 2021
1The prior period comparatives have been restated for the retrospective application of the Group’s change in accounting policy on intangible assets. The prior year comparatives have also been restated for a retrospective measurement period adjustment to goodwill and inventories as set out in the Annual Report for the year ended 31 March 2022.
Selected extracts from the consolidated statement of cash flows for the 6 months ended 30 September 2021
19. Subsequent events
Sale of PayPoint plc’s investment in Snappy Shopper LimitedOn 13 October 2022 PayPoint plc completed the sale of its investment in Snappy Shopper Limited to Highland Tech Limited, resulting in a £1.2m impairment loss recognised as an exceptional item within administrative expenses in the current interim reporting period. No further gain or loss arose on completion of the sale.
The capital loss arising on the sale is not taxable. The capital loss is available to be carried forward and deducted from capital gains in future accounting periods.
Proposed acquisition of Appreciate Group plcOn 7 November 2022 PayPoint plc announced the proposed acquisition of Appreciate Group plc for consideration of £83.0 million. The acquisition is subject to shareholder and regulatory approval with completion expected in H1 FY24.
Extension of existing financing facility On the 7 November 2022 a one-year extension of PayPoint plc financing facility was secured along with a new term loan of £36.0 million starting from completion of the acquisiton of Appreciate Group plc. The Group’s borrowing facilities currently include a £16.3 million amortising term loan which is due to be repaid in full by February 2024 and an unsecured £75.0 million revolving credit facility with a £30.0 million accordion facility (uncommitted) expiring in February 2026.
PRINCIPAL RISKS AND UNCERTAINTIES
Like all businesses, we face a number of risks and uncertainties and successful management of existing and emerging risks is critical to the achievement of strategic objectives and to the long-term success of any business. Therefore, risk management is an integral part of PayPoint’s Corporate Governance.
StrategyStrategic and operational benefits of proactively managing risk are achieved when Enterprise Risk Management is aligned with the strategic and operational goals of the organisation, and our process and governance structure achieve this. Risks 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 mitigate 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 internal control environment to manage risk effectively. The Audit Committee supports the Board in reviewing the effectiveness of risk management and internal controls. The risk management and internal control framework aims to provide assurance to stakeholders regarding PayPoint’s ability to deliver its objectives and manage risks.
Risk appetitePayPoint’s risk appetite is set by the Board and aligns the level of risk considered acceptable in achieving strategic objectives, increasing financial returns and adhering with statutory requirements. The Board and the Executive Board have key roles in ensuring the internal control framework maintains risk within the appetite set. Internal controls are embedded across the Group in core processes including policies and procedures, delegated authorities, PayPoint values and training.
Risk identification and managementThe risk management process assesses strategic, financial, IT, regulatory and operational risk across all areas of the business. PayPoint’s risk framework includes a bottom-up risk assessment process managed through risk and control registers, and a top-down risk assessment and horizon scanning process to identify emerging risks. Functional and entity risk and control registers are maintained which form an important component of our governance framework. Risks and controls are determined by Executive Board members and senior management, and discussed with the Head of Risk and Internal Audit. Risk and control registers contain a risk description, assessment of materiality, probability, mitigating controls, residual risk and risk owners. At least annually, risks identified through the top down and bottom up risk assessment processes are agreed with Executive Board members to determine 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 and emerging risks including details of the potential impact, mitigation strategies and status. The table also details risk movement during the period and risk appetite. 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 2022 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 2022 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”).
Basis for conclusion
We conducted our review in accordance with International Standard on Review Engagements (UK) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity (“ISRE (UK) 2410”) issued 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.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis of conclusion section of this report, nothing has come to our attention that causes us to believe that the directors have inappropriately adopted the going concern basis of accounting, or that the directors have identified material uncertainties relating to going concern that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410. However, future events or conditions may cause the group to cease to continue as a going concern, and the above conclusions are not a guarantee that the group will continue in operation.
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 annual financial statements of the group are 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.
In preparing the condensed set of financial statements, the directors are responsible for assessing the group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.
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. Our conclusion, including our conclusions relating to going concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion section of this report.
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 LLPChartered Accountants15 Canada SquareCanary WharfLondonE14 5GL
23 November 2022
1 Comparative information has been restated for the retrospective application of the Group’s change in accounting policy on intangible assets. Refer to Note 1 and Note 182 Net revenue is an alternative performance measure. Refer to note 4 to the financial information for a reconciliation to revenue.3 Operating margin before exceptional items % is an alternative performance measure as explained in note 1 to the financial statements and is calculated by dividing operating profit before exceptional items from continuing operations by net revenue from continuing operations4 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 tax5 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 equivalents6 Opinium PayPoint Brand Tracker Sept 2021, 2,000 UK adults7https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/september20228 https://www.gfk.com/en-gb/press/uk-consumer-confidence-tumbles-to-new-low-of-49-in-september9 https://www.pwc.co.uk/industries/retail-consumer/insights/consumer-sentiment-survey.html10 https://www.ons.gov.uk/businessindustryandtrade/retailindustry/bulletins/retailsales/september202211 Lumina Intelliegence Convenience Strategy Forum March 202212 https://press.which.co.uk/whichpressreleases/cash-a-lifeline-for-keeping-track-of-spending-for-15-million-people-amid-cost-of-living-crisis-which-research-reveals/13 Lumina Intelligence Convenience Market Report July 202214 PayPoint One Basket Data – April 2019 – September 202215 ACS Local Shop Report 202116 Lumina Intelligence Convenience Market Report July 202217 https://www.ukfinance.org.uk/system/files/2022-08/UKF%20Payment%20Markets%20Summary%202022.pdf18https://www.ukfinance.org.uk/data-and-research/data/card-spending 19 https://www.fsb.org.uk/uk-small-business-statistics.html20 https://www.gov.uk/government/statistics/business-population-estimates-2022/business-population-estimates-for-the-uk-and-regions-2022- statistical-release-html 21 https://researchbriefings.files.parliament.uk/documents/CBP-9453/CBP-9453.pdf22 https://www.gov.uk/government/news/new-powers-to-protect-access-to-cash23 Link Monthly Report August 202224 https://www.ons.gov.uk/businessindustryandtrade/retailindustry/articles/howourspendinghaschangedsincetheendofcoronaviruscovid19restrictions/2022-07-1125 IMRG Online Retail Performance Report 202126 Metapack E-Commerce Delivery Benchmark Report 202127 https://www.imrg.org/uploads/media/default/0001/08/2477f50ad2fee946cdf5ed23ebb8df21f2489d09.pdf?st.28 OC&C analysis.29 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%20202030 https://www.ofgem.gov.uk/information-consumers/energy-advice-households/check-if-energy-price-cap-affects-you31 https://www.ofgem.gov.uk/energy-data-and-research/data-portal/retail-market-indicators#thumbchart-c23042756505310535-n12019232 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1099629/Q2_2022_Smart_Meters_Statistics_Report.pdf33 https://www.ofcom.org.uk/research-and-data/telecoms-research/data-updates/telecommunications-market-data-update-q1-202234 Comparative information has been restated for the retrospective application of the Group’s change in accounting policy on intangible assets. Refer to Note 1 and Note 1835 Net revenue is an alternative performance measure. Refer to note 4 to the financial information for a reconciliation to revenue.36 Total costs is an alternative performance measure as explained in note 1 to the financial information, a reconciliation to costs is included in the Financial review on page 15.37 Net corporate debt (excluding IFRS 16 liabilities) is an alternative performance measure. Refer to note 1 to the financial information for a reconciliation to cash and cash equivalents.38 Net revenue from RSM2000 cards business of £0.5 million in half year ended 30 September 2021 has been represented from Digital net revenue to Card Paymens in line with the year ended 31 March 2022, this has no impact to net revenue overall39 Net revenue from RSM2000 cards business of £0.5 million in half year ended 30 September 2021 has been represented from Digital net revenue to Card Paymens in line with the year ended 31 March 2022, this has no impact to net revenue overall40 Net revenue from RSM2000 cards business of £0.5 million in half year ended 30 September 2021 has been represented from Digital net revenue to Card Paymens in line with the year ended 31 March 2022, this has no impact to net revenue overall41 Comparative information has been restated for the retrospective application of the Group’s change in accounting policy on intangible assets. Refer to Note 1 and Note 18.42 Operating margin before exceptional items % is an alternative performance measure and is calculated by dividing operating profit before exceptional items by net revenue.43 Effective tax rate is the tax cost as a percentage of profit before tax.44 Comparative information has been restated for the retrospective application of the Group’s change in accounting policy on intangible assets. Refer to Note 1 and Note 18.45 Dividend cover represents profit after tax from continuing operations excluding exceptional items divided by reported dividends.
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