Half-yearly report
(Thomson Reuters ONE) - PayPoint plc Half yearly financial report for the 6 months ended 27 September 2009HIGHLIGHTS 6 months 6 months ended ended 27 September 28 September Increase / 2009 2008 (decrease) £million £million %Throughput(1) 4,446 4,041 10Revenue 96.4 109.3 (12)Net revenue(2) 36.0 35.6 1Operating profit(3) 14.7 14.2 3Profit before tax 13.8 15.3 (10)Diluted earnings per 14.3p 16.0p (11)shareInterim dividend 7.4p 6.0p 23* In the traditional UK business(4), net revenue was up 2% and operating profit was up 8%* UK and Ireland terminal network expanded by nearly 700 sites to 22,669.* Processed over 1.8 million Romanian bill payment transactions with 2,260 branded PayPoint sites.* Collect+, our joint venture, started trading during the period, and already has over 3,500 sites live.* Consumer satisfaction(5) 97% (82% very satisfied).* Profit before tax lower than prior period due to the investment in Collect+ and the much reduced interest on cash balances.David Newlands, Chairman of PayPoint, said: "PayPoint has deliveredfirst half operating profits ahead of market expectations, despitethe economic downturn. New products and services, developments intechnology, and new contracts have strengthened the traditionalbusiness. We are continuing to invest in parcels, internet paymentsand Romania and these will contribute to future growth. The outlookfor the year is in line with market expectations.""We have again increased the dividend as there is ample capacity todo so without adversely affecting growth prospects."The condensed financial statements cover the 6 months from 30 March2009 to 27 September 2009, the last Sunday in the month (2008: 6months covering the period 31 March 2008 to 28 September 2008).1 Throughput represents payments made by consumers using thePayPoint service for bill and general payments, online, cash withdrawals from ATMs and the value oftransactions via the internet.2 Net revenue is revenue less commissions paid to retailagents, acquiring bank charges and the cost of mobile top ups where PayPoint is the principal. Net revenue andoperating margin are measures which the directors believe assist with a better understanding of the underlyingperformance of the group.3 Operating profit excludes start up losses incurred in thecurrent six months for our parcel joint venture Collect+4 The group excluding PayPoint plc, PayPoint.net, PayPointIreland, Collect+ and PayPoint Romania.5 UK terminal sites, source: Ipsos MORI September 2009.Management reportThe management report has been prepared solely to provide additionalinformation to shareholders as a body to assess PayPoint's strategiesand their potential to succeed, and it should not be relied upon forany other purpose. It contains forward looking statements that havebeen made by the directors in good faith based on the informationavailable at the time of approval of the half yearly financial reportand such statements should be treated with caution due to theinherent uncertainties, including both economic and business riskfactors, underlying any such forecast.Review of resultsSubstantial increases in the value paid by consumers (throughput)were recorded in bill and general and internet payments. Revenuedecreased as a consequence of lower mobile top-ups. Net revenues(1),however, increased slightly as the increase in other sources of netrevenue was more than the impact of the reduction in mobile top-ups.As a consequence, operating profits increased. Start up losses inour new parcels joint venture and lower interest received caused areduction in profit before tax.Execution of strategy* We aim to continue increasing economic value for shareholders by expanding:* UK retail payments and services (cash payments for bills, general payments, mobile top-ups, ticketing, money transfer, parcels and ATM cash withdrawals) building on the strength of our brand; * e-commerce payments and services through PayPoint.net and new PayPoint products across the retail and internet businesses; and * international developments in selected developing countries for cash payment networks and as an e-commerce payment service provider.UK retail payments and servicesPayPoint has created the strongest retail payment collection networkin the UK, enabling the company to deliver its services through over22,000 outlets with over 99% population coverage(2) and unrivalledopening hours. This network provides an ideal footprint for a broadrange of payments and consumer services delivered to and through theretail outlets. UK bill and general payment growth was offset by adecline of 8% in mobile transactions, a lower rate of decline thansuffered by the retail channel as a whole, because of the increase inthe terminal estate and the strength of independent retailers in theeconomic recession. PayPoint aims to maintain its lead in bill andgeneral payments (with further growth in local authority payments),transport tickets and its strong position in mobile top-ups,including mobile virtual network operators (MVNOs) and theprepayment card sector, in which PayPoint is the pre-eminent cashloading channel (working with many leading brands, including O2,PayPal and Virgin Money). However, recent developments in energyprepayment infrastructure have enabled clients to choose to negotiateagreements with better transaction pricing with individual paymentnetworks rather than working with all three networks. PayPointexpects to grow share, but at lower margin through this dynamic.Retailers, from small corner stores to major multiples, including themajor grocers, increasingly value the footfall that PayPoint drivesand the unique range of payments and services. Client developmentsinclude working with major utilities on plans for the next generationsmart meters, which will be rolled out during the next decade.Our retail network is also providing a strong base from which to growvalue added optional services for the convenience retail community,including ATMs (now offered through 2,300 sites), debit and creditcard acceptance through the PayPoint terminal (offered through 4,600sites) and Western Union Money Transfers (currently rolling out thefirst 400 sites). PayPoint also generates transaction-based incomethrough selling advertising space on the bottom of consumer receipts,which is attracting significant interest from fast moving consumergoods brands and government agencies, in addition to our existingclient base to promote their services and deliver public information.The network is being used to support physical product distributionfor the first time, with the successful, recent launch of SIM cardsales on behalf of the mobile networks (active in 1,000 sites).1 Net revenue is revenue less commissions paid to retail agents,acquiring bank charges and the cost of mobile top-ups where PayPoint is the principal. Net revenue andoperating margin are measures which the directors believe assist with a better understanding of the underlyingperformance of the group.2 99% of consumers are within 5 miles rural and 1 mile urban ofa PayPoint retailer.The most significant new initiative using the PayPoint network hasbeen Collect+, a joint venture with a leading UK parcel carrier, HomeDelivery Network,. Collect+ allows home shoppers to receive andreturn their purchases through over 3,500 local outlets. The abilityfor consumers to send parcels to each other with collection anddelivery at Collect + outlets has also been launched since the end ofthe period. Already, after only a few months, Collect+ has handledover 100,000 parcels and is well placed to be a major player in theUK market.PayPoint has continued to develop its technology and processefficiencies to increase productivity and control, particularly atthe retailer. These include innovative and complementary alternativesto the highly successful PayPoint terminal, which up to now, has beencentral to all full service retailers. New EPOS-linked modules,known as PPods, will allow full functionality to be provided throughthe retailers' own tills, reducing deployment costs, enabling fastertransactions (via broadband) and improving reconciliation andcontrol. This new technology will be adopted by the Co-operativeGroup and is being sold into other multiple retailers, releasingterminals to be reprogrammed and deployed internationally.e-commercePayPoint recognised the growth potential in this market in creatingPayPoint.net from the acquisitions of two smaller Payment ServiceProviders (PSPs). Both of them link internet merchants to acquiringbanks for credit card acceptance. PayPoint.net will also stand in forthe bank in managing debt risk with the merchant, enabling us to workwith a broader range of merchants than other PSPs. This has providedus with differentiation through specialisation in risk management andfraud screening, both highly regarded services provided byPayPoint.net. This differentiation is extended through our ability tolink internet merchants to cash payments through the PayPointterminal network via PayCash, attracting new business includingMoonPig, Firebox and PKR over the past few months. PayPoint'sconviction that blue chip clients from our retail business would beattracted by the ability to add an internet dimension is beingconfirmed through the use of PayPoint.net platforms in the deliveryof home vending for the new smart meters.Within PayPoint.net, there has been encouraging growth in theunderlying business, which has been substantially offset by merchantsmoving from our Bureau product (where we take the merchant creditrisk and are rewarded with higher margins) to the lower margin ISOproduct reflecting greater willingness among sponsoring banks to takeon such merchants' credit risk. All these merchants will have movedby the end of the financial year.There are good prospects for PayPoint.net in the UK and in othercountries. To support this, the range of payment types processed bythe company is growing and the scale of operations is allowing keenerwholesale rates to be negotiated with banks, thus widening the rangeof merchant accounts over which PayPoint.net can be competitive.International developmentsThe ability to recreate PayPoint's success in internet and retailpayments and services in other countries has major potential for thegroup's development. PayPoint has already developed retail networksin Ireland (organically) and Romania (building from an acquisition).This experience puts PayPoint in a good position to roll outselectively or acquire retail and/or internet based services in othercountries, using system solutions and operational processes that arealready proven.Whilst bill payment volume is delivering high growth, our Romanianbusiness has suffered this year from substantial reductions in themobile top-up market, as the mobile networks have offered moreairtime for the same or lower top-up values. There are some signsthat this adverse dynamic has slowed. Romania should move tobreak-even in 2010 as the linkage of bill payment and mobile volumesto give differentiation allows PayPoint to secure higher volumeoutlets. This has been coupled with a focus on costs and margin,which has resulted in PayPoint reducing the volume of low marginphysical scratch cards and increasing penetration of cash banking inour retail base, thereby removing the need to collect the cash fromretailers. In Romania, nearly all the major utilities are now workingwith PayPoint, with some only recently launched. PayPoint Romaniarecently processed its three millionth bill payment transaction froma standing start in just over 12 months and currently has an annualrun rate in excess of five million bill paymentTransactions per annum.Operational reviewDuring the period, PayPoint processed 252 million transactions, witha value of £4.4 billion (2008: 249 million transactions with a valueof £4.0 billion), an increase of 1% in transactions and 10% in value.Commissions paid to retail agents were reduced to £36.2 million(2008: £41.2million), a result of lower mobile top-ups which payhigher than average commissions to retail agents in the UK.Analysis of transactionsBill and general payments comprises energy prepayments, budget andother utility bill payments and transport tickets. Online includesmobile top-ups as well as other online products such as internationalcalling cards, e-currency and pre-pay debit cards. ATM transactionscomprise cash withdrawals and balance enquiries. Internet paymentsinclude consumer payments on the internet. 6 months 6 months Increase/ Year ended ended (decrease) ended 27 September 28 September % 29 March 2009 2008 2009 thousands thousands thousandsBill and general 159,640 151,954 5 351,476payments(1)Online (2) 65,924 73,778 (11) 142,823ATMs 7,419 7,236 3 14,645Internet payments 19,005 16,341 16 35,653Total 251,988 249,309 1 544,597PayPoint has continued to perform well in bill and general payments,with an increase of 7.7 million transactions, of which 1.8 millionare in Romania following the introduction of bill payment in thelatter half of last year. The increase in the UK has resulted fromnetwork growth and previous increases in domestic energy prices,partially offset by an increase in average transaction values. Therehas been particularly good growth in the council and local authoritypayment sector. A new long term contract with British Gas has beensigned which provides that, in the second half of this year, new gascards and electricity keys issued by British Gas will only operate onthe PayPoint and Post Office networks. From 2011, this will beextended to all British Gas over-the-counter payments for cards, keysand regular bill payments.Online volumes have declined 8% in the UK, 37% in Romania and 29% inIreland. In the UK, in the second half of the year, transactions areexpected to benefit from the combined effect of the roll out of newsites and the recent new contract with McColls, which added 1,400sites to our network from July. E-currency and pre-pay debit cardvolumes have increased 35% on the same period last year. In Romania,we have deliberately reduced sales of our mobile scratch cards, whichare low margin products and prone to shrinkage, in favour ofelectronic mobile top-ups, which deliver better margins. This hascontributed to the decline in the number of transactions. The rollout of new sites in Romania and the re-siting of existing low volumeterminals should improve performance.ATM transactions have increased by 3%, a rate lower than the 7% netincrease in ATM sites, as the number of transactions per ATM hasdeclined. New machines, whilst profitable, are not reaching thevolumes of ATMs placed in earlier years. Balance enquiries, whichproduce a lower income than cash withdrawals, are a slightly greaterproportion of the transactions than in the same period last year.Internet payments have increased both in existing merchants and fromnew merchants that have been signed in the last 12 months, includingmoneysupermarket.com, Severn Trent Water, Ann Summers, Pacel2Go andFair FX.1 Includes debit/credit transactions2 Online consists mainly of mobile top-ups but also prepay debitcards, e-money schemes, international calling cards and the sale of mobile phone SIMs.ThroughputThroughput represents payments made by consumers using the PayPointservice for bill and general payments, online (mainly mobiletop-ups), cash withdrawals from ATMs and the value of transactionsvia the internet. 6 months 6 months Increase / Year ended ended (decrease) ended 27 September 28 September % 29 March 2009 2008 2009 £000 £000 £000Bill and general 2,657,269 2,421,747 10 5,549,154paymentsOnline(1) 600,363 625,300 (4) 1,234,662ATMs 172,359 171,089 1 343,238Internet payments 1,016,385 822,810 24 1,754,286Throughput 4,446,376 4,040,946 10 8,881,340The increase in bill payment value reflects the increase intransactions processed and an increase in the average transactionvalue. Online payments reflect the reduction in the overall value ofmobile top-ups as a consequence of mobile operators offering moreairtime for the same or less cost to consumers. The increase in ATMswas offset by lower average number of cash withdrawals. Internetthroughput has increased at a greater rate than the transactiongrowth, as average consumer spend per transaction has increased by6%.Revenue analysisRevenue comprises the value of sales (excluding VAT) of services andincludes commissions billed to clients and then passed on to retailagents, the sales value to retailers of mobile top-ups in Romania andIreland where PayPoint acts as principal and external processingcharges on internet payments billed to merchants that are passed onto the sponsoring banks. 6 months 6 months Year ended ended Increase/ ended 27 September 28 September (decrease) 29 March 2009 2008 % 2009 £000 £000 £000Bill and general 26,661 25,436 5 61,301paymentsOnline(1) 56,600 70,297 (19) 135,013ATMs 6,808 6,780 - 13,615Internet payments 4,634 5,295 (12) 11,798Other 1,707 1,533 11 2,624Revenue 96,410 109,341 (12) 224,351Bill payment revenue has increased broadly in line with the number oftransactions. Online revenue (mainly mobile top-ups) has decreasedas mobile operators continue to increase the airtime offered at thesame or lower cost to the consumer. ATM revenue has increased, butaverage revenues per ATM have declined as a consequence of lower cashwithdrawals on more recently placed ATMs and lower rental income, asfive year term rental agreements expire and fully depreciatedmachines are rolled over on lower rentals. Internet payment revenuesare lower, largely as a result of the migration of larger merchantsto a lower margin service, which will complete this year. Overallrevenue in the UK is down 7% and in Romania and Ireland 28% and 19%respectively. The decline in revenue is greater than the decline intransactions, because of the impact of acting as principal in mobiletop-ups in Romania and Ireland.1 Online consists mainly of mobile top-ups but also prepaydebit cards, e-money schemes, international calling cards and the sale of mobile phone SIMs.Net revenue analysisNet revenue is revenue less commissions paid to retail agents,acquiring bank charges and the cost of mobile top-ups where PayPointis the principal. Net revenue is a measure which the directorsbelieve assists with a better understanding of the underlyingperformance of the group and is shown in the table below. 6 months 6 months Year ended ended Increase/ ended 27 September 28 September (decrease) 29 March 2009 2008 % 2009 £000 £000 £000Bill and general 15,030 14,174 6 34,388paymentsOnline(1) 12,588 13,025 (3) 25,692ATMs 3,303 3,331 (1) 6,641Internet payments 3,362 3,498 (4) 8,053Other 1,707 1,533 11 2,624Net revenue 35,990 35,561 1 77,398Net revenue on bill payments is broadly in line with transaction andrevenue growth. Online net revenue has not decreased as much asthroughput or revenue as a consequence of a richer mix of e-moneytransactions at higher net revenue per transaction and independentretailers maintaining mobile top-up volumes. ATM net revenue hasfallen as a consequence of lower average transactions per ATM andlower rental income. Internet payment net revenues have fallen as aconsequence of the lower margin from ISO product sales that migratedfrom the Bureau product.Net revenue in the UK is up 1%, in Romania up 12% and in Ireland down16%.Collect+At the end of the last financial year, PayPoint announced a 50:50joint venture with Home Delivery Network, a leading UK carrier, toprovide consumers with a more convenient solution for parcel deliveryand collection, through a national network of outlets selected fromwithin the PayPoint network. The service has been launched with someof the leading mail order and online e-commerce brands, includingLittlewoods, Very, Great Universal and Marshall Ward from within theShop Direct Group. These retailers make the Collect+ outletsavailable to their customers as alternative delivery addresses andfor returning goods. These services should also prove attractive toother major e-commerce retailers and to online marketplaces includingeBay Power Sellers.At the end of the period, we had 3,063 parcel sites within ourexisting retailer base. We have launched a C2C (consumer to consumer)service booked and paid for over the internet (www.collectplus.co.uk)as well as the returns service for Shop Direct Group. Initialvolumes are encouraging and we plan to have c.4,000 sites live by theend of this financial year. Collect+ parcels are tracked throughoutthe delivery process from dispatch to delivery.1 Online consists mainly of mobile top-ups but also prepay debitcards, e-money schemes, international calling cards and the sale of mobile phone SIMs.Network growthTerminal sites have increased to 28,413 (29 March 2009: 27,692) anincrease of 721. The retail network in the UK and Ireland has grownto 22,669 (29 March 2009: 21,990) an increase of 3% on last year end.Following the appointment of an administrator to two medium sizedmultiple retailers, we have revised the target for terminal growth inthe UK to 1,100 from 1,500.Analysis of sites At At At 27 September 28 September Increase 29 March 2009 2008 % 2009UK and Ireland terminal 22,669 20,772 9 21,990sitesPayPoint Romania terminal 5,744 4,743 21 5,702sitesTotal terminal sites 28,413 25,515 11 27,692ATM sites 2,306 2,165 7 2,249Internet merchants 5,243 5,111 3 5,160Financial reviewRevenue for the first six months was £96.4 million (2008: £109.3million), down 12%, driven mainly by the decline in transactionvolumes in mobile top-ups where PayPoint acts as principal(1).Cost of sales was £67.6 million (2008: £80.9 million), a decrease of17%, which is greater than the rate of decrease in revenue, mainlydue to the reduction in mobile top-ups where PayPoint is principal(1)and the reduction in commission payable to retail agents.Depreciation and amortisation have decreased to £2.6 million (2008:£3.2 million), down 17%, mainly due to some ATMs and intangibleassets becoming fully written down in the period. Acquiring bankcharges are down 29% as internet merchants are moving from the Bureauproduct to ISO.Net revenue(2) of £36.0 million (2008: £35.6 million) was up 1%,driven primarily by volume growth and mix of transactions. Grossprofit improved to £28.9 million (2008: £28.4 million), 2% ahead ofthe same period last year, with a gross margin of 29.9% (2008:26.0%).Operating costs (administrative expenses) were £14.2 million (2008:£14.2 million). Operating costs in the UK terminal and ATM businesseswere down 3% on last year, whilst costs in PayPoint.net and PayPointRomania have increased, as we continue to invest in these companies.Operating profit was £14.7 million (2008: £14.2 million), up 3%,excluding the losses in Collect+. The operating margin(3) increasedto 40.7% (2008: 39.8%).Our share of the loss in the period of our parcels joint venture,Collect+, was, as expected, £1.0 million (before tax relief).Profit before tax was £13.8 million (2008: £15.3 million), down 10%on the same period last year as a consequence of the start up loss inCollect+ and substantially lower investment income on surplus cashbalances. The tax charge was £4.1 million (2008: £4.5 million) andthe effective tax rate was 30% (2008: 29%).Operating cash flow was £6.6 million, (2008: £13.3 million),reflecting corporation tax payments of £9.5 million (2008: £5.1million). Capital expenditure of £1.6 million (2008: £2.1 million)reflected spend on new terminals in the UK and Romania and on ATMs.Collect+ funding was £0.9m and the purchase of own shares for LongTerm Incentive Plans cost £0.5 million (2008:£2.5 million). Equitydividends paid were £7.8 million (2008: £7.0 million). Net interestreceived reduced to £0.1 million (2008: £1.0 million) as a result oflower interest rates. Net cash and cash equivalents at the period endwere £32.2 million (2008: £28.2 million) including client cash of£7.2 million (2008: £8.0 million).1 In Ireland and Romania, PayPoint is principal in the sale ofmobile top-ups and accordingly the face value of the top up is included in sales and the corresponding cost in cost ofsales2 Net revenue is revenue less commissions paid to retail agents,acquiring bank charges and less the cost of mobile top-ups where PayPoint is the principal3 Operating margin is operating profit (which excludes Collect+)as a percentage of net revenueRelated party transactionsRelated party transactions are disclosed in note 5.RisksRisks to PayPoint's business, financial condition or operations aredisclosed on page 20.DividendThe board has reviewed the dividend and in the light of the group'sability to generate strong operating cash flows, its cash reservesand undrawn borrowing facilities, has concluded that there is amplecapacity to increase substantially the dividend, without adverselyaffecting the group's growth prospects. Accordingly, the directorshave declared an interim dividend of 7.4p per share (2008: 6.0p)payable on 15 December to shareholders on the register at 4 December2009.Liquidity and going concernThe group has cash of £32 million, no debt and an unsecured loanfacility of £35 million with a remaining term of nearly two years.Cash and borrowing capacity is adequate to meet the foreseeable needsof the group taking account of any risks (see page 20). The condensedfinancial statements have therefore been prepared on a going concernbasis.Economic climateThe bill and general payments sector is robust in a recession, whereconsumers' discretion in expenditure is limited for essentialservices. The internet payment market continues to growsubstantially. Adverse impact on mobile top-ups in developedeconomies and in ATM cash withdrawal rates is evident.PayPoint's exposure to agent debt is limited as credit granted toretailers is restricted by daily direct debiting for all UK and Irishtransactions other than EPoS mobile top-ups (which are collectedweekly) although there is some concentration of risk in multipleretailers. Most of the group's clients in the UK, other than mobileoperators, bear the cost of agent bad debt. In PayPoint Romania, therisk of bad debt lies with the company. In PayPoint.net, exposure islimited to receivables from merchants for fees, except in the case ofBureau internet merchants, where PayPoint.net retains credit risk onmerchant default for chargebacks but this is mitigated by cashretention.OutlookWe expect further growth in transaction volumes and net revenue inthe UK from increases in our market share and the growth in ournetwork. In Romania, we have already completed signing up most of themajor utilities for bill payment and installed 2,260 bill enabledterminals and we plan to roll out a further 700 bill paymentterminals in the second half. We expect PayPoint Romania to bebreak-even next financial year. In PayPoint.net, the migration oflarge merchants to our ISO product at lower margins, which has heldback results, will complete in the second half, following which,growth will resume.Trading since 28 September has been in line with the company'sexpectations and the directors are confident that the company willmeet market expectations.David Newlands Dominic TaylorChairman Chief Executive19 November 2009CONDENSED CONSOLIDATED INCOME STATEMENT Unaudited Unaudited Audited 6 months 6 months Year ended ended ended 29 March 27 September 28 September 2009 2009 2008 £000Continuing operations Note £000 £000Revenue 2 96,410 109,341 224,351Cost of sales 2 (67,555) (80,931) (160,496)Gross profit 28,855 28,410 63,855Administrative expenses (14,195) (14,244) (30,171)Operating profit 14,660 14,166 33,684Share of loss of joint (964) - (323)ventureInvestment income 118 1,142 1,275Finance costs (3) (4) (34)Profit before tax 13,811 15,304 34,602Tax 3 (4,102) (4,475) (10,818)Profit for the period 9,709 10,829 23,784Earnings per shareBasic 4 14.4p 16.1p 35.6pDiluted 4 14.3p 16.0p 35.3pCONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME+-------------------------------------------------------------------+| | | Unaudited | Unaudited | Audited || | | 6 months | 6 months | Year || | | ended | ended | ended || | | 27 | 28 | 29 March || | | September | September | 2009 || | Note | 2009 | 2008 | £000 || | | £000 | £000 | ||-------------------------+------+-----------+-----------+----------|| Exchange differences on | | | | || translation of foreign | 8 | 140 | (19) | 190 || operations | | | | ||-------------------------+------+-----------+-----------+----------|| Net income / (loss) | | 140 | (19) | 190 || recognised directly in | | | | || equity | | | | ||-------------------------+------+-----------+-----------+----------|| Profit for the period | | 9,709 | 10,829 | 23,784 ||-------------------------+------+-----------+-----------+----------|| Total comprehensive | | | | || income for the period | | 9,849 | 10,810 | 23,974 |+-------------------------------------------------------------------+CONDENSED CONSOLIDATED BALANCE SHEET Unaudited Unaudited Audited 27 September 28 September 29 March 2009 2008 2009 Note £000 £000 £000Non-current assetsGoodwill 27,767 27,428 27,628Other intangible assets 1,658 2,264 1,973Property, plant and equipment 15,639 12,235 16,161Investment in joint venture 64 - 177Deferred tax asset 1,300 1,530 1,128Investment 405 375 375 46,833 43,832 47,442Current assetsInventories 1,253 1,865 1,213Trade and other receivables 23,013 24,257 26,260Cash and cash equivalents 7 32,180 28,224 36,345 56,446 54,346 63,818Total assets 103,279 98,178 111,260Current liabilitiesTrade and other payables 35,886 39,999 40,853Current tax liabilities 4,110 6,536 9,153Obligations under finance 1 28 9leases 39,997 46,563 50,015Non-current liabilitiesOther liabilities 293 317 278 293 317 278Total liabilities 40,290 46,880 50,293Net assets 62,989 51,298 60,967EquityShare capital 8 226 226 226Investment in own shares 8 (370) (926) (926)Share premium 8 25 - 25Share based payment reserve 8 2,239 1,996 2,489Translation reserve 8 648 299 508Retained earnings 8 60,221 49,703 58,645Total equity 62,989 51,298 60,967Condensed Consolidated statement of changes in equity Unaudited Unaudited Audited 6 months 6 months Year ended ended ended Note 27 September 28 September 29 March 2009 2008 2009 £000 £000 £000Opening equity 60,967 49,587 49,587Profit for the period 9,709 10,829 23,784Dividends paid (7,848) (7,023) (11,077)Investment in own shares 5 (490) (2,489) (2,489)Exchange differences on 140 (19) 190translation of foreignoperationsIncrease in share basedpayment 511 413 947 reserveNew shares issued - - 25Closing equity 62,989 51,298 60,967CONDENSED CONSOLIDATED CASH FLOW STATEMENT Unaudited Unaudited Audited 6 months 6 months Year ended ended ended Note 27 September 28 September 29 March 2009 2008 2009 £000 £000 £000Net cash from operating 9 6,591 13,322 32,619activitiesInvesting activitiesInterest received 85 1,016 1,192Purchase of property, plant (1,634) (2,128) (9,158)and equipmentProceeds from disposal of 39 31 40property, plant and equipmentAcquisition of subsidiary - (2,108) (2,108)Investment 5 (30) - (500)Loan to joint venture 5 (850) - -Purchase of own shares 5 (490) (2,489) (2,489)Net cash used in investing (2,880) (5,678) (13,023)activitiesFinancing activitiesRepayments of obligations - (41) (61)under finance leasesDividends paid (7,848) (7,023) (11,077)Net cash used in financing (7,848) (7,064) (11,138)activitiesNet (decrease) / increase in (4,137) 580 8,458cash and cash equivalentsCash and cash equivalents at 36,345 27,727 27,727beginning of periodEffect of foreign exchange (28) (83) 160rate changesCash and cash equivalents at 32,180 28,224 36,345end of periodNOTES TO CONDENSED FINANCIAL STATEMENTS1. Accounting policiesThese condensed financial statements have been prepared in accordancewith IAS 34 as adopted by the European Union on an historical costbasis and the same accounting policies, presentation methods andmethods of computation are followed in this condensed set offinancial statements as applied in the group's latest annual auditedfinancial statements.Basis of preparationThe condensed financial statements contained in this report areunaudited, but have been formally reviewed by the auditors and theirreport to the company is set out on page 21. The information shownfor the year ended 29 March 2009, which is prepared underInternational Financial Reporting Standards (IFRS), does notconstitute statutory accounts within the meaning of section 240 ofthe Companies Act 1985. The report of the auditors on the statutoryaccounts for the year ended 29 March 2009, prepared under IFRS, wasunqualified, did not draw attention to any matters by way of emphasisand did not contain a statement under section 237 of the CompaniesAct 1985 and has been filed with the Registrar of Companies.The adoption of IFRS 8 Operating Segments has resulted in thesegmental disclosures previously required by IAS 14 Segment Reportingbeing replaced by those required under IFRS 8. The segmentsidentified in accordance with IFRS 8 have not been changed from thosepreviously identified as business segments under IAS 14.The adoption of the revision to IAS 1 has resulted in theconsolidated statement of changes in equity being presented as aprimary statement (previously disclosed as a note titledReconciliation of changes in equity) and disclosure of the tax impactof individual items in the consolidated statement of comprehensiveincome. In addition, the group has elected to continue to present aseparate income statement and statement of comprehensive income.The directors are satisfied that the group has adequate resources tocontinue in operational existence for the foreseeable future, aperiod of not less than 12 months from the date of this report. Thegroup's liquidity and going concern review can be found in theManagement Report on page 8.2. Segmental reporting, net revenue analysis, cost of sales and grossthroughput(i) Segmental informationPayPoint is a service provider for consumer payment transactions(payments and receipts) through various distribution channels,involving the processing of high volume transactions, the managementof retailers and clients, the settlement of funds (collection andtransmission) and transmission of data in a secure environment, bythe application of technology.The application of technology is directed on a group basis from thegroup's executive team (consisting of the Chief Executive Officer,Finance Director, Business Development Director and Chief InformationOfficer) to develop products across the business, prioritised on aneconomic value basis (generally by product), rather than on asubsidiary by subsidiary basis. As the business has high fixedoperating costs, the company regards the analysis of net revenue asthe most reliable indication of contribution on a product by productbasis and net revenue analysis is shown in the Management Report.Whilst the group has a number of different products, these do notmeet the definition of different segments under IFRS 8 and,therefore, the group has only one reportable class of business, beinga payment service provider for consumer payment transactions.(ii) Reconciliation of revenue to net revenue, analysis of cost ofsales and geographical informationRevenue comprises the value of sales (excluding VAT) of services inthe normal course of business and includes amounts billed tocustomers to be passed on to retail agents as commission payable, thesales value to retailers of mobile top-ups where PayPoint acts asprincipal and, for the bureau sales of PayPoint.net, it includesexternal processing charges which are amounts billed to merchantsthat are passed on to the sponsoring bank.Revenue performance of the business is measured by net revenue, whichis calculated as the total revenue from clients less commissionpayable to retail agents, acquiring bank charges and the cost ofmobile top-ups where PayPoint is the principal in the supply chain.Cost of sales includes the cost to the group of the sale, includingcommission to retail agents, the cost of mobile top-ups wherePayPoint is the principal in the supply chain and sponsoring bankcharges. 6 months 6 months Year ended ended ended 27 September 28 September 29 March 2009 2008 2009 £000 £000 £000Revenue - transaction processing 95,607 108,494 222,693 - rental income of 803 847 1,658ATMsRevenue 96,410 109,341 224,351less:Commission payable to retail (36,172) (41,234) (83,891)agentsCost of mobile top-ups as (22,976) (30,749) (59,317)principalAcquiring bank charges (1,272) (1,797) (3,745)Net revenue 35,990 35,561 77,398 6 months 6 months Year ended ended ended 27 September 28 September 29 March 2009 2008 2009 £000 £000 £000Cost of salesCommission payable to retail 36,172 41,234 83,891agentsCost of mobile top-ups as 22,976 30,749 59,317principalAcquiring bank charges 1,272 1,797 3,745Depreciation and amortisation 2,631 3,177 5,698Other 4,504 3,974 7,845Total cost of sales 67,555 80,931 160,496Geographical information: 6 months 6 months Year ended ended ended 27 September 28 September 29 March 2009 2008 2009 £000 £000 £000RevenueUK 70,699 75,762 159,290Ireland 12,577 15,429 29,579Romania 13,134 18,150 35,482Total 96,410 109,341 224,351Non-currentassetsUK 45,194 41,451 45,423Ireland 37 74 61Romania 1,602 2,307 1,958Total 46,833 43,832 47,4423. Tax on profit of ordinary activities 6 months 6 months Year ended ended ended 27 September 28 September 29 March 2009 2008 2009 £000 £000 £000Current tax 4,274 4,433 10,355Deferred tax (172) 42 463Total 4,102 4,475 10,8184. Earnings per shareThe basic and diluted earnings per share are calculated on thefollowing profit and number of shares. 6 months 6 months Year ended ended ended 27 September 28 September 29 March 2009 2008 2009 £000 £000 £000Profit for the purposes of basic 9,709 10,829 23,784earnings per share being netprofit attributable to equityholders of the parent and fordiluted earnings per share Number of Number of Number of Shares shares sharesWeighted average number of 67,384,136 67,236,551 66,754,486shares(for basic earnings per share)Potential dilutive ordinaryshares: 112,486 99,693 111,828Deferred share bonusLong term incentive plan 490,573 409,654 515,410Diluted basis 67,987,195 67,745,898 67,381,7245. Related party transactionsOn 5 June 2009, PayPoint released the second tranche of its long termincentive plan awards to the three executive directors and sevensenior managers. PayPoint Network Limited Employee Investment Trust(the Trust) acquired 23,701 ordinary shares at 532.4 pence per sharein the open market. 68,273 shares were then sold by participatingdirectors and managers to the Trust at 532.4 pence per share.Accordingly, PayPoint has funded £490,000 (excluding deal costs) forthe purchase of its own shares. The excess of the cost of theshares acquired over their fair value determined at the date of grantin accordance with IFRS 2 of £285,000 has been charged to reserves.PayPoint has entered into a loan agreement with its 50:50 jointventure Drop and Collect Limited (trading as Collect +) and duringthe period it has lent Drop and Collect Limited £850,000.Investment in OB10In March 2008, PayPoint purchased shares in OB10, a company thatspecialises in electronic invoicing. During the period, PayPointsubscribed for a further £30,000 of shares under a rights issue,resulting in a shareholding at 27 September 2009 of 1.04% (29 March2009: 1.05%). 6 months 6 months Year ended ended ended 27 September 28 September 29 March 2009 2008 2009 £000 £000 £000Investment at cost 405 375 375In the view of the directors, the aggregate cost of £405,000represents the fair value of the investment in the sharesDavid Newlands, who is also Chairman of OB10, Dominic Taylor, GeorgeEarle, Eric Anstee and Nick Wiles all hold shareholdings in OB10 asfollows: 6 months 6 months Year ended ended endedDirectors' shareholding in OB10 27 September 28 September 29 March 2009 2008 2009 % % %David Newlands 4.73 4.10 4.10Dominic Taylor 1.42 0.42 0.42George Earle 0.42 0.42 0.42Nick Wiles (appointed 22 October 1.042009)Eric Anstee 0.08 -6. DividendThe interim dividend of 7.4p (2008: 6.0p) was declared on 19 November2009 and, accordingly, has not been recorded as a liability as at 27September 2009. The total dividend in respect of the year ended 29March 2009 was 17.6p per share7. Cash and cash equivalentsIncluded within cash and cash equivalents is £7.2 million (September2008: £8.0 million, March 2009: £7.5 million) relating to moniescollected on behalf of PayPoint clients where PayPoint has title tothe funds (client cash). An equivalent balance is included withintrade payables.8. Share capital and reserves 6 months 6 months Year ended ended ended 27 September 28 September 29 March 2009 2008 2009 £000 £000 £000Authorised share capital4,365,352,200 ordinary shares of 14,551 14,551 14,5511/3p eachCalled up, allotted and fully paidshare capital67,737,619 ordinary shares of 1/3p 226 226 226eachInvestment in own sharesAt start of period (926) (935) (935)Acquired in period (see note 6) (490) (2,489) (2,489)Used on share scheme vesting 1,046 2,498 2,498At end of period (370) (926) (926)Share premiumAt start of period 25 - -Arising on issue of shares - - 25At end of period 25 - 25Share based payment reserveAt start of period 2,489 2,281 2,281Additions in period 460 413 759Released in period (761) (698) (764)Current tax on awards 51 - 515Other adjustments - - (302)At end of period 2,239 1,996 2,489Translation reserveAt start of period 508 318 318Movement in the period 140 (19) 190At end of period 648 299 508Retained earningsAt start of period 58,645 47,697 47,697Profit for the period 9,709 10,829 23,784Dividends paid (7,848) (7,023) (11,077)Adjustment on share scheme vesting (285) (1,800) (1,759)(see note 6)At end of period 60,221 49,703 58,6459. Notes to the cash flow statement 6 months 6 months Year ended ended ended 27 September 28 September 29 March 2009 2008 2009 £000 £000 £000Operating profit 14,660 14,166 33,684Adjustments for:Depreciation on property, plant 2,316 2,700 4,907and equipmentAmortisation of intangible assets 315 477 791Share based payment expense 460 413 759Operating cash flows before 17,751 17,756 40,141movements in working capital(Increase)/decrease in inventories (39) (609) 155Decrease in receivables 610 4,454 6,178Decrease in payables- client cash (335) (18) (454)- other payables (1,895) (3,187) (5,433)Cash generated by operations 16,092 18,396 40,587Corporation tax paid (9,501) (5,074) (7,940)Interest and bank charges paid - - (28)Net cash from operating activities 6,591 13,322 32,619RESPONSIBILITY STATEMENTWe confirm that to the best of our knowledge:a) the condensed set of financial statements which has beenprepared in accordance with IAS 34 'Interim Financial Reporting'; gives a true andfair view of the assets, liabilities, financial position and profit of the Group asrequired by DTR 4.2.4R;b) the half yearly financial report includes a fair review of theinformation required by DTR 4.2.7R (indication of important events during the first24 weeks and description of principal risks and uncertainties for the remaining 28weeks of the year); andc) the half yearly financial report includes a fair review ofthe information required by DTR 4.2.8R (disclosure of related parties' transactions andchanges therein).By order of the board.David Newlands Dominic TaylorChairman Chief Executive19 November 2009RISKSPayPoint's business, financial condition or operations could bematerially and adversely affected by the risks summarised below.Although management takes steps to mitigate risks where possible orwhere the cost of doing so is reasonable in relation to theprobability and seriousness of the risk, it may not be possible toavoid the materialisation of some or all of such risks.+-------------------------------------------------------------------+| Risk | Future prospects depend on our || | ability to: ||----------------------------+--------------------------------------|| Managing growth of the | manage growth through the employment || business | of adequate skilled resources, || | whilst maintaining financial || | controls ||----------------------------+--------------------------------------|| Major contract loss or | renew contracts at expiry on || renewal at unattractive | attractive terms || margins | ||----------------------------+--------------------------------------|| Dependence on key | retain and recruit key staff through || executives | a mixture of basic salary, plus || | short and long-term incentive || | schemes ||----------------------------+--------------------------------------|| Failure of systems | maintain financial controls, defend || | against natural disasters, terrorist || | attacks, sabotage and hacking ||----------------------------+--------------------------------------|| Competition | hold and gain market share ||----------------------------+--------------------------------------|| Insolvency of a major | mitigate the consequences of || multiple retail agent | insolvency both in terms of the bad || | debt risk and the impact of such || | insolvency on our network coverage ||----------------------------+--------------------------------------|| Technological changes | keep pace with technological changes || | and introduce new developments to || | compete effectively ||----------------------------+--------------------------------------|| Reliance on intellectual | stop third parties from using our || property | products and defend the use of our || | products from any challenge ||----------------------------+--------------------------------------|| The need to raise capital | access any future capital on || in future | sufficiently attractive terms, || | particularly in view of prevailing || | economic conditions and the || | availability of credit ||----------------------------+--------------------------------------|| Economic, political, | to deal with the impact of any || legislative, taxation or | changes without affecting the growth || regulatory changes | or profitability of the business ||----------------------------+--------------------------------------|| Taxation | ensure the impact of any adverse || | changes is mitigated by enhanced || | performance ||----------------------------+--------------------------------------|| Fraudulent or criminal | avoid loss of client money by the || activity | rigorous application of controls ||----------------------------+--------------------------------------|| Consumers reduce number or | establish new products and services || value of payments via the | and keep abreast of technological || PayPoint network | and market changes |+-------------------------------------------------------------------+INDEPENDENT REVIEW REPORT TO PAYPOINT PLCWe have been engaged by the company to review the condensed set offinancial statements in the half-yearly financial report for theperiod ended 27 September 2009, which comprises the condensedconsolidated income statement, the condensed consolidated balancesheet, the condensed consolidated statement of comprehensive income,the condensed consolidated statement of changes in equity, thecondensed consolidated cash flow statement and related notes 1 to 9.We have read the other information contained in the half-yearlyfinancial report and considered whether it contains any apparentmisstatements or material inconsistencies with the information in thecondensed set of financial statements.This report is made solely to the company in accordance withInternational Standard on Review Engagements (UK and Ireland) 2410,Review of Interim Financial Information Performed by the IndependentAuditor of the Entity, issued by the Auditing Practices Board. Ourwork has been undertaken so that we might state to the company thosematters we are required to state to them in an independent reviewreport and for no other purpose. To the fullest extent permitted bylaw, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for theconclusions we have formed.Directors' responsibilitiesThe half-yearly financial report is the responsibility of, and hasbeen approved by, the directors. The directors are responsible forpreparing the half-yearly financial report in accordance with theDisclosure and Transparency Rules of the United Kingdom's FinancialServices Authority.As disclosed in note 1, the annual financial statements of the groupare prepared in accordance with IFRS as adopted by the EuropeanUnion. The condensed set of financial statements included in thishalf-yearly financial report has been prepared in accordance withInternational Accounting Standard 34, Interim Financial Reporting, asadopted by the European Union.Our responsibilityOur responsibility is to express to the company a conclusion on thecondensed set of financial statements in the half-yearly financialreport based on our review.Scope of reviewWe conducted our review in accordance with International Standard onReview Engagements (UK and Ireland) 2410, Review of Interim FinancialInformation Performed by the Independent Auditor of the Entity,issued by the Auditing Practices Board for use in the United Kingdom.A review of interim financial information consists of makinginquiries, primarily of persons responsible for financial andaccounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an auditconducted in accordance with International Standards on Auditing (UKand Ireland) and consequently does not enable us to obtain assurancethat we would become aware of all significant matters that might beidentified in an audit. Accordingly, we do not express an auditopinion.ConclusionBased on our review, nothing has come to our attention that causes usto believe that the condensed set of financial statements in thehalf-yearly financial report for the period ended 27 September 2009is not prepared, in all material respects, in accordance withInternational Accounting Standard 34 as adopted by the European Unionand the Disclosure and Transparency Rules of the United Kingdom'sFinancial Services Authority.Deloitte LLPChartered Accountants and Registered Auditor19 November 2009London, UKDIRECTORS & KEY CONTACTSDirectors George Earle (Finance Director) Dominic Taylor (Chief Executive) Tim Watkin-Rees (Business Development Director) Eric Anstee* David Morrison* David Newlands* (Chairman) Andrew Robb* Stephen Rowley* Nick Wiles * (appointed 22 October 2009) Roger Wood* * non-executive directorsRegistered office 1 The Boulevard Shire Park Welwyn Garden City Hertfordshire AL7 1EL United Kingdom Registered in England and Wales number
Datum: 19.11.2009 - 08:02 Uhr
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