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“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.

• Service fee net revenue increased by 9.2% to £8.9 million, reflecting increases in the number of PayPoint One sites and the impact of the annual RPI increase

• Card payment net revenue decreased slightly by 0.6% to £15.9 million, with an enhanced proposition for Handepay customers delivered, next day settlement now live across PayPoint and an increased focus on customer retention driven by AI and data analytics, but offset by a net decrease in sites

• Card value processed decreased slightly by 0.7% to £3.54 billion (H1 FY22: £3.56 billion): Handepay business increased to £1.94 billion in the half year (H1 FY22: £1.86 billion) and PayPoint card business reduced to £1.26 billion (H1 FY22: £1.27 billion)

• Card payment sites in the Handepay EVO estate grew to 17,548 (31 March 2022: 17,499) driven by the enhanced proposition, the new Android terminal now live with positive customer feedback and the increased optimisation of our sales efforts, in spite of a reduced headcount due to recruitment challenges

• Card payment sites in the PayPoint Lloyds Cardnet estate reduced to 9,514 (31 March 2022: 9,666) with improvements to the competitiveness of our proposition launched in Q2, with pricing and next day settlement, offset by an increase in site churn

• Card payment sites in the legacy Handepay Worldpay estate reduced to 4,517 (31 March 2022: 5,297) with a new 4-year contract extension now agreed

• UK retail network increased to 28,395 sites (31 March 2022: 28,254), with 66.9% in independent retailer partners and 33.1% in multiple retail groups
  
  

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.

• Cash payments net revenue delivered a resilient performance,decreasing by 2.9% to £16.4 million (H1 FY22: £16.9 million) , with a strong energy sector net revenue performance increasing by 8.1% year on year, offset by the continued reduction in other sector consumers and tourists topping up mobile phones in store

• Continued digital payments growth to 23.5 million transactions (H1 FY22: 13.5 million) and net revenue increasing by 87.1% to £5.9 million (H1 FY22: £3.0 million), with our Cash Out services and the DWP Payment Exception Service, delivered via i-movo, continuing to perform strongly and being an important disbursement channel for government support initiatives to financially vulnerable people across the UK, such as council tax rebates

• 9 energy providers signed contracts with PayPoint to deliver the Energy Bills Support Scheme, providing a £400 payment over the winter months to households across the UK. This vital support for consumers to help with the Cost of Living leverages our Cash Out digital capability and extensive network of local retailer partners, with an estimated 800,000 vouchers to be issued to customers each month from October 2022

• Cash through to digital net revenue decreased by 21.2% to £3.4 million (H1 FY22: £4.3 million) and transactions decreased by 25.6% to 4.3 million (H1 FY22: 5.8 million), due to the resetting of consumer behaviour following the peaks experienced during 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.com
CHIEF 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.

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.

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 Wiles
Chief 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

• The Consumer Prices Index (CPI)⁷ grew to 8.8% in September 2022, driven by housing and household services (principally from electricity, gas and other fuels, and owner occupiers’ housing costs), transport (principally motor fuels), and food and non-alcoholic beverages.

• The GfK UK Consumer Confidence Index⁸ fell to a new low of -49 in September 2022 (vs -13 in September 2021), with consumers under pressure from the UK’s growing cost of living crisis driven by rapidly rising food prices, domestic fuel bills and mortgage payments.

• PwC’s Autumn Consumer Sentiment Survey⁹ reveals that sentiment has fallen to its second lowest recorded level of -44. Previous Surveys highlighted a divergence between sentiment levels across all age and socioeconomic groups in 2021 and early 2022. That has changed. Since summer, the gap has narrowed, as sentiment has fallen across every age group, socioeconomic group, nation and region of the UK. Seemingly, no group is immune to the cost of living crisis.

• UK Retail Sales¹⁰ fell by 1.4% in September 2022; making them 1.3% below pre-coronavirus (COVID-19) February 2020 levels, with the proportion of retail sales taking place online now 26.4% in September 2022; this has remained at a broadly consistent level since May 2022 but continuing a broad downward trend since its peak in February 2021 (37.1%).

• The Lumina CTP Price Index¹¹, tracking shopper price sensitivity, has grown by 5.4% since last year, indicating consumers have already become more price-led, seeking out budget options and reducing spend.

• A May 2022 study from Which?¹² has shown that the rising cost of living could mean more people who do not usually use cash turning to it to manage their finances. A fifth (20%) of non-regular cash users said they would start using cash if the cost of living gets worse, with over a third (34%) of respondents whose annual income was lower than £20,000 finding cash easier to budget with, on its own or alongside other payment methods. Around 15 million regular cash users say it helps them to keep track of their spending, underlining its importance for those on tight budgets.

Convenience retail

• The UK convenience market grew to £43.2 billion¹³ in 2021 and is forecast to reach a value of £45.2bn in 2022, with growth of 3.2% versus 2021 as the pandemic-induced boost to market value was retained.

• PayPoint One basket data shows overall convenience store average basket spend in the year has reduced year on year to £6.92 (FY21: £ 7.07) vs. the highs seen during the Covid-19 affected prior year.¹⁴

• Total UK convenience store numbers remained resilient, with marginal growth of 0.2% to 47,079¹⁵.

• The sector continues to see consolidation, most recently with Morrison’s buying the McColl’s Retail Group following their administration in May 2022, maintaining over 1,000 stores across the UK.

• Local home delivery and click and collect from convenience stores grew rapidly in 2020 and 2021, but has slowed recently. Currently, circa 5% of total convenience missions are driven through these methods and they attract a younger, more affluent consumer, with basket spend being +128% higher than in-store shoppers¹⁶.
  
  

Card payments

• Over the next decade, debit card payment volumes are forecast to continue to increase in use. They are predicted to pass the threshold of accounting for more than half of all payments in the UK, reaching over 24 billion payments in 2031.¹⁷

• In the half year, card payment volumes increased by 5.3% year on year in the PayPoint business and increased by 8.3% in the Handepay business, against strong volumes in H1 FY22.

• Latest UK Finance data¹⁸ shows there were 2.1 billion debit and credit card transactions in the UK in July 2022, 12.2% more than in July 2021. The total spend of £75.3billion was 8.5% higher than July 2021. Contactless payments accounted for 61 per cent of all credit card and 75 per cent of all debit card transactions. The total number of UK card holders fell from 157 million in July 21 to 150 million in July 22 a drop of 4.4%.

• In the SME markets that our Handepay business serves, businesses employing 0-49 people, account for 99.2% (5.47 million) of the total UK business population, with 74% (4.1 million) having no employees and a further 20% (1.18 million) classed as micro-businesses with 0-9 employees¹⁹. Retail, auto trade and hospitality businesses make up circa 14% of the SME sector²⁰.

• Technological and social change have led to decreased reliance on both physical cash and traditional bank branches. While cash accounted for 45% of all payments in 2015, five years later it was used in only 17% of transactions in the UK. The coronavirus pandemic reinforced this tendency. Similarly, the number of bank and building society branches in the UK fell by about 34% between 2012 and 2021²¹.
  
  

Cash Out

• PayPoint’s Cash Out service has grown significantly year on year, driven by ongoing Government Cost of Living Payments. In addition, the Energy Bills Support Scheme payments of £400 are now being delivered via our i-movo business, and has further underlined the continuing importance of delivering payments to those without access to a standard bank account.

• Communities across the UK will have their ability to access cash protected by new powers set out by the government in May as part of the Financial Services and Markets Bill. It will ensure the continued availability of withdrawal and deposit facilities across the UK, and that the country’s cash infrastructure is sustainable for the long term.²²

• The latest data from August 2022²³ showed LINK’s ATM transactions were 2.4% lower year on year (137 million transactions) which contrasted to July 22 figures which were above the last two years. ATM coverage across the UK in 2022 continues to be broadly stable and LINK’s strategy and Financial Inclusion Programme objectives.

• Access to cash remains a key priority in the UK and PayPoint are taking a lead role in maintaining free access to cash in communities across the UK.Our Counter Cash service, which launched in November 2021 offering cashback without purchase and balance enquiries over the counter, is now live in now live in 4,563 sites with over £22.8 million withdrawn since launch.

Parcels

• Overall online spending remains high, but has fallen in recent months. In May 2022, seasonally adjusted internet sales accounted for 26.6% of all official retail sales, compared with 19.7% in February 2020. The pandemic appears to have accelerated the online shopping trend. However, consumers have started shifting back towards shopping in store, although spending online remains high²⁴.

• Online retail sales in 2021 were down 5.6% year on year, according to IMRG’s Online Retail Performance Report 2021, vs. 2020 which was positively impacted by Covid-19.²⁵

• This contrasts with the strong performance seen in the Collect+ network in the half year, as transactions were +60.6% % vs. H1 FY22, outperforming the overall online retail sales market and 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.

• Metapack data²⁶ shows that in the UK 43% of total non-food sales in 2020 were made online decreasing to 37% in 2021, but expected to account for 49.7% of non-food sales by 2025. 27% of UK consumers have permanently shifted their shopping to online post pandemic, with 36% expecting to visit a physical store less in the future.Preference is key in the e-commerce journey, with 56% considering it the most important factor when shopping online. Home delivery is still the preferred channel for 82% of consumers, with PUDO at 8% and lockers at 2%.

• The Out of Home (OOH) market comprises click and collect, returns and send propositions. The click and collect market is 11% of all volumes, c.150 million parcels per year and is expected to double by 2025²⁷. Returns and send volumes are estimated at c.185 million and c.380 million parcels per year respectively²⁸.
  
  

Bill payments and top-ups

• The price cap for pre-pay customers increased to £2,017²⁹ for the six months to September 2022, which was 65% higher than the cap of £1,309 in the six months October 2021 to March 2022. From 1 October 2022, the price cap was due to increase by a further 56% to £3,608 for the three months to December 2022³⁰, but was subsequently replaced by the Energy Price Guarantee.This new scheme will reduce the unit cost of electricity and gas so that a household with typical energy use in Great Britain pays, on average, around £2,500 a year on their energy bill, for the next 6 months until 31^st March 2023.

• The combined market share of the large legacy suppliers has continued to increase in 2022, reaching 72% in gas and electricity markets (as of September 2022)³¹

• As of end of June 2022, 29.5 million smart meters have been installed in homes and small businesses across the UK. 52% of all meters are now smart or advanced. The deadline for completion of the rollout has now been extended to 30 June 2025.³²

• PayPoint data shows average transaction values for dual fuel has grown to £16.30 in August 2022, from £13.89 in the previous year.

• The number of Pay As You Go mobile subscribers declined to 21.29 million subscribers³³ in Q1 2022, from 21.47 million in Q1 2021.
  
  

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

• Further expansion of Counter Cash, now live in 4,563 sites with over £22.8 million withdrawn since launch in November 2021, offering vital access to cash over the counter and complementing existing ATM estate

• SME and retailer proposition enhanced across Handepay and PayPoint card services: new Android terminal launched in Handepay with positive merchant feedback, supported by one month contracts and next day settlement delivered in last financial year; improved pricing and next day settlement launched for new PayPoint card payment merchants from 1 July 2022 and to existing customers in October 2022, boosting cash flow to our retailer partners

• Optimisation of sales efforts yielding improved conversion rates and customer satisfaction, supported by improved prospect targeting, data, AI tools and analytics to drive quality conversations and a stronger focus on retention across Handepay and PayPoint

• Strong performance of Business Finance via YouLend with over £5.9 million lent across PayPoint and Handepay and lending proposition expanded with Funding Circle partnership launched in October 2022

• FMCG – good progress with further campaigns live, partnering with Coca-Cola, Amazon, AG Barr and JTI, leveraging our PayPoint One platform, advertising screens and i-movo vouchering capability to help our retailer partners drive sales and engage thousands of consumers across our network, with redemption rates of up to 40%

• Retailer engagement - positive progress made on retailer partner Net Promoter Score and satisfaction, supported by regular engagement with key trade associations, launch of new retailer forums with the Scottish Grocer’s Federation and National Federation of Retail Newsagents and a comprehensive communications programme to drive new services and opportunities to drive revenue for our retailer partners

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

H1 FY23 Progress

• Excellent parcel transaction growth of +60.6% year on year, driven by our strength in clothing/fashion categories, the continued expansion of new services with carrier partners and the in-store experience from investment made in Zebra label printers over the past 18 months

• New partnership launched with Wish.com, one of the largest ecommerce marketplaces in the world, enabling consumers to click-and-collect at over 1,600 Collect+ sites

• Amazon returns rollout expanded to over 2,000 sites and further integrations in progress to expand Universal Print In Store Returns for more carrier partners in H2

• Rapid rollout of 1,455 Collect+ sites in September and October to support Royal Mail business customers, helping keep mail moving during industrial action

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

H1 FY23 Progress

• Strong performance in the energy sector, with net revenue +8.1% and transactions +6.0% year on year, driven by an increase in frequency of consumer transactions and the impact of the April 2022 energy price cap

• Continued strong performance of Cash Out services and the DWP Payment Exception Service, delivered via i-movo, with over 4.5 million vouchers issued in the half year, and now established as 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

• 9 energy providers signed contracts with PayPoint to deliver the Energy Bills Support Scheme, providing a £400 payment over the winter months to households across the UK. This vital support for consumers to help with the Cost of Living leverages our Cash Out digital capability and extensive network of local retailer partners, with an estimated 800,000 vouchers to be issued to customers each month

• 6 clients live on Confirmation of Payee name-checking service, via OBConnect, our Open Banking partner, which enables Payers to compare the account name, sort code, and account number provided to the name of the recipient of the funds. PayPoint became the first non-banking business to be able to offer the service, working in partnership with Pay.UK, initially covering energy rebate and council tax returns to help deliver the government's cost of living support package, and more recently with an expansion of our authorisation opening up further opportunities in H2 FY23

• Cash through to digital consumer awareness campaign for gifting expanded with over 9,000 display units rolled out to stores across the UK ahead of key Christmas trading period, including major multiple groups like Midcounties Co-operative, promoting our portfolio including Amazon, Xbox, PlayStation, Paysafe and Love2shop
  
  

PRIORITY 4: BUILDING A DELIVERY FOCUSED ORGANISATION AND CULTURE

PAYPOINT GROUP

H1 FY23 Progress

• Good progress against our ESG programme, including commitment to ensure all employees are paid a minimum of the Real Living Wage delivered in July 2022

• Inaugural Pride Month programme 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

• 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

• Continued progress on improving our IT service delivery through increased resilience in our core network services and the deployment of the automation framework, yielding reduced delivery times for CRM developments, reduced manual effort and increased capabilities to deliver more robust change implementation

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:

• Investment in the business through capital expenditure in innovation to drive future revenue streams and improve the resilience and efficiency of our operations;

• Investment in opportunities such as the acquisition of Appreciate Group and investment in OB Connect;

• Progressive ordinary dividends targeting a cover ratio of 1.2 to 1.5⁴⁵ times from continuing operations earnings excluding exceptional items.
  
  

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 Dale
Finance 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.

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

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 CASH FLOWS