Paypoint has now released its interim results for the year ending 2017.
Revenues decreased when compared to the first half of last year as a result of the sale of Online due to a £5.1M fall in UK revenue and a £682K decline in Irish revenue, partially offset by a £3.6M growth in Romanian revenue, a £735K increase in North American revenue and a £337K growth in French revenue. Commission payable to retail agents fell by £2.5M but the cost of mobile top ups and sim cards increased by £1.9M, the cost of scheme sponsor changes grew by £376K and depreciation increased by £365K to give a gross profit of £50M. Admin expenses declined by £2.8M and there was no goodwill impairment this year which cost £18.2M last time so the operating profit increased by £20.7M. The share of Collect+ profit grew by £841K and after tax payments were up £546K the profit for the period came in at £19.7M, a growth of £21M year on year.
When compared to the end point of last year, total assets declined by £33.3M driven by a £32.7M fall in cash and an £8.9M decline in receivables, partially offset by a £3.6M growth in property, plant and equipment and a £1.7M increase in intangible assets. Total liabilities also declined during the period as a £22.9M fall in payables was only partially offset by a £1.9M growth in current tax liabilities. The end result was a net tangible asset level of £57.4M a decline of £14.4M over the past six months.
Before movements in working capital, cash profits grew by £3M to £28.4M. There was a large cash outflow from working capital with an £18.9M fall in payables related to the client settlement liability which was high last year due to the timing of Easter, but tax payments fell by £1.8M to give a net cash from operation of £9.1M, a decline of £15.3M year on year. The group spent £6.4M on property, plant and equipment (£3.7M relating to the freehold building adjacent to the Welwyn building which was being occupied on an operating lease) along with £2.7M on intangible asset development so that before financing, there was a cash flow of just £100K. This did not cover the £408K spent on share based remuneration settled in cash and after the group paid out £33.5M in dividends there was a cash outflow of £33.8M to give a cash level of £51.4M at the end of the period.
Bill and general transactions decreased by 4% compared to the same period of last year driven by a 6.7% reduction in UK and Irish transactions due to the continuing decline in energy transactions. A decrease in consumption, lower energy prices and higher average transaction values more than offset the impact from meter growth. Multi Pay continued to grow with total transactions for the period exceeding three million, despite the delay in the readiness of the Data Communications company, which is constricting the installation of smart meters. Strong growth in Romania continued as a result of increased market share of 23.1% and the addition of new clients with transactions increasing by nearly 12%. Despite this a growth in net revenue of 2.8% was achieved as a result of the transaction mix and changes to individual transaction commission caps.
Top-up transactions reduced as expected as a result of the continued decline in mobile top-up volumes in the UK and Ireland of over 14% and a decline in other top-ups. These declines were partly offset by an increase in Romanian mobile top-ups. Net revenue declined by 13.5%.
Retail services transaction volume increased by 11.8%. Card payment transactions increased by 14.7%, ATM transactions by 9.3% and parcels by 5.7%. Net revenue growth of 14.7% was greater than transaction growth and was driven by bonuses earned on SIM activations and increased retailer service fees for PayPoint One, card payment service fees and broadband enabled terminals.
Collect+ made a profit of £887K in the period compared to a £797K loss last time as last year suffered from a temporary increase in Yodel’s charges which ended in February this year. The group continue to discuss with Yodel new arrangements for the continuation of the service, following their proposed change in basis of charging for its logistics which would substantially increase the costs in the joint venture.
The mobile payments business saw net revenue increase by 42% to £4.6M. The group have continued to add parking contracts with councils and parking authorities with the increase in revenues reflecting the increase in transaction volumes as the business wins new clients and increases its penetration of existing clients. Consumers are able to pay with Apple Pay and Android Pay at a growing number of Pay By Phone locations, streamlining payment registration and increasing consumer satisfaction.
In the UK, PayPoint One has been well received by retailers but the revenue achieved in the period has been lower than expected as they stopped rolling out the older terminals at the start of the initial rollout of PayPoint One and demand for upgrades, which produce lower incremental revenues than new agents, was stronger than expected. Now that the rollout has gathered pace, focus has returned to the ATM and card payment products to drive growth in the second half.
Terminal sites overall have increased by 407 to 39,635. In the UK and Ireland, retail sites decreased by 0.4% as a consequence of the decision to stop the rollout of the old terminal before the new terminal rollout process was in full flow. As of the period-end, there were over 1,100 sites with PayPoint One terminals which are being introduced to both new and existing retailers. Card payment services, which include the contactless functionality were in 10,076 sites, a decrease of 35 sites in the period. The PPoS integrated solution, which combines a virtual terminal with a plug-in reader, was in 8,178 sites. Some of the terminals replaces by Paypoint One and PPoS will be redeployed in Romania and sites in the country have increased by 5.1% to 10,662.
The group expect to rollout PayPoint One to achieve around 4,000 sites by the end of the year; to develop advanced EPoS and to step up their installations of ATMs and card payment which will require increased costs as the rollout of Paypoint One and Epos accelerates and attention returns to increasing ATM and card payment site numbers.
Capital expenditure for the full year is expected to be between £15M and £20M, above the previous expectations because of the purchase of the freehold in Welwyn, further feature enhancements to Paypoint One and EpoS and ongoing development of an alternative payment service provider for Muiltipay to reduce risk of downtime.
Trading since the end of September has been in line with board expectations. Utility providers continue to install new prepay gas and electricity meters from which, together with MultiPay, they anticipate a beneficial impact on transaction volumes. Retail services has shown robust growth and with the launch of PayPoint One and Core Epos, will continue to benefit from growth opportunities. Mobile top-ups in the UK and Ireland continue to decline as mobile operators offer more airtime at lower cost and promote prepay less than contract, although top-up growth has been maintained in Romania.
At the current share price the shares are trading on a PE ratio of 16.1 which reduced so 14.8 on the full year forecast. After a 5.6% increase in the interim dividend and another special dividend the shares are yielding 8.2% which falls to a still-respectable 6.8% on the full year forecast.
Overall then this has been a rather mixed period for the group. Profits were up but this seems to be due to a reduction in admin expenses, perhaps following the sale of the online business. Net assets declined and the operating cash flow fell markedly due to a decrease in payables which meant that there was no free cash flow generated of note. The cash profits did increase, however. Geographically, it seems the Romanian business continues to grow strongly but the UK and Irish business seems to be flat lining.
The top-up revenues seem to be in terminal decline as people use mobile top up less and less in this country and the bill and general business seems to be rather flat, presumably as the group stopped the roll-out of older terminals to concentrate on Paypoint One. The retail services segment did perform well, however, and the group made some profit from Collect+ as the increased charges from Yodel ended – although the future of this joint venture does seem rather uncertain.
The mobile business sale continues but there doesn’t seem to be much interest. There are hardly any assets on the balance sheet relating to it now, though, so it wouldn’t take much to achieve a decent profit on disposal. The costs in the second half are likely to rise as the new terminals continue to be rolled out. The forward PE of 14.8 doesn’t look great value but there is a stonking yield of 6.8% (unlikely to be sustainable). This is really tricky, I am minded to sell up and re-enter of more signs of progress are seen.
On the 16th December the group announced that it had reached an agreement with Yodel for a new arrangement for Collect+. Paypoint and Yodel will retain 50:50 ownership of the brand through their joint venture company with the joint venture receiving royalties from both PayPoint and Yodel for each parcel they introduce. Yodel will take responsibility for the operations and contracts and as a consequence Paypoint will no longer bear the impact of logistics cost increases. Paypoint will be able to utilise its convenience retail network to sign agreements with other parcel carriers and to open Collect+ access to other carriers under license.
In recognition of Paypoint rights to extend network access to other carriers, they have committed to a progressive reduction of their charges over a two year period with the impact hopefully mitigated by additional volume growth from existing and new retailers through the continuing relationship with Yodel and additional volume and fees from other carriers.
PayPoint’s share of the result in the joint venture up to completion was a loss of £2M which includes increased charges from Yodel for the period to completion which will be booked in the second half of this year – up to now I was not aware they increased their charges again! All of the operations and contracts of the previous joint venture are transferring to Yodel for no consideration which will not result in a gain or loss to Paypoint.
I’m not sure what to make of all this but it doesn’t sound like Paypoint will be making much money from this.
On the 23rd December the group announced the sale of Mobile Payments to VW Financial Services for £26.5M paid in cash. A dividend of the gross sale proceeds which amounts to 38.9p per share will be paid. The sale marks the conclusion of the restructuring set out in the announcement made last year and follows the earlier sale of the Online business. The Mobile business is performing better than expected with a growth in revenue but the sale is in line with the group’s strategy of narrowing their focus on multi-channel payments in territories in which they have retail networks.
The aggregate pre-tax loss of the business was £2.6M in 2016 and the net book value on completion was £2.3M so although disappointing to see them exit the business, this looks to be a decent price.
On the 3rd January the group announced that Rachel Kentleton joined the board as executive director and will succeed George Earle as finance director.
On the 26th January the group released an update covering Q3 where trading was in line with board expectations with continued growth in retail services. Retail network transactions increased marginally and net revenue grew 6.7% contrasting with overall transaction decline and net revenue up just 0.2% caused by the sale of online payments and mobile payments. Transaction volume from retail services was up 11.8% with strong growth in parcels and card payments. Bill and general transactions increased 1.3%, excluding a reduction in cash-out transactions resulting from the two year government electricity rebate schemes which benefited prior periods (so bill and general transactions presumably declined then).
In the UK and Ireland, retail services transactions continued to grow, up 11.7%, helped by parcel volumes and card payment transactions. The Collect+ network expanded since the half year-end by 140 sites. Bill and general transactions were down 3.6%, mainly due to the impact of the government electricity rebate scheme but also as a result of smart meter rollout delays and lower energy consumption. Top-up transactions fell by 13.8% as the prepaid mobile sector continued to detract – these now only make up 7% of the total transactions.
In Romania, bill payments increased by 12.6%, top-ups were up 13.5% and retail services grew by over 28.7%. The terminal estate increased by 393 in the quarter and they continue to add new clients. Following the cash proceeds of £26.5M from the sale of the mobile business, which were subsequently paid out as a dividend post the period-end, net cash came in at £54.5M compared to £34.2M at the end of the first half.
Overall, the usual trends are still in evidence here – there was strong growth in Romania but a more mixed environment in the UK as top-up transactions continued to decline and bill transactions also fell. I continue to hold.
On the 26th May Finance Director Rachel Kentleton purchased 1,245 shares at a value of £12K.
On the 18th July the group announced that non-executive director Rakesh Sharma purchased 1,150 shares at a value of just under £10K.
On the 26th July the group released an update covering Q1. Overall the full year outlook remains in line with previous guidance. Group organic net revenue grew by 4.2% despite a 4.5% reduction in transaction volumes as a result of an expected decline in the UK prepay energy volume which was partially offset by growth in the net revenue per transaction through a shift to smaller but higher yielding clients.
UK and Ireland retail services net revenue was up 10.5%, driven by PayPoint One service fees, card payment transactions which grew by 8.3% and ATM transactions which increased by 5%. The PayPoint One terminal is now in operation in 5,000 sites, an increase of 1,296 since the start of the year. The group remain on target to reach 8,000 sites by the end of March 2018. Due to the strong take up by retailers, the group have standardised the service fees for legacy terminals across 14,000 sites which has led to a small number of retailers leaving with the network reducing by 449 to 28,727 outlets. The parcel service increased volume by 16.6%.
Net revenue in bill and general decreased by 2.7% as transaction volume declined by 11.2%, driven mainly by a 15% reduction in prepay energy volume, with the shift in mix towards smaller but high yielding clients partially offsetting the decrease in transactions. Top-up transactions declined by 14% as the prepaid mobile sector continued to contract. Romania continued to grow, net revenue reported in constant currency increased by 16% with total transactions increasing by 9%.
Overall this seems like a pretty decent update, I am tempted to get back in here.
On the 12th October the group announced that it had completed the acquisition of Payzone SA in Romania for an initial consideration of €1.6M payable in cash plus €500K to be deferred contingent on the collection of specific debts over the two years following completion. The business offers prepaid mobile top-ups, prepaid vouchers, bill payment collection on behalf of utility companies and international money transfer services through its retail network, available in 11,000 locations across Romania. The business made a pre-tax profit of €100K over the past six months but there should be operational efficiency benefits through the combination of the two businesses.