Paypoint has now released their final results for the year ended 2018.
Revenues increased when compared to last year as a £17.8M growth in Romanian revenue was partially offset by a £9.4M decrease in UK revenue, a £1.4M fall in Irish revenue and the elimination of North American and French revenue. There was a £4.5M decrease in the commission payable to retail agents but the cost of mobile top ups increased by £12.5M. There was no card scheme sponsor charges, which accounted for £2.1M last time but depreciation was up £1.1M and amortisation grew by £2M. Other cost of sales fell by £1.4M to give a gross profit £6M below that of last year. Audit costs were down £518K, R&D costs fell by £400K, staff costs decreased by £4.1M and other underlying admin expenses were down £1.8M. There was no profit on the disposal of a business, which was £15.7M last time, however, so the operating profit fell by £14.5M. There was a £1.2M fall in joint venture profits, bank charges were up £489K and tax charges increased by £504K to give a profit for the year of £42.9M, a decline of £16.7M year on year.
When compared to the end point of last year, total assets increased by £62.7M driven by a £61.1M growth in items in the course of collection, a £7.3M increase in cash collected on behalf of clients, a £4M growth in goodwill and a £3.7M increase in trade receivables, partially offset by a £14.3M fall in cash. Total liabilities also increased during the period due to a £61.1M increase in settlements payable and a £7.3M growth in the amount owed in respect of client cash. The end result was a net tangible asset level of £35.8M, a decline of £17.3M year on year.
Before movements in working capital, cash profits increased by £4M to £65.1M. There was a cash inflow from working capital due to an increase in payables and even after tax payments increased by £1.6M and bank charges grew by £489K, the net cash from operations was £63M, a growth of £21.2M year on year. The group spent £7.1M on tangible assets, £6.3M on intangibles and £926K on acquisitions to give a free cash flow of £48.8M. This did not cover the £55.9M spent on dividends, however, and there was a cash outflow of £7.1M and a cash level of £46M at the year-end.
In Ireland the group have a network of 450 sites but given the focus on the UK and Romanian operations they have decided to wind down the bill payment services in Ireland which generates around £500K of net revenue per annum.
Overall retail network net revenue increased by 1.8% to £119.6M driven by a 30% growth in Romania to £11.9M which included £1.7M of net revenue from the acquired Payzone business. In the UK, net revenue fell by 0.6% due to the new commercial terms with Yodel and last year’s one-off VAT recovery. Excluding this, net revenue increased despite a decline in transaction volumes in top-ups.
Overall net revenue in bill and general increased by 2.5% to 60M. In the UK net revenues were broadly flat reflecting an improved mix of clients counteracting the reduction in transaction volumes. Multi Pay continued to grow robustly with transactions increasing by 88% and net revenue doubling to £2.4M. Included in net revenue was £4M from the Department for Work and Pensions Simple Payment Service which ended in March. In Romania, net revenue grew by 26% to £7.7M.
Overall top-up net revenue increased by 9% to £20.8M. UK and Irish net revenue was up 4.6% to £17.7M. Transactions were down, affected by market trends whereby UK prepay transactions are being replaced by direct debit payments. Despite this, the net revenues increased following the full year impact of their renegotiations of performance incentives and increased average top up values. They also achieved growth in eMoney transactions. In Romania, the 42% increase to £3.1M was driven by the Payzone acquisition.
In Romania the group intends to lunch a new Android terminal appropriate to the local market that will in time replace the existing second generation terminal and provide an integrated card payments solution to meet the Romanian government’s requirement for all stores to be able to transact cards as well as replace the Payzone in-store technology that will soon be out of support
In October the group acquired Payzone SA in Romania for an initial consideration of £2.3M. The business operates a network of 10,000 retailers offering similar services to the existing Romanian business of bill payment, mobile top-up services and money transfer services. The transaction generated goodwill of £3.9M as the business had negative net assets.
The group were successful in their challenge to an HMRC VAT ruling issued in 2015. The ruling required certain revenue streams to be treated as VAT exempt which reduced VAT recovery and increased the cost base. Following the tribunal outcome they have started the recovery of the VAT element of invoices previously issued to clients. As a consequence, included in the current year cost base is an estimated benefit of £2.4M of which £1.5M relates to years prior to 2018. In addition the group made £1.2M of sustainable cost efficiencies. These were offset by Payzone adding £1.2M of costs and £3.4M of underlying cost increases due to investments in CRM salesforce and Paypoint One, one-off reorganisation and asset useful life adjustments of £1.2M.
Going forward there is now strong momentum across Paypoint One, Multipay and Romania and a compelling parcel proposition reflected in a strong pipeline of client deals. Non-recurring items that will affect the business in 2019 include the closure by the Department for Work and Pensions of their Simple Payment Service worth £4M per annum in net revenue and the second-year impact of £1M reduction in net revenue from the agreement with Yodel to lower parcel fees. Despite these headwinds and whilst the outturn for the forthcoming financial year will be influenced by the timing of and volumes from new parcel contracts, the board anticipates a progression in profit before tax in this financial year as the growth drivers in their business continue to develop.
After an increase of 2% in the ordinary dividends, the shares are yielding 9%. The additional dividend programme of £25M per annum continues until 2021 alongside the ordinary dividend policy. From April 2019 the dividends will be split into four equal quarterly payments.
On the 26th July the group released a trading update covering Q1. In parcels they have now added eBay as a partner to their Collect+ network. In the UK they have implemented some improvements to enhance their retailers experience including an interactive voice response technology. In Romania, growth continued to benefit from the Payzone acquisition and solid growth in the underlying business. In all the full year outlook remains in line with previous guidance.
Following the period-end the group had a technical incident that impacted around a third of the terminal estate. During this period customers were able to undertake services at alternative local sites as they were able to continue to provide coverage to 98% of households. They fully restored services during the course of the day and are confident that it was a one-off issue.
Net revenue reduced by £700K reflecting the closure of Simple Payments Service, the second year impact of reduced Yodel parcel fees and the implementation of IFRS 15. These factors had a combined impact of £1.4M. Transactions increased by 3.6% as a 44% increase in Romanian transactions was partially offset by a 2.4% decrease in UK transaction volumes.
In the UK and Ireland like for like retail service net revenue was up 3.3% driven by service fees which increased 46% to £2.3M. In the quarter their focus has been on the rollout of their EPoS Pro which was installed in 138 new sites. Wholesaler links with NISA are now live and are in a pilot programme with Booker, with their retailers now ordering stock directly from their PayPoint One terminal. Overall their PayPoint One terminal was in operation in 9,260 sites, an increase of 710 since the beginning of the year.
Card payment transactions grew by 14%. In January the government ban on all surcharges for card payments came into effect. As a consequence the increased transaction volume was offset by reduced average transaction values which decreased by £1 to £13 resulting in a slight reduction in card payment rebate revenue. ATM transactions increased by 4.5% driving an increase in ATM net revenue. Their Collect+ network was in 7,456 sites but parcel volumes were down 17% reflecting a reduction in parcel volumes from their current partner, although they expect to return to growth once their new parcel partners begin to introduce volumes.
Net revenue in bill and general decreased by 13%. In a large part this was due to the closure of the SPS scheme. There was a strong performance in the energy sector, however, where net revenue increased by 3.3%. In addition eight new clients were added during the quarter including a leading UK challenger bank, Tide, enabling customers to manage payments to their Tide e-money accounts through a UK-wide network which is larger than any high street bank. Bill and general transactions reduced by 5% but MultiPay volumes were up 63%.
Top-up transactions declined by 15% as the prepaid mobile sector continued to contract. Net revenue only reduced by 2%, however, as average top-up values and e-money transactions continued to grow.
In Romania transactions increased by 44% and net revenue was up 37% driven largely by the integration of Payzone. Organically, net revenue was up 7%.
The group had net cash of £48.5M at the period end compared to £46M at the year-end. A the current share price the shares are trading on a PE ratio of 14.7 which is expected to remain the same on next year’s consensus forecast. Including all the additional dividends, the shares are yielding 9% which increases to 9.2% on next year’s forecast.
Overall then this has been a bit of a mixed year for the group. Profits were down due to last year’s subsidiary sale. Without this, there was not much change year on year. Net assets decreased but the operating cash flow improved with plenty of free cash being generated, although the dividends were not covered. As usual Romania seems to be the driver of growth, offset by a sluggish performance in the UK. So far this year the group has been impacted by the closure of the Simple Payment Service and lower fees from Yodel. The shares are decent value with a forward PE of 14.7 and yield of 9.2% but it is hard to see where much growth is coming from.