PayPoint PlcResults for the year ended 31 March 2023
A strong year across the PayPoint Group establishing a materially enhanced platform for future growth and reporting profit before tax at the top end of range of market expectations
FINANCIAL HIGHLIGHTS
Nick Wiles, Chief Executive of PayPoint Plc, said:
“This has been another strong year for the PayPoint Group where we have made significant steps to materially enhance our platform and capabilities to deliver sustainable, profitable growth and enhanced rewards for our shareholders. Our financial performance has been positive, with net revenue growth across all our business divisions, excellent progress in parcels and digital payments, and good momentum in our key growth areas of card processing, Open Banking, integrated payments and the prospect of new opportunities delivered through the acquisition of the Appreciate Group.
Our partnership philosophy across the Group, combined with an intensity and focus on execution, is already unlocking new markets and revenue opportunities for us, including the recently announced partnership with The Fed to launch a network of Park Christmas Savings Super Agents, our success in Open Banking working with Ovo and the Department for Energy Security and Net Zero, and several emerging opportunities in new verticals combining our extensive capabilities across payments and commerce.
We finished FY23 with good momentum, and trading has been positive in the first quarter of FY24 as we continue to leverage our enhanced platform and capabilities which includes: a full-strength sales team delivering high conversion rates and growing our respective estates in PayPoint and Handepay; healthy pipelines for our FMCG and integrated payments propositions; and a dynamic platform of innovative technology and solutions enabling integrated payments and commerce for our extensive base of clients, retailer partners and SMEs. We will continue to invest in growth areas across the Group in the coming year to further enhance our capabilities, unlock opportunities and accelerate our growth.
All of this underlines our confidence in delivering further progress and a quickening momentum in the new financial year, with the acquisition of Appreciate Group expected to be earnings enhancing in our first full year of ownership, and the Group trading in line with expectations.”
STRATEGIC HIGHLIGHTS
We have materially enhanced our platform across the Group in the past year: our integrated payments platform has expanded with the addition of Open Banking and prepaid solutions to our capability in card processing, Direct Debit and cash; our retailer and SME proposition is now stronger than ever, with multiple opportunities for partners to earn revenue; and our e-commerce offering has gone from strength to strength, delivering record volumes and an unparalleled in-store experience for consumers.
This enhanced platform will unlock future opportunities and deliver sustainable and profitable growth for shareholders, underpinned by our business-wide partnership philosophy and intensity of execution.
DIVISIONAL HIGHLIGHTS
Strong performance across the Group with net revenue increases across all divisions
Shopping
Shopping divisional net revenue increased by 5.6% to £62.0 million (FY22: £58.7 million), driven by the growth of our PayPoint One estate, the annual RPI increase and further enhancements to our retailer and SME propositions, including the launch of the new Android terminal in the Handepay cards business and the continued rollout of Counter Cash.
E-commerce
E-commerce divisional net revenue increased strongly by 46.5% to £7.3 million (FY22: £4.9 million) and transactions grew by 69.6% to 56.4 million (FY22: 33.3 million) through our e-commerce technology platform, Collect+, including regularly achieving over 1 million parcels processed per week. This was 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 9.1% to £56.2 million (FY22: £51.5 million), driven by continued growth in digital transactions and a resilient performance in the energy sector, partially offset by a reduction in cash through to digital volumes as consumer behaviour has continued to reset post Covid-19.
RECONCILIATION OF RE-PRESENTED NUMBERS
BUSINESS DIVISION NET REVENUE AND MIX
A presentation for analysts is being held at 9.30am today (28 July 2023) via webcast. This announcement, along with details for the webcast, is available on the PayPoint plc website: corporate.paypoint.com
CHAIRMAN’S STATEMENT
I am pleased to report that for the year under review, we have consistently applied the Principles of Good Governance contained in the 2018 UK Corporate Governance Code save that we have not completed a review of the effectiveness of Appreciate Group’s (“Appreciate”) risk management and internal control systems (with respect to Provision 29 of the Code) due to the proximity of the acquisition of Appreciate, which occurred on 28 February 2023, to our financial year-end.
The Board has carried out a review of the disclosures and management of climate related risks for the Task Force on Climate Related Financial Disclosures. Detailed disclosure is provided in the Annual Report, along with the further progress made on developing our broader ESG strategy.
The year in review
The business has maintained momentum in delivering against its strategic plan as we have continued our strategic development and diversification away from legacy cash bill payments, with growth in recently acquired businesses and through the acquisition of Appreciate. Effective governance together with the strong leadership from the Board has provided structure and stability to the business.
Executive and Plc Boards
The Board and Nomination Committee has continued to work on succession planning and Board composition. We have worked actively with Teneo People Advisory to ensure the Board has the necessary skills, experience and knowledge and, following an extensive search process, we were delighted to appoint Rob Harding as Chief Financial Officer. Rob will be joining the Company on 1 August 20203 and will replace Alan Dale who is retiring. I would like to express my gratitude for Alan’s contribution to the Company.
We also welcome Guy Parsons as Non-Executive Director to the Board having previously been Executive Chairman of Appreciate Group.
During the year the Executive Board was strengthened in key areas to: a) drive growth (Nick Williams-Parcels and Anthony Sappor- Retail Proposition and Partnerships) and b) enhance integration with Appreciate Group (Julian Coghlan and Talha Ahmed – respectively Managing Director and Finance Director of Love2shop & Park Savings).
Board Evaluation
Following last year’s internal evaluation, we have again this year conducted an internal evaluation of the Board, its Committees and the Chair, which confirmed that our Board and Committees continue to operate effectively. More information on the process and results of that evaluation can be found in the Annual Report. We have completed a tender for an external third party to carry out the Board evaluation in 2023-24. This is being progressed in H1 FY 2024.
Stakeholder Engagement
The success of PayPoint depends upon the Board making informed decisions for the benefit of shareholders having regard to the wider requirements of all our stakeholders. The Board receives regular investor updates throughout the course of the year. The Company’s Annual General Meeting will be held at PayPoint’s registered office on 7 September 2023 where you will have the opportunity to meet the Board and members of the Executive Board. The matters to be approved by shareholders are set out in our Notice of Annual General Meeting which will be mailed to shareholders in August.
This year we continued to develop our work force engagement activities including receiving a full briefing on the employee engagement survey results and Directors meeting directly with employees. Full details of our people and culture activities are set out in our Annual Report.
Our retail partners and SMEs remain central to our business and the Board continued to receive regular briefings throughout the year on our retailer engagement proposition and the work we do to enable clients to provide vital services in the community.
Conclusion
I would like to conclude by thanking my Board colleagues for their continued support and commitment over the past year and to thank Nick Wiles and the whole Executive team for their dynamic management of a rapidly changing business environment in difficult economic circumstances.
If you wish to discuss any aspect of our governance arrangements, please contact me via our Company Secretary, Brian McLelland, via email at [email protected].
Giles KerrChairman27 July 2023
CHIEF EXECUTIVE’S REVIEW
Strong year delivering an enhanced platform for growth
This has been another strong year for the PayPoint Group where we have made significant steps to materially enhance our platform and capabilities to deliver sustainable, profitable growth and enhanced rewards for our shareholders. Our financial performance has been positive, with net revenue growth across all our business divisions, excellent progress in parcels and digital payments, and good momentum in our key growth areas of card processing, Open Banking, integrated payments, and the new opportunities delivered through the acquisition of the Appreciate Group.
Expanded capabilities and partnership philosophy opening up new revenue opportunities
Strategically, we were particularly delighted to complete the acquisition of Appreciate Group (now known as Love2shop) in February 2023, one of the UK’s leading digital platforms for employee and customer rewards, helping brands and businesses attract, retain and delight customers and employees. 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. As indicated previously, the acquisition is expected to be earnings enhancing on an adjusted basis in FY24 and will deliver attractive returns for shareholders, opening up further revenue opportunities and expanding our capabilities in the gifting, rewards and prepaid savings markets.
Our partnership philosophy across the Group, combined with an intensity and focus on execution, is already unlocking new markets and revenue opportunities for us. We were particularly delighted to announce our new partnership with The Federation of Independent Retailers (The Fed) on 3 May 2023 to create a network of Park Christmas Savings Super Agents. This is the first major initiative announced following the completion of the acquisition of Appreciate Group. The deal will see our two organisations working together to create an initial network of 1,500 Super Agents in FY24 for the Christmas 2024 savings season, with retailers recruiting savers in their area and creating an additional opportunity to earn over £1,000 per annum from the service. This is reflective of the strength of our relationship with The Fed, their executive team and member base, and more broadly the partnership approach that we have adopted across the Group to enhance our relationships and unlock further growth opportunities across new and existing markets.
Furthermore, our Open Banking partnership with OBConnect has enhanced our integrated payments platform and already yielded positive results, particularly with our new PayPoint OpenPay service with Ovo to support Alternative Fuel Payments and rolling out our Confirmation of Payee service with the Department of Energy Security and Net Zero. We see Open Banking as a key growth area where we can partner with organisations in the public and private sector to enhance their payment offering and improve customer support to those in need.
Accelerated revenue growth and momentum across all business divisions
In Shopping, our retailer partner and SME propositions have been enhanced further with strong take up and positive feedback from our partners. The overall PayPoint network and PayPoint One estate have grown again this year and our broader commitment to our retailer partners to deliver further value and opportunities to earn has delivered an increase to retailer commission paid out of over +15% year on year. New services and transaction volumes have driven this positive impact to retailer partner revenues, including our Counter Cash solution, which is now enabled in 5,680 sites, with 1,930 sites transacting regularly and over £42.9 million withdrawn in the financial year, and good growth in our FMCG consumer engagement proposition, PayPoint Engage, delivering brand campaigns leveraging our PayPoint One platform, advertising screens and i-movo vouchering capability.
In Handepay, we have ended the year with our strongest ever sales performance in H2 FY23 and have returned the EVO merchant book back to growth, ending the year at 18,397 sites, with the sales team now at full headcount and in spite of recruitment challenges experienced earlier in the financial year. This positive progress since H1 FY23 has been driven by the enhanced proposition, new Android terminal and the increased optimisation of our sales efforts in the Handepay business; and in PayPoint, improved cards pricing and next day settlement were launched for new and existing merchants. As we move into the new financial year, we look forward to accelerating our cards business further and proactively targeting the mid-market merchant segment with a dedicated team. We will continue our focus on 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. In addition, the positive 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.
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 Federation of Independent Retailers (the Fed). 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.
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. In each of our carrier relationships, we have developed plans for the year ahead to grow volumes further through our network and to continue enhancing the in-store customer experience. 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 integrated payments platform as we expand the range of digital solutions that we can deliver to support our clients across multiple sectors, including government, local authorities and housing associations. Our Payment Exception Service, delivered for the Department for Work and Pensions, recorded significant growth year on year, after launching in August 2021 and making a contribution for half of the previous financial year. We were delighted that the service received three industry accolades for Social Inclusion in Financial Services at the recent Payment Awards, FSTech Awards and Card and Payments Awards, underlining the vital role our solutions play in serving some of the most vulnerable people in the UK.
Similarly, over £246 million of Energy Bills Support Scheme vouchers were redeemed across our extensive network of over 28,000 retailer partners from October 2022 to March 2023, 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 leveraged our Cash Out digital capability. 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 of Energy Security and Net Zero.
Further progress on our ESG commitments
Our Environment, Social and Governance (ESG) strategy has also developed further in the year, as we consider our social responsibility and impact as an Executive 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 also 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.
Update on claims against PayPoint
As announced on 29 March 2023, the Group received ‘letter before action’ correspondence from a small number of market participants relating to issues addressed by commitments accepted by Ofgem as a resolution of its concerns raised in Ofgem’s Statement of Objections received by the Group in September 2020. The Ofgem resolution to the case did not include any infringement findings.
Claims have now been served by Utilita Energy Limited and Utilita Services Limited (“Utilita”) and Global-365 plc and Global Prepaid Solutions Limited (“Global-365”). The Group is continuing to take legal advice on these two claims and its position is unchanged. It rejects both claims in their entirety and intends to vigorously defend its position.
The Group is confident that it will successfully defend the claim by Utilita, which does not provide any clear evidence to support the cause of action or the amount claimed, and also that it will successfully defend the claim by Global 365, which fundamentally misunderstands the energy market and the relationships between the relevant Group companies and the major energy providers, whilst also over-estimating the opportunity available, if any, for the products offered by Global 365.
The Group will continue to update the market on a quarterly basis as part of its financial reporting cycle.
Outlook and dividend
Our enhanced platform and expanded capabilities across the Group, combined with our business-wide partnership philosophy and intensity of execution, give the Board confidence in delivering further progress in the current financial year and meeting expectations.
The opportunity to deliver enterprise level solutions, combining our extensive capabilities, is significant and enables us to deepen our relationships with existing clients as well as expanding into new verticals.
Trading early in the current financial year has been positive, as we have confirmed in our Q1 FY24 trading update, continuing the performance seen in FY23. We have detailed execution plans in place to capitalise on the positive momentum built up in our key growth areas of card processing, Open Banking, parcels, integrated payments and the new Love2shop division, delivering profitable growth in our retail and card estates, further enhancements to our proposition and positive new business growth in key target sectors.
As we continue to integrate the Appreciate Group into our business, we have been giving careful thought as to the key performance metrics for the L2S activities, considering the importance of growing billings as an early indicator of progress, strong cash generation and its contribution to the EBITDA of the business as a whole and the recognition of profit from a business model which incorporates, management / service fees, interest on cash balances and revenue from non-redemption income. In the current year we are focused on driving the immediate key performance indicator of billings in Park Christmas Savings and Love2shop through our extensive plans to grow the core business, expand areas of cooperation across the business and unlock new revenue opportunities as we leverage the expanded capabilities of the wider Group.
In confirming our own positive trading outlook, we are alert to the potential impact on consumers from the broader economic challenges, including any changes to consumer behaviours in the energy sector, all of which we monitor closely across the business.
The Board has proposed an ordinary final dividend of 18.6p per share, an increase of 3.3% vs the final dividend declared on 26 May 2022 of 18.0 pence per share, consistent with our progressive dividend policy of a target cover range of 1.5 to 2.0 times earnings excluding exceptional items, reflecting our long-term confidence in the business, the strength of our underlying cash flow, and the enhanced growth prospects across the Group.
Our compelling characteristics of strong cash flow and resilient earnings remain constant, and our materially enhanced platform is positioned to deliver sustainable and profitable growth for our shareholders, and further progress in the delivery of these objectives in the current year.
Nick WilesChief Executive 27 July 2023
MARKET OVERVIEW
Key trends and changes during the FY22/23 financial year in the UK markets in which PayPoint operates include:
Macro-economic factors
Convenience retail
Card payments
Cash Economy
Parcels
Bill payments and top-ups
Open Banking
Gift Cards and Vouchers
PROGRESS AGAINST OUR STRATEGIC PRIORITIES
SHOPPING BUSINESS DIVISION – FY23 net revenue £62.0m (FY22: £58.7m)
PRIORITY 1: EMBED PAYPOINT GROUP AT THE HEART OF SME AND CONVENIENCE RETAIL BUSINESSES
FY23 Progress
E-COMMERCE BUSINESS DIVISION –FY23 net revenue £7.3m (FY22: £4.9m)
PRIORITY 2: BECOME THE DEFINITIVE TECHNOLOGY-BASED E-COMMERCE DELIVERY PLATFORM FOR FIRST AND LAST MILE CUSTOMER JOURNEYS
PAYMENTS & BANKING BUSINESS DIVISION – FY23 net revenue £56.2m (FY22: £51.5m)
PRIORITY 3: SUSTAIN LEADERSHIP IN ‘PAY-AS-YOU-GO’ AND GROW DIGITAL BILL PAYMENTS
PRIORITY 4: BUILDING A DELIVERY FOCUSED ORGANISATION AND CULTURE
PAYPOINT GROUP
LOVE2SHOP DIVISION (FORMERLY KNOWN AS APPRECIATE GROUP)
NB. Progress in this division is shown for the full financial year pre-acquisition. There is a one-month contribution to FY23 preliminary results following completion of the acquisition on 28 February 2023
FY24 STRATEGIC PRIORITIES
Our strategic priorities have been refreshed for the FY24 financial year to reflect the expansion of our business and materially enhanced platform across the Group delivering sustainable, profitable growth and enhanced rewards for our shareholders.
SHOPPING BUSINESS DIVISION
PRORITY 1 - EMBED PAYPOINT GROUP AT THE HEART OF SME AND CONVENIENCE RETAIL BUSINESSES
E-COMMERCE BUSINESS DIVISION
PAYMENTS & BANKING BUSINESS DIVISION
PRIORITY 3: GROW INTEGRATED PAYMENTS PLATFORM ACROSS CARDS, DIRECT DEBIT AND OPEN BANKING
LOVE2SHOP BUSINESS DIVISION
PRIORITY 4: REINFORCE LEADERSHIP POSITION IN GIFTING, REWARDS AND PREPAID SOLUTIONS
PRIORITY 5: BUILDING A DELIVERY FOCUSED AND INCLUSIVE ORGANISATION
KEY PERFORMANCE INDICATORS
PayPoint Group has identified the following KPIs to measure progress of business performance:
FINANCIAL REVIEW
The completion of the acquisition of Appreciate Group plc (Appreciate) in February 2023 was the latest step in the three years of our transformation away from our traditional cash markets towards digital. Our Corporate activity started in April 2020 with the buyout of our JV partner in Collect+, our parcels business, then acquisitions of i-movo for digital vouchering, Handepay/Merchant Rentals for cards business and RSM2000 for Direct Debits. In addition, investments have been made in OBConnect, our Open Banking partner and Optus Homes in the Housing sector. PayPoint sold its Romanian business at the start of the prior year and that is the discontinued operations in the table below, the focus of the review therefore is on continuing operations.
The Appreciate acquisition is now referred to as our Love2shop (L2S) division and is reported as a separate segment. The financial review discusses the whole Group as well as the two segments so that shareholders can understand the one-month L2S impact separately from our historic PayPoint business which had another strong year.
Profit before tax from continuing operations of £42.6 million (2022: £48.5 million) decreased by £5.9 million (12.4%). The decrease reflects current year exceptional costs incurred of £5.6 million against the prior year exceptional income of £2.9 million.
The underlying profit before tax increased by £2.8 million (5.8%) to £50.8 million (2022: £48.0 million). This result includes £0.5 million profit on the Love2shop segment for one month. This is due to the seasonal nature of the business where profit is primarily generated in Q3 of the financial year. The historic PayPoint segment underlying profit before tax increased by £2.3 million (4.8%) to £50.3 million (2022: £48.0 million).Total revenue from continuing operations increased by £22.6 million (15.6%) to £167.7 million (2022: £145.1 million). Net revenue from continuing operations increased by £13.8 million (11.9%) to £128.9 million (2022: £115.1 million), the one month of L2S segment contributing £3.4 million. There were increases across all our PayPoint segment business divisions with E-commerce doing particularly well with 46.3% increase in net revenue over the year.
Total costs from continuing operations increased by £11.0 million to £78.1 million (2022: £67.1 million). The increase in costs was driven by the £2.9 million one-month additional cost base from L2S segment together with increases in transactional costs of revenue in relation to the growth of net revenue in Payments and Banking. Exceptional costs of £5.6 million, which are one-off, non-recurring and do not reflect current operational performance, consisted of £4.0 million acquisition costs plus £0.3 million interest cost as part of the acquisition proof of funds requirement and £1.3 million in relation to the loss on disposal of our investment in Snappy Shopper Ltd in October 2022. The prior year exceptional income was the reversal of the i-movo deferred, contingent consideration liability.
During the year, the Group updated its presentation of the expense for amortisation of intangible assets arising on acquisition. In order for the user to better understand the operational performance of the business, the Group has changed from presenting “Operating Profit before exceptional items” to “Operating Profit before adjusting items”. The impact of the re-presentation is to decrease prior year “Administrative expenses – excluding adjusting items” by £2.4 million.
EBITDA is a new performance indicator highlighted this year, as it is widely used by investors, analysts and other interested parties to evaluate profitability of companies. Our key focus and KPI is on Underlying EBITDA to understand the operational performance, which excludes exceptional items and amortisation of intangible assets arising on acquisition.
Cash generation grew to £62.3 million (2022: £53.9 million), delivered from underlying profit before tax of £50.8 million (2022: £48.0 million). There was a net working capital inflow of £1.2 million primarily as a result of the net investment in finance lease receivable reducing in line with expected repayments and new terminal lease sales being made under the one month operating lease proposition.
Net corporate debt increased by £28.5 million to £72.4 million (2022: £43.9 million) due to financing the acquisition of Appreciate which had a £61.9 million cash element. At 31 March 2023 loans and borrowings were £94.4 million (2022: £51.5 million) which included £0.6 million (2022: £2.1 million) of asset financing in Merchant Rentals.
PAYPOINT SEGMENT
Shopping net revenue increased by £3.3 million (5.6%) to £62.0 million (2022: £58.7 million). Service fees net revenue increased by £1.3 million (8.3%) driven by additional PayPoint One sites and implementing the annual RPI increase. Cards net revenue increased by £1.3 million (4.3%) from Handepay/Merchant Rentals performance partially offset by PayPoint cards. ATM and Counter Cash net revenue decreased by £0.4 million (4.2%) due to a reduction in transactions driven by the continuing trend of reduced demand for cash across the economy. FMCG revenue also increased by £0.3 million (330.0%) to £0.4 million (2022: £0.1 million) following further campaigns run in the year.
E-commerce net revenue increased by £2.4 million (46.3%) to £7.3 million (2022: £4.9 million), driven by strong growth in total transactions which increased by 69.6% This was due to our strength in clothing/fashion categories, the investment in the in-store experience with Zebra label printers over the past 18 months and the continued expansion from new services and carrier partners.
Payments & Banking net revenue increased by £4.7 million (9.1%) to £56.2 million (2022: £51.5 million). Cash bill payments net revenue decreased by £1.7 million (6.5%) as a result of a decrease in bill payment transactions from the increase in energy prices, Energy Bills Support Scheme (EBSS) and the continued switch to digital payments. Cash top-ups net revenue decreased by £0.5 million (6.2%) with volumes down 10.3% driven by the continuing structural declines in the prepaid mobile sector. Digital net revenue increased by £7.9 million (102.7%) driven by our Cash Out services including a full year of the DWP Payment Exception Service, delivered via i-movo, and MultiPay transactions increased 24.6% as a result of more clients taking the digital services. Cash through to digital, eMoney, net revenue decreased by £1.3 million (16.5%) as a result of a 19.6% decrease in volumes as the category is returning to pre-Covid-19 levels and a new baseline is set for the category.
Commission to retailers cost increased by £4.6 million (15.2%) to £34.4 million (2022: £29.8 million). This increase in payment to our retailer partners is as a result of them processing increased transactions as well as ones with higher commission rates per transaction (e-Commerce and digital)
Total costs from continuing operations (excluding adjusting items) increased by £8.1 million (12.1%) to £75.2 million, primarily driven by transactional costs of revenue in relation to the growth of net revenue, in particular the Energy Bills Support Scheme printing and postage. There were inflationary cost increases in administrative expenses of £1.0 million along 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. This was partially offset by £0.5 million lower depreciation and amortisation with some legacy assets coming to the end of their life.
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, terminal leasing, ATMs, Counter Cash and FMCG vouchering.
Net revenue increased by £3.3 million (5.6%) to £62.0 million (2022: £58.7 million) primarily due to the growth in service fees and Handepay/Merchant Rentals card payments. The net revenue of each of our key products is separately addressed below.
As at 31 March 2023, PayPoint had a live terminal in 28,478 UK sites, an increase of 0.8% primarily as a result of new PayPoint One sites which increased by 2.0% to 19,162 sites.
Service fees is a core growth area and consists of service fees from PayPoint One and our legacy terminals. Service fee net revenue increased by £1.3 million (8.3%) to £17.9 million driven by the additional 333 PayPoint One revenue generating sites compared to the prior year. The higher price point EPoS Core sites increased by 1,136 due to new sales and upselling whilst EPOS Pro sites decreased by 198 due to normal churn and no longer being actively marketed.
The PayPoint One average weekly service fee per site increased by 4.7% to £17.8, benefiting from the increase in EPoS Core sites which are charged at a higher rate and the annual RPI increase. Retailers taking the Core version of the product represent 56.2% (2022: 51.3%) of all PayPoint One sites and the Pro version now just represent 4.6% (2022: 5.8%). Legacy terminals now just remain in a few of our multiple retailer partners but are being actively replaced.
Handepay and Merchant Rentals generated £19.9 million net revenue in the year. Handepay card payments transactions increased by 3.9% to 150.1 million, maintaining strong transaction volumes seen in the previous year but at a lower average transaction value of £29.30 (2022: £30.90). There were 22,236 Handepay card payments sites, a decrease of 560 sites (2.5%) since 31 March 2022. Handepay EVO sales increased in the year supported by the one-month operating lease proposition but sites have been impacted by higher churn, particularly in our Worldpay back book in this very competitive market. The sales momentum in the second half of the year has increased following the sales team being fully staffed and the launch of the new android device.
PayPoint card payments transactions increased by 5.1% to 228.8 million while net revenue decreased by 3.1% to £10.7 million, maintaining strong transaction volumes seen in the previous year but at a lower average transaction value £10.70 (2022: £11.30). Across our network there were 9,541 PayPoint card payments sites, a decrease of 125 sites (1.3%) since 31 March 2022.
Net revenue reduced by £0.4m (4.2%) to £9.4 million (2022: £9.8 million) as transactions reduced by 1.7% to 30.1 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 45.0% to 9,150 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. Counter Cash contributed 7% of transactions (2022: 1%) with over £42.9 million withdrawn in the financial year.
Other: Other shopping services increased by £1.0 million (56.6%) to £2.8 million (2022: £1.8 million) this includes the partnership with Snappy Shopper and FMCG campaigns.
E-COMMERCE
E-commerce net revenue increased by £2.4 million (46.5%) to £7.3 million due to the increase in total parcels transactions by 69.6% to 56.4 million. This was driven by our strength in clothing/fashion categories and the investment in the in-store experience with Zebra label printers over the past 18 months. There has been continued expansion from new services, Yodel store to store and Amazon returns, and new carrier partnerships with Wish.com and Inpost. Parcel sites increased by 4.6% to 10,514 sites.
PAYMENTS & BANKING
Payments & Banking divisional net revenue increased by 9.1% to £56.2 million as a result of continued growth in digital transactions, particularly within the cash-out sector, partially offset by fewer cash bill payments and top up transactions and margin erosion from prior year client contract renewals.
Cash - bill payments net revenue only decreased by £1.7 million (6.5%) to £25.0 million changing from the much largerdecrease trends seen in recent years. The increase in energy prices had seen customers in the front half of the year topping up more frequently and with increased average transaction values. Transactions were impacted in the second half of the year with the government’s Energy Bills Support Scheme (EBSS), although this benefitted our digital business and the continued switch to digital payment methods. Cash - bill payments transactions decreased by 10.9 million (6.9%) to 146.3 million. Cash - bill payments net revenue per transaction increased by 0.1 pence (0.6%) due to higher average transaction value.
Cash - top-ups net revenue decreased by £0.5 million (6.2%) to £7.3 million. Cash top-ups transactions decreased by 2.2 million (10.3%) to 19.0 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 Direct Debits) net revenue increased by £7.9 million (102.7%) to £15.7 million and digital transactions increased by 18.1 million (53.0%) to 52.3 million. MultiPay net revenue increased by £0.9 million to £4.1 million (2022: £3.3 million) with transactions growing by 6.6 million to 33.6 million. The DWP Payment Exception Service contributed £4.4 million net revenue in the year (2022: £1.6 million) following a full year of transactions compared to six months in FY22. Cashout revenue increased by £4.2 million (258.4%) to £5.9 million (2022: £1.6 million) driven by Governments EBSS scheme in the second half of the year with over £246 million worth of vouchers redeemed.
Cash through to digital (eMoney) net revenue decreased by £1.3 million (16.5%) to £6.9 million (2022: £8.2 million) and transactions decreased by 2.1 million (19.6%) to 8.5 million (2022: 10.6 million) with volumes returning to pre-Covid-19 levels and a new baseline set for the category. eMoney transactions derive a substantially higher fee per transaction than traditional top-up transactions as they are more complex to process.
Other payments & banking net revenue includes SIM sales, interest generated by investing cash received on client funds and other ad-hoc items which contributed £1.3 million (2022: £1.0 million) net revenue.
LOVE2SHOP SEGMENT
Love2shop (L2S) results reflect the one month since the acquisition on 28 February 2023. L2S had £14.8 million of Billings which represents value of goods and services sold. This reduces to £7.6 million of revenue to adjust for the portion where the performance obligation occurs later as the cards and vouchers are redeemed. When L2S sells a card or voucher that can be redeemed at a single retailer the full value is treated as revenue as L2S acts as the principal. When the product is multi-retailer, L2S only recognises the service fee earned as agent rather than the full sales value, along with other revenue, comprising interest income and non-redemption income. Net revenue is then stated after deducting the costs for the single retailer product. The business is seasonal and profit is primarily generated in Q3 of the financial year.
Other costs of revenue are the production and distribution costs of the cards and vouchers, with administrative costs being the regular costs to run the business. Finance costs include the costs of borrowings specifically for the acquisition. Amortisation of intangible assets arising on acquisition is an adjusting item and excluded from the underlying profit in the table above.
PROFIT BEFORE TAX AND TAXATION
The income tax charge of £7.9 million (2022: £9.0 million) on profit before tax from continuing operations of £42.6 million (2022: £48.5 million from continuing operations) represents an effective tax rate of 18.5% (2022: 18.5% for continuing operations). This is lower than the UK statutory rate of 19% due to adjustments in respect of prior year, non-taxable exceptional items and disallowable expenses.
GROUP STATEMENT OF FINANCIAL POSITION
Net assets of £111.7 million (2022: £83.3 million) increased by £28.4 million reflecting the shares issued as part of the acquisition of Appreciate and the £10.5 million growth in retained earnings. Current assets increased by £147.1 million to £251.9 million (2022: £104.8 million) due to the monies held in trust and cash held on behalf of clients of £119.7 million acquired with Appreciate. Non-current assets of £227.9 million (2022: £127.3 million) increased by £100.6 million due to the Appreciate acquisition goodwill and intangible assets and the investment in terminals. Current liabilities increased by £181.9 million due to the liabilities matching the cash held on behalf of clients and monies held in trust and an increase in borrowings from the RCF drawdown, required for the acquisition. Non-current liabilities of £52.9 million (2022: £15.7 million) increased by £37.2 million due to the new £36.0 million amortising term loan taken out to fund the acquisition and deferred tax liabilities arising from the acquisition.
Net debt is a key measure for the business and has increased to finance the acquisition of Appreciate. Although the cash element of the purchase price was £61.9 million the net increase is only £28.5 million due to our strong cash generation and cash acquired.
Total loans and borrowings of £94.4 million have increased by £42.8 million and consist of a £10.8 million amortising term loan A, £36.0 million amortising term loan B, £46.5 million drawdown of the £75.0 million revolving credit facility and £1.1 million of asset financing balances and accrued interest (2022: £27.0 million drawdown from the revolving credit facility, £21.7 million amortising term loan A and £2.9 million of asset financing balances).
GROUP CASH FLOW AND LIQUIDITY
The following table summarises the cash flow movements during the year.
The following table summarises the cash generation from continuing operations excluding exceptional items
Cash generation grew to £60.4 million (2022: £41.4 million) delivered from profit before tax from continuing operations of £42.6 million (2022: £48.5 million). The previous year cash generation was impacted by the £12.5 million payment in relation to the Ofgem Statement of Objections. Adjusting for exceptional items, cash generation from continuing operations improved by 15.6% to £62.3 million. There was a net working capital inflow of £2.5 million related to costs incurred for the Appreciate acquisition that will cause an outflow of working capital in FY24.
Taxation payments on account of £6.2 million (2022: £9.2 million) are lower compared to the prior period due to a tax refund of £3.3 million following the closure of March 2021 tax filings which do not impact the prior year tax charge. Dividend payments were higher compared to the prior period due to the increase in the current year interim and the final ordinary dividend paid per share for the prior year ended 31 March 2022.
Capital expenditure of £12.7 million (2022: £10.8 million) was £1.9 million higher than the prior year. Capital expenditure primarily consists of PayPoint One and card terminals, terminal development, the enhancement to the Direct Debit platform and IT hardware. The increase in capital expenditure is primarily driven by the roll out of terminals in Merchant Rentals where the principal product is now an operating lease rather than finance lease.
DIVIDENDS
We have declared an increase of 3.3% in the final dividend to 18.6 pence per share (2022: 18.0 pence per share). One to be paid as an interim dividend and one to paid as a final dividend. This is payable in equal instalments of 9.3 pence per share (2022: 9.0 pence per share) on 1 September 2023 and 22 September 2023 to shareholders on the register on 11 August 2023. The final dividend is subject to the approval of shareholders at the annual general meeting on 7 September 2023.
The final dividend will result in £13.5 million (2022: £12.4 million) being paid to shareholders from the standalone statement of financial position of the Company which, as at 31 March 2023, had approximately £45.0 million (2022: £67.9 million) of distributable reserves.
CAPITAL ALLOCATION
The Board’s immediate 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 been updated since the prior year in relation to cover ratio to strengthen the capital position and follows the following capital allocation priorities:
GOING CONCERN
The financial statements have been prepared on a going concern basis having regard to the identified principal risks and uncertainties and viability statement on page 30. Our cash and borrowing capacity provides sufficient funds to meet the foreseeable needs of the Group including dividends.
Alan DaleFinance Director
27 July 2023
PRINCIPAL RISKS AND UNCERTAINTIES
Like all businesses, we face a number of risks and uncertainties and successful management of existing and emerging risks is critical to the achievement of strategic objectives and to the long-term success of any business. Therefore, risk management is an integral part of PayPoint’s Corporate Governance.
Changes to principal risks
New risks and disclosures
This year, principal risks from the Appreciate Group have been considered and incorporated, and our risks are assessed below on a Group-wide basis. Our risk appetite remains the same as last year.
It is defined as:
Changing risks
Credit and Operational – This risk has been renamed as Credit and Liquidity / Treasury Management as Operations are now considered under Operational Delivery. This is because operation of our processes and controls are more intrinsically linked with operational delivery of key projects than they were with credit management.
Other principal risks have remained the same as last year, although they now include a consideration of how they affect the Appreciate Group as well as the existing PayPoint companies.
Receding risks
There were no receding risks. The outlook of all the risks has been reassessed, as shown in the table below.
Emerging Risks
ESG and Climate Risk remains an emerging risk. We recognise the impact climate change is having globally; however, we are intrinsically a low-carbon producing company and they do not pose an immediate risk to our operations. However, we have embedded a strategy of reducing our carbon emissions, with a goal of becoming fully net-zero by 2040 (2030 for our own operations). Details of how we plan to achieve this will be set out in our Annual Report.
Last year, we implemented The Task Force on Climate-related Financial Disclosures (TCFD) which provides companies with a framework to improve reporting on climate-related risks and opportunities. Risks presented by climate change have been embedded into our enterprise risk management framework including financial planning processes, business cases and our overall risk identification and management processes detailed in our Annual Report.
The table on pages 25 to 29 sets out our principal and emerging risks including details of the potential impact, mitigation strategies and status. The table also details risk movement during the year and risk appetite. They do not comprise all risks faced by the Group and are not set out in order of priority.
Like all businesses, we face a number of risks and uncertainties, and successful management of existing and emerging risks is critical to the achievement of strategic objectives and to the long-term success of any business. Therefore, risk management is an integral part of PayPoint’s Corporate Governance.
VIABILITY STATEMENT
In accordance with the 2018 UK Corporate Governance Code, the Directors have assessed the viability of the Group over a three-year period, taking account of the Group’s current financial and trading position, the principal risks and uncertainties (as set out on pages 25 to 29) and the strategic plans that are reviewed at least annually by the Board.
Assessment period
The Directors have determined that the Group’s strategic planning period of three years remains an appropriate time frame over which to assess viability. This broadly aligns to average client renewal terms, new client prospecting and onboarding cycles and the development-through-to-maturity evolution of new products and service lines. The current financing facilities are in place until February 2026 broadly in line with this period.
Assessment of prospects
The Directors assess the Group’s prospects through the annual strategy day and review of the Group’s three-year Plan. The strategy day in February 2023 and Plan review day in March 2023 both considered the impact on future plans of the Appreciate Group acquisition on 28 February 2023. The planning process forecasts the Group’s financial performance including cash flows which allows the Directors to assess both the Group’s liquidity and adequacy of funding. In its assessment of the Group’s prospects, the Directors have considered the following: —
The Group’s strategy and how it addresses changing economic environments in context of our clients, parcel partnerships, merchants and retailer requirements.
We continue to evolve and execute our strategy and invest for growth. We recently acquired the Appreciate Group and are integrating this business at pace so that the commercial synergies can commence realisation in the 2023/24 financial year including the launch of super-agents via our retailer partner network. Through a broad range of products and services combined with our effective sales team we continue to successfully embed PayPoint Group at the heart of SME and convenience retail businesses. In the e-Commerce division we are continuing to roll out Zebra printers which will enable store to store deliveries, further improving the e-commerce delivery platform for first and last mile customer journeys. In the Payments and Banking division, we continued facilitating government support in the current economic climate and grew our integrated payments solution across cards and Direct Debit together with the addition of Open Banking to our portfolio of payment methods.
The Group’s inherent resilience to risk.
The Group has an inherent resilience to risk, provided by the diversified nature of our operations across many sectors. The business remains highly cash generative which has enabled the Group to continue to invest in key areas of growth and support its longer-term viability. The Appreciate acquisition has further broadened our products set, client base and has enabled more opportunities to provide more key services across all our customers (Retailers, SMEs, Clients and Parcel partnerships). This will ensure we are more integral to all of our customers.
Expectations of the future economic environment.
Uncertainty remains over macroeconomic risks. This has resulted in higher inflation and cost of borrowing, reduced consumer confidence and the UK government facing higher budget deficits. However, the diversity of our proposition ensures the business can adapt to ongoing and unexpected changes. This was demonstrated this year as we supported the government with its cost-of-living support.
The Group’s financial position.
The Group retains a strong financial position and has a £75m revolving credit facility (RCF) expiring February 2026 together with a total of £46.8m amortising term loans. The arrangement also includes a £30m accordion (uncommitted) facility. At 30 June 2023 the Group had utilised £44.5m of the RCF. The available balance of £30.5m and the corporate cash provides the Group with liquidity of c£35m. This level of liquidity is deemed sufficient for all the viability scenarios analysed. The Group has proven robust performance and cash generation in previous economic downturns.
Assessment of viability
To assess our viability, we modelled different scenarios identified by considering the potential impact of the principal risks (as shown in the table on pages 25 to 29). Our development of scenarios included reviewing the risks of both the PayPoint and Appreciate businesses. Risks are broadly unchanged and the additional investments required to realise our integration and targets are included in the Plan financial projections. We have reassessed the enlarged group’s scenarios to reflect the progress made in delivering our strategy. In total, nine principal risks were used in our modelling. They were chosen because they combine to represent plausible scenarios covering a range of different operational and financial impacts on the business.
The principal risk not specifically modelled was Risk 6 – people as failure in recruiting and retaining the right talent in the organisation would have similar impacts to scenario A and B.
In total, four severe but plausible individual scenarios have been modelled, with a fifth reverse stress test scenario. These scenarios and the assumptions within are detailed in the table below. We also considered the combined impact of scenarios A and B as these are the most likely to materialise together. Theoretically all these scenarios, with differing causes could occur together, with varying levels of impact. However, we have not included a combined scenario of scenarios A to D, due to the one-off nature of scenarios C and D, with scenario A already including a significant one-off item creating similar financial pressure.
None of the separate scenarios modelled was found to impact the long-term viability of the Group over the assessment period. In assessing each of the scenarios, we have taken account of the mitigating actions available to us, including, but not limited to, reducing discretionary operating spend, reducing non-committed capital expenditure, repricing our products and services, freezing recruitment and reducing variable incentives and temporary suspension of dividend payments.
Having assessed the Group’s current position, potential impacts of principal risks, proven management of adverse conditions in the past, potential mitigating actions and prospects of the Group, the Directors confirm they have a reasonable expectation that the Group will be able to continue in operation, remain solvent and meet its liabilities as they fall due over the three-year assessment period.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
1Amortisation of intangible assets arising on acquisition were not identified as adjusting items in the prior year financial statements (see note 1).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
These financial statements were approved by the Board of Directors and authorised for issue on 27 July 2023 and were signed on behalf of the Board of Directors.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
1Interest received was presented within “Investing activities” in the prior year financial statements.
Reconciliation of cash and cash equivalents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Basis of preparation
This preliminary announcement does not constitute the Company's statutory accounts for the years ended 31 March 2023 or 31 March 2022, but is derived from the statutory accounts. This announcement does not contain sufficient information to fully comply with UK-adopted International Accounting Standards (“UK-adopted IFRS”). The Company expects to publish full financial statements that comply with IFRS in due course.
Statutory accounts for 2022 have been delivered to the Registrar of Companies and those for 2023 will be delivered following the Company’s annual general meeting. The auditors have reported on those accounts and the report was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their opinion and did not contain a statement under s498(2) or (3) of the Companies Act 2006.
Adoption of standards and policies
This preliminary announcement complies with the recognition and measurement criteria of UK-adopted IFRS, and with the accounting policies of the Group which are set out in the Group’s Annual Report for the year ended 31 March 2022. The accounting policies applied are consistent with the prior year with the exception of the policies set out below and are applicable for the first time in the year ended 31 March 2023 following the acquisition of Appreciate Group PLC: i) Pension costs – defined benefit schemes; ii) Revenue recognised by Love2shop in respect of vouchers and cards.
Pension costs – defined benefit schemesDefined benefit pension schemes create an obligation on the entity to provide agreed benefits to current and past employees. The Group’s defined benefit pension schemes are accounted for in accordance with IAS19 Employee Benefits, under the principle that the cost of providing employee benefits should be recognised in the period in which the benefit is earned.
The present value of the defined benefit obligation is measured by applying an actuarial valuation method, using a set of actuarial assumptions. The fair value of the scheme assets is deducted from the present value of the defined benefit obligation to determine the net deficit or surplus to be recognised on the statement of financial position.
Service cost attributable to current and past periods is recognised in the Statement of profit or loss, as is net interest on the net defined benefit asset or liability. Actuarial gains and losses, and returns on scheme assets, are recognised through Other comprehensive income.
Revenue recognised by Love2shop in respect of vouchers and cardsThe Group offers single-retailer and multi-retailer redemption products. The Group is a principal for single-retailer products, on which revenue is recognised on a gross basis. For multi-retailer products, the Group acts in the capacity of an agent, recording as revenue the net amount that it retains for its agency services.
Multi-retailer products may be partially or fully redeemed and the unused amount (i.e. the non-refundable unredeemed or unspent funds on a voucher, card or e-code at expiry) is referred to as ‘non-redemption income’. Non-redemption income is recognised as revenue when the card has expired and the right of refund has lapsed.
Prior year re-presentation of administrative expenses for amortisation of acquired intangible assets arising on acquisitionFor the current year the Group has updated its presentation of the expense for amortisation of intangible assets arising on acquisition. In order for the user to understand the operational performance of continuing business, the Group is changing from presenting “Operating Profit before exceptional items” to “Operating Profit before adjusting items”. Adjusting items represents exceptional items and amortisation of intangible assets arising on acquisition and so this latter expense is shown separately on the face of the Consolidated statement of profit or loss as an adjusting item. The prior year results have been re-presented on this basis.
Prior year re-presentation of interest receivedFor the current year the Group updated its presentation of interest received. In the prior year Consolidated statement of cash flows it was presented as “Investment income” within “Investing activities”. In the current year it is presented as “Interest received” within “Net cash inflows from operating activities”. The impact of the restatement is to increase both “Net cash inflows from operating activities” and “Net cash used in investing activities” by £13,000. Similarly, interest received relating to interest earned on deposits is now included in “other revenue”. The Group has made this change as this better reflects the operating nature of interest earned on cash deposits, following the acquisition of Appreciate Group during the year.
Going concernThe financial statements have been prepared on a going concern basis. The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt-to-equity balance. The capital structure of the Group consists of debt and equity attributable to equity holders of the parent company comprising capital, reserves and retained earnings.
The Group’s policy is to borrow centrally to meet anticipated funding requirements. Our cash and borrowing capacity provides sufficient funds to meet the foreseeable needs of the Group. At 31 March 2023, the Group had cash and cash equivalents of £78.4 million, consisting of £22.5 million corporate cash and £55.9 million of clients’ funds, retailer partners’ deposits and card and voucher deposits. In addition, the Group carried out a refinancing in the year to support the acquisition of Appreciate Group PLC. The Group’s borrowing facilities consist of:
At 31 March 2023, £46.5 million (2022: £27.0 million) was drawn down from the revolving credit facility.
The Group has net assets of £111.7 million as at 31 March 2023, having made a profit of £34.7 million and delivered a net cash inflow from operating activities of £93.6million for the year then ended. The Group had net current liabilities of £63.3 million (2022: £28.4 million).
The Directors have prepared cash flow forecast scenarios for a period of at least 12 months from the date of approval of these financial statements, taking into account the Group’s current financial and trading position, the impact of current economic conditions, the principal risks and uncertainties and the strategic plans that are reviewed at least annually by the Board. In this ‘base case’ scenario, the cash flow forecasts show considerable liquidity headroom and debt covenants will be met throughout the period. The Directors have also considered the matters described in note 16 and concluded that it is not appropriate to extend the going concern assessment beyond 12 months on the basis that the timing of conclusion of the legal proceedings is so uncertain.
As detailed in the Financial Review, the Group has many product lines which delivered a profitable result and strong cash generation. The ‘base case’ scenario considered the trends identified and explained in the Review and included improved operating profit and related cash flows.
The key assumptions were:
Additionally, the Directors have carried out an assessment of the principal risks and uncertainties and applied several severe but plausible scenarios to test the Group viability further, as detailed on pages 30 to 31 in the Group’s Viability confirmation section. These included a reduction in the volume of transactions, loss of key contracts and under-performance of acquisitions and new products or service lines. As mitigating actions, we have assumed achievable reductions in expenditure and a reduction in the level of future dividends following the payment of the final dividend of 18.6 pence per share declared in respect of financial year ended 31 March 2023. The cash flow forecasts included stress tests for the above scenarios to ensure working capital movements within a reporting period do not trigger a covenant breach.
In both the ‘base case’ and severe but plausible scenarios, the forecasts indicated that there was sufficient headroom and liquidity for the Group to continue with the existing facilities outlined above. None of the significant judgements and estimates detailed on pages 37 to 39 made by the Directors casts any doubt on the assessment to continue as a going concern.
Based on these assessments, the Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of not less than 12 months from the date of approval of these financial statements and therefore have prepared the financial statements on a going concern basis.
Use of judgements and estimatesIn the application of the Group’s accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Critical judgement: recognition of cash and cash equivalents and monies held in trustThe nature of payments and banking services means that PayPoint collects and holds funds on behalf of clients as those funds pass through the settlement process and retains retailer partners’ deposits as security for those collections. Following the Appreciate acquisition, it also holds card and voucher deposits on behalf of agents, cardholders and redeemers, some of which is held in trust.
A critical judgement in this area is whether clients’ funds, retailer partners’ deposits and monies held in trust are recognised in the statement of financial position, and whether they are included in cash and cash equivalents for the purpose of the statement of consolidated cash flows. This includes evaluating:
(a) the existence of a binding agreement, such as a legal trust, clearly identifying the beneficiary of the funds (b) the identification of funds, ability to allocate and separability of funds (c) the identification of the holder of those funds at any point in time (d) whether the Group bears the credit risk
The Group evaluated the April 2022 IFRIC agenda decision on demand deposits with restrictions on use arising from a contract with a third party and concluded that it did not have any impact on the Group’s existing accounting policy for cash and cash equivalents.
Where there is a binding agreement specifying that PayPoint holds funds on behalf of the client (i.e. acting in the capacity of a trustee) and those funds have been separately identified as belonging to that beneficiary, the cash and the related liability are not included in the statement of financial position.
Where funds are held in trusts set up for the purpose of ring-fencing monies belonging to agents, cardholders and redeemers, they are recognised as monies held in trust on the statement of financial position, as the Group has access to the interest on such monies and can, having met certain conditions, withdraw the funds. However, given the restrictions over these monies, the amounts held in trust and ring-fenced are not included in cash and cash equivalents, except where they are deposits repayable on demand.
In all other situations the cash and corresponding liability are recognised on the statement of financial position. Corporate cash and clients’ funds, retailer partners’ deposits and card and voucher deposits are presented as separate line items within cash and cash equivalents on the statement of financial position.
The amounts recognised on the Statement of financial position as at 31 March 2023 are as follows:
Clients’ funds and card and voucher deposits held in trust off the statement of financial position as at 31 March 2023 are £124.3 million (2022: £55.9 million).
Critical estimate: Valuation of the goodwill relating to the Handepay cash generating unitHandepay’s principal activity is that of an independent sales organisation in the merchant acquiring industry. It is a growth business that has strong cash generation and limited capital expenditure requirements. The market in which it operates is highly competitive and facing several regulatory changes. Handepay has a relatively small market share, however it continues to develop its proposition, sales force, and operations with an ambition to accelerate the growth of its market share. Handepay is a CGU for the purposes of impairment testing.
The recoverable amount (based on value in use) of the Handepay CGU is £57.6m, which is £12.0m higher than the carrying value. Therefore, the CGU and its assets continue to be measured at their carrying value.
The assumptions underpinning the recoverable amounts that are most sensitive to a reasonable change include:
Reasonably possible changes in the above key assumptions can affect the recoverable amount (using the value in use method) as follows:
The 2.2% reduction in average revenue growth rate in each of years 1-5 is a reasonably possible decrease considering the competitive nature of the merchant acquiring sector, the current market share and the current proposition.
A 3.0% increase in the pre-tax discount rate is considered to be a reasonably possible outcome considering the alpha factor which captures the risks in the cash flows not already captured in the cost of equity and the cash flows.
Critical estimate: Valuation of acquired intangible assets on acquisition of Appreciate Group PLCThe fair value of acquired intangible assets (brands, customer relationships and developed technology) recognised on the acquisition of Appreciate amounted to £40.4 million, with a related deferred tax liability of £10.1 million. Together with other assets acquired and liabilities assumed, this resulted in goodwill of £59.8 million. The aggregate of the acquired intangible assets and the goodwill exceeds the consideration paid due to net other liabilities having been acquired on acquisition (see note 9). The estimate of fair value measurements of certain acquired intangible assets is considered by management a critical estimate due to a significant risk of material adjustment in the measurement period. The fair values are derived from assumptions, changes to which would have a material impact on the fair values. Management estimate that the following acquired intangible assets fall into this category:
The table below summarises, for each of the above intangible assets, the fair values recognised, the key assumptions used in deriving those fair values and the range of fair values obtained by changing one or more of the assumptions:
Given that the acquired intangible assets were not purchased in separate transactions, but rather as part of the wider Appreciate business combination, the ‘market participant’ perspective is hypothetical. Therefore, in measuring the acquired intangible assets at fair value, management considered the types of potential market participants (e.g. competitors and comparable companies) to apply assumptions that were consistent with the assumptions that market participants would use when pricing the intangible assets. Given that the acquired intangible assets are not traded on an active market, have no recent market transactions and are unique to Appreciate, management valued them using the following approaches:
Brands - using a relief from royalty method. In setting the pre-tax royalty rate, management considered the perceived strengths of the brands, based on factors including the level of brand awareness, their longevity and profitability. The pre-tax royalty rate of 4.5% applied reflects market observable royalty rates for other brands and trademarks in similar sectors.
Non-contractual customer relationships - using a multi-period excess earnings (MEEM) method, which reflects market participant fair value by including forecast lifetime earnings which were specifically attributable only to the non-contractual customer relationships existing at the acquisition date. The discount rate applied to the MEEM incorporates general market rates of return at the acquisition date as well as industry risks and the risks of the asset to typical market participant, based on an analysis of comparable companies.
The residual £59.8 million goodwill represents the future economic benefits arising from the acquisition that were not individually identified and separately recognised at the acquisition date. The buyer-specific synergies subsumed into goodwill did not exist at the market-participant level at the acquisition date because i) they result from combining PayPoint and Appreciate, enabling PayPoint to cross-sell to the Appreciate customer base and ii) the new customer relationships and sectors are anticipated to arise post-acquisition but were not identifiable at the acquisition date. The workforce and operating expertise are not separately identifiable intangible assets and are also included in goodwill.Alternative performance measuresNon-IFRS measures or alternative performance measures are used by the Directors and management for performance analysis, planning, reporting and incentive-setting purposes. They have remained consistent with the prior year with the exception of the addition of the Billings measure, following the acquisition of Appreciate we have also added EBITDA and pulled out amortisation of intangible assets arising on acquisition as well as exceptional items. These measures are included in these financial statements to provide additional useful information on performance and trends to shareholders.
These measures are not defined terms under IFRS and therefore they may not be comparable with similarly titled measures reported by other companies. They are not intended to be a substitute for, or superior to, IFRS measures.
Underlying performance measures (non-IFRS measures)Underlying performance measures allow shareholders to understand the operational performance in the year, to facilitate comparison with prior years and to assess trends in financial performance. They usually exclude the impact of one-off, non-recurring and exceptional items and the amortisation of intangible assets arising on acquisition, such as brands and customer relationships.
Love2shop billings (non-IFRS measure relating solely to the Love2shop segment)Billings represents the value of goods and services shipped and invoiced to customers during the year and is recorded net of VAT, rebates and discounts. Billings is an alternative performance measure, which the directors believe provides an additional measure of the level of activity other than total revenue. This is due to revenue from multi-retailer redemption products being reported on a ‘net’ basis, whilst revenue from single-retailer redemption products and other goods are reported on a ‘gross’ basis.
Net revenue (non-IFRS measure)Net revenue is total revenue less commissions paid (to retailer partners and Park Christmas agents) and the cost of revenue for items where the Group acts in the capacity as principal (including single-retailer vouchers and SIM cards). This reflects the benefit attributable to the Group’s performance, eliminating pass-through costs which creates comparability of performance under both the agent and principal revenue models. It is a key consistent measure of the overall success of the Group’s strategy. A reconciliation from total revenue to net revenue is included in note 3.
Adjusting items (non-IFRS measure)Adjusting items consist of exceptional items and amortisation of intangible assets arising on acquisition. These items are presented as adjusting items in the consolidated statement of profit or loss, as they do not reflect the operational performance of the Group.
1Amortisation of intangible assets arising on acquisition is reported separately on the face of the Consolidated statement of profit or loss as an adjusting item. The prior year results has been re-presented on this basis. (see note 1).
Effective tax rate (non-IFRS measure)Effective tax rate (note 6) is the tax cost as a percentage of the net profit before tax.
Reported dividends (non-IFRS measure)Reported dividends are based on a financial year’s results from which the dividend is declared and consist of the interim dividend paid and final dividend declared (note 14). This is different to statutory dividends where the final dividend on ordinary shares is recognised in the following year when it is approved by the Company’s shareholders.
Cash generation (non-IFRS measure)Cash generation reflects earnings before tax, depreciation, amortisation and non-cash exceptional items adjusted for working capital (excluding movement in clients’ funds and retailer partners’ deposits) as detailed in the financial review. This measures the cash generated which can be used for tax payments, new investments and financing activities.
Total costs (non-IFRS measure)Total costs comprise other costs of revenue, administrative expenses, finance income and finance costs. Total costs exclude adjusting items, being exceptional costs and amortisation of intangible assets arising on acquisition.
Earnings before interest, tax, depreciation and amortisation (EBITDA) (non-IFRS measure)The Group now presents EBITDA as it is widely used by investors, analysts and other interested parties to evaluate profitability of companies. This measures earnings from continuing operations before interest, tax, depreciation and amortisation. See page 17 for a reconciliation from profit before tax to EBITDA.
Underlying earnings before interest, tax, depreciation and amortisation (Underlying EBITDA) (non-IFRS measure)The Group also now presents underlying EBITDA, which comprises EBITDA, as defined above, excluding exceptional items. See page 17 for a reconciliation from profit before tax to adjusted EBITDA.
Underlying earnings per share from continuing operations (non-IFRS measure)Underlying earnings per share is calculated by dividing the net profit from continuing operations before exceptional items and amortisation of intangible assets arising on acquisition attributable to equity holders of the parent by the basic or diluted weighted average number of ordinary shares in issue.
Underlying profit before tax (non-IFRS measure)
The calculation of underlying profit before tax is as follows:
Underlying profit after tax (non-IFRS measure)The calculation of underlying profit after tax is as follows:
Net corporate debt (non-IFRS measure)
Net corporate debt represents cash and cash equivalents excluding cash recognised as clients’ funds and retailer partners’ deposits, less bank overdraft and amounts borrowed under financing facilities (excluding IFRS 16 liabilities). The reconciliation of cash and cash equivalents to net corporate debt is as follows:
2. Segmental reporting Segmental information
The Group provides a number of different services and products. However, prior to the acquisition of Appreciate Group PLC on 28 February 2023, the different services and products provided by the Group did not meet the definition of different operating segments under IFRS 8, as the chief operating decision maker (CODM), the Executive Board, did not review them separately to make decisions about resource allocation and performance. Therefore, the Group had only one operating segment.
The Group considers the Appreciate business, now known as Love2shop, to be a separate segment from its pre-acquisition PayPoint business, since discrete financial information is prepared and it offers different products and services. Furthermore, the CODM reviews separate monthly internal management reports (including financial information) for both PayPoint and Love2shop to allocate resources and assess performance.
The material products and services offered by each segment are as follows:
PayPoint
Love2shop
Information related to each reportable segment is set out below. Segment profit / (loss) before tax and exceptional items is used to measure performance because management believes that this information is the most relevant in evaluating the results of the respective segments relative to other entities that operate in the same industries.
The L2S result is only one month, as the acquisition completed on 28 February 2023.
A business division analysis of revenue has been provided in note 3.
Geographic information
1The prior year revenue from the discontinued operation represents the revenue from Romania between 1 and 8 April 2021 prior to disposal.
The total £227.9 million (2022: £127.3 million) non-current assets at 31 March 2023 are geographically located within the UK.
3. Alternative performance measures
Net Revenue
The reconciliation between total revenue and net revenue is as follows:
1The prior year revenue and net revenue from the discontinued operation represents the revenue and net revenue from Romania between 1 and 8 April 2021 prior to disposal.
Total Costs
Total costs from continuing operations, excluding adjusting items, comprises:
1Amortisation of intangible assets arising on acquisition was reported separately on the face of the Consolidated statement of profit or loss as an adjusting item. The prior year results have been re-presented on this basis. (see note 1).
Love2shop billings
Billings relates solely to Love2shop and represents the value of goods and services dispatched and invoiced to customers during the year. The reconciliation between Love2shop’s billings and revenue is as follows:
4. Exceptional items
The tax impact of the exceptional items is £nil (2022: £nil).
Exceptional items are those which are considered significant by virtue of their nature, size or incidence. These items are presented as exceptional within their relevant income statement categories to assist in the understanding of the performance and financial results of the Group, as they do not form part of the underlying business.
5. Finance income and costs
6. Tax
The income tax charge is based on the UK statutory rate of corporation tax for the year of 19% (2022: 19%). Deferred tax has been calculated using the enacted tax rates that are expected to apply when the liability is settled, or the asset realised. During the prior financial year, an increase in the main rate of UK corporation tax from 19% to 25% with effect from 1 April 2023 was enacted. Deferred tax has been calculated based on the rate applicable at the date timing differences are expected to reverse.
The income tax charge of £7.9 million (2022: £9.0 million) on profit before tax of £42.6 million (2022: £48.5 million from continuing operations) represents an effective tax rate1 of 18.5% (2022: 18.5% for continuing operations). This is lower than the UK statutory rate of 19% due to adjustments in respect of prior year and capital allowance super deduction, partially offset by disallowable expenses.
The tax charge on continuing operations for the year is reconciled to profit before tax from continuing operations, as set out in the consolidated statement of profit or loss, as follows:
1Effective tax rate is the tax cost as a percentage of profit before tax on continuing operations.
7. Earnings per shareBasic and diluted earnings per share are calculated on the following profit and number of shares.
1The prior year profit after tax for “Continuing operations – underlying” has been re-presented to exclude amortisation on acquired intangible assets.
The SIP and other dilutive shares only have a passage of time restriction on them, hence are included above but not in the total number of outstanding share awards at the end of the year.
8. GoodwillThe Group tests goodwill for impairment annually and more frequently if there are indicators of impairment as set out in note 1. The Group’s cash-generating units (‘CGUs’) have been assessed based on independently managed cash flows. When testing for impairment, recoverable amounts for the Group’s CGUs are measured at their value-in-use by discounting the future expected cash flows from the assets in the CGUs. The Group prepares five-year cash flow forecasts derived from the most recent three-year financial budgets approved by the Board which are extrapolated for a further two years and subsequently extended to perpetuity. A key source of estimation in the impairment tests is the short-term revenue growth rates applied within the cash flow forecasts, which are determined using an estimate of future results based on the latest business forecasts and appropriately reflect expected performance of the CGU. The estimates of future cash flows are based on past experience, adjusted for estimates of future performance, including the continued shift from cash to digital payments.
Terminal values are based on long-term growth rates that do not exceed 2%, which appropriately reflects the expected long-term rate of GDP growth in the UK. The pre-tax risk-adjusted discount rates have been used to discount the forecast cash flows calculated by reference to the weighted average cost of capital (‘WACC’) of each CGU. The cost of equity is based on the risk-free rate for long-term UK government bonds, which is adjusted for the beta (reflecting the systemic risk of PayPoint relative to the market as a whole) and the equity market risk premium (reflecting the required return over and above a risk-free rate by an investor who is investing in the market as a whole).
All CGUs assessed generate value-in-use in excess of their carrying values. Sensitivity analysis applied to discount rate and short-term growth rate demonstrated that a combination of adverse changes in assumptions for the Handepay CGU could cause its carrying value to exceed its recoverable amount, as explained below. The headroom between the Handepay CGU valuation and its recoverable amount is £12.0 million, calculated using the assumptions below. For the other CGUs, no reasonably possible change in any of the assumptions would cause their carrying values to exceed their recoverable amounts. Management does not consider that climate change factors would adversely impact its goodwill impairment assessments.
The key assumptions used in the estimation of the recoverable amount are set out below. The values assigned to the key assumptions represent management’s assessment of future trends in the relevant industries and have been based on historical data from both external and internal sources.
Assumptions used for annual impairment tests
Given the proximity of the timing of the Appreciate acquisition to the year end, fair value less costs of disposal was also considered as an alternative measure of recoverable amount and indicated that no impairment was required at the year end.
9. Acquisition of subsidiaries
A) Appreciate Group PLCOn 28 February 2023, PayPoint acquired 100% of the share capital of Appreciate Group PLC for consideration of £79.2 million, comprising cash of £61.9 million plus equity of £17.3 million in the form of 3.6 million issued shares, and based on the closing share price of £4.84 per share at 28 February 2023. The acquisition resulted in a net £45.6 million cash outflow (net of cash and borrowings acquired) in the current year.
The primary reasons for the acquisition were to open up a range of growth opportunities, leveraging Appreciate’s well-established and well-regarded offerings in the gift card, voucher and prepay savings markets.
The following intangible assets have been recognised and are being amortised over useful lives as shown:
In the period since acquisition, Appreciate contributed total revenue of £7.6 million and nil profit before tax to the Group’s results. Had the acquisition taken place on the first day of the financial year, Appreciate would have contributed revenue of £135.3 million and profit before tax of £0.7 million (on an unconsolidated basis).
Acquisition costs incurred in the year in relation to Appreciate totalled £3.6 million, which are reported within exceptional items in profit or loss.
The following table summarises the provisional fair values of the identifiable assets purchased and liabilities assumed at the acquisition date:
1Excludes £3.6million acquisition costs, capitalised in investments in the Company statement of financial position but expensed in the Group statement of profit and loss.
The acquired identifiable assets and liabilities have been recognised at their fair values at acquisition date and in accordance with the Group’s accounting policies (note 1):
• The acquired customer relationships including contractual customer relationships have been valued using the multi-period excess earnings method (“MEEM approach”) by estimating the total expected income streams from the customer relationship and deducting portions of the cash flow that can be attributed to supporting, or contributory, assets (including workforce). The contractual customer relationships asset relates to cards existing at the acquisition date, some of which will be redeemed post acquisition and on which a service fee will be earned and some of which (including those only partially redeemed) will expire with unredeemed balances on which unredeemed income will be earned. It is estimated based on the expected revenue to be received, less the costs to deliver the service. The residual income streams are discounted. No tax amortisation benefit is applied. The key inputs to this method are the customer churn rate and discount rate applied to future forecasts of the businesses. Contractual customer relationships have a fair value of £7.7 million and a useful economic life (UEL) of two years. Non-contractual customer relationships have a fair value of £14.0 million (£8.8 million relating to Appreciate Business Services and £5.2 million relating to Park) and a UEL of eleven to thirteen years.• Acquired brands have been valued using the relief-from-royalty method.• Acquired software intangible assets and property, plant and equipment have been valued using the depreciated replacement cost method, considering factors including economic and technological obsolescence. • Inventories, trade receivables and trade payables have been assessed at fair value on the basis of the contractual terms and economic conditions existing at the acquisition date, reflecting the best estimate at the acquisition date of contractual cash flows not expected to be collected. The fair value assessment of trade receivables reflects estimated uncollectable amounts of £251,000.• The retirement benefit asset has been measured in accordance with IAS19 at the date of acquisition.• The deferred tax liability comprises £10.1 million liability recognised on the £40.4 million of acquired intangible assets, less £2.5 million of deferred tax asset relating principally to acquired losses, measured in accordance with IAS12.• Lease liabilities are valued at the present value of the remaining lease payments as if the acquired leases were new leases at the acquisition date. The related right of use assets are measured at the same amount, adjusted to reflect terms which are either favourable or unfavourable compared to market terms. The fair value of the right of use asset relating to the Chapel St. premises differs from that of the associated lease liability due to favourable terms for rent-free and discounted periods.
The following acquired assets and liabilities were valued using management’s best estimates based on information available at the acquisition date, which are therefore subject to adjustment within the measurement period if new information about facts and circumstances that existed at the acquisition date is obtained and, if known, would have resulted in the recognition of those assets and liabilities at that date.
Of the £59.8 million of goodwill acquired during the period, no goodwill is expected to be deductible for tax purposes. The goodwill arising on acquisitions is attributable to workforce, synergies, growth from new customers and other assets not separately recognised.
10. TRADE AND OTHER RECEIVABLES
1Items in the course of collection represent amounts collected for clients by retailer partners. An equivalent balance is included within trade and other payables (settlement payables).
11. TRADE AND OTHER PAYABLES
1Relates to monies collected on behalf of clients where the Group has title to the funds (clients’ funds and retailer partners’ deposits). An equivalent balance is included within cash and cash equivalents.2Payable in respect of amounts collected for clients by retailer partners. An equivalent balance is included within trade and other receivables (items in the course of collection). 3 Payables in respect of cards and vouchers include balances due to both customers (£19.7 million (2022: £18.7 million)) and retailers in respect of flexecash © cards and amounts due to retailers for Love2shop vouchers and cards.4 Trade payables includes L2S savers’ prepayment balances for products that will be supplied prior to Christmas 2023, upon confirmation of order. Until orders are confirmed, savers’ prepayments are repayable on demand.
12. LOANS AND BORROWINGS
13. SHARE CAPITAL, SHARE PREMIUM AND MERGER RESERVE
The increase in share capital in the current year resulted from 3,565,382 shares issued (of 1/3p each) as part of the consideration for Appreciate Group PLC, 47,899 shares issued (of 1/3p each) for share awards which vested in the year and 34,004 matching shares issued (of 1/3p each) under the Employee Share Incentive Plan.
The share premium of £1.0 million (2022: £1.0 million) represents the payment of deferred, contingent share consideration in excess of the nominal value of shares issued in relation to the i-movo acquisition.
The merger reserve of £18.2 million (2022: £1.0 million) comprises £1.0 million initial share consideration in excess of the nominal value of shares issued on the initial acquisition of i-movo and £17.2 million share consideration in excess of the nominal value of shares issued in relation to the Appreciate acquisition.
14. DIVIDENDS
The proposed final ordinary dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.
15. Notes to the cash flow statement
1 Items in the course of collection, settlement payables and card and voucher balances are included in this reconciliation on a net basis through the client cash line. The Directors have included these items on a net basis to best reflect the operating cash flows of the business.
16. CONTINGENT LIABILITY
As announced in our RNS on 29 March 2023, the Group received ‘letter before action’ correspondence in March 2023 from a small number of market participants relating to issues addressed by commitments accepted by Ofgem as a resolution of its concerns raised in Ofgem’s Statement of Objections received by the Group in September 2020. The Ofgem resolution to the case did not include any infringement findings.
The Group responded robustly to both sets of allegations. A claim has now been served on a number of companies in the Group in relation to each matter: Utilita Energy Limited and Utilita Services Limited (“Utilita”) served a formal claim on 16 June 2023 and Global-365 plc and Global Prepaid Solutions Limited (“Global-365”) served a formal claim on 18 July 2023. Consideration has been given, in these financial statements, to the possibility of any liabilities arising from each claim. The Group is continuing to take legal advice with regard to these two claims. It is confident that it will successfully defend the claim by Utilita, which does not provide any clear evidence to support the cause of action or the amount claimed, and also that it will successfully defend the claim by Global-365, which fundamentally misunderstands the energy market and the relationships between the relevant Group companies and the major energy providers and also over-estimates the opportunity, if any, available for the products offered by Global-365. As a result, no provision has been recognised in respect of either claim.
The Group intends to continue to robustly defend its position in both claims. However, if the Group was unable to successfully defend either claim, any liabilities could have a material adverse impact on the Group.
1 Net revenue is an alternative performance measure. Refer to note 3 to the financial information for a reconciliation to revenue.2 Underlying EBITDA (EBITDA excluding adjusting items) is an alternative performance measure. Refer to note 1 to the financial information for the definition and the Financial review for a reconciliation to profit before tax.3 Underlying profit before tax (profit before tax excluding adjusting items) is an alternative performance measure. Refer to note 1 to the financial information for a reconciliation.4 Cash generation is an alternative performance measure. Refer to the Financial review – cash flow and liquidity for a reconciliation to profit before tax5 Net corporate debt (excluding IFRS 16 liabilities) is an alternative performance measure. Refer to note 1 to the financial statements for a reconciliation to cash and cash equivalents6 Adjusting items comprises exceptional items and amortisation of intangible assets arising on acquisition. Refer to note 1 for a reconciliation.7 https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/march2023 8 https://www.gfk.com/press/UK-Consumer-confidence-up-six-points-in-April https://www.gfk.com/press/UK-consumer-confidence-tumbles-to-new-low-of-49-in-September 9 https://www.ons.gov.uk/businessindustryandtrade/retailindustry/bulletins/retailsales/march202310 https://www.natwest.com/content/dam/natwest/business-insights/documents/nw-retail-and-leisure-outlook-2023.pdf page 5 11 Source: Lumina Intelligence, July 202312 Lumina Intelligence CTP 12WE-05.03.23 & Convenience Strategy Forum Debrief – Q1 202313 Lumina Intelligence CTP 12WE-05.03.23 & Convenience Strategy Forum Debrief – Q1 202314 PayPoint internal data15 Source: PayPoint Dashboard Report page 25 (Lumina Intelligence, July 2022)16 Source: PayPoint Dashboard Report page 25 (Lumina Intelligence, July 2022)17 IMRG Consumer Home Delivery Review 2022/23 – page 27
18 https://www.ukfinance.org.uk/system/files/2022-8/UKF%20Payment%20Markets%20Summary%202022.pdf page 319 UK Finance Card Spending Update for February 202320 UK Finance Card Spending Update for February 202321 https://researchbriefings.files.parliament.uk/documents/SN06152/SN06152.pdf page 422 https://www.link.co.uk/media/2199/monthly-report-mar-23-final.pdf 23 IMRG’s Consumer Home Delivery Report UK24 IMRG’s Consumer Home Delivery Report UK25 Metapack ecommerce delivery report 202326 https://www.imrg.org/uploads/mediadefault/0001/08/2477f50ad2fee946cdf5ed23ebb8df21f2489d09.pdf?st.27 OC&C analysis28 https://www.ofgem.gov.uk/retail-market-indicators29 https://www.ofgem.gov.uk/energy-data-and-research/data-portal/all-available-charts?keyword=breakdown%20of%20the%20default%20tariff%20price%20cap&sort=relevance 30 https://www.ofgem.gov.uk/energy-data-and-research/data-portal/all-available-charts?keyword=breakdown%20of%20the%20default%20tariff%20price%20cap&sort=relevance 31https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1143890/Q4_2022_Smart_Meters_Statistics_Report.pdf 32 PayPoint Data – Data based on regular customers only, ones transacting before the beginning of the two-year period and in the last three months of the date range33 https://www.ofcom.org.uk/__data/assets/pdf_file/0018/240930/Communications-Market-Report-2022.pdf 34https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1150988/JROC_report_recommendations_and_actions_paper_April_2023.pdf 35 https://www.ukfinance.org.uk/system/files/2023-05/Annual%20Fraud%20Report%202023_0.pdf36 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1150988/JROC_report_recommendations_and_actions_paper_April_2023.pdf37 https://www.openbanking.org.uk/insights/how-open-banking-can-help-consumers-manage-cost-of-living-challenges/ 38 GVCA Consumer Report May 2023 39 GCVA-State-of-the-Nation-March-202240 Amortisation of intangible assets arising on acquisition were not identified as adjusting items in the prior year financial statements (see note 1).41 Adjusted EBITDA is an alternative performance measure. Refer the finance review for a reconciliation.42 Net corporate debt (excluding IFRS 16 liabilities) is an alternative performance measure. Refer to note 1 to the financial information for a reconciliation to cash and cash equivalents.43 Dividend cover represents profit after tax divided by reported dividends.
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