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Edited Transcript of PAYP.L earnings conference call or presentation 28-May-20 8:30am GMT

Full Year 2019 PayPoint plc Earnings Call

Hertfordshire Jul 18, 2020 (Thomson StreetEvents) -- Edited Transcript of PayPoint plc earnings conference call or presentation Thursday, May 28, 2020 at 8:30:00am GMT

TEXT version of Transcript


Corporate Participants


* Nicholas Wiles

PayPoint plc - CEO & Director

* Rachel Kentleton;Finance Director, Executive Director & Member of Executive Board


Conference Call Participants


* James Arthur Goodman

Barclays Bank PLC, Research Division - Research Analyst

* Joe Brent

Liberum Capital Limited, Research Division - Head of Research and Equity Analyst

* Kai Folker Korschelt

Canaccord Genuity Corp., Research Division - Analyst

* William Kirkness

Jefferies LLC, Research Division - Equity Analyst




Operator [1]


Good day and welcome to the PayPoint full year results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Nick Wiles. Please go ahead, sir.


Nicholas Wiles, PayPoint plc - CEO & Director [2]


Anna, thank you very much, and good morning, everybody, and welcome to our full year results presentation for the year ended 31st of March 2020. I hope you're all keeping well during these very unusual times.

As you know, we're unable to present our results in the usual face-to-face format. However, Rachel and I will do our best this morning to provide you with detail on our announcement we made this morning. And as always, we're here to answer your questions. The agenda this morning is as follows: I will take you through the introduction and then at a high level, tell you how we've responded to the crisis. Rachel will then cover the financial review, after which I'll cover off the operational review of the business and finish off with a summary before opening up to your questions.

By way of introduction, here are the headlines for our year-end to March. Financially, overall, a solid set of numbers. Net revenue was up 3.5% to just over GBP 120 million, which includes the negative impact of the fourth quarter of GBP 1.4 million from the British Gas contract coming to an end. Profit before tax and the variable pay benefit, which Rachel will fully explain later in her financial review, was GBP 54.7 million, which is in line with our guidance of a progression in profits. The business continued to have a strong balance sheet and good cash conversion with over GBP 66 million of cash generated during the year. And this performance, combined with a robust business model, has enabled us to pay a final dividend of 15.6p per share.

Operationally, we've had a good strong performance over the year. We exceeded our original target of 15,800 PayPoint One sites. At the year-end, we had over 16,000 sites across the estate. The revised target of 16,500 was achieved during February. We came off this number in March with the onset of the COVID-19 retail closures. We've continued to invest in our EPoS platform to increase its stability, scale and delivery benefits, and we successfully deployed the first phase of CRM, which enables paperless signup, a more rapid conversion of new business prospects alongside a master retailer database. In Parcels, our multi-carrier strategies extended our access across the network and helped drive about 12% growth in volumes. And since the year-end, we've acquired the remaining 50% of the Collect+ brand, which gives us the opportunity to leverage the brand, the website and drive further volumes through the network.

Strategically, progress through this year has been focused on positioning the business to deliver on our 3 core strategic priorities and embedding PayPoint at the heart of convenience retail, becoming the definitive parcel point solution and sustaining leadership in pay as you go and a growth in digital payments. Although naturally, for the near term, our focus has been on, firstly, responding quickly in the early stage of the crisis in mid-March and to take immediate steps to sustain our business and increase support to our clients in the retailer network, a reorganization to deliver a more streamlined and accountable structure across the business and to strengthen and invest in the business to underpin our strategic priorities and to identify new emerging opportunities.

I'll cover in more detail our response to the crisis and its impacts on our business later in the presentation. But for now, I just wanted to cover off our key focus areas. Like many businesses, we've had to adopt a radically different approach in almost every aspect of our business over this period. Firstly, in terms of our people. We've moved rapidly to remote working, the challenge of making the necessary changes to ensure a productive team throughout the business. Secondly, we've raised the intensity of our retailer network management to ensure critical coverage at all times and rapid recovery of sites closed due to the virus. As you can imagine, this is an aspect of our business, which has been of particular interest to the regulator and critical to both our bill payments and parcel clients.

Thirdly, we've reorganized our retailer support and engagement teams to ensure additional support is available through our field team and contact center and to be able to quickly respond to the needs of our retailers. Fourthly, we stepped up our support to clients, in terms of their change needs and demands for additional services as they respond to the needs of their own customers, which we know are often the most vulnerable in the community. And finally, we've tightened our operational and financial controls in the day-to-day management of the business, supporting our technology platform, managing our settlement of financial processes remotely and taking a sharpened pencil on our operating costs throughout the business.

And of course, one of the key impacts of this crisis if we take a longer-term look, the way that we work throughout the business, that we learn from this experience and see how we can become more agile and efficient in the future. As I've said, I'll be carving out more of this in more detail later in the presentation. So now I'd now like to hand over to Rachel, who will take you through the financial review.


Rachel Kentleton;Finance Director, Executive Director & Member of Executive Board, [3]


Thanks, Nick. Good morning, everybody. I'm really sorry not to be seeing you all in person. So now turning to the figures, the details of which are obviously in the RNS, so I'll just focus on the key points in this presentation.

You can see that gross revenue grew by GBP 1.7 million to GBP 213.3 million from just over GBP 9 billion worth of transactions processed in the year. This compared to a GBP 4.1 million increase in net revenue to GBP 120.7 million, up 3.5% compared to the prior year, driven by growth in PayPoint One service fees, card revenue and a stable performance in U.K. bill payments and continued growth in the Romanian business.

EBITDA grew by GBP 1.8 million (sic) [GBP 2.8 million] to GBP 66.5 million and profit before tax grew by 5.6% or GBP 3 million to GBP 56.8 million, albeit this did include a GBP 2.1 million of variable pay benefit, which was comprised of 2 components: One, the voluntary give-up of management bonuses and the reversal of various share-based payment accruals due to the fall in the value of the PayPoint shares as our year-end fell on the 31st of March and the share price was GBP 5.36.

As a reminder, the exceptional item you can see in the prior year relates to the release of a provision for the PayByPhone disposal in December 2016. Earnings per share grew by 2.3% and to 66.3p per share, and we've declared a final dividend of 15.6p per share, taking the total ordinary dividend reported in the year to 39.2p, the same level as the previous financial year. Now I'm going to spend a good amount of time later in the presentation talking you through the Board's thinking around framework for deciding this level of dividend so you completely understand the thinking about that.

So now moving forward, and reflecting the diversity of PayPoint products, there are always a lot of moving parts that drive the financial results. So on this slide, we try and show the key commercial drivers of the underlying profit before tax of 7.9%. So you can kind of see here that this figure excludes the impact from prior year one-offs, a negative in terms of the GBP 0.7 million due to the Yodel renegotiation and the fact that we didn't repeat the GBP 2.4 million incremental VAT we had received in the prior year. It's also worth noting the impact of IFRS 15, which I'm sure you are all aware, relates to how we recognize the revenue and cost impacts of client development work undertaken in prior years. Whilst IFRS 15 had minimal impact on profit before tax in the year, it benefited revenue by GBP 1.4 million and had a similar impact -- negative impact on the cost variance.

Net revenue has grown in U.K. retail services by GBP 3.9 million. U.K. bill payments declined by GBP 1.2 million, largely due to the loss of the British gas contract in the last quarter of the year, and top-ups were flat. And in Romania, revenue grew by GBP 0.7 million. This was partially offset by lower costs of GBP 0.6 million, which is a better performance on cost than we anticipated at this time last year.

So now to give you a bit more detail on the revenue performance, which, as I said, was up by 3.5%. The traditional U.K. bill payments business delivered a resilient performance. As I said, we lost the British gas contract on the 1st of January. And in the prior period, i.e., the last 3 months to the 31st of March 2019, we saw revenue of GBP 1.4 million. So that effectively makes up for most of the drop-off in revenue that you can see there in U.K. bill payments.

There was continued strong growth in MultiPay, where net revenue increased by 25.7% to GBP 4.4 million. Whilst top-ups continued their decline, eMoney showed a continued strong growth, up 19.9% to GBP 6.9 million. Romania continued to deliver strongly with net revenue growth of 5.5% to reach GBP 14.6 million, with growth across bill payments, top-ups and cards, which are now in over 1,500 sites in Romania.

Romania also saw strong pricing growth with net revenue per transaction growing by 4.1%, showing the continued impact of the Payzone acquisition we made 3 years ago. U.K. retail services showed net revenue growth of GBP 3.9 million or 10.5% to reach GBP 41 million. This was primarily driven by the GBP 2.8 million increase in services as we added over 3,500 PayPoint One sites.

Card payment rebate revenue increased by 10.9% to GBP 8.7 million. This was driven by transactions increasing by 20.6%, mainly contactless payments where net revenue per transaction is lower than chip and PIN. Card sites declined slightly largely due to COVID-19, later closures of retailers, and Nick will take you through our initiative to grow sites in the forthcoming year. ATM net revenue reduced by 3.5%, reflecting lower transactions, which were down by 4.1%. This was partially offset by a contribution from LINK to the setup of the counter scheme for cash-out. Parcel and other net revenue increased by 10.6%, reflecting a 2.6% growth in note volumes and 2.8 million parcels from our new partners.

Turning now to costs. Let me just talk you through this slide. Included in the GBP 62.8 million of total costs for '18/'19 year was a one-off of GBP 2.4 million VAT benefit from HMRC, resulting from better analysis of our costs. That gave us a GBP 65.2 million starting point for 2019/'20, from which we've implemented cost savings of GBP 2.6 million, particularly in H2. These efficiencies include bringing all terminal repairs in-house, contract renegotiations with third parties, particularly telecom and software suppliers, headcount and third-party efficiencies from Romania, and one-off savings, such as less third-party consultancy spend. We invested in circa GBP 1.5 million back into revenue-generating activities in the U.K., including increased headcount in our commercial and parcel functions. You can see also the IFRS impact I mentioned earlier. Including in the other figure of GBP 0.5 million is inflation and some restructuring costs as we reorganized the business and reduced headcount.

Total underlying costs of 2019/'20 were GBP 66 million, an increase of 1.2% from the prior year. This doesn't quite reconcile to the GBP 63.9 million you can also see on the slide. And as you'll know, the difference is the variable pay benefit.

I'm just going to briefly pause on second half costs because I think you can see that as a result of tough trading in Q4 and anticipation of the loss of the British Gas contract, we made some really good progress here, reducing the year-on-year cost run rate by GBP 500,000 by delivering efficiencies of GBP 2 million, which is split between sustainable efficiencies that are ongoing and some one-off savings that we were able to make.

Turning now to the statement of cash flows. Profit before tax of GBP 56.8 million has been adjusted for depreciation, amortization, noncash items, to arrive at cash generation of GBP 66.4 million. The cash generated was used to pay dividends of GBP 57.4 million in the year and taxes of GBP 15.8 million. This included the one-off impact of HMRC taking payment on account of GBP 5 million. CapEx of GBP 8.6 million was lower than we expected due to delays in the manufacture and shipping of T4 terminals from China in the early part 2020 due to COVID-19.

As a reminder, just after the year-end closed, we invested a further GBP 6 million, which you can't see in that GBP 8.6 million, on the acquisition of the 50% of the Collect+ brand we didn't pay. PayPoint's corporate cash was GBP 58 million at the 31st of March, and we fully drew down our facility in the week commencing the 16th of March, when there was a real concern that the U.K. and Romanian governments would suspend the payment of energy bills. This would have had an extremely negative impact on PayPoint's financial position. Net debt was GBP 12 million at the 31st of March 2020.

Briefly touching on the balance sheet, which you can see remains strong as evidenced by our net corporate debt-to-EBITDA ratio of 0.2x. And the only other notable items I'll call out is other intangibles increased by GBP 1.4 million due to the ongoing development of EPoS, CRM. And PPE declined by GBP 1.9 million due to assets such as the data center and various ATMs reaching the end of their life.

So now I think, actually, and these are probably the most important 2 slides, I think in the finance section. I'm going to spend some time on the forward look in terms of cash flow and liquidity and then talk through the Board -- how the Board judged the appropriate level of dividend.

So I've already flagged that week commencing the 16th of March, we had a real concern that all energy payments would be suspended in U.K. and Romania, hence, the drawdown of the facility. This concern has not materialized. Trading has demonstrated good resilience in bill payments, as Nick will show you later. ATMs and parcels have been more severely impacted, albeit card payments have shown significant uplift since COVID-19. Obviously, at this stage of the year, given the uncertainty we're all living through, we can't predict with any precision the final outcome for the year. But as you'd expect, we're working to some scenarios so that we continue to review and update on regular basis. And I've based the team -- based these scenarios on trading scene in the last couple of weeks of April.

The first scenario, which we'll call base, assumes April trading for 3 months and a gradual improvement back to pre-COVID levels. The second scenario, essentially a proxy for a second wave, as it assumes April trading patterns for 9 months and then gradual improvement. The third scenario we've used is really only for our viability work with the auditors and assumes April trading for 3 years as well as some other unfortunate events, such as the collapse of 2 Romanian banks, the loss of several clients and the failure to renew retailer contracts. The key conclusions we've drawn from all of this work is the PayPoint model is resilient. There are no covenant breaches of our facility, 2 main ones being debt-to-EBITDA not being greater than 3x or interest cover of at least 4x. We have no need for HMG support either through financing or furloughing. And inevitably, there will be opportunities as weaker players in our sector fail, and Nick will take you through all of this in his part of the presentation.

As you'd expect and as Nick has said, we've also taken some action on costs and CapEx to help improve profitability and manage cash flows. We keep all areas of the business under review. And most notably, so far, since the 1st of April, we made cost savings of GBP 1.5 million and we've got CapEx of GBP 6 million under review there.

So turning now to the dividend. The Board's immediate priority at the moment is to continue to preserve balance sheet strength, ensure PayPoint emerges in a strong position from COVID-19. Consequently, the additional dividend program, which has returned GBP 83.5 million to date to shareholders, has ended. The Board's approach to the setting of the ordinary dividend has not materially changed and follows the following capital allocation priorities.

Firstly, investment in the business through capital expenditure in innovation to drive future revenue and to improve the resilience and efficiency of our operations, such as the CRM work that we've done; investment in opportunities such as Payzone Romania and the purchases of 50% of the Collect+ brand not previously owned by PayPoint, and then a progressive ordinary dividend targeting a cover ratio of 1.2 to 1.5x earnings.

So putting all of this together, as a measure of the confidence the Board has in the resilience of PayPoint, the Board has proposed a final dividend of 15.6p. In determining the level of dividend, the Board has sought to ensure a prudent level of earnings coverage and to ensure that leverage is not substantially increased, even in the scenario where the trading trends seen in April continue to the end of 2020. And with that, I'm handing over to Nick.


Nicholas Wiles, PayPoint plc - CEO & Director [4]


Thanks, Rachel. Given the current situation we face, for today, we separated our operational review into 2 priorities such that we're properly addressing how we sustain the business and support our clients from retailer network through this crisis; and then secondly, the progress we've made through the year and the actions we're taking to strengthen and invest in the business to underpin our core strategic priorities.

How are we adapting in response to the crisis? I talked about the key focus areas in my introduction. I'll now provide some more detail on how this translates into how we're managing the business and adapting. In terms of our people, as I mentioned before, the safety and well-being of our people is absolutely our first priority. Almost everyone in the business is now working remotely with the exception of a small number of key style regularly coming into Shire Park and some of the field team who are making retailer visits where necessary under strict social distancing guidelines with full PPE.

With the adaptability we've seen from our people, I'm confident this is working. We have the necessary adjustments to ensure the team requires engagement and productivity. A great example of this is the field team that moves to a dramatically different work model with much of their retailer engagement now by telephone or with prearranged visits. In one week alone, now making upwards of 3,000 care and support calls into our retailer network. This has extended to some remote installations as well as on-site support.

Internally, we placed a strong emphasis on wellbeing throughout the business, ensuring everyone feels engaged and supported, whilst working remotely with regular firm-wide briefings, smaller team chats and get-togethers. We made a clear and early decision that the business did not need to take government support, as Rachel has said, and that we do not need furlough people from the business or to make COVID-19-related redundancies. I'm proud to say everyone has played their part in this response with everyone passing on cash bonuses for the last year and with no pay increases in the current year. We're now putting in place a range of measures in response to the next stage in terms of ensuring a safe working environment for those who may return to the office during June and beyond and whilst thinking through our longer-term working priorities and plans.

In terms of our performance framework, we've adapted our performance framework to ensure they're monitoring the -- all key data on a daily basis so that we can identify issues quickly and then take appropriate actions. This has become a much more hands-on process with a regular review of our effectiveness in the field.

In terms of our network, an immediate benefit of this performance framework has been in the management of our network, which as I highlighted before, has been critical during this crisis. With accurate data, we've been able to quickly recover sites close to the crisis. From our low point of over 1,000 closed sites in mid-April, we've now recovered almost half of these through this initiative. This monitoring has extended across all our products, has been a key tool in driving action and site recovery.

In terms of other measures we've implemented across our retailer network. We have financial support directly to retailers in terms of service fee rebates for retailers close to the virus, a deferred indexation increase on service fees and the switching of our billing from in advance to arrears, which in effect provides retailers with a 1-month service fee holiday.

We've also supported the NFRN with a significant financial contribution towards their hardship fund. This financial support to our retailers has been complemented by enhanced operational support. In this regard, as I've already mentioned, our field team and contact center are focused on care support calls and significant increase in outbound calls early resolution of issues. We have our COVID-19 Wednesday support, which is a program whereby retailers directly affected by the virus are contacted and provided with necessary support to, where as quickly as possible, return to business.

We've also launched a retailer hero program to recognize those retailers in our network who have gone above and beyond in support of their local communities. I think it's fair to say we're working harder than ever before to support our retailers and the community they're serving at this time.

In terms of new business opportunities, in the client business, this crisis has triggered the need for a number of new services to support clients during these times. We've seen a significant growth in local authorities needing our cash-out support service, provide key welfare support payments. In addition, we're seeing demand for our new PayByLink feature as customers consider how they manage debt tools and importantly, their management processes and debt recovery.

In terms of risk management, in our own business, we need to be extra vigilant as we manage operational and financial risk within our network and services with 3 particular areas of focus being our settlement processes, our technology and our platform resilience and our exposure to cybersecurity.

And in terms of products, the immediate impact of the crisis has created a number of new risks and opportunities across our retail products. And in some cases, unquestionably has accelerated existing trends, and this we highlight on the next slide. So overall, I believe the business has shown good adaptability in this early response to the crisis, and we will continue to adapt as this crisis unfolds.

In terms of what we're seeing in terms of trends in the business, you will recognize this table from the RNS showing the key service volumes trends over essentially 3 periods. The full year comparison, the first 2 weeks of April and then the fourth weeks from the middle of April through to the middle of May, and these are all compared with a similar period to last year. There are some important observations to make here.

In bill payments, the underlying trend is clear. And from a low point in the middle of April, we have seen some recovery. By way of background throughout the crisis, the ATV has in general been higher, reaching a peak of almost 20% higher in early April. This reflects a generally higher level of residential energy consumption and also a tendency from the customers to make a greater top-up on each visit.

Also in comparison with last year, the whole of this period has been significantly warmer than a comparable period last year. Nevertheless, even with the ATV trending lower in recent weeks and our site recovery being stronger, the trend is clear, and we still see bill payment transactions running at about 20% lower than they were over a similar period last year.

We've also seen lower volumes in non-energy bill payments in areas such as water, transport and TV licensing, although I would say that our MultiPay channel has never been stronger. In terms of top-ups, as you can see from a low point in the first 2 weeks of April, we have a similar trend, and we're currently trading at about 20% below the levels you saw a year ago. More recently, eMoney top-ups have shown some early signs of recovery as the gig economy stirs to life, although mobile top-ups, in general, remain very depressed, reflecting the generous free data from the mobile companies. We do expect to see some recovery in top-up later in the year.

Our performance in ATMs is reflective of the current nervousness from the public in general over using cash in the community. Our own experience, in reality, has been better than that of the broader industry and certainly as reflected by the published linked data, and I think that reflects our lower-cost [merchant till] model.

In terms of remedial action, our focus has been to engage actively with our ATM retailers to ensure they continue to make cash available through their ATMs in order to revive this business. We're working with LINK and other parties to consider the longer-term challenges we face in recovering this business as an industry. In the meantime, we continue to process really active estate management and ideally, select new profitable opportunities from sites within our estate. In reality, we're not expecting ATM transactions and their activity to return to pre-COVID levels in the short to medium term.

In cards, the strength of our card business reflects the other side of the current nervousness around cash and the growth in contact payments during this crisis. Volumes throughout the crisis have remained close to record levels, and in fact, broken record levels on a daily basis. And this is likely to be a sustained trend coming out of the crisis and highlights the importance of our cards business to the future and the value of new initiatives such as our net settlement into our retailer card estate.

In Parcels, we have seen a strong recovery from the early days of the crisis in late March and early April. While online shopping has, throughout this period, been buoyant, the work-from-home situation, combined with the early stage lockdown restrictions and nervousness amongst retailers, has made parcel point delivery through our network challenging. As retailers have become more comfortable handling parcels, again, in-store, and customers have ventured out, our value -- volumes have started to recover. The next stage is now underway with carriers switching back to in-flight redirects, plus a recovery in confidence in the handling process. And we see this very clearly from the numbers where, from a low point of 54% down from the first 2 weeks of April, we're now down about 22% in volumes.

Some overall early observations in terms of these trends. I think, unquestionably, we continue to benefit from a multiproduct offering, which we built throughout the network. And in turn, this has enhanced the breadth of footfall and commission for our retailers. In general, there is a sense that the communities are rediscovering the value of their local convenience stores and the value they bring to supporting the most vulnerable community with sector sales up over 50%.

In our view, the best of our retailers are seeing this crisis as a major opportunity to reposition their businesses and they will thrive. There has been a step change, as I said already, in customer behavior in terms of switch from cash to card, with this trend likely to sustain long-term consequences throughout our business and a clear challenge we've recognized now for some time while we are focused on continuing broadening of our product offering and payment channels.

Still, payment clients, in particular, energy providers, are under increasing pressure around their own costs and their own business models as they respond to the challenge of materially lower demand in commercial energy markets and the growing debt risk to their retail sector. Although, in our view, the one area likely to flourish in these circumstances is going to be energy prepayment. We recognize we need to work proactively to support these clients and broaden our service offering, support them in managing their own challenges.

Overall, I think there is some comfort to be taken from a recovering trend in a number of our markets as we see here. But also confirmation of a number of underlying trends, which accelerated during this crisis and which we need to respond to. And in our view, this is a strong baseline in which to take our business forward through the rest of this year.

Now turning to the second section, the priorities of the operational review. Here, we've reviewed each of our strategic priorities in terms of our offering, our progress through the year '19/'20 and our ambitions for the current year. However, firstly, I want to address the organizational changes in the business. To underpin the delivery of the longer-term strategic priorities in the business, we've implemented a change to our organizational structure. This change delivers a more streamlined, operationally focused and accountable structure across the business, is reflective of a drive towards longer-term embedded cultural change in the business. We've established a new appointment in the Retail Services Director, take responsibility of our retail services business to include the delivery of retail services and products, management of the retailer network and our retailer-facing resource.

Danny Vant has been promoted internally to the Executive Committee, will take responsibility of the client service business, delivering leadership in bill payments, growing MultiPay, our omnichannel payment platform, extending into new market segments. In Parcels, we promoted Nick Williams into the role of first Parcels Director, leading our multi-carrier parcel proposition, a drive to improve customer service and experience, and to develop our selling proposition. This structure creates clear accountability in the business for the long term.

Now turning to each of the business segments. PayPoint at the heart of convenience. Here, we've made encouraging progress over the course of the year and identified good opportunity to develop further our ambitions in the year ahead. Our offering remains attractive to retailers at a number of levels and continues to grow as we invest in our platform, growing the services we can offer, such as Deliveroo and broadening out our footfall demographic. We're driving a cultural shift towards a partnership with our retailers and investment in better retailer-facing resource.

Our first phase of CRM was successfully launched this year. It's been a vital tool in improving service, reducing paperwork and speeding up service onboarding and improving our knowledge of our retailers. We've continued to make good progress, achieving our initial target of 15,800 PayPoint One sites, although falling short of our updated target of 16,500 sites at the year-end due to the crisis. We're also continuing to drive rollout, adoption and leverage with growth in the Core and Pro estate throughout the year. You see that clearly on the chart there on the right.

In terms of service enhancement, our EPoS Booker link is now available after a successful trial. Our card net settlement is now in over 500 stores. Benefits of CRM launch are now really being felt, particularly during this crisis period. And our early-life care initiative has been well received and getting strong retailer reviews. We have clear ambitions for 2021, where ATMs is about leveraging of our low-cost model during these challenging periods for many in the ATM industry.

In cards, it's building on the strength in this market, ensuring we maximize opportunity within our existing estate and looking for opportunities beyond. And also, continue to look at new products such as Deliveroo, at-the-link counter service and banking further into the future. Engagement with our retailers is now at the top of our agenda, both through our retailer-facing resource and through the launch of a new self-portal.

In Parcels, our offering is built on a leading pick-up, drop-off network, strong customer experience and a strong staple of carrier partners. We've made significant progress over the past year in terms of delivering the multi-carrier proposition with the rollout of new carrier partners, 12% volume growth in Parcels, a longer-term and strengthened relationship with Yodel, the acquisition of the remaining 50% of the Collect+ brand and a better response to the specific needs of individual carriers within the network. Our customer services improved, supported by enhanced technology delivered through the dedicated parcel app.

Our ambitions for 2021 are clear: to integrate the parcel contact center to our retailer-facing activities, drive service levels and a closer partnership with our carriers, continue to scale partners' access into the network, drive further volumes, leverage our Collect+ brand and establish a market-attractive send proposition.

In bill payments U.K., our performance through this crisis further demonstrated the value of our leading network and support into the U.K. It's shown again the value of proactive engagement with our clients as they consider how to best support their customers respond to their needs and drive value from their own networks. Our offering is centered around strength and coverage of our network, long opening hours and a growing omni payment platform, MultiPay, which takes us beyond traditional bill payments.

In the year '19/'20, we continue to broaden out our client business through onboarding of 19 new clients, renewing 22 existing clients with termed agreement and working with existing clients to take additional services, including Shell, who've recently taken the MultiPay service. We've also developed additional services in response to new challenges and opportunities in fresh market segments. In particular, I'm referring to PayByLink, debt management and cash-out upscaling. Our focus in the current year is continuing the process of institutionalizing our client relationships and driving harder engagement of dialogue with each. Capturing opportunities within our verticals, such as housing associations and local authorities, the upselling of our digital offering into the existing customer base and delivering our new opportunities such as PayByLink, cash-out and debt management.

In Romania, I think it's easy to underestimate what an excellent business we have in Romania, as demonstrated by a strong market position, breadth of strategic development and strong financial performance. It is also performing robustly during the crisis, which is reflective of both its strong market position and a strong agile management team.

Our offering in Romania is strong with the leading network, high brand awareness and a strong bill payment market share. Progress in 2019/'20 included an improvement in margin, the rollout of new services across the country, including 8 card payments and the launch of the self-service payment terminal, AVM, which will enable further market share growth. And for 2021, we expect to see a further drive increasing share of bill payments and market share, growing the client base, and rolling out new initiatives and new technologies.

I think our presentation this morning has added color and detail to the performance of the year to March, given you a clear understanding of how the business has adapted, responded to the crisis and a better understanding of our longer-term priorities and strategy.

To conclude, we have a resilient and clear business model with further opportunities for growth as we drive future performance through our key strategic priorities. We have the opportunity to adapt and use our technology in the business to underpin delivery, particularly as we consider further enhancements of our retailer engagement and payment channel development. The business is strongly cash-generative and has a strong balance sheet and remain focused on delivering attractive returns to shareholders through earnings and dividend growth.

Before taking questions, I just wanted to thank Rachel for her huge contribution and support to all of us at PayPoint over the last 3.5 years. She leaves later in the summer with the very best wishes from everyone here at PayPoint. So thank you.

And now, if I may, I'll hand back to Anna, who's going to coordinate your questions.


Questions and Answers


Operator [1]


(Operator Instructions) And we take our first question from Will Kirkness from Jefferies.


William Kirkness, Jefferies LLC, Research Division - Equity Analyst [2]


I've got a couple of questions, please. Firstly, just on PayPoint One, convenience retailing looking in good health. Just wondering, particularly with regards to Pro, whether you see longer-term upside versus original expectations and then how that feeds into potential incremental revenue streams from the data.

And then the second question just around bill payments. The decline there, less transactions but more of a higher average transaction value? Or are there any longer-term issues around people changing behavior at all?


Nicholas Wiles, PayPoint plc - CEO & Director [3]


Will, thank you. Shall I pick up those? Why not? Just on PayPoint One, I think that it's a really good question. And I think that as we thought about adoption through this crisis, our observation is that those retailers going forward who recognize the value of this will see it even more during this crisis as they manage every aspect of their convenience store or their convenience stores in the most efficient way they can. And there's no doubt that actually, Pro, and it's a whole principle of the heart of store strategy is going to really support them in that because it's going to give them the tools they need to manage their store better, to actually manage their stock better and most importantly, to manage their cash better.

And certainly, when we've talked to retailers about the benefits of EPoS and most particularly, Pro, we've talked about it in terms of how they can actually manage their store and their cash better. So I think this really brings it to light. I think it's still early days around data. I mean you've seen that we've now got the EPoS Booker link successfully through trial. I think that's going to help from a wholesaler perspective. I think that we need to have a higher level of adoption for the sort of the quality of the data to be there, and I think this is still something that's probably 2 or 3 years away. I know we've talked about it before, but I think we need to have Pro more embedded in the network before we have the data that we need to really be confident that it actually can be used actively through the network and for its suppliers.

In terms of bill payments, I think that it's again early days. I think there are some interesting things that have happened. I think the early stage of the crisis, I think, really pointed to people topping up larger amounts. That's why we saw that the average value increase, such that they have to be out and about less frequently. We've seen quite a lot of that unwind over the last, say, the last couple of weeks. But I think the tempo with which people will be topping up is still not entirely clear. And I guess the picture at the moment has been slightly modified by weather, and we've had an extraordinarily warm and dry last 6 weeks, I think, which would have had an impact on our bill payments business in almost any environment.

I think in the next stage, and certainly talking to our energy clients, in the next stage, the most important challenge is going to be probably around households managing their budgets, on where their energy payments sit within those budgets. And you could see a strong case for households and suppliers feeling most comfortable around the prepayment model. So that's something which I think is still to be proven out, but I think it's probably a consequence of what we likely to see in terms of the weak economy in the coming month. And we work hard with the energy clients around how they support their customers on debt management and actually for those who actually have bills suspended, how they manage those back and actually recover that money.

Will, does that help answer the questions?


William Kirkness, Jefferies LLC, Research Division - Equity Analyst [4]


Yes. That's very clear. Very helpful.


Operator [5]


We take our next question from James Goodman of Barclays.


James Arthur Goodman, Barclays Bank PLC, Research Division - Research Analyst [6]


And Rachel, thank you for the help and all the best for whatever is next as well. Perhaps as we're not meeting in person, I could ask 3 questions. The first one is just around the contract renewals comment. I wondered if you could elaborate there in terms of what you've had to put in place post-British Gas to strengthen the relationships with some of those other key suppliers.

The second question is, really, if you could remind us just the business model around card payments, given the increasing importance of that to the PayPoint business. I can't remember exactly how you charge for that, if it's a sort of percentage-based fee, if you could remind us there and just where the retailers are obligated to only accept card payments through you if they're taking your EPoS, which I presume was the case.

And then -- and finally, and you may not want to sort of put it in this context, but -- and we can back it out from some of your scenario now. It just thought it might be helpful just to short-circuit that slightly and ask what your sort of range of profit expectations is under the base scenario for FY '21 once we put everything together.


Nicholas Wiles, PayPoint plc - CEO & Director [7]


Sure. I mean I think I'll get Rachel to answer the first 2, if I may. But just to comment on the last one. Reasonably, you wouldn't expect us to give you a profit forecast. I think that we've tried as hard as we can, and I think Rachel went into some in detail, giving you what the assumptions were across our 3 cases. You will appreciate we're running the business for what we believe is our base case. And I think a combination of that and the framework around the dividend ought to give you a reasonable level of guidance as to sort of where we think the pace of the business is currently at this stage through the year, and I think we probably wouldn't want to add more than that. Rachel, why don't you pick up the first 2 points around contract renewals and business model to card payments?


Rachel Kentleton;Finance Director, Executive Director & Member of Executive Board, [8]


So starting with the business model to card payments. Essentially, we operate as an agent for Lloyds Cardnet. So therefore, for us, we effectively get a share of the fee that is charged to the retailers. So for some legacy retailers, yes, that is on a percentage basis. But actually, for a lot of new retailers, that's on a, effectively, a per-transaction basis. And it's somewhat complicated in terms of it's impacted by average transaction value as well as volume of transactions. No PayPoint retailer is obligated to take cards, which is why you'll see there's a discrepancy between the number of PayPoint Ones that are slightly over sort of 16,000 and our cards estate, which is sort of broadly about 50% of that. But actually, there are a lot of advantages for retailers taking PayPoint cards.

One, the PIN pad fee, which is normally charged to the buy -- a card's operator, is folded into the PayPoint One service fee, whether it's Base, Core or Pro. And they get access to -- on that settlement product, which actually means we offset effectively cash that they owe us on behalf of our clients with the card rebate that Lloyds need to give there, and that really does very positively impact retailers' cash flow and working capital. And that's why we're really pleased we're now in nearly 500 sites now for net settlement, which is a good proportion of the network. We do think this net settlement products is going to be a considerable aid to us to add new PayPoint retailers into that cards proposition. And as you can see, it's a fantastic opportunity for us because clearly, card payments is going only one way. So I hope that helps on that one.

Moving now to the contract renewal. I think you can absolutely understand that in the kind of strategic and competitive context of post office and Payzone. How our kind of model works is if we can provide footfall to our retailers through these large contracts, that fundamentally benefits our model. So we're being absolutely focused on making sure we win in our contract renewals. I think you can kind of absolutely see we came back fighting and out of the blocks very quickly after the British Gas point.

So clearly, there has been, which we sort of signal to you, some -- there will be some margin impact from that. But that's absolutely wrapped up with the expectations we've sort of tried to give you a framework for. And I'm happy to sort of -- if you need a bit more help understanding downside versus base case, we can have -- take a call on that later in the day.

But yes, there has been margin impact. And I think that is incredibly valuable long-term for our retailers because it means they still get the footfall and the commissions they've earned before, valuable to us because we're still getting good contribution to our overhead base. And therefore, it's also valuable to shareholders because it holds the sort of fundamental part of the PayPoint model together that's so important, and we have that any sort of deterioration in margin on some of those contracts in the broad range of guidance we've given you. I hope that helps.


Nicholas Wiles, PayPoint plc - CEO & Director [9]


Yes. I mean the only other point I would add is, just to state the obvious. And as we said in our presentation, our energy clients are going to be under significant margin pressure. I mean the reality is that they've seen a dramatic fall in their commercial energy businesses and retailers become again very important to them. They're all under significant margin pressure. And conversations we have with them around contract renewal is about balancing, supporting them around their costs with them actually taking a broader range of services from us. And in every conversation we've had with every renewal recently, it's been that balance of the conversation, which has been what's valuable to us.


Operator [10]


We take our next question from Joe Brent of Liberum.


Joe Brent, Liberum Capital Limited, Research Division - Head of Research and Equity Analyst [11]


I'd like to also add my good wishes to Rachel and wish all the best for the future. But I've still got 3 questions, I'm afraid. The first question, could you talk a little bit more about PayPoint One and the future of the rollouts and the price expectations? And then, secondly, can you talk a little bit more about expectations for costs? I appreciate that the variable pay benefit doesn't repeat entirely, but presumably, some of the share benefits could reverse, and there's other things going on in that line as well. And thirdly, you talked a bit about PayByLink, which is clearly quite important to you. Could you just go back to basics and explain what that involves exactly?


Nicholas Wiles, PayPoint plc - CEO & Director [12]


We're going to cover costs first.


Rachel Kentleton;Finance Director, Executive Director & Member of Executive Board, [13]


Yes, I'll do that. So I think, just to orientate everybody in the presentation, the reason we sort of put the GBP 66 million up there as effectively the outturn for 2020 is absolutely, to your point, we had already seen that the share price has come back up from -- we have to make the share-based payments accruals in a certain way. It's kind of quite formulaic in terms of how that gets signed off with the auditors. So clearly, that GBP 2.1 million should largely be expected to reverse. So that's why we really kind of hammered home the point that is a something not exceptional, but it's kind of very much a one-off. So we expect that repeat.

So if I look at that GBP 66 million, I think what you should do is you should back out depreciation from that and you can kind of see we've got GBP 9.5 billion of depreciation in the pie chart. And so that gives you a figure effectively of what I would call operating cash flow costs, so real sort of money-out-the-door costs rather than depreciation, which is an accounting context. Anyway, we would be very confident that we can least manage our cost base in terms of that nondepreciation sort of cost by cash costs at least to the same level that we ended last financial year. Yes. It's refining efficiencies et al.

And then, clearly, we've put a big sort of asset on the books in terms of CRM because we've been working away at that 3 years. I have to say it's been absolutely invaluable in how we've run the business since we had to all work remotely from home, and we're already seeing the benefits it in terms of actually being able to service and know our retailers. But there's a cost to that, and there will be an additional depreciation charge, I suspect, of somewhere slightly over GBP 1 million to GBP 1.5 million because of CRM coming on to the books, but that's obviously noncash. Does that help at all, Joe?


Joe Brent, Liberum Capital Limited, Research Division - Head of Research and Equity Analyst [14]


It does. In the interest of the absolute avoidance of doubt, should we take cash cost, same level as last year. Is that where the variable pay benefit in that thinking falls?


Rachel Kentleton;Finance Director, Executive Director & Member of Executive Board, [15]


Yes, great. You just simply need to back out variable pay and depreciation because largely, everything else is kind of prop the money out the door, yes, versus -- yes.


Nicholas Wiles, PayPoint plc - CEO & Director [16]


In terms of, Joe, the PayPoint One rollout. I mean I think the major impact of that has already happened. And we will work to ensure that we recover all of the lost sites due to the crisis. And I think already, I think it's fair to say we're pretty close to getting back to 16,500 PayPoint One sites. We will push on because there are clearly other target sites that we're looking to bring into the network. But we're not going to see that same pace than we've seen in the last 2 years in terms of the growth of the network.

I mean where the emphasis now is and hopefully, we've made this clear, is how we move Base up to Core and the Core onto Pro. As I said already, I think that we've got a number of initiatives working around this and I think really bringing PayPoint One into the heart of store is really sort of the focal point for all of this.

I think for those who are already in the POS family in terms of sort of pushing on and pushing up, they can see, particularly through this crisis, the benefits that actually come from actually having sort of that sort of real-time knowledge of the stock, of cash and actually how they manage working capital. Though I think it's a case of us now driving that harder through both the engagement from our field force, also in the way that we use the outbound of our contact center. So I think there's unquestionably the next phase of this, I think, as we've said before, is to push that on harder, and I would expect to see that happen during the course of this year, yes? So does that tackle the rollout point?


Joe Brent, Liberum Capital Limited, Research Division - Head of Research and Equity Analyst [17]


Absolutely perfect.


Nicholas Wiles, PayPoint plc - CEO & Director [18]


Yes, and I think in terms of PayByLink, look, this is part of, one of the functionalities of the MultiPay platform. And the value of this is very much to local authorities and housing associations. We were able to, through this platform, engage directly with their customers so that they can actually manage payments directly, they can actually potentially look into bank accounts, and they can actually support their clients and their customers and how they manage money that they owe or importantly, actually manage their payment profile over the course of the month.

And given how important this sort of debt management is going to be to local authorities and housing associations, particularly, this PayByLink and its functionality on the MultiPay platform is going to be a really important tool for them because there's going to have to be some delicate management from these big institutions into their tenants and clients and how they actually manage cash and actually how they manage payments, particularly for those that get into debt arrears. So this is something we've been talking to a lot of local authorities about, a lot of housing associations, and I think this is probably functionality that they're looking to adopt in the next phase.


Joe Brent, Liberum Capital Limited, Research Division - Head of Research and Equity Analyst [19]


And just following up on that. Is the link anything to do with LINK? Or was that just a coincidence?


Nicholas Wiles, PayPoint plc - CEO & Director [20]


Fortunately, not. It's a coincidence. No, LINK, as you know, is a...


Rachel Kentleton;Finance Director, Executive Director & Member of Executive Board, [21]


It's usually one.


Nicholas Wiles, PayPoint plc - CEO & Director [22]


No, no. I mean LINK, as you know, is actually focused on actually ATM. So it is simply a link rather than LINK association.


Operator [23]


(Operator Instructions) We take our next question from Kai Korschelt of Canaccord.


Kai Folker Korschelt, Canaccord Genuity Corp., Research Division - Analyst [24]


Also all the best wishes to you, Rachel. I had a couple if that's okay, on -- the first one was on the dividend policy. So within the range of 1.2 to 1.5x earnings cover, yes, I'm just curious in a year like fiscal '21 where clearly your sort of sales and earnings are depressed due to sort of no fault of your own. How would you think within that range? Would you err on the cautious side just to protect cash? Or would you be a little bit more conscious, I guess, of sort of the income perception of your shares? That's the first question.

And the second one was around the Collect+. So it looks like there's been a pretty sizable increase in the number of sites, and I understand it probably includes some new ones from Amazon. My question really is around how far advanced are some of the recent sign-ups like Amazon, DHL in terms of overall penetration of the network?


Rachel Kentleton;Finance Director, Executive Director & Member of Executive Board, [25]


So I just talked about dividend. I mean I think the Board has taken a very kind of prudent view. We set the dividend on the expectation that your business will trade no worse than our downside scenarios in the 9 months of current trading, and we have taken a prudent view as you'd expect us to, yes? Because we live in very uncertain times.


Nicholas Wiles, PayPoint plc - CEO & Director [26]


And I actually think, to be fair also, Kai, this is very early in the year. I mean the next time that we have to make a decision on our dividend in the context of the policy we've laid out is in November. It will have the benefit of actually having naturally seen not just this first quarter, but also how the situation evolves thereafter. And as Rachel says, as always has been the case, we have to balance all of the priorities of the business, and we are going to be prudent. And we're there to deliver growth as well as we are to deliver dividend income. And we've got to get our priorities and our balance right. And we think the policy we've laid out, which is consistent with what we said in the past, delivers that.

If I may, just picking up the question about Collect+. There are a number of elements within that. As you know, we've been growing the Amazon estate aggressively. And interestingly enough, it's one of those things that lends itself well during this period. It's one thing that actually our field force are able to do by telephone, and we continue to see strong growth in our Amazon network supporting our relationship with Amazon as one of our key carriers. With DHL, we continue to grow that network as well. And in truth, we're beginning to think now about how we work closely with DHL around the incentive proposition. And I think beyond that, the eBay network remains broadly stable, and we've seen some pulling back of actually the Yodel network, which I think reflects probably an overlarge network for -- or actually the penetration, actually, that Yodel are looking for.

I think against the background of us growing our net carriage of parcels for Yodel, they're looking at a very efficient print, which actually is efficient to them in their own network carriage and the way that they manage their own vans, and I think it's consistent actually with us making sure that our Collect+ network is busy such that they are familiar with and actually manage the parcels, familiar with those across each of the carriers and so that it's also remunerative for them as well. So I think we're pretty well -- I would say that Yodel is optimal. I think there's probably some more growth to go with DHL, further growth to go with Amazon and probably further growth to go in eBay as well.


Operator [27]


(Operator Instructions) It appears there are no further questions at this time. I'd like to turn the call back to our host for any additional or closing remarks.


Nicholas Wiles, PayPoint plc - CEO & Director [28]


Anna, thank you very much, and thank you very much to everybody for joining us this morning. As you can see, we've made good progress in the year we're reporting on. I think as we've said this morning, we've positioned the business well for the challenges we face, not just immediately in the terms of this crisis, but for the longer term. And we look forward to speaking to you later in the year when we can report further on progress. So good day to everybody, and stay safe. Thank you. Bye.