U.S. Markets closed

Edited Transcript of PAY.L earnings conference call or presentation 28-Nov-19 9:30am GMT

Half Year 2019 PayPoint plc Earnings Presentation

London Nov 28, 2019 (Thomson StreetEvents) -- Edited Transcript of PayPoint plc earnings conference call or presentation Thursday, November 28, 2019 at 9:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Nicholas Wiles

PayPoint plc - Executive Chairman

* Rachel Kentleton

PayPoint plc - Finance Director, Executive Director & Member of Executive Board

================================================================================

Conference Call Participants

================================================================================

* Joe Brent

Liberum Capital Limited - Head of Research

* Kai Folker Korschelt

Canaccord Genuity Corp., Research Division - Analyst

* Michael Donnelly

Investec Bank plc, Research Division - Research Analyst

* Paul Gilmer Morland

Panmure Gordon (UK) Limited, Research Division - Senior Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Nicholas Wiles, PayPoint plc - Executive Chairman [1]

--------------------------------------------------------------------------------

(technical difficulty)

session for the period 2, that is September 2019. Just let a few of last people come on in.

Firstly, I'd like to take you through an introduction, and then Rachel will walk you through the numbers. I'll then cover off an operational review. I'll make a few comments by way of summary. And then if you have, we'll open it up for questions.

In terms of headline for the half year, the financial's net revenue and underlying profits are up, supported by strong cash flow and maintenance of both the ordinary dividend and the additional dividend. Operationally, we've continued the fast pace of the PayPoint One rollout. We've now reached at the half year over 15,000 installed sites, and that's up from 10,242 a year ago and just over 12,880 at the end of the last financial year. We've continued to grow strongly in MultiPay, with net revenues up 32%, and we're delivering a resilient performance in U.K. bill payments, with net revenues up 3.9% to GBP 22 million, the renewal of 11 key clients, and that's representing 17% of our annual revenue.

Strategically, by the end of this financial year, our legacy terminals will be largely retired from the independent retailer estate, which I think is a fantastic achievement for the business and, as you know, has established a strong recurring revenue stream for us for the future.

Into the second half, our investment is around the EPoS platform to ensure it's sufficiently robust and scalable to support the next phase of our rollout of EPoS Pro. And that's very much a focus for the next financial year because, as you know, delivering EPoS to our retailers ensures that we're really at the heart of store, strengthening our relationships with them and improving the service that we can offer. And I think as you've already seen, the early EPoS adoption we've seen across the estate is a very positive one for us.

In our Parcels business, we now have 5 carrier relationships and has exceeded in our near-term ambition of broadening out to our carrier partners. We're now focused on driving volume and increasing access for these carriers across our network. We're well prepared for the important high-volume parcel season, which, as you know, is now well underway as we seek to drive volume and net revenue across our Parcels network.

In Romania, the team continues to be innovative as they identify a number of new revenue opportunities. We now have 18 automated self-service terminals in trial, and our early experience from those have been very positive. And in addition, our T4 terminal is ready to roll out before the end of the year.

So I think really the important message from this overview is one that we've delivered half year results, which were in line with expectations, and the final outcome to March is about us continuing to focus on the right things, which really day-to-day is about the intensity of our operational delivery, tight management of costs, strong collaboration across the business and strong leadership from our senior managers to drive the business over the next few months.

So I think I'd now like to hand over to Rachel to run through the financials.

--------------------------------------------------------------------------------

Rachel Kentleton, PayPoint plc - Finance Director, Executive Director & Member of Executive Board [2]

--------------------------------------------------------------------------------

Thanks, Nick. Good morning, everybody. And as usual, I won't go through the details because it's in the RNS, and I'll just go through the key points.

So gross revenue declined by 2.3% to GBP 103.7 million due to the closure of the business in Ireland. However, despite this, net revenue grew by 3% to GBP 57.3 million, driven by growth across all business areas. As expected, costs in total rose by GBP 3 million, mainly due to the reversal of the one-off GBP 1.7 million VAT benefit in the prior period. As we signaled in May, due to the timing of last year's VAT benefit I mentioned just there and the phasing of the parcels ramp-up, which is second half weighted profit before tax decreased by 5.2% to GBP 24 million. This also decreased earnings per share by 5% to 28.5p per share.

PayPoint's new quarterly dividend profile became effective from the 1st of April 2020 -- 2019. And as a consequence, reported dividends in this period have increased by 51.4% to 42p per share, and this will be paid in 2 equal installments on 30th of December and the 9th of March.

I'll turn now to go through what's actually happening on an underlying basis. You can see that once you exclude the GBP 1.7 million impact from the one-off VAT benefit in the prior period and a GBP 0.5 million final year impact from the Yodel renegotiation, there's been really good progress in net revenue, which has grown in U.K. retail services by GBP 1.5 million, U.K. bill payments and top-ups by GBP 0.2 million and in Romania by GBP 0.5 million. And this revenue growth delivered a 4% improvement in underlying profit before tax.

So let's just now go through some more detail on the drivers of revenue growth. U.K. bill payments and top-ups continue to deliver very resilient performance. Net revenue in this business area increased by 0.7% to GBP 30.1 million. And in particular, bill payments delivered a pleasing performance with yet another period of improved margins as net revenue per transaction grew by 3.2%. Transactions were also up slightly 0.7%.

MultiPay and eMoney, which were included in this business area, continued their strong performance and grew net revenue by 32% and 18.7%, respectively. And Romania continued to deliver strong growth, with net revenue up by 6.2% to GBP 7.3 million, and this was primarily driven by actually improved margins in both bill payments and top-ups. There was also growth from the new cards proposition, which is now in 1,400 outlets.

Our core growth area, U.K. retail services showed underlying net revenue growth of GBP 1.5 million or 8.2% to reach GBP 19.9 million. This was primarily driven by the GBP 1.5 million increase in service fee revenues, driven by adding almost 5,000 PayPoint One sites since this time last year. And also remember, this product has only been in existence for 3 years. So a really good achievement.

Card payment rebate revenue increased by GBP 0.3 million or 8.3%, which is an improved performance since the second half of last financial year, driven by transactions increasing by 16.9%.

ATM net revenue reduced by GBP 0.5 million, primarily reflecting LINK's interchange rate reductions of 5% in July 2018 and a further 5% in January 2019.

Parcels and other net revenue increased by 6.4%, benefiting from the improvement in Yodel volumes and to a large extent, growth from the new partnerships. Overall, parcel volume grew by 15.1%, and parcel net revenue grew by a similar amount, but this is partially offset by the continued decline in sales of SIMs, which is in line with the overall decline in the mobile top-up market.

So turning now to an analysis of our cost base. And if we move from left to right across this bar chart, firstly, I've shown the H1 '18, '19 costs of GBP 32.9 million of context for you. And now comparing the first half of this year to last year. You can recall from last year's presentation that included the GBP 30.2 million total cost for '18, '19 year with a GBP 1.7 million VAT benefit, and we've excluded this from our underlying analysis as we did before. Now this gives us a GBP 31.9 million starting point for this year from which we've implemented sustainable cost efficiencies of GBP 0.6 million. And I'll talk to you a little bit about where they came from in a minute.

And as I discussed with you in May, this year, we've invested in customer service by increasing headcount for the contact center, the Parcels team, as we ramp up towards peak with our new carriers and the client services team. Inflationary increases added a further GBP 0.4 million to our cost base. Therefore, in total, underlying costs for 2019, '20 half year were GBP 33.2 million, an increase of 4.1% from the prior period.

Now just turning to give you some more details on how we're continuing to deliver cost efficiencies in the business. And over the 6 months just gone, we've extended our in-sourcing program of repairs and maintenance from just being T2 now to cover PayPoint One and our EPoS terminals. Not only has this resulted in improved repair quality, but has also reduced costs from 2 accounts. Firstly, the actual repair cost is lower. And secondly, the improved quality of doing this in-house ourselves has driven down the swap rates to retailers, which has also further reduced costs and also has improved the retailer experience, and therefore, our first thing to retailers.

We've continued to review our third-party costs in IT and have identified savings around coms. We're also benefiting from data center consolidation. And in Romania, we've secured lower telecom costs and reduced third-party spend by bringing legal and recruitment functions, again, in-house.

Now as we're reaching the end of 2 significant business programs, the CRM implementations and the T2 sunset, this has now enabled us to review our cost base end-to-end to make sure we've got the right organization and capability to support the business going forward in the most efficient way.

If we now turn to the statement of cash flows, profit before tax of GBP 24 million has been adjusted for depreciation, amortization and working capital to arrive at cash generation of GBP 27.1 million. The cash generated was used to pay dividends of GBP 28.7 million. Other key cash flow items include taxes of GBP 10.2 million, which increased by GBP 5.8 million compared to the same period last year due to HMRC bringing payments and account forward by 6 months. These payments will revert to normal levels in the second half of the year. And we had a CapEx of GBP 4.1 million in the period. These items were funded from utilization of our GBP 75 million financing facility, which you can see increased by GBP 18 million.

Client funds and retailer deposits were broadly flat as expected. As a reminder, the prior period comparative inflow of GBP 5.4 million was primarily due to a change in the banking arrangements in which retailers held deposits under IFRS, and these were included as cash on the balance sheet for the first time last year.

PayPoint's net corporate debt was GBP 12.3 million at the 30th of September 2019, which comprised of GBP 5.7 million of corporate cash and the GBP 18 million financing facility.

Shown separately here is also the client funds and retailer deposits PayPoint holds of GBP 34.8 million. As communicated before, CapEx is still expected to range from GBP 12 million to GBP 14 million in this financial year.

Now moving to the balance sheet. You can see that, that remains strong with net assets of GBP 41.4 million. This is a reduction of GBP 8.8 million from the end of March because of the additional dividend program. The only other notable items on this are the movement in goodwill, which is exchange rate related and the GBP 1.1 million increase in other intangible assets, reflecting the continued development of MultiPay, EPoS and the upgrade to our financial systems from Sage 300 to Microsoft NAV.

Now putting all of this together and to remind you the continued strong cash returns to shareholders delivered by PayPoint, this consists of a progressive ordinary dividend, targeting a cover range of 1.2 to 1.5x earnings. And as you know, we're partway through the additional dividend program, which commenced in December 2016, where we are committed to returning GBP 125 million. To date, GBP 70.9 million of the GBP 125 million has already been paid, and this program ends in December 2021.

So now to conclude my section of the presentation, let's review the outlook for the financial year ending 31st of March 2020, which is completely consistent with what we said to you in May and July. Our revenue drivers of PayPoint One, Parcels, MultiPay and Romania, you can see from these results are progressing well, and we've got continued resilience in bill payments. We have the final GBP 0.7 million impact from Yodel renegotiation and we've also further had the loss of the British Gas contract, which means loss contribution of GBP 1.4 million this financial year and GBP 3.5 million next year.

Costs are in line with our view in May. So putting all of this together. Whilst the financial performance of the business will be influenced by parcel volumes and continued resilience in U.K. bill payments over the second half, the progress of the business in the first half, reported today, underpins the Board's confidence as PayPoint's growth drivers continue to develop, there will be progression in profit before exceptional items and tax for the full year to the 31st of March 2020.

So now I'm going to turn to Nick who'll take you through the operational review.

--------------------------------------------------------------------------------

Nicholas Wiles, PayPoint plc - Executive Chairman [3]

--------------------------------------------------------------------------------

Thank you, Rachel. As we've said a number of times before, our operational delivery remains focused around some key priorities. Firstly, the embedding of PayPoint at the heart of the retailer. Secondly, the execution of the definitive parcel solution, which maximizes for both carriers and retailers. The opportunities of our parcel network captures meaningful market share and drives volume. And thirdly, our continued innovation and leadership in door payments and over-the-counter services. These priorities are set against changing market dynamics in a number of our areas of the business, which are creating for us significant new opportunities for us to play to the entrepreneurial culture, which sits at the heart of our business.

If we look at those changing market dynamics, in terms of background, structural changes in the energy supply market, which have been with us for some time now, are creating continued opportunities, as is the retrenchment of the physical banking sector and with its easy access to cash, which are both very important, further opportunity areas for us as we look to provide services that can really help our retailers and engage with their customers.

In convenience, the convenience sector continues to perform well, reflecting the demand consumers have for both convenience and immediacy. Total sector sales are set to grow by about 3% this year, with performance of the independents in line with this and I think probably provides one of the few bright spots in retail today.

To sustain this growth, retailers and, particularly, the independents who are at the heart of our business, face the challenge of demands for more convenience, the need to combat rising costs, provide more customer services to drive footfall and to stock the right products. For us, these challenges are important opportunities to embed ourselves further in our retailer relationships from which we need to drive better service and better experience for our retailers, deliver additional retail products to support their customers. I think a great example of this is the EPoS opportunity, where today, almost 50% of independent retailers do not have an EPoS system.

In the Parcels market, the Click and Collect parcels market continues to grow strongly. The pickup, drop-up segment alone is worth about 200 million to 300 million parcels per annum and is growing at about 12%. We believe success in this market requires strong partnerships with majors, such as Amazon and eBay, that we're able to leverage our strong and accessible network. The last mile, either as collect or return, has an addressable market of between 200 million and 300 million parcels per annum. And for us, offers significant opportunity as we drive volume from our carriers through our retailer network.

Today, as you know, this market is dominated by the post office. And for the last mile -- sorry, for the first mile, the same proposition is something we need to address in the future, given this is a 400 million parcel per annum market.

In bill payments, challenger suppliers have gained a 28% market share since 2010, principally at the expense of the traditional Big Six who are suffering from the pressure of rising costs and legacy infrastructure. Our retailer relationships and, importantly, our relationships with the challenger suppliers, such as OVO, have been very important in contributing to our repositioning of the bill payments business and to its resilience.

Multichannel payment continues to grow and presents continued opportunities for us at PayPoint. Whilst a smart meter rollout is making slow progress, today we estimate there are still over 33 million legacy meters in operation and with the latest government deadline of 85% of homes to move to a smart meter, now pushed out to 2024.

Despite a continued decline in overall use of cash, day-to-day access to cash in the community is a growing concern. New challenger banks don't have branches. Big banks are fueling cash and branch decline and the post office provides an expensive service. And traditionally, the ATM model is also now under some threat. And for us, this background represents a range of opportunities to put our retailers at the heart of access to cash solution in a variety of forms beyond our existing ATM solutions today.

Turning to the scorecard at the interim stage. Firstly, embedding PayPoint at the heart of the convenience retailer. As you know, our offering is centered around, firstly, driving an increase in footfall for retailers from a growing range of retailer services. Our research shows an average market spend of about GBP 8.78 for those stores who installed the PayPoint terminal compared to an average basket value of about GBP 6.38 for similar stores who don't have a PayPoint terminal. We pay over GBP 41.5 million of retailer commissions annually. We support our retailers with technology in-store, payment service capabilities and we're increasingly proactive in our approach to retail service and support from the field force and contact center.

In terms of our first-half achievements, we've continued to roll out PayPoint One and today, we can say we've actually achieved 15,800 installations as of Monday, and that's clearly ahead of expectations. The mix, as you can see, is on the far right of the table here. You'll see further progress in our weekly service fee, which has increased by 3.3% to GBP 15.51 per week. And clearly, as we said before, this is establishing a strong recurring income stream.

We continue to manage our ATM estate well to maximize its productivity, and you will see we've returned to the growth of the card payment estate.

In terms of our priorities for the second half, the sunsetting of T2 is our major priority, with a new target today of 16,500 PayPoint One sites by the end of the current financial year. The extension of our net settlement pilot for our card payments for retailers, this is a very important addition to our services. It has the potential to reduce settlements by a day and significantly reduce costs, principally through reducing banking charges. And of course, for us, it embeds us further to our relationship with our clients.

We will be concluding the work and investment to stabilize the EPoS platform for the next phase. We're upscaling into the first half of 2021, and a detailed planning process is well underway now to enhance our retailer experience around this rollout. You'll be familiar with the chart here on the bottom right, which actually illustrates how the rollout and the leverage of our model has the potential to create future value from rollout to adoption through to leverage.

And I think, finally, a better focus on understanding of the challenging -- the challenges of improving our service to retailers through a combined effort of a coordinated field force and contact center engagement.

Turning to Parcels. The strap line is one of strong growth. Our offering is centered around the leading pickup network with over 7,000 Collect+ sites and within this a growing network for Amazon. We continue to deliver a strong customer experience and we now have strong partner network, including eBay, Amazon, Yodel, FedEx and DHL.

In terms of our first half achievements, we've continued to grow parcel volumes, up 15%, with encouraging growth from our new partners. Ahead of the peak parcel season, we've integrated new partners into our retail network and worked hard on delivering a strong training experience for our retailers. And today, we're confident our retailers are able to process multi-carrier parcels through their stores, which is a main step in strengthening the base of this business. We've improved our technology via the app and established a strong coordinated plan to support our retailers during the peak season, which is now well underway during Q3.

In terms of our priorities for the second half, naturally starts with having an outstanding peak parcel season with all of our partners and delivering the high-quality support that our retailers will need. Post peak season, it's about continuing to scale up our partners' access to the retailer network, in order to drive the next phase of volume growth and, finally, beginning to think about the development of a send proposition as we seek to address that potential of a 400 million parcel segment in future years.

Turning to bill payments. I think you'll be well aware and familiar with our offering. It's centered around the retailer network coverage of 28,000 U.K. sites, made up of 19,000 symbols and independents and 9,000 managed groups, which together is larger and more extensive than any of the other coverages that you see either from banks, the post office or supermarkets. And I think the heat map here on the top right of this page shows what this network coverage and extended opening hours means to bill payment customers and the importance of convenience of being open when customers want to pay bills. This chart also illustrates, I think, the limitation for the post office in terms of convenience to bill paying customers.

In terms of our first half achievements, I think, firstly, it's in terms of what we learned and what we've done following the loss of the British Gas contract. And I think I would highlight 4 things. It's certainly prompted us to review all of our customer relationships and objectively analyze their quality and our senior level traction within them. Secondly, I think we're certainly working harder to ensure our customers fully understand the differentiation of our PayPoint network. We certainly thought harder about the specific relationships on an individual basis and understanding even better their requirements. And I think finally, we've thought harder and worked hard to ensure these relationships are built on a real understanding of the mutual value we have with each client and not just about the procurement and the procurement decision that drives them.

Elsewhere across our customers, we've renewed on similar terms, 11 clients, which represent 17% of our annual bill payments revenue and added to that 10 new clients. And as you can see, from the bottom right on the chart, we've continued to see a growth at the portion of smart meter transactions. And as you know, this is an important segment for us into the future. And both MultiPay and eBay -- and eMoney continues to deliver strong transaction growth.

Looking ahead to the second half, our priorities center around strengthening further the management of our major customer accounts with a focus on innovation and service delivery; continuing to identify new client opportunities in addition to a number of routine client renewals; to identify and capture opportunities in other verticals, including opportunities already identified in both the housing association and local authority sectors; and finally, ensure a well-managed transition of the British Gas account with a focus on the support of our retailers and their customers and, particularly, the most vulnerable in the community in which we serve. And to this end, with a detailed transition plan and a process for execution over the new year, often a very busy period for our retailers.

In Romania, the story is one of continued growth. Our offering is centered around the leading network in Romania with 19,000 sites following the integration of the Payzone acquisition. Opportunities to leverage the bill payments network with a 34% market share into other retail services and the benefit of a strong customer awareness, which is a key differentiator to the U.K. model with a 74% retail customer awareness.

In the first half, we've delivered strong performance across bill payments, top-ups and card payment transactions, with overall margin increasing by 4.4%. New initiatives underway, such as the trial of the '18 automated self-service terminals are going well in Bucharest. And into the second half, our operational priority is the deployment of the new T4 terminal with the integrated card payment functionality. The continued rollout of card payments to a further 300 sites and further strong cost control and margin improvement.

As I turn to the last slide, I think it's fair to say as Chairman of the business, to get a detailed insight into the day-to-day operational aspects of the business is actually quite rare. With this comes the benefit of seeing firsthand how the business operates and the ability to share some of these high-level observations with you. And hopefully, they've come through the way we've shaped our presentation this morning. As we've described, the first half has been solid. The sustained pace of the PayPoint One rollout across the retailer base is an outstanding achievement and I think reflects the business at its very best, in terms of really the collaboration throughout the business and the relentless drive to see this project through to a conclusion.

I can see in the client side of the business, a renewed intensity in the management of key customer relationships and a much better institutional approach to these. And there's a good focus throughout the business on operational management in terms of both revenue generation and cost management to deliver expectations.

In terms of what I would regard as work-in-progress, we still need more focus and attention around, firstly, major project delivery and most immediately CRM and the EPoS platform project, with better senior lever ownership of budget and necessary capabilities to guarantee on-time and on-budget delivery. We need to move the business DNA to a place where greater efficiency and cost management are better embedded into behavior and thinking throughout the business. And we need to improve the relationship management and our engagement with retailers to ensure we are better and harder working in developing products they need with the necessary in-life support so that we can live up to our pledge to embed PayPoint at the heart of convenience retailing.

And finally, we need to identify and support the development of the new growth opportunities we see in the business. These actions will be the platform from which we deliver our expectations for the second half and for the year as a whole and build a platform for the future. And I'm very confident we can do this.

We're now happy to answer questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Joe Brent, Liberum Capital Limited - Head of Research [1]

--------------------------------------------------------------------------------

Joe Brent from Liberum. If I could ask 2 questions, maybe 1 at a time. Firstly, on PayPoint One, could you give us an indication of the trajectory for the number of terminals this year and beyond, but also the average fee per terminal that you might expect?

--------------------------------------------------------------------------------

Nicholas Wiles, PayPoint plc - Executive Chairman [2]

--------------------------------------------------------------------------------

Well, I mean, first, in terms of trajectory, I mean, I think that by the end of this calendar -- by the end of this financial year, in getting to 16,500 PayPoint One terminals, we would have largely covered the independent estate. So I think to the extent we will have T2s going forward, but they will be principally in the multiples. And I think we're talking about between 3,500 and 4,000 going forward in those and they will continue to be supported with the right technology in the right way.

In terms of the trajectory, and it's worth going back, if we could see to the slide that we had before. That's it. I think that as you see there, if you look at the top right and then the bottom right, looking at really how the estate is sort of developed today, you see that sort of ambition from rollout, which is the base through to adoption, which is core, which is then on to Pro, which is leverage. And clearly, our ability in the next stage of -- actually this evolution to drive the estate to the top point of the leverage is clearly where the ambition is. That's what will drive the highest sort of overall fee generation and, importantly, the most functionality for the retailers to take EPoS and then take it on to Pro. And that's clearly, if you think about the way that we've actually been evolving this, the effort this year has been to sunset T2 and as we think forward into next year and beyond, it's to move base to core, core to Pro because that's actually the best way to embed ourselves with the retailer and think harder about what the better opportunities are thereafter.

--------------------------------------------------------------------------------

Rachel Kentleton, PayPoint plc - Finance Director, Executive Director & Member of Executive Board [3]

--------------------------------------------------------------------------------

Joe, I will say, there is an opportunity to recruit new retailers into the PayPoint network as we continue to do that. But obviously, that will be new retailers in rather than the velocity of increase of PayPoint One that you've seen before here, so you'll see a much gentler step-up in volume of PayPoint One. Yes. So it's more about a value story than a volume story from next financial year.

--------------------------------------------------------------------------------

Joe Brent, Liberum Capital Limited - Head of Research [4]

--------------------------------------------------------------------------------

And the second -- final question. Could you elaborate on the cash out opportunity?

--------------------------------------------------------------------------------

Nicholas Wiles, PayPoint plc - Executive Chairman [5]

--------------------------------------------------------------------------------

I think it's sort of threefold. I mean, I think, as you know, we've had a well-established ATM estate for some time. And that's unquestionably certain resilience, where we have underperforming sites, we've actually successfully redeployed those. And I think we've had a very active approach to managing the ATM estate. So I think that's sort of one strand.

We continue to talk to banks bilaterally to identify opportunities to use the retailer network as part of both the deposits and a withdrawal solution as they think beyond sort of their traditional relationship with either the high street to their own branches or, for example, with the post office. And then there's a sort of a joined-up banking approach, which goes through potentially the LINK counter service. And I think, again, we could find ourselves pretty well in the heart of that given the spread of our network. So as we look forward, everybody is looking for a way to solve the sort of the communities' demand for a cash availability and cash access. And given the strength of our network and given the sort of the hard work we've put in for a number of years, we do see looking forward over the next year to 18 months, we've an opportunity to be part of that solution. So I think it's an exciting opportunity for us for the longer term.

--------------------------------------------------------------------------------

Kai Folker Korschelt, Canaccord Genuity Corp., Research Division - Analyst [6]

--------------------------------------------------------------------------------

It's Kai from Canaccord. I just wanted to link up to that EPoS question. I think you had a stat out there saying that about 50% of the independents still do not have an EPoS system, obviously, within your, say, the penetration rate sort of approaching 100% certainly of the independent part. So what are the considerations and sort of, I guess, things that you may need to do or investments you may need to make to address those retailers that currently are probably with some of your competitors, but do not have an EPoS system, which your competitors also do not offer? So how do you solve for that? Is that -- do you need more salespeople? Do you need different salespeople? I'm just curious what you need to do internally and externally to address that.

--------------------------------------------------------------------------------

Nicholas Wiles, PayPoint plc - Executive Chairman [7]

--------------------------------------------------------------------------------

I mean, look, it's a very interesting question, and I think that it sits to the heart of sort of what the next phase is in our whole engagement with retailers. And all of the energy from the field force over the last 3 years has been focused on actually that sunsetting of T2. So I think having established an estate of around 16,500 retailers with EPoS.

To your point, the challenge is to take them on that journey from actually the most basic of adoption of EPoS all the way through to recore where that system sits right at the heart of the way that they manage their retailer store. And by that, we may well need, and I think we're already thinking hard about it. Even more engagement through the contact center, more proactive use of the field force in actually really sitting with the retailer and actually making sure they understand how they can use this technology to manage their retailer network or their store, such that they're managing stock or understanding real time the impact of cash management and all those aspects, actually, which bring their store to life in the real time. And that's going to take, as you say, a different approach from our field force, more engagement with both relationship management as well as selling and also a better understanding real time of actually problem-solving for them when they face it. But I think it's the next-generation really of what we do to maximize for them what they're paying for in terms of the service we're offering.

I don't know if you want to add anything to that.

--------------------------------------------------------------------------------

Rachel Kentleton, PayPoint plc - Finance Director, Executive Director & Member of Executive Board [8]

--------------------------------------------------------------------------------

And I think that is quite exciting, because in some ways, we've done the sort of hard legwork of kind of getting the hardware out there. The kind of -- that's the sort of hard yards. And now actually, it's about -- actually the business now needs to slightly reinvent itself to its engagement with retailers and its relationship with retailers. And so at this point about heart of convenience and heart of store needs to really live and actually having get the hardware rollout out of the way we can now reconfigure our end-to-end servicing model here because actually, I think it's quite interesting that within PayPoint, there's nearly 200 people who are into some [regard] retailer facing. So that's a lot of talent that could be deployed to actually make sure they sort of start to live and breathe through it.

--------------------------------------------------------------------------------

Kai Folker Korschelt, Canaccord Genuity Corp., Research Division - Analyst [9]

--------------------------------------------------------------------------------

Yes. And then a follow-up on a similar question, I guess, on the Collect+ sites. I think the send markets, which are currently not sort of addressing, and I think you mentioned it's sort of probably -- it's even bigger than the Click and Collect. What are the practical considerations for yourselves and your retailers' considerations or hurdles, I guess, to be able to address that market at some point in the future?

--------------------------------------------------------------------------------

Nicholas Wiles, PayPoint plc - Executive Chairman [10]

--------------------------------------------------------------------------------

Yes. I mean, I think it's interesting in the Parcels market. You have to sort of work out where you start from. And I think what we have done successfully is established ourselves with a strong foothold in the returns market. So you have to find a starting point. I think we've done that well. We've broadened out then our relationships with our carriers, such that I think it's very clear that we're now a strong force across 5 carrier relationships, and we're building the volume to support that statement.

The next stage, as we said today, is actually to think how we go about the send market. I think it's likely that we'll do it in partnership. It's likely that we'll have to engage with our retailers because some of this is around education and actually around sort of taking them on a journey. And similarly, it's around supporting the carriers and seeing that we can actually be part of the send solution as well because the thinking that supports the sort of convenience of being a drop-off point or to naturally flow through to the convenience of actually being a send point as well. And you can see half of the carriers that works, but it's a case of actually getting a proposition to them, which is the efficient and actually, it's cost efficient and, importantly, actually it's practical and works for our retailers and us. So it's early-stage thinking, but there's something there, which we can really see we can go for.

--------------------------------------------------------------------------------

Michael Donnelly, Investec Bank plc, Research Division - Research Analyst [11]

--------------------------------------------------------------------------------

It's Michael Donnelly from Investec. A couple of questions. One on Parcels, one on MultiPay. And Rachel, probably on Parcels, 15% volume up, 5% market decline. I think you said SIMs went down during the year review. So it could well be my stupidity, but I'm trying to work out how pricing has gone over that time. I don't think I can. So any comments around that would be very helpful.

--------------------------------------------------------------------------------

Rachel Kentleton, PayPoint plc - Finance Director, Executive Director & Member of Executive Board [12]

--------------------------------------------------------------------------------

So I think I sort of gave you a little bit of a clue in my voiceover because I sort of said, net revenues on Parcels grew in line with the parcel volume growth. So you can kind of derive from that what the net revenue growth on Parcels alone might have been. Yes.

--------------------------------------------------------------------------------

Michael Donnelly, Investec Bank plc, Research Division - Research Analyst [13]

--------------------------------------------------------------------------------

Okay, got it. And then on the second one on MultiPay. Nick, on your comments on smart meters there, I think if we look at the sort of smart DCC numbers, since the communications fixes in September, I think volume has actually gone up. So there have been like mid-teens growth, and we're pushing about 3 million (inaudible) now. And MultiPay was by far your biggest revenue growth item. I just wondered if you could comment -- you were certainly a little bit negative on it in general, but it's your fastest-growing area, and I just wondered what the scope is to maybe sustain or even accelerate that growth. If we do see a sort of exponential rise in installations from now on?

--------------------------------------------------------------------------------

Rachel Kentleton, PayPoint plc - Finance Director, Executive Director & Member of Executive Board [14]

--------------------------------------------------------------------------------

Yes, I think, well, just a point on we're trying to make about smart meters is, in many ways, they're neither bad nor good because actually what you can see is that actually, if someone has a prepay meter replaced by a smart meter, they still transact the payment of their energy through PayPoint, which is sort of what that slide is trying to show you that now 25% of our prepay energy volume is coming by or -- too is smart meter. If that makes sense? Yes.

--------------------------------------------------------------------------------

Paul Gilmer Morland, Panmure Gordon (UK) Limited, Research Division - Senior Research Analyst [15]

--------------------------------------------------------------------------------

Paul Morland from Panmure Gordon. Just on the U.K. bill payments, am I right in thinking that had a bit of a slowdown in Q2? I'm looking at sort of a 4% growth for the half and I think for Q1, it did 7.5%. If that's right? What was the reason behind that?

--------------------------------------------------------------------------------

Rachel Kentleton, PayPoint plc - Finance Director, Executive Director & Member of Executive Board [16]

--------------------------------------------------------------------------------

Yes. So basically, we had an incredibly strong first quarter with 7.5% growth in U.K. bill payments, and Q2 was 2.2%. So that represents certainly a much improved performance in terms of net revenue versus all the quarterly performances through last financial year. And I think, actually, it's probably more about the overperformance in Q1, which reflected actually temperatures and change in the price caps rather than an underperformance in Q2. If that makes sense? Yes.

--------------------------------------------------------------------------------

Paul Gilmer Morland, Panmure Gordon (UK) Limited, Research Division - Senior Research Analyst [17]

--------------------------------------------------------------------------------

And related to growth as well, the 3% net revenue growth, I mean, you gave the 4% PBT underlying growth. Can we have an underlying revenue growth, assuming adjustments?

--------------------------------------------------------------------------------

Rachel Kentleton, PayPoint plc - Finance Director, Executive Director & Member of Executive Board [18]

--------------------------------------------------------------------------------

Yes. I mean, I think if actually we turn back to slide on net revenue, which is Slide 7, underlying net revenue growth would be 4% in the first half when you exclude the GBP 500,000 of Yodel renegotiation.

--------------------------------------------------------------------------------

Paul Gilmer Morland, Panmure Gordon (UK) Limited, Research Division - Senior Research Analyst [19]

--------------------------------------------------------------------------------

Do we need to adjust for British Gas on that as well?

--------------------------------------------------------------------------------

Rachel Kentleton, PayPoint plc - Finance Director, Executive Director & Member of Executive Board [20]

--------------------------------------------------------------------------------

Well, British Gas hasn't happened yet because it's in the numbers, we don't have it for quarter-to-quarter.

--------------------------------------------------------------------------------

Nicholas Wiles, PayPoint plc - Executive Chairman [21]

--------------------------------------------------------------------------------

The first impact of it is the last quarter of this financial year, then clearly, thereafter, the first full year is next year.

--------------------------------------------------------------------------------

Paul Gilmer Morland, Panmure Gordon (UK) Limited, Research Division - Senior Research Analyst [22]

--------------------------------------------------------------------------------

Okay. And the other question I had was around all the training you've been doing, I think you said 7,000 sessions. Is there an opportunity to reduce costs next year with all that done or at some point in the future?

--------------------------------------------------------------------------------

Nicholas Wiles, PayPoint plc - Executive Chairman [23]

--------------------------------------------------------------------------------

Rachel, I think you will...

--------------------------------------------------------------------------------

Rachel Kentleton, PayPoint plc - Finance Director, Executive Director & Member of Executive Board [24]

--------------------------------------------------------------------------------

Yes. I mean, I think, actually, the thing about PayPoint is [in may regards] still quite not entrepreneurial business. And therefore, the costs that you have in the business need to reflect the tasks that have to be done. So you make a very good point about -- we had a certain set of parcels this year, which is kind of onboard new retailers and get them operationally ready, not new retailers new to Parcels. And we're having a certain sort of mission for the sales force, which is to get PayPoint One hardware out there and get T2 out. And we've also been in the last stages of the big sort of CRM sales force implementation, which will reengineer our back-office. So you kind of bring all of that together, and there is certainly an opportunity to then, say, look at what are the objectives of the next financial year, which will be about starting to sell and engage with our retailers in a different way.

Parcels business will be in a different sort of stage of maturity. And actually, we'll have moved a lot of our sort of transaction processing in the back-office of spreadsheets and sort of paper onto digital. And that just gives you a significant opportunity to look at the organization, say, that needs to be sort of fit the purpose what needs to be delivered going forward. And that's very much the work that sort of needs to happen when we get back to the office after the roadshow, and we'll come back and talk to you about what that looks like in May. Yes. Anything to add?

--------------------------------------------------------------------------------

Nicholas Wiles, PayPoint plc - Executive Chairman [25]

--------------------------------------------------------------------------------

No. I guess, none. Any more questions? Great. Thank you very much, everybody. Thank you for coming.