David Newlands, Chairman of PayPoint plc said:
"Our retail network continues to perform well, processing 5% more transactions overall in the period, despite there being 5 million fewer mobile top-ups.  Internet payments contributed to overall growth in transactions of 8% in the established business (the UK and Ireland retail networks and internet payments).  Net revenue in the established business increased by 7%.

Our developing business, consisting of our Romanian retail network, Collect+ parcel service and PayByPhone, also made good progress.  In Romania, we made a small profit following 69% growth in bill payments and since the period end, we have introduced Western Union money transfer.  Collect+, our award-winning parcels joint venture, has won 44 new merchants and processed nearly five times as many parcels as in the same period last year.   PayByPhone has been selected by 33 new clients in the period, with a substantial number of tender decisions still awaited.  

For the current financial year, trading is in line with the company's expectations.  Our established business is strong.  We will pursue further opportunities to enhance our retail yield by introducing new technology and services, while enhanced transaction management and information services should help our internet sales in the next financial year. Continuing progress is expected in our developing business. Our Romanian retail network will focus on improving market share and further modest network growth to improve yield.  PayByPhone will continue to pursue new clients and enhance its technology to grow revenue and improve customer satisfaction.  Collect+ will continue its intensive marketing to new clients, to extend deliveries to its existing returns clients and to promote its consumer-to-consumer proposition.  We expect PayByPhone and the Collect+ parcel service to turn to profit in the next financial year.

I am pleased to announce an interim dividend of 8.7pence per share."

The condensed financial statements cover the six months from 28 March 2011 to 25 September 2011, the last Sunday in the month (2010: 6 months covering the period 29 March 2010 to 26 September 2010).

1. Net revenue is revenue less the cost of mobile top-ups and SIM cards where PayPoint is principal and costs incurred by PayPoint, which are recharged to clients and merchants.  These costs include retail agent commission, merchant service charges levied by card scheme sponsors and costs for the provision of call centres for PayByPhone clients.  Net revenue is a measure, which the directors believe assists with a better understanding of the underlying performance of the group.   

Management report

The management report has been prepared solely to provide additional information to shareholders as a body to assess PayPoint's half year performance and it should not be relied upon for any other purpose.  It contains forward looking statements made by the directors in good faith, based on the information available at the time of approval of the half yearly financial report.  Such statements should be treated with caution due to the inherent uncertainties underlying any such forecast, including both economic and business risk factors.

PayPoint is a payment service provider to retailers and consumer service companies and as such, has only one operating segment.  However, reflection on various facets helps to explain the execution of our strategy as set out on page 3 of our annual report and accordingly, in addition to the analysis of the number and value of consumer transactions, revenue and net revenue, we have shown an analysis which separates our developing business (our retail network in Romania, Collect+ and PayByPhone), from our established business (the UK and Irish retail networks and internet payments).

The channel analysis is as follows:

Retail networks:
Bill and general (prepaid energy, bills, tickets and cash out payments)
Top-ups (mobile, prepaid cards and phone cards)
Retail services (ATM, debit/credit, parcels, money transfer, SIMs and receipt advertising)

Internet (transactions between consumers and merchants, pre-authorisations and FraudGuard, where separately charged)

PayByPhone (parking and bicycle rental transactions)

Other for revenue and net revenue only (software development and configuration)

Operational review

During the period, transactions have increased to 292 million (2010: 267 million) up 8% in the established business¹ and 37% in the developing business². Transaction value increased to £5.6 billion (2010: £4.8 billion), and is up 14% in the established business and up 78% in the developing business.

Revenue has increased 3% overall, comprising 1% in the established business and 16% in the developing business.  Net revenue³ increased by 8% overall.  In the established business, net revenue increased by 7% and in the developing business (including Collect+), by 52%.

Operating profit in the established business was £17.8 million, up 9% on last year.  The operating loss in the developing business, including our share of the losses of Collect+, was £2.0 million (2010: £1.5 million). The Romanian retail network made a small profit in the period (2010: loss of £0.3m).

In the established business, following our tender success announced in March 2011, the UK retail network duly signed a contract with Citibank to be the retail network for the DWP's replacement for giro-cheques.  The service is expected to go live next financial year and is unlikely to affect the current financial year's profit to any material extent.  The internet channel growth was constrained by the impact of one large merchant changing its business model.  We have re-started processing for this merchant since the period end.

In the developing business, our Romanian retail network has turned from loss to a small profit in the first half of the year and will introduce money transfer with Western Union in the second half.  PayByPhone has made substantial progress, winning 33 new clients, including London Borough of Lambeth, Ottawa in Canada and Coral Gables in Florida, USA.  PayByPhone parking is due to go live in San Francisco across 22,000 spaces this year. Cash payments for parking have been introduced in Barnet and Islington.  Collect+ has extended its consumer proposition by introducing two resellers, Parcel2Go and myParcelDelivery and has also won 44 new merchants for returns, including JD Sports, Monsoon and Accessorize, Asda Direct, Argos Outlet, Aurora (Karen Millen and Oasis) and Wiggle.  Collect+ has been recognised with prestigious industry awards for logistics and innovation. Since the period end, Collect+ has started processing deliveries for on-line clothing retailer, M and M Direct.

1. The established business includes the UK and Irish retail networks and internet payments. 

2. The developing business includes the Romanian retail network, Collect+ and PayByPhone. 

3. Net revenue is revenue less the cost of mobile top-ups and SIM cards where PayPoint is principal and costs incurred by PayPoint, which are recharged to clients and merchants.  These costs include retail agent commission, merchant service charges levied by card scheme sponsors and costs for the provision of call centres for PayByPhone clients.  Net revenue is a measure, which the directors believe assists with a better understanding of the underlying performance of the group.  

4. Collect+  revenue and net revenue is included in the developing business revenue and net revenue, but as Collect+ is reported in the Consolidated Income Statement on a profit after tax only basis, revenue and net revenue needs to be eliminated to reconcile to reported revenue and net revenue. 

Analysis of transactions

There has been growth in transaction volumes across all payments types except UK and Ireland mobile top-ups, which have decreased as a result of market decline.

Bill and general payment transactions were ahead of the same period last year as a result of an 11% increase in prepaid energy volumes.  There was strong growth in Romania, where we processed over 8 million transactions (2010: 5 million).

In the UK and Ireland, mobile top-up volumes were down 9%. In Romania, mobile top-up volumes increased 8% although the net revenue per transaction fell. E-currency volumes in the UK continue to grow and were up 9% on the same period last year, with over 3 million transactions processed.

Retail services volumes have increased across most products. ATM transactions increased by 14%, credit and debit transactions by 29%, SIM card sales by 56% and parcels by five times over the same period last year.

Internet transactions were up 34% to 34 million as we continue to add large merchants and through organic growth in our existing merchants.  

PayByPhone transactions have increased 23% as we have started to implement PayByPhone in new parking authorities and some existing authorities have removed other payment options.

Transaction value

There has been growth in the transaction value paid by consumers, primarily in bill and general, and internet payments.

The increase in bill and general transaction value results from higher transaction volumes with broadly similar average values.

The reduction in top-up transaction value is primarily as a result of a decline in the prepay mobile market, partially offset by increases in the average transaction values in the UK and Ireland and an increase in e-currency transactions.

The increase in retail services is accounted for by ATM cash withdrawals. The transaction value in other retail services is relatively small as SIM sales are low value transactions and for credit and debit card transactions (where merchants are settled by the card sponsor, not PayPoint), receipt advertising and parcels, there is no transaction value.

Internet consumer spending has increased by 40% over the same period last year and the average transaction value has increased 5% to £52.80 (2010: £50.46).

PayByPhone transaction values have increased by 22%.  The average value of a transaction has remained broadly the same.

Revenue

Bill and general payment revenue is higher than the same period last year mainly as a result of growth in prepaid energy and local authority housing transactions in the UK and 70% growth in Romanian bill payment transactions.

The reduction in mobile top-up revenue is driven by the migration of prepaid consumers to contract in the UK and greater value for money offered by mobile operators.

Retail services revenue has increased as a result of an increase in both the number of retailers taking the services and increased volumes of SIM, parcel, debit and credit card, and ATM transactions.

Internet payment revenue growth has been explained on page 3.

PayByPhone revenues are up 17% against the same period last year. Although PayByPhone has won a good share of tenders as a consequence of the increased resources we have put in, client delays in implementations have delayed revenue growth into the second half of the year.

Other revenue includes one-off set-up fees and the recharge of development costs, but is not expected to continue at the same rate for the second half of the current year.

Net revenue

Net revenue is revenue less the cost of mobile top-ups and SIM cards where PayPoint is principal and costs incurred by PayPoint which are recharged to clients and merchants.  These costs include retail agent commission, merchant service charges levied by card scheme sponsors and for PayByPhone clients, costs for the provision of call centres.  Net revenue is a measure which the directors believe assists with a better understanding of the underlying performance of the group and is shown in the table below:

Net revenue on bill and general payments has increased from volume growth in energy prepayment and local authority housing in the UK and bill payment in Romania, offset by some UK clients migrating bill payments to direct debit. Net revenue is in line with transaction growth.

Top-up net revenue has decreased slightly more than revenue because margins in Romania and Ireland have reduced, offset by the positive impact of mix in the UK where the reduction in top-ups in independents is less severe than in multiple retailers. Retail services net revenue has a larger percentage increase than revenue, as credit and debit card transactions and receipt advertising do not attract retail agent commission.

Growth in net revenue from internet transactions has been explained on page 3.

PayByPhone net revenue was up 18%, lower than the growth in transactions as margin in the UK has reduced.

Network growth

Outlets have increased to 30,545 (March 2011: 29,508), an increase of 1,037. In the UK and Ireland, outlets increased by 649, more than expected, as a consequence of unfulfilled orders at last year end and lower churn.  Our new virtual terminal, a software variant which can be loaded onto retailers' till systems, has been rolled out to 1,400 outlets. Our focus in the UK since the year end remains on increasing retail agent yield.  In Romania, we have installed 388 outlets.

In our internet payments channel, we have added over 250 new merchants during the period, focussing on winning higher volume merchants, rather than start-ups that process little volume.

We introduced Collect+ to 584 of our retail outlets, bringing the total to 4,252.

⁽¹⁾ Increase/(decrease) measured against position at 27 March 2011

Financial review

Movement in revenue and net revenue have been addressed in the operational review above.  

Gross profit was £36.0 million (2010: £32.8 million), up 9.7% and the gross profit margin improved to 37.5% (2010: 35.3%) as a result of the reduction in agent commission, due to lower mobile top-ups.

Operating costs (administrative expenses) were £19.3 million (2010: £17.5 million), up 10.3%, due to some initial costs relating our new benefits contract, signage for Collect+ sites and our continuing investment in increased resources for PayByPhone.

Operating profit was £16.7 million (2010: £15.3 million), up 9.0%, excluding PayPoint's share of losses in Collect+.  The operating margin¹ increased slightly to 39.8% (2010: 39.5%), mainly as result of improved performance in the UK retail network.

Our share, in the period, of the loss in our parcels joint venture, Collect+, increased to £0.9 million (2010: £0.7 million) as it continues to invest in resources to grow the business.

Profit before tax was £15.8 million (2010: £14.6 million), up 8.7% on the same period last year.  The tax charge was £4.5 million (2010: £4.5 million) and the estimated effective tax rate for the current financial year is 28.5% (year ended 27 March 2011: 30.9%). The reduction in tax rates reflects the decrease in the UK corporate tax rate.

Operating cash flow was £8.1 million (2010: £9.4 million) after corporation tax payments of £5.3 million (2010: £5.9 million).  Capital expenditure of £1.7 million (2010: £1.1 million) comprised expenditure on new terminals, software development and ATMs.  Collect+ funding was £0.8m (2010: £0.4 million). Equity dividends paid were £10.6 million (2010: £9.8 million). Net cash and cash equivalents at the period end were £21.5 million (27 March 2011 £26.5 million), including client cash of £3.0 million, down from £6.1 million at 27 March 2011. The reduction in client cash results from a change in practice in respect of ATM monies, which LINK recommended be held in trust for the benefit of retailers, which at the period end were £3.1 million (27 March 2011 £3.3 million).

(1)        Operating margin is operating profit (which excludes Collect+) as a percentage of net revenue.

Related party transactions

Related party transactions are disclosed in note 5.

Risks

Risks to PayPoint's business, financial condition and operations are disclosed on pages 22 and 23.

Dividend

We have declared an interim dividend of 8.7p per share (2010: 7.8p) which will be paid on 21 December 2011 to shareholders on the register at 2 December 2011.  

Liquidity and going concern

The group is profitable, cash generative, had cash of £21.5 million at the period end and an undrawn £35 million revolving term credit facility with an unexpired term of over four years.  Cash and borrowing capacity is adequate to meet the foreseeable needs of the group, taking account of any risks (pages 22 and 23).  The financial statements have therefore been prepared on a going concern basis.

Economic climate

Bill and general payments which account for 39% (2010: 38%) of our net revenue, have continued to be resilient, as consumers' discretion in expenditure is limited for essential services and our service continues to be popular.  Utility providers in the UK continue to install new prepay gas and electricity meters, which will have a beneficial impact on our transaction volumes.    There has been adverse impact on our top-up volumes as a consequence of migration from prepaid to contract and more value for money being offered to consumers. Mobile top-ups account for 23% of our net revenue (2010: 27%).  The internet payment market continues to grow substantially.  PayByPhone is able to offer parking authorities a more cost effective collection system for parking compared to pay and display machines, which should continue to make PayByPhone's services attractive. The convenient service for users of the fast growing online market provided by Collect+ offers opportunity for substantial growth in parcel volumes.

Outlook

For the current financial year, trading is in line with the company's expectations.  Our established business is strong.  We will pursue further opportunities to enhance UK retail yield by introducing new technology and services, while enhanced transaction management and information services should help our internet sales in the next financial year.  Continuing progress is expected in our developing business. Our Romanian retail network will focus on improving market share with modest network growth to improve yield.  PayByPhone will continue to pursue new clients and the development of technology to grow revenue and improve customer satisfaction.  Collect+ will continue its intensive marketing to new clients, to extend deliveries to its existing returns clients and promote its consumer to consumer proposition.  We expect PayByPhone and the Collect+ parcel service to turn to profit next financial year.

CONDENSED CONSOLIDATED INCOME STATEMENT

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED BALANCE SHEET

Condensed Consolidated statement of changes in equity

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

NOTES TO CONDENSED FINANCIAL STATEMENTS

1. Accounting policies
These condensed financial statements have been prepared in accordance with IAS 34 as adopted by the European Union on an historical cost basis and the same accounting policies, presentation methods and methods of computation are followed in this condensed set of financial statements as applied in the group's latest annual audited financial statements.

Basis of preparation
The condensed financial statements contained in this report are unaudited, but have been formally reviewed by the auditors and their report to the company is set out on page 24.  The information shown for the year ended 27 March 2011, which is prepared under International Financial Reporting Standards (IFRS), does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.  The report of the auditors on the statutory accounts for the year ended 27 March 2011, prepared under IFRS, was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under sections 498 (2) or (3) of the Companies Act 2006 and has been filed with the Registrar of Companies.

The directors are satisfied that the group has adequate resources to continue in operational existence for the foreseeable future, a period of not less than 12 months from the date of this report.  The group's liquidity and going concern review can be found in the Management Report on page 9.

2. Segmental reporting, net revenue analysis and cost of sales

(i)   Segmental information

PayPoint is a service provider for consumer payment transactions (payments and receipts) through various distribution channels, involving the processing of high volume transactions, the management of retail agents, clients and online merchants, the settlement of funds (collection and transmission) and transmission of data in secure environments, by the application of technology.  

The application of technology is directed on a group basis from the group's executive team (consisting of the Chief Executive Officer, Finance Director, Business Development Director and Chief Information Officer) to develop products across the business, prioritised on an economic value basis (generally by product), rather than on a subsidiary by subsidiary basis.  As the business has high fixed operating costs, the company regards the analysis of net revenue as the most reliable indication of contribution on a product by product basis and analysis of net revenue is shown in the Management Report.

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