Interim Results

21 November 2007 PayPoint plc Interim results For the 27 weeks ended 30 September 2007 HIGHLIGHTS 27 weeks 26 weeks ended ended 30 September 24 September 2007 2006 £million £million Increase Revenue 103.9 71.0 46% Net revenue[1],[3] 34.2 25.8 32% Operating profit 13.9 10.4 35% Profit before tax 14.5 11.0 32% Basic earnings per share 15.0p 11.3p 33% Interim dividend 5.3p 4.6p 15% * Transactions were up 33% at 236 million with strong growth in all sectors. * Operating margin[2],[3] increased to 41% from 40%. * PayPoint UK and Irish terminal outlets have increased to over 19,000, up 16% on September 2006 and up 8% on March 2007. * Acquired Pay Store SRL, a mobile top-up provider in Romania. * Completion of the integration of Metacharge and SECPay is on track for financial year end. David Newlands, Chairman of PayPoint, said "Good growth in the first half has been complemented by the BBC TV Licence contract, which became exclusive from 1 August 2006, and an extra week of trading. Our UK terminal estate has expanded ahead of plan and we have strengthened our contractual relationships with multiple retailers. Product innovation and implementation, improved terms from credit and debit acquirers and winning back a major reseller for housing and local authority clients have laid the foundations for continuing growth. We have made good progress in driving the major change programmes in our newly acquired internet and Romanian businesses, which will set them on the path to growth next year. We are confident in the group's continuing progress." The financial statements cover the 27 week period from the 26 March 2007 to 30 September 2007, the last Sunday in the month (2006: 26 weeks). A presentation for analysts will be held at 11.30am today at Finsbury, Tenter House, 45 Moorfields, London EC2Y 9AE. 1 Net revenue is revenue less commissions paid to retail agents, acquiring bank charges and the cost of mobile top- ups where PayPoint is the principal. 2 Operating margin is operating profit as a percentage of net revenue. 3 Net revenue and operating margin are measures which the directors believe assist with a better understanding of the underlying performance of the group. The reconciliation of net revenue to statutory amounts can be found in note 2 ABOUT PAYPOINT PayPoint is the leading cash and internet payments company in the UK and Ireland, handling in excess of £6 billion in over 470 million transactions annually for more than 5,000 clients and merchants. The company operates with several payment networks: * The PayPoint branded retail network numbers over 19,000 terminal outlets located in local shops (including Co-op, Spar, Costcutter, Sainsburys Local, One Stop, Londis and thousands of independents) in all parts of the UK and Ireland. Terminals handle gas and electricity meter prepayments, cash bill payments, mobile phone top-ups, transport tickets, London Congestion charges, BBC TV licences and a wide variety of other payment types for all of the leading utilities, telecommunications suppliers and many consumer service companies. This network is used by consumers, free of charge, 8 million times a week. The network has 97.3% population cover on a 1 mile urban or 5 miles rural measure; * Additional multiple retailer connections into the electronic till systems of nearly 4,000 outlets in the UK including BP, Somerfield and Superdrug for mobile top-ups and selected payments from the PayPoint range; * The PayPoint ATM network has over 1,950 'LINK' branded machines across the UK, also typically in convenience stores; * PayPoint Internet Payment Services (PPIPS), trading as Metacharge and SECPay, provides secure credit and debit card payments for over 4,500 web merchants linking into all the major UK acquiring banks; and * PayPoint International has recently acquired a Romanian mobile top-up operator to which a bill payment service will be added, emulating the UK branded retail network. PayPoint International also operates Irish bill payment and top-up services. PayPoint floated on the London Stock Exchange in September 2004 and the company's market capitalisation at 30 September 2007 was £406 million. PayPoint current holds a Queen's Award for Enterprise and is widely recognised for its leadership in prepayment systems, smart technology and consumer service. 21 November 2007 Enquiries: PayPoint plc 01707 600 300 Dominic Taylor, Chief Executive George Earle, Finance Director Finsbury 020 7251 3801 Rollo Head Don Hunter This announcement is available on the PayPoint plc website: BUSINESS REVIEW The business review has been prepared solely to provide additional information to shareholders as a body to assess PayPoint's strategies and their potential to succeed, and it should not be relied upon for any other purpose. It contains forward looking statements that have been made by the directors in good faith based on the information available at the time of approval of the interim results and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward looking information. Bill and general payments have grown strongly across the board, including the benefit of the BBC TV licensing contract, which reached its first anniversary in August and an extra week of trading compared to the first half of last year. Mobile volumes have grown as a result of the enlarged terminal estate, the addition of Somerfield to our EPoS based retailers and the acquisition of Pay Store. PayPoint is the market leader in UK over-the-counter cash payments and is widely recognised for service excellence. Pay Store will introduce bill payments next year. We aim to create increasing economic value for shareholders by expanding: * UK cash payments for bills, general payments, mobile top-ups, ticketing, money transfer and ATM cash withdrawals building on the strength of our brand; * electronic and mobile - commerce payments and services building on our internet payments subsidiaries, Metacharge and SECPay and PayPoint service innovations; and * international growth for cash payment networks and as an e-commerce payment service provider. Operational overview In the first 27 weeks of the financial year, PayPoint processed 236 million transactions, with a value of £3.5 billion (2006: 178 million transactions with a value of £2.3 billion), an increase of 33% in transactions and 51% in value. TV licence payments and the additional week's trading have contributed to the growth. Commissions paid to retail agents were £41.5 million, up 16%. There has been strong growth in transaction volumes across all sectors: 27 weeks 26 weeks Year ended ended Ended 30 September 24 September 25 March 2007 2006 Increase 2007 millions millions % millions Bill and general 141 109 29 267 payments(1) Mobile top-ups 77 63 22 130 ATMs 7 6 23 13 Internet payments 11 - - 4 Total(2) 236 178 33 414 (1) Includes debit/credit transactions (2) Included within the total is 9 million of international bill and general payments and mobile top-ups. Bill and general payments PayPoint has performed well in this sector with growth stimulated by increased agent numbers, client payment options and brand awareness. Migration of market share away from the Post Office, as a result of its branch closure programme, the launch of the BBC TV licence contract which became exclusive to PayPoint from 1 August 2006 and the additional week of trading, have contributed to growth in transactions. In prepaid energy, volumes have increased over the prior period despite recent reductions in domestic prices. The increase is as a result of our network growth and increasing our market share, particularly in the Midlands, where a competitor lost exclusivity. In transport, we have extended our geographical coverage by signing new contracts with transport authorities, in addition to our existing contracts with Arriva, National Express, Lothian, First and Greater Manchester Travelcards. Whilst current volumes in transport ticketing are relatively modest, there is potential for long-term growth if transport authorities take steps to move ticket purchasing off buses. We are also discussing contracts with other operators and transport executives. PayPoint has also achieved strong growth in the rest of the sector (energy bill payments, communications, water, local authorities, and others) in particular from the growth in BBC TV Licensing. Mobile top-ups Mobile top-up volumes have increased by 22% over the same period last year (15% excluding Pay Store, which was acquired on 15 May 2007). In the UK our overall market share of cash mobile top-ups is still currently c.30% (March 2007: c.30%). The two most popular methods for topping up are e-voucher and electronic top-up which account for c.75% of all top-ups in the UK. The increase in other payment methods which include ATMs, debit and credit cards and SMS has adversely affected the growth through our channels. Network growth Terminal sites have increased to 22,624 (25 March 2007: 17,537). The retail network in the UK and Ireland has grown to 19,017 terminal sites against our target of 19,500 by the end of the year on the strong continuing demand from retailers for the PayPoint terminal. The acquisition of Pay Store brings a further 3,607 terminal sites. 2,525 sites (2006: 2,461) with our terminals also have EPoS connections to allow mobile top-up transactions over the retailers' own till systems. There are a further 3,672 EPoS only sites (2006: 3,740). Analysis of sites At At At 30 September 24 September Increase 25 March 2007 2006 % 2007 PP terminal only 16,492 13,864 19 15,049 PP terminal and EPoS 2,525 2,461 3 2,488 PP terminal sites 19,017 16,325 16 17,537 Pay Store terminal sites 3,607 - - - Total terminal sites 22,624 16,325 39 17,537 ATM sites 1,957 1,655 18 1,860 Internet merchants 4,545 - - 4,249 These figures exclude EPoS only sites in the UK and sites in Romania that sell only scratch cards. ATMs New machines continued to be rolled out at an average of over 40 per month. The removal for redeployment of ATMs from poorly performing sites, including 40 non-transactors in September, reduced this to a net increase of 17 per month. Average transactions at 600 per month were affected by the higher level of non-transactors. PayPoint Internet Payment Services Metacharge and SECPay, which were acquired in the last financial year and form PayPoint Internet Payment Services (PPIPs), are trading profitably. The first phase of the integration of these two businesses, which is nearing completion, is the co-location of their hardware platforms at a hosted data centre, the provision of full disaster recovery and a single billing platform. The second phase which will allow each brand's products to be delivered by the other will be completed early in the new financial year. PayPoint in Romania Pay Store SRL was acquired on 15 May 2007 for ¤16 million (£10.9 million) from the RTC group with potential for a further ¤1 million payable or recoverable, on the performance of the business in the first year after acquisition. The company is trading at a small loss, as expected. Pay Store is one of the largest independent mobile top-up providers in Romania, selling both electronic top-ups and paper scratch cards. Nearly all Romanians pay bills in cash and are poorly served by existing payment channels. Since acquisition, we now have the ability to process mobile top-ups at our transaction processing centre in Welwyn Garden City. We plan to launch a PayPoint branded bill payment service next year. Pay Store is well placed to benefit from the migration from scratch cards to electronic top-ups, and following the introduction of bill payments in the New Year, to capture a significant share of the bill payment market as privatised utilities look to rationalise current inefficient and costly cash collection channels. New services PayPoint continues to introduce a wide range of new services to stimulate further transaction growth in both cash and new economy payments. For example, we are well-placed to benefit from the expected increases in transaction volumes in the electronic money sector from services such as gift cards, prepay debit cards, saving schemes, internet currencies, stored value cards and money transfers. We have continued to attract through our clients the following brands, The Sun, Daily Mirror, Virgin Money and Argos. We are established as the premier convenience loading channel for cash on to both prepay and stored value cards, which have developed into strong sectors in the USA and are now being marketed with increasing success in the UK. Financial overview Revenue for the first 27 weeks was £103.9 million (2006: £71.0 million), up 46% driven by a 33% increase in transaction volumes and further growth in mobile volumes[1] where PayPoint acts as principal. Cost of sales was £76.6 million (2006: £50.7 million), an increase of 51%, which is greater than the rate of increase in revenue because of the increase in mobile top-ups where PayPoint is principal. Agents' commission increased by 16% to £41.5 million (2006: £35.9 million), which is at a lower rate than the increase in revenue mainly because the growth in mobile was lower than the growth in other areas. Depreciation and amortisation have increased to £2.6 million (2006: £1.7 million) up 56% as a result of the terminal roll out, refurbishment of our operations base in Welwyn Garden City and our acquisitions. Net revenue[2] of £34.2 million (2006: £25.8 million) was up 32%, driven primarily by volume growth. Gross profit improved to £27.3 million (2006: £20.3 million), 34% ahead of the same period last year, with a gross margin of 26% (2006: 29%). The rate of increase in mobile top-ups in Ireland and Romania[1] is greater than the rate of increase from other sources, which depressed gross margin, mitigated by lower rates of increase in other costs. Gross margin, excluding the cost of Irish and Romanian mobile-top-ups[1] improved to 35% (2006: 33%). [1] In Ireland and Romania, PayPoint is principal in the sale of mobile top-ups and accordingly the face value of the top-up is included in sales and the corresponding cost in cost of sales [2] Net revenue is revenue less commissions paid to retail agents and the cost of mobile top-ups where PayPoint is the principal Operating costs (administrative expenses) have risen to £13.4 million (2006: £10.0 million), an increase of 34%, the inclusion of Metacharge, SECPay and Pay Store have accounted for 28% of the 34% increase. Operating profit was £13.9 million (2006: £10.4 million), up 35% with an associated increase in operating margin[1] to 41% (2006: 40%). Profit before tax was £14.5 million (2006: £11.0 million), up 32%. The tax charge was £4.4 million (2006: £3.3 million) and the effective tax rate was 30%. Operating cash flow was £10.9 million including an inflow of £0.5 million of client cash[2] (2006: £12.1 million after an inflow of £0.8 million in respect of client cash), reflecting strong conversion of profit to cash. Capital expenditure of £1.9 million (2006: £5.6 million including the £3.4 million refurbishment of our operations base £3.4 million) reflected spend on new terminals, ATMs, and the international processing platform. Net interest received was £0.6 million (2006: £0.7 million) and equity dividends paid were £6.2 million (2006: £5.1 million). Related party transactions Related party transactions are disclosed in note 6. Risks Risks to PayPoint's business, financial condition or operations are disclosed on page 17. Dividend The board have declared an interim dividend payable on 21 December of 5.3p per share (2006: 4.6p) to shareholders on the register at 30 November 2007. Outlook There is opportunity to grow revenue in the UK by increasing market share in bill and general payments, mobile top-ups and ATMs and from Post Office closures within the next year. We will continue to roll out terminals in the UK next year. PayPoint will also continue its focus in developing new markets including transport to drive transaction volumes in the longer term as well as launching bill payments in Romania and offering PPIPs to existing PayPoint clients. Trading in the second half of the current year has started well with October's results in line with management's expectations. The directors are confident of continuing growth although the benefit of the exclusivity of the TV licence contract from 1 August 2006 and the extra week of trading will not be repeated in the second half and the impact of the reductions, in the latter half of last year, in domestic gas prices on prepay transaction volumes will be greater than in the first half. David Newlands Dominic Taylor Chairman Chief Executive 21 November 2007 [1] Operating margin is operating profit as a percentage of net revenue [2] Client cash is held on behalf of clients where PayPoint has title to the funds. An equivalent balance is included within trade payables. CONDENSED CONSOLIDATED INCOME STATEMENT Unaudited Unaudited Audited 27 weeks 26 weeks year ended ended ended 30 September 24 September 25 March 2007 2006 2007 Continuing operations Note £000 £000 £000 Revenue 2 103,950 70,974 157,068 Cost of sales 2 (76,645) (50,661) (111,068) Gross profit 2 27,305 20,313 46,000 Administrative expenses (13,359) (9,950) (20,798) Operating profit 13,946 10,363 25,202 Investment income 586 691 1,470 Finance costs (43) (38) (75) Profit before tax 14,489 11,016 26,597 Tax 3 (4,353) (3,341) (7,859) Profit for the period 10,136 7,675 18,738 Earnings per share Basic 5 15.0p 11.3p 27.7p Diluted 5 14.7p 11.2p 27.3p CONDENSED CONSOLIDATED STATEMENT OF RECOGNISED INCOME & EXPENSE Unaudited Unaudited Audited 27 weeks 26 weeks year ended ended ended 30 September 24 September 25 March 2007 2006 2007 Note £000 £000 £000 Exchange differences on 9 34 - - translation of foreign operations Net income recognised 34 - - directly in equity Profit for the period 10,136 7,675 18,738 Total recognised income and 10,170 7,675 18,738 expenses for the period CONDENSED CONSOLIDATED BALANCE SHEET Unaudited Unaudited Audited 30 September 24 September 25 March 2007 2006 2007 Note £000 £000 £000 Non-current assets Goodwill 26,256 - 18,207 Other intangible assets 3,222 - 2,839 Property, plant and equipment 13,428 13,383 11,844 Deferred tax asset 1,552 1,174 1,572 44,458 14,557 34,462 Current assets Inventories 1,088 908 1,651 Trade and other receivables 25,431 12,238 20,671 Cash and cash equivalents 7 15,981 31,456 24,324 42,500 44,602 46,646 Total assets 86,958 59,159 81,108 Current liabilities Trade and other payables 40,125 23,581 36,228 Current tax liabilities 4,858 3,361 4,115 Obligations under finance 156 - - leases 45,139 26,942 40,343 Non-current liabilities Other liabilities 274 396 392 274 396 392 Total liabilities 45,413 27,338 40,735 Net assets 41,545 31,821 40,373 Equity Share capital 8 226 226 226 Share premium account - 23,976 - Capital redemption reserve - 14,193 - Investment in own shares 8 (935) (1) (1) Share option and SIP reserve 8 1,789 1,110 1,712 Reserve for exchange 8 34 - - differences on translation of foreign operations Retained earnings 8 40,431 (7,683) 38,436 Total equity 9 41,545 31,821 40,373 CONDENSED CONSOLIDATED CASH FLOW STATEMENT Unaudited Unaudited Audited 27 weeks 26 weeks year ended ended ended Note 30 September 24 September 25 March 2007 2006 2007 £000 £000 £000 Net cash from operating 11 10,920 12,109 28,181 activities Investing activities Interest received 549 739 1,310 Purchase of property, plant (1,854) (5,645) (6,646) and equipment Proceeds from disposal of 53 101 194 property, plant and equipment Acquisition of subsidiary 10 (8,219) - (19,754) Purchase of own shares 6 (3,489) - - Net cash used in investing (12,960) (4,805) (24,896) activities Financing activities Repayments of obligations (144) (67) (67) under finance leases Dividends paid (6,159) (5,076) (8,189) Net cash used in financing (6,303) (5,143) (8,256) activities Net (decrease)/increase in (8,343) 2,161 (4,971) cash and cash equivalents Cash and cash equivalents at 24,324 29,295 29,295 beginning of period Cash and cash equivalents at 15,981 31,456 24,324 end of period NOTES TO CONDENSED FINANCIAL STATEMENTS 1. Accounting policies These financial statements have been prepared on a historical cost basis and on the policies set out below. Basis of preparation The financial information contained in this report is unaudited, but has been formally reviewed by the auditors and their report to the Company is set out on page 18. The information shown for the 52 weeks ended 25 March 2007, which is prepared under IFRS, does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The report of the auditors on the statutory accounts for the year ended 25 March 2007, prepared under International Financial Reporting Standards (IFRS), was unqualified and did not contain a statement under section 237 of the Companies Act 1985 and has been filed with the Registrar of Companies. At the date of authorisation of these condensed financial statements, the following standards and interpretations which have not been applied in these condensed financial statements were in issue but not yet effective: IFRS 7: Financial Instruments: Disclosures IFRS 8: Operating Segments IFRIC 12: Service Concession Arrangements. IFRIC 13: Customer Loyalty Programs IFRIC 14: IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding requirements and their Interaction The directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the condensed financial statements of the group. The condensed financial statements are presented in pounds sterling because it is the currency of the primary economic environment in which the group operates. The directors consider that there are no critical accounting judgements and key sources of estimation uncertainty in applying the group's accounting policies. 2. Segmental reporting, net revenue analysis and gross throughput (i) Segmental information (a) Geographical segments. The group operates in the UK, Republic of Ireland and Romania but the group has only one reportable geographical segment as defined in International Accounting Standard 14 Segment Reporting due to the fact that principally all operations occur in the UK. (b) Classes of business. The group has one class of business, being payment collection and distribution services. (ii) Analysis of net revenues by sector, cost of sales and gross throughput Group revenue comprises the value of sales (excluding VAT) of services in the normal course of business and includes amounts billed to customers to be passed on to retail agents as commission payable, the face value of mobile top-ups where PayPoint acts as principal and for Metacharge, it includes external processing charges which are amounts billed to merchants that are passed onto the acquiring bank. Cost of sales includes the cost to the group of the sale, including commission to retail agents and the cost of mobile top-ups where PayPoint is the principal in the supply chain and acquiring bank charges. Revenue performance of the business is measured by net revenue which is calculated as the total revenue from clients less commission payable to retail agents, acquiring bank charges and the cost of mobile top-ups where PayPoint is the principal in the supply chain. Although there is only one class of business, since the risks and returns are similar across markets in which the group operates, the group monitors net revenue (see below) with reference to each sector. Gross throughput represents payments made by consumers using the PayPoint service, for bill and general payments, mobile top-ups (including scratch cards), cash withdrawals from ATMs and the value of transactions via the internet. 27 weeks 26 weeks Year ended ended ended 25 March 30 September 24 September 2007 2007 2006 £000 £000 £000 Revenue - transaction processing 103,030 70,304 155,659 - lease rental of ATMs 920 670 1,409 Revenue 103,950 70,974 157,068 less: Commission payable to retail (41,463) (35,886) (76,986) agents Cost of mobile top-ups as (26,688) (9,255) (21,050) principal Acquiring bank charges (1,618) - (1,333) Net revenue 34,181 25,833 57,699 Net revenue by sector Bill payments 13,644 11,399 25,737 Mobile top-ups 12,834 10,741 22,633 ATMs 3,275 2,730 5,751 Internet payments 3,124 - 1,623 Other 1,304 963 1,955 Net revenue 34,181 25,833 57,699 UK 32,709 25,455 56,757 International(1) 1,472 378 942 Net revenue 34,181 25,833 57,699 Profit and loss Revenue 103,950 70,974 157,068 Cost of sales Commission payable to retail (41,463) (35,886) (76,986) agents Cost o f mobile top-ups as (26,688) (9,255) (21,050) principal Acquiring bank charges (1,618) - (1,333) Other (6,876) (5,520) (11,699) Total cost of sales (76,645) (50,661) (111,068) Gross profit 27,305 20,313 46,000 Gross throughput Transactions via PayPoint 2,774,365 2,159,212 4,826,632 terminals, retailer EPoS systems and sale of scratch cards Withdrawals via ATMs 167,961 144,398 293,287 Internet transactions 545,619 - 117,180 Gross throughput 3,487,945 2,303,610 5,237,099 (1) International consists of Ireland and Romania 3. Tax on profit of ordinary activities 27 weeks 26 weeks Year ended ended ended 25 March 30 September 24 September 2007 2007 2006 £000 £000 £000 Current tax 4,373 3,331 7,935 Deferred tax (20) 10 (76) Total 4,353 3,341 7,859 4. Dividend The declared interim dividend is 5.3p (2006: 4.6p). The total dividends in respect of the year ended 25 March 2007 were £9.3 million (13.7p per share). The interim dividend was declared on 21 November 2007 and accordingly has not been recorded as a liability as at 30 September 2007. 5. Earnings per share (a) Basic and diluted earnings per share The basic and diluted earnings per share are calculated on the following profit and number of shares. 27 weeks 26 weeks Year ended ended ended 25 March 30 September 24 September 2007 2007 2006 £000 £000 £000 Profit for the purposes of basic 10,136 7,675 18,738 earnings per share being net profit attributable to equity holders of the parent and for diluted earnings Number of Number of Number of shares shares shares Weighted average number of 67,688,522 67,678,074 67,678,187 shares (for basic earnings per share) Potential dilutive ordinary 100,878 65,397 80,336 shares: Deferred share bonus Long term incentive plan 1,036,849 887,737 974,116 Diluted basis 68,826,249 68,631,208 68,732,639 6. Related party transactions On 24 September the company released the first tranche of its Long Term Incentive Plan awards to the three executive directors and six senior managers. In order to satisfy the company's obligations, Paypoint Network Limited Employee Investment Trust (The Trust) acquired 424,052 ordinary shares at the mid market closing price of 597.5 pence per share, in aggregate £2,533,000, from RIT Capital Partners and the Weinstock Estate (both of which are connected to David Morrison, a non-executive director of the company). 156,348 shares were sold at 597.5 pence per share, in aggregate £934,000, by participating directors and managers to the Trust. Accordingly, the company has funded £3,467,000 (excluding £22,000 deal costs) for the purchase of its own shares. The excess of the market value of the shares acquired over their fair value at the date of grant of £1,982,000 has been charged to reserves. 7. Cash and cash equivalents Included within cash and cash equivalents is £7.8 million (September 2006: £6.4 million, March 2007: £7.3 million) relating to monies collected on behalf of PayPoint clients where PayPoint has title to the funds (client cash). An equivalent balance is included within trade payables. 8. Share capital, share option and SIP reserve and retained earnings 27 weeks 26 weeks Year ended ended ended 25 March 30 September 24 September 2007 2007 2006 £000 £000 £000 Authorised share capital 4,365,352,200 ordinary shares of 14,551 14,551 14,551 1/3 p each Called up, allotted and fully paid share 67,693,368 ordinary shares of 226 226 226 1/3 p each Share option and SIP reserve At start of period 1,712 738 738 Additions in period 628 372 974 Options exercised in period (551) - - At end of period 1,789 1,110 1,712 Investment in own shares At start of period (1) (1) (1) Acquired in period (see note 6) (2,533) - - Used on share scheme vesting 1,599 - - At end of period (935) (1) (1) Retained earnings At start of period 38,436 (10,282) (10,282) Profit for the period 10,136 7,675 18,738 Capital reduction - - 38,046 Undistributable reserves - - 123 Dividends paid (6,159) (5,076) (8,189) Adjustment on share scheme (1,982) - - vesting (see At end of period 40,431 (7,683) 38,436 9. Statement of changes in equity 27 weeks 26 weeks Year ended ended ended 25 March 30 September 24 September 2007 2007 2006 £000 £000 £000 Opening equity 40,373 28,850 28,850 Profit for the period 10,136 7,675 18,738 Dividends paid (6,159) (5,076) (8,189) Investment in own shares (see (934) - - note 6) Adjustment on share scheme (2,533) - - vesting (see note 6) Exchange differences on 34 - - translation of foreign operations Additions to share option and 628 372 974 SIP reserve Closing equity 41,545 31,821 40,373 10. Acquisition of subsidiary (Pay Store) Book Fair Value value £000 £000 Net assets acquired Property, plant and equipment 2,046 2,046 Trade and other receivables 2,309 2,309 Cash and cash equivalents 1,584 1,584 Trade and other payables (3,846) (3,846) Intangible assets - 781 2,093 2,874 Goodwill 8,049 Total consideration 10,923 Satisfied by: Cash 9,803 Deferred consideration 1,120 10,923 Net cash outflow arising on acquisition Cash consideration 9,803 Cash and cash equivalents acquired (1,584) 8,219 On 15 May 2007, the company acquired 100% of the issued share capital of Pay Store for cash consideration of £10.9 million (of which £1.1 million is payable 12 months after acquisition). A further ¤1 million is either payable or recoverable 12 months after acquisition dependent on the performance of the business. The goodwill arising on the acquisition of Pay Store is attributable to the expected profitability of the company. Pay Store contributed £13.6 million revenue and a loss of £55,000 to the group's profit before tax for the period between the date of acquisition and the balance sheet date. If the acquisition of Pay Store had been completed on the first day of the financial year, it would have contributed £18.1 million to revenue and £104,000 to profit attributable to equity holders of the parent. 11. Notes to the cash flow statement 27 weeks 26 weeks Year ended ended ended 25 March 30 September 24 September 2007 2007 2006 £000 £000 £000 Operating profit 13,946 10,363 25,202 Adjustments for: Depreciation on property, plant 2,244 1,691 3,603 and equipment Amortisation of intangibles 399 - 212 Increase in share option and SIP 77 372 974 reserve Loss on disposal of property, - 67 - plant and equipment Operating cash flows before 16,666 12,493 29,991 movements in working capital Decrease/(increase) in 872 211 (532) inventories (Increase)/decrease in (2,300) (126) 788 receivables Increase/(decrease) in payables - client cash 451 780 1,105 - other payables (1,037) 611 2,866 Cash generated by operations 14,652 13,969 34,218 Corporation tax paid (3,732) (1,822) (6,007) Interest and commitment fees - (38) (30) paid Net cash from operating 10,920 12,109 28,181 activities RESPONSIBILITY STATEMENT We confirm that to the best of our knowledge: a) the condensed set of financial statements has been prepared in accordance with IAS 34; b) the business review includes a fair review of the information required by Disclosure and Transparency Rules (DTR) 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year) ; and c) the business review includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein). By order of the board David Newlands Dominic Taylor Chairman Chief Executive 21 November 2007 RISKS PayPoint's business, financial condition or operations could be materially and adversely affected over the remaining six months by the risks summarised below. Although management takes steps to mitigate risks where possible or where the cost of doing so is reasonable in relation to the probability and seriousness of the risk, it may not be possible to avoid crystallisation of some or all of such risks: +-------------------------------------------------------------------+ | Risk | Future prospects depend on our | | | ability to: | | | | |---------------------------+---------------------------------------| | Managing growth of the | manage growth through the employment | | business | of adequate skilled resources, whilst | | | maintaining financial controls | | | | |---------------------------+---------------------------------------| | The loss of a major | renew contracts at expiry (over the | | contract | next six years) on attractive terms | | | | |---------------------------+---------------------------------------| | Dependence on key | retain and recruit key staff through | | executives | a mixture of basic salary, short and | | | long-term incentive schemes | | | | |---------------------------+---------------------------------------| | Failure of systems | maintain financial controls, defend | | | against natural disasters, terrorist | | | attacks, sabotage and hacking | | | | |---------------------------+---------------------------------------| | Competition | hold and gain market share, | | | particularly in commodity services | | | such as mobile top-ups | | | | |---------------------------+---------------------------------------| | Insolvency of a major | avoid the consequences of insolvency | | multiple retail agent | both in terms of bad debt risk (where | | | we bear it) and the impact of such | | | insolvency on our network coverage | | | | |---------------------------+---------------------------------------| | Technological changes | keep pace with technological changes | | | and introduce new developments to | | | maintain competitive advantage | | | | |---------------------------+---------------------------------------| | Reliance on intellectual | stop third parties from using our | | property | products and defend the use of our | | | products from any challenge | | | | |---------------------------+---------------------------------------| | The need to raise capital | access future capital needs on | | in future | sufficiently attractive terms to grow | | | the business profitably | | | | |---------------------------+---------------------------------------| | Economic, political, | to deal with the impact of such | | legislative, taxation or | changes without adversely affecting | | regulatory changes | the growth or profitability of the | | | business | | | | |---------------------------+---------------------------------------| | Taxation | ensure the impact of any adverse | | | changes is mitigated by enhanced | | | performance | | | | |---------------------------+---------------------------------------| | Fraudulent or criminal | avoid loss of client monies by the | | activity | rigorous application of controls | | | | +-------------------------------------------------------------------+ INDEPENDENT REVIEW REPORT TO PAYPOINT PLC We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the period ended 30 September 2007 which comprises the income statement, the balance sheet, the statement of recognised income and expense, the cash flow statement and related notes 1 to 11. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent mis-statements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the company in accordance with International Standard on Review Engagements 2410 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdoms' Financial Services Authority. As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union. Our responsibility Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Review conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. Deloitte & Touche LLP Chartered Accountants 21 November 2007 London, UK Notes: A review does not provide assurance on the maintenance and integrity of the website, including controls used to achieve this, and in particular on whether any changes may have occurred to the financial information since first published. These matters are the responsibility of the directors but no control procedures can provide absolute assurance in this area. Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions. PayPoint plc DIRECTORS & KEY CONTACTS Directors George Earle (Finance Director) Kenneth Minton* David Morrison* David Newlands* (Chairman) Andrew Robb* Dominic Taylor (Chief Executive) Tim Watkin-Rees (Business Development Director) Roger Wood* * non-executive directors Registered office 1 The Boulevard Shire Park Welwyn Garden City Hertfordshire AL7 1EL United Kingdom Registered in England and Wales number 3581541 Registrars Capita Registrars Registration Services Northern House Woodsome Park Fenay Bridge Huddersfield West Yorkshire HD8 0LA Telephone 0870 162 3100 Press and investor Finsbury relations enquiries Tenter House 45 Moorfields London EC2Y 9AE Telephone No. 020 7251 3801 ---END OF MESSAGE---