PayPoint plc

welcome everyone to our annual uh results presentation for the year-ended march 2023 and also this morning the release of our q1 update and really firstly my apologies for the delay in our reporting this year i think really the impact of closing the appreciate transaction in the last month of our financial year and the knock-on effect this has had really in terms of coordinating a number of accounting firms to conclude our audit, I think, has been really quite considerable. The good news that this is done, we're with you today to take you through what we believe are really excellent set of results. We've laid out on this first slide our proposed agenda for today's presentation. The plan is very much I'll take you through the overview to our results and a more in-depth review of our strategy. Alan's going to review the numbers, followed by a very brief review of the business by division, a summary of our outlook, and then time for Q&A. We're really pleased to be reporting a further year of strong financial performance, where we've made progress in our strategy and in the transformation of our business. Our key headline numbers for the business as a whole, including a one-month contribution from the former Appreciate businesses, are very much at the top end of market expectations. and show a year-on-year net revenue of growth of over 11%, underlying EBITDA up over 5%, underlying PBT up over 5%, and cash generation up over 15% to 62.3 million pounds. And we've increased the dividend, final dividend by 3.3% to 18.6 pence per share. Within these numbers, There are some accounting policy changes, which Alan's going to take you through properly and reconcile when we get to the financial section of the presentation. The great news is we've delivered net revenue growth, I think, probably for the first time at each of our three businesses. In shopping, net revenue grew by 5.6%, reflecting a growth in the PayPal One retailer estate, a growth in service fee income, in car processing net revenue, a growing number of successful FMCG brand campaigns, and I think really further progress in our overall retail and partner engagement. In e-commerce, we had a really outstanding year, with net revenue growth by over 46.3% in terms of partial transaction volumes, which went through the Collect Plus network, and a total of 56.4 million transactions overall. I think we've been fortunate in being exposed to the right parcel categories. I think we've worked hard in partnership with our key carrier partners and started to really reap the benefits of our investment in in-store print technology as this has become increasingly important to the parcel consumer who use our network. In payments and banking, net revenue grew by 9.1% as we've made significant progress in the delivery and adoption of our digital payments proposition. We delivered a resilient performance in our legacy cash payments business, a stable and stabilizing performance in the second half in our cash through to digital activities, which include gaming, gifting, and neobanking. And we've secured a number of really important new business wins in our newer capabilities in direct debit and open banking. And for completeness, as I said already, we've included a one-month contribution from the former. Appreciate businesses in these headline numbers. So overall, a really pleasing performance from the business and the first time we've ever delivered net revenue growth in each of the three divisions. Turning now to an update on strategy and taking stock as to what we as a business and a management team are focused on as we continue to drive the business forward from here. As I said, as a management team, we've been taking stock both of our progress in the transformation of our business over the past three years and really challenging ourselves as to the key focus areas we have for the business as we look forward to the next stage in our growth. In our view, key building blocks are now largely in place of our focus today on four key areas. Firstly, the value creation and future opportunity from the M&A we've executed over the past three years, where we are in terms of our progress and accelerating the shift from our legacy cash flow payments business the digital multi-channel, multi-sector payments platform, and where we should invest internally our investment over the next three years to support our key areas of growth to maximize returns. And then finally, to ensure our strong cash flows allocated in a way that optimizes shareholder rewards and supports future performance of the business. I think the other key challenge we face is in communicating a clear and simple investment case to our investors, which brings to life the value we're building from the business and the business we have today, focuses attention on the right financial metrics and how we execute on well-defined opportunities for accelerating our growth and the shareholder returns that play from this. To this end, we have introduced EBITDAs and additional financial KPI, more of which later in the presentation. Looking firstly at our M&A over the past three years and the acquisitions we've made over the past three years have been essential steps in transitioning our business to a high growth multi-channel platform and growing a collection of customer service propositions, all of which add to value to our SME and our retailer network. I think firstly taking full ownership of Collect Plus has allowed us to accelerate our investment plans in this business open up the network to all major carriers, I think move the performance of business to a different level, and establish Collect Class as the number one out-of-home network. As you can see, growth continues to accelerate in this business as the network becomes more attractive to both carriers and their customers, and while it's important that we also drive commission and footfall into the retailer network. I'm Oboe. has proved to be an outstanding acquisition and a really critical technology in the delivery of our DWP payment exception service, cash-out capabilities, and our growing vouchering and FMCG brand partnerships and campaigns. The acquisition of RSM has been key to establishing our direct debit platform and our early charities proposition, while the investments in Optus Homes and OB Connect have respectively strengthened our Housing Association proposition guided us with a great open banking capability, which has really put us at the front of this emerging opportunity as we win a number of new clients and begin to drive a strong revenue stream from these early activities. The acquisition of HandyPay Merchant Rentals has created the opportunity for us to bring scale to our card processing and terminal leasing business, expand our SME network beyond traditional retail convenience, and bring a level of sector knowledge and expertise into the business that is absolutely fundamental to growing and succeeding in this market. Cards as a payment channel is also key to delivering on our multi-channel payment platform and success in our client business. Having acquired this business, we've described a number of times before the importance of what we do next in terms of investing in this platform and our card capabilities so that we can generate growth, and a market-leading presence in cars. In particular, our plans to become a payfac, the strength in our product development plans to underpin our sales rate and the reduction of churn, in addition to expanding our sales capabilities as we open up new sectors. This acquisition is still very much a work in progress as we deliver the opportunity we see in cars. But I think it's clear our progress on this journey is encouraging, and we still see significant opportunity to create value from this acquisition. And finally, the recently closed acquisition of Appreciate, which has brought into the business two key activities. Firstly, a structured savings platform, a product in part Christmas savings. And secondly, the Love2Shop digital platform for employee and consumer rewards and a prepaid closed-loop channel. I hope what's clear is the common themes running through these acquisitions is the enhancement of our payment capabilities to provide a joined-up multi-channel payment platform and the strengthening of our services proposition available through our SME and our retailer network. We now believe we have the capability in place continued internal investment and good execution, we now have a really great business from which to generate significant returns for our shareholders as they look forward. Turning to the appreciate acquisition in a bit more detail. Firstly, and I think probably most importantly, the integration of the business is going well, with great cooperation between the two teams, really across all the functions, and in particular in the engine room of HR, IT development and systems, client management, and new business sales. So overall, it feels like there's a really good cultural fit between the two businesses, and we've moved quickly such that we're ensuring there is minimal disruption to a laser-like focus from both businesses on delivery and plan and the pursuit of new business opportunities where we can see them. For us, it's immediately clear there are considerable additional opportunities from both Love to Shop and Park Christmas Savings being part of the wider PayPoint business. We are already accelerating the development roadmap to invest and unlock and strengthen the Love2Shop proposition. The new business teams from both are already working together to join opportunities in both central and local government. And with our expanded corporate clients, we're adding to the new business initiatives already underway in Love2Shop. And I think this will certainly see a growth in billings both in the current year and in the years ahead. The Park Christmas Savings business is a great addition to our consumer proposition, targeting a demographic which is consistent with many of the consumers who already use our services through our Retailer Partner Network. In addition to the current Park's Christmas Savings direct debit and agent customer recruitment channels, we have now launched an additional channel in partnership with the NFRN to create a network of Paypoint retailer super agents to recruit and support Park Christmas Saviors, starting with the soon-to-be-launched Christmas 2024 campaign. This launch is already off to a strong start, with retailer sign-ups strong, and I think sort of hot off the press, I think we're now looking at an additional 125 new to Paypoint retailers who actually have adopted the Park Christmas Saviors opportunity. We believe this will add meaningfully an incremental growth to the £161 million of billings achieved by Park Christmas Savings in the last financial year and the current 350,000 families already saving with us. In addition, we're already looking at the opportunity for additional prepaid savings solution partners and also for other areas where we can support milestone events such as weddings to add further to the growth process. Beyond BAU for this business, we're already seeing the prospect of a number of new opportunities and partnerships from the acquisition, where the ability to bring together closed-loop payments, vouchering, rewards, grant campaigns, and redemption, in addition to broader payments, is creating the opportunity to unlock new markets and revenue, more of which we reported our interns in November. So overall, I don't think we could be more pleased with the early progress we're making, both in Love to Shop and Park Christmas Savings. We're clear that they are really great businesses, which we believe will add considerable value to the enlarged group. This next slide sets out what we think is a very straightforward way to our response to really the key question we've been asked a number of times, which is, how do we make money from the Love to Shop business? Firstly, As I've already described, the appreciated acquisition brought two revenue streams, half Christmas savings and love to shop. In terms of how we manage both, our starting point for measuring progress and performance is billings, i.e. transaction volume, in much the same way as we view any other transaction-based businesses across the group, such as payment transactions, parcels, and card processing volumes. Then in terms of revenue streams, In both businesses, there are four. Firstly, your retailer service and management fees. Secondly, your card fee. Thirdly, the non-redemption income at the end of the life of the card. And fourthly, interest earned on cash balances. Inevitably, between the two businesses, there is a different weighting between these four. Again, as a financial model, this is consistent with the way we recognize revenue streams elsewhere in the business, in shopping, in e-commerce, in payments and banking. And to summarize what the business model actually looks like, as I said already, billings is the most immediate KPI. We measure it on a weekly basis in much the same way we measure other transactions across the business as a whole. These billings are quickly converted into cash And as I said before, held in trust against the future spend and redemption of the cards that we've issued. Revenue is then recognized during the life and at the end of the life of the card in the four key areas I've described, leading to a profit recognition and ultimately PBT. In respect of profit recognition, this has been a key adjustment that we've made post acquisition and which Alan will talk about later in his section. as we've restated the recognition of non-redemption income, such that we recognise this now at the expiry of the card, rather than estimating or recognising in the life of the card. As such, we're accounting for this in a more conservative and consistent way with the way that other leading peers do in the sector. Moving this accounting treatment has no impact on our cash flow, simply the timing of recognition of profit or non-redemption income,

and how we show this in the P&L. Our second focus area is the acceleration in the shift from cash to digital payments.

We've now built, through a combination of acquisition and in turn investment, a differentiated platform that supports payments across cash, direct debits, cards, open banking, and with a full range of support tools I think this is really well illustrated in the right-hand side of the chart. Digital net revenue growth year on year was over 100%, £15.7 million. And this arose from combination of delivering large central government support schemes, such as the DWP Payment Exception Service, winning new business in non-energy sectors, such as local authorities and housing. For us, our long-term success in accelerating the shift to digital payments is now dependent on winning and integrating new business across a number of key sectors, such as local and central government, further progress with the housing associations, more wins in charities, along with a continued strong presence in doing more for our clients in energy and other utilities. We see the early signs of success And we're building on this success as we execute on a growing new business pipeline in each of these sectors. And you'll see more of this as we develop through the year with obviously the next update in November. This next slide sets out again in what we think is a simple way of the structure of our business today. The capabilities we have in our payments platform and in our retailer network service proposition. And importantly, through the color coding, prospects for growth over the next three years. On the left-hand side, we've set out our payment platform in terms of our capabilities and the key sector verticals we're working with today or targeting in the future. Our strategy over the past three years has been to establish this comprehensive payment capability that you see today, such that we have what we need to win business and have a market-leading presence in each of these key sector verticals. In our view, with the exception of cash, each of these payment channels represent growth opportunities for us, and we believe we are uniquely placed to deliver this full range of integrated payment channels on a single platform. And while cash is highlighted here in red, it does remain a critical payment channel for many of our clients in both existing and in target sectors. On the right-hand side, we set up the service proposition today, which we have available through our retailer and our SME network. At a headline level, we have over 62,000 total locations. And within this, we have over 28,000 retailer locations and over 18,400 K.1 locations. However, the real key for us over the past three years is within this significant overarching network is to size individual product proposition networks very specifically to the opportunity and coverage needs for each. A great example of this is probably parcels, where our overall CollectPlus network is over 10,000 stores. But even within this, each carrier has a coverage that works best for them. In the network we have today, we want our retailers to offer multiple pay point products rather than simply bill pay. And as a result, almost 50% of our pay point retailers now offer at least three pay point one services. As we go forward, we want this number to grow further. As I've highlighted here in green, the majority of these service propositions are in growth mode. And this strategy, we believe, creates greater commission opportunities for our retailers drives footfall, and will deliver a better overall customer experience and service. At a high level, on this next slide, we believe unlocking new clients and markets and driving more customer adoption through our retailer network will deliver a meaningful uplift in our financial performance. And we set ourselves the clear financial objectives delivering in excess of 100 million EBITDA over the next year period from this plan. We believe we have the opportunity to leverage our materially enhanced platform in the way I've described this morning, which emphasizes growth in the key areas of integrated payments, cards, retail proposition, parcels and rewards, We were able to deliver further payment transaction growth from the integrated platform that we've created. And as I've described already, the significant momentum we have in open banking and our successes in energy, very success in housing, our very success in local and central government. As you see this morning, we're enhancing our retailer proposition. We're driving forward the next generation of technology with integrated EPOS solutions for a number of key partners. and we're driving further multiple services into our retailer partners. We have clear acceleration plans for cards. We're launching our mid-market card proposition. We're moving to a single acquirer, beginning that journey to becoming a payback. We have great momentum in parcels with plans to deliver additional volume as we bring on even further carriers and work closer to the ones that we're working with today. We've only just started to identify and see the incremental opportunity in love to shop in terms of employee and customer rewards as we unlock revenue opportunities and grow further both love to shop and part Christmas savings. We see the opportunity to unlock new markets and with it the revenue from enterprise level solutions as we bring together all the capabilities we have across the business in one tailored proposition as we target new sectors. I hope it comes across clearly. We have intensity and focus in that execution. We have a great control of both cost and a real tight management culture. These ingredients, we believe, are key in terms of the building blocks that we have in place today to deliver that £100 million plus EBITDA over three years. And finally, what does this mean in terms of delivering enhanced shareholder returns? We believe our starting point is a strong one, as we already highlight a very strong cash profit generating business, the current year generating over 62 billion pounds of gross cash flow. Even with the healthy internal investment needed to support our growth, including IT development, this growing cash flow profile allows us to reduce our current debt quickly and support our current progressive dividend policy. As Alan will describe in a moment, we believe we're in a great position in which earnings and cash flow are growing. We expect our EV-EVDA ratio to be below one times during the next financial year. Our target earnings cover range of 1.5 to two times. We expect to deliver progressive dividend policy, all of which we believe will create credible choices for the business in terms of allocating surplus capital as we look forward. To this end, you see we've highlighted our proposed renewal of our buyback authority for any future buyback programme. And I think against this background, I will now hand over to Alan who will take you through the financials.