PayPoint plc

Good morning, everyone, and welcome to our interim results presentation this morning. We're going to adopt our usual format, starting with me giving an overview of our performance in the first half. Rob's going to then cover the financials, followed by an update on the delivery of our key growth projects, and then a first-half business review. Rob's going to update on our progress in working with Niall on our long-term organisational framework. and then finally an update on our outlook and the Q&A. And with that, turning really to the first half and an overview of actually our first half. And I think despite an uncertain market background, the performance of our underlying businesses remained in line with our expectations. We've continued to grow our pay point core estate with new business in key areas such as housing, local authorities, government departments, FMC brand campaigns and in love to shop business. I think progress has been good. We've accelerated growth in our digital payments platform. We've taken further actions to strengthen our card processing platform and its capabilities and in parcels we've strengthened further our key carrier relationships, all of which is very much consistent with the long-term objectives we set out for the business earlier this year. In the first half, We have encountered two specific challenges which have impacted performance. Firstly, the financial terms of our new commercial contract with InPost Yodel have had a greater impact than we'd anticipated, and with the additional volumes we would expect to come through not yet materializing, and that's rather been compounded by what's now the well-publicized disruption to parcel volumes and service in our network. from the imposed Yodel internal network and operational harmonization plans. It's taken some good work and collaboration between the two businesses, but it does now feel that we're through the worst of the operational disruption, and we expect our volumes to recover through the course of November, which, as you know, is really a key trading period for the business. Secondly, in OB Connect, the first half of this year has seen slower growth than we'd anticipated. and some consolidation after a strong performance last year. I think this is largely due to the overall opportunities we'd hoped to see from the verification of pay opportunity and uptake in Europe being rather disappointing, with the team, I think, doing a really good job in response by pivoting the new business pipeline opportunities to other areas alongside what we're doing in terms of discussions already underway with several jurisdictions and corporates to replicate the success of Getver Verified in New Zealand. And while the OB Connect business will not grow at the rate we'd expected in the current year, I think it's fair to say the foundations and capabilities of this business remain strong, and our growth in the second half will still be stronger than the performance we saw in the second half of last year. So I think overall, our confidence in the opportunities at OB Connect brings to our businesses undiminished, technology platform and capabilities remain important to our long-term digital ambitions as a business. More positively, we've made significant progress in the first half in the successful delivery of several major projects, which are key to our long-term growth. We've launched bank local services with Lloyds Banking Group and with the expectation of further banks to join this service in the coming months. We've launched Raw Mail Shop and branding across the CollectPlus network, following the strategic investments in CollectPlus by Raw Mail. And we've accelerated the Love to Shop partnership with Income Payments. Each of these projects require detailed planning and execution. And now the focus is very much shifting from the rollout to the actions required to accelerate consumer adoption. I'm turning now to our summary of the financial performance of the business. Overall, as I said already, a resilient performance across the key financial metrics, and by division, net growth in each business, with the exception of Love to Shop, where the impact of the anticipated changes we've made for our accounting treatment have resulted in some changes to the timing of revenue recognition on the expiry of cards, which has resulted in a greater weighting to profit recognition in the second half. In terms of our growth plans, we should not let the specific challenges we've experienced in the first half deflect the business from the long-term growth plans we announced earlier this year. Delivering 100 million underlying EBITDA remains a key financial milestone for the business. And while we're making meaningful progress towards this target in the current year, it is going to take a little longer to achieve. It was always an ambitious target to be delivering it in this financial year, but it remains a key milestone for the business. We still believe a combination of our business mix today and the delivery of our key growth projects will deliver consistent net revenue growth in the range of 5% to 8%. And in the meantime, we're developing an organisational structure for the long term to support this accelerated growth and maximising returns to shareholders through strong and consistent earnings and cash generation. For the current year, we're on track to deliver more than £90 million to shareholders. a combination of ordinary and special dividends and share buybacks. I'll now hand over to Rob who will take you through the numbers.

Thank you Nick and good morning everyone. I'll start with the key financial highlights. Net revenue of £84.7 million is marginally up versus the prior half one. There's a revenue breakdown on the following slide which shows pay point segment revenues are up 2.9% but it has dampened by a lot to shop revenues down 9.6% As Nick said, this is timing in nature, and we expect this position to unwind in the second half to give year-on-year growth for the love-to-shop segment. Underlying profit before tax of £25.7 million is down 4.5%, and that being a combination of flat revenue plus a 2.3% increase in overall costs. And I'll cover the cost deltas in a few slides. Reported profit before tax of £19.9 million. is after 5.8 million of deductions to underlying numbers, including 2.6 million of amortization of acquired intangibles and 3.2 million of exceptional items, of which 2.6 relates to legal costs in respect of claims against pay point, and the remainder is reorganizational costs. Underlying EBITDA of 37.3 million, it's broadly flat, less than the prior half, with 1.2 million of lower profits being partly dampened by higher depreciation and amortization. On earnings per share, diluted underlying EPS of 26.7 pence is 2.6% down versus the prior half. And finally, on this slide, net debt is down 3.2% to 84 million for the first half. And again, I'll cover this in more detail shortly. This slide breaks down the net revenue into a little bit more detail. As I mentioned previously, PayPoint segment revenue is up 2.9%, with e-commerce revenues of 8.6 million, providing growth of 7.5%, and that's driven by transactional volumes increasing 20% to 74.3 million. Payments and banking revenue grew 4.4%, and that's driven by the inclusion of 1.9 million of revenue from OB Connect. And in shopping, growth in service fees of 8.4% to 11.6 million, was largely dampened by cards, which is a combination of both lower process volume and sites impacting revenue, and ATMs revenue down, reflecting a reduced demand for cash across the economy. For Love to Shop, 12 months ago, I explained the half one numbers included revenue brought forward from half two into half one, and this was following changes to expiry dates on some of our products. For this year, we've made further changes to the expiry date of some of our products, but these changes will benefit the second half year, and therefore this revenue drop is all timing in nature. Overall with buildings growth of 4.6% up versus the prior half one, we expect year-on-year revenue growth for the full year. This slide is really a graphical view of the revenue growth I highlighted on the previous slide and how this revenue growth contributes to underlying profit. So from left to right on this chart, shopping revenues up 200K, e-commerce revenues up 600K, payments and banking 1.1 million, and love to shop revenues down 1.8, which I've said is timing in nature. I'll cover costs on the following slide, but these have increased 1.3 million half on half. And therefore, on the right-hand side of this slide, these movements result in an overall profit of 25.7 million. On cost, this slide breaks down the 1.3 increase that I mentioned. Most notably is the inclusion of OB Connect costs of 1.8 million, following the majority stick we took in this business in the second half of last year. We've also seen additional depreciation and amortization of 500K and 500K in respect of financing costs. Offsetting these costs is a 1.5 million reduction in people and overheads, which is the continuation of strong cost control discipline across the group. So these factors result in the 1.3 increasing costs of 59 million. Next on cash generation, we had a 24.2 million of cash generation from operating activities in the half. which is down 4.3 million versus the prior half of 30.7, and that dealt us primarily working capital in nature. Further down the cash flow statement, we have tax of 4.6 million, capex of 10.9 million, which has increased by 1.5, half on half, as we continue to invest in systems modernisation, a 10.4 million payment in respect of the legal settlement, a one-off payment to the pension scheme of 1.5 million, And then we have the 43.5 million cash in from the part disposal of Collect Plus, along with a 30 million outflow for shares bought back in half one and 13.9 in respective dividends. This gave an overall reduction to net debt of 13.4 million for the period to 84 million. Very briefly on balance sheet, net assets for the group of 102 million are 4.7 million higher than the March year end position. And the key drivers of the swings are obviously half-won earnings of 14.9 million, the proceeds of 34.1 million net following the ID investment in Collect Plus, and we've actually used these proceeds to subsequently distribute a special dividend of 50 pence per share, and that resulted in 34.5 million going out in the second half of this year. Alongside that, the 12 for 13 share consolidation reduced our share capital by circa 5.3 million shares. Public key balance sheet movements are the dividends paid of 13.9 and the share buyback of 30. And similar to the prior half, on the share buyback for accounting purposes, we've provided for the full 30 million commitment in these balance sheet numbers. Lastly, before I pass back to Nick, on the left-hand side of this slide, we continue to invest in the business to drive future revenue streams and improve operational resilience and efficiency. We've increased the interim dividend by 2.1% to 19.8 pence. while targeting a cover of over two times, and along with a buyback targeting leverage ratio of 1.2 to 1.5 times. For this financial year, the business is on course to generate over $90 million of shareholder returns through a combination of the ordinary dividend, the special dividend, and the $30 million share buyback. On the right of this slide, we expect net debt to increase in the second half, driven by those ordinary and special dividends and the share buyback, plus up to 25 million in respect of CapEx for the full year. And with this second half spend, we fully expect to stay within the target leverage ratio of 1.2 to 1.5 times. I'll now pass you back to Nick.

Well, thank you. And now really turning to the progress in the delivery of our key growth projects in the first half. I think as a business, the standout achievement of the first half has been the launch of multiple projects, both enhance our consumer propositions and establish important partnerships that strengthen the long-term prospects for the business. Firstly, as I said, we've launched PayPoint Bank Local into our retailer network, enabling cash deposit or withdrawal with Lloyds Banking Group, the first of our high street banking partners. Secondly, we've launched more mail shops and a strategic investment into Collect Plus. And finally, we've taken further steps to accelerate our partnership between Love to Shop and Income Payments, for the merchandising of the Love to Shop gift card across multiple retail channels. Turning now in a bit more detail to each of these, the successful launch of bank local service in August, I think was a major achievement for the business, involving a group-wide collaboration. Lloyds Banking Group are the first high street bank to use this service, enabling their customers through our network to deposit cash via both app and card. In terms of success to date, we've seen a rapid adoption of this service from Lloyds Banking customers, with the strength of our network delivering genuine convenience for cash banking services. Consumer and press feedback has been positive, and as we've seen with other of our services, as the pattern of transactions becomes established, we see strong demand for the service outside traditional opening hours and at weekends. And in terms of what next, I think following this strong start and early adoption, our focus is now very much on further developing our cash banking services in the second half, with the next phase of work focused on driving consumer awareness through a variety of channels, accelerating our SME banking solution and those plans such that we can launch in Q2 of next year and engage further with other high street banks for our range of cash deposit solutions. we expect to make significant progress in the rollout of our cash banking services over the next 12 months. Turning now to Collect Plus. The investment by Raw Mail into Collect Plus announced at the end of September was a really important strategic step in our partnership with Raw Mail. The partnership strengthens the positioning of Collect Plus as a leading out-of-home network and will enable the future expansion of further raw mail services into the network. It will enable further investment in both our consumer service proposition and our retailer network support as a partnership adds to our existing carrier relationships as part of a carrier agnostic network. The launch of raw mail shop in the Collect Plus network reflects on confidence in the strength of the raw mail brand and the opportunity to enable for consumers to order raw mail services, including postage as well as collect, send, and return parcels throughout a growing portion of the Collect Plus network. The rollout of raw mail shops is now really gathering pace, with 3,000 stores already branded raw mail shop, which, as I said, already enables a wider range of over-the-counter postal services, including stamps. By the end of our financial year, this number would have increased to at least 8,000 sites. To support this growth, There is an extensive consumer marketing campaign already underway, with more planned over peak and into 2026, as we increase consumer awareness, drive more footfall and volume into the network. And as we look into the second half, as I said already, it's important to ensure that we have at least 8,000 sites branded and live for the full raw mail over-the-counter service by our year end. We need to be taking the necessary steps, again, as I said already, to increase consumer awareness and uptake of these services. And we do launch our self-service kiosk in the first quarter of next year. And I think this is a really important time to accelerate the pace of our partnership with Raw Mail and to accelerate the consumer adoption of these services through the Collect Plus Stroke Raw Mail shop network. And now turning to our continued progress with Income. Our partnership with Incom, established just over a year ago, has been a really important step in us delivering a strong new sales channel, enabling the sale of Luttershop physical gift cards through the major high street retailers. Sales through this channel have continued to grow strongly ahead of the peak sales period in the run up to Christmas, and we've benefited from a combination of growing consumer recognition of the brand and increasing availability of our cards through these additional high street retailers. We've also seen the benefit of further rolling out the Love2Shop card into our Paypoint retailer network with growth through this channel from our refreshed merchandising now up by more than 50% during the course of this year. I think with the next stage of this multi-channel approach being the launch of the Love2Shop digital MasterCard in the early part of next year, enabling spend via digital wallet, in-store and online, the further expansion into more high street retailer gift card malls in 2026, and more gift pegs in each of these malls, and also the launch of MVL brands such as Gregg's into the income payment mall itself. I think we can really see this partnership is now building strong momentum, which is combining the merchandising expertise and distribution channels and the reach of income with an outstanding multi-redemption gift card product and product innovation from love to shop. Now turning to our business review. And firstly, in shopping, we've seen continued growth in the first half in each of our product estates, with the exception of the handicap pay card estate, and have shown growth and some solid financial performances from the underlying business areas. We've seen continued service fee growth, And while card merchanting net revenue and process value are marginally down, I don't think this fairly reflects the continued work to strengthen the operational foundation of this business. The improvements to the quality of our card proposition and the increased focus on profitability per merchant. We also saw another strong performance from our partnership with ULend, with funding advances up by 50% in the period. In our FMCG activities, we continue to work with a growing number of consumer brands with 16 campaigns delivered in the first half, a strong pipeline of opportunities for the remainder of this year. And in our ATM business, after a challenging period, we're seeing early signs of our recovery plan delivering results as we better manage the ATM estate and use our data to optimize individual site performance. In e-commerce, Overall, a positive heart for Collect Plus, with both net revenue and parcel transactions showing growth in terms of really all the key call-outs. As I described earlier, we launched the first phase of Royal Mail Shop, branding into the network and enabled over-the-counter Royal Mail services in over 2,000 locations. And, as I described earlier, we have encountered some operational challenges from the internal harmonization of InPost and Yodled which in the period has impacted both volumes and service in the second quarter. We think the action we've taken in partnership with Impost has now stabilised this and we expect volumes to recover during the key peak period. More broadly, we continue to work hard across the wider carrier portfolio to maximise volume and performance with each carrier and support consumer adoption of outer home as we continue to grow the Collect Plus estate. In payments and banking, the key theme in this business has been the continued growth in our digital and open banking activities. And with the growth we are now seeing, we expect to arrive at a point soon whereby digital revenue will exceed revenues from our cash payment channels. Specific highlights from the first half have been several important new business wins, particularly in housing, from a strong and well-balanced overall new business pipeline, good work to strengthen further our relationships with our existing clients, with a number of upselling initiatives, and several important client wins for our open banking activities. Our first half digital revenue does include a making contribution from our majority-owned OB Connect platform. And finally, in love to shop, as Robert said already, the adoption of a more prudent accounting treatment in terms of the timing of recognition from the expiry of cards, which we announced, I think, at the time of the acquisition, has resulted in a timing impact to the headline performance of the business, which will be unwound in the second half of the year. Operationally, the business continues to perform well. I've already described the progress in our partnership with Income and in Love's position for our peak trading period. In part Christmas savings, We expect to deliver a flat performance for the year after some good work through the year to support our agents and strengthen the Sabre proposition, as we already turn our focus to the 2026 savings campaign. And in MBL, we've had an outstanding first half with a doubling of process value, which reflects the growing reach of this business and its brand partners. With this, I'll now hand over to Rob to give you an update on our organisational framework project.