Preliminary Results for Period ended 29 March 2009

PayPoint plc Preliminary results Period ended 29 March 2009 52 weeks 53 weeks ended ended 29 March 30 March 2009 2008 Like-for-like (3) £m £m increase Revenue 224 212 7% Net revenue(1) 77 70 13% Operating profit 33 29 20% Profit before tax 35 30 19% Basic earnings per share 35.6p 31.1p 14% Proposed final dividend per share 11.6p 10.4p 12% OPERATIONAL HIGHLIGHTS * Revenue and operating profit growth driven by an 8% increase in transaction volumes (10% on a like-for-like basis(3)) * Operating margin(2) 43% against 42% last year * UK and Ireland network expanded by 11% to 21,990 terminal sites * Bill payment service launched in Romania * Romanian terminal sites increased to 5,702 including 2,000 fully branded PayPoint sites * PayCash launched allowing internet customers to pay in cash * Announced Collect+ parcel delivery and collection joint venture with Home Delivery Network * Consumer satisfaction(4) 98% (84% very satisfied) Enquiries PayPoint plc Dominic Taylor, Chief Executive 01707 600300 George Earle, Finance Director Finsbury Rollo Head 0207 251 3801 Don Hunter A presentation for analysts is being held at 11.30 am today at Finsbury, Tenter House, Moorfields, London, EC2. This announcement is available on the PayPoint plc website:http//www.paypoint.com (1) Net revenue is revenue less commissions paid to retail agents, the cost of mobile top-ups where PayPoint is the principal and acquiring bank charges. Net revenue is a measure which the directors believe provides a better understanding of the underlying performance of the group. The reconciliation of net revenue to revenue can be found in note 2. (2) Operating margin is calculated as operating profit as a percentage of net revenue (3) Like-for-like basis adjusts the comparative period to 52 weeks and excludes Collect+. (4) Source: Ipsos MORI CHAIRMAN'S STATEMENT David Newlands, Chairman of PayPoint, said "In 2009, PayPoint continued to grow and was strongly cash generative. Revenue, margins, profits and dividends increased. Plans announced this time last year to increase the UK terminal estate were exceeded. New terminals have continued to be rolled out in Romania, primarily for our bill payment service, launched in August 2008 and for which we now have 14 clients contracted. In February 2009, we announced a joint venture with Home Delivery Network, leveraging our existing retail network, to provide consumers with a more convenient solution for parcel delivery and collection. This demonstrates the adaptability of our retail network to provide new services. For the current financial year, trading since the period end is in line with the company's expectations. We expect further growth in the UK by increasing market share in bill and general payments, mobile top-ups, and ATMs. We plan to add a further 1,500 terminals during the course of the current financial year, to continue to capitalise on these opportunities. In Romania, we plan to install a further 900 PayPoint terminals. These will complement the existing terminal base and provide further national coverage for our bill payment network. We expect losses in Romania in the first half of the year but the business should be trading profitably by the end of the financial year PayPoint.net, which is trading profitably, should see growth accelerate in the latter part of the year, as sales leads are converted into live merchants and PayCash starts to become more widely accepted. Collect+, our parcels joint venture, will require investment during the year to brand the network, install electronic signature pads, develop the billing platform and market the service. Whilst the prospects for this new business are excellent, it is anticipated that it will be loss-making this year. Cash generation should remain strong, although the decline in interest rates in the second half of last year to their current historically low levels is likely to reduce severely interest income in the current year. We are confident that further opportunities remain for future growth through market share gains, new initiatives and new products." 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 annual report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forecast. Our key performance indicators are shown on page 8. Operational overview The period under review had 52 weeks of trading compared to 53 weeks in the previous period. We have continued to grow, particularly in bill and general and internet payments. Growth has been achieved through the success of our strategy to broaden our customer service proposition and increase the range of payments through our network and grow and optimise our network coverage. During the period, PayPoint processed 545 million transactions (2008: 503 million), an increase of 8% (10% on a like-for-like(1) basis), with a value of £8.9 billion (2008: £7.5 billion), up 18%, driving revenue of £224 million (2008: £212 million). The gross profit margin of 28.5% is up on last year by 1.8ppts (2008: 26.7%) and the operating margin(2) has also increased by 1ppt. Commissions paid to agents of £84 million (2008: £83 million) increased slightly, reflecting fewer mobile top-up transactions which pay a higher rate of commission. There has been strong growth in transaction volumes across most sectors with the exception of online where, for mobile top-ups in all territories, there has been a decrease in the market. Mobile operators are offering more value per top-up to consumers contributing to fewer transactions. 52 weeks 53 weeks Increase Like-for-like(1) 2009 2008 Increase Transactions by sector million million % % Bill and general 351 311 13 15 payments(a) Online(b) 143 151 (6) (4) ATMs 15 15 - 2 Internet payments 36 26 34 36 Total(c) 545 503 8 10 (a) Including debit/credit transactions (b) Online consists mainly of mobile top-ups but also includes prepay debit cards, e-money schemes and international calling cards (c) Included in the total is 17 million international bill and general payments and mobile top-ups, for Ireland and Romania (2008: 19 million) Bill and general payments PayPoint continues to perform well in its largest sector, bill and general payments, with growth stimulated by increased agent numbers, client payment options, brand awareness and migration of market share away from the Post Office, helped by its branch closure programme. Prepaid energy volumes have increased over the prior period despite there being one less week. Transaction volumes have increased as a result of substantial rises in domestic gas and electricity prices, partially offset by moderate price reductions since January 2009. The coldest winter for a number of years also had a beneficial impact on volumes in the second half of the year. PayPoint has continued to achieve growth in the rest of the bill and general payments sector, which includes water payments, energy bill payments, BBC TV licensing, transport ticketing and housing and council payments. Net revenue for bill and general payments of £34.4 million (2008: £30.6 million) increased 12% on the prior period, reflecting higher transaction volumes. (1) Like-for-like basis adjusts the comparative period to 52 weeks and excludes Collect+ (2) Operating margin is calculated as operating profit as a percentage of net revenue Online products including mobile top-ups This sector contains mobile top-ups in the UK, Ireland and Romania as well as other online products, including international calling cards, e-currency, and pre-pay debit cards. The mobile sector in the UK, Romania and Ireland has seen a reduction in transaction volumes as consumers reduce their spending and networks offer consumers more airtime for their money. Our UK mobile transaction volumes are down 4% on a like-for-like basis(1). This decrease is lower than the market decrease as we have installed over 2,000 new terminal sites. Romanian mobile top-ups have decreased 2% on last year, lower than the contraction in the overall market size as we have continued to roll out new terminals and gain market share. In Ireland, the promotion of internet top-ups has exacerbated the volume reduction through market decline. There has been strong growth in e-currency transactions, where we processed over 2 million transactions (2008: 1 million). Higher margins on e-currency transactions have resulted in an increase in online net revenue to £25.7 million (2008: £25.2 million), up 2%. Automatic Teller Machines (ATMs) New machines have been rolled out at an average rate of 35 per month (2008: 39 per month). The installed base of ATMs has grown to 2,249 at the year end (2008: 2,016). Lower churn has resulted in an increase in net installations to 19 per month (2008: 13). The number of transactions processed by self-fill Independent ATM Deployers (IAD's) increased by 1% compared to the same period last year. PayPoint's average transactions per site have decreased to 565 per month (2008: 620). PayPoint.net - online payments PayPoint.net is trading profitably and has added a net 352 merchants in the period. Merchant numbers at the end of the year were 5,160 (2008: 4,808). Transaction volumes were up 34% and consumer spend up 36%. Net revenues have increased to £8.1 million (2008: £4.9 million), up 63%. Our PayCash product launched in November 2008, allowing internet merchants' customers to pay for goods with cash at a PayPoint retailer, is attracting considerable interest. The growth in the business has been mitigated by the impact of the migration of large merchants from the bureau business, where PayPoint.net takes a higher return for retaining the merchant credit risk, to PayPoint.net's gateway business, where the risk is transferred to the acquiring bank, with consequentially lower returns. The two remaining merchants will complete this transfer in the current financial period. The key to sustaining future growth is competitive differentiation which PayPoint.net will seek to achieve through the promotion of PayCash, Collect+ (PayPoint's new parcel service), PayPoint.net's added value fraud screening products, and PayPal offering as well as the complementary product sets of the rest of the PayPoint group. A number of new initiatives are in development and these will not only bring additional revenue but provide further differentiation. Collect+ parcels On 5 February 2009, PayPoint announced a 50:50 joint venture with Home Delivery Network, a leading logistics and parcel network company, to provide consumers with a more convenient solution for parcel delivery and collection, by leveraging our retail network of agents as parcel drop-off and collection points. At the end of the period, we had 1,250 parcel sites within our existing retailer base. Initial volumes are encouraging and we plan to have c.4,000 sites live by the end of this year. (1) Like-for-like basis adjusts the comparative period to 52 weeks and excludes Collect+ PayPoint Romania We completed the transfer of transaction processing to our operations centre in the UK, which has allowed us to offer, for the first time, mobile top-ups for Cosmote, the third largest mobile operator in Romania. Bill payment was launched in August 2008, initially with four clients, including the national telecoms provider Romtelecom and Distrigaz, one of the two leading gas suppliers. We now have 14 clients contracted and 2,000 PayPoint bill payment branded terminals installed. Bill pay volumes are growing and we have already processed over 1 million bill payment transactions since going live. Our current run rate is c.50,000 transactions per week. Overall, our terminal network has grown to 5,702 sites (2008: 4,017 sites). The delay in initiating processing from the UK, along with the launch of bill payments, arose from technical difficulties, which have now been resolved. These factors, together with the impact of the recession on mobile top-up volumes, have adversely affected the results in the period under review. Network growth Terminal sites have increased to 27,692 (2008: 23,895). The retail network in the UK and Ireland has grown to 21,990 terminal sites against our target of 21,400, an increase of 11% on last year. Terminals in Romania have increased by 1,685 since last year as we start to build the PayPoint full service infrastructure for a national bill payment network. A total of 3,285 sites (2008: 2,833) that are already equipped with our terminals also have EPoS connections, to allow mobile top-up transactions over the retailers' own till systems. Analysis of sites 29 March 30 March Increase 2009 2008 % UK & Ireland Terminal only 18,705 17,045 10 Terminal and EPoS 3,285 2,833 16 21,990 19,878 11 PayPoint Romania Terminal 5,702 4,017 42 Total terminal sites 27,692 23,895 16 ATM sites 2,249 2,016 12 Internet merchants 5,160 4,808 7 New service initiatives PayPoint has continued to introduce new services to stimulate transaction growth in both cash and new economy payments. 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, e-currencies, stored value cards and money transfer. We are established as the premier convenience loading channel for cash onto both prepay and stored value cards. The launch of the Collect+ joint venture shows our ability to adapt our current terminal network to offer new products. Financial review Revenue for the financial year was 7% higher on a like-for-like(1) basis at £224 million (2008: £212 million), driven by a 10% like-for-like(1) increase in transaction volumes and the increase in revenue from the sale of mobile top-ups(2) in Romania. Cost of sales was £160 million (2008: £156 million) an increase of 5% on a like-for-like(1) basis. Cost of sales comprises commission paid to agents, the cost of mobile top-ups in Ireland and Romania where PayPoint is principal, depreciation and other items including telecommunications costs. Agents' commission increased to £84 million (2008: £83 million), mitigated by the impact of an extra week in the prior year and fewer mobile top-up transactions which pay a higher than average commission. The cost of mobile top-ups in Ireland and Romania has risen to £59 million (2008: £55 million). Net revenue(3) of £77.4million (2008: £69.9 million) was up 13%, on a like-for-like(1) basis, driven primarily by volume growth. Operating margin4 increased to 43% (2008: 42%). The increase in margin is primarily as a result of our operational gearing. Gross margin, excluding the cost of Irish and Romanian mobile top-ups(2) improved to 38.6% (2008: 36.1%). Operating costs (administrative expenses) have risen to £30.5 million (2008: £27.4 million), an increase of 11% but include the operating loss of Collect+ which amounted to £0.3 million, and an increase of £2.8 million in the operating costs of PayPoint.net and PayPoint Romania. Profit before tax was £35 million (2008: £30 million), an increase of 14%. The tax charge of £10.8 million (2008: £9.4 million) represents an effective rate of 31% (2008: 31%). The tax charge is higher than the UK nominal rate of 28% because of unrelieved losses in Romania and a deferred tax charge arising from the reduction in tax relief for share based payment schemes as a consequence of the reduction in the company's share price on 29 March 2009 to £3.75 (2008: £5.65). Operating cash flow was £33 million (2008: £30 million), reflecting strong conversion of profit to cash. Capital expenditure of £9 million (2008: £6 million) reflected the purchase of the freehold of the company's operations base at Welwyn for £6 million (saving rental costs of £0.6 million per annum), spend on new terminals, ATMs and expenditure on infrastructure assets required to combine the two internet payment providers. The company purchased £2.5 million of its own shares during the year to satisfy the second tranche of the Long Term Incentive Plan. Net interest received was £1.2 million (2008: £1.3 million). Equity dividends paid were £11.1 million (2008: £9.7 million). Cash and cash equivalents were £36.3 million (including client cash of £7.5 million), up from £27.7 million (including client cash of £8.0 million) last year. Economic profit PayPoint's economic profit (operating profit less tax and capital charge) was £19.5 million (2008: £16.7 million). Operating profit was £33.4 million (2008: £29.2million), tax was £10.8 million (2008: £9.4 million), and the capital charge was £3.1 million (2008: £3.1 million). Dividend We propose to pay a final dividend of 11.6p per share on 10 July 2009 (2008: 10.4p) to shareholders on the register on 12 June 2009, subject to the approval of the shareholders at the annual general meeting. An interim dividend of 6.0p (2008: 5.3p) per share was paid on 22 December 2008 making a total dividend for the year of 17.6p (2008: 15.7p). (1) Like-for-like basis adjusts the comparative period to 52 weeks and excludes Collect+. (2) 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 costs in cost of sales (3) Net revenue is revenue less commissions paid to retail agents and the cost of mobile top-ups where PayPoint is the principal and acquiring bank charges (4) Operating margin is operating profit as a percentage of net revenue Liquidity and going concern The group has cash of £36 million, no debt and an unsecured loan facility of £35 million with a remaining term of over two years. Cash and borrowing capacity is adequate to meet the foreseeable needs of the group taking account of any risks (see page 9). The financial statements have therefore been prepared on a going concern basis. Economic climate The company's bill and general payments sector, which accounts for 44% of our net revenue, continues to be robust in recession as consumers' discretion in expenditure is limited for essential services. Utility providers continue to install new prepay gas and electric meters, which will have a beneficial impact on our transaction volumes. The internet payment market continues to grow although it is now forecast to do so at lower rates. There has been an adverse impact on our mobile top-ups and in ATM cash withdrawal rates. PayPoint's exposure to retailer bad debt is limited as most of the group's clients in the UK, other than mobile operators, bear the risk of retailer bad debt. Credit granted to retailers is restricted by daily direct debiting for all UK and Irish transactions via a terminal and weekly for EPoS mobile top-ups. In Romania the risk of the bad debt lies with PayPoint Romania. In PayPoint.net, exposure is limited to receivables from merchants for fees, except in the case of bureau internet merchants, where PayPoint.net retains credit risk on merchant default for charge backs. This risk is mitigated to some extent, by withholding settlement of funds to merchants. Outlook For the current financial year, trading since the period end is in line with the company's expectations. We expect further growth in the UK by increasing market share in bill and general payments, mobile top-ups, and ATMs. We plan to add a further 1,500 terminals during the course of the current financial year, to continue to capitalise on these opportunities. In Romania, we plan to install a further 900 PayPoint terminals. These will complement the existing terminal base and provide further national coverage for our bill payment network. We expect losses in Romania in the first half of the year but the business should be trading profitably by the end of the financial year. PayPoint.net, which is trading profitably, should see growth accelerate in the latter part of the year, as sales leads are converted into live merchants and PayCash starts to become more widely accepted. Collect+, our parcels joint venture, will require investment during the year to brand the network, install electronic signature pads, develop the billing platform, and market the service. Whilst the prospects for this new business are excellent, it is anticipated that it will be loss-making this year. Cash generation should remain strong, although the decline in interest rates in the second half of last year to their current historically low levels is likely to reduce severely interest income in the current year. We are confident that further opportunities remain for future growth through market share gains, new initiatives and new products. David Newlands Dominic Taylor Chairman Chief Executive 28 May 2009 KEY PERFORMANCE INDICATORS (KPIs) In order to realise its strategic aims, PayPoint has identified areas of strategic focus and has put in place a number of KPIs to measure progress against them. Whilst these KPIs are helpful in measuring the group's performance, they are not exhaustive and the group uses many other additional measures to monitor progress. Strategic Measuring focus KPI our 2009 2008 performance Description Shareholder Earnings per Profit after 35.6p 31.1p return share tax (basic) attributable to equity holders of the parent divided by the weighted average number of ordinary shares in issue during the period Dividends Proposed 17.6p 15.7p per share final dividend and interim paid dividend divided by called up, allotted and fully paid share capital at the end of the period Economic Operating £19.5 million £16.7 million profit profit after tax and a charge for capital employed based upon the group's cost of capital Growth Terminal Number of 27,692 23,895 sites in the live UK, Ireland terminal and Romania sites at the end of the period Internet Number of 5,160 4,808 merchants live internet merchants at the end of the period ATMs Number of 2,249 2,016 deployed ATMs deployed at the end of the period Transactions Number of 494 million 462 million in the UK, transactions Ireland and processed in Romania the period via terminal, retailer EPoS systems and sale of scratch cards Internet Number of 36 million 26 million transactions transactions processed in the period by PayPoint.net ATM Number of 15 million 15 million transactions ATM transactions processed in the period Throughput The value of £8.9 billion £7.5 billion transactions processed via our terminals, retailer EPoS systems, internet merchants, ATMs and sale of scratch cards Net revenue Revenue £77 million £70 million less: commissions paid to retail agents; the cost of mobile top-ups where PayPoint is principal; and acquiring bank charges Operating Operating 43% 42% margin profit as a % of net revenue Asset Return on Total 115% 95% Optimisation capital operating employed profit for the period divided by monthly average capital employed excluding cash People Number of Labour permanent turnover employees 23% 24% who left as 56% 51% a % of average total permanent employees UK & Ireland Romania Gender % of women 42% 47% diversity % women 7% 6% managers employed by the group at the period end RISKS PayPoint's business, financial condition or operations could be materially and adversely affected 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 the materialisation of some or all of such risks. Risk Future prospects depend on our ability to: Managing growth of the business manage growth through the employment of adequate skilled resources, whilst maintaining financial controls Major contract loss or renewal at renew contracts at expiry on unattractive margins attractive terms Dependence on key executives retain and recruit key staff through a mixture of basic salary, plus 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 Insolvency of a major multiple mitigate the consequences of retail agent insolvency both in terms of the bad debt risk and the impact of any such insolvency on our network coverage Technological changes keep pace with technological changes and introduce new developments to compete effectively Reliance on intellectual property stop third parties from using our products and defend the use of our products from any challenge The need to raise capital in access any future capital on future sufficiently attractive terms, particularly in view of prevailing economic conditions and the availability of credit Economic, political, legislative, to deal with the impact of any taxation or regulatory changes changes without affecting the growth or profitability of the business Taxation ensure the impact of any adverse changes is mitigated by enhanced performance Fraudulent or criminal activity avoid loss of client money by the rigorous application of controls Consumers reduce number or value establish new products and services of payments via the PayPoint and keep abreast of technological network and market changes CONSOLIDATED INCOME STATEMENT Continuing operations Note 52 weeks 53 weeks ended ended 29 March 30 March 2009 2008 £000 £000 Revenue 2 224,351 212,145 Cost of sales 2 (160,496) (155,591) Gross profit 63,855 56,554 Administrative expenses (30,494) (27,354) Operating profit 33,361 29,200 Investment income 1,275 1,262 Finance costs (34) (58) Profit before tax 34,602 30,404 Tax 3 (10,818) (9,424) Profit for the financial period attributable 10 23,784 20,980 to equity holders of the parent Earnings per share Basic 5 35.6p 31.1p Diluted 5 35.3p 30.8p CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Note 52 weeks 53 weeks ended ended 29 March 30 March 2009 2008 £000 £000 Exchange differences on translation of foreign 10 190 318 operations Net income recognised directly in equity 190 318 Profit for the period 23,784 20,980 Total recognised income and expenses for the 23,974 21,298 period CONSOLIDATED BALANCE SHEET Note 29 March 30 March 2009 2008 £000 £000 Non current assets Goodwill 6 27,628 27,428 Other intangible assets 1,973 2,742 Property, plant and equipment 16,161 13,114 Investment in joint venture 7 177 - Deferred tax asset 8 1,128 1,571 Investment 12 375 375 47,442 45,230 Current assets Inventories 1,213 1,250 Trade and other receivables 26,260 28,285 Cash and cash equivalents 9 36,345 27,727 63,818 57,262 Total assets 111,260 102,492 Current liabilities Trade and other payables 40,853 45,275 Current tax liabilities 9,153 7,226 Obligations under finance leases 9 70 50,015 52,571 Non-current liabilities Other liabilities 278 334 278 334 Total liabilities 50,293 52,905 Net assets 60,967 49,587 Equity Share capital 10 226 226 Investment in own shares 10 (926) (935) Share Premium 10 25 - Share based payment reserve 10 2,489 2,281 Translation reserve 10 508 318 Retained earnings 10 58,645 47,697 Total equity attributable to equity holders of 11 60,967 49,587 the parent company These financial statements were approved by the board of directors on 28 May 2009. Signed on behalf of the board of directors D Taylor CONSOLIDATED CASH FLOW STATEMENT 52 weeks 53 weeks ended ended 29 March 30 March 2009 2008 Note £000 £000 Net cash flow from operating activities 14 32,619 29,618 Investing activities Investment income 1,192 1,252 Purchases of property, plant and equipment (9,158) (5,519) Proceeds from disposal of property, plant 40 110 and equipment Acquisition of subsidiaries 13 (2,108) (8,227) Investment 7 & 12 (500) (375) Purchase of own shares 12 (2,489) (3,467) Net cash used in investing activities (13,023) (16,226) Financing activities Repayments of obligations under finance leases (61) (246) Dividends paid (11,077) (9,738) Net cash used in financing activities (11,138) (9,984) Net increase in cash and cash equivalents 8,458 3,408 Cash and cash equivalents at beginning of period 27,727 24,324 Effect of foreign exchange rate changes 160 (5) Cash and cash equivalents at end of period 36,345 27,727 NOTES TO THE FINANCIAL INFORMATION 1. Accounting policies While the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. The company expects to publish full financial statements that comply with IFRS in due course. The financial information set out above does not constitute the company's statutory accounts for the periods ended 29 March 2009 and 30 March 2008 but is derived from those accounts. Statutory accounts for the period ended 30 March 2008 have been delivered to the Registrar of Companies and those for the period ended 29 March 2009 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The financial information complies with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), and with the accounting policies of the group which were set out on pages 40 to 44 of the 2008 annual report and accounts. No subsequent material changes have been made to the group's accounting policies. 2. Segmental reporting, net revenue analysis, gross throughput and cost of sales (i) Segmental information (a) Geographical segments The group operates in the UK, the 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, gross throughput and cost of sales Revenue comprises the value of sales (excluding VAT) of services in the normal course of business and includes amounts billed to clients to be passed on to retail agents as commission payable, the face value of mobile top-ups where PayPoint acts as principal and for PayPoint.net bureau sales, it includes acquiring bank charges, which are amounts billed to merchants that are passed onto the sponsoring 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. Sales 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; the cost of mobile top-ups where PayPoint is the principal in the supply chain; and acquiring bank charges. 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, online transactions, cash withdrawals from ATMs and the value of transactions via the internet. 2. Segmental reporting, net revenue analysis, gross throughput and cost of sales (continued) 52 weeks 53 weeks ended ended 29 March 30 March Gross throughput 2009 2008 £000 £000 Terminals, retailer EPoS systems and sale of 6,783,614 5,931,224 scratch cards ATM 343,238 328,237 Internet 1,754,285 1,286,887 Total 8,881,137 7,546,348 Net revenue Revenue - transaction processing 222,693 210,528 Revenue - transaction processing - lease rental of ATMs 1,658 1,617 224,351 212,145 less: Commission payable to retail agents (83,891) (83,439) Cost of mobile top-ups as principal (59,317) (55,468) Acquiring bank changes (3,745) (3,378) Net revenue 77,398 69,860 Bill and general payments 34,388 30,652 Online (1) 25,692 25,153 ATMs 6,641 6,561 Internet payments 8,053 4,927 Other 2,624 2,567 Net revenue 77,398 69,860 UK 73,877 66,507 International (2) 3,521 3,353 Net revenue 77,398 69,860 Cost of sales Commission payable is included within cost of sales as shown below: Cost of sales Commission payable to retail agents 83,891 83,439 Cost of mobile top-ups as principal 59,317 55,468 Acquiring bank charges 3,745 3,378 Depreciation and amortisation 5,698 5,719 Other 7,845 7,587 Total cost of sales 160,496 155,591 (1) Online consists mainly of mobile top-ups but also includes prepay debit cards, e-money schemes and international calling cards. (2) International consists of bill and general payment and mobile top-up revenue from Ireland and Romania. 3. Tax 52 weeks 53 weeks ended ended 29 March 30 March 2009 2008 £000 £000 Current tax Charge for current period 10,503 9,511 Adjustment in respect of prior periods (148) (88) Current tax charge 10,355 9,423 Deferred tax Charge for current period (94) 29 Impact on changes in statutory tax rates - (28) Adjustment in respect of prior periods 557 - Deferred tax charge 463 1 Total income tax Income tax charge 10,818 9,424 The income tax charge is based on the effective United Kingdom statutory rate of corporation tax for the period of 28% (2008: 30%). The charge for the year can be reconciled to the profit before tax as set out in the consolidated income statement Profit before tax 34,602 30,404 Tax at the UK Corporation tax rate of 28% (2008: 9,689 9,121 30%) Tax effects of: Profit in countries where the tax rate is different 313 47 to the UK Disallowable expenses 54 359 Utilisation of tax losses not previously recognised (379) (103) Losses in companies where a deferred tax asset is 339 116 not recognised Adjustments in respect of prior periods 409 (88) Deferred tax on share based payments 393 - Revaluation of the deferred tax balance from 30% to - (28) 28% Actual amount of tax charge 10,818 9,424 4. Dividends on equity shares 52 weeks 53 weeks ended ended 29 March 30 March 2009 2008 £000 £000 Equity dividends on ordinary shares Interim dividend paid of 6.0p per share (2008: 4,054 3,579 5.3p) Proposed final dividend of 11.6p per share (2008: 7,840 7,040 paid 10.4p per share) Total dividends paid and recommended 17.6p per 11,894 10,619 share (2008: 15.7p per share) Amounts distributed to equity holders in the period Final dividend for the prior period 7,023 6,159 Interim dividend for the current period 4,054 3,579 11,077 9,738 5. Earnings per share Basic earnings per share Basic and diluted earnings per share are calculated on the following profits and number of shares. 52 weeks 53 weeks ended ended 29 March 30 March 2009 2008 £000 £000 Profit for the purposes of basic earnings per share 23,784 20,980 being net profit attributable to equity holders of the parent and for diluted earnings per share 29 March 30 March 2009 2008 Number Number of shares of shares Weighted average number of ordinary shares in 66,754,486 67,369,600 issue (for basic earnings per share) Potential dilutive ordinary shares: Long-term incentive plan 515,410 669,449 Deferred share bonus 111,828 119,903 Diluted basis 67,381,724 68,158,952 6. Goodwill The group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the cash generating units are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the cash generating units. The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past experience and expectation of future changes in the market. The group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next four years and extends cash flows for the following eight years based on estimated growth rates. Terminal values are based on growth rates that do not exceed three per cent. The pre-tax rate used to discount the forecast cash flows is 10 per cent. Total £000 Cost At 31 March 2008 27,428 Exchange rate adjustment 200 At 29 March 2009 27,628 Accumulated impairment losses At 31 March 2008 - Impairment losses for the year - At 29 March 2009 - Carrying amount At 29 March 2009 27,628 At 30 March 2008 27,428 Total £000 Cost At 26 March 2007 18,207 Recognised on acquisition of subsidiaries 9,085 Exchange rate adjustment 136 At 30 March 2008 27,428 Accumulated impairment losses At 26 March 2007 - Impairment losses for the year - At 30 March 2008 - Carrying amount At 30 March 2008 27,428 At 25 March 2007 18,207 Goodwill arising on acquisition: 29 March 30 March 2009 2008 £000 £000 PayPoint.net 18,207 18,207 PayPoint Romania 9,421 9,221 27,628 27,428 7. Investment in joint venture On 5 February 2009, PayPoint entered a 50:50 joint venture with Home Delivery Network. The joint venture company, Drop and Collect Limited, trades as Collect+. PayPoint subscribed to £500,000 of ordinary shares in the company. The joint venture company has the same accounting reference date as PayPoint plc. PayPoint's share of aggregated amounts relating to 29 March 30 March joint ventures 2009 2008 £000 £000 Total assets 406 - Total liabilities (229) - Share of net assets 177 - 52 weeks 53 weeks ended ended 29 March 30 March 2009 2008 £000 £000 £000 £000 Revenue 2 - Loss for period (323) - 8. Deferred tax asset 31 March Credit / (charge) to 29 2008 income statement Credit to March £000 £000 equity 2009 £000 £000 Tax depreciation 620 517 - 1,137 Share based payments 795 (394) 20 421 Tax losses 129 (93) - 36 Intangibles - (517) - (517) Short term temporary 27 24 - 51 differences Total 1,571 (463) 20 1,128 26 March Credit / (charge) to 30 2007 income statement Credit to March £000 £000 equity 2008 £000 £000 Tax depreciation 807 (187) - 620 Share based payments 546 249 - 795 Tax losses 130 (1) - 129 Intangibles - - - - Short term temporary 89 (62) - 27 differences Total 1,572 (1) - 1,571 8. Deferred tax asset (continued) At the balance sheet date: A deferred tax asset of £1.1m (2008: £1.6m) is recognised on the basis that there will be sufficient future taxable profits against which the deferred tax asset can be recovered based on management forecasts. At the balance sheet date, the group has unused tax losses of £2.5m (2008: £1.9m) available for offset against future profits for which no deferred tax asset is recognised. Included in unrecognised tax losses are losses of £0.2m that will expire within 3 to 4 years and £2.1m that will expire within 4 to 7 years. Other losses may be carried forward indefinitely. No deferred tax liability has been recognised in respect of temporary differences associated with investments in subsidiaries because the group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future. The aggregate amount of these differences is not material at the balance sheet date. 9. Cash and cash equivalents Included within group cash and cash equivalents is £7,546,000 (2008: £8,001,000) relating to monies collected on behalf of clients where the group has title to the funds (client cash). The group operates cash pooling amongst its various bank accounts and therefore individual accounts can be overdrawn without penalties being incurred so long as the overall gross position is in credit. At 29 March 2009, the group's overall cash position was £36,345,000 (2008: £27,727,000) in credit. 10. Equity Group 2009 2008 £000 £000 Authorised share capital 4,365,352,200 ordinary shares of 1/3 p each 14,551 14,551 (2008 4,365,352,200: ordinary shares of 1/3 p each) 14,551 14,551 Called up, allotted and fully paid share capital 67,723,820 ordinary shares of 1/3p each 226 226 (2008: 67,697,228 ordinary shares of 1/3p each) 226 226 Called up share capital At start of period 226 226 At end of period 226 226 Investment in own shares At start of period (935) (1) Acquired in period (2,489) (2,533) Used on share scheme vesting 2,498 1,599 At end of period (926) (935) Share premium At start of period - - Arising on issue of shares 25 - At end of period 25 - Share based payment reserve At start of period 2,281 1,712 Additions in period 759 1,121 Released in period (764) (552) Current tax on awards 515 - Other adjustments (302) - At end of period 2,489 2,281 Translation reserve At start of period 318 - Movement during period 190 318 At end of period 508 318 Retained earnings At start of period 47,697 38,436 Profit for period 23,784 20,980 Dividends paid (11,077) (9,738) Adjustment on share scheme vesting (1,759) (1,981) (note 12) At end of period 58,645 47,697 11. Statement of changes in equity Group 2009 2008 £000 £000 Opening equity 49,587 40,373 Profit for the period 23,784 20,980 Dividends paid (11,077) (9,738) Adjustment on share scheme vesting (25) (934) Investment in own shares (see note 12) (2,489) (2,533) Increase in translation reserve 190 318 Increase in share based payment reserve 972 1,121 Issued new shares 25 - Closing equity 60,967 49,587 12. Related party transactions In March 2008, the company invested £375,000 for 1.05% of the ordinary share capital of OB10 Limited, a company that specialises in electronic invoicing. In the view of the directors, the cost of £375,000 represents the fair value of the investment in shares. David Newlands, Chairman of PayPoint plc, is also Chairman of OB10 and a shareholder with direct and indirect holdings of 4.10% of the issued share capital and both Dominic Taylor and George Earle are directly or indirectly interested in 0.42% each. The company and its subsidiaries, in the ordinary course of business, enter into various sales, purchase and service transactions with joint ventures and associates and others in which the group has a material interest. These transactions are under terms that are no less favourable than those arranged with third parties. These transactions are not considered to be significant. On 13 June 2008, the company released the second tranche of its long term incentive plan awards to the three executive directors and six senior managers. In order to partly satisfy the company's obligations, Paypoint Network Limited Employee Investment Trust (the Trust) acquired 200,299 ordinary shares at the mid market closing price of 602 pence per share, in aggregate £1,206,000, from RIT Capital Partners and the Weinstock Estate (both of which are connected to David Morrison, a non-executive director of the company). 163,432 shares were sold at 602 pence per share, in aggregate £984,000, by participating directors and managers to the Trust. The Trust also purchased 41,395 shares at an average of 612.5 pence per share, in aggregate £253,000, in the open market. On 19 September 2008, the company released another tranche of its long term incentive plan awards to one senior manager, using 17,346 shares owned by the Trust. As a result of this tranche a further 7,112 shares were sold at 650 pence per share, in aggregate £46,000 by the senior manager to the Trust. Accordingly, the company has funded £2,489,000 (excluding £18,000 deal costs) for the purchase of its own shares. The excess of the cost of the shares acquired over their fair value determined at the date of grant in accordance with IFRS2 of £1,759,000 has been charged to reserves. 13. Acquisition of subsidiary In May 2008, the company paid £2,108,000, the deferred consideration due for the acquisition of Pay Store SRL, which it acquired on 15 May 2007. The total consideration paid was £10,242,000 of which £8,134,000 was paid in the prior period. 14. Notes to the cash flow statement Group 52 weeks 53 weeks ended ended 29 March 30 March 2009 2008 £000 £000 Operating profit 33,361 29,200 Adjustments for: Depreciation of property, plant and equipment 4,907 4,812 Amortisation of intangible assets 791 907 Share of loss of joint venture 323 - Increase in share based payment reserve 759 1,121 Operating cash flows before movements in working 40,141 36,040 capital Decrease in inventories 155 580 Decrease / (increase) in receivables 6,178 (10,528) (Decrease) /increase in payables - client cash (454) 711 - other payables (5,433) 9,196 Cash generated by operations 40,587 35,999 Corporation tax paid (7,940) (6,362) Interest and bank charges paid (28) (19) Net cash from operating activities 32,619 29,618 ABOUT PAYPOINT PayPoint is the leading cash and internet payments company in the UK, with operations also in Ireland and Romania. We handle nearly £9 billion from over 540 million transactions annually for more than 6,000 clients and merchants. The company operates several businesses: * The PayPoint branded retail network numbers nearly 22,000 terminals located in local shops (including Co-op, Spar, McColls, Costcutter, Sainsburys Local, One Stop, Londis and thousands of independents) in all parts of the UK and Ireland. Our terminals process 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 most leading utilities, telecommunications suppliers and many consumer service companies; * An ATM network which has over 2,200 'LINK' branded machines across the UK, typically in convenience stores; * PayPoint.net, an internet payment service provider, delivers secure online credit and debit card payments for over 5,000 web merchants linking, into all major UK acquiring banks; * Pay Store SRL, trading as PayPoint Romania, a mobile top-up operator with over 5,700 outlets equipped with electronic terminals. A bill payment service has been added to increase the breadth of PayPoint's offering in Romania, emulating the UK branded retail network; and * Collect+, a joint venture with Home Delivery Network Limited, provides a parcel collection and drop off service at our retailers. PayPoint floated on the London Stock Exchange in September 2004 and the company's market capitalisation at 29 March 2009 was £254 million. PayPoint is widely recognised for its leadership in prepayment systems, smart technology and consumer service. 28 May 2009 ---END OF MESSAGE--- This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.

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