Preliminary Results Year Ended 27 March 2011

PayPoint plc  Preliminary results Year ended 27 March 2011   Year ended Year ended Increase / (decrease) % 27 March 28 March  2011  2010 -------------------------------------------------------------------------------- Revenue £193.2m £196.6m (1.7) Net revenue(1) £82.7m £77.4m 6.9 Gross margin 36.6% 32.3% 4.3ppts Operating profit £36.1m £34.1m 5.8 Profit before tax £34.5m £32.6m 5.5 Diluted earnings per share 35.1p 32.7p 7.5 Dividend per share 23.4p 21.8p 7.3 -------------------------------------------------------------------------------- * Record group transaction volume (590 million), with growth in all channels * UK retail services continued strong growth, net revenue up 25% * 12 million Romanian bill payment transactions, up 118% * 59 million internet transactions processed, up 34% * PayByPhone transaction volumes of 14 million * Collect+ transaction volumes increased to over 1 million, up over 4 times on last year * Developed new virtual terminal which is currently being rolled out to selected multiple retailers' till systems * Debt repaid and year end net cash was £26.5 million Enquiries PayPoint plc                                                           Finsbury Dominic Taylor, Chief Executive 01707 600300      Rollo Head 0207 2513801 George Earle, Finance Director                            Don Hunter A presentation for analysts is being held at 11.45 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 the cost of mobile top-ups and SIM cards where PayPoint is principal and costs incurred by PayPoint which are recharged to clients and merchants. These costs include retail agent commission, merchant service charges levied by card scheme sponsors and costs for the provision of call centres for PayByPhone clients. 1. Net revenue is revenue less the cost of mobile top-ups and SIM cards where PayPoint is principal and costs incurred by PayPoint which are recharged to clients and merchants. These costs include retail agent commission, merchant service charges levied by card scheme sponsors and costs for the provision of call centres for PayByPhone clients. CHAIRMAN'S STATEMENT I am pleased to report the return to growth in earnings as a result of good performance by our UK retail network, excellent internet payment growth and substantial progress in our Romanian network and Collect+. We have increased resources and improved infrastructure at PayByPhone.  We have made strong progress in technology, completing the development and starting the roll out of our virtual terminal, developing a broadband communications solution for faster transactions and introduced new services for our terminal network, including cash out and money transfer. In the UK retail network, retail services delivered healthy growth, although mobile top-ups continued to decline.  I am particularly delighted with the recent announcement that we have won the tender to provide the retail network for the Department for Work and Pensions' replacement of giro cheques for benefit payments, the contract for which is under negotiation.  Currently, over 20 million giro cheques are issued annually to pay benefits.  We have already demonstrated that our retailers can make payments to consumers (in addition to our traditional strength in collecting money from them).  This will substantially increase the flow of money out, reducing banking charges to retailers and delivering more commission and footfall to them. Internet net revenues have increased 20% and the business had notable success in winning gaming merchants, including Stan James, 32 Red and Sportingbet.  We are continuing to win gaming business because of our robust and resilient platform, innovation, advanced fraud and risk management capabilities, and real-time enterprise level reporting. We have continued to invest in our Romanian retail network by increasing our full service terminal estate by more than 1,100, whilst removing all the old mobile top-up only sites.  We accept bill payment for 27 clients and transaction volumes have more than doubled to over 12.1 million transactions.  Under a new contract with Western Union, we will roll out money transfer this year. We have extended our parcels service through Collect+, our joint venture with Yodel, selectively across our UK retail network. Momentum is strong, with considerable interest among major internet retailers and internet marketplaces. We have over 3,700 sites handling Collect+ parcels and 30 home shopping retailers live, including some of the most respected customer service leaders, including ASOS, New Look, Boden and Very. During the year, we handled over 1 million parcels. In PayByPhone, we have increased the resources in sales, marketing and delivery more than we planned. We have upgraded the infrastructure to provide disaster recovery and introduced a new consumer friendly mobile web parking registration and payment system for the UK and North America. We will continue to invest to stay at the leading edge of this fast moving market. The combination of sound, profitable growth in both the UK retail network and our internet business, substantive progress towards profitability in our Romania retail network, gathering momentum in Collect+ and proper resourcing of PayByPhone, mark an important year in re-establishing the group for substantial growth. We are proposing a final dividend of 15.6 pence per share, making a total for the year of 23.4 pence, an increase of 7.3 per cent. For the current financial year, trading is in line with the company's expectations. Our established business streams (UK and Irish retail networks and internet payments) are strong, with further opportunities to enhance retail yield through the introduction of new technology and services. In addition, improvements in our service offering to online merchants will provide opportunities for growth. We will benefit from rolling out services in our developing business streams (Collect+, PayByPhone and Romanian retail network), growing our market share and improving profitability. Together, our businesses provide a solid foundation to deliver value for our shareholders. David Newlands 26 May 2011 CHIEF EXECUTIVE'S REVIEW PayPoint has had another good year, in which we have delivered profits in line with market expectations and our strategic plans.  Our UK retail network and internet payments have continued to be highly profitable and cash generative. Collect+, PayByPhone and our Romanian retail network, which are important to the creation of value, have all made good progress during the year. Our strategy: Since the flotation of the original UK retail network business in 2004, PayPoint has evolved into a specialist payments company. Our strategy has four key elements: * Breadth of payments capability The acceptance of a broad range of payments (cash, cards, e-money, etc.) through multiple channels (retail, internet and mobile phone) * Strength in vertical markets Targeting sectors with high volume, recurring consumer payments * Value added content / services Providing additional content or services to the payment channels and chosen vertical markets to create differentiation * Geographic reach Identifying regions with attractive payment dynamics to create value through exporting our know-how. PayPoint has succeeded in delivering this broad payment hub capability to clients in a number of key vertical markets (energy/utilities, telecoms and media, financial, transport/parking, public sector/social housing, retail and gaming/leisure), with the ability to process payments across the consumer's choice of payment and channel. The delivery of payments from consumers to our clients encompasses transaction authorisation, processing, clearing and settlement and interfacing to banks, card schemes/networks and other financial intermediaries. PayPoint also provides value added content and services within each channel, to differentiate the PayPoint proposition from those of its competitors. In our retail channels, differentiation is achieved through providing retailers with a broad range of retail services, including ATMs, parcels, SIM cards and international money transfer through Western Union®. In the internet channel, differentiation to merchants is driven through a widening base of acquiring bank relationships and payment types, together with the quality of our fraud screening and reporting. Our mobile channel, delivered through PayByPhone, will similarly drive differentiation through its ability to leverage our cash retail payment capability and internet payment services, combined with improving the consumer experience with appropriate smart phone applications. The extension of our geographic reach is progressing. Growth and prospects: Technology We use technology to drive value through the introduction of new payment types and related services.  These, in turn, add new revenue opportunities to our proven recurring payment methods. In our UK retail network, we are rolling out a new virtual terminal to multiple retailers - a software variant of our terminal which is integrated into the retailers' till systems, in conjunction with a bespoke PayPoint plug-in reader to provide the full functionality of the physical terminal more efficiently and at lower cost. In store, this allows our service to be available at every check- out lane and eliminates the need for reconciliation with the main till system. As we free UK network terminals, we will deploy them in Romania. An increasing number of our terminals are being connected through broadband connectivity rather than dial-up, dramatically improving the speed of online transactions. In Romania and the UK, a development to enable money transfer on our terminal will eliminate the expense and complication of a separate personal computer, significantly reducing the entry cost for retailers and expanding the eligibility criteria for the service. Development work for cash out services will make our retailer settlement systems more streamlined and allow the cash balances we generate through bill payment to be recycled back to consumers, saving retailers bank charges and increasing in-store spend. In the internet channel, we are developing substantial improvements to our services to online merchants. These include new transaction optimisation, an advanced management and reporting solution, a PCI compliance offering and additional payment methods, which should provide significant competitive advantage. PayByPhone is introducing a new, consumer friendly mobile web parking registration and payment system and has utilised one of the group's data centres as a back-up for business continuity. UK retail network We are focussed on selling retail services to our retail networks.  Net revenues from these services have increased 25% in the year.  These services include parcels, ATMs, SIM cards, debit and credit card acceptance, receipt advertising and money transfer.  Our retail network in the UK has provided energy clients with a service to rebate cash to consumers, which reverses the traditional flow of money in our retailers.  We are currently negotiating the contract following our success in winning the DWP's tender for a service to replace giro cheque benefits which provides us with a scale opportunity to extend cash out. Romanian retail network Increasing bill payment volumes have continued to provide growth in Romania and we will launch money transfer services this year.  In addition, we are adding new sites to cover more neighbourhoods and optimising existing sites to improve their profitability.  This business should break even in the current year. Internet Alongside the introduction of new systems referred to above, we expect to sign up further new merchants and to benefit from the introduction of new card scheme sponsors, including HSBC International for 38 countries and BNP for France, driving growth in profits. These activities will increasingly position PayPoint.net as an international provider and will add profitable growth. PayByPhone PayByPhone, one of the worldwide leaders in mobile phone parking, has the potential to replace traditional parking meters in many major cities around the world. We have added significant sales and development resources and we are currently tendering to several large parking authorities as well as a large number of smaller opportunities in the UK, France and North America. Sales lead times are extended in this market, but our momentum is encouraging.  We have spent more heavily than anticipated and a further loss will result in the current year. We expect it to turn to profit in the year ending March 2013. Collect+ Our parcels joint venture (50:50) with Yodel has progressed strongly, with substantial endorsement from the online retailing community and resulting growth in transaction volumes.   We expect them to grow further this year as we sign more home shopping clients for returns and deliveries.  A recently introduced consumer to consumer service is being extended to smaller packets and is expected to grow significantly this year, as we target online traders. This joint venture processes around two million transactions per annum (based on transaction volumes in March 2011) and is making good progress towards its breakeven volume of 6-8 million parcels, which we expect to reach in the year ending March 2013. Our plans for the current year We will continue to make further progress in the four elements of our strategy to increase shareholder value: more payment/channel options, specialism in vertical markets, value added services and geographic reach. We plan to make good progress in both the established and developing business streams, notably through continuing growth in retail services and internet payments, by turning the Romanian retail network profitable through an increase in bill payment market share, and by adding new customers in Collect+ and PayByPhone. We are increasingly benefiting from the synergy between our various business streams, with more clients taking multi-channel services. We aim to push this dynamic more strongly over time, as newer business areas bed in and system platforms can be developed across the group. We are strengthening the management in our UK retail network to ensure senior management attention is directed proportionately to the developing business streams. PayPoint is one of the best placed companies to make further gains in the fast moving payment industry and has a market leading position in retail services, on which we intend to build. Dominic Taylor 26 May 2011 KEY PERFORMANCE INDICATORS 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 measures to monitor progress. Measuring our performance +-----------------+-----------------+-----------------+------------+-----------+ |Strategic |KPI |Description | 2011| 2010| |focus | | | | | +-----------------+-----------------+-----------------+------------+-----------+ |Shareholder |Earnings per |Profit after tax| 35.2p| 32.9p| |return |share (basic) |attributable to| | | | | |equity holders of| | | | | |the parent| | | | | |divided by the| | | | | |weighted average| | | | | |number of| | | | | |ordinary shares| | | | | |in issue during| | | | | |the year. | | | +-----------------+-----------------+-----------------+------------+-----------+ |  |  |  |  |  | +-----------------+-----------------+-----------------+------------+-----------+ |  |Dividends per |Proposed final| 23.4p| 21.8p| | |share |dividend and| | | | | |interim dividend| | | | | |divided by the| | | | | |number of fully| | | | | |paid shares at| | | | | |the end of the| | | | | |year. | | | +-----------------+-----------------+-----------------+------------+-----------+ |  |  |  |  |  | +-----------------+-----------------+-----------------+------------+-----------+ |  |Economic profit |Operating profit| £17.4| £18.5| | | |after tax and a|  million| million| | | |charge for| | | | | |capital employed| | | | | |based upon the| | | | | |group's cost of| | | | | |capital. | | | +-----------------+-----------------+-----------------+------------+-----------+ |  |  |  |  |  | +-----------------+-----------------+-----------------+------------+-----------+ |Growth |Retail networks |Number of| 517 million|507 million| | |transactions |PayPoint | | | | | |transactions | | | | | |processed in the| | | | | |year on our| | | | | |terminals, ATMs| | | | | |and on our| | | | | |retailers' EPoS| | | | | |systems. | | | +-----------------+-----------------+-----------------+------------+-----------+ |  |  |  |  |  | +-----------------+-----------------+-----------------+------------+-----------+ |  |Internet |Number of| 59 million| 44 million| | |transactions |transactions | | | | | |processed in the| | | | | |year by| | | | | |PayPoint.net. | | | +-----------------+-----------------+-----------------+------------+-----------+ |  |  |  |  |  | +-----------------+-----------------+-----------------+------------+-----------+ |  |PayByPhone |Number of| 14 million| 1 million| | | |PayByPhone | | | | | |transactions | | | | | |processed in the| | | | | |year (2010: since| | | | | |acquisition). | | | +-----------------+-----------------+-----------------+------------+-----------+ |  |  |  |  |  | +-----------------+-----------------+-----------------+------------+-----------+ |  |Transaction value|The value of| £10.6| £9.7| | | |transactions | billion| billion| | | |processed via our| | | | | |terminals, | | | | | |retailers' EPoS| | | | | |systems, internet| | | | | |merchants, ATMs,| | | | | |PayByPhone and| | | | | |the sale of other| | | | | |retail services. | | | +-----------------+-----------------+-----------------+------------+-----------+ |  |  |  |  |  | +-----------------+-----------------+-----------------+------------+-----------+ |  |Net revenue |Revenue less the| £83 million|£77 million| | | |cost of mobile| | | | | |top-ups and SIM| | | | | |cards where| | | | | |PayPoint is| | | | | |principal and| | | | | |costs incurred by| | | | | |PayPoint which| | | | | |are recharged to| | | | | |clients and| | | | | |merchants. These| | | | | |costs include| | | | | |retail agent| | | | | |commission, | | | | | |merchant service| | | | | |charges levied by| | | | | |card scheme| | | | | |sponsors and| | | | | |costs for the| | | | | |provision of call| | | | | |centres for| | | | | |PayByPhone | | | | | |clients. | | | +-----------------+-----------------+-----------------+------------+-----------+ |  |  |  |  |  | +-----------------+-----------------+-----------------+------------+-----------+ |  |Operating margin |Operating profit| 42%| 42%| | | |including our| | | | | |share of joint| | | | | |venture losses as| | | | | |a percentage of| | | | | |net revenue. | | | +-----------------+-----------------+-----------------+------------+-----------+ |  |  |  |  |  | +-----------------+-----------------+-----------------+------------+-----------+ |Asset |Return on capital|Total operating| 53%| 88%| |optimisation |employed |profit for the| | | | | |year divided by| | | | | |monthly average| | | | | |capital employed| | | | | |excluding cash. | | | +-----------------+-----------------+-----------------+------------+-----------+ |  |  |  |  |  | +-----------------+-----------------+-----------------+------------+-----------+ |People |Labour turnover |Number of|  |  | | | |permanent | | | | | |employees who| | | | | |left during the| | | | | |year divided by| | | | | |average total| | | | | |permanent | | | | | |employees. | | | +-----------------+-----------------+-----------------+------------+-----------+ |  |  |UK & Ireland | 25%| 20%| | | | | | | | | |Rest of the world| 18%| 49%| +-----------------+-----------------+-----------------+------------+-----------+ 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. 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 forward looking information. Our key performance indicators are shown on page 5. PayPoint is a payment service provider for consumer and business payment transactions and, as such, has only one operating segment. However, reflection on various facets helps explanation of the execution of our strategy in developing the group and, accordingly, in addition to the analysis of the number and value of transactions, revenue and net revenue, we have shown an analysis which separates our developing business streams (bill payment and top-ups in Romania, Collect+ and PayByPhone), from our established business streams (the UK and Irish retail networks and internet channel). In addition, we have analysed our results by channel as follows: Retail networks: Bill and general (prepaid energy, bills and tickets) Top-ups (mobile, pre-paid cards and phone cards) Retail services (ATM, debit/credit, parcels, money transfer, SIMs and receipt advertising) Internet (transactions between consumers and merchants, pre-authorisations and Fraudguard, where separately charged) PayByPhone (parking and bicycle rental transactions) Other for revenue and net revenue only (software development, configuration and customisation and settlement of claims) Growth opportunities include retail services in the UK retail network; new merchants for internet payments; the expansion of the retail network and new retail services in Romania; new parking contracts and driving consumer adoption for PayByPhone and building and developing Collect+. OPERATING REVIEW Transactions have increased to 590 million (2010: 552 million), up 4% in the established business streams and 155% in the developing business streams. Transaction value increased to £10.6 billion (2010: £9.7 billion), up 8% in the established business streams and up 123% in the developing business streams, including the impact of PayByPhone for a whole year and the reduction in mobile top-ups in Romania. Revenue in developing business streams was up 7% as a result of a full year trading of PayByPhone, offset by a 19% decrease in mobile revenue in Romania. Established business stream revenue was down 2% as a result of the reduction in mobile top-ups and the change of card scheme sponsor, where merchant service charges are no longer included in revenue as they are now charged direct to merchants. Net revenue in the developing business streams was up 119%, with strong growth in Romanian bill payment and Collect+ and as a consequence of the inclusion of PayByPhone. Established business stream net revenue was up 3%, held back by the decline in mobile volumes. Operating profit in the established business streams was £38.4 million (2010: £36.2 million) and the operating loss, including our share of Collect+, in the developing business streams was £3.9 million (2010: £3.8 million), an increase of £0.1 million. The small increase in the loss in developing businesses is as a result of a better performance in Romania offsetting the impact of the inclusion of the PayByPhone business, which was loss making in the year, as expected. Established Developing business business Adjust   streams(1) streams(2) Total Collect+(3) As reported -------------------------------------------------------------------------------- Transactions million 2011 559 31 590 - 590 2010 540 12 552 - 552 -------------------------------------------------------------------------------- Transaction value £million 2011 10,316 285 10,601 - 10,601 2010 9,560 128 9,688 - 9,688 -------------------------------------------------------------------------------- Revenue £000 2011 167,700 26,535 194,235 (1,002) 193,233 2010 171,933 24,875 196,808 (205) 196,603 -------------------------------------------------------------------------------- Net revenue(4) £000 2011 76,811 6,539 83,350 (627) 82,723 2010 74,589 2,981 77,570 (164) 77,406 -------------------------------------------------------------------------------- (1) Established business streams include the UK and Irish retail networks and the internet payment channel           (2) Developing business streams includes Romania, PayByPhone and for Collect+, revenue and net revenue only.           (3) Collect+ revenue and net revenue is included in developing business stream's revenue and net revenue, but as Collect+ is reported in the Consolidated Income               Statement on a profit before tax only basis, revenue and net revenue needs to be eliminated to reconcile to reported revenue and net revenue.        (4) Net revenue is revenue less the cost of mobile top-ups and SIM cards where PayPoint is principal and costs incurred by PayPoint which are recharged to clients and      merchants. These costs include retail agent commission, merchant service charges levied by card scheme sponsors and costs for the provision of call centres for PayByPhone clients. Analysis of transactions There has been growth in transaction volumes across most services, with the exception of mobile top-ups where, in all territories, there has been a decrease.. Mobile operators are offering more value for the same or lower cost per top-up to consumers, resulting in fewer transactions and, in the UK in particular, mobile operators promote monthly contracts over prepay thereby migrating prepaid consumers to contracts. Year Year ended ended Increase /   27 March 28 March (decrease) 2011 2010 % million million ------------------------------------------------------- Retail networks   Bill and general 350,970 339,801 3.3   Top-ups 117,670 128,887 (8.7)   Retail services 48,425 38,901 24.5 Internet payments 58,544 43,536 34.5 PayByPhone 14,059 762 n/a ------------------------------------------------------- Total 589,668 551,887 6.8 ------------------------------------------------------- Prepaid energy volumes (included in bill and general) in the UK have increased by 4% on last year. The cold weather before Christmas and increases in domestic energy tariffs have helped volumes in the second half of the year. Bill payments in Romania have continued to grow as more terminal sites are rolled out and consumers become aware of the service. In the year, we have processed over 12 million bill payment transactions, an increase of 118% on the previous year and our run rate, based on transactions in March 2011, is c.16 million transactions per annum. Mobile top-ups in UK, Ireland and Romania were down 10% overall, against an 11% decline this time last year. E-money volumes, which are included in top-ups, were up 21% to 4 million. Retail service transaction volumes have increased across all products, ATMs, debit/credit, parcels, money transfer and SIMs. Debit/credit card transactions are up more than 30% on last year. We have sold almost 700,000 SIMs in the year (2010: 300,000). Parcel volumes continue to grow and have increased over four times on last year to just over 1 million transactions. Internet transactions of 59 million were up 34% on last year as we continued to add new merchants and existing merchants grew organically. New merchants in the last 12 months include Stan James, 32Red, Sportingbet, Funky Pigeon and Links of London. PayByPhone transactions are for a full year compared to 19 days last year.  Towards the end of the year, PayByPhone saw the number of tenders issued by councils and parking authorities increase as they looked for a more cost effective method for collecting parking charges. During the year, we produced 70 million receipts (2010: 10 million) containing an advertising message. These are not counted as additional transactions. Transaction value There has been substantial growth in the value paid by consumers (transaction value), primarily in bill and general payments, internet payments and PayByPhone. Year Year ended ended Increase/   27 March 28 March (decrease) 2011 2010 % £000 £000 ---------------------------------------------------------- Retail networks   Bill and general 6,198,171 5,925,249 4.6   Top-ups 1,114,809 1,166,507 (4.4)   Retail services 394,727 377,271 4.6 Internet payments 2,838,147 2,216,319 28.1 PayByPhone 55,020 3,077 n/a ---------------------------------------------------------- Total 10,600,874 9,688,423 9.4 ---------------------------------------------------------- Growth in bill and general transaction value reflected the increase in transactions and in their average value. There continues to be strong growth in higher value transactions for local authority and housing authority payments and a small rise in the average value for energy prepayments. The reduction in top-ups transaction value reflected the overall decline in the pre-pay mobile market. An increase in e-money transaction value off-set the overall reduction and average transaction values were up 5%. Retail services transaction value is relatively small as SIM sales have low value and debit/credit transactions (where the merchant acquirer settles direct with our retailer), parcel transactions and terminal advertising have no associated transaction value. Internet transaction value has increased by 28% but transactions have a lower average value of £48.47 (2010: £50.91). Part of the decline in average value was due to over 1 million energy pre-payment gas and electricity transactions, where consumers topped-up via the internet at home, at lower values. The signing of three large gaming merchants during the year also reduced the average transaction value as gaming tends to be at lower transaction value than other sectors. PayByPhone value reflects a full year of the value of consumers' parking transactions and bicycle rentals against a period of 19 days from the acquisition of the business in the prior period. Revenue analysis Year Year ended ended   27 March 28 March Increase/ 2011 2010 (decrease) £000 £000 % ------------------------------------------------------- Retail networks   Bill and general 57,889 58,564 (1.2)   Top-ups 98,843 108,508 (8.9)   Retail services 19,602 16,168 21.2 Internet payments 8,939 9,968 (10.3) PayByPhone 4,501 283 n/a Other 3,459 3,112 11.1 ------------------------------------------------------- Total 193,233 196,603 (1.7) ------------------------------------------------------- Bill and general payments revenue was slightly lower than last year, as some clients elected to work on a more exclusive basis to secure lower commission rates for more volume. In Romania and Ireland, PayPoint acts as principal for mobile phone top-ups and, as a result, the sales value of the top-up is recorded as revenue, with the purchase cost of the top-up recorded in cost of sales. In the UK, PayPoint acts as an agent and only the commission income is recorded as revenue. The decline in mobile volumes, therefore, affects revenue arising in Romania and Ireland more than in the UK. Retail services revenue increased strongly across several products as a result of growth in the number of sites processing credit and debit transactions to 5,948 at the year end (2010: 4,998); growth in revenues from parcels; a full year of SIM card sales; advertising on till receipts; and money transfer. Retail services also include ATMs, where revenue is derived from cash withdrawals, balance enquiries and rental income. Whilst ATM revenue has grown, the average revenue per ATM decreased as a consequence of lower cash withdrawal revenues on more recently installed ATMs and lower rental income, as five year term rental agreements expire and fully depreciated machines are rolled over on lower rentals. Internet payment revenues were lower because merchant service charges, which were formerly included in revenue and cost of sales, were £nil this period (2010: £2.5 million), as a consequence of a change in card scheme sponsor. PayByPhone revenues of £4.5 million were for the full year compared to only 19 days last year and included costs that are recharged to clients for the provision of call centres. Other revenue includes rechargeable software development work, configuration and customisation, early settlement and claims. Net revenue analysis Net revenue is revenue less retail agent commission, merchant service charges levied by card scheme sponsors, costs of SIM card stock, recharges for the provision of call centres for PayByPhone clients and the purchase value of Romanian and Irish mobile top-ups for which we act as principal. Net revenue is a measure which the directors believe assists with a better understanding of the underlying performance of the group and is shown in the table below. Year Year ended ended   27 March 28 March Increase / 2011 2010 (decrease) £000 £000 % ------------------------------------------------------- Retail networks   Bill and general 33,806 33,586 0.6   Top-ups 22,683 24,272 (6.5)   Retail services 10,827 8,684 24.7 Internet payments 8,939 7,469 19.7 PayByPhone 3,009 283 n/a Other 3,459 3,112 11.1 ------------------------------------------------------- Total 82,723 77,406 6.9 ------------------------------------------------------- Bill and general net revenue increased mainly as a result of the growth in Romanian bill payment net revenue, which was up 94% on last year. The decrease in top-ups net revenue was lower than the decrease in revenue as a result of the growth in e-money transactions, which have higher than average net revenue. Retail services net revenue has a greater percentage increase than revenue as there is no commission payable on some services, including debit and credit card transactions. Internet net revenue was up 20%, primarily as a result of the increase in transaction volumes and value and the better margins from our new card scheme sponsor. Net revenue is the same as revenue as a result of merchant service charges now being charged directly to our bureau merchants by the card scheme sponsor. Collect+ During the year, we processed over 1 million transactions for 30 clients (2010: 0.2 million transactions for 13 clients). Transaction volumes continue to grow and our annual run rate, based on March 2011, is now over 2 million transactions. In the year, we added a store to home delivery service, where customers can take a parcel to a Collect+ store and have it delivered to the recipient's home address. More recently, we launched a packet delivery service for parcels less than 2kg in weight. Network growth Terminal sites overall have increased by 7% to 29,508. In the UK and Ireland, sites have increased by 870, an increase of 4%. During the second half of the year, we introduced our new EPoS integrated solution to multiple retailers, which combines a virtual terminal through software in the retailer's till system with plug in reader to provide full functionality at lower costs. As well as enhancing our service to multiple retailers, this frees terminals for use in Romania.  We expect to roll this out further. In Romania, we installed over 1,100 net new full service terminals in the year and have removed all the remaining old mobile top-up only terminals. In our internet channel, we added over 1,400 new merchants during the year but churn of low value merchants, in particular from the change of credit card scheme sponsor at the start of the year, led to a net reduction of 405 merchants. Since the half year, the merchant estate has grown by a net 201 merchants. Despite the decrease in merchant numbers, transaction volume, value and net revenue all increased. We continued to add more Collect+ sites as transaction volumes increased and as retailers recognised the benefits of offering this service.     Increase/ Analysis of  sites 27 March 28 March (decrease) %  2011  2010 ------------------------------------------------------------------ UK & Ireland terminal sites 23,513 22,643 3.8 Romania terminal sites 5,995 4,816 24.5 ------------------------------------------------------------------ Total terminal sites 29,508 27,459 7.5 Internet merchants 5,213 5,618 (7.2) Collect+ sites 3,668 3,418 7.3 ------------------------------------------------------------------ FINANCIAL REVIEW Income statement Revenue for the year was 1.7% lower at £193 million (2010: £197 million). The reduction results from a decrease in mobile top-ups and from the impact of merchant service charges on card transactions being charged direct to merchants rather than through PayPoint.net. This revenue reduction is also reflected in cost of sales which, at £122 million (2010: £133 million), was down 8.2%. Agents' commission decreased to £71 million (2010: £73 million) due to fewer mobile top-up transactions, which pay a higher than average commission, and reductions in the amount paid for commission by the mobile operators. The cost of mobile top-ups in Ireland and Romania(1) has fallen to £39 million (2010: £44 million). Net revenue(2) of £83 million (2010: £77 million) was up 6.9%. Operating costs (administrative expenses) were 17.7% higher at £35 million (2010: £29 million) as a result of the inclusion of a whole year's worth of trading of PayByPhone. Excluding PayByPhone, operating costs were up 5.4%. The increase in operating costs resulted in part from the one-off costs including the legal costs, of successfully defending against Camelot's bid to provide services in bill and general payments, mobile top-ups and debit/credit processing. Operating margin(3) was flat at 42% as a consequence of the increase in operating costs. (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 costs in cost of sales. (2) Net revenue is revenue less the cost of mobile top-ups and SIM cards where PayPoint is principal and costs incurred by PayPoint which are recharged to clients and merchants. These costs include retail agent commission, merchant service charges levied by card scheme sponsors and costs for the provision of call centres for PayByPhone clients. (3) Operating margin is calculated as operating profit, including our share of Collect+ losses, as a percentage of net revenue. Our share of the loss in developing Collect+ was £1.5 million as expected (2010: loss of £1.6 million). Profit before tax was £34.5 million (2010: £32.6 million) an increase of 5.5%. The tax charge of £10.6 million (2010: £10.5 million) represents an effective rate of 30.8% (2010: 32.2%). The tax charge was higher than the UK nominal rate of 28% because of unrelieved losses in Romania and Canada and the write off of the deferred tax asset relating to tax relief for share based payments. Balance sheet The short-term borrowing of £6 million was repaid in full in March. Cash flow Cash generated by operations was £42.2 million (2010: £38.7 million), reflecting strong conversion of profit to cash. Corporation tax of £11.0 million (2010: £13.7 million) was paid. Capital expenditure of £3.2 million (2010: £2.7 million) reflected spend on new terminals, ATMs and IT equipment. Net interest paid was £0.1 million (2010: £0.2 million receipt) as a result of the loan that was drawn down at the end of last year. Equity dividends paid were £15.0 million (2010: £12.9 million). During the year the company repaid the £6 million loan. Cash and cash equivalents were £26.5 million (including client cash of £6.1 million) up from £20.8 million (including client cash of £6.8 million but excluding the bank loan of £6 million). Economic profit PayPoint's economic profit (operating profit less tax and capital charge) was £17.4 million (2010: £18.5 million), lower than last year because of the acquisition of PayByPhone, which is loss making as expected. Dividend We propose to pay a final dividend of 15.6p per share on 22 July 2011 (2010: 14.4p) to shareholders on the register on 24 June 2011, subject to the approval of the shareholders at the annual general meeting. An interim dividend of 7.8p (2010: 7.4p) per share was paid on 21 December 2010, making a total dividend for the year of 23.4p (2010: 21.8p) up 7.3%, broadly in line with earnings. Liquidity and going concern The group has cash of £26.5 million (including client cash of £6.1 million) and had, at the year end, an unsecured loan facility of £35 million, which was due to expire in August 2011. A new replacement £35 million, five year facility has been agreed with our bankers since the year end. Cash and borrowing capacity is adequate to meet the foreseeable needs of the group, taking account of any risks (page 15). The financial statements have therefore been prepared on a going concern basis. Financing and treasury policy The financing and treasury policy requires a prudent approach to the investment of surplus funds, external financing, settlement, foreign exchange risk and internal control structures. The policy prohibits the use of financial derivatives and sets limits for gearing. Charitable donations During the year, the group made charitable donations of £19,400 (2010: £15,000) to charities serving the communities in which the group operates. We encourage employees to raise funds for charity and the company matches funds raised by the employees, subject to certain limits. During the year, we collected money for the Disasters Emergency Committee (DEC) for the Pakistan flood appeal and for the BBC's Children in Need telethon. Employees Our success depends upon the continuing support and commitment of all our staff.  We would like to take this opportunity to thank PayPoint's employees for their commitment, energy and enthusiasm in the delivery of these results. Strategy and risks Details of the company's strategy is included in the Chief Executive's review on page 3. The company's analysis of risks facing the company is set out in separate statements on pages 15 and 16. Economic climate The company's bill and general payments sector, which accounts for 41% (2010: 43%) of our net revenue, has continued to be resilient, as consumers' discretion in expenditure is limited for essential services and our service continues to be popular. Utility providers continue to install new prepay gas and electricity meters, which will have a beneficial impact on our transaction volumes. The internet payment market continues to grow substantially. There has been an adverse impact on our mobile top-ups as mobile operators continue to offer more airtime at lower cost and to promote prepay less than contract. PayByPhone is able to offer parking authorities a more cost effective collection system for parking compared to pay and display machines. This has led to an increase in the number of tenders being issued as parking authorities try to reduce their costs. PayPoint's exposure to retail agent debt is limited as credit granted to retail agents is restricted by daily direct debiting for all UK and Irish transactions, other than EPoS mobile top-ups (which are collected weekly).  There is some concentration of risk in multiple retail agents.  Most of PayPoint's clients in the UK, other than mobile operators, bear the cost of retail agent bad debt.  In PayPoint Romania, the risk of bad debt lies with the company.  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 credit card charge backs, mitigated by cash retention. In PayByPhone, exposure is limited to receivables from parking authorities. National Lottery Commission On the 2 March 2011, following a lengthy process, the National Lottery Commission refused consent for Camelot's application to provide ancillary services, including bill payment and mobile top-ups, on competition law grounds. Outlook For the current financial year, trading is in line with the company's expectations. Our established business streams (UK and Irish retail networks and internet payments) are strong, with further opportunities to enhance retail yield, through the introduction of new technology and services. In addition, improvements in our service offering to online merchants will provide opportunities for growth. We will benefit from rolling out services in our developing business streams (Collect+, PayByPhone and Romanian retail network), growing our market share and improving profitability. Together, our businesses provide a solid foundation to deliver value for our shareholders. 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 crystallisation of some or all of such risks. +-------------------------+-------------------------+--------------------------+ |Risk area |Potential impact |Mitigation strategies | +-------------------------+-------------------------+--------------------------+ |  |  |  | |Loss or inappropriate |The group's business|The group has established| |usage of data |requires the appropriate|rigorous information| |  |and secure use of|security policies,| | |consumer and other|standards, procedures, and| | |sensitive information.|recruitment and training| | |Mobile telephone and|schemes, which are| | |internet-based electronic|embedded throughout its| | |commerce requires the|business operations. The| | |secure transmission of|group also screens new| | |confidential information|employees carefully.| | |over public networks, and|Continued investments are| | |several of our products|made in IT security| | |are accessed through the|infrastructure, including| | |internet. Security|the significant use of| | |breaches in connection|data and communications| | |with maintaining data and|encryption technology. | | |the delivery of our|  | | |products and services| | | |could harm our| | | |reputation, business and| | | |operating results. | | +-------------------------+-------------------------+--------------------------+ |  |  |  | +-------------------------+-------------------------+--------------------------+ |Dependence upon third |The group's business|The group selects and| |parties to provide data |model is dependent upon|negotiates agreements with| |and certain operational |third parties to provide|strategic suppliers based| |services |operational services, the|on criteria such as| | |loss of which could|delivery assurance and| | |significantly impact the|reliability.  Single| | |quality of our services.|points of failure are| | |Similarly, if one of our|avoided, where practicable| | |outsource providers,|and economically feasible.| | |including third parties|  | | |with whom we have| | | |strategic relationships,| | | |were to experience| | | |financial or operational| | | |difficulties, their| | | |services to us would| | | |suffer or they may no| | | |longer be able to provide| | | |services to us at all,| | | |significantly impacting| | | |delivery of our products| | | |or services. | | +-------------------------+-------------------------+--------------------------+ |  |  |  | +-------------------------+-------------------------+--------------------------+ |Exposure to legislation |The group is largely|The group's legal| |or regulatory reforms and|unregulated by financial|department works closely| |risk of non-compliance |services regulators. The|with senior management to| | |group's agents which|adopt strategies to| | |offer money transfer are|educate lawmakers,| | |licensed as Money Service|regulators, consumer and| | |Businesses by HMRC. Our|privacy advocates, and| | |internet and mobile phone|other stakeholders to| | |distribution channels are|support the public policy| | |subject to Payment Card|debate, where appropriate| | |Industry Data Security|to ensure regulation does| | |Standards regulated by|not have unintended| | |the card schemes.|consequences over the| | |Regulatory reform could|group's services. The| | |increase the cost of the|group has in place a| | |group's operations or|business ethics policy| | |deny access to certain|which requires compliance| | |territories in the|with local legislation in| | |provision of certain|all the territories in| | |services.  Non-compliance|which the group operates.| | |with law, regulation,| A central compliance| | |privacy or information|department co-ordinates| | |security laws could have|all compliance monitoring| | |serious implications in|and reporting. Managing| | |cost and reputational|and finance directors are| | |damage to the group. |required to sign annual| | | |compliance statements. | +-------------------------+-------------------------+--------------------------+ |  |  |  | +-------------------------+-------------------------+--------------------------+ |Interruptions in business|The group's ability to|Comprehensive business| |processes or systems |provide reliable services|continuity plans and| | |largely depends on the|incident management| | |efficient and|programmes are maintained| | |uninterrupted operation|to minimise business and| | |of our computer network|operational disruptions,| | |systems, data and call|including pandemic| | |centres, as well as|incidents. The group| | |maintaining sufficient|maintains full duplication| | |staffing levels. System|of all information| | |or network interruptions,|contained in databases and| | |or the unavailability of|runs back-up data centres.| | |key staff or management|Support arrangements have| | |resulting from a pandemic|been established with| | |outbreak, could delay and|third party vendors and| | |disrupt our ability to|there are strict| | |develop, deliver or|standards, procedures and| | |maintain our products and|training schemes for| | |services, causing harm to|business continuity. | | |our business and| | | |reputation and resulting| | | |in loss of customers or| | | |revenue. | | +-------------------------+-------------------------+--------------------------+ |  |  |  | +-------------------------+-------------------------+--------------------------+ |Dependence on recruitment|The ability of the group|Effective recruitment| |and retention of highly |to meet the demands of|programmes are ongoing| |skilled personnel |the market and compete|across all business areas,| | |effectively is, to a|as well as personal and| | |large extent, dependent|career development| | |on the skills, experience|initiatives. The executive| | |and performance of its|management reviews talent| | |personnel. Demand is high|potential at quarterly| | |for individuals with|meetings. Compensation and| | |appropriate knowledge and|benefits programmes are| | |experience in payments,|competitive and also| | |IT and support services.|reviewed regularly. | | |The inability to attract,|  | | |motivate or retain key|  | | |talent could have a|  | | |serious consequence on|  | | |the group's ability to| | | |service client| | | |commitments and grow our| | | |business. | | +-------------------------+-------------------------+--------------------------+ +--------------------------+-------------------------+-------------------------+ |  |  |  | |  |  |  | |  |  |  | |  |  |  | |Risk area |  |  | | |Potential impact |Mitigation strategies | +--------------------------+-------------------------+-------------------------+ |  |  |  | |Exposure to materially |The group contracts with|The group seeks to limit| |adverse litigation |a number of large service|exposure in its| | |organisations for which|contracts.  Mitigating| | |it provides services|actions are taken where| | |essential to their|contractual exposures are| | |customers.  Failure to|above the norm, including| | |perform in accordance|insurance coverage, where| | |with contractual terms|appropriate and| | |could give rise to|economically sustainable.| | |litigation. | | +--------------------------+-------------------------+-------------------------+ |  |  |  | +--------------------------+-------------------------+-------------------------+ |Exposure to country and|The group's geographic|The group's portfolio is| |regional risk (political,|footprint subjects its|diversified by geography,| |financial, economic,|businesses to economic,|by product, by sector and| |social) in North America,|political and other risks|by client in order to| |United Kingdom, Romania,|associated with|protect itself against| |France and Ireland |international sales and|many of these| | |operations. A variety of|fluctuations, especially| | |factors, including|those that are restricted| | |changes in a specific|to individual territories| | |country's or region's|and market sectors,| | |political, economic or|although the bulk of its| | |regulatory requirements,|operations and revenues| | |as well as the potential|are UK based. | | |for geopolitical turmoil,| | | |including terrorism and| | | |war, could result in loss| | | |of services, prevent our| | | |ability to respond to| | | |agreed service levels or| | | |fulfil other obligations.| | | |These risks are generally| | | |outside the control of| | | |the group. | | +--------------------------+-------------------------+-------------------------+ |  |  |  | +--------------------------+-------------------------+-------------------------+ |Exposure to consolidation|Consolidation of|No single client accounts| |among clients and markets |retailers and clients|for more than 9% of the| | |could result in|group's net revenue, and| | |reductions in the group's|no single retailer| | |revenue and profits|accounts for more than| | |through price compression|8% of the group's net| | |from combined service|revenue, which reduces| | |agreements or through a|the probability of this| | |reduced number of|potential risk having a| | |clients. |significant impact on the| | | |group's business. In| | | |addition, the group| | | |continues to expand in| | | |its developing| | | |businesses, and in cash| | | |out (reversing the flow| | | |of money through its| | | |retail networks). | +--------------------------+-------------------------+-------------------------+ |  |  |  | +--------------------------+-------------------------+-------------------------+ |Acquisitions may not meet |The group's acquisitions,|The group assesses all| |expectations |strategic alliances and|acquisitions rigorously,| | |joint ventures may result|using both in-house| | |in financial outcomes|experts and professional| | |that are different than|advisers. In addition,| | |expected. |the group conducts| | | |extensive post-| | | |acquisition reviews to| | | |ensure, as far as it| | | |possible, that| | | |performance remains| | | |consistent with the| | | |acquisition business| | | |plan. | +--------------------------+-------------------------+-------------------------+ |  |  |  | +--------------------------+-------------------------+-------------------------+ |Exposure to the |As the group operates on|The group's financial| |unpredictability of |an international basis,|risk management focuses| |financial markets (foreign|it is exposed to the risk|on the unpredictability| |exchange, interest rate |of currency fluctuations|of financial markets and| |and other financial risks)|and the unpredictability|seeks to minimise| | |of financial markets in|potentially adverse| | |which it operates. |effects on the group's| | | |financial performance. | +--------------------------+-------------------------+-------------------------+ |  |  |  | +--------------------------+-------------------------+-------------------------+ |Exposure to increasing |The group operates in a|The group is committed to| |competition |number of geographic,|continued research and| | |product and service|investment in new data| | |markets that are highly|sources, people,| | |competitive and subject|technology and products| | |to technological|to support its strategic| | |developments. Competitors|plan. | | |may develop products and| | | |services that are| | | |superior to ours or that| | | |achieve greater market| | | |acceptance than our| | | |products and services,| | | |which could result in the| | | |loss of clients or| | | |reduction in revenue. | | +--------------------------+-------------------------+-------------------------+ |  |  |  | +--------------------------+-------------------------+-------------------------+ |Loss or infringement of |The group's success|The group, where| |intellectual property |depends, in part, upon|appropriate and feasible,| |rights |proprietary technology|relies upon a combination| | |and related intellectual|of patent, copyright,| | |property rights. Some|trademark and trade| | |protection can be|secret laws, as well as| | |achieved but in many|various contractual| | |cases, little protection|restrictions, to protect| | |can be secured. Third|our proprietary| | |parties may claim that|technology and continues| | |the group is infringing|to monitor this| | |their intellectual|situation. The group also| | |property rights or our|vigorously defends all| | |intellectual property|third party infringement| | |rights could be infringed|claims. | | |by third parties. If we| | | |do not enforce the| | | |group's intellectual| | | |property rights| | | |successfully, our| | | |competitive position may| | | |suffer, which could harm| | | |our operating results. | | +--------------------------+-------------------------+-------------------------+ |  |  |  | +--------------------------+-------------------------+-------------------------+ |Data centre security |The group is highly|The group's data centres| |breaches |dependent on information|are protected against| | |technology networks and|physical break-ins. The| | |systems to process,|group has strict| | |transmit and store|standards and procedures| | |electronic information.|for security. | | |Security breaches of our| | | |data centres could create| | | |system disruptions,| | | |shutdowns or unauthorised| | | |disclosure of| | | |confidential information.| | +--------------------------+-------------------------+-------------------------+ CONSOLIDATED INCOME STATEMENT   Year Year   ended ended   Note 27 March 28 March   2011 2010   £000 £000 ---------------------------------------------------------------- Continuing operations Revenue 2 193,233 196,603 Cost of sales   (122,567) (133,110) ---------------------------------------------------------------- Gross profit   70,666 63,493 Administrative expenses   (34,614) (29,421) ---------------------------------------------------------------- Operating profit   36,052 34,072 Share of loss of joint venture   (1,541) (1,601) Investment income   88 224 Finance costs   (143) (50) ---------------------------------------------------------------- Profit before tax   34,456 32,645 ---------------------------------------------------------------- Tax 3 (10,614) (10,513) ---------------------------------------------------------------- Profit for the year 12 23,842 22,132 ---------------------------------------------------------------- Attributable to: Equity holders of the parent   23,883 22,132 Non-controlling interests   (41) - ----------------------------------------------------------------     23,842 22,132 ---------------------------------------------------------------- Earnings per share Basic 5 35.2p 32.9p Diluted 5 35.1p 32.7p CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME   Year Year   ended ended   Note 27 March 28 March   2011 2010   £000 £000 -------------------------------------------------------------------------------- Exchange differences on translation of foreign operations 12 (72) 35 -------------------------------------------------------------------------------- Net income recognised directly in equity   (72) 35 Profit for the year   23,842 22,132 -------------------------------------------------------------------------------- Total recognised income and expenses for the year   23,770 22,167 -------------------------------------------------------------------------------- Attributable to: Equity holders of the parent   23,811 22,167 Non-controlling interests   (41) - --------------------------------------------------------------------------------     23,770 22,167 -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET 27 March 28 March   Note 2011 2010 £000 £000 -------------------------------------------------------------------------------- Non current assets Goodwill 6 57,133 56,872 Other intangible assets   1,329 1,400 Property, plant and equipment   14,520 14,767 Investment in joint venture 7 135 326 Deferred tax asset 8 1,116 1,167 Investments   435 405 --------------------------------------------------------------------------------     74,668 74,937 -------------------------------------------------------------------------------- Current assets Inventories   915 1,567 Trade and other receivables   17,103 23,482 Cash and cash equivalents 9 26,464 20,769 --------------------------------------------------------------------------------     44,482 45,818 -------------------------------------------------------------------------------- Total assets   119,150 120,755 -------------------------------------------------------------------------------- Current liabilities Trade and other payables   32,996 37,926 Current tax liabilities   5,287 5,684 Short-term borrowings 10 - 6,000 Obligations under finance leases   32 22 --------------------------------------------------------------------------------     38,315 49,632 -------------------------------------------------------------------------------- Non-current liabilities Other liabilities   240 379 --------------------------------------------------------------------------------     240 379 -------------------------------------------------------------------------------- Total liabilities   38,555 50,011 -------------------------------------------------------------------------------- Net assets   80,595 70,744 -------------------------------------------------------------------------------- Equity Share capital 12 226 226 Investment in own shares 12 (216) (370) Share premium 12 25 25 Share based payment reserve 12 3,005 2,684 Translation reserve 12 471 543 Retained earnings 12 77,125 67,636 -------------------------------------------------------------------------------- Total equity attributable to equity holders of the parent   80,636 70,744 company Non-controlling interest   (41) - -------------------------------------------------------------------------------- Total equity   80,595 70,744 -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year Year ended ended   Note 27 March 28 March 2011 2010 £000 £000 -------------------------------------------------------------------------------- Opening equity   70,744 60,967 Profit for the year   23,842 22,132 Dividends paid   (15,041) (12,856) Movement in investment in own shares 12 154 556 Exchange differences on translation of foreign operations 12 (72) 35 Movement in share based payment reserve 12 321 195 Adjustment in share scheme vesting 12 647 (285) -------------------------------------------------------------------------------- Closing equity   80,595 70,744 -------------------------------------------------------------------------------- CONSOLIDATED CASH FLOW STATEMENT Year Year ended ended   Note 27 March 28 March 2011 2010 £000 £000 ------------------------------------------------------------------------------ Net cash flow from operating activities 14 31,137 24,986 ------------------------------------------------------------------------------ Investing activities Investment income   70 224 Purchases of property, plant and equipment   (3,160) (2,700) Proceeds from disposal of property, plant and equipment   61 93 Acquisition of subsidiaries 11 - (28,942) Investment   (30) (30) Purchase of own shares 12 - (490) Loan to joint venture 7 (1,350) (1,750) ------------------------------------------------------------------------------ Net cash used in investing activities   (4,409) (33,595) ------------------------------------------------------------------------------ Financing activities Repayments of obligations under finance leases   (22) (8) Dividends paid 4 (15,041) (12,856) (Repayment) / receipt of short-term borrowings 10 (6,000) 6,000 ------------------------------------------------------------------------------ Net cash used in financing activities   (21,063) (6,864) ------------------------------------------------------------------------------ Net increase / (decrease) in cash and cash equivalents   5,665 (15,473) ------------------------------------------------------------------------------ Cash and cash equivalents at beginning of year   20,769 36,345 Effect of foreign exchange rate changes   30 (103) ------------------------------------------------------------------------------ Cash and cash equivalents at end of year   26,464 20,769 ------------------------------------------------------------------------------ NOTES TO THE FINANCIAL INFORMATION 1. Accounting policies This financial information has been prepared on an historical cost basis and on the basis of the policies set out below. Basis of preparation 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 years ended 27 March 2011 or 28 March 2010, but is derived from those accounts. Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 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 statements under s498(2) or (3) Companies Act 2006 or equivalent preceding legislation. The financial information complies with the recognition and measurement criteria of IFRS, and with the accounting policies of the group which were set out on pages 33 to 35 of the 2010 annual report and accounts. No subsequent material changes have been made to the group's accounting policies. The directors are satisfied that the group has adequate resources to continue in operational existence for the foreseeable future, a period of not less than 12 months from the date of this report. 2. Segmental reporting, revenue, net revenue and cost of sales (i) Segmental information PayPoint is a service provider for consumer payment transactions (payments and receipts) through various distribution channels, involving the processing of high volume transactions, the management of retailers and clients, the settlement of funds (collection and transmission) and transmission of data in a secure environment, by the application of technology. The application of technology is directed on a group basis by the group's executive (consisting of the Chief Executive Officer, Finance Director, Business Development Director and Chief Information Officer) to develop products across the business, prioritised on an economic value basis (generally by product), rather than on a subsidiary by subsidiary basis. As the business has high fixed operating costs, the company regards the analysis of net revenue as the most reliable indication of contribution on a product by product basis and net revenue analysis is shown in the operating and financial review. Whilst the group has a number of different products, these do not meet the definition of different segments under IFRS 8 and, therefore, the group has only one reportable class of business, being a payment service provider for consumer payment transactions. (ii) Revenue, net revenue and cost of sales Revenue comprises the value of sales (excluding sales taxes) of services in the normal course of business. Revenue performance of the business is measured by net revenue, which is calculated as the total revenue from clients less commissions paid to retail agents, the cost of mobile top-ups and SIM cards where PayPoint is principal and costs incurred by PayPoint which are recharged to clients and merchants. These costs include retail agent commission, merchant service charges levied by card scheme sponsors and costs for the provision of call centres for PayByPhone clients. Year Year Net revenue ended ended   27 March 28 March 2011 2010 £000 £000 ----------------------------------------------------------------------------- Revenue - transaction processing 191,742 195,008               - rental income from ATMs 1,491 1,595 -----------------------------------------------------------------------------   193,233 196,603 less: Commission payable to retail agents (71,322) (73,178) Cost of mobile top-ups and SIM cards as principal (37,696) (43,520) Card scheme sponsor's charges and call centre charges (1,492) (2,499) ----------------------------------------------------------------------------- Net revenue 82,723 77,406 ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- Cost of sales Commission payable to retail agents 71,322 73,178 Cost of mobile top-ups and SIM cards as principal 37,696 43,520 Card scheme sponsor's charges and call centre charges 1,492 2,499 Depreciation and amortisation 3,612 4,820 Other 8,445 9,093 ----------------------------------------------------------------------------- Total cost of sales 122,567 133,110 ----------------------------------------------------------------------------- Geographical information ----------------------------------------------------------------------------- Revenue UK 148,737 147,658 Ireland 22,475 24,476 Romania 21,036 24,386 North America 985 83 ----------------------------------------------------------------------------- Total 193,233 196,603 ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- Non-current assets UK 71,850 73,290 Ireland - 14 Romania 2,329 1,422 North America 489 211 ----------------------------------------------------------------------------- Total 74,668 74,937 ----------------------------------------------------------------------------- 3. Tax Year Year ended ended   27 March 28 March 2011 2010 £000 £000 -------------------------------------------------------------------------------- Current tax Charge for current year 10,869 10,178 Adjustment in respect of prior years (304) 394 -------------------------------------------------------------------------------- Current tax charge 10,565 10,572 -------------------------------------------------------------------------------- Deferred tax Credit for current year (51) (110) Adjustment in respect of prior years 100 51 -------------------------------------------------------------------------------- Deferred tax charge / (credit) 49 (59) -------------------------------------------------------------------------------- Total income tax -------------------------------------------------------------------------------- Income tax charge 10,614 10,513 -------------------------------------------------------------------------------- The income tax charge is based on the United Kingdom statutory rate of corporation tax for the year of 28% (2010: 28%) -------------------------------------------------------------------------------- The charge for the year can be reconciled to the profit before tax as set out in the consolidated income statement Profit before tax 34,456 32,645 -------------------------------------------------------------------------------- Tax at the UK corporation tax rate of 28% (2010: 28%) 9,648 9,141 Tax effects of: Losses in countries where the tax rate is different to the UK 109 304 Disallowable expenses / (non-taxable income) 61 (6) Utilisation of tax losses not previously recognised (85) - Losses in companies where a deferred tax asset is not recognised 652 408 Adjustments in respect of prior years (204) 445 Deferred tax impact of share based payments 393 221 Revaluation of deferred tax asset from 28% to 27% 40 - -------------------------------------------------------------------------------- Actual amount of tax charge 10,614 10,513 -------------------------------------------------------------------------------- 4. Dividends on equity shares Year Year ended ended   27 March 28 March 2011 2010 £000 £000 -------------------------------------------------------------------------------- Equity dividends on ordinary shares: Interim dividend paid of 7.8p per share (2010: 7.4p) 5,276 5,008 Proposed final dividend of 15.6p per share (2010: paid 14.4p per share) 10,576 9,756 -------------------------------------------------------------------------------- Total dividends paid and recommended 23.4p per share (2010: 21.8p per share) 15,852 14,764 -------------------------------------------------------------------------------- Amounts distributed to equity holders in the year: Final dividend for the prior year 9,765 7,848 Interim dividend for the current year 5,276 5,008 --------------------------------------------------------------------------------   15,041 12,856 -------------------------------------------------------------------------------- The proposed final dividend is subject to approval by shareholders at the annual general meeting and has not been included as a liability in these financial statements. 5. Earnings per share Basic earnings per share Basic and diluted earnings per share are calculated on the following profits and number of shares. Year Year ended ended   27 March 28 March 2011 2010 £000 £000 -------------------------------------------------------------------------------- Profit for basic and diluted earnings per share is the net profit attributable to equity holders of the parent 23,842 22,132 -------------------------------------------------------------------------------- 27 March 28 March   2011 2010 Number of shares Number of shares -------------------------------------------------------------------------------- Weighted average number of ordinary shares in issue (for basic earnings per share) 67,721,190 67,170,830 Potential dilutive ordinary shares: Long-term incentive plan - 427,415 Deferred share bonus 157,914 133,313 -------------------------------------------------------------------------------- Diluted basis 67,879,104 67,731,558 -------------------------------------------------------------------------------- 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 to perpetuity. Terminal values are based on growth rates that do not exceed three per cent. The post tax rate used to discount the forecast cash flows is based on the group's estimated weighted average cost of capital of 8.5%, adjusted for country or business specific risk premiums of up to 1.5%. Equivalent pre-tax rates would be 12% for the UK and 11% for Romania.   Total   £000 ----------------------------------------- Cost At 28 March 2010 56,872 Adjustment (see note 11) 446 Exchange rate adjustment (185) ----------------------------------------- At 27 March 2011 57,133 ----------------------------------------- Accumulated impairment losses At 28 March 2010 - ----------------------------------------- Impairment losses for the year At 27 March 2011 - ----------------------------------------- Carrying amount At 27 March 2011 57,133 ----------------------------------------- At 28 March 2010 56,872 -----------------------------------------   Total £000 -------------------------------------------------- Cost At 29 March 2009 27,628 Recognised on acquisition of subsidiary 29,168 Exchange rate adjustment 76 -------------------------------------------------- At 28 March 2010 56,872 -------------------------------------------------- Accumulated impairment losses At 28 March 2010 - -------------------------------------------------- Impairment losses for the year - At 28 March 2010 - -------------------------------------------------- Carrying amount -------------------------------------------------- At 28 March 2010 56,872 -------------------------------------------------- At 29 March 2009 27,628 -------------------------------------------------- 6. Goodwill continued Goodwill arising on acquisition: 27 March 28 March   2011 2010 £000 £000 ---------------------------------------- PayPoint.net 18,207 18,207 PayPoint Romania 9,312 9,497 PayByPhone 29,614 29,168 ---------------------------------------- Total 57,133 56,872 ---------------------------------------- For PayPoint Romania, the difference between the recoverable amount and the carrying amount at year end was £6.2 million. Headroom would reduce to £nil if either the forecast average growth in revenue for the next four years of 19.5% reduced to 16% per annum or if the discount rate applied to the forecast cash flows were to increase from 10% to 13.4%. Management does not consider that a reasonably possible change in one or more key assumptions during the next year could cause the recoverable amount of the other cash generating units to fall below their carrying amount. 7. Investment in joint venture On 5 February 2009, PayPoint agreed a 50:50 joint venture with Yodel (formerly 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 joint 27 March 28 March ventures 2011 2010 £000 £000 -------------------------------------------------------------------------------- Total assets 644 545 Total liabilities (3,609) (1,969) -------------------------------------------------------------------------------- Share of net assets (2,965) (1,424) Loan to joint venture (note 13) 3,100 1,750 -------------------------------------------------------------------------------- Investment in joint venture 135 326 -------------------------------------------------------------------------------- Year Year ended ended   27 March 28 March 2011 2010 £000 £000 -------------------------------------------------------------------------------- Revenues 1,002 205 Loss for year (1,541) (1,601) -------------------------------------------------------------------------------- 8. Deferred tax asset   Credit / (charge) to   28 March income statement Debit to equity 27 March 2010 £000 £000 2011 £000 £000 -------------------------------------------------------------------------------- Tax depreciation 1,320 (16) - 1,304 Share based payments 239 (132) - 107 Tax losses - - - - Intangibles (392) 99 - (293) Short term temporary differences - (2) - (2) -------------------------------------------------------------------------------- Total 1,167 (51) - 1,116 --------------------------------------------------------------------------------   Credit / (charge) to   29 March income statement Debit to equity 28 March 2009 £000 £000 2010 £000 £000 -------------------------------------------------------------------------------- Tax depreciation 1,137 183 - 1,320 Share based payments 421 (162) (20) 239 Tax losses 36 (36) - - Intangibles (517) 125 - (392) Short term temporary differences 51 (51) - - -------------------------------------------------------------------------------- Total 1,128 59 (20) 1,167 -------------------------------------------------------------------------------- At the balance sheet date a deferred tax asset of £1.1 million (2010: £1.2 million) 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 £7.6 million (2010: £5.1 million) available for offset against future profits for which no deferred tax asset is recognised. Included in unrecognised tax losses are losses of £2.0 million which will expire in less than three years, £3.2 million that will expire within four to seven 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. The government has announced a further reduction in the main rate of corporation tax from 28% to 26% effective from 1 April 2011, which was substantially enacted after 27 March 2011. The government has also indicated that it intends to enact future reductions in the main tax rate of 1% each year down to 23% by 1 April 2014.  The future 1% main tax rate reductions are expected to have a similar impact as for 2011; however, the actual impact will be dependent on the deferred tax position at that time. 9. Cash and cash equivalents Included within group cash and cash equivalents is £6,132,000 (2010: £6,818,000) relating to monies collected on behalf of clients where the group has title to the funds (client cash). An equivalent balance is included within trade payables. The group operates cash pooling amongst its various bank accounts in the UK and therefore individual accounts can be overdrawn without penalties being incurred so long as the overall position is in credit. At 27 March 2011, the group's cash was £26,464,000 (2010: £20,769,000). 10. Short-term borrowings   Group 27 March 28 March   2011 2010 £000 £000 --------------------------------- Bank loan - 6,000 --------------------------------- During the year, the £6 million loan was repaid and the balance outstanding at the end of the year was £nil. 11. Acquisition of subsidiary On 9 March 2010, the group acquired 100 per cent of the issued share capital of Verrus Mobile Technologies Inc. and Verrus UK Limited (together known as PayByPhone) for cash consideration of £29 million. In addition, there was potential for a further £4 million dependent on financial results until March 2013, which has subsequently been waived by the beneficiaries. On acquisition of Verrus Mobile Technologies Inc. and Verrus UK Limited the group recognised £29.2 million of goodwill. During the year it became apparent that the group would be unlikely to receive £0.4 million from a debtor and its fair value was reduced and the goodwill increased, accordingly. 12. Equity   2011 2010 £000 £000 -------------------------------------------------------------------------------- Authorised share capital 4,365,352,200 ordinary shares of 1/3p each (2010 4,365,352,200: ordinary shares of 1/3p each) 14,551 14,551 --------------------------------------------------------------------------------   14,551 14,551 -------------------------------------------------------------------------------- Called up, allotted and fully paid share capital 67,795,702 ordinary shares of 1/3p each (2010: 67,754,202 ordinary shares of 1/3p each) 226 226 --------------------------------------------------------------------------------   226 226 -------------------------------------------------------------------------------- Called up share capital At start of year 226 226 -------------------------------------------------------------------------------- At end of year 226 226 -------------------------------------------------------------------------------- Investment in own shares At start of year (370) (926) Acquired in year - (490) Used on share scheme vesting 154 1,046 -------------------------------------------------------------------------------- At end of year (216) (370) -------------------------------------------------------------------------------- Share premium At start of year 25 25 Arising on issue of shares - - -------------------------------------------------------------------------------- At end of year 25 25 -------------------------------------------------------------------------------- Share based payment reserve At start of year 2,684 2,489 Additions in year 1,088 942 Released in year (801) (761) Current tax on awards - 34 Other adjustments 34 (20) -------------------------------------------------------------------------------- At end of year 3,005 2,684 -------------------------------------------------------------------------------- Translation reserve At start of year 543 508 Movement during year (72) 35 -------------------------------------------------------------------------------- At end of year 471 543 -------------------------------------------------------------------------------- Retained earnings At start of year 67,636 58,645 Profit for year 23,842 22,132 Non-controlling interest loss for year included in above 41 - Dividends paid (15,041) (12,856) Adjustment on share scheme vesting   647 (285) -------------------------------------------------------------------------------- At end of year 77,125 67,636 -------------------------------------------------------------------------------- The long term incentive plan tranche did not vest on 11 June 2010 because the group did not meet the performance measure. Under IFRS 2, the fair value charges of £647,000 relating to this tranche, which had been previously charged to the income statement, are reversed through equity. The deferred share bonus vested in June 2010 and accordingly the group used £154,000 of its investment in own shares to satisfy the award. 13. Related party transactions PayPoint has entered into a loan agreement with its 50:50 joint venture Drop and Collect Limited (trading as Collect+) and during the year it has lent Drop and Collect Limited an additional £1.4 million bringing the total loan to £3.1 million. The terms of the loan are: * Interest payable annually at a rate of 3 months LIBOR. * Repayable upon termination of the joint venture or upon demand by the lender. The company and its subsidiaries, in the ordinary course of business, enter into various sales, purchase and service transactions with joint ventures 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. PayPoint has a small investment in OB10, a company that specialises in electronic invoicing. During the year, PayPoint subscribed for a further £30,125 of shares under a rights issue, resulting in a shareholding at 27 March 2011 of 1.02% (28 March 2010: 1.04%). In the view of the directors, the aggregate cost of £435,000 represents the fair value of the investment in the shares. David Newlands, Dominic Taylor, George Earle, Eric Anstee and Nick Wiles all hold shareholdings in OB10 as follows: Year Year ended ended Directors' shareholding in OB10 27 March 28 March 2011 2010 £000 £000   % % ------------------------------------------------------- David Newlands 2.87 4.73 Dominic Taylor 1.44 1.42 George Earle 0.40 0.42 Nick Wiles 1.02 1.04 Eric Anstee 0.08 0.08 ------------------------------------------------------- 14. Notes to the cash flow statement   Group Year Year ended ended   27 March 28 March 2011 2010 £000 £000 -------------------------------------------------------------------------------- Profit  before tax 34,456 32,645 Adjustments for: Depreciation of property, plant and equipment 3,295 4,286 Amortisation of intangible assets 317 534 Share of losses in joint venture 1,541 1,601 Net interest expense / (income) 55 (174) Share based payment charge 1,088 942 -------------------------------------------------------------------------------- Operating cash flows before movements in working capital 40,752 39,834 Decrease / (increase) in inventories 209 (373) Decrease in receivables 6,337 2,385 Decrease in payables - client cash (686) (729) - other payables (4,476) (2,386) -------------------------------------------------------------------------------- Cash generated by operations 42,136 38,731 Corporation tax paid (10,950) (13,702) Interest and bank charges paid (49) (43) -------------------------------------------------------------------------------- Net cash from operating activities 31,137 24,986 -------------------------------------------------------------------------------- ABOUT PAYPOINT PayPoint is a leading international provider of convenient payments and value added services to major consumer service organisations in the utility, telecoms, media, financial services, transport, retail, gaming and public sectors. We handle over £10 billion from 590 million transactions annually for more than 6,000 clients and merchants.  We deliver payments and services through a uniquely strong combination of local shops, internet and mobile distribution channels. Retail networks PayPoint operates branded retail networks in the UK, Ireland and Romania.  The network in the UK numbers 23,000 terminals in local shops (including Co-op, Spar, McColls, Costcutter, Sainsburys Local, One Stop, Londis and thousands of independents) in all parts of the UK. Our terminals process energy meter prepayments, cash bill payments, mobile phone top-ups, transport tickets, BBC TV licences and a wide variety of other payment types for most leading utilities and many telecoms and consumer service companies. In Romania, the branded retail network numbers 6,000 terminals located in local shops across the country and is expanding.  Our terminals process cash bill payments for utilities and mobile phone top-ups. In the Republic of Ireland, we have over 500 terminals in shops and Credit Unions processing mobile top-ups and bill payments. We also supply added value services to our retail agents to improve the yield from our network.  In the UK, we have a consumer parcel drop off and collection service using PayPoint's retail network through Collect+, a joint venture with Yodel (formerly Home Delivery Network). This service is already available in 3,700 of our convenience retail agents. Clients include ASOS, Littlewoods, Woolworths, New Look, Very, Boden, Mobile Phone Xchange and Great Universal.  In addition, in the UK, we have over 2,500 LINK branded ATMs, mainly in the same sites as our terminals. Internet payments PayPoint.net is an internet payment service provider, linking into all major UK acquiring banks to deliver secure online credit and debit card payments for over 5,500 web merchants, including Stan James, 32Red, Sportingbet, PKR, Betsson, Moonpig, Moneysupermarket.com, Severn Trent Water, Ann Summers, Links of London, Funky Pigeon, Mr & Mrs Smith and British Gas Home Vend.  We offer a comprehensive set of products ranging from a transaction gateway through to a bureau service, in which we take the merchant credit risk and manage settlement for the merchants.  We offer real-time reporting for merchant transactions and Fraudguard, an advanced service to mitigate the risk of fraud for card not present transactions. Mobile payments PayByPhone is a leading international provider of services to parking authorities allowing consumers to use their mobile phones to pay for their parking by credit or debit card.  It has contracts in the UK, Canada, USA and France. PayPoint is widely recognised for its leadership in payment systems, smart technology and consumer service. Our high quality services are backed by a 24/7 operations centre with dual site processing for business continuity. PayPoint sustains its competitive differentiation by aiming to meet clients' payment needs, not just through a wide spectrum of payments, but also with products that span payment channels.  For example, PayCash enables cash payment for internet transactions at PayPoint retail agents and our new home vending solutions allow consumers to pay across the internet as well as through our retail network. PayPoint as This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients. The owner of this announcement warrants that: (i) the releases contained herein are protected by copyright and other applicable laws; and (ii) they are solely responsible for the content, accuracy and originality of the information contained therein. Source: Paypoint plc via Thomson Reuters ONE [HUG#1518935]

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