Paypoint Regulatory News (PAY)

25 May 2006 07:01

PayPoint PLC25 May 2006 25 May 2006 PayPoint plc Preliminary results for the year ended 31 March 2006 FINANCIAL HIGHLIGHTS Year ended Year ended 31 March 31 March 2006 2005 Increase £m £m %Revenue 120 89 35Net revenue (1,4) 46 37 25Operating profit before exceptional items (4) 19 12 60Operating profit 19 7 159Profit before tax 20 8 152 Basic earnings per share 25.0p 8.7p 186Adjusted earnings per share (2,4) 25.0p 15.5p 61Proposed final dividend per share 7.5p 5.2p 44 OPERATIONAL HIGHLIGHTS • Transactions processed up 24% to 322 million with strong growth in all sectors• Increased market share of utility and TV Licensing payments• Prepaid energy transactions stimulated by cold weather and energy price increases• Operating margins (3,4) increased from 33% to 42%• PayPoint terminal outlets have increased to over 15,000, up 17% on March 2005• New, faster, more reliable terminal rolled out to agents David Newlands, Chairman of PayPoint, said "We have had an excellent year. Theimprovements in our range of products and services, brand awareness and theincrease in our network all stimulated revenue growth. Our operational gearinghas delivered most of the growth in net revenue to the bottom line. The BBC TVLicence contract awarded to PayPoint in March, marks a major milestone in theCompany's development, reinforcing our credibility as a sole provider of anational service. We are securing capacity for future profitable growth byinvesting in infrastructure including new communications and polling hardware,development of new peripheral information technology systems and therefurbishment and extension of our operating base. We are confident ofcontinuing growth in the current year in which trading has started well." 1 Net revenue is revenue less commissions payable to retail agents and the cost of those mobile top-ups where PayPoint is the principal.2 Adjusted earnings per share are based on profits before exceptional items after taxation.3 Operating margins are operating profit before exceptional items expressed as a percentage of net revenue.4 Net revenue, operating profit before exceptional items, adjusted earnings per share and operating margins are measures which the directors believe assist with a better understanding of the underlying performance of the group. The reconciliation to statutory amounts can be found in notes 2 and 6 and on the face of the consolidated income statement. Enquiries: PayPoint plc 01707 600 300Dominic Taylor, Chief ExecutiveGeorge Earle, Finance Director Finsbury 020 7251 3801Rollo HeadDon Hunter This announcement is available on the PayPoint plc website: http://www.paypoint.com About PayPoint PayPoint is a leading branded payment collection network used, primarily, forthe cash payment of bills and services and prepayments for mobile telephones andenergy meters. There are over 15,000 retail outlets using PayPoint's paymentterminals. Its clients include most of the UK and Ireland's major energy, cable, mobile andfixed line telephony companies. Its blue chip client list also extends tonumerous water companies, local authorities, housing associations, credit unionsand a growing transport and travel base. BUSINESS REVIEW The business review has been prepared solely to provide additional informationto shareholders as a body to assess PayPoint's strategies and the potential forthose strategies to succeed, and it should not be relied upon for any otherpurpose. It contains forward looking statements that have been made by thedirectors in good faith based on the information available at the time of theapproval of the annual report and such statements should be treated with cautiondue to the inherent uncertainties, including both economic and business riskfactors, underlying any such forward looking information. Operational overview We have continued to grow in all sectors. This growth has been achieved throughthe success of our strategy to: • broaden our customer service proposition and increase the range of payments through our network; and• grow and optimize our network coverage. During the financial year, PayPoint processed 322 million consumer transactions(2005: 260 million), an increase of 24%, with a value of £3.8 billion (2005:£2.9 billion), up 29%. Commissions paid to agents of £64 million were up 26%,reflecting increased volumes and the heavier mix of ATM transactions, whichcarry higher agent commission values. There has been strong growth in transaction volumes across all sectors: 2006 2005 IncreaseTransactions by sector million million %Bill and general payments* 205.0 167.3 23Mobile top-ups 108.2 87.9 23ATMs 8.9 4.6 93Total 322.1 259.8 24* including debit / credit transactions Bill and general payments PayPoint has performed well in this sector with growth stimulated by increasedagent numbers, client payment options and brand awareness. Performance has beenhelped by a migration of market share away from the Post Office, following itsbranch closure programme, in particular with respect to TV licence payments andutility bill payments. A major new contract with TV Licensing will add totransaction volumes. In prepaid energy transactions, the combined effect of colder than averagetemperatures compared to last year and substantial energy consumer priceincreases, have also continued to have a beneficial effect on PayPoint'stransaction volume, as average transaction values have remained broadly thesame. In transport, we have extended our geographical coverage by signing newcontracts with First and Greater Manchester Travelcards, in addition to ourexisting contracts with Arriva, National Express and Lothian. Whilst currentvolumes in transport ticketing are relatively modest, there is considerablepotential for long term growth if transport authorities take steps to moveticket purchasing off buses. We are also discussing contracts with otheroperators and transport executives. A new contract with Western Union will allow PayPoint retail agents to processmoney transfers to and from Western Union agents all over the world. We areexpecting to roll out this service this year to selected agents. In the rest of the sector (other than prepaid and transport), growth has alsobeen strong. Mobile top-ups Overall market share is c.27% (last year c.23%) as a result of extending theretail network and the agent re-branding programme through all our independentoutlets and over 1,200 of our multiple sites. Two of our major multiple retailers were expected to transfer mobile top-upsfrom our terminals to their own till systems during the year, producing lowerrevenues for PayPoint. One retailer largely completed the transfer in the year.The other retailer is now expected to complete the transfer in the currentfinancial year. The adverse impact on revenues is estimated at £0.5 million inthe year under review, rising to a full year impact of £1.5 million when thetransfer is completed. Automatic Teller Machines (ATMs) Installations have continued in excess of 50 per month, at a broadly similarrate to the whole of last year. Decommissions have, however, increased over lastyear because we have taken a more rigorous approach to the removal of poorperformers. As a result, the installed estate has performed better thanexpected, with sites averaging 600 transactions per month, split evenly betweencash withdrawals and balance enquiries. Installed ATMs have grown to 1,451(2005: 957). Network growth Strong demand for new PayPoint terminal outlets continues and the retail networkhas grown to 15,296 sites at 31 March 2006, a net increase of nearly 2,200 up17% on 2005. We have added over 3,200 sites and, in addition to normal churn, wedecommissioned poorly performing sites, which were not required to maintaincoverage and in which the investment in a new terminal was not worthwhile. 2,300 sites with our terminals also have EPoS connections (2005: 2,000), toallow mobile top-up transactions over the retailers' own till systems and thereare a further 2,780 EPoS only sites (2005: 2,880). New terminal The second generation terminal is proving to be popular with retailers. The newterminal offers much faster processing, better reliability and new functionalitythrough a touch screen and a contactless smartcard reader. These functions helpin the introduction of new products, including the new transport ticketingschemes. The new terminal design is also chip and PIN compliant. The replacementof the old terminals, which commenced in October 2004, is now complete. Financial overview Revenue for the financial year was up 35% at £120 million (2005: £89 million),driven by a 24% increase in transaction volumes and the increase in revenue fromthe sale of mobile top-ups in Ireland where PayPoint is the principal. Cost ofsales was £83 million (2005: £61 million) an increase of 36%. Cost of salescomprises commission paid to agents, the cost of mobile top-ups where PayPointacts as principal, depreciation and other items including telecommunicationscosts. Agents' commission increased to £64 million (2005: £50 million), up 26%,slightly ahead of volume growth as a result of the heavier mix of ATMtransactions which carry higher than average agent commissions. The cost ofmobile top-ups where PayPoint acts as principal has risen to £10 million, as aresult of a more than a fivefold increase in the sale of mobile top-ups inIreland over the previous year. Depreciation has increased to £2.3 million(2005: £1.8 million) as a result of the new terminal deployment. Net revenue (1) of £46 million (2005: £37 million) was up 25%, driven primarily byvolume growth. Operating margins (2) were 42% (2005: 33%), benefiting fromoperational gearing and also from a delay in the migration of mobile top-ups, intwo of our multiple retailers, from our terminals to those retailers' own tillsystems. Gross profit improved to £37 million (2005: £28 million), 33% ahead of lastyear, with a gross margin of 30% (2005: 31%). Were it not for the inclusion ofthe full face value of the Irish mobile top-ups in revenue and their costswithin cost of sales, the gross margin would have increased by 1.6 percentagepoints. Operating costs (administrative expenses) before exceptional items have risen to£17 million (2005: £16 million), an increase of 10%, driven by the increase instaff numbers, including the broadening of the senior management team in retail,corporate finance and information technology during the year. Operating profitbefore exceptional charges was £19 million (2005: £12 million) with acorresponding increase in operating margins2 as noted above. 1 Net revenue is revenue less commissions payable to agents and the cost of those mobile top-ups where PayPoint is the principal.2 Operating margins are calculated as operating profit before exceptional items as a percentage of net revenue. Profit before tax was £20 million, up 152% on the previous year (2005: £8million). The tax charge was £3.4 million, which mainly relates to current taxfollowing the utilisation of the remaining tax losses which arose in previousyears. The tax charge is expected to rise towards 30% in the current year. Operating cash flow was £14 million (2005: £17 million), reflecting strongconversion of profit to cash offset by the adverse impact of £5 million inrespect of the cash held over the Easter bank holiday weekend at the end of theprevious financial year for mobile operators. PayPoint has legal title to thiscash (client cash), but there is an equal amount included in liabilities. Netcapital expenditure of £7 million (2005: £5 million) reflected spend on the newterminals, ATMs infrastructure assets and the start of the office refurbishment,which will be completed in the current financial year. Net interest received of£1 million (2005: £0.6 million) is as a result of increased cash balances duringthe year. Equity dividends paid were £5.5 million (2005: £0.8 million). Cash andcash equivalents were £29 million, including client cash of £5 million, up £3million from £26 million, including client cash of £11 million, at 31 March 2005. Dividend We recommend a final dividend of 7.5p per share to shareholders, subject toapproval of the shareholders at the annual general meeting on 29 June 2006. Thedividend will be paid on 3 July to shareholders on the register on 2 June 2006,which, together with the interim dividend of 3p per share paid on 2 January2006, makes a total of 10.5p per share for the year under review. Liquidity The group has cash of £24 million excluding client cash and an unsecured 5 yearloan facility of £35 million. Financing and treasury policy The policy requires a prudent approach to the investment of surplus funds,external financing, settlement, foreign exchange risk and internal controlstructures. The policy prohibits the use of financial derivatives and setslimits for gearing, cash interest cover and dividend cover. International Financial Reporting Standards (IFRS) Under European Union legislation all listed groups are required to report underIFRS for accounting periods commencing on or after 1 January 2005. The interimresults for the six months ending 30 September 2005 were also prepared inaccordance with IFRS principles, with comparative figures being restated asappropriate. There were no substantial changes to the reported results under UKgenerally accepted accounting principles, other than the reversal of accrualsfor dividends payable and the reclassification of an accrual for share basedpayments from liabilities to equity. Charitable donations During the year PayPoint provided a scheme to allow the public to make donationsto the Disasters Emergency Committee (DEC) for the Asia earthquake appealthrough our network of agents at no cost to DEC. Our agents collected £27,000for the Asia earthquake appeal (2005: £140,500 for the Tsunami) and we wouldlike to thank our agents for accepting these donations at no commission. For thecurrent financial year PayPoint has elected to sponsor a charity for the yearand we are pleased to be sponsoring MacMillan Cancer Relief. Employees We would like to take this opportunity to thank our staff for their commitment,energy and enthusiasm in achieving their targets that underpin the delivery ofthese results. Outlook There are many opportunities to grow the business in the UK and Ireland withgood prospects in all sectors, in particular through broadening the range ofpayments across the PayPoint retail network. Retail network growth andoptimisation will remain priorities and whilst the current focus forinternational expansion is on Eastern Europe, we will also review otheropportunities. Strong cash generation should continue, although capitalexpenditure on the refurbishment and peripheral information technology systemsalong with the increased dividends and tax payments will deplete cash balancesin the first half of the current year. We are confident of continuing growth inthe current year, in which trading has started well. David Newlands Dominic TaylorChairman Chief Executive 25 May 2006 CONSOLIDATED INCOME STATEMENTYear ended 31 March 2006 Note 2006 2005 £000 £000Revenue 2 119,968 89,054Cost of sales 2 (83,409) (61,332)Gross profit 36,559 27,722Administrative expenses (17,248) (20,257)Add back exceptional items 3 - 4,572Administrative expenses excluding (17,248) (15,685)exceptional itemsOperating profit before exceptional items 19,311 12,037Exceptional item 3 - (4,572)Operating profit 19,311 7,465Investment income 1,051 937Finance costs (15) (339)Profit before tax 20,347 8,063Tax 4 (3,440) (2,215)Profit for the financial year 16,907 5,848attributable to equity holders of the parent Earnings per shareBasic 6 25.0p 8.7pDiluted 6 24.7p 8.7p The results are presented under IFRS and comparatives have been restatedaccordingly (see note 1).There have been no gains or losses attributable to the shareholders other thanthe profit for the current and preceding financial year, and accordingly noStatement of Recognised Income and Expenses is presented. CONSOLIDATED BALANCE SHEETat 31 March 2006 Note 2006 2005 £000 £000Non-current assetsProperty, plant and equipment 7 8,894 4,617Deferred tax asset 8 1,184 1,385 10,078 6,002Current assetsInventories 1,119 472Trade and other receivables 12,112 7,752Cash and cash equivalents 9 29,295 25,950 42,526 34,174Total assets 52,604 40,176 Current liabilitiesTrade and other payables 21,371 22,790Current tax liabilities 1,972 -Obligations under finance leases 67 158 23,410 22,948 Non-current liabilitiesObligations under finance leases - 67Other liabilities 344 234 344 301Total liabilities 23,754 23,249 Net assets 28,850 16,927EquityShare capital 10 226 226Share premium account 10 23,976 23,976Capital redemption reserve 10 14,193 14,193Investment in own shares 10 (1) (1)Share option and SIP reserve 10 738 219Retained earnings 10 (10,282) (21,686)Total equity attributable to equity 11 28,850 16,927holders of the parent company CONSOLIDATED CASH FLOW STATEMENTYear ended 31 March 2006 Note 2006 2005 £000 £000Net cash flow from operating activities 12 14,318 17,164Investing activitiesInvestment income 1,051 937Purchases of property, plant and equipment (6,504) (4,576)Proceeds on disposal of property, plant 196 408and equipmentNet cash used in investing activities (5,257) (3,231) Financing activitiesRepayments of obligations under finance leases (213) (1,032)Dividends paid 5 (5,503) (783)Net cash used in financing activities (5,716) (1,815)Net increase in cash and cash equivalents 3,345 12,118Cash and cash equivalents at beginning of year 25,950 13,832Cash and cash equivalents at end of year 29,295 25,950 NOTES TO THE FINANCIAL STATEMENTS 1. Accounting policies The financial information set out in this press release does not constitute theCompany's statutory accounts for the years ended 31 March 2006 or 2005, but isderived from those accounts. Statutory accounts for 2005 have been delivered tothe Registrar of Companies and those for 2006 will be delivered following theCompany's annual general meeting. The auditors have reported on those accounts;their reports were unqualified and did not contain statements under s. 237(2) or(3) Companies Act 1985. This financial information has been prepared on a historical cost basis and onthe policies set out below. Basis of preparationWhilst the financial information included in this preliminary announcement hasbeen computed in accordance with International Financial Reporting Standards(IFRS), this announcement does not itself contain sufficient information tocomply with IFRS. The Company will publish full financial statements that complywith IFRS in due course. At the date of authorisation of this financial information, the followingStandards and Interpretations which have not been applied in this financialinformation were in issue but not yet effective: IFRS 6 Exploration for and Evaluation of Mineral ResourcesIFRS 7 Financial Instruments: Disclosures; and the related amendment to IAS 1 on capital disclosuresIFRIC 4 Determining whether an Arrangement contains a LeaseIFRIC 5 Right to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds The directors do not anticipate that the adoption of these Standards andInterpretations will have a material impact on the financial statements of theGroup. The financial information is presented in pounds sterling because it is thecurrency of the primary economic environment in which the Group operates. Management consider that there are no critical accounting judgements and keysources of estimation uncertainty in applying the Group's accounting policies. The principal accounting policies adopted are set out below. Basis of consolidationPayPoint plc (the Company) acts as a holding company. The group accountsconsolidate the accounts of the Company and entities controlled by the Company(its subsidiaries) drawn up to March each year. Control is achieved where theCompany has the power to govern the financial and operating policies of anentity in which it invests, so as to obtain benefits from its activities. Theresults of subsidiaries acquired or sold are consolidated for the periods fromor to the date on which control passed. All intra-group transactions, balances,income and expenses are eliminated on consolidation. The acquisition of subsidiaries is accounted for using the purchase method.Investments are stated at cost less any required provision for impairment. Thecost of the acquisition is measured at the aggregate of the fair values, at thedate of exchange, of assets given, liabilities incurred or assumed, and equityinstruments issued by the Group in exchange for control of the acquiree, plusany costs directly attributable to the business combination. The acquiredidentifiable assets, liabilities and contingent liabilities that meet theconditions for recognition under IFRS 3 are recognised at their fair value atthe acquisition date, except for non-current assets that are classified as heldfor resale in accordance with IFRS 5 Non Current Assets Held for Sale andDiscontinued Operations, which are recognised and measured at fair value lesscosts to sell. Goodwill arising on acquisition is recognised as an asset and initially measuredat cost, being the excess of the cost of the business combination over theGroup's interest in the net fair value of the identifiable assets, liabilitiesand contingent liabilities recognised. If, after reassessment, the Group'sinterest in the net fair value of the acquiree's identifiable assets,liabilities and contingent liabilities exceeds the cost of the businesscombination, the excess is recognised immediately in profit or loss. Revenue recognitionGroup revenue is measured at the fair value of the consideration received orreceivable and comprises the value of sales (excluding VAT) of services in thenormal course of business. Revenue is wholly attributable to the operation ofthe Group's payment collection system and ATM business and has arisen solely inthe United Kingdom and Republic of Ireland. Revenue and cost of sales are recorded according to the actual transactions thatoccur in a given period. In Ireland, PayPoint is principal in the supply chainfor prepaid mobile telephone top-ups (mobile top-ups). Accordingly, revenueincludes the sale price of the mobile top-ups and the cost of sales includes thecost of the mobile top-ups to PayPoint. Dividend income from investments is recognised when the shareholders' rights toreceive payment have been established. Cost of salesCost of sales includes agents' commission, the cost of mobile top-ups wherePayPoint acts as principal in their purchase and sale, consumables,communications, maintenance, depreciation and field service costs. All othercosts are allocated to administrative costs. Pension costsThe group makes payments to a number of defined contribution pension schemes.The amounts charged to the profit and loss account in respect of pension costsrepresent contributions payable in the year. Differences between contributionspayable in the year and contributions actually paid are shown as either accrualsor prepayments in the balance sheet. Share based paymentsEquity-settled share-based payments are measured at fair value at the date ofgrant. The fair value determined at the grant date of the equity-settledshare-based payments is expensed on a straight line basis over the vestingperiod, based upon management's estimate of shares that will eventually vest. Fair value is measured by use of either a Monte Carlo simulation or BlackScholes model depending upon the scheme. The expected life used in the model hasbeen adjusted, based on management's best estimate, for the effects of nontransferability, exercise restrictions and behavioural considerations. Interest incomeInterest income is accrued on a time basis, by reference to the principaloutstanding and at the effective interest rate applicable, which is the ratethat exactly discounts estimated future cash receipts through the expected lifeof the financial asset to that asset's net carrying amount. TaxationThe tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and items that are never taxable or deductible. The group's liability forcurrent tax is calculated using tax rates that have been enacted orsubstantially enacted by the balance sheet date. Deferred tax is provided in full on temporary differences between the tax basesof assets and liabilities and their carrying amounts in the consolidatedfinancial statements. The provision is calculated using tax rates that have beensubstantially enacted by the balance sheet date. Deferred tax assets arerecognised to the extent that it is probable that future taxable profit will beavailable against which the tax will be realised. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries and interests in joint ventures, exceptwhere the Group is able to control the reversal of the temporary difference andit is probable that the temporary difference will not reverse in the foreseeablefuture. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is charged or credited in the income statement, exceptwhen it relates to items charged or credited directly to equity, in which casethe deferred tax is also dealt with in equity. Foreign currencyForeign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transaction. At each balancesheet date, monetary asset and liabilities that are denominated in foreigncurrencies are retranslated at the rates prevailing on the balance sheet date.Non-monetary assets and liabilities carried at fair value that are denominatedin foreign currency are translated at the rates prevailing at the date when fairvalue was determined. Gains and losses arising on retranslation are included innet profit or loss for the year, except for exchange differences arising onnon-monetary assets and liabilities where the changes in fair value arerecognised directly in equity. On consolidation, the assets and liabilities of the group's overseas operationsare translated at exchange rates prevailing on the balance sheet date. Incomeand expense items are translated at the average exchange rates for the periodunless exchange rates fluctuate significantly. Exchange differences arising, ifany, are classified as equity and transferred to the Group's translationreserve. Such translation differences are recognised as income or as expenses inthe year of disposal of the operation. Software development expenditureThe Group develops computer software for internal use. Software developmentexpenditure on large projects is recognised as an intangible asset if it isprobable that the asset will generate future economic benefits. The costs thatare capitalised are the directly attributable costs necessary to create andprepare the asset for operations. Other software costs are recognised inadministrative expenses when incurred. Software development costs recognised asan intangible asset are amortised on a straight line basis over the useful life,generally not more than three years. Property, plant and equipmentProperty, plant and equipment are stated at cost, net of depreciation.Depreciation is provided at rates calculated to write off the cost, lessestimated residual value, of each asset on a straight line basis over itsexpected useful life. The estimated useful lives are as follows: • leasehold improvements - over the life of the lease• terminals - 5 years• automatic teller machines - 4 years• other classes of assets - 3 years The gain or loss arising on the disposal or retirement of an assetis determined as the difference between the sales proceeds and thecarrying amount of the asset and is recognised as income. InventoriesInventories are valued at the lower of cost or net realisable value. LeasesAssets held under finance leases, which confer rights and obligations similar tothose attached to owned assets, are capitalised as property, plant and equipmentand are depreciated over the shorter of the lease terms and their useful lives.The capital elements of future lease obligations are recorded as liabilities,while the interest elements are charged to the profit and loss account over theperiod of the leases to produce a constant rate of charge on the remainingbalance of liability. Rentals under operating leases are charged on a straight-line basis over thelease term, even if the payments are not made on such a basis. Benefits receivedand receivable as an incentive to sign an operating lease are similarly spreadon a straight line basis over the lease term, except where the period to thereview date on which the rent is first expected to be adjusted to the prevailingmarket rate is shorter than the full lease term, in which case the shorterperiod is used. Rentals received for ATMs from retail agents under operating leases are creditedto income on a straight line basis over the lease term. DividendsFinal dividends on ordinary shares are recognised in equity in the period inwhich they are approved by the Company's shareholders. Interim dividends arerecognised when declared. Treasury sharesPayPoint purchases own shares for the purpose of employee share option schemes.Such shares are deducted from equity and no profit or loss is recognised on thetransactions. Cash and cash equivalentsFor the purpose of the cash flow statement, cash and cash equivalents comprisecash at bank and in hand and short-term deposits maturing within 3 months andare subject to insignificant risk of changes in value. 2. Segmental reporting, net revenue analysis and gross throughput (i) Segmental information (a) Geographical segmentsThe Group operates in both the UK and Republic of Ireland but the Group has onlyone reportable geographical segment as defined in IAS 14 Segment Reporting dueto the fact that principally all operations occur in the UK. (b) Classes of businessThe Group has one class of business, being cash payment collection and distribution services. (ii) Analysis of revenues by market Group revenue comprises the value of sales (excluding VAT) of services in thenormal course of business and includes amounts billed to customers to be passedon to retail agents as commission payable. Cost of sales includes the cost tothe Group of the sale, including commission to retail agents and the cost ofmobile top-ups where PayPoint is the principal in the supply chain. Revenue performance of the business is measured by net revenue which iscalculated as the total turnover from clients less commission payable to retailagents and the cost of mobile top-ups where PayPoint is the principal in thesupply chain. Although there is only one class of business, since the risks and returns aresimilar across markets in which the Group operates, the Group monitors netrevenue (see below) with reference to each sector. 2006 2005 £000 £000Revenue - transaction processing 118,909 88,518 - lease rental of ATMs 1,059 536 119,968 89,054less:Commission payable to retail agents (63,558) (50,348)Cost of mobile top-ups as principal (10,297) (1,810)Net revenue 46,113 36,896Net revenue by marketBill payments 21,428 18,861Mobile top-ups 18,966 15,286ATMs 4,124 1,947Other 1,595 802Net revenue 46,113 36,896 Commission payable is included within cost of sales as shown below 2006 2005 £000 £000Revenue 119,968 89,054Cost of salesCommission payable to retail agents (63,558) (50,348)Cost of mobile top-ups as principal (10,297) (1,810)Other (9,554) (9,174)Total cost of sales (83,409) (61,332)Gross profit 36,559 27,722 (iii) Gross throughput 2006 2005 £000 £000Gross throughput 3,784,824 2,931,423 Gross throughput represents payments made by consumers using the PayPointservice and cash withdrawals from ATMs. Included within gross throughput is£203,630,000 (2005: £103,924,000) relating to the ATM business 3. Exceptional items There were no exceptional items in the year. Exceptional charges in 2005 of £4.6million related to the listing of the Company's shares on the London StockExchange (£4.2 million) and bid defence costs (£0.4 million). 4. Tax Analysis of tax charge: 2006 2005 £000 £000Current 3,239 -Deferred tax 201 2,215 3,440 2,215The charge for the year can be reconciled tothe profit before tax as set out in theconsolidated income statementProfit before tax 20,347 8,063Tax at the UK Corporation tax rate of 30% 6,104 2,419Tax effects of:Expenses not deductible in determining taxable profit 181 1,046Capital allowances in excess of depreciation (55) 1,762Utilisation of tax losses not previously recognised (2,392) (3,012)Timing differences (237) -Other (161) -Actual amount of tax charge 3,440 2,215 5. Dividends on equity shares 2006 2005 £000 £000Equity dividends on ordinary sharesInterim dividend paid of 3.0p per share (2005:nil) 2,030 -Recommended final dividend of 7.5p per share 5,076 3,473(2005: paid 5.2p per share)Total dividends paid and recommended 10.5p per share (2005: 5.2p per share) 7,106 3,473Amounts recognised as distributed to equityholders in the yearFinal dividend for the prior year 3,473 783Interim dividend for the current year 2,030 - 5,503 783 6. Earnings per share (a) Basic earnings per share Basic and diluted earnings per share are calculated on the following profits andnumber of shares. 2006 2005 £000 £000Profit for the purposes of basic earnings per share being net profit attributable to equityholders of the parent (used for basic earnings per share) 16,907 5,848Potential dilutive impact of interest saved on the conversion of debt (net of tax) - 4Earnings for the purposes of diluted earnings per share 16,907 5,852 2006 2005 Number of Number of shares sharesWeighted average number of ordinary shares in issue 67,671,307 67,054,583(for basic earnings per share)Potential dilutive ordinary shares:Conversion of convertible debt - 30,550Long term incentive plan 733,347 171,366Deferred share bonus 51,518 -Diluted basis 68,456,172 67,256,499 (b) Adjusted earnings per share The adjusted earnings per share are calculated on the profit after tax butbefore exceptional items (see note 3). This adjusted measure has been presentedin order to demonstrate the growth in earnings in the underlying business. 2006 2005 £000 £000Earnings used for unadjusted basic earnings per share 16,907 5,848add: exceptional item - 4,572Adjusted basis 16,907 10,420 7. Property, plant and equipment Group Terminals Fixtures, Total and ATMs fittings and £000 £000 equipment £000CostAt 1 April 2005 14,254 822 15,076Additions 6,748 46 6,794Disposals (385) - (385)At 31 March 2006 20,617 868 21,485Accumulated depreciationAt 1 April 2005 9,747 712 10,459Charge for the year 2,256 64 2,320Disposals (188) - (188)At 31 March 2006 11,815 776 12,591Net book valueAt 31 March 2006 8,802 92 8,894At 31 March 2005 4,507 110 4,617 8. Deferred tax asset 2006 2005 £000 £000Movement on deferred tax asset balanceOpening balance 1,385 3,600Charge to income statement (201) (2,215)Deferred tax asset 1,184 1,385Analysis of deferred tax assetCapital allowances in excess of depreciation 947 1,385Share based payment 237 - 1,184 1,385 At the balance sheet date: (i) the Group has unused tax losses of £1,792,000 (2005: £9,765,000) available for offset against future profits. No deferred tax assets have been recognised in respect of these losses due to the unpredictability of future profit streams. All losses may be carried forward indefinitely. (ii) there were timing differences associated with undistributed earnings of subsidiaries for which a deferred tax liability has not been recognised. No liability has been recognised in respect of these differences because the Group is in a position to control their reversal and it is probable that such differences will not reverse in the foreseeable future. In any case the timing differences are not material. 9. Cash and cash equivalents Included within cash and cash equivalents is £5,575,000 (2005: £11,099,000)relating to monies collected on behalf of clients where the Group has title tothe funds (client cash). An equivalent balance is included within tradepayables. 10. Equity 2006 2005 £000 £000Authorised share capital4,365,352,200 ordinary shares of 1/3p each (2005: 4,365,352,200 ordinary shares of 1/3p each) 14,551 14,551 14,551 14,551Called up, allotted and fully paid share capital67,678,000 ordinary shares of 1/3p each (2005: 67,653,358 ordinary shares of 1/3p each) 226 226 226 226Called up share capitalAt start of year 226 14,418Shares issued under Share Incentive Plan - 1Deferred shares purchased and cancelled - (14,193)At end of year 226 226Share premiumAt start of year 23,976 23,894Loan stock converted - 82At end of year 23,976 23,976Capital redemption reserveAt start of year 14,193 -Deferred shares purchased and cancelled - 14,193At end of year 14,193 14,193Investment in own sharesAt start of year (1) (25)Share incentive plan issue - 24At end of year (1) (1)Share option and SIP reserveAt start of year 219 -Movement 519 219At end of year 738 219Retained earningsAt start of year (21,686) (26,751)Profit for the year 16,907 5,848Dividends paid (5,503) (783)At end of year (10,282) (21,686) 11. Statement of changes in equity 2006 2005 £000 £000Opening equity 16,927 11,536Profit for the year 16,907 5,848Dividends paid (5,503) (783)Investment in own shares - (1)Share option and SIP reserve 519 219Conversion of loan stock/options - 108Closing equity 28,850 16,927 12. Notes to the cash flow statement 2006 2005 £000 £000Operating profit before exceptional items 19,311 12,037Exceptional items (see note 4) - (4,572)Operating Profit 19,311 7,465 Adjustments for depreciation on property, plant and equipment 2,320 1,801Operating cash flows before movements in working capital 21,631 9,266 Increase in inventories (647) (440)Increase in receivables (4,238) (731)(Decrease)/increase in payables- client cash (5,524) 6,371- other payables 4,008 2,686Increase in share option and SIP reserve 519 219Cash generated by operations 15,749 17,371 Corporation tax paid (1,416) -Interest paid (15) (207) Net cash from operating activities 14,318 17,164 Appendix 1. Explanation of transition to IFRSReconciliation of equity at 1 April 2004 UK GAAP Effect of IFRS IFRS format transition to £000 £000 IFRS £000Non-current assetsProperty, plant and equipment 2,217 - 2,217Deferred tax asset 3,600 - 3,600 5,817 - 5,817Current assetsTrade and other receivables 7,021 - 7,021Inventories 32 - 32Cash at bank and in hand 13,832 - 13,832 20,885 - 20,885Total assets 26,702 - 26,702Current liabilitiesTrade and other payables 14,742 783 13,959Obligations under finance leases 903 - 903 15,645 783 14,862Non-current liabilitiesObligations under finance leases 222 - 222Other liabilities 82 - 82 304 - 304Total liabilities 15,949 783 15,166 Net assets 10,753 783 11,536 Capital and reservesCalled up share capital 14,418 - 14,418Share premium account 23,894 - 23,894Capital redemption reserve - - -Investment in own shares (25) - (25)Profit and loss account (27,534) 783 (26,751)Total shareholders' funds 10,753 783 11,536 The movement between UK GAAP and IFRS relates to the reversal of proposed dividends. Appendix 2. Reconciliation of equity at 31 March 2005 UK GAAP Effect of IFRS IFRS format transition to £000 £000 IFRS £000Non-current assetsProperty, plant and equipment 4,617 - 4,617Deferred tax asset 1,385 - 1,385 6,002 - 6,002Current assetsTrade and other receivables 7,752 - 7,752Inventories 472 - 472Cash at bank and in hand 25,950 - 25,950 34,174 - 34,174Total assets 40,176 - 40,176Non-current liabilitiesObligations under finance leases 67 - 67Other liabilities 234 - 234 301 - 301Current liabilitiesTrade and other payables 26,482 3,692 22,790Obligations under finance leases 158 - 158 26,640 3,692 22,948Total liabilities 26,941 3,692 23,249 Net assets 13,235 3,692 16,927 Capital and reservesCalled up share capital 226 - 226Share premium account 23,976 - 23,976Capital redemption reserve 14,193 - 14,193Investment in own shares (1) - (1)Share option and SIP reserve - 219 219Profit and loss account (25,159) 3,473 (21,686)Total shareholders' funds 13,235 3,692 16,927 The movement between UK GAAP and IFRS relates to the reversal of proposeddividends and the reversal of the UK GAAP accrual for equity settled share basedpayments and its replacement with the share option and SIP reserve in accordancewith IFRS. There was no effect on the UK GAAP profit for the year ended 31 March 2005except that dividends payable were shown on the face of the profit and lossaccount under UK GAAP and therefore no IFRS reconciliations have been prepared. There were no material differences to the cash flow statement on transition toIFRS. This information is provided by RNS The company news service from the London Stock Exchange