Paypoint Regulatory News (PAY)

23 Nov 2005 07:02

PayPoint PLC23 November 2005 PayPoint plc Interim Results for the 6 months ended 30 September 2005 HIGHLIGHTS 6 months 6 months ended ended 30 September 30 September 2005 2004 £m £m IncreaseRevenue 54.1 39.9 35%Net revenue(1,5) 21.3 16.5 29%Operating profit before 8.2 4.7 75%exceptional items(2)Operating profit 8.2 0.1Profit before tax 8.4 0.3Adjusted earnings per share(3,5) 10.5p 6.1p 72%Basic earnings/(loss) per share 10.5p (0.8p)Interim dividend 3.0p - Comparing the first six months of 2005 and 2004: • Consumer transactions processed up 23% at 139 million with strong growth in all sectors. • Operating margins (4,5) increased to 38% from 28%. • PayPoint terminal outlets have increased to over 14,000 up 17% on September 2004 and up 7% on March 2005. • The new terminal roll out to agents which started in October 2004, will be substantially complete by year end. David Newlands, Chairman of PayPoint, said "These results show strong continuinggrowth and demonstrate the excellent operational gearing of PayPoint's business.Increased market share from our competitive service proposition, our newbranding and the larger terminal estate have driven growth in mobile and billand general payments. Within this sector, bill payments remain key to deliveringsubstantial additional volumes. Our network expansion is well on the way to ourtarget of 15,000 terminal sites by the end of the current financial year and weplan to continue the expansion next year. Our ATM roll out continues, with theemphasis on good quality sites. We have announced today, an important contractwith Western Union, the world's premier brand in money transfer and a number oftransport contracts, laying the groundwork for future revenue growth. Finally, Iam pleased to report that trading in the second half of the current financialyear has started well." 1 Net revenue is revenue less commissions paid to retail agents and the cost of e-vouchers for mobile top-ups where PayPoint is the principal.2 Exceptional items relate to flotation and bid defence costs incurred in the prior period - see note 3 to the accounts.3 Adjusted earnings per share are based on prot before exceptional items after taxation - see note 6 to the accounts.4 Operating margins are calculated as operating prot before exceptional items as a percentage of net revenue.5 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 the income statement and in notes 2,3 and 9 to the accounts. Enquiries: PayPoint plc 01707 600 300Dominic Taylor, Chief ExecutiveGeorge Earle, Finance Director Finsbury 020 7251 3801Rollo HeadJames LevitonDon Hunter This announcement is available on the PayPoint plc website: www.paypoint.co.uk. 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 14,000 retail outlets using PayPoint's paymentterminals. PayPoint began trading in 1996 and initially collected payments through itsnetwork of retail agents for its founder client investors, who included BritishGas, BT, BBC TV Licensing, London Electricity (now part of EDF Energy) and fourwater companies. It now has more than 500 clients including many of the UK and Ireland's majorenergy, cable, mobile and fixed line telephony companies. Its blue chip clientlist also extends to numerous water companies, local authorities and housingassociations and a growing transport and travel base. BUSINESS REVIEW 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. Operational overview In the first six months of the financial year, PayPoint processed 139 milliontransactions, with a value of £1.6 billion (2004: 112 million transactions witha value of £1.3 billion) an increase of 23% in transactions and 24% in value.Commissions paid to agents of £29.1 million were up 27%, reflecting increasedvolumes and the mix of mobile top-up and ATM volumes, which carry higher agentcommissions. There has been strong growth in transaction volumes across all sectors: 6 months 6 months Year ended ended ended 30 September 30 September 31st March 2005 2004 Increase 2005 millions millions % millionsBill and general payments 83.0 68.4 22 166.0Mobile top-ups 51.7 42.2 22 87.9ATMs 4.0 1.8 122 4.6Total 138.7 112.4 23 258.5 Bill and general payments This sector has benefited from continued transaction volume growth helped by amigration away from the Post Office, following its branch closure programme, inparticular with respect to TV licence payments, BT and British Gas billpayments. Energy consumer price increases have also continued to have abeneficial effect on PayPoint's transaction volume, as transaction values haveremained broadly the same. The 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 next year to selected agents. We haveextended our geographical coverage in transport by signing new contracts withFirst and Greater Manchester Travelcard, in addition to our existing contractswith Arriva, National Express and Lothian. Whilst current volumes in transportticketing are relatively modest, there is considerable potential for long termgrowth. We are also discussing contracts with other operators and transportexecutives. These developments provide an additional platform for future growthin transaction volumes. Mobile top-ups Overall market share is c.25% (last year c.23%) as a result of extending theretail network and the agent re-branding programme through all our independentoutlets and over 1,000 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 of those retailers has started the transfer in thefirst half of the year and is expected to complete by the end of this financialyear. The other retailer is now not expected to start the transfer until the newfinancial year. The adverse impact on revenues is estimated at £0.5 million thisyear, rising to a full year impact of £1.5 million when the transfer iscompleted. ATMs Installations have continued in excess of 50 per month, at a broadly similarrate to the whole of last year. Decommissions have, however, increased as aresult of three factors. First, we have taken a more rigorous approach to theremoval of poor performers. Second, there were a number of site owners whorefused to comply with Link's policy of 'transparency of charges' and who wereall decommissioned as a result and third, the estate is larger. As a result, thequality of the installed estate has been improved and it has performed betterthan expected, with sites averaging 600 transactions per month, split evenlybetween cash withdrawals and balance enquiries. Installed ATMs have grown to 1,201 (2004: 651). Network growth Strong demand for new PayPoint terminal outlets continues and the retail networkhas grown to over 14,000 sites at 30 September 2005 (2004: 12,017, an increaseof 17%) and an increase of 7% since 31 March 2005. We have added over 900 sites in six months, well on the way to our target of15,000 sites by the end of this financial year, despite the continued proactiveremoval of low performing sites. 2,000 sites (2004: 600) with our terminals also have EPoS connections, to allowmobile top-up transactions over the retailers' own till systems and there are afurther 2,880 EPoS only sites (2004: 2,590). 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 helpnew products, including the new transport ticketing schemes, to be introducedrapidly and efficiently. The new terminal design is also chip and PIN compliant.The replacement of the old terminals commenced in October last year, with some8,900 new terminals in operation at 30 September 2005 and 10,150 today. It isanticipated that the old terminal estate will have been substantially replacedby the end of the current financial year at a total capital cost ofapproximately £6 million, of which c.£4 million was incurred by 30 September2005. Financial overview Revenue for the first six months was £54.1 million (2004: £39.9 million) up 35%driven by a 23% increase in transaction volumes, and the increase in the mix ofIrish mobile volumes1. Cost of sales was £37.4 million (2004: £27.9 million), anincrease of 34%. Cost of sales comprises commission paid to agents, depreciationand other items including telecommunications. Agents' commission increased to£29.1 million (2004: £22.9 million) up 27%, slightly ahead of volume growth as aresult of the mix of higher agent commission schemes, in particular mobiletop-ups and ATM volumes. Depreciation has reduced to £1.0 million (2004: £1.2million) because the first generation terminal estate had already beencompletely written down by September last year and the new terminal is not yetcompletely deployed. Other cost of sales increased, mainly as a consequence of the growth in theIrish mobile top-up business1. Gross profit improved to £16.7 million (2004:£12.1 million), 38% ahead of the same period last year, with a gross margin of31% (2004: 30%), despite the adverse impact on the gross margin of the increasein Irish mobile top-ups. Net revenue(2)of £21.3 million (2004: £16.5 million) was up 29%, driven primarilyby volume growth. Operating margins(3) were 38% (2004: 28%), benefiting fromoperational gearing and also from a delay in the migration of mobile top-ups, intwo of our multiple retailers, from our terminals to the retailers' own tillsystems. Operating costs (administrative expenses) before exceptional items(4) have risento £8.5 million (2004: £7.4 million), an increase of 15%, driven largely byincreased staff costs including the senior management appointments that havebeen announced during the year and additional running costs following ourlisting. Operating profit was £8.2 million (2004: £4.7 million before exceptionalcharges(4)) with a corresponding increase in operating margins(3). Profit before tax was £8.4 million (2004: £0.3 million after exceptional items(4)of £4.6 million). The tax charge of £1.3 million represents an effective rate of16 per cent, which is lower than the UK corporate tax rate because tax losseswhich were not included in the deferred tax asset have been used. It is expectedthat all the available losses will be utilised this financial year and thereforethe tax charge is expected to rise next year. The remaining deferred tax assetof £1.3 million relates to capital allowances in excess of depreciation andother timing differences. This is likely to reverse as capital expendituredeclines following the roll out of the new terminal by the end of the currentfinancial year. Operating cash flow (excluding movements in client cash(5)) was £9.0 million(2004: £6.5 million), reflecting strong conversion of profit to cash. Netcapital expenditure of £3.1 million (2004: £1.1 million) reflected spend on thenew terminal roll out, ATMs and infrastructure assets. Net interest received was£0.3 million (2004: £0.3 million) and equity dividends paid were £3.5 million(2004: £0.8 million). Cash and cash equivalents were £22.8 million including client cash of £4.1million, down as predicted at the preliminary announcement from £25.9 million atthe end of last year, which included client cash of £11.1 million, anunsustainably high level at 31 March 2005. 1 In Ireland, 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 agent commission and the cost of mobile top-ups where PayPoint is principal - see note 2 to the accounts.3 Operating margins are calculated as operating profit before exceptional items as a percentage of net revenue.4 Exceptional items relate to flotation and bid defence costs incurred in the prior period - see note 3 to the accounts.5 Client cash is money to which PayPoint has legal title but an equal balance is included in creditors - see note 9 to the accounts. Dividend The directors have declared an interim dividend of 3.0p per share (2004: nil)payable on 3 January 2006 to shareholders on the register on 2 December 2005. IFRS We have adopted IFRS without alteration to past results except for the reversalof dividends accrued at 31 March 2004 which were not approved by theshareholders until the AGM in July 2004 and the reclassification of an accrualfor share based payments from liabilities to equity. Outlook Trading in the second half of the current financial year has started well. Therecontinues to be ample opportunity to grow revenue organically in the UK andIreland in the short to medium term, by increasing our market share andcontinuing to extend our product range to source new transactions. The extensioninto money transfer and the continuing sales success in transport will offerfurther growth opportunities in the medium to long term. We are well on the wayto expanding the network to our target of 15,000 terminal sites by the end ofthe current financial year and are set to continue the expansion next year, asever optimised against volume. We will also continue to review the potential tobroaden our product set further and extend our footprint internationally. David Newlands Dominic TaylorChairman Chief Executive 23 November 2005 CONSOLIDATED INCOME STATEMENT Unaudited Unaudited 6 months 6 months Audited ended ended year ended 30 September 30 September 31 March 2005 2004 2005 Note £000 £000 £000Continuing operationsRevenue 2 54,113 39,949 89,054Cost of sales 2 (37,374) (27,862) (61,332)Gross profit 2 16,739 12,087 27,722Administrative expenses (8,552) (11,994) (20,257)Add back exceptional items 3 - 4,572 4,572Administrative expenses (8,552) (7,422) (15,685)excluding exceptional itemsOperating profit before 8,187 4,665 12,037exceptional itemsExceptional items 3 - (4,572) (4,572)Operating profit 8,187 93 7,465Investment income 288 293 937Finance costs (34) (74) (339)Profit before tax 8,441 312 8,063Tax 4 (1,315) (855) (2,215)Profit/(loss) for the period 7,126 (543) 5,848 Earnings/(loss) per shareBasic 5 10.5p (0.8p) 8.7pDiluted 5 10.4p (0.8p) 8.7p Dividend 6 3.0p - 5.2p The results are presented under IFRS and comparatives have been restatedaccordingly (see note 1).There have been no gains or losses for the current or comparative periods otherthan those reported in the income statement. CONSOLIDATED BALANCE SHEET Unaudited Unaudited Audited 30 September 30 September 31 March 2005 2004 2005 Note £000 £000 £000Non-current assetsProperty, plant and equipment 6,685 2,202 4,617Deferred tax asset 1,331 2,745 1,385 8,016 4,947 6,002Current assetsTrade and other receivables 7,427 7,373 7,752Inventories 673 - 472Cash at bank and in hand 9 22,760 15,718 25,950 30,860 23,091 34,174Total assets 38,876 28,038 40,176 Current liabilitiesTrade and other payables 16,659 17,254 22,790Tax 1,261 - -Obligations under finance 138 344 158leases 18,058 17,598 22,948 Non-current liabilitiesObligations under finance leases - 123 67Other liabilities - - 234 - 123 301Total liabilities 18,058 17,721 23,249 Net assets 20,818 10,317 16,927 EquityShare capital 7 226 225 226Share premium account 7 23,976 23,976 23,976Capital redemption reserve 7 14,193 14,193 14,193Investment in own shares 7 (1) - (1)Share option and SIP reserve 7 457 - 219Retained earnings 7 (18,033) (28,077) (21,686)Total equity attributable to equity holders of theparent 8 20,818 10,317 16,927 CONSOLIDATED CASH FLOW STATEMENT Unaudited Unaudited Audited 6 months 6 months ended ended Year ended 30 September 30 September 31 March 2005 2004 2005 Note £000 £000 £000 Net cash from operating activities 9 3,195 4,220 17,164 Investing activitiesInterest received 288 293 937Purchase of property, plant and equipment (3,224) (1,241) (4,576)Proceeds from disposal of property, plant and equipment 111 128 408Net cash used in investing (2,825) (820) (3,231)activities Financing activitiesRepayments of obligations under finance leases (87) (731) (1,032)Dividends paid (3,473) (783) (783)Net cash used in financing activities (3,560) (1,514) (1,815)Net (decrease)/increase in cash and cash equivalents (3,190) 1,886 12,118Cash and cash equivalents at beginning of period 25,950 13,832 13,832Cash and cash equivalents at end of period 22,760 15,718 25,950 NOTES TO ACCOUNTS 1. Accounting policies These financial statements have been prepared on a historical cost basis and onthe policies set out below. Basis of preparation The financial information contained in this report is unaudited, but has beenformally reviewed by the auditors and their report to the Company is set out onpage 21. The information shown for the year ended 31 March 2005, which isprepared under IFRS, does not constitute statutory accounts within the meaningof section 240 of the Companies Act 1985. The report of the auditors on thestatutory accounts for the year ended 31 March 2005, prepared under UK GAAP, wasunqualified and did not contain a statement under section 237 of the CompaniesAct 1985 and has been filed with the Registrar of Companies. The financial statements are prepared in accordance with International FinancialReporting Standards (IFRS) endorsed by the European Commission. IFRS 1 First-time Adoption of International Financial Reporting Standards setsout the procedures that the group must follow when it adopts IFRS for the firsttime as the basis for preparing its consolidated financial statements. The group is required to establish its IFRS accounting policies as at 31 March2006 and, in general, apply these retrospectively to determine the IFRS openingbalance sheet at its date of transition, 1 April 2004. The impact of theadoption of IFRS on the consolidated balance sheets and profit and loss accountsof the group is shown in appendices 1 and 2 on pages 19 to 20. Basis of consolidation PayPoint 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 31 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. The results of subsidiaries acquired or sold are consolidated for the periodsfrom or to the date on which control passed. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. Revenue Group 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 electronic payment collection system and ATM business and has arisensolely in the 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. Cost of sales Cost 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 costs The 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 payments The group operates equity settled share based compensation plans. Grants underthe long term incentive scheme are generally made annually and will vest over athree year holding period if the group's comparative TSR performance is equal toor greater than the median level of performance over the holding period at whichpoint 30% will vest, with full vesting occurring for upper quartile performance. The group has applied the requirements of IFRS 2 Share-based Payments. Equity-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 the group'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 modelhas been adjusted, based on management's best estimate, for the effects ofnon-transferability, exercise restrictions and behavioural considerations. Interest income Interest 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. Taxation The 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. Foreign currency Foreign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transaction. At each balance sheet date, monetary asset and liabilities that are denominatedin foreign currencies are retranslated at the rates prevailing on the balancesheet date. Non-monetary assets and liabilities carried at fair value that aredenominated in foreign currency are translated at the rates prevailing at thedate when fair value was determined. Gains and losses arising on retranslationare included in net profit or loss for the period, except for exchangedifferences arising on non-monetary assets and liabilities where the changes infair value are recognised 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 period in which the operation is disposed of. Software development expenditure The 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 as an intangible asset are amortised on astraight line basis over the useful life, generally not more than three years. Property, plant and equipment Property, 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 asset is determinedas the difference between the sales proceeds and the carrying amount of theasset and is recognised as income. Inventories Inventories are valued at the lower of cost or net realisable value. Leases Assets 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 from ATMs rented to retail agents under operating leases arecredited to income on a straight line basis over the lease term. Dividends Final 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 shares PayPoint purchases own shares for the purpose of employee share option schemes.Such shares are deducted from equity and no profit or loss recognised on thetransactions. Cash and cash equivalents For 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. 2. Segmental reporting, net revenue analysis and gross throughput (i) Segmental information (a) Geographical segments The group operates in both the UK and Republic of Ireland but the group has onlyone reportable segment as dened in International Accounting Standard 14 SegmentReporting due to the fact that principally all operations occur in the UK. (b) Classes of business The group has one class of business, being cash payment collection anddistribution services. (ii) Analysis of revenues by sector Group revenue comprises the value of sales (excluding VAT) of services in thenormal course of business and includes amounts billed to customers to be passed onto retailagents as commission payable. Cost of sales includes the cost to the group ofthe sale, including commission to retail agents and the cost of mobile top-upswhere PayPoint is the principal in the supply chain. Although there is only one class of business, since the risks and returns aresimilar across all markets in which the group operates, the group monitors net revenue (seebelow) with reference to each sector. 6 months 6 months ended ended Year ended 30 September 30 September 31 March 2005 2004 2005 £000 £000 £000Revenue 54,113 39,949 89,054less:Commission payable to retail agents (29,073) (22,913) (50,348)Cost of mobile top-ups as principal (3,709) (506) (1,810)Net revenue 21,331 16,530 36,896Net revenue by sectorBill payments 9,248 7,254 18,861Mobile top-ups 9,413 8,081 15,286ATMs 1,850 806 1,947Other 820 389 802Net revenue 21,331 16,530 36,896 2. Segmental reporting, net revenue analysis and gross throughput (continued) Commission payable is included within cost of sales as shown below 6 months 6 months ended ended Year ended 30 September 30 September 31 March 2005 2004 2005 £000 £000 £000Revenue 54,113 39,949 89,054Cost of salesCommission payable to retail agents (29,073) (22,913) (50,348)Cost of mobile top-ups as principal (3,709) (506) (1,810)Other (4,592) (4,443) (9,174)Total cost of sales (37,374) (27,862) (61,332)Gross profit 16,739 12,087 27,722 (iii) Gross throughput 6 months 6 months ended ended Year ended 30 September 30 September 31 March 2005 2004 2005 £000 £000 £000Gross throughput 1,635,102 1,316,739 2,931,423 Gross throughput represents payments made by consumers using the PayPointservice and cash withdrawals from ATMs. Included within gross throughput is£92.5 million in the six months to 30 September 2005 (2004: £41.4 million)relating to the ATM business. 3. Exceptional items There were no exceptional items in the period under review. Exceptional chargesin the comparative period last year of £4.6 million related to the listing ofthe Company's shares on the London Stock Exchange (£4.3 million) and bid defencecosts (£0.3 million). 4. Tax on profit of ordinary activities 6 months 6 months ended ended Year ended 30 September 30 September 31 March 2005 2004 2005 £000 £000 £000UK corporation tax 1,261 - -Deferred tax 54 855 2,215Total 1,315 855 2,215 The tax charge for the six months to 30 September 2005 has been based on theestimated effective rate for the year ending 31 March 2006. 5. Earnings per share (a) Basic and diluted earnings per share The basic and diluted earnings per share are calculated on the following protsand number of shares. 6 months 6 months ended ended Year ended 30 September 30 September 31 March 2005 2004 2005 £000 £000 £000Profit/(loss) on ordinary activities after taxation (usedfor basic earnings per share) 7,126 (543) 5,848Potential dilutive impact of interest saved on the conversionof debt - 4 4Diluted basis 7,126 (539) 5,852 Number of Number of Number of shares shares sharesWeighted average number of shares (for basic earnings per share) 67,665,908 66,479,120 67,054,583 Potential dilutive ordinaryshares:Conversion of convertible debt - 61,099 30,550Long term incentive plan 624,118 - 171,366Diluted basis 68,290,026 66,540,219 67,256,499 (b) Adjusted earnings per share The adjusted earnings per share is calculated on the prot after tax but beforethe exceptional item (see note 3). This adjusted measure has been presented inorder to demonstrate the growth in earnings in the underlying business. 6 months 6 months ended ended Year ended 30 September 30 September 31 March 2005 2004 2005 £000 £000 £000Earnings/(loss) used for unadjusted basic earnings per share 7,126 (543) 5,848Add: exceptional items (see note 3) - 4,572 4,572Adjusted basis 7,126 4,029 10,420 6. Dividend The declared interim dividend is 3.0p (2004: nil). The total dividends relatingto the year ended 31 March 2005 were £3,473,000 (5.2p per share). The interim dividend was declared on 23 November 2005 and accordingly has notbeen recorded as a liability as at 30 September 2005. 7. Equity 30 September 30 September 31 March 2005 2004 2005 £000 £000 £000 Authorised share capital4,365,352,200 ordinary shares of 1/3p 14,551 14,551 14,551each 14,551 14,551 14,551 Called up, allotted and fully paidshare capital67,675,378 ordinary shares of 1/3p each (30 September 2004: 67,465,79431 March 2005: 67,653,358) 226 225 226 226 225 226 Called up share capitalAt start of period 226 14,418 14,418Shares issued under share incentive plan - - 1Deferred shares purchased and cancelled - (14,193) (14,193)At end of period 226 225 226 Share premiumAt start of period 23,976 23,894 23,894Loan stock converted - 82 82At end of period 23,976 23,976 23,976 Capital redemption reserveAt start of period 14,193 - -Deferred shares purchased and cancelled - 14,193 14,193At end of period 14,193 14,193 14,193 Investment in own sharesAt start of period (1) (25) (25)Share incentive plan issue - 25 24At end of period (1) - (1) Share option and SIP reserveAt start of period 219 - -Additions 238 - 219At end of period 457 - 219 Retained earningsAt start of period (21,686) (26,751) (26,751)Profit/(loss) for the period 3,653 (1,326) 5,065At end of period (18,033) (28,077) (21,686) 8. Statement of changes in equity 6 months 6 months ended ended Year ended 30 September 30 September 31 March 2005 2004 2005 £000 £000 £000Opening equity 16,927 11,536 11,536Profit/(loss) for the period 7,126 (543) 5,848Dividends paid (3,473) (783) (783)Investment in own shares - (1) (1)Share option and SIP reserve 238 - 219Conversion of loan stock/options - 108 108Closing equity 20,818 10,317 16,927 9. Notes to the cash flow statement 6 months 6 months ended ended Year ended 30 September 30 September 31 March 2005 2004 2005 £000 £000 £000Operating profit before exceptional items 8,187 4,665 12,037Exceptional items (see note 3) - (4,572) (4,572)Profit from operations 8,187 93 7,465Adjustments for:Depreciation 1,047 1,196 1,801Operating cash flows before movements 9,234 1,289 9,266in working capital Increase in inventories (201) - (440)Increase in receivables (1,072) (362) (731)(Decrease)/increase in payables- client cash (5,794) (2,302) 6,371- other payables 799 5,595 2,686Increase in share option and SIP reserve 238 - 219Cash generated by operations 3,204 4,220 17,371 Interest paid (9) - (207)Net cash from operating activities 3,195 4,220 17,164 Included within cash at bank and in hand is £4.1 million (September 2004: £2.4million, March 2005: £11.1 million) relating to monies collected on behalf ofPayPoint clients where PayPoint has title to the funds (client cash). Anequivalent balance is included within trade payables. Appendix 1. Reconciliation of equity at 1 April 2004 Effect of UK GAAP transition to IFRS format IFRS IFRS £000 £000 £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 - 26,702 Current 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 Shareholders' funds are analysed as:Equity interests 10,753 783 11,536 10,753 783 11,536 The movement between UK GAAP and IFRS relates to the reversal of proposed dividends.There was no effect on the UK GAAP balance sheet or profit for the year ended 30September 2004 and therefore no IFRS reconciliations have been presented. Appendix 2. Reconciliation of equity at 31 March 2005 Effect of UK GAAP transition to IFRS format IFRS IFRS £000 £000 £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 - 40,176 Non-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 Shareholders' funds are analysed as:Equity interests 13,235 3,692 16,927 13,235 3,692 16,927 The movement between UK GAAP and IFRS relates to the reversal of proposeddividends, the reversal of the UK GAAP accrual for equity settled share basedpayments and it's replacement with the share option and SIP reserve inaccordance with IFRS.There was no effect on the UK GAAP profit for the year ended 31 March 2005 andtherefore no IFRS reconciliations have been presented. INDEPENDENT REVIEW REPORT TO PAYPOINT PLC Introduction We have been instructed by the Company to review the financial information forthe six months ended 30 September 2005 which comprises the income statement, thebalance sheet, the cash flow statement and related notes 1 to 9 and appendices 1and 2. We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the Company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the Company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim gures are consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. International Financial Reporting Standards As disclosed in note 1, the next annual financial statements of the group willbe prepared in accordance with those IFRS adopted for use by the European Union.Accordingly, the interim report has been prepared in accordance with therecognition and measurement criteria of IFRS and the disclosure requirements ofthe Listing Rules. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying nancial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verication of assets, liabilitiesand transactions. It is substantially less in scope than an audit performed inaccordance with International Standards on Auditing (UK and Ireland) andtherefore provides a lower level of assurance than an audit. Accordingly, we donot express an audit opinion on the nancial information. Review conclusion On the basis of our review we are not aware of any material modications thatshould be made to the nancial information as presented for the six months ended30 September 2005. Deloitte & Touche LLPChartered AccountantsLondon23 November 2005 Notes: A review does not provide assurance on the maintenance and integrity ofthe website, including controls used to achieve this, and in particular onwhether any changes may have occurred to the nancial information since rstpublished. These matters are the responsibility of the directors but no controlprocedures can provide absolute assurance in this area.Legislation in the United Kingdom governing the preparation and dissemination ofnancial information differs from legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock Exchange