Welcome to the PayPoint preliminary results c onference call. I'm Melo, the Chorus Call operator. I would like to remind you that all participants will be in a listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star, then zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Nick Wiles, CEO. Please go ahead.
Thank you very much and good morning , everyone. Welcome to our interim results presentation for six months to September 2024. Our agenda this morning will follow the usual format. I'll give an overview of the results. We'll then cover the financials in more detail, followed by an update on strategy, our business review, and then an updated outlook before we open up for Q&A. In terms of our first half highlights, the results show a continued strong performance from the business, which certainly underpins our confidence in meeting expectations for the year as a whole. Our strategic investments in both Yodel and obconnect, which we've made in the first half, have strengthened our growth opportunities in both parcels and open banking. And we continue to enhance our proposition in a number of our key growth areas, such as cards, open banking, our retailer community services, and Love2shop .
We're doing this whilst retaining our capital allocation discipline, as we invest in the business, grow our dividend, and continue our share buyback program, all within a financial framework of around 1x EBITDA. Turning to the headline numbers, our financial performance across the business is strong. Underlying EBITDA up over 20%, underlying PBT up over 23%, and our interim dividend growing by more than 2% to GBP 0.194 per share at the interim stage. We've achieved this within a modest increase in our net debt to GBP 86.8 million, which reflects the investments we've made during the first half. At a divisional level, in terms of the net revenue performance, solid performances from both shopping and payments and banking, and strong performances from both Love2shop and our e-commerce businesses.
With this on, I'll hand over to Rob, who will take you through the numbers in more detail.
Thank you, Nick, and good morning, everyone. I'll start with the key financial highlights. Net revenue of GBP 84.6 million is up 6% on the prior half of GBP 79.8 million. I've got more details on this in the slide to follow, but we've delivered top-line growth across both of our business segments, with PayPoint segment revenues up 5.6% and Love2shop up 7.4%. Underlying EBITDA of GBP 37.5 million is up GBP 6.4 million, or 20.6% on the prior half. With this increase, a combination of higher underlying profitability of GBP 5.1 million, plus higher depreciation and amortization. Underlying profits, as I mentioned, are up GBP 5.1 million, or 23.4%, half on half, from GBP 21.8 million to GBP 26.9 million. I'll cover this in a few slides in more detail.
Reported profits before tax of GBP 23.1 million are after GBP 3.8 million of deductions to underlying numbers, and that comes from GBP 4 million of amortization of acquired intangibles, plus GBP 2.5 million of exceptional items, and that's primarily legal costs in relation to claims against PayPoint, less GBP 2.7 million of favorable fair value adjustments on convertible loan notes in respect of obconnect and Optus, and that gives overall GBP 3.8 million of net deductions, and therefore reported profits of GBP 23.1 million, which is a 34.3% increase on the prior half profits of GBP 17.2 million. On earnings per share, diluted underlying EPS of 27.4 pence is up 24% on the prior half of 22.1 pence, and diluted EPS of 23.5 pence is up 35.1% on the prior half of 17.4 pence. This increase in EPS is purely attributable to the increase in profitability, as the weighted average diluted shares increased half on half.
Lastly, on net debt, this landed at GBP 86.8 million for half one, which is an increase on the prior half and the FY 2024 year-end, as we anticipated. Again, I'll cover this in a few more slides' time. This slide breaks down net revenue into a little more detail and the drivers behind the 6% top-line growth. As I mentioned previously, the PayPoint segment revenue is up 5.6% on the prior half, and you can see from this slide that our e-commerce business has been the driver of this growth, with revenue increasing 56.9% to GBP 8 million. Shopping also experienced 2.5% top-line growth in a challenging macro environment, with solid growth coming from service fee income, which was up one million, half on half. Payments and banking revenue dropped GBP 200,000, half on half, with legacy cash bill payments driving this drop, falling GBP 500,000, half on half, from GBP 3.1 million to GBP 12.6 million.
So combined, the PayPoint segment revenue of GBP 65.8 million for half one is up GBP 3.5 million, or 5.6%. Love2shop revenue increased 7.4% on the prior half. This increase is primarily phasing in nature, with a shortening of some of our card product expiry dates bringing forward revenue from half two into half one. As we've highlighted previously, the business adopted a much more conservative approach to breakage, only recognizing non-redemption revenue at the end of the product life or expiry. So this is a really positive outcome for half one. At the bottom of this slide, this gives overall group revenue of GBP 84.6 million, which is up GBP 4.8 million, or 6%, half on half. This slide really gives a graphical view of revenue growth, highlighted on the previous slide, and how this contributes to underlying profit.
From left to right on this chart, shopping revenues are up GBP 800,000, e-commerce revenues up GBP 2.9 million, payments and banking down GBP 200,000, and Love2shop revenues up GBP 1.3 million. I'll cover costs on the next slide, but these fell GBP 300,000, half on half, and that resulted in overall profit growth of GBP 5.1 million from GBP 21.8 million to GBP 26.9 million. This slide breaks down the net GBP 300,000 reduction in costs, half on half. Most notably, in terms of downward pressure on costs, is the GBP 2.5 million of restructuring savings. That follows the cost of action we took in March earlier this year. Offsetting this reduction are increases of GBP 600,000 in relation to salary inflation, GBP 300,000 investment in salespeople costs, plus GBP 1.7 million of extra depreciation and amortization. That's really from our continued investment in new devices and systems modernization, plus higher amortization with respect to rentals commission.
Net interest payments were GBP 400,000 lower in the period, resulting in an overall drop in costs to GBP 57.7 million. We do anticipate low single-digit million increase to full year costs versus the prior year, and that's driven by the high depreciation plus the inclusion of some obconnect costs. Next, on cash generation, we had GBP 30.7 million of cash generation from operating activities in the half. And that's almost double that of the prior half of GBP 15.6 million.
Sorry, ladies and gentlemen, please hold on. The connection to the speaker has been lost. The conference will continue shortly.
The dividend for financing slide last week was [audio distortion]. This is the same interim dividend of GBP 0.194 per share, which is a 2.1% increase on last year's interim. On the share buyback we launched back in July, as I said previously, we committed to a GBP 20 million amount in year one and in terms of capital allocation, we continue to invest in the business through small investments in capital expenditure to drive future revenue streams and improve our business resilience. The investments in Yodel and obconnect are good examples of this but in doing so, we will target a leverage ratio in and around one times. Finally, on net debt, we expect this to increase in the second half and that's really driven by the GBP 10.5 million investment in obconnect, which we completed in October, the continuation of the share buyback, along with interim dividend payments.
I'll now pass you back to Nick.
Rob, thank you. Firstly, I think I just want to spend a few moments on this slide. It's a slide that you're familiar with, and it's one that we shared at the full year, and it gives really an opportunity for a brief overview of our strategic progress in the first half before moving on to our business review by division. We highlighted on this slide, as I said, at the full year, our six key building blocks, to which today we are adding a seventh, which is focused on ensuring we achieve a better collaboration across our business as a whole to deliver increased services to our clients and our customers from a growing range of our capabilities.
As we set out in June with our full year results, over the next few years, our success in delivering on our target growth is centered around how we maximize our opportunities from each of these areas. Returning to the segment in parcels, our focus remains on growing our network, our open carrier network, strengthening our carrier partnerships, and identifying new areas of growth to drive volume into our network for click and collect, send, and returns parcel traffic. We continue to expand our Collect+ network in the first half. It's now at around 13,500 locations, and we're targeting 15,000 by the year-end, covering independents, the multiples, universities, alongside a number of other Collect+ channel locations. For the Royal Mail, we're now at 5,000 live sites, with plans underway to grow this quickly to a number in excess of 10,000 locations.
We're pleased with the progress of the Yodel management team as they continue to deliver following our investment in the business. They're executing on their plans to modernize the business, to reduce operating costs, increase efficiency, and grow volumes. They are already achieving significant parcel volume growth driven through additional partnerships with domestic retailers and early progress with key international marketplaces such as those of the Chinese. While processing, I'm delighted we've now launched our major strategic partnership with Lloyds Cardnet. This partnership delivers an enhanced merchant proposition and onboarding process. The prospect of the Lloyds banking services to our merchants will accelerate further our growth in the merchant estate and an overall quality in terms of our card processing business.
In addition to this partnership aimed at our core SME merchants, we're also now turning our attention to opportunities both in the micro market and the mid-size SME market as we consider really what our next steps are in terms of broadening our sales channels beyond field and telesales. In open banking and digital payments, we've now closed our transactions to take a majority ownership of obconnect. For us, a hugely exciting and significant step for our business. In its own right, obconnect is delivering a really strong P&L and an innovative new business pipeline for the number of new financial institutions that they're working with. And you would have seen more recently the announcement of their partnership with New Zealand banking authority to provide a Confirmation of Payee ecosystem for the major banks in New Zealand.
In addition, the obconnect platform brings four key capabilities to our business and our clients, those being the Confirmation of Payee service, Open Banking payments, data access and sharing, and enhanced fraud protection. As the client applications for these capabilities grow rapidly, our relationship with obconnect puts us in a really strong position to make the most of these opportunities. And in the meantime, our MultiPay digital platform continues to grow. And in the first half, we've now onboarded a further 15 new clients onto this platform. In Love2shop and Park Christmas Savings, our major strategic development in the first half has been the expansion of our partnership with InComm, the distribution and merchandising of Love2shop product into a range of additional major retail channels. The rollout of this new channel is really important to us.
It went live in October ahead of the peak sales season, and early developments are encouraging. In addition, we continue to develop discussions with a number of prospective partners to broaden the customer reach of our prepayment saving platform for that, particularly into other saving occasions. And I expect we'll have more to say on this later in the year. In access to cash and local banking, delivering a local cash banking network which supports access to cash in the community remains a key strategic building block for our business. We expect to be live during the first quarter of 2025 with at least one major high street bank for cash deposits through our network, with more to follow through the course of 2025. This builds on our success working with a number of neobanks.
Into 2025, you should expect to see further innovation from us, including card-enabled consumer deposits and an SME deposit solution, which will be available through the PayPoint store network. Finally, community services for our retailer partners. Our engagement with our retailers is more important than ever as we continue to roll out new services through the network. While we've made good progress in recent years with respect to our retailer engagement, there is always more to do. As a result, we have a major retailer engagement review underway currently to ensure we're communicating with our network through the most effective channels. Our training and support for early life retailers and the support of new PayPoint services is where it needs to be.
And all of our retailers are aware and supported to maximize commission opportunities for the services we offer, such that we can really make the most of those who want to be a PayPoint retailer in our network. In addition, as I've said already this morning, we've added an additional key building block, which we've called connecting our capabilities to drive further growth. This is an essential step for our business to take as we encourage each business within PayPoint to step out of its silo and understand the power and opportunity that comes from joining together our capabilities to offer a much stronger client proposition. There are already some great examples of where this is working and delivering benefit.
These are just the beginning of the opportunities we see as we present our clients with a joined-up capability in ways that add value and drives revenue for both their business and ours. As you can see, I have two examples here. Today, as a result of our partnership with Lloyds and YouLend, we're now able to offer SME merchants through Handepay, a joined-up solution which provides the Lloyds card acquiring commercial banking services alongside the YouLend Business Finance and the Merchant Rewards and Loyalty Scheme powered by Love2shop. Together, these capabilities offer a genuinely differentiated merchant acquiring proposition, which we believe moves the engagement with prospective merchants from a purely price-led discussion to a much more broadly led value and service proposition.
In the energy sector, we are looking at each of our utility client relationships to evolve these beyond our vanilla cash bill payments relationship through to one which introduces our Open Banking payment platform to enable consumer bank-to-bank payments online and the use of our Open Banking account information to support key consumer decisions such as discretionary credit and also to use our OpenPay platform to support customer disbursements, including cash through our network. But these are early days, but the capabilities we have today create opportunities which will really continue to grow and, in particular, create greater value and greater focus for our business as a whole. Turning now to the business review, starting with shopping. Overall, a solid performance. We've delivered strong estate growth across all of our products and services.
In financial terms, our retail services net revenue was up almost 4% and card payment revenue up by 1.4%. Operationally, we've now rolled out over 1,700 new PayPoint Mini devices. We've enhanced our retailer rewards scheme in the first half and delivered over 13 brand campaigns. Our ATM business has continued to disappoint. The actions we're taking to optimize performance in the network have not yet borne fruit. We are confident we're doing the right things, but it's taking time, and we believe that actually the actions we're taking are the right ones and improvements will come. In cards, while the main focus has been on delivering a successful transition to the Lloyds Cardnet acquiring platform for new business, we've delivered some really strong improvements in both our pricing and onboarding governance, in addition to some new merchant features, including a merchant app and a rewards scheme.
In the first half, this has led to a good margin performance and some growth in Cardnet revenues. Processed values, meanwhile, have not performed as well as we had expected, reflecting very cautious consumer spending behaviors, particularly in the PayPoint retailer estate. Looking to the second half, we remain focused on building on a strong first-half performance in our FMCG brands campaign business, making progress in strengthening our retailer engagement and delivering results from our ATM estate optimization program. In our parcels business, another excellent performance with strong growth in parcel transactions and net revenue and the further expansion of the network. As we look to the second half, we will continue to support our carrier relationships through further network expansion, excellent customer service compliance, good technology and data support, and clearly, our growing partnership with the Royal Mail is a good example of this in action.
In addition, we're developing new channels to drive parcel volumes, including opportunities with the Chinese marketplaces and also international returns. Payments and banking, a headline flat overall performance from the business very much understates the progress we're making from a low base in our MultiPay digital payments business and our open banking activities, and also reflects a much more modest decline in our cash payments revenues, which were down by 1.3%, having taken into account a 2.8% decrease in our legacy energy sector revenues. Looking ahead, our focus remains on accelerating the growth and adoption across new and existing clients from the full capabilities of our multi-channel payment platform, which, as I said already, includes open banking, the launch of our community banking network, and greater collaboration between PayPoint and Love2shop to drive incremental revenues across both our client bases.
In Love2shop, a really strong first-half performance with the business delivering a profit with billings and net revenue up in the first half of Love2shop, a solid performance from Park Christmas Savings, and a particularly strong billings performance from our MBL platform. Looking ahead, our key focus areas are bedding in the InComm distribution partnership, expanding further partnership opportunities for both Love2shop business and MBL, and expanding our prepaid savings platform into other saving areas and occasions. Finally, turning to the business outlook, this time around, we've broken our outlook down into a number of key elements. As you've heard this morning, the progress and momentum we have in our business today and in the six building blocks in particular gives us real confidence in delivering our near-term financial target of achieving GBP 100 million EBITDA by the end of FY 2026.
While consumer confidence and spend is not as strong as we would have liked going into the second half, we are confident we've taken the right actions to accelerate performance at each of our business divisions. And overall, the business is well positioned to deliver further revenue growth in the second half, meet expectations in the current year, and achieve our medium-term financial goals. In the meantime, we continue to generate strong cash flow such that we can invest in our business, remain committed to our three-year share buyback program, and grow a dividend. As we announced today, an increase in the interim dividend of 19.2 pence for the strength and level of earnings cover. So overall, great set of first-half results. We're confident going into the second half, and we're now happy to answer your questions. Ladies and gentlemen, we will now begin the question and answer session.
Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who wants to ask a question may press star and one at this time. One moment for the first question. Our first question comes from Joe Brent from Panmure Liberum. Please go ahead.
Good morning, gentlemen.
Hi, Joe.
Just so you're aware, there was a loss of sound after about 10 minutes for five minutes. So just so you're aware of that. Three questions from me, please, maybe one at a time. Firstly, could you talk us through the strategic rationale for the Yodel acquisition?
Yeah. I mean, thank you, Joe. I mean, Yodel, as you know, has been very much a long-term partner of Collect+. And to that end, we have together developed a really good out-of-home, particularly store-to-store proposition centered around actually really maximizing the opportunities in our retailer network. Yodel, as you know, was previously owned by the Barclay family, and for a short time, actually was owned at the beginning of this year by Jacob Corlett and a group of investors. And I think Jacob made a decision, actually, I think, to sort of refocus his efforts around Shift, which is an online platform, a move away actually from actually sort of the core physical logistics.
Given how important Yodel is to our network, we made a decision alongside a number of other investors, including InPost, that the right thing to do for our business at this stage was to support and invest Yodel such that we could actually support the management team in the strategic plan they had for their business to reduce costs, increase efficiency, and drive volume. And I think so far, so good would be the cry. Does that mean we're a long-term investor forever in Yodel? I don't know. But certainly, for the moment that we were in the first half of this year, it felt like the right strategic move for us to make to ensure the sort of endurance and success of Yodel, given how important Yodel is as a partner to us in our network today.
Fantastic. Thank you. Second question is on employers. Quite refreshing to have a presentation without that being mentioned. I'm sure you've thought about it. Could you just talk us through what impact, if any, on the business?
Yeah. I mean, look, there's a reality that it will have an impact on our business. I don't think us making a bit of noise about it will change the outcome. Look, we have to be adaptable and agile as a business, as a management team. As you would expect, we're going to take the appropriate action within the business to mitigate that as best we can. I mean, we're probably talking at face value, Robert, about GBP 1 million if we do nothing. But I would like to feel that you're confident that we will do things, and we will mitigate that impact as best we can.
Perfect. Yeah. I hope for. Finally, on obconnect, you talk about New Zealand. Could you talk us through the opportunity there and if there are other similar international opportunities for that or any other businesses?
Yeah. I mean, look, I think enormous credit to the obconnect team for what they've achieved in New Zealand. I think that they have built essentially an open banking data sharing ecosystem, which is hopefully one that will really deliver the expectations of the New Zealand banking community. The sort of ecosystem and the ability to share data between banks goes live, I think, the week after next. Clearly, that's when you see the real performance of actually that platform.
And naturally, you would expect, subject to the success of that, the obconnect team have already had quite a lot of inbound calls from other jurisdictions and other sort of aggregations of banks around the world who want to watch the success of that and understand how they could use similar technology and a similar platform in their own jurisdiction. So I don't want to steal in any way the thunder from obconnect or over-anticipate what they're capable of. But I would expect over the fullness of time, i.e., the next two or three years, that they will develop a really strong pipeline of other jurisdictions who want to adopt a similar sort of ecosystem to the one that we've seen adopted in New Zealand.
Well, that sounds very exciting. Thank you.
Thanks. Our next question comes from Michael Donnelly from Investec. Please go ahead.
Thank you. I've got a couple for Nick and then perhaps one for Rob. Nick, firstly, on the 15,000 Collect+ location targets, you spoke last time about universities, hospitals, and transport hubs specifically. Can you just update us about where among them you're currently seeing most demand and why that's going to get you up to the 15,000 to close the delta from where you are at the moment? And then secondly, on new labor government, how is engagement with the government agencies like DVLA, DWP, and potential other partners being affected, if at all, by the change and how the changes have rippled through to the civil service? And also, any thoughts on current policy that you might see as a future opportunity from the new government? And then finally, Rob, one for you. Apologies. The sun went down on the cash flow slide. So sorry if I missed this bit.
Can you just talk about the shape and size of the working capital movement expected at the full year, given how much the business is and is going to continue to change in terms of the partners that you're facing off to and paying and being paid by? Thank you.
Morning, Michael. Thank you. Firstly, just in terms of how we're growing the Collect+ network and specific to those three channels, I think probably in the short term, the most exciting growth channel for us in terms of Collect+ and locations are at or around the universities. I think that we've got a great sort of data analytics team here at PayPoint who are doing a really good job of actually mapping where we see concentrations of particular demographics and what that means in terms of where we want to put future Collect+ sites.
So as we start to open up the Chinese marketplaces, as we start to work with carriers such as SF Express, one of the things we've been looking very carefully at is where the Chinese population live. Where is that concentration? And unsurprisingly, one of the most exciting areas is around universities, both from a demographic perspective, but also because I think early adoption from students, from international students in particular, is really powerful actually to sort of driving out-of-home adoption rather than delivery to door. So we've got 19 universities today. But as importantly, I think we're really growing the network around those university locations to really strengthen our presence and actually looking very carefully at that. The second area is with one particular partner around hospital locations. We have got a couple of pilots running at the moment.
And I'm hoping that we will come to a conclusion as to how we can best roll that out over the next six months. And then transport locations are again an area where we're really focused, particularly as people actually sort of spend more time back in the office, looking again at actually sort of transport routes and actually where we've got the right target locations. And that's one of the reasons why you've seen the Collect+ number of sites grow in the first half, and you'll see it grow again in the second half. Your second question around our engagement with the respective government departments, I would say overall, probably nothing has changed. You mentioned DVLA, DWP. Our engagement with both of those from an executive perspective remains very strong.
I would say that the core policy, which probably best captures their approach, is how can we deliver our service? How can we help them reduce execution costs in their businesses? I think all of these government departments are under huge cost pressure. To the extent that the team led by Jo Toolan, who runs our payment and banking business, are coming forward with how can you deliver your service and reduce cost, they're clearly very welcome conversations. I think we're having some good engagement with particularly DWP around long-term opportunities actually to support them in reducing their sort of cost delivery. That must be something that's exciting for us as we go forward. I think very much plays to the point I was making earlier around sort of really maximizing the benefits of the four capabilities that we offer, particularly in payments. I'll hand to Rob.
Yeah. Thanks, Michael. Yeah. Sorry it cut off the sound by the sound things. But yeah, in terms of the cash flow position, I think looking at the half-year view, obviously, we had really good performance for half one. Typically, I would have expected a kind of a GBP 5 million outflow for half one. And we landed at a GBP 1.8 million outflow for half one. And that was really our management of receivables. We had one or two collections that weren't really due in for the half coming through. So I think it probably gives an underlying view of the discipline that we're adopting in terms of working capital management. If we look to the full year, I do anticipate an outflow for the full year. It will be seven digits. It was eight digits last year.
But I think we're looking at essentially an inventory build for the second half. If you look at the expansion of the sites, Zebra printers, PayPoint devices, etc., we will see an inventory build as the business grows there in Love2shop again with the InComm partnership. We may be doing a bit of stock building there as well. But nothing that I'm particularly concerned about in terms of the overall working capital position for the full year. We're on it. And actually, we'll make sure we deliver the kind of target ratio of around about one-to-one times in terms of gearing for the full year.
That's great. Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. It seems that there are no more questions. I would therefore hand over to Nick Wiles for any closing remarks.
Please go ahead. Thank you, everybody, for joining us this morning and some good questions. Look forward to engaging over the next few months. Clearly, we have our trading updates for the third quarter at the end of January and look forward to catching up with you then and then we have our full results, as you know, in June of next year, so thank you very much, everybody, for joining. Have a good morning.