PayPoint plc (PAY) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by, and welcome to PayPoint's half year results call. [Operator Instructions] Please also be advised that this call is currently being recorded for PayPoint's own internal purposes. With that, I would now like to hand the call over to Mr. Nick Wiles, Chief Executive Officer of PayPoint, to begin with opening remarks. Nick, please go ahead.

Thank you, and good morning, everyone, and welcome to our interim results presentation. I'm joined this morning by Alan Dale, our Finance Director; Ben Ford, Director responsible for our Retail Services business; Danny Vant, Director responsible for our Client business; and Nick Williams, our Head of Parcels. Our format this morning is that I'll cover our introduction and strategy. Alan will take you through the financial review. And then each of Ben, Nick and Danny will take you through their respective businesses in the operational review. In terms of an overview to our results and looking at the first half from a strategic, financial and operational perspective, strategically, we've delivered a step change in the first half to our execution. We've announced the sale of Romania, the acquisition of Handepay/Merchant Rentals and i-movo, and put in place plans to deliver incremental growth from our existing U.K. business. Our financial performance has been robust. And despite the loss of the British Gas contract last year and the disruption caused by COVID, particularly in our first quarter, we've actually delivered what we believe is a robust and strong performance. Cash flow remains strong, and we reaffirmed our dividend policy alongside the announcement of an interim dividend of 15.6p per share. Operationally, we've had a strong first half. The network has remained resilient. We've been proactive in rebuilding our sales pipeline in cards, PayPoint One and upgrades. We've continued to renew major client contracts and services provided to these clients to win new contracts and new clients within both the energy sector and the new nonenergy sectors, engaged proactively with our multiple retailers and deliver operationally on our parcel activities. Finally, on the subject of Ofgem. I appreciate you will want additional information today and ask additional questions. Unfortunately, at this time, we can't add to anything we've already said. We're under strict confidentiality restrictions from Ofgem, and there's nothing further we can add at this time. I hope that we'll be able to do so in the near future. Top half of this slide is one that we shared with you before and highlights the key areas of focus for us during the management of our business through COVID. We continue to adopt the way we work as a business. But overall, a hybrid working model is fully adopted throughout the business. With people operating remotely when they could do so efficiently, and attending the office work when required. And each of the key areas of our COVID response, I'm confident we are providing the right level of support and adaptation, whether into the retailer network, supporting our clients, managing the resilience of the network and in the application of tight operational and financial controls in the business. And hopefully, you will see those features through this presentation today. Underneath, you can see some clear examples of this approach in action, really, right away across the business in terms of our engagement with retailers and clients. And as I said already, you will hear more about these and a number of the initiatives later in the presentation. This is an updated slide of the one we shared with you in May. The table at the top shows the year-on-year comparison by month of transaction volumes across each of our business areas. The table highlights the key transaction volume trends over the first half. And really, the particular call-outs here are, firstly, in bill payments, you will see some recovery since the April of volume lows, although the ATV remains much higher than last year, but impacted by a combination of structural decline, the impact of COVID, weather and actually the impact of the price cap. And we will see more of that impact of price cap in the second half. And I think, really, the question for us, with actually volumes down 19% in September, which is broader to the level we've seen into the second half, is how much of this structural decline that will move to our other digital channels. The second call-out is in ATMs, where, again, we've seen some recovery since the April lows, better numbers from the industry as a whole, reflecting our lower-cost service model, but again, structural decline likely to be about half of the current fall away in the run rate. And I think it's fair to say in both bill payments and ATMs, the acceleration of the structural decline has been driven by COVID. And I think the structure decline is something that we're clearly focused on as we actually look as to how we drive the business into the future. In parcels, we've seen a strong recovery since the April low, although this has leveled off during the second stage of the lockdown. What you will also see here is strong performance from eMoney, from our cards payments, which have both been sustained through the second half. And in the bottom table, you will see really a strong recovery in our network, again, from the March lows and the April lows through to actually sort of almost a full recovery of the network across bill payments, ATMs, cards and parcels by the time we get to September. Now turning to our strategy and an update on our progress and thinking during the first half. By way of introduction, this slide sets out the structure of our business today and the range of services we offer across both client and retail services. It's a strong foundation for our future ambitions and the opportunity we have identified in both areas of our business. As we look forward to deliver higher rates of growth and value, we need to, in our client business, leverage our existing capabilities and extend these areas to deliver, a broader payment pipeline into the retailer network to establish new payment verticals and to broaden our overall payment capabilities, very much extending beyond our traditional energy heritage. In retail services, we start from a solid base of a comprehensive set of services. And our challenge here is to broaden further these skills and take them beyond our traditional retailer network. In achieving this, we will drive greater retailer footfall. We will broaden the consumer demographics of those going into the retailer stores. We will strengthen our retailer relationships, broaden our product offering and revenue opportunities and achieve, overall, a great leverage of our retailer network. And this, for us, is really the core to our strategy for growth in the U.K. market. In terms of our first half execution against this plan, we've made a number of important steps. Firstly, in the sale of our Romanian business, we bring to a close a successful and profitable period of ownership. Timing for us is important in that we have taken the business from loss-making to a good profit basis during our ownership, in our opinion maximizing the return today ahead of the next phase of necessary investment in this business and, importantly, recycling the proceeds to where we see accelerated growth opportunities. We've acquired -- we announced the acquisition of Handepay/Merchant Rentals. This expands our card merchant footprint beyond our traditional retailer base, brings additional capabilities and opportunities, provides one of the key engines for significant future growth. And finally, the acquisition of i-movo. Whilst it's a smaller acquisition, it adds significantly to our payment and EPoS capabilities, it brings a strong presence in digital vouchering and processing and also open up some new opportunities in market segments across with banking, newspapers and FMCG clients. Really, two important themes to our growth opportunities are the migration of cash to cards and customer behavior will change to shop online or locally. And both of these themes have accelerated during COVID and are expected to continue. Both of these themes have already been seen across our business. It's evidenced by the growth in our card transaction volumes, the growth in the value of PayPoint One sales that we've seen through the network year-on-year. The growth in our parcel volumes and fulfillment to the online shopping is also an evidence of the growth and opportunity that we have and in the offering we have as we go forward. Looking specifically at the changes in these markets and what they mean for us in the context of our recently announced acquisition of Handepay/Merchant Rentals. This acquisition takes our combined reach beyond our traditional PayPoint One customer base into a number of new sectors and the broader SME customer market. This slide sets out really where we can see the specific opportunities for accelerated growth and already growing market. Firstly, a review of each of our existing acquirer relationships will ensure we have from each the right balance of customer proposition, card functionality and the right commercial relationships. Secondly, in leveraging a detailed customer analytics, we have a better understanding of our combined card merchants' estate, the ability to drive a better return and a retention strategy to deliver better-informed targeting and pricing in terms of our model for new merchants by sector and region, and the ability to enhance the performance of the combined sales team and support infrastructure. And I think this central analytics approach will also drive best practice across the combined business to improve customer onboarding, the customer experience in life and to reduce churn and improve sales rates. And these 4 elements, we believe, are critical to getting an incremental growth actually from our enlarged Cards business. Certainly, as we look further, we will also see opportunities to upsell cards in our existing PayPoint One base estate and also cross-sell additional services into the Handepay network. To summarize, I think it's fair to say we've had a busy first half as we set about delivering a step change, both organically and through acquisition, into our strategy. We see opportunity to accelerate growth and, for the first half, we've delivered the acquisition of i-movo, the announced sale of Romania. We've identified clear opportunities in MultiPay for product enhancement and client adoption across our digital payment platform. And in retail services, we've delivered the Handepay/Merchant Rental acquisition, full ownership of Collect+. We did an enhancement to our send proposition and already trials for new revenue streams across PayPoint One. And as we look into the second half, I think it's fair to say that we will see further opportunity in our digital payment portfolio development and, in retail services, the integration of our acquisitions and the opportunity to look further for new synergy and cross-selling opportunities as we go forward. And with this, I'd like to now hand over to Alan to cover off the financial review.

Thanks, Nick, and good morning, everyone. The detailed numbers are provided in the RNS release this morning, and so I will be concentrating on the key points in this presentation. The key metrics being reported all reflect the impact of COVID on our transactions in the first half of the year, as discussed by Nick. In addition, they reflect the expected current-year impact from the end of the British Gas contract. The table also reflects the revised treatment of Romania, which now gives a clearer view of U.K. businesses being our continuing operations. Net revenue and profit before tax from continuing operations declined by 7.8% and 18.6%, respectively, as a result of these impacts. The profit before tax is being further reduced by some one-off costs. I will cover these in more detail later in the presentation. Cash generation remains strong, with similar levels to prior period after taking account of the one-off VAT payment deferral. Earnings per share, which includes the remaining discontinued operation, decreased by 16.5% to 23.8p per share. A 15.6p interim dividend has been declared, consistent with the previously announced policy of 4 equal payments. And this will be paid in 2 equal installments on 29th December 2020 and 8th March 2021. Turning firstly to the underlying profit before tax of GBP 17.8 million for continuing operations, this has decreased by 4% compared to the prior period after excluding Romania and adjusting for the British Gas contract. As you can see, retail services has grown overall, but bill payments and top-ups have suffered from COVID. I will provide more insight on these changes in net revenue in the next slide. In addition, profit before tax reflects the one-off costs in the period relating to the previously discussed disposal of Romania and the acquisitions of Handepay/Merchant Rentals and i-movo. These have been added back to abide by the underlying profit before tax. Underlying net revenue has a number of changes. As you've seen in the other transactions analysis, bill payments and top-ups have reduced as a result of COVID impacting consumer habits. We've seen less frequent visits and increased average transaction values affecting volumes, along with consumers using digital more. In addition, this half year has been around 3% warmer than last year, increasing consumers' energy requirements. In the last few years, there has been an average 10% annual decline in cash usage, but COVID has probably accelerated this with a step change in the period. MultiPay and eMoney, which is included in this business area, demonstrate the switch of consumer to digital and demand for paying digitally. They continued their strong performance, improving net revenue by 17.7% and 19.9%, respectively. Our core growth area, U.K. retail services, continued to show underlying net revenue growth by GBP 1.8 million or 8.6% to reach GBP 21.7 million. This increase was primarily driven by the GBP 2.7 million increase in card payments rebate from the COVID-related increased volumes, with cards being the preferred method of payment and PayPoint being well positioned to take advantage of this change. Service fee revenue increased by GBP 0.8 million or 12.7%, driven by adding over 1,800 PayPoint One sites since this time last year, and despite leaving the annual RPI increase to help retail partners. The site increases reflect the completion of the transition from independent retailers away from legacy terminals and the strong recovery from initial COVID closures. ATM net revenue reduced by GBP 1 million, primarily due to COVID-led transaction volume decreases with reduced demand for cash. parcels and other net revenue decreased by 20.3% due to the COVID impacts on transactions, with many consumers being at home and less demand for our typically delivered types of parcels. Turning now to the analysis of our cost base, where we've worked hard at keeping our tight control in the COVID situation. Moving from left to right across the bar charts, we start with depreciation and amortization costs with the expected increase for our CRM system, which wasn't live last year. There was then also the amortization of the brand asset from the previously announced Collect+ acquisition. This is then partially offset by a reduction from a number of assets being fully amortized. We then have a number of one-off savings coming from delays in filling staff vacancies and one-off projects in the prior period. In addition, we then have sustainable efficiencies, helped by CRM going live and continued in-sourcing program of repairs and maintenance. The latest developments of this includes setting up our warehouse to deal with pick and pack of our accessories and making it PCI compliant. There has been a slight reduction in transaction costs directly related to decreases in transaction volumes. Finally, comp financing costs were higher due to the full drawdown at the end of last year of the RCF facility to secure liquidity against any potential COVID impacts on our businesses. Total underlying costs for the 2020 half year were GBP 28.6 million, a decrease of 3% from the prior period, excluding the one-off acquisition and disposal costs. Turning now to cash flows. The profit before tax of GBP 20.6 million has been adjusted for the depreciation, amortization and working capital to arrive at strong cash generation of GBP 29.5 million. This includes a GBP 3.3 million one-off deferral from VAT. The cash generated was used to pay dividends of GBP 10.7 million. Other key cash flow items include: the reduced tax payments of GBP 4.2 million, which decreased by GBP 6 million after last year's HMRC bringing payments on account forward by 6 months; CapEx of GBP 9.8 million, an increase of GBP 5.7 million, which reflects the GBP 6 million Collect+ acquisition; and the use of our financing facility increased at the year-end for COVID, which is now reduced by GBP 49 million. Clients' funds and retailers' deposits increased by GBP 6.9 million due to the timing of the month-end. PayPoint's net corporate debt reduced to GBP 6.1 million, comprising of GBP 14.9 million corporate cash and the GBP 21 million financing facility, corporate cash benefiting from the back point I mentioned earlier. Shown separately here is also clients' funds and retailers' deposits. PayPoint currently holds GBP 27.2 million. CapEx, included in the cap -- excluding the Collect+ acquisition, is expected to range from GBP 10 million to GBP 12 million for this financial year. On the balance sheet slide, you can see that our balance sheet remains strong, with net assets of GBP 45 million. This reflects a GBP 6.7 million increase from the end of March as a result of the ending of the additional dividend program. You will see the revised treatment for Romania, whereby all of its assets, except cash, including goodwill, are now reflected on one line, net assets held for sale. The only other notable item is that other intangible assets increased by a net GBP 5 million, reflecting the Collect+ acquisition and the recognition of the brand and the start of the amortization of our CRM system. We have previously announced progressive ordinary dividend policy, realizing a cover ratio of 1.2 to 1.5x earnings. We are declaring an interim dividend of 15.6p payable in 2 installments, 29th December 2020 and 8th March 2021. This dividend reflects the confidence we have in the business even in these difficult times. Just as a reminder, when considering comparatives, we announced at the year-end the ending of the additional dividend program. We have also explained our current financing structure, which is important in the context of the acquisitions and disposal announced. There are sufficient facilities, with the drawdown of the accordion GBP 20 million to complete the proposed acquisitions whilst we await the proceeds of the Romania disposal, which are predicted to be at the end of the financial year. Finally, on to outlook. This slide summarizes our current view for the financial year ending 31st of March 2021. The business has been resilient, with network recovery and employees adapting to new working practices. The focus on the strategic priorities remains unchanged, with the announcement of the 2 acquisitions and the disposal of Romania. Our growth revenue drivers of card payments, PayPoint One, MultiPay and eMoney are progressing well, although parcels has been temporarily impacted by COVID. With regard to headwinds, we have the GBP 3.9 million impact due to the end of the British Gas contract. We've previously explained COVID impacts on the transactions and the margin decreases to ensure renewal of some client long-term contracts that will all impact net revenue. Costs are in line with our view [ from May ], with tight controls being exercised. So putting all of this together, whilst the financial performance of the business in the second half will be dependent on a number of factors set out in the RNS. The resilience of the business during the first half in the COVID situation underpins the Board's confidence that our overall expectation for the year to 31st of March 2020 remains unchanged. And so now I will turn to Nick to start talking you through the operational review.

Thank you, Alan. And just turning to the operational review, starting really with our organization. And as you will see, our reorganization of the operating structure is now largely complete. Today, we have a more streamlined business and a more accountable structure. At the heart of the change is a faster-moving culture, underpinned by greater accountability, a greater support and collaboration, and I think a more adaptable and flexible working style day-to-day. I'd now like to hand over to Ben, Nick and Danny to take you through the operational review by business.

Thank you, Nick, and good morning. During H1, with the backdrop of COVID-19, we have seen the reinforcement of local shopping and the value of the convenience retailer. In our short session this morning, I wish to cover 3 key areas of the retail services business: EPoS, cards, ATMs and new revenue streams in the second half, specifically looking at what we have accomplished while I see as the opportunities and challenges, followed by a look ahead to H2 and what we plan to accomplish. First, EPoS. We successfully accomplished replatforming in this area. This enables us to strengthen and expand our future services and propositions. A key initiative in H1 was to encourage more retailers to take the full capability. This has helped demonstrate the strong performance with retailers upgrading from Core to Pro service fees during our retailer incentive to Try Before You Buy. As shown in the table, during H1, we have significantly grown our Pro service fee base by 59% to 1,336 as we moved retailers from Base and Core service fee plans as well as onboarding new retailers at Pro. During H1, we have increased our heart-of-store estate by 25% to 2,231. This measurement works in partnership with Try Before You Buy to really drive adoption to use PayPoint One as their heart of store to run their business. As we move towards stage 2 of Try Before You Buy in the new year, we need to remove the onboarding barriers for retailers to adopt EPoS. And to overcome this, we will provide a dedicated service so retailers become adopted seamlessly, reducing their efforts required. Secondly, cards. COVID-19 has created conditions within the marketplace that has been significantly more favorable in the convenience sector, providing us with more than 60% revenue growth, we are now processing more than 150% of total transaction value versus H1 last year. We continue to build on this growth from cash-to-card transactions by strengthening our relationship with our retailers. We have developed a strong marketing message to reassure and retain our existing customers as a trusted card partner, while onboarding new card retailers through better propositions and improved customer experience. Thirdly, our ATM estate has understandably been under pressure as the use of cash declined over H1 due to COVID-19, with net revenue down by 18%. The Link Network recently advised their network saw a 47% decline in usage. Post the original lockdown, our ATM estate has seen a solid recovery, and PayPoint is in a strong position to further optimize our estate to ensure we provide access to cash in communities where the service is key. The backdrop is challenging, but because of our unique merchant [ store feel ] and a low-cost operating model, we have a strong advantage over our competitors that [ has an active patent ] protection. Looking ahead to H2, the retail services team are focused to deliver against our growth plans while continuing improving the retailer experience. From August to October, we have successfully piloted a sales team restructure, dividing the pilot group to be exclusively sales and exclusively account management to improve sales productivity. Based on the success of the pilot, we are going to roll out this new structure to the rest of the team in H2. This new restructure will allow our existing CRM system to maximize the quality of new business leads. Within our cards business, PayPoint is well positioned to take further advantage of the change in consumer behavior, and we'll continue to focus on card attachment with EPoS and PayPoint One. In the first half, we did this by offering net settlements. And in the second half, we will further benefit from a buyout tool to displace existing card providers, and additional opportunities will naturally exist when we come together with Handepay. Building out new opportunities and revenue streams will be key to create further value from PayPoint One for PayPoint and the retailer. And in H2, we will start the development to open PayPoint One as a platform for customers to order from their convenience store and have their goods within the hour. As seen on the next slide, we have successfully launched digital advertising via the EPoS front screen to about 200 stores. FMCG companies want to access independent convenience in a uniform way, providing them with sales data to support any advertising. Currently, this sector is a challenge for FMCG, and our opportunity presents advertising linked to basket sales data. In development with the advertising screen, we'll also launch the single-use vouchers for consumers to use in-store, which is then scanned and validated with the basket spend. With this combination, early conversations with FMCG companies start to create an exciting proposition that financially contributes to the retailer and PayPoint. Hopefully, these slides cover the current situation and future opportunities covering EPoS, cards and ATMs. I'll now pass you over to Nick Williams, Head of Strategic Partners and Products across our parcels business.

Thank you, Ben, and good morning, everyone. Today, I will take you through the developments in the first half of the year through the COVID-19 challenge and then on to our plans for the second half of the year, which does encompass our peak trading period. Our site counts has increased during the first half of the year, which stood at 10,486 as of the 30th of September. We increased initially to provide a base for the future Amazon volume, but expanded this to enable an accelerated DPD implementation to help us recover at least some of the suppressed volumes of late. In April, we purchased a 50% share of the Collect+ brand from Yodel, providing us with a trusted base in which we can launch new carriers and also the enhanced send initiative that I will speak to on my H2 slide. We signed DPD with an ambitious operational plan to implement pre-peak and Parcel2Go with a staged send trial pre-peak, looking to a full rollout after Christmas. Expanding the new carriers into more of the network has allowed us to spread the incoming peak volume more evenly across the shops that offer parcel services. To explain the chart, bottom right, sites offering just one carrier reduced by 4% from 58% to 54% and sites operating with all 5 carriers increased by 6% from 7% to 13%. My next slide shows us that, overall, online sales did increase during the first lockdown, particularly electronics, leisure equipment and grocery, hence, the yellow line that shows at its peak a 43% increase in a historically quiet time of year. However, as people were generally at home, the industry saw a reduction in the requirement for out-of-home pickup points, the blue line, which averages a 20% drop from the January baseline. The orange line shows Collect+ specifically. Fashion sales saw a reduction due to the lack of socializing, and we saw a subsequent drop in demand due to the fashion focus of our volume. However, we recovered faster than the out-of-home industry, blue line, partially in line with the increase in convenience store usage, but also with some of our new carriers being less fashion focused. For example, eBay saw an increase in coloring books and other items designed to keep the kids busy at home. As I move to my next slide, you will see that whilst we saw this dramatic impact at the start of lockdown, we did get back above last year's volume by June and have maintained that going forward. To ensure excellent customer experience during peak 2020, we've been closely monitoring the impact of lockdown 2, but so far has not been as severe as the first lockdown. More importantly, we will be managing any surge in demand when the current lockdown ends on December 2, the week following Black Friday. We have rolled out DPD to 3,000 sites in time for Black Friday. And we are working with Parcel2Go to implement a single-carrier, store-to-door service and also further developing to a store-to-store product, store-to-store being a new ground for us as we have not previously focused on. So far, we have delivered over 2,000 of our new in-store label printers to meet the requirement of more online retailers, such as ASOS and Zara and Very, to offer the environmentally focused label-less return option. This investment is also the backbone of our send proposition to ensure we can produce a quality shipping label in-store that is acceptable across all carrier partners. Finally, to introduce our Staged Send initiative, Staged Send being where a parcel is purchased and printed at home. Micro SME and customer-to-customer send market in the U.K. is 380 million parcels per annum, currently dominated by Royal Mail and the Post Office. Now that we fully own Collect+, we intend to leverage the brand and its website to offer a new carrier-agnostic parcel comparison and booking facility. Thank you for your attention. I'd now like to hand you to Danny Vant, our Client Services Director.

Thanks, Nick. Within our bill payments offering, we continue to have the largest retailer partnership network in the U.K. for over-the-counter payments, with excellent rural and urban coverage. We've seen a resilient performance in over-the-counter cash for the period, but we have seen a transition from cash to digital channels for payments of between 5% to 10% due to the pandemic, which has expedited the use of cashless transaction. Digital payments are clearly a growth area. And one of our key ambitions for the year is to continue to focus on the growth of our own digital omnichannel volumes through our MultiPay platform and to build out value-added services functionality that ultimately makes the MultiPay platform more attractive to our existing and new customers. We've worked extremely hard to develop our client and retail relationships and moved them from transactional relations to engaged partners. We've seen some real positive results from this in the first half of the year. We secured 17 client renewals for the first 6 months of the year, including 2 of the big 5 energy providers. Both of these are secured and long-term deals, with some upsell of additional services, including card transactions for one of the providers, which I think is testament to the earlier point around relationship development. We've also signed an unprecedented number of new business wins over the first 6 months, with 26 new clients started. We've focused strongly on diversifying our portfolio of customers, and it's pleasing that 75% of these new wins come from the nonenergy sectors. On top of this, we've also made some good progress on new organic business from our existing portfolio, with 13 new services added, particularly these from our digital products. This includes the BBC TV Licensing App, which complements our existing cash network service. From a clients' perspective, we've renewed 7 contracts, including Euro Guarantees Group, Motor Fuel Group and several regional co-ops. Our digital volume -- payments volume is showing consistent strong growth. MultiPay is up by 17.7% in net revenue year-on-year, and we have now launched Direct Debit and PayByLink products, which we are hopeful will lead to further positive revenue growth. In Direct Debit, we have already won and started in the [ Nursing and Midwifery Council ], which is one of the largest professional membership organization in the U.K. We also signed 5 clients for PayByLink, including Shell Energy. We're seeing strong continued growth within eMoney, with transactions up by 15.4% and net revenue up by 19.9%. It's also pleasing to see that our cash-out service that we delivered in partnership with our newly acquired business, i-movo, is seeing excellent growth, [ advancing ] 4% year-on-year. Much of this growth has come from local authorities looking to quickly disburse funds to financially vulnerable, and we see this service continuing to deliver strong results over the second half of the year and into the next financial year. So our priorities for the second half of the year are threefold: firstly, to secure our key strategic energy and retailer client contracts, and we're confident that relations are in a positive place. And by the end of the year, we will have achieved this. We're going to continue to focus on securing new business wins and maintaining our strong pipeline, particularly within housing and eMoney. But finally, we're going to continue to secure and diversify our portfolio of clients through a richer and broader range of digital products. Leading on from our ambitions to broaden our offering, I'd like to touch on some of the developments on our MultiPay platform for H1. Our ambition here is to have a platform that can deliver a really rich and broad set of payment capabilities for our customers through one provider. We've added Direct Debit to the platform, which is a payment channel that is really important to the MultiPay offering, but one that we must have to offer a fully integrated offering to our clients. We've also added APIs, which allow us to integrate with the client's back office system, which is becoming increasingly important for medium and large-sized organizations. PayByLink is a really exciting product for us, particularly given the current and ongoing challenges, with deaths as a consequence of the coronavirus pandemic. This is a prompt-to-pay system allowing our clients to send out an SMS or e-mail with a link that takes you to a pre-populated payment page, so they can simply add their card details and make a payment. PayByLink can be used in a call center environment, and it's fully PCI compliant, or it can be used to chase arrears or as a prompt to pay to -- before due date to improve cash flow. We briefly added recurring card payments where consumers can work out payment schedules based on clients' predefined payment parameters. We see this product as being really valuable with a number of existing and new sectors such as energy, housing and water. Commercially, this product generates a range of fees, including issuance, so which just not earn revenue from successful transactions. We also added the Event Streamer product to the platform, which allows clients to see real-time cash payments, but this could be integrated to their back-office systems. This is really important for clients to understand their latest arrears positions. And one of the key reasons for the development came from customers' feedback on managing debt, where a lot of time is wasted chasing people who have already paid, but they don't have visibility of this until 48 to 24 hours later, in some cases. This product enhances our overall MultiPay offering and resolves some key challenges we see in a number of sectors. The commercial model here is the management fee for the product. Hopefully, it's clear that we are really moving velocity and intent to build a strong digital payment platform that complements our existing cash capability. And with stronger customer relationships, we are not only expecting to see good growth in new business, but also through organic growth within our existing portfolio. I'm now going to pass you back to our CEO, Nick Wiles.

Thanks, Danny. In the first half, we've made important progress in organization and cultural change. It's change, actually, that the business really needed. Ben, whom you've heard from this morning, joined us in July to lead our retail services business. In addition, Tanya Murphy joined us from Zurich Insurance as our new General Counsel. Mark Latham will join us, and the Executive Committee, upon the completion of the Handepay acquisition. And there's a real strength -- sense throughout the business of the strengthening of our leadership team, really, throughout the business, through a combination of internal promotions and external hires. The next phase of CRM is now fully rolled out into the contact center and, increasingly, we're getting a single-customer view of retailer and enhanced retailer experience. The first phase of CRM, in terms of benefits, is yielding better data from which we can drive better business decisions. And that was essential, certainly, during our sales effort during COVID. And as Alan said earlier, our in-house warehouse operations are delivering better service at a lower cost. As we look into the second half, I think the organizational focus is very much going to be on the successful integration of Handepay/Merchant Rentals and the i-movo business, start to plot really where synergies are and how they delivered from these acquisitions. So in summary, as we've said today, a resilient business model driving a solid performance through COVID; a step change in the execution of our strategy, to drive growth in the U.K. through acquisition; and through the incremental growth opportunities we've identified, where we have a focused investment in place. We sold our Romanian business to realize value and to enhance that focus in the U.K. We had a strong action to manage our costs and applied tight operational focus to maximize our business opportunities. And with that, we've announced the dividend of 15.6p per share, reflecting our confidence in our business and our enhanced growth prospects. And I think with that, we should open it up to questions.

[Operator Instructions] We'll now take our first question from Will Kirkness from Jefferies.

I have 3 very quick ones, if that's okay. Firstly, just perhaps with Ben on monetizing that advertising. Is it contingent on click-through, or do advertisers pay regardless to pay on retailer screens? The second one was just on the Handepay network. I just wondered if maybe you could talk about the new services that you might think would apply to their retailers. And then finally, just on parcels. I wonder if you could help us perhaps with the capacity that you think exists within the network. So both with retailers, I guess, who have no exposure as of yet and those who are perhaps at low volumes?

Sure. Thanks, Will. Ben, do you want to take up the first one on advertising?

Yes, of course, absolutely fine. So with regards to the advertising, what we're doing is working with the FMCG companies, currently, by understanding the products. So the products we've got at the moment is to see how we use that within our back-office function that we advertise to the retailer what advertising is leading up. So they can then go to their wholesale and purchase. And then with the voucher, that then starts to indicate to the FMCG company around that sales. And so in turn, there will be kind of a dividend from that voucher that is then [ through ] us as if [ carve-on ] PayPoints, and then we'll divide that out to the retailer as a kind of contribution share.

Okay. And in terms of the Handepay network, I mean, I think the initial analytics will that we did show that we were only about 200 overlapping merchants between the 2 estates. So that's one of the reasons why this was such an exciting opportunity for us in terms of the additional breadth and footprint that it would give us. And as we sort of look forward, certainly into the Handepay estate, we already think there are opportunities potentially around parcels and potentially around EPoS. And I think the question mark is to whether that might extend into bill payments? But certainly, at this stage, we need to look at it segment by segment. And I think that's the value of the analytics that we've got underway, is to think hard about sort of by region and by sector where the specific opportunities are across the offering that we've got today. But certainly, our initial thoughts are around a combination of EPoS and parcels. And Nick, do you want to pick up the question around our network capacity?

Yes, certainly. So at the start of this year, we added just under 3,000 sites to take us just over 10,000. So we've built some capacity in there. Our modeling shows us that we can handle around 300,000 parcels a day. Currently, we are at about 2/3 of that, we think, forecast for this year. So we have some headroom. But what we do is we proactively and reactively look for hotspots where we get certain geographical areas for the concentration. And what we do is we approach nearby PayPoint stores that don't offer the parcel services and then sign them up, which gives us kind of a relief, locally, where we -- as and where we need it.

But I think the key point is where we've got to balance getting sufficient volume through an individual store to get them comfortable with the service, with the customer experience and also to ensure it's worthwhile to them as a service, with actually ensuring that we've got a balance across the network. And I think that the work that Nick and his team have done in terms of managing peak, I think, is reflective of that.

We'll now take our next question from James Goodman from Barclays.

A couple from me, please. Just firstly, on the outlook. You spoke to unchanged expectations, I think, this morning. But when I think back to the outlook from the full year results, it was talking about a wide range of potential profit outcomes. There was some commentary on what you expect the costs to do. So I wondered if you could be a little bit more specific about what you mean by unchanged expectations? Maybe give us a sort of a profit range or a year-on-year growth expectation. And the second question, forgive me if we discussed this on the proposed acquisition of Handepay. I don't recall it. But reading about the PSR review into card service fees in the U.K. and some of the concerns they had around the price transparency and contracting around terminal rentals and leasing for small merchants, I just wondered if you could talk a little bit about some of Handepay's business practices in this area. And what gives you comfort that there's not a regulatory risk around the sort of mid-market card acceptance market in the U.K. post the PSR review?

Sure. I'll start off on outlook, and I'm sure Alan can sort of add as we go. I think that, well, hopefully, we've given you some clear guidance of today. It's really what's happening across each of our individual business segments. And I don't think, as we come out of September -- and I think it's probably well illustrated on Page 5, when we talked about the transaction volumes across the various businesses. I don't think anything we've seen in the early part of the second half changes our view as to where things were in September. And I think you have heard already, we've got costs strongly under control currently. There's no reason to expect that to change. I mean, I think the 2 areas of potential unknown into the second half is what happens to the bill payment transaction volumes as we get into the important parts of the winter. I mean, clearly, that's going to be affected by where we are with COVID, where we are with the weather, and actually what the full impact of price cap is going to be. And I think probably the other area, which, again, has some uncertainty to it is where we will be with parcels. As we said, coming out of September, we were up 10% in [ volume ] year-on-year. That's moderated a touch as we've gone into October and now into November. And clearly, we're heavily dependent on the outcome from the peak parcels period. But I think if you take all those things in the round, given what is in front of us. I don't think that we're uncomfortable, with actually a very solid basis on which actually we're saying no change to our expectations. Alan, do you want to add?

I think you covered most of it, Nick. I think the point is we expect second half performance probably similar to first half performance as regards to transactions, but we really can't say how long COVID is going to last. We all hope the vaccine will come in and, say, put things right back to normal. And I think we've kind of explained the volumes, say, in bill payments, that is being impacted by the noncash decline, but definitely a step change with COVID. We can't really see it, let's say, how and when we go back to a full recovery situation, how much of that recover. And as Nick said, yes, there is a fact of weather. That's unpredictable in the first half. As I said, temperatures were actually 3% higher compared to the prior period. I can't predict what temperatures will be, I say, the rest of the half. But I think the point which I make is we are in a strong position. We're happy to, yes, declare the dividends. Yes, we've got confidence. There's no major impacts coming to us, but I can't say specific numbers.

And your second question around the PSR review. I mean, I think it actually is a review, both Handepay and PayPoint have contributed into the review. And I think that we see considerable opportunity from any conclusions that actually come from that. I mean, I think, clearly, one of the question areas is around sort of what the ancillary costs are over and above the base fees to smaller merchants. And I think within that, sort of the commitments sort of around the duration of terminal contracts. Now clearly, there's going to be a balance here as the PSR comes to its conclusions between sort of duration of contract to actually getting value to the merchants. And our observation is, to the extent that you shorten merchant contract rental periods, it's likely that you may add to cost rather than actually sending cost away. But I think what it will do is actually sort of create the opportunity, potentially, for merchants to switch more freely. But actually, it may not be at potentially the cost benefit here some might expect. But I think it's still very much open for review. And as I said already, I think the way that we, alongside Handepay, have developed our customer retention program and, importantly, actually sort of our pricing policy I think probably plays to opportunity rather than cost actions we look forward into the next year.

I appreciate that. Just to follow-up quickly on the outlook commentary and the costs, specifically, which I guess are more within your control than the volumes. I think you said at the full year that costs would rise this year because of increased investment and depreciation. Is that still the case, given that the H1 cost, I think, were down? Are we still expecting that to sort of increase in the second half? Or has the cost control been better than you anticipated at that point?