PayPoint plc (PAY) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to PayPoint's preliminary 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 Nick Wiles, Chief Executive Officer of PayPoint, to begin with opening remarks. Nick, please go ahead.

Thank you very much, Askian. Good morning, everyone, and welcome to our annual results presentation for the year up to March 2022. In terms of our format for this morning, I'm going to give you a brief overview of our results and update our strategy followed by Alan, who will take you through our financial review. And then we will update you on our performance by division before opening up for questions. If I turn to the overview, I think it's very pleasing to report this has been another positive year for the business. We've continued our transformation, strengthening our platform and driving stronger shareholder value. The acquisition of Handepay/Merchant Rentals, i-movo and RSM 2000, in addition to our internal investment, have added to our capabilities, opened up new growth opportunities and industry verticals and enhance the service proposition to our retailers. Our most recent strategic partnership and investment in Optus Homes is another example of our partnership growth strategy and ambitions in the housing association and tenancy sectors. Operationally, in our Shopping division, we've made great progress during the year in strengthening our retailer proposition and commission opportunities for our retailer partners. We stepped up our sales team and contact center engagement across both PayPoint and the Handepay estate, delivering in here a strong new product in stores number in both businesses with enhanced visits, training and support for retailers and SMEs. In our Parcels business, we've seen strong volume growth driven by an excellent peak performance, enhanced relationships across our existing carriers, a number of new partnerships such as Randox and a further investment in our in-store technology to support and enhance the customer experience. In our Payment & Banking division, we've continued our client diversification and digital adoption with 28 new client services now live in year with the majority of these outside the energy sector, supported by our development of additional capabilities, including Open Banking and our new Direct Debit platform. Our new payment exception service launched via i-movo for the DWP has performed strongly. And our first digital payments contract in the housing association sector is now live with Optivo. So overall, strong operational progress through the year in each of our business areas and an excellent platform for the current year. Financially, I think our reported numbers are strong. From our continuing operations, net revenue is up 18.5% at GBP 115.1 million. On the same basis, profit before tax is up 25%. Our net debt is reduced by GBP 24.3 million with a strong underlying cash flow of GBP 41.4 million. As a consequence, our proposed final dividend for the year of 18p is an increase of 8.4%. As we look to the current year, whilst we're not in any way underestimating the cost and inflationary pressures in the business, we're running a tight ship, and the opportunities we see in our business gives us confidence we will deliver yet further progress in the current year and in line with expectations. Turning to strategy. This is a slide we've shared with you before, which shows the PayPoint universe across our full range of businesses centered around our core network and the interrelationship between our activities of Shopping, E-commerce and Payment & Banking. We've updated the slide to show the strengthening of brands and partnerships within the group over the past 12 months, and these are highlighted in the gray boxes. In E-commerce, you can see we've added the Randox relationship, the DHL walk-in send and parcels return for Amazon. In Payments & Banking, the addition of Optivo, as I said already, our first major housing association plant and the majority of the major national newspaper publishers as we work to develop a newspaper digital vouchering business, which moves from paper to digital and additionally also the DWP for our payments exception service. In Shopping, I think you can see a significantly strengthened retailer proposition with the addition of Snappy, Counter Cash, the MyStore+ retailer reward program, the YouLend business finance plus a number of new e-money schemes, including Love2Shop and pocket. I think it's fair to say the central theme across the business is one of strengthening our portfolio of brands and partnerships to support our clients and retailer partners as we deliver innovative solutions and products across a differently sized network within our overall PayPoint estate. I think the outcome of this transformation and what it means to the shape and profitability of the business is what's like for the next slide. This slide really puts the numbers to the scale of our transformation over the past 2 years, comparing our business in the pre-COVID year of '19-'20 to the year we're reporting today. At a headline level, it shows net revenue from continuing operations has increased by 7.8% over the period. And the span of our network has increased from our traditional PayPoint network of over 26,000 locations to a network today in excess of 63,000 SME and retailers. In addition, you can see the key shifts in our overall business mix. In Shopping, made up of our retail services and car payments activities, this now contributes more than 50% of our net revenue, reflecting, firstly, the growth in our PayPoint One estate and the associated service fee, the growth in our PayPoint card business plus the acquisition of Handepay/Merchant Rentals and the growing contribution from our enhanced retailer proposition. Our Parcels business continues to grow its contribution. And now we're seeing the signs of this growth accelerating as we establish Collect+ as the #1 carrier-agnostic out-of-home network, supporting our carrier relationships, delivering a best-in-class customer journey and experience. In Payments & Banking, we've seen a significant drop in the net revenue contribution from over 63% to 44.7%. This headline masks a number of fundamental changes in the make-up of our business. Our investment in development of a PayPoint channel-agnostic digital platform has supported our growth and diversification into digital payments and deliver the necessary capabilities to secure business in new sectors such as government, local authorities, housing and charities. This area of our business is growing strongly. And digital today makes up almost 7% of our group net revenues, which is 35% higher than 2 years ago. Our e-money business continues to grow as we expand our relationships and schemes in gifting, e-banking and online gaming. Today, this business contributes just over 7% of net revenue and has a solid platform for growth, particularly in gifting and banking. Finally, turning to our legacy cash bill payments and top-ups, where we have seen a sharp fall in the net revenue contribution from 50% to 30% today. We talk more about this later in our divisional review, but the underlying issue here is the changing consumer habits [indiscernible] cash over the past 2 years accelerated by the pandemic. Although more recently, this decline appears to have moderated as consumers think again about the value of cash, the household budget management tool. Overall, I think this is a valuable slide, which shows a clear direction of travel for the business and the evidence of the early delivery of this transformation underway across the group. With this, I'd now like to hand on to Alan to take you through the numbers.

Yes. Thanks, Nick, and good morning, everyone. As you have just heard from Nick, the group is in transformation as well as calling out our strong results. He has looked back over the last 2 years to reflect on our pre-COVID-19 performance. My part of the presentation is focused on the positive performance being reported compared to just the prior year results. The key metrics all reflect the transformation, the contribution from our recent acquisitions and are compared to a period still impacted by COVID-19. Now turning to the highlights slide. The key starting point is our [ posted ] profit before tax of GBP 78.5 million, highlighted in the middle, up from GBP 28 million, which consists of the 3 amounts above. Firstly, we can see the final impact on our results of the previously announced disposal of our Romanian business with a healthy GBP 30 million of net profit being realized. We then have exceptional items. As discussed at the half year, there was a GBP 2.9 million exceptional item gain from the accounting for the contingent consideration relating to our i-movo acquisition. One part was met and paid out in the second half, but this other part of the liability, we have to release if not for certain stores to be met. In the prior year, we had the Ofgem provision and costs relating to our acquisitions. My key focus in the following slides, therefore, will be the profit from continuing operations, excluding exceptional items, the underlying profit, which has increased 25% to GBP 45.6 million for the year largely as a result of our acquisitions, although there were other items to highlight. I'll say turning now to the underlying profit before tax from continuing operations, this has increased by GBP 9.1 million or 25% compared to the prior year. To fill out the underlying performance from the prior year's profit before tax of GBP 19.4 million, we have firstly added back GBP 16.1 million of exceptional expenses relating to the Ofgem provision and the acquisitions. To provide at the prior year underlying profit of GBP 36.5 million, there is then a net GBP 1 million positive restatement of prior year results relating to the IFRIC accounting clarification on intangible assets. The principal driver of the increase in underlying profit is the net GBP 7.6 million increased contribution from our recent acquisitions. If we had not taken this positive action last year to invest in these acquisitions, then you can see that the results of the legacy PayPoint business would have had limited growth with a result of GBP 1.5 million. Our Shopping division saw a GBP1.6 million net revenue growth, but there was a mixture of business line performances against last year. The E-commerce division has recovered well with a GBP 1.3 million increase net revenue with a strong peak performance. The net revenue for Payments & Banking division decreased GBP 4.7 million, largely through the continuing decline in the use of cash. There is a separate slide later, which will discuss the GBP 3.3 million decrease in underlying costs. We then adjusted this improved to GBP 45.6 million underlying profit by the GBP 2.9 million exceptional gain in the release of the continued consideration to get back to the 45 point -- sorry, GBP 48.5 million reported profit before tax from continuing operations. This slide reflects the business model introduced at last year-end with the 3 divisions of Shopping, E-commerce and Payments & Banking. Our Shopping division shows a considerable increase in net revenue from GBP 40.2 million to GBP 58.7 million, primarily from the inclusion of GBP 16 million from the Handepay/Merchant Rentals acquisitions. Handepay pleasingly increased value process from last year by 31% and benefiting from the recovery from COVID-19 lockdowns. Servicing revenue increased by GBP 2 million or 13.1%, driven by an increase of 658 revenue-generating PayPoint One sites since this time last year with site increases in the high revenue point at core. PayPoint Card payments revenue decreased by GBP 1.1 million due to an average -- lower average transaction values despite a 3.5% increase in transactions with cards still being a preferred method of payment. ATM net revenue was flat, seeing volumes down just 0.8% supported by the return of most COVID-19 suspended sites and the recovery from lockdowns. Our E-commerce division saw net revenue increased by 36.2% to GBP 4.9 million from increased volumes benefiting from recovery from COVID-19 lockdowns and new developments with existing and new carriers like Randox that Nick previously mentioned. The Payments & Banking division saw a decrease in net revenue of GBP 1.8 million or 3.6% with a number of business lines moving in different directions. Digital comprises our multi-pay product, cash out and the new acquisitions of i-movo and RSM 2000. Net revenue increased by GBP 1.7 million or 27.1% with a GBP 0.9 million decrease in multi-pay more than offset by contribution from the acquisitions and the increased Cash Out business supporting local authorities. The new DWP scheme launched later in the year by the i-movo acquisition contributed net revenue of GBP 1.6 million in the year. Cash flow to digital is e-money and decreased by GBP 0.5 million or 5.6%, reflecting these schemes delivering lower volumes this year following the strong performance seen during the COVID-19 period. Cash flow payments and top-ups decreased by GBP 2.8 million or 7.5% due to transactions decreasing with continued less use of cash and move to digital, average transaction values not returning to pre-COVID 19 levels and continuing margin pressure. We worked at keeping a tight control on costs in the year, and this slide focuses on explaining the increased reported costs by looking at the change in historic underlying costs. We start by adding back the prior period one-off acquisition expenses and IFRIC adjustment we just discussed to get to the GBP 60.5 million for our underlying costs. The GBP 3 million reduction in costs of sustainable efficiencies and end-of-life assets includes lower depreciation due to a number of assets reaching their end of life in the prior year and reductions in staff costs from various small restructures. The GBP 0.8 million one-off cost reductions is mainly reduced staff expense on IT development projects. It is after giving our people a pay rise in July when none was given in the prior period. Financing costs have decreased against prior year due to the levered borrowings to fund the acquisitions combined with the renegotiation of our facility terms back in February 2021. Therefore, underlying costs for the period were GBP 57.3 million, a reduction of 5.3% from the prior year. To get back to reported costs, we then add the GBP 12.2 million costs contributed in the period by our new acquisitions. With our cash generation, the key point is that we have strong cash generation from our continuing operations. The profit before tax from continuing operations of GBP 48.5 million has been adjusted for exceptional items, depreciation, amortization and working capital to arrive at the strong continuing operating cash generation of GBP 53.9 million. Considering total cash generated, we also had the proceeds from the sale of our Romanian business. Together, these funds were used to pay increased dividends of GBP 23.1 million, the GBP 12.5 million Ofgem donation, the acquisitions of RSM and the investment in Snappy as well as increased capital expenditure. Capital expenditures increased through the spend on enhanced DD system, the purchase of card terminals for Merchant Rentals and parcel printers. Additionally, a key point is that we reduced our loans and borrowings by GBP 35 million in the year. This next slide shows how our balance sheet has changed since prior year-end. The balance sheet has strengthened with net assets increasing by GBP 50 million to GBP 83.3 million, mainly due to the disposal of the Romania business. Net asset held for sale is now gone, and the proceeds used to help bring down borrowings, as I just mentioned, by GBP 35 million. Goodwill has gone up by GBP 6 million mainly from the completion of the RSM 2000 acquisition. We are showing the investment in Snappy Group Limited of GBP 6.7 million as an associate. The deferred consideration has decreased, as explained earlier, with the payment of one part and the release of the other as an exceptional item. And finally, the provision set up at the end of the year for Ofgem has been paid. The dividend and the financing slide covers a number of topics. We have set out our financing structure that increased last year and can support future growth together with the client drawdowns and corporate cash to provide a net corporate debt of GBP 43.9 million, a reduction of GBP 32.2 million overall. Material cash flows for next year include dividends and CapEx. But based on current expectations, we would be spending a further GBP 12 million. Turning to dividends. We have provided a reminder of our previously stated capital allocation policy. Consideration is given to future investments, whether acquisition opportunities or CapEx, to drive future revenue or provide resilience and efficiency. Our dividend policy targets a cover ratio of 1.2 to 1.5x earnings, earnings being from continuing operations and excluding exceptional items. As highlighted in my first page, diluted earnings per share from continuing operations excluding exceptional items grew 23.1%, 52.8p. Consistent with our policy, we are declaring an increased final dividend of 18p payable in 2 equal installments. This is an increase of 8.4% compared to last year's 16.6p final dividend. This increased dividend reflects the confidence we have in the business for the future. I trust that was a helpful insight and will now pass back to Nick.

Thank you, Alan. And now turning to our divisional review turning firstly to our Shopping division. Our key drivers to a net revenue growth of over 66% and GBP 58.7 million of operating revenue over the period for full year 2020 have been 1 of 3 things. Firstly, the continued growth in the PayPoint One estate from 16,095 sites to 18,120, an increase in the average service fee per site from GBP 15.40 to GBP 17 over the period. Within this, our sweet spot is very much our core offering where we see the most consistent growth. The second driver has been the growth in our PayPoint Card payment business accelerated with the acquisition of Handepay/Merchant Rentals. Combined, we now have an estate of almost 32,500 card merchant sites supporting SMEs across a range of sectors in addition to our core PayPoint retailer estate. And through Merchant Rentals, we have over 32,000 terminal lease relationships. The third has been the steps we've taken to strengthen and enhance our retailer proposition and engagement with the addition of Snappy Shopper; Counter Cash; a number of new e-money schemes; our retailer rewards program, MyStore+; a growing number of FMCG product campaigns along with an increasingly resilient performance for our ATM business. In the second table, those 2 tables below, you can see the breakdown of the subdivisional performance, the change in mix in the Shopping division and the solid contribution from both our retail services and cards businesses. In terms of enhancing our retailer proposition, we now have Counter Cash live in over 2,600 sites. We've worked through the year to enhance our SME proposition with a number of initiatives, including the introduction of the 1-month Handepay contract, our business finance via YouLend, the development of our new counter technology. We've continued to work with Snappy Shopper in the rollout of local home delivery and the Click and Collect proposition. We've also delivered a strong sales team performance across the combined business with over 6,900 products installed with increase in retail and SME engagement to deliver better training and support of these partners. In the current year, we have 5 priorities, including bringing all the new card payment business across Handepay and PayPoint under a single acquirer; secondly, to continue the expansion of our Counter Cash service across our network; thirdly, to create a greater consumer and retail awareness of the PayPoint services as we drive adoption; to grow our SME and retailer partner lending proposition, building on our success at YouLend; and finally, to continue the enhancement of our overall retailer proposition to create greater opportunities throughout commission and drive footfall through our stores, including the rollout of the refreshed third-party EPoS strategy. Turning to our E-commerce division. Momentum really continues to build in Collect+. Net revenue has grown from GBP 4.1 million to GBP 4.9 million and parcel transactions by over 35% to 33.1 million parcels. The key drivers underperforming -- are underperforming this performance, and our recovery from the COVID lows have been our development and delivery of an e-commerce technology based on our delivery platform; our continued investment in technology and the in-store consumer experience, including our separate printers and app; and the reshaping of our carrier relationships and expansion of partners to include almost all the U.K. carriers, as you can see from this slide. And today, I think we have real confidence in saying we're the #1 carrier in terms of our out-of-home network with best-in-class technology and consumer experience, where consumer can send, pick up and drop off. As a result, we're establishing a unique set of insights across the parcels market in terms of consumer data, behaviors, all of which drive future sector innovation. In terms of parcel progress and priorities for the current year, in the year, we delivered on year-on-year parcel transaction growth of over 25% driven by our best ever peak Christmas performance in terms of both volume and customer experience. We were quick to launch a partnership with Randox to support Click and Collect service through over 2,000 of our retailer sites. And we continue to expand our services to existing clients with our DHL in-store returns, Amazon returns and the DPD parcel in-flight redirect service. And for the current year, our priority is very much centered on fast delivering our universal returns proposition for carrier partners across all Collect+ locations, enables really through our Zebra printer technology; to expand our current DPD in-flight divert service to more carriers where parcels are automatically diverted to our nearest network pickup point after the initial unsuccessful delivery attempt at home; and to explore additional opportunities to further expand our carrier proposition and support our carrier partners, including a trial of parcel lockers and continuing work to deliver customer insights and data designed to improve customer experience and our offering. Turning now to our Payments & Banking division. This is the division where we see the most significant shifts in our underlying markets and where our response of these chains have been the most decisive and strategic. Our mission has been to build on the strength of our traditional cash platform, deliver a channel-agnostic payment platform across cash, direct debit, card processing and open banking and one that delivers on the growing needs of our clients today in both our legacy sectors and in new verticals such that we provide payment, convenience and choice to their customers. Building and investing in this platform supports our diversification to digital. It gives us the necessary capabilities to secure new client partnerships, sectors such as government, local authorities, housing and charities. This strategy leverages the expertise and preeminence of our traditional cash channel, which is still vital to our clients and customers while building a payment platform that supports payments across all channels. The impact of the decline in cash payments, which accelerated through COVID, is clear in the headline numbers. For over the 2-year period, net revenue has fallen by over 23%, reflecting a reduction in both volume and rate in our bill payment cash business, and its contribution to the net profit of the group is now 44%, down from over 63%. And this is made more clear in the breakdown of the subdivisional performance. For over the 2-year period, you can see the contrast between the building momentum in our digital payments platform, the growth in our cash through the digital business comprising eMoney, digital vouchers and e-banking and the sharp decline of over 33% in our cash flow payments and top-ups. Our progress payment -- our progress in payment channel shift and client diversification is gathering pace. In the year, a further 28 new client services are live with 19 of these coming from nonenergy sectors and 18 taking digital payment solutions. The pie chart on the right shows the growth and breadth of our plants by sector. Our new payments exception service launched by i-movo on behalf of DWP is now fully operationally, operating through our network and is performing well, contributing over GBP 1.6 million of net revenue in the year. Our first major housing association called Optivo is now live for our digital payment service. And RSM, completed earlier in the year, has made a first year contribution. In the current year, we continue to focus on enhancing our payment channel agnostic platform across all 4 channels in the way I've described with a strong set of capabilities to target each industry vertical with a particular focus on housing associations, local authorities, government and charities. In cash, we continue to reinforce our position as the leader in Cash Out services through our network to support local authorities, government and housing associations with a core focus on supporting them in the digital disbursement of vital funds to their customers in cash. This will be particularly valuable as the government announces a new set of initiatives potentially today to roll out during the autumn. Then our cash through to digital business, we see some very exciting growth opportunities. We continue to broaden our partnerships with some of the strongest brands in each of gifting, e-banking and gaming, with a strong focus on marketing and activities to build further consumer awareness of these schemes through our retailer network. The underlying markets of both gifting and banking are particularly strong, and our network is well placed to participate in this growth. We offer consumers access to digital brands and services through an increasing number of our retailer partners. This slide very much brings to life the work we've been doing in developing our MultiPay platform and how we're working with clients and partnerships to support their own customers in their scheduling and management and payments. Again, as the challenge develops in terms of household incomes, this will be a particularly valuable service across our network. This support and the opportunities rapidly opening up across digital and Open Banking are going to be increasingly valuable tools, as I said already, to support customers dealing with the current cost of living crisis as they deal with direct debit failure, fraud and payment rescheduling challenges. We continue to strengthen our leadership team through a combination of strong external hires and internal promotions. The integration of our recent acquisitions is now largely complete, and we continue to develop our ESG approach as a business with a dedicated ESG working group now establishing great priorities in terms of an agenda. For the current year, we're focused on delivering further growth opportunities and synergies from our recent acquisitions, embedding our ESG approach across the business and expanding our Welcoming Everyone program to build on our commitment to diversity, equity and inclusion. We continue our program investment to build further resilience in our service delivery, our settlement infrastructure and enhancement of our customer support and collaboration. Turning to the outlook. I hope it's clear from the presentation today and our announced results for the year that the transformation of the business is really gathering pace, and evidence of the rebalancing towards growth is starting to deliver. We're pretty quick to react to new opportunities in both our existing markets and new sectors. We have a laser-like focus on our support of clients and partners. They respond to some of the key post-COVID trends, such as the shift from cash to digital, the growing demand for online shopping fulfillment and the increase in shopping locally, all of which adds up to us being there to support choice and the offer our clients have for their customers. We're managing costs tightly and focus on risk to the supply chain and the impact of cost increases and inflation. Our final dividend of 18p, an increase of 8.4%, is consistent with our dividend policy, well underpinned by our cash earnings and reflective of our confidence in both the current year, the delivery of our long-term strategy for the business. And with that, we'll be very happy to answer questions.

[Operator Instructions] Our first questioner is Orson Rout from Barclays.

The first question I have is just on Handepay. It seems that, sequentially, revenue in H2 and Q4 has slowed significantly despite a rebound of in-store payments throughout the industry. And also, terminal, they see us went down sequentially in H2 versus H1. So I was wondering if you can give some detail on why the Handepay business weakened in H2 and also some detail on the outlook and growth profile for that business going forward. And then as a second question, we saw that bill payments saw an improvement actually in Q4 and turned positive for H2. And we, of course, also saw a lot of articles such as money savings expert recommending consumers on prepaid meters to top up as much as possible before the energy price cap hike on the 1st of April. I was just wondering, did you see any pull forward of transactions in March from Q1 this year as a consequence? And if so, can you perhaps quantify this effect? And then finally, just more generally with the current inflation backdrop for bill payments, this should be a short-term tailwind, I guess, due to the fact that people might have to top up slightly more frequently. Can you quantify the magnitude of any search tailwind and give some color on the trends you're seeing there in April and May?

Thank you, Orson. I mean they are clearly very detailed questions. I mean I think what we will try and do is give you an overview to the answers of those questions, and I think the latter one is probably more broadly interesting to the group that are listening in today. And then I think what we can do is give you a more detailed off-line answer to the first 2 questions. But certainly, in overview, Alan, do you want to just cover where we are?

Yes. Well, I think with Handepay, yes, definitely, there are sites coming back online at the beginning of the year was lower than what it is now. I didn't think -- I think the revenue for the second half was around GBP 6.2 million and, yes, the first half was GBP 6.5 million. So yes, there is a slight decline there. It depends on the mix on the business and the value actually being processed, which I say can vary. But looking at the future, one part of your question, is we are looking to ramp up our sales force to actually increase, say, the revenue coming through that business. It is a very competitive business, but we're very pleased. At the half year, we changed our product to the option of having a 1-month or 12-month contract with minimal termination, which is a lot more competitive product. And we've really seen some good sales come through with that. So I definitely feel there is further growth in Handepay with the Merchant Rentals piece as well as leasing our own terminals that we source. So we're also talking to a number of third parties about taking some other ISOs leasing business. So I see that as very positive for the future.

If you want me to pick up the last question, Orson, I mean, I think that -- I think it's very difficult to judge today whether this is a temporary or a more permanent increase in the price cap. I mean evidently, I think the way that the sector collectively is responding to this and the measures being put in place to support those households that are challenged by actually the sort of the current sort of cost of living crisis suggests this is actually going to extend rather longer than actually the sort of temporary nature that you were describing. I mean, I think all we can do is ensure, as I think I've said already, that we are in a position where we're supporting the energy companies to support their customers, give them as much choice as possible to pay. But the energy they're consuming across really cash, direct debit card processing and Open Banking, I think that actually the measures that are being announced today and where they are being most targeted will mean probably we will see more transactions from our cash bill payment network over the next period than we would have expected. That's a consequence of a much higher price cap and also the reality of more support for people who are most affected by that. I mean we are naturally in an uncertain world, but I would have thought that there'll be a more enduring tailwind than the temporary one that you're describing. But let's not lose sight of the fact that our strategy is around ensuring that we have got a genuinely payment agnostic payment platform, which covers all 3 principal ways of actually paying for your energy or any other bill across our client network.

Yes. And just coming back on the price cap question around the performance and customers rush the top-up towards the end of the year. Obviously, the price cap is messaged a fair way in advance, so people know it's coming. So I think people thinking about that don't just leave it to the last minute. The only place we did kind of see that was, say, over in Northern Ireland, which was, let's say, actually just after the year-end where there was a -- we really saw a step-up in volume in 1 day. But I'd say we're in the main U.K. book, it wasn't a massive increase. Definitely, there was more on the last day, but nothing that's significantly affected our results.

We now take our next question, which is from Kai Korschelt of Canaccord.

I had 2 really. The first one was around the cross-selling initiatives, I guess, between PayPoint and Handepay. And I think that was one of the reasons and rationale you laid out when you made the acquisition. I'm just wondering, kind of have you had any or much success in terms of cross-selling services between these 2 installed bases? That's my first question. And then the second one, the CapEx looked pretty high, Alan. I think it was about 11.5%. And so that brought down the free cash flow margin, which were typically pretty healthy for the business. I'm just wondering what sort of CapEx run rate should we expect going forward? And if there was anything sort of, I guess, one-off in nature or whether the sort of terminal rental business just generally carries a larger CapEx burden.

I think if I tackle the first one, it just strikes me. I mean, clearly, first and foremost, the acquisition of Handepay/Merchant Rentals was focused actually on the long-term growth and opportunity in broadening out our relationships beyond our traditional legacy PayPoint retailers. And then I think we've seen already that actually the growth in that network, we now have over 63,000 relationships as a really enduring opportunity, which we still to fully harvest. The early opportunities are already beginning to unfold. We said already our joint venture or relationship with YouLend around business lending has actually really been a major benefit to both the PayPoint retailers and the continuing benefit from Handepay estate. As we said already, one of the priorities for this year is to put new business from both Handepay and from PayPoint under a single acquirer. That will bring a better proposition, I think, and also will bring some financial cost savings. We're also looking at some opportunities in some locations around both future hardware and, for that matter, future additional proposition into the SMEs that are currently Handepay merchants. So I think actually that synergy opportunity is really taking shape. There are already some hard examples of things we have done. And I think in the current year, you'll see more of those. So I think in addition to the growth, as Alan described, that we've seen in Handepay/Merchant Rentals, we're also seeing some synergy opportunities we described what 18 months ago we need to come through now.

And Kai, talking about CapEx, as I said just earlier, I expect next year to be around GBP 12 million. Looking at what went on this year, the things I called out was all kind of expenditure on things that will help future growth. So with the DD system there that's coming out of the RSM 2000 acquisition, so we're enhancing their platform so we can merge with our MultiPay platform, which will actually give us then a combined digital proposition. We can go out to clients for which will kind of be seamless. So that's one of the main rationales behind buying RSM 2000. So Optivo is the first evidence of that, where it's a really good-sized customer coming onboard to leverage that new system capabilities. The other thing that you will see coming through the CapEx line is the Merchant Rental terminals because, as I was just mentioning in the previous question, we've actually changed our operating model to the leases and now offer the operating leases with the handset going into CapEx rather than the net investment in the finance lease. And then finally, the other thing I called out, which is different compared to last year, we did quite a bit of investment in parcel thermal printers. And as Nick said, we're really seeing good growth in parcels, and this is enabling people to do more returns in store. So it's really adding to extra revenue. So those are the kind of the main differences. We're just talking about CapEx in general. We always have a certain amount on our systems, always trying to keep them up to scratch. You will see this extra bit coming through from Merchant Rentals, but I'd say the indications are around GBP 12 million for next year.

Okay. That's great. And then just a brief follow-up. Out of the GBP 12 million, roughly how much is sort of capitalized development as compared to sort of actual CapEx for hardware and sort of -- I guess, sort of similar or related initiatives roughly?

I'll probably say about 1/3 because the big spend we did have was HMRC or M system. That was when I'm talking about, I'd say, the IFRIC change in accounting. So going forward, spend like that on third-party SaaS software wouldn't be capitalized, it would be OpEx. But I would say on existing systems, it will be about 1/3 of that GBP 12 million.

From Jefferies, we have Thomas Truckle with our next question.

Tom Truckle here from Jefferies. I have three, if I may. The first of which is regarding the cost base. I can see that, that was reduced slightly and part of that was higher vacancies. I was wondering if you could share some insight as to whether those vacancies are due to labor scarcity, and therefore, you expect those to be filled next year or whether this is a permanent reduction in the labor headcount base. And equally, whilst on the labor point, given people is about half of the cost base, do you have any views on labor wage inflation and labor availability? My second question is regarding parcels. So clearly, a very strong result in the E-commerce division. I was wondering if we can hear more about how that network has been optimized as it appears that some sites were reduced during the year. And then thirdly, just wondering if we could touch on Counter Cash. Clearly, there's been a rollout during the year. Can we hear as to whether there's further rollout and what momentum looks like at the start of FY '23?

Yes, I'll take the cost question around, say, the salary changes. But in -- what we're calling out is that basically during the year, it wasn't a big restructuring program, but we have, I'd say, done some restructuring in, I'd say, downscale and some upscale in some other roles. But all in all, that has led to some continuing cost savings that you will see, I'd say, into next year as well. The number of vacancies, as everyone knows, it's a very competitive labor market out there. So we are seeing London companies come after people out in Welwyn Garden City. So we obviously have to focus on keeping our key people, but we will see some vacancies there. I think the levels being fairly steady in the last 5, 6 months, as we come out of COVID, I think what's happening is people are looking around and thinking do they want to adjust their lifestyle. Now it is more mobile, people can go to other companies. But that also means we can actually get people in as well. But where we have had vacancies, we've been very successful in onboarding those people if we do have to replace people. But yes, this is obviously a key focus for next year. It's making sure we keep tight control on costs.

Just picking up a question on Parcels, look, I mean, we're really pleased with the performance of Parcels. And I think what that belies is actually how much work has gone on in terms of actually shaping our network to the needs of each of the individual carriers. And I think what you should know is that, clearly, each carrier has a different size network to accommodate the coverage that they need from actually their out-of-home network that supports what they do clearly to doorstep. What you see here is the aggregate number of all of those sites that provide at least one carrier with a parcel service. And inevitably, what we are doing continuously is measuring performance, training, supporting retailers, actually providing that service. And speaking plainly, those retail sites that don't deliver the standards we expect drop out of our network. And given that at any one time we've got a significant number of retailers who are looking to offer the parcels proposition, we are really focused on ensuring that the technology that we're putting in store, principally around our Zebra printer proposition, it's really well used, really well understood by our retailer network because what we understand to grow our out-of-home parcel service, we need consumers to have a great experience so that they come back. So I think what we are increasingly focused on in making sure that across all the measures, and I think, for example, they do an excellent measure of actually our performance in a real-time basis, we need our performance scores to be high. We need the carriers to see what a great service their consumers and their customers get through our network. And that means that those retailers that don't deliver those standards will drop out of our network at any one time. And I think without that discipline and without that rigor, we won't continue to drive the rates of growth and adoption that we're seeing currently. So I hope that makes sense. On Counter Cash, I mean, look, Counter Cash has been super exciting, and we're now through 2,600 sites. What we're doing is there's a hardware to put in store to enable retail sites to be able to offer Counter Cash. And what's really important about that is we now drive the support and training, both educate retailers and then to create consumer awareness as to this service. What we are seeing is a nice ramp-up. And I think those numbers continue to grow week on week. And certainly, our conversations with Link, who are clearly behind this scheme, and their plans around a marketing campaign from really the end of June onwards are going to really create yet further consumer awareness around essentially what is a cash without purchase service. And given the adoption of the ramp-up we're seeing now, I think this has the potential to really supplement what we're doing around sort of cash availability through our ATMs and through other methods. So I think it's really exciting. And certainly, we're beginning to see the early phases of a good ramp-up.

[Operator Instructions] We now take a question from Joe Brent of Liberum.

Three questions, if I may. Could you just -- the Randox story, clearly a great example of you reacting to an opportunity. Could you just tell us kind of where that goes in future? Does that disappear? Or is that an ongoing relationship post, hopefully, COVID? And then secondly, could you just give us a little bit more detail on the evolution of the send proposition in Parcels? And then finally, can -- you have that great slide where you show the various digital payments channel. So just interest to see if anyone else has got anything like what you've got. Or is it really very unique now?

Okay. I mean, Randox, I mean, I think, look, Randox was a really good example of taking opportunity, working with a client, creating a partnership and almost seeing where it goes next. And as you know, sort of in the height of COVID, companies such as Randox were looking at as many ways of actually sort of accessing those that needed testing kits in as timely way as possible. Early conversations with Randox agreed a way of that actually offering in part our network for what they thought the Click and Collect service. And what's at behind that was that we became the stockholder for their testing kits and distributed those through the network in response to a Click and Collect demand from the public. Now where that goes from here, what's been interesting is that as the government has withdrawn free testing, there are still people who test regularly, and we continue to offer that Click and Collect service through the Randox website for those people who want to continue to test for a range of reasons, whether it's going on holiday, whether it's because they have symptoms and they want to confirm those. So I mean, I think clearly, it's not going to be at the same rate that we saw last year, but I think we will still be an element of Click and Collect for Randox in the current year. But perhaps as importantly, what we've established, and we were actually with them a couple of weeks ago talking about sort of future opportunities, I think Randox is going to see the value of working with us, what our network opens up in terms of dialogue with their potential customers. And I think there could be a broader offering of testing Click and Collect and collection in store actually through our network for Randox and the products that they're offering. So I'm not quite sure how that's going to scale at the moment, but it's a nice relationship. And certainly, we're hoping that actually we'll continue to develop them something further as we go forward in the year ahead. On Send, I'll be honest with you, the Send proposition for our Parcel business has not moved as quickly as we would like it to have done. We've done quite a lot of sort of kind of locations testing, particularly around the student sites and the student cities. I think what we need is actually to identify how we actually create the right level of consumer awareness, and I think we're still working on plans to sort of drive that faster. We've done some work with parcels to go to actually make sure that's more visible on their website. And I think that it's part of actually sort of, I think, we're the next phase. And I think given the growth that we've seen over the last sort of 6 to 9 months more broadly and actually the carrier network and, importantly, actually, the sort of parcel categories that we've been managing through our network, we probably put less priority on our Send proposition and more priority actually on the 3 principal actions that I described in terms of our priorities for parcels. I mean the truth is we're at a stage at the moment where a lot of carriers are looking at the broader range of parcel categories that they can put through our network. That's where our focus has been alongside the focus of actually putting separate printers in across our network, all of which, as you can see, is actually driving disproportionately high rate of growth in our parcel transactions at this point. And certainly, if you compare our numbers with what others in the industry are doing, I think it demonstrates we're outperforming quite strongly. But I think I would say that Send probably has taken a backseat during that period, and we probably need to actually put it more to the front and move it quicker and alongside the expectations we created about 12 months ago. And then finally on digital payments. I mean, I think we're lucky that we start from the legacy position of cash because cash gives you the most immediate visibility of what's happening in terms of payments at any one time. And I think what we've recognized is that from that important legacy starting point, building the direct debit platform based on the acquisition of RSM 2000, building [indiscernible] capabilities we've got and extending that into the [indiscernible] as well. We do think that what we will have across that is a unique network to offer energy clients government housing associations. So I would say that I'm not aware of anybody else at the moment that I can offer that sort of payment agnostic multichannel platform. So I think it is quite exciting, but it's us to prove the value of that particularly over the next 6 to 12 months.

Thank you. As there are no further questions in the queue, I'd like to hand the call back over to the speakers today for any additional or closing remarks.

Look, thank you, everybody, for joining us this morning. We're really pleased with the performance of the business this year. And we look very much forward to talking to you again in November when we announce our interim results. Thank you, and have a good day.

Thank you. This concludes today's call. Thank you for your participation, ladies and gentlemen. You may now disconnect.