22 November 2022

Appreciate Group plc

Half Year Results for the six months ended 30 September 2022

"Trading in line with the Board's expectations -

continued focus on costs, growth, and simplification"

Appreciate Group plc (the 'Group'), the UK's leading multi-retailer redemption product provider to Corporate and Consumer markets, is pleased to announce its Half Year Results for the six months ended 30 September 2022. Due to the Group's highly seasonal business, it typically reports a loss in the first half of the financial year.

 
Financial Highlights

*H1 FY22 results have been restated to reflect the change in accounting policy for cloud based spend.

·    Results in line with the Board's expectations - reduced seasonal loss before tax, despite the high Covid driven non-redemption income in the prior year. This is the lowest seasonal loss before tax in the last five years.

·    Successful evaluation of net profit by channel to drive the most profitable billings.

·    Costs further reduced over and above £2m overhead target, despite inflationary pressures.

·    Increased (risk adjusted) return from the sums held on deposit.

·    Billings reflect the expected outturn for Christmas Savers, discontinuation of the Free School Meals Campaign, and the businesses' focus on more profitable billings.

·    An interim dividend of 0.8p per share has been declared by the Board, an increase of 33% on last year.

Operational highlights

·    High Street Vouchers (corporate and consumer) refocused priority to drive profitable billings ahead of volumes.

·      Appreciate Business Services (corporate) delivered stable billings in a challenging market, whilst improving retention levels and increasing the number of new clients.

·    Park Christmas Savings (consumer) recovering in-line with expectations, underpinned by the Group's highest level of agent and direct customer retention rates along with lower costs of customer acquisition.

·    MBL acquisition completed in June 2022; enhanced the Group's technology capabilities, whilst bringing forward opportunities that can deliver higher levels of growth and competitiveness.

·    Partnerships and offers: twenty two new retail partnerships have been added to the Love2shop brand since the beginning of the financial year and fifty three exclusive value adding offers have been sent to the Group's customers.

Current trading and outlook

·    Group is set up strongly for its key trading period in the lead up to Christmas, consistent with the Board's full year expectations.

·      Performance will be more seasonally biased this financial year, reflecting both corporate and consumer customers looking for the best value in the run up to Christmas, in response to the macroeconomic challenges.

·      Continuing to simplify the business whilst reducing overheads to improve performance.

·    Given the Group's cash balances, increasing interest rates provide the opportunity for enhanced finance income which provides a hedge against potential macro-economic impacts.  

·    In Park Christmas Savings, management are focused on growing agents and customer numbers, driven by an earlier start to marketing campaigns for Christmas 2023 than in prior years and messaging around supporting customers during the cost-of-living crisis .

Recommended Acquisition of Appreciate Group plc

·    On 7 November 2022, the terms of a recommended offer (the "Offer') pursuant to which PayPoint PLC ('PayPoint') will acquire the entire issued and to be issued share capital of Appreciate Group was announced, to be implemented by means of a Court-sanctioned scheme of arrangement (the "Scheme").

·    Under the terms of the Offer, Appreciate Group Shareholders will be entitled to receive for each Appreciate Group share, 33 pence in cash and 0.0190 New PayPoint Shares. Based on the Closing Price of a PayPoint Share of 580 pence on 4 November 2022, being the last Business Day prior to the announcement of the offer, the offer valued each Appreciate Group Share at 44 pence and the entire issued and to be issued ordinary share capital of Appreciate Group at approximately £83 million.

·    As agreed with PayPoint, each Appreciate Group Shareholder will also be entitled to receive and retain, without any reduction in the consideration payable under the Offer, a  Dividend of up to 0.8 pence per Appreciate Group Share in respect of the six-month period ended 30 September 2022. The Board has today declared an interim dividend of 0.8 pence per share, which will be payable on 27 January 2023 to Appreciate Group shareholders on the register on 20 January 2023

·    PayPoint's offer represents an attractive premium for Appreciate Group Shareholders providing an opportunity to exit the majority of their shareholdings for cash, whilst participating in the potential upside of the combined Appreciate Group and PayPoint businesses over the long-term.

·    The process is underway, with the Scheme document expected to be sent to shareholders by the end of November, and remains subject to shareholder, regulatory and Court approvals and the satisfaction (or, where applicable, the waiver) of the Scheme conditions, subject to which it is expected that the Scheme will become effective in the first half of 2023.

·    Shareholders should refer to the following section of the Group's website for further information on the Offer: www.appreciategroup.co.uk/investors/recommended-offer  

Guy Parsons, Executive Chairman of Appreciate Group, said:

"Appreciate Group traded in line with the Board's expectations during the first half and remains on track for the financial year as a whole. This is an excellent performance given the macroeconomic challenges.

"We believe that the Group is well positioned for the current economic climate as our offerings are based around value for money and savings. We are confident that with the leadership changes and a renewed focus on costs, growth, and simplification, the business will continue to prosper."

Appreciate Group will host an in-person and webcast presentation for analysts at 9.30am today. If you would like to attend, please contact MHP on 020 3128 8193 or appreciategroup@mhpgroup.com

Notes to Editors:

Appreciate Group is one of the UK's leading gifting, pre-payment and engagement companies, and experts at creating joyful experiences and connecting people to the things in life they enjoy the most.

Everything Appreciate Group does is focused on creating more joy in the world, and it is proud to be trusted to help its customers create moments they can treasure and remember, whether they are giving, celebrating or rewarding.

Appreciate Group is a financial services business with a wide portfolio of brands which provide solutions for its consumer and corporate customers. Its consumer-facing brands meet a range of prepayment and gifting needs, while its business products help corporate customers reward and recognise their employees and clients.

Appreciate Group is home to many of the country's most-loved gifting, pre-payment and engagement solutions including Park Christmas Savings, highstreetvouchers.com, Appreciate Business Services and Love2shop, and we are fast-becoming the home of digital innovation in gifting.

Whether it's saving towards the perfect family Christmas or celebrating with gift cards and vouchers, we create and supply products that millions of people trust when it comes to giving and receiving with family, friends or colleagues.

Park Christmas Savings: As the UK's largest family Christmas savings club, Park Christmas Savings helps around three hundred thousand families budget for Christmas on a short-term or year-round basis.

Love2shop: Love2shop offers gift cards and gift vouchers available to spend at stores and attractions across the UK. They are also used through Appreciate Business Services providing corporate partners with incentives and rewards for their employees and clients.

Appreciate Group plc's shares are traded on AIM, a market operated by the London Stock Exchange.

The Park Prepayments Protection Trust is designed to increase protection for customers' prepayments. The Trust has three directors, two of whom are independent of Appreciate. Details of the trust are set out here: https://www.getpark.co.uk/CORPORATE/declaration.pdf  

Business review for the six months ended 30 September 2022

Introduction

Appreciate Group traded in line with the Board's expectations during the first half and remains on track for the year as a whole. Given the macroeconomic challenges, this is a good performance and reflects the Group's focus on our value for money and savings propositions for consumers and corporate clients. 

Since being appointed Executive Chair on 1 August 2022, the senior management team and we have focused on the Group's costs and maximising profitability.  We implemented some immediate changes around how we communicate the benefits of our products to our customers, evaluated net profit by channel to drive the most profitable billings, as well as ensuring that we are earning a suitable risk adjusted return from the large cash sums held on deposit.

We continue to accelerate the simplification of the business whilst reducing overheads, which is intended to improve performance as we make progress with our plans.

Results

Billings fell to £103.1m (H1 FY22: £118.2.0m) largely reflecting the end of the Free School Meal partnership, which had an incremental impact of £5.2m for the same period in FY22.

Seasonal losses before tax were reduced to (£1.2m) (H1 FY22: (£2.9m)). This is despite the fact that spending patterns have normalised in the current period following the end of pandemic related disruption, which had resulted in a favourable swing in deferred profits of £1.5m in the prior period. The Group's focus on Love2shop over single store products enhanced margins in its High Street Vouchers business, balanced out by the lost contribution from the end of the Free School Meal partnership. Overhead reductions also began to translate into the results during the period. Interest income on the Group's cash balances rose, reflecting management's more focused treasury strategy and base rate increases.

Board and management changes  

There have been a number of changes to the Group's Board and senior management team during the period with new leadership appointed for the next stage of the Group's digital led growth strategy.

On 1 April 2022, Guy Parsons succeeded Laura Carstensen as the Company Chair, having joined the Board on 22 March 2022. He subsequently became Executive Chair in August 2022. Guy has brought a wealth of experience to Appreciate Group, having held several senior executive, non-executive and chairman positions, including Chief Executive at easyHotel plc and Travelodge. Laura had announced her intention to stand down at the time of the Company's AGM in September 2021, following almost nine years' service on the Board.

On 6 July 2022, it was announced that Talha Ahmed was appointed Interim Chief Financial Officer ("CFO"). An existing Group employee, Talha reports to the Board, but has not been appointed as a statutory Board director. This followed the announcement on 28 April 2022 that Tim Clancy, the former CFO, was leaving to take up a role outside the Group. Talha is a qualified Chartered Accountant and previously spent over fifteen years working in professional services firms including EY and PwC.

On 14 July 2022, it was announced that Ian O'Doherty, the Group's Chief Executive Officer ("CEO") was stepping down from his position and the Board to pursue other interests. Ian remains available to advise the Group until January 2023.

On 26 August 2022, it was announced Julian Coghlan was appointed to the Board as Interim Chief Executive Officer with effect from 1 September 2022. Julian was the Group's Chief Commercial Officer, having joined Appreciate in August 2017, bringing strong senior executive experience in commercial functions.  

The Group now has a strong team in place to manage Appreciate's business day to day and deliver on the Board's expectations for the year, whilst continuing to focus on the Group's medium-term strategy to drive sustainable growth.  

In August 2022, it was also announced that John Gittins and Sally Cabrini had agreed to continue as Non-Executive Directors for two and three years respectively, to ensure Board level continuity whilst the Group's leadership team is going through this period of evolution.

The Board would like to thank Laura Carstensen, Ian O'Doherty and Tim Clancy for their contributions to the Group's transformation of recent years and for successfully navigating the business through the disruption caused by the pandemic.

Dividend

The Group is maintaining its progressive dividend policy in line with its intention to return the dividend to pre-pandemic levels, whilst reflecting the cash-generative nature of the business, the strong balance sheet and growth potential. The Board has therefore declared an interim dividend of 0.8p per share for H1 FY23 an increase of 33% on last year (H1 FY22: 0.6p). This dividend will be payable on 27 January 2023 to shareholders on the register on 20 January 2023.

Operational review

High Street Vouchers (HSV)

HSV improved its profitability in the half year, having prioritised driving profitable billings ahead of volumes. This has been achieved by a focus on optimising acquisition costs to improve returns on investment and conversion.  The Group has also seen a significant increase in the generation of new business leads that are fed into its corporate business, an important example of the synergies within the Group. The Group has seen the adaptability inherent in its product to address the cost-of-living crisis with a significant uplift in redemption for essential items such as groceries and other household essentials. 

During the period, twenty two new partnerships were added to the Love2shop brand (the Group's multi-redemption product) and fifty three exclusive value adding offers have been sent to its customers. Love2shop can now be spent in over 20,000 stores under 152 brands and online at 118 brands.

Park Christmas Savings (PCS)

PCS traded strongly and in line with the Board's expectations, underpinned by its highest ever level of agent and direct customer retention rates. Billings were slightly behind expectations in the half year because of some delays in dispatch of orders, due to the additional bank holiday and other disruption. This has no impact on total expected billings for the year. The new Park Christmas Savers 2023 campaign launched in September 2022.

Looking forward, the Group has developed a plan for growth that encompasses improvements to its agent proposition, the continued improvement of its product suite and an improved marketing campaign, with an earlier launch to raise awareness of the key conversion month of January. After several years of decline in this business, the Board is now hopeful of reporting a better performance going forward, starting with Christmas 2023.

Appreciate Business Services (ABS)

ABS performed creditably in the half year to report a flat outcome (excluding the impact of the Free School Meals scheme), given the challenging macroeconomic and consumer environment. Positively, the Group has seen a significant uptick in the volume of new accounts won in the period, providing confidence in the proposition and setting the Group up well for the key trading quarter to come. 

The Group relaunched a product called the 'Everyday Benefit Card', which will be an attractive proposition for employers in the current environment as it provides great value for employees. The Group's focus in the corporate market continues to be on improving the retention levels for corporate clients while increasing the number of new clients purchasing for the first time.

MBL acquisition to accelerate the Group's technology roadmap

On 22 June 2022, the Group announced the acquisition of MBL Holdco Ltd, a North East-based gift card technology provider to UK businesses and consumers that specialises in end-to-end gift card processing and management services. The acquisition, for an initial cash consideration of £1.5m, strengthened the Group's technology infrastructure and accelerates its technology roadmap. It enhanced the Group's capabilities and competitiveness whilst bringing forward opportunities that can deliver higher levels of growth. The business is now integrated within ABS and the Group's technology roadmap has been enhanced to reflect the benefits from the acquisition.

MBL offerings are complementary and bring the following benefits to Appreciate, including:

·      A digital gift card mall enabling B2C and B2B customers to purchase gift cards directly from a catalogue of over 160 high-street retailers

·    A SaaS offering, which supports the Group's aim to grow its SaaS solutions, outsourced gift card programmes and bespoke white-labelling of gift card websites for corporate clients

·    Integrating MBL's platform with the Group's existing infrastructure, provides cross-sell benefits and cost synergies, as well as opportunities to improve front-end architecture and customer journeys - making interactions easier for customers and the Group's products and services more competitive

·    A complementary client base that offers additional opportunities to extend and develop Appreciate's services

Outlook

The Group is highly seasonal in nature, with 58% of total billings and 51% of full year contribution made in Q3 in the last financial year. The Board anticipates that this will be higher this financial year as both corporate and consumer customers reassess their spending habits and look for the best value in the run up to Christmas, in response to the macroeconomic challenges that everyone is facing. The Board believes that the Group is well positioned for the current economic climate given its offerings are based around value for money and savings. The Group is also benefiting from increasing interest rates on its cash balances.

Despite the challenging macroeconomic environment, the Board's outlook remains unchanged and it remains confident that with the leadership changes and a renewed focus on costs, growth, and simplification, the Group can continue to prosper.

Guy Parsons

Executive Chairman

22 November 2022

* The September 2021 results have been restated as set out in Note 5.