OFX Group Limited

Thank you for standing by and welcome to the OFX Group Limited FY21 financial results. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Skander Malcolm Chief Executive Officer and Managing Director. Please go ahead.

Thank you, Ashley, and thank you everyone for joining the call. As Ashley mentioned, I'm joined by Selina Virth, our Chief Financial Officer, and Matt Gregorowski, who leads our Investor Relations Program with Citadel Magnus. Selina and I will take you through the pages and then there'll be time for Q&A. This year we'll cover three things. Firstly, the full year result, what it is and what drove it. Secondly, why we're a valuable company. And thirdly, why and how we'll be more valuable in the future. Let's move to slide four in the pack. Our financial year was a full COVID year, starting on 1st of April 2020 and finishing on 31st of March 2021. Against that backdrop, we're happy with the financial results and particularly happy with the second half and the momentum we take into fiscal year 22. We delivered revenue of $134.2 million, underlying EBITDA of $30.4 million and generated $27.9 million of net cash from operating activities against a backdrop of very mixed trading conditions over the full year. Whilst the first half was soft in the wake of exceptional activity levels in Q4 fiscal year 20, we saw a strong rebound in the second half of fiscal year 21, with net operating income up 18.7% and underlying EBITDA up 82% on first half 21. This reflects the strength of our corporate segment, up 23.7% in second half 21 versus first half 21, a strong online seller segment, and a recovery in our consumer segment. Turnover was up 1.4% for the full year versus the prior period. We finished the year in good shape. Over $60 million of net cash held, revenue momentum, particularly in our corporate segment, more enterprise wins, a healthy trajectory in bad and doubtful debts, and a clear strategy to continue to grow. Moving to slide five, in a very unusual year, there was very good execution. We continue to be obsessed by better client experience and our net promoter score grew to 68.7. I have rarely heard of such a high score in financial services, but we can do better. An example of that attitude and that execution is in North America, where the team, supported by our technology, risk and compliance teams, reduced the onboarding time for corporate clients by 25% through the year. Having a great client experience builds trust, not just with clients, but with regulators and our banks. An example of how we turned that into progress was the securing of our Irish electronic money institution license from the Central Bank of Ireland. Regulators are appropriately more rigorous, and it's reassuring that they got comfortable with our approach. Naturally, we're delighted to have a new office in Dublin that will spearhead our European ambition. Our North American team continued to deliver, driving revenue growth of 5.9% in the second half fiscal year 21 versus second half fiscal year 20, even when second half fiscal year 20 included the month of March, which was the largest single month of revenue in OFX's history. The second half of the momentum in North America growing 19.2% versus the first half was excellent. Winning new partners takes time, expertise and some luck. So it's wonderful to see that even in a year like no other, we won the trust and support of new clients like WiseTech Global, Perla and Storefund. These are some of the higher profile wins, but there were many more and to win well in every region is especially encouraging. Our pipeline is also stronger now than a year ago, and we'll share a bit more detail with you on the enterprise pipeline later on slide 19. We could not have won those clients or grown our existing clients without continually improving our platform. Last year, we processed over 1.4 million transactions, a new record for us, consistently and quickly. We will continue to invest in our systems to improve this for our clients. But for our employees and our investors, it's great to see banking costs decline while transactions increase. That is delivering real benefits of scale. Another highlight was the hard work, skill and technical savvy we applied to our risk management. Last year, we saw bad and doubtful deaths drop over 40% versus the prior year. We did that whilst the industry saw some very big losses. Managing losses is also critical to scaling. Our bankers want to see us operate sustainably, our clients want a trusted provider and our regulators want to see us apply this discipline consistently to the service we offer. Amongst other highlights, the regulatory exam results were again very strong, rewarding the investment we've made in systems, people and culture that is required to operate in this area. And finally, our people. I could not be prouder of our team across all levels, functions and geographies last year. They delivered when their clients needed them to. They kept us safe. They figured out how to make their contribution against a very challenged backdrop. On top of all of that, they are more engaged than ever, which gives us confidence to continue to invest. They managed the change to a work-from-home environment in less than 15 days and they handled a record number of over 1.8 million calls in the process. Great execution. Moving to slide six, we've shared previously that our corporate and online seller segments are valuable for their strong growth, strong returns and hard-to-imitate characteristics. We've grown our investment in these two segments considerably in the last two to three years, so it's wonderful to see the progress last year. Our corporate segment grew revenue over 11% last year versus the prior period, and over the last four years has grown at a CAGR of 12%. That is very healthy, especially given the high lifetime value of this segment. But it's incredibly encouraging to see our new corporate revenue, which is the revenue we receive from clients who have registered in fiscal year 21, grow 30% versus the prior period. That is a very healthy lead indicator of the future. Quite simply, our scaling of new client acquisition in the corporate segment may just be the single biggest highlight of fiscal year 21 because it's taken us years to put in place the best value proposition, the right commercial teams, the improved client experience and the right operating disciplines to grow corporate at scale. Our online seller segment is also growing well and we had a strong year. Revenue growth of 11% is lower than past years, but it was done against the backdrop of deliberately pivoting away from high-volume, low-value clients in Asia, as we've talked about previously, and into high-value, high-volume clients in the rest of the world. We saw 36% growth in revenue ex-Asia, and as you can see from the chart, we've developed a healthy regional mix in our online seller segments. Again, prior investments in a stronger product, better risk management tools, and more commercial resources are working. Moving to slide seven, when we announced our fiscal year 20 results this time last year, we shared what we saw in the fourth quarter of fiscal year 20, as well as some of what we were already seeing in our consumer segment. To briefly recap, our consumer segment delivered over 20 million of revenue in the fourth quarter of fiscal year 20, which was more than 4 million or 25% higher than the third quarter of that year. It was driven by a surge in clients moving funds as COVID unfolded. We saw a big growth in use cases associated with wealth transfer, and we saw a surge in new clients activating from registrations that were more than six months old. In March of 2020, Reactivating consumer clients generated an increase of 132% in revenue versus the year-to-date average through February, compared to an increase of 62% from already active clients. In the first quarter of fiscal year 21, that activity declined substantially, and we delivered just over 12.4 million of revenue. Over the year of fiscal year 21, every quarter was better than the one prior, and fourth quarter was just over $15.2 million in revenue, lower than fourth quarter fiscal year 20, but returning to the levels we saw pre-COVID, with the second half up 13.4% versus the first half. We've naturally done a lot of work to understand what has happened, and you can see a summary here. In short, several use cases disappeared during COVID, most obviously travel, but also immigration and immigration, some expat salary transfers and property-related transfers. All up, we saw a decline of around 14 million over the full year through these use cases declining or disappearing. Against that, other use cases grew, particularly overseas purchases, wealth and family transfers. Those increases delivered around a $4 million gain in revenue versus the prior period. By subtracting the negatively impacted use cases from the positively impacted one, we see around $10 million of lost revenue last year. Naturally, we are very interested to dig further and have conducted client surveys to understand more. The great news is that to understand this in detail, we conducted a survey of over 1,500 clients across every region who had not transacted in fiscal year 21, but had transacted in fiscal year 20. And we got a very healthy 11% response to this survey. Of those respondents, 76% felt they would have a need this year to transfer and of those 97% were either very likely being 81% or quite likely being 16% to use OFX. Further, they cited great rates, ease of use and great service as the reasons for sticking with us. We cannot predict the future. but we are especially pleased to know that the clients who are active in fiscal year 20 but did not do a transfer in fiscal year 21 due to COVID largely intend to do transfers this year and keep using us. Turning to slide eight, this is a page we've shown you over the last several years. It helps you get a feel for what's driving our volume and in turn acts as a good lead indicator of the underlying health of the business. Starting on the left-hand side, as I mentioned, we saw a decline in active consumer clients that we hope that if their intentions are accurate, they will return. Pleasingly, we grew active clients in our corporate segment. These corporate clients, along with online seller clients, were busy, driving transactions for active client up 39% versus the prior period. That, in turn, drove a record number of transactions at over 1.4 million. though we have shared that some of that growth was due to an unusually high number of offshore share purchases that we don't expect to repeat in fiscal year 2022. Those offshore share purchases also skewed ATVs down somewhat, but nevertheless, we saw turnover end up slightly over $25 billion, a small increase in the prior period, which is pleasing given the record fourth quarter of fiscal year 2022. Apart from a new record, more importantly, it highlights the pivot we've been driving to more corporate and more online seller business. And later, we'll talk to the positive effects this has on the value of OFX. Moving to slide nine, you can see the story by region. In short, the UK and Asia were the hardest hit by COVID, whilst we saw the strongest rebounds in Australia, New Zealand and North America. The exceptional growth in transactions in Australia and New Zealand also reflects the unusually high volume of offshore share purchases I referenced previously. So overall, a good outcome in a very unusual year. Now let me hand over to Selina to walk you through more detail on our results and why we're a valuable company.

Thank you, Scanner. Moving to slide 11, we have delivered a strong financial outcome after a soft first half of the year. First half 21, fee and trading income or revenue was down 5.6%. However, a strong second half meant the full year revenue was only down 2.2% for the year. The second half was 18% higher than the first half, showing the recovery and momentum. A scan has already taken us through. All regions were impacted by COVID in the first half, but we saw solid recovery in North America and Australia and New Zealand. With North America, second half 21, up 19.2% on first half 21, and delivering an overall growth rate of 5.2% for the year. Australia and New Zealand second half 21 was up 17.2% on the first half of 21 and overall growth rate of 1.4% for the year. Europe and Asia are improving with Europe revenue second half 21 up 19.9% on the first half of 21 but overall down 16.7% for the year. Asia revenue second half 21 was up 12.8% on the first half of 21 and overall down 19.9% for the year. Net operating income, which is fee and trading income, less partner commissions and bank fees, is down 5.8% per year. The first half was soft, down 9.4%. There was a recovery in the second half, with the second half, 21, up 19% on the first half of 21. You may recall we said at the half year that the increase in offshore share purchases have had an impact on many of the metrics. They are high volume, high margin transactions, but with a low ATV and quite a high partner commission payment. The higher partner commission causes NOI to grow at a slower rate than revenue. The NOI softness is also driven by a reduction in consumer activity post-COVID that Skanda took you through. As indicated when we released our third quarter trading update, NOI margins are lower than fiscal year 20 at 47 basis points versus 51 basis points. This is a result of our corporate and online seller portfolios growing faster than consumer. We continue to carefully test ways to deliver a stable NOI margin through pricing programs, both in reducing price and increasing price. Operating expenses of 87.5 million are marginally up on fiscal year 20 by 0.6 million or 0.7%. This has resulted in an underlying EBITDA of 30.4 million down 20.5% on fiscal year 20, but a really nice recovery in the second half 21 with EBITDA of 19.6 million. The effective tax rate is high this year at 21.7% after a very low year in fiscal year 20 of 17.9%. This was within expectations. Stats between net profit after tax is $12.8 million, down 37.1% on fiscal year 20 due to the impact of COVID in the first half. Net cash held is strong at $60.6 million and net available cash, which is after collateral obligations and bank guarantees, is $36.8 million, up $12.3 million on fiscal year 20. This is due to the lower volatility in renegotiated collateral lines. Moving to slide 12, our underlying operating expenses are $87.5 million, up 0.7% on fiscal year 20. We continue to manage our expenses while also investing for growth and our client experience. We continue to invest in our promotional spend as well as continue to adjust the mix of spend. Last year, the VIX was approximately 55% on demand generation or brand type spend and 45% on demand capture or search spend. Promotional expenses were 6.9 million in the first half of 21. This is slightly lower in the second half of 21 at 5.9 million as more was spent on branding earlier in the year. What is fantastic to see is the spend delivering efficiencies with our second half 21 cost per NDC down 13.3% compared to the first half of 21. Also, our registrations for the year of 127,600, up 4.5% on fiscal year 2020, 122,100, also show the same efficiencies. A reduction in promotional expense of 6.2% for generating more registrations. Technology expenses are flat year over year as we hold our software as a service cost and server hosting costs constant while growing transactions. We're expecting these to increase in fiscal year 22 as some of our software as a service components go live. Other expenses are $8.8 million down 8.2% on fiscal year 20. The reduction is due to lower travel costs, which are typically $1.5 million for our business. This is partially offset by an increase in insurance premium. Insurance is up $0.8 million or 53% for the year. Bad in doubt for debt is $2 million, which is a 41.4% reduction on fiscal year 20, which is $3.3 million. Bad debts in the first half of 1.2 million and down even further in the second half of 21, 0.8 million. This is a result of the investments we have made to detect and prevent fraud. A number of our new technologies, including identity verification and voice biometrics, were live by third quarter, substantially reduced the number of fraud events, a positive lead indicator for bad debts in the first half of 22. This is an era where we'll always be vigilant and be active in fighting off new types of fraud as it emerges. Turning to slide 13, we continue to have a strong balance sheet, no debt and generate good cash flows. This is exceptionally valuable as we have maintained this position throughout the pandemic and have a strong balance sheet for supporting future growth. Our next cash held position, which includes cash held for own use and deposits due from financial institutions, is $60.6 million, down $0.4 million on fiscal year 2020. You may remember we hold some of this cash as collateral for our trading lines and a bank guarantee. Collateral was $23.8 million, down from $36.5 million. Trading volumes have reduced from their peak at March 20, and we have renegotiated our collateral agreements. Net available cash is $36.8 million, up $12.3 million on 6-3-20. Cash flow from operating activities is $27.9 million, which is an excellent cash conversion rate from our underlying EBITDA of $30.4 million. Of the $27.9 million of cash from operating activities, we have invested $10.3 million in intangible assets, and we continue to deliver our single scalable platform and our payment and risk capabilities. We also paid a dividend of $7.8 million in our rent obligations. Moving to slide 14, as part of our ongoing capital management strategy, we have announced an on-market share buyback program to place the dividend on hold. The program provides capital flexibility as there are benefits returning capital to shareholders by way of an on-market buyback rather than paying dividends. The flexibility allows us to respond quickly to growth opportunities. We also believe that buying back shares at prevailing share price will provide a near-term benefit to shareholders. Further, it reflects the confidence in the group's ongoing strong performance. The on-market share buyback program will be up to 10% of ordinary shares on issue over the next 12 months. The number and frequency of shares to be acquired will depend on the prevailing share price, market conditions, incremental growth capital requirements and any unseen circumstances. There is a level of cash we do need to keep in the business for working capital and to support periods of volatility. During highly volatile periods, we do need to post higher collateral to keep trading and ensure we remain in business for our clients at this critical time. By suspending the dividend and entering a share buyback program, it allows more flexibility for capital management that provides both a way to distribute earnings by the buyback, but also retain the flexibility to support growth opportunities when they come up. TreasureUp is a great example of this, which Skanda will take you through in more detail later. An investment opportunity that we can fund via cash that will enable us to accelerate our corporate growth strategy. I will now hand back to Skander to take us through why we believe we are growing a more valuable company and the fiscal year 2022 outlook.