OFX Group Limited

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the OFX Group Limited 1H22 results webcast hosted by Skanda Malcolm, Managing Director and CEO, and Selina Virth, CFO. At this time, all participants are in a listen-only mode. A question and answer session will follow at the end of the presentation. If you wish to ask a question, please enter your question at any time during the presentation in the Q&A tab at the bottom of your Zoom screen, along with your name and company. When the question and answer session begins, your question will be read out for Skanda and Selina to answer. Alternatively, when the Q&A session begins, please use the raise your hand function. We will then unmute you and you may ask a question. As a reminder, this conference call is being recorded. I will now turn the conference over to Mr. Malcolm. Please go ahead.

Thank you, Maddy. And thank you, everyone, for joining the call. As Maddy mentioned, I'm joined by Selina Virth, our CFO, and Matt Gregorowski, who leads our investor relations program with Citadel Magnus. Selenia and I will take you through the pages, then there'll be time for Q&A. This year we'll cover three things, the half year result, what it is and what drove it, our financials in more detail and the full year 22 outlook, including why and how we will be more valuable in the future. Let's move to slide four in the pack. The first half fiscal year 22 was a very strong half with turnover at 15 billion up 34% versus prior year, net operating income or NOI at 68.6 million up 27.3% and EBITDA at 20.3 million up 88%. We are particularly pleased to show strong growth rates across all our major metrics versus the prior period. And they all grew half on half. It was especially good to see our net operating income grow 7.2% against second half 21. Further, our NOI in the first half 22 exceeded the second half 20 result, even though that included the record volume driven by the onset of COVID in March, 2020. The last two halves have produced record turnover. with the first half 22 growing 9% over the second half 21, which in turn grew 23% over the first half 21. This is a sign of a very engaged client base. Moving to slide five, in addition to being a very strong result, it's great to see the strength across the portfolio with all segments delivering double digit revenue growth, except online sellers in Asia, where we continue to pivot to higher quality clients, excluding that pivot online sellers is also delivering double digit revenue growth. Firstly, our corporate segment delivered revenue growth of 16.2% versus first half 21. It declined 6.1% versus second half 21, but that was entirely due to the unusual growth in offshore share purchases in fiscal year 21, not repeating in fiscal year 22. Excluding that, we saw growth of 26.3% versus first half 21 and 8.9% versus second half 21. And further, as I touched on earlier, the decline in revenue in corporate between second half 21 and first half 22 did not affect our group NOI, which grew first half 22 versus second half 21 by 7.2%. Our online seller segment was flat versus first half 21 and slightly down on second half 21, driven by the market correction in e-commerce globally. I'll describe that in more detail in a moment. As I mentioned, the pivot in Asia, as I mentioned, sorry, excluding the pivot in Asia, we grew revenue by 13.5% versus first half 21 and 5.7% versus second half 21, both good results in a tight market. Our enterprise segment is returning to growth nicely with revenue up 40.5% versus first half 21 and 17.5% versus second half 21. Whilst the overall contribution of enterprise is still relatively small at just under 4%, it is back to generating double digit growth for consecutive halves for the first time since fiscal year 15, which is very encouraging indeed. More on this later. Our consumer segment has also rebounded exceptionally well, growing 28.1% versus first half 21 and 13% versus second half 21. We have worked very hard to ensure we continue to deliver a best in class product and service for our high value consumer clients everywhere. Moving to slide six, we've shared previously that our corporate segment is valuable for its strong growth, strong returns and client loyalty to our effects. We have grown our investment in this segment considerably in the last two to three years. So it's wonderful to see the progress during this half. We grew revenue over 16% in the first half versus prior period, and every region delivered strong double-digit growth, with our North American region being the standout at 38.3% growth versus prior period. It's also terrific to see our Australian New Zealand sub-region driving growth of over 16%, excluding the impact of offshore share purchases, despite being the largest sub-region and operating in a fiercely competitive market. Similarly, it's a sign of great health when both transactions and ATVs are growing well. That revenue growth everywhere is encouraging, especially given the high lifetime value of this segment. On the right-hand side, we are highlighting for the first time how this recurring revenue continues to grow, with the chart showing the turnover contributions from the cohorts remaining strong and sticky over time. And underneath the chart, we've highlighted some of the deliberate actions we have taken to grow this valuable segment. Our marketing, which traditionally was largely consumer-focused, is now focused a lot more on corporate, which is bringing in more corporate opportunities. To make the most of those opportunities, we've invested heavily in our sales team's productivity, implementing better pipeline management, stronger measurement criteria, better feedback loops, and better training for our frontline. Alongside that, we have worked hard to make it easier for our clients and prospects to do business with us, improving our onboarding and service channels and giving them better product, faster and cheaper payments and better risk management. This is especially true in North America, where the journey to create a more localized approach started three plus years ago and it's delivering exceptional growth now. We intend to continue building capabilities that make sense for local clients in Europe and the UK also. Moving to slide seven, this is the third year since we announced a deliberate and targeted focus on the online seller segment, and it's encouraging to note the progress we've made. Revenue is up and so are active clients. COVID has seen a significant growth in e-commerce globally, although there has been a correction recently with our Q1 showing a decline in some regions versus prior periods. Nonetheless, we're well positioned to capture this opportunity with the advantage of being a specialist who understands and is well equipped to support the specific needs of the marketplaces, the PSPs, the merchants and the risks that are inherent in this model. We have been growing our global team dedicated to this segment so that it gets the right attention and focus. Our sales and marketing efforts are increasing too. And at our Q1 update, we announced incremental promotional expense targeted at this segment in North America. This has been in market since early September and initial results are encouraging with registrations up 77% in September and good momentum since then. There is a lot more work to do, better product, more promotional and sales investments, more and stronger partnerships, more global expansion and better risk management tools for our clients. But overall, we're very encouraged by the opportunity in this segment. Turning to slide eight, we're very excited by the progress we've made in our enterprise segment in the last three years. Back in fiscal year 17, enterprise contributed 8.6% of revenue and was a healthy and EBITDA-accredited part of the portfolio. While the focus was on other segments, as we've previously outlined, we turned our attention to growing the segment around three years ago and are now starting to see the results. After reaching a low point of just under 1 million in revenue in first quarter 21, we have grown revenue from the enterprise segment each half, and we delivered just under 1.5 million in the second quarter fiscal year 22. As well as being strong year on year, that is up over 14% versus first quarter 22. What is even more encouraging is the pipeline and the activation of recent wins. In the last six months, we've announced several new programs, including the ATO, Perla and Doe, all alive and contributing. We also went live with WiseTech on the 6th of October. which is already generating registrations. Our pipeline is healthier than ever with 20% more prospects across existing and new verticals and every region is contributing. Our program with LINK is gaining traction. However, as we shared in August, it is growing slower than we both expected. We're very happy with our relationship and we're working with the LINK team to explore ways to accelerate that growth. We think this segment will be a very strong part of OFX over the next several years as we continue to provide clients with a strong global platform, superior risk management, exceptional service and strong account management. Moving to slide nine, we're delighted to see such a healthy consumer segment winning that rebound we were targeting. With revenue up 28% and every region seeing good double digit growth, we are more convinced than ever that our sweet spot is consumers who value that combination of a great digital platform, great prices and great service, including human interaction when it's required. We saw ATVs growing 33% as consumers manage their assets with our help. Property and wealth transactions have been popular in the last 12 months in particular. What is interesting about our high value consumer segment is that it is at its best when clients need us the most, such as during crises. I mean, the combination I spoke of earlier, along with strong regulatory and banking support means, unlike some of our competitors, we remain open for business and able to support them. Moving to slide 10, we always share the drivers of our turnover so that investors can see what is happening in more detail. In the first half 22, we saw turnover growth 34% on the first half 21, but beneath that, we saw a pickup in active clients during the half and improvement in transactions per active client from last year and a big step up in ATVs driving that turnover growth. Actual transactions were slightly down, again, due to the non-recurring offshore share purchases. But if we exclude those, transactions were up 14.1% on the first half of 2021. Again, a very healthy sign of an engaged client base. It was especially good to see the reactivation of consumer clients. Moving to slide 11, it's wonderful to see that as a global company, all our regions are performing so well, each growing revenue double digit versus the first half 21. North America was the standout, delivering 32.9% revenue growth. This was especially good as their first half 21 was actually slightly up on first half 20, the only region to do that. we remain incredibly encouraged and committed to the region, recently increasing our investment in the online seller segment there and announcing a three-year partnership with the NHL to help us raise our profile and win both corporate and consumer clients. UK Europe was also very good, growing revenue 26.2% in what was an especially difficult operating environment with COVID lockdowns, Brexit and political uncertainty all affecting consumer and corporate confidence. They're in good shape to grow further in the second half 22 and our European license creates opportunities for further expansion. Here in APAC, it was also a great first half with revenue up 11.2%. In Australia and New Zealand, we grew 10.5%, but that was over 18% excluding offshore share purchases, which is outstanding given they are the largest sub-region. It was also great to see Asia growing again with revenue up 20.1%. Our Asian corporate segment was particularly impressive, growing 152%. Now, let me hand it over to Selina to walk you through our financials in more detail.

Thank you, Scanner. Moving to slide 13, we have delivered a strong financial result and had every region and segment growing. This highlights the value of our global operating model and targeted investments by segment. First half 22, fee and trading income or revenue was up 20.1%. The regional results were excellent. Iskander is just taking this through. All up double digits in all regions. It is also pleasing to see consumer up 28.1%, corporate up 16.2%, online sellers up 0.7% and enterprise up 40.5%, highlighting the broad sustainable growth across the portfolio. Net operating income was up 27.3%, which is a higher growth rate than revenues. As we worked hard on previous halves to improve efficiencies and have seen these come through in the first half of 22. Our bank fees were down 12.7% and partner commissions down 46.4%, a $2.3 million saving. NOI margins of 46 basis points were down two basis points on first half 21, but stable on second half 21. This is largely driven by the consumer segment. Higher ATVs reduced margins by four basis points, but with the increase in the consumer revenue in the second half 22 versus first half 21, this was offset by two basis points. We continue to work hard to keep margins stable. Our underlying EBITDA is 20.3 million, up 88% on the first half 21 and exceeds our pre-COVID levels, up 22.7% on the first half of 20, This signals a strength in the underlying portfolio, our loyal customer base, and a solid growth trajectory. We delivered operating leverage for the half with underlying operating expenses up 12.1% and net operating income up 27.3%, generating EBITDA growth. This is also seen through the underlying EBITDA margin of 29.5%. As we have signaled, we intend to invest more in our North American online sellers business, so we expect this to drop in the second half of 22. We have reviewed some of our lease obligations resulting in a reduction in depreciation interest expense for the half of 0.8 million. You'll also see a reduction for both right of use assets and lease liabilities on our balance sheet as a result. Our amortization policy for intangible assets remains unchanged, which is between three and five years. Our tax rate is 23%, slightly below guidance of 25%, and our statutory net profit after tax is $10.9 million, up on both the first half of 2021 and the second half of 2021. Our cash position remains strong, with net cash held at $63.1 million and net available cash at $37.6 million, both up $10.3 million. We also successfully closed the treasure up investment. Moving to slide 14, our underlying operating expenses are 48.4 million, up 12.1% on the first half of 21, as a result of our target investments, which are driving good outcomes. Our employee expenses are up 13.3%, largely driven by variable compensation that is accrued for fiscal year 22 as a result of the excellent performance in the first half of 22. We have just over 400 employees with 170 of them in revenue generating roles, being sales, dealing, marketing and customer service, and we continue to invest in these areas. Promotional costs are $7.9 million, up 15.1%, with an increased investment in brand campaigns across our major markets. Search spend now makes up less than 40% of the promotional costs. The OF Expert campaign continues to resonate and we have seen first three months revenue from customers up 31.3%. Technology costs of 3.8 million up 38.1%. And as guided, we continue to increase as we invest in reliable scalable systems and risk management. You can see the direct output of this investment with bad and doubtful debts at zero for the half as fraud losses has significantly reduced and we have had some recoveries on prior write-offs. We could not be more pleased with this investment, but remain as vigilant as always to new and different types of fraud. As discussed at the AGM when we presented the first quarter 22 results, we continue to invest to grow the business. Over and above what we have already discussed, we have also just released a North American online seller campaign to drive momentum in the second half of 22. And we are a proud sponsor of the National Hockey League in North America. The NHL is the world's preeminent hockey league and is the most popular league in Canada and fourth most popular in the US. It also has the most affluent fan base. Turning to slide 15, we continue to have a strong balance sheet, no debt and generate good cash flows. Our net cash held position, which includes cash held for own use and deposits due from financial institutions, 63.1 million, up 2.6 million from 31 March 2021. We hold some of this cash as collateral for our trading lines in a bank guarantee. Collateral and bank guarantees are relatively constant at $25.5 million, resulting in net available cash of $37.6 million up $0.8 million on the 31st of March 2021. Cash flows from operating activities is $19.6 million, which is an excellent cash conversion rate from our underlying EBITDA of $20.3 million. At the $19.6 million of cash from operating activities, we've invested $5.1 million in intangible assets as we continue to deliver our single scalable platform and our payment and risk capabilities. We also successfully closed the TreasurerUp investment of $6.1 million and purchased just over 1.9 million shares as part of our share buyback program for $2.65 million instead of paying a dividend. You'll see our balance sheet now includes the investment at cost of $4.7 million and a loan to TreasurerUp as we have closed the transaction. The TreasureUp team has a really nice pipeline of activity to generate future growth. Slide 16 is an overview of ongoing capital investment in our global operating model, reliable and scalable systems, risk management and people. This slide is only the investment in tangible assets. There has also been considerable investment in people, software as a service and in service delivery. In the first half of 22, our investment of 5.1 million has included delivering better payment capabilities across four key currencies, being the Philippine peso, Indonesian rupiah, Malaysian ringgit, and the Indian rupee, and more to come. This not only reduces the settlement time from days to minutes for our customers, but also provides bank fee cost reductions so everyone wins. We've improved customer verification tools in the UK with consumer conversion rates up 130 basis points and continuing to improve. We've also implemented improved onboarding processes for online sellers, customers, and have gone live for the first week of October with our CargoWise solution with WiseTech. A great success for both teams as they worked so well together to create a great client experience. We're expecting the investment intangibles to increase in the second half of 22 and remain at the 12.6 million level for a year or so as we continue to work in the payments excellence, risk management, and customer services space. These investments provide a return by growing enterprise revenue, lower cost of payments, and increased revenue from conversion rates. I will now hand back to Skanda to take us through the fiscal year 22 outlook.