OFX Group Limited

Thank you, Zach, and thank you, everyone, for joining the call. And as Zach mentioned, I'm joined by Selina Burr, our CFO, and Matt Gregorowski, who leads our investor relations program at Citadel Magnus. Selina and I will take you through the pages, and then there will be time for Q&A. The presentation will cover four things, the half-year result, what was achieved and what drove it, our financials in more detail, the strategy for the larger OFX, including why and how we'll be more valuable in the future, and our fiscal year 24 outlook. Let's move to slide four in the pack. Our first half of 24 was a good performance, with turnover at $19.2 billion, down 3.5% versus prior year, net operating income, or NOI, at $115.1 million, up 9.4%, and underlying EBITDA at $31.8 million, up 1.6%, including our patron investment. Our fundamentals continue to improve, with recurring revenue up just over 2 percentage points to 84%, and NOI margin, X same currency, up 8 basis points to 70 basis points. We finished the half, 60.8 million in net available cash, a very healthy position. There's no doubt the external environment has been an unusual and challenging one, high interest rates, geopolitical conflict continuing to undermine business confidence. This was especially the case in Canada where our corporate portfolio saw a reduction in ATVs and the penetration of forwards driven by soft corporate confidence. However, we did not see a reduction in client engagement. In fact, we grew transactions and in the early part of the second half, we've seen ATVs in our Canadian corporate segment improve considerably. regional corporate segments performing well. Against this backdrop, it's very reassuring that the resilience and diversity of our business shines through, and to see OFXs globally continue to execute well. The Fermi integration is progressing very well, synergies ahead of our expectations, and our investments in marketing and commercial excellence are driving record growth in registrations, as well as improvements in conversions, and particularly in our corporate segments. We closed the patron acquisition in July. It's a strong cultural fit. The product and technology roadmap is exciting, and the opportunity of building stronger relationships with our clients is very clear. So, all in all, a good performance, which gives us confidence in the outlook, with the second half expected to be stronger than the first half for several reasons, which I'll get into. Moving to slide five, you'll see that we have maintained the lower end of our NOI and EBITDA guidance for year 24, but narrowed the top end to reflect the softer economy in North America, predominantly Canada, in the first half. We expect NOI to be between $225 million to $238 million, and underlying EBITDA to be between $63 million and $70 million, respectively, including firmer synergies but excluding patrons. We have included our second half 24 assumptions. as well as the drivers for both the higher end and lower end of the range, which we've updated based on learnings from the first half. In the first half, we drove record NOI of 115.1 million. This included margin actions in the first quarter to support the clients of a small group of departing traders, as we previously reported, reducing NOI. This will not repeat in the second half and was covered by the one-off release of an associated escrow payment 3.7 million. The record NOI was driven by strong pricing discipline, by sound treasury management and through generating interest income on cash balances. All of these will continue in the second half. In the first half, we did see corporate confidence dip, particularly in Canada, which impacted corporate ATVs. And these were down 23.3% in Canada, although we did grow corporate revenue in both the US and Canada as we grew transactions. We've seen margin improvements quarter on quarter and expect a stronger second half in North America. I will talk to our corporate segment in more detail in a moment, but we've seen another good half with active clients growing and particularly good growth in our new business efforts, with registrations up 41.9% and conversions of prospects also improving. This, combined with our usual strength in retaining and growing clients, has meant our active client base returned to overall growth. I will also cover enterprise in a moment, but part of the confidence we have in a stronger second half overall is the excellent progress we're seeing in enterprise, with revenue up 46%, a stronger pipeline, and our first new client signed in North America. Our high-value consumer segment also had a good half, delivering just under $36 million in revenue, some of our popular high-value use cases returned after a subdued second half of 23. Therefore, our outlook includes confidence in the momentum we have, which has continued in the early part of the second half, balanced with the external uncertainty that persists. Turning to slide six, I'll share more detail on our main segment performance and their drivers, starting with B2B. B2B is our main focus and represents two-thirds of our reps growth versus first half 23, even with the external conditions I've described affecting corporate revenue in Canada particularly. We grew B2B revenue in every region. We grew NOI margin. We grew transactions and transactions practice decline and all very healthy signs for the portfolio and a testament to the strength of the client relationships. The decline in corporate ATVs in Canada was higher than we anticipated. However, we saw that decline moderate in the second quarter versus the first quarter and into the second half and we expect the decline to moderate further as confidence returns. And I'll talk more about this when I cover our corporate segment in a moment. Moving to slide seven, as the title suggests, we see momentum building in our corporate segment. Revenue terms, the decline we saw in the second half of fiscal year 23 was reversed in first quarter and this was stable in second quarter despite the margin action we took in Canada. We grew revenue in each of our major markets, including Canada, with especially strong performances in the UK and Europe, which demonstrates the benefits of having a diverse global business. We grew transactions, and transactions for active clients globally, as well as active clients. All these metrics confirm that we have very engaged clients who continue to see the value of working with OFX. What we're particularly delighted with, though, progress we're making in building our commercial and marketing program corporate. As you will recall, we pivoted our marketing program to be focused on corporate around three years ago. And since then, we've continued to invest. Where the real breakthroughs are coming in our ability to convert that interest we generate into new dealing clients. We have done that through several investments in our platform, but also through the improvements in our commercial teams and the efforts we've expended in We've always been strong at growing existing relationships, so getting strong at winning new ones at scale is very exciting for future value creation. Moving to our enterprise segment on slide eight, it's wonderful to see the revenue growth at 46%, given the investment and hard work our teams have put in. We have learned a great deal here, particularly how to win and activate smaller clients. And it's terrific to see traction building especially amongst recent wins. The pivot to focus on smaller opportunities and to activate them quickly is working. We have seen strong growth from our established clients also. The pipeline is healthy and we're delighted to have our first new enterprise client in North America, with the second signed after the close of the first half. As we've previously said, this segment will grow in its contribution to OFX over time, generating EBITDA accreted returns. Moving to our high-value consumer segment on slide 9, we drove a good first half, delivering $35.8 million in revenue, which is one of our best ever. And this was against an unusually strong first half in fiscal year 23, which in turn drove a very strong overall result. We see in consumer that volatility has driven activity in some high-value use cases, particularly property and wealth transfers, and we've seen this activity continue in the early part of the second half. The return of higher value use cases to the mix drove ATVs up to approximately 20,000, which is in line with our long-term mean. So in all, good execution and momentum intact for a stronger second half. Now let me hand over to Selina to walk us through the financials in more detail.

Thank you, Scamber. Moving to slide 11, we have delivered a strong financial result. Fee and trading income is up 3.3%. with strong growth from EMEA up 16.1% and APAC up 2.7%. The scanner has already taken you through North America with software down 3.4% due to short-term margin actions and corporate confidence suppressing Canadian ATVs, taking them down 23.3%. It's great to see strong underlying portfolio metrics in North America with transactions up 13.4%, a healthy corporate pipeline, a new enterprise partner signed with additional new signing in the second half. Their operating income of $115.1 million is up 9.4% on the first half of 2023 and is our highest ever. This is up more than fee and trading income to the strong interest income for the half at $4.3 million as we generate interest from our cash balances. NOI also includes the $3.7 million escrow relief, which has offset the lower North American fee and trading income. These items, along with pricing increases, have driven the higher NOI margin up 7 basis points to 60 basis points. Underlying EBITDA is 31.8 million, slightly lower than the first half of 23 at 32.3 million. Excluding the patron EBITDA of 0.9 million, it is at 32.7 million, up 1.6% on the first half of 23. We will take you through our operating expense. 0.9% on the second half of 23. A tax rate in the first half of 24 was 15.1% and is lower than our guidance tax rate of 24%. This is due to two items. Firstly, the $3.7 million escrow relief that is another income is a non-taxable return of capital. Secondly, we had a higher R&D claim than we anticipated for fiscal year 23, which has resulted in a larger tax offset. As previously guided, the OBU tax regime ceased at the end of last year and we no longer had any OBU tax benefits in the first half of 24. Statutory net profit after tax is $15.8 million, up 4.9%. This does include $1.1 million of one-off costs related to firm integration and patron transaction costs. We have a strong balance sheet and our net cash held balance is nice, $2.8 million. Moving to slide 12, our underlying operating expenses were $83.3 million. As we indicated the full-year results, our expense growth has slowed up 5.9% in the second half of 23 from 14.2% in the first half of 23. This is most notable in the employee and information technology line. The employee expenses in the first half of 24 reflect CPI and full-year run rate of employees of $2.7 million and patron costs of $4. offset by productivity programs, which include purpose synergies. Promotional expenses were $9.7 million up from $7.7 million in the second half of 23. We tend to have a higher first half spend as our branding campaigns are built and executed in the first half. In the first half of 24, we refreshed our OS expert campaigns globally and are really happy with the results. As Skanda mentioned, corporate registrations are up 4 to 1.9% on the first half of 23. Technology expenses at $6.5 million were up 4.9% in the second half of 2023. This reflects our technology infrastructure costs. We're currently running two platforms, OFX and Ferma, which will be simplified once integration is complete. We have successfully completed Australia, UK and New Zealand migration, and the Canadian migration is progressing well and should be complete in the second half of 2024. Bad and doubtful debts remind our expectations at $1.2 million. We continue to remain vigilant and invest in technology to combat fraud, while also ensuring we review our credit decisions and collect collateral from clients when positions move out of the money. We continue to invest in our single global platform and are excited for what Patreon adds to the platform for our corporate clients. Our investment in the first half of 24 was 9.3 million, which is 8.1% of revenue. For the full year, we expect this to be a similar level of fiscal year 23 as we have guided. Our firmer migration continues to be a success. We've migrated clients from Australia, UK and New Zealand. At the annual 5 million firmer synergies we're targeting by the end of fiscal year 24, 3 million of these are cross-synergies. We are pleased with how these initiatives are going and we're ahead of expectations. Expense actions include closing duplicate offices, headcount reductions where there is excess capacity, savings in our bank fees and platform consolidations. Moving to slide 13, we continue to see margin expansion in the half with NOI margins at 60 basis points up from 57 basis points at the end of fiscal year 23. And EXAM currency at 70 basis points up from 68 basis points at the end of fiscal year 23. We can see from the margin walk we increased pricing in the book by three basis points, which includes treasury management. We watch the market closely and have an excellent pricing engine that we can use to test price elasticity and if there is more elasticity for the service that we offer, we will command a higher price. We've worked hard to ensure the cash balances we have generate interest income with the rising interest rates. We generated $4.3 million of interest income in the half, up 64.7% on the second half for 2023, which was $2.6 million. You may remember at the AGM, when we provided this one Q24 update, that we unexpectedly had a handful of traders leave the Burma business. continue to provide excellent services to clients across OSX and FIRMA, and to mitigate the risk of them leaving, took defensive actions in the short term, which impacted NOI margins. Clients and the traders who departed were allocated to serve as most experienced traders and expect revenue to return at historic levels through the balance of the year. Therefore, we saw a temporary reduction in margin, which is offset by the $3.7 million released to other income. The escrow release was accounted for in the first quarter of 2014. As we continue in an inflationary environment, investors are naturally concerned about the effect it may have on our growth and returns. We'll continue to manage margins and generate more prices with the elasticity to ensure we get the right price for the fantastic service we offer. We'll also continue to work our cash balance to generate interest. It is a critical lever which we can generate excellent value when we manage well. Turning to slide 14, we continue to have a strong balance sheet. Our net cash held financial institutions. We hold some of this cash as collateral for our trading lines and bank guarantees. Collateral and bank guarantees were $32 million, resulting in a net available cash balance of $60.89. So our cash flows and operating activities in the first half of 2024 generate a high cash conversion rate of $31.8 million, underlying EBITDA generating $33 million of net cash flow for operating activities. Our tax payments of $7.4 million were offset by the $8.2 million change in the forward book 5.4% maturity in the half. We funded the firm acquisition using $100 million five-year of the debt facility. We've paid down a further $11 million, with our loan balance now at $55 million. Our net debt is $11.8 million, given our strong cash balances. We are on track to repay the debt facility for four years, subject to no other value-free growth opportunity than merging which requires funding. We announced our share buyback program at the fiscal year 23 results. to execute on growth investments. In the first half of 24, we deployed $7 million on market to purchase 3.6 million shares. The buyback program continues to be active through the 12-month period. Skander will now take you through the strategy and how to complete your 24 outlook.

Thank you, Selina, for that excellent detail on financials. And moving to slide 16, and we've shared this slide before, it describes our ambition to grow and how we believe we can create a more valuable company. I won't spend too much time going through this again, but for those who aren't submitted with it, you can access the recording of our investor day in March of this year on our website. But I will highlight that we said back then that we knew we could, through the strength of our client relationships, generate revenue beyond the core spot transactions that we do today. We announced the acquisition of Patron soon after, and that move was a very clear action to take us in that direction and team, while supporting clients in cross-border payments, was built to solve another pain point, being AP automation. And that is what they have been doing, which we will bring to all OFX clients in the near future. Moving to slide 17, this describes how and why this is valuable, and we feel it's important for investors to understand this as you consider the value of OFX now and in the future. What is unassailable revenues in a way that generates healthy returns. Firstly, our new platform will help us to win new clients and generate more earnings from existing clients by providing a richer client experience, more products and a better digital experience. Specifically, access to AP automation, cards and better risk management. In each area, our research and industry experience shows that clients value these products and services from reliable and trusted partners. And our very low lapse rates, our very high NPS scores, and the growth in our transactions for active clients confirm we have very strong relationships. Our research tells us they want this, and industry experience shows when it's done well, it works. In the middle, you can see the investments we've already made in marketing and commercial, as well as risk in helping us build a much more efficient and substantive growth engine to win new clients. We will continue to use the mix we have today across marketing, partnerships, alliances and direct sales. We will get better at targeting and lead management and commercial excellence to win bigger and with stronger ROIs. I have shared one example and there are many of the kind of revenue growth that has been generated by competitors in cards. Patron already issued cards and we expect to start offering cards to OSX Australian corporate clients in On the right-hand side is a breakdown of the indicative mix we will generate across our products and services when these programs mature, as we've shared with you previously. That mix is more sustainable, generates more growth, and is more engaging for clients over time, and that is what we're driving for and toward. So in closing, our fiscal year 24 outlook on slide 18 is to produce a stronger second half. As I mentioned earlier, we expect fiscal year 24 to deliver NOI of between $225 million to $238 million and underlying EBITDA of between $63 million to $70 million, including firmer synergies and excluding the acquisition of payroll. On the right hand are the main second half assumptions as well as the drivers which would see us in the year at the lower or upper end of the range and what impact these would have. we have reaffirmed our guidance on intangible investments for the year. Overall, we believe we are well placed to achieve a stronger second half performance because we saw the momentum in our corporate segment build through 2Q and it has continued early in the second half because margins continue to improve because we expect a stable consumer contribution. Finally, we have strengthened our balance sheet and continue to generate cash to invest and the team executing well. Thank you for your attention. And I'll now pass back to Zach to handle Q&A.

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the headset to ask your question. Your first question comes from Owen from Canaccord. Please go ahead.

Good day, guys. First question, just around the, obviously, a bit of a margin contraction during the period, revenue growth, call it 3%, OPEX growth at 14%. Can you just kind of touch on the level of OPEX in the first half? Is that expected to stabilize at that level? Are you taking any cost rationalization programs or is it steady state there?

Yeah, so as we said before, we are running productivity programs through the business, so we are limiting costs as much as we can. The other thing to take note of as well, which you would have seen on in our past results, is promotional expenses tends to be a lot higher in the first half than the second. That's when we did all that branding work, so I wouldn't expect promotional expenses to be as high in the second half. That would come down. Information technology, professional fees, other expenses, I don't expect very little growth there at all. We're really happy with where they're at. It seems like there's some noise on the line. And then really the one there is employee expenses. We're not planning on adding employees in the second half, so it's really just the CPI run rate and also offset by any

Okay good one and then just to understand the benefits the float is on the balance sheet looking at 300 mil just to kind of understand how much you guys benefit from higher interest rates is that do you guys get an interest income of the entire float there or is it a proportion of that?

Yeah it's a proportion of that and what we do is the team the treasury and operations team work absolute wonders to make blowing down customer payments. In that first half result, there was $4.3 million of interest income in that first half result, which is excellent. Obviously, we've all just seen a rate rise last week. That should add benefit to our float and what we can do with that. And we are pushing all our banks and banking counterparties that when we do hold balances, what interest can we earn and how can that improve? So Everything that we know.

Good one. And this is the last question. You just ran the firmest synergies. Obviously, that was going to be second half weighted. You guys have previously gone with that, obviously saying the exit run rate there is 5 mil. How much was achieved in the first half and how much do you expect to be achieved in the second half?

Yeah, of the 5 mil, three are expense and two are revenue, as you may remember. A lot of the expense synergies are playing through now, which is wonderful to see. and actually are better than expected, so tracking higher than the three, which is awesome. On the revenue side of things, one of the big synergies there was giving the firmer Canadian traders access to our US licenses. Now, we have pockets of that happening now, but the full migration for the Canadian business, all other reasons are done, the full migration for Canada happens late in the fourth quarter. Once that... that happens that will make that strategy tracking better. So that is, I'd say revenue is not in the, tiny in that first half number, expense is a decent amount in that first half number. And once it gets better, revenue will really kick up by the end of the year.

Okay, good one. And maybe just one little final one, just understanding the corporate acceleration you guys are talking about. Can you go give us a bit of a snapshot of how you're tracking in the third quarter for the corporate revenues? Have you seen a, back to within that trend growth of between 10% and 15% there?

Yeah, so maybe I'll take that one. Yeah, I mean, through the first half, despite the softness up in Canada, every region was growing transactions, including Canada, and transactions for active clients very strongly. We saw that continue into the third quarter, but I guess the most encouraging thing statistic we've seen so far is that Canadian ATVs are right back up to the levels that we were experiencing, you know, when we initially acquired Sperma. So, you know, that's very encouraging from a kind of an overall perspective because as Selina touched on, the NOI margins That's why the outlook is what it is.

Thanks, guys.

Your next question comes from Lafitani Sotiru from MST Financial. Please go ahead.

Okay, guys, just a few questions from me if I may.

The first is in relation to the traders that left and that you guided to. At the last result, can you just give us a bit of colour about how that's gone with a bit more detail? I think you said at the time that you were reallocating all of their clients, you were trying to win those. And was there any element of those traders leaving behind the weaker Canadian number?

Thanks, Laith. Maybe I'll take that one too. Those traders that left... And since that time, we've reallocated accounts. We've actually seen some of the accounts that we were concerned with and volume going away come back, which is really encouraging. We've got examples of where clients have come back to us. The ATVs weren't impacted by that. We saw ATV across Canada, not just the Edmonton group, which was where that trader group was. We also saw ATVs in the OFX corporate Canada dip a little, not as much, but the same sort of trend. And so what's been happening since then is really the North American team has reallocated those accounts. Like I said, we're seeing that business come back and the ATVs come back up from Canada.

So that's really the extent of it.

Got it. And can we just move on to pricing?

I've been a bit surprised to see pricing power still coming through. Can you just talk a little bit to your expectations around pricing power and what dynamics may be driving the strength over the last two, three years?

Yeah, what I'd say about that, Lars, is that in an inflationary world, There's a couple of reasons for that. One, we're really a digital plus human business. So if you're just a kind of straight out platform, you're kind of immediately substitutable and pricing is harder to get. Two, we've been seeing an increase in penetration of forwards and generally their margin accretes. Three, we're actually seeing that strength in difficult times plays more transactions you actually see you know that support from clients and I'd say for definitely the competitive situation is very different from where we were a few years ago and I've talked to you in the past about some competitor pricing actions that have been you know very aggressive and some of the public companies you would be aware of last so but as Selena said you know you never take that for granted you have to providing but you know what they like is things like faster payments lower fees you know we've just recently for example in North America improved payment times all those things go to reassuring clients that they're with the right partner and you know obviously that includes generating a fair price for the service

Yeah, got it.

Can I just circle to Patreon for a little bit? I know it's only a relatively recent transaction. I was kind of expecting maybe a little bit more colour on the roadmap, expectations, hurdles, when we could expect revenue. I know you did mention financial year 25, but can you just talk more to the integration, rollout and your ambitions with that business?

Sure, Lap. And look, we closed in July and obviously we've been on track for that. But I would say to you with a bit more colour, I'd say we're more encouraged than we were even three months ago. And the reasons we're more encouraged, number one, we were working on various platform investments, which Selena has laid out over the last couple of years, which were producing good outcomes. And obviously part of the patron rationale was One of the modules, particularly the client user interface, looked very attractive to us relative to what we were building, and that appears to be both technically and operationally sound as an assumption. Two, the value proposition that the Patreon folks were working on was also something that we had been aware of and were working towards. towards more than spot by way of revenue sources and the patron folks are really proving that out and I would say three culturally had a really very positive effect on the OFX teams you know when you're going through various platform investments and you're thinking about things that you want to do oftentimes at this stage you're sort of fixing things and you're trying to introduce new things but the patron folks have really like AP Automation to the broader OSX community. And I would say to you, there's a lot of kind of FOMO around the group, around when they can get access. And then the second part of your question, we're well advanced in terms of the integration conversations and planning, in fact, next year we'll do some tests, ideally this year, but definitely next year. So we feel pretty positive about what we've actually bought and the team and the culture and the kind of optionality that it provides for earnings and growth in the future.

Can I just follow up on that?

So in terms of timing of revenue and ramp up, can you give us a bit of colour? So is it starters next financial year? Is it later on? How broad-based? And did they have some organic growth initially? Has that just all been put on hold while you work on the integration?

Yeah, so they do have organic growth, but obviously they're in a very early start-up phase. And you can see in the footnotes, actually on the second slide there, exactly how much that is. Revenue is about $200,000, which is a quarter's worth now, and it's growing excellent off a very small space. And we did highlight when we bought it that it would be even decreasing in the short term because of where it is. The costs are higher than the revenues, but we love what we see. And we also love what we see when others have done this, which is a great point that our customers want the product, but lose the product, and it generates great returns. Within the consideration, you may remember, and you can go back to our full-year result presentation, The consideration is preferred performance rights based on migration, also revenue milestones. So everyone is motivated to make sure that we make this thing grow. We also make sure that it's our corporate platform of the future and we'll all work in that direction. And pretty much 100% of the consideration is that. So we haven't released what those milestones are to the market, but we're all... running in the direction that we want it to work, we see great revenue there. And you can also see in that previous presentation, we said that Cardin's description should at least be 5% of our revenue streams in the future or more.

And now I've got that and just keen to see a bit more colour about how you execute that, but I'm sure we'll see it in the future.

And just my final questions to do with enterprise now. We've actually been waiting for a little while. You've had some big client wins in the last few years, and you finally had a spike in the revenue. Could you just add a bit more colour around? Is it more your new wins that you've had recently that are contributing to that revenue growth, or is it some of the wins that you've had previously finally starting to ramp up, or is it a mixture of both?

It's a mixture of both, which is the best answer I have. We've got a really healthy relationship with our existing clients, and we're continuing to see great support from them, and that's really encouraging. But then to your point, we talked about this about a year ago where we said, look, the larger clients continue to be attractive to us. They're very encouraged by what they're seeing on their side, but getting larger clients activated quickly is challenging. examples you know both of them from signing to new dealing clients and revenue less than 100 days and also what I like is that the technology that we used with some of the larger clients is being reused and indeed the North American win in the first half in the Toronto Stock Exchange so that's a big you know if you like use case where obviously working with Link here in Australia can be exported globally and it hasn't created a huge, you know, intangible investment to go build that solution. That's why we feel good about it, Laf, and I know you've always called that out as a big opportunity for the company and like you, we're delighted that we're starting to see that momentum really build over time.

That's it. Thank you.

Once again, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. We'll now pause for a moment to allow participants to register their questions.

There are no further questions at this time.

I will now hand back to Mr. Malcolm for closing remarks.

Thank you, Zach. And thank you, everyone, for joining today. And I look forward to catching up with you as we...