Eml Payments Ltd Ord

Thank you for standing by and welcome to EML Payments Limited Full Year 2026 Results Briefing. 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. Anthony Hines, Executive Chairman. Please go ahead.

Thank you moderator and good morning everyone. Welcome to the EML Payments Ltd FY26 Results Telecall. As stated, I'm Anthony Hines, Executive Chairman. It's great to be here with Stuart Willow, CFO, to report our results to FY26 and provide an update on EML 2.0 progress. Following our presentation, we'll open the call to questions. I refer you first to the ASX announcements which were issued by EML Payments Ltd this morning, which form the basis for this call. If we can move to slide 4 please, Moderator. It's been an incredibly busy and important 12 months at EML as we pass the halfway point of EML 2.0, a transformation strategy we presented to shareholders and the investment community in November 2024. As always, I'm going to be upfront with you all. Our financial performance this year didn't meet our expectations for a bunch of reasons, but thematically, Onboarding of new customers, enough new revenues, was solid and we could have anticipated, and we had softer trading in parts of Northern Hemisphere in the second half. I'll unpack those drivers shortly. That said, let me be equally clear on this point. EML is a much stronger business today than it was a year ago, and that is down to the dedication and execution of our teams. The sheer volume of things and the size of some that we've had to deal with, including the ones I believe nobody could have seen coming, should not be underestimated. This group of people has shown and continues to show a resilience and determination that I haven't seen before and underpins my absolute confidence in EML's future. Combine that with new product and technology capability we're enabling, and I'm excited about EML and where we're headed, including on the path of meaningful free cash flow, in the not too distant future. Let me touch on the key themes of the year. On operations, our restructuring program is likely to complete about 30 June. Frankly, it's annoying that many of the masters of design of these issues have all been able to move on while we clean up. It's been a significant undertaking, let me tell you. It's also pleasing to be able to tell you that 51 senior positions were refreshed during the year, and we are better led and more effective as a result. Our Global Operations Centre reached 31 full-time employees by year-end, delivering a 35% life-to-life savings, and implementation of our new CX platform is underway. This will unify service management globally and power self-service, which is a great leap forward for our people and our customers. On the commercial front, our pipeline is strong and winds are flowing. Implementation timelines however have caused much frustration and unfortunately they have had impact on revenue pull through. While some contract opportunities have been resized, there are a number of program activations that have been delayed due to client factors such as resourcing and readiness. Most notably however, we continue to experience, as do other market participants, activation challenges for the key payment infrastructure partner in Australia. We've talked about this for a little while now and its impact is growing. These are topics we've discussed over the last six months and something we need to unlock, but rest assured we're taking every step to do so. The encouraging story is that our key clients continue to renew, courtesy of better operational performance and vastly more effective relationship management, including some of my team being involved in those relationships. Our Mobility Solution is advancing at taste. Alongside our technology partner Tendron, our BAU product development is now active. As an example, our APAC team launched an end of FBT year benefit maximiser card that saves approximately $16,000 of sell-back card holders almost $3 million in PAYG tax. A great result, first up for something we hope becomes an automatic process across all of our SELPAC programs moving forward. And financially, a mixed result. EBITDA didn't reach target because of the delayed activation of new contracts and slots of trading in the second half. Partially offset by good control of our overheads. I've got to tell you, I don't like the end number, and I'm sure you don't either, but I don't want you to underestimate the cost control. It's been a very heavy lift, beyond our thinking as I've indicated. and to do so in this overhead envelope is remarkable. In short, the restructuring is largely done, a stronger EML is emerging and our commercial momentum is becoming infectious. We move to slide 5 please. Financial performance for the year was in line with our revised guidance. Stuart will take you through the details shortly but at headline level for continuing operations. Revenue was $206.8 million, down 6% on FY25, with customer revenue of $150 million, down 4%. That decline reflects the expected non-recurrence of privacy to the customers and foreign exchange markets. Excluding these, the portfolio actually grew by 3.8%. Interest revenue declined 11% to $56.7 million, as central bank rates reduced across all regions, with our bond program partially temporary in impact. We think FY26 represents the bottom of the cycle for the foreseeable future. Underlying EBITDA was $48.3 million and within our revised guidance range and overheads were well managed at $104.1 million, down 3% on the prior year. Our statutory result improved materially with a net loss after tax from continuing operations of $19.7 million compared to a loss of $53 million in the year prior. Cash at year end was $37.8 million, down $21.6 over the year. This reflects outflows for legacy matters, and yes, I'm as sick of these as you all are, including the class action settlement, repayments of the piece of liquid data, and investments in Project Arlo and Tendron, and mobility technology and go-to-market partner. Importantly, these outflows are largely non-recurring, and their conclusion underpins the free cash flow trajectory I'll come back to in the outlook. Slide 6 Moving to EML 2.0 and our progress, I want to walk you through each pillar. Starting with our global operating model and strengthening leadership. We've significantly strengthened the leadership across all of our markets. Our global HRA platform has been deployed, replacing five separate systems and a simple global performance management framework is embedded, aligning individual accountability with our strategic objectives. And as I mentioned, our global operations service, Sophia, is realising a 35% cost saving with 31 SDA now in place. This sort of thing really ought to be BAU, but the state that we found this company in versus where it's at today is akin to comparing a Fogmire in success. Moving to the revived revenue engine. The pipeline continues to build, 109 million at report date, with pleasing conversion rates. Top 30 renewals are continuing with nine extensions during the year. We've strengthened our commercial and product leadership with new regional heads appointed in Europe and APAC late in the second half. Local leadership, particularly in commercial, remains a critical performance enabler and while we didn't get this right at the start of last year, we have now and it's reflecting in our new business performance. And the final pillar, our single platform, aka Project Arlo. Arlo is advancing at pace through the build phase. An initial pilot has been deployed in the UK with testing underway including client testing. A Migration Planning Centre is established and in deep planning with UK Migration to commence in FY27. I'll say more about RO in the Outlook. We'll move to Slide 7 please, moderator. Let me now give you a more granular view of the business development, which I know is front of mind for many of our shareholders. A new program pipeline stands at $109 million, as I said, of annualised revenue at report date. 69.6 in North America, 23.5 million in Europe and 16 million in Australia. Approximately 50 million of that pipeline, and this is important, is in client tender or final decision phases. Turn to contract flow. Since 1 July 2025, we've won contracts with an annualised revenue forecast of 15.8 million. Of that, 7.2 million has launched, is already generating revenue, and a further 8.5 million is The portion of this will be realised this financial year based on start dates and ramp dynamics. So, what's working? Pipeline build remains on track. Our F526 conversion rate of 35% is strong. Martins are holding and our digital programs have been re-energised, mainly in North America. Digital program revenue is probably the most difficult to pin down and we've had a number of opportunities that we've softened and first saw in the F527. but are ultimately bigger revenue opportunities over a three-year cycle by a number of factors. And what's not working? Signed a revenue timing. It's a mixture of partner and client dependencies that are flagged, but enhancement work is well underway. Europe was lagging, but we've appointed a new regional commercial over there who is joining shortly. And we've recalibrated the opportunity size to several accounts. Contracts we believe will, over time, prove at least as valuable as originally anticipated. This slide speaks to our existing client base, all getting more from the call. Our renewal performance continues to be strong. Nine of our top 30 contracts were renewed in the last 12 months, including three of our top five. That is testament to improved operational performance and a step change in our relationship management. Price Innovation is now front and centre with many of our key clients. which we see as a leading indicator of the quality of these partnerships. Our customer cell pack benefit maximiser in the opening. We're also very active with merchant reward and discount solutions as an additional benefit for programs in Australia. And this will feature in our global rollout. On trading, the second half was softer in the Northern Hemisphere across our gift and incentive programs and some UK government programs. Existing client customer revenue Concentration remains well managed. Our top client represents around 8% of revenue, our top 5 around 23% and our top 30 around 47%. Moving to slide 9 please. Turning to mobility, our first strategic product initiative and one I was planning a good deal of my time on. We're building a digital-first global mobility solution that replaces legacy fuel cards with a state-of-the-art open-loop operating. No more plastic cards. No more free fuel cards in your car, even when it's an EV. No more 3.5% surcharging. This is a large and growing market. Global mobility payment volumes represented around $1 trillion in 2023 is forecast to reach $2.1 trillion by 2033. An 11% compound annual growth rate. It's a hot space and EML is active, not just in Australia but globally and with the right partners. We've partnered with Tengren, a digital first enterprise mobility tech group to revolutionise this market. The solution combines what each partner does best. EML brings program management, issuing and processing across closed and open loop, regulatory and payment rail licensing, letter and funds management and a large existing client base. Our partner Tendron brings global fuel retailer integrations, enterprise solutions for own brand programs, control and configuration capability and deep domain expertise, together with a new business pipeline through its go-to-market. Reflecting the strategic importance of this capability, AML made a $7 million equity investment in Tendron during the second half, representing a 28% interest, which may grow over time as the solution market develops. With that investment comes joint go-to-market and co-development of market-leading functionality. Platform build is well underway and launch client engagement is advancing the plan. We will use FY27 to test the platform ahead of a full commercial launch towards the end of the year. Beyond mobility, we see large-scale product opportunities across several vehicles, which speaks both to the positive market dynamics and to email's capability to engage at this level. As ALO moved into the second phase of core builds, vendor integration and readiness planning, new executive and project leadership was injected. We are now deployed for testing in the UK region and will be underway with migration in the second half. We expect Australia deployment mid next calendar year and a similar process of initial testing ramping up to new client onboarding and migration with existing customers. As I've said before, we're taking a measured and staged approach to migration to avoid disruption, both internally and for our clients. Based on an updated view of migration time and the core functionality we want to build in, which now includes mobility and bringing a number of external vendor capabilities in-house, the timeline extends and looks at the investment profile. Between the ILO core build and operational implementation, we forecast non-recurring expenditure of approximately $15.7 million, This financial year, $2.4 million next year and $1 million the year after. Importantly, our updated planning revenue is not less than $12 million of annualised overhead savings on full Arlo deployment. The payback is near the median terms. In summary, we've accomplished a lot in 12 months but have a lot to get through in FY27 with a big focus on commercial performance and Arlo, as I've mentioned. But we're encouraged by brain shoots and the opportunities ahead of us. I'll now hand over to Stuart to take you through the financial details. Thank you Anthony. I'll start with slide 12, beginning with the gross key operating metrics. FY26 was a challenging year from an earnings perspective with underlying EBITDA declining 18% to $48.3 million. Revenue was impacted by three T headwinds, the non-recurring Foreign exchange movements and lower interest revenue following reductions in global cash rates Our expectation is that FY26 was the bottoming out of the yield curve for the medium term cycle A European business also felt the impact of softer trading across two large customers in the second half of FY26 Trading with these customers has stabilised and is expected to remain at current levels into FY27 Excluding these factors, underlying performance remained broadly resilient, underpinned by strong cost discipline. On a reported basis, customer revenue declined 4%, driven by Europe to North America, partially offset by growth in Australia. Excluding the headwebs noted earlier, the portfolio was up 3.8%. Moving to interest revenue, we saw an 11% decline reflecting lower central bank rates across all regions. Our bond portfolio continued to form as expected and we plan to make wider use of bond instruments to drive interest yield over the coming year. Net overheads decreased by $3.5 million as efficiencies were realised in both internal and external resourcing while investment continued in commercial capability and the go-to-market team. Cash increased by $21.6 million from June 2025 with outflows relating to the Class Action Settlement, repayments of the piece of liquidator, project value build, investment in tendering and restructuring payments. These outflows were funded through operating cash flow and a drawdown of debt. More on that later. Moving to slide 13, we show the financial performance of Europe. Europe remains our largest segment, with just under 500 customers across the UK and the broader European region, operating across government, financial services and human capital management. Europe revenue was down 14% on FY25, reflecting the non-recurrence of certain customer programs and lower interest revenue. This reflected $9.7 million of non-retiring FY25 revenue from each of the customers and a $3.2 million impact from softer trading across two large customers, which were down 21% versus the prior corresponding period. Trading is stabilised in Q4 and is expected to improve over FY27. Against those headwinds, key existing customers, which comprised 55% of FY26 revenue, delivered 7% underlying growth. demonstrated the strength of the portfolio. Interest revenue declined 11% as falling central bank rates were partly tendered by a shift towards RU involves. Net overheads reduced 10% in the region following the group's transition to a more centralised operating model. And overall underlying EBITDA for Euro was 35.7 million down 22% on FY25. Gross profit was in line with the prior year while EBITDA margin was impacted by the revenue pressures. Moving to slide 14 we show the performance of the Asia Pacific segment. This comprises our Australia and New Zealand business which are predominantly general purpose reloadable products with a strong human capital management presence and just under 200 customers overall. Total revenue was up 8% in FY26 to $56.5 million. Customer revenue increased 14% to $47.6 million with the human capital management vertical leading the growth. Valery Packaging Active Benefit Accounts were up 14% on FY25 and this is a strong developing vertical for EML and we are pleased to have secured several key client renewals over the last 12 months which creates a great one way for the team to advance their innovation agenda with this growth orientated client group in FY27 and beyond. Interest Revenue was down 14% reflecting Reserve Bank rate reductions through FY26. Net Overhead Increase in Asia Pacific as part of the group's transition to a more centralised operating model. Overall, group costs reduced, so the increases in Australia reflect a rebalancing of the operating model rather than an increase in the group's overall cost base. Underlying gross profit increased 5% to $35.9 billion, while underlying EBITDA declined 19% to $10.4 million. Gross profit margins were in line with the prior corresponding period, while EBITDA margin was impacted by the uptick in overheads. Moving to slide 15 we show the performance of the North American segment. North America operates predominantly in resale gift and incentive products with participation in financial services via the band product and some exposure to gaming. The segment has just under 500 customers. Customer revenue declined 2% to $37.1 million and this was driven by a $1.6 million foreign exchange impact when using FY25 rates. and a $1.2 million impact of non-recurring FY25 revenue from incident customers, partially offset by solid growth from the Romanian portfolio. Consistent with other regions, North America experienced lower interest revenue as cash raise declined. Underlying gross profit increased 1% to $28.6 million and net overhead fell 12% following the group's transition to a more centralised operating model and the underlying EBITDA rose 74% to $7.1 billion. Moving to slide 16, which provides further detail on the group's overheads. Underlying overheads were $104.1 million, $3.4 million lower than the prior corresponding period. This reflects cost optimisation measures and benefits from EML 2.0 efficiencies continuing to be realised. Cost savings were delivered across employee entitlements and professional fees, partly offset by investment in ICT Employee entitlements were $3.7 million lower than the prior period, reflecting operational efficiencies and lower short-term incentive costs. As shareholders would expect, there is a clear link between performance achieved and incentive spate. These costs are expected to normalise in FY27 to around $110 million, consistent with previous guidance. Technology cost increases reflect targeted investment in the current platforms Operating Models. All other costs remain broadly in line with the prior year. Project Barlow cost expense in FY26 were $4.2 million related to the bill and these were excluded from net overheads and underlying EBITDA consistent with previous guidance. Moving to slide 17, we show the group's treasury management position and interest income performance. Soared Float was 2.2 billion at 30 June 2026 and by currency the last exposures were GBP at 46% followed by the AUD at 24% and Euro 21%. Interest Revenue decreased 11% to 56.7 million. This reflects, as previously mentioned, lower cash rates and a 6% reduction in float balances with Europe accounting for the majority of the decline as a result of its trading headwinds. The annualised yield in FY26 was approximately 3.2% compared As mentioned, cash decreased by $21.6 million during the year. Key outflows included the Class Action Settlement of $40.9 million, one-off items including restructuring costs of $20.4 million and Project Arlo investment capitalised of $13 million. These were partly offset by strong underlying operating cash flow of $47.8 billion with the balance funded by $54.1 million debt drawdown. There remains $35 million of undrawn debt capacity under the syndicated debt facility, subject to company compliance in the ordinary course. The facility is due for renewal September 28 through September 29. Underlying EBITDA of $48.3 million translated into underlying operating cash flow of $47.8 million demonstrating solid cash conversion by favourable working capital movements including but not limited to a collection of previously secured interest and some improvement in aged debtors. With historical one-off outflows behind us and following the strategic actions taken over recent periods, we remain focused on improving cash conversion and strengthening cash flow management to support financial stability and improve shareholder value creation. In FY27 we will maintain a strong focus on cash flow management alongside continued investment in the ILO project. In concluding and in summary, FY26 was impacted by known revenue and interest rate headwinds There are some late in the year trading softness in specific Northern Hemisphere programs, however the business delivers strong cash conversion, reduced net overheads and continues to invest in the operating model and platform needed to support future growth. As noted earlier, on a pro quo basis, absence of non-repairing cash outs expected to roll off in FY28, the business will generate $30-35 billion of free cash flow and equivalent reduction in net debt moving forward. Moving it to the range of $15 to $20 billion by the end of FY28. I will now hand back to Anthony to cover the FY27 outlook and key priorities. Thank you Stuart and I'm sure everyone like myself is waiting until this scripted part is over and we get into the business of Q&A. We've looked to FY27s. Our priorities are pretty simple. Turn wins into revenue, activate RLO and renew our key clients. On the commercial front, success is closing new business deals, improving contractor revenue time, growing the pipeline to circa $150 million by year end, renewing several key contracts, continuing our innovation drive across the top 30, and a new mobility solution being live by mid-calendar year. On efficiency, we'll continue to grow our global operations centre, working closely with our Arlo implementation team on a workforce shape into the future, Mindful of digitisation and automation benefits we expect. We'll also accelerate agentic AI and unified service management across our operational teams. And on technology, we're taking a measured and staged approach to Arlo to optimise its adoption. The UK migration will advance during the year with new clients onboarding directly to Arlo and our APAC deployment is planned for the last quarter, ready for Air Flight 28. On Guidance, we are guiding to an underlying EBITDA in the range of $50 to $54 million. This factors in improvement in both customer and interest revenue, with interest yields forecast to improve around 20 basis points and overheads at the longest term average of approximately $110 million. Importantly, as the bulk of the Arlo transformational legacy remediation expenditure falls away, we forecast pro-forma free cash flow of $30 to $35 million in FY28. That is the prize, and we see a clear path to it. Naturally, if we shift from a pro-forma lens to an actual FY28 earnings forecast, underpinned by ticking off the objectives I've shared today, then we would expect that to be higher. But our focus is to hear it now, and we've got lots to close out this year. Transformations of this scale are never easy, and they're never run perfectly to plan. But we're more capable today than at any point in EML's history, and we expect our commercial Performance to improve through FY27, laying a solid foundation for FY28 and beyond. Alongside the unflashy foundation build, we're also working on exciting near and longer term opportunities with some great clients, partners and brands. Before I can explore the questions, I want to take this opportunity to thank our hardworking team, including members of our local and global boards, our partners, our customers, And of course, our shareholders get a continued support of email. Thank you for listening to our presentation this morning. We're happy to take questions. Thank you, Modera.

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