EML Payments Limited (EML) Earnings Call Transcript & Summary

Rob and Tom, you're allowed to speak. Please go ahead.

Thanks, Kevin. Good morning. Welcome to the EML Payments earnings call for the first half of the 2020 financial year. My name is Tom Cregan, CEO and Managing Director of EML Payments. And I'm accompanied on the call by Rob Shore, our Chief Financial Officer for EML Payments. We'll take you through a summary of our first half and then open it up to the floor for questions with the time remaining. On Slide 2, moving straight into the presentation. On Slide 2, in the notice section, you'll note that the results today exclude any contribution from PFS, which we announced to the market in November last year. There are customary closing conditions on this transaction as outlined at the time, including regulatory approval in the United Kingdom from the FCA and in Ireland from the CBI (sic) [ CBOI ]. And as of today, the transaction has not closed. So PFS is not included in these results nor is PFS included in our guidance at this stage. Once PFS closes, we'll announce that to the market and then provide updated guidance based on what we believe PFS will contribute to EML for the remainder of the 2020 financial year. Slide 3 is our mission statement that we include in every presentation because it's key to our strategy and brings clarity as it relates to existing programs in market and new programs that have recently launched. And I'll go into more detail on this in later slides. Slide 5 is -- really provides the highlights for the half year. GDV increased 60% over the prior comparative period to $6.62 billion with significant growth in our VANS vertical. Revenue increased 25% over the prior comparative period to $59.2 million. This excludes $6.8 million in revenue under AASB 15, which we booked in the second half. Group EBITDA increased 42% to $19.7 million driven in part by an improvement in gross margin as we see a continued shift to self-issuance. And group NPATA increased 70% to $16 million in the half. We did not include an NPATA result in our 2019 half year financial report, but we did introduce it in our full year FY '20 result, and we'll continue to report this metric going forward. NPATA obviously includes stock compensation expenses, for those who focus on that, includes tax and excludes the cost of acquisitions, which makes sense given it's been and will continue to be part of our strategy. And obviously this year, we'll incur significant transaction costs related to the proposed PFS acquisition. Slide 6 is a summary of the highlights again just during the first half, which include record first half financial results for the group; growth in revenue in each of our 3 operating segments. Our revenue conversion rate declined to 89 basis points in the half. But as investors will understand, that's a factor of business mix, and it excludes the $6.8 million that I mentioned before in breakage revenue, which will be reflected in the second half under AASB 15. And correspondingly, that $6.8 million corresponded to gross margin and EBITDA given the breakage as a gross margin of 100%. The integration of Flex, which we acquired late in the 2019 financial year. We launched our Mobile Pays functionality in all regions, and we launched what we call ControlPay, and we previously called Delegated Authority. So this is where we partner with various companies in the financial sector in the kind of alt lending sector for the provision of real-time credit decisions that are driven by the lender. So a lender is approving an individual for a loan or for credit of some form, and then, in the actual transaction flow itself, approving or rejecting that transaction. And finally, we announced and funded the acquisition of PFS, our largest acquisition to date and one which transforms the financial profile of the company to generate a majority of its revenue from GPR and reloadable products, and correspondingly reduces breakage as a percentage of revenues below 20% and possibly as low as 15%. Operating cash flow of $8.1 million for the half, which was largely impacted by the payment of our short-term incentive plan for FY '19, which was about $2.5 million, and we had some transition fees for new partners, which cost us $1.5 million. We've had transition fees in the past, and shareholders should expect that we'll have them in the future from time to time given it's securing future revenues and margins that are many multiples of the expense itself. Slide 7 highlights a number of new program launches and signings in the first half. In terms of some of the programs launched, the first 3: Nova, Tripla and Ingka are some of the largest malls in the Nordics, which continue their expansion in that geographic region. Glanbia and CleverGift in Ireland and TCN in Australia are companies using our Mobile Pays solution for incentive gift cards. We launched payout programs for SuperSport in Croatia and StarCasinò in Italy, our first launches in those countries. StarCasinò is a subsidiary brand of Betsson. So that's now the second country that we've launched programs within Betsson, the first one being Sweden last year. And we launched Roundpeak, which is a lotteries payout program in the U.S. And most investors, I think, would recognize MoneyMe and their logo given their successful IPO in December. We launched a program with them supporting their freestyle lending product in December where, as I mentioned before, consumers can apply for and access finance and then use their mobile device to facilitate any and all of the transactions drawing down on those funds. And this follows on from our launch with Instabank in Norway last year. And I think it's fair to say early results are very encouraging in a positive sense because MoneyMe reports -- and I'll talk about this a little bit later -- as they report their loan book, there'll be a good way of us measuring success as to what percentage of their loans are being facilitated through programs that EML is supporting. In terms of contracts signed but not launched, we signed a contract with ECE for their centers in Austria and expect that to launch in the second half of FY '20. We announced our contract with Simon Malls, the largest mall operator in North America. That launched in mid-January. So it's now active in approximately 150 of their malls in the U.S. We signed a contract with the company PayGoo, which is the largest B2C reloadable prepaid company in the Nordics. And we also announced that we've won the contract to supply New South Wales Health with up to 50,000 salary packaging cards and further kind of cement our leadership in that segment in Australia. On Slide 8, we show the segment performance across the 3 segments. In our Gift & Incentive segment, GDV was $840 million in the half. It was slightly over $1 billion for the full year in 2019. GDV growth was weaker in Germany and the U.K. compared to the prior year but offset by growth in Eastern Europe, Ireland and Dubai. And as we've stated previously, the portfolio model that we've been building doesn't require us to grow in every country every year for the overall segment to improve year-on-year. And I think we saw that this year. Revenue was up 25%. And that excludes, obviously, as I mentioned, the $6.8 million of breakage revenues to be recorded in the second half. The Gift & Incentive segment represented 66% of revenues in the first half. And of that, just out of interest, GDV from malls represented $700 million of the $840 million. So $140 million is nonmalls, or the incentive gift card percentage of that segment. So breaking that down, malls are obviously 54% of revenue. And we will have variances in GDV between markets. But to give some perspective, a 1% GDV lift equates to circa $2 million in EBITDA. So whilst it may -- whilst malls thematically might be a lower growth segment, they remain highly profitable because you've got a conversion rate of 480 basis points. In the first half, we lost a Canadian mall customer that represents about $1.5 million in revenue. We don't tend to lose too many customers full stop. But as we win clients like Simon, we can lose the odd one. But despite that, we've tightened up the bottom end of our guidance range and provided a revised EBITDA range of $39.5 million to $42.5 million. So again, a bit of resilience in the business model. And as we mentioned when we announced the PFS acquisition, our GDV and revenues become more balanced between the Gift & Incentive segment and the Reloadable segment. And then by extension, the revenue from malls will decline to circa 30% which, again, just talks to revenue diversification. But malls is a seasonal business. So if you can reduce your reliance -- your revenue reliance on a seasonal part of your business, the better. In our GPR segment, revenue grew by 7%, and GDV was fairly neutral on the prior comparative period. If we exclude LuLaRoe, which I've probably spoken about more than any single customer in the company's history I would guess, which continues to decline, GDV growth would have been 35% higher versus the 5% that we're reporting today. And Rob will have a bit more color on the GDV and the revenue kind of headwinds from that program in the last couple of years. On a positive note, as LuLaRoe continues to decline in GDV terms, the impact on future reporting periods becomes less material. And we would expect to see kind of solid growth in FY '21 as New South Wales Health launches and the remainder of the cards under the SmartGroup contract are brought across, which alone represents about $7 million in annual revenue. So put another way, we'd expect that once those programs launch and we see growth in our recently launched reloadable programs, we'll see revenue growth in that segment well north of the single digits in the first half. And in our VANS, or Virtual Account Numbers segment, GDV more than doubled to $4.3 billion, which more than doubled revenue to $5.5 million in the half. We signed a long-term contract extension with BillGo, who presented at EMLCON. We signed another large payments aggregator, Viewpost, and we expect the transactions to commence in the next couple of months with that customer. Slide 9 shows the track record of growth over the previous 5 half years. And in the first half of FY '20, 63% of EBITDA growth was inorganic and 37% was organic, which reflects the contribution of Flex-e-Card from July 1. For the full year last year, it was actually the other way around, with 67% organic and 33% inorganic. That number will move around based on acquisitions or the timing of those acquisitions. So for example, I would expect that if and when PFS is concluded and those numbers are then incorporated into our first half of FY '21, the inorganic growth percentage will be significant because you're acquiring circa $80 million full year revenues, so call it $40 million of inorganic revenue coming into the first half. The organic growth rate is being driven by the various growth drivers we've got in place today. We continue to launch payout programs for gaming operators and now support that in 6 countries. We remain actively engaged in discussions with existing customers to expand their programs and with new partners. As mentioned earlier, we've contracted for another 120,000 salary packaging programs that will convert across to EML, which provides significant revenue upside to the company on that alone. Simon Malls is the largest operator -- mall operator in the U.S.A., but gift cards are a fundamental part of their strategy, both in store and in a B2B sense. And whilst we're one of a number of products that they have because we're not an exclusive provider to Simon, it'll represent some pretty solid upside for us in that segment long term. And in the nonmalls part of our gift card business, as I said before, we're making pretty good progress with our Mobile Pays solution. And that will get better as more prospects in the pipeline are converted. I won't spend a lot of time on Slide 10, other than to say we now service 1,185 malls. And on the right-hand side, we just showed some newer programs that are somewhat unique, including the greencard, which is a fully Mobile Pays solution, which is in conjunction with TCN and Qantas; and CentreParcs, which launched in late 2019 in the U.K. and Ireland that uses a fully biodegradable cardboard card. From an ESG perspective, we are focused on trying to reduce our plastic consumption over the next 3 years. When you think that we will distribute more than 15 million plastic gift cards per year, it's pretty significant. So we will certainly be aiming to reduce that number through looking at kind of products on biodegradable materials or shifting it to a pays fully mobile solution and trying to just reduce the plastic consumption a little bit. Slide 11 refers to salary packaging, which I won't belabor too much because I've already spoken about that in terms of accounts that are on the books and accounts that are contracted to come across. On Slide 12, moving on to that. We've got a couple of examples of the ControlPay product that we launched in the first half, including the launch with MoneyMe. We continue to build our pipeline in this area, and we've got programs in multiple countries that we expect to launch, and they do cover a fair gamut of alternative lending. So they do cover consumer finance. They cover peer-to-peer lending. They cover buy now, pay later. There's a broad spectrum. And as those deals launch, we'll update the market on those. And I think it's important to say that the volumes from those programs will grow over time. So for example, MoneyMe at $130 million loan book, I think was their most recent report, and we launched our program 60 days ago. So I think that gives us plenty of runway as MoneyMe seek to channel more lending through the Freestyle product that we're supporting. Slides 13 to 15 are the slides we used in the investor pack for the PFS acquisition, and we're including again for those not familiar with that transaction. As a regulated business, EML is not in a position to make any operational decisions for that company until we have regulatory approval. And nor would we choose to kind of comment on any particular programs that they might enter into until that transaction closes. But from certainly recent meetings and dialogue we've had with the company, we're pretty encouraged by the pipeline and the number of programs they've got in the implementation stage. And Slide 16 just talks to a few of those. So without going into any of them in great detail, just so shareholders can understand some of those programs that have launched. Fundsfy is a neobank, digital bank, that has an investment platform built around it that allows -- effectively allows customers to use it as their primary bank account, but also it has a crypto-trading feature in it, it has share-trading features, it has other investment kind of modules around it. eCREDO is another digital banking product, so that kind of continues the European push for PFS in that market. And then new contracts that have been signed, and these are just in December, local -- U.K. local market authorities, there are quite a few of those; Axiom, which is a reloadable program manager that is looking to launch in a dozen European countries over the next couple of years; and the U.K. Home Office, which PFS had done on social media when that’s announced. So that just gives you a bit of a flavor for activity literally since December, in the last 50 days or so. I'll now hand over to Rob, and he can take you through the financials. And then I'll come back on the guidance, please.

Thanks, Tom, and good morning, everyone. I'll take you through the financial results review starting on Slide 18 of the pack. The first 6 months of the financial year '20 has started strongly. We've got record GDV and record revenue. Gross profit margins are significantly up and a record EBITDA, as shown in the highlights on this slide. Starting with group gross debit volume, in the first 6 months of the year, delivered $6.62 billion, was up 59% on the same period last year. And the $6.69 billion (sic) [ $6.62 billion ] compares favorably to our 2019 12-month total of $9 billion, with the most -- majority of the volume coming from organic sources. Record GDV growth converted into record revenues are up 25% to $59.2 million, albeit at a lower revenue yield of 89 bps. The VANS segment delivered the majority of the increase in volumes, and the VANS is a low-yielding segment. So although all segments were in line or ahead of the prior comparative period's yields, the segment mix change reduced the group average revenue yield to 89 bps as we became greater weighted towards Virtual Account Numbers. Cash overheads as a percentage of revenue continue to decline. We'll talk more about that. With the adoption of the new lease accounting standard, AASB 16, and revenue growth outpacing the overheads growth, EBITDA, to highlight upfront, is now calculated, excluding acquisition costs, given we had significant costs incurred through the acquisition of PFS, which we announced on the 11th of November. The group delivered a record half year result, EBITDA result, of $19.7 million, which is up 42% on the prior comparative period as we stated for these acquisition costs. If we move into the detail on Slide 19, gross debit volumes. All 3 of our segments: Gift & Incentive, GPR and VANS grew, consistent with the narrative in prior periods. There's really only 1 North American customer in our GPR segment that proved a significant headwind. We'll talk more about LuLaRoe. And we're proud of our ability to grow GDV over the long term, and we think that's demonstrated by a 5-year CAGR of 104%. Looking into the data, our Gift & Incentive segment grew in the period. Volumes were up 25% to about $840 million in the 6 months. It compares pretty favorably to the $660 million in the prior comparative period, and we're only just shy of the $1.06 billion we did in 12 months last year. As you expect from a segment providing services to over 1,000 programs in more than 20 countries, there are a lot of moving parts, and that included the full year impact of the launch of nearly 100 malls in Germany in October 2018. So we had the full 12 months -- or the full 6 months in this period. We had weaker retail trading conditions in the U.K. and Germany, in particular. Tom mentioned we lost a Canadian mall customer in the first half. The launch of Simon Property Group and ECE Austria will only -- or only occurred in the second half of the financial year. The acquisition of Flex-e-Card on June -- 28th of June 2019 did provide volumes throughout the whole period. And we saw stronger growth coming from our programs in Eastern Europe, Italy and the Middle East, in particular. The takeaway from these points is that the segment is resilient due to the portfolio nature of operating a large number of programs in different regions. And we continue to see -- we continue to expect growth from new launches particularly related to the expansion of our Mobile Pays gift programs. The Gift & Incentive segment converted GDV to revenue at an average of 479 basis points. It was marginally down on the prior period due to a program mix. And as Tom mentioned, we've got a further $6.8 million of breakage revenue, which we'll recognize in the second half, on first half activations and volumes. Looking at the GPR segment. At the headline level, GDV rose $73 million despite lower volumes coming from LuLaRoe, our North American customer. And whilst LuLaRoe volumes declined, the comparison to the prior year was less of a headwind. And excluding this customer, the segment GDV grew by about $250 million. LuLaRoe is a low-yielding customer, we've mentioned that previously, and the impact was about $600,000 to revenue in the first half. But we do get asked a lot of questions about the stability of volumes in LuLaRoe, the pace of the decline. And frankly, it's hard to predict accurately with the program sort of weakened quite significantly in December. To put the headwind into perspective, if you go back 2 years, in the financial year 2018, so 2 years ago, we processed volumes of just shy of $2 billion. It was $1.9 billion. And we expect to process about $1 billion less in this full financial year. So it's a revenue headwind for the full year of about $2 million. Despite the headwinds, the GPR segment has been recording record revenues. As we complete the PFS acquisition, the impact of LuLaRoe on the segment will be significantly diluted. Excluding LuLaRoe, the segment converted GDV to revenue to an average of 104 basis points, so a slight decline as the program mix became increasingly weighted to the salary packaging vertical. We do continue to see strong growth in our salary packaging vertical, which was up 41% to over $0.5 billion in the half with a closing run rate of 187,000 accounts in market as at December 2019. These accounts in market will now annualize revenue through the second half and in future years. The transition of SmartGroup's benefit accounts remains on track, and we expect significant volume to transition from SmartGroup and New South Wales Health in the second half of the year, which will benefit the financial year '21 in full. Our gaming winnings payout programs have also continued to grow with an annualized GDV run rate in excess of $650 million per year with programs in market across [ for ] 6 countries. In the VANS segment, we continue -- we saw a continuation of the June exit run rate throughout the half with an improved yield due to better mix, up to 13 basis points. The group signed and launched new customer, Viewpost, in the period -- late in the period, which we expect to provide volume growth throughout the second half of the year. Whilst the VANS segment is a small part of the group's revenue because it's high GDV, it does remain important in providing scale to our business, particularly in regard to our relationships and credibility with the schemes Mastercard and Visa. Moving on to Slide 20 now. This is the second year since we adopted the revenue accounting standard AASB 15. Now as a reminder, the implementation of this standard does not have a material impact to the full year results. But we will recognize a proportion of breakage revenue on first half activations in the second half of the year. So the $6.8 million of breakage revenue and gross profit margin to be recognized in the second half, that's up from $4.5 million in the prior period. Revenues for the half year FY '20 are directly comparable to the prior comparative period and were up 25%, at a lower rate than GDV due to the mix shift towards the VANS segment. The group earns revenue from a multitude of fees, including transaction fees, activation fees. We earn some ATM fees, interchange and breakage. Now not all programs charge all fees, and it can be mixed and adapted to what the customer is particularly looking for. But collectively, this is the recurring operating revenue, and it represents the yield on the volumes processed. Recurring revenues do include breakage revenue because it's the amount unspent, which is the amount unspent on our single-use, nonreloadable Gift & Incentive cards. In the period, breakage was 26% of group revenues and was down from 31% in the prior period. It's [ now become a growth ] in the Gift & Incentive segment being outstripped really by growth in GPR and VANS segment and a sort of shift towards more transactional-based fees in that segment. Once we complete the acquisition of PFS, the proportion of breakage income will fall further, with PFS generating the majority of their revenue through transactional fees and interchange income. But the vast majority of revenues, so 86% of our revenues, are classified as recurring. And even establishment fees, which mostly relate to the sales of plastics, are really expected to recur as plastic does need to be replaced. We also have an interest on the stored value float that we hold on behalf of our customers and cardholders. Growth in the Gift & Incentive segment was largely driven out of the European region. And so whilst the float did increase, it was up 12% on December 31 last year, interest rates in that region are essentially 0 or negative, and so it didn't really fall through to the revenue line. GPR growth was strongest in Australia, which everyone will be aware has seen interest rates halved, from 150 bps in May 2019 down to 75 bps now. So whilst falling interest rates have been somewhat of a headwind in the first half, we've actually benefited – yes, the impact has been offset by gains on foreign exchange rates given 82% of our revenue was earned offshore in the period. Moving to Slide 21 now, gross profit margins. We've guided previously that investors should expect lower margins in the first half due to the timing of breakage revenue recognition on the AASB 15. This will be the case in FY '20 with half year margins at 75.6% (sic) [ 75.7% ]. The 75.7% in the period was actually up on the prior year, though, and [ full year is ] continuing to operate at healthy gross profit margins. And we've spoken previously to investors about our drive to try and improve gross profit margins, which we're starting to see fall through to the results. Cost of sales is mainly really 2 elements. It's the plastic cost of cards, which we produce using external manufacturers. And it's the transaction fees, scheme transaction fees and external bank sponsor fees in countries where we don't have the necessary licenses to do that ourselves. So a lift in gross profit margin this period is pleasing to see. It's something we've been targeting, and it was driven by the group's principal membership of Mastercard in Europe and Australia where regulations allow us to do so. Our e-money license in Europe and the transition to self-issuance has started to bear fruit assisted by some reduced rates from sponsor banks that we announced late last year. This lift in gross profit margins is sustainable. We expect to see further upsides as more programs transition to self-issuance, particularly our salary packaging customers in Australia. Second half margins will be aided by the recognition of $6.8 million of breakage profit at 100% gross profit margins on first half activations. So we -- overall, we'd expect to see margins for the year up in the high 70s. Looking now at overheads on Slide 22. At the headline level, overheads fell as a percentage of revenue to about 43%. It's driven by the group adopting AASB 16 leases and had an impact of approximately $660,000 in the period and revenue growth outstripping overhead cost growth. About 44% of the increase directly ties back to the acquisition of the Flex-e-Card business, which we completed on 28th of June 2019, alongside the full period impact of new roles that we added in FY '19. Majority of our cost base relates to our employee group, makes up about 66% of our overheads, which is in line with the prior period. And we closed the -- we closed December 31 with 275 employees, which is in line with our June close, which also included the Flex-e-Card employee group. As we flagged earlier, we’ve stripped out the cost of due diligence on acquisitions when arriving at the EBITDA, which came in at $3.4 million of costs, mostly related to PFS acquisition, which has not yet been completed. So moving to the income statement on Slide 23. There's a couple of other items to call out. And we'll start with the fact that EBITDA was a record first half result of $19.7 million. And we expect our guidance range, Tom will talk about in a little bit more detail shortly, to be $39.5 million up to $42.5 million. And so the first half-second half splits are broadly going to be consistent with the prior year at this stage. And so Tom will give more information on our guidance later in the presentation. We do receive research and development tax credits in the U.K. and Australia. The credit received this year was slightly ahead of the prior period, and it's really due to the sheer volume of projects that we've been working on around the group. As a percentage of our development effort that we've expended, we're actually getting a lower percentage claim. The tax regulations are really tightening around the world, and so we're seeing the impact of that, but we're doing a lot more development work on a number of different projects. Share-based payments rose to $4.7 million, most of that related to $2 million for a share-based payment to buy back a contractual agreement with a salary packaging consultant who assisted us to establish the vertical. We announced this on the 22nd of July 2019. The higher share price has also impacted the share-based payments expense due to accounting for executive short-term incentive plans for the FY '20 year. On the flip side, we've seen options, in relation to acquisitions in the U.S. that we completed in 2016, have mostly vested either in late 2019 year, the FY '19 year and also in August 2019. So we do expect share-based payments expense to be lower in the second half of the year. Depreciation and amortization expense is higher in the period, and it's almost wholly related to the acquisition of Flex-e-Card on the 20th of June and the amortization of customer relationships and contracts that we acquired with that business. Other noncash charges relates to the unwinding of the discounted contingent consideration on our Presend, which is now in our Nordics; and our PerfectCard acquisition made in the 2018 calendar year. It's offset by foreign exchange gains on our overseas assets and liabilities as they converted to Australian dollars. Overall, our corporation tax payable was about $100,000, which really reflects the deductions and deferred tax movements that we've seen in all regions for share options where we get a deduction -- a tax deduction for these at the share price from the day of vesting before the day of closing of the financial period. The group's got significant tax losses available for use in future years, including in our deferred tax asset on the balance sheet. We continue our transition to put more focus on the NPATA metric as a real measure of underlying business performance, and we reconcile this on Slide 23. Our cash flows for the period were really multiples of our statutory NPAT number, and so we think that the NPATA metric gives a better indication of underlying business performance whilst including the cost of share-based payments and depreciation and amortization of nonacquired assets that EBITDA does not. NPATA is $16 million, significantly up from 9.4% in the prior period. But it also compares favorably to the full 12-month period of 2019, which was $20 million. On Slide 24, we present the balance sheet. Headline closing group cash of $256.8 million alongside a $32.7 million breakage accrual. The contract asset, which is the breakage accrual, represents the remaining portion of funds on Gift & Incentive cards that we sold previously where we've received the funds, but we expect the balance to remain unspent and revert to cash in a future period. The contract asset is up on June 30 by about $900,000 due to growth in the Gift & Incentive segment with that further $6.8 million to be -- still to be recognized. To fund the acquisition of PFS and associated transaction costs, we undertook a capital raise. And that's coming through in our cash balance, which remains on the balance sheet pending the completion of that transaction. So we received cash of $241.6 million connected with that raise. We no longer have any debt on the balance sheet as we've repaid in full the $15 million of debt from a major domestic bank prior to drawing down any funds on our new syndicated debt facility that we established in connection with the acquisition. Intangibles on our books mainly relate to the 6 acquisitions we've made since 2011. The businesses we buy are not capital-intensive, and so you typically end up with quite large intangible assets and goodwill that make up a significant portion of the purchase price. Deferred tax asset, $27.1 million, is up on 30 June mostly due to the share price movement impacting the future deduction -- or the existing deduction we've received from share-based payments. We've got tax losses of just shy of $20 million, $19.9 million, which were in Australia, the U.S. and the United Kingdom. Trade and other payables includes contingent consideration of $12.8 million in relation to the 2 acquisitions made in calendar year 2018, both with earn-out components which we're anticipating being successfully completed and paid out in the future. This $430 million asset which we show as receivable from financial institutions, this is the money held on deposit with our banks on behalf of our customers and is directly offset by the liabilities to stored value account holders, which is the amount we owe to those cardholders. As we continue to increase the self-issued element of our business, principally in Europe and Australia, these amounts have grown and will continue to grow significantly. On Slide 25, we call out the underlying cash flows for the period at $13.1 million. Statutory operating cash flows was $8.1 million, which includes acquisition costs paid of $0.5 million and tax and interest expense of $0.5 million, which fall outside the EBITDA as we add those back. And then we're also impacted, as Tom mentioned earlier, by timing differences on annual payments made in the first half for insurance, the 2019 short-term incentive plan and transition success fees, which totaled $4 million. So excluding these timing differences, which we don't expect to recur in the second half, given our EBITDA was $19.7 million, it represents an EBITDA to cash flow conversion of about 67%. We continue to expect full year cash conversion to be in line with our expectations of between 70% to 80% for the full year. In terms of investing cash flows, we invested $4.9 million primarily related to internally generated software of $3.4 million and the acquisition of software from PayWith Worldwide of $1.5 million we announced back in July, which supports our salary packaging vertical. Some of the significant internally developed projects we've been investing in have included mobile payments technology, a new mall till system and a web-based card management portal for our salary packaging vertical. Finally, we signed a letter of commitment for a debt facility of up to $175 million in connection with the acquisition of PFS and for ongoing corporate purposes. We did not draw any debt on this facility in the period. Now I'll hand you back to Tom who'll take you through the update to our 2020 guidance.

Thanks, Rob. Turning to our guidance slide. We've tightened the EBITDA range by removing the low end of $38.5 million, and the revised EBITDA guidance is for $39.5 million to $42.5 million for the year. As we mentioned earlier, we generated EBITDA of $19.7 million in the first half, and we have $6.8 million of breakage, which will be recorded by the end of February, so we effectively have high visibility to $26.5 million. And in FY '19, the split of EBITDA was 47% in the first half and 53% in the second half, so we feel good about removing the low end of that guidance and tightening that up. We will have increased expenses in the second half associated with the PFS acquisition but not expenses that can be excluded from EBITDA, including recruitment costs and employment costs for senior leaders in the finance and risk management functions that we're hiring for. And I'd probably expect a little uptick in travel costs as well, as the kind of respective EML teams engage and spend time educating each other on our respective solutions so we can hit the ground running in FY '21. Frankly, I'm not that concerned. We're spending $0.5 million to $1 million in the latter part of the financial year. And given we paid $425 million for PFS, or we will be, and FY '21 will be the first year as a combined company, and it's stating the obvious that that's a critical one to come out of the gate swinging and deliver against expectations. So our guidance range that we provided today allows for that spend to happen within that revised guidance range. We saw interest rates reduce $1 million over the prior period. But as Rob said, they were offset by favorable FX rates. So again, one of the positives of the business model is just the ability to kind of -- to manage through some of those things, whether it be a loss of a customer, whether it be loss of revenue in a customer through LuLaRoe, whether it be FX rates on one side, interest rates on the other, it just provides a fair bit of resilience in the business model. As Rob said, our EBITDA guidance excludes acquisition costs. And as we flagged in November, those costs are likely to be around $15 million, so including the debt raise, the capital raise and funds spent on diligence and advisory. So some of that will be capitalized, some of that will be expensed based on the accounting rules. But that will be a significant item, I think, in the second half. And we'd expect to refresh our guidance when PFS closes. So when it's closed and we're able to announce that to the market, we will include EML's stand-alone guidance and the expected contribution from PFS and, therefore, the overall group, at which point all future guidance for the group in FY '21 and beyond will be for the group and just include PFS as a matter of course. And with that, operator, I'd open up the line to any questions.

[Operator Instructions] Our first question is from Mr. Nick Caley from Baillieu.

Can you just give a little bit of commentary on where bet365 and GVC are at?

In the U.S. or Europe or...

Anywhere because I suppose it's not -- at this stage, it's still very early days in terms of making a material contribution to GDV.

Yes. I mean I think it will be -- as I think I've said a couple of times, I think the U.S. gaming market will be some years before it's noticeable at the GDV line. If you look -- I mean so I'll answer the question in a second. But if you look at Pointsbet, for example, which is public and you look at the result in Jersey because you've got a market that supports mobile registration, mobile usage, mobile payments, et cetera, and then you look at a market like Iowa where you've got to arrive in person to 4 places to kind of enroll and become a customer, some of those states will just evolve at different paces. So it's really difficult to predict the GDV growth in some of those markets. We're in discussion with all those guys, so it's been hard to talk publicly about kind of what they're doing and where they're at. But we were meeting with them as recent as last week to kind of understand what their plans are and talk to them there. So it's a bit hard to answer that for just those 2 and what their plans are but other than to say we remain pretty -- in kind of constant conversation with them, I think.

[Operator Instructions] Our telephone question is from Mr. Mark Bryan from Wilsons.

Another set of good numbers. Well done. I wanted to, if we can, dig into the VANS business, please. It's obviously had now 2 really good half year periods and sort of added over $1 billion of GDV in each of those halfs. Can you just talk about, please, the outlook over the next 6 to 12 months for further contract wins in that space? And equally, how concentrated should we think that revenue line is? In terms of customers, what would, say, roughly the top 5 customers, please, account for in that division?

Yes. I think the pipeline, I would just say it's solid. I mean I think it's -- there's a lot of opportunity in there, but it's a major -- a pretty vast market, so there should be opportunity in there as well. And those opportunities are across kind of multisegment. So whether it's payments in the health industry, whether it's payments in workers' compensation, whether it's supplier payments, I mean there's lots of different kind of verticals under there. So I mean Viewpost is the most recent, I guess, aggregator that we've brought on, which included bringing on a different -- a new issuing bank as well to kind of support that program. So I think we'll just continue to announce more deals. And the pipeline looks -- I would just call it solid. In terms of the aggregation, really I would say out of all the contracts we have, some -- it depends on who they are. So an aggregator would, in turn, have hundreds of customers underneath that program. So I would say probably -- so in other words, we could sign customer A directly, and customer A could be an owner of 100 fast-food stores, and the GDV might be $40 million. Or I could sign customer A who could, in turn, be servicing those guys, but it could have 20 of them. But I'll say the aggregation would be -- I'll probably have to come back to you, but I would say the aggregation model would be 80%, I would guess. I'll come back and clarify, but probably 80% of GDV makes up all the different aggregators we have. And that's the model that we're certainly going for. So it's -- in the past, I think the last 2 halves and the traction we're getting is a reflection of having the right strategy. I think when we were trying to sign direct companies, we had higher conversion rates, so they were going from the 60, 70, 80 basis points but difficult to scale as opposed to working with aggregators, where we're earning 13 basis points, but they could be bringing on $300 million, $400 million, $500 million of payments, so aggregators in general. And I wouldn't mention all the aggregators because we don't want to bring competitive attention to ourselves. But aggregators would be more than 80% of the GDV. And direct, singular contracts, that would be probably the rest.

Yes. Good. So derisked. Okay. That's helpful. And whilst I've got you both, just on PFS, obviously you've given us update in terms of timing and it's, to a great extent, out of your hands. How would you characterize though the discussions with the regulators? Has it been relatively fluid? Or has it been more a case of you've dropped in your requirements, information requirements and then it's gone quiet? Anything you can sort of say there?

Yes. I mean very, very business as usual, so certainly, nothing of any concern. I think if there was something of concern, we would have to flag that, but it's pretty much BAU. The time for the Irish approval has actually passed now where the regulator can ask any more questions. But having said that, they didn't exactly inundate us with questions. So I mean we're already a regulated entity in Ireland, so that process was pretty reasonable. I think we filed both applications -- I'm looking at Rob here in case I get this wrong, but within 2 or 3 days of 10 days post buying the business, we put both of those applications in. So we're hopeful it's not too far away. And there's nothing that would give us any cause as of today that would tell us that there'll be an issue there.

And our next telephone question is from Mr. Ron Shamgar from TAMIM Asset Management.

Congrats on the results. Just a few questions. Just wanted to ask about the PFS. You gave a bit of an update on calendar year '19 revenue and EBITDA at GBP 12 million EBITDA for the group for PFS. But that's sort of just under the FY '20 guidance of AUD 24 million for PFS that you gave back in -- back at the AGM when you announced the acquisition. And considering all the new contracts and the growth in that company, I mean -- yes, I mean do you anticipate them to exceed that number based on the calendar year '19 number?

Sorry, so the question how they did, in calendar '19, did they do...