EML Payments Limited (EML) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the EML Payments Limited FY '22 Full Year Results Presentation. [Operator Instructions] I would now like to hand the call over to Ryan Chellingworth, Group Treasurer. Please go ahead.

Hello, and welcome to the EML Payments results briefing for the full year ended 30 June 2022. I am Ryan Chellingworth, the Group Treasurer at EML, and thank you for joining this briefing. Today's presentation will be from Emma Shand, our Managing Director and Group Chief Executive Officer, who will provide an overview of the results and a business update. Rob Shore, our Group Chief Financial Officer, will provide details of the result, and Emma will then provide a brief summary. Presentations will be followed by the opportunity for analysts and investors to ask questions. [Operator Instructions] I will now hand over to Emma. Thank you, Emma.

Thanks, Ryan. Good morning, everyone, and thank you for joining us. I'd like to start by saying how incredibly excited and energized I am to lead the EML Payments as Managing Director and CEO. Thank you to everyone who've reached out over the past 6 weeks to offer their congratulations and observations about the company. I truly appreciate your support. EML is a genuine leader in global payments. And in taking on the role, I believe deeply in the opportunity ahead to continue to build on the extraordinary growth EML has achieved over the past decade. To do that successfully, I see growth potential in how we can strengthen and indeed streamline EML's operating model. In addition to presenting the FY 2022 results this morning, I'm keen to outline some of my initial observations since being appointed as CEO and my plan to conduct a detailed strategic review of the business through September and October. The objective of this review is to ensure that our strategy for growth both in revenue and earnings over the next 3 to 5 years is underpinned by a solid operating model, a well-aligned organizational structure and, importantly, enhanced compliance and regulatory processes. The Board and I are very clear that best-in-class payment integrity, capability and performance is key to sustainable growth not just in Europe but in all markets in which we operate. However, let me start with some overview comments on the FY '22 results, which CFO, Rob Shore, will also speak to you in more detail later in his presentation. Let's now turn to Slide 4. Financial year 2022 was a mixed year for EML Payments. EML delivered organic growth across all 3 reporting segments, achieving a 308% increase in Gross Debit Volume, or GDV, which you might also like to think of as total payment transaction volume credited by EML. GDV increased to $80.2 billion through a combination of organic growth and a 9-month contribution from our Sentenial and Nuapay acquisitions. Revenue was up 21% to $234.1 million. While the underlying performance of the business is solid, significantly increased costs impacted underlying EBITDA, down 4% to $51.2 million and NPATA performance down 1% to $32.1 million. Specifically, underlying business overheads increased 41% due to increased investments in EML's European operations, payments integrity and regulatory compliance. This will be an important focus of the strategic review we have announced today. The high-level performance across our 3 business segments are on the right-hand side of the slide. Rob will take you through these in more detail in the finance section. In summary, GDV was up versus the prior year in all segments with our General Purpose Reloadable, GPR, segment up 27%; Gift & Incentive up 21%; and Digital Payments up 640 -- 654%. Digital Payments includes the Sentenial gross debit, and open banking volumes, excluding Sentenial volume, were up 10% on the prior year. On revenues, we saw good growth in General Purpose Reloadable, up 30% on the prior year, which included the introduction of account maintenance fees during the year, and Rob will provide more color on this later in the presentation. Gift & Incentive revenues were down 3% on the prior year as we recognized $11.1 million of elevated COVID-related breakage in FY '21. Digital Payments revenues were up due to Sentenial's 9 months contribution of $7.7 million. Gross profit margins in General Purpose Reloadable and Digital Payments were both higher than the prior year, whereas Gift & Incentive was slightly down on prior year as higher volumes replaced the higher breakage rates. The acquisition of Sentenial during the year brought with it a high-quality customer base, including Tier 1 banks, and also enabled EML to move into some of the most exciting innovations in payments, being open banking and account-to-account payments. Industry estimates to 2025 suggest a global 5-year CAGR of 30% in real-time account-to-account payments, and we're also continuing to see open banking gain traction across Europe with encouraging rates of adoption. The macro environment in respect of interest rates is also encouraging. Whilst we experienced negative interest charges on our stored float in Europe across the year, we started to see during the fourth quarter the impact of the higher interest rate environment in key markets, benefiting EML's significant stored value floats. Before I turn to the future, a few other observations about our business today. EML continues to remain well capitalized with a strong balance sheet. We are a cash-generative business with a strong cash position of $73.7 million on the balance sheet and a syndicated debt facility with significant undrawn liquidity. And finally, while there is a need for EML to transform and evolve, we are and continue to be a strong and profitable business. We are very well placed to build on our position and right to win in the global payments sector. As a result, I'm pleased to announce that EML will undertake an on-market share buyback of up to $20 million over the next 12 months. With the excess cash we expect the business to generate and our near-term focus on priorities, which I'll speak to today, we believe this is a sensible use of capital at this time. We will be selective when we buy back shares, and we will conduct the buybacks on an opportunistic basis. Rob will address our financial performance in more detail later in the presentation, including the positive impact of our improving interest rate environment, which will be a benefit to EML across our markets. Let's now turn to Slide #7. As I said at the outset, I'm highly enthused about the opportunity ahead for EML. I also understand the deep importance and urgency of the task ahead. That is to focus on operational improvements and enhance compliance and regulatory processes in order to deliver attractive, reliable growth for shareholders. These are the keys to successfully building EML's global revenues and value for shareholders from here. Having been CEO for 6 weeks, I don't have all the answers today, but I understand what we need to do to get there and also what the journey ahead looks like. Since my appointment as CEO in the first half of July, I have prioritized meeting with as many stakeholders as possible here in Australia, Europe, the United Kingdom and the United States. I've spent considerable time with my executive team, employees both long serving and those new to EML as well as customers, shareholders and investors, business partners and regulators to understand their perspectives about what EML is doing well and where it needs to improve. These conversations have been broad, open and honest and have included difficult but reasonable conversations about what we can and should do better. Since my appointment, I, along with EML Chairman, Peter Martin, have had the opportunity to meet with the Central Bank of Ireland or CBI. It will be inappropriate to prevent -- preempt any conclusion from the CBI. However, these discussions with the regulator were appreciated and constructive. As part of the remediation program, as previously disclosed, we continue to do additional work on the sequencing and approach taken to EML's risk assessment of its distributors, corporates and customers. I have already accelerated leadership risk and compliance appointments towards finalizing our Irish subsidiary PCSIL's remediation program in 2023. We want to leverage this in-house IP to serve as an enduring contributor to product and regulatory strategy to support sustainable growth in Europe and beyond. Notwithstanding this program of work, it's important to understand that as the global payment sector continues to evolve and mature, regulators around the world will also adjust the way they regulate it. This is why for us, regulatory compliance will be a continuous journey. Those companies that can become best-in-class in their regulatory settings will experience a competitive advantage over those who aren't. I know from experience of working in some of the high-volume ultra-low latency markets in the world that any business where there is a financial transaction occurring, being at the forefront of risk, compliance and regulations is reassuring for our customers and gives them the confidence to transact seamlessly and safely on our platform as well as build trust with their end customers. We want to be best-in-class when it comes to regulatory compliance, and I truly believe the work we are doing now with the CBI will provide us with a strategic advantage with regulators in Europe and globally. The reality is, there is commonality of e-money, payments and data privacy regulations across all European Union jurisdictions. And while there has been some external speculation around moving to Ireland, our intent isn't to seek a lighter-touch regulation in other areas of Europe. Instead, we are focusing on having a world-class regulatory framework and processes in place to drive our strategic ambitions globally. In sum, listening and conversations in recent weeks can be really, really valuable. They've also helped to shape my immediate purpose. That is to ensure we have a plan that both protects the base and has been -- that has been built but also enable EML's business teams to efficiently leverage that base for growth. To do this, I'm conducting a wide-ranging review of all aspects of the business over the coming months. This will culminate in a strategy for growth and a strengthened operating model that will take EML confidently to 2025 and beyond. I look forward to presenting this strategy to shareholders and our broader stakeholder community at our Annual General Meeting in November. An update on the implementation of our strategy will then be provided at EML's first half results in February 2023. While the strategy is underway, some initiatives have made sense for me to execute without delay within my first 30 days. These are outlined on Slide 6. One, we are combining our North American and European Gift & Incentive businesses to drive operational efficiency, enhance product and customer and accelerate new business. Two, we are separating the areas of global risk and compliance into 2 distinct functions to foster greater accountability, strengthen our internal control environment and expand into regulatory affairs. This is designed to also support and inform our product regulatory and go-to-market strategies in the future. I have created and filled a new position in this regard with the appointment of a Global Chief Compliance and Regulatory Officer. Three, today, we are also announcing the disposal of our FinLabs investment, Interchecks. Upon disposals, we will realize 4x our original investment. At the same time, we are set up well for future success with Interchecks as our partner, where we are jointly serving Seamless customers and developing a U.S. pipeline of business. As you can see, we're making progress in the short term while also planning for the long term. Just outside my first 30 days is the announcement to return capital to shareholders via a $20 million on-market share buyback, which I spoke to earlier. Central to both the present and the future is EML's culture of technology and product innovation to serve and delight our global customers. We are comfortable to be held to the highest standards of transaction integrity and operational excellence. We are well capitalized, have a strong balance sheet and are a strong, cash-generative business. On that note, let's now turn the Rob to walk you through the financial performance in more detail.

Thanks, Emma, and good morning, everyone. I'm going to take you through the financial results for the year, starting on Slide 8 of the deck. As Emma mentioned, we delivered a structural change in GDV with the acquisition of Sentenial and the volumes passing through the debit product, resulting in GDV increasing to $80.2 billion in the year, which is within our guidance range and up on PCP, significantly up on PCP. However, we've also seen organic GDV growth of 19%, which complements the acquisitive growth. Revenue grew 21% over the prior comparative period to a new record of $234.1 million, and it was at the top end of our guidance range. Investors should take note that the revenue for the year included the introduction of new account maintenance fee income streams, or AMF, which is applied to certain European programs where a small monthly fee is applied if the account is inactive for more than 12 months. Under the AASB 15 accounting standards, we were required to accrue this fee because our performance obligation is complete. So there's a nonrecurring benefit in the FY '22 year. It was $17.9 million on the back book of inactive accounts alongside the recurring revenue stream, which will continue moving forward. We completed the acquisition of Sentenial on 30 September and have been consolidated for 9 months and contributed $7.7 million of revenue in the year. In our G&I segment, as we noted in December, the segment largely recovered from COVID with volumes replacing -- volumes in FY '22 replacing the nonrecurring elevated breakage of $11.1 million that we saw in the prior year due to COVID. So those were a few moving parts in what's been a challenging year, particularly in Europe. Our revenue growth of 21% is positive as we enter into FY '23. Net interest revenue continued to be a headwind in FY '22 at $1.4 million for the year and $4 million lower than the prior year. But in the last -- the last couple of months of the year, that trend reversed as we saw central banks raise interest rates to control inflation, and we'll talk more about that later in the presentation. Gross profit margins were slightly below expectations. It's just over 68% versus our guidance range of approximately 69%, and that was due to a slight shift in customer mix, which offset the margin improvement projects that we've previously noted. Underlying overheads finished at $108.4 million for the year, at the top end of our guidance range and up 41% on PCP. This was partly due to Sentenial but mostly related to investments in our European business, including people, IT, risk and other professional fees. Our quarter 4 overheads were $31.4 million, and investors should use that as a starting point for FY '23, noting that like many companies, EML is seeing inflationary cost pressures, particularly in a tight labor market for highly skilled resources. We've taken up a noncash fair value adjustment to our FinLabs investment in Hydrogen, and that was $7.3 million in the year, and that's accounted for as a charge to the P&L. Our FinLab investments are small. They're typically cutting-edge technology companies which complement our technology platforms, and they won't always deliver sort of the financial returns that are expected. But our FinLab investment in Interchecks, on the other hand, has gone very well and will return about 4x on our original investment and with excellent joint commercial opportunities in the pipeline as well. We're disciplined as to how we approach our FinLabs investment, and we no longer need to provide equity support to achieve our joint objectives. And as a result, we signed an agreement to sell our stake to one of the other large investors in Interchecks and will crystallize the valuation into cash of $10.6 million. The cash return from Interchecks and existing cash reserves of $73.7 million as at 30 of June, alongside stronger FY '23 cash flows, will be used to commence an on-market share buyback of up to $20 million over the coming 12 months. We'll conduct purchases opportunistically, and shareholders should not draw any conclusions from the timing of any purchases that we announce. Moving on to Slide 10 and looking at our GPR segment. Clearly, it has been a very challenging year for our European GPR business, but the results are further evidence of the resilience of the EML business model. Our GPR segment services a range of customers across a number of verticals, including government, disbursement, employee benefits and more. We saw Gross Debit Volume for this segment rise to a new record of $12.4 billion, which was up 27% on the prior year, and generate convert to revenue of $148.1 million, which includes the nonrecurring element of AMF income streams, which we introduced in the year. If you exclude the one-off element of the AMF income stream, segment growth was 15% on a slightly weaker program mix but also including the loss of establishment income in the first half of the year and weaker interest revenues for the majority of the year. All growth in this segment was organic. As predicted, gross profit margins for the segment improved to 61%, and they'll continue to benefit from the transition to in-source processing throughout the FY '23 year. The FY '22 year saw gross profit margins impacted by lower setup fees due to CBI restrictions, which was $4.5 million lower than in the prior year. And that impacted -- negatively impacted segment margin by approximately 3%, alongside lower interest because that segment drives the majority of our interest revenues. Looking at Slide 11 now on Gift & Incentive segment. It continued its COVID recovery in the year. The segment largely services shopping malls, shopping centers globally, alongside incentive programs used for marketing- or employee welfare-type programs. GDV improved to $1.3 billion, which is a new record for the segment, albeit still impacted to an extent by Omicron in the weeks leading up into Christmas 2021. Although revenue declined at the headline level, as we previously disclosed, the prior year benefited from $11.1 million of nonrecurring elevated breakage, which we attribute to the impacts of COVID. In FY '22, as the volume growth recovered, this largely replaced last year's nonrecurring breakage of $11.1 million. So it's a good result there for the FY '22 year, 16% organic growth on last year's recurring revenue of $59.1 million. So gross profit margins were stable with last year at 80%. Again, everything in that segment is organic. Slide 12, looking at the Digital Payments segment. The Digital Payments segment includes 9 months of Sentenial business, which was consolidated from the 30th of September. The acquisition of Sentenial brought EML both an established low-growth direct debit business with a very large GDV sold as a software as a service model on a low revenue yield, but more importantly, they brought a high-growth but currently small business focused on open banking called Nuapay. The open banking business is currently focused on Europe, and they grew 40% over the prior year, which includes 3 months prior to EML's acquisition. The Nuapay business has been working hard to recruit and onboard additional resources since our acquisition, but it's really achieved this growth with minimal additional overhead spend, which will come online in FY '23. Excluding Sentenial and Nuapay, the remainder of the segment grew volumes approximately 10%, which helped offset a weak program mix in North America. Total segment revenues increased 66% to $17.6 million, and they make up 8% of the group's revenue. The Sentenial and Nuapay businesses are high gross profit margin businesses with few direct costs, which led to segment gross profit margins increasing to 85% for the year. We expect this to gradually fall as Nuapay business grows faster than the SaaS direct debit products, but it will remain a higher gross profit margin business. The segment is strategically important to the group's growth prospects with the open banking product, Nuapay, expected to demonstrate a very strong growth profile over an elongated future period. Moving on to Slide 13 now and the group overheads. On this slide, we're presenting the group overheads, excluding the nonrecurring costs associated with the Central Bank of Ireland regulatory matter as well as the Shine class action. These costs are nonrecurring, and they totaled $16.9 million and are excluded from underlying overheads. The majority of this amount still sits in provisions as at 30 June 2022. Underlying overheads increased 41% on the prior year, primarily reflecting the continued investment in the European operations. As we said, a lot of those resources are going into the regulatory remediation plan for our GPR business. The spending increased each quarter as resources of joining the group were applied to that project, and we consolidated Sentenial from the start of quarter 2. So the quarter 4 exit run rate is a starting position for investors to note going into FY '23. But it is important to note, like most companies, we are still seeing inflationary impacts on our cost base and quite tight labor markets, particularly in Ireland. Sentenial contributed $7.1 million for the 9 months to 1st of October, and we expect the cost base of that business to increase in FY '23 as additional resources join to drive growth in Nuapay. We're committed to investing $5 million in additional resources when we acquired Sentenial, and we expect more than half of the incremental spend to be incurred in FY '23. IT costs increased as owned IT hardware conditioned -- transitioned to cloud data centers, and the infrastructure around our in-source processor in Europe was upgraded for its transition to a full production environment. These investments were required in advance of larger volumes transitioning to the platform, which occurred in the later part of the year. Likewise, we incurred additional costs for regulatory audits, internal audits, external audits and other professional advisory, which drive up professional fees and the risk and compliance costs in the year. Whilst the increase in overheads is significant, the new roles recruited are essentially strengthening our internal regulatory capacity and bringing the IT in-house so we can leverage across all of our global markets. The investments are prudent, and we continue to take actions to demonstrate our commitment to meeting the CBI's expectations. We believe we're at the forefront of evolving European regulatory requirements, which all industry participants will have to work through. This remains a long-term positive for the business, particularly as we apply our learnings to stay ahead of the regulatory curve in other markets. The outcome of the above is shown in EBITDA and NPATA on Slide 14, where we present both underlying and statutory measures. So firstly, the underlying add-backs relate to nonrecurring costs of the class action, which was $10.5 million, and various additional costs in relation to the CBI remediation project. Whilst these costs are material, underlying EBITDA better reflects the trading performance of the business in the year. Underlying EBITDA of $51.2 million is approximately $800,000 or 1.5% below the bottom end of our guidance range, which came in there as a result of slightly lower GP margins and overheads coming in towards the top end of the range. Underlying NPATA was at the top of the guidance range, $32.1 million, owing primarily to the write-back of share-based payments relating to executive and employee short- and long-term share options, for which none are now expected to vest, lower tax rates and foreign exchange gains going into NPATA. Moving on to Slide 15 to look at our balance sheet. We remain in a very strong balance sheet position with $73.7 million of cash on hand and $50 million of contract assets or breakage. At least 40% of this will convert to cash within 12 months. As Gift & Incentive volumes improved in FY '22, this led to a working capital outflow into the contract assets as compared to the inflows that we saw in FY '21 whilst the volumes were impacted by COVID. Accounting standards also require that we accrue for the completed performance obligation in regards to the recently introduced AMF net income streams, and that's taken up into the contract asset. We split our cardholder assets of $2 billion and our liability owed to our cardholders at the same amount. These are the amounts held on behalf of our customers in cardholder float where we self-issue these products under our own licenses, less than our total float of $2.2 billion, which includes the North American business, where it's issued by our partner bank. We'll talk more about that when we talk about interest in a moment. Trade and receivables fell back from the December high as we collected delayed receipt of $8.6 million from 2 customers. We don't have an issue with receivables because we typically sit on client funds, which can be offset. The balance has risen, though, compared to the same time last year with the acquisition of Sentenial and their balance sheet coming on to our books as well as slower collections in Europe towards 30 June. Intangibles increased with the acquisition of Sentenial and the valuation of their software and goodwill being brought onto our books. We also impaired and capitalized $10.1 million of internally generated software. Associated with the acquisition of Sentenial was also the drawdown of $48.2 million of interest-bearing borrowings from our banking syndicate in the period, and that sits on the noncurrent interest-bearing borrowings in our balance sheet. The contingent consideration liability now solely relates to Sentenial as we've reduced the expected earn-out payable on PFS to 0 in the year as they fell behind the FY '22 performance target and is unlikely to achieve the tough FY '23 targets. Subsequent to year-end, we received the decision from the independent expert on the disputed FY '21 earn-out, and he's confirmed our position is that no earn-out will be payable for that year. As at 30 June, we have provisions of $17.8 million in relation to the expected future costs of the PFS regulatory matters and the legal fees associated with the class action. As mentioned earlier, we've entered into our agreement to sell our FinLabs investment Interchecks with carrying value that crystallizes 4x gain, and it generates a cash inflow in excess of $10 million in the FY '23 year. On Slide 16, looking at cash flow for the year. Operating cash conversion as a percentage of EBITDA, which we regard as a key metric, was 50%. It was within but at the bottom end of our guidance range, and it was suppressed in FY '22 by the AMF project, which will provide a boost to FY '23 cash flows as these fees are applied to cards and the accrual is released. The operating cash conversion metric is important, and we track it closely. This year is unusual, but it is just a timing difference between the 2 years. Adjusting for the AMF project, the operating cash conversion percentage improved to 77% which is far more in line with our expectations given the post-COVID working capital reinvestment for the Gift & Incentive business as its volumes recover. Our cash flows are expected to improve in FY '23 as the AMF income stream converts to cash and the working capital investment in the G&I segment stabilizes. We retained significant undrawn committed debt facilities under our multicurrency syndicated debt facility, which had several years left to run. And borrowing under this facility were in euros, which was a strategic choice given the domicile of the acquisition and our cash flow generation, but it's also one of the lowest cost currencies to borrowers. Turning to Slide 17 and interest. As we look towards FY '23, the interest we generate on our stored value float, which exceeds $2.2 billion, will be important. If you look back at our results from several years ago, interest was a much more significant core revenue stream, but falling central bank interest rates have been a headwind for some years now. Throughout the first 3 quarters of FY '22, we saw a declining net interest revenue as long-term bonds reached maturity, and we incurred increasing negative interest on liquid euro deposits. For FY '22, we received net interest income of $1.4 million compared to $5.3 million in the prior year. So that's a $4 million headwind in FY '22. Quarter 4, we saw this trend reverse, and it reversed quickly. We had interest income of $800,000 for the quarter. This has continued into July, the start of FY '23. We start FY '23 with a monthly interest income of $0.5 million in July, which is before further interest rate increases in the U.K., the Eurozone, the U.S., New Zealand and Australia have all taken effect. We expect central banks to increase interest rates again throughout FY '23, and the group will be a beneficiary of that. And now I'll hand back to Emma to go through the outlook for FY '23.

Thanks, Rob. I mentioned at the start that I'm highly enthused about the opportunity ahead to continue to build on the extraordinary growth that EML has achieved over the past decade. At the same time, we are looking to strengthen and streamline EML's operating model and execute with clear strategic intent to deliver customer and shareholder value in the medium to long term. As we look to FY '23, I want to provide our investors with our current outlook. We expect to provide FY '23 guidance at the AGM, and Slide 19 provides some of the high-level things our investors and analysts should consider. On revenue, our FY 2022 revenue included the introduction of account maintenance fees, of which $17.9 million represents the nonrecurring elements relating to the back book of inactive cards. The starting point for revenue is, therefore, $216.2 million. Across our 3 business units, we continue to see growth opportunities. And excluding the one-off AMF piece, revenue growth was 11%. In the General Purpose Reloadable segment, we have signed new contracts from new government welfare, employee benefits and on-demand pay areas that are scheduled to go live in FY '23, and we see further opportunities in this space. It's important for investors to be aware, however, that parts of our European business may continue to be subject to growth restrictions until we have progressed through our remediation satisfactorily. In Gift & Incentive, FY '22's seasonal trading peak in December was impacted by Omicron. In FY '23, we anticipate recovery in this space with limited COVID impacts. In Digital Payments, we will benefit from a full 12-month contribution from Sentenial. And with the additional investments that we are making into open banking that Rob spoke to, we expect faster growth there. We will continue to benefit from central banks in developing markets raising their interest rates. And based on an annualized run rate for August, we expect this to exceed $10 million. Gross profit margins should be in line with FY '22. In terms of overheads, as Rob indicated, investors should use our Q4 FY '22 run rate of $31.4 million as the basis for FY '23 costs, noting we expect further inflationary pressures may impact us. We do expect our operating cash flow to improve as the AMF income starts to convert to cash. We expect cash conversion to start to return to more historical levels, particularly as the working capital investment in Gift & Incentive business stabilizes as volumes recover post-COVID. Before I open to Q&A, I want to briefly recap on a few points today, specifically turning to Slide 20 and what I see as the main areas of opportunity and focus for the business moving forward. Firstly, we need to protect and expand the base. We'll look to continue to expand our footprint with our largest customers, for example, PCS, Correos and the U.K. Home Office; more focus on launching our newly contracted programs, including Up Spain and the Correos' Youth Cultural Bonus amongst others. We're absolutely well positioned to capitalize on structural trends towards on-demand pay and multi-disbursement optionality, giving our customers and end users choice of payment timing and destinations. With open banking, we'll leverage our investments to drive growth in faster time to value. And in Gift & Incentive, the combination of our North American and European businesses will enable a renewed focus on our customers and innovative product designs to drive upsell and new business opportunities. We are also laser-focused on strengthening our foundations for growth. I am passionate that as we cultivate and foster a culture of best-in-class regulatory compliance and transactional integrity, a key deliverable will be successfully completing our Irish-led remediation program and leveraging that effort and IP to scale our business in Europe and beyond. As I mentioned at the start of the presentation, we are conducting a strategic review, which will help to chart a new course for the company over the next 3 to 5 years. This is to ensure that our strategy for growth in both revenue and earnings for shareholders is underpinned by our customer-centric, streamlined and strengthened operating model and a structure to effectively execute for growth. We have already taken some early steps to improve operating focus, elevate a culture of regulatory compliance to support sustainable growth and in optimizing balance sheet strength. I look forward to reporting the outcomes and initiatives from our strategic review to shareholders at the AGM in November. To wrap up, I want to thank EML's Board of Directors, the wider EML team, our customers, partners, investors, regulatory bodies and dynamic payments ecosystem participants for your support since my appointment. I look forward to charting the next course together and in creating long-term sustainable value for shareholders and stakeholders alike. Thank you for dialing in today. We'd be delighted now to take any questions you may have. And with that, I'll hand back to Ryan to introduce the first question.

Thanks, Emma. Operator, we are ready for our first question.

[Operator Instructions] Your first question comes from Garry Sherriff from the Royal Bank of Canada.

Welcome, Emma. I have 3 questions, please: firstly, on the staff engagement, the second on cash flows and the third on M&A. If I look at the employee engagement scores and also the turnover rates, they both seem to be at full year lows or highs if you're talking about turnover. And I just wanted to try and get a sense from you what feedback you're getting from staff over the last 6 months, where those issues lie and whether you believe you're at a nadir or do you think that those metrics might continue to deteriorate near term.

So thanks very much, Garry, for the questions. I actually see this is a real opportunity for EML. We're obviously in a bit of a talent war at the moment. And I think we have great people. So the people that I've met across so many jurisdictions in the last few weeks, it's been really comforting to me. They're highly competent. They're really charged for a change, I would say. So I think this actually gives us a great opportunity. They also want strategic focus and direction, to be quite frank. So I think if we are really laser-focused on our customers, if we understand exactly where it is we want to play. And we can structure the business in an efficient way. And that is some of those areas like internal business process improvement. We just need to work on them. We need to work through our remediation to lift that, some might say cloud. But for me, I also see that as an opportunity for us just to be better, highly -- and high integrity in our payments. And that's just going to change the culture quite frankly. So I think we're already starting to see great results of attracting some good talent. I've already started to enhance our people and capabilities and leadership within our Irish entity. And I must say, early signs are that I'm not having any trouble at the moment recruiting people. But we have to expect, we're in a bit of a talent war. It's a highly inflationary environment. But yes, I'm really pleased with some of the conversations I've had and people reaching out to me wanting to join. So that's great stuff.

The next question, probably more for you, Rob, just talking on operating cash flows and the cash balance. Both of them seem to miss the market's numbers. You've got a cash flow bridge there on Page 16 of the presentation. I'm just trying to understand better that $28 million in payment to segregated funds. Can you maybe just provide more detail on what happened here, how it happened? And I guess what's been put in place to ensure something like that doesn't happen again in the future?

Yes. No problem, Garry. The $28 million dates back -- all the way back to July 2021, and it related to something we uncovered in terms of the amounts that have been moved from the float prior to our ownership. We announced that in July, yes, July 2021. The money went back in August 2021. So it's a fair way back. That money does flow back to us because those balances are inactive. Some of them moved out. Some of them were in active for a long time. The money is already flowing back in. So as the card reaches 6 years post inactivity, it expires and the cash can be pulled back out of the float. So some of that has come back in. Other parts of that will be collected via AMF fees for some -- in some parts or over the forthcoming periods. But the vast majority of that comes straight back to EML over the next 3 years from here.

Okay. Sorry, was that -- when you said that those amounts that have been uncovered being removed before you owned it, so sorry, was that in relation to PFS? Did I hear that correctly?

Yes. That was in relation to PFS. And the details, that we -- you can go back to in the announcement we made in July 2021 that cover all that detail.

Okay. No trouble. And the final question, in relation to M&A, take out the interest, you previously advised the market of interest from potential bidders. Are you still fielding or receiving inbound engagement from potential bidders? And I guess a follow-on from that is, are any of those bidders working in conjunction with Tom Cregan?

So I'll take this one. I think what you should be aware of is we're absolutely focused on evolving this business and really setting up a platform for growth. Of course, there's always interest in the market. And as and when anything comes across our table, we have an obligation on shareholders to consider all offers. And if there is anything to report, we'll obviously make sure we're fulfilling our continuous disclosure obligations. But I think you must know, we're really focused on what we need to do, how we need to execute well, and we'll have some more information for you around that in November at the AGM.

Your next question comes from Tim Plumbe.

Just 2 questions from me, if possible, please. Firstly, maybe for Rob or Emma, just around the sales pipeline. I think at the first half year '22, this was about $13.6 billion, 439 deals. Can you maybe talk a little bit about how that pipeline has progressed over the last 6 months, how we should think about or conversion rates versus the historical of 40%? And any discussions that you've had with customers given the pending CBI remediation, et cetera?

I mean, I think when you look at the pipeline, Tim, and you're looking at that number, it will move around. The pipeline -- all deals are not equal. you're always going to have bigger deals that are in the pipeline. They are the one -- they get one, and the pipeline drops. So it's not necessarily a bad thing if the pipeline moves around. I'd say there's no change from prior periods. We're not seeing any deterioration or improvement with either EML or with the underlying macroeconomic conditions. So I'd say same as, and we can update some more at the AGM and provide some more color then.

Got it. And the second question, just around interest income, $10 million tailwind. Given what you've seen in August, how should we think about that number if you were successful in terms of moving cash into bonds across the European part of the operation?

Yes. Good question, Tim. So in July, we had about $500,000 of interest, but we also had some headwinds from negative interest rates in euro because that was before the Eurozone improved their interest rate by 50 basis points. So just on that euro move, you're talking about you have a runway just shy of $1 million for August is the expectation. So that's how you get to that kind of $10 million plus for FY '23. It will then benefit from further interest rates if it falls out, as everybody's economic predictions are. I mean, it didn't matter who you read. They're all predicting further rate rises throughout this year. So we're optimistic about beating the $10 million. We'll see how that goes. With regard to the Eurobond, that's a wait and see because obviously, we need approval to do that. But it would be quite beneficial to the group in terms of interest income, and we'll keep working with the CBI to demonstrate why we can get that approvals. But at this point, that's not included within the $10 million, and that's an upsell opportunity if we can convince them of that.

Your next question comes from Elijah Mayr from CLSA.

Just a couple from me. Firstly, just a clarification question just on the FY '23 outlook. Just when you're referring to gross profit expected to be in line with FY '22, that's margin or gross profit dollars?

Yes. Definitely margins.

Yes. Excellent. And then just on the account management fees, in particular, the nonrecurring aspect, can you sort of maybe give a bit more color on which quarters they fell and how that fell in each quarter?

Yes. They fell into Q3 and Q4, slightly more into Q3, slightly less into Q4. I think it was maybe just under $10 million and around about $8 million, and then -- so $10 million in Q3 and $8 million in Q4 roughly. And it relates to the back book, essentially. We've got a lot inactive cards from history, and it's picking up on those. But it is a recurring revenue stream. There will be $5 million to $10 million of recurring AMF in the FY '23 year because every single day, another account is reaching 12 months of inactivity. And so it does recur continuously moving forward.

Yes. That does make sense. So the balance, removing that nonrecurring part, should -- I guess, maybe there's a little bit of growth attached to it as you enter FY '23 and beyond?

Right. Yes.

Your next question comes from Brendan Carrig from Macquarie.

Emma and Rob, I might just have a quick follow-up on the AMF fee. Can you just confirm if there is any more nonrecurring fees to come through in FY '23? Or has the back book transition or implementation now been entirely complete?

There's still a small amount of other programs still to go, but this won't be anywhere near the materiality of the FY '22 year. And they will just happen as and when we are able to convert those terms and conditions over. But it will be fairly immaterial by reference to the FY '22 nonrecurring base.

Okay. That's clear. Two more questions. So just firstly, one for you, Emma. On the strategic review, is there anything specifically that you would say is off limits? Or are you coming in with a pretty blank sheet and everything is up for review?

Thanks, Brendan. I will be taking a business-wide review. So you can expect it to be quite wide-ranging, yes. But I do want to say, it's focused on growth but also how we can adjust the operating model just to be more efficient and be aligned internally. So organizationally, just better align to what our strategy is guiding up to over the next 3 to 5 years. So I think there is a real opportunity for us to look at each and every part of the business, whether that's -- whether it's technology, our people, our processes, those vendor systems which we use or product packaging. It's really quite wide-ranging. And I think it will have both strategic and tactical elements to it.

Okay. So more of a review of any efficiency of what's already there as opposed to looking at underperforming elements of the group to sell them off or divest?

I think the results today make it very clear that the underlying business is very strong. So we do want to protect the base. I think it's a solid base from which to grow. But frankly, we also want to look at other areas we can move into. So are there product adjacencies that provide us a good opportunity to sort of exploit any gaps in the market? And we're hearing from customers that they really want to understand our product road map. They want us to be thought leaders in our respective business areas. But what else could we look at that we're not already exposed to? So I think there's a great opportunity. And it's kind of my background to look at strategy over a 3- to 5-year term and just be very clear about what sort of share of the market you're looking to penetrate and then how you're going to organize effectively to execute.