OFX Group Limited ($OFX)

Thank you for standing by, and welcome to the OFX Group Limited FY '26 Results. [Operator Instructions] There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Skander Malcolm, CEO and Managing Director. Please go ahead.

Thank you, Ashley, and thank you, everyone, for joining the call. As Ashley mentioned, I'm joined by James Georgeson, our CFO; Matt Gregorowski from Sodali & Co., who leads our Investor Relations program. James and I will take you through the pages and then there will be time for Q&A. The presentation will cover 4 sections: An update on the strategic review, our performance update and the 2.0 transition; financials; and the fiscal year '27 outlook; then we'll do Q&A. So let's move to Slide 4 in the pack. I want to start the presentation by being focused on our mission, which is simpler financial operations helping businesses thrive globally. I start here because we must be very clear with our investors, employees and clients about what we're trying to do. It may sound obvious, but it matters a great deal as we navigate the transition from a company that did one job very well for both corporate and consumer clients, making cross-border payments, to becoming a company that does several jobs very well for our corporate clients to make their lives simpler and, in turn, help them thrive. By year-end, we will also have launched our new value proposition for consumer clients on the new client platform, and it, too, will make their lives simpler and easier. We've laid out this strategy before, and I'll revisit it today to ensure we are all aligned on what guides our investments, our decisions and our pacing. So why this mission? It's built on a huge opportunity, around USD 66 billion of revenues, and that's just for corporate SMEs, and the fact that we're well placed to capture it. Firstly, by expanding the number of jobs we can do for our corporate clients, we nearly double our TAM from USD 34 billion to USD 66 billion. Secondly, we often get questions from investors about competition. But the research we conducted and the evidence we see is that most of this opportunity sits with SMEs who work with banks. Depending on the market, the research suggested that between 77% and 87% of clients who need the products and services we provide are trying to get them from banks. And yes, there are nonbank competitors, but the real prize is still largely with the banks, who are less nimble and less customer-centric. And we believe we can be sufficiently differentiated from the nonbank competitors to take a reasonable share. Thirdly, the research showed that about 3 and 4 of these clients are willing to switch away from banks for the right combination of products and services, and that hugely encourages us to invest and compete. Finally, if we do our job well and we win these clients, the extra revenue available per client is material, over 40% versus our existing model, which makes the return significantly more attractive. So in summary, whilst our mission and strategy have evolved, our target of strong and sustainable growth has not, and we found a faster and more effective way to deliver it. Moving to Slide 5. This page brings our mission to life, showing how OFX 2.0 as a single modern platform at the center of our target corporate clients' financial operations. It will also support our consumer clients by year-end. At the core is a multicurrency digital wallet. And around that, clients can make FX payments to over 170 countries, manage domestic and international spend through cards, automated accounts payable and integrate them directly with accounting software as well as manage FX risk through forwards and limit orders. The important point is that this is not a collection of point solutions. It's an integrated platform designed to solve multiple jobs for clients in one place digitally and at scale, while being supported by OFX's global licensing, risk compliance and service capabilities. By expanding from payments into the workflows around payments, we increase client engagement, improve retention and create a much larger and more attractive revenue opportunity per client over time. This platform is the foundation for OFX 2.0, and it underpins the performance and growth outcomes I'll discuss later. Moving to Slide 6. We announced on February 5 that we're undertaking a strategic review, and we did that for a few reasons. The first and most obvious is that we feel the company is profoundly undervalued. The second is that perhaps, as a result of this, we received increasing inbound inorganic interest. So we determined that the best way to manage this was through a process that was rigorous and broad and gave us full control. Thirdly, we had more evidence building on the execution of our mission. So management could share with directors a very contemporary view of what it believes is possible via our annual plan to directors to consider. The review itself naturally has been very comprehensive, and we have completed a lot of analysis, talked to a number of parties and consulted with our shareholders. We continue to manage the business performance in the meantime, limiting those directly involved to a small group internally. Progress has been healthy, and we expect to conclude the review shortly. As soon as it's concluded, we will share our recommendation. Now let's switch our attention to performance and an update on progress against the 2.0 transition. Moving to Slide 8. The transition to 2.0 for our Corporate segment is now largely complete, and it has been executed within budget and to the time frames we set ourselves thus far. In the first quarter, we launched our fully featured new platform in Canada and across EMEA and upgraded the experience for Australian new clients to the fully featured platform. We continue to migrate small cohorts of Australian corporate clients to the new platform to refine our migration approach. In the second quarter, we started migrating Canadian corporate clients and continue to roll out new features and services globally. In the third quarter, we migrated around 40% of all of our corporate client migration globally as well as launching in the U.S. with our partner bank. So this was an especially disruptive period as we've previously mentioned. In the fourth quarter, we completed more migrations, finishing the year with over 90% of all of our corporate clients and major markets on the new platform. We delayed the launches in New Zealand and Singapore to the first quarter of fiscal year '27 to ensure that they have the refined client experience based on learnings in our other markets. New Zealand launched last week. It was an enormous effort across all parts of the company and in every part of the world. I can honestly say it has been the best platform build client migration I have been part of 30-plus years of financial services, being on time, on budget with the vast majority of clients and revenue retained, upgraded security, a scalable infrastructure already operating and a complete overhaul of the go-to-market program already yielding very healthy growth in the new value proposition. We are immensely proud of this. Besides launching corporate migrations in New Zealand and Singapore in fiscal year '27, we are excited to introduce our new value proposition to our consumer portfolio and commence migration of our existing consumer clients onto the NCP in the fourth quarter of fiscal year '27. Moving to Slide 9. We are pleased with the client reaction to the NCP. On the left-hand side of this page are some of the data points that describe the fact that most of the heavy lifting for the transition of our corporate portfolio on to NCP is complete. As I mentioned previously, over 90% of our corporate clients in major markets have now migrated, and the 23,000-plus active corporate clients on the NCP is an increase of 70% versus the first half. The scalability of the platform is already evident with further costs growing at a far smaller rate than the transactions or clients being added. What really encourages us, though, is the growth in multiproduct adoption. In fourth quarter, it grew to 8.4%, up from 4.5% in the third quarter. This is as a result of both more existing clients taking on more products but also that new clients are adopting multiple products at a very healthy rate. In the fourth quarter, for example, over 27% of all new clients are multi-product clients already. In Australia, where the new launch and the migrations happened earliest, we are up to 13% of all clients being multiproduct. On the right-hand side of the page, you can see that we have a very exciting and busy program ahead for our clients, incorporating more AI to simplify and automate their workflows, more automation to simplify and accelerate onboarding, more security to protect our clients' funds and data and a wonderful consumer client proposition. As I mentioned in the first half, 2 years ago, our technology team had 8 large teams doing 1 deployment every 2 weeks, which equates to about 26 releases a year. Today, we have 18 small to medium squads delivering over 200 deployments per week, and with the adoption of AI, we've seen even more productive technology output. We believe the speed and quality of new features and services as well as a much more settled and refined go-to-market program can translate to more new trading clients in corporate and more productive sales team. In April, for example, new trading clients were up 20% versus the prior corresponding period, and May is trending even better than that. Moving to Slide 10. Trading has been challenging, but we have worked very hard to manage our financial levers to protect the franchise during this investment phase of the transition to 2.0. We delivered net operating income of $196.6 million and underlying EBITDA of $25.2 million. This was a disappointing outcome and certainly below our expectations, but I'll walk through some of the reasons on the next slide. Our NOI margin was 51 basis points, around 5 basis points lower than fiscal year '25, primarily driven by lower margins from a mix shift away from forward transactions to spot transactions in the second half in our Corporate business and the growth in same currency transactions in the overall mix, which are lower margin. Historically, we have seen fewer forwards when the market conditions are uncertain. As this uncertainty recedes, we will work hard with clients to protect their valuable earnings through more hedging and therefore, generate more forward revenue as part of the mix. Our business continues to generate healthy levels of cash with net cash held for own use of $49.6 million, up versus the first half and slightly down versus prior corresponding period. James will cover the cash and cash generation later. In terms of key client metrics, the average revenue per client was slightly down at $4,000, reflecting weaker FX revenue. Non-FX revenue continues to grow at a steady rate, finishing with $1.8 million for the year. And wallet balances held by clients are growing at a very healthy rate, finishing the year at nearly $233 million. Moving to Slide 11. It was a difficult year with business confidence not seeing these kinds of lows since the COVID period. Geopolitical events, economic strains, volatile interest rate outlook, supply chain disruptions, inflation, many other factors have made our clients adjust their growth agendas. And with that, we've seen fewer transactions and fewer forward contracts. We've actively discussed this with our clients in every region, and the message we hear is very consistent: We need to manage this period carefully. The business confidence indices in every major market, perhaps with the exception of the U.S., reflect this. A side effect of this enduring uncertainty is that somewhat adversely, volatility is actually down. Markets and clients are pricing in these factors. It is extraordinary to see that compared to 2 years ago, volatility, as we measure it, has halved since fiscal year '26, considering what's happening in the world and its economies. In our portfolio, it has meant that average transaction values, or ATVs, remain very subdued versus our long-term mean, and cross-currency transactions have declined year-on-year at the highest rate we've seen. Moving to Slide 12. We're very focused on reversing the trend of declining corporate active client portfolio, and we believe we can now return to growth in fiscal year '27. Overall, corporate active clients, including online sellers, fell by around 2,000 active clients over the year or just under 7%. However, there are some very clear reasons for this decline, and we see it as materially changing in fiscal year '27. Firstly, the clients that left were former Firma traders and the discontinued OLS portfolio that we previously talked about contributed to over 99% of these net lapsed clients. In some respects, this is mechanical as we don't add new clients to those portfolios. But we do expect this to change in fiscal year '27. The Firma portfolio has lost 1/3 fewer clients in fiscal year '26 versus fiscal year '25, reflecting the 12-month lag effect from those departures. As a result, we expect a lower impact this year. We also saw a large portion of the online sellers portfolio lapse when we migrated them without replacing the e-commerce feature that they were used to, but that runoff has now passed its peak. Page break Meanwhile, the core OFX portfolio is actually flat, and we're seeing 2 factors that give us confidence that we'll grow in fiscal year '27. Firstly, we're growing new trading clients faster. In fiscal year '26, NTCs were up 8% versus fiscal year '25. And as I mentioned, in April, they were up 20% versus prior corresponding period as our new go-to-market program starts to build traction. Secondly, as we see more clients become multiproduct clients, we expect to see lapse rates improve as, by definition, they're more actively engaged on the platform. We've seen strong client uptake of our new products and services. Card revenues, subscriptions and Pay by Card feature all grew at a healthy rate. Fourth quarter was seasonally soft here in Australia, but we saw non-FX revenue jump 34% between February and March, and I'll cover this in more detail shortly. The ARPC slightly declining is because the FX revenue has declined. Within the overall ARPC, new clients ARPC has declined substantially, whilst for existing clients, it was steady. The decline in new clients ARPC is, again, due to lower FX revenue, and we're adjusting our go-to-market to reverse that trend in fiscal year '27 as we build towards our target, with at least 10% of that coming from non-FX revenues. Turning to Slide 13. This page will be familiar to our longer-term investors. It breaks out the key drivers of revenue for our 2 largest portfolios. In corporate, as I've mentioned, cross-currency ATVs have been pretty steady, down just over 4% over the year but remain well below the long-term mean. Historically, they are stronger or larger during more positive economic times. So we do not expect them to rise in fiscal year '27, but they may in the medium term. Similarly, cross-currency transactions were down versus prior corresponding period, but up versus fiscal year '24 on fewer active clients, so below expectations, but not indicative of disengaged clients. A combination of fewer transactions on slightly lower ATVs meant turnover was down 6.4%, and the margin was slightly down in the second half, particularly as previously mentioned. As a result, overall revenue dipped by just under 10% versus the prior corresponding period, but that was moderated somewhat by growth in non-FX revenue and same-currency rate. In consumer, it was the dip in transactions as a result of fewer active clients and lower volatility that drove a 13.8% revenue decline. Historically, we've seen a correlation between trading volumes and reduced volatility, and that is what's happened again here in fiscal year '26. However, we feel confident we can stabilize this in fiscal year '27 as we start to invest in this segment again and the last 2 quarters were steady in consumer quarter-on-quarter. Turning to Slide 14. The non-FX revenue is growing well and is set to become a meaningful contributor to our overall revenue in fiscal year '27 and beyond. As you can see, non-FX revenue in the quarter has almost tripled over the last 4 quarters, albeit off a low base. It is still mostly from Australian clients. They have had access to the platform for the longest. Growth in fourth quarter was a bit slower because many of our Australian clients are on vacation in January. But as I mentioned previously, it bounced back strongly in March. Overall, card revenue and subscription revenue continued to perform well, and the Pay by Card we transitioned in second quarter has started to grow back to the levels we have seen previously. Unsurprisingly, the percentage of clients who hold balances is also climbing fast. And in the fourth quarter, we earned approximately $1 million from those, which is not included in the non-FX revenues we reported separately. More client usage and increasing interest rates will be a tailwind on that revenue in fiscal year '27. This is supported by the growth in card and subscription clients and clients with interest-bearing wallet balances in the second half versus the first half, as you can see along the bottom of the slide. Turning to Slide 15. The dynamics of the client engagement with the platform is also very encouraging. As I mentioned, client balances are growing well, and we will see the contribution from regions outside Australia being a more significant contributor in fiscal year '27. We are seeing some variation in ARPC by region. That is teaching us valuable lessons about what works well and what needs to be pivoted. We've also simplified and standardized our go-to-market in each region as part of the reorganization that took effect in October of last year, and that will flow into better outcomes for fiscal year '27. And finally, the multiproduct adoption is helping us retain clients. In Australia, the net lapse rate improved substantially throughout the year. And as I mentioned at the 4Q trading update, we saw 6 of the 10 weeks in the fourth quarter as flat or growing active clients in Australia. Now let me hand over to James to walk you through the financials.

Thank you, Skander, and good morning, everyone. It's great to be here presenting the results for OFX for the full year '26 performance year. Moving to Slide 17. Our financial results reflect a period of softer trading, coupled with the deliberate increase in investment to accelerate our transition to the OFX 2.0. Our transition is progressing well, but the results should be seen against the backdrop of focused effort on building out our platform and migrating clients, which has understandably had an impact on trading activity. Fee and trading income was down 8.1% to $203.9 million, reflecting the ongoing macroeconomic uncertainty that continues to dampen business confidence. This softness was seen across most regions with APAC down 7.6% and North America down 10.5% and EMEA down 9.7%. North America and EMEA corporate did feel the impact from client migrations, which were executed through the second half of the year, as Skander just mentioned. We've seen lower volumes and lower average deal sizes over the last 12 to 18 months, which we believe is cyclical and reflects the macroeconomic environment and the pressure on small to medium-sized businesses. For example, we've seen our forward book reduced by about 15% across the year as clients are more cautious and less confident about the future. We do expect it to return to more normal levels in the future. Our net operating income, or NOI, was $196.6 million, which is down 8.5% versus the prior period. The NOI margin was down 5 basis points or down 2 basis points, excluding higher same currency flows. The 2 basis point decline was largely a result of lower corporate forward volumes, which I've just mentioned, along with pricing and higher value consumer transfers. Pleasingly, we've started to see contribution from non-FX revenue, albeit it had only a small impact in full year '26. Our month-on-month growth rates in the second half point to a healthy contribution for full year '27. And in addition, interest revenue will continue to grow as client wallet balances also grow. However, as we invest for growth, underlying operating expenses increased by 9.1% to $171.5 million, which I'll talk through in more detail on Slide 19. This planned investment meant cost uplift, combined with our softer trading environment, resulted in an underlying EBITDA of $25.2 million, down from $57.7 million in full year '25. Once depreciation and amortization, interest and taxes are taken into account, we reported an underlying NPAT of $2.3 million for the year and a statutory loss of $0.4 million, including one-off items. We have an effective tax gain as our R&D credits accumulated in the period can be carried forward and used in the future. As profitability returns, the tax credits will be able to be applied and thereafter, the effective tax rate should trend more back to our normal levels through full year '27 and full year '28. Our balance sheet remains solid with net cash held at $71.6 million at the end of the year. As you can see on Slide 18, we have shown the main drivers of the reduction in EBITDA in full year '26. Just over half of the movement is related to the reduction in NOI, as I've just covered, and the majority of the rest of the reduction is related to increased investment and cost to deliver NCP, support client migration and to drive our go-to-market activities. Outside of those 2 factors, there have been smaller impacts on salary inflation and higher bad debts, which is partly offset by lower performance-related incentive payments and product savings. Moving to Slide 19. You can see the composition of our increased operating expenses. We are making targeted investments in cost uplifts to deliver our 2.0 strategy to accelerate growth. Whilst operating expenses are up 9.1%, excluding the increase in bad debts, which we believe is more one-off in nature, operating expenses are up a more modest 6.5%, and we finished the year below the lower end of our prior guidance range. Employment expenses, our largest cost category, was up 6.3% versus the prior corresponding period. This is driven by wage inflation and additional roles, primarily in technology, marketing and frontline sales roles to execute our growth strategy. Promotion expenses increased by 10.3% as we supported the accelerated launch of NCP in Canada and EMEA and which helped drive the 8.3% growth in corporate NTCs. We have invested in account-based marketing, and our new websites are now live for our major regions. Bad and doubtful debts were $6.3 million for the full year. Whilst this is a sizable increase on prior periods, it relates to a very small number of incidents. We are actively pursuing recoveries and have strengthened our risk settings and controls to manage this closely. We did finish the year with slightly improved performance in the second half, albeit the half was negatively impacted by some increased phishing activity, which did lead to some unexpected losses in the second half. Longer term, with more clients on NTC, these risk controls will improve further as the platform provides us with better technology and more optionality to manage risk settings at an account level. Performance-related costs and commission expenses were lower in full year '26, reflecting the underperformance on revenue. We would expect these to return to more normal levels in full year '27, and hence, we would expect a modest increase in the cost base this coming year. Other than for the normalization of these items, operating expenses are expected to remain broadly flat as we deliver planned productivity savings through the organization, particularly in the corporate functions. Absolute cost growth is expected to be limited to inflation in full year '27, including the expected increase in performance-related costs and commissions. Turning to Slide 20. As discussed previously, we have been investing to create a path to growth and better long-term performance. At the start of full year '26, we committed to incremental cost in full year '26 of between $16 million and $24 million OpEx and approximately $5 million in additional CapEx. As you can see, we spent less than the expected and broadly in line with our prior year. The lower spend in full year '26 is for 2 main reasons. Firstly, our delivery is expecting -- is- executing better than expected as we're delivering the same road map with less resources. And secondly, the lower revenue performance reduced short-term performance outcomes, which have been factored into our guidance below. Moving to Slide 21. Our balance sheet remains strong with good levels of cash to support our growth ambitions. The business continues to demonstrate good cash generation with an operating cash conversion rate of over 100%. Our underlying EBITDA of $25.2 million converted to a net cash flow from operating activities of $26.7 million, supported by the timing of the collection of receivables. Our net cash held position remained strong at $71.6 million. After deducting our collateral and cash back guarantees, the net available cash position of $49.6 million was down only $1.4 million across the year. This small reduction in net available cash reflects the operating cash conversion offset by the investment in the 2.0 strategy and the debt and share buyback payments, which were predominantly paid in the first half. The remaining debt now stands at $18 million. Given the announcement of the strategic review, the share buyback was paused with 2.3 million shares for $1.9 million bought back predominantly in the first half of the year. Our strong balance sheet and cash flow provides the foundation for us to invest in our accelerated growth strategy while continuing to look for productivity wherever possible. I'll now hand back to Skander to take you through our full year '27 outlook.

Thank you, James, and that was an excellent explanation. Let's move to Slide 23 to cover our outlook. I'm very mindful that the economic and geopolitical backdrop is very uncertain and, to some extent, that has shaped what we believe is a reasonable view of what we can deliver in fiscal year '27 and beyond. However, there are several factors that are within our control, and we've listed them on the left-hand side. Put simply, the foundations are in place. The heavy lifting for our corporate migrations have largely been navigated, and we're set to grow. We see the outcomes as being positive, and specifically, we know we can grow corporate active clients, while we expect cross-currency ATVs to remain steady. As active clients grow, so do transaction volumes, which translates into growth in corporate revenue. We see a path to stabilizing consumer revenue through refocusing on the segment for the first time in 4-plus years, including reallocating some marketing budget to it and bringing clients on to the NCP. And enterprise has been growing well year-over-year, and we see that continuing. We know that we can control costs, and we've put in place new controls to reduce bad debt. A slight increase in operating expenses includes a rebasing of performance incentives, but as with fiscal year '26, that would be dependent on growing the top line. The anticipated increase in NOI compare -- combined with strong cost control sees us targeting a return to delivering positive operating leverage in fiscal year '27. Plus, we'll continue to manage CapEx well as we have over the last 3 years. We retain our target of 15% NOI growth, underlying EBITDA margins of around 30%, but this will come over the medium term as we cycle out of the investment phase. Actually, we'll keep you updated of our progress subject to the outcome of the strategic review process. Thank you, and I'll now pass back to Ashley to handle the Q&A.

Thank you. [Operator Instructions] Your first question today comes from Michael James Trott with MST Financial.

I just want to start with the strategic review. Can you give us an idea of how many credible parties are still within the, I guess, the process moving forward now? And if not, are you able to indicate whether any have dropped off since the last update from the Q4 trading update?

Thanks, Michael. And obviously, it's a very sensitive process. So all we can tell you is there are still multiple credible parties that we're working with.

Okay. That's fair enough. And then moving on to, I guess, the AI developments that you've been kind of referring to, I think it was on Slide 19. Just like a two-pronged question with this on how these are being rolled out within the new client platform across the onboarding within the corporate segment. But then also, is it more of like an internal use? Or are we actually getting to see this on, like, the user interface as well? And can you just give us like a better idea of how these agents are being deployed on both sides of the business, I guess?

Yes, sure. So firstly, in terms of onboarding. One of the things that we've introduced in terms of an agent performing an activity that our onboarding team used to perform was basically doing a lot of the, kind of, KYC data collection in advance, so being able to confirm the customer's whereabouts. So you can now go out and obviously check all the online references. It can check the Companies House in the U.K. and all those types of things, which normally will take an individual, a person, to go collate and it, and that all gets summarized in seconds so that the agent is honing in on the things that don't make sense. And obviously, again, the agent can, over time, learn the areas that it sees as being worthy of further investigation. So that's already in our onboarding teams and it's already operating. In terms of the second part of your question, we have several agents that we're testing that will be available for clients in due course. And they're covering a range of activities that you would expect clients to be covering for themselves, like how do I automate my workflows? How do I think about FX hedging? How do I want to think about the best time to be paying invoices and all those types of activities that typically a user would be performing for their business. Now clearly, we want to make sure that they are, what I would call, industrial strength before we expose them to clients. And so we're still working our way through them. But I have to say the teams have really accelerated development of this, and we're super excited to be able to launch that soon.

Yes. So that would be largely this FY '27 year and predominantly then FY '28 for the wider rollout, I guess.

Yes.

Yes. And then, I guess, on the same point, just to clarify with the reiterance of your longer-term guidance. Are you still predominantly targeting those -- the NOI growth and the underlying EBITDA margins for FY '28? Or is it more now an acceleration through to FY '29? Is that how we should kind of be viewing it?

Yes. The challenge with FY '28 is that the economic assumptions are so difficult to predict. So we would still love to do it in fiscal year '28, but we're not specifying fiscal year '28. All the fundamentals which are going to drive that 15% top line and all of the fundamentals that drive the 30% margin, we're working very, very hard on, but it would be difficult for us to confirm it for fiscal year '28 at this point, just given the uncertain economic outlook.

Yes. And then one last one just on the enterprise revenue, if I can. Given it has had such strong momentum in these past 3 years and it's, what now, 20% -- greater than 20% growth, I guess for the next year and/or over into the longer-term guidance as well, are you still targeting in those like high teens, 20% growth going on? Or are you suspecting that will subdue over time and more normalize to, say, the lower end of the teens?

No, we would expect that to remain in the teens. Clearly, our focus -- our heavy focus at the platform level has been corporate and now it's consumer. So we're not providing kind of more product to our enterprise clients or our sales teams at this point. And therefore, you wouldn't expect there to be substantial growth beyond the mid-teens. That said, we're finding that the clients organic growth and the usage of the products that we already provide to be very healthy. And there's definitely quite a lot of appetite for us to be rolling out MCP or enterprise clients in due course, but that's not a fiscal year '27 goal.

[Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Malcolm for closing remarks.

Thanks, Ashley, and thanks, everyone, for dialing in and look forward to connecting with you individually over the next few days. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.