Tyro Payments Limited (TYR) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to Tyro Payments Limited Financial Year '21 Full Year Results Briefing.[Operator Instructions] I would now like to hand the conference over to Mr. Robbie Cooke, Managing Director and CEO. Please go ahead.

Thanks. Good morning, and welcome, everybody, to Tyro's full year results call. I'm joined by Prav Pala, our CFO, who will be presenting with me this morning. Our plan today is to focus on our published full year results for FY '21 and our key accomplishments in the year. We'll also provide an update on our trading in July and August, and we'll talk about some of the key areas of focus for FY '22 and beyond. Prav and I will spend about 40 minutes running through our results, and then we'll take questions, and we'll talk to the slide pack circulated earlier today, which is also available on our website. And just for noting, a recording that this morning's call will be posted on the Investors section of our site shortly after this session to ensure those who are not able to dial in by can listen at their convenience. So with the formalities out of the way, we'll get started. And if you could turn to Slide 2 in the pack, please. But before I talk about our results, I just wanted to reinforce what Tyro stands for and our position in the market. We're a technology-focused and values-driven company. We provide more than 58,000 Australian merchants with payment solutions and complementary banking products, largely developed on our core proprietary technology platform. We're creating an integrated ecosystem with payment at its core, enhanced by value-adding features and products designed to attract new merchants and retain existing ones. The majority of our customers are small and medium-sized enterprises operating in the core verticals of health, hospitality and retail. Our purpose-built solutions have been designed with these merchants' needs and preferences in mind. Turning to Slide 3. And just looking at some of the major accomplishments the team has achieved in the year. As I'm sure you know, we have strong growth ambitions and notwithstanding the disruption that COVID caused us and many of our merchants, we continue to successfully execute against plan for the year. There are a number of key callouts I'd like to highlight. Firstly, completing the transformational Bendigo Bank Alliance, which added more than 18,000 new merchants to our portfolio and around $5 billion in annualized transaction value. Also acquiring health fintech, Medipass, to continue building out our health vertical. Continuing to invest in our Tyro Connect integration hub, which, amongst other things, is providing unique data insights to some of our merchants on the Connect platform. Starting to provide in-app payment solution for the leading tap, order and pay platform, me&u, using our e-commerce capabilities. And most significantly, lifting the transactions executed through our platform by 26% in what has been a challenged year to hit an all-time high of $25.5 billion and increasing our merchant numbers by more than 80%, demonstrating the power of our solution in the market. Notwithstanding these impressive gross stats, we still only have a 3.8% share of the total addressable card-present and card-not-present market. As can be seen from Slide 4 of the pack, our 5-year CAGR of nearly 25% is an impressive 5x above system growth. Turning now to Slides 5 and 6. We have a high conviction in our ability to continue to leverage our platform to maintain and expand our growth trajectory. There are 7 core areas that we believe will drive that growth. Firstly, our focus on our core verticals and providing built-for-purpose payment tech tailored for Australian merchants in those verticals. We have demonstrated the traction here consistently over the years. But just looking at our performance since our IPO in December 2019, our transaction value CAGR is 29% and our merchant count CAGR is 59%. We have every expectation this dynamic continues. Secondly, we are able to drive economies of sales and are demonstrating the operating leverage in our business, which will underpin continued EBITDA growth in the forward years. Delivering strategic partnerships, only possible with a proprietary platform that can scale is another core area for growth. We've developed unique IP in our Bendigo Alliance and have a keenness to explore opportunities to partner with others where we can access step changes in segment share. It's our demonstrated capability to make strategic investments to enhance solutions for our merchants, and this remains an area of focus. Examples here are our investments in me&u and Paypa Plane and our acquisition of Medipass. On Slide 5 (sic) [ Slide 6 ], we highlight our amazing e-commerce offering and the opportunity to expand, particularly working with ISVs or independent software vendors such as me&u, which are seen as opportunities to gain scale more quickly. The sixth pillar for growth is cross-selling our ancillary products to our merchant banks, such as our merchant cash advance loans, which are a perfect product for many SMEs. And finally, adding new core verticals. This is where the Tyro Go dongle has a key role to play. It opens up the trade vertical, provides a banking solution for larger format retail and provides a fit-for-purpose solution for micro merchants. Turning now to Slide 7, and looking at our financial results at a high level. And Prav will spend a bit more time on this in a moment. It continue to be a volatile year with trading conditions on many for our merchants remaining difficult with unpredictable and rolling COVID lockdowns across the country. Given this environment and as was the case last year, we maintained our focus on actions and initiatives designed to assist merchants in navigating the COVID impacts. In addition, we had to traverse the challenge of the terminal connectivity incident in January, along with the distraction that inevitably comes with undertaking a major transformational projects such as our alliance with Bendigo Bank, which was a major technical and operational exercise for the team. But despite these headwinds, we're proud to have processed a record $25.5 billion in transactions for our merchants and have delivered record gross profit and a record EBITDA result. In summary, our transaction values were up 26%. Revenue was up over 13% at $238.5 million, influenced by a COVID-impacted card mix shift, which I'll discuss in more detail shortly. Gross profit was up 28% to $119.4 million. EBITDA adjusted for expenses associated with the terminal connectivity event and transaction costs with a positive $14.2 million compared with a $4.4 million loss in the prior year. Operating leverage was demonstrated in our results with operating expenses increasing a well-controlled 7.9% and our EBITDA margin to be circa 12% in the reporting period. And finally, our merchant numbers are up, as I mentioned, 81%, with more than 58,000 merchants choosing to work with us. Turning now to Slide 15, and then providing some more color around our payment operations. As I've mentioned, the value of transactions processed in the year lifted 26% to $25.5 billion, notwithstanding the challenges in the year. The addition of the Bendigo Alliance for the month of June added approximately $440 million to this transaction value amount. This growth was assisted by a 23% increase in merchants selecting Tyro as their payments provider, which excludes the 18,500 Bendigo merchants. With the Bendigo merchants, we ended the year with 58,186 active merchants on the books to be precise. Merchants in our 3 core verticles, health, hospitality and retail represented 85% of our merchants by count and made up 91% of our transaction value for the year. Our strongest transaction value growth was delivered in our hospitality vertical at 34%, with retail going 18%, whilst our health vertical improved from a negative position at the end of the first half to 13% growth. Our largest states by transaction value contributed to the group with New South Wales at 37%, followed by Queensland at 22% and Victoria at 20%. All states other than Victoria experienced double-digit transaction value growth. Queensland and Western Australia was strongest at 39% and 38%, respectively, followed by South Australia at 31% and then New South Wales was 20%. New merchant sign-ups attracted approximately 1,000 new applications per month on average with an all-time record month in May with 1,482 applications. Our e-commerce solutions grew strongly, albeit from a low base. This solution enables merchants to work with us, both for their in-store and online transactions. This solution simplifies the day to day for our merchants by providing one point of contact, together with a single settlement and reconciliation, removing the need to manage multiple payment providers. While still very much a work in progress at 30 June, transaction value process had increased 536% to $70 million. While transaction values were up 26%, our payment revenue was only up 13.7% to $230.2 million. Now this reflected a change in our card mix and arose from a significant drop in international credit card usage due to COVID's impact and also an increase in debit card usage. International credit cards attract significantly higher merchant service fees, and a mix shift away from transactions by these cards negatively impacts our revenue. These international cards, however, carry significantly higher interchange and scheme fee costs, and that's -- a mix shift away from transaction by international cards costly impacts our profits. International credit cards represented 0.73% of our transaction value of '21 compared to 3.2% in FY '20. The converse applies in relation to debit card. In the period, we processed more lower merchant service fee debit card transaction, which attract lower scheme and interchange fees, and as such have a more positive profit impact. Debit cards represented 61% of our transaction value in FY '21 compared with 58% in FY '20. Prav will talk to our merchant service fee and merchant acquiring fees later, but of note, this change in card mix positively impacted our payment operations gross profit, which lifted 28.6% to $110.8 million. We're close to 105,000 terminals now in the field. We remain the fifth largest merchant acquiring bank in the market, sitting ever closer to the 4 major banks. Our focus on brand and retention continued to shine through in the year. Our prompted brand lenders has lifted to 20%, up impressively from 14% a year ago. And our customer retention rates remained very strong with customer churn measured by transaction value at 8.7% compared to 8% a year ago, and our churn rate metrics by customer number reduced from 11.7% a year ago to 11.3% this year. When talking to you about half year results back in February, I did say our key priority in the second half was to do all that we could to rebuild trust with those of our merchants who are impacted by the connectivity issue, and that has been the reality. Our efforts here have been effective. In particular, the absence of any noticeable increase in merchant churn, together with the application numbers setting record highs, are very pleasing outcome to this effort. The event did negatively impact our Net Promoter Score, which was a positive 43 before the event. Our NPS fell at the peak of the event to a low of negative 25%. However, our NPS has improved every month since January, and we ended the year at a positive 21, and it's currently sitting at a positive 27. Our remediation program for those merchants financially impacted by the event is making strong progress, and we are rapidly resolving all make good claims. All financially impacted merchants were invited to register with us to enable remediation claims to be assessed. As of 23 August, we have settled claims with approximately 85% of those merchants who have sought remediation, and the balance are being progressed at pace. The remediation process remains available for claims of financially impacted merchants, and it provides a far and straightforward assessment aimed at resolution without the cost, delay and uncertainty inherent in legal precedent. Clearly, this event did not sit comfortably with us. And notwithstanding 18 years of operation with no similar issues, we are building a fail-over solution that will see us provide all our merchants with a dongle solution in combination with their standard terminals as an extra level of redundancy. This is an industry-first moment. Turning now to Slide 19 and just talk a little bit about our banking products. Now although our banking operations still only represents a small part of our overall business, it presents an alternative to the major banks and has strong prospects for continued growth. Our products are focused on providing our customers with innovative ways to meet their transactional banking and unsecured lending needs. Our Tyro Bank Account is a fee-free interest-earning transaction account. Around 4,600 Tyro merchants were actively using the Tyro Bank Account, up from approximately 3,600 a year ago, with $72.5 million on deposit at the end of the year, up from $49.7 million at the same time last year. Our Term Deposit offering, which is available through the Tyro app, totaled about $3 million in term deposits at 30 June, up from $800,000 a year back. Our cash flow-based unsecured loan product is designed to assist SMEs in growing their business. Our business loan is repaid from a merchant-selected predetermined percentage of card transaction volume as generated by the individual business and is offered on the basis of an upfront fee. The innovative feature of this product is that repayment cycle up or down in accordance with the merchant's daily value cash transaction volumes. prior to the offset -- onset of COVID, our loan application process is streamlined, giving all Tyro merchants the ability to check their eligibility for a loan through the Tyro app. If eligibility was not automatically satisfied through the app, and the annual [indiscernible] for information and assessing the application with the benefit of this data. Post COVID and from 1 April 2020, our assessment process is adjusted making use of our manual assessment part rather than our automated functionality. This proactive step was implemented to ensure our credit risk in the COVID operating environment did not exceed our internal risk appetite. We returned to our automated processes in February this year. As expected, the decision to adjust the credit assessment process saw originations fall sharply in that manual assessment period. Originations for the end of January 2021 totaled $3.2 million compared to $43.8 million in the same period in the prior year. Since returning to the automated process in February, we've averaged $4.5 million in originations per month and achieved a record $8.1 million in originations in May. The team managed the risk within the portfolio closely over the period with lending losses to origination sitting at 2.7%, equating to $0.7 million in the year compared with $1.1 million in the prior year. The average loan size in the year was around $35,000 compared to $32,000 a year ago with an average length of 6 months -- or 6.5 months, slightly up from March years' average, which is just under 6 months. I'll now hand over to Prav, who's got to step you through our financial performance in more detail, and then I'll return to discuss our outlook. Thanks, Prav.

Thanks, Robbie, for that business update. FY '21 had a number of achievements. And from a financial perspective, I'd like you to take away 3 themes: firstly, the execution of our growth strategy; secondly, the demonstration of operating leverage with scale; and finally, our capital position. Tyro is presenting its results for the first time as a group this year following the acquisition of Medipass and the alliance at Bendigo Bank. If you could turn to Slide 22, and I'll start with the financial performance for FY '21. In reviewing the performance, I recognize all businesses saw significant volatility in both FY '20 and FY '21. Our weekly transaction value update to the market was not only an indicator of the health of the Tyro business, but an insight into the overall SME sector. While I will talk about the FY '21 metrics where appropriate, it would be useful to review a 2-year CAGR to highlight the underlying business performance. We were already in the first national lockdown since we started the year, rebounding from our historical growth of negative 38% in April 2020. The recovery was swift and strong, and we processed $25.5 billion in transaction value for FY '21, a growth of 26% to the comparative period. Our 2-year CAGR on transaction value was 20.5%, which is strong given significant COVID lockdowns in both FY '20 and FY '21, and it compares favorably to a 5-year CAGR of 24%. Breaking down our transaction value by quarters. Quarter 1 began to show a recovery compared to pcp, although dampened by the start of the extended Victorian lockdown from 7th of July. Victoria accounted for approximately 24% of our total transaction value at that time. Quarter 2 grew 14% to pcp as lockdowns across the nation other than Victoria eased in people ahead returning to major cities. Quarter 3 continue to improve compared to normal pre-COVID qauretr 3 in FY '20, we grew 19%, notwithstanding the January terminal incident. And quarter 4 had an average growth of 85% to pcp, combining both tailwinds of recovery and recycling over the softer quarter 4 of FY '20. Our gross profit grew 28% to $119.4 million, slightly ahead of the transaction value growth. Again, this represented a 2-year CAGR of 20%, which is almost back to our 5-year CAGR of 21%. The gross profit metric is the main indicator of our business growth as revenue shifts with the underlying card mix and its associated transaction costs like scheme and interchange fees. I spoke in detail about the impacts of card mix last year where a significant change in the card mix in quarter 4 of FY '20 lowered top line revenue but improved gross profit. The run rate of this card mix has persisted through the whole of FY '21. International borders effectively remained closed, and premium and commercial cards did not materially come back into play. Debit card usage, therefore, continued to dominate asset competition by schemes for this card category, further lowering the underlying direct costs and driving up our transactional profitability. I will provide more analysis on this on the next slide. However, as an overview, transaction value grew by 26%, with more than 60% of the mix being debit cards for the full year. Gross revenue and payments grew by 13.7%, contributing an additional $27 million while the underlying group direct costs grew only by 2.3%, increasing $2.7 million. The net FY '21 uplift from payments was $24 million. Banking income grew by $1.4 million, largely driven by fair value adjustments to the loan portfolio from FY '20. Although small, our loan portfolio performed better than expected with most of the merchants on a repayment holiday returning stronger after the lockdowns, paying down the loans as their businesses recovered. Fair value gain of $1.3 million was recognized in the results, a swing from negative $2.4 million in the previous year. We expect the banking segment to contribute more meaningfully to the results as we grow the lending book. In total, gross profit, therefore, grew by 28% to $119.4 million, largely made up of the payments business, which contributed a net increase of $24 million, a pleasing result. The main driver of the increase is the additional $5.4 billion in transaction value processed. Before moving on to expenses, I'd like to provide some financial details on a few significant events in the year, being the impacts of COVID; the terminal incident; and thirdly, M&A activity. Firstly, COVID. For FY '21, COVID continued to impact transaction value growth, although as noted about our 2-year CAGR of 21% was a significant recovery towards our 5-year CAGR of 24%. We continue to support our merchants by way of terminal fee waivers, a more meaningful way to provide actual relief. In total, for the year, we waived approximately $1 million in terminal rental income for COVID-impacted merchants. The impact on loan originations was more severe. Compared to $60.1 million originated in FY '20, we made a conscious decision to restrict our automated lending. In FY '21, we originated $25.8 million, of which close to $20 million was in the last quarter of the year. As a result, interest income on loans was $2 million, down from $4.2 million in FY '20. While restricting lending was the right decision at the time, this product should experience growth as we build out of the pandemic. The negative financial impact to the results was neutralized by JobKeeper income of $4.5 million received in FY '21 compared to $3.9 million received in FY '20. Secondly, the terminal incident. The terminal incident has been covered in detail over the period. We are committed to remediating all financially impacted merchants as well as ensuring a fail-over solution. The financial impact of the incident is as follows: we estimate the incident impacted our transaction value by about 1 percentage point growth in January 2021. We waived an additional terminal rental of approximately $1 million. The operating costs incurred, including rebates provided were $3.3 million. Finally, the results reflect $9 million in provisioning for remediation over the next financial year. This is made up of agreements we have already committed to an estimate of payments to merchants who have registered and are currently working with us on a resolution as well as those who have not yet registered and where we continue to try and contact them in case they may have overlooked our comprehensive resolution pathway. In total, the $13.3 million in the incident costs compared to an indicative $15 million we had provided in the half year accounts and has been updated for actual experience. And finally, a word on M&A activity in the second half. The last quarter of FY '21 was extremely busy with the team concluding a business combination and an alliance. Approximately $4.7 million in one-off expenses have been reflected in the results relating to these activities. We announced the alliance with Bendigo Bank in October 2020. Commercial completion occurred on 1 June 2021. The key financial implications of the transaction in FY '21 were an upfront consideration to Bendigo Bank of $9 million, which is carried as an intangible asset on our balance sheet. Total costs incurred in implementing the alliance of $3.7 million. And by way of results, Bendigo contributed 18,490 merchants to Tyro's customer base and $0.4 billion in transaction value in the month of June 2021. I will talk in more detail on the -- of the impact of the Bendigo Alliance on our balance sheet shortly. In pursuing investment in the health space, we acquired Medipass payment solutions on 31 May 2021 for a total consideration of $22.5 million. The acquisitions has helped Tyro gain ownership of the multisided platform linking health care funders, health care providers and patients to streamline medical claims approval and payments. Approximately $1 million in one-off expenses have been included in the results for the acquisition. Normalizing for the terminal incident costs and the one-off M&A expenses, our operating expenses grew to $105.6 million, up 7.9% from $97.8 million in the previous year. As per our comments last year, we managed expenses in the first half given the external uncertainties, including a freeze in both headcount and salary increases. We increased salaries at an annualized average rate of 4.4%, effective 1 January 2021 after an 18-month period. You should factor this annualization into your forecasts for next year. In breaking down our total normalized expenses. Excluding share-based payment expenses, our staff cost of $75 million equated to about 71% of total operating expenses. Of this, 49% represents staff in product development and management including information security; sales and marketing made up 21%; general and administrative costs comprise around 19%; while customer delivery was around 11%. The next largest category was the administrative cost category, which has gone down year-over-year from $16.6 million to $16.1 million, a reduction of $0.5 million mainly due to movements in licensing costs, which were circa $8 million for the year, which is up $2 million on pcp. Spend with our cloud-based partners have gone up as we continue to migrate away from an on-premise footprint reducing future capital expenditure and maintenance requirements. We use industry-leading SaaS providers, including AWS, which is our preferred public cloud infrastructure provider as a preference of a building nondifferentiated commodity services. Training, travel and entertainment reduced by $1.3 million, given restrictions placed due to COVID conditions and savings across a number of other different categories of approximately $1 million. Given the competitive market in the technology space, we have arrangements with some of our suppliers where we can flex, in particular, development resources at comparable rates on demand. Total contractor and consulting expenses increased to $7.2 million compared to $5.9 million in the prior year. Marketing costs were slightly lower in the year at $5.4 million compared to $5.7 million last year. We were targeting in our market in the year and kept investments steady given external conditions. In spite of this, our prompted brand awareness increased from 14% to 20%, demonstrating effectiveness of our brand spend over the past few years. Overall, therefore, our normal operating expenses grew $7.7 million compared to a gross profit growth of $26.3 million, adding a net $18.6 million to EBITDA. Our EBITDA grew from negative $4.4 million in FY '20 to positive $14.2 million in FY '21, demonstrating operating leverage. For completeness, some highlights on the noncash items. Share-based payment expenses for the year was $9.3 million, down from $10.9 million last year. The notable decrease was the runoff of the one-off liquidity event performance rights granted in mid-2019 financial year. It is worth noting, the divesting of the remaining performance-based rights will only occur on meeting specific growth and profitability targets over the medium term. The expenses assume 100% probability vesting for these instruments. Depreciation and amortization increased from $12.5 million last year to $15.4 million in FY '21. The $2.9 million increase can be broken down into $1.2 million from the greater number of terminals, approximately $0.9 million in amortization of intangibles recognized from the Bendigo Alliance with the remainder spread across a number of asset classes. And then finally, our investment in Paypa Plane in the first half as well as a change in the accounting treatment for our investment in me&u to equity accounting meant we recognized about $1.1 million in share of losses from associates. You should factor that this noncash item into your forecast for next year as well. On the next slide, I provide an update of our key operating metrics trend over the last 6 years. This visual summarizes the profitability drivers on one page, so if you could please turn to Page 23. I spoke about the card mix as a key call-out in our half year results. If I broadly grouped the card types into 4 categories of debit, standard credit, commercial and international, the significant mix change from last year was a drop in international and a rise in debt. International cards generally have higher scheme and interchange fees as set by the card schemes, which creates higher gross merchant service fee but a lower gross profit margin for Tyro. On the other hand, debit card are in reverse, reducing gross revenue but increasing our margin relatively speaking. The changes in the mix of other categories was immaterial. For FY '21, the theme remains unchanged. The only difference is that the card mix change impacted the results for the full year rather than one quarter only last year. To provide some specifics. In the last quarter of FY '20, international cards had dropped from 4.5% of total transaction value to 0.8%, while debit cards have increased from 56.6% to 61.5%. For the full FY '21 year, debit cards was 60.9% of total transaction value, while international card is 0.7%. Anecdotally, merchant service fees for international cards averaged circa 2.6%. The average direct costs for these cards, however, are also just around 2.5%, leaving a very narrow transaction margin. For debit cards Including [ mPOS ], the range in the last year for MSF was between 39 basis points and 75 basis points, while the direct costs were between 9 basis points and 29 basis points. The average margin for debit cards was approximately 38 basis points. Our overall transaction margin for payments, therefore, increased year-on-year by 1 basis point. You can see these dynamics play through on the trend line on the page. Our direct costs decreased sharply from 53.7 basis points to 42.4 basis points driven by the full year impact of the swing from expensive international cards to cheaper debit cards. 45% of our portfolio is priced on a cost-plus basis, where we pass along any change in the underlying costs to the merchants. For merchant on this pricing structure, the reduction in direct cost was priced through with a corresponding decline in the merchant services from 89.5 basis points to 80.8 basis points. Of the remaining portfolio where Tyro takes a view on the merchant card mix in favor of a more simplified and predictable pricing structure, the cost reductions were accretive to gross profit. As a proportion of transaction value, our gross profit improved from 6.4 basis points in FY '20 to 47 basis points in FY '21. We manage unit margins closely, and the result of 47 basis points is a positive result when you consider the challenges presented by COVID as well as the support provided by Tyro to its merchants by way of fee waivers. Tyro's business model is one-off scale, with operating leverage coming through in line with the growth of the business. Operating expenses as a proportion of transaction value continues to progressively decline from a high of 62 basis points in FY '17 to now circa 42 basis points in FY '21. The gap between the gross profit and expenses line has consistently narrowed over the past few years and was delayed due to COVID the last quarter of FY '20. However, operating leverage can now be seen with a positive EBITDA results demonstrated in FY '21. Please turn to the next slide for a summary of our financial position. We leveraged our strong capital position to complete investment in Paypa Plane and me&u during the year, the alliance with Bendigo Bank and the acquisition of Medipass. Our balance sheet structure at 30th June 2021, as a result, is quite different from 2020, and it is worth spending a few minutes on our financial position. Our cash decreased from $122 million to $104 million, a reduction of $18 million or $39 million if you take out the banking business, which included deposits increasing from $50 million to $75 million and loans increasing from $12 million to $15 million. Notable cash investments during the period were $18 million in terminal purchases to cater for BAU growth, the Bendigo device swap-out and to maintain a buffer of stock given COVID disruptions. $13.5 million was paid in cash for the acquisition of Medipass, representing 60% of the total consideration. The remainder was paid for in shares, $9 million for the upfront consideration of the Bendigo Bank Alliance and finally, investments in associates of $2.5 million. The investments with Bendigo and Medipass gave rise to significant intangibles and goodwill that you see on the balance sheet. For Bendigo, the alliance does not need the technical accounting definition of business combinations. The customer contracts and relationships acquired based on the initial agreement term of 10 years have been recognized as an intangible asset totaling $112 million with a corresponding upfront liability taken on the balance sheet. This treatment is as a result of the alliance on structured with a view to gross profit sharing over the agreement term. Of the intangibles, the guaranteed component and the upfront consideration totaling $50 million is a deduction to our prudential capital. For Medipass, we acquired 100% of Medipass on 31st May 2021 for a total consideration of $22.5 million. Other than minor adjustments, the acquisition was classified as $5.5 million for internally generated software, $2.9 million for customer contracts and relationships and $13.7 million in goodwill. I highlight that the purchase price allocation is provisional only, and this will be subject to a possible reset in the next financial year. As mentioned, the intangibles and goodwill are a reduction to our prudential capital. Our capital ratio reduced from 162% last year to 73%. Ratio is more efficient and remains solid to allow Tyro this sufficient capacity to continue growing both its payments and banking businesses. Our banking business balances grew compared to last year. We have taken steps to restrict our lending originations after a record $60.1 million in originations in FY '20, given the COVID uncertainties. This was turned on, although cautiously, and we ended up originating $25.8 million in FY '21. Almost $20 million of these originations were in the last quarter, with May 2021 being a record of $8.1 million. As mentioned, we are looking to accelerate growth of this product into FY '22. Deposits have been growing steadily year-on-year at moderate interest rates and provides Tyro with stable and cost-effective source of funding as it ramps up lending growth. The Tyro Bank Account grew from $49.7 million in FY '20 to $72.5 million at 30 June 2021. In addition, we grew the Term Deposits for up from $0.9 million in FY '20 to $3 million in FY '21. There are 2 other call-outs on the balance sheet. The increase in current liabilities includes a provision for remediation of approximately $9 million based on a combination of agreements reached with our merchants and our modeled estimate of the quantum where we are yet to hear from the merchant despite regular attempts. Additionally, for your FY '22 capital planning, the step-up in capital expenditure expected comprises purchase of terminals and dongles to fund the FY '22 growth, investments in new strategic projects internally to drive future growth, and finally, the move to our new premises on 55 markets early in the 2022 calendar year. That concludes the financial review for the year. Recapping the key takeaways. One, executing on our growth strategy. Organically, we added $5 billion in transaction value driving our top line growth with an additional $0.4 billion from Bendigo in the month of June alone. In addition, we continue to invest strategically investing in Paypa Plane, me&u. We completed the alliance with Bendigo Bank, and we acquired 100% of Medipass solutions to accelerate our presence in the health payment space. Our banking business is still in early stages but provides a strategic value add to our merchants within the payments ecosystem. Secondly, operating leverage demonstrated through economies of scale and the agility with which we can implement effective cost control measures when required. Our normalized EBITDA increased by $18.6 million in the year, primarily attributed to the growth in our payments business. And finally, a more efficient and prudent capital position. Our capital has allowed us to pursue opportunities during the year, carry on delivering despite economic disruptions and sufficient to support our growth ambitions into FY '22. That is the financial update for the year. I will now pass back to Robbie for a trading update. Thanks, Robbie.

Thanks, Prav. And look, just to wrap up, if we could turn to Slides 26 and 27. And look, just -- although the COVID and lockdowns do remain unpredictable, and our experience has been that the businesses rebound rapidly as normality returns. That was our experienced last year. And it's definitely how things are playing out in the offshore markets currently. So we remain optimistic, particularly as vaccination rates increase. It is an exciting time to be at Tyro. We've achieved a lot in the last year, but it's the opportunity in front of us that remains large and exciting. We have a mix of features and products and training that will continue to build out our payments ecosystem, products such as Tyro Go -- the Tyro Go dongle, which I mentioned, which will open up new verticals such as trades and micro merchants and provide queue busting solutions for larger retailers. We're currently assessing our next-generation terminal which presents some exciting opportunities, including an mPOS capability. We're currently looking to extend our merchant cash advance product to make it available to a wider cohort of Tyro merchants, with larger balances and advances available. And look, with the digital payment capability is now available from the Medipass acquisition, including state and federal compensation funds, we have an opportunity in combination with our existing health solutions to create a leading unified claiming and payments platform to Australian health care practitioners. As I mentioned earlier on, we've created IP both technical and commercial in creating our payment alliance model for Bendigo Bank, which is potential application to other market opportunities, and this is an area we remain keenly interested in exploring. And finally, we do definitely have an appetite to further bolt-on acquisitions, whether large or small, so long as they present an avenue to gain scale, leverage our platform, enhance our market position or supplement our ecosystem. In terms of outlook, we're not providing specific profit guidance for FY '22, but we do take this opportunity to discuss some early trading indicators, and we'll provide an update on this at our AGM in early November as well. And look, just stressing that these data points are unaudited. So the highlights I've called out, we've maintained our customer acquisition momentum with 2,205 new merchant applications received since 1st of July. Our transaction value to the 20th of August grew 24% on pcp to $3.6 billion. And finally, our payments business gross profit for July was $10.2 million up 34% on last year. So all those metrics are trending nicely in the right direction. So we are definitely optimistic on the outlook. So look, that ends the formal presentation, and we'll move on to Q&A.

[Operator Instructions] Our first question comes from Bob Chen with JPMorgan.

Just a few questions from me. I mean in terms of the merchant acquired and estimated, that looks to be pretty robust. Can you talk a little bit about the types of merchants that you're bringing on, are they larger or smaller as well as which particular verticals you're seeing it coming from?

Yes. So great questions. Bob, look -- and thanks for the questions. Look, in terms of the mix of the new -- the merchants we're getting, there has been no dramatic shift in the mix. So we've got a nice cross section. We've got some nice large opportunities, which are in progress at the moment. But in terms of what we signed up in the last few months, very consistent mix with what we've said in the past. So yes, it's in that SME space predominantly. We are over-indexed in -- still in the hospitality space. So no dramatic changes. We stayed pretty focused on the verticals we're playing in at the moment. And it really is not until we've got our new dongle solution that we can start pushing into some adjacent spaces. We still have an appetite, Bob, as we've talked about in the past, we look at the accommodation vertical, but clearly, that's remained a little bit challenged. So it is in appetite, but it's probably one that we won't start proactively pursuing until probably calendar '22, just given how world is looking at the moment.

Okay. Great. And then you mentioned in your closing comments that created an IP with the model that you have with Bendigo Bank and you're sort of looking at other market opportunities. I mean in relation to that, I mean what other opportunities? Are there further opportunities for these types of alliances with other books of merchant?

Yes. Look, Bob, I mean the Bendigo transaction, yes, there was a lot of technical work that went into that to enable us to provide that solution. And as I think most people know, there's 2 sort of paths that you could go down, there's an alliance model like we've done. And then there's another model out there in the market, which will involve more of an incorporated JV sort of structure. So we genuinely believe the alliance model is a preferable structure. It really does align both parties to the right outcomes, and I think we've got the model from a commercial view correct in the Bendigo transaction and also the technical solution, which we've invested in is able to be redeployed elsewhere. So whilst nothing in train at the moment, Bob. We genuinely believe there are other opportunities in that space. And whether they come to fruition, time will tell. But we have the tech, we have the commercial model, and we have the appetite to actually look at those type of opportunities if they were to arise.

Okay. Great. And then just finally, obviously, Bendigo coming online from 1st of June, that was pretty good. But I believe -- I think Melbourne will be impacted partially by lockdowns. I mean if you sort of normalize for lockdowns, I mean what sort of volume you have expected from that Bendigo book?

Sorry, Bob, you just broke up there in the last bit. But -- I caught the first bit, but didn't catch the last sentence.

Yes. No, I was just trying to get a sense of what's the TTV that Bendigo book could represent if we normalize the lockdown.

Okay. Yes. And look, I mean, the July number is $440 million in transaction value, are pretty representative. We're very confident that business will generate the $5 billion. And the lockdowns -- yes, the book for Bendigo is more skewed to Victoria, and less so to New South Wales. So Victoria is the largest market for Bendigo, Queensland is the second largest, and then New South Wales is third. So it's probably in a little bit better pace just given how the world is sort of playing out at the moment. But yes, the best measure I'd give you, Bob, is that sort of $440 million for July. And look, in a normal world, $5 billion in annualized transaction value would be the run rate you'd expect from that business.

Our next question is from Brendan Carrig with Macquarie.

Just a quick one. Just on the investment side or on the OpEx side of things. I know that expenses were a little bit lower versus expectations. Is there anything you'd like to call out there? Because I think you had been flagging that you're expecting maybe expenses were going to jump up with additional hires. So can we expect more of an annualization impact or there were some additions sort of towards the back end of the period?

Yes, look, Brendan, I'd like to start first with that and my parter can comment as well. But look, in terms of the hiring, we definitely are in the market to bring on more engineering team members. We have some significant projects, which we've called out for the year, and that will require more headcount. So we -- you will see an expansion in the headcount, definitely, and that's what we called out in that capitalization number as well. So that picks up those sort of 3 big projects with the dongle, the new terminal and e-com. The -- and as Prav called out in his note, we did put through pay increases for the team after a period where everybody worked with us through the COVID period, and those increases were just under 5% and kicked in from the 1st of January. The other call-out I'd just make there and I'd hand it to Prav is the -- we've changed our review cycle now. So we will be doing reviews on a calendar year basis. So you would expect to see in the 1st of January to see a bit of a pickup in them as well or increases at that period. But Prav, maybe I hand over to you.

Great. Thanks, Robbie. Brendan, so just a couple of things, just to recap. Salary increases, obviously, for this year was up for an 18-month period. So that will run through into the whole of next year. As Robbie mentioned, the expansion in headcount, a number of these have been flagged against strategic projects, though. So there will be a view taken on capitalization versus expense. As I mentioned always, about 35% of our expenses are in some sort of a variable sites or sales marketing as we grow our business. So that will continue in that equation, in line with merchant number growth and applications growth. Marketing was one as well. So we effectively kept marketing steady this year just given all the external uncertainties in the year. Now that one, we have flagged previously as well. It is an area where we would be investing more. So I'd probably model that into your forecast as well.

Okay. That's clear. And then just another question. Just on the churn. So year-on-year, the numbers were sort of fairly stable, but it looks like there was a bit of an uptick in the half, nothing major, but just a little bit. Do you think that, that was sort of off the back of the connectivity issues and things have stabilized now? Or can you just provide a bit more color just around the transaction?

Yes. Look, nothing -- if you look at merchant count churn, that's -- I mean those numbers are excellent, right? So the slight variation has come through in the transaction value churn, and that is really just the way we measure that and the way we capture that. So if the merchant has been inactive for 6 months, they become part of that stat. So with the COVID lockdowns, that number has increased a little bit. So I'd suggest to you, Brendan, there's nothing systemic in there in terms of merchants departing. It's more the environment we're operating in. So if you're trying to look for an indicator in terms of the impact of the incident, I'd say merchant count churns is the number to lookout, and I've got to say I'm very comfortable where that's sitting. I think we have by stepping in, leaning into that and actually doing the right thing and getting behind the problem and providing the right response, I think we've managed as a team to come through that very strongly. And I think we've kept our reputation intact. We kept our merchant base intact, and it's all about doing the right thing, which is one of our core values.

Yes. Okay. And then the last one I had is just a bit of a follow-on from Bob's just on the merchant additions, which I think gives you definitely the highlight. Can you just maybe talk to the difference between May and June? Obviously, very elevated in May, that 1,400 number that you mentioned and June, maybe some impact from the Vic lockdowns that were starting in New South Wales. So just trying to get a sense of where you think that, that run rate might be or was exiting in a more normal pre-lockdown environment?

Actually June was a very strong month as well. So I'm very comfortable with how we exited the FY '21 year. It -- yes, it would not be unreasonable to expect New South Wales to see a bit of a slowdown with what's going on at the moment. But the thing I'd sort of call out to you, Brendan, is when we came through the first wave last year, we definitely saw a softening in application in March and April last year, but then it actually came back pretty strongly. And our takeaway there was even though things were still a bit constrained in sort of April last year, people were starting to look at their businesses and looking for efficiencies and looking at a number of their business solutions, and we benefited from that. So I've got to say, I'm quite bullish on the apps numbers. I mean, obviously, I'm looking at them every day that we're seeing healthy trajectory. So I'm not feeling uncomfortable on the new apps.

Yes. No. Maybe then just what was keeping May so high? Yes, and I agree June was still a good month. I think that probably seems to be a reasonable exit point anyway. But putting that aside, was there anything specific in May that made it that record month?