Tyro Payments Limited (TYR) Earnings Call Transcript & Summary

Good morning, shareholders, and welcome to Tyro's retail shareholder webinar, focusing on our first half results for 2023 financial year. It's wonderful to have so many of you join us today. This is a sunny day here in Sydney, and I hope it is wherever you are listening from. As I'm sure you're all aware, it's been a very busy time for us at Tyro over the last 6 months. We have a new CEO, Jon, who will talk soon, our new Board and interest in acquiring us by numerous third parties, which is still ongoing all the while operating in an economic environment that is definitely challenging, coming out of COVID, rising inflation and interest rates. Fortunately, the Board and management feel that Tyro is in a really good place to withstand and indeed prosper in these times. Before Jon and our CFO, Prav provides you with an overview of our first half results for 2023, which are very strong, I'd like to provide you with a high-level summary of some changes to our Board and management team that are driving Tyro's next chapter of becoming the leading specialist payments and banking provider in Australia. Having recently celebrated Tyro's 20th anniversary, the company has a rich and valuable history of growth and innovation upon which we are building. I'd also like to provide a brief update on the interest in acquiring Tyro received from Potentia Private Equity. We have renewed our Board over the last 3 years and more recently, the management team. In addition to my new role as Chair in 2021, we welcomed 3 new highly skilled and experienced nonexecutive directors. Together, our Board has the necessary depth of experience in payments, technology, banking, risk management, customer excellence, governance and strategy and dealing with complex mergers and acquisitions to take rejuvenated Tyro into its next phase growth. I'm very proud to lead Board that is one of the most diverse of all ASX-listed companies with 66% -- sorry, 67% female representation, 4 out of 6, including myself Chair which only approximates 3% of ASX 300 companies can relay claim to. And when coupled with the majority female Board and female Chair, it's only about 1%. We know diversing in itself is not what we seek per se, but diversity and experience and thought genuinely helps deliver robust governance that has and continues to serve us very well. Following an extensive internal and external search, we are extremely happy to appoint Jon Davey as CEO, who commenced his role in October 2022. However, he originally joined Tyro in May 2021, following our acquisition of Medipass Solutions. The fresh leadership team also includes a new Chief Technology Officer, a new Chief Product Officer and a new leader of our health business, who succeeds Jon in his role. Jon has brought a renewed energy to the leadership of Tyro. He and the entire Tyro team have a single line of focus to deliver on our strategy of becoming the leading specialist payments and banking solutions provided for Australian businesses. I'm sure you will agree that the results presented for first half 2023 speak volumes to the contribution Jon has already made in a very short time, including reducing our cost base and creating a leaner and more disciplined organization that is on track to deliver $11 million of annualized cost savings and driving a new strategy that Jon will talk to in more detail. During 2022, Tyro came to the attention of third parties to express interest in potentially acquiring Tyro. In September, we received a nonbinding indicative offer from private equity firm Potentia with some of its co-investors to acquire Tyro at $1.27 per share. This was followed by interest from other parties and a further offer from Potentia in December last year at $1.60 per share. While the Board very carefully considered all these previous approaches, it unanimously determined that they significantly undervalued Tyro, and as such, were not in the best interest of shareholders as a whole. These decisions were made on a well-informed understanding of Tyro's intrinsic value following many months of work by the Board, together with management and our external advisers. We are unwavering in our view that any offer for Tyro must take into consideration our attractive growth prospects and the value of Tyro's banking license as we continue to take market share in the Australian payments and business banking spaces; our continued improvement in operating leverage, which has helped us become profitable and cash flow positive; and our position as a well-funded and capitalized business capable of supporting our own growth ambitions. We'd like to assure you that Tyro remains open to engaging with any change of control proposal it receives that represents fair value for all of Tyro's shareholders. We continue to engage with Potentia, which is currently finalizing their process and due diligence to enable it to develop a significantly improved offer and confirm any necessary funding commitments attached to any future offer. But please note, there is no certainty whether any further nonbinding indicative offer, a binding offer or indeed any transaction will eventuate. I would like to take this opportunity to thank you for joining us on the webinar today and really encourage you, our shareholders, to ask questions. Please use the online webinar Q&A functionality. Typing your questions to webinar portal and we will read out your questions and address them at the end of the 2 presentations by Jon and Prav. It's very important to me as Chair, our Board and management here that we hear from you, our shareholders, and this webinar gives you an opportunity to ask questions about our operations and strategy. With that, I'd like to hand over to Jon and Prav. Thank you.

Thank you, Fiona, and good morning to everyone. In my presentation today, I will talk to you about the rejuvenation of Tyro, the opportunity we have to maintain momentum, our immediate strategic priorities and key financial and operating metrics for the half. Prav will then take us through our financial performance before I provide a trading update and we answer any questions. There are 3 key messages I'd like to leave you with today. Firstly, over the past 6 months, we have rejuvenated the business and we have delivered significant improvements in key operational and financial metrics, including our first profit as a listed company. Secondly, we have a strong value proposition and a large established customer base that differentiate us from the competition and positions a strong lead to continued growth. And thirdly, we have a very clear set of strategic priorities, and we're making good progress in their delivery. If we now move on to Slide 6, please, and I'll talk about rejuvenated Tyro. As I said, we are pleased to deliver a very strong set of results for the first half of 2023 financial year. It was a 6-month period of significance for Tyro in 4 key areas: growth, profitability, delivery and innovation and, as Fiona noted, through the renewal of leadership. In terms of growth, we have delivered strong growth across several parts of our business, including the value of payments processed, the number of customers we have added and in the value of loans that have been originated. Transaction value growth has been significant, up 37% on the corresponding period, driven in part by a 9% increase in customer numbers, a reopened economy and the impact of inflation. We have also seen a 40% growth in gross profit. We've also opened in bond distribution channels through our partnerships, firstly with Telstra, who helped us originate 13% of all applications in the first half, and more recently with Australia Post. We've had a strong focus on operating expense management, which together with our growth still drive profit for Tyro. Our October cost reduction program delivered a 10% reduction in the number of Tyro team members and, as Fiona also noted, an $11 million in annualized operating cost savings. Largely complete by early November, this program is on track to meet all targets. Coupled with strong transaction value and lending growth, we were pleased to confirm Tyro's first half statutory profit of $1.1 million, and importantly, the generation of $600,000 in free cash flow. We've also done a lot of work around delivery and innovation. We rationalized our project investments and we prioritized a small number of critical initiatives. I am pleased to confirm we've made really good progress on these. During the half, Tyro Go reader went live, our next-generation Android platform terminal was launched and our automated customer onboarding experience was implemented. Turning now to Page 7. Our vision is to be Australia's leading financial services technology and innovation company. As an organization, we have a very strong history of making Australian businesses and reimagining payments. Our value proposition is based on our strength as Australia's leading specialized payments provider. We provide differentiated industry-based customer solutions, primarily for the hospitality, health and retail verticals. We have direct integrations into more than 400 point-of-sale systems that deliver customers a simple payment and reconciliation process. We also have a banking license that is unique among local and international specialized payments companies operating in Australia. Importantly, this allows us to deliver faster settlement for customers, offer solutions that not only support being paid, but also helping customers pay their suppliers and it allows us to provide simple working cash flow solutions. Next page, please. If we now look at the opportunity and the opportunity for Tyro is significant both in our traditional in-store card payments, but also by providing banking products and services to the 66,000 customers that Tyro support today. There's more than $740 billion of installed pro payments that are processed annually in Australia. Tyro today has captured less than 6% of this market. In an industry that has grown at 4.8% annually over the past 5 years, Tyro has -- sorry, we have outpaced the market by a factor of almost 6 to deliver annual growth of 27%. Our 20% market share in our key industry verticals and our continued growth in hospitality, retail and health highlight, not only the opportunity that exists when industry-leading customer features are provided, but the potential we see in the broader market. Turning now on to Page 9. First and foremost, Tyro is a payments company. Our strategy is focused on providing value and services to our payment solutions, that deepen the relationship we have with our customers. We do this in a number of ways. Historically and successfully, we have done this through our POS integrations, but we also see opportunities to further leverage our banking license. We do believe that Tyro's lending solution remains the leading cash flow management solution in the market. Our data highlights the customers that have a banking product with us at 2.5x more satisfied and significantly less likely to churn. Today, we know that less than 10% of our customers have an active bank account with us and only 6% have had a loan with us. In the first half, 77% of loans that were originated were from customers that had previously had a loan with us. Our opportunity is to make our banking products available to more of our customers. And the reason we want to do that is because we believe it will help us capture, retain -- capture and retain more of our payments customers. If I turn now on to the next page and talk about our immediate strategic priorities. We have 3 immediate strategic priorities that guide our decision-making, project prioritization and our investment. Firstly, product innovation; secondly, pricing optimization; and thirdly, continuing to drive operating efficiency. Firstly, referring to product innovation. Developing the products, features and solutions our customers want is core to our planning. Our immediate focus on implementation of new payment acceptance form factors with Tyro Go, Tyro Pro which is our new Android-based terminal, are progressing well and though early days, we are really pleased with preliminary results. In health, we have prioritized the integration of our digital platform with new third-party funding sources for private health insurance and for medical specialist claims. And we've recently launched new web banking capabilities that will open up new opportunities to provide banking services to our customers. When we think about revenue and margin optimization, pricing optimization, optimizing revenue generation while carefully managing our margin is critical to the realization of our financial outcomes. During the first half, we have pursued initiatives to drive value for Tyro and for our customers. We are working on products and product features that include a zero-cost acquiring solution and on enhancements to our Tap & Save least cost routing features. We are also in the process of finalizing strategies to undertake a rolling program of customer profitability and repricing. Finally, when I think about operating efficiency, we will continue to manage our operating costs with discipline and an owner's mindset. While the October cost reduction program has been completed, changes to the operating model plans for implementation in the coming months will provide great clarity of accountabilities and further streamline our operations. We've also prioritized the ongoing digitalization of customer acquisition, customer onboarding and customer service. We are implementing a digital-first strategy that will deliver a leading customer experience and drive cost efficiencies. Automated customer onboarding is the first of these, but will be followed with a focus on digital self-service. Finally, I'm going to talk -- turn to the next page and talk about our first half performance. The first half of FY '23 has been a strong one for Tyro. We are pleased, as I mentioned, to report a $1.1 million statutory profit and to have delivered $600,000 of positive free cash flow. Our focus on growth, profitability delivery and innovation is gaining momentum. We have demonstrated strong performance against most operating and financial metrics. Compared to the corresponding period, our key growth metrics were all up. As I mentioned, transaction value was up 37%, gross profit was up 40%, EBITDA increased from $2.8 million to $19.5 million. We increased our customer count by 9% and the number of activated bank accounts by 10% and our loan values by 101%. Our focus on profitability is highlighted by statutory profit results and positive free cash flow and operating leverage that has decreased from 95.9% to 79.6% compared to the corresponding period. We are really pleased that FY '23 is off to a strong start and that we are well positioned to maintain momentum into the second half. I'm now going to hand over to Prav, who will take us through the detailed financial performance.

Thanks, Jon. Going into the detailed financial performance, I'd probably talk about 3 key items that we committed to at the end of the last financial year and we delivered in this half being: growth, profitability and generating free cash flow. So first off, growth was demonstrated by a 40% in growth in gross profit, which was underpinned by a 37% increase in transaction value to $21.7 billion as well as doubling our loan originations to $72.7 million. Payments continues to be our core business. Of the $95.2 million, $88.2 million was driven by our payments business, which represented about 93% of the gross profit. The payments transaction value has grown by a CAGR of about 27% over the last 5 years. For this half year, the growth was particularly strong at 37%, partially due to the extended lockdowns that we saw in the prior corresponding period. We did grow merchants as well by about 9%. And we've been continually targeting growth in transaction value of over 20% over the last few years and into the future medium term. This growth led to an EBITDA, which demonstrates our profitability. The increase in gross profit of $27 million to $95.2 million drove the EBITDA up to $19.5 million, which was a record for the business and it was 7x more than the prior corresponding period. Expenses grew by $10 million, which was a 4% increase in the second half of FY '22. As Jon and Fiona both mentioned, we announced a cost reduction program in October last year, of which $1.2 million in savings was recognized in the first half. Around $3.8 million will be recognized in the second half, giving a total of $5 million for this financial year. And then going forward, this will be an annualized savings of about net $11 million into the medium term. The EBITDA margin was greater than 20%. So at 20.4%, we are now in line with our global peers. We are focusing on growing both the absolute EBITDA as well as the EBITDA margin over the medium term. And finally, we generated free cash flow at the end of the half year, which was earlier than when we had forecast. This was driven by transaction value growth of about $5.9 billion to the corresponding half. While the cost reduction program will assist this driving up the free cash flow into the future for the first half, the benefit into the free cash flow did not come through as we saved $1.2 million, but we also incurred one-off $1.2 million in implementing the program. As payments is the main driver of the business, it will be useful to go to the margins, which is on the next slide on Slide 14. This page shows that the performance of the Tyro core book, which is 89% of our total transaction value. The key callouts are that we increased transaction value by 37% or $5.9 billion, while keeping the gross margin stable at 41.3 basis points and while increasing net merchant acquiring fees by 1.2 basis points. But starting on each line, we'll just start with the top line, which is really our take rate or the merchant service fee or what the merchant actually gets to pay. That increased from 81 basis points last half -- the prior corresponding half to 88 basis points in the current half. Of the 7 basis points, 5 basis points was driven by pricing changes that we've spoken about previously and 2 basis points were driven by card mix and underlying cost changes, as I will talk about when I talk about the merchant acquiring fee. The merchant service fee is our top line revenue, but it's not the actual economic driver of our business, the actual economic driver is the bottom 2 lines. So if we start with the net merchant acquiring fee, which actually tracks with transaction value and is defined as the merchant service fee less the interchange and scheme fees as well as commissions, which increased from 32.2 basis points to 33.4 basis points, accompanied by a transaction value growth of 37% of $5.9 billion. This is the result that we are very happy with. The improvement in margin was driven by price changes and maintaining an underlying churn rate of a low 8.9% per annum. The increase in net MAF was achieved notwithstanding an increase in expense of international cards, which, as I've spoken about before, is dilutive to our overall margin. We processed about 2.3% in international cards in the last half compared to 0.6% in the PCP. Pre-COVID, international was up to about 5% of total transaction value. We now expect this to peak at around about 4% going forward. Given that since COVID, we have onboarded the Bendigo book and the merchants that we've been onboarding since do not seem to have a big skew towards international transactions. And then finally, the gross profit margin was maintained at 41 basis points, while processing a record $21.7 billion for the half year. The difference between the MAF and the gross margin mainly is rental income, which is a fixed monthly revenue and dilutes over periods of increased transaction value in terms of a unit margin basis. Moving on to the next slide. One of the things that we've spoken about repeatedly is Tyro being a business of scale and the ability to improve operating leverage dramatically as the transaction value grows. We have been demonstrating the revenue improvement in operating leverage over the last 5 years. So if you actually look at FY '17 at 116.4 basis points consistently down to FY '21 where we had an operating leverage of 88.2%. In FY '22, this ticked up as we continue to invest into our new products, while the lockdowns extended beyond what we had expected. Earlier this year, we announced a cost reduction program where 57 staff left the business, and we closed '23 opened roles giving a total -- reducing the total forecasted head count by about 80. Again, this will have a $5 million benefit for FY '23, $1.2 million in the first half and the remainder in the second half. As a result, our operating leverage of 70 -- we demonstrated operating leverage of 79.6% for the half year, which was an improvement of over 13 percentage points to FY '22. You can see the expense base growth plateauing to 4% compared to the second half of FY '22 on the graph on the right. We have provided a target operating leverage of about 79%. And for this to improve in the future as our EBITDA margin improves. This will allow us to continue growing the top line as well as investing in the areas of new development in R&D as the business requires. To finish off, I will probably recap the 3 key financial messages being: growth, profitability and the positive free cash flow that we demonstrated in first half. I will now pass back to Jon for a trading update.

Thanks, Prav. If we could move on to the next slide, please. So trading update. So we've seen a strong start to second half of our financial year. Transaction value for the period from the 1st of January through until the 24th of February was $6.3 billion, which was 23% higher than the corresponding period. To the end of January, group gross profit was $15.4 million, which was up 39%. EBITDA was $3.6 million and our operating leverage was 76.6%. I would, however, highlight that the months of December and in particular January had typically lower expenses than we benefit from annual lead provisioning releases as a result for the January operating leverage was lower in the short term. If we could now go on to the next slide, please. And I'll give you an update on our earnings guidance on January 16. We upgraded our earnings guidance to the 2023 financial year. I am pleased to reaffirm that we're on track to deliver all metrics within the guided range. With that, I'm going to pause and open for questions.

Great. Thanks, Jon. So the first question we received today is from shareholder [ Terry Rosborough ]. The question is the Australian newspaper yesterday asked, is it possible to make the Tyro strategy and how it serves as a better option then sell into private equity?

So let me perhaps start with that one. And I suppose, my first response to that would be that I think that we have a clear strategy, which, as I mentioned, is based around continuing to drive growth in our business, product innovation and profitability. I think I hope when I went through my presentation today, I spoke about what we're doing from a growth perspective, both on the payments side and on the banking side. I spoke about what we're doing in terms of driving growth from our distribution. I spoke about product innovation and new opportunities that we see with our Go reader with our new Android terminal and what we're doing around digitization of the business. Clearly, we have a very strong focus on cost management and, as I said, on taking a digital-first strategy. My focus as CEO of the business is on running the business as effectively and efficiently as I can and to make sure that we position the business strongly for our future growth. How that happens under a publicly listed company as opposed to privately? I am probably unable to comment, but my position is simply to run the business as effectively and efficiently as we can.

Thanks, Jon. The next question we've got is from shareholder, [ Donald Kane ]. Can you please provide an update on the takeover offer and where it currently is?

There's not a lot more that I can say other than what I said in the opening address, just to confirm. We've had a couple of offers from Potentia, which we rejected back in September, $1.27, December $1.60. They have been conducting due diligence. They're currently still finalizing their proposals. We're open to engaging with Potentia as any party if they were to present what we consider a compelling offer. But at this point, there is no offer on the table. There's nothing really for us to comment on publicly other than that's the process.

Thanks, Fiona. The next question comes from Samuel Lewis. And the question is, what does the Board consider to be fair value per share for Tyro?

Thanks, Samuel. That's a difficult question, not so much because we have -- we don't have a sense of what the fair value is. We spend a lot of time assessing it. As I said, we use our management forecasts, we use industry analyst forecasts, we use our external adviser's forecasts. We listen to shareholder sentiment and we really take a very serious look at this. So we are honored to say that publicly, that's just something that we need to keep to ourselves. And if and when there is a bid that we need to consider, we will assess that.

The next question comes from [ Alexander Lowe ]. The question is, what is the future business case for Tyro in a world where customers are able to pay traders by direct bank-to-bank payments?

I think that's a good question. And what we certainly see in the payments landscape is a lot of change, both in terms of the level of competition that's taking place, but also the demand and opportunities for merchants to be able to accept payments in different ways. There's a lot of work that's taking place both locally and internationally around account-to-account based payments. We see some real opportunities to be able to continue to work with our merchants to be able to provide different payment acceptance opportunities. So I suppose my response to that is that we see the change taking place. We think that Tyro has a good understanding of those changes. And we think that our approach to how we can provide solutions to merchants to facilitate a broader range of payment acceptance approaches is reasonably mature.

Thanks. The next question comes from [ Nev Khusro ]. How will the new Tyro Pro terminals compete against other payment players like Square, SmartPay and Zillow in the market? Will Tyro look at partnering up with other players?

So we think that Tyro is really well positioned with our new Android-based terminal. The terminal, as you may be aware, it provides us with a platform to be able to innovate and be able to build new solutions. I acknowledge that in many cases, some of our competitors have similar product offerings in market. What we do is we're looking at it and saying, this is a platform for us to be able to innovate. It's a platform for us to be able to build experiences that really resonate and work for our customers. And importantly, we've got 66,000 merchants that use our solutions today. We think it's also an opportunity to continue to build out what we think about as these adjacent type services. And I mentioned, POS integrations is part of our differentiator and also some of our banking type services. So rather than being a -- let's think about it as a dumb type terminal that we have today. Our new terminal will allow us to be able to really innovate and build out those new experiences for merchants. How that allows us to be able to compete is by leveraging what we see as some of the unique capabilities that we have. We do have many products and features that are unique into the industries that we support today. And I would particularly highlight the capabilities that we have, both in the hospitality space, which have held us in such strong state over the last several years, but also some of the fairly unique capabilities that we have in health. All we'll be able to do is to build experiences directly into the terminal that really allow us to be able to specialize further in those industries.

The next question comes from Mark McInnes. Jon, your loans are not guaranteed by any collateral. Surely, given the global interest rate environment, you are adding enormous unsecuritized risk to the company. Thank you, Mark.

I think I'm going to ask Prav to provide perhaps in response to that one. Can you talk about it more strategically, please?

Yes. Great. Thanks, Mark. So our loans are probably a little bit different from the traditional loans that are out there, which are fairly long term. The way we look at it, it's more of a working capital product. So to actually look at our loans, it is a small leverage loan size. Last half year was about $47,000. The velocity is fairly quick. So the average tenure for the loan was about 6 months. We -- from a risk perspective while we don't have collateral, we do actually see the payments coming through every single day, even before the merchant sees it and we take a cut of the payment every single day. So that reduces our credit risk pretty much on a daily basis. If you look at the actual capital consumption on the loan as well, so last half year, we originated about $73 million. Our closing balance was about $45 million. So a lot of the repayments actually came back through. So I think that's from a risk perspective. From a commercial perspective, while there wasn't us, I think commercial is actually fairly strong for our loan product as well. So over the last half year, we were able to fund the launch with our deposit accounts and the cost of funding, although it's a small base, was fairly small and we generated NIM of more than 20% for those loan products. So I hope that answers the question.

Thank you. Another question is received from Mark McInnes. Jon, how much of your transaction increase was just coming from COVID lockdowns in New South Wales and Victoria from the prior year? How is this growth sustainable?

Look, there's no doubt, and again, Prav can probably refer to some of the specific numbers that when we compare first half of '23 versus '22, we do see some of the changes from a lockdown perspective. However, I would also point out the fact that we did see also a 9% increase in merchandise in merchant numbers. And we also saw an increase in the average transaction value being processed by our merchants. But I think Prav can probably provide a bit more color to it.

Yes. Thanks, Jon. So yes, I agree, our growth of 37%, as I mentioned, was particularly strong in the current year, given that we did have comparatives, which were impacted by COVID lockdowns. Don't know exactly how much that was, but we could estimate it given the fact that 60% of our transaction value was from News South Wells and Victoria, and they were in extended lockdown at various points in time. So if we estimate and take that out, the underlying growth was about 22% to 23%. Now there's a couple of other tailwinds that we also saw in the last year, particularly from the inflation and interest rate environment, which made it quite difficult for us to forecast what our transaction value was going to be. And we did get it wrong, positively wrong though on the upside, which led to us upgrading our guidance in January earlier this year. And the issue was we factored in an increase in transaction value for an increase in inflation as the sales prices at [indiscernible] increased, but we also factored in a decrease in the discretionary spend due to a lower disposable income. What we did see was an increase from the inflation of the average basket size increase by about 4% from $42 to $44. What we were not seeing is a decrease in the transaction value due to discretionary spend. And we didn't have enough data to actually work that out. So at December, we had a little bit more data than we had earlier in the year. When you break down the 4% increase between our core verticals, you can see that retail increased by about 2% and health increased by about 2%. From a retail perspective, therefore, you could conclude that the increase in inflation was being offset by a lower discretionary spend. In hospitality, that was a very strong growth at about 10%. And now when you actually look a little bit more into that, a lot of our customers are cafes. And if you're buying a coffee that goes from $4 to $4.50, I think that's more an inelastic demand product that is now embedded into our transaction value growth, although $4 to $4.50 is more than a 10% growth. So we believe that, that will carry on into the future. There was another behavioral change that we saw as well with merchants transacting almost twice as much or more than pre-COVID and that was to do with the changes in seating arrangements at restaurants as well. So again, that's a behavioral change that we've seen come through. So while the underlying growth was about 23%, I think there were a lot of other benefits that actually came through to our transaction value. Just finally, in terms of future growth, health is one of our smallest. So we've transacted about $2.5 billion in health in the last half year, although it's in second from the number of merchants count and we've been investing a lot in the health space. So we are very optimistic about the growth in the health space going forward. I think what we believe is that is not going to be impacted as much by lower discretionary spend going in the future.

The next question comes from [ Shao Yen ]. [ Shao ] asks, as a payment specialist, why does the business think it can be successful in banking? And is this not just an added distraction given our low market share in core payments?

I think the way we need to look at our banking products and services is -- as an adjacency as the capability that allows us to be able to provide a better payment service to our merchants. We know, for example, that a merchant that has a bank account with us, we can provide 7-day a week, same-day settlement. We are unable to do that if we don't have a banking product. As I mentioned, we also know that our banking products create stickiness. Those I said in my earlier comments, the customers that have banking products, they are 2.5x more satisfied and significantly less likely to churn. So where we see our banking products being used is to be able to provide value to those merchants who choose to use us. We know that, as I said, it creates stickiness and we know that it creates a better payment service for our merchants. And that's the reason why we see some real opportunities in -- with our banking products. It's not about banking per se. It's about how we can create more value to merchants by leveraging some of those capabilities.

The next question, again from [ Shao Yen ]. Does the company have a longer-term target OpEx to gross margin percentage?

We haven't given out a longer-term guidance, so we probably won't do that today. I think what you could refer back to is our operating leverage reduction year-on-year and our strategy of improving operating leverage into the future.

The next question comes from [ John Coast ]. John asks, I understand that you can't share the Board's thoughts on fair value per share. But can you share some of the underlying assumptions, like what you're assuming for banking growth or what interest rates or unemployment rate you forecasted into the future. So that we may be able to make our own assessment of whether we think your assumptions are reasonable.

No, we're not able to share that information that has not been released. We have our internal views, and that's obviously built into some of the guidance and the estimates that we have provided. But no, we're not able to share any further details.

The next question comes from [ David Staffan ]. How do you think major banks will impact your post terminal business? CBA and Westpac really seem to be focused on this area with new hardware and software.

Yes. Look, I mean, I think it's a good question. The competitive landscape does continue to evolve and the major banks are certainly investing more in the payment space. And we've also -- we had a question earlier on that are referred to by some of the international players that are operating in the Australian market as well as some of the domestic -- newer domestic place in this market. I think that the banks are investing. We continue to take market share from the major banks today. And what we need to do from a strategic perspective is to continue to make sure that we have a very clear value proposition that our merchants understand that does really add value to them. And as long as we can do that, we are confident that we can continue to grow. I did refer earlier on to some of the opportunities that we see. We still have less than 6% of the in-store payments market. So we're confident in our ability to grow. We need to understand the evolving competitive landscape, both from domestic players as well as international players and make sure that we, from a strategic perspective, differentiate and make sure we do it with the best possible customer experience.

The next question comes from [ Gary Duursma ]. Just thinking back to potential nonbinding indicative offer of $1.60 per share, an opportunistic private equity company, we typically want to see greater than 4x return on the investments. Given that the Board has rejected this offer, I assume the Board and the new management team have plans to see the value of Tyro grow faster and/or further than this benchmark. Is that your plan?

I think that I have in my earlier comments referred to the significant opportunity that we see to continue to grow the business. And I also referred to the fact that we see real opportunities from the growth perspective, from a product innovation perspective and also from a profitability perspective. We see ourselves as a high-growth company, and we would see that growth continuing out over the next 4 and 5-year period. I'm not going to specifically comment around what Potentia might see or private equity might see any opportunities, but we are very confident in our ability to continue to grow the business.

Can I just add one more thing to your question, Gary? The difficulty, of course, is we can't control the share price. Of course, we have an influence on it in terms of the way people see our company and the results. And I think that we're delivering results, great results. However, we are in a cyclical low in terms of tech stocks, payment stocks globally. We've now delivered our first profit. We've got significant growth forecast. We would assume that the value of the shares will continue to grow, but we're not in a position to control that.

The next question comes from [ Ben Fock ]. It seems that you're seeing more opportunities in the banking space. We know that of your bank accounts, around 80% are inactive. How do you motivate your merchants to reengage with banking?

It's a good question. We do have a high number of inactive bank accounts. And if I was to sort of comment on that specifically, I don't think that over the last few years, we've done a great job in articulating the value that our bank account brings to customers. I also mentioned that it does really allow us to be able to provide same-day, 7 day a week settlement. So what we are currently doing is making sure that we are very, very clear on the value proposition that we're effectively articulating that to our consumer -- to our merchant base. But importantly, what we're also doing is focusing on making sure that our merchants have access to the capabilities that allow them to not only pay that to be paid. And we've done a lot of work in our web banking portal over the last month or so. We will continue to invest in that space. And we will continue to make sure that our transaction banking accounts have the kinds of features and capabilities that merchants need and require. So there's a lot of work taking place in that particular area. But as I say, we see the banking side, and we see our bank account as an add-on capability to our core payments business. We need to make sure our merchants -- we have a deep understanding of what merchants require and that we then provide the appropriate banking services to be able to support them.

A follow-up question from [ Ben Fock ]. When you talk about new merchant growth, can you split up how much has been as a benefit of the Bendigo Tyro? Have the takeover talks primarily of the company's ability to attract new potential partners?

So let me start with that. I think that when we look at our merchant growth, we do separate core merchant growth from total merchant growth. I've mentioned we've seen 9% merchant growth over the first half. When we actually separate Tyro core versus Bendigo, we do see a change. We see Tyro core grew 16%. I think it was over the half. Bendigo customers, you would have seen in our presentation actually slightly went back over the half. We do think that, that was in part due to a reporting issue associated with the migration from Bendigo switch to the Tyro Switch, which continues to take place. I don't think that I would comment that would suggest that any takeover talks or anything have had any impact on our ability to be able to attract other customers or merchants that are similar to Bendigo book. But what we do need to do is to make sure that we complete migration and then we work with Bendigo to continue to grow that book.

And I might just add, as Jon mentioned earlier, we've also recently announced the partnerships with Telstra and Australia Post, 2 iconic brands, which has been in that same period.

Thank you. The next question comes from [ Chi Chang ]. What is the settlement amount for the class action in relation to the terminal connectivity issue that occurred in early 2021? Is it material?

I'm not going to comment specifically on because that I did predict you see the ASX announcement, we did note that it would have no impact on Tyro's financials in the FY '23 financial year. And we are very pleased sort of being able to address that issue. And while we're still waiting on court approval, we expect that to be completed over the coming months.

Okay. The next question comes from [ Terry Rosborough ]. Does the full circa $11 million in cost savings emerge in FY '24 with $5 million being achieved in FY '23?

Yes, that's correct.

Yes is the answer. We have, in the first half, achieved $1.2 million of planned savings for the FY '23 year. That means that we'll have approximately another $4 million that we will see in the second half. So about $5 million for the FY '23 year and on an annualized basis from FY '24, it will be $11 million.

Okay. The next question comes from [ Mark Devich ]. Can you confirm that any fair value gains are excluded from your normalized EBITDA guidance?

That is correct. It is excluded from our guidance.

Okay. Thanks. Again, a follow-up question for Mark. Mark asks, has Bendigo due diligence fit? I assume Mark refers to Potentia rather than Bendigo, but he says has due diligence finished as the 4-week due diligence period expired on the 10th of March?

We're still in discussions with Potentia and that's certainly I'd like to say.

Thank you. Those are all the questions for now.

Okay. Well, thank you very much to everyone for joining us today. We really do appreciate it. We appreciate the questions. It is a period that a lot of change for Tyro. It's a period that we're particularly excited by. And we are also very optimistic about the future for this business. So thank you for joining us today.