Thanks, Kylie. Good morning, everyone, and welcome to Cuscal's half-year 2025 results presentation, our first since listing on the ASX in November 2024. I'm Craig Kennedy, Managing Director of Cuscal, and I'm joined by our CFO, Sean O'Donoghue. I'd like to begin by acknowledging the traditional custodians of the land on which we gather today, the Gadigal people of the Eora Nation. I pay my respects to their elders past, present, and emerging. I extend that respect to all First Nations people joining us today. Turning to the agenda on slide four, we'll begin by providing an overview of Cuscal and the highlights of our first half result. Sean will then review the financial performance in more detail before we cover the outlook for the second half. For those of you who may not already be familiar with Cuscal, we are Australia's leading independent B2B payments provider.
We have a differentiated role in the Australian payments landscape with some key competitive advantages that underpin our strong market position and support long-term client relationships. Namely, we offer end-to-end capabilities that enable our clients to access or connect to all payment rails via one vendor, which can be far more efficient than sourcing from multiple vendors. Being independent and B2B, we focus on the infrastructure or the connection layer and do not compete with our clients at the consumer experience or application layer. Importantly, we're fully licensed and regulated, have a strong balance sheet, and an investment-grade credit rating. We have a long-tenured client base and a financial model that's reasonably predictable, with a track record of disciplined investment that's now delivering operating leverage. We have an attractive growth profile underpinned by structural industry growth drivers and multiple levers to support consistent top and bottom line growth.
A combination of our market position and infrastructure is difficult to replicate and would require considerable investment in both time and capital. Touching on those growth levers in a little more detail on slide seven, in the near term, our primary focus is to grow our existing capabilities, leveraging recent investments we've made in our infrastructure and the opportunity to expand our market share in a growing market. Inorganic growth is also a key growth lever, and we have a track record of successful M&A that's given us a foothold in new capabilities. We have an active pipeline of opportunities in Australia we are evaluating, with any inorganic investments subject to a disciplined acquisition framework. Finally, we have the opportunity to expand into logical adjacencies, such as regulated data services that were supported by our acquisition of Basiq.
We remain optimistic regarding the opportunities that may emerge as payments, data, and digital identity converge to provide greater consumer experiences and protection. We have growth opportunities across our three core capabilities: issuing, acquiring, and payments, and have continued to invest in building our core infrastructure to support scale and growth. In our issuing business, which comprises nearly 60% of our revenue, we issue, process, and manage cards on behalf of our clients. We have invested in modernizing our card management platform, enabling us to support a greater range of products and reduce the time and cost to market for our clients. We see opportunities to expand into new segments of the market, such as large corporates who may be looking to launch their own branded card, or salary packaging organizations looking for innovative card solutions to manage salary packaged items.
In acquiring, where we provide the infrastructure that enables our B2B clients to connect and accept card payments, there's an opportunity to support our clients as the market moves beyond traditional card payments to new forms of payments, such as account to account in real time across all channels, be it in-person, online, or in-app. With Cuscal's unique connectivity across all payments infrastructure and capability across the entire value chain, we believe we're in a prime position to enable a cost-effective and compliant unified connection to accept all forms of payments for our clients. Finally, our payments capability remains a key opportunity, partly driven by the state of batch payments in 2020, sorry, in 2030, but also the increased adoption of the new payments platform by large billers and direct payers. Overall, we see a diverse range of growth opportunities across our core capabilities.
Turning to the highlights of our first half result on slide 10, we have seen continued momentum over the half-year period, with transaction volume up 70% on the corresponding period, translating into earnings growth across all of our core capabilities and an improvement in our key financial metrics. Our investments and cost management are delivering meaningful operating leverage. We expect to deliver low double-digit NPAT growth this year. Importantly, we're pleased to report that we're on track to meet or modestly exceed our prospectus NPAT forecast. Overall, a solid first half of execution and delivery, and we're looking forward to this continuing in the second half. I'll now hand over to Sean to run through some of our half-year financial results in a little more detail.
Yeah, thanks, Craig. I'll touch on some of the key financial highlights for the half-year ended December 2024.
Our review of operations sets out further details of the results for the period. Obviously, non-recurring costs associated with the listing of Cuscal in late November 2024 of around AUD 9 million after tax materially impacted our consolidated profit per the financial statements. I'll just sort of call that NPAT for reference. This resulted in statutory NPAT of AUD 12.2 million against AUD 13.7 million for December 2023. We're therefore presenting the financial results on a pro forma basis, that is, excluding these non-recurring IPO costs, and this is consistent with the prospectus. We've seen solid progress and good growth across the board for December 2024, and as Craig mentioned, are on track to meet or modestly exceed our full-year NPAT prospectus forecast. As Craig also mentioned, we saw continued growth in transaction volumes across all our core capabilities.
This momentum in transaction volumes has supported solid growth in adjusted EBITDA and NPAT, with pro forma adjusted EBITDA up 21% on PCP to AUD 35.6 million and pro forma NPAT up 42% on PCP to AUD 21.5 million. Growth in NOI, investment, and broader cost management has seen further operating leverage emerge and operating margin expansion, with pro forma adjusted EBITDA margin up 29 basis points to 24.3% and a pro forma NPAT margin up 38 basis points to 14.7%. Pro forma EPS is similarly up 42% in line with NPAT, and our pro forma ROE, and that's for the half-year period only, so it's not an annualized ROE, was up 140 basis points to 6.3%. Turning to slide 13, overall transaction volumes were up 7%, comprising issuing up 6%, acquiring up 6%, and payments, which is a blend of NPP and batch, up 11%.
Adjusted net operating income was up 6% to around AUD 147 million, and we saw NOI growth across all the core capabilities, demonstrating continued value from our diversified revenue model. For issuing, NOI was up 7% to around AUD 86 million, a consistent circa 60% contribution to total NOI. With issuing transaction volumes up 6%, underlying transaction-based revenue, that is, excluding a couple of one-off items that positively benefited the December 2023 result, was up 6%, and that was within expectations. For acquiring, NOI was up 2% to around AUD 15 million, a consistent circa 10% contribution to total NOI, but relatively immaterial to overall NOI. December 2024 sees a more normalized transaction volume growth profile emerging. Remember, December 2023 was affected by Bendigo 's sale to Tyro and Square's expected consolidation of its international processing, with Cuscal processing the domestic legs.
With acquiring transaction volumes up 6%, transaction volume-based revenue was up 4%, broadly in line with transaction volume growth. For payments, NOI was up 4% to around AUD 35 million, a consistent circa 25% contribution to total NOI. Payments transaction volumes and associated revenues are a blend of both NPP and batch. At an industry level, NPP is newer and emerging with higher growth, whilst batch has a retirement date of 2030 and declining growth rates. With the payments transaction volumes up 11%, again on an underlying basis that is excluding a one-off that positively benefited the December 2023 comparable, blended payments transaction-based revenue was up 9% as expected. We're on track to meet our FY 2025 prospectus total NOI forecast. Turning to slide 14, pro forma operating expenses were up a modest 2% to around AUD 116 million.
This primarily reflects a slower than planned ramp-up in employment expenses for the December 2024 period, positively skewing the H1 adjusted EBITDA and NPAT results. Employee benefit expenses were down 6% to AUD 58 million, reflecting slower onboarding of planned FTE during the December 2024 period, with average FTE around 12% lower than for December 2023. D&A expenses were down 9%, largely due to the one-off write-down of a data services intangible asset in FY 2024. Non-salary technology expenses were up 38% to AUD 34 million, and this reflects both timing and the nature of execution of our risk and technology uplift investment program, that is via third parties in lieu of additional FTE. Other expenses were down 17% to AUD 16 million on lower third-party consulting costs compared to December 2023. We'd expect the total operating expense profile for the full year to be broadly consistent with the forecast.
The lower than planned operating expense outcome in H1 is more an indicator of timing, and we're expecting to catch this up in H2. Turning to slide 15, the balance sheet and regulatory capital position both remain strong. Equity obviously now includes around AUD 30 million of capital raised proceeds, and we saw an increase of around AUD 300 million in client deposits during the period compared to June 2024. This has supported marginally higher than planned net interest income for the December 2024 period. Regulatory capital was at 27.1% at December 2024, well above prudent minimums. At a target 18%- 19% regulatory capital position, we do currently hold excess capital and continue to pursue opportunities to meaningfully deploy this excess through further growth-orientated investment and/or more direct M&A activity. I'll now hand back to Craig to talk a little bit about our outlook for the rest of the year.
Now turning to the outlook for the rest of the year on slide 17. As mentioned earlier, we're on track to meet or modestly exceed our pro forma prospectus forecast of AUD 36.6 million and related operating margin. We expect mid to high single-digit transaction volume growth to translate to low double-digit NPAT growth for the full year. Full-year FY 2025 pro forma NPAT expected to be positively skewed towards the first half, with second half operating expenses expected to be ahead of the first half due to the timing of onboarding FTE. As a result, we expect the first half to represent around 55% of pro forma full-year NPAT. The FY 2025 final dividend forecast of AUD 0.055 per share remains unchanged, and with significant investment capacity, we continue to explore inorganic opportunities for deployment. Before we open for questions, I just wanted to reflect on some of the opportunities ahead for Cuscal.
The business is well positioned for growth and operating leverage, with a revenue model that's underpinned by long-tenured client contracts and multiple growth drivers. Given significant recent investment in our operating model, we expect operating leverage to continue to emerge, and our strong balance sheet strength supports ongoing investment in the business to drive organic and inorganic growth. Finally, I'd like to take the opportunity to thank the Cuscal team and our shareholders, both existing and new, for their support during the IPO process. We will now open for Q&A.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speaker phone, please pick up the handset to ask your question. Your first question comes from Matt Dunger with B of A.
Yes, thank you for taking my questions. Congratulations, Craig and Sean, on your first results and pleasing to see that operating leverage that you've delivered in the half. With your guidance on mid to high single-digit volume growth, just wondering into the second half, prospectus is looking for 9% this year. It appears you need about 2.5% half-on-half volume growth into the second half to hit the prospectus. Could you give us a sense of what you're expecting into the second half around new client wins, system growth, seasonality, and also if there's anything baked in for the new card management system?
Thanks, Matt. There's nothing in our second half, either in the prospectus or our current outlook, that requires or relies on new business being written. We do have a steady flow of little bits and pieces flowing through. That's not what's driving our outlook. I think on a net underlying basis, there might be some swings and roundabouts, but on a weighted average basis across our transaction outlook, we're expecting it to be pretty much consistent with that prospectus forecast.
Excellent. Thank you very much. It appears also the gross fee margin expanded slightly, noting some stronger growth in payments. Is that compositionally what's driving the stronger gross fee revenues as a proportion of the number of transactions?
Yeah, not necessarily, Matt. The gross fees are obviously a mix of a whole range of different things. Again, on a sort of underlying basis, if I look at unit prices per transaction, they're broadly similar across each of the domains. We're not seeing material movements in those sort of underlying transactions per unit revenue numbers. As I said, you've got some different mixes. You've got pass-through fees, you've got other types of revenue, particularly in issuing. That may be skewing some of the headline gross fee commission income, sort of I guess equation in that sense.
Great, thank you. Thank you very much. I'll let someone else ask a question.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. We will just pause for a moment to allow questioners to enter the queue. Your next question is from Stewart Oldfield with Field Research PTY Ltd.
Good morning, Craig and Sean. Well done also on getting first results away. Just at the biggest picture level, what's the possibility of Cuscal perhaps one day winning a major bank as a client, given your independent status and the like?
We already have National Australia Bank as a client, for example. Their digital banking division [being New Bank], everything they do for payments, including all their ancillary services such as digital card issuance, various controls on their mobile app in relation to payments, etc. We provide all of that, and they've recently renewed that contract for quite a long time. I think the challenge there is, could we build on that and be more relevant to the broader business? I would like to think so.
We're actually having some discussions at the moment with a couple of other organizations also, how we might be able to supplement some of their fraud and scam services because the broader set of data and some of the unique things we see in the market that no one else is seeing might contribute to better intelligence and how to better anticipate certain activity and try and prevent that. We are in some of those discussions. What I would highlight is that there are a few banks in my view that would never give this sort of work out, that will always continue to do it. There are others that will ultimately take the view that the connection layer is not where the competitive advantage is. You might have a control element or attitude towards it.
Those that are more conscious about preserving capital and focusing more on the experience layer, I think over time will consider organizations like Cuscal either supplementing or helping what they do. What I would say is no one's going to go and put all their payments out in one hit. They might look at a component of it. It might be one part of their processing as they have an existing piece of technology due for upgrade or licenses expired. They might look at it as a component at a time. The best analogy I can give you there is we first started doing work with Bendigo Bank in 2014. Now, 11 years later, I think we provide four or five extra services to them today than we originally did. We started out only processing cards for them. Today we do their batch payments.
We do both forms of real-time payments. We provide all the payment capabilities and digital services to up their digital bank. We are exploring how we might supplement some of their fraud services, for example. We're also introducing other things like we've just built a service to help detect mule accounts that are being used in a portfolio of a banking client. A couple of our larger clients have taken that on in a pilot with good success as well. Some of those capabilities may be interesting for a bank, one or two of the major banks also.
Got it. You mentioned the salary packaging and larger corporates who want to get into the issuing space. Is that something that is a nearer term prospect of new client wins?
What prompted that is, first of all, we're looking for an executive joining the organization that's got broader experience beyond banks and fintechs that we are quite well experienced with. When it comes to superannuation into the industry or some of the corporates, that person's got more exposure there. We've got some activity in the pipeline we've not had before. We have had approaches from people like Westfield in the past looking at doing some innovative things in and around cards. Our prior card management system couldn't support the sort of things I'm looking to do, whereas the one that we've just implemented and upgraded has those sorts of capabilities. There's business for us that we can now contest today that we haven't been able to propose. It'll be a slow build, but I do expect us to get more of that activity in our pipeline.
Got it. Finally, for me, just on some of the mergers in the mutual bank land, is it your expectation that they'll fall in your favor, most of them in the short term in terms of remaining as the primary payments provider?
Yeah, look, it's an excellent question because if you'd asked me five years ago, I would have said out of every 10 mergers, we might win eight, maybe nine of them. It just so happens that we won them all. There's also been an example where Bank of Queensland, for example, bought ME Bank, which was tiny by comparison to BOQ, and we were providing some payment services there. We've been a little bit fortunate where they liked what we were doing there. The platform that ME came is one that they're building out and expanding. We've actually picked up a bit more work with the main parent being BOQ in that case. We've had a really good run with that. There are six organizations that have announced in the mutual sector their intentions to merge into three over the next 18 months.
It'd be dangerous for me to suggest that we'd expect to get all of them, but we do provide the services to the larger, stronger entity on each side of those proposed mergers. We'd be in there. If you look at our prior track record, we'd expect to win the majority if not all of those. That's a very long-winded way of saying that consolidation in the mutual sector and the non-major bank sector to date has been a positive thing for Cuscal.
Got it. I might squeeze in just one last one, if I may. Just the proposed takeover of Australian Settlements Limited, you know, by an offshore entity. Is there any repercussions of that for your business?
No, we'd expect very little change there in the short term. Just to be clear, the sort of client base that ASL serves, you know, we generally don't serve. It would be very unusual for us to go up against them in bidding for any business. Over the last few years, they did have a couple of banking clients that proactively sought us out and made some changes away from them. We don't overlap a great deal, and their model is different to ours. They source capabilities in some cases from third parties that we have end-to-end. There is some overlap. It's not clear to us what their change in focus might be in the near future.
It may throw up an opportunity because some of the people that were previously really tightly aligned there may be open to changes in the future where they wouldn't have under the current arrangements. Otherwise, we're expecting it to pretty much be business as usual.
Got it. Thanks for that.
Your next question comes from Alastair Hunter with Ord Minnett.
Morning, Craig and Sean. Well done on the result. Question, Sean, just on cash flow conversion, looks like around sort of 95% versus EBITDA in the sort of the first half, a little bit higher than expected. Any sort of commentary in terms of sustaining that sort of level of conversion?
Yeah, it's a little bit arbitrary in the first half. I mean, I guess I always sort of point to adjusted EBITDA as kind of the best proxy for cash flow, whether you unwind our balance sheet and our cash flow statement. I'd be expecting the full year to be more aligned to adjusted EBITDA, and that's our typical measure for sort of operating cash flow.
Thank you. The client deposits that sort of help drive the higher than perhaps forecast net interest income up to just over AUD 3 billion. Can you give us a little bit of, again, unpacking just what drove that higher than expected deposit level?
Yeah, there's probably two elements to it. The first one is generally, as transaction volumes increase, we'll tend to see higher client deposits because they're fundamentally meeting pre-funding payment cash flows. There is, I guess, a bit of a correlation with transaction volume growth. The second component is probably, I guess, more point in time and situational. Sometimes you can have big swings as at a year-end date, depending on the number of days prior to year-end that the settlement flows are being warehoused. That does swing a little bit. Yes, we're directionally increasing sort of in line with transaction volumes, but there can be some swing around a particular year-end that doesn't necessarily drive net interest income over the period.
Alastair, the one thing I'd add to that that's a little harder to predict and plan for is sometimes clients just get lazy.
They end up, you know, they have a little bit of extra money with us, and rather than take it away and manage it in their treasury and their investment, they leave it because they think they've got a cycle coming through where they need to top it up in any case. That's the only outlier I'd highlight. Sometimes we get a little bit extra planned for the deposits just because of the activity from the clients.
In terms of thinking about it as modeling over multiple years, it sounds like there will be variations, but best to keep it somewhat consistent with just transaction volume growth.
That's the part that should be known and planned for. The others are less within our control. There's probably more aligned to the transaction value metric that we put out, and we put that out just to help you sort of model that out a little bit.
In the payments business, just trying to understand your view as to the growth that may come into that business via the PayTo product seems to be slow burn. What's your view over the next couple of years as to how that might add to transaction volumes in the payments business?
Yeah, there's no doubt that the key thing driving PayTo first of all is all the banks having the service available, so it's ubiquitous. Secondly, the more batch is retired or the more progress we make on retiring direct debits and other prearranged payments that are all attached to batch, there'll be material drivers of PayTo . It's just a little hard to predict. I mean, I can tell you what we expect it to look like by 2030, but the rate at which it goes each year along the way, it could be lumpy. You could have periods of greater conversion than others just because the rate at which government, business, and large corporates attached to some of the major banks adopt change, it's just very hard to forecast.
Thank you. Any updates for us in terms of your views as to how the RBA retail payments review? Obviously, we've had this admissions awaiting the first response from government, but anything that you can share in terms of views that might have evolved since you last spoke to the market on the outlook on that?
No, what is clear is the feedback they've received is very diverse. They're taking the appropriate amount of time to digest that. I think they're going to publish shortly a summary of their findings with the intention probably around the middle of the year to publish a draft response, and that'll give thematically and directionally, that'll signal exactly where they're intending to go, and they'll use that as further consultation before taking a final position. The RBA is very balanced, very considerate in these things. You won't see anything rash from them. The only thing I can say with any certainty is that I think they'll make an informed choice, and they're going about it appropriately, but there's no clear indication at this point exactly where they're going to land.
Finally, one question just on the regulated data, profitability. Sean, in the first half at the NPAT level, we've obviously got revenue disclosures. What was the profit performance of that business for the half?
It was approximately half what we had in the prospectus, so around AUD 3 million-A UD 4 million after tax. With the acquisition of Basiq in early July and 100% ownership, we're now eligible to tax-back those losses. There is a little bit of a clawback on the after-tax position on Basiq, and that will be consistent going forward.
Okay, thank you. Appreciate the ability to ask questions. Thanks, guys.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Matt Dunger with B of A.
Thank you, gentlemen. I just thought I wanted to follow up on the capabilities and the deployment of FTE onboarding. I'm wondering where the costs are being deployed, where you're seeing growth opportunities across the core capabilities of issuing, acquiring payments, financial crime, regulated data in the second half.
Yeah, in terms of the biggest driver of headcount, and we've actually caught up on a chunk of that since the half year, it's actually in our uplift programs that we've got going on. The FTE that's attached to revenue generation is pretty stable in the business and already established. That's already built into the forecast. Where we're actually seeing some uplift in the issuing at the moment and where the pipeline looks a little bit different to previous is just the benefit of the new card management capabilities we have. Just keep in mind previously most of our activity came from banks that had their own card management system or other third parties that had those card management capabilities. If you were a Westfield, for example, coming to us and you didn't have that capability, we'd have to send you away to somebody else that did have that.
We've got clients who've had to go source that from a third party and then come back to us with the processing element. Now that we can package all of that, that's probably what's changed the shape of the pipeline. The other thing is that we've got a couple of existing clients that can now run multiple cards and have different programs and complementary cards where their own card management system had limitations in that regard. The pipeline includes some of that activity as well. Just keep in mind those activities will be a slow build and there's no sudden bump to the numbers.
Okay, so the spend will be more technology-driven as opposed to distribution staff-driven into the second half in terms of the FTE uplift?
Correct. Yep.
Great, thank you. Just wondering, final question from me, given the surplus capital position, you've flagged that you will continue to look at inorganic opportunities. Is there any update on progress and timelines around when we could see something happen on M&A?
What I can say is that we're actively engaged. We're evaluating some opportunities. We've got support from our advisors on those, but nothing's progressed to a stage where we've got anything to communicate to the market. It's really difficult to predict timings, but we'll obviously be very careful. I think we've been really clear in the past that we're looking for things that have got contracted clients, preferably some synergies that we can leverage in our cost base, add more diversity and growth to our core capabilities. They're the key attributes that we're anchoring those conversations in. There's some good prospects there, but we're just not far enough along.
I appreciate [sincerely] . Thank you very much.
There are no further questions at this time. I'll now hand back to Mr. Kennedy for closing remarks.
Thank you for taking the time out, everybody, this morning. I know that we're likely to see a number of you over the next 7-1 0 days, so I look forward to catching up. Thank you again.