All right, checking with the tech team. Are we good to go? Good to go? All right, great. Well, good afternoon, welcome to the 2023 Annual General Meeting of OFX Group Limited. This meeting is being recorded so that it can be uploaded to our website. My name is Patricia Cross. I'm the board chair of OFX Group Limited, I will chair today's Annual General Meeting, which is being held as a hybrid meeting, with some investors present at our offices in person, and welcome, some investors present at our attending online. I'd like to start with an acknowledgement of country. We acknowledge the original custodians of the lands upon which we work and live and hold this meeting, we'd like to pay our respects to their elders, past, present, and emerging.
The company secretary has advised me that we have a quorum of at least two shareholders present. I declare the meeting open. I'd like to introduce the OFX directors. On my right, I have Skander Malcolm, the CEO and Managing Director. On my far right, our non-executive directors begin with Connie Carnabuci, Grant Murdoch, who is the chair of the Audit, Risk, and Compliance Committee, Doug Sneddon, who's the chair of the Remuneration and Nomination Committee, and Cathy Kovacs. Adrian Wong, our Chief Legal Officer and Company Secretary, is attending, and the company's auditor, Sean Kendrigan, in the front row from KPMG, is here in person also.
Members of the global executive team, who are also attending either in person with me or via Zoom, are Selena Firth , our Chief Financial Officer, Mark Shaw, our Chief Operating Officer, back in the middle, Axel Freitag, our Chief Strategy and Corporate Development Officer, Gavin Groll, at his first AGM for OFX, sorry, the Chief Risk Officer, Elaine Herlihy, the Chief Marketing Officer, and Yung Ngo, President of Asia Pacific, Kate Svoboda, the Chief People and Culture Officer, and Adam Thomas, our Chief Technology Officer. Due to the time zones, our offshore regional presidents will not be on the call. For those attending via Zoom, if you have any technical issues at all, please call the OFX team on +61 2 8667 9160 for support. On to the agenda for today.
I will make a brief introductory address. Then I will introduce the CEO and Managing Director, Skander Malcolm, who will provide his address. We will then move to the formal part of the meeting and the resolutions set out in notice of the meeting that has been sent to shareholders. There will also be an opportunity to ask questions on each resolution, and also during the general discussion session following the formal business. I'll now deliver my address. Thank you for joining us, either virtually or for those who are lucky enough, in our refurbished facility here in Sydney. It's terrific to be able to freshen up our physical space. The new office is proving very popular with our employees.
This is my first AGM as chair, and I'm delighted to share with you how pleased I am, and the board are, with the results in fiscal year 2023, and the progress we're making in building a more valuable company. Skander will share a summary of the results, but we are particularly pleased with the combination of strong growth in NOI at healthy EBITDA margins, strong risk outcomes, while we continue to grow our investment in the capabilities we need. It's also terrific to see employee engagement on the rise. As we all know, exogenous factors continue to create both risk and opportunity for OFX. Rising interest rates, inflation, technological disruption create considerable, considerable uncertainty for our clients, prospects, and employees.
Thankfully, at OFX, we have a very strong risk culture and good governance. We can carefully assess our risks and look for ways to mitigate them, but also find opportunities to leverage our strengths. The acquisitions of both Firma and Patron are good examples of this. In the case of Firma, the combination of technological disruption and regulatory scrutiny created a reason for the vendor to consider an exit. While our global platform, balance sheet and operational excellence made us a natural acquirer. In the case of Patron, our clear customer and product roadmap, along with our technological ambition, suited both the vendors as well as us. It's also helped that, as I've said before, we are ambitious, and we took these opportunities because we want to grow a more valuable company, and we continue to have ambition and capability.
As we consider the risks and opportunities offered by the current environment, we continue to evolve our strategy in order to best explore and optimize our investments for growth and risk. Skander will speak to the buyback in his address, but I want to confirm to you that the board will continue to run our disciplined buyback program within the parameters we laid out, while we continue to assess the buyback as being on balance in shareholders' best interests, and we will keep investors abreast of outcomes. I am clear on behalf of the board and the 700 plus OFXers, that we are in healthy shape, and we will continue to support Skander and the team build a more valuable OFX in the next year and beyond. Now, I'd like to hand over to Skander Malcolm, our CEO and Managing Director.
Thank you, Tricia, and welcome everyone. You're gonna have to mute yours. Perfect. As highlighted on, on slide six, our fiscal year 2023 was another record year, with turnover of AUD 39.1 billion, driving net operating income of AUD 214.1 million, and underlying EBITDA of AUD 62.4 million. These metrics represent the biggest NOI we've ever produced, up 45.6% on prior corresponding period, and the biggest underlying EBITDA we've ever produced, up 40.3% versus the prior corresponding period, whilst generating the strongest net available cash of AUD 67.4 million we have ever had. This financial performance was the result of very strong execution. Clearly, the external markets were as unusual as we've ever seen, with rapidly rising interest rates, inflation, and considerable political and geopolitical conflict causing uncertainty for our clients and for our team.
Nonetheless, we were very disciplined in driving an exceptional integration of Firrma, in continuing to invest and deploy new features and services in our global platform, in leading our team and engaging our employees, and in managing the considerable risks we face. Beyond the financial and operating metrics, I was especially encouraged by the engagement and the productivity of our team. Engagement scores are up. We continue to drive client engagement through our team, and we're seeing excellent mobility. In other words, increased level of promotions amongst our people. Moving to slide seven. As I just covered, our overall performance in the fiscal year 2023 was strong in the first half and flat in the second half, driven by a softening in consumer confidence globally for high-value use cases. The chart on the left shows group revenues split by segment by half since the first half fiscal year 2021.
We share this to illustrate a few important points for investors. Firstly, the total portfolio is affected by swings in the consumer portfolio, but that effect will be more limited going forward as the pivot to B2B has well and truly taken hold. We do occasionally see some softness in corporate, such as the first half of fiscal year 2022, but largely, we see steady growth at a long-term CAGR of between 10% and 15%. Secondly, whilst we can have unusual half-on-half performance, as we did in fiscal year 2023, driven by consumer, it is rare that this persists over multiple periods. Finally, as we start to build synergies from Firrma, and as we start to build stronger growth from our online sellers and enterprise segments, we expect to see the effects of consumer fluctuations lessen on the overall result, though it still will remain valuable.
All of this revenue growth can be supported by good execution across margin, operating expense, and risk management levers also. Moving to slide eight. Many of our investors will be familiar with our strategy on a page, describing our goal to build the world's leading cross-border payment specialist. Good strategy has never been more important. The external landscape is changing rapidly. Higher interest rates, high and stubborn inflation, systemic banking risk, all of which weren't present 12 months ago. Continuing to question our fundamental beliefs, continuing to test our strengths, and continuing to take heed of what we see in the market, is critical to build the sustainable growth company shareholders expect of us, and I'll just highlight a few of our key strategic points.
Firstly, we're playing in a huge market that grows every year and is largely dominated by major banks, who are more expensive and less well-liked by their clients than the new entrants. More and more, customers are taking up the specialist service in every region, as evidenced by the growth rates of all new entrants, whether they're public or private. Secondly, we choose to target four segments. We chose those because we felt we have the right combination of skills, knowledge, global presence, platform, risk management, and service delivery for those clients and prospects. Our competitive position is strong, driven by years of investment, learning, and progress, and we know that we are differentiated through feedback from clients, competitors, banks, and regulators.
Finally, we have a valuable business, but we can make it more valuable through good execution, better capital management, a strong team, and by leveraging our credibility as an industry specialist to grow wallet share of our clients by generating revenue beyond the core spot transaction. Our acquisition of Paytron is a great example of this. Turning to slide nine. Today, we generate broadly 90% of our revenues from spot transactions, and the remainder from transactions that are related to forward contracts. This mix reflects our history of starting with consumer clients, who largely used us to move funds at a lower price, more quickly than banks, as well as corporate clients, who found our combination of price, service, and speed compelling.
Corporate clients increasingly see the value in laying off risk, especially as they navigate turbulent supply chain, payroll, and other risks in their businesses. However, we also know that the same corporate clients have needs that are associated with their cross-border payments, and have accounts receivables that we don't serve. Firstly, they'll have generally smaller value transactions that they use corporate cards to pay with. For example, software costs that are billed in U.S. dollars or vendors for services offshore. They can use OFX for many of these, but they don't, because it may seem easier to use a card, and they're very widely accepted. The reporting is excellent, and they can be controlled well.
Secondly, as invoicing has become increasingly digitized and accounting packages increasingly integrated with invoice management, corporate clients have turned to firms specializing in integrating their invoice management with their payable solutions, both domestically and globally. Those firms generally charge a subscription for that service. Patreon provides digital solutions across cards and invoicing, and by OFX acquiring them, we get immediate access to the software we were in the process of building to access revenues from these clients. The software we were building, as Selena has described many times before in our intangible investments, creates competitive advantage by making life simpler, safer, more reliable, and more visible for corporate clients. The acquisition of Patreon fits into our platform journey by giving us a card and invoice management solution.
Over the next 3 years, we'll continue to operate the two platforms until we're ready to merge the two, which we expect to start within 1 year of closing. In addition to the software, we're delighted to welcome Patreon's team to become part of OFX, led by co-founders Jacco Veldman and Francois Henrion, our Patreon team are here today. Jacco and Francois have over 30 years of experience across multiple geographies in major banks and entrepreneurial organizations in the payments and trading space. They've assembled a very strong and experienced team to build this platform and take it to market. We've structured this investment to align the interests of shareholders, the vendors, and the clients. In summary, we'll acquire Patreon.
We have acquired Patreon in exchange for a consideration of AUD 11.25 million OFX performance securities, which vest when certain targets are met by Patreon over the next three years. OFX will fund the operating budget, with OFX retaining discretion in line with their revenue performance. This structure will encourage revenue to be generated, a strong integration, and a better client experience, all underpinned by our usual disciplined risk and compliance foundations. We think this is a great way to add valuable features and services for our corporate clients and create the most compelling proposition for corporates globally, while enhancing our revenues in time. In addition to generating revenue from loyal clients, OFX has always been a strong generator and converter of cash, and this gives us options with respect to the best way to generate value for shareholders.
Moving to Slide 10, at the fiscal year 2023 results, in May, we announced that we would buy back up to 10% of our shares via share buyback program. In simple terms, the program is up and running for up to 12 months, and it will be periodically reviewed during that time. Its purpose is to return value to shareholders through reducing the total number of shares on issue, and whilst we believe it is to the shareholders' advantage to do that. Importantly, it will not be done at the expense of investing for sustainable growth or in repaying debt, or at the expense of investing in M&A or other strategic investments, as Patricia has highlighted. As our last buyback demonstrated, we will run a disciplined program, and we will keep investors abreast of outcomes.
Through the first quarter, I can confirm that we have acquired AUD 2,268,631 shares on market and continue to run our program actively in line with our guidance. Moving to our trading update for Q1 on slide twelve, I'm happy to confirm that we are on track to deliver the outlook we provided in May. Our NOI was AUD 60.1 million, slightly higher than we anticipated, but it includes an unusual item, AUD 3.7 million in other income that I'll explain later. In terms of our performance, we did see a more subdued period in North America, in line with our expectations, driven by the uncertain economic climate and the unusual item in Firma. EMEA and APAC performed well.
In terms of our segments, our B2B portfolio was good, in line with fourth quarter, and up just under 17% on prior corresponding period. Performance in corporate was in line with expectations, whilst online sellers were slightly lower than anticipated and enterprise was slightly better than anticipated. B2C was ahead of expectations and slightly down on prior corresponding period but growing by 10.8% on the fourth quarter of fiscal year 2023. Average transaction values and transactions were in line with expectations, as was our margin. The unusual item in our net operating income is that in the first quarter of 2024, we unexpectedly had a handful of traders leave the Firma business. We continued to provide excellent service to their clients and to mitigate the risk of clients leaving, have taken defensive actions in the shorter term.
The clients have been allocated to Firma's most experienced traders. We expect revenue to return to historic levels throughout the balance of the year. While client and employee retention overall, post the acquisition, has been excellent, when we negotiated the Firma sale, we did anticipate this risk, which is why we included an appropriate amount in an escrow arrangement. Following the departures, AUD 3.7 million of funds in escrow have been returned to OFX. The net net operating income impact from the temporary reduction in fiscal year 2024 is expected to be AUD 0.3 million. There will be a reduction of approximately AUD 4 million in revenue, which is offset by the AUD 3.7 million of the escrow release. The escrow release will be accounted for in the first quarter of 2024, and the revenue reduction throughout fiscal year 2024 as it occurs.
We don't expect there to be any material impact to fiscal year 2025. Moving to Slide 13, we have positive momentum into the 2Q across turnover, fee and trading income, and transactions. Across each metric, we saw growth versus 4Q, and combined with margin improvements and expense control, give us further confidence in our fiscal year 2024 outlook. To further illustrate the momentum, we've split the performance between B2B and B2C on Slide 14. In B2B, we saw slightly lower average transaction values, offset by a higher number of transactions. Generally, more transactions is a good lead indicator of engagement, and so this augurs well, particularly against a backdrop of sound margin management and a relatively soft North American environment, which we expect to persist through the 1H.
In B2C, as I mentioned previously, we've seen activity pick up from the fourth quarter lows through the quarter. While our consumer business consistently delivers good growth and healthy returns, the nature of the high-value use cases we support does mean the transactions and average transaction values can fluctuate quarter on quarter. The growth in average transaction values in the first quarter is due to some activity in these higher value use cases returning, such as for property transactions and salary transfers. This is slightly above our base case overall, reflecting the value of the segment within the overall portfolio. In closing, on Slide 15, we are therefore happy to confirm guidance previously provided for fiscal year 2024. Our performance in Q1 reflects the expectations and assumptions we previously provided, and the tailwinds and headwinds remain as we stated previously.
Our performance, the acquisition of Paytron, and the continuing competitive environment, all contribute to us feeling confident in our vision to build the world's leading cross-border payment specialist. I look forward to updating you on our further progress at the half year. With that, I'm delighted to hand back to Patricia to conduct the formal business. Thank you, Patricia.
Thank you, Skander. I will now turn to the formal business of the meeting, taking each resolution in the order set out in the notice of the meeting. There will be an opportunity to ask questions on each resolution. Questions not related to the resolution should be held until the end of the formal business, when I will open the floor for general questions and discussion. A poll will be conducted on all resolutions. Votes will be excluded in accordance with the Corporations Act and the ASX listing rules. The combined proxy votes and direct votes will be shown after discussion on each individual resolution. I advise the meeting that I will be voting all undirected proxies in favor of the resolutions, as indicated in the notice of meeting. To ensure that all shareholders and proxies have an opportunity to vote, I now formally open the polls.
Shareholders and proxy holders who are registered with their shareholder number or their proxy code can now vote in person or online. If you are a shareholder or proxy holder here in person, you were given a voting card at registration this afternoon. Please complete the voting card by ticking the for, against, or abstain box in respect of each resolution, and hand it to the Link Market Services staff sitting at the entrance table. If you have to leave prior to the completion of the meeting, no problem. Please complete your voting card and place it in one of the ballot boxes held by Link Market Services staff on your way out. If you've joined online, we have now opened the electronic voting card for the poll, and it should have popped up on your screen.
Please vote by selecting the for, against, or abstain box in respect of each resolution on the electronic voting card. After completing all items in the vote, you will need to click the Submit button at the bottom of the voting card. If you want to vote later, then you can move the electronic voting card on your screen, or you can close the electronic voting card by clicking the X at the top right-hand corner. You will be able to vote at any time until the close of the meeting, when I declare the voting closed. You just click on the Poll button on the banner to reveal the electronic voting card again.
If you are not a shareholder or proxy voter, proxy holder, or if you have already voted, please close the electronic voting card by clicking the X at the top right-hand corner of the electronic voting card. If you have already voted and you vote again during the meeting, your previous vote will be invalid. The votes will be counted by our share registrar, Link Market Services, who will also act as the scrutineer. We'll announce the results of the poll and advise the ASX as soon as the results are determined, which is expected to be before the market opens tomorrow. If you have any issues voting during the meeting, please look at the detailed instructions in the OFX online AGM guide, or call +61 2 8667 9160. The first formal item is the financial statements.
There is no vote on this item, please check acknowledged if you have joined online. Then for items 2 to 6, please lodge your vote. For those attending here in person, could you please address all your questions to me as the chair? If you wish to speak, raise your hand and a microphone will be brought to you, so that all shareholders in the room and online can hear your comment or question. Please then state your name. Shareholders or proxy holders who are attending online and have provided their shareholder number or proxy code when registering, can ask questions by typing it into the Q&A box at any time, or by indicating that you would like to ask the question verbally.
You will need to navigate to the lowest section of your Zoom window, and the bottom menu bar will appear, and then click on the Q&A button. You'll need to enter your full name and your shareholder number or proxy code, and then either type your question into the box and press send, or indicate that you would like to address the question verbally to the meeting. If you would like to ask the question verbally, at the appropriate time, the moderator will indicate directly to you verbally that you can ask your question, and then your microphone will be unmuted, so you can ask it. Please then state your name. Turning now to item number 1 on the notice of the meeting, the financial statements and report of the directors and auditors.
The first item of formal business is the tabling of the financial statements and reports to the directors and auditors for the year ending 31 March 2023. The company is required to lay before the meeting, the last audited financial statements and reports, which were released to the ASX on 23 May 2023, as part of the company's annual report. No resolution on this particular matter is required, I now invite shareholders and their proxies to comment or ask questions on the reports. Questions may also be asked directly of the auditors in relation to the conduct of the audit, the contents of the audit report, accounting policies adopted by the company, and the independence of the auditor in carrying out the audit. Our auditor, Sean Kendrigan, partner of KPMG, is present as part of our panel for that purpose.
Are there any questions or comments on the financial statements and reports of the directors and auditors for the year ended 31 March 2023? Remember, you ask your questions by, for those here in the room, raising your hand, and for those attending online, navigating to the QA button at the bottom of the screen. Bear with us, as we'll need some time to confirm that those who are asking questions are shareholders or proxy holders. Skander, I'm going to hand over to you and to Maddy. Thank you, Maddy.
Well, let's first take any questions from the floor. Tara? Fine. Are there any questions from the floor? I'm gonna ask that you please introduce yourself when you ask your question. Question from the floor.
Right. Sorry. Okay. Good afternoon. My name's Kevin Daly. I just have a quibble to raise about your FY 2023 result, and I, I noticed that you expanded both organically and inorganically, but the end result of that was that your EBIT margin declined from about 30% to 29%, which in turn meant that your expenses increased faster than your revenue. I'm just wondering if you could give some explanation as to why this diminution in margin occurred.
Skander?
The business that we acquired, actually had a slightly lower EBITDA margin than OFX, and the reason for that was that they hadn't invested as much in their technology. They had, people doing a lot of tasks, which created a higher cost than technology doing tasks for a much lower cost.
What happened to your organic expansion? Was that done for the first % target or a higher margin?
More or less, yeah. There was, the margin on the, on the organic business. We, we typically target positive operating leverage, and that's pretty much what we delivered.
My name is Wayne Harper. I'd like to ask a question of the auditor. In the audit report, you've referred to a number of key audit matters. I noticed when I go through the profit and loss statement, one of the items in there is bad and doubtful debts, which appears to have increased 20-fold on last year. As part of carrying out your audit, do you examine the bad and doubtful debts, and did you find out the reason for that?
I think that Sean will call you up to the microphone. Grant, you might wanna just follow on Sean with that. Thank you.
Yes.
Oh, Sean.
Yeah. Firstly, thank you very much for the question. Firstly, just commenting on key audit matters. Those are matters we specifically call out in the audit report that are those areas of largest audit focus and/or largest judgment. They're not the only things we look at. That's just, just to help you understand the context of that. Absolutely, we did look at the bad and doubtful debts expense. In fact, we look at all balances in the accounts to varying degrees. The procedures that we did on bad and doubtful debts included understanding the provisions, both general and specific, that were taken, and the losses that were incurred by the business. Most of the losses that were, that drove bad and doubtful debts-...
relate to unrecovered costs on transactions that have failed, and so we work with finance to understand the reason for that and the provisions that are carried. I mean, I, in terms of the actual specific reason behind why the number is higher, that's not something that, I guess, I would, I would go into. I guess management can give you more information on that if you want. I confirm we did specific procedures over the level of bad and doubtful debts, and the disclosure of those in the accounts. Yes, and we are comfortable with the number as it was presented.
Could I now ask a question of the board about the bad and doubtful debts? I raised this at an AGM about 3 or 4 years ago, The explanation that I got was that in the U.S., people were impersonating customers, You were paying the money out to them and then paying out to the real customers. I have to say, I didn't find that explanation terribly convincing. To this day, I can't understand why a company in this line of business has significant bad and doubtful debts. It's not like Bunnings, where you're selling stuff to builders on credit, and then they go broke. My understanding of the business is that you're collecting money from one party and then paying it into the bank of another party.
If proper processes are followed, to my way of thinking, there should be absolutely minimal bad and doubtful debts. I see that, in this financial year, the, the bad and doubtful debts were about AUD 2.5 million, and if they didn't exist, the profit would be 8% higher. Can you please elaborate on why there's such a significant level of bad and doubtful debts, and what are you doing about it?
Thank you. Thanks for your question. I'm gonna hand it over to Selena. My preface would be, we would always expect to have a small amount of provision for bad and doubtful debts, and in fact, probably some bad and doubtful debts due to the nature of the forward business. Selena, I'll let you talk about our controls.
Bad and doubtful debts in our business, there's two ways they can occur. One way is on our forward book, which is kind of you are giving a little bit of credit to corporates, generally. If you-- if the forward goes out of the money, you need to do a margin call. If the margin call can't be completed, you can create a bad and doubtful debt. In the AUD 2.5 million for fiscal year 2023, there was only about AUD 200,000-300,000 that related to forward credit, okay? That's what I've seen in the past. We manage our credit exceptionally well. We underwrite the deals as they come through.
The remainder of that bad and doubtful debt number, which comes up to the AUD 2.5 million, is actually fraud. It's fraud exactly from the AGM a few years ago, as we explained. It comes from predominantly North America. In North America, the banking system is very different to Australia or the U.K. or New Zealand. Here in Australia, we're very lucky. Well, for most of our clients here, they book a transaction with us, they then send us the money, we know it's here, then we send it on. What happens in North America is actually to send money into us is very difficult because of the banking system, so you're actually doing a direct debit pull. Once you've done the direct debit pull from their bank account, you send it on.
If someone has intercepted that original bank account, they say, "No, that's not authorized, and it's a fraud, and we have to send it back." We've invested a lot in technology to combat that, and we do prevent a lot of frauds. Every now and then, they do come through. You may remember a couple years ago, that number was more like $3.3 million. We're always being vigilant, but it can happen, and predominantly where we see it happen is in North America.
Perhaps I could, if I could just add a little. What happens is that we have to pull the money out of the client's account. They then have a certain period of time to which they can say, "No, I didn't mean to do that, and you have to refund it." The identity theft that's taking place, which is getting more and more sophisticated, so if you think about it in terms of how cyber has got much more sophisticated over the years, we're continually working on the identity of the person who takes the transaction with us. We could take you through how initially it was through voice recognition we were trying to do it, now it's through visual recognition, but that's what causes the problem. If the U.S. bank account system worked the same as here, where you transfer...
You're correct in saying, people transfer their money into our bank account, and then we transfer it out. Unfortunately, in the U.S., we have to pull it on what we think is a legitimate transaction out of someone's account, but somebody has just impersonated the account holder. The account holder finds out, now you might think with that, that they would find out very quickly, but a number of them don't, unfortunately, and then we have to refund the money. That's why it's so high. Sorry, and then progressively, you see, as like cyber, every time they find a way of doing it, we have to find another way of authenticating that person, which is difficult and expensive.
Okay, thanks. Can I ask some more questions of the auditor, please? Am I correct in thinking that the tax rate, the company tax rate that applies to this company because of its size, is 30%?
There are a number of issues that impact the effective tax rate of OFX, one of which is the offshore banking unit, which has a concessional tax rate. Another thing is their eligibility for research and development credits, which has a concessional tax rate. The other thing is offshore income, which has different tax rates to Australia. Actually, no, there's not one blanket 30% tax rate applied to all the income of OFX. There's a number of things that can change what that is, and depending on where income is and how it's recognized, depends on what that looks like in any given year.
Okay, thanks. The, the company, according to the accounts, had a tax liability in this last financial year just over AUD 6 million. Presumably, if the company pays company tax, that generates franking credits, does it?
That, look, technically, that's definitely a question for management, not for me, but the answer is yes. We do look at the franking account credit transaction, balance, and the roll forward of that balance, the disclosure of that balance in the accounts as part of our audit.
And can you hazard a guess as to how much the franking credits would be on a tax bill of AUD 6 million?
That's, that's not really a question for me, because it doesn't relate to the conduct of the audit. I imagine that management would be happy to take you through that offline or, or even as part of this discussion.
All right.
Yeah, sorry.
so but it would be, it would be more than zero, presumably, the franking credits generated?
Yes.
Would it be about AUD 2 million, or?
Honestly, it's, it's not actually really a question that-
Okay.
-that I'm called to ask, under, in terms of the conduct of the audit. I mean, if you would like to, yes.
Okay.
I'm not trying to avoid the question.
Okay.
I could give you a theoretical answer, but there's certain things that I'm allowed to talk about.
Okay.
Other things that are actually the provision of management.
Selena.
Okay.
Yes, please.
Okay.
Franking credits are only generated when you are paying tax in Australia, which is, which is great, and we are a very good corporate tax citizen. The other thing that we're doing at the moment right now, is also investing in R&D. Okay? Our R&D investment creates some R&D tax offsets. You will see in the franking balance, it's minimal movement. We're, we are paying tax, but now we're getting these R&D offsets, which means the franking credits are not growing at this point because of... We do all that tech work in Australia.
Right. What I have trouble getting my head around is why the franking credit balance is so low. I mean, two years ago, it was about AUD 2.7 mil or AUD 2.9 million. In 2022, it was AUD 1.26 million, and this year it's AUD 1.29 million. It's almost as though the company hasn't been getting any franking credits. I would have thought that the franking credit balance would only decline if the company's paying out dividends, and it hasn't paid out dividends since 2020.
No, the reason is we're not generating many franking credits right now because of those R&D tax benefits that we're receiving.
Okay, the, the annual report said the franking credit balance as at 30th March. Is it any higher now?
It would be around the same number. It'll be a little bit higher, but not a lot, because, again, we are continuing to invest in our technology, which is creating the R&D tax benefits, which offset those franking credits.
Okay, thank you.
Thanks, Selena, and feel free to have a chat with Selena after the meeting if you'd like to continue the discussion. Thank you.
Okay, thanks.
I can assure you, we would love the franking credits.
While, while, while I'm on my feet, can I just go on to one thing that, why I have this abiding interest in franking credits, and that is the issue of buyback versus dividends. Australian shareholders love dividends, and the thing about buybacks is, no one can really ever say whether it's effective, because lots of things influence the share price. It's a daily popularity poll. Today, it went down by 4%. Did a buyback have anything to do with that? I don't think so. From a shareholder's point of view, dividends would be very good. You can actually see that the effect on share price the day the company goes ex-dividend. If the company pays a dividend of AUD 0.05, almost certainly the share price will go down by AUD 0.05.
That's the 1 time you can really see the effect of dividends on shares. The other time is if you watch Alan Kohler on the 7:00 PM news, because about 2x a year, two of the banks go dividend, ex-dividend on the same day, and that knocks the whole share market round. Dividends do have an effect. There's one now compelling reason why shareholders value dividends. Now, some of you guys on the board may not be old enough, but some of us who conduct self-managed super funds know about dividends and franking credits. For the last three years, the amount that people have been required to withdraw as a pension from self-managed super funds has been half what the rate is by law. Suddenly, since the 1st of July, it's no longer halved.
For people operating self-managed super funds taking a pension, there is a real hunt on for dividends. From a shareholder's point of view, we'd like to get them. Here's the question. That was the sermon. Here's the question: Come October, when you're announcing the annual results or the half yearly results, will you reinstate dividend payments to take effect from December? That's the question.
Thank you. Thank you for your question. Everyone loves fully franked dividends. I won't comment on what our specific plans are, but I can assure you that the board constantly looks at the best use of its funds and its capital. The board took the decision when it acquired Firma that the best use at that time was to continue to invest in the business, which we are doing, investing, including in R&D, for example, but also to keep up to a healthy repayment on our debt profile. As you know, we announced the buyback for the reasons that, that we explained. But thanks for your question. Are there any more questions from the floor? Thank you.
Sure.
I'm Bernie Ramar. This is a follow-on from that last question. I was going to ask about whether it was a policy not to pay dividends in the future, and I understand it probably may not be. You said there'd been a buyback-
... I think you mentioned a figure of something like AUD 2,255,000. Can you tell me what the average price was that you paid for that buyback?
AUD 1.9293. I got that right. AUD 1.9293. Questions from the floor? No. Skander?
We've got some questions. Sorry. We've got some questions that have been submitted online. I'll tackle some of those. The first one comes from Faircase Proprietary Limited, and the question is: Why issue so many performance rights, almost the same number as bought back? Just to clarify, we offered performance securities, so they are contingent on the Patron team actually delivering revenue as well as providing product capability in the future. We look at, you know, per that prior conversation, best ways to use cash.
We, we think about ways in which we can generate value, and we, we felt very strongly that issuing performance securities very much aligns shareholder interests with the interest of the Patron team, so that overall, we come up with a, with a reasonable price paid for the business that we're acquiring in OFX stock, if indeed, the targets are met. The next question, which I'm going to ask Doug to tackle. Do you want to save that to the end?
Okay.
All right, we'll do the remuneration. The other questions relate to different sections, so we can, we can save them for later.
Thanks, Skander. We have no other questions online?
There are no investors wishing to ask verbal questions for this resolution.
Thanks, Maddie. Well, this moves us on to item number two, the re-election of Mr. Grant Murdoch. Grant was elected to the board of the company on 19th September of 2013, and he was last re-elected as a director of the company at the company's 2020 Annual General Meeting. He will retire under Article 47A of the company's constitution, and being eligible under Article 47C of the company's constitution, he offers himself for re-election as a director of the company. Details of Grant's experience are set out in the notice of meeting, so I won't repeat those details. The board, with Grant abstaining, strongly supports Grant's re-election as a non-executive director.
If re-elected, Grant has indicated to the board that he will retire prior to the expiration of his three-year term, as determined by paragraph 47 A of the company's constitution and Listing Rule 14.4. The board has commenced a process to review the board composition and believes in ensuring an appropriate and smooth transition. Until such process is concluded, the board believes that it is in the best interest of the company and shareholders for Grant to be re-elected. I'll hand over to Grant now to briefly address you.
Thanks, Patricia. First, could I thank shareholders for their continued support over my tenure as a non-executive director of OFX. I've always considered it a privilege to serve as a director of OFX, and I can assure you that I've never taken either the responsibility lightly or the position for granted. As you might note, with my age, I do understand self-managed super funds and the benefit of franking credits. As Patricia indicated, I'm seeking re-election, but not for the full years, for the full 3 years. This is to ensure an orderly transition of my responsibility as chair of the Audit, Risk and Compliance Committee. Because OFX operates globally and is regulated in many jurisdictions to differing degrees, this is a challenging assignment.
What I'd like to take the opportunity to do is to commend the OFX executive and staff, because I can assure you that they take those responsibilities very seriously, both from a compliance point of view and also from an ethical point of view. With that, I'd like to thank you again for your support. I look forward to contributing through the rest of my tenure. Thank you.
Thanks, Grant. I'd like to ask if there are any questions from the floor, and Skander, you and Maddie can coordinate that, please?
Questions from the floor?
No questions from the floor that we can see.
There are no investors wishing to ask verbal questions online at this point on this item.
No questions.
No questions online. Okay. Before I put the resolution to the meeting, I'll advise you of the proxy votes. The proxy votes received are as follows: for, 97.72%, against 1.76%, and abstain, 60,416. Open proxies in favor of the chair of the meeting at the time of the meeting will be voted in favor of the resolution. Congratulations, Grant. This brings us on to item number three, which is the non-binding advisory vote on the FY 2023 Remuneration Report. Under the Corporations Act, listed companies are required to include, as part of the Directors Report, a Remuneration Report. The REM Report is included in OFX's Annual Report. The Corporations Act requires companies to put to shareholders a non-binding vote to enable shareholders to voice their opinion on matters included in the REM Report.
Under the Corporations Act, the vote on this resolution is advisory only and does not bind the board or the company. However, the board will take the outcome of the vote into account when considering future remuneration policy for directors and key management personnel. Remuneration outcomes for our key management personnel, the CEO, the CFO, and the Chief Operating Officer, are set out in the remuneration report and notice of meeting. I don't propose to repeat those details. The remuneration report for fiscal year 2023 reports on incentives for fiscal year 2023, including the STI outcomes, that's the short-term incentives, and the metrics for the fiscal year 2023 long-term incentives that were approved by shareholders at the Annual General Meeting last year. Are there any comments or questions concerning the remuneration report? We'll first take questions from the floor.
No, there don't appear to be any questions from the floor. Are there any questions on Zoom, Maddie?
There are no questions at this point.
Okay, we had a question online, didn't we, Skander? I'll hand that over to you.
Yeah.
Do you want me to read the question?
Yes, go on.
Thanks, Doug.
I'm the Chairman of the Remuneration Committee. A question came in online of how do you justify an increase in director remuneration in excess of last year? The answer to that question is, during the course of last year, you'll recall we had an outgoing chair, Steven Sargent , and an incoming director who succeeded Steve, Patricia. During that period, there was a time where we had one additional director, so the additional cost that's reported in the annual report and the remuneration report simply reflects that overlapping period. The fees paid to individual directors did not change during the course of the year.
Okay. Do we have any other online questions, Skander? No, we don't have any more. Before I put the resolution to the meeting, I'll advise you of the proxy votes. The proxy votes received are as follows: for, 99.26%, against 0.49%, and abstained, 2,415. Thank you. Thank you, Doug. Item number four is the ratification of the granting of performance rights. The company announced the acquisition of Paytron Holdings Pty Ltd on May 23rd, 2023. As part of the consideration that the company paid for its acquisition of Paytron, the company has granted performance rights, being the acquisition issuance, which will entitle the recipients, being the owners of Paytron, to up to 11,250,000 ordinary shares, subject to Paytron meeting relevant performance milestones.
Shareholders are being asked to ratify the granting of performance rights so that it falls within exception 13-B to ASX listing rule 7.2, and the acquisition issuance does not count to the 15% limit, in this case, on the issue of securities in a given year. Are there any comments or questions concerning this item? Any questions from the floor? No. Maddie, do we have any questions on Zoom?
We do not.
No questions online. Thank you, Skander. Before I put the resolution to the meeting, I'll advise you of the proxy votes. The proxy votes received are as follows: for, 98.2%, against 1.26%, abstained, 20,415. Open proxies in favor of the chair of the meeting at the time of the meeting will be voted in favor of the resolution. Thank you, and welcome again to Paytron. Item five is the issue of performance rights to Mr. John Alexander Skander Malcolm under the OFX Group Limited Global Equity Plan in respect of the FY 2023 short-term incentives. Item 5 concerns the proposed issue of performance rights to our CEO and Managing Director, Skander Malcolm, to reflect Mr. Malcolm's achievement of STI for fiscal year 2023.
The issue of securities under OFX's STI plan will be completed in accordance with the company's global equity plan. The 2023 company performance measures were set out in the slide for item three and are set out in detail in the remuneration report and the notice of meeting. Skander was also assessed against individual performance measures, the details of which are set out in the remuneration report and the notice of meeting. Skander's STI payment is settled 50% in cash, and the remaining 50% is subject to shareholder approval, deferred equity to be delivered in performance rights, 50% of which vest one year after issue and 50% of which vests two years after issue.
For FY 2023, Skander's short-term incentive target was AUD 828,990, being 115% of his total fixed remuneration, and his STI achievement, as assessed by the board, was 110%. The short-term incentive outcome was calculated based on a 102.7% funding from the company performance measures and an individual performance of exceeds expectations, measured against his individual KPIs. Further details regarding the calculation of Skander's performance rights are set out in the current slide and in the notice of meeting, so I will not repeat those details. Are there any comments or questions concerning the issue of these performance rights to Skander in respect of his fiscal year 23 short-term incentives under the Global Equity Plan? No questions from the floor. Are there any questions on Zoom, Maddie?
No questions on Zoom.
They're being very, very quiet on Zoom. Skander, are there any online questions? Okay. All right, thank you. Before I put the resolution to the meeting, I will advise you of the proxy votes. The proxy votes received are as follows: for, 99.4%, against 0.35%, and abstained, 2,915. Again, open proxies in favor of the chair of the meeting, at the time of the meeting, will be voted in favor of the resolution. We now move on to the final item, which is Item six: Issue of performance rights to Mr. John Alexander Skander Malcolm under the OFX Group Limited Global Equity Plan in respect to fiscal year 2024 long-term incentives. Item six concerns the proposed long-term incentive grant for fiscal year 2024 to the CEO and Managing Director, Skander Malcolm.
This fiscal year 23 long-term incentive grant comprises an issue of performance rights to Skander, pursuant to the Global Equity Plan. The long-term incentive opportunity for Skander was increased to 115% of his total fixed remuneration from the fiscal year 23 grant onwards. Details regarding Skander's proposed fiscal year 24 long-term incentive grant are set out in the current slide and in detail in the notice of meeting, so I won't repeat those. There are two performance metrics for long-term incentives. The first is the compound annual growth rate of earnings per share, and the second is the compound annual growth rate of the absolute total shareholder return. This is set out in the explanatory memorandum. Skander's total remuneration package comprised fixed remuneration, short-term incentives, and long-term incentives, as shown in this slide. The details are also set out in the notice of meeting.
Are there any comments or questions concerning the issue of these performance rights to Skander under the Global Equity Plan? Questions from the floor? I have no questions from the floor. Questions from Zoom?
There are no questions on Zoom.
Thank you, Maddie. Skander, any questions online?
Nope.
Thank you. Before I put the resolution to the meeting, I will advise you the proxy votes. The proxy votes received are as follows: for, 99.35%, against 0.4%, and abstained, 2,915. Open proxies in favor of the chair of the meeting, at the same time of the meeting, will be voted in favor of the resolution. Thank you. That concludes the formal business of the meeting. I now invite shareholders who may have some questions or comments that have not already been addressed. Again, we'll start with questions from the floor, and Skander, I'll hand this over to you and Maddie.
Before the pandemic, I recall that you were doing some research as to the effect of volatility in foreign exchange markets on, on the business. Since the pandemic, the structure of your business has changed quite a bit in that you're now more into the payment system, and your clients are like, more likely to be corporates and small and medium enterprises. I'm just wondering if this has made any change in the effect of foreign exchange market volatility on the business.
Thank you. Yes, it has. As you highlighted previously, we've pointed out, particularly in our consumer business, because we typically attract clients who are moving money for what we call high-value use cases, so property purchases, share purchases, debt repayments, those types of things. When there was volatility, we tended to see an increase, kind of bring forward of transactions. What we saw, which was quite unusual, was with a prolonged period of high interest rates and high inflation and volatility, we didn't quite see the same level of activity in our consumer business through the, through the kind of fourth quarter that we would normally associate with volatility. As we reported in the first quarter, we started to see that come back.
More broadly to your point, because our business is now more skewed towards B2B, those types of clients are less impacted or, or change their minds, for want of a better term, because of volatility. What we do start to see, though, is they are more impacted by their, their, if you like, conviction around interest rate rises. We've started to see that as those types of clients see the rate and pace of interest rate rises slow, they enter into more forward contracts because they feel more confident on economic outlook.
... Thanks. The word takeover is one that I'm hesitant to raise in the walls of this company, especially for those directors who've been around for a while. But here's the question: In the last 12 months, have there been any indicative, non-binding, conditional, blah, blah, blah, approaches made to the company about any takeover? What has happened with those approaches?
Thanks for your question. You would expect that all companies have conversations that are not necessarily offers, and I think I would leave it at that. Thank you. Any other questions from the floor? Anything on Zoom?
Just a reminder for anyone on Zoom, if you'd like to ask a question, just to raise your hand. There's no one at this point, so maybe, Skander, if we go to any others that are written.
One more. One more that was submitted online. The question from Mr. John Szablatzky . At the time of the acquisition of Firma, OFX suspended dividends until the borrowings associated with the Firma acquisition were fully paid off, and yet a buyback was initiated of up to 10% of existing shares, which could amount to AUD 38 million of funds going to shareholders whose preference is to exit their shareholding rather than support the company. There seems to be an inconsistency in approach here, and could you please comment on that? Our answer to that is exactly as, as Patricia highlighted earlier on, we look at capital management holistically. Our, our, our general approach is w-we, we generate a lot of cash. We want to grow the company. We want to create a more valuable company.
We think of things like debt repayment, particularly when it came to the Firma transaction. You'll notice from our results that we have paid down a lot of debt, and we felt at the time that good use of cash would be a share buyback whilst we continue to invest. In fact, it's important to note in, in that answer that it's the combination of the three happening together to, to build a more valuable company that really persuaded the board to use the cash in that manner.
Thank you, Skander. I believe there are no more questions, so I'm about to close the meeting. Before doing so, I would remind shareholders and proxy holders who are attending online to please complete your voting cards immediately if you haven't done so already, and once completed, press the Submit button at the bottom of the screen. There's one more question, thank you. On Zoom?
Yeah, it's just actually been written down. I'll read it out. It's from Mr. John Sablazack, that there's a crossover point where the buyback is not value accretive. Has management determined where that crossover point is?
Thanks. Skander?
We have a subcommittee that assesses on a regular basis, what represents good value, and yes, we have a view on where that is, and that obviously takes into account the conditions at the time.
There is one further question which has been submitted from Mr. Carlos Gil, from Microequities . He asks: Are you still actively searching for further acquisitions, and if so, how advanced are you in that activity?
Thank you. Skander?
Sorry. Thank you, Carlos, and yes, we are active. We've been certainly looking at different opportunities around the world. No, we're not highly advanced in any particular transaction in, in looking for good opportunities.
There are no further questions.
Thank you, Maddie. As advised earlier, the results of the polls will be released to the ASX as soon as these are available. Is there anyone who has not completed and submitted their voting card that wishes to do so? I think we need to submit these cards now or on the way out. We have some cards here still, which I think technically have to be submitted before we close the meeting, do they? You've got one here, sir.
Yes.
Thank you. Thank you so much.
Sorry.
Sorry?
Blank.
Oh, it's blank. Sorry. Oh, I thought it was... Oh, okay. Sorry. Oh, always important to vote. All right, I think that we have all of our ballots cast, and so the polls are now closed. Thank you very much. Thank you all for your attendance today, and for your support, and your merit-based long-term ownership of OFX. We very much appreciate it, and we look forward to your continued involvement with our company in the year ahead. The meeting is now closed.