Good morning, shareholders. 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. It's a stunning day here in Sydney. I hope it is wherever you're listening from. As I'm sure you're all aware, it's been a very busy time for us at Tyro over the last six months. We have a new CEO, Jon, who will talk soon, a renewed board. 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, provide 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 three years and more recently, the management team. In addition to my new role as Chair, in 2021, we welcomed three new highly skilled and experienced non-executive 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 of growth. I am very proud to lead a board that is one of the most diverse of all ASX-listed companies. With 66% 67% female representation, four out of six, including myself, Chair, which only approximately 3% of ASX 300 companies can lay claim to. When coupled with a majority female board and female chair, it's only about 1%. However, we know diversity in itself is not what we seek per se, but diversity in 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 refreshed 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 this role. Jon has brought a renewed energy to the leadership of Tyro. He and the entire Tyro team have a single-minded focus to deliver on our strategy of becoming the leading specialist payments and banking solutions provider 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 AUD 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 who expressed interest in potentially acquiring Tyro. In September, we received a non-binding indicative offer from private equity firm, Potentia, with some of its co-investors to acquire Tyro at AUD 1.27 per share. This was followed by interest from other parties and a further offer from Potentia in December last year at AUD 1.60 per share.
While the board very carefully considered all these previous approaches, it unanimously determined that these significantly undervalue 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 advisors. 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. Please note there is no certainty whether any further non-binding 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. Type in your questions in the webinar portal, and we'll read out our questions and address them at the end of the two 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, good morning to everyone. In my presentation to you 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 three key messages I'd like to leave you with today. Firstly, over the past six months, we have rejuvenated the business and we have delivered significant improvement 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 us strongly for continued growth.
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 six, please. I'll talk about a rejuvenated Tyro. As I said, we were pleased to deliver a very strong set of results for the first half of 2023 financial year. It was a six-month period of significant for Tyro in four 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 important 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, has helped 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 AUD 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 AUD 1.1 million and importantly, the generation of AUD 600,000 in free cash flow. We've also done a lot of work around delivery and innovation. We rationalized our project investment. We prioritized a small number of critical initiatives. I am pleased to confirm we've made really good progress on these. During the half, our Tyro Go reader went live, our next generation Android platform terminal was launched. Our automated customer onboarding experience was implemented. Turning now to page seven. Our vision is to be Australia's leading financial services, technology, and innovation company. As an organization, we have a very strong history of backing 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 AUD 740 billion of in-store pay-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 five years. Sorry. We have outpaced the market by a factor of almost 6% to deliver annual growth of 27%. At 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 onto page nine. First and foremost, Tyro is a payments company. Our strategy is focused on providing value-adding 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. 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 that customers that have a Banking product with us are 2.5 x 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. 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, the reason we want to do that is because we believe it will help us capture and retain more of our Payments customers. If I turn now onto the next page and talk about our immediate strategic priorities. We have three immediate strategic priorities that guide our decision-making, project prioritization, and our investment. Firstly, product innovation. Secondly, pricing optimization. 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. Though early days, we are really pleased with preliminaries of 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. 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 pursued initiatives that drive value for Tyro and for our customers. We're 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 plan for implementation in the coming months will provide greater 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 that will be followed with a focus on digital self-service. Finally, I'm going to turn to the next page and talk about our first half performance. The first half of FY 2023 has been a strong one for Tyro.
We are pleased, as I mentioned, to report an AUD 1.1 million statutory profit and to have delivered AUD 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 AUD 2.8 million- AUD 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 a statutory profit result, a positive free cash flow, and operating leverage that has decreased from 95.9%- 79.6% compared to the corresponding period. We are really pleased that FY 2023 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. In going through the detailed financial performance, I'll probably talk about three 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. First up, growth was demonstrated by a 40% in growth and gross profit, which was underpinned by a 37% increase in transaction value to AUD 21.7 billion, as well as doubling our loan originations to AUD 72.7 million. Payments continues to be our core business. Of the AUD 95.2 million, AUD 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 five 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%. 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 AUD 27 million- AUD 95.2 million drove the EBITDA up to AUD 19.5 million, which was a record for the business, and it was 7x more than the prior corresponding period. Expenses grew by AUD 10 million, which was a 4% increase on the second half over FY 2022.
As Jon and Fiona both mentioned, we announced a cost reduction program in October last year, of which AUD 1.2 million in savings was recognized in the first half. Around AUD 3.8 million will be recognized in the second half, giving a total of AUD 5 million for this financial year. Going forward, this will be an annualized savings of about net AUD 11 million into the medium term. The EBITDA margin was greater than 20%. 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 of the medium term. 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 AUD 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 AUD 1.2 million, but we also incurred one of AUD 1.2 million in implementing the program. As Payments is the main driver of the business, it will be useful to go through the margins, which is on the next slide, on slide 14. This page shows the performance of the Tyro core book, which is 89% of our total transaction value.
The key call-outs are that we increased transaction value by 37% or AUD 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. Starting on each line, if you 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 is not the actual economic driver of our business. The actual economic driver is the bottom two lines. 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 - 33.4 basis points. Accompanied by a transaction value growth of 37% of AUD 5.9 billion, this is a result that we're 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 margin was achieved notwithstanding an increase in expensive 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. Finally, the gross profit margin was maintained at 41 basis points while processing a record AUD 21.7 billion for the half year.
The difference between the math 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 rapid improvement in operating leverage over the last five years. If you actually look at FY 2017 at 116.4 basis points, consistently down to FY 2021, where we had an operating leverage of 88.2%.
In FY 2022, this ticked up as we continued 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 open roles, reducing the total forecasted headcount by about 80. Again, this will have an AUD 5 million benefit for FY 2023, AUD 1.2 million in the first half and the remainder in the second half. We demonstrated operating leverage of 79.6% for the half year, which was an improvement of over 13 percentage points to FY 2022. You can see the expense base growth plateauing to 4% compared to the second half of FY.
Second half of FY 2022 on the graph on the right. We have provided a target operating leverage of about 79%. For this to improve in 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 three key financial messages being growth, profitability, and the positive free cash flow that we demonstrated in the 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. Trading update. We've seen a strong start to the second half of our financial year. Transaction value for the period from the 1st of January through until the 24th of February was AUD 6.3 billion, which was 23% higher than the corresponding period. To the end of January, group gross profit was AUD 15.4 million, which was up 39%. EBITDA was AUD 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 and we benefit from annual leave 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. I'll give you an update on our earnings guidance. On January 16th, 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. The first question we've received today is from shareholder Kerry Roxburgh. The question is: The Australian newspaper yesterday asked, "Is it possible to make clear Tyro's strategy and how it serves as a better option than selling to private equity?
Let me perhaps start with that one. 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 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 the 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 future growth. How that happens under a publicly listed company as opposed to privately, I'm 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 Payne. Can you please provide an update on the takeover offer and where it currently is?
Sure. Thanks, Donald. 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, AUD 1.27, December, AUD 1.60. They have been conducting due diligence. They are currently still finalizing their proposals. We're open to engaging with Potentia as any party if they, you know, were to present what we considered a compelling offer. 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. 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 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 analysts' forecasts, we use our external advisors' forecasts, we listen to shareholder sentiment, and we really take a very serious look at this. We are unable to say that publicly. That's just something that we need to keep to ourselves and, you know, if and when there is a bit that we need to consider, we will assess that.
Thanks. The next question comes from Alexander Logie. 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, I think that's a good question. 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. 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, we think that our approach to how we can provide solutions for merchants to facilitate a broader range of payment acceptance approaches is reasonably mature.
Thanks. The next question comes from Nav Purtha. How will the new Tyro Pro terminals compete against other payments players like Square, Smartpay and Zeller in the market? Will Tyro look at partnering up with other players?
We think that Tyro is really well-positioned with our new Android-based terminal. The terminal, as you may be aware, 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." 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.
I mentioned POS integrations as part of our differentiator, but also some of our Banking type services. Rather than being 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 new unique capabilities that we have. We do have many products and features that are unique into the industries that we support today. I would particularly highlight the capabilities that we have both in the hospitality space, which have held us in such strong stead over the last several years, but also some of the fairly unique capabilities that we have in health.
What 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.
Thanks. The next question comes from Mark McInnes. Hi, 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.
Look, I think, I'm going to ask Prav to provide perhaps a response to that one, and then I can talk about it more strategically.
Okay.
Yeah, great. Thanks. Sure, thanks, Mark. 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 is it's more of a working capital product. If you actually look at our loans, it is a small average loan size. Last half year was about AUD 47,000. It, the velocity is fairly quick. The average tenure of the loan was about six months. 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. That reduces our credit risk pretty much on a daily basis.
If you look at the actual capital consumption on the loan as well, last half year we originated about AUD 73 million. Our closing balance was about AUD 45 million. A lot of the repayments actually came back through. I think that's from a risk perspective. From a commercial perspective, while that wasn't asked, I think commercial is actually fairly strong for our loan product as well. Over the last half year, we were able to fund the loans with our deposit accounts. The cost of funding, although it's a small base, was fairly small. We generated NIM of more than 20% for those loan products. 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, again, Prav can probably refer to some specific numbers, that when we compare, the first half of 2023 versus, 2022, we do see some of the changes from a lockdown perspective. I would also point out the fact that we did see also a 9% increase in merchant size, in merchant numbers. We also saw an increase in the average transaction value getting processed by our merchants. I think Prav can probably provide a bit more color to it.
Thanks. Thanks, Jon. Agreed 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 New South Wales and Victoria, and they were in extended lockdowns at various points in time. If we estimate and take that out, the underlying growth was about 22%-23%. 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.
We did get it wrong, positively wrong, though, on the upside, which led to us upgrading our guidance in January earlier this year. The issue was, we factored in an increase in transaction value from an increase in inflation as the, as the sales prices at the till increased. We also factored in a decrease in the discretionary spend due to a lower disposable income. What we did see was an increase in the from the inflation. The average basket size increased by about 4% from AUD 42- AUD 44. What we were not seeing is a decrease in the in the transaction value due to discretionary spend. We didn't have enough data to actually work that out.
At December, we had a little bit more data than we had earlier in the year. When you break down that 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%. Now when you actually look a little bit more into that, a lot of our customers are cafes. If you're buying a coffee that goes from AUD 4 - AUD 4.50, I think that's more an inelastic demand product that is now embedded into our transaction value growth.
AUD 4-AUD 4.50 is a 10%, more than a 10% growth, we believe that that will carry on into the future. There was another behavioral change that we saw as well with merchants transacting almost 2x as much or more than pre-COVID, and that was to do with the changes in seating arrangements at restaurants as well. Again, that's a behavioral change that we've seen come through. While the underlying growth was about 23%, I think there were a lot of other benefits that actually came through to our transaction value. In terms of future growth, health is one of our smallest. We've transacted about AUD 2.5 billion in health in the last half year, although it's the second from the number of merchants count.
We've been investing a lot in the health space. We are very optimistic about the growth in the health space going forward. What we believe is that is not going to be impacted as much by lower discretionary spend going in the future.
Thanks. The next question comes from Xiao Yang. Xiao asks, "As a payment specialist, why does the business think it can be successful in banking? 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 a 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 seven 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. As I said in my earlier comments, the customers that have a Banking product with us are 2.5 x more satisfied and significantly less likely to churn. Where we see our Banking product being used is to be able to provide value to those merchants who choose to use it.
We know that, as I said, it creates stickiness. We know that it creates a better payment service for our merchants. That's the reason why we see some real opportunities with our Banking products. It's not about banking per se, it's about how we can create more value for merchants by leveraging some of those capabilities.
Thanks. The next question again from Xiao Yang. "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-over-year and our strategy of improving operating leverage into the future.
The next question comes from John Coates. 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 are assuming for Banking growth or what interest rates or unemployment rate you're forecasting 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. No, we're not able to share any further details.
The next question comes from David Sutphin. "How do you think major banks will impact your POS terminal business? CBA and Westpac really seem to be focused on this area with new hardware and software.
Yeah, 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. We had a question earlier on that referred to by some of the international players that are operating in the Australian market, as well as some of the domestic, newer domestic players in this market. I think that the banks are investing. We continue to take market share from the major banks today. What we need to do from a strategic perspective is continue to make sure that we have a very clear value proposition that our merchants understand, that does really add value to them.
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. 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 deliver the best possible customer experience.
Thanks. The next question comes from Garry Duursma. "Hi, Fiona, Jon, and Prav. Just thinking back to Potentia non-binding indicative offer of AUD 1.60 per share. An opportunistic private equity company would typically want to see greater than 4 x return on their investment. 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. I also referred to the fact that we see real opportunities from a 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 four and five-year period. I'm not going to specifically comment around what potential might see or private equity might see in the opportunities, but we are very confident in our ability to continue to grow the business.
Could I just add one thing? Thanks for your question, Garry. 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 Falk. 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 re-engage 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 did also mention the fact that it does really allow us to be able to provide same-day, seven day a week settlement. 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. 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, but to be paid.
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. There's a lot of work taking place in that particular area. 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 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 Falk. When you talk about new merchant growth, can you split out how much has been as a benefit of the Bendigo tie-up? Have the takeover talks stymied the company's ability to attract new potential partners?
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 the Bendigo switch to the Tyro switch continues to take place.
I don't think that I would comment, would suggest that any takeover talks or anything have had any impact on our ability to be able to attract other customers or merchants of similar to the Bendigo book. 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.
I might just add, as Jon mentioned earlier, we've also recently announced the partnerships with Telstra and Australia Post.
Yeah.
Two iconic brands which has been in that same period.
Thank you. The next question comes from Kean Chan. 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 figures here, but I did. If you see the ASX announcement, we did note that it would have no impact on Tyro's financials in the FY 2023 financial year. We are very pleased to have been able to address that issue. While we're still waiting on court approval, we expect that to be completed over the coming months.
Okay. The next question comes from Kerry Roxburgh. Does the full circa AUD 11 million in cost savings emerge in FY 2024, with AUD 5 million being achieved in FY 2023?
Yeah, that's correct.
Yeah. Yes is the answer. We have in the first half achieved AUD 1.2 million of planned savings for the FY 2023 year. That means that we'll have approximately another AUD 4 million that we will see in the second half. About AUD 5 million for the FY 2023 year. On an annualized basis from FY 2024, it'll be AUD 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, follow-up question from Mark. Mark asks, "Has Bendigo due diligence finished?" I assume, Mark refers to potential rather than Bendigo. He says, "Has due diligence finished as the four-week due diligence period expired on the 10th of March?
We're still in discussions with Potentia, and that's really all I can 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. Thank you for joining us today.