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OFX’s Post-Covid Bounce Back: CEO Skander Malcolm on H1 2022 earnings

In the latest report in our Post-Earnings Call Series, OFX CEO Skander Malcolm discusses the company’s strong H1 2022 results and future plans.

Despite facing tough headwinds during the pandemic, OFX has had a strong recovery in H1 2022, with a 20% revenue increase to AUD$74m and a 27% climb in net operating income. Turnover also grew 34% to $15bn, while underlying EBITDA jumped 88% to $20m.

Numbers bounced back across the business. Consumer, which saw a significant pandemic drop, saw revenue grow 28%, while corporate increased 16%. The relatively small enterprise segment, meanwhile, climbed 41%. Online sellers saw the slowest growth – typical of ecommerce across the market – although outside of Asia saw 14% growth.

How has each segment achieved growth, and what are the strategies to continue this going forward? Daniel Webber spoke to CEO Skander Malcolm to find out.

Topics covered:

  • OFX’s return to growth
  • Growing the high-value consumer segment
  • Competing in the highly competitive coporate space
  • Evolving positioning for online sellers
  • OFX’s approach to enterprise
  • Building network and infrastructure strength

OFX’s return to growth

Daniel Webber: First off, some really excellent numbers, particularly given where it was through the pandemic. Let’s start at the top – what’s been driving the bounce back?

Skander Malcolm:

The first thing to say is on the top line, obviously the absolute numbers are all records and we’re delighted with that, but it’s also that momentum. 

The hardest thing about these businesses is that every day you start with zero and you have to add clients, you have to add deals, you have to add revenue. So to see that grow consecutively, in eight of the last ten quarters, four of the last five, that’s hard. Admittedly, during the pandemic our consumer business dipped and our regions felt it, but really since then it’s been one quarter after another consecutive growth.

The first half turnover at $15bn, that’s a record. My CFO pointed out that that’s doubled in the last four years. And we’ve also seen every region growing double-digit, every segment looking very strong. 

Obviously consumer had a really strong bounce back after the dip, but corporate has been consistently strong. Enterprise, up 40%, and it’s the first time since fiscal year ‘15, that we’ve seen consecutive double-digit growth in enterprise. And online sellers growing 13.5%, excluding Asia. So really it’s momentum across segments and regions that we are most delighted about when it comes to the top line.

Figure 1

OFX half-yearly revenue and EBITDA margin by segment

Growing high-value consumer

Daniel Webber: Let’s go through them in turn. First of all, consumer. You are one of the very few groups that serves the high-end consumer at scale, does the digital piece and the human piece. What is behind your numbers there?

Skander Malcolm:

The first thing to say about consumer and our journey, particularly over the last five years, is obviously it’s highly competed. And we decided four years ago that we had to be very clear about which sub-segment of consumer we felt we could compete on, and that sub-segment is high-value consumer.

What those consumers want is a wonderful, seamless, digital experience supported by humans when they need it or want it. And the outputs of that typically are much higher ATVs [average transaction values]. Our typical ATV is about $17,000, relative to another segment, we might call it remittance, that’s more like $2,000 or less. So the output difference is ATVs, but the segment insight is really around, we value the digital experience but we also value the trust and security that humans can provide.

What’s happened in that segment really over the last couple of years is quite a fascinating journey. If you go back to the onset of the pandemic, March 2020, that segment had our biggest month / quarter ever, and not by a trivial amount, by 25%. 

What we put that down to at the time was the traditional explanation, which was volatility in markets drove those consumers to execute those transactions. They either pulled them forward or they decided to do them, they’d been waiting and they hit them. 

We saw a huge uptick in that fourth quarter of our fiscal year ‘20, which ended in March. Then the first two quarters of fiscal year ‘21, because they’d done those transactions and because there was a great deal of uncertainty, it went very quiet in that segment. You also saw the segments that are dealing with lower value use cases, like travel and education, dip, but our guys didn’t.

What we then saw was it started to build back and in the first half of fiscal year ‘22, what’s really interesting is we’ve traditionally associated their activity with volatility. So those types of consumers, typical use cases are wealth, property, there is education, there are large payments, but there’s only, for example, 24 days of volatility, as we define it in the AUD / USD corridor, which is much lower than typical.

Instead what’s happening is you’ve got very elevated asset prices, so whether it’s property or equities, these people have high value assets and they’re moving them. And it doesn’t really matter which part of the world you’re in, property prices are at an all-time high, equities are at an all-time high, and people move that money. So what you saw in the first half is the ATVs are over 30%, so over 20-something thousand in the consumer segment, and it’s typically in those use cases around wealth management, property.

We did see, obviously, travel and education dip relative to the long term mean, and you would expect that. That started to come back in the second half, but really that consumer segment came back to life off the back of large value transactions.

It’s fair to say too, we were helped by some competitors who weren’t able to process large value transactions, that’s on the public record.  Those are typically, we call it ‘we’re there when it matters most’. And the underlying proposition of tier-one banking relationships, strong digital platforms, people in every region, I think really matters. In fact data suggests it really matters at times like that, in that segment. So we’re delighted with the consumer rebound.

Competing in the corporate segment

Daniel Webber: Let’s move to corporate, which is going along nicely, particularly in North America. A hyper-competitive segment where you’re finding growth. Talk us through that.

Skander Malcolm:

Corporate, as you say, has shown consistent growth for it’s cycle. I think the CAGR is north of 13%, really over the last four years, in the first half it was particularly strong. 

North America was great, but actually it’s been everywhere, every region has produced very strong corporate results. Really it’s off the back of a couple of things. 

In North America particularly, about three or four years ago we started the journey of creating a much more local experience. So we reset the app, the website experience, all the forms, all the terminology. We put in place specific risk tools that allowed US corporates and Canadian corporates to onboard more easily, more seamlessly. We saw record growth in new revenue in that region as well as, as it were, the back book. We’ve added currency corridors specifically for US and Canadian corporates.

We’ve also seen in the first half something which I’m really delighted with, which as particularly US corporates started to see strength in the economy, they got more confident about their future plans. And so we saw increase in the proportion of forwards in the US corporate book, relative to where they have been, and great work by Alfred [Nader, President – North America] and the local team in emphasizing that that’s a capability that we have that differentiates us from some of the smaller players. 

All around the world, though, you’re seeing better risk management tools, better onboarding processes, the service element, better currency corridors. They’re all the things that are driving corporate. And the growth in the top line is very much driven by the back book, but what I would say is also in the front book you’ve got a big change in corporate in OFX over the last two to three years.

Traditionally, for example, our promotional expense was very much focused on consumer and very much focused on search. Today it’s almost entirely focused on corporate. We have a value proposition that does actually appeal to high-value consumer as well, but the promotional mix now is both above the line and search, and we’re much tighter in our commercials efforts, in terms of how we take leads and pull them through the pipeline. 

A data point that I’m particularly focused on is the first three months revenue from our new dealing clients in corporate. That’s up 25.5%, and what that tells you is we’re getting more valuable corporates than we’ve ever done in the past as well. So overall, a combined effort across product, marketing, risk and the commercial teams is really driving that corporate momentum.

Figure 2

Average transaction value and number of active clients

Evolving positioning for online sellers

Daniel Webber: Is there anything new you would add in the positioning for online sellers? 

Skander Malcolm:

We talked about it before, but what I would add is we are more convinced than ever, in a post-Covid world, that having that connection into PSPs and marketplaces is not going to be a ‘nice to have’, like our corporate businesses historically have had decisions about whether they want to sell through ecommerce or marketplaces, or their own websites or whatever. 

Now we think in a post-Covid world that’s going to be an essential ingredient for all corporates, not just our online seller space. 

Secondly, the bar has been raised on risk management by the marketplaces themselves, and you are quite familiar with some of the developments, particularly in Europe, post-Wirecard, on the way banks are supporting payment service platforms in the space. The investment in our risk management, in our transaction monitoring and all of those types of things, in that banking network, we think is going to be more important.

In the group result, you saw that the leverage between revenue and net operating income, which is, in between those lines you’ve got partner commissions and bank fees, that’s the highest it’s been for four years. That’s because we’ve done a lot of work on our payment engines, so bank fees as well as partner commissions. 

The bank fees bit plays out in online sellers as well, so having a very efficient set of banking relationships with respect to provisional virtual accounts, working with our banking partners to put straight-through processing, better transaction monitoring on the inbound as well as the outbound. All of that translates to better bank fees as well. So that’s where we are more convinced on online sellers going forward than we were even prior to the pandemic.

OFX’s approach to enterprise

Daniel Webber: How is your enterprise approach going? We’re continuing to see OFX add new wins in enterprise all the time now. 

Skander Malcolm:

Enterprise in a way is not new because OFX, if you go back, always had those relationships. But I think what is different now is the technology that exists today allows you to embed yourself in an enterprise client’s processes so that their clients have a much more efficient and productive client experience.

For example, with a share registry business, the distribution of a dividend, when it’s a fairly clunky check that goes across, that’s not really an ideal experience for an end investor. So the work we’re doing with Link as an example, and others, is to embed that so that the dividend is distributed digitally, quickly and with much better value associated with that to the end investor. Obviously our enterprise client likes that too, because it’s much more efficient for them and it creates a value proposition for them to win clients.

We’re very excited about the new relationship with WiseTech. That’s a different kind of enterprise client because their end clients are corporates, SMEs, they’re freight forwarders and logistics. We’ve embedded the OFX service in their accounting module so that their client doesn’t have to leave a cargo WiseTech platform in order to book their deals. They can actually get quotes, book deals, that’s taking a 27 step process down to five, which for WiseTech is great. 

The other thing I’d add on enterprise is it’s us some time, but putting in place the teams in each of the regions has been very worthwhile. The pipeline is up 20% and it’s a great regional mix. So what you’ll see in terms of the deals that are coming are very regionally diverse, which is something that also I think is very valuable. I don’t know if it’s group level but close, our investors want to see us taking advantage of our licenses all around the world.

Network and infrastructure strength

Daniel Webber: There are several assets OFX has that we would class as particularly valuable. One is the breadth of licences that you have worldwide, and the other is the strength of your network.  Can you talk us through those, and any other unique capabilities that you’ve built up.  

Skander Malcolm:

OFX has spent a long time building a very strong tier-one banking infrastructure. Tier-one matters because, going back to that high-value consumer, if they want to move large amounts of money and the bank that’s in that network can’t do it, you completely destroy that client value proposition. You cannot support large enterprises if you can’t move all of that money quickly and efficiently at a good price for that enterprise. 

We think, in a post-Covid world, if we move into more of a risk-on environment, that tier-one banking infrastructure is going to be more valuable than it was for say in a pre-Covid world because there’s just going to be less support from banks globally in a risk-on world than there would be otherwise.

Secondly, we think we’ve actually built and done a lot of work in the plumbing, so to speak, to really allow ourselves to plug into networks. We think of ourselves as more the service layer than the infrastructure layer. So in the case of our exotic currencies we’re very happy to partner with Nium, as an example. We don’t have to recreate a bank network in those exotic currencies if Nium’s already done it, our infrastructure will allow us to plug into that and therefore allow our clients to get great prices and fast payments. 

In other corridors we have those banking relationships, we can do it better ourselves. So the infrastructure investment really will give us that opportunity to play big in enterprise, to play big in high value consumer, and of course corporate online sellers as well. That’s the bit that I think is going to be a bit different in a post-Covid world in a more risk-on environment.

Daniel Webber: Skander, anything that we’ve missed, or anything else you want to talk through? 

Skander Malcolm:

The only other thing I’d add that we really like about it is it’s a very high quality result. You can talk about momentum, but what you also saw in that half was the leverage between the revenue and net operating income improving. 

We actually spent more on promotional expense, so it wasn’t like we got to that EBITDA number by cutting back on anything. We actually have done more by way of pricing benefits to clients during that half. We actually did the best ever bad debt half in our history, it came in at zero because we had a net recovery. 

All of those things really are the culmination of years worth of hard work, and we’re obviously delighted to produce a high quality result as well as a strong result from a momentum perspective. So, yeah, we’re very happy.

Daniel Webber: Skander, as always, a pleasure. Thank you. 

Skander Malcolm:

Thank you.

The information provided in this report is for informational purposes only, and does not constitute an offer or solicitation to sell shares or securities. None of the information presented is intended to form the basis for any investment decision, and no specific recommendations are intended. Accordingly, this work and its contents do not constitute investment advice or counsel or solicitation for investment in any security. This report and its contents should not form the basis of, or be relied on in any connection with, any contract or commitment whatsoever. FXC Group Ltd and subsidiaries including FXC Intelligence Ltd expressly disclaims any and all responsibility for any direct or consequential loss or damage of any kind whatsoever arising directly or indirectly from: (i) reliance on any information contained in this report, (ii) any error, omission or inaccuracy in any such information or (iii) any action resulting there from. This report and the data included in this report may not be used for any commercial purpose, used for comparisons by any business in the money transfer or payments space or distributed or sold to any other third parties without the expressed written permission or license granted directly by FXC Intelligence Ltd.

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