Introduction.

Welcome to EML’s 2020 Annual Report digital suite.

2020 sees the introduction of EML’s New Digital Annual Reporting Suite, which provides an enhanced resource for shareholders and investors in our native format - Digital.

If you prefer a more traditional format, you can download the whole report as a digital PDF in the button below.

Take your time and enjoy the experience.

2020 Highlights ASX 200 EML is pleased to present the Annual Report for the 2020 financial year which saw the Group enter the ASX200 in December 2019, complete the transformational acquisition of Prepaid Financial Services and prepare for turbulent economic conditions with a strong balance sheet. GDV GDV $13.9b 54% Revenue Revenue* $121.6M 25% *Revenue adjusted for reduction of $671,000 of non-cash amortisation of the fair value uplift relating to the bond portfolio on acquisition date. EBITDA EBITDA** $32.5M 10% **See page 47 of the Annual Report for definition and calculation of EBITDA NPATA NPATA $24.0M 10% Underlying Operating Cashflow Underlying Operating Cashflow $35.8M 10% NPATA Cash at bank $118.4M 258%

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Chairman's Report.

Peter Martin

Non-Executive Chairman

The 2020 financial year will go down as one of the most challenging in history for many companies both in Australia and overseas. The COVID-19 pandemic has rocked the world and, as at the time of writing, no end is in sight. These times will test even the best managed companies and the challenge is to remain calm, resilient and resourceful under pressure…

“The management team led by Tom has excelled in very difficult circumstances.”

Chairman's Report

The 2020 financial year will go down as one of the most challenging in history for many companies both in Australia and overseas. The COVID-19 pandemic has rocked the world and, as at the time of writing, no end is in sight. These times will test even the best managed companies and the challenge is to remain calm, resilient and resourceful under pressure.

EML Payments has been hit hard along with many others but we have maintained our strong growth despite the serious headwinds in some segments of our business. Diversification of business verticals, geographies and customer solutions has been a key objective at EML since the early days. We’re seeing it pay off during this crisis. ‘In adversity lies opportunity’ is an old mantra but it’s never been more appropriate.

At EML we’ve seen the crisis as an opportunity to review our longer term strategy and fine-tune our business focus. We have recently reset our strategy and set our vision statement as ‘To offer customers a feature rich, fully embedded payment solution, via a simple, single touchpoint’.

To deliver on our vision, ‘Project Accelerator’ has been launched to take advantage of partnership/or investment opportunities with rapidly growing technology solution providers with whom EML can expand its global footprint and product offering. You’ll see the early signs of this playing out over the next few quarters as ideas become actions.

I am also delighted that we have recently launched ‘Change for Good’ social and environmental program which reflects our on-going commitment to mitigating the growing impact of Climate Change. Our first target is to reduce our issuance of plastic cards by 50% from a projected 50 million over three years. This is only the beginning and you’ll be seeing more as the program evolves.

The 2020 Financial Year was a story of two parts; for the first eight months of the year EML was trading well ahead of forward estimates and looking to significantly exceed market expectations. The last four months of the year when the global pandemic took off were tough, particularly in our Gift & Incentive (G&I) business where we sell gift cards through over 1200 malls in Europe and North America.

Given the circumstances, the FY20 results of GDV of $13.9 billion an increase of 54% over the year, EBITDA of $32.5 million, a 10% increase and underlying operating cashflow of $35.8 million was an excellent outcome.

When the crisis hit, EML was in the midst of our largest deal yet, the acquisition of Prepaid Financial Services (Ireland) Limited (PFS) based in the UK and Ireland. Subsequently, the deal terms were renegotiated reflecting the new environment. PFS was incorporated into EML results for the last three months of the year.

EML now has emerged with a rapidly growing subsidiary in the General Purpose Reloadable (GPR) segment and a highly diversified global business. At the end of FY20 we now support thousands of programs in approximately 28 countries with 47% of our global revenue derived from Europe, 35% from North America and 18% domestically in Australia. The GPR business is now the primary segment for the group.

EML has a substantial war-chest for future acquisitions as opportunities emerge. Our Balance Sheet is very strong with $118.4 million of cash and no secured debt at financial year end.

The management team led by Tom has excelled in very difficult circumstances. EML has a very strong ‘People’ culture and that has shown in the outstanding commitment of our executives and staff, most of whom are now working remotely.

I also feel fortunate to have such a strong and cohesive group of Board Directors in EML and welcome George Gresham to the team. George is US based and brings an impressive payments industry knowledge and business expertise to our Board.

My thanks also go to EML’s very loyal group of stakeholders including our staff, our clients, our investors and the communities in which we operate around the world. We are privileged to have your support and encouragement through these tough times. I’m looking forward to EML continuing its rapid growth in the global payments world next financial year and in the future.

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CEO Letter.

Tom Cregan

Managing Director and Group CEO

Despite the impacts of COVID-19 on our Gift & Incentive segment, particularly in mall gift cards, EML generated record revenues* of $121.6 million and an increase in EBITDA to $32.5 million, with underlying operating cashflow** at 110.2% of EBITDA.…

“We see an increasing pace of disruption in the FinTech industry”

The Strength to grow

Despite the impacts of COVID-19 on our Gift & Incentive segment, particularly in mall gift cards, EML generated record revenues* of $121.6 million and an increase in EBITDA to $32.5 million, with underlying operating cashflow** at 110.2% of EBITDA.

The 2020 year was an extraordinarily challenging year for EML, one that will present a mix of opportunities and risks in the 2021 financial year and one that has shaped our longer-term strategy for sustainable success.

In November 2019 we announced the acquisition of Prepaid Financial Services (PFS) in Europe, an acquisition that we considered to be a transformative one in terms of pivoting our business to derive the majority of revenues and earnings from the General Purpose Reloadable (GPR) segment.

Our first half results were ahead of our forward estimate and up until the end of February 2020, the business was continuing to perform strongly before the onset of COVID-19 and the immediate impacts on our Gift and Incentive segment, which generated 65% of group revenues in the first half of the year. Gift and Incentive (G&I) Gross Debit Volume (GDV) declined by 26% in March, 53% in April and 39% in May with signs of recovery in June to be in line with pre-COVID-19 run rate.

Putting that in perspective, for every $100 million of GDV in the G&I segment we generate approximately $6 million in revenue and $4.9 million in Gross Profit, so the reduction in GDV in the March to June period of more than $200 million had a material negative impact on earnings for the year. Unfortunately, we would expect COVID-19 impacts to continue into the 2021 financial year, given a combination of factors, including lower foot traffic in retail malls, social distancing measures resulting in customer service kiosks having limited or no staff in attendance, the possibility of mall closures and macro-economic impacts on retail sales.

Whilst it is not possible to predict how this segment will perform in the 2021 financial year, it’s fair to assume that the negative impact will continue to be significant.

At the same time as COVID-19 was starting to impact our G&I segment, and creating significant broader economic uncertainty, we made the decision to re-structure the terms of our acquisition of PFS to reduce the need for the group to borrow funds. We were able to work collaboratively with the vendors to close the transaction on March 31, with nil debt and $120 million in cash, putting us in a very strong balance sheet position to withstand continuing impacts of COVID-19 and to invest and grow.

COVID-19 also impacted the financial performance of PFS in April to June, given social mobility restrictions in France, Spain and the United Kingdom. We have been encouraged to see GDV in June 2020 return to pre-COVID-19 levels. This reflects our pre-acquisition views that the key GPR verticals supported by PFS, including Banking-As-A-Service, Government payments and Welfare payments, are non-discretionary and therefore resilient.

Following the completion of the acquisition, those views have been reinforced. Group Revenues from the GPR segment in June 2020 were 70% of group revenues.

We have also undertaken a strategic review, Project Accelerator, which was endorsed by the Board in June and went into effect on 1 July. COVID-19 has driven a significant spike in digital payments issuance and acceptance, which is aligned to our GPR focus, and we have seen evidence of this in our contract signings and program launches since the onset of COVID-19.

We want to work with those companies to integrate our payments solutions into their businesses and help to drive transformative change. Project Accelerator will see us invest several million dollars over the next two years to enhance our platform and technology to position us to take advantage of this shift. We will be making investments in other FinTech businesses where we believe our product focus can be enhanced and our sales reach expanded. We will not be abandoning the G&I segment in any way, but the recovery of the malls segment in particular is outside of the control of management. Whilst we wait for that recovery, we will be investing in driving growth in our GPR segment and digital banking in particular which will continue to be in the best interests of our shareholders.

There is a litany of examples of companies whose businesses have been disrupted by others, and to avoid that we now have a sharpened strategic focus. We have the balance sheet to execute on it, and I look forward to leading this initiative with the executive team.

On behalf of EML, I’d like to thank our employees, customers, and suppliers for their support in what has been an extraordinary year. To our team, who have made a seamless transition to remote operations and have continued to work incredible hours to support our customers, sign new customers and launch new programs remotely, the Board and I would like to extend our thanks and gratitude.

Mission, Vision & Purpose

Mission.

We create awesome, instant and secure payment solutions that connect our customers to their customers, anytime, anywhere, wherever money is in motion.

Vision.

To offer customers a feature rich, fully embedded payment solution, via a simple, single touchpoint.

Purpose.

Inspiring transformative digital change for our customers and communities.

We are centred around our vision & purpose

Acceleration Strategy
The Pillars of Acceleration

“In 2020’s new Coronavirus-era, cash and coin usage worldwide has declined at unprecedented rates.”

Performance Overview. FY20 delivered our seventh consecutive year of EBITDA growth despite highly challenging trading conditions. GDV increased to $13.9 billion in FY20, up 54% on PCP (2019: $9.0 billion) with significant growth in the General Purpose Reloadable (GPR: up 56%) and Virtual Account Numbers (VANS: up 62%) segments. Growth in the GPR segment was approximately 16% organic and 84% acquisitive due to the acquisition of Prepaid Financial Services (Ireland) Limited (PFS) which was consolidated from 1 April 2020. The Group achieved record EBITDA of $32.5 million for the year ending 30 June 2020 (FY19: $29.7 million), reconciled in performance overview figures below. View overview figures Financial Growth Financial Growth. Growth in the GPR segment driven by Australian payroll programs and the acquisition of the PFS business which contributed $1.3 billion of GDV in the three months post acquisition at a yield of approximately 125 bps. The segment generates the majority of its revenues from digital banking, government and payroll programs which have proved resilient in challenging macro economic conditions. The acquisition of PFS, and impacts of COVID-19 on the G&I segment, has transformed the group such that in June 2020, 70% of Group revenues were derived from the GPR segment. “70% of Group revenues were derived from the GPR segment.” * Revenue adjusted for reduction of $671,000 of non-cash amortisation of the fair value uplift relating to the bond portfolio on acquisition date. The G&I segment contributed GDV of $1.2 billion (FY19: $1.1 billion) with strong growth in the first eight months of the year before COVID-19 impacted performance in the shopping mall vertical. Flex-e-Card Limited (FEV) which was acquired on 1 July 2019 contributed $165.2 million of GDV. The Group will exit from the Middle Eastern market because we are unable to offer Reloadable programs in the region and the resources required to grow this to a meaningfully contributing business would outweight return. The Dubai operations contributed $31.6 million of GDV at a lower than segment average yield of 225 bps with an EBITDA loss of $0.5 million in the FY20 year. We expect to exit these operations by 30 June 2020.

The VANS segment continued to deliver organic GDV growth of 62% to contribute total GDV of $8.47 billion in FY20, up from $5.23 billion in FY19 at a yield of 13 bps converting to revenue of $10.7 million (FY19: $6.4 million).

Group Revenue* increased by 24% to $121.6 million, a yield on GDV of approximately 88bps down 20bps from the prior year due to a greater volume mix from the lower yielding VANS and GPR segments. 85% of the Group’s revenue is from recurring revenue sources, the continued increase reflecting a low customer churn rate and the Group focus on GPR segment growth. During the year we incurred $671,000 of non-cash amortisation of fair value uplift on the PFS bond portfolio due to AASB3 acquisition accounting. This is added back in arriving at underlying performance measures.

Gross Profit margins were down on PCP at 73% (FY19: 75%) due to a mix shift away from the G&I segment and dilutive margins in PFS who outsource the majority of their processing costs. Excluding impact of PFS, Group margins rose to 82%. The Group continued to transition programs in Australia towards self-issuance which will benefit margins in future years.
Expenses Expenses. Employment related expenses were $39.1 million (2019: $29.1 million) up 34% on PCP due to the impacts of acquisitions in Europe offset by no expense for the Group cash based Short-Term Incentive Plan. Included in this is $0.6 million of costs related to restructuring costs to realise synergies in Europe following the acquisition of PFS. At the end of June the Group had 444 employees (2019: 266) inclusive of 235 employees who joined the Group in the Flex-e-Card and PFS acquisitions. Employment related expenses make up 70% of Group cash overheads (see page 11) reflective of the nature of our business. Although the Group continues to leverage its growth efficiently, employment costs as a percentage of revenue rose to 32%, up from 30% in PCP due to the impacts of COVID-19 on our G&I segment revenues and restructuring costs incurred in Q4 which will benefit the group in future years. The Group will continue to invest in our people to attract and retain talent which will be a key driver of the sustainable success of the Group. The EML Board has elected to conserve cash and pay an FY20 STIP of $1.6 million in equity, vesting at the end of the FY21 year. This is discussed in more detail in the Remuneration report on page 37.

Other cash overhead expenses increased 22% to $15.5 million as the Group’s operations have expanded with two European acquisitions including the UK regulated business and higher spend on marketing to support continued growth offset by savings as a result of a global travel ban to protect the health of our employees.

The acquisition of PFS in the year was a complex acquisition of a dual regulated European group which necessitated material external advisory costs. The Group incurred acquisition costs of $15.8 million primarily in relation to the acquisition of PFS and associated funding.
The Group received a $1.3 million benefit from R&D Tax Concession programs in Australia and the United Kingdom. R&D tax concessions continue to be included in the EBITDA measure as this is a refund of expenditure previously incurred. Costs are predominantly internal employment costs, expended on qualifying research and development activities that the Group undertakes to continue offering innovative market leading products.

As discussed above, the Group is pursuing an exit from the UAE operations in June 2020 which led to an impairment charge of $0.8 million in Q4 of FY20. Operations in UAE did not fit with the Group strategy due to the investment requried to diversify our offerings outside the G&I segement.

Share-based payments expense of $6.1 million includes $2.5m million related to the amortisation of the performance options connected with acquisitions and $3.6 million related to staff incentives. As noted above, the EML Board has elected to conserve cash and pay an FY20 STIP of $1.6 million in equity to 263 employees to recognise the exceptional performance in the year. The grant will vest at the end of the FY21 year and serves to retain talented employees who will be a key driver of the sustainable success of the Group. This is discussed in more detail in the Remuneration report on page 35.
Financial Position Financial Position On 31 March 2020, the Group completed the acquisition of PFS for a total acquisition consideration of $341.0 million. The results for PFS are consolidated into the income statement for the three months to 30 June alongside their assets and liabilities into the Group Statement of Financial Position as at 30 June 2020. As a result of the capital raise in November 2019 to fund the acquisition of PFS, and the subsequent price renegotiation in March 2020, the Group has cash on hand of $118.4 million. Given uncertainties in the current global economy the Group considers maintaining a significant cash reserve to be prudent management.

The contract asset (breakage) of $31.8 million (2019: $31.8 million) represents the residual portion of funds on Gift & Incentive (G&I) accounts that the Group has previously sold and expects to convert to cash. The Group expects approximately 70% of the contract asset balance to convert to cash within 12 months.
View Summary “On 31 March 2020, the Group completed the acquisition of PFS for a total acquisition consideration of $341.0 million.”
Figures A significant proportion of our deferred tax asset reflects the fact that the Group expects to continue generating taxable income in Australia and the United Kingdom and consequently, under the accounting standards, has recognised carried forward tax losses.

Cash inflows from operating activities totalled $22.1 million due to the Group generating EBITDA of $32.5 million, and payments of $13.7 million for acquisition expenses, tax and interest expense which are excluded from EBITDA. Operating cashflow was supported by the continued conversion of the contract asset to cash as breakage is realised on cards loaded in prior periods. Excluding the cash impact of items not included in EBITDA, the Group converted EBITDA to cash at 110% ($35.8 million; 2019: $22.0 million 76%).

Cash outflows from investing activities included $147.3 million for the acquisitions of PerfectCard Minorities (payment in July 2019) and PFS in March 2020 (Note F6). We continued to invest in software development including EML Connect (an integrated mall system), EML Control Pay, the mobile Pays product in North America, salary packaging solutions for web portal access in Australia and General Purpose Reloadable programs worldwide (Note E2).

Cash inflows from financing activities included a Non-Renounceable Entitlement Offer of $240.8 million (net of costs), repayment of a debt facility from a major domestic bank of $15 million and payments received upon exercise of share based payments vested in the year.
Cash and cash equivalents* Total asset growth* $118.4M 300%

Slide Sustainable Futures Our impact on the environment. EML remains committed to positive environmental and sustainable outcomes. We seek continuous improvement in our environmental sustainability, focusing on major impact areas: responsible consumption, production and waste reduction. We encourage employee engagement on environmental and sustainability matters. EML’s comprehensive Environmental Strategy sets out our commitment to managing and improving environmental performance across all business activities. We monitor, measure and report on the effectiveness of sustainable business practices across the company. In late 2019, we began developing our Corporate Social and Environmental impact (SEI) agenda and program. This includes setting targets that will support our commitment to social and environmental impact and responsibilities with consideration and respect for our environment, community, people and shareholders. 2020 celebrates our first year of voicing our environmental sustainability targets. We're committed to Complying with applicable legal and regulatory requirements. Ensuring the environment is considered in our investment and corporate strategies, procurement and the products and services we offer. Actively pursuing recyclable and renewable alternatives to plastic card production. We're committed to Engaging with our customers, employees and shareholders on environmental issues and transparently reporting on our environmental performance. Driving a culture of continuous environmental improvement with a focus on the reduction of personal and office waste (no print policy, recycling and no single-use plastics). 50% Our goal is to reduce our 3 year card plastic production by 50% “2020 celebrates our first year of voicing our environmental sustainability targets” LEARN MORE ABOUT CHANGE FOR GOOD This year, EML turned its focus on being able to make an even bigger contribution and difference to the lives of others through our awesome team. Being socially responsible is fundamental to our operating purpose and a key foundation of our business strategy. Through our introduction of the Change for Good initiative, we have made further progress with our social and environmental practices – particularly in reducing environmental plastic waste, safety and policies to support our community involvement.

Change for Good We’ve just launched an incredible environmental initiative as part of EML change for good which will remove 25 million pieces of plastic from our business, thus helping to protect the global communities we embrace. This represents a significant 50% reduction in plastic usage between now and 2023. The action plan forms part of our long-term commitment to promoting digital, mobile and virtual payments across our international operations as the sustainable future of FinTech. All of this can be achieved while ensuring our customers continue to have a wide choice of alternative eco-payment solutions for their sector-specific needs.

It means that 25 million plastic cards will not enter the payments industry. The move, backed by our entire team, sends a passionate signal to fellow FinTechs to follow our lead.
Card Equivalents

Score Card Corporate Sustainability
Score Card.
2019 2020 People 266 444 Headcount Engagement Employee Engagement Score 70% 2% Employee participation in engagement survey 96% 2% Employee turnover 22% 17%
Gender Diversity Corporate Sustainability
Score Card.
2019 2020 Employee gender diversity (female representation) Board 28% 33% Executive 26% 50% Senior Management 36% 36% All Employees 43% 48%

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