EML Payments’ revenue surges but $20m cash burn too much for some

Global card payments provider EML Payments (ASX: EML) has seen a surge in revenue in the current financial year to date but positive cashflow remains a challenge as its troubled Irish operations continue to burn up about $20 million a year.

The Brisbane-based company, which today outlined the results of a strategic review announced earlier this year, says it remains committed to be ‘break-even or better’ in FY24.

Despite the upbeat assessment, shareholders headed for the doors with shares in the company slumping as much as 33 per cent to a low of 73c today after EML revealed that the elevated cash burn is likely ‘to continue over the mid-term’.

EML Payments has reported a 39 per cent increase in total revenue for the current financial year to the end of October, driven by a 19 per cent increase in recurring business revenue and a solid contribution from higher interest revenue due to yield improvements.

The company says underlying EBITDA for the period has surged almost fourfold to $12.5 million from $3.3 million in the previous corresponding period, as interest and business revenue growth exceeded the increase in overhead costs.

EML has been dogged by underperforming businesses in recent years which the company says have been hit by ‘deteriorating customer performance’ largely due regulatory and compliance costs.

The company’s Irish subsidiary PFS Card Services (Ireland) Limited (PCSIL), a distributor of pre-paid Mastercard cards and Visa cards, has been in the wars for more than two years with the Central Bank of Ireland (CBI), which has sought remediation of its anti-money laundering and counter terrorism financing control framework.

The CBI has not been impressed with PCSIL's progress on its remediation plan, but EML today announced that the central bank has approved the appointment of two EML Group directors and two new independent non-executive directors as part of a board renewal for PCSIL.

“Given the PCSIL board ultimately retains the statutory obligation to operate the PCSIL business, a refreshed board should provide EML greater insight into the ability for PCSIL to manage its compliance obligations and financial objectives,” the company says.

In a broad update of business operations, EML Payments also revealed today that it could be on the verge of selling its European operations Sentenial, which includes open banking product Nuapay.

The company says it has received confidential expressions of interest from third parties to acquire the Ireland-based business, which was bought by EML for $109 million in 2021.

“EML has engaged with several potential buyers of Sentenial, however, there is no certainty that a sale will eventuate,” the company says.

“EML is continuing to manage Sentenial consistent with our operation of the rest of the group. This includes the strengthening of its commercial and operational frameworks as the business matures and setting it on a path to breakeven moving into the second half of FY24.”

EML Payment’s strategic review has focused on the ‘stand-alone profitability and cash flow performance of each business line on an individual basis, their regulatory position, future prospects for growth and EML’s suitability as an owner’.

As a result, EML says it plans to refocus on its core, profitable and cash flow positive businesses of Gifting, Australia General Purpose Reloadable (pre-paid cards) and UK GPR.

The company says each of these businesses have strong EBITDA margins and free cashflow conversion, long-term client contracts and ‘meaningful commercial footprints and credibility in attractive industry verticals’.

EML says a refocus on these operations will deliver a platform from which to ‘build increased shareholder value over time with refreshed leadership and the potential for targeted investment for growth.

It also provides the company with a reduced regulatory risk profile.

EML is targeting underlying EBITDA of between $52 million and $58 million in FY24, up 40 to 56 per cent from FY23.

The company says cash flow is estimated to be broadly neutral in FY24 due to PCSIL’s estimated $20 million cash burn expected during the year.

EML shares were trading at 76c at 12.31pm (AEDT).