https://www.livewiremarkets.com/wires/eml-looks-set-to-thrive-as-economies-reopen

Key details from the trading update (20 May 2020):

• March Group EBITDA of $1.9 million was down 37 per cent on the prior period. COVID-19 lockdowns drove widespread global mall closures, negatively impacting the Gift & Incentive (G&I) segment which mainly comprises mall gift cards (G&I gross debit volume (GDV) fell 29 per cent year on year with a larger earnings impact given the comparatively high 600 basis point revenue conversion rate). The reloadable (GPR) and the Virtual Account Numbers (VANS) segments were resilient, both generating strong growth in March with GDV up 10.4 per cent and 56 per cent, respectively;
• April Group EBITDA of $2.7 million, including PFS contribution plus a $2.2 million breakage release. Most malls were closed during the month so G&I GDV experienced further sharp falls (53 per cent below the prior period). GPR excluding PFS produced strong GDV growth (26 per cent) reflecting salary packaging roll out and surprisingly resilient online gaming turnover. PFS’ GDV growth rate slowed from 39 per cent in January and February to 12 per cent in April – digital banking and multi-currency travel cards were impacted by lockdowns, partially offset by growth in government disbursements, although this mix shift was negative for contribution margins. VANS GDV growth was positive (9 per cent), albeit compressed by timing of new customer launches;
• Cash conversion is tracking at around 100 per cent year to date, a strong improvement on 1H20;
• Balance sheet is in a strong position with $125 million net cash as at the end of April, plus $37 million of breakage accruals (three quarters should convert to cash over the coming 12 months);
• Management noted that although steps were taken to reduce headcount, cost cuts weren’t significant;
• In late March when EML announced it had renegotiated the PFS deal (settled 31 March), the primary objective was to avoid bringing on debt into the capital structure so the company could survive at least two years with zero revenues (unlikely scenario) on a monthly cash burn rate of $5-6 million. Clearly, the business performed much better than this over March and April;
• EML proudly provided some examples where its solutions were used to help vulnerable people during the COVID-19 pandemic. Nepo utilised EML to distribute emergency funds in the UK to support domestic violence victims while Epipoli deployed EML gift cards to aid the Italian Government in disbursing emergency funds to citizens in financial need;
• Near-term, EML expects trading conditions to sequentially improve in May and June from the April low as malls around the world gradually reopen. By June, the majority of malls in Italy are scheduled to be reopened, 60 per cent in Germany, 50 per cent in the US and 45 per cent in Canada. Timing in the UK remains uncertain. EML has 1,100 mall programs globally.
• PFS GDV growth has accelerated back to around 20 per cent in May; and
• Management highlighted that the sales pipeline is as strong as ever. COVID-19 has fast-tracked many company’s digital plans and EML fully intends to take advantage of this.

James Eyres in The AFR writes that EML Payments has won a contract to supply payments services to the NSW Health department, part of its strategy to diversify revenue from gift cards and take on banks in niche areas such as salary packaging. The article reports that NAB and ANZ have also pulled back from providing payments services for salary packaging, which has opened the door for specialists such as AccessPay and EML Payments.

A good win for EML and indicates there is going to be increasing opportunity for more such wins going forward.