Release Date: September 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- CAB Payments Holdings PLC (CABPF, Financial) demonstrated resilience by growing volumes by 4% despite a 10% decline in the global cross-border payments market.
- The company onboarded 35 new clients, increasing its active client book to 526.
- CAB Payments Holdings PLC (CABPF) is expanding its geographical reach, including plans to enter the US market and strengthen its presence in Europe through its Dutch DNB regulated subsidiary.
- The company has formed a global partnership with Visa to enhance its payment capabilities, particularly in high-volume payment solutions.
- The leadership team has been strengthened with significant hires, including a new CEO, CFO, and other key positions, to drive the company's strategic initiatives.
Negative Points
- Gross income fell by 22%, primarily due to the elevated income from Naira trading in the prior year and central bank interventions in key African currencies.
- Adjusted EBITDA decreased by 53% to GBP18.7 million, reflecting lower revenue and higher costs.
- Operating free cash flow fell by 75% to GBP9.4 million, impacted by lower EBITDA and higher CapEx.
- The company's corridor concentration remains a concern, although it has improved from 49% to 32% year-on-year.
- The take rates in emerging markets have contracted significantly, particularly due to the dislocation in Naira trades, impacting overall profitability.
Q & A Highlights
Q: Free cash flow was softer due to higher CapEx in H1. Can you provide more color on this increased CapEx spend and guidance for H2? Should we expect CapEx to remain at similar elevated levels?
A: (Richard Hallett, CFO) We plan for CapEx spend of around 8% to 10% of revenue annually. In 2023, we underspent, but the exit run rate was consistent. The increased CapEx is due to an enhanced road map under our new CTO. We expect CapEx to remain at current levels due to ongoing technology advancements and partnerships like the one with Visa.
Q: Can you provide an update on the Naira, ZAF, and ZOF corridors? Why are you looking to increase network capabilities in these corridors despite thin margins?
A: (Neeraj Kapur, CEO) These regions transact in large volumes. While margins have normalized, we have the experience to deal successfully in these markets. Increasing volume is key to compensating for thinner margins. We aim to grow deeper in these markets while expanding into new ones to reduce concentration risk.
Q: What have you learned about the importance of Central Bank relationships in West Africa, and what steps have you taken since then?
A: (Neeraj Kapur, CEO) We are prioritizing face-to-face meetings with central bank governors and building local in-country presence to maintain constant dialogue. This helps us understand their macro needs and align our services accordingly.
Q: Can you provide more details on the Visa partnership and its expected revenue impact?
A: (Neeraj Kapur, CEO) The Visa partnership will take some time to develop technologically, but we expect to see significant revenue impact by the second half of next year. This partnership is a B2B proposition that allows our clients to deliver to their customers.
Q: Can you clarify the GBP1 million of below-the-line costs in H1, including restructuring? Are you expecting any more this year?
A: (Richard Hallett, CFO) The nonrecurring costs in H1 were residual costs associated with the IPO. We do not expect any meaningful nonrecurring costs in the second half of this year.
Q: How do you control the take rate, and how should we think about it as you expand into new territories?
A: (Richard Hallett, CFO) Generally, emerging market take rates reduce slightly over time, but new market entries can offer higher take rates. We plan conservatively, expecting marginal reductions, but have seen resilience in practice.
Q: How will the strategic initiatives impact costs? Are there offsetting savings?
A: (Neeraj Kapur, CEO) The strategy was already part of our cost planning. By clarifying and streamlining execution, we aim to deliver more efficiently without significant additional costs. The focus is on effective execution rather than increasing costs.
Q: Is there any reputational impact from the liquidation of Crown Agents?
A: (Neeraj Kapur, CEO) We have seen no impact on our reputation or client relationships. The market clearly distinguishes between us and Crown Agents. We have no financial exposure to them, and their activities were largely logistical rather than financial.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
