Tyro Payments Annual Report 2023

Plain-text annual report

Annual Report 2023 Tyro Payments Limited ABN 49 103 575 042 2 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023APPENDIX 4EAppendix 4E y r o t u t a t S s t l u s e r t fi o r p Name of Entity ABN Reporting period Previous period Tyro Payments Limited 49 103 575 042 For the year ended 30 June 2023 For the year ended 30 June 2022 Results for Announcement to the Market Statutory Results Summary KEY INFORMATION CHANGE FROM YEAR ENDED 30 JUNE % 2023 $’000 2022 $’000 Transaction value1 24.6% to 42,601,263 from 34,197,453 Revenue from ordinary activities (normalised)2 33.6% to 435,802 from 326,143 Gross profit (normalised)3 30.1% to 193,205 from 148,503 EBITDA4 296.5% to 42,299 from 10,667 Profit/(Loss) before tax (normalised)5 Profit/(Loss) before tax (statutory) Profit/(Loss) after tax (statutory) attributable to the ordinary equity holders of Tyro Payments Limited Large Large Large to to to 4,478 from (16,061) 2,461 from (29,617) 6,013 from (29,617) Net tangible asset backing 30 JUNE 2023 30 JUNE 2022 $ $ Net tangible assets per share $0.01 ($0.03) Net tangible assets are calculated by deducting both the Bendigo intangible assets of $88.5 million, right- of-use assets of $26.3 million and deferred tax assets of $17.1 million from net assets, while including the associated commission payable to Bendigo, lease payable and deferred tax liability in total liabilities. ASX Listing Rules require the liabilities funding these assets to be deducted from Net Tangible Assets, however, does not allow the recognition of these intangible assets, resulting in the 1 cent net tangible asset per share in June 2023 and negative 3 cents per share in June 2022. 1. 2. Transaction value is a non-IFRS financial measure and is unaudited. Transaction value represents the total value of merchant sales that are processed through the Tyro payments platform and does not represent revenue in accordance with Australian Accounting Standards. Statutory revenue is adjusted for the recognition of the me&u investment as a financial asset after Tyro’s ownership reduced in the period with the impact of the initial recognition as a financial asset taken to profit or loss. 3. Normalised gross profit is adjusted for Bendigo support fees associated with transition of Bendigo merchants to the Tyro platform and the 4. Bendigo gross profit share not deducted from statutory gross profit but deducted to calculate normalised gross profit. Tyro uses EBITDA as a non-IFRS measure of business performance, which excludes the non-cash impact of share-based payments expense, share of losses from associates, the non-cash accounting impact of the Bendigo Alliance, expenses associated with the terminal connectivity issue and other one-off costs. 5. Normalised net loss before tax excludes the non-cash accounting impact of the Bendigo Alliance, expenses associated with the terminal connectivity issue and other one-off costs. 3 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023APPENDIX 4E Dividends No dividends were declared or paid and are not proposed to be paid in respect of the year ended 30 June 2023. Details of interests in associate entities Changes in associate entities during the reporting period. Axis IP Pty Ltd1 OWNERSHIP INTEREST AT OWNERSHIP INTEREST AT DATE ACQUIRED 30 JUNE 2023 30 JUNE 2022 % 11.0% % 17.1% 2 December 2020 1. In June 2022, the Group’s interest in Axis IP Pty Ltd (Paypa Plane) decreased to 17.1%, in December 2022 it further decreased to 11.9% and in February 2023 it decreased to 11.0% following equity raises by Paypa Plane that the Group did not participate in. In October 2022, Tyro’s investment in meandu Australia Holdings Pty Ltd (me&u) reduced from 14.4% to 4.9% after me&u conducted an additional equity raising round in which Tyro did not participate. In accordance with AASB 9 Financial Instruments, Tyro’s investment in me&u is now being held as a financial asset. The impact of the initial recognition as a financial asset is taken to the Statement of Comprehensive Income. The subsequent changes in the fair value of the financial investment in me&u will be recognised in Other Comprehensive Income. Compliance Statement For additional Appendix 4E disclosure requirements refer to the Financial Report contained in Tyro Payments Limited’s 2023 Annual Report. This preliminary final report is based on, and should be read in conjunction with, the attached Directors’ Report and audited Financial Report. The audit report is included in the 2023 Annual Report. 4 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023APPENDIX 4ESUMMARY OF REPORTING SUITE 20-YEAR HISTORY OF TYRO KEY HIGHLIGHTS CHAIR’S LETTER TO SHAREHOLDERS CEO REPORT OPERATING AND FINANCIAL REVIEW Financial Performance DIRECTORS’ REPORT REMUNERATION REPORT Letter from the Chair of the People Committee Audited Remuneration Report Auditor’s Independence Declaration PROFILES Board of Directors Executive Leadership Team 5-YEAR TRACK RECORD FINANCIAL REPORT Directors’ Declaration Independent audit report to the members of Tyro Payments Limited OTHER INFORMATION Shareholder Information Corporate Directory 6 10 12 14 19 25 26 45 53 54 58 88 90 91 95 99 101 148 149 157 158 161 5 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023CONTENTSSummary of Reporting Suite Acknowledgment of Country Tyro Payments Limited acknowledges the Traditional Custodians of Country throughout Australia and recognises their continuing connection to land, waters and communities. We pay our respect to Aboriginal and Torres Strait Islander cultures, and to Elders past and present. Reporting approach We are pleased to present our 2023 annual reporting suite to our Shareholders and other stakeholders, which has been prepared with reference to integrated reporting frameworks. This reporting suite provides a consolidated review of our financial, economic, social and environmental performance on matters material to our strategy and our ability to create and sustain value into the future. 2023 annual reporting suite Our 2023 Annual Report should be read in conjunction with the other reports that comprise our 2023 annual reporting suite. These are available at Tyro’s Investor Centre. Sustainability Report https://investors.tyro.com/investor-centre/?page=sustainability Media Release https://investors.tyro.com/investor-centre/?page=results-centre Corporate Governance Statement https://investors.tyro.com/investor-centre/?page=corporate-governance Investor Presentation https://investors.tyro.com/investor-centre/?page=results-centre 2023 Financial Report The Financial Report and Notes set out on pages 101 to 147 are prepared in accordance with the Corporations Act 2001, including complying with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements. The remuneration disclosures set out in the Directors’ Report comply with Accounting Standard AASB 124 Related Party Disclosures and the Corporations Regulations 2001 and the financial statements and notes also comply with International Financial Reporting Standards (IFRS) as disclosed in the Financial Report. 6 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 Scope and boundaries The contents of this report relate to Tyro Payments Limited (Tyro or the Company) and its subsidiaries (the Group) for the 2023 financial year. This report covers the Group’s performance for the year ended 30 June 2023, compared to the prior year ended 30 June 2022 and the matters included address material issues for the Group. The process Tyro utilised in determining and applying materiality is included in the Notes to the Financial Report. References to H1 FY23, refer to the six months ended 31 December 2022. References to H2 FY23, refer to the six months ended 30 June 2023. Some parts of this Annual Report include information regarding Tyro’s strategy and include forward looking statements about Tyro and the environment in which it operates that involve risks and uncertainties. Actual results and the timing of certain events may differ materially from future results expressed or implied by the forward-looking statements contained in this report. All amounts contained in this report are stated in Australian dollars (AUD) except where indicated. Non-IFRS measures such as Earnings before Interest, Depreciation and Amortisation (EBITDA) have been included in this report as Tyro believes they provide useful information to stakeholders to assist in understanding the Group’s performance. Non-IFRS measures should not be viewed in isolation or considered as substitutes for measures reported in accordance with Australian Accounting Standards and IFRS. 7 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023SUMMARY OF REPORTING SUITE 8 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023“FY23 was the opportune time to evolve Tyro’s way of doing business” 9 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023KEY HIGHLIGHTS20-year history of Tyro # Merchants at 30 June $ Transaction Value at 30 June 2006 # 0 $ $0 First transaction in production made. 2009 # 1,431 $ $511m First to launch integrated Medicare Easyclaim rebates on a terminal. 2011 # 4,520 $ $2.0b Launched integrated mobile terminal payment solution. 2003 # 0 $ $0 Founded as MoneySwitch with a vision to be the most efficient acquirer of electronic payments in Australia. 2005 # 0 $ $0 First technology company to obtain an Australian specialist credit card institution licence. 2007 # 145 $ $6m Launched an internet-based or ‘cloud’ integrated payments solution. 2010 # 2,991 $ $1.3b Launched non- stop ‘live-live acquiring. 10 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023Tyro marked its 20th birthday in February 2023, celebrating its fintech roots, technology vision for the future, and over $175 billion in transactions processed since being founded. For 20 years, Tyro has helped thousands of Australian businesses grow and thrive and as of today, we have over 68,500 merchants. Founded in 2003 by entrepreneurs Paul Wood, Peter Haig, and Andrew Rothwell, Tyro has a track record of innovation, creating purpose-built solutions, and being first to market – including the first technology company to receive an Australian specialist credit card institution licence in 2005. On becoming a public company in 2019, Tyro had the largest successful IPO by market capitalisation on the ASX that year. Tyro has grown to 600 employees across Australia, approximately half of whom are in technology roles. Tyro is Australia’s largest EFTPOS provider outside the big four, offering streamlined business lending and banking products and other value-adding business products. 2016 # 15,565 $ $8.6b Completed the development of and soft launched the Tyro Business Loan, following the launch of the Tyro Bank Account in 2015. 2019 # 29,031 $ $17.5b Rebrand reflecting expansion beyond payments into complimentary value- adding offerings. 2021 # 58,186 $ $25.5b Partnered with Australia’s fifth biggest retail bank, Bendigo Bank, to create a long-term merchant acquiring alliance. 2023 # 68,665 $ $42.6b Launch of industry leading payments products including Tyro Pro and Tyro BYO Achieving positive free cash flow and record EBITDA of $42.3 million 2015 # 13,032 $ $6.8b Became the first new domestic banking licensee in over a decade and raised $100m in equity. 2018 # 23,245 $ $13.4b First Australian bank to launch least-cost routing and an integrated Alipay solution. 2020 # 32,176 $ $20.1b Australia’s largest listing on ASX by market capitilisation. 2022 # 63,770 $ $34.2b Launch of the Tyro Go reader + Merchant Loan Originations exceeding $99 million for the first time in the history of Tyro. 11 TYRO PAYMENTS LIMITED - ANNUAL REPORT 202320-YEAR HISTORY OF TYROKey Highlights i s l a c n a n F i Transaction Value EBITDA $42.6 B I L L I O N 25% Growth year-on-year $42.3 M I L L I O N 297% Growth year-on-year Gross Profit $193.2 M I L L I O N 30% Growth year-on-year Loan Originations $149.7 M I L L I O N 51% Growth year-on-year EBITDA Margin % 9 . 1 2 15 Points up year-on-year Free Cash Flow $5.7 M I L L I O N First ever year of positive free cash flow since listing on the ASX Statutory Net Profit after Tax $6.0 M I L L I O N $35.6 million improvement over FY22 s t c u d o r P Launch of Tyro Go Launch of Tyro Pro Launch of Tyro BYO Digital Onboarding TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 12 s t n a h c r e M l e p o e P Merchant Numbers 68,665 14% Growth year-on-year in Tyro Core merchant base Record new Applications Activated Bank Accounts 17,168 16% Growth year-on-year 28,004 6,134 in FY22 Transaction Value Churn 9.3% Up 10 basis points on FY22 Delivering Our Plan to Merchants • Enhanced Product Portfolio • Pricing Optimisation • Operating Efficiency Our Team Headcount 123 76 160 288 30 June 21 616 30 June 22 725 30 June 23 647 Product Development & Tech Sales and Marketing Customer Delivery General and Admin TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 13 I S T H G L H G H Y E K I Chair’s Letter to Shareholders 14 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023r a e D l s r e d o h e r a h S It is with great pleasure that I write to you as the new Chair of Tyro. After close to four years as a Non-executive Director and two years as Chair of the People Committee, it was an honour to succeed David Thodey and be appointed as Chair in March this year. In doing so I accepted the challenge of leading the Tyro Board and entire Tyro team in our ambition towards becoming the leading specialist payments solutions provider for Australian businesses. Our goal is to assist our merchants to thrive by being more effective and efficient in managing their digital payments and commerce needs. “FY23 was the opportune time to evolve Tyro’s way of doing business” A transformative year Tyro celebrated its 20th anniversary in February 2023 celebrating our roots as one of Australia’s first true fintechs. In these 20 years we have processed over $175 billion in total transactions and currently help over 68,500 Australian businesses grow through the provision of innovative payments and cash management products and leading Australian based customer service. In order to continue to grow and develop, as we have in the past 20 years, we made a number of significant changes in FY23. After our successful listing on the ASX in December 2019, navigating through the challenges of Covid and now dealing with the high interest rate environment that all Australians face and the many implications that has on merchants and in turn their customers, FY23 was the opportune time to evolve Tyro’s way of doing business. This started with the transformation of our management team. In October 2022 we appointed Jon Davey as CEO. Jon joined Tyro following our acquisition of Medipass Solutions in May 2021 and he has refreshed our leadership team with the recruitment of a new Chief Technology Officer, a new Chief Product Officer, a new Chief Growth Officer, and a new leader of our Health business. Jon has also brought a renewed energy and determination to his role. He and the entire Tyro team have a single-minded focus to deliver on our strategy of becoming the leading specialist payments provider for Australian businesses. 15 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023CHAIR’S LETTER TO SHAREHOLDERS Soon after being appointed CEO, Jon and his team focused on core foundational priorities that needed to be put in place such as the delivery of new innovative products, a new operating model and cost base to drive efficiency while further developing a culture of high performance. Importantly, the team also worked on optimising our pricing plans to more profitably compete in the payments market. The results achieved in FY23 speak for themselves. Tyro generated record transaction value of $42.6 billion from over 68,500 merchants, record gross profit of $193.2 million, record EBITDA of $42.3 million and a statutory net profit after tax of $6.0 million together with positive free cash flow of $5.7 million. It is important to note that these very strong results in FY23 were delivered during a 10-month period of significant uncertainty and disruption created by the interest from third parties in a possible change of control transaction. Notwithstanding this significant disruption, focused execution of key foundational strategies and the resulting product delivery by our team, enabled us to deliver on our guidance which was upgraded three times through the year. Over the past year we have created a strong foundation for future growth and profitability - we have the right team, the right culture and most importantly the passion to deliver on our future strategy continuing with the innovation that has been delivered over the past 20 years and with a renewed focus on capital management and profitability to deliver superior shareholder returns. The Board and management team is excited by our prospects and has been assessing our strategic direction to ensure we remain relevant, competitive and innovative in the increasingly changing payments landscape we operate in. Jon will elaborate in further detail in his report the steps we are taking to better position Tyro for our future success. A renewed Board Together with renewing our management team, our Board which has been renewed over the last three years, has the necessary depth of experience in payments, technology, banking, risk management, customer excellence, governance, M&A and strategy to take a rejuvenated Tyro into its next phase of growth. I am pleased to lead our Board that is now one of the most diverse of all ASX-listed companies with 67% female representation. Diversity in experience, thought and gender genuinely helps deliver the robust governance that has, and continues to, serve us well. Our path to a sustainable future 2023 also saw Tyro make significant progress towards minimising our environmental footprint and building on our foundations for a sustainable business model. This work will not only benefit Tyro but also our community and merchants in the years ahead. A few of the key strides we made in the year were to be accredited by Climate Active as being a Net Zero organisation for the first time in Tyro’s history. We have also invested in our sustainability program to drive strategic projects that will assist our SME merchants to become more sustainable through education tools, data management tools and partnerships as well as offering a service to their customers to contribute directly to good causes through their Tyro payments terminal. A further key strategic initiative that we will be driving is to offer dedicated payments services to charitable organisations that assist them in their fundraising activities through adopting payments in the digital economy and being relieved of traditional merchant fees enabling them to maximise their for-purpose goals. We are only at the start of this journey, and while our initiatives will benefit our merchants and the planet, our investments in our sustainability initiatives are also designed to increase shareholder return. More information about our sustainability practices can be found in our 2023 Sustainability Report on our investor website. 16 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023Conclusion Ultimately Tyro’s success comes down to the innovative and passionate people that work at Tyro and continue to believe in the vision Tyro was started with over 20 years ago. It is an honour to lead such an amazing team of people and with the right building blocks in place, I look forward to a productive and successful FY24 for all our stakeholders, not-withstanding there are some obvious uncertain economic headwinds which will affect us all. On behalf of the Board, I would like to thank our shareholders for their support in FY23, particularly over the 10-month period in which we were involved with the possible change of control transaction. Your engagement and input over this past year has been greatly appreciated and I thank you for your support. Finally, I would also like to thank the whole Board for their incredible support, skill and hard work, demonstrated with unwavering commitment to serving our shareholders at all times through what was an intense year. I look forward to seeing everybody at our 2023 Annual General Meeting to be held on 15 November 2023. Yours sincerely, Fiona Pak-Poy CHAIR OF THE BOARD 29 August 2023 17 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023CHAIR’S LETTER TO SHAREHOLDERS18 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023CEO Report 19 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023CEO REPORTr a e D l s r e d o h e r a h S It is a great pleasure to present our first full year results since my appointment as CEO. Tyro is a great company, one of Australia’s first fintechs. Our founders created the business because they believed Australians deserved better payment acceptance solutions, and this purpose remains core to who we are today. We are proud to have been first to market with Point of Sale (POS) integrations, same day merchant settlement, and the implementation of least cost routing (LCR). Over the 20 years since we were founded, Tyro has had a reputation for providing customer centric SME solutions and these solutions continue to position the business strongly. It was a thrill therefore to have been appointed CEO last October. More recently however, while our growth has outperformed the market, we have been viewed as a traditional payment provider, more akin to a big bank than a fast-moving fintech. The challenge put to me by the Board is to regain our mantle as Australia’s leading payments innovator; a challenge I have enthusiastically accepted. I have loved my first 11 months as CEO; it has been action-packed and we have made strong progress, laying the foundations for a new era at Tyro. I started my role in the shadow of a possible change of control transaction with our first non-binding offer received last September. Since then, we engaged in due diligence with several parties over nearly 10 months. It was a disruptive time for the business; however, we managed the demands with a small team and focused the core team on key strategic priorities and day to day management. Our FY23 results highlights: 1. We are delivering against our plan. We have made strong progress against our three key strategic priorities, enhancing our product portfolio, pricing optimisation and operating efficiency. New products and digital customer experiences have been launched, pricing optimisation activities are underway, and delivering margin improvements, and committed cost reduction initiatives have been completed. 2. We are growing sustainably. The implementation of our cost reduction program, together with an ongoing focus on cost management, has improved efficiency and resulted in a strong uplift in EBITDA margin. FY24 is expected to see further improvements as we continue to focus on leaner, more disciplined operations. 3. The core business is performing well. The core Tyro business has performed well. Growth has been strong, and we have seen increased diversification in the mix of industries we support. 2020 FY23 results update We are pleased with our financial results for the year. We processed $42.6 billion in transaction value which represents growth of 24.6% on the prior year, almost matching our 5-year annual growth rate of 26.1%. Our merchant base grew by 7.7%. Excluding Bendigo, the core Tyro customer base grew by 14.3%, however our Bendigo merchant base decreased by 9.9% following completion of the transition of merchants from the Bendigo platform. h t w o r G t n a h c r e M 68,665 15,676 63,770 17,394 52,989 46,376 58,186 18,490 39,696 32,176 29,031 23,245 FY18 FY19 FY20 FY21 FY22 FY23 Tyro Merchants Bendigo Alliance Merchants We processed 17,168 new merchant applications (Tyro core 15,466 and Bendigo Bank powered by Tyro 1,702). Across our industry verticals, Tyro Health generated 33% more applications than in the prior year, Hospitality 3%, and Retail applications declined slightly by 4%. The emerging Services vertical generated 4,790 applications, 42% higher than FY22. We earned normalised gross profit of $193.2 million for the year; this was 30.1% higher than last year. Our focus on cost reduction contributed to record EBITDA of $42.3 million, up 296.5% on the prior year. We also achieved $5.7 million of free cash flow; our first positive result as a publicly listed company. Chart 1: Summary of financial results Transaction Value 25% 34% Gross Profit $193.2m 26% $42.6b 15% 31% $34.2b $25.5b $20.1b $17.5b $13.4b $148.5m $119.7m $93.5m $83.3m FY19 FY20 FY21 FY22 FY23 FY19 FY20 FY21 FY22 FY23 EBITDA $42.3m Free Cash Flow (before banking balances) $14.2m $10.7m ($4.4m) ($8.6m) $5.7m ($17.8m) ($36.2m) ($34.1m) ($44.1m) FY19 FY20 FY21 FY22 FY23 FY19 FY20 FY21 FY22 FY23 21 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023CEO REPORT Strategic priorities Our results were underpinned by the progress we have made in enhancing our product portfolio, pricing optimisation and through operating efficiency. Enhancing our product portfolio As demand for acceptance of digital payments has grown, merchant needs for cost effective, flexible payment acceptance products have increased. Our Tyro Go card reader and the Tyro BYO Tap to Pay on iPhone solutions meet this need. The Tyro Go card reader is a portable device that connects via Bluetooth to a merchant’s smart phone. In the 10 months since launch we have seen existing merchants use the solution as a queue buster and as a way of accepting payments while on the move, and we have seen take-up by new merchants in both existing and new industry verticals as they look for solutions that supplement a terminal or provide a more flexible terminal alternative. Tyro BYO for iOS was launched at the start of May in partnership with Apple’s Australian launch of Tap to Pay on iPhone. Tap to Pay on iPhone is a simple and secure way for merchants to accept payments using their iPhone. A first-to-market iOS payment acceptance solution, Tyro BYO is quick to set up with existing merchants simply needing to download the Tyro BYO App and login to start accepting payments. New merchants can go through digital onboarding and be ready to accept payments in about 10 minutes. The move to hardware agnostic payment solutions is a trend that we believe will continue and our learnings will position us strongly. We launched our Tyro Pro terminal in November 2022. The large-screen Android terminal is a new generation device that provides opportunities to develop software-based product features specific to the verticals in which we operate, and the merchants that use our solutions. These solutions offer merchants the opportunity to engage with their customers through new payment related experiences at the point of sale. Pricing optimisation Having identified opportunities to improve margin through smarter pricing and better merchant pricing solutions, we have made good progress on several initiatives. The first relates to increasing the take-up of our Least Cost Routing (LCR) solution, Tap & Save. We started the year with 31% of merchants utilising LCR functionality. This has increased to 54%. LCR routes certain debit transactions through the cheapest scheme rails ensuring that merchants and their customers receive the benefit of lower transaction costs. The routing of transactions through the cheapest scheme rail can have margin benefits for Tyro which has contributed to the strong gross profit margin we have achieved in FY23. We also launched our first No Cost EFTPOS pricing product to complement our existing surcharging solution. This product provides merchants with the ability to recover the costs of their card acceptance fees. They open opportunities for Tyro in new segments of the market and provide an alternative way of reducing merchant costs without reducing payment acceptance fees. Operating efficiency Within my first week as CEO, we announced implementation of a program to reduce our FY23 operating cost base by $7 million ($11 million annualised saving from FY24); this included a 10% reduction in total headcount. With a leaner, more focused organisation, we have been able to prioritise initiatives that will deliver measurable results while delivering operating leverage and profitability. In April, we introduced a new, simplified operating model. This included a refreshed organisational structure that provides greater clarity on accountabilities and outcomes and is underpinned by streamlined systems and processes. These changes also saw my leadership team reduce from 13 to 7 executives and resulted in an expanded remit for many of these executives. For example, our Growth team (previously Customer team) now includes marketing and digital functions. This provides a single point of accountability for how we take our products to market, how we service our merchants, and how we support key partner relationships. “...the renewed focus on regaining our mantle as Australia’s leading payments innovator has energised the team for a new era.” R E T T E L ’ S R I A H C 2222 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 Driving high performance Our people are our greatest asset, and I am fortunate to lead a team that is so motivated to help Australian businesses succeed. I am particularly proud of our unique culture where our team members want to make a difference, collaborate with, and learn from the best people, and thrive in an environment that challenges the status quo, embraces diversity and is free from ego. We remain focused on retaining and attracting top talent to ensure we’re positioned to realise our ambitions. Over the past six months, we have made several senior leadership changes including three new appointments to our executive team. Dominic White joined Tyro as Chief Product Officer bringing more than 25 years of market leading experience in designing, developing, and launching payments products for domestic acquirers, global payments services businesses, and payment schemes in both Australia and Europe. Deanne Bannatyne joined as Chief Growth Officer. Dee brings 20 years payments experience in areas as broad as risk and compliance, sales, servicing, marketing and digital. Her experience includes stints with global payments businesses, domestic Australian banks, and with a global scale-up. Finally, Adrian Perillo has been appointed as CEO of our Health Business. Adrian joined Tyro as part of our acquisition of Medipass in 2021. He has 20 years experience in digital and health businesses across a range of functions that include digital, marketing, product, and business operations. We will continue to invest in our people and their career growth to drive a high-performance culture. A new era While we are pleased with the success achieved in FY23, we recognise the challenges ahead. The current interest rate environment poses a threat to discretionary spend in our hospitality and retail verticals. The competitive landscape is also rapidly changing. Entry to the Australian market by global acquirers and increased investment in payment technology by domestic challengers and the big four banks have given merchants more choice. New payment acceptance forms such as account to account (facilitated by the New Payments Platform) provide further opportunities for acquirers to deliver solutions that offer different payment experiences, and different pricing points. Despite the broader macro-economic headwinds, I am confident of a strong future for Tyro. We know that if we are to maintain our market leading growth rates, there are important product, distribution, and resourcing questions to answer. We are currently updating our strategy and considering key issues including the role of banking and how we source products, the efficiency and utility of our proprietary payments switch, go-to market approach, and our relationship with partners including our POS partners. FY23 will be remembered as a challenging year for our team as well as a transformative moment for our company. While headcount reductions, changes in the operating model and the uncertainty presented by a potential acquisition presented challenges for our team members, the renewed focus on regaining our mantle as Australia’s leading payments innovator has energised the team for a new era. We have also provided better clarity to you, our shareholders, on the prospects for this business as we continue to grow, improve operating leverage and profitability, and generate shareholder wealth. We will host our first investor strategy day in October where we will present our updated strategy and give you the opportunity to meet the team and ask your questions. Further details will be provided in September. Finally, I would like to thank our fantastic merchants and network of partners who inspire us daily. To our committed team, thank you for embracing the changes I have led and for your hard work to deliver a record set of financial and operating results. I would also like to thank the Board for their support. I am really looking forward to a great FY24. Yours sincerely, Jon Davey CHIEF EXECUTIVE OFFICER 29 August 2023 23 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023CEO REPORT24 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023Operating and Financial Review 25 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023OPERATING AND FINANCIAL REVIEWl i a c n a n F i e c n a m r o f r e P Overall financial highlights for the Group for FY23 include 25% increase in transaction value to $42.6 B I L L I O N (FY22: $34.2 billion) 15 point increase in EBITDA Margin to 22% $42.3 M I L L I O N (FY22: $10.7 million) 30% increase in normalised gross profit to 51% increase in loan originations to $193.2 M I L L I O N (FY22: $148.5 million) $149.7 M I L L I O N (FY22: $99.1 million) 14% growth in Tyro core merchant numbers. 8% growth in total merchant numbers to 68,665 (FY22: 63,770) 26 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 Table 1: Summary of financial results FY23 $’000 FY22 $’000 CHANGE % Transaction value Payments revenue and income Lending income Other revenue and income1,5 Total revenue1,5 Payments direct expenses Interest expenses on deposits Total direct expenses Gross profit2,5 Operating expenses: 42,601,263 34,197,453 419,215 318,847 24.6% 31.5% 70.3% 9,372 7,215 5,504 1,792 302.6% 435,802 326,143 (241,783) (177,366) (814) (274) (242,597) (177,640) 193,205 148,503 33.6% 36.3% 197.1% 36.6% 30.1% Employee benefits expense (excl. share-based payments) (95,662) (92,628) 3.3% Contractor and consulting expenses (12,168) (13,826) (12.0%) Communications, hosting and licensing costs Administrative expenses Marketing expenses Lending and non-lending losses (16,902) (14,461) (8,202) (3,511) (14,321) (10,414) (5,532) 17.9% 39.0% 48.3% (1,115) 214.9% Total operating expenses (150,906) (137,836) 9.5% EBITDA3,5 Share-based payments expense Depreciation and amortisation EBIT4,5 Amortisation of Bendigo intangible asset Bendigo gross profit share Bendigo transitional costs Other one-off benefits/(costs) Share of loss from associates Statutory EBIT Net interest expense Statutory profit/(loss) before tax Income tax benefit Statutory profit/(loss) after tax 42,299 (11,165) 10,667 296.5% (5,199) 114.8% (25,172) (20,505) 22.8% 5,962 (11,183) 8,139 (974) 4,360 (131) 6,173 (3,712) 2,461 3,552 6,013 (15,037) (11,176) 8,490 Large 0.1% (4.1%) (4,669) (79.1%) (109) Large (3,558) (96.3%) (26,059) (3,558) (29,617) - (29,617) Large 4.3% Large Large Large 1 2 3 4 5 Normalised other revenue and income is adjusted for the fair value gain of $4.0 million on the recognition of me&u as a financial asset. Normalised gross profit is adjusted for Bendigo support fees of $1.0 million associated with transition of Bendigo merchants to the Tyro platform, the Bendigo gross profit share of $8.1 million not deducted from statutory gross profit but deducted to calculate normalised gross profit and a fair value gain on the recognition of me&u as a financial asset. Tyro uses EBITDA as a non-IFRS measure of business performance, which excludes the non-cash impact of share-based payments expense, share of losses from associates, change in accounting treatment of investments and one-off costs to implement the cost reduction program and any M&A related spend. EBIT and normalised net profit before tax excludes the non-cash accounting impact of the Bendigo Alliance, expenses associated with the change in accounting treatment of investments and one-off costs to implement the cost reduction program and any M&A related spend. Refer to page 25 of the FY23 Investor Presentation for a reconciliation of statutory to normalised results. 27 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023OPERATING AND FINANCIAL REVIEWPayments Business We provide integrated payment solutions and value-adding services to support merchants with growing their businesses and providing their customers with a seamless payment experience. Core payments product offering Card-Present Payments Card-Not-Present Payments In-app Payments Payments made at our merchants whereby consumers present their card of choice to facilitate the payment for goods and services purchased. eCommerce, tele-health and mail-order and telephone- order payments made to merchants by consumers where a card is not presented for payment. Payments made using apps whereby payment is facilitated through the app using Tyro’s payments infrastructure and not through traditional point-of-sale terminals. Financial analysis Table 2: Payments business financial results FY23 $’000 FY22 $’000 CHANGE % Transaction value Payments revenue 42,601,263 34,197,453 419,215 318,847 Less: Interchange, scheme, integration and support fees (234,618) (171,190) Payments gross profit (statutory) Less: Bendigo gross profit share Add: Bendigo support fees 184,597 147,657 (8,139) (8,490) 974 2,314 (57.9%) 24.6% 31.5% 37.1% 25.0% (4.1%) Payments gross profit (normalised) 177,432 141,481 25.4% Merchant Service Fee (MSF) as a % of transaction value 89.0bps 82.9bps +6.1bps Net Merchant Acquiring Fee as a % of transaction value 33.2bps 32.1bps +1.1bps Payments Gross Profit Margin as a % of transaction value 41.6bps 41.4bps +0.2bps 28 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023Performance review Our record FY23 transaction value performance was driven by our existing Tyro portfolio of merchants. Excluding Bendigo, Tyro grew by 28.5% with strong performance recorded in our Hospitality and Health verticals. Including Bendigo, which grew at 2.7% for the year, overall transaction value growth came in at 24.6%. This matches our long term 5-year CAGR growth of 26.1% showing that we continue to outperform overall market growth and take market share in our addressable market. Our largest vertical by merchants and transaction value, Hospitality, continued to perform strongly in FY23. Hospitality grew transaction value by 37% in the year to $18.3 billion (FY22: $13.4 billion) from 17,425 merchants. Merchant growth came in at 9% with the largest driver of growth relating to higher average basket sizes and number of transactions generated at existing merchants. Average transaction value generated from our Hospitality merchants was $1.1 million in FY23 compared to $895,000 in the prior year, an increase of 22%. A portion of this growth was driven by inflationary growth, however consumer discretionary spending remained robust for most of the financial year. Our Health vertical also recorded strong growth in the year at 34% to $5.4 billion in transaction value (FY22: $4.0 billion). Health is benefiting from the combination of our Medipass and legacy Tyro Health businesses which we rebranded and relaunched as Tyro Health. This specialised business unit is driving strong new merchant acquisition and eCommerce take up. The combined Tyro Health business grew its merchants to 16,165 at 30 June 2023, up 24% from the 13,033 merchants at 30 June 2022. Even more impressive is that the average transaction value generated from health merchants increased to $326,500 in FY23, up 26% from the $260,000 recorded in the prior year. This was driven by the take up a greater range of eCommerce and claiming products offered by the integrated Tyro Health business. Tyro Health now represents 13% of Tyro’s total transaction value contribution and 31% of our total merchant base (excluding Bendigo). Our Services and Other vertical is continuing to show strong growth driven by our new terminal product offering and improved go-to-market strategy. Transaction value for this vertical came in at $3.2 billion, up 26% from the $2.5 billion generated in FY22. Merchant growth came in at 21% with 8,525 merchants active at 30 June 2023 compared to 7,027 at 30 June 2022. Since the launch of Tyro Go and Tyro BYO, we have signed on 2,961 new merchants using these products only. Our Services and Other vertical now represents 16% of Tyro’s total merchant base (excluding Bendigo), up from 15% in the prior year. 29 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023OPERATING AND FINANCIAL REVIEWThe one vertical that is experiencing moderating growth is our Retail vertical. This vertical is on the frontline of the impact from rising interest rates and decreased consumer discretionary spending which has been evident since October 2022. Transaction value lifted 14% to $10.3 billion on a stable merchant base of 10,874 merchants (FY22: 10,332) with growth largely driven by inflationary increases. Chart 2: Merchant count and transaction value by vertical for FY23 t n a h c r e M t n u o C n o i t c a s n a r T l e u a V 31% (16,165) 33% (17,425) 20% (10,874) 16% (8,525) 14% ($5.4b) 49% ($18.3b) 28% ($10.3b) 9% ($3.2b) Health Hospitality Retail Other The data only relates to Tyro merchants and excludes Bendigo merchants The other area of our Payments Business that is experiencing lower growth relates to our Bendigo Bank Alliance. The Alliance generated transaction value of $5.4 billion, up 2.7% from the $5.2 billion generated in the prior year. As the mix of Bendigo merchants is more weighted to retail, they are experiencing similar macro-economic issues to the Tyro Retail vertical. However merchant acquisition is also an area of ongoing focus with the number of active merchants in the Alliance decreasing 10% to 15,676 merchants (FY22: 17,394). The decrease in merchant numbers was driven by the transition of merchants from the Bendigo platform taking longer than expected. This has now been completed. Merchant acquisition metrics are tracking strongly. While retention rates deteriorated over the year, they remain strong and the largest portion of churn was from merchants going out of business (49%). We generated 71,282 new leads in FY23. 48,316 leads have come from our expanding partner channel with 22,966 coming from digital, above-the-line and other. The key drivers of new leads have come from our exclusive partnership with Telstra (which also includes distribution arrangements with Australia Post), the continued strong referrals from POS partners and the introduction of Tyro BYO. The conversion from leads to new merchant applications came in at 21% with a record total of 17,168 new applications achieved in FY23, up 16% from FY22. Another positive indicator for our business is the stability of our merchant retention metrics which remain low when considering the segments we serve and the macro-economic environment we currently operate in. Transaction value churn remained constant at 9.3% (FY22: 9.2%) and merchant number churn increased to 11.7% (FY22: 10.5%) due to a cohort of non-trading merchants being removed from active status as previous Covid support offered by state governments and the Federal Government ceased for these merchants in FY23. As these merchants were not generating transaction value, they had little to no impact on our transaction value churn. From a geographical standpoint, all states and territories delivered growth for our Tyro core business in FY23, achieving growth of between 19% to 35% per state or territory. As can be seen from Chart 3 on the next page, New South Wales delivered growth of 35%, Victoria delivered growth of 31% and Queensland delivered growth of 20%. For the first half of FY23, a portion of the strong growth in New South Wales and Victoria was attributed to extended Covid lockdowns in these States in the prior year. 30 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 Chart 3: Transaction value performance by State and Territory (Tyro core only) Transaction value performance New South Wales Victoria Queensland Western Australia South Australia Tasmania Australian Capital Territory Northern Territory FY23 FY22 $’million $’million GROWTH PROPORTION OF RATE % TOTAL TV % 13,360 8,728 8,040 3,621 1,650 678 765 312 9,940 6,630 6,707 3,000 1,200 550 650 300 35% 31% 20% 19% 33% 16% 33% 21% 36% 23% 22% 10% 4% 2% 2% 1% Off the back of the transaction value growth and merchant number growth, our Payments Business generated a 25.4% lift in normalised gross profit to $177.4 million (FY22: $141.5 million). We have generated an uplift in our net Merchant Service Fee (MSF) in the year. The MSF for the year increased by 7.1 basis points and this was largely driven by an increase in the international card mix. As our Payments business normalised closer towards pre-Covid levels, the international card mix more than doubled from 1.1% in FY22 to 2.6% in FY23. 4.6 basis points of the change was related to this mix change, either as passing on the costs to cost plus merchants or price changes to recover costs, while 2.4 basis points was related to margin driven price changes. The increase in MSF translated to a lift in our Merchant Acquiring Fee (MAF) and payments gross profit margin. MAF increased to 34.0 basis points in the year, a 1.2 basis point increase over FY23. Finally, our gross profit margin increased to 42.5 basis points in FY23, up 0.6 basis points over the prior year. Chart 4: Margin analysis (Tyro core only) 89.5 42.8 32.0 10 0.0 90.0 80 .0 70 .0 60.0 50.0 40 .0 30 .0 20 .0 10 .0 - 80 .7 43.8 34.7 82.5 41.9 32.8 89.6 42.5 34.0 FY20 FY21 FY22 FY23 MS F Net MAF Margin Pay ments Gros s P rofit Margin 31 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023OPERATING AND FINANCIAL REVIEW Key strategic growth initiatives Pay and be Paid Tyro Commerce Ecosystem Manage Cash ﬂow Run the Business As highlighted in the CEO report, we made significant leaps in FY23 for our Payments business in delivering a new product portfolio including Tyro Pro, Tyro Go and Tyro BYO. We put in place the foundations for an optimised operating model including delivering our new digital customer onboarding and servicing capabilities that have significantly improved our speed of onboarding together with improving the customer experience and driving cost efficiencies. We have focused on the pricing optimisation of our merchant portfolio which is starting to yield strong results in lifting margins without impacting the churn of our merchants and we have uplifted our team through a new management team and appointing experienced senior leaders to drive growth and product delivery. We will continue to invest in a merchant-led focus on product innovation including improvements to our eCommerce offering and building on the capabilities and revenue model of our Tyro Connect offering. In order for merchants to thrive in the digital economy, a deepened payments offering across all channels and an emphasis on customer experience will see us deliver a unified commerce experience to our merchants seamlessly integrating in-store payments, online payments, payments data insights, loyalty and cash management products. 32 TYRO PAYMENTS LIMITED - ANNUAL REPORT 202333 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023OPERATING AND FINANCIAL REVIEWBanking Business We also provide value-adding banking services to support merchants with growing their businesses through cash flow and treasury management. Loans in the form of a merchant cash advance An unsecured merchant cash advance designed to help merchants finance working capital and investment needs. Value-adding banking services Tyro fee-free transaction account A fee-free, interest-bearing transaction account available to our merchants. Tyro term deposit account A competitive interest-bearing fixed term deposit account available to our merchants. Financial analysis Table 3: Banking business financial results Loan originations Interest income on loans Fair value (loss)/gain on loans Banking revenue Less: Interest on deposits Banking gross profit FY23 $’000 149,710 11,069 (1,697) 9,372 (814) 8,558 FY22 $’000 99,071 4,877 627 5,504 (274) 5,230 CHANGE % 51.1% 127.0% 370.7% 70.3% 197.1% 63.6% Banking gross profit margin (before lending losses) as a % of lending balance Net yield after lending losses 18.5% 12.2% 20.0% 1.5 points 17.6% 5.4 points 34 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023Gross profit of $8.6 million was generated from our Banking business, up 63.6% (FY22: $5.2 million) reflecting the increased net interest margin generated on our loan product, the increased interest rates paid on deposit accounts and the loss on the fair valuation of the loan book at 30 June 2023. Key strategic growth initiatives Despite this strong growth in FY23, just less than 10% of our merchants are actively using a Tyro bank account and less than 3% of our merchants took out a loan in the year. Our banking business still only represents less than 5% of our total Group gross profit. However, the momentum generated in FY23 shows the potential of our banking products to merchants. Cash management and treasury solutions are an increasingly attractive opportunity to merchants as a value-add service to traditional payments products with many of our competitors starting to offer these cash management products. We firmly believe our lending solution and cash management account to be the leading cash flow management products in market and we will be more focused in the years ahead on proactively marketing these banking products to merchants. Furthermore, as payments optionality increases with the introduction of the new payments platform (NPP), the ability of merchant acquirers to facilitate payments through the NPP will need to become a core product offering. With our current banking assets, we are well placed to offer these services to our merchants. Performance review Tyro’s merchant cash advance loan product generated record new loan originations of $149.7 million in FY23, up 51.1% from $99.1 million in FY22. Following enhancements made to the product including an improved automated approval process and expanding the loan product to the Tyro banking web portal (previously limited to the App only), take up of the product increased strongly in the year. A total of 3,160 new loans were written in FY23, an increase of 50.3% over the 2,103 loans written in FY22. The average loan amount drawn down was ~$47,000, which was similar to the average loan draw down in FY22. The increase in originations has seen interest income from the loan product increase 127.0% to $11.1 million. Growth in Banking revenue is 19 points above the growth in loan originations driven by the current higher interest rate environment. We repriced our loan product through the year in line with increased interest rates resulting in an improved average annualised interest rate of 24% generated (FY22: 20%). At 30 June 2023, loans of $50.5 million were carried on the balance sheet compared to $39.5 million in the prior year. Lending losses have again been well managed with total lending losses of $2.9 million representing 1.9% of originations (FY22: 0.6% loss to originations). The fair value loss of the loan book at 30 June 2023 amounted to $1.7 million, compared to a gain of $0.6 million in FY22. The reason for the switch from a gain in FY22 to a loss in FY23 relates to our cautious evaluation of the loan book in light of the current economic environment. A key component to funding our loan product relates to our deposit products which has seen strong growth in the year with the number of activated accounts increasing 5-fold to over 28,000 activated accounts. We activated the Tyro bank account for all Tyro merchants in FY23 to enable merchants to take advantage of the benefits of this fee free, interest generating cash management product for their businesses. We also started participating in the Australian Money Markets term deposit platform in FY23 to access a stable base of larger term deposits as required to fund our loan book. A total of $92.7 million is held on deposit with Tyro (FY22: $83.3 million) with an average deposit balance of ~$15,400. 35 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023OPERATING AND FINANCIAL REVIEWGroup Profitability and Free Cash Flow The Group generated record normalised EBITDA of $42.3 million, up 296.5% from the $10.7 million generated in the prior year. The significant increase in EBITDA reflects a combination of the strong growth in Payments normalised gross profit of 25.4%, Banking gross profit growth of 63.4% and an increase of 303.1% in interest received from Tyro’s investment and working capital balances while cost growth was well controlled with an increase of only 9.5% in the year. In October 2022, we announced a cost reduction program which has delivered $5 million in operating cost savings in FY23 and is on track to deliver an annualised $11 million reduction in our cost base in FY24 ahead. The $42.3 million in EBITDA represents an EBITDA margin of 21.9% clearly demonstrating the strong profitability achieved in FY23. The strong EBITDA result for FY23 translated to the first ever generation of positive free cash flow for Tyro in a financial year. Free cash flow of $5.7 million was generated for the year (FY22: negative free cash flow of $34.1 million). This was achieved after spending $2.9 million on change of control discussions as well as $1.3 million in termination costs incurred as part of the cost reduction program. We also generated a statutory net profit after tax for the first time since listing in 2019. Our statutory net profit for the reporting period was $6.0 million (FY22: loss of $29.6 million). Depreciation and amortisation was up 14.8% at $36.4 million (FY22: $31.7 million) reflecting amortisation of $11.2 million on the accounting treatment of the Bendigo Bank Alliance (FY22: $11.2 million). Excluding the Bendigo amortisation charge, depreciation and amortisation was up 22.8% reflecting new terminal purchases to meet the growth in merchant numbers (including terminals required for the Bendigo Bank Alliance). FY23 statutory net profit benefited from the release of a $3.7 million provision that was put in place in FY21 relating to the terminal incident. With the settlement of the class action relating to the terminal incident achieved in FY23, we released the remaining provision. We also benefited from a fair value gain of $4.0 million that was realised in FY23 relating to the change in recognition of our investment in me&u from an investment in an associate to an investment in a financial asset. Finally, we incurred costs of $2.8 million relating to advisor fees for work undertaken on the interest by third parties in a change of control transaction. On a normalised basis, excluding the impact of one-off costs incurred, the benefit of the release of the terminal incident provision and the fair valuation of me&u, and the accounting treatment of Bendigo, our net profit before tax was $4.5 million (FY22: loss of $16.1 million). A tax benefit of $3.6 million was recognised in FY23 relating to the recognition of previously unrecognised carried forward losses and timing differences as the business is now profitable and generating positive free cash flow. At 30 June 2023 we have $38.6 million (tax affected) in recognised and unrecognised tax losses, credits and temporary differences available for probable future use. Table 4: Reconciliation of normalised net profit/(loss) before tax Statutory net profit/(loss) before tax Add back (before tax) Recognition of me&u investment as a financial asset Remediation provision release and insurance receivable Bendigo integration costs FY23 ($’000) 2,461 (3,974) (4,539) 974 FY22 ($’000) (29,617) CHANGE (%) Large - Large (300) 4,669 Bendigo Bank partner revenue share (8,139) (8,490) Amortisation of Bendigo intangible asset Interest cost on Bendigo Alliance Costs incurred in relation to change of control discussions Other one-off costs Share of loss from associates Normalised net profit/(loss) before tax 11,183 2,228 2,858 1,295 11,176 2,534 - 409 131 3,558 4,478 (16,061) 1,413.0% (79.1%) (4.1%) 0.1% (12.1%) Large (56.2%) (96.3%) Large 36 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 Capital Management and Liquidity The Group is also well capitalised with a total capital ratio of 52%. The movement in the ratio from 34% at 30 June 2022 reflects Tyro’s capital generation within the year as well as the positive impact of adopting the new Basel III capital requirements. The total capital ratio remains well above APRA Prudential Capital Requirements. Tyro’s capital ratios throughout the year included an appropriate buffer to ensure they remained above APRA’s capital adequacy requirements and Board- approved levels. Tyro continues to be a high-growth business, and the current capital management policy is to reinvest all cash flows, and any excess capital generated, into the business to support and maximise future growth and profitability. Accordingly, Tyro does not expect to pay any dividends to shareholders in the near term. Financial Position With cash and financial investments of $128.9 million (30 June 2022: $122.8 million) Tyro has sufficient liquidity in place to continue to fund its growth strategy. The movement of positive $6.1 million in cash and financial investments is reflective of positive free cash flow of $5.7 million, an inflow of $6.3 million relating primarily to timing differences in net scheme receivables offset by a $6.2 million outflow from banking cash flows. At 30 June 2023, Tyro had total assets of $431.0 million (FY22: $410.1 million) of which 30% related to cash and financial investments. 35% of our total assets relate primarily to intangible assets recognised for customer contracts on the Bendigo Bank Alliance and the right of use asset recognised on our office lease. 12% of total assets relates to loans made to merchants with the remaining 23% of total assets made up of property, plant and equipment, deferred tax assets and merchant fees due from our merchants. Tyro had total liabilities of $253.4 million (FY22: $250.5 million) of which 37% related to the merchant bank account deposits, with the remainder relating to commissions payable to Bendigo under the alliance agreement, trade and other liabilities, lease liabilities and provisions. The Group’s total assets exceeded its total liabilities by $177.7 million (FY22: $159.6 million). Chart 5: Capital and liquidity ratios 143% $220m $165m 73% $186m $173m $115m $115m $84m 45% $78m 39% $72m 34% $76m $170m 52% $88m H1 FY21 H2 FY21 H1 FY22 H2 FY22 H1 FY23 H2 FY23 Total Regulatory Capital Total Risk Weighted Assets Total Capital Ratio 37 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023OPERATING AND FINANCIAL REVIEWRisk Management The purpose of risk management is not to eliminate risk from our business model but to ensure that we maximise our opportunities by taking decisions that meet our risk appetite and deliver long-term value for our stakeholders. Our Board oversees our risk management framework through its Board Risk Committee and promotes a culture of risk awareness in everything we do. We operate in a complex and constantly changing environment where risk is encountered and managed as part of our day-to-day operations. We are committed to ensuring that a consistent approach to identifying, assessing, and managing risk is established across the business and is embedded in our processes and culture, in line with the standard ‘three lines of defence’ model. Our approach includes: • implementing a systematic risk assessment and escalation process; • managing and reporting risks in line with delegated risk acceptance and escalation authorities and the Board’s approved risk appetite; and • embedding risk culture and awareness, with regular team training and education. Our Board oversees management’s compliance with its policies and procedures and sets its qualitative and quantitative risk appetite (in the form of our Risk Appetite Statement) in pursuit of its business objectives as defined by our strategy. Our Risk Appetite Statement, together with our Risk Management Framework, outlines an approach that establishes how we define risk and how much we are willing to take. Having a risk management framework that is appropriate to the size, mix and complexity of our business and consistent with our strategic objectives is a requirement of the Australian Prudential Regulation Authority. All employees complete mandatory training to make them aware of their responsibilities and provide them with a mechanism for identifying and reporting risk to their People Leaders and XLT members. To help ensure we operate within the defined risk appetite set by the Board, our approach to managing our risk is underpinned by a ‘three lines’ of defence model: First Line of Defence: Business managers are responsible for the identification and management of risk as part of their day-to-day responsibilities. Second Line of Defence: The Risk team is accountable for providing risk advice, oversight, and challenge to the business. They maintain the Risk Management Framework and report to the Board on the risk appetite, risk profiles, frameworks, policies and other risk management tools to guide the business. Third Line of Defence: Internal Audit is accountable for independently assuring that the Risk Management Framework is operating effectively, and our risk management practices are appropriate in the context of statutory and regulatory obligations. 38 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023KEY AREAS OF POTENTIAL RISK MITIGATION STRATEGIES AND ACTIVITIES Talent Ability to attract, develop and retain talent to deliver on strategy. Attraction and retention strategies, including competitive monetary and non-monetary benefits. Performance management frameworks that ensure employees are clear on expectations and accountabilities and demonstrate risk behaviours that lead to appropriate outcomes. Project delivery Project governance structures and policies. Ability to deliver new products and innovations that meet customers’ needs. Technology failure Failure or disruption of our technology platform, resulting in disruption to merchants’ businesses, leading to customer churn, loss of data, and/or reputational damage. Regulatory and compliance Ability to manage regulatory and compliance risk that may impact Tyro’s products, reputation and/or financial returns. Capital management and access The risk that our performance falls short of expectations resulting in negative shareholder/market sentiment, increasing the cost of capital and/or impacting access to capital. Cybersecurity Security controls and processes are insufficient, leading to a breach and resulting in loss of system functionality or data, business disruption, customer churn and/or reputational damage. Prioritisation process to identify which are most important and urgent and allocate resources accordingly. Project managers in place to plan, execute and control delivery. Regular monitoring and reporting to identify and mitigate issues that arise. Tyro relies on established technology partners who deploy high availability services and tools. Regular monitoring of platform and database performance. Business continuity, disaster recovery, and crisis management plans in place and tested regularly. Dedicated Compliance team who monitor and provide input on any emerging changes to legislation, regulations and/or industry codes, and assess potential business impacts. Compliance frameworks, policies and training are provided for all employees, supported by internal and external audits. Risk and controls self-assessment process used to identify, evaluate, and manage compliance risks and develop associated controls. Proactive and regular dialogue with regulators and industry bodies. Defined capital risk indicators set in the Group Risk Appetite Statement. Capital ratio operating targets are regularly reviewed in the context of the external economic and regulatory outlook with the objective of maintaining balance sheet strength. Security team provide oversight of critical cyber-control activities to defend against the evolving threat environment. Proactive tools and processes provide enhanced detection and monitoring capabilities, secure configuration, vulnerability management and strong authentication methods. Increased supplier monitoring to understand and mitigate any weaknesses in their cyber defence and resilience capabilities. Security and awareness programs for all employees and annual cybersecurity scenario exercise with the Executive team and Board. Business Resilience Ability to withstand and adapt to disruptions that may impact business operations, people, and/ or assets Business Continuity and Technology Disaster Recovery plans and testing in place for critical systems and processes. Key supplier governance, selection and monitoring processes enable us to identify and manage the risk of third-party disruptions. Crisis management exercises with the Executive Leadership team and Board. 39 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023OPERATING AND FINANCIAL REVIEWKEY AREAS OF POTENTIAL RISK MITIGATION STRATEGIES AND ACTIVITIES Third Party Failure to choose and manage third party suppliers effectively, resulting in loss of system functionality or data, business disruption, customer churn and/or reputational damage. Commitment to obtaining goods and services in a transparent, ethical, and competitive manner, consistent with our risk profile and policies. Suppliers are assessed to identify and mitigate modern slavery risks and issues. Contract owners maintain in-life relationship management to ensure compliance with contractual obligations, performance requirements, business resilience and security assurance. Credit and Fraud risk Losses from failure of counterparties to meet their financial obligations to Tyro. Market Risk Losses from unexpected changes in market rates and prices. Liquidity Risk Ability to meet financial obligations as they fall due. Pandemic Ability to manage Tyro’s potential financial, operational, and people risks from events such as COVID-19. Defined credit risk and fraud risk indicators set in the Group Risk Appetite Statement. Tyro’s credit risk management framework and policies outline the core values which govern credit risk-taking activities and reflect the priorities established by the Board. Regular monitoring of credit quality, arrears, policy exceptions and policy breaches. Established provisions for credit impairment based on current information and our expectations. Defined market risk indicators set in the Group Risk Appetite Statement. Tyro’s market risk policy outlines how Tyro will manage market risks particular to our business. Tyro’s Asset and Liability Committee provides oversight and management within the Board set risk appetite limits. Defined liquidity risk indicators set in the Group Risk Appetite Statement. Tyro’s Liquidity Risk Framework and policies outline the necessary component functions to carry out effective liquidity management from identification through to a liquidity crisis management. Forecasting of future capital requirements and available capital resources to manage the business to our required levels of regulatory capital, target adequacy levels and internal capital triggers, over a forecast period. Regular oversight and monitoring of financial and operational impacts by the Executive Leadership Team and Board. Ongoing support of customers experiencing financial hardship. Proven ability to work remotely. Processes in place to ensure employees have a safe and effective working environment. Competition and disruption New competitors or technologies that impact Tyro’s ability to drive customer growth and deliver on our strategy . Tyro’s strategy actively aims to address current and emerging competition risk. Processes in place for monitoring and responding to competitor and market activity. Development of strategic partnerships and acquisitions in companies that drive new technology. 40 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023KEY AREAS OF POTENTIAL RISK MITIGATION STRATEGIES AND ACTIVITIES Environmental and social risks Ability to recognise and address environmental, social or corporate governance (ESG) issues Tyro’s approach to sustainability and climate change risk is managed through our Sustainability Framework with priority targets set by the Board. Regular review and oversight of ESG initiatives and risks by our Executive Leadership team. Carbon Neutral emissions, diversity, and inclusion target commitments. Concentration risk Reliance on a limited number of products, industry verticals and geographical regions to drive growth. Focus on promoting value-adding services to existing customers: merchant cash advance, transaction account, term deposit account and Tyro Connect. Growth of our Tyro Health business through the acquisition and integration of Medipass and a simple, unified solution for payments and claiming. Expansion into new verticals with a fit for purpose mobile payment terminal device. Geopolitical Geopolitical issues and tension could threaten the Australian economy and destabilise supply chains, disrupting operations and impact our business and growth strategy. The Board and the Executive Leadership Team monitors conditions and maintains provisions and capital for a range of potential economic scenarios. Investment in expanding and updating our terminal offering to mitigate potential hardware supply issues. Monitoring and ensuring sufficient hardware stock levels to meet customer demand. Economic environment Regular financial oversight and monitoring across markets. Significantly weakened global conditions could harm our business and financial position. Detailed financial analysis, scenario modelling and stress testing for a range of economic scenarios. Digital adoption Acceleration of our digital strategy. Investing in technology and digital platforms to help drive efficiency and improve customer experience. Researching the implications of machine learning and AI and investing in our products and technology to leverage machine learning and AI to enhance customer outcomes and improve Tyro’s operating efficiency. Ability to respond to customers' demand for simple and innovative digital services and products. Machine Learning and Artificial Intelligence (AI) Ability to manage risks and opportunities from Artificial Intelligence and Machine Learning related products and features, leading to reputational, regulatory and/or financial impacts. 41 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023OPERATING AND FINANCIAL REVIEWSustainability Although our operations are not subject to any particular and significant environmental regulation under any law of the Commonwealth of Australia or any of its states or territories, we still acknowledge that by working with over 68,500 merchants across Australia, we are committed to delivering our solutions in a manner that aims to create a sustainable future for all our stakeholders. This includes our shareholders, our people, our merchants, the community in which we operate, our suppliers and business partners and regulatory bodies. We are working towards and intend to comply with the new ISSB Sustainability Reporting Standards – IFRS S1 and S2 – in line with the phased implementation approach, as outlined by Australian Treasury. Further details on climate change risk mitigation, progress against targets and our sustainability initiatives can be found within our 2023 Sustainability Report. To view the 2023 Sustainability Report please refer to: https://investors.tyro.com/investor-centre/?page=sustainability 42 TYRO PAYMENTS LIMITED - ANNUAL REPORT 202343 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023OPERATING AND FINANCIAL REVIEW44 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023Directors’ Report 45 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023DIRECTORS’ REPORTt r o p e R ’ s r o t c e r i D The Directors present their report together with the Financial Report of the consolidated entity (referred to hereafter as the Group or Tyro) consisting of Tyro Payments Limited and the entities it controlled at the end of, or during, the year ended 30 June 2023 (FY23). 46 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 1. 2023 Corporate Governance Statement The Group’s governance arrangements and practices as compared to the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (4th Edition) are set out in our Corporate Governance Statement. The Group must also comply with its constitution, the Corporations Act 2001 (Cth), the ASX Listing Rules, the Banking Act 1959 (Cth), including the Banking Executive Accountability Regime (contained in Part IIAA of the Banking Act 1959) amongst other laws, and, as an Authorised Deposit taking Institution, with governance requirements prescribed by the Australian Prudential Regulation Authority (APRA) under Prudential Standard CPS 510 Governance and other applicable published APRA Prudential Standards. Information about the Group’s corporate governance policies and practices can be found in the 2023 Corporate Governance Statement available at: https://investors.tyro.com/investorcentre/?page=corporate-governance. 2. Pillar 3 information The Group provides information required by APRA prudential standard APS 330 Public Disclosure in the Regulatory Disclosures section at: https://investors.tyro.com/investor-centre/?page=regulatory-disclosure. 3. Directors The following persons held office as Directors of the Company during the financial year and up to the date of this Report (unless otherwise stated): Fiona Pak-Poy Chair & Non-executive Director Independent Appointed as Chair 1 March 2023 David Thodey AO Chair & Non-executive Director Independent Resigned 1 March 2023 David Fite Non-executive Director Independent Claire Hatton Non-executive Director Independent Aliza Knox Non-executive Director Independent Paul Rickard Non-executive Director Independent Shefali Roy Non-executive Director Independent Robbie Cooke CEO & Managing Director Executive Resigned 3 October 2022 Details, including term of office, qualifications, experience and information on other directorships held by Directors, can be found on pages 91 to 94 of the Annual Report. 4. Company Secretary Jairan (Jay) Amigh was appointed as Company Secretary on 20 February 2020. Jay holds Bachelors of Law and Commerce and has over 30 years in legal practice focusing on financial services and corporate governance. 47 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023DIRECTORS’ REPORT5. Meetings of Directors The number of meetings of the Company’s Directors (including meetings of Committees of Directors) and the number of meetings attended by each Director during the financial year were: BOARD OF DIRECTOR MEETINGS AUDIT COMMITTEE MEETINGS RISK COMMITTEE MEETINGS PEOPLE COMMITTEE MEETINGS NOMINATIONS COMMITTEE MEETINGS A 55 42 55 55 55 55 55 9 B 52 37 54 52 49 50 52 8 A 6 4 6 6 B 6 4 6 6 nm nm 6 nm nm 6 nm nm A nm nm 5 B nm nm 5 nm nm 5 5 5 5 5 5 A 7 5 B 7 5 nm nm 7 7 7 7 nm nm 7 7 A 6 4 6 6 6 6 6 B 6 4 6 6 6 6 6 nm nm nm nm nm nm Fiona Pak-Poy David Thodey David Fite Claire Hatton Aliza Knox Paul Rickard Shefali Roy Robbie Cooke1 Number of meetings during the year while the Director was a member of the Board or Committee. A B Number of meetings attended by the Director as a member during the year. nm Not a member of the relevant Committee. 1 When he was in the role of CEO | Managing Director, Robbie Cooke was an Executive Director but was invited by the Board to attend the Risk Committee, Audit Committee and People Committee meetings (or part thereof). In addition to the Board and Committee meeting attendances noted above, a number of Directors participated in other Committees established for special purposes. At the date of this report, the Company has an Audit Committee, Risk Committee, People Committee and Nominations Committee. The members of each Committee are as follows: AUDIT COMMITTEE RISK COMMITTEE PEOPLE COMMITTEE NOMINATIONS COMMITTEE Paul Rickard (Chair) Paul Rickard (Chair) Claire Hatton (Chair) Fiona Pak-Poy (Chair) David Fite Claire Hatton David Fite Aliza Knox Aliza Knox David Fite Fiona Pak-Poy Claire Hatton Fiona Pak-Poy Shefali Roy Shefali Roy Aliza Knox Paul Rickard Shefali Roy 48 TYRO PAYMENTS LIMITED - ANNUAL REPORT 20236. Directors interest in securities The relevant interest of each Director in securities of the Company at the date of this Directors’ Report is as follows: DIRECTOR1 Fiona Pak-Poy David Fite Claire Hatton Aliza Knox Paul Rickard Shefali Roy RELEVANT INTEREST IN ORDINARY SHARES OPTIONS OVER ORDINARY SHARES RIGHTS OVER ORDINARY SHARES 183,278 16,629,481 14,583 - 2,173,463 - 83,000 158,144 - - 179,726 - - - - - - - 1 Includes shares held by entities controlled by Directors 7. Operating and Financial Review Refer to the CEO’s Report and Operating and Financial Review on pages 19 to 42 of the Annual Report, which forms part of this Directors’ Report for details of Tyro’s principal activities, business strategies and financial performance and position for the year ended 30 June 2023. 8. Material risks to business strategies and prospects for future financial years Refer to the CEO’s Report and Operating and Financial Review on pages 19 to 42 of the Annual Report, which forms part of this Directors’ Report for details of Tyro’s material risk and strategies to mitigate risks for the year ended 30 June 2023 9. Dividends No dividends were paid to shareholders or otherwise recommended or declared for payment during the year. 10. Share-based payments Details of share-based payments are disclosed in our Remuneration Report on pages 53 to 87 and in Note 13 of the Financial Report. 11. Additional information indemnities and insurance Clause 54 of the Company’s Constitution provides that every person who is or has been a Director or Secretary of the Group must be indemnified by the Company, to the extent permitted by law, against: liabilities incurred by the person as an officer of the Company or a subsidiary; and • • for legal costs incurred by the person in defending any proceedings which relate to a liability incurred by that person as an officer of the Company. The Company has executed Deeds of Indemnity, Insurance and Access, consistent with this Clause, in favour of all current Directors of the Company, the Company Secretary who is named in this Directors’ Report and the Company’s current Chief Financial Officer. The Company has also entered into equivalent Deeds of Indemnity with former Directors and Secretaries of the Company, in accordance with the Company’s previous Constitution. Each Deed indemnifies those persons for the full amount of all such liabilities including costs and expenses, subject to their terms. 49 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023DIRECTORS’ REPORTFor the year ended 30 June 2023, no amounts have been paid pursuant to indemnities (FY22: Nil). The Company’s Constitution also allows the Company to pay insurance premiums for contracts insuring the current and former Directors and Secretaries of the Company in relation to any such liabilities and legal costs. During or since the end of the financial year, the Company has paid the premium in respect of contracts insuring each of the Directors and the Secretary named in this Directors’ Report, the former Directors, and the officers of the Company as permitted by the Corporations Act 2001. The class of officers insured by the policy includes all officers of the Company. The terms of the contracts of insurance prohibit the disclosure of the nature of the liabilities insured against and the amount of the premium. As at the date of this report, no amounts have been claimed or paid in respect of these insurance contracts other than the premium referred to above. To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties and resulting liabilities, losses, damages, costs and expenses arising from the audit (for an unspecified amount). This indemnity does not extend to matters finally determined to have arisen from Ernst & Young’s negligent, wrongful or wilful acts or omissions. 12. Proceedings on behalf of the Group In relation to the terminal outage incident in January 2021, a class action proceeding was filed against Tyro in October 2021 in the Federal Court of Australia on behalf of customers impacted by the terminal outage incident. The class action was the subject of Tyro’s previous ASX announcement on 20 October 2021. The class action alleged that Tyro engaged in misleading and deceptive conduct, contravened certain statutory guarantees and breached certain contractual warranties. The claim sought compensation and damages from Tyro. Following a Court ordered mediation, Tyro entered into a Settlement Deed relating to an in-principle settlement of the class action which was approved by the Court. The class action proceedings were dismissed by the Court on 19 June 2023. Payment of the settlement amount did not involve any additional cost or expense to Tyro. In agreeing to resolve the class action, Tyro made no admission as to liability. 13. Non-audit services The Group may decide to employ its auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Group is important. The Board has considered the position and, in accordance with the advice received from the Audit Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed by the Audit Committee to ensure they do not impact the impartiality and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, including reviewing or auditing the auditor’s own work, acting in a management or a decision-making capacity for the Group, acting as advocate for the Group or jointly sharing economic risk and rewards. The non-audit services paid to the auditors (Ernst & Young) was for equity plan advice amounting to $21,500. Details of the audit and non-audit fees paid or payable for services provided by the auditors are detailed in Note 22 of the Financial Report. 50 TYRO PAYMENTS LIMITED - ANNUAL REPORT 202314. Auditor’s independence A copy of the auditor’s independence declaration as required under Section 307C of the Corporations Act 2001 is set out on page 89 and forms part of the Directors’ Report for the financial year ended 30 June 2023. 15. Rounding of amounts The Group is of a kind referred to in Legislative Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off in accordance with that Legislative Instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar. This Directors’ Report is made in accordance with a resolution of the Directors. 16. Significant events after the end of the financial year On 4 July 2023 Tyro Payments (Ben Alliance) Pty Ltd was lodged for deregistration. On 27 July 2023 Medipass Solutions Pty Ltd legally changed its name to Tyro Health Pty Ltd. On 7 August 2023, the appeals period for the orders dismissing the class action relating to the January 2021 terminal connectivity issue lapsed. On 21 August 2023, the settlement amount was paid by the Group’s insurer. In the opinion of the Directors, other than the two matters noted above, there have been no matters or circumstances which have arisen between 30 June 2023 and the date of this report that have significantly affected or may significantly affect the operations of the Group, the result of those operations or the state of affairs of the Group in subsequent financial years. 17. Remuneration Report The Group’s Remuneration Report which forms part of the Directors’ Report can be found on page 53 to 87 of this Annual Report. ______________________ Fiona Pak-Poy CHAIR Sydney 29 August 2023 ______________________ Paul Rickard NON-EXECUTIVE DIRECTOR 51 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023DIRECTORS’ REPORT 52 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023Remuneration Report 53 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023REMUNERATION REPORTe e t t i m m o C e h t m o r f r e t t e L l e p o e P e h t f o r i a h C “We are focused on simplifying the remuneration framework and continuing to drive a performance culture across the organisation that aligns targets and rewards with shareholder interests.” 54 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 Dear Shareholders, On behalf of the People Committee, I am pleased to present Tyro’s Remuneration Report for the financial year ended 30 June 2023. Our imperative as a Board is balancing the delivery of returns to investors with long term sustainable business performance and the People Committee is focused on the alignment of these priorities. It was an honour to be elected as the Chair of the Tyro People Committee in March of this year following Fiona’s election to Chair of the Board. This financial year was defined by two key themes. The first theme was one of renewal; the renewal of our management team, our Board and Tyro’s strategic priorities that we believe will position Tyro well for our next chapter of growth and profitability. The second was the near 10-month period of engaging with interested parties regarding a possible change of control transaction. As a People Committee, we were pleased with how our Team remained focused during this time to achieve record financial results for the year and delivered new product innovations to our more than 68,500 merchants who trust us with their payments and banking needs. Board and Management Renewal After three years as a listed company in which we navigated the impacts of Covid and the upheaval in the tech market, the Board and People Committee saw an opportunity to renew the Tyro management team to drive our next chapter of growth and profitability. Following an extensive internal and external search, we bolstered our management team by appointing internal candidate Jon Davey as CEO in October 2022. Jon joined Tyro following our acquisition of Medipass Solutions in May 2021. Jon renewed his leadership team with the recruitment of a new Chief Product Officer, a new Chief Growth Officer and a new leader of the Health business, as well as implementing a new operating model to better serve Tyro and our merchants going forward. In a little over 10 months as CEO, Jon has brought a renewed energy, focus, and determination to Tyro. This has seen improved accountability, productivity, and delivery with the strong financial results a clear indication of the impact he and his new leadership have had on the business in a short period of time. TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 I T R O P E R N O T A R E N U M E R 55 We also completed our renewal of the Board which has taken place over the past three years. In 2021 we welcomed Aliza Knox as a non-executive director, followed by myself and Shefali Roy in 2022. In March 2023, Fiona Pak Poy replaced David Thodey to become Tyro’s first female Chair, and one of the few ASX300 Chairs of Asian descent. Finally, there was my appointment to replace Fiona as Chair of the People Committee in March 2023. Together, our Board has the necessary depth of experience in payments, technology, banking, risk management, customer excellence, governance, and strategy, including dealing with complex mergers and acquisitions, to take a rejuvenated Tyro into its next phase of growth. Our Board is now one of the most diverse of all ASX- listed companies with 67% female representation. Diversity in experience, thought and gender genuinely helps deliver the robust governance that has, and continues to, serve us well. Tyro FY23 Performance Our remuneration framework aligns both the short- term and long-term rewards of employees and the Executive Leadership Team (XLT) with Tyro’s strategic goals, financial performance and core values and links variable pay outcomes to both Group and individual performance. With respect to the key component of our variable remuneration that directly links to Tyro’s financial performance, we delivered record transaction value of $42.6 billion, showing impressive growth of 25% from the $34.2 billion generated in FY22. This transaction value was generated from our more than 68,500 merchants with a total of 17,168 new merchants joining Tyro in the past 12 months. The record transaction value resulted in the achievement of record normalised gross profit of $193.2 million for the year. This is a growth of 30% over the prior year which, together with our cost reduction program implemented in October 2022, resulted in record EBITDA of $42.3 million, a 297% improvement over the $10.7 million generated in the prior year with an EBITDA margin of 22%. Furthermore, we generated positive free cash flow of $5.7 million for the year resulting in the achievement of all guidance targets communicated to investors at the start of the year. These strong results achieved in a softening operating environment are a clear indication that Tyro is now on a path to delivering improved shareholder value as the business continues to scale. FY23 Remuneration Outcomes With respect to the annual salary reviews conducted in January 2023 and our stated strategy to provide fixed annual remuneration (comprised of base salary and superannuation) between the 50th and 75th percentile (based on independent benchmark data), with technology roles skewed to the higher end of the range, we provided our team with an overall average remuneration increase of 4.1% (excluding the Executive Key Management Personnel (KMP) and XLT). Executive KMP and XLT were provided with an average increase of 6.7%, excluding our new CEO who accepted a new employment contract with the details provided in this Remuneration Report. Non- executive Directors did not receive any increase in remuneration this year. Following the strong results achieved in FY23, the overall FY23 short-term incentive (STI) outcome came in at 113% (FY22: 46%) of target with a total STI of $11.1 million to be paid to employees. Of this, $3.6 million will be paid in cash with the remaining $7.5 million to be issued as equity rights. In FY23, the People Committee amended the allocation of STI to the XLT to be more weighted to the issue of equity rights compared to cash. For FY23, 33.3% of the STI to XLT will be issued as cash (75% previously), 33.3% of the STI to XLT will be issued as short-term rights vesting equally over 12 months from grant, with the final 33.3% of the STI granted as long-term rights vesting in a single tranche 4 years after grant. This change was made to better align variable XLT remuneration to longer term shareholder wealth creation. The FY23 long-term incentive (LTI) Plan was made available to 66 employees made up of Executive KMP, the XLT and key employees identified by the CEO and the Board. Performance Rights were granted in December 2022 to these employees with vesting based on the achievement of a defined range of statutory EBITDA growth and relative Total Shareholder Return outcomes in FY25. This plan is not due to be tested until FY25 and as such no vesting has occurred. With respect to prior year LTI plans, 75% vesting has taken place on the FY20 performance option plan and 149% vesting has taken place on the FY21 LTI Performance Rights plan as the performance hurdles for vesting were met based on the FY23 results. No vesting took place on the FY19 Performance Option plan, and these Options will lapse as no further testing is permitted by the plan rules. 56 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023“...this was a year where we made great progress in renewing our management team and operating model and working towards our ambition of being Australia’s leading financial services technology and innovation company.” Looking Ahead to FY24 With the renewal of our management team and adoption of a new operating model in FY23, it is an opportune time to reconsider our remuneration framework for FY24 and ahead. We are focused on simplifying the remuneration framework and continuing to drive a performance culture across the organisation that aligns targets and rewards with shareholder interests. We are also committed as a Board and People Committee to continuously reviewing the effectiveness of our Remuneration Framework and I invite you to provide your feedback to either myself or Fiona directly. Finally, while there is more to be done as we focus on our new chapter of growth and profitability, this was a year where we made great progress in renewing our management team and operating model and working towards our ambition of becoming the leading specialist payments solutions provider for Australian businesses. Thank you to the whole team for their considerable commitment and contribution through this challenging period. Yours sincerely _____________________ Claire Hatton CHAIR - PEOPLE COMMITTEE 57 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023REMUNERATION REPORTt r o p e R d e t i d u A n o i t a r e n u m e R This Report forms part of the Directors’ Report and sets out the remuneration arrangements of the Group for the year ended 30 June 2023 and is prepared in accordance with Section 300A of the Corporations Act. The information has been audited as required by Section 308(3C) of the Corporations Act 2001. The report details the remuneration arrangements for Tyro’s Key Management Personnel (KMP). KMP are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including all Directors. References in this report to Executives refers only to those executives who are KMP, as outlined in section 1 below for FY23. 58 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 REMUNERATION REPORT 2023 1 . Who is covered in this Report 2. Remuneration governance 3. Remuneration framework 4. Key remuneration components for Executive KMP 5. FY23 Executive KMP remuneration outcomes 6. Statutory Executive KMP Remuneration 7. Non-executive Director Remuneration 8. Summary of Options and Rights under issue 9. Summary of Shares held by Non-executive Directors and Executive KMP 10. Other information 60 61 63 73 75 78 79 81 87 87 59 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023REMUNERATION REPORT1 . Who is covered in this Report The Company’s KMP covered in this report are Tyro’s Non-executive Directors, Chief Executive Officer (CEO), Chief Financial Officer (CFO) and Chief Risk Officer (CRO). Details of KMP who are Non-executive Directors, including changes made during the reporting period, are provided in the table below: NON-EXECUTIVE DIRECTORS TERM AS KMP Fiona Pak-Poy1 Chair, Non-executive Director David Fite Non-executive Director Claire Hatton Non-executive Director Aliza Knox Paul Rickard Shefali Roy Non-executive Director Non-executive Director Non-executive Director Full year Full year Full year Full year Full year Full year FORMER NON-EXECUTIVE DIRECTORS David Thodey AO2 Chair, Non-executive Director Partial year Fiona Pak-Poy was appointed as Chair from 1 March 2023. 1. 2. David Thodey AO ceased as KMP from 1 March 2023 after resigning as Chair and Non-executive Director. Details of KMP who are Executives, including changes made during the reporting period, are provided in the table below: EXECUTIVE KMP Jonathan (Jon) Davey3 Chief Executive Officer Praveenesh (Prav) Pala Chief Financial Officer Steven Chapman Chief Risk Officer TERM AS KMP Partial year Full year Full year FORMER EXECUTIVE KMP Robert (Robbie) Cooke4 CEO | Managing Director Partial year 3. 4. Jon Davey Commenced as CEO from 3 October 2022. Robbie Cooke ceased to be a KMP on 3 October 2022 and continued in a consulting capacity until 31 December 2022. There have been no changes to KMP since the end of FY23 up to the date of signing the Directors’ Report. 60 TYRO PAYMENTS LIMITED - ANNUAL REPORT 20232. Remuneration governance Tyro’s remuneration governance and framework is overseen by the People Committee (the Committee) as a formal committee of the Board. The Committee consists of four Non-executive Directors, with one performing the role of Chair. This Committee provides Tyro with a robust governance framework to ensure remuneration policies, practices and outcomes are reasonable and consistent with shareholder expectations. The Committee considers recommendations from the Management team in relation to all remuneration outcomes for employees, including KMP and senior executives, ahead of recommending to the Board for approval. These recommendations take into account shareholder feedback and advice from independent remuneration consultants. The principal responsibilities of the Committee are outlined in the People Committee Charter, available on the corporate governance page of the Group’s website: https://investors.tyro.com/investor-centre/?page=corporate-governance. Under the Committee Charter, the majority of Committee members must be independent non-executive directors and the Chair of the Committee must be an independent non-executive director. Currently, all members of the Committee (including the Chair of the Committee) are independent non-executive directors. Details of members of the Committee and their background are included in the Directors’ Report on pages 91 to 94. 61 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023REMUNERATION REPORT2.1 Use of remuneration advisors The People Committee engages independent remuneration advisors on an as-needs basis to provide information regarding market dynamics, trends and regulatory developments, specifically those impacting financial services companies. The People Committee and the Board consider this information along with other market insights to determine what would be the most appropriate recommendations to make for Tyro regarding remuneration. In FY23, EY and PWC were engaged to provide remuneration and equity plan advice during discussions with third parties relating to a possible change of control transaction and were paid $25,000 for this work. The Board is satisfied that no remuneration recommendations (as defined in the Corporations Act 2001) were provided by external remuneration advisors during FY23. 2.2 Remuneration Report approval at 2022 Annual General Meeting (AGM) The Company received a vote of 95% in favour of the adoption of the 2022 remuneration report at the 2022 AGM (90% vote in favour for 2021 AGM). 62 TYRO PAYMENTS LIMITED - ANNUAL REPORT 20233. Remuneration framework 3.1 Approach to remuneration Our approach to remuneration is summarised in the following table with a detailed analysis of each component of Tyro’s Remuneration Framework provided in Sections 3.2 to 3.5 of this Report. TYRO’S PURPOSE - POWERING THE FUTURE OF BUSINESS Strategy Grow merchant share in existing core verticals Drive profitability through pricing optimisation and operating efficiency Drive product innovation through new payments and banking products Cross-sell and drive growth in lending and other value- adding services Tyro Connect – data insights, loyalty, ordering and menu integration M&A and other strategic partnerships Remuneration Principles Align reward with strategic objectives. Our remuneration framework aligns both the short-term and long-term rewards of employees and Executives with Tyro’s strategic goals and core values and linking variable pay outcomes to both Group and individual performance. Attract, motivate and retain a highly skilled team. Incentivise and reward high performance that delivers sustainable long-term value creation and reflects the interests of our shareholders as the owners of our business. Our most important competitive advantage is our people and our values driven approach to ‘wowing’ the customer. To attract and retain our talented team, we target remuneration at levels that ensure we can access the limited and competitive talent pool to drive our business forward. Our approach to remuneration also motivates team members to drive overall customer satisfaction and perform well in all market conditions and economic cycles. We aim to generate strong alignment between our Team and Executive’s reward and shareholder outcomes through the structure of our short-term incentive plan and long-term incentive plan. Be transparent, easy to understand. Be transparent and easy to understand so that it’s clear how the Team’s performance relates to their rewards and positive outcomes for external stakeholders. Promoting gender pay equality. We are committed to equal pay for equal work and have recently introduced policies to review our gender pay equity on an annual basis. Each year we also complete the Workplace Gender Equality Agency gender equality program reporting. The findings from this annual report help us tailor our approach to ensure we’re achieving pay parity. 63 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023REMUNERATION REPORTCOMPONENT ALIGNMENT TO PERFORMANCE ALIGNMENT TO STRATEGY Remuneration Overview Fixed Annual Remuneration (FAR) Consisting of: • Base salary • Superannuation Short-Term Incentive Plan (STI) At risk component set as a percentage of FAR granted in a mix of cash and performance rights to all employees Long-Term Incentive Plan (LTI) At risk component set as a percentage of FAR and granted in the form of performance rights annually to participating executives • Set at a market competitive level in relation to the scope, complexity, capabilities and individual performance in the role. • Targeted at the 50th to 75th percentile of relevant external peer group. • Provides recognition for day-to-day, operational activities in the role. Performance assessed against: • Financial measures (target 40%). • Customer metrics (target 40%). • Individual KPI achievement (target 20%). • Set to attract, retain and engage the best people to design and lead the delivery of our strategy. • Annual pay reviews occur in December each year with remuneration changes effective from 1 January. • Linked to Tyro’s key strategic priorities. • The 67% of the Executive KMP and XLT award that is deferred into equity supports Executives’ alignment with shareholder interests, as well as Executive retention. • Performance assessed against • Targeting profitability and shareholder financial measures (target 100%). • 50% of the LTI award is subject to the satisfaction of an EBITDA hurdle with the vesting percentage determined by reference to Tyro’s statutory EBITDA (before share-based payments) 3-year CAGR. • 50% of each Participant’s Total LTI Entitlement will be subject to satisfaction of a relative TSR hurdle with the vesting percentage determined by reference to Tyro’s relative TSR ranking relative to the Total Shareholder Return (rTSR) for the S&P ASX All Technology Index (XTX index). wealth creation through EBITDA growth and outperformance of TSR. • The 3-year vesting period encourages consideration of long-term decision making and value creation, as well as operating as a retention tool. • With a significant portion of potential remuneration based on equity, the Board provides alignment between the interests of Executives and shareholders. “In order to meet our commitment of ensuring remuneration is market-competitive together with attracting world class talent, we adopt a benchmarking approach to setting remuneration levels for our Non-executive Directors, Executive KMP and Executive Leadership Team.” 64 TYRO PAYMENTS LIMITED - ANNUAL REPORT 20233.2 Remuneration benchmarking and review In order to meet our commitment of ensuring remuneration is market-competitive together with attracting world class talent, we adopt a benchmarking approach to setting remuneration levels for our Non-executive Directors, Executive KMP and Executive Leadership Team. As a technology company with a banking licence, we do not have any direct ASX-listed peers of a similar size. As such, we use two comparator groups. The first comparator group is based on the market capitalisation of ASX listed companies with ASX rankings within a range of 20 above and 20 below (40 companies in total) that of Tyro at the time of benchmarking (excluding REITs and secondary ASX listings). The second comparator group, used to validate the primary market capitalisation peer group, is based on financial services companies in the ASX300, and companies in the ASX300 Diversified Financials Index, excluding those that are above a market capitalisation of $5.0 billion and below that of $0.5 billion (excluding REITs, insurance companies, income trusts and secondary ASX listings). This group consists of 31 companies against which our remuneration is benchmarked. We have taken into account the fall in our market capitalisation as part of the benchmarking review we undertake acknowledging that many of the companies against whom we benchmark have experienced similar falls in market capitalisation. 3.3 Design of FY23 STI Plan The FY23 STI plan is designed to reward for achievement of annual goals aligned with Tyro’s strategy and reflecting key growth drivers to deliver returns for shareholders. The Plan provides the STI framework for the CEO, Executive KMP and XLT members and employees of the Group (Team). A number of changes were made to the FY23 STI design to better align the plan with the strategic objective of driving profitability and accountability for the execution and delivery of the strategy. The key changes made are as follows: • The performance hurdle relating to the financial component of the STI plan was changed from a hurdle based on gross profit growth in prior years to the achievement of normalised EBITDA (before share-based payments) targets as set by the People Committee at the start of the FY23 financial year. • A change was made relating to the overall weighting attached to the financial measure of the STI plan which has been reduced from 50% to 40%. • Furthermore, a change was made to the weighting of the individual key performance indicator (KPI) measure increasing in weighting from 10% to 20% of the overall STI plan. • Finally, a change was made to the split between equity and cash for the FY23 STI plan for Executive KMP and XLT to adjust upwards the equity component of the award from 25% previously to 66.7% of the award to be paid in equity as short-term and long-term rights. The remaining 33.3% is paid as cash. This change now aligns the allocation of the STI between rights and cash to all employees of Tyro. The number of employees who will participate in the STI for FY23 is 543 (FY22: 571). In terms of the Executive KMP and XLT, the CEO has a target STI potential of 75% of FAR and a maximum opportunity of 100% of FAR. Excluding the CEO, a target STI potential of between 35% to 50% of Executive KMP fixed annual remuneration is available as an STI (between 50% to 75% at maximum). All other XLT (including team members who were previously members of the XLT (previous XLT)) are allocated a potential target incentive amount of between 15% and 55% of FAR. The STI award for Executive KMP and the XLT is delivered 33.3% in cash and 66.7% in equity rights that vest as follows: • 50% of equity rights vest in equal tranches over a 12-month period from grant with no performance hurdle and irrespective of continuous service. There is no holding lock post vesting. • 50% of equity rights vest in a single tranche 4 years from grant with no performance hurdle but subject to malus and clawback provisions and irrespective of continuous service. For all other employees, the STI award is delivered 33.3% in cash and 66.7% in equity rights, vesting in equal tranches over a 12-month period with no holding lock post vesting of each tranche and irrespective of continuous service. An analysis of how the FY23 STI is calculated, specifically how the financial incentive pool is created, and the measures and weighting applied to financial performance outcomes and customer performance outcomes is set out on the next page. 65 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023REMUNERATION REPORT3.3.1 Financial Performance Targets for FY23 – 40% of target STI: FINANCIAL PERFORMANCE MEASURES Achievement of FY23 target EBITDA (before share-based payments) WEIGHTING AT TARGET WEIGHTING AT MAXIMUM TARGET RATIONALE FOR METRIC 40% 84% • Target - $26.9 million • Key indicator of financial EBITDA (before share-based payments). • No incentive pool is formed for EBITDA below $16.0 million. • Pool caps out at a maximum for EBITDA of $37.0 million. performance and profitability. • Ensures continued focus on growth and cost control. • Balances growth in transaction value with generating new business at profitable margins. 3.3.2 Customer Performance Targets for FY23 - 40% of target STI: CUSTOMER PERFORMANCE MEASURES Transaction value churn WEIGHTING AT TARGET WEIGHTING AT MAXIMUM TARGET RATIONALE FOR METRIC 5% 10% Merchant number churn 5% 10% Customer satisfaction 10% 15% Customer satisfaction 10% 15% • Target - 8% churn. • No incentive pool is formed at transaction value churn of 11% or greater. • Key indicator of merchant retention focussing on retention of large merchants. • Aligns to all of our Group • Pool caps out at transaction values. value churn of 5%. • Target - 10% churn. • No incentive pool is formed at merchant number churn of 13% or greater. • Key indicator of merchant retention focussing on retention of all merchants. • Aligns to all of our Group • Pool caps out at transaction values. value churn of 7%. • Target - NPS of 40. • No incentive pool is formed for NPS of 34 or lower. • Pool caps out at NPS of 46. • Key indicator of merchant satisfaction. • Aligns to all of our Group values. • Target - 24% of merchants signing on for two or more Tyro products. • Growth in value adding products. • Aligns to ‘Wow(ing) the • No incentive pool is Customers’ value. formed for less than 15% of merchants signing on for two or more Tyro products. • Pool caps out at 33% of merchants signing on from two or more Tyro products. Merchant applications 10% 16% • Target - Average of 1,500 • Key indicator of winning new business. • Aligns to ‘Stay Hungry’ value. new merchant applications per month for FY23. • No incentive pool is formed for less than 1,300 average new merchant applications per month. • Pool caps out at 1,900 average new merchant applications per month. 66 TYRO PAYMENTS LIMITED - ANNUAL REPORT 20233.3.3 Individual Key Performance Indicators for FY23 - 20% of target STI: Individual KPIs are set for team members at the start of each financial year. KPIs focus on providing a measure of individual performance together with placing emphasis on the achievement of individual goals, the development of team members skills and expertise and challenging team members to achieve at their highest level. These KPIs are assessed annually against a rating scale which informs the individual’s percentage allocation against target. For FY23, the average achievement for all employees came out at 64% of target. 3.3.4 Use of discretion: Grant of an STI is at the discretion of the Board and is assessed following the conclusion of the relevant financial year. Whether an STI is granted will depend on satisfaction of various criteria, including individual performance against key performance indicators, customer performance outcomes and financial performance outcomes, as determined by the Board. The Board retains the full discretion in relation to revising STI targets where material changes have occurred during the year. Furthermore, all equity granted in relation to STI awards are subject to malus provisions and the Board has the discretion to adjust or lapse/forfeit an award. 3.3.5 Tyro’s FY23 performance and link to FY23 STI: One of the key principles of Tyro’s remuneration framework is to align Executive KMP, XLT and employee remuneration outcomes with financial and customer performance. This section provides a summary of Tyro’s performance outcomes for FY23 and the link to remuneration. Financial performance outcomes FINANCIAL MEASURE FY23 FY22 FY21 FY20 5-YEAR CAGR FY19 Transaction value $42.6 billion $34.2 billion $25.5 billion $20.1 billion $17.5 billion 26.1% Gross profit (normalised) $193.2 million $148.5 million $119.7 million $93.5 million $83.3 million 23.4% EBITDA (normalised1) $42.3 million $10.7 million $14.2 million ($4.4 million) ($8.6 million) N/M EBITDA (statutory1) $53.8 million $14.4 million ($3.1 million) ($4.4 million) ($8.6 million) N/M Free cash flow2 $5.7 million ($34.1 million) ($44.1 million) ($36.2 million) ($17.8 million) N/M Share price $1.14 $0.60 $3.68 $3.50 Not listed 1. 2. Tyro uses EBITDA as a non-IFRS measure of business performance, which excludes the non-cash impact of share-based payments expense, share of losses from associates, and other significant one-off costs. Refer to the page 25 of the FY23 Investor Presentation for a reconciliation of normalised results to statutory results. Free cash flow is calculated before changes in banking funds and timing differences relating to net scheme receivables. It is calculated as EBITDA before share-based payments adjusted for non-cash items in Tyro’s working capital movements, statutory adjustments (including rent payments) and capital expenditure including internally generated intangibles. Terminal capital expenditure includes both new and replacement terminals. Financial performance outcomes linked to FY23 STI - Financial component representing 40% of total STI: The actual normalised EBITDA result for FY23 was the achievement of EBITDA of $42.3 million against a target of $26.9 million resulting in the achievement of the maximum incentive pool for the financial component of the FY23 STI plan. EBITDA (normalised) 42,299 26,900 EBITDA was driven by a 25% increase in transaction FY23 ACTUAL $’000 FY23 TARGET $’000 COMMENTARY value and a 30% increase in gross profit. Expenses were well controlled with a 9% increase in operating expenses for the year driving the EBITDA margin to a record 22%. STI financial component outcome 84% 40% 67 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023REMUNERATION REPORTCustomer performance outcomes CUSTOMER MEASURE Transaction value churn (%) Merchant count churn (%) Net Promoter Score (#) Merchants accepting two or more Tyro products (#) FY23 9.3% 11.7% 25 19% FY22 9.2% FY21 8.7% 10.5% 11.3% 34 14% 21 15% FY20 8.0% 11.7% 43 - FY19 9.3% 11.7% 37 - Merchant applications (#) 17,168 14,777 11,813 10,547 10,218 Customer performance outcomes linked to FY23 STI - Customer component metrics representing 40% of total STI: Transaction value churn (%) 8.0% 9.3% Achieved at threshold range FY23 TARGET FY23 ACTUAL ACHIEVEMENT STI OUTCOME % OF TARGET 67% % OF MAX 33% Merchant count churn (%) 10.0% 11.7% Achieved at threshold range 33% 17% Net Promoter Score (#) NPS of 40 NPS of 25 Achieved below threshold range 0% 0% Merchants accepting two or more Tyro products (%) Merchant applications (#) 24% 19% Achieved at threshold range 64% 42% Ave. of 1,500 per month Ave. of 1,431 per month Achieved at threshold range 64% 40% CEO Key Performance Indicators Under the FY23 STI Plan, Executive KMP and the XLT are required to individually achieve against a balanced scorecard that comprises a mixture of financial and non-financial key performance indicators (KPIs). These KPIs represent 20% of the total STI. Assessment of Jon Davey’s individual KPIs for FY23 were determined by the People Committee at the commencement of his duties as CEO, according to the following indicators: KEY PERFORMANCE INDICATORS WEIGHTING % Financial Performance - Deliver financial performance including the cost reduction program. Delivery and Execution - Delivery of critical foundational projects, a Tyro project delivery and governance approach and a continuous innovation delivery process. Organisation - Delivery of a new operating model: • Create a high performing and highly engaged team • Promote speed, accountability and innovation • Drive focus on a culture aligned to Tyro values Customer – Drive a customer focused organisation: • Deliver new strategic plan • Drive performance to plan Jon Davey achieved 80% of his total target KPI for FY23. 35% 35% 15% 15% 68 TYRO PAYMENTS LIMITED - ANNUAL REPORT 20233.3.6 The key terms of the Rights relating to the FY23 STI plan are set out below: TERMS DESCRIPTION Administration The plan is administered by the Board (or the Board’s delegate). Eligibility Full-time and part-time employees of the Company are eligible to receive awards under the STI Plan. The Board will select eligible employees to whom awards are to be granted from time to time. Grant date The date specified as the grant date in each participant’s offer document. Vesting dates For Executive KMP and the XLT: • 50% of vesting takes place in equal tranches over a 12-month period (irrespective of continuous service) after grant with no performance hurdle and no holding lock post vesting. • 50% of vesting takes place in a single tranche 4 years (irrespective of continuous service) after grant with no performance hurdle and no holding lock post vesting. For all other employees vesting takes place in equal tranches over a 12-month period (irrespective of continuous service) after grant with no performance hurdle and no holding lock post vesting. Following satisfaction of the vesting condition on each vesting date, the relevant number of Rights may be exercised at nil consideration. Each right granted entitles the holder to one share on exercise. Shares resulting from an exercise of service rights rank equally with other shares, and shareholders are entitled to the same dividend and voting rights specified in our constitution. Exercise Rights Holding lock period None. Clawback provisions Rights may be clawed back prior to vesting where there has been a material misrepresentation of the financial outcomes on which the payment had been assessed and/or the participant’s actions have been found to be fraudulent, dishonest or breached their duties or obligations to the Group (e.g. misconduct). Amendments Other terms The Board may amend the terms of the plan without consent of the participants if the amendment does not reduce the rights of the participants. The rules of the plan include other terms relating to the administration, transfer, termination and variation of the plan. 69 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023REMUNERATION REPORT3.4 Design of FY23 LTI Plan The FY23 LTI is designed to reward participants for their contributions towards achieving the Group’s strategic priorities orientated around delivering long term sustainable shareholder value creation. Following engagement with stakeholders on the FY22 LTI Plan, the Board refined the FY23 LTI Plan by amending the financial performance hurdles applicable to vesting for the plan. 50% of the plan award now vests based on the achievement of a statutory EBITDA growth performance hurdle from FY23 to FY25 (inclusive) while a new performance hurdle representing the remaining 50% of the plan award was added based on the achievement of a TSR ranking relative to the XTX index at 30 June 2025. This change was made to better align our LTI Plan with shareholder wealth creation in the medium to long term. The FY23 LTI Plan is open to the CEO, the Executive KMP, XLT and other nominated employees of Tyro and has been fulfilled via an issuance of performance rights. For FY23, there were 66 participants invited to participate in the plan (FY22: 77 participants). There were no changes to the design of the plan in FY23, however the performance measures in place were amended from FY22 to focus on long-term shareholder wealth creation centred on an EBITDA profitability measure and a rTSR measure rather than only focusing on EBITDA, gross profit and revenue measures as used in prior years as Tyro moves to profitability and a focus on shareholder wealth creation. 3.4.1 Determination of the number of rights awarded under the LTI plan: The number of performance rights to be issued to each participant was determined by reference to: • the volume weighted average price (VWAP) of Tyro shares traded in the 10 trading days commencing on the day following the announcement of Tyro’s FY22 full year result; and • each participant’s prescribed LTI entitlement that falls within the participant’s Total Remuneration Opportunity (TRO) as approved under the remuneration framework. • For FY23, the target and maximum LTI opportunity, based on a percentage of the employee’s Fixed Annual Remuneration (FAR) is: o 100% at target and 200% at maximum for the CEO. o Between 30% and 50% at target and at maximum for the Executive KMP. o Between 15% to 40% at target and at maximum for the XLT (including previous members of the XLT). o Between 7.5% to 20% at target and at maximum for any other nominated employees. The number of Performance Rights that qualify for exercise will depend on satisfaction of the following performance hurdles: EBITDA hurdle (50% of the Award) 50% of a Participant’s total LTI entitlement will be subject to the satisfaction of an EBITDA hurdle with the vesting percentage determined by reference to Tyro’s statutory EBITDA compound annual growth rate (before share- based payments) for the period 1 July 2022 to 30 June 2025 as specified below: i. Applicable to the CEO STATUTORY EBITDA (BEFORE SHARE-BASED PAYMENTS) 3-YEAR CAGR TO FY25 STATUTORY EBITDA TO BE ACHIEVED IN FY25 PERCENTAGE OF AWARDS VESTING Below 20% At 20% <$24.8 million $24.8 million 0% 50% Above 20% and below 60% Between $24.8 million to $58.9 million Pro-rata (50% to 99%) At 60% (at target) $58.9 million 100% Above 60% and below 100% Between $58.9 million to $115.0 million Pro-rata (100% to 199%) At or above 100% (at maximum) >$115.0 million 200% 70 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023ii. Applicable to the XLT and other nominated employees STATUTORY EBITDA (BEFORE SHARE-BASED PAYMENTS) 3-YEAR CAGR TO FY25 STATUTORY EBITDA TO BE ACHIEVED IN FY25 PERCENTAGE OF AWARDS VESTING Below 20% At 20% <$24.8 million $24.8 million 0% 50% Above 20% and below 60% Between $24.8 million to $58.9 million Pro-rata (50% to 99%) At or above 60% (at target and maximum) $58.9 million 100% Relative Total Shareholder Return (rTSR) (50% of the Award) The remaining 50% of each Participant’s total LTI entitlement will be subject to satisfaction of a relative TSR hurdle with the vesting percentage determined by reference to Tyro’s relative TSR ranking relative to the TSR for the XTX index at 30 June 2025 as specified below: i. Applicable to the CEO rTSR PERCENTILE RANKING Below 50th Percentile At 50th Percentile PERCENTAGE OF AWARDS VESTING 0% 50% Above 50th and below 75th Percentile Pro-rata (50% to 99%) Above 75th and below 85th Percentile (at target) At or above 85th Percentile (at maximum) 100% 200% ii Applicable to the XLT and other nominated employees rTSR PERCENTILE RANKING Below 50th Percentile At 50th Percentile PERCENTAGE OF AWARDS VESTING 0% 50% Above 50th and below 75th Percentile Pro-rata (50% to 99%) At or above 75th Percentile (at target and maximum) 100% In addition to the performance hurdles, employees who participate in the FY23 LTI must remain employed by Tyro at the vesting date in order for the Performance Rights to vest. 71 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023REMUNERATION REPORT3.4.2 The key terms of the Performance Rights relating to the FY23 LTI plan are set out below: TERMS DESCRIPTION Administration The plan is administered by the Board (or the Board’s delegate). Eligibility Eligible participants are Directors, Executive KMP, XLT as well as other nominated employees of the Group. Exercise price Nil Vesting dates Subject to satisfying the Performance Hurdles, the Performance Rights vest in one tranche 3 years following their grant (November 2025). Vesting condition The holder of the rights must be employed by Tyro on the date of vesting and the number of Performance Rights that qualify for exercise will depend on satisfaction of the performance hurdles set out above. Exercise Rights Once a FY23 LTI Performance Right has vested and subject to the Plan Rules, participants will be allocated with that number of fully paid Tyro Shares that corresponds to the relevant ‘Vesting Percentage’ multiplied by the number of FY23 LTI Performance Rights granted to participants (Vested Shares). Each Performance Right granted entitles the holder to one share on exercise. Shares resulting from an exercise of Performance Rights rank equally with other shares, and shareholders are entitled to the same dividend and voting rights specified in our constitution. Holding lock period Any Vested Shares issued to participants following the vesting of the FY23 Performance Rights, will remain subject to a 12-month holding lock, commencing on the date that the Vested Shares are issued. During the Holding Lock Period, the Vested Shares cannot be transferred, sold, encumbered or otherwise dealt with. Clawback provisions The Performance Rights to be subject to forfeiture prior to vesting and thereafter any shares issued will be subject to claw back for up to a further 2-year period following the expiry of the ‘holding lock (i.e. awards can be forfeited up to 6 years from the Grant Date). Amendments Other terms The Board may amend the terms of the plan without consent of the participants if the amendment does not reduce the rights of the participants. The rules of the plan include other terms relating to the administration, transfer, termination and variation of the plan. 72 TYRO PAYMENTS LIMITED - ANNUAL REPORT 20234. Key remuneration components for Executive KMP The charts below show the remuneration mix and Total Remuneration Opportunity (TRO) for Executive KMP at target opportunity and at maximum opportunity for FY23, comprising FAR, STI and LTI. CEO CFO CRO t e g r a T m u m i x a M 36% 36% 25% 18% 28% 25% 50% 21% 61% 25% 23% 21% 50% 25% 33% 44% 26% 53% FAR STI LTI EXECUTIVE KMP FAR STI AT TARGET LTI AT TARGET TRO AT TARGET STI AT MAXIMUM LTI AT MAXIMUM FAR TOTAL AT MAXIMUM Jon Davey $750,000 $562,500 $750,000 $2,062,500 $750,000 $750,000 $1,500,000 $3,000,000 Prav Pala $610,000 $305,000 $305,000 $1,220,000 $610,000 $457,500 $305,000 $1,372,500 Steve Chapman $390,000 $136,500 $117,000 $643,500 $390,000 $195,000 $156,000 $741,000 Variable remuneration (comprising STI and LTI at target and maximum amounts) accounts for the majority of the total remuneration mix for the CEO. The actual remuneration mix will vary based on Tyro’s performance and individual performance each year. 73 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023REMUNERATION REPORT4.1 Executive KMP remuneration time horizon Fixed Remuneration STI – cash (33.3% of STI) STI – short-term deferred rights (33.3% of STI) STI – long-term deferred rights (33.3% of STI) LTI – performance rights YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 Date granted Vesting date End of holding lock period 4.2 Changes to Executive KMP remuneration for FY23 Jon Davey was appointed as CEO on 3 October 2022 with a FAR of $750,000 being $240,000 lower than the previous CEO. Prav Pala (CFO) did not receive an increase in FY23 following the increase received in FY22 and his STI and LTI allocations as a proportion of FAR did not change. Steve Chapman (CRO) was granted a 2.6% increase to his FAR for FY23 to $390,000 with no change to his STI and LTI allocations as a percentage of FAR. Prav Pala was also granted a one-off retention incentive of 750,000 service rights in FY23. 33.3% of the service rights vested on 9 March 2023, being 6 months from the grant date. A further 33.3% will vest on 9 March 2024, being 18 months from the grant date with the final 33.3% vesting on 9 March 2025, being 30 months from the grant date. The amortised cost of these service rights are included in the statutory remuneration for Prav Pala in FY23. 4.3 Contracts of employment The employment conditions of the KMP (excluding Non-executive Directors) are provided in the table below. All KMP are employed under contracts of no fixed duration. EXECUTIVE KMP CONTRACT TERM NOTICE PERIOD TERMINATION PAYMENT Jon Davey No fixed duration 6 months Prav Pala No fixed duration 9 months Steve Chapman No fixed duration 6 months Combination of notice and payment in lieu, totalling no less than 6 months. Combination of notice and payment in lieu, totalling no less than 9 months. Combination of notice and payment in lieu, totalling no less than 6 months. In the event of serious misconduct, Tyro may terminate employment at any time without notice or a termination payment being made. Any options or rights not vested before the date of termination will lapse. Jon Davey is subject to a post-employment restraint period of 12 months, Prav Pala is subject to a post- employment restraint period of 9 months, and Steve Chapman is subject to a post-employment restraint period of 6 months subject to all usual legal requirements. 74 TYRO PAYMENTS LIMITED - ANNUAL REPORT 20235. FY23 Executive KMP remuneration outcomes FY23 STI outcomes 5.1 The following table provides the FY23 STI outcomes awarded to Executive KMP. Under the FY23 STI plan, 33.3% of the award is made in non-restricted cash and 66.7% of the awarded STI is provided in equity in the form of short- term and long-term Rights. EXECUTIVE KMP Jon Davey Prav Pala ACTUAL STI AWARDED $ DEFERRED – TO BE ISSUED AS EQUITY RIGHTS $ CASH $ STI AT TARGET $ 660,646 220,215 440,431 562,500 358,217 119,406 238,811 305,000 STI ACHIEVED AS A % OF TARGET STI ACHIEVED AS A % OF MAXIMUM % 117.4% 117.4% % 88.1% 78.3% 79.4% Steve Chapman 154,857 51,619 103,238 136,500 113.4% FY23 LTI outcomes 5.2 The following table provides the FY23 LTI outcomes awarded to Executive KMP. Under the FY23 LTI plan, performance rights are granted in the year with vesting to take place 3 years from grant subject to performance conditions being met. NUMBER OF PERFORMANCE RIGHTS GRANTED VALUE OF PERFORMANCE RIGHTS GRANTED VALUE AT GRANT DATE EXECUTIVE KMP Jon Davey Prav Pala 1,282,051 $1,500,000 261,538 $306,000 Steve Chapman 99,145 $116,000 GRANT DATE 24 Dec 2022 24 Dec 2022 24 Dec 2022 AS A % OF TOTAL REMUNERATION1 68.9% 17.5% 19.8% $1.17 $1.17 $1.17 1 The value of the FY23 LTI performance rights granted as a percentage of total remuneration is based on total statutory remuneration as reported on page 78. 75 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023REMUNERATION REPORTLegacy LTI Plan outcomes 5.3 Since the Group’s adoption of performance based long-term incentives in 2019, there have been five awards made under the LTI Plan to Executive KMP and other nominated employees, with three awards tested. The table below sets out the details of performance rights issued over the last five financial years and the outcome of testing of those awards if testing dates have been reached. DETAILS FY19 AWARD FY20 AWARD FY21 AWARD FY22 AWARD Instrument Options Options Exercise price $1.50 $1.79 LTI AWARD MEDIPASS AWARD Rights Nil Rights Nil Rights Nil Grant date 1 May 2019 1 Oct 2019 1 Feb 2021 1 Jul 2021 1 Mar 2022 Test date 1 May 2023 1 Oct 2023 1 Sep 2023 30 Jun 2026 1 Sep 2024 Vesting date Vesting hurdle(s) 1 2 3 4 1 Sep 2023 30 Jun 2026 1 Sep 2024 5 6 7 Test result Performance hurdles not met Performance hurdles met Performance hurdles met Not due for testing Not due for testing 1 2 3 4 5 6 7 FY19 LTI options vest in equal tranches of 25%, commencing on 1 May 2021 and ending on 1 May 2024.. Options granted in respect of FY19 must satisfy two performance hurdles to qualify for exercise: • 25% compound gross revenue growth from 1 July 2018 to end of financial year of testing; and • a positive Net Profit result (before tax and share-based expenses) for financial year of testing. FY20 LTI options vest in equal tranches of 25%, commencing on 1 October 2021 and ending on 1 October 2024. Options granted in respect of FY20 must satisfy two performance hurdles to qualify for exercise: • 20% compound gross revenue growth from 1 July 2019 to end of financial year of testing; and • a positive Net Profit result (before tax and share-based expenses) for financial year of testing. The FY21 performance rights will vest subject to passing a ‘Gateway’ and then satisfying a prescribed ‘Performance Hurdle’ and will vest in one tranche after 3 years (on 1 September 2023). The ‘Gateway’ that must be passed prior to testing the performance hurdle is defined as Tyro reporting a positive EBITDA (before share-based payments) result for the financial year immediately preceding the vesting date, namely FY23. If the ‘Gateway’ is passed, the number of performance rights that qualify for exercise will depend on the vesting percentage determined by reference Tyro’s compound gross profit growth rate during the vesting period (Performance Hurdle). The number of Medipass performance rights that will vest will be determined by reference to the EBITDA (as set out in Tyro’s audited financial statements) for the combined Medipass and Tyro Health businesses in respect of the financial year ended 30 June 2026. The number of performance rights that will qualify for exercise will depend on the vesting percentage determined by reference to Tyro’s FY24 statutory EBITDA (which excludes share-based payment expenses). 5.3.1 Testing of FY19 performance options Based on the fourth and final testing of the FY19 performance options, the compound gross revenue for the period 1 July 2018 to 30 June 2023 was 24.3% with a net profit before tax and share-based payments of $13.6 million recorded. Test 1: Achieve Net profit before tax and share based payments Hurdle achieved Test 2: 25% compound gross revenue growth for each year of testing Compound gross revenue growth (%) Hurdle achieved FY19 $’000 FY20 $’000 FY21 $’000 FY22 $’000 FY23 $’000 (16,475) (27,161) (20,433) (24,418) 13,626      189,770 210,675 238,522 326,143 439,776 - - 19.2% 17.2% 21.8% 24.3%     As the 25% compound gross revenue growth rate was not achieved, the option grant does not meet the performance hurdles at the final testing date and as such will lapse. 7676 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 5.3.2 Testing of FY20 performance options The FY20 performance options will be tested on 1 October 2023 relating to the first three of four tranches of vesting for the option grant (75% of vesting opportunity). Although testing will only take place on 1 October 2023, the results of the testing are known, and the indicative results provided in the table below. Test 1: Achieve Net profit before tax and share-based payments (27,161) (20,433) (24,418) 13,626 FY20 $’000 FY21 $’000 FY22 $’000 FY23 $’000 Hurdle achieved Test 2:     20% compound gross revenue growth for each year of testing 210,675 238,522 326,143 439,776 Compound gross revenue growth (%) Hurdle achieved - - 12.1% 19.8% 23.4%    As both the net profit before tax and share-based payments hurdle and the compound gross revenue hurdles have been met as at 30 June 2023, the first three tranches of the grant will vest on 1 October 2023. The final 25% tranche of the option grant will be tested on 1 October 2024 and be based on FY24 results. 5.3.3 Testing of FY21 performance rights The FY21 performance rights will vest on 1 September 2023 relating to the single vesting tranche for the grant. Although vesting will only take place on 1 September 2023, the results of the testing are known. The results of testing are provided in the table below. Test 1 - Gateway: Tyro reporting positive statutory EBITDA (before share-based payments) result for the financial year immediately preceding the vesting date, namely FY23 Hurdle achieved Test 2 – Gross profit CAGR growth performance hurdle: Reference to Tyro’s compound gross profit growth rate during the vesting period: • Less than 12.5% gross profit CAGR FY20 to FY23 – Nil vesting • 12.5% gross profit CAGR FY20 to FY23 – 30% vesting • Above 12.5% to less than 20% gross profit CAGR FY20 to FY23 – Straight line vesting between 30% and 100% • 20% gross profit CAGR FY20 to FY23 (target) – 100% vesting • Above 20% and capping at 30% gross profit CAGR FY20 to FY23 – Straight line vesting between 100% and 150% Compound gross profit growth rate achieved for FY20 to FY23 (%) Hurdle achieved Vesting percentage achieved (%) FY23 $’000 53,824  29.8%  149% As both the EBITDA gateway and the compound gross profit performance hurdles will be met as at 30 June 2023, the FY21 LTI performance right grant will vest at 149% of the rights granted. These rights will vest on 1 September 2023. 77 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023REMUNERATION REPORT6. Statutory Executive KMP Remuneration The following table provides the statutory remuneration outcomes for Executive KMP for FY23 and FY22 and is prepared in accordance with Australian Accounting Standards. The statutory remuneration outcomes disclosed in this table differs from the Executive KMPs’ FY23 Total Remuneration Opportunity (TRO) and the elements of the remuneration framework outlined in Section 4 of this Report. Differences arise mainly due to the accounting treatment of long-term benefits (which include annual leave and long service leave) and share-based payments (performance rights, LEPRs, remuneration sacrifice rights and option plans). Disclosures include an accounting value for current year rights and all unvested option plan awards. The Accounting Standards require remuneration in the form of equity awards to be expensed (and therefore included as remuneration) over the performance period of the option plan even though an Executive KMP may not realise any benefit from that award. CASH SALARY $ SUPERAN- NUATION $ OTHER $ CASH STI AWARD $ LONG SERVICE LEAVE $ OPTIONS $ RIGHTS4 $ TOTAL $ PERFOR MANCE BASED EQUITY COMPONENT % 543,531 18,969 61,0821 220,215 - - - - - - - 1,332,6115 2,176,408 61.2% - - - 279,318 6,323 250,3869 - (79,213)3 72,7943 529,608 970,954 23,568 43,8159 177,645 - (760,912)3 (172,588)3 282,482 FY23 FY22 586,432 25,292 573,932 23,568 Steve Chapman 119,406 15,552 (50,341)8 1,053,2056 1,749,546 123,183 55,450 5,422 132,677 914,232 362,354 25,292 360,000 23,568 51,619 52,718 - - (15,436)8 161,4727 585,301 25.0% (1,420) 42,9795 477,845 8.7% - - - - - - N/A N/A 57.3% 15.1% EXECU- TIVE KMP Jon Davey1 FY23 FY22 FY23 FY22 Prav Pala Robbie Cooke2 FY23 FY22 Total FY23 FY22 1,771,635 75,876 311,468 391,240 15,552 (144,990) 2,620,082 5,040,863 1,904,886 70,704 43,815 353,546 55,450 (756,910) 3,068 1,674,559 1 2 3 4 5 6 7 8 9 Jon Davey commenced as KMP effective 3 October 2022. Pro rata Fixed Remuneration figures provided from 3 October 2022 to 30 June 2023. The STI, Options and Rights figures represent the full FY23 charges. Under the terms and conditions of Jon Davey’s employment agreement, Tyro will pay for travel between Jon’s principal place of residency (Melbourne) and Tyro’s head office (Sydney) up to on amount of $75,000 per annum. Robbie Cooke ceased as CEO and Managing Director effective 3 October 2022. Pro rata Fixed Remuneration figures provided from 1 July 2022 to 3 October 2022 Under the terms of the STI and LTI plan rules, any unvested share-based instruments of the CEO and Managing Director are deemed forfeited as a result of resignation except for the FY22 STI that continues to vest post termination of employment. Rights relate to the Remuneration Sacrifice Rights Plan, the LEPR Plan, the equity rights awarded in relation to the FY21, FY22 and FY23 STI Plan, retention rights and equity rights awarded in relation to the FY21, FY22 and FY23 LTI Plan. These rights are classified as long term due to the terms of each respective Plan. Included in the FY23 cost of Rights awarded to Jon Davey, is an amount of $440,431 relating to the FY23 STI award and an amount of $892,180 relating to the amortised accounting cost of his LTI awards, Medipass retention and performance awards and prior year STI awards. Included in the FY23 cost of Rights awarded to Prav Pala, is an amount of $238,811 relating to the FY23 STI award and an amount of $814,394 relating to the amortised accounting cost of his LTI awards, FY23 retention award and prior year STI awards. Included in the FY23 cost of Rights awarded to Steve Chapman, is an amount of $103,238 relating to the FY23 STI award and an amount of $58,234 relating to the amortised accounting cost of his LTI awards, FY23 retention award and prior year STI awards. The negative accounting value of options for FY22 and FY23 relates to management’s judgement that the FY19 LTI Option Plan will not be capable of vesting. As such, a proportion of the prior year share-based payments expense for these options have been reversed. The other payments made to Robbie Cooke in FY23 relate to $222,760 in unused leave balance paid on termination of employment and $27,626 for the payment of travel between Robbie’s principal place of residency (Brisbane) and Tyro’s head office (Sydney) up to on amount of $50,000 per annum. The $43,815 relates to travel for FY22. 78 TYRO PAYMENTS LIMITED - ANNUAL REPORT 20237. Non-executive Director Remuneration Non-executive Directors receive a base fee, and where applicable, an additional fee in recognition of the higher workload and extra responsibilities resulting from Board Committee participation. Fees are based on peer market benchmarks and reviewed annually. Non-executive Directors do not receive incentive payments, and following Tyro’s listing on the ASX on 6 December 2019, they are no longer entitled to participate in any Tyro employee or Executive equity plans other than the remuneration sacrifice rights plan. They receive no non-monetary benefits and do not participate in any retirement benefit scheme, other than statutory superannuation contributions. Under the ASX Listing Rules, the total amount or value of remuneration paid to Non-executive Directors in any year may not exceed the amount approved by shareholders at the Company’s general meeting. This amount has been fixed at $1,400,000 per annum, as approved by shareholders at Tyro’s 2019 annual general meeting. As at the date of this report, the Non-executive Director base fee agreed to be paid by Tyro is $140,000 (FY22: $140,000) per annum before superannuation contributions. Non-executive Directors are also paid additional base fees for the following roles: • • Chair of the Board: $70,000 per annum (for total remuneration of $210,000 per annum); and Chair of a Board Committee: $20,000 per Committee Chair (for total remuneration of $160,000 per annum), not payable if the Committee Chair is also the Board Chair. Non-executive Directors are not paid an additional fee for being a member of a Board Committee. In addition to the remuneration above, the Company will contribute statutory superannuation to a complying superannuation fund. Remuneration is reviewed annually and any increase to it will be at the discretion of the Board but will not exceed the aggregate amount approved by Shareholders. The table below outlines the statutory remuneration paid to Non-executive Directors in FY23 in accordance with Australian Accounting Standards. Refer to page 48 of the Directors’ Report for a summary of the Board meetings and Committee meetings that Non-executive Directors attended in FY23. 79 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023REMUNERATION REPORTNON-EXECUTIVE DIRECTOR Fiona Pak-Poy2 FY23 FY22 David Thodey3 FY23 FY22 Hamish Corlett4 FY23 FY22 David Fite FY23 FY22 Claire Hatton5 FY23 FY22 Aliza Knox FY23 FY22 Paul Rickard FY23 FY22 Shefali Roy5 FY23 FY22 Total FY23 FY22 CASH FEES $ SUPERANNUA- TION $ OPTIONS5 $ RIGHTS1 $ TOTAL $ PERFORMANCE BASED EQUITY COMPONENT % 5,428 8,911 97,608 200,644 159,998 168,909 2.7% 5.3% 88,333 9,275 - 154,000 231,000 - - 140,000 140,000 146,667 68,889 140,000 161,273 - - - - - 14,700 14,000 15,400 6,889 14,700 16,127 (15,192)6 (5,368)6 - - - - 138,808 225,632 - (16,751)6 46,663 29,912 (8,857)6 (4,457)6 - - - - - - - - - - 145,843 149,543 162,067 75,778 154,700 177,400 - - (13,244)6 198,900 185,656 90,000 9,000 (7,886)6 90,000 181,114 112,000 68,889 781,000 760,051 11,760 6,889 65,835 52,905 - - 30,940 154,700 - 75,778 (31,865) 327,448 1,142,419 (25,551) 296,661 1,084,066 - - - - - - - - - - - - - - 1 2 3 4 5 6 Included in rights for FY23 are the fees Non-executive Directors have salary sacrificed and issued as service rights. Fiona Pak-Poy was appointed as Chair from 1 March 2023. Fees related to Chair of the Board were payable from 1 March 2023 to 30 June 2023. David Thodey stepped down as Chair and from the Board on 1 March 2023. Details are provided for the period 1 July 2022 to 1 March 2023. Hamish Corlett stepped down from the Board on 3 November 2021. Remuneration details are provided for the period 1 July 2021 to 3 November 2021. Claire Hatton and Shefali Roy were appointed as Non-executive Directors on 5 January 2022. The FY22 data in the table above reflects the Non-executive Director fees received from that date. The negative accounting value of options for FY22 and FY23 relates to management’s judgement that the FY19 LTI Option Plan will not be capable of vesting. As such, a proportion of the prior year share-based payments expense for these options have been reversed. 80 TYRO PAYMENTS LIMITED - ANNUAL REPORT 20238. Summary of Options and Rights under issue Rights 8.1 All unissued shares in Tyro held under STI service rights plans, LTI service rights plans, LTI performance rights plans, the Liquidity Event Performance Rights plan and remuneration sacrifice rights plans at the date of this report are shown in the table below: GRANT DATE 18 Apr 2019 EXPIRY DATE EXERCISE PRICE % VESTED % EXERCISED NUMBER HELD AS RIGHTS n/a n/a 100% 100% AWARD TYPE Remuneration sacrifice rights in respect of FY18 Executive STI Plan Remuneration sacrifice rights in respect of FY19 Director Fees Remuneration sacrifice rights in respect of FY19 Executive STI Plan Remuneration sacrifice rights in respect of FY20 Director Fees Remuneration sacrifice rights in respect of FY21 Director Fees Remuneration sacrifice rights in respect of FY22 Director Fees 5 Sep 2018 n/a n/a 100% 100% 16 Oct 2019 n/a n/a 100% 100% 16 Oct 2019 n/a n/a 85% 85% 27 Oct 2020 n/a n/a 100% 100% 3 Nov 2021 n/a n/a 100% 100% Nil Nil Nil Nil Nil Nil Liquidity Event Performance Rights 9 May to 6 Aug 2019 FY20 STI service rights 14 Dec 2020 FY21 LTI performance rights 5 Feb 2021 FY21 STI service rights 2 Sep 2021 FY22 LTI performance rights 1 Mar 2022 Medipass service rights 1 Jul 2021 Medipass performance rights 1 Jul 2021 FY22 LTI service rights FY22 Retention rights FY22 STI rights 1 Feb 2022 1 Jul 2022 24 Oct 2022 FY23 LTI performance rights 24 Dec 2022 FY23 Retention rights 12 Jul 2022 & 9 Sep 2022 1 1 2 1 2 1 2 1 1 1 2 1 n/a 100% 100% 800,000 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 85% 0% 27% 0% 0% 0% 25% 56% 65% 0% 26% 66% 0% 15% 0% 0% 0% 7% 25% 17% 0% 0% 102,251 264,047 481,359 576,554 1,008,597 1,008,597 1,660,137 391,220 1,754,286 3,771,014 955,480 1 2 Expiry will take place 10 years after the relevant vesting date. FY21, FY22, FY23 and Medipass LTI performance rights expire immediately after vesting date should the performance hurdles not be met. Should the performance hurdles be met on vesting date, then shares are issued to plan participants without the requirement to exercise. 81 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023REMUNERATION REPORTRights held by Non-executive Directors at 30 June 2023 All rights held by Non-executive Directors in the table below relate to restricted rights issued under the Director Salary Sacrifice Rights Plan. NON-EXECUTIVE DIRECTOR BALANCE AT START OF YEAR GRANTED AS COMPENSA- TION1 EXERCISED FORFEITED Fiona Pak-Poy FY23 76,858 - (76,858) FY22 - 76,858 - David Thodey2 FY23 59,367 - (59,367) FY22 Hamish Corlett3 FY23 David Fite FY22 FY23 FY22 Claire Hatton FY23 Aliza Knox FY22 FY23 FY22 - - - 59,367 - 47,647 - - - 35,620 - (35,620) - - - - - 35,620 - - - - - - - - - - (46,723) - - - Paul Rickard FY23 46,723 Shefali Roy FY22 FY23 FY22 - - - 46,723 - - BALANCE AT END OF YEAR VESTED AND EXERCISABLE UNVESTED - - - 76,858 35,620 41,238 - - 59,367 59,367 - - - - - 47,647 35,620 12,027 - - 35,620 35,620 - - - - - - - - - - - - - - - - - 46,723 23,527 23,196 - - - - - - - - - - - - - - - - - - - - - - 1 2 3. Rights granted as compensation in FY22 relate to director fees sacrificed in FY22. David Thodey stepped down as Chair and from the Board on 1 March 2023. Details are provided for the period 1 July 2022 to 1 March 2023. Hamish Corlett stepped down from the Board on 3 November 2021. Details are provided for the period 1 July 2021 to 3 November 2021. Rights held by Executive KMP at 30 June 2023 EXECUTIVE KMP BALANCE AT START OF YEAR GRANTED AS COMPENSA- TION1 Jon Davey FY23 631,320 1,307,365 FY22 - 631,320 EXERCISED FORFEITED - - - - BALANCE AT END OF YEAR 1,938,685 VESTED AND EXERCISABLE UNVESTED - 1,938,685 631,320 - 631,320 Robbie Cooke1 FY23 1,223,587 50,611 (62,975) (360,612) 850,611 800,000 50,611 FY22 1,430,476 193,111 (400,000) Prav Pala FY23 144,478 1,046,633 - FY22 244,456 90,459 (190,437) Steve Chapman FY23 48,485 114,164 (602) FY22 19,469 32,942 (3,926) - - - - - 1,223,587 857,728 365,859 1,191,111 252,159 938,952 144,478 162,047 48,485 - - - 144,478 162,047 48,485 1 Robbie Cooke ceased employment as CEO and Managing Director on 3 October 2022 and continued in a consulting capacity until 31 December 2022. All remaining rights that were subject to a service condition were forfeited from that date. 82 TYRO PAYMENTS LIMITED - ANNUAL REPORT 20238.2 Options All unissued ordinary shares in Tyro held under option plans at the date of this report are shown in the table below: AWARD TYPE GRANT DATE EXPIRY DATE EXERCISE PRICE % VESTED % EXERCISED NUMBER HELD AS RIGHTS Options exercisable between $0.375 to $1.76 expiring between 17 October 2020 and 22 July 2024 Between 18 Oct 2013 to 19 Dec 2018 Between 17 Oct 2020 to 22 Jul 2024 $0.375 to $1.76 94% 53% 4,968,054 Options exercisable at Nil expiring between 30 December 2024 and 25 June 2025 31 Dec 2018 to 26 Jun 2019 Between 30 Dec 2024 and 25 Jun 2025 Nil 67% 54% 413,189 Options exercisable at Nil expiring on 31 August 2025 1 Sep 2019 31 Aug 2025 Nil 44% 32% 404,762 Options exercisable at $1.50 expiring on 30 April 2026 1 May and 6 Aug 2019 30 Apr 2026 $1.50 0% 0% 1,468,599 Options exercisable at $1.79 expiring on 30 September 2026 1 Oct 2019 30 Sep 2026 $1.79 0% 0% 1,850,147 Options held by Non-executive Directors at 30 June 2023 GRANTED AS COM- PENSATION EXERCISED FORFEITED NON-EXECUTIVE DIRECTOR BALANCE AT START OF YEAR Fiona Pak-Poy FY23 83,000 FY22 83,000 David Thodey1 FY23 82,286 FY22 82,286 Hamish Corlett2 FY23 - FY22 68,000 David Fite FY23 158,144 FY22 158,144 Claire Hatton FY23 Aliza Knox FY22 FY23 FY22 - - - - Paul Rickard FY23 201,231 Shefali Roy FY22 229,400 FY23 FY22 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - BALANCE AT END OF YEAR VESTED AND EXERCIS- ABLE 83,000 83,000 - - UNVESTED 83,000 83,000 82,286 11,428 70,858 82,286 8,571 73,715 - 68,000 - - - 68,000 158,144 87,286 70,858 158,144 75,679 82,465 - - - - - - - - - - - - - - - - - - - - - - - - (21,505) 179,726 78,568 101,158 (28,169) - - - - - 201,231 91,378 109,853 - - - - - - 1 2 David Thodey stepped down as Chair and from the Board on 1 March 2023. Details are provided for the period 1 July 2022 to 1 March 2023. Hamish Corlett stepped down from the Board on 3 November 2021. Details are provided for the period 1 July 2021 to 3 November 2021. 83 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023REMUNERATION REPORTOptions held by Executive KMP EXECUTIVE KMP Jon Davey BALANCE AT START OF YEAR FY23 FY22 - - Robbie Cooke1 FY23 5,504,530 FY22 5,504,530 Prav Pala FY23 1,613,486 FY22 1,808,186 Steve Chapman FY23 342,334 FY22 342,334 GRANTED AS COM- PENSATION EXERCISED FORFEITED BALANCE AT END OF YEAR VESTED AND EXERCIS- ABLE UNVESTED - - - - - - - - - - - - (304,761) (5,199,769) - - - - - - - - - - - (194,700) - - - - - - - 5,504,530 1,743,720 3,760,810 1,613,486 405,689 1,207,797 1,613,486 390,805 1,222,681 342,334 342,334 - - 342,334 342,334 1 Robbie Cooke ceased employment as CEO and Managing Director on 3 October 2022 and continued in a consulting capacity until 31 December 2022. All remaining rights that were subject to a service condition were forfeited from that date. 84 TYRO PAYMENTS LIMITED - ANNUAL REPORT 20238.3 Equity grants to Executive KMP This section sets out the required statutory disclosures of equity grants for Tyro’s Executive KMP. NUMBER OF OPTIONS/ RIGHTS GRANTED VEST- ING DATE EXERCISE PRICE VALUE OF OPTIONS/ RIGHTS AT GRANT DATE VESTED % VESTED (NUMBER) VALUE OF OPTIONS/ RIGHTS EXER- CISED DURING THE REPORTING PERIOD FOR- FEITED/ LAPSED % GRANT DESCRIPTION Jon Davey GRANT DATE $419,047 80.0% 304,761 20.0% $335,237 $1.79 $816,231 0.0% Nil 100.0% - $209,077 100.0% 62,975 Nil $227,970 Medipass Service 1 Jul 2021 297,619 Medipass Performance 1 Jul 2021 297,619 FY22 LTI Rights 1 Mar 2022 36,082 FY22 STI Rights 24 Oct 2022 25,314 FY23 LTI Rights 24 Dec 2022 1,282,051 Robbie Cooke 2018 Dec Linear Options 19 Dec 2018 1,818,180 FY19 LTI Options 1 May 2019 1,567,813 Liquidity Event Rights 26 Jun 2019 1,200,000 2019 Jun Annual Options 26 Jun 2019 380,952 FY20 LTI Options 1 Oct 2019 1,737,585 FY20 STI Rights 2 Sep 2020 62,975 FY21 LTI Rights 1 Feb 2021 167,501 FY21 STI Rights 2 Sep 2021 28,536 FY22 LTI Rights 1 Mar 2022 164,575 10 11 9 12 13 1 2 3 4 5 6 7 8 9 FY22 STI Rights 18 Oct 2022 50,611 12 Prav Pala 2014 Oct Linear Options 10 Oct 2014 211,268 2015 Oct Linear Options 6 Oct 2015 166,129 2016 Nov Linear Options 2 Nov 2016 141,403 2018 Feb Linear Options 1 Feb 2018 250,000 2018 Dec Annual Options 31 Dec 2018 71,428 FY19 LTI Options 1 May 2019 634,681 Liquidity Event Rights 9 May 2019 500,000 FY20 LTI Options 1 Oct 2019 558,830 FY20 STI Rights 2 Sep 2020 25,930 FY21 LTI Rights 1 Feb 2021 51,860 FY21 STI Rights 2 Sep 2021 FY22 LTI Rights 1 Mar 2022 15,072 75,387 Retention Rights 9 Sep 2022 750,000 FY22 STI Rights 24 Oct 2022 35,095 FY23 LTI Rights 24 Dec 2022 261,538 1 1 1 1 4 2 3 5 6 7 8 9 14 12 13 Nil Nil Nil Nil Nil $1,119,047 0.0% $1,119,047 0.0% $61,339 0.0% $38,098 0.0% $1,903,846 0.0% Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil $1.76 $475,159 98.0% 1,727,271 100.0% $1.50 $488,235 0.0% Nil 100.0% $1,320,000 100.0% 1,200,000 Nil Nil Nil Nil Nil Nil Nil Nil $0.45 $0.60 $1.49 $1.76 $556,104 0.0% Nil 100.0% $108,437 0.0% Nil 100.0% $279,778 0.0% Nil 100.0% $76,170 0.0% Nil Nil $31,211 100.0% 211,268 $26,479 100.0% 166,129 $39,580 100.0% 141,403 $59,492 100.0% 250,000 Nil $74,999 80.0% 57,142 $1.50 $197,647 0.0% Nil Nil $550,000 100.0% 500,000 $1.79 $262,510 0.0% Nil Nil Nil Nil Nil Nil Nil Nil $86,088 100.0% 25,930 $163,359 0.0% $57,274 0.0% $128,158 0.0% Nil Nil Nil $1,031,250 33.3% 250,000 $52,818 0.0% $388,384 0.0% Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil - - - - - - - - - - - - - - - - - - - - - - - - - - - 85 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023REMUNERATION REPORTNUMBER OF OPTIONS/ RIGHTS GRANTED VEST- ING DATE EXERCISE PRICE VALUE OF OPTIONS/ RIGHTS AT GRANT DATE VESTED % VESTED (NUMBER) VALUE OF OPTIONS/ RIGHTS EXER- CISED DURING THE REPORTING PERIOD FOR- FEITED/ LAPSED % GRANT DESCRIPTION Steve Chapman GRANT DATE FY19 LTI Options 1 May 2019 181,337 FY20 LTI Options 1 Oct 2019 160,997 FY20 STI Rights 2 Sep 2020 FY21 LTI Rights 1 Feb 2021 FY21 STI Rights 2 Sep 2021 7,246 14,941 3,285 FY22 LTI Rights 1 Mar 2022 29,657 FY22 STI Rights 24 Oct 2022 15,019 FY23 LTI Rights 24 Dec 2022 99,145 2 5 6 7 8 9 12 13 $1.50 $197,647 0.0% $1.79 $262,510 0.0% Nil Nil Nil Nil Nil Nil Nil Nil $24,057 100.0% 7,246 $47,064 0.0% $12,483 0.0% $50,417 0.0% $22,604 0.0% $147,230 0.0% Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil - - - - - - - - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Options granted vest monthly in equal tranches over a period of 5 years and are not subject to any performance conditions. Options granted vest annually in equal 25% tranches over a period of four years, commencing 24 months after the grant date and subject to the following performance conditions: (i) 25% compound gross revenue growth per annum; and (ii) a positive net profit result (before tax and share-based expenses). If a tranche does not satisfy both performance criteria on the relevant testing date, the tranche will be retested at the next testing date (if any). Vesting will occur in three equal tranches, as follows: one third on the date of the liquidity event (Initial Vesting Date); one third on the date that is 12 months after the Initial Vesting Date; and one third on the date that is 24 months after the Initial Vesting Date. Options granted vest annually in equal 20% tranches over a period of five years, commencing 12 months after the grant date and are not subject to any performance conditions. Options granted vest annually in equal 25% tranches over a period of four years, commencing 24 months after the grant date and subject to the following performance conditions: (i) 20% compound gross revenue growth per annum; and (ii) a positive net profit result (before tax and share-based expenses). If a tranche does not satisfy both performance criteria on the relevant testing date, the tranche will be retested at the next testing date (if any). Vesting occurs equally on a monthly basis over a 24-month period from the Initial Vesting Date. Subject to passing the ‘Gateway’ and satisfying the Performance Hurdle, the Performance Rights vest in one tranche 3 years following the Effective Date. Vesting takes place 4-years (irrespective of continuous service) after grant with no performance hurdle. Subject to satisfying the Performance Hurdle, the Performance Rights vest in one tranche 3 years following the Effective Date. Vesting takes place in a single tranche on 31 May 2026 subject to continued employment. Vesting takes place in a single tranche following the release of Tyro’s annual financial statements in respect of the year ended 30 June 2026 and is subject to the satisfaction of EBITDA performance hurdles for Tyro Health for the year ended 30 June 2026. Vesting takes place 4-years (irrespective of continuous service) after grant with no performance hurdle. Vesting takes place in a single tranche on 23 November 2025 and is subject to the satisfaction of a CAGR EBITDA performance hurdles for Tyro for the period 1 July 2023 to 30 June 2025 as well as a relative total shareholder return outcome in respect of the year ending 30 June 2025. Vesting will occur in three equal tranches, as follows: one third on 9 March 2023, one third on 9 March 2024 and one third on 9 March 2025. 86 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 9. Summary of Shares held by Non-executive Directors and Executive KMP The number of ordinary shares held in Tyro at 30 June 2023 by each Non-executive Director and Executive KMP, including their personally related parties, is set out below. NON-EXECUTIVE DIRECTOR Fiona Pak-Poy David Thodey1 Hamish Corlett2 David Fite Claire Hatton Aliza Knox Paul Rickard Shefali Roy BALANCE AT START OF YEAR RECEIVED DURING THE YEAR ON EXERCISE OF OPTIONS/RIGHTS OTHER CHANGES DURING THE YEAR BALANCE AT END OF YEAR FY23 FY22 FY23 FY22 FY23 FY22 FY23 FY22 FY23 FY22 FY23 FY22 FY23 FY22 FY23 FY22 106,420 106,420 1,056,996 990,996 - 1,203,921 16,593,861 18,593,861 - - - - 2,126,740 2,098,571 - - 76,858 - 59,367 - - - 35,620 - - - - - 46,723 28,169 - - - - - 66,000 - - - 183,278 106,420 1,116,363 1,056,996 - 1,203,921 16,629,481 (2,000,000) 16,593,861 14,583 14,583 - - - - - - - - - - 2,173,463 2,126,740 - - 1. 2. David Thodey stepped down as Chair and from the Board on 28 February 2023. Details are provided for the period 1 July 2022 to 28 February 2023. Hamish Corlett stepped down from the Board on 3 November 2021. Details are provided for the period 1 July 2021 to 3 November 2021. EXECUTIVE KMP Jon Davey Robbie Cooke Prav Pala Steve Chapman BALANCE AT START OF YEAR RECEIVED DURING THE YEAR ON EXERCISE OF OPTIONS/RIGHTS OTHER CHANGES DURING THE YEAR BALANCE AT END OF YEAR FY23 FY22 FY23 FY22 FY23 FY22 FY23 FY22 - - 1,028,501 491,936 653,626 664,882 16,832 8,678 - - 367,736 400,000 - - - - 136,565 - 347,922 (359,178) 602 2,114 6,536 6,040 - - 1,396,237 1,028,501 653,626 653,626 23,970 16,832 10. Other information No loans have been granted to any KMP. There were no transactions during the reporting period involving an equity instrument to KMP or related parties, other than those disclosed in this Remuneration Report. 87 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023REMUNERATION REPORTs ’ r o t i d u A n o i t a r a c e D l e c n e d n e p e d n I 88 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Auditor’s Independence Declaration to the Directors of Tyro Payments Limited As lead auditor for the audit of the financial report of Tyro Payments Limited for the financial year ended 30 June 2023, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; b) no contraventions of any applicable code of professional conduct in relation to the audit; and c) no non-audit services provided that contravene any applicable code of professional conduct in relation to the audit. This declaration is in respect of Tyro Payments Limited and the entities it controlled during the financial year. Ernst & Young Michael Byrne Partner 29 August 2023 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 89 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023REMUNERATION REPORT Profiles 90 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023f o d r a o B s r o t c e r i D Career: Fiona has over 30 years experience in a variety of industries, for companies ranging from start-ups to large public companies and not-for-profits. Fiona has served on various boards including MYOB, StatePlus and the commercialisation office of The University of Adelaide. She was a strategy consultant for the Boston Consulting Group in the US and Australia, and was also a partner in an Australian venture capital fund focused on technology start-ups. Fiona is a mentor for the Minerva Network, an organisation of leading Australian business women who mentor elite female athletes and Member of Chief Executive Women. Qualifications: Fiona holds an Honours degree in Engineering from The University of Adelaide and a Master of Business Administration from Harvard Business School. Fiona is a Fellow of The Australian Institute of Company Directors. FIONA PAK-POY CHAIR OF THE BOARD Independent non-executive Director since September 2019 and Chair since 1 March 2023. Other Tyro Responsibilities: • Chair of the Nominations Committee. • Member of the People Committee. • Member of the Audit Committee. Relevant other Directorships held in the past three years: • Non-executive Director of HMC Capital Partners No 1 Pty Ltd, HMC Capital Partners No 2 Pty Ltd, HMC Capital Partners No 3 Pty Ltd, all subsidiaries of Home Consortium Limited (trading as HMC Capital, ASX: HMC). • Non-executive Director of Kain Lawyers. • Former non-executive Director and Chair of the Audit and Risk Committee of ASX listed Booktopia, Australia’s largest online book seller. • Former non-executive Director and Chair of the People Committee of ASX-listed iSentia Limited, a media intelligence and data technology company. • Former Director of the Sydney School of Entrepreneurship. • Former non-executive Director of Novotech Aus HoldCo, AsiaPacific’s leading contract research organisation (CRO) providing clinical research solutions world-wide. 91 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023DIRECTOR PROFILES Career: David has over 30 years experience in the financial services industry. David has held various roles at Westpac Banking Corporation, including Treasurer, Assistant Chief Financial Officer and the Group Executive responsible for all retail and business banking products in Australia. David has also worked at Japan’s Shinsei Bank (formerly known as The LongTerm Credit Bank of Japan) as Senior Corporate Executive Officer, Chief Financial Officer and a member of its Board. David is also an active investor in various credit, financial services and technology businesses. Qualifications: David holds a Bachelor of Arts in Government (Magna Cum Laude) from Harvard College, and a Master of Business Administration and Masters in Economics from Stanford University.. DAVID FITE NON-EXECUTIVE DIRECTOR Independent non-executive Director since July 2018. Other Tyro Responsibilities: • Member of the Audit Committee. • Member of the Risk Committee. • Member of the Nominations Committee. Relevant other Directorships held in the past three years: • Director of Evari Technologies Pty Ltd and Evari Services Pty Ltd, entities which own or help develop software for the insurance industry. Director of Marsello Ltd, a company that makes intelligent marketing accessible and easy for multichannel retailers. Director of MYOB Group Co Pty Ltd, a provider of accounting, tax and business services. • • CLAIRE HATTON NON-EXECUTIVE DIRECTOR Independent non-executive Director since January 2022. Chair of the People Committee. Other Tyro Responsibilities: • • Member of the Audit Committee. • Member of the Nominations Committee. Relevant other Directorships held in the past three years: • Non-executive Director of Lifestyle Communities Ltd (ASX: LIC). • Non-executive Director of Farleigh • • Holdings Pty Ltd (formerly Australian Pacific Travel Group). Director and Co-founder of Full Potential Labs Pty Ltd. Former non-executive Director of 3P Learning Ltd (ASX: 3PL) (May 2014 to September 2021). Career: Claire has 23 years of experience working in digital business and 28 years of senior international business experience in travel and technology industries across Australia, Asia, and the U.K. Most recently, as an executive, Claire spent seven years on the Google Australia and New Zealand commercial leadership team before transitioning into a portfolio career and non- executive roles. She is currently a non-executive Director of Farleigh Holdings Pty Ltd (formerly Australian Pacific Travel Group) and Lifestyle Communities Ltd, a Director and Co-founder of Full Potential Labs, and co-host of the innovation-focused ‘Don’t Stop Us Now’ podcast. Qualifications: Claire holds a Bachelor of Science Honours degree specialising in Marketing from Cardiff University and an MBA from IMD, Switzerland. 92 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023ALIZA KNOX NON-EXECUTIVE DIRECTOR Independent non-executive Director since April 2021. Other Tyro Responsibilities: • Member of the People Committee. • Member of the Risk Committee. • Member of the Nominations Committee. Relevant other Directorships held in the past three years: • Non-executive Director of • Healthway Medical Group Limited in Singapore. Former non-executive Director of Scentre Group Limited (May 2015 to April 2020). Career: Aliza has more than four decades of broad international marketing and management experience in the financial services and technology sectors having held senior executive roles internationally at Boston Consulting Group, Charles Schwab, Visa International, Twitter and Google. PAUL RICKARD NON-EXECUTIVE DIRECTOR Independent non-executive Director since August 2009. Other Tyro Responsibilities: Chair of the Risk Committee. • Chair of the Audit Committee. • • Member of the Nominations Committee. Relevant other Directorships held in the past three years: • Non-executive Director of PEXA Group Ltd (ASX: PXA). • Non-executive Director of WCM Global Growth Ltd (ASX: WQG). • Non-executive Director of Russh • Media Pty Ltd. Director of Switzer Financial Group Pty Ltd. • Non-executive Director of Titan Platform Pty Ltd. Her previous roles include Head of APAC for Cloudflare, Chief Operating Officer at Unlockd, Vice President, Asia Pacific at Twitter, Managing Director of Commerce and Online Sales & Operations for Asia Pacific at Google Asia Pacific, Senior Vice President, Commercial Solutions and Global Product Platforms at Visa International, and Senior Vice President, International Wireless and Global Expansion Asian Focus at Charles Schwab Corporation. Aliza was also named IT Woman of the Year (Asia) in 2020 and to the Top 100 Women in Tech in Singapore in 2021. Qualifications: Aliza holds an MBA in Marketing (Honors) from New York University-Leonard N. Stern, School of Business, and a B.A., Applied Mathematics and Economics (Magna Cum Laude) from Brown University. Career: Paul was the founding Managing Director of CommSec, which he led from 1994 to 2002, and was Chairman until 2009. After a 20 year career with Commonwealth Bank finishing in the role of Executive General Manager Payments & Business Technology, Paul left in 2009 to team up with Peter Switzer and co-founded the Switzer Super Report, a subscription-based newsletter for the trustees of self-managed super funds. An expert in investment and superannuation, Paul is a regular commentator on TV, radio and online and also oversees editorial development at Switzer Financial Group Pty Ltd. In 2005, Paul was named ‘Stockbroker of the Year’ and admitted to the Industry Hall of Fame of the Australian Stockbrokers Foundation. Qualifications: Paul holds a Bachelor of Science degree in Mathematics and Computer Science from the University of Sydney. 93 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023DIRECTOR PROFILESSHEFALI ROY NON-EXECUTIVE DIRECTOR Independent non-executive Director since January 2022. Other Tyro Responsibilities: • Member of the Risk Committee. • Member of the People Committee. • Member of the Nominations Committee. Relevant other Directorships held in the past three years: • Director, First Look Capital Advisers LLP. Director, First Look Capital Limited. Former Director of the Maker Foundation, originators of the DAI stable coin (April 2020 to July 2021). • • Career: Shefali is a Founding Partner of First Look, a London based venture fund investing in women and diverse entrepreneurs building technology in finance, health, work, and real estate. Until September 2020, Shefali was the COO and CCO at TrueLayer headquartered in the U.K. Prior to that she held C-Suite/senior leadership roles in operations, compliance and regulatory affairs at Stripe, Apple, Christies and Goldman Sachs. Shefali is an Associate Fellow at Said Business School, Oxford University and lectures on startups, organisational behaviour and leadership, fintech and DeFi. Qualifications: Shefali holds an Associate Diploma of Law, a BBus in Economics and Finance and an MA in Communications from RMIT, an MSc in Economic History from the London School of Economics, and an Executive MBA from Said Business School, Oxford University. 94 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023m a e T e v i t u c e x E i p h s r e d a e L TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 JONATHAN DAVEY GROUP CHIEF EXECUTIVE OFFICER Jon joined Tyro in May 2021 in the role of CEO - Medipass after Tyro acquired Medipass and was appointed as Group CEO on 3 October 2022. Jon’s expertise is in leading businesses through the changes necessary to succeed in a digital world. Prior to joining Medipass, Jon was accountable for Digital, Innovation and Customer Experience at National Australia Bank. He is the founder of National Australia Bank’s Innovation and Corporate Venture Capital teams. Jon has over 25 years experience in corporate, consulting and start- up businesses. He has worked with leading Australian and International companies and is the co-founder of a technology start-up. He is a member of the Technology and Innovation Advisory Board for the Australian Institute of Company Directors. MONICA APPLEBY CHIEF PEOPLE, CULTURE AND COMMUNICATIONS OFFICER Monica joined Tyro in 2020 as Head of Corporate Communications ahead of being appointed as Chief People, Culture and Communications Officer. Monica is passionate about creating high performing teams and developing a thriving culture of engagement and growth that drives business outcomes. Monica has over 18 years experience in strategic communications, change management and business transformation, specialising in financial services and technology, having previously held roles at KMPG, Deloitte and Tabcorp. Monica holds commerce, law and change management qualifications. S E L I F O R P M A E T P H S R E D A E L I E V I T U C E X E 95 DEANNE BANNATYNE CHIEF GROWTH OFFICER STEVEN CHAPMAN CHIEF RISK OFFICER PAUL KEEN CHIEF TECHNOLOGY OFFICER Deanne (Dee) joined Tyro in April 2023 and has extensive experience as a senior executive across the payments financial services industry, including Chief Customer Officer/MD A&NZ for global digital gifting company Prezzee, General Manager of Identity, Payments and Financial Services for Australia Post, and General Manager of Payments for NAB. Through these roles, Deanne brings significant experience in leading sales, marketing, customer service, product management, operational and digital teams. With a relentless focus on the customer and a bias to action, Deanne has passion for leading and inspiring high performing teams to deliver transformational growth, resulting in enhanced commercial and customer outcomes. Steve is a Chartered Global Management Accountant (CGMA) and Certified Information Systems Auditor (CISA). He joined Tyro in March 2019 and was appointed as Chief Risk Officer on 10 June 2021 leading the Tyro Risk and Compliance function. Prior to this role, Steve led the Internal Audit function. Paul joined Tyro in August 2022 in the role of Chief Technology Officer. Paul has over 20 years experience in leading engineering teams in large ASX-listed companies. Prior to joining Tyro, Paul was Vice President of Engineering for Nuix, leading Nuix’s engineering teams and related activities. After graduating from the University of Glasgow, Steve began his career in project management for a large UK utility firm before moving into audit and risk roles. Steve moved to Australia 11 years ago with his family and has since worked for Woolworths, IAG and QBE. Paul’s previous roles included Head of Group Architecture and Engineering at Qantas, Chief Technology Officer at Airtasker and Chief Information Officer at Dick Smith Electronics. Prior to these experiences, Paul was a General Manager in Salmat’s Software Development team and a General Manager of Technology and Development at RedBalloon. Paul holds a Master of Business Administration from Macquarie University (Macquarie Graduate School of Business). 96 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023PRAV PALA CHIEF FINANCIAL OFFICER ADRIAN PERILLO CEO TYRO HEALTH DOMINIC WHITE CHIEF PRODUCT OFFICER Praveenesh (Prav) joined Tyro in 2014 in the role of Chief Financial Officer. Prav has over 20 years experience gained in professional consulting, property funds management, financial services and the payments industry. Since starting his career at PricewaterhouseCoopers, Prav has held several senior positions at QBE Insurance Group, Westfield Group, Domaine Mirvac Funds Management and ING Direct Australia, and has managed large integration and strategic finance related projects. Prav holds a Bachelor of Commerce (Merit) from the University of New South Wales. He is a qualified CPA and member of the CFA Institute. Adrian joined Tyro in May 2021 as part of the acquisition of Medipass, and took over leadership of the Tyro Health business in October 2022. He has over 20 years experience leading digital products and businesses, in industries including financial services, health and advertising. After starting his career as a chartered accountant and then consultant at PricewaterhouseCoopers, Adrian moved into leadership roles at Sensis, Medibank and Telstra Health, before joining Medipass in 2017 to build what is now one of Australia’s leading digital payments platforms for health providers. TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 Dominic has held a number of senior roles in financial institutions and fintechs over the last 30 years, most recently with Visa in the UK and Ireland, giving him a unique view of innovations and trends in the payments industry. During that time, he played a key role in Visa’s response to the COVID-19 pandemic, in particular helping small businesses innovate and keep trading through those difficult times. Prior to joining Visa in 2019, Dominic held various senior roles in the payments industry in the Asia- Pacific region, including Pacific Head of Ingenico Group, Asia-Pacific Managing Director for Bambora, and senior executive roles heading up transaction banking products including Merchant Acquiring and other payments products for three of Australia’s largest retail banks, ANZ, NAB and Commonwealth Bank. Dominic has consulted to and held directorships of various organisations in Asia-Pacific and Europe, developing strategy for financial institutions and retailers, as well as acquisition and divestment options and optimisation strategies for large and small businesses. He holds a BSc, an MBA and is a Graduate of the Australian Institute of Company Directors. S E L I F O R P M A E T P H S R E D A E L I E V I T U C E X E 97 98 TYRO PAYMENTS LIMITED - ANNUAL REPORT 20235-Year Track Record FY19 $’000 FY20 $’000 FY21 $’000 FY22 $’000 FY23 $’000 Transaction value 17,496,322 20,131,045 25,453,507 34,197,353 42,601,263 Transaction value annual growth 31.0% 15.1% 26.4% 34.4% 24.6% Total revenue (normalised)1 189,770 210,675 239,505 326,143 435,802 Total revenue annual growth 28.0% 11.0% 13.7% 36.2% 33.6% Direct expenses (106,510) (117,200) (119,771) (177,640) (242,597) Gross profit (normalised)2 Gross profit annual growth 83,260 93,475 119,734 148,503 193,205 20.5% 12.3% 28.1% 24.0% 30.1% Operating expenses (normalised) (91,871) (97,847) (105,568) (137,836) (150,906) EBITDA3 EBITDA Margin (8,611) (4,372) N/M N/M Share-based payments expense (3,788) (10,896) 14,166 11.8% (8,779) 10,667 42,299 7.2% 21.9% (5,199) (11,165) Depreciation & Amortisation (7,864) (12,524) (14,666) (20,505) (25,172) EBIT (normalised)4 (20,263) (27,792) (9,279) (15,037) Net interest cost (normalised) - (535) (517) (1,024) Profit/(loss) before tax (normalised)4 (20,263) (28,327) (9,796) (16,061) Adjustments to normalised earnings Bendigo amortisation (net of gross profit share) Bendigo net interest expense Bendigo transitional expenses Costs associated with the connectivity issue M&A project costs Other one-off (costs)/benefits Share of loss from associates - - - - - - - - - - - - (9,730) - - - - (13,285) (4,681) (894) (1,119) (2,686) (2,534) (4,669) 300 - (409) (3,558) Profit/(loss) before income tax (statutory) (20,263) (38,057) (29,775) (29,617) Profit/(loss) after income tax (statutory) (18,439) (38,057) (29,823) (29,617) 5,962 (1,484) 4,478 (3,044) (2,228) (974) 4,539 (2,858) 2,679 (131) 2,461 6,013 Cash, cash equivalents and investments 68,758 188,324 172,780 122,768 128,932 Free cashflow (before banking) (17,762) (36,193) (44,113) (34,146) 5,700 1 2 3 4 Normalised other revenue and income is adjusted for the fair value gain of $4.0 million on the recognition of me&u as a financial asset. Normalised gross profit is adjusted for Bendigo support fees of $1.0 million associated with transition of Bendigo merchants to the Tyro platform, the Bendigo gross profit share of $8.1 million not deducted from statutory gross profit but deducted to calculate normalised gross profit and a fair value gain on the recognition of me&u as a financial asset. Tyro uses EBITDA as a non-IFRS measure of business performance, which excludes the non-cash impact of share-based payments expense, share of losses from associates, change in accounting treatment of investments and one-off costs to implement the cost reduction program and any M&A related spend. EBIT and normalised net profit before tax excludes the non-cash accounting impact of the Bendigo Alliance, expenses associated with the change in accounting treatment of investments and one-off costs to implement the cost reduction program and any M&A related spend. 99 TYRO PAYMENTS LIMITED - ANNUAL REPORT 20235-YEAR TRACK RECORD100 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023Financial Report 101 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORTFINANCIAL STATEMENTS Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows NOTES TO THE FINANCIAL STATEMENTS 1. General information and statement of accounting policies 2. Revenue and expenses 3. Segment reporting 4. Income tax 5. Cash and cash equivalents 6. Trade and other receivables 7. Loans 8. Leases 9. Financial investments 10. Investment in associates 11. Property, plant and equipment 12. Intangible assets and goodwill 13. Share-based payments 14. Deposits 15. Trade payables and other liabilities 16. Current and non-current provisions 17. Contributed equity and reserves 18. Financial risk management objectives, policies and processes 19. Commitments and contingencies 20. List of subsidiaries 21. Earnings per share 22. Auditor’s remuneration 23. Related party disclosures 24. Parent entity disclosures 25. Contingent Liabilities 26. Matters subsequent to the end of the financial year DIRECTORS’ DECLARATION 106 106 107 108 109 110 110 120 121 122 123 125 125 126 127 128 129 130 131 135 135 136 136 138 145 146 146 147 147 149 149 149 150 INDEPENDENT AUDIT REPORT TO THE MEMBERS OF TYRO PAYMENTS LIMITED 151 102 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 103 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORTFinancial Statements Statement of Comprehensive Income FOR THE YEAR ENDED 30 JUNE 2023 Fees and terminal rental income Interest income Fair value gain on financial assets Sale of terminal accessories and other income Total revenue Interchange, integration and support fees Terminal accessories Interest expense on deposits Total direct expenses Gross profit Employee benefits expense (excluding share-based expense) Share-based payments expense Communication, hosting and licencing costs Administrative and other expenses Contractor and consulting expenses Marketing expenses Depreciation and amortisation Lending and non-lending gains/(losses) Other interest expenses Total operating expenses Share of loss from associates Profit/(loss) before tax expense Income tax benefit Profit/(loss) for the year Other comprehensive income/(loss) FVOCI reserve – revaluation gain/(loss), net of tax Total comprehensive profit/(loss) for the year NOTE 2 2 2 2 2 2 8, 11, 12 2 10 4 2023 $000 417,631 18,712 2,277 1,156 439,776 (232,376) (2,245) (811) 2022 $000 317,699 5,630 627 2,187 326,143 (169,824) (1,366) (274) (235,432) (171,464) 204,344 (96,957) (11,165) (16,902) (16,060) (13,427) (8,202) (36,355) 1,028 (3,712) 154,679 (92,628) (5,199) (14,321) (12,978) (13,726) (5,532) (31,681) (1,115) (3,558) (201,752) (180,738) (131) 2,461 3,552 6,013 282 6,295 (3,558) (29,617) - (29,617) (1,008) (30,625) CENTS CENTS Earnings per share for profit/(loss) attributable to the Ordinary Equity Holders of Tyro Payments Limited Basic earnings/(loss) per share Diluted earnings/(loss) per share 21 21 1.16 1.12 (5.74) (5.74) The above Statement of Comprehensive Income should be read in conjunction with the accompanying Notes. 104 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 Statement of Financial Position AS AT 30 JUNE 2023 Assets Current assets Cash and cash equivalents Due from other financial institutions Trade and other receivables Loans Prepayments Financial investments Inventories Total current assets Non-current assets Loans Financial investments Investment in associates Property, plant and equipment Right-of-use assets Intangible assets and goodwill Net deferred tax assets Total non-current assets Total assets Liabilities Current liabilities Deposits Trade payables and other liabilities Lease liabilities Provisions Total current liabilities Non-current liabilities Other liabilities Lease liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Accumulated losses Total equity NOTE 2023 $000 2022 $000 5 6 7 9 7 9 10 11 8 12 4 14 15 8 16 15 8 16 17 17 17 42,603 15,779 25,360 43,765 6,238 15,452 2,027 36,885 14,698 22,704 34,262 3,643 10,474 388 151,224 123,054 6,761 59,072 1,811 42,785 26,344 126,502 16,538 279,813 431,037 92,704 43,031 4,394 6,762 5,242 62,221 1,942 41,452 31,158 132,033 12,986 287,034 410,088 83,273 37,425 1,897 10,532 146,891 133,127 75,396 29,167 1,899 106,462 253,353 177,684 279,422 59,320 (161,058) 177,684 83,553 32,096 1,712 117,361 250,488 159,600 278,798 47,085 (166,283) 159,600 The above Statement of Financial Position should be read in conjunction with the accompanying Notes. 105 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT Statement of Changes in Equity For the year ended 30 June 2023 CON- TRIBUTED EQUITY FVOCI RE- SERVE NOTE SHARE- BASED PAYMENTS RESERVE GENERAL RESERVE FOR CREDIT LOSSES ACCU- MULATED LOSSES $000 $000 $000 $000 $000 TOTAL $000 At 1 July 2021 Loss for the year Other comprehensive loss Total comprehensive loss Issue of share capital – from options and rights exercised Share-based payments Transfer to general reserve for credit losses Transfer from FVOCI reserve 274,436 - - - 4,362 - - - 108 - (1,008) (1,008) - - - 211 38,361 2,358 (134,599) 180,664 - - - - 5,199 - - - - - - - (29,617) (29,617) - (1,008) (29,617) (30,625) - - 4,362 5,199 - - 1,856 (1,856) - (211) At 30 June 2022 278,798 (689) 43,560 4,214 (166,283) 159,600 At 1 July 2022 Profit for the year Other comprehensive income Total comprehensive income Issue of share capital – from options and rights exercised Share-based payments Transfer to general reserve for credit losses 278,798 (689) 43,560 4,214 (166,283) 159,600 - - - 624 - - - 282 282 - - - - - - - 11,165 - - - - - - 6,013 - 6,013 282 6,013 6,295 624 - 11,165 788 (788) - At 30 June 2023 17 279,422 (407) 54,725 5,002 (161,058) 177,684 The above Statement of Changes in Equity should be read in conjunction with the accompanying Notes. 106 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 Statement of Cash Flows For the year ended 30 June 2023 Cash flows from operating activities Fees and terminal rental and other income received Interchange, integration and support fees paid Interest received Interest paid Payments to employees and contractors Terminals purchased Other operating expenses paid Payments for terminal remediation Movement in scheme and other receivables Net cash flows from operating activities excluding loans and deposits Movement in loans Movement in deposits NOTE 2023 $000 2022 $000 417,418 (238,251) 18,278 (1,411) (104,882) (19,627) (49,816) (248) 3,767 25,228 (15,599) 9,431 317,406 (175,919) 5,585 (581) (99,067) (13,966) (35,716) (5,041) (1,722) (9,021) (24,090) 7,792 Net cash flows from operating activities 5 19,060 (25,319) Cash flows from investing activities Movement in term deposit investments Purchases Proceeds on maturity Movement in financial investments Purchases Proceeds Movement in equity investments Purchases Movement in property, plant and equipment (excluding terminals) Purchases Proceeds Payments for recognised intangible assets Net cash used in investing activities Cash flows from financing activities Proceeds from exercise of share options and rights Payments of the principal portion of leases Net cash flows from financing activities Net movement in cash and cash equivalents Effect of foreign exchange rates on cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 5 The above Statement of Cash Flow should be read in conjunction with the accompanying Notes. (1,000) - (7,800) 10,460 - 5,000 (33,072) 28,500 - (501) (534) 1,257 (13,858) 166 (14,543) (10,497) (12,160) (24,262) 624 (1,173) (549) 6,351 (633) 36,885 42,603 4,362 (2,788) 1,574 (48,007) 371 84,521 36,885 107 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT Notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2023 1. General information and statement of accounting policies The financial report of the Group was authorised for issue in accordance with a resolution of the Directors on 29 August 2023. The Group is a for-profit company listed on the Australian Securities Exchange (ASX), registered and domiciled in Australia. The nature of the operations and principal activities of the Group are described in the Directors’ Report. The financial report includes the consolidated and standalone financial statements of Tyro Payments Limited and its controlled entities (together referred to as the Group). The significant policies which have been adopted in the preparation of this financial report are set out below. (a) Basis of preparation The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board (AASB), International Financial Reporting Standards (IFRS) and Interpretations as issued by the International Accounting Standards Board (IASB). The financial report has also been prepared on a historical cost basis, except for loans, financial investments which have been measured at fair value and investments in associates which have been accounted for using the equity method. A number of new accounting standards and amendments have been issued but are not yet effective, none of which have been early adopted by the Group in this financial report. These new standards and amendments, when applied in future periods, are not expected to have a material impact on the financial position or performance of the Group. • • • • Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to AASB 112) Classification of Liabilities as Current or Non-Current (Amendments to AASB 101) Disclosure of Accounting Policies (Amendments to AASB 101 and AASB Practice Statement 2). Definition of Accounting Estimates (Amendments to AASB 8). Similar categories of income and expenses have been grouped together. Prior year comparative information for these amounts, where necessary, has been reclassified to achieve consistency in disclosure with current financial year amounts and other disclosures. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars unless otherwise stated under the option available to the Group under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Group is an entity in which the instrument applies. (b) Going concern The Directors consider the Group are able to pay their debts as and when they fall due, and therefore the Group are able to continue as a going concern. (c) Significant accounting judgements, estimates and assumptions In applying the Group’s accounting policies, Management continually evaluates judgements, estimates and assumptions based on experience and other factors, including expectations of future events that may have an impact on the Group. All judgements, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to Management. Actual results may differ from judgements, estimates and assumptions. Significant judgements, estimates and assumptions made by Management in the preparation of these financial statements are outlined as follows: Share-based payments transactions - The Group recognises the cost of equity-settled transactions with employees (including Key Management Personnel) and other stakeholders by reference to the fair value of the equity instruments at the date on which they are granted. The valuation assumptions are detailed in Note 13. The equity-settled instruments are expensed using a linear or graded probability of vesting approach depending on the terms of the equity instruments. Classification and valuation of investments - The Group classifies its investments in floating rate notes (FRNs) and equity securities where it does not have significant influence or control as Financial Investments – at Fair Value through Other Comprehensive Income (FVOCI), with movements in fair value recognised directly in equity. The fair value of listed shares has been determined by reference to published price quotations in an active market. Where no active market exists for a particular asset, the Group uses a valuation technique to arrive at the fair value. The Group prioritises the use of observable market inputs in the valuation of Level 3 fair valued investments and considers all reasonable sources of alternative information when incorporating unobservable inputs. Further details are as disclosed in Note 18. Investments in associates are accounted for using the equity method of accounting less impairment losses. See Note 1 (m) for further details. 108 TYRO PAYMENTS LIMITED - ANNUAL REPORT 20231. General information and statement of accounting policies (continued) (c) Significant accounting judgements, estimates and assumptions (continued) Valuation of loans – The Group’s lending product differs from a conventional lending asset that accrues interest over time. Under the Group’s current terms, a merchant borrows a loan amount plus an upfront fee. The total loan plus fee amount does not change regardless of early or late repayment. As such, the product fails the “solely payments of principal and interest (SPPI) test” under IFRS 9 “Financial Instruments” and is therefore measured at fair value through the Statements of Comprehensive Income. The fair value of loans has been estimated using a valuation technique that converts forecasted cash flows to a present value amount (discounted cash flow method). The forecasted cash flows are actuarially determined using predictive models based partly on evidenced historical performance and expected repayment profiles. Inputs into the valuation model are detailed in Note 18. Capitalisation of internally generated software - An intangible asset arising from development expenditure on an internal project is recognised by the Group only when the following can be demonstrated: • • • • • the technical feasibility of completing the intangible asset so that it will be available for use or sale; its intention to complete and its ability to use or sell the asset; how the asset will generate probable future economic benefits; availability of resources to complete the development; and the ability to measure reliably the expenditure attributable to the intangible asset during its development. The Group commences amortising internally generated software projects from the point the asset is ready for use. Impairment for intangibles - The Group determines whether goodwill is impaired at least on an annual basis. Other intangible assets are reviewed at least annually to determine whether any indicators of impairment exist, and if necessary an impairment analysis is performed. Impairment testing requires an estimation of the recoverable amount of the cash generating units to which the goodwill and other intangible assets with indefinite useful lives are allocated. Refer to Note 12 (b) for the key assumptions used. Estimation of useful lives of assets - The estimation of the useful lives of assets has been primarily based on historical experience. In addition, the condition of the assets is assessed at least once per year and considered against their remaining useful lives. Adjustments to useful lives are made when considered necessary. In assessing whether the useful life of an intangible asset is finite or indefinite, Management use judgement in determining the period over which expected future benefits will be generated, also factoring in the market that the Group operates in and the longer term strategy for the Group. An impairment assessment is conducted and reviewed by Management at least annually as to whether indicators of impairment such as technical obsolescence exist. Remediation provision - Determining the amount of provisioning required in respect of customer related refunds requires the exercise of significant judgement. This includes forming a view on a number of different estimates, including number of impacted customers, average compensation per customer and the associated costs required to complete the remediation activities. The appropriateness of underlying assumptions is reviewed on a regular basis against actual experience and other available evidence, and adjustments are made to the provision where required. Long service leave - Entitlements that arise in respect of non-current long service leave have been measured at their present values of expected future payments. Long service leave is calculated based on assumptions and estimates of when employees will take leave and the prevailing wage rates at the time the leave will be taken. Long service leave also requires a prediction of the number of employees that will achieve entitlement to long service leave. Taxation - Provisions for taxation require significant judgement with respect to outcomes that are uncertain. Deferred tax assets are recognised for deductible temporary differences and carried forward tax losses after consideration of: • • likelihood of availability of future profits, including stress testing of forecasts, for utilisation of deferred tax assets; and outcome of Continuity of Ownership Testing (and where applicable, the Similar Business Test) to support the recognition of any carried forward tax losses. Management does not recognise deferred tax assets where utilisation is not considered probable. Tyro-Bendigo Bank Alliance The Alliance has been agreed for a ten year period starting in June 2021. The trail commission payable on the existing customer network and future rollouts includes a guaranteed component for the first four years. An additional variable amount is payable based on gross profit achieved. The trail commission payable was initially measured at fair value in accordance with AASB 13 Fair Value Measurement when the customer relationship was obtained and is remeasured at amortised cost in accordance with AASB 9 Financial Instruments to reflect actual and revised estimates of future gross profit. Key assumptions in respect of estimating the valuation of the trail commission payable included: • • • discount rates derived from similar observed rates for comparable assets that are traded in the market; the merchant churn rate; and probability weighted forecasts considering a high, mid and low forecast estimate prepared by management and approved by the Board. 109 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT1. General information and statement of accounting policies (continued) (c) Significant accounting judgements, estimates and assumptions (continued) The associated intangible assets were recognised in accordance with AASB 138 Intangible Assets. They are carried at cost less any accumulated amortisation and any accumulated impairment losses and are reviewed annually for any indicator of impairments in accordance with AASB 136 Impairment of Assets. The useful life of the acquired intangible assets is judgmental and reviewed annually by management with adjustments made where deemed necessary. (d) Basis of consolidation (i) Business combinations The Group accounts for business combinations using the acquisition method when the acquired set of activities and assets meets the definition of a business and control is transferred to the Group. In determining whether a particular set of activities and assets is a business, the Group assesses whether the set of assets and activities acquired includes, at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs. The Group has an option to apply a ‘concentration test’ that permits a simplified assessment of whether an acquired set of activities and assets is not a business. The optional concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment (see Note 12(c)). Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Any contingent consideration is measured at fair value at the date of acquisition and subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employees (acquiree’s awards), then all or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree’s awards and the extent to which the replacement awards relate to pre-combination services. (ii) Subsidiaries Subsidiaries are entities controlled by the Company. The Company ‘controls’ an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. (iii) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses (except for foreign currency transaction gains or losses) arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity- accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. 110 TYRO PAYMENTS LIMITED - ANNUAL REPORT 20231. General information and statement of accounting policies (continued) (e) Current and non-current classification The Group presents assets and liabilities in the statement of financial position based on current and non-current classification. An asset is current when it is: • • • or • expected to be realised or intended to be sold or consumed in the normal operating cycle; held primarily for the purpose of trading; expected to be realised within twelve months after the reporting period; cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current. A liability is current when: • • • or • it is expected to be settled in the normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within twelve months after the reporting period; there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. The terms of the liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities. (f) Cash and cash equivalents Cash and cash equivalents comprise cash balances, call deposits and term deposits with an original maturity of three months or less from the date of acquisition. (g) Due from other financial institutions Includes term deposits with maturities greater than three months from the date of acquisition, and term deposits pledged to counterparties as collateral. These are initially measured at fair value and subsequently measured at amortised cost less allowance for expected credit losses, using the effective interest method. Amounts due from other financial institutions includes term deposits with maturities greater than three months from the date of acquisition and deposits pledged to counterparties as collateral. Refer to Note 19 (b) for details of deposits pledged as collateral. (h) Trade and other receivables Trade receivables, which generally have 30-day terms, are recognised initially at fair value, and subsequently measured at amortised cost using the effective interest method, less an allowance for expected credit losses (ECL). Collectability of trade receivables is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off when identified. The Group has applied the simplified approach to calculate ECL for trade receivables where a loss allowance is based on lifetime ECL at each reporting date. An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns (i.e. by customer type). The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. (i) Loans Loans to merchants are classified and measured at fair value with changes in the fair value being recognised in the Statements of Comprehensive Income. The loans are unsecured with an upfront (“unearned”) fee charged to the merchant. As the merchant receives daily settlements, a percentage is taken towards loan repayments. The loan repayment includes a portion which recognises the unearned fee in the Statements of Comprehensive Income as interest income. When the loan is uncollectible, it is written-off. Such write-offs of loans occur after all the necessary assessments for write-off procedures have been completed and the amount of the loss has been determined. Loan write-offs are disclosed as lending losses in the Statements of Comprehensive Income. Subsequent recoveries are recognised against these write-offs. 111 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT1. General information and statement of accounting policies (continued) (j) Prepayments Prepayments are recognised for amounts paid whereby goods have not transferred ownership to the Group or where services have not yet been provided. Upon receipt of goods or the service, the corresponding asset is recognised in the Statements of Financial Position or the expense is recognised in the Statements of Comprehensive Income. (k) Inventories (i) Cost and valuation The costs of purchasing inventories comprise the purchase price, import duties and other taxes (other than those subsequently recoverable by the Group from the taxing authorities), and transport, handling and other costs directly attributable to the acquisition of finished goods, materials and services. Trade discounts, rebates and other similar items are deducted in determining the costs of purchase. Inventories are subsequently held at the lower of cost and their net realisable value. Impairment is assessed at least on an annual basis. Inventories are derecognised when the rights to benefits are transferred to a third party. (ii) Impairment Management makes assessments of the net realisable value of inventory at least on an annual basis. The cost of inventory may not be recoverable where the inventory is damaged, wholly or partially obsolete, or if selling prices have declined. In accordance with AASB 102 Inventories, where the cost of inventory exceeds the net realisable value, inventory is written down to their net realisable value. Net realisable value is an estimate, based on the most reliable evidence at the time, of the amount the inventories are expected to realise. (l) Financial investments Recognition and initial measurement The classification of financial investments at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. The Group initially measures financial assets held at amortised cost or debt instruments held at fair value through other comprehensive income at its fair value plus transaction costs. In order for a debt investment to be classified and measured at amortised cost or fair value through other comprehensive income (OCI), it needs to give rise to cash flows that are SPPI on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business model. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss. The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial investments classified and measured at fair value through OCI are held within a business model with the objective of both holding to collect contractual cash flows and selling. Subsequent measurement For debt investments at fair value through OCI, interest income, foreign exchange revaluation and impairment losses or reversals are recognised in the Statement of Comprehensive Income. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss. For equity investments at fair value through OCI, the Group can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI at initial recognition. Gains and losses on these financial assets are never recycled to profit or loss. Equity instruments designated at fair value through OCI are not subject to impairment assessment. The Group elected to classify irrevocably its non-listed equity investments under this category. Purchase and sale of investments are recognised on trade date - the date on which the Group becomes party to the contractual provisions of the investment. (m) Investment in associates Associated companies are entities over which the Group has significant influence, but not control, generally accompanied by a shareholding giving rise to significant but not controlling voting rights. Investments in associated companies are accounted for in the consolidated financial statements using the equity method of accounting less impairment losses, if any. Investments in associated companies are initially recognised at cost. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Goodwill on associated companies represents the excess of the cost of acquisition of the associate over the Group’s share of the fair value of the identifiable net assets of the associate and is included in the carrying amount of the investments. 112 TYRO PAYMENTS LIMITED - ANNUAL REPORT 20231. General information and statement of accounting policies (continued) (n) Property, plant and equipment (i) Cost Property, plant and equipment are measured at cost less accumulated depreciation and any impairment in value. The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing parts when the cost is incurred, and the recognition criteria are met. When each major inspection is performed, its cost is recognised in the carrying amount of the item of property, plant or equipment, as a replacement, provided that the recognition criteria are satisfied. (ii) Depreciation Depreciation is provided on a straight-line basis over the estimated useful life of each specific item of property, plant and equipment. Estimated useful lives are as follows: PLANT AND EQUIPMENT: Terminals Furniture and office equipment Computer equipment Leasehold improvements 2023 3 years 5 years 3-4 years 2022 3 years 5 years 4 years Remaining term of lease Remaining term of lease The assets’ residual values, remaining useful lives and depreciation methods are reassessed and adjusted, if appropriate at each reporting date. Impairment (iii) Management identifies applicable impairment indicators in accordance with AASB 136 Impairment of Assets. The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. The recoverable amount of plant and equipment is the greater of fair value less costs of disposal and its value in use. (iv) Derecognition and disposal An item of property, plant and equipment is derecognised on disposal or when no future economic benefits are expected to arise from continued use of the asset. Gains and losses on disposals are calculated as the difference between the net disposal proceeds and the asset’s carrying amount and are included in the Statement of Comprehensive Income in the year the asset is derecognised. (o) Leases The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. (i) Group as a lessee The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. Right-of-use assets The Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any re-measurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, lease payments made at or before the commencement date less any lease incentives received and an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets. (ii) Lease liabilities At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses in the period in which the event or condition that triggers the payment occurs. 113 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT1. General information and statement of accounting policies (continued) (o) Leases (continued) (ii) Lease liabilities (continued) In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g. changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. (iii) Short-term leases and leases of low-value assets The Group applies the short-term lease recognition exemption to its short-term leases of equipment (i.e. those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low value assets are recognised as an expense on a straight-line basis over the lease term. (p) Intangible assets and goodwill (i) Software The Group continues to make significant investments in various projects to develop new products and enhance existing products’ capabilities. For certain projects, it is more probable that future economic benefits from the assets arising from the projects will flow to the Group and their expenditure can be measured reliably with enhancements in the Group’s data governance, system and reporting. Therefore, software development costs for those projects are recognised as intangible assets in the Statements of Financial Position in accordance with AASB 138 Intangible Assets. Following initial recognition of the development expenditure as an asset, the intangible asset is carried at its cost less any accumulated amortisation and any accumulated impairment losses. Each development project will then be reviewed annually for any indicator of impairments in accordance with AASB 136 Impairment of Assets. Acquired intangibles as part of the Medipass acquisition were valued using the replacement cost technique. This technique estimated the Fair Value as all costs necessary to construct a similar asset of equivalent utility at prices applicable at the time of reconstruction. (ii) Customer contracts and relationships The customer contracts were acquired as part of the Tyro-Bendigo Bank Alliance and Medipass acquisitions. They are recognised at their fair value at the date of acquisition and are subsequently amortised on a straight-line based on the timing of projected cash flows of the contracts over their estimated useful lives. The useful life of finite intangible assets is judgmental and reviewed annually by management with adjustments made where deemed necessary. The following method is used in the calculation of amortisation: INTANGIBLE ASSET Internally generated software Customer relationships (iii) Goodwill AMORTISATION METHOD Straight line Straight line USEFUL LIFE Finite (3 - 5 years) Finite (7 - 10 years) Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets and liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised and is tested annually for impairment. Goodwill is reviewed for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. (q) Deferred tax asset Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date (Note 4(c)). The Group offsets deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. 114 TYRO PAYMENTS LIMITED - ANNUAL REPORT 20231. General information and statement of accounting policies (continued) (r) Deposits from customers Deposits from customers are initially recognised at fair value. Subsequent to initial recognition, these liabilities are measured at amortised cost. Interest expense on deposits is recognised in the Statements of Comprehensive Income using the effective interest method. (s) Trade and other payables Merchant payables arise when the Group has received monies from the relevant schemes and financial institutions that have not yet been settled with the merchant. Payables to merchants are only recognised to the extent that a liability arises. This liability arises when the proceeds have been paid by the schemes and financial institutions and received by the Group. Liabilities for trade and other payables are carried at cost, which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Group. Commissions payable to Bendigo Bank The trail commission payable on the existing customer network and future rollouts includes an amount guaranteed by the Group and an additional variable amount based on revenue achieved. The trail commission payable is initially measured at fair value in accordance with AASB 13 Fair Value Measurement when the customer relationship was obtained and remeasured in subsequent periods at amortised cost in accordance with AASB 9 Financial Instruments to reflect actual and revised estimates of future gross profit. The key assumptions used in estimating the valuation of the trail commission payable can be found in Note 1(c). (t) Provisions and contingencies Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits may be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the impact of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. Contingent liabilities are not recognised in the Statements of Financial Position but are disclosed in the relevant notes to the financial statements. They may arise from uncertainty as to the existence of a liability or represent an existing liability in respect of which settlement is not probable or the amount cannot be reliably measured. Only when settlement becomes probable will a liability be recognised. Management evaluates the risk of such transactions and estimates its potential loss from chargebacks based primarily on historical experience and other relevant factors. A provision is recognised in the general reserve for credit losses for merchant losses necessary to absorb chargebacks and other losses for merchant transactions that have been previously processed and on which revenues have been recorded. (u) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are accounted in contributed equity as a deduction, net of tax, from the proceeds of issue. (v) General reserve for credit losses The Group appropriates for estimated future credit losses from chargebacks, with a general reserve for credit losses. The Group estimates the reserve by using a multiple of historical losses over a rolling 120 day period of transaction values. The general reserve for credit losses is then allocated as a separate reserve within equity. The Group also appropriates for estimated future credit losses from loans to ensure the Group has sufficient capital to cover credit losses estimated to arise over the full life of the loans as required by APRA Prudential Standard APS 220 Credit Risk Management. The methodology and assumptions used for estimating the general reserve for credit losses required are reviewed regularly. (w) Revenue recognition Identify the contract with a customer; Identify separate performance obligations in the contract; Revenue from contracts with customers is recognised in accordance with AASB 15 which introduced a single, principle-based five step recognition and measurement model. The five steps are: 1. 2. 3. Determine the transaction price; 4. Allocate the transaction price to each performance obligations identified in Step 2; and 5. Recognise revenue when a performance obligation is satisfied. 115 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT1. General information and statement of accounting policies (continued) (w) Revenue recognition (continued) The Group’s fee income from contracts with customers is derived primarily from the following sources: • Merchant service fee income is generated from merchant customers for credit, debit and charge card acquiring services. Fees are charged to merchants depending on the type of transaction being performed based on a percentage of transaction value or on a fixed amount per transaction. Fees related to payment transactions are recognised at the time transactions are processed. Related interchange fees, which are collected from merchants and paid to credit institutions are recognised as an expense instead of netting-off against merchant service fee income in the Statements of Comprehensive Income; and Revenue from Dynamic Currency Conversion transactions generated from merchants is calculated based on the individual value of the transactions and is recognised once the transaction has been processed. • Terminal rental income generated from operating leases with merchants is recognised progressively based on a fixed monthly rental on terminals. There is no minimum rental period for merchants. Interest income is recognised in the Statements of Comprehensive Income in accordance with AASB 9 using the effective interest method. The effective interest method measures the amortised cost of a financial asset and allocates the interest income over the relevant period using the effective interest which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. (x) Employee benefits Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave and long service leave. Entitlements arising in respect of salaries and wages, annual leave and other employee benefits that are expected to be settled within one year have been measured at their nominal amounts. Employees are entitled to 20 days annual leave each year. Entitlements that arise in respect of long service leave which are expected to be settled more than 12 months after the reporting date have been measured at their present values of expected future payments. Long service leave is calculated based on assumptions and estimates of when employees will take leave and the prevailing wage rates at the time the leave will be taken. Long service leave liability also requires a prediction of the number of employees that will achieve entitlement to long service leave. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currencies that match as closely as possible to the estimated future cash outflows. No provision has been made for sick leave as all sick leave is non-vesting and the average sick leave to be taken in the future by all employees at the reporting date is estimated to be less than the annual entitlement for sick leave. (y) Share-based payment transactions Share-based compensation benefits are provided to employees (including Key Management Personnel) via the employee share option plans, short term incentive plans and long term incentive plans, whereby employees render services in exchange for rights over the Company’s shares, as well as other stakeholders under contractual arrangements. The cost of these equity- settled transactions is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value of any options issuance is determined using the Black-Scholes option valuation model. The cost of equity-settled transactions is recognised, together with any corresponding increase in equity, over the period in which the employees or stakeholders become fully entitled to the award (the vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects the extent to which the vesting period has expired and the number of awards that, in the opinion of the Directors of the Company, will ultimately vest. This opinion is based on the best available information at the reporting date. No adjustment is made for the likelihood of performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. No expense is recognised for awards that do not ultimately vest. Details of the types of share-based payments and their respective terms and vesting conditions are disclosed in Note 13. The Company also has share-based compensation benefits in the form of rights which are tied to performance conditions, as well as restricted rights which relate to remuneration sacrifice rights. The policy treatment is consistent with that for share options via the Employee Share Option Plan. (z) Income taxes Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authority. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Current income tax relating to items recognised directly in equity is recognised in equity and not in the Statement of Comprehensive Income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. 116 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 1. General information and statement of accounting policies (continued) (z) Income taxes (continued) Tax Consolidation Tyro Payments Limited (the “Company”) and its wholly-owned Australian controlled subsidiaries (collectively, the “Group”) entered into a tax consolidated group on 1 July 2021. The head entity, Tyro Payments Limited and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the separate taxpayer within group approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, Tyro Payments Limited also recognises the current tax liabilities (or assets) and the deferred tax assets assumed from controlled entities in the tax consolidated group. Deferred tax assets relating to temporary differences, unused tax losses and unused tax credits are only recognised to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. At the balance date, no tax funding agreement has been entered into yet however the possibility of default is remote. (aa) Cloud Computing arrangements Cloud computing arrangements are service contracts providing the Group with the right to access software as a service (SaaS) over a contract period. Cost incurred to configure and customise application software in SaaS arrangements are recognised as an expense in Statement of Other Comprehensive Income when the Group does not have the ability to control and restrict access to the SaaS. A right to receive future access to the supplier’s software does not, at the contract commencement date, give the Group the power to obtain the future economic benefits flowing from the software itself and to restrict others’ access to those benefits. The following outlines the accounting treatment of costs incurred in relation to SaaS arrangements: ACCOUNTING TREATMENT COST Non-distinct costs: Recognised as an operating expense over the term of the service contract Distinct costs: Recognised as an operating expense as the service is received. • Fee for use of application software (licence fee) • Customisation costs • Configuration costs • Data conversion and migration costs • Testing cost • Training costs Costs incurred for the development of software code that enhances or modifies, or creates additional capability to, existing on-premise systems and meets the definition of and recognition criteria for an intangible asset are recognised as intangible computer software assets. (ab) Goods and Services Tax (GST) Revenues, expenses, assets and liabilities are recognised net of the amount of GST except for the following: • when the GST incurred on the purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • trade receivables and trade payables are stated with the amount of GST included. The net amount of GST recoverable from or payable to the taxation authority is included as part of other receivables or other payables in the Statements of Financial Position. Commitments and contingencies are disclosed net of the amount of GST. Cash flows are disclosed net of the amount of GST (unless stated otherwise) in the Statements of Cash Flows and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as part of operating cash flows. (ac) Foreign currency translation Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the spot rate of exchange ruling at the reporting date. Non-monetary assets and liabilities are translated at their historic rates of exchange at their respective transaction dates. (ad) De-recognition of assets and liabilities Assets and liabilities are de-recognised from the Statements of Financial Position upon sale, maturity or settlement. The Group de-recognises scheme receivables against associated merchant payables as the risks and rewards are passed through in line with contractual obligations. 117 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT 2. Revenue and expenses The profit/(loss) before tax expense has been arrived at after accounting for the following items: Fees and terminal rental income Merchant service fee Terminal rental income Other fee income Interest Income Effective interest income Other interest income on loans1 Fair value gain on financial assets Fair value gain on equity investment Fair value (loss)/gain on loans1 Interchange, integration and support fees Interchange and scheme fees Integration, support and other fees Employee benefits expense (excluding share-based payments) Wages, salaries and incentives Superannuation Other employee benefits expense Administrative and other expenses Terminal management and logistics Professional services Insurance Impairment of right-of-use asset Travel and entertainment Other expenses Lending and non-lending gains/(losses) Lending losses1 Non-lending losses Remediation provision release2 Insurance recoveries3 2023 $000 2022 $000 379,057 283,633 34,774 3,800 31,809 2,257 417,631 317,699 7,653 11,059 18,712 3,974 (1,697) 2,277 753 4,877 5,630 - 627 627 (209,399) (22,977) (155,252) (14,572) (232,376) (169,824) (82,826) (7,700) (6,431) (79,431) (7,180) (6,017) (96,957) (92,628) (4,417) (2,668) (1,829) (1,184) (828) (5,134) (4,065) (1,381) (1,697) - (1,009) (4,826) (16,060) (12,978) (2,880) (631) 3,719 820 1,028 (600) (515) - - (1,115) 1 2 3 Fair value (loss)/gains on loans excludes other interest income on loans or lending losses. Other interest income on loans and lending losses have been disclosed as separate items within the statement of comprehensive income. Remediation provision release in FY23 of $3,719,000 is due to the provision is no longer being expected to be utilised following the approval of the settlement of the class action by the Court (Note 16). The positive insurance recovery of $820,000 relates to the terminal connectivity issue in January 2021 (Note 6). 118 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 3. Segment reporting (a) Description of segments and principal activities For management purposes, the Group is organised into two operating segments, comprising Payments and Banking. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, which is the CEO. The Group operates in one geographical segment being Australia. The corporate and other segment, which is not considered an operating segment of the Group, is used to reconcile the total segment results back to the consolidated results. It consists of other income and costs that fall outside the day-to-day operations of the Group. These include the Group’s Head Office, all employee benefits expenses and other operating expenses, all of which are recorded below Gross Profit. The Group’s reportable segments under AASB 8 Operating Segments are as follows: REPORTABLE SEGMENT PRINCIPAL ACTIVITIES Payments Acquires electronic payment transactions from merchants. Revenue is primarily earned from fees charged for processing acquired transactions. Revenue is also earned from other fee income, terminal rental income and sales of terminal accessories. Direct expenses include scheme and interchange fees, integration, support and other fees and cost of terminal accessories sold. Banking Complementary banking services to merchants. Revenue is earned from fees charged on loans to merchants. Interest expense is incurred on merchant deposits. (b) Revenue and gross profit by segment PAYMENTS1 $000 BANKING2 $000 CORPORATE AND OTHER3 $000 2023 Revenue Gross profit 2022 Revenue Gross profit 419,215 184,597 318,847 147,657 9,372 8,558 5,504 5,230 Reconciliation of gross profit to profit/(loss) before tax: Gross profit Operating expenses (excl. depreciation and amortisation, share of loss from associates and other interest expenses) Depreciation and amortisation Other interest expenses Share of loss from associates Profit/(loss) before tax 11,189 11,189 1,792 1,792 2023 $000 204,344 (161,685) (36,355) (3,712) (131) 2,461 TOTAL $000 439,776 204,344 326,143 154,679 2022 $000 154,679 (145,499) (31,681) (3,558) (3,558) (29,617) 1 2 3 Gross profit of the Payments segment is payments revenue and income less direct expenses. Gross profit of the Banking segment is income from merchant lending adjusted for the fair value movement on loans and interest expense on merchant deposits. Gross profit of Corporate and other includes income from investments and other revenue and income. 119 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT 3. Segment reporting (continued) (c) Assets and liabilities by segment 2023 Segment assets Segment liabilities 2022 Segment assets Segment liabilities 4. Income tax (a) Income tax benefit: PAYMENTS $000 BANKING $000 CORPORATE AND OTHER $000 234,534 90,392 216,972 97,714 75,824 93,569 71,556 83,273 120,679 69,392 121,560 69,501 Major components of income tax benefit for the period ended 30 June 2023 and 30 June 2022: Current income tax Current income tax benefit/(expense) Deferred income tax Relating to origination and reversal of temporary differences Recognition of deferred tax on temporary differences Recognition of previously unrecognised tax losses Income tax benefit in the statement of comprehensive income Amount reported directly in other comprehensive income and equity Deferred tax related to items recognised in equity during the period Income tax benefit/(expense) reported in equity (b) Reconciliation of income tax benefit and prima facie tax: Operating profit/(loss) before tax At the statutory income tax rate of 30% Share-based payment expense Share of loss from associates Fair value gain on equity investments Amortisation of intangible asset Other non-deductible expenses Recoupment of prior year losses not brought to account Recognition of deferred tax on previously recognised tax losses Recognition of deferred tax on temporary differences Tax effect of current year losses for which no deferred tax asset is recognised Total income tax benefit 2023 $000 - 3,487 (2,538) 2,603 3,552 - - 2023 $000 2,461 (738) (3,350) (39) 1,192 - (80) 6,502 2,603 (2,538) - 3,552 TOTAL $000 431,037 253,353 410,088 250,488 2022 $000 - 2,703 (2,703) - - - - 2022 $000 (29,617) 8,885 (1,560) (1,067) - (596) (83) - - - (5,579) - 120 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 4. Income tax (continued) (c) Deferred income tax assets and liabilities STATEMENT OF FINANCIAL POSITION STATEMENT OF COM- PREHENSIVE INCOME $000 7,997 3,122 1,649 2,603 2,165 624 (1,622) 16,538 $000 2,739 (3,877) 1,131 2,603 1,314 529 (887) 3,552 2023 OTHER COM- PREHENSIVE INCOME AND EQUITY $000 - - - - - - - - STATEMENT OF FINANCIAL POSITION 2022 STATEMENT OF COM- PREHENSIVE INCOME $000 5,258 6,999 518 - 851 95 (735) 12,986 $000 423 1,519 (1,882) - 504 (699) 135 - OTHER COM- PREHENSIVE INCOME AND EQUITY $000 - - - - - - - - Net deferred tax assets and liabilities Fixed assets Provisions and accruals Other Tax losses Leases Financial investments Other Intangible Assets Total Net deferred tax assets relate to temporary differences up to $16,538,000 (tax effected) as at 30 June 2023 (2022: $12,986,000). In addition, approximately $22,065,000 (tax effected) of unused tax losses, credits and temporary differences have not been recognised as an asset at balance date. 5. Cash and cash equivalents Deposits at call 2023 $000 42,603 42,603 2022 $000 36,885 36,885 121 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT 5. Cash and cash equivalents (continued) Reconciliation of profit/(loss) after tax to net cash flows used in operations Profit/(loss) for the year Adjustments for: Depreciation and amortisation Share-based payments expense Fair value gain on me&u Release of remediation provision Lending losses Lease interest expense Fair value (gain)/loss on loans Impairment of right-of-use asset Obsolescence provision Share of losses from associates Impairment of intangible assets Income tax benefit Other Changes in assets and liabilities: Increase in loans1 Purchase of terminals Increase in trade and other receivables and other assets Increase in term deposits held as collateral Increase in deposits Increase in trade payables and other liabilities (Decrease)/increase in provisions Net cash flow/(used in) operating activities 1 Movement in loans balances excludes adjustments for write offs and fair value adjustments. 2023 $000 2022 $000 6,013 (29,617) 36,355 11,165 (3,974) (3,719) 2,880 2,988 1,697 1,184 141 131 111 (3,552) (130) (15,599) (16,031) (2,658) (7) 9,431 (7,485) 119 31,681 5,199 - - 600 3,497 (627) - - 3,558 - - 131 (24,090) (14,779) (5,531) (507) 7,792 2,287 (4,913) 19,060 (25,319) 122 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 6. Trade and other receivables Scheme and other receivables 1 Merchant acquiring fees Insurance receivable2 Expected credit loss provision Intercompany receivable 2023 $000 5,206 14,375 5,820 (41) - 2022 $000 10,014 12,728 - (38) - 25,360 22,704 1 2 Scheme receivables are presented net of merchant payables in line with the Group’s accounting policy disclosed in Note 1. Insurance receivable relates to the insurance recovery associated with the settlement of the class action (Note 15) and other insurance recoveries relating to the terminal connectivity issue in January 2021 (Note 2). The Group’s ageing of trade and other receivables are as follows: Carrying value 2023 Carrying value 2022 7. Loans Current Loans (net of unearned fees) Non-current Loans (net of unearned fees) TOTAL $000 25,360 22,704 CURRENT $000 1-30 DAYS $000 31-60 DAYS $000 61-90 DAYS $000 >90 DAYS $000 IMPAIRMENT $000 25,290 22,724 111 18 - - - - - - (41) (38) 2023 $000 2022 $000 43,765 34,262 6,761 50,526 5,242 39,504 Income from loans comprises interest income of $11,059,000 (2022: $4,877,000), fair value loss of $1,697,000 (2022: gain of $627,000) and net lending loss of $2,880,000 (2022: net lending loss of $600,000). 123 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT 8. Leases (a) Group as lessee – property lease The Group entered into an agreement for a lease at 55 Market Street to January 2031, with an option to renew for a further 5 years. As it is not reasonably certain that the option to renew will be exercised, the extension period has not been recognised. The right-of-use asset for 55 Market Street was impaired during the year as the cost of an unoccupied level of the leased office is not expected to be recovered through operations. An expense of $1,184,000 was recognised in the Statement of Comprehensive Income. The Group had total cash outflow for leases of $1,897,000 in 2023 (FY22: $2,849,000). The Group also has additional short term leases for offices in Bendigo and Melbourne and a warehouse in Sydney. Set out below are the carrying amounts of the Group’s right-of-use assets and lease liabilities in the Statements of Financial Position and the movements during the year: RIGHT-OF-USE ASSETS $000 LEASE LIABILITIES $000 As at 1 July 2021 Additions Depreciation expense Interest expense Payments Derecognition of short-term leases As at 30 June 2022 As at 1 July 2022 Additions Depreciation expense Impairment Expense Interest expense Payments As at 30 June 2023 Lease liabilities Current Lease liability Non-current Lease liability Total lease liabilities Lease liabilities – Maturity analysis Contractual undiscounted cash flows Within one year After one year but not more than five years More than five years Total undiscounted lease liabilities 1,654 33,578 (4,051) - - (23) 31,158 31,158 - (3,630) (1,184) - - 26,344 2023 $000 4,394 29,167 33,561 2023 $000 4,394 20,126 15,227 39,747 2,812 33,041 - 1,013 (2,849) (24) 33,993 33,993 - - - 1,465 (1,897) 33,561 2022 $000 1,897 32,096 33,993 2022 $000 1,897 19,076 20,671 41,644 124 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 8. Leases (continued) (a) Group as lessee – property lease (continued) The amounts recognised in the Statements of Comprehensive Income are as follows: Depreciation expense of right-of-use assets Interest expense on lease liabilities Impairment on right of use asset Rent expense on short term leases Total amount recognised in the statement of comprehensive Income 9. Financial investments Current Floating rate notes (FRNs) Convertible note in meandu Australia Holdings Pty Ltd (me&u) Non-current Floating rate notes (FRNs) Equity investment - me&u 2023 $000 (3,630) (1,465) (1,184) (114) (6,393) 2023 $000 15,452 - 15,452 2023 $000 55,098 3,974 59,072 2022 $000 (4,051) (1,013) - - (5,064) 2022 $000 8,964 1,510 10,474 2022 $000 62,221 - 62,221 Floating rate notes have been classified between current and non-current based on maturity date. The FRNs are held as available for sale instruments for liquidity purposes and qualify as eligible collateral for repurchase agreements with the Reserve Bank of Australia. meandu Australia holdings Pty Ltd (me&u) is a leading hospitality in-venue food ordering and payments app. The Group invested in a convertible note in me&u in March 2022. The convertible note incurred 8% interest for 6 months and was redeemed for cash on maturity date. In October 2022, Tyro’s equity investment in me&u has also reduced after me&u had an additional equity raising round in which Tyro did not participate. In accordance with AASB 9 Financial Instruments, Tyro’s investment in me&u is now being held as a financial asset. The impact of the initial recognition as a financial asset is taken to the Statement of Comprehensive Income. The subsequent changes in the fair value of the financial investment in me&u will be recognised in OCI. 125 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT 10. Investment in associates Investment in associates Axis IP Pty Ltd (Paypa Plane) me&u 2023 $000 1,811 - 1,811 2022 $000 1,482 460 1,942 Investment in associates are recognised at cost using the equity accounting method. The carrying amounts of the investment in associates are increased or decreased by the Group’s share of Paypa Plane’s results after acquisition date. Axis IP Pty Ltd (Paypa Plane) is a payments technology business transforming scheduled payments. Tyro’s ownership has reduced from 17.1% to 11.0% in February 2023 after Paypa Plane had an additional equity raising round in which Tyro did not participate. The Group’s investment in me&u is now being held as a financial asset. Refer to Note 9 for details. The following table summarises the financial information and results of me&u and Paypa Plane for the year ended 30 June 2023 and 30 June 2022. INVESTMENT IN ME&U INVESTMENT IN PAYPA PLANE Percentage ownership interest Current assets Non-current assets Current liabilities Non-current liabilities Net Assets (100%) Group’s share of net assets Carrying amount of interest in associate1 Revenue Loss from continuing operations Total comprehensive loss Group's share of total comprehensive (loss)/income2 2023 $000 4.9% 15,467 5,113 (7,310) (1,160) 12,110 598 - 1,242 (1,650) (1,650) (460) 2022 $000 14.4% 48,009 1,372 (58,474) - (9,093) (1,313) 460 7,734 (20,163) (20,163) (2,872) 2023 $000 11.0% 7,995 4,506 (514) (739) 11,248 1,236 1,811 718 (7,006) (7,006) 329 2022 $000 17.1% 1,324 2,038 (497) (25) 2,840 485 1,482 144 (6,535) (6,535) (686) 1 2 The difference between the carrying value of investments and the Group’s share of net assets relates to intangible assets and goodwill not recognised on the balance sheet of me&u and Paypa Plane. The investment in Paypa Plane was considered recoverable based on the value at the last equity raise completed in February 2023. A total loss on investment of $131,000 (loss in FY22: $3,558,000) has been recognised in the Statement of Comprehensive Income in the year. The share of losses for me&u are for the period in the year ended 30 June 2023 while the investment in me&u was held as an equity accounted investment. 126 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 11. Property, plant and equipment Reconciliation of net carrying amounts at the beginning and end of the year for the Group is as below: TERMINALS $000 FURNITURE AND OFFICE EQUIPMENT $000 COMPUTER EQUIPMENT $000 LEASEHOLD IMPROVE- MENTS $000 Year ended 30 June 2023 At 30 June 2022 net of accumulated depreciation Additions Disposals Depreciation for the year At 30 June 2023 net of accumulated depreciation At 30 June 2023 Cost Accumulated depreciation Net carrying amount Year ended 30 June 2022 At 30 June 2021 net of accumulated depreciation Additions Disposals Depreciation for the year At 30 June 2022 net of accumulated depreciation At 30 June 2022 Cost Accumulated depreciation Net carrying amount 27,909 16,031 (116) (12,745) 31,079 89,585 (58,506) 31,079 23,000 14,779 (57) (9,813) 27,909 74,033 (46,124) 27,909 339 3 (24) (121) 197 2,708 (2,511) 197 545 2 (10) (198) 339 2,756 (2,417) 339 3,198 563 (29) (1,221) 2,511 12,142 (9,631) 2,511 1,942 2,505 (173) (1,076) 3,198 11,873 (8,675) 3,198 TOTAL $000 41,452 16,758 (169) (15,256) 42,785 114,809 (72,024) 42,785 26,027 27,500 (240) (11,835) 41,452 98,875 (57,423) 10,006 161 - (1,169) 8,998 10,374 (1,376) 8,998 540 10,214 - (748) 10,006 10,213 (207) 10,006 41,452 127 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT 12. Intangible assets and goodwill (a) Intangible assets Reconciliation of net carrying amounts at the beginning and end of the year for the Group is as below: Year ended 30 June 2023 At 30 June 2022 net of accumulated amortisation and impairment Additions Impairment expense Disposals Amortisation for the year At 30 June 2023 net of accumulated amortisation and impairment At 30 June 2023 Cost SOFTWARE $000 CUSTOMER RELATION- SHIPS $000 GOODWILL $000 TOTAL $000 16,149 12,073 (111) (24) (5,820) 22,267 102,197 13,687 132,033 - - - (11,649) 90,548 - - - - 12,073 (111) (24) (17,469) 13,687 126,502 Accumulated amortisation and impairment (10,850) (24,365) - 33,117 114,913 13,687 161,717 (35,215) Net carrying amount Year ended 30 June 2022 22,267 90,548 13,687 126,502 At 30 June 2021 net of accumulated amortisation and impairment 13,304 113,876 13,687 140,867 Additions Amortisation for the year At 30 June 2022 net of accumulated amortisation and impairment At 30 June 2022 Cost Accumulated amortisation and impairment Net carrying amount 6,961 (4,116) 16,149 21,574 (5,425) 16,149 - (11,679) 102,197 114,912 (12,715) - - 6,961 (15,795) 13,687 132,033 13,687 - 150,173 (18,140) 102,197 13,687 132,033 128 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 12. Intangible assets and goodwill (continued) (b) Goodwill i) Allocation of goodwill The Group has allocated goodwill acquired through business combinations to the Tyro Health Cash Generating Unit (“CGU”). As the only CGU with non-amortising intangible asset, the Group determined the Tyro Health CGU to be the only CGU subject to an annual impairment test. The Group performed its annual impairment test in June 2023. Goodwill Total allocation of goodwill TYRO HEALTH CGU 2023 $000 13,687 13,687 2022 $000 13,687 13,687 The recoverable amount of the CGU is determined based on “Value-In-Use” calculations using discounted cash flow projections based on financial budgets and forecasts covering a five-year period with an estimated terminal growth rate. The cash flows are discounted using a pre-tax discount rate reflecting an estimate of the weighted average cost of capital (WACC). The Group determined that the carrying amount does not exceed the recoverable amount. No impairment of goodwill at 30 June 2023 has been recorded. ii) Key assumptions and sensitivity The cash flow projections which are used in determining any impairment require management to make significant estimates and judgements. Each of the assumptions is subject to significant judgement about future economic conditions and the ongoing development of industries in which the CGUs operate. Forecasted cashflows are risk-adjusted allowing for estimated changes in the business and the competitive trading environment. Cash flow projections during the forecast period are based on forecast revenue growth arising from increasing total transactions volumes for Tyro Health. Forecast increases in gross margin and operating costs have been included to support the forecast growth in volumes. The pre-tax discount rate applied to the cash flow projections was 9.0% which reflects current market assessment of the time value of money and the risks specific to the relevant segments in which the CGU operates. Terminal growth rate is 3.25% consistent with industry forecasts specific to the CGU. The Group has completed sensitivity analysis over the Tyro Health CGU. The recoverable amount of the Tyro Health CGU is in excess of the carrying amounts in the respective CGUs. Any reasonable adverse change in key assumptions will not lead to an impairment. 13. Share-based payments The Group provides benefits to employees (including Key Management Personnel (KMP)) from time to time including share- based payments as remuneration for service. Additionally, the Company provides share-based payments to other stakeholders as part of contractual agreements. (a) Employee Share Option Plan The Employee Share Option Plan (ESOP) was established to grant options and rights over ordinary shares in the Company to employees or Directors who provide services to the Group. Options and rights granted pursuant to the ESOP may be exercised, in whole or part, subject to vesting terms and conditions as indicated below: TYPE OF OPTION VESTING TERMS AND CONDITIONS Monthly linear vesting schedule Options and rights granted will vest in proportion to the time that passes linearly during the vesting schedule, subject to the terms and conditions of each grant during the vesting period. The options and rights generally vest in equal amounts each month over the vesting period. Annual linear vesting schedule Options vest similarly to the monthly linear vesting schedule; except they vest in equal amounts annually over the vesting period. Performance linear vesting schedule Options and rights vest in equal amounts annually over the vesting period and are also subject to performance criteria. Performance single vesting schedule Options and rights vest on a single vesting date and are subject to performance criteria. Certain option and right grants and any shares issued on the exercise of those options and rights may be subject to a trading restriction for a minimum period based on the terms and conditions of each respective grant of options and rights. 129 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT 13. Share based payments (continued) (a) Employee Share Option Plan (continued) Other relevant terms and conditions applicable to options and rights granted under the ESOP include: • • • • the term of each option or right grants ranges between a period of 1 year to 7 years from the date of grant as provided in the grant letter; each option or right entitles the holder to one ordinary fully paid share; all awards granted under the ESOP are equity-settled; and under the ESOP rules and subject to any requirements under law or the ASX listing rules, the Board, at its discretion, may determine that options and rights held by an employee or Director do not lapse on cessation of employment or Directorship and that the relevant holder of options has additional time to exercise their options. (b) Fair value of options under the ESOP The fair value of each option is estimated on the date of grant using the Black-Scholes option valuation model. A zero-dividend policy assumption is used for valuing all option grants. This is in line with the Company’s capital management policy and growth strategy. Expected volatility used is the historical volatility of the Company’s estimated peer group. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. There were 1,762,101 options exercised during the year ended 30 June 2023 (2022: 4,310,080). The weighted average remaining contractual life for share options outstanding as at 30 June 2023 was 2 years (2022: 4 years). The following table summarises further details of the Company’s share options outstanding at 30 June 2023: RANGE OF EXERCISE PRICES CONTRACTUAL LIFE VESTING CONDITIONS NUMBER OF OUTSTANDING OPTIONS 179 cents 176 cents 7 years 4 year annual vesting, plus performance criteria JUN 2023 1,850,147 JUN 2022 5,584,832 6 years or less 5 year monthly linear vesting 2,530,145 5,214,675 162 cents to 176 cents 7 years or less No vesting in first 6 months of 5 year monthly linear vesting period - 161,181 162 cents 150 cents 7 years or less 5 year monthly linear vesting 40,000 40,000 7 years 4 year annual vesting, plus performance criteria 1,468,599 4,895,120 37.5 cents to 149 cents 7 years or less 5 year monthly linear vesting 2,397,909 3,948,918 0 cents Total 6 years 5 year annual linear vesting 828,639 1,919,848 9,115,439 21,764,574 130 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 13. Share based payments (continued) (b) Fair value of options under the ESOP (continued) The following table illustrates the number and weighted average exercise prices (WAEP) in cents and movements of share options during the year: Monthly linear and annual linear vesting Opening Granted Exercised Forfeited or expired Closing Of which: Exercisable at the end of the year Performance based vesting Opening Granted Exercised Forfeited or expired Closing Of which: Exercisable at the end of the year Total outstanding at the end of the year Total exercisable at the end of the year JUN 2023 NUMBER 11,284,622 - (1,762,101) (3,725,828) 5,796,693 5,374,024 JUNE 2023 WAEP (CENTS) 126 - 35 149 140 150 JUNE 2022 NUMBER 16,945,628 - (4,310,080) (1,350,926) 11,284,622 9,332,889 10,479,952 165 12,409,865 - - (7,161,206) 3,318,746 - 9,115,439 5,374,024 - - 165 166 - - - (1,929,913) 10,479,952 - 21,764,574 9,332,889 JUN 2022 WAEP (CENTS) 119 - 70 119 126 108 165 - - 166 165 - 131 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT13. Share-based payments (continued) (c) Performance rights, service rights, remuneration sacrifice rights and rights to shares under other contractual arrangements During the period, the Company granted 7,310,724 (2022: 7,230,128) service and performance rights as part of the short and long term incentive arrangements and nil (2022: 308,431) remuneration sacrifice rights as part of an equity incentive arrangement. The following model inputs were used in the Black-Scholes valuation model to determine the fair value: FY22 SERVICE RIGHTS (XLT)2 FY22 SERVICE RIGHTS2 FY23 LTI PERFORMANCE RIGHTS Grant date: Vesting period Expiry date Share price at grant date ($)1 Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Grant date: Vesting period Oct-22 4 years Oct-34 $1.51 0% N/A N/A Oct-22 1 year with 12 equal monthly tranches Dec-22 3 years Oct-34 Employment conditions apply $1.51 0% N/A N/A $1.49 0% N/A N/A ONE-OFF GRANT - CTO ONE-OFF GRANT - CFO July-22 Sept-22 3 years with 3 equal annual tranches 30 months with 3 equal tranches vesting 6 month, 18 months and 30 months from grant date Expiry date Employment conditions apply Employment conditions apply Share price at grant date ($)1 Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) $0.66 0% N/A N/A 1 2 The Company considers the listed share price near grant date, when determining fair value. FY22 Service Rights (XLT) and FY22 Service Rights were granted during the year ended 30 June 2022 and were issued during the year ended 30 June 2023. Opening Granted Exercised Forfeited or expired Closing Exercisable at the end of the year JUN 2023 NUMBER 9,535,747 7,310,724 (1,374,464) (2,358,772) 13,113,235 2,783,331 JUN 2023 WAEP (CENTS) - - - - - - JUN 2022 NUMBER 5,412,550 7,538,559 (1,571,915) (1,843,447) 9,535,747 1,363,456 $1.38 0% N/A N/A JUN 2022 WAEP (CENTS) - - - - - - 132 TYRO PAYMENTS LIMITED - ANNUAL REPORT 202314. Deposits Deposits Term deposits 2023 $000 70,667 22,037 92,704 2022 $000 79,204 4,069 83,273 The deposits are at call, earn daily interest with rates that increase for every dollar held for longer than 30 days, 60 days and 90 days. Term deposits are held by merchants for a range of up to 365 days. Deposits and Term Deposits are guaranteed by the Australian Government up to $250,000 per customer. 15. Trade payables and other liabilities Current Accounts payable Scheme fees, commissions, incentives and other accruals Commissions payable to Bendigo Bank Clearing account and other liabilities Class action settlement1 Non-current Commissions payable to Bendigo Bank 2023 $000 2022 $000 3,475 16,986 9,653 7,917 5,000 43,031 75,396 75,396 6,370 15,701 9,228 6,126 - 37,425 83,553 83,553 1 The class action settlement is the amount payable by Tyro in accordance with the Court approved settlement of the class action relating to the terminal connectivity issue in January 2021. The settlement is recoverable from the Group’s insurer (Note 6). Commissions payable to Bendigo Bank In October 2020, the Group announced an alliance with Bendigo and Adelaide Bank Limited (Bendigo Bank) for merchant acquiring services (Alliance). As part of the Alliance, Bendigo Bank agreed to transfer existing and refer potential customers to the Group for the provision of a co-branded merchant acquiring service and receive upfront consideration and commission from existing and newly referred Bendigo Bank business customers who use the Group’s merchant acquiring services. The present value of the commission payable on existing customer network and future rollouts includes an amount guaranteed by the Group and an additional variable amount based on revenue achieved as follows: Guaranteed amount Variable amount Key assumptions in respect of estimating the variable amount can be found in Note 1(c). 2023 $000 18,793 66,256 85,049 2022 $000 28,108 64,673 92,781 133 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT16. Current and non-current provisions Balance at 1 July 2022 Amounts provided/(utilised) or (released) during the period Balance at 30 June 2023 Current Non-current Balance at 30 June 2023 ANNUAL LEAVE LONG SERVICE LEAVE MAKE GOOD PROVISION OTHER PROVISIONS $000 5,597 (225) 5,372 5,372 - 5,372 $000 1,866 484 2,350 1,016 1,334 2,350 $000 548 17 565 - 565 565 $000 4,233 (3,859) 374 374 - 374 TOTAL $000 12,244 (3,583) 8,661 6,762 1,899 8,661 The make good provision is for the costs of restoring the office space at 55 Market Street to its original condition at the conclusion of the lease. In 2021, the Group raised a provision for remediation of the terminal connectivity issue that occurred in January 2021. Total remediation payments during the year totaled $248,000 (30 June 2022: $5,041,000). Following the settlement of class action which is recoverable from the Group’s insurer as noted in Note 6 and Note 15, Tyro has released the remaining remediation provision of $3,719,000 that is not expected to be utilised due to the Court orders dismissing the class action proceedings. 17. Contributed equity and reserves (i) Movement in ordinary shares on issue At 1 July 2021 Share options and rights exercised At 30 June 2022 At 1 July 2022 Share options and rights exercised At 30 June 2023 Terms and conditions of contributed equity NUMBER OF SHARES 511,672,422 5,881,995 517,554,417 517,554,417 3,136,565 $000 274,436 4,362 278,798 278,798 624 520,690,982 279,422 Ordinary shares have the right to receive dividends when declared and in the event of winding up of the Company to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on ordinary shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company. All issued share capital is paid up in full. (ii) FVOCI reserve Balance at the beginning of the year Revaluation gain/(loss), net of tax Transfer to accumulated losses Balance at the end of the year 2023 $000 (689) 282 - (407) 2022 $000 108 (1,008) 211 (689) 134 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 17 Contributed equity and reserves (continued) (iii) Share-based payments reserve Balance at the beginning of the year Share-based payments transactions Balance at the end of the year 2023 $000 43,560 11,165 54,725 2022 $000 38,361 5,199 43,560 The share-based payments reserve is used to record the value of share-based payments or benefits provided to any Directors, employees as part of their remuneration or compensation, and share-based payments provided to other stakeholders as part of contractual agreements. (iv) General reserve for credit losses Balance at the beginning of the year Transfer from accumulated losses: Appropriation for chargeback losses Appropriation for lending losses Balance at the end of the year Total reserves at the end of the year 2023 $000 4,214 200 588 5,002 59,320 2022 $000 2,358 567 1,289 4,214 47,085 The general reserve for credit losses has been created to satisfy APRA’s prudential standards for authorised deposit-taking institutions (ADIs) as described in Note 1(v). The Group applies an internal methodology to estimate the credit risk of its merchant customers and the maximum losses based upon a number of assumptions concerning the performance of merchants in relation to the Group’s credit risk grading system and actual experience. (v) Accumulated losses Balance at the beginning of the year Profit/(loss) attributable to shareholders of the Group Transfer to general reserve for credit losses Transfer from FVOCI reserve Balance at the end of the year 2023 $000 2022 $000 (166,283) (134,599) 6,013 (788) - (29,617) (1,856) (211) (161,058) (166,283) 135 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT 18. Financial risk management objectives, policies and processes The Group’s principal financial instruments include cash and cash equivalents, deposits due from other financial institutions, trade and other receivables, loans, financial investments, deposits, lease liabilities, trade payables and other liabilities. (i) Risk management The Board has responsibility for setting the Group’s strategy and the Risk Management Framework (RMF). The RMF includes the Risk Management Strategy (RMS), the Risk Appetite Statement (RAS) and the Internal Capital Adequacy Assessment Process (ICAAP). The RMS supports the Group in achieving its strategic priorities by clearly articulating the approach to managing risks aligned with the material risk types that are consistent with the RAS. The CEO and Management team are responsible for implementing the RMS, and for developing policies, controls, processes and procedures for identifying and managing risk. Various management committees, including the Executive Risk Committee (ERC), the Pricing Committee (PriceCo) and the Asset and Liability Management Committee (ALCO), ensure appropriate execution of the RMS is applied to the day-to-day operations and regularly report to the Board Risk Committee (BRC). (ii) Risk controls Risks are identified, managed and controlled through the Risk and Control Self-Assessment (RCSA) process. The RCSA is an assessment of key risks and controls which enable the business to understand its operational risk environment and facilitate decision-making, prioritisation, allocation of resources and effective governance. Business risks are controlled within tolerance levels approved by the Board through the RAS. (iii) Internal audit The Group has an independent and adequately resourced Internal Audit function. The Internal Audit function provides independent assurance to the Board on the adequacy and effectiveness of the control environment and risk framework. (iv) Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivables) and from its lending and investing activities, including deposits with banks and financial institutions, foreign exchange transactions and financial investments in floating rate notes. The maximum exposure to credit risk is represented by the carrying amounts of the financial assets at the reporting date. The Group’s credit risk management framework outlines the core values which govern its credit risk-taking activities and reflect the priorities established by the Board. The framework is used to develop underwriting standards and credit procedures which define the operating processes. Ongoing monitoring, reporting and review allows the Group to identify changes in credit quality at the client and portfolio levels and to take corrective actions in a timely manner. Credit losses from chargebacks In addition, the Group is subject to the risk of credit card losses via chargebacks. The maximum period the Group is potentially liable for such chargebacks is up to 540 days after the latter of the transaction date or expected delivery date. The Group manages credit risk associated with its merchant portfolio both at an individual and a portfolio level. It is the Group’s policy that all merchants are subject to credit verification procedures including an assessment of their independent credit rating, past behaviour and an overview of trading history. As part of equity, a General Reserve for Credit Losses (GRCL) is maintained to cover losses due to uncollectible chargebacks that have not been specifically identified. The reserve is calculated based on internal methodology as described in Note 1(v). The Group does not hold any credit derivatives or collateral to offset its credit exposure. The Group’s exposure to bad debts from chargebacks is not significant at the reporting date. Credit losses from loans The Group is also subject to the risk of credit losses from its unsecured loan product and loan product operating under the Government SME guarantee scheme. The Group manages this risk in accordance with the Board approved Lending Credit Risk Policy. Responsibility for monitoring and management of this risk is delegated to the Chief Risk Officer (CRO). The CRO is also responsible for ensuring the Lending Credit Risk Policy is reviewed regularly and submitted to the BRC for endorsement and approval by the Board. To manage the risk of credit losses, various underwriting criteria are in place before a loan can be offered. A merchant must satisfy the onboarding requirements to be eligible for a loan offer, as well as providing a personal guarantee. Tyro only offers loans to merchants with a Tyro EFTPOS terminal. The Group maintains a GRCL to also cover credit losses estimated but not certain to arise over the full life of the loans as described in Note 1(v). 136 TYRO PAYMENTS LIMITED - ANNUAL REPORT 202318. Financial risk management objectives, policies and processes (continued) (iv) Credit risk (continued) This table summarises the Group’s credit risk exposures as at reporting date: 30 JUNE 2023 STANDARD & POORS CREDIT RATING1 CASH AND CASH EQUIVALENTS DUE FROM OTHER FINANCIAL INSTITUTIONS TRADE AND OTHER RECEIVABLES AAA AA AA- A+ A A- BBB+ unrated $000 35,675 - 6,928 - - - - - $000 - - 15,779 - - - - - 42,603 15,779 $000 265 - 9,694 883 - - 509 14,009 25,360 30 JUNE 2022 STANDARD & POORS CREDIT RATING1 CASH AND CASH EQUIVALENTS DUE FROM OTHER FINANCIAL INSTITUTIONS TRADE AND OTHER RECEIVABLES AAA AA AA- A+ A A- BBB+ unrated $000 28,615 - 8,241 - - - - 29 $000 - - 14,698 - - - - - 1 2 Long-term credit rating Includes loans issued under the Government SME guarantee scheme of nil (2022: $38,643). 36,885 14,698 (v) Operational risk $000 308 - 3,795 776 132 - 359 17,334 22,704 LOANS2 $000 - - - - - - - 50,526 50,526 LOANS2 $000 - - - - - - - 39,504 39,504 Operational risk is the risk that arises from inadequate or failed internal processes and systems, human error or misconduct, or from external events. It includes, amongst other things, fraud, technology risk, model risk and outsourcing risk. The BRC is responsible for monitoring the operational risk profile, the performance of operational risk controls, and the development and ongoing review of operational risk policies. 137 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT 18. Financial risk management objectives, policies and processes (continued) (vi) Market risk Market risk is the potential loss of value or potential reduction in expected earnings resulting from movements in interest rates, foreign exchange rates, commodity prices and other prices. The Group’s balance sheet activities expose the profit and loss to earnings volatility. Ultimately, the aim of managing market risks is to stabilise earnings. Market risks comprise four types of risk: interest rate risk, foreign currency risk, commodity price risk and other price risk, such as equity price risk. The Group does not engage in financial market trading activities nor assume any foreign exchange, interest rate or other derivative positions and does not have a trading book. The Group does not undertake any hedging around the values of its financial instruments as any risk of loss is considered insignificant to the operations of the Group at this stage. Any floating rate notes that the Group holds are for investment or liquidity purposes and held in the normal course of business in line with investment and liquidity guidelines. Each component of market risk is detailed below as follows: (i) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group has exposure to interest rate risk primarily on its variable interest-bearing cash and cash equivalent balances, term deposits, floating rate notes, loans and variable deposits (bank accounts for businesses). Interest rate sensitivity analysis The following demonstrates the sensitivity to a reasonably possible change in interest rates. With all other variables held constant, the profit is affected as follows: An increase of 100 basis points for 12 months in the general cash rate (assuming other factors remain constant) will increase the Group’s profit and increase equity by $878,000 (2022: $790,000). A decrease of 100 basis points in the general cash rate decrease the Group’s profit and decrease equity by $878,000 (2022: $790,000). The following table shows the Group’s financial assets and liabilities on which the interest rate sensitivity analysis has been performed. 30 JUNE 2023 Financial assets Cash and cash equivalents Due from other financial institutions Loans Floating rate notes Financial liabilities Deposits 30 JUNE 2022 VARIABLE INTEREST RATE < 3 MONTHS FIXED INTEREST RATE 3 TO 12 MONTHS $000 $000 $000 42,603 - - 70,550 - 13,818 26,075 - - 1,961 17,690 - (70,667) (3,937) (18,100) VARIABLE INTEREST RATE < 3 MONTHS FIXED INTEREST RATE 3 TO 12 MONTHS $000 $000 $000 Financial assets Cash and cash equivalents Due from other financial institutions Loans Floating rate notes Convertible note in me&u Financial liabilities Deposits 36,885 - - 71,185 - - 14,678 21,530 - 1,510 (79,204) (4,069) - 20 12,732 5,242 - - - - - - > 1 YEAR $000 - - 6,761 - - > 1 YEAR $000 - - TOTAL $000 42,603 15,779 50,526 70,550 (92,704) TOTAL $000 36,885 14,698 39,504 71,185 1,510 (83,273) 138 TYRO PAYMENTS LIMITED - ANNUAL REPORT 202318. Financial risk management objectives, policies and processes (continued) (vi) Market risk (continued) (ii) Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group is not exposed to foreign currency risk in the settlement of merchant transactions as all monies received and paid are in Australian dollars. The Group’s settlement of fees with card schemes and the purchases of terminals and repairs from foreign suppliers are transacted in foreign currencies at the exchange rate prevailing at the transaction date. At the reporting date the Group has US Dollar, Euro and British Pound Sterling exposures. Foreign currency sensitivity analysis The following demonstrates the sensitivity to a reasonably possible change in the US dollar and Euro exchange rates, with all other variables held constant: An appreciation of 15% of the US dollar and Euro compared to the Australian dollar (assuming other factors remain constant), will increase both the Group’s profit and equity by $177,000 (2022: $246,000). A depreciation of 15% of the US dollar and Euro compared to the Australian dollar will reduce both the Group’s profit and equity by $240,000 (2022: $182,000). The following table shows the financial assets and liabilities on which the foreign currency sensitivity analysis has been performed: USD term deposit Trade payables Trade payables Trade payables (iii) Other price risk USD EUR USD GBP AUD 2023 $000 1,961 - (20) - AUD 2022 $000 1,887 (2,862) (412) (6) Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market conditions (other than those arising from interest rate risk or foreign currency risk), for example from changes in equity prices and commodity prices. (vii) Capital Management The Group’s capital management objectives are to: • maintain a sufficient level of capital above the regulatory minimum to provide a buffer against losses arising from unanticipated events, and allow the Group to continue as a going concern; and • ensure that capital management is closely aligned with the Group’s business and strategic objectives. The Group manages capital adequacy according to the framework set out by the APRA Prudential Standards. APRA determines minimum prudential capital ratios that must be held by all ADIs. Accordingly, the Group is required to maintain a minimum prudential capital ratio on a Level 1 basis as determined by APRA. The Board considers the Group’s strategy, financial performance objectives, and other factors relating to the efficient management of capital in setting target ratios of capital above the regulatory required levels. These processes are formalised within the Group’s ICAAP. The Group operates under the specific capital requirements set by APRA. The Group has satisfied its minimum capital requirements throughout the 2023 financial year in the form of Tier 1 Capital which is the highest quality component of capital. 139 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT 18. Financial risk management objectives, policies and processes (continued) (vii) Capital Management (continued) Capital Adequacy Tier 1 Capital Common Equity Tier 1 Capital Contributed capital Accumulated losses & reserves Regulatory adjustments to Common Equity Tier 1 Capital Deferred tax assets in excess of deferred tax liabilities Capitalised expenses Goodwill and other intangible assets Other adjustments Common Equity Tier 1 Capital Additional Tier 1 Capital Total Tier 1 Capital Tier 2 Capital General reserve for credit losses1 Total Tier 2 Capital Total Capital Total risk weighted assets Risk-based capital ratios Common Equity Tier 1 Tier 1 Total Capital ratio 2023 $000 2022 $000 279,422 (107,293) 172,129 (17,149) (20,686) (42,242) (5,784) (85,861) 86,268 - 278,798 (124,672) 154,126 (13,721) (12,974) (55,361) (2,542) (84,598) 69,528 - 86,268 69,528 1,931 1,931 88,199 169,904 % 51 51 52 2,123 2,123 71,651 185,613 % 37 37 39 1 Standardised approach (to a maximum of 1.25% of total credit risk weighted assets). (viii) Liquidity risk The Group’s liquidity risk is the risk that the Group will have insufficient liquidity to meet its obligations as they fall due. The Group manages this risk by the Board approved liquidity framework. Responsibility for liquidity management is delegated to the Chief Financial Officer (CFO) and Chief Executive Officer (CEO). The CFO manages liquidity on a daily basis and submits regular reports to ALCO, and to the BRC at the seating of the BRC. The CFO is also responsible for monitoring and managing capital planning. The capital plan outlines triggers for additional funding should liquidity be required. The CRO provides oversight of the business’ adherence with the Liquidity Risk framework and reports to the BRC. The liquidity risk management framework models the Group’s ability to fund under both normal conditions and periods of stress. The capital plan and liquidity management are reviewed at least annually. At the reporting date, the Board of Directors determined that there was sufficient cash available to meet its financial liabilities and anticipated expenditure. 140 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 18. Financial risk management objectives, policies and processes (continued) (viii) Liquidity risk (continued) Maturity analysis Amounts in the table below are based on the Group’s contractual undiscounted cash flows for the remaining contractual maturities. Financial liabilities CONTRACTUAL CASH FLOWS AS AT 30 JUNE 2023 < 3 MONTHS 3 TO 6 MONTHS >6 TO 12 MONTHS >1 TO 5 YEARS >5 YEARS TOTAL Variable rate deposits Term deposits Lease liabilities Commissions payable to Bendigo Bank Trade payables and other liabilities $000 (70,667) (4,087) (1,069) (2,440) (33,378) $000 - (4,663) (1,069) (2,468) - $000 - (13,138) (2,256) (5,004) - $000 - (149) (20,126) (44,691) - $000 - - (15,227) (39,915) (70,667) (22,037) (39,747) (94,518) - (33,378) (111,641) (8,200) (20,398) (64,966) (55,142) (260,347) AS AT 30 JUNE 2022 Variable rate deposits Term deposits Lease liabilities (79,204) (4,069) - - - - Commissions payable to Bendigo Bank (2,273) (2,360) Trade payables and other liabilities (28,009) - - - (1,897) (4,783) - - - - - (79,204) (4,069) (19,076) (20,671) (41,644) (42,598) (51,920) (103,934) - - (28,009) (113,555) (2,360) (6,680) (61,674) (72,591) (256,860) Amounts falling due after greater than 2 years include variable component of commissions payable to Bendigo and Adelaide Bank under the Tyro-Bendigo Alliance. (ix) Fair values The Group uses various methods in estimating the fair value of a financial instrument. The methods comprise: Level 1 The fair value is calculated using quoted prices in active markets. Level 2 The fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). Level 3 The fair value is estimated using inputs for the asset or liability that are not based on observable market data. Quoted market price represents the fair value determined based on quoted prices in active markets as at the reporting date without any deduction for transaction costs. The table below shows the Group’s financial assets that are measured at fair value, or where not measured at fair value, their fair value equivalent. Management has assessed that for other financial assets and liabilities not disclosed in the table below, due to their short-term maturity or repricing profile, the carrying amount is an approximation of fair value. 30 JUNE 2023 ($000) 30 JUNE 2022 ($000) LEVEL 2 LEVEL 3 TOTAL LEVEL 1 LEVEL 2 LEVEL 3 FINANCIAL ASSETS Floating rate notes Loans Financial investment in me&u Convertible note in me&u LEVEL 1 70,550 - - - 70,550 - - - - - - 70,550 71,185 50,526 50,526 3,974 3,974 - - - - - 54,500 125,050 71,185 - - - - - TOTAL 71,185 - 39,504 39,504 - 1,510 - 1,510 41,014 112,199 141 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT 18. Financial risk management objectives, policies and processes (continued) (ix) Fair values (continued) Floating rate notes The floating rate notes invested in by the Group have a short-term repricing profile and are of high credit quality. The fair value of these floating rate notes is obtained from an independent third party pricing service that uses tradeable prices and quotes from active markets. Loans Loans are included in Level 3 due to one or more of the significant inputs used in determining the fair value being based on unobservable inputs. To determine the fair value, an income valuation approach is used. This technique converts forecasted cash flows to a present value amount (also known as a discounted cash flow method). Forecast cash flows are actuarially determined using predictive models based partly on evidenced historical performance and expected repayment profiles. The fair value model is periodically reviewed, tested and refined as needed. The fair value of loans requires estimation of: • • • the expected future cash flows; the expected timing of receipt of those cash flows; and discount rates derived from similar observed rates for comparable assets that are traded in the market. The main inputs used in measuring the fair value of loans are as follows: • • • • • loan balance – accepted principal and fee, outstanding principal and fee, and date of acceptance; annual settlement amount – forecasted total annual settlements for loan customers; current repayment percentage – percentage of daily settlements through the loan customers’ terminals that go towards loan repayments; historical default and recovery information; and discount rates – market benchmarked discount rate which allows for a market level of default risk. The unobservable pricing inputs which determine fair value are based on: • • • the pricing of loans including adjustments for credit risk, with the risk adjustments ranging between 30% and 36%; historical data with respect to behavioural repayment patterns – generally ranging between 3 to 12 months; default experience for loans deemed uncollectable and which are valued at Nil; and These inputs directly affect the fair value of the loans. A sensitivity of a change of 10% in the value ascribed to credit risk for loans to merchants that are either not trading completely, or are on repayment holidays, will have an impact of between negative $112,000 (June 22: $47,000) and positive $112,000 (June 22: $47,000) to profit and loss. Equity investments At the reporting date, the Group held unlisted equity instruments in Paypa Plane and 100% of the share capital of Medipass which was acquired on 31 May 2021. Paypa Plane is valued using the equity accounting method as noted in Note 10. Transfer between categories There were no transfers between Level 1, Level 2 or Level 3 during the financial year. 142 TYRO PAYMENTS LIMITED - ANNUAL REPORT 202319. Commitments and contingencies (a) Commitments relating to BECS The Group pays merchants through the Bulk Electronic Clearing System (BECS). As a result of BECS intra-day settlements which went live in November 2013, all merchant settlements committed are processed on the same day. (b) Contingent liabilities arising from commitments Contingent liabilities arising from commitments are secured by way of standby letters of credit or bank guarantees as follows: Contingent liabilities - secured (i) Irrevocable standby letters of credit in favour of: Mastercard International Visa International (ii) Bank Guarantees in favour of: Bendigo and Adelaide Bank Limited - Alliance Agreement Guarantees in relation to office leases National Australia Bank Limited to guarantee for Medipass Direct Debit Facility 2023 $000 3,361 524 3,885 6,000 4,893 1,000 11,893 2022 $000 3,287 524 3,811 6,000 4,887 - 10,887 The Group has provided irrevocable standby letters of credit of $3,885,000 (2022: $3,811,000) secured through fixed charges over term deposits with the Commonwealth Bank of Australia and Westpac Banking Corporation, to Mastercard International and Visa International. These are one-year arrangements that are subject to automatic renewal on a yearly basis. Mastercard International and Visa International, at their discretion, may increase the required amounts of the standby letters of credit upon written request to the Group. The required amounts of the standby letters of credit are dependent on Mastercard International’s and Visa International’s view of their risk exposure to the Group. A bank guarantee in favour of Bendigo and Adelaide Bank Limited is held with Westpac Banking Corporation to mitigate the default risk created by Bendigo settling funds to Alliance merchants that hold a settlement account with Bendigo ahead of funds receipt from Tyro. The bank guarantee in relation to office leases is mainly held in relation to the lease arrangement for the 55 Market Street office premises. The amount represents 6 months rent, outgoings and GST and is refundable on expiry of the lease agreement, subject to satisfactory vacation of the leased premises. A bank guarantee in favour of National Australia Bank to guarantee a direct debit facility for Medipass Solutions Pty Ltd. 143 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT 20. List of subsidiaries Parent entity Tyro Payments Limited Subsidiaries Medipass Solutions Pty Ltd1 Medipass Solutions Limited2 Tyro Payments (Ben Alliance) Pty Ltd3 PRINCIPAL PLACE OF BUSINESS OWNERSHIP INTEREST 2023 2022 Australia Australia United Kingdom Australia 100% 100% 100% 100% 100% 100% 1 Medipass Solutions Pty Ltd has changed its name to Tyro Health Pty Ltd on 27 July 2023. 2 Medipass Solutions Ltd was lodged for strike off on 28 June 2023. Tyro Payments (Ben Alliance) Pty Ltd was lodged for deregistration on 4 July 2023. 3 21. Earnings per share Basic loss per share shows the loss attributable to each ordinary share. It is calculated as the net loss attributable to ordinary shareholders divided by the weighted average number of ordinary shares in each year. Diluted loss per share shows the loss attributable to each ordinary share if all the dilutive potential ordinary shares had been ordinary shares. There are no discontinued operations of the Group. Earnings Net profit/(loss) attributable to ordinary shareholders used to calculate basic and diluted earnings per share 2023 $000 6,013 2023 NUMBER 2022 $000 (29,617) 2022 NUMBER Weighted average number of ordinary shares used in calculating basic earnings per share 519,211,261 515,660,709 Weighted average number of potentially dilutive ordinary shares 535,823,484 542,333,850 Basic Diluted For the year ended 30 June 2022 Diluted EPS is consistent with basic EPS due to the Group currently generating negative earnings. 2023 CENTS 1.16 1.12 2022 CENTS (5.74) (5.74) 144 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 22. Auditor’s remuneration Fees in respect of the role of the appointed auditor Audit and review of the financial reports1 Fees for other non-assurance services Tax compliance Other assistance and services 2023 2022 440,000 415,000 - 21,500 17,000 - 461,500 432,000 1 This includes fees in the capacity as the appointed auditor under APRA’s APS 310 Audit and Audit Related Matters. The Directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are of the opinion that the services disclosed above do not compromise the external auditor’s independence for the following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Group, acting as an advocate for the Group or jointly sharing economic risks and rewards. 23. Related party disclosures (a) Compensation of Key Management Personnel The amounts disclosed in the table are the amounts recognised as an expense during the financial year related to the following Key Management Personnel. DIRECTORS David Thodey1 Fiona Pak-Poy2 Robbie Cooke3 David Fite Claire Hatton Aliza Knox Paul Rickard Shefali Roy EXECUTIVES Robbie Cooke3 Jonathan Davey Steve Chapman TITLE Chair and Non-executive Director Chair and Non-executive Director Chief Executive Officer and Managing Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director TITLE Chief Executive Officer and Managing Director Chief Executive Officer Chief Risk Officer Praveenesh Pala Chief Financial Officer 1 2 3 Resigned as Chair and Non-executive Director on 1 March 2023 Elected as Chair on 1 March 2023 Resigned as Chief Executive Officer and Managing Director on 3 October 2022 APPOINTED 16 November 2018 4 September 2019 18 October 2019 3 July 2018 5 January 2022 21 April 2021 28 August 2009 5 January 2022 APPOINTED 23 March 2018 3 October 2022 11 June 2021 20 October 2014 145 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT 23. Related party disclosures (continued) (a) Compensation of Key Management Personnel (continued) Compensation of Key Management Personnel Short-term benefits Post employment benefits Termination Benefits Long-term benefits (long service leave) Share-based payments1 Total 2023 2022 3,032,583 3,062,298 141,711 222,760 15,552 123,609 - 55,450 2,770,675 (482,733) 6,183,281 2,758,624 1 The negative accounting value mainly relates to management’s judgement that the FY19 LTI Option Plan only has a certain percentage probability of vesting. As such, a proportion of the prior year share-based payments expense for these options was reversed. Interests held by Key Management Personnel Share options and rights held by Key Management Personnel to purchase ordinary shares have the following expiry dates and exercise prices. ISSUE YEAR EXPIRY YEAR EXERCISE PRICE ($) 2023 NUMBER OUTSTANDING 2022 NUMBER OUTSTANDING FY15/16 FY16/17 FY17/18 FY18/19 FY18/19 FY18/19 FY18/19 FY19/20 FY20/21 FY20/21 FY21/22 FY21/22 FY21/22 FY21/22 FY22/23 FY22/23 FY22/23 FY22/23 FY23/24 FY23/24 FY24/25 FY24/25 FY25/26 FY28/29 FY26/27 No expiry date FY32/33 No expiry date FY33/34 No expiry date FY33/34 FY34/35 No expiry date FY32/33 $0.600 $1.490 $1.760 $0.000 $1.760 $1.500 $0.000 $1.790 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 - 159,401 375,000 57,144 - 982,318 - 802,827 66,801 2,159 141,126 18,357 297,619 297,619 75,428 1,642,734 750,000 21,505 159,401 375,000 480,953 1,818,180 2,618,131 800,000 2,540,412 234,302 76,192 535,833 46,893 - - - - - During the year, 2,468,162 rights were granted to Key Management Personnel (2022: 582,726). 146 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 24. Parent entity disclosures As at, and throughout the financial year ended 30 June 2023, the parent entity of the Group was Tyro Payments Limited. Result of parent entity Profit/(loss) for the year Other comprehensive income/(loss) Total comprehensive income/(loss) for the year Financial position of parent entity at year end Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Total equity of parent entity comprising of: Contributed equity Reserves Accumulated losses Total equity 2023 $000 6,650 282 6,932 148,641 283,791 432,432 146,096 106,462 252,558 179,874 279,422 59,320 2022 $000 (28,197) (1,008) (29,205) 122,152 288,846 410,998 132,484 117,361 249,845 161,153 278,798 47,085 (158,868) (164,730) 179,874 161,153 25. Contingent Liabilities In relation to the terminal connectivity issue in January 2021, a class action proceeding was filed against Tyro in October 2021 in the Federal Court of Australia on behalf of impacted customers. In February 2023, following a Court-ordered mediation, Tyro entered into a Settlement Deed relating to an in-principle settlement of the class action proceeding. On 19 May 2023, the Federal Court of Australia approved the settlement of the class action and on 19 June 2023, the court dismissed the proceedings (such dismissal being a bar of any future claim or proceeding except for any merchants that opted out of the proceedings). As at 30 June 2023, Tyro recognised a class action settlement payable of $5,000,000 (being the agreed settlement amount) (Note 15) which is to be paid by Tyro’s insurer (Note 6). As a result, no contingent liability remains at 30 June 2023. Tyro is also expected to recover $820,000 in costs relating to the terminal connectivity issue in January 2021 (Note 2). On 7 August 2023, the appeals period for the orders dismissing the class action lapsed. 26. Matters subsequent to the end of the financial year On 4 July 2023 Tyro Payments (Ben Alliance) Pty Ltd was lodged for deregistration. On 27 July 2023 Medipass Solutions Pty Ltd legally changed its name to Tyro Health Pty Ltd. On 7 August 2023, the appeals period for the orders dismissing the class action relating to the January 2021 terminal connectivity issue lapsed. On 21 August 2023, the settlement amount was paid by the Group’s insurer. In the opinion of the Directors, other than the two matters noted above, there have been no matters or circumstances which have arisen between 30 June 2023 and the date of this report that have significantly affected or may significantly affect the operations of the Group, the result of those operations or the state of affairs of the Group in subsequent financial years. 147 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT Directors’ Declaration In the opinion of the Directors: (a) the Consolidated Financial Statements and Notes of the Group set out on pages 101 to 147: (i) comply with the Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) give a true and fair view of the Group’s financial position as at 30 June 2023 and its performance for the financial year ended on that date. (b) there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable; (c) the remuneration disclosures set out in the Directors’ Report comply with Accounting Standard AASB 124 Related Party Disclosures and the Corporations Regulations 2001; and (d) the Financial Statements and Notes also comply with International Financial Reporting Standards as disclosed in the Financial Statements. The Directors have been given the declarations by the CEO and Chief Financial Officer required by Section 295A of the Corporations Act 2001. The declaration is made in accordance with a resolution of the Directors. Fiona Pak-Poy Chair Sydney, 29 August 2023 Paul Rickard Non-executive Director 148 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Independent auditor’s report to the members of Tyro Payments Limited Report on the audit of the financial report Opinion We have audited the financial report of Tyro Payments Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2023, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a. Giving a true and fair view of the consolidated financial position of the Group as at 30 June 2023 and of its consolidated financial performance for the year ended on that date; and b. Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 149 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT Page 2 Valuation of contingent consideration Why significant How our audit addressed the key audit matter As detailed in Note 1(c) of the financial report, the Group has a long-term merchant acquiring alliance with Bendigo and Adelaide Bank Limited. The consideration under the alliance contract included a contingent component based on future revenue that is recorded as a liability. The contingent consideration is required to be re-measured at each reporting date to reflect the Group’s estimate of the amount of further consideration it expects to pay. Given the value of the contingent consideration liability recorded and the judgement involved in measuring the liability, this was considered to be a key audit matter. Our audit procedures included the following: • Read relevant agreements to obtain an understanding of the key terms. • Evaluated, with the involvement of our valuation experts, the methodology used by the Group to determine the value of the contingent consideration at reporting date, the underlying assumptions and estimates applied, and the mathematical accuracy of the supporting calculations. • We considered the consistency of judgements and assumptions made with respect to other accounting estimates and models. • Evaluated the financial performance of the alliance against forecasts on which the valuation of the contingent consideration is based. • Assessed the adequacy of the related disclosures within the financial report regarding the contingent consideration. Recoverability of deferred tax assets Why significant How our audit addressed the key audit matter The financial statements include $16.5 million of deferred tax assets. The assessment of their recoverability was subject to significant judgements made by the Group in forecasting future taxable profits and determining the availability and expected timing of utilising the deferred tax assets against future taxable income in accordance with tax legislation. The judgements involve expected business growth which is dependent upon market and economic conditions and the ability of the Group to generate sufficient future taxable profits. Accordingly, this was considered to be a key audit matter. Our audit procedures included the following: • Assessed the mathematical accuracy of the Group’s deferred tax asset utilisation model. • Agreed the amount of unused tax benefits carried forward as deferred tax assets to prior period lodged income tax returns. • Evaluated the Group’s assumptions and estimates in relation to the likelihood of generating sufficient future taxable income based on most recent Board approved forecasts, prepared by the Group, principally by performing sensitivity analyses and evaluating and testing the key assumptions used to determine the amounts recognised. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 150 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 Page 3 Why significant How our audit addressed the key audit matter Disclosures relating to deferred tax assets are set out in in Notes 1(c) and 4. • Considered the consistency of judgements and assumptions made with respect to other accounting estimates and models. • Assessed the historical accuracy of the Group’s previous future taxable profit forecasts by comparing to actual outcomes. • Involved our taxation specialists in reviewing the Group’s assessment of their ability to utilise carry forward tax losses in accordance with income tax legislation. Revenue recognition – merchant service fees Why significant How our audit addressed the key audit matter As detailed in Note 2 of the financial report, the Group generated $379.1 million in revenue from merchant service fees for the year ended 30 June 2023. Given the importance of revenue to the users of the financial report, specifically as a key performance indicator for the Group and a key metric for senior management of the Group, this was considered to be a key audit matter. Our audit procedures included the following: • Understood the Group’s revenue accounting and assessed whether the Group’s accounting policies complied with the requirements of Australian Accounting Standards. • Assessed the operating effectiveness of key controls over the recognition and measurement of revenue. • For a sample of merchant service fee revenue transactions, we obtained supporting evidence such as customer contracts and transaction records to support the timing and value of revenue recognised. • Analysed accounting entries impacting revenue that did not arise from the system- generated reporting of underlying transactions. IT systems and controls over financial reporting Why significant How our audit addressed the key audit matter The Group’s operations and financial reporting systems are heavily dependent on IT systems, including automated accounting procedures and IT dependent manual controls. The Group’s controls over IT systems include: Our procedures included evaluating and testing the design and operating effectiveness of certain controls over the continued integrity of the IT systems that are relevant to financial reporting. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 151 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT Page 4 • The framework of governance over IT systems; • Controls over program development and changes; • Controls over access to programs, data and IT operations; and • Governance over generic and privileged user accounts. Given the reliance on the IT systems in the financial reporting process, we considered this to be a key audit matter. We also carried out specific tests, on a sample basis, of system functionality that was key to our audit approach in order to assess the accuracy of certain system calculations, the generation of certain reports and the operation of certain system enforced access controls. Our IT specialists were involved in performing these procedures. Where we noted design or operating effectiveness matters relating to IT system controls relevant to our audit, we performed alternative audit procedures. We also considered mitigating controls in order to respond to the impact on our overall audit approach. Carrying value of goodwill Why significant How our audit addressed the key audit matter As detailed in Note 12, the Group recorded $13.7 million in goodwill as at 30 June 2023. Goodwill is tested annually for impairment and requires the Group to estimate the recoverable amount of the relevant cash-generating unit (CGU) to be determined. The key inputs and judgements involved in the impairment assessment includes: • Determination of CGUs; • Discount rates, terminal growth rates and revenue and expense assumptions used in the discounted cashflow models; and • Considering the sensitivity of the impairment assessment to reasonable possible changes in key assumptions. Given the high degree of judgement and complexity in assessing the carrying value of goodwill, we considered this to be a key audit matter. Our audit procedures included the following: • Assessed the Group’s determination of CGUs used in the impairment model, based on our understanding of the nature of the Group’s business and the economic environment in which it operates. • Understood and evaluated the Group’s process for performing goodwill impairment assessments and the determination of any asset impairment outcomes. • We involved our valuation specialists to assist in assessing the appropriateness of the impairment models including key inputs into the models such as the discount rates and growth rates. • We tested the mathematical accuracy of the impairment models. • We assessed whether cash flow forecasts incorporated in the impairment assessment were consistent with Board approved forecasts. • We assessed the Group’s sensitivity analysis and evaluated whether any reasonably foreseeable change in assumptions could lead to an impairment. • We assessed the adequacy of the disclosures in Note 12 of the financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 152 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 Page 5 Information other than the financial report and auditor’s report thereon The directors are responsible for the other information. The other information comprises the information included in the Group’s 2023 annual report, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: ► Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. ► Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 153 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT Page 6 ► Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. ► Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. ► Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. ► Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the audit of the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 53 to 87 of the directors’ report for the year ended 30 June 2023. In our opinion, the Remuneration Report of Tyro Payments Limited for the year ended 30 June 2023, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 154 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023Page 7 responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young Michael Byrne Partner Sydney 29 August 2023 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 155 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023FINANCIAL REPORT 156 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023Other Information 157 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023OTHER INFORMATIONl r e d o h e r a h S n o i t a m r o f n I The shareholder information set out below is based on the information recorded in the Tyro Payments Limited share register as at 15 August 2023. Ordinary Shares Tyro has on issue 521,767,011 fully paid ordinary shares. Voting Rights The voting rights attaching to each class of equity securities are set out below: a. Ordinary shares – On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. b. Options and rights – No voting rights. Substantial Shareholders The following is a summary of the current substantial shareholders pursuant to notices lodged with the ASX in accordance with section 671B of the Corporations Act: NAME Regal Funds Management Pty Ltd and its associates DATE OF INTEREST NUMBER OF ORDINARY SHARES1 % OF ISSUED CAPITAL2 13 July 2023 38,444,222 7.38% 1. 2. As disclosed in the last notice lodged with the ASX by the substantial shareholder. The percentage set out in the notice lodged with the ASX is based on the total issued share capital of Tyro at the date of interest. On Market Buy-Back There is no current on-market buy-back in respect of Tyro’s ordinary shares. Distribution of Securities Held Analysis of number of ordinary shareholders by size of holding: RANGE ORDINARY SHARES1 % NO. OF HOLDERS 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total 415,487,515 68,036,652 18,342,394 16,661,636 3,238,814 79.63 13.04 3.52 3.19 0.62 213 2,517 2,424 6,409 6,557 % 1.18 13.89 13.38 35.37 36.19 521,767,011 100.00 18,120 100.00 Unmarketable Parcels 0 0.00 0 0.00 1. Ordinary shares include shares offered to employees under the Company’s incentive arrangements. There were no holders of less than a marketable parcel of ordinary shares. 158 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023 Top 20 Largest Shareholders The names of the 20 largest quoted equity security holders as they appear on the Tyro share register at 15 August 2023 are listed below: NAME NUMBER OF SHARES % OF TOTAL SHARES 1 2 3 4 CITICORP NOMINEES PTY LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NATIONAL NOMINEES LIMITED 5 MS DANITA RAE LOWES 6 7 8 9 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 INVIA CUSTODIAN PTY LIMITED PACIFIC CUSTODIANS PTY LIMITED JASGO NOMINEES PTY LTD 10 HANS-JOSEF JOST STOLLMANN 11 UBS NOMINEES PTY LTD 12 WASHINGTON H SOUL PATTINSON AND COMPANY LIMITED 13 BNP PARIBAS NOMS PTY LTD 14 JH 7 PROPERTIES PTY LTD 15 SOPHIA-KONSTANTINA FIONA STOLLMANN 16 BNP PARIBAS NOMS(NZ) LTD 17 MR KENNETH JOSEPH HALL 18 EUCLID CAPITAL PARTNERS LLC 19 BNP PARIBAS NOMS PTY LTD 20 SANDINI PTY LTD Total 84,820,610 72,469,700 71,542,666 19,519,806 19,028,582 17,908,875 11,475,000 5,101,218 5,060,726 4,659,442 4,526,822 4,500,000 4,089,669 3,272,728 3,261,237 2,651,424 2,500,000 2,425,000 2,279,202 2,022,702 16.3 13.9 13.7 3.7 3.6 3.4 2.2 1.0 1.0 0.9 0.9 0.9 0.8 0.6 0.6 0.5 0.5 0.5 0.4 0.4 343,115,409 65.8 159 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023OTHER INFORMATIONDomicile of Ordinary Shareholders1 DOMICILE Australia Australia Capital Territory New South Wales Northern Territory Queensland South Australia Tasmania Victoria Western Australia Overseas Total 1 As at 31 July 2023. NUMBER OF SHARES % NUMBER OF HOLDERS 520,053,073 1,849,669 332,679,490 264,094 21,253,411 8,226,446 1,107,329 141,752,205 12,920,429 1,713,938 99.7 0.4 63.8 0.1 4.1 1.6 0.2 27.2 2.5 0.3 18,009 319 8,452 71 2,639 1,097 202 4,022 1,207 180 % 99.0 1.8 46.5 0.4 14.5 6.0 1.1 22.1 6.6 1.0 521,767,011 100.00 18,189 100.00 Unquoted Equity Securities Performance rights in respect of ordinary shares issued under the Tyro STI and LTI Rights Plans, the Tyro Remuneration Sacrifice Rights Plan and the Liquidity Event Performance Rights Plan Options in respect of ordinary shares issued under the Tyro Options Plans NUMBER ON ISSUE 11,817,486 9,028,113 Go Online to Manage Your Shareholding Online share registry facility Tyro offers shareholders the use of an online share registry facility through www.linkmarketservices.com.au or https://investorcentre.linkmarketservices.com.au/ to conduct standard shareholding enquiries and transactions, including: lodge or update banking details; • update registered address; • • notify Tax File Number / Australian Business Number; • check current and previous shareholding balances; and • appoint a proxy to vote at the Annual General Meeting. 160 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023e t a r o p r o C y r o t c e r i D Directors Fiona Pak-Poy - Non-executive Director & Chair of the Board David Fite – Non-executive Director Claire Hatton – Non-executive Director & Chair of People Committee Aliza Knox – Non-executive Director Shefali Roy - Non-executive Director Paul Rickard – Non-executive Director & Chair of Audit Committee and Risk Committee Registered and Principal Administrative Office in Australia Tyro Payments Limited 18/55 Market Street Sydney, NSW, 2000, Australia Telephone: 1300 966 639 ABN: 49 103 575 042 Website Address www.tyro.com Special Counsel and Company Secretary Jairan Amigh email: jamigh@tyro.com Investor Relations Giovanni Rizzo email: grizzo@tyro.com Media Gemma Garkut email: ggarkut@tyro.com Auditor E&Y Australia 200 George Street Sydney, NSW, 2000, Australia Share Registry Link Market Services Pty Limited Level 12, 680 George Street Sydney, NSW, 2000, Australia https://investors.tyro.com/investor-centre/ email: registrars@linkmarketservices.com.au Australian Securities Exchange (ASX) Listing Tyro Payments Limited shares are listed on the ASX under the code TYR. Director Profiles Refer to profiles on pages 91 to 94. Executive Leadership Team Refer to profiles on pages 95 to 97. Telephone within Australia: 1300 554 474 Telephone outside Australia: +61 1300 554 474 Fax: +61 2 9287 0303 To maintain or update your details online and enjoy full access to all your holdings and other valuable information, simply visit https:// investorcentre.linkmarketservices.com.au. Tyro ASX Announcements Details of all announcements released by Tyro Payments Limited can be found on our Investors page at https://investors.tyro.com/ investor-centre/ 161 TYRO PAYMENTS LIMITED - ANNUAL REPORT 2023OTHER INFORMATION www.tyro.com

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