Afterpay October Business and Funding Update

Transcription

1 Afterpay October 20 Business and Funding Update

2 Disclaimer This presentation has been prepared by Afterpay Holdings Limited ( Afterpay ). It is not a prospectus, disclosure document or other offering document. It does not constitute or form part of, and should not be considered to constitute or form part of, any offer, invitation or recommendation to subscribe for or purchase any securities in Afterpay or as an inducement to make an offer or invitation with respect to those securities in any jurisdiction in which it would be unlawful. No agreement to subscribe for shares in Afterpay will be entered into on the basis of this presentation. This presentation contains forward-looking statements that are not based on historical fact, including those identified by the use of forward-looking terminology containing such words as believes, may, will, estimates, continue, anticipates, intends, expects, should, schedule, program, potential or the negatives thereof and words of similar import. These forward-looking statements are subject to risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied by the statements. None of Afterpay nor its respective officers, shareholders, related bodies corporate, affiliates, employees, representatives and advisers make any representation, warranty (express or implied), or assurance as to the completeness or accuracy of these forward-looking statements and, accordingly, expresses no opinion or any other form of assurance regarding them. Afterpay will not necessarily publish updates or revisions of these forward-looking statements to reflect Afterpay s circumstances after the date of this presentation. Afterpay hereby excludes all warranties, whether as to the past or the future, that can be excluded by law. There are a number of risks, both specific to Afterpay and of a general nature which may affect the future operating and financial performance of Afterpay and the value of an investment in Afterpay including and not limited to economic conditions, stock market fluctuations, timing of approvals from relevant authorities, regulatory risks, operational risks, reliance on key personnel and foreign currency fluctuations. This presentation has been prepared for general information purposes only and does not purport to be all inclusive or to contain all information which you may require in order to make an informed assessment of Afterpay s prospects. It contains general background information about Afterpay and its activities current as at the date of the presentation. The information in this presentation is in summary form only and does not contain all the information necessary to fully evaluate any transaction or investment. You should conduct your own investigation, perform your own analysis, and seek your own advice from your professional adviser before making any investment decision. The presentation does not form the basis of any contract or commitment nor will it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment or investment decisions relating thereto, nor does it constitute a recommendation regarding the shares of Afterpay. Past performance cannot be relied upon as a guide to future performance. Images used in this presentation which do not have descriptions are for illustration purposes only and should not be interpreted to mean that any person shown endorses the document or its contents or that the assets shown in them are owned by Afterpay. Diagrams used in this presentation are illustrative only and may not be drawn to scale. References are made in this presentation to entities that have certain dealings with Afterpay, including counterparties to contractual arrangements referred to in this presentation. These parties have been referred to for information purposes only. Those entities did not authorise or cause the issue of this document and have had no involvement in the preparation of any part of this presentation. To the maximum extent permitted by law, Afterpay and its advisors disclaim all liability for any expenses, losses, damages or costs incurred by you as a result of your participation in the offer described in this presentation and the information in this presentation being inaccurate or incomplete. Afterpay makes no representation or warranty, express or implied, as to the currency, accuracy, reliability or completeness of the information in this presentation. The information in this presentation remains subject to change without notice. All persons should consider seeking appropriate professional advice in reviewing the presentation and Afterpay. 2

3 Introduction 3

4 Introduction Afterpay has continued to experience strong growth and performance in relation to all key operating metrics in the first quarter of FY17 Afterpay's recently on-boarded and pipeline of integrating new retail merchants is substantial Afterpay is well progressed in discussions with a major Australian domestic bank for the provision of a receivables funding facility which remains subject to final documentation. Should the funding arrangements proceed, it will provide Afterpay with a highly efficient funding model, from both a structural and transaction cost basis. Afterpay is aiming to have the facility operational prior to the end of 1H FY17 with an initial facility of $20m Opportunities to expand the Afterpay product into new verticals and international markets have become more apparent given Afterpay's developing capabilities and network of retailers and customers In light of the above developments, Afterpay has successfully completed an equity capital raising of.0m shares at $2.40 per share to raise A$36.0m > Will place Afterpay in a strong position to build and consolidate the considerable momentum achieved to date > Will allow Afterpay to support a significantly larger underlying sales opportunity (as highlighted by its current pipeline) as it implements its initial bank funding facility during the course of FY17 4

5 Q1 FY17 Business Update 5

6 Q1 FY17 Business Update 1 Continued strong growth in relation to all key operating metrics 2 Over $40m in underlying sales in Q1 FY17 ($37m in FY as a whole) 3 Afterpay merchant fees increasing at a faster rate than underlying sales 4 Currently, over 900 merchants 5 Currently, over 190,000 6 now integrated with Afterpay unique end-customers (over 180% increase since 30 June) have now used Afterpay (>90% increase since 30 June) High returning customer rates (~70% up from 65% in Q4 FY) 7 Transaction integrity capability improving with net transaction loss of less than 1% in Q1 FY17 (in line with FY) 8 Continued innovation with successful in-store rollout with Cue, Veronika Maine, Topshop, Topman and General Pants 9 Significant recent and strong pipeline of on-boarding retailers (not reflected in Q1 FY17 underlying sales) 6

7 Key Operating Metrics - Q1 FY17 Summary Operating Metric %Increase (Unaudited) Number of integrated retail merchant clients 6% (increase from end of FY to end of Q1 FY17) Underlying merchant sales 95% (Q1 FY17 total versus Q4 FY total) Afterpay merchant fees 108% (Q1 FY17 total versus Q4 FY total) Unique Afterpay end-customers 83% (increase from end of Q4 FY to end of Q1 FY17) 7

8 Underlying Sales and Revenue Growth Underlying Quarterly Sales ($m) Underlying sales, merchant margin and merchant revenue grew strongly in Q1 FY17 $45 $40 $35 $30 $25 > Q1 FY17 underlying sales of $41.9m (unaudited) - Underlying sales of $37.3m in FY as a whole - Q1 FY17 Afterpay merchant fee revenue of $1.7m (unaudited) > Merchant concentration reduced as the number of new merchants increases > SMB reverse enquiry, integrations increasing since year-end > Average merchant fees increasing as the merchant portfolio mix continues to diversify $1800 $00 $1400 $1200 $1000 $800 $20 $ $10 $5 $0 Q1 FY Q2 FY Q3 FY Q4 FY Q1 FY17 Afterpay Quarterly Revenue ($ 000) $600 $400 $200 $0 Q1 FY Q2 FY Q3 FY Q4 FY Q1 FY17 8

9 Growing Customer Base with Strong Returning Customer Rates End-Customer Statistics at End of Q1 FY17 ~180,000 Unique End-Customers are Transacting Regularly 1 ~180,000 unique Afterpay end-customers 200, , ~80,000+ new end-customers over past 3 months ~70% return end-customer rate over past 3 months 0, , , ,000 80,000 60,000 ~190,000 current unique customers (up >90% post 30 June) 40, % of end-customers have shopped across 2 or more Afterpay retailers 20,000 - AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP Strong Returning End-Customer Rates Returning End-Customers - % of Total Orders 120, ,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 - AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP 80% 70% 60% 50% 40% 30% 20% 10% 0% - AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP New end-customer orders Returning end-customer orders 9

10 Focus on Customer and Retail Analytics Transaction integrity capability enhanced as new and repeat customer transaction volumes grow Strong Net Transaction Margin and Net Transaction Loss performance achieved in FY has continued into Q1 FY17 Afterpay will continue to invest in end-customer and retail data analytics Based on our experience to date, majority of Afterpay end-customers prefer to utilise their own funds through a debit card (approximately 85%) > This is in line with general market trends and millennial demographic online purchasing behavior > Afterpay will continue to develop innovative solutions to enhance bank account linked functionality during the course of FY17 10

11 Significant Recently On-Boarded + Pipeline of Leading Retailers Afterpay has had continued success in on-boarding Australia's leading retail brands in Q1 FY17 Very recently integrated retailers, together with the pipeline of contracted and currently integrating retailers, represents an underlying sales and physical retail store base that is as large as Afterpay's current footprint Afterpay remains focused on delivering strong growth and becoming the preferred 'buy now, pay later' payment solution to both Australian retailers and consumers Retailers and key brands that have recently integrated or are in the process of integrating include the following: TOPSHOP TOYS R US BEST & LESS COTTON ON STRANDBAGS THE ICONIC SPORTSCRAFT SHOWPO HYPE DC MERRELL MJ BALE BETTS JAG JETS GUESS TAROCASH PEPPER MAYO YD TIGER MIST SABA 11

12 Bank Funding Update 12

13 Bank Funding Update Afterpay is well progressed in discussions with a major Australian domestic bank for the provision of an initial $20 million receivables funding facility (Bank Facility) Bank Facility will provide Afterpay with a highly efficient funding model, from both a structural and transaction cost basis It is intended that the Bank Facility will be operational prior to the end of 1H FY17 The Bank Facility is subject to, amongst other things, the execution of transaction documentation satisfactory to both parties The initial Bank Facility is intended to compliment Afterpay's equity capital base employed to facilitate payment receivables growth. As at 30 September 20, Afterpay had cash at bank and end-customer receivables balances of approximately $13.8m and $13.7m respectively (unaudited) 13

14 Capital Raising 14

15 Capital Raising Afterpay has completed an equity capital raising of A$36.0 million > Placement of.0m ordinary shares at $2.40 per share Rationale Support Larger Underlying Sales Opportunity > Afterpay s strong growth profile has continued to accelerate post IPO > Expectation of increasing underlying sales, as highlighted by current pipeline > In tandem with initial bank funding facility, additional equity will support a much larger underlying sales opportunity Support Other Business Development Opportunities > Opportunity to expand into potential new online verticals and international markets has become more apparent Use of funds > The new capital will provide Afterpay with increased funding and working capital to execute its growth objectives and achieve its strategic initiatives over the near term

16 Offer Details & Timetable Offer Details Total shares currently on issue 5,000,000 Includes escrowed shares: Until May ,000,000 Until March ,000,000 Number of shares to be issued under Offer,000,000 Offer price per share $2.40 Total amount to be raised under Offer (before costs) $36,000,000 Total number of shares on issue post Offer 180,000,000 Events Indicative Date (20) Trading halt Placement Offer bookbuild (open and close) Trading halt lifted Settlement of Placement Offer Issue of Placement Offer Shares 17 October 17 October 18 October 25 October 26 October

17 About Afterpay 17

18 Our Purpose Its simple We believe in evolving the retail status quo to provide customers a better way to shop. With the customer sitting at the core of our offering, we ve introduced a simple payment model that favours the customer whilst maintaining a true win-win for our retail partners. Life doesn t wait #afterpayit 18

19 What Does Afterpay Do? 1 2 Afterpay integrates directly into merchant web sites and retail environments Retailers, at their discretion, offer products to end-customers with a separate, Afterpay branded, Buy Now, Receive Now, Pay Later offer 3 The Afterpay Buy Now, Receive Now, Pay Later offer is very simple: > End-customers pay the original purchase price (and no more) in four fortnightly instalments (unless late fees apply) > Afterpay does not charge customers any interest, establishment or monthly fees > End-customers become Afterpay's customers (direct contractual relationship) > Afterpay facilitates product returns and customer service. 4 5 Afterpay then settles with merchants upfront (less Afterpay fee) Afterpay retrieves funds from end-customers through an automated end-to-end process Purchase Shipment Settlement Payment End-customer selects Afterpay at checkout Purchase shipped to returning customer with no payment Afterpay settles funds with merchant upfront End-customer pays directly to Afterpay in 4 instalments 19

20 Afterpay is "Bundled" with a Retailer's Product It is a Value-Added Service; Not a Payment Option Integrated Afterpay Value-Added Service 20

21 Afterpay is Genuinely Customer Centric We have shifted the economics in the customer s favour by earning our revenue primarily from the retailer, not the end-customer. 1 We are aligned with customers to pay on time and in full we only benefit from repeat, completed purchases rather than interest or service fees on outstanding customer balances 2 We promote purchasing responsibly through our technology, our processes and our people > Real time Transaction Integrity process applied to every Afterpay Transaction > A customer is unable to make a repeat purchase if they have any amounts overdue on their account > Transaction velocity limits ensure end-customers do not over extend themselves > Low average transaction values, short instalment plans (max 56 days) 3 Proactive and collaborative communication strategy to help customers pay on time > Reminders, alerts, transparency around late fees, automated payments 4 We do not sell a finance product following a customer acquisition or at any time > The customer only pays the original purchase price (unless late fees apply) Effectiveness of Afterpay's approach is evidenced through its low Net Transaction Loss (NTL) experience (0.9% of underlying sales in FY) 21

22 Afterpay is a Valuable "Lay-By" Replacement Service Fully Integrated Online and Physical Store Applications Cue Online Cue In-store 22

23 Partnered with the Leading Australian Retail Brands Afterpay has grown its merchant partnerships to over 900 retailers including many of Australia s household brands. NOW OVER A&erpay Merchants RETAILERS Afterpay is receiving strong demand from retailers requesting to integrate. Recent brand additions include: ToysRUs Spell Designs Topshop Marcs Showpo David Lawrence Jeanswest Dissh Peppermayo Splice Boutique Hype DC The Next Pair Tiger Mist Jets 23

24 Driving Brand Loyalty We aren t just changing how people buy, we are changing how people shop Currently, over 190,000 unique end- customers Currently, over 750k Visits to Afterpay shop directory in the last 30 days 70%+ of purchases in Q1 FY17 were made by returning endcustomers 24

25 Delivering Material Results for Retailers Some illustrative results... Average Order Value Conversion Rate Total Online Sales +22% +26% +21% +25% +34% +32% +% +20% +20% NOTE RESULTS PROVIDED BY RETAILER AND TIME FRAME IS SINCE AFTERPAY LAUNCHED ON RETAILER WEBSITE UNTIL AUGUST

26 Continued Innovation - Afterpay In-store We focus on delivering enterprise technology innovation with leading retail customer experiences. As outlined in the prospectus, a key focus was the in-store point of sale integration product aimed at replacing or providing a better alternative to lay-by. Afterpay s online partners have a store network of over 1,000 stores and we maintain a strong pipeline of partners currently piloting and scoping an integration of the Afterpay in-store solution. We have successfully rolled out the technical solution to over 0 stores through Cue Clothing, Veronika Maine, Dion Lee, Topshop, General Pants and are closely partnering with all brands on experience optimisation. We have a patent pending for the in-store instalment payment system. 26

27 Afterpay Business Model Overview Afterpay experienced positive and improving net transaction margins throughout FY and Q1 FY17: Transaction Profitability (per transaction, pre-overheads) Merchant Fee - Transaction Processing Costs - Transaction Funding Finance Costs - Net Transaction Losses = Net Transaction Margin > Increasing as Merchant mix develops > Favoured-nation pricing from Touchcorp > Current average funding duration is <30 days (equity funded to date) > Unrecovered late payments less late fees > Improving with transaction history and increasing returning customer mix +Net Transaction Margin Increasing transaction volumes Increasing Afterpay earnings (pre-overheads) 27

28 Continual Improvement Through Scaled Data Analytics Integral to Afterpay System is its fraud detection and repayment capability assessment technology Individual repayment capability scoring and rules are dynamic, continuously updating in a data driven, self learning transaction history environment Multiple transaction characteristics assessed in real-time Automated decision making based on transaction history Continual rules-based optimisation Progress reflected in improving Net Transaction Loss performance in FY 28

29 High Return on Capital Employed Objective Merchant paid upfront 1 Multiple payment cycles per annum (>12x) <30 days (average duration) 2 Recycled capital supports large volume of annualised underlying sales 3 Recycled capital at positive net transaction margin creates high ROCE Payments collected from customers 4 Intention to introduce receivables financing facility to further benefit ROE 29

30 Strategic Path Focus to remain on existing short duration product (steps 1 and 2) Core business focus Longer term opportunities STEP 1 STEP 2 STEP 3 STEP 4 E-commerce payments facilitation Omni-channel (online + in-store) International expansion Longer duration instalments SIMPLE BUY NOW PAY LATER PHYSICAL / IN STORE RETAIL NEW MARKETS INTRODUCE EXTENDED PAY BY PRODUCT APPLICATION INSTALMENT PRODUCT > Simple service to both end- > Afterpay service and > Afterpay system/touchcorp > Longer-term, instalment customers and merchants functionality in physical as relationship exportable product > Net transaction margin well as online environments > Assessing local partner > Greater end-customer positive > Allow merchants to partially opportunities flexibility > Large addressable market or wholly do away with traditional lay-by services > Selectively offered to Afterpay end-customers > Leverage Touchcorp's deep point of sale experience > Possible licensing requirement (Australian Credit Licence granted August 20) 30

31 Contact Details Investors: Nick Molnar Managing Director Company: Sophie Karzis Company Secretary Media: Fleur Brown Director