11:45 Tue 28 Jul 2020
Network Intnl Hldgs - Proposed acquisition of DPO Group
THIS ANNOUNCEMENT, INCLUDING THE APPENDICES AND THE INFORMATION IN THEM, IS RESTRICTED AND IS NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
Network International Holdings PLC Press Release,
Accelerating our growth in
DPO is the largest online commerce platform operating at scale across Africa
· Rapid growth profile with revenue CAGR of c.40% from 2017-2019 and Total Processed Volume ("TPV") CAGR of c.30% from 2017-2019. Revenues of
· Leading e-commerce and mobile money services for >47,000 merchants across high quality brands
· Present in 19 countries across Africa with
Strong strategic fit and growth accelerator for
· Market: consolidates and accelerates our presence in
· Distribution and relationships: brings direct merchant and Mobile Network Operator ("MNO") relationships, broadening our business in
· Capabilities and innovation: widens our capabilities and exposure in fast growing online payments and mobile money, enabling merchants to accept a wide range of payments methods
· Cross selling opportunities: combined incremental capabilities and solutions provide significant cross-sell opportunities to both
· Disciplined capital allocation: acquisition expected to be broadly EPS neutral in 2022, including integration costs. Double digit ROCE within 3-4 years, and significantly higher thereafter
DPO has seen strong current trading, following Covid-19 lockdowns
· Digital and online payments market in
· E-commerce penetration in
· Following stringent lockdowns in DPO's main market of
· DPO signed c.4,400 merchants in
· TPV growth year-on-year was 27% in May (57% in constant FX) and 27% in June (49% in constant FX)
Financing and structure
· DPO Co-Founders incentivised and aligned through rollover of
· Acquisition consideration to be almost entirely financed through proceeds from a 10% equity placing,
· Completion of the Transaction is expected in Q4 2020, subject to customary closing conditions including regulatory and anti-trust
"We are excited by the proposed acquisition of DPO, the leading high-growth online commerce platform operating at scale across Africa. Africa is a vast and diverse continent, representing the world's most underpenetrated, nascent and fast growing payments markets, where we have seen recent signs of an acceleration in those trends. DPO will further consolidate our presence in
Enquiries
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Evercore - Financial Adviser |
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Anil Rachwani, |
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J.P. Morgan Cazenove - Joint Corporate Broker |
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Finsbury - Public Relations Adviser |
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Analyst and investor presentation
An investor presentation on the Transaction can be found on the Company's website link: investors.networkinternational.ae
A conference call and short presentation for analysts and investors will be held tomorrow, 29th of July, at
· Conference call dial-ins:
· Webcast link: https://webcasts.eqs.com/networkint20200723
A replay will also be available following the presentation through the same link above one hour after the presentation finishes.
DPO, the leading high-growth online commerce platform in
DPO is an e-commerce platform and payments provider, primarily providing managed payments, online gateway, online fund transfers and value added services ("VAS") for merchants across Africa, with a presence in 19 countries. In 2019, processing
DPO facilitates online payments for over 47,000 merchants across Africa. The fast growing merchant customer base represents a portfolio of high quality blue chip brands, diversified in both size and across industries. DPO has direct relationships with merchants, enabled through a comprehensive go-to-market strategy, including an on the ground direct salesforce, as well as wider reach powered by digital, online and strategic partners acting as a referral network. This is complemented by direct connectivity to acquiring banks and MNOs. This has made DPO the obvious partner for international e-commerce players seeking a single payments partner in the African market, such as Uber,
In addition, DPO facilitates acceptance of a wide range of payment types from consumers, including cards, mobile money, online funds transfers and e-wallets. Given the growing popularity of these payment methods across Africa, the ability for merchants to accept a broad suite of payments methods is critical to their success.
DPO is headquartered in
The co-founders have committed to remaining with
DPO's business model is underpinned by strong market trends
The African digital payments market is highly attractive and underpinned by multiple secular trends, including ongoing supportive macroeconomic and social trends, as well as changing consumer behaviour. These underlying trends drive forecast African digital and online payments revenue growth of 19% (2018-2025)[3] with increasing popularity of online purchasing from a current low base at 0.3% of private consumption[4], and an expanding universe of digital payments methods.
DPO's performance has naturally been impacted through Covid-19 related lockdowns, particularly in April, where the business saw a decline in TPV following a ban on business activities for a number of e-commerce merchants in
Strong strategic fit for
Our purpose is to enable and lead the transition from cash to digital payments across the
Market: consolidates our presence in
Africa represents a highly diverse and fragmented payments market, where cash transactions still dominate and there is significant headroom for overall digital payments growth. Digital payments represent around only 5% of all transactions in aggregate[5] and within this, selected areas such as e-commerce and other online transactions are significantly underrepresented, representing only 10% of total African digital and online payments revenues in 2018[6]. Total African payments revenues are expected to grow at c.19% 2018-2025, with the proportion of online electronic revenues increasing from 10% to 25% over the same period, equivalent to growth of c.35%5.
DPO is one of the leading online digital players in
There are also indications that Covid-19 has accelerated the move away from cash, particularly in regards to e-commerce and alternative payments. In a
Distribution and relationships: powerful combined relationships to drive digital payments adoption
From a group wide perspective,
Capabilities and innovation: broadening our exposure to fast growing online and mobile money
We believe Africa will see strong growth across a multiplicity of payments types, with a foundation in traditional card payments, but also a greater participation of alternative payments than we see in other markets. Online fund transfers and e-wallets are expected to gain share of e-commerce payments; according to a leading global consulting firm[10], online fund transfer and e-wallet facilitated payments are forecast to reach a combined proportion of c.55% of South African e-commerce sales by 2024, compared to 42% in 2019. Overall, over 50% of African online transaction revenues are expected to be generated from non-card transactions by 2025[11].
DPO significantly enhances our capabilities in this area, with an e-commerce gateway that is directly connected to mobile money operators, online funds transfers, and e-wallets, as well as facilitating card payments. DPO also has a full omnichannel offering allowing merchants the ability to accept payments in-store, online and via mobile devices. The combined
Cross selling opportunities: strengthens our market leading capabilities and solutions for both
A number of our bank customers in
We also have the opportunity to improve services and cross-sell our market leading capabilities to DPO's merchants, leveraging
Acceleration of our growth over the medium to long term
DPO has a proven high growth financial track record, having delivered TPV CAGR of 30% from 2017-19 and revenue CAGR of 39%. Looking ahead, on a standalone basis, we have taken prudent assumptions and expect revenue growth trajectory similar to market levels, and marginally lower than DPO's historical rates, given a growing absolute size of revenue base. DPO has a well invested cost base, having: established local market presence and sales teams; addressed licensing requirements; and integrated their technology platforms with the relevant acquiring banks and MNOs. With high operating leverage and a relatively fixed cost base, there is a clear path to profitability and we expect the standalone business to generate c30% EBITDA margins within 3-4 years.
This will be further supported by multiple incremental revenue cross-selling opportunities, as described in the previous section, and scope for benefits from technological enhancements such as improved transaction authorisation rates. Such synergies will have a naturally high profit contribution, given the majority of cross-selling opportunities will be to our existing bank customer base, with only a small element of incremental costs associated with delivery.
Bringing this together, we expect the Transaction to deliver a double digit ROCE within 3-4 years, and significantly higher thereafter. Looking further ahead, we see significant growth acceleration, delivered through an increased exposure to the underlying African digital payments market, e-commerce and alternative payments, and a stronger service offering across the payments value chain to both existing and new customers.
DPO's performance has been impacted through Covid-19 related lockdowns, particularly in
We are a diversified payments business operating across the payments value chain throughout the
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H1 2020 |
H1 2019 |
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USD'000 |
USD'000 |
Change |
Select Financials |
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Revenue |
134,157 |
152,345 |
-11.9% |
Underlying EBITDA1,6 |
53,040 |
76,392 |
-30.6% |
Underlying EBITDA margin (excl. share of associate) 2,6 |
36.4% |
47.2% |
(1.1)PPP |
Profit from continuing operations |
-150 |
15,764 |
-101.0% |
Underlying net income3,6 |
21,781 |
43,8474 |
-50.3% |
Underlying earnings per share (USD cents)3,6 |
4.4 |
8.8 |
-50.3% |
Reported earnings per share (USD cents) |
(0.1) |
2.9 |
-104.2% |
Underlying free cash flow (underlying FCF) 4,6 |
29,609 |
59,8105 |
-50.5% |
Leverage ratio5 |
2.0 |
1.9 |
-5.9% |
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Segmental Results |
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94,487 |
111,511 |
-15.3% |
Africa revenue |
36,566 |
40,834 |
-10.5% |
Other Revenues |
3,103 |
-- |
-- |
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65.6% |
73.0% |
(737) bps |
Africa contribution margin7 |
67.1% |
69.4% |
(229) bps |
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Business lines |
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Merchant Solutions revenue |
50,848 |
69,115 |
-26.4% |
Issuer Solutions revenue |
79,044 |
81,675 |
-3.2% |
Other Revenues |
4,265 |
1,555 |
174.2% |
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Key Performance Indicators8 |
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Total Processed Volume (TPV) (USD m) |
15,999 |
21,543 |
-25.7% |
Total number of cards hosted (m) |
13.8 |
13.5 |
2.2% |
Total number of transactions (m) |
355.6 |
367.4 |
-3.2% |
1. Underlying EBITDA is defined as earnings from continuing operations before interest, taxes, depreciation and amortisation, impairment losses on assets, gain on sale of investment securities, share of depreciation of an associate and specially disclosed items affecting EBITDA
2. Excludes the share of the Group's associate, TG Cash, which was
3. Underlying net income represents the Group's profit from continuing operations adjusted for impairment losses on assets, gain on disposal of investment securities and specially disclosed items. An impairment of
4. Underlying free cash flow is calculated as underlying EBITDA adjusted for changes in working capital before settlement related balances, taxes paid, maintenance capital expenditure and growth capital expenditure. In H1 2019, the Group did not include growth related capital expenditure as a deduction within the definition of underlying FCF. In our efforts to provide best practice representation of underlying FCF generation, this classification has now changed and has also been reflected in the prior year to enable like for like comparison.
5. Leverage ratio is a calculation of net debt divided by underlying EBITDA
6. Specially disclosed items are items of income or expenses that have been recognised in a given period which management believes, due to their materiality and being one-off / exceptional in nature, should be disclosed separately, to give a more comparable view of the period-to-period underlying financial performance. SDIs in H1 2020 are as follows: SDIs affecting EBITDA
7. Contribution is defined as segment revenue less operating costs (personnel cost and selling, operating and other expenses) that can be directly attributed to or controlled by the segments. Contribution does not include allocation of shared costs that are managed at group level and hence shown separately under central function costs.
8. Key Performance Indicators
Total Processed Volume (TPV): is defined as the aggregate monetary volume of purchases processed by the Group within its Merchant Solutions business line.
Number of cards hosted: is defined as the aggregate number of cards hosted and billed by the Group within its Issuer Solutions business line.
Number of transactions: is defined as the aggregate number of transactions processed and billed by the Group within its Issuer Solutions business line.
Definitions
A payment gateway is the online equivalent of a physical payment terminal - connecting the online checkout with a merchant acquirer. It enables consumers to buy online from Merchants using card, mobile money or alternative payment methods of their choice. The
Managed Payments
Managed Payments enables merchants to accept multiple forms of payment and bank transfers without having to establish direct relationships with acquiring banks or payment gateways. DPO acts as one merchant of record across the value chain (with Issuers, Acquirers and Card Schemes). DPO receives settlement of transaction proceeds from an acquiring bank, on behalf of a merchants, before settling the merchants within a pre-defined period.
Online Fund Transfer
Online Fund Transfer provides shoppers and merchants with the functionality to make online payments, directly from their bank accounts. This provides convenient, secure authentication through internet banking login and one-time PIN / SMS. There are multiple benefits for merchants including customer retention, better working capital management and reduced fraud.
Value added services
Add-on services that are offered to merchants, issuers, consumers and other customers. Selected DPO examples
Important notices
This Announcement has been issued by and is the sole responsibility of the Company. No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by each of
This Announcement is for information purposes only and shall not constitute an offer to sell or issue or the solicitation of an offer to buy, subscribe for or otherwise acquire securities in any jurisdiction in which any such offer or solicitation would be unlawful. Any failure to comply with this restriction may constitute a violation of the securities laws of such jurisdictions. Persons needing advice should consult an independent financial adviser.
The distribution of this Announcement and the offering, placing and/or issue of the placing shares in certain jurisdictions may be restricted by law. No action has been taken by the Company, any of the Banks or any of their respective affiliates, agents, directors, officers or employees that would permit an offer of the placing shares or possession or distribution of this Announcement or any other offering or publicity material relating to such placing shares in any jurisdiction where action for that purpose is required. Persons into whose possession this announcement comes are required by the Company and each of the Banks to inform themselves about and to observe any such restrictions.
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN, IS RESTRICTED AND IS NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO
This Announcement or any part of it does not constitute or form part of any offer to issue or sell, or the solicitation of an offer to acquire, purchase or subscribe for, any securities in
This communication is not a public offer of securities for sale in
Certain statements contained in this Announcement constitute "forward-looking statements" with respect to the financial condition, performance, strategic initiatives, objectives, results of operations and business of the Company. All statements other than statements of historical facts included in this Announcement are, or may be deemed to be, forward-looking statements. Without limitation, any statements preceded or followed by or that include the words "targets", "plans", "believes", "expects", "aims", "intends", "anticipates", "estimates", "projects", "will", "may", "would", "could" or "should", or words or terms of similar substance or the negative thereof, are forward-looking statements. Forward-looking statements include statements relating to the following: (i) future capital expenditures, expenses, revenues, earnings, synergies, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects; and (ii) business and management strategies and the expansion and growth of the Company's operations. Such forward-looking statements involve risks and uncertainties that could significantly affect expected results and are based on certain key assumptions. Many factors could cause actual results, performance or achievements to differ materially from those projected or implied in any forward-looking statements. The important factors that could cause the Company's actual results, performance or achievements to differ materially from those in the forward-looking statements include, among others, the macroeconomic and other impacts of Covid-19, economic and business cycles, the terms and conditions of the Company's financing arrangements, foreign currency rate fluctuations, competition in the Company's principal markets, acquisitions or disposals of businesses or assets and trends in the Company's principal industries. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements in this Announcement may not occur. The forward-looking statements contained in this Announcement speak only as of the date of this Announcement. The Company, its directors and each of the Banks each expressly disclaim any obligation or undertaking to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by applicable law or regulation, the Listing Rules, the Market Abuse Regulation, the Disclosure Guidance and Transparency Rules, the rules of the
Any indication in this Announcement of the price at which ordinary shares have been bought or sold in the past cannot be relied upon as a guide to future performance. No statement in this Announcement is intended as a profit forecast or estimate for any period and no statement in this Announcement should be interpreted to mean that earnings, earnings per share or income, cash flow from operations or free cash flow for the Company, as appropriate, for the current or future years would necessarily match or exceed the historical published earnings, earnings per share or income, cash flow from operations or free cash flow for the Company.
Each of
Neither the content of the Company's website (or any other website) nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into or forms part of this Announcement.
ENDS
[1] Source: Estimates from a leading consulting firm, 2018-2025. Market growth refers to digital and online payments revenue growth. Includes revenues generated from debit card, credit card, mobile money and electronic transfer payment methods
[2] Source: Euromonitor, Planet Retail. 2018 data
[3] Leading global consulting firm,
[4] Source: Euromonitor, Planet Retail. 2018 data
[5] Defined as percentage share of total transaction volume based on leading global consulting firm
[6] Leading global consulting firm,
[7] Leading global consulting firm, Euromonitor
[8] McKinsey "Reopening and reimaging Africa" (
[9] Leading global consulting firm
[10] Leading global consulting firm, proportion of sales by payment instrument. Online fund transfer equivalent to electronic fund transfer
[11] Leading global consulting firm, non-cards: mobile money and electronic transfer
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