FY2018 results presentation AGENDA SECTION 1. OUR STORY 3 - - PowerPoint PPT Presentation

FY2018 results presentation

SECTION 1. OUR STORY 3 SECTION 2. FY2018 FINANCIAL OVERVIEW 9 SECTION 3. OUR CORE - OUR CUSTOMERS AND RETAILERS 28 SECTION 4. RETAILER LED INTERNATIONAL EXPANSION 42

AGENDA

Our story

Section one

TO BE THE WORLD’S MOST LOVED WAY TO PAY.

OUR MISSION (OUR TODAY)

'I LOVE AFTERPAY’ 'I LOVE HOW I PAID FOR THAT ITEM’

BUT...

THEY DO SAY

NO ONE SAYS

AfterpaY has been great for my family…

Afterpay has been great for my family we are able to buy things we want without having to break the bank. I found Afterpay to be very flexible thank you Afterpay! Josh, Trustpilot

Will always choose afterpay

I’ve used them so many times. The best of all

• f them. Got Supercheapauto new battery so
• easy. Thank you Afterpay. Saved me. Big time.

Dane.K.2017, Trustpilot

Absolutely LOVE Afterpay

Absolutely love Afterpay. It makes it so much easier to afford, when it’s spread over 4 fortnightly

• payments. And if something

unexpected comes up, I have found Afterpay excellent, in moving a payment back a few days. Also the app is insanely easy to use! Susan, Trustpilot

Afterpay is an amazing and wonderful…

Afterpay is an amazing and wonderful way of getting the things you need and want without having to pay everything upfront. They are understanding when you miss a payment, just get in touch with them and they are there to help. Nicole Smith, Trustpilot

Love love love Afterpay!

Love love love Afterpay!! Best thing ever!! I have been able to buy so many items from lighting for the house, to clothes, birthday gifts galore and treats for myself without having to spend hundreds

• f dollars in one go!! I have 5
• rders at the moment, and I

can afford to do it this way as because [sic] I have always paid my past orders on time, if I order something today, Afterpay do not charge me until another fortnight but send my orders right away!! It is the best thing ever - just like layby except you just need to pay it within 4 installments and you get it right away!! I recommend it to everyone! Better than a credit card, no interest fees - I will continue to use Afterpay forever!!

MS Latu, Trustpilot

All I have to say ‘I love afterpay’

Lena Fuller, Trustpilot

OUR CUSTOMERS LOVE US BECAUSE WE ARE DIFFERENT

WE HAVE BUILT A TRUE PARTNERSHIP WITH OUR RETAILERS

Afterpay transforms paying into the most pleasant part of shopping

Unlike traditional credit products, our retailers understand that they are paying a fee to us on behalf of the customer because they too want to provide the customer an amazing purchase

• experience. They love their customers as

much as we do. Consumers don’t want to take out a loan to purchase a smaller lifestyle item, they simply want more flexibility and a better paying experience that aligns with their spending preferences.

“I have been amazed at how quickly our customers have embraced Afterpay; so much so, that iT is now the single most popular payment method for our website”

Adore Beauty

“Afterpay is a perfect match for the M.A.C. brand and ouR customers”

M.A.C Cosmetics

“Since launching Afterpay on

• ur online channel in 2016 we

have seen consistent growth and conversion over the time”

Lorna Jane

T E A M A N D C A P A B I L I T I E S p r e s e n c e p r

• d

u c t c

• m

m u n i t y

17.7K RETAILERS

ACTIVE

2.3M CUSTOMERS 21M TRANSACTIONS

SINCE INCEPTION

AUSTRALIA AUSTRALIAN BUILT LOAD BASED, SCALABLE SYSTEM CUSTOMER EMPOWERMENT PAY IT IN 4 ONLINE IN-STORE PERSONALISATION SOCIAL VIRALITY AND RETAIL LEAD GENERATION HIGH ENGAGEMENT - REPEAT ACTIVITY AFTERPAY RETAIL EVENTS MORE TO COME... ATTRACTING AND GROWING GLOBAL TALENT NEW ZEALAND U.S.A. U.K. MORE TO COME... MORE TO COME... APP SHOPPING

BUILDING FROM OUR CORE - OUR CUSTOMERS AND RETAILERS

financial

• verview

FY2018

Section TWO

INVESTING FOR SUSTAINABLE GROWTH AND LIFETIME CUSTOMER VALUE

• Global, scalable system and world class team
• Product innovation and new customer benefjt features
• Retailer value added service -

building partnership benefjts

PLATFORM GROWTH

• Over $2.18b underlying Afterpay

sales (+289%)

• Q4 2018 underlying sales

annualised is approximately $3b

• Stable Pay Now revenue

STRONG FINANCIAL PERFORMANCE

• Revenue and Other Income $142m

(+390%)

• EBITDA excluding signifjcant items $34m

(+468%)

• EBTDA excluding signifjcant items $28m

(+380%)

LOWERING AFTERPAY LOSSES AND LEVERAGING DATA AT SCALE

Net Transaction Loss - 0.4% (FY17 0.6%) declined while:

• Growing underlying sales
• Moving into new verticals
• Expanding to new geographies

CAPITAL MANAGEMENT

• Citi $200m Australian facility completed
• Complements existing NAB $300m1 Australian

facility and NZ$20m ASB N.Z. facility

• $50m Australian bond completed in H2FY18
• Underwritten institutional placement (and

SPP) to facilitate international expansion and cornerstone future international debt facilities

INTERNATIONAL EXPANSION

• Developing a retailer-led

expansion strategy

• U.S. building momentum
• Small U.K. acquisition
• Consolidating position in N.Z.

FY18 - KEY HIGHLIGHTS

AFTERPAY TOUCH AFTERPAY CHANGE1

A$M (UNLESS OTHERWISE STATED)

FY18 FY17 %

GROUP - KEY FINANCIAL METRICS REVENUE AND OTHER INCOME 142.3 29.0 390% AFTERPAY 116.8 29.0 302% PAY NOW 25.6 ~ ~ EBITDA (EXCLUDING SIGNIFICANT ITEMS) 33.8 6.0 468% EBTDA (EXCLUDING SIGNIFICANT ITEMS) 27.7 5.8 380% EBTDA 9.7 (11.7) 183% NET PROFIT/(LOSS) AFTER TAX - STATUTORY (9.0) (9.6) 7% AFTERPAY - KEY METRICS UNDERLYING MERCHANT SALES 2,184.6 561.2 289% MERCHANT REVENUE %2 4.0% 4.1% ~ NET TRANSACTION LOSS (NTL) %2 (0.4)% (0.6)% ~ NET TRANSACTION MARGIN (NTM) %2 2.6% 2.5% ~ TOTAL ACTIVE CUSTOMERS (M) - CURRENT3 2.3 0.8 176% NUMBER OF MERCHANTS (‘000) - CURRENT3 17.7 6.0 195%

Strong fjnancial performance in FY18, driven by strong growth in Afterpay and a full year contribution from Pay Now. FY18 revenue and other income of $142.3m, up 390% on FY17, with Afterpay now comprising the majority (82%) of Group revenue. FY18 revenue and other income growth driven by signifjcant increase in Afterpay underlying sales and a stable merchant margin. FY18 Afterpay underlying sales of over $2.18b, up 289% on FY17 and driven by growth across all key demand drivers (new customers, repeat customer activity, new retailers, increased share of checkout). EBTDA (excluding signifjcant items) of $27.7m in FY18, up 380% on FY17. EBTDA (excluding signifjcant items) positively impacted by lower NTL% and higher NTM%.

REVENUE

CONTRIBUTION

82%

18%

EBTDA

CONTRIBUTION4

83%

17%

FY18 - GROUP FINANCIAL SNAPSHOT

D&A increased largely due to a full year contribution from Touchcorp and the amortisation

• f acquired intangibles from the merger of Afterpay

and Touchcorp (non-cash). Employment expenses increased largely due to a share-based payment expense (non-cash)

• f $16.4m in the period and a full year of Touch

employment expenses. Receivables impairment expense increased in line with the signifjcant increase in Afterpay underlying sales. Operating expenses increased to $27.1m in FY18 but declined as a % of sales due to

• perating leverage.

Tax paid in FY18 due to the profjtability of Afterpay. Statutory net loss after tax improved from $9.6m in FY17 to $9.0m in FY18 in spite of a signifjcant increase in D&A (non-cash) and share-based payment expenses (non-cash). AFTERPAY TOUCH AFTERPAY

A$M (UNLESS OTHERWISE STATED)

FY18 FY17

REVENUE FROM AFTERPAY 88.3 22.9 REVENUE FROM PAY NOW 25.6 ~ REVENUE 113.9 22.9 COST OF SALES (28.2) (5.3) GROSS PROFIT 85.7 17.6 OTHER INCOME 28.4 6.1 DEPRECIATION AND AMORTISATION (17.3) (2.7) EMPLOYMENT EXPENSES (38.6) (6.6) RECEIVABLES IMPAIRMENT EXPENSE (32.6) (8.2) OPERATING EXPENSES (27.1) (20.3) OPERATING PROFIT/(LOSS) (1.5) (14.0) FINANCE INCOME 0.5 0.3 FINANCE COST (6.6) (0.8) PROFIT/(LOSS) BEFORE TAX (7.6) (14.4) INCOME TAX (EXPENSE)/BENEFIT (1.4) 4.8 PROFIT/(LOSS) AFTER TAX (9.0) (9.6)

FY18 - GROUP STATUTORY FINANCIAL SUMMARY

EBTDA of $9.7m includes the impact of the following Signifjcant Items:

• Accounting for share-based payments
• f $16.4m which is a non-cash item

(refer p26); and

• One-ofg costs of $1.6m which includes

consultancy fees and an FX gain (refer p27). $12.5m or 76% of the total share-based payments expense of $16.4m relates to a proposed issue of loan shares for the Group Head - driven by the increase in Afterpay's share price as it remains subject to shareholder approval. Unlike other SBP related issuances to employees that are not subject to shareholder approval, and are valued for accounting purposes at the time of the grant, the value of the Group Head’s proposed LTI grant is calculated using the closing share price at each reporting date (opposed to ofger date) until such time as it is approved by shareholders (refer p26).

Reconciliation - Statutory net profit/(loss) after tax to ebitda

FY18 - GROUP STATUTORY FINANCIAL SUMMARY (CONT’D)

Afterpay underlying sales of over $2.18b up 289%

• n FY17 driven by:
• New customers
• Repeat customer activity
• New retailers
• Increased share of checkout

In-store contribution increasing, ending at 12% of underlying sales in Q4 FY18. Average merchant margin stable in FY18 at 4.0%

• Increase in sales across both Enterprise and

Small to Medium Business (SMB)

• In-store mainly Enterprise in FY18, yet to benefjt

from higher SMB margin mix. Increase in NTM refmecting an improvement in NTL as a % of sales

• NTL as a % of sales declined from 0.6% in FY17 to

0.4% in FY18. Strong growth in EBTDA contribution, up 504% in FY18 refmecting both increased sales and increased NTM. AFTERPAY CHANGE1

A$M (UNLESS OTHERWISE STATED)

FY18 FY17 %

UNDERLYING MERCHANT SALES (GMV) 2,184.6 561.2 289% AFTERPAY MERCHANT REVENUE 88.3 22.9 286%

% OF UNDERLYING MERCHANT SALES 4.0% 4.1% ~

NET TRANSACTION LOSS (NTL) (9.3) (3.1)

~

% OF UNDERLYING MERCHANT SALES (0.4)% (0.6)% ~

OTHER VARIABLE TRANSACTION COSTS (23.3) (5.8)

~

% OF UNDERLYING MERCHANT SALES (1.1)% (1.0)% ~

NET TRANSACTION MARGIN (NTM) 55.7 14.1 295%

% OF UNDERLYING MERCHANT SALES 2.6% 2.5% ~

EBTDA CONTRIBUTION2 34.9 5.8 504%

TOTAL ACTIVE CUSTOMERS (M) - CURRENT3 2.3 0.8 176% NUMBER OF MERCHANTS (‘000) - CURRENT3 17.7 6.0 195%

FY18 - AFTERPAY KEY FINANCIAL METRICS

Improvement in NTL while generating signifjcant growth in customers, growth in underlying sales, entry into new geographies, new industry verticals and also new channels (In-store).

underlying sales vs NTL - FY16 to Fy18

FY18 - DRIVING LOWER LOSSES WHILE SCALING

Provision for bad and doubtful debts of $15.1m as at 30 June 2018. Afterpay adopts a conservative approach to bad and doubtful debt provisioning. Actual collections post balance date confjrms that provisioning was appropriate. NTL declined from 0.6% in FY17 to 0.4% in FY18 driven by declines in gross losses in H2 FY18 and the impact of late fees. Refmects improving customer repayment profjle, increasing orders from returning customers and continuous evolution of Afterpay’s transaction integrity engine. Late fees are only recognised at 'collectable' value (not total late fees invoiced). Late fees are now capped at the lesser of 25% (min $10)

• f the order value or a maximum of $68.

BALANCE SHEET

INCOME STATEMENT

FY18 - NET TRANSACTION LOSS ANALYSIS

PAY NOW A$M (UNLESS OTHERWISE STATED) FY18 FY171

REVENUE MOBILITY 15.2 15.8 E-SERVICES 7.0 7.3 HEALTH 3.4 2.3 TOTAL REVENUE 25.6 25.4 COST OF SALES 10.6 8.0 GROSS MARGIN 15.0 17.4 GROSS MARGIN 15.0 OTHER EXPENSES 7.7 EBTDA CONTRIBUTION2 7.3

Revenue

revenue mix

FY18 - PAY NOW KEY FINANCIAL METRICS

(7.6) 35.4 (105.3) 17.3 16.4 6.6 (1.6) (0.5) (4.5) 9.1 (140.7)

Positive underlying operating cash fmow after adjusting for the change in receivables (funding of receivables). Proceeds from borrowing refmects the drawdown of receivables funding and A$50m bond. Proceeds from equity refmects the issue of shares to Matrix on 16 January 2018 and proceeds from employee share issuance.

OPERATING CASH FLOW ADJUSTED FOR INCREASE IN TRADE RECEIVABLES

FY18 - GROUP CASH FLOW ANALYSIS

Increase in receivables and payables due to the continued growth in Afterpay underlying sales. Increase in debt refmects the growth in drawn debt to support Afterpay underlying sales growth and A$50m bond issuance. CONSOLIDATED AFTERPAY TOUCH A$M (UNLESS OTHERWISE STATED) 30 JUNE 2018 30 JUNE 2017

CASH 25.5 29.6 RESTRICTED CASH1 23.7 8.9 RECEIVABLES 239.1 98.4 OTHER CURRENT AND NON-CURRENT ASSETS 104.0 103.4 TOTAL ASSETS 392.2 240.3 PAYABLES 42.9 22.8 DEBT 161.6 46.7 OTHER LIABILITIES 4.2 10.7 TOTAL LIABILITIES 208.7 80.2 EQUITY 183.6 160.1

JUN 18 5.2 6.3 233.9 92.1 JUN 17

FY18 - GROUP BALANCE SHEET

EXPANSION OF AUSTRALIAN AND NEW ZEALAND WAREHOUSE FACILITIES

• 1. COMPLETED $200M COMMITTED RECEIVABLES WAREHOUSE FACILITY WITH CITI IN AUGUST 2018. IN NOVEMBER 2017, AFTERPAY INCREASED THE NAB FACILITY FROM $200M TO $350M AND EXTENDED THE TERM TO NOVEMBER 2019 AND SUBSEQUENTLY,

Cash position will facilitate accelerated global expansion and cornerstone international receivables funding facilities in due course.

Signifjcant capacity in Australia – Recently completed A$200m Australian receivables warehouse facility with Citi, increasing total available facilities to A$500m.

CASH FOR INTERNATIONAL EXPANSION AND FUNDING BUFFER

• Total cash of $49.2m as at 30 June

2018 incorporating $50m bond issue in April 2018

• Fully underwritten institutional

placement to raise at least $104.2m3

• Pro forma cash of $129.7m including

institutional placement and excluding restricted cash

• 1. building capacity to fund growth

Signifjcant capacity in N.Z. – Committed NZ$20m corporate facility with ASB in N.Z. completed in December 2017.

FY18 - CAPITAL MANAGEMENT UPDATE

FUNDING FACILITY MATURITY PROFILE

LIQUIDITY POSITION

Diversifjcation of providers: NAB, Citi, ASB and A$ bond investors Diversifjcation of sources: Receivables facilities, corporate facilities, A$ bond

• Focused capital

management efgort

• Commenced U.S.

receivables funding facility process

• Extension of NAB

Australian warehouse facility term

• 2. funding diversification
• 3. extension of maturity profile
• 4. improved liquidity position
• 5. ongoing initiatives

• 1. NET OF ESTIMATED TRANSACTION COSTS

FY18 - CAPITAL MANAGEMENT UPDATE (CONT'D)

CASH1 49.2 SECURED INTEREST BEARING BORROWINGS 111.6 SENIOR UNSECURED NOTES 49.5 OTHER 0.5 TOTAL DEBT 161.6 NET DEBT2 112.4

INTEREST COVER RATIO3 5.5x TOTAL LIQUIDITY4 124.6 BANK DEBT/RECEIVABLES5 46.7% UNDRAWN COMMITTED FACILITIES6 256.8 FIXED/FLOATING INTEREST RATE RATIO 30.6%

1. Cash includes cash in bank of $25.5m as well as cash held in trust of $23.7m. 2. Comprised of $161.6m of debt and $49.2m of cash across the Group. 3. Comprised of $33.8m EBITDA and $6.1m of Net Interest Expense, stated as “times” (“x”). 4. Comprised of undrawn borrowing capacity of $98.0m in the Australian receivables facility, $1.1m of undrawn borrowing capacity in the New Zealand cash advance facility and $25.5m of cash across the Group. 5. Comprised of $111.6m of debt and $239.1m of receivables across the Group. 6. Comprised of $418.4m of facility limit less $161.6m

• f debt drawn across the Group which includes the

Australian receivables facility (excluding Citi), the N.Z. cash advance facility and the A$ bond.

FY18 - BALANCE SHEET AND DEBT PROFILE

ACCOUNTING ITEMS - FURTHER DETAIL

Introduction

The Group has undertaken a review of the impact of AASB 9 and AASB 15 with input from accounting advisers and a review by its auditors. The Group will adopt AASB 9 for the FY19 reporting period. In line with ASIC guidelines, the Group has estimated the pro forma impact of adopting AASB 9 in FY18. Further work will be undertaken on the impact of adopting the standards during FY19, however, the Group’s current assessment is that AASB 9 will impact on Afterpay's receivables impairment and revenue recognition methodology.

Impairment

The pro forma impact of AASB 9 on the Group’s FY18 closing provision for bad and doubtful debts (i.e. total allowance for doubtful debts) is an increase of $2.9m to $18.0m, resulting from the application of the forward looking ‘expected loss’ impairment model under AASB 9. As a result of a pro forma adjustment of both the

• pening and closing balances for the provision for bad

and doubtful debts in FY18, Afterpay's FY18 bad and doubtful debts expense (i.e. receivables impairment expense) increases by $1.6m to $34.2m. This results in a reduction in FY18 pro forma EBITDA of $1.6m. Based on the short term nature of Afterpay’s receivables, we have confjdence that our provision methodology is currently conservative (prior to the application of AASB 9) and will be even more conservative with the adoption of AASB 9.

Revenue Recognition

The adoption of AASB 9 will require Afterpay merchant fee revenue to be recognised over the life of the associated consumer receivable. This results in merchant fee revenue being deferred over the average time its takes for the collection of the receivable to occur. Assuming an average receivables duration of 30 days, the FY18 pro forma impact of AASB 9 on revenue due to the deferral of merchant fees is a reduction in revenue of $3.0m from $113.9m to $110.9m. This analysis assumes that 100% of merchant fee revenue is deferred. Further work is required to determine the actual percentage of merchant fee revenue that may be deferred. A deferral of merchant fee revenue in this manner is a timing difgerence only and does not efgect the receipt in cash when an order is processed.

AASB 9 - ILLUSTRATIVE FY18 IMPACTS

FY18 pro forma impact of adopting AASB 9 for the 12 months ending 30 June 2018. Increase in Bad and Doubtful Debts Provision and NTL calculation resulting from transition from incurred loss provisioning under AASB 139 to a forward-looking ‘expected loss’ impairment model under AASB 9. Based on the short term nature of Afterpay’s receivables, we have confjdence that our provision methodology was conservative based

• n historical performance prior to the adoption
• f AASB 9 and will be even more conservative

with the adoption of AASB 9. This is an accounting impact only and does not afgect the Group’s cash position.

BALANCE SHEET

INCOME STATEMENT

AASB 9 FY18 PRO FORMA IMPACT – BAD AND DOUBTFUL DEBTS

FY18 pro forma impact of adoption of AASB 9

• n receivables and revenue based on certain

assumptions. The adoption of AASB 9 will require merchant fee revenue (received upfront in cash) to be recognised over the life of the associated consumer receivable under AASB 9. Analysis assumes:

• 4% Merchant margin
• Average 30 day repayment cycle
• 100% of merchant fee revenue is deferred.

FY18 pro forma revenue is reduced by $3.0M by the adoption of AASB 9 in this manner. This is a timing difgerence only with the deferred revenue recognised over time. This is also an accounting impact only and does not efgect the receipt of merchant fee revenue. An average 30 day repayment cycle implies that it is only merchant fee revenue on orders made in June that will be subject to deferral as at 30 June.

BALANCe sheet receivables income statement revenue

AASB 9 FY18 PRO FORMA IMPACT - RECEIVABLES AND REVENUE

At-risk remuneration in the form of option grants are a key component of Afterpay’s remuneration framework. The Group competes in a global technology sector and executive talent pool where option grants are common place and critical to attracting and retaining key talent. In FY18, Afterpay accrued $16.4m in share based payment expenses related to options, performance rights and loan shares. $12.5m or 76% of this total expense was an accrual for a proposed 2 million issue of loan shares for the Group Head announced on 30 August 2017. The size of the accrual refmects the signifjcant increase in Afterpay’s share price, of 246%, from the $2.70 exercise price (being the opening price on the fjrst day of trade as AfterpayTouch) to the closing price on 30 June 2018. Unlike other SBP related issuances to employees that are not subject to shareholder approval and are valued for accounting purposes at the time of the grant, the value of the Group Head’s proposed LTI grant is calculated using the closing share price at each reporting date until such time as it is approved by shareholders. The share based payments expense is an accounting accrual only and is non-cash.

A$M (UNLESS OTHERWISE STATED)

OPTIONS1 3.5 LOAN SHARES2 12.5 AFTERPAY U.S. OPTIONS3 0.4 TOTAL SHARE BASED PAYMENTS 16.4

• 1. ALSO

FY18 - SHARE BASED PAYMENTS

SIGNIFICANT ITEMS - BREAKDOWN

ONE-OFF COSTS INTERNATIONAL EXPANSION COSTS (1.2) (0.0) MERGER RELATED COSTS (1.7) (1.5) FACILITY ESTABLISHMENT COSTS (0.1) (0.6) SUBTOTAL (3.0) (2.1) FOREIGN CURRENCY GAINS 1.4 0.0 TOTAL (1.6) (2.1)

DEPRECIATION & AMORTISATION

DEPRECIATION (1.8) 0.0 AMORTISATION (15.5) (2.7) TOTAL (17.3) (2.7)

International expansion costs primarily comprise one-ofg legal, recruitment and

• ther consultancy fees for the establishment of the NZ and US businesses.

Merger related costs primarily comprise one-ofg consultancy fees (tax, fjnancial, integration advisory and retention bonus fees) associated with the merger of Afterpay and Touchcorp. Facility establishment cost relates to one-ofg fees for establishment of the NZ loan facility and increase in the NAB facility from $200m to $350m in November 2017. Foreign currency gains relate to a foreign currency gain on the US$15m proceeds from the Matrix Convertible Note.

D&A increased largely due to a full year contribution from Touchcorp and the amortisation

• f acquired intangibles from the merger of Afterpay and Touchcorp.

This is a non cash charge.

FY18 - SIGNIFICANT ITEMS AND D&A

Our core - our customers and retailers

Section three

Millennials prefer debit cards and want to spend their own money

67% of millennials do not

• wn a single credit card.

1

1 in 3 have never had a credit card3 Today there are 2x as many debit card transactions as credit card transactions2

The power has shifted to the millennial consumer

By 2030, millennials will earn 2 out of every 3 dollars in Australia4 Alternative to credit 85% of Afterpay’s orders use debit cards

• 1. BANKRATE MONEY PULSE SURVEY 2016 2. SOURCE: RESERVE BANK OF AUSTRALIA 3. CREDITCARDS.COM 4. MACQUARIE BANK RESEARCH

DEBIT CARD

BUILDING A CUSTOMER FIRST, MILLENNIAL MINDSET

We are on the customers’ side Product rules encourage responsible customer spending

Afterpay is a free service for customers who pay on time Afterpay charges retailers a fee instead of customers No hidden fees whatsoever (interest or otherwise) Late fees, if charged, are capped and don’t accumulate One transaction at a time – not a line of credit Small transaction sizes – low

• utstanding balances

Strict limits, including age, actively monitored Payment terms are short and cannot be extended Missed payments result in immediate suspension

• f service – customers

can’t keep spending

Debt cannot ‘revolve’ Bad debt cannot accrue Customer base quickly refjned to those who use Afterpay repeatedly and responsibly

HOW WE ARE DIFFERENT

WE ARE NOT ANOTHER VERSION OF CREDIT – WE ARE AN ALTERNATIVE THAT PUTS CUSTOMERS’ INTERESTS FIRST

(77 )

Afterpay’s customers are

loyal

Returning customers account for ~90% of monthly transactions. Without Afterpay, many (39%) customers say they would look elsewhere or not purchase at all (23%). One-third of customers say the availability of Afterpay is critical to their decision on where to shop

INSIGHTS INTO OUR CUSTOMERS AND SERVICE

RESULTS FROM THE REVIEW CONDUCTED BY ALPHABETA ADVISERS FOUND…

Approximately 2.3 million active customers

budgeting tool

The majority of customers use Afterpay as a

%

OVER 85%

transactions

are via a linked Debit card

(as opposed to a credit card)

than credit card users and overall have lower debt than similar peers and the general population (up to $5,000 less) Afterpay customers pay

lower fees

>90% of accounts are less than $500 >75% of accounts are less than $350

Average purchase amount is $140–$150 and

• utstanding account

customers

balances are low

DELIVERING RESPONSIBLE SPENDING OUTCOMES AND LOW LOSSES

• An average of 30% of attempted

transactions are rejected

• Because of the very short duration of

the repayment cycle and the inability to revolve, bad debt is detected quickly and usage suspended

• Net Transaction Loss is at 0.4%

(gross 1.5%) in FY18. Improving with scale

• ~95% of instalment payments

do not incur a late fee

• 78% of customers have

never paid a late fee

• Late fees are stable 1.3% of

underlying sales in FY18

The initiatives not expected to have a material fjnancial or performance impact on the business While Afterpay can do everything within its power to prevent fraud from occurring, there will be instances in which people are not

• honest. Illegal and inappropriate use
• f the Afterpay platform is acted

upon, including the immediate suspension of accounts

COMMITTED TO CONTINUOUS IMPROVEMENT

SEVERAL PRODUCT AND RESPONSIBILITY ENHANCEMENTS COMPLETED IN FY18

Late fees are intended to be a proportionate incentive for customers to pay on time for what is otherwise a free service Not a source of profjts - Afterpay loses more in bad debts than it collects in late fees Our communication and practices encourage late fee avoidance – if all customers paid on time and we didn’t collect any late fees we would make more money Afterpay late fee structure is transparent and Afterpay is absent of any other fees – however termed (e.g. interest, administration, monthly, account keeping, service, management etc.) Late fees are now capped at the lesser of 25% (min $10) of the order value or $68 External third-party ID Verifjcation has been implemented in partnership with Illion to supplement Afterpay’s proprietary systems Checks will strengthen fraud prevention and help ensure everyone who uses Afterpay is over 18 years old, in line with Afterpay’s Terms The ID verifjcation process designed to minimise customer impact and is largely automated and instantaneous for the majority of customers

Capping of late fees Enhanced ID verification

Proactive and voluntary approach with ASIC and other regulators Engage strongly with all relevant parties with a determination to listen and incorporate feedback Engagement process currently underway to drive towards a Code

• f Practice with input from all

relevant industry participants

C U S T O M E R S C U S T O M E R A D V O C A T E S B A N K S A N D S C H E M E S P A Y M E N T S I N D U S T R Y M E R C H A N T S R E G U L A T O R S G O V E R N M E N T

COMMITMENT TO STAKEHOLDER ENGAGEMENT AND SUSTAINABILITY

Average age of customer base increased to 32 73% millennial core

ACTIVE CUSTOMER GROWTH RETURNING CUSTOMER SPEND increasing

RETURNING CUSTOMER SPEND

Broadening appeal

FY18 AVERAGE TRANSACTIONS PER RETURNING AFTERPAY CUSTOMER

9 TIMES

Afterpay AUSTRALIA Australia

18+1

• 1. SOURCE: AUSTRALIAN BUREAU OF STATISTICS

AFTERPAY IS RESONATING

Retailer lead generation from our shop directory in July 2018 reached its highest level ever, beating December 2017, to reach 4.5m with over 70% of those clicks originating from the mobile app. 4.8/5 for the iOS app and 4.7/5 for the Android app

Now ~170k in July 18 up from ~125k in Q4 FY18

MILLION

APP DOWNLOADS

1.7

MILLION

MOBILE APP SESSIONS

5.5

JULY 2018

App ratings

Average daily users

shop directory Afteryay Day

16 August 2018 biggest day (underlying sales) in Afterpay's history

DRIVING STRONG CUSTOMER ENGAGEMENT

Today, it is estimated that Afterpay processes more than 10% of all physical

• nline retail in Australia and over 10% of

the purchasing Australian population has transacted with Afterpay since inception.

21 million transactions 2.3 million active customers 17.7k retailers integrated

Australia New ZEALAND The United States The United kingdom (Next)

CONNECTING BRANDS AND CUSTOMERS

AU S T R A L I A

Total merchants

• nboarded

PARTNERING WITH THE LEADING LOCAL AND INTERNATIONAL BRANDS

ONlINE

INSTORE

SIGNIFICANT NEW MERCHANT CONTRACTS

THE FOLLOWING RETAILERS ARE EITHER RECENTLY ON- BOARDED OR IN THE PROCESS OF INTEGRATION AND HAVE NOT CONTRIBUTED MATERIALLY TO FY18 UNDERLYING SALES

Over 10,000 shop fronts Full pipeline of integrating merchants SMB stand-alone in-store roll-out has commenced On boarding between 600 – 1,000 SMBs per month Higher margin Long-tail (only minimally penetrated online ~8%*, and to a lesser extent In-store)

In-Store SMB New verticals

TraveL

Partnership with Jetstar was expanded towards the end of FY18 with a national advertising campaign, which followed a more extensive roll-out of the Afterpay product on the Jetstar platform.

Health

Signifjcant sector covering a number

• f sub-verticals.

Five-year agreement with major dental PMS provider, Software of Excellence (A Henry Schein One company), integrating Afterpay in to its practice management platforms across Australia and New Zealand. Afterpay now rolled out across all Primary Dental Clinics in Australia. A lot more in the pipeline.

Entertainment

Dreamworld recently commenced ofgering Afterpay and other entertainment related

• pportunities are being

actively pursued.

Beauty

Over 250 shop fronts are now live with Salonpay and at least 500 shop fronts are in the pipeline with partners including Ella Bache & Hairhouse Warehouse.

larger market versus online in Australia

~5-8x

SIGNIFICANT GROWTH OPPORTUNITIES IN AUSTRALIA AND NEW ZEALAND

Rich-data co-marketing retailer programmes focused on new customer growth and brand positioning Shop directory enhancements and lead generation value metrics In-store product and integration enhancements

1. 2. 3. 4.

Personalisation – App based targeted

• fgers based on

personal profjle and shopping history

RETAIL INNOVATION AND NEW VALUE ADDED SERVICES PLANNED

retailer led international expansion

Section four

As part of the execution plan for the US business, we purposely built infrastructure for global scalability. Technology is based on a single core code base (vs multiple code bases by region) and can be deployed in individual instances by region, tailored to local requirements. The strategic rationale for entering the US in partnership with Matrix was to establish the foundation for a world class team with global responsibility. Key hires made in the US include Sales, Risk, Data & Analytics, Technology and Product personnel with a combined headcount in excess of 30. Each part of the Afterpay business has been assessed individually and also strategically guided to global responsibilities. Afterpay’s existing partnerships with many global retailers provide the framework to leverage and grow internationally.

BUILDING GLOBAL CAPABILITY

Over 800 contracts signed and over 400 merchants live

AS OF MID-AUGUST 2018

Over 150,000 unique customers since launch

Establishing a presence with retail industry leading brands integrated retail merchants underlying merchant sales

MOMENTUM BUILDING IN THE U.S.

Favourable market dynamics

• Large and infmuential millennial customer cohort
• Strong debit card transaction preference
• Aversion to traditional credit options for online purchasing

3rd largest e-commerce market in the world

• >£133b online retail sales p.a.
• 87% of consumers shop online

Timing & targets

• Afterpay will launch globally scalable

system into the U.K. within six months

• Immediate engagement with retailers
• Not expected to materially contribute

to revenue in H1 FY19

Global Retailer Led Strategy

• Several existing key retailers

encouraging Afterpay to expand

• U.K. fjts with strategy to serve globally

recognised brands and customers across borders

Acquisition Rationale

• Accelerate and de-risk Afterpay’s entry

into the U.K.

• Established operational footprint, local

relationships and understanding of local regulatory conditions

• Key employees to integrate and deploy

Afterpay’s global system

Acquisition

• Acquiring 90% of Clearpay Finance

Limited for 1m Afterpay Shares

• Clear path to 100% control

(after China and the U.S.)

U.K. A KEY EXPANSION MARKET

Signing up the largest retailers and most well-loved brands in New Zealand. Afterpay is also continuing to expand its Australian retail base to New Zealand. Smaller retail market compared to Australia Good progress made during H2 FY18 and since inception (approximately 9 months) New Zealand customer growth is consistently growing in line with our retail footprint expansion

CONSOLIDATING NEW ZEALAND

THANK YOU