1H18 RESULTS PRESENTATION 1
“ Simplifying how you pay everywhere and save everyday, through easy-to-use, consumer- friendly and financially responsible products. ” Zip Co Ltd (ASX: Z1P) 2
1H18 AGENDA 1. RESULTS HIGHLIGHTS 2. OPERATIONAL UPDATE 1 2 3. FINANCIAL REVIEW 4. OUTLOOK 3
HIGHLIGHTS 1st ICONIC >10K 1MILLION users across the brands join the locations to use your of its kind Group Zip network Zip wallet open- banking $40M $600M API integration with major minority equity in volume bank investment by processed on the Westpac platform to date $380M BREAK-EVEN debt facilities on track for cashflow break-even increased on a monthly basis in FY18 4
COMPANY OVERVIEW PRODUCTS DESIGNED AROUND MILLENNIALS THAT ARE ENGAGING AND SIMPLE TO USE, WITH A STRONG FOCUS ON FINANCIAL WELLBEING Credit & Payments Budgeting & Saving Interest-free digital wallet Free mobile money app • • Line of credit, account Helps users get smart with their • • zipPay (up to $1K) for everyday money and savings • purchases (fashion, accessories) Automatically categorises spending • zipMoney (up to $30K) for larger to helps users achieve their • purchases (electronics, travel) financial goals www.zippay.com.au www.getpocketbook.com www.zipmoney.com.au 5
1H18 KEY METRICS $16.0m $231.3m $16.0m $231.3m $6.7m $87.7m Revenue 1 Receivables 2 139% 164% ↑ ↑ 1H17 1H18 1H17 1H18 $235.3m 2.28% $235.3m 2.28% $83.2m 0.84% Transaction Volume Bad Debts 3 183% 1.44% ↑ ↑ 1H17 1H18 1H17 1H18 529.3k 7.8k 529.3k 7.8k 119.1k 2.2k Customers Merchants 345% 255% ↑ ↑ 1H17 1H18 1H17 1H18 Notes: 1. Revenue includes Portfolio income and other income; 2. Gross receivable value; 3. Bad debts are written off in line with policy after 180 days past due, and calculated on the gross receivable amount. 6
FINANCIAL DASHBOARD • Record revenue growth in 1H18 REVENUE YIELD 1 • Yield trending upwards in 2Q18, towards the 20.7% 17.5% target of 20% 17.0% 17.1% • Cash cost of sales % continuing to trend down ‒ Exited expensive legacy funding in half 1H17 2H17 1H18 2Q18 ‒ Negotiated more competitive data and bank pricing CASH COST OF SALES 1,2 • Cash operating costs % continue to reduce 16.7% 15.5% 13.2% ‒ Stabilising cost base following significant 11.4% headcount increase in FY17 • Platform well positioned to benefit from 1H17 2H17 1H18 2Q18 increased operating leverage as volume continues to expand CASH OPERATING COSTS 1,3 14.5% 14.0% 12.4% 11.8% Notes: 1. All figures expressed as a percentage of quarterly average receivables. All figures are on an annualised basis; 2. Cash cost of sales includes interest, bank fees, data costs, and bad debts written off; and 3. Cash operating costs exclude funding program 1H17 2H17 1H18 2Q18 establishment costs, share based payments, depreciation and amortisation. 7
PATHWAY TO CASHFLOW BREAKEVEN • On track to achieve cashflow QUARTERLY CASH OPERATING MARGIN breakeven on a monthly basis 20% in FY18, including bad debt 15% write-offs, driven by: 10% ‒ Volume continues to grow 5% 0% ‒ Portfolio income expected -5% to trend upwards -10% ‒ Funding costs continue to -15% reduce, now c.6% -20% Q4 17 (A) Q1 18 (A) Q2 18 (A) Q3 18 (I) Q4 18 (I) ‒ Operating costs have stabilised Portfolio Income % Funding Costs % Operating Costs % Cash Operating Margin % Notes: 1. Portfolio Income, Funding Costs, Operating Costs and Cash Operating Margin all expressed with reference to Average Receivables Balance in the quarter, on an annualised basis (i.e. % p.a.). Cash Operating Margin = Portfolio Income – Funding costs - Operating Costs (not including losses from bad debts) 2. Assumptions adopted for future periods include: (i) Portfolio Income % kept constant at current levels, (ii) Funding costs to reduce from 10% to 6%, (iii) Operating costs assume 5% increase per quarter and 20% quarterly growth in average receivables 8 3. Figure above does not represent a forecast and is illustrative only. Future periods are identified with an (I)
1. RESULTS HIGHLIGHTS 2. OPERATIONAL UPDATE 1 2 3. FINANCIAL REVIEW 4. OUTLOOK 9
UNIQUELY POSITIONED CREDIT CARDS RETAIL FINANCE BUY NOW PAY LATER • Hard applications, low • Poor customer experience, • Easy sign-up, reverse layby, acceptance sold by physical retail staff instalments split on card • Low monthly payments, • Higher dollar purchases • Lower dollar purchases high revolving balances and • High consumer fees with • Largely merchant funded, high, compounding interest MODEL interest rates higher than reliance on customer late • Use credit and ID sources traditional cards fees for some models • No brand loyalty or • Uses credit and ID sources affiliation • No brand loyalty or affiliation • Credit card receivables flat • Being disrupted by digital • Growing quickly, particular and declining, volume players with downward as millennials seek beginning to stagnate trending volumes and aging payment choice TREND customer base • Lots of plastic in market • Becoming crowded with with low digital wallet similar offerings in market adoption Zip plays in all segments and is strongly differentiated (see next slide) 10
THE ZIP DIFFERENCE Built in the cloud from day 1 • Mobile-first design and product strategy • Digital, mobile-first Great user experience • Encourage interest free behaviour through • promotional periods with high monthly payments Strong focus on responsible financial services Credit and ID checks for all customers • Direct relationships with loyal customers and • retailers through ‘closed loop’ network Brand strength and captive network Compelling USP delivers new customers to our • merchant base Able to originate credit for small and large • Flexibility, simplicity, and purchases, with payback flexibility to suit friendly terms Transparent, simple fee structure funded by • both merchants and customers 100% owned proprietary decision technology • supports high levels of automation Proprietary big data platform Conventional and non-conventional credit data • 11
LARGE TARGET MARKET There is over $480B spent in Zip’s target A ‘WIN - WIN’ MODEL markets, with Zip well placed to continue to penetrate and capitalise on this large 20% opportunity. Awareness of alternative payments is at an all-time high, driving Increase in conversion engagement. 30% Increase in order value $310B $120B $50B 3x RETAIL TRAVEL HEALTH Repurchase rate 12 Source: ABS, Tourism Research Australia, Australian Institute of Health and Welfare Source: based on internal sample data sets
EXPANDING MERCHANT BASE OVER 10,000 PLACES TO SHOP WITH ZIP AND GROWING TRAVEL HEALTH HOME & OUTDOORS BIG BOX TRANSACTION VALUE ELECTRONICS GENERAL FASHION & BEAUTY 13 Note: Chart illustrative of Zip’s key segments based on transaction volume
GROWING ENGAGEMENT CUSTOMERS • Customer numbers and engagement 529.3k metrics continue to grow 404.0k 300.9k • Repeat transaction rate now 75% driven 198.1k by: ‒ More places to use the Zip wallet with 3Q17 4Q17 1Q18 2Q18 a record 3,315 new retailers joining REPEAT TRANSACTION RATE in the half 75% ‒ More targeted and personalised 70% 61% retailer co-marketing campaigns 52% ‒ Unification of Zip network, enabling a Zip wallet (zipPay or zipMoney) to 3Q17 4Q17 1Q18 2Q18 transact at any Zip accepted merchant TRANSACTION VALUE 140.2m • Zip App to launch in mid-2018 95.1m 86.4m 61.0m 3Q17 4Q17 1Q18 2Q18 14
MARKETING CAMPAIGNS, CO-MARKETING PROGRAMS DRIVE TRANSACTIONS 15
DIVERSE BASE, WEIGHTED TOWARDS MILLENNIALS Age Residential status 1 Home Owner No Mortgage 18-24 Home Owner Mortgage 25-34 Living with 35-49 Parents 50+ Board Rent Employment status 1 Locale WA VIC Self Employed TAS SA Part-time QLD NT Full-time NSW ACT 16 Note: 1. Residential and employment data is based on the zipMoney customer receivables as at 31 Dec 2017
STRONG CREDIT PERFORMANCE BAD DEBTS AND ARREARS 1 • Arrears and bad debts of 1.85% and 6% 2.28%, respectively, remain below 5% industry benchmarks 4% 3% • As the book seasons, bad debts are 2% expected to trend towards 3% 1% 0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec • Zip’s consumer profile remains well Bad debts Arrears balanced Note: 1. Arrears defined as those accounts greater than 60 days delinquent. • Management continue to balance the Bad debts defined as those accounts greater that 180 days delinquent. All figures are on an annualised basis. appetite for risk with growth in revenue REPAYMENT RATE 2 • Repayment profile remains healthy at 16% 14% 14%, demonstrating strong capital 13% 12% 13% 13% 14% 15% 14% 14% recycling 11% 11% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Note: 2. Repayment expressed as a percentage of receivables at the 17 beginning of the month.
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