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Edited Transcript of APT.AX earnings conference call or presentation 28-Aug-19 12:30am GMT

Full Year 2019 Afterpay Touch Group Ltd Earnings Call

MELBOURNE Sep 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Afterpay Touch Group Ltd earnings conference call or presentation Wednesday, August 28, 2019 at 12:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Anthony Mathew Eisen

Afterpay Touch Group Limited - Co-Founder, CEO, MD & Executive Director

* Frerk-Malte Feller

Afterpay Touch Group Limited - Global COO

* Luke Bortoli

Afterpay Touch Group Limited - CFO

* Nicholas David Molnar

Afterpay Touch Group Limited - Co-Founder, Global Chief Revenue Officer & Executive Director

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Conference Call Participants

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* Ashwini Z. Chandra

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Lafitani Sotiriou

Bell Potter Securities Limited, Research Division - Senior Analyst

* Mark Bryan

Wilsons Advisory and Stockbroking Limited, Research Division - Head of Research

* Phillip Chippindale

Ord Minnett Limited, Research Division - Senior Research Analyst

* Sameer Chopra

BofA Merrill Lynch, Research Division - Head of Australian Research and Co-Head of Regional Telecom Research

* Siraj Ahmed

Citigroup Inc, Research Division - Associate

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Afterpay Touch FY '19 Results Presentation Call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Anthony Eisen, Chief Executive Officer of Afterpay Touch. Thank you. Please go ahead.

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Anthony Mathew Eisen, Afterpay Touch Group Limited - Co-Founder, CEO, MD & Executive Director [2]

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Thank you very much and good morning, everybody. Thank you for your time to join us this morning. As intro-ed, my name is Anthony Eisen. I'm the Chief Executive Officer of Afterpay Touch Group, and it's a real pleasure to be with you here today. I'm joined by my Co-Founder and Executive Director, Nick Molnar; our Chief Financial Officer, Luke Bortoli; and it's also a great pleasure to introduce our recently appointed Global Chief Operating Officer, Malte Feller.

Collectively, we're all very pleased to present our FY '19 results to you today. An ASX announcement was made this morning summarizing our FY '19 results including an investor presentation as well as our annual report. We'll talk this morning through the investor presentation to give you an overview of our results and as importantly, our strong momentum going into FY '20.

If I can turn to that presentation now and before addressing the growth and performance in FY '19 as we continue to scale our business on a global platform, I'd really like just to take a moment to focus on our mission and why we exist. So if I can turn your attention to Section 1, which starts on Page 5, I'd love to make a few introductory comments.

Our mission is to be the world's most-loved way to pay. And now with over 5 million customers, growing on average by over 12,500 customers every day, we are moving towards our goal. The amazing reaction we continue to have from our customers that use our service repeatedly is very much rooted in trust. Afterpay is purposely different, and we've been like that from the outset to traditional forms of credit and other new players that enter the market. We help customers budget for discrete relatively low-value items in a manner that does not allow them to revolve an accumulating debt. For us and from the outset, it's about empowering customers without entrapment. Our built-in customer protections are not at all lamented by our customers. In fact, the opposite is the case. The trust and loyalty we see in our repeat customer and very high-frequency rates together with our very low loss experience for us tells the whole story, and we'll go into those statistics today and our progress along that journey.

We're empowering a new generation as they move away from traditional credit products. We approach everything with a millennial and a technology-first mindset. But it's interesting to see the core values inherent in millennial culture permeating across the board with the average age of an Afterpay customer now 33. Millennials and Gen Z are driving change in global spending habits, and that's becoming more apparent by the month. By 2020, millennials will have the highest spending power, almost $15 trillion worldwide. And by 2025, millennials will contribute almost half of all salary earned in the United States. Importantly for us at Afterpay, we're building a relationship with them today not just in Australia and New Zealand where 27% of millennials and now over 16% of the entire purchasing population use Afterpay. But we're expanding very rapidly in the United States where we now have over 2.1 million customers in a little over a year and in the U.K. where we just recently launched but already have over 200,000 customers.

On Slide 9, you'll note that our business model is different because it's aligned with the customer, and we don't make our money from revolving customers in debt. It's as simple as that. It doesn't matter whether you call it interest or something else. Afterpay does not make its -- majority of its money from customers. We make the vast majority of our income from retailers who see Afterpay as a service to better engage with their customers, and it is in that way that Afterpay is also very different. Retail is in our blood, and the way that we add incremental value to our merchant partners is by providing them with a channel to the most sought-after and hard-to-reach customers. Whether it's via the Afterpay curated shopping experience, bespoke retailer campaigns or the recent After-Yay retail event, we add incremental value; and our growing innovation, data and technology capabilities are entirely directed at enhancing the customer experience and making our retail partners more successful.

International growth is still in the very early stages, but FY '19 has exceeded our expectations as really the customer and retailer dynamics that have been so prevalent in Australia continue to prove out abroad, in a lot of ways in an even stronger dynamic. While we've achieved significant growth in FY '19, you'll see on Slide 10 of the presentation that the operation remains very nascent and very significant. Importantly for us, we are in market and we are moving. We're also internally aligned for the challenge and the opportunity. Our organizational structure and the changes that we announced in July recognize our global platform and are intended to align incredible individual employees that reside in Afterpay as one global team. We also continue to attract world-class talent as our mission and global voice is now capturing a lot of attention.

We are very clear on our strategic pillars summarized on Page 12: to grow, to perform and to innovate, all underpinned by our people, our culture and a desire to do the right thing by all of our important stakeholders. During FY '19, we completed a number of capital management initiatives. And really importantly, we have the balance sheet to both scale and compete globally. And Luke will provide more information around the very strong position we have going into FY '20.

On Slide 13, you'll see what our momentum looks like going into FY '20, which, in a lot of ways, is more important than the year just passed. What I'd like to outline is really just a few high-level comments in terms of how we're progressing into the year. It's fantastic to see our growth rates accelerating. Our year-end run rate was $7.2 billion of GMV on a global basis. In-store, in addition to online, is growing very strongly. In Australia and New Zealand, in-store hit over $1 billion of underlying sales since inception, and it's fantastic to see great brands that will be coming onto the platform that represent really the mainstay of retail in Australia like David Jones and Myer.

Importantly, Nick and others will talk to the way that we've been able to drive the retail economy. As an illustrator of that, Afterpay Day on August 14 and 15, each day of those -- each of those days were bigger for us than Boxing Day in FY '18, really proving that we can improve the dynamic in partnership with our retailers.

On the international front, in the U.S., over 2 million customers run rating at over $1.7 billion of underlying sales. And we're excited very much about the early growth in the U.K., again, driven by some amazing brands that have followed us around the world.

In terms of the way that we're growing, it's also important to recognize that we have a very strong focus on performance. It's not just growth for growth's sake. And excited to share with you statistics that Nick will go through in terms of customer frequency rates and the very low loss rates that we've been driving as we've been growing in multiple markets. I think the Australian and New Zealand experience is very telling. We've had 3 years of very strong growth in our home market. And over the period, we've seen that customer and loss dynamic improve consistently. It's not just about people using our service. It's using it repeatedly and responsibly. And Australia and New Zealand really acts like a glide path for us for the rest of the world.

A number of innovation features have occurred during FY '19. We're excited to launch more innovation for our customers and our merchants, and Malte will address that in addition to overseas developments and some really important strategic partnerships that underpin our capabilities in that area and excited to provide some more details of our partnership struck with VISA recently.

And above all, it's our people that are the bedrock of our company. It's an absolute privilege to be part of the Afterpay team. We are growing very strongly not just in terms of sales but the quality and the personal development of people within our organization. And it's a privilege to see our regional talent shine overseas but also to see the world's great talent being attracted to Afterpay because of our mission, because of our purpose and the way that we react to customers and retailers.

We have made organizational changes during the year that aligns us as one global team. And I think that augurs well for our proposition going forward. And we've also been very focused on governance moving to a majority independent Board, which we'll talk a little bit more upon later in the presentation.

I'd now like to hand over to Nick Molnar to provide an overview of the business in Section 2.

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Nicholas David Molnar, Afterpay Touch Group Limited - Co-Founder, Global Chief Revenue Officer & Executive Director [3]

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Thanks, Ant. Hi, everyone. My name is Nick Molnar and just wanted to have the privilege of providing an overview of the growth of the grow and perform function. So on Page 16, it's really the first time we've substantially spoken about our traction so far in the U.K. market. And to have been able to achieve over 200,000 active customers in the first 15 weeks has definitely exceeded our expectations because, at the same time in the U.S., that number actually exceeds the number we were able to achieve in a market that is multiples of the size of the U.K. market.

We have over 150 merchants live and/or integrating in the market. And included in those are some of the most well-respected brands in the fashion and beauty industry that lays the foundation for us to expand our platform like we have in Australia and New Zealand and more recently, the U.S. Carl Scheible's leading the team. I feel very privileged to learn from Carl and the team that he has been able to assemble in short order, has really delivered these fantastic results.

On Page 17 highlights the key brands that we are really lucky to work with. So we have Urban Outfitters Group who was our launch partner in the U.S., put up their hands to be their launch -- our launch partner in the U.K. based on the results that they have seen. The Boohoo group is one of the fastest-growing fashion groups across the world and for them to launch with us as well alongside JD Sports that fits the athleisure millennial lifestyle trend and huge market that's growing right now really forms the foundation for our platform in the U.K. to start to scale. But to get some of those marquee brands is one thing. But the testimonials on the left really help articulate the value and the incremental results that we've been able to deliver for these brands in very short order. So to go into a market where the ClearPay brand was largely unknown to then expand as quickly as we have and seeing the consumer resonate with it as fast as it has really exceeded our expectations.

On Page 18, turning to the momentum that we've been able to deliver in the U.S. I just want to call out the team that we've been able to build there in the past, so a little bit over 12 months now. They have really been the ones that have delivered this result. So to have been able to achieve almost $1 billion of GMV in full year financial '19, which is our first full year of trade, it's just an unbelievable achievement by the team. Our current run rate is more than $1.7 billion based on June '19, and customer frequency numbers are up at 75%. So customers aren't just using it. They're using it more frequently and very much following the same trend that we have seen in Australia and New Zealand.

To be able to announce really marquee retail brands like Ulta, J.Crew, who will join the platform shortly and equally, the whole Estée Lauder Group after launching M.A.C. as the first brand, seeing the results there and then committing to launch the Estée Lauder brand and the Clinique brand followed by more shortly, really again articulates our ability to now move up the channel to both attract SMB that's driving really strong margin results but also these more mega enterprise brands and marquee brands in the market.

Page 19 articulates that portfolio of retailers that we've been able to assemble over the past -- just over 12 months. And I think it's -- we are really happy to show that our platform and portfolio of partners really exceed anyone else in-market, and we've able to attribute that in very short order. Again, Chad from DSW and Dave Hayne from Urban Outfitters have been great supporters of us in-market. These are 2 leaders in the space. And to be able to publicly attribute the results that they've been able to see and the fact that they're proud of our partnership is really a testament to the results and value that our consumers have been able to deliver for them.

Really, as Anthony mentioned, building Afterpay as not just a payment product but a platform to attract the world's most valuable consumer, which is the next generation, the consumer that has by far the highest lifetime value, the consumer whose disposable income is growing and is attracting and changing the way that people pay across the world has really embedded us as a true partner obviously in Australia with these new markets that we've been able to launch in, in a very short order.

Page 20 highlights the Google trends result, which is really an articulation of not just can we attract retailers but are customers then looking for the Afterpay brand to see where else they can shop. Our consumers came to our app or our website. In the U.S. alone, we sent out more than almost 4 million leads in the 30-day period; and you can see the growth that we've been able to achieve. So not only are they using it once on a retailer event, saying where else can I use it and following the same trend that we were able to see in Australia.

Page 21 talks to our results in Australia and New Zealand. Coming off a really big base, Australia was able to achieve more than $4 billion of underlying sales in financial year '19 and now trading at $5.4 billion as of the full month of June run rate. It's amazing to see this grow and I've got a slide shortly on frequency that really talks to how our consumers are engaging more over time. But in-store has been a really big contributor for us and a substantial investment that we've made not over a short period of time, over a really strong period of time because we believe that this was going to be a core part of our business.

There's not many online payment products that have been able to successfully deliver an offline payment experience. So to be able to see our in-store results now exceeding 20% of Australian GMV is a reflection of the investments that we've made across multiple functions of our business all coming together over a sustained vision to really make that work.

So Page 22 highlights at the top some key global marquee brands who, in many instances, want to test Australia in first instance to see the results with the goal of rolling out more globally. So if you look at someone like Gymshark again fits into the category of direct to consumer, one of the fastest, hottest brands in the world, really and how we can prove results in Australia and then look at expanding into other markets; as Anthony mentioned, David Jones and Myer committing to launch with us in-store. When we went more mainstream online, we saw the penetration in that market really accelerate. And we're excited to invest strongly in our offline opportunity in FY '20.

So Page 24 talks to the frequency metric that I spoke about previously. So the key thing on this slide is customers in Australia who originated with us 3 years are now spending 20x a year. So over time, frequency and engagement is actually growing, and that's a really important foundation of our business. And it's growing because customers obviously love us. That's a reflection of our Net Promoter Score being above 80. But as they -- as we build this relationship, as we get engaged with this next-generation consumer in a way that they want to be spoken with, they see us as a partner for how they budget, for how they shop. And so to see that trend over time despite still originating a huge amount of active customers and then when you look at global frequency, ironically, the more you grow active customers, the lower your average frequency. But what we can see is a track forward to what's going to happen in the future based on what we're seeing in Australia. And ultimately, it's -- the overall lifetime value will go up and frequency grows over time.

Despite the growth on Page 25, we've been able to maintain still that $150 average order value, $218 average outstanding balance. And as we've grown exponentially, our losses have come down and our late fee revenue has come down. So late fee revenue sits at less than 1%, and our losses sit at 1.1%, so an amazing delivery of Xin and his global risk team as to how they've been able to provide and build machine learning capabilities and expand our capability in that area despite being able to grow substantially.

I have spoken to Page 26 many times during the presentation, but we've been able to deliver real incremental value. And once we can prove the incremental value to our retailers, it comes to how do we expand this partnership. So to be in an amazing position where we can be seen as a partner for a retailer to attract millennial and to separately attract Gen Z who has distinctly different shopping behaviors to millennials, that's a really amazing position for us to be in. So retailers get presented a lot of opportunities. And when you promise something and it overdelivers, really, they partner with you on a deeper level, and that's been what we've been able to be -- fortunate to see globally over the past 12 months.

Lastly, Page 27 reflects the platform that we've been able to build. So it starts with merchants and customers. At our core, that's what we do. We're platform to the world's most valuable consumer. And retailers just do not see us as a payment product. They see us as a marketing channel. They see us as a data partner. They see us as someone who can provide really deep insight into this consumer base that they've had a notoriously difficult time of attracting. So really, working on the preference towards debit over credit, 2 out of 3 people aged 18 to 30 in the U.S. do not own a credit card, a statistic that is not widely known, and the ability for us to leverage that means that customers do come to our app to decide where they want to buy. But most importantly, that Net Promoter Score being as high as it is despite our growth is a real testament for the whole team, and there's multiple touch points. There's a lot of what we call the 1% that go into that, and I'm really proud of the results we've been able to deliver over the financial year '19.

So with that, I'm really excited to pass over to Malte.

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Frerk-Malte Feller, Afterpay Touch Group Limited - Global COO [4]

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Thanks, Nick. Really appreciate it. Good morning, everyone. My name is Frerk-Malte Feller, and I'm excited to be with you this morning having just joined Afterpay a few weeks ago to lead our product, technology, risk, operations and agile functions. Across my career, I've had the opportunity to work on some world-class Internet products that includes eBay and PayPal early on and more recently, I've worked for Facebook at its Menlo Park headquarter in leadership roles on Facebook's Workplace product and Facebook's Messenger product. And I can tell you Afterpay is such a world-class product. In fact, I'd say Afterpay was actually the product that attracted me to the company, and it's the purity of the model, how we really side with consumers. It's the strong growth from our focus that we've had recently, and it really is the potential for the future that we have through innovation and why I'm here.

So I was going to talk to you a bit more about that innovation stream, and I was going to touch on 3 aspects on that. I'll talk a bit about the platform foundation based on the data that we have. We'll talk about where we're going on the consumer and the merchant offerings and value propositions. And then we will highlight one strategic partnership that we recently struck.

On Page 29, on the foundation of our business, I wanted to highlight that data not only provides the foundation for how we run the business in terms of the payment processing and particularly the risk management, the compliance and the risk performance management. But really, data is also the core that allows us to be this partner to merchants that Nick just spoke about. There are plenty of analytics and insights that we gain through the transactions on our platform that we can partner with merchants on, and we've really become that trusted and valuable adviser and partner to drive merchant objectives as we grow our own business.

But at the same time, obviously, the data is the foundation as in any world-class Internet company, to help us evolve the product and drive the right enhancements in customer experience, to drive both the, if you will, baseline changes that help us grow in the core of our model as well as drive the further innovations that expand our model and our growth.

If you flip to Page 30, we're really only at the beginning of our development of the product. We have a tremendously strong vision for what we do and how we further evolve our product. And we have a commitment to continue to lead the buy now, pay later space.

On the merchant side, we've spoken about that partnership and how we really have a platform that is a platform for merchants to reach the world's best and hardest to reach consumers. Data is 1 part of that, but I'll speak about 2 other kind of more recent innovations that we've delivered in this last financial year that help merchants to connect with more consumers. And on the other side of the equation, we have our customers that really look to us to play a bigger role in their lives and help them kind of to make the purchases that they're looking to do with freedom but without kind of being caught in the debt trap. And I'll talk about some more recent product innovations on that front also.

So flipping to the consumer side. We have, in this past financial year just recently, partnered with some of our leading merchants to help make Afterpay available for larger transactions. We call this variable payment upfront or VPUF in short. Partnering closely with JetStar but having since rolled it to more merchants, we are allowing customers to make higher-value purchases by increasing the initial down payment that they make for the transactions. So while traditionally, an Afterpay transaction has been split into 4 equal parts, if our customers now wants to make larger transactions beyond their payment limit, they can increase the first payment immediately at point of purchase, so therefore, they can make larger purchases without actually increasing their debt exposure down the line. So that initial larger payment means that the subsequent 3 payments then remain smaller and the customer is not pushed into debt, which people really like because they can make larger purchases with Afterpay, while we're protecting them from sliding into debt.

It's really helped us to kind of grow our applicability and our relevance for both existing merchants as well as become a key part of the conversations of attracting new merchants and have them sign up for Afterpay.

The second piece I was going to highlight is persistent login. It's a great enhancement to how our checkout product works, and removing kind of some of the friction that is in that process, which is great for both people and for merchants. And it's particularly useful because our transaction frequency, as Nick has spoken about, has been increasing rapidly.

So we've really just made it so that consumers don't need to log in every time but they can elect to stay logged in with Afterpay across multiple sites and transactions. And that may sound like a small change, but I just want to iterate how important it is in a world-class product organization to keep iterating on some of the core flows and the core functionality. And that really is an important driver of growth and differentiation against competition.

Flipping to the merchant side on Page 32. We have recently expanded the relevance of Afterpay to merchants around the world by enabling cross-border trade, and we're really in a unique position to do so as the only buy now, pay later player that actually covers this wide geographic reach as we do. And therefore, we have made it so that customers from one country can buy from merchants in another. And it really helps kind of both satisfying consumer demand but also driving merchant growth. And I've had tremendous feedback from our customers on that.

And we've also smoothened the onboarding for SMBs, which is important for our merchant growth, by streamlining and automating the onboarding, as Afterpay is kind of sought after by more and more merchants that you may call the long tail that's been really valuable for our business. We help those merchants grow, and we are enjoying kind of higher revenue take rates from those smaller merchants. So it's been a real win-win for both merchants and us as a business and obviously for consumers that shop there.

So last but not least, I want to touch on our VISA partnership that we just entered in for the U.S. We did sign a strategic partnership to support the development of innovative new solutions and our business growth in the U.S. We're really excited about that. VISA has been a tremendous partner and we have lots of ideas around product innovation that will enhance our current offering without pushing our customers into traditional credit.

So both us and VISA are very bullish about the installment market. We see significant growth opportunities, and we see scope to collaborate to both our benefit. We'll be announcing further details as we go into the implementation phase of this partnership, but I can tell you today that VISA is a very important strategic partner for us in the U.S. So we're very excited about deepening our relationship with them.

With that, I'd like to hand it back over to Anthony.

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Anthony Mathew Eisen, Afterpay Touch Group Limited - Co-Founder, CEO, MD & Executive Director [5]

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Thank you, Malte. And Luke will now take us through the FY '19 financial results.

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Luke Bortoli, Afterpay Touch Group Limited - CFO [6]

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Thanks, Anthony. I'd ask our listeners to please turn to Slide 38 of the presentation. Please note that in this section of the presentation all financial results are presented in Australian dollars unless otherwise stated and in reference to pcp, refers to the prior corresponding period of full year '18.

As discussed in our first half full year '19 results presentation, a number of new accounting standards were adopted in full year '19. In order to provide for like-for-like results with the pcp, pro forma financials are presented throughout this presentation, which remove the impact of those accounting standard changes.

Moving on to the results themselves. As outlined by Anthony earlier, FY '19 represented a period of significant growth while continuing to invest to scale the Afterpay platform in new markets globally. For the combined Afterpay Touch Group, pro forma total income or revenue increased by 91% on full year '18 to $272.5 million. This was driven by strong growth in Afterpay underlying sales supported by stable merchant margin and a small contribution from Pay Now.

Moving to profitability metrics. Group pro forma net transaction margin, or NTM, increased by 93% to $136.5 million; and pro forma EBITDA excluding significant items ended the year at a very strong $35.5 million. The group's EBITDA result was particularly pleasing in that it was broadly in line with full year '18 despite the significant investment made to launch the Afterpay platform in the U.S. and the U.K. Afterpay has an increasingly diversified portfolio of global regions with earnings growth in our existing markets of Australia and New Zealand more than offsetting the startup costs in new markets in the period. For further detail on the performance of each of the group segments, they are provided later in the presentation.

Turning now to Slide 39. FY '19 saw very significant growth, and Afterpay underlying sales were approximately $5.2 billion, 140% higher than the pcp with increases across all regions. Pro forma Afterpay income or revenue from merchant fees increased by 133% for full year '19 to $205.5 million underwritten by underlying sales growth and the solid merchant margin. Afterpay's pro forma income margin remained stable during FY '19 at 3.9% in line with the first half and marginally below full year '18 at 4%.

Income margin is tracking in line with our midterm plan strategy as we deliberately scale in new markets led by enterprise retailers who are typically lower margins with SMB retailers expanding margin over time. The group achieved a historical low NTL percentage of 40 basis points in full year '19 in line with FY '18. This is a particularly strong result given the increase in contribution of the U.S. business and new channels such as in-store.

As previously flagged, new regions and channels will experience higher losses in their early growth phase and will decline over time with a higher proportion of return customer. Pro forma net transaction margins or NTM was $126.1 million in FY '19 with growth of 126% on the pcp. Net transaction margin remained strong at 2.4% tracking in line with first half '19 and previously announced midterm plan expectations with a significantly higher proportion of lower margin U.S. sales in the period. Further detail on merchant margin, net transaction loss and net transaction margin percentage are outlined later in the presentation.

Turning now to Slide 40. FY '19 saw strong growth across all Afterpay regions and channels and across all key platform metrics. As mentioned on the previous page, underlying sales reached $5.2 billion in full year '19 at 140% growth rate on the pcp. The combined Australian and New Zealand platforms doubled its underlying sales to $4.3 billion with continued momentum in online and increasing penetration in in-store.

The U.S. business outperformed all of our expectations with more than $927 million of underlying sales in its first full year of trading from essentially a standing start in full year '18. By comparison, it took the ANZ business approximately 3 years to achieve this same level of sales. Importantly, as Anthony mentioned, GMV momentum continues today with Afterpay run rating at over $7.2 billion of GMV globally based on recent month sales, an outstanding achievement from the entire team.

The U.S. business is also run rating in excess of $1.7 billion based on recent sales. In terms of customer numbers, total active customers more than doubled to 4.6 million as of 30 June and is well in excess of 5 million customers today. The U.S. customer base is now approximately 2.1 million customers, and our U.K. customer base is off to a flying start with over 200,000 customers higher than the U.S. at the same time post launch.

Growth in active merchants also continues today at 32,000 merchants on our platform as of 30 June, increasing to approximately 35,000 today with a strong pipeline to come. Finally, we're gaining strong traction in-store, as Anthony previously discussed, with a number of shopfronts increasing by 138% in the period to approximately 24,000 as of 30 June and 26,000 today.

Overall, Afterpay has had incredible success in scaling its key platform metrics including customers, merchants and frequency. Our network has created a flywheel effect where more merchants drive more customer acquisition and more customer acquisition in turn attracts more merchants. We also know that once a customer joins our platform, as mentioned earlier, they transact more frequently over time generating more profitability in a given period. The faster that we can therefore responsibly grow our customer and merchant base today, the more value we are creating in our network for the long term.

Turning now to Slide 41. Slide 41 contains further detail on income margin for full year '19 and the enterprise-led growth strategy, which is core to our midterm plan. As a proof point on the execution of this plan, U.S. underlying sales, which was initially enterprise weighted and lower margin, now has a merchant margin which is broadly in line with ANZ as the contribution of SMB sales has increased over time.

Turning now to Slide 43. Over the last 3 financial year period, Afterpay has demonstrated continuous improvement in growth and net transaction loss percentage while also rapidly growing underlying sales. Gross loss is reduced by 40 basis points from 1.5% in full year '18 to an all-time low of 1.1% in full year '19, offsetting a broadly equivalent reduction in late fee income. The net of this is that Afterpay NTL percentage of 40 basis points for full year '19 remains at historically low levels.

Our loss improvement highlights the continuous evolution of our proprietary risk management system and increase in proportion of orders from returning customers and improving customer repayment profile. Pleasingly, these reductions have occurred while expanding into new geographies and channels as well as reducing late fee income as a percentage of our fee income to well below 20%.

Turning now to Slide 45. Slide 45 provides a summary of the group's statutory profit and loss statement including details on expenses below the NTM or gross profit line. Salaries and wages grew by 131% on the pcp to $51.4 million in full year '19, and operating expenses excluding marketing grew by a similar 136% to $50.3 million full year '19. Both of these items grew broadly in line with Afterpay underlying sales and are reflective of the investments made to establish the U.S. and U.K. Afterpay platform. The largest component of OpEx being marketing spend grew above system growth with significant investment made in marketing to launch enterprise partnerships in new markets in line with our midterm plan. Afterpay's receivables impairment expenses equivalent to gross loss was explained earlier in the presentation, and further detail on D&A and share-based payments are contained in the appendix.

Afterpay's statutory loss before tax of $42.8 million was significantly impacted by one-off and noncash items including share-based payment expenses and the initial application of new accounting standards. Excluding these items, the group would have reported statutory profit. Please refer to the appendix of this presentation for a reconciliation of the statutory loss for the period to pro forma EBITDA of $35.5 million.

Turning now to Slide 46. In full year '19, the group had positive underlying EBITDA as mentioned earlier, positive underlying cash flow and a business model which reported a high return on capital employed. In spite of the significant investment made in launching Afterpay in new markets in full year '19, underlying free cash flow adjusted for receivable funding was positive and increased from $22.9 million full year '18 to $33.3 million in full year '19.

Taking into consideration receivable funding, our receivables turnover of less than 30 days meant that Afterpay can scale its underlying sales with an efficient level of working capital, thereby offering a higher level of return on capital employed. Afterpay's NTM, which is post the cost of receivables funding of 2.4% full year '19, represents an annualized return on capital employed of over 25% for the period.

Turning now to Slide 48. The group continuously monitors its capital management position to ensure it has adequate funding for working capital and GMV growth today and over the medium term. This focus is reflected in our strong balance sheet position. The group has a total cash balance of $231.5 million, a net cash position of $183.3 million and total liquidity of $610.1 million. The group raised $459.3 million of equity capital in full year '19 for the purposes of bolstering our capital position. These proceeds were used to repay warehouse debt, thereby providing a corresponding increase in liquidity, [by] equity in our facilities as shown on the right-hand side of the page.

The group has $947 million of warehouse funding facilities fully undrawn and together with our existing net cash position can fund in excess of $16 billion of underlying sales above the current run rate. On this basis, Afterpay's current facilities can fund underlying sales well in excess of our midterm target of $20 billion plus, plus of GMV by the end of FY '22.

To conclude this section of the presentation, in full year '19, Afterpay reported terrific results across key platform metrics of underlying sales, customers and merchants as well as income and profitability. The performance of the U.S. business in particular is exceeding expectations and highlights the popularity and potential of the Afterpay product in new markets and supported by the right execution plan. These results validate the success of our international expansion strategy, and we're excited by the opportunities that lie ahead.

I'll now hand the presentation back to Anthony for closing remarks.

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Anthony Mathew Eisen, Afterpay Touch Group Limited - Co-Founder, CEO, MD & Executive Director [7]

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Yes. Thanks very much, Luke. Before wrapping up, I'd probably just would like to backtrack to Slides 35 and 36 to talk a little bit more about the bedrock of our strategic pillars, which is around our people, our culture and our commitment to do the right thing.

From the outset, our team has been incredible. We've been joined by the most amazing people that are technologists, data analysts but also retailers and customer people at their core. And as we continue to expand around the world, it's fantastic how our Afterpay family is expanding.

On Page 35, you'll see that we do have a focus on diversity and inclusion, and we'll continue to report to the market on those statistics as we want the inside of our company to reflect all the things that we do on the outside. In terms of our customers, again, the key thing for us from the outset is the amount of trust that we continue to build. It's only because of our customers that we exist and the way that we're responding to their lifestyle preferences as opposed to trying to teach people the way that they should act. It's really an amazing experience to see core values of what is now an increasing and broadening demographic be reflected in the way that they interact with us every day.

The simple point about our model is we make more money when people do the right thing. And being aligned with the customer puts us in a very good position. We make more money when customers pay on time and can use the product more frequently. And being aligned in that way makes a very substantial difference to our relationship.

In addition to customers, it was really pleasing to reflect that we've got well over 30,000 small to medium businesses now that reside on our platform. In addition to, obviously, the GMV or the underlying sales contribution, we've had lots and lots of examples with businesses that we can help promote in more regions and territories and linking smaller businesses with really big successful brands and providing inspiration throughout the retail economy as well as access to this very hard-to-reach customer base is an area that we're going to continue to pursue, and actively supporting our local communities is all part of that for the Afterpay team.

In terms of governance, we've made a number of changes to enhance our governance position. We've moved to a majority independent Board with an independent Chair. And a process for recruiting new independent directors is well underway.

In terms of regulation, it's been pleasing, on Slide 36, that since April 2009, Afterpay and buy now, pay later as a sector is now formally regulated under the jurisdiction of ASIC. In addition to that, we've been strong advocates for an industry code of practice that sets the standards in what we do. But regardless of whether it's a code or whether it's a formal regulation piece, we're very supportive of the minimum standards that back the customer. Things like features of our service that have been present since inception like freezing a customer at the first sign of nonrepayment, not going into revolving debt, internal and external dispute resolution processes and of course, helping people in hardship are all continuing areas, which we're going to build on from our own volition in addition to working with the industry.

In terms of AUSTRAC, as previously reported to the market, we welcome AUSTRAC's desire to work more closely with new technologies in the market. We're viewing the current order processes and opportunity to achieve best practice. And as we've also previously reported, an external auditor is now underway with an interim report due in September and the final report due in November.

In terms of closing, I'd just like to say that I think the team has done an incredible job. We go into FY '20 with really a lot of enthusiasm. We continue to scale the Afterpay platform not just in Australia and New Zealand but as you've seen, in North America and in the United Kingdom. The market opportunity is very significant, but it's also very nascent. And the way that we're viewing the opportunity and the reason why we're so enthusiastic is that we do have a differentiated proposition. Our proposition puts the customer first, and it also provides a channel for merchants to the best and most sought-after customers in the world. The way that we've aligned our business model and the way that we partner with retailers, we believe, sets us apart. And we'll be building on this to our advantage in FY '20.

So in closing, I'd really just like to thank our customers, our entire merchant platform and of course, again, our team. And we'd be very happy to answer some questions. Thanks very much for your attention.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from the line of Laf Sotiriou from Bell Potter.

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Lafitani Sotiriou, Bell Potter Securities Limited, Research Division - Senior Analyst [2]

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I've just got a few questions to start on the -- some of the developments that are working through on the platform and probably kick off with VISA. Can you give us a little bit more color around the expected timing? And is it something that is just starting in the U.S. and you plan on moving into other markets? And can you also just comment on is it mainly user experience focus that you're looking to improve? Or would there be new features and possibly -- and also how are they going to work? Will you be -- will that be impacted by the changes?

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Anthony Mathew Eisen, Afterpay Touch Group Limited - Co-Founder, CEO, MD & Executive Director [3]

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Yes. Thanks, Laf. It's Anthony here. I think one of the key points to recognize is that we've been integrated into the payments network since inception. And as you know, over 85% of all of our volume comes through debit cards, and that really aligns with our customer proposition. So we have been working with the global payment providers really since inception.

The arrangement with VISA isn't just about customer experience. It will contain a lot of those features, but it's also the way that we integrate with merchants as well and where we bridge that ecosystem together. There's been a number of areas that have been identified both on the customer side and the merchant side where we can work collaboratively.

In addition to the actual functionality, it's also the underlying efficiency of the arrangements given the multiplicity of different payment forms that exist even within those very broad pillars of debit and credit. So look, it will cover a number of areas. We will be making specific announcements on some of the key features that we'll roll out over the next period during FY '20. But yes, in summary, it's really both on the customer side and the merchant side.

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Lafitani Sotiriou, Bell Potter Securities Limited, Research Division - Senior Analyst [4]

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So just a quick follow-up on that. So does the efficiency include anything like volume-based efficiencies that go through it?

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Anthony Mathew Eisen, Afterpay Touch Group Limited - Co-Founder, CEO, MD & Executive Director [5]

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The efficiencies relate to a number of things, but it's not necessarily just about volumes, Laf.

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Lafitani Sotiriou, Bell Potter Securities Limited, Research Division - Senior Analyst [6]

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Okay, cool. Just moving on to some of the other developments, the variable payment upfront. And just exactly where is that at this point in time? And how would the user experience of that work? Is that ready to go? Can -- is it seamless for an Afterpay user to go through and just quickly adjust -- make those adjustments?

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Anthony Mathew Eisen, Afterpay Touch Group Limited - Co-Founder, CEO, MD & Executive Director [7]

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Yes. Thanks, Laf. I'll hand over to Malte.

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Frerk-Malte Feller, Afterpay Touch Group Limited - Global COO [8]

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Yes. Great. Just the consumer experience has been really smooth, and people have really been getting kind of what this product does and like how it works, and they've been really appreciative that they can use Afterpay on more transactions of higher value without being pulled into debt. So the feedback from consumers have been very strong. We have...

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Lafitani Sotiriou, Bell Potter Securities Limited, Research Division - Senior Analyst [9]

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Can you give us a little bit of color on what...

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Frerk-Malte Feller, Afterpay Touch Group Limited - Global COO [10]

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(inaudible) across more merchants. That's an ongoing process, just making sure that we equally communicate it to merchants and we kind of integrate it well. But that's gone really well, and we're excited to confirm the initial results that really help us kind of increase the transaction frequency with customers, help us deliver more value to merchants while obviously also maintaining kind of the losses.

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Lafitani Sotiriou, Bell Potter Securities Limited, Research Division - Senior Analyst [11]

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And where was the pilot done? Like who was involved?

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Frerk-Malte Feller, Afterpay Touch Group Limited - Global COO [12]

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That has been a win-win-win for all 3 parties. And thereby, we'll be continuing the rollout of the feature kind of across this period, and we'll then invest in further innovation kind of down the line.

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Nicholas David Molnar, Afterpay Touch Group Limited - Co-Founder, Global Chief Revenue Officer & Executive Director [13]

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And Laf, just one more point. I mean there are some retailers who might sell fashion versus fashion, but they might also sell higher value. And to date, they have a maximum purchase price. So it's not just as easy as just rolling it out across the board tomorrow. Our objective is to work really closely because our retailers have been demanding services like this. So the reality is, with all these innovations, we're in the lead up to Christmas. So we're up against the clock. We need to work as fast as we can, but it does take engagement between us and our partners.

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Lafitani Sotiriou, Bell Potter Securities Limited, Research Division - Senior Analyst [14]

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So what was the average purchase price?

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Anthony Mathew Eisen, Afterpay Touch Group Limited - Co-Founder, CEO, MD & Executive Director [15]

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(inaudible) at this point, but really good feature that we did test around variable payment upfront, as we've -- as Nick said, some of our higher-value merchants. So what we really wanted to see was could we expand our addressable market without pushing the customer any further whatsoever in terms of limit. And what's been really positive from the trials that we've experienced with higher ticket value merchants is that the conversions and the take-up has been much stronger and while the average order value has gone up, again, we've done that without changing any of the limits. So it really does broaden our addressable market, and we really wanted to test that before rolling it out. So yes, we're quite excited about it.

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Lafitani Sotiriou, Bell Potter Securities Limited, Research Division - Senior Analyst [16]

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And so what was the average sort of purchase price during the pilot? And what were some of the names that were used during the pilot?

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Anthony Mathew Eisen, Afterpay Touch Group Limited - Co-Founder, CEO, MD & Executive Director [17]

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Yes. We don't want to sort of disclose some of the specific names. But if I could just limit the comments to the higher ticket value merchants, so I can give you some guidance that in 1 of our key trials, it involved average ticket sizes probably 2 to 3x higher than our average, and we saw it work very well.

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Lafitani Sotiriou, Bell Potter Securities Limited, Research Division - Senior Analyst [18]

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Yes. Okay. Just moving on to another development, the cross-border trade piece. This was in the last presentation. Can you just talk us through where this is at, at the moment and when we -- as a user in these different markets, when they could expect to start transacting and seeing merchants in these other markets?

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Anthony Mathew Eisen, Afterpay Touch Group Limited - Co-Founder, CEO, MD & Executive Director [19]

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Yes. So we did announce that last time, conceptually, we have been trialing it between Australia and New Zealand more expansively since we did last speak about it. We've also improved the way that we're thinking about it and the way that we believe we can deliver it.

As a percentage of GMV between New Zealand and Australia, it's certainly grown but probably still statistically relatively immaterial given the size of the New Zealand market. We're not putting a time frame on other markets as yet. But a lot of the core development work for implementing cross border more expansively has been what we've been investing in, and we see the opportunity as being very significant.

What it does introduce for us is potentially, and this becomes more important down the track, perhaps not so much in FY '20, but a new revenue stream in terms of doing the foreign exchange component. And if we can embed that into what is still a very seamless and customer-first process, we believe that will be quite an interesting development for our business model over time.

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Lafitani Sotiriou, Bell Potter Securities Limited, Research Division - Senior Analyst [20]

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Okay. And just finally on the U.K., obviously off to a very strong start. Can you talk to us what you attribute to the success being faster than what's happened in the U.S. given the different size of the markets? And also, you have made some comments around other markets potentially moving into how advanced are some of those developments.

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Anthony Mathew Eisen, Afterpay Touch Group Limited - Co-Founder, CEO, MD & Executive Director [21]

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Yes. I'll hand over to Nick, Laf.

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Nicholas David Molnar, Afterpay Touch Group Limited - Co-Founder, Global Chief Revenue Officer & Executive Director [22]

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Yes. Thanks, Laf. I mean, look, the key to this is 2 key factors. The first is we understand our strategy really clearly on how we expand into new markets now based on our experience in the U.S. The second is that we have a really strong portfolio of global brands who took us into the U.K. market. So we had really strong demand where people have seen the results and actually requested that we move into markets. The Boohoo group started with us in Australia, moved into the U.S. and then launched with us into the U.K. Urban, I've already spoke about. J.D. Sports is engaged in a very similar way. So what we've got is a very strong portfolio of retailers who have a very broad global reach. And it's really them that are driving our international expansion. So to be able to launch with some of the best brands in the country in short order and to have a really strong portfolio of retailers who are still integrating before Christmas is a testament, I think, to this global platform that we've been able to build.

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Anthony Mathew Eisen, Afterpay Touch Group Limited - Co-Founder, CEO, MD & Executive Director [23]

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We might move on, Laf, if you don't mind; and obviously, you can follow up after with much time as you need.

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Operator [24]

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Your next question comes from the line of Ash Chandra from Goldman Sachs.

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Ashwini Z. Chandra, Goldman Sachs Group Inc., Research Division - Equity Analyst [25]

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Can I just ask about, I guess, a couple of areas? We've been bombarded every few days with sort of new entrants, launch announcements, whether they're exact copycat products or variations. Just wondering how your sort of conversations are going with merchants in this sort of environment because some of these guys are now starting to tap capital to compete with you head on. So yes, would you mind just giving us a run-through of how merchant conversations are going? What are the sort of success factors for getting on a merchant versus a competitor? Any impacts on merchant take rates, co-investment cost, et cetera? Yes. Any comments and thoughts will be much appreciated.

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Anthony Mathew Eisen, Afterpay Touch Group Limited - Co-Founder, CEO, MD & Executive Director [26]

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Yes, sure. Ash, thanks for the question. And maybe I'll just address initially, and then I'll probably hand over to Nick. Obviously, we realize that competition was going to be a part of what we do from the start. What's been interesting from our perspective though is that there's very few players that actually have the same business model and align with the customer the same way. What we see progressively is different takes on a traditional credit model. Again, whether you call it interest or something else, the skew has been in terms of taking more value out of the customer. And we haven't seen any diminution at all in terms of our growth or share of card and those aspects when different offerings are being trialed or put on in addition to Afterpay.

From direct copycat perspective, in terms of that, I think it's one thing to copy a product. It's another thing to invest very strongly in a global data and risk platform. What we do is simple and transparent from the customer's perspective, but it's very in depth from a risk management and global scale perspective. And to deal with merchants on a global level, I think we've got a very good advantage there in terms of what we've invested in our platform and the way that we're currently positioned.

But I'll hand over to Nick to talk about merchants.

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Nicholas David Molnar, Afterpay Touch Group Limited - Co-Founder, Global Chief Revenue Officer & Executive Director [27]

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Yes. Look, I don't have a lot to add to Anthony. I think that our product is uniquely simple on the outside but incredibly complicated on the inside. And it's been that brand that we've been able to build distinctively in-market that stands for something, that means that retailers want to partner with us. So retailers don't just see us as a payment product. They see us as a platform to the world's most valuable consumer. We're a marketing channel to our retailers. And the types of numbers that they share with us on our ability to drive real leads and real high quality converting traffic to them, I think, distinctly differentiates us. So when -- our retailers in-market, they all speak. They speak to other retailers, and ultimately, they want to partner with a product that's going to grow their business and represent their brand in the right way. And I think our brand and the affection that our consumers have for us really does differentiate us in a meaningful way that we've seen in-market that hasn't significantly impacted us.

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Ashwini Z. Chandra, Goldman Sachs Group Inc., Research Division - Equity Analyst [28]

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And so you're not seeing any downward pressure on merchant take rates as part of the conversation? I mean I'm sure they're sensitive to it. But could you provide any commentary to those?

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Nicholas David Molnar, Afterpay Touch Group Limited - Co-Founder, Global Chief Revenue Officer & Executive Director [29]

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[There was], Ash, but we haven't seen any significant material pressure.

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Anthony Mathew Eisen, Afterpay Touch Group Limited - Co-Founder, CEO, MD & Executive Director [30]

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I think if you look through the FY '19 results and the movement in our margin, you can see that it's been more about mix for us than anything else, Ash. And that relates not just to enterprise and SMB but how that translates and scales over time in various markets. So that's been pretty stable in FY '19.

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Ashwini Z. Chandra, Goldman Sachs Group Inc., Research Division - Equity Analyst [31]

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And just one more question or a couple of questions on another topic if I could. On VISA, are you going to be going down the path of what some of your competitors are doing in terms of launch of a kind of virtual VISA-Afterpay type card, which some of your competitors do seem to be doing now? Is this part of a broader partnership outcome with VISA? That's the first part of the question. The second part is last year you started to talk about getting scale or economies of scale on transaction processing costs. Is VISA also playing into that? Or is that a separate conversation that's still ongoing? Because I think you indicated then that you'd see some benefits of scale coming through in fiscal '20.

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Anthony Mathew Eisen, Afterpay Touch Group Limited - Co-Founder, CEO, MD & Executive Director [32]

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Yes. Thanks for the question. In terms of the positioning of our service relative to others, we're not deviating from our core focus. We're not venturing into areas that look or feel like traditional credit. So what you've seen from others, you will not see from us. And again, I think our core differentiator there in terms of the way that we treat customers and the way that they respond to us on our platform is very significant.

Having said that, there's lots of more innovative ways that we can continue to develop about how customers use our service and the way that we integrate with merchants. And that will be a function of some of the things that we look at. In terms of cost efficiencies, that is not rooted in one single service provider. We are looking at gaining efficiencies through a number of our external relationships. We will get efficiencies through the way that we work with the schemes, absolutely. But it's also in different areas of the payments platform as well, and we'll continue to progress those initiatives in FY '20. They started in FY '19, and we'll be rolling that out progressively.

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Operator [33]

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(Operator Instructions) And your next question comes from the line of Phil Chippindale from Ord Minnett.

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Phillip Chippindale, Ord Minnett Limited, Research Division - Senior Research Analyst [34]

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Just in terms of innovation, my question's in 2 subsets. The first is on the install solution in the U.S. What is the time frame where we should expect to hear more about this? And then secondly on the broader topic of innovation, you specifically called out the merchant data insights. Just wondering if you can provide some context for what kind of insights you're referring to and what time frame this rollout is anticipated.

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Nicholas David Molnar, Afterpay Touch Group Limited - Co-Founder, Global Chief Revenue Officer & Executive Director [35]

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Yes, sure. Thanks, Phil. It's Nick here. So look, on the in-store in the U.S. question in particular, after the results that our retailers in the U.S. have seen online, there's obvious demand for how they take that offline. With that said, what we have seen in Australia is that getting it right in terms of how you operationally roll it out offline is as important as the product being available. So if you have a false start and roll it out and don't get the store staff in the store aligned, bought in, if you don't get the visual merchandising and marketing right, it actually is detrimental to the rollout, not positive. So from my perspective, I don't think it's a question of -- it's not a -- you don't want to rush it. We want to make sure that we get it right. We are in the lead up to Christmas. So I can't give you a guidance on if we do it before Christmas or after Christmas because we kind of have a couple of months and then retailers will ultimately decide if they want to engage staff. But talking with retailers on how those pilots take place and how we do roll it out is definitely in train.

From a data perspective, I think it's -- I think we have a very rich data set in terms of -- and I know I keep referring to this, but the millennial and Gen Z consumers shop differently. And what we have is distinct information on what that means. So tangibly, how does it work for a retailer to adequately engage that customer and build loyalty with a consumer who traditionally is unloyal? It's something that I think we can do a very good job with, and we work closely with our retailers to build those insights. As we go offline with them as well, the data gets even more powerful where we can serve them a -- an omnichannel experience. When does that customer buy online? When do they buy offline? How do they shop within the ecosystem? How do they compare -- how does their demographic compare to our average demographic? There's a whole range of data sets. And to us, it's how we build something that's tangible that a retailer can trade off every day, not just another report that they give to the team and they don't do anything with. So that has been in train for a while, and we've been co-creating that with our retail sets. And we'll release more information as it becomes available.

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Operator [36]

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Your next question comes from the line of Sameer Chopra from the Bank of America.

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Sameer Chopra, BofA Merrill Lynch, Research Division - Head of Australian Research and Co-Head of Regional Telecom Research [37]

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Firstly, congratulations. Great set of results and good to see the traction in the first 6 weeks of this year. My question was just one. Could you give us some color around U.S. credit losses and how they track over the course of last year? And I think kind of stopping the U.S. credit losses not being similar to Australia is close to kind of 1%, if you can just talk to that.

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Nicholas David Molnar, Afterpay Touch Group Limited - Co-Founder, Global Chief Revenue Officer & Executive Director [38]

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Yes, happy to talk to it. The losses had 2 different distinct profiles. One is a first-time customer. One is a returning customer. So as our frequency rates and repeat customers have grown, which was 74% number on the U.S. slide, what you do see is those customers have a distinctly lower loss rate than a new consumer. So over the course of the financial year, we have seen it improve and the team has been able to build and optimize the U.S. risk engine for the U.S. market, which, in some ways, is unique to the U.S. market. So it is following a similar trend to Australia in terms of the results that we have seen in terms of the loss metrics, and we're seeing it improve over the course of financial year '19.

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Anthony Mathew Eisen, Afterpay Touch Group Limited - Co-Founder, CEO, MD & Executive Director [39]

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Yes. I'd just like to add that we did put this in our second half results presentation. And thematically, I hope it's come through here as well today in the full year results. ANZ has been improving consistently, and we do see that as being an excellent glide path for us as we execute on our midterm plan. Obviously, we are scaling fast in the international market. So that will be a greater contributor in FY '20 than they were in FY '19. But we feel really good about the fact that we can look at this as being a glide path scenario over 3 years. And what we've learned from the frequency dynamics and the correlated loss dynamics from our ANZ experience and how we see that playing out in the early phases gives us a lot of confidence that we can manage it through the cycle. Again, it's about interacting with customers the right way and forming a relationship over time. But that's how we're viewing our midterm strategy. So we'll have more contribution from international in FY '20; but again, we'll be very focused on that glide path through FY '22.

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Operator [40]

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Your next question comes from the line of Mark Bryan from Wilsons.

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Mark Bryan, Wilsons Advisory and Stockbroking Limited, Research Division - Head of Research [41]

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Just echo that point, another obviously great set of results coming through. Wondered if we might be able to just dig into the ANZ performance. You've given us some figures that we can break out in-store and online retail. Within in-store, the growth second half from first half looks like it's sort of around about 50%, which is really strong. So I'm wondering what the pipeline is like for further in-store openings over the course of the next few months in the run-up to Christmas trading. And then conversely online, appreciate it's seasonality within the business half-on-half. With online at 8%, I'm wondering if we're starting to maybe see now more of a system growth developing for that business.

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Nicholas David Molnar, Afterpay Touch Group Limited - Co-Founder, Global Chief Revenue Officer & Executive Director [42]

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Thanks, Mark. Yes. I mean, look, we're definitely not seeing online growth slowing. The online side of the business is still experiencing really strong growth. We did display a portfolio of brands on one of the slides in the ANZ piece of our deck that had in-store separated, notably including David Jones and Myer. The objective is how do we roll it out as quickly as possible. I think all companies are aligned from that perspective. But as I said before, Christmas is fast approaching. So I don't want to make any promises other than I think the portfolio and integrated pipeline is very strong and growing quickly. I'd say that over the course of the financial year, the in-store share should continue to grow because it's growing at a faster pace than online. And it will average out over the course of the year at a materially higher amount than already exceeding 20% number that it sits right now. But our portfolio of online retailers and taking them offline now, we're very confident in our ability to grow that channel.

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Operator [43]

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The next question comes from the line of Siraj Ahmed from Citigroup.

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Siraj Ahmed, Citigroup Inc, Research Division - Associate [44]

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Just a quick question for Nick regarding international expansion. Nick, just from a platform perspective, do you think the platform is ready for other markets? And just looking at -- if you look at mostly other markets, other big markets, mainly non-English speaking, other than Canada I would say, just can you give -- do you think the platform is ready or there's more enhancement that needs to be done before entering other markets?

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Nicholas David Molnar, Afterpay Touch Group Limited - Co-Founder, Global Chief Revenue Officer & Executive Director [45]

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Look, I think there are 2 components to the international platform expansion. One is the core infrastructure. I think we've learned a lot over the course of going into the U.S. and the U.K. about how we globalize our key functions and how we scale that. And that is both from an operating perspective and a technical perspective. So I feel really good from that aspect.

Malte and Carl have had a lot of experience in expanding other payment providers into non-English-speaking regions. With that said, for us, it's not necessarily just about English speaking or not. It's about the trend in the market. It's about is debit plus credit following the same trend on millennials versus mainstream retail behavior and also what's the reach of our existing retail base and can we expand into other markets by leveraging our existing platform that we have. So I don't necessarily see the language as being the barrier. It's actually the other dynamics that will determine success or not.

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Operator [46]

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There are no further questions at this time. I will now hand the conference back to your presenter, CEO, Anthony Eisen, for any closing remarks.

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Anthony Mathew Eisen, Afterpay Touch Group Limited - Co-Founder, CEO, MD & Executive Director [47]

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Just like to thank you all very much for your time this morning and wish everybody a great day, thanks so much for your attention.