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Edited Transcript of NETW.L earnings conference call or presentation 18-Aug-20 8:00am GMT

Half Year 2020 Network International Holdings PLC Earnings Call

Sep 22, 2020 (Thomson StreetEvents) -- Edited Transcript of Network International Holdings PLC earnings conference call or presentation Tuesday, August 18, 2020 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Rohit Malhotra

Network International Holdings plc - Group CFO & Executive Director

* Simon Haslam

Network International Holdings plc - Group CEO & Director

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Conference Call Participants

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* Alexandre Faure

Exane BNP Paribas, Research Division - Analyst of IT Hardware

* Corey Gayle

Barclays Bank PLC, Research Division - Research Analyst

* Gautam Pillai

Goldman Sachs Group, Inc., Research Division - Equity Analyst

* Julian Alexander Serafini

Jefferies LLC, Research Division - Equity Analyst

* Rahim Nizar Karim

Liberum Capital Limited, Research Division - Research Analyst

* Ronit Ghose

Citigroup Inc., Research Division - MD, Head of European Banks Research and Global Sector Head for Banks

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Presentation

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Operator [1]

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Good day, and welcome to the Network International interim results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Simon Haslam. Sir, please go ahead.

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Simon Haslam, Network International Holdings plc - Group CEO & Director [2]

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Good morning, everyone, and thank you for joining us to discuss Network International's 2020 Interim Financial Results. I'm sorry for the slight technical hitch at the start of our call. As you know, this is Simon Haslam, I'm the CEO; and here with me is Rohit Malhotra, our CFO. We will make a brief presentation on the results today and focus the time on any questions that you may have.

Starting now on Slide 4. Like many businesses globally, COVID-19 has been a predominant feature of our first half period, and as you know, this has impacted our revenues and financial performance, particularly through the height of lockdowns when volumes and transactions were most affected. But having said that, what is important to reiterate here is that whilst this is creating short-term disruption, our market and business fundamentals remain strong, and we are well positioned to navigate through this with a strong balance sheet and liquidity position.

We started seeing signs of more positive trading momentum from June, and that has continued into July. We are seeing more tangible evidence of an accelerated shift from cash to card payments, which I will talk about in a moment. And we are really excited -- really very excited about our acquisition of DPO, which will further consolidate our presence in Africa, strengthen our position across the entire payments value chain and accelerate our growth.

Now moving on to a recap of our strategy on Slide 5. Our strategy remains consistent and is designed to support our customers in bringing digital payments to more consumers across our markets. And we have continued to lean in, execute and make progress through COVID by pursuing new customers, rolling out products and solutions to existing customers and pursuing growth opportunities, such as our proposed acquisition of DPO.

I'll start with a look at some of the recent market data we are seeing and more quantitative evidence that COVID-19 is causing an accelerated shift to digital payments on Slide 6. As you all know, Network International has significant market share of Issuer Solutions in the UAE, and therefore, a strong insight into cardholder payments and behavior trends. The chart on the left-hand side shows cohorts of cardholders from January this year, split by their spend behaviors, and whether they use their cards, mostly ATMs or merchants, through point-of-sale devices or online. And the right-hand chart shows the same cohorts of cardholders on how their behaviors have changed 7 months later in July.

So for example, we can see a cohort of cardholders in January who only used their cards 100% of the time to withdraw cash at ATMs. Looking again today, those same cardholders are using their cards in a more diversified way, now only using their cards at ATMs for 56% of transactions, with the remainder conducted at merchants. And this pattern holds true for all the cohorts. We have seen cardholders who were previously biased towards card use at ATMs, now using those cards less for cash withdrawal and more for payments in merchants and for growing prevalence of online spending. I think it's important to remember that it's still very early days, and we will need to monitor how these trends evolve and settle over the rest of the year. But nevertheless, this is a positive indicator of the trends that support our markets and business model.

I'll now move on and talk about some of the new business we have won during the period on Slide 7, where we have won new customers across both business lines and regions despite some of the challenges presented by COVID. I will highlight a couple of examples we are particularly pleased with, such as the partnership agreement with online payment services provider, HyperPay, which provides access to Shopify merchants as well as another 2 global e-commerce merchants who we cannot specifically mention due to commercial confidentiality. We also won a competitive tender to provide Issuer Solutions across 5 countries to Careem PAY, the online wallet for ride-hailing business Careem. And in Africa, we migrated a card portfolio for new customer, Fidelity Bank Ghana, during the lockdown period.

We've also seen a noticeable growth in e-commerce payments through the period, if we turn now to Slide 8. As you already know, our online TPV comes from 3 main segments, which are: UAE government-related payments; some airline payments; and finally, from other merchants, for example, e-commerce retailers. In a latter category, there has been a significant growth in the TPV we have processed over recent months, where online merchants saw growing demand from consumers through the lockdown periods. And at the same time, we have seen increasing demand for our N-Genius online gateway, as merchants realize the benefit of an omnichannel approach.

And as I've already said today, it's still early days. I would -- we would expect some of this online growth to normalize and settle now that customers are mostly through lockdowns and spending in malls again. Well, I certainly believe this has helped to accelerate the consumer and merchant transition to omnichannel payments in our markets, which have historically lagged other parts of the world.

This acceleration in e-commerce payments is also being seen across Africa, and it's just one of the strategic support to our proposed acquisition of DPO, which I will talk a little more about on Slide 9. When we have talked about potential growth accelerators for our business in the past, M&A has always been part of that plan, and DPO is and has been top of our list and hits all of our requirements. DPO is the largest online commerce platform operating at scale across Africa, which offers online and mobile money payment services to over 47,000 merchants and is a successful stand-alone business. But the real excitement here lies in the combination of DPO with Network and the growth acceleration that we'll deliver. And there are 4 main components to this strong strategic fit.

Firstly, on the market where DPO will consolidate and accelerate our presence in Africa, the most underpenetrated and fast-growing payments market in the world. With DPO, we expect Africa revenues to represent 40%-plus of the total group revenue by the fourth year following the transaction.

The second is around capabilities. DPO widens our capabilities and exposure to fast-growing online mobile money and alternative payments acceptance, which capitalizes on the evolution of the digital payments market in Africa, where digital and online payments are expected to grow at a 19% CAGR over the next 5 years, and e-commerce penetration is low at 0.3% of private consumption but expected to grow rapidly if we benchmark against other markets like the U.K. at 5% or China at 17%.

Thirdly, on relationships, DPO brings direct to merchant and mobile network operator relationships, broadening our business in Africa across the entire payments value chain. To date, our business mix in Africa has been predominantly Issuer Solutions-focused. But with DPO and the expected growth profile, we anticipate an even revenue mix across Merchant and Issuer Solutions by 2024 and a much higher participation from online. Finally, there are a number of cross-selling opportunities to both Network International and DPO customers.

And the returns profile on this acquisition is attractive, turning now to Slide 10, which is underpinned by DPO's fast-growing revenue profile, which has been around 40% per annum on an organic historical basis, and the business having invested and a high degree of operating leverage that is already a clear path to profitability. This profile will be further accelerated through the combination with Network International through multiple incremental revenue cross-selling opportunities, our combined scale and scope for benefits from technological enhancements, such as improved transaction authorization rates. And bringing that together, we expect double-digit roughly within 3 to 4 years and significantly higher thereafter. We are looking forward to completing the acquisition later in the year.

And at this stage, I will hand over to Rohit for a review of the interim financials.

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Rohit Malhotra, Network International Holdings plc - Group CFO & Executive Director [3]

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Thank you, Simon. Good morning, afternoon, everyone.

Starting first with the Merchant Solutions revenue performance on Slide 12. Revenues in Merchant Solutions is closely correlated to the value of the total volumes processed with merchants, and this business line is largely focused on our direct acquiring markets in the UAE and Jordan. Our performance over the period was therefore closely linked to the lockdown measures in place and the related reduction in consumer spending, leading to Merchant Solutions' revenue declining by 26.1% to $51.1 million and TPV declining by 25.7% to $16 billion. We've also maintained consistent take rates through the period as whilst there was a decline in international spends, which has a slightly higher than average take rates. The recovery in SME volumes has been much faster as a result of our strategy to grow merchants in that segment.

If we turn to the next slide, on Page 13, we can walk through the evolution of spends across sectors through the period. At the start of the financial year and prior to the COVID-19 pandemic, the business continued its positive momentum and growth in TPV. In February, we saw the first signs of a decline in TPV as inbound tourism started to slow, followed by a significant reduction in March, April and May as a result of the lockdown measures. Within this, most sectors saw declines, apart from supermarkets which remained open and the online merchants, as Simon has mentioned previously. And as lockdown started to ease in June, TPV trends have begun to improve and even more so through July. And particularly so when we look at the recovery of domestic spend, which you can see on the next slide, #14.

As we have mentioned previously, in a normal year, such as 2019, spends from cards that were not issued in our local markets, which, by and large, are from tourists, would make up between 20% to 25% of our TPV. And as you would expect, this was most significantly through lockdown and currently remains very low. But looking at the spend from domestic cards, there has been quite a strong rebound through June into July, so that the year-on-year domestic spending in July is only 10% behind the same period last year. So in summary, a number of positive trends are emerging in Merchant Solutions.

Now let's switch to our Issuer Solutions business line on Slide 15, where revenues decreased by 3.5% to $78.8 million. In this business line, our customers are typically financial institutions where we have multiyear contracts in place, and a number of them have contractual minimums of fixed revenue streams. This creates a greater resilience of revenues in this business line, but can mean that there is not such a close correlation between revenue and the KPIs as we tend to see in Merchant Solutions. It is also worth noting that during the half, we have changed our billing arrangement with one of our top 10 customers, which has impacted the presentation of our KPIs. Historically, our revenues with this customer were based upon the number of card accounts and the number of cards hosted per account. The new billing arrangement is more aligned to a standard contract structure and based upon the number of cards hosted and number of transactions processed. This has created a benefit to the number of transactions processed in H1 and depressed the number of cards hosted.

On a like-for-like basis, cards in issue would have been -- would have shown a 7% growth in H1 and transactions processed would have been lower by 13%, again, as expected. Having said that, Issuer Solutions experienced fairly normal trading through January and February, but following the implementation of lockdown measures across nearly all of our markets towards the end of March and through to the end of June, we saw a reduction of -- in revenue of just over 10% during Q2. These lockdowns have significantly limited new card issuance due to closure of bank branches. And we're also seeing a greater number of banks reviewing and canceling inactive cards due to pressures on cost than we would normally otherwise occur in a normal year. This also has had a knock-on impact on the revenues from transaction processing and value-added services.

And finally, on revenue performance, let's look at the difference across our regions on Slide 16. In the Middle East, revenues declined by 15.3% to $94.5 million, and contribution declined by 23.9% to $62 million, reflecting the largely fixed cost base. In this region, our business is fairly balanced across Merchant and Issuer Solutions, and performance is, therefore, reflective of the trends in each of those business lines I've talked about earlier. Middle East segment therefore had seen a much more significant COVID-19-related impact from March as a result of the lockdown measures across the region.

And in Africa, revenue declined by 10.5% to $36.6 million and contribution declined by 13.4% to $24.5 million. Performance was less impacted than the Middle East, linked to the weighting of the business towards Issuer Solutions, but still impacted by COVID-19, particularly the very stringent lockdowns that were seen across most of our major markets of Egypt, South Africa, Ghana and Nigeria.

Moving now to the cost base and profitability through the period on Slide 17. Underlying EBITDA for H1 declined by 31% to $52.7 million. Whilst the cost base is largely fixed at around 2/3 of the total underlying operating expenses, we have nevertheless made good progress on our cost mitigation program put in place post the outbreak of the pandemic. We began to see some benefits of this in the first half and expect more to flow through in the second half of the year to achieve our overall expectation of flat underlying operating costs on a year-on-year basis. And those actions to reduce the cost base include: a hiring freeze; strict controls on discretionary spend, including marketing and advertising; a natural reduction in travel expenditure; reduction in third-party processing costs associated with reduced volume activity; and the executive management team has also forgone elements of their compensation, as announced previously.

Now moving on to Slide 18 and the flow-through to net income. Underlying net income declined by 51.1% to $21.4 million. The underlying D&A charge increased by $0.4 million to $17.4 million, as expected, driven by hardware and software additions in the first half of 2020 and annualization of 2019 investments. Net interest expense declined by $0.7 million to $11.8 million, which mainly reflects the underlying decline in interest rates compared with last year, despite increased usage of the working capital facility and drawdown on our syndicated debt facility.

The next item in the bridge is taxes, where our underlying tax rate is slightly higher than usual driven by a change in the mix of profit from different regions as a result of COVID-19. And then in terms of statutory numbers, the reported profit from continuing operations was impacted by the SDIs affecting EBITDA at USD 5.7 million, SDIs affecting net income at $9.2 million and the write-off of $6.7 million of capitalized debt issuance fees associated with the previous term loan facility, all on expected lines.

Let me give you now more details on these SDIs on Slide 19. Specially Disclosed Items are items of income or expense, which either due to their materiality or being exceptional in nature, are disclosed separately to give a more comparable view of the underlying financial performance. I will call out the main items, which are: $5.1 million of share-based compensation charge related to the incentive programs in place prior to the IPO; $0.8 million of costs related to the acquisition of DPO, although these will be largely booked in the second half, totaling to $11 million to $12 million for 2020 and reflect the fees for various diligence work streams and advisory services; amortization of capital investment made as a part of the IT transformation program, which was $7 million, higher than last year due to capitalization of all spends post the completion of the program towards the end of last year; and amortization of acquired intangibles relating to the EMP acquisition of $2.1 million.

Next, let me give you an update on our investments made in 2019 -- in 2020 H1 on Slide 20. We have taken a prudent approach to managing capital spending as a result of the COVID-19 pandemic. This includes a pause on the program to separate shared services from Emirates NBD, which was previously expected to be $20 million in 2020. We remain comfortable with deploying capital expenditure to support our entry to Saudi Arabia, but this has not been possible during the year-to-date with the logistical challenges presented by border closures.

During the period, our core capital expenditure was $21.8 million. Maintenance CapEx of $8 million was largely related to: the enhancement of existing technology infrastructure, hardware, software, storage and compliance; the procurement of POS terminals for existing customers; and some spending on the project to separate shared services from Emirates NBD before we put the project on pause, as I just mentioned.

Growth CapEx during the period was $13.8 million, and whilst larger than the prior year, it reflects the development of the 2 solutions we are working on with Mastercard which were not in the base last year. These projects are the corporate cost solution and mobile QR code payment acceptance solution for merchants. And then as normal, growth CapEx also includes the procurement of point-of-sale terminals for new merchant signings and onboarding costs for new banks and customers.

Now let's take a look at the balance sheet and liquidity position on Slide 21, which remains strong. We finished the period with leverage of 2x net debt to underlying EBITDA and well below the covenant threshold of 3.5x. We have plenty of available liquidity at $295 million through the combination of cash balances or undrawn headroom on our debt facilities. And under our current outlook, we do not anticipate needing to draw on that much in the second half of the year, which puts us in a comfortable position from both a covenant and liquidity standpoint going through to the end of the year.

So I'll wrap up now with a few comments on the outlook for the remainder of the year on Slide 22. As I have already mentioned, we have seen good recent momentum in both business lines, and whilst this is very positive, we shouldn't simply extrapolate those trends through the rest of the year. July is typically a lower revenue month, and so small changes in absolute dollar revenues can create a large percentage year-on-year change. Our view is that we will continue to see gradual recovery of domestic spending and transactions across the UAE, although tourism spends will remain low, particularly given some of the quarantine restrictions we are seeing issued by countries who typically holiday in Dubai. The change to merchant acquiring fees in Jordan will have a minor impact on Merchant Solutions revenue for this year. And Africa performance could be subject to further pressures, as COVID-19 continues to peak.

So overall, we are trading in line with our expectations, and our outlook for 2020 is therefore unchanged to what we had announced in the update issued in early July.

So with that, I will hand back to Simon to close the presentation.

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Simon Haslam, Network International Holdings plc - Group CEO & Director [4]

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Thanks, Rohit. There has been much for the business to focus on this period, and we have continued to prioritize supporting our customers and colleagues in navigating through the challenges presented by COVID-19.

Whilst this, of course, impacts near-term performance, we are confident this is temporary, and nothing structural has changed. And if anything, there could be more positive medium- to long-term developments, such as the early evidence of acceleration in cash to card payments. At the same time, our strategic approaches remain constant, and we have ensured we remain focused on pursuing the numerous opportunities presented by our markets.

We are very excited by our proposed acquisition of DPO, and we still have growth accelerator opportunities left to pursue, whether that be our market entry into Saudi Arabia, our strategic partnership with Mastercard or discussions with banks around substantial outsourcing contracts. We are making excellent progress and remain confident in the industry fundamentals.

Now I'll hand it back to the operator for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question will come from Julian Serafini with Jefferies.

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Julian Alexander Serafini, Jefferies LLC, Research Division - Equity Analyst [2]

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So the first question I wanted to ask was related to the guidance for the rest of this year. I mean, the guidance essentially implies a pretty soft second half of the year, with a very -- I think, very gradual, very moderate recovery. Can you help unpack the guidance a little bit in terms of what you're assuming there, especially when I compare today that the July trends that you showed that really do show improvement taking place in your markets?

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Rohit Malhotra, Network International Holdings plc - Group CFO & Executive Director [3]

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Julian, thanks for the question. This is Rohit. So let me -- as we said, we are pleased with the positive trading momentum that we've seen in July. However, we gave the guidance in the first week of July, and the only thing that's changed since then is one more month of trading data. And like I mentioned, we have to be careful extrapolating very short-term trends. And one month is really not enough to change the outlook.

First, on an overall level, there are a couple of things we just need to keep in mind. Firstly, July is seasonally a low revenue month. And that not only includes the acquiring business in UAE but also Africa, which is predominantly Issuer Solutions-focused business, and therefore, to generate the same year-on-year percentage movement, for the rest of the year, we'll have to generate a higher absolute dollar value. And then secondly, there are also some trading dynamics that are yet to flow through for the rest of the year.

If you then split this by the 2 business lines. If you look at Merchant Solutions first, I'll make 3 comments. Firstly, domestic acquiring TPV has clearly improved significantly from being down 40% in April to being down 10% in July. But the remaining loss in percentage is going to be more difficult to get to, as that includes the domestic spending component on airlines and travel, and that clearly has not come back as yet.

Secondly, in the original forecast, we had factored in international travel to pick up from Q4 and to get to 20%, 25% of last year levels by December. Clearly, there is more risk around that given what we are seeing in the last few weeks with greater number of COVID cases across a number of markets and stricter quarantine measures being put in place.

And then lastly, within Merchant Solutions, there's also going to be an impact on Jordan regulation as a result of the change in the fee structure. And we reckon the impact of that for rest of the year is going to be roughly about $2 million. So that's on the Merchant Solutions side.

And if you then look at Issuer Solutions. I think, firstly, as I mentioned before, there's always been historically a skew to second half of the year, as over the -- in the past, a number of banks have issued sizable card portfolios in the second half, which means there are more renewals coming up in H2 as compared to H1. We then have card cancellations in Q2, and they would have a knock-on impact through reduced transaction count and value-added services. And COVID cases are still yet to peak in Africa based on the guidance issued by WHO as well. So therefore, while July Issuer Solutions was only down 5%, we haven't really changed our outlook to what we've said before, that for H2, we expect Issuer Solutions to be about 10% to 15% lower than last year.

So I guess when you put all of that together, that really forms the basis of why our outlook for now has remained consistent to what we announced just a few weeks ago.

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Julian Alexander Serafini, Jefferies LLC, Research Division - Equity Analyst [4]

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Okay. That was helpful. And then a second question, if I may, just on the Jordan regulation. You touched on it a little bit. Can you go into more detail in terms of exactly what they regulate or how they regulate that? You mentioned the $2 million impact there. But are they -- can you give a little more specificity around that in terms of how much are they capping, be it -- being at the very [seed loan] structure?

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Simon Haslam, Network International Holdings plc - Group CEO & Director [5]

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Yes. So Julian, it's Simon here. So let me talk about that. So I think it's important to start with the sort of underlying premise of the regulations, and the changes in fees are really designed to lower the cost of and move more merchants towards the acceptance of digital payments, and we're very supportive of this. I know, as part of that change, the government said they will be actively directing merchants toward payment processes who can facilitate digital payments, which is likely going to be sort of positive for our business in the medium term as we see volumes growing more swiftly. And the changes that they've put in place really differ depending upon the merchant segment.

But overall, we sort of expect to see a minor impact in 2020. And the changes consisted both of some caps in respect of interchange and also some in respect to the fees that we charge to merchants across various different segments, so it's hard to give you a sort of -- it's a multifaceted approach. I think that we will see an impact in 2021 at around $4 million to $5 million. But in the longer term, we see this as a positive about because it will be more than offset by the increased volumes from merchants as they move to accept digital payments.

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Operator [6]

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Our next question will be from Ronit Ghose with Citi.

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Ronit Ghose, Citigroup Inc., Research Division - MD, Head of European Banks Research and Global Sector Head for Banks [7]

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I have a few questions, if I may. The first one relates to the comment on cash flows. Rohit, could you just clarify the guidance on -- as a reference to operating cash flows in being similar to cash flow out. I know on Page 19 and 20 of your release, you've given us a lot of information, sort of reconciliation of free cash flow as you're presenting on a management basis to statutory. Could you just sort of guide us to which line items we should be looking at to reconcile that guidance on cash flow? That's question number one.

Question number two is, I heard Simon's comments around why you guys did the DPO acquisition. I'd love if you could share some more color on like, how long have you known DPO? How long have you been tracking DPO? How long you've known Eran and the founding team there? Just a sense -- obviously, for many people, we've been in Q2 focused on -- really focused on the pandemic. So maybe some people would have been caught by surprised by the acquisition. So any kind of color around just how long this has been a strategic priority, and if you're looking to do other material acquisitions.

And related to that, I get the strategic logic, but the financing, maybe, Rohit, you could walk us through again, the financing of the transaction because you don't seem to have a huge amount of debt. I understand we're still in an uncertain environment. But you seem to be raising a little bit more than you need. So can you just walk us through the bridge of how much you raised in terms of equity versus what the outflows are?

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Rohit Malhotra, Network International Holdings plc - Group CFO & Executive Director [8]

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Sure, Ronit. So I guess, quite a few questions. Let me take the 3 questions on cash flow, and then maybe Simon can just walk through the rationale for the acquisition later on.

So I guess the first one is the comment that we have made on inflows being equal to outflows, really it's just our way in terms of managing the liquidity. So as you're aware, in April, we assessed our forecast given what's happened. And then we put in place a number of cash preservation measures in place, which included OpEx saves, which included CapEx reductions, including the pause on separation from Emirates NBD; KSA market entry, which since then, we have removed capital as a hurdle and deferring the dividend.

And what that statement is effectively intended to just give comfort to the readers is that, in a number of scenarios, we have [affixed] our inflows and outflows, and we are quite comfortable that even though the levels of revenue would remain depressed compared to last year, however, they'll still be enough to meet our operating expenses and CapEx requirements for the rest of the year. And therefore, we do not really expect to draw down from the $295 million of available liquidity. That's available to us, but we're not expecting to draw that down. So that's the first one.

The second one, I think, is a question with regards to the reconciliation. So if I just take a step back. We have 2 measures of cash flow reported in the financial statements, which we have been consistently doing from the time we came to the public markets. The first one is a very statutory cash flow reconciliation, as a cash flow statement in the financials that really gives us the underlying -- gradually gives the cash flow from operations investing in financing activities. However, as we look at the business internally, the alternative performance measure that we track is the underlying free cash flow, which we have talked about consistently.

However, based on the feedback that we got from some of the -- from some of our shareholders, they were struggling to understand as to how do the 2 cash flow statements really reconcile. And what we have really given that is just a reconciliation of how do you get to the cash flows from operating activities that you see in the financial statements to the underlying free cash flow measure that we use for performance management purposes. I won't go in through the details of reconciliations by self-explanatory. But if you have any questions, I'm happy to take them separately.

And then, lastly, Ronit, to make a good point with regards to cash proceeds for DPO. So I guess, firstly, I think it's important to clarify for the benefit of everyone on the call that we did not really raise much excess cash. If we really look at the source of funding, our cash equity raise was GBP 205 million, which converted at the exchange rate gives us about roughly $265 million. And then there is equity rollover from 8% DPO's co-founders of $63 million. And when you add it up, that gets you to about $328 million. The enterprise value of the acquisition, as we mentioned before, is $288 million. And that really gives you about $40 million excess.

That $40 million is going to be used in 3 broad buckets, if I can. The first one is, as in any M&A, on top of the enterprise valuation, there's always an adjustment for cash or debt-like items on the target's balance sheet at the date of closing. In this case, we are expecting there to be cash or cash-like items on the balance sheet roughly to the tune of about $11 million to $12 million to be confirmed post completion. So 11 -- so out of the $40 million, the first bucket would be paying for that $11 million to $12 million, which we again get back through cash or cash-like items in the business. Number two, there are totaling of about $18 million to $19 million of fees, which really cover the fees for the very extensive due diligence that we have done on legal, tax, finance, commercial, technology, advisory fee to investment banks, fees to banks to help us with the equity capital raise. And then lastly, provision for stamp duty, et cetera, that we'll pay when the shares will get transferred in our name on completion. And that leaves roughly about $10 million excess, which is what we have also noted in the release this morning.

So hopefully, Ronit, that answers your questions on cash flow. And Simon, you'll talk about DPO.

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Simon Haslam, Network International Holdings plc - Group CEO & Director [9]

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Yes. Thanks. Thanks, Ronit. On DPO, we've been tracking them for a long time. It's at least 12 months we've been tracking them. They've always been #1 on our list of M&A. If you recall, we always said that M&A was one of our accelerators for growth, but it would be M&A that would give us incremental distribution, incremental capability, incremental product. That's an -- it ticks all of those boxes. So we've probably been tracking, as I said, at least a year. We probably had some initial discussions, probably back end of [June], and then we decided to push the button on it, as you know, around 6 weeks ago. So we've been doing due diligence for a period before that.

On your question on other M&A targets, I think it is -- as we've said before around our strategies, we will consider selective M&A. This DPO does give us a -- fulfill a lot of the requirements that we're looking for. It is, by far, the largest online payment service provider across Africa. It is pan-African. I can't see another asset in the region of that quality and that spread, but it doesn't mean that we won't think about other sort of tuck-in acquisitions as and when the need arises. Nothing on the radar right now.

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Operator [10]

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Our next question will come from Gautam Pillai with Goldman Sachs.

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Gautam Pillai, Goldman Sachs Group, Inc., Research Division - Equity Analyst [11]

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A couple of questions from my end. First is on the merchant acquiring take rate. If you were to look at the take rate evolution, there has been some seasonality in 2018 and 2019 with a higher rate in the second half. Can you comment on the dynamics between these? Is it entirely linked to the international volumes? And how should we think about the evolution of take rates for 2H excluding the Jordan impact?

And the second question is on the Jordan regulation. Can you give some color on the quantum of take rate reduction anticipate as a result of the regulatory change? You commented, I think it's something like a $2 million revenue impact. If you could give a take rate impact, that would be most helpful.

And a related question on UAE regulation, I would just -- yet not finalized. But how can we get comfortable with your comments that the merchant take rates are unlikely to be affected once that is finalized?

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Simon Haslam, Network International Holdings plc - Group CEO & Director [12]

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So Gautam, I'll take the first -- I'll take the last question and then Rohit can answer the first 2. I think you can't -- there's no read across from what's happened in Jordan to the discussions that are happening here in the UAE. I would say that the UAE, I know, has a consultation process. And I know the discussions in that consultation process have only related to interchange. There are no differences in the UAE between credit and debit interchange. And the UAE has one of the highest interchange rates in the world. And the central bank knows full well the percentage of MSF that's related to interchange and scheme fees. And there's absolutely no correlation or discussion between the 2 central banks.

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Rohit Malhotra, Network International Holdings plc - Group CFO & Executive Director [13]

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And Gautam, with regards to your 2 questions, I guess, the first one, 2020 is obviously a very different year to 2018 and 2019 given the mix that's changed significantly from Q2 onwards. So it's going to be difficult to give a specific view on H2 because, again, it all depends on what kind of -- how the recovery takes place. But historically, our H2 take rates generally have been higher than H1. And that's a combination of a few things: number one, international being a greater proportion of the spend in H2 compared to H1, again, with the winter season and the holiday period; and then number two, there are always other products and services that typically the banks go for on -- even on the -- or the merchants and the acquirer processing banks take in H2 of the year, which slightly skews the take rates higher.

I think what I would say is that we're actually quite pleased with the fact that even though there is no international, which tends to be slightly higher take rates than domestic in our business or any other acquirer for that matter, and then even though some of the spendings were more skewed towards supermarkets, et cetera, which tend to be lower take rate, we have still been able to maintain those rates in H1 at about 32 basis points. And that's as a result of the fact that while international is lower, however, like I mentioned, the SME pickup has been a lot quicker. And that, again, is a testament to all the work we've been doing to really focus a lot more and get the number of SMEs from cash to the digital world. So that really helped us maintain the take rates.

Secondly, with regards to Jordan. So $2 million is the impact for rest of this year. On a 20 -- looking forward, let's say, 2021, assuming 2019 volumes, we think the annual impact is going to be about $4 million to $5 million. That's the impact in the first full year annualized. And as I mentioned, over time, as the underlying basis for the regulation is to encourage merchants to accept more and more digital payments, we expect this impact to be more than offset by the growth in volumes. But if we were looking at an impact of take rate, I would say, about $4 million to $5 million over $40 billion, $45 billion of TPV. It's easy to do the math. It gets you roughly about 1 basis point impact. Hopefully, that answers your questions, Gautam.

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Operator [14]

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Our next question comes from Corey Gayle with Barclays.

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Corey Gayle, Barclays Bank PLC, Research Division - Research Analyst [15]

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I just want to touch on the existing e-com business. And you can see the outperformance has been quite strong there, and you've managed to increase your customer numbers to [1,250]. I was just hoping to get some insight to the split between what's coming from your existing installed base of install versus then a potential new customers that have just been acquired overall.

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Rohit Malhotra, Network International Holdings plc - Group CFO & Executive Director [16]

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So I guess the answer is we're not disclosing the split, but the growth is coming from both. So if you really look at our e-com business, historically, we have said that -- I mean, taking 2019 as an example, it's probably got 3 components. It's got government, where the spends have obviously been impacted as the government has waived a number of fees again in terms of providing relief to the residents in the country. The second component is airlines, which, again, has been impacted but also because of our strategy to proactively exit a number of airlines, as we've said before. And it's this third bucket which has really seen -- which is really where our focus is, and that's where we're signing a number of new merchants.

A large part of the 45% growth on a year-on-year basis in Q2 is coming from our existing merchants. But we've also signed a number of other merchants like Zomato in the first quarter of the year at the right time, and that's also helped us drive the growth further. It's again early trends. And we'll have to see how those trends stabilize once everyone is really comfortable going out to the physical world and shopping. So we do expect a bit of deceleration, but they'll still -- at the levels at which they stabilize, we still expect them to be higher than what they were before the pandemic.

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Operator [17]

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(Operator Instructions) Our next question comes from Rahim Karim with Liberum.

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Rahim Nizar Karim, Liberum Capital Limited, Research Division - Research Analyst [18]

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I hope you're all well. Just 2 questions from me. On Saudi, could you just give us a sense of how quickly investment could ramp up there should the environment improve and access to infrastructure become available?

And then secondly, with respect to the cash flow, Rohit, you mentioned that there were certain actions taken to kind of reduce the outflows. I mean, if we can just talk about the dividend and the NBD separation. What needs to happen for you to get more comfortable with reinstating both of those, please?

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Simon Haslam, Network International Holdings plc - Group CEO & Director [19]

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Okay. Thanks, Rahim. It's Simon. I'll take the first question. On Saudi Arabia, if you recall, we said at the start of the year that we anticipate a full spend of around $25 million, with around $20 million of that happening this year. My view right now is, because of where we are, we'll probably start very late Q3 or early Q4 depending upon, obviously, when the borders open. So I would expect we probably spend no more than $5 million this year as part of that initial $25 million. And then, obviously, the remaining part of that $25 million will get spent over the next 12 months or so.

So it's not a change in the quantum of spend. It's just a change in the phasing. And we're really excited about the market. We're still fully committed to it. We see huge amounts of opportunity there.

I'll let Rohit take the second question.

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Rohit Malhotra, Network International Holdings plc - Group CFO & Executive Director [20]

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Rahim, with regards to the question on cash flow, so as I said earlier, we put in place a number of cash preservation measures in place, including reducing OpEx, CapEx and dividend. Specifically, the 3 ones that I should -- that I'll probably call out are KSA. So in our base case, we assumed initially that we will not do that this year. But clearly, we have taken that hurdle out as we've obviously got much better visibility of the outlook and the recovery, which again is -- is again the nonexpected lines but encouraging. So we've taken that hurdle out. And as soon as it's practical to do so, as Simon just mentioned, we'll pick that up.

As far as separation from Emirates NBD is concerned, our original plan was to finish it -- started this year and finish by next year, as our transition service agreement was initially supposed to end at the end of next year. However, we have put that project on hold for this year, with the exception of some spends that we already incurred before we had put the pause. And we have also extended the agreement with Emirates NBD by 1 more year until 2022. So at this point in time, we'll again revisit it in late Q4, early Q1, but clearly, something which would be in our plans for 2021 for sure.

And lastly, as far as dividend is concerned, we have -- last time, we had announced our intention to defer. At this point in time, again, we believe in terms of our capital allocation principles, we really want to ensure that we've got the strength and flexibility in the balance sheet. We want to prioritize our capital to projects that deliver superior long-term returns and support the strategic direction of the business. And keeping that in mind, in consultation with the Board, we've taken the decision to cancel the dividend for this year. And again, at the end of 2020, we'll come back and guide the markets towards our plans for next year.

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Rahim Nizar Karim, Liberum Capital Limited, Research Division - Research Analyst [21]

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Great. So Rohit, can I maybe just have a follow-up on the dividend point? Do you need to see an increased level of headroom to get you comfortable with the investments that need to be made in Saudi and in Emirates NBD? Or is it just a greater environment -- uncertainty in the environment? Or is it a combination of everything that is going to trigger that increased kind of confidence?

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Rohit Malhotra, Network International Holdings plc - Group CFO & Executive Director [22]

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I guess it's a combination of all of those. Clearly, there are -- it's still early days in recovery. We've been very encouraged with what we have seen, but there's still a large part of international traffic that is yet to come. Africa, again, next 3, 4 months is going to be interesting. So clearly, I guess we'll have to put all of that together, which we keep doing on an ongoing basis. We'll do that and again come back with the views at the end of the year. And there's nothing much more than that I can say on the dividend specifically.

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Operator [23]

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We have time for one last question. Our last question comes from Alex Faure with Exane.

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Alexandre Faure, Exane BNP Paribas, Research Division - Analyst of IT Hardware [24]

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And I've got 2 small clarification. Apologies if you touched on them already. One is on the reg changes in the UAE. When would you expect the central bank to come to a conclusion as to what they want to do with the interchange? Is it a matter of months, you reckon, or maybe a couple of quarters?

And second question has to do with the large outsourcing opportunities possibly in South Africa that you mentioned in the press release. You also mentioned that some outsourcing discussions are a bit on pause at the moment because potential customers have more pressing matters to attend to. So just curious to understand how we should read those 2 comments. And when would you expect potential customers to resume discussions?

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Simon Haslam, Network International Holdings plc - Group CEO & Director [25]

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Thanks. I'll answer both of those. So on when can we expect a resolution, I'm not sure we can give you an answer on that. I will say is the central bank are perhaps more consultative than perhaps other regulators. The discussions are ongoing. I can't give you a time frame. I would hope it would be towards the end of this year, but I can't guarantee on that.

And then on the second question about outsourcing, I wouldn't say the conversations have paused. I would say the conversations have slowed. Don't forget these large outsourcing contracts are one of a number of accelerators, Mastercard, M&A…

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Rohit Malhotra, Network International Holdings plc - Group CFO & Executive Director [26]

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KSA.

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Simon Haslam, Network International Holdings plc - Group CEO & Director [27]

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KSA, so this is like the third leg of that. And those conversations, still ongoing. They're probably slower than they were before just because of the situation that the banks find themselves in, but we continue to make satisfactory progress in the current environment. Does that answer your question?

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Alexandre Faure, Exane BNP Paribas, Research Division - Analyst of IT Hardware [28]

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Yes, that's very clear.

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Operator [29]

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Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.

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Simon Haslam, Network International Holdings plc - Group CEO & Director [30]

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Thanks, everyone.

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Rohit Malhotra, Network International Holdings plc - Group CFO & Executive Director [31]

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Thank you.