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Edited Transcript of WDI.DE earnings conference call or presentation 6-Apr-17 11:00am GMT

Thomson Reuters StreetEvents

Q4 2016 Wirecard AG Earnings Call

Apr 6, 2017 (Thomson StreetEvents) -- Edited Transcript of Wirecard AG earnings conference call or presentation Thursday, April 6, 2017 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Burkhard Ley

Wirecard AG - CFO and Member of Management Board

* Iris Stöckl

* Markus Braun

Wirecard AG - CEO, CTO and Member of Management Board

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Conference Call Participants

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* Adithya Satyanarayana Metuku

BofA Merrill Lynch, Research Division - Associate

* Alexandre Faure

Exane BNP Paribas, Research Division - Research Analyst

* Gautam Pillai

Goldman Sachs Group Inc., Research Division - Research Analyst

* Gianmarco Bonacina

Equita SIM Spa, Research Division - Analyst

* Sébastien Sztabowicz

Kepler Cheuvreux, Research Division - Head of Tech - Equipment Research

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to the Wirecard Earnings Call Full Year 2016. (Operator Instructions) Let me now turn the floor over to your host, Iris Stöckl.

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Iris Stöckl, [2]

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Very warm welcome from Wirecard AG. I'm sitting here with CEO, Markus Braun; and CFO, Burkhard Ley. They will now start to present you the final figures for the business year 2016. Markus Braun will also have a look on the prospectives of Wirecard AG in the current business year. And Burkhard Ley will give you some more information on the financials.

Now let me hand over to Markus Braun.

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Markus Braun, Wirecard AG - CEO, CTO and Member of Management Board [3]

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Hello, ladies and gentlemen, from my side. As always, I will keep it brief, and I will only take some highlights from our slideshow.

I think the numbers speak for itself. I think we had a very successful year. You know our mission is the digitalization of payment using innovative Internet technology. The whole market is still early stage, but we definitely see an upswing. In this market, as we say, this whole wave of digitalization is only beginning. And of course, this you see reflected in the numbers. There are 2 -- or let's say one specialty in the numbers, I said it also in the other earnings calls. We have a special effect by the sales of Visa Europe to Visa Inc. in 2016, that is reflected in the financial results. We had an impact there of around EUR 90 million. This is why you see 2 earnings after taxes, one that reflects -- that is including Visa and one is without Visa, adjusted; and the same as at the earnings per share, one including Visa and one adjusted for this onetime effect.

We're proposing for the AGM a dividend of EUR 0.16. And you see already our guidance here for next year, 2017, where we guide an EBITDA of EUR 382 million to EUR 400 million.

On the next slide, you'll find the detail in the core fundamentals, what we did organically and what was the result of the acquisitions. But they're first consolidated. Last year in 2016, we had an organic transaction growth of about 30%. Of course, a core element of that is also a very strong market growth. We estimate that the market growth in our markets for digitalization of payments was between 16% to 17% in 2016. So we had here on transaction level, an outperformance of about 13%.

In the revenue growth of 20.6%, it has to be taken into account that there was an interchange effect last year in Europe. The interchange was reduced. This effect was around about EUR 30 million. If we would adjust for that, the growth on revenue level would have been above 24%. And then we have an EBITDA growth organically of 27%.

You know the whole trends driving Wirecard business beside of the ongoing strong trend that often transactions are going online. We now see a super large additional opportunity by driving Internet technology into other sales channels, mainly, of course, over mobile, also to the point-of-sale, this we call the convergence of the sales channels over Internet technology. And by this, of course, we step-by-step see also the digitalization of the point-of-sale as an additional market, growth market for us.

We are following, since a long time, 3 core strategies. We are constantly extending our value chain. I will present in a later slide that we today have in both areas, Acquiring & Issuing, today a truly end-to-end, fully digitalized platform. And this is, of course, a main differentiator for Wirecard. Beside of that, we are currently driving Internet (inaudible) technology over the omnichannel approach into all sales channels, and we're aggressively driving globalization.

On Slide 9, we have taken out the 3 most important USPs derived from this strategy. The first one, of course, is this strong value chain that gives us clear gross margin advantages. The second one will always be our risk management, the [ discount ] will be further developed. We have here some key performance indicators. In average, we managed to increase the conversion rate of a merchant by above 5% with our risk management. This means more positive transactions for the merchant. In concrete terms, it's between 5% and 10%, depending on the industry. And in combination, we managed to reduce payment default by up to 50%. To give you an indication, we today achieved normally an acceptance rate of up to 95% at very low charge-back rates, significantly under 0.5%. By this, we are not only a supplier for the merchant, but we are more and more also responsible, so to say, for additional revenue of the merchant. And of course, you see only by this number that we overcompensate the fees that we take by additional positive effects we generate on the merchant side.

The third USP is the global rollout of Wirecard platform. We are today active in all 5 continents. I'll come later to do -- to some additional acquisitions we did lately. The core element is, of course, always we go into this market, and of course by an integration process and a post merger migration process, we bring in there Wirecard platform.

On Page 10, you'll find in a more technical way an abstract view of our end-to-end platform. You see in the upper side of the slide, the 4 core layers that comprise today the end-to-end fully digitalized approach. On the Issuing side, in the lower side of the slide, you'll find the 4 core detailed layers.

For the Acquiring side, you'll find a front-end layer, and let's say, all new initiatives, such as mobile payment, such as mobile point-of-sale, ConnectedPOS, these are all new front ends that either are relevant on the issuing side or are relevant on the acquiring side. And they always lead to the Wirecard back end. And of course, our big advantage is that we have here this end-to-end view, and this leads definitely to big gross margin advantages also going forward.

On Slide 11, you'll find an abstract view of Wirecard's risk engine that is, of course, fully integrated into Wirecard platform. I cannot go in too much detail there, but the 2 proprietary buildup -- or the 3 proprietary buildup elements is, of course, the whole logic that connects all these checks. Secondly, the Fraud Prevention Suite and the Trust Evaluation Suite. To put it simple, the Fraud Prevention Suite is an algorithmical learning engine that is our interface to artificial intelligence to machine learning. The Trust Evaluation Suite, you can see as a memory function, where we can include in the algorithmical way proprietary data of specific merchants to further tune a solution. The Hotlist are database-oriented checks where negative items can be included. And Credit Agency checks are, of course, region-specific database checks where we can include region-specific scorecards, et cetera.

This is a highly differentiating element. This is also, let's say, our path towards data-driven commerce. So we are currently in the process to further adopt this engine, not only to protect the merchant and the consumer, but also to give the merchant additional abilities in terms of real time data that he can use. Of course, a lot of this data also for tuning his service, for improving his service for a lot of additional real time features that, perhaps, even one day could lead to individual pricing. The main precondition for that is, of course, that in all sales channels, the merchant goes for digitalization, and then we can use these engines that I've said not only to protect all the sales channels, but also to give the merchant more real time feedback of services, in which way are, let's say, favorable to the consumer where he must tune and improve his service.

Global reach. In the last 2 years, we entered additional main geographies. We entered America. You know that we closed the Citi prepaid deal in March this year, so it will be first consolidated now in 2017. We also went, in the last 2 years, to India; we went to Brazil, just to pick out some main geographies. We have today on all 5 continents strategic hubs in all important countries. And from this approach, of course, we will -- first of all, we will bring in all these regions Wirecard platform. And secondly, of course, we will use these hubs for further globalization.

On page slide, there is, of course, a lot of information. The most important one is our new sales that we achieved in the second half year. This was EUR 9.5 billion, so this is the aggregate value of new contracts and the potential volume that can come out of these new contracts. The last year, respective number was EUR 7.4 billion, so this number is up by 28%, and this number is, of course, responsible for this 13% outperformance to the market that I showed in the beginning on the basis of organic growth. We always say that 2/3 of this number translates into real volume in the next 12 month.

On Page 5 (sic) [ Page 15 ] you'll find the details in terms of growth in the various verticals. I will not spend too much time here. I think we see in all verticals strong ongoing growth.

Airline travel is at 28%. The other 2 is at around 37%. So overall, we can really say we saw an over (inaudible) strong growth in 2016.

On Page 16, you'll find an additional important indicator. The average volume per merchant increased from about EUR 2 million to 2 -- nearly EUR 2.3 million. This is, of course, an important scalability and also profitability number. We always put this is in relation to sliding scale effects. So here, you have the detail for 2016. And you'll see, if you do the math, from 2012 to 2016, the average volume of a merchant increased by about 50%.

On Page 17, we -- I will definitely not go in too much detail here. You'll find a detailed breakdown in which industries -- sorry, in which geographies we had, what volume portion. You'll see here that we have today volume already on all 5 continents. We are a truly global company. And you also find exactly what part of our revenue is transactional oriented and what is hardware oriented. Of course, in transactional-oriented value, it's an aggregate of transaction fees and also percentages.

Page 18 shows a detail in terms of industries and regions.

On Page 20 and 21, you'll find some of our most important innovation initiatives. boon is one of the most successful mobile payment product in Europe. We are currently rolling it out in Europe on both basis, on Android basis as well as together with Apple on Apple Pay basis. We expect additional live goings in probably 3 big European countries this year. Additionally, we already expect, perhaps, one big country outside Europe. From a technology basis, we have the potential to roll out boon globally. That's exactly the advantage of a fully digitalized solution, it can run on the same platform globally.

Wirecard Checkout Portal. For Wirecard Checkout Portal, of course, the same is true. It's also a generic technology. Again, a front end where we can address small merchants. We are currently rolling it out in Europe. Additionally, we're integrating with the solution in Brazil, because Brazil is following a very similar business model with the Checkout -- like the Checkout Portal in Brazil. So here, we already have, beside of Europe, also a footprint outside Europe. And also, this technology has the potential to be rolled out globally.

ConnectedPOS is mainly -- currently, a technology for Europe where we, at the point-of-sale, digitalize cash -- cash desks and till systems that are not fully digital, but are running on proprietary technology and operating systems. It's also the basis of our rollout of Alipay, and we already have significant success with this technology.

Mobile point-of-sale is, again, a potentially global technology that, already beside of Europe, is also rolled out to Asia. It's basically an ability for small merchants to go for digitalization. It has an additional potential at large chains to bring the cash -- the shop assistant to the consumer. We estimate that a merchant can raise his revenue by up to 10% to 20% if over a mobile device directly a shop assistant can order all products digital even at the point-of-sale and can finalize the checkout together with the consumer going to the consumer. So this technology is, on the one side, a very good technology for small merchants to digitalize; and on the other side, also an ability to fully digitalize for larger chains, et cetera and raise their revenue.

Merger and acquisitions. We -- as I said before, we had this year some additional M&A activities. We closed the Citi deal. The Citi deal, their prepaid portfolio in the U.S. This will lead us this year to an additional revenue of more than USD 100 million, an EBITDA of more than $20 million. We have to include here integration costs of about $5 million, so the net effect should be about $15 million.

Additionally, we've signed an acquisition of -- we signed the acquisition of the Asian portfolio of Citi in the area of acquiring. That's a portfolio that addresses 11 countries, mainly in Southeast Asia. We expect here strong synergetic effects on technology side as well as on organizational side. With our today's activities in Asia, in many of these countries, we've become a leading market player from fundamentals. It will be a step-by-step, closing-after-closing that we expect by mid to end, by mid of 2018, we expect in the next 12 month a revenue of more than USD 200 million and an EBITDA contribution of more than $20 million. And then ongoing, also, additional synergetic effects beside of the normal growth that we have on group level of more than $7 million per year.

MyGate is a small but strategically very important transaction in South Africa, where we get access basically to all relevant acquiring banks on the African continent. It's a perfect complementary transaction to our today's activities that, beside of processing, are also very much issuing related. So we have now in Africa the full end-to-end of Wirecard platforms. So the next step, we will bring in Wirecard platform on fundamental terms. We expect for this year from this transaction an EBITDA contribution of EUR 2 million.

On Page 24, you'll find the detail what we did with the transactions that were already consolidated last year, namely India, Brazil and Romania. I think all transactions showed very good performance. One short additional sentence to India. Many of you know, there was a cash crunch. So cash -- old cash was substituted by new cash. So to say, this cash crunch resulted in a negative effect of about EUR 1 million to EUR 1.5 million. So without the cash crunch, the result, the EBITDA contribution, would have been even higher. For 2017, we guide on, on the basis of 2016 results, a performance that should be an EBITDA level above 35% growth. So we expect, of course, now for India very strong ongoing growth.

In detailed terms, you'll find on Page 25 that we were already able to bring a lot of additional services throughout today's activities, mainly mobile point-of-sale. We have initial possibilities on the Acquiring and PSP side; we were able to upgrade our licensing there. So again, for 2017, we expect an organic growth in India on EBITDA level of above 35%.

Two words to the outlook. Going forward, we said that digitalization is speeding up. Historically, we're always talking about 12% to 13% market growth. We say now 16% to 17% market growth is a good guidance forward on conservative level. This leads to our overall projection for 2017 to reach EBITDA between EUR 382 million and EUR 400 million. They may be under EUR 391 million, is on conservative level, the most probable result. Why is it conservative? Because only 24% growth included in this number, you see that, organically, in 2016, 27%. And Citi, for example, is included with EUR 13 million.

Some vision -- or some insight into how the market should develop until 2020 for us. I said in the beginning, the whole market is just starting. Why is it just starting? From all global transactions, today, only 15%, 1-5% are electronic, 85% are still cash. And from this 15%, perhaps, 6% to 7%, that's our estimate, are really running in a fully digitalized way. So without proper terminal swipe machines, cash desks, et cetera. So we think we have a super large growth market before us. And we think that now by data-driven commerce, connected commerce, also very conservative companies from point-of-sale have to aggressively go for digitalization. This is why we definitely think that, in the next 10 years, we can totally outperform what we achieved in the last 10 years. And some of this spirit, you'll find in our Vision 2020, where we are guiding on conservative level without additional M&A. So this is an organic-only guidance, where additional M&A will come additionally. We are guiding transaction volume of above EUR 190 billion, a revenue of above EUR 2.5 billion, and an EBITDA margin of 30% to 35%, and a cash conversion to EBITDA free basis -- free cash conversion of more than 65%.

So these are (inaudible), and this should also give you a little bit an outlook where the business develops.

And with this, I come to an end. And I would like to hand over to Burkhard Ley. Thank you very much.

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Burkhard Ley, Wirecard AG - CFO and Member of Management Board [4]

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Yes. Good afternoon, ladies and gentlemen.

Like usual, some details in addition to what Markus said, and definitely some financial aspects following the strategic view Markus gave to you, without going into too many details so that you have chance for many questions.

Page 33, beginning, you see the core figures, around 35% growth, Markus gave the reasons for that. I would, here, concentrate on those with different figures. Tax has a special page later to comment. Earnings after taxes and EPS, of course, impacted by Visa. Just to repeat in one sentence, Visa overall was nearly exactly EUR 100 million which, to mention it besides, of course, shows the strong relationship we have in Europe for -- historically with Visa Europe. Financially, roughly spoken, EUR 90 million in the P&L as the financial result, and EUR 10 million residually linked to the Visa in shares. We got with some restrictions as for the (inaudible) reserve for the future.

We are quite proud on the development of the operating cash flow, which in the adjusted version, shows an increase which is a bit higher than the 35% of the other figures above, and shows the strong development of the business.

First, look on the balance sheet, just with the 2 figures, repeats what I fortunately could say for many quarters, we stay in a very comfortable balance sheet situation. Total assets, meanwhile, EUR 3.5 billion; total equity, EUR 1.5 billion. And if you imagine for a second to deduct the gross cash of EUR 1.5 billion from the total assets, and you'd see that we stay in a very comfortably financed situation.

Number of staff. We hire sophisticated people worldwide, so we come up by nearly exactly 1,000 people in 2016, 350 of that via M&A. Just consider here, we have the add-on of the Indian ladies and gentlemen at the end of '15, so they are not new in '16. And the other 600 organic growth worldwide. Of course, we try to concentrate, like always, on highly sophisticated software developers, and technical experts and sales experts. But nevertheless, also integrate new intelligent people in our back-office department.

Next page shows revenue, EBITDA and EBITDA margin development in the last years. You see 2013, where the specific situation, which was linked to our market entry into the mobile payments field, which we explained at that time intensively to all of you. Since that, we have a strong increase of the EBITDA margin. And for 2016, we're at a level of 29.9%. And so far, I am also quite proud to mention that with regard to the Vision 2020, which includes 2 growth figures, transaction volume and revenue; but also 2 financial figures, which is cash flow conversion and EBITDA margin. With those 2 figures, we are nearly on the level of our Vision 2020.

Next page, a few additional words to some specifics in our P&L.

First look on cost of materials shows to you that, relatively spoken, there is some decrease. And as this is an important figure in our P&L, of course, this decrease is also relevant. It has 2 reasons. The one was strategically mentioned by Markus, and you see the results here. We have this EU commercial-based decision of a lowered interchange with an impact of, roughly spoken, EUR 30 million last year, which is (inaudible), a significant driver of this development. And secondly, please consider the higher relevance of the non-European business which, meanwhile, is more than 30% of the total business, includes more than in Europe, the SAP businesses where we don't have fees to the card schemes as a sort of pass-through. That's the 2 reasons -- core reasons for that.

Personnel expenses, very stable, relatively spoken to the revenue. Other operating expenses, here, you see a sharp increase, relatively spoken. And there is one important reason for that. All the others are not relevant. The one important is the fact that we had historically high advisory costs to M&A advisers in the direction, on the one hand, of the Citi Prepaid portfolio acquisition in the U.S. And secondly, as the negotiations before we did the signing of the Citi acquiring business in Asia, and this is the basis for that. If you have a look in our report, you'll see this growth in a sub-line of the other operating expenses precisely described.

Amortization, nothing specific. Financial results driven by the Visa situation. And I come back to tax in a second.

Balance sheet, I would also say here no spectacular changes. The increase from EUR 3 billion to EUR 3.5 billion more or less reflects, on the one hand, the organic growth of the business; and secondly, it relates -- sorry, reflects the M&A transactions we did in 2016. They are the core reasons for the increase of goodwill, so dominated -- linked to the Brazilian and the Romanian transaction.

Let me add here besides as well, also from the balance sheet situation, you'll see on the one hand, we have regularly amortizations on the customer relationships. But besides them, we do not have a single euro of specific amortizations or depreciations of any goodwill, which shows, in other words, that what -- and Markus said before strategically, we did a very successful integration of the M&A targets over the last couple of years.

Receivables of acquiring business, following like the corresponding position, on the liability side, liability of acquiring business, the one -- the last mentioned, more driven by the own bank, the other one more driven by the third-party banks, specifically outside Europe. Nevertheless, more or less comparable increase following the organic part of the business.

Trade receivables, going up substantially. And I come back to that in a second on a specific FinTech page.

Gross cash, around EUR 1.5 billion. Corresponding to that, we are still following the strategy not investing money from the normal operative business into M&A. And in so far, we have some interest-bearing bank loans, which are close to EUR 600 million. The increase in 2016 follows, on the one hand, the ultimate payment of the Indian transaction at the beginning of '16, and of course, in addition to that, the Brazilian and the Romanian transactions.

Also very interesting, organic development of the customer deposits, which is, on the one hand, consumers or merchant's prepaid money. And secondly, is merchants' money on bank account with us, which it derives from the involvement in the organic business we are doing. The acquiring business, increased plus EUR 150 million, roughly spoken. Other current liabilities, like expected, minus nearly EUR 100 million, which was also linked to the Indian transaction and the payout in the year before.

Net cash, without going into details, if you consider all the relevant aspect, we end with EUR 380 million of net cash in the long-term view.

Next page, 2 comments to the income tax analysis. The one is, in Germany, where the dominating majority of this financial income from the Visa sale was generated, we have a very specific tax situation for that. And so far, we did not have to pay the normal 27% or 28% tax on this income, but just 5% of that, which is a quite low amount, which lead in the overall group's description to a very low figure of around 12%. If we eliminate this Visa effect, you'll see that following my estimate a year ago, we came a bit up and end with 17%. For this year, to give you an indication, we have to expect, on the one hand with regard to the transaction in the U.S, where the tax rate is above 30%; and also with regard to the fact that the Indian business grows faster than the average of the group, and there, the tax rate is 34%. And so far, I expect a slight increase of the group's tax level and expect us to end slightly below 20% for the whole year on a group level.

Cash flow, cash flow conversion. I mentioned a couple of words to that before. As you see here, a very positive development of that, also considering the increase of the CapEx which we had in 2016 following the strategic aspects Markus mentioned before.

The last page shows the basis for all our FinTech activities. Our understanding is we were a FinTech start-up, although the word did not exist at that time in 1998, 1999. And since that, we developed a very global technology platform. On the other hand, we have a bank and we have some payment institutions in other parts of the world. This means we understand us today as the preferred partner for FinTech companies because they typically have any sort of convenient or intelligent or whatever sort of [ idea ], either in the sense of mobile apps in the (inaudible) sense or in the sense of marketplaces or anything around that. Typically, they have a lack of experience in software development, in banking activities. Just a few FinTechs have decided to own their own bank. And in so far, we seem to be sort of a perfect partner for that. We meanwhile have around 50 FinTechs. We are doing one or many of the services mentioned on the last part of the page. This made us decide, beginning 1.5, 2 years ago when also the interest rates on the money market came down substantially, that in specific selected cases, we also, I'll say, are prepared to be a partial investor in those businesses the FinTechs do. So we are not an equity holder of FinTechs. But what we are doing is the FinTech, for example, has a portfolio on the marketplace of consumer loans, on the one hand, and investments on the other hand. And there's sort of an overhang of interest in loans that we also invest a bit of money. Of course, in the single case, it's based on individual collateral situations, where we typically get a multiple x on the historic losses as a cash collateral. That's the basis for what we are doing. And in the result, we are now talking about a partial, I repeat the word partial, substitution of the cash we have in the bank. Historically, as all of you know, we invested in daily deposits. We invested in short-term interest-bearing securities and with selected amounts also in collared floaters with a midterm maturity. Now we are also investing partially and selectively in this sort of FinTech activities. The result of that is, on the one hand, strategically, we deepened the relationship with the FinTech companies. Secondly, we have a very positive impact on our interest income. You know the interest income of the bank, you won't find in the financial result, but in the revenue. And if you compare 2015, where we had, roughly spoken, EUR 4 million of that, and 2016, where we have EUR 10 million of that. And you consider that, ceteris paribus, the EUR 4 million would have gone down because of the interest rate development to EUR 2.5 million or EUR 3 million in 2016, you'll see that we have a very interesting additional income stream to that. Last sentence to that, of course, our interest is always to be a first partner for that. And if those FinTechs become bigger, we integrate other banks in that as well. And so far, nobody else expect us to increase these amounts substantially in future, but a slight upswing could also take place in future.

With that, I would like to give back to Iris. Thank you.

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Iris Stöckl, [5]

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Thank you very much, Burkhard. Thank you, Markus. We can now start the Q&A session, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from Mr. Gautam Pillai from Goldman Sachs.

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Gautam Pillai, Goldman Sachs Group Inc., Research Division - Research Analyst [2]

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I have 3 questions. First, on the new volume bookings, and it's really incredible to see a strong growth here. Can you please give some color on the inorganic contribution in the EUR 9.5 billion figure you mentioned for the second half? Second question is on the opportunities in India. And Markus, you mentioned that there was a small negative impact from the demonetization drive in the country. How should we think about this going into 2017, given there is an element of cash to electronic services in the GI Retail business? Also, the Indian government continues to push for more electronic payments. Do you plan to launch any new products to capture this opportunity? And final question on the balance sheet. There is a cash outflow related to the Citi Prepaid acquisition in the U.S. and the MyGate deal, which will come in 2017. Considering this and the timing of cash flow -- cash outflow related to the Citi APAC deal, Burkhard, can you please comment on how the cash situation would look at the end of 2017 relative to 2016? Do you envisage a scenario where you might go into a slight net debt position? These are the questions. And finally, a quick housekeeping one on finance charges. There was a EUR 10 million interest charge in 4Q. Is this a run rate we should model going forward?

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Markus Braun, Wirecard AG - CEO, CTO and Member of Management Board [3]

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Okay. To answer your first question, the EUR 9.4 billion is organic only. So this is really organic new sales. There is no unorganic (sic) [ inorganic ] element in there. The second -- so the EUR 9.5 billion really compare to the EUR 7.4 billion we had second half year last year. To India, first of all, our Indian initiatives fully pay into the digitalization. So what we do there is, basically, using Internet technology to convert cash into electronic money over an electronic voucher, that can then be used either to trigger money remittance transaction or to do direct payments at the point-of-sale in the airline travel space and in other e-commerce spaces. The demonetization has the following effect that, for 4 weeks, when the cash was changed, so to say, the cash in was, of course, reduced. After that, it came fully back. And let me say, of course, the Indian society still today is by over 95% or 98% a cash society. So additionally, we're bringing in fully digitalized solutions in the acquiring and also on the issuing side. So that's our strategy. We are taking the market from where it stands. And we are fully, let's say, supporting here the digitalization process. But again, it has to be seen realistic. And still today, India is a cash market. And you also need this possibility that cash is converted into digitalized money. And we are offering both: we are offering this opportunity as well as highly innovative solutions like mobile point-of-sale, et cetera, like mini ATMs, like fully digitalized acquiring now that, let's say, pay in into fully digitalized processes. But for a long time, you will also need this additional agent networks that converts cash into digitalized money. So I think we have a perfect strategy there. And again, for 2017, we're predicting growth on EBITDA level on basis now of this EUR 50 million that we achieved last year of above 35%.

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Burkhard Ley, Wirecard AG - CFO and Member of Management Board [4]

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Okay. Then back to your question, purchase prices and relevance for the cash situation of the group. So if I integrate the payment we, of course, did in Q1 with regard to the closing of Citi U.S. include this small transaction in South Africa and include the [ impacted ] closings from the Asian deal with Citi, I see an overall payout realistically in 2017 of around EUR 300 million. But I have to add that the milestones on the steps to the closing of this Citi Asia deal are dependent on many factors, which could in the result lead to the fact that anything is anticipated or postponed into next year. So that's today's estimation. But the EUR 300 million should be more or less clear. Of course, this does not at all include the operative cash flow from the operative business we will generate expectedly this year.

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Markus Braun, Wirecard AG - CEO, CTO and Member of Management Board [5]

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Okay. Are you fine?

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Gautam Pillai, Goldman Sachs Group Inc., Research Division - Research Analyst [6]

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Okay. Yes. And Burkhard, on -- as a follow-up, so there is -- in no time you would go into a net debt position because you can -- you already have about EUR 300 million in the cash position right now and there will always be free cash flow which can cover these deals? Is that how we should think about it?

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Burkhard Ley, Wirecard AG - CFO and Member of Management Board [7]

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Yes, exactly.

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Gautam Pillai, Goldman Sachs Group Inc., Research Division - Research Analyst [8]

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Yes. And finally, on the finance charges, is that -- is the EUR 10 million a reasonable run rate to think about it per quarter?

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Burkhard Ley, Wirecard AG - CFO and Member of Management Board [9]

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Sorry, I haven't got this question precisely. EUR 10 million of what?

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Gautam Pillai, Goldman Sachs Group Inc., Research Division - Research Analyst [10]

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There was a EUR 10 million interest charge in 4Q which you reported. And this was an increase from the sort of, I think, EUR 3 million to EUR 4 million which we have seen in the past, probably related to the new debt you have taken for these acquisitions. Is that how we should think about finance charges going forward?

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Burkhard Ley, Wirecard AG - CFO and Member of Management Board [11]

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I think there might be sort of a misunderstanding, so I'll try to repeat. What I mentioned before was the interest income we generate from the FinTech activities and said we had EUR 4 million in 2015. This would have reduced to EUR 2.5 million to EUR 3 million, dependent on the interest decrease. But we were able to increase that to EUR 10 million following the FinTech activities. And what you are now asking for is interest expense for the loans we have. Of course, you see the results for the EUR 600 million we actually have in the financial expense. And this figure, of course, might increase a bit following the purchase prices we were paid this year. In addition to that, please consider, all of you, if you have a look at the financial result and exclude, of course, the Visa transaction, we have on the one hand the payout for the loans, but the more dominating figure is still the compounds and fair value adoptions of the earnouts we have as part of the liabilities in the books, which is all together an amount of EUR 13 million in 2016. And the real expense for loans going to the banks was EUR 13 million in 2016.

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Gautam Pillai, Goldman Sachs Group Inc., Research Division - Research Analyst [12]

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Okay. And can I just quickly follow up on your comment on tax rates? So from your earlier sort of guidance of 14% to 15%, given the different dynamics, you are now suggesting it should be more like less than 20%, so probably around 17% to 19% range? Is that how we should take that?

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Burkhard Ley, Wirecard AG - CFO and Member of Management Board [13]

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Yes, I see that. So if everything works like we planned, then we would over the year integrating, on the one hand, the higher growth in India and integrating the transaction in North America in the U.S. They've come a bit upwards and so far, following our own plans, Q4 should be slightly higher than Q1. And at the end of the year, we should be anywhere slightly below the 20% I mentioned before.

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Operator [14]

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The next question comes from Alexandre Faure from Exane BNP Paribas.

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Alexandre Faure, Exane BNP Paribas, Research Division - Research Analyst [15]

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A couple, if I may. One on M&A. Over the last 18 months, we've seen a number of relatively large-scale M&A compared to what you used to do back in the days. Do you feel like you're happy, as you commented, Markus, saying that you've got hubs now on all continents? Should we expect to see further deals of that size, in the $200 million, $300 million? Or do you think that's a thing of the past now? So that would be my first question. And then second question is on organic growth. Historically, it's been in the 20, low 20s. For this year, you're guiding 24%. What makes you a bit more bullish for this year on organic growth? Anything in particular you want to highlight?

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Markus Braun, Wirecard AG - CEO, CTO and Member of Management Board [16]

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Yes. Coming to your first question, we clearly say strategic M&A to go into geographies is finalized. We never exclude opportunistic M&A. Take now, for example, the acquisition of the Citi portfolio in Asia. This is such an opportunistic deal, where we have huge additional synergetic effects and where we can bring in our technology competence. Let me say, of course, we see a global trend. And we're saying this since some time that the acquiring is more and more moving towards technology-driven companies like Wirecard. And in this process, of course, if an owner of a large portfolio that doesn't see this any longer as a core competence because technology is not its core strategy in the area of digitalization, such an opportunity -- is an opportunity -- of course, such opportunities we would never exclude. Let me also say, both transactions, even though they are strategically very relevant for us, the Citi Prepaid and also now the deal with Citi in Asia around about transactions, around USD 200 million. So in terms of size, of course, they were still fully in line with our strategy of going opportunistically for small-scale M&A if you compare it to our own size. But all numbers we are giving are organic-only numbers. This includes, of course, the guidance now for 2017, and this includes the Vision 2020. So if, opportunistically, an additional deal would come, it will always come additionally. But our guidance is a straight organically one and, again, in terms of geography, we will now very much concentrate on rolling out Wirecard platform in all these geographies and scaling the business from the strategic hubs into complementary countries. For example, also in Brazil, also already the market entry into Argentine is in preparation. Out of Romania, we are currently also expanding to Poland, et cetera. So that's the core strategy, and M&A keeps to be an opportunistic additional element that must be a special opportunity for us as a strategic technology buyer. Organic growth, it's true. I said in the beginning, digitalization is still early stage, and we see definitely in the last year’s further growth elements here. And this, of course, is also reflected in a still conservative, but a little bit higher guidance in terms of organic growth than we had in the last years. But if you compare again, we achieved in 2016 an EBITDA growth organically of 27%, at the median value of our guidance now 24% is included. So we still see this more on the conservative side.

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Operator [17]

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The next question comes from Gianmarco Bonacina from Equita.

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Gianmarco Bonacina, Equita SIM Spa, Research Division - Analyst [18]

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Yes, a couple of questions. First one is you mentioned that you had some exceptional costs for the advisory, for the consulting. If you can quantify the -- this impact for 2016? I mean, reading the annual report, it seems that the incremental cost was about EUR 10 million but I don't know if my calculation is correct. And also, if we should expect some more in maybe in the Q1 because you were still negotiating the Citi deal in Asia. The second question is on the current trading. I think you mentioned that you believe that a 24% guidance is conservative. Just if you can make some more comment on -- given that we are already in April on the first months of the year.

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Burkhard Ley, Wirecard AG - CFO and Member of Management Board [19]

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Yes, let me begin with the first one, that's the question with regard to the M&A-related costs. You're completely right with what you are saying. I would say, it's a bit less, so it's EUR 8 million, EUR 8.5 million around for these very specific negotiations in the very complex deals we did. And so I completely agree to you, this will continue a bit in Q1. But if I take the rule here, 2017, from today's point of view, there is not a single reason to believe that we might have further sort of advisory costs in a similar way. And so far, I would not say we come, from today's point of view, back to the figure we had in 2015. But I'm saying there are some cost potential with regard to that for the whole year 2017, which today is not included.

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Markus Braun, Wirecard AG - CEO, CTO and Member of Management Board [20]

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To your question concerning Q1, of course, I cannot give now final numbers, but I can say that this very strong trend -- and the most analytic indicator why we are so bullish is, of course, these new sales that we are giving on half year basis, EUR 9.5 billion, that's really a strong number. It's up by 28% from last year. So of course, I can say that the starting into the year is very strong. Again, all this digitalization issues we are covering and we are focusing on are really just starting. And let me also say, if I look into our Vision 2020, beside of seeing a core or a straight organic vision, it also does include new upcoming additional services that we are currently heavily working on in the area of data-driven commerce. I said in the beginning, our risk management engine, that is nothing else than using in real time data to protect the merchant, and that is very much already able to implement (inaudible) self-learning algorithms and memory functions. This is, of course, exactly the same technology we will use for these data-driven services. And the potential of that is not in the Vision 2020 because we cannot fully wrap this today. But of course, if you do the math, we'll have 200 -- above EUR 190 billion of volume in 2020. So let's do the math, from EUR 200 billion, if you say EUR 40 to EUR 50 is an average ticket size, we are seeing up to 4 billion transactions in 2020. If we would say -- we see each consumer at 4 to 5x, we have here, let's say, an overview about 900 million to 1 billion consumer data. This is an extremely interesting additional potential that's not in the numbers. I cannot give a guidance when it comes to, but this is, of course, an additional element why we see also Vision 2020 as a conservative element.

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Gianmarco Bonacina, Equita SIM Spa, Research Division - Analyst [21]

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Okay. Just a quick follow-up, if I may. I forgot to ask, on the M&A slide, do you think in the midterm, mid to long term, that this acquisition you made from Citi, which right now, clearly, they are dilutive to the group margin, that over time could, let's say, come in line with your group margin?

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Markus Braun, Wirecard AG - CEO, CTO and Member of Management Board [22]

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Definitely. I think that's exactly the advantage of our technology. If we go into details there, we will have a total setup in terms of value chain running over Wirecard platform, that currently is the case at this portfolio. So we strongly believe that quite quickly over time over the synergetic effects, we will bring this portfolio to the same level. We're currently seeing a good level.

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Operator [23]

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The next question comes from Sébastien Sztabowicz from Kepler Cheuvreux.

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Sébastien Sztabowicz, Kepler Cheuvreux, Research Division - Head of Tech - Equipment Research [24]

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Yes. One question on the mobile payment. What was the contribution of mobile payment business last year in both sales and the EBITDA level? And also, what could we expect for 2017 for mobile payment contribution? And also, another question on the omnichannel strategy. Could you comment a little bit on the progress you made on omnichannel? Do you have any flagship deals or any example of a strong success that you already had in the omnichannel?

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Markus Braun, Wirecard AG - CEO, CTO and Member of Management Board [25]

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So to your first question, under analytical, it's about EUR 5 million of EBITDA contribution in 2016. This has -- it has to be taken into account that, of course, despite all the rollouts we are currently in, of course, this is still also an investment area. But still, we're already producing positive results. This shows the strength of this new initiative. So EUR 5 million was the contribution in 2016. For 2017, we guided now, on conservative basis, on EBITDA level, with the same growth, 24% that we have on group level. But again, it has to be taken into account that there are still a lot of investments running there. I would say we had a lot of good examples for omnichannel in 2016. You'll find the initiatives we have with W&F with the German railway system, where we're already running all sales channels over the Internet... Austria. Austria, sorry, Austrian railway system, not Germany. In airline travel, I think omnichannel is already most advanced. And in Asia, as there, we are not so much burdened by legacy technology, but we're actually in all sales channels, we are going for mobile and Internet technology. So I think the wave is really running and it's coming from different areas. Mobile payment, if nothing else, then in omnichannel initiative at the point-of-sale, mobile point-of-sale initiatives at the point-of-sale. So we definitely see this element as a strong additional growth element in the next 5 years. What has to be said, of course, it's an evolutionary thing, and especially large retailers, to benefit from omnichannel, not only have to integrate Internet technology on the payment side in all sales channels but it also, of course, needs process changes in the area of warehousing systems, logistic processes, et cetera. So that's not only about payment. And again, this whole growth pays, of course, into the whole Internet of Things story that is currently generally coming to the point-of-sale. And it's not only about payment, and the changes, of course, the merchant has to do are not only about payment.

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Operator [26]

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The last question comes from Adithya Metuku from BAML.

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Adithya Satyanarayana Metuku, BofA Merrill Lynch, Research Division - Associate [27]

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Most of my questions have been answered. I just have one quick one. So when you look at the travel and mobility volumes in the fourth quarter, growth slowed to 2%. I was just wondering if you could give some color on what happened specifically in the fourth quarter in that segment. And actually, I had a quick follow-up on the earnout payments that you have on the balance sheet.

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Markus Braun, Wirecard AG - CEO, CTO and Member of Management Board [28]

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Sorry, I didn't get the first question. I'm sorry. Can you repeat it?

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Adithya Satyanarayana Metuku, BofA Merrill Lynch, Research Division - Associate [29]

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Yes. Just looking at the travel and mobility volumes, you gave the full year volumes, and when I back out the volumes for the fourth quarter from the full year volumes, it looks like growth in the travel and mobility segment was 2% in the fourth quarter of '16, down from nearly 100% in the third quarter. So I was just wondering what the key puts and takes were that drove the volume growth to slow significantly in the fourth quarter. I know comps were tough, but I don't know if there was anything else.

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Markus Braun, Wirecard AG - CEO, CTO and Member of Management Board [30]

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Let me say, overall, we -- I just have here the overall numbers. It was -- airline travel grew at 28%, over the year, of course, they are constant. We all -- let's see, at airline travel, sometimes there can be, how shall I say, erratic elements when airlines go live in a certain quarter. And of course, this is mainly an oligopolistic industry. We have there over 75 airlines as main contributors to this volume on the platform. And yes, that's my answer to that, but I don't know of any erratic element.

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Adithya Satyanarayana Metuku, BofA Merrill Lynch, Research Division - Associate [31]

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Okay. And just a quick follow-up for Burkhard. Burkhard, what are the -- can you give us some color on the earnout payments that will be paid out over the next 2 to 3 years for our modeling purposes?

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Burkhard Ley, Wirecard AG - CFO and Member of Management Board [32]

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Yes. You see the overall expectation in our other liabilities. And some -- I would -- of course, the exact calculations have not been finalized. But generally spoken, what we have to expect is that, following the development of the businesses, we will have to pay the dominating majority of the expected and agreed earnout payment. And what I mentioned before, you saw this, roughly spoken, EUR 9 million of fair value in the financial expense. This does -- positively spoken, say nothing else than the fact that, obviously, the expectation is even higher than it was before, that we have to pay the earnout payments that we agreed to. The biggest demand was and is, of course, the second one in India. You might remember, all of you might remember, we agreed on 3 earnouts, EUR 50 million, EUR 50 million, EUR 10 million. And so far, we are now talking about the second EUR 50 million, which is the dominating part of that. And then we still have the second years of the South African and New Zealand Phase 1 and we have the new ones to the transactions we talked about before, where from today's point of view, I would at least expect the majority of the agreed earnouts we will have to pay. But again, to say that in other words, we are happy that we will be able to pay them because this documents that the integration of the companies worked quite well. And if I just may come back to your question before, with the comparison to the figures we had in our presentation 3 months ago, we said there that the transaction volume in travel airline was plus 25.6%. And now we have -- for the whole year, we have 28%. And so far, your question might lead to a follow-up to talk about with our IR team.

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Adithya Satyanarayana Metuku, BofA Merrill Lynch, Research Division - Associate [33]

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Okay. Burkhard, my question on that travel and mobility was specifically to do with Q4 volumes. I get that the full year volumes are at 28% -- or growing at 28%. But when I back out the last 3 quarters, I get to 2% growth in the fourth quarter. And I was just wondering what drove that, but we can take this off-line.

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Burkhard Ley, Wirecard AG - CFO and Member of Management Board [34]

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Yes.

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Iris Stöckl, [35]

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Yes, let's elaborate on that on a particular call. Thank you all for taking the time to attend our call. Please do not hesitate to contact the IR team. Thanks a lot. Bye-bye.