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RNS
Network Intnl Hldgs   -  NETW   

Network International Full Year Results

Released 07:00 09-Mar-2020

RNS Number : 3562F
Network International Holdings PLC
09 March 2020
 

Network International Holdings Plc, results for the twelve months ending 31 December 2019

Strong financial performance, positive strategic progress and

growth accelerators underway

Group financial summary

Select Financials (USD '000)

2019

2018

Change

Revenue             

334,906

297,935

12.4%

Underlying EBITDA1

172,314

152,039

13.3%

Underlying EBITDA margin1 (excl. share of associate)

48.6%

48.9%

(31 bps)

Underlying earnings per share1 (USD cents)

21.0

19.5

7.5%

Profit from continuing operations

59,011

46,737

26.3%

Reported earnings per share (USD cents)

11.5

5.2

121.1%

 

 

 

 

Key Performance Indicators (KPIs) 2

 

 

 

Total processed volume (TPV) (USD m)

43,779

39,932

                 9.6%

Total number of cards hosted (m)

14.2

13.6

4.4%

Total number of transactions (m)

752.0

681.4

10.4%

Financial and operating highlights

·     Strong revenue growth of 12.4% (also 12.4%2 on a constant currency basis):

o Middle East revenue growth of 9.2%, driven by increased TPV, transactions and cross-selling

o Africa revenue growth of 22.2%, driven by volume growth in cards hosted and TPV, complemented by new customer wins and cross-selling

·    Underlying EBITDA1 increased by 13.3%. Underlying EBITDA margin1 (excluding share of an associate) broadly stable at 48.6%. This includes public company costs which negatively impacted margin by (130) bps.

·  Profit from continuing operations increased by 26.3%, reflecting growth across the business and no impairment charge recorded in the current year.

·    Underlying free cashflow1 was USD 103.2 million and net cashflow from operating activities was USD 131.2 million. The Board proposes an ordinary dividend of 3.1 cents per share, in line with the policy.

·    Completed the transition to our next generation technology platforms with customers successfully migrated; further differentiating our products, services and unlocking growth opportunities.

·     Recent customer wins include Tyme Bank in South Africa; Sparkle Bank and Unity Bank in Nigeria; and direct acquiring with a number of SME and key UAE merchants.

·    N-GeniusTM product rollout progressing well, with over 15,000 point-of-sale units distributed and over 300 online gateway customers in the UAE. Rolling out in Africa with presence in four countries

·   Saudi Arabia market entry has progressed through the start of investment to deploy on-soil payments processing capability.

·  Mastercard partnership initiatives have commenced with a focus on further digitising our payments capabilities.

Simon Haslam, Chief Executive Officer, commented:

"We have achieved strong financial performance during the year, delivering on the strategic priorities and guidance we set out at the time of IPO. We have reported 12.4% revenue and 13.3% underlying EBITDA1 growth, maintaining our industry leading margins. Growth across all business lines remains healthy, enabled by our unique competitive position in our markets. I am particularly pleased that we have successfully migrated customers to our new technology platforms. I want to thank my colleagues for the delivery of this transformational project.

We remain excited by the growth opportunities available to our business; through market consolidation, substantial outsourcing contracts, or selective acquisitions. Such opportunities typically require investment and time to develop, but will generate significant incremental returns over the longer term. We have already made excellent progress here, through our Mastercard partnership, and progressing our entry to Saudi Arabia. I look forward to updating shareholders on these initiatives as we move through the year."

Outlook and guidance

The transition from cash to digital payments in our market and strength of our competitive position continue to drive strong underlying revenue growth.  The Mastercard commercial agreement will further accelerate this and we are excited about the opportunity in Saudi Arabia, which has the potential over time to generate up to 10% of our total revenues, with margins slightly below those of the Group. In order to widen our payments processing services, we will require on-soil presence with a data centre and technology capabilities. We are deploying investment in a phased manner, with a total capital spend of up to USD 25 million, the majority of which will be invested in 2020. This will enable us to serve larger customer mandates from the end of 2021, unlocking incremental revenue and EBITDA streams. In the short term we expect a slight dilution to EBITDA margins, reflecting the investment to grow our position in newer markets, accelerate our separation of shared services from Emirates NBD, and revenue mix.

Whilst underlying business momentum remains strong, the coronavirus is having an impact on global travel and spending patterns. Although we are diversified through our presence in multiple geographies and across the payments value chain, we have seen some reduction in client transaction volumes in the recent weeks. The full impact remains uncertain and will depend on the length and severity of the effect of the coronavirus on economic activity in our markets, and we will continue to monitor the situation closely.

2020 technical guidance:

·     Underlying depreciation and amortisation charge cUSD 42-44 million.

·     Specially Disclosed Items: i) impacting underlying EBITDA to be cUSD 13 million; and ii) impacting net income to be a further cUSD 18 million, in line with previous guidance.

·     Capital expenditure consists of: i) Core capex for maintenance and growth at 11-12% of revenues. In line with prior guidance and significantly lower than 2019 due to the completion of the technology transformation; ii) up to USD 20 million to enable the separation of shared services from Emirates NBD, a programme which has been brought forward, as previously highlighted. This includes the separation of a shared data centre in the UAE, independent employee visa services and financial systems, in order to improve our operational flexibility and create a platform for long term growth. This project is expected to complete by the end of 2021 with a total capital spend of up to USD 30 million; and iii) up to USD 20 million to support our market entry to Saudi Arabia.

·     Consistent dividend policy, targeting a 15% payout of underlying EPS1.

Investor enquiries

Network International                                                                         InvestorRelations@Network.Global

Amie Gramlick, Head of Investor Relations                                                                          

Media enquiries

Finsbury                                                                                                               Network-Lon@Finsbury.com

Andy Parnis, Rob Allen                                                                                                               0207 251 3801

Results Presentation      

A presentation for analysts and investors will be held today at 9am UK / 1pm GST with a conference call dial-in facility including live Q&A, as well as a listen only webcast option accessed, using the following details:

·    Conference call dial-ins: UK: +44 (0)330 336 9127 / UAE: 8000 3570 2653 / US: +1 323 794 2093 using the confirmation code: 7570307

·     Webcast link: https://webcasts.eqs.com/networkint20200309

A replay will also be available following the presentation through the same link above one hour after the presentation finishes.

Forward Looking Statements

This announcement contains certain forward-looking statements with respect to the financial condition, results or operation and businesses of Network International Holdings Plc. Such statements and forecasts by their nature involve risks and uncertainty because they relate to future events and circumstances. There are a number of other factors that may cause actual results, performance or achievements, or industry results, to be materially different from those projected in the forward-looking statements.

These factors include general economic and business conditions; changes in technology; timing or delay in signing, commencement, implementation and performance of programmes, or the delivery of products or services under them; industry; relationships with customers; competition; and ability to attract personnel. You are cautioned not to rely on these forward-looking statements, which speak only as of the date of this announcement. We undertake no obligation to update or revise any forward-looking statements to reflect any change in our expectations or any change in events, conditions or circumstances.

CEO Review

Supportive market and a compelling competitive position

Our purpose is to support the consumer transition from cash to digital payments across the Middle East and Africa (MEA), one of the most underpenetrated global markets for digital payments, where around 86% of transactions are still conducted in cash. Many markets in the region are expected to see double digit growth in card and digital transaction values, which presents us with a significant opportunity, as the only player of scale operating across the entire payments value chain. We occupy a market leading position in the MEA with a 19%* share in Merchant Acquiring Solutions and a 24%* share in Issuing Solutions. Our market is also driven by the outsourcing of payments processing by financial institutions, which provides significant sources of future growth for our business.

*Source: Edgar, Dunn & Company Market Study, 2017 data

Positive strategic execution and growth accelerators underway

Our strategy is to provide solutions that allow our customers to bring digital payments to more consumers, leveraging our scale and competitive advantages.

·   Pursuing opportunities for acceleration: We are pleased that our market entry to the Kingdom of Saudi Arabia (KSA) is progressing. KSA is one of the largest payments markets in the MEA; where digital payments represent around 9% of transactions and the Government 2030 vision seeks to increase this to 70%. The majority of payments processing activities are managed in-house by local banking institutions, presenting a large outsourcing opportunity, where we are the natural partner due to our strong track record in the neighbouring UAE and our presence across the entire payments value chain. We have already set up a legal entity in KSA, opened an office, been included in the SAMA (Saudi Arabian Monetary Authority) sandbox regulatory scheme, and are providing processing services for a small number of customers from Dubai. In order for us to process a wider range of payments types, at scale, we must have in-country data processing and technology capabilities, as required by SAMA.  Our confidence in the market opportunity supports our decision to deploy investment and widen our service offering in a phased manner, with an initial focus on prepaid card processing, which will be followed by debit and credit card processing and acquiring services.

·    Capitalising on digital payments adoption and supporting financial inclusion: We are developing capabilities to support the structural market growth in digital payments, through building low cost solutions and working with governments and institutions to support financial inclusion. During the year, we have continued our work with Smart Dubai Government to support the acceleration of digital payments in the Emirate. In other regions, we supported the issuance of cards on the Government led Meeza payment scheme in Egypt. We were also awarded a license by the Central Bank of Jordan, in accordance with the country's new electronic payment regulations.

·     Expanding our customer base and focusing on high value segments: During the year, we renewed a number of important customer processing contracts for multiple year terms, including Emirates NBD and Emirates Islamic in the UAE, Orabank in Togo and RCS Group in South Africa. We have signed a number of new customers in the UAE, including Issuer Processing services for Deem, and Direct Acquiring relationships with a number of key and SME merchants. In Africa, we are working with new issuing solutions customers such as: Sparkle Bank and Unity Bank in Nigeria, MyBank Limited in Somalia; and Vista Group (VistaBankGroup.com) across three countries. We have also signed an acquirer processing agreement with Tyme Bank, which is one of our first customers in South Africa to utilise the full suite of N-GeniusTM products. We are delighted with the number of new customer wins and contract renewals during the year. As is usual with our business, whilst there have been a small number of customer exits, these are within expected levels and we continue to remain focused on retaining and growing our profitable relationships. At the same time, we have widened our channels for SME customer acquisition and introduced digital onboarding.

·   Expanding our product range and market penetration: The N-GeniusTM product suite offers seamless payments integration for merchants across in-store, mobile and online channels. Since their introduction in late 2018, N-GeniusTM POS devices have proven very popular with merchants in the UAE, with more than 15,000 units now being used. We are progressing well with the more recent launch of N-GeniusTM POS in Africa, with usage across four countries, and have a large rollout opportunity remaining. N-GeniusTM Online, our proprietary payment gateway, was launched in the UAE this year and is being used by over 300 customers. It is also being rolled out to African customers where demand is encouraging. Following the launch of security products and services such as Falcon, 3DSecure and Card Control in 2018, we have seen a strong uptake of some of these products from existing customers including ADCB in the UAE; First Bank of Nigeria Limited; and Alex Bank in Egypt. Our data analytics consultancy, NAdvisors, has also made good progress as we begin to monetise the power of consumer spending data for our customers.

·  Leveraging technology and building capabilities: We successfully transitioned customers to our next generation technology platforms, Network One and Network Lite, during the year. Our platforms are highly scalable and deliver significant benefits to customers; allowing faster innovation, speed of service and ability to execute updates.

·     Developing commercial arrangements with strategic partners: Our commercial agreement with Mastercard was signed earlier in the year and provides for a USD 35 million cash investment spread over a five-year period; which will contribute to either operating costs or capital investment. This investment does not include any incremental revenues we may generate from customers as a result of our joint initiatives or broader strategic partnership; working together to develop digital and mobile payments capability across the region.

     Our initial projects have been agreed and focus on building: i) digital payments capabilities to serve both Issuer and Merchant Solutions customers, with a focus on the delivery of QR code payment capability, digitisation of a number of existing solutions and low cost payments acceptance; and ii) a corporate card and digital expenses management portfolio of solutions for corporate customers, enabling large businesses to manage their fleets, travel and procurement, and expenses.

     During the period we also signed a partnership agreement with CR2, a provider of low-cost digital banking solutions. We will act as a host of their banking app to a number of African financial institutions, managing the day-to-day support and service requirements.

Creating a Network culture for our people

We continue to focus on our colleagues, inspiring them to stay and grow with the Company, by creating an engaging 'Great Place to Work'. We have invested in our workforce through introducing a new Talent Management Framework, an Employee Charter which sets out our commitments to colleagues and broadened the benefits under our Employee Wellness Programme. During the year, we also integrated three facilities in Cairo into a new office that brings several teams closer together. Consequently, we are pleased to report a 13-percentage point improvement in our 2019 engagement survey, to 65%, which is ahead of our sector peers in the region. We have also underpinned alignment and incentivisation through the business following an allocation of shares to the majority of employees following the IPO.

Disciplined approach to capital allocation

We operate in fast-growing markets where we have significant competitive advantages, given our pan MEA scale, local expertise, presence across the entire payments value chain and leading technology platforms. We will continue to invest in order to extend those competitive advantages and generate long term incremental revenue and EBITDA, over and above that which will be delivered by our core business. We have a disciplined approach towards capital allocation: to deploy capital to support existing business maintenance and growth; to make organic or acquisitive investments to accelerate growth; and to fund an ordinary dividend with a payout ratio of c15% of underlying earnings.

When assessing capital deployment, we apply a disciplined strategic and financial framework; where any significant investment or acquisition must offer the ability to consolidate our market position, access significant outsourcing contracts, or provide new product or technology capabilities. We are making good progress in a number of these areas and I look forward to updating shareholders on these opportunities as we move through the year.

Simon Haslam

Chief Executive Officer

8 March 2020

CFO Review

Financial summary

 

2019

2018

 

 

USD'000

USD'000

Change

Select Financials

 

 

 

Revenue

                334,906

                297,935

12.4%

Underlying EBITDA1

                172,314

                152,039

13.3%

Underlying EBITDA margin (excl. share of associate) 1

48.6%

48.9%

(31 bps)

Profit from continuing operations

                  59,011

                  46,737

26.3%

Underlying net income1,4

                104,764

                  97,4414

7.5%

Underlying earnings per share (USD cents)1

                    21.0

                     19.5

7.5%

Reported earnings per share (USD cents)

                    11.5

                    5.2

121.1%

Underlying free cash flow (underlying FCF) 1,5

103,237

109,5065

(5.7%)

Leverage ratio2

1.6

1.8

11.1%

 

 

 

 

Segmental Results

 

 

 

Middle East revenue

244,360

223,822

9.2%

Africa revenue

90,546

74,113

22.2%

 

 

 

 

Middle East contribution1

179,580

163,887

9.6%

Africa contribution1

63,964

52,358

22.2%

 

 

 

 

Middle East contribution margin1

73.5%

73.2%

30 bps

Africa contribution margin1

70.6%

70.6%

-

 

 

 

 

Key Performance Indicators3

 

 

 

Total Processed Volume (TPV) (USD m)

                  43,779

                  39,932

9.6%

Total number of cards hosted (m)

                      14.2

                         13.6

4.4%

Total number of transactions (m)

                    752.0

                   681.4

10.4%

 

Total revenue

Total revenue grew by 12.4% (12.4% on a constant currency basis3) to USD 334.9 million (2018: USD 297.9 million), mainly due to the growth in Total Processed Volumes (TPV) and the number of cards hosted, as well as the number of transactions processed as further explained below.

 

 

Segment results

Middle East

The Group's largest segment is the Middle East, which includes a number of countries and represents 73% of total revenue. The United Arab Emirates  (UAE - representing 60% of total revenue) and Jordan are key markets for the Group, both of which have seen continued momentum in the transition from cash to digital payments, although a slight softening in consumer spends in the UAE was seen in the latter part of the year.

The Group's revenue in the Middle East grew by 9.2% to USD 244.4 million (2018: USD 223.8 million), driven by growth in both the Merchant Solutions and Issuer Solutions business lines.

In direct acquiring, growth in TPV6 was underpinned by the Government, Education and Retail sectors, including good growth from key merchant customers. We have also focused on the recruitment of SME merchants, through expanding our sales team and acquisition channels. We have also seen a good growth in the acquirer processing business, albeit from a smaller base. Our Issuer Solutions business has seen strong growth, supported by an acceleration in the number of transactions. Revenue growth is further supported by a focus on the cross-sell of Value Added Services (VAS) such as rollout of our N-GeniusTM product suite, Card Control services and Advanced Fraud Solutions.

During the period, we successfully renewed contracts with key processing customers such as Emirates NBD and Emirates Islamic, as well as signing a number of new customers during the year.

Contribution7 for the Middle East segment grew by 9.6%, to USD 179.6 million (2018: USD 163.9 million), with contribution margin7 expanding by 30 bps to 73.5%, demonstrating operating leverage in the business.

Africa

The Group's Africa segment operates in over 40 countries and contributed 27% of the Group's total revenue in the period.

The Group's revenue in Africa grew by 22.2% to USD 90.5 million (2018: USD 74.1 million), driven by growth in both the Merchant Solutions and Issuer Solutions business lines. Although Issuer Solutions accounts for the majority of the Africa segment revenue, Merchant Solutions has shown very strong growth in the current financial year.

The revenue contribution from each of the Group's three regions in Africa, in 2019, were 47% in Northern Africa, 32% in Sub-Saharan Africa and 21% in Southern Africa. We saw healthy growth in all three regions on the back of strong growth in the number of cards hosted within Issuer Solutions, and significant growth in TPV within Merchant Solutions. We renewed a number of important customer contracts during the year, including OraBank in Togo and RCS Group in South Africa, supported by contracts with new customers. Our performance has also been supported by the signing of new prepaid customers, notably in Egypt, where we are supporting the launch of cards under the new Government-led Meeza scheme. Performance of VAS continued to do well, reflecting the growth of Card Control services and the hosting of CR2 digital banking solutions for financial institutions.

Contribution7 for the Africa segment grew by 22.2%, to USD 64.0 million (2018: USD 52.4 million), with contribution margin7 remaining stable at 70.6%.

Business line results

We serve customers throughout the payments value chain via two core business lines; Merchant Solutions and Issuer Solutions.

Merchant Solutions revenue

Merchant Solutions, which contributes 45.5% of total revenue, comprises a range of technology-led omnichannel payment solutions for merchants, connected to a wide range of global and local payments networks. Our predominant business is the provision of direct Merchant Acquiring services in the UAE and Jordan. We also offer white label and acquirer processing services to customers across all our regions. We offer a range of other VAS, of which the main services include loyalty programmes, dynamic currency conversion, easy payment plans, data analytics and fraud solutions.

Revenue for the Merchant Solutions business increased by 11.9% to USD 152.5 million (2018: USD 136.3 million) driven by growth of 9.6% in Total Processed Volumes (TPV)8 to USD 43.8 billion, representing strong performance in our direct acquiring activities in the UAE and Jordan, and high growth in acquirer processing services for customers across both the Middle East and Africa. Within direct acquiring, we saw a strengthening from the Government, Education and Retail sectors. We have also focused on growing our customer base of SME merchants where we have increased our sales acquisition channels. The trend towards contactless card payments continued, which brings a strong benefit to overall volume growth in transactions but does lead to a dilution in average transaction value. Merchant Solutions performance was also aided by the successful cross-selling of VAS, such as N-GeniusTM products, multi-currency payments (MCP) and N-Advisors. 

Issuer Solutions revenue

Issuer Solutions, which contributes 53% of total revenue, provides comprehensive products and payments processing services to financial and non-financial institutions, including customer on boarding, card issuing, transaction processing, scheme and settlement reconciliation, chargeback services, and dispute management. We also offer a range of VAS, of which the main services include advanced fraud solutions, ATM solutions, data analytics, card control services and loyalty programmes.

Revenue for Issuer Solutions increased by 13.1% to USD 177.6 million (2018: USD 157.1 million), driven by growth of 4.4% in the number of cards hosted8, as well as strong growth of 10.4% in the number of transactions processed1. This reflects the expansion of our processing activities for existing customers and customer wins during the year. Excluding the impact made by the exit of First Gulf Bank as a customer, the growth in cards hosted1 was 9.3%. Issuer Solutions performance was further underpinned by increased revenue from the cross-sell of VAS such as our fraud solutions product Falcon, Card Control services, as well as project related work, which is margin dilutive in the short term but helps drive recurring revenue growth in the medium term.

Other revenue

The Group's other revenue, which contributes 1.5% of the total revenue, includes cash advance fees on cash withdrawals from ATMs, and foreign exchange gains / (losses) from its core operations.

Expenses

 

2019

USD'000

 

2018

USD'000

 

 

 

Reported

Specially disclosed items

Underlying
results9

(A) 

Reported

Specially disclosed items

Underlying results9

(B) 

 

Change

(A & B)

Salaries and allowances

       62,712

      (3,652)

59,060

56,986

 (1,757)

 55,229

(6.9%)

Bonus and sales incentives

      11,254

-  

11,254

11,564

 -  

 11,564

2.7%

Share based compensation

11,398

 (10,679)

719

10,907

 (10,907)

 -  

-

Terminal and other benefits

 

9,814

 

 (1,203)

 

8,611

 

8,627

 

 -  

 

 8,627

 

0.2%

Total personnel expenses

95,178

(15,534)

79,644

88,084

(12,664)

75,420

(5.6%)

Technology and communication costs

           41,898

                    -  

                             41,898

           43,426

 

(5,157)

 

38,269

 

(9.5%)

Third-party processing services costs

           26,728

                    -  

                             26,728

           18,412

 

 -  

 

18,412*

 

(45.2%)

Legal and professional fees

           24,752

         (15,039)

                               9,713

           11,263

 

(3,681)

 

7,582

 

(28.1%)

Provision for expected credit loss

                 510

                    -  

                                   510

                 809

 

(362)

 

447

 

(14.1%)

Other general and administrative expenses

           13,863

               (243)

                             13,620

           11,545

 

 524

 

12,069*

 

(12.9%)

Selling, operating and other expenses

        107,751

         (15,282)

                             92,469

           85,455

 

(8,676)

 

76,779

 

(20.4%)

Depreciation and amortisation

           46,789

         (14,937)

                             31,852

 

34,572

 

 (9,703)

 

 24,869

 

(28.1%)

Share of depreciation from an associate

4,222

-

4,222

2,978

-

2,978

(41.8%)

Total depreciation and amortisation

51,011

(14,937)

36,074

37,550

(9,703)

27,847

(29.5%)

Finance costs

24,844

-

24,844

20,159

20,159

(23.2%)

Taxes

6,632

-

6,632

10,956

(4,364)

6,592

(0.6%)

                         

 

Personnel expenses

Total personnel expenses increased to USD 95.2 million (2018: USD 88.1 million), representing growth of 8.1%. This includes Specially Disclosed Items (SDIs) of USD 15.5 million (2018: 12.7 million). See page 20 for further detail on SDIs.

Adjusting for SDIs, underlying personnel expenses9 were USD 79.6 million (2018: USD 75.4 million), with growth of 5.6%. The number of employees has increased in 2019, reflecting our investment in people to strengthen capabilities in the specific areas such as sales, legal and compliance, and information technology. Growth in personnel expenses is also attributable to annual salary increments across all geographies and the charge for share based compensation under the Long-Term Incentive Plan (LTIP), introduced post-listing.

Selling, operating and other expenses

Total selling, operating and other expenses were USD 107.8 million (2018: USD 85.5 million), representing growth of 26.1%. This increase was primarily driven by an increase in selling, operating and other expenses classified as SDIs, which includes costs primarily related to the IPO. See page 13 for further detail on SDIs.

Adjusted for SDIs, underlying selling, operating and other expenses10 were USD 92.5 million (2018: USD 76.8 million), with growth of 20.4%. This reflects an increase in technology and communication costs, third-party processing costs and other general expenses. Third-party costs predominantly represent the costs paid to the vendors for various services including card procurement, card personalisation and direct cost associated with project delivery, across both the business lines and are directly associated with revenue growth. The increase in this cost line is also attributable to the cost associated with the sale of POS terminals to acquirer processing customers and cost associated with rollout, as well as support, of new product capabilities. 

Underlying EBITDA11

Underlying EBITDA11 increased by 13.3% to USD 172.3 million (2018: USD 152.0 million). This reflects strong revenue performance across both regions and business lines, with corresponding growth in personnel costs, and selling, operating and other expenses, as detailed above. Underlying EBITDA10 also includes the Group's share of EBIDTA of its associate, Transguard Cash (TG Cash), which is detailed below.

Underlying EBITDA margin11 (which excludes the Group's share of its associate, TG Cash) remained broadly stable at 48.6% (2018: 48.9%), where our inherent operating leverage was offset by the incremental costs associated with being a publicly listed company such as; directors fees, Group external audit fees, share-based compensation charge for the Long Term Incentive Plan introduced post-listing, other associated legal and professional expenses (USD 4.4 million), and ongoing investment in the business. Excluding these incremental costs associated with being a publicly listed company, EBITDA margin for the year would have been higher by 130 bps.

The table below presents a reconciliation of the Group's reported profit from continuing operations to underlying EBITDA11.

 

Year ended 31 Dec

 

2019

2018

 

USD'000

USD'000

Profit from continuing operations

59,011

46,737

Depreciation and amortisation

46,789

34,572

Impairment losses on assets

-

17,945

Net interest expense

24,844

20,159

Taxes

6,632

10,956

Gain on disposal of investment securities

-

(2,648)

Share of depreciation from an associate

4,222

2,978

Specially disclosed items affecting EBITDA

30,816

21,340

Underlying EBITDA11

172,314

152,039

Share of EBITDA of an associate

The Group's share of EBITDA of its Associate, Transguard Cash LLC, was USD 9.5 million (2018: USD 6.3 million), representing healthy growth of 50.8%. The increase was driven by TG Cash's acquisition of G4S Cash services in the UAE towards the end of 2018, supported by organic growth in the business.

Depreciation and amortisation

The Group's reported depreciation and amortisation (D&A) charge, including share of depreciation from an associate increased by USD 13.5 million to USD 51.0 million (2018: USD 37.6 million), of which USD 14.9 million is associated with SDIs related to the Group's investment in the technology transformation programme, which is now complete, and amortisation of acquired intangibles. See page 13 for further detail on SDIs.

Excluding D&A related to SDIs, the Group's underlying D&A12 charge grew by 29.5% to USD 36.1 million (2018: USD 27.8 million). This reflects the underlying increase in computer hardware and leased asset related depreciation, and software related amortisation chargeable on additions made during the year, alongside prior year annualisation related to the Group's investment in maintenance and growth capital expenditure. In 2020, we expect an underlying D&A12 charge of USD 42-44 million.

Net interest expense

The Group's reported net interest expense increased by USD 4.6 million to USD 24.8 million (2018: USD 20.2 million). This was driven by an increased utilisation of the working capital facility, amortisation of debt issuance costs (including costs incurred for repricing and amendment of the acquisition financing facility and setting up a revolving credit facility), partially offset by lower margins on the acquisition financing facility, post repricing.

Historically the Group classified the amortisation of debt issuance costs related to the loan availed for the acquisition of EMP in 2016, as an SDI. The classification of the amortisation of these specific debt issuance costs has been changed and as a result, these costs are now included in the underlying results. This reclassification has also been reflected in the prior year to enable a like for like comparison.

Taxes

The Group's total tax charge during the period was USD 6.6 million (2018: USD 11.0 million), representing a decline from the prior year, as a one-off expense of USD 4.4 million for legacy tax matters was included in the tax charge for 2018. This expense related to the settlement of legal cases in respect of EMP tax matters for periods prior to the acquisition by Network International. Excluding the impact of the prior year exceptional charge, the underlying effective tax rate13 remained broadly stable in 2019 at 6.0% (2018: 6.3%).

Profit from continuing operations, underlying net income and underlying earnings per share13

Profit from continuing operations increased by 26.3% to USD 59.0 million (2018: USD 46.7 million), reflecting growth across the business and no impairment charge recorded in the current year. Underlying net income13 represents the Group's profit from continuing operations adjusted for SDIs. In the prior year only, underlying net income13 for 2018 was additionally adjusted for impairment losses on assets and gains on disposal of investment securities. See page 13 for further detail on SDIs. Underlying net income12 in 2019 grew by 7.5% to USD 104.8 million (2018: USD 97.4 million) and underlying Earnings Per Share (EPS)1 grew by 7.5% to USD 0.21, reflecting the growth in underlying EBITDA12, partially offset by the increase in net interest expense and D&A charge.

The table below presents a reconciliation of the profit from continuing operations to underlying net income12.

 

Year ended 31 Dec

 

2019

2018

 

USD'000

USD'000

Profit from continuing operations

59,011

46,737

Impairment losses on assets

-

17,945

Gain on disposal of investment securities

-

(2,648)

Specially Disclosed Items affecting EBITDA

30,816

21,340

Specially Disclosed Items affecting net income

14,937

14,067

Underlying net income13

104,764

97,441

 

Underlying earnings per share13

Year ended 31 Dec

 

2019

2018

Underlying net income13 (USD'000)

104,764

97,441

No. of shares ('000)

500,000

500,000

Underlying earnings per share13 (USD cents)

            21.0

            19.5

Loss from discontinued operations

The Group's loss from discontinued operations was USD 2.1 million (2018: USD 23.3 million), representing operating losses during the period for its non-core assets, namely Mercury and the acquiring business in Bahrain. Mercury operates the 'Mercury' payment scheme in the UAE, which is a domestic payment card network that permits members to issue cards on its network and to acquire transactions on the network, along with offering other Value Added Services. The Group has classified Mercury as a discontinued operation in 2018, in line with its intended strategy to exit this non-core business. The process to dispose of Mercury was initiated during 2019 and is expected to be completed during 2020. During the year, the Group also exited its acquiring business in Bahrain. Once the Group has completed the exit process for this non-core asset, this loss will not recur.

Specially disclosed items (SDIs)

Specially Disclosed Items are items of income or expenses that have been recognised in a given period, which management believes, due to their materiality and being one-off/exceptional in nature, should be disclosed separately, to give a more comparable view of the period-to-period underlying financial performance. SDIs affecting EBITDA13 during the period were USD 30.8 million (2018: USD 21.3 million) and SDIs affecting net income were USD 14.9 million (2018: USD 14.1 million).

In 2020, SDIs affecting EBITDA are expected to reduce significantly to cUSD 13 million, largely comprising the share-based charge in relation to the incentive plans in place before listing, which will not recur post 2021. In 2020, SDIs impacting net income are expected to be cUSD 18 million.

 

 

Year ended 31 Dec

Change

 

 

2019

2018

%

 

 

USD'000

USD'000

 

Items affecting EBITDA

 

 

 

Reorganisation, restructuring and settlements

        2,132

             3,375

36.8%

Share-based compensation

         10,679

             10,907

2.1%

M&A and IPO related costs

       16,111

3,681                           

(337.7%)

Other one-off items

               1,894

          3,377

43.9%

Total SDIs affecting EBITDA

          30,816

            21,340

(44.4%)

 

 

 

 

Items affecting net income

 

 

 

Amortisation related to IT transformation

10,735

5,499

(95.2%)

Amortisation of acquired intangibles

4,202

4,204

0.0%

Tax expense for legacy matters

                 -  

            4,364

100.0%

Total SDIs affecting net income

14,937

14,067

(6.2%)

 

 

 

 

Total specially disclosed items

45,753

35,407

(29.2%)

 

The key SDIs affecting EBITDA in the year were:

1.    Reorganisation, restructuring and settlements: Includes non-recurring costs that arise from one-off initiatives to reduce the ongoing cost base and improve the efficiency of the business (USD 2.1 million for the year ended 31 December 2019 and USD 1.8 million for the year ended 31 December 2018) and significant one-off settlements with third parties (Nil for the year ended 31 December 2019 and USD 1.6 million for the year ended 31 December 2018).

2.    Share-based compensation: Includes charge for the year in relation to the Management Incentive Award Plan, IPO Cash Bonus, and Long-Term Incentive Plan, all of which were specific one-off payments relating to the listing.

3.    M&A and IPO related costs: These are one-off expenses incurred in relation to the Initial Public Offering, including fees paid to various advisors.

4.    Other one-off items: Includes items that do not fit into any other categories above and primarily relates to unrealised loss/(gain) from re-measurement of foreign currency denominated assets or liabilities (USD 1.8 million for the year ended 31 December 2019 and USD (0.5) million for the year ended 31 December 2018). It also includes provisions against unrecoverable balances and settlement accruals (USD 0.9 million for the year ended 31 December 2019 and USD 3.9 million for the year ended 31 December 2018) and netted off by one-off recoveries and dividend from visa shares (USD 0.8 million for the year ended 31 December 2019). The unrealised foreign currency gains and losses arose mainly from the significant volatility in the EGP-USD exchange rates over the last few years, caused by macroeconomic challenges in Egypt including high inflationary pressure and short-term restrictions on foreign currency remittances. The resultant gains and losses do not represent the core performance of operations of the Group and hence have been shown as SDIs to provide a better view of the underlying performance of the business.

The key SDIs affecting net income in the year were:

1.   Amortisation related to IT transformation: Includes amortisation of capitalised costs associated with the significant one-off IT Transformation Programme that the Group has undertaken over the last few years. This includes development of a new card management platform (including costs related to migration from legacy platforms), the Group's own proprietary payment gateway, and a significant one-off upgrade to the switching system. The spend on the IT transformation programme is truly one-off in nature and is not expected to be incurred again for a considerable period of time. The total capex incurred to date on this programme is significantly higher than spends on any other programmes undertaken in the past, or in the foreseeable future. The amortisation of incremental capital expenditure that will be incurred on the ongoing maintenance of the platform including hardware upgrades and enhancement of functional capabilities, will be treated as part of the core operations of the business and not included within SDIs.

2.    Amortisation of acquired intangibles: Amortisation charge on the intangible assets recognised in the Group's consolidated statement of financial position as part of the Group's acquisition of Emerging Market Payments Services ('EMP') in 2016.

Historically, the Group classified the amortisation of debt issuance costs related to the loan availed for the acquisition of EMP in 2016 as an SDI. The classification of the amortisation of these specific debt issuance costs has been changed and as a result these costs are now included in the underlying results. This reclassification has also been reflected in the prior year to enable a like-for-like comparison.

Cash flow

 

Year ended 31 Dec

 

 

2019

2018

 

 

USD'000

USD'000

Change

Net cash flows from operating activities before settlement related balances

88,365

104,843

(15.7%)

Changes in settlement related balances

         42,828

12,685

237.6%

Net cash flow from operating activities

131,193

117,528

11.6%

Net cash outflow from investing activities

(75,494)

(45,223)

(66.9%)

Net cash outflow from financing activities

(30,036)

(92,764)

67.6%

 

The Group's net cash flow from operating activities before settlement related balances was USD 88.4 million. Settlement related balances are discussed below in the working capital section. The Group's net cash flow from operating activities were USD 131.2 million (2018: USD 117.5 million) primarily reflecting the growth in profit from operations. The Group's net cash outflows from investing activities were USD (75.5) million (2018: USD (45.2) million), which is mainly related to expenditure on property, plant and equipment and spend for the IT transformation programme, as well as expenditure related to Group's growth initiatives and business maintenance. The Group's net cash outflows from financing activities were USD (30.0) million (2018: (92.8) million), which primarily reflects scheduled part repayment of the acquisition financing facility (USD 45.0 million), and the purchase of the shares under the share based Long Term Incentive Plan (LTIP) rolled out to Group employees during the year post-listing (USD 12.8 million), partially offset by the drawdown under the revolving credit facility set up in 2019 for general corporate funding purposes (USD 35.0 million).

Working capital

The Group's working capital requirements are broadly classified into the following two categories:

1.    Settlement related balances: Settlement related balances at the end of the year were USD 69.7 million (2018: USD 112.5 million). These represent the capital used to fund card scheme debtors, offset by merchant payables. The balance arises, mainly due to the time lag between the payments made to merchants (mostly made the day following a transaction), and the recoveries from the issuing banks and payment schemes (mostly made two or three days after the transaction). The requirement for the Group's settlement related balances is based on the total amount of the card transactions, less merchant discount, and can also be impacted by weekends or by public holidays in the United States (the region from where card scheme debtors are settled).

2.    Working capital before settlement related balances: This represents the amount of capital used by the Group to fund its day-to-day trading operations, excluding settlement related balances. It includes the funding required for trade receivables, prepayments and other advances, offset by trade and other payables. The working capital before settlement related balances during 2019 was USD 24.9 million (2018: USD 11.6 million), representing 7.4% of Group revenue (referenced in the table below, relating to the reconciliation of underlying free cash flow13). During the year, the Group made significant efforts to expedite collections, resulting in trade receivables increasing by 8.6% only. At the same time, the Group also increased the credit period for some of its vendors. Both these initiatives have resulted in restricting the y-o-y increase in working capital before settlement related balances to 4.0% of total revenue.

Capital expenditure

Total capital expenditure was USD 84.0 million (2018: USD 66.1 million). This comprised of:

1.  Core capital expenditure of USD 45.4 million (2018: USD 34.5 million). This includes growth capital expenditure of USD 19.9 million (2018: USD 16.5 million) related to the procurement of POS terminals for new direct acquiring merchants; spends related to on-boarding of new Merchants and Issuer Solutions customers; and building new product capabilities. Core capital expenditure also includes maintenance capital expenditure of USD 25.4 million (2018: USD 18.0 million) related to spend on maintaining and enhancing technology infrastructure; procurement of POS terminals for existing relationships; and building a new facility in Cairo to help drive productivity gains.

2.    IT transformation capital expenditure of USD 38.6 million (2018: USD 31.6 million). This includes costs to migrate customers to the new Network One and Network Lite platforms; upgrades to the switching system; and development of the Group's new proprietary state-of-the-art e-commerce payments gateway, N-GeniusTM online. The technology transformation programme and all the customer migrations to the new platforms have now been completed.

 

Year ended 31 Dec

 

 

2019

2018

 

 

USD'000

USD'000

Change

Total capital expenditure13

83,971

66,102

(27.0%)

Core capital expenditure:

45,368

34,538

 

   of which is growth capital expenditure

19,937

16,500

(20.8%)

   of which is maintenance capital expenditure

25,431

18,038

(41.0%)

IT transformation capital expenditure

38,603

31,564

(22.3%)

In 2020, we expect to incur the following capital expenditure:

1.    Core capex for maintenance and growth at 11-12% of revenues. In line with prior guidance and significantly lower than 2019 due to the completion of the technology transformation.

2.    Up to USD 20 million to enable the separation of shared services from Emirates NBD, a programme which has been brought forward, as previously highlighted. This includes the separation of a shared data centre in the UAE, independent employee visa services and financial systems, in order to improve our operational flexibility and create a platform for long term growth. This project is expected to complete by the end of 2021 with a total capital spend of up to USD 30 million.

3.    Up to USD 20 million to support our market entry to Saudi Arabia.

 

Underlying free cash flow13

Year ended 31 Dec

 

 

2019

2018

 

 

USD'000

USD'000

Change

Profit from continuing operations

59,011

46,737

26.3%

Depreciation and amortisation

46,789

34,572

(35.3%)

Impairment losses on assets

-

17,945

100.0%

Net interest expense

24,844

20,159

(23.2%)

Taxes

6,632

10,956

39.5%

Gain on disposal of investment securities

-

(2,648)

(100.0%)

Share of depreciation of an associate

4,222

2,978

(41.8%)

Specially disclosed Items affecting EBITDA

30,816

21,340

(44.4%)

Underlying EBITDA13

172,314

152,039

13.3%

Changes in working capital before settlement related balances

(13,294)

(2,575)

(416.3%)

Taxes paid

(10,415)

(5,420)

(92.2%)

Maintenance capital expenditure

(25,431)

(18,038)

(41.0%)

Growth capital expenditure

(19,937)

(16,500)

(20.8%)

Underlying free cash flow13 

103,237

109,506

(5.7%)

 

Underlying Free Cash Flow13 (underlying FCF) was USD 103.2 million (2018: USD 109.5 million), 5.7% lower compared to 2018. The growth in underlying EBITDA13 was offset by changes in working capital before settlement related balances, higher taxes paid in 2019, and higher maintenance and growth capital expenditure. Changes in working capital before settlement related balances were 4.0% of total revenue, driven by increase in trade and other receivables and higher vendor payments.  Higher taxes paid mainly pertain to prior year tax payments.

Capital expenditure related to the technology transformation has not been deducted to arrive at underlying FCF13, due to its nature as a one-off, non-recurring programme, completed in 2019.

Historically, the Group did not include growth related capital expenditure as a deduction within the definition of underlying FCF13. In our efforts to provide best practice representation of underlying FCF13 generation, this classification has now been changed and growth-related capital expenditure is included as a deduction.

This reclassification has also been reflected in the prior year to enable a like for like comparison and the table below shows the reconciliation.

 

2019

2018

 

USD'000

USD'000

Underlying free cash flow13 - as presented earlier

123,174

126,006

Less: Growth capital expenditure

(19,937)

(16,500)

Underlying free cash flow13 

103,237

109,506

Dividends

A final dividend of USD 3.1 cents per share has been proposed for the year ended 31 December 2019, which is in line with our stated dividend policy to payout up to 15% of underlying net income13. The dividend will be paid on 28 May 2020 to the shareholders on the register at the close of trading on 11 May 2020.

Debt

The Group's total debt, including Current borrowings, amounted to USD 377.4 million (2018: USD 429.3 million). Debt includes the amount outstanding under the acquisition financing facility of USD 280.9 million (2018: USD 324.3 million), revolving credit facility of USD 35.0 million (2018: Nil), working capital overdraft facility of USD 59.9 million (2018: USD 102.7 million) and lease obligations (excluding lease obligation for right of use assets) of USD 1.6 million (2018: USD 2.3 million).

The working capital overdraft facility is largely used to fund settlement related balances, which is very short term in nature, and related to the timing of payment settlements in our direct acquiring business in UAE and Jordan. These have been discussed in more detail in the working capital section.

During the period, the Group completed the repricing of its acquisition financing facility, as well as availed a new revolver facility, which was undertaken to enhance our liquidity and take advantage of the current interest rate environment. We continue to believe leverage of 1-2x underlying EBITDA13 remains appropriate for the core business.

We will also maintain flexibility to increase leverage moderately, or consider other financing options to support growth accelerators, including M&A, that meet our disciplined investment criteria. We therefore intend to refinance the existing acquisition financing facility, with greater headroom of up to USD 525 million, maintaining a similar interest rate to the existing facility, with amortised repayments expected to commence from 2022.

The Group also continues to monitor the developments in respect of the global reforms to the interest rate benchmarks and potential impact thereof, on the Group's existing and future financing options. The Group's existing acquisition financing agreement provides for an alternative mechanism for computation of applicable interest rate in case global interest rate benchmark is changed or not available for certain period of time.

Our leverage ratio, which represents net debt to underlying EBITDA13 and is computed as per the methodology provided in the acquisition financing facility agreement, was 1.6x (2018: 1.8x). The table below provide computation of leverage ratio.

 

2019

USD'000

2018

USD'000

Net debt

273,754

278,473

Underlying EBITDA13

172,314

152,039

Leverage ratio

1.6

1.8

The table below provides the reconciliation of net debt as per the consolidated financial information and methodology prescribed in the acquisition financing agreement.

Particulars

 

 

2019

USD'000

2018

USD'000

Non-current borrowings

 

    211,783

             280,802

Current borrowings

 

  165,661

             148,457

Cash balance

 

(43,754)

(60,275)

Net debt as per consolidated financial information

 

333,690

368,984

Less: Bank overdraft

 

(59,895)

(102,741)

Add: Unamortised portion of debt issue cost

 

7,814

                   9,415

Adjustment *

 

  (7,855)

2,815

Net debt

 

273,754

278,473

*As per the definition of Net debt provided under acquisition financing facility agreement, including an adjustment to the cash balance for share of Group's associate and restricted cash balance of Group's subsidiaries.

Partnership with Mastercard

Our commercial agreement with Mastercard was signed earlier in the year and provides for a USD 35 million cash investment spread over a five-year period, which will contribute to either operating costs or capital investment. The cash investment may vary each year, dependent upon the initiatives we agree to develop together. The accounting treatment for recognition of the investment will be as follows:

·     Operating cost cash contributions will initially be recognised in the statement of financial position as deferred revenue. Upon satisfying the criteria specified in the agreement with Mastercard, revenue will be recognised under the 'Other Revenue' line in the income statement, and an expense will be recognised as and when the cost is incurred against this revenue item.

·   Capital investment cash contributions will initially be recognised in the statement of financial position as deferred revenue. Upon satisfying the criteria specified in the agreement with Mastercard, revenue will be recognised under the 'Other Revenue' line in the income statement. As and when asset development reaches the appropriate phase, it will begin to be recognised on the statement of financial position as capital work in progress, and when the asset is fully complete and available for use, depreciation or amortisation charge (as the case maybe) will begin to be recognised through the income statement.

Relevance of United Kingdom exit from the European Union

Whilst the Group is listed on the London Stock Exchange, we have no material operations and exposure to the UK or European Union market, as our entire business is focused around the MEA region, therefore we anticipate no impact from the UK leaving the EU (Brexit), on our business operations.

Definitions

Constant Currency Revenue

Constant Currency Revenue is current period revenue recalculated by applying the average exchange rate of the prior period to enable comparability with the prior period revenue. Foreign currency revenue is primarily denominated in Egyptian Pound (EGP). The other non-US backed currencies that have a significant impact on the Group as a result of foreign operations in Nigeria and South Africa are the Nigerian Naira (NGN) and the South African Rand (ZAR) respectively. The table shows the average rate of these currencies per USD for 2019 and 2018.

 

Currency rate vs USD

2019

Average rate

2018

Average rate

Egyptian Pound (EGP)

16.83

17.88

Nigerian Naira (NGN)

306.39

305.51

South African Rand (ZAR)

14.43

13.13

 

Key Performance Indicators

To assist in comparing the Group's financial performance from period-to-period, the Group uses certain key performance indicators which are defined as follows.

Total Processed Volume (TPV) (USD million)

TPV is defined as the aggregate monetary volume of purchases processed by the Group within its Merchant Solutions business line.

Number of cards hosted (million)

Number of cards hosted is defined as the aggregate number of cards hosted and billed by the Group within its Issuer Solutions business line.

Number of transactions (million)

Number of transactions is defined as the aggregate number of transactions processed and billed by the Group within its Issuer Solutions business line.

 

Statement of financial information

The financial information set out in this preliminary statement of annual results has been extracted from the Group's financial statements, which have been approved by a resolution of the Board of Directors of the Company on 8th March 2020 and reported on by the Company's auditor. The financial information set out in this preliminary statement does not constitute the Company's statutory accounts for the year ended 31 December 2019 as defined in section 434 of the Companies Act 2006 (the "Act") which have not yet been delivered to the Registrar of Companies. The Company's auditor has reported on the FY19 financial statements. Its report was unqualified and did not draw attention to any matters by way of emphasis. The report also did not contain statements under section 498 (2) or (3) of the Act.

Consolidated statement of financial position

As at 31 December

 

2019

2018

 

 

USD'000

USD'000

Assets

 

 

 

Non-current assets

 

 

 

Property and equipment

 

57,397

 54,489

Intangible assets and goodwill

 

448,797

 409,007

Investment in an associate

 

54,432

 51,856

Investment securities

 

246

 246

Long term receivables

 

2,533

 740

Total non-current assets

 

563,405

 516,338

 

 

 

 

Current assets

 

 

 

Scheme debtors

 

182,831

 222,693

Receivables and prepayments

 

89,254

  73,848

Restricted cash

 

54,029

 71,896

Cash and cash equivalents

 

43,754

60,275

Assets held for sale

 

3,664

 4,417

Total current assets

 

373,532

 433,129

Total assets

 

936,937

 949,467

 

 

 

 

Liabilities

 

 

 

Non-current liabilities

 

 

 

Borrowings

 

211,783

 280,802

Other long-term liabilities

 

24,379

23,188

Deferred tax liabilities

 

1,788

  2,324 

Total non-current liabilities

 

237,950

  306,314

 

 

 

 

Current liabilities

 

 

 

Merchant creditors

 

167,167

 185,523

Trade and other payables

 

127,284

115,809

Borrowings

 

165,661

 148,457

Liabilities held for sale

 

169

 1,668

Total current liabilities

 

460,281

   451,457

 

 

 

 

Shareholders' equity

 

 

 

Share capital

 

65,100

 1,559,796

Share premium

 

-

6,184

Foreign exchange reserve

 

(20,115)

(23,275)

Reorganisation reserve

 

(1,552,365)

 (1,552,365)

Other reserves

 

5,851

 7,543

Retained earnings

 

1,742,096

  195,028

 

 

 

 

Equity attributable to equity holders

 

240,567

 192,911

Non-controlling interest

 

(1,861)

(1,215)

Total shareholders' equity

 

238,706

 191,696

Total liabilities and shareholders' equity

 

936,937

  949,467 

                                                                                                                                                                       
 

Consolidated statement of profit or loss

For the year ended 31 December

 

2019

2018

 

 

USD'000

USD'000

Continuing operations

 

 

 

 

Revenue

 

334,906

297,935

 

 

 

 

Personnel expenses

 

(95,178)

 (88,084)

Selling, operating and other expenses

 

(107,751)

 (85,455)

Depreciation and amortisation

 

(46,789)

(34,572)

Impairment losses on assets

 

-

(17,945)

Share of profit of an associate

 

5,299

3,325

 

 

 

 

Profit before interest and tax

 

90,487

 75,204

Net interest expense

 

(24,844)

(20,159)

Gain on disposal of investment securities

 

-

2,648

 

 

 

 

Profit before tax

 

65,643

  57,693

Taxes

 

(6,632)

(10,956)

 

 

 

 

Profit from continuing operations

 

59,011

  46,737

 

Discontinued operations

 

 

 

Loss from discontinued operations, net of taxes

 

(2,053)

  (23,317)

 

 

 

 

Profit for the year

 

56,958

23,420

 

 

 

 

Attributable to:

 

 

 

Equity holders of the Group

 

57,604

 26,235

Non-controlling interest

 

(646)

 (2,815)

 

 

 

 

Profit for the year

 

56,958

23,420

 

 

 

 

Earnings per share (basic and diluted) in USD cents

 

11.5

5.2

Earnings per share - Continuing operations

(basic and diluted) in USD cents

 

11.8

9.3

 

 

 

 

 

 

Consolidated statement of other comprehensive income

For the year ended 31 December

 

2019

2018

 

USD'000

USD'000

Profit for the year

56,958

23,420

 

 

 

Other comprehensive income

 

 

Items that may subsequently be reclassified to profit or loss

 

 

Foreign currency translation difference on foreign operations

3,160

6,414

 

 

 

Items that will never be reclassified to profit or loss

 

 

Re-measurement of defined benefit liability

(1,692)

268

 

 

 

Net change in other comprehensive income

1,468

6,682

 

 

 

Total comprehensive income for the year

58,426

30,102

 

 

 

Attributable to:

 

 

Equity holders of the Group

59,072

32,917

Non-controlling interest

(646)

(2,815)

 

 

 

Total comprehensive income

58,426

30,102

 

 

 

 

Consolidated statement of changes in equity

For the year ended 31 December

 

Share capital

 

 

Share premium

Foreign exchange reserve

Reorganisation reserve

Retained earnings

Equity attributable to equity holders

Non-controlling interest

 

Total
shareholders'

equity

 

USD'000

As at 1 January 2019

1,559,796

6,184

(23,275)

(1,552,365)

7,543

195,028

192,911

(1,215)

191,696

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the year

 

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

57,604

57,604

(646)

56,958

 

 

 

 

 

 

 

 

 

 

Other comprehensive income for the year:

 

 

 

 

 

 

 

 

 

Foreign currency translation differences

-

-

3,160

-

-

-

3,160

-

3,160

Re-measurement of defined benefit liability

-

-

-

-

(1,692)

-

(1,692)

-

(1,692)

Total other comprehensive income for the year

-

-

3,160

-

(1,692)

-

1,468

-

1,468

Total comprehensive income for the year

-

-

 

3,160

 

-

 

(1,692)

 

57,604

 

59,072

 

(646)

 

58,426

Capital reduction

(1,494,696)

(6,184)

-

-

-

1,500,880

-

-

-

Purchase of treasury shares

-

-

-

-

-

(12,821)

(12,821)

-

(12,821)

Share based payment

-

-

-

-

-

1,405

1,405

-

1,405

As at 31 December 2019

65,100

-

(20,115)

(1,552,365)

5,851

1,742,096

240,567

(1,861)

238,706

 

 

Consolidated statement of changes in equity (continued)

For the year ended 31 December

 

Share capital

 

Share premium

Foreign exchange reserve

Reorganisation reserve

Other

reserves

Retained earnings

Equity attributable to equity holders

Non-controlling interest

Total shareholders' equity

 

USD'000

As at 1 January 2018

1,559,796

6,184

(29,689)

(1,552,365)

11,344

259,147

254,417

1,600

256,017

Impact of adopting IFRS 9 at 1 January 2018

-

-

-

-

(4,364)

955

(3,409)

-

(3,409)

Impact of adopting IFRS 16 at 1 January 2018

-

-

-

-

-

343

343

-

343

Restated balance at 1 January 2018

1,559,796

6,184

(29,689)

(1,552,365)

6,980

260,445

251,351

1,600

252,951

Total comprehensive income for the year

 

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

26,235

26,235

(2,815)

23,420

 

 

 

 

 

 

 

 

 

 

Other comprehensive income for the year:

 

 

 

 

 

 

 

 

 

Foreign currency translation differences

-

-

6,414

-

-

-

6,414

-

6,414

Disposal of re-measurement of defined benefit plan

-

-

-

-

50

(50)

-

-

-

Re-measurement of defined benefit liability

-

-

-

-

268

-

268

-

268

Total other comprehensive income for the year

-

-

6,414

-

318

(50)

6,682

-

6,682

Total comprehensive income for the year

-

-

 

6,414

 

-

 

318

 

26,185

 

32,917

 

(2,815)

 

30,102

Transferred to statutory reserve

-

-

-

-

245

(245)

-

-

-

Directors fees*

-

-

-

-

-

(1,500)

(1,500)

-

(1,500)

Dividends paid

-

-

-

-

-

(89,857)

(89,857)

-

(89,857)

As at 31 December 2018

1,559,796

6,184

(23,275)

(1,552,365)

7,543

195,028

192,911

(1,215)

191,696

* Directors fees have been disclosed under consolidated statement of changes in the comparative periods in line with the interpretation and provisions of the UAE laws.

Consolidated statement of cash flows

For the year ended 31 December

 

2019

2018

 

 

USD'000

USD'000

Operating activities

 

 

 

Profit for the year from operations1

 

56,958

23,420

§ Adjustments for:

 

 

 

-Depreciation, amortisation and impairment

 

47,327

54,117

-Net interest expense

 

24,844

20,159

-Taxes

 

6,632

10,956

-Foreign exchange losses and others

 

6,477

5,826

-Loss on sale of assets

 

17

11,331

-Share of profits from an associate

 

(5,299)

(3,325)

-Charge for Share based payment

 

1,404

-

§ Changes in long term receivables and other liabilities

 

(4,986)

11,752

§ Interest paid

 

(21,300)

(19,898)

§ Taxes paid

 

(10,415)

(5,420)

§ Director's fees paid

 

-

(1,500)

§ Changes in working capital before settlement related balances2

 

(13,294)

(2,575)

Net cash flows before settlement related balances

 

88,365

104,843

§ Changes in settlement related balances3

 

42,828

12,685

Net cash flows from operating activities

 

131,193

117,528

 

 

 

 

Investing activities

 

 

 

§ Purchase of intangible assets and property and equipment

 

(79,310)

(68,470)

§ Dividends received from an associate

 

2,723

2,741

§ Interest received

 

1,093

1,644

§ Disposal of investment securities

 

-

14,050

§ Disposal of subsidiary

 

-

4,812

Net cash outflows from investing activities

 

(75,494)

(45,223)

 

 

 

 

Financing activities

 

 

 

§ Proceeds on new borrowings

 

35,000

-

§ Repayment of borrowings

 

(44,918)

-

§ Purchase of treasury shares

 

(12,821)

-

§ Payment of debt issuance cost

 

(2,903)

-

§ Payment of lease liabilities

 

(4,394)

(2,907)

§ Dividends paid

 

-

(89,857)

Net cash outflows from financing activities

 

(30,036)

(92,764)

Net increase / (decrease) in cash and cash equivalents

 

25,663

(20,459)

§ Cash as part of held for sale

 

257

(1,977)

§ Effect of movements in exchange rates on cash held

 

405

(40)

Cash and cash equivalents at the beginning of the year

 

(42,466)

(19,990)

Cash and cash equivalents at the end of the year1

 

(16,141)

(42,466)

1- The Group has elected to present a consolidated statement of cash flows in total i.e. including both continuing and discontinued operations.

2- Changes in working capital before settlement related balances reflects movements in receivables and prepayments and trade and other payables adjusted for non-cash items.

3- Changes in settlement related balances reflects movement in scheme debtors, merchant creditors, restricted cash, and a related party payable.

1.            Legal status and activities                                                                             

Network International Holdings PLC ('the Company') listed its shares on the London Stock Exchange on 12 April 2019. The principal activities of the Group are enabling payments acceptance at merchants, acquirer processing, switching financial transactions, hosting cards and processing payment transactions and providing end to end management services, digital payment services. The registered office of the Company is situated in England and Wales.

This consolidated financial information has been prepared following the reorganisation of the Group that was conducted to facilitate the listing. The result of the application of the capital reorganisation is to present the consolidated financial information (including comparatives) as if the Company has always owned the Group. The share capital structure of the Company as at the date of the Group reorganisation is pushed back to the first date of the comparative period (1 January 2018). A Group Reorganisation Reserve is created as a separate component of equity, representing the difference between the share capital of the Company at the date of the Group reorganisation and that of the previous top organisation of the Group, Network International LLC. The principal steps of the Group reorganisation were as follows:

·     On 27 February 2019, the Company was incorporated by Network International LLC for 100 ordinary shares of GBP 1 each.

·    On 20 March 2019, Network International LLC transferred investment in Network International Holdings PLC to the shareholders.

·     On 29 March 2019, the existing share capital of the Company comprising of 100 shares of GBP 1 each was split 10:1 into 1000 shares of GBP 0.10 each. Subsequently, on the same day, the Company issued 1,396 new shares of GBP 0.10 each for GBP 139 / USD 180. This was followed by a share consolidation resulting in total share capital comprising of 100 shares of GBP 2.396 / USD 3.119592 each. The net effect of this restructuring of capital was to increase the nominal value per share to GBP 2.396 / USD 3.119592 for 100 shares outstanding.

·     On 29 March 2019, the Company issued 499,999,900 shares to existing shareholders (254,999,949 to Emirates NBD PJSC and 244,999,951 to WP / GA) of par value GBP 2.396 / USD 3.119592 per share in exchange for acquiring the shares of the subsidiary (Network International Holding 1 Limited) and the shareholder's receivables from Network International Holding 1 Limited. This resulted in the creation of share capital of USD 1,559,795,688 and share premium of USD 6,183,530 (being the difference between the carrying value of the shareholder's receivable of USD 13,614,704 and the corresponding nominal value of shares issued of USD 7,431,174).

·    On 1 April 2019, the Company undertook a capital reduction by reducing the nominal value of its shares in issue from GBP 2.396 / USD 3.119592 to GBP 0.1000 per share / USD 0.1302 and cancellation of share premium created above.

The capital reduction resulted in the creation of distributable reserves of USD 1,507,767,530. The difference in the GBP/USD foreign exchange rate between the date of share issuance and capital reduction resulted in the creation of a foreign exchange difference of USD 6,888,000, which would be considered as a realised loss and hence, has been netted off against the Company's retained earnings on the consolidated statement of financial position.

2.            Basis of preparation

2.1          Statement of compliance

The financial information set out in this preliminary statement of annual results has been extracted from the Group's consolidated financial statements, which have been approved by a resolution of the Board of directors of the Company on 8 March 2020 and reported on by the Company's auditor. The financial information set out in this preliminary statement does not constitute the Company's statutory accounts for the year ended 31 December 2019 as defined in section 434 of the Companies Act 2006 (the 'Act') which have not yet been delivered to the Registrar of Companies. The Company's auditor has reported on the FY19 financial statements. Its report was unqualified and did not draw attention to any matters by way of emphasis. The reports also did not contain statements under section 498 (2) or (3) of the Act.

 2.2         Basis of measurement

The consolidated financial information have been prepared under the historical cost basis except for the liability for defined benefit obligation, which is recognised at the present value of the defined benefit obligation and financial assets at fair value through profit or loss which are measured at fair value.

2.3          Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The presentation currency of the Group is United States Dollar ('USD') as this is a more globally recognised currency. All financial information presented in USD has been rounded to the nearest thousands, except when otherwise indicated.

  2.4          Accounting judgements and estimates

The preparation of consolidated financial information in conformity with IFRS, as adopted by EU, requires Directors to make judgements and estimates that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

3.          Going concern

The Group has made a profit of USD 57.0 million (2018: USD 23.4 million) with cash inflow from operating activities of USD 131.2 million (2018: USD 117.5 million) for the year and has a net asset position of USD 238.7 million as at 31 December 2019 (2018: USD 191.7 million). Furthermore, the Group meets its day-to-day working capital and financing requirements through cash generated from operations and its bank overdraft facilities. Notwithstanding the net current liability position of the Group and the Company, the Directors have, based on the above, Group future business plan and other due considerations including available headroom on current financing facilities, a reasonable expectation that the Group has adequate resources to continue in operational existence for a period of 12 months from the date of approval of the consolidated financial Information.

4.            Alternative performance measures

The Group uses these Alternative Performance Measures to enhance the comparability of information between reporting periods either by adjusting for uncontrollable or one-offs items, to aid the user of the financial information in understanding the activities taking place across the Group. In addition, these alternative measures are used by the Group as key measures of assessing the Group's underlying performance on day-to-day basis, developing budgets and measuring performance against those budgets and in determining management remuneration.

4.1          Specially disclosed items

Specially disclosed items are items of income or expenses that have been recognised in a given period which management believes, due to their materiality and being one-off / exceptional in nature, should be disclosed separately, to give a more comparable view of the period-to-period underlying financial performance.The table below presents a breakdown of the specially disclosed items for each of the years ended 31 December 2019 and 2018.

 

2019

2018

 

USD'000

USD'000

Items affecting EBITDA

 

 

Reorganisation, restructuring and settlements1

2,132

 3,375

Share-based compensation2

10,679

 10,907

M&A and IPO related costs3

16,111

 3,681

Other one-off items4

1,894

 3,377

Total specially disclosed items affecting EBITDA

30,816

21,340

 

 

 

Items affecting Net Income

 

 

Amortisation related to IT transformation5  

10,735

 5,499

Amortisation of acquired intangibles6          

4,202

 4,204

Tax expense for legacy matters       

-

 4,364

Total specially disclosed items affecting net income

14,937

14,067

 

 

 

Total specially disclosed items

45,753

35,407

 

1.     Includes non-recurring costs that arise from one-off initiatives to reduce the ongoing cost base and improve the efficiency of the business (USD 2.1 million for the year ended 31 December 2019 and USD 1.8 million for the year ended 31 December 2018) and significant one-off settlements with third parties (Nil for the year ended 31 December 2019 and USD 1.6 million for the year ended 31 December 2018).

2.     Includes charge for the year in relation to the Management Incentive Award Plan, IPO Cash Bonus, and Long-Term Incentive Plan, all of which were specific one-off payments relating to the listing.

3.     These are one-off expenses incurred in relation to the Initial Public Offering including fees paid to various advisors.

4.     Includes items that do not fit into any other categories above and primarily relates to unrealised loss / (gain) from re-measurement of foreign currency denominated assets or liabilities (USD 1.8 million for the year ended 31 December 2019 and USD (0.5) million for the year ended 31 December 2018). It also includes provisions against unrecoverable balances and settlement accruals (USD 0.9 million for the year ended 31 December 2019 and USD 3.9 million for the year ended 31 December 2018) and netted off by one-off recoveries and dividend from visa shares (USD 0.8 million for the year ended 31 December 2019). The unrealised foreign currency gains and losses arose mainly from the significant volatility in the EGP-USD exchange rates over the last few years, caused by macroeconomic challenges in Egypt including high inflationary pressure and short-term restrictions on foreign currency remittances. The resultant gains and losses do not represent the core performance of operations of the Group and hence have been shown as specially disclosed items to provide a better view of the underlying performance of the business.

5.     Includes amortisation of capitalised costs associated with the significant one-off IT transformation programme that the Group has undertaken over the last few years. This includes development of a new card management platform (including costs related to migration from legacy platforms), the Group's own proprietary payment gateway, and a significant one-off upgrade to the switching system. The spend on the IT transformation programme is truly one-off in nature and is not expected to be incurred again for a considerable period of time. The total capex incurred to date on this programme is significantly higher than spends on any other programme that the Group has undertaken in the past or will undertake in the foreseeable future. The amortisation of incremental capital expenditure that will be incurred on the ongoing maintenance of the platform including hardware upgrades and enhancement of functional capabilities, will be treated as part of the core operations of the business and not included within specially disclosed items.

6.     Amortisation charge on the intangible assets recognised in the Group's consolidated statement of financial position as part of the Group's acquisition of Emerging Market Payments Services ('EMP') in 2016.

4.2          Underlying EBITDA

Underlying EBITDA is defined as earnings from continuing operations before interest, taxes, depreciation and amortisation, impairment losses on assets, gain on sale of investment securities, share of depreciation of an associate and specially disclosed items affecting EBITDA. The table below presents a reconciliation of the Group's reported profit from continuing operations to underlying EBITDA for each of the years ended 31 December 2019 and 2018.

 

2019

2018

 

USD'000

USD'000

Profit from continuing operations

59,011

 46,737

Depreciation and amortisation

46,789

 34,572

Impairment losses on assets

-

 17,945

Net Interest expense

24,844

 20,159

Taxes

6,632

 10,956

Gain on disposal of investment securities

-

 (2,648)

Share of depreciation from an associate

4,222

 2,978

Specially disclosed items affecting EBITDA

30,816

 21,340

Underlying EBITDA

172,314

152,039

4.3          Underlying EBITDA margin excluding share of an associate

Underlying EBITDA margin excluding share of an associate represents the Group's underlying EBITDA margin which is considered by the Group to give a more comparable view of period-to-period EBITDA margins. The table below presents a computation of the Group's underlying EBITDA margin, which is defined as underlying EBITDA before share of an associate divided by the revenue.

 

2019

2018

 

USD'000

USD'000

Revenue

334,906

 297,935

Underlying EBITDA

172,314

 152,039

Share of EBITDA of an associate

(9,521)

(6,303)

Underlying EBITDA before share of an associate

162,793

145,736

Underlying EBITDA margin excluding share of an associate

48.6%

48.9%

4.4          Underlying net income

Underlying net income represents the Group's profit from continuing operations adjusted for impairment losses on assets, gain on disposal of investment securities and specially disclosed items. Underlying net income is considered by the Group to give a more comparable view of period-to-period profitability. The table below presents a reconciliation of the Group's reported profit from continuing operations to underlying net income for each of the years ended 31 December 2019 and 2018.

 

2019

2018

 

USD'000

USD'000

Profit from continuing operations

59,011

 46,737

Impairment losses on assets

-

 17,945

Gain on disposal of investment securities

-

 (2,648)

Specially disclosed items affecting EBITDA (refer to note 4.1)

30,816

21,340

Specially disclosed items affecting net income (refer to note 4.1)

14,937

14,067

Underlying net income

104,764

97,441

Taxes (excluding taxes for legacy matters)

6,632

6,592

Underlying net income before tax

111,396

104,033

 

4.5          Underlying earnings per share (EPS)

The Group's underlying EPS is defined as the underlying net income (as explained above) divided by the numbers of ordinary shares the end of the relevant financial year.

 

 

2019

2018

Underlying net income (USD'000)

104,764

 97,441

Number of shares ('000)

500,000

 500,000

Underlying EPS (USD cents)

21.0

19.5

4.6          Capital expenditure

The table below provides the split of total capital expenditure into the IT transformation programme, growth and maintenance capital expenditure for 2019 and 2018. Growth and maintenance capital expenditure collectively are referred to as capital expenditure (ex. IT transformation).

 

2019

2018

 

USD'000

USD'000

Total capital expenditure

83,971

66,102

Capital expenditure (ex. IT transformation)

45,368

34,538

of which is growth capital expenditure

19,937

16,500

of which is maintenance capital expenditure

25,431

18,038

IT transformation capital expenditure

38,603

31,564

4.7          Underlying free cash flow

Underlying free cash flow is calculated as underlying EBITDA adjusted for changes in working capital before settlement related balances, taxes paid, maintenance capital expenditure and growth capital expenditure. The Group uses underlying free cash flow as an operating performance measure that helps management determine the conversion of underlying EBITDA to underlying free cash flow.

 

 

 

2019

2018

 

USD'000

USD'000

Underlying EBITDA

172,314

152,039

Changes in working capital before settlement related balances

(13,294)

(2,575)

Taxes paid

(10,415)

(5,420)

Maintenance capital expenditure

(25,431)

(18,038)

Growth capital expenditure

(19,937)

(16,500)

Underlying free cash flow

103,237

109,506

4.8          Underlying effective tax rate

The Group's underlying effective tax rate is defined as the underlying taxes as a percentage of the Group's underlying net income before tax. The underlying effective tax rate for the Group for 2019 and 2018 was 6.0% and 6.3%, respectively.

 

2019

2018

 

USD'000

USD'000

 

 

 

Underlying net income before tax

111,396

104,033

Taxes (excluding taxes for legacy matters, included in SDI)

6,632

6,592

Underlying effective tax rate

6.0%

6.3%

 

5.            Segment reporting

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operating Decision Maker (Network Leadership Team) and the Board of Directors to allocate resources and assess performance. For each identified operating segment, the Group has disclosed information that is assessed internally to review and steer performance.

The Group manages its business operations on a geographic basis and reports two operating segments, i.e. i) Middle East and ii) Africa. The Group reviews and manages the performance of these segments based on total revenue and contribution for each operating segment.

Contribution is defined as segment revenue less operating costs (personnel cost and selling, operating and other expenses) that can be directly attributed to or controlled by the segments. Contribution does not include allocation of shared costs that are managed at group level and hence shown separately under central function costs.

 

 

31 December 2019

Middle East

Africa

Central functions

Total

Statement of profit or loss

----------------------------- USD'000------------------

Revenue

244,360

90,546

-

334,906

 

 

 

 

 

Contribution

179,580

63,964

-

243,544

Contribution margin (%)

73.5%

70.6%

-

72.7%

Central functions costs

-

-

(80,751)

(80,751)

Specially disclosed items affecting EBITDA

-

-

(30,816)

(30,816)

Depreciation and amortisation

-

-

(46,789)

(46,789)

Share of profit of an associate

-

-

5,299

5,299

Net interest expense

-

-

(24,844)

(24,844)

Taxes

-

-

(6,632)

(6,632)

Profit from continuing operations

 

 

 

59,011

 

 

 

 

 

 

Middle East

Africa

Corporate /
Consolidation

Total

Statement of financial position

----------------------------- USD'000 ---------------------

 

 

 

 

 

Current assets

226,585

29,103

117,844

373,532

Non-current assets

42,321

2,108

518,976

563,405

Total assets

268,906

31,211

636,820

936,937

 

 

 

 

 

Current liabilities

205,167

10,357

244,757

460,281

Non-current liabilities

11,722

-

226,228

237,950

Total liabilities  

216,889

10,357

470,985

698,231

 

Segment reporting (continued)

 

31 December 2018

Middle East

Africa

Central functions

Total

Statement of profit or loss

----------------------------- USD'000------------------

Revenue

223,822

74,113

-

297,935

 

 

 

 

 

Contribution

52,358

-

216,245

Contribution margin (%)

70.6%

-

72.6%

Central functions costs

-

(70,509)

(70,509)

Specially disclosed items affecting EBITDA

-

-

(21,340)

(21,340)

Depreciation and amortisation

-

-

(34,572)

(34,572)

Impairment losses on assets

-

(17,945)

(17,945)

Share of profit of an associate

-

3,325

3,325

Net interest expense

-

(20,159)

(20,159)

Gain on disposal of investment securities

-

2,648

2,648

Taxes

-

-

(10,956)

(10,956)

Profit from continuing operations

 

 

 

46,737

 

 

 

 

 

 

Middle East

Africa

Corporate /
Consolidation

Total

 

Statement of financial position

----------------------------- USD'000 ---------------------

 

 

 

 

 

Current assets

22,560

146,793

433,129

Non-current assets

660

476,509

516,338

Total assets

302,945

23,220

623,302

949,467

 

 

 

 

 

Current liabilities

8,800

214,981

451,457

Non-current liabilities

-

296,328

306,314

Total liabilities  

237,662

8,800

511,309

757,771

 

 

Segment reporting (continued)

Middle East

The Group's primary market in the Middle East region is UAE whereas the second most significant market is Jordan. In both the markets, the Group provides Merchant Acquiring, Acquirer Processing and Issuer Solutions services to various financial and non-financial institutional clients.

Africa

Under Africa region, the Group's key sub-markets are North Africa, Sub-Saharan Africa and Southern Africa.

1.    North Africa: One of the most significant markets in North Africa is Egypt. The Group currently provide services to several of Egypt's leading financial institutions, for both their Merchant Acquiring and Issuer Solution needs. North Africa contributed 47% of the total Africa Revenue in 2019 (2018: 46%). 

2.    Sub-Saharan Africa: One of the most significant markets in sub-Saharan Africa is Nigeria where the Group has an established presence in Nigeria serving several of Nigeria's leading financial institutions, mainly providing Issuer Processing services. Sub-Saharan Africa contributed 32% of the total Africa Revenue in 2019 (2018: 34%).

3.   Southern Africa: The significant market in Southern Africa is South Africa, where the Group provides retail processing services. South Africa contributed 21% of the total Africa Revenue in 2019 (2018: 20%).

Major Customer

The Group's major customer is Emirates NBD PJSC whose revenue accounts for approximately 18.1% (2018: 16.2%) of the total Group revenue. All of the revenue of Emirates NBD PJSC comes from Issuer Solutions and is under the Middle East segment.

6.            Scheme debtors and merchant creditors

Scheme debtors and merchant creditors represent intermediary balances that arise as part of the daily acquiring settlement process.

Scheme debtors

Scheme debtors consist primarily of the Group's receivables from the card schemes for transactions processed on behalf of merchants, where it is a member of that particular scheme or network.

Merchant creditors

Merchant creditors consist primarily of the Group's liability to merchants for transactions that have been processed but not yet settled.The Group has limited ability to influence the working capital related to scheme debtors and merchant creditors, (which is referred to as settlement related balances), on a day-to-day basis, as these are principally driven by the volume of transactions and the time elapsed since the last clearing by card issuers/payment schemes, which is why these balances fluctuate from one reporting date to another.

   

7.            Cash and cash equivalents and restricted cash

7.1          Cash and cash equivalents 

Cash and cash equivalents include cash on hand, unrestricted balances held with banks and highly liquid financial assets with original maturities of less than three months, which are subject to an insignificant credit risk, and are used by the Group in the management of its short-term commitments. Cash and cash equivalents are carried at amortised cost in the consolidated statement of financial position.

 

2019

2018

 

USD'000

USD'000

(i)  Cash and cash equivalents as per statement of

financial position

 

 

Cash and cash equivalents

43,754

60,275

(ii) Cash and cash equivalents as per statement of

Cash flows

 

 

Cash and cash equivalents

43,754

60,275

Bank Overdraft

(59,895)

(102,741)

 

(16,141)

(42,466)

7.2          Restricted cash

Restricted cash largely includes amounts payable for deferred settlements of transactions to merchants and other third parties that has been withheld in accordance with its contractual rights or otherwise remained unpaid not in ordinary course of business and are eventually payable on demand or as mutually agreed.

8.            Related party balances and transactions

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. Related parties include associates, parent, subsidiaries, and key management personnel or their close family members. The terms and conditions of these transactions have been mutually agreed between the Group and the related parties. Key management personnel consist of the Network Leadership Team.

The Group enters into transactions with Emirates NBD PJSC and its subsidiaries. In the normal course of business, Emirates NBD PJSC also acts as a banker to the Group.

The management believes that the terms and conditions of these transactions are comparable with those that could be obtained from third parties.

The amounts due from Emirates NBD PJSC (and its subsidiaries and group associate) are receivable on demand.

  

 

2019

2018

 

USD'000

USD'000

Emirates NBD PJSC Group

 

 

Transactions for the year

 

 

Revenue

60,714

48,384

Expenses

7,399

7,772

Net Interest expense / (income)

1,981

(96)

Balances as at 31 December

 

 

Receivable balances

18,603

10,955

Bank balance

72,154

101,822

Prepaid amounts included under:

 

 

Long term receivables

2,326

-

Receivables and prepayments

1,078

-

Overdraft facility

(51,204)

(97,995)

Performance and other guarantees

7,506

1,764

Transguard Cash LLC

 

 

Balances as at 31 December

 

 

Payable balances

-

122

Directors remuneration

 

 

Directors remuneration during the year

2,363

-

End of service benefits (one executive Director)

31

-

 

 

 

Key management personnel remuneration

17,510

17,206

9.         Borrowings

Non-current borrowings

On 10 May 2016, Network International LLC has entered into a syndicated conventional and Islamic facility (acquisition financing facility) of USD 350 million provided by various banks with Citibank N.A., London Branch, acting as one of the mandated lead arrangers, for the acquisition of Emerging Markets Payments Services. The facility consists of AED and USD tranches of conventional financing and one AED tranche of Islamic financing facility. The terms of the financing were amended effective 18 March 2019 and were updated to reflect the terms described below.

The facility carries an applicable interest period coupon rate of EIBOR plus margin on the AED conventional financing and murabaha financing and LIBOR plus margin on the USD conventional financing. The margin is calculated by reference to the Leverage (underlying EBITDA / net debt, as per definition and methodology provided in the financing documents), based on a grid which provides for reduced pricing as Leverage of the Group reduces and vice versa. The margin was initially set at 2.50% per annum applicable on the AED conventional financing and Islamic financing and 2.75% per annum applicable on the USD conventional financing and has been recalibrated based on the 2019 half yearly financial statements. The margins are currently at 2.0% for AED tranche and 2.25% for USD tranche.

The Group has made an early repayment of USD 16.3 million in 2017 and a scheduled repayment of USD 44.9 million in 2019, against all tranches proportionally. An amount of USD 4.5 million (2018: USD 0.5 million) was charged as an expense in the consolidated statement of profit or loss for the year on account of debt issuance cost (including cost related to repricing and amendment of acquisition financing facility and availing the revolving facility). The unamortised portion of the debt issuance cost, which has been netted off from the carrying amount of the loan, amounted to USD 7.8 million as at 31 December 2019 (2018: USD 9.4 million).

Current borrowings

Current borrowings include (a) the current portion of acquisition financing facility amounting to USD 70 million (2018: 44.9 million), (b) the drawn and outstanding amount of the revolving credit facility amounting to USD 35 million (2018: Nil), (c) the Lease liability amounting to USD 0.8 million (2018: 0.8 million) and (d) the unsecured overdraft facility from Emirates NBD PJSC and other banks amounting to USD 59.9 million (2018: 102.7 million).

The revolving credit facility was availed in November 2019 for general corporate funding purpose and carries an applicable interest period coupon rate of LIBOR plus a leverage linked margin (currently at 1.85%). The unsecured overdraft facility from Emirates NBD PJSC carries an interest at the rate of one Month EIBOR plus 240 basis points (2018: one Month EIBOR plus 250 basis points). The table below provides a breakdown of the borrowing:

 

 

2019

2018

 

USD'000

USD'000

Non-current borrowing

211,783

280,802

Current borrowing

165,661

148,457

Total

377,444

429,259

Split into:

 

 

a) Syndicated acquisition financing

 

 

-          Non-current portion

210,930

279,297

-          Current portion

70,000

44,950

Sub Total

280,930

324,247

b) Revolving credit facility

 

 

-          Current portion

35,000

-

Sub Total

35,000

-

c) Lease liability

 

 

-          Non-current portion

853

1,505

-          Current portion

766

766

Sub Total

1,619

2,271

 

 

 

Bank overdraft (for working capital)

59,895

102,741

Total

377,444

429,259

 

10.          Revenue

Merchant solutions

Under Merchant Solutions, the Group provides a broad range of technology-led payment solutions to its merchants through a full omni-channel service allowing them to accept payments of multiple types, across multiple payment channels. The Group offers functionality in most aspects of payment acceptance, whether in-store, online or on a mobile device, by providing access to a global payments network through its agile, integrated, secure, reliable and highly scalable technology platforms, Network One and Network Lite. The Group's Merchant Solutions business comprises its direct acquiring businesses and acquirer processing services, whereby the Group provides processing for its financial institutions direct acquiring business. The Group generates both, transactional and non-transactional revenue (refer below for detail) under Merchant Solutions.

 Issuer Solutions

Through its Issuer Solutions business line, the Group provides a range of innovative card products and services to its consumers. The Group provides its issuer solution customers with a comprehensive proposition supporting all components of the card issuing value chain, including account hosting, transaction processing, settlement, reconciliation, chargebacks and other ancillary services. The Group provides its issuer solution customers with the ability to open card accounts for consumers and issue and create a range of card products, including credit, debit, Islamic, pre-paid and digital/virtual cards. The Group also provides support for its issuer solution customers to enable them to host and manage a large portfolio of card product solutions ranging from simple card usage to VIP card products, including highly configurable and personalised usage. The Group generates both, transactional and non-transactional revenue (refer below for detail) under Issuer Solutions.

For both Merchant and Issuer solutions, the Group's sources of revenue can be broadly categorised into transaction-based revenue and non-transaction based revenue.

·     Transaction based revenue: includes revenue generated through a combination of: (a) a Gross Merchant Service Charge (MSC), charged to the merchant on the total processed volume (TPV); (b) a fee per transaction processed and billed, (c) a fee per card hosted and billed and d) a variable fee for provision of Value Added Services including foreign exchange services. The revenue is reported on a net basis, i.e., after the deduction of interchange and scheme fees paid to the card issuer and payment schemes, respectively. The transactional based revenue are recognised at a point in time in line with the IFRS as adopted by EU.

Interchange fees are the fees that is paid to the card issuing banks which is generally based on transaction value, but could also be a fixed fee combined with an ad valorem fee. Scheme fees are the fees paid to the payment schemes for using cards licensed under their brand names and for using their network for transaction authorisation and routing.

·     Non-transaction-based revenue: which includes but not limited to revenue generated through provision of various value-added services (those that are fixed periodic charge), rental from point-of-sale (POS) terminals and project related revenue.

The non-transactional based revenue are recognised at a point in time or over time depending upon the type of service being provided, contractual terms and timing when the performing obligation is met by the Group, in line with the IFRS as adopted by EU.

The Group recognise the revenue over time mainly in the following cases:

·     Project related revenue, where the Group provides service to develop or enhances the tangible / intangible assets; and

·     Other services provided by the Group where customer simultaneously receives and consumes the benefits as and when the Group performs its obligation.

 

The breakdown of revenue is as under:

 

 

2019

2018

 

USD'000

USD'000

 

 

 

Merchant Solutions

152,482

 136,317

Issuer Solutions

177,572

 157,069

Other revenue

4,852

 4,549

 

 

 

 

334,906

297,935

 

11.          Earnings per share (EPS)

Basic earnings / (loss) per share amounts are calculated by dividing the profit / (loss) attributable to owners of the parent by the weighted average number of ordinary shares in issue during the financial period. Diluted earnings / (loss) per share amounts are calculated by dividing the profit / (loss) attributable to owners of the parent by the weighted average number of ordinary shares in issue during the financial period adjusted for the effects of potentially dilutive options.

The basic and diluted earnings per share is based on earnings of USD 57.6 million (2018: USD 26.2 million), USD 59.0 million for continuing operations (2018: USD 46.7 million) and loss of USD 1.4 million for discontinued operations (2018: USD 20.5 million).

There is no change in the number of shares used in the calculation of weighted average number of shares in issue because the principles of reverse acquisition have been applied in accordance with IAS 33. As there were no changes to the number of shares in issue by Network International LLC during the comparative period and up to the date of the reverse acquisition, and no changes to the number of shares in issue by Network International Holdings PLC subsequent to the reverse acquisition and up to 31 December 2019, the same number is used in all periods presented.

There is no change in the basic and diluted (EPS). The diluted earnings per share have been calculated after considering potential dilutive options for Group scheme for employee's shares-based payment. The profit attributable to the equity holders for the year ended 31 December 2019 is based on 500,000,000 shares (2018: 500,000,000 shares).

 

2019

2018

 

USD cents

USD cents

Earnings per share (basic and diluted)

11.5

5.2

Earnings per share - Continuing operations (basic and diluted)

11.8

9.3

Earnings per share - Discontinued operations (basic and diluted)

(0.280)

(4.093)

 

 

12.       Subsequent events

There were no subsequent events identified until the date of the issuance of these consolidated financial information. The Directors have proposed a dividend of USD 3.1 cents per ordinary share to the shareholders of the Company.  

 

 

  1. This is an Alternative Performance Measure (APM). See notes 4 and 5 of the consolidated financial information for APMs definition and the reconciliations of reported figures to APMs.
  2. Please refer to page 18 for the leverage ratio computation and reconciliation of net debt figures used in the computation and the consolidated financial information.
  3. For KPIs and constant currency definition, please refer to page 20.
  4. Historically, the Group classified the amortisation of debt issuance costs related to the loan availed for the acquisition of EMP in 2016 as an SDI. The classification of the amortisation of these specific debt issuance costs has been changed and as a result these costs are now included in underlying results. This reclassification has also been reflected in the prior year to enable like-for-like comparison.  
  5. Historically, the Group did not include growth related capital expenditure as a deduction within the definition of underlying FCF. In our efforts to provide best practice representation of underlying FCF generation, this classification has now changed and growth-related capital expenditure is included as a deduction. This reclassification has also been reflected in the prior year to enable like for like comparison.
  6. For KPIs and constant currency definition, please refer to page 20.
  7. This is an Alternative Performance Measure (APM). See note 5 of the consolidated financial information for APMs definition and the reconciliations of reported figures to APMs.
  8. For KPIs and constant currency definition, please refer to page 20.
  9. This is an Alternative Performance Measure (APM). See details on page 13 for further details on SDIs. *certain cost line items have been reclassified in 2018, from other general expenses to third-party processing service cost to enable like-for-like comparison.
  10. This is an Alternative Performance Measure (APM). See details on page 13 for further details on SDIs.
  11. This is an Alternative Performance Measure (APM). See note 4 of the consolidated financial information for APMs definition and the reconciliations of reported figures to APMs.
  12. This is an Alternative Performance Measure (APM). See details on page 13 for further details on SDIs
  13. This is an Alternative Performance Measure (APM). See note 4 of the consolidated financial information for APMs definition and the reconciliations of reported figures to APMs

 

 


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Network International Full Year Results - RNS