Slide 1: FY23 Investor Presentation
Zip Co Limited FY23 Investor Presentation 29 August 2023 1
Slide 2: Our Mission, Our Purpose
Our Mission Our Purpose To be the first payments To create a world where people choice everywhere and can live fearlessly today, knowing every day. they are in control of tomorrow. 2
Slide 3: Agenda
Agenda 01 FY23 highlights 02 Business performance 03 Financial performance 04 Strategy and outlook 3
Slide 4: FY23 highlights
01. FY23 highlights 4
Slide 5: Strategy execution delivered strong financial performance
Cash transaction margin (% of TTV) Cash gross profit ($m) +30bps YoY +20.4% YoY 250.6 2.8 208.1 2.5 55.2k FY22 FY23 FY22 FY23 Strategy execution delivered strong Net bad debts1 (% of TTV) -70bps improvement YoY Core cash EBTDA ($m) +$103.2m improvement YoY financial performance 2.7 FY22 FY23 despite a
Slide 6: Solid top line operating performance
Revenue2,3 ($m) TTV ($b) Active customers1 (#m) +16.1% YoY +7.0% YoY -3.5% YoY 693.2 8.9 6.4 6.2 596.9 8.3 Solid top line operating FY22 FY23 FY22 FY23 FY22 FY23 performance Revenue margin (% of TTV) Transactions (#m) Merchants (#k) in FY23 +60bps YoY +8.3% YoY +11.2% YoY 72.7 72.3 7.8 Controlled gr
Slide 7: Zip adjusted its strategy for FY23 to create a simpler, stronger business
We focused on three priorities Growth in Improve unit Reduce Zip adjusted its core markets economics cost base strategy for FY23 (ANZ and Americas) to create a simpler, stronger business, fast tracking profitability …with clear target outcomes Risk adjusted Cash NTM Improved Core TTV growth 2.5-3.0%
Slide 8: Zip delivered, executing on all our strategic priorities in FY23
Zip delivered, executing on all our strategic priorities in FY23 What we said we would do What we delivered Profitable TTV growth in FY23 across ANZ and US +7% TTV growth across core markets ANZ and US Drive net bad debts to within target range (<2%) Group net bad debts at 2.0% of TTV; -70bps YoY Rev
Slide 9: Core cash EBTDA improved 54.8% HoH, ahead of guidance
Core cash EBTDA improved 54.8% HoH, ahead of guidance, providing strong momentum into FY24 Revenue margin of 8.4% in 2H23, up 110bps HoH FY23 Core cash EBTDA, ($48.2m) FY23 HoH breakdown ($m) Cash NTM in 2H23 of 3.0% up 40bps HoH, a strong result despite rising interest rates 1H23 2H23 US and NZ exi
Slide 10: Zip delivered a significant improvement in cash flows in 2H23
Zip delivered a significant improvement in cash flows in 2H23 1H vs 2H23 movements in available cash and liquidity, ($m) Improvement in cash flows in 2H23 were driven by: $200.1m 278.6 • Significant improvement in Core cash EBTDA (54.8% improvement in 2H23 vs -56.9 -19.0 1H23) • Cash inflows from busines
Slide 11: Zip undertook actions to strengthen its balance sheet
Zip undertook actions to strengthen its balance sheet reducing convertible notes outstanding face value by $312.2m1 Key actions to deleverage the balance sheet Movements in Zip’s convertible note debt outstanding FY23 actions: face value, ($m) • Repaid $40.0m of CVI Convertible Notes in Sep-22 • Con
Slide 12: Responsible lending and sustainable ESG
Zip remains committed to responsible lending and sustainable environmental, social and corporate governance We remain committed to operating sustainably and responsibly with a focus on topics of material impact and that provide enhanced value for all stakeholders FY23 achievements and progress • Com
Slide 13: Zip is now a simpler business, with stronger foundations
Zip is now a simpler business, with stronger foundations to pursue long term growth and deliver cash EBTDA profitability Strengthened Foundations Business Simplification Strengthened balance sheet Reduced global footprint Took actions to reduce corporate liabilities by $312.2m through liability Zip ex
Slide 14: Business performance
02. Business performance 14
Slide 15: Americas: Solid platform ready to accelerate
Americas: Solid platform ready to accelerate Profitable growth Customer focus FY23 saw an adjusted focus with a Transactions per active customer Key performance metrics ($AUD) strategic reset, accelerating increased 15.7% in FY23 with TTV per profitability. Customer numbers were US customer up 11.3% 4
Slide 16: US bad debt improvements are driving profitable growth
US bad debt improvements are driving profitable growth • Actions across the credit US monthly cohorts, 120 day bad debt performance lifecycle in the US (i.e. (% of cohort TTV) optimised decisioning, limit management, collections management, decisioning YoY TTV growth (RHS) Actuals (LHS) Early indicat
Slide 17: ANZ: Strong revenue margins the standout
ANZ: Strong revenue margins the standout Revenue growth Strong AU regulatory position Key performance metrics1 Two-sided revenue model delivered Zip welcomes the recent decision TTV Transactions strong revenue growth of +23.7% YoY from Treasury to provide certainty 47.4 ($b) 4.2 (#m) 43.9 and revenu
Slide 18: Zip AU's loan book performance remains strong
Zip AU’s loan book performance remains strong, increased yield and reduced losses offsetting the speed of rate rises FY23 book performance (excess spread)1 Arrears rate and net bad debts1,2 (% of AU consumer receivables) (% of AU consumer receivables) 16.0 5.0 14.0 5.1% 4.5 12.0 4.0 4.2 4.3 4.3 4.0
Slide 19: Financial performance
03. Financial performance 19
Slide 20: Strong unit economics
FY23 FY221 Change Strong unit economics TTV $8.9b $8.3b +7.0% Strong NTM expansion to 2.8% and 20.4% increase in cash gross profit despite increasing interest rate Revenue $693.2m $596.9m +16.1% environment: Revenue 7.8% 7.2% +60bps • Strong revenue growth, up 16.1% YoY (% of TTV) • Revenue margins i
Slide 21: Segment financials
Zip FY23 ($m) ANZ Americas Total Business Segment financials Revenue 367.8 309.4 16.0 693.2 • ANZ performance impacted by the speed of interest rate increases, somewhat offset by increasing Group 53.1% 44.6% 2.3% 100.0% contribution revenue margins Cash EBTDA 10.9 (24.1) 1.9 (11.3) • Americas improvi
Slide 22: Income statement
Income statement $m Revenue FY23 693.2 FY224 596.9 • Revenue grew 16.1%, hitting record levels, on strong growth and Cash cost of sales1 (442.6) (388.8) revenue margins up 60bps Interest expense (154.8) (68.3) • Cash gross profit margin increased to 36.1%, strong revenue Bank fees and data costs (121
Slide 23: Corporate items and one-off adjustments
Corporate items and $m FY23 FY221 one-off adjustments Reported EBTDA (156.0) (229.9) • Payment made to Sezzle on the mutual Share of loss of associates (4.7) (8.3) termination of the merger agreement Acquisition costs - (17.5) • Incentive payments paid on conversion of $109.8m Termination payment (1
Slide 24: Adjusted loss before tax
Adjusted loss before tax $m FY23 FY221 • Earnings before tax include a number of Earnings before tax (372.3) (808.1) non-recurring items Add back: • Excluding these items, the Group reported an Termination payment 16.3 - adjusted loss before tax of $204.7m, versus $187.4m in the previous correspondi
Slide 25: Balance sheet
Balance sheet $m Cash and cash equivalents Jun-23 152.0 Jun-22 241.3 • $152.0m of cash and cash equivalents at Jun-23 Restricted cash 124.0 58.4 • Restricted cash increased due to increase in transaction Other receivables 87.2 72.8 volumes and number of securitisation vehicles Term deposit 7.2 3.9 •
Slide 26: Cash flows
Cash flows $m Revenue from customers FY23 728.8 FY22 620.2 • Net cash flow to operations of ($225.0m) Payments to suppliers and employees (438.5) (517.9) ($208.7m excluding termination payment) Net increase in receivables (338.3) (767.0) Borrowing transaction costs (2.8) (2.4) • Paid $53.8m (including
Slide 27: Available cash
Available cash Zip Group - Total available cash at Jun-23 ($m) • Zip had $57.3m available cash and liquidity at 30 June 2023 • Restricted cash for the Group of $124.0m at 30 275.9 June 2023 includes cash held in securitisation warehouses and special purpose vehicles. Restricted cash also includes ca
Slide 28: Funding update
Funding update Jun-23 ($m) Jun-22 ($m) • In Oct-22, Zip completed a $300.0m (upsized from $200.0m launch size) rated note issuance within the Master Secured funding facilities Trust (2022-1). The proceeds from this deal were used to repay Facility limits Zip Master Trust 2020-1 which matured in Oct-
Slide 29: Strategy and outlook
04. Strategy and outlook 29
Slide 30: Strategy focused on sustainable cash EBTDA profitability and product capabilities
Zip’s strategy continues to focus on sustainable cash EBTDA profitability and product capabilities to drive scale Deliver strong and sustainable growth through increased consumer lending and payments market share ANZ Americas Distinct Mature, profitable business with Business exiting FY23 cash EBTDA s
Slide 31: Zip ANZ has well established foundations to deliver cash EBTDA growth
Zip ANZ has well established foundations to deliver cash EBTDA growth in FY24 Distribution Product Business model Loan book Regulation • 2.3m active customers, • Zip anywhere • Two-sided revenue • $2.4b consumer • Licensed credit provider market leading digital proposition online model delivering 8.
Slide 32: Zip US volumes have grown at 24.5% CAGR since FY21
Zip US volumes have grown at 24.5% CAGR since FY21 with a significant and early market opportunity remaining US total addressable market 20221 Volume growth since FY21 Revenue growth since FY21 (USDb) (TTV, USDb) (Revenue, USDm) 1,688 10,075 24.5% CAGR 3.1 22.9% CAGR 3.0 207.7 204.8 Other 95% 99% 2.0
Slide 33: Zip US continues to mature, reaching cash EBTDA profitability
Zip US continues to mature, reaching cash EBTDA profitability with platforms in place to support accelerated growth in FY24 Unique value Strong, adaptive Capital Business Regulatory proposition underwriting efficiency model readiness • Zip anywhere (App and • Proven ability to drive • Book recycles e
Slide 34: Clear priorities in FY24 to drive profitable growth
Zip has clear priorities in FY24 to drive profitable growth Growth and Product Operational profitability innovation excellence Extending distribution Unlocking new Strengthening our and performance of customer and market platforms and balance core products segments for growth sheet to support scale 34
Slide 35: Outlook
Outlook1 FY23 result Key management actions and assumptions for FY24 Medium term targets (% of TTV) (% of TTV) Revenue 7.8 ● Increased revenue margin from new products 8.0 - 9.0 (previously 7.0 - 7.5) Cash cost ● Manage net bad debts to optimise transaction margins 5.0 - 6.0 5.0 of sales ● Increase
Slide 36: Well positioned for the next phase of growth
Well positioned for the Strong early next phase of growth momentum in FY24 Unique value Proven Growth and profitability proposition business US TTV growth July US cohort Early arrears model accelerating off bad debts at trending down profitable base 1.5% of TTV in AU Significant Product innovation Oper
Slide 37: Q&A
Q&A 37
Slide 38: Appendix
Walls OS MMB Pa eet Appendix
Slide 39: 1H23 breakdown of movements in available cash and liquidity
1H23 breakdown of movements in available cash and liquidity Key movements in 1H23 explained 1H23 movements in available cash and Operating: execution of strategy driving significant improvement a significant improvement vs FY22 liquidity, ($m) 1 Core cash EBTDA ($33.2m) in 1H23 2 Capital expenditure a
Slide 40: 2H23 breakdown of movements in available cash and liquidity
2H23 breakdown of movements in available cash and liquidity Key movements in 2H23 explained 2H23 movements in available cash and Operating: execution of strategy driving significant improvement a significant improvement of FY22 liquidity, ($m) 1 Core cash EBTDA ($15.0m) in 2H23 2 Capital expenditure (
Slide 41: Convertible notes outstanding face value breakdown: FY23 to YTD FY24
Convertible notes outstanding face value breakdown: FY23 to YTD FY24 Movements in Zip’s convertible note debt outstanding face value, ($m) 40.0 100.0 1 70.0 60.0 10.0 39.8 2 3 50.0 4 152.4 400.0 330.0 50.0 7.3 50.0 290.2 5 6 137.8 130.5 Jun-22 CVI Incentivised Dec-22 CVI Incentivised Jun-23 Consent
Slide 42: Discontinuing operations
FY23 FY22 TTV $559.4m $432.9m Transactions 9.7m 7.1m Active customers - 1.1m Merchants 22.0k 25.6k Discontinuing Revenue $33.9m $23.7m operations Expenses $(81.9)m $(321.0)m Gain on disposal on the subsidiary $6.7m - before income tax Loss before tax $(41.3)m $(297.3)m Income tax benefit $0.2m $0.5m
Slide 43: Continuing operations: Income statement 1H23 and 2H23
$m 2H23 1H23 Revenue 359.7 333.5 1 Cash cost of sales (229.8) (212.8) Interest expense (89.4) (65.4) Bank fees and data costs (60.5) (61.2) Net bad debts written-off (80.0) (86.1) Cash gross profit 129.9 120.7 Cash GP% 36.1% 36.2% Other income 2.7 2.2 Continuing operations: Cash operating costs 2 Sal
Slide 44: Glossary
Glossary Term Definition FY Financial year ending 30 June of the relevant financial year 1H Six months ending 31 December of the relevant financial year 2H Six months ending 30 June of the relevant financial year 1Q Three months ending 30 September 2Q Three months ending 31 December 3Q Three months endi
Slide 45: Disclaimer and important notices
Disclaimer and important notices The information contained in this presentation has been prepared by Zip Co Limited ACN 139 546 428 (Company). This presentation may contain certain “forward looking statements”. Forward risks, uncertainties and other factors, many of which are outside the control of