International expansion and capital raising - 23 AUGUST 2018 NOT FOR RELEASE TO U.S. WIRE SERVICES OR DISTRIBUTION IN THE UNITED STATES
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International expansion
and capital raising
23 AUGUST 2018
NOT FOR RELEASE TO U.S. WIRE SERVICES OR DISTRIBUTION IN THE UNITED STATES
This presentation (“Presentation”) has been prepared by Securities and Investments Commission (“ASIC”)). The Before making an investment decision, prospective investors that may affect the Company. Investors should consider the
Afterpay Touch Group Limited (ACN 618 280 649) ("APT" or the Presentation is not and should not be considered an offer or should consider the appropriateness of the information forward looking statements contained in this Presentation
“Company”) in connection with (i) the proposed acquisition an invitation to subscribe for or acquire securities or any other having regard to their own objectives, financial situation in light of those disclosures and not place reliance on such
of 90% of the issued share capital of ClearPay Finance financial products. and needs and seek appropriate advice, including financial, statements. The forward looking statements are based
Limited ("ClearPay") (the "Acquisition"), (ii) an institutional The Placement will be conducted under section 708A legal and taxation advice appropriate to their jurisdiction on information available to the Company as at the date
placement of new fully paid ordinary shares ("New Shares") of the Corporations Act and will be made available to and circumstances. The Company is not licensed to provide of this Presentation. To the maximum extent permitted by
in the Company ("Placement") and (iii) an offer of New Shares certain persons who are "professional" or "sophisticated" financial product advice in respect of its shares. Cooling off law, the Company and its directors, officers, employees,
to eligible shareholders under a share purchase plan ("SPP") investors (as defined in subsections 708(8) and 708(11) of rights do not apply to the acquisition of New Shares. advisers, agents and intermediaries disclaim any obligation
(the Placement and SPP together being the "Offer"). The the Corporations Act. The SPP will only be made available or undertaking to release any updates or revisions to
Placement is fully underwritten by Citigroup Global Markets FINANCIAL DATA the information to reflect any change in expectations or
to eligible shareholders in Australia and New Zealand and
Australia Pty Limited (the "Lead Manager"). The SPP is not will be conducted in accordance with ASIC Class Order All dollar values are in Australian dollars (“A$”) and financial assumptions.
underwritten. [CO 09/425]. Determination of eligibility of investors for the data is presented as at and for the financial year ended 30 Except as required by law or regulation (including the ASX
purposes of the Offer is determined by reference to a number June 2018 unless otherwise stated. Investors should note that Listing Rules), the Company undertakes no obligation to
SUMMARY INFORMATION this Presentation contains pro forma financial information. The
of matters, including legal requirements and the discretion provide any additional or updated information whether
This Presentation contains summary information about of the Company and the Lead Manager. To the maximum pro forma financial information provided in this Presentation as a result of new information, future events or results or
the current activities of the Company and its subsidiaries extent permitted by law, the Company and the Lead Manager is for illustrative purposes only and is not represented as otherwise. Indications of, and guidance or outlook on, future
(the "APT Group”) as at the date of this Presentation. The each disclaim any liability in respect of the exercise of that being indicative of the Company’s (or anyone else’s) views on earnings or financial position or performance are also forward
information in this Presentation is of a general nature and discretion or otherwise. the Company’s future financial position and/or performance. looking statements.
does not purport to be complete. This Presentation does not The pro forma financial information has been prepared
purport to contain all the information that an investor should INTERNATIONAL RESTRICTIONS by the Company in accordance with the measurement EFFECT OF ROUNDING
consider when making an investment decision nor does This Presentation may not be released to U.S. wire services and recognition requirements, but not the disclosure A number of figures, amounts, percentages, estimates,
it contain all the information which would be required in a or distributed in the United States. This Presentation does not requirements, of applicable accounting standards and other calculations of value and fractions in this Presentation are
disclosure document or prospectus prepared in accordance constitute an offer to sell, or a solicitation of an offer to buy, mandatory requirements in Australia. subject to the effect of rounding. Accordingly, the actual
with the requirements of the Corporations Act 2001 (Cth) securities in the United States or in any other jurisdiction in calculation of these figures may differ from the figures set out
("Corporations Act"). Certain information in this Presentation PAST PERFORMANCE
which such an offer would be illegal. The New Shares have in this Presentation.
has been sourced from ClearPay, the current owners of not been, and will not be, registered under the U.S. Securities Past performance information given in this Presentation is
ClearPay and their representatives or associates. While steps Act of 1933, as amended (the “U.S. Securities Act”) or the given for illustrative purposes only and should not be relied INVESTMENT RISK
have been taken to review that information, no representation securities laws of any state or other jurisdiction of the United upon as (and is not) an indication of future performance. An investment in the Company's shares is subject to
or warranty, expressed or implied, is made to its fairness, States. Accordingly, the New Shares may not be offered or investment and other known and unknown risks, some of
accuracy, correctness, completeness or adequacy. Certain FUTURE PERFORMANCE
sold, directly or indirectly, in the United States, unless they which are beyond the control of the Company, including
market and industry data used in connection with this have been registered under the U.S. Securities Act (which the This Presentation contains certain “forward looking possible loss of income and principal invested. The Company
Presentation may have been obtained from research, surveys Company has no obligation to do or procure), or are offered statements”. Forward looking statements can generally does not guarantee any particular rate of return or the
or studies conducted by third parties, including industry or and sold in a transaction exempt from, or not subject to, the be identified by the use of forward looking words such performance of the Company, nor does it guarantee the
general publications. Neither APT nor its representatives registration requirements of the U.S. Securities Act and any as, “expect”, “anticipate”, “likely”, “intend”, “should”, “could”, repayment of capital from the Company or any particular tax
have independently verified any such market or industry data other applicable state securities laws. “may”, “predict”, “plan”, “propose”, “will”, “believe”, “forecast”, treatment. In considering an investment in the Company's
provided by third parties or industry or general publications. The “estimate”, “target” “outlook”, “guidance” and other similar shares, investors should have regard to (amongst other
information in this presentation should be read in conjunction The distribution of this Presentation in other jurisdictions expressions and include, but are not limited to, indications
outside Australia may also be restricted by law and any such things) the risks outlined in this Presentation.
with the Company’s other periodic and continuous disclosure of, or guidance or outlook on, future earnings or financial
announcements lodged with the Australian Securities restrictions should be observed. Any failure to comply with position or performance of the Company, the outcome and LEAD MANAGER
Exchange ("ASX"), which are available at www.asx.com.au. To such restrictions may constitute a violation of applicable effects of the Acquisition and Offer, and the use of proceeds
securities laws (see “International Selling Restrictions” section The Lead Manager has acted as sole lead manager of the
the maximum extent permitted by law, the APT Group, the from the Offer. The forward looking statements contained in Placement. The Lead Manager has not authorised, permitted
Lead Manager and their respective affiliates, related bodies of this Presentation). By accepting this Presentation you this Presentation are not guarantees or predictions of future
represent and warrant that you are entitled to receive such or caused the issue or lodgement, submission, dispatch or
corporates, officers, employees, partners, agents and advisers performance and involve known and unknown risks and provision of this Presentation and there is no statement in this
make no representation or warranty (express or implied) presentation in accordance with the above restrictions and uncertainties and other factors, many of which are beyond the
agree to be bound by the limitations contained herein. Presentation which is based on any statement made by it or by
as to the currency, accuracy, reliability, reasonableness or control of the Company, and may involve significant elements its respective affiliates, officers or employees. To the maximum
completeness of the information in this Presentation and NOT FINANCIAL PRODUCT ADVICE of subjective judgement and assumptions as to future events extent permitted by law, the Lead Manager and its affiliates,
disclaim all responsibility and liability for the information which may or may not be correct. officers, employees and advisers expressly disclaim all liabilities
(including without limitation, liability for negligence). This Presentation does not constitute financial product or
investment advice (nor tax, accounting or legal advice) nor is There can be no assurance that actual outcomes will not in respect of, and make no representations regarding, and
NOT AN OFFER it a recommendation to subscribe for or acquire New Shares differ materially from these forward-looking statements. take no responsibility for, any part of this Presentation other
and does not and will not form any part of any contract for the A number of important factors could cause actual results than references to their name and make no representation or
This Presentation is for information purposes only and is or performance to differ materially from the forward warranty as to the currency, accuracy, reliability, reasonableness
not a prospectus, disclosure document, product disclosure subscription or acquisition of New Shares. This Presentation
has been prepared without taking into account the specific looking statements, including the risk factors set out in this or completeness of this Presentation, nor do they make any
statement or other offering document under Australian law Presentation. Refer to the risks section of this Presentation recommendation as to whether any potential investor should
or any other law (and will not be lodged with the Australian objectives, financial situation or needs of individual investors.
for a summary of certain general and APT specific risk factors participate in the offer of New Shares under the Offer.
2
AGENDA
EXECUTIVE SUMMARY 4
INTERNATIONAL EXPANSION AND ENTRY INTO THE U.K. 6
CAPITAL RAISING 11
APPENDIX A: ACQUISITION DETAILS 15
APPENDIX B: KEY RISKS 17
APPENDIX C: INTERNATIONAL SELLING RESTRICTIONS 24
3
EXECUTIVE SUMMARY
4
EXECUTIVE SUMMARY
RETAILER LED AFTERPAY IS
INTERNATIONAL BUILDING THE BASE
EXPANSION FOR GROWTH
Momentum building in the U.S. – Afterpay’s Australian operations are
establishing a presence with retail expected to generate material underlying
industry leading brands operating cash flow in FY2019
In line with its retailer-led strategy, Afterpay’s international growth is
Afterpay has determined that the expected to require incremental capital
U.K. represents the next logical step
Afterpay is undertaking a fully
for international expansion
underwritten Institutional Placement (the
Afterpay will prepare to launch its Placement) to raise at least $108.1m
globally scalable system into the U.K.
Proceeds will provide scope for near-
within the next 6 months and will
term, accelerated global expansion and
immediately engage with relevant
in due course, cornerstone international
retailers with a local U.K. presence
receivables funding debt facilities
5
INTERNATIONAL EXPANSION
AND ENTRY INTO THE U.K.
6
BUILDING GLOBAL CAPABILITY
As part of the execution plan for the U.S. business,
we purposely built infrastructure for global scalability.
Technology is based on a single core code
base (vs multiple code bases by region) and
can be deployed in individual instances by
region, tailored to local requirements.
The strategic rationale for entering the U.S. in
partnership with Matrix was to establish the foundation
for a world class team with global responsibility.
Key hires made in the U.S. include Sales, Risk, Data &
Analytics, Technology and Product personnel with a
combined headcount in excess of 30.
Each part of the Afterpay business has been assessed
individually and also strategically guided to global
responsibilities.
Afterpay’s existing partnerships with many global retailers
provide the framework to leverage and grow internationally.
7
MOMENTUM BUILDING
IN THE U.S.
integrated retail merchants underlying merchant sales Establishing a presence with
A$M
UNAUDITED retail industry leading brands
422 20.4
282
11.7
121
28
2018 MAY JUNE JULY MID-AUGUST 2018 JUNE JULY
Over 800 contracts signed Over 150,000 unique
and over 400 merchants live customers since launch
AS OF MID-AUGUST 2018
8
THE U.K. IS A LARGE ADDRESSABLE MARKET,
WITH POSITIVE UNDERLYING DRIVERS
APPROX.
third largest 2.6 x MILLENNIALS don't favour
e-commerce market
SIZE OF 4,5
AUSTRALIA TRADITIONAL RETAIL CREDIT
Current credit options have a low
in the world uptake and are underutilised.
(after china and the U.S.1)
With 66 million people
and more than
£133b in online retail 87 % 77% 3%
sales per annum2
OF CONSUMERS USE DEBIT CARDS ARE USING
SHOP ONLINE3 FOR ONLINE CURRENT CREDIT
PAYMENTS6 OPTIONS6
SOURCE: 1. STATISTA, E-COMMERCE SHARE OF RETAIL SALES IN THE UNITED KINGDOM (U.K.) 2015-2018; 2. IMRG CAPGEMINI ERETAIL SALES INDEX, 17 JANUARY 2017; 3. NASDAQ, U.K. ONLINE SHOPPING
AND E-COMMERCE STATISTICS FOR 2017, MARCH 2017; 4. OFFICE FOR NATIONAL STATISTICS (U.K.), 2017; 5. AUSTRALIA BUREAU OF STATISTICS, 2017 6. CLEARPAY MARKET RESEARCH PREPARED BY
PRESCIENT, FIELD WORK PERIOD: JUNE 2017, QUANTITATIVE AND QUALITATIVE APPROACH. QUANTITATIVE SURVEY AMONG 1,002 MILLENIAL RESPONDENTS (18 TO 36 YEARS) PLUS 260 GENERATION X 9
RESPONDENTS (37 TO 55 YEARS). QUALITATIVE 2 HOUR FOCUS GROUPS, 4 WITH MILLENIALS, 1 GROUP 34 TO 44 YEARS, 1 GROUP 45 TO 55 YEARS IN MANCHESTER, LONDON AND EDINBURGH.ENTRY INTO THE U.K.
TO ACCELERATE AND DE-RISK ITS PLANNED ENTRY TO THE U.K., AFTERPAY HAS MADE
A SMALL ACQUISITION OF A U.K. BASED BUY NOW, PAY LATER BUSINESS
AFTERPAY TO STRATEGIC FINANCIAL
ACQUIRE CLEARPAY RATIONALE IMPACT
Afterpay has entered into a Share Purchase As one of the world’s largest consumer retail markets, Afterpay does not expect its U.K.
Agreement with ThinkSmart to acquire 90% the U.K. offers a significant market opportunity operations to materially contribute
of ClearPay Finance Limited (ClearPay), for to revenue in H1 FY2019
Market dynamics are assessed to be favourable,
1m Afterpay shares, with the acquisition to be
particularly in relation to millennial demographic Afterpay will provide more details
completed today
payment behaviours and preferences about its longer-term U.K. market
Acquiring the ClearPay corporate entity, strategy at its H1 FY2019 results
Synergy with a number of Afterpay established retailer
ClearPay's contracts with relevant service presentation
relationships in Australia, New Zealand and the U.S. that
providers and key employees with local
have global operations and a presence in the U.K.
knowledge of the U.K. market and regulatory
landscape. ClearPay’s intellectual property will ClearPay provides an established operational footprint
not form part of the acquisition in the U.K., with local relationships and understanding of
local regulatory conditions
ClearPay management have been operating in
the payments space in the UK for more than 15 The acquisition will accelerate the planned launch of
years. ClearPay understands local regulatory the Afterpay global system into the U.K. market and
conditions, which is important in the early continues Afterpay’s preferred model of partnering with
stages of a roll-out a local market presence to de-risk global expansion
(consistent with its N.Z. and U.S. expansion strategies)
10Capital raising
11FUNDING INTERNATIONAL EXPANSION
Undertaking a fully underwritten institutional Placement to raise at least SOURCES AND USES
$108.1m SOURCES A$M
Afterpay’s Australian operations are expected to generate material Placement 108.1
underlying operating cash flow in FY2019 Total sources 108.1
Afterpay’s international growth is expected to require incremental USES A$M
capital to fund: Capital to be directed to funding 104.2
• Growth of receivables books in the U.S. and U.K. and Afterpay’s international expansion strategy
ultimately to cornerstone international debt facilities Estimated transaction costs1 3.9
• Local market investment in terms of team and infrastructure Total uses 108.1
• Expected operating losses from the U.S. and U.K. businesses in FY2019 PRO-FORMA CASH BALANCE
Proceeds will provide scope for near-term, accelerated global PRO-FORMA CASH BALANCE A$M
expansion and in due course, cornerstone international debt facilities Cash as at 30 June 2018 (audited)2 25.5
Cash on hand as at 30 June 2018, pro forma for the Placement, and Add: Placement proceeds 108.1
available borrowing capacity (prior to establishing international debt Less: Estimated transaction costs1 3.9
facilities) is expected to be sufficient to fund international expansion
Pro-forma cash as at 30 June 20183 129.7
costs and facilitate international underlying sales growth well in excess
of A$1 billion
NOTE: 1. INCLUDES BOTH COSTS ASSOCIATED WITH THE ACQUISITION OF 90% OF CLEARPAY AND COSTS ASSOCIATED WITH THE PLACEMENT AND SPP; 2. THIS EXCLUDES $23.7M OF RESTRICTED CASH. 12
3. EXCLUDES RESTRICTED CASH, EXCLUDES ANY PROCEEDS FROM SPPCAPITAL RAISING DETAILS
OFFER OFFER RANKING
SIZE PRICE
Afterpay is undertaking an Pricing will be • 15.1% discount to closing New Shares will rank
institutional Placement of new determined via an price on 22 August equally with existing
shares in Afterpay (New Shares) institutional bookbuild, 2018 of $18.55; and ordinary shares from
to raise at least $108.1m with the underwritten • 9.9% discount to 5 day their time of issue
floor price of $15.75 per VWAP to close of trade on
Afterpay is issuing a fixed
New Share representing: 22 August 2018 of $17.49
c.6.9m New Shares
ADVISER AND SHARE New Shares under the SPP to be issued at the lower
UNDERWRITER PURCHASE PLAN
of the price paid by investors under the Placement,
and the 5 day VWAP of Afterpay shares up to the
SPP closing date
Highbury Partnership Pty Limited is acting as A SPP will be undertaken to
financial adviser to Afterpay on the acquisition allow eligible shareholders in Details will be provided to eligible shareholders in
of ClearPay and the Placement and SPP Australia and New Zealand, due course
Citigroup Global Markets Australia Pty Limited the opportunity to acquire The SPP aims to raise approximately $20m.
is acting as sole underwriter and bookrunner up to $15,000 of New Shares Afterpay may decide to scale back applications
to the Placement with Bell Potter and Wilsons (subject to scale-back) under the SPP at its absolute discretion. The SPP
acting as co-managers is not underwritten
13CAPITAL RAISE DETAILS
AUGUST 2018
WEDNESDAY, THURSDAY, FRIDAY, THURSDAY, FRIDAY,
22 AUGUST 23 AUGUST 24 AUGUST 30 AUGUST 31 AUGUST
Record date for Trading halt Announcement of Settlement of New Allotment and
SPP (7:00pm (before market completion of the Shares under the normal trading of
Sydney time) open) Placement (before placement new securities under
market open) the Placement
Bookbuild
conducted for the Trading halt lifted; SPP opening date
Placement normal trading resumes
SEPTEMBER 2018
TUESDAY, MONDAY, MONDAY, TUESDAY, WEDNESDAY,
11 SEPTEMBER - 17 SEPTEMBER 24 SEPTEMBER 25 SEPTEMBER 26 SEPTEMBER
MONDAY,
17 SEPTEMBER SPP closing date Issue of New SPP Shares Despatch of SPP
(INCLUSIVE) Shares under the commence trading Share holding
SPP (SPP Shares) on the ASX statements
SPP pricing period
14APPENDIX A
acquisition
details
15KEY TERMS OF ACQUISITION
ACQUISITION PATH TO 100% OWNERSHIP
Afterpay to acquire 90% of the issued shares in ClearPay, an entity which Afterpay will have the option (Option) at any time after 5 years
is 100% owned by ThinkSmart Limited (ThinkSmart) from completion to acquire the remaining shares in ClearPay, with
consideration in the form of Afterpay shares or cash (at Afterpay’s
PURCHASE PRICE AND SHAREHOLDING election)
Consideration of 1 million Afterpay shares that will be issued in two ThinkSmart will have a one-time put option (Put Option) at 5 years
tranches: and 6 months from completion
•7
50,000 Afterpay shares to be issued to ThinkSmart on completion The exercise price for the Option and Put Option will be calculated
(occurs today) according to agreed valuation principles
•2
50,000 Afterpay shares to be issued to ThinkSmart 6 months after
completion
BOARD AND MANAGEMENT
A Board of 5 directors to be established for ClearPay, 4 from Afterpay
ThinkSmart to retain 10.0% of ClearPay
and 1 from ThinkSmart
An Employee Share Ownership Plan will be put in place for up to
Afterpay will have the right to appoint the ClearPay Chairman and
3.5% of ClearPay for ClearPay staff (to be sourced from ThinkSmart’s
the CEO
shareholding)
TRANSITIONAL PERIOD TRANSITIONAL SERVICES
The Transitional Services Agreement details the arrangements under
Afterpay will not be acquiring the ClearPay intellectual property or
which ThinkSmart will provide support to ClearPay for a period of 12
exposed to any economic gains or losses from the ClearPay legacy
months from completion
business, leaving Afterpay to focus on transitioning merchants and the
business onto the Afterpay technology platform and branding
DUE DILIGENCE AND COMPLETION
INTELLECTUAL PROPERTY Detailed period of due diligence review with completion occurring
concurrently with signing
Afterpay will contribute its intellectual property to ClearPay via a non-
exclusive licence for the purpose of the roll-out of the business in the U.K.
16APPENDIX B:
key risks
17KEY RISKS
RISK FACTORS 1. RISKS RELATED TO THE ACQUISITION OF CLEARPAY
Investors should be aware that there are risks associated with an investment
in Afterpay. Reliance on information provided
Some of the principal factors which may, either individually or in combination, Afterpay undertook a due diligence process in respect of ClearPay, which relied
affect the future operating performance of Afterpay are set out below. Some in part on the review of legal and other information provided by ClearPay. While
are specific to an investment in Afterpay and the New Shares and others are Afterpay considers the due diligence process undertaken to be appropriate,
of a more general nature. Afterpay has not been able to verify the accuracy, reliability or completeness of
all the information which was provided to it against independent data.
The summary of risks below is not exhaustive. This Presentation does not
take into account the personal circumstances, financial position or investment If any of the data or information provided to and relied upon by Afterpay in its
requirements of any particular person. Additional risks and uncertainties that due diligence process and its preparation of this Presentation proves to be
Afterpay is unaware of, or that it currently considers to be immaterial, may incomplete, incorrect, inaccurate or misleading, there is a risk that the actual
also become important factors that adversely affect the future performance of financial position and performance of ClearPay may be materially different to
Afterpay and the New Shares. the financial position and performance expected by ClearPay and reflected in
this Presentation.
The Placement is being made pursuant to provisions of the Corporations Act
which allow offers to be made without a prospectus. This presentation does There is no assurance that the due diligence conducted in respect of
not contain all of the information which may be required in order to make an ClearPay was conclusive and that all material issues and risks in respect of the
informed decision regarding an application for New Shares offered under the Acquisition have been identified and avoided or managed appropriately. Any
Placement. As a result, it is important for you to carefully read and understand unforeseen issues and risks could adversely affect the operations, financial
the information on Afterpay made publicly available, prior to making an performance or position, or prospects of Afterpay.
investment decision. In particular, please refer to this Presentation, Afterpay’s
full year and annual reports (including Afterpay’s most recent full year FY18 Integration Risk
results announcement lodged with the ASX on 23 August 2018 and 4Q18 The Acquisition involves the integration of ClearPay which has previously
business update lodged with ASX on 19 July 2018) and other announcements operated independently from Afterpay. There is a risk that the integration
lodged with ASX (including announcements which may be made by Afterpay of ClearPay may be more complex than anticipated, encounter unexpected
after publication of this Presentation). You should have regard to your challenges or issues and take longer than expected, divert management
own investment objectives and financial circumstances and should seek attention or not deliver the expected benefits and this may affect Afterpay’s
professional guidance from your stockbroker, solicitor, accountant or other operating and financial performance.
professional adviser before deciding whether or not to invest.
18KEY RISKS
(CONTINUED)
Loss of ClearPay personnel Some of these risks include:
While Afterpay is committed to the retention of ClearPay's key staff, there can • (Financial product regulation): Regulation may change and the eventual
be no assurance that there will be no loss of key staff following the Acquisition. nature and extent of new laws and regulations are uncertain. Changes in laws,
regulations or regulatory policy could adversely affect one or more of the
Historical liability Group’s businesses and could require substantial compliance costs.
If the Acquisition of ClearPay completes, Afterpay may become directly or • (Privacy laws): Changes to privacy laws and data protection laws may require
indirectly liable for any liabilities that ClearPay has incurred in the past as a increased compliance costs and systems upgrade costs.
result of prior acts or omissions, including liabilities which were not identified • (Compliance costs): There is a risk of increased compliance costs if the Group
during Afterpay’s due diligence or which are greater than expected, and for fails to comply with material future changes in laws, regulations and industry
which the various forms of protections negotiated by Afterpay in its agreement standards generally.
to acquire ClearPay turn out to be inadequate in the circumstances. Such
liability may adversely affect the financial performance or position of Afterpay All of these may have a materially adverse impact on the Group’s revenue and
post-Acquisition. profitability.
Loss of key contracts and relationships
2. RISKS SPECIFIC TO THE AFTERPAY GROUP
Afterpay's business depends on its contracts and relationships with significant
merchant clients and end customers. There can be no guarantee that these
Compliance with laws, regulations and industry standards contracts and relationships will continue or, if they do continue, that they remain
Afterpay and its subsidiaries (the Group) operates in a range of jurisdictions successful. Afterpay's contracts with retailers can generally be terminated on
including Australia, New Zealand, the U.S. and the U.K. (with the ClearPay short notice, while the Touch business has fixed end date contracts with its
Acquisition). With the geographic expansion of Afterpay's business, the Group suppliers or merchants, which carries the risk of failing to agree on terms for
may become subject to additional legal, regulatory, tax, licensing, compliance renewal.
requirements and industry standards that are constantly changing. Any loss of the Group’s key merchant clients and end customers or a failure
There is a risk that any changes in this area may make it uneconomic for the to secure new clients or customers on favourable terms, may materially and
Group to continue to operate in its current markets, or to expand in accordance adversely impact the Group’s revenue and profitability and also have a negative
with its strategy. This may materially and adversely impact the Group’s revenue impact on the Group's reputation.
and profitability, by preventing the business from reaching sufficient scale in
particular markets.
19KEY RISKS
(CONTINUED)
Competitors and new market entrants Failures or disruptions to technology systems and communication networks
The Group is a market leader in Australia in providing ‘buy now, pay later’ The Group relies on technology and third-party communication networks to
services, however, a number of competitors currently offer services similar to assess customer repayment capabilities. There is a risk that these systems
this service (for example, zipMoney), and the transaction-processing technology may fail to perform as expected or be adversely impacted by a number of
solutions that Touch offers. factors outside of the Group's control. This includes damage, equipment faults,
power failure, fire, natural disasters, computer viruses and external malicious
Existing competitors, as well as new competitors entering the industry both
interventions such as hacking or denial-of-service attacks. This may cause part
in Australia and offshore, may engage in aggressive customer acquisition
or all of the Group’s technology system and/or the communication networks to
campaigns, develop superior technology offerings or consolidate with other
become unavailable.
entities to deliver enhanced scale benefits. Such competitive pressures may
materially erode the Group’s market share and revenue, or prevent or limit its There is a risk that repeated failures to keep the Group’s technology available
growth in new markets, and may materially and adversely impact the Group’s may result in a decline in customer and merchant numbers or merchants
revenue and profitability. cancelling their contracts with the Group. This may materially and adversely
impact the Group’s financial performance, as well as negatively impacting the
Afterpay’s NAB Facility Group’s reputation.
Afterpay has financing arrangements with National Australia Bank (NAB Facility)
Banking and payment processing performance
to support Afterpay’s funding of purchases by end customers. In the unlikely
event of repayments not being made or certain terms and conditions not being The Group replies on online payment gateways, banking and financial and other
satisfied under the NAB Facility, National Australia Bank may terminate its institutions (such as Medicare and private health insurers in respect of Touch), and
obligation. In these circumstances, Afterpay’s capacity to pay merchant clients point of sale devices for the validation of payment methods (such as bank cards),
in advance of collecting purchase price instalments from end customers may processing and settlement of payments. Any failures or disruptions to such
be diminished in the event that other banks are not able to step in and provide platforms and technology may impact the financial performance of the Group.
financing on equivalent terms. This may have the effect of slowing down
Afterpay’s growth.
20KEY RISKS
(CONTINUED)
Exposure to potential security breaches and data protection issues Protection and ownership of technology and intellectual property
Through the ordinary course of business, the Group will collect a wide range of There is a risk that unauthorised use or copying of any of the Group’s software,
confidential information. Cyber-attacks may compromise or breach technology data, specialised technology or platforms will occur or that the validity,
platforms used by the Group to protect confidential information. There is a risk ownership or authorised use of intellectual property relevant to the Group’s
that the measures taken by the Group may not be sufficient to detect or prevent business may be successfully challenged by third parties. This could result in
unauthorised access to, or disclosure of, such confidential information. Any data significant expense and the inability to use the intellectual property in question,
security breaches or the Group’s failure to protect confidential information could which may materially adversely impact the Group’s financial position and
result in the loss of information integrity, or breaches of the Group’s obligations performance. Such disputes may also temporarily adversely impact the Group’s
under applicable laws or agreements, each of which may materially adversely ability to integrate new systems or develop new services which may adversely
impact the Group’s financial performance and reputation. impact the Group’s revenue and profitability.
There is also a risk that the Group will be unable to register or otherwise protect
Activities of fraudulent parties new intellectual property it develops in the future. The Group’s competitors
The Group may be exposed to fraud attempts, including risks from the potential may then be able to offer identical or very similar services or services that
collusion between internal and external parties, and end customers attempting are otherwise competitive against those provided by the Group, which could
to circumvent the Group’s systems (such as Afterpay’s repayment capability adversely affect the Group’s business.
assessments). Fraud attempts may potentially result in damage to the Group's
reputation and a higher than budgeted cost of fraud to rectify and safeguard Ability of the Group’s technology to integrate with third party platforms
business operations, which may materially adversely impact the Group’s
The success of the Group’s services, and the ability to attract additional end
revenue and profitability.
customers and merchant clients, will depend on the ability of the Group’s
technology and systems to integrate into and operate with various third party
systems and platforms, particularly websites, point of sale systems and other
merchant systems. In addition, as these systems and platforms are regularly
updated, it is possible that when such updates occur it could cause the Group’s
services to not operate as efficiently as previously. This will require the Group
to change the way some of its systems operates which may take time and
expense to remedy.
21KEY RISKS
(CONTINUED)
The Group’s technology may be superseded by other Capacity constraints
technology or changes in business practice Continued increases in transaction volumes may require the Group to expand
The Group’s success will in part depend on its ability to offer services and and adapt its network infrastructure to avoid interruptions to its systems. Any
systems that remain current with the continuing changes in technology, unprecedented transaction volumes may interrupt the Group’s technology,
evolving industry standards and changing consumer preferences. There is a risk reduce the number of completed transactions, increase expenses, and reduce
that the Group will not be successful in addressing these developments in a the level of consumer service, and these factors may potentially adversely
timely manner, or that expenses will be greater than expected. In addition, there impact the Group’s financial performance. Expansions into new offshore
is a risk that new products or technologies (or alternative systems) developed markets may require additional data centre capacity in those markets due to
by third parties will supersede the Group’s technology. This may materially and data security requirements or capacity constraints.
adversely impact the Group’s revenue and profitability.
Failure to increase transaction volumes,
Loss of key management personnel merchant and end customers numbers
The Group’s ability to effectively execute growth strategies depends on the The revenue and profitability of the Group relies on increases in transaction
performance and expertise of its key management personnel. The loss of key volumes and the number of merchant and end customer bases. Failure to
management personnel, or any delay in their replacement, may adversely affect increase these metrics may adversely impact the Group’s ability to improve its
the Group’s future financial performance. future revenue and profitability.
Exposure to Afterpay’s end customer bad debts Acquisitions Generally
A major part of the Group’s operations and earnings depends on Afterpay’s “buy The Group's future strategy may involve the acquisition of additional businesses
now, pay later” service provided to end customers and Afterpay’s ability to recoup that are aligned with Group's core business. Acquisition transactions involve
the purchase value of those products. Afterpay relies on its technology to assess inherent risks, including:
a customer's repayment capability for each transaction. Prolonged miscalculation
• accurately assessing the value, strengths, weaknesses, contingent and other
on customers' repayment ability may lead to the business being overly exposed
liabilities and potential profitability of a business;
to bad debts when the end customers fail to meet their repayment obligations to
Afterpay, which will adversely impact the Group's profitability. • integration risks;
• excessive diversion of management attention from the operations of the
existing business;
• potential loss of key personnel and key clients;
22KEY RISKS
(CONTINUED)
• unanticipated changes in the industry or general economic conditions that Risks relating to the general economy and capital markets
affect the assumptions underlying the acquisition; and
The financial performance of the Group will fluctuate due to various factors
• decline in the value of, and unanticipated costs, problems or liabilities including movements in the Australian and international capital markets,
associated with the acquired business. recommendations by brokers and analysts, interest rates, exchange rates,
inflation, Australian and international economic conditions, change in
Any of these or similar risks could cause the Group to not realise the benefits
government, fiscal, monetary and regulatory policies, prices of commodities,
anticipated from any acquisition of a new business and could have a material
global geo-political events, hostilities and acts of terrorism, investor perceptions
adverse impact on its financial position.
and other factors. In the future, these factors may affect the income and
expenses of the Group and may cause the price of Afterpay shares to fluctuate
3. GENERAL RISKS and trade below current prices.
Equity raising underwriting risk Exposure to adverse macroeconomic conditions
Afterpay has entered into an Underwriting Agreement under which the Lead The Group's business will depend on end customers transacting with retail
Manager has agreed to fully underwrite the Placement. If certain conditions are merchants, which in turn can be affected by changes in general economic
not satisfied or certain events occur under the Underwriting Agreement, the conditions. For example, the retail sector is affected by such macroeconomic
Lead Manager may terminate the Underwriting Agreement. This may have a conditions as unemployment, interest rates, consumer confidence, economic
material impact on the proceeds raised under the Institutional Placement and recessions, downturns or extended periods of uncertainty or volatility, all of
Afterpay may need to find alternative financing in order to fund its international which may influence customer spending and suppliers' and retailers' focus and
expansion objectives. investment in outsourcing payment and transaction processing solutions. This
may subsequently impact the Group's ability to generate revenue.
Risks relating to share investment
Legal proceedings and contingent liabilities
There are various risks associated with investing in any form of business and
with investing in listed entities generally. The value of the Group's shares The Group may be subject to litigation and other claims and disputes in the
depends upon general share market and economic conditions as well as course of its business, including employment disputes, contractual disputes
the specific performance of the Group. There is no guarantee of profitability, or occupational and personal claims, which could adversely affect the Group's
dividends, return of capital, or the price at which Afterpay Shares will trade business, reputation, operating and financial performance.
on the ASX. The past performance of Afterpay Shares is not necessarily an
indication as to future performance as the trading price of shares can go down
or up in value.
23APPENDIX C
INTERNATIONAL
SELLING
RESTRICTIONS
24INTERNATIONAL SELLING RESTRICTIONS
INTERNATIONAL OFFER RESTRICTIONS • to any person or entity who has requested to be treated as a professional client in
accordance with MiFID II; or
This document does not constitute an offer of new ordinary shares ("New
Shares") of the Company in any jurisdiction in which it would be unlawful. In • to any person or entity who is recognised as an eligible counterparty in accordance
particular, this document may not be distributed to any person, and the New with Article 30 of the MiFID II unless such entity has requested to be treated as a non-
Shares may not be offered or sold, in any country outside Australia except to the professional client in accordance with the MiFID II Delegated Regulation (EU) 2017/565.
extent permitted below.
Hong Kong
European Economic Area - Denmark, Germany, WARNING: This document has not been, and will not be, registered as a prospectus under
Luxembourg, Netherlands and Spain the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong
This document has been prepared on the basis that all offers of New Shares Kong, nor has it been authorised by the Securities and Futures Commission in Hong Kong
will be made pursuant to an exemption under the Directive 2003/71/EC pursuant to the Securities and Futures Ordinance (Cap. 571) of the Laws of Hong Kong (the
("Prospectus Directive"), as amended and implemented in Member States "SFO"). No action has been taken in Hong Kong to authorise or register this document or
of the European Economic Area (each, a "Relevant Member State"), from the to permit the distribution of this document or any documents issued in connection with it.
requirement to publish a prospectus for offers of securities. Accordingly, the New Shares have not been and will not be offered or sold in Hong Kong
other than to "professional investors" (as defined in the SFO and any rules made under that
An offer to the public of New Shares has not been made, and may not be made, ordinance).
in a Relevant Member State except pursuant to one of the following exemptions
under the Prospectus Directive as implemented in the Relevant Member State: No advertisement, invitation or document relating to the New Shares has been or will
be issued, or has been or will be in the possession of any person for the purpose of
• to any legal entity that is authorized or regulated to operate in the financial issue, in Hong Kong or elsewhere that is directed at, or the contents of which are likely
markets or whose main business is to invest in financial instruments unless to be accessed or read by, the public of Hong Kong (except if permitted to do so under
such entity has requested to be treated as a non-professional client in the securities laws of Hong Kong) other than with respect to New Shares that are or are
accordance with the EU Markets in Financial Instruments Directive (Directive intended to be disposed of only to persons outside Hong Kong or only to professional
2014/65/EC, "MiFID II") and the MiFID II Delegated Regulation (EU) 2017/565; investors. No person allotted New Shares may sell, or offer to sell, such securities in
• to any legal entity that satisfies two of the following three criteria: (i) balance circumstances that amount to an offer to the public in Hong Kong within six months
sheet total of at least €20,000,000; (ii) annual net turnover of at least following the date of issue of such securities.
€40,000,000 and (iii) own funds of at least €2,000,000 (as shown on its last The contents of this document have not been reviewed by any Hong Kong regulatory
annual unconsolidated or consolidated financial statements) unless such authority. You are advised to exercise caution in relation to the offer. If you are in doubt
entity has requested to be treated as a non-professional client in accordance about any contents of this document, you should obtain independent professional advice.
with MiFID II and the MiFID II Delegated Regulation (EU) 2017/565;
25INTERNATIONAL SELLING RESTRICTIONS
(CONTINUED)
New Zealand Singapore
This document has not been registered, filed with or approved by any New This document and any other materials relating to the New Shares have not
Zealand regulatory authority under the Financial Markets Conduct Act 2013 been, and will not be, lodged or registered as a prospectus in Singapore with
(the "FMC Act"). The New Shares are not being offered or sold in New Zealand the Monetary Authority of Singapore. Accordingly, this document and any
(or allotted with a view to being offered for sale in New Zealand) other than to a other document or materials in connection with the offer or sale, or invitation
person who: for subscription or purchase, of New Shares, may not be issued, circulated or
distributed, nor may the New Shares be offered or sold, or be made the subject
• is an investment business within the meaning of clause 37 of Schedule 1 of
of an invitation for subscription or purchase, whether directly or indirectly, to
the FMC Act;
persons in Singapore except pursuant to and in accordance with exemptions in
• meets the investment activity criteria specified in clause 38 of Schedule 1 of Subdivision (4) Division 1, Part XIII of the Securities and Futures Act, Chapter 289
the FMC Act; of Singapore (the "SFA"), or as otherwise pursuant to, and in accordance with the
• is large within the meaning of clause 39 of Schedule 1 of the FMC Act; conditions of any other applicable provisions of the SFA.
• is a government agency within the meaning of clause 40 of Schedule 1 of the This document has been given to you on the basis that you are (i) an existing
FMC Act; or holder of the Company’s shares, (ii) an "institutional investor" (as defined in
the SFA) or (iii) an "accredited investor" (as defined in the SFA). In the event
• is an eligible investor within the meaning of clause 41 of Schedule 1 of the that you are not an investor falling within any of the categories set out above,
FMC Act. please return this document immediately. You may not forward or circulate this
document to any other person in Singapore.
Norway
Any offer is not made to you with a view to the New Shares being subsequently
This document has not been approved by, or registered with, any Norwegian offered for sale to any other party. There are on-sale restrictions in Singapore
securities regulator under the Norwegian Securities Trading Act of 29 June 2007. that may be applicable to investors who acquire New Shares. As such, investors
Accordingly, this document shall not be deemed to constitute an offer to the public are advised to acquaint themselves with the SFA provisions relating to resale
in Norway within the meaning of the Norwegian Securities Trading Act of 2007. restrictions in Singapore and comply accordingly.
The New Shares may not be offered or sold, directly or indirectly, in Norway
except to "professional clients" (as defined in Norwegian Securities Regulation
of 29 June 2007 no. 876 and including non-professional clients having met
the criteria for being deemed to be professional and for which an investment
firm has waived the protection as non-professional in accordance with the
procedures in this regulation).
26INTERNATIONAL SELLING RESTRICTIONS
(CONTINUED)
Switzerland United Kingdom
The New Shares may not be publicly offered in Switzerland and will not be Neither this document nor any other document relating to the offer has been
listed on the SIX Swiss Exchange or any other stock exchange or regulated delivered for approval to the Financial Conduct Authority in the United Kingdom
trading facility in Switzerland. Neither this document nor any other offering and no prospectus (within the meaning of section 85 of the Financial Services and
material relating to the New Shares (i) constitutes a prospectus or a similar Markets Act 2000, as amended ("FSMA")) has been published or is intended to be
notice as such terms are understood under art. 652a, art. 752 or art. 1156 of published in respect of the New Shares.
the Swiss Code of Obligations or a listing prospectus within the meaning of
This document is issued on a confidential basis to "qualified investors" (within the
art. 27 et seqq. of the SIX Listing Rules or (ii) has been or will be filed with or
meaning of section 86(7) of the FSMA) in the United Kingdom, and the New Shares
approved by any Swiss regulatory authority. In particular, this document will
may not be offered or sold in the United Kingdom by means of this document, any
not be filed with, and the offer of New Shares will not be supervised by, the
accompanying letter or any other document, except in circumstances which do
Swiss Financial Market Supervisory Authority (FINMA).
not require the publication of a prospectus pursuant to section 86(1) of the FSMA.
Neither this document nor any other offering material relating to the New This document should not be distributed, published or reproduced, in whole or
Shares may be publicly distributed or otherwise made publicly available in part, nor may its contents be disclosed by recipients to any other person in the
in Switzerland. The New Shares will only be offered to regulated financial United Kingdom.
intermediaries such as banks, securities dealers, insurance institutions
Any invitation or inducement to engage in investment activity (within the meaning
and fund management companies as well as institutional investors with
of section 21 of the FSMA) received in connection with the issue or sale of the New
professional treasury operations. This document is personal to the recipient
Shares has only been communicated or caused to be communicated and will
and not for general circulation in Switzerland.
only be communicated or caused to be communicated in the United Kingdom in
circumstances in which section 21(1) of the FSMA does not apply to the Company.
In the United Kingdom, this document is being distributed only to, and is directed
at, persons (i) who have professional experience in matters relating to investments
falling within Article 19(5) (investment professionals) of the Financial Services and
Markets Act 2000 (Financial Promotions) Order 2005 ("FPO"), (ii) who fall within the
categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies,
unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be
lawfully communicated (together "relevant persons"). The investments to which this
document relates are available only to, and any offer or agreement to purchase will
be engaged in only with, relevant persons. Any person who is not a relevant person
should not act or rely on this document or any of its contents.
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