Zip Co signed agreements to divest Twisto and Payflex; Shares up on ASX

Key Takeaways:

1. Zip Co signed a deal to divest its 100% owned businesses in Central and Eastern Europe (Twisto) and South Africa (Payflex).

2. The initiatives reveal the constant execution of Zip’s strategy to streamline its portfolio and focus on core businesses.

3. The anticipated cash inflows will contribute directly to the group’s available cash & liquidity.

Zip Co Limited (ASX: ZIP) announced that it has agreed to divest its 100% owned businesses in Central and Eastern Europe (Twisto) and South Africa (Payflex). The Company is on way with the wind-down of its business in the Middle East.

Conditional on closing conditions, along with the regulatory approval and earlier declared actions to wind down its operations in the Middle East, the Company anticipates aggregate net cash inflows of ~AU$20 million to be received during the second half of FY2023.

In 1H FY2023, Cash EBTDA for Zip’s EMEA businesses was ($10.2m). Due to these transactions and decisions, on completion, the Company will have successfully delivered on its objective of neutralising cash burn from its Rest of World (RoW) footprint by the end of FY2023.

Currently, the Company continues to progress in other activities that align with its strategic priorities. ZIP’s initiatives announced today reveal the constant execution of Zip’s strategy to simplify its portfolio and concentrate on core businesses (ANZ and the US). The cash inflow due to this inflow will contribute to the group’s available cash and liquidity. At the same time, the Company is confident that it has sufficient available cash and liquidity to deliver positive group cash EBTDA during 1H FY2024.

Background:

In response to the changes in the market conditions, the Company strategy switched from a focus on global growth to a focus on sustainable growth in core markets and accelerating its way to profitability.

There is an increase in the demand globally for its products from customers as well as merchants. Hence, the Company decided to focus on allocating resources to areas of business that are either profitable or have the potential to become profitable in the coming period.

In FY2023, the Company’s priorities include growth in core markets, improving unit economics, reduce the cost base. In 1H FY2023, the Company also completed the wind down of the UK, Singapore, and Mexico.

Significance of divestments:

In 1H FY 2023, the Company finalised the strategic review and aims to neutralise cash burn in 2H FY2023. These steps will contribute to the Company’s available cash and liquidity. These steps will reduce the Company’s presence to its core markets in the second half.

Besides, completing these RoW assets sales marks is a step in Zip’s transition as it progresses to becoming a stronger and leaner business, focused on core products in core markets. With sale proceeds of ~AU$20 million, RoW cash burn neutralised, and the up to 50% improvement in Core Cash EBTDA, the Company will have adequate cash and liquidity to deliver on its target of group positive cash EBTDA during 1H FY2024.

Opportunities:

US: The US opportunity is huge as this market is significant. In this region, BNPL adoption is growing in the US across generations and market segments. More than 40% of millennials have adopted a BNPL product. Over 18% of baby boomers have adopted a BNPL product, and over 17% SMBs have adopted instalment payments. In this region, the demand continues to drive market penetration. BNPL volumes are projected to grow 2.8x in North America.

Australia: Cross-product adoption, as well as deeper engagement, is delivering higher spending and customer lifetime value in this region. Spending per customer continues to grow as customers adopt more Zip products and engage more deeply. More than 25% of new customers adopt Zip Pay as well as Zip Money in the first six months of joining. Dual account customers transact >1.3x more than single account holders, generating significantly higher gross profit per account.

Stock Information:

At AEDT 3:32 PM, ZIP shares are trading at AU$0.572, up 6.018% from the previous close. 

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