Half-year Report

RNS Number : 9450I

Network International Holdings PLC

14 August 2019

 

Network International Holdings Plc

Results for the six months ended 30 June 2019

Group financial summary

	Six months ended 30 June
	2019	2018
	USD'000	USD'000	Change
Select Financials1
Revenues	152,345	135,592	12.4%
Underlying EBITDA	76,392	67,086	13.9%
Underlying EBITDA margin excluding share of an associate	47.2%	47.0%	0.2%
Underlying net income	43,847	41,728	5.1%
Profit from continuing operations	15,764	35,316	(55.4)%
Underlying earnings per share (USD cents)	8.77	8.35	5.0 %
Reported earnings per share (USD cents)	2.94	6.42	(54.2)%
Key Performance Indicators (KPIs)1
Total processed volume (TPV) (USD m)	21,543	19,443	10.8%
Number of cards hosted (m)	13.5	12.7	6.3%
Number of transactions (m)	367.4	330.8	11.1%

Financial and operating highlights

·    Strong revenue growth of 12.4% (12.7% on a constant currency basis) across the business:

o Middle East delivered growth of 9.3%, driven by increased TPV, transaction growth and the diversification provided by new products and services

o Africa continued its strong growth trajectory with a 21.6% increase in revenues on the back of significant volume growth in the number of cards hosted and TPV, complemented by increased cross-sell across the customer base

·    Underlying EBITDA increased by 13.9% due to strong revenue growth, while underlying EBITDA margin excluding share of an associate was 47.2% after absorbing incremental public company costs, in-line with guidance

·    Profit from continuing operations decreased by 55.4% due to higher specially disclosed items primarily relating to costs associated with listing including share-based compensation charge

·    Customer momentum remained strong, with several customers including Emirates NBD and Emirates Islamic renewing contracts, and the signing of new direct acquiring customers and new financial institutions, including in Saudi Arabia

·    N-Genius Online, the new payments gateway, has been well-received by both stand-alone and integrated customers in the Middle East, with plans to gradually roll-out in Africa later this year

·    Technology transformation is on track for completion this year with customers representing more than 96% of revenues now migrated to the new platforms

·    Signed commercial agreement with Mastercard, which will help drive accelerated adoption of digital payments in our markets and provide incremental upside to our guidance in medium term

 

Simon Haslam, Chief Executive Officer, commented:

"Following our successful listing on the London Stock Exchange in April 2019, I am pleased to report that Network International has delivered a strong first half performance, with revenue and underlying EBITDA growth of 12.4% and 13.9%, respectively.

Our markets are exposed to a number of strong secular trends that we aim to capture through the execution of our strategic agenda. Over the last six months, we have successfully extended contracts with some of our largest customers, deployed exciting new products at scale and strengthened our sales and innovation pipeline. I am also pleased to report that our technology transformation remains on track for completion in 2019, with customers representing more than 96% of revenues migrated to the new platforms already. These platforms will underpin the growth of the organisation for many years to come.

I also have the pleasure of announcing that following the cornerstone investment by Mastercard at the time of listing, we have now signed a commercial agreement that will form the basis of our strategic partnership and identifies the areas where we can collaborate to drive growth in the development of digital payments in the markets we operate in.

Looking ahead to the rest of the year, we are well positioned to deliver on the guidance shared at the time of listing and anticipate delivering low double-digit constant currency organic revenue growth while maintaining stable underlying EBITDA margin. We expect our performance to accelerate to low-to-mid-teen organic constant currency revenue growth along with further moderate operating leverage over the medium-to-long term, with a number of growth accelerators being pursued that are expected to provide incremental upside in due course."

Enquiries

Network International                                                                                            Tel: [phone]

Rohit Malhotra, Chief Financial Officer                                                                    

Finsbury                                                                                                                     Tel: [phone]

Analysts & Investors

Andy Parnis, Robert Allen                                                                                        

Media

James Leviton, Angy Knill                                                                                     

Results Presentation      

A conference call for analysts and investors will be held today at 9.00am UK / 12.00pm GST. To participate, interested parties are asked to dial [phone] (UK) / 8000 3570 2653 (UAE) /
[phone] (US) / [phone] (ROW) 10 minutes prior to the scheduled start of the call using the reference 6905071. Alternatively, details of the audio webcast of the call can be found at https://investors.networkinternational.ae/investors/earnings-call/. A replay of the call will be available from 12pm UK / 3pm GST on 14 August.
 

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

Following our successful admission to the London Stock Exchange in April 2019, I am pleased to report our first set of results for the six-month period to 30 June 2019. In summary, Network International has delivered a strong underlying financial performance in-line with the guidance shared at the time of listing, while making good progress on our operational and strategic priorities.

Strong underlying financial performance across the business

The Group delivered revenues of USD 152.3 million, a 12.4% increase year-on-year (12.7% on a constant currency basis). This was driven by good performance across both the regions and business lines, demonstrating the continued execution of our strategy and justifying the investments made over the last couple of years on technology, product capabilities and people.

The strong revenue growth was underpinned by a 10.8% increase in total processed volumes (TPV) across direct acquiring and acquirer processing, a 6.3% growth in total number of cards hosted (11.5% excluding impact of our previously disclosed First Gulf Bank (FGB) exit in H2 2018), and an 11.1% increase in the number of transactions processed. The growth from our existing customer base, combined with new customer wins and the increased cross-sell of products and services, has delivered 11.3% revenue growth in Merchant Solutions and 12.8% in Issuer Solutions, respectively.

Middle East revenues, which contributed 73% of total revenues (six months ended 30 June 2018: 75%), increased 9.3% year-on-year to USD 111.5 million. Segment contribution increased by 11.4% year-on-year to USD 81.5 million. Meanwhile, Africa revenues, which represents 27% of total revenues (six months ended 30 June 2018: 25%), increased 21.6% year-on-year to USD 40.8 million, with good growth across all the regions. This strong revenue growth has resulted in segment contribution increasing by 21.1% year-on-year to USD 28.3 million.

Underlying EBITDA increased by 13.9% to USD 76.4 million, driven by topline growth, while underlying EBITDA margin excluding share of an associate was broadly stable at 47.2%, compared to 47.0% for last year, after absorbing incremental costs associated with being a listed entity. This reflects the benefits of economies of scale and operating leverage inherent in the business.

Underlying net income increased by 5.1% year-on-year to USD 43.9 million, driven by EBITDA growth partially offset by a higher depreciation and amortisation charge as recent capex is brought into service. During the first half, we repriced our debt facility which is expected to reduce the interest margins going forward.

Profit from continuing operations decreased by 55.4% to USD 15.8 million, primarily due to higher specially disclosed items (SDIs) driven by one-off costs incurred in relation to the listing, higher share-based compensation charge in relation to the pre-listing incentive plans and the amortisation of expenditure on the Group's IT transformation programme.  

Uniquely positioned to capture payments growth in MEA region

Network International continues to benefit from the structural shift from cash to digital payments across the Middle East and Africa (MEA) region. We also continue to see an increase in outsourcing of both merchant and issuer processing activities by financial and non-financial institutions, further building on our first mover advantage in the region.

While the Group is subject to macroeconomic conditions that affect consumers, business and government spending and growth in its markets, we are confident that the combination of our market-leading scale in the MEA region, end-to-end presence across the payments value chain and market leading technology resulting from our IT transformation programme, will continue to deliver strong organic growth. This is further supported by our ongoing success in cross-sell and up-sell of our product capabilities to existing customers across both Merchant and Issuer Solutions, while continuing to acquire new customers across the region.

Strategic execution delivering improved financial and operational performance

Our strategy is designed to ensure that Network International benefits both from the strong secular shift from cash to digital payments in the markets in which we operate, and also to leverage and extend our competitive advantage. Our sustained financial and operational performance demonstrates our ability to execute against the strategy.

·    Capitalise on structural market growth and adoption of digital payments in the MEA region: Ongoing structural changes continue to occur throughout the region and we continue to unlock new opportunities for Network International as a result. For example, we have issued first cards on the new Meeza payment scheme in Egypt and separately, were confirmed as a participant in the new regulatory sandbox set up by the Saudi Arabian Monetary Authority.

·    Expand customer base by capitalising on key themes and trends: Due to our unique positioning as the only pan-regional player of scale, we remain the partner of choice for both new and existing clients across the MEA region. During the first half of the year, we have renewed a number of customer contracts including contracts with Emirates NBD and Emirates Islamic for another five years. At the same time, we have had continued success in our SME growth initiative, as well as in targeted verticals such as Government and Supermarkets.

·    Product expansion and market penetration: We continue to develop new innovative products and at the same time monetise, the investments made in product capabilities over prior years.  N-Genius Online, our proprietary online gateway product, went into pilot earlier in the year and we have now expanded the number of customers using the service. During the second half of the year, we anticipate migrating several of our existing clients onto this new capability. Following the launch of Falcon and Card Control towards the end of 2018, we now have a strong sales pipeline for these products. We continue to rollout our N-Genius capability in the UAE, both for stand-alone and integrated customers, and we plan to gradually roll-out the product to customers across Africa later in the year.

·    Leverage technology investments and benefit from economies of scale: Migration of our customers to the new technology platforms continue to progress well with customers representing more than 96% of revenues already migrated and we are on track to migrate the remaining customers before the end of the year. Furthermore, we are actively pursuing our digitalisation strategy as we continue to implement various automation initiatives within the organisation. Following our listing, we are also focused on accelerating the separation of shared services from Emirates NBD, with the programme scoping already in progress.

·    Pursue opportunities for acceleration: In the short-term, we continue to look for further opportunities, including inorganic, to accelerate growth across the business. Over the past six months, we have focused on ensuring that our market entry into Saudi Arabia is a success. At this point, we have appointed a country general manager, set-up a legal entity, opened an office, signed new customers and are in discussions with other potential new customers.

·    Mastercard strategic partnership: We have signed our commercial agreement with Mastercard - one of the world's leading payments firms - which includes its commitment to invest USD 35 million through Network International spread over the next five years, focusing on the adoption of digital payments across the region, which will provide incremental upside to our guidance over the medium-term.

Our people and giving back

Our strong performance over the past six months is testament to the hard-work and dedication of our colleagues, all of whom demonstrated considerable endeavour and enterprise before, during and since the completion of the listing on the London Stock Exchange. We continue to focus on our employees, inspiring them to stay and grow with the company, by creating an engaging "Great Place to Work", which is fundamental to our success.

We are proud of the progress we have made during the period. This includes integrating our three facilities in Cairo into a new office that brings several teams in that market closer together whilst also engaging in CSR activities that benefit the local communities and environment, including Blood Donation drives, efforts to reduce paper waste in the UAE and offering Iftar meals during Ramadan to those less fortunate.

Outlook

Looking ahead to the rest of the year, we remain conscious of the current market volatility and geopolitical environment, but we are confident that we will perform in-line with the guidance set out at the time of listing.

As such, our overall guidance remains unchanged, with low double-digit constant currency organic revenue growth while maintaining stable underlying EBITDA margin in the near term, and an acceleration to low-to-mid-teen organic constant currency revenue growth along with further moderate operating leverage over the medium-to-long term. In addition to this, several opportunities are under development to accelerate growth, including the partnership with Mastercard and these are expected to provide further upside to our guidance over the medium term.

As highlighted earlier, we have now migrated customers representing more than 96% of revenues to our new technology platform and we remain confident of the transformation programme completing by the end of 2019 with the associated capex also finishing in the second half of this year. We are pleased that our strategy to enter the Saudi Arabian market is developing more quickly than originally envisaged which has given us the confidence to start making necessary investments that will allow us to unlock this meaningful opportunity and provide upside to our revenue and EBITDA guidance in the medium to long term. We are also seeking to accelerate the separation of shared services infrastructure from Emirates NBD to improve our operational flexibility and best position Network International for long term growth and this will result in pulling forward part of the investment we expected to make over four years to the near term.

Finally, the Board also confirms its intention to pay a dividend of 15% of underlying net income for the period of the 2019 financial year post listing, to be paid in the first half of 2020.

Simon Haslam

Chief Executive Officer

14 August 2019

 

Financial Review²

	Six months ended 30 June
	2019	2018
	USD'000	USD'000	Change
Revenues	152,345	135,592	12.4%
Underlying EBITDA3	76,392	67,086	13.9%
Underlying depreciation and amortisation (D&A)	(17,010)	(13,078)	(30.1)%
Net interest expense	(12,405)	(9,473)	(31.0)%
Underlying taxes	(3,130)	(2,807)	(11.5)%
Underlying net income3	43,847	41,728	5.1%
Specially disclosed items
Affecting EBITDA	(21,771)	(1,601)	(1260.0)%
Affecting net income	(6,312)	(4,811)	(31.2)%
Profit from continuing operations	15,764	35,316	(55.4)%
Earnings per share
Underlying (USD cents)	8.77	8.35	5.0 %
Reported (USD cents)	2.94	6.42	(54.2)%

Revenues

The Group's total revenue grew by 12.4% year-on-year to USD 152.3 million, or 12.7% on a constant currency basis.

Merchant Solutions

Revenues for Merchant Solutions business line (45% of total revenue) increased by 11.3% year-on-year to USD 69.1 million. This was primarily driven by a 10.8% increase in TPV, with healthy growth in direct acquiring in UAE and Jordan as well as strong growth in acquirer processing across the two segments. Revenues was also aided by continued product cross-sell and increased terminal rentals from increasing numbers of SME customers.

Issuer Solutions

Revenues for Issuer Solutions business line (54% of total revenue) increased by 12.8% year-on-year to USD 81.7 million. This was driven by a 6.3% increase in the number of cards hosted (excluding the impact of exit of FGB, number of cards have increased by 11.5%) and a 11.1% increase in the number of transactions processed across the MEA region.

This volume growth was further supported by increased revenues from the cross-sell of existing products such as loyalty management as well as recently introduced capabilities such as Falcon and Card Control. Revenue from project related work also performed well during the period, which will help drive growth in recurring revenues going forward.

Other

The Group's other revenue was USD 1.6 million and remains at 1% of total revenue.

Personnel, selling and operating expenses

	Six months ended 30 June
	2019					2018
				USD'000				USD'000
	Reported		Specially Disclosed items		Underlying Results	Reported	Specially Disclosed items	Underlying Results	Underlying Change
Salaries and allowances	32,034		(3,171)		28,863	26,103	(731)	25,372	13.8%
Bonus and sales incentives	4,399		-		4,399	4,360	-	4,360	0.9%
Share based compensation	5,378		(5,244)		134	906	(906)	-	-
Terminal and other benefits	3,794		-		3,794	3,906	-	3,906	(2.9)%
Total personnel expenses	45,605		(8,415)		37,190	35,275	(1,637)	33,638	10.6%
Technology and communication costs	20,982		-		20,982	20,117	-	20,117	4.3%
Third party processing services costs	11,001		-		11,001	8,813	-	8,813	24.8%
Legal and professional fees	16,432		(13,553)		2,879	1,899	(25)	1,874	53.6%
Provision for doubtful debts	363		-		363	514	-	514	(29.4)%
Other general and administrative expenses	7,868		197		8,065	6,913	61	6,974	15.6%
Selling, operating and other expenses	56,646		(13,356)		43,290	38,256	36	38,292	13.1%
Depreciation and amortisation	23,322*		(6,312)		17,010	17,3964	(4,318)	13,078	30.1%
Net Interest expense	12,405		-		12,405	9,473	-	9,473	31.0%
Taxes	3,130		-		3,130	3,300	(493)	2,807	11.5%

Personnel expenses

The Group's reported personnel expenses increased to USD 45.6 million in the period, representing a 29.3% increase. This was driven by an increase in specially disclosed items affecting personnel expenses, mainly due to the cash and share-based incentive plan related to the offering - the Management Incentive Award Plan and IPO Cash Bonus.

Adjusted for these specially disclosed items, the Group's underlying personnel expenses increased by 10.6% to USD 37.2 million in the period, primarily driven by the salary inflationary effect and a nominal increase in headcount.

The Group expects SDIs affecting personnel expenses to be higher in the second half of the year compared to the first half, as a result of a one-off LTIP grant made to all employees in recognition of their valuable contribution earlier this year that made the listing on the London Stock Exchange possible.

Selling, operating & other expenses

The Group's reported selling, operating & other expenses were USD 56.6 million in the period, an increase of 48.1%. This was largely due to an increase in the Specially Disclosed Items affecting selling, operating & other expenses, namely expenses incurred during the period in relation to the listing, such as fees to various advisors.

Adjusted for the above, the Group's underlying selling, operating & other expenses increased to USD 43.3 million in the period, representing a 13.1% increase. This was primarily driven by an increase in third party processing costs associated with the procurement of terminals sold to acquirer processing customers and consultancy costs incurred to deliver project work, as well as incremental costs incurred as a publicly listed company, such as directors' fees.

Underlying EBITDA

The Group's underlying EBITDA increased to USD 76.4 million during the period, an increase of 13.9%. This was due to an increase in revenues across both business lines and operating segments and was partially offset by an increase in the underlying personnel costs and selling, operating & other expenses as explained above.

Despite incremental costs being incurred post-listing, the underlying EBITDA margin (which excludes the Group's share of its associate) remained broadly stable at 47.2% during the first half of 2019 as compared to 47.0% during same period last year, benefitting from operating leverage and economies of scale.

Share of EBITDA of an Associate

The Group's share of EBITDA of its associate, Transguard Cash LLC, was USD 4.5 million during the period, representing a healthy 32.2% growth year-on-year. This increase was driven by Transguard Cash's acquisition of G4S Cash Services in the UAE towards the end of 2018 and organic growth in the business.

Depreciation & amortisation

The Group's reported depreciation & amortisation charge increased to USD 21.4 million in the period, an increase of 34.1%. This increase was driven by 30.1% increase in the underlying depreciation and amortisation charge to USD 17.0 million and increase in Specially Disclosed Items affecting D&A due to higher charge on the capitalised spends on the Group's IT Transformation programme, as anticipated in our guidance.

The increase in the underlying depreciation and amortisation charge was primarily due to a higher amortisation charge on computer software as a result of additions made during the year and the annualisation impact of last year's additions. The Group's share of depreciation and amortisation of its associate was USD 1.9 million in 2019.

Net Interest expense

The Group's reported net interest expense increased to USD 12.4 million in the period, an increase of 31.0%. The increase was driven by higher interest rates on the acquisition financing facility, in line with the movements in benchmark LIBOR and EIBOR rates, as well as a higher interest cost on the working capital facility due to increased utilization and lower income from the investment of surplus funds in bank deposits during the period. It also includes the amortisation of costs incurred for the repricing and amendment of the acquisition financing facility undertaken during the period and the benefits of reduction in the interest margin to be realised throughout the remainder of the year.

Taxes

The Group's taxes decreased to USD 3.1 million in the period, representing a 5.2% decrease on a reported basis but an increase of 11.5% on an underlying basis, primarily due to higher profits in taxable jurisdictions across the Group.

The Group's underlying effective tax rate for the six-month period ended June 2019 and June 2018 was 6.7% and 6.3%, respectively.

Specially disclosed items

Specially disclosed items are items of income or expenses recognised in a given period, which management believes, due to their nature or size, 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.

	Six months ended 30 June
	2019	2018
	USD'000	USD'000		Change
Items affecting underlying EBITDA:
Reorganisation, restructuring and settlements (1)	1,087	756		43.8%
Share-based compensation (2)	5,244	906		478.8%
M&A and IPO related costs (3)	15,677	-		-
Other one-off items (4)	(237)	(61)		288.5%
Total SDIs affecting underlying EBITDA	21,771	1,601		1260.0%
Items affecting underlying net income:
Amortisation related to IT transformation (5)	4,210	2,216		90.0%
Amortisation of acquired intangibles (6)	2,102	2,102		-
Tax expense for legacy matters	-	493		-
Total SDIs affecting underlying net income	6,312	4,811		31.2%
Total specially disclosed items	28,083	6,412		338.0%

(1)  Includes non-recurring costs that arose from one-off initiatives to reduce the ongoing cost base and improve efficiency of the business. 

(2)  Includes charges for the period in relation to Management Incentive Award Plan (MIP Plan) and IPO Cash Bonus, both of which were specific one-off payments resulting from the listing.

(3)  These are one-off expenses incurred during the period in relation to the Initial Public Offering and includes fees paid to various advisors.

(4)  Includes items that do not fit into any other categories as above and primarily relate to unrealised loss / (gain) from re-measurement of foreign currency denominated assets or liabilities (USD 1.4 million in 2019 and USD (0.1) million in 2018), netted off by one-off recoveries and dividend from visa shares (USD 1.6 million in 2019 and Nil in 2018). 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 the development of a new card management platform (including costs related to migration of customers from the legacy platforms), the Group's own proprietary payment gateway, and a significant one-off upgrade of the switching system. The spend incurred 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 statement of financial position as part of the Group's acquisition of Emerging Market Payments Services in 2016.

Loss from discontinued operations

The Group's loss from discontinued operations was USD 1.4 million, representing operating losses for the period in its non-core assets, namely Mercury and acquiring business in Bahrain.

Underlying net income

The Group's underlying net income for the period was USD 43.8 million, an increase of 5.1% over the same period last year. This increase was primarily driven by an increase in underlying EBITDA as explained above, and partially offset by the higher underlying D&A charge, net interest expense and taxes.

Cash and liquidity

Cash flow

	Six months ended 30 June
	2019	2018
	USD'000	USD'000		Change
Net cash flows from operating activities before settlement related balances	42,429	15,846		167.7%
Changes in settlement related balances	549	121,613		(99.5)%
Net cash flows from operating activities	42,978	137,459		(68.7)%
Net cash outflows from investing activities	(42,530)	(27,788)		(53.1)%
Net cash outflows from financing activities	(12,027)	(17,698)		32.0%

The Group's net cash flow from operating activities, before settlement related balances was USD 42.4 million during the period, demonstrating improved operating performance of the Group. The Group's net cash outflows from investing activities were USD 42.6 million during the period, which is mainly related to spends on property, equipment and intangible assets, including spends on the IT Transformation programme. The Group's net cash outflows from financing activities were USD 12.0 million during the period, which primarily reflected part repayment of the acquisition financing facility in line with the contractual amortisation schedule.

Capital expenditure

	Six months ended 30 June
	2019	2018
	USD'000	USD'000	Change
Total capital expenditure	36,765	17,693	107.8%
IT transformation capital expenditure	18,302	7,065	159.1%
Capital expenditure (ex. IT transformation)	18,463	10,628	73.7%
of which is growth capital expenditure	6,072	4,382	38.6%
of which is maintenance capital expenditure5	12,391	6,246	98.4%

The increase in Group's capital expenditure by USD 19.1 million during the period was largely driven by higher spends on IT Transformation programme to migrate customers to the new Network One platform, upgrade to the switching system and development of the Group's new proprietary payment gateway, N-Genius online. The increase in maintenance capital expenditure was primarily driven by higher spends on enhancing technology infrastructure, including upgrading storage capacity and the new central facility in Cairo, Egypt, which are not expected to repeat in the second half.

Underlying free cash flow

	Six months ended 30 June
	2019	2018
	USD'000	USD'000	Change
Profit from continuing operations	15,764	35,316	(55.4)%
Depreciation and amortisation	21,436	15,984	34.1%
Net interest expense	12,405	9,473	31.0%
Taxes	3,130	3,300	(5.2)%
Share of depreciation of an associate	1,886	1,412	33.6%
Specially disclosed items affecting Underlying EBITDA	21,771	1,601	1260.0%
Underlying EBITDA	76,392	67,086	13.9%
Changes in working capital before settlement related balances	8,176	(33,363)	(124.5)%
Taxes paid	(6,295)	(552)	1040.4%
Maintenance capital expenditure	(12,391)	(6,246)	98.4%
Underlying free cash flow	65,882	26,925	144.7%

The increase in Group's underlying free cash flow by USD 39.0 million was driven by growth in EBITDA and changes in working capital before settlement related balances, largely due to timing of various payments. This was partly offset by higher taxes paid in 2019 compared with the same period last year and higher maintenance capital expenditure to enhance technology infrastructure and the opening of a new central facility in Egypt.

Dividends

In line with the guidance given at the time of listing, the Group did not pay a dividend in the half year ended 30 June 2019. The Board confirms its intention to pay a dividend of 15% of underlying net income for the 2019 financial year, to be paid in the first half of 2020.

Total debt

As at 30 June 2019, the Group's total debt amounted to USD 426.2 million, which included the amount outstanding under both its acquisition financing facility (USD 313.8 million) and working capital overdraft facility (USD 112.4 million). The Group successfully completed the repricing of its acquisition financing facility during the period, which will result in a decrease in the interest margin by 75bps.

The Group is required to meet the prescribed financial covenant that net debt / underlying EBITDA (leverage ratio as per the methodology and definitions given in the financing document) shall not exceed 3.5:1. Based on the calculation methodology agreed in the financing documents, the Group's leverage ratio as at 30 June 2019 was 1.9:1.

Business segment overview

Middle East

	Six months ended 30 June
	2019	2018
	USD'000	USD'000	Change
Revenues	111,511	102,007	9.3%
Contribution6	81,452	73,101	11.4%
Contribution margin6	73.0%	71.7%	1.3%

The Group's largest segment by revenue is the Middle East, which includes over six countries and represented 73% of the Group's total revenue in the period. The Group's key countries in the region include the UAE (which represented 60% of the Group's total revenue during the period) and Jordan (the second largest market), with Saudi Arabia offering significant growth opportunities.

The Group's total revenue in the Middle East increased by USD 9.5 million to USD 111.5 million, representing an increase of 9.3% with growth coming from both Merchant Solutions and Issuer Solutions. The increase was largely driven by an increase in TPV and an increase in number of transactions processed and was further complemented by cross sales of products and services.

The increase in TPV was driven by growth in the Government Services, Education and Retail verticals of direct acquiring, as well as very strong growth momentum in acquirer processing relationships. Revenue growth has also been supported by an increase in revenue derived from sale of terminals and project related work, which will drive higher recurring revenues going forward, while focusing on cross-sell of new product capabilities such as Card Control and Advanced Fraud Solutions to existing customers.

The Group also successfully renewed contracts with number of its customers in the region, including Emirates NBD and Emirates Islamic, which were renewed during the first half of the year for a further term of five years. We continue to sign new customers in Saudi Arabia, as well as large number of direct acquiring customers in the UAE in the key and SME segment.  

Contribution for the Middle East segment increased by USD 8.4 million, to USD 81.5 million, representing an increase of 11.4%. Contribution margin increased from 71.7% to 73.0% in 2019 as a result of the operating leverage inherent in the business.

Within the Middle East business unit, the Group expects to see continued structural market growth driven by the ongoing cash to digital payment conversion and an acceleration in e-commerce. Against this backdrop, Network International will focus on cross-sell of value-added services to existing and new customers, looking at bank outsourcing opportunities and focusing on untapped segments (i.e. SMEs). In the longer term, the Group sees opportunities for acceleration through deeper geographic penetration into key markets, particularly in Saudi Arabia where it has already acquired a commercial licence and offices, at Expo2020 in the UAE and through further rapid growth in the adoption of new payment technologies.

 

Africa

	Six months ended 30 June
	2019	2018
	USD'000	USD'000	Change
Revenues	40,834	33,585	21.6%
Contribution7	28,330	23,393	21.1%
Contribution margin7	69.4%	69.7%	(0.3)%

The Group's Africa segment operates across over forty countries and represented 27% of the Group's total revenue in the period. The revenue contribution for each of the Group's three main regions in Africa was 46% in Northern Africa, 33% in Sub-Saharan Africa and 21% in Southern Africa. The Group's key markets in the region include Egypt, Nigeria and South Africa.

The Group's revenue in Africa increased by USD 7.2 million to USD 40.8 million during the period, representing a strong growth of 21.6% year-on-year. This growth was driven by an increase in the number of cards hosted and TPV across the markets, and the growth was further complemented by greater cross-sell of products and services to our existing 160 + customer relationships in Africa.

In terms of customer wins, we signed new acquirer processing relationships in all three regions in Africa during the period and agreed with several existing customers to roll-out N-Genius POS solution across various markets in a gradual manner. We also successfully signed new prepaid hosting clients in all the three regions, including in Egypt, to launch cards under the new Meeza payment scheme.

Contribution for the Africa segment increased by USD 4.9 million, to USD 28.3 million, a 21.1% increase during this period with contribution margin of 69.4% in 2019 as compared to 69.7% in 2018.

The Group expects strong structural market growth across its Africa footprint, supported by the cash to digital payment conversion and supported by government initiatives driving financial inclusion. Against this backdrop, the Group believes there are good market indicators for continued growth, especially in bank outsourcing and accelerating cross-sell opportunities with existing customers, focusing on digital solutions. In the longer term, the Group expects opportunities for acceleration through entry into new markets, either via partnerships or via strategic investments.

Principal risks and uncertainties

The principal risks which could have a material impact on the Group's long-term performance as set out in the Group's IPO prospectus dated 1 April 2019, remain valid at the date of this report.  The key risks in no specific order of priority are:

·    If the Group cannot keep pace with rapid developments and change in its industry and provide new services to its clients, the use of its services could decline, reducing its revenue and profitability

·    The digital payments industry is highly competitive, and the Group competes with certain firms that are larger and have greater financial resources

·    Real or perceived data breaches and unauthorised disclosure of data, whether through cybersecurity breaches, computer viruses or otherwise, could expose the Group to liability, protracted and costly litigation and damage its reputation

·    The Group is subject to counterparty risks associated with its ownership structure in the UAE

·    The Group is subject to the credit risk that its Merchant Solutions customers will be unable to satisfy obligations for which it may also be liable

·    The Group may fail to successfully execute its strategy, including expanding its share of its existing digital payments markets, developing new capabilities and expanding into new geographies in the MEA region

·    The Company's strategic partner arrangement with Mastercard limits its ability to enter into similar arrangements with other international payment schemes, such as Visa and American Express, which could result in more limited opportunities for strategic partnerships in the future

·    The Group may experience software defects, undetected errors and development delays, which could damage customer relations, decrease its potential profitability and expose it to liability

·    The Group is dependent on third-party vendors to provide certain licences, products and services and its business and operations could be disrupted by any problems with its significant third-party vendors

·    The Group is exposed to risks relating to its ability to manage ongoing changes to its technology systems

·    A substantial portion of the Group's revenue is dependent on its continued membership in international payment schemes

·    The Group derives a material portion of its revenue from services provided to Emirates NBD, and also relies on Emirates NBD for certain shared services

Directors' Responsibility statement

We confirm that to the best of our knowledge:

The unaudited condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union

The interim management report includes a fair review of the information required by:

(a)   DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b)   DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period and any changes in the related party transactions described in the last annual report historical financial information in part
F-1 of Network International Holdings Plc prospectus dated 1 April 2019 that could do so.

By Order of the Board

Simon Haslam,

Chief Executive Officer

Rohit Malhotra,

Chief Financial Officer

INDEPENDENT REVIEW REPORT TO NETWORK INTERNATIONAL HOLDINGS PLC 

Conclusion 

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2019 which comprises the condensed consolidated statement of financial position, condensed consolidated statement of profit or loss, condensed consolidated statement of comprehensive income, condensed consolidated statement of changes in equity, condensed consolidated statement of cash flows, and the related explanatory notes. 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2019 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").   

Scope of review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion. 

The company has not previously produced a half-yearly report containing a condensed set of financial statements. As a consequence, the review procedures set out above have not been performed in respect of the comparative period for the six months ended 30 June 2018.

Directors' responsibilities 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. 

 

As disclosed in note 2, the annual financial statements of Network International LLC for the year ended 31 December 2018 were prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.

Our responsibility 

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. 

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached. 

Michael Harper

for and on behalf of KPMG LLP 

Chartered Accountants 

15 Canada Square

London

E14 5GL

14 August 2019

Condensed Consolidated Interim Financial Statements

Condensed consolidated statement of profit or loss

		Six months ended 30 June		Year ended 31 December
		(Unaudited)		(Audited)
Continuing operations	Note	2019	2018	2018
		USD'000	USD'000	USD'000
Revenues	5	152,345	135,592	297,935
Personnel expenses	6	(45,605)	(35,275)	(88,084)
Selling, operating & other expenses	7	(56,646)	(38,256)	(85,455)
Depreciation and amortisation		(21,436)	(15,984)	(34,572)
Impairment losses on assets		-	-	(17,945)
Share of profit of an associate		2,641	2,012	3,325
Profit before interest and tax		31,299	48,089	75,204
Net interest expense	8	(12,405)	(9,473)	(20,159)
Gain on disposal of investment securities		-	-	2,648
Profit before tax		18,894	38,616	57,693
Taxes	9	(3,130)	(3,300)	(10,956)
Profit from continuing operations		15,764	35,316	46,737
Discontinued operations:
Loss from discontinued operations, net of taxes	14	(1,380)	(3,432)	(23,317)
Profit for the period		14,384	31,884	23,420
Attributable to:
Equity holders of the Group		14,711	32,076	26,235
Non-controlling interest		(327)	(192)	(2,815)
Profit for the period		14,384	31,884	23,420
Earnings per share (Basic and diluted) - in USD / cents	17	2.942	6.415	5.247
Earnings per share - Continuing operations - in USD / cents (Basic and diluted)	17	3.152	7.063	9.347

The notes on pages 27 to 49 form part of these condensed consolidated interim financial statements.

Condensed consolidated statement of comprehensive income

	Six months ended 30 June		Year ended 31 December
	(Unaudited)		(Audited)
	2019	2018	2018
	USD'000	USD'000	USD'000
Profit for the period	14,384	31,884	23,420
Other comprehensive income
Items that may subsequently be reclassified to profit or loss:
Foreign currency translation difference on foreign operations	2,705	707	6,414
Items that will never be reclassified to profit or loss
Re-measurement of terminal benefits	-	-	268
Net change in other comprehensive income	2,705	707	6,682
Total comprehensive income for the period	17,089	32,591	30,102
Attributable to:
Equity holders of the Group	17,416	32,783	32,917
Non-controlling interest	(327)	(192)	(2,815)
Total comprehensive income	17,089	32,591	30,102

The notes on pages 27 to 49 form part of these condensed consolidated interim financial statements.

		(Unaudited)		(Audited)
		30 June 2019	30 June 2018	31 December 2018
	Note	USD'000	USD'000	USD'000
Assets
Non-current assets
Property and equipment		54,800	37,990	54,489
Intangible assets and goodwill	10	424,037	400,461	409,007
Investment in joint venture and associate		54,497	53,260	51,856
Investment securities		246	13,491	246
Long term receivables		592	553	740
Total non-current assets		534,172	505,755	516,338
Current assets
Scheme debtors	11	214,753	149,796	222,693
Trade and other receivables		89,516	85,797	73,848
Restricted cash	11	86,722	98,955	71,896
Cash and cash equivalents		56,381	125,061	60,275
Assets held for sale		4,100	22,346	4,417
Total current assets		451,472	481,955	433,129
Total assets		985,644	987,710	949,467
Liabilities
Non-current liabilities
Borrowings	13	243,816	279,399	279,297
Other long-term liabilities		22,516	13,452	24,693
Deferred tax liabilities		1,736	1,047	2,324
Total non-current liabilities		268,068	293,898	306,314
Current liabilities
Merchant creditors	11	189,871	225,470	185,523
Trade and other payables		135,928	91,746	116,575
Borrowings	13	182,426	102,683	147,691
Liabilities held for sale		432	7,069	1,668
Total current liabilities		508,657	426,968	451,457
Shareholders' equity
Share capital	15	65,100	1,559,796	1,559,796
Share premium	15	-	6,184	6,184
Foreign exchange reserve	15	(20,570)	(28,982)	(23,275)
Reorganisation reserve	15	(1,552,365)	(1,552,365)	(1,552,365)
Other reserves	15	7,543	7,225	7,543
Retained earnings		1,710,753	273,578	195,028
Equity attributable to equity holders		210,461	265,436	192,911
Non-controlling interest		(1,542)	1,408	(1,215)
Total shareholders' equity		208,919	266,844	191,696
Total liabilities and shareholders' equity		985,644	987,710	949,467

Condensed consolidated statement of financial position

The notes on pages 27 to 49 form part of these condensed consolidated interim financial statements.

______________________                                                                                    ______________________

Simon Haslam                                                                                                        Rohit Malhotra

Chief Executive Officer                                                                                           Chief Financial Officer

Condensed consolidated statement of changes in equity

	For the six months ended 30 June 2019
	(Unaudited)
	Share capital	Share premium	Foreign exchange reserve	Reorganisation reserve	Other reserves	Retained earnings	Equity attributable to equity holders	Non-controlling interest	Total 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 period
Profit for the period	-	-	-	-	-	14,711	14,711	(327)	14,384
Other comprehensive income for the period:
Foreign currency translation differences in foreign operation	-	-	2,705	-	-	-	2,705	-	2,705
Total other comprehensive income for the period	-	-	2,705	-	-	-	2,705	-	2,705
Total comprehensive income for the period	-	-	2,705	-	-	14,711	17,416	(327)	17,089
Capital reduction (Note 1)	(1,494,696)	(6,184)	-	-	-	1,500,880	-	-	-
Share based payments (LTIP)	-	-	-	-	-	134	134	-	134
As at 30 June 2019	65,100	-	(20,570)	(1,552,365)	7,543	1,710,753	210,461	(1,542)	208,919

The notes on pages 27 to 49 form part of these consolidated financial statements.

 

Condensed consolidated statement of changes in equity

	For the six months ended 30 June 2018
	(Unaudited)
	Share capital	Share premium	Foreign exchange reserve	Reorganisation reserve	Other reserves	Retained earnings	Equity attributable to equity holders	Non-controlling interest	Total 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 period
Profit for the period	-	-	-	-	-	32,076	32,076	(192)	31,884
Other comprehensive income for the period:
Foreign currency translation differences	-	-	707	-	-	-	707	-	707
Total other comprehensive income for the period	-	-	707	-	-	-	707	-	707
Total comprehensive income for the period	-	-	707	-	-	32,076	32,783	(192)	32,591
Transferred to statutory reserve	-	-	-	-	245	(245)	-	-	-
Director's fees8	-	-	-	-	-	(1,000)	(1,000)	-	(1,000)
Dividends paid	-	-	-	-	-	(17,698)	(17,698)	-	(17,698)
As at 30 June 2018	1,559,796	6,184	(28,982)	(1,552,365)	7,225	273,578	265,436	1,408	266,844

The notes on pages 27 to 49 form part of these condensed consolidated interim financial statements.

 

Condensed consolidated statement of changes in equity

	For the year ended 31 December 2018
	(Audited)
	Share capital	Share premium	Foreign exchange reserve	Reorganisation reserve	Other reserves	Retained earnings	Equity attributable to equity holders	Non-controlling interest	Total 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)	-	-	-
Director's fees9	-	-	-	-	-	(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

The notes on pages 27 to 49 form part of these condensed consolidated interim financial statements.

Condensed consolidated statement of cash flows

	Six months ended 30 June		Year ended 31 December
	(Unaudited)		(Audited)
	2019	2018	2018
	USD'000	USD'000	USD'000
Operating activities
Profit for the period from operations	14,384	31,884	23,420
Adjustments for:
Depreciation, amortisation and impairment	21,799	16,498	54,117
Net Interest expense and taxes	15,535	10,953	31,115
Foreign exchange losses and others	3,943	1,021	5,786
Loss on sale of assets	-	-	11,331
Share of profit from an associate	(2,641)	(2,012)	(3,325)
Fair value loss on investment securities held at fair value through profit or loss	-	(1,843)	-
LTIP plan	134	-	-
Changes in long term receivables and other liabilities	(2,029)	3,256	11,137
Interest paid	(10,577)	(8,998)	(19,892)
Taxes paid	(6,295)	(552)	(5,420)
Director's fees paid	-	(1,000)	(1,500)
Changes in working capital before settlement related balances (1)	8,176	(33,361)	(2,575)
Net cash inflows before settlement related balances	42,429	15,846	104,194
Changes in settlement related balances (2)	549	121,613	12,685
Net cash inflows from operating activities	42,978	137,459	116,879
Investing activities
Purchase of intangible assets & property and equipment	(42,891)	(28,380)	(68,470)
Dividends received from an associate	-	-	2,741
Interest received	361	592	1,644
Disposal of investment securities	-	-	14,050
Disposal of subsidiary	-	-	4,812
Net cash outflows from investing activities	(42,530)	(27,788)	(45,223)
Financing activities
Repayment of borrowings	(9,915)	-	-
Payment of debt issue cost	(2,112)	-	-
Payment of dividends	-	(17,698)	(89,857)
Payment of lease liabilities	-	-	(2,298)
Net cash outflows from financing activity	(12,027)	(17,698)	(92,155)
Net increase / (decrease) in cash and cash equivalents	(11,579)	91,973	(20,499)
Cash reclassified as part of held for sale	(2,000)	(4,655)	(1,977)
Cash and cash equivalents at the beginning of the period (3)	(42,466)	(19,990)	(19,990)
Cash and cash equivalents at the end of the period (3)	(56,045)	67,328	(42,466)

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

(2) Changes in settlement related balances reflects movement in scheme debtors, merchant creditors and restricted cash.

(3) Includes the cash and cash equivalents reported within current assets in the statement of financial position, offset by the overdraft balances reported within current borrowings in the statement of financial position and disclosed in note 13.

The notes on pages 27 to 49 form part of these condensed consolidated interim financial statements.

Notes to the condensed consolidated financial statements

1.    Legal status and activities

Network International Holdings PLC ("the Company") listed its shares on the London Stock Exchange in 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 and
e-Payments.

The registered office of the Company is situated in England and Wales.

The condensed consolidated interim financial statements of the Group as at and for the six months period ended 30 June 2019 comprise the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in associates.

These are the first condensed consolidated interim financial statements of the Group following the reorganisation of the Group to facilitate the listing. The result of the application of the capital reorganisation is to present the condensed consolidated interim financial statements (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 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 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

Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" issued by the International Accounting Standards Board as adopted by EU.

Included within these condensed consolidated interim financial statements are alternative performance measure (APM) which are disclosed in note 3 (and appendix on APM).

These condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006 and do not include all the information required for a complete set of IFRS consolidated financial statements. The Company was incorporated on
27 February 2019 and has never prepared statutory accounts within the meaning of section 434 of the Companies Act 2006.

As described in Note 1, the Company was incorporated in order to facilitate the listing of the Group and accounting for such a group reorganisation requires these condensed consolidated interim financial statements to be prepared on the basis that the Company has always owned the Group, including for comparative periods. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Network International LLC for the year ended 31 December 2018, prepared in accordance with IFRS as adopted by the EU. These are included within the Prospectus dated 1 April 2019 available at the Company's website. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since these last annual audited consolidated financial statements of Network International LLC as at and for the year ended 31 December 2018.

The accounting policies applied in these interim financial statements are the same as those applied in the last annual financial statements (the policy for recognising and measuring income taxes in the interim period is described in Note 9).

Basis of measurement

The condensed consolidated interim financial statements 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.

Functional and presentation currency

Items included in the interim 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.

Use of estimates and judgments

The preparation of condensed consolidated interim financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.

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