Monitise accelerates adoption – strategy update and placing
24 Mar 2014
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, OR THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL
Fully-underwritten Placing of 160,643,031 new shares to accelerate shift to global subscription-based business
Major existing shareholders and new partner MasterCard intend to participate in Placing
Worldwide rollout of the Monitise Commerce Network
New partnerships announced as Monitise targets 200m registered users by FY 2018
- Fully-underwritten Placing of 160,643,031 new Ordinary Shares by way of an accelerated bookbuild to accelerate the Group’s shift from a licence/services-based business model to a subscription-based model.
- Certain major existing shareholders and new partner MasterCard have indicated their intention to participate in the Placing.
- Investment supports rapid move to subscription-based sales model, minimising upfront licence or integration costs to customers, and generating higher long-term recurring revenue for Monitise.
- New model reduces financial and technical barriers to customer on-boarding, accelerating end-user adoption at a key inflection point in demand for mobile financial services.
- New five-year Key Performance Indicator targets for end of FY 2018. These include:
- Registered users expected to grow from 28m today to 200m by making it financially and technically easier for network partners to connect to the Monitise Group network.
- ARPU target of at least £2.50 per annum – comprising Bank Anywhere subscription revenue and Pay Anyone, Buy Anything transaction revenue.
- User-generated revenue will represent around 80% of Monitise total group revenue, the remaining amount being professional services revenue from custom-build projects including Monitise Create.
- Sustainable Gross Margin above 70% with EBITDA margin of at least 30%.
- Global rollout of the Monitise Commerce Network, an interoperable payment and shopping network involving a standard Open API interface to the Monitise Central Platform for mobile users to pay anyone and buy anything while also staying on top of their finances.
- New partners include global payments business MasterCard, which has indicated it will participate in the Placing, and payment solutions provider Ingenico. These companies join Monitise’s existing global ecosystem of partners, all of which are committed to a global Mobile Money landscape built on best-in-class platforms and services.
- The ecosystem already includes more than 350 banks such as U.S. Bank, Fifth Third Bank, American Savings Bank, RBS, Lloyds, Türkiye İş Bankası, the largest bank in Turkey, and other payment services companies such as Visa Inc. and Visa Europe, Vocalink, FIS, JetCo and BKM, Turkey’s national payments switch.Monitise customers also include ANB, one of the largest 15 banks in the Middle East. In the mobile space partners include Telefónica,BlackBerry, PCCW Mobile, Turkcell and Samsung and in the retail ecosystem they include brands such as Blackhawk Network Holdings with its network of more than 500 content providers operating in the US and 18 other countries, eBay, Turkey’s Bilyoner and Biletix, Venda, B&Q, Carphone Warehouse, Premier Inn, with many more expected.
Monitise Chief Executive Alastair Lukies said:
“For generations to come people’s lives will evolve around smarter technology and their smartphone. The frontscreen apps on your smartphone are the remote control to your life. The next generation will bank, pay and buy through their mobile smartphone or tablet. We have established a foothold at the centre of this digital payments revolution for the world’s banks and payment networks and now intend to fully leverage our technology platforms, expertise and global network of partnerships to lead the way in what we believe will be the biggest shift in financial services and shopping in a generation.
At a pivotal time in the Monitise journey, the Group is now embarking on a new chapter in Mobile Money innovation as it accelerates its move to a subscription-based business model. By adopting this approach, the Group is looking to ensure that its secure platform technology is accessible to the widest possible number of people. Monitise is executing on a unique opportunity to capitalise on the strong foundations the Group has developed and creating the ecosystem for a new era of commerce.”
Monitise Chairman Peter Ayliffe commented:
"Monitise’s success in mobile banking, payments and commerce is all about creating the right products and business model to enable our partners to participate in a timely and cost-efficient manner in exchange for a longer-term annuity based revenue share. This model has been the most effective for all existing payment providers and now is absolutely the right time for Monitise to evolve, enabling it to capture the transformational market opportunity that exists.
From today, Monitise is deploying a revenue model that will enable us to accelerate our growth story in the medium term and this will unlock enormous benefits to us and importantly all our stakeholders."
In June 2007 when Monitise became a public company, the Group’s technology platform was only available to banks through LINK, the UK ATM switch. It provided people with a Java front-end application and the ability to use SMS to check balances or top up a mobile phone.
Seven years later and smartphones and tablets have transformed our lives. We are living in a world that has never been more connected. What were previously regarded as aggressive predictions for smartphone uptake and usage have been easily surpassed. Last year worldwide mobile ad spending more than doubled to nearly $18bn and, according to figures out earlier this month from eMarketer, it is set to rise 75% this year to $31.45bn. Industries are rethinking their business models as more consumers shop by mobile phone and tablets.
Monitise has established itself as the world’s premier provider of secure, reliable, intuitive and relevant mobile technology services to the financial services industry. Monitise’s globally deployed and trusted Mobile Money solutions enable our partners and clients to ‘defend and extend’ their offerings to an increasingly mobile customer base.
In summary, Monitise now helps:
Banks: Deepen their customer relationships via increased customer engagement, rebuild trust in their brands, create new partnerships, reduce costs and drive new revenues.
Payments companies: Deepen consumer loyalty, increase interchange and generate new revenue streams.
Mobile operators: Fight back against ‘over-the-top’ disruptors, enhance subscriber stickiness, develop new partnerships, and increase annuity revenues.
Retailers: Substantially improve the precision of their marketing via enhanced ROI, build loyalty with existing customers and expand distribution.
Network partners: (Media and advertising, loyalty, coupon, offers companies) reach a far greater audience, substantially increase conversion rates, learn more about their customers, develop new partnerships.
- Mobile banking goes mainstream
The move from early adopter to mass-market consumer engagement means now is the time to accelerate adoption by offering lower initial cost-to-connect Mobile Money capabilities. With the increasing use of smart mobile devices, mobile banking adoption continues to grow, not least because mobile is no longer seen as an alternative customer engagement channel. This is particularly evident in markets like the US where data from Alix Partners show that 82% of 18-to-25 year olds have a smartphone and 61% of these are already using mobile banking. This compares with around 60% and 30% respectively for their parents.
Key to mobile banking is the fact that when done properly, consumers log in to their mobile banking app almost every day. This makes the app a highly valuable ‘frontscreen’ piece of smartphone real-estate. It is right behind the browser, email, social networking, and messaging app in frequency of use. These eyeballs are highly prized. Individual banks do not have the user base to compete with the big digital platforms, especially in highly-fragmented financial services markets like the US and Germany. But aggregated together they are already a formidable audience.
Central banks, regulators, governments, businesses and consumer groups will look to companies at the centre of this huge Mobile Money market to be robust, resilient, compliant and sustainable. Banking, payments and commerce rely on a golden rule of interoperability and ‘open network’ infrastructure. Our open mass-market network is a key step in providing a globally-accepted, accessible and agile Mobile Money payment platform.
Monitise has spent 10 years building expertise, trust and experience. The Group now has 28m registered users and the value of payments and transfers initiated via Monitise’s patented platform technology is now worth $71bn on an annualised basis as at January 2014. The Group handles around 3.5bn transactions on an annualised basis and provides Mobile Money services to more than 350 financial institutions. This provides an extremely strong foundation from which to scale the Group.
- Monitise Commerce Network
The new approach Monitise is offering will make it easier for financial institutions, payment companies, mobile operators, retailers and network partners to connect to an increasingly mobile population. Monitise’s Central Platform provides the services and functionality required to manage and grow the new ecosystem. While system integration capabilities continue to be provided by the Monitise Enterprise and Vantage platforms, each including a standard API interface to the Monitise Central Platform, customers can opt to use their own technology to connect directly to Monitise. As part of the Group’s evolving capabilities, content and service providers, including new industry schemes, can also connect directly to the published Open APIs of the central platform.
Supporting this, Monitise is also announcing today the launch of Monitise Signature™, a PCI-compliant bank-grade data analytics engine that combines consumer-empowered profiling with transactional and behavioural intelligence. This user-defined preference engine will enable richer one-to-one targeting to deliver personalised marketing that is adaptive and intuitive.
- Subscription model
Until now, Monitise’s business model has usually included upfront licence and/or integration revenue. The shift to a purer subscription business model with minimal upfront licence or integration costs means financial barriers to adoption will be lowered. Given the fact that there will be no significant upfront capital expenditure required for our customers, we expect that this will lead to higher long-term annuities, based on revenue-sharing. The revised business model and offering should result in an accelerated sales process to banks and payment providers, both for the Monitise direct sales team as well as Monitise’s channel partners.
By adopting a subscription business model with minimal upfront costs for network partners and accelerating the Group’s moves towards industry-benchmark products and solutions, Monitise is ensuring that its secure platform technology is accessible to the widest number of possible players in the ecosystem fuelling Mobile Money – the ability to bank, pay or buy across a smartphone or tablet.
Use of proceeds and financial guidance
The proceeds from the Placing will enable the Company to transition from a licence/services business model to a subscription model with the aim of accelerating customer onboarding and end-user growth. The proceeds will be utilised as follows:
- 1/3 will be used on identified platform spend. Depending on exact timing of spend FY 2014 capex including capitalised R&D will be £20-30m (FY 2013 £14m), and £30-40m in FY 2015.
- 2/3 covers the cost ramp for the operating cost element of the adoption of the new business model, the short-term reduction in revenue growth, and sufficient contingency to enable laser-sharp focus on execution.
The transition away from upfront licence or integration revenue to a purer subscription business model is a well-trodden path in the software world and commonly results in a near-term slowdown in revenue growth followed by an acceleration in recurring user-generated revenue growth.
We now expect FY 2014 revenue growth of approximately 40%, compared to previous guidance of 50%. This expected reduction in revenue growth and an acceleration in operating expenses will likely result in H2 FY 2014’s EBITDA loss to exceed H1 FY 2014.
In FY 2015 we expect continued revenue growth, albeit at a lower rate than FY 2014.
In FY 2016, Monitise expects to be EBITDA profitable, a year later than current sell-side analyst consensus. In the same year we expect revenue growth to accelerate strongly.
By the end of FY 2018, we target 200 million registered users generating ARPU of £2.50, and that this user-generated revenue base will account for approximately 80% of total revenue. We also target an EBITDA margin of at least 30%.
Details of the Placing
The Placing is being conducted by way of an accelerated bookbuild process (the “Bookbuild”). The Bookbuild will open with immediate effect following this announcement. Barclays Bank PLC (“Barclays”) and Canaccord Genuity Limited (“Canaccord Genuity”) are acting as Joint Bookrunners (together, the “Joint Bookrunners”, and each a “Joint Bookrunner”) in connection with the Placing. The price (the “Placing Price”) at which the 160,643,031 new ordinary shares of one pence each (“Ordinary Shares”) to be issued by the Company pursuant to the Placing (the “Placing Shares”) are to be placed with investors will be agreed by the Joint Bookrunners and the Company at the close of the Bookbuild and will be announced as soon as practicable thereafter.
Participation in the Placing will be limited to certain institutional and other investors. Members of the general public are not eligible to take part in the Placing. The appendix to this announcement contains detailed terms and conditions applicable to the Placing.
The Placing has been fully underwritten by Barclays and Canaccord Genuity subject to the terms, conditions and termination rights set out in the placing agreement between the Company, Barclays and Canaccord Genuity (the “Placing Agreement”). Further details of the Placing Agreement can be found in the appendix to this announcement.
The Placing Shares represent 9.5 per cent. of the Company's existing issued ordinary share capital, and will be issued by the Company pursuant to existing authorities granted to the Directors. The Placing Shares, when issued, will be credited as fully paid and will rank pari passu with the existing issued Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid on or in respect of the Ordinary Shares after the date of issue of the Placing Shares.
Application will be made for the Placing Shares to be admitted to trading on AIM (“Admission”), and it is expected that Admission will become effective, and trading in the Placing Shares will commence, on AIM at 8.00 a.m. on 28 March 2014.
This announcement should be read in its entirety. In particular, your attention is drawn to the “Important Notice” section of this announcement and to the detailed terms and conditions of the Placing contained in the appendix to this announcement. By choosing to participate in the Placing and by making an oral and legally binding offer to acquire Placing Shares, investors will be deemed to have read and understood this announcement in its entirety, including the appendix (the “Announcement”), and to be making such offer on the terms and subject to the conditions contained herein and to be making the representations, warranties, undertakings and acknowledgements contained in the appendix to this Announcement.
Monitise (LSE: MONI) is a world leader in Mobile Money - banking, paying and buying with a mobile device. Leading banks, payments companies, retailers and mobile networks utilise Monitise's technology platforms and services to securely connect people with their money.
Already 28 million consumers benefit from Monitise’s patented technology to 'bank anywhere', 'pay anyone' and 'buy anything', accounting for $71bn of payments, purchases and transfers annually.
More information is available at www.monitise.com.
Monitise plc contacts Tel: +44(0)203 657 0900
Alastair Lukies, Chief Executive Officer
Lee Cameron, Chief Commercial Officer
Brad Petzer, Chief Financial Officer
Mike Keyworth, Chief Information Officer
Andrew Griffin, Haya Herbert-Burns Tel: +44(0)203 657 0366
Gavin Haycock Tel: +44(0)203 657 0362
Barclays Bank Plc Tel: +44 (0) 203 623 2323
Simon Bridges Tel: +44(0)20 7523 8000
Piers Coombs (ECM)
Tim Redfern (ECM) Tel: +44(0)20 7523 4620
FTI Consulting Tel: +44(0)20 7831 3113