Zip Co (ASX: ZIP) will exit its offices in Prague and Johannesburg as it adapts to a depressed buy-now pay-later (BNPL) environment globally, cashing in $20 million on investments that have already clocked up hundreds of millions of dollars in impairments.
The Sydney-headquartered group has reached agreements to divest its wholly owned Central and Eastern European business Twisto as well as South Africa-based Payflex, while it is also on track to winding down its Middle East business, Dubai-headquartered Spotii.
The group spent $160 million in May 2021 to secure full ownership of Twisto and Spotii, and acquired all remaining shares in Payflex later that year for an undisclosed sum.
When Zip Co purchased Twisto the Czech startup already had more than one million customers to its name and $230 million in transaction volume. For its part, Payflex had grown its customer base five-fold to 135,000 in the 12 months prior to the acquisition.
Twisto's transaction volume didn't rise much in the financial year that followed with $242.2 million in transaction volume in FY22. Meanwhile, Payflex generated $48.9 million and Spotii facilitated $56.4 million in volumes.
However, Zip's Europe, Middle East and Africa (EMEA) businesses recorded negative earnings of $10.2 million in the first half of FY23, following a financial year when approximately $231 million was impaired on goodwill and acquired intangibles attributable to the Zip UK, Twisto and Spotii businesses.
Zip expects aggregate net cash inflows of around $20 million to be received during the current half due to today's announced divestments, contributing directly to the group's available cash and liquidity.
These divestments are part of a strategy to simplify Zip's portfolio and focus on core businesses in Australia, New Zealand and the US.
"Twelve months ago, in response to the changes in market conditions we pivoted our strategy from a focus on global growth to a focus on sustainable growth in our core markets, and accelerating our path to profitability," says Zip co-founder and global CEO Larry Diamond.
"While we continue to see increased demand globally for our products from both customers and merchants, we made the decision to allocate resources to areas of our business that are either profitable or have a near and clear path to profitability."
He said the latest asset sales marked another step in Zip's transition as it becomes a stronger and leaner business, focused on core products in core markets.
"With sale proceeds of approximately $20 million, RoW cash burn neutralised and the up to 50 per cent improvement in Core Cash EBTDA we are expecting in H2 FY23, we remain confident that we have sufficient cash and liquidity to deliver on our target of group positive cash EBTDA during H1 FY24.”
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