29 November 2022

Wise plc

Unaudited results for the six months ended 30 September 2022

"Our goal today remains unchanged 一 to make moving and managing money faster, easier, cheaper and more transparent for people and businesses around the world.

"In the first half of this financial year, our payments got faster, hitting a key milestone with 50 percent of all transfers now instant. And while we had to increase prices on some routes, we were able to decrease fees on others, enabling us to limit the impact of more volatile markets. As a result, our average fee today is 0.64%, and we consistently remain one of the cheapest and fastest options for moving money around the world. Our customers agree: 5.5 million customers trusted us with their money in Q2 alone, up 40% from last year, and in total, we helped move £51.3 billion for people and businesses in these six months, an increase of 49%.

"But we are still solving only a fraction of the problem, and the fight for transparency must go on. In the past months we also joined the European Commission in calling on all providers to commit to full disclosure on all fees, including exchange rate markups, on all transfers to Ukraine - a significant step forward in the right direction for transparency in the industry."

Kristo Käärmann, Co-founder and Chief Executive Officer

Highlights for the six months ended 30 September 2022¹

Great progress on our mission of solving a massive problem for customers in a large, underserved market

●     More customers than ever moved money with us. In Q2 FY23 we supported 5.5 million active customers, a 40% increase on the 3.9 million in Q2 FY22;

●     We moved over £51 billion for customers globally in H1 FY23, 49% more than in H1 FY22. This led to a 55% increase in revenues to £397 million.

Our infrastructure got better and our speeds got faster

●     More than half of all transactions were completed instantly, compared with 39% in Q2 FY22; new partnerships led to faster pay-out speeds in Hong Kong, Chile and Japan;

●     Despite higher costs, including those related to unusually high levels of volatility in global currencies, we were able to keep prices low and our average customer price for Q2 FY23 was 0.64%, compared with 0.62% in Q2 FY22.

Momentum supported by higher adoption of Wise Account

●     Wise Account launches in this period include an integration with Plaid's Core Exchange in the US enabling US customers to connect their Wise accounts to over 6,000 finance apps, and the launch of INTERAC e-transfer requests in Canada;

●     Wise Business improvements include the launch of "payment request" links enabling businesses to get paid directly, and a redesigned dashboard for businesses globally. Additionally, we expanded the rollout of digital cards for businesses in the US;

●     A higher proportion of our customers are using multiple features of our Wise Account, typically sending twice as much money cross-border.

We're growing quickly and profitably, whilst investing significantly in our growth

●     Total income for the first six months increased 63% to £416 million reflecting strong growth in active customers and an increase in total volumes;

●     Adjusted EBITDA increased 52% to £92 million, representing a margin of 22%;

●     Profit before tax increased 173% to £51.3 million;

●     We continue to invest in our teams and our growth as our profitable, cash generating model enables us to remain focused on the long term opportunity.

Forward looking financial guidance

●     Total income to increase by between 55% and 60% for FY23, compared with FY22, and for total income to grow by more than 20% CAGR over the medium-term;

●     Adjusted EBITDA margin at or above 20% over the medium-term.

¹ All comparisons are against the six months ending 30 September 2021, unless otherwise stated.

Financial information

Selected financial Information:

Growth metrics:

Note: Differences between 'total' rows and the sum of the constituent components of personal and business are due to rounding.

*We do not report the number of customers or volume per customer on a half-yearly basis.

¹ Total number of unique customers who have completed at least one cross currency transaction in the given quarter.

² Average volume per each active customer, calculated as total volume divided by total active customers in the period.

³ Cross-border volume only.

⁴ Includes revenue and net interest income on customer balances.

⁵ Total fees on cross currency transfers as a % of volume.

⁶ Revenue as a % of volume.

⁷ Total Income as a % of volume.

An update from Kristo, our Co-founder and CEO

Our mission: Money without borders - instant, convenient, transparent and eventually free. Wise is building the best way to move and manage money around the world.

Since we set out, our transfers have become much faster and cheaper, our products better and easier to use. More people and businesses have access to transparent pricing through us and we continue to promote and lobby for price transparency with regulators around the world. In the first six months of this year we have continued to make good progress against our mission.

We made great progress on our mission of solving a massive problem for customers in a large, underserved market

Moving money internationally is still broken. For too many people it remains expensive, slow, inconvenient and opaque. And this problem exists in a massive market. We estimate there are close to 300 million international migrants and the global cross-border payments market for consumers and small and medium-sized businesses (SMBs) is currently around £11 trillion. Currently we have approximately a 4% share of the personal market and less than 1% share of the SMB market, so there is a huge opportunity for us to help more people.

We're helping more people than ever move and manage their money. We now have 5.5 million active customers and our customers moved more than £51 billion with us in the first six months. The growth in active customers and volumes was driven by growth in new customers, more than two-thirds of which are recommended to us by existing Wise users, and increased adoption of the Wise Account across both new and existing customers. It's great to know that more people than ever are getting transparent, low prices with us.

We're excited about the courage policymakers around the world have shown to help make transparent pricing the norm. For example, the European Commission introduced a "mark-up rule" for all transfers to Ukraine, urging providers to disclose all fees, including the exchange rate mark-up. While participation is voluntary for now, this means more providers will price like Wise and expensive providers will have their high fees exposed.

Our infrastructure got better and we reached a milestone for payment speed

We've built a replacement infrastructure for correspondent banking. This infrastructure powers our products and allows us to offer faster and cheaper payments to our customers.

We reached a milestone achievement this year, with half of all transfers completed instantly (in less than 20 seconds). In fact in Q2 FY23, 90% of transfers were completed within 24 hours. This compares to Q2 FY22 where 39% of transfers were completed instantly and 86% were completed within 24 hours.

We made a number of improvements in the last six months, and ongoing improvements will help speed up more payments. New partnerships have led to noticeably faster payments in Hong Kong and Chile, and we can now make payments out of Japan 24/7, instead of previously only between 9am and 9pm on business days.

The price our customers pay reflects the cost to deliver the service, plus a margin that allows us to do this sustainably. When we find ways to lower costs, we pass this through as price reductions, and when costs increase, prices increase. In the second quarter, the average price our customers paid was 0.64%, 2 bps higher than the same period last year. This is largely a result of higher FX volatility and servicing costs. We're pleased that we were able to limit price increases and as a team we are working hard to keep bringing prices down over time. In fact, as we share the benefit of higher interest rates (on the balances that customers hold with us), this will support pricing.

In August, the Abu Dhabi Global Market (ADGM)'s Financial Services Regulatory Authority (FSRA) found that our UAE subsidiary Wise Nuqud's Anti-money Laundering (AML) controls were not fully in line with the requirements of the jurisdiction and therefore issued a financial penalty of US$360,000. No instances of money laundering were identified by Wise or by the FSRA. Wise has paid the penalty and has addressed all concerns identified by the regulator.

Our recent growth means we now onboard more than one million customers per quarter, in countries all over the world. This requires a huge effort from our operations teams who aim to keep delivering the high standard of customer experience that we set for ourselves. To cater to this demand, we've scaled our operations team by approximately 1,000 people in the last 12 months.

We offer our customers a superior product

Our customers do more than just send money with Wise. Our customers also receive, hold, spend and invest their money. Businesses manage their cash flow, pay and receive their invoices and pay their employees around the world, while other customers use us through their own bank. We serve our customers with three core products: Wise Account, Wise Business and Wise Platform.

Wise Account and Wise Business are international accounts designed to make moving and managing money around the world easy. Wise Platform takes the power of Wise and integrates it into banks and enterprises. Product improvements in the last six months have made our product more convenient to use and more secure.

Getting verified and set up with a Wise Account is now quicker and easier for more of our personal customers, and we've made it easier for them to move money as well. For example, in the US, customers can not only link to bank accounts, but can also link their Wise account to over 6,000 finance apps such as Venmo, Truebill and Chime, making pay-ins and pay-outs simpler, whilst having more methods for sending USD. We've also made sending money to China via Alipay easier. And when our customers spend with Wise, they now have a more transparent and detailed transaction history to help track and stay on top of their spending. Customers want security when they use Wise, and we've introduced new features, including unique communication codes and improved scam prevention and scam reporting tools.

We've made life more convenient for our business customers too. We've re-designed the Business dashboard, making it much easier to find the features that matter most to businesses. In the U.S. we've expanded the roll-out of digital cards, so now more businesses can offer digital cards to their employees, and with greater in-app employee spending controls and 2-step payment approvals, our business customers can feel more in control of their money. It's also now easier for businesses to get paid - by sharing new 'payment request' links, they can have their customers pay them directly into their Wise account.

We're helping more people and businesses move and manage their money internationally, and they now hold £9.2bn in balances with us, a £2.5bn increase in the last six months and £4.3bn increase in the last 12 months. We've seen interest rates increase across many of our largest markets in recent months and this has led to us earning higher levels of interest income associated with these balances. As we head into the second half of the year and into FY24, we will begin to share much of this benefit back to our customers, including more product and service improvements, and through pricing.

Increasing numbers of customers value the convenience of the features we've built. In the last 6 months 30% of active personal customers used the Wise Account for more than just sending money cross-border, an increase from 20% in FY22. For businesses, this adoption rate is above 50%. In completing more of their cross-border needs with us, we saw this group of customers transact three times as much in Q2 FY23 and move twice as much cross-border - compared with customers that use the 'Send' money feature only.

In terms of our Platform product, we built our new 'International Receive' feature for our partners. This allows financial institutions not connected to the SWIFT network to now receive payments from all over the world via SWIFT using their existing customer account details. The feature also enables financial institutions with an existing SWIFT setup to process these incoming SWIFT transfers faster, cheaper and more conveniently.

We went live with new Platform partners, including Firstbase, Onfolk and Wagestream and expanded our partnerships with neo-banks Monzo and Yapeal. Customers using Wise through our Platform partners get the same commitment to transparent pricing as Wise customers.

Also, thanks to Wise Platform, we're able to accelerate the number of people that get access to price transparency. In the last six months, 6 million more people and businesses can now know exactly how much their international transfers cost.

Looking forward, we remain focused on rolling out more features to more people around the world. This means not only adding new features and improving convenience, but taking some of the features currently only available in our more established markets and making them available more broadly across the other countries we operate in across the world. We recently received our investment licence in Estonia that will allow us to introduce the Assets product across Europe, and this adds to the licence we recently had granted in Singapore where we are currently extending the roll-out of Assets.

We're growing at scale whilst remaining profitable and highly cash generative

With a disciplined financial model, we continue to invest and grow at scale whilst remaining profitable and cash generative. As of Q2 FY23, active customers had grown by 40% compared with last year, leading to c.50%, more volumes. At the same time we continued to make significant investment in the business, including a c.1,400 increase in the number of Wisers to help us on our mission. Our adjusted EBITDA for the six months was £92 million, a 52% increase on last year. This is equivalent to a 22% margin, consistent with our medium-term guidance. We generated £78 million of free cash flow in the period, up from £59m last year. You can read more about our financial performance for the six months below in our CFO Matt's financial update.

These results demonstrate that the investments we've been making for the longer-term are paying off, and also that whilst we've come a long way, there is more to do. We will continue to invest and focus on our four mission pillars: price, speed, convenience and transparency to build the best way for people and businesses to move and manage their money internationally.

Kristo.

A financial update from Matt, our CFO

Our mission is to create the best way to move and manage money around the world, and we have a relentless focus on solving the problems facing our customers. Profitability and financial discipline is at the heart of our model, allowing us to invest and grow at scale, sustainably in pursuit of our mission. This ensures that we can continue to create value for both our customers and our shareholders.

The significant investment we've made in recent years in creating radically better products, the Wise Account and Wise Business, is the main reason why more customers are using us and this is the key driver behind the strong financial performance that we've delivered in the first six months of the year.

Continued growth in active customers and volumes

The number of customers who transacted with Wise increased by 40% from Q2 FY22 to Q2 FY23, to 5.5 million. The increase in active customers was driven by new customer growth and greater adoption of the Wise Account and Wise Business products. We continue to see about two-thirds of new customers come to Wise through referrals, or 'word of mouth'.

Greater adoption of the Wise Account and Wise Business also drives an increase in active customers, as customers using these products tend to transact more frequently and use a wider range of the features.

Customers are moving more money through Wise. The average volume per customer (VPC) in Q2 FY23 increased 7% on Q2 FY22 to £4.9k. Personal customers moved £3.9k on average, 6% higher than last year and business customers moved £22.9k, 18% more than last year. The VPC of customers that use multiple features of the Wise Account and Wise Business is approximately two times higher than customers that only use us to 'send' money. Additionally,  the high levels of inflation across our key markets are likely to be contributing to the higher VPC, particularly for our Business customers.

As a result of the strong growth in active customers and the increase in the amount our customers are transacting with us, total cross-border volumes increased by 49%, to £51.3 billion. Personal volumes increased 47% to £38.1 billion and business volumes increased 56% to £13.2 billion. On a constant currency basis, volumes grew 44%.

Volume growth is driving our total income growth

Our revenue take rate for the first six months was 2 bps higher than the same period last year, at 0.77%. We managed to reduce our prices on balance across the year, meaning that our cross border take rate reduced by 3pbs at 0.62%. But other revenues, which are driven by spending on the Wise card, same currency transactions and the Assets product, were higher compared to the same period last year, reflecting the increased adoption of the Wise Account and Wise Business products. This higher "other" revenue more than offsets the lower cross-border take rate. The lower take rate on cross-border transactions reflects price decreases we have made to certain currencies, and a route mix effect, partly offset by some price increases across a number of other currencies.

The increased revenue take rate, combined with the 49% increase in volumes led to a 55% increase in revenue for the period to £397.4 million.

Higher levels of adoption of the Wise Account and Wise Business products supported growth in the balances that customers hold with us. Customer balances  increased 88% YoY from £4.9 billion to £9.2 billion at the end of the period. These balances, which we safeguard for customers, are held across a variety of assets including bank deposits, government bonds and money market funds. The recent rise in interest rates has positively contributed to the yield that we generate on these balances. For the first six months of the financial year, the average yield on these balances (including non-invested assets) was 0.5%, and was 1.1% in September 2022.

Net interest income on customer balances was £18.7 million in H1 FY23, compared with the net interest expense of £1.2 million in H1 FY22 which was largely driven by negative interest rates in Europe.

As a result, total income, inclusive of revenue and net interest income on customer balances, increased 63% to £416.1 million. This represents a total income take rate of 0.81%, 7 bps higher than H1 FY22.

We intend to share much of the benefit from higher interest rates with our customers. We will pass this back through pricing, rewards and investment in the business, whilst ensuring we maintain the same sustainable level of profitability.

Gross profit for the period increased by 52% to £262.4 million compared to £172.6 million in the same period last year. Gross profit as a percentage of total income was 63% compared with 68% last year. The increase in gross profit reflects the increase in total income, partly offset by higher cost of sales. The reduction in gross profit margin largely reflects higher FX costs associated with the increased levels of currency volatility that we've experienced.

Disciplined expense management; investments delivering growth and better products

Administrative expenses of £214.9 million were 41% higher in the first six months, largely driven by an increase in employee benefit expenses and technology and development expenses. This reflects the investment we have made in product development and infrastructure and the increase in the size and quality of our operations function to onboard new customers and then support the rapidly growing customer base.

Employee benefit expenses increased 49% to £126.5 million. As Kristo mentioned above, we are now onboarding more than 1 million customers per quarter, globally, and we set ourselves a high standard when it comes to customer service. We've scaled our operations teams to be able to meet this demand, by around 1,000 since 30 September 2021.  We have also been investing for growth, by increasing the size of our product development and marketing teams. As at 30 September 2022, we had 4,301 Wisers supporting our mission, up 49% from 2,883 at 30 September 2021.

New customer growth continues to come predominantly through referrals, or 'word of mouth', which is extremely beneficial for overall customer acquisition cost. We have also continued to invest in marketing, increasing spend on media by 40% to £18.3 million in the first six months as we look for ways to invest more whilst maintaining an attractive return on investment. The average payback for paid marketing remains less than 9 months, and has actually improved over the period, and when blended across all new customers this is remarkably low at just 3 months.

Technology and development costs increased by 68% to £19.3 million as we invested in improving the security and authentication of our products and systems. We have also increased our usage of cloud computing, helping us to be as flexible as possible as we continue to scale.

Expenses relating to consultancy and outsourced services increased by 42% to £28.9 million. Recently we have been increasingly using external vendors to support some of the operational servicing activities we undertake; we do this where we can get the appropriate service quality and often at a lower cost. The increase also reflects the cost of advisory services relating to regulatory and compliance requirements as we expand our geographic coverage and broaden the features we offer to customers.

Profitable, highly cash generative and well capitalised

We generated an Adjusted EBITDA of £91.9 million for the first six months, an increase of 52% compared with the same period last year (£60.6 million), and represents an adjusted EBITDA margin of 22.1%, as a percentage of total income. The higher adjusted EBITDA was largely driven by the improvement in income for the period, which increased by 63%, creating significant capacity for us to invest whilst maintaining a margin consistent with our medium-term guidance.

Stepping back, of the £262.4 million of gross profit we generated, c.30% of this was invested in growth either through our product development teams, or in marketing investments. £91.9m, or 35% of gross profit, flowed through to EBITDA, and the remainder of gross profit covered expenses for operational teams and our corporate functions and overheads. This means that, combined, about two thirds of our gross profit flowed to funding teams that invest in growth or to adjusted EBITDA. This we believe demonstrates the strength of the financial model and the commitment to both sustainability and investment in growth, and capturing the significant opportunity ahead.

Profit before tax of £51.3 million for the period increased 173% compared with £18.8 million in the same period last year. Earnings per share increased to 3.78 pence per share, compared with 1.33 pence last year.

We generated £78.3 million of free cash flow in the period, a 33% increase compared to £59.0 million last year. Our rate of free cash flow generated, as a percentage of adjusted EBITDA, was 85% (H1 FY22: 98%). The reduction in this rate mostly reflects the effect of changes in working capital, which can vary over time. Excluding the impacts of working capital, our free cash flow generation as a percentage of adjusted EBITDA was 92%, compared with 86% last year.

We remain well capitalised, with Group eligible capital of £281.2 million, comfortably in excess of our regulatory requirements.

Financial Guidance

●    Total income growth of between 55-60% in FY23 and greater than 20% (CAGR) over the medium-term     

●    Adjusted EBITDA margin at or above 20% over the medium-term

To summarise, our strong growth is driven by the quality of the products and features that we've built to help our customers move and manage money. Our discipline ensures that we will be able to achieve our mission whilst maintaining a sustainable, profitable and cash generative financial model.

Responsibility statement of the directors in respect of the interim financial statements

We confirm that to the best of our knowledge:

●      the condensed set of financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as contained in UK-adopted IFRS;

●      the condensed set of financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group;

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

a)     DTR 4.2.7R of the Disclosure 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 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 that could do so.

On behalf of the Board of directors:

Kristo Käärmann, Director

Date: 28 November 2022