WORLDLINE_REGISTRATION_DOCUMENT_2017

Financials Introduction

Contract Renewal Cycles

services that have reached full scale, allowing it to generate OMDA margins of 28.5% and 21.0% respectively for these two global business lines in 2017. Conversely, because the Group’s Mobility & e-Transactional Services division tends to generate a proportionately higher portion of its revenue from projects in the build and ramp phase, it achieves higher revenue growth but lower margins (OMDA margin of 12.5% in 2017). Similarly, the Group earns higher average fees on credit card transactions than it does on debit, OBeP and certain electronic wallet transactions. To the extent that these categories of non-cash payments experience significant growth in future periods, the Group’s profitability would be affected by the extent to which the new volumes generated by these payment methods outweigh the lower per transaction fees and the Group’s success in building scalable platforms to process these volumes profitably. Although the Group provides services across the extended payment services ecosystem, it currently does not generate revenue from its full range of services across each of its principal jurisdictions. As part of its strategy, the Group intends to gradually expand the geographic footprint of its services throughout the markets where it operates, leveraging its new global business lines structure and its increasingly integrated and standardized IT platforms. Although most of the Group’s revenue is currently generated in its core historical markets in Europe (approximately 90% in 2017), the Group is earning an increasing proportion of its revenue from emerging market countries in Latin America and Asia. The percentage of the Group’s revenue generated in emerging markets in Latin America and Asia was 9.8% in 2017, and this percentage is expected to grow over time as the Group pursues further international growth. While penetration rates in the Group’s core markets in Europe still show room for growth, growth rates in adoption of card-based and other non-cash payments are significantly higher in emerging markets, notably in India, where the Government has put in place a strong policy to promote non-cash payments, notably through the demonetization of 500 and 1000 rupee bills decided on November 8, 2016. Geographic Footprint

The Group’s revenue and profitability can be significantly affected by contract renewal cycles. The Group’s contracts generally range from three to five years in length, with some private sector contracts in Latin America having a length of up to ten years. When an agreement reaches the end of its term, a client may seek to renew it or renegotiate the terms of the agreement or may decide not to renew the agreement. The terms of a contract renewal, or failure to renew a contract, can have, depending on the relative size of the agreement in question, a significant impact on the revenue and profitability of the Group or a global business line in any given period. Although the Group’s business is spread across a large number of agreements and no single client represented more than c.5% of the Group’s revenue in 2017, the relative weighting of a particular contract can be higher within a business division or global business line. The Group generates the majority of its revenue from the processing of payment transactions on either a per transaction or percentage of transaction value basis. During economic downturns, consumers typically reduce spending, and card issuers often reduce credit limits and tighten their card issuance rates, which can have a negative effect on the overall value of transactions generated by consumers and number of cards managed. Although this effect exists, it has been far outweighed in recent years by the secular shift from cash to non-cash payments. Also, while consumers reduce spending during downturns, many consumers may make smaller but more frequent transactions. Because a majority of the Group’s revenue is generated on the basis of the number of transactions that take place, this helps reduce the effect of overall spending declines. In addition, a significant portion of the Group’s Merchant Services business is earned from retailers that are in non-discretionary spending categories such as groceries or fuel, the sales of which are less volatile, which further insulates the Group from the full effect of economic downturns. The Group’s revenue and profitability are also affected by the mix and stage of maturity of the services it sells. As noted in Section “Contract Structure,” while the highest revenue under a build to run contract is typically earned during the “build” phase, the most profitable stage of such contracts is typically the “maturity” phase of the “run” period. Each of the Group’s three global business lines has a mix of some services that have reached scale and others that are still in the build or ramp up phase. From a global business line profitability perspective, the Group’s Financial Services global business line and Merchant Services global business line have a higher proportion of General Economic Conditions Services Mix

E

Seasonality and Period to Period Variability

Although the Group’s operations typically do not show strong seasonal variations, the fourth quarter of the year, which is favorably affected by higher shopping volumes during the end of year holidays, is the Group’s highest revenue quarter, and the first quarter of the year, when new projects are often in their early phases, usually shows the lowest revenue. The effect of the end of year holiday season is offset to some extent by a slowdown in some of the Group’s e-Government contracts that have lower volumes during holiday periods.

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Worldline 2017 Registration Document