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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, and good afternoon. Thank you for joining us today for Network International's 2022 Full Year Results. I'm Nandan Mer, CEO of Network International. And I'm joined by Rohit Malhotra, our CFO. As usual, we will run you through our results, and then we are happy to take your questions. I would like to start by thanking my colleagues the 1,900 payment professionals at Network who have delivered very strong financial performance this year while remaining disciplined and fully focused on delivering against our strategy. Together, we have delivered record revenue growth of 24% or 18% if you exclude the acquisition benefit from DPO. We have improved EBITDA margins as we committed to doing while continuing to invest in growth. Cash generation too was strong, which has supported the deleveraging of our balance sheet and our share buyback program. This financial performance was underpinned by a record year for new customer wins across both merchants and financial institutions, adding new capabilities, accessing new revenue pools, through both new market entries and launching new business services. I want to take this opportunity to reiterate why my 1,900 colleagues and I are really excited to be part of the Network journey. The headroom for growth in digital payments is what makes the Middle East and Africa so structurally attractive. Less than 20% of transactions are currently digital and there is strong acceleration in the transition away from cash, which has been driven by both changes in consumer behavior and targeted government initiatives to support financial inclusion. More broadly, these trends are supported by robust GDP growth and an expansion of personal consumption expenditure, which is growing the GDP at 8% to 10% and personal consumption in low teens. To highlight the scale of the market opportunity and the growth upside, it's important to factor that we currently only address a low single-digit percentage of personal consumption expenditure. We processed $46 billion of volume by personal consumption expenditure in our markets is in excess of $3 trillion. In outsourced processing services, we currently process transactions for 18 million credentials while there are over 500 million credentials issued by banks in our region. So here, too, we have a significant runway for growth. We are uniquely positioned to harness this white space in our region through both share gains and being the primary force behind growing the pie for electronic payments. Allow me to explain why. We are the only payments business of scale and reach, operating in 50 markets across the Middle East and Africa. We are the only business in the region operating across the entire payments chain serving both merchants and financial institutions with a local presence and people on the ground in 15 markets and on-soil technology platform in most major markets that are tailored to suit the local requirements of each market. This gives us a significant advantage in capturing the growth opportunities. Our investments in enhancing our capabilities ensures we continue to maintain our competitive advantage. As evidence of this, I want to highlight a couple of our capabilities that set us apart from competition. We are onboarding merchants and FIs faster than ever, thanks to a slew of new APIs and automated real-time onboarding. We continue to be the e-commerce champion across our markets offering merchants, omnichannel capabilities, accepting the wider stores of value and offering a wide range of value-added services. As a result, we are adding new SME merchants at record levels in every quarter. We also continue to win new enterprise customers. We are accessing new revenue pools through our entry in Saudi Arabia and the launch of direct-to-merchant services in Egypt. We are confident we can continue to deliver on our objective to be the fastest disciplined growth payments company in the region. Now let me take you through the details of both our lines of business. Total merchant services revenue increased by 41% year-on-year, including the 12-month contribution from the DPO with strong momentum throughout the year, supported by a buoyant Middle East strengthen consumer confidence and record merchant sign-ups. Total processed volumes saw 38% year-on-year growth, which is up significantly versus pre-pandemic levels. Process volumes in the Middle East increased 29% year-on-year, again, significantly ahead of 2019 levels. TPV growth in Africa was also very strong on a pro forma basis. Let me now explain how we deliver this growth. We introduced more industry tablet solutions such as Freedom Pay for the hospitality industry. Many of you in the U.S. and Europe may have experienced this service at hotel check-ins and checkouts, and we have now got this to the UAE through an exclusive partnership. We've added more ways for merchants to accept payments, including the growing demand for buy now pay later alongside mobile money wallets. Network now offers merchants over 30 digital stores of value acceptance options, which is a strong differentiating factor versus our competition. And we continue to offer services that are complementary to payments, expanding into merchant lending, data provisioning and providing web store building functionality as part of our strategy to be an e-commerce champion. Now let's zone in on Africa, which is a relatively new business line for us through the acquisition of DPO and our recent organic launch in Egypt. Our acquisition of DPO has firmly embedded us across the African content and merchant acquiring. 2022 marked our first full year of ownership, DPO has brought scale and access to low revenue pools, adding revenue of over $31 million to the group this year. As a pure e-commerce payments business, has doubled our e-commerce revenues and expanded our reach in target sectors, enabling Network to hone in on high growth events. The partnership has brought access to new capabilities such as mobile money wallets and real-time onboarding. It has also greatly enhanced our cross-selling opportunities. For example, DPO Pay, SME merchant services are now available in the UAE. And this year, we will be focused on bringing some of Network's expertise to DPO by cross-selling face-to-face acceptance capabilities to DPO's omnichannel merchants in Africa. With the exception of South Africa, which is experiencing challenging macroeconomic conditions, growth in markets elsewhere remain strong. Our focus for the year ahead will be to scale DPO's presence in these high-growth markets to further diversify our revenue base. Egypt is already a long established and successful processing services market for Network where we serve over 20 banks. But our recently launched merchant payment services is an exciting new revenue pool opportunity for us. Egypt has the largest population in Middle East and North Africa with personal consumption volumes of over $300 billion. But acquiring volumes are only $20 billion, and it is largely a cash-denominated economy that is experiencing a fast transition to digital payments. A transition, which accelerated through the pandemic, like many of our markets but have also been catalyzed through government initiatives such as Egypt's Vision 2030 and the digitization of the country's payments infrastructure. Given our already lost presence in Egypt, our locally deployed tech platform, local embedded relationships and expertise. This is a low-risk, high-reward opportunity for us with a relatively modest investment in point-of-sale terminals and a sales team. Our primary focus is on the high-margin SME segment. The deployment of our technology stack is complete, and we are pleased to have launched our services in January 2023. We're well positioned competitively as one of the very few acquirers who are able to offer payment acceptance through mPOS and a mobile app. We offer the widest range of stores of value acceptance and value-added services. We look forward to updating you on our progress in Egypt later this year. Moving to outsourced payment services, which covers our issuer and acquirer processing activities. We continue to see strong momentum in new business with 18 new financial wins, institution wins during the year. This exceeds pre-pandemic levels. We hosted 18 million credentials and transactions grew by over 30% year-on-year. On the right-hand side, we have listed on the customer wins and strategic partnerships, including our expanded partnership with Emirates NBD. We are really pleased to be further strengthening our relationship with our largest customer. During the period, we also enhanced our capabilities in outsourced payment services and introduced new revenue streams. We simplified our onboarding process for new customers and portfolios and the integration of new capabilities and services by offering 150 new APIs. We've also introduced a number of new value-added services and fraud management solutions, which are enabling us to generate even more revenue from each transaction we process. We also launched a brand new line of business, commercial payments, targeting entirely revenue pool. While it's early days, we are seeing green shoots with 4 customers already signed up to benefit from B2B and travel-related payment services. We're also very pleased to have launched our outsourced payment services in Saudi Arabia last year. It is the largest economy in the Middle East. Real GDP growth in the Kingdom is growing at its fastest pace in almost a decade, supported by the diversification of the economy. Saudi Arabia offers a dynamic payments landscape supported by the government's Vision 2030 to achieve 70% digital payments participation and plans to make all commercial payments digital. They're also targeting 500 new fintechs to join the financial services ecosystem going forward. 2022 was spent laying the groundwork to enable us to make the most of this opportunity. We completed deployment of on-soil technology. We hired a fantastic local team. We secured 4 new processing customers, taking our customer count to 6 in total and we've built a healthy sales pipeline. We set out a 5-year financial plan that envisages a $50 million revenue opportunity from processing in the medium to long term which required a capital investment of $110 million that is now complete. We are now preparing to introduce merchant services to the market following our receipt of a major payment institution license. We believe we are the first non-Saudi company to receive this honor. Before handing over to Rohit, let me touch on a few strategic priorities ahead. In Merchant Services, we will continue to scale rapidly in our existing well-established markets of UAE and Jordan and gain market share while expanding the pie for electronic payments. We will scale fast in Egypt, launch in KSA and expand into face-to-face payments in South Africa. Within outsourced payment services, we will deploy our on-soil technology in South Africa and scale in Saudi Arabia and in commercial payments. I will now hand you over to Rohit, who will run you through the financials.
Thank you, Nandan. Good morning and afternoon, everyone. The financial performance in the year was one reflecting record business momentum and great progress on our strategic priorities. I have been with Network for over 12 years and can comfortably say that 2022 was one of the most successful years we have seen with organic revenue growth far ahead of our historical average in the loans 240 basis points of year-on-year EBITDA margin expansion, secured a record level of new customers across both business lines. We also launched in new markets, including the Kingdom of Saudi Arabia and Egypt quarry and further expanded our presence in Africa through the integration of DPO. whilst also seeing the start of a new business line in commercial payments. We have achieved all of this whilst continuing to invest in the business, strengthening the balance sheet and deploying excess cash to shareholders. Further strengthening our foundations and setting us up for another year of high profitable growth. As I just mentioned, we saw record levels of revenue growth in 2022 up circa 25% year-on-year. If we consider our revenue growth without DPO in the base, in line with the commitments laid out at our Capital Markets Day, revenue grew 27% year-on-year or 29% year-on-year in constant currency terms, which was in line with our guidance. Underlying EBITDA growth was also strong, up circa 25% year-on-year. And as you may recall, the 2021 base includes a contribution from Transguard Cash, which we have since sold. Removing the normalized EBITDA growth was 32% year-on-year. And underlying EBITDA margin expanded by 240 basis points year-on-year, demonstrating in held operating leverage in the business, whilst at the same time absorbing growth investments. And if you exclude contributions from divested assets, Transguard Cash and Mercury in the prior year as well as the contribution from DPO, the margin expansion was even stronger at about 330 basis points year-on-year. Underlying free cash flows grew 32% year-on-year, helped by the strong growth in EBITDA and leverage remains less than 1 turn of EBITDA, significantly below the covenant threshold of 3.5 tons despite initiating our buyback program, which demonstrates the very high free cash flow generation in our business. Let's now look at the performance by business lines, starting with Merchant Services. As a reminder, we updated our operating segments this year to align with the way we manage our business, focusing on customer groups with our business lines now comprised of, firstly, merchant services, previously known as Merchant Solutions; and secondly, outsourced payment services previously known as Issuer Solutions. As you would have read, the main change is the movement of acquirer processing revenue out of merchant services and into the outsourced payment services business line. With that, let's walk through the performance of the merchant services business. We saw strong growth momentum throughout the year, a reflection of supportive underlying market trends coupled with strong consumer confidence and a buoyant economy within our home market of UAE. Compared to 2021, TPV grew 38% and Merchant Services revenue increased by 41%, which includes a circa $31.5 million contribution from DPO. DPO take rates are higher compared to our other markets due to their business model as an aggregator and mix of alternate payment trials. Removing their contribution, we saw TPV in the UAE and Jordan growing by 29% year-on-year, with revenues up 24%.
Let's now take a look at the TPV growth between domestic and international spends in the UAE and Jordan. Overall, acquiring volumes in our core markets remained on a high growth trajectory, reflecting our strategic progress throughout the year and the very strong underlying market downlinks. Whilst you can see that growth trends were strongest at the start of the year. This is largely a reflection of the comparative in the prior year, which was still slightly impacted by COVID. And even though this naturally slowed towards the end of '22, exit rates about 20% in November and December still remain particularly high for these markets. Within the TPV mix, domestic spends grew 20% versus 2021 as a result of a bond economy in the UAE, alongside strong consumer confidence. And International spends were up 64% year-on-year, reflecting the UAE's reputation as a favorite holiday destination, which was also supported by the presence of special events in the region including the end of Dubai Expo in quarter 1 and the FIFA World Cup in Q4. Let's now look at the trends within the African merchant services business at DPO. We are pleased with DPO's performance during the year with the group contributing to our strategic progress in several ways. Having doubled our e-commerce revenues, diversified our merchant reach across new sectors and regions in Africa and added alternate payment capabilities. In terms of financial performance, on a 12-month constant currency basis, TPV grew 30% year-on-year and revenue was up 27% year-on-year. While growth was strong, particularly in the markets outside of South Africa. Revenue growth in South Africa slowed in Q4. This was mainly a result of macroeconomic pressures and slowing underlying market growth in South Africa, the group's largest market, where an unreliable energy supply, coupled with rising interest rates and unemployment is impacting consumer confidence. In terms of profitability, EBITDA margins were circa 20% in the year. On an underlying constant FX basis, excluding exceptional items, which is around 350 basis points of margin expansion year-on-year. And we remain encouraged by the group's performance despite some economic uncertainty in South Africa. The integration of DPO will broaden our merchant reach in the high-growth markets across Africa, further enhance a suite of payment methods and support the progress in cross-sell to existing customers. With that, let's take a closer look at the outsourced payment services business line. We also had an excellent year in this business line. Revenue increased by 13% compared to last year or 15% in constant currency terms due to the depreciation of currencies in Africa, mainly the Egyptian pound. The loading of that growth was slightly different to normal with the pace of revenue growth, particularly strong in the first 9 months of the year, where we saw a number of larger new business wins and some which landed earlier than expected, resulting in a slower Q4 due to the pull forward earlier in the year and some customers delaying outsourcing decisions and thereby impacting on boarding time lines. But as you can see, KPIs grew strongly with credentials hosted up 8% and number of transactions increasing 32% and where we saw particularly strong transaction growth from Emirates NBD, which does not fully translate into revenue growth due to the nature of the caps in the contract. Now that we have looked at our business lines, let's look at our performance by region. The regional performance during the year is reflective of the underling business mix in our key markets. In the Middle East, our largest region. Revenues for the region increased by 16% compared to last year. The growth was particularly driven by strong performance in the home market of UAE, which has benefited from strong consumer confidence and a good year of tourism. We have also significantly enhanced our product offering in the region successfully accelerating the number of SME merchant wins and enhancing a suite of value-added services for our existing and new customers. Trends in Jordan were also strong with the regions seeing double-digit growth across the year. If we then move on to Africa, Revenue grew 42% compared to last year, including the 12-month contribution from DPO. Excluding DPO, revenue in Africa grew 20% year-on-year mainly driven by good growth across processing services, supported by revenue growth from existing customers, a new customer onboarding and cross-sell of our services to customers across the region. If we look at the dynamics within the continent, growth was relatively stronger in Northern and sub-Saharan Africa versus Southern Africa, with South Africa seeing broader economic challenges as I touched upon earlier. And with that, let's look at our EBITDA margin dynamics over the year. Retail levered circa 25% year-on-year underlying EBITDA growth with around 240 basis points of margin expansion to 40.7%. And this is where we really see the benefits of business model and regional mix, where we have a high fixed cost business and inherent strong operating leverage within our established markets, which enables us to invest margin and new growth opportunities, including new market entry. Let's consider the movement of the underlying EBITDA margin and the 3 main bridging components. We saw strong margins in our core business delivering around 390 basis points of year-on-year expansion, supported by strong strategic progress in the year with revenue growth accelerating and the early benefit of cost-saving measures and doing more with less, starting to in-source the capabilities and beginning to use centers of excellence in Egypt. This was particularly offset by the dilutive mix impact from DPO, which as a young business, remains at lower margins compared with the rest of the group.
But these margins have already expanded significantly since the acquisition and will converge towards the core business margins over time and a slight dilution from a market entry into the kingdom of Saudi Arabia to deliver processing services, which also loss-making initially will see leverage as we establish the business and revenue scale rapidly. With that, let's look at the profit bridge for the year. Profit for the year increased by 42% versus 2021. The strong growth is mainly due to the year-on-year improvement in underlying EBITDA, which was up by $35 million. We then have a negative impact of $8 million year-on-year through gains on disposals, which represents a $10 million gain from the sale of Transguard stake in 2021, offset by the $2 million gain from Mercury in 2022. SDIs affecting EBITDA were nil in the year, in line with guidance, which provided an $11 million year-on-year uplift to profits. If you consider their D&A and net interest expenses. These were up in the year, mainly due to a circa $7 million increase in D&A charge in 2022, including an SDI for amortization of acquired intangibles, which now includes DPO and a circa $5 million increase in the net interest charge versus 21%, mainly due to the increase in underlying benchmark rates on our loan facility in line with market trends. We then have a circa $3 million FX gain in the year, mainly due to the impact of African currency depreciation on balance sheet translations from our entities in Egypt, Nigeria and South Africa. The underlying tax rate during the year was around 15% higher than the prior year, given the fast growth in higher tax jurisdictions in Africa alongside the movement of customer contracts to our Nigerian entity, where higher rates are applicable and a full year impact from the change in tax regulation in Mauritius. Let's now move on to the cash flow measures, starting with CapEx. Capital expenditure totaled $59 million, in line with the guidance with investments geared towards underpinning growth opportunities. Within this, growth CapEx, which represents circa 65% of overall CapEx spend increased by only $5 million year-on-year. We can split growth CapEx into 3 main categories. Investment in product capabilities across issuing and acquiring, including customer onboarding, where we saw a record level of new business wins during the year. Continued investment in point-of-sale terminals supporting the ramp-up in high-margin SME customers having signed over 18,000 SMEs in the UAE in 2022 and enhancing our suite of value-added services across data analytics and fraud solutions which drives incremental cross-selling revenue opportunities. Growth CapEx also includes the remaining $5 million spent during the year relating to our processing services market entry into Saudi Arabia in line with expectations, having spent an aggregate amount of around $10 million. Maintenance CapEx, which contributed only 35% of group CapEx includes investments in additions or improvements to our overall technology infrastructure, all of which are in place to support a high growth strategy. Maintenance investment decreased by $3 million year-on-year, mainly due to having completed the bulk of a separation from Emirates NBD during the year. Moving next on to free cash flows. We were again very cash generative during the year, having generated free cash flow of $80 million in '22, 32% higher than last year. This was supported by the strong growth in underlying EBITDA, along side the absence of SDIs and share of EBITDA from Transguard Cash, partially offset by tax and marginally higher CapEx to drive growth initiatives. We also saw an expansion in narrow working capital, which supports overall business growth. We saw an unusually higher movement in net working capital due to a $17 million inflow in 2021 versus an outflow in 2022. For context, working capital before settlement-related balances was around 3% of group revenue in '22, which is within the expected range of business requirements each year with 2021 impacted by an unusual inflow. If net working capital balance in 2021 were nil, instead of an outflow, free cash flow in 2022 would have been at circa $100 million. Let's now take a closer look at our capital allocation policy. Our capital allocation policy prioritizes investment for growth, and we will continue to undertake selective investments to potential organic growth opportunities and acquisitions, should they arise, in order to accelerate revenue and deliver against our existing and future growth targets. In terms of progress, we remain disciplined around the potential M&A pipeline and assess any potential future investment against rigorous strategic and financial lenses. And as a reminder, our acquisition strategy focuses on 3 main strategic areas: end market consolidation, new market entries or the acquisition of new products and capabilities. Our balance sheet remains in a strong position where we are operating at a leverage ratio of less than 1 turn of EBITDA with comfort to stretch above the target range of 1 to 2 turns in the short term for appropriate M&A opportunities where we see a clear deleveraging profile. And we commenced the return of cash to shareholders through a $100 million share buyback program. We repurchased just over 11 million shares in 2022. And through to the current day, we have now repurchased 7 million to a total value of about $24 million, taking the total amount of shares bought back to about $63 million. And with that, let's now consider our outlook for 2023. We are encouraged by the positive momentum the business has delivered in 2022. And whilst we are mindful of softer macroeconomic conditions, which may impact our markets, we are on strong foundations to deliver high teens constant currency revenue growth in the year ahead. Looking at the building blocks to deliver that growth in Merchant Services, it is reasonable to expect high teens growth up towards the 20% growth mark, supported by the strong economic conditions that we continue to see across the large core markets in the UAE and Jordan, supplemented by higher growth in markets across Africa, including those accessed by DPO and alongside our new merchant services opportunity following our launch in Egypt. And in outsourced payment services, our low to mid-teens growth rate on a constant currency basis for the full year with good momentum across the core processing business in the Middle East and Africa, which will be supported by the growing contribution from new processing services in the Kingdom of Saudi Arabia, which were minimal in the 2022 base, topped up by revenue from our newly launched commercial payments business. And overall, we expect the phasing of the year-on-year growth to be second half weighted, given the stronger base in the first half of 2022. And the building contribution from new initiatives like Saudi Arabia market entry, Egypt merchant services launch and commercial payments through the year. Let's now consider the EBITDA margin bridge for the year ahead. We expect 2023 EBITDA margin to be slightly ahead of that delivered last year with the component parts being higher year-on-year margins in the core business supported by the strong inherent operating leverage. This expansion in the core will be somewhat offset by the increasing wage costs in line with the inflationary environment across our markets. We are seeing very little in terms of net headcount expansion, but rather we have particularly high inflation in markets such as Egypt, which has nearly 30% of our employee base and South Africa, where inflation is trending in the high single-digit range. The third component mainly relates to the dilution from new growth initiatives, including the only maturity phase of Saudi Arabia market entry as well as the mix impact from fast-growing DPO. And as alluded to earlier, given the phasing of year-on-year revenue growth, margin expansion will also be second half weighted. With that, let's now walk through the building blocks to deliver our medium- to long-term 20-plus percent revenue target. 2022 was an area of significant progress on our strategic initiatives in action. We are operating in structurally attractive high-growth regions where the underlying payments market is expected to grow in the low teens CAGR range, providing a solid foundation to our medium- to long-term outlook. We can then consider 3 further building blocks within each business line to layer on this underlying market growth. Firstly, within Merchant Services, we expect continued share gains and growth ahead of the underlying market in our core business in the UAE and Jordan. We then have the contribution from our high-growth African markets, which includes both DPO and our newly launched services in Egypt. Our final pillar within Merchant Services relates to the new opportunities, including the addition of new value-added services, new market entries or new business lines in existing markets where, for example, we would expect to launch merchant services in Saudi Arabia. Secondly, if we consider the growth pillars within outsourced payment services. The first block relates to the share gains across our core processing markets in the Middle East and Africa. The second pillar relates to high growth additions from recently launched and emerging revenue pools which includes the building contribution of processing in Saudi Arabia and recently launched commercial payments. And the final pillar relates to brand-new opportunities such as the rollout of new value-added services of payment flows, alongside expanding our offering to new customer segments, such as mobile money operators of fintechs. So in summary, we remain committed and confident in delivering a revenue CAGR above 20% in the medium to long term, supported by the underlying market growth across our regions and our strategic initiatives already in action. I will now hand you back to Nandan for the closing remarks before we go into our Q&A session.
Thank you, Rohit. Before we head into Q&A, let me summarize how we are best positioned to be the fastest disciplined growth payments company in the Middle East and Africa. As touched on earlier, the underlying market conditions and the transition of consumer payments from cash to digital is a tailwind, all payment companies in the region are benefiting from. For this, we give full credit to the policymakers and regulators in our regions. Our capabilities give us the ability to grow faster than our competitors through share gains. Payments is a local business and the scale business. We have both. We offer services in 50 markets with over 200 FI customers, posting 18 million credentials and 150,000 merchants processing nearly $50 billion in volumes. No other payments business in our region offers the breadth of services we offer in the number of markets we are in at the scale at which we operate. And yet, we've only scratched the surface. We will gain share in existing markets, enter new markets and access new revenue pools through new business lines. While our primary focus continues to be on organic growth, we will continue to evaluate M&A opportunities with respect to market consolidation and acceleration in existing business lines in new markets. Rohit and I now look forward to answering your questions.
[Operator Instructions] And our first question is from the line of Justin Forsythe from Credit Suisse.
A couple from me, if you don't mind. So first, on the revenue guidance for high teens constant currency. Can you break out your expectations for FX impact during the year and how you're calculating that? And if my math serves right, the reported implied would be a little bit lower than that. So I think we had maybe previously around the trading update, talk to around 17% reported, if I'm not mistaken. So is there some incremental information that has come across in the interceding period perhaps the exit rate was a little bit higher and exiting December and things maybe have softened a little bit in the interim. Secondarily, I wanted to ask a little bit around rumors for acquisitions and M&A. So a competitor in the UAE has been mentioned. Just wanted to understand mechanically how you believe an acquisition like that could work, meaning the separation, you mentioned it on the call even from Emirates has been quite lengthy in time, I think, spanning close to a decade. So could you talk to how that would work mechanically, if you were to acquire a bank-based portfolio even in the same geography such as this same competitor.
I was just -- sorry, go ahead.
I'm going to take the first one, and then I'll hand over to you for the second question.
Perfect.
So thanks, Justin. So in terms of revenue guidance, the guidance for the year is high teens on a constant currency basis. Just for reference, 2022, we saw significant devaluation in the Egyptian pound, the South African rand namely the 2 most relevant currencies for us. And we had roughly about 200 basis points, give or take, from an adverse impact on the bottom line -- on the top line. So as I have said before, from a bottom line perspective, any depreciation in the currency is broadly neutral, a few basis points here and there.
As far as 2023 is concerned, obviously difficult to have a crystal ball. We know that the Egyptian pound has depreciated a bit in the beginning of the year, and there may be a bit more to go. So as far as -- at this point in time is concerned, I think it's fair to expect about 100, 150 basis points of delta between the reported and constant currency revenue growth. But again, this is just the best guess at this point in time. As far as the exit run rates are concerned, we've obviously ended 2022 Q4 on a very strong note on the Merchant Solutions side, something that we expected, given some of the supporting events we had and the building momentum in the SME space and some new wins on the enterprise side. issuing was a little soft, but that wasn't a surprise to us. We have still delivered 15% on a constant currency terms, which is one of the best years they've ever had in the outsourced payment services line.
So all of that gives us confidence that we'll be able to deliver the high teens growth on a constant currency basis with 100 to 150 basis points of impact on the -- because of currency. Nandan, want to respond to the M&A question.
Yes, sure. Thanks, Rohit. And again, thanks, Justin. So on the acquisition question, Justin, I'll just reflect on our journey so far, Network's journey so far. Firstly, I think it will be fair to say that Network has a strong track record in both organic growth as well as ingesting M&A, doing M&A and ingesting new companies as well as portfolio acquisitions or transitions. And these are -- this is primarily on the outsourced payment portfolio acquisition plan, which traditionally have -- typically end up being in-sourcing transitions to Network's aggregated platform. So I think just building on the foundation that Network has M&A will -- organic growth obviously remains our primary focus, but M&A will remain part of our growth agenda. And you would expect us to do a rigorous assessment of all opportunities. I'm not going to comment on any individual opportunity, but suffice to say that payments is a scale business, and we are well positioned to be a consolidator of choice in the region and the markets that we operate in.
Just a quick follow-up, if I may, on that. I guess, in terms of my question, just trying to ascertain like, do you believe it would be -- I mean, and it's not any specific portfolio, but say, a bank portfolio, whether it existed, I suppose, in the UAE or elsewhere. Do you believe that would be easy to transition? Just given you have a lot of experience doing this, given your own separation from a parent banking organization. Just trying to understand the mechanics of the -- whether it's the data, customer history, things like that, you have to transition over to a new platform.
Sure. And again, Justin, just to provide some additional clarity, this is something that we do on a quarterly basis. When we win portfolio, some of these wins are organic or new portfolio launches or new banks coming to the market, but some of these wins are also what you would typically call a portfolio acquisition, but is essentially an in-source capability being transitioned to Network. So these can take -- depending on the size of the portfolio or the complexity of the portfolio, these could take weeks, and we've done it in weeks, and we can point to specific names, but I won't at this point in time. And it could take months in some cases. So it really depends on the size of the portfolio and the complexity of the requirements of the customer. Rohit, you would want to add?
Just a couple of points from my side. Justin -- so one, even as a business we have, if you remember, just during the time of the IPO, we completed a full technology migration from the legacy vision plus to our network on platform here and also from Euronet to a network like in Egypt. And that involved migrating, especially in the UAE, the entire book of Network merchant base with all complexity -- complexities into the new platform in relatively quick time. And similarly, we migrated 50-plus issuing customers as well. So Network has a history of being top solid in terms of migrations. And now under Sandeep, who has just recently joined leadership, we also now have a center of excellence focus purely on migration with advanced tools, et cetera. So we're very comfortable in being able to migrate portfolios depending on the complexity.
[Operator Instructions] Our next question is from the line of Hannes Leitner from Jefferies.
Maybe you can drill down a little bit into your bridge. You talked about share gains. Can you split it in existing ramp-ups, new competitive wins and then maybe M&A tailwinds. That's for 2023 and for your medium-term outlook? And then the second question in terms of the change of the reporting structure, Acquiring Processing seems like have grown 24% last year. And given the NBD bank or renewal or expansion of the contract, can you talk about the tailwinds? And how should we think about the core issuing business compared to the acquiring tailwinds?
[indiscernible] Nandan, go ahead.
Okay. I was going to take the second part of the question and hand over to Rohit for the first part. But just in terms -- if I understand your question right, your question was how do you see the evolution of the core business i.e., the core acquiring business and then the outsourced processing business as it relates to planning. Did I get the question right?
I mean, rather more because you changed the segment, you moved it from your merchant service business to the issuing. So now to the outsourced services. So now thinking about the moving parts of that segment, how is that developing in terms of the -- just like the card issuing side and the acquirer processing.
Sure. So first of all, I'd just say that it's a much cleaner view of the business because the direct-to-merchant services or the acquiring business is something that we hold most of the levers in our hands in terms of pricing, in terms of how many merchants we acquire, the portfolio mix and the merchants, the value-added services we provide to the merchants. And so the rationale of moving, acquiring processing into the outsourced payments business is one where the fundamentals of that business are more akin to that of the issuing business. So that's the rationale for the change. In terms of our own outlook for the business, I'd say the direct-to-merchant business, as Rohit said, we expect the growth to be north of the 20% even in the short term. That's the business that you've seen from the results a combination of, I guess, the secular shift and our competitive advantages, we feel very confident that we can continue that to build that grow that business at 20-plus percent.
On the processing business, I think a combination of what you should expect is a combination of the issuer processing and acquirer processing will be a teenage growth business, both in the medium term and the long term. Rohit, over to you.
Thanks, Nandan. So Hannes, thanks for the question. Just to clarify in terms of the segment change first. This is actually a cleanup of what we have been doing in the past, as Nandan said, the levers on the merchant side are much more in our hands, but it's also the way the relationships are managed. For acquirer processing, our partners tend to be the banks. And therefore, the same sales team that manages the relationships on the issuing side as well positioned to manage the conversations on acquirer processing.
And that's why we have modeled the business internally in '22 and the segment change just aligns with that. In terms of the growth rates, acquirer processing has always been, like I said before, a tiny part of our business on the merchant side. So if it was less than 10% of the Merchant Solutions business in the past, now it's going to be less than 7% or 8% of the total outsourced payment services. So we should still focus on the broader Issuer Solutions guidance to be in the right proxy for the growth in the outsourced payment services. And as far as your first question is concerned in terms of the growth rates. So within the context of the guidance we have given, which is high teens for this year and 20%, give or take, on the medium to long term. I guess, share gains is going to be a key component, both on the merchants and on the outsourced side. If you look at the merchants in the past, we have talked about difficulty of getting data in these markets, so therefore, very difficult to point. But we know that on the enterprise side with the partnerships that we have signed recently, including with Emirates NBD, including some of the organic wins that you will hear from us in due course. We are very comfortable in our ability to win business from competition at the right price points. And then certainly, on the SME side, 18,000 new customer wins is by far higher than what -- and the whole market is going in 1 year. So we know our market share at least on the SME based on new data -- based on new signings is clearly north of 55%, 60%, and that's going to be a key focus for us going forward. And then similarly, on the outsourced payment services, as Nandan mentioned earlier, there are 500 million credentials in a market or in our regions, and we process only for 18 million of those. So we clearly expect to win more and more financial institution wins. We expect to sign more fintechs across all markets, and we've started getting some early proof points. And now with the unlocking of mobile proposition to do issuer processing for mobile money wallets. And again, you'll have from us in due coast. That's opened up another potential area of opportunity for us as well. So market share gains across most business lines will be a key lever for growth for us in 2023 as well as in medium to long term.
The next question is from the line of Josh Levin from Autonomous Research.
Two questions. One, there was some talk after private equity bought Magnati that the new owners were raising prices for merchant acquiring. Can you talk about the pricing environment in the UAE and how it's changed over the past year? And how you think about changing in 2023? And then the second question, just a clarification on the FX. You talked about the headwinds to revenues. Just to be clear, what does FX mean for costs and overall EBITDA, the impact on EBITDA in 2023?
Rohit, why don't you take the second one first?
Sure. So Josh, the -- in terms of cost, we have always said we want to have a natural hedge in the business. And places where currencies are depreciating Egypt, Nigeria, South Africa are high cost centers for us. So net-net, the impact on EBITDA tends to be either neutral or 1 million here and there. But clearly, at a net profit level, the impact is positive. So -- and we don't expect that to be any different in 2023 as well. Nandan, over to you.
Yes. Thanks. So thanks, Josh. I think it would be safe to say that there is price rationality is returning to the market in that all of us, including our competitors, are not pursuing volume growth for the sake of growth, right? And I think revenue discipline and profit discipline is the key guide on the base, which we as well as our competitors are operating. And I think that we should continue to see price rationality. Now having said that, there will always be puts and takes in pricing. And I think we've demonstrated through the years that we can manage those puts and takes, including, of course, managing yield through cross-sell of value-added services.
The next question is from the line of Orson Rout from Barclays.
The first one is just on the technical guidance. You've put out the CapEx, which implies somewhere in the range of 12% to 14% of revenue versus the midterm guidance, 8% to 10%. So I was just looking to understand where do you see your -- on regulatory requirement a bit of an unexpected development. Should we expect similar developments throughout your geography is leading to higher CapEx intensity in the medium term? Or do you still expect in 2024 or 2025, to be closer to that 8% to 10% of revenue? That's the first question. Then the second is just on the free cash flow, which obviously came in quite a bit lower than consensus expectations as a result of still the working capital development. I was just wondering if you've seen a bit of a normalization there with the working cap into the beginning of this year. And if you could give some sort of guidance or some color on the conversion to EBITDA that you're expecting for full year '23. That would be helpful.
So thanks also for the questions. Let me take both of them. So on the technical guidance, I guess the best way to look at our CapEx guidance at $60 million for the year, which is slightly under 12% as the core guidance, an incremental 5% to 10% on top to deploy technology on-soil and invest East and Southern Africa. Now the reason to deploy technology there can be varied, but in this case, especially in Southern Africa, it's regulatory where we have to be on-soil by the end of the year -- by the end -- by the mid of this year. And therefore, it's an investment we need to make, especially given how important Southern Africa as a region. But again, we just don't look at this purely from a regulatory standpoint. As Nandan said before, payments is a local business. We have to be closer to the customers and our ability to win large deals in those markets is going to be extremely enhanced by having technology on-soil, having delivery capabilities closer to the customer. And the reality is very few of other payment companies, either in the region or globally are going to make that investment across all these markets. And therefore, it significantly becomes -- it significantly becomes our competitive moat as well, but we're also getting smarter and efficient with each subsequent deployment. As a case in point, Saudi Arabia deployment of Network One was a give or take, $10 million investment we expect the deployment in Southern Africa, South Africa to be precise, to be about 50% of that. And again, once we do that, we are going to learn and improve further. And therefore, the deployments incrementally in Western East Africa, when we decide to do should be even more efficient, faster and like I said, opens up those incremental opportunities in those regions as well. We haven't changed our medium- to long-term guidance, which still is 8% to 10% of revenue, and there should be -- and there's no reason why barring any of those one-off investments that are going to be difficult to predict at this point in time. We should stay away from that. In terms of the second question on free cash flow, I think I mentioned last year on the call as well that $17 million inflow on working capital was an abnormality. And that is because we were coming on the back of COVID, we work with -- and many times, our investors sitting in Europe and U.S. don't appreciate, but we work with 150 financial institutions in 48 markets in Africa. And in many of those markets, sometimes, there could be challenges with cash recoverability. So what we always try and manage is wherever we see any opportunity or any such challenge coming along to take money from our customers in advance. And therefore, those unusual inflows in working capital get created. This year is more return to normality. I've always talked about the working capital requirements in the business being an outflow of 3% to 5% of revenue. Working capital at the end of this year was about $10 million, which is within that range. And therefore, our investors were expecting us to generate $90 million to $100 million of free cash flow this year, which is exactly what we have done closer to $100 million if we strip out that impact of abnormal movements last year. Hopefully, that answers both your questions also.
The next question is from the line of Neha Paul from Berenberg.
My first question is on Network has expanded the number of payment acceptance options. Do you see more merchants choosing Network on the back of big improvement, especially for e-commerce?
I think the answer to that is the [indiscernible], yes. What merchants share about most is selling goods and services, clearly, especially in the UAE we get folks from many, many countries visiting the UAE. And some of these countries are underpenetrated from a global bank's perspective and therefore, accepting local payment brands as well as mobile money wallets is very important for merchants to sell their goods and services, both in the off-line and the online space.
Sorry, I just have one more follow-up as well. SME penetration year is quite a focus in 2022, which helps the margin of the company. I mean where are you in penetration process? And will you see a similar level of temptation in the future in the Middle East market.
Yes. So I would say that we are probably somewhere in the 15% to 20% penetration level of the SME market somewhere in that range again depends on what data points you're looking at. So we have plenty of runway for growth in terms of acquiring new SMEs in the Middle East.
Next question is from the line of Deepshikha Agarwal from Goldman Sachs.
So I just had like one on top line, like the guidance on high teens growth. And it's basically skewed towards the second half. So I just wanted to understand the dynamics in between the 2 segments, which would be the Merchant Solutions and then the issuer processing business overall? And where -- how -- what kind of a role would the new initiatives play in that seasonality between the first half and second half.
[indiscernible] let me take that question. So on the merchant solutions, the only incremental contributor is the acquiring service in Egypt, which is really a new business line we are kicking off this year. So don't expect the contribution to be material. So on the Merchant Solutions side, the delta between the first half and the second half should be largely a function of the comparative period last year where we had a strong -- a strong H1 relatively. So expect the delta to be not that significant. I get the real difference between the growth rates in the 2 half is going to be in the outsourced payment services where last year, we had a very strong Q1, Q2, a decent Q3 and a softer Q4. So that's going to reflect more in terms of the issue -- outsourced payment services being more softer, let's say, relatively softer growth in H1 more in the high single digits growth rate, but higher in the second half of the year to deliver a low to mid-teens growth rate for the full year.
Our next question is from the line of Sandeep Deshpande from JPMorgan.
My question is regarding your growth in Issuer Solutions. And of course, now, which -- I mean the business unit now also includes merchant processing. My question there in that business unit is, I mean, when we look at your long-term growth guidance towards the 20%. How should we be looking at the growth in that business? Will the growth in merchant services be significantly higher than your long-term growth guidance or at least higher than your long-term growth guidance and this one lower? Or is this a business unit, you are going to continue to expand into other markets now at this point, of course, Saudi, et cetera. So think about it as regional expansion in this market. And I have a quick follow-up as well.
So Sandeep, great question. Thank you for that. So I think what you will -- I think you've spoken about this earlier, but Issuer Solutions are outsourced payment solutions, which now includes merchant processing. I think our prognosis or our outlook is that this business will grow in the mid-teens, roughly give or take, year-on-year. And the merchant -- direct-to-merchant businesses of business or the acquiring business will grow north of 20%, giving us that average of 20% essentially in the medium to long term. Does that answer your question, Sandeep?
Yes. My follow-up is -- I mean, I know if you to a response to an earlier question, you talked about -- talked about building out your capabilities in South Africa, and that is expanding your CapEx. Can you talk about any other regulatory issues that we should be knowing about in all the different -- because you operate in so many different countries, which could have any impact on your financials in the year.
Sandeep, nothing at this stage that we haven't factored in. We obviously have the regulatory impact in terms of interchange caps that was put in place a couple of years ago. That's all been reflected in -- the only thing that changes now in terms of regulation is as and when -- as and how more and more licensing requirements are coming in. We are absolutely on top of all of that. And that effect, we bought our licenses in UAE, in Kenya, in the Kingdom of Saudi Arabia, we're the first non-Saudi company we are told to get a full-fledged payments license. Even the change in terms of -- or even the requirement to have on-soil in Southern Africa is not new. This came in last year, and you would have heard us talk about this in our previous calls as well, just that now we are making that investment to be fully in compliance with that. So incrementally, nothing more at this stage that we want to highlight.
Sandeep, if I can just add to Rohit's response. When we deploy on-soil, it also becomes our competitive moat. There aren't that many companies in these markets than in which we operate that provide on-soil processing. So Saudi Arabia would be a classic example, right? We -- since -- we've deployed our technology. No other company has deployed their technology locally in Saudi Arabia. And we'll wait and see what happens in South Africa. But essentially, we've committed. And we're doing this at a much lower cost, as I think Rohit referenced earlier, then we deployed our technology in the cloud in Saudi we deployed it in the Oracle Cloud there. We are deploying our technology in the AWS cloud in South Africa, and we are doing it at less than half the CapEx that it took to deploy in Saudi. So we're also getting much more efficient as we rinse repeat and do more local deployments.
And the next question is from the line of Alexandre Faure from BNP Paribas.
I've got plenty more clarification first. A couple of questions, if I may. Clarification, for it, did you say just now the question on seasonality of growth that you'd expect outsourced payment services to grow in the high single digits in H1 and accelerate towards mid-teen in H2. Did I get that to right?
No. So we said low to mid-teens is our expected guidance for the full year on the issuing. So you would expect high single digits in maybe H1 and high teens in the second half.
Got it. And then on to my questions now. The first one is on commercial payment initiatives of contributing a little bit more in H2. I was wondering if you already have firm commitments with some of your financial institutions to roll out those new products, technologies available from Network? And my second question has to do with current trading and payment volumes for Merchant Services. I think in Europe, we've had many players calling out an easy comp in Jan impacting by Omicron, but still even in February, accelerating payment volumes year-over-year. So I would say even excluding micron, I think Visa themselves called out some acceleration in February in some international markets, but I don't know if that included some of your key markets. So I was wondering if this applies to your regions.
Sure. So maybe if I can take both. So on the first question, in terms of the product line -- in terms of commercial payments, we have started building a pipeline, and we have got a few initiatives in the works. We'll obviously talk about them at the right stage. But as I think we have given in the release, we already have 4 small but important from a from willingness of the custom of the banks to engage with us. We have already got 4 deals signed, but -- and we have got a massive pipeline across all our markets here as well as in Middle East and Africa. But this is a new business line that we are embarking on. So typically, it takes a bit of a sales cycle and then onboarding. So you would see some -- you should follow a similar model as we do on the issuer processing side to begin with. But like we said, we have got a couple of other initiatives as well that we'll announce in due course. But at this point in time, we are feeling relatively optimistic about commercial payments. And in terms of current trading, and obviously, we won't talk about specific initiatives or specific trends for Jan and Feb. But it's fair to say that we exited Q4 on a very strong note with both in domestic and international running at 18%, 20% growth rates, and we haven't seen -- we have seen some of those positive trends continue into early part of this year as well. But our trading update is only a few weeks away, so you'll obviously get more insights at that point in time.