© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, welcome to the Edenred Q3 2019 Revenue Conference Call. I'll now hand over to Mr. Patrick Bataillard, CFO. Sir, please go ahead.
Good morning, everyone, and welcome to our Edenred Q3 2019 Revenue Conference Call. I will comment on the slides of the presentation, which is available on our website in the Finance section. First, let's start first with a few highlights of the third quarter on Slide 2. In this third quarter, Edenred posted a sustained double-digit revenue growth across all its business lines and all its regions. In the first 9 months of 2019, our total revenue came in at EUR 1,170 million, up 18.1% as reported and up 14.3% like-for-like. Looking more precisely at the third quarter. Total revenue was up 20.7% as reported and 13.8% like-for-like, including a positive scope effect of 6%, reflecting the contribution from the acquisition we've made in the last 12 months, such as Easy Welfare in Italy or CSI in North America. Reported growth this quarter includes also for the first time since many quarters, a slightly positive currency impact of 0.8% versus minus 2.1% negative effect in the first half of the year. This level of growth is the consequence of all the enhancements we've made to our global digital platform, which enabled both better performance and faster innovation, 2 important dimensions to generate sustainable and profitable growth. This strong performance year-to-date enables us to be confident in outperforming in 2019 our midterm organic annual growth targets for operating revenue, operating EBIT and FFO of more than plus 7%, plus 9% and plus 10%, respectively. We also confirm our target of 2019 EBIT of between EUR 520 million and EUR 550 million.Before moving on into more details, I would like also to remind you that Edenred will hold its Capital Markets Day on October 23, that is next Wednesday. For those who are unable to attend this event in London, you will be able to follow the live webcast in our website, edenred.com.Let's now move onto Slide #4. Before diving into the figures, some news flows about the operation. Edenred continues to leverage its platform to roll out quickly innovative solution that fits new user needs. First, we keep expanding our mobile payment offering with 4 launches in 3 new countries in the quarter. Paying with a smartphone is now available in 19 countries through 32 Edenred programs. Our users are adapting fast with innovative payment makers. Then, we are also rolling out Edenred's Direct Payment Services. The payment API is ramping up in France with an increased number of transaction month after month and a high user engagement. In Q2, we started to expand this offer outside France, in Belgium, in partnership with Uber Eats and NESTOR. And we are currently rolling out also in Brazil and Spain.Rolling out these innovative solutions so fast is possible, thanks to our global digital platform, which is a strong competitive edge to boost growth.Let's now have a quick look at some highlights for the quarter on the next slide. In the quarter, you may have noticed that we signed the acquisition of 2 companies: the first one, Benefit Online is Employee Benefits -- in Employee Benefits, sorry. It's a pioneer in employee engagement platforms in Romania. This acquisition contributes to build a leading European position in this market, following the acquisition we've made in Italy and in Belgium in the first half of the year, completing Edenred's existing employee engagement platforms such as ProwebCE in France, for example. The second one is EBV Finance in Fleet & Mobility Solutions. EBV Finance is a Lithuanian company, which specialized in tax refunds for European transportation companies. This operation is totally in line with the group's strategy to grow only value-added services in Fleet & Mobility Solutions. With this acquisition, Edenred becomes the third player of the European market, and we expect to generate strong synergies by joining EBV Finance and our existing business, Nikosax. This operation is expected to close at the very beginning of January next year.Then, at the beginning of September, we've closed and launched our exclusive partnership with Itaú Unibanco in Brazil. Itaú Unibanco, which is the largest privately held bank in Brazil will now exclusively distribute Edenred's Employee Benefits in this country. We expect a progressive ramp-up of the partnership throughout 2020.I will now comment total revenue figures on Slide 6. So total revenue, which is composed of the operating revenue and the other revenue, formerly known as financial revenue, grew at double-digit in both like-for-like and reported figures in the quarter, up 13.8% and 20.7%, respectively. This quarter is in line with the H1 trends, leading to a total revenue year-to-date of up 14.3% like-for-like and 18.1% as reported. Scope effects has been positive, plus 6% in Q3 and plus 5% year-to-date.Regarding our currency impact. It has been a slight plus this quarter, at plus 0.8%, but leaving the year-to-date effect negative at minus 1.2%. Venezuela effect is not shown on a reported basis year-to-date.Let's now focus more on the operating revenue on Slide 7. Year-to-date operating revenue amounted to EUR 1,125 million, which represent a strong 14% increase on a like-for-like basis. Following then from the strong start to the year we had in H1, we posted again a sustained double-digit level of growth in Q3, up 13.2% like-for-like. We will see later on that this growth is supported by all geographies and all business lines. On a reported basis, the growth reached 18% year-to-date, reflecting, firstly, a positive scope effect. Indeed, the acquisitions signed and closed over the last 12 months added EUR 49 million over the period or 5.2%. It includes mainly CSI, which is a leading provider of automated corporate payment platform in North America; The Right Fuelcard Company, which is a U.K.-based player in Fleet & Mobility; and some employee engagement platforms in Europe in the Employee Benefits business lines such as Easy Welfare in Italy, for example. Even if we had a slightly plus 0.7% positive currency effect in Q3 over the 9-month period, we continue to see a negative currency effect of minus 1.2% or minus EUR 11 million, mainly due to the Brazilian real devaluation for EUR 5 million; the Argentinian peso devaluation from EUR 9 million and some negative impact from other currencies despite a EUR 4 million positive impact related to the Mexican peso.So now let's have a look on the growth by business lines on Slide #8. As you see for the first 9 months of the year, the group is posting double-digit growth rates in these 3 business lines, both like-for-like and reported. Nine months 2019 operating revenue for the Employee Benefits business lines came to EUR 699 million, representing 62% of the consolidated operating revenue and growth of 13% as reported and 13.5% like-for-like. In the third quarter, Employee Benefits grew 11.9% like-for-like and 14.7% as reported, reflecting the strong organic performance and also the integration of several employee engagement platforms in Europe. These innovative digital solutions aim to improve employee retention, motivation and purchasing power. They open up significant growth and cross-selling opportunities for Edenred, notably in Europe where this remain a fairly new market.In the Fleet & Mobility Solutions, which now accounts for 26% of the group business, operating revenue rose by 15.1% like-for-like or 20.3% as reported in the first 9 months of the year to EUR 296 million. In the third quarter, this business line grew by 22.3% as reported and 14.6% like-for-like in a still largely untapped market. Edenred is benefiting from the swift ramp-up of new solutions around toll payments, light fleet offering or NFC tag payment solutions. Reported figures includes also the performance of U.K.-based, The Right Fuelcard Company, consolidated since January this year.The Complementary Solutions business line, which, I remind you, encompasses Corporate Payment Services, Incentive & Rewards and Public Social Programs, generated operating revenue of EUR 131 million for the 9 months, up 45.8% versus last year. This increase reflects both solid 14.7% organic growth, notably driven by the ramp-up of Corporate Payment Services, and the contribution of CSI consolidated as well as in January this year. I will now comment the growth in the different geographies. Please turn to Slide #9. Before commenting more precisely Europe and Latin America, it is worth noting that the sustained growth for the first 9 months of the year came from all regions, with double-digit growth both on a like-for-like and a reported basis. All in all, a pretty homogenous organic growth across the board both in terms of region and business lines.Let me now give you more details on our 2 main geographies, starting next slide. So first, in Europe, which now represent 56% of group operating revenue. Year-to-date reported growth is 16.4% compared to the previous year period, again, including the contribution from recent acquisitions in the Employee Benefits and in the Fleet & Mobility space, of which TRFC, in the U.K.; Easy Welfare, in Italy; Merits & Benefits and Ekivita, in Belgium. Like-for-like operating revenue also registered double-digit growth, up 12.9% in the first 9 months of the year with double-digit organic growth in both Employee Benefits and Fleet & Mobility Solutions. The like-for-like growth is up 11.7% in the third quarter. In France specifically, operating revenue rose 8.8% like-for-like year-to-date, including 9.2% like-for-like growth in Q3, with robust growth in Employee Benefits, where continuous innovation helps to enhance the user experience and win over new clients, notably in the SME segment. We count now more than 1 million Ticket Restaurant cardholders in this country, which can access innovative features such as mobile payments and direct payments on meal delivery platforms. French Fleet & Mobility Solutions are also well ramping up with light fleet offers.In the Rest of Europe, Edenred posted a sustained growth up 14.8% like-for-like year-to-date and 12.7% in the third quarter, reflecting the higher penetration of Employee Benefits and Fleet & Mobility Solutions in all countries across the region, and notably, in the SME segment. The growth is also being fueled by the development of new products and services such as employee engagement platforms and Fleet & Mobility value-added services, such as toll payments.Let's now move on to Slide 11 to look at the Latin America trends. In Latin America, for the first 9 months of the year, operating revenue was up 14% (sic) [ 14.7% ] like-for-like and 12.3% as reported. The strong performance reflects an overall robust performance, again, in both Employee Benefits and Fleet & Mobility Solutions. In Brazil, operating revenue rose by 12.4% like-for-like in the first 9 months of the year, taking into account a 12.7% like-for-like growth in the third quarter. In Employee Benefits, the recovery observed since Q2 2018 is confirmed quarter after quarter, in an environment where unemployment remains high. In addition, Fleet & Mobility Solutions are enjoying good business momentum in a still relatively untapped market, where Edenred is enhancing its offer with new product initiatives such as toll payment and vehicle maintenance solutions.In Hispanic Latin America, operating revenue climbed 20.5% like-for-like year-to-date and 20.7% in Q3. This strong growth reflects good sales momentum in both Employee Benefits and Fleet & Mobility Solutions. In Fleet & Mobility Solutions, the group is also successful in rolling out innovative solutions in several countries in the region, such as the payment by NFC tag. That said, it's worth pointing out that in Q4, the group should face a tough comparison basis in Hispanic Latin America. Indeed, the like-for-like growth in Q4 2018 was plus 22.7% versus 2018 9-months period like-for-like growth at plus 16% due to a particularly strong Navideños campaign last year. And in addition, you have to take into consideration the fuel price effect that, at current level, may be a drag in Mexico especially.Let's now have a look at all the other revenue, formerly named financial revenue, on Slide 12. Other revenue came to EUR 45 million, up 22% like-for-like and 20.8% as reported. The increase was partly related to the business volume increase, reflecting the strong growth momentum in the group various business lines, but we haven't -- but we have seen also a slight rise in interest rates in certain European countries outside the eurozone since the beginning of the year. Lastly, other revenue benefited from a favorable basis of comparison.Let's now move onto the outlook for the year-end on Slide 14. So for the end of the year, we will continue to enhance our global digital platform, hence enabling both better performance and faster innovation to generate sustainable and profitable growth. Based on the performance over the first 9 months of the year, we see some sustained growth in all region and in all business lines in Q4, leveraging Edenred's business excellence and innovation capabilities. We will also continue to work on the ongoing integration and ramp-up of the recent acquisitions and partnerships. This enable us to confirm our annual targets in the next slide, i.e., for the full year 2019, we are confident in outperforming our medium-term organic minimum growth targets for operating revenue, operating EBIT and FFO of more than plus 7%, plus 9% and plus 10%, respectively. We also confirm our 2019 EBIT target of between EUR 520 million and EUR 550 million.Thank you very much for your attention, and I am now happy to answer your questions.
[Operator Instructions] We have one first question from Mr. Mourad Lahmidi from Exane.
I have 2 questions, please. The first one, on the guidance range. You notify in the release that it's paid on the Brazilian real at closing rates end of June. What would be a guidance range consistent with the current exchange rate? That would be my first question. And the second question is what was the organic growth at CSI during Q3?
Mourad, well, coming back to your first question, yes, indeed, we've taken into account in the guidance we've set up for the whole year the Brazilian reais FX as of the end of June. Having said that, I said that the worst is between us now. And as you mentioned, we have a positive impact in Q3 regarding the Brazilian reais. And when we look at how this currency should evolve in the last part of the year, our view is that it will not change a lot in Q4. So this has a slight negative impact in -- regarding the guidance we've given to the market. Nevertheless, as I said before, it is not so important that we have to change the guidance we've given due to the market impact.Your second question was around organic growth in CSI. Well, I do not want to give you precise information about that. What I can tell you simply is that we are well underway in the integration we have with CSI. We are happy with the way we have integrated the business. We are happy with the fact that the team are working together, meaning that we have a good retention of the key people of CSI, and they are working closely with the 2 managers coming from Edenred Group. They're working with them. Regarding the financial performance itself, we are in line with expectations -- with our internal expectation as of the end of September this year. And we will continue to invest in commercial developments in order to grow the business additionally and to put in place a new indirect distribution channel especially.
Next question is from Mr. Rajesh Kumar from HSBC.
Just looking at CSI in the integration stage, what are your initial impressions in terms of reach or geography? Can you expand its services or additionally provide a similar kind of service? Can you give us some color on the opportunity set there? The second question is just on the French growth. Pretty solid growth coming out there. Can you give us some idea on the contribution of the light fleet offering? How much incremental growth of those 9.2% is coming from light fleet versus the rest? Just an order of magnitude would help. I don't need precise numbers. And finally, on Rest of Europe, is there a meaningful difference between Employee Benefits and Fleet & Mobility growth?
Okay. Thank you for your question. I'm not sure if we have totally understood your first question. It was around the opportunity of CSI to grow the business additionally outside U.S.A.?
Absolutely. Yes.
Yes. Okay. So I think that we have to stay focused and pragmatic. We have to stay humble as well in order to grow this Corporate Payment business. And the real knowledge of CSI is around U.S.A. and Canada. And on top of that, I'd like to remind you that we see a huge opportunity in this market, which is largely underpenetrated with this kind of solution. It's important to keep in mind especially that roughly 2/3 of the corporates are paying other corporates using bank checks for the time being. So probably in the next couple of semester, we will stay focused in the U.S. and in Canada around the specific knowledge of CSI. Let me remind you as well that Corporate Payment Solutions has been started organically at Edenred 3 years ago. And we started in Europe. We've launched some different solutions in Europe. We have fast -- we have quickly new successes, commercial successes with large contract that takes time to be ramped up successfully such as IATA, Foncia or Jumia Travel, for instance. So on top of this North American business, we have as well other opportunity to grow this Corporate Payments business mainly organically in Europe and in Africa.Regarding the French growth, what is important is that we have a very strong growth coming from, let's say, the legacy businesses, i.e. Ticket Restaurant, which still benefits from the innovations we are granting to our final users; and as well as ProwebCE, which is probably the first important employee engagement platform we have acquired and developed. So those 2 businesses are very strong in the first 9 months of 2019, in Q3 especially. And regarding the light fleet solution. It's a pan-European offer. We are building our successes around the assets we have acquired through the UTA acquisition some years ago. UTA, at the beginning, was merely focused on heavy fleet business, and we are growing out this business locally in Italy and in France by launching light offer solutions on top of the UTA pan-European solutions in the different countries. So it's a good start in France. We are very happy with that. And the market is pretty -- is largely untapped as well for this kind of solutions. But for the time being, even if in terms of growth, it's quite small, we are -- it has to be considered as a nonsignificant on the whole perimeter of the French activities -- I mean it's quite insignificant for Edenred's French activities. And then you have to keep in mind that we have acquired another very successful company in France named LCCC, for La Compagnie des Cartes Carburant, and this company is doing well, both in terms of market penetration and in terms of growth additionally.Your last question was around rest of the year. What can I say in a nutshell is that we don't see many reason that -- to reach a performance which is not as good as what we've done so far, i.e., we've had good disciplines in all geographies and in all business lines. Generally, we see, over the long run, more growth in the underpenetrated Fleet & Mobility Solutions than in Employee Benefits. So to a certain extent, probably the growth should continue to be slightly higher in the Fleet & Mobility Solutions. And then as I said during the presentation, we have to keep in mind that we will have a less favorable comparison basis in Latin American in Q4 when we posted such a strong growth here in Q4 2018 that the additional growth in Q4 2019 should be slightly lower than what we have posted so far.
Next question is from Mr. Paul Sullivan from Barclays.
Just 2 for me. Just to clarify on that, Patrick. It sounds like you're still targeting double-digit growth across Europe in the fourth quarter, and that's despite the lack of trading day benefit and the tough comp. So what is -- I mean I know what's roughly driving that. But in terms of the pipeline of client sign-ups and the client sign-ups you've had over the last 3 months, is there -- how does that impact the sustainability of growth and your thinking about the sustainability of growth going into next year? That's the first question. And then you talked about sort of the fuel comp in Mexico in the fourth quarter. It looks to me that fuel has been a little bit of a headwind over the last 3 to 6 months across Latin America and Brazil as well. How are you -- yet the growth has remained very strong. How have you sort of adapted the model? And is the fuel price less of a driver than it was?
Well, regarding the pipeline we have in Europe, we are quite confident about the fact that, on one hand, we are benefiting from the digitalization of our solutions in Europe. You remember especially that in Latin America, we are almost fully digitalized whereas, in the contrary, in Europe -- in many European countries, we are still on to move. So that's a big opportunity for us to make a difference, to make a difference against some of our competitors, and then to bring additional and innovative feature to the final user, in fact. And that, for me, is the main explanation around the growth in Europe. Plus the fact that in Europe, like in the Rest of the World, we are really successful in targeting better the small and medium enterprises, in fact. So it's difficult at this period of time to give you a precise guidance or ideas or estimation on the embarked growth for 2020. But having said that, I think that the same process will bring the same effects, meaning that we will continue to have a strong growth, especially in the Employee Benefits next year.Regarding the fuel impact, you remember, indeed, that we are -- we have a higher exposure in Latin America than in our European operations for the Fleet & Mobility Solutions to the current fuel price. Yes, indeed, it has been a headwind so far in the 9 first months of 2019 compared to 2018. But if we take into consideration the current fuel price, the fact that it may have a negative impact will continue for sure in Q4 this year, especially in a country like Mexico. And I have in mind this estimate because we continue to de-risk the way we are investing our clients from the fuel pump price effect in a large country such as Brazil. It's almost -- we are happy with the proportion of exposure we have already in Europe. But to stay focused on Latin America, we continue to de-risk in Brazil. We are doing so as well in Mexico. But for the time being, the proportion of our invoice that are directly linked to the fuel pump price is still quite high in Mexico. And that's one of the reason why I anticipated the fact that Q4 growth should be less in this business especially than what we have posted so far.On top of the fuel price impact and effects, I like to point out as well the fact that, as you know, we have beyond the fuel strategy in the Fleet & Mobility Solutions, meaning that we want to grow the other businesses around the usage of the fuel card or fuel devices. And that's the reason why in Mexico, like in the other Latin America countries, we continue to deploy successfully other solutions, other services such as toll, access to cleaning stations or maintenance, for instance. And this is a pretty successful strategy.
Okay. Great. And maybe just one follow-up. Can you -- are you still on track for 20% organic in CSI for the year?
It's a bit too soon to say. We're happy with the commercial performance. Let me remind you as well that this is not a guidance we have given for the year 2020 -- year 2019, in fact, which is a year of integration. Our view is that 20% is the long-term, so growth perspective, in fact. And yes, we are happy with this long-term perspective -- growth perspective
Next question is from Mr. Simon LeChipre from MainFirst.
Three questions, please. First of all, in Brazil, so if you could give us some more color in the performance of Employee Benefits in the quarter and how it has evolved compared to H1. So of course, if you have any lever of growth to share, that would be great. Second question, on TRFC, if you can share with us your thoughts around how the integration is going on and where the performance stands so far compared to your own expectations. And lastly, financial review, what are your first expectations for next year? And it is it fair to assume that it should continue to increase?
Well, regarding Brazil, we have a good mix between the different solutions between Employee Benefits and Mobility. Employee Benefits remain the biggest business in Brazil, but Fleet & Mobility Solutions and Complementary Solutions continue to grow slightly faster, in fact. I can't -- I do not want to disclose specific growth percentage between 2 businesses. But what is important to say is that for the Employee Benefits in Brazil, we are exposed to the unemployment rate, as you know. And the truth is that we are benefiting from a slight recovery of the economy. We are benefiting from a progressive recovery of the economy, which is a good news. The bad news is that the unemployment rate does not decrease sharply, in fact. We have seen around 11.9% currently, far below the expectation -- I mean the government expectation, and we have to cope with this situation. Regarding the next quarter and the next year, I think that we have to be cautious about this recovery as well. Because as you may have seen, when you look at the GDP, the estimated growth is less than what has been expected, just a 1/3 of Mr. Bolsonaro's election, in fact. So overall, a recovery, probably a progressive and steady recovery, but the performance we cannot post. It will be -- it will continuously be more explained by how we can improve our business, how we can especially benefit from the Itaú Unibanco partnership rather than the pure and economic cycle. Regarding TRFC, we are very happy with the integration. We are as well very happy with the performance of the company, which is above our expectation, in fact. The company is already really fully integrated in our group, and we have a good cross-fertilization of the business levers between the companies inside the Fleet & Mobility business line. This company is really strong in marketing and selling of fuel cards on the British markets and is kind of now is currently deployed in other Fleet & Mobility subsidiary in the group. And the other way around, we are deploying some of our good or our best practices in TRFC as well. Regarding financial revenue. My view is that we have a floor overall on the financial revenue, or what we call other revenue now, in 2018. So as we've seen, 2019 is higher than what we posted in 2018. My view as well is that we have to remain cautious for the future because we are leading in an environment where interest rates in the eurozone, of course, but as well in other parts of the world may continue to decrease. So in Q3, as I said, we were benefiting from increased interest rates in countries like U.K. or Turkey, for instance. But when it comes to estimate how we can -- how the interest rate should evolve in the next coming years, I think that we have to be cautious about those interest rates. Plus the evolution of the Latin America interest rate as well are currently going down. So we are safeguarded because we hedged some of our interest rates. So short term, a strong impact on that, but we have to be cautious about the long run. And then last comment about that is that the other part of the equation is the float, and the good news is that we continue, of course, to increase the float in the different parts of the group. So this is a very strong news flow for the next coming year, of course.
Okay. And just a very quick follow-up on Brazil as you mentioned Itaú. Can you remind us the impact you expect at full speed from this partnership?
It's probably a bit too soon to give you a precise of that -- about it, in fact. Because as you know, we have announced the deal last year, but it came into force recently in September this year because in the meantime, we have to go through the antitrust and the local central bank regulation to obtain their approval about that, in fact. It starts well. We have a very good collaboration between the 2 large organizations. So we don't see any reason why we should not meet the objective we have announced when we set up this agreement. And when we announced this agreement last year, that it will probably take a long time to ramp up in fact. Overall, the only guidance we've given to the market a long time ago is that when the ramp-up is finished, when we are fully live, this should lead to an additional 1% of overall consolidated growth at group level, in fact. But it will take some time.
[Operator Instructions] We have another question from Mr. Mourad Lahmidi from Exane.
I have a follow-up one. On a pro forma basis, can you give us an idea of the size of your employee engagement business now that you have made all the acquisition? And what should we expect in terms of organic development in this area?
Well, Mourad, thank you for this question. My proposition is that, as you know, as far as we have an important meeting next week with the Capital Markets Day. This will be probably -- very probably properly covered during this day. So I'd like to propose you to be a bit -- to wait for us, to wait for the next weeks to give you a good insight about this growing business at the year-end.Well, if there is no -- Sorry?
Sorry. There is no more other question. Back to you for the conclusion, sir.
Okay. Thank you. So it is now time to end this call. I would like to thank you for joining. I'm looking forward to seeing you at our Capital Markets Day next week for those who will join. As you've understood, we are very happy with Q3, and we are quite happy with the trends that we see around our different business lines, in all our geographies in order to post a solid and sustainable growth for the full year 2019. Thank you very much.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.