Pluxee N.V. (PLX) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining us today for Pluxee's First Half Fiscal Year 2024 Results. I'm Pauline and I'm Pluxee's Head of Investor Relations. I'm very happy that you're all here today with us for our first set of financial results as a standalone listed company. So today, we're joined by our CEO, Aurélien Sonet; and our CFO, Stephane Lhopiteau. Here is our agenda for the call. Our CEO will start with the highlights and key figures for the first half. This will be followed by a business update. And our CFO will take you through our financial performance in more details before our CEO provide you our fiscal year 2024 annual term outlook. And with that, I will hand over to Aurélien.

Thank you, Pauline, and good morning, everyone. It is my pleasure to be with you this morning to present our first results as a listed standalone group. I'll start by taking you through the highlights and key figures for what has been an exciting period for Pluxee. Last February, we successfully panned out from Sodexo and listed on Euronext, where we now have been trading for over almost 3 months. This semester has seen the first step in our strategic execution and delivery with new client wins and net retention on track with our full year objectives. We recorded plus 24% organic revenue growth in the first half with strong business performance across all regions, and solid improvement in recurring EBITDA that continued to increase while absorbing new standalone costs. Our cash position is stronger than ever, fueled by a solid free cash generation. Over the period, we've also successfully refinanced our debt through bond issuance, and our financial strength has been confirmed by a BBB+ rating from S&P. Based on the strong financial performance delivered in the first half, we're raising our fiscal 2024 financial objectives. Organic revenue growth is now expected between 15% and 17%, and recurring EBITDA margin at 35% at least, absorbing standalone costs at constant rate. In addition, we're reaffirming our midterm financial objectives that we presented a few months ago during our Capital Markets Day. Let's now turn to our financial performance highlights for the first half fiscal year 2024. I'm pleased to say that Pluxee's business momentum and strong financial performance continued in H1 fiscal year 2024. We recorded total revenues of EUR 593 million. This represents plus 24% organic growth year-on-year and has been driven by a very positive business momentum across all regions and especially in some of our key countries such as Belgium, Romania, France and Brazil as well as a favorable macro environment. Recurring EBITDA stood at EUR 201 million with a solid improvement in recurring EBITDA margin, increasing over the period by plus 90 basis points at constant rate, while absorbing new standalone costs. And our free cash flow generation reached EUR 228 million, corresponding to a cash conversion rate of 113%. This includes a slightly higher level of CapEx as a result of the strong investment path in tech and data, while benefiting from the good momentum in revenue. Let's come back quickly to our main achievements through the journey towards the spinoff and listing of Pluxee. The last 12 months has been a period of profound transformation for Pluxee, culminating in the successful spinoff and listing. We've transitioned from a business unit of Sodexo to a fully independent company, supported by a strong and experienced Board and leadership team. This was possible, thanks to the hard work of all our colleagues, both at Sodexo and Pluxee, for which I'd like to congratulate and thank them. From here, we've successfully refinanced our debt through inaugural bond issuance, which was well described, and we've strengthened further our leadership team and geographic governance to accelerate the execution of the strategic plan and deliver our midterm ambitious financial objective. This includes the recent appointment of Alexandre Cotarmanac’'h as Chief Product Officer to drive further enhancement of our global product offering as well as the implementation of enhanced geographic governance and the appointment of Chief Revenue Growth Officers. We'll now move to the business update, starting in the next slide, which recaps the 6 strategic initiatives we talked about in the recent Capital Markets Day. Our performance in the first half of the year gives us confidence in our long-term success, and we're on track to deliver on the 6 strategic initiatives presented at our Capital Markets Day. Let me briefly remind you of what we presented in January. First, we're elevating our offer to clients and consumers, and we're addressing their needs through a wide range of employee benefits, which we're rolling out programmatically wherever it makes sense to do so. Next, we're reinforcing our win-win partnerships with the merchants by boosting their revenues and enhancing their experience, bringing them more value-added services. Third, we're scaling opportunities in employee engagement, reward and recognition. This large and growing market is driven by the need of companies to offer enhanced employee experience beyond collective benefits. Fourth, part of our focus is on acquiring new clients. This is driven by our powerful commercial engine, where we apply a segmented and personalized approach to drive conversion and SME penetration. Increasing face value is an important level to unlock the full potential of our existing clients. We leverage data and consumer analytics to advise our clients on how they can optimize their output, while maximizing purchasing power for their employees. The second element is cross-selling, leveraging our broad benefits portfolio to increase the business that we do with our clients. Our elevated value proposition to our clients will continue to help us optimizing our pricing going forward. Last but not least is driving profitability. Our target is to deliver 250 basis points of EBITDA margin improvement by fiscal year 2026. And this is underpinned by scale and operating leverage. And now let's look on how we've delivered on this initiative over the first half of the year, starting with our success with new clients. We're well on track to meet our new client gain and objective for the full year of more than EUR 1.3 billion. In the first half, development reached more than EUR 850 million in annual business volume at constant rates. It was up 30% compared to the same period last year, and particularly strong in Continental Europe, such as Belgium, Romania and France as well as in Brazil. As an example, in Romania, we've been awarded a new multiyear contract aiming to reward teaching staff with an attractive annual benefit package. This program will reach more than 300,000 beneficiaries in total. We're also progressively delivering on our growth ambition towards small and medium-sized enterprises, with over 40,000 new SME opportunities signed over the semester and a contribution to development from new SME clients of more than 25%, putting us on track to meet our plus 30% target for fiscal 2026. Now let's look at how we've started unlocking the potential from our current client base, making further progress in retaining, expanding and monetizing existing relationships. In the first half, we recorded net retention rate above 102%. This is ahead of our midterm objective. To remind you, net retention is a function of claim value, cross-selling and further portfolio growth. And I'm pleased with our progress over the first half across all 3 drivers. I'm particularly pleased of our high client retention in what is a very competitive environment. We've renewed contracts worth over EUR 1.7 billion in annual business volume with our multi-offering solutions continuing to drive client loyalty. If we take Belgium as an example, we were able to leverage a new government measure supporting purchasing power to develop and deploy a new benefit program to existing and new clients. Supported by an extensive digital marketing campaign, we were able to deliver an additional EUR 150 million of business volume in H1. We also continue our efforts to drive cross-selling with both clients and merchants. For example, we took advantage of the Christmas gift campaign in Poland to cross-sell meal benefit programs across our large in-store gift client benefit -- gift benefit client base, and we'll further build on this effort this year. Another example, this time in Colombia, where we cross-sold advertising campaigns to half of our local affiliated merchants, enabling them to boost visibility and consumer traffic. Beyond client wins, retention and cross-selling, the increase in average face value also contributed to a strong growth in H1 fiscal year 2024. We've seen continued increase in average face value over the semester, of course, benefiting from sticky inflation, but also driven by our digital marketing and commercial efforts. Over the semester, we recorded more than EUR 600 million in business volume issued from increases in average face value, putting us on track for our cumulated fiscal 2024 to 2026 target of over EUR 3 billion. Our impactful data-driven sales and marketing campaigns have been successfully deployed to advise clients on their face value contributions. This was combined with an increase in the legal face value cap across 14 countries. As of today, we estimate that we've now reached between 70% and 80% of the legal face value cap on average. If we look specifically at Romania, we've seen a record increase in the average face value in the first half, with successful -- with successive increases taking the legal cap from EUR 6 to EUR 8. This has been monetized by a strong data-driven marketing and sales campaign across our client base, deploying a segmented approach by client type and by size. As a result, more than 5,000 clients increased their face value contribution, with 77% of the legal cap reached on average. So still much more to go for. We're particularly pleased with the additional level of the face value we've driven over the first half, securing embedded revenue for the future. Our strong business performance goes hand-in-hand with a strong commitment on ESG that I'll present to you in the next slide. As presented during the Capital Markets Day, Pluxee's ESG commitments and priorities are embedded in the execution of our strategic plan. First, we've already started working on a Double Materiality assessment to anticipate CSRD obligations from fiscal year 2025 onwards. We've selected the European Sustainability Reporting Standards that are relevant to our Pluxee's business, and all our countries are consulting their local stakeholders to identify priorities and contribute to our 2030 sustainability vision. That means interacting with our employees and more broadly with clients, merchants, consumers but also suppliers, NGOs and public authority. All this being a great opportunity to receive valuable feedback, and we plan to share initial results during our full year fiscal 2024 results publication. Secondly, let me remind you about our clear action plan to reach Net Zero emissions by 2035. This plan covers the entire value chain and was approved by the SBTi last December. Our first milestone is set for 2025, where our objective is to reach 100% renewable electricity in all our buildings. Several of our countries already switched to renewable options such as U.K., Romania, or Belgium. And lastly, as part of our second strategic initiative, we're constantly looking for new innovative ways to support our small and medium merchants. As such, we've successfully launched in November, a new initiative in France in partnership with Mapstr to promote sustainable consumption behavior. This enhances the visibilty of merchants that -- who offers healthy, inclusive and ecofriendly meal alternatives. And at this stage, more than 15,000 French small and medium merchants are currently listed. And with that, I'll hand over to Stephane to deep dive in our financial performance.

Thank you, Aurélien. Good morning, everyone. It is my pleasure to be with you today to present our first half year results as a listed standalone group. As recalled by Aurélien, growth for Pluxee starts with winning business volumes. Therefore, let's start the financial performance review by the snapshot on such business volume issued. As a reminder, we call it BVI over the first semester. In the first half of fiscal year '24, we recorded overall EUR 12.4 billion of business volume issued, with employee benefit BVI increasing up to EUR 9.2 billion. The circa EUR 1 billion increase on employee benefit represents a plus 12% organic growth over the semester, which has been driven by a strong business momentum in both new client acquisition and portfolio growth, as Aurélien explained. BVI from other products and services decreased to EUR 3.1 billion from EUR 3.5 billion as expected, given the high comparison basis in the prior year period, as a result of significant public benefit programs issued over the course of Q1 '23. The strong growth in BVI has been one of the key contributors to Pluxee's revenue growth over the first half of '24. Total revenues reached EUR 593 million over the first semester, which represents plus 24% organic growth, slightly offset by a negative currency translation effect of minus 2.5%, including the application of hyperinflation accounting to Turkey. Our growth was strong across all regions. Sales growth came primarily from increased activity in Latin America, where total revenues grew organically by plus 27%, supported by buoyant growth and high interest rates in Brazil and Mexico. In Continental Europe, total revenues grew organically by plus 19%, driven especially by Belgium, Romania and France and despite the high comparison basis in public benefits in H1 '23. Turning finally to rest of the world. The region posted total revenues up to EUR 102 million, representing plus 30% organic growth, driven notably by Turkey and India. As you know, with the strength of our business model, Pluxee total revenues are fed by both operating and float revenue as disclosed on Page 17. Over the semester, we saw continuous growth momentum in both operating and float revenues. Operating revenue reached EUR 518 million, with strong organic growth of plus 17%, driven by portfolio growth, including further increase in face value contribution and by net client gain, with an increasing contribution from small and medium enterprises. Float revenue increased up to EUR 75 million, representing plus 97% organic growth in H1 '24. All regions saw an expansion of their float revenue, thanks to continuous increase in the float baseline as a result of higher business volume issued. And thanks to our ability to leverage such float baseline in higher interest rate environment compared to H1 '23. Worth also giving a look at how this H1 high performance in operating and float revenue growth was spread over both Q1 that we already disclosed on the 10th of January and now Q2. Overall, we saw positive momentum all through the first half, with organic growth up to plus 26% in Q2, supported by strong operating revenue growth and by progressive deceleration in float revenue growth. While total revenue grew plus 22% organically in Q1 to reach EUR 266 million, they were up plus 26% in Q2 to reach EUR 327 million. The 2 quarters, benefiting from positive market dynamics across all regions and from a favorable macro environment. Operating revenue grew organically year-on-year from plus 15% in Q1 up to plus 20% in Q2, with almost all our countries presenting double-digit organic growth, boosted by employee benefits. We'll look specifically at the underlying drivers in the next slide. Float revenue grew from EUR 35 million in Q1 up to EUR 40 million in Q2, increasing respectively plus 110% and plus 88% organically. Float revenue growth has started progressively decelerating, reaching a peak in the second quarter, as interest rates are stabilizing at a high level overall and as they're likely to decrease from now on. Before coming back to float revenue details, let's focus first on the underlying drivers of our operating revenue growth. In the first half of '24, we recorded plus 17% organic growth in operating revenue, reaching EUR 518 million, driven by the strong contribution from employee benefits, underpinned by the structural business volume drivers outlined by Aurélien earlier. Employee Benefits operating revenue reached EUR 431 million, growing plus 21% organically over H1. This was first fueled by the 12% organic growth in employee benefits BVI that we've seen before. If we look at the BVI bridge on your right-hand side, you'll see that this came from first, the continuous increase in average face value as a result of the intensive marketing and sales campaigns that were conducted over the period, particularly in Latin America and Continental Europe, and that were supported by increased legal cap labor in 14 countries. Second, the positive development in portfolio growth, boosted by cross-selling to existing clients. And third, the net client wins, including an increasing contribution from small and medium enterprises. Employee Benefits revenue growth was also supported by an improvement in the take-up rate, which is now 5% and representing a plus 30 basis point increase compared to fiscal year '23. Such improvement in the take-up rate came from a strong commercial focus and from the progressive end of negative client commission in Brazil, which came into force in the month of May last year. Other Products & Services generated operating revenue of EUR 87 million in H1 '24, growing plus 4.2% organically compared to H1 '23. Organic growth accelerated in Q2, while Q1 organic revenue growth was impacted by the high comparison basis in public benefits. That is for the operating revenue detail. Turning now to the float revenue details on Page 20. As of February 29, 2024, the float baseline on Pluxee balance sheet top of the page amounted to EUR 2.8 billion, up plus 9% compared to August 31, 2023. We saw continued growth in our float baseline in H1 '24, fueled by the steady increase in BVI and by some residual favorable impact of the change in regulation to the prepaid model in Brazil. Interest rates also increased significantly compared to H1 '23, resulting in an average yield of 5.5% over H1 '24 compared to 3.4% over H1 '23. In the end, fueled by a higher baseline and by increased interest rates, Pluxee's float revenue grew by plus 97% over a semester up to EUR 75 million, having probably reached a highest point. Let's now look at how the strong revenue performance translates into profitability. Recurring EBITDA reached EUR 201 million in H1 2024, up plus 23% year-on-year and plus 28% organically. The 3 regions delivered strong improvement in EBITDA, which was driven by the very good momentum experienced in the float revenue. This translated into the H1 '24 recurring EBITDA margin of 33.9% at current rates, and 34.4% at constant rates, representing a plus 90 basis point improvement compared to H1 '23, well on track with our full year objective. The recurring EBITDA margin, excluding float revenue, was temporarily impacted by additional standalone costs, plus the impact of remaining management fees that were still invoiced by Sodexo over the first 5 months of the semester, as well as by some bad debt reserves in Latin America and also one-off. We're confident in our ability to absorb these additional standalone costs and to drive closer underlying margin improvement going forward, thanks to, first, continuous focus on leveraging scaling effect; second, improved operational efficiency supported by continuous investment in tech and digital capabilities; and third, increased cost effectiveness as we continue to upgrade our internal structure processes and monitoring tools. While revenue and EBITDA are our main performance indicators, I'd also like to walk you through the rest of our income statement. Clear here again that our top line is strong and that our profitability enjoyed overall a stronger trajectory. When looking at the net profit at the bottom, it reached EUR 68 million in H1 '24, a bit lower versus H1 '23. This change reflects mainly the impact of the new capital structure of the group as well as some one-off costs related mainly to the spin-off and rebranding. In more details, also operating income and expenses were minus EUR 41 million in H1 '24 versus minus EUR 3 million in H1 '23. H1 '24 included EUR 72 million of one-off expenses related to the spin-off and rebranding costs, and EUR 11 million in connection with the write-off of specific digital assets related to a partner platform that has been now refocused on 2 countries. Other operating income and expenses are now expected to be around minus EUR 80 million for our fiscal year '24 compared to minus EUR 60 million initially disclosed. The deviation coming from the assets write-off just referred to and from some restructuring costs to come. On this slide, financial results reached minus EUR 10 million in H1 '24 compared to a positive EUR 11 million in H1 '23. Actually, H1 '24 financial expenses increased, following the increase in interest rates and the funding of the new capital structure in relation with the spin-off. As a reminder, EUR 610 million of additional debt were pushed down to Pluxee as of August 31 last year. Overall, the gross borrowing costs over H1, representing minus EUR 23 million, were offset by the plus EUR 23 million interest rate income generated on the group solid non-float related cash position. But the one-off costs mostly related to the implementation of the new financing structure remained in the net balance of our financial results. Given, one, the current interest rates environment; two, the control of our borrowing costs; and three, the new bond issuance, we now expect the financial result to be improved to around minus EUR 15 million for the full year compared to minus EUR 20 million initially provided. Finally, income tax amounted to EUR 42 million in H1 '24 based on an effective tax rate projected for the full year of now 38%. Such 38% effective tax rate for fiscal year '24 particularly reflects the top level -- higher level of other operating expenses in relation to the spinoff, and to the write-off of specific digital assets, which cannot be offset against taxable profit. Going forward, we expect the effective tax rate to normalize at around 38% in the coming years. After this full review of our H1 P&L, time to move to our high level of EBITDA came also with strong cash generation. In H1 '24, we delivered, bottom of the page, a recurring free cash flow of EUR 228 million compared to EUR 265 million in H1 '23, when excluding the impact of sales of receivable, which used to happen under the previous holding by Sodexo. Back to the top, just below EBITDA, capital expenditures reached EUR 68 million in H1 '24, corresponding to a CapEx to revenue ratio of 11.5%. We took benefit of the revenue momentum to invest further in our tech and data capabilities, resulting in a plus 28% increase in CapEx compared to H1 '23. We expect the CapEx ratio to progressively settle down in the coming years to our objective of 10% of revenue. The change in working capital was a contribution to cash flow for EUR 158 million in H1 '24, in line with the EUR 150 million in H1 '23, when excluding the sale of receivable completed under the facility employed by Sodexo, but that would no longer use. All this has resulted in a strong cash conversion rate of 113% in H1 '24 compared to 163% in H1 '23 adjusted for the transfer of receivables. Of course, this strong cash generation has directly contributed to the strong improvement of our net cash position. Right-hand side of the chart, our net financial debt position as of February 29, 2024 was actually the net cash position standing at EUR 1.065 billion, excluding restricted cash, meaning a strong improvement versus the EUR 859 million as of August 31 last year. This increase reflects the strong free cash flow we've just seen, as well as a proceeds received from disposal, mainly the sale of our minority stake in ePassi. Such inflows from the free cash flow and the disposals were partially offset by the outflow from the OIE expenses related to the spin-off and rebranding costs. Last our net debt position, again, net cash, was also impacted by standard noncash items, namely, first, some accrued interest, not yet cashed out within the free cash flow or the increase in lease and liabilities in connection with our new [indiscernible] all included in the category others; second, the impact of foreign exchange translation on cash position and -- in our countries. Finally, before handing over back to Aurélien, let's also look at our updated capital structure and financial profile. As of February 29 of this year, our EUR 1.065 billion of net cash position was made up, first, as highlighted with the big capital letter, almost EUR 2.3 billion of cash when excluding EUR 1 billion of restricted cash from the EUR 3.3 billion total cash balance at the top. Net of second, as highlighted with the big capital letter, EUR 1.2 billion of gross debt when accumulating all the borrowing lines. As mentioned before by Aurélien, in the early days of H2 and in order to refinance the bridge loan at a lower cost and for a much longer maturity, Pluxee successfully issued new bonds for an aggregate amount of EUR 1.1 billion structured in 2 tranches. EUR 550 million issued with a 4.5-year maturity and a 3.5% coupon, and another EUR 550 million issued with an 8.5-year maturity and a 3.75% coupon. As part of this bond issuance, Pluxee's strong financial profile was confirmed with a BBB+ rating and a stable outlook from S&P. The improvement in our net cash position as of the H1 and the success of our bond issuance in the beginning of H2, make such profile even stronger as of today. Thanks for your attention, and I'm now handing over to Aurélien to provide you with an update on our outlook and with closing remarks.

Thank you, Stephane. Our Capital Markets Day last January has been the opportunity to present to the market our annual and medium-term financial objectives. We've built to reflect our focus on delivering sustainable organic revenue growth, improving our recurring EBITDA margin and maintaining strong cash conversion level. Based on this strong set of half year results, we've decided to raise our financial objectives for the fiscal year 2024. Organic revenue growth is now expected between 15% and 17% from low double digits. Business momentum should continue over the second half, supported by our strong pipeline and sales and marketing efforts, while facing higher comparison basis, especially in Q4. As such, we expect to generate double-digit targeting growth in operating revenues for the full year, as well as still high gross inflow revenues, even if decelerating in H2. Recurring EBITDA margin should reach at least 35% absorbing standalone costs compared to at least 34.5% at constant rate. Our midterm financial objectives remain unchanged. We reiterate our ambition to reach low double-digit organic revenue growth of fiscal 2025 and 2026. Circa 37% recurring EBITDA margin in fiscal 2026 and above 70% cash conversion on average of fiscal 2024 to 2026. To conclude, we're very pleased with this very strong set of results, it's a first step in our strategic execution and delivery. The broad-based 26% organic revenue growth that we've just reported in Q2 reflects the strong attraction of our business and the dynamism of our local markets. It has allowed us to form continued investment while delivering margin improvement. Last but not least, our cash position is stronger than ever, fueled by solid free cash generation, giving us the ability to fully realize our organic and inorganic growth ambitions. Over the last few months, I've been lucky enough to visit our businesses and localities, and I can see the energy and the enthusiasm created by the spirit of Pluxee. It is really the start of a new growth chapter. All these underpins our confidence in successfully delivering our short- and midterm objectives. And with that, with Stephane, we'd be happy to take your questions.

[Operator Instructions] First question comes from Mourad Lahmidi of BNP Paribas.

Yes. And congratulations for this probably very strong quarter. So I've 3 questions on my side. The first one is on the guidance. So it seems to imply low double-digit growth for the rest of the fiscal year. So I'm just wondering, is there any element for you to expect a slowdown in H2 relative to H1? Second question is on your like-for-like growth for Q1 actually that you showed in the H1 release. It seems that you've restated this like-for-like growth in Q1 compared to what you published previously. So I'm just wondering what was -- what has driven this restatement? Finally, a question on the write-off of digital assets. Could you please give us some details about the nature of this write-off, driving the upgrade in the one-off costs?

Thank you, Mourad. So we'll start with your first question regarding the guidance. What we said is that we expect the business momentum that we've seen in H1 to continue over the second half. And again, this is supported by our strong pipeline and our successful and fruitful sales and marketing efforts. But we also -- I mean we'll face a higher comparison basis, especially in Q4. And Q4 last year was very strong, especially due to the first impact of the evolution of the law in Brazil. So that's why, I mean, we expect for the full year to generate a double-digit targeting growth in operating revenue. And overall, we've been able to raise our guidance for the total revenue growth that we now expect between 15% and 17%. Regarding the second question, Stephane, maybe you can take that.

Yes. So on this one, so we did not restate our reported figure. Our reported figure remains the same. But we restated the way we externalized organic growth. And basically, our Q1 reporting underestimated organic growth in connection with Turkey. So we changed the way we externalize this organic growth to be consistent with market practice. So there is no specific accounting guidance on the way you record or you report organic growth, but there is market practice. And basically, I don't want to come into too many details. But when you look at the country under hyperinflation in our case, Turkey, if you think about the way this country report its figures in local currency first. So the growth, in terms of local currency, is driven by increases in volumes. In our case, no more [indiscernible] by inflation, local inflation and by the application of the consumer price index, which leads the books to be upgraded all along the year, applying this index. So we don't -- we disregard this application of the CPI. But in the first Q1, we also disregarded the local inflation, and we only recorded for the increase in volumes in terms of organic growth, which is not consistent with market practice. And in our case, when you think about our business, when the objective of our sales force is to go to client and to record increase in face value, you absolutely need to reflect inflation impact, because this is also the objective of our sales force to get price increases. So this is why we restated, again, we did not change anything in the reported figures, we changed the way we record organic growth, which is a way to externalize the variance between the 2 years in order to make it closely to the reality of business.

Thank you, Stephane. And regarding your last question, Mourad, regarding the write-off of digital assets, actually, since we started our digital transformation, so back to 2018, we've started developing our own digital assets that we mutualize at global level. And now having those our own digital assets, it has made redundant in some countries, some specific digital assets that we developed in partnership with a technological platform provider. So we decided to recenter the deployment of those specific assets in only 2 countries and to focus on the development and the deployment of our new -- I mean, our new global and proprietary asset in the rest of countries where we operate. So that's why we made this write.

The next question is from Johanna Jourdain of ODDO.

Yes. Three questions as well. So the first one regarding the partnership with Santander in Brazil. Could you please update us on where do you stand? What are the next steps? And when can we expect to see some contribution from this partnership? My second question is regarding the M&A pipeline. Could you please revert on your M&A pipeline and your level of appetite in the current context? And my third question is regarding the external processing costs. What is the trajectory that we expect over the coming years coming from about 30% of the current cost base being processing costs, external processing costs? Where do you see that coming after a few years?

Thank you, Johanna, for your question. So regarding the partnership with Santander in Brazil. So we're still waiting for the final approval of the Central Bank. And it should happen over the summer 2024, of course. And therefore, we expect the first positive outcomes of this partnership to be materialized on fiscal year '25. Regarding M&A, so we said it during the CMD, M&A will clearly enhance our key strategic initiatives. It will help us accelerate the execution. And our M&A strategy is focused on the employee benefits and engagement market with 3 objectives: acquiring additional volume to reinforce Pluxee's market share; second, broadening in our offering and product portfolio; and the third objective would be to enrich our tech capabilities, still by partnering with innovative companies. And again, we'll be very targeted and disciplined in our approach to M&A. Having said this, we currently have a pipeline of active projects that are in various stages of development. Obviously, I mean, for obvious reasons, we cannot comment more, but this is where we stand as we speak. And for the last question, Stephane, regarding the processing costs.

So regarding the processing cost and the percentage of such processing cost to revenue. So first of all, and you will understand it, Johanna, we don't guide specifically on this ratio. We guide globally on the the EBITDA margin. What I can tell you is that this external processing costs are the most variable cost we've in our income statement, but they depend more on business volume issued rather than on revenue per se. And we, of course, have the target to optimize, even though they're variable. To optimize them as much as possible is leveraging all our investment in tech and data capabilities.

And maybe to add on what Stephane just said, there is this project in France to digitize, to put an end to the paper. So we're currently involved in the discussion in the reflection with the French government and all stakeholders that are contributing to the system, and we're working together on how to modernize the best way, the meal benefit system and the digitization, the full digitization at the heart of it. And it will help us, of course, I mean, optimize our processing costs in France. And....

The next question -- I apologize sir. The next question is from Julien Richer of Kepler.

Yes. A few one for me, please. You talked about the operating EBITDA margin evolution during H1. Is it possible to quantify the different moving parts? What has been the impact of Sodexo management fee, the standalone costs, et cetera? And how you see, maybe not a guidance, but what kind of potential you think exists on that line going forward? Another one on the float revenue, what kind of investment vehicle do you have? I mean do you have investments in short-term or longer-term assets that might enable you to maybe mitigate a little bit the negative impact of interest rate evolution? And the last one, maybe if you can give us the operating revenue growth in France. That will be great.

Stephane, you want to take the first one.

Okay. So on the operating EBITDA margin, if you look at the details, you'll notice that compared to H1 '23, we're 300 basis points behind, and this is fully explained by some one-off, which basically -- so we're talking about a bit more than EUR 500 million of operating revenue without the float, meaning that this 300 basis point deterioration is corresponding to EUR 15 million. So looking for EUR 15 million. I think this EUR 15 million can be, I think, I know this EUR 15 million can be broken down to 3 buckets. First of all, in H1, we -- for 5 months, we were still supporting some management fee from Sodexo, while at the same time, we had the ramp-up of our standalone cost. And to some extent, this one-off is something close to EUR 5 million to EUR 6 million additional cost that we're not going to have any more in Q2. If you look at the details of our books, you'll see that the management fee from Sodexo were up to EUR 11 million. So nothing that we've to retain the full amount, because we also have to cope with the ramp-up of our own standalone costs. So meaning that the difference between H1 and H2 is going to be something like EUR 5 million to EUR 6 million. Then we've some -- the second bucket related to some bad debt reserve in Latin America, in connection with the change in regulation in Brazil with the move to a full prepaid business model, we had some clients facing some difficulties to catch up, because they had to go and paying old fares based on the previous model, and they had to accelerate to some extent for some of them, paying them -- paying us twice, so which led some of them to be facing some difficulties. So we've a little bit of delays in some collection of cash. So leading us, if you look at the balance sheet, you'll see clearly that we've EUR 8 million of increase in bad debt reserve in the H1. If you apply this to a full year, this is up to EUR 16 million compared to what we used to incur in the previous year, and this does not make any sense. So this is really a one-off, and we expect to be able to reverse this. So this is an additional 5 million extra cost in the H1. And then we've also other technical matters related to the presentation of our combined account the year before and now true account. Just an example, in connection with the service costs related to some put-or-call option, this kind of things which also leads to a specific one-off cost. So overall, we've 300 basis points fully explained by one-off, which are not going to replicate in the second half of the year, which fully explains the deterioration of the H1 operating recurring EBITDA margin. Then regarding the investment of our cash. So we're optimizing such investment. It's always a challenge because as we've all noticed the decrease in interest rates, it didn't come as quickly as initially expected in the beginning of the year. Every time you extend a little bit the maturity of term deposit, then the interest rates you get from the counterpart from the bank is lower because they anticipate from the decrease in interest rates. So we're managing it as much as we can, and we announced that we were extending the maturity, but we've been very careful. And I think we were right to be careful because we've still been able to profit from the still high interest rate in the last 3 months versus what was expected if you go back to beginning of January. So we're balancing it as much as we can, but it's always a guess, and as we all know it, none of us know how interest rates will move in the coming months, even though there is a consensus that this should decrease.

And regarding your last question related to the operating revenue growth in France, more specifically, so we don't communicate, we don't give the breakdown. I mean, the total revenue growth in H1 for France was close to 22%. And out of it, I mean, the -- our operating -- the organic operating revenue growth was, I mean, a double-digit growth. This is what I can share with you.

The next question is from Pravin Gondhale of Barclays.

If I may, 2 questions. Extremely sorry about that. Just wanted to check on the CapEx guidance first. The FY '24 CapEx guidance now raised to 11.5% of sales versus 10% earlier, and then midterm guidance also raised to 10% to 15% sales now. What are the key drivers of that change? Has there been any change in the group's approach to the OpEx versus CapEx spend on tech, probably a bit in the timing of tax spend or anything else? But can you just explain the drivers of that change and how that's impacting the dynamics of OpEx versus CapEx tech spend, please? And then the second question is on the Brazilian regulation change. One of your peers recently said that they've replaced the negative commissions to the clients, with alternative services being bundled with their main offering, and said that it's sort of an industry-wide practice. Do you also follow the similar one? Do you offer the some sort of alternative services in lieu of those negative commissions under new regulations? And if yes, what sort of services are those?

Okay. Well, thanks for your question. Maybe I'll start answering the second one regarding Brazil. So the evolution of the regulation in Brazil, so back to August 2023, and this evolution allows issuers to offer to their clients bundle offer. And this includes well-being and nutrition benefits for organization employee. And as such, in Pluxee, we develop benefit packages, but for some of our private clients. And those packages include -- and for example, because when you were asking, I mean, what kind of services, access to sport centers or telemedicine, those kind of benefits. Regarding the first question.

So the CapEx ratio to revenue is currently high at 11.5%. But this is on purpose. We're also taking benefit of the favorable environment and our ability to capture significant growth to deliver significant organic growth to accelerate in CapEx and take OpEx at the same time. This is also one reason why this EBITDA margin is good, but we're also preparing and investing for the future. And the balance between CapEx and OpEx in terms of tax has remained approximately the same. So it's approximately the same amount. It is true that going forward with the scale effect, it's likely that our CapEx ratio should come back to something closer to 10%, and this is what we've as a target. But for the time being, the priority is also to take advantage of the current situation and our strong delivery on organic growth to prepare for further organic growth as well.

The next question is from Ed Young of Morgan Stanley.

I've got 2 left, please. First of all, just on the float evolution. Stephane, you spoke about the float peaking and Aurélien, you spoke about growth. I'm sure that's just year-on-year and quarter-on-quarter. But if you could clarify what you expect broadly on float in absolute terms in H2 versus H1, that would be useful? And the second thing is just wondering if you've any update on timing you expect to hear about anything on French regulation?

So regarding the float peaking, the float revenue, so we know -- to be more precise, we said that the growth of float revenue was peaking. Then regarding the H2. So it's -- we'll see a deceleration of the float revenue growth in terms of absolute value of the float revenue. It's -- first of all, we don't guide on this. But overall, you might expect something to be close or maybe a little bit lower versus what we delivered in H1. So this is what we've in mind.

And regarding the evolution of the regulation for the meal benefit in France. As I said, I mean -- so working sessions already started with the government and all the stakeholders. The objective of the goal is to submit a draft of flow related to the modernization of the meal benefit system in September. So this is the timing that the government has in mind for the moment.

The next question is from Justin Forsythe of UBS.

Awesome. Can you guys hear me?

Yes, very well.

Great. Congrats on the next quarter here. I really appreciate it. So a couple of questions from me as well. So I wanted to understand a little bit better the bridge from book value -- business value growth up to operating income growth or operating revenue growth in employee benefits. So I noted that 12% and you gave a really nice bridge there, and also seems like take rates were up 30 basis points as well. So maybe you could just help us understand why take rates are going up and if there's anything else included in the delta between business value and revenue growth? The other question I wanted to ask is around 2H margin expansion because it seems as if -- and I apologize if I missed this, and it has been already asked, that you're guiding to a bit of margin expansion in 2H. However, we also have, it sounded like some incremental spin-off costs, I understand that there is some outperformance layered into your guidance on the revenue side. But what is driving the accretion in margin expansion in 2H?

Okay. So regarding your first question, Justin. So let's start maybe with the 12% BV growth. Lets come back to the drivers. So there are -- I mean, the net client wins, the portfolio growth and cross-selling and the increase in average face value. I mean, the contribution of those 3 main growth driver was quite similar in H1 fiscal '24 compared to the breakdown we've given for fiscal year '21 to '23. And with the average face value growth representing around 60% of the BV growth, so the remaining being split almost equally between portfolio growth, cross-selling and the net client win. And after, regarding the improvement of take-up rate up to 2% to 5%, this improvement is a result of first, the continuous commercial efforts of our testing and both among clients and merchants. And this is based on our strong value proposition that we keep on energy, leveraging on our investments in our digital products. But it has also benefited from a slight uplift following the progressive end of the negative client commission in Brazil. And again, I mean, regarding this take-up rate, I mean, as we said during the Capital Market Day, we expect that it will continue to progress slightly over the coming years.

So regarding your second question on the improvement on the EBITDA margin in H2. So you're right, the outcome of our guidance and what we delivered through H1 is that we'll deliver better EBITDA margin in the second half of the year, which -- so first of all, I just want to make it clear that this has nothing to do with the spin-off costs, because the spin-off costs are recorded in other income and expenses, but there are some explanation regarding the standalone costs that we'll now support based on new standalone situation. So there are, I think, 3 main reasons for the improvement of the EBITDA margin. The first one what I explained before answering another question regarding this 300 basis point difference in H1 and it's due to some one-off. Then we're absorbing our new standalone situation. And going forward, it's going to be better quarter-on-quarter. So it's going to be better in H2 because we're still delivering growth. Our cost -- our standalone costs are going to be our fixed costs, so we'll have a better absorption of these standalone costs going forward. And then when you look at what Pluxee has delivered over time, H2 were always better than H1, because it's also the way we manage. This is a dynamic behind the way you monitor the business performance all through the year, with H2 being a little bit better than H1.

The next question is from Sabrina Blanc of Bernstein.

Yes. And I've 2 questions, if I may, please. The first one is regarding the acceleration of the operating revenues between Q1 and Q2. I understand that there is some, lets say, nonrecurring one-off impact in Q1 due to public benefit. But just to understand, excluding this element, what is the trend behind? And the second question is a small question regarding the currency impact. It seems that the currency impact is higher at float revenues than it is at operating revenues, just to understand why it's not truly linear?

Okay. So regarding the acceleration between Q1 and Q2. So you're right, there is one specific item, which is the public benefit. But this public benefit is more on the BVI than on revenue, because we had -- when you issue business volume, you've a specific impact in a short period, but then the revenue derived from this issuance of business volumes spread over a longer period of time. So this has not so much impact on the difference between Q1 and Q2. And overall, when we look at it, because we also noticed that with this difference, of course, there are no specific things. And it's more related to the global business momentum, commercial momentum. And the very good news behind it, if you look at the details, you'll see that this acceleration is more in Continental Europe and rest of the world versus Latin America, where we already have a very strong position. So it's really good news for us that we're accelerating in Continental Europe and rest of the world. Regarding the currency impact, your second question, so this is true as well. This is fully related to Turkey, again, where we've significant float revenue in Turkey due to the very high interest rates in the country. And -- but this is offset by the currency translation effect, and something that I explained. This is the value behind our business, that we've the ability to offset potential currency translation impact, deterioration of the value of local currency by higher float revenue, thanks to the high interest rate in such situations.

The final question, gentlemen, is from Andre Juillard of Deutsche Bank.

Congratulations for the strong results. A few questions, if I may. First one about guidance. You improved your fiscal year '24 guidance, both on top line and profitability. Why are you so conservative for the midterm guidance? And don't you think that you could improve them slightly? Second question, about the float and the risk you see in the actual environment. Could you remind us the split of the float geographically? And in general, not only on the float, what are the main risks you identify in the actual environment in general? And last question, if I may. You partly answered it, but it's about capital allocation. So you've got a very comfortable cash positive position. You seem to have a significant pipe, but do you still consider the possibility of return to shareholders?

Thank you, Andre, for your questions. So regarding the midterm guidance. So indeed, it remains unchanged. I don't consider that it's conservative. I mean it's -- we're pleased to reiterate our mission for 2026 and to reach a low double-digit organic revenue growth, both from 2025 and 2026. And this after delivering a growth between 15% and 17% in fiscal year '24. And we reiterate our objective as well to deliver this EBITDA margin improvement to reach up to 37% in fiscal year '26 and delivering, I mean, the 70% cash conversion on average from '24 to '26. So for the moment, we feel good with this guidance. And again, we're very, very pleased with the strong set of results in H1 in fiscal year '24. But this is the first step in our strategic execution.

Regarding your question about float revenue, the float revenue is driven by 2 elements. First, the float baseline, which is quite well spread all over the world across all our countries. And then there are some differences in interest rates, which is the second driver of the float revenue. Of course, we've these differences. So it's very difficult to -- none of us know how interest rates are going to change in the coming months. There is a consensus at least for the current year and the next year. And then you can also use refer to the forward rate curve. And based on this and taking into consideration the increase of our float baseline, what is going to come from the increase in business volume issued, we can expect globally float revenue to remain quite stable over the coming year versus to what they're in the current year. But we'll see. This is too early to talk about this. My message is for you to be aware that in our case, we've 2 key drivers in terms of float revenue growth, one which is very erratic, unpredictable, which is interest rates, and we'll see. And the second one, which for us is more predictable, which is the underlying baseline made of the business volume issued, which translates into float amount available in our balance sheet. In terms of capital allocation, so it's currently too early for us to make any assumption, to have any specific consideration. As explained by Aurélien, we've some potential M&A targets. So we'll see. We're 3 months now after the spin-off. So quite early for us to change anything regarding this return to shareholders, and we'll talk about this later in the year or in the next years.

So I think it's time to conclude. So thanks a lot for attending this call this morning. As I said before, we're really pleased with the first set of very strong results of Pluxee. And this makes us very confident in our ambition and in our capacity to execute successfully our strategy and to continue delivering a strong performance in the future. And again, thank you. Thank you for your attention, and we look forward to speaking with you at the beginning of July for the Q3 publication. Thank you very much, and have a great day.