Quadient S.A. (QDT) Earnings Call Transcript & Summary

Welcome to Quadient's Half Year 2022 Results Presentation. I am Catherine Hubert-Dorel, Quadient's Head of Investor Relations. Today's presentation will be hosted by Geoffrey Godet, Quadient's CEO; and Laurent du Passage, Quadient's CFO. Today's presentation will be divided in our usual 4 parts: highlights of the period, detailed solution review, financial review and outlook. After the presentation, there will be an opportunity to ask questions. You can submit your questions in writing through the web or ask questions live by dialing into the conference call. Thank you very much. And with that, over to you, Geoffrey.

Thank you, Catherine. Good evening to all on. I'm pleased to present to you a solid set of Q2 sales figure and an overall first semester performance which is in line with our expectation. When we reported our first quarter in 2022, for sales, we told you that the performance of the full year 2022 would be split into 2 phases, smaller H1 and that we expected H2 to be significantly better both in terms of revenue and profitability. So looking at the reported figures for the first semester and our expectation for the second semester. The year 2022 is unfolding in line with our expectation. So let me give you the headlines for the first semester. Revenue reached EUR 524 million, which means up 4% on a reported basis. And this is the result of a strong U.S. dollar. And as a reminder, more than half of our revenues are in the U.S.A. Naturally, organically, we grew at 0.7%. And here, I want to say that there is an acceleration of growth in the second quarter versus the first quarter across each of our 3 main solutions. So let's go through each one of them. For ICA, the subscription-related revenue went from 9.2% in the Q4 2021, if you remember well, to 15.7% in the first quarter of this year to now 18.1% in the second quarter of 2022. Our Mail-Related Solution delivered organic growth in Q2, let just me repeat the fact that our Mail-Related Solution delivered organic growth in Q2 at 1.2% organic growth versus a decline, a small decline of 1.7% in the first quarter. And moving to our Parcel Locker Solution, they returned to double-digit organic growth in the second quarter at 15.8% organic growth after Q1, which Q1, as you know, was impacted by a high comparison basis. Turning now to the group profitability. As a summary, the current EBIT was EUR 65 million in the first semester versus EUR 70 million last year. Profitability in this first semester was impacted by a few things. So first, our effort in further deploying both our software, cloud solution, ICA and PLS, Parcel Locker Solution in Europe for both of them, which will contribute naturally to future growth. The second element is the impact from inflation with higher cost, both in terms of supply chain and OpEx, but most of it were partially mitigated already by higher prices. And the last item that I wanted to summarize is that we also had, as you remember, a high comparison basis for the Parcel Locker Solution from the contribution of a large project in the U.S.A. last year in the first quarter. We will come back on these details and factors in more details when we review the performance of our solutions. So in summary, this performance in the first semester is in line with our expectation. Now in terms of outlook, we do expect revenues and profitability to increase significantly in the second semester. So taking into account the fact that we have a strong backlog across all 3 solutions at the end of the first semester, we expect that the current positive business momentum to support a higher growth rate in the second semester. Combining this growth with the full benefit from price indexation and the higher profitability from our installed bases across our 3 solutions, we're confident also that the current EBIT will significantly increase in the second part of the year. And therefore, naturally, we're confirming our full year guidance. Turning to Slide 6. Let me share with you a few key events and ESG highlights for the last period. First, I'm very happy that we have reentered the SBF 120 index in June, just 2 years after we exited this listing. In terms of business news, we launched our U.K. open network of parcel lockers, which is a fundamental and important step for our solution and for our company. For ICA, our ICA cloud platform received multiple recognitions from industry research analysts just in the last few months, and I believe it is a clear testimony to the superior quality of our cloud-based platform offering today on the market. These recognitions provide further evidence of our successful execution of our cloud transformation. At group level and as announced earlier this year, we repaid our ODIRNANE facility in June, while maintaining a stable financial structure. And last but not least, we have also executed our last 2 divestments in the summer of our Back to Growth plan. Moving to ESG. From an ESG standpoint, the period was also rich in initiatives. You may remember that in the first quarter we announced that we raised our climate ambition for Scope 1 and 2 reduction targets to align them with the 1.5-degree trajectory. And we also introduced these more demanding targets as one of the criteria for 2022-'24 long-term incentive plan. In the first semester, we have continued to make progress in our Work from Anywhere work program, further rationalizing our office footprint and offering more flexibility and hybrid work opportunities to all our employees. At Quadient, we truly believe that improved work flexibility benefits both the work-life balance of our employees and the company with reduced office cost and access to a wider pool of talent. Lastly, I'd like to take this opportunity to thank all of the Quadient employees who took part this year's -- in this year's World Cleanup Day in September. With hundreds of volunteers in more than 15 locations worldwide, we collected over a ton of rubbish. This even has been a tremendous success. And it's also, I believe, a clear testimony to Quadient's commitment to sustainability in all aspects of our business strategy. Moving to Slide 7. We have summarized here the acquisitions and the disposal announced since the first Capital Market Day in 2019. Two main goal in this asset rotation program. First, to refocus Quadient's portfolio around its 3 core and synergistic solution by divesting historical activities that no longer fitted into our strategy. The second is that we wanted to reinforce and strengthen and accelerate the expansion of our 2 growth engines. So I am proud that we have executed this rebalancing and reshaping of our activities, responsibility -- responsibly, sorry, for our teams. I think, thanks to the successful disposal in June of our Graphic activities in the Nordic countries and our shipping activities in France, we are pleased to have now reached the completion of the divestment and the reshaping of our company. As a reminder, the Additional Operations segment was originally established to house the noncore asset of Quadient and sums the noncore geographies. Revenue for Additional Operations originally amounted to more than EUR 200 million in 2018 when it was originally set. Today, the remaining activities represent revenues around EUR 50 million for the full year 2021, which consists only anymore but Mail-Related Solution activities and lockers activities located outside the main group geographies. So let's move now to Slide 8. Let's now turn to the review of our 3 solutions, starting with our cloud and SaaS platform, ICA, Intelligent Communication Automation business. So moving to Slide 9. We are especially proud, as you could see on this slide, of being recognized in 9 industry analyst ranking reports just in the last few months, where Quadient continues to hold either a leading position in all those areas of the software industry. In 8 out of the 9 reports, Quadient is named leader or achieving leadership status, including the reports where Quadient is making its debut. These rankings are very important as they validate the superiority of Quadient's software offering in attractive and growing markets, as you know, but also useful for future business wins and business development efforts as it is another proof point in our vision and ability to execute our business development for our cloud business. Interestingly and worth pointing out, this ranking covers now a wide range of cloud platform offering, demonstrating that our transformation from license to SaaS is not only effective, but a success. So congratulations to the team, partners and customers. This is a tremendous achievement. Turning now to Slide 10. I'm going to give some highlights of our software solutions. Q2 has been a strong quarter for ICA with a further acceleration in annual recurring revenue. If you remember, at the end of 2021, ARR grew at 18%. At the end of the first quarter this year, ARR growth accelerated from 18% to 20% on an organic annual basis. And now at the end of this first semester, we have now reached EUR 173 million, which means, on an annual basis, right, it's a 28% growth rate on an organic basis. So we accelerated in 2 quarters from 18% at the end of last year to 20% to now 28% organic growth on an annual basis. This acceleration is supported by 2 clear growth of go-to-market engines. Our first focus is on acquisition, acquisition of new customers, and second one, on expansion within existing customers. So for acquisition, our growing acquisition of new customers is the result of a diversified go-to-market strategy. The direct acquisition of new customers is thanks to the dedicated focus that we have for small and midsized business of our telesales organization mostly. And we focus on larger enterprise, thanks to our field sales organization. Our indirect acquisition of customers also grow, thanks to a network of partners. And finally, from our cross-selling efforts as a result of leveraging our strong MRS, Mail-Related Solutions, sales organization. So let me expand a little bit on this cross-sell initiative. What makes Quadient unique and this tremendous opportunity to cross-sell our ICA cloud-based platform within our MRS customer base is because it represents more than 400,000 customers, as you know, in which we could cross-sell those software. So we continue to intensify our efforts in that domain, with, in the first semester, 2022, the cross-sell revenue having now increased by 30% versus a year ago. This practically allows us to acquire customers, software customers at a lower cost of acquisitions. And this also help us win highly contributive deals between high-end MRS products and customers and ICA Impress or Inspire platform. It makes both MRS and ICA more competitive on the market. Let me now spend a little time and explain a little bit our expansion focus rapidly. We expand our business within our customer by 2 approach. The first is naturally our customer success approach. We need to ensure that customer is really about ensuring that customer success rate is really about ensuring that a customer fully use all what our cloud platform can offer them. And we monitor the success with usage. Our usage continues to grow at 24% growth -- organic growth in H1 this year. The second approach is through up-selling of existing customers. And I mentioned to you earlier that we were at the beginning of this new relay of growth. Our teams have been focused on up-selling in order to increase our customer penetration. The recent launch of YayPay our AR, accounts receivable automation solution and Beanworks, our account payable automation solution in Europe will contribute to these additional opportunities to offer our customers a complete suite of solutions across all aspects of their client interaction. So the share of up-selling is also increasing as it now represents more than 6% of the ARR at the end of this period. Again, just 2% a year ago, which means we have 3x more benefit from the up-selling strategy. In H1, we also have continued effort to transform our software business model from license to SaaS, as you know. And the share of subscription revenue now stands at 74%. As a reminder, it was only 59% at the end of 2020. So significant progress has already been achieved in the last 18 months. Lastly, I'm delighted to say that we have signed our 2 largest cloud subscription deals in the U.S. with revenue above EUR 1 million per year on a multiyear deal basis, obviously. And I think this is another clear demonstration of the successful transition that we have been operating also into our large enterprise segment by offering cloud platform. Over to Laurent for the financial details in ICA in the period.

Thank you, Geoffrey. The acceleration in these new bookings is translating very well into the growth of our subscription-related revenue, which stands at 16.9% for H1, moving from 9.2% in Q4 '21 to 15.7% in Q1 '22 and now 18.1% in Q2 2022. Within this number, you still have accounts payable and accounts receivable, which continue to grow at about 50% per annum. Conversely, license sales are declining fast, minus 66% in Q2. And as you can see on the left-hand chart, at minus 45% in H1, and that's notably due to a large deal of $4 million, which was booked last year in Q2. Professional services evolution reflects our product and customer mix. It's slightly declining at minus 1.5%. This results in an overall EUR 108 million of sales for our software business for H1. It's increasing by about 5% organically and 11.5% reported. The trend of recurring revenue is accelerating, and that's what you can see on the bottom left chart, while our transition to SaaS is now very advanced. The solution profit margin stands at 7.3%. It's down 8.2 points on an organic basis and has been impacted by the additional go-to-market expenses and notably for cross-sell export, but also for European product launch as well as higher travel costs and impact from service inflation. The benefits from price increase are phased due to our recurring business model. And on the positive side, we continue seeing the existing customer base profitability increase throughout H1 2022. A positive outlook is expected for the rest of the year, thanks to the revenue accelerating, notably due to the solid H1 bookings, a positive impact from the full contribution of this price increase and which will result in an expected improvement in profitability. Now back to you, Geoffrey, for the Mail-Related Solutions.

Thank you, Laurent. Let's turn now to Mail-Related Solution, as you mentioned. I'm pleased to report that Q2 has been a solid quarter for MRS. Our new high-end product range in smart software offering continue to be extremely well-received on the market from our customers, as you can see, and the share of the upgraded installed base, which now stands at 15.9%. Our volume-based revenues also performed very well, too. And I'm particularly proud of the very high level of customer satisfaction as evidenced in this 98% of surveyed organization in North America that are likely to recommend our Mail-Related Solution. Our active installed base management and remanufacturing efforts enables us to continue to deliver solid performance with North America being particularly strong among all the regions. Similarly, to my previous comment on ICA, cross-selling also benefit our MRS activity. It does work both ways as we're able to provide a combined product offering joining both the physical and digital distribution for our customers. Importantly, as a result of stronger bookings, our backlog has continued to increase, supporting a positive outlook for the rest of the year. Laurent?

Thank you, Geoffrey. This solid quarter in terms of business translates well into an outstanding resilience with H1 revenue almost stable organically. It's minus 0.3%, and it's up 6.9% reported. Indeed, despite the high comparison basis, the subscription-related revenue, that's in green, has been resilient. It has benefited notably from a normalized usage, resulting in good volume-based revenue. The positive momentum in hardware sales continues despite a tough comparison basis from last year. Hardware has grown by 8.7% organically in Q2 and even double-digit growth in North America, thanks to further penetration of very well-received new products. The solution profit is stable compared to last year. First, on new placements, the price increases and remanufacturing have compensated for higher year-on-year supply chain and freight cost that we had in H2 last year, notably. And second, we benefited from largely indexed installed base, combined with the tight cost control. The revenue, as you can see on the bottom left chart, keeps remarkably stable across the quarters. We are confident in our outlook for H2, notably, thanks to the penetration of recently launched products, and we can cite the latest DS-700 iQ, which is expected to have a good contribution. Further indexation benefits are also expected and focus on cost as well as remanufacture effort will stay high. We expect a dynamic H2 also fueled in decline in backlog level, and we are confident that the resilience will continue into the rest of the year. Now back to you, Geoffrey, with the Parcel Lockers.

Thank you, Laurent. Moving on to our Parcel Locker Solution. I would like to start by spending a few minutes on our U.K. open network. As you know, we launched our open network in the U.K. at the end of June. This is a significant milestone for the development of our Parcel Locker Solution. This is an innovative proposition in the U.K. where carriers, retailers, who will be able to use this network for their deliveries, and also if they choose to, for the first time for the management of their returns. We truly believe that an open network agnostic are very efficient and a greener way to manage more efficiently the last-mile delivery. In terms of business model, we're deploying this network. So we are spending the CapEx. We're investing in setting up those lockers. And we will monetize the capacity, the infrastructure we have set up through a mix of fixed fee and fee per parcel. We expect to have 500 lockers installed by the end of the year, of fiscal year 2022, and up to 5,000 as rapidly in the next few years. In terms of customers, the network is obviously quickly attracting a lot of interest since our announcements. We have already signed 3 leading international carriers in the U.K., 2 of them that we have announced, DPD and DHL, that have already officially made their announcement on their side in the network, and we have obviously already embarked with the third one. From a technological standpoint, our cloud-based platform for Parcel Lockers integrates fully with any carriers or any merchant IT system. And we also continue to innovate with the creation of a drop box for carriers who now are looking to manage their returns in a more efficient way. We expect more participants, more carriers, more retailers to continue to join this network in the coming quarters. Turning to Slide 15. The expansion of the lockers installed base continued in H1, reaching now 16,900 lockers installed. We continue to experience a rise in usage of the lockers. As an example, our Parcel Locker Solution network, mostly dedicated today to the residential and university sectors in the U.S., experienced a 9% growth in volume in H1 2022 across all our installations. Overall, we do believe that Quadient is strongly positioned, thanks to its already large installed base and it's agnostic approach, but we do not still stand. So first, we continue to focus on our 4 main vertical segments of customers where we enjoy a strong position today. Second, as we discussed before, we have also taken new step to scale the network through the investment of our U.K. open network. Thirdly, we continue to invest in R&D to propose new features for lockers to better answer the customer needs to differentiate ourselves from the crowd. Our U.K. network will be equipped with a drop box, which is a unique feature today designed to easily and efficiently manage the returns and the consolidation of returns for parcels. Fourth, we have also recently launched a new type of locker, the oversized locker, especially designed for DIY orders. These new lockers are getting significant traction, and we believe will drive further growth for the solutions. Looking at our pipeline. We do see some deals being delayed into 2023 as customers, mostly retailers, have delayed some of their investment to 2023. We have not lost any of our big deals, and we actually continue to make progress in some key opportunities, and we are happy to be able to onboard and sign some of those key carriers in the U.K. as part of this pipeline. Back to you, Laurent, for the financial performance of the Parcel Locker solution.

Thank you, Geoffrey. So after our declining Q1 and Q2 comparison basis, PLS business is showing a very solid Q2 growth at 15.8% organic growth. The subscription-related revenue continues to increase at a double-digit rate over H1. It's plus 10.2%. That's the blue part of the pie on the left, with an accelerating growth trend in France, thanks to the ongoing retail contracts development. As you can see on the bottom left chart now, there has been a strong recovery in hardware sales in Q2 2022. The H1 solution profit margin is down by 10 points on an organic basis. On one side, we have the specific investments that have continued to fuel notably the launch of the U.K. open network as well as higher marketing spend and continued R&D in relation to product innovation and upgrade of products in the field. And on the other side, the gross margin has been improved, thanks to the price increase and the mix of recurring and hardware revenue compared to last year. In parallel of the expansions and upgrades, installed base profitability has continued to increase, and it stands at 28.4% in H1. Profitability is expected to improve in H2, thanks to the high level of backlog expected to decline over the second part of the year, which is currently standing at 60% above H1 2021 level, the accelerating growth trend in the U.K. and the overall raising usage of those Parcel Lockers. Now moving to Slide 17. If we add all 3 major solutions together, this brings us the major operation scope that you can see on the left, which is EUR 492 million of revenues. It's growing by 0.6% year-on-year on an organic basis and at plus 7.5% on the reported basis. As you can see, this revenue is very much recurring. It's above 70% of subscription-related revenue. This part is growing by 2.9%, thanks to all our business models are driven by subscription. Quadient is replicating within its growth engines the rollout of a recurring and predictable installed base with contracts from 1 to 7 years and a strong resilience as well as very high predictability. North American revenue growth continues to be very solid at 2.5%. That's what you can see on the pie on the bottom right on an organic basis, and it accounts now for 58% of major operation revenue. It has been driven by an impressive mail performance and solid organic growth in ICA, offsetting the one-off high comparison base from the lockers due to the lost contract last year. Now the North American reported growth with the ForEx is up by 14.5% due to the dollar-to-euro ForEx impact, and it's overall strongly benefiting to Quadient. The level of activity in Europe is down by 3% on an organic basis is due to the weaker contribution from the Mail-Related Solution. But it's worth noting that our local activity was strong, thanks to ongoing contract deployment both in the U.K. and in France, one in ICA, we've been active in the rollout of the new products, accounts payable and accounts receivable. The international segment now. It performs well at 7.7% growth organically, mainly driven by the Japanese locker base increase. Moving now to the Slide 18. We'll go into the details of the financial review for H1. As a summary, major operation that we've just reviewed account for 94% of the group H1 sales. It's EUR 492 million out of the EUR 524 million, with the contribution of each business being summarized in the table on this slide. The Quadient Group current EBIT before acquisition-related expenses stand at EUR 65 million for H1. It was EUR 70 million last year. It's down 17% organically, and it's entirely coming from our major operations segment. As mentioned by Geoffrey, our additional operations, on the right-hand side, reshaping is now over and will only include mail and lockers moving forward, representing about EUR 50 million of business per annum and close to breakeven. Moving now to Slide 20. Quadient reported 4% of revenue growth in H1. On top of organic growth, that's 0.7%. Quadient significantly benefited from U.S. dollar strength against euro as it weighs for the majority of our revenue. And this is bringing EUR 30 million -- more than EUR 30 million of currency effect in Q1 that you can see on the right-hand side. It's more than offsetting the minus EUR 14 million scope effect over H1. And scope effect, obviously, is mostly tied to the Packaging Solutions business we divested last year and, more recently, the divestment of Graphics in the Nordics and shipping software businesses, net of Beanworks acquisition from March 2021. Now the same exercise for EBIT. When looking at the H1 2022 EBIT comparison to last year, we see, as expected, the current EBIT level impacted by phasing of inflation versus contribution from business development and price increase. The stability of the gross margin that we have been able to fully compensate because we have been able to fully compensate the supply chain cost by positive impact from higher prices, both on MRS and PRS. We've seen the increased marketing and normalization of travel level as well as scaling of new network of Parcel Locker and European product launches for ICA that are weighing on the H1 EBIT level. A significant improvement is expected over H2, notably thanks to a stronger revenue level, an improving installed base profitability and, of course, a continuous focus on cost and cross-sell synergies. No meaningful impact from energy cost increase are expected. Moving to Slide 22. The net attributable income stands at EUR 29 million. It's very much in line with last year when you exclude the EUR 15 million one-off financial gain that we had from X'Ange and Partech participations back in H1 2021. The cost of debt and income tax, which are the 2 significant items remain in line with last year level. Indeed, we -- the appropriate and timed management of debt has allowed us protecting H1 overall cost to date. The M&A-related expense and optimization expense are trending down. It reflects the end of the reshaping program, but also the good performance of the mailing business. Moving now to Slide 23 and looking at the cash flow statement this time. While the EBITDA has been temporarily affected by growth engines, good market acceleration, the cash flow before cost of debt and tax is in line with last year. Seasonality of working capital is back to pre-COVID levels. It's at minus EUR 53 million, which was offset last year by post-COVID DSO decrease. So we were able to collect a significant amount of accounts receivable. Leasing portfolio is particularly resilient, which is a great news for the MRS performance and future cash flow, but it's less favorable in the short term within this cash flow. However, it was offset by the reimbursement of the 2020 tax loss carry-back measure in the U.S., which has happened in Q1 this year. The CapEx level is up due to the investment in software R&D, but also IT material and projects. The total free cash flow after CapEx stands at EUR 13 million against EUR 54 million last year. And our net of acquisitions and divestments, and we had Beanworks acquisition in March 2021, we stand at plus EUR 15 million free cash flow after CapEx and acquisition, where we were at minus EUR 18 million last year. Now if we do a focus on CapEx, moving to Slide 24. You can see the total capital expenditure is increasing due to higher development CapEx, which stands in dark blue, related to an investment, notably in software R&D and particularly accounts payable and accounts receivable. You can also see an increase in maintenance CapEx that is tied to the new software projects, internal software projects as well as the IT equipment spending. The rental equipment now, which is the green part and is detailed at the bottom of the slide, it's slightly down, and that's due to the lower MRS rental placements, okay, despite the ongoing deployment of Parcel Locker contracts in Japan, in France as well as the initial lockers in the U.K. The rental equipment CapEx is obviously expected to intensify in H2 due to the pace of the rollout, accelerating in lockers and notably in U.K. as well as the new mailing system range deployment the iX-Series in France -- sorry, in the U.S. and in U.K. Moving now to Slide 25. The net financial debt is very stable. And despite the ForEx impact, the leverage, excluding leasing, still continues to decrease compared to year-over-year. It was 1.9x, now 1.8x when excluding IFRS 16. The trajectory to our commitment at 1.75x by end of fiscal year 2023 is all the more important as the interest rates are further increasing on the market. It's critical to remember that our net financial debt is fully covered by our leasing receivables and rental for further cash flow. Those hold a very limited default rate, hence putting Quadient in a particularly safe position regarding its financial obligations. Moving now to Slide 26. With refinancing anticipated last year, Quadient enters a strong position with no major refinancing before 2025. The liquidity remains very strong with EUR 131 million of cash, which has normalized after the reimbursement of ODIRNANE and the EUR 400 million still available of undrawn credit facility. Now we'll hand it over to Geoffrey for the 2022 outlook.

Thank you, Laurent. Before we turn to the outlook, let me tell you a few words on the current macro environment. As we had anticipated, 2022 is bringing challenges that we're taking obviously very seriously. Recession risk are high and inflation is running at levels we have not seen for decades. Yet, as you could see, we are positive regarding our outlook for H2 as we expect a significant increase in revenue in terms of revenue growth and profitability. From a macro standpoint, our exposure to North America from more than 58% of major operations is a positive as we have a well-balanced and diversified exposure to different markets. Our business model is strong as we now have more than 2/3 of our revenue which is recurring, and we have that across our 3 solutions. And we hold a leading position in all our markets, which provide us with some pricing power. So looking now specifically at some of them at ICA, the very strong dynamic of ARR growth will translate into further acceleration of the subscription-related revenue for the second semester. We're also confident that this dynamic will not stop, and we do not expect growth in AR to -- and we do expect growth in AR to continue, thanks to both our successful cross-sell approach, but also increasing in direct and up-sell momentum. The launch of our account payable and account receivable products in new markets will also participate to the solid growth from our software division in the coming quarters and the coming years. Our Mail-Related Solution performed very well in the first semester based on the review we've done with Laurent. And we continue to build upon this positive performance into H2. We continue to invest and launch new products that contribute to this outperformance versus the market. In addition, ongoing contract deployments for Parcel Locker Solutions should also confirm the positive trends we've seen in the second quarter. If I summarize also one of the key items that we described with Laurent, our backlog is high at the end of this first semester. It is 59% higher than it was last year the same period for both Parcel Locker Solutions and Mail-Related Solution products, which is another reason why we expect improvement in H2. Turning to profitability. We expect to benefit from the full impact from the price increase we have done either through indexation also through dynamic pricing. And last but not least, the comparison basis that has been quite demanding in the recent quarter should finally return to a more normalized level. So given all these tangible factors, we're confident that H2 performance will show a sharp contrast with the first semester at profitability level as well. So naturally, moving to Slide 29, for the full year 2022, we are confirming our guidance for organic sales growth at least 2% and a low to mid-single-digit organic growth in current EBIT for the full year. And beyond the full year 2022 guidance, we also reiterate our midterm guidance out to 2023. With this, we're at the end of this presentation. So I want to thank you for, obviously, all your attention. And with Catherine and Laurent and the team, we are ready to take your questions.

And we will start with the questions on the line.

[Operator Instructions] And the first question comes from the line of Patrick Jousseaume from Societe Generale.

I have a very quick one on my side, which is on Slide 17. So you have 5% of the revenue of major operation out of Europe and North America. So international, 5%, it means around EUR 25 million. Could you share with us what is approximately the part of Japan and the part of other countries?

Half is Japan. Half is the rest.

Okay. So Japan around 12.1 -- between EUR 10 million to EUR 15 million?

Correct.

We currently have no questions in the queue. [Operator Instructions]

Maybe while we wait for questions, we can take a questions from the web. First questions, are the MRS and PLS activities in Additional Operations still intended to be sold?

I think we've been very clear in the Capital Market Day of 2019 and then again in 2021 that the Additional Operations were not all the assets to be sold. They were the assets to be either grown, improved or exit. And I think we've been moving already a part of the Additional Operation into international operations back in 2020. And hence, the remaining activity in Additional Operation still is responding to this criteria. And as it's -- as we mentioned, the reshaping was over. Yes, the underlying statement is that both MRS and Parcel Locker activities within Additional Operation are expected to be kept within Quadient Group.

We're likely at some point to be able to merge them with our Major Operation now, knowing that it's only our major solutions activities.

I think we have questions on the line.

Next question comes from the line of Jean-Francois Granjon from ODDO.

Could you come back on the main cost, salaries, transport, energy? What do you expect for the -- not really for the next second half, but for 2023? And you do think to offset this increase of cost in the coming months? So the second question concerned the rates for the debt. Could you -- the debt between fixed rates and the flexible rates, and how do you see the risk in terms of increase of interest rates? And the last question, due to the inflation, do you expect some increase for the CapEx plan we expect between EUR 110 million between EUR 120 million. Do you see an increase due to inflation for the CapEx?

I'll take, Laurent, the first one, take the second one and maybe the third one.

No problem.

So on the inflation, it's a good question, Jean-Francois. We had experienced inflation since last year, and it continued into 2022. Last year, the real impact for us of the inflation even though we had started to see some salary increases already in H2 last year financially in terms of material impact, we have summarized that as a EUR 10 million impact, mostly impacting H2 and mostly related to the increase in shipping costs really to ship our product from Asia to Europe and Asia to the U.S. This is something that we have said that we've seen continuing into H1 of this year. And based on the comment, I believe, that Laurent shared with you, when we look at the gross margin being slightly better or stable versus last year the same period when in H1 there was no inflation, we could see that through our price increase, we have been able to absorb the inflation coming from the supply chain cost increase. As we get into H2 or next year, it's always difficult to predict on this portion related to the inflation, but we've seen since the beginning of the summer, a reduction of the shipping rates. So the cost of moving containers from Asia to Europe and to the U.S. has significantly reduced. Not at the same level, obviously, as it was pre increase, but it seems that we have more, obviously, headwinds -- tailwinds and headwinds on that front. And knowing that we have demonstrated our capacity to have a dynamic pricing adjustment on those placement of new hardware, we feel reasonably confident at this stage that the pressure is reducing. On the other hand, when we look at the salaries, mostly, which is the salary, I would say, and some of the marketing and travel activities, airfare costs more, to retain and attract key talent in particular, on software, but not just on software, it was the case also across our 3 main solutions on service, on sales, engineering, on marketing, we had to increase salaries. That is roughly in line with the inflation rate you could see on the market, obviously, differentiated by country. And that we likely, like what you could see, anticipate some continuation of those inflation getting into next year. Whether by the beginning of next year, there will be a little bit less or more, we do expect that inflation to continue and to basically translate into higher salaries for us. And I think like in -- on the supply chain cost, you could see that we have been able to absorb those inflationary pressure on salaries on MRS because the MRS solution profitability is being stable in H1 this year. That means they've been able to absorb not only the supply chain cost, but also the increase in salaries across the team and that we are making good progress in the case of ICA to be able to translate some of those inflationary pressure on the OpEx into price increase, and we expect most of the benefit to come in the second semester. As it relates to next year, we'll look at it when we get there. But the same thing, I think, that we've seen is that we feel now more reasonably confident of our pricing power, if you want, our capacity to manage the inflation and cost with respect to the profitability. So not knowing exactly what it could be. We felt it more better -- more comfortable and better position to deal with it as it comes along.

So I'll take the second one, which was around the cost of debt. So thanks for asking this point. So today, we have, at the end of July, total debt standing at around -- gross debt standing at around EUR 854 million, if I exclude the IFRS 16 debt. Out of that, you have roughly 30%, which is -- has holds a variable rate and 70% which holds a fixed rate. So the sensitivity to the change in rate exists, even if it's -- it has somehow limited impact to that portion of 30%. In a nutshell -- and if I can comment the first point -- is that we don't have short-term debt refinancing requirements. Second, that yes, this part in variable rate has an impact on the cost of debt that is -- will tend to increase. And to illustrate that, basically, you can do the math, but every 100 basis point of increase of the rates on the market basically will impact us by around EUR 2.5 million per year, okay? That being said, as a quick side comment, you also have an optical effect, which is basically we are paying today the debt that was used to reimburse ODIRNANE, and so the cost of this debt will appear in the P&L, but it will be much lower. And even with increasing rates, then the level of cash we were bringing out, which was around EUR 8.9 million per year to pay the equivalent dividend to the ODIRNANE holders. So all in all, we still have a way better situation today from a cash standpoint than we had really yesterday. Now we still have -- yes, you're right -- relatively limited exposure to this 30% of the debt that is at variable rate. And then the last question was around the CapEx envelope, if I remember well. So the CapEx for rent specifically, and you raised a very fair point, Jean-Francois, which is we communicated in the Capital Market Day of 2021, of an envelope of EUR 40 million plus per annum, which is EUR 120 million envelope for the 3 years, and you were questioning basically the validity of this envelope to date. As of last year, we spent, if I can remember well, EUR 29 million of CapEx. And in H1 here, we only have EUR 13 million. That being said, Jean-Francois, even if you would basically drive a slight increase of CapEx in H2 because we said we are starting to roll out significantly the U.K. open network. And if you assume that we would be at the same level of last year, we still have the below the EUR 40 million per annum. That being said, the intensity of the rollout, we expect on large projects that -- some are still in the pipeline, but some are basically in a rollout mode like the U.K. for Parcel Locker, makes that the envelope of EUR 120 million is still valid because we expect a significant increase of displacements in 2023, but already in H2 2022.

And with no impact from the inflation on the cost of manufacturing the product at this stage?

No.

Let's move to some questions on the web. There's a number of questions on price increases, so I'll ask them together. To what extent have you increased your price in each segment? How is price hikes welcomed by customers? Is there a segment where it is more difficult to pass price hike? So that's generally across all our segments. And specifically on MRS, what is the index used in the MRS installed base? And is it linked to the general inflation?

Sure. So I'll take the first part, and, Laurent, you can answer the second one. So we do have passed a price increase across the 3 solutions. And across all aspects of the business, whether they were placements or new customers or whether it's the existing revenues. The level have been differentiated also by solution depending on the needs and the impact that we had from inflation. And I think there is also in terms of acceptance from customers, it's a timing issue, naturally. You can appreciate that customers have been much more educated as we get into 2022, around the year versus the beginning of last year. So I think there is a general understanding and acceptance of why the price has to increase. We are in a very credible position to share the reason of those increases with our customers. And generally speaking, we are not getting pushback in the sense that -- customers don't never like it. We don't like to do it neither, but I think there has been a general acceptance around that. And I think that has allowed us to remain competitive on the market, and we have not degraded our win-loss ratios, for example, with our customers across the 3 solutions. I think the difference is that because we have a recurring business model because we have contracts that are renewed every year or after several years, we have contract with price-based volume, the moment we increase our price list, if you want, to the moment we get the benefit, so this is where I think, from a phasing perspective, there is natural delay or a period in which we make a decision in which we see the return. Last year, we definitely focus on the placement of new hardware for both MRS and PLS, and we see now the benefit with a stable gross rate -- or gross margin rate, sorry, for both of them. And same thing, when we -- on the recurring portion, whether it's for MRS, whether it's for PLS and whether it's for ICA, we need to have the opportunity to do those price increase. So when the contract renewals come, so every month, you have the opportunity, to some extent, on an annual basis, once for all your customers to have the discussion. In some cases, the discussion is automatic when you have index, and I'll let Laurent respond to this one on MRS. Or that's part of a contract renewal. Sometimes it is capped for a few years after an initial period of time. That's all the know-how on the installed base management is to do that properly. And this is also why we expect some additional benefit from those actions taken into H2 profitability and contribution as we get into H2.

And in terms of index, the answer is as -- why does a lot of countries we operate in and the more business we are in, but just as a sample to give you an idea, we -- in software for France would be indexed on Syntec index. In the U.K., when it goes to the locker business, we'd would typically be on the RPI, the Retail Price Index. We also have on the mailing side several indexations depending on the country. But I would say that you have also by solution some specificities around basically the length of the contract, the initial commitment that eventually the customer would be locked in at the same price, the same time have locked the price. But basically, those are the typical index we would have our contracts on.

Just a follow-up one on cost increase. How long is the lag between the cost increase and the price adjustment?

Typically, if you look at the software business, which is, I think, where we see the lag because the business model is basically to have deferred revenue that will only be recognized across the period of the contract. You would expect that, for large amount of our contracts, we are on a yearly basis commitment and yearly price revision. So overall full year, yes, you could expect that the full contracts have been revised and will materialize into the revenue.

Moving to Parcel Locker and especially our U.K. open network, how does the competition is playing out in the U.K.? Are attractive locations becoming increasingly embattled as you and your competitors accelerate the rollout of the lockers?

It's a very good question. When we put part of the strategy for us of having a successful open network in a given country, there's a few key things that need to happen. One is definitely the density, hence, why the commitment to bring 5,000 installations in the U.K. network, considering the smaller base that exists today from the competition. And it's also based on the learnings and the know-how we gain on how to manage and operate a successful network, for example, in Japan and in another countries. From the density, we want obviously to have good usage, and there is many things that plays into the usage. And one of those things is obviously having a good location. That's also how we learn and the know-how that we have gained across several countries now is try to have a few things, how to select the right locations and work with our partners, with the carriers. This is why by being agnostic and open to work as partners with the carriers we find together what are the best locations and leverage also their insight and knowledge about where do they deliver their customers today rather than just theoretically thinking what is a good location. And also, after that, is to manage the usage and therefore having also the capability to adjust up and down the capacity of a given installation or move the location from one place if it's not a good location in terms of the usage not being per expectation and being able to relocate those installations. So that's all the know-how, I believe that we have acquired on how to design and choose the right location for 5,000 installations in the U.K. As far as the U.K., there's some penetration from the competition because we're definitely catching up with this advanced capabilities. We're differentiating ourselves to just not do the deliveries of parcels but manage also the return so that we'll have an increased benefit for the players leveraging our network. And it's also the reason of the location we'll pick. And that's why we have already secured that of the first 500 locations, I think, this year, more than 250, maybe 300 locations. They are going to be, obviously, prime locations, working with networks of distribution or different companies that will be able to benefit from the installation of our lockers, and we will benefit from the attractive location they also provide.

Let's turn back to the call. I think we have another question.

The next question comes from the line of Patrick Jousseaume from Societe Generale.

Yes. A quick follow-up for me, please. Regarding the plus 60% increase in the level of backlog that you mentioned on Slide 28 for PLS and MRS, could you be a bit more specific about what this plus 60% represent? What level of backlog do we speak? Do we speak about EUR 10 million or EUR 100 million? I mean just to understand what this 60% means?

It's actually a very good question because we also have one on the line asking the same question, but in terms of how many months of activity does that represent.

So in terms of the backlog, the 60% increase represent a value of the remaining backlog we have at the end of the period versus the same period, the last period. So it's the value of placement of hardware equipment that we have for MLS and PLS that is increased by 60% versus the same thing at the end of H1 last year. As part of that, we have to give a little bit more color, and I speak under the control of Laurent. We have a backlog, usually speaking, there's probably half-half between -- in terms of value between PLS and MRS, obviously could move a little bit. And on half on for MRS, usually the time -- it used to be less than -- it used to be between around 6 weeks to be able to consume or deliver the backlog to our customers. Since the COVID happened, it usually takes for MRS 3 to 4 months, a little bit 4 months, on average, to be able to deliver all of the orders that were placed with us. In the case PLS, it's a little bit differentiated. We -- if we were to give a little bit more color because most of the backlog is related obviously to the activities we have in the U.S., which is related to the property management segment. And in the property management segment, we have 2 types of orders, let's say, 50% or 40%, 40%. 40% related to existing building in which we're going to retrofit the building and adding an existing building locker. And it takes also probably around 4 months, a little bit more, not much more, to be able to deliver them. And then there is the other half of the 40% overlap because we have other segment, for which is related to construction of new properties. And we are dependent on this one on the time it takes some time for this construction to be fully finished. And we could say that would take over 18 months or 15 or -- 15 months with complete 90% of that backlog. It could come obviously much sooner during the first 15 months, and that time has elongated since the COVID environment as it takes more time for construction to be finished and get all the different activities fully in order, synchronized and scheduled, hence the delays that we've seen during the COVID time frame.

I think it's very clear.

Staying on PLS. What is the share of fee per parcel locker in your installation?

Sorry that I'm not sure about the question.

Yes, I didn't fully understand the question either.

Is the question what is the part of revenue tied to volume? Or is the question which of our installed lockers include a portion of revenue that is fee per parcel, which is a slightly different question. I would try to address the best I can this question. So when it comes to the revenue, today, most of our rental base, which is approximately half of our installed base in lockers, most of our installed base is in the rental mode that is not directly tied for the vast majority of this revenue to the volume of parcel flowing through this locker. That being said, it still accounts for, I would say, non-negligible amount for the Japanese lockers where we have a portion of that locker that is open to Sagawa [indiscernible] that would be based on a fee per parcel. That being said, this will change in the future. Why? Because we are now rolling out a U.K. network that, again, will be partially, I would say, priced per parcel. And this price per parcel will account for a significant portion of the revenue of these lockers. So that's, I think, the first part of the answer. And the second part, I would say that, based -- if you look at the lockers installed, the vast majority of the installed base in the rental mode holds a portion of that, that is tied to the fee per parcel.

So staying on our solutions, but moving on to ICA. What is the number of new customers in ICA this quarter? And how much are generated by APM AR solutions?

So I'll take this one. Last quarter, we mentioned we had around 12,000 customers of ICA, the additional customers for Q2 are very close to the number of additions we had in Q1, which is a bit north of 400 customers. Out of that, [ APL ] AR accounts for a significant portion, which is about 1/3 of these acquisitions.

The last question for the moment, a question more generally on the group and in terms of the consensus for current EBIT, which currently stands at EUR 157 million. Is it consistent with your guidance and your piping of your business pipeline?

So I'll take this one, I think. So the difficulty in a year for like 2022 is just to understand at which rate this consensus is basically computed. I take example of H1, we reported EUR 65 million. Basically, at last year rate, it would have been EUR 58 million, as we show on the bridge. So I will put it in other words, our guidance is based on organic growth of EBIT pro forma, which is basically excluding the scope and the currency effect. Last year, we reported EUR 147 million of EBIT before M&A-related expenses. We have made divestment, which was the APS. And now we've made divestments regarding Graphics in Nordics and shipping software. All being put together, you have a pro forma EBIT on what ForEx you take as an institution for the consensus. Yes, this will be in line with our guidance.

And there is no further questions.

Thank you, everybody, for your time. Thank you for your questions, and we look forward to having further discussion in the coming weeks and months until we have our Q3 results. Thank you, Catherine. Thank you, Laurent.

Thank you, Geoffrey. Thank you, Catherine.