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

Good evening, and welcome to Quadient Full 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. The agenda for today is on Slide 3. We will go through the usual format with one additional section on the simplification of our reporting. As usual, there will be an opportunity to ask questions. you can submit your questions in writing through the web or ask question live by dialing into the conference call. Thank you very much, and with that, over to you, Geoffrey.

Thank you, Catherine. Good evening to everybody. I'm pleased to present to you a positive summary of our full year 2022 figures, which are in line with the revised guidance sets in December. Revenue for the full year is EUR 1.081 billion, up 1.4% organically, in line with our guidance of over 1% of organic growth. Organic revenue growth for the last quarter of the year was 3.1%, making the last quarter of the year the strongest with all 3 solutions and geographies reporting organic growth. Also, our subscription model continues to deliver a strong performance with a 3.1% organic increase for the period and now representing up to 69% of our total revenue. At the EBIT level, organic decline was contained to 4.8%, again, in line with the guidance set in December. As previously discussed and as expected, a remarkable increase in profitability in the second semester versus the first one, with H2 EBIT margin reaching very solid 16.1%, excluding the negative IFRIC impact. Overall, our full year EBIT margin is stable year-on-year at 14.3%, when we exclude the new IFRIC accounting standard. We will review in details. The reason behind this marked improvement with law. So an overall positive performance for the year and a very encouraging trend set for 2023. Turning to Slide 6 for other important highlights of the year. Net income for the year is EUR 13 million. This includes around EUR 70 million -- sorry, this includes around EUR 70 million on a one-off noncash items that are linked to goodwill impairment and real estate write-off. Most importantly, we will propose to our next show, the meeting, a EUR 0.60 per share dividend, representing a 9% increase on last year's level, showing the confidence we have, but also in our capacity to generate future free cash flow. At EUR 70 million, the free cash flow generation for the year is robust, despite the increased leasing financing level for the higher mail equipment orders that we had enjoyed this year. In line with our capital allocation policy, we have continued to deleverage the company. Our leverage ratio, excluding leasing, is down to 1.8 at the end of the year. And finally, as announced at the H1 reporting, we have completed our divestment program in June 2022. Therefore, with a simplified and focused organization on 3 core solutions, it was only logical to adapt our new reporting structure to these 3 solutions and to provide finally their respective current EBIT. Laurent will detail these changes in a moment. Moving to Slide 7. But before, I would like to emphasize the work Quadient does in the corporate responsibility field. If we move to Slide 7, you'll see how Quadient continues to make progress on its ESG ambitions. I will not present all of our achievement on this slide, but I am very pleased to report that we have already met or even exceeded our stated targets in a number of areas of focus, in particular, such as the customer satisfaction level and our remanufacturing targets. For other ambitions, we have increased our targets to continue to align ourselves with the more challenging approaches such as our new CO2 reduction targets for Scope 1 and Scope 2, as you know. And you remember, we had detailed these changes during our Q1 results. By continuously setting more challenging ambitions, I think we recognize that we will be always more that we can do. We're also very humbled by the external recognition awarded to Quadient, and they are a testimony, I think, of the importance that Quadient place on ESG. And we are, I think, amongst others, extremely will proud to be part of another year of the Global 100 ranking of the most sustainable companies in the world. I will now hand the microphone to Laurent.

Thank you, Geoffrey. Good afternoon and good morning, everyone. I am Laurent Du Passage, I'm Quadient's Chief Financial Officer, and I have the pleasure to walk you through our new segment reporting. Now moving to Slide #9. As mentioned by Geoffrey in the snapshot, the divestment of graphics activities in the Nordics, shipping solutions in France this year as well as further organization change in H2 2022 have resulted in a refocused by solution and now simplify reporting by solution, which I will further detail in this animated slide. Here is the reporting format we have had in the past. Now the divestment of all other solution is over, remaining additional operations, which only consist of MRS and PLS, which are the #1 and #2 on the slide, are being reintegrated into Mail-Related Solutions and Parcel Locker segments, respectively. Reporting will include from now on, current EBIT margin and current EBIT by solution with the 3 adding up to the total group current EBIT before M&A-related expenses. Solution profit margin are no longer provided. This reflects a key milestone of the group's evolution and the outcome of a deep transformation since 2019. This change reflects an internal reporting change throughout H2 2022, and is hence replicated as required by IFRS 8. Aggregates have been shared and reviewed by auditors, including EBIT calculation by solution. On Slide 10, for 2022, we hence reported total group revenue of EUR 1.081 billion, as mentioned by Geoffrey, and the current EBIT before M&A-related expenses at EUR 150 million, which is hence now broken down by solutions, both on the revenue side and EBIT side. I will detail EBIT calculation methodology and how it is tied to earlier solution profit in the next slide. Important to note that we still report this year some revenue of the other solutions that have been divested this year, but that will consequently disappear moving forward. Moving to next slide. Now here are the indicative steps moving from former solution profit to solution current EBIT. We obviously are providing the historical data solution by solution of solution current EBIT for years 2020, 2021, and both H1 and H2 2022 that I will share with you in the solution review section. Compared to the solution profit that we used to provide within the major operations segment, we added the G&A allocation by solution as per their relative local and central weight based on solution revenue except for the leasing G&A, which is dedicated to our MRS solution. We also included a dilutive remaining additional operations to each solution. And finally, from H2 2022 onwards, we have the impact of IFRIC for cloud computing norm application, resulting in more OpEx for close to EUR 5 million in 2022. This calculation, again, has been extensively shared and reviewed with auditors, and I suggest we now move to the full year 2022 solution reporting based on this new segment reporting. Over to you, Geoffrey.

Thank you, Laurent. Turning to Slide 13 for the highlights of our software solution. When I started, as some of you know, we made a strategic decision to invest in our digital offering to build the future of Quadient. To do this, we decided to invest in adapting our software platform from an on-premise technology to the cloud, and also importantly, to scale the platform and use cases to respond to the needs of large enterprise and most importantly, to midsized companies. So I'm proud to report that 2022 has been a record year for our software business. We have signed 5 subscription deals worth leader by multiple third-party industries analysts in 2022. 80% of our customers and our SaaS customers compared to 56% in 2019. With now more than 12,000 SMBs using our solution on small and midsized and enterprise, we have demonstrated our successful execution to scale our platform from large and also SMBs alike. These important customers' wins validate our strategic choice mix towards our cloud-based offers, and these wins would not have been possible without the active cross-selling we have implemented between our mail and our software businesses. 2022 was another record year for cross-sell, thanks to our mailing teams. We have now successfully penetrated around 10% of our addressable base of mailing customers with our software solutions. We continue to have, therefore, a large pool of mail customers untapped to fuel our future software growth and such more efficiently. So let me share with you just one example of this powerful link between the 2 solutions. In January 2023, we announced the signature of a very large EUR 12 million 2-year contract extension with a large health insurance company. This company was originally a long-standing our mail customer, which our mailing sales team had cross-sold the customer communication software management solution. Looking -- if we take another example at our account receivable solution, we sold our account receivable module to CorneaGen, another health care company. Before using our automation solution, CorneaGen was using a manual process, which was expensive and risky. The benefit of using our SaaS account visible solutions were immediate. Quadient platform integrated seamlessly with the CorneaGen ERP system, offering a rapid automation of processes and centralizing the data all the way down to the digital payments. The results are quite simple. Building efficiency increased by 85%, DSOs reduced by 50% and a sharp improvement in both CorneaGen, but also the customer satisfaction in terms of ease of payments. In terms of our approach for our software business, Upselling is also an important way to leverage our customer relationship, thanks to the comprehensive suite of modules we have integrated together. We expect the contribution from upselling to continue to grow in the coming years. So taking a step back, I'm really pleased with the 2022 development of our customer successes, which translate into a total ARR for the year reaching EUR 187 million, which is up 22% organically. Let me stress that, up 22% organically. This is an acceleration following the already very attractive 18% organic increase recorded last year. And this sets up on a posit sets us up, sorry, on a positive track to deliver subscription-related revenue growth above 20% in 2023. I will let Laurent detail the financial aspect.

Thank you, Geoffrey. So Our ICA now represents EUR 227 million of software revenue for Quadient. It's up by 6.3% organically and 12.8% reported for the full year 2022. This has been possible, thanks to the huge progression of our subscription-related revenue from 15.7% in Q1 to 22.1% in Q4. As you can see on the bottom right chart and consequently to the ARR increase maintained by Geoffrey, which is more than offsetting the decline of the perpetual license component down by 38% year-over-year. This transition is close to completion as perpetual licenses now only accounts for 8% of ICA revenue, and while revenue of subscription is keeping a very strong momentum and keeps increasing quarter after quarter. As you can see, on the bottom left chart. The growth in usage of the platform remains strong, plus 23%, and APAR applications continued to lead the growth at more than 50% increase year-over-year. Professional services decline continues to be correlated to the change of infrastructure and customer mix. Moving now to Slide 15, and looking at current EBIT side for ICA, we are very pleased to report a strong improvement of H2 by close to 11 points compared to H1, as expected, from minus 9.7% to plus 1.1%, excluding the IFRIC impact. When looking at the historical 2020 to 2022 trajectory, we can see the impact of the investment in product development and marketing compound with the fast-growing contribution from recent acquisitions with lower profitability profile as well as change in business. The dark blue portion now accounts for 75% of revenue, where it was 59% back in 2020. Indeed, early in the plan, we took the strategic decision to focus on B2B software offering and decided to position our cloud offering as a comprehensive suite of modules, enabling small and medium businesses to have a one-stop shop for all of our business communications and customer relation needs. To achieve this treat, we invested both in our business transition from license to SaaS, but we also require 2 fintech leaders in accounts receivable and accounts payable automation to complete our product range. And we have recently launched these new products in our selected European countries. These effects detrimental to EBIT in the short term have [ fit ] in H1 2022, and more specifically, in Q1 2022. As in parallel, salary inflation and normalization of traveling as well as marketing spend has affected at the beginning of the year. We are now on track, of progressing gradually towards best-in-class growth and profitability metrics assumed by H1 to H2 progression, thanks to incremental margin of higher subscription revenue, transformation of license to SaaS fading out and also scalability of our software platform. We can now focus on further scaling this business, thanks to our efficient and major go-to-market that will continue turning positively in our ICA current EBIT. Over to you, Geoffrey.

So let's now turn to our Mail-Related Solutions. 2022 has been another strong year for our Mail business. When I took over the position of CEO of Quadient, the future of our mail business was one of the key strategic questions I had to answer. Today, I'm very proud to have decided to continue investing in that activity and to present you another year of solid performance. We have -- I'm also very proud of the team that delivered this performance. We continue to enrich the hardware offering through new upgraded machine offering and new connected services. 60%, if we take an example of supply sales are now self-serve, thanks to these innovations. These new machines enables us to continue upgrading our existing installed base, but also sign new customers. The share of upgraded installed base is almost doubled in '22 to reach close to 20%. But we never sit still, and we are really proud with the development of the new offers such as the SWITCH online mailing services, which we have launched in the U.S. We already have 20,000 customers signed for this fully online mailing service. This capacity to innovate and also to offer combined and integrated services with our other solution is really what sets us apart from competition. 2022 has been a record year for cross-selling, and cross-selling is not just selling a software to a mail customer, it also, with our Parcel Lockers business, particularly the corporate and residential verticals. Laurent will now present to you how these successes are reflected into the financial results. Laurent?

Thank you, Geoffrey. This year Mail-Related Solutions performance is outstanding. It is the second year in a row, of course. It's plus 0.1% organically. It's plus 6.7% reported compared to last year. After a year, which was setting a post-COVID high comparison basis, Q4 finished with close to 1% earning growth with backlog reduced and that despite further supply chain issues. And this is also thanks to a very resilient subscription-related revenue evolution throughout the year, notably in North America. Price indexation are also benefiting to our top line while higher product placements have been very, very strong. Over the full year, the hardware placement is remarkable. And when looking at the comparison basis, Q4 is up by 9.1% organically on the hardware piece, and that's thanks to the strong penetration of our new products, noting also a strong double-digit growth from main European countries. The overall performance in North America 2022 is outstanding. Moving now to Slide 18. We'll have a look to the current EBIT margin for this solution. You can see below the graphic, the evolution of the current EBIT, which is as well remarkable with even an increase when you look at the current EBIT margin over the period. And this is despite all we know about freight, inflation cost and the impact it has on this activity. This has been possible, thanks to the proactive cost management, the cost sharing from active cross-selling, but also cost synergies from shared supply chain and G&A. And finally, of course, the solid revenue generation that we saw in the previous slide. Our current EBIT for this business, notably compares very favorably to industry levels, and when we're looking specifically at 2022, the current EBIT margin stand at 25%, excluding IFRIC impact, thanks to the acceleration of the cross-selling, but also the remanufacturing that we have and the outsourcing benefits and still despite the high on average freight cost that we've seen this year. Over to you, now Geoffrey for Parcel Lockers.

Turning to Slide 20. The expansion of the locker installed base continued throughout the year, as we know -- as we now have more than 18,000 lockers installed globally. The demand that we experienced for lockers remain solid and our innovative and carrier agnostic approach enables us to continue to expand in all verticals. Our uniquely designed lockers range meets all market needs today, whether it's the size of the lockers with wall-long lockers to meet, for example, the requirements of universities. Designs also to fit with the environment, the brand of the company and the speed of deployment. We also continue to invest to improve our integrated software and hardware solution. We have recently announced the launch of 2 major offerings: the first one, the Drop Box, which is meant to automate the returns, and that's a unique differentiation for us and for carriers to accelerate the management and the efficiency of these returns, which is a huge problem to solve for all stakeholders in our industry. And we also developed, that's the second one, the innovative oversized lockers for larger goods, which service both retail shops, but also B2B retail and for other traits. Earlier this year, we announced a new major initiatives with also the launch of our open network in the U.K. This is an open network owned by Quadient, and it is open to all based on volume and subscription consumptions. 4 major international carriers have already signed up to use this network. DPD, DHL and Evri, the former Hermes, have been officially announcing that they will use the network for the delivery of their volumes. The target is to have 5,000 lockers on the ground in a few years. Looking at our pipeline. We have said in December that some deals, mostly in the retail segment in the U.S. and the U.K., has been delayed into 2023 as customers are cautious in terms of investments. We did not lose any big deals, and we continue to make progress in some key opportunities as we recently announced a deal with Ferguson in North America. So yes, these deals do take time, but demand is strong across our key verticals and geographies. Back to you, Laurent, for the financial performance of PLS.

Thank you, Geoffrey. Parcel Lockers now account for more than EUR 90 million of revenue. Sales are slightly up organically, plus 0.4% and up by 5.6% reported. We finished with a solid Q4 performance with 7.5% organic revenue growth. The subscription-related revenue part, which consists in both rentals and maintenance, accounts for close to 60% of total revenue and has grown by 10%, thanks to deployment of recently signed contracts, mostly with retailers in France. This subscription-related revenue has accelerated in Q4 to 13.3%, thanks to both new contracts and the initial contribution from the U.K. open network. The muted overall topline results is due to the hardware sales decline impacted by Q1 comparison basis, but also the delays in retail and residential segments in the U.S., and notably, in H2. Despite these delays, underlying drivers of this business remain intact with a strong traction, notably in an inflationary environment where the need to rationalize the last mile remains critical. Let's move now to next slide on current EBIT for Parcel Lockers. Like for other solution, we have provided historical revenue and EBIT data on the left-hand chart. Parcel Lockers EBIT level continues to be impacted by a high level of investment of our business, which is still maturing. However, where we perceive a strong longer-term value when we further roll out networks, secure key partnerships and locations with our differentiated trajectories. 2020 to 2022 EBIT trajectory reflects those investments to scale the business, compound with higher freight costs in '21 and '22, but also a large hardware sales retail project back in 2020 and Q1 2021. Specifically in 2022, the current EBIT stands at minus EUR 25 million, impacted by new investment into product offering that was shown by Geoffrey, but also go-to-market efforts in the U.K. and the recent impacts from the delays in retail and residential projects in the U.S. We remain positive as the estimated current EBIT margin of the installed base is now reaching 12.5% in 2022, where it was 11.3% a year before. And the attrition remains exceptionally low across the board. Now moving to Slide 22. At group level, our reported revenue stands at EUR 1.081 billion. It's up 1.4% organically, 5.6% reported. It has ended with a strong Q4 at 3.1% organic growth. 70% of this revenue is subscription-related, which allows us a very strong profitability. So that's the dark blue side. This portion has been very dynamic and growing by 3.1% year-on-year organically. If you look now at geographical level on the bottom left chart, North America accounts for 55% of group revenue. It's growing by 3% organically, notably because we have record performances, both on ICA and MRS. Many European countries posted a small decline, minus 1.4% due to the lower contribution from MRS in some countries and despite the solid growth from Parcel Lockers Solutions, plus 50% organically, thanks to the deployment of the same contract that we mentioned in the past slide. International delivered solid 3.6% organic growth, driven mainly by ICA and PLS. Now moving to Slide 23. The group organic EBIT changed trajectory over 2020 to 2022 has been impacted by the change of business model, minus EUR 30 million of license revenue. A strong buildup of the Parcel Lockers business. Of course, COVID impact on Mail-Related hardware and supply sales, EUR 60 million unrecovered revenue from 2020 and the impact of the progressive divestment of the non-core activities. This have impacted our top line by about EUR 200 million less revenues since 2018. We also invested into the launch of several products into new geographies this past few years. We have also been impacted by much higher shipping costs in '21 and '22 as already shared in H1. H1 2022, current EBIT was impacted by salary inflation, the shipping cost, the normalized marketing and travel costs post-COVID and increased investment for European product launches. If we now exclude the impact from the changed accounting rule, we can still see that Quadient delivered a strong H2 performance, reaching EUR 90 million or 16.1% of current EBIT margin. As a result, we finished the year excluding IFRIC, with a stable year-over-year EBIT margin at 14.2% and such despite increased investment and the inflation impact. Let's now move to Slide 24 so that we can do the detailed financial review. On Slide 25, we see the reported growth stands at 5.6% as on top of organic growth of 1.4%. As you can see in the center, Quadient significantly benefits from dollar strength against euro with more than half of revenue in dollar, which brings EUR 64 million of favorable ForEx impact. All solutions are growing organically in 2022. Scope effect is mostly tied to the Packaging Solutions business divestment back in 2021. The more recent divestment of graphics in Nordics and the shipping software businesses, net of Beanworks acquisition back in 2021. Now moving to Slide 26. When looking at the fiscal year 2022 EBIT bridge, we see that we are moving from EUR 147 million last year to EUR 150 million this year, hence a reported increase of 2.2%. If we focus on the organic picture in the center, we see that compared to last year, current EBIT level is impacted by phasing of inflation versus contribution from business development and price increase, which has significantly improved over H2, notably thanks to the faster growth and the strong activity level in Q4. We also have the full benefit from indexation price increase and the continuous focus on cost control and cross-selling synergies. The overall new IFRIC account standard impact reporting EBIT changed by 3 points of growth. No meaningful impact on our side is to be mentioned on energy costs. On Slide 27. Now moving to the net attributable income. It stands at EUR 13 million versus EUR 88 million last year due to noncash one-off items, including goodwill impairment for EUR 48 million within UKI and DACHIT region. It's linked to both WACC increase in both regions, but also to a lower extent, to tax rate increase in the U.K. as well as the restructuring of EUR 16 million of right of use of real estate. If you compare to last year, you also had last year an increase in value of X'Ange and Partech funds of EUR 20 million positive impact but obviously sets an unfavorable comparison basis. If you look at Slide 28 now, the free cash flow after CapEx stands at EUR 70 million. It's a robust level. When you consider the high level of financing of leased mail equipment and the necessary stock to deliver the strong hardware momentum that has negatively impacted the working capital. At equivalent financing need compared to last year, Quadient would have generated free cash flow in line with last year at about EUR 100 million. On Slide 29, we focus on the CapEx. It's stable versus '21 for overall. For overall, for rented equipment, we have a solid activity level of MRS, which is particularly noticeable. To be noted also that the level of maintenance CapEx would have been EUR 9 million higher without application of the IFRIC accounting standard for cloud computing. On Slide 30, you can see that the net financial debt continues to decrease year-over-year. We now stand at EUR 722 million, despite the net EUR 100 million of acquisition we did since 2019. I remind you that most of the EUR 722 million is directly linked to our financing activities, which has committed further cash flow. As to green bar, EUR 595 million as of end of fiscal year '22 and low default rate. Hence, we monitor our leverage ratio, excluding leasing, which currently stands at 1.8x. Group is well on track to achieve the below 1.75x leverage target, excluding leasing by the end of 2023. Moving to the slide with refinancing anticipated, Quadient enjoys a strong position with no major refinancing before 2025. Liquidity remains very strong at the end of fiscal year 2022, with EUR 172 million of cash and EUR 400 million of undrawn credit facility. On Slide 32, the capital allocation mentioned during Capital Market Day 2 years ago is being carefully executed. The debt management and deleverage topics remain key, especially in an environment with increasing rates. When it comes to portfolio management, reshaping of additional operation has been completed in 2022. Level of CapEx have been and has remained below the envelope so far. On maintenance CapEx, it is reflecting both the different impacts, but also the reduction in the real estate footprint. On the rental equipment CapEx, an acceleration is obviously expected for 2023, notably on the Parcel Lockers side. Finally, we propose a higher dividend of EUR 0.60 for fiscal year 2022, which is higher than the dividend per share floor of EUR 0.50, and we'll continue to consider the share buyback opportunity and notably, if leverage falls below expectations. On Slide 33, here, you can see the historical dividend per share with the proposal of EUR 0.60 for fiscal year to enter into to be paid in cash in one installment on 7th of August of this year, which will be submitted, obviously, for the vote of the annual shareholder meeting scheduled on June 16, 2023. Now back to you, Geoffrey the outlook.

Thank you, Laurent. So let's go to Slide 35. Let me take a step back and reflect on the evolution of Quadient business model. Where are we now since 2019. We have built a Quadient platform we envisioned, and we have done it leveraging our existing strengths and assets, employee expertise, innovative technology, global footprint and a rich diverse customer base. Today, Quadient is an innovative B2B subscription platform that powers billions of day-to-day critical business transactions such as payments, invoices, bills, statements, medical results, packages, mail, insurance policies, contracts. The Quadient platform serves an impressive customer base of over 400,000 customers, ranging from large enterprise to small and mid-sized businesses and such on a global basis across deferred set of industries. We have invested to adapt our platform of solutions. Early on, as you know, as Laurent mentioned, we have augmented our platform through 3 targeted acquisitions. In addition, and thanks to our own organic R&D efforts, we have proven to successfully adapt our offering to address the needs of large enterprise and small and mid-size business for a cloud platform. Our Parcel Locker platform now addresses all type of carrier agnostic flows, delivery and returns from small to large packages. So we're also unique in the sense that we have an integrated suite approach combining both software and smart hardware, giving customers an end-to-end solution for powering their omnichannel businesses, transactions. The Quadient platform is also truly global in the sense that our products have successfully been commercialized and deployed in more than 28 countries for tens of thousands of customers of our new offers and Parcel Locker business and the software business and already more than 400,000 of our mailing and document solution customers. Quadient has developed a repeatable sales machine that is global in nature, and we are capable today to take to market efficiently any solution in geographies or industry that we decide to go to. Finally, focusing on the land and expand strategy is a key differentiating factor and a true driver of commercial success for us today. It is always easy to claim that our products are the best in the market. But I would like to stress that our products are recognized as leaders by independent industry analysts and by customers testing manuals on third-party review sites. Quadient is a leader in all of our core geographies and segments that we do decide to compete in. A few data points. 70% of the new software customers come from our existing mail business. This means we have roughly penetrated 10% of our addressable large and midsized customers. We have still so much untapped potential for cross-selling in the future. The integrated platform model is delivering high synergy levels, both at the top line, but also on costs with estimated synergies of around EUR 30 million per year. So I want to thank and take the opportunity to thank our dedicated employees, our loyal our customers and trusted partners for helping us achieving these results. So 2 years into the second phase of our strategic plan, we made the right investments at the right time, and we're confident that 2023 will further strengthen our core and notably in terms of growth and more importantly, in terms of profitability and industry leadership. So moving to Slide 36 and turning to our outlook for the next year. At group level, we expect both revenue and profitability to improve significantly. At revenue level, we start 2023 with a strong backlog across solutions and with 69% of recurring revenue in 2022, which makes mechanically a part of our expected growth for 2023 next year. Logically, we do expect an accelerated growth for our subscriptions. We also expect a solid demand for our automation solution to continue and as such, especially with a more challenging economic background as our solution at their heart, save time and cost to our customers by digitizing their business processes. We are also expecting to continue to benefit from price increases as our installed base is largely indexed, as you know, but the timing of the price revision is naturally phased throughout the year. Moving to the EBIT level. This is the year of EBIT improvement and such despite inflation headwinds. After 2 years of increased cost, much lower freight cost should finally materialize. While on the other hand, marketing and travel costs, which had increased decently in '22 due to the return of the post-COVID activity should normalize themselves. We expect some continued pressure from similar salary inflation, as Laurent mentioned, as well as the additional impact from the IFRIC accounting standard for the cloud computing IT project that we have. Moving on to the cash flow side. CapEx is expected to increase at least by EUR 20 million, driven by the strong rental placement we expect from our Mail-Related Solutions business in particular, driven by the U.S. geographies. And on the other hand, also the acceleration of the installation of the U.K. for our open network of Parcel Lockers. Finally, we also expect placement of the mail equipment to remain strong, leading likely to a high level of leasing financing. So moving to Slide 37 now, turning to the solution outlook. And if we start with our software solution, as previously discussed, we expect a strong ARR level of 2022 to translate into an acceleration of the subscription-related revenue in 2023. The correlation between the two is quite clear, I think now, and recent contract wins makes us confident that the high growth level is set to continue. We also continue to benefit from cross-selling into Quadient's diverse customer base. On the profitability side, the current EBIT is expected to continue to increase significantly driven by the scaling effect of the install base and the subscription revenue growth. Turning to our Mail-Related Solutions. We expect a solid dynamic in hardware placement to continue with a solid outlook for the North American market. However, I think it's important that we stress that we are obviously set against quite a high comparison basis as we're coming out of 2 consecutive years of organic growth. Focus on the EBIT level is to maintain the existing high level of profitability. And last but not least, Parcel Lockers Solutions. We expect stronger growth in revenue compared with 2022. Recently wons contract deployments, the acceleration of the deployment of the U.K. open network and also an expected catch-up in the U.S. residential project, more likely in the H2 timeframe, are all expected to contribute to a more robust organic growth in 2023. However, we do continue to see some retail projects being delayed given the macro-outlook for this segment. Lastly, current EBIT is expected to improve driven, as we mentioned, both from the scaling effect of the installed base, better gross margin, thanks to the lower shipping costs that we see nowadays and lower go-to-market expenses. If we move to Slide 38 and moving on to 2003 (sic) [ 2023 ] is the last year of our 2021-'23 plan. We have good confidence in the 2023 outlook, which allows us to confirm our 3-year plan trajectory. At the revenue level alone, we expect organic growth in 2003 (sic) [ 2023 ] to be around 3%. And at the current EBIT level, we anticipate a marked improvement, as discussed, of around 10% on an organic basis. With these levels naturally of growth expected for the full year 2023, the outlook for the '21-'23 strategic plan is confirmed. We expect revenue to deliver a CAGR of at least 3% and a mid-single-digit current EBIT CAGR over the period. With this, we are at the end of this presentation, and I thank you for your attention. And with Laurent and Catherine, we are now ready to take your question for the Q&A.

Thank you, Laurent.

[Operator Instructions] We'll first hear from Mourad of BNP.

This is Mourad from Exane BNP Paribas. I wanted to ask about your EBIT growth guidance. What base should we think about in terms of 2022? Is it EUR 150 million that we should use to get to your guidance, which would mean an EBIT at, already being equal, around EUR 165 million in 2023. Am I right?

Laurent, would you want to take this question?

With pleasure, Mourad, absolutely. So the EUR 150 million we reported is a starting point because the only scope effect you would have would be the small divestments, we've made both in Nordics and in France with -- which were not contributing to the EBIT or close to 0. So EUR 150 million is indeed the right starting point for the current EBIT for the guidance. That's correct.

Okay. And how should we think about the pace of investment in at ICA and PLS? Should we see those loss-making numbers start to reduce? Or is it too soon to expect that?

It's a good question, Mourad. I think, on ICA, you could see the performance, obviously, on H2, which is already positive for the second semester. Actually, a little bit more, a little bit more than 1%. And we do expect the continuation of the improvement on the profitability for all the reasons we have explained, which is that we expect mechanically, obviously, some additional growth on the subscription, which will be contributive. So we do expect the full year of 2023 to continue to improve on the profitability, and we do expect that to continue. Gradually, we've seen that in '22, Q1 -- Q2 was better than Q1 profitability. Q3 was better than Q2. Q4 was better than Q3. Hence, the more than 10-point improvement on ICA in H2 versus H1. We do have always some seasonality for ICA. So H1 is always lower than H2. So we'll have to take that into account. But we do expect some improvements and likely to hopefully be a positive territory naturally for the full year. On the Parcel Lockers side, Laurent?

I think on the Parcel Lockers side, you have -- as mentioned by Geoffrey earlier, we are in a market that is structuring. We still have a range of CapEx to be deployed to increase installed base that will obviously continue to wait in the midterm on the EBIT current margin for Parcel Lockers. That being said, we will have also some room regarding the freight costs that are expected to lower and that did have impact significantly on '21 and '22 numbers. And second, as mentioned by Geoffrey, we have the opportunities of the top line and the strong pipeline that we also fueled additional gross margin to the activity.

And I think, in conclusion, I would say that we expect even a much more significant improvement on the profitability of the Parcel Lockers business next year.

[Operator Instructions] We'll hear from Patrick Jousseaume of SG.

Geoffrey and Laurent, can you hear me?

Yes.

Yes.

Okay. Perfect. First question, on Slide 49, you provide some current EBIT margin for division. So it is still something which is in line with around 15% EBIT margin that you expect for 2023. If you do quite please the math, based on the EUR 165 million EBIT that you have just mentioned. So in other words, is -- are does the margin per division that you put on Slide 49 still valid or not? Second, could you give us some words about the current trading? And third question, when you look at those 3 divisions, would you still consider the 3 of them as strategic one? Or would you consider maybe PLS a bit less strategic than the 2 other?

Patrick, some very good question. We try to respond to them gently with Laurent. So yes, we did share in our midterm ambitions some level of indication of ambition by solutions, right? So you have that both on the top line and on the EBIT now because we have obviously translated but were solution profit indication by solution into those EBIT mechanically with the same methodology that Laurent described earlier. So that they were there for your reference, and you could compare them, obviously, with where we were at the end of 2022 and where we're intended to go. On the EBIT side, from a pure technical perspective on those guidance, they are meant to be on a full year basis at the end of the plan. So it's really the performance that would be at the end of 2023, so January 2024, which is basically on the full year basis, which means it's the running rate of 2024. The -- And that's for each of the 3 solutions, obviously, for both Mail-Related Solutions, Parcel Lockers and ICA. After that, we have obviously given formally the guidance at group level, both on the topline and as well on the EBIT, the other solution side. There were more indications or aspiration in terms of where we're going. So we knew naturally that the 3-solution mix would be naturally different every year and by the end of the plan as well. So there's some flexibility among them. All that being said, it is our ambition to go after the improvement of profitability for ICA and to reach the year at some point, the 13% will be around 13% of EBIT profitability. And the same thing for MRS is to make sure we could stay within the 22% to 24% now a range, which we're already operating at a higher level. So it's really about can we sustain above that or around that 24% rather than the 22%. And then for the Parcel Lockers Solution, it's really about the installed base EBIT profitability. We are, I believe, in '22 at 12.5% on the estimated EBIT profitability for the base. We expect obviously strong, as I responded to Mourad, the strong acceleration on the numbers of installation on the locker side for '23. So we did 2,000 this year. We could estimate we'll probably do a lot more next year because we obviously have anticipated some additional CapEx. And as a result, with an increase installed base, a significant increase. There's many mechanical improvement as well on the profitability of the installed base. So do -- we do also intend to achieve those targets as soon as we can.

And I think there were the 2 other part of the question, which was -- the current trading is...

Next we hear from the Jean-Francois Granjon of ODDO BHF.

So we didn't just finished the questions of Patrick...

Yes. I think we just need to finish the questions of Patrick first. I think the second part of the question, Patrick, was the current trading, I think. And the last question was asking if the 3 of the solutions we have are still considered our strategic of all 3. Maybe I can take the current trading. So basically -- and we raised our confidence in shooting for a strong increase, which is around 3% in topline for 2023 and around 10% of increase on the current EBIT. I think this is seeing what the H2 was made of and that gives us significant confidence in our ability to recover EBIT as well, but also to capture the traction on each of our businesses. Obviously, on Local, we also had, in Q4, a 7.5% growth, as I reminded earlier. The underlying driver, all those solutions are intact. We, I think, repeated that we're also very pleased with the MRS second year in a row growth. So that brings us yes confidence and that we are still relatively early in the year, but that's what we see up to now being the result, I think, of the transformation and the a good fit of our products to the market.

We don't have the much result yet at all, but we have seen the February and the February results were clearly in line with our expectation, and we could see some of those mechanical effect, for example, on the acceleration or the subscription growth rate on the ICA side, but also the good performance on MRS and some acceleration now also on the local side. So on the other question, yes, those solutions, obviously, a strategic, Patrick. Understands that we have a clear policy and I think we have expressed that we have no sacred cows. So there's always the possibility for us to look at each of those solutions independently and look at the value that they could bring to us. But as it relates to our strategy today, we are pushing those 3 solutions because we have as much synergies on the software side than we have in the Parcel Locker. We're definitely now at a stage where we are proving the profitability on the ICA side and getting now at the scale that we have on the software side, both the topline growth, but also the profitability improvement that we were expecting. So we're happy to see the maturity of those investments and the return that is now coming to us. On the Parcel Lockers side, it's a solution that we have also envisioned to be able to bring growth to our model and synergies. We obviously are sharing a lot of the synergies, both on cost but also in the revenue. On the other hand, the solution is less mature, not at scale. And I always mentioned to you that we wanted to be at least above EUR 100 million for each of the 3 solutions. So the goal for us is to bring this solution as closely as possible to that above that EUR 100 million mark, so that we can have to scale effect and with the scale effect, we'll also have the profitability. So you really need to look at the 3 solution as 3 different maturity with obviously a much more mature at scale, stable, slightly declining for the Mail-Related Solutions business. We have the scale on the software side now, and we're now also going to start benefiting from the improvement on profitability breakeven. And obviously, we have the less mature, but it's an unpenetrated market on the Parcel Lockers, not at scale yet, and that's also something we're working on. So it's the same installed base model for the 3, just a different level of maturity of where they are in their life cycle.

I think we can...

Jean-Francois, ODDO BHF.

Yes. Jean-Francois from ODDO BHF. 2 questions, please. The first one, could you come back on the deposition, the write-offs you made? I don't understand. Can you explain why you integrate a so huge level of deposition? And are there any risks for order deposition in the coming weeks? And the second question are in the concern with PLS business you seems pretty confident for the business, for the PLS. How do we expand these -- that -- to the fact that there was a disappointment last year, mainly coming from the U.S. business for the PLS development. So could you explain us why we are more confident for this business for this year 2023?

Laurent, do you want to take the first or you want to take the second one?

Yes. I would take the first one. So you're right, Jean-Francois, first, we have 2 significant amounts that are one-offs and as seen on cash that we mentioned when we tell the P&L to net income. The first one is a goodwill impairment for a value of EUR 48 million. So to be very clear, Jean-Francois, it's regarding 2 regions: U.K., Ireland and Germany, Switzerland, Italy for us. It is the resultant of an increase in WACC. So in other words, you have a WACC competition that basically actualizing your flows, and it has mechanically lowered the net present value of those assets at a lower level than the assets that were recorded on the balance sheet. Why now? Obviously, because the WACC has been increasing by around 200 basis points or more compared to last year. Why those regions? Because obviously, it's where we had probably the smallest headroom, and hence, it is the resulting application of that resulted in an impairment. Two comments I would make about that. First one is that we feel relatively confident moving on those regions into the next year as of now we have a relatively high level of WACC already, and we expect these regions to be a relatively dynamic with the U.K. open network and with the ICA moving up in those regions. The second point is that on other regions, France, Benelux and North America, where we have the bulk of our goodwill, and I remind you that we had about a bit more than EUR 1 billion of goodwill, and we still have a positive impairment. The vast majority of that goodwill, probably close to 75%, is in France and North America and benefits from a very large and very strong headroom where we don't see risk moving forward. And second part for you, Geoffrey.

The second part was on the -- yes, on the confidence level on the pipeline, I think it's -- so a few things when we look at 2023 for Parcel Lockers. Just as a reminder, in Q1 2022, we still suffered and therefore, for part of the year for '22 of the comparison basis, which is no longer the case. So we're going to have a full year without the impact of that big project before. Two, the confidence is also coming from naturally the ongoing activities and the pipeline that we see in our residential sector, but also in the U.S., in the different region, right in Japan, in the U.K. and France. So there are -- there have been signed projects that we have been able that we didn't recognize in Q3, as you know, that was delayed. On the retail projects, Ferguson was one example in the U.S. We had others in Europe. So mechanically, we know we're going to be able to deploy some of those projects in '23. On the backlog, on the residential because it's a large part of our business, obviously, in the U.S., representing a little less than 50% of the total. The residential segment is overall continuing to work were for us. The booking placements are steady overall, and we are making also the switch from new constructions to existing building to ensure that would have less impact on potential delays from the new construction as we get into '23, but we can see the demand being still pretty strong in that segment. After that, we could see a higher demand from the carriers probably for the good reason that they could see the automation and the savings that the lockers could provide them. So part of the growth we'll see will be coming from the contribution for the open network from the U.K., but we also have the initiatives, both in Japan and the U.S. that we're counting on. So all in all, we do expect now an acceleration of the growth, and we do have big projects whether it's on the retail or others that may come sooner or later. But even without some of those big projects, we should be able to see some acceleration of the growth in '23 for the Parcel Lockers business. Hence, our confidence level.

And I think there's no further questions on the call. So we can start the questions on the web. We'll start with the first question on accounting. So probably for you, Laurent. Can you detail the full impact of the new IFRIC?

Of course. So first thing, you will have a detailed impact of IFRIC when we report our URD end of April. The net impact on the P&L for this year, which has been taken fully on H2 2022, is a EUR 4.7 million impact. This is, in fact, made of 2 parameters: one parameter, which is basically all the former what you put in CapEx for the customization of software, but here that are on the cloud. So you consider that it's not your ownership. So you put that now fully in OpEx. That's about EUR 6 million. And you have another, I would say, it's partially offset by EUR 1.2 million, about EUR 1.2 million of lower amortization of former project that has been -- that were capitalized and have been moved on the balance sheet. The impact on the CapEx, as I mentioned, was about EUR 9 million. So basically, if you want to restate, if we were to capitalize those costs, you would have EUR 9 million or more. I would say, EUR 6 million would be on -- moving on the P&L side, and you have about EUR 3 million moving on the working capital side basically. And that is moving to prepaid because, to some extent, you can also move to prepaid only when a third party, the leases are certified or is the vendor of the software is delivering the service.

Next question still on accounting. What are the segments impacted by the goodwill depreciation?

So -- and the question is very relevant because as you saw, we discussed and we shared with Geoffrey, we made a segment reporting change. So from, I would say, only region group of CGUs that we were testing, we are now testing a further level down where we are testing both region, but also solution. So MRS, PLS and ICA. Here, as we were starting from a regional side, the practice is to first test at the regional level, and that is the region level that induced the impairment and close to the full totality of the EUR 48 million is due to the same methology that we used to do last year, which is basically first testing at the regional level that was resulted in more than EUR 40 million of this EUR 48 million of impairment is just a regional level. And then we have retested at the solution level and you have an additional technical impact on the MRS for the height -- for additional EUR 8 million. So the first answer is really at the regional level, not specifically for MRS.

And on regional levels, it was mostly the vast majority was the U.K. with a small impact on Germany.

Absolutely. Absolutely.

Next question. Can you detail the EUR 16 million office restructuring? Have you moved your offices? Is it linked to lease extension?

Yes. No, it's not leased -- it's not linked to leased extension, it's just adapting our footprint to the new way of working. And we've been sharing extensively that we've been moving to flexible work and home office largely across the globe. Here, the EUR 16 million we are talking about are mostly coming from France and the U.S. In France, we have remaining commitments, both in -- I mean in the Paris area basically until 2025, and we basically closed half of this available space that corresponds to about 2/3 of this EUR 16 million, and the rest is on the North American side, mostly in the U.S., where we've been also closing some of offices fully, but mostly reducing the space of some offices and hence, writing off this right of use associated.

Laurent, you can tell me if I'm wrong, it represents what roughly 40 offices we're closing to...

We're closed about 42 offices, that's correct.

So after some accounting questions, let's go back to the solutions. Question on ICA. As ICA a traditional seasonality between H2 and H1 and does the H2 2022 benefiting from a catch-up from delayed H1 revenues.

So yes, we do have some seasonality into the ICA business. Actually, we do also have that into MRS, but for ICA specifically for the question, usually, Q2 and Q4 are our highest or biggest quarter and Q1 and Q3 always being lower. And we have actually had a chance to comment on that a few times. We also have some seasonality on the volume base. So the first commentary was really on the booking, naturally, the new orders. We also have some seasonality on the volume and the usage of the solution that are usually a little bit stronger on the Q1 or Q2 where we see actually the impact on the ARR a little bit boosted on H1 for the usage and being lower on H2. Now all that being said, those aspects, I think, will likely remain, but it is true that the more we move to subscription, the less those differences are relevant as it's really becoming slowly a quarter-over-quarter impact and less over one period versus the other, but H2 is usually a little slightly bigger semester than compared to H1. The second part of the question was for any catch-up. Laurent?

Yes, whether is there any catch-up in H2 versus the level -- the revenue -- the delayed revenue in H1.

Not really. I would say that H2 benefits from the strong booking of H1 in subscription that materialize, obviously, further down the road in H2, but the main impact is not cut off notably because basically, you have obviously more and more subscription and less and less capital license.

And there was also the reason why we felt confident when we told you, at the end of H1 within our Q3, they were expected an acceleration in the subscription of the software business is because we knew we had book naturally. We had the AR. The bookings, right, 6 months earlier or 3 months earlier. So we knew we could expect the higher subscription revenue being recognized in the second part of the year.

Question on ICA and PLS. What would be the estimated breakeven turnover for those 2 solutions?

We don't communicate specifically on a breakeven point, but you can see we have already reached that level in H2 for ICA. Actually, more than that. So that could give you an idea that what revenue it could be. And for the PLS business and for ICA, generally speaking, I think you have to look at the business. It all depends for us on how much level of effort and investment we want to put in the intensity of the acquisitions, right, on the new bookings. If that investment is steady, naturally, the profitability come much quicker, right? If you continue to increase year-on-year the level of investment you're making in acquisitions, it could delay those breakeven points on this. Today, for both ICA and for both Parcel Lockers, our existing base are already highly profitable. In the case of PLS, we've shared that we're at 12.5% now on the EBIT side. So really what makes the difference? So the timing at which we could reach sooner the profitability for the breakeven point for PLS will be really depending on the level of acquisitions we have and installation or acquisition of new sites and new lockers. Obviously, I think we have given clearly the view that starting above EUR 100 million of business, we would consider the business being at scale, and then we'll start to -- from there at a more profitable growth rather than focusing just on scaling the business. On ICA, it's different. We have passed that maturity point, and we're obviously looking now at a sustainable, profitable growth in the coming years.

So to stay with the lockers, what are your targets of locker installation for 2023 and 2024?

We're not specifically giving a target on installation. I think we have given an indication on the ambition of the lockers to reach 25,000. That's our goal and to be able to reach it as close as rapidly as we can. If we can achieve it in '23, we'll be naturally happy. If it comes 6 months later or 9 months later, that won't be a big deal. The goal for us is obviously to continue to add significant thousands of lockers every year to our base.

Turning to the outlook. Can you give some colors regarding the midterm outlook post-2023? So after the end of our plan, as you plan to announce a new strategic plan any time soon?

So knowing that we are really focused on finishing 2023, right? We have an ambitious goal for '23 in terms of acceleration of our topline, the increase of our profitability improvement in 2023. Operationally, that's really we're focusing on the execution. I'm sure by the time we get closer to the end of 2023, we will look at when we could do a potential new Capital Market Day, and we'll communicate and share that with you as the time passes. And then at that time, we will be happy to give you some more color on where we could aim for our next plan in terms of growth naturally, but also in terms of profit improvement. That being said, I think the running rate of what we all expect in '23 will likely set obviously what we could do in '24. We see now an acceleration coming on the topline and on the profitability, both on the subscription level and also across the solution for Parcel Lockers and ICA. So that's probably an acceleration or continuation we would expect at the time.

Another question on the guidance and outlook. I don't understand the 2021, 2023 EBIT guidance confirmation because you did an EBIT organic growth of 6% in 2021, minus 4.8% in 2022, and we're now planning for 10% in 2023. And if we add up these numbers, it gives an organic EBIT CAGR 2021, '23 of 3.5%, so below your guidance. Can you explain what is wrong in my reasoning here?

I will think that part. So you're adding up the right numbers. So basically, we have 6% in '21, minus 4.8%, so yes, have some decimal. We guided over the period to a mid-single-digit organic current EBIT growth, which is basically between 4% to 6%, and the cutoff is probably around 11%. That's exactly why we are guiding circa 10% that obviously includes that 11% mark.

Going back to PLS. On PLS, you earned around EUR 7 million current EBIT on the installed base. So probably the calculation based on the 12.5%. So the loss on the rest was EUR 32 million. With accelerating installation in 2023, the loss on the growth sales should also increase. So why are you so confident in increasing the current EBIT significantly in this segment?

I think naturally, there's a few things. One is on the gross margin, just to start -- side of the volume, obviously, but on the gross margin, we do expect probably naturally some improvement with lesser impact from the higher shipping costs we have seen both in '21 and '22. And also benefit from the price increase naturally that we are putting also in place in this business like the other business. The second thing, too, is that we have also incurred in 2022, some investments. So in that other side of the number that you described, there are investments in R&D. There are investment also in the go-to-market in sales and marketing. And we have also investment in setting up the open network in the U.K., and some of those investments, as we launch efforts, we have all the costs whether it's sales marketing or the deployment costs for the infrastructure for the open network in the U.K. And you have no return on those investments and no topline associated with it. So that's why there is going to be a mechanical improvement in 2023. As we expect naturally, return on those sales investments in the region we have invested in certain capabilities. You know we have developed the oversized locker or the Drop Box, which we haven't sold fully in '22. So we expect obviously to get some additional traction on those sales, and we will expect some contribution as well from the U.K. open network. Hence, why there will be a significant improvement that we expect on the profitability of the Parcel Lockers next year.

Thank you, Geoffrey. We have one last question regarding shareholder return. Why did you choose to increase dividend while your share price remains depressed, and you guided opportunistic -- you guided an opportunistic share buyback possibility?

We do naturally retain the capability and the will to do some share buyback. Obviously, we need to look at our deleverage trajectory and achievement, which we are on good track. At the end of 2022, we do have some additional increase in terms of the expectation we have for CapEx, for example, for next year. So we'll have to make sure that along the year, we can achieve that, but we retained different -- clearly to be able to do a share buyback at the end of the plan as long as we are obviously achieving the deleverage target. And for the dividend, I think it's a gesture of confidence of, obviously, of the EBIT increase that we see next year. It's a 5% -- EUR 0.05 -- sorry, increase in the dividend from EUR 0.55 to EUR 0.60, which represents a 9% increase year-on-year. So I think it translates our strong confidence as we move into next year to make sure we have a steady evolution of our dividend trajectory.

Thank you, Geoffrey. Thank you, Laurent. We have no further questions at this time. So I think we can close the call. Thank you very much for listening and for your questions. Our next call will be on the 31st of May for the Q1 sales, and in the meantime, we look forward to meeting some of you during our road show. Thank you, and have a good evening.

Thank you, everyone.

Thank you.

Thank you for attention.