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

Good evening, and welcome to Quadient H1 2023 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. So, you have the agenda on Slide 3. And, as usual, there will be an opportunity to ask questions at the end of the presentation. As a reminder, you can submit your question in writing through the web or ask your questions live by dialing into the conference call. Thank you very much. And with that, over to you, Geoffrey.

Thank you, Catherine. Good evening. I'm pleased to present you a positive set of H1 2023 figures for Quadient. These are setting us on the right track to achieve our full year 2023 guidance. Revenue for the period is a little bit more than EUR 0.5 billion, right. Came in at EUR 522 million, which is up 2% organically versus last year. Importantly, our subscription business model continues to deliver faster organic growth with a 4.2% increase in subscription-related revenue, which now represent more than 71% of the total revenue of Quadient. At the current EBIT level, organic growth was a solid 8% organic increase, thanks to the significant improvement in the profitability of both our software and lockers business, more than compensating the small decline in our traditional Mail business. The current EBIT for the period was EUR 68 million, and we will naturally review, in detail, the reason behind this marked improvement altogether. So, an overall positive performance for the first half of the year. After a seasonally lower H1, we now expect an acceleration in H2, and therefore, this allows us to confirm our full year guidance. Turning to Slide 6 for some of the key corporate events of the period. I am very proud to say that we have received a Platinum ranking from EcoVadis for the second year in row. Now, for some of you that don't know, Platinum status is their highest distinction. It is awarded to only the top 1% of performing companies and it is based on sustainability criteria. So, this award really is a testimony, I think, to Quadient's commitment to sustainable development. And in line with our ESG commitments, we have also issued our first sustainability-linked loan. This was our new EUR 300 million revolving credit facility, which also include ESG criteria based on Quadient CO2 reduction targets. If I turn now to the capital structure of Quadient, we also announced at the end of July, a shareholding agreement with Bpifrance. Bpi currently holds more than 6% of Quadient's capital and is looking to continue increasing its stake to at least 8% but not above 15%. The shares are subject to a 3-year lockup period, and Bpifrance undertakes to support Quadient's overall strategy. If the 8% of shareholding level is reached, Bpifrance could propose the appointment of Bpi as an independent board member to join the rest of the Board. We are pleased to welcome BPI as our long-term shareholder. Last but not least, in H1 2023, we have announced the eligibility of our shares to the PEA-PME or [Foreign Language] in French, investment scheme, providing a new opportunity for all our retail shareholders to invest in a very tax-efficient way into Quadient. Turning to Slide 7, I would like now to emphasize the successful development of our B2B subscription platform, which is at the heart of the Quadient organization today. So let me just come back to how we fuel the growth of our integrated platform. First, we leverage our existing customer base of more than 440,000 customers worldwide. And we do this in 2 ways. The first one, by cross-selling our product offering. The idea is very simple and it is to sell a new solution type from our platform to an existing customer. So, if I take an example, 2/3 of our software customers have been cross-sold from our existing base. And the same is true for our Higher education/corporate offices locker, the customers that have bought the Parcel Locker solution. Secondly, we drive also the upselling of our products, meaning that we sell additional products and services from an existing solution of the platform to an already existing customers. So we really have 2 efficient ways to both upsell and cross-sell within our base. Growth also comes from the underlying market trends naturally. The strong and positive underlying trends are essential drivers of demand for our own solutions. I won't [ them ] all right now, but we are talking about the drive for automation and not just simple task automation, AI, artificial intelligence powered automation, right? And we focus on embedding AI capabilities into our platform offering to improve the overall services offered, the performance of the product and most importantly, the customer experience. Legislation can also be a significant trigger for change and therefore, demand for our own platform. I will come back to this point later in the presentation. To adapt to these changes, we naturally innovate and we constantly work on those hardware and software product offering to improve again the user experience. Product development is done in-house naturally through our own R&D efforts, but also at time, through acquisition. And we have recently made the acquisition of Daylight, which is one of our existing partners, which offers a very interesting technology, which is complementary also to our existing software platform. As I mentioned before, the integration of artificial intelligence throughout the platform is also a key area of focus for us. I'll give you a few examples. We have recently launched an AI-based cash application module to accelerate the invoice to cash processes. So, the benefit of our offering, speak by themselves, I think today, our integrated subscription business model is driving accelerated organic growth and recurring revenue, 4.2% organic growth in H1 and just in the second quarter alone, 5.2% organic growth. These are solid organic growth numbers, driving the share of subscription-related revenue up to 71% of the raw revenue. The benefit of this integrated platform can also be seen from a cost standpoint, right, as we continue to mutualize supply services from the supply chain, the call centers, also share the hardware installation for the professional services team. So, as you can see, our integrated platform model is making good progress, and we're pleased with this recent development. I will now hand over the floor to Laurent for more information.

Thank you, Geoffrey, and good afternoon, good morning, everyone. I am Laurent Du Passage, I'm Quadient's Chief Financial Officer, and I will start by providing you with the details of our key financial indicators at Group level. Moving now to Slide 9. Revenue for Quadient in the first half of the year came in at EUR 522 million. It's up 2% year-over-year on an organic basis. The graph on the left-hand side shows you the breakdown of this revenue by geographies and by type of revenue. Of note, the 4.2% organic growth in subscription-related revenue representing 71% of the total and sole driver of the organic revenue growth of the Group. Subscription-related revenue is accelerating in Q2 at 5.2% versus the 3.1% released in Q1. This is clearly the positive result stemming from our strategic choices as discussed by Geoffrey. From a geographic standpoint, North America continues to be the Group's main driver of organic growth with all 3 solutions posting positive performance. North America represent 57% of our total revenues. We're also happy with the performance from many European countries where the revenue trend is improving and includes a positive performance in Q2, driven by software and lockers. Last, the International posted a 1.1% organic increase, with good performance in the context of the change in contractual agreements with our partner Yamato. We'll come back to this later in the presentation. Turning to the current EBIT for the Group, on the right-hand side, I am pleased to report an 8% organic increase to EUR 70 million, excluding IFRIC impact with reported current EBIT coming in at EUR 68 million. Operating profitability is also rising with the current EBIT margin reaching 13.5%, excluding IFRIC versus the 12.5% we reported last year. The increase comes primarily from the strong improvement in both software and local solutions, which I will detail later in the presentation. Current EBIT margin also benefited from the reduced real estate footprint, reducing the overall G&A cost. Turning now to Slide 10 and our traditional revenue bridge by solution. So, from the EUR 524 million reported last year, we have the negative EUR 5 million scope impact from the disposal of our Graphics activities in the Nordics and Shipping solutions in France in June '22. And this year, ForEx is negative by EUR 6 million on the revenue, mainly linked to the dollar weakening against Euro. Turning to our solutions. In the middle, both ICA and Parcel Locker posted organic growth, more than offsetting the small organic decline of Mail. All in all, organic growth stands at 2% for the Group. Moving now to Slide 11, you can see here the same bridge regarding current EBIT before M&A-related expenses. We are moving from EUR 65 million to EUR 68 million, hence the reported EBIT growth of 4.3% with an eligible impact from scope and from ForEx, and a negative EUR 2 million IFRIC impact. If we look at organic change now, the 8% increase results mainly from the significant improvement in current EBIT for both the software and lockers, which are more than compensating to [ containing ] declines in current EBIT of Mail-Related Solutions. This is a key milestone in the evolution of our business model, and we'll now move into the detail of each solution. Over to you Geoffrey.

Thank you, Laurent. Turning to Slide 12 for the business highlight of our software solution. Earlier this year, we presented the Quadient Hub, if you remember. This release was an important step in the development of our unique suite of solution offering. I'm pleased to report that since the launch in April 2023, we have already onboarded now around 2,500 customers. So, good progress with continuous high satisfaction levels. The Quadient Hub is an integral part of our platform strategy. And importantly, it acts as an accelerator of upsell, as I mentioned earlier, thanks to the platform approach. And we can clearly see some of those benefits of this naturally through the double-digit increase in customer being upsold just for our financial automation modules. The part of the hub is actually growing very nicely following the launch of this solution in Europe last year, and we have seen strong customer adoption, especially in the U.K. in the recent months. We expect the adoption to remain strong and even accelerate as the upcoming e-Invoicing regulation in France, but also more broadly in Europe are coming. The obligation for businesses to move the e-invoicing is an important driver for the digitization of processes, in particular invoice processes. Our unique positioning as a significant existing customer base of mid-segment customers combined with the financial automation cloud solution is a very powerful asset to capture market share and drive the cross-sell. We have taken a proactive approach to inform and help our existing customers to take the digitalization steps and we'll continue to drive this trend naturally and such despite the delays in the implementation of the law that was recently announced. In that respect, and strategically, we have also applied in July 2023 to become an official partner of the Dematerialization Platform of the French government, in particular, for their pilot phase. And this is the type of opportunity that really puts the spotlight on the importance of our suites or our platform approach. Our cloud platform enables us to address different customer needs, driving upselling. Our integrated model helps gain market share. And it's important to also continuously enrich our platform offering with new functionalities and in particular, improved customer experience. To that end, and I think I have already touched upon our AI investments contribute strongly to differentiating our platform in the market today. But I also wanted to discuss the recent acquisition we made. We announced a few days ago the acquisition of Daylight. Daylight was one of our existing partner, and they're offering what we call a dynamic i-form. So what dynamic i-form are very important, right? Because they respond to many customer use cases in terms of content management. This addition increases the value that we bring to solving our customer needs and problems. So this is a very exciting addition for us into the platform. And I think it's a demonstration, again, of our ability to continue to size interesting opportunities on the market as they become available. Turning to Slide 13. After our first recognition, if you remember well, by [ ADC ] for our account receivable solution in the first quarter of this year, I'm obviously super excited to share with you this quadrant SPARK Matrix recognition just obtained in the second quarter, and we have obtained it for both the accounts receivable and the account payable automation solutions. And I want to stress this, is that there are very few players across both today recognized, but there are some. But Quadient is one of the only 2 that are on top of it, not only being recognized, but leaders present in both of those metrices. So this is a fantastic achievement from our team, and it's an important recognition for the quality of our solutions. Laurent?

Thank you, Geoffrey. ICA represented EUR 120 million of software revenue for Quadient in the first half of the year. It's an increase of 11.8% organically and 10.8% on a reported basis. This growth was driven by the very strong progression of our subscription-related revenue, which is up by plus 20.5% organically in the period and more than offsetting the declines in license sales and professional services. Importantly, all regions contributed to this excellent performance, North America and France posting double-digit increase. As mentioned by Geoffrey earlier, we are pleased with the penetration of our financial automation models, which are growing over 50% in H1 2023. Our annual recurring revenue continues to increase and stands at EUR 197 million as of the 31st of July '23, an annualized organic growth of 16.1% compared to the end of fiscal year '22. If we look now on Q2 revenue performance. At 13.1% organic growth, Q2 revenue showed a small acceleration versus Q1, mostly linked to better license sales. From a profitability standpoint now. Current EBIT for ICA was only negative by EUR 3 million, leading to a limited 2.5% negative operating margin when excluding IFRIC. This is a 7.2 points improvement and this confirms the improvement and the improving trend since inflection point we had in H1 2022. As discussed in the fiscal year 2022 results, the operating profitability of ICA is driven by the incremental margin of higher subscription revenue, while the transformation of License to SaaS business model is nearing its end and scalability of the software platform. We are now focusing on scaling this business further, thanks to our efficient and mature go-to-market strategy and execution, and this is exactly what has driven the improvement in EBIT in H1. It is important to stress that this increase in profitability has not come at the expense of investments in R&D or product development. With this virtuous circle now well in place, we expect profitability to further improve over H2. Now over to you, Geoffrey, for our Mail-Related solutions.

Thank you, Laurent. I have already spoken about how important innovation is to Quadient earlier, and this is very relevant in our Mail-Related Solution as well. We drive increased product penetration on the market, thanks to our product upgrades and innovation, our new connected services, and also additional and other transforming tools. In the first semester, we launched in the U.S., the final member of our iX-Series family. This is a connected mailing and shipping system focused on small businesses and home offices. To sell it to a very large numbers of customers, we have engineered a simple and very efficient go-to-market processes, which combine both steady cells and digital cells together. So this is actually a great opportunity for us to sign up new customers too. This new release is important as well as it contributes to the upgrading of our existing installed base, as you know. And you can see on the graph that the share of the upgraded installed base continues to increase nicely and now standing at 26.7%. This release is also critical as it coincides with an important decertification process from the postal authorities in the U.S., which will further drive the need to upgrade existing milling machine and to replace them with new compliance, more powerful and better solutions. In the last few months, we have seen dynamic placements of this new product supported by this regulatory change. Last and not least, we have had some significant customer successes in the period, and I want to highlight for you today 2 of them. The first one is a very large deal with NBT Norway. Now, NBT is a carrier, and they needed it to help to manage a rapid increase in the parcel volume that they have to manage. Our Mail-Related Solution team came up with a state-of-the-art and tailor-made integrated sorting facility, which has allowed NBT to triple its early parcel-sorting capability. The value of this deal is significant and it's more than EUR 3 million, which we hope to deliver in the third quarter for most of it, more likely. The second example I wanted to share with you today is a cross-sell example with IGS Energy. Now IGS Energy is an independent gas and electricity supplier that is based in Ohio in the U.S. There, our integrated platform approach allowed us to offer a unique combination of our Quadient Impress software on the one hand and our high-end speed, what we call the DS1200 which is our folder and inserter technology. And combined, that allowed us to streamline their document management and communications. So, I think it's another powerful example of the strength of our integrated model. Laurent?

Thank you, Geoffrey. Revenue for MRS came in at EUR 358 million, a very small 1.4% organic decline and it's down 2.4% on a reported basis. This is a very solid performance outpacing current market trends. Looking into the details, this robust performance was mainly driven by a very solid subscription-related revenue in Q2, almost flat on an organic basis, supported by the improvement in business trends in France and in the U.K., but also a positive contribution from usage. But this performance is all the more impressive that it comes against a lower level of hardware sales in Q2 due to the high year-over-year comparison basis, especially in the U.S. We finished the period with some strong bookings, leading to an increase in the backlog at the end of the quarter. Turning to the current EBIT for MRS. At EUR 82 million, the current EBIT translates into a still high 23.4% margin, excluding IFRIC, which remains well within the 22% to 24% mid-term indicated range. The lower level compared to last year comes from investments in sales capabilities and a small decline in gross margin. Focus remains on keeping this margin within this range. Over to you now Geoffrey for Parcel Locker.

Thank you, Laurent. Turning to Slide 17 and speaking about our Parcel Locker solution. So I would like to start with our joint venture with Yamato. We have taken the decision to renew it this summer. Ownership of the JV has remained unchanged. And this renewal is a quite important milestone, right? Because our knowledge and experience of managing a network of Parcel Lockers has dramatically increased over the past 7 years, as you can imagine, since the existence of the JV. So, we have built upon this experience. I mean, it was important for us, while they're pursuing the JV to also adapt the commercialization or to adapt the business model to a more flexible model. So, in addition to the joint venture renewal, we have also negotiated and signed new contractual agreements in part with Yamato. And we have evolved the history, what we call more a fixed subscription model, the rental model for some of you to a fee-per-parcel model. So this is a major change, and this will allow us to drive higher volume into the already at-scale installed base. They will provide also an additional benefit to Yamato with more flexibility, and we also start to expand the base. We will start to expand the installed base now because for the last basically 12 months as we were renegotiating, we had basically paused the installation of new lockers. Our lockers deployment continues to progress, generally speaking, outside of Japan to a global installed base now of close to 19,000 lockers at the end of H1. We have progressed on a slower trend though than expected at the launch of our strategic plan and partly to the fact that large retail deals have failed to materialize under the current economic condition and that we have shared that with you in our past recent publication. On the other hand, we're very excited by the opportunity provided by the deployment of other and new open networks, and I will come back to this in the next slide. Thanks to the deployment of the open networks and the recent deals that we have signed just in Q2, we are now expecting the pace of installation to more than double in H2 2023 versus the first period of this year. Similar to the rest of our integrated platform, I would like to say a word now on innovation for our Parcel Lockers. We have a very strong track record, I think, of innovation when it comes to the Parcel Lockers. And we have constantly tried to adapt and extend also the usage of our products. So today, I'm happy to present to you our latest upgrade is what we call the Rearloading Locker. This locker, which opens at the back of the locker, right, it's an easier and basically, quicker load of parcels. And it also allows us the collection of the return parcels, which has been developed in response to mostly the challenges that we could have seen with some of our type of customers, which we call the higher education sector, universities, right, which often use the larger configuration lockers. This innovation is going to allow the lockers to be managed independently and avoiding the traditional bottlenecks that you could see in front of the lockers and has already been received actually, very positively by some of our university customers already. So, let's now turn to our open network strategy to provide you with a little bit more insights on where we are today. So turning to Slide 18. So let's focus on 3, today, of our key market sales. You get a lot of data on Japan, the U.K. and France. These 3 markets are at different stages of development, maturity naturally, right, due to the history that we had for each of those solutions in these geographies. But they are all progressing well. So first off with Japan, and I have just discussed that with you, the new agreement with Yamato. In Japan, we already have an at-scale installed base. So the focus really for us is to drive the usage of these lockers even further now with the business model being solely on a fee-per-parcel model. The 3 main carriers in this country are also already onboarded. So it's really a case of monetizing the existing base and increasing the volume with each one of our players. We'll continue to invest in this network, and we will continue to increase the density around existing locker sites, but also expanding into new and additional large Japanese cities. Now move to the U.K. And since the launch, we have managed to sign now 4 international carriers, giving us a large excess of volume of package in the country. And I am happy to confirm to you because we had not revealed it before that the fourth one is actually UPS. So a significant part of the initial background work that we've done in the last few months in the U.K. was the integration of all those systems and services that represent the way those major carriers works, which we have now completed. Once the carrier are enabled for the long-term success of the network, certain phases you need to identify and source what we call prime locations to install the lockers. That has taken a little longer than we probably envisioned at first, but today, at the end of Q2, we have now over 8,000 sites under signed agreements that we could choose from and to deploy our network. And these sites are prime location sites with well-known retailers such as Homebase or pubs with Greene King in the U.K., right, or also petrol stations, such as MFG. So, we're confident that the work spend in this initial planning phase will now enable us to naturally accelerate the deployment and installation of our lockers, especially for H2. The commercial model, on the other hand, is based on the usage, on a fee-per-parcel, but we have also innovated to offer carriers the possibility to use a drop box. And I think I have mentioned that before, but the drop box is a single larger box, right, that allows a carrier to consolidate its returns, which makes the retrieval much quicker and much more efficient. Target for us is to install at least 5,000 lockers over the coming years. So, last but not least, let's talk a little bit about France. The opening of the French network is progressing very quickly, with already now 2 carriers sign up to use it. And UPS is not only for the U.K., but also for the French market, and we also have our partner, Relais Colis. From the prime location standpoint, we have recently signed and won a very strategic and also exclusive deal with Auchan to install lockers in all their hyper and supermarkets. These are really prime location in France and because they are areas of high food density, which should translate into a very quick adoption level for the network. We have also signed additional agreements and I'll give another example with the retail chain Cora in France. Importantly, we also have now the opportunity to accelerate the access to the open network by converting part of our existing installed base into the open format that I have just described. We have a large pipeline of existing opportunities to further accelerate the deployment of this network in France as well. The business model of the French open network is also now going to be volume based, and we will also deploy the drop box for the retailers who wish to rent it or to use it for the consolidation of their returns. So 3 example of networks in key e-commerce geographies, which will drive significant growth in revenue and consequently, profitability as the adoption and the usage progresses in the future. For the USA, the network is already agnostic and open to all carriers, but with a different business model. So, now that I have given you some of those complementary information, Laurent will now detail the financial results for PLS.

Thank you, Geoffrey. So revenue for Parcel Lockers was EUR 47 million for the first half of 2023. So a 5.5% organic increase and 2.2% on a reported basis. On the one hand, you have subscription-related revenue continues to grow at a solid pace, up 10% in H1, mainly driven by the recent deployment of lockers in France and the U.K., leading double-digit organic growth in these regions. Hardware sales, on the other hand, suffered from the high comparison basis of Q2 2022, declining by 4.4% in the quarter. As detailed by Geoffrey before, we expect deployment of lockers to accelerate in France and in the U.K. in H2, setting the base for future subscription-related revenue. Profitability for our Lockers business is rising by 6 point improvement in current EBIT margin, excluding IFRIC. Current EBIT for the payer stands at a negative EUR 11 million. Improvement in profitability comes primarily from the gross margin expansion with a positive volume mix effect and careful control of costs. As a business in development, the EBIT level for our lockers business continues to be impacted by the high level of investment required to scale the network. However, profitability in Q2 2023, showed a marked improvement against Q1 2023, and we expect this improvement trend to continue in H2 as the increased profitability brought by recently rolled out lockers, continues to drive higher profitability for the installed base. This makes us confident of the longer-term value of this activity. And specifically, the profitability of the installed base reached 13.7% in H1 2023 against 12.5% in fiscal year '22 and 13.1% in H2 2022. Turning to Slide 20 and the summary of the H1 results. So, this slide represents the summary of the H1 results, you find the same information as discussed before, with EUR 522 million revenue for the period and a 2% organic growth broken down by geographies as well as by solutions. We also have the detail of the EUR 68 million in current EBIT for the Group with its breakdown by solutions. Turning now to the P&L on Slide 21. So net attributable income stands at EUR 36 million compared to the EUR 29 million last year, it's a 24% increase. In terms of the main impact, the cost of debt has increased to EUR 15 million against the EUR 12 million last year, mainly due to the rising interest rates and the variable portion of the debt. The income tax has decreased by EUR 6 million to EUR 6 million due to a one-off tax benefit due to an IP transfer. Turning to the cash flow statement now on Slide 22. The free cash flow after CapEx stands at a negative EUR 17 million, reflecting the seasonality of the working capital, but it's also compound with a resilient leasing portfolio and the CapEx that is required to deliver the strong hardware momentum we see on Parcel Locker and Mail-Related Solutions. If you compare to last year, free cash flow after CapEx is impacted by the normalization of tax paid. Moving now to Slide 23 and the CapEx for the period. If you look at the total CapEx, it has increased by EUR 2 million in H1 2023. While this could be perceived as a contained increase, it had changes in the mix of CapEx. On the one hand, CapEx is increasing for first, rental equipment CapEx, which stands at EUR 17 million, where it was EUR 13 million a year ago. This increase is coming from -- mainly from the focus on deploying the open network strategy in lockers, which accounts for EUR 3 million out of EUR 4 million increase, and the [ debt ] that comes from the solid performance of the Mail business, so a significant focus on expanding our post-business post-hardware business. The second CapEx -- the second reason is the CapEx for asset right-of-use that has significant increase, because in H1 2022, we only had EUR 1 million compared to EUR 7 million in H1 2023 due to office lease renewals. And on the other hand, what you see the CapEx decrease, which is the maintenance CapEx, that shows a EUR 5 million decline compared to the EUR 11 million we had last year, now it is EUR 6 million this year. And the main reason is the accounting change, in other words, the IFRIC impact on the specific software CapEx that we had last year. The development CapEx remains at a significant level, underlying -- sorry, the development CapEx is still at a significant underlying level and shows our focus on innovation. Let's turn now to Slide 24 and focus on the debt situation. So, net financial debt for the period stands at EUR 746 million, which is a small increase against the restated EUR 736 million as at 31st of January 2023. As detailed in our press release, at the time of closing the accounts for the first half of 2023, accounting irregularities have been identified within Mail-Related Solutions' Italian and 3 subsidiaries. These accounting irregularities were detected, thanks to the reorganization measures, and in particular, the centralization of support function that we implemented in the first half of [ 2023 ] and have improved the controls in place. These measures have also enabled the Group to react quickly and effectively to this situation as soon as this was detected. At this stage, the verification measures taken following the discovery of this accounting irregularities have established that the apparent involvement of at least 2 people within the finance team responsible for the Italian and Swiss Mail-Related Solution subsidiaries, so likely containment of this accounting irregularities to these local subsidiaries and the absence of any material impact on both fiscal year '22 and H1 '23 income statement. However, the result of the investigations undertaken, both internally and with the support of recognized external experts have led the Group to record accounting adjustments relating to previous financial years. As a result, the total amount of EUR 29 million has been recognized in shareholders' equity in the fiscal year '23 opening balance sheet. For context, Group shareholders' equity amounted to EUR 1.082 billion as of 31st of January '23, before adjustments. The details of these accounting adjustments are in the press release, but from a net debt standpoint, the impact of this accounting adjustment represent a EUR 14 million increase in the opening level of 31st of January '23, hence net debt at the end of fiscal year '22 is now at EUR 736 million against the EUR 722 million that we published earlier. This has no impact on the leverage ratio. At the end of H1 2023, the leverage excluding leasing remains stable at 1.8x, and we are on track to deliver our 1.75x leverage target by the end of this fiscal year. Against that debt, the leasing portfolio remains extremely resilient with a small decrease to EUR 575 million and a still very low default rate. The future cash flows from the rental activity has been impacted by the change in the commercial terms for the contract with Yamato, moving from a rental model to a fee-per-parcel model as we discussed earlier with Geoffrey in the presentation. So, all in all, a solid financial position. Turning now to Slide 25 on our financial structure. We have a solid financial structure with no major refinancing before 2025. Earlier this year, we renewed our revolving credit facility as mentioned by Geoffrey, with a new loan for EUR 300 million and a 2028 maturity. As Geoffrey mentioned in his opening remarks. This is our first loan, including ESG criteria. We have also issued a EUR 90 million Stimulus Participating loan with a final maturity of 8 years, contributing to well-spread out debt maturity profile. Our average cost of debt before the payout stands at 3.7% and roughly 1/3 of our debt is at variable rates. The key liquidity remains very strong at the end of H1, with EUR 170 million of cash and the new EUR 300 million undrawn credit facility. This now concludes my review of the financial, and back to you, Geoffrey, for the outlook.

Thank you, Laurent, for those updates. So, 2023 is the last year of our current 3-year Back to Growth strategic plan, the Phase 2. This plan was designed to focus on leveraging our subscription business model and to drive organic growth and ultimately, EBIT growth. So, to this end, we made investments strategically, right, into complementary solution to our existing Mail-Related Business. These investments have enabled Quadient to create today a balanced, synergistic and integrated B2B subscription platform, which is now growing organically each year. When we announced our ambitious guidance for around 10% organic increase in the current EBIT for the full year 2023, we brought additional focus on improving the profitability of the business. But I want to stress that this focus has not been made at the expense of growth. And we knew that the time was right to be able to drive profitable growth. I'll focus a little bit on some of our areas. For our software business, the change in business model to SaaS is now nearing its end, and the rapid organic growth of our SaaS business give us the confidence that we will be able to deliver an operating profit for this activity in the full year 2023, as we have shared with you before. Our Lockers business is also progressing well and we're confident that the recent wins in H1 will now finally allow us to accelerate the deployment in H2 and will soon drive accelerated growth as well and profitability for the solution. Therefore, I am very pleased with the progress that we made in the first half of 2023, especially at the operating profit level. So, those solid results, I think, demonstrate not only our ability to continue to deliver organic growth for our business globally. But importantly, they demonstrate our commitment to grow in a profitable manner. With this positive trend now well set, I'm confident that organic growth both -- revenue growth -- at the revenue level, sorry, and the current EBIT levels will accelerate in H2m and this will enable Quadient to meet its full year 2023 guidance to successfully complete a strategic plan. So, as you can imagine, consequently, I confirm our full year 2023 guidance at around 3% organic increase for the revenue level and around 10% organic increase at the current EBIT level. With this, we are at the end of this presentation. So, I want to obviously thank all of you for your attention, and we are now ready with Laurent and Catherine to take your questions.

Thank you, Geoffrey. We are now going to start with the question from the line. Operator, if you could open the questions.

[Operator Instructions] Our first question today is coming from Mr. Mourad Lahmidi from BNP Paribas.

So, 3 questions for me. The first one is on the delay of the invoicing regulation in France. I'm just wondering what's your take from that news in terms of the impact on the overall business? I guess it's probably positive for the MRS activity and slight negative for the ICA, but I was wondering how do you look at the impact in terms of -- I mean at a Group level? Second question is on the profitability of ICA. Is it fair to expect the business to turn positive -- to turn profitable from H2 2023 already or is it too soon to say? And finally, on the Parcel Locker business. So you talked about an acceleration of deployments in H2. How much of that comes from hardware sales and how much of that is a rental-based business model?

Thank you, Mourad, These are good questions. So I'm going to address them. So, the impact on the delay the implementation of the new regulation in the French market is something that was anticipated by us because we're obviously part of a group of different players that are working with the government on it. So it was -- it didn't come to a full surprise. This is something that we were anticipating. The impact is roughly right now, and it's not completely necessarily secure, but roughly 2 years. So from what should have started to happen mid-'24, I think they are considering potentially now starting with that implementation, starting in '26 and then they will go from '26 progressively to '27 and '28 to cover both large, mid and small organization, to make a quick summary. You are right, I think, conceptually speaking, as it relates to the type of impact, that means our milling -- our enterprise customers will likely need to print and invoice and mail invoices continuously in paper for longer period of time. So this is likely to have a favorable impact for both our renewals and our hardware sales, in particular, for the folders inserters on the French market on the one hand. And then, you're right that it could delay the adoption of some of the customers on the software side that may felt compelled to potentially adopt a digital automation solution before '24 around that time and potentially postpone their purchase by 2 years. That being said, I don't think it will be that straight. I think some of the impact on the mailing activities, we have already felt it because I think there is already probably 30% of the enterprise in France that are already doing e-invoicing today, and therefore, have already reduced the volume on the physical mail. I know we have seen the impact on that in the previous years. So I am not sure that it will drastically change the impact for [ MS ] in the coming years on the one hand. On the software side, the adoption -- the demand on the market is fairly strong, in particular for the account payable portion. So while there's probably a mass impact that is going to be delayed. I don't think it will slow down the current pace that we have experienced on the demand on the market. I think it's more that the upcoming acceleration may be delayed in the coming years. So I think now that I have mentioned that, I think on our side, for Quadient, we are well equipped to be able to address those digitization needs. We are actually promoting and contacting customers even before the line of that implementation from a government standpoint because I think our role is to help our customers to anticipate and get ready ahead of time, and we'll continue to do so from a marketing perspective. On ICA?

I can take the one on ICA, Mourad, the third question. Last year, H2 '22 was already positive. We know that H1 is usually at a lower level because you have more costs in terms of marketing kickoffs, basically and customer events. We also have usually the annual increase in terms of salaries, so you start from a higher point of OpEx. But usually, the H2 benefits from the order booking from H1 that translates into H2. As a reminder, the improvement of profitability between H1 and H2 last year was around 9 points. Here, we have 7 points between H1 and H1, basically, compared year-on-year. So yes, we will be profitable in H2, and we will be profitable over the year for ICA.

On the Parcel Locker side, fair question too, which given the opportunity to share a little bit some of the business dynamics that we see, mostly the acceleration, I believe, will be on the open network installation. This is really going to be driven, I think, by the pickup of new installation, which we posed for the last 12 months in Japan. So we do expect now some new installation coming. Most importantly, it will be the acceleration of the installation in the French and the U.K. open network. On the French one, based on some of the contract that I have mentioned with Auchan as we need to be able to equip all their stores in the coming months as well as the acceleration now based on the new agreements we have signed with the retail chain in the U.K. That being said, we will continue to have hardware sales. in particular, in the North American market, right? And as you know, on the multifamily segment, the property management in the U.S., we have done pretty good in H1, and we continue to expect to do fairly good as well in H2. The major change on the residence market that we have shared with you before, is that we had higher dependencies a year ago on the new construction, right, the new building being built, and there's always delays in -- by the time those building gets ready and by the time we can install those lockers. So we already made the change to reallocate our go-to-market effort towards more of the existing building. So we had a more mix or a mix that would be more favorable to existing building versus new building. And we made the shift, I told you, I think, in Q1 that we've already seen that 30%, 70% being a switch from one to the other. And in Q2, it has been confirmed, which is obviously good news for us for the rest of the year in H2. We believe that, that change in the mix will allow us a more steady level of implementation and particularly in the recognition of the hardware sales for the multifamily segment. And we had also a pretty good level of hardware recognition on the education segment, which we are a leader in the U.S. market in the universities and with, in particular, some of the new innovation that I just mentioned, this is a segment also that we continue to perform -- that we expect to continue to perform well in H2.

Operator, do we have any other question on the line?

We do not, ma'am.

So, we will move to the questions in writing. So, our first question regards to the accounting irregularities that we have discovered in H1. And the question is, whether there will be a financial impact in H2 or whether it's actually finished.

So, thank you, Antoine, for the question. I would like first to remind that Italy and Switzerland subsidiaries are very small subsidiaries at the Group level. In other words, we are talking here about EUR 20 million of revenue, which is less than 2% of total Group revenue and same goes for the balance sheet. Knowing that the bulk of the topic here are around Italy. What we did in January is that basically, we took the irregularities into consideration for about EUR 8 million, so the gap we had between the local books and the reported books. And then we built, aligning with the Group pool, a sufficient provision to cover the largest assets that are within the subsidiaries, which are basically the trade receivables. This provision was booked in order to cover the risk that we expect to have. In other words, due to the size of the company and the size of the provision we've taken, if -- what we cannot exclude completely, but if there was to be some additional elements to be moved to our H2, it should be very limited.

Moving on to the next question, a question around our guidance. Could you please explain how the sales growth will accelerate in H2 to reach our guidance despite a tougher comparison basis. And there was another question related to the guidance, which is around whether we could increase our revenue further with the overall substantial inflation in the world. So...

Sure. It's a fair question, we may be able to answer together with Laurent. I think if you look at it for us, when we think about H2, you have to look at what we have booked in H1 because we are a subscription business model, right? It's a recurring model. So naturally, we're getting into H2 already with an embarked increased subscription level that you've seen in H1, growing at 5.2% even accelerated, right, level in Q2 even versus Q1. So, we've got a good momentum on the recurring base getting into H2, which is naturally part of the confidence level that is being built for us to be able to meet the top line growth. In addition to that, we have naturally also signed new orders, new booking, and this is where we could look at the 3 different businesses. What we have seen, generally speaking, just on the booking is a little bit slow down in what we call the bigger ticket sales and the enterprise segments. And we see that on PLS, on the Parcel Lockers, we've seen than on the retail segment, which have not changed, right, for the last now almost 18 months. We've seen that a little bit on the software side, even in H1 from the enterprise customers that are delaying a little bit some of their deals. And we saw also in our mailing equipment, some delay in some of the bigger tickets that we have. That being said, the rest of our [ SME ] and the broader base of our booking has been strong in H1. We actually had an increased level of booking in our mailing activity. So we finished H1 with a high level of backlog. I mentioned to you one example of the big deals in Norway for EUR 3 million that we expect to recognize if it not all in Q3, sometime in H2. So we are naturally also having our confidence buildup based on the booking that we've done. On ICA, we have as well, as Laurent mentioned to you, an ARR that has grown at more than 16% versus last year. And the ARR, as you know, for us, is not -- it's a net ARR, so it's not just booking, but includes also the churn, the down sales and the upsell of our customers. So within that, we also have a good level of visibility on the bookings level. We have shared -- I think, Laurent have shared the level of increase in revenue, on the account payable and accounts receivable revenue. And therefore, as the revenue increases because we obviously had a continuation of the increase in the booking in those particular segment on the SME, particularly driven in North America, but we've seen some nice pickup as well in the U.K. And in the Parcel Locker, I think I had responded to the question of Mourad before. It's going to be coming mostly, thanks to the new agreements we have signed, and most of them on the big ones with well-known names and the one we were authorized we shared with you in this presentation. So that will naturally help us achieve as well the increased level of revenue that we expect in H2. I think maybe a little element of context too, is traditionally H2 for us is also always a bigger semester than H1 because we have an oversized Q4 naturally and traditionally and cyclically, as we get into the year. I think today, for the short-term visibility, that one is obviously little bit easier for us to comment on, we expect a decent level of Q3 and an acceleration in Q3 at this stage.

So we now move back to the question on the line. Operator?

Our next question is coming from Mr. Jean-Francois Granjon calling from ODDO.

Just a question on, I think, the tax rate. You had some exceptional impact for the first half. What do you expect for the second half? And what is the normative tax rate for the full year, I suppose nearly 28%, 29% upside?

Thank you for the question. So yes, we have a one-off positive impact linked to an IP transfer that is not to be repeated in this world. Overall, what we usually take as a or you can take as a -- I think as a tax rate is probably around 22% to 23% of profit before tax rate. That's usually what we use.

We now have a follow-up question coming from Mr. Mourad Lahmidi of BNP Paribas.

Yes, thank you for taking this follow-up question. It's about your partnership with Yamato. So I want to start with the balance sheet. I mean the future rental cash flows at the end of H1, EUR 116 million, falling from EUR 176 million. I guess this is coming from the switch to fee-per-parcel with Yamato. So is that entirely from the switch or are there other things that are driving the decline? And second question, could you give us a real-life example in terms of how the switch from rental to fee-per-parcel impacts the revenue base of the company?

So, yes, on the amount that you referred to in the presentation on the calculation of the future cash flow coming from the rentals, the change that you've seen is solely related to the Yamato change in contract because as it was a rental model, we could anticipate the future cash flow coming for the coming years and the value of those amounts. And then -- and as based on the new contract with a fee-per-parcel model, it is no longer part of that future cash flow. That being said, from a payment perspective and a revenue perspective, we do expect similar level as we had before because we have naturally a regular invoicing with Yamato on that, so the payment term is not changing. From a revenue model perspective, it depends on the scenario that we're going to put ourselves into. If you assume a similar level of volume, you should not anticipate too much change on the revenue generation side of the seasonality during the year, but on a yearly basis, we should be able to have the similar level of revenue that we had before. If we had less volume, that would be different because then if we had 5% less or 10% less volume, we would have 5% or 10% less revenue. If on the other hand, we have 5% or 10% more revenue with -- more volume with Yamato, the revenue could increase too. Quite clearly, this could differentiate, right? Because now instead of having a fixed rental model over 4 quarters, we will have that different period during the year, higher and lower quarterly volume on the specific contract of Yamato alone. The bigger difference is the side of Yamato volume evolution is the fact that the boxes that were rented by Yamato now are fully available for us to be shared by other players. So, this is an upside that is represented and since we have renegotiated the agreement is that the utilization not being at 100%, we can now reuse the space available and have complementary volume in addition to Yamato. So this is what the team is now obviously working on, is negotiating additional agreement with other strategic players in the Japanese market to secure additional volume that could help us complement the base and the usage in Japan. And as a result, this is when you can look at the consequences on the EBIT or the profitability of the base. So same thing, if we were just to look at narrowly on Yamato, depending on the volume differences, we could lose a little bit on the EBIT on the short term. On the other hand, if you think -- if you envision the scenarios where Yamato could give us more volume, but naturally with more volume, more revenue and therefore, for the same cost base, more profit. And if we can complement and increase the usage of the base, thanks to additional volume, we'll have an exponentially naturally profit increase, considering that the costs are fixed here. And a quick reminder on the cost side. We are also now starting to see the benefit of the end of the period of amortization of the lockers because we have implemented lockers 7 years ago. Laurent has amortized the lockers over a 7-year period. So this year, next year, the year after et cetera, we're going to start to see an increased level of reduced level of amortization on the same lockers. So that I think is as much I think color I could give on the benefit of this change of model for us.

We have no further audio questions at this time ma'am.

Okay. So we'll move back to the question on the line. There was a similar question on the profitability and usage rate of the Japanese local network, but I think we've answered this one. Still a follow-up one on -- so we'll move on to the guidance to stay in numbers. And you may have missed in the -- so the question is, how does the long-term projected EBIT or EBITDA margin compare between the key business unit at Quadient.

I can take this one.

We do not share EBITDA margin indication by solution.

So, when we discussed the profitability by solution, we disclosed about EBIT and notably since the full year presentation where we disclosed EBIT by solution and where we've shared as well the mid-term targets by solution with ICA expected around a 13% of EBIT margin on the full year basis at the end of the plan. So at the end of fiscal year 2023. Mail-Related Solutions between 22% and 24%, and we had the opportunity to come on the level where we stand today, which is in the higher range of that given target. And the Parcel Locker Solution, where we mentioned the target in terms of the installed base margin. between 19% and 24%, where we are close to 14% as we speak. And we've seen the considerable improvement, both on the ICA and Parcel Locker side that basically shows the mid-term targets achievement that are expected.

So we are going to move to questions on the Mail-Related Solution. Can you detail the time line and the impact of the decertification of mailing machine in the U.S.? And do you expect growth in the short term?

Sure. It's a very good question. So, the mail densification of the U.S. is happening currently, and this is supposed to end by the end of 2024. If there's no particular extension, that would be granted after that. And yes, the -- yes, there is opportunity for potential upside as we potentially can capture or not, a larger share of new acquisition, new customers during that period of time. And if we obviously do a good job, which the team is doing to be able to renew and extend the existing contract and upgrade them with those new machines.

Steven, on the mailing side, is Quadient investing in stand-alone cloud-based mailing solution for enterprise accounts? Or do all solutions from Quadient have to be meter-based? And the same question applies to shipping solutions.

No, we do have a solution that works on a stand-alone basis. So you do not have to use the meter to get the benefit of our cloud-based mailing and shipping solution. This is definitely an area of growth for us in the mailing activity. We do offer both a stand-alone capability on the cloud to help our customers manage remotely. They need to mail and also to ship, on the one hand. We provide that obviously with very advanced capabilities on the hardware side with our range of products. But we also, in a differentiated way in the market, provide the combination and the integration of both the cloud platform and the hardware platform together.

And I think we have no further questions. So, thank you very much for attending this call. Our next presentation will be on the 29th of November for the Q3 sales release. And in the meantime, we are looking forward to meeting some of you in meetings during our roadshow. Thank you very much, and have a good evening.

Thank you, Catherine. Thank you, Laurent. Thank you, everybody.