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

Good evening, and welcome to Quadient Full Year 2023 Results Presentation. I am Catherine Hubert-Dorel, Quadient Head of Investor Relations. Today's presentation will be hosted by Geoffrey Godet, the CEO; and Laurent Du Passage, the CFO. The agenda for today's call is on Slide 3. And as usual, you will have an opportunity to ask questions at the end of the presentation. [Operator Instructions] And with that, over to you, Geoffrey.

Thank you, Catherine. Good evening. I'm pleased to present you the highlights of a solid performance for the full year '23, which confirms our sustainable and profitable growth trend initiated now, a few years ago. Revenue for the period came at EUR 1.62 billion, up almost 2% organically. And our recurring business model, now representing more than 70% of the total revenue of Quadient continues to drive faster organic growth with the subscription rate revenue up 3.4% this year. At EUR 157 million, current EBIT showed a 9.3% organic increase. Let me repeat, a 9.3% organic increase. This growth is mostly driven by the improvement in profitability that we had this year from both our software and our local businesses, which is more than compensating the small EBIT decline from our traditional mail business. On a reported basis, this is the third consecutive year of increase for the current EBIT. Full year '21 marked a low point in our trajectory, as shared with you back then. With this solid set of results, we will be proposing an 8% increase of the dividend to EUR 0.65 per share, which represents a third consecutive year of increase as well for a dividend. So overall, a positive full year performance, which also marks the end of the '21, '23 strategic plan. Turning now to Slide 6 on how the full year results compared to our guidance and for the year, and also our midterm ambition of the 3-year period. Slide 6. So last December, during call for the third quarter, we mentioned that the organic growth rate of our revenue was a little bit lower than the 3% initially envision. And we lowered the full year guidance to around 2%. This was due to the anticipated weaker performance of our local business, and we'll come back to it. Despite this small adjustment, Q4 '23 is marking the seventh quarter of organic growth in a row for the group, and we have delivered a 1.9% organic growth versus last year for the full year. At the current EBIT level, we have kept our commitment and delivered a 9.3% organic increase, a very solid performance, thanks to both growth in our subscription revenues and rigorous operating discipline, especially as it relates to managing our costs. With the full year 2023 result, we also closed our 3-year strategic plan. We'll come back on the solid achievement in details. At the end of the presentation. But from a pure financial standpoint, we had disclosed financial ambitions for the period when we first launched the plan in 2021. At the revenue level, organic growth for the 3-year was set at 3% and revised to 2.5% last December '23. We have, therefore, delivered the performance in line with that ambition. Moving to the current EBIT level. We're just shy of the mid-single-digit average organic increase that we were targeting and finished the plan with a 3.3% organic CAGR over the period. Lastly, we have delivered this organic performance while deleveraging the company and have even exceeded our 1.75x target leverage, excluding leasing, as we closed the year at 1.65x, and the macro environment has certainly brought with it some challenging trends, not actually in vision, such as the evolution of labor markets during these last few years, interest rate pressure and inflation. And despite all of these, the last 2 years of agility has demonstrated that Quadient is now on a sustainable and profitable growth trajectory. Moving to Slide 7. I want to share with you a few words on governance. As disclosed earlier in the year, we have added some significant change in our shareholding structure with the arrival of VESA Investment and also of Bpifrance as 2 new large shareholders in '23. As you can see on the graph on the left-hand side, VESA is now our largest shareholder at more than 12% of our share capital. Additionally, we signed a governance agreement in July '23, right, which include the opportunity for Bpifrance to request a Board seat should their shareholding crosses the 8% threshold. That's what we announced to you in September last year. This level has been crossed at the end of last year, '23, and following the due diligence process from our Remuneration and Nomination Committee, Bpifrance Investment has been co-opted to the Quadient Board as of last Friday, following the resignation of Sébastien Marotte from the Board. I want to take the opportunity to have the Quadient Board to thank Mr. Marotte for his contribution to the Board over the last years. We are delighted to welcome Bpifrance and Emmanuel Blot, its representative, to the Quadient Board. This cooperation will be submitted to the approval of our shareholders at the next AGM naturally on June 14, 2024. I will now hand over the floor to Laurent.

Thank you, Geoffrey. Good afternoon and good morning, everyone. I am Laurent Du Passage, I am Quadient's Chief Financial Officer. Before turning to the details of the financial performance for the year, I would like to make 2 important points. First, you may remember that the closing of the H1 2023 accounts, we discovered accounting irregularities in the Italian and Swiss subsidiaries for Mail-Related Solutions. Let me give you an update on the situation. The investigations are now completed and the case is closed. What we are pursuing is election against [ those believe ] to be involved. At this time, we can confirm that this was an isolated situation, perpetrated by a few employees. And that this is a past issue with no material accounting impact on both '22 and '23 financial accounts. Regarding the past accounts, we have made an additional EUR 23 million final adjustment to the opening balance sheet of 2022 related to noncash items, mostly other valued assets and undervalued liabilities. This is in addition to the EUR 29 million we recorded in H1 '23, and this is the final correction. We did not expect any other corrections to historic accounts as the investigation is now closed. Second, our investigation showed that the accounting irregularities impacted mostly the Italian Mail subsidiary. We have, therefore, decided to review the future of our Mail activity in Italy and have initiated the process to sell the subsidiary within the 12 months. Consequently, from an accounting standpoint, the financial statements associated with this subsidiary have been classified as discontinued activities under IFRS 5 for both 2022 and 2023 years, this subsidiary representing EUR 10 million and EUR 8 million of revenue, respectively, in those years. Moving now to Slide 9. Revenue for Quadient in the full year stands at EUR 1.62 billion. It's up 1.9% year-over-year on an organic basis. The graph on the left-hand side presents a breakdown by geography and by type of revenue since throughout the year, organic growth from substitution rate revenue continues to outpace good performance with a plus 3.4% organic increase. For the year, they now represent 70% of group total. Also similar to the trend we've seen this year, North America continues to be the group main driver of organic growth. It's at 4.5% with all 3 solutions posting positive performances. North America represents 57% of our total revenue. The main European countries posted a contrasted performance with an improving trend in France, Benelux, which grew for the first time in many years, but a weaker performance in the rest of the European countries. From a solution standpoint, the decline is mostly linked to the Mail-Related Solution. And lastly, International had a 1.9% organic increase, good performance supported by both the Software and the Mail activities and in the context of the change in the contractual agreements with our partner, Yamato, for the Locker Solutions. Turning to the current EBIT before M&A-related expenses on the right-hand side, I'm pleased to report a 9.3% organic increase and EUR 157 million reported figure. Now let's turn to Slide 10 and our traditional revenue bridge by solution. This clearly shows the respective contribution from our solutions with a strong organic contribution from ICA an almost stable performance from MRS and a small organic growth from PLS, this leads us to 1.9% organic growth for the group. The reported 0.8% decline is driven by a EUR 4 million negative scope impact. Obviously, it includes the disposal of our graphics activities in the Nordics and shipping solutions in France back in June '22 and the acquisition of Daylight in Canada in September '23, but also the EUR 25 million negative impact of ForEx, mainly linked to the dollar weakening against the euro. Moving now to next slide. We present here the same bridge regarding current EBIT before M&A-related expenses. And again, you can clearly see the contribution by solution. The very positive dynamic in place with a 9.3% organic growth, driven by the development in current EBIT level for both our software and locker solutions that are more than compensating the decline from Mail. From a reported standpoint, we are moving from EUR 151 million last year, EUR 257 million. Hence, reported EBIT growth of 4.4%, impacted by EUR 2 million negative scope effect and a EUR 5 million negative ForEx. We will now move into the detail of each division. Over to you, Geoffrey.

Thank you, Laurent. For software solution, 2023 has been the year of the launch of the Quadient Hub, as you know. We introduced our new integrated platform in April 2023. As we discussed during our previous presentation, this release was a key milestone for us and especially for its future potential growth. So I'm pleased to report that today, customers adoption of the hub continues to progress well and with around more than 4,000 customers now fully onboarded across the world. And the platform satisfaction levels are high. The integrated platform approach allows for a few benefits: faster integration for innovation, mutualization of applications, deeper integration with our partners and obviously, increased upselling opportunities as part of upselling the modules of the suites. 2023 has been another also fruitful year for innovation. With, as you know, the release of our intelligence -- Artificial Intelligence enhance, cash application module. The rapid integration of Daylight, our new iForms module, which we acquired in September. So with this enriched platform, we've been able to develop new integrations and sign new partnerships, making our platform easier to connect to for our financial automation customers, in particular, and all of our partners. We have recently, as evidence of this, become a Sage Tech Partner Plus partner. We have also added the [indiscernible] data to improve credit scoring through AI and machine learning. And we now also integrate with Xero, another accounting solution in the market for smaller businesses. All these innovations on the one side, partnership and integration on the other are key drivers of growth for the hub and combining these with our unique cross-sell ability is a very powerful driver for success. Turning to Slide 13. After external validation from our customers, we have also specialist firms and analysts who continues to rank our product as leaders in their field. Earlier in the year, we shared with you our first IDC and also the Quadrant ranking for financial automation solutions. This time, the recognition is about our customer communication management offering, and I am extremely proud to report that our solution has again achieved top ratings for technology excellence and customer impact in the Quadrant report, and it has a leadership position on 3 key market grids for the Aspire Leaderboard. Laurent will now detail the financial performance of ICA.

Thank you, Geoffrey. ICA represented EUR 245 million of software revenue for Quadient in fiscal year '23. It's a 9% accounting increase and an 8% on an organic basis -- on a reported basis. I've seen throughout the year the organic growth in revenue comes from the strong progression of our subscription-related revenue. It's up close to 17% organically in the period. This solid performance more than offsets the decline in license sales and professional services. All regions contributed to this excellent performance. Our annual recurring revenue continues to increase and stand at EUR 206 million as of 31st of Jan 2024. It's an annualized organic growth of 12% compared to the end of last year, while it was impacted by 2 large contract postponements that we already mentioned in the 9 months sales presentation. From a profitability standpoint, I'm very pleased to say that we are now EUR 1 million positive, which is the current EBIT for ICA. The current EBIT margin was, hence, improved by 4.8 points compared to last year and now stands at plus 0.3%. This is another strong point after the positive trend since the inflection point in H2 2022. Importantly, this improvement has not been done at the expense of growth. I have just mentioned the 16.8% organic increase in subscription-related revenue and investments in R&D. We are building a profitable and growing platform for the long term. The improvement in profitability reflects the contribution from the incremental margin of higher subscription revenue, which at 80% of total revenue is the key driver for the solution. The impact from the business model shift from license to SaaS is almost over. With the focus on scaling the platform, we expect the improvement in current EBIT to continue in the coming years. Over to you now, Geoffrey for Mail-Related Solutions.

Thank you, Laurent. I have mentioned on numerous occasions, how the upgrade of a range of product and release of new, more connected device has been key to drive product placement for Mail-Related Solutions. And tod, I can confirm again that the solid product placement trend continues. You can clearly see it in the graph on the left-hand side, with the share of upgraded installed base, now standing at 31.5%. This is a very fast pace of our upgrade that we've been delivering so far. The multiple wins within the U.S. health care industry that you can see on the right-hand side is a good example of how the right combination of both hardware and software products enables our Mail-Related Solutions to remain very relevant in a very attractive industry with critical communication needs. Thanks to also some strong sales and marketing team, we've seen a solid year-over-year increase in bookings through the full year 2023. Our teams differentiate themselves on the market with the placement of mailing equipment being eased by the ability to offer a combined package between hardware and software, but also by cross-selling software into hardware customers. If we take the example -- one example, sorry, the contract with the Maryland State Department of Education is the placement of a new machine with a software product for an existing customer. This is a very good example of this successful approach with our customers that our sales team takes. Laurent?

Thank you, Geoffrey. Revenue for MRS came in at EUR 729 million. It's almost flat on an organic basis, and it's down 2.4% on a reported basis. This is a solid performance as our Mail Solution continues to gain market share. It's outpacing current market trends. Subscription-related revenue recorded a very limited 1.3% organic decline in 2023, thanks to a solid performance throughout the year. This was supported by a robust rental product placement, positive impact on revenue, recurring revenue of recent good performance in hardware sales and positive contribution from usage. We finished the period with some strong bookings, leaving us in a resilient position for 2024. Turning to the current EBIT for MRS at EUR 177 million, the current EBIT translates into a high 24.3% margin, which is above the 22% to 24% midterm indicated range. The small decline against last year level is due to the investments in sales capabilities and a small decline in gross margin. Now over to you, Geoffrey, for Parcel Lockers on Slide 17.

Thank you, Laurent. So we have increased our focus on volume and usage naturally with a view of improving profitability per locker. This increased focus on usage stems naturally from our experience in Japan, where we have a large base of lockers in an open network mode. The renegotiation of the commercial terms of the contract with Yamato towards a fee per parcel model is also part of this focus on increasing the modernization of our locker base. So we're, therefore, building upon the strong relationships that we have with international carriers to deploy an open infrastructure that is going to be remunerated through usage. Our approach is a win-win for Quadient and our partners and customers, as they gain flexibility in their last mile strategy, while Quadient monetize this profitable infrastructure. In terms of geographical expansion, we're currently building open networks in the U.K. and France. The initial ramp-up in volumes now in the U.K. and France give us strong confidence that this is the right strategy to pursue. In that context, we have continued to deploy lockers and have now reached the 20,000 lockers mark at the beginning of 2024. This corresponds to a solid 16% '21-'23 CAGR and unit increase. Our focus is clearly on securing prime location, such as the one like Auchan [indiscernible] and hypermarkets in France that we won this year, and they will drive a high level of volumes rather than deploying quickly in less attractive locations. In the U.S., our expectation continued and continues at a steady pace in both the university and the multifamily vertical segments where we maintain a leading position in the market. Now to you, Laurent.

Thank you, Geoffrey. Revenue for Parcel Lockers was EUR 88 million for 2023. It's a 1.6% organic increase, and it's a 3.1% decrease on a reported basis. The shift in focus from the rental model towards usage-based fees for the commercial agreements with Yamato and with Auchan impacted the solutions, organic growth in subscription-related revenue, which came in at 5.3% for the year. This focus on deploying lockers in an open mode in prime location is leading to a delay in subscription-related revenue versus a pure rental model as volumes need some time to ramp up. However, we are seeing encouraging usage rate increase in the U.K. and the solid volumes in Japan, which validates our business approach at minus 7.5% organically, the hardware sales suffered from a high comparison basis due to one-offs last year. The profitability for our Lockers Solution improved by 4.4 points, though still negative at minus 23.4% current EBIT margin. The improvement came mainly from efficiency measures but also lower freight costs. As we continue to deploy lockers, we expect the current EBIT for lockers business to improve but at a slow pace due to the high level of investment required to scale the network. Profitability of the installed base continues to improve, reaching 13.6% in the fiscal year '23. It's a solid performance considering the change in commercial agreement with Yamato weighing on operating profitability in the short term. Now turning to Slide 19. This slide presents you with a summary of the full year result. You find the same information as discussed before, with the EUR 1.62 billion revenue for the [ period ] and the 1.9% organic growth broken down by geographies and by solutions as well as the details of the EUR 157 million in current EBIT for the group with its breakdown by solutions and the respective margins. Moving now to Slide 20. Net attributable income stands at EUR 69 million compared to the EUR 13 million last year, a return to more normal level after the impact from goodwill impairment last year. In terms of the main impact for this year, I would highlight the overall positive evolution of our net financial income with, on the hand, lower for excesses and the benefit of improved valuation for the investment fund we have share in and on the other hand, cost of debt increasing slightly due to higher interest rates on the variable portion of the debt. And as discussed at the beginning of the presentation, you can see the mail Italian subsidiary, we classified in discontinued operations. As we said, process for this subsidiary has started. This amount includes also fair market value adjustments and cost to sale for approximately EUR 7 million. Turning to cash flow statement on Slide 21. The free cash flow after CapEx stands at EUR 64 million. It's a solid level despite the higher interest and income tax paid this year compared to last year, with no contribution from our leasing portfolio, which reflects the extremely solid product placement of our Mail Solutions and higher CapEx for both mail and local solutions. Working capital was clearly more favorable this year than last year that was impacted last year by the high increase in inventories for both mail and lockers, notably due to some delays in their placements. And if you move to next slide, 22. The CapEx level that we can see here has increased by EUR 14 million compared to last year. It's mostly driven by a significant increase in rental equipment CapEx to the dark blue part. For both our mail business and Parcel Locker Solution, moving from EUR 30 million to EUR 44 million compared to last year. On the other, CapEx line, you have a lower development CapEx after 2 years of high investments and a decrease in maintenance CapEx. That being said, you have some CapEx linked to IFRS 16 that have increased due to the new office and lease renewals. If we now move to the next slide, Slide 23. The net financial debt for the payout -- and at the end of the payout, stand at EUR 709 million. It's a small decline against last year. I'm very pleased to report, as Geoffrey mentioned, that at the end of this year, our leverage, excluding leasing is down to 1.65x, a level which is below our 1.75x target we set at the beginning of our 3-year plan. Importantly, this reduction in leverage has been achieved in the context of higher CapEx and stable leasing portfolio, as we have just discussed. Regarding the leasing portfolio, it actually increased in our [ profit ] figures compared to last year, closing the year at EUR 598 million so a very solid operating performance for our Mail Solutions, a small positive ForEx impact and we see still very low default rate. On the rental side, as you can see, and discussed at the H1 result, the future cash flow from this activity has been impacted by the change in commercial terms for the contract with Yamato, moving from rental model to a fee per parcel model. Now turning to Slide 24, on our financial structure. It remains very solid with no major refinancing this year. And refinancing for 2025, as you can see, with our bond reaching maturity. We have not sat idle and have already started to tackle this refinancing by partially buying it back in H2 this year for a total amount of EUR 57 million. This has generated a financial gain of close to EUR 2 million in our P&L for this year. Our average cost of debt at the end of the payout stand at, 3.88% roughly, and roughly 1/3 of our debt is at variable rate today. Liquidity remains very strong at the end of this year with EUR 118 million of cash and the new EUR 300 million of undrawn credit facility that we negotiated last June. Turning now to Slide 25 and our proposed dividend for the year. We are submitting to the vote of the AGM a EUR 0.65 dividend per share, representing an 8% year-over-year increase and a 3.4% dividend yield. This is above the minimum dividend policy of 20% payout ratio and it represents the third consecutive year of increase. This concludes now my review of the financial, and back to you, Geoffrey.

Thank you, Laurent. So 2023 was the last year of the Phase 2 of our current strategic plan. Back in 2019, we launched our Back to Growth strategic plan, as you know. The first phase of the plan was designed to set up a sustainable value creation business model based on an integrated organization, which allowed us to drive synergies and benefit from mutualizing costs across those solutions. In 2021, we launched the Phase 2 of the Back to Growth. The second phase focused on 3 priorities: complete the portfolio reshaping, focus on the revenue growth and driving synergies, and third one is to align our ESG objectives with our business strategy. We have successfully executed this important second phase of the plan. So let me take these 3 priorities in turn and other achievements. If we move to Slide 28. As mentioned, we started a portfolio reshaping during the first phase of our strategy in 2019 by divesting all noncore activities. In parallel to the divestments, we made investment to grow and improve, notably to growth solutions. These were the acquisition we made each year with Parcel Pending in 2019, YayPay in 2020, and Beanworks in 2021. With the disposal of our last noncore activities in 2022, we closed this divestment chapter. Having reshaped the portfolio also allowed us to align the financial reporting of Quadient and provide you with an EBIT by solution very recently. Most recently, we also -- we continued our producing approach to M&A with the acquisition of Daylight, which we purchased in September 2023 and has already been fully integrated as a great addition to our cloud platform. And we also completed the acquisition of Frama, but I will come back to this one a little bit later. So moving to Slide 29. What is Quadient today? Quadient is an innovative B2B subscription platform, which powers billion of critical business transaction every day. Our focus is quite simple. We leverage our large, more than 400,000 customer base as the foundation of our expansion as we upsell our existing customers with new solutions, as simply put. We are a subscription revenue business model in all our activities. As evidenced, 70% of our revenues are recurring and this is the key to drive predictable and profitable growth. Our solutions are well recognized by the market. Our software platform is recognized as a leader by multiple analysts. Our mail activity is #1 in Europe, #2 globally. And our open network of lockers is #1, in particular, in our chosen geographies. Simply put, we win because we're the best at what we do. So the complementary -- complementarity of our solutions and through the integrated approach, we drive significant revenues and cost synergies. And we're also attentive to making a positive impact through our solutions, and I will come back to our ESG engagement in a moment. And last but not least, our software and lockers activities are supported by favorable market trends, completing this virtuous circle. Turning to Slide 30. I want to give you an overview of the past years in terms of organic revenue growth trend and current EBIT. When we initiated our Back to Growth strategy, the group was in a declining trend for almost 10 years, both in terms of revenue and current EBIT. Aside from 2020 and the significant impact from the COVID crisis, the company has been able to end this downward trend and start growing in a profitable way again. It is important to stress that this return to organic growth in revenue and EBIT has been -- sorry, has been achieved and despite losing close to EUR 50 million of M&A-related revenue 2020 due to the COVID crisis, right, but was never to be recovered afterwards. We're also undergone a strong business model transformation in our software business, moving from an on-premise license to a SaaS business model, and we have to replace 50 million in license over this period. So moving to Slide 31. We also set out, I believe, a clear capital allocation policy at the start of our plan. And we have since executed it with a very rigorous discipline on every aspect of it. So first, an overview on the CapEx side. Our annual CapEx has been slightly below our initial expectation, a combination of lower rental CapEx for both our mail and lockers business, but also careful spending on maintenance CapEx and efficient development of CapEx investments. We have reached and even exceeded our 175% -- our 1.75x leverage target. This is the leverage, right, excluding leasing as we closed the year at 1.65x for this leverage ratio. This prudent financial approach has proven to be the right path as interest rates have been rising through the course of the plan. We have deleveraged the company despite investing at EUR 62 million during the period to successfully complete the reshaping of our portfolio. And last but not least, we have remunerated our shareholders attractively with a dividend that has increased every year since the EUR 0.50 floor that was set. With this year's 8% proposed increase, this will be the third consecutive year of increase in exceeding our minimum dividend policy every year. So let's turn to Slide 32 for the review of our solution performance over the period. Our software solution underwent, as you know, a massive transformation through the Phase 2 of our Back to Growth plan, and yet it still delivered an impressive growth. Toward the past few years, we set out to move away from an on-premise license business model to SaaS subscription-based business model. This is quite a major transformation for a software organization. With 80% of our revenue being now subscription-based and 82% of our customers using our SaaS product, this transformation is almost completed. And throughout the plan period, we have been able to deliver an average of around 17% of subscription organic growth per year. This is higher than the average annual growth that we estimate on the market in which we operate. If we look at our annual recurring revenue, our ARR, has followed a slightly faster trend with an average annual growth of 19%. Profitability has obviously been impacted by this significant change in business model, but we are back to profitability as we close this plan and we are expecting the improving trend of profitability to continue naturally next year. From a platform standpoint, the rollout of Quadient Hub is setting us support, I think, today from the competition as a recognized leader for most of our modules by external analysts. And I think it's a testimony of the high value proposition of what the Quadient Hub is proposing today. This integrated and complementary value proposition for our customers will drive for more upsell within the platform in the coming years, in particular. So where does that leave us versus our competition? Turning to Slide 33, naturally higher subscription growth rate than the estimated market average growth rate has translated into Quadient winning market share over the years. We have observed this at Quadient software level, but also within each of the segments of our platform. If I take a few examples, clearly shows that we're continuously closing the gap in the CCM segment on the left-hand side of the chart, with the larger players moving from 8-point difference with us to less than 3-points at the end of 2022, and obviously, we look forward to the next evaluation from IDC for the 2023 year. With the chart on the right side of the slide, you can see that the solution we acquired for AP and AR, which was the YayPay and Beanworks companies, have accelerated their performance against all market players, but one since we have acquired those companies. These investments have strengthened our go-to-market by leveraging customers and sales synergies with the rest of Quadient. So even as we started from a low volume, we have gained market share much faster and continuously every year for the last 3 years. Now turning to the performance of our Mail activities during the same period of time. Clearly, the past 3 years have been extremely positive for Mail Solution with a very resilient performance, outpacing its peers in a declining market. Overall, our Mail-Related Solutions have delivered an annual average of 0.6% growth over the planned period, a 0.6% growth over the planned period, a much stronger performance versus our expectation that we had set in 2021. Hardware sales have been growing for 3 years in a row. Innovations and upgrades in the product range have also played a key part, I believe, in maintaining a solid dynamic of product placement and continue to gain market share versus our competition. The fast upgrade of our install base is a clear proof of the adoption of our new product range. Our integrated ESG approach to designing products has provided a great opportunity for our customers, right, to both up-cycle existing products but also to reduce waste. And that also contributed to keeping our mail margin at a high level. Our careful approach in managing this activity and the important -- and most importantly, I think, the synergies that generated between all the solutions in terms of both cross-selling with our other solution, right, but also the optimization of the supply chain, the optimization of the back office support are the reason why we delivered a very high level of operating margin, even closing the plan above the indicated range that we said in 2021. So successful 3 years for our Mail Solution in a very challenging market. Moving to Slide 35. As we discussed earlier, our Locker Solution has been evolving with an increased strategic focus recently towards the open networks to drive higher return for locker. This has slowed momentarily the pace of the [indiscernible] locker base. That being said, we still closed the plan with a 55% increase in numbers of lockers installed, reaching over 2,000 units versus the 13,000 that we had in the end of 2020. And we'll continue to focus on driving higher volumes through our entire base, but we're also confident that the share of recurring revenue currently standing at 61% will increase as well the profitability. Speaking of profitability, at 13.6%, the installed base profitability is already attractive. So this is really a matter of scaling the network further to get an overall profitable level at the solution level. Our experience in Japan, where our market share still exceeds 75% and the initial volumes ramp-up that we see recently in the deployed networks in France and the U.K. makes us confident that we are focusing on the right approach. As you know, innovation has also played a key part in the development of parcel locker offering, and we've been able to develop unique features and models to respond to a wide range of use cases. And most notably, the award-winning Drop Box to consolidate returns. So now let's turn to Page 26. We have designed our ESG ambition around 5 key pillars important to our business: our people, ethics and compliance, environment, solutions and financial pay. These 5 pillars are fully aligned with our business strategy as they cover all aspects of our plan from customer satisfaction to product innovation, continuing to invest in our people and improve the profile of our workforce, recognizing ethical behavior to nurturing our inclusive culture, which benefits Quadient, its communities and the planet. So I'm proud to report that we have met or exceeded our ESG ambitions over the period. I won't read them all. They are on the slide, but I would like to really thank all of the Quadient employees for their passion and their engagement towards this important objective, which contributes to making, I believe, Quadient a better company every day. Turning to Slide 27. These achievements are not just recognized internally, right. There are rankings by external agencies, which also demonstrate these achievements. So this is a summary of our annual ESG rankings by leading independent firms. The consistency and even the improving trend of these high rankings is a testimony to our commitment to growing Quadient in a sustainable way. So I'm pleased to conclude the review of our ESG plans achievements on such a high note. So now let's turn to 2024. Before I talk about the outlook for the year, I would like to spend a few minutes on 2 important deals that we have announced since the beginning of the year. The first is the acquisition of Frama, which was closed on the 1st of February 2024. Frama is a natural addition to our mail business, adding around 13,000 additional small and mid-European customers to our already large customer base, as you know. In addition to the opportunity to offer customers with the choice to upgrade their existing product to Quadient's range of intelligent machines, I think this is a great timing for us to reinforce our presence on this segment of customers for a software solution ahead of the upcoming e-invoicing laws in Europe. Integration should come quickly as we have been working as partners with Frama for more than the past 10 years. Now turning on the right side. To this morning's announcement, I'm also pleased to announce that we have signed a major contract with Royal Mail in the U.K., which is going to start using our open network for Parcel Lockers. Royal Mail is a major addition to our existing 4 international carriers already using Quadient's open network as Royal Mail is not just any carriers, the largest U.K. carrier. So welcoming Royal Mail to our network, our open network, we'll now have the opportunity to access the maturity of the volumes in the U.K. market as these 5 carriers represent around 75% of the parcel market. Royal Mail's usage is scheduled to start as soon as 2024, and we'll in time offer these customers to boost pick up and drop off of parcel through our dedicated Drop Box. This is a fundamental addition to our network, which I believe demonstrate the attractiveness of our agnostic open network approach on the market. So Royal Mail decision to join our network is making Quadient truly unique in the U.K. market as our toward winning intelligent lockers enabled us to continue to differentiate ourselves from the local competition. Moving to Slide 40. With these 2 deals, 2024 is starting in a very promising way. We're expecting to continue to deliver organic growth, both at the revenue and current EBIT level in '24. In terms of timing, we expect the performance to be weighted towards the second half of the year, with H1 and Q1 in particular being impacted by the change in contractual agreement with Yamato and the postponement of the large contract and our software solution in terms of comparison basis. I'm not going to dwell too much into the outlook as I'm looking forward to sharing with you the next phase of our strategy, and Capital Market Day scheduled for June 19, 2024. So with this, we're at the end of this presentation. I want to thank you for your attention, and we are now ready with Laurent and Catherine to take your questions.

And we will start with the questions on the conference call. Operator?

[Operator Instructions] We will take our first question from Patrick Jousseaume, Societe Generale.

Can you hear me?

Yes. very well, Patrick.

Okay. So I was just curious about the lack of detail regarding your 2024 guidance. Should we expect you to let's say, to give more details on June 19?

Most likely, and we'll be able to give those details about the [ 2022 ] expected performance in context of our new strategy or a new plan announce for the next coming 3 years.

[Operator Instructions] We will take our next question from Jean-Francois Granjon from ODDO BHF.

Jean-Francois Granjon speaking from ODDO BHF. Just a question regarding the PLS business. We see a decrease for the last quarter, and we saw limited growth for the full year organically. Could you explain us why it is so limited growth? And what do you expect for the coming years?

I can begin, if you want to -- either way...

Yes, you are correct, and we can see a decrease for the last quarter. Last year, on the [indiscernible] Q4, we had some hardware placement regarding Parcel Locker, notably in international operations, but also in North America. This has not happened this year. Conversely, we've been placing a significant amount of lockers on our open networks in France and U.K., which have not delivered yet revenue because the volume is ramping up and that explains basically the decline we saw in Q4 and the moderate growth, I would say, for the full year. Last but not least, on the Japanese side, as mentioned during the -- the last, I think, it was H1, during the H1 presentation, Yamato has reengaged with us on a fee per parcel basis, while it was a rental before, which allows us to basically fully open the network we have in Japan and benefit potentially from higher usage from the other carriers that we have in the locker. Obviously, in the short term, this has impacted the revenue and the profitability but the revenue of Japan. That being said, all those steps are here to make the open network for France, U.K. and Japan successful. And I think the announcement that we had this morning on Royal Mail is fully comforting us in that strategy that the open network is key and differentiated to be successful in this market.

Okay. And the question regarding the profitability for the PLS. If I want to understand in the presentation, you mentioned some moderate draws for the profitability, it would depend on the investments you want to meet. So nevertheless, do you expect some lower losses compared to the [indiscernible] losses last year. So lower losses in 2024?

So we'll have, I think, all the time to further dig in by solution during the Capital Market Day that we will hold in June. But you understood right. The rollout of the open network, both in France and the U.K. has a cost. This cost is simply the amortization of the locker, while -- which is flat. I mean, it's a straight line of amortization across the lifetime of the locker while the volume, obviously, ramps up. And the more it goes, the more it's being filled. So yes, you have a squeeze at the beginning of this investment that will be weighing on the overall profitability. That being said, on the other side of the business and probably in North America, we have -- we enjoy a very good profitability. And as you've seen, the installed base, existing installed profitability continues to increase. So I think we'll have the opportunity during the June Capital Markets Day to go further in the details of what is the pace and the type of development we expect on profitability of this -- of this business and the longer term, I think, which are also important to you.

We will take our next question from Maxence Dhoury, BNP Paribas.

First one is a follow-up on the question regarding PLS CapEx. Is it safe to assume that this year and in the next few years, as you focus on open networks, the business would be a bit more CapEx intensive than it used to be? And that CapEx could grow again at the last year? And maybe second question, my apologies, if you mentioned it and I missed it, is regarding the previous subsidiary in Italy for MRS. Do you think this subject will be closed for the Capital Market Day? So either the subsidiary will be closed on or either it could be sold before June?

I can complement on the CapEx, if you want on the locker.

Yes, absolutely.

So it's a good point that you raised on the locker implementation and the CapEx impact. The amount of CapEx will have in any given year as it relates to the CapEx related to the lockers will be a function of the numbers of lockers we installed in the open network model in a given year. And depending on the configuration of those lockers, depending on the location that we choose. So just as a context, we have a configuration of lockers for which the value that needs to be CapEx could vary from a few thousand euro up to EUR 20,000 or EUR 30,000 depending on the size of the location that we choose. In this year, in '23, in particular, we had much larger configuration than usual because in particular, we have installed new lockers for big installations for the Auchan, [indiscernible] supermarkets, which may not be reproduced the following year. So you have a mix a little bit of the average size of the locker and the number of installation. And this is true that on the other hand, we do expect to be able to ramp up the network in France and the U.K., and that's what we'll try to present and specify in more details during the Capital Market Day to give visibility, obviously, what we expect for the next 3 years.

And maybe I will move to the second question, which is regarding Italy. So as mentioned, we've been -- we've taken the decision to divest the tenant subsidiary of distribution for Mail. The process has started already. Capital Market Day is in June. I mean everything is on track to basically close and pursue that divestment as quickly as possible. Our commitment is to make this happen within the year and the timeline we set. That being said, I just want to remind you, the topic for me is closed. In other words, the investigation has finalized. The amounts and the accounting has been fully reviewed by third-party external auditors, et cetera. There is no more obvious impact to be expected there. And for me, it's a process and timing perspective, but there is no strategic or financial impact on that process.

And if I could add, Laurent, considering the accounting treatment of the decision to divest the business, there will be no impact to the 2024 numbers because we have already excluded on the financials on both the P&L and the balance sheet, the amount related to the Italian subsidiary for both '22, '23, and obviously naturally for '24.

[Operator Instructions] There are no further questions on the line, so I will now hand you back to Catherine Hubert-Dorel for questions.

Thank you. We will state the subject of Italy to start with, with a few questions on the Italian MRS subsidiary. First of all, what is the rationale to sell that subsidiary? And two numbers questions, is the Italian MRS subsidiary fully depreciated? And what were the revenues of this subsidiary in 2022?

Want me to take the rationale, and I let you complement, Laurent?

Absolutely.

The rationale is a business decision, clearly. The same way at the beginning of actually of Back to Growth strategy in 2019 with Laurent, we had reviewed all our countries and all operation and we have evaluated which geographies and which businesses we believe was part of the core of the business. And naturally, we were looking for a certain amount of conditions, size, some materiality, a sudden expectation that we could have in terms of business growth, but also in terms of profitability for the coming years. Obviously, with this investigation, it allows -- allows to realize that the business and the quality or the state of the business was not what we believe it was. And when we look at the coming years, we decided that it was not part of what we wanted to keep as part of our core businesses in terms of geographies and mix of activities. So we took the decision to divest it.

And I think on the net asset value, I mean, which is the sense of the question. And if it's fully depreciated, obviously, by applying IFRS 5, we aligned the net value of this asset to what we think is the fair market value according to the preliminary, I would say, interest that we've received. And so it's fully aligned with the fair market value today. In other words, we know, at least we have a good sense of what it was in the market. And those book value have been included basically in our financials. That's what you could see. And that was -- I have been detailing on the P&L side that you have a EUR 7 million additional of impact that are basically realigning this subsidiary value to the fair market value. And last but not least, the point on the revenue side, as I mentioned, the revenue of Italy last year was about EUR 10 million and contributing hence to about [ 1% ] of the Group revenue. And this year, it was about EUR 8 million.

Thank you, Laurent. We'll move to some questions on the leverage. What are the target for leverage? What is the average cost of debt? And how much is fixed? And I will also ask another question on the buyback. Is buyback on the table now that the leverage has decreased?

On the leverage, the target was 1.75x. It was overachieved result, I would say, and it was not at the expense of the investment. So that's, I think, the good side of the of the lending point, we are at 1.65x the EBITDA excluding leasing. When go to net debt excluding leasing. If the question is forward looking in the future plan, I think it's all about what we'll discuss and share during the Capital Market Day in June, and we'll be happy to talk again of capital allocation at this time. In terms of cost of debt, and that was mentioned, I think, on the slide, at the end -- on average for this year, we have a 3.88% of cost of debt. So if you do the math in terms the growth, that gives you the cost of debt that we showed on the P&L side. And 1/3 of that is variable rate and 2/3 of that is fixed rate today.

And we've been happy that we took the decision to further deleverage the company as early as 2021 because considering those increase in rates in the last few years, we're in a much better position today to have continued to deleverage the company.

We didn't include buyback. Buyback will be like the other topics of capital allocation, a topic from our Capital Market Day in June of this year.

As just to the buyback. For 2023 and for the plan '21-'23, we did not include or proposed or recommend any particular share buyback plans, right. We did increase, on the other hand, by 8%, the proposed dividend that will be submitted to the AGM in June to EUR 0.65, which is a third years of increase on the dividend this year and that will close the capital allocation policy and the shareholder return of this plan. And in June, we'll be happy to give you any updates to any aspect of the capital policy with the level of CapEx. What is the deleverage and what is the shareholder return policy, that we'll present and share with you.

Still on financial questions. Will EBIT grow faster than revenue in 2024?

So the guidance we gave is that we have a positive growth, both on top line and EBIT. So -- and that was our commitment in the percent and what we achieved is that basically the incremental revenue that we get, the net between basically the growth of our growth engines and the decline of our mailing solutions, is contributing to the margin. So both will be positive.

Still on the P&L. Can we expect lower acquisition expenses in 2024, down from the EUR 11 million that we reported in 2023 as the portfolio seems now stabilized?

So may I remind you what is in this line. The bulk of that is the PPA, purchase price allocation amortization. So the portion of notably intangible that is amortized of our past acquisition. So that PPA amortization, yes, is trending down. And if you look at that over the long run and in the past years, you could see that the Quadient M&A-related expenses have been declining in the past 3 years, past 3 to 4 years, as mentioned, because we've been following a more organic path even if we had divestments, as mentioned by Geoffrey, and so opportunity bolt-on. But that were minimal compared to where we were before. Moving forward, and again, we'll have all the chance to discuss that during the Capital Market Day, I would say that the organic path that we've chosen up to now was not expected to generate additional M&A-related expenses. But again, it's going to be something we will be able to disclose, I mean, to share and give more granularity during the Capital Market Day.

We'll now move to questions on the solutions. And one question on all the solution, which is how much have you raised the subscription price for the mail, the software and the locker solution in 2023? And is there a price hike plan for 2024?

I can take this one. The increase in 2023 has been probably a bit lower than the one we had in 2022. And that also relates -- and we mentioned that to the environment and also -- and we've seen inflation starting to plateau and even being reduced in some areas of the world, also because transportation costs have declined somehow, also because significantly, the raw material has been plateauing, I would say, to the level it reached. So the level of increase is probably lower. That being said -- that being said, if you look at MRS, the fact that we are almost flat, obviously, include some price effect -- continuous price effect. And remember, last year, we discussed about a couple of percent on that business. It's probably a bit lower, but still in the same area this year. And same would be for ICA and PLS. Now 2024 is coming up with an expected inflation, that is again, lower than the one in 2023. We have the good benefit of having a bulk of our contract [indiscernible] being indexed and we'll continue to follow the index the respective solution that should contribute probably a little bit less but still positively to the total revenue.

I know there's a lot of different mix effect in our portfolio, considering both hardware and license and the subscription placement and also the different mix of the 3 solutions, but the gross margin has actually slightly improved this year in '23 versus '22, which is reflected of what Laurent mentioned. So there's obviously a good healthy level of gross margin that has been continuing in '23.

Moving to our software solution. How much ARR were the contracts postponed in Q4 represented basically? The contract that we postponed in Q3, was it included in the Q4 ARR? Or are they postponed into 2024 or canceled by the customer?

I believe this is what we said in H1, actually, Laurent, right? It was around EUR 4 million in value that impacted the ARR and the full value has been reduced from the net ARR that was presented, I believe, at the end of H1. And therefore, there was no further reduction related to the postpone of those 2 large deals in Q3 or even Q4.

And these are postponements.

On the other hand, if you look from a comparison basis for the subscription revenue, we had recognized the revenue of those deals naturally coming in Q1 and Q2 of 2023. So we'll still have that comparison basis being not favorable in Q1 and Q2 of 2024, and that will be over after that. And we'll have -- after that, a normal comparison basis moving into H2. This is what I was referring in my introduction for the outlook for 2024.

On our Mail Solution, what is the current order book for the Mail Solution? And how does it compare with last year?

Still very strong. I mean, we had a very good booking at the end of fiscal year '23, so in January this year. I think it will sustain obviously help us starting the year with some very favorable condition. And we've seen a very dynamic last year in North America, in Italy with the certification we had, and we've seen continued trends on those ones. And as mentioned also earlier, France, Benelux performance was particularly improved compared to the years before. And we believe that we have a continued path here on top of the fact that, as mentioned by Geoffrey, we made the acquisition of Frama, but also opens perspectives for us to reinforce our customer base and our ability to cross-sell across that base for 2024.

And we could say that from a dynamic perspective, we don't see any particular change at this time at the beginning of the year, so it's obviously encouraging. But the year is 12 months. So we obviously need to be patient and to look how over 28 countries in different regions, how this dynamic will continue throughout the year.

And to finish off on PLS, a couple of questions. The first one is, can you give us more color on the new Royal Mail contract, maybe the value of the duration?

It's a good question. So this is definitely a major contract for us. It's a multiyear contract. Without being too specific, we're obviously aligning, and it's not just with Royal Mail, but the other carriers that we want to try to engage into [indiscernible] as much as we can. So it's a contract over more than 5 years, let's put it this way. So it's multiyear with some -- both revenue that will be fixed associated to the ramp-up of each lockers, but also some usage. So we have a mix effect between the two. And it's probably a contract value for us that is in the 8 figures minimum, in terms of the minimum that we could expect out of it, if everything goes well. And we should be able to start recognizing a little bit of revenue probably before the end of 2024, depending on the ramp-up phase that we have through our plan throughout '24 and with more significant revenue expectation for the coming years after that.

And lastly, still on PLS, how long is needed before Yamato joint venture catch back its revenue and the EBIT loss following the new mode of billing?

So in terms of revenue, I think it's -- we are talking about probably 18 months pass. So that's basically the volume part from Yamato offsets, basically the [indiscernible] with the previous condition. That being said...

As to have said, the discount pricing we gave.

That being said, the upside of that is obviously all the area that we are now opening to the other carriers, including Japan both including [indiscernible], that could help us eventually to catch up, I would say, at a higher pace than this one. From an EBIT standpoint, it's probably less impactful for the main reason that, as you know, we started to reproduce lockers 7 years ago. So we are starting to have a part of the fleet that will progressively be fully depreciated, and they are, today, in a very good shape. So we have a good perspective and good hope of this eventual slight drop in top line being offset by the drop in amortization in the short term.

And we have no further questions. So I think we can close the call. Thank you very much for attending this presentation and for your questions. Our Back to Growth strategic plan is now closed on a solid set of full year results. And the company is well positioned on a sustainable and profitable growth trajectory. Our next call will be on the 27th of May for the Q1 sales release. And in the meantime, we look forward to meeting some of you in the coming days during our road show. Thank you, and have a good evening.

Thank you.

Thank you.