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

Good evening, and welcome to Quadient H1 2024 Results Presentation. I am Catherine Hubert-Dorel, Quadient's Head of Investor Relations. And today's presentation will be hosted by Geoffrey Godet, Quadient's CEO; and Laurent Du Passage, Quadient's CFO. The agenda for the call for today is on Slide 3. We will cover the usual highlights, key financials, business review and financial for the group as well as the 2024 outlook. As usual, you will have an opportunity to ask questions at the end of the presentation, either in writing through the web or by dialing into the conference call. And with that, over to you, Geoffrey.

Thank you, Catherine, and good evening. To begin with, I would like to come back on the main event of these past 6 months, our last Capital Market Day in June. As many of you will remember, in June, we presented our new strategic plan, Elevate to 2030. The strategy stems from the recent refocus of the group on its key strength and aims to long-term revenue growth and profitability increase, thanks to the highly predictable business model that we have. We are aiming, just as a reminder, to generate more than EUR 1 billion per year in subscription revenue. So first, I'd like to come back on what is Quadient. Quadient today offers an unrivaled customer-centric platform, allowing for deeper customer penetration, thanks mostly to that were state-of-the-art intelligent automation platform, which is recognized by multiple third parties analyst as the leader in each of our solutions. We go to market with a recurring business model, which allows us or higher predictability of our revenue over the long term. And this is why we have been able to provide to the market with a financial trajectory up to 2030. So I am pleased to say that Elevate 2030 is off to a solid start with positive development across the whole organization in H1. We will detail the performance of each of our solutions in detail, but let me just highlight a few important milestones with you right now. As you know, offering the best customer experience is center to the Quadient automation platform. With that in mind, we are particularly pleased with the multiple hike ranking receives by our digital platform because this really sets it apart as one of the best suites, if not the best one, offering in the sector. In addition, we recently received our PDP accreditation by the French government, and we'll come back to that later. So we're ready to offer a comprehensive offering for the upcoming invoicing regulation for the French customers. We also continue to strengthen our recurring business model with further outperformance from our mail revenue versus the competition. And also, the faster adoption of our lockers open networks, which drives strong increase in parcel volume. Quickly turning to our ESG engagements. We're happy to announce that we have maintained our AA ranking with MSCI, another testimony of our continuous engagement towards the environment, social and governance matters. Last but not least, we're particularly pleased with the continuous improvement in profitability of our digital platform. At the Capital Market Day, we anticipated a significant increase in profitability. And I'm pleased to tell you today that we are delivering in this improvement with an increase of over 6 points in EBITDA margin just in H1 alone. This means we are already 2/3 of the way to achieving our 2026 margin target as a reminder, of more than 20% EBITDA margin. So the strong improvement in profitability of our digital automation platform is all the more meaningful that a B2B financial automation software sector is undergoing major transformation with significant interest from various stakeholders, including private equities. Our industry is under consolidation. This is a fact. And the main consolidation driver is to create the best suite of offering in a world where e-invoicing is becoming the norm, digital communication is everywhere, and the customer experience is mostly digital. This is why being able to offer a comprehensive platform of SaaS-based modules from communication to financial automation is a true competitive advantage. With several years of anticipation, Quadient has developed now on this platform. We have built upon our state-of-the-art initial communication expertise to develop the full range of the CFO suite from account receivable automation to account payable automation and with more recently, digital payment and cash-up application. In today's sector and under the current consolidation trend, Quadient is in a unique position of being already at a net scale, more than EUR 250 million of revenue last year comprehensive SaaS platform. Quadient has also a unique access to an existing large customer base, as you know, of several hundreds of thousands of customers that we are cross-selling with our digital solution into. With this solid start of a strategic plan, further deleveraging of the company and in line with our capital allocation policy, we have decided to launch a EUR 30 million share buyback program to improve shareholders' return and I'll come back to this in a moment. Turning to Slide 7 and the highlight of our H1 results. Revenue for the period came in at EUR 534 million, up 3.2% in reported figures, mostly thanks to the addition of our recent acquisitions. Importantly, our share of subscription business model continued to increase, representing now 72% of the total revenue of Quadient or EUR 384 million of subscription in H1 alone. So let me stress that again, EUR 384 million of subscription in H1 alone. Current EBIT for the period was at EUR 61 million. This is an organic increase of 0.3%, so mostly driven by the significant improvement in the profitability of our digital automation platform, which more than compensate the decline in our Mail Solution EBITDA. On a different topic, our leverage ratio, excluding leasing, continues to decrease, landing at 1.6x at the end of H1 2024. All in all, results for H1 are in line with our expectation, and we confirm our full year guidance. Turning to Slide 7. So coming back to the fact that I'm pleased to announce the launch of a EUR 30 million share buyback program. I just want to get into a few more details. This operation is -- naturally aims at improving shareholders' return. And it also demonstrates our confidence Quadient's confidence and a few things in the value creation potential of our new Elevate to 2030 strategic plan. Also, our confidence in our ability to reach our full year 2026 leverage ratio target. And this plan naturally is also in line with the capital allocation policy that we have announced during our presentation in June. And this capital allocation policy, right, aims at balancing a few things. On the one hand, the investment that we continue to make and accelerate into the business, notably in the Mail-Related equipment, but also the acceleration of the deployment of the Parcel Lockers network and our R&D efforts throughout our 3 solutions. Also, the potential external growth, right, in potential acquisition, while we maintain a flexible approach to the management of our portfolio. We also try to balance the fact that we want to maintain a healthy and efficient balance sheet and in particular, with the target of financial leverage ratio, excluding the leasing of 1.5x in 2026 and naturally ensuring an attractive shareholder return. This is why we had set a dividend policy based on a minimum 20% payout ratio and to use naturally of the excess cash for potential share buybacks. And as you can see on the slide, the program will extend over 18 months period for maximum consideration of EUR 30 million. We intend to cancel the repurchase shares for a EUR 10 million portion that will be dedicated to future LTI plans, in particular, related to the need for the LTI-related to our employees and management team. Turning now to Slide 8, for the recent shareholding change. Two legal threshold have been crossed over the period with VESA, which is quite largest shareholder that has crossed 15% threshold upwards on June 21. And Teleios, on the other hand, crossing the 10% threshold downwards on August 13. Both legal declaration are available on the [ AMF ] website, which if you want to have some more details, I invite you to download them. Turning to the governance update. 2024 shareholder meeting approved the ratification of the co-option of Bpifrance investment represented by Emmanuel Blot, as an independent director as well as the renewal of its directorship. I will now hand it over the floor to Laurent Du Passage for the key financial figures at the group level. Laurent?

Thank you, Geoffrey, and good afternoon, and good morning, everyone. I'm 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 10. Revenue for Quadient in the first half of the year stands at EUR 534 million, it's up 0.8% year-on-year on an organic basis. The graph on the left-hand side shows you the breakdown of this revenue by type, and on the right-hand side, the breakdown by geographies. Of note, the subscription rate revenue are up 0.7% organically and represents 72% of the total, while nonrecurring revenue up 0.9%. From a geographic standpoint, North America continues to be the group main driver of credit growth. North America represents now 58% of our total revenues. Many European countries experimented a lower performance in H1 due to Mail and posted a 1.6% organic decline despite the growth we see in digital and lockers. Lastly, International posted a 2.5% decline in the context of the change in contractual agreement with our partner, Yamato. We'll come back to this later in the presentation. Turning to Slide 12 and our traditional revenue bridge by solution. While H1 revenue organic growth stands at 0.8%, the reported growth stands at 3.2%, indeed, from the EUR 517 million, you can see on the left-hand side, last year. We have a positive EUR 12 million of scope impact from both acquisitions of Daylight and Frama. This year, ForEx is positive by EUR 1 million, mainly linked to the dollar strengthening slightly against the euro. Turning to our solutions. You can see Digital posted an organic growth more than offsetting the small organic decline of both mail and lockers. Moving now to Slide 12. You can see here the same bridge regarding current EBIT. We are moving from EUR 65 million last year to EUR 61 million, mostly due to the scope effect and notably Daylight. Organically as mentioned by Geoffrey, which is slightly growing by 0.3% thanks to the significant improvement in the EBITDA level of our digital business, plus EUR 12 million just for H1, more than compensating the decline in EBITDA, both mail and to a extent lockers and of course, the change in D&A. EBITDA at group level is, hence, increasing by 2.6% organically. So, Geoff, we now move into the detail of each solution, and over to you, Geoffrey.

Thank you, Laurent. Turning to the details of the performance by solution. So now starting Slide 14 for the business highlight of our Digital Automation platform. Again, this quarter, Quadient has been recognized by multiple software industry analysts for each of its different modules. And as you could see on the slide, whether it is for account payable automation, accounts receivable automation or customer communication Quadient is always in the top right-hand corner among the leaders for the major players. Moreover, we're also pleased with the regularly enter -- the fact we regularly enter new rankings as it is the case for the account payable automation software in the IDC MarketScape where we ranked major player worldwide for first ranking. These awards are just examples amongst the many that we have recently received. Highlights and it highlights the strong positioning of Quadient as the best suite in the SaaS financial communication and financial automation industry. Not only Quadient has assembled a comprehensive suite of SaaS solution, from customer experience to customer communication, but also the full CFO suite, but also each of those individual modules are among the best in the industry. Quadient digital automation platform not only offers the best suite to small and medium size companies, but it also offers the best of breed of each of its modules. Turning to Slide 15. Our strategic approach for customer success is based on 2 pillars: acquisition of new logo and expansion of the customer base. So for digital, as part of our focus on acquisition of new logos, we already added 1,200 new customers -- let me repeat that, 1,200 new logos over the first half of this year as we continue to experience strong commercial dynamics. The share of SaaS customers also continues to increase now, and it stands at 83%. Cross-selling with our Mail customers, especially in North America, remain very active, including some large deals that we have signed. So I'll give you an example, we recently managed to convert a large insurance company which has been a Mail customer for more than 20 years through our digital offering through our cross-selling channels. This resulted into a deal worth more than USD 1 million. And this positive trend is continuing -- continued to increase over the beginning of the third quarter, as we have already signed a new large deal this time with an another U.S. insurance company, a very large one, worth more than USD 7 million for the next 5 years. And this deal is not a cross-sell deal, which clearly demonstrated the Quadient is successful with both its existing Mail customers, but also with its direct acquisition of new logos, especially for large enterprise. Last but not least, we recently received the official registration as a partner dematerialization platform, PDP in France, among a few other companies like Esker. And this is an important milestone in the path to e-invoicing. And such, despite the delays in the implementation of the law, in France, Quadient is now ready to offer our solution to its customers, French customers, who needs to comply with the future invoicing requirements. So turning to customer expansion. As you know, Quadient hub is an integral part of our platform strategy. And importantly, it acts as an accelerator of the upsell that we could have with our customers, thanks to the platform approach. At the end of the first half of '24 H1, all eligible customers have now been onboarded to the hub, which is a great milestone for upselling strategy. And this strategy is already successful with overall upsell booking increasing more than 15% in H1 alone, with more and more deals signed combining several modules of the hub at the same time. We also continue to improve the platform offering through both innovation. I'll give you an example with the recently launched cash application. And also another example with additional partners, integrations, which are super critical for our future, and I'll give you examples, such as the one we've done with Microsoft Business Central, but also the one with Sage200 and that's for some ERP solution integration. But we also did additional integration with Stripe for the payment solution. Importantly, the churn rate of our digital automation platform continued to decline and is well below 5%, which is a testimony of the quality of the solution offered to our customers on the platform and the stickiness, therefore, resolution. Laurent?

Thank you, Geoffrey. Digital represented EUR 130 million of software revenue for Quadient in the first half of the year, an increase of 5.9% organically and 8.3% in on a reported basis. I think we can move on to next slide. This growth was driven by the continuous improvement of our subscription-related revenue, which is up 8.7% organically in the period. They were fueled by positive commercial trends, as mentioned by Geoffrey across the platform and benefited notably from the solid contribution from the upsell and the cross-sell with Mail. However, as discussed previously, digital revenue is still impacted by the negative comparison basis due to the delay in implementation of 2 large U.S. deals. This was announced in Q3 2023. This is the last quarter concerned by this comparison basis. Our annual recurring revenue continues to increase and stands at EUR 221 million as of 31st of July '24 and annualized organic growth of 15.3% versus the end of last year. From a profitability standpoint now, we are particularly pleased with the significant improvement in profitability delivered again this half year by our digital solution. EBITDA margin improved strongly by 6.4 points compared to H1 '23 in which 15.7%, representing an EBITDA of EUR 20 million just over H1 '24. This significant improvement comes from the virtuous circle we have put in place to our digital with the incremental revenue being highly contributive to the EBITDA. Thanks to a now [indiscernible] at scale platform, benefiting from a high gross margin level. And we are confident that this positive margin trend will continue, if you recall, we set a target for an EBITDA margin of over 20% in 2026 for our digital platform. And with this latest improvement, we have already achieved 2/3 of the objective. Now over to you, Geoffrey, for Mail business.

Thank you, Laurent. So I have already spoken about how important innovation is to Quadient. And this is very relevant as well in our Mail business. We drive product penetration, thanks to our product upgrades and our new Quadient services and other transforming tools. In H1 2024, we launched a new secure barcode functionality, a cloud-based application designed to enhance the security of the customer physical communication. And we tailor this solution for small businesses that begin their journey into the digital mail solution, providing immediate benefits in document management and operational efficiency. But this also enables us to cover a large range of customers and tailoring solutions according to their size and to their needs. We discussed the decertification in the U.S. in the recent past and we are now entering the last quarters of this process with the last day of use for the noncompliant meter planned for the end of 2024. And this is important for our customers to upgrade their equipment if they do not want to lose their service. Now with Quadient new equipment range, they will benefit from faster updates, better pricing and reduced costs. The decertification is obviously a driver of a grade of our installed base and share of the upgraded equipment now stands at 36.6% in such worldwide compared to 31.5% at the end of January 2024. So if we turn now to Slide 18 and starting with the customer acquisition, it is worth stressing that Quadient continues to outperform its main competitors, notably, thanks to the solid contribution from our North American operations. Our mail automation platform continues to gain market share as the quality of our product offering allows us to remain highly competitive. In Europe, the integration of the recently acquired Frama organization is progressing as planned. And as explained at the time of the acquisition, we aim to upgrade the installed base of Frama and initiate also cross-selling efforts into their customer base. with these positive trends, we expect the third quarter of 2024 to continue on a resilient commercial performance. Regarding customer expansion strategy, we recently launched what we call simplymail. It's a new SaaS offering for small customer in France and the adoption has been very solid just in the last few weeks. This offers complements the physical mailing with a digital option. As mentioned previously, the solid cross-sell performance, especially in the U.S., continues between the Mail and Digital with several large contracts signed. Turning to Laurent for the Mail key financial figures.

Thank you, Geoffrey. Revenue for Mail came in at EUR 362 million, as you can see on the chart, a very small 0.5% organic decline, and it's even up 2.5% on a reported basis, thanks to the recent acquisition of Frama consolidated since the first of Feb '24. This performance is very solid, and it's obviously outpacing current market trends. Looking into the details, it was mainly driven again by solid hardware placements mostly in North America. This results notably from decertification. This regulation process mostly impacted the low-end equipment, but some higher-end machines are so concerned. Regarding subscription-related revenue, they are impacted by lower supplies and declining rental levels in Europe. Turning to the EBITDA margin for Mail. It stands at 25.8%, it's down 3.2 points. It represents EUR 94 million just for H1. The lower level compared to last year comes from the revenue mix with more hardware added to the dilution from Frama acquisition. Regarding Frama, performance is expected to improve significantly from 2025, thanks to the upgrade of the instant base, as Geoffrey explained just before. Over to you now, Geoffrey, for the parcel lockers.

Thank you, Laurent. So the priorities for our locker business are to continue a few things. The first one is deploying the lockers. Second one is growing the installed base, while we maximize the usage. And we are innovative in all those 3 areas. So when it comes to expanding our installed base, we're also able to find innovative partnerships as it is the case, I'll show you the example in Japan, where we have recently expanded our installed base through a strategic agreement with JR East Smart Logistics Co. This collaboration is based on the integration of Quadient parcel delivery and pickup functionalities into the JR East existing local system across Japan's large railway network. This is the first time Quadient is expanding its intelligent capacities to a third-party network, and we're already pleased with the adoption. We also continue to deploy our lockers by selling them as another example, to universities or multifamilies and such mainly in the U.S. market, but not only. For the university segment, we have recently crossed 250 equipped universities threshold. We have the largest market share in this segment in the U.S. This represents close to 1.5 million students using our lockers every year, which, by the way, they're going to be accustomed to use them before they move into their adult life, professional life and to potentially in multifamily residents. These lockers are also a great representation of the diversity of the Quadient offering. From the newly developed we're loading lockers essential to avoid the bottleneck in the postal room. But I can take another example on the refrigerated lockers as it is the case in the Bunker Hill Community College, where they are used for the student food pantry programs. So our lockers deployment continue to progress with a global installed base of close to [ 20,400 ] lockers at the end of the period. Moving to the next slide. And talking about customer acquisition, as you can see on the graph on the left-hand side, we have experienced since January 2023, an acceleration of the installation pace for the U.K. and the French open networks combined. This acceleration is notably supported by the additional deals that we have signed for premium location, such as the Punch Pubs Partners for another one like Coop in the U.K. but as well as the deployment of the Auchan contract in France and more recently, the addition of columns to existing click-and-collect lockers, which turn them into hybrid lockers, and they are able to receive parcels from both carriers but also from the companies who host them. For example, at Decathlon in France. So overall, we are quite pleased with the pace of deployment for our European open networks and expect this pace will further accelerate in the U.K. notably thanks to the support of the [indiscernible] Mail increasing use and -- usage of our network. In parallel to the deployment, we obviously are enjoying growing the -- we're enjoying seeing the growing volume of the parcels and the usage rate is also increasing, which is key for open networks. And the trend there is also very positive, as you can see on the graph on the right-hand side, in H1 2024, the increase in volumes in the European open network has been over 200%, highlighting the rapid adoption of the newly installed lockers. However, on the volume side, in Japan have been lower than expected, though still slightly growing. And this is mostly due to the difficult macroeconomic conditions impacting the retail consumption and especially the C2C volume in Japan only, which represent a significant proportion of the lockers volume for us in Japan. This is why we also diversified the object transitioning into the lockers to maximize the usage. So I'll give you an example. We recently signed an agreement with a company called KeyNest in the U.K. Under this agreement, Quadient lockers can now be used to deposit keys for short-term rentals. So an encouraging trend for installation and volume of our European open networks. On contrary, in the United States, the trend for new installations remains a little bit below our expectation, and we're expecting the trend to actually improve in H2. Laurent will now detail the financial results of the local business.

Thank you, Geoffrey. Revenue for parcel lockers is EUR 43 million for the first half of 2024. It's a 2.5% organic decline and minus 4.7% on a reported basis, the difference between the two being due to the Japanese yen weakening between H1 this year and H1 last year. The decline in revenue is primarily driven by the still weak sales level from North America, where most of the hardware assets come from. And as you can see, hardware sales declined by 15% in the period. Looking at the subscription related revenue, Q2 '24 showed a strong organic growth in Q1 '24, reflecting the solid volume ramp-up with an open network in the U.K. and in France as well as the positive contribution from the overall growing installed base. On the contrary, the negative impact from the change in commercial agreement with Yamato in Japan in Q3 '23 continues to weigh on the locker subscription-related revenue. EBITDA margin from the lockers stands at minus 6.7%, it's down by 3.7 points. It's representing an EBITDA this year of minus EUR 3 million versus minus EUR 1.3 million last year. The decline in EBITDA margin comes primarily from the negative impact of this change in commercial agreement with Yamato on the Japanese local base. As you remember, we have evolved from the historic fixed subscription model to a [indiscernible] fee-per-parcel model. Turning now to the review of the H1 at group level on Slide 24, with a summary of the H1 results. This slide represents the summary of the H1 results, we find the same information as discussed before, with EUR 534 million on the right of revenue. For the Quadient, it's a 0.8% organic growth broken down by solution as well as the details of the EBITDA by solutions. And to finish the EUR 61 million in current EBIT for the group. Turning now to the P&L on slide 25. The net attributable income stands at EUR 24 million for the half year versus EUR 36 million last year .It's entirely due to EUR 8 million one-off IT project write-off. But also as expected, cost of debt increased to EUR 20 million against the EUR 15 million we had last year, mainly due to the rising interest rates on the variable portion of the debt and the cost of carry of the partial refinancing of the bond. This is partially offset by a positive tax impact of EUR 2 million versus an expense of EUR 6 million last year due to a one-off tax benefit of IP transfers. Let's now turn to the cash flow statement on Slide 26. Free cash flow after CapEx stands at positive EUR 3 million against a negative EUR 15 million last year, thanks to remarkable working capital [indiscernible] acquisition, obviously, degraded compared to January, but still much more better than last year, thanks to an improved level of cash collection. Good management of stock as well as positive impact from timing difference on the VAT payments, notably, that helps to improve the working capital requirements at the end of H1. On the contrary, the residence of the leasing portfolio continues, leading to lower cash generation. When it was [ EUR 16 million ] last year, it's only EUR 6 million, positive this year. Compared to last year, the CapEx level is stable, but with a different mix and increase in Mail and low cost CapEx for rent, but offset by lower IFRS 16 CapEx as we will detail in the next slide. Moving now to Slide 27. As I said, the CapEx level overall is stable compared to last year's EUR 46 million. On the lockers side, the CapEx for rent increased in order to support the open network rollout, particularly dynamic in the U.K. and in France. On the digital side, the investment are many focused on R&D and the development of the platform is slightly up against last year. And regarding Mail with the CapEx linked to the new rental equipment, the overall decline in investment is linked mostly to the nonrenewal of office leases, notably in the U.S. and in the U.K. that led to lower IFRS 16 CapEx despite the CapEx for rent. Let's turn now to Slide 28 on the debt situation. The net financial debt for the payer stands at EUR 726 million. It's a small increase against where we were in January. At end of H1 '24, hence the leverage, excluding leasing decreased further from 1.65 to 1.6, as mentioned by Geoffrey. It's on track to deliver the 1.5x leverage target by '26 even when accounting for the share buyback program, shared by Geoffrey on Slide 7. So all in all, a solid financial position. And now turning to Slide 29 on our financial structure. It's very solid. We are well positioned to refinance our bond refinancing for H2, as you can see. Earlier this year, we extended the maturity of our revolving credit facility from '28 to '29. Liquidity remains very strong at the half of H1 with EUR 194 million of cash and EUR 300 million of undrawn credit facility. This concludes my review of the financials. And now back to you, Geoffrey, for the outlook.

Thank you, Laurent. So for the outlook, moving to Slide 31. H1 2024 performance has been in line with our expectation, as described by Laurent and myself. And as mentioned earlier, several adverse elements such as the change in the commercial agreement with Yamato or the delays of the implementation of several large contracts signed in 2003 on the software side will no longer impact our comparison basis moving forward. While at the current EBIT level, we expect the improving trend in digital to continue. And while we expect the locker solution to also post a significant improvement in EBITDA margin for H2. So naturally, we continue to expect a strong performance as well from our Mail solution. So it's only logically that we confirm our full year 2024 guidance and expect to deliver organic growth both at the revenue and the current EBIT level. So I want to thank you. And with that, we are ready to take your questions with Catherine and with Laurent.

Thank you, Geoffrey. We will start with the questions on the line. Operator?

[Operator Instructions]. We will take our first question from Maxence Dhoury, BNP Paribas.

Yes. Thank you. Good evening, everyone. Maybe first question is regarding the [ ICA ] of the Digital business. We saw a slight acceleration in the last few quarters. Could you give a trading update regarding Q3 and what you expect for the coming months? You mentioned a few large contracts, but more generally speaking, do you think you will keep this acceleration? And I was wondering if e-invoicing is already support a tailwind for orders in Europe? Or is it more something that you will rely on, for example, next year or when we will be closer to the implementation on invoicing. And another question is regarding the launch of our share buyback. Well, I think it's a good idea as the current valuation of the share stands. But should we interpret this as that you expect no M&A operation in the coming quarters. So you prefer to launch as soon as possible the share buybacks. Thank you.

Okay. So let's take the first one, which I think is thank you, Maxence, for the 3 questions. I will try to answer them to the best of our capabilities. So on the first one on the growth of ICA or on the digital side, sorry. I think there's a few indication if you want to be looking forward. The first one is information that Laurent shared with us, which is that the ARR on an annualized basis has grown now to up to 15% in H1, which is a forward-looking indicator of what the subscription revenue growth rate should be for the next 12 months. So obviously, the next 6 months. So Q3, Q4 is part of the next 12 months. So that's one aspect. So naturally compared to the level that we're in H1, we should anticipate an acceleration on the subscription revenue. Two, the comparison basis related to that -- to those 2 customer contracts that were posed or postponed, which they sell customers, by the way, will no longer be in the comparison basis moving forward. So when you have those 2 things in mind, naturally, we would expect the subscription-related revenue growth to significantly increase in H2, for both Q3 and Q4, we would expect that level to be obviously above double digits. So our double digit versus the single-digit growth that we have right now. After that, we need to see the level of professional services and license. But as you know, it's a small portion of the revenue now. I think it's less than 18% in H1. So having that aside, I think you can now, having that in mind, I think you can anticipate what the business for digital would look like into H2. Do you want to add anything Laurent on this?

No, all clear.

On the invoicing tailwind, it's probably -- I'm looking at Laurent because he's also a CFO. So naturally, as the CFO in the organization, you want to anticipate, right, anticipate sometimes those regulations. Unfortunately, not all CFO can anticipate. So you would see that anticipation sometimes coming from the larger part of the organization. So a large enterprise or sometimes bigger midsized enterprise could potentially decide to anticipate clearly. And I think the current performance is benefiting in France, of those -- of that push or anticipation of the push. On the other hand, the law has been postponed several times now. It may also be pushed further. And therefore, the big wave of small and midsized companies will likely wait for the law time line to be confirmed. And usually, we would see that a bigger tailwind naturally starting at that time, so probably not there yet. Do you want to take the third one, Laurent?

On the buyback?

Yes.

Yes. So on the buyback topic, I think the question that you raised was about I would say, opposition between buyback and M&A capabilities. The buyback program that we announced is again something that we can afford, still moving to the right direction in terms of deleverage and all the investments we have in parallel. It's not at the expense of what we could do elsewhere. I think Geoffrey represented clearly it's about market conditions, but also a return to the shareholders, but it's not at the expense of the investment that we'll continue to do that were presented during the Capital Market Day and very clearly stated as being one of the option on the capital allocation.

Just if I may, Laurent, Maxence, to your earlier point, I'm thinking about an additional point related to the invoicing, the accreditation we got from the French government actually twice now in the last few weeks like other companies like Esker that is one of our partner. On the other hand, it's clearly a reinforcement of why customers would buy a solution from Quadient tomorrow. So those accreditations are definitely good news because, it means that our future solution will be accredited and recognized by the French government. And therefore, it's a differentiation versus all the other companies that are not accredited today.

We will take our next question from Jean-Francois Granjon, ODDO BHF.

Just 2 questions from the side. You confirm our organic growth for the, EBIT, current EBIT for the full year, due to the fact that we have a very limited revenue growth for the first half and decrease for the EBIT, current EBIT. Do you expect an acceleration -- do Quadient's acceleration during the H2 for the current EBIT. And should we take into account EUR 147 million for last year operating in going to appreciate the organic growth this year.

Laurent, are you okay to take the first question from Jean-Francois?

So I think the first question was regarding the current EBIT evolution, H2 versus H1 this year against H1 last year, it's positive evolution plus 0.3%. It's in line with what we said in for the guidance, we just transformed against today again for the full year. So Jean-Francois, the trend we are knowing is something that will be comforted the fact that we've improved significantly the EBITDA notably on the digital side helps even if H2 last year, EBIT was relatively high, yes, it will continue to have a phasing H2 more than H1 and H2 will still be above the H2 last year, things that -- in a sense, that's what we're saying. H2 will be helped a little bit. I remind you with the Frama progressive integration, and we know that we start paying off on H2, which was not the case in H1. And also, we discussed the volume improvement on the local side in Japan. The fact that you would compare yourself to in H2 last year that already had this pricing, this new pricing model on the Japanese side. So obviously, that will help the trend in H2. And yes, we will meet our positive trajectory on EBIT this year.

We also expect more installation on the installation of the lockers in the U.S., in H2 versus H1. So all those are contributing factors in helping getting H2 in an accelerated trend from an EBIT perspective.

And there was a second part of the question on whether EUR 147 million is a starting point for the calculation of the organic growth.

EUR 147 million. That's a very good question. I need to check. Just give me a second chance.

Okay. We'll give you the answer in the next few minutes, if we can, Jean-Francois.

Any other question online?

There are no further questions on the line. I will hand over to the host right now. Thank you.

Thank you. We'll move to the questions on the web. And we'll start with a question on the share buyback. Can you explain the thinking that led to the share buyback program? And why did you choose shareholder returns rather than investing into the parcel or the digital divisions, both of which are highly competitive and which I assume still require investment in the sales force to ensure sustainable double-digit growth over the long run.

So that's a very good question. And I'll let Laurent to give you the answer.

Yes, because I think it's quite related with the question that was asked just previously, even if the one before was quite related to M&A here, it's what I said already, we are not putting that chart buyback program at the expense of the investment we are doing. I think in H1 this year, we've done a level of CapEx on the local side. That was the highest since H1 2019, where we're fastly rolling out the Japanese network. You saw on the digital side that we increased also the CapEx compared to last year at the same date. The investment in sales and in marketing that we need to allow those businesses are done, but we are at a level where those are paying off in terms of EBITDA, in terms of cash returned already to -- cash and investment and growth at any cost. If there is a return, the return we see almost earlier than what we're expecting. We are quite confident in the deleverage statutory. And that's this assessment, a compound with the level of investment that we rightsized for the rest of the business that allow us to include in our overall capital allocation strategy that share buyback program.

Thank you, Laurent. We'll move to some questions on the mail that we dwell into. First, on the U.S., when does the U.S. certification should end for the mail business? And do you still keep gaining market share for mail in the U.S. in H1 2024.

Sure. So the desertification should end at the end of this year. And so far, there's the deadline, the official deadline, it could sometimes be somewhat extended by a few months. So we have at the end of the year, so Q3 and Q4 to be able to help all those customers to continue their upgrades. And so far, we had a pretty good program. So we are quite happy with the level of customers that have migrated to a new platform. Yes, the short answer is we continue to gain market share, market share globally. It's always difficult to know specifically in the different regions. What I could just, I think, top of mind share with you is that I believe in NorAm, our performance was around -- we grew in NorAm for the mail activity with the placement of hardware growing more than double digit, right? And with an overall growth, even if we take the recurring revenue as well as the placement of new hardware and NorAm, are closer to almost a mid-single-digit growth, which means if you compare with the performance, I think, of our 2 main competitors in the market, I think one was at minus 2, the one at minus 4 on and one of them being mostly exposed to U.S. business that gives you a little bit of sense where we are. If we take the overall performance, you know Quadient is at minus 0.5%, so almost stable versus again, those worldwide performance of those competition, one being a little bit more European based with Frama and -- sorry, with FP and Pitney Bowes being a little bit more NorAm-centric. So definitely, we continue to see a stronger performance actually almost accelerated compared to what we have experienced last year any far from -- in terms of performance, pretty far from what we have shared with you for the next 3 years. So far, we're definitely starting the strategic plan for the first 6 months in a very good position at minus 1% to almost a stable performance.

Still in the Mail business, what is the current profitability of Frama. How does it compare to the mail historical profitability? And what are the objectives for Frama in 2025?

Frama is about breakeven today. I mean that's about -- at the time we acquired it on 1st of February '24. And progressively, we will bring that profitability to something even more profitable than the existing base of mail, while because today, Frama was suffering from its scale effect, knowing that they were using their own hardware within a smaller business than the one of Quadient. Obviously, the investment this year has to replace most of their equipment by Quadient and benefit from stronger economies of scale because we have a supply chain that is relatively large and relatively mature and get that incremental of Frama being more profitable than the one of mail that we had at Quadient. We start paying off obviously in H2 this year, but looking for a full steam contribution by 2025.

So moving now to some questions on Lockers and especially in the open network in France and in the U.K., can you detail the number of newly installed lockers both in France and in the U.K. over the H1? What are the target lookers in France, how many lockers are they in France at the moment? And what is the time horizon to achieve the target?

So we're not disclosing anymore or specifically any particular numbers of lockers we had in France and the U.K. at times for simplicity at times for competitive informed as well. If I were to give you a little bit more color, in particular, on one is definitely in the U.K., where we have now probably increased by threefold, the current level of monthly installation that we have currently in the U.K. versus what we had, I think, in H2 last year. So we've definitely seen -- you've seen that on the chart, it was on the left-hand side. At the beginning of H1 so increased significantly the amount of lockers in France as well because, as you know, there are several hundreds of stores of Ocean both the [ Eber and Shuber ] and the super stores, and we had mostly completed those installations in H1. So we definitely had a significant increase on both markets. Big acceleration that will continue and that we expect to continue to accelerate in '25 versus '24 is in the U.K. Obviously, for us, reaching 3,000 installation is a key first milestones. We'll probably have achieved quite a good portion of that in '24 but we will go beyond. We always told you that for us, having around 5,000 lockers in a given country as long as everything else that we care about, which is the level of density the quality of the installation, the usage, the number of carriers that we have onboarded is functioning well, which is the case today. So this we're pretty confident that, at least at this stage, we are anticipating that we should be able to accelerate as well in 2025 for the U.K. market. And definitely, just with that, we should be able to be achieving or overachieving the target of 3,000 in shareholder as a result.

Still in Lockers. I think question for Laurent. What is the current EBIT margin of the joint venture with Yamato. How does that compare with the former subscription contract?

So as mentioned by Geoffrey, this change secretion to fee-per-parcel has an impact in the short term on the revenue and hence on the profitability. In the longer run, the level of volume increase we contemplate not only with Yamato but also on other carriers will help us more in compensate the shortfall, is that new deal or that new contractual agreement, we are still significantly positive in terms of EBITDA and positive in term of EBIT that remains the country or the region that contributed the most, which tends to demonstrate that, yes, we are in a good path of delivering profitable growth as well in other regions. Even if there are less mature, for example, U.K. on the super network, but also France. But yes, it's still highly competitive to the total EBITDA and EBIT of Lockers.

Still in Lockers, but at the solution level, do you expect the local business to reach profitability in H2 2024.

When we call a EBITDA level, you could see on the minus 6 points that we have in expenses we have in EBITDA in H1, it's approximately EUR 3 million negative. So EUR 3 million is at the same time, quite low when you look at the total absolute value. That being said, and hence, when revenue comes up, it can translate significantly to the bottom line, like the case for H1 when it comes to volume because basically, you have already the cost embarked, it's all about the volume. We know that H2 volume usually is high. There is seasonality in the parcel we ship, notably in business. It's going to happen this year as well. Japan and the U.K. and France. It also helps the usage quite Atlantic. So there is a good trend towards going upward in EBITDA. And the soonest will be the best on the breakeven point on the cost, but we are -- with the rollout we are having, yes, there is a good track towards that improvement and positive mark.

Moving to digital. Regarding the 2 contracts, which are -- which have been posed since Q3 2023, do you have any idea of the timing of the restart of this contract? And what is the reason behind this delay?

A very good question. So these are still 2 large existing customers. So we haven't -- we continue to have revenue with those existing customers. And I think there are still each probably around EUR 1 million in ARR. Obviously, we were expecting more for each one of them on a yearly basis. And those discussions are obviously active with those customers. So depending on their own budget limitation constrained, ramp-up of their teams as well as our own phasing to be able to support them. We are still in active discussion to potentially able to reengage into the phase and the modules that they have postponed. And whenever that will happen, we'll not hesitate to shed the good news with you.

Still in digital, how many companies are currently certified for e-invoicing in France?

So I do not have the exact numbers in mind today. We probably in the 10s of companies. It's a little bit -- we also need -- when you look at the numbers of companies, some companies, and I think very few of them actually have multiple certification, which is our case. We actually had 2 certifications. I don't know how many other companies have 2, but we'll need to be looking at that. For us, it's definitely a very good news to be able to have those 2 certification for our respective platform, which occurs obviously that decertification on the long term for us. And yes, it is a validation in terms of buying decision for a lot of customers to know that our solution will likely be satisfied in the future. So it's obviously helping our customers to choose Quadient.

So moving to the group as a whole and financial questions for Laurent. Can you detail the write-off, the EUR 8 million write-off in IT?

Absolutely. And it's a good transition, I think, because we just mentioned on the digital side that some customers were posing some large projects, et cetera. I think on the IT side, projects are usually a balance between compliance, payback, and optimization of the decision making. Basically, it's not all about just a payback. We had a specific project of an ERP in North America that didn't end up in not having that right balance in the end and we preferred a different path, probably more secure, faster and reviewing across the board, the benefit and the speed at which we could implement a just take the decision of stopping that specific project and bearing the cost right now instead of having to, I would say, continue spending an amount that would not necessarily have generated a payback or a benefit at Quadient level.

And still at group level in terms of free cash flow generation, what kind of level are you expecting for this year?

So if you look at H1, you could say that H1 looks way better than last year. And I have to acknowledge the fact that we were particularly, I would say, pleased with the working capital requirements. We are cautious on stock. We've been focus on cash collection, and that's good. We'll continue to do so in H2. You still need to weigh in the balance 2 of things, the cost of debt and the interest paid will have in H2 that will still be higher than the one we had in H2 last year. And the second point is, obviously, the lease portfolio. The good health of our mail business is I would say, in the short term, consuming some cash because basically what you lease, you recognize in to your EBITDA, but don't necessarily collect right away because the contracts are 5 to 6 or 7 years length, which could ultimately end up in a negative evolution -- a negative contribution of cash if the leasing portfolio increase in size, which is what we expect over H2. Usually, H2 is -- reflects an increase in the lease portfolio because they have a lot of have placement. So all in all, I would say probably favorable compared to last year will probably depend as well on the dynamic that we see over H2.

Thank you, Laurent. Moving on to the recent deal on Esker. The recent bid on Esker by Bridgepoint, impact on your joint venture from this contemplated takeover on Quadient.

Well, it's a good question, but it's probably going to be difficult to anticipate that. We probably do now less than now 20 -- or we contribute to Esker move through the JV and the business around EUR 20 million, which obviously has a significant impact on positive impact for Esker interim of its revenue and its EBIT contribution. As you know, we have now stopped to resell and market the technology for Esker outside of France. So it's really it's our platform that we resell in the rest of the world. We've done that progressively. We have migrated some of those customers, notably in the U.S. or in the U.K. So those migrations are either ongoing or finished. And we have decided to continue with us today to market some of the technology for the French market. So we'll need to see the new ownership and their new trajectory has any change to that, but I believe that at this stage, I have no information to believe there would be having any significant impact on the short term.

Still on this takeover bid. How do you consider the project takeover by Esker following several deals within the industry at over 5x revenues. And do you think that the spinoff of your digital division couldn't be making sense and be possible?

So it's a good question. So there's a few things I think to take into account on the market today on this. The first one is that Quadient as early of 2019, had announced that we believe that the market, regarding communication and financial automation would need to consolidate so that players that would be successful and could survive and thrive would have a pretty large platform versus what we believe was the current environment of having niche solution, just an account payable solution, just a payment solution, just catch-up application, et cetera, just accounts receivable or customer communication. So that's what we had announced to you, that was our vision on the market in 2019. We have anticipated a lot of those consolidation move by identifying who we found in the market had the best technology. And this is why we did the acquisition in 2020 of our accounts payable automation solution was the acquisition of in Beanworks. We did in 2 years after what we believe was the best technology on the market and still is today on the accuracy or automation, in particular, because we were leveraging intelligent artificial capability that was nowhere seen on the market, and they're still recognized by the industry, and that is one of the best ones on the market today. And as you know, when you do acquisition of independent solution, you have to integrate them. So that takes time. So we had anticipated that. And as a result, we are now ready on the market before some of the other players are making their moves to either obviously do some additional acquisition or take companies that were in those environment potentially not capable to accelerate what was needed for them to consolidate the platform and potentially go private, so that private equity financing or banking could potentially help them build such a platform or accelerate their international growth because I think that was the second aspect that we have shared with you is that we believe that in this domain, the people that will be successful not only need to have the best platform, but also be a multi-country player, if not a global player because a lot of the technology that we can define around the invoice management, whether they're incoming invoice or outgoing invoice, can be shared across -- obviously, need to adapt to local ERPs, accounting rules. But from an engineering perspective, 90% of it is roughly the same country to country. And same thing, we are obviously a cross-border or cross-country player today. And I'm giving this information because I think it depends on the strategy of each companies and where they're at in the strategic story. What I think ultimately is that we have anticipated the fact to be global and to have a platform before I leave most players, if not everybody else. We've seen in the last 18 months, companies like Billtrust, going out of the stock market being acquired by, I believe, equity partners. We've seen a company in the Nordics that was doing account payable called Basware, being taken out to the market as well, so that potentially could change the strategy. We've seen now Esker, and in the 3 cases, we see a high valuation of each of those companies. So that comfort to us that this segment is a highly regarded, highly valued segment and therefore, knowing that we are bigger than each of the 3 companies that I mentioned, for example, today in terms of size, that we are in a very good position to be able to meet the next stage of the market. And this is why I would refer to what we have announced during our Capital Market Day that we have equipped our company, quite even to be able to accelerate its growth organically today, especially with the advent of the invoicing regulation that will be coming in Europe on the one hand and for Europe. So we've launched our solution a few quarters ago or a few years ago. We have been certified by the French government, as we mentioned, for the PDP platform, but we have continued our other innovation and other activities from a go-to-market perspective to be able to evolve globally organically. So today, we're busy in a good position to be able to benefit from those moves because these are always disruptive to competitors and players. They take time to readapt and refocus the business. On our side, we're in a good position not to be disrupted and potentially accelerate. We'll look at other potential acquisitions if we see that on the market today to see if we -- there is opportunity that could present itself, but we're in a good position organically, and there was, I think, our positioning that our assumption that we had shared with you in June.

There was a side on a potential spin-off for the digital division. And I'll add another follow-up question, which is whether we've been approached by private equity before.

Sure. So as it relates to our portfolio of 3 solutions, we have already always mentioned and continue to mention that we're always going to be very flexible. So obviously look at our 3 solutions in demand, making sure we're the best owner of each. And we'll always continue to look at that in the future. As it relates to private equity approach, it is their job to be able to look sometimes at those public companies, like they do look at Esker or Billtrust or the others. So as Quadient, naturally, there's been some private equity there always engage with us. But at this stage, I believe we have expanded our current trajectory on the market as to what we believe we can do organically in our current setting.

Another question for Laurent, the bond refinancing. Have you started negotiations for the bond refinancing of 2025. And in the current market condition, what would be the new rate for this bond?

So we already anticipated part of this refinancing during H1, as you can remember, through Schuldschein debt -- new Schuldschein debt that we closed in May, I believe, if I can remember well, end of April or May. So we are actively, obviously, working on the rest of the refinancing of the bond and I remind you that we only have EUR 260 million left to be paid back. So yes, we are seeking towards that and obviously closing in H2. The level of cost of this new debt is not expected to be significantly different than H1, hence, basically today we have a cost that is close 4.5%, 4.6% a bit more. If you look on the full year basis, we probably will be having around 5% or more, a little bit more, but not much more in the current market conditions.

Thank you, Laurent. And maybe because we don't have any more questions, you could come back to Jean-Francois question.

Sorry, Jean-Francois, I had to check because I don't want to leave you with something approximate, EUR 147 million is what we reported last year. And then you have the scope effect of notably [indiscernible], which is approximately the one that we showed on Page 12 because Daylight was acquired in September. So the EUR 4 million you can see knowing that I mentioned that Frama was a breakeven, that the Daylight impact of mentioned will be close to the same for the full year. You just have the month of August that you need to hire to add to maybe EUR 4.3 million or EUR 4.4 million. So meaning that you need to restate the -- on the EUR 147 million to EUR 142.5 million, I would say, to have a pro forma -- proper pro forma. But no very limited scope effect for H2 in the end. Just H1 that we already have here.

Thank you, Laurent. Thank you, Geoffrey. We have no further questions at this time, so we can close the call. Thank you very much for attending this presentation. And for your question, our next call will be on the 27th of November for Q3 sales. And in the meantime, we look forward to meeting some of you in the coming days during our roadshow. Thank you very much, and have a good evening.

Thank you.