Quadient Sa

Good evening and welcome to Quadion Full Year 2023 results presentation. I am Catherine Hubert-Dorel, Quadion Head of Investor Relations. Today's presentation will be hosted by Geoffrey Godet, the CEO, and Laurent Dupassage, the CFO. The agenda for today's call is on slide three. And as usual, you will have an opportunity to ask questions at the end of the presentation. You can submit your questions in writing through the web or ask question lives by dialing into the conference call. Thank you very much. And with that, over to you, Geoffrey.

Thank you, Catherine. Good evening. I'm pleased to present you the highlight 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 1 billion and 62 million euros, 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-related revenue up 3.4% this year. At 157 million euros, 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 65 cents 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 2021-2023 strategic plan. Turning now to slide 6 on how the full year result compared to our guidance and for the year and also our mid-term ambition of the three-year period. Slide 6. So last December, during our... called for the third quarter, we mentioned that the organic growth rate of our revenue was a little bit lower than the 3% initially envisioned. And we lowered the full year guidance to around 2%. This was due to the anticipated weaker performance of our locker 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 gross and our subscription-oriented revenues and rigorous operating discipline, especially as it relates to managing our costs. With the full year 2023 result, we also close our three-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 three-year was set at 3% and revised to 2.5% last December 23. We have therefore delivered a performance in line with that ambition. Moving to the current EBIT level, we're just shy of the mid-circle 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 1.75 target leverage, excluding leasing, as we close the year at 1.65. And the macro environment has certainly brought with it some challenging trends not initially envisioned, such as the evolution of labor markets during this last few years, interest rate pressure, and inflation. And despite all of these, the last three 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 had some significant changes in our shareholding structure with the arrival of VESA investment and also of BPI France as two new large shareholders in 2023. 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 includes the opportunity for BPI France to request a board seat should that 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, 2023, and following the due diligence process from our Remuneration and Nomination Committee, BPI France Investment has been co-opted to the Quadrillion Board as of last Friday, following the resignation of Sébastien Marotte from the Board. I want to take the opportunity to have the Quadrillion Board to thank Mr. Marotte for his contribution to the Board over the last years. We are delighted to welcome BPI France and Emmanuel Blau, its representative, to the Quadient board. This co-optation will be submitted to the approval of our shareholders at the next AGM, naturally, on June 14th, 2024. I will now hand over the floor to Laurent.

Thank you, Geoffrey. Good afternoon and good morning, everyone. I am Laurent Dupassage. I am Quadient's Chief Financial Officer. Before turning to the details of the financial performance for the year, I would like to make two important points. First, you may remember that at the closing of the H1 2023 accounts, we discovered accounting irregularities in the Italian and Swiss subsidiaries for our mail solution. Let me give you an update on the situation. The investigations are now completed and the case is closed. While we are pursuing legal action against those believed 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 2022 and 2023 financial accounts. Regarding the past accounts, we have made an additional 23 million final adjustments to the opening balance sheet of 2022. related to non-cash items, mostly overvalued assets and undervalued liabilities. This is in addition to the 29 million euros we recorded in H123 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 male subsidiary. We have therefore decided to review the future of our mail activity in Italy and have initiated the process to sell this 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 10 million and 8 million of revenue respectively in those years. Moving now to slide 9, revenue for Quadient in the full year stands at 1,062,000,000 euros. 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. As seen throughout the year, organic growth from substitution-related revenue continues to outpace group performance with a plus 3.4% organic increase. For the year, it now represents 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 three 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 solution. Lastly, International had a 1.9% organic increase, a 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 amenity expenses, on the right-hand side, I am pleased to report a 9.3% organic increase and a 157 billion euro 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. 0.8% decline is driven by 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 Delight in Canada in September 23. But also the 25 million euro negative impact of Forex mainly linked to the dollar weakening against the euro. Moving now to the next slide, we present here the same bridge regarding current EBIT before related expenses. And again, you can clearly see the contribution by solution, the very positive dynamic in place with the 9.3% organic growth driven by the development in current EBIT level for both our software and locker solution that are more than compensating the decline from mail. From a reported standpoint, we are moving from €151 million last year to €157 million, hence a reported EBIT growth of 4.4%, impacted by a €2 million negative scope effect and a €5 million negative forex. We will now move into the detail of each solution. Over to you, Geoffrey.

Thank you, Laurent. For a software solution, 2023 has been the year of the launch of the Quadent 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 upsell opportunities as part of upselling the modules of the suite. 2023 has been another also fruitful year for innovation with, as you know, the release of our artificial intelligence enhanced cache application module. The rapid integration of Daylight, our new i4 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 Altares and Cofas data to improve credit scoring through AI and machine learning. And we now also integrate with Xero, another accounting solution on 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-sellability 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 continue 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 has leadership position on three key market grids for the Aspire leaderboard. Laurent will now detail the financial performance of ICAE.

Thank you, Geoffrey. ICA represented 245 million euros of software revenue for Quident in fiscal year 23. It's a 9% organic increase and an 8% on an organic basis, on a reported basis. As 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 licensed sales and professional services. All regions contributed to this excellent performance. Our annual recurring revenue continues to increase and stand at 206 million euros as of 31st of January 2024. It's an annualised organic growth of 12% compared to the end of last year, while it was impacted by two large contract postponements that we already mentioned in the nine-month sales presentation. From a profitability standpoint, I'm very pleased to say that we are now 1 million euros 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 improvement 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 products and release of new, more connected devices has been key to drive product placement for mail-related solutions. And today 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 install base now standing at 31.5%. This is a very fast pace of upgrade that we've been delivering so far. The multiple wins within the U.S. healthcare 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 a mail-related solution 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 booking 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. We take the example, one example, sorry, the contract with the Maryland State Department of Education is the placement of a newer machine with a software product for an existing customer. This is a very good example of the successful approach with our customers that our sales team takes.

Laurent. Thank you, Geoffrey. Revenue for MRS came in at €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 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 177 million euros, the current EBIT translates into a high 24.3% margin, which is above the 22-24% mid-term indicated range. The small decline against last year level is due to the investment in sale capabilities and a small decline in gross margin. Now over to you, Geoffrey, for Parcel Locker 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 local 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 monetizes this profitable infrastructure. In terms of geographical expansion, we're currently building open networks in the UK and France. The initial ramp-up in volume C now in the UK and France gives 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 locations such as the one like Auchan, Super 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 on the market. Now to you, Laurent.

Thank you, Geoffrey. Revenue for parcel lockers was €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 a rental model towards usage-based fees for the commercial agreements with Yamato and with Auchan impacted the solution's 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 UK 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 our lockers business to improve, but at a slow pace due to the high level of investment required to scale the network. Profitability of the installer base continues to improve, reaching 13.6% in the fiscal year 2023. 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 three-year result. You find the same information as discussed before with the €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 157 million euros in current EBIT for the group with its breakdown by solutions and respective margins. Moving now to slide 20, net attributable income stands at 69 million euros compared to the 13 million euros last year, a return to a more normal level after the impact from good wind impairment last year, In terms of the main impacts for this year, I would highlight the overall positive evolution of our net financial income, with on the one hand lower forex losses and the benefit of improved valuation for the investment fund we have a 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 male Italian subsidiary we classified in discontinued operation, as this said, process for this subsidiary has started. This amount includes also fair market value adjustments and cost to sell for approximately 7 million euros. Turning to cash flow statements on slide 21, the free cash flow after CAPEX stands at 64 million euros. 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 locker 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 placement. And if you move to next slide 22, The capex level that we can see here has increased by 14 million compared to last year. It's mostly driven by the significant increase in rented equipment capex to the dark blue part. For both our mail business and parcel locker solution, moving from 30 million to 44 million euros compared to last year. On the other capex line, You have a lower development capex after two years of high investments and a small decrease in maintenance capex. That being said, you have some capex linked to IFRS 16 that have increased due to the new office and these renewals. If we now move to the next slide, slide 23, the net financial debt for the period and at the end of the period stand at €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 1.65, a level which is below our 1.75 target that we set at the beginning of our three-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 reported figures compared to last year, closing the year at 598 million euros, so a very solid operating performance for our mail solutions. A small positive Forex impact and with a still very low default rate. On the rental side, as you can see, and discuss 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 a 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 57 million euros. This has generated a financial gain of close to 2 million euros in our P&L for this year. Our average cost of debt at the end of the period stands at 3.88%, and roughly one-third of our debt is at variable rate today. The liquidity remains very strong at the end of this year with 118 million euros of cash and the new 300 million euros 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 65 cent 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. 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 two 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 two of the Back to Growth. The second phase focused on three 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 three priorities in turn and detail their achievements. We move to slide 28. As mentioned, we started a portfolio reshaping during the first phase of our strategy in 2019 by divesting all non-core activities. In parallel to the divestments, we made investments to grow and improve, notably our two growth solutions. These were the acquisitions we made each year with Parcel Pending in 2019, IEP in 2020, and Beanworks in 2021. With the disposal of our last non-core activities in 2022, we closed this divestment chapter. Having reshaped the portfolio also allowed us to align the financial reporting of Quadiant and provide you with an EBITDA solution very recently. Most recently, we also continued our producing approach to M&A with the acquisition of Delight, 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 Hama, 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 billions of critical business transactions 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 markets. Our software platform is recognized as a leader by multiple analysts. Our mail activity is number one in Europe, number two globally. And our open network of lockers is number one, in particular, in our chosen geographies. Simply put, we win because we're the best at what we do. Through the 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 in EBIT has been achieved, and despite losing close to 50 million of male recurring revenue in 2020 due to the COVID crisis, right, but was never to be recovered afterwards. We also undergone a strong business model transformation of software business, moving from 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, a little review 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 locust business, but also careful spending on maintenance CAPEX and efficient development of CAPEX investments. We have reached and even exceeded our 175 leverage target. This is the leverage rate excluding leasing as we close the year at 1.65 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 a net 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 50 cents 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 two of our back-to-growth plan. And yet, it still delivered an impressive growth. Throughout the past few years, we set out to move away from an on-premise licensed business model to a 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 planned period, we've been able to deliver an average around 17% of subscription organic growth per year. This is higher than the average annual growth that we estimate on the markets 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're 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 apart, 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, a 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, it 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 increasing. 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 YEP 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 Quadiant. So, even as we started from a low volume, we have gained market share much faster and continuously every year for the last three years. Now, turning to performance of mail activities during the same period of time. Clearly, the past three years have been extremely positive for mail solutions. 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 much stronger performance versus our expectation that we had set in 2021. Hardware sales have been growing for three 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 upcycle exiting 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, which are the 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 set in 2021. So, a successful three years for a 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 per locker. This has slowed momentarily the pace of deployment of our locker base. That being said, we still close 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 will the profitability. Speaking of profitability, at 13.6%, the install-based 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 market share still exceeds 75%, and the initial volumes ramp up that we see recently in the deployed networks in France and the UK, makes us confident that we're focusing on the right approach. As you know, innovation has also played a key part in the development of a personal 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 Dropbox to consolidate returns. So now, let's turn to page 36. We have designed our ESG ambition around five key pillars important to our business. Our people, ethics and compliance, environment, solutions, and financial pay. These five 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 Quadians, 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 toward this important objective, which contributes to making, I believe, Quadient a better company every day. Turning to slide 37. These achievements are not just recognized internally, right? They 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 two 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 our software solution ahead of the upcoming e-invoicing laws in Europe. Integration should come quickly, as we have been working as partners with SRAMA 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 UK, which is going to start using Open Network for parcel lockers. Royal Mail is a major addition to our existing four international carriers already using Quadians Open Network, as Royal Mail is not just any carrier, it's the largest UK carrier. So welcoming Royal Mail to our network, our open network, will now have the opportunity to access the maturity of the volumes in the UK market, as these five carriers represent around 75% of the parcel market. Royal Mail's usage is scheduled to start as soon as May 2024, and will, in time, offer its customers both pickup and drop-off of parcels through our dedicated Dropbox. This is a fundamental addition to our network, which I believe demonstrates the attractiveness of our agnostic open network approach on the market. So Royal Mail's decision to join our network is making Quadient truly unique in the UK market, as our award-winning intelligent lockers enabled us to continue to differentiate ourselves from the local competition. Moving to slide 40. With these two 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 2024. 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 a capital market day scheduled for June 19th, 2024. So with this, we're at the end of this presentation. I want to thank you for your attention. And we're now ready with Laurent and Catherine to take your questions.

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

Thank you. If you'd like to ask a question or make a contribution on today's call, please press star 1 on your telephone keypad. To withdraw your question, please press star 2. You'll be advised when to ask your question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. Once again, please press star 1 to ask for a question. We'll take our first question from Patrick Gilson, Associate General. Your line is open. Please go ahead. Yes. Good evening.

Can you hear me?

Yes.

Very well, Patrick.

Okay, thank you. 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 the 19th?

Most likely, and we'll be able to give those details about the 2022 expected performance in context of a new strategy or a new plan announced for the next coming three years. Thank you. You're very welcome, Patrick.

Once again, please press star one to ask for a question. We'll pause for just another quick moment to allow everyone an opportunity to signal for a question. We will take our next question from Jean Francois Graham from OdoBHF. Your line is open. Please go ahead.

Yes, good evening. Jean-François Grandjean speaking from OEDPHF. Just a question regarding the PLS business. We see a decrease for the last quarter, and we see also limited growth for the full year organically. Could you explain to us why there is so limited growth, and what do you expect for the coming years? Thank you.

I can take it. If you want to, in a way. Hello, Jean-Francois, and thanks for your question. Yes, you are correct, and we can see a decrease for the last quarter. Last year, notably in Q4, we had some hardware placement regarding parcel lockers, 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 the 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 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 Japan. 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 two steps are here to make the open network for France, UK 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 differentiative to be successful in this market.

Okay, thank you. Another question regarding the profitability for the PLS. If I well understand, during the presentation, you mentioned some moderate draws for the profitability. It depends on the investments you want to make. So, Nevertheless, do you expect some lower losses compared to the 21 million losses last year, some lower losses in 2024?

So we will have, I think, all the time to further dig in, buy solutions during the capital market day that we will hold in June. But you understood right that The rollout of the open network, both in France and the UK, has a cost. This cost is simply the amortization of the locker, 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, notably in North America, we enjoy a very good profitability. And as you've seen, the existing install-based profitability continues to increase. So, I think we'll have the opportunity during the June capital market day to go further in the details of what is the pace and the type of development we expect from profitability of this market.

of this business and and the longer term i think which are also important to you okay thank you we will take our next question from maxine dowry bnb paribas your line is open please go ahead

Yes, good evening, everyone. Thanks for taking my question. First one is a follow-up on the question regarding PRS CapEx. Is it safe to assume that this year and in the next few years, as you focus on open networks, the business will be a bit more CapEx-intensive than it used to be and that CapEx could grow again? as 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 before the capital market day, so either the subsidiary will be closed down or either it will be sold before June? Thank you.

You can complement on the CAPEX if you want on the locker. Yeah, absolutely. So it's a good point that you raise on the locker implementation and the CAPEX impact. The amount of CAPEX we'll have in any given year as it relates to the CAPEX related to the lockers will be function of the numbers of lockers we install 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 20 or 30,000 euro, 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, Hyper and 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 installations. And this is true that, on the other hand, we do expect to be able to ramp up the network in France and the UK. And that's what we'll try to present and specify in more details during the Capital Market Day to give visibility, obviously, of what we expect for the next three years.

And maybe I will move to the second question, which is regarding Italy. So, as mentioned, we've taken the decision to divest the Italian 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 that's the timeline we've 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 parties, external editors, etc., There is no more, obviously, impact to be expected there. And for me, it's a process and timing perspective, but there is no strategic nor 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 PLNs and the balance sheet, the amount related to the Italian subsidiary for both 2022 and 2023. And obviously, naturally, for 24.

Okay, very clear.

Thank you. You're welcome. Once again, please press start to ask for a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. Thank you.

We will start 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 questioned, is the Italian MRS subsidiary fully depreciated? And what were the revenues of this subsidiary in 2022? Thank you.

May I take the rationale and let you complement Laurent?

Absolutely.

The rationale is a business decision, clearly. The same way at the beginning of actually of Back to Growth, our strategy in 2019 with Laurent, we had reviewed all our countries and all operations and we had 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. a size, a certain materiality, a certain 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 us to realize that the business and the quality or the state of the business was not what we believed 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 market. 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 on the market, and those net book value have been included, basically, in our financials. That's what you could see, and I have been detailing on the P&L side that you have 7 million additional euros 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 10 million euros and contributing hence to about a percent of the group revenue. And this year it was about 8 million euros.

Thank you, Laurent. We'll move to some questions on the leverage. What are the targets 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?

So on the leverage, the target was 1.75. It was overachieved without, I would say, and it was not at the expense of the investment. So that's, I think, the good side of the landing point. We are at 1.65 times the EBITDA excluding leasing when it goes to net debt excluding leasing. If the question is for what we're looking in the future plan, I think it's all about what we'll discuss and share during the capital market in June. And we'll be... Happy to talk again of capital allocation at this time. In terms of cost of debt, and it was mentioned, I think, on the slide, on average for this year, we have 3.88% of cost of debt. So if you do the math, times the gross debt gives you the cost of debt that we show on the P&L side. And one third of that is variable rate and two third of that is fixed rate today.

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

I think we didn't touch base on the buyback. Buyback will be, like the other topics of capital allocation, a topic from our capital market day in June of this year.

As it was just to the buyback for 2023 and for the plan 2021-2023, we did not include or propose 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 65 cents, 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, whether it's the level of capex, whether it's the leverage, and whether it's the shareholder return policy that we'll present and share with you.

In 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. And that was our commitment in the past year 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 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, the purchase price allocation amortization. So the portion of notably intangible that is amortized of our past acquisition. So that PPE 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 gradient emanated expenses have been declining in the past three years, past three to four years, as mentioned, because we've been following a more organic path, even if we had divestments, as mentioned by Geoffrey, and some opportunistic 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 emanated 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 now move to questions on the solutions. And one question on all the solutions, which is how much have you raised the subscription price for the mail, the software and the local solution in 2023? And is there a price hike planned 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 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 the raw material has declined 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, if you look at MRS, the fact that we are almost flat obviously includes 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 IC 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 contracts that are being indexed, and we'll continue to follow the index of the respective solutions 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 three solutions. But the gross margin has actually slightly improved this year in 2023 versus 2022, which is reflected of what Laurent mentioned. So there's obviously a good healthy level of gross margin that has been continuing in 2023.

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 cancelled by the costumer?

I believe this is what we said in H1, actually, Laurent, right? Yes. It was around 4 million in value that impacted the AR, and the full value has been reduced from the net AR that was presented, I believe, at the end of H1. And therefore, there was no further reduction related to the postponement of those two 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 uh 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 conditions. And we've seen a very dynamic last year in North America, notably with the desertification we had, and we've seen continuous trends on those ones. And as mentioned also earlier, Franz Benelux's performance was particularly good 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 that also opens perspectives for us to reinforce our customer base and our ability to cross-sell across that base for 2024.

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 and 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 or the duration? Sure.

It's a good question. So this is definitely a major contract for us. It's a multi-year 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 as much as we can. So it's a contract over more than five years, let's put it this way. So it's multi-year with some both revenue that will be fixed associated to the ramp up of each lockers, but also some usage. So we have a mixed effect between the two. And it's probably a contract value for us that is in the eight 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 planned throughout 2024, and with more significant revenue expectations for the coming years after that.

And lastly, still on PLS, how long is needed before Yamato Joint Venture catches back its revenue and the EBIT lost following the new mode of billing?

So in terms of revenue, I think we're talking about probably 18 months pass. So that basically the volume part from Yamato offsets basically to align with the previous condition. That being said... Just to offset 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 Bus, including Sagawa, that could help us eventually to catch up, I would say, at a higher pace than this one. From a Levit standpoint, it's probably less impactful for the main reason that, as you know, we started to deproduce lockers seven years ago. So we are starting to have part of the fleet that will progressively be fully depreciated. And they are today in very good shape. So we have good perspectives and good hope of seeing this eventual slight drop in top line and 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 roadshow. Thank you and have a good evening.