Worldline Sa Ord

Ladies and gentlemen, good morning. This is Gilles Grappinet speaking, and thank you for attending today's Worldline Conference call on our third quarter 23 revenue. As usual, I am with Marc-Henri Deporte, our Group Deputy CEO, and with Gregory Landerti, our Group CFO. As we're reading this Q3, we'll share with you today some important new messages and information regarding our revised assessment of the market environment and conditions. in which we've been executing our budget and corresponding financial trajectory. We also announced today some very important business and operational decisions to reinforce the medium-term growth and profitability profile of our group. I'll come back immediately on these elements. Our assessment of the second half of 2023 is that both industry and looking forward to Q4 we face now more challenges than we anticipated, even until very recently. The first one is obviously the economic slowdown in Europe, which impacts our MS activities, most particularly in Germany. This current macroeconomic situation has been clearly generating an accelerated shift in consumer behaviors, in particular, accelerating their moves from discretionary to non-discretionary spends, which is in our business, penalizing both growth and profitability that we now need to take into account looking forward. The second ones are also temporary challenges, but more specific to our industry and to our bank. Regarding the payment sector, We decided to start to implement reinforced regulatory rules and new market guidelines into our merchant risk policies. Consequently, we have taken the decision to terminate certain merchant services activities as soon as this quarter for some, but that will also impact primarily the next period. More specific to Worldline, but also probably partially connected to the macro environment, which is slowing obviously decision-making for new outsourcing projects in many banks, we also face during this H2 a low conversion of our FS pipeline. Number two message is that we announce today an important decision, an acceleration of our transformation ambition, Power24. As we were already preparing the next phase, of the Worldline strategic journey, we identified that after 10 years of fast build-up, our company could strongly benefit to redefine holistically some aspects of its operating model, making it simpler, more agile, simplifying processes and internal functioning with the clear goal to make Worldline more competitive and ultimately more profitable. We initiate, consequently, our Power24 ambition, with the target to deliver circa 200 million euros run rate expected cash cost savings by early 2025, with a fast ramp-up in 2024. Due to our revised view on the market condition, we update our guidance for 2023 as follows. Revenue organic growth will stand now between plus 6% to plus 7%. we anticipate to deliver stable OMDA euros versus 2022, i.e., circa 1.1 billion euros, and free cash flow conversion rate from OMDA is expected to stand between plus 30% to plus 35%. And regarding 2024, thanks to the fast implementation of Power24 next year, we anticipate our OMDA24 to increase versus 2023 by circa 1.1 billion euros. 100 million euros with an overall top line momentum that will re-accelerate from H2 next year. I give now the floor to Greg to guide you more precisely into the numbers.

Thank you, Gilles, and good morning, everyone. Let me start by giving you some color on business developments during Q3 23. As you remember, we enjoyed good growth over H1 with 9.4% at group level and around 13%. for MS. In Q2, volume dynamics started to normalize, as mentioned during a July call. Now, as we enter into H2, we see a deterioration on the macro front, mostly in Germany. This translates in a softer quarter in MS, despite satisfactory commercial developments. During the third quarter of 2023, Worldline's revenue reached close to 1.2 billion euros equivalent to 4.8% organic growth, with RMS activities up 7.6%, while NFS and MTS remain soft. Year-to-date, we're posting 3.4 billion euros in revenues, or 7.7% organic growth. Let me now detail these numbers by business line. On the following slide, you can see the highlights by business line, as well as the elements driving the slowdown. Starting with MS, organic growth has been driven by an overall good performance on the mass market across most geographies. Commercial performance was also good with several merchant wins and upsells on large enterprise both in-store and online, which Marc-Henri will detail later. And finally, our digital commerce activities continued to post double-digit growth with progressive ramp-up of contracts signed in the previous quarters combined with an increase in share of wallet with existing merchants. However, this overall encouraging dynamic has been impacted by two main factors, in particular in Germany. First, we've seen some macro softness driving a shift in consumer behavior with more focus on non-discretionary spend. And second, we started to terminate merchants in our German online portfolio, which had a 10 million euros impact in Q3, and we'll have another 20 million in Q4, primarily in Germany. It is important to mention that excluding Germany, MS Organic growth stands at 10%. Moving to FS, despite a good performance in digital banking and account payment, at low to mid-single digits. The overall division posted a 2.9% organic decline. This is mainly due to card-based payment processing, where pipeline conversion and repricing are slower to materialize. We have addressed this point through change in commercial leadership, as well as the revamping of our sales organization so as to reposition FS on a better trajectory in the coming quarters. Last, regarding METS, Q3 was broadly stable with very good growth in transport and mobility, which was offset by a slow ramp-up of recently signed contracts and weaker fertilization on existing contracts. Now moving to our full year 2023 guidance. As mentioned by Gilles, acknowledging new market conditions, our revised guidance is as follows for 2023. revenue organic growth between 6% and 7%, stable OMDA in absolute value versus 2022, i.e., circa 1.1 billion euros, and free cash flow conversion from 30% to 35%. In the following slides, I'll go in more detail over the building blocks of our revised guidance. looking at revenues for the end of h2 here are the key revenue building blocks from former guidance to the new to the revised guidance headwinds versus the center of the guidance should reach approximately 105 million euros in h2 2023 broken down as follows 40 million euros linked the macro effect on transaction volumes as well as a bit of repricing delays split 30 million from a mostly German macro to circa 10 million euros due to slower repricing actions. 30 million euros is linked to the termination of some existing merchant relationships related to the implementation of our revised risk policy. 25 million euros is related to the slower conversion of pipeline at FS. And 10 million euros to METS. Overall, These impacts mean a revised 6% to 7% new guidance implying H2 growth of 6% to 7% for MS, minus 3% to minus 4% for FS, and flat to minus 1% for METS. Moving on to the next page on OMDA. Regarding OMDA, we intend to be stable versus last year in absolute value at circa 1.1 billion euros. or around about 145 million euros less versus where we expected to be with our former guidance. This gap is broken down as follows. First, the macro effect on transaction volumes and repricing delays account for 30 million euros, mainly due to Germany, as mentioned in the previous slide. 50 million euros correspond to the margin mix effects relating to the shift to more than discretionary consumer behavior as well as the evolution in the card, as well as the scheme mix that we're observing in the semester. 20 million euros is related to the termination of certain online merchants in our portfolio. 20 million euros impact reflects both a slower adaptation of our cost base versus inflation level and also the implementation of new operating costs to adapt to the risk environment. And then missing FS commercial momentum would cost 20 million euros with METS costing 5 million euros. As said, our OMDA should therefore remain stable in absolute terms versus 2022 at 1.1 billion euros. On the next slide, finally, on free cash flow, our revised guidance is mainly impacted by the 145 million euros OMDA H2 2023 headwinds. And the conversion rate after OMDA impact stands at circa 40% versus 46% to 48% previously. And finally, 50 to 90 million euros additional impacts correspond to the acceleration of strategic initiatives, including in particular the credit agriculture JV, the move to cloud acceleration, and lower working capital contribution, which brings our revised guidance to 30% to 35% OMDA conversion. Now let me give the floor to Marc-Henri to give you more color.

Thank you, Gregory, and good morning to all. As mentioned in today's introduction, the payment industry is facing a constant reinforcement of the regulatory frameworks and guidelines in a broader context of a rise of cyber crimes and emergence of always more sophisticated fraudulent patterns. Detecting these patterns is getting more and more difficult and costly, and we are constantly investing and adapting the corresponding teams and systems leading to regular merchant terminations. It is on the basis of this particular context that we decided to tighten our risk appetite policy and to perform a group-wide portfolio review in our online business. We will proactively terminate all merchants that will not meet our reinforced risk criteria. This was started during this semester and will continue during the next one. Our first high-level estimate of the business at stake is in the range of circa 2% to 3% of Warline revenue, with a maximum impact of yearly €130 million of revenue. Warline remains a strong growth engine, and we need to regularly reinvent ourselves after all the important mergers we went through, with corresponding peaks of investment in adapting systems and teams. Having in mind the next steps of our trajectory, we already prepared ourselves to be able to launch more transformation with, for example, the reinforcement of our Indian development factory or the move to cloud investment. With the new market conditions, we are convinced it is now needed to accelerate this transformation and execute significant cost reduction to reboost our competitiveness while preserving our ability to accelerate growth. This is why we want to launch with this Power24 plan, regrouping all our major transformation streams with a clear target to reach 200 million euros run rate cash cost savings, ramping up throughout 2024 and fully delivered early in 2025. Many levels will be triggered around four domains. For product transformation, we will benefit from the effort done to streamline our platform, push it further, and accelerate DevOps adoption. In the technology domain, we will push further the automation of our transactional activity, accelerate the move to cloud, and increase our development productivity. We will adapt our organization for further end-to-end accountability and overhead optimization. with a clear intention to be simpler, leaner, and more agile. Finally, we will evolve our sourcing mix to leverage further our offshore and nearshore NNs capabilities. The cost of this plan should be similar to our previous integration synergy plans, slightly above the run rate savings and close to 250 million euros, mainly in 2024. Now, coming to our usual merchant services commercial activity, we had a very dynamic quarter, which is for us a very reassuring factor about our underlying business momentum, despite the temporary slowdown of revenues and the temporary effect of handling our risk policy. I will start with the install and omission and new wins. You know that we believe in the unattended sector, and we are active in signing as many partners as possible in this domain. As we progress constantly in this field, I can mention two examples this quarter. S&M, a German pioneer in the vending machine telemetry, for which we are integrating their connected vending system with the world and acquiring solution, and the Norwegian Nopane, a payment provider specializing in the national sector. On the upsell side, we did expand our agreements with several prominent brands. Alsa spends leading road passenger transport operator for whom we will expand its online payment services, starting with the Spanish market. MDS, an Italian company founded in 1984, specializing in the distribution of cash and cashless payment solutions, who selected our acquiring services and our Worldline Tap on Mobile, another confirmation of the success of this important new product. And finally, the French Railways. With SNC Voyager, we decided to use our Worldline tokenization services to Deploy several customer experiences, like the one-click payment or the buy-now-pay-later. We also add important wins for online payment services, and I want to mention here a few examples. The Goethe Institute is the world's largest provider of German language courses, for which our online multi-currency platform solution will be used for our workshop. Costway, a worldwide furniture provider, in particular in the U.S. and in Europe, for which Worldline's smart routing solution will be used for card processing in Europe before potential extension in Australia and in the U.K. And finally, Gamers Outlet, which is a platform that offers digital codes for games at best prices and joins Worldline's global orchestration payment platform, which remains remarkably successful in the gaming world. Besides, we continue to expand our solutions and offering, and we are glad to mention this time Worldline Consulting Services, which we have tested and grown successfully over a year and which is proving a fantastic tool to boost client conversion rates, leveraging our end-to-end knowledge of the payment industry. Coming back now to the MSV indicator we regularly share with you, we observed that it was up circa 7%. in the third quarter, so the trend is globally similar to Q2. The trends are consistent in in-store and online volumes with respectively plus 6% and plus 15%. This being said, this indicator does not reflect per se the macro slowdown that we experience in the Q3 revenue. What is impacting us is rather the shift, like Gregory mentioned, inside the total MSV between discretionary and non-discretionary consumption. between big retail and small retail. We do not earn the same when consumers go to our discount instead of going to the restaurant. I will now give the floor back to Gilles for the conclusion.