Edenred SE (EDEN) Earnings Call Transcript

Ladies and gentlemen, welcome to the Edenred Q3 2022 Revenue Conference Call. I'm pleased to present our today's speaker, Julien Tanguy, CFO. I will now hand over the call to Mr. Julien Tanguy, Sir, please go ahead.

Well, good morning. Welcome to the Q3 2022 revenue presentation of Edenred. I'm very happy to be with you this morning and share this presentation. I propose we move to the executive summary on Page 2 of the presentation. Edenred record a new quarter of strong growth, driven by continuously strong commercial momentum in core offers and enhanced success of the Beyond Food, Beyond Fuel and Beyond Payment strategy. Total revenues stand at EUR 506 million in Q3 2022, up plus 25.2% as reported and plus 21.4% like-for-like. For the first time in its history, the group's total revenue exceeded EUR 500 million in a single quarter. Q3 2022 operating revenue standing at EUR 484 million, up 23% as reported and 19.1% like-for-like, double-digit growth across all business lines and all geographies, and other revenue of EUR 23 million in Q3 2022, double the amount recorded in Q3 2021 as a result of the float increase and the positive impact from higher interest rates in all regions. Year-to-date, Edenred total revenue stands at EUR 1.428 billion up 22.9% as reported and 19.2% like-for-like versus year-to-date 2021. In the third quarter, Edenred commitment to sustainable development and its extra financial performance has been further recognized. Edenred joined the Euronext CAC 40 ESG Index, rewarding its ambitious Ideal CSR policy and its portfolio of digital solutions, enabling more responsible behaviors and its purpose revealed last year, Enrich connections. For good. Moody's ESG solutions increased the group's score by 5 points, raising Edenred's status from Robust to Advanced. On the next page, we see that Edenred is well positioned to benefit from the increased scale effect of its platform and generate profitable and sustainable growth in 2022 and beyond. Edenred increasingly invests in technology and product innovation to provide corporate user and merchants with best-in-class experiences. Edenred leverages a powerful go-to-market to further penetrate its market, in particular, tackle the SME segment. Edenred keeps on enriching its business portfolio by developing Beyond Food, Beyond Fuel and Beyond Payment solution, fostering cross-selling and unlocking new growth opportunities. On top of that, Edenred is taking full advantage of macro trends, lasting structural changes, [indiscernible] post-COVID like remote working, greener mobility, increased digitalization and virtual counting. Then our solution fits with the needs for additional purchasing power, further strengthening the attractiveness of Edenred's solutions. Edenred is taking full advantage of the economic context, rising interest rate, generating higher order revenue. Thanks to a new quarter of strong growth across the board and a favorable economic environment enhancing the attractiveness of its solutions, Edenred is upgrading its full year 2022 EBITDA outlook to between EUR 810 million and EUR 840 million. On July 26, we announced an ambition from EUR 770 million to EUR 820 million. Before we move to Q3 highlights, I remind you, as you can see on Page 4, that Edenred Capital Markets Day will be in London next week. Under the leadership of Bertrand Dumazy, the management team of Edenred will have the pleasure to present a new plan for the next 3 years. Let's move to our Q3 highlights and let's talk about M&A. I'm on Page 6. This week, Edenred announced the IPS acquisition. With this acquisition, Edenred CSI expands its value proposition in the U.S. Beyond Payment. IPS is a global market leader offering a comprehensive invoice solution from invoice capture to approval. IPS has been founded in 1991, is based in New Jersey and couples its superior technology and strongly focused on innovation and customer services. These acquisitions enhances Edenred's CSI value proposition by expanding along the value chain and integrating to its digital platform a turnkey invoice automation solution. By combining invoice and IPS automation, Edenred CSI clients will have access to an end-to-end integrated solution that further simplifies and streamlines the management of the entire accounts payable process. Edenred CSI expects to strengthen its positioning in key client verticals, thanks to high complementarity between businesses. IPS features will be easily integrated to Edenred's CSI platform, and it will open new growth and cross-selling opportunities. Edenred CSI is happy to welcome the 50 employees of IPS into the Edenred family and to create an end-to-end integrated invoice-to-pay offering. After the Q3 highlights, we are now moving to our Q3 2022 performance. I move to Page 8. As explained in the executive summary, Edenred delivered another outstanding performance in Q3 2022. Operating revenue is up plus19.1% like-for-like versus Q3 2021, bringing the performance of the first 9 months of the year to 17.9% like-for-like versus 2021. This performance is driven by 3 major trends: first, a sustained commercial momentum, in particular with SME; then the continued success of our Beyond Food, Beyond Fuel and Beyond Payment strategies; and then the increased attractiveness of our solutions as evidenced by progressive face value increases in Ticket Restaurant offer to protect employee purchasing power as it is the case for Ticket Restaurant [indiscernible] and enhanced efficiency, thanks to data-powered Fleet & Mobility Solutions. As [indiscernible] we move to Page 9 to focus on the performance of our business lines. Regarding the business lines, we incurred double-digit growth for all of them in year-to-date 2022 for both reported and like-for-like figures. Employee Benefits operating revenue is up 17.7% in reported figures. Fleet & Mobility is up 31.7%, and this performance was driven by a robust sales momentum and the success of our Beyond Fuel strategy, and Complementary Solutions is up 19.6%. For the first 9 months of the year, Employee Benefits accounts for 58% of Edenred platform operating revenue with an operating revenue above EUR 800 million. Fleet & Mobility accounts for 29% and an operating revenue standing at almost EUR 400 million, and Complementary Solutions account for 13% of the total operating revenue of the group. I move to Page 11 (sic) [ Page 10 ] contemplate our performance by geography. In Q3, Edenred operating revenue grew at double digits in every geography, plus 16.5% in Europe, plus 33.3% in Latin America and plus 20.7% in Rest of the World. Currencies had a positive impact in Latin America, especially coming from Brazilian reals while currency impact is negative for the Rest of the World. Let's zoom in our 2 main geographies and let's start with Europe on Page 11. In Europe, which represents 61% of Edenred's platform operating revenue, we delivered a strong growth of 16.3% in like-for-like. As we went in Europe, we registered a solid momentum in sales for both Employee Benefits and Fleet & Mobility business side. In France, the operating revenue growth of the first 9 months of the year stands at 10.4%, and this performance is driven by good commercial momentum for both Employee Benefits and Fleet & Mobility. In Employee Benefits, the sales performance is supported by Beyond Food solutions. For example, the [indiscernible] Employment Engagement Platform continued to deliver solid growth. This sales performance is also supported by continued success of our leading digital Ticket Restaurant offer despite the effect of the decrease of the daily spending cap implemented as from July from EUR 38 down to EUR 19. And despite the high comparison basis due catch-up in the end of [indiscernible] in Q3 2021 following end of COVID restrictions, I remind you our users have not been able to spend their benefits due to health restrictions during the first half of 2021, then users spend more benefits during summer 2021. In the rest of Europe, the operating revenue is up 18.6% for the first 3 quarters of the year. The growth of Edenred operating revenue is supported by a solid performance in Employee Benefits with continued and progressive increase in face value for Ticket Restaurant due to inflationary context. Legal face value has been increased by public authorities in many countries in the beginning of the year: in Poland, to 60% in February; in Romania, to 50% in June; or in Czech Republic to 20% in September. Once the maximum face value has increased, our sales team are promoting the usage of the new maximum sales value to our clients. The revenue performance in the rest of Europe is also supported by sharp growth in Fleet & Mobility Solutions, delivering by increased market penetration in the SME segment. This is it for Europe. And [indiscernible] in Latin America on Page 12. Latin America accounts for 31% of Edenred platform operating revenue in Q3. It stands at EUR 432 million, up 33.3% in reported figures and 18% in like-for-like. This double-digit growth is true for both Brazil and Hispanic Latin America. In Brazil, in year-to-date, the growth stands at 16.8% and is supported by sustained commercial momentum in Employee Benefits Solutions with increasing contribution from Itau Unibanco partnership and the success of our virtual canteen offer. And it is also driven by the robust performance in Fleet & Mobility Solutions, notably driven by the undisputed success of Beyond Fuel Solutions with maintenance and toll. I remind you, we did the acquisition of the Greenpass toll digital operator earlier this year. The review of our operating revenue is now over. I move to Page 13 to comment on our other revenue. At the end of September, the other revenue stands at EUR 53 million to be compared to EUR 32 million at the end of the same period in 2021. It is a 67% increase versus 2021 in reported figures. Other revenue growth is increasing quarter after quarter, up to doubling in Q3 versus Q3 last year. This strong performance is the consequence of a sustained business momentum positively impacting the float. As our BV is growing, our float is growing, too. Then continued impact of increasing interest rates outside the Eurozone as well as first effect of increase of interest rates in euro -- the eurozone are explaining the growth. Decisions taken by ECB in July, September had an impact on interest rate level in euro countries. And to conclude with the Q3 performance, I move to Page 15 (sic) [ Page 14 ] and to total revenue. I didn't even knew that the total revenue is the sum of operating revenue and other revenue. At the end of September, our total revenues stand at EUR 1.428 up 19.2% compared to 2021. I move now to the last part of the presentation, the 2022 outlook on Page 16. So Edenred is a platform and to increase the scale effect and to capture sustainable and profitable growth, we are activating 3 levers: first, Edenred is deploying a powerful go-to-market strategy to further penetrate its core markets, maintaining a continuously strong commercial momentum in the context of increasing attractivity of its solution. Second, Edenred is unlocking new growth opportunities, thanks to its extended portfolio of Beyond Food, Beyond Fuel and Beyond Payment solutions to foster cross-selling and broaden its value proposition. Third, Edenred is investing in product and technology innovations to face opportunities horizon with secular trends in order to fuel future growth. As a consequence, Edenred is upgrading its full year 2022 EBITDA range to between EUR 810 million and EUR 840 million due to the strong performance in Q3 and the other revenue evolution. This is the end of the presentation. I'm now ready to answer your questions and hope you will have the opportunity to attend our Capital Markets Days next Tuesday in London or to follow our events on our website.

[Operator Instructions] The first question comes from Julien Richer from Kepler.

I have 3 questions, if I may. The first one, have you seen any impact from current strikes in France on your Fleet & Mobility activity? And if you can remind us the contribution of the SMM in France. The second question, any update on the discussion in Brazil regarding the potential change in regulation for the voucher activity? And the last one, if you could please give us some details on the maturity of your float investment on average and in Europe more specifically.

Okay. Thank you, Julien. 3 very interesting questions. So the first one about the current strike in France. Well, first, Fleet & Mobility in France is a business that is not that big compared to what we do in Employee Benefits. However, it's something that is growing fastly. We don't have an indication regarding the impact of strike on our activity today. It's too early indeed to give you a view on that. Strike has started a few weeks ago. No impact of the strike in September and we see what happen in October in the coming days. When we look at the strike, we know that 25% of gas station were facing some issues with [indiscernible] one of the products they are selling. So it's big but it's not that much, so we'll see in the coming weeks how it goes. Then regarding Brazil, yes, there are some news in terms of regulation. Maybe I can come back on the different things that have been dealing in Brazil since 1 year. So 1 year ago almost, it was in November '21, a new decrease was introduced for PAT, which is the meal voucher for workers in Brazil. These was with 2 major decisions, one which has been implemented in December and another that was under discussion. So the first thing is about the rebates and the payment terms. So rebates and payment terms have been for the past in Brazil starting December last year. So this is the first part of the decision that has been taken. And then 3 topics have been introduced and were under discussion. These 3 topics are interoperability, portability and open loop. So it was in November last year. Now a law has been voted in August, and indeed, it's a very good news for us. Why is it a very good news? It's because PAT has been confirmed as a very important social program in Brazil. Then what has been decided in August is as follows. We had a decrease in November. Now we have a law, so this law has been voted and rebates and payment terms have been banned for PAT. So this is the first thing. And regarding the 3 other topics, they are now in the law, but we are still waiting for the application decree. So we are waiting for the application decree for interoperability, portability and open loop. What has been decided in November was to wait for May 2023 for the implementation of these new 3 topics and it is still the case. So now we have some discussion with the local authorities to see how those decrees will be written and how those 3 things will be implemented. What is clear today is that it's still quite blurry when we look especially at interoperability and portability. We have months in front of us to have discussion with the local government. And we know that we have also election in Brazil within 10 days because the 13th of October, we'll have the second round of the presidential election in Brazil. So this is for the update on Brazil regulation. Now your first question on the maturity of float. So first, regarding the float, I remind you that we have around EUR 4 billion of float. 80% of this float is in Europe, 20% is in America and Latin America. And when I say 80% of the float is in Europe, it means that 80% of the float is distributed between Eurozone and non-Eurozone countries, 13 to no. Then in terms of float, which is the money that is loaded on the card of our users and that has not been spent yet, which is what you can see in our balance sheet in restricted cash and cash. The rules in terms of investment for restricted cash and cash are not the same. The maturity of investments for cash is below 1 year, while the maturity for restricted cash can go from 1 month to several years. It means that when we have an increase of interest rates, you don't have the immediate impact in our other revenue because we need to wait for some investments to go to the end in order we can [indiscernible] with new conditions. So the other revenue impact we have today in our P&L is the beginning of the impact of interest rate in our other revenue. It means that it will grow depending on the level of interest rates in the coming quarters.

Okay. And sorry, for restricted cash, I'm correct by saying that France is restricted, so it means that the cash in France is potentially several years of maturity?

Then it depends on the product. You are true when you say that Ticket Restaurant is a regulated product, correct. So the float of Ticket Restaurant is restricted cash. Now when we look at the discount [indiscernible], it is a N-O-N regulated product so the float of [indiscernible] is cash.

The next question comes from Simon LeChipre from Stifel.

Three questions for me, please. First of all, the usual one, the oil price contribution in Q3, please? Secondly, if you could share your expectation for the rest of the year? And basically, do you expect a similar pace of growth for Q4? And lastly on the EBITDA guidance. So I know it's a revenue call, but if you could give us some color on your expectations in terms of operating leverage for the second half. It seems that the new midpoint of your guidance implies some margin improvement but mainly driven by higher other revenues. So if you could share your thoughts on your operating margin evolution, that would be very helpful.

Okay. Simon, could you please repeat your second question because it was not that clear?

If you could just share your expectations for Q4? And basically, do you expect a similar pace of growth in Q4?

Okay, so first question regarding the fuel price impact on our revenue. You know that for H1, the impact of fuel price was between 2.5% and 3% on our performance. In Q3, it's lower. You know the fuel price is lower compared to where it was in Q2. So we -- impact of fuel price in Q3 is around 2%. So if you look at our performance, plus 21%, you can consider that 2% of the 21% are coming from fuel price. Then regarding the Q4, a few comments on that. Q4 is a big quarter for Edenred because it's a quarter of Christmas period with big business in terms of gift card. Last year, we did a very good performance in Q4. We had very big tailwinds. Many decisions have been taken in some countries to increase the tax break of gift cards. It was the case in Italy. It was the case in France. It was the case in Belgium. We have a dedicated product had been created at the end of COVID period. So the comparison basis for Q4 is higher. However, we see the trend of our business in Q3, which is quite strong. So it's not possible for me to give you some color on the performance of gift card because it's too early. We're only mid-October so we don't have visibility on what gift card period will be. But we see the trend of Q3 with a good sales momentum. So our performance in Q4 should be in line with what we've done in Q3, knowing that we know that companies will try to protect the purchasing power of their employees. Then the third question and the operating leverage. As you know, so we are a platform so we want to be able to add new services to the platform and to be able to grow our top line. And because we are a platform, we are able to deliver performance in terms of EBITDA margin. However, we also know we need to invest and to prepare the future growth of the company. This is the reason we want to have new features to our platform. We want to innovate. We want to be able to bring new solutions to our users and to our clients. So yes, the top line is going to grow fastly. But we can also decide to invest. And we know that 2022 has been a year of investment. So -- and when I say investment, it's not only CapEx. It's also OpEx because we invest in some technology that we need to consider as OpEx. So -- but we'll give you more color on that at the end of the year. Obviously, we are talking of revenue in Q3. So keep in mind that we are going to keep on growing our top line, and we are also in a year of investment at Edenred.

The next question comes from Ed Young from MS.

Can you hear me?

Yes