2019 first half-year performance
In the first half of 2019, revenue totalled €1,611 million, representing a 13% increase on a comparable basis. On a reported basis revenue was 31% higher than in the first half of 2018 and included a positive foreign exchange impact of €12 million.
Over the semester, the Retail Business Unit reported a revenue of €906 million, showing an increase of 11% on a comparable basis. On a reported basis, revenue increased by 44% during the semester and included a positive foreign exchange impact of €4 million. Compared with H1’18, the various activities performed as follows on a like-for-like basis:
- SMB (up 13%): The performance was in line with our expectations. The second quarter has been impacted by the rebalancing of our risk portfolio. During the semester, SMB continued to expand its merchant base by more than 4,000 new clients per month, which is consistent with the commercial performance highlighted in past communications. During the second quarter, SMB has launched a new merchant solution – Bambora Connect – which is an all-in-one instore offering tailored specifically for ISVs. This solution is already live with few partners. In addition, as part of the Fit for Growth plan, the SMB geographical expansion is progressing well with the first phases of the implementation of the Bambora blueprint in the Benelux region.
- Global Online (up 11%): The activity evolved as expected throughout the period, with strong growth in the emerging regions, as India for example, growing more than 30% during the semester. The recent launch of our Russian acquiring capabilities with local partners is a clear success, benefiting from additional cross-border volumes. In parallel, synergies within Retail are materializing as the division is now routing towards the internal Bambora acquiring platform around €2 billion of flows on an annual basis, in line with the Fit for Growth plan. The division’s focus on the Travel vertical is gaining ground in a reinforced risk framework with the roll-out of Travel Hub and the launch of LinkPlus in-app solution leading to a growing pipeline of new prospects. In the meantime, major commercial successes have been signed during the semester in Latin America, China, and Russia.
- Enterprise (up 20%): The performance came in better than expected, benefiting from a strong traction on both transaction activities and sale of POS. In the latter, the targeted Healthcare vertical has been a clear driver, benefiting from a local incentive in Germany for the deployment of healthcare devices. The dynamic should start to face a tough comparison basis from the third quarter as the deployment started in Q2’18 and the incentive ended on June 30th. In addition, North America has been a strong driver this semester, benefiting from a continuous market share gain among the large US retailers. In parallel, the transaction business continued its double-digit growth. This has been driven by the European omnichannel instore platform (Axis), in which processed volumes continue to increase thanks to market share gains, and by Turkey, where our fiscal gateway is benefiting from our large merchant installed base. In parallel, the development of products and offers related to the growth initiatives are in line with the Fit for Growth plan. Solutions combining payment acceptance and acquiring capabilities will enable us to accelerate in the omnichannel retail space and in the self-service market segments.
- Payone (up 4%): The division performed in line with the plan, on track to accelerate progressively over the second half of the year to reach its cruising speed by 2020. The current performance has been slowed down by the integration process of the two entities and a tough comparison basis impacting the first half of the year. The integration process is progressing well, with legal entities being rationalized and ongoing IT migration. The full-service offering has been certified within the BS Payone merchants’ portfolio during the second quarter, enabling its roll-out. In addition, the saving banks partnership is progressively fuelling the growth by converting their customers to the Payone payment solutions.
The B&A Business Unit posted a revenue of €705 million, a 16% increase on a comparable basis. On a reported basis the activity increased by 18% and included a positive foreign exchange impact of €8 million. Compared to H1’18, the various regions performed as follows on a like-for-like basis:
- Europe, Middle-East & Africa (down 3%): The region revenue stabilized during the second quarter. During the overall semester, mature countries were relatively resistant and emerging ones were ramping up fuelled by new clients gains. Despite a consolidation effect that continued to put pressure on the DACH region (Germany, Austria, Switzerland), Western Europe revenue is progressively normalizing while facing pricing pressure. Eastern Europe exceeded our expectations, driven by Russia and the CIS countries. Some countries in Southern Europe experienced a challenging semester impacted by a weaker demand from the local acquirers.
- Asia-Pacific (up 18%): Most of the countries were well oriented this semester, delivering a better performance than expected and benefiting from a favourable comparison basis that will fade in the second half of the year. China has benefited from a strong demand in APOS from third-party processors and the main local banks. While it is beneficial to the first half performance, the latter is driven by the phasing of their budget allocation which should lead to a weaker Chinese performance in the second part of the year. South East Asia remained dynamic, still fuelled by the Indonesian market where Ingenico continued to successfully deploy its traditional and Android POS to local Banks and APM processors. India is maintaining good momentum while Thailand continued to face a challenging environment in the second quarter. In addition, Japan remained strong, benefiting from the EMV migration, while Australia declined this semester on a contract shift from the second quarter.
- Latin America (up 104%): The performance has been strong throughout the first semester, driven by a very dynamic Brazilian market. It benefited from a strong momentum as Ingenico Group continued to gain large market shares and to deploy APOS across the main local players, while its flexible go-to-market continues to attract the largest local acquirers. In addition, cross-region deals have been won during the second quarter feeding the growth of Argentina, Peru and Chile. Overall, the current pipe sustains a double-digit growth in the third quarter becoming stable sequentially and versus last year revenues in the fourth quarter.
- North America (down 9%): The performance was in line with our expectations, impacted by a weaker demand in Canada in the first half while benefiting from an improving trend in the United-States getting back to a more positive dynamic in the second quarter. As expected, the performance in Canada has contracted during the second quarter, still impacted by a high comparison basis. The dynamic is expected to improve progressively in the second half of the year, benefiting from purchasing volumes getting back to a more normative level. In parallel, the US-based activities are improving in the second quarter on ISV ramp-up. The country should benefit in the second part of the year from a solid pipeline of projects and the continued ramp-up of the current ISV certifications.
Note: all below P&L analysis versus last year are based on H1’18 proforma figures (including BS Payone and Paymark since January 1st, 2018).
Adjusted gross profit
In the first half of 2019, adjusted gross profit reached €572 million (€570 million excluding IFRS 16), representing 35.5% of revenue (35.4% of revenue excluding IFRS 16) to be compared with €547 million in the first half of 2018, or 38.7% of revenue. Retail adjusted gross profit rate was stable, while investing into growth initiatives and B&A adjusted margin was impacted by an unfavourable geographical mix, mainly driven by the 104% organic growth in Latin America, and isolated pricing pressure in some mature countries, as expected.
Adjusted operating expenses
During this first half of 2019, adjusted operating expenses have reached €318 million. Excluding the positive IFRS 16 effect of €14 million, adjusted operating expenses were €332 million, stable compared to H1’18 while revenue base increased by c. €200 million. Adjusted operating expenses rate has decreased from 23.7% to 20.6% down 310 bps excluding the IFRS 16 positive effect. These results have been achieved through a strong cost control initiated first in Retail in H2’18, then rolled out and accelerated in B&A and Group support functions through the implementation of the Fit for Growth plan.
EBITDA came in at €254 million including a positive IFRS 16 effect of €17 million. Without this effect, EBITDA would be €237 million, against €212 million like-for-like in the first half of 2018 (€193 million on reported basis), thus an improvement of €25 million, of which €8 million is derived from the Fit for Growth plan. Excluding the €5 million investment in Retail growth initiatives as communicated on February 12th, this improvement represents €30 million up 14% versus last year, fully in line with revenue growth.
The Retail EBITDA came in at €122 million. Excluding positive IFRS 16 impact of €10 million, the EBITDA reached €112 million (12.4% of revenue) to be compared with €96 million (11.8% of revenue) in H1’18, an increase of 60 bps. Excluding the €5 million growth initiatives investment, EBITDA would have reached €117 million, at 12.9% of revenue, increasing by 110 bps. This overall performance is fully in line with our annual Retail EBITDA objective to be above €285 million.
The B&A EBITDA stood at €132 million. Excluding positive IFRS 16 impact of €7 million, the EBITDA reached €125 million (17.7% of revenue) to be compared with €116 million (19.4% of revenue) in H1’18, decreasing by 170 bps. This EBITDA improvement of €9 million is derived from an over-performance in revenue in both Latin America and Asia. In line with the B&A revival plan as previously communicated, the Fit for Growth positive EBITDA impact in H1’19 (€8 million) has compensated the pressure on the gross profit coming from geographical mix evolution and isolated pricing pressure in some mature countries. As a consequence, we raise our B&A EBITDA objective for the year from c. €295 million to c. €305 million.
EBIT margin reached €188 million, compared to €170 million in the first half of 2018 (€159 million on reported basis).
The other income and expenses (OIE) reached €-13 million compared to €-16 million in H1’18 (€-18 million on reported basis), this includes an exceptional non-cash profit of €5 million. On a like-for-like basis the OIE for the first semester represents €-18 million.
The operating income also includes purchase price allocation amortization that represented €50 million in the first half of 2019 compared to €47 million in H1’18 (see exhibit 4).
After other income & expenses and purchase price allocation described above, operating income came in at €124 million, compared to €107 million in the first half of 2018 (€94 million on reported basis).
Net profit attributable to shareholders
The financial result accounted for €-21 million compared to €-20 million in H1’18 (€-19 million on reported basis).
Income tax landed at €21 million in this first half from €23 million in the first half of 2018 (€20 million on reported basis). The latter has benefited from a general decline of the taxation rates and a more favourable mix in terms of taxes. Those changes led to an effective tax rate of 20.4%, against 26.9% in H1’18.
After accounting for €1 million of non-controlling interests, the 2019 first half Group net profit attributable to shareholders came in at €80 million, up 32% compared to €61 million in the first half of 2018 (up 48% vs. €54 million on reported basis).
The free cash flow improved very significantly during the first half of 2019 at €120 million compared to €23 million in the first half of 2018. The major elements of the free cash-flow improvement were:
- Contribution of EBITDA increase of €44 million on reported basis, net of non-cash IFRS 16 effect;
- Strong improvement of change in working capital by €40 million, resulting from a fully redesigned cash control process with a better efficiency on cash collection;
- Increase of capital expenditure by €7 million reaching €60 million (€18 million in B&A and €42 million in Retail), against €53 million in H1’18. The level of capital intensity is fully in line with the Group mid-term investment policy, i.e. c. €30 million of investments per year for B&A and, for Retail, c. 4% to 5% of its own revenue;
- OIE increased by €2 million reaching €18 million as already mentioned;
- Interests paid stable at €10 million;
- Tax paid decreased by €23 million, from €48 million in the first half of 2018 to €25 million in the first half of 2019 benefiting from a €25 million one-off reimbursement of the French tax authority.
In consequence, netted from this one-off reimbursement, free cash-flow for the first half 2019 would have represented €95 million, leading to a sustainable first half conversion rate of c. 37%.
Group net debt
The Group's net debt decreased to €1,466 million against €1,518 million at the beginning of the year. The major elements of this evolution are the €120 million free cash-flow generation and the €73 million net cash-out mainly related to the Paymark acquisition. The ratio of net debt to EBITDA3 is down to 2.7x from 3.1x at the end of 2018 and 3.6x end of June last year.
In July 2019:
- The Group has paid the cash portion (€34 million) of its 2018 dividend to the 49.4% of shareholders who elected a distribution in cash. 50.6% of the total dividend amount has been paid in stock (534,871 shares);
- The Group has decided to immediately optimize its overall financing cost with an early redemption of the €250 million term loan maturing in 2020 as a result of the improved regularity in cash generation derived from a reinforced cash control process implemented in H1’19.
All 2019 objectives raised
- Revenue: The Group raises its 2019 expectations to achieve an organic growth above 9% compared to c. 6% previously communicated. B&A revenue is expected to grow organically above 7% (vs. c. 2%) and Retail to achieve a double-digit organic growth.
- EBITDA (after application of IFRS 16): The Group increases its target to reach an EBITDA above €590 million (vs. >€580 million). This target factors in €20 million EBITDA positive impact related to the Fit for Growth plan. The group expects the Retail EBITDA to be above €285 million (unchanged) and the B&A EBITDA to be at c. €305 million (vs. c. €295 million).
- Free cash-flow: The Group raises its cash generation objective to reach a free cash-flow conversion rate of c. 50% (vs. c. 47%) leading to free cash-flow of c. €300 million.