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Solid results, 2017 objectives achieved. Mid-term outlook: EBITDA double digit CAGR between 2018 and 2020.
2017 operating and financial performance
Mid-term ambition: our key priorities
In 2017, we have been focused on building the Ingenico of tomorrow by strengthening our management team and adjusting our organization to better address our customers’ needs. We have enriched our offers dedicated to banks and acquirers and invested organically in our Retail platforms. The successful integrations of Bambora and Techprocess will enable us to accelerate the Group transformation. We now have two Business Units offering our clients a complete panel of solutions in order to help them grow their business.
After reaching all of our 2017 financial objectives, 2018 will be dedicated to the continuation of the operational deployment of the three divisions of Retail. In parallel, Banks & Acquirers will keep on growing despite a neutral environment, less driven by exceptional drivers as experienced in the previous years.
Ingenico Group will rely on all of its skills and assets to achieve its 2020 ambition.”
Ingenico Group (Euronext: FR0000125346 - ING), the global leader in seamless payment, today announced a mid-term update and its 2017 full-year results.
The electronic payment market is evolving with customers’ usages developing and merchants’ needs multiplying. In the meantime, complexity is increasing as the commercial scale is expanding geographically but also within new channels opened to commerce. In light of this, value has extended beyond mere payment acceptance devices, and now lies in bringing business solutions to points of interaction that are multiplying in line with the development of customer and merchant touch points.
In recent years, the Group has invested organically and through several acquisitions to gather the relevant skills and assets in order to build products, offers and solutions that help the merchants grow their business. From a pure point of acceptance provider, the Group has enriched its value proposition towards acquiring, full service and online and in-store processing in order to build seamless end-to-end solutions. Today, our client centric organization addresses all kinds of merchants, SMBs, organized retailers or digital players. Our two business units enable us to address the merchants’ needs indirectly through B&A and directly with Retail. The latter has recently been organized into three dedicated business lines focusing on distinct merchant segments: SMBs, Global Online and Enterprise.
In order to achieve our ambition to enable payments everywhere, enhance merchant and consumer experiences and deliver an end-to-end full service offer, Ingenico Group has established three key priorities for the period 2018 – 2020:
These priorities, which will be deployed within our two business units, Banks & Acquirers and Retail, will enable Ingenico Group to create value for all stakeholders.
Fourth quarter 2017 performance
In the fourth quarter of 2017, revenue totalled €692 million, representing a 14% increase on a reported basis, including a negative foreign exchange impact of €29 million. Total revenue included €440 million from Terminals and €252 million from Payment Services.
On a comparable basis, revenue was 11% higher than in the fourth quarter of 2016, including a 10% increase in Terminals and a 12% increase in Payment Services.
Compared with Q4’16, the various divisions performed as follows on a like-for-like basis:
Within our new client centric organization, the Banks and Acquirers Business Unit posted a revenue of €367 million, an increase of 8% on reported figures and including a negative foreign exchange impact of €17 million. The activity performed strongly this quarter, increasing by 12% on a comparable basis thanks to the ramp up in the United States, the Brazilian recovery, the dynamic in China driven by the success of the APOS and the resilience of the European markets. This strong performance was partially offset by some headwinds in Indonesia and a strong comparison basis in India.
The Retail Business Unit reported a revenue of €325 million, an increase of 21% on reported figures including a negative currency impact of €12 million. On a comparable basis, revenue was up 9%, driven by the very good performance of the European markets, especially fuelled by the ramp up of in-store services with Axis and the resilience of the ePayment division despite the strong comparison basis.
Performance for the full year 2017
In 2017, revenue totalled €2,510 million, representing a 9% increase on a reported basis and including a negative foreign exchange impact of €35 million. Total revenue included €1,661 million from Terminals and €849 million from Payment Services.
On a comparable basis, revenue was 7% higher than 2016, including a 5% increase in Terminals and an 11% increase in Payment Services.
Over the year, ePayments (+11%) showed strong improvement in terms of stability and customer satisfaction, enabling the division to perform well throughout the year. New milestones were reached during the year such as the merger between the two Indian platforms that is about to be completed, or the evolution of the Ogone model from a pure gateway to a cross-border platform. In Latin America (+5%) the Brazilian dynamic was deeply impacted by the difficult macroeconomic situation, but it showed a slight recovery in the second half of 2017 despite the competitive landscape. The other countries were very dynamic, mainly driven by the Telium Tetra launch. In North America (-6%), Ingenico Group outperformed the market as US inventories were cleaned up, and the course of the Banks & Acquirers activity was back to normal. In parallel, the Retail Business Unit slowed down because of a difficult comparison basis. EMV is no longer a driver in the region, but all the verticals targeted for more than a year are now fuelling growth. Canada recorded a performance in line with our expectations despite a tough comparison basis in the second half of the year. The performance of Europe – Africa (+7%) reflects the leadership of Ingenico Group in the region. The beginning of the year was driven by the tailwind of the PCI V1 to V3 migration which was followed by the deployment of Telium Tetra, while the dynamic of the Eastern countries was very good throughout the year. Asia-Pacific & Middle East (+9%) showed a mixed performance across the countries as India was strong over the first half, driven by the demonetization process, followed by a difficult comparison basis in the second half. China was impacted at first by the ramp up of the QR code based APMs before benefiting from the successful launch of the APOS, accounting for more than 1.3 million shipments over the period. The remaining Asian countries showed a strong dynamic and resilience with the exception of Indonesia, where the switch implementation amongst public banks resulted in a “wait and see” momentum. In the meantime, Turkey continued to perform strongly, fuelled by the deployment of POS with fiscal memory.
As part of our new organization, our reporting is evolving towards the two Business Units, Banks & Acquirers and Retail. Over the year 2017, Banks & Acquirers posted a revenue of €1,411 million, an increase of 8% on reported figures and including a negative foreign exchange impact of €14 million. On a comparable basis the activity increased by 8%. The Retail Business Unit reported a revenue of €1,099 million, showing an increase of 9% over the period on reported figures and including a negative foreign exchange impact of €20 million. On a comparable basis, revenue increased by 5% during the year, impacted by a difficult comparison basis in the United States.
In 2017, adjusted gross profit reached €1,067 million, up 6% compared to €1,005 million in 2016, and representing 42.5% of revenues.
In 2017, adjusted operating costs were €541 million, representing 21.5% of revenue, compared to 2016 when adjusted operating costs represented 22.9% of revenue.
This decrease highlights the first results of the efficiency plan implemented in July 2017. As of 31st December 2017, the efficiency plan has generated more than half of the €20 to €25 million plan of efficiencies to be realized on a full-year basis. Those efficiencies concern all types of expenses, with a specific effort on the G&A.
EBITDA was €526 million against €476 million in 2016, representing an EBITDA margin of 21.0%, up 40 basis points compared to 2016. EBIT margin represented 18.1% of revenue and reached €453 million compared to €403 million in 2016, an increase of 60 basis points, thanks to the strong control of operating expenses.
The other income and expenses reached €-30 million. In 2016 they were €-5 million. The increase is mainly due to acquisition costs, mostly related to Bambora, that account for more than €20 million over the year. The operating result includes price purchase allocation costs that represented €52 million in 2017 compared to €42 million in 2016.
After taking into account these charges and other operating costs, profit from operations was €371 million, against €357 million in 2016. Operating margin represented 14.8% of revenue, against 15.4% in 2016.
The financial results account for €-23 million, down from €-8 million in 2016, a year which benefited from the sale of the Visa Europe equity securities that represented €12 million. Taxation costs were reduced by 10% to €87 million, against €97 million in 2016. This improvement is explained by a streamlining of the operational structures leading to an effective tax rate for the Group of 25.1%, against 27.9% in 2016.
In 2017, Group net profit attributable to shareholders rose 5% to €256 million, against €244 million in 2016.
The adjusted free cash flow3 was up 6% in 2017 at €269 million, i.e. a conversion rate of 51%. 2017 has been a very dynamic year in terms of acquisitions which has led to significant non recurrent expenses mainly related to Bambora. Group’s operations, post other income and expenses, generated a free cash flow of €239 million, i.e. a FCF/EBITDA conversion ratio of 45.5%. The cash generation was impacted by a negative change in working capital, mainly due to the currency effect and a very strong acceleration of the Q4’17 activity. Investments increased by 15% to €88 million against €77 million in 2016.
The Group net debt increased to €1,471 million against €126 million one year ago. The ratio of net debt to equity is 80% and the ratio of net debt to EBITDA is up to 2.8x from 0.3x at the end of 2016. The increase of the net debt level is mainly related to the acquisition of Bambora for a total consideration of €1.5 billion. Note that the leverage calculation is not factoring in a full impact of Bambora.
In line with the Group’s dividend policy, a proposal to distribute a dividend of €1.60 per share will be presented to the Annual General Meeting of shareholders on 16th May 2018, representing a distribution rate of 39%. This dividend will be payable in cash or shares, according to the holder’s preference.
In 2018, Ingenico Group expects an EBITDA between €545 million and €570 million. The guidance factored in an assumptions of a negative impact from currencies of c. €25-30 million. Given the tough comparison basis and the pipeline of projects, the phasing of the year should be reflected in a soft first half 2018 followed by a stronger second half.