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Edited Transcript of EDEN.PA earnings conference call or presentation 23-Jul-19 7:00am GMT

Half Year 2019 Edenred SA Earnings Call

Jul 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Edenred SA earnings conference call or presentation Tuesday, July 23, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Bertrand Dumazy

Edenred SA - Chairman & CEO

* Patrick Bataillard

Edenred SA - EVP of Finance

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Conference Call Participants

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* Geoffrey d'Halluin

BofA Merrill Lynch, Research Division - Director & Research Analyst

* Julien Richer

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Paul Daniel Alexander Sullivan

Barclays Bank PLC, Research Division - Director & Analyst

* Sabrina Blanc

Societe Generale Cross Asset Research - Equity Analyst

* Simon LeChipre

MainFirst Bank AG, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the Edenred H1 2019 Results Conference Call. I now hand over to Mr. Bertrand Dumazy, Chairman and CEO. Sir, please go ahead.

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Bertrand Dumazy, Edenred SA - Chairman & CEO [2]

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Yes. Good morning, everybody. Thank you for being connected to Edenred H1 Results Conference. I'm here with you. Sitting right next to me, Patrick Bataillard, who is the CFO of the Edenred Group, and we are together for the next 60 minutes.

We will start with a presentation that you received for about 40 minutes. I propose that we move to Page 2, which is called the Executive Summary. What are the pricings we would like you to remember about H1? First of all, we had a strong double-digit growth in H1 2019 with a total revenue of EUR 777 million, which means a reported growth of almost 17% and almost 15% in like-for-like. The double-digit operating revenue growth was achieved in all regions and all business lines, which in fact is a follow-up of a 2018 record year. In H1 2019, we had a positive scope effect of 4.4%, thanks to the contribution of the past few months' acquisition. And in fact, this positive scope effect was partly offset by a slight currency effect of minus 2.1%.

Once again, our business model is highly cash-generative, which allows the group to accelerate our growth. So the EBITDA has been growing by 23% reaching EUR 310 million. Our cash generation FFO has been growing by almost 32% reaching EUR 264 million. And our net profit group share has been growing by almost 18% reaching EUR 146 million.

The third point is, in fact, we enhanced our global digital platform, and it enables us to improve our performance and to accelerate our innovation. And those 2 elements are the main contributors to our sustainable and profitable growth.

On top of that, based on this performance in H1, we are confident that we will outperform our medium-term organic growth targets for operating revenue, operating EBIT and FFO in 2019, mainly plus 7%, plus 9% and plus 10% for 2019. So our -- based on H1, we will be able to overperform those targets.

Finally, our guidance in terms of EBIT for the full year 2019 has been set between EUR 520 million and EUR 550 million.

I propose that we move to Page 4 to look at our H1 2019 key figures and highlights. So what you can see is our like-for-like growth. Excluding Venezuela, operating revenue, EBIT and FFO for H1 is, respectively, plus 14%, plus 15% and plus 23%, doing better than our annual medium-term targets of plus 7%, plus 9%, plus 10%.

Then Page 5, you can see that this growth, double-digit and organic and reported of -- is across all business lines. So in Employee Benefits, we grew by 14%. In Fleet & Mobility, we grew by 15.4%. And in Complementary Solutions by 13.2%, double-digit organic and reported growth across all business lines.

Page 6. If you look at the breakdown by geography, you see that we have double-digit growth across all regions. So in Europe like-for-like, plus 14%. Europe representing now 56% of the operating revenue in H1. Latin America growing at 14.5% like-for-like, representing 36% of H1 operating revenue. And Rest of the World growing at 22%, representing 8% of our total operating revenue. So once again, the growth that is double-digit whether in published or in organic for all regions and for all product lines following the trend that we have in 2018.

If we look now to Page 7, we would like to make a highlight on our global digital platform. What does it mean for us? All the investments we made and we have been making and we will make in our global digital platform give a strong competitive advantage to accelerate the sustainable and profitable growth. What does it mean? It means that thanks to the Edenred global platform, we are able to get some time to market. We have more secured services for our users. We are able to sustain a higher level pace of innovation. We are much more cost efficient. And finally, we are able to sustain and deliver growth because, in fact, we allow our local teams to focus more on their markets while we are plugging more quickly additional services.

If we move to Page 8, we have here a snapshot on the kind of investments and initiatives we are doing on our platforms to boost the effect of performance and innovation. We have solid initiatives that allows to increase our performance, thanks to the ability to scale up the infrastructure to unlock this global technology platform and create medium-term cost efficiencies. The investments and initiatives we are making allows us as well to bring more innovation on the market. And in fact, we grew (inaudible), let's say, innovation enablers. So we are investing a lot on our platforms. It creates a lot of competitive advantage versus the competition. And we have 2 sets of investments, one to enhance the performance and then to win more innovations on the market.

If we move to Page 9, one example of what we are doing with our platform in terms of winning innovation to the market, we have, in fact, 2 examples. The first one is the fast and seamless mobile payment we are proposing to our users and our clients. We are joining one in our industry to propose the ability to pay with Apple Pay, Samsung Pay and Google Pay. And if none of those free net adds of mobile payment are available, we also developed the Edenred Pay. What you can see between the number of countries and programs in each we deploy our solutions, we see, in fact, an exponential acceleration. At the beginning of 2018, we had 8 countries with 10 different programs of mobile payments. And in fact, in June 2019, 18 months after that, we are now deployed in 16 different countries via 28 different programs. That's one of the strengths of this global digital platform. It's an acceleration, which is, let's say, an exponential acceleration of the deployment of the solution.

Deploying the technology is one thing. Having this technology adopted by our users and clients is another thing. And obviously, if we invest in the development and the deployment of those technologies in -- to even, in fact, the life of our users and clients, so we look at -- we look very carefully at the adoption rate. And in fact, what we noticed is we have a fast adoption trend. So when we launched, for example, the services in Slovakia, we had a 10% adoption rate of those new payment services in less than 10 days. And if we make another comparison in Spain, if we compare the period of June 2018 versus June 2019, the number of payment transaction via the mobile has been multiplied by 3. So we innovate to, in fact, answer the needs of our customers, that's why we sustain the pace of innovation and we look carefully at the adoption of these new solutions.

Another example is the seamless digital app-to-app payment, but we also propose to our users and clients, and we develop that with our own technology, that is called Edenred Direct Payment Services. The first use case is the Meal delivery platform and the connection to this platform. It's one use case, and obviously, we redeploy in other use cases this technology. But on this use case, we have a solid ramp-up, for example, in France because the number of transaction that was done, thanks to the technology, has been multiplied by 3 in 1 year, and in fact, we have a highly recurring usage with more than 40% of the users that are ordering more than 5x. So those technologies are frantically adopted by our users, and on top of that, they are used very frequently.

We launched those services in Belgium in March 2019, and we have more countries to come in H2 2019. So we have 2 examples of the capabilities of our platform, to deploy fast and new technology to, create some differentiation and some stickiness versus the competition.

Page 10, we have another example of new services that we deploy, and we scale across Europe. In this case, it's what we call employee engagement platform, and we want to be the leader in employee technology platform. Why? First of all, because it's an attractive market for Edenred. This market is underpenetrated. It fits well, in fact, our model of B2B2C intermediation platform, and it allows to leverage some of the strengths of Edenred. It creates some cross-selling opportunities. It can leverage our existing merchant networks. And today, we have a network of about 2 million merchants across the year whether physical merchants but also e-merchants. It creates greater retention via the employee advocacy, so we create a digital ecosystem around every employee. And so the stickiness of every employee is higher than in the past, and so weekly, the retention rate is a bit higher.

We are able to create more revenues, thanks to those additional services, and deploy into our platform either somehow fast and cost efficient. But if we -- it's not because the market is attractive, and that is enough, it has to fit the new customer needs. And in fact, we have, in this case, 2 different customers. One is our corporate, i.e., the companies we are selling the program to. And those companies love this kind of program because they get more productivity through more employee engagement. And in fact, it helps to be more impactful and more efficient in their HR policies. So and finally, those kind of platform, because it's fully digital, creates diminishing administrative tasks.

So it's good for the companies, but it's also good for the employees because, thanks to those platforms and those programs, it creates greater purchasing power, they get the employees more flexible and adaptive benefits via a wider network of e-retailers and this user experience that is far better than what we have done in the past with some pieces of paper. So the employee engagement platform is a new frontier in terms of additional services for Edenred. We have been doing this organically, but also via acquisition.

So the first acquisition we made was a few years ago with ProwebCE in France. As usual, with Edenred, we tried to demonstrate what we can do with one solution, and now we are in the scaling up of that, reusing the technology of ProwebCE via Europe. And when we need to accelerate, we also did some acquisition, that's why we made the acquisition of Easy Welfare in Italy to accelerate our growth in terms on this employee engagement platform.

And that I just told you, as you know, we're currently on Page 11, so organic development, Ticket Welfare, Savings and Ticket Flex. So it was in Italy, in Milan, in Czech Republic, but also in Spain. But to accelerate our development, we made some acquisitions, so ProwebCE in 2012 moved the majority of stakeholder in 2015. And as I said, Easy Welfare in Italy, but also in Belgium with Ekivita and Merits & Benefits. So the combination of organic growth plus acquisition leading to some integrations, synergies and acceleration makes us very confident into the potential of growth of this new product line at Edenred.

If we move to Page 12, we have another example of our strategy of acceleration of our organic growth and good integration of the acquisition. Acceleration of organic growth, we gave you, on Fleet & Mobility, a few examples. If we start with Mexico, we are now, in fact, deploying a new program for British portfolio of a fuel card called BPfleet, but also the G500 Fleet. G500, being a network of independent gas stations in Mexico.

We also do some ramp-up of white-label programs, so we are now managing the mono-entry card in France of Carrefour but also Intermarché. So we have now in France, in fact, the best alternative network to the leading player in France, which is TOTAL. But we do exactly deliver the same strategy, and we scale across the world. So for example, we just signed and deployed the new Shell Flota fuel card solution in Argentina. So a lot of organic development, and we want to be the scale champion of the different programs around the world. At the same time, when we need to accelerate our capital position in one country, we do it via acquisition.

And you'll remember, at the beginning of the year, we made the acquisition of The Right Fuelcard Company, TRFC, in the U.K. U.K. being one of the largest market of professional fuel management for heavy fleet and light fleet. We are in the middle of integration. And I'm pleased to share with you that the first month of our new life together in the U.K. has been good months, so the integration is running well. And the first initiatives to boost sales are more and more in place. Thanks to this execution between our 2 companies, we have now a wide national acceptance network and multi-brand program with the monobrand and multi-brand.

Page 13, we have another example of this strategy of additional services that we plug on our global platform via organic initiatives, but also by acquisition. So if you look at Corporate Payments, Page 13, you'll remember that we look at the payment chain via the payout of the cash-in, so we are able to address both parts of the chain. And on every subsegment on the payout of cash-in, we are able to come with a solution whether via the acquisition of CSI, but also organic development such as Foncia in France or IATA worldwide or some new client wins for the virtual card such as Jumia Travel, for example, in Africa.

And then Page 14, as to CSI and a few words on the development of the activity. I can share with you the fact that the integration is on track, and we have a progressive ramp-up of new products and new contracts. So if I start with the integration, the ongoing integration is based on a few elements. First of all, we have now given a good reporting system at CSI. We have a reinforcement and specialization of the sales team to address new specific verticals or specific distribution channels. We have a good integration of CSI management team and Edenred management team. And we confirm our annual revenue growth ambition of 20% in the coming years.

We're happy to share with you a few key successes in accounts payable. So we had some significant client wins in H1 on core accounts payable business. Havas is now part of our client pool, but also Conservice. And we are pleased to share with you that we are now developing some alternative distribution channels. We go direct, but we also use now some well-known financial institution in [the year] to accelerate the deployments of our services. So we have now Bank of the West, which is a subsidiary of BNP Paribas in the U.S. That's going to sell, in fact, our solution. But we also have SunTrust and more to come in the near future.

And finally, we are working well our portfolio of solution, and we are launching new verticals. And the new verticals that we are launching, the CSI -- it's CSI Travel where we bring the VCN advantages, which are mainly flexible, secure and digital solution to corporate travel. And these are working for the full integration with the company travel management system. It helps to improve the control and the reconciliation for travel managers, and we will see a progressive ramp-up of CSI Travel in H2.

So this is what I wanted to share with you in terms of key figures and highlights as to the development of Edenred. And it's now time to listen to Patrick, our CFO, that will go through the H1 2019 results in details.

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Patrick Bataillard, Edenred SA - EVP of Finance [3]

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Thank you, Bertrand. Good morning, everyone. I will now go through the first half financial result in detail. Let's start with the operating revenue growth in H1 on Slide 16. So in H1 2019, operating revenue amounted to EUR 748 million, which represents a strong 14.4% increase or EUR 93 million versus the previous year on a like-for-like basis excluding Venezuela.

Following on from the strong operating revenue growth achieved in 2018 of 13.3% organically and the solid start of the 2019 year with Q1 at 14.2% organically, we had again strong operating gains in Q2 by posting a 14.6% increase leading to this double-digit like-for-like growth of 14.4% over the first 6 months.

On a reported basis, the growth reached 16.8% over the semester, reflecting a positive scope effect this semester. The acquisition closed over the last month added EUR 29 million over the period or 4.5% and include mainly CSI, a leading provider of automated corporate payment software in North America; TRFC, a U.K.-based player in the Fleet & Mobility; and some employee engagement platform in Europe in the Employee Benefits business line.

This semester, we had negative currency effects of minus 2.1% or EUR 13 million in the period, mainly due to the Brazilian real devaluation from EUR 9 million, the Argentinian peso devaluation for EUR 6 million, a negative impacts from other currency such as the Turkish lira. But Mexican peso devaluation was positive. Finally, the (inaudible) impacts negatively the reported growth by 0.1%.

Let's move to the next slide, Slide 17, which is a focus on the European bond. In H1 2019, in Europe, we posted EUR 422 million operating revenue at 16.4% compared to the previous year period, including the contribution from recent acquisitions in Employee Benefits and in the Fleet & Mobility space, of which TRFC in the U.K., Easy Welfare in Italy, Merits & Benefits and Ekivita in Belgium.

Europe now represent 56% of total operating revenue. Like-for-like operating revenue registered a double-digit growth in this period of 13.6% following an accelerated growth of 14.6% at the end of 2018.

In France, specifically, operating revenue rose 8.6% like-for-like in the first half. In the Employee Benefits business line, a strong growth in Ticket Restaurant program was driven by new client wins, notably in the SME segment. The strong performance was also due to the migration during the period of 60,000 CM-CIC meal card users to Edenred's digital platform. The various innovations implemented, such as mobile payment and direct payment on Meal delivery platforms, are described by Bertrand previously. I remember Ticket Restaurant program even more attractive, with more than 900,000 holders of the Ticket Restaurant card in France now enjoying access to these digital functions including mobile payments.

France also benefited from the good ramp-up of its ProwebCE employee engagement platform and of white-label fuel card solutions for large retailers such as Carrefour and Intermarché core.

In the Rest of Europe, which rose 15.9% like-for-like following a stronger 16.8% growth in 2018. Performance was boosted by the ongoing digitization of our solution and distribution channel, which is driving both easier access to the still underpenetrated SME market and improvements in the marketing mix across all business lines. UTA pursued its pan-European expansion strategy during the period with an offering strengthened by new toll payments such as UTA (1), a leader of several European pay system contracts and vehicle maintenance services.

Let's now move on to Slide 18, if you look at the Latin America trends. So in Latin America, operating revenue came in at EUR 266 million, up 14.5% like-for-like, a strong performance reflecting another weak sales momentum following the full year of 2018 at plus 12%. In Hispanic Latin America, operating revenue climbed 20.4% like-for-like. This growth was achieved by winning over new clients, notably in the SME segment, in both Employee Benefits and in Fleet & Mobility Solutions.

If we focus on Mexico, which is the largest country at this region, the group strengthened its leadership position during the period by signing exclusive contracts such as BPfleet. In Hispanic Latin America, we are also replicating various successful programs in other countries in the region such as the Ticket Car or Empresarial. Lastly, we have to keep in mind that the region's first half 2019 performance benefited from a favorable basis of comparison that will perform and replicate in H2.

In Brazil, our operating revenue rose at 12.3% like-for-like in the first 6 months of the year. In Employee Benefits, Edenred succeeded in attracting new clients in an environment where unemployment remains high. So business line benefited from a favorable basis of comparison in first half 2019. We really have to remember that following several quarters in negative territory, Employee Benefits operating revenue returned to growth in the second quarter of 2018.

In addition, Fleet & Mobility Solutions recorded strong growth sales during the period in a still relatively untapped market where Edenred is enhancing its business model with new product initiatives such as toll payments and vehicle maintenance solutions.

Let's now have a look at the H1 other revenue, commonly known as financial revenue on Slide 19. Other revenue came to EUR 29 million, up 19.1% like-for-like and up 15.6% as reported. The increase is mainly due to a further rise in the float, reflecting the full growth momentum in the group's various business lines. First half 2019 also saw a slight rise in interest rates in certain European countries outside the eurozone. And lastly, other revenue benefited from a favorable basis of comparison.

Let's now move on to the details of total revenue on the next slide. As a consequence of the details we've just gone through, you can see that the total revenue reached EUR 777 million in the first semester, increasing double-digits by 14.6% on a like-for-like basis and 16.8% as reported, reflecting a strong positive 4.4% scope effect and negative minus 2.1% currency effect.

Let's now switch to Slide 21 for corporates and EBIT. In H1, EBITDA came in at EUR 310 million, up 14.6% like-for-like and 23% as reported. The EBITDA in the first half includes the IFRS 16 effects currently for EUR 14.6 million. EBIT came in at EUR 249 million, reflecting a strong 15.4% growth like-for-like over the period from the 15.6% as reported. The EBIT margin reached 32% this first half, an improvement of 0.2 points like-for-like and a decline of 0.4 points as reported.

If we look at the operating EBIT, which excludes other revenue, it rose by 14.9% like-for-like and by 15.6% as reported to EUR 220 million. The operating EBIT margin improved by 0.1 point like-for-like to reach 29.4% in H1. As reported, the 0.3 points net decline is a combination of an equity effect from recent acquisition and a negative impact due to geographical currency effect.

If we look at the operating EBIT by region, Europe posted operating EBIT rose of 13.2% like-for-like, Latin America operating EBIT growth came to 12.8% like-for-like. This performance attests to the group's high operating leverage, partly compensated by current operating expenses in IT and rising headcounts in the context of cloud migration, platform optimization, cybersecurity investment, and strong product and digital innovations.

Let's now move to the next slide, which is the operating leverage change over the period. So this slide, Page 22, shows the bridge between H1 2018 reported EBIT of EUR 215 million and H1 2019 reported EBIT of EUR 249 million. As you can see, operating revenue like-for-like growth of EUR 92 million was from -- up 7% in the EBIT line, generating an additional EUR 29 million of operating EBIT in H1.

Other revenue, which was up in the period at a EUR 5 million positive effect on the EBIT growth. The various acquisition net over the last 12 months, including the CSI and TRFC, had a EUR 7 million positive contribution to the EBIT growth despite the high level of PPA excluding amortization.

Lastly, currency depreciation at around EUR 7 million negative impact, of which minus EUR 4 million are relating to the devaluation of the Brazilian real against the euro, minus EUR 2 million to the Argentinian peso and minus EUR 2 million to other currency such as the Turkish lira. As you can see, Venezuela has almost no impact on the EBIT change between the 2 periods due to the high inflation on one side, but sharp devaluation on the other part. So all in all, this starts with a good proof of our operating leverage, partly reinvested in digital and products innovation and our capability to proceed to successful integrations of company upon more than offsetting negative currency impacts.

Let me now turn to the net profit on Slide 23. Net profit group share totaling EUR 146 million for the first half 2019, up 17.9% from H1 2018. The EUR 146 million of net proceeds this first half takes into account minus EUR 43 million of D&A, representing an increase of EUR 18 million versus H1 2018, which is mainly due to the minus EUR 14 million of currency impacts for IFRS 16 application since January this year. An amount of minus EUR 18 million of PPA to be compared with minus EUR 11 million last year as a result several of acquisitions or partnerships signed over the last month, plus the EUR 6 million in the share of equity net profit, which was minority UTA's, minority interests in AGES and NFC. Other income and expenses amounted to a net expense of minus EUR 12 million versus a net expense of minus EUR 3 million in the first half of 2018, and notably includes minus EUR 4 million in nonrecurring expenses this year corresponding to costs related to recent acquisitions.

Net profit also takes into account a net financial expense of minus EUR 14 million, almost double compared to last year, despite a new bond of EUR 500 million issued last October. We benefited from low interest rates both in Europe and in Brazil in the period. We had a net income tax expense of minus EUR 69 million in H1 with an average tax of slightly lower than H1 of 2018. And finally, noncontrolling interests, which represent an expense of minus EUR 14 million in the first half of 2019. It's a mix. In fact, we had an increase in our UTA, C3 and LCCC become -- other one, we are impacted as well from a strong growth in Ticket Log and (inaudible).

We can now move on to the cash flow statement on Slide 24. In H1, expense from operation totaled EUR 264 million, representing an increase of EUR 64 million versus H1 2018. The like-for-like has been up 22.8%, a strong performance which outperforms the medium target of more than 10% like-for-like annual growth. The float decreased by EUR 256 million, reflecting the usual recurring seasonality effects from H1, with volumes coming from Incentive & Rewards business and some Employee Benefits in Lat Am being mainly recorded at the end of H2 before Christmas.

Recurring CapEx came to EUR 37 million, which is stable compared to last year period. So the free cash flow change came at negative level of EUR 13 million in H1. As you know, this position is structurally negative at the end of H1, so that you have to consider that we had a very good performance in H1 2019.

On the next slide, some comments about the 12-month evolution of the net debt. Over the last 12 months, that is to say from June 2018 to June 2019, the significant amount of EUR 798 million for external acquisitions are relating mainly to the acquisitions of CSI, The Right Fuelcard Company and Easy Welfare and of minority interests in our C3 and LCCC (inaudible).

Net debt also takes into account minus EUR 91 million in shareholder returns, of which EUR 62 million in dividends paid to Edenred SA shareholder in cash as a result of high subscription to the scrip dividend option this year.

In addition, the change in net debt include minus EUR 91 million accounting impact related to the application of IFRS 16. All in all, the net debt increased over the period by EUR 440 million.

Thank you for your attention, and I will now hand over to Bertrand for the full year outlook.

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Bertrand Dumazy, Edenred SA - Chairman & CEO [4]

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Thank you, Patrick. So if we move to Page 27. What do we see by the end of the day -- the end of the year, sorry? First of all, our willingness is to continue to enhance our global digital platform, hence, enabling both better performance and faster innovation to generate sustainable and profitable growth, thus, the global growth. What does it mean? It means that based on the H1 performance, we see some sustained growth in all regions and all business lines in H2, thanks to Edenred business excellence and innovation capabilities.

We will proceed to the ongoing integration and ramp-up of recent acquisitions and partnerships, so we will continue to work on the employee engagement platforms and indirect distribution channels to accelerate growth in Employee Benefits. We will continue our expansion in Pan-European multi-services strategy for Fleet & Mobility, and we will work on the ramp-up of CSI in North America.

So based on this program, we are pleased to confirm that we will -- to confirm, in fact, the fast forward annual medium targets for 2019, meaning our like-for-like operating revenue growth, operating EBIT growth and FFO growth should be over plus 7%, plus 9% and plus 10%.

Finally, our full year 2019 EBIT range is set based on the results of H1 2019 between EUR 520 million and EUR 550 million.

Thank you for your attention. And Patrick and myself are now all ears to answer all your questions you may have on these results of Edenred in H1 2019.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Julien Richer from Kepler Cheuvreux.

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Julien Richer, Kepler Cheuvreux, Research Division - Equity Research Analyst [2]

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Two questions for me, please. The first one, I was wondering the level of growth you will be able to post assuming all of the recent acquisitions are fully consolidated. So if you assume CSI, TRFC, et cetera, are not in scope, but in like-for-like, at the beginning of the year, what kind of like-for-like operating revenue growth will you be able to post?

And the second one is looking to the operating margin, the operating EBIT margin evolution. If we look to the confirmation rate, it has been one of the weakest historically. It is also justified by the very strong growth you have been able to post. How do you see this evolving for this year and going forward, please?

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Bertrand Dumazy, Edenred SA - Chairman & CEO [3]

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Okay. Julien, thank you for your 2 questions. First of all, yes, we will continue the integration work on TRFC and CSI and this integration work has been well running for the first 6 months of the year and we will continue that. And in fact, as you know, when we make an acquisition in year 1, in fact, the positive impact on the published growth from the acquisition is not in the like-for-like growth.

Again, I guess your question was after 2019, so for 2020, what's going to be the contribution of growth acquisitions. In fact, it's just like what we did in the past, i.e., we expect from our acquisition to generate more than 7%, 9% and 10% in terms of operating revenue, EBIT and cash flow generation and we are working on that.

Your second question was as to the operating EBIT margin. When you look at it from a like-for-like point of view, what you can see in fact is, as you said, it's a slight improvement in like-for-like for the operating margin. It's, in fact, an improvement of 0.1 point.

In fact, you have to remember a few things. First of all, in our global technology platform, we invest and we had some investments to be made in H1.

The second thing is the transformation we talk about is very sensitive because it's a delta on a delta. So it can be computed on one semester, but I think it's wiser, due to the sensitivity of this ratio, to be insular on an annual basis.

Having said that, yes, we need to invest to fuel the growth of the company. And in fact, when you look at all the different steps we made to improve our global digital platform, those investments will lead to a -- some further growth in the future.

Having said that, we expect H2 to be better than H1 in terms of EBIT margin improvement and operating EBIT margin improvement.

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Operator [4]

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Our next question comes from Geoffrey d'Halluin from Bank of America Merrill Lynch.

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Geoffrey d'Halluin, BofA Merrill Lynch, Research Division - Director & Research Analyst [5]

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This is Geoffrey d'Halluin from Bank of America Merrill Lynch. Two questions, please. First one is regarding your other revenue, which is up EUR 4 million compared to the first half last year. So just interested to get your thoughts on what's going to be the trends for that KPI going forward. So I guess you said you have seen some higher interest rate in 3 countries outside the eurozone, so just to get your thoughts on how you see the service numbers evolving going forward?

And my second question is regarding Itaú in Brazil. Would you mind to give us an update on this partnership and the impact we can expect to see on your operating like-for-like revenue growth in Latin America and in Brazil, please?

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Bertrand Dumazy, Edenred SA - Chairman & CEO [6]

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Okay. Maybe Patrick will start with your question on other revenue, and then I take the lead on the Itaú in Brazil.

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Patrick Bataillard, Edenred SA - EVP of Finance [7]

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Yes. Well, regarding other revenue, Geoffrey, maybe you remember that last year we explained that most probably we have reached the rock-bottom and that's what we are looking at now, in fact.

The first comment about that, definitely that we -- make me feel positive about the future is that we fixed it in growing the float, that is to say we still continue the basis of the calculation. And that's true for Europe, it's true for Latin America and like, America country as well. So that's the main reason for which I stay confident about the fact that the other revenue should increase -- should continue to increase in the future.

Then regarding the rates as explained during the presentation, we don't expect many good news flow coming from the eurozone. But on top of the eurozone, in Europe, we have countries such as Romania, Turkey or England for instance, where we manage a lot of float and there the rate keeps increasing.

And then, of course, we have the Latin America when the production of float is not the highest in the group, but the interest rates are very high and remain very high, especially because we are in the habit of hedging the interest rates, which is a very successful policy especially in Brazil now in fact.

So my view is that we should succeed in keeping the [pace] of increasing sharply the overall revenue this year and next year when you compare them to this year's.

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Bertrand Dumazy, Edenred SA - Chairman & CEO [8]

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Okay. Then just for your second question was for Itaú in Brazil. So yes, we are very pleased to announce that (inaudible), the authority in charge of competition in Brazil, they either -- it's gone live through the partnership between Edenred and Itaú. So I think we should be up and running from an operational point of view during the summer. And so the first 6 month in 2019 will be getting dedicated to put in place other systems and the teams and the incentive to start the acceleration of the deployment of the distribution agreement between the 2 companies.

I remind you that is Itaú is largest private bank in Brazil. It's a very well-respected financial institution. And this institution, as demonstrated in the past, that it's a sales machine. And this commercial machine is going to be very interesting for us to accelerate our development in Brazil especially for the small and medium-sized companies on a country that is very vast, in fact it's a continent, and it's a continent that we are not able to cover only ourselves with the people on the ground.

So the 5,000 agencies of Itaú around Brazil, coupled with a portfolio of almost 1 million small and medium businesses, it's a very good alternative distribution channel to our current coverage of the country.

So we expect, in fact, the impact of Itaú in Brazil to be limited in H2 2019 because it takes time to build the system, to train the people and to put together the incentive and we shall start seeing the impact of Itaú mainly in 2020.

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Geoffrey d'Halluin, BofA Merrill Lynch, Research Division - Director & Research Analyst [9]

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Okay. And if I may, maybe just a very quick follow-up on the prior questions on EBIT margin. Just would like to understand exactly what you said. If you want to keep this pace of growth, would you need to invest more in the future, which means we should see no lower operating flow through? Again, if you want to keep this high level of growth, just to have the question in other way.

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Bertrand Dumazy, Edenred SA - Chairman & CEO [10]

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No, Geoffrey, so let me restate what I said. First of all, if you look at the flow-through on a 6-month basis, it's not the right way to look at it because a delta on a delta. And I said that many times, a delta on a delta is very sensitive. This semester, we made some investments to continue to grow. And we had a higher proportion of OpEx than a proportion of CapEx because when we start projects, for example, as long as you don't demonstrate that there is a business product behind that, you cannot CapEx the spending and they pay in OpEx, okay?

So we might see a flow-through that is lower, but there are good reasons for that, i.e., investments and investments that have been recognized in OpEx more than in CapEx. Why? Because it's the beginning of the investments, and we need to improve from an accounting point of view the business model behind that, okay? So please bear with us and look at the flow through maybe on an annual basis than on an semiannual basis.

The second thing is that, yes, we will continue to invest. And we think the level of CapEx we need to put in this activity to continue to generate double-digit growth is around 5% to 6% of our total revenue in CapEx, okay?

So it's not as if we were in front of exceptional events with exceptional investments. It's only in H1 where we had, in terms of investments in IT, more OpEx than CapEx.

So to make the long story short, our business is a scale business. So it means medium to long term, the more volume we have, the higher the margin is. But short term, sometimes, we have to invest and not to wait to invest to continue to fuel the growth.

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Operator [11]

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Next question comes from Sabrina Blanc from Societe Generale.

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Sabrina Blanc, Societe Generale Cross Asset Research - Equity Analyst [12]

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Sabrina Blanc from Societe Generale. I have 3 question, please. The first one is regarding the Brazilian trends. And if I look at between 1Q and Q2, it seems that there is an improvement despite some comparable in the Employee Benefit. So could we have more color on that? And perhaps an idea of the contribution of the Fleet & Mobility compared to the Employee Benefits?

The second question is regarding the acquisitions and their contribution. I'm a bit surprised by the low contribution of EUR 7 million at EBIT level. I was expecting more. Is there any seasonality impact on -- at the CSI or [TRFC]

And the latest question is regarding the D&A. Have you -- you have -- now you are providing EBITDA in details. Could we have some guidance on the evolution of the D&A first? And secondly, under the IFRS 16 impact on a full year basis?

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Bertrand Dumazy, Edenred SA - Chairman & CEO [13]

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Okay. Sabrina, so I'll start with the Brazilian trends. So yes, as you said, we had a growth like-for-like of 10% in 2018. And in fact, we are above this 10% in Q1 and Q2 with 11.7% and 12.9% in Q1 and Q2, so leading to an H1 of 12.3%.

So what do we see in Brazil? In fact, we see the continuation of [both of those] for our benefits business simply because, in fact, the commercial conditions on which we are signing new contracts are getting better. And it has been the case for the last 12 months, so we stopped having the accumulation of those better commercial conditions.

Why do we have better commercial conditions? Because a few things has been, let's say, fixed in the Brazilian economy, so that inflation is under control. The currency is control. The (inaudible) is under control.

Having said that, there are still a few things that are not yet fixed in the Brazilian economy. The level of unemployment is still very high with something that is closer to 12%, and we still have less salaried people in Brazil today than we had in 2014.

So what does it mean? It means that the combination of things that are getting there and things that are not yet fixed in the Brazilian economy, plus our own internal dynamic because we need to create our own leads as well, leads to this continuous recovery on Employee Benefits.

Then on Fleet & Mobility, we are very dynamic on the market. So we continue the penetration of the market. We continue to bring new services on the Brazilian market. We are growing fast on our maintenance business. So the combination of the recovery in Employee Benefits and the work we are doing in Fleet & Mobility, including to this improved like-for-like growth in Brazil.

Then you had a second question on acquisition. Patrick, do you want to say something?

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Patrick Bataillard, Edenred SA - EVP of Finance [14]

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Yes. Two comments about that relating to the EUR 7 million of EBIT contribution. First comment is about seasonality, yes, we have some kind of seasonality especially at CSI. And we have -- we expect a strong ramp-up of future contract, or contract that has been signed that we'll need to sign to improve the top line and the profitability of CSI.

And second comment is about PPA, purchase price allocation. You know what I can tell you is that the 2 last acquisition, i.e., CSI and TRFC are improving the EBITDA margin. But you have as well to take into consideration the fact that we had to amortize some part of the goodwill aspect of the acquisition, in fact.

Regarding D&A, and that's a good transition with your last question. When it comes to speak about the IFRS 16 impact, as I've mentioned during the presentation, the impact of IFRS 16 in H1 is EUR 14.6 million. So in order to have the full impact for the 12 months, we can multiply that by 2. So say roughly an additional EUR 30 million EBITDA in comparison to previous year.

But on the other way around, you have to take into account additional depreciation, which is almost exactly the 7 months, so minus EUR 30 million, meaning that the IFRS 16 impact on EBIT is almost neutral impact.

And coming back to acquisitions, what I can tell you is that, of course, we are still in the -- in what we call the window period when it comes to calculate the final [TPA] for the last acquisitions. But our view is that the full year 2019 impact for the main acquisition, we have done at the beginning of this year is almost EUR 50 million -- albeit the equivalent of EUR 50 million because part of the goodwill we have said are denominated in U.S. dollars.

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Operator [15]

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Our next question comes from Paul Sullivan from Barclays.

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Paul Daniel Alexander Sullivan, Barclays Bank PLC, Research Division - Director & Analyst [16]

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Just a few from me. Firstly, are you prepared to give us the organic revenue growth at CSI in the first half? And it sounds like you may have run up against a few sort of integration challenges, perhaps you could elaborate on maybe what hasn't gone quite so well as you may have hoped?

Secondly, just coming back to the organic revenue progression in the second half. How do we view those comps? I mean, comps got tougher in the second quarter, but organic growth accelerated, may get tougher in the second half, particularly in the Rest of Europe segment. How should we view comps impacting organic growth? And how should we think about the organic growth slowdown in the second half?

And then finally from me, Bertrand, I don't know if you could just elaborate a little bit more on your delivery platforms and the -- and what -- could you give us a sense of any -- the contribution you're seeing from them at the moment? I presume it's fairly small, but how big a change or opportunity do you think it could be?

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Bertrand Dumazy, Edenred SA - Chairman & CEO [17]

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Okay. Thank you for your questions. So if we start with the organic growth at CSI. No, we don't have any integration challenge. The integration is doing well, as I explained before. The only thing to remember is what we are doing at CSI is that we are very [inconsistent], i.e., we'll take somebody with a portfolio of payables and we talk to every supplier of this somebody and we connect them via our digital payment solution mainly the [DCM]. So the (inaudible) will come.

When we shared with you the ambition of 20% growth in terms of revenue for the coming years, it was based on the work we had in the pipe in the second half of 2018 during the due diligence process. And when we sign contracts, it takes some time to put this contract in place because you need to put the infrastructure of payments, the final say so in place, between your client and the suppliers of your client.

So basically, what happens is in H1, it's a semester of implementation of our systems, and H2 is the time of building and ramping up the transactions that will go through the system. So we know based on the way the business work that H2 is going to be very strong in terms of revenue growth as compared to H1 simply because H1 will be put in place the systems. H2, the volumes are ramping up. That's why we believe or we know that most probably, the growth in full year 2019 for CSI is going to be around 20% in revenue.

Then you had a second question about the organic revenue growth promotion with the comp and the fact that it's getting more and more difficult. Yes, it's true for the last 4 years, in fact, every semester generated with a double-digit growth. And this time as well, in fact, when you look at the evolution of our operating revenue, 14.4% is better than what we did full year in 2018.

But we have been doing that for the last 4 years, i.e., every semester had higher basis of comparison. And due to the fact that we are working well our (inaudible) level and we constantly invest into new product and services that we played on our platform, we are able to overcome the difficulties of the comp.

Having said that, yes, H2 is going to be, in terms of comp, slightly more difficult because H2 2018 was very strong. These were some quarters that were above 14%. But based on the way we manage the business and the opportunities we see, we know that the second part of the year is going to generate sustained growth in every geographical zone and on every product line in 2019.

Then the -- your third question was on the main delivery platform. In fact, yes, you're right, the contribution we have today is somehow limited. Having said that, the impact of the technology we put in place is, in fact, medium to long term very high from an (inaudible). First of all, for us, putting that in place is a huge differentiation platform in every country around the world. And the impact it has is when we look at our success rate and the evolution of our market share, being able to propose that is very positive.

The second thing that is very positive is in the share of wallet we have on every account. In the past, for many large accounts, sometimes the market was shared between 2 players. And today, if you're able to propose digital evolution like this one, it's very difficult for your client to say, "Oh, I've got to be in 60% of the market with Edenred and another 40% with local player that is less digital." Why? Because everybody is craving for our digital solutions, and it's now much more difficult for a nonplayer to make some correlation between people who have access to a digital technology and people who do not have access to the technology.

So in fact, the major [performers] have the ability to connect is very positive for the development of our market share, for the development of our share of wallet but also very positive on our retention rate. Why? Because when we create a digital environment around every user-based solution for the employer, it's much more difficult today than it was a few years ago on paper, for example, to deploy one supplier and to move to another supplier.

So yes, the contribution is limited today but the impact on many other aspects of the business is tremendous, meaning in terms of retention and in terms of share of wallet and in terms of market share, thanks to this innovation that leads to differentiation.

So -- and the other thing to keep in mind is the acceleration of the trend, i.e., the more growth, the more the adoption rate is climbing. So we have an exponential effect option of deploying a global digital platform.

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Paul Daniel Alexander Sullivan, Barclays Bank PLC, Research Division - Director & Analyst [18]

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Fantastic. That's very clear. Can I just do a quick follow-up with Patrick in terms of expectation for PPA and the evolution of minority interests in the second half of the year, Patrick?

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Patrick Bataillard, Edenred SA - EVP of Finance [19]

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Yes, I suspect we will have the same effect than the one we describe in H1, meaning a higher contribution coming from [key] catalog and UTA when we still have a minority interest, so it will increase in profits and it will increase in minority interest.

And on the other way around, we have effects of -- by acquiring the minority interest in companies -- in very profitable companies such as LCCC and C3. So I suspect that you will have different revenue compared to H1. But on top of that, you will have to take into account the 11% sold to Itaú in the delivery accidentally putting in place [in Itaú]. So this addition of 11% can collect it on the profit of Ticket Services (inaudible) relative to Employee Benefit in Brazil will be the news flow on H2.

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Paul Daniel Alexander Sullivan, Barclays Bank PLC, Research Division - Director & Analyst [20]

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Great. And PPA?

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Bertrand Dumazy, Edenred SA - Chairman & CEO [21]

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PPA, as I said before, we are still in the window period. But I suspect we will not change that much the calculation we have done. But on top of that, you have to take into account the impact of the intangible we have to depreciate over the time for Itaú which can be estimated at an average -- represents EUR 6 million for 12 months. So you take that into account for 5 months out of 12 most probably for H2 2019.

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Operator [22]

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Next question comes from Simon LeChipre from MainFirst.

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Simon LeChipre, MainFirst Bank AG, Research Division - Analyst [23]

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Yes. Three questions, please. First of all, as a follow-up on previous CSI questions. If you could please comment on the margin performance you expect for the full year and also how you see margin evolving beyond say '19 compared maybe to your initial thoughts, given you know have a bit early on the business?

Second question, if you could please give us some color on the take-up rate evolution over the half and also any color by region will be helpful?

And lastly, in terms of M&A, do you have anything in the pipe right now?

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Bertrand Dumazy, Edenred SA - Chairman & CEO [24]

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So thank you for very precise questions. So if we start with CSI, when we built the company, the year 2018 was with an EBITDA margin of about 60%. And when we had compensation together, I said that I probably think that 60% is slightly high, and I expect these business to be closer to 50% long term as compared to the issued 60%.

So what does it mean? It means that it will continue to have a highly profitable business, it will continue to be relative at an EBITDA level for Edenred. But I think if we want to accelerate the growth and we -- the sophistication and the maturity of the market, I think probably long term an EBITDA margin closer to 50 than 60, okay? So that's for your first question.

Your second question about the takeup rate, I'm sure you'll remember that we don't comment on the takeup rate on an semiannual basis. And what we share with you on an annual basis is the evolution of the takeup rate for our benefits division.

So I would like to keep to that discipline but in fact, if you look at -- if I can give you a little bit of color, all the actions we took for the last 3 years in terms of a marketing mix continues to generate positive effects. Having said that, because the portfolio of activity that we they then had is increasing, the takeup rate is somehow different from one division to another. So for example, with the growth of Fleet & Mobility, you know that the takeup rate of Fleet & Mobility is lower, even if the EBITDA margin is somehow closer to the one when it's well managed and we provide volume to the one we had in benefits.

So to make the long story short, we continue our discipline of execution and part of the discipline of execution is to price on services at the right level to have some benefit and some positive impact on the takeup rates.

Then your last question is to -- is -- as to M&A. And so we are on the same line as the one we have been following for the last few years, i.e., we want to be the leader in every market that we address. And so to do so, the priority is the organic development, and the organic development, the priority for us is to beat the [state] champions, i.e., in any initiative we have and that we test on the market, then if it works, we want to deploy and scale.

So that's why I shared with you the mobile payment exponential deployment plan we are in. And so first of all, we work well within our organic initiatives. And if we need to accelerate, then we proceed to M&A. And the M&A follows always the same methodology. First of all, we want to have a strict financial discipline, and secondly, it has to be whether it benefits a bolt-on, i.e., very close to our business, very easy to migrate, very easy to plan and we do that on a regular basis. Or we add some new services, so it's what we are doing for example in employee engagement.

And as to the Fleet & Mobility, our backlog is really a backlog of consolidation and the backlog as well is the battle of adding new services. So for example, new services was to be stronger from a competitive point of view in terms of pull that's why we go to this portfolio in Germany for the account, who used to be the property of Lufthansa.

So it's always the franchisee organic first acquisition to accelerate in a country or on a product line, with a lot of focus from a financial discipline point of view but also from an integration point of view. We are not rich enough to have the luxury to destroy value with the integration of the companies we buy. So we are very disciplined into the integration plan.

And as to the third engine of growth for the company, which is the Corporate Payments, we continue on the same line, i.e., we made a move, this move in the U.S. is CSI. It's an acceleration as compared to the organic initiatives we had, and we want to succeed with CSI. So priority #1 is the deployment and the acceleration of the growth for CSI.

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Operator [25]

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We have no more questions.

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Bertrand Dumazy, Edenred SA - Chairman & CEO [26]

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Okay. So it's maybe now time to finish this conference. First of all, thank you for all your questions. With [success] we have been very clear to present you both 2019 results in H1 that are very solid, once again double-digit growth on every product line in every country.

We saw the ramp-up of the benefit of our global digital platform on which we can plug any new initiative and service whether they are organic developments or development by acquisition. We are pleased by the quality of integration of our latest purchased companies such as TRFC and CSI.

We are confident for H2 2019, even if the comparison basis is going to be slightly stronger when we see what we have and our commercial agility. And all together, we are confident for the second part of the year. Second part of the year that should lead to record lending in terms of to be between EUR 520 million and EUR 550 million which is a significant growth as compared to last year because last year, remember EBIT at EUR 461 million.

Thank you for your time and let me remind you that there is an HR event for the future of Edenred, it's our Capital Markets Day. It's going to happen in London and it's going to be on the 23rd of October for this year.

Thank you for your attention and see you soon for some new adventures. Have a good day. Goodbye.

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Operator [27]

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Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.