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Edited Transcript of NEO.PA earnings conference call or presentation 25-Sep-19 6:34am GMT

Half Year 2019 Quadient SA Earnings Presentation

Paris Sep 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Quadient SA earnings conference call or presentation Wednesday, September 25, 2019 at 6:34:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Gaële Le Men

Quadient SAS - Corporate & Financial Communication Director

* Geoffrey Godet

Quadient SAS - CEO & Director

* Jean-François Labadie

Quadient SAS - Group Chief Financial & Legal Officer

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Conference Call Participants

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* Jean-Francois Granjon

ODDO BHF Corporate & Markets, Research Division - Analyst

* Nicolas Tabor

MainFirst Bank AG, Research Division - Analyst

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Presentation

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Geoffrey Godet, Quadient SAS - CEO & Director [1]

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So let's get started. Good morning, everyone. Thank you for being here this morning with us. As you have noticed, we have worked really hard to make sure the seats were the same colors of our new brand. That was done in record time. For anyone that was expecting to have H1 result on Neopost, please do not leave the room. This is also about Neopost's H1 results. I will obviously take some time at the beginning of this presentation to explain why we changed our name to Quadient, and after that, Jean-Francois Labadie, the CFO of Quadient, will share with me the presentation on H1 results. I will give a quick summary on the highlights of the first semester.

Jean-Francois will share some updates on what we've done operationally since the beginning of the year, and Jean-Francois will take a little bit more time to do the financial review. I'll summarize, obviously, our guidelines, our updated guidelines for the rest of the year, and then we'll open the floor for some questions.

So welcome to Quadient. Before I go into detail, I will spend just a few minutes with you for something that is, obviously, very critical and very important to Quadient moving forward. We have unveiled a new strategy in January 2019. Some of you were present with us and it was all about accelerating the transformation of Neopost, right. That acceleration of Neopost was coming holistically to change the way we operate, to change our culture, our way of doing business, and it's also a change of type of focus in terms of business, the type of solution we take to market.

We have implemented those changes since the beginning of the year, and it was only time now to be able to have a brand that can represent all stakeholders, all partners, all our ecosystem, that could resonate with all our customers, whatever the solution we provide to them and could obviously appeal to all our employees today, the one that works for us at Quadient, and the one we want to be able to attract, looking forward to our growth in the coming years.

So I'll spend a little bit time with you to explain what it means, why we change, why we choose Quadient and, obviously, what we expect out of it. So why Quadient? And what does it mean?

I spent a little time at the beginning of January this year to explain where we're coming from. Neopost had a rich and long history which we're benefiting from and leveraging today, but we were mostly organized as a holding of independent businesses, 10 different businesses, 3 different independent business units, and they all had their own go-to-market culture, organization, centralization of functions. And we have decided to move from a holding of companies to a unified organization, as if we're a single organization, single group, integrated, focused, taking to market for solution on the core geographies -- 2 main geographies that we care about. And that's a fundamental change to become a unified company. And it's a change that was necessary to be able to unlock and deliver on the premise and the ambition that we have shared with you, the synergies that we can benefit from the scale of the group, right, that otherwise was not accessible to us.

Synergies across the organization in terms of centers of excellence, support functions, in terms of R&D, in terms of whether its software or hardware, in terms of speed, when you have so many silos, it is difficult to accelerate the speed of the business. So this is why we have decided to centralize this organization. The most important aspect too, of our plan, was also to leverage the synergies from a customer perspective and our solution and enable faster and more cross-sales across our solution, and also to demonstrate the value of why our 4 main solutions work together and what was the value for our customers in this process.

It only made sense then, to be able to have a unified brand that could represent the 4 main solutions that we were taking to market. And from a business perspective, when you operate those kind of change, it's only natural that you operate as one company, one team, one set of values, that you need to have one culture. And that culture has to also be represented by one brand. So that's the reason why we decided to change and why we decided to change now.

When you change such a brand, you could obviously just change your name, that's one thing, but the work we have done, and this work is the result of more or less 18 months of analysis and preparation, is to build a purpose brand-driven platform. I am not going to go with you here today on all the aspect of what we're doing in this domain, but I just wanted to give you a snapshot. We have obviously created and adapted our vision, where we're going, what is our ambition? What is our mission? So that every day when you come -- an employee comes at your casinos, why and where are we going, right. And obviously, the values of the company as well so they could all operate the same way.

It was important to do so because before customer -- our customers want to trust us, they want to trust the brand they do business with before they invest into solutions, right. From an employee perspective, they need to know why they come at the office every morning and what's in it for them and why do they work every day, what is it we're trying to achieve.

Investors want to know why they invest in the company, can they trust the company and the brand that they want to invest into. And we have a whole partnership ecosystem of partners that also the brand needs to resonate with the value proposition that the organization is putting on the market. So that's the work we've done, discussing with customers, interviewing them, with employees, with the different stakeholders, what it means today to be our organization.

So coming back to the reason, I'm sort of just describing the what we do and the benefit of our solution, the speed, the benefit and the return, we try to focus on the why. Why do we exist? What purpose do we serve? Why do we -- our customers should choose us? What is the reason why employees come every day and make a difference when they come at Neopost, at Quadient tomorrow? Why should new potential hires join us? What is the reason?

So we came to it and after looking at different things, I think us around the table, nowadays, we want to be treated not as customers. When we receive notification from our -- the companies we do business with, we don't want to be receiving a letter, "Dear Mr. Customer." We want to be able to receive a letter saying, "Dear Nicholas, Dear Gaele, Dear Julien, et cetera, we know you, we've been doing business with you before, we know you purchased something yesterday. We're sorry it didn't fit your need, it was the wrong color or something," and we want to be treated as individuals. And we want to be treated as individuals in a personalized way because it all depends, obviously, if we are at home during the weekend with our family as a resident in our building, if it's during the day or during the week from 9 or 8 to something late hours during the weekdays and we are employees in our organization, or whether we're a patient in a hospital or having a relationship with a healthcare organization, right.

We want to be treated in context that has to be personalized. And what we realized that all the solution we were providing, and especially the 4 main, that it was never about the letter that was sent, or the parcel or the package that was received was sent as well, but it was behind that, what's in it? Behind the letter is the critical invoices that we need -- than an organization need to send to its customers to pay its bill. It's a claim that has been notified from us because we had an accident with our insurance company. It's the announcement of a particular recognition that we had. It's a health bulletin that we have received, and we are expecting a positive and negative result from a health organization that we've been doing business with or visiting. When it's a parcel, it could be a very important package because it's the gift that we want to be able to send to our wife or to our daughters, it could be a particular thing that we have bought online as an employee, and we need to receive an equipment, phone -- laptop that is critical for us to be able to do business on time or printed a set of documents.

So what we've realized is that what we're doing is relating to what individuals -- people cared about as consumers, as individuals, and what matters to them, right. And making sure we were providing solution to create the connection between the 2, and we have, obviously, a portfolio solution to be able to do that.

But our true purpose then was to make sure we could simplify those connections for those businesses we help. Nowadays, each one of you, I'm sure, when we do business with an organization, or we expect something, we want it to be simple, fast. We don't care how complicated it is on the background, whether there is ERPs or CRMs or whatever, we expect those organizations, those businesses to service. We want those information that we share with them to be secured. We want that to be seamless. We want this to be automated. We want that to be simplified. And that's the true purpose for Neopost, is that we want to simplify the connection between peoples and what matters to each one of us.

Hence, naturally, while we have also defined a new guideline, Quadient, because connections matters.

I'm not going to spend more time with you this morning on this, obviously, the entire organization care about it, we have made the announcement recently. It's been 18 months in process. Just a note of information, Quadient was a brand that existed within Neopost before, so we had a chance to get it validated in most of the countries where we do business. So we anticipate a fast rollout in the coming months to be able to deploy these strong brands across the board.

So let's get to the information that you probably care a little bit more about this morning, which is our H1 result that Jean-Francois and I will present together. I will spend a little time on the highlights, the execution of our Back to Growth strategy and the progress we have made in delivering some of the early results from the ambition we have set, and then operational review, financial review, Jean-Francois, and a quick summary on our updated guidelines.

What do I want to share here with you? If we look at our semester performance from the top line perspective, organically, over the past years, you can see that from 2015 to 2017, we had negative organic growth decline semester over semester for the last -- for a period of 3 years from 2017 -- 2015 -- sorry, 2015 to 2017. When I arrived in 2018, we had a chance to had a small organic decline in the first semester for the first time, close to 0, right, close to stabilization. We obviously had a very difficult quarter in H2 2017, right. So we also benefited from the first time for a semester that was organically growing at almost 1%, which allowed us, last year, to stabilize the revenue of the company for the first time after 3 years, roughly, of a decline around minus 2%.

H1 2019, 2.3% organic growth, obviously, very happy with this new level of growth in this first semester, it's just the first semester. And as you could see, it's also an easier comparison basis compared to last year, our H1 -- semester last year was a little bit easier from the comparison basis perspective. The 2.3% organic growth performance we have in this first semester is all the most noticeable that we're at the beginning of our Back to Growth strategy, and we still have 70% of our business that is dependent on our related solution, right. So we still achieved -- been able to achieve 2.3% organically in this first semester, having 70% on that related solution that is still declining.

Before we go into the details, 5.5% reported growth in the first semester, 2.3% organic growth for H1. What does it mean organically? We have 2 major segment operation, major operation at 1.1%. This is where we focus our strategy, our investment and the growth of our major solution, and what is noticeable within major operation that we'll go over is that we have a 5.3% organic growth in North America, which is our largest region today. So a strong growth driven by the 4 major solution that we have, and obviously, accelerated, thanks to the acquisition that we've done at the beginning of the year with Parcel Pending, our Parcel Locker solution leader in North America.

The performance within major operation was a strong performance because it was underlying, driven by the growth -- the strong performance in each of the 4 major solution that we have that have been all performing well from our perspective at the beginning of the year. Something important to us is that while we focus our business mainly in terms of solution and investment and operation into 2 main region in major operation, we have the rest of our business that we have regrouped with an additional operation. We have dedicated a management team specifically to focus on the improvement of that operation. So we do, obviously, exit some of the solutions in which we may not be able to get them to traction. And also to improve them when it's possible, but also to grow them.

So we're obviously very happy with a strong growth of additional operation at 8.2%. From a quarterly basis, this represent, with Q2 of this year, the fifth quarter of organic growth that is consecutive. Q2 2019 was at 1.8% organic growth.

If we look at the financial performance, we had a solid financial performance in H1. The current EBIT at EUR 93 million, which is up 2.3% versus H1 in our last year. If we exclude scope impact and currency impact, we're still seeing a slight growth of our EBIT at 1.1% compared to last year.

I'm going to address very quickly one point of notice on our cash, and Jean-Francois and I will be able to go through it today. We had a lower cash conversion at the beginning of the year that is really related to a seasonal deterioration that we have traditionally within Neopost because of the structure of our business and our business model, to doing lease and rental activities, et cetera. So we have usually a lower cash accretion at the end of the year which naturally, every second semester, increases.

This first semester was a little bit amplified due to temporary increase in our stock and inventory. We've seen strong dynamics in our business in the first semester, and we have increased the stock consequently, so we'll go over the details on that. And we have also a lot of different aspect in term of the tax from last year, exceptional item to this year, exceptional item, and we have now a more normalized tax situation in H1. And then finally, we also -- a slight increase in our CapEx in H1 this year compared to last year. The EUR 49 million of CapEx that we have is fully in line with the guidance we gave at the beginning of the year, which was to spend roughly EUR 100 million per year in average during the duration of the plan. So EUR 49 million for first semester, we're more or less on target. From a debt perspective and debt ratio perspective, our leverage is stable, 2.3 to 2.3 if we exclude the impact of IFRS 16. Including the IFRS 16 impact from the norm, we're going to be at 2.5 in this first semester.

From a guidance, we'll go over the reasoning and the rationale of why we are upgrading our guidance, but naturally, based on the good result that we have in this first semester, both in term of top line and bottom line. And considering some of the high conversion basis that we're going to see and explain in H2, we are slightly upgraded to slightly positive growth from the almost stable previously, from the top line perspective. So we're upgrading our guidance. And from the EBIT, we are refining our EBIT guidance between a range of EUR 180 million to EUR 185 million.

And we do confirm the guidance that we have on the free cash flow conversion, and such, excluding the impact of IFRS 16, which actually is -- could be positive from a cash conversion perspective, so even excluding impact of the IFRS 16, we will be above 50% of free cash flow conversion.

Just a quick reminder for the ones that are new about Quadient. Our strategy, our Back to Growth plan is really to refocus the company, the group, on its major operation in which we have built key positions. So we're going to take to market 4 major solution, mostly focusing them with the market deployment in 2 main geographies, North America and a few key European countries that we have today. The rest of our operations, and the rest of our solutions, so taking to market those 4 major solutions into the rest of the world, and we have also other solution or regroup within additional operation with the goal every day when we wake up to make sure that the additional operation doesn't take -- stay backward, both in terms of organic growth because this is the target of our plan. So we want to make sure that additional operation also contributed some point in terms of organic growth, like they've done in the first semester. And also from an EBIT perspective, we're looking at a plan to grow our EBIT year-over-year in average over the preview of the plan, so we want to make sure that additional operation doesn't take us a step backwards at every semester or every year when we start. Hence, grow or improve or exit the businesses within additional operation.

Our strategy will be to accelerate that transformation through both a different capital allocation so that we could accelerate through slightly increased CapEx year-over-year, EUR 100 million in average for the full year of the plan and an envelope of inorganic acceleration, so an envelope of M&A of $400 million net of the investment over the period of the plan, which could represent an average EUR 100 million per year, focusing on bolt-on acquisitions.

If you update since we made those announcements on this plan, delivering the first implementation and result and actions, some of them, were starting that they are starting to pay off, others are in the making. We obviously rolled out since the announcement in January, our new organization, moving away from the holding of independent businesses to a one company, a unified company. You could see, obviously, on the brand, that we're also looking at the brand and the communication aspect. What is important too is that we are centralizing functions. So centers of excellence across the group for the support functions, such as HR, IT, finance and also that will provide a back office to support our team across the world it is going to be efficient. And that could also provide the savings and the synergies, and we could benefit from the scales of those organizations across the board.

A lot of our efforts in H1 has been also to focus on strategic initiatives, focus on major operation, initiatives on go-to-market, hiring new salespeople in terms of business admin effort into new verticals for some of our solutions, focusing on customer acquisition, making sure we benefit from the strong position that we have in strong markets against our competition as well. Also looking at reservation of our R&D portfolio, of the different software, accelerating some of the road map when necessary, migrating or retiring some of the others, and centralizing our R&D functions, marketing, solution functions as well both in terms of the hardware and software to get the full benefit of the refocus on those 4 major solution and having dedicated team, both on the marketing, product management, product marketing, R&D and support side by solution within the major operation.

The new way of working for us is changing the culture of the company to accelerate our growth. We, obviously, are becoming faster, more agile. Our new values, our new way of taking decisions are, obviously, helping us to accelerate our transformation and has been ongoing, it will not be done overnight. This is a long-term endeavor, and we're making a decent progress since the beginning of the year and pretty proud of the team.

In terms of major operation, we've been focusing, obviously, at some of our strategic investment in terms of innovation and go-to-market, as mentioned before. We did acquire Parcel Pending at the beginning of the year. So naturally, it was the strong disciplines we have in M&A and the discipline in M&A is not just financial. We obviously want to make sure that your core company in which the business model and the indicators, et cetera will meet the financial criteria that we have set, and that we will buy the right one, we do the right due diligence, but the work doesn't stop there. The work is very active since the beginning of the year to integrate the company with a phase integration, which is well underway with some more work to do in the next 18 months. But we are integrating and it's part of our major operation. It's now part of our operation in North America and since the acquisition, we've been integrating them progressively.

And we've been also working very strongly on developing synergies between our different sales teams to focus on our customers and where we could accelerate some of the cross-sells that we have identified in our plan. In particular, we've been doing good progress between the synergies between our business process automation solution and our mail-related solution, also on the others, but on this area, in particular, in the first 6 months of the year.

Additional operation is also a strong area that's been for us since the beginning of the year. We put a whole new management team to focus on what was basically a little bit left over in the previous years, not having as much priority, naturally, because they were not as impactful or material to the rest of the organization, but now we have a team that is focusing on all the other countries that we operate business into the world today, and making sure that for each country, for each of the solution we take to market, strategic or not, we make money, we're profitable, we improve in case we need to improve, and we try to grow those business and ensuring, overall, that for our most precious euro, that if we're not being able to find a return, then we find a way to exit those solution out of our operation to make sure we could reuse those euros saved in addition operation across the group and for the benefit of our transformation.

So we had a stronger profitability increase. We had a good top line increase, obviously, creating through some one-off sales that we'll go over, Jean-François and me. And also we have improvement in profitability because of cost reduction and savings plans in place across Additional Operations since the beginning of the year.

Also I want to share with you the announcement that we have made recently, which is to have a phased shutdown of the activities of Temando, which is our Australian subsidiary, and we have announced this in September. This was not a decision taken lightly. As you know, the group in the past has invested significantly in this business, which was a company start-up that was acquired several years ago. When I arrived in 2018, Temando was in the process of launching a new platform that has been in the process, being built for the last few years. And the launch was planned for May 2018, right. So a whole new platform that we have taken to market with our partner, Magento, in the U.S., and it was only natural that we take a year, this is what I had shared with you all along last year to wait a full year of go-to-market to see the result of those past investment and where we were and how we could help Magento make sure it was a successful launch.

Along the year, we've seen that there were some weaknesses and things that were not making it a successful launch, so we worked very closely with our partners to see what we could do, obviously, along the way.

On the other side, as I announced at the beginning of the year, our strategy, we have put Temando into our Additional Operations, considering that the potential that we could see, while it could be interesting, was not material to our transformation nor to future growth, that we could not do something with it. So since the beginning of the year, we looked at it a little bit differently, and we have tried to find every opportunity or every angle possible to see how we could best leverage the investment that we've made. I do that for Temando. I do that for every other solution that we have within Additional Operations. The goal being, obviously, to grow them when we can, improve them if it's possible, and if we cannot find a solution after exhausting all other avenues, to find an exit solution which is the decision that we have taken, which we think is the best decision now for this platform.

The team has done great achievement from the technical perspective. This shutdown will be phased out across several months. We want to do things properly. We will support our customers whenever it's needed through an organized transition. That is our main interest, and we're still making sure we do the right thing by our team.

From an M&A perspective, we have set up a dedicated team. I have shared some of the progress. We have reinforced the team along the year. They're fully staffed. They've been working, obviously, very actively to do 2 divestments already, Satori and HI and all the post-closing activity related to it. We've been focusing on the integration, and this team is also taking care of the integration to ensure that they don't stop at -- normally they sign the deal and they acquire the company, but also help on the post integration, and they've been fairly active and busy as well since the beginning of the year overall.

After sharing some of these key highlights with you, Jean-Francois and I will take you over some of our key business today. Jean-Francois, if you want to start?

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Jean-François Labadie, Quadient SAS - Group Chief Financial & Legal Officer [2]

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Thank you, Geoffrey. Ladies and gentlemen, good morning. So before I let Kim, Geoffrey going into more details and more business information, let me give you, first, an overview of our organic growth by business line.

First of all, overall, Quadient posted sales of EUR 557 million, up 5.5% versus the first half of 2018. If you look at the breakdown of this performance, we had a small scope effect of 0.1% or EUR 1 million coming from both the acquisition of Parcel Pending, the Parcel Locker Solution leader in the residential market in the U.S., and the divestment of Satori and Human Inference, our former data quality activities. So very little scope effect.

The currency impact is positive in H1, thanks to the dollar-euro conversion, representing 3.1% or a EUR 16 million increase in our top line. But what matters to us is the organic growth. And as Geoffrey already shared with you, we produced 2.3% of organic growth or EUR 12 million of additional revenue, EUR 12 million.

Major operation growth stood at 1.1%, an increase in revenue of EUR 5 million. Altogether, Business Process Automation, Customer Experience Management and Parcel Locker Solutions grew by a strong double-digit or EUR 13 million, offsetting largely the 2.1% decline in Mail Related Solutions representing EUR 8 million. In Additional Operations, we posted an organic growth of 8.2% or EUR 7 million, driven solely by good performance from our 4 major solutions.

At this stage, I will let Geoffrey sharing with you more colors on our major operations.

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Geoffrey Godet, Quadient SAS - CEO & Director [3]

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Thank you, Jean-Francois. So let's take a look -- a deeper look by solution, focusing on Customer Experience Management first, which recorded an organic growth of 8.5% in this first semester. This is a very satisfactory performance in H1. Why? Because it doesn't include any large deal. It's the first point. The second point is that we've seen a noticeable increase of our SaaS license versus the onetime on-premise license, which is a very good news because within Quadient, we want to have recurring business model. So we will favor, in the future, slowly progressive view based on customer demand to SaaS revenue, SaaS subscription. We also benefited from the natural strong growth we had last year as well. We have increased numbers of customers, increased license, which means more maintenance this year because our solutions are really sticky. So when we add a customer, we don't lose others. Usually, these are long-term customers that we keep 5, 10 years, and we benefit also from all the services generated from those existing customers. That means double-digit growth, both in North America and in Germany and Switzerland zone, in particular.

It does not include the growth related to the Additional Operations. So the rest of the world that we're still selling Customer Experience Management Solution, which have done fairly, pretty well, as well, we'll go to that in the Additional Operations with Jean-Francois later.

From a go-to-market perspective, this is a strong natural solution for us. We have decided, in our strategy announced in January, to go beyond the 3 main verticals in which we have taken key position on the market, health care, bank and insurance to develop telcos, utilities and government segments, right. We have hired people, the expert in those domains. Just as a reminder, this is an enterprise software sales cycle. It usually takes at least 12 months to be able to close a deal. So the investment we're making now, we're not expecting any return this year. We're looking at, obviously, at the rest of our plan and next year.

We have also focused on a major release of our application which was the version 14, mostly focusing on upgrading the capability among hundreds of new features, but mostly focusing on enabling more and more cloud capabilities progressively.

Let's spend a little time on Business Process Automation. We posted a strong organic growth this semester, 20.5%. It's not just a 10% growth, 20.5%. Where does it come from? We have achieved a strong growth now in 2 main regions, right. Because it's a solution that we're taking to market through all our major countries, major region. And we used to have a strong growth in France. We'll continue to perform well and accelerate the growth there, but also now focusing on having North America contributing to the strong growth of notice, so France and U.S. We had a decline in our U.K./Ireland region, mostly because we had some key deals that was being delayed in terms of decision so far and strong comparison basis versus last year, particularly in Q2.

We are getting more and more new customers, so our customer base, and customer acquisition is increasing and such in all region with a major operation. We also have a strong increase in our SaaS revenue because this is a recurring business model even though we also provide the option of acquiring a solution on license on-premise, more of the solution is being a recurring model, SaaS and subscription-based, cloud-based, in most cases as well. And the most important thing too is we are benefiting on this acceleration of growth in this first semester, from some of the cross-selling initiatives that we have between our Mail Related Solutions offering and the Business Process Automation offering by combining them and having our sales organization being able to benefit the synergy and having a sales guy in the Mail Related Solutions being able to cross-sell the Business Process Automation solution.

In France, in particular, but also elsewhere, we have the same way of looking at it, is that we're segmenting our markets. So instead of having a generally go-to-market, we'll for example, in France, look 12 priority segments, verticals, and we have taken 4 in this first part of the year in which we're developing a specific go-to-market. We are also looking at indirect channels instead of doing everything ourselves.

We have an ecosystem of partners that could be of leveraging a solution for their own customers in the value, like Portware and the announcement we made at the beginning of June. Overall, we have a strong recurring revenue at 80% for the solution. I am emphasizing those recurring revenue because it's part of strategy. We have strong recurring base of revenue across most of our solution and it's something that is part of our solid performance.

If we go down to our historical and traditional and main business, which represent 70% overall of our revenue, Mail Related Solutions. We posted an organic decline of minus 2.1%. This is a much lower decline than we've used to see. I want to be careful and remind you that we've seen quarter-to-quarter, semester-to-semester some strong variation. That being said, the level of decline that we had in the past for the Mail Solutions was more between 4% to 6%. As you know, this is one of the key assumptions and the key focus that I have in our new strategy is to reinvest in our Mail Related Solutions activities, right. Because I believe that we have the right product portfolio, the right positioning. We have strength compared to our competition. And in particular, in the different market, which is true in North America, but also in the others. I believe that we can do better. And hence, why we had decided to reinvest.

So one thing that I just want to make sure everybody appreciate is when we change our name, what does it mean to our Mail Related Solution customers, Quadient means we are investing again in our Mail Related Solution business. So I'm obviously happy to see some improvement in the performance, which seems to show that some of the initiatives that we're taking are paying off, it's still early. And again, it's a long-term business, over 5 years. One quarter, one semester doesn't make a trend, but we see some improvement.

Where does that improvement come from? We have seen an organic low single-digit growth this first semester in North America from Mail Related Solutions. So this one I'm going to repeat it. It's a positive, low single-digit growth in North America, and seeing growth because, again, we've seen a decline year-over-year for now several years in a row, can't remember for since when, of decline everywhere, including North America.

Okay. So we're obviously very satisfied to see this remarkable performance. How have we achieved that? Obviously, we have a challenger position in North America region, in particular. So we have potentially more opportunities, but our focusing is not just in North America, and that I think is the strength of Quadient today is we -- it's a business, we have 500,000 customers across the world. We take care, we maintain well our existing customer base. And when we say, well, it's obviously taking care of them, the machine, the equipment, at all the services that we have with them and ensuring that our leasing, our rental activities on a 5-year basis is well matured. We provide a greater change to our solution. And we also look at the value for our customers and help them better manage their mail. And if we see digital opportunities and cross-selling opportunities with other solution, to make sure we take care of our customers. So we have also focused on the cross-sell from this organization with the other solutions that we offer within the group.

This solution in North America, so not only is it because we have stabilized the recurring revenue, but we also have done well in selling new hardware, and in particular, out of the range of the product that we have in our folders and inserters segments on the high end of our range, we've been doing particularly well because that's -- those high-end machine on our segment seems to respond pretty well to the change in the market requirements, providing better flexibility compared to the other products that are available on the market.

In our main European countries, we've seen a decline of minus 3.3% overall for major operation, but we've seen a decline in the Mail Related Solution, naturally. And the level of decline is slightly improving as well, but still we see a major difference between our Mail Related Solutions activities in many European countries versus the U.S., where the level of Mail Related decline is a little stronger in Europe overall. On that, in particular, in the European countries, we've been performing a little bit better on the decline in the improvement in France and U.K. and then the region around those 2 versus in Germany, where the level of decline has been stronger in the first semester.

And when we say Germany, to be specific, I mean Germany, Italy and Swiss, which is the region, for us, around Germany. Our recurring revenue stood at more than 70%. So same thing, another major solution with a strong recurring revenue base, which obviously is part of the strength of what Quadient represent today in our business model.

A few words now on Parcel Locker Solutions, last but not least. The main event is the integration of Parcel Pending, a company we have acquired at the beginning of the year in North America, based in California.

The integration is progressing as planned and we recorded a growth for Parcel Pending within the Parcel Locker Solution business above 30% for H1. And as we have shared with you that we were above 25% in Q1, so we've seen an acceleration of the growth in Q2 as well for Parcel Pending. So after first semester, due to the first semester after an acquisition, we are pretty happy with the way the integration is working for us.

Obviously, the growth of Parcel Pending, the additional growth that it brings organically, benefited and contributed strongly to the overall growth achieved for this business line across the board. Just as a reminder for the one that had the question, our Japanese Parcel Locker Solution growth is not included here in the major operation. We see the impact of our Parcel Locker Solution in Japan, and the rest of the world which is included in Additional Operations.

And the recurring revenue, this nascent and new solution for us for the past few years, stood at 30%, a little bit lower than the other business solution.

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Jean-François Labadie, Quadient SAS - Group Chief Financial & Legal Officer [4]

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Okay. So as a summary for major operation, for major operation, the revenue stood at EUR 460 million, representing roughly 83% of our total sales. Today our good news is that we post an organic change of 1.1% in H1 2019 compared to H1 2018. And the recurring revenue, Geoffrey there just mentioned it, remains very strong at 72% of the total turnover. It demonstrate, again, that within our new solutions, we favor heavily the development of the recurring portion. We have a contrasted performance between North America and the main European countries. I will mention it again, North America grew organically by 5.3%, driven by, again, a positive organic growth in MRS and a double-digit growth from each of the other solutions.

North America represents now 54% of our major operation revenue.

In our main European countries, the organic decline was 3.3%. The [decline was] supported by our dynamic Business Process Automation Solution and a mid-single-digit decline in the other European regions.

Let's move to Additional Operations. Additional Operation sales was EUR 97 million, posting 8.2% organic growth compared to the first half of 2018. It represents 17% of total group sales.

As you know, Additional Operations is made of: One, the revenue produced from our 4 main solutions; and two, the revenue produced by other solutions like graphics, the CVP-500, Temando, ProShip and the shipping software.

On the 4 main solutions, we experienced a good level of growth. In Mail Related Solutions, thanks to one of these in our export countries, the Customer Experience Management revenue was strong in Asia Pacific and our Parcel Locker Solution revenue continued to grow, thanks to the rollout of our installed base in Japan. Other solutions within Additional Operations revenue experienced a limited decline in H1 2019. So overall, very good performance in organic growth for H1 2019.

So let's move now to the Quadient financial review. And let's start with 2019 H1 profitability. As we told you, we are very pleased with our EBIT performance for the first half of 2019. Overall, we posted solid current EBIT at EUR 93 million. And I will start with Additional Operations which are breakeven this semester compared to a EUR 5 million loss in H1 2018. This result comes from the good momentum of our 4 major solutions revenue combined with improvement plans deployed within our other solutions. We have here, obviously, the result of the work done by the dedicated team in charge of delivering the grow, improve or exit plan in Additional Operations.

It means also that the high level of EBIT produced by our major operation, EUR 93 million, does not alter the group EBIT produced in H1 2019. Now obviously, we have both scope effect and currency effect in our EBIT for the first semester of 2019, so to better appreciate the dynamic of our EBIT performance from our major operation, in particular, we need to look at the EBIT evolution from an organic standpoint, which means excluding currency impact and excluding scope effect, and that's the next slide.

At group level, our EBIT grew by 2.3% or EUR 2 million. We had a negative scope effect of EUR 2 million coming from the divestment of our formal Data Quality activities and the acquisition of Parcel Pending. And we have a positive impact in currency in our EBIT of EUR 3 million. Therefore, current EBIT organic is plus EUR 1 million in H1 2019 versus H1 2018.

Focusing on the good performance of major operation, in H1, we continued to roll out our strategic plan, and we have initiated investment to support the strategy. EUR 5 million of additional investments have been allocated to go-to-market, marketing, R&D and innovation during the first half of 2019. The EUR 5 million have been fully dedicated to our major operation. Inorganic, the EBIT of major operation decreased by EUR 5 million in H1 2019, which means that excluding the additional investment, we managed to stabilize our EBIT, thanks to both operational efficiency and a good control of our [case] cost base.

In Additional Operations, as already commented, organic EBIT improved by EUR 6 million. Going further down the P&L, we recorded EUR 11 million as acquisition-related expense compared to EUR 6 million in H1 2018. The increase is coming from EUR 5 million expenses related to our acquisition and divestment activities. We recorded EUR 3 million as optimization expense, same amount compared to last year. Our cost of debt increased by EUR 2 million, and this is mainly coming from the good Schuldschein refinancing operation that we complete in H1 and a bit of IFRS 16 impact. No major concern there.

Our cost of debt remains stable at 3.2%, and we have a negative currency impact of EUR 2 million that we should recover by the end of this year. Our level of tax increased by EUR 5 million coming from EUR 4 million of interest gain on the consolation of dividend tax that we had in France and that we booked in H1 last year. Excluding this impact, we are back now to a normalized tax rate of 23% for H1 2019. Therefore, our net attributable income stood at EUR 47 million in H1 2019 compared to EUR 60 million in H1 2018.

Cash flow generation. Before detailing our free cash flow generation for this semester, let me remind you that in H1 2018, we benefited from several exceptional item that increased significantly our free cash flow generation in H1 2018. Our interest and income tax paid benefited from EUR 30 million reimbursement of the French dividend tax, a one-off. Our level of CapEx benefited from EUR 5 million of subsidies from Japan, related to the rollout of our Packcity network, one-off.

So in H1 2019, when we look at the free cash flow for the [payment] of euro after CapEx, excluding IFRS impact. And let's go straight to the point, the low level of cash flow this semester comes mainly from the temporary deterioration of our working capital. We are not concerned about it because it is heavily related to our business models. As you probably know, at the end of each year, we invoiced upfront from a portion of our recurring revenue. This recurring revenue will produce revenue in H1 2018. So therefore, at the end of the year, you build up an amount of deferred income in your balance sheet that you use in H1 2019 to deliver the recurring revenue.

(technical difficulty) we get upfront the payment for the service that we delivered the year after. So we have a seasonal decrease of deterioration of our working capital in H1 that we fully recover in H2 of the same year. In addition, in H1 2019, we had EUR 15 million of increase, mainly related to a temporary inventory situation. The increase in inventory is fully allocated to finished goods product to support the future placement of our equipment. So no risk and a plan to recover from our inventory level by the end of the year.

Looking in more detail about free cash flow generation, our EBITDA level remains very (technical difficulty)

We benefited from 4.2% decline of our lease portfolio, producing EUR 31 million of free cash flow linked to the structural decline of our Mail Related Solutions business, and this trend should continue in the future.

Our interest and income tax paid amount to EUR 36 million at its normalized rate. CapEx is EUR 49 million, in line with our plan. The main CapEx allocation are EUR 25 million dedicated to our equipment for rent, like franking machine in France, part of the U.S. and our parcel locker rollout in Japan. And we have EUR 17 million allocated to R&D development.

Acquisition net of divestment are related to payment of tax paid on Satori capital gain. So as a conclusion, the recovery of our

(technical difficulty)

working capital in H2. We support a strong generation of free cash flow by the end of the year. On a full year basis, we will deliver free cash flow of more than 50% of our EBIT.

Let's move to the balance sheet structure. We have a very healthy financial position. So we have restated the IFRS impact which artificially increased the net debt of -- for EUR 81 million. So we stated from that impact. We have a net debt of EUR 628 million and we have a lease portfolio of EUR 685 million. So our lease portfolio covers fully the net debt that we carry in the balance sheet. In addition, we have EUR 235 million of future cash flow that will be produced from our rental activities.

As Geoffrey already told you, our leverage ratio remains stable at 2.3 net debt to EBITDA, excluding IFRS impact. And excluding the leasing activities and the IFRS impact, our net debt-to-EBITDA ratio stands at 0.6, well above our equivalent [3]. And I will finish my presentation on H1 2019 by our debt mature. We have maturities well spread out and diversified debt mature allowing us to tap multiple market at good refinancing condition. Several operation has been completed over this semester thanks to the good work of [Kristof]. In May, we issued a shoe-shine refinancing for EUR 210 million at a very good condition and widespread maturities.

It covers fully the USPP maturity of 2019, and our bond maturing in December 2019 for EUR 150 million. Basically, we have no significant refinancing maturity before 2021. And in addition, we are prolonging our EUR 400 million revolving credit line for a maturity to 2024. Our flexibility remain very high as this revolving line is currently fully undrawn. Thank you. And I will hand back to Geoffrey, who will detail our financial target.

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Geoffrey Godet, Quadient SAS - CEO & Director [5]

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So thank you, Jean-Francois. Let me try to wrap it up as efficiently as I can. I'm not here to spend a time on, obviously, telling you how satisfied you are -- we are to see 5 quarter of growth organically in a row. What I'm sharing this slide for you is to appreciate that the comparison basis of Q1 2018, minus 2.1% versus this year, that the comparison basis forward for 2019 will be more difficult. When you look, Q4 performance last year is going to be the strongest comparison basis of the year, right. Overall, it was also true for the semester. Knowing that the last quarters sometimes could represent up to 28%, just by itself of our yearly revenue, so both in terms of volume and also comparison basis, it makes it a very challenging fourth quarter upcoming for us, and overall, a more difficult semester.

So we have to take that into account as we look forward to the rest of the year. It's important to all have that in mind. Not all quarters are equal. Now that being said, taking into account the strong performance that we had for the first semester, and taking into account the difficult comparison basis and the higher bar that is setting up for itself -- for the rest of the year, we are upgrading our top line guidance from almost flat to a slight growth for 2019, naturally. On the EBIT side, we had a solid performance on the EBIT on H1, as Jean-Francois and I explained to you. And I feel, obviously, encouraged by the signs that the key initiatives that we mentioned to you at the beginning of the year, that envelope of $10 million to $15 million to accelerate investments in R&D and innovation over to market are starting to pay off.

We spent EUR 5 million around that in the H1 of that envelope and I feel encouraged based on the decent performance that we had in H1, to accelerate and continue those initiatives in H2, right. So we will likely spend around the higher range of that envelope of $15 million this year, and therefore, an increase in H2 for the remaining part of that envelope, probably representing around EUR 10 million in H2, right. So taking that into account, we are refining our guidance to a range from EUR 180 million to EUR 185 million for the full year 2019, still below our EBIT performance of last year, as indicated and shared at the beginning of the year, last year. So we're confirming our guidance from that perspective. From a free cash flow conversion perspective, we obviously confirm our guidance. As Jean-Francois took the time to explain to you both our model, the seasonality of our model and the one-off that happened in H1, we are confirming our guidance that we will achieve a free cash flow conversion above 50%, and such, not including the IFRS 16 impact, which would have been positive otherwise. So even without the benefit, we will do above 50% of free cash flow conversion for the rest of the year which means a strong cash flow generation in H2.

And we obviously confirm our midterm financial guidance for the rest of our time. Thank you for taking the time this morning. We took a little longer, but we had some big updates to share with you, and I'm happy now to address all the questions and comments that we may have. We have also question that could come on the webcast, which I'll let Gaële share those questions. If they come from all of you. And we have 2 person that will help you -- give you a microphone for your questions.

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Questions and Answers

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Unidentified Analyst, [1]

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My first question will be on Temando. What is the cost related to the exit strategy? How long will it take for you to get out of the business? And how do you manage to tackle with the clients?

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Geoffrey Godet, Quadient SAS - CEO & Director [2]

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Sorry, I didn't hear the last part of your question.

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Unidentified Analyst, [3]

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How do you manage it with the clients? I mean what's going on?

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Geoffrey Godet, Quadient SAS - CEO & Director [4]

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So I'll let Jean-Francois respond to the financial question -- part of the question. It will be a phased out exit. What is important to us is to take care of our customers, right. We have, obviously, a lot of small customers in Australia that we care, and we have our relationship with a few key customers as well that we have developed over for the years. We've been working with those customers, we've been able to, obviously, work with them on this, and we will support them as long as is necessary for them to either find a replacement solution on next year there, finding a satisfying solution for them. As a result, it will take probably several months to be able to phase out those operations.

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Unidentified Analyst, [5]

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Can you be more specific? Several months means what, 2 years?

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Geoffrey Godet, Quadient SAS - CEO & Director [6]

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No, no, no, probably from 6 to 12 months. Again, there's case-by-case situation with each customer that we need to address.

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Jean-François Labadie, Quadient SAS - Group Chief Financial & Legal Officer [7]

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And from the cost standpoint for this phased shutdown, basically, what we have left in the balance sheet is roughly EUR 4 million left. And you have to add all the cost related to the shutdown itself which is some layoffs and some disposals of facilities, which is around EUR 1 million to EUR 2 million expected.

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Unidentified Analyst, [8]

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And that will be on H2, mainly?

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Jean-François Labadie, Quadient SAS - Group Chief Financial & Legal Officer [9]

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That will be on H2 mainly, yes.

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Geoffrey Godet, Quadient SAS - CEO & Director [10]

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Just as a comparison basis, Temando and (inaudible) Jean-François was around EUR 5 million revenue in 2018 on a yearly basis, with the last for us around EUR 8 million on the yearly basis. We have obviously reduced the loss already this year in H1, but that gives you a little bit where we're coming from.

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Unidentified Analyst, [11]

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And my second question is on Esker. You built a relationship which is quite -- seems to be quite strong and going well. It was like a JV funding in, I think in 2015, so how is it going on business-wise, and what is a part of the business related to Esker solutions?

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Geoffrey Godet, Quadient SAS - CEO & Director [12]

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Sure. Very good question. Esker partnership is part of our overall business process automation solution business line. In the business process automation, we have a range of portfolio of solution that we offer to our customers. We have a different one and one of them on the virtual part of Neotouch is leveraging the technology in our partnership with Esker. So it's not all business process automation solution, where in particular, our customer communication platform called OMS, whether it's cloud, et cetera. So we have a lot of different items. Our goal for business process automation is to build, obviously, the most coherent and integrated platform leveraging different components, or modules or product. Some that we could build ourselves, some we could leverage from partners, right. It's always a decision whether it is best to make or to partner, and in some cases, we partner where it makes sense.

The partnership with Esker is very satisfying from that perspective. We have access to a good technology, we have been able to nurture that innovation over the past few years. What we've done is leveraging the technology and specifically apply them to a particular type of customers and we have mostly leveraged the technology of Esker in France. So it's not representing of all the initiatives that we have in the different countries. We have tried to expand this go-to-market to other countries, but it's very recent, so it's not -- doesn't have yet meaningful impact to our numbers in -- for example, in North America, or the U.K. or Germany [Eurozone]. Over the next 4 years, obviously, we're going to look at how we could phase the dividend overall of our platform of business process automations. The JV, we have a JV, which is really a JV to be able to access the technology, so in terms of the business model with them. And we access the technology. In exchange of it, we have royalty fees that we pay to Esker.

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Unidentified Analyst, [13]

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And the size of the business itself?

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Geoffrey Godet, Quadient SAS - CEO & Director [14]

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Sorry?

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Unidentified Analyst, [15]

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The size of the business itself?

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Geoffrey Godet, Quadient SAS - CEO & Director [16]

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We are not disclosing the specific number related to the JV, as both Esker and [I are] publicly rated company, so you need to see with Esker, probably, if they share those information but I don't believe they will. I can see a question over there.

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Unidentified Analyst, [17]

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[Michael] (inaudible) Bank of China. With regard to the growth in North America of the Mail Related business, is this rather a churn in the market development that you observed? Or an outperformance of gradient with regard to its competitors?

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Geoffrey Godet, Quadient SAS - CEO & Director [18]

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Good question. The mail market, not our solution with another franking machine business, the mail volume has been declining worldwide. The level of decline by countries is different from one country to another. As part of the time that I spent with the team and with Jean-Francois to look in the last 10 years, we've seen different level of decline over the years, right. European countries, and some European countries in particular, has been more extreme in that decline. Even though they go through phases, so it's a not steady decline on either, we have peak some times and then slow down either generated by government regulation, different context like cyclical, economical, et cetera.

The U.S. had, had a volume decline as well, but a much lower volume decline than the other countries, mostly, and I've been living in the U.S. for 15 years and became American, mostly because we consume letters and mail very differently than in Europe.

So just the marketing -- direct marketing activities, how the banks are structured, the lack of strong regulation and standardization, for example, in the bank industry, where you have way more, 5,000 community banks, for example, in the U.S. compared to Europe, where you have a few big banks that could basically organize some of the way that they send information and structure data is different. So there's a lot of different reasons why the mail volume decline is a little bit different in the U.S., so that's the first thing. Good to make the difference between North America and Europe.

After that, we have also a competition situation that is different for us in North America versus France, if we take a comparison. Where in France, we are the market leader. Whereas in North America, we're the challenger. Roughly, we estimate [a PB] from a revenue perspective, I think is around 70% of market share, where we have around 20%. So we're in a challenging -- a challenger position which also gives us naturally more opportunity if we do things right, and we care about it, and we want to invest to potentially grab more market share compared to that. But most importantly is what is related to our strategy and that I have announced, and as much I was a digital guy for many years, I strongly believe today that in this market, in that particular situation, knowing the competition that we have, and especially looking at the product range that we have, and the synergies that extends between our hardware solution on the mid segment, in particular, that will respond better to the evolving needs of the customers, because if you look even at large banks, for example, or large provider of mail, volume-wise, they will potentially have less. But it's the mix of how they send those letters that is going to change, and they want more personalization, more customizations which means in the hardware and you need to have more flexibility, and we have new machine and equipment that we have, that is actually, I think, better positioned to respond to those needs than the competition, one.

Two, I think we have a very strong organization overall in terms of nurturing the installed customer base. And it's, in particular, true in North America where the team is doing an excellent job on that front.

And then finally is also looking at, in a smart way, pragmatic way, where we could invest on go-to-market and find particular pockets or areas where we can gain either deals or market share specifically. So we've been very smart at knowing our data, knowing our market and invest where it makes sense, not just in North America. We are seeing improvement also in a few other areas today. So it's a -- I would share the answer is a complex one, it's a matter of both. And it's still very early so that's why I really want to be careful here. While we're obviously happy to recognize that strong performance, it is a recurring business model, usually over 5 years, with rental over 5 years, with leasing over 5 years. So the gain and the improvement you make on 1 quarter or semester doesn't reflect a 5-year improvement of the model, right.

So we're obviously seeing good signs that we're making some progress. But I want to remain really cautious, in particular, in the progress we're making here, and I think we need to see a few more semesters to confirm that we're going the right direction here. And especially as [we are to] the level, we see an improvement, whatever level we would, I think could be lower. We've seen a lot of variations in previous years from quarter-to-quarter or semester to semester, so it's why we need to see behind us a few more past performance to confirm that the improvement is there. And two, whatever level we could think we could sustain differently moving forward.

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Jean-Francois Granjon, ODDO BHF Corporate & Markets, Research Division - Analyst [19]

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Jean-Francois Granjon from ODDO BHF, 2 questions, please. First one, could you give us some more color regarding the contribution of each of the 4 divisions to the earnings to spend EUR 93 million gross EBIT? And the second questions for the operation addition -- other activity, sorry, so you have reached the breakeven level for the H1, do you expect the such the same level for all the full year [or probably a small] earnings, or possible earnings next year?

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Geoffrey Godet, Quadient SAS - CEO & Director [20]

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Jean-Francois, good questions. In major operation, we do provide the breakdown of performance from a revenue perspective of those solution with a major operation. We do not break down, today, the contribution of each solution with a major operation. For a particular reason is that we are building an integrated operation, right, where we leverage common infrastructure in the go-to-market, in marketing organization and our North American organization, right, with a single leadership for sales marketing, for sales, et cetera, for support. That is taking 2 markets and supporting the customers on each of the 4 solutions.

So looking at the contribution today at the -- what will be the EBIT contributory solution would not be relevant. We would have so many [keys of allocation] that it would not make sense. Now it doesn't mean that in the future we cannot find ways to provide better assessment and sharing the performance of each, but we are not breaking down that today.

On additional operations, same thing, we do not provide specific guidance on each of the 2 operations. So whether for major operation or whether for additional operation, we provide a review of the guidance communication at the yearly level at the group level, not by operation. What I could say on additional operation is to repeat what Jean-Francois has been sharing is that in the improvement that we've seen in the first semester, there were 2 parts. One is related to improvement on the cost base and the improvement that we've been able to make. The other one is also related to top line, right. Because we have been having strong growth in H1, especially driven by one-off deals and license deals.

So these are not recurring item that may or may not happen in H2. Nicolas?

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Nicolas Tabor, MainFirst Bank AG, Research Division - Analyst [21]

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Nicolas Tabor from MainFirst. I had a few questions still on organic growth by segment. So for the business process automation, in Q2, you had some kind of slowdown, could you explain that? I think that there was some [positive] exceptional in Q1, but does that mean Q2 should be more reflective of the level of growth pace we should expect for H2? And then for parcel lockers as well, we saw an acceleration in Q2. So I think it was also some reasons from Q1 from that. So should we expect H2 to be more like Q2 or even some more acceleration if the revenue is more back-end loaded?

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Geoffrey Godet, Quadient SAS - CEO & Director [22]

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Yes, very good question. So on business process automation, we had a 37.1% growth in Q1 and 8.6% growth in Q2. What we have said in Q1 is that we have among our solution in business process automation, not all of them, but some of them have a seasonal activities with our customers. So if you take the example, in particular, of the portion of the business related to our Neopost solution in related to the partnership that we have in leveraging the Esker technology, the property managers, the (inaudible) in France, for example, have a higher activity at the beginning of the year, which is a yearly activity. They produce more information related to the official or document they need to send. And this activities is only happening and it change from year-to-year. But from January, sometime it's a little bit later to mid-March, and it could just spill over into Q2. So there's a little bit of that but it's overall in the first semester and usually weighted on the first quarter, right.

So that was the reason of the stronger level, which we have explained in Q1, and therefore, in Q2, we usually look at a lower level, again, just because we're on an ongoing basis. But in addition in Q2 here, we've said also a comparison basis, for example, in the U.K., that was pretty high last year in related to more license deals. So overall, we had a lower Q2, I think the H1 performance is more representative of the balance. It's just that in Q1 and Q2, there was 2 different dynamic going on. It all netted at around 20.5%, but with the weight of decision I expect in Q1.

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Unidentified Analyst, [23]

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Next one was in parcel locker.

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Jean-François Labadie, Quadient SAS - Group Chief Financial & Legal Officer [24]

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So in parcel lockers, we have seen an acceleration in Q2 of the organic growth, and this is mainly driven by the performance in the U.S., where basically, we increase the growth coming from Parcel Pending, and we had a very good business on the U.S. universities that we get the benefit in Q2, in particular. So this is -- these are the main reason for the increase in -- from Q1 to Q2 in the parcel locker business.

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Unidentified Analyst, [25]

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So would you say Q2, your (inaudible) parcel lockers are more (inaudible) what you were expecting for that new companies?

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Geoffrey Godet, Quadient SAS - CEO & Director [26]

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So in Q2, unless I'm mistaken, there was a catch-up.

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Jean-François Labadie, Quadient SAS - Group Chief Financial & Legal Officer [27]

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Yes.

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Geoffrey Godet, Quadient SAS - CEO & Director [28]

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In Q2 from the U.S. activity not related to Parcel Pending. As we mentioned, I think, in Q1, if I remember well, the comments that we provided, we had some slowdown in the universities, where we had the orders but they were not installed. So we benefited from the catch-up of those installation happening in Q2 because we recognize revenue once the lockers are implemented, right. So there's a little bit of boost in Q2, benefiting mostly in -- we get the benefit from in the U.S.

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Unidentified Company Representative, [29]

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(inaudible)

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Geoffrey Godet, Quadient SAS - CEO & Director [30]

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Yes, we could take a webcast question, I guess in the meantime.

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Gaële Le Men, Quadient SAS - Corporate & Financial Communication Director [31]

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So we have some questions from the webcast. Yes, so can you give us the costs related to the change of Quadient, from Quadient to Neopost? Or Neopost to Quadient?

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Geoffrey Godet, Quadient SAS - CEO & Director [32]

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Around EUR 3 million.

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Gaële Le Men, Quadient SAS - Corporate & Financial Communication Director [33]

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Okay.

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Geoffrey Godet, Quadient SAS - CEO & Director [34]

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That is a very specific answer.

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Gaële Le Men, Quadient SAS - Corporate & Financial Communication Director [35]

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Can you also give us the profitability of Parcel Pending in H1?

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Geoffrey Godet, Quadient SAS - CEO & Director [36]

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No. So it's the same answer I gave Jean-Francois, we're not breaking down the profitability of each of our businesses in H1 or for the year. We have the profitability of the company at major provision level for segment at additional operation deserving segment level.

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Gaële Le Men, Quadient SAS - Corporate & Financial Communication Director [37]

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Thank you, Geoffrey, and I have another one. What are your expectation -- or this is maybe for Jean-Francois, what are your expectation for M&A-related costs in H2? Jean-Francois?

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Jean-François Labadie, Quadient SAS - Group Chief Financial & Legal Officer [38]

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Basically, it's difficult to say, depending on the level of M&A activity that we will experience in the second semesters, but depending on the events, we could have the same cost as last year or a slight increase.

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Gaële Le Men, Quadient SAS - Corporate & Financial Communication Director [39]

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Thank you. And Geoffrey, could you give us an update on the M&A activity, please?

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Geoffrey Godet, Quadient SAS - CEO & Director [40]

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Before I actually respond to the question, just to respond to the question on the profitability of Parcel Lockers, for Parcel Pending, it's -- to go to more detail on the reason and the -- what is going on in the operation side, even with the acquisition of Parcel Pending, we're not letting Parcel Pending as a standalone company, we're integrating Parcel Pending and our result, we're mutualizing also the supply chain that we had within Quadient versus the supply chain of Parcel Pending. And we're also having the Parcel Locker solution team of Quadient in the U.S., working with the Parcel Lockers team of Parcel Pending. So we are integrating and mutualizing infrastructure and, therefore, even providing the profitability of Parcel Pending itself would not be representative anymore. And the further we integrate the rest of our level, it would be. I just wanted to take that opportunity. And I'm sorry, Gaële.

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Gaële Le Men, Quadient SAS - Corporate & Financial Communication Director [41]

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So yes, thank you for the additional information. So yes, if you could update on the level of M&A activity we are doing at the moment?

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Geoffrey Godet, Quadient SAS - CEO & Director [42]

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Sure. So again, our M&A team, which we have had a new leader that came on board from the U.S., Brandon Batt, he's been staffing his organization since the beginning of the year. Last year, it started but it continued this year. This team is not in charge just of acquisition, right. They look at the full life cycle of our corporate life cycle to acquire company, integrate companies and also taking care of the divestment in case it happens or potentially even different type of exits. So it's a team that has been fairly busy, obviously, since the beginning of the year, very active to support the business. And obviously, our full M&A strategy and the reshaping of the portfolio, they've done 1 acquisition since the beginning of the year, 2 divestments and been continuing to prepare the rest of the strategy moving forward.

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Gaële Le Men, Quadient SAS - Corporate & Financial Communication Director [43]

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Thank you. Still another question, this time related to Mail Related Solutions in or all markets of France, but as well in the U.S., the question is our competitor Francotyp Postalia is gaining market share, is it a concern for you in the midterm? Or are they just gaining from a very low market share today? And if -- where are -- what are they doing better than we do and why?

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Geoffrey Godet, Quadient SAS - CEO & Director [44]

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It is a good question. I may not be qualified to answer this question as risk to Francotyp Postalia but I am -- those information are not the one that we are looking at. First thing, it's very difficult to compare market share in the Mail Related Solution in the business because you obviously you needed to define what market share are we talking about? Are we talking market share in terms of revenue, are we talking market share in terms of numbers of customers and the value of each customers from the low end, the mid-segment or the high-end segment has nothing to do with each other. And each countries, obviously, have difference of performance. What I could relate is to high -- I mean the low single-digit growth that we had in North America, knowing that we have much bigger scale and looking that we have been able to stabilize the revenue as well in North America, I'm -- that's what we see. I'm not sure I can put in context information about Francotyp in North America, in particular.

In France, we obviously have the largest installed base because we're the leader of the market with more than 50% market share. And same thing as you have a bigger proportion potentially of the low end customers and the mid, maybe the numbers of machine the revenue could evolve, but obviously the market leader in France, and having, in France, a much lower decline than we used to have. So we've been fairly satisfied with the performance on our Mail Related Solutions in France, even though the decline is, obviously, the decline compared to a small organic growth in the U.S. I hope I will have answered the question.

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Gaële Le Men, Quadient SAS - Corporate & Financial Communication Director [45]

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Thank you, Geoffrey. I have another question. So it relates to the share of recurring revenue in Parcel Lockers. So today, recurring revenue in Parcel Lockers stands at 32% of total sales. What will be the midterm target for recurring revenue in this segment?

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Geoffrey Godet, Quadient SAS - CEO & Director [46]

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So it's a very interesting question, it's a difficult one to answer. And it's an opportunity for me to expand the different business model that exists in the Parcel Locker business in general. In the U.S., the company that we have purchased is mostly -- has been mostly focusing on the residential market in the U.S. which is the only really residential market that have seen a pickup acceleration in maturity, and we've bought the leader in that particular geography and segment.

And the model there has been mostly property managers of buildings, of multifamily building to acquire upfront the hardware, and with a certain activities in terms of support, supporting, obviously, the lockers installed, supporting the new resident that comes in so there's sometime registration fees for new resident that comes if they go and move, storage or fees, et cetera, so we have a small level of recurring activities, yes, around the 30% level, a little less per locker. So as you increase the installed base, you will have more and more recurring revenue progressively, and we're at the beginning of that ramp up.

What we've seen, which is not included, obviously, in the major operation summary on the Parcel Locker business is also other model. We've been installing lockers, for example, in Japan, and we have a very successful install base in -- for Japan with the partnership we have with Yamato that is working really well and continue to work well. But this is the strategy there and the business model is an open network, right. So the open network is that we do install and finance ourself the installation of the lockers everywhere in the country, making sure we have a dense network, and make sure we work on the usage of that network.

And then we find ways to monetize that open network with our customers. In that particular case, we will find different ways to monetize the network in Japan either through rented capacity, we find carriers like Yamato, Sagawa, and others that says, we want to have a dedicated capacity in those parcel locker and guaranteed over 7 years or 5 years or a period of time, which means their recurring revenue guaranteed at 100% for a certain part of the locker business.

And then we're also seeing in the parcel locker business in Japan, that we have the opportunity to not necessarily rent capacity, but have a pay per use. So for people that don't make the investment up front to secure particular capacity from our network, we can marginally have higher price on the pay per use, which is every time a parcel is being used in the locker, there's a fee in the transaction, which will not be fully recurring, but it would be based on volume, right. So we have those 3 options in mind.

And as we look at how we will evolve our parcel lockers solution business, we'll obviously monitor how and what is the best way for us to go after that. So hence the difference where we have a 100% recurring model almost in Japan, and a 25%, 30% recurring model in the U.S. today. Now within the U.S., we've seen -- we've experienced the same thing which is a more one-off model with maintenance and support in the universities.

What we're seeing within residential is that we're also providing to the supporting managers' subscription, which would be kind of [an equivalent] of a SaaS or recurring way instead of the property manager to finance upfront the purchase of the locker and its installation, we would provide a subscription base. So it's a small portion of the revenue today. So it's way too early to be able to know how it could evolve, but [in the year], for example, in H1, we did -- had more subscription than last year and more than we had a (inaudible), it's marginal, so not worth mentioning, but it is a trend. So we are testing the different model. Financially, we at Quadient love recurring model. This is a strength of Quadient today. So being able to see how we could potentially increase in the future the recurring model of the parcel lockers business in the U.S. would be -- look favorably, but there's no commitment we can take today. We're still in the testing phase on how the market reacts to that.

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Gaële Le Men, Quadient SAS - Corporate & Financial Communication Director [47]

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Thank you, Geoffrey. I don't have any more question on the webcast.

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Geoffrey Godet, Quadient SAS - CEO & Director [48]

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Okay. We have another question here.

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Unidentified Analyst, [49]

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Yes, just one more question. Could you make an update on the other additional operations such as graphics or CVP-500, what you expect, do you want to dispose [on it] or what's the situation today?

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Geoffrey Godet, Quadient SAS - CEO & Director [50]

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So for those other solutions that are not related to our major solution in additional operation, yes, we have businesses like ProShip, which is a shipping software solution. We have other shipping software solution that we provide in U.K., in France, we have the graphic business, we do have CVPs. They've been declining in the first semester. But again, we look at it, making sure we work on each one of them. The strategy is the same for all additional operation, which is either to exit in case we can't help them contribute to our strategic plan. But if we can make them contribute to the strategic plan, we do every -- today we fight on every front.

So because have dedicated team that are not focus on the rest, they have the time to look, for example, at ProShip and make sure in ProShip, we are gaining new customers, we improve the business, we have spent R&D money. And as long as we see the growth on that, we're happy (inaudible) additional operation, not necessarily one by one. We want to make sure they have some leverage to overall improve the performance, either by growing, improving or exiting those businesses. So yes, there's always the option of divestment and exit at some point, but it's an alternative. It will always be there anyway for any businesses. What I want the team to focus on is how to improve those business as quickly as we can. So improvement in growth is the main focus. The alternative is obviously there, strongly if we can find in a reasonable time frame within a strategic plan, a solution.

Last chance for last questions, a few seconds before we wrap up. We've spent quite some time this morning, so thank you very much for coming. I welcome you again for Quadient and I thank you for your time. I hope we answered well your questions. It was interesting. Thank you. Look forward to seeing you next time.