Worldline (Euronext: WLN) has demonstrated resilience in the face of challenges during 2023, delivering on its revised guidance with a 6% organic growth rate and significant strategic developments.
CEO Gilles Grapinet outlined the company's performance and future plans in a recent earnings call, emphasizing the launch of the Power24 cost-reduction plan, a joint venture with Credit Agricole (OTC:CRARY), and the acquisition of new payment licenses in the UK and Singapore.
The company also reported a substantial increase in its merchant base, adding 55,000 new merchants, and highlighted key partnerships, including with Google (NASDAQ:GOOGL). Worldline's financial results showed revenues of €4.6 billion, with free cash flow standing at €355 million. Despite a noncash impairment of €1.1 billion in its Merchant Services business line, the company remains focused on improving profitability and cash flow generation.
Key Takeaways
- Worldline achieved 6% organic growth in 2023, in line with revised guidance.
- The company launched Power24, a cost-reduction plan, and expects €200 million in savings by 2025.
- A joint venture with Credit Agricole is set to create a significant player in the French payment market.
- Worldline expanded its merchant base by 55,000, reaching a total of 1.4 million merchants.
- Strategic partnerships with companies like Google are set to enhance Worldline's digital transformation.
- The company reported revenues of €4.6 billion and free cash flow of €355 million for 2023.
- Adjusted EBITDA reached €1.1 billion, with a margin of 24.1%.
- An impairment of €1.1 billion was recognized due to the Merchant Services business line's decreased value.
Company Outlook
- Worldline anticipates mid- to high single-digit organic growth and improved adjusted EBITDA from 2024 onwards.
- Executives expect a fast progression in free cash flow conversion to around 50% or higher.
- The Capital Market Day in the second half of 2024 will provide further details on the company's outlook.
Bearish Highlights
- The company experienced slower payment volume growth, merchant terminations, and inflation impacts in the second half of 2023.
- A noncash impairment charge of €1.1 billion was recorded for the Merchant Services business line.
Bullish Highlights
- Worldline's strategic agreements and partnerships are expected to drive growth and innovation.
- The company is focused on expanding its reach in core and new markets, including Italy and Greece.
Misses
- Adjusted EBITDA margin for the Merchant Services segment decreased by 200 basis points.
- The Financial Services segment also saw a drop in adjusted EBITDA margin by 50 basis points.
Q&A Highlights
- Executives addressed the deceleration in merchant wins and EBITDA decline, attributing it to merchant terminations and macro softness.
- The Power24 initiative was discussed as a key strategy to improve efficiency and maintain competitiveness.
- Clarification on the 2024 free cash flow guidance was provided, including the impact of the Credit Agricole joint venture setup costs.
Worldline's focus on innovation, strategic partnerships, and cost-saving measures positions the company for future growth and improved financial performance. Despite some setbacks, the company's proactive management decisions and ambitious Power24 plan indicate a strong commitment to enhancing value for stakeholders and maintaining a competitive edge in the dynamic payments industry.
Full transcript - None (WWLNF) Q4 2023:
Gilles Grapinet: Ladies and gentlemen, good morning. Let me start with today's agenda and what we will cover in this presentation. After my introduction on the key highlights of 2023, I will come back specifically on the business and operational decisions we took during H2 in close coordination with our Board of Directors to address as fast and as efficiently as possible the short-term challenges faced by Worldline. In particular, I will give you an update on the launch of Power24, our cost-reduction and transformation ambition. Marc-Henri Desportes, our Deputy CEO, will then give you an update on our business and commercial dynamics through the last year. While Gregory Lambertie, our Group CFO, will come back on our financial results. In my conclusion, I will share our guidance for 2024, a year of transition and accelerated transformation towards a business and financial profile structurally improved at Worldline as early as '25. Let's have a look now at a few highlights of the full year '23. Definitely, 2023 is a tale of 2 stories for Worldline with a very dynamic first half of the year, very much in line with our '22 performance, while we faced clearly unexpected challenges developing along the second semester. Overall, in '23, we have delivered results in line with the revised guidance issued in October '23 despite further macro deterioration during the fourth quarter. Looking at our top line, we have delivered in '23 an organic growth of 6% with much softer growth during H2. Our Merchant Services activities, in particular, still delivered 8.9% organic growth on a full year basis, but the second semester has been materially impacted by the macro and consumption evolutions and the merchant termination process in fast execution. Our adjusted EBITDA in '23, which is the exact same aggregate than our former OMDA reached €1.11 billion, stable versus '22. Finally, we generated a free cash flow of €355 million over the year, corresponding to an adjusted EBITDA conversion of 32%. But despite the headwinds we faced in H2, the group could nonetheless make decisive progresses on a number of strategic and development initiatives, which will reinforce our growth foundation for the years to come. I would like to start by the joint venture we are setting up with Credit Agricole, which is truly a strategic initiative for both our groups. We intend to create together a new major player in the merchant services and acquiring business in the French payment market leveraging the highly global technological performance and innovation capabilities of Worldline, combined with the commercial strength and exceptional knowledge of the French market of Credit Agricole and its powerful distribution network. Since the announcement in April '23, we have reached important milestones and are fully on track to close this partnership in the coming weeks and to have a full go-live of the joint venture early '25 as, expected. Our commercial push on merchants has also led to successes and additional circa 55,000 merchants onboarded last year in line with our multiyear ambition. We have also executed a number of large strategic partnerships, such as the one announced with Google recently, and pursued a solid dynamic in large merchant wins that Marc-Henri will detail later on. I'm also pleased to report that we have obtained 2 new payment licenses from local prominent regulators in the U.K. and in Singapore, enhancing our offering for both local and international merchants operating through these countries. Finally, as mentioned earlier, we've been moving fast on Power24, our transformation ambition, and I will come back to it in a minute. Now let's turn to the next page to take a closer look at the second half of '23 and all the actions engaged together with the Board and the management team. In brief , we need to adapt fast to this new environment that we faced in the second year and we decided to act decisively. First, we decided to accelerate our transformation with the implementation of Power24 in addition to key structural initiatives that were already in motion. Number two, we will, of course, continue to sharpen our risk management framework. We are in full execution mode and on track with regards to the announced merchant termination and corresponding impacts. In parallel, we reinforced our teams, our tools and processes to ensure long-term alignment with these enhanced regulatory requirements and our own risk policy. Finally, in this uncertain macro context, we will particularly focus in 2024 our management action on what we can best control, our costs, to structurally improve operating leverage and the cash flow conversion levels. Accordingly, we have adopted management incentive schemes with free cash flow objective as one of our top metrics. Now let me come back in details on Power24. After our strong focus on transformational M&A over the last decade to reach the targeted strategic scale, the group is now fully focused on extracting the full benefits of its enlarged scale. In this context, Worldline announced Power24 in October '23, enabling the acceleration of its existing post-integration transformation ambition built upon both ongoing and new initiatives. The overarching goal is not only to bring short-term cost benefits, but in parallel, to structurally increase the group's operational efficiency and reinforce its long-term competitiveness, making it faster, more automated, leaner while streamlining our global sourcing. For your information, more than 500 managers have been involved during H2 in the very detailed design of the plan. And as we start '24, the social processes are already initiated in all group entities and the granular implementation plan is already in action. Beyond having been elaborated at a fairly granular level, Power24 is also a fast and very secured transformation program. It leverages indeed both well-established and new group initiatives that we will bring to a higher scale quickly in '24. You will find on this slide some concrete illustrations of some of these productivity levels. For example, on the product and technology side, we have built a scalable platform that we will continue to leverage through further rationalization, improvement and extended functionalities such as the continuous migration of our accepted transaction into the cloud now reaching circa 40% while benefiting of the power of our new technology partnership with Google. The increase in our product convergence road map based on our target applicative landscape through the full decommissioning of the remaining legacy modules. Lastly, we will accelerate the development of our proprietary GenAI tool to improve, for example, merchants onboarding performance and assisted KYC or to increase the quality of the user experience or international efficiency. Be aware that more than 1,000 of our developers generate already more than 10% productivity gains as we speak based on GenAI deployment. Regarding global sourcing, which is another example. Let's focus on India. We have been successfully ramping up our global competency center in 2023 with head count multiplied by 2 over the last year, reaching now 1,300 people in our Indian global competency center and with the target to have a tech team over there of more than 3,000 people by the end of 2025 with a vast array of competencies such as program managers, architects or developers, of course. We are now in full execution and our social processes for Power24 has been initiated, as I said, in all the relevant group countries as the program will translate into circa 8% European onshore workforce reduction, in particular. We fully confirm our objective to deliver circa €200 million of run rate cash cost savings in '25. And thanks to a strong focus already during H2 on cash cost control and attrition management, we have already secured circa €80 million run rate impact for '24 as we start this year. To reach the targeted €200 million run rate cash cost savings, the remaining savings will be primarily delivered in H2 '24, thanks to the executive rollout that will take place post the social negotiation that will occur during H1 '24. And as a reminder, we also confirm today the circa €250 million cash cost implementation with the vast majority occurring in '24 and the smaller part in '25. Finally, in order to secure the execution of our transformation priorities, we have taken some important management decisions. To better reinforce operational performance and business control in Merchant Services as well as the fast implementation of all the Power24 initiative in this major division. Marc-Henri Desportes, Deputy CEO, takes the direct steer of the Merchant Services business unit. To ensure we properly reinforce our risk management framework in line with best-in-class standards, the group risk function will from now on directly reporting to me. To ensure the proper rollout and central steer of Power24, Lisa Coleman, our Group Head of Operational Performance, takes the full leadership of Power24 implementation and execution across the entire group. And last, to rejuvenate the commercial dynamics of the Financial Services business unit, Pascal Mauze, former Head of Group Sales Excellence, has taken the responsibility of the Financial Services sales team. Now, it's my pleasure to give the floor to Marc-Henri to dig into the business and commercial dynamics.
Marc-Henri Desportes: Thank you, Gilles, and good morning to all. I would like to start today with an update on the decision that we had announced to the market in Q3 regarding our merchant termination process following a German regulatory audit and the implementation of a reinforced risk control framework for the entire online portfolio. After evaluating at that time a maximum risk of €130 million run rate revenues, we would like to update you on the processes and figures. First, our final assessment of €130 million is fully confirmed as a maximum. Second, the termination of the German portion representing €40 million run rate revenues has been completed entirely in 2023. Third, the termination process regarding the merchants outside of Germany is fully on track with more than half already executed, and we will confirm objective to end the remaining part by the end of H1 this year. We continue to raise the bar and to sharpen our risk management framework, ensuring perfect alignment with enhanced regulatory requirements and our own risk policies. Now regarding our MSV indicator, we observed that it was overall up circa 7% in 2023 versus 2022, reaching €480 billion. The 3 most important points to flag here are the following: first, after a solid start of 2023 benefiting from some catch-ups in specific verticals such as travel, we have seen a normalization in MSV growth in Q2 and Q3 as then said. Second, when we published our third quarter at the end of October, we reduced our full year expectations given the volume slowdown leading to a revised Q4 forecast. You can see the narrowing of the curve gap between 2022 and 2023 materializing in November and even more end of December and it's reflected in our Q4 performance. Third, for the beginning of 2024, here we can see that the trend observed end of 2023 continues with MSV growth more on the low single-digit side. This pattern is fully factored in our guidance that Gilles will later detail in this presentation. Beyond macroeconomic context, Worldline continues to be very dynamic in its commercial activity with several wins, both on SMB and large merchants, both in store and online that I will dig in, in the next 2 slides. Now deep diving on MS Dynamics, we've mentioned KPIs. In 2023, we have increased our merchant -- our base of merchants with a net additional 55,000 new merchants, pushing our merchant base at the end of 2023 at 1.4 million merchants. Since 2021, we have grown our merchant base by 135,000 merchants on a net monthly average growth of 6,000 merchants. Given the context, we are satisfied by this growth versus 2022 because, first, it is in line with our trajectory ambition and also because it shows that we continue to develop actively our franchise in our core markets, and in particular, in new markets such as Italy and Greece. During 2023, we continued to win new customers, a lot of big names, as you can see on this slide, and we continue to extend the use of our solutions to existing customers to offer new products and to conclude key partnerships. I will start with the omnichannel. In this domain, the rollout of our a la carte offerings since several quarters continued to be a strong differentiator, allowing us recently to extend our business with Vertbaudet, a renowned French clothes brand for kids. With them, we have developed a local and global payment gateway with multiple acquiring solutions improving massively their conversion rates. On the hospitality vertical, our omnichannel experience has been key for Boscolo using Worldline payment services from prebooking to check-out on the lever -- one of the levers for this win is related to the partnerships we have with Sabre (NASDAQ:SABR) and Oracle (NYSE:ORCL), both being fully connected to our solutions. On the online cross-border, our global expansion approach to offer direct access to local payment means for domestic corridors continue to be a key growth accelerator for our clients. And on that specific offering, we signed recently Opn, particularly for the access to the Thai customer, Thailand, and obviously, Google, but I will come back on it later. Last, on the travel and airline vertical being already strong in the paying solutions, we continued to enrich our value proposition adding a significant payout layer with the signing of a new virtual card deal with Visa (NYSE:V) in B2B for online travel agencies. It will support them to pay their suppliers through easier integration, more standard and with faster funding. With all these examples, you can see our commercial dynamic is strongly driven by our product portfolio with dedicated verticalization approach. It remains a key success and differentiating factor that we will develop further through continuous investment in innovation and R&D. Now in addition to new customer logos, I want to deep dive on the partnership side, which are a key pillar for future growth. On this subject, I'd like to come back on the strategic agreement that we signed with Google in collaboration with Google Cloud, Worldline's offering in a new era of fintech excellence. Worldline selects Google Cloud technology to boost its digital transformation while streamlining its operation. As part of the expanded partnership, Worldline will also serve as one of Google's key payment providers in Europe and across multiple geographies for Google's own B2C solutions. We will provide to Google customers more advanced payment options, support for more payment networks, improved cross-border conversion, et cetera. We will also collaborate together to develop new innovative solution in digital payments and customer experience improvements. Regarding the other partnerships. On the distribution side, I can mention Datalogic, a global technology partner -- leader in automatic data capture and industrial automation solutions. The new generation of mobile computers will enable payments with Worldline SoftPos. Through the partnership, Worldline solution will be promoted to the Datalogic ISV and distribution network, allowing us to open a new distribution channel in the larger tech ecosystem. And on the solutions side, the innovative partnership with SV365 and Sodexo (EPA:EXHO) aims to create an exceptional lining experience, revolutionizing the concept of self-service kiosks. The technological highlights include Android terminals accepting all payments with corresponding apps and services. These partnerships are some proof points of Worldline capabilities in terms of breakthrough innovation to be embedded in partner's ecosystem and enlarging our reach. Our innovation is at the top of Worldline priorities, and 2023 has been a year of investment and new product launch. On the in-store space, we successfully rolled out our Tap to Pay product, leveraging our software solution with now more than 150 partners connected. On the innovation acceptance, we have developed a suite of products enriching user experience such as the universal QR code automatically displayed on the POS screen without requiring any merchant handling and managing automatically the payment process. And on the account to account -- all the account-to-account pay button with more than 3,000 connection to banks. Regarding the mobility and travel market, we have developed our open payment solution with Tap 2 Use allowing travelers to pay with their Apple (NASDAQ:AAPL) Pay wallet without need to use their Face or Touch ID. Our payment orchestration growth channels continued to develop significantly with 355 partners connection available and offering an agnostic payment management software. Last, on the domestic corridors, we have pursued our expansion with the development of 4 geographies with local acquired partnerships, enabling our local payment means to large e-com merchants while increasing their conversion rates. We will pursue our investment efforts in product enrichments going forward as it remains a strong growth enabler for us bringing value to our merchants. To end this presentation, I will comment on the Financial Services and MeTS commercial dynamics. During the fourth quarter, on the commercial front, Financial Services signed an agreement with Volksbank for the emission of payment cards in Italy, underlying the strength of Worldline solution for the issuing value chain. Within the issuing business, numerous contract extensions were also signed, notably in Belgium with BNP Paribas (OTC:BNPQY) Fortis (NYSE:FTS) Bank and KBC Banks. Business was also strong in Asia Pacific, a key region in Worldline development with the extension of 5-year contracts with EastWest Bank and Baiduri Bank. Regarding Mobility & e-Transactional Services, commercial activity has been solid, notably public expanding business with ASP and the renewal of ANCV in the domain of holiday vouchers, supporting the dematerialization of vouchers used by millions of French people. Now, let me hand over to Gregory who will walk you through more detailed financial results.
Gregory Lambertie: Thank you, Marc-Henri, and good morning, everyone. Before I dive into detailed '23 numbers, let me share with you an overview of finance actions in the last few months, both in terms of financial policy and regarding the metrics we will share with you going forward. On the debt and liquidity management first, we sought to secure ample liquidity for Worldline through active debt management while taking advantage of the inverted yield curve throughout '23 to lengthen our average maturities and to meaningfully increase our interest income. As a result, our financial policy and liquidity remained strong. In parallel, we've designed a detailed reporting framework ensuring a tight financial control to support the execution and tracking of Power24 and secure our trajectory of operating leverage improvement while reinforcing our focus on free cash flow delivery. On the reporting front, let me also present a couple of new metrics reflecting feedback from our shareholders, investors analysts over the last quarter and introduced to ensure more clarity and comparability with peers. First, we'll now disclose net-net revenue information, excluding schemes and partners fees, therefore, showing growth in margin levels on an NNR basis as is customary in our sector. Second, we're introducing EBITDA, which is equal to the former OMDA minus the integration and rationalization costs. This is a new metric, and more importantly, it is the metric upon which 500 top managers will be incentivized reflecting our enhanced focus on free cash flow generation. We'll, of course, continue to provide adjusted EBITDA, i.e., EBITDA before those integration costs, which is strictly equal to our former OMDA to ensure continuity of performance tracking for our investors and analysts. Reconciliation tables are available in the appendix as well as in the press release. Now looking back on 2023. We reached our revised guidance on all 3 counts with revenues of €4.6 billion, representing growth of 6% or 3.9% on a net-net revenue basis. On profitability, adjusted EBITDA reached €1.1 billion or 24.1% of revenues, meaning 29.4% on an NNR basis. Free cash flow stood at €355 million, reflecting a conversion ratio close to 32%. Normalized net income group share reached €521 million, while reported net income group share was minus €817 million, reflecting a noncash impairment of €1.1 billion related to the decrease in the carrying value of the MS business line. Normalized diluted EPS stands at €1.85 per share versus €1.88 in 2022. Moving on, revenue performance by business line. Our fourth quarter came in at €1.2 billion, i.e., organic growth of 1.3% versus 4.8% in Q3. This slowdown was anticipated to some extent in October '23 and factored in the revised guidance. Looking at it by business line, organic growth in Q4 was impacted by a number of headwinds. Merchant Services grew 3.1% organically or 2.7% on an NNR basis reflecting, first, a slowdown of digital consumption growth across our core geographies as well as the impact of merchant terminations impacting our performance by around 2%. Financial Services was down 4.4%, mostly impacted by slow commercial dynamics versus a very strong Q4 '22, where we signed a landmark contract with ING. Last, MeTS came in flat during the quarter. For the full year, organic growth is at 6% or 3.9% on an NNR basis. MS is up 8.9% or 6.7% on an NNR basis. FS was down 1.3% and MeTS was up 0.1%. Let me quickly walk you through the H1-H2 dynamics for '23. And it's clear on the Slide, '23 saw a very contrasted performance between the first and the second half, a 6% full year organic growth is made of 9.3% growth in H1 at group level with MS growing at 13%. While in H2, group growth slowed to 3% and 5.3% for MS on the back of the changes I just outlined in the previous slide, mainly impacting the fourth quarter. Now moving on to the next slide regarding adjusted EBITDA performance. During 2023, Worldline's adjusted EBITDA reached €1.1 billion, representing a 24.1% margin, 140 basis points out from '22 in line with our revised guidance. On an NNR basis, adjusted EBITDA margin was down 110 basis points at 29.4%. By business lines, the main highlights are as follows. On MS, adjusted EBITDA reached €847 million or 25.5% margin or 33.8% on an NNR basis, down 200 basis points versus 2022, both in net and net-net revenue terms. Financial Services adjusted EBITDA came in at €275 million or 29.1%, a drop of 50 basis points. MeTS profitability is up 70 basis points to 14.1%, benefiting from cost control measures put in place early '23. Finally, corporate costs were under control at €59 million, slightly down versus '22 in absolute terms. Now let's look at H1 versus H2. The bridge shows well how trading conditions impacted MS margins. I'll be brief regarding FS and MeTS since margin development has been broadly similar from one semester to another reflecting, for FS, the impact of slower top line developments; and for MeTS, the effect of cost mitigations already mentioned. So focusing on MS. As a reminder, in H1 MS margin increased 100 basis points supported by a 13.1% revenue growth coupled with a good operating leverage above 35%. Turning to H2, the contraction in profitability was mainly driven by 4 factors that accelerated in Q4. Number one, slower payment volume growth from 10% in H1 to 6% in H2 driven by lower consumer spending. Number two, mix effect, a direct impact on the contribution margin. Number three, the impact of merchant terminations for €30 million. And four, the accumulated impact of inflation, in particular, wage increases from '22 and '23 that we were not able to fully compensate by repricing actions and cost-saving plans. We expect operating leverage to rebound above 40% in 2024 driven by progressive growth reacceleration throughout the year and progressive Power24 ramp-up. Now moving from adjusted EBITDA to other elements of the income statement. The largest impact in the P&L is clearly the €1.1 billion goodwill impairment, which impacts our reported numbers. As a result, we report an operating loss of €817 million. Regarding the impairment test, a detailed slide is in the appendix. And the main points to bear in mind are, on the business plan front, we took into account a conservative view versus the ambition we have for Worldline in the medium term. And in terms of technical factors underpinning the IFRS valuation exercise, we also applied some extra buffers versus the intrinsic parameters calculated by external valuers. This is, of course, a noncash effect that reflects the accounting adjustment of the fair value of the assets in our book as of December '23. Now more in operations and the P&L. First, integration and rationalization costs. We discussed it with a number of you, and clearly, we're committed to meaningful reduction. Excluding strategic projects accelerated in Q4, those costs are already down 8% to €176 million. Our EBITDA, therefore, reached €905 million. As mentioned earlier, this new metric will be a key driver of management incentive for around 500 managers in the group. Excluding Power24, integration and rationalization costs were reduced by 30% in '24 with the view to continue to reduce them drastically in the coming years. Our net finance costs are broadly stable at €48 million. The tax charge was €40 million with a normalized effective rate of 18% in '23 versus 23.5% in '22. Going forward, we expect an effective tax rate between 23% and 24%. Last, on noncontrolling interests, the positive €141 million contribution is impacted by the goodwill impairment allocation to the different MS entities that are not fully owned. Excluding this effect, the amount of noncontrolling interest impact is equivalent to 2022. Now on the cash flow statement. We generated €355 million of free cash flow in '23 or 32% of our adjusted EBITDA. The main parameters of our free cash flows are: in terms of capital intensity, we started to decrease CapEx as a percentage of revenue, down from 7.4% in 2022 to 7.2% this year for total CapEx of €333 million. In terms of capitalized production, we spent 4% of revenue, stable versus '22. Working capital was a slight negative at minus €18 million, and for 2024, we expect a slight negative contribution with working cap becoming cash neutral in the medium term. Mirroring the P&L trend and excluding Power24, our integration and rationalization cash costs are down 14% to €166 million and will continue to go down going forward. Overall, the full year free cash flow before strategic investments stood at €384 million or close to 35% cash conversion. After strategic investments, reported free cash flow came in at €355 million or a 32% cash conversion. Going forward, we're committed to materially increase free cash flow conversion by reducing the capital intensity of the model meaning CapEx should broadly remain constant in absolute value. We also intend to reduce integration and rationalization costs well below 1%. Working capital should become neutral. And all this will be leading to north of 50% free cash flow conversion in the medium term. Finally, during the year, we delevered by €391 million, mainly driven by the €355 million free cash flow we just mentioned. Our net debt, therefore, stands at €1.8 billion, which equates to 1.6x adjusted EBITDA. Important elements to mention on the debt and liquidity side for '23 are we've increased our average debt maturity through short-term bond buyback and active management of mid-term maturities. On top, we've already secured the remaining part of our September '24 maturity through a bond issue in September '23 at attractive costs. And last, we kept a strong liquidity profile, qualified as exceptional by S&P, with €1.9 billion in gross cash at the end of 2023. This active management is a strong support to our investment-grade rating we're committed to. Now let me hand over to Gilles to conclude.
Gilles Grapinet: Many thanks, Gregory. And indeed, to conclude this presentation, let me reemphasize how we are, Board and management, actively executing since the third quarter all the necessary transformation actions to strengthen Worldline's business and financial perspective during this year '24. It will be indeed a year of transformation and transition with a heavy focus of myself and my team on stringent execution, and in particular, with a reinforced central steer on all our core immediate priorities. First, Power24 execution is in full motion it will deeply adapt our operating model to the fast-changing environment, but more importantly, it will also structurally improve with very quick benefits our operating leverage for the midterm. Secondly, we are ramping up future growth engine initiatives. I mentioned the Credit Agricole joint venture addressing the French acquiring market with a go-live confirmed early '25 as well as the continuous enrichment of Worldline value proposition through new products and partnership launch. Third, our efforts and priorities are definitely focused on improving our free cash flow generation supported notably by the fast plan reduction of integration costs and as well evolution. Regarding the governance, the Board will continue to adapt it as committed. After the sudden passing of our Chairman, Mr. Bernard Bourigeaud, in December '23, the Board has immediately initiated the search for a new Chairman in early January. The process driven by the Nomination and Governance Committee on behalf of the Board is progressing actively and the new Chairman should be selected before the end of March '24. Regarding the evolution of the Board composition itself, the Board of Directors is working on a partial renewal of its composition to bring it down to a maximum of 13 members, excluding the 2 employee directors, while new profiles could join the board. As already mentioned, this year will be a transition year for our group with a strong focus on the execution of the transformation plan in a macro environment we expect to remain challenging in our main markets in Europe. Consequently, we expect to deliver in '24 a top line organic growth of at least 3%. This guidance assumes an unchanged macro environment along the year in our core geographies with softer growth in H1 in the low single-digit area mainly due to the merchant termination impact and the progressive growth reacceleration in H2 towards a more normative comparison basis. On the adjusted EBITDA level, we expect to achieve at least €1.17 billion of adjusted EBITDA with a modest improvement in adjusted EBITDA in H1 while H2 will benefit from Merchant Services growth reacceleration and from Power24 ramp-up. Finally, we expect a free cash flow of at least €230 million mainly impacted this year by the Power24 one-off implementation costs. And to conclude, let's take a quick step back. Over the last 10 years, we have built a true payment leader at scale. After its necessary transition in '24, we will definitely enter a new strategic phase, rebalanced towards extracting the full benefit of our remarkable combination of scale and advanced technology in European payments and beyond. Looking at growth and growth potential. The combination of our leading positions in Europe still benefiting from natural payment market tailwinds, coupled with our powerful distribution network, will be a key success factor in the rollout of our existing innovative products as well as the launch of new growth engine. It will be also supported by the scalability of our transformed platform accelerating our go-to-market while reducing the marginal cost of our solutions. On the operating leverage side, as soon as '25, we will have the full benefit of the Power24 transformation plan increasing Worldline operational efficiency, agility and reinforcing our competitiveness by a more agile and leaner organization. Both growth and operating leverage will translate into a free cash flow generation coming back to a more normative level in the midterm, benefiting as well from the fast reduction, as Greg said, of our integration and transformation costs because the vast majority of Power24 cash-out and past M&A integration efforts will be largely behind us. Lastly, always to reinforce our value proposition, we will, of course, pursue some M&A but much more focused on bolt-on acquisitions, including products and technologies, while still keeping a low leverage and solid balance sheet. All in all, with all our assets and current cost of actions, we will deliver in the midterm a top line organic growth in the mid- to high single digit, a continuous operating leverage and adjusted EBITDA improvement from 2024 onwards and a free cash flow conversion in fast progression towards circa 50% or above. We will, of course, provide further details during the Capital Market Day, which we intend to hold in the second half of 2024. I thank you very much for your attention so far. And I am now ready with Marc-Henri and Gregory to take your questions.
Operator: [Operator Instructions] First question is from the line Frederic Boulan from Bank of America.
Frederic Boulan: Firstly, if we -- just a question on the commercial dynamics in the business. So in H2, we saw 15,000 wins in, in-store merchants, the online base was stable. So it's a pretty sharp deceleration. This is what we saw before. So when we look at the volume, can you explain a little bit what's going on there in terms of commercial traction? Are you seeing more competition in some of the segments? So that would be first point. And then secondly, when we look at the operating leverage, so can you come back a little bit on what happened in the second half? We had in the MS segment 5% revenue growth, but about €50 million EBITDA decline. So when we look at '24, you're guiding for, at the group level, 50 to 100 bps margin expansion if I look at your minimum EBITDA commitment. So can you explain a little bit what do you think will change and give you that confidence in guiding considering the pretty big compression we saw in the business in 2023?
Gilles Grapinet: I'll give maybe the floor for Marc-Henri to the first question and for Greg to the second one.
Marc-Henri Desportes: Frederic, regarding the commercial dynamics, this profile of merchant wins that are stronger in H1 than in H2 is something we observed on the previous years. If you may remember, it was already the case in 2022. So this year, it's not very different in terms of overall profile. As I said, the momentum remains good. The macroeconomic context is somehow deteriorated. But I can't tell that we have a significant impact on merchant disruptions from that point of view. So overall, in terms of profile we observed in 2022 and we are observing again in 2023, so no significant change there.
Gregory Lambertie: And on your second question, 2023 has been impacted mainly in H2 '23 in MS by 3 points. First, the decision to terminate merchants, which clearly impacted the margin. Second, the overall macro softness across all geographies as well as some mix effect, which we alluded to in Q3. And slightly less repricing actions in Q4 versus initial expectations due to the economic environment at the end of '23 and lower volumes. Those 3 elements are the main drivers of the margin rate decrease in H2 '23. In '24, while we're keeping a cautious stance on macro and where termination impacts will impact H1, we should continue to see an improvement in EBITDA margin recovering throughout H2 benefiting from less merchant termination effect and a more favorable comparison basis as well as operating leverage benefit. All in all, we expect 40% operating leverage in 2024, thanks to those 2 effects and of merchant termination Power24 ramp-up.
Operator: We will now take the next question from the line of Mohammed Moawalla from Goldman Sachs.
Mohammed Moawalla: Two for me. Obviously, 2024 is going to be a year of internal focus as you sort of flagged on the call and in the release. I just want to kind of better understand that from a commercial standpoint, what are you doing to kind of safeguard against any sort of impact on the external side, whether it's both handling a more challenged macro but potentially risk of kind of market share losses as the organization is much more kind of inward focused around kind of driving the earnings quality, executing on the transformation program? And then, secondly, we hear a lot more around platforms from a lot of the kind of next-gen players and increasing traction there. You obviously got a sizable exposure to SMBs in Europe. I'm just curious to better understand your strategy around platforms. And is there a risk that as you're a bit more internally focused that you all sort of fall behind? I know it's interesting to hear your comments, Gilles, that M&A -- tuck-in M&A going forward is going to be more technology focused, so curious to get a better understanding around your strategy on platforms and how you kind of take advantage of that or protect against future kind of competitive threats there?
Gilles Grapinet: Maybe I will start, and of course, Marc-Henri can elaborate them. What I mentioned during the call was precisely to strike the right balance between this internal focus that is necessary to adapt to the current situation and the headwinds we face, notably to make sure that we do the proper fixed cost extraction at the requested speed, and at the same time, to maintain our very permanent and long-term established focus on growth and development. So from that standpoint, I flagged during the call that we've been elaborating the Power24 initiative mobilizing circa 500 top managers of the group in all service lines. It was precisely to make sure that we were adequately targeting all the necessary action on all fronts to make sure we can extract the relevant productivity gains, implement fast certain existing actions. And from that standpoint, I want to really clearly state here that, as I said, it's much more than the cost-reduction program only. It is an actual improvement of the company. It will allow us to accelerate many technology initiatives to reinforce our technology capabilities, as we flagged, for example, in our global competency center in India that will give us meaningful additional means to pursue developing features, technology progress on our platform and support to our customers, too, for their own needs and features. So it is exactly the point where we have been looking at very carefully is to make it a transformation program, bringing simultaneously benefit to our internal efficiency, but also to our customers through more efficiency, agility and also brain power to pursue developing and enriching the platforms. It's why I've been a bit long presenting all the levers that are standing behind Power24. The easy way would have been to say we just cut across about 6% of the staff. It's not the way we think. We care for the long-term growth development and the quality of the technology of this firm. It's why Power24 has been such a granular effort in terms of design and now is moving to implementation. With that framework, I give the floor to Marc-Henri to elaborate a bit more on the technology side.
Marc-Henri Desportes: No, Mohammed, I think you have a very right question, it's core on this market to have the right platform and the right connections, which is something in which we invested a lot. We have, as we said, our target platform is live. We are extending its connections with all the markets. The domestic corridor I'm referring to is indeed enabling more markets, more access to remote geography. We optimize authorization rates, and better authorization rate than the competition. And the connection to new distribution models to be outwards-focused, new distribution partnerships is a clear focus of the team, both in '23, even more so in '24 and that leverages a lot of technology. I mentioned SoftPos and the 150 partners we signed in 1 year on the technology that allows to take payment on any Android device and now as well on Apple device. I think it's a very good example of how we were able to onboard an element, a piece of technology, connected to our core platform and make it scalable in signing and onboarding new partners. And this logic, this strategic momentum we have to boost this partnership is really the key of the story -- on the core platform. The joint venture with Credit Agricole is another -- a typical example, it's structured and based on our target platforms. It's leveraging their distribution partnerships, it's encompassing the full technology stack. So there is clearly no deviation from that. You could see we have a very clear discipline and dynamic on the investment front for the years to come, but it is not a disruption bringing the investment level extremely low versus what we are doing. We are not giving up on the platform investment. We are not giving up on the technology. And we are certainly not giving us on the commercial front. Like Gilles said, Power24 is there to optimize cost, primarily for automation but also where we can get this benefit. Clearly, we bring it, but we don't touch the sales front. We don't touch what is at the core for growth because we know we have to bring this dynamic back versus what we experienced at the end of this year.
Operator: We will now take the next question, which is from the line of Josh Levin from Autonomous Research.
Josh Levin: Two questions for me. Gilles, you made a brief comment about M&A and I wanted to ask for some clarification. The Worldline story for many years was about consolidating the fragmented European payments landscape. To what extent is still -- is that still the Worldline story? Do you still intend to try to consolidate Europe? And then the second question is about the impairment charge in Merchant Services. The press release says the impairment was based on conservative assumptions reflecting the change in the valuation paradigm in the payments industry. Does that mean the impairment was driven by lower peer group valuation multiples or because you're forecasting lower cash flows in Merchant Services than you were previously?
Gilles Grapinet: So clearly, we believe that this mandate that we were given at the IPO and supported by the shareholders' community to consolidate Europe has been largely executed. We came to a strategic scale that is -- that we believe is largely in line to anchor this leadership position in Europe and from now on also to develop beyond Europe. We said M&A will still happen in Europe. We believe it will be less transformative than in the past because obviously there are much less target available outside just to set revenues, and of course, because we see now new types of M&A-related opportunities where we believe also the balance sheet can be less decisive than it was in the past years. If you look at the Credit Agricole joint venture, it is a perfect example of still a very meaningful combination of strength between ourselves and the French -- and in this case, a French leading bank, but which is basically not set up strictly speaking as an acquisition, but much more as a combination in kind that will generate a fantastic benefit for the group in the medium term. This type of discussion with banks we have further ongoing in Europe as we speak. Some may imply some balance sheet-related cash out. Some may be set up much more like a partnership. So it's why definitely this is a pivotal moment. We believe that there will still be some consolidation, but it will be of a different nature than the fast scale game that has been happening over the last years, clearly. So it's why also we are so comfortable thinking that it is also a right moment for us to harvest all the benefit of this scale. Our scale, notably the quality of our technology at scale, is one of the key factors that is attracting to us some leading banks. They don't choose us because of the check we put on the table, they choose us for the quality of our products and technology. I can tell you it has been duly assessed over the recent transaction we announced by our banking partners. And so it's why we believe we will pursue expanding our partnership and distribution network. But at the same time, it will still allow us to have much less effort to do in terms of heavy integration, heavy lifting as we had to do over the past years while also we foresee very steady acceleration of the free cash flow generation in the coming years because M&A will help us on the product and technology side or distribution side but also improving Worldline. But at the same time, it will be from the core platform we have been building that will just get more scale and [indiscernible] thanks to this extended distribution. I hope I am giving you where we see the market going and where we want to drive growth.
Gregory Lambertie: And regarding the -- regarding the impairment charge, Josh. I mean looking at the 2023 accounts, we felt this was the right time to be conservative, of course. First, multiples have been divided by 2 to 3 [indiscernible]. And those sector valuation levels are also reflected in the parameters we took into account to articulate our valuation. And second, this was also your question, in terms of business plan assumptions. As I mentioned earlier, we also took a conservative view by taking a business plan that is below the one we have in mind for our ambition for the medium term in Worldline. That we'll share in detail at the Capital Markets Day.
Operator: We will now take the next question from the line of Alexandre Faure from BNP Paribas.
Alexandre Faure: Just a couple of things from me, if I may. Firstly, a clarification on the 2024 free cash flow guide. Could you please remind us what's included in the guide when it comes to the setting up of the Credit Agricole joint venture and perhaps the first CapEx efforts relating to that JV? And second question is following up on previous questions on the M&A strategy. I think, Gilles, thanks for highlighting the nature of those partnerships you could strike with banks in the future being a bit less capital intensive. I think you also talked about using M&A to improve product and distribution. So where do you see gaps at the moment in Worldline's portfolio or go-to-market?
Gregory Lambertie: So on your first question, Alex, on the 2024 free cash flow. For the Credit Agricole joint venture, we're talking about -- around about €20 million. As I mentioned, we're pretty comfortable in improving the free cash flow going forward. First of all, because we intend to increase EBITDA, reduce the integration and rationalization costs, make sure that capital intensity is lower with constant CapEx going forward, working cap flat. Therefore, we expect to reach a midterm ambition of above 50% after more than 40% in 2025.
Gilles Grapinet: Thank you, Greg. Alex, thanks for your question. And of course, I don't want here to be ahead of ourselves by entering too much into the details we intend to share with you guys and the community at our Capital Market Day, where we give -- of course, where we will give much more detail about where we want to drive the business, the offerings, the product range of Worldline. But let me flag here that if I look at today's tech stack of Worldline, both in terms of quality of features and fit-to-market value proposition, we don't miss things in the current situation. We -- one of the reasons to do the transaction, you remember, with Ingenico was precisely to increase our online capability portfolio. Here we are. We've been recently making specific targeted acquisition in particular niches of the market. You remember that we made an investment on the marketplace payment features with OPP online payment platform. We are extremely satisfied with the way we work with this entity, which is leveraging the market reach of Worldline with a very specific value proposition for marketplaces, which are actually booming, as you know. So this was a typical example of a product and technology that we wanted to acquire to have this capacity to leverage it. And Marc-Henri was very clear about the SoftPos evolution that is allowing to engage into more of micro merchant segment, on one hand, but also to provide some large retailers relatively light touch payment acceptance capabilities in store. Now expanding a bit beyond that, we today have what we need, no doubt. What we want to pursue doing is to see where we could bring Worldline in terms of value chain positioning. Here, M&A may help to help us to add to our existing market positioning the possibility to expand within the payment value chain, either vertically or horizontally. As you know, the boundaries in the world of payment acquiring and acceptance are not engraved in the model. We have 1.4 million merchant base. What else can we sell or upsell to a merchant base of that side? It is a strategic topic for us, and we have many initiatives ongoing. We have pilots. We test things with partners. It may go into the direction of more integrated software. It may go into added functionalities for payout for merchants, not only doing the paying, for example, or moving into card issuing type of activities. I don't want to elaborate too long here, but just for you to know, guys, we are constantly looking also beyond our geographic reach into the depth of the offerings of Worldline. It is there that M&A can help to accelerate and to expand leveraging the franchise, the merchant connections, the bank connections and our partner reach also.
Gregory Lambertie: Just to give you a bit of color in terms of numbers. For 2024, when we're looking at our partners' growth, what we're looking at is growth that is in the north of 20%. So this is a channel that is exciting and that is a good ROI.
Gilles Grapinet: So of course, much more on that topic, Alex, and many thanks for your question, at the Capital Market Day.
Operator: We will now take the next question from the line of Hannes Leitner from Jefferies.
Hannes Leitner: We have a couple of questions. The first one is around -- is to Marc-Henri, you're replacing Niklaus Santschi. Could you maybe comment around his departure and then also how you want to split your responsibility? And is this leading the Merchant Services just a temporary solution until you find a new head? And then the second one is on the Power24. You have updated on -- in a press statement that it's around 8% of head count. Maybe you can talk about the split between the different segments and geographies and then what is the expected head count by end of this year? You talked about offshoring, so is there actually the net amount of head count to be increased?
Gilles Grapinet: Maybe I will start here because, of course, as you rightly pinpointed, it is one of our important management decision we announced today. I wanted Marc-Henri to take the direct steer of the most important division of the group because we want tighter execution of our current group strategic priorities, clearly to reinforce the performance delivery, to strengthen the business and risk control implementation, and more importantly or as importantly, to ensure a full and swift Power24 implementation into the largest division of the group. And of course, this is also taking the lessons from the past months and particularly what we've been experiencing in the MS division over the past months after the Q3, clearly. And then, of course, we will reorganize ourselves. I take over the risk myself also that was reporting so far to Marc-Henri to letting also some more bandwidth to MS, and we will do some other adjustments in our ways of working.
Marc-Henri Desportes: Yes. And maybe just to come back on the split of my time. You know that we have also upgraded recently the management of the 2 of our business lines with Caroline Jéséquel in MeTS and Alessandro Baroni in FS. I think they have reorganized their team, put in place everything that was needed defined by Power24 plan. So I think it's -- we need much less of my bandwidth. MS was already under my management's responsibility, and I will focus much more time with these teams that I already know well. And I think we have all the assets and the quality of people now to ramp up in terms of gains of performance of Power24 execution, and of course, in terms of growth. Coming back to also your point in terms of Power24 split, it's clearly well balanced between all the key European geographies where we have significant workforce being France, Germany, Belgium, Switzerland, Sweden. So all these countries are involved. And in terms of overall head count, you should see a decline. The decrease in onshore will be more than the increase in offshore.
Gilles Grapinet: Thank you, Hannes. Look forward to interacting with you guys. We are already largely above the hour, conscious that this is busy time also for you and for us all. So really, I would like to thank you for being with us this morning. Looking forward further interaction in the coming road shows. My message here is that we are, with the Board, fully focused on executing our current short-term and medium-term priorities and I really look forward to further interaction, and of course, look forward at the Capital Market Day to give you a full refresh on Worldline after these fantastic 10 years to build this company and how we are going to pursue developing the franchise in the coming years into this new environment that we are going in terms of challenges, clearly, to overcome quickly, thanks to our initiatives. But more importantly, I want to flag that the fundamentals of this sector, the fundamental of Worldline are certainly as strong as they have been in the past years and they will be even better after the accelerated transformation of Power24. Thank you, and look forward to interacting with you.
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