Financial focus Loïc Jenouvrier, Executive VP, Finance and Legal Affairs
Financial focus Business model Basics Developments Sensitivity Use of Free Cash Flow
Issue Volume is key in the business model 3 Cash and 4 Float 1 Revenue and 2 Profits Issue Volume (IV) 3
Revenue generation 1 Mechanism Mec hanism Sensitivit Sensitiv ity Generated through client fees (~1.0% of Mix effects, related to products, • IV) and merchant fees (~3.5% of IV), countries, contract size, and type of defined contract by contract merchants Operating revenue with IV + Non-spent vouchers (~0.5%) • Pressure on large client fees, mostly offset by an increase in penetration in SMEs Take-up rate (1) Fixed fees generated by corporate Operating • Non-recurring marketing and incentive consulting revenue without services and solutions for which Edenred • Low margins IV does not manage the float • Reflects the growth of the float in Interest generated by the investment of Financial value (which is a function of issue the float in money market and in local revenue volume growth and holding period), currency as well as interest rates Based on 2012 figures. 4 (1) Ratio between operating revenue with issue volume and issue volume.
Focus on operating revenue with IV- 1 Mix effects Product mix Country mix Take-up rates vary by country, Higher growth of expense depending on the market’s management solutions, with level of development and size a lower take-up (~4%) Network mix Contract mix Merchant fees vary depending on the type of network Lower take-up rates for large (example: supermarkets vs. contracts restaurants) Changes in the take-up rate reflect different mix effects 5
Profit generation – EBIT bridge 2 50% flow- 100% flow- Digital extra- Currency effect costs and changes in through of L/L ∆ through of L/L ∆ scope in financial in operating revenue revenue € 3m € (8)m € (19)m € 36m 2012 EBIT 2011 EBIT € 367m € 355m L/L change L/L change in % in value +7.7% 72 Operating revenue +10.6% 36 50% Operating EBIT Flow-through ratio (1) The operating flow-through ratio reflects the operating leverage of the business (1) Ratio between the like-for-like change in operating EBIT and the like for like change in operating revenue. 6
Profit generation – Operating leverage 2 Excluding digital extra-costs 2009 2010 L/L 2011 L/L 2012 L/L Operating revenue 808 +51 859 +81 940 +72 1,012 Operating flow-through 49% 47% 50% ratio (1) Operating EBIT 233 +25 258 +38 296 +36 332 +1.3 pts +1.5 pts 32.8% Operating EBIT/ +1.2 pts 31.5% 30.3% Operating Revenue 30.0% 29.6% 29.7% Excl. digital • 28.8% 28.8% extra-costs • Incl. digital extra-costs A business with strong operating leverage (1) Operating flow-through ratio: ratio between the like-for-like change in operating EBIT and the like-for-like change in operating 7 revenue.
FFO generation 3 EBIT EBIT to to FFO FFO Correla Cor elation bet tion between een FFO and IV FFO and IV FFO ( € m) 2012 280 Average 2011 In € millions 2010 2011 2012 L/L growth 2008 230 +10.0% 328 355 367 EBIT 2010 2007 Net financial 180 (62) (40) (36) expense 2006 2009 Income tax (91) (97) (102) 130 2005 Depreciation and 2004 80 other non-cash 38 39 53 items 2003 +16.4% 30 213 257 282 FFO 5 7 9 11 13 15 17 Issue Volume ( € bn) Issue volume and margin improvement are key for FFO generation Annual L/L growth target (1) > 10% (1) Normalized targets (normalized growth means the level of growth that the Group believes it can achieve in an economic environment in which there is 8 no increase in unemployment).
FCF generation 3 FFO to FC FFO to FCF High cash flo High cash flow w con conver ersion sion ratio tio Example based on 2012 results Impact of a € 1bn increase in issue volume Impact Take-up % of In € millions 2010 2011 2012 in € m rate IV 213 257 282 FFO Operating revenue 50 5.0% Flow- (Increase)/decrease in float 100 112 67 though Operating costs (25) -2.5% of (Increase)/decrease in 50% (42) (56) (19) Operating EBIT 25 2.5% restricted cash Financial revenue/EBIT (Increase)/decrease in 5 0.5% 42 28 40 working capital (excl. float) Income tax (10) 1.0% Recurring capex (32) (35) (40) Float ( At an average 5-8 weeks of 125 12.5% Free Cash Flow 281 306 330 issue volume/52) Capex (2) 0.2% Total Cash flow 143 14% FCF structurally higher than FFO due to negative WCR and low recurring capex 9
Float structure 4 By By solut solution ion By By region gion 44% Nb of weeks of float Europe 70% Meal 6-8 weeks X% 53% 3% 3-5 weeks Food Latin America RoW 26% 4% Expense - management Incentive & >3 months Rewards X% IV breakdown Float breakdown X% Float breakdown between Latin America and Europe reflecting product mix (1) (1) Main solutions in Latin America: Food benefits and Expense management solutions. 10 Main solutions in Europe: Meal benefits and Incentive & rewards solutions
Float generation 4 Increas Incr ease in e in floa loat Cor Correla elation bet tion between een Floa loat t and IV and IV Float ( € bn) 2012 2.5 2011 2010 2.3 2009 2.1 2008 2007 In € millions 2009 2010 2011 2012 1.9 Float (1) 2,032 2,249 2,343 2,456 1.7 2006 In nb of weeks 8.5 8.4 8.0 7.7 1.5 2005 1.3 2004 1.1 2003 0.9 5 7 9 11 13 15 17 Issue volume ( € bn) A clear correlation between issue volume and float (1) Vouchers in circulation less trade receivables. 11
A prudent float investment policy 4 Centralized cash • Strictly defined policies management • Monthly reporting by counterparty, country and structure, and internal audit policy controls • No bonds, no equities Investment • Only money market instruments in local currency (bank term deposits with no vehicles risk on capital) • No float transfer between currencies • Cash concentrated at Group level via intercompany loans and/or multi-currency Cash Pooling solution - in order to avoid FX risk and to invest in the highest rated Risk institutions (very limited investment in local banks, only international banks) management • Diversification: limited exposure by counterparty • Only Tier 1 counterparties: highest rated institutions in the countries we operate in • At end-2012, 32% of the float was invested in long-term instruments (more than Maturity one year) management • Medium-term target: 50% of float invested in long-term instruments, depending on interest rate trends in each country 12
Float average investment rate 4 In € millions 2,650 140 2,456 129 2,450 130 2,343 2,249 2,250 120 2,032 1,976 2,050 110 Float 1,850 94 100 92 91 91 Financial 1,650 90 revenue 80 1,450 80 1,250 70 2008 2009 2010 2011 2012 Financial revenue at a low point due to historically low interest rates, and despite significant growth in the float 13
Financial focus Business model Basics Developments Sensitivity Use of Free Cash Flow
Effects associated with 2016 strategic developments Accelerate the roll-out of Invent Expense management solutions Increased weight of Expense management in the Group (>20% of total issue volume in 2016) Shift to digital Conquer >75% digital issue volume by 2016 2012 (vs. 51% at end-2012) Win 15
Shift to digital: overview by region Digital issue volume as a % of total issue volume by geography Latin Rest of (end-2009) Europe Total America World 6% 30% 59% 59% 81% 15% 62% 51% (end-2012) Shift to digital at an advanced stage in Latin America and on its way in Europe 16
Shift to digital: effects on P&L and Float New volume opportunities: Issue volume • Increase penetration in SMEs (simpler solutions and lower cost of acquisition) • Create new solutions thanks to tighter control of fund allocation • Reduce lost products (~0.25% of IV). No impact on expired. Revenue • Diversify revenue sources by developing new services for affiliates and beneficiaries • At the level of a country : 5% to 10% cost decrease Costs • At Group level : >50% operating flow-through ratio from 2014 • Holding period: reduction of around -15% at the level of a program Float • Ongoing growth in value , fuelled by issue volume growth 17
Shift to digital: cost developments at the country level 60% decrease in production & logistics costs 0 Total costs decrease: -18% -5% to -10% +10% 10 30 12 New recurring digital costs 35 35 Whatever the media, Sales 35 35 remains at the heart of the business Paper aper cos cost s t struct tructure ure Dig Digital c ital cos ost s structu ructure re Support functions (marketing, finance…) Sales Production and logistics IT costs & call centers 5% to 10% cost reduction post digital transition, depending on volume generated by the solution 18
Shift to digital: change in flow-through ratio Flow-through ratio, including digital extra-costs Acceleration of the No more digital digital shift extra-costs >50% <50% 49% 39% 31% 2013 E 2010 2011 2012 2014 2015 2016 Digital Issue … 35% 41% 51% >56% >75% volume Considering the change in project costs and the transition effects: Objective of >50% operating flow-through ratio in the next three years 19
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