Investor Day Agenda Our Strategy to create and roll How to boost volume growth through out solutions the roll out of our existing solutions in the Prepaid and the creation of new solutions Market Digital How to operate the digital shift Strategy that will open new growth territories 18
Our Strategy to Create and Roll Out Solutions in the Prepaid Market Section 1
Our Strategy to Create and Roll Contents Out Solutions in the Prepaid Market • Prepaid Market Overview • Our Current Positioning • Our Strategy to Create and Roll Out Solutions • Two Illustrations of Recent Launches • Launch Process and Financial Impacts 20
The Prepaid Market in the Payment Universe Prepaid 0.4 Prepaid market: Debit € 441 billion 3 Credit Cash & 3.9 Equivalent 13.4 Electronic funds transfer Total Payment market: 3.7 € 24.4 trillion Internal source (In € Trillion) Prepaid market is a niche in the overall payment market 21
Prepaid Market Segmentation Prepaid 0.4 Three types of fund loaders Debit 3 Credit Cash & 3.9 Equivalent 13.4 B2B B2G B2C Electronic funds transfer 3.7 • Food Benefit • Food • Gift (single-brand or • Non Food Benefit • Education multi-brand) Dedicated • Expense • Fertilizer • Fuel funds Management • Gift (multi-brand) Two different ways to spend • Un- or Underbanked • General subsidies to • Travel money • Expense • Youth citizen Non • E-wallet management (open- dedicated • Gift (open-loop) loop) • Insurance • Remittance funds • General purpose The prepaid market addresses a large number of segments and types of usage 22
Sizes and Growth Rates of Prepaid Market Segments B2B B2G B2C x Market segment size 2009-2017 expected x growth rate € 318B n € 125B n € 102Bn € 91Bn Dedicated funds (Filtered / Closed Loop) 5% 14% 12% 14% € 25Bn € 79Bn € 123B n € 19Bn Non dedicated funds (Open Loop) 21% 27% 20% 22% € 121Bn € 116Bn € 204Bn € 441Bn TOTAL PREPAID 15% 13% 16% 15% Internal source Six market segments offering high growth potential Dedicated prepaid funds represent more than 70% of the current market 23
Our Strategy to Create and Roll Contents Out Solutions in the Prepaid Market • Prepaid Market Overview • Our Current Positioning • Our Strategy to Create and Roll Out Solutions • Two Illustrations of Recent Launches • Launch Process and Financial Impacts 24
An Offer Organized Around Four Types of Solutions B2B B2G B2C Dedicated 1% 0.6% 98% funds Non 0.3% dedicated 0% 0% funds B2B B2B B2G B2B Employee Expense Incentive Public Social Benefits management & Rewards Programs Quality Food of life Dedicated funds Non dedicated funds Buyer of the Human Finance Marketing Public service Resources Purchasing & Sales authorities Our core business is the dedicated funds B2B market, where we have already developed a wide range of customized offerings 25
A Strong Footprint in the Distribution of Dedicated Funds from Corporate clients Breakdown of x B2B B2C B2G Edenred’s 2010 issue volume by segment 98.2% 1.0% 0.6% IV: 0.1Bn Dedicated IV: 0.07Bn IV: € 13.7Bn Funds Ex : Dote Scuola Ex : TR card 0% 0% 0.3% Non dedicated IV: 0.04Bn Funds Ex : Insurance card, Open loop Travel & Expense card Our expertise: ensure that funds allocated by clients (mainly Corporates and Public Institutions) are effectively used as intended 26
Focus on our Offer in the Distribution of Dedicated Funds from Corporate Clients B2B B2C B2G B2B Dedicated 98.2% 1.0% 0.6% Funds Expense Incentive Employee management & Rewards Benefits Non dedicated 0.3% 0% 0% Quality Funds Food of life 2010 IV breakdown (in %) 78% 9% 8% 3% Dedicated Funds L/L growth rate in 2010 +18% +17% +11% +7% All our offers are growing rapidly 27
Competition in our Core Business: Dedicated Funds from Corporate Clients Employee Expense Incentive Benefits & Rewards management Quality Food of life Global players Wright Express Sodexo Sodexo Sodexo Carlson Marketing FleetCor Continental Chèque Déjeuner (Europe) Chèque Déjeuner (Europe) players Visa Vale (Brazil) Si Vale (Mexico) AXA (France) Grassroots (UK) CTF (Brazil) Qui Ticket (Italy) Good card (Brazil) Local Dexia (France) Motivcom (UK) Cheque de Table (France) Inbursa (Mexico) players VB (Brazil) Computershare (UK) Maritz (US) Valeven (Venezuela) Comdata (USA) Grassroots (UK) Novo Payment (Venezuela) Buen Menu (Spain) Very fragmented and heterogeneous competition, with only two global players 28
Competition in Prepaid Market’s Other Five Segments B2B B2C B2G • Blackhawk (USA – Gift Closed loop) Dedicated Funds More than 90% managed by public institutions, except in the • InComm (USA – Gift Closed USA loop) • JP Morgan (USA) • Sodexo (France) • Cheque Dejeuner (France) • Account Now (USA – • NetSpend (USA – General UUB) purpose) Non dedicated Funds • Net1 (South Africa) • Galiléo • Green Dot (USA - Multi (USA – UUB) products) • Payoneer • Paypal (USA – Internet (USA – UUB) Wallet) • Citi prepaid • Western Union (USA – services (USA-Business Remittance) Expenses) • Wirecard (Germany – • American Express General purpose) (USA-Business Expenses) • Moneygram (USA – Remittance) Mainly US players focused on local B2C non dedicated funds market 29
Prepaid Market’s Ecosystem • Ceridian • ADP • Paychex • VeriFone • WageWorks • Ingenico • Oberthur Payroll • Gemalto company POS / • Carrefour Retailer • Card Tesco • manufacturer Wal-Mart • Auchan Prepaid • Citi prepaid services Services (ex e-count) • Comdata (Ceridian • Visa Payment Payment subsidiary) • MasterCard scheme • processor Metavante • American Express • Tsys • Discover • First Data • GIE Carte Bancaire • CARDnet Loyalty Bank or • Airplus marketing Acquirer • Aeroplan • Parago • • Affinion loyalty partner Redecard / Cielo • (payback card) Atos A large number of players in the prepaid market’s ecosystem, with no specific focus on B2B prepaid services 30
Conclusion Edenred’s positioning Prepaid Market A large and fragmented Edenred is the clear market, worldwide leader more structured in in Employee Benefits and dedicated funds, a major player in other with high growth potential corporate prepaid in every segment solutions A strategy favoring organic growth in all continents with a strong focus on B2B 31
Our Strategy to Create and Roll Contents Out Solutions in the Prepaid Market • Prepaid Market Overview • Our Current Positioning • Our Strategy to Create and Roll Out Solutions • Two Illustrations of Recent Launches • Launch Process and Financial Impacts 32
Our Strategy to Create and Roll Out Solutions expertise Strong B2B B2G B2C World leader in corporate benefits A C Dedicated Incentive funds D & Rewards Public Social B Programs Expense Management Non dedicated funds B Expense Management Leverage our worldwide leadership position in the large Employee Benefits market to develop fast-growing adjacent segments 33
Roadmap by Type of Solution (1/2) A B B2B B2B Employee Benefits Expense Management Accelerate the conquest of new growth Strengthen our leadership territories based on our Latin American by rolling out solutions experience Latin America: Emerging countries: Strengthen our leadership position in Fuel Develop solutions helping governments and and Fleet expense management and roll out corporates to spread the benefits of new solutions in Travel & Entertainment economic growth more equitably Europe: Developed countries: Roll out customized solutions in Travel & Create customized solutions for corporates, Entertainment expense management, as an end-users and governments in response to added-value alternative to corporate cards identified sophisticated needs 34
Roadmap by Type of Solution (2/2) C D B2B B2G Incentive & Rewards Public Social Programs Expand our offer to public institutions in Roll out solutions in our main countries countries where Edenred is already to enhance our offer to stakeholders present Provide the following value-added services to our stakeholders, Roll out solutions to Public institutions, on top of our Gift programs : by leveraging our existing B2B platforms - Recognition and affiliated networks - Incentive - Loyalty - Promotion, Saving & Discount 35
Expand Our Leadership in Employee Benefits A Meal and Food Quality of Life Our existing solutions Green/Culture/ Childcare/ Meal Food Transportation Gift as of 2010 Sport/Holiday Home services Belgium Brazil France Italy Mexico UK 69 solutions worldwide as of 15 16 9 4 18 7 2010 11 solutions launched in 2011 or 3 0 1 1 4 2 under development worldwide After 50 years of steady growth, still many opportunities in our core business 36
Illustration of New Benefits A 11 solutions launched in 2011 or under development worldwide Meal and Food Quality of Life Ticket Restaurante (Mexico – March 2011) Ticket Transporte (Spain – June 2011) H1 2011 Ticket Plus (Gift in Germany – Dec. 2011) H2 2011 Mind & Body (Finland, New country – Nov.2011) and 2012 Ticket Regalo (Chile – Nov. 2011) Ticket Family (Italy – Jan. 2012) 37
Deploy our Expertise in Expense Management B Travel & Uniform Merchant Insurance Our existing solutions Fuel/Fleet card (1) Entertainment cleaning as of 2010 card/Payroll Belgium Brazil France Italy Mexico UK 16 solutions 5 1 6 1 3 worldwide as of 2010 16 solutions worldwide as of 5 1 6 1 3 2010 9 solutions launched in 2011 or 1 3 2 2 1 under development worldwide Accelerate conquest in the Expense management market, leveraging our unique expertise acquired in Latin America (1) Some affiliates claim for face value reimbursement through prepaid cards which can be used exclusively in our affiliated network, instead of through cash or money transfer. 38
Illustration of New Expense Management B Solutions 9 solutions launched in 2011 or under development worldwide Uniform Fuel/Fleet T&E Merchant card Insurance card cleaning Ticket Corporate Ticket Vestuario (Spain) Ticket Plus H1 2011 (Chile) (Turkey) Expendia Smart (Italy) H2 2011 Ticket Frete Ticket Clean Way Insurance card (Brazil) (UK) EPI (France) and 2012 39
Deploy eploy Incent ncentiv ive & & Rew ewar ards ds Solut olutions ions C in in our our Main ain Count ountries ies Our existing Partner channel & Partner channel & Promotion, Savings & Employee Recognition solutions as of 2010 Consumer loyalty Sales force incentive Discount Belgium Brazil France Italy Mexico UK 33 solutions 14 4 12 3 worldwide as of 2010 33 solutions worldwide as of 14 4 12 3 2010 6 solutions launched in 2011 or 2 0 1 3 under development worldwide Wide range of value-added services for all our stakeholders, on top of gift cards 40
Expand our Public Social Programs Offer D Solutions Four illustrations of Public Social Programs already developped in 14 countries Meeting the needs of Meeting the needs of Meeting the needs of Meeting the needs of French Local authorities Madhya Pradesh State Lombardy region Chilean Government Objective Objective Objective Objective Allocate home services Give support to low-income Give access to decent food Distribute public aid to subsidies to people with families with students to students suffering from underprivileged families disability or reduced mobility attending public or private social or economic primary and secondary disadvantages schools in Lombardy Solid relationships with public institutions 41
Our Strategy to Create and Roll Contents Out Solutions in the Prepaid Market • Prepaid Market Overview • Our Current Positioning • Our Strategy to Create and Roll Out Solutions • Two Illustrations of Recent Launches • Launch Process and Financial Impacts 42
Expense Management Market Overview Fuel/Fleet Fuel Other car/truck related expenses Tyres, Washing 90% All fuel types 10% Maintenance Other (parking, toll, insurance) Travel & Entertainment Travel Entertainment Air Accommodation 30% 60% to to Rail Food & Beverage 40% 70% Car rental Other Parking / Toll fees ,Insurance, Taxis, Mobile phone / Internet use, Gifts, Fuel (use of a company car), Kilometer allowances (use of a private car) Edenred Brazil has experience of the Fuel/Fleet expense management market with Ticket Car 43 43
Brazilian Expense Management Market: Our Vision In 2011 Potential Market Potential Market Distribution Edenred Brazil Focus € 91B € 74B € 34B Light Fleet € 17B € 40B Heavy Fleet Expense Management Fleet Management Travel & Entertainment Potential Market Market Market Travel, Transportation, Company's own vehicle Food, and Accommodation fleet management expenses Source: DealMaker Study 2010, Anuario Denatran 2010, Anuario Fenabrave 2010, PWC Study 2011, TicketCar. Exchange rate: € 1,00 ► R$2,37 (31/11/2011) 44
Edenred Brazil Focus: Fleet Management Market MARKET MARKET TYPICAL SEGMENT SIZE SERVICES Fuel Control € 34B FLEET LIGHT Maintenance € 14B Access Control € 1.4B (10%) Driving Reports Consulting Potential (1) Addressable (2) Addressed € 40B Fuel Control HEAVY FLEET Driving behavior reports € 16B Toll Solution € 2.6B (16.3%) Consulting Potential (1) Addressable (2) Addressed (1) Potential market: total fleet management expenses (2) Addressable market (internal estimates): calculated by excluding from total potential market very small companies and companies that do not intend to outsource their fleet Exchange: rate € 1,00 ► R$2,37 (31/11/2011) 45 45
Fleet Management Market BUSINESS VALUE CHAIN 2 3 1 PRE-TRIP ON-TRIP POST-TRIP Ordering & Behavior & Profile Fuel Fleet Management Logistics Insurance Telemetry Diesel Analysis Web Portal 24h Assist. Maintenance Gasoline Reporting Ethanol Documents X X X COMPETITORS POSITIONING 46
A Leadership Position in Fuel & Fleet Management Market FUEL & FLEET MANAGEMENT Launched in 1998 Leader in Light Vehicle Fleet & Fuel Management market 6,000 Clients (46% cross-selling ) 14,000 Affiliates (71% gas stations) 87% of satisfied clients 47
Expense Management Change : Edenred Brazil Case Shell First Sustainable Solution Fuel Cards Web Operation Partnership (Ticket Car Carbon Control) 1998 2000 2002 2004 2006 2008 2009 2010 • Investment in new • Investment in new Other Services: Maintenance service platform technology platform Service • Invoice Collection • Expansion of • Exxon Mobil • 24h Assist. sustainable solution Partnership (Esso) • Expedited Services portfolio • Behavioral Management (Telemetry, Tachograph) From fuel cards to a complete solution 48
Focus on Client Needs Fleet usage policy Accepted on Broad Network Expense controls by vehicle Multiple drivers per vehicle and by person Cost Reduction (up to 20%) Detailed web-accessed reports Eliminates expense advance Flexibility and Security and reimbursement processes 49
Case Study With Ticket Car, Natura has What is this company? succeeded in reducing its fleet Natura Cosmeticos SA is a Brazil-based company that is engaged in management costs and its the manufacture, process engineering, distribution and sale of greenhouse gas emissions. cosmetics, fragrances and personal hygiene products . The Company operates in Chile, Peru, Argentina, Mexico, Colombia, Portugal and Venezuela. Partners since 2011 "Our partnership with Ticket Car provided us with many Fleet CO ² emission control and cost savings advantages, including in the areas of cost management and 1,500 vehicles respect for the environment, our core value”. Detailed studies to reduce CO ² emissions Reduced fossil fuel usage by 60%. Elton Baptistella 50 Natura's head of fleet management Reduced fleet spending by 15% 50
Brazilian Expense Management Market: Our Vision From 2012 Potential Market Potential Market Distribution * € 114B Edenred Brazil Focus € 91 Bi € 74B € 23B € 17B Expense Management Fleet Management T&E Carta Frete Potential Market Market Market Market Travel, Transportation, Company's own vehicle Payment of Food, and Accommodation fleet management freight services expenses Source: DealMaker Study 2010, Anuario Denatran 2010, Anuario Fenabrave 2010, PWC Study 2011, TicketCar. Exchange rate: € 1,00 ► R$2,37 (31/11/2011) 51 51
Fleet Expense Management: Ticket Frete Positioning Fleet expense management market is divided into four macro segments Description Own transportation Companies with their own fleet system Vehicles belonging to carriers Third party Heavy vehicles transportation Available for eventual freight companies contracting Vehicles belonging to 500,000 Heavy and Light Individual drivers individual drivers in the country vehicles Project scope Vehicles used for specific purposes by companies, Light vehicles associations and public administration Source: DENATRAN and PwC analysis 52 52
Ticket Frete: individual drivers’ business expense management Current system: New system: New regulation from Nov. 2011 (penalties from Nov. 2012) paper-based card-based Claim refund Corporate client (1) Distribution of paper Card system: paper replaced by pre-loaded vouchers usable in Payment of travel expenses contracted merchants card used to pay all expenses (gas, in contracted affiliates: (gas stations, hotels …) accomodation, tolls, and driver remuneration) Individual driver Trip identification required by law: ID number for each trip declared to ANTT (2) (bar code system), to ensure tax collection Driver remuneration paid by gas station after goods delivery Profile management: filtered usage on-trip based on pre-trip settings Credit risk for affiliates (post-paid system) Low traceability of individual drivers’ consumption (for corporate clients, carriers, and Brazilian State) (1) Corporate clients can contract with individual drivers for their goods transportation (directly or through an intermediate transportation company) 53 (2) Brazil National Office for Transportation
Ticket Frete, a Unique Selling Proposition Partnership with Itau Bank Partnership with STP Edenred has signed a partnership with Itaú, the Brazilian toll collection only by cash or automatic largest Latin American bank, with nearly 5,000 payment system (debit/credit cards not accepted) branches and 30,000 ATMs in Brazil alone Edenred has signed a partnership with STP, management company for toll and parking fee If some Ticket Frete clients postpay Edenred, Itaú automatic payment system Sem Parar/Via Fácil, which assumes the counterparty risk covers 89% of Brazilian concessionholder network Itau promotes Ticket Frete among its large clientele Interface between Ticket Frete and Sem Parar/Via Facil (fast time to market for Edenred) NFC collect system brings convenience to individual drivers Dedicated web portal Partnership with MasterCard Simple and traceable way to comply with Brazilian Open-loop solution giving access to a large network regulation requiring each trip to be declared to the (1.8 million merchants) National Transport Agency : Ticket Frete loaded with tokens enabling each trip to be identified (barcode system) Loyalty Programs Simplified process to manage and control individual drivers’ expenses pre-, on-, and post-trip, offering Loyalty programs for drivers and merchants possibility to customize authorizations according to driver’s profile (Ticket Frete is loaded pre trip with the Additional revenue for merchants: more visibility and exact amount allowed for business generated with Ticket Frete label accommodation/gas/toll/wage) Quick roll-out from December 2011, based on same system/platform as Ticket Car 54
Business Model: Ticket Car vs. Ticket Frete Fuel/Fleet Expense Management Take-up rate (1) 4.0%-6.0% 0.5%-1.5% excl. Lost & Expired Lost & Expired - - Float & Financial - - Revenue 1.5%-2.5% 0.4%-0.7% EBIT/IV margin (2) A solution with slightly lower margins, however always accretive to FFO (1)Take-up rate : operating revenue with issue volume/ issue volume (2) At cruising speed 55
Conclusion 10- years’ experience in the Fuel A leadership position & Fleet Expense Management in this market Market Sophisticated transaction processing Particularly in Light Vehicles segment systems and platforms A new market created by the Ticket Frete, a unique selling government to improve tax proposition in the market collection A key component of Brazilian growth € 23B potential market for the next 5 years High potential of the Fuel & Fleet Management market in Brazil Ticket Frete, a significant new solution just launched 56
Our Strategy to Create and Roll Contents Out Solutions in the Prepaid Market • Prepaid Market Overview • Our Current Positioning • Our Strategy to Create and Roll Out Solutions • Two Illustrations of Recent Launches • Launch Process and Financial Impacts 57
Expense Management in France Fuel/Fleet Management Focuses on a niche segment of the expense management market Smart solution for corporate uniform T&E Management cleaning Managed as a separate Business Unit, but benefiting from cross-selling opportunities Other Expense Management Ticket Clean Way: a smart solution for a niche market 58
A Smart Solution with 3 Key Components A pre-paid dry-cleaning card (points-based) to maintain employees’ uniforms A wide merchant network of over 1,300 dry-cleaners (one- third of France’s dry - cleaners) A secure extranet dedicated to corporate clients; to manage card orders, check employee usage, review invoices, view key statistics with downloadable reporting 59
A Unique Selling Proposition Ticket Clean Way helps organizations to meet Health & Safety (H&S) obligations* + - Expensive, as the subsidy is subject Cash allowance Easy administration to social contributions/payroll taxes (Added to Salary) No control on actual usage of funds Cost of administration No discount at dry-cleaners Reimbursement Possibility to control proper usage Cash advance required from of Expenses employees Heavy logistics to collect and Industrial Price advantage for large contracts distribute uniforms Cleaning No logistics No social contributions/payroll taxes No price advantage versus industrial Discount on dry-cleaner prices cleaning Solution appreciated by staff Easy administration * Legal requirement for French employers to pay for corporate uniform cleaning 60
Cor orpor porat ate e Unif Unifor orm C m Cleaning: leaning: His Histor orical ical Tar arget geted S ed Segment egments Two historical targeted segments How does it work? Image clothing Work clothing Edenred Affiliates Clients 300 1,300 Beneficiaries 80,000 Market size € 85m* € 75m* Each card is loaded with “cleaning points” based on client instructions Competitive edge Dry-cleaning quality No logistics needed for Points are “consumed” each time clothes for a longer wear life mobile population are cleaned Clients Number of points used are attached to the beneficiary, not to their clothes Roll-out outside France depends on local H&S regulations * French workwear cleaning market size. Source GMV study for Edenred + Synamap study 61
Cor orpor porat ate e Unif Unifor orm C m Cleaning: leaning: Opportunit Oppor unity to dev o develop elop a new a new s segment egment A Newly Targeted Segment How does it work? Personal Protection Equipment (PPE) Edenred Affiliates Clients Beneficiaries Market size € 128m* Clothes have a barcode and are scanned at each cleaning Competitive Use of card is restricted to tagged Report ensuring compliance with H&S edge requirements for the use by workers of clothes PPE at the workplace** The information is sent to a central server, allowing clients to track the number of times each item of clothing is cleaned Market launch: Autumn 2011 Potential roll-out to other countries due to European regulation * French workwear cleaning market size. Source GMV study for Edenred + Synamap study ** Directive 89/656/EEC transposed in the French Labor Law: the employer must ensure that PPE is in good 62 working order (Max # of cleaning operations)
Conclusion 10- years’ experience A leadership position in the corporate uniform in this market cleaning market Unique network of affiliated dry-cleaners A unique selling proposition enrolled in our private card system A new market segment Ticket Clean Way EPI, an add-in opportunity created by functionality , creating an European H&S regulations innovative solution € 128m potential market Traceability at the item level, ensuring regulatory compliance for employers Ticket Clean Way, a powerful illustration of Edenred’s capacity to develop digital solutions for the expense management market 63
Our Strategy to Create and Roll Contents Out Solutions in the Prepaid Market • Prepaid Market Overview • Our Current Positioning • Our Strategy to Create and Roll Out Solutions • Two Illustrations of Recent Launches • Launch Process and Financial Impacts 64
New Solutions Launch Process Development Phase Soft Launch Phase Launch Phase Cruising Speed Phase (9/12 months) (3/6 months) (12/24 months) Analysis of customers ’ Marketing campaign for Steady ramp-up Market studies experience to check clients Stakeholders ’ needs study relevance and fine tune Training for clients and Solution design the solution beneficiairies, in particlar IT Development Limited salesforce in in Expense Management Marketing tools creation charge of soft launch Specific salesforce to Affiliation of the network promote the solution (specific salesforce) massively BREAKEVEN 2 to 4-year process before breakeven Low additional investment required to launch new solutions 65
Creating and Deploying Solutions: Financial Impacts P&L impacts Clients Year 5 Clients Year 4 Clients Very low attrition rates in Year 3 Stable the business client base Clients Year 2 Clients Revenues Year 1 Costs related to a new client : acquisition cost + Variable Variable costs transaction cost Development costs linked to Costs related to an costs additional existing client: transaction Fixed costs Costs business cost only Strong EBIT operating leverage BREAKEVEN Years 1 2 3 4 5 6 Extra-costs of € 3m in 2011 and € 4m in 2012 Strong operating leverage after breakeven 66
1 Conclusion ORGANIC GROWTH Accelerate Leverage our leadership and expertise creation and to expand our offer in emerging and developed countries roll-out of with a specific roadmap by type of solution solutions Increase Meet the target of 2 to 4% contribution contribution to issue volume growth post 2012 to IV growth Financial New solutions: strong cash flow generation impacts over the medium- and low additional investment term Creation and roll out of solutions will be a key contributor to our organic issue volume growth of 6% to 14% over the medium-term 67
Financial Focus Section 2
Contents Financial Focus • Float Investment Policy • Sensitivity Analysis 69
Float Investment Structure By region (end-2010) By investment horizon 2010 YTD2011 > 1 year Rest of Eurozone < 1 year Europe 17% 55% 13% ~ 25% Latin America Other countries 87% 75% 25% 3% Extended maturities in Brazil Float breakdown between Latin America and Europe reflecting product mix Medium-term objective: 50% of float invested in long-term* instruments, depending on Holding period for food voucher and interest rate trends in each country expense management float shorter than for meal and gift vouchers *More than one year 70
Float Investment Policy Prudent Cash Investment Policy A centralized cash management policy at Group level: Strictly defined policies Monthly reporting by counterparty, country, structure and internal audit controls Investment vehicles: No bonds, no equities Only money market instruments in local currency (bank term deposits with no risk on capital) No float transfer between currencies Risk management: 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 institutions (very limited investment in local banks, only international banks) Diversification: limited exposure by counterparty Only Tier 1 counterparties: highest rated institutions in the countries we operate in 71
Contents Financial Focus • Float Investment Policy • Sensitivity Analysis 72
Sensitivity Analysis – Impact on EBIT Sensitivity of the business model to four main macro-economic indicators Unemployment (1) Inflation (2) Interest rates (3) Exchange rates (4) +/- 1% +/- 1% +/- 50bp +/- 5% EURO LATAM OTHER BRL VEF MXN ~ € 5.4m ~ € 3.7m € 6.0m € 3.0m € 2.2m € 5.3m € 1.6m € 0.9m € Xm Impact on Group EBIT (1) Unemployment rate in our existing client portfolio (2) Assuming that face value grows at the same pace as inflation (3) Impact of 50bp increase/decrease in our average investment rate on financial revenue. (4) Impacts calculated on 2010 EBIT 73
Shift to Digital Strategy Section 3
Shift to Digital Strategy Contents • Introduction • The Digital Value Chain • Edenred Digital Strategy • Country Illustration: Brazil • Key Role of PrePay Solutions • Financial Impacts • New Growth Opportunities 75
Why shifting to digital makes sense for all stakeholders A win-win solution for all stakeholders Clients: optimized and simplified processes, cost savings Edenred Beneficiaries: convenient, fashionable solution A C Affiliates: simplified administrative process, value-added services, cost savings B An efficient tool for public authorities Better control over fund allocation and traceability Clear correlation between card transactions penetration and reduction in the informal economy Source: AT Kearney analysis Analysis of stakeholder needs led to the decision to accelerate the shift to digital at end-2010 76
Why shifting to digital makes sense for Edenred Rationale for the shift to digital Financial impacts Issue volume growth Market demand New sources of revenue, which offset the reduction in lost products First mover / Competitive advantage Reduced operating costs, leading to an operating flow-through ratio* objective of above 50% post-transition New growth opportunities Shorter float holding period, offset by higher volumes A strategic priority for the Group *Ratio between the like-for-like change in operating EBIT and like-for-like change in operating revenue 77
Digital Strategy Contents • Introduction • The Digital Value Chain • Our Digital Strategy • Country Illustration: Brazil • Key Role of PrePay Solutions • Financial Impacts • New Growth Opportunities 78
How to Shift to Digital 2016 2012 >70% A strategic move from paper to digital, 2009 50% implying changes in the value chain 30% and interactions with new stakeholders 1 Program Launch Phase Two Main Phases 2 Program Management Phase A country-by-country process 79
Digital vs. Paper Value Chain: 1 Program Launch Program Launch Phase Phase Phase 1: Program Launch Digital Paper Value Chain Value Chain Solution creation 1 1 Set up of processing capabilities 2 2 Affiliation network manager 3 3 Set up of POS devices 4 Set up of interfaces between POS 5 and processors Set up of capabilities and network for the launch of a program (paper or digital), implying non-recurring costs An additional capability in the digital value chain: the set up of POS devices 80
Set Up of POS Devices 1 Program Launch Phase POS devices: two options Owned POS Use of existing POS Conditions for setting up our own POS: Conditions for the use of existing POS: Need for strategic control No need for strategic control Specific technical features of the solution Existing infrastructure corresponds to technical solution requirements Lack of equipment at the merchant POS Sufficient merchant coverage Edenred examples: Edenred examples: Turkey for meal vouchers: electronic payment terminals or mobile phones Brazil for meal and food vouchers Italy for meal vouchers France for Ticket Clean Way Brazil and Mexico for Ticket Car Belgium for meal vouchers 81
Digital vs. Paper Value Chain: 2 Program Program Management Phase Management Phase Phase 2: Program Management Digital Paper Value Chain Value Chain Issuer 1 1 2 Program Distributor 2 Redecard and Cielo (Brazil), Acquirer (technical or banking) 3 ATOS (Belgium )… Payment scheme (Visa, MasterCard, CB in France, Switch (international or domestic) 4 3 Production Carnet in Mexico...) Processor / Authorization 5 PPS, FIS, TSYS… Banking or Private Settlement manager 6 4 Private settlement settlement The digital value chain is less integrated than the paper value chain Edenred is the program manager for the full value chain (paper or digital) 82
New Stakeholders 2 Program in the Digital Value Chain Management Phase Switch Processor / Acquirer (international or domestic Authorization (technical or banking) payment schemes) Technical entity which: Technical acquirer: Intermediary between issuer and acquirer, which: Ensures the technical Allows collection of financial and non-financial data from a processing of a transaction Defines the rules of a transaction at POS Transfers the data directly to transaction Provides IT data to issuers and authorization platforms acquirers Executes transaction switch Banking acquirer: Allows collection of financial data from a transaction at POS Transfers the data to switching platforms Provider can be the same entity, but the type of service offered is different 83
Coexistence of Two Models 2 Program within the Digital Value Chain Management Phase Private Model Banking Model Program Manager control point Intermediary control point Use of the standard banking Private software set up in the POS, software (already part of the POS) alongside banking software Issuer Banking acquirers Acquirer Technical acquirers (through MID or MCC*) Domestic or international Switch payment schemes Authorization Private settlement negotiated Settlement rules defined by Settlement management between issuers and merchants the scheme (usually 24h.) Private model: full control but higher implementation costs Banking model: lower control but lower costs and quicker implementation * Data acquiring is controlled by the program manager through MID (Merchant Identification Code) but not through MCC (Merchant Code Category) MID is a code attributed to a single merchant by a payment scheme, whereas MCC is a code attributed to a category of merchants (ex: restaurants) 84
Focus on the Private Model 2 Program Management Phase Private Model Processing and Processor 5 authorization of the Processor transaction Technical acquirers Merchant Issuer acquirer Technical Acquirer 1 Private settlement negotiated Card betwwen issuers and acquirers issuance 4 Loading 2 Merchant 6 transactions acquisition Merchant reimbursement Client (settlement) Merchant / POS terminal End-user / Cardholder Software 3 Cardholder payment Same circuit as the banking model Different circuit compared with the banking model Merchant fee is collected directly from merchants 85
Focus on the Banking Model 2 Program and Payment Schemes ’ Role Management Phase Banking Model Processor 5B Authorization Switching Banking acquirers 5A Processor Payment scheme: Domestic or international Switching & Clearing Merchant Issuer payment schemes of transactions acquirer Banking Acquirer Settlement within 24 hours 1 Card issuance 6 4 Loading 2 Merchant Merchant transactions reimbursement acquisition (settlement) Client Merchant / POS terminal End-user / Cardholder 3 Cardholder payment Same circuit as the private model Software Different circuit compared with the private model Merchant fee is collected through the interchange fee, defined by payment schemes 86
Focus on the Mobile Value Chain 2 Program Management Phase Mobile Phone Devices Mobile value chain is the same as card value chain Specific features of the mobile value chain: Different technology (mobile vs. card) Mobile operators play the role of acquirers Different options for mobile technology use: “Mobile to POS” transaction (beneficiary has to be equipped with an NFC mobile and merchant with an NFC POS or mobile) “NFC card to mobile” transaction (beneficiary has to be equipped with an NFC card and merchant with an NFC POS or mobile) Mobile is an alternative technology, but the digital value chain remains the same 87
Shift to Digital Strategy Contents • Introduction • The Digital Value Chain • Edenred Digital Strategy • Country Illustration: Brazil • Key Role of PrePay Solutions • Financial Impacts • New Growth Opportunities 88
Overall Digital Strategy Long-term positive effects for Edenred Acceleration of the shift to digital 2016 Volume Digital issue volume >70% 2012 growth 2011 E New 50% 2010 revenue 2009 sources 41% 34% Reduced 30% operating costs Acceleration of the shift to digital since the demerger: objective of 41% digital issue volume at year-end 2011, 50% at year-end 2012 and more than 70% post-2016 89
Choice of Digital Model Two options depending on local conditions and program characteristics Private Model Banking Model Choice criteria: Choice criteria: High volume program Low volume program Filtered-loop network Open-loop network (with filter option) Edenred examples: Edenred examples: Meal and Food cards in Brazil Expendia Smart in Italy Meal cards in Belgium Solred card in Spain Meal cards in Turkey 90
Choice of Technology A wide range of technologies in the digital universe Technology selection criteria: Edenred operates with all types of technologies Client demand Local environment (percentage of Ex: currently 3 countries with mobile pilots merchants and beneficiaries equipped with the technology) Edenred is technology agnostic 91
Digital Transition Map Rest of the Europe Latin America World 59% digital IV (end-2009) 59% digital IV 6% digital IV 71% 10% 62% (end-2011 E ) Latin America and Rest of the World in final stage of digital roll-out Start of digital roll-out in almost all European countries Group’s target: 50% of digital issue volume by year -end 2012 92
Shift to Digital Strategy Contents • Introduction • The Digital Value Chain • Edenred Digital Strategy • Country Illustration: Brazil • Key Role of PrePay Solutions • Financial Impacts • New Growth Opportunities 93
Reasons Behind the Shift to Digital in Brazil in the Early 2000s Pressure from the Government to avoid misuse by the beneficiaries (vouchers are easier to sell) Pressure from supermarket operators to avoid vouchers theft (online card transactions are safe ) Process optimization and cost savings in the medium term (economies of scale) Differentiation from competitors (“first mover”) Practicality for the client, user and merchant 94
Migration Timeline Migration to WATTS Launch of Launch of Platform Ticket Alimentação Ticket Restaurante Launch of (Worldwide Application Electronic (TAE) Electronic (TRE) for Transactional Ticket Ticket Alimentação (TA) Services) Migration Project 1997 1998 1999 2002 2003 2006 2007 TA Pilot started SGC Platform Electronic card authorization and processing taken in-house The decision to start with Ticket Alimentação was due to the product’s characteristics (fewer transactions) and number of merchants 95
Technology Shift: A New Value Chain Card Value Chain Edenred Private Model Corporate Clients Cardholders Full control of the key elements of the digital value chain by Edenred: • Card issuance • Transaction authorization • Clearing & Settlement Redecard and Cielo, two Issuer Processor Value-Added Networks Authorizer used by Edenred to gain quick access to merchants’ POS Affiliates Local Card Scheme (VAN) Partnership between Edenred and Value-Added Networks: a win-win solution Edenred, a program manager bringing additional volume to Redecard & Cielo Redecard & Cielo, two acquirers offering quick and standardized access to a large network of POS 96
Migration Pace by Type of Solution Paper issue volume (%) 2000 2005 2010 Digital issue volume (%) 16% 100% 100% 84% 11% 74% 100% 89% 26% 97
The Shift to Cards: Impact on Costs Paper cost drivers Card cost drivers Printing Card embossing Delivery Delivery Recycled security paper Acquiring voucher Processing Voucher cover Average cost per call Reimbursement PIN number reissuance Acquiring fees: a clear competitive edge for Edenred The only player to have partnerships with the two main local acquirers giving access to 95% of Brazilian POS , our historical partner , a new partner (historically the exclusive acquirer of Visa Vale) Leverage on cost structure Strategic partnership with acquirers: a key element of the electronic value chain 98
The Shift to Cards: Impact on Margins Food & Meal voucher margin growth Meal & Food vouchers Issue Volume (in local currency - million) 3.4% 3.4% Phase 1: Implementation 7,000 3.2% Short term increase in costs due to investment in technology, rollout of 6,000 electronic solutions, management of 2.8% paper and digital systems together 5,000 4,000 2.2% 2.3% 2.3% Phase 2: Cruising Speed 3,000 2.1% Increase in Issue Volume leads to significant economies of scale 2,000 Digital Issue volume 1,000 Paper-based Issue volume 0 X% EBIT/Issue Volume margin 2003 2004 2005 2006 2007 2008 2009 2010 Short-term pressure on margins (transition period) Significant margin improvement in the long-term 99
Conclusion A relevant shift for all stakeholders Safety Affiliates Convenience After initial development Beneficiaries Cost savings stage with renewed processes Clients High level of satisfaction and technologies, positive economic outcome for Edenred Better control of allocated funds Public Authorities Traceability Stronger relevance of the legal framework Brazil is a pioneer and a benchmark case for paper to card migration 100
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