INGENICO : Continued double digit-growth in the first half of 2016

Key figures

12% organic growth in revenue

Performance in the first half

In the first half of 2016, revenue totaled €1.133 billion, representing a 7% increase on a reported basis, including a negative foreign exchange impact of €50 million. Total revenue included €788 million generated by the Payment Terminals business and €345 million generated by Payment Services.

On a comparable basis revenue growth was 12% higher than in the first half of 2015, a result that included a 15% increase in Terminals and a 5% increase in Payment Services.

A key feature of the first half of 2016 was a very high volume of business in Europe, demonstrating the Group's ability to leverage regulatory change in mature markets. In Asia-Pacific, the Group further increased its share of the market, with vigorous growth in Turkey, Australia and China. In contrast, Brazil's unfavorable economy heavily affected business volume in Latin America. In North America, revenue growth was driven by the Group's increasing market share at large-scale retail chains. Investment in the Group's ePayments division over the last few months has started to pay off, as reflected in the strong sales momentum of the first half.

Performance in the second quarter

In the second quarter of 2016, revenue totaled €581 million, representing a 4% increase on a reported basis, including a negative foreign exchange impact of €30 million. Total revenue included €400 million generated by the Payment Terminals business and €181 million generated by Payment Services.

On a comparable basis revenue growth was 9% higher than in the second quarter of 2015, a result that included a 10% increase in Terminals and an 8% increase in Payment Services.

Excluding Brazil, the Group recorded organic growth of 14% in the quarter.

Ingenico Group's solid performance in Payment Terminals reflected expanding market share in Asia, Russia and the United States, as well as the operational excellence that has enabled the Group to take full advantage of equipment replacement cycles in mature markets.

The Group also continued to gain market share in in-store Payment Services. Furthermore, the ePayments division's return to growth makes it possible to reaffirm double-digit growth objective for the second half of 2016.

Compared with Q2 2015, the various divisions performed as follows on a like‐for‐like basis and at constant exchange rates:

• Europe-Africa (up 13%): The Payment Terminals activity enjoyed brisk business in most countries, but particularly in the United Kingdom and the Nordic countries, where the Group took full advantage of a major equipment replacement cycle following a change in standards (PCI v1). In Russia, Ingenico Group doubled its revenue as a result of an agreement signed with Sberbank. In Eastern Europe and Africa, strong growth was attributable to increasing market share, most notably in South Africa, Poland, the Ukraine and Greece.
  At the same time, the Group's in-store Payment Services business delivered sound performance, fueled by rising electronic transaction volume in Germany and growing market share in France and the United Kingdom.
  
• Asia-Pacific and Middle East (up 29%): Ingenico Group has continued to record high growth throughout this geographic area. In Turkey, sales rose during the quarter on the back of mandatory replacement of the installed base with fiscal memory payment terminals. In China, the Group once again reaped the benefits of a booming market to increase its sales further. Tetra deployment in Australia also contributed to the Group's strong performance in the region.
  
• Latin America(down 27%): The Group has maintained its share of the Brazilian market even though the country's difficult macroeconomic climate strongly affected sales volume. Elsewhere in the region, Ingenico Group has continued to grow at a rapid pace. In Mexico, the Group has strengthened its position as a supplier to the main acquirers and large-scale retailers; in Argentina, efforts to win over acquirers are producing results; and the business trend in Peru remains encouraging. At the same time, Telium Tetra deployment has been advancing swiftly in Latin America.
  
• North America (up 11%): As forecast, the Group has achieved double-digit growth in the United States. EMV migration is still the key driver of that growth, both on traditional and on mPOS terminals. Although there is considerable inventory build-up at distributors, Ingenico Group has continued to gain market share at major retail outfits, a segment where business remains buoyant. The Group has also continued to gain ground in new vertical markets like hospitality and healthcare.
  
• ePayments (up 4%): The division returned to growth in the second quarter, making extremely rapid operational progress in both technological and business terms. The first investments in its platforms have already led to significant service quality enhancements. In addition, the deployment of IngenicoConnect on the GlobalCollect platform has enabled the Group to win greater market share with strategic customers as well as new contracts. During the second quarter, the number of e-merchants increased significantly and the Group finalized an agreement with Alipay, reflecting this major company's confidence in the platform's performance.
  

Gross profit up 3%

Adjusted gross profit in the first half of 2016 was €490 million, equal to 43.2% of revenue.
At 46.7% of revenue, gross margin remained high in the Terminals business, but was 110 basis points lower than in the prior-year period, due to a less favorable product mix.
Gross margin in the Payment Services business fell 290 basis points to 35.3% of revenue. That result was primarily attributable to a changing customer mix and to rising expenditure to enhance performance on the ePayments division's platforms.

Operating expenses up to 25% of revenue

On an adjusted basis, operating expenses in the first half of 2016 increased by 12% to €284 million. As announced at the start of the year, the Group has stepped up expenditure, both in its Terminals business to launch the Telium Tetra range and develop new offers, and in its Payment Services business to add new features to its platforms. Operating expenses represented 25.1% of revenue, versus 23.9% in the first half of 2015.

EBITDA margin in line with objective

The Group recorded EBITDA of €244 million, compared with €249 million in the first half of 2015. This brought the EBITDA margin to 21.5% of revenue, a result in line with management objective for the full year. At 18.1% of revenue, EBIT reached €206 million in the first half of 2016, versus €221 million in the prior-year period.

Substantial profit from operating activities

Other operating income and expenses represented a net expense of €0.4 million, down from €3 million in the first half of 2015.
Purchase Price Allocation expenses totaled €21 million in the first half of 2016, versus €25 million in the prior-year period.

After accounting for Purchase Price Allocation and other operating income and expenses, profit from operations totaled €184 million, compared with €194 million in the first half of 2015. The Group's operating margin was equal to 16.2% of revenue, versus 18.3% in the first half of 2015.

Profit attributable to Group shareholders on par with the previous year

At €1 million, net finance costs include an €8.5 million gain on the disposal of Visa Europe securities recognized at end-June.

Income tax expense fell from €64 million in the first half of 2015 to €56 million in the first half of 2016. As of June 30, 2016, the Group's estimated effective tax rate was 31%, a year-on-year improvement reflecting a more favorable country mix.

The net profit attributable to Ingenico Group SA shareholders in the first half of 2016 was €122 million, as in the prior-year period.

A sound financial position in line with the Group's growth plan

Total equity attributable to Ingenico Group SA shareholders was €1.588 billion.

During the first half of 2016, Ingenico Group's operations generated free cash flow of €64 million. This result was 8% higher than the prior-year amount, due to a smaller change in working capital than in the first half of 2015 despite business growth. At the same time, continued investment brought the Group's investing activities to €27 million.
The Group has maintained its goal for the year of converting approximately 45% of EBITDA into free cash flow.

The cash dividend paid in respect of 2015 was €34.5 million, whereas 54.8% of the total dividend amount was paid in stock (502,641 shares), reflecting strong shareholder confidence.

Accordingly, as of June 30, 2016, the Group's net debt stood at €232 million, down from €252 million as of December 31, 2015. The net debt-to-equity ratio was 15%, while the net debt-to-EBITDA ratio held steady at 0.5.

Highlights of the first half

Agreement with Alipay
Ingenico ePayments has scored a major win with Alipay, an iconic new economy company. The Group will be handling cross-border transactions for Alibaba.

Strategic acquisition in Japan
Ingenico Group has acquired a 70% interest in Lyudia from BroadBand Tower Inc., which will retain a 30% stake in the entity. Lyudia, a Japanese developer of payment applications and software, is the distributor of Ingenico terminals in Japan. This strategic move will allow Ingenico Group to gain a solid foothold in a market with high barriers to entry.

A stronger position for the Group in Southeast Asia
Ingenico Group has acquired the payment solutions business of Nera Telecommunications Ltd for 88 million Singapore dollars. This acquisition will give Ingenico Group an enhanced local payment applications portfolio and the ability to leverage the existing distribution and services network of a company with market leadership in Thailand and a substantial share of the market in Singapore, Indonesia, the Philippines, Malaysia and Vietnam. Completion is expected to take place during the third quarter of 2016.

Acquisition of Think&Go NFC
Ingenico Group has finalized the acquisition of Think&Go NFC, a start-up provider of connected screens. Think&Go NFC and Ingenico Group designed the first connected screens incorporating contactless payment technology, with the result that digital advertising displays are turned into genuine points-of-sale.

Outlook

The Group has maintained its objective for full-year organic revenue growth in 2016 at 10% or above, despite a troubled economy in Brazil and the uncertainty surrounding the pace of inventory destocking among distributors in the United States. Business will remain vigorous in Europe and Asia, and the ePayments division will return to double-digit growth in the second half of the year.

The Group has also maintained its full-year objective for EBITDA margin, which is expected to reach 21% of revenue in 2016.

Conference call

A conference call to discuss Ingenico Group's H1 2016 results will be held on July 26, 2016 at 6.00 p.m., Paris time. Dial-in numbers: 01 70 99 32 08 (French domestic), +1 646 851 2407 (for the United States) and +44 (0)20 7162 0077 (international) with conference code: 959181.