Global Blue Group Q4 2024 Earnings Call Transcript

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June 4, 2024

There are 2 speakers on the call.

Operator

Good morning. I am Jacques Stearns, the CEO of Global Blue, and I will be joined today with by Roxanne Dufour, the CFO of the group, to present you the full year results of 2023 2024. So let me first introduce the presentation by a quick executive summary, which highlight the key takeaways. First of all, the year 2023 2024 has seen a very strong operational performance with a revenue increase of 36%, with an EBITDA increase of 91% at 149% in line with the short term guidance, translating a drop through of 64% and an adjusted EBITDA margin of 30 5.2% and increased by 10 points versus last year. Roxanne will come back much more in detail on that in few seconds.

Operator

2nd key takeaway, the year has shown also rapid deleveraging and a solid balance sheet improvement with a leverage ratio, which is now at 3.4 versus 6.5 last year at the same time and also refinancing during the year in December 23 with now a debt maturity, which is up to 2,030. 3rd key takeaway is related to tax free shopping recovery in May April, where basically we have seen a further acceleration in Continental Europe at 141 percent, translating by 13 point increase versus Q4. And in APAC, a recovery which is now reaching more than 200% at 223%, translating an increase of 57 points versus Q4. I will come back to that more in detail after Roxanne's presentation. 4th key takeaway.

Operator

This has been a year, 2023, 2024 of very solid strategic initiative progress in the front of digitalization, where we have improved by 4 points of success ratio at 56% versus 52% last year and versus 48% in 2019. We have seen also the year with a continuous commercial dynamic, translating into a gross retention ratio of 99.4% and a net retention of 102.8%. And finally, also in the payment side, strong acceleration of our gateway initiative with 5 acquire signed during the year and more than 350 hotels, which has been rolled out during this period. Last but not least, as a key takeaway, we reconfirm our long term target, which mean for the year 2024, 2025, an EBITDA over €200,000,000 And for the years onwards, I. E, 25, 20 6 and onward, revenue growth of 8% to 12% and a drop through of at least 50% with an objective of leverage below 2.5 times EBITDA on net debt.

Operator

So with that in mind, I leave now the floor to Roxanne, who will present you the Q4 and the full year result of 'twenty three, 'twenty four.

Speaker 1

Thank you, Jacques. I'm Rob Van DuFort, CFO of the group. And so as mentioned by Jacques, I will take you through the group financial performance for the Q4 12 months period ending on 31st March 2024. You can have all the reconciliation to the NAREIS IFRS metrics included into the appendix. Let's move to slide 9 for the adjusted P and L related to our Q4.

Speaker 1

We are very pleased to report here another solid quarter with significant progress across the business. Tax free shopping solutions and payments reported sales in store increased by €6,500,000,000 an increase of 32% versus Q4 last year. Group revenue increased by 21% to €105,000,000 And turning to adjusted EBITDA, we have delivered a significant improvement of 60% to €34,000,000 resulting in an increase of around 8 points in the adjusted EBITDA margin to 32.2% with a 69% drop through. Finally, we recorded an adjusted net income for the group of €2,000,000 versus a negative 1,000,000 in Q4 last year. Let's turn to Slide 10 to dig into the revenue performance.

Speaker 1

You can see here that we have delivered another strong quarter with significant growth across the business. As mentioned, we reached €105,000,000 revenue, representing a 21% increase versus the same period last year. I will go into the details per division on the following slides, but you can see that tax free shopping, solutions, payments and post purchase solutions contributed a further €19,000,000 in revenue during the period. Turning now to the revenue performance per division. Starting with tax free shipping, accounting for 73% of our group revenue in Q4 this year.

Speaker 1

The division delivered a strong performance with an increase in revenue of 23% on a reported basis to €77,000,000 Revenue in Continental Europe increased by 16% to €63,000,000 while revenue in Asia Pacific increased by 64% to €14,000,000 This strong performance reflects the ongoing recovery across all origin nationalities with the reopening of Chinese border in January 2023 being the key driver of the revenue improvement, especially in Asia, where sales in stores of shoppers from Mainland China has already recovered to 125% in Q4 versus 2019. And Jacques will cover this in more detail later. Turning now to payments. Payments accounted for 21% of our group revenue in Q4. This division also delivered a strong performance with an increase in revenue of 23% on a reported basis to €22,000,000 reflecting a strong performance across both business segments.

Speaker 1

Revenue in FX Solutions first increased by 27% to €10,000,000 while revenue in acquiring business increased by 20 percent to €12,000,000 As with tax free shopping solutions, payment is also benefiting from the ongoing recovery in the travel industry along with new business wins. Turning now to post purchase solutions. This segment accounted for 6% of our group revenue in Q4. The division delivered a revenue growth of 3% on a reported basis to €7,000,000 in Q4. The revenue growth here is moderate as we took the decision to move away from certain low contribution carrier contracts in Zig Zag.

Speaker 1

But the like for like contribution growth of the division after carrier cost is strong at 31%. Turning now to adjusted EBITDA. The significant improvement in revenue together with the ongoing focus on the cost base led to a 60% increase in adjusted EBITDA in Q4 this year with a 69% drop through. We begin with our adjusted EBITDA €21,000,000 last year, Then with the additional business contribution of €40,000,000 fixed cost and foreign exchange impact of €3,000,000 The group delivered an adjusted EBITDA of €34,000,000 in Q4, with an increase in adjusted EBITDA margin of almost 8 points to 32.2%. Turning now to Slide 15 for further details on net finance costs.

Speaker 1

Here we are showing there was an increase of €5,000,000 in net finance costs versus the same period last year. This is mainly due to an increase in interest cost of €4,000,000 which is a result of an increase in interest rates to 8.3% during this period versus 5.2% in the same period last year. Now turning to the detail on the quarterly adjusted EBITDA. Here we are showing the annualized adjusted EBITDA for the group based on the latest quarterly recovery. You can see here a steady and consistent improvement in the annualized quarterly adjusted EBITDA.

Speaker 1

Based on the latest recovery, the Q4, the annualized quarterly adjusted EBITDA is now at €164,000,000 This is also a significant improvement in terms of margin from 31.4% in Q4 last year and now we are at 37.8% in Q4. Now I will take you through the finance detail for the full year. Here you can see the same positive trends as with the Q4. Tax free shopping solutions and payments reported sales in store increased by €26,000,000,000 an increase of 41% versus 2022, 2023. Group revenue increased by 36% to €122,000,000 versus €312,000,000 last year.

Speaker 1

Turning to adjusted EBITDA. Benefiting from significant operating leverage, we have delivered a strong improvement of 91% to €149,000,000 and in line with our stated guidance with a 10 point improvement in margin to 35.2%. Finally, we recorded an adjusted net income for the group of €27,000,000 again a significant improvement versus negative €8,000,000 last year. Now let's look at the revenue growth in the period. Again, we delivered a very strong performance with revenue growth of 36% in the year, reflecting a strong performance across the business.

Speaker 1

So if we start with the revenue of last year at €312,000,000 there was a strong growth in tax free shopping solutions of €83,000,000 with an increase in Europe of €60,000,000 and an increase in APAC of €23,000,000 This strong performance is again reflective on the ongoing recovery across all origin nationalities. Payments also delivered strong revenue growth of €21,000,000 And finally, post purchase solution revenue increased by €7,000,000 At the end, we land at revenue of €422,000,000 for the year. Now turning to contribution growth. Here, we are showing the contribution across the business, which is the marginal revenue less marginal variable cost. We have a contribution growth of 38%, which is in line with our revenue growth of 36%.

Speaker 1

There is a good improvement in contribution by division with €69,000,000 from a tax free shopping solution, €30,000,000 from payment and €7,000,000 from post purchase. Turning now to detail the evolution of our fixed costs. Here we are comparing our fixed costs in financial year 'twenty three, 'twenty four versus 'nineteen, 'twenty. As a reminder, the business our business benefits from high operating leverage due to 60% of our cost base being fixed. The fixed costs in 'nineteen, 'twenty were at €159,000,000 The long term cost savings done by the management during the COVID period resulted in a reduction in fixed cost of €27,000,000 Then with the increased inflation of €17,000,000 on a like for like basis, our fixed costs would be at €148,000,000 in 2023, 2024, well below the reported numbers of €173,000,000 which includes the scope effect of post purchase solution and listing costs.

Speaker 1

And as a reminder, we are targeting fixed costs to increase at a rate of approximately 1 point above inflation due to the ongoing investment in OpEx to support our growth ambition from 2025 to 26. Turning now to the financial year adjusted EBITDA. Similar to Q4, here we are showing the detail of the full year where we achieved, as mentioned before, 91% increase in adjusted EBITDA with a 64% drop through. Starting with our adjusted EBITDA last year, which was €78,000,000 If we look at the additional contribution of each business, we have a further €87,000,000 in 2023, 2024. And then considering the fixed cost at €14,000,000 the scope effect of €2,000,000 €1,000,000 foreign exchange impact, the group delivered an adjusted EBITDA of €149,000,000 and again, as mentioned, an increase in adjusted EBITDA margin of 10 points to 35.2%.

Speaker 1

More detail now on our adjusted EBITDA. In 'nineteen-twenty, we reported an adjusted EBITDA at €171,000,000 Then we take out the €25,000,000 impact from the abolishment of the tax free shopping scheme in the UK in January 2021, which give us an adjusted EBITDA for 'nineteen-twenty at €145,000,000 Then we have €12,000,000 of business won during the period, which at the end gives us an adjusted EBITDA at €157,000,000 in 2023, 2024 on a like for like basis. Then we strip out listing costs and scope effects from post purchase solution, which take us our reported adjusted EBITDA of €149,000,000 So in effect, our current adjusted EBITDA of €149,000,000 is ahead of the 'nineteen-twenty adjusted EBITDA of €145,000,000 when we restate from the UK impact. Moving to the net finance cost. Here, the net finance cost increased by €14,000,000 versus the same period last year due to an increase of €21,000,000 in debt interest cost as a result of an interest rate increase from 3.67 percent to 7.05 percent.

Speaker 1

This was offset by a decrease in other finance costs by €8,000,000 with the previous period being impacted at that time by the foreign exchange losses related to certain rights and Knighthead equity transaction and also our supplemental shareholder facilities that have been reimbursed this year. In May of this year, we successfully repriced the debt, reducing the interest rate margin by 100 basis points on both the term loan and RCF to 4% and 3.5% respectively from June 2024. This will result in an annualized interest cost of €48,000,000 at actual LIBOR on the senior debt of €610,000,000 Turning now on our cash flow statement. After an adjusted EBITDA of €149,000,000 the level of CapEx was €39,000,000 in the period and it's essentially related to technology development. You can see here a working capital outflow of €3,000,000 versus €38,000,000 last year, but I will cover that in detail on the next slide.

Speaker 1

So after CapEx, working capital and lease payments, we delivered a pretax and leverage free cash flow of €95,000,000 which is an increase of €100,000,000 year on year, supportive positive cash flow for the first time since COVID and in line with our historical performance. We have also paid higher interest of €56,000,000 and this is, as mentioned, mainly due to interest rate rise over the year. Then after income tax paid in the period, that gives us a positive free cash flow of €22,000,000 versus negative €32,000,000 in the prior period. Finally, considering all the major movements such as the €44,000,000 inflow from the strategic equity investment from Tencent during the year and the €25,000,000 of costs related to the refinancing, which we completed in December, our net debt has increased by €27,000,000 over the period. Turning to the now to the detail for the working capital dynamics.

Speaker 1

Here we are showing the variation between last year and this year. As a reminder, our working capital is driven by the timing of the refunds that we make to international travelers and the timing of the VAT payment that we receive from merchants and tax authorities. We typically refund travelers on average 30 to 45 days before we are paid by the merchant or the authorities. As a result, we experienced cash flow seasonality throughout the year with a larger networking cap need during springsummer when international shoppers travel more frequently, followed by a working cap unwind during autumn and winter months. As we have seen the travel industry recover, we have seen a significant increase in volume, which leads to a much higher working capital need last year.

Speaker 1

And now as we are in a more settled environment, you can see this stabilize with a more balanced working capital need during spring and summer followed by working capital excess during autumn, which has led for the year to a €3,000,000 outflow for this period 'twenty three, 'twenty four. And as we assume more normalization in growth starting in 2025, 2026, we expect net working capital to be neutral on an annual basis. Turning now on an analysis of our net debt position. As of 31st March 24, our net financial debt amounted to €523,000,000 including cash and cash equivalent at €88,000,000 And you can see here there has been an ongoing improvement in the net leverage ratio from 6.5 times from end of March 'twenty three to 3.4 times at the end of March 'twenty four. And as a reminder, in November 'twenty three, we took the opportunity to renegotiate our senior debt to strengthen the balance sheet with the refinancing closing on the 5th December with the senior debt at €610,000,000 with a maturity of 7 years and a revolving credit facility at €97,500,000 Turning now to the key takeaways to conclude this section.

Speaker 1

1st, we are pleased to report the solid recovery with a significant increase in our revenue of 36% to €422,000,000 Thanks to the strong revenue growth and the ongoing management of the cost base, we are pleased to report a strong improvement in the full year adjusted EBITDA to €149,000,000 This is an increase of 91% of what has been reported last year with a 64% drop through. On that basis, if we annualize the adjusted EBITDA based on the quarterly performance of the group. This is an acceleration in Q4 at €164,000,000 Furthermore, we delivered a pretax and leverage free cash flow of €95,000,000 supporting positive cash flow for the first time since COVID and in line with our historical performance. We have also delivered a strong improvement in the net leverage ratio to 3.4 times and reiterate our objective of being below 2.5 times. Finally, in May 24, we successfully repriced our senior debt with the interest rate margin reduced by 100 basis points on both the term loan and RCF to 4% and 3.5%, respectively, with a €6,000,000 reduction in the annualized interest cost.

Speaker 1

This concludes the finance section, and I will now hand over to Jacques to present the latest trends and the long term growth driver for Global Group.

Operator

Thank you, Roxanne. I will start by the latest trend. We can see that the sales in store volume for tax free shopping in Europe has accelerated in April May at 141 compared to 128. And we see that all major nationality have contributed to this acceleration about Mainline China. I will come back in a minute to that.

Operator

If we linked look now to APAC, we see that the acceleration in April may have been even more sizable than in Europe at 2 23% versus 166% in Q4. And there also we see that all nationality are contributing, in particular Mainland China, which is accelerating from 125% to 190%. And what we are seeing from that point of view is that clearly Chinese recovery is driven by APAC versus Europe, in particular, given the low yen in Japan, which drive consumer, in particular affluent and high network individual Chinese to Japan versus Europe. But all in all, we are seeing that both in Europe and in APAC, April and May has been very strong versus Q3 and Q4. If we look now to the same data on April May, but versus last year, we see that the increase has been of 22% versus 18% 13%, respectively, in Q4 and Q3 for Continental Europe, mainly driven by the increase of international shopper of 20% and a stabilization in the average spend, which is only increasing by 1%, the overall translated by 22% increase versus last year.

Operator

The main nationality contributing to this 22% are GCC and Mainland China, which are around 40%, but all nationality are positive. If we go now to the same analysis of performance versus last year, but this time for APAC as a destination, you can see that there we have a triple digit increase in April May, so an acceleration versus Q3 and Q4 at 118%, which is driven mainly by Mainland China, but not only at 268 percent increase. In APAC as a destination, we see the same trend acceleration in terms of number of international shopper versus last year with 70% more travelers and an average spend, which is there increasing by 15% versus flat in Europe, mainly driven by Chinese, which are coming to Japan and spending more, as I was mentioning just before. So in summary, the last 2 months have been very strong, which is a good news versus our objective of €200,000,000 EBITDA for the year. So let's move now to the 3rd section of this presentation, which is the achievement of the 2023, 2024, which gives me the occasion to drive you through the long term initiative.

Operator

Let's start first by tax free shopping and the digitalization, which as you know remain one of the key initiative in order to improve the performance. You may remember that the digitalization in the store is now mostly achieved. We are already at 90 9% this year, but we were also at 98% last year. So what means digitalization in the store is to roll out some differentiator that we have versus competition, namely eligibility detection and secure card capture in order to improve the success ratio. And you see there that we have continued to roll out those two differentiation.

Operator

And you see on the right the positive impact on the success ratio of those two functionality. I remind you that eligibility detection means to be able to recognize the consumer in the store through the being of its card when it's paying and trigger automatically a prompt to the shop staff and secure card capture is the functionality, which is enabled by the payment integration like Adient, for example, which allow the shop staff to use the same card, which has been used for the payment for the refund, which they also improved the customer journey, which translate into an improvement of the success ratio. Post store, we have also continued to see some progress in terms of digitalization. So digitalization in terms of export validation, now 84% of the volume is validated through a digital solution, but also to continue to improve the consumer interaction, which are fully digital through our mobile customer care, which you may remember also had a benefit in terms of improvement of success ratio. We are now at 84%.

Operator

And last but not least, we have continued to pay more refund outside of refund point. So namely on cards, which are captured directly in the store or through the mobile customer care, which enable us to reduce the cost, in particular the one that we pay at the airport and remind you that we have given this guidance, which is for every 10 point of shift outside of the airport, we have a €7,000,000 benefit in terms of cost saving. This year, it has been around €2,000,000 And there also, as I was mentioning, you see the progress from 51% last year to 54%. So in all meaning, you see the progress that we have made in terms of digitalization, which translate into, as I was mentioning in my executive summary, a very strong improvement of the success ratio this year at 56% versus 52% last year. And this translate into now improvements, which are very significant versus 2019 of 6 point.

Operator

And if we go in detail per nationality, that translate, for example, in American from 22 point of increase of the success ratio, which is now at 64%. It means that it used to be at 42%. And basically, more or less the same on all nationality. So all in all, as I was mentioning, 56% success ratio, which is an improvement of 6 points versus 'nineteen, 'twenty. If I move now to the initiative in terms of commercial dynamic, they're also very strong successes.

Operator

Of course, you remember that Global Blue is leader by far at 70% market share. But more importantly, we have seen in the last 5 years an acceleration of our ETPI in terms of net retention at 102.8% versus the same period 2014 to 2019 of 100 and 3% and also the same improvement in terms of KPI in terms of gross retention at 99.4% versus 96.3% in the previous period. And this translate even if we have not changed the 70% market share mark into gain of market share, which are sizable. And here we have given one example, which is Spain, where we have offshore data, which are given by the customs authority, where we can see that Global Blue has win almost 10 points of market share between 2019 2023, and we are now at a market share of 77%. And obviously, these successes in terms of digitalization and also commercial dynamic allow Global Blue to perform better than its competitor.

Operator

You have here the figures of Global Blue recovery for the main three countries in Europe, where our main competitor is present. And you see that we have a gap versus recovery of our competitor, which is around 50 to 55 point depending on the country, which is the direct impact of 1 digitalization, which translate into more success ratio, which improve the recovery, but also the gain of new clients. And all in that translate into a very big gap with our competitor in terms of level of recovery, which is a very good news. If we move now to our second line of business, Payment, in particular with the FX solution. They're also a very healthy situation in terms of net retention rate 104.8 percent.

Operator

And you have a couple of logo here, which give you the main win for the last 2 years. I will not comment more than that, but also, as I was mentioning, a very healthy situation in terms of FX solution for the. If I move now on the 2nd line of business for payment, which is the hospitality gateway, they also a very strong performance during the year. We have signed 5 acquirers during the year with more than 350 hotels, which has been rolled out, as you can see on the left. And equally importantly, we have signed 5 more acquire during the last quarter of the financial year, which will start in terms of rollout during the next financial year, 2024, 2025, so ensuring a continuous growth for this new initiative of hospitality gateway.

Operator

So in summary, a very strong year in terms of achievement, which is a good transition for the long term guidance. So here, we just reiterate what we have announced in September 23, which is €4,000,000 24,000,000 25,000,000 and EBITDA of more than €200,000,000 with a CapEx investment of €40,000,000 to 45 €1,000,000 And for the long term, I. E, post 2025, 26,000,000 long term target in terms of revenue between 8% to 12% with 50% drop through revenue to EBITDA and the same guidance in terms of CapEx between 40% 45%. In terms of net working capital, as mentioned by Roxanne, neutral working capital on annual basis, even though we have a seasonality with the summer. In terms of tax rate, an effective tax rate, which will go down with the increase of the EBITDA to 24% to 26% rate.

Operator

And as also mentioned by Roxanne, an objective of leverage, which is below 2.5. So let me give you 2 or 3 snapshot on this long term guidance, starting first by tax free shopping. You know this slide, but it's quite important to reiterate how we can deliver this 8% to 12% growth in terms of revenue. It starts first by tax free shopping, by the volume growth, where basically our guidance is 10% to 14%, which is a combination of multi driver coming from the market 6% to 8%. The dynamics in terms of new market opening 1.5% to 2%.

Operator

Digitalization just drives you to the impact of the success ratio, which was very strong this year, 4 point, which is which was translating into 8% increase or contribution to the increase of the revenue this year, which was a fantastic year. We are more moderate in our guidance versus the 8%. We bragettes only guide to a 2% to 2.5% increase of volume coming from digitalization and also net retention where we guide by 0.5% to 1.5%. So a combination of growth driver, which are in line with the long term trend that we have delivered in the last 10 years before COVID, which are on the left side of the chart and which are also consistent with what has been delivered in 20 3, 2024. Moving to the tax free shopping revenue, There also, we are guiding to revenue growth of 7% to 11% from the volume growth of 10% to 14% because of 2 element: 1st, pricing pressure of 1.3% and secondly, a mix effect of 1.7%.

Operator

There are also elements which are in line with previous period that you have on the left side of the chart, with the exception of the pricing where we have seen that thanks to our differentiation that we have rolled out, namely the payment integration, but also the mobile Customer Care, we have been able to reduce the pressure on the price, delivering even this year an only 50% bps decrease from the pricing. But nevertheless, we are continuing to guide with this 1.3% pricing impact for the long term. So in summary, from this 10% to 14% volume increase, we translate the guidance in terms of revenue increase for tax free shopping to 7% to 11%. For the FX solution, there are also same, I would say, element. 1st, a multi driver growth, which lead to a 9% percent to 13% volume and revenue growth, no impact between volume and revenue in the FX solution.

Operator

And they also multi driver, as I was mentioning, the market, but also the signature of new acquirer, cross selling of existing solution to existing acquirer and more penetration, which are very much in line with what we have delivered in the past. So this slide also conclude the presentation and basically is just a reminder of the fact that Global Blue is well aged, again, the risk of inflation, but also recession. I remind you that during the last year, we have been able to benefit from the luxury brand price increase, which were higher than the inflation of the cost, which has been one of the benefits for Global Blue explaining the recovery, which is well above 2019. But also an element which is important is in a recession environment, Global Blue in the past during the great financial crisis, but in other crisis also, demonstrating the resilience versus the luxury market and also the travel industry. The main reason for that being the fact that Global Blue is more skewed to high network individual and affluent consumer, which are less, I would say, sensitive to economic shock, which can be named inflation or which can be named recession.

Operator

So with that in mind, just to remind you that we are at your disposal with Roxane to have any 1 on 1 meeting in the coming days. Thank you very much for your listening.

Speaker 1

Thank you.

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Key Takeaways

  • Global Blue reported a 36% revenue increase and a 91% jump in EBITDA for FY 2023-24, lifting its adjusted EBITDA margin to 35.2%, up ten points year-on-year.
  • The company rapidly deleveraged, cutting its net leverage ratio from 6.5x to 3.4x after refinancing in December 2023 and extending senior debt maturity to 2030.
  • Tax-free shopping volumes rebounded sharply in April–May, with sales in Continental Europe up 141% and in APAC up 223% year-on-year, driven largely by Mainland Chinese travelers.
  • Key strategic initiatives gained traction: in-store digitalization lifted the refund success ratio to 56%, customer retention remained robust (99.4% gross, 102.8% net), and its hospitality payment gateway signed five new acquirers and onboarded over 350 hotels.
  • Global Blue reiterated its long-term targets: surpass €200 million EBITDA for 2024-25, sustain 8-12% annual revenue growth thereafter with at least 50% drop-through, and reduce leverage below 2.5x.
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Earnings Conference Call
Global Blue Group Q4 2024
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