Ingenico Group SA (OTCPK:INGIY) Q2 2019 Earnings Conference Call July 23, 2019 12:00 PM ET
Nicolas Huss - CEO & Director
Michel-Alain Proch - CFO
Johan Tjänberg - EVP, Retail Business Unit
Matthieu Destot - EVP, Banks & Acquirers Business Unit
Conference Call Participants
Joshua Masser - Morgan Stanley
James Goodman - Barclays Bank
Sébastien Sztabowicz - Kepler Cheuvreux
Sandeep Deshpande - JPMorgan Chase & Co.
Alexandre Faure - Exane BNP Paribas
Emmanuel Matot - ODDO
Adithya Metuku - Bank of America Merrill Lynch
Ladies and gentlemen, welcome to the Ingenico Group Half Year Results and Q2 2019 Revenue Conference Call. I now hand over to Nicolas Huss, CEO; and Michel-Alain Proch, CFO. Gentlemen, please go ahead.
Thank you. Good evening, everyone, or good afternoon. Welcome to this conference call to discuss the first half of the 2019 results announced today. I am Nicolas Huss, the CEO of Ingenico, and I'm joined here today by Michel-Alain, our Group CFO; and of course, our 2 BU leaders, Johan Tjänberg for Retail; and Matthieu Destot for B&A.
Michel-Alain and I are going to briefly walk you through the key highlights since the beginning of the year, the first half numbers and our revised guidance for the full year 2019. Johan and Matthieu will then present the key operating highlights for our two business units.
Moving now to Slide 3 where I would like first to highlight the key operational events since the beginning of the year. Starting with B&A. The first half has been strong and better than our initial expectations with an organic growth of 16% and a tight cost control. As for the first quarter, we have benefited from a steady performance in Latin America driven by the Brazilian market where we continued to gain market share and deployed APOS across the main local players. In the meantime, we have experienced an overall strong growth in Asia Pacific with a good deployment in Android APOS devices that we continued to deploy successfully.
Lastly, regarding the mature market, it's important to highlight that EMEA is back to a slight positive organic growth in the second quarter with resilience in the mature part of the regions and a ramp-up of the other countries. North America came line with our expectation and impacted during the second quarter by a strong comparison basis in Canada while the U.S. are getting back to a positive dynamic.
Regarding Retail, the first half has been completely in line with our expectation with 11% organic growth and operating levers at play. All the business lines delivered as expected with, first, SMB growing at double organic -- double-digit organic growth with, as expected, a second quarter softer than the first one due to the impact of some rebalancing of our risk portfolio. This impact will end in the course of the second half, leading to an acceleration in organic performance.
Global Online growth was at its cruising speed, benefiting from the strong growth in emerging regions, new solutions and the focus on the travel vertical that gained ground in a reinforced risk framework. And the clients kept on growing all along the semester driven by both the transaction activities and POS. And finally, PAYONE, our new JV, has delivered in line with the plan, and we also see in that the integration process is on track. Globally, the first half has been solid in both business lines, or business units in this case, and this allows us to raise our 2019 guidance. We will come back to this topic later in the presentation.
Now moving on to Slide 4 for the key financial highlights of the first half. So let me first provide a summary of the key H1 figures, and, of course, Michel-Alain will then dig into more detail. During the first half, we have reached €1.6 billion in revenues, up 31%, fueled by both organic growth of plus 13% and also, of course, by the integration of Paymark and BS PAYONE, the later being done without cash consideration. Our EBITDA came out at €254 million, representing a 15.8% margin with a slight contraction in B&A due to the geographical mix, offset by a strong operating leverage within Retail. Therefore, our net profit came out at €80 million, up 32% versus the first half of last year -- of course versus the first half of last year pro forma, integrating BS PAYONE and Paymark. During this semester, we have as well put a strong focus on cash, allowing us to deliver €120 million of free cash flow, representing a 47% conversion rate, already in line with our full year guidance. Our net debt-to-EBITDA ratio came at 2.7, down from 3.6 in June 2018 and 3.1 in December 2018, thanks to the strong free cash flow generation. Globally, these figures reflect what we have initiated in the frame of the strategic plan presented a few months ago, repositioning Ingenico to deliver our 2021 ambition.
Now moving to Slide 5. Let me cover the key milestones of our Fit for Growth plan during the first half. As already stated, we are in an execution mode all across the group to deliver our ambition and the €100 million of EBITDA impact expected in 2021. So let's start with the group level. In the last month, we have defined and calibrated our targeted operating model, and we are strictly implementing it. It includes our legal structure reorganization, the ERP rationalization and the deployment of one single analytical structure per BU. We feel confident that we can deliver by the end of 2019, having in mind, you may remember that from our Strategic Day, that the ERP rationalization would take a bit longer. We have also started to rationalize and migrate our data centers without any service impact. As an example, we have migrated our Sweden data center to Amsterdam. We have also opened the first renegotiation with our suppliers and started to deliver savings on renewed contracts. And lastly, we have pursued the development of some near-shoring and off-shoring initiatives to start delivering savings by the end of the year.
Moving to the Retail Acceleration program on dedicated growth initiatives. We have successfully launched Bambora Connect within SMB, providing an all-in-one solution for the ISVs, easy to integrate and bringing value to margins. We have expanded our offering within Enterprise to address specific verticals such as self-service with solutions combining also acquiring capabilities. We have strengthened our product portfolio within Global Online dedicated to the travel vertical with the launch of LinkPlus and the rollout of Travel Hub. And that's also, as I said earlier, in our reinforced risk framework. We have pursued the integration of BS PAYONE, which is on track, and have certified the full-service offering to be rolled out across merchants' portfolio.
Lastly, on the B&A revival side, as you know, we have launched several initiatives repositioning the BU. First of all, we have accelerated our Android deployment to almost 1 million terminals that represents circa 15% of our revenues in H1 and already have more than 10 dedicated app certification projects ongoing. We have also started the rationalization of our product portfolio with 20% of the product references already decommissioned. With the implementation of our B&A revival plan, we have strengthened our go-to-market organization and started to adapt our industrial capabilities to deliver the first savings. We have as well implemented a global account management initiative with the first positive impact, i.e., a double-digit growth year-on-year on the top global accounts. All these initiatives across the group put us in a position to accelerate the Retail organic growth, reposition and optimize B&A while redesigning our group operating model with an objective to deliver our 2021 strategic ambition.
Moving to Slide 6. I would like to make a step back and highlight some other initiatives that are important, i.e., our internal and external social involvement.
First, we have implemented a new leadership model all across the group. As already said, one of the pillars of our success is on talents. We are focused on recruiting, retaining and developing key talents with the right approach, solution and teamwork-oriented culture while eliminating siloed thinking. We support our talents through the launch of dedicated initiatives, developing skills and competencies and making Ingenico a great place to work. On top of having a perfect alignment between achievement and compensation, we have also redesigned our performance and talent management framework.
Secondly, we have also followed and developed our CSR initiatives. We know that it cannot really be assessed over a 6-month period as these are more long-term actions. But rather than a long explanation, I'd like to share some quick snapshots with you.
We've been engaged in specific initiatives to promote gender diversity such as the European Women Payments Network where during their last annual conference, an Ingenico product and innovation manager received the highest award. In the meantime, we have been continuously involved in societal actions, providing payment solutions for charities. During the first half of the year, organizations have been able to collect €69 million through our solutions with €6.5 million donation. And we're on track to reach our €12 million donation objective on a full year basis. Last, we have continued to roll out initiatives to deliver our end-of-life recycling solution in 75% of our countries by 2023.
Finally, we have been as well strongly involved in the development of our ecosystem. I would like to highlight the partnership that we have recently announced with CaixaBank and Global Payments. Together, we created in Barcelona an international innovation program named Zone2boost with a mission to identify innovative technology initiatives for business and financial services and support their growth. The startup community is a major part of the payments industry transformation. And for us, innovation is at the heart of our solution, and it's our duty to assist our startup partners, taking care of their business, and continue to provide our customers with the best and most innovative payments experience.
With this, I would like to pass on to our CFO, Michel-Alain, who will share more details on the first half performance and will provide the second half assumption factors in the guidance range.
Thank you, Nicolas, and good evening to all of you. So let's move directly to Slide [indiscernible] organically. EBITDA was €254 million, which includes €17 million of IFRS 16 impact, which means that excluding this impact, EBITDA like-for-like was €237 million. This is to be compared with €212 million in H1 year 2018 pro forma, including the contribution of BS PAYONE and Paymark. So we closed a very positive first semester in EBITDA with 12% of gross, in line with the growth of revenue. You'll remember that our guidance for the year was €580 million, including the IFRS 16. So we have closed in this first semester €254 million, and this is 44% of the full year EBITDA, which is 4 points better than last year. We will go later on in the detail of the construction of this EBITDA. But in a nutshell, we have been able to almost fully compensate the decrease of the gross profit rate by a decrease of our operating expenses, leading a minus 30 bp at EBITDA rate level from 15.0% last year to 14.7% this year. So that's fully in line with our balance H1, H2 of profitability.
Now moving on to the main indicators of Retail. The business dynamics of this BU will be presented later on by Johan. But in a nutshell, we have closed €906 million revenue in the first semester. That's 11% organically. And that's fully in line with the Q1, which was 11%, too. Retail EBITDA is €122 million or €112 million excluding IFRS 16. This represents a growth of €16 million versus last year, which is a better operational leverage by 60 bp. Let me indicate here that in line with our communication in February, Retail has invested €5 million into the strategic growth initiative of Fit for Growth. Excluding this €5 million of investment, the operational improvement year-over-year represent 110 bp.
The split by business line is fairly equivalent to the one at the end of Q1 with Global Online and PAYONE representing, respectively, 30% of Retail revenue; while Enterprise is 22%; SMB, 18%. Enterprise posted the best performance in this quarter with 20% organic growth mostly fueled by health care Germany, North America and Turkey. SMB grew 13% with a strong activity in the Nordics and the deployment of Fit for Growth strategic initiative. Global Online posted 11% mainly from emerging markets, Asia, Latin America and India. And finally, PAYONE posted 4% of growth, identical to Q1.
Now moving to B&A. We closed €705 million revenue, which is an increase of 16% organically, with an EBITDA at €132 million or €125 million without IFRS 16, and we compare this €125 million with the €116 million last year. So it's an EBITDA improvement of €9 million, which is derived from the overperformance of both Latin America and Asia. And as expected, the savings derived from the Fit for Growth/B&A revival plan represented €8 million, which almost entirely compensated the adverse geographical mix and isolated price pressure. Matthieu will elaborate on this dynamic in detail in a couple of minutes, and I will get back to it myself.
In terms of by region, it's interesting to note that now the first B&A region in terms of size is APAC with 35% of revenue, just above EMEA with 34%. Latin America and North America are, respectively, 20% and 11%. Growth was clearly fueled by Latin America with 104% organic growth, and the same dynamics in Brazil as in Q1. Asia posted a strong 18% fuel by the Android market share gain, mostly in Indonesia, and a strong first semester in China. EMEA was almost stable with a strong change in business mix within Europe -- within the Europe continent between major markets, France, Italy, and slight decrease and a strong momentum in Russia and Eastern Europe. It is noteworthy to mention that excluding the Ireland business that has been terminated last year by the group, EMEA was stable in H1 '19. North America came in actually above our expectation, as Nicolas mentioned, with a strong pipe for H2 but impacted this semester by an unfavorable comparison based in Canada.
So finally, I would like to highlight that for the first time, we are now very close to a fully balanced situation in terms of EBITDA generation between both BU with 48% derived from Retail and 52% derived from B&A.
So now for the next coming 2 slides describing the dynamics by business line, I would like to give the floor to our 2 business leaders. First, Johan and then Matthieu. Johan, the floor is yours.
Thank you, Michel-Alain. So firstly, in general, I'm very pleased with both the strategic and the financial performance in the first 6 months. We are off for a good start in terms of the execution of the strategy that we presented at the Capital Markets Day in April. And a few examples of this is firstly our new set of focus on targeted verticals, which is developing very well. This is partly demonstrated by strong commercial achievements, customer wins in several of our key verticals but also the launch of dedicated new product and services to verticals such as the travel segment and the self-service environment.
Secondly, we have had a strong success in the development of our partner channel with onboarding of new software partners as well as new partnerships for our cross-border advanced acquiring. Thirdly, as sort of highlighted by Nicolas, we are in full execution and with good progress on our 6 strategic growth initiatives that we presented to you in April.
All in all, we are making good progress in positioning the Retail Business as one of the leading providers in the new world of commerce. As Michel-Alain said, this is also translating into good financial performance. We have to remind you that we delivered a 5% organic growth in the first 6 months of last year. That should be compared to the 11% of organic growth in the first 6 months of this year. And this is in line -- I mean, for some business, it's also above the expectations.
A few other highlights. If you look at the dynamics between the BELs, three of our BELs are delivering more than 10% growth. If we take this 1 level down, 17 of our growth channels are delivering more than 10% growth and 10 of our growth channels are delivering more than 20% of growth. Finally, all of these have also resulted in an improved operating leverage in the Retail business. Looking into the details of the various business lines, the highlights are the following. SMB are up 13%. This performance is in line with our expectations. Growth rates in the first 6 months have been negatively impacted by the rebalancing of our risk portfolio, in line with what we described in the Q1 earnings call. The impact of this will gradually be reduced in the second half, and we expect to be back at mid-teens in the second half.
During the first semester, SMB continued to grow its merchant base by more than 10% organically, indicating continued strong market share growth. In the second quarter specifically, we launched our new unique solution for the ISV and software vendor community in Europe called Bambora Connect. With this solution, we are first to market in Europe with a true pan-European all-in-one payment solution that can be integrated to our APIs to any business application in a few minutes. This solution is already live with 5 partners.
Finally, the SMB geographical expansion is progressing well with the first phase of implementation of the Bambora blueprint in the Benelux region.
Moving on to Global Online that demonstrates an 11% growth in the first 6 months where the business activity evolved as expected throughout the period with a strong growth in emerging regions as India is, for example, growing more than 30% during the first 6 months. If we look at Asia Pacific, including India and Latin America, these regions are now representing 40% of the revenues in Global Online, which clearly demonstrates the success of our strategy of increasing our focus on high-growing regions.
On the product side, we also see good momentum with great commercial success related to newly launched products and features. The launch of our Russian acquiring capabilities that we announced earlier this year have been a great success, benefiting additional cross-border volumes. The focus on the travel vertical is gaining ground in the reinforced risk framework with the rollout of the Travel Hub and the launch of the LinkPlus in-app solution, leading to a growing pipeline of new prospects. In parallel with this, I also want to highlight the synergies with Retail that are materializing as Global Online is leveraging the Bambora acquiring platform. More than €2 billion of transaction value are now being processed through the Bambora platform on an annual basis, which is in line with the synergy in the Fit for Growth plan.
Enterprise, we have experienced a very strong first 6 months where revenues are up 20%. The performance came in better than expected in H1, benefiting from strong performance in several of our growth channels and verticals. A few examples. Our transactional business targeting large retailers in Europe continued to perform extremely well with high double-digit growth in transaction volume, which is also a good indicator of that we are winning market share. This has been driven by strong performance within the in-store segment as well as through our omnichannel solution.
Our Retail Business in North America have been a strong driver this semester, benefiting from continuous market share gain amongst large U.S. retailers. As Michel-Alain said, we also have experienced a strong performance in Turkey.
And finally, I also want to highlight the strong performance within our health care vertical, benefiting from a local initiative in Germany for deployment of a new health care acceptance technology. This dynamic should start to face a tough comparison basis from the third quarter as the deployment started in Q2 2018 and the incentive ended on June 30 this year. In parallel with this, we have also had a good development of our new products and offers related to the strategic growth initiative, which includes progress both in self-service segment as well as for the omnichannel Retail space, where we are integrating acquiring capabilities that will enable us to accelerate further.
Finally, on PAYONE, we have seen a 4% growth in the first 6 months. This is in line with our plan where we expected a slower growth in the first half of the year as a result of the integration process of the two entities. We are on track on accelerating the growth progressively over the second half of the year to reach our midterm growth target by 2020. The integration process is progressing well with legal entities being rationalized and ongoing IT migration. New full-service offerings have been certified within the merchant portfolio during the second quarter, which will enable a further rollout later this year. Furthermore, the partnership with a savings bank are developing very positively, resulting in accelerated merchant inflows to PAYONE through this channel.
So all in all, to conclude, a strong first half here for Retail both in terms of strategic achievements as well as financial performance. You will see a slightly different dynamic in the second half of the year where we expect the high growth within SMB and PAYONE that will offset the slower growth in H1 -- versus H1 for Enterprise.
So with that, I would like to pass on to Matthieu for B&A.
Thank you, Johan. So regarding B&A, I will dig into the main dynamics per region. So starting by Europe, Middle East, Africa, which was down 3%. The region revenue stabilized during the second quarter. So during the overall semester, mature countries were relatively resistant and emerging ones were ramping up. In Western Europe, revenue were progressively normalizing while facing pricing pressure. Eastern Europe exceeded our expectation driven by CIS countries. Some countries in Southern Europe experienced a challenging semester, which was the case in Italy and France, impacted by a weaker demand from the local acquirers.
So now moving to Asia Pacific, which was up 18% during this first half of the year. Most of the countries were well oriented this semester, delivering a better performance than expected and benefiting from a favorable comparison basis that will phase in the second half of the year. China has benefited from the strong demand in APOS, or Android POS, from third-party processors and the main local banks in China. While it is beneficial to the first half performance, the latter is driven by the phasing of their budget allocation, which would lead to a weaker Chinese performance in the second part of the year.
In Southeast Asia, we remain very dynamic, fueled by the Indonesian markets where Ingenico continued to successfully deploy its traditional Android POS terminal to local banks and APMs, so alternative payment methods processors. In India, we are maintaining a good momentum. While in Thailand, we started to recover from a challenging environment during the second quarter. In addition, in Japan, we remained strong, benefiting from the EMV migration. While in Australia, we suffered from a decline this semester on a contract shift, and this will remain challenging during the second half of the year.
So now moving to Latin America where we were up by more than 100%. So the performance has been very strong throughout the first semester driven by very dynamic Brazilian markets. It benefited from a strong momentum as the Ingenico Group continued to gain large market share and to deploy Android POS across the main local players, benefiting as well from a flexible go-to-market and full payment model that continues to attract the largest local acquirers. In addition, cross-region deals have been won during the second quarter, feeding the growth of Argentina, Peru and Chile. Overall, this current pipe sustains a double-digit growth until the end of the year.
And finally for North America, which was down 9%, the performance was in line with our expectation, as explained by Michel-Alain, impacted by a weaker demand in Canada in the first half while benefiting from an improvement trend in the United States, getting back to a more positive dynamic during the second quarter. As expected, the performance in Canada has contracted during the second quarter, still impacted by a high comparison basis. The dynamic is expected to improve progressively during the second half of the year, benefiting from purchasing volume getting back to a more normative level. In parallel, in the U.S., the U.S.-based activities are improving during the second quarter on ISV ramp up. The country, so meaning the U.S., should benefit in the second part of the year from a very solid pipeline of projects and a continued ramp-up of the current ISV certifications.
Now I would like to pass on to Michel-Alain for the detailed figures of the first half of 2019.
Thank you, Matthieu. So let's go to Slide #11, and let's dive into the hydraulics of the EBITDA of each division. So starting with Retail, the EBITDA derived from our organic performance contributed €22 million, which represent a 25% incremental EBITDA margin on the €88 million incremental revenue of Retail in H1. You can see here the operating leverage at play. As already mentioned, we invested €5 million into the strategic growth initiative of Fit for Growth/Retail acceleration, particularly in SMB and in Global Online. So the performance is fully in line with our expectation. You'll find here in the bridge the IFRS impact of €10 million, which is slightly higher than expected for Retail, between €112 million before IFRS and the €122 million after IFRS.
Now if I move to B&A, the main building blocks of B&A is the deployment of the following. As expected, we have experienced an EBITDA contraction of €11 million coming from the business mix, which means a nonfavorable geographical mix mainly driven by the 104% organic growth in Latin America and some isolated pricing pressure in some major countries. But thanks to the B&A revival plan and the strong cost control in operating expense, we've been able to compensate almost entirely this €11 million by mainly €8 million of savings. This is a materialization of our Fit for Growth revival plan and support function action that was mentioned by Nicolas at the beginning of the call.
And finally, we captured €9 million of EBITDA improvement derived from the overperformance in revenue, which I mentioned in Latin America and Asia. IFRS 16 impact came at €7 million, which is in line with expectation.
So all in all during the first half, we've been able, one, to capture the expected operating leverage in Retail to reach €122 million of EBITDA; and two, execute the first Fit for Growth action in B&A to reach €132 million of EBITDA.
So moving on now to the next slide, which is Slide #12. We are presenting the group income statement. I'm going to comment the figures excluding IFRS 16 impact, which are fully comparable with H1 '18 pro forma.
So let's begin with the gross profits. As you can see, it has reached €570 million, which represent a gross profit rate of 35.4% versus €547 million last year, which was 38.7%. It's a new -- improvement in million of €23 million but a decrease in gross profit rate by 330 bp. The decrease is in line with our expectation. As we have explained during the Investor Day, we are expecting pressure on the B&A gross profit mostly due to the geo mix and price pressure in major countries. And we will compensate it by a reduction of operating expenses throughout our -- through our Fit for Growth plan. Important to note is that Retail profit rate was stable, taking into account the €5 million investment that I have already mentioned.
In regards to the second semester, we expect the execution of the Fit for Growth initiative, coupled with a more normalized geographical mix, to enable the group to significantly improve the gross profit rate versus H1 this year.
Now regarding the operating expenses. I think that one of the major achievements -- financial achievements and business achievements this first semester, along with our business dynamism and our free cash flow that I will comment later, is the strong control we have established on the group operating expenses. As you can see, we've been able to decrease our operating expenses by 1% from €335 million last year to €332 million this year. And this is why supporting 13% of organic growth of the group. And the comparison for you to size this performance, please compare this with the first semester '18 in which revenue was stable but operating expenses increased by 8%. So the cost control is now fully effective on the full base of the company, and this is a leading to a reduction of our operating expenses rate from 23.7% last year to 20.6% this year, a decrease of 310 bp, which has almost compensated completely the decrease of gross profit that I have mentioned.
Now turning to the analysis of net profit. The main elements to bring to your attention are, first, the reduction of our tax rate, which was 26.9% in H1 '18 going down to 20%, 20.2% precisely in H1 '19, and this is due to an overall decrease in local taxes and our geographical mix evolution. And finally, the second point is the stability of our financial costs. So this results in a net income that came in at €80 million, 8, 0, for the first half, which is up 32% versus the first half '18 pro forma.
So now let's go to the free cash flow, which is Slide #13. As mentioned when I joined the company, one of my strong focus is in the cash generation and our ability to deliver a more stable cash generation throughout the year. So we have implemented in the first semester a redesign and holistic cash control process articulated around several major elements. The first one is the reinforced financial control around working capital and, in particular, collection, capital expenditure and also expense. And the second is the cash structure that we are deploying in the company not only in the finance function, obviously, but as a strong bond working together with operation. So I think that we have reached during the first half the first success in the optimization of the group cash generation with a free cash flow of €120 million and a conversion rate of 47%.
Now if we dive into the numbers in the free cash flow, first of all the major lever is obviously the improved EBITDA that brings €44 million of additional cash contribution, and this is net, obviously, on the noncash IFRS 16 effect. Second is the materialization of this redesigned cash control process I just mentioned is an improvement in change of working capital by €40 million, resulting from a better efficiency on cash collection, reduced overdue and, obviously, collection discipline. CapEx were contained at €60 million to be compared with €53 million last year, and that's €18 million for B&A, in line with the investment policy I mentioned of €30 million full year and €42 million in Retail, which is in line, too, with the investment policy of 4% to 5% of revenue.
OIE are under control with €18 million, which is fully in line with our objective of circa €40 million for the year. And tax paid of €25 million this year versus €48 million last year, here we have a one-off, which is a one-off reimbursement from the French tax authority of €25 million.
All these elements allow us to generate, as I already mentioned, €120 million of free cash, conversion rate 47%. But you -- if you net the tax one-off reimbursement, free cash is €95 million, which is leading to what I consider is a sustainable first half conversion of 37%, which is a strong improvement versus the 12% of last year.
Now moving on to the net debt evolution. I'm going to go fast in there because Nicolas has already covered it. So I think it's the first important milestone that we've passed with -- fully in line with the capital allocation priorities that we mentioned during Investor Day. What I mean by that is that we are now below the multiple of 3 at the time, 2.7 EBITDA. And this result was achieved despite the payment, as you know, of €73 million of net cash out from the Paymark acquisition.
So there are maybe two things that I would like to raise to your attention that we've made in July. The first one is as a direct consequence of this improvement of free cash flow and particularly the regularity of the free cash flow. We've decided with Nicolas to immediately optimize our whole financing cost with an early redemption of the €250 million term loan, which was maturing in 2020. So we have fully reimbursed it. Second is paying them. In July, the cash portion of the dividend, I just want to mention it, which was €34 million, I mentioned to you that it's almost 50-50 between our shareholders between those who elected a distribution in cash and those who elected a distribution in shares.
Finally, with my part which is on Slide #16, I would like to present you a summary what we consider as the major organic growth trends by BU for the second half of the year.
Regarding B&A, we expect the organic growth overall to be flat or low double digit driven by the following trend by region. First, stable organic growth in EMEA with the stabilization that we've mentioned in Q2. Second, high single to low double-digit growth in Latin America. Obviously, we have a current pipe right now, which sustain a double-digit growth in the third quarter. But as you -- we have told you already, we stay cautious in the last quarter of the year in Latin America. Finally, mid-single-digit decline in Asia Pac with China impacted by less demand in H2 and the tougher comparison basis and, we think, a single -- a low single organic growth in North America driven by a solid project pipeline and the stabilization in Canada.
Regarding Retail, I think Johan covered it, but just very, very quickly, growth in mid-teens for SMB, growth normalization in Enterprise that Johan was mentioning toward the high single digit as well as there was very, very strong H1 and a low double organic growth digits within Global Online. Finally, growth acceleration in PAYONE towards high single digits before reaching its cruising speed in 2020. This trend would lead, as I have mentioned, to a mid-single-digit organic growth in H2 this time at group level.
So Nicolas, back to you for the conclusion and updated guidance.
[Technical Difficulty] as explained earlier as we are confident to deliver a steady, double-digit organic growth with operating leverage. Fit for Growth finally is in execution mode with the first positive impact in H1. As said, both management and our teams are focused and committed on executing and delivering our objectives. The good start of the year allows us to raise our 2019 guidance with confidence and to confirm our 2021 objective.
So if we look at this slide, which is the 2019 updated guidance, we have raised, as you can see, all of the parameters of our full year guidance. On the organic growth side, we now expect to deliver above 9% this year at group level versus circa 6% previously. This growth will be driven by Retail, for which we continue to expect a double-digit organic performance; an B&A, where we now expect about 7% organic growth versus circa 2% previously. We raised as well our EBITDA expectation and now foresee an EBITDA above €590 million versus a little bit more than or above €580 million previously with an unchanged €285 million for Retail while B&A has moved from €295 million initially expected to €305 million now. Finally, on the free cash flow conversion, we now expect to deliver a conversion rate of circa 50% versus 47% previously, leading to a free cash flow of circa €300 million based on the revised EBITDA guidance.
Thank you for your attention. And now I'd like to hand over the call to questions.
[Operator Instructions]. Your first question, from Joshua Masser from Morgan Stanley.
Congrats on the results. Two questions from me, please. The first one is just on around the growth in LatAm. I know you said double digit in the second half. But what kind of level do you think is sustainable for the second half of the year? And just in LatAm in particular, what are your competitors, such as PAX, doing in response to your increase in activity there? And then the second one is just on the full stack acquiring. I know you said you expect €2 billion of acquiring volumes on an annualized basis. What do you think is your like sustainable percentage of your volumes that this could get to? And would that lead to a big increase in your -- the margin that you're taking on the Retail side?
Okay. Let's start with Michel-Alain, then we'll move on to the competitors in Brazil. And then, Johan, you will take the acquiring levels.
Yes, Nicolas. So on the growth in Latin America, first of all, what we have right now is that we have a pipe in Brazil which is quite strong and which is allowing us to look at Q3 with some confidence, meaning with a growth which will be high double digits. When you look at the quarter base of Latin America, you will see that actually, the increase was in Q4 '18, reaching about €70 million of revenue. And what we did with Matthieu is that we will be stabilizing in the last quarter of the year above €70 million. So growth in Q3. We have the pipe for it. And in Q4, stabilization towards the comparable base. Matthieu?
So on the competitors, what we see as differentiates us in the market is, first, our ability to deliver both proprietary terminals and Android terminals. So we see the growth coming on both parts. That's the reason why we are gaining market share. And the second main differentiator that we have is our ability to provide a direct fulfillment model and offering the acquirers both a way to work with us in terms of fulfillments. So to answer your question, we are gaining market share, thanks to this ability to work with both product lines and thanks to the fulfillment model.
Yes. So on the acquiring and on the synergies, I would say that we probably have reached 20% to 25% of the overall potential when it comes to migration or getting volumes from existing customers. And remember that the €2 billion that we announced today is related to Global Online. In addition to that, we also have additional opportunities with existing customers in the other business lines, both in SMB but also in Enterprise. And then finally, be also aware of when we look at sort of winning new business, we also have a higher share of our own acquiring that we embed into that.
Next question from James Goodman from Barclays.
The first one was on the clearly very strong performance in H1, particularly on the EBITDA side. And given that, I wanted to ask about the drop-through for the full year. So I appreciate a lot of the outperformance is LatAm. I think before, you've mentioned maybe a 15% margin in that business, but it still looks that you're being pretty conservative on the drop-through for the full year EBITDA given some of the cost initiatives you've spoken to. So maybe if you could comment on that. And then linked to that, the second question is specifically on B&A and the EBITDA expectation there in the 2021 plan. Clearly, FY '19 is going to turn out a lot stronger than you initially anticipated. And I'm looking at the EBITDA guidance for the year, which I think is ahead of where you expect 2021 to be. So are you feeling a little bit of upside pressure on the 2021 EBITDA for B&A?
Okay. I think Michel-Alain, both of them are for you.
Yes. Okay. Okay, Nicolas. So James, on the EBITDA, I would say it relates for this year. As Nicolas just mentioned, we raised our EBITDA from €580 million to €590 million. That's an additional €10 million, which is mostly derived from our overperformance this year. So you're right on the fact that we are cautious for the second semester, and let me explain you why. We see that we have -- as I have mentioned, we have pressure on our gross profits in EMEA. We've been successful to compensate part of it with a decrease of our operating expenses, but we want to make sure that we have sufficient space in our hands in term of control of operating expenses to compensate for our next decrease of this gross profit in EMEA should it happen. I'm not saying that it will happen, I'm saying that it may happen. And in that case, Matthieu and myself have decided to prepare the action in order to compensate it. That's the reason why we're not pushing the EBITDA of the group more than €590 million.
In regards to the B&A plan for 2021, I think with the arrival of Matthieu with us, it bring a lot of dynamism. And the restructure of B&A, building on what Nicolas has done, I don't think that we will push our 2021 objective for the time being. It's still very early, just after -- 6 months after announcing. Let's say -- let's put it this way, James. I think the plan is very extremely clear in B&A revival. Matthieu has taken the full ownership of it, meaning that 10 work stream. We are reviewing the 10 of them together every month, and we are executing month after month on this action. We're positive on the potential outcome, but it's too early to move any objectives in regards to 2021.
Next question from Sébastien Sztabowicz from Kepler Cheuvreux.
One, on the pricing pressure you mentioned in Europe, could you elaborate a little bit on what is happening in the B&A business in Europe specifically? And a second one is on the APOS market because it seems that, that market is getting a lot of traction those days. Could you comment a little bit on the competitive market there? Who are your main competitors? Do you see new entrants in that market? And what is currently your market share in APOS as compared to the ones that you have on more proprietary POS terminals?
Okay. So first question on the pricing pressure in EMEA. We have 2 effects. The first one is the geographical mix within the region where the dynamics is very strong in Eastern Europe and especially in CIS, where our price level is lower compared to the Western Europe region. And in Western Europe, we have the price pressure plus erosion, which is lesser than the geo mix effect, roughly minus 3% in terms of ASP in Western Europe. So that's the dynamic in terms of pricing for EMEA.
The second question was related to our Android business versus proprietary. So we are quite proud to say that we have delivered almost 1 million terminals during the first semester, representing 15% of our revenues during the first semester based on Android terminals, of which a huge part of this or an important part of this is coming from China. Thus, we are enjoying good growth in other countries such as India, Indonesia and Brazil. So the dynamic that we're presenting during the Capital Market Day is there in terms of Android penetration.
Who are your main competitors, i.e., are they still the traditional guys like PAX? Or do you see new Chinese players there?
Okay. So on the competition. So first of all, in China, we are the leader on the Android market. So I would like to really re-emphasize this. And by -- and obviously, the competitors are Chinese players. On the other market, as I indicated, such as in Asia and in Brazil, yes, what we see is most of our competitors are as well those Chinese players that try to sell overseas. And obviously, our position and the quality of our product range that we have in China is making us competitive as well in those other countries.
Next question from Sandeep Deshpande from JPMorgan.
In terms of the numbers, your numbers are very strong clearly. I just -- well, I have a quick question on the gross profit, which you did mention a bit earlier. The gross profit has declined, but your leverage seems to have improved on the revenue -- on the back of the revenue growth because operating expenses as a percentage of revenue have declined as well. So can we understand that? I mean is this an ongoing trend that operating expenses going forward will not increase as much as revenues and that will be the big driver of the margin? And then secondly, in terms of B&A, you've seen staggering growth in Latin America in the first half of the year, which you say is going to continue in the third quarter. How much of that is cyclical and how much of that is structural? Because if you'll remember, couple of years ago, you saw very, very strong growth in India, and then that had a future impact on the company, which is that you saw a year-on-year decline because of that big staggering growth in that market.
Go ahead, Michel-Alain.
Yes. Okay. So I first take the question on the gross profit, then Matthieu will complement on the dynamic of Latin America and just speak contextual -- or structural. But on the gross profit, I think you're right in your analysis. We have here two different dynamics at work. You really have B&A, which we have flagged during our Investor Day, with a pressure on gross profit due to their geographical mix mainly that Matthieu has explained. And here, what we are aiming is decreasing in B&A our operating expenses. And that's what we have done in the first semester, compensating a bulk of the gross profit. So it's obviously in millions of euro. It's compensated -- it's more than compensated, to be crystal clear, because as you can see, we have a better EBITDA in B&A versus last year. But in rates, it's not yet fully compensated.
Then you have a second dynamic, a second dynamic which is Retail, in which we are growing by 11% and in which the operating -- we are fitting as having a slight increase of the operating expenses in order not to hinder the growth of the company. That's the two dynamics at work. And when you look at the full year, that will land into the above €590 million of EBITDA that we are guiding to. Matthieu, will you take the second question?
Yes. On the second part, on Latin America, first I would like to comment because we focus very much on Brazil, that's -- the result were good as well across the region, especially in Mexico, Argentina and Peru. So after seeing that, going back on Brazil, we think this is structural, and that's the reason why you may remember we made the decision of production -- to increase our production capacity in Brazil to be sure that we will grow the market share on this structural evolution of the Brazilian market. So to answer your question, this is structural, the growth that we see in Latin America.
So you are saying that you have expanded in new channels or new customers in Brazil? Is that what you mean by structural?
Yes. So we have all the main acquirers in Brazil and the said acquirers because the market is very dynamic. And we have as well some APM processor and FinTech players. And by the way, they are the one that are cross-regional. We are increasing in both channels of consumers.
Next question from Alexandre Faure from Exane BNP.
I've got two. One is on PSD2 implementation in September and strong customer authentication. So probably more for Johan. But I'm just wondering how you're seeing this impact e-comm volumes. I think part of the mandate has been pushed out a bit. So if it's something you believe will have an impact in H2 or is it more of a 2020 story. And another question on the payment terminal side of the business. I think there is some end-of-life mandate for one of the PCI PTS nodes at some point in April 2020 for Europe, and I don't know how you're putting that into your numbers, if you anticipate a bit of a refresh cycle in Europe in the back half of '19 and early 2020 because of this end-of-life situation.
Okay. We'll start with Johan then.
Okay. So on the PSD2 topic, I think there are a couple of important points. One is, as you said, I don't think that this will be an immediate sort of impact. This would be gradually rolled out. I think for us, we don't expect any impact in 2019 that I think it's extremely difficult to predict any impact going forward. But what I know and what is important for us is that we believe that by being an early adopter and being sort of fairly in advance of our competitors, that we'll have a competitive advantage. So we have spent a lot of time basically in all of our business to make sure we are ready from a technology and platform perspective to be able to support the merchants in the best way. So I think that's the way you should see it at short term. I think it's really a benefit for the people that are ready and a disadvantage for those who are not.
Thank you, Johan.
Yes. So then second question on the PCI evolution and especially in Western Europe, so we do not foresee that the market dynamics will change. We are in a very mature market in Western Europe, and we still believe that we're like in a replacement market. So the market dynamics will not change with this evolution in 2020.
Next question from Emmanuel Matot from ODDO.
A few questions from me, please. First, do you see your market shares under pressure in Western Europe and North America in B&A? Or you have been able to protect them well during H1? Second, do you think it can make sense for Ingenico to add financial institutions in Payment Services? Could it make sense to have a more global offering with some processing capacity, cap-based management services, et cetera? And my last question is about the PIN on Glass technology. Do you see some traction from some of your customers?
Okay. So we might do the market share pressure in EMEA and then PIN on Glass, and we'll move to the financial institution questions. Did you want to go ahead?
So I start with your first and third question. So regarding the market share in Western Europe, what we see is we maintain our market share. And again, the market is very mature, so the position of the different players is not moving so much. And in some countries in Western Europe, our market share is very, very high already, and thinking about countries such as France, as an example.
The first semester was, as well, good in U.K. However, it was more difficult for us in the southern parts of Europe. So all in all, for Western Europe, our market share is stable. In North America, we saw some good traction on the Retail part. So the big retailers -- addressing the big retailers. But again, in Canada, we suffered from a comparison basis that was de-favorable for us. We foresee more a strong second half for North America. So that's for the dynamic and the market share in those two markets.
On the PIN on Glass, we have four pilots that are now ongoing in Europe: one in France, two in Italy and one in Poland. But this is -- are still in the early stage, waiting for the certification of the start-ups for PIN on Glass and still in pilot mode. So not bringing revenue on this technology.
So the financial institutions, I'll give you the shortened. And Johan, please help me. So I don't think we're considering moving into that space systematically right now. We have a lot on our plate, as you probably know. And we're really focused on delivering. We believe that we still have some room for a interesting growth and profitability over the coming years, so that's what we plan on doing. Having said that, there might be some opportunities sometimes. Johan?
No. But I fully echo what Nicolas said. I think just to mention that we have a number of partnerships with financial institution and banks. They will be delivering sort of payment services. But for us and for me, it's extremely important that, that goes in hand with my vertical strategy; and secondly, that this goes hand-in-hand with the repeatability that we are trying to build.
Last question from Adithya Metuku from Bank of America.
I had two questions and a couple of clarifications. So firstly, just on the gross margins in the B&A division today. Could you give us some color here to help us understand the profitability in the business? I know you disclosed EBITDA margins, but it would be great to have the gross margins as well. Secondly, when I look at your EBITDA margins in the Retail Business and compare those with your peers', they are significantly lower than peers'. And I just wondered where you see the upper limit for this business for EBITDA margins in the Retail Business. And then finally, a couple of clarifications. Firstly, on the PCI upgrades in 2020. With regards to an earlier question, you mentioned that you don't see any big changes here. Is that because your terminals in Europe are already in compliance with new standard? Or is there another reason? And also, I wondered if you could expand a bit on what you mean by the full business model in LatAm.
Okay. Do you want to start with the profitability in the Retail BU, Michel-Alain? Then we'll move on to PCI in LatAm. And we'll just move...
Yes. Yes, absolutely, Nicolas. So I -- we don't disclose gross profit by business unit. We are already disclosing EBITDA, and we're quite -- I think quite clear on the dynamic. Again, what I can tell you is that during this first semester, the gross profit of B&A, as expected, was under pressure, and we've compensated with the operating expenses. So when we look at the second semester, Matthieu and I, we have decided a budget in which we are pushing the gross profit to improve by a couple of points. So a couple of points or 200, 280, roughly. And that's our direction of targets through better purchasing control and pricing control. But in order to make sure -- as I was mentioning at the beginning of the call, in order to make sure that we reach our EBITDA target, we have put into action a certain number of actions on operating expenses that we can do if we see that it's not the case. So that's the way we are piloting the gross profit of B&A in the second semester.
Now in regards to the profitability of Retail, I will obviously let Johan comment just after. But the one thing that I would like to mention, which I think is important, is that this profitability, the EBITDA that we are providing is an EBITDA in percentage, which is calculated based on gross revenue and not net revenue. Most of our competitors are calculating their EBITDA margin rate compared on net revenue. Some of them are subtracting from the gross revenue a lot of different elements. Normally, between the growth and the net, you have adjusting fees and interchange. So if I take fees and interchange, the revenue of Retail actually increased almost exactly the same as in gross revenues, so there is no discrepancy between the two. But more importantly, the margin rate of Retail would be circa 21%. So just for you to have a comparison when you have versus the competitors. Now do you want to dive in, Johan?
No. But I think if we look at this from an operational standpoint, we don't really follow the margin-to-gross revenues in the way, I think, you would. And I alluded to, I think, the importance for us to look at sort of the growth and the operating leverage in the Retail Business. Remember that we delivered €178 million in pro forma EBITDA in 2017 going to €285 million this year and the €400 million we have guided for into 2021. I think that is really demonstrating the operating leverage. So again, back to what Michel-Alain said, I think it's extremely hard to do versus peers, but I think we are confident with the operating leverage we are proposing here.
Okay. So on the second part in the clarification. So on the PCI again by 2020, to be -- to precise on what I said earlier, yes, we will have a new data for installed base. But again, as we are acting in mature markets, we still see that the dynamic on those markets would be replacements, and that's a new equipment actually in those markets. If you look at the cycle that will benefit on our business with a more -- think about the EMV cycle in North America, and that's the reason why the second half will be strong in countries such as Japan. So on the second clarification, which was on the business model in Latin America, so we offer the traditional model to the operators selling our terminals and they sell to the merchants. Or we offer a direct full payment model where we take the order from the merchants, we deliver to the merchants and we invoice on behalf of the acquirers. And this is quite unique from the Brazilian market, which is very dynamic. And by offering the 2 models, we can gain market share.
Thank you. So this was the last question. Thank you, everyone, for attending this H1 call and -- which was very interactive. Thank you for the questions. Goodbye.
Thank you. This concludes today's conference call. Thank you all for your participation. You may now disconnect.