Ladies and gentlemen, thank you for holding and welcome to the Adient Second Half twenty eighteen Results Conference Call. At this moment, all participants are in listen only mode. And after the introduction, there will be an opportunity to ask questions. I would now like to hand over the conference to Mr. Peter van Berdoos, the CEO of Adient.
Go ahead, please.
Good afternoon, and thank you for joining us today on our earnings call for the second half of twenty eighteen. To start, I'd like to give you a brief update on our performance over the second half of the year. Then Ingo will take a deeper dive into the numbers, after which we'll be happy to take any questions that you may have. In the second half of twenty eighteen, we kept our focus on helping merchants grow and on changing the payments landscape for the long term. As a result, we continue to see profitable growth across all channels and geographies.
We are very pleased to announce that the process volume for the half year is €89,000,000,000 with the full year process volume at €159,000,000,000 The second half year revenue is at €192,000,000 up 54% year on year. We saw solid growth across all geographies and channels and across the width of our merchant base. The globalization of commerce and the trend towards cashless payments continue to give a significant tailwind for us. Full year revenue was at €349,000,000 for 2018. We build out our acquiring and unified commerce capabilities in the second half of the year, notably and in Canada to the range of countries where we are able to provide the full strength of the Altium platform.
As we continue to invest in the expression of the platform across the globe, we are happy to report that 70% of the volume is now full stack, which means that we do both the processing and the acquiring of the transaction. This is up from 60% full stack at the end of last year. The full stack offering brings most of the benefits to our merchants, and that's what we envisioned when we started Appian. On the back of this merchant led growth, we're also investing in the growth of the Appian team across the world. For those hired in the second half, 60% were outside of our headquarters in Amsterdam.
Unified Commerce continues to develop very positively as we process EUR 10,000,000,000 in point of sale volume in the second half of the year. Point of sale volume was 11% of total volume on the platform in the second half of twenty eighteen. We are very pleased with this traction considering that we only started to focus on this initiative 3 years ago. Growth is a result on the focus on our merchants, investment in improved point of sale operations and more functionality on the terminals. We also boarded some great merchants in this space, including Cottonom, Gap and H&M.
When it comes to offering the highest service levels to merchants, supporting high volume local payment methods as well as international and domestic card schemes is critical to improving shopper engagement and optimizing auth rates. That's why we have continued to expand our suite of payment methods on the platform, both online and on the terminals. We see this as an evolving merchant led process, where the shopper decides how they want to pay. We remain agnostic to payment methods and simply focus on what's most valuable to our merchants. Now let's talk about tech.
We have not made it a secret that we believe that our strength lies in our speed. Our speed allows us to help merchants grow by constantly adding new functionality to the platform, and our speed keeps us flexible. Speed also allows us to adapt to changes in the external environment, for example, new regulations such as PSD2 in 2019. As a consequence of our speed, we were first to market in launching our 3d Secure 2.0 solution in the second half of twenty eighteen. This is built on EMVco's 2 point 0 protocols and enables a wide range of authentications, including 2 factor SMS, biometrics such as voice recognition, fingerprints and facial scans.
Additionally, due to continued investment in machine learning algorithms, we saw strength of our revenue protect toolkit grow. In fact, it grew so much that we decided to build a standalone API for it. This allows merchants that are not on the Altium platform to use our leading risk tool separately as well. Next, let's dive into our 3 growth pillars, which we have defined as enterprise, unified commerce and mid market and where we saw significant momentum in the second half of this year. 1st, in the Enterprise segment, which historically has been our key growth driver, we saw continuation of this in the second half of twenty eighteen.
We continue to win new merchants and increase our volume share through offering the high service levels that are facilitated by a single platform. In this segment, which accounted for 97% of our total volume as per the end of 2018, we are focused primarily on keeping our speed and serving our merchants to the best of our ability. We want to make sure that the functionality historic levels. Secondly, unified commerce. We saw great growth coupled with improved operations, strong seasonal trends and exciting new merchant wins.
We invested significantly in point of sale operation in the second half of the year, including point of sale logistics and vertical specific partnerships. These are vital to the quick service restaurants and hospitality sectors, which we are looking to further grow. Unified Commerce is now totaling over 11% of the volume on the platform. And with shifting shopper behavior and expectations increasingly moving merchants to our unified commerce approach. We are very excited about this where this space is headed.
I also want to highlight one of the extensions of our core product offering that we launched in the second half of the year as it's especially impactful in the retail segment. Our sales day payout functionality facilitated by our European banking license allows for an easier reconciliation process and faster payout. Merchants have the opportunity to receive the proceeds on a per day basis irrespective of the settlement times for the different payment methods used. We believe that this is a true game changer for our retail merchants and our ability to grow further in this vertical. Much like the first half of twenty eighteen, we continue to invest in the mid market segment in the second half.
This might be repetitive for some of you, but to be clear, we see this as the next adjacent segment to enterprise. Our mid market growth pillar does not constitute the move into the long tail of SME. Our mid market segment is now nearly 3% of our total volume, so it's still very much in a nascent stage. However, we have made strides here establishing a customer success team focused on scaling up mid market merchants and executing mid market specific marketing plans. We have also set up a plug in and partnership work stream, which runs our partnership strategy, dealing amongst others with major e commerce platforms such as Magento and SAP.
Further, we continue to build out our mid market specific sales teams, albeit at a relatively small scale still. We primarily focus on Continental Europe and the UK for now. To end with a delivery on the promise made in the first half when we cited investment in improved customer area, we are happy to report that all accounts now have been moved over to the new customer area. Staying true to our formula point, we launched Fast and Iterate. We continue to work to improve the user experience on the customer area and build out the data dashboards.
With that, I'd like to hand over to our CFO, Ingo Eutherhe. Thank you for your attention, and I'll be there for questions when Ingo concludes.
Thank you, Peter, and good afternoon to everyone. Thank you very much for joining. I would like to take this time to give you a bit more color on the financial results of the second half of twenty eighteen. Volume is up to €89,000,000,000 a 50% year on year increase. And just like in previous years, this growth is primarily from existing merchants and from across the width of the merchant base.
Enterprise remains our core segment with over 97% of total volume coming from Enterprise Merchants. Net revenue was €192,000,000, a 54% year on year increase. We saw strong growth in Europe, which has the largest base with a 46% year on year increase. Much like in the first half of twenty eighteen, net revenue growth in APAC and North America continues to outperform. North American net revenue grew by 93% year on year, while APAC volume was up 121%.
Latin America, while slower relatively to the other regions, still grew at a solid 25% year on year, impacted by a weaker AI. To us, these figures are proof points of the strength of our single platform, allowing merchants to expand and scale across the world rapidly. As noted in our IPO prospectus, we manage the company on absolute margin and not on take rates. We do this because the marginal cost of additional volume on our platform is close to 0 and so drop through is very high.
Take rate
for the period was 22 basis points, impacted by a larger share of full stack volume on the platform, which grew on the back of our increased acquiring footprint in the second half. On the back of the high net revenue growth and the global expansion of our operations, we saw a second half EBITDA of EUR 120,000,000 of EUR 112,000,000, up 83% year
on year.
EBITDA margin was 58% in the second half of the year, up from 45% the first half. This was driven by the continued net revenue growth and relatively lower OpEx growth for the period, which was impacted by the phasing of some OpEx spend categories. Full year EBITDA margin was at 52%. Cash flow generation remains high, as in the first half of the year with free cash flow conversion ratio of 94% in the second half of twenty eighteen. It's worth repeating at this point that as a company, we are focused on the long term.
And while, therefore, continue to invest in the growth in of the team in our operations and in marketing. In light of these results, we would like to reiterate our financial objectives, which remain unchanged from our IPO perspectives. On net revenue growth, mid-20s to low-30s in the medium term. On EBITDA margin, we expect to benefit from our operational leverage going forward and increase EBITDA margins to levels above 55% in the long term. On CapEx, we aim to maintain a CapEx level up to 5% of our net revenue.
This guidance remains unchanged going forward as we have a view towards building this company for the long term. For your further information, we also posted a half yearly comparison as well as a full year 2018 financials overview on our website at agen.com/ir. Thank you all for your attention. Peter and I will be happy to take any questions now.
Ladies and gentlemen, we will start the question and answer session Our first question is from Adam Wood at Morgan Stanley. Please go ahead.
Hi, good morning, good afternoon everybody and
thanks for taking the questions. I've got a couple if I could. The first one was just on the new business that you've signed during 2018. I know during the course of the IPO, you gave us a feel for cohorts and what business have been signed by merchants during each year. Could you give us a feel for the merchant volumes that's come in 2018 from new merchants signed this year versus from the rest of the cohort group, please?
And then maybe just secondly, on margins, you've obviously retained the guidance, again, that you gave last year, but we've seen very, very strong leverage through 2018. And obviously, you're getting an IFRS benefit coming through in 2019. Is there any reason why, first of all, we shouldn't see the second half of twenty eighteen be the base and starting point for 2019? And is there any change on the leverage that we shouldn't expect to continue to see a very strong drop through from the business you sign at the top line? Thank you.
Thank you, Adam. Let me start with your first question on new business. I think the increase on in net revenues from new business is very similar to previous year. So most of the volume growth and revenue growth comes from existing merchants, and we start slowly with new merchants. So the impact on 2018 is relatively limited.
But of course, we start to work with them, and this is basically the proof point that we will continue to grow with our merchants because they will bring additional revenues in the coming years. On your second question on the margins, we look at the EBITDA margin basically full year. So the full year margin is 52%, indeed getting closer to the 55% that we guided for on the long term. And the reason why we look at the full year is because there are some phasing differences between first half and the second half of twenty eighteen. And those OpEx in the first half, there were, I think, 3 main reasons: the first one being employee benefits, where we had sales commissions to our sales team, which were slightly higher in the first half the second item is the marketing cost Due to the fact that we focus a lot on retail, we had some retail campaigns in the first half of twenty eighteen, which resulted in higher cost.
And the third point is IPO costs, which were in the first half of twenty eighteen. Of course, if you look at IFRS changes that will impact EBITDA in a positive way, I think the way how we guided is, of course, excluding these IFRS changes that we will make later this year better or give better insight what the exact impact is of this IFRS change on the numbers.
Okay, perfect. Thank you very much.
Thank you. Our next question comes from the line of Sandeep Deshpande of JPMorgan. Please go ahead. Your line is open.
Thank you for letting me on. I have a couple of questions. I mean, firstly, perhaps you can let us understand how much I mean, in terms of the mid market where you've now disclosed how much your exposure is, would you say that your engagements with mid market are much higher than what your exposure is today? And how does that how does the mid market exposure compare with your enterprise customers where most of your exposure is from existing most of your growth came from existing customers? Secondly, maybe you can help us understand any names of disclosed mid market customers because to understand what you would regard as a mid market customer of Adient?
Then finally, regarding your industry verticals, I mean, you've seen increase in the business, which is acquired by Adient itself. So does this mean that some of your industry verticals are changing, that is, for instance, travel as a percentage of your sales has declined in the Thank you. Okay. Thanks, Sandeep. Thank you.
Okay. Thank you, Sandeep. To start with your first question, I think if you look at mid market, we take a very similar approach compared to enterprise. So 1st or until last year, we didn't spend too much time on mid market. They were they became a customer, and they were happy to use the platform, but we didn't spend additional time with them.
So what we have done now is we built specific teams for mid market, customer success teams that work closely with those mid market merchants and see how we can help them grow. So I think there, there is a very similar strategy compared to the enterprise market to see how we can gain volume over time. The reason why we started to disclose the numbers that you get to sort of a sense how big it is at the moment. And of course, we expect to grow this percentage in the future.
If you ask me
what is a mid market customer, it's always a bit difficult to answer. We always look at it typically our enterprise merchants, they have specific payment managers who know exactly how payments work. And these are typically also the people that we talk to or that introduce us to a broader team as a customer. Mid market merchants, it's different. They typically have a CFO or a CEO that also have payments in their responsibilities, And we work more closely with them then to make it work.
This is typically relatively smaller merchants. And I think during the IPO and the prospectus, we said it's around €1,000,000 a month to qualify for enterprise merchant, which of course is a very low number if you look at the real big enterprises, but this gives you a sense for how we differentiate in the base. And if you look at the customers that are now on our platform from mid market, we included a couple of examples in our shareholder letter. The more international known are, for instance, Bergaboo, Saint Mauve and but of course, it depends region by region.
And regarding my final question on the industry verticals?
So you mean in what type of you mean for the full stack acquiring, sorry?
For the full stack, yes.
Yes. So if you look at the full stack, the reason why we gained in full stack acquiring is because we have a better geographical spread. So the strategy of implementing a single platform in multiple geographies is paying off because merchants bring us more volume in the different regions, and that's why this percentage goes up. We still have a very similar view to risk. So if you look at the part of the portfolio, so the 30% that is not full stack, this is mainly airlines.
And we still have a very similar view on airlines as in the past, where we are relatively hesitant to acquire them given the high risk if you have those airlines in your books. So that hasn't really changed over the past year, and that's our current position.
Thank you.
Okay. Thank you.
Thank you. Our next question comes from the line of Josh Levin of Citi. Please go ahead. Your line is open.
Thank you and good afternoon. I have two questions. The first question, Stripe has been making more of a push upmarket. It signed Uber as a client. How do you view Stripe within the competitive landscape?
Would you say it's more of an emerging competitor compared to say a year ago? And then Visa and PayPal both called out border weakness in late 2018 and in early 2019. Did you see that in late 2018 or are you seeing it in early 2019? Thank you. Sorry, I didn't get the second half
of your question. What do you mean with the cross border weakness?
So both Visa and PayPal said that cross border volumes were weak in late 2018, early 2019, that they weren't growing at the same rate that they had been. And I think they were attributed to macro factors. And I was wondering if you had seen any kind of slowdown in cross border volumes?
No. We noticed no difference there. I don't know if we specifically looked at it. This is not something which we have seen as a remarkable trend. Okay.
And with regard? Yes. So we don't lose customers. So we don't lose customers to anyone. So we're not talking about specific competitors.
The loyalty of the customers on our platform is extremely high.
So
that's relevant for everybody in this field. Does that answer your question?
Yes. I guess do you see them more as an emerging competitor going forward?
Well, I think if the way how we look at the field is there are companies there are payment companies like us of whom we win customers. There are the traditional banks, especially currently servicing retailers where we win customers. And then there are the SME providers. And we typically win from the SME providers when their merchant is both growing in size and also going more to an international or more to an omnichannel or unified commerce approach. So we see that for all our competitors.
And if you mention competitors which are specifically strong in SME, they find it difficult to serve as merchants, which are where the needs become more complex. I think on
the unified commerce side, we see a lot of wins from the more traditional banks because these have implemented a lot of merchants have implemented the point of sale implementations on a local scale, so country by country. And we typically come in and consolidate this, taking a lot of volume from the existing banks.
Thank you.
Thank you. Our next question comes from the line of Aditya Metuku of Bank of America Merrill Lynch. Please go ahead.
Yes, good afternoon, guys. So two questions, if I could. Firstly, on the OpEx phasing, I just wanted to clarify I understood this correctly. So you're basically saying that in the first half of twenty eighteen, there were some additional expenses and these expenses went away in the second half. And hence, the second half number, 58% is arguably more reflective of your underlying margin than what we saw in the first half.
Is my understanding correct? And then in terms of the take rates and the that we saw on a half over half basis in terms of the trend, I just wanted to better understand what drove that. I mean, obviously, your acquiring volumes went up, but despite that take rates actually went down in second half versus the first half. So any color on the key puts and takes there? And just finally, a comment on how you see take rates in the mid market?
How different are they to your group average? Any color there would be very helpful. Thank you.
Okay. Thank you, Aditya. I think if you look at OpEx phasing, we look at the full year to get a sense for where we currently are from an operating leverage perspective. So I wouldn't take 58%, but I would take 52% as the current benchmark. At the same time, we continue to invest in the business.
If we see good opportunities to build a team, to build operations, we do. We're not hesitant to invest. And the 55% is a long term objective. Then on take rate, if you look at trends, if I compare full year 2018 to full year 2017, there is an increase in take rate. This increase is a result of more food sack acquiring.
And I think that's where we are very proud of. Underlying, of course, there are 3 trends. The first one being enterprise merchants, where if we have a lot of volume with our tiered pricing model, you have pressure on take rate, which we think is a good thing because the drop through rate is so high. Secondly, point of sale, which has very similar characteristics as enterprise, high volumes, also tiered pricing and a potential decline in take rates and then thirdly, the mid market, which has a positive impact on take rates because we have on average higher pricing there. If you ask me to quantify that for mid market, that's a bit early.
I think what we one of the reasons why we started to disclose the volume is to give you a sense for the current size of mid market. At the same time, I think in the mid market portfolio, there's still a bit of a difference. So it's hard to say like, okay, average take rate for mid market merchants is x. We will going forward look or evaluate whether it makes sense to give more color on that.
Okay. Thank you.
Thank you. Our next question comes from the line of Ron Heidenberg of ABN AMRO. Please go ahead.
Good afternoon, gentlemen. I have a few questions. Firstly, on the marketing expenses. You're saying that due to the fact that you're focusing on retail customers, you had a bigger push in the first half versus the second half. Is there a seasonality that we should expect to return every year?
And then secondly, you're talking about your IPO cost and other more or less one offs in the first half. Are you in a position to disclose how much they were in the first half? So how much we should lob off to get the better trends to cost growth? And then on the existing customers, which drive much of your growth, do you have a sense how far you are in the maturity of your whole portfolio, I. E, how far are you amalgamation of new countries and new channels?
And then finally, maybe if I may, are there features out there that competitors have in that product offering that you would like to emulate in your own platform? Thank you.
All right. Let me start with first one, which is marketing cost. Is there seasonality in there? Conferences, so retail events tend to be in the first half of the year. So and that's definitely what we saw in 2018 that therefore it tends to be skewed towards the first half of the year.
So yes, that could be something that returns. Other elements in there are, for example, salaries, which is related to sales commissions, where which salespeople can claim according to a certain schedule. So that's per year dependent. That's not necessarily the same. Then you had a question about the one off size of the IPO.
I think it's good if Ingo answered that. So let me skip to the 4th part of your question, which was are the features that you lack and that you want to build. We don't feel that we have features which are missing, although we are, of course, always looking at what we want to build and are constantly talking with our merchant what is the next step. And so of course, we are investing in always in new development. We are back to a 1 week release cycle, so we release very quickly new functionality constantly.
But this is not the place yet to announce if what's in the next releases.
Okay. Then on the IPO cost and other one offs, I think the main one off in the first half was the IPO cost, which was around EUR 3,000,000 to EUR 4,000,000 which we disclosed earlier. And then on your question on existing merchants and the maturity of how much we have on our platform, we do not really track this. And the reason why we do not really track this is because we think it's the wrong measure with our merchants. We want to make sure that we understand their projects.
So typically, what our comp engines do is they work closely with our customers to see what is the next project. We tend to make sure that we get this project on our platform. And that's the key that's the key focus for us. Okay. Thanks for that.
Thank you. Our next question comes from the line of Gerardus Voss of Barclays. Please go ahead.
Hi, good afternoon and congrats on the quarter. A couple of questions from me. Just first of all, on the seasonality you've seen in the kind of second half. One of your competitors yesterday indicated that they saw quite a bit of a benefit from Singles' Day and then Black Friday. So I was wondering what that means for you in the kind of second half versus first half to model this correct for kind of next year?
And secondly, the other services on the kind of revenue line, this doubled in the second half. I'm just trying to understand what is exactly in the other service line and what is driving that high growth. Then thirdly, perhaps could you help me a bit more on the kind of 2019 guidance? You reiterated kind of mid-20s to low-30s revenue growth, but clearly, growth and volumes are well in excess of that. So how should we model that into 20 19?
And then just a final question, just going back on the net take. Ingo, you presented a kind of the upside and the downside there from the different kind of customers. If I read that correctly and if you see where the growth is currently coming from, mainly existing customers and either in the enterprise or in the POS kind of side. It seems to me that the volume growth will be slightly kind of dilutive in 2019. And I just want to check if that's correct.
Okay. Well, thank you, Gerardus. To give answer to your first question on seasonality, of course, in retail, the Q4 is relatively important. So that's also what we see on our platform. But we see continued growth over the full year.
And I think that's it's always a bit difficult to exactly just extract seasonality from the underlying growth. Of course, Singles' Day and Black Friday are important, but they do not make or break our year. So it's important, but it's not the only thing that causes our growth that you see this year. Your question on all the services and revenues, it's mostly related to terminal service fees that we charge to our merchants for maintenance, for instance. And also the FX cost are or revenues are included in these other services.
Your question on the guidance, I think the main focus has always been also when we launched for the IPO is on the mid- to long term. And if we look at the bigger picture of this company, nothing has really changed since we IPO ed the business. And that's also for us the main reason to not change the guidance because this is a mid- to long term game. And what we like to avoid a bit is that we run from year to year with very high expectations. Of course, we are super proud on what we have achieved in 2018.
We are very confident on what we're building on the innovation side of our platform. So we're full confidence for the future, but we think it's better to talk about mid- to long term instead of focusing on a single year. Then your last question on net take rate. I think if you look to the underlying trends, I agree with you that if Enterprise and Unified Commerce are growing fastest, that this will have a negative impact on take rate, which we still think is a good one because we get more absolute margin. There's one factor though, which is very important, which is the global scale that we operate in.
So more and more we see that companies like to work with us because we can offer full stack acquiring in many regions. And then of course, if we can continue this share of full stack on our platform, this has a positive impact. And more indirectly, of course, it depends on how fast we can grow our airline portfolio on the gateway. Okay. That's clear.
Thank you. Okay. Thank you.
Thank you. Our next question comes from the line of Nusin Jyoti of Deutsche Bank. Please go ahead.
Hi, good afternoon. Thanks for taking my questions. So I have two questions and a follow-up, basically on your full stack. So first, if you can basically tell us how much of your volume is coming from your top 10 customers? And secondly, is on your API for the risk tool, if I understand this correctly, you designed this in a way that merchants are not using your platform can also use it.
Is this more like a software as a service? And can we see this as a step towards more offering in value added services in the future? Also, why do you expect that merchants that are not on your platform to pay I mean, use this, given that almost all PSVs provide a risk management tool? And then on your full stack, so you said like 70% of your volume is basically right now on your full stack, but the 30% that are not are basically the airlines. So going forward, you're assuming this to remain the same?
Or how should we think about it? Thank you.
Okay. Thank you for your questions. I think if you look at top 10 volume, we disclosed this during the IPO. I think the underlying numbers have not really changed. I think if there is a trend, it's a positive trend that there is less concentration.
But I'm afraid I can't disclose the numbers at the moment. Concentration has certainly not further increased in the top 10. On the risk tool, the reason why we think it is important to make a separate API available is that it's a further lock in for our merchants. So they can try the risk tool, see how it works, see how they benefit from it. And then acquiring as a next step is relatively easy.
So that's the reason why we do it. You could see it as software as a service. We see it more as a way to build a long term relationship with our customers and prove why our platform is so strong and can help them to prevent fraud, which is still important and matter for a lot of our customers. Then full stack. I think if you think about it really long term, then theoretically, our market share for airlines should not be 30% because the total market share of payments in the world is not 30 percent for airlines.
So longer term, the full stack should go up. Of course, we're still actively hunting airlines. So on the short term, yes, this could fluctuate a bit. But over the long term, we certainly want to increase to 70% further.
Understood. Thank you. Very helpful.
Okay. Thank you. Our next question comes from the line of Sanjay Sakhrani of KBW. Please go ahead.
Thanks. Good morning and good afternoon. Maybe to ask the guidance question a bit differently. Can you talk about what drove the revenue outperformance in 2018 versus your expectation? And do you believe the underpinnings are there for 2019?
And then secondly, I guess on the new merchant relationships, could you just talk about the scope of those relationships? For example, is it for all of their volume or a piece of their volume? And over what period do you think you can get to a full run rate? Thanks.
All right. Thank you for your question. What we did is we looked at the business and see if we think things are things have changed and that we therefore should change the guidance. We don't think so. So if we look at 2018, it turned out to be a good year of which we're very proud.
But we know that payments is lumpy and sometimes it comes in quicker, sometimes it comes in slower and we guide for the midterm. So we feel that the midterm guidance is accurate. Regarding the new wins, for new wins, it's always that we start with a subset of the business. That's where the merchant gets comfortable with us and that's where we expand. And we have an enormous track record of landing a merchant somewhere and from that part of the business expanding it.
So hard cutovers where from one day to the other full volume is on our platform are extremely rare in this business.
Okay. And maybe just one follow-up. On the new product features and obviously the sales they pay out products as well. I mean, how does that affect the take rate? Is that does that lead to a higher average take rate understanding that there's other pressures going the other way?
Thanks.
It depends a bit on what the merchant likes to achieve. So we offer sales they payout for free if it's basically a delayed settlement. So you get still the same day, but then paid out 2 or 3 days later, depending on which geography you are, and you get that for free. If we then want to accelerate this payout, we charge for it because then we start to prefund, and that is a positive intake rate. But I think most of the retailers do this because they want to get easier reconciliation, and they prefer a slower settlement over a faster settlement if they have to pay an additional fee.
Okay. Thank you. Okay.
Thank you. Our next question comes from the line of Chris Brendler of Buckingham Research Group. Please go ahead.
Hey, thanks. Good afternoon and thanks so much for taking my questions. The first question is on the traditional large enterprise business. Can you give us a sense of the penetration rate you have of their volume? You obviously are in broad strokes.
Is it 50%, is it 25% is it 75%? You talk about you don't get 100% right out of the gate, I understand that. But where you are today within your large enterprise customers, how much of their transaction volume is ideally in processing today? Any rough idea would be great. My second question is on the transaction costs came in a little higher than I was expecting at $758,000,000 Obviously, a lot of that is volume related, but in basis points, it's divided by volume, it was 85 basis points versus 77,000,000 in the first half and 73,000,000 last year.
And I thought maybe that would be a mix shift towards higher interchange rate jurisdictions, but the mix relative to the reasons you disclosed didn't really change that much in the second half. So what's driving the transaction costs higher? And then the final question is, is there any sort of quantification you can give, just how much the net spread difference is between full stack and gateway? I imagine it's very large, but if you could give me some detail, it would be great. Thank you.
All right. Thank you for your question. Let's start first with the penetration within the merchants. Of course, this is highly related to how long the merchant has been on our platform. So typically what we see is we board merchants and we start with a smaller percentage of their total volume.
And over the years, we see that growing. Not always do we know how much. Sometimes we see it. We saw it, for example, when Spotify went public and they put it in their documentation. And for some merchants, we have an idea.
But mostly, they are in different stages of maturity with us. And we see that over time, we take more and more. So penetration is a factor of time with our merchants. Maybe it's good, Ingo, if you answer the question regarding the transaction costs.
Yes. So if you take a look at gross take rates, I think one of the reasons why there's a change, it's mostly related to increased scheme fees. So I think over time, you see that Visa and Mastercard have slightly increased the scheme fees, and this has an impact on the gross take rates.
And gateway versus
Yes, your last question on the spread full stack versus gateway. I think it really depends also on volumes. It's really hard to give a generic answer to this question. Of course, if you look at gateway only, for instance, for airlines, Airlines have a relatively high ATV. The gateway fee that we charge is mostly in cents.
So you only get a processing fee. And if it's full stack, you also get a settlement fee, which is often in base points. And that's why the base the economics for a deal full stack is way better. But of course, it depends on what kind of customer it is. If it's a high volume customer, they of course have relatively better settlement fees than if it's a low volume customer.
Great. Thank you so much
for your answers and congrats on the great results.
Thank you.
Thank you. And our next question comes from the line of James Friedman of Susquehanna Group. Please go ahead. Your line is open.
Hi, thank you. It's Jamie at Susquehanna. With regard to the disclosure about the 11% POS, I was wondering, do you have any customers that are just POS face to face Or are all of those unified customers as well?
No, thank you for that. That's a great question. There is a number of merchants which are just in point of sale because they only have a point of sale business line. However, the majority of merchants has the uses ABD M because they have the plan to use it for a unified commerce. They are in different stages of rollout.
Sometimes they started with point of sale and then the online traffic still has to follow.
Got it. Thank you for that, Peter. And then Ingo, I just had a simple question on the modeling side. How should we anticipate IFRS impacting the margin?
Well, the main change in IFRS that impacts us is the new lease standard. So what you might expect that we need to capitalize all the lease commitments, and that will be then part of depreciation. And that has a positive impact on the cost of housing. We will make sure that you understand what's happening in the P and L. But if you look at a net profit perspective, I wouldn't say that it's a big change.
It's relatively marginal change.
Got it. Thank you for taking my questions.
Thank you.
Thank you. And we have time for one more question from the line of Josh Beck of KeyBanc Capital Markets. Please go ahead. Your line is open.
Thank you so much for the time, Peter and Ingo. I wanted to ask about Unified Commerce. Maybe you could give us an update on the QSR and hospitality pipeline. Should we be thinking about the same type of global enterprises that you've won on the retail side?
Yes. And the merchants in that segment that we're working with in different stages haven't agreed yet to disclose names. But indeed, it is the larger merchants. So that's correct, your assumption there.
Okay. And then the mid market space, you're certainly launching partnerships with Magento and some of the other e com platforms. I'm just wondering how do you stand out among the crowd there? Certainly, there's a number of other players that work with Magento. So how do you get in front of those customers and gain traction?
Yes.
What you typically see is that the mid market merchants for whom we are very attractive are the ones which have corporate like needs, which would mean that they are in multiple countries or that they both have online and store. So from a requirements perspective, they were always a good fit for us, but we didn't have the approach for them to really get easy access to be on our platform. So for them, what's the change is that it's easy to board and that we have the proper sales channel for them. And requirements, they are often a little bit more complex than the typical merchant in their field. And that complexity fits well with what we can do.
Great. That's very helpful. Thank you.
Thank you. And I have been advised we have time for one more question, and that will be from the line of Craig Maurer of Autonomous Research. Please go ahead.
Yes, thank you. I just wanted to ask you more of a policy question. Yesterday, the European Commission commented toward potential regulation to push what has been sluggish adoption of real time or account to account, whatever you want to call it, faster ACH payments in Europe. I was wondering if you had any thoughts on what they might do to accelerate adoption of that type of payment. Thanks.
Okay. So if you look at what's happening around us specifically here in Europe is that PSD2 brings the obligation for a lot of banks to open up their accounts for 3rd party providers. And that could potentially be a threat to the credit card schemes because as a merchant, you could basically, via 3rd party, directly take funds from a bank account and get your payment real time. We think that this brings complexity to the landscape, and that's exactly what we're good at. So we see it as a very good possibility for ourselves to help merchants.
At the same time, we all know that changing payment habits of consumers is very difficult. So the adoption of payment new payment methods is typically very, very low. So we don't think that it will result in a big change on the short term. But of course, it could longer term be have some impact. I think for ourselves, it's just a great way to be relevant to our merchants to help them out in this increasing complexity.
Okay. Thank you.
Thank you. Our next we do have our next question from the line of Jeff Cantwell of Guggenheim Securities. Please go ahead.
Hi, good afternoon. Thanks for allowing me to join this call. Thanks for squeezing me in. Most of my questions have already been answered. I want to ask a couple about your partnership with Facebook.
If we go back to November, we saw you began enabling Pay at Table functionality via Facebook Messenger. And I understand you process a significant amount of volume already. But the question is, how much do you think something like that can move the meter for your company from a volume standpoint, in your opinion? I'm just trying to get a better sense for whether these types of emerging technologies that you're enabling might eventually see some real volumes coming through the pipes for you guys as we think out over the medium term. It seems like an expansion in Facebook Messenger transactions could be one of them, given that Facebook is such a large worldwide active user base that you help enable?
And then just more broadly, when you think about your relationship with companies like Facebook, are there any other areas where you think you might be able to help them grow even further from a payment standpoint? Could you elaborate at all on areas of opportunity that you're seeing that you think could be interesting or impactful? Thanks.
All right. Thank you for the question. The commenting on individual merchants is very unfortunately.
I think in general, what you maybe to give a bit color on what you see happening around these type of payments, I think this is exactly the type of developments where we're good at with relatively new technology stack. So we can help companies like Facebook to relatively easy implement these new ways of payments. And that's exactly what we want to be. We want to bring the infrastructure to our merchants to make it easier or take away all the frictions to do payments. So it's the core of our strategy to build this.
It's the reason why we spend so much time and effort on innovation. This is really what we like, to work with our merchants and build these new things.
Thanks. I guess the crux of the question is, are you seeing a lot of demand from your merchants for new types of payment enablement? Because I know it's not only Facebook Messenger, but it's also things like wearables and contactless payments and things of that nature. So I'm just trying to get a better sense of how much demand you're seeing for those types of technologies and payment.
Yes. I think that's the core of what we're trying to achieve with our merchants, to work closely with them to see what kind of innovation we can bring. Indeed, with wearables, very much links to our tokenization product. So we run projects or prototypes on this. So it's another example is, for instance, all the functionality that we bring to the terminal like payment methods like Alipay and WeChat Pay.
These are examples how we try to help merchants to make it easier for consumers to pay. So the answer is yes, we like this. Much
appreciated. Thank you.
Thank you. Our last question comes from the line of Alexandre Solrey of Exane. Please go ahead.
Hi, good afternoon. Thanks very much for letting me on. A quick one. I think you mentioned in your press release that you brought and you're trying to bring more and more the next domestic scheme payment methods to your plus offering and you commented on cardboncare in France that you brought in on in H2. I think that that's a scheme you've been supporting on the online side for quite a while.
So could you help us understand how much work you need to do to bring a payment method you already support online onto the cost offering, if any effort at all? Thank you very much.
Yes, thanks for this question. It really depends on how fast we can do it. It also depends on how difficult or complicated the technical setup is of, for instance, the point of sale infrastructure. It brings new requirements to our platform. But it's also the thing that we're relatively good at.
It's what we have always focused on to connect to different payment methods. And in that sense, because we have one platform, there's not a real difference between connecting to a new point of sale payment method or an e commerce payment method. And yes, the focus that we have now on weak release cycles to make sure that we can bring new functionality quickly is, I think, the key theme for our company.
Okay. I see. And maybe just a house keeping one as well. If I've got time, I think your tax rate was a bit lower this year than 2018 compared to 2017. I mean, should we expect this kind of 20 ish percent rate to hold on in the future based on you're right on the regional mix or any fiscal reforms that you think will make this kind of level sustainable?
Yes. So we do not really guide on expected tax rates. I think that in general, if you look macro, there are a couple of trends globally that people want or expect companies to pay taxes locally. That's a trend that we absolutely want to comply with, so pay taxes locally. And of course, that could longer term impact the effective tax rate.
It's finding that right balance between paying taxes locally and also optimizing or not further increasing the tax rate.
Okay. Thank you very much.
Okay.
This was the last question. I would now like to hand over to Peter for closing remarks.
I would like to round off this earnings call by thanking you all for participating. Should you have any additional questions, please reach out to our Investor Relations team.
Ladies and gentlemen, this concludes the Adient H2 2018 results call. You may now disconnect your line. Have a nice day.