Hello, and welcome to this investor update from Eurowag. In a moment, there'll be a short presentation from Eurowag CEO and founder, Martin Vohánka, and CFO Magdalena Bartoś. After the presentation, Martin and Magda will be happy to take any questions you may have. First, Martin, over to you.
Thank you very much. Good morning to everyone, and thank you for joining us today. My name is Martin Vohánka, and I'm CEO and founder of Eurowag, and I'm joined by our CFO, Magdalena Bartoś. At the time of IPO, we set out a clear strategy for growth built around five pillars, one of them being accretive M&As. As part of this, I'm excited to announce a proposed transaction of Inelo, a leading fleet management and working time management solution provider. This is a target we have been following for several years. In the following short presentation, we will give you an introduction of Inelo. We will talk you through why we are undertaking this deal. We will introduce how it would strengthen Eurowag. We will summarize the details of the transaction, and then we will answer your questions.
First of all, we wanted to give you a snapshot of Inelo. This is a one-stop shop integrated mobility solution provider for commercial road transport companies. Its revenues are made up from fleet management solutions and, significantly for us, mission-critical working time management software and outsourcing. To put it into context, how important working time management product is, let me share that on top of Inelo's large customer portfolio, their working time management software is used by 23 EU public authorities. This is another mission-critical product and piece of the jigsaw. Inelo is also a business with significant scale, both in truck numbers and geographical footprint, which we will comment on in more detail later. Inelo has a complementary financial profile to Eurowag. With 80% of its revenues subscription-based.
Similar to Eurowag, Inelo helps businesses digitize their operations, and its proprietary technology solution will be easily integrated with Eurowag systems. Now let me share why we are so excited about this deal. Let me be clear that this transaction takes us significantly closer to achieving our ambition of delivering an integrated digital end-to-end platform for commercial road transport sector. We would have an increased geographic footprint. This leadership position in Poland, the largest CRT market in Europe, as well as critical mass in Slovenia, Croatia, and Serbia. On top of that, we would add, in one deal, 87,000 connected trucks that would roughly double the number of trucks on our platform. That means more data, which, as you know, is a key business driver for us.
For the first time, Eurowag would offer working time management software, a mission-critical product for our customers, and one which helps companies safeguard their drivers and comply with regulation, namely EU Mobility Package. This will not only drive efficiencies for our customers by further digitizing their solutions, it will also provide extensive cross- and upselling opportunities and build customer retention and loyalty. It nicely illustrates Inelo's success with their combined working time management and fleet management solution proposition. Combined, greater scale and additional mission-critical products would strengthen our platform, enabling Eurowag to benefit from network effects of them. Greater revenue per customer and higher retention rate, as well as more insights to drive innovation and product development. On top of that, this is very attractive deal financially for Eurowag.
Magda will go into the details, but importantly, this would double-digit adjusted earnings-accretive in the first full year after completion. The revenue contribution from our mobility solution segment is expected to increase substantially, strengthening the group subscription-based revenues, which are naturally more recurring and resilient. We will talk about this in more detail next year, but we wanted to highlight the network potential of Eurowag platform to illustrate how increased scale and broader suite of products makes us stronger. This is purely illustrative, but on the left-hand side of the slide, you will see WebEye, Inelo and Eurowag, an indication of number of trucks each business currently has and then revenue per truck. A combined Eurowag has a larger pool of trucks to cross-sell to, as well as broad range of end-to-end services, allowing us to capture an increased share of customer wallet.
Put another way, more services per customers leads to higher retention rate, enabling Eurowag to benefit from a higher lifetime value. With Inelo and WebEye on top of Eurowag existing products and truck base, the potential there is transformational and will grow as we grow. We are committed to being disciplined when it comes to M&A, and crucially, this transaction is aligned with all five of the growth pillars we outlined at the IPO. To summarize, the additional connected trucks and drivers together with Inelo extra services would provide significant cross-selling opportunities. As a result of this transaction, we would gain leadership position in Poland, the largest CRT market in Europe, and as well as critical mass in Slovenia, Croatia, Serbia, significantly expanding our geographical footprint.
We would have stronger sales presence in key growth territories, and the transaction would also increase our data pool and bring us significantly closer to our ambition of providing fully integrated end-to-end digital platform for commercial transport industry. Finally, this is the deal that would deliver double-digit adjusted earnings accretion in the first full year following acquisition, with accretion increasing in subsequent years. This is what the end game is for us. This is what we want to achieve, an integrated platform offering end-to-end services across payments and mobility solutions, harnessing the power of data to both make our customers' operations more efficient and to drive innovation and product development within a group. This is a broad base of users from across the industry.
Together with our strategic partnership with payment service provider, JITpay, this deal expands our role, more trucks, more data and additional services, strengthening the overall platform and allowing us to benefit from the network effects of that. I will pass now to Magda to run through the details of the transaction and Inelo financial information. Magda, over to you. Thank you.
Thank you, Martin. Good morning to everyone on the call, and thank you for joining us today. I will now walk you through the key terms of the transaction. The enterprise value is up to EUR 306 million, with a consideration payable on completion of EUR 224 million, with Eurowag also acquiring EUR 70 million of net debt and up to EUR 58 million of debt payable on completion. There is a deferred consideration of EUR 12.5 million dependent on Inelo's adjusted EBITDA performance during the financial year of 2022. The consideration would be fully payable in cash to be funded from existing available cash and bank facilities committed and fundraised in the recent refinancing. As Martin already mentioned, the transaction is very attractive for us financially.
It is expected to deliver double digits, adjusted earnings accretion in the first full year following completion, with further cross and upselling benefits expected to drive even higher earnings accretion over the medium term. Because 80% of Inelo's revenues are subscription-based, the enlarged group would see a material increase in the revenue contribution from mobility solutions. As a result of the transaction, we are making some slight updates to our guidance, financial guidance around leverage and our margin target, but I will cover that more in detail later. Due to its scale, it is a Class one transaction requiring shareholder approval. The circular will be posted to shareholders during late in the fourth quarter of 2022, with a general meeting to vote on the transaction expected in early quarter one of 2023.
A key strength of this transaction is how complementary Inelo's financial profile is to Eurowag. To run you through the key numbers. In the first half of this year, Inelo delivered revenue of EUR 20.6 million and adjusted EBITDA of EUR 9 million, with EBITDA margin reaching almost 44%. This is broadly in line with Eurowag's financial profile. Looking to last year, the business delivered revenue of EUR 26.8 million with year-on-year growth of over 40% and adjusted EBITDA of EUR 10.4 million. For context, the 2021 numbers include only a four-month contribution from CVS, a major acquisition which Inelo completed last year. In the first half results, this contribution is fully consolidated. The numbers we are presenting today are recorded according to Polish and Slovenian accounting standards while IFRS translation is ongoing.
I'd now like to direct your attention to the right-hand side of the page. Roughly 80% of Inelo's net revenues is subscription-based revenue. As you can see from the pie chart, the enlarged group would have roughly even revenue split between mobility solutions and payment solutions revenues. This strengthens the group's top-line resilience and diversifies our revenue sources. As you have seen in our announcement this morning, trading for the first nine months of the year was in line with our expectations and earlier communicated outlook. Group net revenues grew by 23.3% year-over-year, with organic net revenue growing by 19.2% year-over-year.
Our Payment solutions net revenue rose by 20.1% year-on-year to EUR 96.9 million, while Mobility solutions grew by 32.4% to EUR 38.7 million. Now moving on to outlook and our financial guidance. Overall, the guidance remains unchanged apart from two adjustments. The acquisition of Inelo significantly increases the revenue contribution to the group from the Mobility solutions segment, which has lower operational gearing, but generates naturally more recurring revenues and consequently increases the resilience of our top line. This change in the revenue mix, however, may impact the pace of our margin expansion of mid-40s trending to high 40s over the medium term.
The group expects to exceed the top end of its leverage target by around half a turn of adjusted pro forma EBITDA on completion of the acquisition and return back to the leverage target of 1.5-2.5 of net debt to EBITDA in the near term. To confirm, we expect to complete the transaction in the first quarter of 2023, with the general meeting taking place earlier in the year. This is it from me today. I will now pass you back to Martin to present the key takeaways and summarize.
Thank you, Magda. You all have seen this morning announcement about changes to our board. While Magda will be staying with us for the next 6 months to complete this transaction and to finalize full year results, I just wanted to say a few words now. I would like to say big thanks to Magda for her dedicated service to Eurowag over past 3 transformational years for our company. She played an important role during our IPO and in securing recent refinancing, as well as in getting today's deal done. We wish her all the best in her future endeavors. Now to finish our presentation, I would like to reiterate why we are so excited by this transaction and why it's strategically important for Eurowag. This deal would increase the scale of our platform by enabling our geographic
By enlarging our geographic footprint and giving us leadership position in the largest CRT market in Europe, Poland, and would roughly double the number of trucks on our platform. The addition of mission-critical working time management software builds our product capabilities, and at the same time, provides additional significant cross-selling and upselling opportunities. The transaction enhance Eurowag's highly attractive financial profile. Importantly, all of this accelerates the economic potential of Eurowag network. More customers, more products and more data, which means greater loyalty and greater share of wallet. It takes us a significant step closer to achieving our vision of delivering integrated end-to-end digital platform for CRT industry. With that, we will now take your questions. Thank you.
Martin, Magda, thank you very much indeed. As you say, we now turn to the Q&A. If you wish to ask a question, then please click the raise hand icon on Zoom, and we'll come to each of you in turn. Alternatively, if you wish to type in your question, then please type it into the Q&A box, and I will read it out on your behalf. If you are dialing in on the phone and you wish to raise your hand, then please click or please key star nine. The first question comes from Tintin Stormont. Tintin, if you would like to unmute your microphone and go ahead with your question, please.
Morning, guys. Three questions from me. First in terms of cross-selling opportunities, specifically the payment solutions from Eurowag into the Inelo customer base, have you already checked out in terms of how much of the existing Inelo customer base actually overlaps with your payment customers? If there is very little overlap, you know, sort of what are they using at the moment? Is it kind of very disparate in terms of the solutions that they're using? Secondly, in terms of their subscription revenues, would you be able to give us any historic retention rates that they have on those subscription revenues?
Thirdly, on future M&A, would it be safe to assume that you would look to bring your leverage ratios back to your target leverage ratios before looking at any other deal going forward?
Good morning, Tintin. Thank you for your question. I will answer the first part, and I will ask for the other two to be answered by Magda. When it comes to cross-selling potential, indeed, we were checking that. I would point a few things. At first, we are present in Poland like a Eurowag Group already for multiple years, and we know the competitive landscape, we know what customers on average are using. On this basis, we were competitive, and we were gaining successfully the market share. When it comes to overlap these Inelo customers, indeed there is some, but it's not significant. We see great headroom of cross-selling, you know, all the solutions.
Here I would point out one thing, which I was mentioning earlier, but what is a beautiful example of Inelo that on a basis of fleet management solutions, then they were developing working time management solution in a consequence of EU regulation. It was a beautiful example of cross-sell and of a feed of the data from fleet management solution to working time management solution. This is exactly the principle which Eurowag is applying to use the data to then reach the other products which drives customer satisfaction, but as well the cross-sell. So this is exactly fitting to what we are doing, and we will continue in doing so. That's why we are so excited about the opportunity. Magda?
I will now take the question with regards to the retention, historical retention rates of Inelo. Tintin Stormont, we do not have it, as part of our disclosure for the transaction. However, it's worth considering that it is about the network effect that we will be trying to illustrate in the disclosure and KPIs going forward. We currently report an average Net Revenue Retention for the group's core customer base, and that has been in excess of 110%, covering products from Payment solutions and Mobility solutions. As we cross-sell and increase the customer base, for the core products, we will definitely include that in our group's Net Revenue Retention.
With regards to our leverage, you asked the question if we first would come back to our leverage guidance before pursuing any other acquisition. To answer this question, I will relate to our capital allocation policies. We've mentioned that several times in the past, but there are key principles about our capital allocation decisions. First, it's the organic growth with focus on technology transformation. Secondly, it's value-accretive M&As, but all of that happening with a strong balance sheet supporting our decisions and our disciplined decision-making when it comes to leverage as well.
Therefore, those principles and that policy stands while we informed at our IPO that we might exceed the leverage target for pursuing value-accretive M&As. We do not change our guidance, and the 1.5-2.5 leverage guidance remains our commitment.
Okay, thanks. Thank you, guys.
Thank you.
Thank you.
Thank you very much indeed. The next question comes from Alistair Nolan. Alistair, if you would like to unmute your microphone and go ahead with your question, please.
Great. Thank you. Morning, everyone. A couple of questions from me. Maybe first on the work time management. Martin, could you maybe talk a little bit more in detail around the regulatory tailwinds you mentioned, kinda how penetrated you would see the wider industry with regard to these capabilities and kind of maybe what that market has been growing at. And then secondly, I'm keen to hear a little bit more around the organic growth profile of Inelo. What sort of kind of trend growth over the midterm you think that business might be able to deliver, and obviously how that then impacts Eurowag. Then, the third question was just on the third quarter trading update.
It looks as though the revenues are actually running slightly ahead of what you indicated at the first half update. Just keen to hear anything that might have been driving that and maybe what you're seeing in terms of the broader macro picture, as we head into the end of the year.
Thank you, Alistair. I'll answer first two questions while I'll be asking Magda to complement the second and answer the third one. When it comes to working time management, it's a relatively new phenomenon, Alistair, your question is going absolutely the right direction, and it's a consequence of a so-called EU Mobility Package and previous efforts of some countries to regulate somehow the access and the flow of international haulage through their territory. In essence, it means that people or authorities are asking how long, you know, driver is spending on our territory. Is it paid decently? Is it the remuneration of the, let's say, Polish, Czech or whatever, or actually Spanish driver, you know, fair compared to the drivers from our country?
Are all the other regulations followed? I mean, time spent on the territory, breaks, obligatory breaks, et cetera. All this is harnessed in working time management solution, which at first enables organizations or trucking companies to report it and to EU authorities, public authorities to consume it. What is great on Inelo, as mentioned, that they are not only used, and that's where thus far biggest chunk of the revenues is coming, directly from the transport companies. Inelo was so successful in spreading this software among a majority of EU authorities, so that the side which is reporting it, I mean from transport companies, is 100% compatible with the side which is consuming it, public authorities.
When it comes to further tailwinds, EU Mobility Package was largely debated. It was rather controversial, a controversial piece of legislation because it adds a lot of admin to transport companies. However, the intention was exactly to take care of level playing field, to take care about drivers' well-being, and ensure simply that all aspects of executing of trucking operations are well handled. How it's manifesting that only few countries already implemented it, but in next two years, all the rest of European countries are about to implement it. Now it's Germany, France, and more countries will follow as soon as they are fully ready. The enforcement is just now coming. As said, they are already equipped, and this is proliferating throughout Europe.
Really, the trucking companies would need to have a solution which automated, which digitized, you know, and ideally while leveraging the data which are already in place, you know, which is produced by fleet management solutions. That's why we are so excited because as you know, we were investing in fleet management solutions in other countries. We were investing into European electronic tolling, which provides a lot of data which feeds them to working time management solutions. This is definitely very strong tailwinds which we are happy to leverage. When it comes to organic growth, it's two comments. At first, Inelo was very acquisitive. Levelize acquisitions of CVS present in Slovenia, Croatia and Serbia.
Therefore, their growth numbers, historical growth numbers, at least the recent one, are not as much representative. What we can say, that we confirm our guidance when it comes to organic growth, you know, including this acquisition. I think this is probably the key message out of that. Magda, maybe you will complement. Thank you.
There's not much to add indeed. I think the key message is that having considered the enlarged group composition, we reaffirm our guidance when it comes to top line, saying that we expect the organic net revenues of the group to grow by high-teens% to low-20s% annually. Then the last question, Alistair, update on the macro environment and trends we've been seeing in the first nine months of 2022. Indeed, our third quarter results for the organic business growth came slightly better than what we communicated the beginning of September.
Organic business revenues came at EUR 45.1 million compared to EUR 44.5 million, what we communicated in our outlook beginning of September, with WebEye contribution exactly as we expected at EUR 3.5 million for the quarter. However, when it comes to trends, we've observed exactly the same trends we discussed for the first half results. There is strong growth in the number of customers within the payment solutions segment in excess of 12%, supported by a strong growth in the number of trucks. Mobility solutions segments are clearly supported by the acquisition of WebEye and consolidation of WebEye results, supplemented by effective cross-sell and sales to automotive partners.
In a nutshell, all of the trends we discussed in the half year results continued in the third quarter. While we are obviously cautious with our outlook for the year, knowing that this year has challenged us with some unprecedented headwinds, we remain happy with the confidence how the business has navigated and delivered the results for the nine months.
Great. Thank you both. Much appreciated.
Alistair, thank you very much. The next question comes from Charles Brennan. Charles, if you would like to unmute and go ahead with your question, please.
Good morning, everyone. Just two questions from me, or rather clarifications. Firstly, Magda, in terms of the business model, you suggest that a subscription business has lower operational leverage. Can you just explain where the extra costs come from in supporting growth in a subscription business? I would have thought that as a software-led solution it would still be an 85% or 90% gross margin. And then secondly, just a clarification on the organic growth and the cross-sell. It feels like the opportunity for cross-selling here should be very substantial because the cross-selling can go in both directions. Do you need that cross-selling to accelerate the growth of Inelo towards your 20% ambitions? Or do you think that that cross-sell can accelerate growth beyond that, but it's just too early to quantify that benefit for us?
Shall I take the first one, Martin?
Please.
With regards to our operational gearing, Charles. Good morning. We have consistently reported the difference in the so-called contribution margin in our financial statements, where contribution margin for Payment solutions is in excess of 80% and mobility solutions are in excess of 70%. Payment solutions has the greater operational gearing, 'cause once you establish the payment network, all you need to increase the number of transacting vehicles and increase the number of transactions. The only cost that is variable to that is then the credit losses we debated earlier for the half year results. With mobility solutions, you've got revenue streams there with different contribution margins.
Specifically, for the telematics revenue equipment that needs to be installed to the vehicle, and there are costs coming with that installation and maintenance. There are monies related to in case of services outsourcing certain obligations for customers related to that outsourcing function or tax refunding loss case, that would be working. These are roughly the key differences.
The second part, organic growth. Charles, you are absolutely right that this is too early to say. What is our growth guidance, organic growth guidance in for the mid-term, you know? Be sure that when we will be progressing this integration, merging these together with playing with the pricing models, et cetera, that we will always investigate, you know, whether there is a potential. We do not wanna be over-optimistic, and simply what we are presenting is something what we are confident at the given moment, and we learn on the go whether the ambition could be more bold, and eventually translate it into the numbers or guidance which we'll be providing you.
Just, you touched on integration there. You're obviously acquiring a company that itself has been acquisitive. Do you see any possible integration risks that we should be aware of?
I would say, Charles, you know, this is not indeed for the first time. The fact that we did this acquisition after Fair Buy and previously we were acquiring other few businesses in fleet management solution simply give us confidence that we know what to do, give us confidence in effect, you know, what this will bring. In general, fleet management solution and on top in case of Inelo, its working time management solution, it's very, very sticky because it's highly administrative, highly embedded in operations of trucking companies. This give us great position, you know, to come to customers, you know, and introduce new features, introduce extension of the value proposition.
Where we are however heading to, and it was one slide, you know, with this pyramid, you know, and I was trying to convey the message that everything comes, you know, into integrated platforms, meaning one user experience, you know. All of these applications which you've now seen, you know, which you might see in Inelo product suite, all these are collapsing into one application, one user experience, one web service, one application. This is where we are heading also with the other applications. Although each of them are something specific because of the regional specifics, because each country has own regulation. A small chunk of the functions which are used across Europe. This is where we are heading to.
We believe that of course there are risks, but they are well controlled. We know what to do, and that's why we were so keen on this transaction as well.
Perfect. Thank you so much.
Charles, thank you very much indeed. Just a reminder, if you would like to ask a question, please click the Raise Hand icon on Zoom. We'll get to each of you in turn. Alternatively, you can type a question into the Q&A box. We've got a couple of questions typed in. The first of which I think you've already touched on in a couple of prior questions. Anyway, for completeness, I will summarize the question. It is, can you please provide more detail on cross-selling opportunities for Inelo and your acquisition strategy going forward, specifically the balance between organic and inorganic growth? Do you see any areas where you believe acquisition is preferable to organic growth?
Yeah. Thank you. As was said, you know, the cross-selling opportunities are immense in Inelo, and we're trying to illustrate it on this network effect slide, you know, which maybe was not coming so far that strongly, but this is in fact the pivot to add additional products, therefore to increase the loyalty of the customer, reduce the churn, increase retention rates, and therefore to increase revenues per user or per truck in our case. This is definitely one of the key pillars of acquisition of Inelo. As illustrated, their fleet management solutions was nicely feeding and nicely feeding the data into working time management solution, which then make whole group to grow strongly.
We just wanna continue in that by leveraging the data, by leveraging the relations and adding especially in this case of Inelo customers, payment solutions, and therefore increasing revenues per user, increasing revenues per truck. This is great part of the story. When it comes to M&A strategy, Magda was already commenting when it comes to financials. Here, I have to add that Inelo, we were following for several years. That was the target, which we knew it's great because of Poland's largest market. We are already present, and we wanna confirm our leadership in CEE region.
On top, Inelo was recently beautifully leveraging the tailwinds of regulation and exactly doing what we believe is the right thing to integrate the solutions, to leverage the data, and therefore simplify the life of trucking companies and make their operations more effective. When it comes to decisions where to apply and acquisitions and organic growth, it depends very much, you know, on geography, on technology, on the pace of evolution of Eurowag, you know. What needs to be noted is that we will continue both, you know, in strong organic growth as presented in our guidance, and we will be definitely continuing to look for value-accretive M&As within the framework or within the limits which Magda was commenting on when it comes to our financial profile and discipline.
Thank you very much. Another question that has been submitted. Would you be able to break down the components of the double-digit EPS accretion that you have indicated? What interest rates are you paying on the debt taken on?
I think excellent questions from Adam. Thank you.
With our disclosure with regards to financial performance, historical track record submitted in the circular. We'll be happy to discuss those later on. When it comes to the interest cost on the debt that we will take on, you might have seen our announcements back in September when we announced refinancing. We successfully refinanced the group's debt, extending the maturities and strengthening the debt package and also funds raised, committed funds that we will now use for financing of Inelo acquisition. On the refinancing part of the debt, let me remind everyone that we had our exposure fully hedged in our previous financing arrangement that continues to be in place.
For the new debt that we will take on at completion, our hedging strategy will need to be put in place and very much depends on the timing of completion. Therefore, it's a bit too early to discuss that. In general, the financial terms of our new financing arrangement is very attractive and in line in terms of margins with the previous financing facilities.
Very good. Thank you, Magda. The next question comes from James Peters. James, if you would like to unmute and go ahead with your question, please.
Hi, gents. I'm sure people agree with me that we've come to appreciate Magdalena's calm authority that she's exuded since the IPO, and it's disappointing that you're going so soon after the IPO. What endeavors could be more fulfilling than the exciting stage that Eurowag appears to be at this time?
It has been an exciting journey. I mean, what a journey it was. I spent more than three years now with Eurowag, and over that period led the IPO, led refinancing, led several smaller M&As from the financial work stream. Right now, it is a Class one transaction, a massive experience, something that probably not so many CFOs have got a chance to endeavor in it. There is always a moment to balance out in life, and it's time for me to go and focus on my other interests, attracting a new CFO to the business. However, I'm not going tomorrow.
I will stay with the business for the next six months to ensure orderly transition, to make sure we've got proper handover prepared for the new CFO, but also to complete the transaction and to finalize our annual reporting and audit process.
Thank you.
James, thank you very much indeed. In fact, that was the last question that is in the queue, and it seems a good place to wrap things up. Martin, perhaps I could just hand back to you.
Yeah. Thank you very much for your questions. I hope that our excitement from the transaction, despite volatile context, was coming through. We are simply very confident that resilience of our business model is further strengthened. On the example of, or by the case of the Inelo, which is on its own, a great resilient business with high subscription levels, with a beautiful example of cross-selling and leveraging the data, exactly what we are building for, and with the beautiful example of network effect, which Eurowag is building for last few years and is heading to. This is exciting transaction.
We believe that we are well-positioned, also from strength of our balance sheet and in terms of strength of our previous integrations and what Eurowag accumulated in terms of know-how. Thank you for your support in that, and thank you to all participating. Thank you very much.
Thank you very much.