Quadient SA

PAR:QDT

Earnings Call Transcript 2021-Q1

[Operator]

Hello, and welcome to the Quadient 2020 First Quarter Conference Call. My name is Karis, and I will be your coordinator for today's event. [Operator Instructions] I will now hand you over to your host, CEO, Geoffrey Godet, to begin today's conference. Thank you.

[Geoffrey Godet, CEO & Director]

Good evening, good morning to all, wherever you are. And thank you very much for joining this call to present Quadient's first quarter 2020 sales. So I'm Geoffrey Godet, CEO of Quadient. I am also joined on this call by Christelle Villadary, our CFO.Throughout this call, I will be referring to the presentation that can be downloaded from our website, which complements the press release we issued today after market close. So looking at the agenda on Slide 3. I will start by presenting the key highlights of the first quarter of 2020 and then provide you with an update on how we have been facing and dealing with the unprecedented COVID-19 health crisis. As you will see, corporate commitments has been strong to guarantee the safety of our employees and ensure business continuity to all our customers. Our model has also proved resilience in this very difficult context. It underscores the relevance of our Back to Growth strategy. And the shift of customer needs to digital has now accelerated, making our solutions more relevant than ever, even more than when we envisioned Back to Growth. Christelle will then detail our first quarter performance and share with you the measures we have been implementing in term of active cost and cash management to preserve our profitability and liquidity. I will then come back to present our priorities and outlook for the full year 2020, taking into account, obviously, the exceptional and uncertain COVID-19 context.And after that, we will be happy together to take your questions. So starting with the first quarter executive summary on Slide 5. We recorded total sales of EUR 239 million in Q1 2020. This is down 10.2% as reported versus Q1 2019, which means we're down 10.9% organically. Our performance reflected a quarter of 2 halves in this unprecedented COVID-19 context. And I want to stress that because I think we're probably one of the first companies to report such a length of the impact of the COVID situation for 6 weeks, half of the quarter for us. We have 2 phases, from early February until mid-March and our level of activity was in line with the full year of 2019 trend and such across all and each of our solutions and geographies. However, from mid-March, we faced a full impact during 1.5 month of the containment measures implemented in the countries we operate in response to this COVID-19 pandemic. And I think when we shared with you at our -- at the end of March at our annual results, I think we anticipated a lot would happen. And I think we have seen in the second part of the quarter what we have anticipated.I remind you that Q1 ended on April 30. And as a result, we are among, again, those few companies with Q1 numbers fully reflecting the impact of lockdown and, in particular, if we look at it even on the month of April. So in that difficult context, I think what I have noticed is that our recurring business model has proved resilient across our 4 solutions in Q1, with recurring revenue experiencing a limited organic decline of 4.6% versus the first quarter last year. Overall, if we look at Major Operation, Major Operations declined 8.9% year-on-year on an organic basis for the first quarter and despite very tough market conditions in the month of April. So I take this opportunity, obviously, to highlight our decision to include now Parcel Lockers Japan and Customer Experience Management activities that was not included in Major Operation, that was an Additional Operation, under what we call a new International segment, the name will be International operation in line with our Grow, Improve or Exit strategy of Additional Operation.The sales numbers of Major Operation in Q1 reflect this new organization, which is going to be led by dedicated manager, and it's basically the consequence of the very strong improvement in contribution, both on top line and bottom line of those activities last year in Additional Operations. We feel confident that new International operations will contribute to our Back to Growth goals overall. That being said, with Major Operation, we're pleased with the solid sales performance of our growth engine, combined up 7.2% organically and driven, in particular, by an increase of more than 25% in revenue from Parcel Locker Solutions. In this context of COVID-19, we have launched several measures around cost and cash management in order to mitigate the impact of lower activity on our profitability, and therefore, to preserve our cash generation and liquidity.Taking into account, in particular, the financial efforts that the group employees have made and that have been required by the partial unemployment measures, the reduction of management annual variable compensation for the entire management team, including for myself as well as all the other support measures granted or implemented, the Board of Directors has deemed appropriate to reduce by 30% the EUR 0.5 dividend floor to which the group has committed itself as part of its Back to Growth strategic plan.So accordingly, the Board of Directors has decided to submit for approval at the next Annual General Meeting, July 6, 2020, a dividend of EUR 0.35 per share in respect to our financial 2019 year. This will represent a 35% decrease compared to the dividend paid last year. This reduction will, obviously, also contribute to all the other efforts in term of cost and cash management measures implemented by the group in this particular environment. In addition, we have continued implementing our transformation plan in the quarter, completing the divestment of ProShip at the end of February, as you know, and the shutdown of Temando that is completely finished at the end of April of this year.Lastly, I will detail, obviously, our priorities and outlook for the 2020 financial year at the end of this presentation. Because we're still not in a position to give any indication for 2020 at this stage, given the uncertainty surrounding this trend on one hand and the timing of the recovery, as gradual lockdown lifting happens in the different countries we do business in, and they have barely started in those countries.So if we move to Slide 7 now. In response to the COVID-19 pandemic, we have quickly adapted organization and focused on key priorities. Those priorities, I think it's important. Our main priority has been and remains to protect the health and safety of our employees, while maintaining the continuity of business and services to our customers and helping communities. We probably have close to 90% of our employees still today that works remotely, and we have been doing so since mid-March and things in terms of business continuity has worked very well. As you can imagine, supporting 0.5 million customers across the world in this environment, working from home almost overnight could create a lot of changes, and we're happy to see how we've been able to accommodate those changes fairly quickly with a good level of support.To date, we continue to provide that support with all our head teams working from home, entering all commercial, service, maintenance, support and back-office activities altogether. We have also shown, I think, a lot of agility and responsiveness because as early as late February, we've been able to -- adapting our cost structure and investment road map to the COVID-19 context in order to protect, obviously, the profitability and preserve the cash generation and liquidity position. As part of all the cash -- as part of these cost and cash management measures, we have consciously, along the way, kept also a very clear focus on everything that is related to potential or future growth, whether it is to benefit from the recovery in the coming quarters or looking at next year. As a result, we have decided to maintain our R&D innovation efforts, but we have reprioritized investments supporting obviously anything that will be sustainable growth. But basically, by accelerating deployments of some solutions in order to benefit from that economic recovery or any neutralities in the best possible condition at this time. So where we had planned for sudden release in Q3 or Q4, trying to see if we could move it up to Q2 or if we felt that there were some segments or some geographies that would be [indiscernible], basically trying to get the entire team to reprioritize as early as possible those activities.On Slide 8, I would like to spend a few moments with you discussing about our corporate engagements in response to COVID-19 because I think this is in those moments, the companies and team members are actually tested and shows whether we have lived by our values or not. The entire Quadient management team, obviously, have spent a lot of time making sure we kept our employees informed and engaged. I believe that in those period of time, maintaining a good level of communication and a good quality, being honest with employees about what we know, what we don't know and making sure they're fully engaged in this time I think is part of what we've been able to do to date. We provided our people obviously with tips, tricks also so that they feel more comfortable working from home. We're organizing interviews with the management, so we could discuss how they were dealing with the crisis. We had Q&A sessions for each of the CONNECT members, including myself with the entire organization. We did a lot of surveys trying to -- along the way, trying to understand the feedback that we're getting from customers or from their colleagues.I also take this opportunity to be with you because I think we had a remarkable effort and a very strong engagement of the employees that participated in initiatives to help our communities, local communities everywhere in the countries we operate. This is one of our core corporate values. Among those initiatives, it's worth mentioning, I think, among some of the most remarkable ones, the incredible work that was done by the R&D team we had in Czech Republic. They were able to design, build, test and deploy an application from scratch in 96 hours, getting the entire engineering staffs to help on that COVID plan and allowing to organize 12-hour shifts for COVID-19 medical staff at their local hospital.In Norway, one of our employees put his expertise in 2D printing to print the plastic outline of visor, which attached to a translucent folder or divider allowed to create 8,000 [ protective gears ] for health care workers. Obviously, we also have created communication task force that were dedicated to maintain a strong engagement with our customers and partners. We were doing those reviews almost on a daily basis to ensure that we were informed, and whether there was a web post or news related to how we have responded to the crisis and how we could help and continue to support our customers.Moving to Slide 9. Our Q1 performance reflected a quarter of 2 parts in this context of COVID-19. And I won't insist here because I think we're probably one of the first few companies again that are reflecting the performance of the full quarter having half of the quarter fully impacted by the crisis. From early February to mid-March, again, the level of activity was broadly in line with the full year 2019 trends. Our growth engines comprising of Customer Experience Management, Business Process Automation, Parcel Locker Solutions activities continue to perform well. And while Mail-Related Solutions business still prove more resilient in the United States, as we've seen last year, than in Europe.Now if we look at what happened since mid-March, the level of activity started to decrease, right, due to the progressive implementation of all the lockdown and containment measures in all the markets that we operate, in response, obviously, to the rapid spread of that pandemic. So again, our Q1 numbers reflect the full impact, right, for us, of that half the quarter and in particular, in the month of April. And we obviously experienced some disparities regarding the impact of these measures by activity, but also by geography. But I think overall, when I look back, I will share with you at the end of March for annual results meeting, I think more or less what we've seen in the month of April is what we had anticipated. In Customer Experience Management, new generation was impacted by event cancelation, while we've seen some on-site professional services that were postponed, in some cases, we've been able to switch to digital through the use of virtual meetings.We nevertheless have been able to add new customers in this period of time, with important wins in each of the region in the quarter, and we've seen that, in particular, in some of our core verticals, like in the financing industry. In Business Process Automation, we faced a drop in volume -- in the volume-based activity that we have, right, especially in the property management sector in France because you know they have to have those annual meetings actually in the first quarter, and those annual meetings could not happen. But overall, we experienced some good traction for digital solution, and we've seen actually some good traction in the U.S. in particular. If we look at Parcel Locker Solutions, what we've seen is some postponements in some new locker installation that occurred in the month of April. But overall, the business momentum remained pretty good, and in particular, in Japan, but also in the U.S.If we look now at Mail-Related Solutions, the containment measures had a strong impact, obviously, on the level of activity and a sharper impact, obviously, in Europe than in the U.S., as we've seen actually just traditionally between the U.S. and Europe for us. So despite our efforts to increase the remote sales channels and to offer our customers either lease or rental extensions in some cases at the end of their contract, we faced some postponements and cancelations of equipment deliveries just naturally because customers were not on-site at the office to take receipt of the deliveries. We've seen also some lower bookings. And I think more and more importantly, we've seen some drop in the supplies of consumable, in particular, for the ink cartridge.And if we look at the lease portfolio, because it's important in our model, as you know, the default rate has remained around 1.5% so far. So no change there. And I remind you that our default risk is limited due to the very large customers we have on the one hand, but also well diversified by geography and also by industry. And when we discussed at the end of March, again, we are probably a little bit less exposed to some verticals than others because we don't traditionally work so much with restaurants or hospitality wise and more potentially with the CPAs or the accountants, et cetera, more on the B2B side of the SME sector.On Slide 10, so we introduced, obviously, last year [indiscernible] Quadient, which is aligned with our ambitions and all our customer needs, as you remember, and this brand includes -- included in the definition, a new purpose, right, that was built around a simple message, right, which is to simplifying the connection between people and what matters. So if we look at the current pandemic, I think we're witnessing the importance of those solutions more than we have ever imagined even when we created the [indiscernible].First and foremost, it should be no surprise that many companies had to quickly transform to work differently in this environment as for ourselves. And overnight, most employees were forced to work remotely and rely on digital solution to do their jobs. Business across all industries are realizing that they need to either implement or optimize the digital processes to support those new channels. And this includes processes related to accounts receivable, account payables and digital document delivery that are so critical in this environment.All indications show that there will be, obviously, new ways of working in the coming months. And I think when you look at those consumer behaviors across all major countries, and we started to look at a lot of different indicators there recently, that the level of e-commerce continues to climb. Both companies and consumers, in particular, are demanding better last mile delivery options, and I'm sure it won't surprise you, focus around the convenience, obviously, but also the safety and contactless, right? So if you can receive a package and not having to handshake somebody or see a person in this environment is obviously very useful.So during this period, we're also seeing financial services companies and bank insurance continue to look at ways of improving the customer experience they provide to their own customers. And that COVID-19 environment is actually accelerating it because people are preferring to bank digitally than physically. So while we see also a decline in mail in this environment, especially just when people are not at the office or not using the machine, we're also seeing the importance of the mail system it has, obviously, on certain countries. One -- not least among them are the U.S., the USPS, like the mail industry is considered as an essential service, right, for helping either medicine delivering or messaging or mails to remote areas, but also what we've seen like in many other countries.So if we move to Slide 11. Our recurring business model, I think, has proven resilience across our 4 solutions in this first quarter, and while nonrecurring revenue were logically more strongly impacted. So nonworking revenue were down 26% year-on-year at EUR 57 million, and they contributed to 24% of our first quarter sales.This drop resulted from the containment measures that strongly affected the service, requiring customer availability and primarily for us, the placement of new hardware equipment in Mail-Related Solutions. We have, however, seen actually an accelerated shift to some digital and online, driving the need for also cloud and SaaS-based solution and try to, obviously, provide seamless customer experience and also contactless solution for last-mile delivery. So in spite of those tough trading conditions in the second half of the quarter, recurring revenue have proven their relative robustness, if we could say, with revenue down only 4.6% for EUR 182 million, and that represents 76% of our first quarter sales.Recurring revenue include rental and lease revenue based on multiyear contracts that we offer to our customers and they also comprise all our subscription fees, maintenance revenues, all of that are obviously fairly secured. There's only a portion of the other part of the recurring revenue, those that are linked to the consumptions that were affected by the containment measures, and I'm thinking here, obviously, as the consumable, in particular, like the ink cartridge. But also some of the volume-based contracts and professional services that could not be done remotely in this environment. And I think when we described to you at the end of March, those recurring activities and what was secured and the product was viable, I think we anticipated well those particular categories. So to just conclude, I think the data I wanted to give you in this difficult context, and I am now going to hand over to Christelle for the review of our Q1 performance.

[Christelle Villadary, Chief Financial Officer]

Thank you, Geoffrey. I'm going to walk you through the sales figures. So Slide 13, as mentioned, the group recorded a 10.9% organic decline in Q1 with Major Operations posting 8.9% decrease in revenues on an organic basis and Additional Operations declining by 25.1% during the quarter. If you look -- if we look at the geographies, various geographies, so North America recorded a moderate organic decrease of 4.2%, mainly driven by the decline in Mail-Related Solutions, but which is really offset by a good contribution of the 3 growth engines, which reported double-digit growth during the quarter in the region. The main European countries on their side dropped by 17% due to a sharper decline in Mail-Related Solutions activities versus North America. Impacted mainly in hardware and supplies, as mentioned by Geoffrey, but also a lower level of activity in the professional services of the Customer Experience Management segment.International. So I will take some time here to elaborate a little bit about the change in organization and the reporting change we made as part of the Grow, Improve or Exit strategy. So as you note, in January 9, 2019, sorry, the group continued to review the portfolio of Additional Operation and we worked actively on its optimization. We completed 3 divestments and 1 shutdown so far and today, we are very pleased to announce that we decided that both Customer Experience Management in countries outside of main geographies as well as Parcel Locker Solutions in Japan are integrating the Major Operations scope, as we believe they fit the criteria that were set up for -- looking after the Major Operations, notably a good profitable growth potential, but also synergies with the other activities. So those 2 activities are combined under the segment called International and will be managed and are managed, in fact, since April by a dedicated management team. Additional Operations were down by 25%. I was explaining this decline is mainly coming from the graphic activities, but also the Mail-Related Solutions in Nordics and Australia. On the positive note or side, the automated packing systems performed better than last year in Q1.Moving to Slide 14 and looking at the bridge, you note a small scope effect to the ProShip divestment, which occurred in February 2020 for EUR 2 million and a positive currency effect, mainly coming from the USD for plus $3 million. So here, the most noticeable impact come from the decline of the Mail-Related Solutions sales, particularly impact, as Geoffrey was mentioning, during the second half of the quarter and also from Additional Operation, again, mainly on the graphic and Mail-Related Solutions.On the positive note, the 3 growth engine posted a combined good performance of plus 7.2% with Customer Experience Management growing 1%; BPA, Business Process Automation, 4.9%; and a strong 27.2% Parcel Locker Solutions growth for the quarter.If I move to Slide 15, so Customer Experience Management sales grew by 1% to reach EUR 30 million in the quarter. So as just mentioned, this performance now includes the all geographies, including, say, same in the rest of the world. Revenue related to license sales were up by 11.4% in the first quarter as a result of new customer acquisition in our core verticals, so finance and insurance, and in each region, so a good activity in the U.S. and in Europe. And this activity includes also customer gains in the month of April, which is pretty satisfactory. The recurring revenue recorded a mix performance with SaaS and maintenance posting a very good organic growth, but offset by the decrease in revenue from the professional services. These services mainly operate on-site were more impacted by the containment measures.If we look by geography, North America posted double-digit growth in that segment. And in the main European countries, sales were down due to significant decrease in the revenue from professional services, which was partially offset by the good performance in license sales. And for the International segment, the revenues were slightly down due to a high comparison basis in 2019.Moving to Slide 16, Business Process Automation, sales were up 4.9% organically, reaching EUR 15 million for the quarter. So Business Process Automation was impacted by the containment measure as well as of mid-March, whereas it has recorded a very good level of activity in the first half of the quarter. 3 main impacts should be highlighted for BPA. The first one in Europe, we only recorded a slight increase in revenue, and this is mainly due to the decline in the consumption and the [indiscernible] activity in France, one of the key markets and -- key market for BPA. And as Geoffrey mentioned, first quarter usually benefits from the good level of activity in the property management sector, which did not happen during this quarter.Licenses were down also as the offers bundled with MRS were strongly impacted in the context due to the fact that it was much more difficult to leverage the MRS channel during this period. On the positive side, the SaaS solution were up, thanks to the subscription recorded during the previous quarter. In addition, the group launched some campaigns to accelerate the acquisition of new customer under the subscription mode in all regions, and it has a particularly good effect in America where a lot of contract activation were recorded.Mail-Related Solutions. So I'm now on Slide 17, were down by 13.9%, reaching EUR 155 million of sales. So as already explained, the containment measures strongly impacted the activity from mid-March, especially the mail equipment sales and part of the recurring revenues, so mainly the supplies segment. The recurring revenues except for the supplies were barely affected and showed good resilience as expected as most of them are, of course, supported by multiyear contracts. On a geographical standpoint, the better resilience of North America over Europe remained true with a lower decline in activities and North America benefited from the embarked recurring revenue coming from last year good performance in hardware placement. Remember that we had a very nice year in North America in 2019.Moving to Parcel Locker Solutions, Slide 18. So Parcel Locker Solutions grew strongly by 27.2% to reach EUR 15 million revenue in Q1. So again, this performance includes the revenue from Parcel Locker in Japan. And this performance reflected the double-digit revenue growth in the residential sector in the U.S., thanks to the good integration of Parcel Pending as well as the strong business momentum we have in Japan, driven also by the significant increase in the installed base we had in the previous quarters. The recurring revenue is up in the residential segment as well as in the rental model in Japan, close to plus 45% and today, they represent 69% of the parcel locker sales in Q1. We should note, however, that we have a slight slowdown in the booking and installation in April. And at the same time, we secured a new contract with our partner, Yamato, in Japan for the delivery of more than 3,000 parcel locker Pudo Lite over the next -- over the coming 36 months.Slide 19, Major Operations. So again, I'm not going to comment too much on that. I think what we have here is a solid performance of 3 engines, again, up 7.2% of organic growth, which is offset by the sales decline of our Mail-Related Solutions business.So moving to Slide 20 on Additional Operations. So revenue from Additional Operations dropped 25% to reach EUR 24 million due to a sharp decline in the graphic business. The impact of the containment measures on the MRS in the Nordics and Australia, and we have also -- suffered also from a high comparison basis in Q1 2019 for the export business in MRS. On the positive side, I was mentioning, the group benefited from the sale of 2 automated pack system in Q1 2020, sorry, versus the one last year.Moving to Slide 21. So as we shared with you during our full year presentation and based on the early sign of the potential impact of the pandemic now, that we decided as soon as early March to take some measures in terms of cost and cash management to protect the profitability and preserve the cash generation of the company. And at the same time, we try to take decision to keep some agility and flexibility to be able to react to any change in the environment. So if I go to the cost management side, on the cost of sales, just to remind you that the group has a high proportion of variable cost in the cost of sales due to the fact that 90% of mailroom equipment and 100% of automated parcel lockers are outsourced in Asia. And as soon as March, we adjusted our orders based on the level of inventory we had. Therefore, we were pleased to note that our gross margin remained stable during the quarter.Regarding the operating expense. So we implemented several measures, so partial unemployment, time-reduction measures. We discontinued the use of temporary contracts, froze new recruitment. We implemented several solidarity measures, including the decision taken by our management and top executive to waive part of their compensation. We had also some other cost-reduction measure regarding marketing and travel costs. At the same time, we decided to maintain our R&D and innovation effort, again, adjusted and reallocated in terms of priorities, but to be able to benefit from recovery and potential traction on specific segment going forward. So more globally, what we can say is that we achieved EUR 8 million cost savings in the first quarter of 2020 for those OpEx, operating expenses.On the cash side, again, in order to preserve the cash generation, we operated a complete review of the investment road map for 2020, with priority to initiatives supporting the future growth. We note that the level of investment relating to the rented equipment has reduced during Q1 as a consequence of the reduced activity during the quarter. Working capital management has also been a strong focus during the quarter.So moving to Slide 22. Just to show you that our balance sheet remains extremely sound and to remind you that our debt is being backed by steady cash flow from our leasing and rental portfolio. To remind also, and we already disclosed this that early 2020, we say the market opportunities to refinance part of maturities. So notably under Schuldschein extension, and we buy backed EUR 15 million of our February 2020 bond. And today, we are happy to have still a very strong liquidity position above EUR 900 million, as mentioned by Geoffrey, with an increase of our level of cash EUR 517 million at the end of April. And we still benefit from EUR 400 million of undrawn credit facility, which is maturing in 2024. So with this, Geoffrey, I'm going to give you back the floor.

[Geoffrey Godet, CEO & Director]

Thank you, Christelle. So before I go to our 2020 priorities and outlook, just wanted to take a few minutes to articulate the level of reprioritization and the philosophy that we have regarding the potential for future growth this year or, obviously, in the coming years, and I am on Slide 24. So what we've done, obviously, is looking at some of the impact is stopping some initiatives in some R&D road map or projects. We delayed them obviously to potentially next year when we have more visibility. And as we look at the other solution where we would not necessarily stop is also trying to see and evaluate the demand of our customers, right, and see how we could better help them now and equip our sales channels with solutions that will be more need in the coming quarters or next year. And as a result, making and reprioritizing the R&D efforts and trying to release earlier than plan some of the solutions, whether they're hardware on the parcel locker or whether they are software, for example, on the BPA side and trying also to look at how we could deploy some of those earlier release -- earlier than what had been anticipated in our last year road map, potentially Q2 or Q3 or even Q4 and some of the mix of the regions. So I'm not going to look to everything.But if we take a few example, when you look at aligning our go-to-market strategies, we could obviously help to bridge digital package to make sure there's incentives in the sales. So that a traditional franking machine or [indiscernible] could be assembled with a digital package of the hybrid mail solution or digital or business process solutions. I can take another example of what we're clearly looking at doing this year is to expand the current Parcel Locker Solutions offering like Parcel Pending offering to new regions outside of the U.S. and clearly looking where we felt that based on the COVID situation and what's coming out of it potentially U.K. and France and earlier than we had planned.There's obviously all the synergies that we are revitalizing across our 4 solutions. We're talking about integrated and multi-product offers based on those requirements that we see from our customers. And obviously, the synergies that exist between Business Process Automation and Mail-Related Solutions. There's also specific synergies we could develop on some verticals in some of the corporate segments, like what we've done before with diversity between Parcel Locker and Mail-Related Solutions go-to-market. But in the property management segment, obviously, we're very strong in the BPA side as well. And we're obviously developing and offering the Parcel Locker side with Parcel Pending. There is, obviously, from a pure R&D and program perspective, as I mentioned, the way to accelerate some of those road maps based on the fact that we canceled or postponed other activities, and also from a cost-saving perspective, looking at where we could merge earlier some platform. In particular, in BPA, we had a fragmented platform environment between the OMS-500 and Neotouch and trying to see how we can provide a more integrated platform and reduce the cost of providing the features.And finally, we could take a further example in terms of the contactless environment. When you look at the e-commerce and looking at specific verticals, obviously, in residential, but the retail definitely is suffering tremendously. And providing for shops today, a solution could be contactless and adapting the hardware to shops that are also smaller in size with what we call parcel locker lite, that Christelle has referred to you, that we have installed for first time now in Japan, it's something that we try to expand this year to other verticals.So moving to Slide 25. I will now discuss obviously our priorities and then a little bit about our outlook for 2020. So looking at the priorities. We have, obviously, to take into account the COVID-19 context now and the uncertainty about the future macroeconomic environment. So our priorities are to protect our profitability and to preserve our liquidity. I want to stress that we need to focus on profitability and liquidity. So we will maintain, obviously, the same discipline that we had before, but also that we have implemented with Christelle in a very tight way from a strict financial discipline perspective.Looking at the implementation of cost management actions as well as a complete review of our full year investment road map. We want to prioritize initiatives that support future sustainable growth, including accelerated rollout, as I mentioned earlier, of new product and solutions. And overall, as we look at those reshuffling priorities in line with what we see near term, maintain our R&D and innovation efforts accordingly.So if we take into account on another front, as we mentioned earlier, the financial efforts that we are asking our employees to do, whether they are partial unemployment measures, the reduction of the management annual variable compensation, including mine, and other support measures that have been granted or implemented. The Board has obviously took another consideration and looking at what to do with the dividend and felt that was appropriate to reduce by 30% the EUR 0.50 dividend floor, to which, obviously, we have committed ourselves as part of our Back to Growth strategic plan.So accordingly, the Board has decided to submit for approval at the AGM on July 6, this year, a dividend of EUR 0.35 per share for the financial year 2019 and this, as I said, at introduction, is representing a 35% reduction compared to dividend paid last year. So this reduction will obviously also contribute to all the other efforts made by the group. So I want to also take this opportunity to update you on the next AGM due to the COVID-19 health crisis. And as our priority is to ensure the security of our employees and but also our shareholders, our Board of Directors has decided to hold our Annual General Meeting on July 6 behind the closed doors, and we'll provide obviously all the details to make sure the proper tools and communications protocols are defined.So let me move to -- a little bit to our 2020 outlook. As explained earlier, Q1. And I think, again, I want to stress that compared to most companies, was clearly a quarter of 2 parts for Quadient, with the level of activity in line with 2019 trend in the first half and then a sharp degradation of trading conditions from mid-March due to the containment measures that has been progressively imposed on our markets and with a more market impact in April.Now we've also seen that our backlog of orders at the end of April was higher than in the same period of time in 2019. So I think this is likely to reflect, right, the delayed booking and deliveries that could not be made, obviously, in the first quarter, most likely because customers could not take receipts of those physical delivery. We'll need to see how much of that backlog we can consume or not in Q2 or if things would get pushed to the right, accordingly announce.When we look at the business trends that we observe in the month of May, and I want to be careful because, obviously, for us, like every month of -- every quarter is -- the last month of the quarter is the biggest, but the last week of every month is also the biggest for us. And I don't have the visibility on the last week of May. But when I look at the level of activities in May, we clearly see some early signs of improvements versus April. Finds that April potentially is hopefully a floor that we have seen. That being said, the level of improvement that we see in early May is clearly at a much lower level than last year.So accordingly -- and I wish it could be in a different position, but we are not in a position to give 2020 guidance at this stage because we really have limited visibility in this gradual context of lifting those confinements, restrictions in each of the countries we operate, which makes it very difficult for us to understand how things will evolve. We could see how it is happening because now we're looking at every day -- every indicator that -- we could see across the board, the call from service, from technician, the visit on websites, there seems an additional revenue generating, but we could see that overall, there is a pickup of activities that people are coming back to the office, connecting to the machine, using the machine also in case of the mail-related equipment on our software solution is the same thing.So considering this situation, our priority will remain in the coming weeks and months to protect our employees and ensure that we continue to serve our customers that will be better. I think, hopefully, you've seen with the -- already the result on our OpEx that Christelle mentioned that we're very disciplined regarding cost and cash management. And that our priority is clearly on preservation of our profitability, but also on cash generation. And while we are reprioritizing investments in our different [indiscernible]. So we're trying to, obviously, focus on near term at some time, keeping an eye on the coming quarters and looking at how customer demand evolves. And then last but not least, I think we have a very strong balance sheet today. We have a very strong liquidity position that I think gives us a full confidence in our ability, obviously, to continue to implement our strategy in the future. So this conclude our Q1 presentation. And with Christelle, we're obviously very happy to take your feedback or take any of the questions.

[Operator]

[Operator Instructions] The first question comes from the line of Patrick Jousseaume.

[Patrick Jousseaume, Head of Mid and Small caps Europe Research]

In fact, when I look at the actual figure for the quarter, so minus 11%. And when -- where the consensus was around minus 3%, but it seems that there was obviously some analysts between 0 and minus 5% and probably 1 or 2 with very, very low figures, but nobody was at the right place. So probably we need some help. That's the purpose of my next question. So first, am I right, if I consider that the second part of the quarter was around minus 20% and the first part was around 0 or 0 plus? Second, would you expect to be better than Q1 in terms of organic growth? And third question, what do you think about the consensus, which is currently at around 3% negative organic growth and 15% adjusted EBIT margin. And well, besides this question, which are, let's say, more or less on the same topic, I have 2 others. Could you comment on the way you measure the default rate? Is it default rate for the first quarter or the, let's say, end of the first quarter? And regarding the debt improvement that you have mentioned, the EUR 28 million. Could you compare with the same period of last year? Did you see an improvement in Q1 last year?

[Geoffrey Godet, CEO & Director]

Thank you, Patrick. So we'll try to make sure we captured all of the questions and between Christelle and I to share the response. If we miss one, don't hesitate to obviously remind us of [ that, right? ] So first, I wish we could help better understand at the end of -- when we're in March, what was going to happen in terms of guidance, but I think this is fundamentally the reason why didn't give guidance. It's very difficult to provide visibility, especially when we look back 6 weeks where we were. On the logical assumption of April, I think you're probably close to it because you do have half, and we were in a decent position in the first half. So I don't think it would be too far off. Again, April being potentially a little bit more marked at the end of the April versus the end of March.On the anticipation. I won't be able to give you more help for Q2. I think, unfortunately, I'll let Christelle answer that, also provide you more color whenever we can. We are too early in May because when you see those early signs, you feel that April will probably be hopefully a floor. But the question is not so more of that is going to be a floor is what is going to be the pace of recovery and regardless of how is it going on in May is what is going to happen in June and in July? So being able to know now what's going to be the end game at the end of Q2 versus Q1, I think we're not, I think, in a position to help on that so much at this stage. When I look at what we shared on our recurring revenue and where we felt comfortable that it would be stable and that we had a 10% to 30% of the recurring revenue that could be at risk, I think we guided -- I mean we tried to explain where we see some risk. And I think it did happen actually the way we expected, but potentially less than we anticipated on the revenue side. Overall, more on some of it. When you look at the supply, the supply was definitely where there was a bigger drop, but the supply is just a portion of the recurring revenue, obviously.I think the element of confidence is, obviously, the recurring revenue moving forward is where we have the resilience in the model. On the other hand, the level of placement of new license or new hardware, this is where the early signs that we see in May are still at a much lower level than 2019.I will let Christelle take some of the other elements?

[Christelle Villadary, Chief Financial Officer]

Yes. So the question -- you had a question, Patrick, on the debt and how it compared to last year. So last year, in Q1, as you know, we are not usually disclosing any EBIT or balance sheet items for the Q1, but what I can tell you is we were much more on cash burning situation. So there are 2 elements on that. There were specific one-off last year because we had some tax to pay on the Satori sales. And we had also the usual degradation of the working capital, which is more seasonal effect.And this year, as a part -- because it's important to understand the model. As part of the reduced activities in our MRS portfolio, you have mechanical decrease of leasing portfolio, which has an increase, I would say, reversal -- positive reversal in our cash flow generation. So very different trends between last year and this year.

[Patrick Jousseaume, Head of Mid and Small caps Europe Research]

And for the default rate?

[Christelle Villadary, Chief Financial Officer]

So the default rate is still around 1.5%. So it has extremely slight, slight increase. But what's happening in reality is that we did not have any default or bankruptcy effect per se. It's more than during the month of April some of our customers could not pay. So as we have to make a call, provision coming, it has increased as a mechanical, if I can say, so provision rate.

[Operator]

We have another question on the phone line from the line of Nicolas Tabor.

[Nicolas Tabor, Analyst]

I had a few questions. The first one was maybe the most obvious, you stated the COVID-19 crisis will accelerate the need for digitization, it can create some opportunities. But what is the risk of also an acceleration in the decline of the mail volumes on your activities driven by the same, let's say, catalyst. And do you want me to ask this question one at a time? Or do you want me to blast them out right now, which is easier for you?

[Geoffrey Godet, CEO & Director]

So either way, you could have -- you can -- as you feel comfortable.

[Nicolas Tabor, Analyst]

Well, I can just ask the next one just after this, maybe easier.

[Geoffrey Godet, CEO & Director]

So on the mail, I think we have to understand -- I think the difference of the lockdown impact clearly were from [indiscernible]. I'm not talking about our business and the volume that people are sending letters, et cetera, we've seen overall, obviously, a decline in country to country on the usage in the machine because some of our machines are connected, and we could see some of the usage. And we see differences. And I think intuitively, based on what we know based on the lockdown of countries, even some of the states in the U.S., we could see differently that the drop in usage is not the same. France and Italy are probably the one where we had the most severe impact, whereas Germany and the U.S., where we've seen definitely a big drop also in terms of usage, not as much as some of those other countries. Then we'll look at, obviously, the business activity, which is the placement of hardware and the recurring activity.Two different context here. We haven't lost any of the customer during the period of flat phase because, again, the recurring nature of the business, there's always capacity to extend contract if needed. And we think we still placed hardware, new hardware during this period of time. So the question will be more about how each country, obviously, recover from there. But that I don't think will change necessarily the demand volume, right? It's related to your point, which is the digitization. And when it comes to digitization, what we realized is it doesn't come overnight still, meaning that the need is definitely probably there. This should probably be an inflection point. But how and how fast we could see potentially a change on the consumptions on mail until you still need one letter, one mail, you still need a machine, right? So this is why I think it doesn't change what we see now. I don't think it will change in the near term. We'll have to obviously look back in a few quarters from now how the future, the next few years and all that, could be impacted. At this time, this is not what we see. What we see is an acceleration of Enterprise Digital Solutions, but not to the detriment of machines. So no customers are saying, "I want to replace a machine with a digital solution." On the other hand, we're adding digital solution at a faster pace than before.

[Nicolas Tabor, Analyst]

Great. Maybe the next question would be still on the H2 trends that we can expect, as we've said, let's say, the recovery over Q2 with the most, let's say, uncertain, but maybe for H2 to more after lockdown period, how can we compare it to 2009? And can we expect the decline in nonrecurring revenue, so hardware sales, for example, to ease after the lockdown. But then for the recurring revenue, can we expect also an easing? Or this will broadly remain stable in terms of level of decline in H2?

[Geoffrey Godet, CEO & Director]

So a difficult question to answer. I'll try to do my best. On the recurring side, some of the decline or reduction that we've seen so far is really related to the fact that people were not at the office, right? So they were working from home and there was restriction. So one likely reason that we could imagine that the use of ink cartridge should come back to normal level regardless of what is that ongoing level of activity, but the usage will be back. The professional services is the same thing. There should be no more reason why we cannot do professional services. So it could go back to normal. The problem is what does that normal is? Because, yes, we could do them. Yes, they will use a machine, but then it's more about that recovery, how many quarters will it take to be able to get to the same level of activity. And that we really don't have enough, I think, visibility today. Obviously, we have our pipelines, there are discussions with customers and all that. But we're just 3 weeks into May. I see more early signs on soft indicators at this time, things are picking up, but we don't see that in terms of placement of hardware of license. So yes, they're better than the floor, but hopefully, what April was. But it's difficult to know how many months or quarters it will take to go to a normal level. And if that level will be back to Q4 last year? Or is it still going to be a lower level compared to where we were last year and potentially requiring even a few quarters into 2021 before we get to that? And I think we are probably not the only one in that position, as we don't know the intensity of the recovery.

[Nicolas Tabor, Analyst]

Okay. And maybe to ask it differently. Do you already have plans in terms of the pace at which your employees will come back to the Quadient offices and for sales to be back on the field?

[Geoffrey Godet, CEO & Director]

So there's several aspects of that. If you're talking back to working, we have only 30% of the staff that are impacted at some level of our partial unemployment measures. So not everybody that's on the partial unemployment is 100% they're not working. And there definitely, it all depends because it's affecting broadly all categories or functions, but we are definitely looking already at reducing those numbers of hours, in some cases, we see, for example, in some segments of hardware that we may need to produce more hardware quicker or on the dispatch activity. So we may bring -- we're considering bringing people earlier than planned or some of them or more hours in term of capacity. On the sales, where we had some of our sales organization impacted by that, mostly, we have tried to protect this engine too. And a lot of our field sales have been operating remotely as almost as an inside sales team, making calls to customers.So when we talk about business continuity, aside of the people that are not working for partial unemployment, everybody is working today. So everybody is at work, just not at the office. From a health perspective, we're still trying to figure out the pace at which we will allow the full staff coming in. But as you know, for example, like in France, there's only so many square feet and square meters that you could allow between people. And therefore, you could basically have between 25% and 50% max of your staff coming back physically at the office. In most offices, we still have already a few people that came back, but they are fragment, I think, where they are. And so far, we ask people to stay home until the end of May, and we will make probably a decision at the beginning of June to see how we're going to face those returns in June and potentially July and potentially have still some people until September to potentially benefit working from home during the summer.

[Nicolas Tabor, Analyst]

Okay. And can you share with us the total employment costs that you incurred in 2019?

[Christelle Villadary, Chief Financial Officer]

Sorry, I didn't get…

[Geoffrey Godet, CEO & Director]

The restructuring cost? What was your question, sorry, Nicolas?

[Nicolas Tabor, Analyst]

Sorry. Can you hear me correctly?

[Geoffrey Godet, CEO & Director]

Yes.

[Nicolas Tabor, Analyst]

Could you share with us the total employment costs from 2019 that you incurred?

[Geoffrey Godet, CEO & Director]

You mean payroll, compensation, benefits, bonuses, all that?

[Nicolas Tabor, Analyst]

Sure.

[Christelle Villadary, Chief Financial Officer]

So if you take all the payroll, social cost, it would represent almost half -- it will represent around EUR 350 million under our EUR 645 million OpEx cost.

[Nicolas Tabor, Analyst]

Okay. Great. And then maybe very last question. On the BPA side, what is the magnitude in terms of organic growth of the potential catch-up from the postponed AGMs because the seasonality effect is just maybe postponed to Q2 and we can expect some catch-up for this in maybe, I don't know, July. Do you have visibility on the percentage of sales that, that could represent?

[Geoffrey Godet, CEO & Director]

So on BPA, now -- so the missed opportunity we had was really because the annual meeting could not be held. I've seen, I think, if I can remember, it was last week or 2 days -- 2 weeks ago, in France, they have authorized now for those meetings to happen virtually. So one would expect that those meetings happen virtually. Subsequently, we should be able to get the benefit from all the documentation that needs to be created. So one, we're obviously counting up for some of that to come back to us. I don't know today if we will be able to get it all or only a part of it.

[Nicolas Tabor, Analyst]

And can you give us maybe the amount of a broad idea of the loss revenue from this activity alone?

[Geoffrey Godet, CEO & Director]

No, I don't have it on top of mind. I don't want to say a mistake here because it's only a portion of the one we have in BPA and that is in France. So I'm not sure. It's definitely a portion of the gap because there's seasonality there. No tax, not right now.

[Operator]

There are no further questions on the phone line. [Operator Instructions] We have a question coming from the line of Jean-Francois Granjon.

[Jean-Francois Granjon]

Yes. Jean-Francois Granjon from ODDO BHF. Just 3 questions, please. Could you comment on the Mail-Related Solutions after the [ 14 ] decrease for the first quarter? What do you expect for the next quarter in terms of trend for this business? The second question concerned the savings, as you mentioned, EUR 8 million savings for the first quarter. So what do you expect for the full year in terms of savings? And the last question concerned the disposal of ProShip, could you give us the size or the turnover sales of this business?

[Geoffrey Godet, CEO & Director]

I'll let Christelle answer the 2 last questions.On MRS, for Q2, it's difficult likely for the rest. And again, I wish I could be in an easier position to give you more indication of what the Q2 could look like. It's -- I don't think I can help on that because, obviously, with the early signs in May, we could see definitely that -- whether it's on the ink or some of the other aspects things are picking up again at still a very, very early stage and at still a much lower level than 2019. Again, it's 3 weeks in May, knowing the first week of May was still very flat. And then it's just very recent indicators. Projecting from that what it could be the level is difficult. Obviously, people are going back to work. People are definitely using the machine by going back to their office as well. But it's difficult to tell you. And I'm not in a position to help on that unfortunately.

[Christelle Villadary, Chief Financial Officer]

So to start with the technical one on ProShip, so ProShip sales were around EUR 12 million in 2019. So I guess this was your question, Jean-Francois?

[Jean-Francois Granjon]

Yes.

[Christelle Villadary, Chief Financial Officer]

Yes. Okay. And on the savings part, so as we said, EUR 8 million is really the results of all the measures we took -- we took, sorry, which are partially as you understood variable because based on the partial employment, the fact that we have travel bans during this period, that we stopped the outsourcing, so very linked to the level of activity. So what I would like to tell you is that we will continue and adjust and be as strict as we were during Q1 to reiterate and adapt to the level of activity this kind of performance and savings because we know that we are able to achieve this during the quarter and we achieved this pretty quickly from mid-March in reality.

[Geoffrey Godet, CEO & Director]

So I think to come back to your first question, which I couldn't answer is that, whatever the level of activity, I think our focus is to ensure that we adapt the cost structure and especially, there is obviously the variable part for which I think we have demonstrated already in Q1 a good management.

[Operator]

Thank you. There are no further questions on the phone line.

[Geoffrey Godet, CEO & Director]

Okay. There's no more question on line. Okay. So I know we took a little longer than usual. So I want to appreciate everybody for those extra time, and thank you for those questions and comments. And look forward to seeing you for our H1 results. Thank you very much.

[Christelle Villadary, Chief Financial Officer]

Thank you.

[Geoffrey Godet, CEO & Director]

Bye-bye.

[Operator]

Thank you for joining today's conference. You may now disconnect your handsets. Hosts, please stay connected.