Massachusetts Water Resources Authority (“MWRA”) Employees’ Retirement System
APPENDIX
Representative Investment
Edenred (EDEN FP) Global Provider of prepaid corporate services
EDEN is the world's largest provider of prepaid benefits (~2/3 of revenues, mostly
food and child care vouchers) and expense management solutions (~1/3, mostly
fuel and fleet), which improve efficiency for its 680,000 corporate clients, increase
the purchasing power of their 42 million employees and drive business to 1.4 million
merchant affiliates. EDEN demerged from global hotel chain Accor and listed in
2011. Free float is 100%.
The employee benefits addressable market is worth €180 billion annually and growing 5%-7%
annually, but still only 22% penetrated. EDEN has 36% share of this (see middle chart). Annual
corporate spend on fuel & fleet in EDEN's two key regions, Europe and Latin America, is €400
billion, with penetration below 20%. EDEN is #1 in Brazil and Mexico and #2 in Europe.
Growth: Over the last five years, EDEN has delivered revenue, EBITA and EPS CAGRs of 2%, 1% and
-2%, respectively, due to erosion from Latin American FX depreciation and falling interest rates.
However, on a constant currency basis revenue growth has consistently been 8% -9% annually, and
operating EBITA (excluding financial income) 11%-17% annually. Financial income will rebound with
interest rates and drop almost 100% to EBITA.
Returns: 33% EBITA margin, infinite ROCE and ROE because the entire business is funded by
corporate prepayments. FCF>150% of NI. Net debt is 1.3x EBITDA.
Competitive Moat:
Scale and Network Economics - Fees per beneficiary are very small, requiring large volumes
to recover commercial fixed costs. Corporate clients want access to the most affiliates, and
affiliates want access to the most beneficiaries. Scale across all stakeholders maximizes
negotiating with each.
Trust and Reputation - EDEN invented the meal voucher 50 years ago, and its solutions are
central to employee retention. HR departments want a partner that's trustworthy and
dependable; affiliates want to know they'll be paid. Net Promoter Scores are far ahead of
rivals'.
Digitization makes possible new products (including a possible new segment in corporate
payments) and also leads to greater stickiness through integration with corporate customer
IT platforms. EDEN began investing earlier and has spent more than all rivals.
We expect annual revenue growth of 6%-8% in benefits and >10% in expense management, with
EBITA margin rising towards 39% over the next five years on operating leverage, resulting in double-
digit EBITA and EPS growth with high visibility for the foreseeable future.
SHOP
200
MAY
illa
Total
workforce
Formal
workforce
Eligible
workforce
Managing transactional
flows efficiently
for corporates
Driving business and
generating incremental
revenues for merchants
Improving performance
and making employees'
life easier
How Edenred Adds Value
Improving effectiveness of
public institutions' policies
Workforce equipped
with Meal and Food
Employee Benefits
solutions
Request
reimbursement
EMPLOYEE BENEFITS
I Tax-effective employee
compensation booster
Exchange the card
or voucher for
goods and services
I Increasing purchasing power
I Positive impact on health &
work-life balance
I Business volume & revenue driver for affiliate network
I Formalization of economy
I Job creation
I Lower health spending
Employee Benefits (Meal and Food)
Issue Volume
Benefits Market Size
Informal
economy
Potential
market
€340bn
Addressable
market
€180bn
Addressed
market
€40bn
Affiliates
0.0.0
ATTEN
D
Participating
merchants
Benefits Business Model
Marchant fors
Edenred
Ensure that the
allocated funds are
used as intended
TAKE-UP
RATE
4%-5%
Beneficiaries
400
MATAY
Employees
Client fors
I Anti-fraud & cost-effective
transactional solutions
I Ensure expense tax deductibility
EXPENSE MANAGEMENT
I No need to advance cash
Simplified reporting procedure
€40bn
39%
I Formalization of economy
| Carbon emission control
Clients
61%
Sells the
solution
Companies and
public sector
Developed
countries
Emerging
countries
Distribute purpose-
directed purchasing
power via a card or
a voucher
Estimated annual
L/L growth
Source: Edenred Corporate Presentation, November 2016.
Source: SEG research as of August 2017.
All information provided in this slide is for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned. The presentation is intended to effectively convey SEG's investment methodologies and representative investments held in
the Fund. The specific securities identified and discussed do not represent all of the securities purchased, sold or recommended for the Fund or its related accounts, and the reader should not assume that investments in the securities identified and discussed were or will be profitable.
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