Ipsos U/Adr

Thank you. Good morning, everybody. And thank you to everybody in the room who has made their way to Janty early this morning. It's nice to see investors, colleagues, analysts here. And it's my job to kick off proceedings on the first half results of 2023 for Ipsos. I think, Mike, obviously, Dan, our CFO, will take you through some of the detail in the numbers in a second. But the key point, which... consistent with what we were talking about at the beginning of the year is that the profile of 2023 is just very, very different to 2022. We've known that for a long time. So 2022, remember, we saw very rapid growth in the first six months of the year and then a deceleration at the back end of the year, quite similar in some ways to some of the tech companies. This year, we start slowly and then accelerate. And that, of course, has effects on the revenue that we're announcing today. So really important to understand that difference and also the comparative for the numbers that we're now looking at for the first half compared to the first half of 2022. Dan, please take us through the key numbers.

Merci beaucoup, Ben. Thank you very much Ben. Ladies and gentlemen, good morning. with a few comments on the top line, on revenue. Revenue, as disclosed for the first half, reached 1 billion, 0.87 million, down 3.7% on last year, including minus 1.1 for organic growth. Currency effect, minus 1.8%, quite significant, originating mainly in the euro, appreciating against the many emerging currency and against the sterling pound and some minus 0.1 scope effect organic growth accelerating from minus 2.8 down to 0.5 percent for the first half and there are three driver three factors which weigh down on the trading the first is what ben mentioned the inferable base effect due to the fact that the first half of the first quarter of 2022 was very strong with Growth up 12%, weighing down on trading on business activity. The second factor was the termination of the large COVID contracts, which in the first half of 2022 generated some 25 million euros for the first quarter, mainly, when you lose these contracts immediately. These COVID contracts, it weighs down on growth. So 1.1% of organic growth excluding COVID contracts with the same momentum between the first and second quarter. The third factor weighing down on the results is large big tech clients restructuring where we lost some 18% of revenue in the first quarter. quarter of 2023, year on year, and Ben will review the prospects and outlook for these big tech accounts. Now, some more detail on the breakdown by region. The first comment we can make is that there's a strong de-correlation between emerging region performance growing 9% organically and performance in advanced countries which show negative growth of 5% for the reasons I mentioned. In some more detail, the first line, EMEA, is down 1% in organic growth for the first quarter due to the termination of COVID growth, excluding these effects We have organic growth of 4%, accelerating between non-COVID organic growth, reached 6% in the EMEA zone. Trading in the Americas down 3% organically. Here again, this reflects reality, which is quite mixed. Mixed picture between Latin America, performing very high with 8% organic growth, and North America, which is penalized by lower demand on the big tech accounts, and also by a number of lag effects in the public affairs contracts, which are connected with the discussions on the debt ceiling for the U.S. government, which led to lagging in decision-making by U.S. companies. public institutions with these contracts being postponed from the second quarter to the third quarter. Now, the Asia-Pacific zone shows organic growth of 3% with a rebound with a rally of 7%, organic growth of 7% in the second quarter with good momentum, both in India with growth in excess of 20% and in many southeast countries. Asian countries. Comment on China. China rebounding as expected after the end of the zero COVID policy introduced by Chinese government, posting 6% growth in the first quarter. But with respect to outlook, some economists question that the Chinese economy might slow down. Now, some comments on our own performance by audience. Revenue with consumers is up 3% in the first quarter, rebounding up to 5% in second quarter, reflecting, we said that a number of times, the fact that our clients need to keep understanding consumption behavior in a complex world which is subject to many shocks, many contingencies. and our clients and employees audience showing stable flat organic growth with good performance in our service line dedicated to client performance and tracking distribution channels but this audience channel is weighed down by the decline in big tech citizens Trading down 12.5% quite mechanically due to the termination of large COVID contracts, including the COVID contracts. Public affairs show revenue of 3.5%, but the momentum in the order book is more than 10%, and Ben will review the prospects in a few minutes. Now, on doctors and patients, we have negative growth of 3%, with acceleration momentum in second quarter, revenue stabilized across the first half. Trading was impacted by some late decisions by some former accounts, but the order book, starting from early January, has been organically up 9%. Now, so much for revenue. What's important to understand here is to the extent that we are showing a momentum of growth, revenue in the first half will obviously not be half for the full year. The best proxy for understanding our full year performance is the order book. rather than the revenue for the first half. As you can see on this slide, the order book is growing in the end of Q1 by 2.6% and is accelerating because you can see Q1 plus 1.6%, Q2 5.3% and when you exclude the COVID contracts, the order book is growing 6.2% which reflects the underlying momentum of the order book of the group because you need to exclude the COVID effects due to their being gone. Some factors to explain how each client segment contributes to growth. And we are not talking about growth, we are talking about contribution to growth of the order book. So as you can see here, very good momentum of the public sector growing. and showing double digit growth contributing to growing the order book by some 1.2% good resilience of CPG accounts as retailers and CPG contribute to increasing the growth of the order book by some 1.2% and good performance as well across all economic sectors which account for less of a share in the APSO's revenue yet contributing somewhat like travel, auto transportation and financial services, respectively, contributing 1.2% and 1.3%. Conversely, what's weighing down on the growth of the order book is the big tech accounts, including in the U.S., and obviously the termination of the COVID contract. Now, all in all, we note a lagging effect between growth in the order book and the growth in revenue. It might be useful for me to remind you what we define the order book. The order book is the sales of the first half, which will be generating revenue across 2023. Remember that revenue is recognized in a linear manner at Ipsos between the beginning of the project and the end of the project period. Mechanically, if I might say, At the end of the year, the order book equates the revenue. Why do we have this lag effect between the growth in the order book and the growth in the revenue? Well, this is due to the factors you can see on the right-hand side of the slide. The first effect is the end of the COVID contract. I told you earlier that we still had 25 million of COVID contracts to recognize the first half of 2022. When you compare the 25 million euros of COVID contracts to the 1.1 billion euros of revenue, It's more of a share on the decline compared with 1.8 billion of the order books. This has a mechanical effect and a lag effect between the growth in the order book and the growth in revenue. Second factor is, as I said, we are accelerating. And when you accelerate, of course, the revenue has a lag effect compared with the order book. And the third factor is a mixed impact. Basically, we performed higher than the group's average in some service lines. whose average contract maturity is longer than the average maturity. And this is the case of public affairs and the trackers business. This leads to a gap between the order book growing 2.6% and the revenue showing negative growth of 1.6%, giving 3.7%. growth, which is reflected in the revenue of the second half. So even before we generate sales in the second half, we already have resident sales, we already have sales existing for the second half. Now, acceleration of the order book, which I mentioned a minute ago, confirms, as Ben said, what we had announced in February with respect to how fiscal 2023 will would go about. In 2022, we had strong growth in first half and a more sluggish growth across the rest of the year. 2023, the profile will be totally the contrary. We come back to some kind of a cyclical pattern, which is more usual with our business, which was more or less mitigated during the COVID period with a stronger second half in revenue and in profitability. You can see on this slide that you have numbers illustrating this factor for each of the financial aggregate you have. Look at the share of the first half in the entire full year results. For the order book, if you take the average for the period 2017-2022, the order book, end of June, accounted for 72% of the year's revenues. In 2023, we reached 73%, slightly early. For revenue or turnover, end of June revenue accounted for 45% of the year. We are in line with that. For gross margin, we are also in line with this. And for operating margin, we are also in line year on year. These factors give us confidence that we'll be able to reach our targets for the full year. Now, another way to look at things on this return to a historical cyclical factor is to look at the operating margin and how it behaves between the first half and the rest of the year. As you can see, when I look at the pre-COVID, i.e. 2017 through 2019, there was A historical gap of 4%, 4.2% in average, between the profitability rate for the first half and that for the second half. For the first half, we have operating margin of 8.7%, and you can see that the 8.7%, when you add a bit more than 4, is fully aligned with our target for the full year, which is to reach operating margin of some 13%. Now, some more detail with the condensed income statement. I've already given you the details on the top line, on the revenues. I won't dwell on that. Gross margin reached 67.7% of revenue. So, originating a number of factors. The first is the termination of COVID contracts, which were contracts with a gross margin level, so lower than the group margin, because the collection costs were significant when you exclude these contracts, gross margin levels. increases mechanically, then you have the trend, the tendential increase of online surveys year on year which increases growth margin as well. We have mixed impact as well which are connected with strong growth in our business operations of advisory and optimizing marketing Expenses which have no collection cost with a close to 100% gross margin which increases the margin again and again we also held up our prices firm with a capacity to increase our prices in this inflationary context which enabled us to grow the gross margin significantly. Below the gross margin items with respect to operating costs, the payroll increased 2.7% due to the four-year impact of the hirings we conducted in 2022 to support our growth trend. But it's important to know that the ratio of payroll on gross margin remains below that before the COVID period. And the caution we showed earlier in the change of operating expenses in the first half, especially with respect to hiring, will generate a positive impact in the second half and will enable us to significantly increase our profitability level in the second half. General expenses overheads increased by 7 million euros in line with the increase of IT and technology expenses and renewed travelling and the ratio of overheads and gross margins remained significantly below that before the COVID period. And all in all, operating margin reached 8.7% in the first half, down 260 basis points year-on-year. So, if we make projections to the second half, as I said earlier, we'll have both return to some cyclical pattern in the trading with the second half, which will be stronger than the first, with acceleration As expected, revenue, which will be driven by the accelerating order book that I mentioned, and the full impact of the cost-cutting measures we implemented in the first half, all this will lead to a significant increase of the operating margin in the second half. So, all in all, adjusted net profit attributable to the group reached €70 million, down from €97 million last year.

Now a few words about the cash flow statement. The gross operating cash flow is at 137. The change WECA means a negative contribution of 28.3 million euros. No particular comment. It's in line with last year. We invested approximately for 29 million euros like last year in property, plants and equipment and tangible and financial assets. And overall... Free cash flow is in line with the drop in the net profit that I mentioned earlier on. It's 24 million euros, so it's down by approximately 30 million euros against last year. We made small scale acquisitions in the first half for approximately 6 million euros. Most of the effect is the acquisition of Aspirity in America, which is a platform that will allow us to develop our B2B abilities. And the acquisition of Focus Erics, which is a small company in healthcare in China. We've purchased for about 64 million euros of Ipsos shares to finance the free shares programs for Ipsos employees, and also partly to pursue our share buyback program for approximately 27 million euros in the first half. And we've repaid approximately 30 million of borrowing loan, particularly for shoeshine, this year. So as at the end of June, our cash position is €300 million which is down about €36 million against last year, the same period. Before I hand over back to Ben, of course we can see that we have a very sound balance sheet as you can see that our net debt is €129 million which is slightly down against the previous period as at the 30th of June. Our net debt to bidday is approximately 0.4, which is in line with last year. We have also very good liquidity, approximately €500 million of undrawn credit lines with maturities in excess of one year. So of course this allows us to repay the debts that we will have to pay next year, €48 million as you can see. And also I need to add that 80% of our gross debt is at fixed rate, which is very important, particularly given the context in terms of the rates at the moment. Thank you very much for your attention. Over to Benny Skink to give us an update on operations.

In terms of the business, just to really update you on the overall picture and perhaps some parts I think that are particularly important. The first is our work with big tech, which overall is down 18% in the first part of the year, and of course is therefore reflected in our revenue. I think it's important to remember though that actually it's an uneven picture. So some of the major tech companies have restructured and that has made them delay decisions. Some of the people involved have gone and they've had to reorganize themselves. but at the same time we have others who have made some of the biggest commissions we've ever received in the same period so they have been disrupted but they're also now coming back and you can see that in some of their performances and they need tracking research, they need mystery shopping, they need our work that we do for them on corporate reputation and of course they're looking at AI as a huge opportunity for some of them and also a threat to some of them and that is boosting some of our work. We have new opportunities in that space they need to understand how consumers, how markets and how businesses are reacting to that. So it's certainly turbulent but there are also opportunities there. One of them exceeded our expectations just in the first three months of the year but overall certainly down in the first quarter, sorry first half. So, as we go on, if you look at China, another area of uncertainty. Overall, we can see an acceleration, but certainly not necessarily the rebound that many analysts expected in the Chinese economy as they came out of the COVID pandemic. So, we can see growth. in terms of consumer consumption, in telecoms, in retail, and obviously in the car market, where China is heading to be the leading manufacturer of electric vehicles in the world. But there is still, I think, uncertainty, and that is a key challenge. We saw in the Q2 growth numbers, I think, at 0.8%, GDP growth certainly something that the Chinese leadership wasn't expecting originally we'll see what they do in terms of stimulus so we are picking up strength there but certainly not as much as expected and what's interesting as you go around the world is just how different one region is from another so if we go from China which is slowly rebounding to India in India 22% revenue growth 23% in Q2 A dynamic market, overall the economy growing around 6%, the market research industry there growing around 10%. We are now number two in India. Again, we can see lots of growth in places like CPG, in government and in healthcare and we have opportunities in our developing public sector practice there, healthcare advisory services, tech and certainly looking at some acquisitions that we would hope to be able to announce in the second half of this year. Again, a very, very dynamic market and just so different from China. Then you go on of course to the public sector. This is of course part of our long-term strategy. We are the only player focusing on this at a global level with some of our competitors retrenching. We can see overall our order book for all public sector work across the organization up 11% and of course we're strongly positioned with our policy expertise, our methodology expertise in terms of things like mixed mode research and all of those things I think add up to a really strong position and even when certain markets like the United States stumble where the conflict between Congress and the Senate over the debt ceiling etc has slowed down the order book because the departments don't want to commit for the long term, what we've seen is that growth actually being made up in other parts of the world like South Asia, New Zealand, etc. So we can see plenty of opportunities. The public sector remains a place where there is huge demand from citizens for it to do more, huge pressures in terms of inflation and what that means on public sector debt. That means that every penny, cent, dollar they spend, they need to understand its impact, and that is what Ipsos is there to help them do. So all of the things on that slide that you can see are driving demand in government. And government, of course, is behind the private sector in its use of research. So it's a growing market. Elsewhere, we've seen very good growth in brand health tracking, I think up 7% in order book so far this year, 6% annual growth every year since 2019. Clients need to really understand their brands in this very disrupted world. They have plenty of new challenges. They need to understand how consumers are reacting, where to put their money. We've seen just in, you know, you can think of all of the episodes where brands make missteps by wanting to try and appeal to one group or other in society. And in a sense what we're seeing now is what we can call a logeal world, local versus global. They need, you know, one size does not fit all. American brands that think they can just do the same thing everywhere without understanding those local differences are learning to their cost. And that means the need for accurate information from across the world. We also, of course, have with the abolition of cookies effectively by Apple and Google, many of these brands wanting to build their own direct relationships with consumers, build their own data lakes, Brands like L'Oréal with a huge proportion of its revenue coming from direct-to-consumer, we can see that across the sector and that means again the need for more research and bringing together multi-source data, not just survey data but also passive data, social media analysis, all of those things together so a very strong area of research for us, plenty of long term contracts not just one year, two years, three years or more and of course when you are looking at a brand you then need to bring in other services which is important for us so advisory services, bringing in the social listening with Synthesio and of course we have some new solutions. In brand, we are really focusing in on three key factors after crunching through 7,000 different studies. And we launched this at the Cannes Festival of Marketing to our clients. But this need to really understand their expectations, to really understand the context that a consumer finds themselves in. I think one challenge for brands... as for political parties is that most consumers and voters don't think about them anywhere near as much as the people in the brand or the political party do and really understanding that context macro and micro and demonstrating empathy are things that we know that above price and functionality determine a brand success so we have built into our brand health tracking contextual analysis to really understand that, which is important for our clients. And ESG, of course, is also starting to affect brand choice more and more for certain groups of consumers. We have launched our ESG brand health tracking measures and we will continue to roll that out. I think overall if we look at our work in the ESG space this year, our order book is up 45%. It's a really important area and one that Ipsos is well placed to help clients understand. And then, Ipsofactor, which is our in-house generative AI. We launched this a few weeks ago. We already have 5,000 regular users across Ipsos. It's letting them use client data safely with client permission to understand in more depth, at more speed, what the mass of data that we hold is showing. We will roll it out across the business. It has huge opportunities to speed up things like transcription, translation. My colleague Michelle Giedi at our Investor Day showed you 12 of the use cases that we're currently applying. But importantly, I think, in a world where things are moving very, very quickly, it's important that we have built this internal solution using some of the best technologies from some of the biggest players in order to do this safely and securely for our clients. So that's very important. Ipsos Digital, also on track, and Will is heading for the $100 million that we aimed for this year in terms of revenue there. So in terms of the outlook for the rest of the year, it's certainly a turbulent period, but one in which we can see a very clear acceleration during 2023, as Dan has shown you, similar to the more normal pattern of events before the COVID disruption. so if we look at our organic growth in our confirmed order book for work that will close in 2023 as Dan said 1.6 percent in the first quarter 5.3 percent in the second quarter and I think something that gives us comfort is that when we look at how much of our order book that we need to complete this year is visible and confirmed at 73% and really that's pretty much in line with every year over the last five years except of course last year where we had this incredibly fast start and it was ahead but overall we're pretty much in line or ahead of previous years so again that gives us some confidence in our outlook for this year. Nothing is certain in the world of course. We still have the tech companies and they have plenty of disruption going on in their markets with AI. We depend on the United States as a large part of our global revenues to pick up the pace in the second half of the year. The order book is suggesting that they will, which is good. We still have disruption in Europe with the war in Ukraine, a technical recession, but again some strong performances in individual countries. Again, big questions about what will happen in China over the rest of the year. The government certainly wants more growth than we're currently seeing in the economy there, so let's wait and see. So lots of uncertainty, but overall, taking all of those things together, looking at the pace in the order book and the sales, we are sticking with our guidance of an organic growth of around 5% for the year, and with all of the work that we have done to control our payroll and our Gen X, an operational margin of around 13%. I know you'll have questions and we are very happy to take them now. Thank you.

You have the slides being displayed with the phone numbers you need to dial up in order to ask your questions.

First, why are you confident about the recovery in the US in H2? Second, if there is no recovery, do you feel able to react quickly and protect your EBIT margin of 13%? Third question, why Are you not part of the consumer panel segment? Did you miss an opportunity with GFK assets being taken over by a competitor? And last question about Forex. It starts to impact significantly our top line in Q2. Do we have... also to expect a negative impact on your profitability in 2023 regarding the Forex evolution?

Let's go through those in turn. So we have a very strong order book, certainly sales in the United States going into H2 which makes us feel a bit more confident. You know still not done, but it certainly allows us to feel a bit more confident I think what we've done throughout the year is because of the slow start We have taken measures to make sure that we can protect the bottom line and the percentage margin is what we're aiming for obviously Forex we can't control, we've benefited from it in the past, now it's adverse, but we're pretty confident about our ability to protect the bottom line which is why we're sticking to the guidance there. Do you want to comment on anything else?

So maybe on the US and specifically on the big tech, it's quite important to understand that there are different patterns and different situations among the different actors. We have big clients where we see clearly a rebound in the demand for market research and some of these clients who actually are performing very well and we are ahead of budget. For some others the demand remains low and within this category there are again two subcategories if you like. The one on which you don't really see any upside and others on which we have a lot of of discussion, particularly around generative AI. It's important to understand that all these actors are competing against themselves on generative AI and it drives the business and the discussion for us. So we have a lot of interesting discussions for important contracts with them. In terms of your point on what happens if we don't recover on our ability to protect the margin, I think I was clear when I said that because of the slowdown, we put in place the relevant decisions in terms of controlling our operating costs. both in terms of the Gen X and in terms of the payroll. And we are absolutely confident that even if the top line were to be a bit lower than expected, which is not our current plan, we would be able to deliver the around 17% operating margin. And on Forex, I didn't catch exactly your question. Was it about forecasting Forex?

We can see an impact from Forex on your top line. Absolutely. We're going to, I think, see some further impact on your top line in H2. But on your profitability, I mean the 13%, could there be also a negative impact? Or is it just a conversion effect we will see?

It's mainly an impact on the top line and mainly on the cost and the payroll. But I think at the bottom line level, the impact is significantly lower than on the top line, obviously. So it shouldn't have a big impact. What it could have an impact on is on the level of revenue and on the level of operating margin, obviously. And it is true that because of the appreciation of the Euro in the first half, as you saw, it had an impact on the level of revenue. And it could go on if Euro keeps on appreciating against other currencies. But the impact on the overall operating margin is definitely lower. And I think there was a question on the consumer panel, Ben.

Sorry, so we looked at that. We don't really compete in that space. The only country where we have something equivalent to the resources that were being sold is in Turkey, where we're number one. We took a decision that actually it would be a distraction to integrate a large-ish business that didn't give you or didn't give us It wasn't, you know, it wasn't, it's not a knockout blow, and you still have two very big global, whoever owns that asset, now YouGov, has two very large global competitors out to get them. So we took the decision that it's not core to our strategy, and it would have been a big distraction, to be quite honest. Okay, thank you very much.

Any other questions in the room?

Hello, Mohamed Mansour from Midcaps. I have three questions please. What are the risks that the order book will be postponed or will be some annulations? And in terms of gross margin, can you please give more details about the drivers of the gross margin in the H1 and what you expect for the whole year? And third question is, if you will have a growth at around 1% to 2%, are you confident that the margin will be at 13%?

Well, the growth is going to be more than 1% and 2%, so we can talk about that.

Yeah. So our plan is not to have a growth of 1% to 2%. Obviously, if it were to be 1%, obviously, that would have impact on the operating margin, but that's absolutely not the plan, and frankly, I don't think it's a realistic scenario. So that's the first one. On the other book, The risk of cancellation is very, very low because again, order book is confirmed sales. That's a big review in writing. So we have the confirmation from the client and the occurrence of cancellation is very, very low. I mean, it hardly never happens. And on the gross margin, so I'm not going to communicate on the forecast on the full year. It is true that in the improvement of the gross margin in the first half, which I explained the drivers I think quite completely, some of them are structural, like the shift from offline to online, and this is expected to continue. our ability to maintain our prices as well. Some other effect could be more consumptual, like the mixed effect typically. The mixed effect could change in H2. So it's difficult to give an answer, but it is true that we have a good gross margin, which obviously helps the operating margin at the end of the day.

And we can also see that, of course, on the order book as well as the revenue that we're reporting today, which again makes us feel reasonably confident.

Thank you.

Hello, do you hear me?

Yes, we can.

All right. Hello, guys. I have two questions, actually. The first one is on the TMT sector. So you're mentioning ongoing discussion for significant contracts in this sector. Should we expect the bulk of those discussions to be converted into revenues as of H2? Or this is more subject for 2024 and beyond? And my second question is about your M&A strategy. So you've accelerated the pace over the past few weeks. Do you expect to maintain this pace in H2 and to focus on the bigger packets? Thank you.

So the CPG acceleration is visible in our order book for H2 as well. So we're positive about that. I think on the acquisitions, we have, you know, there are a lot that are in discussion and in progress. The larger ones, to be honest, are longer term. So unless something opportunistic happens, there probably won't be a very, very hundreds of millions one this year. It looks pretty unlikely. unless something like the GFK panel happens again and we decide that that opportunity is worth taking. But we have a number of bolt-on acquisitions that would substantially change our position in individual countries that are in train and that we would hope to announce over the coming months.

Going back to my first question, it was about the TMT sector, not the CPG sector.

Sorry, I'm mishearing you. I mean, on big tech, we are seeing recovery. How much it will be, I think, is difficult to forecast at the moment. There's a lot of ongoing discussions, but when it moves, it obviously is substantial. These are some of the largest companies in the world.

So again, there are a lot of discussions, particularly around generative AI, but also on traditional market research deals like brand tracking, like mystery shopping, which is the things that we used to do with these actors for years now. The question mainly on the big tech is about timing. So is it going to be now? Is it going to be in three months' time? And that will obviously shape the, you know, build the shape of the H2. And again, as I said before, the landscape is very mixed among the actors. For some of them, we have already seen a strong rebound. For some others, we have discussions, but it's probably going to come in H2. The question is more when.

All right. Thank you, guys.

As a reminder, if you'd like to ask a question, please press the star followed by the number one on your telephone keypad.

Okay, so it sounds like no more questions, but get in touch if you do have any. Obviously, we're always happy to try and help. thank you everybody thank you very much