JCDecaux SE

Good afternoon, everyone. Good morning to those of you in the US and welcome to our 2023 full year results conference call, which is also being webcast. The speakers on this call will be Jean-Charles Decaux, Co-CEO, David Bourg, Chief Financial Officer, IT and Administrative, and myself, Rémi Grisard, Head of Investor Relations, is also attending today's conference call. On slide four, 2003, has been a positive year for JCDecaux with a solid business momentum leading to an improved financial performance. Our revenue increased by 8.7% organically, driven by the strong growth of digital revenue above 20%. Digital revenues now represent more than a third of our business at the record 35.3% for 2023. Programmatic revenues have been especially dynamic this year, growing more than 60% year-on-year with more than 100 million euros of advertising revenue in 2023. We remain best-in-class in ESG as shown by our recent A-list inclusion by CDP Climate. We have proved that we are able to have a positive operational leverage by growing our operating margin more than our revenue at plus 10% year-on-year despite a decrease in China, given the soft revenue recovery. Our net results improved significantly by plus 58.3%. Operating cash flows go in line with our activity at plus 19.8% year-on-year. While our free cash flow was close to break even this year, it is very clearly positive when you exclude one-offs of close to 100 million euros linked to contracts and negotiations, with positive long-term benefits that we have detailed during our H1 results. So at the end of the day, as you see, a healthy business model leveraging on the recovery with a good momentum for out-of-home media with advertisers, but still affected by someone else and by the exceptional situation in China. So still room for growth in the coming years. On the next slide, number five, organic moving, you will see that our Q4 organic growth has beaten by far our expectations at plus 10.3% compared to a guidance at around plus 6% as we finished well the quarter, including with some positive impact of late money from digital. China improved throughout the year and even grew above the group average in Q4, despite the non-renewal of our airport and metro contract in Guangzhou. We continue to progressively bridge the gap between 2019, with Q4 being the first quarter above 2019 and our largest quarterly revenue ever. On slide 6, you will see that our growth has been driven by the recovery of our transport activity, and by the continued positive momentum of our street furniture activity, which is now well above 2019. Transport grew by plus 18.4% organically, on the back of the recovery in mobility, including for air traffic. But it should be noted that transport remains far from the 2019 levels, at minus 24.7%, mainly due to China, which leaves us room for growth. Street furniture grew by 5.1% year on year, and was 8.9% above 2019 levels in 2023, with a good momentum linked to the digitization and the solid demand from advertisers for this media. Billboard, a smaller business for our company, as you know, increased by 0.7% year-on-year, growing at healthy rates in its most digitized markets while it suffered from the rationalization of sites and from regulations in France. On the next slide, seven, You can see that all regions grew positively, and three out of six grew double-digit. UK and North America have been strong from Q2 and continue to see a good momentum. France has had a strong Q3 and good Q4. The rest of Europe saw good performance in Southern Europe. Asia Pacific has been growing double-digit but remains well below 2019. Looking at the revenue breakdown on slide eight, Street furniture represents more than 50% of our revenue, while transport at 34.5% is still below its usual 40% level. France is our top country at 17.8%, and the rest of Europe, our top geography, together with there represent 47.4% of total revenue. On the next slide, number nine, you can see that advertising revenue is striking and even outpacing air traffic. In the US, as well as in the Middle East, our revenue now is well above 2019, exceeds the current traffic level, which is quite promising for the other regions. On slide number 10, you will find our revenue by client categories. Our client portfolio diversification remained very strong, with our top 10 clients representing less than 14% of our revenue. As you can see, our number one client category, fashion, personal care, and luxury goods, continue to outperform, growing by plus 20%, well above our group average growth rate, and representing now 20% of total revenue, versus 17% in full year 2022. This importance of fashion, luxury, and personal care is a significant differentiation factor when you compare us to other media companies. Retail remains strong, especially in H2 at plus 16%, Travel at 36% and food and beverage were also strong. Tech and internet decreased in 2023, but remained above 2019. Automotive, which was representing 5.5% of revenue in 2019, is improving quite significantly at the moment and should be back in our top 10 categories in 2024, driven by the launch of a lot of new electric vehicles. On slide 11, our digitalization continues to be a significant growth driver, with digital revenue now making up to 35.3% of total revenue, a record level with a growth of digital at plus 22.7% in 2023 organically, above our long-term period growth rate of plus 16.3%. We continue to roll out digital screens selectively in prime locations, but analog remain positive despite these changes, which show you the resilience of our media. Digital revenue breakdown is very much in line with our business mix, which shows that the digital is relevant and efficient in most environments, as you will see in the next slide. On slide number 12, the share of digital revenue grew in 2023 in our three business segments. In split furniture, digital revenue grew from 30.5% to 33.6%. Split furniture with the highest digital CAGR of the look period at plus 24.9%, has now caught up with the other segments for digitization due to new contracts. And innovation. Digital brings flexibility and efficiency. In transport, our most digitized segment, digital revenue grew from 34% to 38.4%. We will continue to digitize, especially in metros, as recently in Sao Paulo or in Madrid. as well as in China, where digital is clearly under-penetrated, a significant room for growth in the future. In billboards, digital revenue grew from 29% to 33.6%. Digital is the winning formula for billboards, bringing a lot of additional revenue and gaining in visibility while enabling us to de-densify our network. On the next slide, 13, you see that 62% of our digital revenue is coming from five countries, namely the US, UK, Australia, Germany, and China. While the UK and the US are highly penetrated at 74% and 73% respectively, Germany and China remain pretty low at 38% and 21% respectively. The strong disparity in digital penetration demonstrate that we still have a lot of room for growth. On the next slide, number 14, you see how this translated into our revenue. Programmatic advertising sales booked with a view platform have increased by 63.5% to reach 100 million euros. i.e. 8% of our digital revenues compared to 5.9% in full year 2022. We currently have 20,500 screens trading programmatically in 22 countries. VIEWS manages a total of 45,000 screens when you include screens from third-party media orders. Programmatic revenues are so far mainly incremental, new money coming from targeted campaigns with higher CPMs. Moving to our contract win on the next slide, you can see that digital is now included in 100% of the tenders, which is an important factor for growth. Same comment applies for contract renewals, which include digital for all of them. On slide 17, as you can see, We think that ESG has a cost and brings value to stakeholders, so it should be included in all tenders in line with the financial criteria. Although still not represented enough, ESG criteria are becoming more important in the tenders for cities and other partners. We are showing here three examples of recent contracts where ESG played a key role in our wins. In Bordeaux, ESG made up 30% of the total note on par with financial criteria. In Hong Kong, our ESG policy was aligned with the priorities of the MTR. In Bangalore, our sustainability performance was key to win this contract, with a very innovative airport as expressed in the quote on this slide, world-class advertising through the use of innovation and sustainability. On the next slide, in line with our 2030 ESG roadmap, we have shown a solid performance in 2023, as you can see with this. 10 KPIs, which I will not describe on this call, unless you have questions in the Q&A session. Slide 19. You can see on the next slide that our efforts and investments are recognized by the external rating agencies, as we have best-in-class ratings in these three five-ratings methodology. It is also to be noted that our media has the lowest carbon emissions per euro invested in advertising, much lower than other media per audience. On this note, I will hand over to David to guide you through our 2023 financial performance.

Thank you very much, Jean-François. Hello, everyone. First, let's have a look at the summary of our financial results. Overall, we've had a positive set of results during this period. Our revenue increased plus 7.6%, despite a soft recovery in China and some negative impact. from currency fluctuation amounting to 76 million, partially compensated by a positive contribution of 40 million from change of scope with no material impact overall on our margins. Our margins increased more than our revenue growth despite facing inflationary pressures on our cost days and margin decrease in China, plus 10% year-on-year in our operating margin, plus 25% in our EBIT before impairment charge, and plus 58% in our net income group share, plus 14% before impairment charge. This enhancement is largely driven by our street furniture segment, which has also benefited from the positive impact of renegotiating certain contracts as already indicated in our first half financial results. Consequently, we delivered a strong operating cash flows of 478.5 million, increasing by 79.1 million plus 19.8% year-on-year. Lastly, regarding our free cash flow, which remained globally neutral on the group's cash position at minus 1 million. It was impacted by one of past rental payments related to the completion of the contract renegotiations, but I will come back to this. Let's have a look now at the evolution of the operating margin, which is at 663 million, an increase of 10% year-on-year, versus 7.6% growth in revenue as we managed to limit our cost-based increase to 71% despite facing inflationary challenges. The increase in rents and fees was limited to 6.2%, lower than the revenue growth, partly due to the renegotiation of some street furniture contracts. This allowed to offset the higher increase in rent than the revenue growth in the transport segment, due in particular to the soft recovery in China with a level of activity still below 2019, while rents have almost returned to a normalized level in connection with the lift of mobility restrictions. On the other hand, the other operating costs, have increased slightly more than our revenue, at plus 8.2%, representing an increase of nearly 104 million, as you see on this chart. Half of this increase stems from our staff costs, up by 7.4%, partly due to a 3.2% rise in headcount, salary pressures as well, notably in sales and digital functions and the end of government aid related to COVID. Now, looking at how this evolution has impacted our operating margin ratios by business segment, on the right side of this slide, we see a positive variation for the group overall of 40 BIPs to reach 18.6% of the revenue driven mainly by street furniture, the other two business segments declining. The margin rate for street furniture stands at 25.8% of revenue, an increase of 190 bps, reflecting its strong operational leverage, benefiting as well from the contract renegotiations. The decrease in the margin rate of transport segments by 50 bps is mainly due to the decrease in operating margin in China, as mentioned earlier. Lastly, the 160 basis points decrease in billboard margin rate mainly comes from France, where revenue declined due to restrictive regulations on this format, leading to a reduction in the number of sites and no room so far for digitalization. Moving now to the EBIT before depreciation it stands at 266.2 million showing an increase of 54.2 million mainly driven by the rise in operating margin by 60 million euros. The variation in the net charges position between the operating margin and the EBIT represents a negative impact limited to 6 million with nevertheless the following variations. The net amortization of tangible and intangible has decreased by 24 million mainly due to a decline in dismantling depreciation charges coming from the combination of the increase in interest rate and the decrease in inflation rate. The increase in net depreciation related to PPA, the purchase accounting, by 6.7 million mainly stems from the acquisition of additional shares in interstate in Chicago in 2022. Lastly, the one-off items, which represent a net income of $33.4 million in 2023, primarily consist of reversal of provisions for dismantling an onerous contract linked to the contract renegotiation. At the bottom of the table, in the line net impairment charge, the net impact of the impairment represents a net income of 60 million euros in 2023, mainly due to the release of the provision recognized in 2022 for 17 million in China in relation with the termination of the Guangzhou metro contract. This finally leads to an EBIT of 282 million euros representing a positive variation of 89.3 million compared to 2022. Flipping to the next slide, we can observe that the net result group share stands at 209.2 million marking a notable increase of 77 million year on year. This is predominantly driven by our immense operational performance that I have just commented on, the increase of the net result from equity affiliates, and the favorable impact on the IFRS 16 liabilities from the contract renegotiations. If we dive into the main variation on this waterfall chart, we witness a positive change of 30.4 million concerning the IFRS 16 adjustment, mainly attributed to the reversal of the net lease liability on renegotiated contracts, reflecting the improvement of the financial commitment of those contracts. There is a decrease in financial results by 8.1 million euros, largely coming from escalating discounting charges on non-current liabilities and assets. due to a rise in the average discount rate over the period. However, this is partly counterbalanced by a reduction in net financial interest expenses on our financial debt benefiting from the rising rates on our liquidity placements while our debt is mainly at fixed rates. I've seen an increase of 54.9 million, transforming from a net charge of 32.6 million in 2023 to an income of 2022.3 million in 2022. This variation is attributable to the improvement in our results during the period. The effective tax rate is therefore 13.6% below the usual rate due to the reversal of provision on deferred tax assets in line with a better outlook. Lastly, there is a $43.4 million increase in results from equity affiliates driven by the impairment charge on Clear Media, recognized in 2022, for $28 million, as well as an improvement in net results of our affiliates under joint control. Turning now to cash flows, let's first highlight in the middle of the table our operating cash flows, which stand at 478.5 million, marking an increase of 79.1 million. This increase is mainly attributed to a 60 million growth in operating margin and a 27.6 million decrease in net interest paid as we benefited from the rise in interest received on our liquidity as previously pointed out. Our net investments amount to €355 million over the period, showing overall stability compared to 2022. Despite the increase in our operating cash flows, the decline in free cash flow during the period comes from an unfavorable change in working capital requirements mainly due to the payment of past rents on certain contracts following the completion in the first half of the year of the renegotiations as mentioned already in the presentation of our first half results. But this is obviously for the best as these renegotiations and resulting payments allow us to structurally improve our profitability, particularly for the street furniture. Regarding our net capex, in the next slide, they accounted for 9.9% of the revenue in 2023, 9.2% if we exclude the payment of the Shanghai Metro advertising rights, for 27 million in H1. The ratio is higher than the historical average, around 8%, mainly due to catching up on several contracts whose capex commitments were deferred during the COVID period, and also to the impact of inflation across our supply chain. It's worth noting that the financial payment for the Shanghai Metro, around 25 million euros, has been postponed to 2024 due to the situation in China in 2023. Finally, to conclude, let's touch upon our financial structure, which is solid with a financial net debt almost stable at December 2023, a slight increase of 30 million mainly due to accrued but unpaid interest on our bonds in the line other of the table on the right side of the slide, our financial investment and the dividends paid being limited to 3 million and 12.8 million over the period. A net financial debt to operating margin leverage at 1.5, which is a very reasonable level for our industry, a well-balanced debt profile with predominantly fixed rate debt and an average maturity of nearly four years. And lastly, a strong liquidity position at 2.5 billion, including 1.6 billion in available cash and 825 million in confirmed untapped revolving credit line maturing in mid-2026. On that note, I will now hand over to Jean-Charles for our strategy and outlook.

Thank you, David, and good afternoon to everyone. So a clear strategy for growth, as it was pointed out. With this slide, we would like to set out clearly our identity as well as our strategy for the future, as we think we are well positioned for profitable growth. Regarding our identity, first, We are, as you know, a company focused on one market, which is OOH, and this market is a growth market, as I will show you in the coming slides. Second, we have EAG at the heart of our business model since inception, which position us well for the future as we don't need to change. We rather need our position, our business environment to better acknowledge our performances. And third, we are the only global player undisputed leader in our industry, which gives us an edge for innovation and commercialization at a global scale. Our strategy, as you know, is simple, and we want first to increase the share of OH in the media market, as we think that we are all competing for the same ad dollars against online advertising and television. But OH has its own strengths and growth drivers, which should enable to grow its share of the total media mix. Then we have three themes to grow in a very disciplined manner, as you know. First, organically by selectively winning new contracts. Second, through the digitization of our activity, which is a street stage rocket, as you know. Screen as the first step, but they need data to be more relevant. And then programmatic, which puts us on a level playing field with the online advertising companies, enabling us to compete for a long tail of advertisers. With these three steps, we can continue to propel our OOH media into the future and keep it relevant at the age of digital. Our third key strategic lever is the consolidation of our industry, which is natural as it is so fragmented today when you look at it compared to other media. We also want to continue to play an active role in this consolidation process. Now looking more closely at the growth prospects of our industry, you can see on this slide the latest forecast for revenue growth over the next three years by Zenith OptiMedia, a study that has been released in December 2023. You will see that even in the current challenging macro environment, including the slowdown of online advertising, 408 should grow strongly at 5.8% CAGR including for analog and at 4.2% in at 4.2 for analog. DOH at 8.1 is even the fastest growing media above online. This sets us, as you know, very clearly apart from other traditional media such as TV, radio, or press, which are forecasted to be close to flat in the coming years. On the next slide, you can find some of the points that should enable us to perform Well, we have a premium, limited, and very often exclusive inventory, which creates scarcity, especially in the most sold after period of the year. Our audience, which is young, active, and urban, is growing as it travels more and lives more and more in cities. We are benefiting from the digitization and are improving our measurements method through data. We can be a branding media but are more and more able to activate sales to track the efficiency of the campaigns. And last, we offer the best brand safety for advertisers as we have a high level of scrutiny regarding the campaigns we accept and as we are a public media seen by large audiences. All in all, we combine the strengths of the traditional media ad in the past with a high reach and a high level of branding power with the growth, flexibility, and targeting of online media. What sets us apart is also our business model, invented by our father, which is well integrated in the circular economy now. This business model creates value for all our stakeholders, and we support, as you know, public transport systems which are positive to fight climate change. This is acknowledged by the EU green taxonomy where 48% of our revenue is aligned compared to around 15% on average for other companies and even less in the media sector. We also are pioneering and encouraging soft mobility through our public buy system. We improve cleaning less on hygiene in cities through public toilets addressing one of the major issues for cities worldwide. In total, we support many jobs and share a large part of our revenue with our partners. On this slide, you can see that air traffic worldwide should be 3% above 2019 in 2024 and then continue to grow pretty strongly by around 6% per year in 2025 and 2026, which is positive for our activity in airports as it follows closely the number of eyeballs in airport, as shown to you by Jean-Francois earlier today. Moving to slide 34 now, a quick update on our strong position in China. First, regarding our activities, we have continued in the past three years to reinforce selectively our leadership position in the country by winning and renewing major contracts, as you can see on this map. We now cover 21% of the urban population, and we are active in 12 cities, including in the Shanghai metro, the largest metro system in the world, with 14 million passengers per day. A very important point to bear in mind is that digitization remains very low at 21% in 2023 for a country where the bulk of our activity is in transport. Increasing the share of digital can help us achieve satisfactory total revenue growth rate. So, as you can see, we remain very confident that our presence in China is a strength and should lead us to higher growth in the coming years. Now, obviously, regarding the current situation, as you know, the end of mobility restriction in China happened at the end of 2022, early 2023. and the mobility has first dropped before recovering progressively. It seems far now, but Q1 was still decreasing double digits compared to 2022, and our activity, as explained, improved from March onwards. Domestic mobility, including metros and domestic airports, has recovered fully since Q1, but international air traffic remains affected by important capacity constraints and visa delivery, and so improved throughout the year from 15% in Q1 to 51% in Q4, but still remains well below its pre-COVID level. In this peculiar environment, consumer and advertisers remain cautious. Consumer spending remains below 2019, and advertisers are sometimes reluctant to make important commitments in advance. So obviously and consequently, we are monitoring carefully the situation. Organic became positive in Q4, despite the non-renewal of our 1-2 contracts, which represented close to 15% of total revenue in the country. For 2023, without this scope effect, we are at a double-digit revenue growth rate. So some opportunities for new growth from China in 2024, especially with the recent win of the Shenzhen Airport contract, which started in February and the end of the effect of the non-renewals of Guangzhou Airport and Metro in April. Moving now to another key growth driver with programmatic on the next slide. Programmatic represents a huge $300 billion revenue pool, 85% of online advertising in the US, for example. If we can capture a fraction of these markets through our programmatic DOH offers, through our dedicated OH platforms, or through omnichannel platforms such as DB360 or the Trade Desk, this could boost our media as the OH revenue pool is close to 40 billion globally, as you know. As of now, Programmatic represented 8% of our total digital revenue. It is already much more important than this average in some important geographies, as you can see, reaching 28.5% in the Netherlands, 28.1% in Germany. We think that the penetration of programmatic will continue to increase to be close to this rate on average for our company in the future. The next slide might appear complex, but it is very important to understand our strategy and value proposition, and it is often omitted. We are, at the moment, the only OH company which owns every step of its digital value chain and journey. We have our own campaign management software solution. We have our own data solution. We have our own premium digital inventory. And all of this is supported by a strong cloud-based infrastructure and by committees with a dedicated governance to work in line with the latest trends of the industry. All these interconnected proprietary blocks fuel the state-of-the-art open and competitive DSP and SSP platforms in which we hold a majority stake. So we remain in control of the future of our company even with digital and even in case of evolution of our ecosystem, which might affect its value chain. And more importantly, we think these create a lot of value for the future of our industry. If we move now to obviously a bigger topic even, which is the AI that is transforming our digital ecosystem in a positive way force. AI is a tool for us, helping us leveraging our position. Our inventory is made of physical assets, which cannot be disrupted by AI, but where AI can help us to reduce our costs and improve our efficiency for the benefit of our advertisers. We are working on more than 50 projects at the moment across all G2C markets in four main application domains. One, targeting and optimizing campaigns. Two, visual and text creation for campaign creative. Three, operation and support function productivity gain. And fourth, unlocking innovative services and solutions for landlords. If we move now in the main tenders activity, the level remains high for tenders, including among the most significant, Rome, Street Furniture, and Stockholm, both in street furniture and transport, TFL, transport for London for bus services and for the London Underground, and the airport of Sydney. Most of them now include, as you know, a significant, not to say the least, share of digital. We have defined and communicated in June our group climate strategy with strong commitments to reduce our carbon footprint and address the risk of climate change. We are aligned, as you know, with the ambitions of the Paris Agreement 1.5 degrees in IO, and we have committed to a science-based target trajectory called SBTI to achieve a net zero by 2050. We have submitted in December our trajectory to SBTI, and in order to achieve the SBTI targets presented on the slide, we have developed a reduction trajectory based on three main action levers. One, regarding the furniture. With the promotion of refurbished furniture and the priority given of low-carbon materials in the design of furniture, the evolution of public procurement will be key in order to be able to achieve this goal. So we have to convince the public procurement to process basically through the public tenders. Two, energy. Reduce the direct carbon emissions of our operation with commitments to reduce consumption of our furniture, vehicles, and buildings. Three, travel. Optimize our employees' business travel as well as community. It is clear that we will not succeed on our own without a substantial change in public procurement to better incorporate non-financial criteria. Moving and looking now at our competitive landscape on slide 41, we continue to think that our unique international platform globally positioned will become more and more differentiating in the age of digital and of programmatic with new frontiers. As some of our competitors continue to focus their portfolio on some markets, we will continue to monitor closely opportunities that could continue to bring us button investment opportunities such as the one we did with the Clear Channel in Italy and Spain announced in May. CCO Italy is now closed and under integration, and CCO Spain is under review by the Spanish competition authorities. Regarding APG, as you have certainly seen recently following the announcement, APG board of directors that has decided to initiate a process which aims at finding a potential acquirer for the entire company. We confirm that we entered into an agreement with Parchesa Asset Management SAA to evaluate an intended coordinated disposal of our stakes in APG of 30% and 25.3% respectively. In this context, in case a third party makes an attractive offer, we will consider selling our shares in light of our capital allocation plan into other growth opportunities around the world. As closing remarks, a few of them to conclude this presentation. Our business momentum has been solid in 2023 despite a difficult macro environment with a strong end of the year which bodes well into 2024. We have enhanced our financial performance with improved operating metrics. We will continue to monitor costs and CapEx closely in order to continue to improve our financial metrics in the coming years. For Q1 2024, We have a guidance of around plus 9% organic growth, driven by strong digital revenues with a double-digit organic revenue growth rate in our transport business and a high single-digit rate for street furniture. We will propose to the AGM not to pay any dividend in 2024 to maintain our financial flexibility for future organic and external Bolton investment opportunities. Thank you for your attention. And we are now, Jean-Francois, Damien and I, ready to take your questions.