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.

Thank you. To ask a question, please press star, one, one on your telephone and wait for your name to be announced. To withdraw your question, please press star, one, one again. That's star, one, and one if you wish to ask a question. Please stand by, we will compile the Q&A roster. We will now take the first question from the line of Lisa Yang from Goldman Sachs.

Please go ahead. Good afternoon. Thanks for taking my question. So the first one is on basically the normalization, I think, of margins and free cash flow. You said, you know, revenues, I think for this year should be back to 2019 level. You took a lot of cost out during COVID. So the question is like, when do you think we should get back to the 2019 margin levels and also the 2019 free cash flow levels? Because I understand there was a few moving parts and one of in recent years. I know you don't give guidance, but I think obviously given recent fluctuations, I think the market will like some visibility on that. That's the first question. The second one is on the Paris Olympics. I think previously when we had the London Olympics, you talked about the 25 million revenue impact. So obviously France is a much larger country for you. So could you maybe help us quantify the potential incremental benefit from the Olympics? And then on capital allocation, what will basically drive the decision to resume a dividend? Is it mostly the free cash flow generation, or if you're just waiting for M&A, any clarity would be helpful as well. Thank you.

Thank you, Lisa. Good afternoon. I will take the first question and the third one, and Jean-Charles will take the second one. On margin, as you said in your question, we are not guiding on margin. Of course, we expect to be back to top-line revenue level at the end of this year. This obviously will help the margin, but obviously we had a profitable business in China pre-COVID, which is not going to be back to pre-COVID top-line level at the end of this year. If you look at the forecast from the main advertising agency, media agencies, they are expecting China to be back to being the largest out of home media market by the end of 25. So obviously this will help us to get back to the margin level of 20%. We can't give any commitment on whether it's going to be 25 or 26, but for sure, I mean, the recovery in China will help us to get back there. bearing in mind that the rest of the business is right now doing pretty well across all geographies. And on the free cash flow part of your question, you should know that all our country managers are incentivized on free cash flow. So free cash flow is a main KPI, not operating margin for our country managers. So it's a KPI that we are monitoring very, very closely. As you know, during COVID, when revenues dropped by more than 40%, we managed to generate a significant free cash flow. So we are obviously able to generate free cash flow when times are very, very difficult. And now that the recovery is well underway, Obviously the objective is to be back free cash flow positive as you mentioned that we had some one-off elements this year which affected the free cash flow. But it's a very strong KPI for us and there is no doubt that the group will generate free cash flow this year. and hopefully even more next year. We have had a lot of renewals as well, contract renewals, which I didn't go into the details during the presentation, which obviously, and some postponed capex as well from the COVID-19 when we protected the free cash flow, hence the comments I made earlier about reducing capex during the the COVID years in order to still generate some free cash. So all in all, the objective is to be back to a plus 20% operating margin level as soon as possible. But obviously, we need more top line in China. We are long-term in China. This was, as you know, a growth drive of the group for many, many, many years. The media market is expecting this Chinese market to be back to be the largest one at the end of 2025, so that should help. Jean-Charles, on the Olympics?

Good afternoon, Lisa. We are seeing, obviously, a very positive trend on the Olympics this year. As we said at our review release, we saw some a bit already in 2023 because of our basically a booking system in France where it gives you on the given week the priority for the year after next. So some clients already positioned themselves in the summer last year in 2023. So we started to have a bit some tailwind from the Olympics and we roughly estimate at the moment, as we speak, between 5% to 6% impact on our total advertising French revenue for the Olympic Games in 2024, and a bit also coming for the Euro Cup in soccer in Germany and Austria. So we will have some bit of tailwind on this on 2024 in our numbers.

And finally, on the dividends, as mentioned in our press release, Lisa, The main reason for not paying a dividend is not the free cash flow situation, it's the fact that we want to maintain our financial flexibility. We have a solid balance sheet. The industry is going through the consolidation that we've been waiting for in smaller markets, obviously, but this requires some decisions about where to allocate our capital. But there is no doubt that depending on where we will be allocating this capital in 2024, where there will be more M&A, small M&A activities in several countries, doesn't mean that we are going to be buying or making the consolidation in all the markets, obviously not. We wanted to maintain that financial flexibility, which is key. As you can see now, Clear Channel has a need to deleverage. So they are, after 22 years of competing aggressively against GCDECO by, in my opinion, buying market share, they are now exiting all markets. As we mentioned to you and to your colleagues in other banks, many years ago. I mean, the writing was on the wall when you look at their balance sheet. So we are the only global player left, which we believe is an interesting situation to be in. With programmatic, we see many more multi-market buys, i.e. advertisers taking advantage of a programmatic platform to buy in several markets, which is a trend, which is quite interesting for the market share gains and that out of home is experiencing in a lot of countries. You are covering as well in Germany, the market share is now eight plus percent. In Brazil, the market share is increasing. So there is no doubt that in markets where there is some sort of consolidation, duopoly in out of home competing against the big online companies, we are able to gain market share. And that's why we feel that this consolidation is important for us to drive. And that was the main reason for not to pay any dividends, bearing in mind that not paying any dividend is affecting the main shareholder, which is our family, at nearly 67%. But I can tell you in conclusion that free cash flow, when the free cash flow is positive, taking into account those potential M&A activities, there is no doubt that we will resume the dividends.

Thank you.

Thank you. We will now take the next question from the line of Conor Oshie from Kepler Chevrolet. Please go ahead.

Yes, good afternoon. Thanks for taking my questions. I have three questions as well from my side. First question, just in terms of the spend by sector, are you seeing any slowing down in the growth in spend from the luxury sector? I think we've had one or two of those prominent names suggesting that they might be coming back a little bit on the growth in spend going forward compared with previous years. That's the first question. Secondly, just on the billboard business, can we have a sense of what you might expect, say in a range, and no, you're not giving annual guidance, but any improvement likely in 2024, either in organic growth or in margins, or are you still in the kind of rationalization phase? of that business. And then third question, just a couple of questions on cash flow, maybe for David. CapEx guidance for 2024 and also can you give us a sense of the 600 million bond maturity in 2024? Can you just remind us what rate you currently pay on that bond?

Thank you. Jean-Charles, we'll take the first question given that most of the luxury companies are based in Paris and in France. I'll take the second question on the billboard, and David will take the third question on capex and cash flow.

Thank you. Yes, Léonard, thank you for your questions. On the luxury, we have seen, as you know and as you have noticed in our presentation, I think, over the last few years, continuous, I would say, acceleration in the luxury spending with some, obviously, a bit of slowdown in the travel retail in China for obvious reasons that have been discussed earlier. But we don't see at the moment, to answer precisely your question, we don't see at the moment any slowdown, even though we see some reallocation from travel retail in some geographies to the domestic markets. So overall, we still see a very dynamic luxury environment. And so We don't see in our numbers going forward basically slowdown, and we see that this is more because of obviously the Olympics, we see a strong dynamic in the luxury environment or in the accessible luxury environment before and during the Olympics. We see that our medium is one of the most preferred medium for luxury brands around the globe and across the globe, maybe for European brands, but also from US brands. And so we still see JC Decaux as one of, if not the most preferred partner for that category of clients. And when I say luxury, it's beyond luxury. It's skincare, obviously. cosmetic, dermal cosmetic, that are very strong in our portfolio, reaching a record high level of contribution in our category span of 20%. That has never been achieved before in the past with one single category going up to 20%. So I think this is encouraging. This is a larger category than before now with the skincare and the dermal cosmetic. So this is going into the right direction as we speak. Okay. Thank you.

Okay. Regarding your second question on billboard, we have an issue with the French rationalization and regulation, which maybe Jean-Charles can be more specific on this part of your question. But if you exclude France, the operating margin in our billboard business would have been around 17%. And you might remember, but a few years ago when we started the rationalization and digitalization of the UK billboard business, we had a slide in our deck showing that the UK margin was at about 25%. So it's very clear that the name of the game for our billboard business is to digitize, less is more. When we acquired the Mills and Allen Group in the UK in 1999, we had 10,000 billboards. We now have 1,000, 30% of which are digital, roughly 25, 30% of which are digital. So we have 90% less billboards in the UK, generating better margins and good returns. So we are able to do this in the US, in Australia, in Mexico, in many markets, but unfortunately right now, for various reasons that Jean-Charles maybe can explain in the second part of the answer to your question, this is not possible. And given the size of the French billboard business, this is a drag on our margin. But the billboard business in countries where we are digital is a profitable business. Not as profitable in the US for the reasons that you know that in the US you have a lot of non-conforming billboard leases, which means that when landlords want to renew their leases, if they take down the billboard, it cannot be rebuilt, meaning that the incumbent The guy, the company that operates the billboard on the land of the landlord has a huge leverage on the contract renegotiation, on the rent renegotiation. That doesn't exist anywhere else in the world. That's why there is a margin difference between European billboard companies and U.S. companies. billboard companies. So on the French billboard situation, Jean-Charles?

Yeah, on the French situation, at the end of the day, it's quite simple. All it says in our press release is a combination of two factors. One, reduction of size due to the regulation. So we have less size than before. So in the transition mode, you lose your revenues. And basically, the fact that we are not digitalizing the French market given the French context. So, I mean, what is benefiting from this is certainly the street furniture. So you have a kind of rebalance in the market. So street furniture is gaining market share in France big time if you look back five years down the road. Unfortunately, impacting also the billboard transition that we are in. So we are in the transition mode because the regulations will end up by 2025 where you will have to be in conformity with the latest regulations published both at the national level and the local level. And we started this operation two years ago already. So 2022, 2023, 2024, 2025. And so we hope that we will find basically a new equilibrium in this phase once these sites coming will be finalized which is still take 2024 and beginning of 2025. So it is clear, it is fair to say that the French let's say billboard environment will always be basically it will only be at the level of the average group margin on billboard structurally. So it will take time to basically fix this, but this is something that we are obviously improving year on year with not only cost reduction, but also rent renegotiations. And this is quite encouraging because we see obviously that by bringing the patrimony down to a certain level, we have a much more cost-efficient base. So that's something that we are working on. But that's not new, but this is work in progress, let's say.

Okay, understood.

David, on CapEx. Good afternoon. As you know, we don't normally give any guidance on the CapEx, but because at this time of year, it's not easy to have a clear visibility because it will depend a lot on opportunities to come and also the tension on the supply chain. But without giving any guidance, I can give a bit of color. We are working on, you know, to be in a range of what we did in 2023. This is what we are working on, excluding obviously any significant opportunities that could come. and that we could decide to size. But as you know, and as reminded by Jean-Francois, free cash flow is a clear focus for the company and for the team and for the management team. It is a key driver in the free cash flow. And obviously, we know that if we want to boost our free cash flow, CAPEX needs to stay in a in the range where we have been in 2023. This is what we are working on, and we will continue to be very selective on our investment. But if we see a good opportunity which could bring a significant return to our shareholders, this is something that obviously we will get very seriously. Regarding your question on the bond, which is maturing in October, the interest rate on this bond is 2%. As you know, we have the cash in our balance sheet in order to fully cover this bond, because we have 1.6 billion on hand. And so we use this cash, as we say, in order to repay this bond. So it's not an issue. But to answer precisely to your question, it is 2%.

Okay. Many thanks, David. Thank you.

Thank you. As a reminder, if you wish to ask a question, please press star 1 and 1 on your telephone. That's star 1 and 1 if you wish to ask a question. We will now take the next question from the line of Annick Maas from Societe General. Please go ahead.

Hello, everyone. My first question is, you were speaking about financial flexibility. Why do you plan to sell the APG stake instead of increasing it, particularly that your competitor has changed in the Swiss market, so that might make the market a bit more rational? My second one is on the Shenzhen airport. You won that airport and not in a JV, which is relatively uncommon for you guys, and against an Asian JV previously, so that's quite an achievement. Can you maybe explain to us what happened there? and why you went for this structure. And then the last one is just programmatic keeps on growing. Can you tell us who are the advertisers that are actually spending programmatically? Are these advertisers that were with you already in the traditional world, or are they actually totally new companies? Thank you.

Thank you, Annick. Good afternoon. I will take the first question on APG. Jean-Charles will take the second one on Shenzhen. I will take the last one on programmatic. So on APG, and we haven't decided what we're going to do, if we're going to stay on board or if we're going to sell, as indicated in our press release. We've been kind of a financial investor in this company for many, many years. At the beginning, this deal, which I did back in early 2000s, help us to consolidate a bit of Germany, because Stuttgart, for example, was part of APG. They also had a presence in some Eastern European countries like Slovakia, Czech Republic, which we were able to take over. But I said many times, and I'm on record for saying that we are not interested in increasing our stake in APG. And so that's why the scenario of buying the remaining 70% for right now, the market cap of APG is around 600 million Swiss francs. Given the strength of the Swiss francs, it's about 700 million euros. So you can do the math yourself. It's a big ticket. And we believe that we have probably better opportunities to deploy the cash in the context of a cash allocation in some other markets where we would benefit from consolidation. The market in Switzerland is fully consolidated. APG has about 60% market share, and Tarmadia, which took over Clear Channel last year, has about 25%. APG couldn't beat for Clear Channel, given the 60% market share and the fact that the market definition is unfortunately surreal, but it's still out of home on the standalone. And therefore, they didn't even bother to bid for the clear channel assets in Switzerland, i.e. no consolidation in this market. So we prefer to probably put this money at work in markets where we can consolidate, i.e. the deal in Italy, which we did at 6.7 times pre-synergies, which we believe is a good deal, and we can see the benefits of this deal already. And that's why we've indicated in our press release that depending on the offer, we will either stay on board or sell together with Pargeza, our 30% stake.

Regarding Shenzhen, we have to know, Shenzhen is part of our, I would say, strategy in China where, as you can see, uh we have both we have one model which is joint venture and the other model which is a concession driven for example beijing was concession where shanghai was a drone venture so we are pretty much open onto the two onto the two scenarios and on shenzhen the shenzhen airport they were unhappy with their local chinese partner and he decided they had an option to renew the contract with their JD operator because they were operated under JD and they decided not to renew and decided to go with us basically for this new contract. So it's not a change. The good news of Shenzhen and the reason why we wanted to position ourselves for many years in Shenzhen is this is basically, as you know, the technology, the tech city of China. This is a city where Out of the 53 million packs a year, 51 million are domestic packs. So just 2 million are non-domestic packs, are international packs. So it's a pretty young generation tech airport and mainly driven by domestic demand, which is very good. And actually I can tell you that we took over on the 1st of February and already we have a very strong demand for that airport. So it's very positive. And that's also rebalancing basically our airport portfolio, as we said several times since the COVID situation, being more exposed to the domestic than exposed to the international, even though we keep obviously our partnership with international airports, such as Beijing airport, such as Shanghai airport, but that's also driven by domestic demand. So we focused our development more domestic now in China than in international. That's our aim, adjusting basically versus the dynamic of the market at the moment.

Concerning your third question on programmatic, if you can go to slide 14, which was part of the introduction of the presentation today, you can see six visuals. So Armand Cardon, as an example, is a small brand that was programmatic. We never ever had Armand Cardon as a customer before. Zootirol, same story. Bradesco, same story. Perzil is a long-term customer of out-of-home, starting in Germany many, many, many years ago on classic out-of-home. BYD is the Chinese brand. Hence my comment on automotive, and they do both. They do broadcast. They use out-of-home as broadcast, but also programmatic. And Cafe Pacific, same story. So it's a combination of existing customers, which are enhancing their budget for certain targeted campaigns, which they want to display, and some new money from smaller budgets that we couldn't serve in the past.

Thank you very much.

Thank you. We will now take the next question from the line of Lisa Young from Goldman Sachs. Please go ahead.

Hi, sorry, I just have a quick follow-up question. Just on the Q1 guidance, could you maybe just explain a little bit, like, how much sort of, you know, caution you're baking in? Because obviously, you know, in Q4, you got to 6 and you did 10, so just wondering, like,

uh how big now is basically the the late money and uh yeah what what sort of variability we can uh we could expect versus that nine percent thank you welcome back into the call lisa but um i know that as soon as we give a guidance you guys yourself and tend to tend to enhance the our guidance or expectations by 100 150 basis points when The benefit of digital is that we are getting late money, which we didn't get in the past. And the late money is very hard to predict, including obviously programmatic. When we gave you the guidance at 6%, on my grandchildren, I can swear that this was the pacing we had at that time. And we were surprised internally by the strength of December, which is always a good month, but it's hard to predict. So we don't build any cushion, as implied in your question. And the 9%, we had the debate yesterday with my brother and the rest of the board, and Remy and David, and where is 9, 10? Are we going to deliver 10? Maybe we're going to deliver 10. But right now, we've seen our pacing numbers, which we receive every Monday from 82 countries around the world. that we are around the plus nine percent that's why we got at around nine percent now are we going to deliver that much better i mean q4 last year was an extreme uh example um probably because we always get some late money but we wanted to we didn't want to that would have been a first time if all of a sudden we start to include in our guidance some money which we don't see in the weekly pacing, and we don't want to do that. We prefer to be on the safe side. We missed, I think, since 2001 when we were in public, I think we missed only two guidance, which is quite a good track record. So we knew that by being slightly below the consensus, which consensus is built in a very strange way between you and me, we were going to be disappointing the market. But it is what it is. under promise of a deliver as you know better than me but right now we gave you a bit of color on the on the plus nine percent which we are not going to give on every quarter because obviously q1 is a quarter where we are already two months plus one week into the quarter normally the other quarters we are we have to guide a bit earlier in the quarter so we told you strong digital growth So it's very strong in Q1. Obviously, analog doesn't mean that analog is declining, but analog is a bit better than flap, but analog is still 66% of our business. So we mentioned in our press release, double digit in transport. I know that the consensus is at 20%. We are not at 20% right now. We are double digit. So we are above 10%, but we are not at 20%. And that's mainly because of the slow recovery in China. And in our street furniture, the consensus is at around 5%, plus 5%. And we are high single digit. We are much higher than the consensus. So this is what I can tell you, how I can answer your question.

OK, thank you. Thank you. We will now take the next question from the line of Benjamin Jochen Zeiger from Deutsche Bank. Please go ahead.

Yeah, thanks very much. Just two questions, please. Firstly, on the contract portfolio, are there particular segments in markets such as Billboard in France where you would say renegotiating contracts is a particular priority? And then secondly, just on working capital, I appreciate you may not be able to provide exact guidance, but is there any colour you could provide on the shape of working capital and any impacts from rent renegotiations into 2024? Thanks very much.

okay thank you benjamin joshua will take the first question on portfolio um in france and david the second question on working capital yes as you can imagine we are continuously um basically trimming and renegotiating some contracts when when it's convenient obviously and when it's needed so it is clear that given the process of the reduction of size in the french people market the reduction and the renegotiation of some contracts is completely on the agenda. But it has been on the agenda for quite some time. So this is something that we are currently pursuing and I can confirm that rent basically is getting down on the large format in France. And so this is something that also will continue It will intensify, I must say, in 2024 and 2025 as the plan of turning sites and reducing sites is progressing and I would say is finishing in 2025. So, yes, contract renegotiation is part of the agenda of the French Bilbao, but not only. You have also other contracts that are, as it was said by David this morning, it is always part of... when the circumstances, obviously, allow us to do it. We are doing it on a continuous basis. We are, you know, like managing our assets, obviously, to adapt and reshape sometimes, especially when structural, especially when there is a change in regulation, like in the French context, we are doing so.

Regarding the working capital, as we mentioned when we presented our financial results, we said that we had one of items which were the payments related to the contract renegotiation affecting the working capital by almost 100 million. When you look at the impact of the working capital on the free cash flow in 2024, full year this time, It was 124 million, so you know the major part is coming from this one of payments. It was the case at the end of June 2023 when I had the question, I said clearly without giving any guidance that normally the working capital should come back to a more normalized level and it was the case for H2 as you could see because at the end of the day the main impact on the working capital is the one of payments. so going forward without giving any guidance you know there is no no reason not to have a working capital we which which we continue to evolve with with the business activity so if the business continue and the business momentum continue to be good there will be a slight impact on on the working capital, especially on the trade receivables, because we are already at a level which is very low in terms of DSO, so we don't have so much room to maneuver, but it will be not so meaningful, I guess. And regarding the other level that we have on the working capital, it is mainly the inventory. We have a bit of room on the inventory. to optimize, but it won't be a material. You know, if you exclude the one-off payment that we had in 2023, you look at the working, the normalized working capital variation is quite reasonable given the increase in the activity.

Thank you. We will now take the next question from the line of Connor O'Shea from . Please go ahead.

Thank you. Two more follow-up questions, if I may. One question on the projects that you mentioned, Jean-Charles, on the artificial intelligence. Are they self-financing or is there a bit of investment? I think David was mentioning a bit more salary pressure from sort of digital staff. Is that part of that? Is there a step up in 2024 versus 2023 initially before some of the productivity gains come through? And then just a second question for David on the depreciation, which decreased I think significantly year on year. I think in the slides mentioned that because of lower inflation, the cost of dismantling, I think the billboard came down. I wonder if you could just explain a little bit more the thinking behind that. Thank you.

Yeah, Jean-Charles. Jean-Charles will take the first question on AI. And David will take the second one.

Yes, on AI, no. We are doing that with our current teams, for sure, as it was explained in the presentation. This is something where we have basically our data specialists, our IT people, and we are working on projects very concrete projects to use AI, generative AI, obviously, with our own model. We are not going on to basically public platform. We are training our own model on some of our, let's say, key verticals where we think we can do some productivity gains, some product enhancement, both for advertisers and for our city's partners. And this is something we are... doing with our own talent internally, plus obviously sometimes some consultants externally, but because we decided to create Pioneer and further develop our platform both on Vue, also on Displays, also on the digital teams, we have the very skilled people inside the company able to tackle those topics at the moment. And we will see, obviously, during 2024, at what scale and how fast we want to build upon those projects. And we will certainly extend that further in the future. But at the moment, it's done with our current teams in the diverse area that I've been referring to, Conor. Okay. Okay.

Thank you. Yes. And, Conor, regarding your question on depreciation in our tangible and intangible we have included as you know our provision and related asset to the dismantling when we have the ownership of the of the of the furniture at the end of the contract and this let's say liability and asset should be re-evaluated on the early basis based on the discount rate as you can imagine because you have to evaluate the provision and the counterpart, which is the asset, on a long-term basis. And this year, given the swing in inflation over the last 18 months, we had to re-evaluate the discount rate and as well as the inflation rate that we are taking into account in order the inflation rate to assess the cost of dismantling and to project the cost of dismantling at the end of the contract. And the average rate and inflation, discount rate and inflation rate that we took for 2023 was, you know, lower for the inflation rate, which is a little bit counterintuitive. But on another basis, it was lower. And for the interest rate, it was at the opposite, a little bit higher, but to a lesser extent. Bottom line, there was a reduction of the asset and a reduction of the depreciation accordingly, which has reduced this amortization line by about 18 million euros. The rest of the reduction, which is about 6 million euros, is mainly due to the fact that we have been continuing operating and extending some contracts where the assets are already fully depreciated. So that's why the basis of the asset related to the depreciation is lower than what it was before. So on a normative basis, what you should take going forward should be more the basis of depreciation that we have in 2023 than the one that we had in 2024, if it is the question or the answer that you are looking for behind your question.

For sure. But does that mean that if inflation rate, say, goes back to pre-pandemic, it will increase in two years' time or something, maybe?

Yeah, but it has been quite stable over, you know, what we have been facing over the last four years, it's quite stable. I shouldn't say unprecedented, but over the last 10 years, yes, I can say so. So this is something that we are reviewing on a regular basis with our auditors, as you can imagine. So we do not expect for 2024, you know, swing as we had in 2023.

Okay, understood. Many thanks.

Thank you. There are no further questions at this time. I would like to turn the conference back to Jean-Francois Lecault for closing remarks.

Thank you. Thank you for all your questions. And we're going to be on the road with David and so we look forward to seeing some of you over the next couple of weeks. And well, all the best. And speak soon. Thank you. Bye bye.