JCDecaux SE

Ladies and gentlemen, welcome to the GCE Decaux 2024 Half-Year Results presentation. I will now hand over to Jean-Charles Decaux, Chairman of the Executive Board and Co-CEO. Sir, please go ahead.

Good morning, everyone, and welcome to our 2024 Half-Year Results conference call. The speakers today on this call will be Jean-François Decaux, Co-Chief Executive Officer, David Boulle, Chief Financial IT and Administrative Officer, and I. Remy Grisard, Head of Investor Relations, is also attending today's conference call. We are overall pleased with our H1 results, as all key metrics have significantly improved year on year, despite a challenging environment. We have enjoyed a strong momentum. Our revenue grew beyond expectation, increasing by 13.4% organically. This performance was mainly driven by the continued strength of digital, which grew by 27.8% and now makes up 36.8% of our total revenue. Programmatic advertising grew by 61.8% year-on-year, reaching 9% of digital revenue. We have also strengthened our portfolio of contracts with, for example, the wind of Shenzhen Airport and the renewal of the metro and buses of Rome during the period. We have also made progress in our best-in-class ESG initiatives with our carbon reduction trajectory being approved by the ESBTI. Profitability improved significantly. We have enjoyed a satisfactory level of operating leverage with our operating margin increasing by 28.7%, more than double our revenue growth. Operating cash flows increased by 21.5%, reflecting the improved profitability. CapEx were contained with a CapEx-to-SET ratio of 7.8%. Our free cash flow generation improved significantly, reaching a level that we consider satisfactory, given the seasonality of our activity. David, in fact, will further elaborate on these financial results. In slide five of our presentation, you will see that after our first quarter growth of 11%, organic growth accelerated to 15.4% in the second quarter, exceeding our guidance of 12%. This strong performance was driven by three factors. Continued strong demand from advertisers, particularly for digital advertising. The impact of major sporting events, namely the Olympic Games on the Euro Cup, in 2024, contributing around 1% to growth. Also, a positive portfolio effect starting from Q2 with the addition of the Shenzhen airport contracts in February and the end since April of the negative impact from the loss of the Guangzhou airport contract. In the next slide, you will see that the strong performance of the first half of the year was driven by all three of our activities each posting double-digit growth. Street furniture continued its momentum growing by 10.6% on an organic basis, starting from an already solid level in H1 2023. Transport continued to rebound with 18.8% organic growth, especially in the second quarter. This was due in part to improvements in China, including changes in our contract portfolio and global air traffic growth, which exceeded expert expectations with an 8.4% year-on-year increase in H1-2024. Billboard saw significant growth of 10.4% on an organic basis, a notable improvement compared to previous periods, plus 0.7% in 2023. However, this overall strong performance disparities between markets. Highly digitized markets like the United Kingdom experience very high growth, while France was flat as we continue to rationalize our inventory in line with regulations. Moving now to the next slide by geography. All geographic areas grew positively. The UK grew strongly by 28.1%. 29.8% organically. The rest of Europe, Asia Pacific, and the rest of the world also grew double-digit. Asia is now the only region remaining well below pre-COVID level to the slow recovery in China. Breaking down our total revenue by activity compared to H1 2023, the share of transport decreased slightly from 36% to 35.1%, still far from the 42.2% of H1 2019. Street furniture remains above 50% of revenue at 50.8, and billboards at 14.2%, close to its historical levels. By geographical areas, we are, as you know, well diversified. The United Kingdom area gains weight against H1 2023 from 9.2% of total revenue to 10.8%. France is our top country and stable and at 17.8%. If we look now by client categories on slide 9, you will notice that all sectors grew in this first half of the year. The luxury and beauty sectors slowed down slightly, but continued to grow faster than the group average at plus 16%. FMCG, Internet, and Telecom were the fastest-growing sectors at plus 26%, plus 19%, and plus 34% respectively. The automotive sector, represented on this picture from the Shenzhen Airport, grew at plus 31%, but remain outside of our top 10 categories for now. Digital revenue grew by 27.8% organically, well above the long-term average of 17%. Their share in total revenue increased from 32.7% in H1 to 36.8% in H1 2024. At the same time, and despite the conversion of some premium sites to digital, analog revenue grew mid-single digit. Our digital revenue breakdown remained very much in line with our business mix, proving that digital is relevant in our three activities, as we will see on the next slide. The share of digital revenue grew in our three main segments. In street furniture, digital revenue grew from 31% to 34.8%. Street furniture has the highest digital CAGR over the long period at 27.3%. In fact, cities enjoy also the flexibility of digital public message systems. In transport, our most digitized segment, digital revenue grew from 35.4% to 41.2%. We will continue to digitalize and to make the transport environments more premium especially in metros, as shown here in the metro of Sao Paulo in Brazil. Finally, in billboards, digital revenue grew from 32.3% to 33%, and the strong growth of billboards in the UK, which is pictured here in Manchester, proved once again the success of our digitization and de-identification strategy for this activity. And if we look on the next slide, you see that 60% of our digital revenue is coming from five countries only, namely the UK, the US, Australia, Germany, and China. While the UK and US are highly penetrated at 73% and 70% respectively, Germany is at 41%, and China remains relatively low at 27%, which shows that we will have a lot of room for future growth. On slide 13, now, you will see that programmatic advertising is obviously a key part of our digital ecosystem and continues to deliver on its promises. Programmatic revenue continues to grow strongly at 61.8% in H1 2024 to reach close to 60 million as it maintains its growth rate steady compared to last year on obviously a much larger revenue base. The share now of programmatic revenue in digital revenue has continued to increase to move from 7.1% in H1 2023 to 9% in H1 2024. Programmatic revenues remain so far mainly incremental, new money coming from targeted campaigns and from the long tail of advertisers, which enables us to generate higher yields for our digital inventory. On slide 14, this revenue development in programmatic is partly linked to our announced footprint. As you will see, the VIEW supply-side platform is the most connected supply-side platform of the market, now connected to 46 demand-side platforms. VIEW can now manage bookings on 51,000 screens around the world. Among these screens, obviously, 24,000 come from the inventory of JC Decaux spanning 21 countries across five continents. Regarding now our contract portfolio, since the beginning of the year and regarding the most significant contracts in China, we have won the airport of Shenzhen, we have renewed the Hong Kong MTR and the airport of Macao, which we have announced last Monday. In Europe, we have renewed the metro and buses of Rome with a contract which includes some renovation works of stations ahead of the Jubilee in 2025. More recently in Australia, we have renewed contracts for Sydney airports and Sydney buses. Moving now onto our climate prediction trajectory, you will see that our climate strategy aiming for net zero carbon by 2050, EA Scopes 1, two and three has been approved by the SBTI as announced earlier this week. This is another example of the excellence of our sustainable capabilities, recognized as best in class by extra financial rating agencies, including our placements on the CDPA list. Since the beginning of this year, our teams I've received multiple awards, and these awards obviously are a token of the great commitment and pioneering spirit of our corporate culture, which are key to continue to be innovative leaders in the OOH industry. As you can see, two campaigns have won Cannes Lions this year. First in Spain, and I invite you to look up the campaign about Marina Prieto, which is by using the Instagram profile of an unknown person, demonstrated the effectiveness of OH in metro environments. Also in China, a campaign in the Shanghai metro raised awareness about the Alzheimer's disease. Lastly, obviously, a note to the Olympic Games, which starts officially tomorrow, and this slide with two of our team members who have carried the torch in the Olympic torch relay. With that, I will now pass the torch to David for the financial highlights.

Thank you, Jean-Charles. Hello, everyone. First, the summary of our financial results with all our KPIs improving sharply over the period, reflecting the ongoing rebound in our activity. Double-digit revenue growth of plus 14%, which has been already commented by Jean-Charles, with a positive scope and currency net impact limited to plus 10.9 million, plus 18.2 million for the scope effect with the integration of Kirchner and Italy and Publigraphic, minus 7.3 million for the currency effect. Overall, no material impact on margins. An operating margin up 28.7%, twice as much as revenue growth, which reflects good operating leverage across all business segments. EBIT increased by 100 million, with 58 million coming from the increase in the operating margin, the rest mainly from the capital gain on the sale of some of our shares in APG. Net-in-group group share improved accordingly by 56.6 million, 68 million before impairment. Cash generation also improved sharply over the period. Operating cash flow increased by 21.5% in line with the evolution of the operating margin. Free cash flow was up 88.8%, an increase of €160 million, in line with the evolution of the working capital requirements, but I will come back to this in the next slide. This resulted in a net debt at €956 million, a decrease of €211 million compared to June 2023, an evolution that also benefited from the proceeds of APG transactions. Let's now take a look at the evolution of our operating margin. As you can see on this slide, page 22, rents and fees increased by 14.1%, aligning closely with the 14% increase in revenue. The rents and fees should normally increase at a lower pace than the revenue, but this 14% growth is also driven by a lower level of relief obtained in 2024 due to the recovery of our activity, particularly in the transport business segment, and a base effect in 2023 related to the positive one-off impacts from the renegotiation of some street furniture contracts. In contrast, our other operating costs increased less than our revenue growth at plus 9.4%, an increase of 62 million euros. Two-thirds of this increase is due to an organic increase in salary costs for about 11%, driven by a 4% increase in workforce to support higher level of activity, and about 7% related to wage increases. One quarter of the 62 million increase comes from the cost of goods sold, mainly driven by non-advertising revenue, which was boosted during the period by the sale to the city of Paris of the next generation of automatic public toilets. Excluding staff cost and cost of goods sold, it is to be pointed out that we successfully controlled our operating expenses, limiting their increase to 2.2% over the period. As a result, our operating margin reached 261.4 million, an increase of 28.7%, twice as much as the revenue growth rate, demonstrating a good operating leverage, as highlighted in my introduction. Looking at the EBIT now, as you can see on this slide, it is at 112.6 million before impairment and therefore improves by 100 million mainly due to the increase in the operating margin for 58 million and the capital gain on APG for 45 million, a capital gain which is positioned in the line other items in the table on the screen. For the net charges between operating margin and EBIT, you can note the 7.3 million increase in net amortization, which is partly related to the effects of the integration of Clear Channel Italy and Publigraphic, the capex also related to contract wins and renewal, and the right of use on real estate and also vehicles rentals as part of the electrification of our fleet. At the bottom of the table, the net impact of impairment charge represents a net income of $6.4 million in 2024 compared to the $21.9 million in H1 2023, a decrease of $15.5 million mainly related to the reversal in H1 2023 of the provision for onerous contracts recognized on Guangzhou Metro at the end of 2022. This brings the improvement in adjusted EBIT after impairment charges to 84.5 million, which stands at 118.9 million or 6.6% of the revenue. Let's now move on the evolution of our margin by business segment. On the left of the slide, the overall operating margin rate increased by 170 BP to 14.5%, coming from all business segments, but especially from transport and billboard, as you can see on the slide. For street furniture, the improvement is limited to 70 BP, despite a double-digit revenue growth, due to the base effect already mentioned related to the one-off positive impact from the contract renegotiation in H1 2023. For transport, we note an improvement of 180 BP, which is quite encouraging due to the slow recovery in China, the reduction in rent relief, and the deductive impact of new contracts starting, such as Shenzhen Airport. Finally, the increase of 610 BP in the billboard business segment is mainly due to revenue growth from the most digitized countries and the first positive effects of the rationalization plan implemented in France. The EBIT margin trajectory before impairment by business segment, shown on the right of the slide, broadly aligns with the operating margin rate, a bit more pronounced in the transport segment at plus 410 BP mainly due to termination cost for the Guangzhou airport and metro contracts in the first half of 2023. Excluding the capital gain from the APG transaction, the group's EBIT margin is 3.7% compared to 6.2% with this capital gain included. Regarding the evolution of the net income group share, as you can see on this waterfall graph, an increase of 55.6 million, which is mainly driven by the improvement in the EBIT that I have just commented on. This is partly offset by a base effect of 41.2 million in the IFRS 16 adjustment as H1 2023 benefited from the cancellation of these liabilities related to the last year contract renegotiations. Also note on this graph a favorable change in tax of 9.2 million despite the improvement in taxable results due to the reversal of deferred tax provisions in line with the improvement of our earnings forecast. A positive impact of 5.2 million from the result of companies with joint control and significant influence mainly due to the improvement in the performance of those companies over the period. And finally, a slight improvement in financial income of 1 million. Our interest expenses on our financing remained virtually flat with average net debt over the period broadly stable compared to 2023, while we benefited from a higher rate in 2024 on our liquidity. In the end, net income group share for the first half of the year is at 94.4 million euros. It benefited from the positive impact of the APG transaction and the improvement of our operational performance. Turning now to cash flow generation, first of all, in the middle of the table, our operating cash flows amounted to 138.9 million, an increase of 24.6 million, resulting from 58 million from the improvement in the operating margin, but partly offset by the increase in net interest paid and the increase in tax paid. The increase in net interest paid for 24.1 million is related to the annual payment in January 2024 of the interest coupon on our January 2023 bond. The increase in tax paid for 8.9 million is mainly due to the positive impact of tax refunds received in certain countries at the end of June 2023. Below the operating cash flow, net capex amounted to $140.7 million over the period. The ratio capex to sales contained below 8%, despite our ongoing investment in our digital ecosystem. Digital representing 36% of our total net capex. the impact of the change in working capital requirements was limited to minus 18.2 million euros despite the strong revenue growth over the period due to our ongoing strict strict management over our trade receivables trade payables and inventories compared to the end of june 2023 there was a favorable variation of 154 million which is also explained by the past rental payment in H1 2023 for around 100 million related to some contract renegotiations. The result is a free cash flow of minus 20 million, negative but a satisfactory level at this time of the year given the seasonality of our business. The free cash flow up sharply by 160 million euros compared to 2023. Finally, to conclude, an update on our financial structure, which is being reinforced. Our net debt improved by almost 50 million euros compared to the end of December 2023, due in particular to APG transaction for a net proceed of 88 million, partly offset by the negative free cash flow of 20 million that I have just commented on. Our net debt amounts to 957 million, representing a leverage of 1.3 times the last 12 months adjusted operating margin compared to 1.5 times at the end of 2023. Improved credit ratings with a stable outlook from both S&P and Moody's. A well-balanced debt profile with mainly fixed rate debt and an average maturity of more than four years after the repayment of our 600 million euros bond to come in October 2026. And finally, a strong liquidity of 2.5 billion, 1.7 billion available cash, and 825 million in confirmed undrawn revolving credit line with a maturity of mid-2026. On that note, I will now hand over to Jean-Francois for the outlook.