Lagardere Sa

Ladies and gentlemen, thank you for joining this evening to the Lagardère-ESA full year 2023 results. I'm Emmanuel Rapa, head of financial communication, and I will be engaging you through the presentation. The conference is led today by Arnaud Lagardère, chairman and chief executive officer of Lagardère-ESA and Hachette-Livre, Sophie Stabile, group CFO, Dag Rasmussen, Chairman and CEO of Lagardère Travel Retail. Stéphanie Ferrand, Deputy Chief Executive Officer of Hachette Livre. After the presentation, we will have a Q&A session. Please click on the Ask a Question tab on the top right of your screen. And I will be reading questions from financial analysts only.

Now I leave the floor to Arnaud Lagardère. The floor is yours.

Thank you so much. Let me just say a few words before leaving the floor to Sophie, just to express that we are obviously extremely happy. We have another exceptional year, setting new records for the company. But the most important, I think, is that our numbers are the exact consequence of our strategy, meaning one, that we have been taking advantage of the growth of travel retail, investing in that business unit. As you know, in 2023, with significant numbers, we want to push them as hard as we can to take advantage of this growth that is unbelievable. And the results of travel retail are extremely impressive. But at the same time, boosting also the organic growth publishing with a number of increased costs, not to mention paper and so on. And we've been able for the past year, as for the year before, to maintain the step that we've achieved after the COVID and keeping this very nice margin of 10% for us. The objective, of course, for the years to come is to keep in the double-digit operating margin and to grow it if we can. I wouldn't be surprised, as I said to the press release, that within the next two to three years, probably three years, that the travel retail result exceeds the publishing results. And this is not because, although I would admit that, why not? You know, there is a business unit that is better managed than the other one. It's just that, as I've always said, for the past 10 years, we have an engine of growth, and we have an engine of power. And we don't want to miss this extraordinary growth that we see in Jadavik. So congrats to Doug that is here in this conference. I will deal with other issues that we've mentioned in the press release, but before I leave the floor to you, Sophie to get into the numbers in more details.

Thank you, Arnaud, and good evening to everyone.

We are pleased to share with you Lagardère Group Excellence Results for 2023. The activity was driven by the performance of our two main businesses, Lagardère Publishing maintained a historical long level of activity against a very high basis 22-22 comparison. And Lagardère Travel Retail attained a new record performance, a peak in profitability, and was very dynamic in M&A activity. Let's now have a look to the main group figures. Overall, as you can see, On this slide, group revenue is very strong at 8 billion euros, up by 14% on a like-for-like basis. In 2023, the group's recurring EBIT jumped to 522 million euros, the best performance the last 15 years. This remarkable achievement exceeded our record-breaking performance in 2022. The operating margin reached 6.4%, slightly above 2022 and substantially higher than the 5.2% in 2019. The group free cash flow excluding changes in working capital stand at 272 million euros. The Board of Directors has decided to submit dividend payout resolution of 55 cents per share for consideration to the next AGM on 25th of April, given the group's active investment policy and in order to reduce net debt.

Let's deep dive into the division revenues.

Group revenue growth is driven by Ilagardia Travel Retail's tremendous growth in 2023. Overall, revenue up 16.6% as reported and up 14% like for like. The difference is due to 83 million euros negative currency effect, mainly due to the US dollar, and 242 million euros favorable scope effect, which includes the acquisition of Costa Coffee in Poland, Marché International in Germany, and Taste on the Fly in the US at Lagardère Travel Retail. Moving on to Lagardère Publishing on slide 9. After reaching a historical level, Lagardère Publishing's revenue up 2.2% as reported and 1.9% like for like at 2.8 billion euros. This level of activity reflects the division ability to build on the diversity of the portfolio, secure bestseller in France as the latest Asterix and Obelix album, and Sonodeur après la pluie by Cédric Sapin-Dufour, but also in the UK with a young parent saga by Rebecca Yarros. And we continue to capture social media trends, especially in the dark romance segment in France.

Moving on to the next slide.

23, we observe different trends by geography, particularly an acceleration in France of 6.1%, mainly driven by the dynamic release schedule in illustrated books, The activity remained at a high level thanks to the solid performance of young adult bestsellers in general literature. In addition, Le Livre de Poche, which celebrated its 70th anniversary last year, achieved a record year thanks to strong sales of backlist titles like Virginie Grimaldi, Melissa D'Acosta and Pierre Lemaitre. In the UK, growth reached 6.1%, fueled by trade-adult bestsellers such as the latest Rebecca Yarros and the house-made series by Frida McFadden. Additionally, a dynamic increase in backlist sales also drove the activity. In Spain and Mexico, we grew by 17.9%, thanks to a strong momentum in the education segment driven by the educational reforms. In Mexico, sales continue to be supported by dictionaries. Finally, the US and Canada represent 29% of revenue versus 32% in 2022. This decrease was mainly due to the market tightening and the absence of bestsellers. Let's have a look at profitability on the next slide. Lagardère Publishing's recurring EBIT reached 301 million euros. The important point is that recurring EBIT has maintained a historic high thanks to ongoing operational initiatives and despite higher costs, including the impact of the Polaris transformation project in 2023. Additionally, the margin level at 10.7% represents a significant improvement compared to the pre-COVID levels, which stood at 9.2%. Let's turn our attention to Lagardère Publishing's free cash flow. Overall, free cash flow before changes in working capital is up slightly at 159 million euros, which confirms the strong cash conversion of Lagardère Publishing.

Moving on to Lagardère Travel Retail.

In a nutshell, 2023 marked a milestone year for Lagardère Travel Retail. Revenue surged over 5 billion euros, up 27.8% as reported and up 23.4% like for like. Beyond its ongoing recovery in 2023, the travel retail division outperformed the 19th level. We witnessed growth across all geographies with sharp performance in EMEA, up 26.6% driven by traffic from international tourists and outstanding results in Italy and Poland. The America up 16.3% on an already high basis, especially in the United States. And the recovery in Asia up 52.1% from a very low base in 2022. Let's deep dive into the division's revenues. Lagardère Travel Retail saw a significant boost from the acquisition in food services segment, which accounted for 27% of our overall activity compared to 23% in 2022. The acquisition of Marché International in Germany, Costa Coffee in Poland, play a pivotal role in this historic level of activity.

Moving on to slide 16.

The recurring EBIT stands at a positive 245 million euros with an operating margin of 4.9%. Lagardère Travel Retail reaches this record high recurring EBIT mainly due to improved activity across all regions and the gain from the LEAP program that deliver an additional 95 million euros of recurring EBIT. Let's turn our attention to Lagardère Travel Retail free cash flow. Free cash flow before changes in working capital amount to 161 million euros compared to 138 million euros in 2022, primarily driven by robust cash flow from operations. It's important to highlight that we intensify our capex to continually adapt to future improvements in airport and foster growth through strategic acquisitions. Let's discuss other activities. Revenue for the year total 254 million euros, down 3.3% on a life-or-life basis. A few points to be highlighted. First, the decline in radioactivity is due to reduce audience levels in a challenging environment. Second, the press activity was done by 9.4%, primarily due to lower circulation. Finally, international license for Hell remained relatively stable compared to 2022, while Lagardère Live Entertainment saw a growth of plus 8%, following a favorable base effect in the first half Now, let's proceed to discuss the group figure. The most important element to look at is profit group share, which stands at 144 million euros. The slight decrease versus last year is mainly due to elements below the total EBIT with higher financing costs and a higher income tax in 2023 use stronger business level in the US and Europe. Moving on to group cash flow statement. On this slide, we have three key items that illustrate the primary dynamics of our division. First, the cash flow from operations before changes in working capital increased from 524 million euros to 611 million euros. This growth can be attributed not only to the recovery of our activity, but to an overall strong operational performance. Second, our capex increase underscores our commitment to the future development of the business. And third, the purchase of investment, driven by our M&A strategy, with the example of Marché International and Taste on the Fly in Lagardère Travel Retail. Moving on to available liquidity. At the end of 2023, the group's liquidity position was at a very high level with 3.1 billion euros. In December 2023, Lagardère signed a facility agreement with Vivendi in order to face the reimbursements on bond and shul shine linked to the activation of the change of control clause. On the next slide, we see a simulation for the situation as of 12 January 2024. At this date, the group has drawn an additional 1.2 billion euros on the facility agreement to repay bonds and interest, reducing them its liquidity accordingly. Now, the net debt. Net debt increased to 2.1 billion euros at the end of December, up from 1.7 billion euros at the end of 2022. This can be attributed notably to the significant M&A activity amounting to 383 million euros. However, the leverage ratio remains below three times at the end of December.

Now looking at the shareholder structure.

The main point is the closing of the transaction with Vivendi announced on November 21st, 2023. Vivendi Group now holds at 59.8% stake in the company and the majority of voting rights. Another point to keep in mind, the extension of the rights to sell the Lagardère shares granted in 2022 until June 15, 2025. A few words now on the group ESG strategy. The group is proud of its ESG performance which is a matter of great importance with many successful initiatives in our different divisions. As an example, this year, Lagardère Travel Retail ended plastic bags in all its in-house brands as part of its strategy to suppress plastic. On the other hand, Lagardère Publishing was prized for its annual eco-design program. Next slide. We are strongly committed in our four main drivers that you can see on this slide. First, limiting our environmental impact. Second, the importance of people in our group. Three, ethical and governance responsibility. And last, social and cultural diversity. I will just share a few examples of our action in 2023. We reached 46% of women top executives, up from 45% in 2022. 13 projects were supported by the Foundation Hachette for Reading. Now to conclude a few words on 2024 frames. Despite the uncertain economic and geopolitical environment, the Lagana Group remains confident its ability to maintain high level of results thanks to the dynamics of responsiveness of its teams and its the diversified geographical presence of its two core businesses. Despite the soft market trends and cost extension, Lagardère Publishing should maintain similar performance to 2023. And with robust momentum in global air traffic, amid uncertainty regarding the revival in international Chinese tourism, Lagardère Travel Retail has potential for revenue and profitability growth thanks to operational excellence. Thanks for your attention.

We are now available to answer your questions.

Yes, the first question we'll read is from Adrien de Saint-Hilaire from Bank of America. The question is just to clarify the outlook on publishing. What do we mean by similar performance to 2023 in terms of revenue and results?

Thank you for the question. What we mean by that is that we will be flat in revenue and flat in EBIT, which is in itself a challenge and a very ambitious target because we just ended two exceptional years in terms of results. And we plan to achieve this through two main levels. The first is the top line because we have a great catalog in 2024, especially in France with the release of the MISO. soon to come and also because we are going to work more closely and more efficiently on performance especially on pricing on purchasing and also on the volume of book we are going to produce

Thank you.

I will take now some questions from Societe Generale Christophe Cherblanc, and I will try to put them by activities. The first one, and I will continue with the book publishing. The question was about... The dynamic of price increase, obviously in France and in the UK, how could you describe the different momentum and what was the case for other countries and how do you see price increase in 2024?

Regarding price increase, in the last two years, we've made a significant effort to increase our prices, whether it is in the UK, in the US, but also in France. To give you just a quick number for France, we increased prices by 6% last year, which enabled us to offset a significant part of the inflation in costs, and especially in paper and in threats. So pricing is on top of our agenda to dynamize growth. Regarding this year, We will continue to increase price, but probably more selectively and with a more data-driven approach that we will roll out on all countries.

So I will continue again with the Christophe Sherbon questions and still about book publishing. The question is about the distribution project. It seems to be postponed. What is your plan on distribution? And if I continue a little bit, there is a question about French education reforms in 24, 25. Would you see some elements about that?

Okay, regarding the distribution in France, as you know, we decided to stop the Polaris program in its current form. It was a program that we started to design in 2021. And after two to three years of design and maturing the project, we realized that it was probably too big and too expensive for what we needed. So we decided to stop it, which doesn't mean that we will stop our thinking on distribution. Now we are in the process of terminating all the contracts we have regarding the Polaris programme, and we are setting up a small team to think again about the future of distribution in France. And we hope that we will have a calendar for this at the end of S2. So that's all the distribution, and I think there was a question about education reform. So what we expect regarding education reform is a limited No impact for 2024, because in 2024 it's just about leveling books for the primary education. We expect more in 2025-2026, as it will tackle the secondary school, and we expect the impact to be of several million euros on our reserve in 2025-2026.

Thank you. I will continue with Christophe Cherblanc, questions more on travel retail at this time. The first question is most probably about the description of government aids in travel retail and what happened in 23 and what can you say about the next steps?

Yes. Hello, everybody. So total one-offs this year were about 13 million positive, including 29 million in rent, most in North America. This will be reduced significantly in 2024 because we're going towards the end of these programs.

Now, on the acquisition of Taste on the Fly, there is a question about would there include some minority shareholders that are known to be DBs and has the debt of this operation... No, I think it's another question, the debt. Sorry?

The debt, I think, is another question. Okay, so a CDB minorities in tests on the fly is give or take 10%.

Okay.

And there's, there's another question on travel retail in Asia. And you know that China is not recovering China is not in a good macroeconomic position. And unfortunately, we have not returned to break-even in Asia.

So if I follow up again the question of Christophe Charblanc, Societe Generale, the question was about what are the amount of financial costs included in the other division at the EBITDA level. If I may take this question, it's... about the financing costs on commercial activity linked to the book publishing that is recorded under these other businesses. The debt has been refinanced. You saw the slide about the refinancing of the bonds to the agreement with Vivendi. And would you say something about the impact of financial costs in 2024, Sophie? On Vivendi?

For the financial cost in 2024, the level of interest increased from 2% to 5%. So roughly, we expect an increase of 50 million in the financial cost in 2024.

Okay, I think the question of Eric Ravary about book publishing and Polaris has been covered. Now, Thomas Singlerst from Citi raised the question about most probably travel retail. How much of a positive impact do you think the Olympics in Paris will give?

Well, historically, when we observe other countries which have hosted the Olympics, the impact was minimal, marginal, because you have obviously lots of newcomers who visit the country, but also less traditional tourists coming because the city is crowded. So we don't expect any significant impact.

I don't see the question right now. Maybe we leave a few seconds.

Yeah, I see a couple of other questions. One from about the radio business as it hit bottom in audiences and revenues. And, well, it depends. As you know, we have three radios. I think RFM is doing extremely well and will continue to perform well. As far as Europe 2 is concerned, it's a different issue. We have some problems in the morning show, which, as you know, is probably the main driver of audiences that we have to fix have we reached bottom for Europe 2? I don't know, to be honest with you. I hope so, but I'm not so sure. About Europe number 1, I think we've reached a bottom. We have kind of successful audiences recently, and I think we'll take benefit of all the efforts that we've done in terms of costs, in terms of realigning all the shows that we have, so I think that we'll have a great impact, and You never know, but hopefully we've reached the bottom a couple of months ago, but we'll see what happens. I see another question also concerning travel retail and publishing. I mentioned in my introduction, and I mentioned it also in the press release, that within the next three years, travel retail might exceed in terms of result publishing. The idea is just that it refers to the fact that the result growth speed in travel retail is higher than the one in publishing. And it doesn't mean that the publishing result will be flat for the next years. As Stephanie said before, we expect some similar sales and results. Hopefully, we we'll have some growth, very small, because that's the tendance of the market. But hopefully, we'll have some growth. And if we have some growth in terms of sales, hopefully, they will reserve also, and I'm talking about 2024, in a better reserve. But again, as you know, we don't communicate on the budget numbers, but we're still quite optimistic.

And that's pretty much the questions I see. I see another question from .

So why sell Paris Match? What revenues and EBIT figures in 2023? Well, we don't communicate on the EBIT figures of any of those properties, including Paris Match. we are not at a time where we say that we will sell that much, but since we've received an offer that is quite significant, nice to say, from LVMH, it's our duty, and especially my duty, reporting to the board to work on that offer. Nothing more than this, so it might take some time and probably talking to the unions of Paris Match and maybe Lagardère News at the same time. Another question, sorry, because I see that from Christophe Charbon, who seems to like Lagardère. He's asking a lot of questions. Thank you so much, Christophe. You said Vivendi has spoken about a strategic plan for Lagardère. Can you provide details? Well, the strategic plan they're referring to is the Lagardère strategic plan, actually, that they support, that we've presented to them. It's the plan for the next five years, and it implies, one, a reduction of the debt. That is important to us. And second, provide some fuel, some gas to Lagardère Travel Retail. Again, as I said before, taking advantage of the growth in the marketplace. and helping also the publishing side, and that's the reason why I took over the chairmanship and being a CEO at the same time. We strongly believe in publishing for the years to come. The same reason we believed in it when we invested in this market when nobody believed in it at that time, 10 to 15 years ago. And we have some ideas of organic growth. We have some ideas of acquisitions also. And we've entered in a quite very offensive strategy in terms of cost-cutting. There's some play still to cut costs and probably review also all the published books that we do. Maybe we publish too many books. Maybe there's something to do, and that refers to what Stephanie said before. You know, before getting into a so ambitious project as Polaris was, we need probably to think about what we want to be in the next three to five years. Maybe we don't need to have such a big, big place for us. and maybe we don't need to spend that much amount of money also. So it hasn't been postponed. The site of Germainville is a no-way for us, definitely. But I think that from Morpa, where we are, we can build something, and we can still continue to grow on a different way, on a better way for the shareholders, I would say. And that's pretty much what I would say on my side, unless you have more questions, but I don't see any other. So, if I don't see any other questions, I would probably, yeah, absolutely. I would probably thank all of you. Thank Dag, Stephanie, Sophie, and Pauline, and all of you present in this call. Thank you so much. And again, we'll talk to you as soon as we can, as soon as we have information, and definitely for the first semester and quarter. Thank you so much.

Thank you. Thank you, Arnaud.