Universal Music Grp U/Adr

and CEO of Universal Music Group and Boyd Muir, Executive Vice President, CFO and President of Operations. They will be joined during Q&A by Michael Nash, Executive Vice President and Chief Digital Officer. All lines can be placed on mute to prevent any background noise. After the speakers are marked, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad If you would like to withdraw your question, please press star followed by two. As a reminder, this call is being recorded. Please also let me remind you that management's commentary and responses to questions on today's call may include forward-looking statements, which by their nature are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may vary in a material way. For a discussion of some of the factors that could cause actual results to differ from expected results, please see the risk factors section of UMG's 2023 annual report, which is available on the investor relations page of UMG's website at universalmusic.com. Management's commentary will also refer to non-IFRS measures on today's call. Reconciliations are available in the press release on the investor relations page of UMG's website. Thank you. Solution, you may begin your conference.

Thank you and hello to everyone. Thank you once again for joining us. I'm pleased to report that Universal Music Group achieved yet another quarter of solid growth in revenue as well as EBITDA. Let me give you some colour on our operating performance this quarter. I'll begin today with the progress we're already making on the strategic initiatives we outlined at our Capital Markets Day last month at Abbey Road Studios. First, our artist-centric strategy, which we view as crucially important for the streaming business to grow and flourish. Artist-centric is a key pillar of our work to evolve the underlying business model of streaming, what we call Streaming 2.0. Take, for example, YouTube Music, which has become one of the fastest-growing players in subscription. On the strength of the very successful partnership we've built together, YouTube has recently committed to us that they will elevate priority given to surfacing premium artist content and enhancing content categorization measures to provide users with an improved experience and a more mutually rewarding connection between artist and fan. YouTube is also making the platform more attractive in numerous other ways. For example, offering user-friendly ways for fans to create and share collaborative playlists and their own artwork, including AI-generated images. And elements of this gamification in the form of badges for superfans are being introduced to create special identities for fans. We've been advocating such approaches with all of our platform partners because social enhancements like gamification lead to higher fan engagement and greater consumption of our artists' music. YouTube Music is now the first DSP to offer these features. We've also extended the application of our artist-centric philosophy to the AI arena in several important ways as we seek to drive innovation while future-proofing the music ecosystem. For example, we've just announced our strategic collaboration with Play. This adds to our ever-expanding portfolio of tech entrepreneurs who are working with us to set generative AI on a course that is deeply aligned with the rights and interests of the entire creative community. Play is developing a new ethical model for AI generated music that works with the music industry and its creators to grow musical creativity and human artistry. We've also elevated our advocacy of artists' interests through initiatives like our partnership with Roland on the principles of music creation with AI. More than 90 companies and organizations have signed on to the principles, and we've lent our support to the recently published statement of AI training, which has now been signed by over 25,000 people. Finally, as you might have had the chance to hear, if you joined this call early enough to listen to the whole music, we're also delighted to have collaborated with Sound Labs and Brenda Lee to bring you the iconic holiday season classic, Rockin' Around the Christmas Tree, to Spanish language audiences in their native language for the first time ever. through this very inventive use of responsible and responsibly trained AI technology. And this will be, we anticipate just the first of many, many developments. It's another way, another example of the many ways that AI can be employed to serve the creative community. As long as we steadfastly adhere to artist-centric tenants. As we discussed at our Capital Markets Day, Streaming 2.0 will build on the enormous scale we've achieved in the first stage of streaming and create a sustainable and growing artist-centric ecosystem that improves monetization and delivers great experiences for fans. One key to this will be improving customer acquisition strategies to drive greater conversion from free to paid and then from paid on to the superfounteers. This will enable us to segment and capture customer value at higher than ever levels. Achieving this requires a highly nuanced approach, adapting to the specific nature of each platform, taking into account the platform's individual product roadmaps, its distinct subscriber bases and regional variations, particularly in fast-growing developing regions. Our work to usher in Streaming 2.0 is underway, and I look forward to providing you further updates in the weeks and months ahead. I'd like to say a few words now about our global acquisition and partnership strategy and the recent moves we've made in Belgium, the UK, India, Thailand, Latin America, as well as China. When you look at our history, it's clear that Universal Music Group is an organization that was built over time by entrepreneurial visionaries. That is, we are constantly looking for entrepreneurs with unique visions with whom we can partner. And when we see a company that's a strong strategic and cultural fit, we summon our resources, expertise, and nimbleness, and our networks, relationships to acquire it. When we bring the acquired company into the fold, we don't make it disappear. We allow it to retain its identity, keeping its unique and thriving, keeping itself unique and thriving within the UMG family. This is exactly the case with our recent completion of the acquisition of PS, Play It Again Sam, which builds upon our 2021 agreement when we formed a strategic global alliance with them and acquired a minority stake in them. P.S. was first launched in Brussels over 40 years ago and operates two core businesses. The first, the P.S. Label Group, is home to the group's own and associated record labels. The label group will remain a standalone unit within UMG and continue to be run by P.S. co-founder Kenny Gates. Some of its in-house labels are Play It Again Sam, Harmonia Mundi, Domain, SpineFarm. Their partner labels include ATO, Heavenly, Mute, and Transgressive. PS's second core business is Integral, a label services division which provides physical and digital distribution services to more than 100 independent label partners around the world. Integral is joining forces with our Virgin Music Group. The combined teams will provide independent entrepreneurs with premium services and access to a best-in-class international distribution network. This aspect of the acquisition enhances our ability to support the independent artist and label community globally, while dramatically increasing our presence in this growing segment of the industry. Speaking of Virgin Music Group, just last week it was announced the acquisition of Outdistry, a leading artist and label services business used by many of the world's premier independent labels and artists to market their releases into China and India. Out The Street has deep relationships with local labels and DSPs in China, and we're extremely happy to be bringing that expertise to UMG. In addition to its marketing services business, Out The Street also has a music publishing business and a record label both focused on signing local artists in China and India. As we previewed at the Capital Markets Day, our strategy includes expanding our reach into high potential markets. Our acquisition of Outdoor Street provides another instance of that strategy in action. Yet another example of our commitment to grow in the high potential markets is RS Group, the second largest recorded music catalog in Thailand. Last year, we acquired a 70% stake in RS Group, and it was just last month that we acquired the remaining 30%. RS Group has a catalog of more than 10,000 unique master recordings and 6,000 copyrights, publishing rights, and licenses dating back more than four decades. Also in September, we announced the launch of a new label division, Universal Music China Greater Bay Area, that once again makes UMG a true pioneer. The launch marks the first time a major music company has established a division in China's Greater Bay Area, the world's most populous urban area, which includes Hong Kong and Macau. The region's rich cultural fabric, woven from a diverse range of dialects, predominantly in Cantonese, has significantly shaped both local and Asian pop culture. The new label will be headquartered in Shenzhen. I've yet another significant development in China to highlight. The Wrap of China is a nationwide TV hit that first aired in 2017. The show has attracted billions of views in the Greater China region and launched the careers of multiple local rappers. As recently announced, Universal Music Greater China has entered into a strategic agreement with iQiyi, a leading provider of online entertainment video services in China, under which we will exclusively distribute worldwide new releases from the signed contestants of The Wrap of China, as well as those from its roster of over 20 breakthrough Chinese rap acts. This partnership will further enhance those artists' international presence and facilitate collaborations between Chinese hip-hop artists and top international talents. We love that kind of cross-pollinization creatively. It should create groundbreaking musical works that carry cultural signatures and expressions. Again, something that we love to do. and facilitate. Still, another high growth region of particular focus for us is, as you know, Latin America. We recently announced that our global talent services business, or GTS, will become a standalone division company within UMG. GTS is a full service company for Latin artists, spanning management, booking, live events, promotion, and brand partnerships. By separating from our local labels GTS will now be able to also offer its services to artists outside of the UMG family. We also spoke extensively at Capital Markets Day about another strategic initiative to engage superfans with new products and experiences that unlock the economic potential of their fandom. With our partners as well as our own, we are creating and monetizing new ways to meet superfans' demand for products. experiences and access that will bring those fans closer to the artists that they love. I'd like to share a recent example. Olivia Rodrigo debuted her concert special, Olivia Rodrigo Guts World Tour on Netflix on October the 29th. The program was recorded as part of a 95-day sold-out arena tour. with Interscope's team both producing and executive producing the Netflix special. I'll now finish up by briefly focusing on the lifeblood of our company, our artists, and some of their recent achievements. Sabrina Carpenter, who we're so proud of, her album Short and Sweet debuted at number one in 15 markets, including Canada, France, and Spain. It then went on to be number one for six weeks in Australia, and four in the US. And Sabrina's latest single, Taste, has spent nine weeks at number one in Australia and the UK. In addition, in the UK, she's been number one on the singles chart for a record-breaking 21 weeks, including seven weeks for Expresso and five for Please, Please, Please. In addition to the nine weeks I just mentioned for Taste, breaking the record for the most weeks in a year for any artist since 1953. Post Malone's new album, F1 Trillion, debuted at number one in the US, UK, Australia, Canada, Norway, New Zealand, and the Netherlands. His single with Morgan Wallen, I Had Some Help, had already spent six non-consecutive weeks at number one in the US. Then Lady Gaga and Bruno Mars' single, Die With a Smile, has spent eight consecutive weeks atop the Billboard Global 200. and global ex-U.S. charts, marking the longest uninterrupted run atop each tally this year. Island Records in the U.S. continues its remarkable winning streak with emerging artist Gigi Perez, who currently has the number one song in the U.K. alongside Stablemates, Sabrina, as I mentioned earlier, as well as Chapel Roan, another phenomenon we're immensely proud of. In the UK, alternative rock band Snow Patrol captured their first number one album in 18 years with their recent release, The Forest is the Path, and Backbone, a collaboration between Chase and Status and Stormzy, has spent multiple weeks at number one on the UK singles chart. Lastly, in Japan, Mrs. Green Apple's Lilac spent two weeks at number one on the Billboard Hot 100 and 18 consecutive weeks on the Billboard Japanese streaming songs chart. Let me close my remarks with one final note before I'll hand things over to Boyd. Actually, it's probably more than a note, more of a sort of a headline. and actually one that this time concerns Boyd himself. I'm delighted to announce that effective immediately, Boyd has been promoted to Chief Operating Officer at UMG Worldwide. As a result, we will be commencing a search for a new CFO. Of course, until a new CFO is appointed, Boyd will continue to perform in that role for us as well. Boyd's done an outstanding job leading the company's financial and operational functions through a period of unprecedented growth and change over the last 20, 25 years, how the industry has changed, including our successful spinoff and IPO, as well as our first three years as a standalone public company. Now with our strategic plan ahead of us that we outlined at Abbey Road at the Capital Market State. It's important that Boyd be able to fully focus on overseeing some of our key operational and strategic functions as COO. If you're able to, somehow technologically, it'd be great if you could join me in congratulating Boyd on his much deserved promotion. And on that, Boyd, let me turn it over to you to walk through our financials for this quarter. Thank you. Well done.

Lucien, thank you very much indeed. What you said means a lot to me. And I'm really looking forward to this new role and all of the exciting opportunities that are ahead of us. Anyway, now turning to the results for Q3. I'm pleased to be reporting on another quarter of solid revenue and adjusted EBITDA growth at UMG. As usual, all of the growth figures that I will discuss today will be in constant currency. But before I go through our results, let me remind you that the third quarter of 2023 included an accrual for a catch-up payment from certain DSPs relating to the copyright royalty boards Rene Valladares- photo records three ruling and music publishing this prior year accrual amounted to 53 million euros in revenue and 11 million euros in EBITDA. Rene Valladares- In my remarks, I will present figures both including and adjusting for this item and all of the details are also laid out in today's press release. Please note that there are no one-time items in the third quarter of 2024. UMG's revenue for the quarter of 2.87 billion euros grew 5% year over year and grew 7% excluding last year's CRB accrual. Adjusted EBITDA of 621 million euros grew 8% or 10% excluding last year's CRB accrual. Recorded music revenue grew 6% in the quarter, with strong performances from Taylor Swift, Sabrina Carpenter, Billie Eilish, Chapel Rowan, Post Malone, and amongst many, many others. Within recorded music, subscription revenue grew 8.2% for the quarter. Our third quarter results are reflective of similar underlying trends to those we saw in the second quarter. As we have previously highlighted, some level of quarter to quarter variability is to be expected due to factors such as deal structures, the timing of reporting from DSPs, and other smaller items that can be difficult to predict. There are also items that cause differences in our quarterly reporting compared to our peers. For example, we include revenue from fitness partners in our subscription revenue. This quarter's result reflects ongoing challenges in the home fitness subscription market. It's also worth mentioning the loss of a distributed label that was acquired by a competitor. Collectively, these items negatively impact our subscription growth by just over a percentage point this quarter. As we outlined at our Capital Markets Day presentation, we see an opportunity to accelerate subscription growth through premium tier revenue enhancement, the development of super premium tiers, and the conversion of more free users to subscription. We therefore continue to affirm our subscription growth guidance in the 8 to 10% CAGR range through 2028. As a reminder, in the fourth quarter of 2024, we will anniversary Spotify's 2023 price increases. Now turning to ad supported streaming. Revenue was largely flat, against the prior year quarter. Performance was mixed across partners as the digital ad market is reacting to an evolving consumer preferences around short form and social content, as consumption and engagement has shifted faster than the monetization. The rate of growth did improve sequentially as compared to the prior quarter, largely thanks to our new meta deal. As we look ahead, we remain confident about the mid to long term growth drivers stemming from the advertising economy's digital migration, and we anticipate sequential gains in the quarters and years ahead. Physical revenue was also in line with the prior year quarter, a good result considering the difficult comps. As expected, we faced a very difficult comp with lower CD sales in Japan. But this was offset by the strong growth in vinyl sales, particularly in the US. We saw strong vinyl sales from Taylor Swift, Stray Kids, Sabrina Carpenter, and Chapel Road. License and other revenue grew 22% thanks to increases in synchronization income, particularly from increased ad sinks in the US and in Europe, as well as greater live and brands income. Download and other revenue declined 29% as this revenue continues to shift to streaming. Moving on to music publishing. Revenue grew 2% in the quarter and 15% when excluding the prior year CRB catch-up accrual. Within music publishing, digital revenue grew 23%, excluding last year's one-time item, driven by the growth of streaming and subscription, particularly in the US, UK, and China. Synchronization income also saw healthy growth from ads and trailers in the US and syncs with several luxury brands in France. In merchandising and other, Revenue increased 4%, again despite a difficult comp. Direct-to-consumer sales grew with improvements across Europe, while touring merch revenue also increased thanks to higher activity in the US with tours from artists including Slipknot, Imagine Dragons, Nicki Minaj, Blink-182, and Post Malone. As I mentioned at the beginning of my remarks, Adjusted EBITDA of 621 million euros grew 8% or 10% when excluding last year's CRB accrual. Adjusted EBITDA margin expanded by half a percentage point to 21.6%, helped by cost savings from our previously announced realignment plan, as well as lower A&R and marketing costs. These savings were partially offset by the negative margin impact from repertoire mix, physical product mix, and license and other revenue mix, where a higher share came from lower margin activities in the quarter. Moving on to share based compensation expense, the total was 65 million euros in the quarter compared to 103 million euros during the third quarter of 2023. expect our share based compensation for 2024 to be between 290 and 300 million euros as this number can fluctuate based on performance. The third quarter also included 30 million euros of restructuring charges which are excluded from both EBITDA and adjusted EBITDA. While we originally anticipated 2024 would only include phase one of our previously announced organizational realignment plan, which carries 125 million euros in restructuring charges, we have accelerated the start of phase two of the plan. We now expect restructuring charges for 2024 to come in between 150 and 160 million euros, while most of the incremental cost savings will begin in 2025. The total size and timing for implementation of the full plan has not changed. From a cash flow perspective, we estimate 65 million euros of cash restructuring charges in the second half of 2024. Additionally, aside from closing the transactions that Lucien discussed today, there are several other investments which we expect to make in the second half of 2024. Collectively, we expect an outflow of 350 million to 400 million euros in investment spending in the second half of 2024. At the same time, as I've said previously, we continue to expect net advances in the second half of the year to be significantly lower than the first half of 2024. As we shared at our Capital Markets Day, we continue to see enormous opportunity for value creation, both for our artists and for the company as we advance our artist-centric and superfan initiatives and work to further capture the value of the engagement being driven by our unparalleled roster of artists and songwriters. Thank you. Lucien, Michael and I will now take your questions. So, operator, could you please open the line for Q&A.