Ipsos SA (IPS) Earnings Call Transcript & Summary

Hello, and welcome to the Ipsos 2021 Half Year Results Call. My name is Lydia, and I will be your coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions] I will now hand you over to your host, Laurence Stoclet, Deputy CEO, to begin today's conference. Thank you.

Yes. Good morning or good afternoon, everyone. I am together with Antoine Lagoutte, our Deputy CFO; and François Malin, our Investor Relations, and they will share this presentation with me. We are obviously very pleased to release a stronger growth, and we have a number of details that we would like to comment on. You have, on our website, [indiscernible] a presentation about our first half results. And without further ado, I will go to Slide 4 of this presentation with the overview of the first half in terms of revenue, EUR 993 million, which is a growth of 31.5% on a like-for-like basis compared to the first half of last year. And as you know, it was a very particular first half. So we think that it is relevant to compare our performance as well to the first half of 2019. And in this case, we still show strong growth of 13.9%. To go into some further, I would say, historical trends about what has happened since the beginning of the pandemic. You are on Slide 5 of this presentation. How we have performed quarter over quarter in our order books. Our order books are our net sales, this is slightly obviously different from our revenues and the order book is, of course, providing a bit of some views also into the future, while the revenues are only, of course, looking back in the history. So of course, we were heavily impacted starting around the middle of March. Our order book for Q2 was at minus 30%. But already since Q3 last year, we resumed our path of growth, 6% in Q3, 2% in Q4, 13% in Q1 of this year. And then in Q2, an extraordinary amount of 55%. But remember, the base of comparison is, of course, very, very favorable. So it's better to look at, I would say, the cumulative amount, which is an order book growth at 22.5% as we stand at the end of June. And this is why we are quite confident, of course, about our prospects for the second half of the year. Looking at the evolution industry sector by industry sector on Slide 6, you can see here our performance compared to 2020 first half and also compared to the first half of 2019 in dark blue, once again because we believe that last year was an extraordinary year and a more relevant base of comparison should be 2019. And you can see that we have had some growth everywhere and that we are growing now, including in the automotive sector, which was our sector the most impacted last year. But last year, obviously, we were impacted in all our sectors with the sole exception of the public sector because we did work, including during the lockdown for a number of governments, especially in Europe, who wanted to measure the impact of the pandemic. But after that, once again, we went back to a growth mode, and this is where we are now. So those strong growth that we are showing for this first half, I would like to comment what is happening in a certain number of sectors on Slide 7. Our CPG clients have resumed, I would say, quite strongly their activities with us starting in September last year, and it's true across many, many different multinationals who are our clients since many, many years. I think the main point here is that we have been able to accelerate the time to market for a number of new products who are relevant for those clients, products like InnoTest, for example, on our Ipsos.Digital platform, products like Simstore, which is simulating virtual shops or e-commerce site. So I think we have been able to fast track the number of offers and therefore, be ready when those clients wanted to resume their spending, especially because they all believe that there has been some changes in consumer behaviors and the need, of course, to understand better the new world. Talking about another important sector for us, which is the health care sector on Slide 8. This sector has been, of course, on the front line. In the same way, we have adapted our solutions. Ipsos is quite active in a number of verticals for those companies. As you can imagine, it's a very highly specialized and expert type of work and also of professionals who are talking the language and who have for some of them background in the sector around oncology, virology, vaccines, very relevant, medical devices which is also a growing vertical. And that's part of our strategy to continue to develop our business in this service line as this is organized as a specific organization within Ipsos. And last, but not least, on Slide 9, our service line that we call public affairs has been very involved, again, measuring the impact of the pandemic for private and also government. We have worked a lot in the U.K. for the NHS, but we have worked also for the UN and done a number of studies in partnership with the World Economic Forum. So it has really been a company on the front line when it comes to the pandemic and the understanding of the pandemic's impact on the citizens and the consumer. On Slide 10, I would like to insist on the fact that this growth has been possible because we were able to adapt our services to the new needs of our clients. And we have entered this all those, I would say, new solutions under the terminology of new services that we have started to use since 2015. We have 4 categories of new services. They represent right now 19% of our revenues, and they have shown a strong growth of 39% for this first half. On -- about the situation of our company strictly related to the pandemic, I would like to insist on that for a moment because, of course, this is not finished. We have launched a program that we called call to action in April last year. This program was for implementation in July and the duration of that program is until the end of 2021 because we never believed that the COVID would go away like that. So we needed to be focused, and we have chosen 8 areas of focus in order to respond as fast as possible to the pandemic. I will not, I would say, go through all the 8 areas of focus. Only on one, which is what I was mentioning before, the promotion of solutions, which are appropriate, agile and affordable. This is what we have called our Triple A solutions. And this is really a lot of our strategy, which is, I would say, summarized in this notion of Triple A products. But what we have done as well are 2 things -- 2 other things that I would like to comment on shifting our data collection methodologies on more resilient, what we have called more resilient approaches. And the example that I would like to give to you on Slide 13 is the one of our activities in India. India is an important country for Ipsos. We were, until the pandemic, conducting most of our studies in the face-to-face mode. So going to the home of our respondents that was 92% in 2019 of our activities. And we have been able across our actions last year, thanks to the call to action program, to really totally shift the paradigm. And right now, face-to-face is still important, 60%, and will remain so because that's the only way to have representative samples, for example, of the housewives and things like that. But we were able to grow our online share from 6% to 25% for the first half of this year. So this is really an achievement. And for our face-to-face, which is still 60%, we have moved to a mode which we call contactless, meaning that for health, of course, and safety reasons. We are able to run -- conduct this program still face-to-face but with methods, which are, in fact, safer and also more rapid, so which is really a double benefit. When it comes to those Triple A solutions that I was mentioning, they represent in India now 20% of the order book. We have launched there a number of powerful tools that I mentioned already. And what we have done, of course, in India, we have done all across the world. And last but not least, we have also worked with the community for COVID-19 results with the Chennai Municipality, for example, or for the Bill and Melinda Gates Foundation in India. And that's really, I think, a good example about what Ipsos has been able to achieve, not only in India, but also in the other markets where we are present, that Ipsos has a presence in 90 markets around the world. And the last action that I wanted to comment on is about the support of our teams. We have launched a number of programs around that, around the wellbeing of our teams, around how can we incorporate new ways of working before the pandemic, and this is on Slide 14. We were, I would say, not likely enough maybe you need to have some happy life. But in 2018 and 2019, Ipsos has had undertaken a big shift of all our, I would say, collaboration work into digital mode with laptops for most of our teams, with, of course, usage of, I would not mention, which was better usage of the most advanced collaboration videoconferencing tools. So in fact, when the pandemic arise and despite the lockdown, we never stopped working. And Ipsos was fully operational. Nevertheless, we believe that being in an office is a key factor of collaboration in professional service like us and intellectual service, where our newcomers, our junior analyst needs to be trained on the job by more senior people. And it's also important to create a greater sense of belonging. So we are encouraging our teams to go back to the office. In fact, for example, in China, since July last year, all our teams are back fully to the office. In France, it has taken some months, but we have now 1/3 of the teams working back in the office. We are doing that, of course, country by country, respecting the health situation and the regulation in each country. And as far as our employees are concerned, it is our business to provide to our clients the pulse of their employees. We apply that, of course, for ourselves. So we have surveyed our employees twice at the end of last year and again a couple of months ago, and 75% of our teams say that Ipsos cared and looked after the wellbeing of its employees and 81% are satisfied with the way we have handled the crisis. So I think those are pretty good numbers. So right now, talking about precisely digitalization, collaboration tool, I will pass on to François Malin, who will talk about our investments in a number of platforms, I would say, on our own platforms, not just the ones that we are using provided by a number of, I would say, [indiscernible] companies, but the ones that we are developing internally at Ipsos. And I will just like to introduce that section by saying that on Slide 16, we are very proud for the third year in a row to have been selected as the #1 innovative market research company by the GRIT, which is a body in the U.S. They're doing that on a global level. And I think this is a testimony that our investments in technology and in science that we reinforced since 2018 and our TUP program, Total Understanding program, that those investments, either on platforms that we are developing ourselves or on platforms where we have eventually partnered or eventually [ acquired ] is paying off.

Thank you, Laurence. Effectively, we see that we have a result on the performance on the [indiscernible] of the new services, which are linked with our satisfaction on investment in platform. You said that we have a 39% growth on the new services, and we are reaching almost 20% of the weight of the total revenue in the new services. Also, the satisfaction as stated already is recognized by our clients, which are voting for the GRIT result that was just shown. It is a satisfaction and part of the Total Understanding plan, which reward our investment in science and technology to [ merge ], it could be acquisition or internal development that we leverage. I will start with some examples that we have on the acquisition that we made, taking into consideration the latest acquisition that we made this year. This year, we show and we made 3 acquisitions on audience measurement. The idea is through this acquisition to integrate solution and have the hand on the new feature that we could add. And this is very important for us, and it is an investment in the future and for the coming years, considering that some contracts are supporting this acquisition. You have 3 examples on the Slide 17. You have one regarding the U.K. online measurement, which is an online analysis and quantification of the audience, and this is a contract for 5 years. Also through the acquisition that we made with Intrasonics in April 2020, we have a new contract on the cross-media audience measurement, which mix the radio, the TV, the print and the web. And it is a 6-year contract. And in the end, also we made another acquisition called MGE Data. And it's enabled to perform some audience -- some outdoor measurement in Australia, but it's not only in Australia that we have this contract, and we already performed that kind of an outdoor measurement in France as well. So really the acquisitions that we made are in big size acquisition, acquisition of big size that allow us to enable some capabilities for the future and in the current case that I'm showing on audience measurement. Now moving on example of leveraging internal solutions. Since now few years, we are developing a platform of DIY called Ipsos.Digital. Ipsos.Digital [indiscernible] the DIY platform, Ipsos.Digital.com to create some surveys. It started last year, and we had some very satisfactory results. On the financial side, we start almost from scratch and we have now EUR 7 million of revenue in 2020 and the pace of the growth of the -- of Ipsos.Digital allow us today to reassess the target revenue for 2021, moving from EUR 25 million to over EUR 30 million for this year, having in mind that the objective in 2 years now is to exceed EUR 100 billion. This DIY that we are performing have many competitive advantage comparing to some competitors. In particular, we allow the access of the researcher in a collaborative mode, which is a competitive advantage on top of having an access to a library of question to allow the client to perform a survey, which will expect and match with the result of Ipsos team. At this stage, we have over 3,000 users. They can be both internal and external, meaning that some researchers are using also the platform to create survey, and it is another point of attention that will allow us to go faster in the creation of survey internally for our teams. On the other side, we have a continuous expansion of the offers now, meaning that since 2 years now, we are live in 40 markets. We have 6 solutions, and we will deploy in 2021 2 additional solutions. As an example, we will allow to assess the efficiency of digital advertising campaign and social network with the improvement that we can make on the technology of Ipsos.Digital. The investment on platform is not only observed on Ipsos.Digital. To better understand the new consumer behavior, we have 2 platform also in which we invest, and we have good results. You have on the bottom of this slide the performance that we are having since the first half of the year. So we have on Simstore, which is a platform devoted to understand and to see and to simulate an online and in-store environment, a performance that is exceeding 90% versus 2020 on the first half of the year. To figure it out how it works, with Simstore we are able to simulate online and in-store behavior of the consumer. And we, for example, since [indiscernible], we are able to replicate e-commerce website to see what is the best path for the purchase of the consumer. And another platform in which we invest is a platform on communities. And on this platform on communities, we have also a satisfaction in terms of revenue exceeding 70% of growth compared to H1 2020, and it is also an example showing that the investment in Ipsos on the platform is a success. I will end the presentation on the platform with the Slide 20, in which we are very happy to announce that Forrester validated our strategy and recognized Synthesio as a leader. Synthesio is our web listening platform, and I will quote Forrester which says that Synthesio is a best fit for enterprises seeking to turbocharge -- sorry, I will repeat this sentence. Synthesio is a best fit for enterprises seeking to turbocharge their market and the research function. So it means that we are ranking as a leader in a new category for Synthesio. It's called artificial intelligence-enabled consumer intelligence. And we are among top [indiscernible] in the top of the category. You have the slide on the right corner. And it is a satisfaction for us to be recognized with competitive advantage, such as data sources and analytics and reporting and product roadmap and market approach. Thank you very much for listening. And now I will leave the floor to Antoine on the first half results.

Thank you, François. So coming to the financial part of this presentation, you have on Page 22, the income statement. What you can see at first is a strong increase of the revenues, obviously, of 26.4%, which is EUR 207 million. So it's [Technical Difficulty] compared to June 2020. Constantly, it's growth organically. It's a growth of 41.5% when the currency effect impact negatively by 5.4%. And positively, the acquisition that we have made and that François has spoken about, with a positive effect of 0.3%. So on the gross margin, which is the revenues after the data collection costs, mainly variable costs, the gross margin is at 64.7%, which is an increase compared to December 2020. We were at 64.2% and a slight decrease compared to end of June 2020. The end of June 2020 situation was very particular, as you can imagine, because of the stop of a lot of surveys and mainly the survey that were face-to-face surveys because of the lockdown in a lot of countries. So we will see how it has evolved. Obviously, the online surveys have continued to grow. But nevertheless, the mix at the end of June 2020 was very particular, let's say. Then between the gross margin and the operating margin, the main cost is the payroll cost. And we have a very good improvement because when you see an increase of the gross margin of almost 26%, the payroll cost has increased only by 7.5% in the same comparison. So thanks to that, and thanks also on the savings that I will comment later. That's why we have reached record operating margin for the end of June of 11% compared to the low achievement we had at the end of June 2020. So after the operating margin, you have the nonoperating income and expenses. For this year, we have only a small amount of EUR 4 million negatively of [ restructuration ] cost, where we had a higher amount last year. And there is also in this EUR 0.7 million net, a positive impact of the accounting treatment of the capitalization, the decision to capitalize the research and development cost. So this impact was really an accounting impact, will be finished next year. And as it's not linked to the expectation of Ipsos, we have put that under the operating margin. Then on the finance cost, you see a strong improvement compared to last year with only EUR 7 million of financial -- net financial expenses. As you know, last year, we have paid back a USPP that amounted $185 million. This has been paid back in September 2020, and the interest rate of this bond was around 5%. So -- and we have been able to totally pay it back at the end of 2020. That's why we have such a good improvement on this line. On the income tax, we have an income tax rate of 24.1% at the end of June when it was 25.4% at the end of December 2020. One of the reason is the decrease of the tax rate in France. So that allow us to achieve this end of June with a net profit attributable to the group of EUR 72 million and an adjusted net profit which is the way we measure our performance, which is before any noncash item and nonrecurring item of EUR 81.4 million. If we look at on Page 23 of our revenue breakdown by regions, you can see that we are in a positive territory in all our regions, the largest one being EMEA with a stronger growth of 39%. And this is where, in fact, we have -- we are benefiting for most of the government programs that we have won. Americas are having also a quite good performance. When Asia Pacific is almost -- is achieving a positive trend but is a lower part. We are in a very good position in China, but not so good in other markets and mainly, I would name, Japan. So coming to Page 24, you have our revenue breakdown by audience, which is the combination of the way we follow our business by service line. Again, all these audience are in positive territory. The stronger one being citizen because it's linked to the performance that we are achieving for the public sector. So that's why you can see here a 41% organic growth compared to the first half year 2020. Then the second sector is the consumer, the second audience -- sorry, the consumer audience where you have, in fact, all the achievement that we have with the CPG sector, for example. Then third one is doctors and patients. It is totally linked to what we are doing in the health care sector with an increase of 47%. And then last one is what we are doing with clients and employees. And if we cross that with the sector, in fact, it's where we are -- what we are doing for the automotive industry, for example. Moving to Slide 25, you have an additional explanation regarding our gross margin percentage because what you can see here is that we have dramatically changed the data collection way -- for each way to collect data. As before the pandemic, we were on the face-to-face part. We had 30% of our revenues through face-to-face collection. We were at 25% at the end of 2020, and we have a slight increase, very small, as we are now at 26% because of some comeback of face-to-face surveys in some emerging countries and in Latam, in Sub-Saharan Africa and in MENA, for example. Online is at the same level at the end of 2020, and this was our expectation, and moving from 55% at the end of 2019. And as you know, for us since a long time, we consider that we will continue to grow the online part because more and more surveys will be done online, including in the emerging countries. Postal does not change, in fact, significantly, but we still way to collect data that is needed when you need directly to collect from individuals that are named and that you want to be sure that every type of population are covered. And last one is telephone, where we have maintained 10%. Regarding the gross margin ratio, it's stronger [indiscernible] in the other data collection mode. The second one being telephone and then face-to-face and postal being equivalent with the lower gross margin ratio. And moving to Page 26, where we are giving you some follow-up of our cost saving plan. As you know, we had made some major reductions in 2020. On the payroll with EUR 43 million. We have benefited from the government programs for EUR 29 million. And we have dramatically cut our general expense by EUR 41 million. So overall, it was EUR 113 million of savings. Our target for this year was to achieve EUR 20 million on the general expenses, and we were not committed to any targets on the payroll because it's obviously depending on our level of business and our level of hiring new employees within Ipsos. In the first half year 2021, the government program, we have still a very small -- very small value for EUR 1 million. And regarding our savings on general expense, we have already achieved EUR 16 million of savings, EUR 12 million on travels. We are expecting to spend more in the second half year of 2021. And already EUR 4 million on our offices. And all these are in comparison with our base of cost in 2019. To summarize, the move of the operating margin ratio, we have considered that the relevant base was to compare with the 10.3% that we had achieved at the end of 2020. The first improvement is due to the gross margin ratio improvement that you have already seen in the P&L. Then obviously, there is a decrease due to the stop of the subsidies from the government. Then we have some improvement on the payroll side that I've already spoken about, have only increased by 7.5%. I just want to remind you also that we have decreased our headcount by 10% during the year 2020. And at the end of June 2021, we have increased the headcount by 3% compared to the end of December 2020. We have a huge saving on operating expenses, obviously, that I've already spoken about and also due to the very large revenue base that we have for this first half year. The acquisitions are not impacting because they are very small, and there is a slight impact of the currency effect of 0.2%. And thanks to that, we are achieving this 11% at the end of June 2021. Regarding the cash flow on Page 28, the gross operating cash flow is increasing more or less in line with the increase of the operating margin. We have still improved the working capital, but we are expecting to consume and to have an increase of the working capital at the end of December. So it will be a negative -- this impact will be negative at the end of December 2021. Regarding the income tax paid, that EUR 45 million, they have increased compared to the previous comparisons because of the good results at the end of 2020 and also because there were some shift in tax payment in some countries because of the pandemic. Regarding properties, plant and equipment, it's equivalent to last year with EUR 20 million. The decrease of net interest is mainly due to the USPP. And then the free cash flow, thanks to all [indiscernible] amount EUR 93 million, which is a very good achievement even if it's lower than what we have achieved at the end of June last year. And our cash position at the end of June is EUR 301 million close to the one at the end of June 2020. All that lead us to a very strong balance sheet and debt position with a net debt of EUR 272 million and a gearing that is now at only 22.7% and a net debt on EBITDA that is only at 0.8x compared to 2.2x at the end of June 2020. So we have a very solid balance sheet position. We have more than 500 credit line facilities, and it will allow us to reimburse the EUR 165 million that we have to pay at the end of 2021 that you see on Page 30 on the debt by maturity. So coming to the last -- my last part of the presentation, that is the outlook for 2021. What are, in fact -- what we consider from the knowledge that we have from the situation and from the pandemic as of now is that the activity of Ipsos is not really affected by the epidemic, only -- but only, in fact, when there are really physical constraints of lockdown within the countries. We have also developed new methods that are contactless in order to avoid most of these difficulties. What we consider is that there is still elements for further improvements. The first one is obviously the vaccination and it's well understood by all the government. So it's something that we -- as you know, we support as much as we can. What we can see also is that the economy has declined, but has not been stopped by the pandemic, and there is -- there are a lot of signs of upturn. And we see also the demand for enterprise is very strong because they need in this -- let's say, new normal situation, they need to update their database. They need to update their knowledge, and we are here to support them. So in conclusion, what we consider is that we should maintain an organic growth that should be close to 10% for the entire year 2021. Compared to 2019, again, we consider that it's the most relevant comparison. And we consider also that the operating margin should be close to the one that we have achieved at the end of June, which is 11%.

Thank you, Antoine. And I would like to conclude this presentation by mentioning obviously key announcements that we made on Monday. This is the appointment of Nathalie Roos as the Chief Executive Officer of Ipsos with an effective date of September 28. This is obviously in relation with separating the roles of Chairman and CEO of Ipsos that was publicly announced already last year in May. Actually, the process of selecting a new CEO was conducted by independent members of our nomination committee within the Ipsos Board of Directors. This process went through a rigorous selection of candidates, both internal and external, which had started in the middle of 2019. So we are very happy to welcome Nathalie, which is a very strong executive who have demonstrated strong performance, economic performance in all of her roles, but also a great capacity to listen to stakeholders, including, obviously, clients, but also employees. She's a very inclusive manager. She has a lot of dynamism, energy. And this is why she was unanimously chosen by our Board of Directors on July 2. And we think that her background in the CPG industry, which is still our most important sector, will be useful because the needs of our clients are really at the center of our strategy, where our strategy is positioned on delivering to our clients a true understanding of the society, the market and the people in a way which is, I would say, useful for our clients to make a better decision for their own business. So coming from the client side and having been a stronger deliver in market research in the past as a client makes her, we all believe, the right choice for Ipsos. So now both Antoine and François, we are available to answer any questions that you might have. Thank you.

[Operator Instructions] At this time, we have no callers in our queue. I'll return the event over to your speakers for any concluding remarks.

Thank you. We are obviously happy to have been achieving this very exceptional performance, but remember that it is also in relation with a very exceptional period. So please, we wish you the best. Keep safe, you, your [Technical Difficulty] and your family members. Thank you. Bye-bye.

Thank you. Bye.

Bye-bye.

Thank you, everyone, for joining today's event. You may now disconnect your lines.