Lagardere SA (MMB) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Lagardère 2022 First Quarter Revenue Conference Call. I now hand over to Mr. Emmanuel Rapin. Sir, please go ahead.

Good morning, everyone. Welcome to quarter 1 2022 conference call. Here with us, we have Arnaud Lagardere, Chairman, Chief Executive Officer of Lagardère, Sophie Stabile, Group CFO; Fabrice Bakhouche, Deputy CEO of Lagardère Publishing Division; Dag Rasmussen, CEO of the Lagardère Travel Retail Division; and Pauline Hauwel, Group Executive. This morning, we will be presenting the Q1 2022 revenue, the conference call ends up with a Q&A session. Arnaud, please, the floor is yours.

Thank you, Emmanuel, and good morning to everybody. I don't have much to say in terms of introduction, since the numbers speak for themselves. All the divisions, the 3 different divisions contributed positively to the revenue growth, and we are obviously very happy about this exceptionally with travel retail. But let's be cautious. You never know what's happening in this world. But everybody contributed very nicely to the numbers, and I will give the floor to Sophie and get back for the questions.

Thank you, Arnaud. Good morning, everyone. Thank you for joining us for this Q1 revenue presentation. Lagardère Group followed a strong growth trajectory in the first quarter of 2022, thanks to 3 elements: first, Lagardère Publishings high level of sales, up 1.4% like-for-like, consolidating the historical performance achieved in 2021; second, Lagardère Travel Retail very strong recovery at 96.8% like-for-like; and last, other activities, which also grew by plus 5.1% like-for-like. Overall, the group experienced a plus 38% like-for-like growth versus the first quarter of 2021. Let's see how this performance, please. On this slide, you can see that the group revenue reached EUR 1.3 billion in the first quarter of 2022, increasing by nearly EUR 400 million versus last year. Scope effect was a positive EUR 20 million impact, and currency effect was positive EUR 40 million. Now let's focus on our division's performance. In the first 3 months of 2022, Lagardère Publishing experienced a plus 1.4% growth versus last year on a like-for-like basis. On a reported basis, the growth was plus 8.7%, benefiting from a positive EUR 22 million scope effect due to the integration of Workman Publishing. Digging into geographies. A slight decrease in sales is to be noted over the quarter in France at minus 1.3% and in the U.K. at minus 1%. This compares to a historical high level sales in Q1 2021. It is roughly in line with the evolution of the French market at minus 1% according to GSK. Meanwhile, U.S. revenue recorded a steady growth, up by 2.2%. To be noted also, the very good performance in Spain and Latin America region, up by 34.5% in particular, thanks to the performance in Mexico and the dynamics of General Literature in Spain. In Q1 2022, sales remain high after an exceptional growth in 2021 as shown on the chart. As a reminder, Q1 2021 growth was a record at plus 14%. The business was driven by ongoing demand for Youth, General Literature and Illustrated Books despite the less favorable market for reading in March. Several best sellers grow the market in key geographies such as Victor Castanet and Pierre Lemaitre in France, Ali Hazelwood and Colleen Hoover in the U.S. and the U.K. and Four knights of the Apocalypse for Young Readers. In addition, our Partwork segment is off to a good start at plus 3.9%. I will now move on to Lagardère Travel Retail. In Q1 2022, Lagardère Travel Retail revenue keep improving on the back of air traffic recovery at EUR 694 million. This represents an outstanding plus 96.8% like-for-like growth versus last year. Passenger traffic was mainly driven by a dynamic intra-European market due to the easing of COVID restrictions. France revenue increased by plus 8% versus Q1 2021 excluding France, also increased by plus 129%. Traffic growth was booming in North America with the U.S., up by plus 103%, almost reaching the 2019 level of sales. Indeed, it is only 9.9% below 2019 revenue. This means we are only back on track in this region. Nevertheless, we observed a slower growth in North Asia up by plus 15.9%, including China where the ongoing pandemic is causing [indiscernible] Moving on to Slide 8. Globally speaking, Q1 confirmed the dynamic recovery initiated at the end of 2021 with the revenues now just 28.7% behind the level of Q1 2019 on a like-for-like basis. This shows on the one hand, the acceleration of the recovery; and on the other hand, the remaining potential for improvement. As you can see on the chart, our geographical footprint, especially in the U.S. and in Europe, enabled us to further widen the gap with the global traffic figures. This quarter activity was also supported by the strong resilience of the Travel Essentials segment, thanks to domestic traffic in the U.S. and Europe. And also to be noted, the ongoing recovery of Foodservice, especially on the U.S. market. Moving on to other activities on Slide 9. Other activities revenue increased by 5.1% on a comparable basis. Lagardère sales were globally stable at minus 1.1%. Higher performance declined on the back of lower advertising market environment and lower audience figures. The press segment activity increased by plus 5%, driven by a good advertising momentum at Parimatch and Le Journal du Dimanche. In-licensing activities experienced a strong growth, up by 10%, thanks to the Press activity in the United States, China and Japan. Finally, the Entertainment business restarted activity and event venues reopened in Q1 2022. Moving on to Slide 10. The liquidity position is solid at EUR 1.9 billion at the end of March 2022, thanks to good cash generation from activities. The revolving credit facility was still fully undrawn at EUR 1.1 billion. Also, we are delighted to announce the successful extension of the group's revolving credit facility until April 2024 based on a minimum amount of EUR 982 million, with possible extension until April 2026. We are also happy to confirm our guidance as previously announced, so we expect Lagardère Publishing revenue to be stable in 2022, yet profitability will probably be affected by less favorable market condition in the context of cost inflation. Therefore, we expect '22 operating margin to be slightly above 11%. For Lagardère Travel Retail, we keep adjusting operational capacity to the pace of recovery and treading towards operational excellence. In this context, our outlook target for flow-through range of 15% to 20%. Regarding corporate, we maintain our efforts on the cost reduction and expect to save another EUR 10 million, such reaching EUR 35 million in 2020 as per our plan. Finally, as a reminder, a quick look at the timetable for Vivendi's public tender offer, which you can also find on our press release. I would like to thank you for your attention, and we will now be happy to answer your questions.

Thank you, Sophie. So the floor is yours to ask questions.

[Operator Instructions] First question is from Mr. Julien Roch from Barclays.

First question on Travel Retail. Q1 was down 29% versus 2019 with January, February, down 32%; and March, down 22%. Can we have indications for April, possibly for May and June? Are you seeing an impact from the new lockdowns in China? So that's my first question. The second one is on the timing of merger between Hachette and Editis. The final results of the Vivendi tender are -- is on June 14. But because of the tender mechanism, they'll have at least 51%. So what happened after that? When does the merger file? When do you think it closes? So any indication on timing? And number three, can you remind us of the covenants you have on your debt and credit facilities because you've changed the terms [indiscernible] Where we stand now?

Thank you, Julien. Dag, can you answer the first question, please?

Yes. So April has started well. We have a further improvement compared to the month of March of approximately 3 points. As far as we can see, we're obviously hurt by the lockdown in China. This hurts us a lot, and I mean, it's definitely not good for the business. But it's overcompensated by the excellent performance in North America and the improvement in most of Europe. When I say most of Europe, it's very contrasted. I mean, in country, we have very dynamic airports, others which are very much less dynamic. So it's -- there's no global trend but it's still improving. So obviously, we don't have May and June figures yet, but we foresee a continued improvement in this month as well. So we're fairly optimistic. I mean, we're very close to what we expected.

Okay. Thank you, Dag. Pauline will answer the second question about the timing of merchants. Just bear in mind, Julien, that, as you know, a merger is a very specific legal term. I don't think we should stick to that, but I will not make any more comments since we don't know exactly what will happen. But it's a very specific term. Pauline, on the timing?

Yes. I think it's the same timing the one that was disclosed in the information memorandum and reiterated at the General Meeting of Vivendi yesterday. Given the aims to file the formal notification to the European Commission by the end of June 2022. And they are also aiming -- they're targeting clearance for the acquisition by the end of December '22.

Okay. On the covenant, Sophie?

On the covenant, Julien, on June 2022, the ratio of the covenant should be reached 4.5%. December 2022, the same 4.5%. June 2023 and December of 2023, 3.5%.

Okay. Welcome, Julien. See you soon. Any more questions, please?

We have no other questions. Back to you for the conclusion.

No other questions? Can we wait a few seconds. I think we take it as a good point. Well, thank you very much to all of you, and talk to you soon in this summer time and hope you have a great day. Bye-bye.

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.