Lagardere SA (MMB) Earnings Call Transcript & Summary

Okay. Ladies and gentlemen, thank you for joining us today for the Lagardere Full Year 2022 Results. I'm Emmanuel Rapa, Head of Investor Relations, and I will be guiding you through this presentation. The conference is led in afternoon Arnaud Lagardere, Chairman and Chief Executive Officer of Lagarde Lesa, Sophie Stabile, Group CFO; Fabrice Baku, Deputy Chief Executive Officer; Asher Li; ease, Chairman and CEO, Lagardere Retail. After the presentation, we will have a Q&A session. Please kick on the ask-a-question tab at the top right of your screen, and I will be reading any questions from financial analysts. Now I leave the floor to Arnaud gave.

Thank you so much, and good morning, good afternoon to all of you. I will be very, very brief. You've got the numbers. Needless to say, Lagardere is back, strong, very strong, stronger than ever on its 2 legs. We gained close to EUR 600 million of recurring EBIT during the past 2 years compared to 2020 and were even higher on to that respect than 2019. And I would like to congratulate since I know that there are a lot of people from the company that are listening to this con call. I would like to congratulate them again. The execution of the strategy was perfect. Thank you. Thank you so much. Sophie, I leave the floor to you, and we'll be back for the questions. Go ahead.

Thank you, Arnaud, and good evening to everyone. Today, we are pleased to share with you Lagardere Group's excellent results in 2022. The activity was driven by the outstanding performance of our 2 main businesses. Lyonnaise will maintain a historic high level of activity after an exceptional performance in 2021. And Lagardere Retail, which continues its very strong recovery path. We also achieved our corporate cost target with EUR 35 million of reduction versus 2019 and continue our dynamic M&A activity across our branches and geographies. Let's now have a look at the main group figures. Overall, as you can see on Slide 5, group revenue is strong at EUR 6.9 billion, up by 23% versus 2021 on a like-for-like basis and close to the 2019 level. We improved all our main financial indicators. The group recurring EBIT amounted to EUR 438 million in 2022, a strong increase at its highest level since 2010. The operating margin reaches 6.3%, significantly above 21%, but also above 2019 level. And free cash flow, excluding changes in working capital is at EUR 224 million. Considering the sharp improvement in our operations and of our leverage -- the Board of Directors has decided to submit a dividend payout resolution of EUR 1.30 per share at the next AGM is taking place on 18th of April. Let's deep dive into the division revenues. Group revenue growth is back on its 2 main pillars essentially due to Lagardere Travel Retail tremendous growth in 2022. Overall, group revenue is up 35.1% as reported and up 28.3% like-for-like. The difference is mainly due to EUR 243 million currency effect as you probably due to the U.S. dollar and EUR 109 million scope effect, which includes the acquisition of Workman paper blank for Lagardere Publishing and Dubai base creative, stable holdings in Dubai for Lagardere have ever written. The group's recurring EBIT also strongly increased. On the one hand, Lagardere Publishing recorded a lower level of profitability while still remaining at the historic level. On the other hand, Lagardere Travel Retail's recurring EBIT drastically jumped up plus EUR 217 million. Finally, other activities recurring EBIT is at breakeven. So the group stands in a very solid position, confirming the relevance of the strategic refocusing carryout over the past years. Moving on to Lagardere Publishing. After reaching a historical level, Lagardere Publishing revenue is up 5.8% as reported and slightly down 1.9% like-for-like at EUR 2.7 billion. This level of activity is a result of the branch capacity. First, to build on the entire city of the port portfolio to secure best sellers in all countries like Lebanon by Pier Lumen France and Ron was run by James Peterson and Doliparton in the U.S. Third, capture social media trends and the exposure of wholesale and social networks such as TikTok with Verity and the [indiscernible], and last, take advantage of net fleet salutation with a richer or fast over. Moving on to Slide 10. In 2022, we observed different trends by geography, notably a slowdown in France, mainly due to later release schedule in general literate versus last year. With no new asteriated activity remained at a high level, thanks to the recovery of tourism and children and young adult faster. In the U.K., in a declining market, we grew by plus 3.4% driven by bestsellers that benefited from the social networks effect mentioned earlier and net fixed adaptations. Finally, U.S. and Canada represented 32% of revenue versus 28% in 2020, thanks to the acquisition of on Publishing. -- like-for-like, the revenue was down minus 2.2%, but above market figures. Let's have a look at profitability on the next slide. Lagardere’s publishing recurring EBIT reached EUR 302 million. The decrease versus last year is due to lower like-for-like revenue levels and the impact of inflation in an unfavorable market. The important point to have in mind is that recurring EBIT remains at a historic high, thanks to operational initiatives put in place by the team in the face of higher costs. The margin level at 11% is also a significant improvement versus pre-COVID, which was at 9.2%. Let's have a look at Lagardere Publishing free cash flow. Free cash flow before changes in working capital is down to EUR 155 million versus EUR 254 million in 2021, but still better than in 2019. This evolution is linked to investments in CapEx for IT and transformation projects and a higher level of income taxes. This say, the major changes in working capital are mainly due to trade payables to third-party publisher, which fell sharply, higher inventories due to the inflationary environment and early payment to suppliers in France. So the change of working capital is mainly driven by seasonal or one-off items. Moving now on to Lagardere Travel Retail. In a nutshell, for Lagan and Travel Retail, 22 was a year of exceptional recovery. Revenue came in at EUR 3.9 billion, up 71.5% as reported and up 65.4% like-for-like. We continue to outperform at a figures due to our favorable geographic footprint and diversified location. However, considering the global travel situation, we are still below 2019. We still leaves room for improvement. Let's deep dive into the division revenues. Travel Retail benefited from improvement travel trends in EMEA, the U.S. and the reopening of 5. Regional traffic accelerated in Europe, notably in Italy, France and the U.K. U.S. rebound started in '21 and accelerated since then. And the contrary, China was still hampered by the zero-cost strategy. The strong growth in international traffic had a positive effect on our duty free and fashion with revenue share relatively increased. Moving on to Slide 16. Lagardere Travel Retail is back to positive recurring EBIT, thanks to the air traffic recovery and the strong commitment of teams to increase cost flexibility and drive operating excellence. The division achieved an exceptional flow-through low point at 4.9%. Recurring EBIT stands at positive EUR 136 million. Besides, all projects on the LEAP plan are well on track. Let me remind you that this plan is aimed at delivering EUR 100 million of additional recurring EBIT versus 2019 at same revenue level. Let's look at Lagardere Travel Retail free cash flow. Free cash flow before changes in working capital reached EUR 138 million versus minus EUR 48 million in 2021, mainly thanks to cash flow from operations due to travel retail recovery. It is to be noted we are starting to increase our investment up to EUR 123 million in 2022 versus EUR 88 million in '21 since airports are preparing future improvements. Let's move on to other activities. Revenue for the year were EUR 254 million, up 5.1% on a like-for-like basis. There are a few points to be highlighting. First, the positive performance of Lagardere Live Entertainment in 2022 with the reopening of live performance revenues and international licenses up by 3.8% and use destable at minus 2.8%. Let's move on to group figures. The most important things to look at on this table is proceed group share, which is positive EUR 161 million was mainly driven by recurring EBIT increase. Moving on to group cash flow statement. On this slide, we can see 3 key items, which show the main dynamics of our branches. First, the cash flow from operations before changes in working capital from EUR 337 million to EUR 524 million due to the strong recovery of the activity. Second, our CapEx increase showing our commitment to the future development of the business. And third, the purchase of investments driven by our M&A strategy with Paper Blank, Welbeck, and Radeon at Lagardere dicing, the acquisition of creative stable holdings in Dubai, plus the increase in our -- at our JV with [indiscernible] Lagardere Travel Retail. Moving on to available liquidity. The group's liquidity position is solid at EUR 1.9 billion, in line with our active prudent financial strategy, in 2022, the revolving credit facility was extended until April 2024. Now the Net Deb.t Net Debt is up to EUR 1.7 billion at the end of December 2022 compared to EUR 1.5 billion at the end of 2021. This is due notably to the significant M&A activity, the share in working capital and the dividend payout. However, it should be noted that we achieved a very good level of leverage at 2.9% compared to 3.6% in 2021. Now looking at the shareholder structure. The main point to keep in mind is the current provisional deadline of the 23rd of May for the European Commission regarding the friendly public offer of from Vivendi. A few words now on the group ESG strategy. The group is proud of its SCR performance, which is a matter of great importance to all of us. As a testimony to our strong CSR commitments, we are happy to be a member of the total trade AGNC. In addition, we are included in the S&P Sustainable Year Group for the fifth consecutive years. Next, we are strongly committed to our 4 main drivers that you can see on the slide. The place of people in our group, social and cultural diversity, limiting of our environmental impact and ethical and government's responsibility. I will just share a few examples of our action. In 2022, we reached 45% of women's top executive from 44 in 2021. We led strong projects to our diversity with, for example, the creation of the foundation asset for reading. Additionally, the group increased its focus on its environmental impact with the reduction of our packaging, more recycling and better paper management. And last, we also work towards a better assessment of our suppliers with our partner, Ekornes. A few words on 2023. Despite the uncertain economic environment, we remain confident in our ability to maintain a high level of results. This is thanks to the dynamic of and responsiveness of the teams and the diversified geographical presence of our 2 main branches. Despite pressures on cost, Lagardere Publishing should maintain similar performance to 2022. And in a normalized environment as global traffic continued to recover. Lagardere Travel Retail has potential for revenue and profitability growth meeting initiatives. Many thanks for your attention. We are now available to answer your questions.

Yes, we have received questions from Julia Roche Barclays on Barclays. This is 3 questions. The first one is about the lead initiative on Travel Retail would EUR 100 million of additional EBITDA at the same revenue than 2019, still the case and be applicable. For the question number 2 is in Q1 2023, what is the trend of business for Travel Retail versus 2019. Obviously, the question 3 is the same for Lagardere Publishing, what trend do you see in the Q1 2023?

So back speaking, Julian. So it's a bit settle. Yes, deep objective at EUR 100 million is confirmed. This confirmed its 2019 activity and not revenue. Today, we have it reached 2019 activity, but we have reached that were reaching 29 we will be reaching 2019 revenue because there's inpatient, there's some non-like-for-like and so. So this is the first point. The second point is that, yes, -- let will have an impact of EUR 100 million on EBITDA but there obviously are also headwinds. This was made to increase result or recurring EBIT, but also to fight against inflation to file against some range increases and so on. So you will not find 100% of the EUR 100 million in result with 2019 activities. This being said, we will see a significant improvement versus 2019 in our results, but I don't think we disclosed any specific figures by division. So I won't go further than that. The outcome for probably should be very positive. The trends for '23, January is fairly similar to December. So we're above 2019 revenues in January, and we expect this to continue in February. So we are, I would say, cautiously confident for the year. Loss of possible headwinds, as you know, patient, geopolitical, sanitary, but we believe that we have more tailwinds than [indiscernible]

This is Sarytor publishing. So we are having as far as shale is concerned, a relatively good start of the year in 2023. But France is doing well on a dynamic market. And as you know, we have very, very strong bestsellers pushing our revenues up at the beginning of the year, like Prince Harry, Tuniu by Permeates new torments crop-called captive, which was very successful at the end of 2021, and we've just released a second volume. The U.K. is resisting reasonably well, too. Same thing for Spain and Mexico with a strong rebound in Mexico continuing in 2023. The negative point for the beginning of the year is our EMS business, which is struggling in a very soft market. And to that respect, is the continuation of the Q4 2022 trend on the U.S. market. So again, relatively confident overall as a group level for publishing same headwinds as the ones mentioned by TAG inflation, paper cost for us, salary gross but we are taking the appropriate steps to offset this headwind over 2023.

We have questions also from Samita Ian. The first one is about the performance of publishing in 2023. Could you clarify what do you mean by similar performances in 2023 versus 2022? Is it top line margin of both for Travel Retail in '22, you benefited on EUR 50 million of onetime government and airports? Could you expect some to occur again in 2023? And if yes, how much? Could you comment on your interest about Simon & Schuster and whether do you expect to partner or compete with Vivendi for these assets.

So on publishing similar performance in 2023 versus 2022 refers to revenues. We expect a similar level, as I said, of activity in ‘23 versus '22. Regarding margin, we will fight as hard as we can to be close to the level of margins we reach in place.

Okay. Yes.

Yes, Arnaud, I think you want to take the point on.

Yes, yes, correct. I will pick the point on sell and interest. We today have the luxury to have a 5-years business plan that will show growth increase in margins and by ourselves. We don't need any specific acquisitions, whether it's in Travel Retail or publishing to complete this business plan. That is really optimistic, and we believe in it. So therefore, if there are opportunities, we'll be -- we'll see them and we'll study them without pressure. We know that those acquisitions are good to have, but not must have, which is a huge difference, meaning that the price will be extremely important in any of those transactions. I've heard and I've read like you that someone entrusted might be or will be for sale in the coming future and probably close future, definitely this year, if I read well, the PR from Paramount. So we will obviously look at it. We can do it by ourselves without the help of anybody. But for sure, having Vivendi as a majority shareholder and hopefully sooner than later, will tremendously help us in the negotiations with banks and so on. So that will be a plus. But we can do it, whatever. So we'll be very, very looking at the numbers and at the price, which to us, will make the difference. We didn't beat the first time because it was a time where we were in the middle of the trouble for Travel Retail. But now the whole company is back on its feet -- and we know that we can bid on Simon & Schuster, if it's again to sale definitely. But again, don't expect us to do anything crazy because we can leave without. And it's a huge luxury. And that's all I can say. Since it's not officially on sales since an investment bank has not been appointed yet, I think, from Paramount. So we'll be very, very, very cautious. Any other question?

There was a question for me on the one time government and airport, which was EUR 50 million in '22. In '23, we definitely cannot expect the same level. I mean we get to 20%, we'd be happy. This being said, both activity in general and in particular, which is recovering, should overcompensate that. So I mean, it's a kind of nice balance we've had. We got it when we really needed it. It definitely should be much less need now, but there will be some coming linked with previous years, but which come out...

Yes. We have one additional question from Julia. It is about Travel Retail again. Can we get some flow-through idea versus 2019 for Travel Retail in 2023.

Yes. So thank you, Julia. Flow-through was concept we communicated when the activity was back. Now actually, we will generate more results with sinner less sales. So flow through theoretically potful would be negative. So we will not communicate on goal anymore. We don't think it's already in KPI. I believe in reporting, which evolved according to me. I don't think flow-through and the group [indiscernible] don't think that flow-through is relevant...

So now we have 2 additional questions from Christopher Cherblanc from Société Générale. The first one is on the Lagardere position. Can you give us an estimate of paper and energy cost inflation? And I don't have whether it is ‘23 or ‘22. And most probably what will be the case...

I expect I would love to have a crystal ball for '23. But regarding 2022, which was the question. So we are having a EUR 55 million increase in paper, energy & shipping. So overall, on the 3 type of expenses, it's more than EUR 50 million impact on a full year basis.

And then the second question is about working capital. Do you expect in 2023, some outflow? Or is it a level that at the end of 2022 is normalized.

I think it's for the whole picture, anyway. So it's more the group vision -- and if I may...

In terms of working capital, we should arrive to improve in 2023, but at a very light level, we will be in the same trend as 2022.

So we can check here a few seconds if we have additional questions. Nothing from the [indiscernible]. So maybe we can close this conference call. Thank you to all for all the questions and keep you posted further the next event that will be the general assembly meeting on the 18th of April...

Thank you so much to everybody...

Thank you. Bye-bye.

Thank you. Bye-bye. Thank you so much.