Lagardere SA

PAR:MMB

Earnings Call Transcript

[Operator]

Welcome to Lagardère 2018 First Quarter Revenue Conference Call. I'll hand over to Madame Florence Lonis. Madame, please go ahead.

[Florence Lonis, Chief of Investor Relations]

Good morning, everyone. Thanks for joining our conference call. Today, we have joined with our staff management: Arnaud Lagardère, Group General and Managing Partner; Gerard Adsuar, Group CFO; Arnaud Nourry, CEO of the Lagardère Publishing division; Dag Rasmussen, CEO of the Lagardère Travel Retail division; Denis Olivennes, CEO of the Lagardère Active division; and Andrew Georgiou, CEO of Lagardère Sports and Entertainment division. This morning, you will be presented with the Q1 2018 revenue, and as usual, the conference call will be finalized with a Q&A session.

[Arnaud Lagardère, General & Managing Partner and CEO]

Yes, thank you, Florence. This is Arnaud talking. I mean, in term of introduction, really a few words about the press release that you got. You could see that we have a very solid first quarter, mainly due to Travel Retail and Publishing again, I would say. Lagardère Active is flat, which is good news to us. And about Sports and Entertainment, as we told you I think previously, we had a just unfavorable calendar effect and this was projected in our budget. So overall, we're quite not surprised because we knew a couple of weeks ago that it would end like this. But it's a very good achievement for all of us and especially for Publishing and Travel Retail, which leads me to say again, and again, and again, as I said to the General Assembly that we definitely have our 2 engines of growth and power for the years to come. Maybe, Gerard, you want to be more specific on some issues?

[Gerard Adsuar, Chief Financial Officer]

Yes, sure, Arnaud. We have prepared, like for every quarter, a quick presentation to go through all the divisions. So Page 1 of the slide, you can see the quarter 1 revenue. So revenue for the first quarter shows a plus 5% growth like-for-like as EUR 1,503 million (sic) [ EUR 1,555 million ] fueled by the organic growth momentum of Lagardère Travel Retail and the good performance of Lagardère Publishing, as Arnaud said. Lagardère Active proved its resiliency with nearly stable revenue as expected. Quarter was quieter for Lagardère Sports and Entertainment, which I'll be stating this unfavorable calendar effect. So overall, we are very satisfied by the performance even if, as you know, Q1 makes a relatively of low contribution to the year. Consolidated growth was plus 1.5%. The difference between like-for-like and consolidated figures is described on the next slide. So here, you have the scope and currency effects. The scope effect is relatively minor, plus EUR 10 million, relates mainly to various acquisitions carried out by Lagardère Publishing. If you remember, Brainbow Bookouture, Summersdale, partially offset by still very small divestments of Distribution activities in Hungary at the beginning of last year. So of course, you have for more clarification, the scope effect is detailed at the end of the press release division-by-division. There is a currency effect of minus EUR 63 million, which relates to the depreciation of the U.S. dollar against the euro.So let's move to now the geographic mix of revenues in the geographic areas. The movements between the 2 quarters are mainly related to the currency effects. So we can see we are slightly down on the U.S. and Canada compared to the -- and slightly up in Western Europe and all these currency effects that I mentioned previously. And now let's go to Lagardère Publishing. So Q1 revenues EUR 442 million, up 2.9% and 0.5% on a consolidated basis. So this performance is mainly driven by the vigorous expansion in Partworks and the good momentum in the U.S.. France had a positive start of the year as well, particularly buoyed by Larousse, Le Livre de Poche paperbacks and illustrated books. As I said, business in the U.S. delivered solid growth, up 5% -- 5.4% to be precise, lifted by the success of the backlist, especially this one title about Obama and by a busy release schedule in Grand Central Publishing and Perseus. In the U.K. as well, the momentum was good, in particular, due to one title, the bestseller about France, Fire and Fury, which was published by Little, Brown Books. As I said, Partworks continued to enjoy vigorous growth, plus 6%, fueled by the strong performance of France and Italy. So if we go to Travel Retail now on Slide 7. Q1 revenues came at EUR 800 million, so up 11% like-for-like, driven by good sales performance and network expansion in the ASPAC and Europe and Middle East regions. Business in France reported a good momentum despite a negative impact of foreign exchange rates on spending by international passengers in the Duty Free segment. The growth overall was 2%, was led mainly by the regional platforms, boosted by the modernization of the stores, Nice airport in particular as well as the good performance from the Foodservice activities. The European and Middle East region posted further solid growth, plus 15%, almost 16%, thanks notably to the impact of new stores opened in Geneva, in Gdansk, in Dakar, as you know, all these concessions were opened last year and to the good sales performances in Eastern Europe. North America reported further growth, nearly 2%, powered by the good momentum in Travel Essentials and Foodservice despite a negative network impact. The Asia-Pacific region delivered a very, very strong growth, plus 34%. Asia continued to benefit from the launch of the Hong Kong concession and the good performance of our fashion stores in China, while the Pacific region was also buoyed by the growth in the Duty Free segment in New Zealand. If we now move to Lagardère Active to Page 8. Q1 revenues was virtually stable at EUR 208 million, so down 0.9% like-for-like, up 0.9% on a consolidated basis, with a solid performance of TV Production and TV channel activity, and let's say, a limited contraction in Magazine Publishing. All in all, for the division, advertising revenues fell 4 -- 5.6% year-on-year, but it also should be noted that the first quarter represents in terms of advertising a low proportion of the overall year. The limited decline in Magazine Publishing, which was down 4.5%, reflect a fall in advertising revenue, partially offset by rise in circulation revenue, which were -- circulation revenues then up 1.3%. Revenue for the Radio segment was down 7%, as the good momentum in international radio failed to offset the lower audience figures where there is a mechanical effect from last year for the Europe 1 station over the period. Bullish growth in TV revenue, which are up 8%, results from the strong performance of Lagardère Studios, due to the delivery of fiction programs in France and also from increasing TV channel advertising revenues. Finally, positive trends in Pure Digital and B2B revenues were mainly driven by the good momentum of MonDocteur and BilletRéduc, our ticketing services activity.Finally, Sports and Entertainment revenue totaled EUR 100 million, so down 14% like-for-like. Considering, as you know, that 2018 as the lowest point of the 4-year sporting events cycle, the first quarter revenue was logically affected, in particular, by the non-occurrence of the 2017 Africa Cup of Nations and last year the non-occurrence of the Asian qualifiers for the World Cup, which will happen this year, as you know. This was partially offset by the stronger performance in the Olympics and Consulting business, together with the opening of the Bordeaux Metropole Arena in January of this year. So to conclude, after the performance achieved of all the first quarter, we confirm our guidance for the full year 2018 of group recurring EBIT expected to remain stable, restated from IFRS and at constant exchange rates. So that concludes my presentation, so let's start with the Q&A session.

[Arnaud Lagardère, General & Managing Partner and CEO]

Okay, go ahead, first question.

[Operator]

[Operator Instructions] We have the first question from Mr. Sami Kassab from Exane.

[Sami Kassab, Media Research Director, Co]

Sami here. I have 2 questions, if I may. In the press release, you mentioned negative network impact in the U.S. in Travel Retail. Could you elaborate on what you meant by that? And secondly, within Active, the limited contraction in Magazine, do you think that's a sustainable trend for the next few quarters?

[Arnaud Lagardère, General & Managing Partner and CEO]

Thank you, Sami. Dag?

[Dag Inge Rasmussen, Chairman and Chief Executive Officer]

So for the U.S., there's a slight negative network impact, which is due to airports which happened last year, which was completely anticipated and taken into account in all our guidance and projected figures.

[Sami Kassab, Media Research Director, Co]

But have you -- therefore you've lost to competition? Or can you elaborate a little bit of where is the negative impact. I didn't clearly understand that part.

[Dag Inge Rasmussen, Chairman and Chief Executive Officer]

So we're in 100 airports in the U.S. We have tenders all the time. We win some tenders. We lose some tenders. Globally, it's more or less 0 or positive. The impact right now is a slightly negative. So yes, it's tenders, we've lost to competition.

[Arnaud Lagardère, General & Managing Partner and CEO]

Denis?

[Denis Olivennes]

The question was how do we explain the good trend in circulation?

[Sami Kassab, Media Research Director, Co]

Yes, and what do you expect that to do.

[Denis Olivennes]

Okay. As you've seen, the first quarter circulation is up 1.3%, and it comes after a good trend in 2017. So it's a combination of several factors. First, the combined result of selling price increases and supporting context of news as far as newsstand circulation is concerned. And second, the new element is the contribution of digital circulation after agreement with telecom operators last year. On top of that, there is favorable editorial context for news circulation in the Q1. We are not sure that we could extend this situation in the full year 2018. I remember -- I would like to underline the fact that usually the trend of circulation is more or less around minus 5%. So it's difficult to give you a precise perspective on the year, but we are not sure that we will maintain in the full year that level of circulation.

[Sami Kassab, Media Research Director, Co]

I understand that, just I had thought that the story on price increases in the digital circulations with the telcos that was more than a year ago, so I was surprised that the benefit continued in the quarter, but thank you for that.

[Arnaud Lagardère, General & Managing Partner and CEO]

Yes, Sami, it's a good point. Denis, maybe you can elaborate on that. It's solid, it means that it's solid.

[Denis Olivennes]

As you know, the first on the news group circulation, it's -- we have signed an agreement last year that it continued to grow first by the editorial context. That's the first element. The second one on the price increase, we have regular a price increase, not only last year. We have -- every quarter, we have some price increase and it took some time to produce its effect on the full year basis.

[Operator]

[Operator Instructions] We have the next question from Julien Roch from Barclays.

[Julien Roch, MD & European Media Analyst]

The first one is, can you remind us what is core in Active? I have in mind Elle International license, Europe 1, Paris Match and Journal du Dimanche, but I want to make sure that there is nothing else. That's my first question. The second one is update on French magazine. You started exclusive negotiation with Czech Media Invest on the 18th of April, that's almost a month ago. When do you think that deal will be signed? And the third question is, what are you selling next? And I'll be greedy and ask a forth because Lagardère core would not be right without a question on cash flow? So at the full year, Arnaud, you said you were not happy with the level of cash flow generation and you had asked the divisions to redo their budget. Are you happy with the level of cash flow in Q1?

[Arnaud Lagardère, General & Managing Partner and CEO]

Okay, Julien. First question, on the core businesses, you are absolutely right, so we've mentioned then again. What we call news, which is Europe 1, JDD and Match, I may also add the music radio for synergies reasons with Europe 1 but it's very small. And to that, I add the Elle rent, which is the licenses outside France, the licenses in France and the merchandising essentially in Asia. So this is what is core for Lagardère Active. On the deal with Mr. Kretínský, maybe you can give us an update, Gerard?

[Gerard Adsuar, Chief Financial Officer]

So we are in discussions with them and we have opened our first data room, and -- but we are currently actively working and -- on this investment. But of course, we -- I would prefer not to give any particular deadline, but I don't think that's something we can release at this time. We are actively working on it. But there's much doubt about that.

[Arnaud Lagardère, General & Managing Partner and CEO]

But if you need an indication, Julien, it's doing nicely. I mean, we do not have yet a binding offer, but we've mentioned some numbers. And we are set today, I mean no surprises so far. I will meet myself personally with Mr. Kretínský very soon, and we'll see how we then proceed date. They have a lot of people, a lot of -- they hired a lot of people on the data room, which means that they want to move quickly, and they are very, very serious about this, which we knew already, but just to add a little more information on that. What's next? I think we were having some good discussions with Marie Claire, with Arnaud de Contades. Maybe we'll have final a discussion in the days to come. As you know, we are a bit stuck as you say in this magazine that is quite a famous one in France and worldwide. So we need to have an agreement with Arnaud that he's happy with, an agreement that we are happy with. It's struggling with this ownership -- minority ownership of Marie Claire. So not to mention anything very specific, I think that in the weeks to come and maybe earlier we might announce a deal with Arnaud that I think we'll be happy with and him also. Other than that, we're having discussions on the other issues. I would like, if you allow me to do, mention that there has been some pressure coming here and there on the fact that we need to be -- to do that very quickly. There's an urgency to do it, which obviously doesn't help the company, it goes against the interest of the company. So we were very clear to the people we've talked to before. We want the right price at the right moment. And if people think that we desperately need the money, they're wrong, and we will sell it to other contenders. So we are in control of the timing, and I would say, in some way, we're in control also of the price we want to sell those assets. I remain positive, Julien, on the issues and I remain positive on the timing -- on the quick timing, but we are not desperate to do it. On the cash flow, Gerard, maybe answer on cash flow. And you're right, Julien. This is one of our focuses.

[Gerard Adsuar, Chief Financial Officer]

This is one of our focuses and there is obviously some short-term actions and some more long-term actions. Obviously, I think that all the heads of the businesses that are in that room with us can confirm to you that they are working on all the short-term actions, working capital management and this is something which is on the top of their agenda. There is no -- I mean, Q1 cash was on budget, so I don't have any particular -- we don't have any -- we are on track, I would say, from that point of view. But as you know as well, Julien, the way to enhance the cash flow generation significantly will be through the strategic redeployment that we are with -- we are working through. Having said that, I can say a few things. So of course, last year for '18, last year, the working capital was negative. As you know, it was at minus EUR 90 million due to, I would say, the specific timing of bestseller release in '16 and '17, as I explained. So from that point of view, 2018 should be a more neutral year, I would say, but -- from the working capital point of view. But we will have to remain be cautious because this will also depend largely on the phasing of activities in Q3 and Q4, so it's a bit early to comment. Now as you know, in the first quarter because we will issue the first quarter and semester in a few months, in month or 2 now. We -- I remind you that we always have a higher consumption of working capital in the first half. This is due to the higher seasonality of the -- low seasonality of our activity in the first quarter, notably in the first semester, notably in Publishing, so that will remain of course. So in 2018, we will benefit from the disposal of the François 1er building where Europe 1 is based. So as I think I mentioned previously, the impact net of stakes will be around EUR 210 million, so this is a recurring impact. It's really important for this year. This year, we will also have to relocate the radio's team from François 1er to [ Salle 7 ] the rented building, but also the team which are mainly press team, which are based in our Levallois building, which we sold last year, and we will have to relocate them to their new rented location by the end of this year. So the estimated amount of CapEx is around EUR 50 million for these real estate operations of our move, as for which will be to build the new radio stations. So to sum up, let's say, nonrecurring effect this year of the real estate operations should be around plus EUR 160 million compared, if you remember, to plus EUR 125 million last year. So total CapEx should be slightly increased in 2018 compared to last year as we will continue, of course, to invest in the development of our business, as we said, and because we have this impact that I mentioned on the moving of the teams. So paid taxes should be higher due to the real estate disposal of François 1er because we will have an important gain. Compared to last year, the effect of the real estate disposal should be roughly plus EUR 15 million in terms of taxes. And we also have -- we also had last year a positive effect on the reimbursement of the tax on dividends, if you remember, which I disclosed. So all in all, it's, everything being equal, plus EUR 25 million roughly. Finally, interest rate should be lower because we benefit from the refinancing of the EUR 500 million bond that we did last year. So that's a nice positive effect because we have a coupon which is renewed by EUR 7 million. Of course, all these elements exclude any potential impact on the AFC renewal, so we are -- which we cannot comment upon as we are currently in the bid process and of the disposals related to the strategic redeployment, we have discussed, which we are actively working on. And of course, we will inform you on this as it develops. Just finally, I want to bring your attention to one point is that we will have to -- with this disposal also we will have to unwind the securitization program that Active benefited from in 2015. If you remember, it was plus EUR 75 million, so of course, when we sell the Active business teams, we will have a negative impact here. The initial amount was EUR 75 million, as I said. And with the current scope of disposal, we estimate that broadly 2/3 of this will be effect. Well, that's the, I would say, point which I can tell you to help you for on your, I would say, calculations.

[Operator]

Our next question from Mr. Bruno Hareng from Oddo.

[Bruno Hareng, Analyst]

I've got a first question for each head of divisions. Since you're around the table, I was interested to know whether you see any change in trends for Q2, especially at the Travel Retail and Active -- and Publishing with trends which were specifically strong in Q1. Second question for Arnaud. Since the AGM and the successful nomination of your board members, have you had any discussions with the activities around? And do you expect a change in what you've said in strategy and what could it change? And lastly, also I would be interested in a quick update on AFC contract in Asia in terms of timing and the amount of yearly dollars it could represent at the sport division?

[Arnaud Lagardère, General & Managing Partner and CEO]

Okay. Maybe Dag first, Arnaud and then Denis and Andrew on Q2.

[Dag Inge Rasmussen, Chairman and Chief Executive Officer]

Okay. So yes, 11% is obviously a very strong figure. As we said for the year, we probably would be somewhere between 7% and 9%, something like that, having in mind that 11% is organic growth. I would say half of that is pure like-for-like. The rest is, again, of contracts like the ones in Hong Kong, Geneva, Senegal. So obviously, when we will have the anniversary of these contracts, it will automatically slow down. So the 11% will not go on for the whole year most likely.

[Arnaud Lagardère, General & Managing Partner and CEO]

Arnaud?

[Arnaud Nourry, Chairman & CEO of Hachette Livre]

On Publishing, we don't really have trends that could pass from a quarter to the other because, as you know, we publish many titles and they're not the same in Q2 versus Q1. But what I can say that on a full year basis, you should not expect that growth rate to remain because '18, as we said before, is a year with no change of curriculum. So we're going to have dip in our business in education. On Q2, we have at least 2 big books, the new novel by Guillaume Musso in France and the novel written by James Patterson and Bill Clinton in the United States, so that's true the head Q2 will be a solid one.

[Arnaud Lagardère, General & Managing Partner and CEO]

Very good, Arnaud. Denis?

[Denis Olivennes]

Well, it's hard to have a prediction in quarter-by-quarter. But globally, the trend in circulation will be worse because we had last year the strong election context in terms of news. We expect the trend of advertising to be the same than last year. And for Lagardère Studio, we have to talk about the full year trend also. And we expect it to be between plus 5% and plus 10% on the full year. But it's hard -- because of the delivery issue, it's hard to say precisely now what will be the Q2.

[Arnaud Lagardère, General & Managing Partner and CEO]

Okay, Andrew?

[Andrew Georgiou, Chief Executive Officer]

Arnaud, it's the same for us. We really can't comment on the Q1, Q2 trends because there really isn't any. For us, it's a full year basis that we can comment on. And without the Asian qualifiers and without the Africa Cup of Nations, we know that this year is a low point on revenue. So in terms of commenting on Q2, I can't really comment more than that.

[Arnaud Lagardère, General & Managing Partner and CEO]

And on AFC, nothing you can say?

[Andrew Georgiou, Chief Executive Officer]

No. Well, I think -- we have made our bid on AFC at the end of February, as expected. We're in a clarification process with the AFC at the moment. We don't really expect any resolution or answer from the AFC on the winner until Q3. It may happen earlier than that, but my expectation is that we'll know more in Q3 this year.

[Arnaud Lagardère, General & Managing Partner and CEO]

Okay. And the timing, you cannot say anything on the calendar, if it's official?

[Andrew Georgiou, Chief Executive Officer]

No, it's not official, of course. The AFC is going through a process. They're going through clarification. They have to make a presentation to the Executive Committee at some point next month when they meet in Moscow. What they decide to do from that point is really up to the AFC, but if I had to create some expectation in the market about when we'd know, I would err on the Q3 results rather than any earlier than that.

[Arnaud Lagardère, General & Managing Partner and CEO]

Okay. Okay, good. Your second question was about the activities, no, no talk with them. I'd just like to reinforce the fact that the strategy, I had in mind was before they came around us, and so it hasn't changed and will not change. And the method itself is the part of the DNA of the company, so it will never ever change either. I think we're doing a good job on the disposals. We have control again on our pace, and it's doing smoothly. We want to be efficient, that's the only thing. I mean, I don't care about what is written, said and I listen to people obviously for the interest -- that are interested in the company, obviously, but the rest, I really don't care, even if it's personal. So I think it's doing nicely. We have a lot of people interested in our assets, which is good. As Denis said before, they're doing well, which is another good news. It's easier to sell them. And as I said before, there is a balance when you run a company between the stock price, obviously, which is one of my goals, and also the employees of the company. So I have to adjust and try to balance both of them. And I think it's done nicely so far. The timing hasn't changed. I would love to do most of it, if not all of it, by the end of the year. And then there's another issue that is as important as the rest in terms of execution, is what do we do with the money we get from these. So I said again that it would not go into dividends, and I said it would be totally reinvested in operations of Publishing and Travel Retail. And I mean, you know those guys, you know Arnaud, you know Dag, they are solid, they know their business by heart. They're ambitious, which is good. They have a lot of synergies, and they have also a lot of ideas. And I share those ideas. I share with them their enthusiasm. And I think that as a second step, we'll be able to present you some nice acquisitions. And then you will have a totally different company, as I said during the General Assembly, totally different industrial and financial profile for Lagardère. And guys that are interested in the cash flow, whether it's Julien, Sami, Bruno and so on, I think you will be happy because that is the goal. And I'm focused 100% on that goal, and the rest doesn't really matter. Thank you, Bruno, for your questions. Any other question, please?

[Operator]

We don't have any more question. Back to you for the conclusion, sir.

[Arnaud Lagardère, General & Managing Partner and CEO]

Okay, thank you so much. Well, that was my conclusion, actually. So thank you so much, and see you soon, and thanks for your support. Bye-bye.

[Operator]

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