Lagardere S.A.

Ladies and gentlemen, thank you for joining this evening to the Lagardère's Full Year 2023 Results. I'm Emmanuel Rapin, Head of Financial Communication and I will be guiding you through the presentation.

The conference is led today by Arnaud Lagardère, Chairman and Chief Executive Officer of Lagardère SA of Hachette Livre; Sophie Stabile, Group CFO; Dag Rasmussen, Chairman and CEO of Lagardère Travel Retail; Stéphanie Ferran, Deputy Chief Executive Officer of Hachette Livre. [Operator Instructions] Now I leave the floor to Arnaud Lagardère.

Arnaud, the floor is yours.

Thank you so much. Let me just say a few words, before leaving the floor to Sophie.

Just to express that we are obviously extremely happy. We have another exceptional year, setting new records for the company.

But the most important I think is that our numbers are the exact consequence of our strategy, meaning one, that we have been taking advantage of the growth of Travel Retail, investing in that business unit as you know in 2023 with significant numbers. We want to push them as hard as we can to take advantage of this growth that is unbelievable and the results of Travel Retail are extremely impressive.

But at the same time, boosting also the organic growth publishing, we've with a number of increased costs not to mention paper and so on. And we've been able for the past year, as for the year before to maintain the step that we've achieved after the COVID and keeping this very nice margin of 10% plus and the objective of course for the years to come is to keep in the double-digit operating margin and grow it if we can.

I wouldn't be surprised, as I said to the press release that within the next two to three years, probably three years, that the Travel Retail resolve exceeds the publishing results. And this is not because – although, I would admit that why not, there is business unit that is better managed than the other one.

It's just that as I've always said for the past 10 years, we have an engine of growth and we have an engine of power. And we don't want to miss this extraordinary growth that we see in Travel Retail.

So congrats to Dag, that is here in this conference. I will deal with other issues that we've that we've mentioned in the press release, but before I leave the floor to you, Sophie to get into the numbers in more details.

Thank you, Arnaud and good evening to everyone. We are pleased to share with you Lagardère Group excellence results for 2023.

The activity was driven by the performance of our two main businesses Lagardère Publishing maintained historical long level of activity against a very high basis 2022 comparison. And Lagardère Travel Retail, attained a new record performance, a peak in profitability and was very dynamic in M&A activity.

Let's now have a look to the main group figures. Overall, as you can see on this slide group revenue is very strong at €8 billion up by 14% on a like-for-like basis.

In 2023, the group's recurring EBIT jumped to €522 million, the best performance in the last 15 years. This remarkable achievement exceeded our record-breaking performance in 2022.

The operating margin reached 6.4%, slightly above 2022 and substantially higher than the 5.2% in 2019. The group free cash flow excluding changes in working capital stands at €272 million.

The Board of Directors has decided to submit dividend payout resolution of €0.65 per share for consideration to the next AGM on 25 April, given the group's active investment policy and in order to reduce net debt. Let's deep dive into the division revenues.

Group revenue growth is driven by Lagardère Travel Retail's tremendous growth in 2023. Overall, revenue up 16.6% as reported and up 14% like-for-like.

The difference is due to €83 million negative currency effect mainly due to the US dollar and €242 million favorable scope effect, which includes the acquisition of Costa Coffee in Poland, Marché International in Germany and Tastes on the Fly in the US at Lagardère Travel Retail. Moving on to Lagardère Publishing on Slide 9.

After reaching a historical level, Lagardère Publishing revenue up 2% as reported and 1.9% like-for-like at €2.8 billion. This level of activity reflects the division's ability to build on the diversity of the portfolio, secure best seller in France as the latest Asterix & Obelix album and Son odeur après la pluie by Cédric Sapin-Defour’ but also in the UK with The Empyrean series Rebecca Yarros.

And we continue to capture social media trends especially in the Dark Romance segment in France. Moving on to the next slide.

In 2023, we observed different trends by geography particularly an acceleration in France, up 6.1% mainly driven by the dynamic release schedule Illustrated Books. The activity remained at a high level thanks to the solid performance of Young Adult best seller and General Literature.

In addition Le Livre de Poche, we celebrate 70th anniversary last year achieved a record year thanks to strong sales of backlist title like [indiscernible] Medicade Costa and Pyramid. In the U.K., growth reached 6.1%, fueled by trade ad-based seller, such as the latest Rebecca Yarros and The Housemaid series by Freida McFadden.

Additionally, a dynamic increase in backlist sales also drove the activity. In Spain and Mexico, we grew by 17.9%, thanks to a strong momentum in the Education segment, driven by the educational reforms.

In Mexico, sales continue to be supported by dictionaries. Finally, the U.S.

and Canada represents 29% of revenue versus 32% in 2022. This decrease was mainly due to the market tightening and the absence of best sellers.

Let's have a look on at profitability on the next slide. Lagardère Publishing recurring EBIT reached €301 million.

The important point is that recurring EBIT has maintained a historic high, thanks to ongoing operational initiatives and despite higher costs, including the impact of the Polaris transformation project in 2023. Additionally, the margin level at 10.7% represents a significant improvement compared to the recovered levels, which stood at 9.2%.

Let's turn our attention to Lagardère Publishing free cash flow. Overall, free cash flow before changes in working capital is up slightly at €159 million, which confirmed the strong cash conversion of Lagardère Publishing.

Moving on to Lagardère Travel Retail. In a nutshell, 2023 marked a milestone year for Lagardère Travel Retail.

Revenue surged over €5 billion, up 27.8% as reported and up 23.4% like-for-like. Beyond its ongoing recovery in 2023, the Travel Retail division outperformed the 19th level.

We witnessed growth across all geographies with sharp performance in EMEA, up 26.6%, driven by traffic from international tourists and outstanding results in Italy and Poland. The America up 16.3% on an already high basis, especially in the United States.

And the recovery in Asia up 52.1% from a very low base in 2022. Let's deep dive into the division's revenues.

Lagardère Travel Retail saw a significant boost from the acquisition in Foodservices segment which accounted for 27% of our overall activity compared to 23% in 2022. The acquisition of Marché International in Germany, Costa Coffee in Poland play a pivotal role in this historic level of activity.

Moving on to Slide 16. The recurring EBIT stands at a positive €245 million with an operating margin at -- of 4.9%.

Lagardère Travel Retail reached its record high recurring EBIT, mainly due to improved activity across all regions and the gains from the LEAP program that deliver an additional €95 million of recurring EBIT. Let's turn our attention to Lagardère Travel Retail free cash flow.

Free cash flow before changes in working capital amount of -- amount to €161 million compared to €138 million in 2022, primarily driven by robust cash flow from operation. It's important to highlight, that we intensify our CapEx to continually adapt to future improvements in airport and foster growth through strategic acquisitions.

Let's discuss other activities. Revenue for the year totaled €254 million down 3.3% on a like-for-like basis.

A few points to be highlighted, first, the decline in Radio activity is due to reduce audience levels in a challenging environment. Second, the Press activity was down by 9.4%, primarily due to lower circulation.

Finally, international license for health remained relatively stable compared to 2022, while Lagardère Live Entertainment saw a growth of plus 8%, following a favorable base effect in the first half of 2023. Now let's proceed to discuss the group figure, the most important element to look at this profit group share which stands at €144 million, the slight decrease versus last year is mainly due to elements below the total EBIT with higher finance costs and higher income tax in 2023, due to stronger business level in the US and Europe.

Moving on to group cash flow statement, on this slide we have three key items that illustrates the primary dynamics of our division. First, the cash flow from operations before changes in working capital increased from €524 million to €611 million.

This growth can be attributed to not only the recovery of our activity, but to an overall strong operational performance. Second, our CapEx increase underscores our commitment to the future development of the business.

And third, the purchase of investment driven by our M&A strategy with the example of Marché International and Tastes on the Fly, in Lagardère Travel Retail. Moving on to available liquidity, at the end of 2023 the group's liquidity position was at a very high level with €3.1 billion.

In December 2023, Lagardère signed a facility agreement with Vivendi, in order to face the reimbursements on bond and to sign, linked to the activation of the change of control close. On the next slide, we see a simulation for the situation as of 12 January 2024.

At this date the group has done an additional €1.2 billion on the facility agreement to repay bonds and interest reducing then its liquidity accordingly. Now, the net debt.

Net debt increased to €2.1 billion at the end of December, up from €1.7 billion at the end of 2022. This can be attributed notably to the significant M&A activity amounting to €383 million.

However, the leverage ratio remains below three times at the end of December. Now, looking at the shareholder structure.

The main point is the closing of the transaction with Vivendi announced on November 21st, 2023. Vivendi Group know-hows at 59.8% stake in the company and the majority of voting rights.

Another point to keep in mind the extension of the rights to sell the Lagardère shares granted in 2022 until June 15, 2025. A few words now on the group ESG strategy.

The group is part of its ESG performance, which is a matter of great importance with many successful initiatives in our different divisions. As an example you see Lagardère Travel Retail ended plastic bags in whole its in-house brands as part of its strategy to suppress wastage.

On the other hand, Lagardère Publishing was priced for its annual EcoDesign program. Next slide.

We are strongly committed in our four main drivers that you can see on this slide. First, limiting our environmental impact; second, the importance of people of our group; three, ethical and governance responsibilities; and last, social and cultural diversity.

I will share a few examples of our action in 2023. We reached 46% of women's top executive up from 45% in 2022.

13 projects were supported by the Fondation Hachette for reading. Now, to conclude, a few words on 2024 trends.

Despite the uncertain economic and geopolitical environment, the Lagardère Group remains confident its ability to maintain high level of result, thanks to the dynamics of responsiveness of its teams and the diversified geographical presence of its two core businesses. Despite the soft market trends and costs extension, Lagardère Publishing should maintain similar performance to 2023.

And with robust momentum in global air traffic amid uncertainty and regarding the revival in international Chinese tourists, Lagardère Travel Retail has potential for revenue and profitability growth, thanks to operational excellence. Thanks for your attention.

We are now available to answer your questions.

Yes. The first question I will read is from Adrien De Saint Hilaire from Bank of America.

The question is just to clarify the outlook on publishing. What do we mean by similar performance to 2023 in terms of revenue and results?

Thank you for the question. What we mean by that is that we will be flat in revenue and flat in EBIT which is in itself a challenge and a very ambitious target, because we just ended two exceptional years in terms of results.

And we plan to achieve this through two main levers. The first is the top line, because we have a great catalog in '24, especially in France with the release of the Misu soon to come and also because we are going to work more closely and more efficiently on performance, especially on pricing, on purchasing and also on the volume of book we are going to produce.

Thank you. I will take now some questions about from Societe Generale, Christophe Cherblanc and I will try to put them by activities.

The first one and I will continue with the book publishing. The question was about the dynamic of price increase, obviously in France and in the UK.

How could you describe the different momentum? And what was the case for other countries?

And how do you see price increase in 2024?

Regarding price increase, in the last two years, we've made significant efforts to increase our prices, whether it is in the UK, in the US, but also in France. To give you just a quick number for France, we increased price by 6% last year, which enabled us to offset a significant part of the inflation in cost and especially in paper and in freights.

So pricing is on top of our agenda to demise growth. Regarding this year, we will continue to increase price, but probably more selectively and with a more data-driven approach that we will roll out in all countries.

So I will continue again with the Christophe Cherblanc questions and still about book publishing. The question is about the distribution project.

It seems to be postponed. What is your plan on distribution?

And if I continue a little bit there is a question about French education reforms in '24, '25 would you see some elements about that?

Okay. Regarding the distribution in France, as you know, we decided to stop the Polaris program in its current form.

It was a program that we started to design in 2021. And after two to three years of design and maturing the project we realized that it was probably too big and too expensive for what we needed.

So we decided to stop it, which doesn't mean that we will stop our thinking on distribution. Now, we are in the process of terminating all the contracts we have regarding the Polaris program and we are setting up a small team to think again about the future of distribution in France.

And we hope that we will have a calendar for this at the end of H2. So that's for the distribution.

And I think there was a question about the education reform. So, what we expect regarding education reform is limited, no impact for 2024, because in 2024, it's just about leveling books for the primary education.

We expect more in 2025, 2026 as it will tackle the secondary school. And we expect the impact to be of several million euros on our result in 2025, 2026.

Thank you. I will continue with Christophe Cherblanc's questions more on Travel Retail this time.

The first question is most probably about the description of government aids in Travel Retail and what happened in '23? And what can you say about the next steps?

Yes. Hello, everybody.

So, total one-offs this year were about €13 million positive including €29 million in rent, mostly in North America. This will be reduced significantly in 2024 because we're going towards the end of these programs.

Now, on the acquisition of Tastes on the Fly, there is a question about would there includes some minority shareholders that are known to be a dividend? And has the debt of this operations...

The debt -- another question?

Sorry.

The debt, I think, is another question.

Okay.

So CDB minorities in Tastes on the Fly is give or take, 10%.

Okay. And --

And there's -- there's another question on Travel Retail in Asia. You know that, China is not recovering.

China is not in good macro economic position. And unfortunately, we have not returned to breakeven in Asia.

So, if I follow-up again the question of Christophe Cherblanc, Societe Generale. The question was about what are the amount of cost -- financial cost included in the other division at the EBITDA level.

If I may take this question, it's about the financing costs on commercial sorry -- on commercial activity linked to the book publishing that is recorded under this other businesses. The debt has been refinanced.

You saw the slide about the refinancing of the bonds to the agreement with the vendors. And could you say something about the impact of financial costs in 2024 for Sophie.

For the financial cost in 2024, the level of interest increase from 2% to 5%. So roughly, we expect an increase of €50 million in the financial cost in 2024.

Okay. I think the question of Eric Ravary, about Publishing and Polaris has been covered.

Now Thomas Singlehurst from Citi raised the question about most probably Travel Retail. How much of a positive impact do you think the Olympics in Paris will give?

Well, historically when we observe other countries which have hosted the Olympics, the impact was minimal, marginal, because you have obviously lots of newcomers who visit the country but also less traditional tourists coming because the city is crowded, so we don't expect any significant impact.

I don't see other questions right now. Maybe we'll leave a few seconds.

Yeah, I see a couple of other questions. One from Christophe Charblanc [ph] about the radio business, as it hit bottom in audiences and revenues.

And well, it depends. As we have three radios.

I think RFM is doing extremely well and will continue to perform well. As far as Europe 2 is concerned, it's a different issue.

We have some problems in the morning show, which, as you know, is probably the main driver of audiences that we have to fix. Have we reached bottom for Europe 2?

I don't know, to be honest with you. I hope so, but I'm not so sure.

About Europe number 1, I think we've reached a bottom. We have kind of successful audiences recently, and I think we'll take benefit of all the efforts that we've done in terms of costs, in terms of realigning all the shows that we have.

So I think that we'll have a great impact, and you never know. Hopefully, we'll reach the bottom a couple of months ago, but we'll see what happens.

I see another question also concerning travel retail and publishing. I mentioned in my introduction, and I mentioned it also in the press release, that within the next three years, travel retail might exceed in terms of result publishing.

The idea is just that it refers to the fact that the result growth speed in travel retail is higher than the one in publishing, and it doesn't mean that the publishing result will be flat for the next years. As Stephanie said before, we expect some similar sales and results.

Hopefully, we'll have some growth, very small, because that's the tendency of the market. But hopefully, we'll have some growth, and if we have some growth in terms of sales, hopefully, they will result also, and I'm talking about 2024, in a better result.

But again, as you know, we don't communicate on the budget numbers, but we're still quite optimistic. And that's pretty much the questions I see.

I see another question from CC [ph], Rick Ravario. So, why sell in Paris Match?

What revenues and EBIT figures in 2023? Well, we don't communicate on the EBIT figures of any of those properties, including Paris Match.

We know that at a time when we say that we will sell Paris Match, but since we've received an offer that is quite significant. Nice to say, from LVMH, it's our duty and especially my duty reporting to the Board to work on that offer and nothing more than this.

So it might take some time and probably talking to the unions of Paris Match and maybe Lagardère use at the same time. Another question sorry, because I see that from Christophe Cherblanc who seems to like Lagardère.

He's asking a lot of questions. Thank you so much, Christophe.

You said Vivendi have spoken about a strategic plan for Lagardère, can you provide details? Well the strategic plan they are referring to is the Lagardère strategic plan actually that they support.

That we've presented to them. It's the plan for the next five years and it implies one reduction of the debt that is important to us.

And second provide some fuel and gas to like our Lagardère Travel Retail again, as I said before, an advantage of the growth in the marketplace and helping also the publishing side and that's the reason why, I took over the German Chief and being a CEO at the same time. We strongly believe in publishing for the years to come.

The same reason, we believed in it when we invested in this market when nobody believed in it at that time 10 to 15 years ago. And we have some ideas of organic growth.

We have some ideas of acquisitions also and we're entering a quite very offensive strategy in terms of cost cutting. There is some place still to cut costs and probably review also all the published books that we do, maybe we publish too many books.

Maybe there is something to do and that refers to what Stéphanie said before. Before getting into, so ambitious project as Polaris was, we need probably to think about where we want to be in the next three to five years.

Maybe we don't need to have such a big, big place for us. And maybe we don't need to spend that much amount of money also.

So it hasn't been postponed the site of Germanville [ph] is a no way for us, definitely. But I think that from [indiscernible] where we are we can build something and we can still continue to grow on a different way.

On a better way for the shareholders I would say. And that's pretty much what I would say on my side unless you have more questions but I don't -- I don't see any other.

So if I don't see any other questions I would probably – yeah, absolutely. I would probably thank all of you.

Thank Dag, Stéphanie, Sophie and Pauline and all of you present in this call. Thank you so much.

And again, we'll talk to you as soon as we can as soon as we have information and definitely for the first semester and quarter. Thank you so much.

Thank you. Thank you, Arnaud.