Co-Chief Executive Officer, JCDecaux
JCDecaux CEO: Want 'Maximum' M&A Firepower
Advertising giant JCDecaux is planning more acquisitions to grow in "core Europe" and South America. Chief Executive Officer Jean-Francois Decaux spoke to Bloomberg about the firm's results and revenue growth. He also said the French firm is not seeing an impact from Russia's invasion of Ukraine "for the time being," as the firm decided to exit Russia almost two years ago.
About Jean-françois Decaux
Jean-François Decaux, co-CEO of JCDecaux, discussed the company's performance and strategy in various media appearances. He stated in March 2022 that the company had not yet seen an impact from Russia's invasion of Ukraine on its business, noting that the firm had exited Russia nearly two years prior and that its exposure to Ukraine was only 0.1% of revenues. Decaux said the company was planning further acquisitions to grow in "core Europe" and South America, aiming to keep "maximum" financial firepower for consolidation opportunities. He also said the company's Chinese domestic advertising revenue was almost back to pre-COVID levels. In earlier appearances, Decaux said in 2019 that the company was looking at acquisition opportunities in the United States, including companies such as Clear Channel and Outfront Media, but would remain disciplined on price. In 2017, he described the U.S. as a top growth market for the company due to digitization of its bus shelters in Manhattan, while also noting a slowdown in emerging markets that represented 36% of revenues. Decaux has also spoken about the company's commitment to sustainability, stating in 2020 that JCDecaux aimed to reach 100% green energy usage by 2022.
Transcript (12 segments)
I
Interviewer0:00
Can we start with the global risk that we have? Ukraine and Russia are at war, and the world along with the US and UK are grappling with that. Jean-François, is now a moment where you're seeing any reverberations in terms of advertising spend? Any consequence at all across the business?
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Jean-François Decaux0:25
And not for the time being. We are going to be growing at about plus 40% in Q1, reflecting the fact that the company is getting back to 2019 level pretty quickly. And having said that, we decided to exit Russia back in 2020, so almost two years ago. Our exposure to Ukraine is quite small, only 0.1% of revenues. Having said that, there is no doubt that the impact on the economy will be felt across all industries, including the advertising industry, but we are geographically very diversified, with 40 plus percent of our revenues coming outside of Europe. Dubai is a good example. I mean, in Dubai, despite the fact that you're still 40% in terms of eyeballs in the airport, our revenues last year and Q4 were at the same level as 2019, reflecting the less mobility restrictions in Dubai, reflecting the World Expo. So that's the beauty of our geographic diversification.
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Interviewer1:29
Yeah, well, Jean-François, you talk about the risk more generally of a slowdown. I wonder how you're thinking about quantifying the impact of an economic slowdown brought on by the war, given that the range of outcomes is so wide at this point.
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Jean-François Decaux1:47
We tend to outperform GDP growth in terms of top line growth. So if there is a GDP contraction, there is no doubt that the advertising business will be hit. Advertising depends very much on consumer demand, and people might be tempted to save money rather than spend money. So it's hard to quantify at this stage, but in the past, pre-COVID, when the economy was growing at about 3%, we were delivering around 4 plus percent growth. Bearing in mind that out-of-home is a growth media, especially because of digitization, which is growing very strongly. We are about 30% of our revenues now, nearly 30% are digital. London is a good example: in the UK alone, 70% of our revenues is digital. So we can continue to convert the best advertising locations to digital. We launched a programmatic trading platform about three years ago, which also is starting to deliver very good revenues. And in terms of programmatic trading, which is the bulk of online advertising revenue, the impact will be felt, but at this time impossible to quantify.
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Interviewer3:04
François, you've counseled many leaders of many businesses through many crises. Everything that you've lived through. When you talk to industry leaders at the moment, CEOs, they're going to come to you for counsel. You're going to talk to them about the advertising world, what to do and what not to do. As you talk to your biggest clients now, what is your piece of advice? You say Internet Madness is one of my biggest divisions. Will they react differently? Louis Vuitton, Christian Dior, Volvo? Talk us through the counsel to segments.
J
Jean-François Decaux3:40
Obviously during the COVID pandemic, especially when the lockdowns were introduced all over the world with more than half of the population locked down, the cancellations or clients asking to move their campaigns, postpone their campaigns, because at the beginning it was felt that the world would be back to normal in July or in the summer of 2020, if you remember. It was across all categories that we had cancellations, because we are delivering eyeballs when most of the eyeballs are stuck at home. Obviously our business is severely affected. We are one of the most affected industries with a revenue decline of 40% in 2020. But having said that, our biggest category is luxury fashion and personal care. This is now about 15% of our revenues, driven mainly by China. Consumer demand in China is very strong. We're back to pre-COVID advertising revenue in Guangzhou and Shanghai because of a very strong domestic air traffic recovery. So internet is on the rise, 60 plus percent advertising spend. So we are talking to all these companies all the time.
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Interviewer5:03
So given this uncertain environment, it's been an uncertain one for a while. Back at the start of the pandemic, you had scrapped your 2019 dividend, yet again you're proposing not a dividend for 2022. Jean-François, what will it take you to get the confidence to go ahead and start to distribute to shareholders again?
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Jean-François Decaux5:24
The reason why we are not paying any dividends is very simple. The industry is facing a consolidation phase right now. We're number one worldwide, but we expect some companies to be sold, companies which have too much debt, and we want to keep maximum financial flexibility. We raised a bond that was very successful. 90% of our debt is on fixed rate, so we are in a financially very strong position. And most investors who are buying the stock are buying a growth stock, so the story is about growth rather than a dividend. Having said that, we obviously will resume the dividends when we feel that there are no longer enough opportunities to grow externally, I mean by acquisition. And so that's why we want to keep the firepower in order to be able to further consolidate our industry, which is still very fragmented.
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Interviewer6:21
Are you looking at more M&A right now? Are you looking at more opportunities in this moment?
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Jean-François Decaux6:26
Yes, we do. We do all the time. I remember two years ago we acquired a significant stake in the number one street furniture advertising company in China called Clear Media. And so we divested Russia but we invested in China. So we are constantly looking at opportunities. Our industry is still fragmented, and we want to consolidate our global position. And that's why we decided not to distribute a dividend for 2022, for 2021.
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Interviewer6:57
You sound like a man that's ready to get your next deal, your next deal done in size. Where do you believe the next evolution of growth is for you? Where do you want to buy? Is it China? Is it Latin America? Is it core Europe? Where does your sense of future lie?
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Jean-François Decaux7:16
I mean, core Europe is certainly an area we're looking at, South America as well, because in both regions there are still local players which would enhance our footprint tremendously. And at the same time, we are also very much focused on driving the digitalization, meaning that we're investing a lot in data, we're investing a lot in this trading platform as well. Because again, two-thirds, more than in the UK it's about 90% of online advertising spend is being bought programmatically, which is only a fraction of our revenues for the time being. Which is why we feel that it's quite important to keep the firepower dry. Having said that, also we are again 66% family owned, so we have a long-term view on the business. We've been in business for more than 57 years, and we want to again consolidate the industry and have critical mass almost in every single region around the world. Having said that, we make some arbitrage like Russia two years ago which we decided to exit, but there are a lot of opportunities right now, and we want to take advantage of the situation where we have a very strong balance sheet and we can leverage our balance sheet in order to make some creative acquisitions.