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In conclusion, Ipsos (ticker: IPS) has reported a solid performance in 2023 and is positioning itself for sustained growth through strategic investments in technology and a focus on high-growth sectors. The company’s approach to shareholder returns, via increased dividends and share buybacks, reflects confidence in its financial health and future prospects. However, Ipsos remains vigilant about the potential impacts of global political changes on its business.
Ben Page: Good morning. Bonjour. Thank you for coming in the rain to the results for Ipsos for 2023. We’re delighted to be here. Dan Levy, our CFO, and I will take you through some of the numbers and the business, and then we can spend some time perhaps discussing them and answering any questions you may have. So overall, the profile of 2023 has been, as we predicted, at this event last year, with growth accelerating during the year. And as we said, a very different profile in terms of the growth of revenue during the year than we had seen in the previous year, 2022. In 2022, we slowed down during the year. In 2023, we accelerated quarter-on-quarter. Overall growth at 3%, if we take out the COVID cliff edge that is now completely out of our accounts, the growth would have been 4%. And the operating margin maintained at a record level for Ipsos, so 13.1%, very low leverage, a very solid financial system position. And that’s important, and I think reflects that even if the growth wasn’t as much as we might have hoped for at the start of the year, and we can discuss all of that. We were able to protect that operating margin because of the flexibility and diversity in our business, and our ability to control costs depending on the situations we find ourselves in. What I’d now like to do is hand over to Dan Levy, who will take us through the detailed financial results. Dan?
Dan Levy: [Foreign Language]
Ben Page: Thank you, Dan. So in terms of what’s going on in the business, let’s just have a look at some different areas of activity. The first is big tech, which is obviously important. And over the last 5 years, has grown from EUR 144 million to EUR 172 million. You can see on this chart the impact of the cutting of activity in 2022 and earlier this year. So we’re ahead of where we were back in 2021. We expect some ongoing growth. We can see lots of activity in the sector, but it was certainly for our North American business, which was working obviously heavily with clients in the Seattle and San Francisco area. Obviously, that was a big U-turn of inactivity at one point. Overall, though, we’re optimistic about big tech because what we can see is that — and again, you can see it in the valuation of those stocks is that, that market is disrupted and it means that they need information as much as ever. Google (NASDAQ:GOOGL) and Ipsos have just published a very large — one of the largest studies ever on how people around the world are reacting to AI, the regulatory challenges, what regulation citizens wish to see. We launched that with them at Davos. Huge issues about what responsible AI looks like. And if you just talk to any law firm or bank, who are thinking about their own engagement with it, you get — you start to understand some of the challenges. Many of these brands, of course, their business models are disrupted or potentially affected. Microsoft (NASDAQ:MSFT) reentering the search market with a bang at the end of 2022, has, of course, really focused people’s minds in that market. And of course, we have the potential now with AI being added to virtually everything to look at how customer services will be changed. What does it mean in terms of logistics for B2B, you can go on and on. So overall, AI generates more activity in that sector. In Pharma, we’ve seen a pickup of activity during the year, so minus 3% in the first half, plus 9% in the second half. And one of the drivers of that has been an increase in approvals for new drugs, which then need to be test marketed. The product cycle starts again, we are involved at each stage of that product cycle. We can also see growing interest in the pharma community in issues like ESG, their impact on the environment, issues of equity. New areas like non-interventional studies, which are very well suited to Ipsos of its abilities in both off-line and online data collection and, of course, digital health. And overall health care continues to be a sector that we expect to grow faster than GDP generally. New services. We have in the last presentation, at the end of Q3, we took you through the new analysis that we’re using to look at new services because when we originally segmented our work about 9 years ago, of course, things that were new then, no longer are. So we grouped these together. They’re about 20% of our revenue, 14% organic growth, all of our work on platforms, whether that’s Ipsos.Digital, which we’ll talk about in a minute, our SaaS service. Ipsos Facto, the AI service, and I want to talk a little bit about that. Synthesio, our analysis of social media and web listening. Ipsos RISE, the product that we use in corporate reputation. All of our work in ESG, which is growing rapidly. We’re making strides ourselves on reducing our carbon footprint, getting a better gender balance across the company, but our clients are too. And as a supplier, of course, they’re interested in what we’re doing, but they’re also interested in how consumers are going to react to changes in packaging, et cetera. Science & Data, passive data, again, a very important part of our business, particularly in audience measurement and data analysis, data analytics. And then finally, our Advisory services. So all of those things together, we are seeing good growth, and we expect that to continue. Artificial intelligence, of course, is something that when we launched the plan for 2021 to 2025, we didn’t really talk about so much. We’ve always used algorithms in our work. But of course, in late ’22, it exploded. And I want to play you a short video now just to explain how we’re combining human intelligence with artificial intelligence because the key point here is that no one is going to lose their job to AI, but they may lose their job to another human being with AI, and we want to be that human being with AI. Please play the video. [Presentation]
Ben Page: Thank you. What we’ve done is build our own safe system that is not exposed to the outside world where we can load up our data securely, load up client data with their permission and then analyze it in ways that were just not possible literally months ago. So we’re building our own large language models and very importantly, our own prompt libraries. Some of these prompts now are up to 30 pages long. And that’s, I think — this is one of the challenges. When one first opens a GenAI tool and starts to use it, you can say, well, the hallucinations are terrible. What is this? And it’s only when you start to really use it in an intelligent way that you get value from it. And that, I think, is one benefit of being one of the larger players in this field. Some of the smaller agencies that we compete with will not have 5,000 different people experimenting with different prompts, seeing what’s worked, immediately sharing across our network, the results of their efforts. So it’s giving us more speed. It’s giving us more productivity. It means that when Dan and I are looking at payroll in certain parts of the business and our colleagues say, well, we need to add a lot more people. We’re saying, but hang on a minute, we can see that actually, you won’t need to do that because you will be more productive using this tool. So it’s a very fast-moving space, but it is something that is fundamentally different. Is it something different than when PowerPoint arrived in this industry? Not quite clear yet, to be quite honest, but it has huge potential. And in terms of new products, we are — we launched many last year. We have more coming this year. So whether that is one of the tools in terms of web listening that immediately allows us to search vast amounts of data that is being properly indexed in a secure way and was awarded a price by one of our clients, one of the largest consumer goods companies in the world. And our advisory services, qualitative studies, of course, using a lot of voice video, texture analysis, it is literally game-changing for things like translation at speed. And in areas like creative excellence, where we’re testing ads, this will come out this year. We can immediately expose a potential add to AI index, that on a lot of other ads that we’ve already tested and then start to make some predictions about what might work, how it needs to be changed without even showing it to real consumers because we have so much back data in the model. And month by month, you see more and more ability to analyze data, more and more ability to analyze large data sets. Obviously, originally, many of these models were text-based. But increasingly, it is about analyzing the data itself and that is, again, hugely game-changing for us. So we’re very optimistic about the impact of this on the business. Our original product in this area, Ipsos.Digital, our SaaS service has seen ongoing growth this year, 31% more than in 2022, so up from EUR 35 million to EUR 65 million to EUR 85 million. And it is part of the story on profitability because, of course, the profitability of this work is double the average of our normal studies because, of course, it is completely automated. So much faster and much less chance of human error. We are developing new services in 2024, which will expand the number of people and the number of clients, who will want to use it. We’re also extending it to more geographies and adding extra functions. So altogether, we see this again as part of our ongoing growth and improved profitability. We’ve also made more acquisitions in 2023 than we did back in 2022, quite a marked change in the speed of acquisitions. And of course, they have strengthened our position in the public sector, making us #1 in markets like the Netherlands, which has a very developed market in that space. Also in Ireland and very strong performances now in New Zealand and in Australia, adding also some new technology platforms, most recently Germany. They work for some of the biggest — interestingly, this relatively small tech company works with some of the biggest tech companies in the world in terms of helping them extract value from their data because they’re in a specialist data analysis business. So we will continue to look at these types of things. The New Vehicle Customer Study in America, again, is strengthening our position in the automotive sector. We have not made any major acquisitions because we are still offered things at prices that are not still reasonable. I think there’s some interesting discussions to be had there. We want to do something larger. We are looking and we are in conversations with much larger potential acquisitions than an [EUC] here, but it’s hard to be specific about when those would complete. Overall, the ones that we have done this year add about EUR 60 million of revenue in 2024. Overall, we are maintaining high client satisfaction. The average score from our clients is 9 out of 10. Our staff remain highly engaged. The average for professional services in our employee research business is about 70%. So we’re well above that. 83% of people at Ipsos say that they’re really proud to work here, which makes — is nice to see because ultimately, this is about the people much more than anything literally. And good to see recognition in Time Magazine, in Newsweek magazine, in Forbes, in terms of being trustworthy, a good company for women, well run. And in our own industry, the GRIT Awards have again rated as #1 in terms of our innovation. The most innovative insights analytics company in the world. So great to see that. That’s a vote by the clients, not by other researchers. So it was nice to see that. In terms of what happens next, I think the first thing is that we want to return more money to shareholders where possible. So we’ve increased — we will increase the dividend subject to a vote at the general assembly in May by 22% to EUR 1.65 per share. We did EUR 50 million in share buybacks this year. In 2024, we will do some more, but we will look at when to do that depending on what happens with acquisitions. Obviously, if we made a very major acquisition, there would be less share buybacks. If there aren’t, then there will be more. So we will be sensitive to that. But we are trying to create more value for everybody, including our shareholders. And in terms of the rest of this year, we are expecting growth above 4% and the margin to be around 13% again. We are continuing to invest in technology and we’re investing more in technology than ever before. But we need to — and we need to do that. But overall, we are in a strong position, no debt, and very clear growth. Thank you very much. Very happy to take questions with Dan.
Q – Unidentified Analyst: Yes, a question more on the competitive environment. Do you see new competitors in your business or not so much? What about the historical competitors?
Ben Page: I think what I would say is that the — one of the things about this market is that there are a number of large global players. There’s been a lot of consolidation over the last few decades, but there are always new entrants. A shout out to my friend, Stephan Shakespeare at YouGov, who for years has been telling me that we’re going to be done and done in or something. So there are always new competitors arriving, but actually, we are able — once you get to a certain scale, it becomes hard to — it is hard to replicate something like Ipsos, the diversity of countries that we’re in, the. Range of services that we provide. And so that — I think that is — and then being able to, as we’ve just demonstrated with AI, and I think we will show more. I see, my friend, Michel Guidi, who is our Chief Operating Officer here. We will show more again on the Investor Day later this year, where we — where scale means that even if you are a small boutique enabled with AI, it’s hard to compete with the scale and the number of people working in this. It’s a little bit like some of the new tech start-ups. They need to — they still need some of the big ones. So no, it’s not — I don’t think I’m particularly concerned by new startups. The — our major competitors, obviously, nearly the biggest ones run by private equity. We wait to see what happens there. I think we have a very different philosophy to private equity in terms of running this business. And so far, we are comfortable, I would say, in terms of our position relative to them. I’ll just say that.
Marie Fort: Martin Fort, Societe Generale (OTC:SCGLY). Could we get an idea of your CapEx envelope for 2024? And also, you guided on 4% organic sales growth for 2024, which is below your midterm target.
Ben Page: Above 4%.
Marie Fort: So does it mean that the payback of your investments are more weighted for 2025? Could we have a comment on that point?
Dan Levy: Yes. So on investments, we used to have an annual envelope, which is roughly EUR 50 million per year. We did EUR 60 million in 2023, so above what we did in 2022. And investment is going to be accelerating this year for all the reasons I’ve just mentioned before, which is investment on our proprietary panels, on our platforms, but also on the investments we are doing on generative AI. Would it be for internal tools or for external offer for the clients. So we are clearly going to be accelerating an investment. The other point on investment is that there is some fungibility, if you like, between investments and acquisitions. There are things that you can do either by investing internally or that you can do by doing some acquisitions. So there will be, at some point, maybe some questions about whether we buy a company for a specific technology or whether we invest on our technology internally.
Ben Page: I think, the other thing is that the investments that we’re making start to pay off this year, but it’s true that they will pay off even more in 2025 because some of these things, I think — and it’s interesting if you look at our business because the things that we’re doing are really changing the digital backbone of the whole company. The work on AI, where we’ve started in a greenfield site from nothing in early 2023 has been really substantial and shows what you can do in a greenfield site with this technology and with the range of skills and expertise that we have across Ipsos, but at the same time, rewiring some of the core processes does take longer. And so that pays off during this year and in 2025.
Mohamed Mansour: Mohamed Mansour from IDMidCaps. Four questions for me, please. On the sales, you depreciated all your assets in Russia for the 4% guidance growth, do you take in account the activities in Russia, the closure of the activities in Russia or not? What will be the drivers of growth in 2024? It is always big tech. And how is your order book for the Q2 and 2024? And should we expect a stable H2 in terms of growth in 2024 and the greatest chunk of growth will be more in H1? And in terms of margin, what do you expect in terms of gross margin? Do you think that it will be improving? And also about the payroll, do you think that it will be stable or it will return to 2022 levels in terms of percentage of sales?
Dan Levy: Okay. So maybe I take the Russian one, margin and payroll. So on Russia, as you understood, there is a specific situation, which is, there is a draft law discussed currently at the Duma. We don’t know exactly what is going to happen. The current draft law, as I said, puts a serious jeopardy on our activity in Russia, but it’s not voted yet. So we’ll see what happens. It’s by caution actually that we depreciated all out net assets in Russia, which is EUR 59 million provision that we did. Now in terms of the future and the organic growth guidance and impact on Russia, Russia is relatively small part of our revenue. It’s less than 2%, which means that, of course, it’s not very pleasant of the situation, but it doesn’t bring a lot of consequences in terms of the activity of the group globally. And the second point is that, as you know, organic growth is about constant growth. So if at some point, we were to get out of Russia that would be taken out of the constant growth, so that’s for Russia. So obviously, it doesn’t change, if you like, anything about our guidance for organic growth for 2024. On the gross margin, yes, we do expect an improvement of gross margin in 2024. I think it’s the tendency that we will observe across the year in the future. And this is for many reasons. We are investing to be more efficient in our operations, which improve the gross margin. Ipsos. Digital is also improving the gross margin, and particularly all the service lines, which have higher gross margin than the rest of the group, which will grow higher than — quicker than the group in the future. We also have a business mix effect. So there are a lot of reasons on top of the fact that we are continuing the shift from off-line to online. So all of these reasons are strong drivers to improve the gross margin in the future. In terms of the payroll, the way we work and the way we manage the company, and I think it’s actually very well seen in what we have done in 2023, is that we try to adapt our payroll cost to the situation of the activity country by country and to be as clever as we can, which means basically that we pilot the group with payroll to gross margin ratio, and we make sure that the payroll to gross margin ratio remains acceptable. So this is the way we work.
Ben Page: And just to add to that, on growth drivers, to be honest, there are — because of the diversity and you saw it on the chart, the sectors and the growth in Q4, that’s the sort of pattern that we would be expecting, hopefully, some pickup in the public sector this year. We’ve got some changes to make there. Hopefully, by geography, some pickup in the United States now that the tech, in a sense, activity has stabilized and started growing again. It’s very exciting to go out there recently and just talk to our clients in Seattle and San Francisco about their plans. The order book at the end of January, we don’t do a running commentary month by month, but suffice to say, it’s in line with everything that we’re talking about here. And on — I think on payroll, the other thing to remember is many people were asking us questions. I remember a year ago and in late ’22 about would we be able to control the payroll, inflation, et cetera. I think we’ve demonstrated that even in a high inflation environment, we’ve been able to manage the payable. And one part of that is because there is a natural churn in our industry and indeed in our company of around 20%. So if we don’t hire anybody and we stop hiring, then the company has 20% fewer people by the end of the year, just by natural causes, which gives us this ability to flex — so we’ve been able to do with that. I think there are — potentially, we will need — we may need to spend a bit more on payroll. We’ve grown by 3%. We’re trying to grow above 4%. But we will always, as Dan says, be absolutely vigilant on that because it is our biggest cost. But it’s also, in some ways, people are our biggest opportunity as well. I don’t know if that covers everything you want to ask about.
Mohamed Mansour: And are you concerned about operational margin because if the gross margin will improve and the payroll will stay stable in terms of percentage of sales, then we can say that you — with 4% growth, you can have easily higher margins now?
Ben Page: Potentially. I think that there’s also choices to be made about investments. So it’s this trade-off.
Dan Levy: But yes, you’re right, we have strong drivers to improve the operating margin and, actually, we have already communicated that our target in the long run is more 15% of operating margin than this. So that would be in a few years in the long run. Those 2 drivers are obviously all the efficiency gains that we are going to do with being more efficient in our operations, generative AI, having rationalized our platforms, et cetera, plus the gross margin effect that you mentioned. But in the short term, I would also say that because we are investing, that obviously has an impact also on the amortization of the CapEx, which means also that it weighs on the GenX and on the operating margin at the end of the day. So we are investing. That’s why we want to be cautious on the OP.
Mohamed Mansour: Last question, please. What is the impact of the price increase in the growth of 2023?
Dan Levy: It’s very difficult to say because when you have — let’s say, for instance, a product testing study, you could have the same product testing at 6 months interval, and you could have the same but the specificities of the product testing is not exactly the same, so you never know whether the move in price is linked to price or inflation or whether it’s linked to different specificities. So it’s difficult to say. I would say that the significant part of the 3% is probably linked to price in 2023.
Ben Page: And obviously, the diversity of the economies we’re working, it means it’s very hard to average out. Turkey and Argentina are very different to France.
Unidentified Analyst: [Eric Brar] from Finance Connect. First, can you give us an idea, some granularity, about the profit margin by area? And my question is also the impact of the exchange on the operating margin? That’s the first question. The second question is about shareholding structure. We have seen that you have buyback of EUR 50 million. Are you going to continue? And what is the situation today because by the same time, our shareholder is buying shares by the way. So can you give us an idea of what happened on that? And you spoke about your competitor under private equity, it seems that it could have a — WPP (LON:WPP) is going to sell — want to sell its share. Can you give if you have any interest, any possibility to have something in this field.
Dan Levy: Okay. So on profit by geographies, we don’t communicate that publicly. What I can say is that it is true that there are areas in the world where the margin tends to be a bit higher than the rest of the world. That’s particularly the case in the United States, for instance. So this is why when we presented our strategic plan, one of the reasons why — when we presented our strategic plan, we thought that it would be a good idea to invest in the U.S. on the top of the fact that it’s clearly the biggest market in the world in terms of market research. Second, on the impact of exchange rates on operating profit, it is small. So clearly, the exchange rates play an important role, and we have seen that in the 2023 results on the top line. But because our costs are most of the time in the local currency, the impact on operating margin is extremely small. In terms of the share buyback, so we have done EUR 50 million in 2023 after EUR 10 million in 2022. What we say and what Ben has said before is that we will continue our share buyback program with a view of cancellation. But clearly, in our capital allocation, priorities are acquisition and investment, and we will adapt our share buyback program to the pace of acquisition during the year of 2023, which is one of the reasons why we don’t give any numbers for 2024.
Ben Page: We’re always interested in buying sensibly-priced assets that fit well with our business, whether Kantar and its IPO or potential IPO, that is quite another matter to be quite honest. So — and I think the only thing I would say is that we are keen that one of the reasons for Ipsos’ success is that the people in the business share in the success with outside investors, and we’re keen to maintain that as part of who we are and strengthen that in 2024.
Unidentified Analyst: What is the capital structure now? Your main shareholder, the increase — the share you buyback — the buyback are cancelled?
Ben Page: Yes.
Dan Levy: Yes.
Unidentified Analyst: Immediately?
Dan Levy: Well, after a certain…
Unidentified Analyst: So there is no outer control today?
Dan Levy: It’s very limited absolutely.
Unidentified Analyst: Okay. So what does that mean because it’s a kind of remission for shareholders. So what are the main shareholders today?
Dan Levy: So the main shareholders are the holdings of the founder, Didier Truchot, who owns roughly 10% of the shareholding of the company, and I think a bit more than 16% to 17% of the voting rights and the rest is on the market.
Unidentified Analyst: But the main shareholder is buying shares to — in the same way. So it was 10%. It could not be 10% still?
Dan Levy: Didier Truchot, let’s get the main shareholder to speak.
Didier Truchot: [Foreign Language]
Ben Page: Any more? Mansour?
Mohamed Mansour: Just one from me. Given the election in U.S. this year, do you expect an election effect on your business?
Ben Page: It’s hard to say because it is late in the year. It partly depends on the outcome of those elections. And the American election is very difficult to predict in February for November when Joe Biden — and I think — well, it’s pretty unpredictable if you look at all of the factors at play. It’s probably — there is more work from — as you know or probably know, there are 71 general elections around the world this year, more human beings voting than ever in history. This is positive for us. Against that, a larger part of our business is working directly for government departments around the world. And one of the things that happens when there is a change of government is that you will — it takes a few months for the ministries to be sorted out. Some programs stopped, some new ones start. The direction of the government changes. It’s very likely in my own country, the U.K., that we will have a Labour government later this year, and they will probably historically Labour spends more, which is positive for our business, but there may be a pause while they do that. So that’s another reason for being a little bit cautious about this year. If there are no more questions, we can take questions informally over coffee. Thank you very much for coming. Thank you.
Dan Levy: Thank you.
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