Universal Music Group NV

AEX:UMG

Earnings Call Transcript 2021-Q4

[Operator]

Good evening, and

welcome

to

Universal

Music

Group

Fourth

Quarter

and

Fiscal

Year

Earnings

Call

for

the

period

ended

December

31, 2021.

My

name

is

Nadia,

and

I'll

be

your

conference

operator

today.

Your

speakers for

today's

call

will be Sir

Lucian

Grainge,

Chairman

and

CEO

of

Universal

Music Group;

and

Boyd

Muir,

Executive

Vice

President,

CFO

and

President

of

Operations. They'll

be

joined

during

Q&A

by

Michael

Nash,

UMG's

Executive

Vice

President,

Digital

Strategy.

All

lines

have been

placed

on

mute

to

prevent

any

background

noise.

After

the

speakers'

remarks,

there'll

be

a

question-and-answer

session.

[Operator Instructions]

Please let me

remind

you

that management's

commentary

and

responses

to

questions

on

today's

call may

include

forward-looking

statements

which,

by

their

nature,

are

uncertain

and

outside

of

the

company's

control.

Although

these

forward-looking

statements

are

based

on

management's

current

expectations

and

beliefs,

actual

results

may

vary

in

a

material

way.

For

a

discussion

of

some

of the

factors

that

could

cause

actual

results

to

differ

from

expected

results,

please see the

Risk

Factors

section

of

UMG's

prospectus

dated

September

14, 2021,

which

is

available

on

its

website

at

universalmusic.com.

Management's

commentary

will

also

refer to

non-IFRS measures

on

today's

call.

Reconciliations

are

available

in

the

press

release

on

the

Investor

Relations

page

of

UMG's

website.

Thank you. Sir Lucian, you may begin your conference.

[Lucian C. Grainge]

Thank

you.

Good

evening,

everyone,

from

where

we

are

in

Hilversum,

and

depending

on

where

on

the

planet

you

happen

to

be

right

now,

good

afternoon

or

good

morning.

I'm

excited

to

be

able

to

report

to

you

UMG's

outstanding

2021,

as

well

as

our

vision

for

what

lies

ahead.

By

the

time

we're

done,

I

believe

you'll

understand

why

we're

so

proud

of

what

we've

accomplished

this

past

year

and

so

confident

about

what

we'll

be

doing

in

the

future.

There are

three

main

points

that

I'd

like

to

convey:

first,

the

creative

and

commercial

success

we

helped

our

recording

artists

and

songwriters

to

achieve

last

year;

second

that

going

forward,

the

music

industry

will

continue

to

expand

and

that

our

unique

understanding

of

the

business

and

the

creative

process

will

further

strengthen

our

position

as

the

industry

leader;

finally,

just

as

our

team's

worldwide

experience

and

global

reach

will

continue

to

both

break

new

artists

and

market

our

vast

catalog,

that

same

world-class

talent

will

help

us

selectively

acquire

the

most

valuable

and

commercially

successful

music

catalogs

whenever

they

may

become

available

and

wherever

they

may

be.

But

more

on

that

later.

First,

2021.

It's

a

cliché

because

it's

true.

Our

artists

and

our

songwriters

remain

at

the

heart

of

everything

we

do.

And

last

year,

our

heart

was

in

the

right

place.

We

helped

so

many

of

our

artists,

both

new

and

established

ones,

achieve

extraordinary

success.

With

respect

to

our

financial

performance,

for

the

fourth

quarter,

we

achieved

16%

growth

in

revenue,

and

for

the

full

year,

we

grew

revenue

by

17%

on

a

constant

currency

basis.

We

expanded

our

adjusted

EBITDA

margin

and

significantly

improved

free

cash

flow.

While

Boyd

will

go

into

further

details

on

the

financials

later,

let

me

highlight

a

few

accomplishments

from

our

artists,

both

new

as

well

as

from

the

established

ones

that

contributed

to

this

success.

For

example,

the

IFPI,

the

global

trade

body,

recently

released

the

top

global

artists

of

2021.

Once

again,

UMG

artists

had

an

outstanding

showing,

representing

eight

out

of

the

top

best-selling

artists

in

the

world.

As

you

can

imagine,

we're

pretty

proud

of

that.

This

slide

shows

just

a

handful

of

highlights

of

our

artists'

global

success.

On

every

major

streaming

platform,

UMG

artists

had

an

outstanding

performance.

Further,

there

are

some

highlights

from

the

world's

biggest

music

market.

The

United

States

where,

again,

UMG

recording

artists

and

songwriters

were

represented

on

the

top

of

the

album

as

well

as

singles

charts.

This

remarkable

success

in

the

US

is

replicated

in

the

major

music

markets

around

the

world.

With

experts

and

territories

covering

200

markets on

our

on-the-ground

approach

focuses

on

local

artist

signings

as

well

as

development

and

expanding

the

reach

of

our

global

stars.

On

this

slide,

you

can

see

a

small

sampling

of

our

artists'

extraordinary

achievements

in

the

UK,

Germany,

France

as

well

as

Japan.

Worldwide

success

like

this

just

doesn't

happen. UMG

has

built

a

portfolio

of

services

and

resources

in

artist

merchandise,

brand

management,

sponsorship,

live,

e-commerce,

and

film

and

television,

to

name

just

a

few,

an

expansive

portfolio

which

enables

us

to

partner

with

artists

at any

stage

and

in

all

aspects

of

their

careers.

Our

success

in

these

areas

is

why

so

many

artists

lean

into

UMG

beyond

either

Recorded

Music

or

Music

Publishing.

Once

they're

in

the

family

and see

what

we

have

to

offer,

artists

including

Elton

John,

The

Rolling

Stones,

Queen,

ABBA,

Taylor

Swift,

Drake,

U2,

José

Balvin,

Justin

Bieber,

Andrea

Bocelli,

and

Aerosmith,

among

many,

many

others

choose

to

expand

and

broaden

their

relationship

with

us.

And

through

our

partnership

with

HYBE

in

2021,

we

expanded

our

relationship

with

BTS,

the

world's

best-selling

group,

as

well

as

partnered

with

them

on

initiatives

including

the

fan-based

platform,

Weverse;

and

VenewLive,

a

premium

live-streaming

platform.

Let

me move

on

to

my

second

point

and

how

we're

going

to

build

on

our

role

as

the

industry

leader

in

what

we

see

is

a

growing

market.

I've

seen

many

transformational

shifts

over

the

course

of

my

long

career

in

music.

Changes

in

genres

from

rock

to

punk

to

hip hop,

as

well

as

changes

in

format

from

vinyl

to

cassette

to

CD

and

then,

of

course,

downloading,

streaming,

and

now

the

growth

of

social

media,

from

Web1

to

Web2,

and

obviously

the

emerging

Web3,

which

I'll

touch

upon

later.

Change

is

a

constant.

Through

all

of

them,

UMG

never

resisted

change.

In

fact,

we

embraced

it

by

adapting

our

business

models,

by

promoting

competition

and

by

creating

a

healthier

ecosystem

for

music

and

our

artists.

We

always

invest

in

the

future,

whatever

form

it

takes,

and

we

will

always

come

out

stronger.

But

the

most critical

investment

we

make

is

in

our

artists.

Lately,

there's

been

a

lot

of

buzz about

the

big

numbers

being

spent

on

catalog

deals.

I'll

have

more

to

say

about

that

in

a

minute

or

two.

But

it's

important

to

remember

that

the

future

of

music

is

and

always

has

been

dependent

on

the

discovery

and

nurturing

of

new

talent.

We

share

a

common

interest

with

our

artists,

building

and

sustaining

their

long-term

careers.

We

succeed

only

when

they

do.

That's

why

our

core

business

model

is

based

on

long-term

artist

development

and

investment.

Here,

too,

investment

in

artists

takes

many

forms,

our

worldwide

resources,

our

capital,

our

marketing

and

promotional

service,

and

the

talent

and

expertise

of

thousands

of

our

employees.

Our

labels

are

simply

the

best

in

the

world

at

discovering

and

nurturing

artistic

talent,

and

UMG's

investment

in

artists

has

never

been

higher.

I'll

give

you

three

brief

examples

of

what

I

mean

when

we

talk

about

discovering,

breaking

and

nurturing

artists.

The

BRITs

Rising

Star

recently

went

to

Holly

Humberstone.

There

were

only

two

other

nominees

for

this

award

in

the

UK,

Bree

Runway

and

Lola

Young.

All

three

of

them

are

UMG

artists.

In

2021,

the

biggest

artist

breakthrough

in

the

industry

was

Interscope's

Olivia

Rodrigo.

She's

the

only

debut

artist

to

land

a

spot

on

the

IFPI

Global

Top

10 Artists

Chart.

Earlier

this

year,

more

than

10

years

into

their

career,

Glass

Animals,

who've

been

in

the

UMG

family

since

their

debut

in

2014,

became

the

first

British

band

to

top

the

daily

Global

Spotify

Streaming

Chart. Their

single,

Heat

Waves,

also

broke

the

record,

taking

60

weeks

to

climb

to

number

1

on

the

Billboard

global

chart.

This

is

what

we

mean

when

we

talk

about

creating

sustained

interest

and

longevity,

especially

critical

in

today's

streaming

economy.

So

given

the

resources

and

commitment

to

succeed

that

UMG

brings

to

the

table,

what

does

the

music

landscape

look

like

for

our

artists?

In

a

word

or

two,

in

fact,

it

looks

wide

open

and

filled

with

possibility

in

so

many

ways.

For

starters,

take

ad-supported

streaming

and

subscription.

Since

the

pandemic

began,

UMG

saw

a

very

significant

influx

of

new

subscribers

to

our

platform

partners.

And

now,

according

to

our

consumer

research,

nearly

one

in

four

consumers

in

over

a

dozen

major

markets

are

subscribed

to

at

least

one

premium

service.

Why?

Because

the

value

proposition

of

on-demand

access

to

all

their

favorite

music

with

excellent

programming

features

means

that

once

consumers

migrate

to

a

subscription

service,

they

are

highly

likely

to

stay

engaged

and

enjoy

these

services

and

the

flexibility

they

afford

to

deliver

the

best-listening

services

at home,

in

cars,

smartphones,

iPads,

et

cetera, et

cetera.

An

increasing

share

of

these

new

subscribers

comes

from

older

demographics.

And

as

the

population

ages,

we

expect

adoption

rates

to

be

sustained

as

consumers

access

their

favorite

music

throughout

their

lives.

Also

driving

ad-supporting

streaming

and

subscriptions

continued

growth,

are

diversification

of

and

the

competition

amongst DSPs

and

improved

product

offerings.

For

example

with

our

involvement,

platform

partners

are

launching

new

features

like

high

def

audio

as

well

as

richer

integrations,

further

enhancing

the

value

proposition

for

consumers.

All

these

factors

explain

why

we

believe

there

is

great

potential

for

significant

increase

in

streaming

penetration

and

subscription

growth.

And

even

as

ad-supported

streaming

and

subscription

continue

to

grow,

there're

a

number

of

other

digital

advances

that

will

create

new

revenue

streams

for

UMG.

For

example,

in

January

building

on

our

joint

track

record

of

success,

we

announced

an

expansion

of

our

agreement

with

Amazon.

The

deal

crosses

an

array

of

areas

within

the

Amazon

ecosystem

including

their

multi-tiered

subscription

service,

higher

quality

in

spatial

audio

which

we're

very

excited

about,

artist

merchandise

and

live

streaming

through

a

new

agreement

with

Twitch.

We

will

be

creating

innovative

channels,

experiences

and

features

with

Twitch

for

all our

artists,

as

well

as

our

labels

to

engage

and

interact

with

existing

fans

as

well

as

new

audiences.

The

point

being

that

even

with

our

traditional

partners

such

as

Amazon,

our

relationships

evolve

as

the

platform

evolves

to

encompass

a

full

gamut

of

opportunities

from

physical

product,

artist

merchandise,

music

subscription

to

live

streaming.

Another

expanding

area

in

which

fans

are

connecting

with

artists

and

discovering

songs

in

ways

that

were

unimaginable

just

a

few

years

ago

is

health

and

fitness.

We

now

have

19

partnerships

in

the

health

and

fitness

space,

including

recent

deals

enabling

innovative

new

services

such

as Stryde,

[indiscernible]



(00:14:11), Mentra by SATS, STEEZY and CLMBR.

These

add

to

what

we

believe

is

the

widest

portfolio

of

such

partnerships

in

the

music

industry.

We're

also

on

the

front-line

of

developments

in

Web3

and

the

broader

gaming

and

metaverse

space.

Whilst still

at

an

early

stage

of

experimentation,

we're

testing

and

learning

through

active

engagement

with

our

artists

in

the

development

of

new

products,

there's

this

whole

world

evolves.

As

opportunities

arise

for

meaningful,

strategic

moves

that

promise

to

deliver

for

our

artists,

we

will

be

in

a

position

to

seize

them.

One

of

our

key

differentiators

in

advancing

new

Web3

opportunities

is

that

we're

implementing

partnerships

while

engaging

with

operators,

so

that

we

are

ready

to

execute

with

our

artists

upon

launch.

This

slide

shows

the

range

of

our

growing

list

of

partners

and

it

will

broaden

and

become

sustainable.

And

the

eagerness

of

our

artists

and

partners

have

demonstrated

to

lean

in

with

us

into

this

space

underscores

the

opportunities

we

collectively

see

that

the

role

of

the

music

company

will

be

indispensable

to

creative

success

and

that

this

category

will

grow

because

of

our

own

unique

ability

to

bring

together

a

suite

of

rights

that

will

create

the

most

compelling

and

innovative

products,

as

well

as

offer

scalable

solutions

for

artists

that

are

seamlessly

coordinated

with

their

global

marketing

campaigns.

Now,

my

third

and

final

point,

acquisitions.

On

our

last

call,

Boyd

explained

why

any

number

of

players

are

waking

up

to

a

newfound

enthusiasm

for

music

copyright

investment.

In

my

remarks

today,

I

hope

I've

made

it

clear

that

since

UMG

is

the

clear

market

leader

in

our

industry

and

with

a

broad

and

global

artist

roster

and

deep

relationships

in

the

creative

community,

we're

often

the

first

stop

for

artists,

estates

and

others

interested

in

selling

music

rights.

We

see

almost

everything.

And

when

it

comes

to

evaluating

potential

acquisitions,

we

can

be

and

we

are

very

selective.

We're

quite

bullish

on

the

long-term

prospects for

music,

and

I believe

no

one

can

do

more

with

music

rights

than

our

team.

We

therefore

stand

ready

to

take

advantage

of

opportunities

to

acquire

catalogs,

but

only

the

best

catalogs

at

the

right

price,

and

only

after we've thoughtfully

assessed

the

value

of

the

rights

and

have

a

clear

view

of

how

we

will

make

returns

well

in

excess

of

our

cost

of

capital.

So

let

me

unpack

what

all

that

means.

Our

track

record

as

the

management

team

has

demonstrated

time

and

time

again

our

ability

to

assess

talent

and

understand

the

value

of

music

rights.

We

have

the

ability

to

see

and

evaluate

opportunities

that

others

do

not.

Our

unique

understanding

of

opportunities

has

many

sources.

UMG's

market-leading

creative

and

industry

expertise

in

every

single

major

music

market

in

the

world,

our

own

people

on

the

ground,

our

own

direct-to-consumer

initiatives,

our

analysis

of

the

many

different

drivers

of

music

monetization

and

the

proprietary

cross-platform

data

we

receive

from

numerous

services

with

whom

we

partner.

Add

to that,

our

global

resources,

marketing

expertise

and

existing

infrastructure,

and

you

can

see

that

the

very

knowledge

and

experience

that

has

made

UMG

the

industry

leader

gives

us

a

distinct

advantage

in

evaluating

available

catalogs.

And

our

industry-leading

capabilities

allow

us

to

maximize

the

value

of

the

catalogs

we

do

acquire.

I

believe,

and

I

think

we've

demonstrated

that

no

one

can

do

more

with

great

catalogs

than

UMG.

But

it's

important

to

understand

that not

all

catalogs

are

created

equal,

whether

with

respect

to

their

geographical

appeal

or

their

future

growth

potential

or

in

fact

with

respect

to

the

very

nature

of

what

is

being

offered

as

a

catalog.

What

is

described

as

a

potential

acquisition

can

run

the

gamut

from

one,

a

full

suite

of

rights

that

gives

control

over

the

marketing

and

monetization

of

the

catalog to

two,

a

bundle

of

rights

which

is

severely

limited

because

approvals

are

required

for

their

use

to

three,

acquiring

only

a

portion

of

an

artist's

catalog

and

finally

to

four,

buying

merely

royalty

streams

that

are

nothing

more

than

passive,

low-return

investments

with

limited

upside

and

zero

control.

When we

evaluate

catalogs,

we

are

looking

for

the

truly

special

ones,

prized,

valuable,

special

collections

of

great

works

of

art

with

which

we

would

have

the

unrestricted

ability

to

strategically

make

the

most

of

the

opportunities

that

they

contain.

Again,

we

are

not

in

the

business

of

buying

individual

royalty

revenue

streams

or

assets

over

which

we

will

have

no

ability

to

make

the

most

of

those

rights.

We're

more

than

happy

to

leave

those

deals

to

others.

While

more

rights

opportunities

have

been

coming

to

market

in

the

past

few

years,

none

of

this

is

new

to

us.

Believe

me,

we're an

experienced

acquirer,

both

highly

selective

and

financially

disciplined.

We

have been

engaged

in

this

activity

for

literally

decades,

whether

or

not

it

was

the

purchase

of

EMI

Records,

BMG

Music

Publishing,

Sanctuary,

or

the

Dick

James

Music

catalog,

which

included

obviously

the

great

works

of

Elton

John, or

the

catalogs

of

ABBA,

Bob

Dylan,

Neil

Diamond,

to

name

just

a

few.

This

is

what

we

do

and

this

is

what

we've

done.

And

while

the

market

around

catalog

rights

is

active

and

competitive,

UMG

has

longstanding

relationships

and

powerful

networks

that

enable

us

to

spot

opportunities

before

others

do.

As

you

know,

our

overall

investment

strategy

is

based

on

matching

the

risks

we

take

with

the

opportunities

for

return.

With

new,

unproven

talent,

the

high-risk

profile

is

accomplished

by

a

greater

opportunity

for

significant

upside.

With

an

established

music

catalog

where

we

have

well-developed

understanding

of

the

artists

and

their

fan

base,

a

long

history

of

how

the

rights

have

performed,

and

what

has

driven

those

returns

and

an

ability

to

make

the

most

of

those

rights

with

all

our

unique

capabilities,

the

risk

is

considerably

lower

and

the

returns

are much

more

predictable.

From

a

financial

perspective,

our

investments

are

a

thoughtful

balance

of

high-risk,

high-return

new

artists,

and

low-risk,

predictable,

and

consistent

return

musical

works. After

all,

this

management

team

has

decades

upon

decades

of

experience

in

successfully

acquiring

IP.

This

is

how

we

built

UMG

into

the

leading

company

it's

today.

I

can't

give

you

a

precise

figure

of

what

we

expect

to

spend

over

the

coming

years

on

artists

rights.

We're

not

a

financial

player,

we're

not

a

financial

investor,

nor

we're

new

to

the

market –

nor

are

we

a

new

to

the

market

fund

on

the

hope

to

do

deals

of

a

set

schedule.

Further,

unlike

a

fund,

we

will

never

sell

or

divest

these

rights.

We

are

building

our

business

and

creating

shareholder

value

for

the

long

run.

And

we

have

the

luxury,

the

wisdom,

and

the

capacity

to

do

deals

that

make

sense

when

they

become

available.

When

a

catalog

opportunity

arises

that

truly

constitutes

surprise,

as

I

said,

one

that

contains

great

assets

that

offer

strategic

and

financial

value

at

a

reasonable

cost,

well

then

we

will

acquire

it,

bring

it

into

our

family,

make

the

most

of

those

assets,

and

further

accelerate

our

growth.

If

the

opportunity

does

not

meet

our

criteria,

we

will

not

acquire

it.

It

really

is

as

simple

as

that.

Because

if

we

chose

to,

we

could

turn

off

catalog

acquisitions

entirely

and

still

continue

to

significantly

grow

our

core

business

and

our

entire

company.

As

for

the

funding of

these

acquisitions,

that

can

be

done

in

a

myriad

of

ways

which

Boyd

can

address

later

in

his

remarks.

Let

me

give

you

a

perfect example

of

our

acquisition

strategy

and

action,

our

recently

announced

2021

acquisition

of

Sting's

incomparable

music

publishing

catalog.

Sting

is

a

songwriting

genius.

His

catalog,

one

of

the

most

commercially

successful

and

critically

acclaimed

of

the

last

half

century

spanning

his

entire

career

with

The

Police,

and

as

a

solo

artist,

including

hits

like

Roxanne,

Every

Breath

You

Take,

Fields

of

Gold,

and of

course,

Message

In

A

Bottle

among

many,

many

other

global

hits.

We

couldn't

be

more

excited

by

the

myriad

of

opportunities

now

that

Sting's

publishing

is

united

with

his

master

recordings

of

The

Police

and

his

own

solo

recordings.

Why

do

great

artists

such

as

Bob

Dylan,

Neil

Diamond,

and

Sting

choose

to

be

– UMG

to

be

the

home

of

their

musical

legacies?

Well,

Sting

said

it

best.

He

said, and

I

quote,

it's

absolutely

essential

to

me

that

my

career's

body

of

work

have

a

home

where

it

is

valued

and

respected,

not

only

to

connect

with

longtime

fans

in

new

ways,

but

also

to

introduce

my

songs

to

new

audiences,

music –

musicians

and

generations.

And

we

have

that

ability

and we

have

the

flexibility,

and

that

is

what

separates

the

opportunity

for

us.

That

validation

speaks

volumes

about

not

only

what

we

can

provide

artists

in

terms

of

global

commercial

success,

but

about

the

culture

of

UMG, and

why

we

believe

we

are

best

positioned

to

honor

and

expand

the

musical

legacies

of

the

world's

greatest

artists.

As

I

said

earlier,

change

in

our

business

is

a

constant.

And

the

changes

at

work

in

the

industry

today

and

in

the

months

and

years

ahead

will

be

opening

up

new

and

exciting

opportunities.

We

will

embrace

them

as

we

always

have

with

skill

and

confidence.

And

with

that,

I'd

like

to

turn

it

over

to

Boyd,

who

will

help

provide

further

details

on

our

financial

results.

Mr.

Boyd,

thank

you.

[Boyd Johnston Muir]

Thanks,

Lucian.

Okay.

I'll

start

here

by

summarizing

from

a

financial

perspective

what

has

been

another

remarkable

year

here

at

UMG.

Looking

at

the

full

year,

which

is

the

best

way

to

analyze

our

results,

revenue

grew

17%

and

EBITDA

grew

20.9%.

This

drove

our

adjusted

EBITDA

margin

to

21%,

an

expansion

of

nearly

1

percentage

point

for

the

year.

Let

me

put

the

year

into

context

for

you.

We've

been

able

to

consistently

grow

revenue,

adjusted

EBITDA

and

margins

over

the

past

few

years.

The

business

is

benefiting

from

stronger,

more

predictable

and

more

diversified

revenue

growth,

and

this

revenue

growth

has

driven

significant

EBITDA

margin

improvement

as

we

benefit

from

continued

operating

leverage.

As

to

the

effect

of

COVID

on

financial

reporting,

it

created

an

easier

comparison

for

2021

on

the

revenue

side

but

a

more

difficult

comparison

on

the

EBITDA

margin

side.

In

2020,

we

saw

cost

savings

around

travel

and

entertainment

and

marketing

as

the

world

shut

down.

We

also

benefited

from

revenue

mix

away

from

lower

margin

merchandising

and

physical

revenue.

This

drove

very

strong

EBITDA

margins

for

2020

with

a

year-on-year

gain

of

more

than

2

percentage

points.

We

therefore

view

it

as

a

positive

that

despite

this

challenge

in

2021,

we

were

again

able

to

expand

our

adjusted

EBITDA

margin

by

nearly

1

percentage

point.

In

the

fourth

quarter,

revenue

grew

by

16%

and

adjusted

EBITDA

grew

by

6.8%

in

constant

currency.

While

adjusted

EBITDA

continued

to

grow,

adjusted

EBITDA

margin

declined

in

the

quarter

for

two

reasons.

Firstly,

there

was

a

€28

million

provision

reversal

in

2020

related

to

a

label

acquisition

we

did.

This

exceptional

item

wasn't

disclosed

by

Vivendi

as

they

don't

report

quarterly

EBITDA.

However,

we

felt

it

was

important

to

bring

this

to

your

attention

in

the

context

of

the

quarterly

comparison.

Now,

if

this

benefit

were

excluded

from

the

prior-year

figures,

fourth

quarter

adjusted

EBITDA

would

have

grown

14%

in

constant

currency,

and

the

fourth

quarter

adjusted

EBITDA

margin

would

be

close

to

flat

year-over-year.

And

then

secondly,

we

had

a

very –

as

you

can

see

here

in

this

slide,

we

had

a

very

strong

rebound

in

Merchandising

revenue

and

strong

growth

in

vinyl

sales,

both

of

which

have

lower

margins

than

our

overall

business.

We

also

had

a

great

quarter

in

Music

Publishing

where

margins

are

slightly

lower

than

they

are

in

Recorded

Music.

So

while

there

remains

some

variability

quarter

to

quarter,

as

there

always

has

been

in

this

business,

we

encourage

you

to

view

the

business

over

a

longer

time

horizon

and

we

continue

to

plan

for

margin

expansion

as

we

indicated

in

the

midterm

guidance

we

provided

at

the

time

of

the

listing.

Now

let

me

touch

upon

the

results

from

each

of

our

segments.

Here

is

Recorded

Music

and

you

can

see

on

this

slide

that

Recorded

Music

revenue

grew

12%

for

the

quarter

and

17%

for

the

year.

This

revenue

growth

drove

Recorded

Music

EBITDA

up

20%

and

Recorded

Music

EBITDA

margin

to

23.7%

for

2021,

about

1

percentage

point

higher

for

the

year.

Splitting

out

Recorded

Music

to give

you

better

insight

into

the

revenue

streams,

if

we

look

at

subscription

and

streaming

revenue,

it

continues

to

grow

very

well,

up

16%

for

the

quarter

and

20% –

almost

20%

for

the

year

in

constant

currency.

It

is

worth

pointing

out

the

growth

in

physical.

Physical

revenue

grew

11%

in

the

fourth

quarter –

nearly

11%

and

21%

for

the

year

with

growth

across

the

US,

Europe

and

Japan.

The

physical

growth

was

largely

driven

by

improved

vinyl

sales

as

the

quarter

saw

releases

from

ABBA,

Taylor

Swift

and

The

Beatles,

which

performed

particularly

well.

We

also

had

a

particularly

strong

year

in

Japan,

the

world's

second

largest

music

market

where

physical

is

still

the

dominant

format.

For

the

year,

growth

was

well-distributed

globally

with

all

major

regions

seeing

double-digit

growth,

and

at

21%,

North

America

had

the

highest

rate

of

growth.

And

as

you

can

see

on

the

right

here,

our

major

sellers

included

a

well-balanced

mix

of

new

and

–

both

new

and

established

artists.

On

this

slide,

you

can see

that

both

subscription

and

ad-supported

streaming

revenue

continued

to

grow

at

an

impressive

pace

in

2021.

As

Lucian

indicated,

we

see

a

long

runway

ahead

for

subscriber

penetration

and

also

for

continued

growth

in

advertising

monetization.

It

is

worth

noting

that

from

both

a

growth

rate

and

a

gross

euro

perspective,

2021

streaming

and

subscription

growth

accelerated

compared

to

the

growth

seen

in

2020.

As

music

content

owners,

the

continued

expansion

and

broadening

of

the

streaming

and

subscription

landscape

is

a

positive

story

for

UMG.

It's

driving

further

diversification

of

our

revenue

base,

and

we

are

seeing

a

growing

number

of

meaningful

distribution

partners

on

a

global

basis.

Now,

to

better

help

you

understand

our

revenues,

we

will

start

breaking

out

subscription

and

ad-supported

streaming

revenue

in

our

reporting

beginning

with

the

first

quarter

of

2022.

In

Music

Publishing

in

Q4,

revenue

grew

28%

and

15%

for

the

full

year.

In

the

quarter,

there

were

timing

benefits

and

collections

from

certain

partners

and

societies

that

drove

the

stronger

growth.

This

is

not

uncommon.

The

15%

revenue

growth

rate

for

the

year

is

more

indicative

of

the

underlying

trends

we're

seeing

in

our

business

and

reflects

continued

strong

growth

from

subscription

and streaming

as

well

as

synchronization.

Performance

revenue

was

lower

for

both

the

quarter

and

the

year

due

to

the

COVID-related

impact

on

live

performances

and

bar,

restaurant

and

nightclub

closures,

which

led

to

temporarily

lowering

payments

for

the

use

of

music

in

those

venues.

The

publishing

growth

for

the

year

was

also

helped

by

catalog

acquisitions

made

in

prior

years

such

as

Bob

Dylan,

and

the

publishing

margins

improved

slightly

for

the

year

due

to

operating

leverage.

And

as

a

reminder,

again,

in

terms

of

improving

our

transparency,

we

plan

to

start

breaking

out

publishing

revenue

by

type

in

the

first

quarter

of

2022.

Turning

to

Merchandising

now.

Merchandising

revenue

grew

42%

in

the

quarter

and

27%

for

the

year,

largely

due

to

the

partial

recovery

in

touring

revenue,

particularly

in

the

US, but

also

due

to

better

retail

income.

However,

touring

– I'd

like

to point out,

touring

is

a

lower-margin

revenue

source

in

what

is

already

a

low-margin

business

compared

to

the

rest

of

UMG.

To

give

you

a

sense,

at

the

gross

margin

line,

touring

is

about

an

8%

to

10%

margin

business,

retail

about

15%

to

18%,

and

direct-to-consumer

closer

to

25%.

In

2021,

we

also

had

higher

artist

costs,

which

further

negatively

impacted

margins,

and

therefore,

our

Merchandising

EBITDA

margin

fell

for

the

quarter

and

the

year,

with

the

full-year

margin

at

just

over

4%.

Now,

as

we

continue

to

focus

on

expanding

our

direct-to-consumer

initiatives

and

growing

our

digital

goods,

we

will

look

to

improve

the

margin

profile

of

our

Merch business.

It

remains

strategically

important

for

us

to

be

in

this

business

as

it

connects

fans

and

their

artists

and

artists

and

their

fans.

And

it

is

in

this

connectivity

that

we're

looking

forward

to

increasing

in

the

coming

years.

Now,

let

me

turn

to

cash

flow.

As

you

can

see

here

in

the

middle,

our

net

cash

provided

by

operating

activities

for

2021

was

€1.14

billion,

which

included

net

royalty

advance

payments –

as

you

can

see

with

the

green

on

the

left

here,

which

included

net

royalty

advance

payments

of

€364

million.

And

again

in

the

green,

you

can

see

that

we

spent

€388

million

on

catalog

acquisitions,

down

from

€920

million

–

€929

million

in

2020

which

follows

our

prior

statements

about

catalog

spending

in

2020

being

elevated

due

to

opportunistic

investment.

Now,

this

leaves

us with

a

healthy

free

cash

flow

of

€638

million

for

2021.

To

remind

you,

our

dividend

policy

stipulates

that

we

pay

a

dividend

of

50%

of

net

income.

And

as

such,

our

dividend

proposal

for

2021

is

€725

million

or

€0.40

per

share.

And

having

already

paid

an

interim

dividend

of

€0.20,

the

final

dividend

to

be

proposed

will

be

€0.20

per

share.

So

this

slide

here

sets

the

collective

content

or

investment

that

we've

made

in

content.

The

blue

are

catalog

investments

like

M&A

and

the

green

are

our

royalty

advances,

net of

recoupment

clearly.

Collectively,

our

net

content

investment

for

2021

was

about

half

of

2020,

totaling

€752

million

compared

to

approximately

€1.5

billion

in

the

prior

year.

Within

net

advances,

which

were

down

38%

from

2020,

they

were

still

elevated

compared

to

what

we

consider

a

more

typical

level.

What

you're

seeing

picked

up

in

this

number

in

addition

to

the

day-to-day

advances

in

recoupment

more

typical

of

our

core

business

are

some

unique

opportunities

we've

had

with

several

superstar

artists.

In

the

last

three

years,

gross

advances

have

included

several

broad,

multifaceted

deals

where

our

superstar

artists

have

chosen

to

lock

in

very

long-term

deals

with

us.

These

have

covered

areas

beyond

Recorded

Music

and

beyond

Music

Publishing

and

include

branding,

sponsorship,

film

and

television,

merchandise

and

other

areas.

For

example,

in

2020,

we

mentioned

that

this

was

the

case

with

Drake

and

Taylor

Swift,

and

they

continued

in

2021.

The

same

was

true

for

several

major

artists,

but

due

to

artist

confidentiality,

we've

not

yet

been

able

to

disclose

these.

The

fact

that

these

artists

want

to

double

down

with

us

at

the

height

of

their

careers

validates

everything

we

do

for

them

and

will

be

long-term

value

driver

for

our

business

and

for

our

shareholders.

While

our

underlying

operations

fund

this

type

of

artist

investment

in

both

new

and

established

artists

alike,

catalog

acquisitions

are

a

bit

more

like

M&A.

Lucian

talked

in

detail

about

our

approach

to

catalog

investments.

We've

been

doing

them

for

many

years,

but

we're

highly

selective

strategic

acquirers.

There're

a

number

of

ways

we

can

finance

these.

We

can

finance

them

from

our

operating

cash

flow

to

our

balance

sheet

with

our

capacity

to

add

leverage,

and

also

with

special

purpose

vehicles.

I

can

assure

you,

we

have

received

many,

many

offers

from

interested

parties

who

just

want

to

partner

with

us

to

access

our

insight

and

our

ability

to

monetize.

And

we

will

consider

all

of

these

options.

Another

important

point

about

the

acquisitions

we're

making

is

that

they're

opportunistic

and

are

not

required

to

drive

growth

in

our

core

business.

They're

also

nearly

impossible

to

identify

and

to

provide

guidance

on

in

advance.

So

it's logical,

then,

that

the

revenue

and

EBITDA

these

investments

may

drive

are

not

specifically

included

in

the

midterm

guidance

we

gave

you

in

our

prospectus,

which

to

remind

you

was

for

high-single-digit

revenue

CAGR

against

our

2020

results

and

mid-20s

EBITDA

margin. Though

I

would

remind

you

that

in

any

single

year,

the

financial

contributions

of

each

of

these

catalogs

is

small

compared

to

the

scale

of

our

business

as

a

whole.

And

as

a

reminder,

if

we

buy

a

publishing

catalog

that

Universal

Music

is

already

administering,

there

will

not

be

incremental –

any

incremental

revenue

impact.

So

to

reiterate

some

of

what

Lucian

said,

we

remain

extremely

disciplined

in

the

investments

we

are

making.

We

take

a

detailed

and

holistic

view

of

the

financial

and

strategic

opportunity

–

opportunities

each

of

these

investments

offers

UMG,

and

then

we

decide

the

return

profile,

whether

it

fits

into

our

portfolio.

In

not,

then

we

don't

acquire.

We're

only

interested

in

those

assets

which

we

can

control.

We're

not

interested

in

passive

income

streams

and

we're

only

interested

in

those

assets

where

we

can

improve

the

monetization.

And since

I

mentioned

leverage

a

moment

ago,

I'd

like

to

note

here

that

we're

going

to

be

meeting

with

the

rating

agencies

soon,

and

we

are

looking

forward

to

getting

our

first

rating

for

UMG.

While

we

realize

the

business

may

currently

be

under-levered,

our

intention

is

to

be

investment

grade

rated

as

we

work

toward

a

more

optimal,

longer-term

capital

structure

for

the

company

in

the

coming

months.

So

Lucian,

Michael

Nash,

and

I

will

now

take

your

questions.

And

operator,

could

you

please

open

the

line

for

Q&A?

[Operator]

Of

course.

Thank

you.

[Operator Instructions]



And

our

first

question

today

comes

from

Omar Sheikh

from

Morgan

Stanley.

Omar,

please

go

ahead.

Your

line

is

open.

[Omar F. Sheikh, Analyst, Morgan Stanley & Co. International Plc]

Thanks

very much,

and

good evening,

everyone.

Okay.

So,

I'll

stick

to

questions

then,

there

might

be

a couple

of

parts

in

each

one,

but

if

I

could

maybe

start

for

a

question –

with

a

question

for

Michael,

if

possible.

On

the

streaming

revenues

for

this

year,

so

there's

a

couple

of

elements

of

this.

You

mentioned

the

Amazon deal

that

you

signed

at the

beginning

of

this

year.

Could

you

maybe

just

talk

broadly

about

the

impact

of

deals

like

that?

You don't

have

to

talk

specifically

about

that –

the

Amazon

deal

in

and

of

itself.

But

it'd

be

interesting

to

kind

of

hear your

thoughts

about

how

you

expect

new

deals

to

come

on

stream

say

over

the

course

of

the

next

one

to

two

years

and

how

deals

like

Amazon

sort of

drive

– kind

of

illustrate

your

strategy.

That's

the

first

question.

And

then

secondly,

on

the

content

investment,

maybe

this

one

is

for

Boyd.

Could

you

–

Boyd,

you

spent –

if

we

look

at

2020,

you

spent

€929

million

as

you

said

on

catalog

purchases.

Could

you

maybe

help

us

understand

what

impact

that

investment

had

on

the

revenues

and

profit

of

the

business

in

2021?

And

then

just

thinking

about

the

kind

of

the

pattern

of

how

advances

in

catalogs

might

sort

of

come

through

over

the

next

two or

three

years,

can

you

just

maybe

just

talk

about

whether

you

think

the

elevated –

relatively

elevated level

of

investment that

we've

seen

in

the

last

three

years

will

be

repeated

or

are

we

sort

of

looking

at

a

period

when

that

will

be –

when

the

total

investment

will

be

coming

down? Thank

you

very much.

[Lucian C. Grainge]

Will you take

the

first

one?

[Michael Leslie Nash]

I'll

take

the

first

question.

Thank

you,

Omar.

So

with

respect

to

the

Amazon

deal

and

what

that

conveys

about

our

strategy

and

our

partnerships,

I

think

that

the

really

important

themes

were

hit

on

by

Lucian

in

his

comments.

First

of

all,

the

holistic

approach.

So,

we

broadened

and

expanded

our

deal

with

Amazon

across

all

their

touchpoints

with

consumers.

We

think

of

Amazon

as

being

a

great

partner

from

the

standpoint

of

the

monetization

of

all

the

forms

of

fan

engagement.

So,

we're

talking

about

the

multiple

tiers

of

the

subscription

offer.

They

now

have

an

ad-supported

tier

for

customer

acquisition.

Their

focus

on

higher

quality,

and they

were

a leader

in

focusing

on

higher

quality

early

on.

We're

very

excited

about

spatial,

high

resolution

and

lossless

and the

higher-quality

offer

that

they

make

available.

And

we're

excited

about

continuing

to

focus

with

them,

innovating

around

physical

goods

and

merch.

We

added

the

Twitch

component,

they're

part

of

the

Amazon

family

of

companies,

and

we

think

that

the

opportunities

to

innovate

our

livestreaming

is

great.

And

we

think

the

opportunity

to

think

of

the

livestream

component

of

Twitch

as

it

relates

to

our

overall

business

with

Amazon

is

what's

really

strategic.

So,

it's

a

multifaceted

nature

of

the

partnership

with

Amazon,

all

the

touchpoints

with

the

consumers,

the

holistic

angle.

The

other

thing

that's

really

important,

and

Lucian

emphasized

this,

we

see

cost and

innovation

throughout

the

digital

ecosystem.

So

innovations,

obviously

very

much

about

new

partnerships

and

new

formats,

and

livestream

would

be

an

element

of

that.

But

innovation

is

very

much

about

driving

our

partnerships

with

our

established

major

global

platforms.

And

what we

see

with

Amazon

and

the

added

component

of

Twitch

and

innovation

happening

in

other

categories

of

their

business

is

the

ongoing

evolution

in

the

space,

the

megatrends

driving

the

consumer

online,

provides

us

more

opportunities

to

monetize

music

consumption

with

established

partners.

[Lucian C. Grainge]

I'd

just

like

to

add

there,

Michael,

that

we

lean

in,

that's

what

our

digital

strategy

is.

There're

new

categories,

we

talked

about

fitness,

we

talked

about

health,

we

never

talked

about

a

digital

category

like

Peloton

a

couple

of

years

ago.

Our

philosophy

and

our

business

attitude

is

that

we

will

make

deals

right

across

the

entire

digital

universe

because

music

is

the

soundtrack

of

everyone's

lives.

Music

is

everywhere

and

we

do

everything

that

we

can

whether

or not

it's

with

Amazon,

how

we're

leaning

into

the

metaverse

and

what

– and

where

we'll

be

shopping

in

future

in whichever malls, you'll

be

listening

to

music.

And

our

job

and

our

focus

is

to

make

sure

that

it's

ours

with these

huge

catalogs

and

all

these

phenomenal

new

artist

breaks.

[Boyd Johnston Muir]

And

Omar,

maybe

I'll...

[Operator]

Thank

you.

[Boyd Johnston Muir]

Oh,

I

was

just –

I

think

Omar –

there

was

a

second

part

to

Omar's

question

if

I

–

if

you

could

allow

me.

Omar,

I

tried

to

say

a

little

bit

earlier,

the

difficulty

here

is

many

ways

–

I

did

say

that

it

was

an

elevated

level

of

advances

and

clearly

in

2020

and

then

again

in

2021.

The

difficulty

is

that

these

are

very

unique

opportunities

that

come

up

and when

you

analyze

these

opportunities

and

it

involves the

superstar

artists

where

you're

securing

longer-term

rights

and

broader

rights,

they

are

incredibly

positive

for

the

long-term

health

of

our

business

and

driving

long-term

value

for

our

shareholders.

So,

we

really

do

have

to

take

up

those

opportunities

as

and

when

they

arise.

So,

it's

practically

impossible

to

actually

give

you

with

any

precision

whatsoever

what's

the

normalized

level

of

advances.

And

just

another

part

of

your

question

was

what

was

the

impact

in

2021

of

the –

2021

performance

relative

to

what

was

coming

through

from

the

acquisition.

The

reality

is,

is

that

the

contribution

is

negligible

at

this

point

in

time.

There's

–

when

you

acquire

rights,

there's

sometimes

existing

arrangements

in

place

or

contractual

commitments

in

place

to

take

a

little

bit

of

time

to

unwind

before

they

come

into

the

system.

So,

in

2021,

negligible

impact

on

our

– in

our

performance.

[Lucian C. Grainge]

Let me

just

back

that

up,

Boyd,

as

well.

We

are

only

interested

in

the

best of

the

best

of

the

best.

And

you

cannot

predict

when

one

of these

opportunities

comes

to

market.

It

can

be

a

personal

reason,

a

strategic

reason.

We

don't

know.

But

I

can

guarantee

to

you

that

when

it

does,

we

will

be

there,

we

will

look,

we

will

analyze.

And

if

we

can

add

value

to

it

with

our

data,

with

our

statistics,

with

our

insights, we're

far

better

positioned

to

analyze

what

exactly

what

the

business

opportunity

is

and

what

the

growth

is

because

we

see

the

growth

in

the

marketplace,

both

in

Recorded

Music

before

anybody

else

because

we're

at the

epicenter

of

it.

[Operator]

Thank

you. And

the

next question

comes

from

Lisa

Yang

of

Goldman

Sachs.

Lisa, please

go

ahead.

Your

line

is

open.

[Lisa Yang, Analyst, Goldman Sachs International]

Good

evening.

Thanks

for

taking

my

question.

The

first

one

is

on

the

streaming

growth.

I

mean, Warner

mentioned

at

their

recent

result

that

they've

been

hit

by

almost

$110

million

headwind

from

a

DSP

deal

renegotiation,

which

obviously

is quite

a

big

reset.

And

I

know

you

don't

talk

about

individual

deals,

but

given

the

size

of

it,

I'm

just

wondering

if

this

is

an

issue

that

you

could

be

facing

or

that

you're

facing.

And in

general,

how

you

think

about

the

leverage

of

the

labels

versus

DSP

and

how

that's

going

to evolve?

That's

the

first

question.

The

second

one

is

on

margins.

Obviously,

you reiterated

that

margin

will

expand

in

line

with

your

targets

of

– to

meet

20s

all

the

time.

But I'm

just

thinking,

particularly

on 2022,

there're

obviously

a

lot of

moving

parts

with

inflation

picking

up,

merchandising

coming

back,

certain

cost-related travel

coming

back.

So,

do

you

think

margin

can

still

grow in

2022?

Could

you

help

us

just

understand

like

the

sort of

the

various –

hello?

Yeah.

Could

you

just

help

us

understand

the

various

moving

part?

That'll

be really

helpful.

Thank

you.

[Lucian C. Grainge]

We're

actually

quite

happy

with

the

state

of

our

digital

partnerships.

I've

spent

my

entire

life,

my

entire

career

fighting

for

rights

and

artist

rights,

publisher

rights.

And

frankly,

we

don't

know

what

to your

point

what

Warner

were

referring

to.

So

frankly,

I

can't

actually

really

comment.

With

regard

to

the

importance

of

the

platforms

and

our

role

within

it,

our

music,

new

artists

in

all

genres,

rock,

hip

hop,

classical,

it

drives

consumers

to

the

platforms.

And

when

you

have

the

kind

of

performance

that

we

have

creatively

as

well

as

our

vast,

deep

catalog,

where

you

can see

we

re-align

them

cyclically

from

the

Beatles,

the

Beatles

had

the

most

phenomenal

year

last

year,

to

ABBA

that

you

will

have

all

seen, to

The

Rolling

Stones,

to

Queen,

to

Elton

John.

This

is

what's

driving

our

company

and

it's

what's

driving

the

platforms.

And

that's

where

we

are

confident

of

our

role

with

them.

[Michael Leslie Nash]

Before

Boyd

addresses

the

margin

question,

I

just

wanted

to

be

really

specific

and

say

that

we

don't

see

anything

similar

on

the

horizon

with

respect

to

the

issue

that

Warner

raised.

As

Lucian

said,

we're

not

sure

what they

referred

to

and

we

expect

continued

revenue

growth

from

all

of

our

major

global

partners.

[Lucian C. Grainge]

Yeah. That's

right. Yeah.

[Boyd Johnston Muir]

And

with

regard

to

margins,

I

mean,

we

gave

the

guidance

about

that

we

would

– in

the

midterm,

our

EBITDA

margins

would

move

to

the

mid-20s.

And

reality is,

is

that

2022

will

be

part

of

that

continued

evolution

of

our

overall

margin.

So

yes,

we

expect

the

expanded

margins

through

this

year

and

in

the

coming

years.

[Operator]

Thank

you.

And

our

next

question

comes

from

Richard

Eary

of

UBS.

Richard,

please

go

ahead.

Your

line

is

open.

[Richard James Eary, Analyst, UBS AG (London Branch)]

Yeah.

Just

two

questions

from

myself.

Just,

firstly,

thank

you,

actually,

for

all

the

color

with

regard

to

catalog

investments,

which

is

super-helpful

in

terms of

giving

us

color

around

that.

The

one

thing

I

would

like

to

try and

understand

a little

bit

is

that

on

the

actual

advances,

given

that

it's

more

the

sort

of

normal

course

business

in

terms

of

line

of

sight

of

artists

that

you're

signing

with

a

view

on

obviously

how they'll

go

in

the

future,

how

does

– how

should

we

think

about

that

on

a

go-forward

basis?

Is

that

something

that

we

should

think

about

modeling

as

a

percentage

of

revenues?

Any

sort

of color

around

the

advances

side

within

the

catalog

payments,

that

would

be

great.

I

understand

that

the

catalog

is

more

going

to be

lumpy

around

M&A

and

I

technically

get

that

point.

The

second

question

is,

is

just

around,

obviously,

maybe

just

talking

about

the

new

streaming

deals,

but

also

sort

of things

like

the

NFT

opportunity

and

noting

the

obviously

the

recent

deal

that

you

just

made

couple

of

days

ago.

Could

you

maybe

try

and help

us

size

the

opportunities

around

those

new

streaming

deals,

but

also

the

NFT

opportunities

and

Web

3.0

opportunity

scores?

[Lucian C. Grainge]

I'd just

like

to

add

one

thing

and

I

think

that

you

can –

I'll

hand

over

to

you

as

well.

Long-term

thinking

and

long-term

business

is

baked

into

everything

that

we

do.

You

may

see

one-off

NFT

drops.

I'm

far

more

interested

in

the

long-term

sustainable

business

model

where

this

product,

this

opportunity,

and I

include

the

metaverse

in

there,

is

part

of

the

conversation

with

our

artists

where

it's

baked

into

their

long-term

marketing

campaigns

and

it

adds

to

the

push

and

the

pull

of

what

is

monetization,

what

is

discovery

and

what

is

promotion.

And

you

may

be

able

to

add

a

few

more

specifics

on

it,

but

I

want

it

to

become

something

sustainable

and

long

term

as

opposed

to

just

a

headline

today

about

something

that

everyone

talks

about

for

an

hour.

I

want

it

to

be

baked

into

our

business.

[Michael Leslie Nash]

Just

to

elaborate

on

that

briefly.

Very

active

experimentation

by

Universal

Music

with a

lot

of

NFT

drops

last

year,

we

made

a

commitment

to

learn

by

doing.

What

we

distilled

from

that

experimentation

was

a

strategy

that

speaks

to

the

objectives

that

Lucian

articulated.

So

these

new

deals that

we

announced,

and

I

think

you're probably

referring

to

the

Curio

deal,

the

Snowcrash

deal

and

the

Billboard

chart

stars

deals

recent

announcements we

made.

These

are

highly

consistent

with

a

long-term

focus

on

market-making

partnerships,

product

innovation

and

as

Lucian

emphasized,

scalable

categories

where

we're

taking

an

artist-first

approach.

So,

I

would

say

that

these

deals

are

really

more

about

strategic

positioning

for

market

development

overall.

It's

really

early

days.

So,

the

focus

is

on

being

in

position

to

be

able

to

take

advantage

by

bringing

the

right

opportunities

to

our

artists,

so

that we

can

execute

at

scale.

And

we

think

about

what

we're

pursuing

in

Web3

as

an

extension

of

everything

that we're

doing

with

artists

and the

way that

we

can have

the

greatest

impact

is

by

focusing

on

deploying

our

artist

roster

up

against

these

opportunities

and

executing

the

NFT

product

opportunities

and

all

the

Web3

opportunities

as

part and

parcel

of

everything

that

we're

doing

with

the

artists.

So

you

can

think

of

Web3

and

NFTs

as

kind

of

the

tip

of

the

technological

spear

or

overall

e-commerce

strategy

with

our

artist

roster.

[Boyd Johnston Muir]

Now,

to

something

completely

different.

Richard,

just

to

go

back

to

the

point

in

terms

of

advances

and

what

you

can

expect,

it's

not

possible

to

give

you

a

specific

percentage

of

freedom

for

this

kind

of

item.

What

all

I

would

say

is

that

we're

trying

to

give

you

better

transparency.

We've

broken

out

the

advances

from

the

catalog

investments,

we'll

obviously

continue

to

do

this.

So

hopefully

with

that

transparency,

you will

get

greater

comfort

on

what's

actually

happening

here.

And

then

the

only

other

thing

I

would

say

is

that

to

the

extent

that

these

advances

are

elevated

is

because

we're

acquiring

longer

and

broader

rights

which

are

so

good

for

the

health

of

our

business

and

for

the

– for our

shareholders.

So,

I'm

not

sure

I

can

say

much

more

to this,

sorry.

[Lucian C. Grainge]

But

let

me

add

that

when

I

started

as

a

talent

scout,

everything

–

all

the

A&R

and

all

the

advance

judgments

were

based

on

your

gut

instinct

and

whether

or

not

you

liked

it.

Now,

we

have

an

enormous

amount

of

data

and

analytics.

It's

much

easier

now

to

invest

intelligently,

and

as

you

said,

Boyd, where

we've

been

fortunate

enough

to

create

these

long-term

relationships

with

these

superstar

artists

that

have

years

if

not

decades

with

their

catalogs

with

us,

we've

been

able

to

lean

in

and

actually

advance

our

relationships

with

them

and

that's

needed

investment.

[Boyd Johnston Muir]

Yeah.

[Lucian C. Grainge]

But

they're

safer

and

they're

more

intelligent.

[Operator]

Thank

you. And

our

next

question

comes

from

Will

Packer

from

BNP Paribas

Exane.

Will,

please

go

ahead,

your

line

is

open.

[William Packer, Analyst, Exane BNP Paribas]

Hi, there.

Many

thanks

for

taking

my

question.

Firstly

on

emerging

markets,

there's

set

to

be

an

increasingly

important

top

line

driver,

especially in

premium

streaming.

How

are

you

thinking

about

increasing

your

market

share

of

content

in

those

markets?

Would

you

consider

M&A?

Will

you invest

organically

or

perhaps

JVs

along

the

lines

[indiscernible]



(01:01:52)?

Then

secondly,

just

going

back

on

the

margin

question.

Is

it

fair

to

think

that

for

FY

2022,

the

level

of

margin

expansion

will

be

lower

this

year

in

the

context

of

the

return

of

those

COVID

costs

or

did

your

comment

imply

that

it

should

be

another

year

of

around

100 basis

points?

[Boyd Johnston Muir]

Just

to deal

with

the

margin

question

quickly.

Will,

we

don't

want

to

give

anything

– more

guidance

more

specific

than

what

we've

already

said.

So,

if

we

could

leave

it

there

for

now.

Yeah.

But we...

[Operator]

Thank you. And

our

next question...

[indiscernible]

(01:02:35)

[Operator]

Sorry. Carry

on.

[Boyd Johnston Muir]

I was

just

going

to

say

the

second

part

of

that

was

about

the

opportunities. So,

the

question

from

Will

is

about

the

opportunities in

emerging

high-growth

markets.

[Lucian C. Grainge]

Which

is

A&R.

It's

organic A&R.

We're

doing –

I'm

encouraged

with

what

I

see

creatively

in

Universal

Music

Arabia,

what

we're

doing

there,

I'm

encouraged

by

what

we're

doing

in

India

creatively,

obviously,

Korea,

China.

We're

expanding

in

China.

We

just

launched

Capitol

Records

in

China

today.

We're

ambitious

for

it.

The

work

that

I've

seen

done

in

India

last

week,

I

was

very

impressed

with.

We've

signed

the

local

superstar

hip hop

artist

called Badshah there

that

we

were

very

excited

about.

He's

done

a

duet.

I'm not

sure

if I'm

allowed

to

say,

but

I'm

going

to

visit

the

duet

with

another

famous

Latin

artist, and

we're

getting

into

trouble

for

that.

And

that's

the

creative

organic

leaning

into

the

changes

in

the

market

because

of

the

distribution

opportunities.

But

at

the

same

time,

obviously,

we're

always

looking

for

acquisition

as

well

in

markets

where

there

was

no

business

10, 15, 20

years

ago.

And

now

there

is

business,

now

we're

very

open-minded.

[Operator]

Thank

you. And

our

next

question

comes

from

Matthew

Walker

of

Credit

Suisse.

Matthew, please

go

ahead.

Your

line

is

open.

[Matthew Walker, Analyst, Credit Suisse Securities (Europe) Ltd.]

Thanks a lot.

And

thank

you

for

taking

the

couple

of

questions.

The

first

one

is

just

on – I

probably

won't

get

very

far

with

this.

But

on

high-single-digit

growth,

I

mean,

what does

that

mean?

Is

it

like

a

6%

or

a

9%?

Any

help

you

can

give

us

would

be

helpful.

I

mean,

you

started

off,

I

think

2021,

saying

it was

going to

be

10%

or

a

little bit

more

than

10%, and then

it

was

much

higher,

it was like

16%

or

17%. So,

any

help

you

can

give

us

on

sort of

definition

of

high-single

digit

growth?

I

mean,

I know

that

you

sort

of

set

high-single-digit

probably

deliberately,

not

to

be

specific

but

any

help

you

can

give

us

will

be

great.

And

then

the

second

question

is

on

the

metaverse

and

the

NFT

deal.

So,

when

you

sit

down

and

you

talk with

your

artists

about NFTs

in

particular

or

even

digital

merchandise,

to

what

extent

do

today's

existing

contracts

with

existing

artists

include

you

having

a

cut

on

digital

merchandise

and

NFTs

or

is

that

something

where

you're

going to

have

to

go

back

and

renegotiate

all

or

most

of

the

contracts

to

include

those?

[Boyd Johnston Muir]

So,

Matthew,

I

hate

to

disappoint

you

but

last

time

I

looked

the

number

10% was

double-digit

and

17%

is

high-double-digit.

So,

the

guidance

we

gave

was

high-single-digit

and

we

stick

behind

that

and

that's

probably

all

I

can

say.

I

admire

your

attempts

at

trying

to

get

something

more

specific,

but

let's

leave

it

at

that

for

now.

Thank

you.

[Michael Leslie Nash]

And

then

with

respect

to

the

question

on

NFTs and

partnering

with

artists,

I

would

say

that

the

proof

points

are

in

the

marketplace

or

will

be

in

the

marketplace

with

respect

to

the

products

that we're

delivering.

And

I

think

that

Curio

and

Snowcrash

and

chart

stars

deals

will

be

examples

of

partnering

with

artists.

There

have

been

some

products

out

there

that

are

opportunistic

celebrity-driven

based

on

a

very

shallow

set

of

rights.

And

frankly, they're

not

very

interesting.

They're

half

products.

We

believe

that

we

can

execute

with

our

artist's

whole

product

propositions

that'll

be

marketed

with

the

full

power

of

the

label,

bringing

the

artist's

voice and

vision

bringing the artist's

voice

and

vision

to

the

marketplace.

And

as

Lucian

said,

that

holistic

approach

is

really

where

we're

going

to

be

able

to

move

the

market

or

where we're going to

really

be

able

to

deliver

scalable

categories.

So,

I

think

what's

most

important

to

consider

is

how

we

partner

effectively

with

artists

to

be

able to

make

new

products,

make

whole

products

that

include

the

full

package

of

rights

working

with

the

artists

in

a

way

that

we're

bringing

to

market

these

new

types

of products

in

concert

with

everything

we're

doing

with

the

artists.

[Operator]

Thank

you. And

our

next

question

comes

from

Matti

Littunen

of

Sanford

C.

Bernstein.

Matti,

please

go

ahead.

Your

line

is

open.

[Matti Littunen, Analyst, Bernstein Autonomous LLP]

Hello.

Thank

you.

The

first

question

is

on

the

new

platform

deals,

quite

a

few

questions

already

on

that,

but

just

to

go

for

some

color

on

the

typical

contract

period

in

this

year.

So

are

these

typically

multiyear

period?

And

in

terms

of

the

licensing

revenue

that

you're

getting

out

of

them,

is

it

typically

on

a

sort

of

fixed

basis

with

some

kind

of

escalation

going

on?

Or

is

it

somehow

consumption

based?

And

then,

thank

you

for

giving

the

detail

on

the

catalog

investments

versus

the

other

content

investments. Of

course,

as

analysts,

we're

always

looking

for

more.

So,

could

you

just

confirm

that

most

of

the

catalog

acquisitions

were

publishing

catalogs

as

opposed

to

recorded

ones?

Thank

you.

[Michael Leslie Nash]

So

I

think,

with

respect

to

the

first

question,

the

–

I

think

that

you're

dealing

with

such

a

wide

range

of

different

types

of

products

and

categories.

It's

very

difficult

to

characterize

effectively

and

succinctly

answer

your

question.

I

would

say

this,

in

general,

we've

made

a

decision

that

we're

going to

partner

early

with

companies

and

that

puts

us

in

a

position

so

that

we

can

establish

monetization

for

our

artists

but

also

influence

the

product

roadmaps.

So,

we

may

make

a

determination

that

while

a company is

fully

billing

on

the

systems

to

implement

a

more

sophisticated

business

model,

we're

going

to

partner

with

them

and

we're

going to

figure

out

the

right

economics

and how

ours

artists can

fairly

participate

in

the

value

that

their

content

creates

on

the

platform,

and

we're going

to build

a partnership

from

there.

So,

there's

a

variety

of

different

types

of

models

that

you're going

to

implement

when

you're

working

with

companies

at

an

earlier

stage.

But

I

think

the

most

important

thing

is

to

be

part

of

driving

a

healthy

ecosystem

by

focusing

on

how

to

effectively

partner

with

companies

at

the

earliest

possible

stage.

So,

that

may

put

you

in

a

position

where

you

have

different

business

models

that

you're

going

to

look

to

implement

over

time.

[Lucian C. Grainge]

Understand,

Matti,

that

we

want

to

be

the

world

where

its

campaigns

are

integrated

into

an

artist's

global

strategy

and

global

career.

And

one-off drops

are

very

nice

but

they're

not

sustainable.

And

we

spend

a

lot

of

ability

and

a

lot

of

skill

and

capital

to

break

these

artists

and

to

sustain

them

and

to

market

our

vast

catalog.

And

that's

where

we

put

our

capital

to

work.

It's

just

not

on

advances, it's

just

not

on

acquisitions,

it's

on

activity

to

market,

promote,

take

risks,

bring

the

music,

bring

the

product

to

audiences,

and

that's

where

we

see

our

future

digital

business.

We

want

it.

We

want

to

work

with

business

partners,

platforms

as

well

as

obviously

our

artists,

so

that

we've

got

a

long-term

integrated

business.

[Boyd Johnston Muir]

And

Matti,

the

other

question

you

asked

which

is

what

is

the

split

between

the

– on

the

catalog

investments,

what's

the

split

between

publishing

and

records.

Coincidentally,

both

for

2020

and

2021,

approximately,

75%

of

the

catalog

investment

was

on

publishing.

But

word

of

caution,

that

doesn't

necessarily

mean

that

in

future

years

it

will

continue

to

be

at

75%.

It's

just

that's

the

way

it

happened

to

be

in

2021

and

2020.

[Lucian C. Grainge]

And

as

I said,

you

don't

know

when

the

greatest

company,

the

greatest

work,

the

greatest

Picasso,

a

phenomenal

opportunity

is

going

to

come

along.

But

when

it

does,

we

will

be

there.

[Operator]

Thank

you. And

our

last question

today

comes

from

Julien

Roch

of

Barclays.

Julien,

please

go

ahead.

Your

line

is

open.

[Julien Roch, Analyst, Barclays Capital Securities Ltd.]

Yes.

Good

evening.

Thank

you

for

taking

my

question.

The

first

one

for

Boyd,

who

seems

to

be

a

Monty

Python

fan,

so

– and

now

for

something

not

different.

If

I

look

at

net

content

investment

ex-catalog

acquisition

as

a

percentage

of

revenue

in

the

last

four

years,

it's

been

2%,

2.7%,

7.9%

and

4.3%.

You

said

4.3%

was still

elevated

and

then

you

said it'd

be

impossible

to

give

us

a

guidance

because

it's

different

every

year.

But

1%

difference

on

revenue

for

that

line

is

15%

on the

free

cash

flow,

which

makes

UMG

either

cheap

or

expensive.

So

while

you

can't

give

us

a

guidance,

2%,

3%,

4%,

if

– what's

your

–

if

you

were

to

do

a

model

on

UMG,

and

I'm

sure

you

have

a

five-year

business

plan,

what

makes

more

sense

between

those

three

numbers?

I

know

that it's

been

tried

three

times.

I'm

just trying

it

fourth

time.

So

that's

my

first

question.

And

then

the

second

question

is

on

catalog.

On

catalog,

you

said,

returns

well

in

excess

of

cost

of

capital.

But

if

I

take

Sting,

according

to

Billboard,

you've

paid

$300

million

for

$12

million

to

$13

million

of

revenue.

If

I

put

20%

SG&A

on

these

revenues

and

25%

tax

rate,

I

only

get

a

2.5%

books

tax

return

which

is

far

from

WACC.

So,

Billboard

numbers

must

be

very

wrong.

I'm

not

dreaming

of

you

giving

us

the

Sting

numbers,

probably

ain't going

to

happen.

But

could

we

have

a

sense

of

what

is

your

post-tax

return

on

catalog

acquisition

for

maybe

2020

or

2021?

Thank

you.

[Boyd Johnston Muir]

Julien,

I

admire

your

persistence.

But

clearly,

I'm

not

going

to

be

able –

I

mean,

again,

just

going

back

to

what

I

was

saying,

these

are

unique

opportunities

and

you

can't

attach

a

specific

possibility

or

a

specific

percentage

to

an

opportunity

or

a

possibility.

It's

just

not

the

way

to

look

at

it,

frankly.

And

with

regard

to

your

question

on

specifically

Sting,

clearly,

we're

not

going

to

comment

on

any

individual

artist.

But

all

I

can

say

to

you,

I

promise

you,

we've

got

much

better

insight

than

Billboard

has.

So,

that's

the

whole

kind

of

point

that

Lucian

was

making

about

what

we

see

and

what

we

can

do

with

the

asset

and

how

we

can

improve

the

monetization.

But

by

the

way,

we're

not

telling

anyone

how

we're

going

to

do

this.

[Operator]

Thank

you.

That

was

our

final

question.

Today's

Q&A

session

has

now

come

to

an

end.

Thank

you

all

for

joining

and

you

may

now

disconnect

your

lines.