Universal Music Group N.V. Reports Financial Results for the Fourth Quarter and Full Year Ended December 31, 2023

Summary Q4 2023 Results1

Revenue of €3,208 million increased 9.0% year-over-year, or 15.6% in constant currency, driven by strong growth across all segments.
Recorded Music subscription revenue grew 8.9% year-over-year, or 15.0% in constant currency and streaming revenue declined 1.3% year-over-year, but grew 5.6% in constant currency.
Adjusted EBITDA of €677 million increased 9.2% year-over-year, or 15.1% in constant currency, and Adjusted EBITDA margin remained constant at 21.1% due in part to the headwind from a €15 million one-time item.
Top sellers included Taylor Swift, The Rolling Stones, Drake, Jung Kook and Stray Kids.

Summary FY 2023 Results1

Revenue of €11,108 million increased 7.4% year-over-year, or 11.1% in constant currency, driven by strong growth across all segments.
Recorded Music subscription revenue grew 9.6% year-over-year, or 12.8% in constant currency and streaming revenue grew 0.4% year-over-year, or 3.6% in constant currency.
Adjusted EBITDA of €2,369 million increased 11.0% year-over-year, or 14.6% in constant currency, and Adjusted EBITDA margin expanded 0.7 percentage points to 21.3% including headwinds from one-time items. Excluding all one-time items detailed in the Appendix, Adjusted EBITDA margin increased 1.2 percentage points year-over-year.
Net cash provided by operating activities before income tax paid of €2,278 million increased 14.6% compared to €1,987 million in 2022.
Subject to shareholder approval, final dividend proposal of €492 million, or €0.27 per share, which would bring total dividend for 2023 to €929 million, or €0.51 per share.

Strategic Organizational Redesign

Announced a strategic organizational redesign which will generate €250m in annual run-rate savings by 2026, all of which is accretive to EBITDA, through a combination of headcount reduction and other operational efficiencies.
First phase will achieve €125m in annual run-rate savings in 2025, including €75m in 2024.
Plan is designed to achieve efficiencies in targeted cost areas while strengthening labels capabilities to deepen artist and fan connections.

2023 Business Highlights

Global artist success, including: 9 of the Top 10 on the IFPI Global Recording Artist of the Year chart; 6 of the Top 10 global artists on Spotify; and 13 of the Top 20 most-streamed songs globally on Apple Music.
Implementation of first artist-centric royalty models with Deezer and Spotify: Initial deals have been structured to better reward artists and music that are attracting and engaging fans, attack fraud and gaming, and reduce the amount of low-value content available on DSP platforms.
Progress on strategy to accelerate investment in high-growth music markets: Closed catalogue acquisitions of RS Group in Thailand, and Oriental Star Agency, a British label focused on South Asian repertoire; and also closed the acquisition of UAE artist services business Chabaka, among other items.
Responsible AI Initiatives: First music company to call on U.S. Congress for federal right of publicity to prevent deepfakes, and protect fans and artists from unethical uses of AI; established innovative partnerships focused on AI content development and responsible practices with early-stage entrepreneurs; forged a historic partnership with YouTube founded on key principles embracing creative community interests.

HILVERSUM, Netherlands, Feb. 28, 2024 /PRNewswire/ — Universal Music Group N.V. (“UMG” or “the Company”) today announced its financial results for the fourth quarter and full year ended December 31, 2023.

 “2023 was another exceptional year for UMG: creatively; financially; and strategically.  From our artists’ and songwriters’ record-breaking performance, to our work advancing the industry through innovative business models, to our leadership fostering responsible AI, to driving our long-term strategy through partnership and thoughtful investment, UMG is uniquely positioned to seize the next wave of growth opportunities on behalf of its artists, employees and shareholders,” said Sir Lucian Grainge, UMG’s Chairman and CEO.

Boyd Muir, EVP, CFO and President of Operations for UMG, said, “We continued our strong performance in 2023, with robust top- and bottom-line growth driven by both our artists’ and songwriters’ exceptional performance, as well as progress across our strategic initiatives.  The strong cash flow generated by our operations also allows us to make strategic, long-term investments in our company, while maintaining a healthy balance sheet and still returning significant cash to shareholders through our dividend program.”

UMG Results

Q4 2023 Results
Revenue for the fourth quarter of 2023 was €3,208 million, an increase of 9.0% year-over-year, or 15.6% in constant currency. UMG’s Recorded Music, Music Publishing and Merchandising and Other segments all had strong revenue growth, as discussed further below. 

EBITDA for the quarter grew 6.6% year-over-year, or 13.3% in constant currency, to €564 million, driven by the revenue growth. EBITDA margin was 17.6%, compared to 18.0% in the fourth quarter of 2022. EBITDA and EBITDA margin were impacted by non-cash share-based compensation expenses of €113 million during the fourth quarter of 2023, and by €91 million of non-cash share-based compensation expenses during the fourth quarter of 2022. Excluding these amounts, Adjusted EBITDA for the quarter was €677 million, up 9.2% year-over-year, or 15.1% in constant currency, driven by the revenue growth and €22 million in cash compensation savings associated with our equity plan rollout. Adjusted EBITDA margin remained constant at 21.1% compared to the fourth quarter of 2022. 

As detailed in the Appendix, EBITDA and Adjusted EBITDA were negatively impacted by a €15 million Legal Provision. Excluding this item, Adjusted EBITDA grew 11.6% year-over-year, or 17.7% in constant currency, to €692 million and Adjusted EBITDA margin increased 0.5pp year-over-year to 21.6%, compared to 21.1% in Q4 2022.

EBITDA margin and Adjusted EBITDA margin reflect a headwind from repertoire mix and revenue mix, with strong growth in physical sales, which carry a lower EBITDA margin than digital sales, and with high growth in Merchandising and Other revenue, which carries a meaningfully lower EBITDA margin than Recorded Music and Music Publishing revenue.

FY 2023 Results
Revenue for 2023 of €11,108 million increased by 7.4% compared to 2022, or 11.1% in constant currency. This increase was driven by double-digit improvements across all segments, as discussed further below.

As detailed in the Appendix, 2023 revenue included the benefit of the Copyright Royalty Board Phonorecords III ruling. 2022 revenue included the benefit from the Change in Society Accounting and the Legal Settlement. Excluding these items from both years, full year revenue grew 8.7%, or 12.4% in constant currency.

Cost of revenues, consisting of artist and product costs, increased by 7.9% to €6,208 million in 2023 and Cost of revenues as a percentage of revenue increased to 55.9% in 2023 from 55.6% in 2022. Cost of revenues as a percentage of revenues increased due a greater proportion of Music Publishing and Merchandising and Other revenues, which have higher Cost of revenues compared to Recorded Music, and an increase in artist costs as a share of revenue due to Recorded Music repertoire mix.

Operating profit declined 11.4%, or 8.3% in constant currency, to €1,418 million in 2023 due to the higher non-cash share-based compensation expenses in 2023 compared to 2022 as discussed below.

EBITDA of €1,808 million decreased 10.8% year-over-year, or 7.8% in constant currency, and EBITDA margin was 16.3%, compared to 19.6% in the prior year period. EBITDA and EBITDA margin were impacted by non-cash share-based compensation expenses of €561 million during 2023 compared to €107 million during 2022. Excluding these amounts, Adjusted EBITDA was €2,369 million, up 11.0% in 2023, or 14.6% in constant currency, driven by the revenue growth. Adjusted EBITDA margin improved 0.7pp year-over-year to 21.3%.

As detailed in the Appendix, EBITDA and Adjusted EBITDA in 2023 were impacted by the Copyright Royalty Board Phonorecords III ruling and the Legal Provision while EBITDA and Adjusted EBITDA in 2022 were impacted by the Change in Society Accounting and the Legal Settlement. Excluding these items, Adjusted EBITDA grew 14.9% year-over-year, or 18.5% in constant currency, and Adjusted EBITDA margin increased 1.2pp year-over-year to 21.5%, compared to 20.3% in 2022, despite a margin headwind from repertoire mix and revenue mix, as discussed above.

Net profit attributable to equity holders of the parent for 2023 amounted to €1,259 million compared to €782 million in 2022, resulting in Basic EPS of €0.69 in 2023, compared to €0.43 in 2022, and Diluted EPS of €0.68 in 2023, compared to €0.43 in 2022.  The increase in Net profit attributable to equity holders of the parent was due in part to the variance in revaluation of investments in listed companies (including Spotify and Tencent Music Entertainment, among others) that was a net income in 2023 of €425 million compared to a net expense in 2022 of €617 million. Adjusted net profit, which adjusts for the revaluation of investments, non-cash share-based compensation expense, amortization of catalogues and other items detailed in the Appendix, amounted to €1,595 million in 2023, compared to €1,454 million in 2022, resulting in Adjusted Basic EPS of €0.88 in 2023, compared to €0.80 in 2022 and Adjusted Diluted EPS of €0.87 in 2023, compared to €0.80 in 2022.  The increase in Adjusted net profit was driven by the growth in Adjusted EBITDA.

Net debt, defined as total debt minus cash and cash equivalents, at the end of 2023 was €1,689 million compared to €1,810 million at the end of 2022. The net leverage ratio at year-end 2023, defined as Net debt over EBITDA, was 0.9x, consistent with 0.9x at year-end 2022.

Net cash provided by operating activities before income tax paid improved 14.6% to €2,278 million compared to €1,987 million in 2022, despite €132 million paid to settle employee tax liabilities from equity grants on non-cash share-based compensation. The improvement in Net cash provided by operating activities before income tax paid was due to the increase in Adjusted EBITDA, favourable working capital movements and lower royalty advance payments, net of recoupments, which declined 32% to €100 million in 2023 from €148 million in 2022, due to the timing of major artist renewals.

The strong Net cash provided by operating activities before income tax paid allowed the Company to continue to strategically invest in the long-term growth of the business. Cash paid for catalogue acquisitions decreased to €178 million in 2023 compared to €359 million in 2022 and included the previously announced acquisitions of catalogues from RS Group in Thailand and Oriental Star Agencies, a British label focused on South Asian music, as well as several artist catalogue deals. Separately, investing activities also included €75 million cash put into escrow for another catalogue acquisition. Other strategic investments in the year included the acquisition of a 50% stake in the entity that owns the iconic Capitol Records building in Hollywood and the acquisitions of a brand services company, a niche record label and UAE-based music company Chabaka, among other items. Free cash flow was largely flat at €1,082 million in 2023 compared to €1,086 million in 2022, even with the increase in investing activities detailed above. Free cash flow also reflects higher income taxes paid and higher net interest paid, both of which benefitted from previously disclosed tax settlements in the prior year.

In accordance with UMG’s dividend policy to pay a dividend of 50% of Net Profit (subject to agreed non-cash items and applicable law), UMG has proposed to pay a final dividend of €492 million, or €0.27 per share for the year ended December 31, 2023.  If approved by shareholders, this would bring UMG’s total dividend for 2023 to €929 million, or €0.51 per share. This dividend proposal is subject to approval by shareholders at the Annual General Meeting of Shareholders.

Recorded Music

Q4 2023
Recorded Music revenue for the fourth quarter of 2023 was €2,421 million, up 8.3% compared to the fourth quarter of 2022, or 14.7% in constant currency. Subscription revenue grew 8.9% year-over-year, or 15.0% in constant currency, driven by the growth in global subscribers as well as the impact of price increases at certain platforms. Streaming revenue declined 1.3% year-over-year, but increased 5.6% in constant currency, as the broader advertising industry continued to gradually recover. Physical revenue increased by 10.6% year-over-year, or 17.0% in constant currency, driven by improvements in vinyl sales in the U.S. and Europe. Downloads and other digital revenue declined 49.2% year-over-year, or 45.8% in constant currency, as download sales continued their industry-wide decline and other digital revenue also declined. License and other revenue improved 26.5% year-over-year, or 34.0% in constant currency driven by continued underlying licensing growth as well as strength in neighboring rights, synchronization, touring, sponsorship and the timing related benefit of a new licensing deal. Top sellers for the quarter included albums from …

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