Mediaset Espana Comunicacion SA

MAD:TL5

Earnings Call Transcript 2021-Q2

[Operator]

Thank you for standing by, and welcome to the Mediaset España 2Q 2021 Results Presentation. [Operator Instructions] I must advise you the call is recorded today, Wednesday, the 28th of July 2021.And I would now like to hand over to your speaker today, Mr. Mario Sacedo. Please go ahead, sir.

[Mario Sacedo Arriola, Head of Investor Relations]

Good evening, everybody, and welcome to 2021 first half results presentation of Mediaset España Comunicación. This is Mario Sacedo, Head of Investor Relations. As usually, we have a schedule for today, a presentation hosted by Massimo Musolino, General Operations Manager. After his presentation, it will be a Q&A session where Massimo; Quico Alum, Publiespaña General Manager; and Javier Uría, company's CFO, will answer all your questions. Massimo, you have the floor.

[Massimo Musolino]

Good evening, everybody, and welcome. First of all, I would present our main operational and financial figures that we have just published. And then you will have the chance to ask any questions in the Q&A section at the end of the presentation. Let's start on Slide #2 with our traditional quick review of the main figures in the second quarter. As we said in the first quarter results conference, Mediaset España is ready to maintain its audience share leadership position in the Spanish market, thanks to the strong programming lead we scheduled from March onwards. As you can see in the graph, we started to widen the gap with our main competitor month by month. In June and July, with the Euro Cup matches broadcasted by Telecinco and Cuatro, we achieved another share of more than 31%. This is even more remarkable when you consider the commercial target achieved on Telecinco, which reached 18.7% in June. This is the highest figure since the end of the year 2008. Following the figures reported by Infoadex, the total TV advertising market bounced back by almost 82% with Mediaset España reaching a leading market share of 44.2%, 147 basis points higher than the same period over last year and a gap of almost 4 percentage points with our main competitors. If we look at the total [ spend show you either ] market, Mediaset España's market share in the second quarter was 51%. Moving on to financial. Total net revenue in the quarter increased by 64.9% to EUR 239.6 million. Operating costs amounted to EUR 178 million higher than last year. This is simply because last year, we were still in lockdown period. And this year, there was lockdown, and we had the Euro Cup football rights. We enjoy a booming market in the second quarter, which inevitably affected our cost base as we adjusted our programming grid to the advertiser demand. EBITDA for the quarter amounted to EUR 61.5 million, with an EBITDA margin of 25.7%. Net profit in the period stood at EUR 48.6 million, and earnings per share amounted to EUR 0.16 once the treasury share was concerned. On Slide #3, we have the same review, but for the 6 months period. Starting with the audience share, you can see in the graph how we progressively adapted to the advertising market trends. Remember, at the beginning of the year, the advertising market declined by more than 20%, and we decided to hold our main programs back until market condition improved. From March onwards due to the recovery of the market, we gradually improved our programming grid, and we achieved the leadership position once again. At the end of June, our accumulated audience share stood at 28.6%, 1 percentage point more than our main competitors. As a result of this strategy, Mediaset España TV advertising market share jumped to 43.2 percentage points, 250 basis points more than our main competitor. After a weak start to the year in terms of advertising market evolution, total net revenues as of June went up by 12.9% and to EUR 423.6 million. The strong performance of net advertising revenues were 23.5%, increase was partially offset by the performance of other revenues, the decline of more than -- the decline of more than 40% in this business line mainly comes from 3 aspects. First, the good performance of content disposal activity last year, the amount of product available this year is much less due to the possibility to produce more because of the restrictions imposed by -- as a result of the pandemic. Second, the exit of football rights from the Mitele platform after the end of La Liga and Champions League at the start of the summer 2020. And finally, the last cinema revenues during the period, again due to COVID restriction. It was not possible to release any film during the first month of this year. The first film release this year was Operación Camarón on the 24th of June. In terms of cost, the EUR 310.7 million posted is the result of both the more expensive programming grid, which led to our order share and leadership position and the 8.3% growth in personnel costs from the arrival of some new business from BE A LION to these consolidation perimeter. EBITDA period amounted to EUR 112.8 million with a margin of 26.6%. Net profit June stood at EUR 85.4 million, a 22% increase compared to last year. Finally, cash flow generation in the period increased to EUR 141.4 million, while the net cash position in June was EUR 156.7 million. The cash flow and the net financial position have been positively affected by a series of one-offs during the period, which will be normalized in the coming quarters for the same points on delayed payments to suppliers and the slow recovery of investment in fiction and movies. On Slide 4, a quick review of the Euro Cup competition, which from an advertiser's point of view, is the main event of this year. From mid-June to mid-July, Mediaset broadcasted 45 matches as they were played across Europe. We saw 8 matches with extra time and 4 penalty shootouts, which brought extra audience and revenues. A good example of this can be seen in the table, where you have the 7-month view at the moment of the competition. The average audience share of the tournament was 28% with a remarkable 34.4% commercial target. On top of that, we have to take into account the number of viewers that connected to the event through Mitele, which amounted to 16.7 million users. The fact that 261 advertisers broadcast these campaigns during the competition and that the event was fully booked with 100% occupancy rate is true for the interest generated by the competition. Finally, the match is played by the Spanish national team, so an average of 8.3 million viewers and average audience share of 58.6%. The Spain against Italy penalty shootout towards the moment of the competition where the audience share surpassed 72% and almost 14 million people viewers. At the bottom of the page, you can see from the chart how the Euro Cup helped us to expand the difference with our main competitor. The gap which is increasing year after year reached almost 4 percentage points in Q2, where Mediaset España achieved TV advertising market share of 44.2%, almost 4 percentage points more. On Slide 5, you can see the daily average total TV consumption per person was 231 minutes in the first 6 months of the year. You cannot compare this to the 257 minutes from -- to 2020 as we were in lockdown. The third comparison to make is with 2019 data, you can see how figures remained stable from January to June, and TV consumption was the same as in 2019. On Slide 6, there is a visual example of our effort to monetize our audience share. On the left-hand side of the slide, you can see how our commercial target was improving throughout the year. Thanks to the balanced programming grid that we scheduled. As we said in the first quarter results presentation, we will be implementing our best content from March onwards, and this policy allowed us to widen the gap with our main competitor. Even more relevant is the evolution of the conversion rate from audience share to commercial target during the last months. This positive conversion is being accelerated this year. We are actively managing our content in order to maximize this conversion, which is a key element in increasing prices -- advertising prices. The reason behind this great performance is a well-balanced programming grid based on in-house production, in contrast [ to the task-oriented ] approach of our main competitor, which is broadcasting a daily program in the evening and 4 primetime [ fiction ] in its weekly schedule. Moving on to Slide 7. You can see how our TV advertising market evolved during the year. After a weak start to the year, advertisers are returning, putting strong marketing campaigns in place, which has led to accumulated growth in June amounting to 22.9%. This positive trend is not going to finish. The feedback we are receiving regarding the summer period makes us feel optimistic about the market evolution. In this sense, in the short term, we are aware that our TV advertising revenue will increase in July and August to able to achieve in both 2019 and 2020. These numbers prove the strength of the business again, which is true as a structural lack of visibility, but always gives a strong answer when the conditions are right. There are also good reason to be optimistic in the long term as market sources report some countries such as Italy, Germany and France have recovered the 2019 TV advertising market levels in January to June this year. The Spanish market is currently down 16.3%, recovering this different may not be as quick for Spain, but the trends are showing that we are on our way to recover 2019 levels. Moving now to Slide 8. You can see our TV advertising performance in the beginning of the year. As Infoadex reported, Mediaset España TV advertising revenues amounted to EUR 377.7 million, reinforcing the leadership position in the TV advertising market. This EUR 21.7 million gap with our main competitors led to an accumulated market share of 43.2%. On the left side of the slide, you can see the main KPIs. You can see from the numbers that the acquisition of the Euro Cup was a complete success in terms of occupancy and price management. As we saw in the previous slide, the reinforcement to our commercial target is the key for building a strategy based on price as a fundamental pillar of redevelopment. This can be seen in the table where the price evolution in the quarter saw an increase of 18.3%. In conclusion, all of the above are a clear indicator that the markets are bouncing and our conviction that saving our strongest programs for the rest of the year has been the right decision, not only in terms of total individual audience, but also in terms of improving the commercial target and the [ affinity ] with our advertisers in the right moment when the advertising market is growing.On Slide #9, you can see the company has been managing the cost base over the last few years. It's quite evident that 2020 is not a valid reference because of the pandemic, but call it the reference and comparison should be with 2019, let's say, a normal year pre-pandemic. The EUR 310.7 million achieved in the first 6 months of 2021 should be considered as a great number in a normalized world pre-COVID. If you compare this figure with 2016, last year in which there was a Euro Cup, our OpEx stands at EUR 50 million or 14% lower than then. Furthermore, if you compare the 2021 6-month OpEx with the same period of 2019, the first comparison base, our costs remain lower, even including the cost of Euro Cup in our accounts. On Slide 10, I will tell you how we are in a continuous process of adapting our business to provide the best customer experience and capture opportunities in the market. It is continuously evolving.You can see on the left side of the slide, in the first half of this year, we have launched 2 tools, which provide a better advertiser experience. The first is digital reach which increases campaign coverage by reducing duplicate impacts with BE A LION's exclusive human behind technology, which also guarantee its client [ pricing ] selected in the safe environment. Second, Mediaset Brand Awareness, MBA, a new reporting service for clients that offers relevant information on the performance and the effectiveness of the digital video campaign, allowing them to access the campaign results by measuring recurring interest consideration and [ for presentation ] and new users who have seen it and those who have not. Two weeks ago, we announced the launching of Mediaset Games, a new brand that will sign the production of 100% original video games to exploit its film and television licenses together with the best national international development studios and export its brands to new screens. In the initial step, Mediaset España and [ Precision ] have joined force to facilitate the arrival of these video games to the gaming community. Thanks the [ Precision ] talent, a program that has launched over 100 titles in Spain. This new line of activity shows Mediaset España's clear commitment to be present in every store for extra generation that may arise, such as video games market. Finally, in 2013, we launched [ Forventus ] a venture capital company to manage media for equity investment. Through these agreements, we provide traditional advertising campaigns in exchange for the participation high-grow technological start-ups. The result of this activity do not impact the profit and the loss account of the company to the accounting standard in place, but generate profits and value and bring cash proceeds on a regular basis, maximizing the financial return of our space advertising capacity. During this time, we have invested in 12 companies and worked with a total of around 50 startups under different cooperation alternatives. 2021, we signed the sale of our stake in the Deporvillage with the proceeds of between EUR 15 million to EUR 20 million and more than [ tenfold ]. The transaction proceeds are expected with the deal closing during this time.Also, our investing -- our investment in [indiscernible] the German stock market has become a so-called unicorn-reaching evaluation of about EUR 1 billion. On top of these 2 recent success story, we should also highlight the positive [ action ] achieved in the previous year, such as [indiscernible] among others. All of this add up to the chance of more than twice that initial invested, and we still have a promising companies such as holding our portfolio. That initiative would have generated in the region of EUR 60 million to date, confirming the added value of television advertising for digital business and our contribution to development toward the Spanish startup ecosystem. And finally, on Slide 11, we conclude the presentation, I would like to talk about 4 main points. The first being audience share. We are very happy with the results achieved in the first part of this year. We have seen an excellent conversion of individual target to commercial target, not just a quantitative improvement, but also a qualitative one. We are seeing that viewer loyalty has increased during this time. We decided [ dropped for production ] and the viewers, especially the young or the old audience are enjoying the content we've been produced. The Cuatro channel has finished its transformational process. It has gone from a programming grid that was mainly third-party programs, American series and fiction, to a programming grid with mainly in-house produced live shows, more in line with the Telecinco style. Our main competitor, our [indiscernible] products, and although they have gained an individual target, they have growth viewer profile, where we have [ gained ]. We have a strong programming grid lineup for the rest of the year, and we are very optimistic moving into the next part of the year. Secondly, I would like to mention the advertising market. The pandemic is slowly easing, but the fifth wave is hitting harder than we initially expected. It is not affecting business as much as previous waves and the market is reacting positively, which leads us to believe that we are on our way to recover 2019 advertising market levels.Moving on now to my -- the point cost. The fact that we hope for in-house production give us the ability to closely control our costs, follow current trends and gives us the freedom to make decisions quickly and effectively regarding costs. If the market is strong and advertiser investing money, then there is more to invest in the programming grid and the vice versa. If they spend less on advertising, then there is less to invest in the programming grid. So we can guarantee the right flexibility in managing costs. And finally, with regard to the situation in Europe, we are keeping an eye on everything, any movement that are being made. At the moment, there is a lot of attention of what has happened in France and [indiscernible]. But like I said, we are being vigilant. We are seeing the first -- we have seen the first shareholder of the German operator ProSieben. The TV market is a [ war ] and we still have the financial capacity to adapt with it. We are very prepared to move on any opportunity that arises. Thank you very much. And now we can move into the Q&A session.

[Mario Sacedo Arriola, Head of Investor Relations]

Thank you, Massimo. This is the end of our presentation, and now we are ready for taking all your questions. Operator, please, let's proceed to open the Q&A session.

[Operator]

[Operator Instructions] Your first question today comes from the line of Fernando Barreira from Banco Santander.

[Fernando Cordero Barreira, Equity Analyst]

Fernando Cordero from Banco Santander, 2 questions. And my first question is regarding the cash flow performance during the quarter. And in that sense, willing to understand what is the reason behind the strong working capital contribution during the second quarter, even considering the revenue growth year-on-year. And last point -- second question is related with the revenues. It seems that during the second quarter, all the revenues have underperformed. Willing to understand reasons for that? And also, what is the outlook for the revenues for the full year?

[Unknown Executive]

Yes, on your first point, Fernando, this working capital number that we show at the end of June is really more than it should have been. Because we have some payments as you have made before the end of the semester, but for one reason or the other, we did not make them. As a matter of fact, we had just paid them in the last days. So you can think and assume that of those EUR 47 million of positive working capital probably was in excess of at least EUR 30 million. If you take that out, you will see there's a working capital movement pretty much in line with what we have last year. So this is not a trend. This is not anything normalized. This is one-off. Without that one-off, we will go exactly to the numbers that we usually see at the end of June.

[Mario Sacedo Arriola, Head of Investor Relations]

Sorry, Fernando, your second question was about...

[Fernando Cordero Barreira, Equity Analyst]

Other revenues.

[Unknown Executive]

Yes, the other revenues, we have a difference. We have a downside versus last year of approximately EUR 26 million. Massimo mentioned the 3 main points here. One of them is something that we announced already in the different quarters since June of last year, which is the fact that the sale of rights was very good, it was very positive and we were all very happy. But of course, we were selling the stuff that was in the library. Since then, we have the same amount of rights basically because we have not been able to produce them because of the pandemic and everything else. So you have -- there, you have significant difference versus last year. Of course, you don't have the revenues for that, but you don't have the cost of sales either. That's very important to remember. The second element is the movie activity. Basically, this year has been very close to 0. Whilst last year, in the first half, we had the not only the impact of the movie that we have released in the month of January, but also we have some back-end revenues that came from the last quarter of 2019. And finally, we have Mitele, the SVOD revenues, which are negatively impacted this year by the fact that we don't have a [ full ] subscription anymore. So that's -- those are basically the 3 elements that account for low revenues in these first 6 months versus last year.

[Fernando Cordero Barreira, Equity Analyst]

Just as a follow-up, if I may, on the other revenues topic. In previous calls, you stated that you were let's say, putting in place the factor in order to at least achieve EUR 100 million per year volume in other revenues. But in 2021, that figure would not be accomplished. Are you still maintaining that scenario of EUR 100 million target in the medium term?

[Unknown Executive]

Yes, you have to take into account that this lower number and the sales of rights which are lower now than last year is basically due to the pandemic, which is a one-off kind of a situation. As long as we go back to normal business and we can produce and we have access to the rights and sell them, this -- like I think we also say this is a trend which is here to stay. Only that we'll have to wait until everything resumes. Things go back to normal and we have the production in our factory back on its feet.

[Operator]

Your next question comes from the line of Sarah Simon from Berenberg.

[Sarah Simon, Analyst]

I've got 2 questions. When you talk about advertising returning to 2019 levels, do you mean on a full year basis? So as you're thinking about Q3 and Q4? And the second question was on full year operating cost guidance. I recognize that you're obviously managing the cost base to the revenue base. But based on how you see the market evolving now, what do you think is a reasonable number for total OpEx?

[Unknown Executive]

Okay. On this last topic, we're not in a position to give a guidance now because the market is still under recovery. And we just mentioned that we have a cost base which is dependent on how the TV advertising market evolves. In the final analysis, you could think that more than last year, of course, which is very exceptional, we had in mind more 2019 kind of as a benchmark, right? So we will -- if you look at the number, if you look at the cost base at the end of June, you will see that it's smaller, especially if you think of the Euro Cup costs. But still, you can say that it's in line with our cost base by the end of June of 2019. So generally speaking, we should take 2019 as kind of a benchmark. But of course, how close or how quickly we get there will depend at the end of the day on how the advertising market evolves. Our vision at this time is that it's positive, that is running well, it's recovering. June and July are on the upside versus the same period of 2019. But of course, the final number of costs will very much depend on how the market evolves in the next months.

[Sarah Simon, Analyst]

And obviously, I mean, you've got certain costs that are missing, right, like the rights you're talking about in relation to the football rights on Mitele, you don't have those, which you had in 2019?

[Unknown Executive]

Yes, we have. But no -- but in 2019, we have those now in the full year. We have those in the second...

[Sarah Simon, Analyst]

Only half a year, yes.

[Unknown Executive]

In the second -- kind of in the -- in the last 4 months -- kind of in the last 4 months of the year, in the last 4 months of the year. But we also have the movies. And the movies is something that we still need to see what happens this year. So like I said, 2019 is kind of a benchmark. You have a benchmark for what we might have or might not have this year. But the final number will depend on the advertising market. That's a key avenue.What we are talking about 2019 that we have, as Massimo has said, we are on the wave of recovering 2019 levels. We have already recovering this level in July without any doubt. In August, we are in this way to recover in 2019 levels. But September and in the last quarter, we don't know. But one thing is really, really important, and this has been demonstrated in the second Q. When the health situation is under control, investment returns to a television very, very quickly. And it has been demonstrated in the last month. Then we hope that -- we hope -- we expect that is going to be back to the normal situation. And then we hope that the 2019 levels, we are going to reach again in the last part of the year, of course, and we don't have this information, but we are clearly in this way.

[Operator]

[Operator Instructions] Your next question comes from the line of Annick Maas from Exane BNP Paribas.

[Annick Tonie Maas, Analyst]

My first question is on the different advertising categories. You suggested now just that July was in line with 2019 levels. Maybe taking the leading ad categories, which ones were still below 2019 levels? Secondly, we've seen in many European or in some European markets attempts to consolidate the leading TV broadcasters. Just keen to have your view of something along the lines would be possible in Spain from a regulator point of view. And then if you could update on us with -- about your intent with your [ stake ], please?

[Unknown Executive]

Okay, about the different economy we see that the retail, telecommunications, beverage will grow well above the market, and they are almost in the '19 -- 2019 levels. Our main [indiscernible] come from the automotive sector. This [indiscernible] has performed really well in the second quarter, but it's true also that is still a long way from 2019. And the other sector that we have some doubts about [indiscernible]. But in the other way, I have said, performance really, really, really well and we hope that this is going to continue. Of course, the market -- the sectors, the balance between the sector is changing. And beauty, beverage, food now are really, really important sectors. And I think we are going to see this -- the same tendency in the next months. And Automotive, we have good news from September, but we have to wait because automotive now in this case, there really -- we have words about this business sector. We're still the only sector that we are worried about that. The other sector is finance, but finance is really a small sector in the TV market.

[Unknown Executive]

About consolidation in country, We are looking very carefully what is happening in French between [indiscernible] because this is something, honestly, new for Europe. We -- you may know that we were the first in talking about consolidation, but we talked about European consolidation because it was impossible to see about in-country consolidation. Today, in Spain -- so I can talk only about Spain. Today in Spain to seeing this [indiscernible] immediately antitrust authority comes here and put a penalty to us immediately. So today, we cannot stress any opinion because I think that the solution that French and Netherlands will put in place will be, let's say, a precedent for all the Europe. So in this moment, we can only look and wait and see. And the third question, I don't know which one.

[Mario Sacedo Arriola, Head of Investor Relations]

And if there is some question pending, sorry. Annick?

[Annick Tonie Maas, Analyst]

It was just -- if you could update us on your intentions with your ProSieben stake?

[Mario Sacedo Arriola, Head of Investor Relations]

The intention with ProSieben stake.

[Unknown Executive]

Yes, we are satisfied with our stake in ProSieben. As you may know, we are the first shareholder of the German company, together with Italy, we reached close to 25%. We are not in the supervisory board. So we don't manage the company, but we consider the ProSieben as a strategic investment for us. Now we maintain our current position for the time being, and we wait for new evolution of the situation. We do not feel to increase our stake in the short term. At the end of the day, we have received a dividend this year, which is something that shareholders always appreciate, and this is the situation.

[Operator]

Your next question comes from the line of Fernando Abril from Alantra.

[Fernando Abril-Martorell]

I have a couple of questions on cash flow. So on the working capital topic beyond this temporary effect that you've mentioned in Q2, what should we expect for the full year? Because over the last 2, 3 years, you have consumed above EUR 20 million per year. And now in a rising revenue scenario, I don't know how this should evolve. So any forecast or any comment on this would be helpful. And then second question is on CapEx. So you've mentioned that you were moving to normalized level, but still Q2, you are still well below normalized levels. I mean you are well below 2020 and 60% below 2019. You are increasing your in-house production, removing third-party CapEx. I don't know what is normalized levels for you now in the post-COVID world? So also any comment on this would also be helpful to try to understand CapEx in the mid- to long term for you guys?

[Unknown Executive]

Okay. On this second point, I think that there is -- we should think in terms of 2 different elements here. The first one has to do with the pandemic, of course, as I mentioned before, their projects and production and things that cannot be completed because of the pandemic. So that gives you a significant or small or big difference with what we had last year. But this is a one-off effect. But there is some more -- there is also a trend, which is that as you were mentioning that you were looking at the number for 2019, we should not be expecting to see the same amount of investments that we have back in 2019 simply because the business model is changing and it is evolving towards more presence of local production and live programs and everything else. So here, really, year 2019, should not be taken as a benchmark because we did not have in our budget the same amount of investment that we had back then, which if I'm not wrong, was in the range of EUR 170 million, EUR 180 million. That is a number which is too high for what we need today. So what we expect is going to happen in the rest of the year is that we're going to resume that like investment, which has not been completed in the first 6 months, that, that will not take us to a number close to the one in 2019, but a number which will be lower than that, right? I think that's the right way to look at the issue. And as your first point in terms of the free cash flow for the year, again, the free cash flow cannot be looked at in isolation from the evolution of the market. We will generate more cash or less cash depending on what the market does and what kind of [ revenues ] we're going to have. Specifically about the working capital, assuming that this one-off element is now out of the way. If you look at -- if we look at the situation at the end of 2021, I don't have any reason to believe that we're going to be having a number which is significantly different from what we had in previous years. Now we don't have rights that we had quite in advance as it was the case with the Euro Cup in 2020 and in 2019. So I think that we should be looking at a normalized level pretty much in line with what -- for instance, we could have had at the end of 2019. Here, I think that moving into 2019 should be a good benchmark.

[Operator]

We have no further questions, sir, if you wish to continue.

[Mario Sacedo Arriola, Head of Investor Relations]

Okay. Thank you. Then now is time to close this conference call. Thank you very much for attending to our presentation. If you have any further questions, please don't hesitate to contact with the Investor Relations department. And finally, let me wish you all have a safe and have a good summer time. Bye-bye.

[Massimo Musolino]

Thank you. Bye-bye.

[Operator]

That does conclude your call for today. Thank you all for participating, and you may now disconnect.