MFE-MEDIAFOREUROPE NV
MIL:MFEB
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Earnings Call Analysis
Q2-2023 Analysis
MFE-MEDIAFOREUROPE NV
The company's resilience in the face of an uncertain economic climate is evident. A robust management of the cost base in Italy and Spain, alongside the commencement of integration processes and innovation projects, have contributed significantly to the company's success. This has resulted in an 8% EBIT increase for 2023 compared to the prior year, signaling not just recovery but growth as well.
With an EBITDA of nearly EUR 350 million and net profit rising by 3% to EUR 87.1 million, the company's financial health appears stable. Strategic cost management, which includes synergies from cross-border integration between Italy and Spain, has played a key role in bolstering profitability, while net debt decreased to EUR 807.5 million, illustrating an improved financial position compared to the beginning of the year.
The company sticks to its full-year guidance, despite EBITDA seeing inflationary pressures. Other revenues are expected to be around EUR 380 million, mirroring results similar to 2022, and the total cost guidance is confirmed at EUR 2.470 billion. Although the company foresees EUR 10 million higher financial expenses due to interest rate trends, efforts in cost efficiency, especially a 2.5% cost reduction in the second quarter, support its financial position.
The company confirms its capital expenditure (CapEx) guidance of EUR 410 million for the full year. This includes a strategic allocation for bolstering audience trends in Spain and maintaining rigorous investment in content and technology. The free cash flow from operations surpassing last year's figures demonstrates the company's ability to sustain its development while rewarding shareholders through dividends.
Looking forward, the company remains steadfast in its debt management strategy, ensuring a one-time net debt-to-EBITDA ratio in line with year-end targets. The guidance incorporates dividend distributions and the effects of strategic mergers, underlying the company's capacity to balance growth initiatives with shareholder returns. It remains a story of disciplined investment and shrewd financial maneuvering amidst wider market uncertainties.
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Good day, and thank you for standing by. Welcome to the MFE-MEDIAFOREUROPE 2023 First Half Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Sara Bersan. Please go ahead.
Good evening, everybody, and welcome to the first half results 2023 conference call of MFE-MEDIAFOREUROPE. Today, the speakers are Marco Giordani, Group CFO; and Matteo Cardani, Managing Director of Publitalia. I will hand over immediately to Matteo for the advertising and audience outlook. Matteo, please go ahead.
Thank you, Sara. Thank you, everybody, for your attendance. So let's comment on H1 2023 results. We'll start with a review of the overall economic scenario. On consumer side, purchasing power for goods and services is still under pressure due to high level of inflation. Notwithstanding despite inflation rate for consumption good is improving and is reducing from 11%, 12% at the end of 2022 to 6%, 7% rate mid-year 2023. So this gradual improvement in inflation rate explains why in Chart #3. We see business and consumer confidence index that are both positive.
And this is also confirmed by the next chart where we look at the consumption trend. The one related to goods was slightly negative, the one related for services remains positive. But the overall picture is in a positive field. And this is connected to gross domestic product, where we have for Q1 content and trend variation that are both positive, plus 0.6 and plus 0.19, while the data that we received yesterday with regard to Q2 are slightly negative, minus 0.3% for [ content ] variation, but are still positive, plus 0.6% for trend variation. So all-in-all, the GDP forecast for the whole year is still in positive field, around 1% for Italy and around 2.5% for Spain. So on average, our 2 territories are better than the Euro area.
Having said that, now we turn to advertising market. And both in Italy and Spain, Q2 registered a positive start in term of revenues, while for different reason, the month of June was impacted by some unpredictable factors. In Italy, the company reshaped the programming schedule for some days -- few days dedicated to the commemoration of its founder, our founder, President, Silvio Berlusconi. While in Spain, the new general election held on last weekend, 23rd of July, was [ called in advance ] in the beginning of June. So these 2 factors, of course, condition to some extent, both markets.
With regards to the Italian advertising market on Slide #5, you can see that the total market is registering a growth of plus 1.5% year-on-year in H1 and is benefiting from the growth of media such as radio, digital and out-of-home, while TV is generally stable, a good resilience compared to TV trends in our other main European countries where TV suffer a single-digit decrease.
On the right-hand side, the graph shows the progression of MFE advertising revenues on a yearly basis between H1 2020 indexed at 100 and H1 2023 against the total market excluding MFE. In 2022, MFE recorded its highest level of revenue since 2020, a level that remained stable also in H1 2023, while the rest of the market is gradually recovering the gap by 8 index point away on where we are.
Next chart, Chart #6, you can see the MFE performance in H1, 2023. So minus 0.6% year-on-year, registering a flattish trend compared to last year, broadly in line with the company's expectation, and as I say, conditioned by the stop of advertising in the central days of June. As we usually commented, the 2 main drivers that enabled MFE to achieve these results are the balanced dynamics among the economic sector and the growing audience share.
If we take a look at the number chart -- the Chart #7, the sector dynamics in H1 is actually a balanced one. There is [indiscernible] for all of us, the ongoing recovery in the automotive sector that is growing around 20% in advertising, reflecting the growth in vehicle registration that is above 20%. There is a growing trend in grocery, generally, food, non-food, pharma and leisure, and very slightly decreasing level of advertising for retail and personal home care. And telcos and finance are the declining sector. But as you can see from the chart, the majority of sectors, [indiscernible] are in the positive field, and this explains the balanced dynamics.
We can get in Chart #8 further supporting evidence on the balanced sector dynamics, let's say, some reassurance also for the outlook. If we take a look at the retail sales dynamics from the sector-to-sector, so the interesting thing is the 91% of the MFE advertising revenues are generated by sectors that in H1 2023 had a positive sales trend, of course, including the inflation component and only a minority 9% of advertising revenue are connected to a sector that are experiencing some trouble in the retail trend.
Then coming to the second driver of our MFE results. We are quite proud to say that the total audience performance highlights the good health of our programming. And the Chart #9 substantially shows our solid leadership in total audience and commercial target with a 40.6% holding share and this combined as in the past quarterly call, the combined result of linear and digital audiences. It's remarkable the fact that the main competitor is over 8 points behind MFE.
The other interesting thing in Slide #10 is that we have still, let's say, a positive balance between the slight decrease in linear television, that [indiscernible] resilience, minus 1.5%. And the combined effect of total audience bring us again in the positive field in terms of total audience. The interesting thing to underline that this quantitative trend is the qualitative fact that the combination of connectivity and second screen is adding viewers with a younger profile complementary to the linear TV audience. And this is going on also in June, July programming with very exceptional results.
There are some programs with 20% to 24% of additional audiences due to digital audiences, and there is additional benefit of a higher CPM compared to television as you can see in Chart #12. So with regards to monetization, you can see the parts [indiscernible] of addressable TV or digital TV is derived by a higher revenue from our comparative linear option. So there is a -- each [indiscernible] moving from linear to addressable is net positive gain for us.
The last part of my presentation is focused on Spain. So, generally speaking, the TV advertising market in Spain was negative in H1, minus 3.5%. But honestly, it's a better performance compared to other countries, the northern countries or Central European countries that has a worse performance, minus single-digit negative or even double-digit negative in [ Germany and France ]. In Spain, specifically, we are in line to our main competitor Atresmedia [indiscernible].
As in Italy, we have a balanced sector dynamics with regard to TV ad spend. So negative performance of some sectors that were telcos, beverages and leisure. It's almost counterbalanced by the positive dynamics of key sectors as personal care, finance, retail and above all, the automotive sector that is recovering in Spain and supported as in Italy by the growth in car registrations.
Then the overall trend of MFE [indiscernible] as you can see in Chart 13 is minus 3.3%. This is a positive progression in Q2 compared to Q1. As you remember, and as we said before, Q2 was positive in April and May, while, of course, in June, the advertising investments were affected by the general election. So some advertising investments remain in standby in such periods.
Having said that, the last chart, I'd like to comment is the linear -- the whole new share performance. So on our commercial target in H1, MFE is still a leader about Atresmedia, confirming the 28.5% share registered in Q1. And having said that with regard to advertising in Italy and in Spain, I hand over to Marco Giordani.
Thank you, Matteo [indiscernible] from my side and welcome to the first half presentation of the MFE-MEDIAFOREUROPE Group. Let's start with a brief overview of the results. In the first half of [indiscernible] we were able to reach a higher level of [ stock ] compared to last year, and that has been a great achievement also because the pace is still recovery advertising market in Spain. And more than that, we [ missed ] more than EUR 40 million of proceeds and dividends that we accounted in the first half of 2022.
The result has been achieved through a very careful management of the cost base, both in Italy and Spain. And also thanks to the start of the integration process, we did [indiscernible] and sharing also project on innovation. This led us to maybe to [indiscernible] 8% higher in 2023 compared to 2022. Then I take also the chance to tell you that in the second half of 2023, we will include the share or the net consolidated result of proceeds from [indiscernible] media starting from the 1st of July 2023, we recognized using the equity method as per the IFRS 28 that we started, as I said, from 1 July, 2023.
And entering in the number briefly, almost EUR 350 million of EBITDA or less in line with last year, EUR 120.9 million EBIT, up 8% compared to last year and a net profit of EUR 87.1 million, 3% higher than last year. Lastly, group net financial position at the end of June was EUR 807.5 million, better, so lower debt compared to 1st of January 2023.
Then entering in the P&L. I mean, clearly, Matteo has already explained the revenue -- the advertising revenue line. Entering in the other revenue, we can confirm the guidance for the full year of EUR 380 million. The result in the first half was almost similar to 2022. In that respect, you know that this is a line that includes a lot of components. But all in all, they are all in line with our expectations, and they are following our guidance for the full year.
In terms of cost, as you see, we were pretty good in managing them. As I said, group EBIT was 8% higher than last year, and that was mainly due to a pretty efficient controlling cost. As I said before, some of them were also produced by synergies that we were able to generate between the Italian and the Spanish business. That joining forces are clearly leveraging new project on innovation.
In terms of guidance, we confirm the guidance for the full year of EUR 2.470 billion. Cost line, again, this is a pretty remarkable number, also taking into account the fact that we are facing EBITDA inflation on many items. Not really they were related to content, but as you can imagine, inflation pressure on our cost are pretty high as everywhere in Europe.
Moving below the EBITDA. You can see the financial charges worse than last year. That again is the result mainly of interest rate trends. Really, nothing really exceptional, a little bit better than expected. In any case, we are still guiding for the full year, EUR 10 million, higher financial expenses for the full year compared to 2022 numbers. So again, a pretty remarkable number if you can just remind the interest rate trends. On the associate line, it's where we can guide you on the EUR 50 million for the full year 2023.
Moving then to the different geographical areas. As far as the Italian business revenue we are more or less in line with last year. The same -- a little bit better, frankly, on the other revenue line, but this is a phasing effect. So as I said before, for the full year, we are confirming our guidance. And you can appreciate at the EBIT level, the great job done on cost that is allowing us to reach an EBIT of EUR 39 million, almost above that last year. Again, part of the savings were due or were coming from synergies we've spent.
As far as, I mean, a specific number concerning the second quarter alone, costs were down 2.5% compared to last year. Again, that brings the cost reduction for the full semester, EUR 24 million cost reduction. In Spain, revenue has already been commented in terms of trend. Also in Spain we were good managing cost. And so we were able, in any case, to keep the EBIT line at almost EUR 82 million, a pretty remarkable number for the first half.
Moving to CapEx. We had, let's say, a first half of 2023 that has been affected by some phasing effect [indiscernible] in Spain in order to support audience trends. In terms of guidance, we can confirm EUR 410 million for the full year. So nothing new in the last conference call. And then [indiscernible] material investor on the other hand, in the case of EUR 10 million was just a phasing effect. Everything will be in line with last year for the full year.
Lastly, cash flow. I mean, everything has been clear already. Free cash flow from operation was above last year's number. So again, a good result for the first half. You can see in the equity investment line, the investments related to the withdrawal life payment in Mediaset Espana and the share purchase agreement of some Mediaset Espana shares we carried out in February. That has been already recorded in the first quarter we commented last conference call. And in the coming dividend line, you can appreciate a sharp decrease due to the Prosieben reduction of dividend of almost EUR 40 million, as commented before.
As far as the full year 2023, we can confirm the guidance of the onetime net debt-to-EBITDA for the end of the year. Already taking into account the dividend distribution we paid out 1 week ago. And also the cash out related to the mergers with Mediaset Espana, and that is the proof that we can -- with the free cash flow generation, we can finance development and also pay out dividends to our shareholders.
I have completed my presentation, so I can give you room for your questions [indiscernible]. Thank you.
[Operator Instructions] We will now take the first question from the line of Julien Roch from Barclays.
First question for Matteo. Could we get ad trends for Italy and Spain because now you have to do both, for July and August? First question.
The second question, Marco, you confirm all the guidance, but that's the first time you give them with Italy and Spain combined. Just to make sure I got the right number, for other revenue, you're saying EUR 380 million; for costs, you're saying EUR 2,470 million; for interest, EUR 10 million higher than last year; associate you're saying EUR 15 million, but that has to be without Prosieben, right? And then on the TV rights, I don't think I got the right number because I got 220, that's too low as you did more in the first half. So could you confirm all those numbers? And then the last question is, any update on Prosieben Board conversation, what is going on?
Yes, everything is perfect. So all the guidance has been kept corrected by you. So everything confirmed. Maybe I just remind the investment guidance. The total investment guidance is EUR 410 million for the full year. And clearly, in that number, also technical and material are included. And it is -- that will be, let's say, compensating in the second half because if you look at the first half results they are higher EUR 10 million more than last year and so that will be compensated in the second part. If you want to have -- the split is EUR 370 million for the TV rights and EUR 40 million for technical and material for the full year. So total EUR 410 million. Then I'll leave to Matteo to give you the outlook on the [indiscernible].
No, we don't comment each single month, but with regard to Q3, you know that in both countries, the first quarter, yes, that has connection with the month of September usually corresponds to the cumulative advertising production of the months of July and August. So, for the Q3 results, September will be [indiscernible] month. Anyway, based on the current level of visibility that is in Spain for the general political situation, of course, is quite limited. We can say that both in Italy and Spain, and we expect a year-on-year trend of 9 months of advertising collection to be aligned with the year-on-year trend that we just commented for H1. So this is our best, let's say, forecast for the next 3 months so in line with the ongoing integration.
Sorry, Julien, I forgot to answer you on Prosieben. I mean, clearly, we don't know anything more than you that we don't have any insight. We are waiting for the conference call -- I mean as far as we can collect from the advertising market, I mean the general advertising market is still facing a pretty difficult, let's say, time. We heard that June has been better, but then July is still difficult. So these are information we collected mainly by the media agency and customer. But as far as Prosieben is concerned, we don't have any insight. So we are waiting for their announcement this week.
We will now take the next question from the line of Fabio Pavan from Mediobanca.
One for Marco. You have managed to beat expectations on the EBIT for domestic business. You said in the press release results are also exceeding your expectations, but you are confirming the full year guidance on cost while I think you are working on efficiency. So my question is, are you just playing tactical approach, and we may expect some good news into year-end or you are concerned about some increase in the cost for the second half?
Clearly, we are still facing a pretty, let's say, important lack of visibility and uncertainty on the second half. So it's very hard to say what is going to happen. Clearly, we have some flexibility on the second half. So we are ready also to, let's say, both way, if the market will recover, let's say, to push on content to capture, let's say, new money, but we are also prepared to a certain extent also to cut cost if the second half will not be as forecasted.
So that's the reason for which we are keeping our guidance because, unfortunately, if everything is so uncertain that is very hard for us to make a different view. So we are still holding the same, let's say, forecast for the full year as we had beginning of January even if, as we said in the press release, the first half has been better than expected just because it's hard to make a different projection with a so short visibility. So that's the main reason. So then you can consider it be prudent or not, it depends on what top line you are expecting for the second half.
We will now take the next question from the line of Stefano Gamberini from Equita.
The Slide 12, if I may, if you can elaborate a little bit more about this difference between the linear and addressable advertising. If I understood correctly, the price of the advertising is more or less 70% higher than the linear one. Could you give us a little bit more color of how addressable going -- what is the total share, what is share out of the total of linear addressable advertising and if the trend was by far better in the first half versus the linear TV?
The second, Marco, if you can give us the split between costs and other sales and also between TV rights between Italy and Spanish just to understand if the trend is the same than we already expected. And the third, my typical question regarding Rai Way and EI Towers, Marco, you, if I'm not wrong, you made some statements about this topic. Are there some novelties or not?
So I mean, I'm starting from the last part of your question. I mean, it's very hard to answer because as I said before, we have several projects that are now, let's say, joined. So where the savings will be in Italy or Spain will be clearly a little bit no sense because clearly savings will be independent if whether it will be accounted in Italy or Spain. So that's the reason for which we are not giving, let's say, guidance for Italy and Spain separately because our target, as I said, is combined. In any case, you can see that the total amount is already delivering the [indiscernible] level of efficiency.
Coming to your question. So with regard to the, let's say, the positive, let's say, trading path between liner and addressable, it's remarkable to say that this is a positive trading up with our colleagues in Spain. So this is one of the synergies Marco was commenting before.
And the main reason why is that luckily, we have a linear business in good health and mainly with regard to Italy, the fact that we have a total audience that is showing our clients, showing advertiser that there is on the top selling programs, an additional audience ranging from plus 5, plus 10 till plus 20, and these additional audience is mainly focused on those targets called light TV viewers, so mainly younger target upscale, upfront targets, allow us to command a higher price on this inventory. And that explains the Chart #12. And for the time being, the combination of the 2 dynamics is the positive one for sure. The fact that we had a very successful, anyway, linear audience program is crucial for the sustainability of our business. And I hope to have answered.
Okay…
And maybe regarding EI Towers. Quick comment on EI Towers, Rai Way.
Unfortunately, you asked me the same question, and I answered the same. So we don't know anything more to share. As we've said several time, we are pretty flexible in our approach. So we can accommodate our position more or less whatever, Rai and EI would like to do, but we are minority shareholders. So at the end of the day, we are only looking at the stake value and the liquidity value of it, but clearly, we are not on the driving seat. So it's -- the news will usually not come out from us.
Thank you very much, guys, for the time of today. Thank you, Marco. Thank you, Matteo. And the Investor Relations department will be available for any questions you may have. Have a nice evening.
That does conclude our conference for today. Thank you for participating. You may now disconnect.