Television Francaise 1 SA
PAR:TFI
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Television Francaise 1 SA
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Ladies and gentlemen, welcome to the TF1 conference call on the results of the first quarter of 2019. I now hand over to Mr. Philippe Denery, CFO. Sir, please go ahead.
Thank you. Good evening, ladies and gentlemen. Thank you for joining us. As usual, I will start with the main key points and a summary of our results for the first quarter '19, then I'll be happy to take questions. We are pleased to share with you our good Q1 '19 results with total revenue standing at EUR 554 million, increasing by EUR 54 million year-on-year; and a significant improvement in our current operating result, both in terms of value and margin rate with EUR 63 million in Q1 '19 versus EUR 39 million a year earlier and 11.4% margin rate versus 7.8% last year, strengthening our confidence in reaching our target of double-digit margin this year.In a nutshell, I would sum up our first quarter with 5 key points. First, a growth of 4.3% year-on-year in the Broadcasting revenues reaching EUR 419 million due to incremental revenues coming from the telcos and Canal+ combined with an increase of 2.6% in the advertising revenues, both linear and nonlinear. Second point, the broadcasting margin rate reached 11.9% versus 6.6% last year, contributing significantly to the improvement of the margin rate of the group. Third point, out of EUR 54 million total revenue growth, EUR 33 million are the result of our external growth strategy mainly in the digital era with, of course, a consolidation of Aufeminin since May '18. Fourth, usual seasonality impacted business of Unify and Studios. Fifth, net cash generated by operating activities has doubled, standing at EUR 145 million versus EUR 76 million same period last year. Let's now get into the details of each activity. I will start commenting on the performance of the Broadcasting activity. Revenues are up by EUR 17 million year-on-year with programming cost down by EUR 8 million, altogether leading to an increase of the current operating margin rate for this segment of 11.9% versus 6.6% last year as I mentioned earlier. The increase of the revenues is a combination of good performance of the advertising revenues, both linear and nonlinear, reflecting our good ratings. The group's audience share for Q1 '19 stands at 32.3% on women below 50 plus 0.1 year-on-year and at 29.4% on individuals aged 25-49 years old plus 0.8 year-on-year. TF1 group has widened the gap over its main competitor among individuals aged 25-49 years old. In Q1 '19, our main channel is holding 19 out of the 20 best ratings, 16 of which are fresh and local content like Le Monde des Enfoirés; daily news with an increasing gap versus France 2, consolidating its leading position; and French dramas such as Infidèles or Les Bracelets Rouges. The number of video views on MYTF1 is also increasing, reaching 375 million, up by 8% year-on-year, thanks to our key franchises like Koh-Lanta, Les Bracelets Rouges, Demain nous appartient, bringing significant additional audience. The growth of the Broadcasting revenues is also coming from the deals we signed with the telcos and Canal+. Yet I'll remind you that in Q1 '18, we had already some impact of the agreement signed with 2 telcos. On the cost side, we've well monitored our programming cost with a particular decrease in the unit price of the movies and U.S. series broadcast on TF1 channel. This good performance provides us more flexibility to manage our cost for the quarters to come with a stronger lineup, including the broadcasting of 2 World Cups, female Football World Cup and Rugby World Cup. Together, the momentum of the advertising market and additional recurring revenues, combined with cost control, explain the good performance of Q1. It highlights the virtue and the sustainability of our business model on the Broadcasting segment. Moving on to the Studios & Entertainment segment. The revenues are slightly down by EUR 3.5 million year-on-year, mainly due to the Newen's digital activity, Neweb, which is now consolidated in the Unify segment. The entertainment activity performance, especially our music label PlayTwo offset production and studio decrease. Focusing on Newen. In addition to the recurrent lineup of series and shows, the company has delivered to Netflix its first program, Osmosis, confirming its capacity to address new clients, especially platforms. Newen recently announced the acquisition of the Belgian production company De Mensen, strengthening its presence in Europe. The global production activity will contribute to improve its performance in the next quarter. Regarding the Home Shopping business, the closing of Téléshopping happened a couple of weeks ago, as a consequence, it will be deconsolidated next quarter. Studio & Entertainment segment delivered a double-digit margin at 14% this quarter, contributing positively to the group's margin rate. Let's now comment on Unify. I remind you that the Aufeminin group has been consolidated from May '18. The revenues of this first quarter are mainly composed of first publishing activities, gathering digital content and social e-commerce and accounting for EUR 31 million, including revenues from the Aufeminin group, Neweb as well as Doctissimo. Second, other revenues, mainly digital marketing, accounting for EUR 10 million, including the recently acquired Gamned!, but also Studio71. New offers will be launched in the coming weeks to provide advertisers with all new optimized cross-media solutions delivering revenue synergies. The segment Unify is breakeven this quarter, reflecting the seasonality of the business, with Q1 being especially lower than the rest of the year. The following quarter will benefit from synergies. Just a quick word on the EBIT and net profit. As we have already mentioned, from now, the group won't account non-current charges linked with Newen's audiovisual rights anymore. The net result attributable to the group stands at EUR 41 million in Q1 '19, nearly twice as much as Q1 last year. Let's now comment on the evolution of the financial structure and the share capital. I remind you that the results are presented in accordance with the IFRS 16 norm applicable from the 1st January '19. Excluding lease obligations, as defined under the IFRS 16 norm, the TF1 group had net surplus cash of EUR 33.5 million at end of March '19 compared with net debt of EUR 27.5 million at the end of '18. This positive trend in net debt illustrates the group's ability to generate cash. Regarding the change in TF1's share capital in Q1, the group has purchased 415,251 of its own shares at an average price of EUR 8.5 per share. Finally, we reiterate our guidance for the following years: in '19, the target of double-digit current operating margin rate; an average total cost of program of EUR 990 million for the 2 years, '19, '20, at an average; in 2021, revenue for the Digital segment Unify of at least EUR 250 million and an EBITDA margin of at least 15%. Still in 2021, an improvement in TF1 group return on capital employed compared to 2018. I would conclude telling you that this quarter makes us more than confident in our capacity to reach our guidances and reflects the relevancy of the strategy implemented for several months in order to make the best of all the opportunities offered by a fast moving environment. The changes in our core business, combined with external growth, makes TF1 group well positioned to face the future and create even more value. Well, that concludes my review of TF1 results for the first quarter '19. Please note that our half year -- our first quarter financial result presentation -- sorry, our half year presentation will take place on the 24th of July '19. Well, thank you again for having joined us tonight. And should you have any questions, please do not hesitate to ask. And finally, I would remind you that a recording of this conference call will be available. You will find the connection details on our website, group-tf1.com (sic) [ groupe-tf1.fr ].
[Operator Instructions] We have our first question from Sophie Julienne from Bank of America.
3 questions from me. The first one is, obviously, so you don't provide a breakdown between free-to-air and other advertising revenues anymore. But if I focus on the Broadcasting division where we saw a 2.6% advertising growth in Q1, it looks like that back in '18, other advertising revenues added 70 bps to total broadcasting advertising. Is it still in the same range in this quarter? Then my second question is around Q2 and how is the quarter shaping up so far in terms of TV advertising. And then you saved EUR 9 million of programming cost in Q1. How much of this do you expect to reinvest in the next 9 months?
Yes. Thank you, Sophie, for your questions. First of all, yes, we have given 2 figures. The global advertising revenues for the group and -- which correspond to an increase of 7.1%. That's for the group, and that includes both broadcasting as well as digital, digital being Unify. And we have given a breakdown of the advertising on the Broadcasting segment is 2.6% increase. That includes linear and nonlinear, and we don't break down anymore the TV linear versus TV nonlinear. Having said that, it means that under this target, the -- both linear and nonlinear are increasing because that's mechanic and that's rational in order to achieve 2.6% growth -- you need some growth on the linear and in combination of nonlinear. But we don't give any breakdown anymore. Now concerning your second question, which was the way we see Q2, we don't have as usual a lot of visibility. I just would say that there is no sign at date that what we had in Q1 was a trend, we had in Q1 will not be confirmed. We're in the same position. There is still demand, and I would say that for the moment, no negative sign. Now concerning the programming cost and the savings on the programming costs, we have been in a position to make some savings and giving us some flexibility, as I mentioned, for the rest of the year. We will go on working on how to improve and to make some savings through multi-channel optimization. Of course, we have 2 World Cup, as you know, in June, July and September. But we first will benefit from the fact that those total costs of the 2 World Cup will be definitely lower than the World Cup -- Football World Cup last year. And we will monitor in a way, which will optimize and be in line with the guidance we have given. So we're confident that we can go a bit further, everything being the same, not taking into account sports events in improving and make some savings, probably not the same range as what we have achieved in Q1. So don't multiply 8 by 4 -- or 9 by 4 to know what kind of savings you can -- we can make for the whole year to make the difference. So it'll again -- we will go on, but not the same range during the following quarter.
And the next question comes from Annick Maas from Exane.
My first question is on SALTO. I think last time we spoke, you mentioned that the 3 players will invest EUR 50 million in the platform. Since we've heard of the investment trends of the other European peers, which seem higher, so what is your view on the investment that is required into SALTO going forward? My second one is on Newen, if you could just give us the organic revenue growth for Newen. And the then third one is also a more descriptive one on Unify. It's been now a few months that you go out with the new brand, Unify. So I was wondering what the response has been from agencies and clients and if the clients that you've signed have mostly come directly to you or via agencies?
On the first question on SALTO, I would say that we remain with the same approach, even if we will see opportunities or some eventual depending on what will be the decision and the agreement of the Competition Commission. But we're still focusing on developing the platform and investing in the technology and the marketing. Specific content, we will see depending on what will result from the present process, which is ongoing and on track, and we can expect to have end of this year or beginning of next year the clearance hopefully. Now on the second point, organic growth for Newen doesn't make so much sense just for you to take into account the fact that in the production sector last year, they had some one-offs, which was one important point of last year in terms of organic. Again, it was due to the fact that they were delivering Versailles episode -- well, season 3, and that is not the case this quarter. So they are roughly flat for this quarter, but that's clearly explained by seasonality and the fact that they had delivered specific content last year first quarter, but in line with their plan and their budgets. Now concerning Unify, we have clients coming, depending on the offer, directly or as well as via agencies. What we are working on is new offers and we should probably launch new offers in the following weeks or couple of months on the Unify agency. As you know, we have 2 separate agencies, one for Unify and the other one for TF1 Broadcasting segment.
Can I ask just one final question on linear free-to-air TV. So you don't give a number, but can you maybe tell us whether you outperformed the market or not?
I don't know the figures of the market. So I just know the figures of M6. But I just remind you that you should look at the figures now, which are published by IREP. Those figures don't give a breakdown by linear and nonlinear anymore, and they've changed their benchmarks. So that's the reason in line with what they are publishing, we're positioning the same way or same benchmark. Just to give some -- as I have said, you can't achieve on the quarter plus 2.6% without any growth on the linear just because of the figure mandated it. So we had, I would say -- on the linear, we had a positive trend. It's too early, and I don't know the market -- the figures of the market.
Next question comes from Laurie Davison from Deutsche Bank.
First is just on your guidance for double-digit current operating margin for this year. You've just done 11.4% in the first quarter, consensus 10.5% for the full year. Now you've got the sports events coming up. So I'm guessing the full year -- or should we -- would it be right to think that your margin over the full year will be lower than the first quarter, but potentially higher than the consensus 10.5? That's the first question.
Well, this specific question, I will not give you a better guidance than the double digit. What can I can say is just that of course, you know that the Q3 is poor just because of the advertising market in the Broadcasting company and Broadcasting group. So we can't expect too much on the Q3. And as a result of this, just look at the previous years, you will see the trend and the average. What I can say is that 11.4% is a good performance for Q1 and that I will not comment the consensus. But I just would say that we confirm the guidance and we are, I would say, fine with this guidance.
Okay. And then maybe just thinking about the programming cost, the EUR 990 million average over 2019, 2020. Can you just remind us of where -- or update us now on where you think the main higher years and lower years are going to sit in that? And the savings that you've made in the first quarter, and you have highlighted you could carry through to the full year, could you keep on doing that over 2020 as well?
Well, we have now given guidance, including sports events, first. Because we do think that we have to adjust what we invest, whether sports events or not. I can't give you more clarification on '19 and '20, one of the reasons being that as you probably know, '20, we would have possibly the Euro, but that is not finalized and we are still competing for the Euro. Of course, that has some impact on '20. We'll see. What we're just saying is that we have to be flexible and flexible enough, as we have shown in Q1, to adjust depending on our capacity to get, for a reasonable price, sports events or to not do and to invest in other type of programs. So it's too early to give more information, because we still are depending on what will be the result of the Euro process, while I would say normally that '19 could be a bit higher, everything being the same. But you know the willingness we have not to detail that. And as we know, content are king. We have to secure our content. The good thing is that we've changed our buying strategy. Inventories are down. And if you look at the balance sheet during the last couple of years, and we have more flexibility than before.
Okay. Just a follow-up, would it be wrong then to characterize the savings that you're making this year, as freeing up capacity to invest in the Euro. So should we see it as part of that flexibility you've talked about?
No. No, certainly not. The flexibility this year will contribute to get a target the -- whatever savings we'll make this year will not be necessary reinvested, but we will reinvest what is necessary in order to keep the level of ratings we want, and at the same time, to be in a position to deliver the profitability we've given to the markets. So no, the savings we will make this year will not contribute to what will be for the Euro. The savings we're making this year will contribute to absorb the cost of 2 World Cup as well as having the target to deliver double-digit this year.
Next question comes from Julien Roch from Barclays.
First question is the number of videos were up 8% in Q1. So was nonlinear advertising in broadcasting up around the same level or did it grow double digit? I know you don't want to split anymore, but some color on the level of growth rate. That's my first question. The second question is Mediaset is still making lots of noise about pan-European consolidation or at least putting some function together like technology around OTT or technology around target advertising. Anything you can tell us on what you can do internationally either in terms of M&A or operational joint venture? And then number three, any update on the audiovisual reform in terms of timing? I know the government has to put into place the measure that Emmanuel Macron announced Thursday night, so they're busier than expected. But the new Culture Minister, Franck Riester, said he would still kind of announce the broad direction of the reform over the summer, but he said that a couple of months ago. So any update there would be great.
Well, on the trend and on the number of videos, yes, we have increased the volume by 8%. I would say that -- 2 things. First of all, in terms of value, it makes sense to think that in terms of range, we're not very different. And at the same time, I would say that if you take the first 2.6%, first of all, the linear has to grow and the nonlinear has to grow more significantly in order to deliver such a figure. So whether double digit or not, it's in line with the volume. We will not again give a breakdown, because for us, it doesn't make so much sense anymore. So we need to grow more linear and nonlinear growth. Now concerning the consolidation in Europe and what has been said in newspaper or declared by some of the broadcasters, I would say first that as we have always said, yes, it could make sense to our partnership corporation in some specific fields. Yes, maybe technology or other fields, yes, a cooperation that could be more a partnership under another joint venture maybe. But we don't see, again, on a global broadcaster business, at this stage, too much sense in order to make some equity consolidation. And we don't see so much synergy on the broadcasting business. Again, that's the way we see it. And of course, we're discussing on specific technology with other broadcasters. And we have a kind of alliance we're part of and we share some view on the market and that globally. Now concerning the audiovisual reform, as you know well, as there has been -- the answer is quite touchy, because there is a -- today, a specific day where they are working on other items, but we are confident first that we are progressing. There are 2 or 3 different things to say. First of all, the question, which is raised today, is more a question of the Parliament, the government. And the question, if I understand it, is to know whether the Parliament on the agenda can look at all the different law, which could be passed before the end of the year. Now I'm not a specialist, but what I would say is that the first step, which is what can be proposed by the government and the minister before summer, is not directly in line with the Parliament's capacity to look and to bend -- or to look at different laws. Now the second point, whether they will push this one before and after others, I really don't know. The only thing I can say is that as you know, there are measures and this global view, which could be tightened by decree and others are relating to law. So what is important is a clarification of intention of the government on different specific issues. The Parliament may modify according to the normal rules. So there are those 3 different steps. That's the only thing I can say today.
Okay. Great. And just coming back on the pan-European consolidation. So you say it could make sense to have partnership, a deal not too much. Can you give us a sense of do you actually think that something will happen this year in terms of signing partnership on, say, technology or targeted advertising? Or it's still more of a concept than anything else?
First of all, I didn't say not too much, because it's too much, including technology. So there is no, on my side, whether it's too much or not, whether partnership -- what is important is the business, and the way we look at it is what it contributes in terms of improvement of the business, improvement of synergies and that makes sense or not. Now what we're saying is that -- now on the other hand, what we are saying is that technology is very important for the future, technology is important, we have made through SALTO partnership with France Télévisions and TF1, there could be other on different other items. Now I can't -- I really can't give any kind of deadline or saying before the end of the year. There is mainly a pressure coming from -- pressure or some force from the financial market and analysts and not so much pressure coming from others.
Our next question comes from Omar Sheikh from Morgan Stanley.
Just a couple of questions. First, Philippe, in the quarterly report, you've got some numbers for TV viewing time in the quarter for age 4+. It looks like total viewing time is down about 6% in the first quarter. And I wonder if you could just give us some color on what you think might be driving that? Is that just other platforms or is it something else? That's the first question. And then secondly, I think I missed the answer to your first earlier question about Q2 advertising. I wonder whether you could just clarify what you anticipate -- to the extent that you've got any visibility, what you anticipate for the second quarter for total broadcasting advertising revenue in the second quarter.
Well, Omar, yes, on your first question, yes, there is a drop of 6% in terms of time spent during linear in Q1. But that doesn't take into account, first of all, all the ratings we benefit on 4 screen. And as you know, we have to wait for next year to have the global figures. And there is clearly a trend where the consumption is more nonlinear with some growth on the nonlinear, which explains also the growth in the advertising nonlinear segment, which explains why we don't want to break down now linear and nonlinear because we think that the consumption is moving. We have to admit it and that through the nonlinear where we capture value and top line. Now in addition to that, of course, there is a question of how to measure the 4 screen: outdoor, including outdoor, and we -- where we capture the consumption, which is not measured today, maybe not so significant as compared to the linear, nevertheless, which in terms of 6% is something, which makes sense, and has not to be minimized. And in addition to that, I would say that as probably you know, but you were not in France, there is a small, but -- reason, which is linked with the weather, and the fact that we had in Q1 a specific good weather, which pushed people going outdoors more than indoors. But that is definitely not very significant, it's 6% I should admit, but that is something we can see on the day-to-day. So that's what I can say to your first question. Now the question of 6% less TV viewers and 2.6%-plus in top line, nonlinear and linear. Now the second question in Q2, I just said that there is no negative sign on the advertising market today, that we have no significant improvement in the visibility. So for the moment, of course, we had the viewing of April, but difficult for May to have a clear view. But there is no negative sign as compared to what we had in Q1, and there is still some great interest from advertisers for TV and for powerful screens as we can see from TF1.
We have no further questions for the moment. [Operator Instructions]
Okay. Well, there's no more question. I will -- hello? Is there any other questions?
Yes, we have another question. The question comes from Thomas Coudry from Bryan Garnier.
Very quickly, regarding Unify, you said that, okay, the results in Q1 were explained by seasonality, but that you explained improvements over the course of the year. Can we expect an improvement year-on-year on the margin rate in the coming quarters? And just related to that, can you please clarify your EBITDA guidance for Unify? Is it still relevant using IFRS 16, or should we upgrade it in the new norm?
Well, I would say first of all that in Q1, yes, we expect an improvement in the profitability quarter-after-quarter during the year from Unify, that the balance or the 0 figure we have is in line with the figure, which has been published last year Q1 by Aufeminin, which was around 0.6, 0.7. But we have to take into account, in our accounting, this year that we have an amortization of the acquisition of Aufeminin, which has some impact on the EBIT [indiscernible]. Of course, that is part of the explanation. But there is no negative or no change, except of course the accounting of the amortization of the goodwill we will have a for few years on the Unify segment, limited nevertheless, explained for the Q1. Now on the EBITDA, it remains our guidance, which is basically what we have given for 2021, and that is when we gave the guidance, the IFRS 16 was well known. So that is based on the accounting rules we will have or we still have in the guidance. But it's not very significant on Unify and even on group TF1. On the P&L, just for your understanding, for the whole group, the impact on the P&L of IFRS 16 is 0.9 for the Q1, so -- for the whole group. So not very significant for Unify as well. Thank you for your questions. So that ends our call. Thank you very much for attending this call, and I wish you a very good evening. Thank you.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.