Television Francaise 1 SA
PAR:TFI
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Television Francaise 1 SA
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Good afternoon, ladies and gentlemen, and welcome to the TF1 Group's Conference Call. At this time, I would like to turn the call over to Philippe Denery, CFO. Sir, please go ahead.
Well, thank you. Good evening, ladies and gentlemen. Thank you for joining us. I hope that you are all keeping safe. Already 1 year into the pandemic. The TF1 group has remained committed to ensuring the health and safety of all staff and stakeholders, taking necessary sanitary measures while ensuring business continuity.I will start with the main key points, as usual, and then give an overview of our results for the first 3 months of '21. Then I will be happy to take questions.First, let's move to financial results for the first quarter of '21. Once more, the TF1 Group has shown its agility and its capacity to improve its performances. Group revenues stand at EUR 510 million. They are up by 3.2% compared to the first quarter of '20, thanks to growth of ad spending and significant increase of revenue from Newen.Profitability rose to EUR 57 million at the end of March '21, a plus 35% increase versus last year. The group is back to a double-digit profitability levels with an operational profit rate of 11.1%. This was achieved while keeping costs in check and higher ratings on all our media brands.With EUR 16 million growth on total revenues, we delivered a EUR 15 million increase on the operating profit of the group. It's a profitable growth for the group. As a leader TF1 seeks to make a real difference through its ESG involvement. In Q1, the channels launched the third edition of the Expertes à la Une program, which promotes diversity on news shows, thanks to the empowerment of female experts. Through better inclusion and exemplarity, we believe we can explore untapped potential. The recent prime status awarded to the TF1 group by the international rating agency, ISS, illustrates this sustainable group performance.As a summary, I would point out the results of our 3 main activities for the first quarter as follows. First, broadcasting revenues were up by 1.4%, thanks to a EUR 2.5 million increase of ad spending with our channels. This performance was achieved while preserving the value of our screens.In Q1, the programming investments were made to help keep a very high content quality profile while significantly increasing our ratings, both on the 4 years and plus and on targeted population. Among the individuals aged between 25 and 49, the group's market share stands at 30.4%, up by 1.6% versus last year.Second, the Studios & Entertainment segment performed very well, with revenues up by EUR 9 million, plus 13%, due to a significant increase in the production business, which largely compensates the lockdown of theater, musical and cinema and the stop of our physical video business.Studio benefited from a favorable basis of comparison. Profitability, which stands at 15%, is higher than in Q1 '19, which trended at that time at 14%.Third, regarding the Unify activity, revenues increased by a bit less than 4%, mainly thanks to e-commerce revenues, while advertising revenues were slightly down due to some disappointment of our U.S. business.Let's now get into more details on -- for each activities. I will start commenting on the performance of the Broadcasting segment. Revenues are up by EUR 5 million year-on-year with an increase of the operating profit of almost EUR 4 million.First, advertising revenues increased by EUR 2.5 million year-on-year. This reflects a good top line level, despite an unfavorable basis of comparison in the first 2 months of the quarter, while some sectors such as leisure, cosmetics and tourism have not yet come back. The other revenues within the Broadcasting segment are up by EUR 2.9 million.Second, regarding the broadcasting schedule cost, the group has shown again its agility. It continued to reinvest in fresh, innovative programs, keeping costs broadly flat. This contributed to a very good performance for the group channels, which together posted 0.8 point increase versus last quarter in market share for people aged 4 years and plus.Regarding our ratings, the group has enjoyed a very good performance with 27.2% on 4 years and plus, the best Q1 since 2007; 33.7% on women below 50, best Q1 since '10. And on the 25-49 aged people, 30.4%, best Q1 since '13.Moving on to Studios & Entertainment segment. Revenues increased by EUR 9 million versus last year, mainly due to an excellent performance of our Studio business, Newen, as already commented. Revenues at Newen in Q1 '20 were positively impacted by strong demand for content as well as a catch-up effect, since in a COVID context, some productions initially planned to be delivered in '20 were postponed to '21.The book of order grew in value terms compared to Q1 last year. The book of order end of Q1 represents around 1 year of activity. As displayed in the '20 annual results presentation, we are pursuing high value-added partnership with platforms, and we have recently obtained a green light for a project for Netflix called Diamonds by our subsidiary in Belgium, De Mensen. I would also like to note that all shootings are taking place at the moment in the different countries in full compliance with sanitary measures.The entertainment activities saw their revenues increase slightly in Q1, thanks to our music business. You have noted that the closing of the selling of TF1 Games and Dujardin has taken place in April. This business will be deconsolidated starting from Q2 '21. This segment posted a current operating profit of EUR 12 million, up by EUR 10 million year-on-year.On Unify now, revenues stand at EUR 37 million, up by EUR 1 million compared to last year. Advertising revenues are slightly down despite positive performance from French websites such as Marmiton. E-commerce activity grew this quarter due to the good performance of My Little Paris and Gambettes Box subscriptions. Business solution activity is slightly down due to the situation, but is expected to improve during the following month.Current operating profit amounted to minus EUR 2 million, in line with the seasonality of the business. Just a quick word on the net profit. The net result attributable to the group stands at EUR 34 million for the first quarter of '21, including the investment in SALTO. I'll remind you that SALTO was launched in October '20. And so we had no loss recognized in our accounts for the first 3 quarters of '20.Let's now comment on the cash position. Excluding lease obligation, the TF1 Group had net cash totaling EUR 51 million at end of March '21 compared to a net debt cash EUR 1 million at end of '20. The TF1 Group has generated during the quarter a free cash flow of around EUR 50 million. It has a sound financial position and access to available bilateral credit facilities for more than EUR 1 billion.Let's conclude now with the outlook. In the coming months, we will benefit from a strong lineup, including fresh and innovative content as well as big events such as the Euro football competition. The group's ad sales house of the Broadcasting and Unify segments will keep on developing new offers, thanks to the segmented TV and programmatic, expecting to draw new clients and increase value.In the production segment, the acquisition of the iZen studio, which operates in Spain and in the U.K., contributes to extend our European footprint and capture value from markets where demand for content production is particularly high and gives us an additional possibility to generate synergies. As proven in 2020, the group remains agile, showing its capacity to adapt and to size opportunities in a growing total video market.Well, that concludes my review of the TF1 Group's results for the first quarter of '21. Thank you again for having joined us. Should you have any questions, please do not hesitate to ask. And finally, I'll remind you that a recording of this conference call will be available. You will find the connection details on our website.
[Operator Instructions] The first question comes from Annick Maas from Exane BNP Paribas.
My first question is on advertising. If you could give us some indication of how you see advertising developing in Q2? Maybe also indicate which sectors are back strongest. My second one is on the majority acquisition you've announced yesterday, if you could give us maybe some of the financials around iZen. There was some mentioned in the [indiscernible]. Maybe you could narrow the range that was provided there.And then also, I guess, give us an update on what your expectations are with regards to the independent/dependent ratio that you depend on in for production. And then finally, if you could give us -- so again, on Studio, so you gave the guidance on Unify. You didn't give one on Studios. Maybe can you explain why -- what are the moving parts to think about this year for Studios?
Yes. Well, thank you, Annick. On the first question, advertising Q2, I would say that the visibility is low. Nevertheless, I would say that April is in line with expectation. We have not reached the same level of '19. Nevertheless, of course, we are better than last year April, where we had minus 50%. We have a sustainable trend on the advertising market for April. So we are rather confident. And I would say that for the moment, it stands, and the market is still in line with what we had during the first quarter.So not '19, but definitely approaching what we got 2 years ago. Now May is already too early. We have some sectors, which -- like leisure, travel, which -- culture, of course, cosmetics, which are not invested significantly or even not invested for the moment. And they have, of course, been very hurt by this situation. So it is compensated by sectors, which have increased their budget in TV advertising. And that's the case for e-commerce. That's the case for retails, telecom, health care, of course, and household cleaning. So those are the sectors which are compensating the loss of others, which remain not invested or very limited investment in TV advertising.Concerning your second question on iZen, I would say that it's an opportunity for us to have activities in Spain, where the demand is very strong for production and Newen had this opportunity. The global revenues of iZen as of kind of 1 year or it has -- as for us, some specific effects depending on the delivery of some program and specifically under production. But on average, I would say, the total revenues of iZen is around EUR 35 million a year as an average.What can I say? While they are working for platforms, they are more on -- originally more involved in entertainment program, but they have started to -- and they have been very successful recently with [indiscernible], which is very positive and which will generate synergies on format and creativity with other subsidiaries of Newen. And the target for all the Newen family is to develop more synergies on creativity and on format. And definitely, iZen will contribute to the 8 countries where -- 7 countries, Spain is the 8th, 7 countries where we already are present and producing content. So that's what I can say on iZen.Now your third question was, if I remind, a dependent/independent ratio, I would say that first of all, we always prefer to have more flexibility, including in the regulation. And this ratio, 30% dependent, is probably a bit tough for us. We hope that it will move. But in the same time, we are definitely not -- we don't like vertical integration. And we have always said that we don't intend to have Newen like a significant part, more than 50% in Tier 1 channel production.So Newen is a company, which is -- the target is to work for all clients, including in the French market. And we can cope for the moment with this ratio. Hopefully move under regulation will give us more flexibility and no more on a calendar basis if the regulation were moved a bit.Concerning the guidance for Newen as compared to Unify, I would tell you that for us, what we've said is for Newen that they should increase their share in revenues with platform as compared to historical and traditional broadcasters, Newen and the subsidiary. So Newen group, but that's the case for de Mensen, that's the case for other -- for Tuvalu as well and a bit less for iZen, but they are working a lot for broadcast. They were used to work mainly for broadcasters. And we -- the intention and the target they have is to increase their business with platforms like Netflix, like Amazon and so on. And that is progressing quite well. The second thing we've said is that the proportion of international versus French market should increase and that the business -- international business should represent, in the next around 2 years, something like 50% of their revenue. That will depend, of course, on opportunity and -- but globally, 2 main guidance or 2 -- not guidance, but 2 main strategy -- elements of strategy for Newen, developing international business as well as developing business with platform.
The next question comes from Lisa Yang from Goldman Sachs.
I have a few questions, please. First is on advertising. Is it possible to have the trend for January, February versus March and possibly the second half of March as well? I think previously, you said January, February were down. But any sort of quantification would be helpful. And when you say the market so far in Q2 is in line with what you had in Q1, do you mean in terms of like 2-year growth rate? I think in Q1, you were probably about like 8.5%, 9% below Q1 2019. Or are you basically seeing so far in Q2 also about 9% below Q2 2019? That's the first question.The second one is on consolidation -- market consolidation in France. I mean, there's been a lot of headlines. So I'm just wondering like how -- what sort of role do you see sort of TF1 playing, given obviously you're such a big player in this market and the regulation has always been a big constraint for the players? And I'm just wondering if you had any sort of discussion with regulators or politicians in terms of like how things could potentially change, for instance, like how, for instance, they could look at market definition differently.And the third question is on your operating leverage for this year. Just wondering what sort of revenue to EBITDA drop-through we should be expecting for the TV business or for the group? So any sort of indication, I guess, could be helpful.
Well, thank you, Lisa. On your first question, I said that the trend of Q2 in line with Q1. I'm not saying that in terms of, of course, the basis of comparison, Q2 is not the right basis of comparison. What I tried to say that you should compare with '19. But if I come back to your question, first, January and February were down. They were up in Q1 '20 before lockdown. January, February this year was down, but was compensated by an increase in revenues in March, which at the end give the 0.7% on advertising for our Broadcasting segment, which is a good performance based on -- according to us, based on what we've seen from others on the market. And probably, we don't have the figures. We hope that we have stabilized or even take market share on advertising for the Q1.So that's for the -- I can't give you exactly January, February and on the 2 weeks' time March, first quarter or second part, because the trend and the way the advertising clients are committed is now very volatile. But at the end of the day, I would say that March was good, positive as compared to last year, of course, playing with the 15 days lockdown last year. But even during the first half of March, the trend was positive, but not for January, February, as already mentioned.Now concerning Q2 in terms of trend, the way you look at it and saying, well, compared to Q1 '19, you have delivered minus 9% in Q1 of '21. And basically that would be considered to be something which could be applied at this stage more or less for April. We have not been in a position, and we will not be in a position to get the same figures as '19. But hopefully, we will be in a positive approach around what we have delivered in line with Q1.Considering the consolidation topic, which is a -- well, that -- the topic, which is fully margin discussed in the newspaper, I would say that I have no specific comment, except that we have always been in favor of consolidation on the French market, and we have always said that the French market is very specific as compared to other European countries for TV broadcasters in terms of number of actors, which are very numerous, I would say, as compared to the number of actors in the TV sector in U.K., in Italy, in Germany.So the consolidation is something positive, and we are in favor of this consolidation. I can't say more regulation is what it is. We can cope with the regulation. And I'm sure that the regulator is fully aware of the situation of the market and is in the capacity to understand the challenge of TV today.Now concerning the last question, which was the operating leverage on the EBIT, EBITDA, I would say that, well, the main leverage on the EBIT coming from additional revenues will always come from advertising. As you know, in our model, EUR 1 advertising create around EUR 0.85, EUR 0.90 benefit results on the operating profit. So that's, of course, in terms of leverage, one of the more -- it's a great leverage we can have.Nevertheless, we think that working on synergies within the all businesses of the group could and has already generated very good leverage as well. And that's a second leverage we expect to use in addition to whether you call it synergies or -- and optimization. We still have capacity to optimize that the case for programming, and we can go further in terms of optimization of our resources as we have already demonstrated in training and even in Q1. So that's the 3 main leverage and all going directly at a good proportion at the EBIT level.
And just a follow-up on the point of regulation. I think the CSA, I think you called for a change to the sort of antitrust rules about the 7 licenses that each broadcaster could all do today. Any update -- or should we expect any update on that at all in the coming weeks or months?
No specific update. I can't talk about for the regulators.
Next question comes from Conor O'Shea from Kepler Cheuvreux.
So 3 questions from my side as well. First question, Philippe, I wonder if you could just remind us of how much advertising revenue fell in March 2020. I think you mentioned minus 50% in April. But if we could just have the number for March, that would be very helpful.Second question on the margins at Studios, obviously, extremely high in the first quarter and you mentioned a catch-up effect from some council projects. Can you give us a little bit of help in terms of thinking about margins, from what you see in the order book at the moment, what we could expect for full year margins?And then third question just in terms of programming costs. Obviously, lockdowns lasting a bit longer than expected at the start of the year. You probably meant you more flexibility in the strategy in Q1. What are you thinking at this stage on the full year in terms of potential outcome on programming costs, please?
Yes. Well, starting with your last question on programming costs, I would say that on the full year, we will not be in a position, of course, to make the same level of savings as last year. First of all, we have the Euro events, which will generate additional cost as compared to last year, where we had no sports or probably not a lot of sporty program. So that's one of the reason. Mechanically, if you take the benefit of a very specific situation of last year and the impact of the situation, which was nonrecurrent, we estimate that everything being the same, that our -- a minimum of equivalent EUR 900 million, which will come back automatically in terms of investment during the year. And in addition to that, we will reinvest depending on the advertising market. And if revenues are back, especially Q2, Q3, we will have to invest in order to generate the right ratings in order to capture advertising clients and to offer them strong audiences and value.So basically, I would say that we will have, on the programming cost, some savings as compared to what we had in '19. Nevertheless, because of the opportunity we had last year, I'll just remind you that we had last year opportunity to have a very specific program we bought during the lockdown period at specific costs, which basically has a difference, would generate around EUR 13 million additional to what we had last year. And in addition to that, we'll have the cost of the Euro, which basically mechanically put the level of programming costs, everything being the same, a bit more than EUR 900 million.And will depend -- the additional amount will depend between those EUR 985 million, which was the amount we had invested in '19. And those EUR 900 million whatever, that will depend on revenues and the trend on revenues in order to be -- as we have demonstrated. We will be flexible and trying to optimize. So that's the kind of -- between EUR 900 million and EUR 985 million and with the debt.Now concerning your first question, in March, we had, in March '20, a drop of around 25% of our revenues as compared to '19 -- March '19. But don't take into account when I'm -- because I see at the back of your question, what you could calculate. Well, that means March is up by 20% to 25% mechanically and mathematic. I would say, that's not exactly the case, because you don't have exactly the amount of drop in January, February. But basically, yes, March was minus 25%. And I don't like too much to talk about a monthly basis, because depending on 1 or 2 campaign -- advertising campaign, whether in March or April and so on, month-by-month, does not reflect the trend. But basically, that's the figure.Now back to your first question, which was -- your second question, sorry, which is the margin on Studio. Well, how would be -- I should admit that in this situation and the present situation, not very easy to try to have -- for you the breakdown in Studios & Entertainment, and we will try to improve information we'll give you the following quarter. Because it's true to say that as a basis of comparison in Studios & Entertainment, you have a combination of cinema, music and production itself and distribution.What I can say is that when you have EUR 9 million as an increase on the Studios & Entertainment revenues for the quarter, you should roughly think production is around double. And we have -- and which compensates the loss of revenues, and I'm talking about revenues, due to what I'd call the lockdown of theater and the cinema, the stop of video and so on. So you get a range of what we have delivered in Q1. But we will give you, hopefully -- because we will have -- we have -- now we had the closing of the selling of the TF1 Games and Dujardin. So probably it will be clearer next quarter.
Sorry, what is the deconsolidated -- deconsolidation impact of the -- from the games from Q2 more or less?
We will deconsolidate games, which -- for an amount which on a yearly basis is around EUR 20 million. That's basically for the 9 months equivalent.
Okay. And any impact on the EBITDA?
We don't expect significant impact on the EBITDA. Now for -- in terms of profitability, we keep this double-digit profitability for the production, which basically correspond to what we can deliver. On a normative basis, I would say, 15% is a top profitability we can deliver is between 10% and 15%, which is the normative in profitability we can expect from Studio.
The next question comes from Julien Roch from Barclays.
Just a quick one. Thank you very much for giving us the revenue of iZen of about EUR 35 million. Are the margin kind of in line with the rest of the business, so as you just said, the EUR 10 million to EUR 15 million?
Yes. We don't expect to grow with a low margin. So we can expect iZen to be in line with Newen group margin -- normative margin. And hopefully, we should improve the profitability through synergies.
Okay. And I mean, I suppose it's going to be in the next report. But is it possible to have an idea of how much you paid?
We -- you know that we don't give figures of what we pay and what we invest. But in terms of multiple -- and basically, those business at value, which correspond to more or less, I would say, EUR 1 revenues, more or less. But in terms of brands, I would say, that's the kind of magnitude we have in this business, which basically correspond to a multiple, which is between 7% to 10% with a double-digit profitability. So at the end of the day, if you say 10% margin and you multiply by 10, you come to the revenues. But that is the right multiple and doesn't mean that roughly -- that gives you the magnitude.
The next question comes from Richard Eary from UBS.
I think most of my questions have actually already been answered. Just to clarity on 2 points. So just going back to -- if the run rate is sort of 8% down in Q2, that implies TV advertising up 55% to 60%. Is that ballpark and what we're seeing in April so far? That's the first question.And the second thing, coming back to programming costs. Obviously, you said it's not going to be as high as EUR 985 million. But there's obviously going to end -- it's probably not going to be as low as EUR 900 million, given that you've got the euros. Should we just take the midpoint of EUR 985 million and EUR 900 million, depending on the magnitude of the advertising rebound. Is that fair?
For your last question, I would say that as we don't give any guidance, you take the assumption you want. And if you take the middle, that's your -- but roughly, just for you to understand why, just because at this stage -- and we have demonstrated that the way we work now, we want to adjust our investment to the advertising market. So depending on -- after the lockdown and the following weeks and months, the market and the advertising market could react and come back to something, which could be more significant, we will invest more than if we remain at a level which is more or less soft.So we will adjust the investment we are going to make in our different [ crop breeds ] of the different channel, depending on advertising market. Not globally, I would say, in terms of magnitude, but that would make the difference between the additional EUR 10 million, EUR 20 million we will invest or we will not invest if revenues are not at [indiscernible]. So that's basically the way we look at it.Now second point. And so in the model, we have to adjust the programming costs to the assumption you take on revenues. That's the only thing I can say, which makes things more consistent with the way we work now as compared to fixed cost or maximum fixed cost in the past.Now regarding the revenues for April, I think the best way to look at and even for Q2 is taking in terms of comparison '19 and with the assumption that we will not be sure to come back normally, I think for the moment, to the level we had in '19. And what I'm just saying is that last year, there was a drop of 50% during April of revenues and advertising. We hope to approach as far as possible in April what we got in '19.But in Q2, we will not be at the same level as we were in '19, just because, again, some sectors are not invested for the moment in advertising, because they are deeply hurt by the situation, and again, travel, culture, leisure, cosmetic. So that will depend on what we can expect when the situation will come back to something comparable to '19 and to see if those are coming back as soon as possible, but probably not for the moment, not in April.
[Operator Instructions]
Well, if there is no more question, I would like to thank you very much all of you for attending this meeting. Take care, be careful. And we will come back with our call for the first half year on the 28th of July. Thank you very much. Take care.
Ladies and gentlemen, this concludes today's conference call. Thank you all for attending. You may now disconnect.