Television Francaise 1 SA
PAR:TFI
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Television Francaise 1 SA
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Hello, and welcome to the TF1 Q1 2022 results. Please note, this conference is being recorded. [Operator Instructions]
I will now hand over to your host, Philippe Denery, Chief Financial Officer, to begin today's conference.
Thank you. Good evening, ladies and gentlemen. Thank you for joining us. I will start with the main key points and I will give an overview of our results for the first quarter of '22. Then I'll be pleased to take your questions. Well, as an introduction, I would say that the year has started rather well for the group. The demand on the advertising market is sustainable even if we have to compete strongly with digital players. Demand on content remain well orientated, both on the French market and in Europe.
Altogether, the first quarter posted a growth of our consolidated top line of 10% as compared to '21 first quarter, and a growth of around 1.5% as compared to the first quarter of '19. We started during this quarter to measure, in our figures, impact of decisions taken in '21 with growth -- progressive growth of the addressable TV, the first impact of TF1 MAX, the combined TV digital advertising offer as well as the impact of the renewal of our contract with telecom operators.
We keep a good cost control with the programming cost at a level of EUR 220 million, which are a bit above the last year same quarter, plus EUR 9 million. But which remained lower than the first quarter of '19, and we have tried to optimize our investment in programs on the consumption, which is now linear and nonlinear. The profitability of the group is at a good level for our first quarter, a bit less than 11%. And if the profitability of the studio sector is a bit down, it has an explanation linked with the mix of programs, which have been delivered during this first quarter, and especially abroad, which explains this profitability. But which doesn't change the target of a level of profitability comparable to what has been achieved last year.
At the end of March, the group benefited from a cash position positive of EUR 380 million, which secure the future.
Now let's move more in details on the financial results for this first quarter. As I mentioned, group revenues stand at EUR 561 million. They are up by EUR 51.5 million compared to the first quarter of '21 and plus EUR 7.6 million compared to Q1 '19. Ad revenues performed well in Q1 '22, plus EUR 19.2 million versus last year, plus 5.4% for all ad revenues for the whole group. Demand remains positive across most sectors.
I would like to point out that revenue from other activities are up by EUR 32.3 million year-on-year, plus 21.3% and plus EUR 25.4 million versus March '19, plus 16%. This performance illustrates the group's capacity to extend its core business to complementary services, leading to distribution and production revenues.
The current operating profit stands at EUR 59.6 million plus EUR 2.8 million versus last year. Thanks to this, the group delivered growing operating profit of plus 4.9% and a solid current operating margin at 10.6% end of March, as I mentioned already.
If I summarize the results at end of March, media revenues rose by 9%, thanks to EUR 19.3 million increase of ad spending on our linear and nonlinear screens. Investing in high-quality content on all our channels have helped supporting top line growth in advertising revenues as well as in distribution revenues, thanks to the services provided through telecom operators and OTT access. Profitability of this segment is 11.7%.
The Newen Studios segment posted revenues at -- of EUR 75.8 million. They are up by EUR 10.5 million at the end of March, plus 16% increase in a market where demand for content is high. Profitability decreased versus last year, as I already mentioned. It's a very specific -- it was a very specific quarter last year. The performance reach was mainly due to a delayed cycle of the production due to COVID-19 in '20.
If I comment the media segment specifically, revenues rose by EUR 41 million year-on-year with an increase of the operating profit of EUR 10 million. Advertising revenues for this segment are up by EUR 19 million year-on-year. The positive trend on the TV end market observed at the end of '21 continued in Q1 '22, and especially driven by progressive reinvestment from some sectors like travel, tourism and cosmetic after the COVID crisis. This growth is also explained by the capacity of our ad sales house to work on improving the value of our screens as a means to optimize inventories.
Digital ad revenues rose by 8.2%, driven mainly by MYTF1. And this line includes, of course, our website as well, complementary to MYTF1. The other revenues within the media segment are up by EUR 21.7 million, led by higher activity in the distribution segment following the renewal, as I already mentioned, of distribution agreements. And the dividend of new consumption services.
Regarding programming costs, the group has shown again its ability to adapt to opportunity, and we have invested a bit more than last year in a quarter marked by heavy political and geopolitical news flow.
Moving to Newen Studio segment. Revenues stand at EUR 75.8 million. They increased by EUR 10.5 million. This growth is mainly due to the impact and the contribution of our Spanish and German studio, which were acquired in '21. After Q1 '21, which was specifically marked by a catch-up effect of the COVID and more delivery than usual at the beginning of the year last year, Newen Studio returned to a quarter, which is a more normative quarter in terms of activity and in terms of profitability, even if we confirm the target and the profitability we had last year.
Several products have been commissioned by international platforms and confirmed during the quarter. The book of order is at a high level and demonstrate the group Newen's ability to respond to the demand and content.
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 '22, including investment in Salto, and this level is similar to Q1 of '21. Regarding the cash position, I already mentioned the net cash position of EUR 380 million at end of March compared to net cash of a bit less than EUR 200 million end of December '21.
In '22, the media segment should benefit from the development of new consumption habits as well as the extend offers provided by our sales house to our clients. Data and consumption services such as MYTF1 and MYTF1 MAX will positively contribute to the top line and the profitability of the group. Newen Studio contribution to group operating profit will remain accretive in '22, where new orders, namely with platform have already entered the book of order.
Regarding the Ukraine conflict, the TF1 Group consider that at the end of March, the business is not directly impacted by this conflict. However, the evolution of the conflict might have an impact on the European economy and indirectly on our business. As it did in '20 and '21, the group will show adaptability and apply a close monitoring of costs in the following months.
Well, that concludes my review of TF1 Group's results for the first quarter. Well, thank you again for having joined us. Should you have any questions, please do not hesitate to ask. And finally, I remind you that the recording of this conference call will be made available on our website.
[Operator Instructions] The first question comes over the of Christophe Cherblanc of Societe Generale.
I had a few questions. First one was on EBIT. I understand that there was a gain from Molotov in Q1. Is that the case? And is it included in the Q1 current operating income? That's the first question.
The second one is on Newen. It seems Plus belle la vie is going to be discontinued. So I had in mind, it was about EUR 30 million of revenues. Is that the right order of magnitude? And what would be the impact on the profitability of Newen?
And the last one is on Netflix. I'm sure you saw the news flow on Netflix. So there are 2 sub-questions. One is, what is your estimate of the viewing time of Netflix in France? Do you believe they will launch an advertising business in France?
And lastly, it seems they're going to reduce their spend. So do you think that might have an impact on Newen as of 2023 in a negative sense?
Well, thank you, Peter, for your question. In terms of Molotov on your first question, yes, it has been partly included in our EBIT for the Q1. So Molotov has some impact on the results, limited, but it has.
Second point on Plus belle la vie. Well, we are still negotiating with France Télévisions. And finally, we will see we -- what decision will be taken.
There should not be significant impact on '22, even if depending on the result of the negotiation, there will be some. We will compensate and we'll try to compensate on the long term the impact if they decide to stop the broadcasting of Plus belle la vie. We do think that brand is a strong brand and that we could find a potential client in a form of one or another.
And we will have -- in terms of magnitude, you are right on the top line in terms of magnitude. But on the mid, long term, if it is taken by France Télévisions to stop Plus belle la vie, we will find place to compensate and to keep the level of profitability globally on the market.
Well, concerning Netflix, well, I would say that I have no specific estimates in terms of time. Well, what I have -- in the past, what we've seen is that France is not the priority for Netflix in terms of implementing new wave. So I don't know. I can't comment on that. But I would say that it would take some time, a bit of time. And I'm not -- I don't think that Netflix is focusing specifically on France or will start with France, but we'll see. It's in line with what we have already anticipated in a certain way through moves, which have been our moves during the last 2 or 3 years and future projects we are considering.
Now concerning the last part of the question, well, we are working with Netflix, of course, on a regular basis, but not only with Netflix, with all platforms. Second point is that when Netflix is investing globally, they give figures and investing both in fresh and in catalog.
And we don't think that platform can offer or can limit the level of fresh content they have to invest in. So as a result, we don't see any one significant impact of Netflix intention to reduce their investment in fresh program. And well, that if it could be the case that will impact not only Newen clearly. But we don't see this as a risk because the demand for content and strong content and local content should remain at a high level.
Okay. And just to be clear on Molotov. You've taken half of the amount, and you will take the rest in Q2 or Q3 depending on the appeal? Or how is it going to work out?
It's going to work out, but I can't mention any kind of figure at this stage. I'm just saying that, yes, of course, it has impact in Q1, and we will see during the year how things are going on. We are negotiating with them. And it's fair on my side to say that I can't give any kind of more indication on this, which is part of our cooking secret, if I may say.
[Operator Instructions]. The next question comes from Julien Roch of Barclays.
My first question is on ad trends. Can you give us some indication of what's going on in April and May? And also second question is, could we have a sense of the flexibility of your cost base? So there's a lot of macro uncertainties, war in Ukraine, lockdown in China, elevated inflation in the West.
So there's the chance that advertising slowdowns or goes negative sometimes towards the end of the year or next year. And so what's the maximum? If we go into a recession and advertising turns negative, what is the kind of maximum cost cutting you can do? And after that, the drop-through becomes almost 100%?
Thank you, Julien. In terms of ad trends during the -- well, from what we see, first of all, because of the situation, of course, the visibility which had improved in Q4 is now very low and come back to a situation where the visibility is very low. And that's due to, of course, the situation and specifically in specific sectors, like, of course, car industry, food and even cosmetic where the visibility is very low. So what we can say is that at date, we don't see negative sign. The demand remains at a level which is rather comfortable that there are sectors which are coming back after COVID.
Bank insurance for instance as well as all the restoration with more investment than in the past, retail as well. So basically, I would say that from what we see today, no negative sign and the trend at this stage, which is more or less what we could expect. We are fully aware of the fact that it could change very quickly that, of course, if the situation would impact the European and especially, the French economy, well, might impact as well, of course, the advertising market.
We will see. But at date, I can't give you more than no -- not large visibility and no negative sign on April. And we manage -- depending on which sectors to offer to advertisers' our inventories, which are -- which remain very attractive.
Now concerning our flexibility on costs, I would say that if I refer to what has been done in the past, which is probably the best benchmark we can say and more credible benchmark because it has been done. You remember that in '20, we have made EUR 150 million savings on our programming cost for the whole year. Of course, that is not the right answer, just because, of course, there was a specific situation, which will not occur because we are not facing the same situation in terms of crises, pandemic and lockdown is not comparable to a war in Europe and an economical impact.
But if I may say, as I already explained last year, part of the EUR 152 million, there was a one-off situation corresponding to around EUR 50 million. Basically, I've said, well, we have to forget the flexibility and basically the basis of EUR 900 million on programming costs a bit less, a bit more, is probably the right benchmark. So roughly, I would say the flexibility is probably between 5% to 7%, which, in terms of profitability, is consistent with what has already been achieved and give you a kind of framework.
I will just add that -- and that's the case for all of us, the flexibility is every day lower than the day before and that we have less flexibility in December than in January. It's obvious, but I just prefer to mention it because, of course, it's part of the answer, even if the question is really -- and the good question is basically -- and we are focusing on, is basically to adjust to the top line when the top line could be a bit lower.
A follow-up. So you said 5%, 7% of programming cost flexibility, which is a very useful answer. And you say less flexibility in December than in January, which is a logical answer. So is the 5% to 7% in January and then at the end of the year is it 0? Or where do you -- some kind of timing on that?
And then when you say April, no negative sign, not surprising, that doesn't give us much of a number. So are the trends similar to Q1 year-on-year? Or I mean, any more color you can give us.
Well, on the flexibility, I would say that 5% to 7% to what remain. But the flexibility is -- and you remember what we have given in terms of indication when we were 2021 in a crisis is the flexibility is linked with the conversion of what we deliver in terms of top line and what we deliver in terms of savings. So basically, I would say that there is -- in our business, well, savings has to be in line with the top line through our capacity to adapt to the situation.
So that's what we've done, and that's -- what I give you is not a kind of guidance for -- definitely not a guidance for the future. I'm just saying what has happened in the past showed that based on what we can spend or what remains to be spent if the top line would be, I would say lower than expected, yes, we have the flexibility on what has not been spent at a level which remain between 5% to 7%.
Now back to Q1. Well, the basis of comparison is, well, probably the trend we had, I would say, in Q1. But just to add that, of course, the basis of comparison is different. And I'll remind you last year that, of course, the basis of comparison is not valid because we had an increase of 72.5% growth in Q2 '21 as compared to '20. So sorry for that because -- but I'm sure that it's in all business and for all groups the same. But we are a bit -- and that will be the case for Q2.
We have a basis of comparison which doesn't make sense sometimes because of the situation in the previous year. So I have to admit that my answer is not very clear. So I'll try to be a bit clearer. And I would say that the basis of comparison of Q2 and April, start Q2 is rather high in terms of performance. But in terms of demand, in terms of trend, we are in a trend which remain, I would say, globally positive. Certainly not at a level compared to the Q1 because of the basis of comparison.
[Operator Instructions] The next question comes from the line of Conor O'Shea of Kepler Cheuvreux.
Just a follow-up on that question from Julien. In terms of the Q2, I understand it's early at this stage. But looking at the absolute value of advertising revenues last Q2, which was well up on 2019 levels. Can you give us a sense of the range for Q2 2022? Are we looking at maybe above 2021 levels or between '19 and 2021 at this stage adjusting for kind of one-off factors like Euro 2021 last year? Is that maybe a way to look at it in terms of absolute terms? That's the first question.
Second question, just on Salto -- sorry, Newen. Could we -- just in terms of the -- you mentioned, I think, all the growth came from consolidation of the Spanish and German acquisitions. Was that also a factor in terms of the profitability, whether integration costs or something related to that to explain the very low margins in Q1? Or is that a seasonal effect? Second question.
And then the third question, can you say anything about Salto and the subscriber numbers year-to-date, if that has picked up from the year-end level?
Well, yes. Well, on your first question, I'll just remind you figures for Q2 '21 and Q2 '19. I don't comment '20. We have posted advertising revenues of EUR 441 million in '19, Q2. And EUR 444 million in Q2 '21. So basically, stable '21 compared to '19. And we've said we come back in Q2 as a situation comparable to previous COVID-19.
I definitely can't give any figure for Q2, we have no visibility and it wouldn't be serious based on information I have today without -- in such circumstances, whatever question you have to give you what could be Q2 in terms of figure, I'm sorry about that. But very low.
I would just would say that April is in line with what we had in April '21 and April '19. That's what I can say, more or less. But at this stage, I definitely can't say more.
Second question was on Newen and give you a bit more explanation on what has happened during Q1 in Newen. Yes, the growth is coming mainly both from acquisition of Spanish and German business first, because the basis of comparison last year on the rest was very high.
And we had said last year that it was really a one-off, both in terms of what we had delivered in Q1 '21 following the COVID period and as well as in terms of profitability. Now that's the first point in terms of basis of comparison, and that is the reason why we are stable, slightly down, everything being the same apart from the acquisition we made during '21.
Now apart from that, we have moved, and I remind you that we had a studio, which was 5, 6 years ago, mainly focusing on French market, 100% of the top line within the French market when we bought and we acquired Newen. Second point, mainly on French drama. Now we are in the type of genre, as we have tried to explain and developed previously. We're in type of genre, which are very different and the combination of international and local. International business is now 52% of the top line, 48% on the local, mainly France.
And in diversification in genre of programs, you amplify the seasonality of the profitability. I just take only one example. The example of Téléfilms de Noël. Christmas telefilms are not delivered in Q1. They have good profitability, but that is not in Q1. So the mix of program Newen delivered during the year has a bit changed and is less linear than it used to be with daily soap. When you contract for a daily soap, you get part of the margin and the EBIT on a regular basis as long as the contract exists. Okay. So that's a good part of the explanation. And we are rather confident that there is no reason having the book of order of Newen that the trend will be in line with what we have delivered last year.
Now to come back and to end with Salto. Well, I can't -- I'm not allowed to give any number of subscribers. Salto is a full function company. And the rule of the Competition Commission, French Competition Commission, I can't give any figure on Salto for a number of subscribers, myself. I just would say 2 things. Salto performed in line with expectation, and they have increased their subscribers on a regular basis.
Second point is to say that, of course, they remain distributed only at this stage by Bouygues Telecom, one operator. But they have not signed any agreement with the 3 others, still discussing with them, which doesn't help at this stage. We are still confident that, that will move. And they have announced, as you probably have seen, that they will have a deal with Amazon, which should give them opportunity to develop the business during the next -- the following part of the year.
Okay. Understood. Very clear. Just one follow-up question on non-advertising media revenue, which was up strongly, as you alluded in Q1 from the new retransmission deals at a higher price. If we look at that seasonally into Q2, should we expect -- can you just remind us of the timing of the renewals as to whether we should expect a similar uplift or again, in absolute terms, I think you did about EUR 108 million non-advertising media revenues for Q2. Seasonally, would you expect -- is that a good starting point for Q2 or seasonally, could it be a bit higher?
Well, the growth in this segment is partly due to distribution revenues. And part of it is a consequence of the contract we've signed with telecom operators, which is sustainable during the whole year. Another part is coming from services to advertisers, which is a business which was originally on the previous Unify segment and which is mainly due to what we call [Foreign Language], which is -- which has very well performed during this quarter. But which is not -- will not perform necessarily the same way quarter-after-quarter because of the nature of the business.
So that is something which is not a regular, linear and you can't expect to have this every quarter until the end of the year.
And the complementary to that, we have music and theater, which are coming back to a situation which is more normal compared to what it has been during the last 2 years, and which participate to the increment of this. But in a way, which is progressive, limited and will not be significant quarter-by-quarter. Hopefully, the situation will come back to something comparable to '19, last quarter of this year.
But was the settlement with Molotov that Christophe was alluding to, is that also in that revenue line in Q1?
No.
No, it's not.
The next question comes from the line of Jérôme Bodin of ODDO.
You just answered my question on the other revenues. So...
Fine. So I was pleased to answer before you ask a question.
The next question comes from the line of Thomas Coudry of Bryan Garnier.
Actually, I have 2 on the inflationary context. First, as far as your cost base is concerned, can you please disclose how much you're exposed to inflation concern as far as energy or salary costs are concerned in particular? And where you stand in terms of renegotiation of salaries?
And second, on the other side as far as your top line is concerned, do you have an idea or an opinion on the sectors that could be the most impacted by a strong inflationary context and the share of your top line that could be at risk given the circumstances?
Well, on the context and the inflation, I would say that we are not directly impacted by energy inflation, very, very limited in our business, except and directly through advertisers, which are themselves linked with energy. But on the P&L of TF1 -- I would say, in terms of cost of TF1, no significant impact. We have no significant impact. We have possible impact on salaries.
I just remind you that the staff cost in the P&L represent around 15% of the full cost. So it has some impact but it remained at a level which is, I would say, acceptable.
And in terms of inflation on program, we don't see impact due to inflation of gas, oil, electricity on the way we produce. So that's what we can say. The impact of the situation is more on the economy and indirectly on the possible impact on the advertising market.
Concerning now the different sectors, which could be impacted. Clearly, there are 2 sectors which are already impacted and which are the food sector, and you know the problem of the food sector in Europe as a consequence of what has happened in Ukraine. As well as the car industry, which has been impacted by raw materials and so on. But is also impacted, of course, by energy and the consequence of the station. Well, apart from that, I would say that those are the 2 main factors according to us, which could be -- we are focusing on just to see how they will behave and what they will invest.
Okay. So -- but you've already seen this impact, as you said, so all your comments on the current advertising trends in April already include these impacts on these 2 sectors?
On those 2 sectors, food and car industry, we have seen the impact in Q1 already, not necessarily in April. We have seen the impact from the beginning of the war and the situation. And the trend of those 2 sectors in '22, quarter of '22 are investing less have been investing less than previously. Now I would say that other sectors, again, like the retails, like restoration, like bank and services are investing more to compensate. We have no specific reason to think that -- or we have an impact on major other sectors.
[Operator Instructions]
Okay. Well, if there is no more question, I wish you a very good evening, and thank you for attending the call today. And if you have any specific question, the Investor Relations team is always available.
Thank you for joining today's call. You may now disconnect.
Thank you.