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 Conference Call. At this time, I would like to turn the call over to Philippe Denery, CFO. Sir, please go ahead.
Thank you. Good evening, ladies and gentlemen. Thank you for joining us. I will start with the main key points and then give an overview of our results for the first 9 months of '21, then I will be happy to take questions as usual. Let's move to the financial results for the first 9 months of '21. The TF1 Group posted strong results for the first 9 months of '21, thanks to the combination of a positive trend in the TV ad market, the strong demand for content as far as our production business is concerned and cost control in line with our expectations. Group revenues stand at EUR 1,651 million. They are up by 21% compared to the first 9 months of '20, and there are EUR 37 million higher compared to end of September '19 level. I would like to point out that revenues from our activities are up by EUR 88 million year-on-year, which is plus 22% compared to last year and EUR 33 million versus September '19, plus 7%. This performance illustrates the success of our group capacity to extend its core business to complementary activities like production, distribution and services. The current operating profit stands at EUR 223 million, plus EUR 98 million versus last year and around EUR 40 million higher than 9 months '19. Thanks to this, the group delivered a high current operating margin at 13.5% at end of September 21, 11.8%, excluding government support of EUR 27.7 million. This -- TF1 remains focused on its ESG enrollment. The ad sales hours house launched in July, an environmental advertising fund called Eco funding, in order to support responsible advertising initiatives. This commitment has been recognized by the main extra-financial agencies. The group was recently awarded the third place in the Gaïa Ranking for companies over EUR 500 million in sales by EthiFinance, French extra-financial agency. As a summary, I would point out the results of our 2 main activities for the first 9 months as follow. First, at end of September, Media revenue rose by 18%, thanks to EUR 202 million increase of ad spending on our linear and non-linear screens. Investments in programming help us secure higher ratings than last year. These higher ratings as well as positive momentum in advertising helped us regain value and score a significant increase. Profitability of this segment is 13.5%. The Newen Studios segment performed very well with revenues up by EUR 69 million at end of September. That is to say, a 45% increase in a market where demand for content is high. Studio benefited from a touch-up effect as well as organic and external growth. Profitability stands at 13.3%. Let's now get into the details of our activities. I will start commenting on the performance of the Media segment. Revenues rose by EUR 221 million year-on-year with an increase of the operating profit of EUR 72 million. First, advertising revenues significantly increased year-on-year by 21% gross. Our ad sales has worked to improve the value of our screens in specific day parts such as access prime time as a means to better monetize increasing audiences. The positive trend on the TV ad market with only a few sectors still underperforming compared to '19 cars, cosmetic travel also explains the growth of the ad revenue in Q3. Even if the basis of comparison stood at a high level last year, I'll remind you that we have -- we outperformed the market last year Q3 by 8.2%. Digital ad revenues, which rose by 12%, benefited from synergies and combined offers that we have developed between our linear and nonlinear activities. Other revenues within the Media segment are up by EUR 19.2 million, led by higher business services and music revenues. Regarding the cost of programs, the group has shown again its agility and its ability to save opportunities. It stands at EUR 685 million, higher than in '20, of course, when we had made significant one-off savings in a lockdown context. In the dynamic ag market, the group has continued to reinvest in fresh, innovative programs to offer stronger ratings to our clients. This led to a very good performance for the group's channel with ratings up by 1.2 points for women below 50 and 0.8 points for people age between 25 and 49. Moving on to the Newen Studios segment. Revenues stand at EUR 220 million. They increased by EUR 69 million versus last year due to an excellent performance since the beginning of the year. Excluding the effect linked to the deconsolidation of the games sector, revenues of Newen Studios were up by 58%. Revenues at Newen for the first 9 months for '21 were positively impacted by a 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 in '21. Newen is pursuing its international development and acquired a majority stake in German production company, Flare Films, in September after the acquisition of the Spanish studio, iZen, in April. Newen also keeps on pursuing AI value-added partnership with platforms like Liaison for Apple TV+ which has entered the post production phase, and the book of order stands at more than 1,800 hours and of a strong visibility for '22. This segment posted a current operating profit of EUR 29 million, up by EUR 25 million year-on-year. Just a quick word on the net profit. Net results attributable to the group stands at EUR 147 million for the first 9 months of '21 including the investments in Salto. This level is higher than '19 and already close to what was achieved at the end of December '19. Let's now comment on the cash position. Excluding lease obligation, the TF1 Group had net cash of EUR 36.3 million positive at end of September '21 compared to no debt, EUR 0.7 million at end of December '20. The TF1 Group generated at end of September, the free cash flow of EUR 165 million versus EUR 51 million at the end of '20. It has a sound financial position and access to available bilateral credit facility for more than EUR 1 billion. Now let's conclude with the outlook. For the end of '21, our audiences and clients will benefit from a very strong and diversified lineup available both on linear and nonlinear. It will include new premium French scripted programs as well as entertainment programs that create a unique link. Convergence between TV and digital will reinforce the value creation for the benefit of our clients. Newen Studios will pursue its objective of increasing the international revenues and grow its book of orders with pure player of platforms.Given this very good results, the TF1 Group increased its guidance and now anticipate a double-digit current operating margin rate above 12% for '21. Well, that concludes my review on the TF1 Group's results for the first 9 months of '21. Well, thank you again for having joined us. And should you have any questions, please do not hesitate to ask. Finally, I remind you that a recording of this conference call will be available. You will find the connection details on our website.
[Operator Instructions] We have the first question from Annick Maas from Exane BNP Paribas.
My first question is on margin target for this year. And just looking into next year, why would you not be able to achieve that sort of margin revenue again? And my next question is on Black Friday. If you could tell us how much Black Friday as an isolated event is making in terms of advertising revenues in Q4? And then just, I guess, generally for Q4, if you could give us an indication about ad trends that you're seeing, which industries are performing well and which are not so much?
Yes. Well, your first question, sorry, was on margin target for this year. Well, I would tell you that we have limited visibility. And as I mentioned, the 9 months -- this year, the margin includes some credit -- tax credit in our EBIT. Nevertheless, I would say that we will go on developing synergies and activities in production and services. It's -- I can't give any guidance today for '22, definitely not. But that will depend on the global context and the economy in France. We will -- of course, we are really focused now on improving or maintaining a profitability, which is in line with the expectation of our shareholders. Too early to give you any kind of guidance. Now your second question on the Black Friday. Black Friday has some impact mainly on our digital business, more limited for the advertising on TV. Nevertheless, that will contribute, I can't give any figures specifically for the Black Friday. But that should help. But I think compared to '19 and previous years, of course, a basis of comparison favorable as compared to '20, and not different from the previous year. Now concerning Q4, the ad market. I just want to remind again to -- that in terms of percentage, 2 things. One of -- as you know, one is the fact that we have to take into account for a specific part of the year the phases of cooperation. And I remind you that in Q3, we made 8.2% outperforming the market last year. And the basis of comparison for '21 is rather high as compared to other competitors and even compared to the market. We have delivered a bit more than 4% growth based on 8% -- 8.2% last year, and we considered that compared to '19, the per basis, the performance is quite significant. Second point is on Q4, we have viewed that for October, November, altogether, the demand remained rather strong, in line with what we have already seen during the first 9 months trend. Nevertheless, the basis of comparison, of course, is nothing to do with the first 6 months of the year. So I would say that Q4 is, for the moment, in line with the trend we had taking into account the basis of comparison of last year, which was positive. And it's too early to see -- to have any kind of visibility on December, which is important for us in order to deliver the target we have for Q4.
Our next question from Conor O'Shea from Kepler Cheuvreux.
Three questions from me as well. First question, on the digital advertising revenues in Q3 seem to be down year-on-year versus, I think, up 12% through 9 months. So just wondering what was going on there? Second question on Newen. Obviously, excellent revenue figures again in Q3, but only a small drop through to the EBITDA line and again, just to talk us around that? And also whether the 1,800 hours in the order book at this stage of the year is higher or lower than it was at the same time last year or if refer at the half month -- at the half year, sorry, in June? And then a final question, I think you mentioned, Philippe, that the margin benefited from tax credits this year. Can you just maybe give us an estimate of how much that was or any other government aid that you benefited so far this year, which might cycle out next year?
Yes, Conor. I would say, on the first question, digital in Q3, it's a combination of stable on revenues from website. But at the same time, we had a very near difference, which is due to the fact that we sold our business in Italy and in Germany. We closed Spain on the digital. So there is a pyramid effect, which explains the fact that we are down as compared to last year Q3. Apart from that, there is a good performance on MyTF1 and as we are a reconfiguration of our website, the revenues, digital coming from our website at 0 minus during the Q3. On the 4 year -- 9 months, sorry, on the full 9 months, we are -- we have an improvement and a growth of 11.6%. But that explains the down of the digital and the perimeter -- change in the perimeter with digital site we were operating. And we had last year, we don't have any more in Spain and Italy. Sorry, no, in Italy and Germany, sorry. Now considering Newen, we have 1,800 hours compared to 1,500 previously. So the book of order has increased end of September, and it has increased because of a combination of perimeter. We include now in the book of order, the Spain activity with number of hours, which is rather significant as compared to the size of the company because they are working a lot with local broadcaster. And so they produce a lot for local broadcaster which is part of the reason of the increase. The other part is linked with and result from book of order coming from platform like Liaison I mentioned in my introduction. Altogether, the profitability of this segment is in line with what we have always said between 10% and 50% profitability when we have 13.4% margin, it's probably in line. And again, it's always a creation of value on the balance sheet and the profitability direct on the P&L, which has to be looked at with a good book of order for -- in the lineup. Now -- and I remind you also that normally globally for the group, historically, Q3 was a quarter which was delivering negative EBIT or 0, around 0. And now for the second time compared from '19, we have a significant EBIT during Q3 with EUR 54 million this year for the first 9 months. And that is due to the contribution of, of course, the optimization on the broadcasting as well as from other activities, which are contributing to the EBIT more significantly. On tax credit, end of September, the amount in our EBIT correspond to EUR 27.7 million for the first 9 months, not very significant, expecting no significant change in Q4 because we have taken most of the tax credit, which has been based on the investments we've made last year in programs and -- which are taken as a benefit when we broadcast the programs we have invested last year when the situation was very tough, and that's just a compensation of what we have invested and the low performance linked with the COVID which is taken into account in our P&L this year. So that's what I can say on the tax credit.
And next question from Christophe Cherblanc from Societe Generale.
Yes. Two questions from me, please. First on programming cost. I think last year in Q4, you had started to invest in programs. So it's fair to assume that the programming cost base of Q4 last year is going to be a good base, let's say, stable base for Q4 this year? And the second question is about the tax rate, which is super low in Q3. In fact, it's very low also at the 9-month stage. So what should we expect for the full year? And can you remind us whether Salto is reported -- I mean, the associate contribution of Salto is reported pretax with the tax savings associated in the tax charge? Is that the right way to look at the issue?
On your first question, programming cost, no, the Q4 last year is not the right basis of comparison just because we had the revenue work of last year, sorry, I was just comparing with '19. On '20, well, I would say that it's rather a good basis of comparison or probably we could do a bit better. So we will try to optimize and be a bit lower than last year Q4. And if you compare with Q4 '19, we should be lower due to the fact, again, that we had the Rugby World Cup, and we won't add any sport events as issue. So altogether, it's maximum it could spend Q4 of '20, which should be a bit better. Now concerning the second question, tax rate. Yes, it's a lower tax rate just because the tax credit we benefit is not taxed as such. So the basis should -- of the tax exclude the EUR 27.7 million and as well as some specific credit will -- we benefit in the production sector. So that's the 2 components which explains why the nominal tax rate is significantly lower and significantly lower this year just because the tax is not based on the EBIT, including the credit. Next year, we will not benefit from the tax credit. And so we will come back close to the nominal rate in terms of tax. On Q4, your question -- your second question, I missed your second question on Q4, if any, there is the question of associates. Yes, you will find on the line associates an amount of EUR 19 million -- before the EUR 19 million, and that was mainly to our share in losses of the Salto and that doesn't include the tax benefit when we present on our side, our losses -- the share of losses we take in our accounting. So it's a pretax benefit of that.
And just to be clear, the EUR 27 million of tax credit, which is tax free, so to speak, is there more to come in Q4?
Limited, very limited. probably, a bit more than EUR 1 million, around EUR 2 million, not more.
Next question is from Julien Roch from Barclays.
Coming back on your answer on Q4 advertising and I'm sorry, but [Foreign Language]. You're telling us that the trends are still good, but we need to mind the basis of comparison. Now the problem is that you have now presented advertising differently. So we actually don't know what the basis of comparison is. But if I look at the numbers of advertising in the media division, ex-digital, so what I would call non-digital advertising which is EUR 316 million in Q3 and EUR 314 million last year. So you were up 14.6% this quarter. And I estimate that last year in Q3, you were up 7%, which would be a 22% to your growth versus 2019. But I think that in Q4, you were only up 6% versus 2019, trying to reestablish the numbers on a new basis. So one, can we get some -- can we get Q3 and Q4 growth versus 2019 under the new basis last year? And then can you reexplain what you mean by the trends are good with minor basis of comparison? Because on the number that I have, it seems to me that the basis of comparison are easier in Q4 than in Q3?And then coming back on your margin this year. So your more than 12% includes the EUR 30 million, so the EUR 27.7 million plus the EUR 2 million of tax credit, which are kind of one-off. So the underlying margin, we should take at least EUR 12 million less than EUR 30 million to have a basis for next year, is it the right way to think about it? And then lastly, on the timing of the [Foreign Language], they said summer, now I think they're saying autumn. So it looks like we moved from June to September, it's now October. Can you still close the deal before the end of 2022?
Yes. Well, on the first question, let's make things simple and not too complicated. There is a line which is called TV Group advertising revenues. You get the first line of the table in the press release. And that's mainly in the media sector. There is -- if you compare, it's not a mistake. If you look at advertising revenues in the media sector, it's exactly the same figure except EUR 100,000, which are advertising in the Newen Studio. So make things simple. And we established last year the advertising revenue for the group, which is basically digital and TV.Now based on that, we had last year in Q4 for advertising TV revenue plus 4.5%, which are revenues -- advertising revenues, TV and digital. And I'm just saying that we have a basis of comparison with other and that we have to take into account this basis of comparison to understand that even if the trend remains goods and the demand is there, in terms of rate, we have made a good performance last year in Q4, and we hope that we will make a rather good performance. But we have take to account this basis of comparison. We have tried to make things more simple for you. If it's more complicated, tell us, we'll try to improve. But I think that with those 2 sectors, you get the understanding with -- through our presentation to what is coming in line with the strategy which has been experienced for the last 2 or 3 years with the revenues coming from advertising and the other revenues because it's very important, as already explained, that all the components, which is not directly linked with advertising, production, distribution, services to telecom operators, services to our clients through all we have developed during the last 2, 3 years, are clearly developed and explained in terms of figures. So just for the first question on Q4 advertising, trend is good, basis of comparison 4.5%. So we can expect for the moment, in October, November, some improvement, but limited due to the basis of comparison.
So -- if you look at it versus the total number, so Q4 was at 4.5%, how much was Q3 up?
Q4, 4.5%, yes. And Q3 was -- yes, I'll get you the figures for Q4, yes. I will answer. I will come back on this. I think it was plus 2%.
Sorry. Which is which, is 4.5% Q4 and Q3 was 2%? Or is it Q3 4.5% and Q4 2%?
Q3 was 8% -- as I mentioned, Q3 was 8.2% on TV and 8% globally for Q3 on advertising. Is that clear? 8% Q3 last year and 4.5% Q4.
Okay. So why are you talking about basis of comparison if they're easier? So the basis of comparison is 3.7% easier. The growth should accelerate in Q4 then?
No, I'm just saying that it's a rate, right? It's not an absolute value and take that into account when you look at advertising and growth. I mean, it's easier to make 10% on 0 than 10% of 100, right? Easy to understand. So basically, I'm just saying that we've made 4.5% on a higher basis last year in Q4 on advertising. And that this basis of comparison, if you compare to '19, we all know that the market every year is not growing at a double-digit level. So I'm just saying that in Q4, we made 4.5%, which is rather high as compared to Q1 or Q2 this year, which were down, significantly down. And as a basis of operation, compared to the outperforming of our business activity and advertising activity in H2 last year, combined Q3 and Q4, we have a high cost basis of comparison to go further -- significantly further in terms of rate. I'm not saying that we will not improve, but I'm just saying that at it's a higher basis of comparison. And I can't compare Q3 and Q4, you are well aware of the fact that those 2 quarters are very different in terms of absolute value, that July and August are definitely low months, that we are not delivering in absolute value the same amount in Q3 and Q4, and of course, Q3 is comparable to 2 months as compared to any other quarter. So again, we are just basis on mathematic division and the rate, which is based on the absolute value in terms of component of this rate, which is basically the fact that the absolute value is higher in Q4 than in Q3. So if you're just saying, well, why should we have not more because the basis of comparison is lower? I'm just telling you, just take into account mathematic in order to understand why basically, when the basis is higher, the rate is more difficult any basis of comparison to achieve the same rate, right? That's it. And I'm just trying to make things simple and not too much complicated. Now concerning your second question, concerning the 12%, yes, it includes the tax credit. You have in our press release, the retreating effect of this tax credit and the rate is 11.8% on the first 9 months as compared to 11.4% for '19 and 9.2% rate for last year. So in the first 9 months of this year, we have improved the margin rate by 4 points -- 0.4 points, sorry, 11.8% as compared to 11.4% in '19. We are just saying that, again, globally, we will deliver an EBIT of more than 12% for the year, which is the same reference at the 13.5% we have delivered on the first 9 months. I remind you that in absolute value we always in Q3 deliver better absolute value in terms of amount of EBIT, but the rate for the Q4 for the reason I already explained, is lower than in H1. Now concerning your third question regarding the competition commission. Well, I have no reason to think that in the process, the target of clearance before the end of the year would not happen, and we are still exactly on the -- on our side, what -- as we see, the process is in line with what we have and there is no delay. Things are progressing. So whatever you read or whatever it says, we think that we are in the calendar and in the right timing.
We have no more questions for the moment. [Operator Instructions] Sir, we have no more questions, back to you for the conclusion.
Well, thank you. Thank you for having joined us today. I hope that I have made things a bit clear for you. And I will just remind you that this call, you can get it on our website. Thank you very much. Good evening, and thank you to all of you.
Thank you. Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.