Earnings Call: Q1 2021

May 12, 2021

Ladies and gentlemen, welcome to the Q1 2021 results of Mediaset. Today, the speakers are Marco Giordani, CFO of the company and Matteo Cardani, Managing Director of Public Italia. Given the restriction of time, I will hand over immediately to the speakers. Thank you. Thank you, Simone. Good morning to everybody. Thank you for your attendance. Today, we comment on Q1 results with a short outlook at Q2 ongoing indicators. I start, as usual, with a quick view of the economic scenario, commenting number chart 3. With regard to confidence index, the monthly evolution, both for consumers and business, shows a continuous gradual improvement of the economic scenario. We are not far from the sort of normalization of the situation, as you can see from this chart. Then we move to the advertising market, commenting chart number 4. As you can see, Q1 2021 is slightly below flat issue results, minus 1.4%. But with regard to our addressable market, TV and digital are performing definitely well, positive medium single digit. While radio is still suffering from restrictions applied throughout all the 3 months of Q1. Restriction whose impact is definitely stronger on out of home. Then moving next to chart number 5. Here, you have the Q1 'twenty one result is plus 6.1 percent as we announced and anticipated 2 weeks ago in our fiscal year call. The interesting thing is that now you can appreciate the fact that we are doing we are performing 7 points better than the market. And the other interesting thing is that we outperform the market in each single segment of our addressable market. So we are doing better than market by far in TV and digital. And our decrease in radio is definitely lower compared to radio radio market trend. Then in chart number 6, we comment on strong positive evidence. Q1 is the 3rd quarter in a row that is positive 1, and Q2 will be the 4th positive quarter in a row. So after 3 positive quarters in a row, we are facing a 4th positive quarter with a result, honestly, better than expected. And try to understand the pillars of this good business performance and this business resilience throughout all the 4th quarters of the last moving year. I would like to remind and share with you that there are 3 advertising key drivers: total audience and total video growth the balanced dynamics among the economic sectors and last but not the least, the high level of media diversification in our client base. So let's comment shortly on these three points. I'm commenting chart number 8. Here, you have on a 2 year basis, the growth trend in our audience evolution. So here, you have linear television, connected television and online video. In order to normalize the comparison with Q1 'twenty that was affected by the COVID restrictions, the harder restriction we have experienced. We made these competitors on a 2 year basis in order to normalize. So you can get from here the medium term growth trend of the free screen. User. So we have a good performance in total video. And if we take a look at number 9 chart number 9, here you have our linear performance, so 34.8%. So we start on the same level of 20.20, While on digital nonlinear audience share performance, we are now 41.6%, and we are growing almost 4 points compared to the consolidated 2020 results that were 37.9%. So our audience total audience profile is definitely in a good shape and good health. Then last two charts I want to comment on. We have with regards to sector dynamics, we are using this device of the AR model, so the unrestricted and restarting sectors. And if you take a look at chart number 11, our combined result in Q1 plus 6.1% is weighted average outcome of different dynamics. So we have a very well balanced portfolio. So for example, the fact that fast moving consumer goods and pharma are suffering a little because of the down 12 digit versus positive sales in Q1 2020. This is more than compensated by telco, retail and over the top in the resilient sector clusters. In a similar way, while we do expect an important restart in tourism and travel sectors from now on, among those sectors that were restricted last year, consumer durables, mainly those devices for home electronics are doing good. People over the past month invested more in valuable goods for their homes while waiting to come back and spend out of home in restaurant and travel. So even from this perspective, the Q2 perspective from the point of view of sector contribution should be positive because there will be the still restricted sector that will join us with their ad spending. Last but not the least, 2 weeks ago, during our fiscal year 'twenty call, the issue of the degree of diversification of our business was raised. And as you can see in Chart number 12, of course, we don't give individual data on a monthly basis or individual data by medium. But in order to highlight and give insights on the good health of our business from a revenue diversification perspective, we adopted the viewpoint of revenue breakdown by midyear mix. So to make it clear, in this chart, you have a clear picture. So if we consider the whole of our business, 100% of our advertising revenue, today, 75% of our revenue are developed by clients that choose from 2 to 5 different media within our offer. So they enter, let's say, our outlet, Mediaset outlet, and they are used to buy to put in their basket TV, connected TV, digital radio and digital audio. So on average, they choose from 2 to 5 different media. And the most important thing is that they are used to be both linear and digital clients. So they have a combined purchase from their media buying perspective. So this is the degree of diversification of our client base. Competing the comment on the charts, only 7% of our revenues are developed by clients that are buying only linear, I mean, TV and radio. And 18% of our revenues are developed by linear TV only clients, so the so called traditional clients. But the interesting thing, this is the last thing, then I hand over to Marco, is that among these clients, so those that buy on linear TV only, onethree are in clients. So they are new businesses. So TV, still represents the main gateway to enter into our full portfolio, and then we develop our clients into a more diversified media mix. Okay. And I hand over now to Marco. Thank you, Matteo, and welcome to everybody. I will take you through the quarter results briefly, starting from Page 14, where you have the net consolidated result of the group. As you can see, I mean, revenue were slightly down versus last year. You have to remember that the COVID, let's say, emergency started in Italy in the beginning of March and a little bit later in Spain. So clearly, the comparison in terms of revenue are still affected by non comparable numbers. But in any case, we were able to stay very close to 2020. If you look at EBIT on the other hand, we were able to increase our EBIT by 63%, moving up from €41,000,000 to almost €68,000,000 And going further down in the P and L, you can appreciate the net profit growth that is that has been in the Q1 of 2021 of €52,500,000 That is 3.5x higher than the 2020 result. Just to remember you that this number, it's even higher than 2019 number. As far as the net financial position, the deleverage is still going on. We improved our position by almost €90,000,000 and this is an incredible number also because during the quarter, we have acquired the 3.5% of proceedings take for an amount close to €100,000,000 Moving down in the Italian P and L, Matteo already commented the advertising revenue. In terms of total revenue, we were almost flat on last year. It's because in the other revenue line last year, we had the extraordinary performance of a movie that went out in the cinema. Clearly, this is something that cannot be replicated in the Q1 2021. But as far as the total revenue line, we still guide the full year for a number close to the 2020 line. Clearly, we are starting from a quarter where we had a lower performance, but our aim and challenge is to catch up this number in the remaining months of the year. Moving to costs. It was a very, very outstanding performance in the quarter. Total costs were lower by €40,000,000 than last year, with a decrease in the region of 9%. And the operating profit line went up from a negative performance of 2020 to a positive €20,000,000 in 2021 with an improvement of €40,000,000 This number compared to 2019, it's almost doubled. So again, a great performance, not only versus last year that was in a certain sense affected by the pandemic, but it's also remarkable if you compare it with 2019, so a pre COVID performance. As far as cost line for the full year, we can maintain our guidance that we gave just a couple of weeks ago. Our aim is to keep the cost flat on 2020. This performance will grant us a decrease between 6% 8% versus the Turfane cost line in 2019. So clearly, this is something we will try to outperform during the year, but I mean that's the guidance we still have, taking consideration, for instance, that there are going to be quarters that will have a strange comparison versus 2020. For instance, as you can remember, Champions League cost in 2020 has been accounted in the Q3, while clearly in 2021 will be in the second. So but I can confirm the guidance for the full year, flat cost on 20 10. Moving below EBIT line. Financial income was positive by €17,000,000 In this slide, we are accounting a positive one off impact coming from some hedging position on proceed and stake That's clearly something will not be replicated in the remaining quarter, but it's something that has been cashed in, in the Q1 2021. As far as guidance on the full year, we can say that we are going to be flat on 2020. To that flat number, we have to increase the one off we just mentioned. And as far as our associate is concerned and giving the guidance for the full year, you have to consider the positive impact of the EI towers, let's say, disposal of Towertel that will generate around €89,000,000 extraordinary profit on this line for Mediaset. And so that's the reason for which we can improve our guidance of the associate line from €50,000,000 to around €110,000,000 Moving to investment. Another, let's say, pretty cash saving quarter, Investments were, let's say, €100,000,000 lower than last year. Clearly, COVID impacted them. As you can imagine, the numbers of, let's movies and series delivered in the Q1 has been pretty lower than last year 1. But in any case, we are still guiding the full year with an investment line in the region of €340,000,000 €360,000,000 that will account for a decrease versus 20 20 in the region of 15%, 20%. Lastly, cash. Again, very remarkable performance in the quarter. Cash flow from operation grew by more than 30%, reaching the level of €130,000,000 in the Q1 2001, while the net financial position at the end of the quarter was slightly lower than €700,000,000 with an improvement of almost €120,000,000 in the quarter. As we said in the last call, we are not guiding the full year because many things are going to happen in any case on that line. The only thing that I would would like to remind you are 2 elements that in the last 15 days has happened. 1 is the dividends payment that will be cashed out in July for €314,000,000 and the cash in of the special dividend paid by E. I. Towers, we cashed in at the end of April of an amount of €134,000,000 I believe that's all. We are now ready for the Q and A session. Thank you. Thank you. Your first question comes from the line of Julian Rotch from Barclays. Please ask your question. Yes. Good morning. First question for Matteo. Could you give us some indication of the Q3 trends? I mean, you're saying it's going to be better than 6.1%, but color on April, color on May. Second question for Matteo again. Thank you very much for Page 12. But how do they buy though? Do they buy channels separately, but buy several channels? Or do they buy a bundle where you sell them GRP and they don't know where it's coming from? That's my second question. 3rd question again for Matteo, Page 8. Year on year growth is great, but we have no idea of the base. Your audience could be 97% linear, 1% radio, 1% wave, 1% video on demand. So could you give us some idea of the split of your audience in either 'nineteen, 'twenty or Q1? And then the last one, sorry, I know 4 questions a lot. Marco, piece with Vivendi, relocation to the Netherlands. So when do you think the relocation will be effective? And then the second question on that is next step after that. I'll start to answer to the last question. The calendar for video moistiliation in Holland, it's pretty, let's say, fixed and the re domiciliation should happen in September. And as far as what's going to happen after, I mean, we cannot give any disclosure on that, but we believe that the regime initiation, it's a leverage to start the consolidation in the retail space. So we consider it a strategic move to execute what we are saying in the last 2 years. So, Matteo, maybe you can have then the long list of Julian's question. Yes, yes. Thank you, Julian, for your questions. So, I'll start on the first question. So, Q2 trend, just to add some color on April and May. As we wrote in our press release, the 1st 4 months are above plus 21%. So it's quite easy for you to calculate that the month of April is absolutely positive. I can state that in the 2 times compared to 2020. But April 2020, we were in the, let's say, deep down in the lockdown, while probably the strong news is that April 2021 is practically flat. It's parity compared to April 2019. So we are catching up on a 2 year basis with our baseline before COVID. Of course, monthly performance is not representative of the trend that we might achieve on a full year basis because components will be variable during the next quarter. With regard to May, we are mid May and we are halfway on Q2. May is not closed yet, but I must admit, but I'm happy about it, that we are registering a performance above our own expectations. So we do expect to consolidate and improve further our progression. So May is on a good track and has some similarities with April. But we prefer to comment on the Q performance as soon as the result will be stabilized because Apple Good May is good. We have to understand the June performance because the advertising trend will be impacted by the European Football Club Football Cup, sorry. This will be broadcasted by rights, so we are not the owner of the rights. So I guess that by the end of May or beginning of June, we will be in a position to have a better outlook for Q2. Even if my expectation is that June could be anyway positive because even if we don't have sports rights, we are in a general economic situation that is improving day by day, week by week and so to do the vaccination. So we do expect a sort of positive allo effect also on our revenue collection. With regard to chart number a question regarding chart number 12, So how we do how do we manage our cross media offer? We do not create bundle because for many reasons, bundle may be not 100% compliant with some guidelines from the authority. And also because, to some extent, media agencies are quite skeptical about bundles because when you offer a bundle, it's like at present day, they like to, let's say, unbundle to understand what's inside. So our approach is starting from the brief of the client to create a customer proposal with the best offer. We are looking forward for arbitrage to release by the end of this year, beginning of next year, total audience currency because this will definitely help creating a combined offer. And we are, of course, evaluating because in that case, it makes a lot of sense, a combined offer, linear plus over the top offer for a Champions League in next autumn. So this will be an important test. And then I'm not one of the pressure not sure to get your question on chart number 8. Could you So the question is you're giving us the year on year split, but we have no idea of the size of the three lines. It could be 98% TVL, 1% TVC, 1% OLV. No, I see your point. As you can see from the footnote in the chart, we are giving year on year indicators using 3 different metrics. So average minute tracking for linear television, viewers of digital screens for online video and internal data for our connected television. For the time being, they are not fully comparable. And that is why we are waiting for the official metrics that will allow us to put all these free screens on the same level. That is a total time spent. And in that case, we can have a total sum. For the time being, we have to manage with this separate indicator. Of course, the linear television is the part of our audience baseline income account that given to the switch plan that is ongoing and that will be accelerated from September 'twenty one to June 'twenty two, the connectivity components that is growing faster would be further accelerated by the switch off and the change in the television sets in Italy. So we do expect that TV connected TV conference will be higher and higher. Doctor. Santacio, may I add just a few things? It's clearly difficult. It's a new business for everyone, and it's very difficult to exactly modelize the future. But I mean, I would like to add a few comments. First of all, the attention we are generating in terms of hours is growing. So and that's crucial to evaluate how our contents are perceived and are consumed. So generally speaking, the group is producing every month, I would say, an amount of our consumed that is growing. Then we have the problem of monetization, this attention. And what Matteo was saying is that today, the biggest problem is made by the currency because linear TV currency is still clear, I mean, well known. You can measure, compare, you can do whatever you want. Then you are moving to other currency like online video consumption hours or Connect TV consumption hours, where currency is not yet stable. In the sense that, as Matteo was saying, it's difficult to add, let's say, customers or user, customer viewer with user, customer with user and viewer. So that's where, frankly speaking, it's also difficult for us to give you a metric that combines all the consumption. The only thing that I would say that is very important for us is that attention is growing every month and people are consuming our content every month more than a month before, and that's crucial. And metrics, currency will come and will be also the customer, so the advertising investor, to decide what kind of attention they would like to add, the linear, the digital, the one with data of the Technetitivu or the one without. And as Matteo was saying, Publitalia Group, it's available to give to the customer exactly what they want. Yes. I had a comment on your remark, Marco. We appreciate it. Just to make it clear, we trade linear television on a cost per GRP basis with gross rating points as official interface, while connected television and online video, we trade them on a CPM basis. So they are 2 different models. But as we commented last 2 weeks ago, we created an internal metric that is revenue per each hour single screen. And let's say that the good thing is that for connected television and online video, the market is now paying a premium because they are data driven advertising. So you can have the value of profiling and digital data on a digital basis. And these help, let's say, the trading up in the negotiation with clients. So it's a positive perspective. So let's give room to other questions, if any. Yes. Thank you. Your next question comes from the line of Stefano Gamberini from Equitasim. Good morning, everybody. A quick question from my side. The first regarding the other revenues, could you elaborate a little bit more about how you can catch up the 2020 level? First quarter was down €25,000,000 Then if I'm not wrong, also the contract with Sky should probably reduce the contribution. And I'm in particular interested to understand if you expect a huge contribution from Mediaset Infinity, on the launch of this new platform and in particular how you can exploit your Champions TV rights during the 2nd part of the year? The second question regarding May, you said that April should be in line with 2019 level. Is May also close to 2019 level or at the end of the day is improving but is by far below 2019? And the third, still regarding this approach of HPB TV online and connected TV audience. When you are in front of the media agency, your new proposal is so interesting for them that is an alternative option for investing advertising to the search and social players, which are growing a lot the last years? Or we are still thinking of 2 separated things on one side. You are still considered as TV, Vina TV and you are still not able to erode market share to big U. S. Players? Many thanks. So Stefano, I'll start from the question on other revenue. Clearly, you see a single line, but in reality, in the line, there are many components. As you said, I mean, the main differences from 2,000 and 1 2020 is going to be the lack of theatrical release. And that's, frankly speaking, something we are almost sure that we cannot recapture. As far as all the rest, on the other hand, for instance, the Sky contract that, as you said, is due to expire by June, I mean, this doesn't mean that it cannot be renewed in the sense that, clearly, we are planning that respect. And so there are things that we have not yet renewed that will clearly create positive differences versus 2020. And other things we have to remind is the fact that clearly on the market, there is today a source of scarcity of content. So for Easter platforms, not only in Italy, but I mean, platforms are clearly looking for contents. And so we are we have the possibility to sell them some library or some made in media set program. And so all this stuff are clearly the reason for which we are targeting a full year 2021 close to 2020. As far as the Champions League, the Champions League has been already said, will be sold included in Infinity, so at $7.99 So the present price of Infinity will allow users not only to watch movies and series, but also to watch the 100 and 4 matches of Champions League. The impact on this on the other revenue line, on the other hand, will not be great only because the championship will start in September. And so clearly, the numbers of month on which we can rely on, it's pretty limited. But in any case, they are clearly contributing to that. So the total bucket is bucket is confirmed to be in line with the 2020 number. The single line that is composing the other revenue line will move differently to reach the final target. Matteo, maybe you can answer to your question. Yes. Thank you, Stefano. Buongiorno, with regards to May, we are, let's say, mid May. So as I said, we are positive. Things are getting better and better. I don't know, honestly, today, where we hand with May. We are on a positive track. So we are striving for the best possible results. Our consolidated results will, of course, depend on television, but also to give you some more color. Also on radio, radio is a medium that was affected during the Q1 for restrictions. And now that we are facing openings, release of social life, radio will be will definitely benefit from this, and this will contribute to our overall trend as a consolidated results. I'm positive and optimistic, but honestly, I don't know where we'll end. I do think that by the beginning of June, we will be in a good position to comment on the whole Q2 progress. Anyway, I repeat, May is doing better than our forecasted, let's say, recovery rate compared to 2020 to 2019. With regard to Connected Television, it's a very good question, spot on. So what is the source of business? For the time being, the interesting thing that is that has a market, so we're working with media agencies. But let me say, it's also working with a certain degree of cooperation with our broadcasters. We are setting the new standard. We are positioning Connected Television as an additional hurdle opportunity, not replacing linear television, but having incremental reach, incremental frequency, profiling geolocalization. So a new set of additional benefits to the planning. And this is, to some extent, also projecting positive light also on the legacy business because media agencies are getting more and more attractive in combining TV linear plus connected television. Our guess is that money in flowing to Comenexcel Television are coming mainly from the long tail of digital because there's a lot of digital money that goes into not certified, not 100% viewable, not 100% brand safe website. And our guess is that we are absorbing that budget that is reallocated to a brand safe, 100% viewable, data driven, innovative, Connect TV proposition. Hope to have answered. I thank you. Yes. Many thanks. Thank you. You're welcome. Your next question comes from the line of Andre Arandone from Intermonte. My first question is about Itaues. The book value of your stake, if I'm right, was 4.55. Can you update us on the book value after this deal? Is it correct to assume something about $410,000,000 And in general, about 8 hours, so how do you see the future of your participation in this company? And the second question is about the French dossier regarding MCs. If you can provide an update also regarding a potential of with the help of Mediaset Espana, if you can elaborate on the press humbles about this deal? Let's start to say something about the Itau. Clearly, the accounting is pretty simple. We have said that we have cashed in €134,000,000 and we had a positive impact of €89,000,000 in the P and L. So the difference is what the, let's say, invested capital the accounted invested capital over 8 hours will be reduced. So that's natural calculation you should do. As far as MCs, as you can imagine, we are not going to say anything different from what we said last time. Clearly, we have to look at all the opportunity in Europe because we are convinced about the benefit of a European consolidation. Everything we were trying to explain as far as new consumption, new metric, new currency, as you can understand, have a different impact if you are just in one country or if you can move in more than one country or in the entire Europe. So everything we have commented in this call is something that can be enhanced and large if you want, if you can rely on more than 2 countries. So we confirm that we are interested and we are clearly looking at it because it's our professional duties. But I would like also to remind you what I have said 2 weeks ago. Our intention is that the seller and the system is clearly preferring French solutions. So as I said 2 weeks ago, we are participating because we believe it's coherent. But if we follow RPL CEO and M6 CEO declaration, I mean, the decision has already been taken and will not be media set to the selected party. That's clearly a pity for us, but if you are the seller, you can decide what you want. As far as the rest, I have nothing more to say. Thank you, Mr. Jugal. We currently have no further questions. And we now have a question from Fabio Pavan from Mediobanca. Yes. Hi, good morning. Very quick one on my side. I was looking to the audience evolution. And my question is, when we look to the second half of the year, you are confident that increased audience for the radio and ongoing increase in contacts for digital screen may eventually offset normalization for linear TV audience that may follow for as a consequence of the easing in the restriction for COVID-nineteen? Thank you. Yes, my answer is yes. So we are confident that, let's say, the pattern for the media will be exactly as you described. So keep on going for growing for digital and connected television, as Marco stated before, recovering for radio. While with regard to television, we are on a solid baseline of, let's say, linear total audience. Also thanks, and I want to stress this fact to the quality of our content. So we are doing quite well with our own production, both entertainment and also scripted content. So now we have a very good line of fiction and TV series. So and we know that we have the same pipeline for Ultom, and so we are confident about audience evolution. Okay. Unless there are no other further questions, I would thank you very much for taking the time for this conference. And as always, the Investor Relations team is available for any question or information you would like to have. Thank you very much everyone and have a good afternoon. Bye bye. That does conclude our conference for today. Thank you for participating. You may all disconnect.