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.
Well, thank you. Good evening, ladies and gentlemen. Thank you for joining us. I hope that you are all keeping safe. Already one year into the pandemic, the TF1 Group has remained committed to ensuring the health and safety of all staff and stakeholder, taking necessary sanitary measures while ensuring business continuity. I will start with the main key points as usual, then give an overview of our results for the first three months of 2021. I will be happy to take questions. First, let's move to financial results for the first quarter of 2021. 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 2020, thanks to a growth of ad spending and significant increase of revenue from Newen.
Profitability rose to EUR 57 million at the end of March 2021, a +35% increase versus last year. The group is back to double-digit profitability levels with an operational profit rate of 11.1%. This was achieved while keeping costs in check and our ratings on all our media brands. With a EUR 16 million growth on total revenues, we deliver 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 a third edition of the [Non-English content] 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 the sustainability performance. As a summary, I would point out the results of our three 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 helped keep a very high content quality profile while significantly increasing our ratings, both on the four years and plus, and on targeted population. Among individuals aged between 25 years and 49 years, the group's market share stands at 30.4%, up by 1.6% versus last year.
Second, the Studio and entertainment segment performed very well with revenues up by EUR 9 million, +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 stand at 15%, is higher than in Q1 2019, which stood 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 for each activities. I will start commenting on the performance of the Broadcasting segment. Revenues are up by EUR 5 million year-over-year, with an increase of the operating profit of almost EUR 4 million.
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 two 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 . 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 a 0.8-point increase versus last quarter in market share for people aged four years and plus.
Regarding our ratings, the group has enjoyed a very good performance with 27.2% on four years and plus, the best Q1 since 2007, 33.7% on women below 50 years, best Q1 since 2010, and on the 25 years-49 years age people, 30.4% best Q1 since 2013. Moving on to Studio and 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 2020 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 2020 were postponed to 2021. The book of order grew in value terms compared to Q1 last year. The book of order end of Q1 represents around one year of activity.
As displayed in the 2020 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 2021. 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 a 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, is expected to improve during the following months. Current operating profit amounted to - 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 2021, including the investment in Salto. I remind you that Salto was launched in October 2020, we had no loss recognized in our accounts for the first three quarters of 2020. Let's now comment on the cash position.
Excluding lease obligations, the TF1 Group had net cash +EUR 51 million at end of March 2021 compared to a net debt cash EUR 1 million at end of 2020. 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 seize opportunities in a growing total video market. That concludes my review of the TF1 Group's results for the first quarter 2021. Thank you again for having joined us. 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.
Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. The first question comes from Annick Maas from Exane BNP Paribas. Madam, please go ahead.
Good evening. 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 some of the financials around iZen. There was some mentioned in Le Figaro. You could narrow the range that was provided there. Give us an update on what your expectations are with regards to the independence/dependence ratios that you depend on for production. Finally, if you could give us again on Studios. You gave a guidance on UNIFY, you didn't give one on Studios. Can you explain what are the moving parts to think about this year for Studios? Thank you.
Yes. Thank you, Annick. On the first question, advertising Q2, I would say that the VDP is low. I would say that April is in line with expectation. We have not reached the same level of 2019. Of course, we are better than last year, April, where we had -50%. We have a sustainable trend on the advertising market for April. 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. Not 2019, but definitely approaching what we got two years ago. May is really too early. We have some sectors, like leisure, travel, cultural, of course, cosmetics, which are not invested significantly or even not invested for the moment. They have, of course, been very hurt by the situation.
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, healthcare, of course, and household cleaning. 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 have this opportunity. The global revenues of iZen as a kind of one year or it has, as for us, some specific effects depending on the delivery of some program and specifically on the production. As an average, I would say the total revenues of iZen is around EUR 35 million a year as an average. What can I say?
Well, they are working for platforms. They are originally more involved in entertainment program. They have been very successful recently with "El Cid " on Crypted, which is very positive and which will generate synergies on format and creativity with other subsidiaries of Newen. The target for all the Newen family is to develop more synergies on creativity and on format. Definitely, iZen will contribute to the eight countries where seven countries, with Spain is the eighth, where we already are present and producing content. 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. This ratio, 30% dependent, is probably a bit tough for us.
We hope that it will move, but in the same time, we don't like vertical integration. We have always said that we don't intend to have Newen to take a significant part, more than 50% in TF1 channel production. Newen is a company which its target is to work for all clients, including on the French market, and we can cope for the moment with this ratio. Hopefully, move on the regulation will give us more flexibility and know more on a calendar basis if the regulation will move a bit. Concerning the guidance for Newen as compared to UNIFY, I would say 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 subsidiaries.
Newen Group, that's the case for De Mensen , that's the case for Tuvalu as well, and a bit less for iZen, but they are working a lot for broadcasters. They were used to work mainly for broadcasters. 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 international business should represent in the next around two years, something like 50% of their revenue. That will depend, of course, on opportunity. Globally, two main elements of strategy for Newen, developing international business, as well as developing business with platforms.
Okay. Thank you very much.
Thank you.
The next question comes from Lisa Yang from [Goldman Sachs]. Madam, please go ahead.
Good evening. 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. When you say the market so far in Q2 is in line with what you had in Q1, do you mean in terms of two-year growth rate? I think in Q1 you were probably about 8.5%, 9% below Q1 2019, or are you basically saying so far in Q2, we're also about 9% below Q2 2019? That's the first question. The second one is on market consolidation in France. I mean, clearly there's been a lot of headlines.
I'm just wondering what sort of role do you see TF1 playing, given obviously you're such a big player in this market and regulation has always been a big constraint for the players. I'm just wondering if you had any sort of discussion with regulators or politicians in terms of how things could potentially change. For instance, how they could look at market definition differently. The third question is on your operating leverage for this year. I'm just wondering what sort of revenue to EBITDA drop-through we should be expecting for the key business or for the groups, or any sort of indication, I guess, could be helpful. Thank you.
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 course, the basis of comparison, Q2 is not the right basis of comparison. You are right to say that you should compare it with 2019. If I come back to your question first, January and February were down. They were up in Q1 of 2020 before lockdown. January, February this year was down, but was compensated by an increase in revenues in March, which at the end gave the 0.7% on advertising for our broadcasting segment, which is a good performance according to us, based on what we've seen from others on the market. Probably we don't have the figures. We hope that we have stabilized or even take market share on advertising for the Q1.
That's for the... I can't give you exactly January, February and on the two weeks' time, March, first part or second part because the trend and the way the advertising clients are committed is now very volatile. 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. Even during the first half of March, the trend was positive but not for January, February, as already mentioned. Concerning Q2 in terms of trend, the way you look at it and saying, well, compared to Q1 2019, you've delivered -9% in Q1 2021. Basically that 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 in 2019. Hopefully we will be in a position to approach around what we have delivered in line with Q1. Concerning the consolidation topic, the topic which is fully largely 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. 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. 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 am 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 for the day, 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 0.85, 0.90 benefits results on the operating profit. That's, of course, in terms of leverage, one of the greater leverage we can have. Nevertheless, we do think that working on synergies within the all businesses of the group could and has already generated very good leverage as well.
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 is the case for programming. We can go further in terms of optimization of our resources as we have already demonstrated in 2020 and even in Q1. That is the three main leverage, all going directly at a good proportion at the EBIT level.
Just to follow up on the point of regulation, I think the CSA, they called for a change to the sort of antitrust rules about the seven licenses that each broadcaster could hold today. Any update? Should we expect any update on that at all in the coming weeks or months?
No specific update.
Okay. Thank you.
We'll see. I can't talk about for the regulators. Okay.
No worry. Thank you.
Thank you.
The next question comes from Conor O'Shea from Kepler Cheuvreux. Sir, please go ahead.
Yes. Thank you. Good evening, everybody. Three questions from my side as well. First question, Philippe, I wonder if you could just remind us of how much advertising revenues fell in March 2020. I think you mentioned minus 50% in April. 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. You mentioned a catch-up effect from some canceled 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 the margins? Third question, just on terms of programming costs. Obviously, lockdowns lasting a bit longer than expected at the start of the year probably meant you more flexibility in your strategy in Q1.
What are you thinking at this stage on a full year in terms of potential outcome on programming costs, please? Thank you.
Well, starting with your last question on programming costs, I would say on a 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 Euro events which will generate additional costs as compared to last year where we have no sports or probably not a lot of sporting program. 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 non-recurrent, we estimate that everything being the same, there are a minimum of equivalent EUR 900 million, which will come back automatically in terms of investment during the year.
In addition to that, we will reinvest depending on the advertising market and if revenues are back, and especially Q2, Q3, we will have to reinvest in order to generate the right ratings, in order to capture advertising clients and to offer them strong audiences and value. Basically, I would say that we will have, on the programming cost, some savings as compared to what we had in 2019. Because of the opportunity we had last year, I just remind you that we had last year opportunity to have very specific program we bought during the lockdown period at a specific cost, which basically has a difference would generate around EUR 30 million additional to what we had last year.
In addition to that, we'll add the cost of Euro, which basically mechanically put the level of programming costs, everything being the same, a bit more than EUR 900 million. The additional amount will depend between those EUR 985 million, which was the amount we had invested in 2019, and those EUR 900 million w hatever. That will depend on revenues and the trend on revenues in order to be, as we have demonstrated, we will be flexible in trying to optimize. That the kind of between EUR 900 and EUR 985, we'll adapt. Concerning your first question, in March 2020, we had a drop of around 25% of our revenues as compared to March 2019. Don't take into account when I answer, because I see at the back of your question what you could calculate. That means March is up by 20% or 25% mechanically and mathematically.
I would say no, that's not exactly the case because you don't have exactly the amount of drop in January, February. Basically, yes, March was -25%. I don't like too much to talk about a monthly basis because depending on one or two advertising campaign, whether in March or April and so on, month by month, that's not reflect the trend, but basically, that's the figure. Back to your second question, which is the margin on Studio. I should admit that in this situation and the present situation, not very easy to try to have for you the breakdown in studio and entertainment, and we will try to improve information we'll give you the following quarter. It's true to say that as a basis of comparison in Studio and 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 Studio and Entertainment revenues for the quarter, you should roughly think production is around double and which compensate the loss of revenues, and I'm talking about revenues, due to what I've called the lockdown of theater and the cinema, the stop of video, and so on. You get a range of what we have delivered in Q1. We will give you hopefully, because now we had the closing of the selling of the TF1 Games and Dujardin. Probably it will be clearer next quarter.
Sorry. What is the deconsolidation impact 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.
Revenues.
That's basically for the nine months equivalent.
Okay.
Okay.
Any impact on the EBITA?
We don't expect significant impacts on the EBITA. In terms of profitability, we kept 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.
Okay. Many thanks. Very clear. Thank you, Philippe.
The next question comes from Julien Roch from Barclays. Sir, please go ahead.
Yes. Good evening. 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 or as you just said, 10%-15%?
Yes, we don't expect to grow with a low margin. We can expect iZen to be in line with Newen Group margin, normative margin.
Okay
We should improve the profitability through synergies.
Okay. I suppose it's going to be in the next report, but is it possible to have an idea of how much you paid?
You know that we don't give figures of what we pay and what we invest. In terms of multiple, and basically those business at value which correspond to more or less, I would say, one year revenues. More or less. In terms of range, I would say that's the kind of magnitude we had in this business, which basically correspond to a multiple which is between 7%-10% with a double-digit profitability. At the end of the day, if you take 10% margin and you multiply by 10%, you come to the revenues.
Right. Okay.
That is the right multiple one. That means that roughly does give you the magnitude.
Okay. Super. [Foreign language].
The next question comes from Richard Eary from UBS. Sir, please go ahead.
Good evening, Philippe. Thank you very much indeed. I think most of my questions have actually already been answered. Just for clarity on two points. Just going back to, if the run rate is sort of 8% down in Q2, that implies TV advertising is up 55%-60%. Is that ballpark and what we're seeing in April so far? That's the first question. The second thing, going back to the programming costs. Obviously, you said it's not going to be as high as EUR 985, but it's probably not going to be as low as EUR 900, given that you've got the Euro. Should we just take the midpoint of EUR 985 and EUR 900, 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. Roughly, just for you to understand why, just because at this stage, we have demonstrated that the way we work now, we want to adjust our investment to the advertising market. Depending on after the lockdown and in 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. We will adjust the investment we are going to make in our different groups of the different channels, 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 the rendezvous. That is basically the way we look at it. Second point. In the model, we have to adjust the programming cost to the assumption you take on revenues. That, 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. Regarding the revenues for April, I think that the best way to look at, and even for Q2, is it taking in terms of comparison 2019, and with the assumption that we will not this year come back normally, at least for the moment, to the level we had in 2019.
What I'm just saying is that last year, there was a drop of 50% during April of revenues in advertising. We hope to approach, as far as possible in April, what we got in 2019. In Q2, we will not be the same level as we were in 2019 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. That will depend on what we can expect when the situation will come back to something comparable to 2019, and to see if those are coming back as soon as possible, but probably not for the moment, not in April.
Okay. Thanks, Philippe.
Okay. Thank you.
Ladies and gentlemen, I would like to remind you that if you wish to ask a question, please press zero one on your telephone keypad.
Okay.
Please press zero one on your telephone keypad if you wish to ask a question.
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 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.