Earnings Call: Q1 2021

Apr 28, 2021

Good afternoon, ladies and gentlemen, and welcome to the TF1 Group's Conference Call. At this time, I would like to turn the call over to Philippe Denry, CFO. Sir, please go ahead. Well, thank you. Good evening, ladies and gentlemen. Thank you for joining us. I hope that you are all keeping safe. Already 1 year into the pandemic, the TF1 Group has remained committed To ensuring the health and safety of all staff and stakeholders taking necessary sanitary measures while ensuring business continuity. I will start with the main key points as usual and then give an overview of our results for the 1st 3 months of 2021, Then I will be happy to take questions. First, let's move to financial results for the Q1 of 2021. Once more, the TF1 Group has shown its agility and its capacity to improve its performances. Group revenues stand at EUR 510,000,000. They are up by 3.2% compared to the Q1 of 2020, Thanks to growth of head spending and significant increase of revenue from Newen. Profitability rose to EUR 57,000,000 at end of March 2021, a +35% increase versus last year. The group is back to a double digit profitability levels with an operational profit rate of 11.1%. This was achieved while keeping costs in check and higher ratings on all our media brands. With EUR 16,000,000 growth on total revenues, we delivered a EUR 15,000,000 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 In Q1, the channels launched a 3rd edition of the Expert a la une program, which promotes Diversity on news shows, thanks to the empowerment of female experts. Through better inclusion and exemplary, We believe we can explore untapped potential. The recent prime status awarded to the TF1 Group by the International Rating Agency, ISS, As a summary, I would point out the results of our 3 main activities for the 1st, broadcasting revenues were up by 1.4% thanks to a EUR 2,500,000 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 4 years and plus and on targeted population. Among the individuals aged between 2549, the group's market share stands at 30 0.4%, up by 1.6% versus last year. 2nd, the Studio and Entertainment segment Performed very well with revenues up by EUR 9,000,000 plus 13% due to a significant increase In the production business, which largely compensates the lockdown of theater, musical and cinema and the stop of our Physical Video Business. Studio benefited from favorable basis of comparison. Profitability, which stands at 15% is higher than in Q1 2019, which stands at that time at 14%. 3rd, regarding the Unifi 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 5,000,000 year on year with an increase of the operating profit of almost EUR 4,000,000. 1st, advertising revenues increased by EUR 2,500,000 year on year. This reflects a good top line level Despite an unfavorable basis of comparison in the 1st 2 months of the quarter, while some sectors such as leisure, Cosmetics and tourism have not yet come back. The other revenues within the Broadcasting segment are up by 2,900,000. 2nd, 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 4 years and plus. Regarding our ratings, the group has enjoyed a very good performance with 27.2% on 4 years and plus, The best Q1 since 2,007, 33.7% on women below 50, best Q1 since 2010 And on the 2549 HP, 30.4% best Q1 since 2017. Moving on to Studio Entertainment segment. Revenues increased by €9,000,000 versus last year, mainly due to an excellent performance of our Studio business, Nuen, as already commented. Revenues has at Newen in Q1 2020 were positively impacted by strong demand for content as well as a catch up effect Since in a COVID context, some productions initially planned to be delivered in 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 €1 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 Benson. 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 increased slightly in Q1, thanks to our music business. You have noted that the closing of the selling of TF1 Games and De Jardin has taken place in April. This business will be deconsolidated starting from Q2 2021. This segment posted a current operating profit Of EUR 12,000,000, up by EUR 10,000,000 year on year. On Unify now, revenues stand at €37,000,000 up by €1,000,000 compared to last year. Advertising revenues are slightly down despite positive performance from French websites Such as Marmithin. E commerce activity grew this quarter due to the good performance of My Little Paris and Gombet Box subscriptions. Business Solution activity is slightly down due to the situation, but is expected to improve during the following months. Current operating profit amounted to minus EUR 2,000,000 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 34,000,000 For the Q1 of 2021, including the investment in Salto, I remind you that Salto was launched in October 2020, And so we had no loss recognized in our accounts for the 1st 3 quarter of 2020. Let's now comment on the cash position. Excluding these obligations, the TF1 Group had net cash positive €51,000,000 at end of March 2021 compared to a net debt cash €1,000,000 at end of 2020. The TF1 Group has generated during the quarter a free cash flow of around EUR 50,000,000. It has a sound financial position and access to available bilateral credit This is for more than EUR 1,000,000,000. Let's conclude now with the outlook. In the coming months, we will benefit from a From lineup, including fresh and innovative content as well as big events such as the Euro Football Competition. The group's head sales house of the Broadcasting and Unified segments will keep on developing new offers, Thanks to the segment TV and Programmatic, expecting to draw new clients and increase value. In the Production segment, the acquisition of the Ivant studio, which operates in Spain and in the UK, 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. Well, that concludes my review of the TF1 Group's results for the Q1 of 2021. Thank you again for having joined us. Should you have any questions, please do not hesitate to ask. And finally, I'll remind you that a recording of this conference call will be available. 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 stronger. My second one is on the majority acquisition you've announced yesterday. If you could give us Maybe some of the financials around Aizen, there was some mentioned in the Figaro. Maybe you could narrow the range that was provided there. And then also, I guess, give us an update on what your expectations are with regards to the independence Dependent ratios that you depend on in for production. And then finally, if you could give us So again, on Studios, sorry, you gave the guidance on Unifi. You didn't give one on Studios. Maybe can you explain why what are the moving parts to think about this CFS business? Thank you. Yes. Well, thank you, Henrik. On the first question, advertising Q2, I would say that the visibility is low. Nevertheless, I would say that April is in line with expectation. We have not Reached the same level of 2019. Nevertheless, of course, we are better than last year, April, where we had minus 50%. We have a sustainable trend on the Vitavix market for April. So we are rather confident, and I would say that For the moment, it stands and the market is still In line with what we had during the Q1. So not 2019, but Definitely approaching what we got 2 years ago. Now May is already too early. We have some sectors which like leisure, travel, which culture, of course, Cosmetics, which are not invested significantly or even not invested for the moment. And they have, of course, been very hurt by this situation. So it is compensated by sectors which have Increased their budget in TV advertising, and that's the case for e commerce, that's the case for retails, telecom, Health Care, of course, and household cleaning. So those are the sectors which are compensating The loss of others, which remain Not invested or very limited investment in TV advertising. Concerning your second question on ISN, I would say that it's an opportunity for us to have In Spain, where the demand is very strong for production and you and I have this opportunity, the global Revenues of Aizen as a kind of 1 year or it has as for us, Some specific effects depending on the delivery of some program and specifically on the production. But at an average, I would say the total revenues of Isen is around €35,000,000 a year as an average. What can I say? Well, they are working for platforms. They are more on Originally more involved in entertainment program, but they have started to and they have been very Successful recently with Lucid on the scripted, which is very positive and which will generate Synergies on format and creativity with other subsidiaries of Newen and the Target for all the Nuen family is to develop more synergies on creativity And on format, and definitely, Aizen will contribute to the 8 countries We're 7 countries, Spain is the 8, 7 countries where we already are present And producing content. So that's what I can say on Ivan. Now your third question was, if I remind, a dependent, independent ratio. I would say that, first of all, we always prefer To have more flexibility, including in the regulation. And this ratio, 30% dependent, is probably a bit tough for us. We hope that it will move. But in the same time, we are definitely not We don't like vertical integration, and we have always said that we don't intend to have Nuance Like a significant part, more than 50% in TF1 general production. So new and is A company which has its target is to work for all clients, including on the French market, And we can hope for the moment with this ratio. Hopefully, move on the regulation will give us more no more on a calendar basis if the regulation will move a bit. Concerning the guidance for Newen as compared To unify, I would tell you that for us, what we have said is for Nuen that they should increase their Sharing revenues with platform as compared to historical and traditional broadcasters, NUAN and the subsidiaries. So NUAN Group, but that's the case for Dimensen, that's the case for other for Tuvalu as well And a bit less for Horizon, but they are working a lot for broadcasters. They were used to work mainly for broadcasters. And we the intention and the target they have is to increase their business With platforms like Netflix, like Amazon and so on, and that is progressing quite well. The second thing we have said is that the proportion of international versus French market should increase And that the business international business should represent in the next Around 2 years, something like 50% of their revenue. That will depend, of course, of opportunity. And but globally, 2 main guidance or 2 not guidance, but 2 main strategy Elements of strategy for Newen, developing international business as well as developing business with platform. Okay. Thank you very much. Thank you. The next question comes from Lisa Young is from Genesex. Madam, please go ahead. Good evening. I have a few questions, please. Firstly, 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 clarification will be helpful. And when you say the market so far in Q2 It's in line with what you had in Q1. Do you mean in terms of like 2 year growth rate? I think in Q1, you were Probably about like 8.5%, 9% below Q1 2019? Or are you basically seeing so far in Q2, we're also about 9% below Q2 2019? That's the first question. The second one is on consolidation market consolidation in France. I mean clearly there's been a lot of headlines. So I'm just wondering like how what sort of role do you see sort of TF1 playing given, obviously, You're such a big player in this market and the regulation has always been a big constraint for the players. And I'm just wondering if you had any sort of Discussion with regulators or politicians in terms of like how things could potentially change, for instance like how For instance, they could look at market definition differently. And the first 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 TE business of other groups. So any sort of indication, I guess, could be helpful. Thank you. Well, thank you, Liza. On your first question, I said that the trend of Q2 In line with Q1. I'm not saying that in terms of, of course, the basis of comparison, Q2 is not The right basis of comparison, right to say that you should compare with 2019. But If I come back to your question, first, the January February were down. They were up in Q1 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 based on According to us, based on what we've seen from others on the market and probably we don't have the figures. We hope that we have Capitalize or even take market share on advertising for the Q1. So That's for the I can't give you exactly January, February and on the 2 weeks' time, March, 1st part or second part Because the trend and the way the advertising clients are committed It's now very volatile. But at the end of the day, I would say that March was good, Positive compared to last year, of course, playing with the 15 days lockdown last year. But even during the first half of March, the trend was positive, But not for January, February, as already mentioned. Now concerning Q2 in terms of trend, The way you look at it, it's saying, well, compared to Q1 or 2019, You've delivered minus 9% in Q1 'twenty one. And 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 'nineteen. But hopefully, we will It's been a positive approach around well, what we have delivered in line with Q1. Concerning the consolidation topic, which is Well, that data the topic which is fully Marginitas, in the newspaper, I would say that I have no specific comment except That we have always been in favor of consolidation on the French market, and we have always said that the French market is very specific as Compared to other European countries for TV broadcasters in terms of number of actors, Which are very numerous, I would say, as compared to the number of actors in the TB sector In UK, in Italy, in Germany, so the consolidation is something positive, And we are in favor of this consolidation. I can't say more. Regulation is what it is. We can cope with the regulation, and I'm sure that The regulator is fully aware of the situation of the market And is in the capacity to understand the challenge of TV today. Now concerning the last question, which was the operating leverage On the EBIT, EBITDA, I would say that well, the main leverage on the EBIT coming from additional revenues will always come from advertising. As you know, in our model, €1,000,000 advertising create around €0.85, €0.90 on benefits results on the operating profit. So that's, of course, in terms of leverage, One of the more it's a bit of a greater leverage we can have. Nevertheless, we think that Working on synergies within the all businesses of the group could and has already generated very good Leverage as well. And that's a second leverage we expect to use in addition to Whether you call it synergies or end optimization, we still have Capacity to optimize, that's the case for programming. And we can go further in terms of optimization Of our resources, we have already demonstrated in 2020 and even in Q1. So that's the 3 main leverage And all going directly at a good proportion at the EBIT level. And just to follow-up on the point of regulation. I think the CSA, I think you Call for a change to the sort of antitrust rules about the 7 licenses that each broadcaster Could all do today any update? Should we expect any update on that at all in the coming weeks or months? No specific update. Okay. Thank you. I can't talk about for the regulators. Sorry, 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 Just remind us of how much advertising revenue fell in March 2020. I think you mentioned I'm 50% in April, but if you 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. And then 3rd question, just in terms of programming costs. Obviously, lockdowns lasting a bit longer than expected at the start of the year. You probably meant you more flexibility in your strategy in Q1. What are you thinking At this stage, on the full year, in terms of potential outcome on programming costs, Yes. Well, starting with your last question on programming costs, I would say on the Full year, we will not be in a position, of course, to make the same level of savings. So as last year, first of all, we have euro events, Which will generate additional costs as compared to last year, where we had no sports, no sports or probably not A lot of positive program. So that's one of the reason. Mechanically, if you take the benefit of the 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 Minimum of equivalent €900,000,000 which will come back automatically In terms of investment during the year. And in addition to that, we will reinvest Depending on the advertising market and if revenues are back, especially Q2, Q3, We will have to reinvest in order to generate the right ratings in order to capture advertising clients and to offer them Strong audiences and value. So basically, I would say that we will have On the programming cost, some savings as compared to what we had in 2019. Nevertheless, because of the opportunity we had last year, I'll just remind you that we had last year opportunity To have a very specific program we bought during the lockdown period at a specific cost, Which basically has a difference, would generate around EUR 30,000,000 additional to what we had last year. And in addition to that, we'll add the cost of the euro, which basically mechanically put the level of Programming costs, everything being the same, a bit more than EUR 900,000,000 EUR 900,000,000, sorry, and will depend the additional amount will depend between those EUR 980 €5,000,000 which was the amount we had invested in 2019 and those €900,000,000 whatever, That will depend on revenues and the trend on revenues in order to be as we have demonstrated, we will be flexible And trying to optimize. So that's the kind of between €185,000,000 and with Adapt. Now concerning your first question, in March, We had, in March 2020, a drop of around 25% of our revenues As compared to 2019, March 2019. But don't Take into account when I'm so because I see at the back of your question what you could calculate. Well, That means March is up by 20% or 25% mechanically and mathematics. I would say that's not exactly the case because you don't have Exactly, the amount of drop in January, February. But basically, yes, March was minus 25%. And I don't like too much to talk about a monthly basis because depending on what or to campaign, as we're having campaign, whether in March or April and so on, month Hi, Mans. That's not reflect the trend, but basically, you that's the figure. Now back to your first question, which was Your second question, sorry, which is the margin on Studio. Well, I would 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. Because 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 €9,000,000 as an increase on the studio entertainment revenues for the quarter, You should roughly think production is around double, And we have and which compensate The loss of revenues, 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. So you get a range of what we have delivered in Q1. But we will give you hopefully because we will have We have now we had the closing of the selling of the TFN TFN Gains du Jardin. So Probably, it will be clearer next quarter. Sorry, what is the deconsolidated the deconsolidation impact of the From the gains from Q2, more or less? Well, deconsolidate we will deconsolidate Gains, which for an amount which on a yearly basis is around EUR 20,000,000. Revenue. So that's basically for the 9 months equivalent. Okay. And any impact on the EBITDA? We don't expect Significant impact on the EBITDA. Now for in terms of profitability, We kept this double digit profitability for the production, Which basically correspond to what we can deliver. On the normative Paisis, I would say 15% is a top profitability we can deliver. It's between 10% 15%, which is the normative And profitably, we can expect from studio. The next question comes from Julien Roche from Barclays. Sir, please go ahead. Just a quick one. Thank you very much for giving us the revenue of ISN of that €35,000,000 Are the margin kind of in line with the rest of the business? So as you just said, 10% to 15%. Yes. We don't expect to grow with a low margin. So we can expect Aizen to be in line with Newen Group margin normative margin. And hopefully, we should improve the profitability through synergies. Okay. And I mean, I suppose it's going to be in the next report. Is it possible to have an idea of how much you We you know that we don't give figures of what we pay and what we invest. But in terms of multiple and basically those business At value which correspond to more or less, I would say, 1 year revenue, More or less. But in terms of range, I would say that's the kind of Magnitude we have in this business, which basically correspond to a multiple Which is between 7% to 10% with a double digit profitability. So At the end of the day, if you say 10% margin and you multiply by 10%, you come to the Revenues. Thank you. But that doesn't suit that is the right multiple, and that we think that Roughly, it has given you the magnitude. 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 to clarity on two points. So just going back to If the run rate is sort of 8% down in Q2, that implies TV advertising is up 55% to 60%. Is that Ballpark on what we're seeing in April so far, that's the first question. And the second thing, going back to the program costs. Obviously, you said it's not going to be as high as €985,000,000 but there's obviously going to end. It's probably not going to be as low as €900,000,000 Given that you've got the euros, should we just take the midpoint of €985,000,000 €900,000,000 depending on the magnitude of The advertising rebound, is that fair? For your last question, I would say that as we don't give any guidance, You take the assumption you want, and if you take the middle, that's your but roughly, just for you to understand why, just because At this stage, and we have demonstrated that the way we work now, we want To adjust our investment to the advertising market. So depending on after the lockdown and 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. So we will adjust the investment we are going to make in our different The crop grids 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 10,000,000 EUR 20,000,000 we will invest or we will not invest if revenues are not at the rendezvous. So that's basically the way we look at it. Now second point. And so In the model, we have to adjust the programming cost to the assumption you take on revenues. That's the only thing I can say, Which makes things more consistent with the way we work now as compared to fixed cost or maximum fixed cost in the past. Now regarding the revenues for April, I think that the base 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. And what I'm just saying is that last year, there was a drop of 50% during April of revenues and advertising. We hope to approach As far as possible, in April, what we got in 2019. But in Q2, we will not be at 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 affected by the situation and again, travel, culture, leisure, cosmetic. So that will depend on what we can expect when the situation will come back to Something comparable to 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. Okay. 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 We'll come back with our call for the first half year on the 28th July. Thank you very much. Thank you. Ladies and gentlemen, this concludes today's conference Thank you all for attending. You may now disconnect.