Welcome to the analyst conference call of RTL Group regarding the presentation of the interim results 2020. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen only mode. After the presentation, there will be the opportunity to ask questions. May I now hand you over to Oliver Fallbusch, who will lead you through this conference.
Good morning, everyone, and thank you for joining this analyst call for RTL Group's results for the first half of 2020. The speakers for today's presentations are Thomas Raeder, the Group CEO Emma Heggen, our COO and Deputy CEO and Bjorn Bauer, our CFO. The agenda on Slide 2 shows the areas our management team will cover today. And with this, I now hand over to Thomas.
Yes, many thanks. Oliver, good morning from me as well. Exactly 5 months ago, we published our full year results for 2019. This was just before the coronavirus hit Europe and a very challenging time began. We reacted promptly to the worldwide spread of corona by focusing on 4 areas.
1st, the safety of our people secondly, the continuity of our business thirdly, liquidity and 4th, cost and cash flow management. It's fair to say that we did well in all four areas. With regards to safety of our people, we imposed an early travel ban in March. We put in place compulsory work from home as from the 16th March with few exceptions. Since mid of May, we adopted a prudent return to office policy and the result is so has been that a limited number of colleagues got infected.
We believe no infections were caught on premise and very important for Broadcasting business. In particular, the Broadcasting businesses continued without interruption. We witnessed an unprecedented revenue decline in the 2nd quarter of minus 28% for the group and our largest revenue stream TV advertising went down by 40% in Q2. We succeeded in offsetting 50% of the total revenue decline in Q2. On a comparable basis, the compensation rate as we call it was almost 60%.
At the same time, we managed to generate a high cash conversion rate of 164% due to very efficient working capital management. This helped us to further reduce our debt position and that also means that we have sufficient liquidity for recovery scenarios. We achieved all of this without cutting into the substance of our businesses or reducing investments in our streaming services. This is reflected in gains in television advertising market shares, in outperformance of our commercial competitors and audience ratings in Germany, France and the Netherlands and in the growth of 45% in paying subscribers for streaming services TV Now and VideoLANs with streaming revenue up 23% in the first half of twenty twenty. Our broadcasters and free monthly restarted productions across all genres to offer viewers fresh and exclusive content.
To summarize, we demonstrated resilience of our businesses and the strength of our management teams. And with this, I will hand over to Bjorn, who will take you through the details of the group's financial results.
Thank you, Thomas, and good morning, everyone.
In the first half of
twenty twenty, group revenues was down by 16.4 percent to €2,650,000,000 mainly due to the declining TV advertising markets across Europe in Q2 as a result of the corona pandemic. Organically, revenue decreased by 15.4%. In the first half of the year, the group's operating cost base decreased by 9.1% year on year as a result of cost reductions, mainly in Q2. When you look at the 2nd quarter alone, were able to reduce our operating cost base by 18%, proving the cost flexibility that we have in the business, while increasing ad and audience shares with our commercial competitors. The following slides provides a more detailed look at our cost management in Q2.
The total cost reduction across the group amounted to €234,000,000 representing 50% of the revenue decline in this quarter. On a comparable basis, I. E, adjusted for non compensation rate, as we quoted, was almost 60%. The main drivers here were program cost savings at RTLS Deutschland and Group MCs, production cost savings at Fremantle and personnel cost savings. As a result, RTL Group generated a positive adjusted EBITDA of €105,000,000 in the 2nd quarter.
Looking now at the items below EBITA down to the net profit. In March 2020, Group M6 sold its shareholding in Iglal to the Global Savings Group, a leading player in digital marketing and cashback. The deal took the form of a partial cash sale and a share swap. As a result, Group MCs has become the leading shareholder in Global Savings Group, and the transaction resulted in a capital gain of €78,000,000 Following the decrease of the share price of Atres Media and the decline of the Spanish TV advertising market in the first half of twenty twenty, we have recorded a non cash impairment of €60,000,000 against our associated participation in Adressed Media. The group's tax charge came in at €85,000,000 significantly below the first half of twenty nineteen.
As a result, the group's profit for the period decreased to €156,000,000 Looking now at the next slide, the cash flow statement. The group's EBITA to free cash flow was strong, reaching 164% in the first half of twenty twenty. The higher cash conversion was to a large extent the result of working capital measures that we implemented starting in March 2020. The line acquisition disposal of subsidiaries mainly reflects the cash received as part of Ibraal transaction, which I just mentioned. With no dividend payment for the fiscal year 2019, the cash generated in the first half of twenty twenty amounted to €226,000,000 Despite the challenging environment and as a result of the measures taken, we were able to reduce our net debt to €181,000,000 compared to €384,000,000 at the end of last year.
As a result, our net debt position not only declined in the Q1, but also in the Q2, the period in which we were most heavily impacted by the pandemic. To summarize, RGA Group has absolute low levels of debt with no maturities before 2023. We have also access to significant unused and committed personal credit facilities, all covenant free. And we have sufficient liquidity for all conceivable recovery scenarios. Elmer will now start the business review with RTL Dorschamps.
Thank you, Bjorn. In the first half of twenty twenty, our largest unit RTL Deutschland continued to outperform commercial competition on advertising sales, audience ratings and streaming. The German net TV advertising market was estimated to be down between 20% 20.5% in the 1st 6 months with RTL Deutschland performing slightly better than the market. Total revenue was down 16.9 percent to €904,000,000 while adjusted EBITDA was €174,000,000 representing a margin of 19%. On a comparable basis, RTL Deutschland offset 42% of its revenue decline in the first half by cost reductions.
In terms of audiences, RTL Deutschland reported a combined audience share of 28% in our target group 14% to 59%. This means that our German family of channels increased its lead over its main commercial competitor Proseem Zard Heinz from 3.3 to 4 percentage points. With its proponents of TV channels, the streaming service Day For Now and its journalistic digital platforms RTLDA and NT4DA, RTL Deutschland reached 31,000,000 viewers and around 7,000,000 unique users every day in the first half of twenty twenty. Our news channels and popular news formats all reached audience size during the corona lockdown periods. For example, NTV scores its best monthly audience share ever in March.
1 year ago, we announced the launch of our format creation group, FC Group, to develop non scripted formats exclusively for our broadcast and streaming services. The first format of FC Group, like me, I'm famous was commissioned by Adel Deutschland and has been available since Tuesday this week on 34 now. Moving now to Group MCs on the next slide. The French net TV advertising market was estimated to be down 28% compared to the first half of twenty nineteen. Total revenue of bookings was down 21.1 percent to €557,000,000 mainly due to the decline in TV advertising revenues.
Adjusted EBITDA in the first half of twenty twenty decreased to €85,000,000 representing a margin of 15%. In the first half of the year, group MCS offset 59% of the decline in revenue through cost savings. And again, this was achieved without cutting into the substance of our business. The audience share of our French family of the pre to air channels in the commercial target group increased to 22.5%, supported by last year's acquisition of the children's channel Beauty. As in other countries, the main news shows on our flagship channel recorded massive audience growth in March.
AMC's also succeeded in launching a standout hit format during the lockdown period. Cuson cuisine scored an average volume share of 20% in the commercial target group. Finally, Group MC has continued its strategy to focus on its core businesses, generating substantial proceeds. After the sale of the Footbucker, Girondale Borno and Honorable Footeau in 2018, as explained by Bjorn, the combination of EagleEye with Gejerst Global Sales Group this year. The company recently announced it has entered into an exclusive negotiation with STAAR to sell its opening of new business.
Let's now turn to RTL relevance on Slide 13. The Dutch net TV advertising market was estimated to be down by 26.2% in the first half of twenty 20. Partially Netherlands revenue decreased by 11.9 percent, euros 207,000,000 as higher streaming and platform revenue partly compensated for the strong decline in TV advertising. This resulted in a significantly lower adjusted EBITDA of €2,000,000 The combined Dutch family of channels delivered an order share of 30.8%, up 0.9 points year on year. As a result, Altair Netherland increased its lead over its main commercial competitor, Talbot TV from 7.1% to 9.3% each points.
I'll now turn to our global content business, Fremantle. Slide number 14. Revenue at Fremantle was down by 14.6% to €707,000,000 mainly due to fewer deliveries of shows and postponements of production as a result of the COVID-nineteen impact on numerous territories. Fremantle's adjusted EBITDA decreased to €23,000,000 Fremantle had major creative successes across all genres in the first half of twenty twenty with American High, America's Got Talent, The Champions, the reality dating format, 5 Guys A Week on Channel 4 and 2 Hot to Handle on Netflix, which quickly topped the Netflix most watched charts globally. Fremantle also continued its push into drama production with launches of the new Pokemon Sky Darya, Parkdale Central on Channel 4 and the UHFA fiction film, Beton Roche on Netflix.
After its launch in June 2020, the Salisbury Prodiving, the 4 part drama series from BBC 1 and Dancing Match Productions was the BBC's highest rated drama since August 2018. Fremantle internationally sold series to AMC in the U. S. And to Movistar Plus in Spain. As already mentioned, we started a free metal production in most of the territories with significant content demand for broadcast and streaming platforms.
Of the around 200 shows in production, when log cars were announced in mid March, 80% are back in production or have been in the meantime fully delivered. I will now hand you back to Thomas, who will take you through the strategy update before finishing with the outlook.
Yes, Millie, thanks, Elmer. Our industry is going through massive transformation. And to successfully transform RGX Group's businesses, two factors are important. First, higher reach in both linear and non linear, which requires significant investment in content, marketing and state of the art tech platforms for streaming services. And second, some better monetization of our reach to add the targeted advertising and personalization, which requires investments in advertising technology and data.
To achieve these objectives, our strategy builds on 3 priorities as presented in March with no change in our strategy. First, on core, we work on strengthening our families of channels, investing in premium content, portfolio management and cost management. 2nd, boost the growth of our streaming services and global content businesses, FreeMetal. And thirdly, fostering alliances and partnerships in European Media Industry. Let's take a closer look at growth.
The focus here is on building national streaming champions in the European countries where we are leading television channels. These streaming services are complementary to the global services such as Netflix and Amazon Prime and Disney Plus they leverage our competitive advantage and local programming. Growth in paying subscribers and streaming revenue in the 3rd half was in line with the boost plans which we presented in March for TV Now and VideoVant. Streaming revenue was up 23%, paying subscribers were up 45% to 1,770,000 and viewing time was up 36% on TV Now and 31% on video ads. We do not plan to reduce our content investment in streaming services quite the contrary.
We'll see a substantial increase in TV Now's Originals, approximately one new format per week for the upcoming season 2020 2021, including 11 new German fiction series. Another driver for TV Now will be the streaming of exclusive matches in the UEFA Europa and UEFA Europa Conference League starting with the season 2021, 2022. Our ambitious targets for TV Now! And VideoLANs remain unchanged. Moving on to the next Slide 18, our global content business, StreamEattle, the strong drama pipeline, which includes many high profile productions, working with world class talent and creatives.
Including locum dramas and dailies, Fremantle currently has 55 drama series in production and 450 non scripted programs and developments. Some future highlights. The 3rd season of My Brilliant Friends for HBO and I, a new series about the personal and political life of Benjamin Netanyahu, the U. S. Feature film about Siegfried and Roy, a real live drama series about U.
K. Prime Minister Boris Johnson's turbulent life during the corona crisis and Fremantle's announcement at the Academy Awards winner Paolo Sorrentino will write and direct the Hand of Dodge for Netflix. Let's turn to alliances and partnerships on Slide 19. You'll remember that we made a new site offering different forms of partnerships all of which are based on the philosophy of funding resources to establish open and neutral European platforms. I'd say that despite the coronavirus crisis, we made good progress over the past 5 months.
Starting with SmartClip, which is our tech platform, we're building an open air tech platform for European broadcasters and streaming services. As part of this, we entered SmartClip entered into partnership with LaTres Media with the objective to provide the largest addressable TV product offer in Spain. Smartlip is in similar talks with many other European broadcasters. Bedlock is our open streaming platform for European broadcasters, which is going to serve Seitl, the French streaming services, which is due to launch in autumn, which will serve video land probably starting in 2021, which already serves the RTO services in Belgium, Hungary and Croatia. Similar to Salto, the major commercial and public radio groups in France announced recently a joint venture to develop a free digital platform with the aim to make their content available on all digital devices.
And finally, Fremantle, Penguin Random House UK and BNG launched a joint podcast business as part of the Lead Battles 1 Concert Alliance UK. The new company Story Glass will produce podcast projects across scripted documentary through crime, lifestyle and music series for all major podcast distribution platforms. I will now take you through the group's outlook statement as outlined on Slide 20. Given the current economic uncertainty, our Board of Directors decided on the 2nd April 2020 to withdraw the previous outlook which we communicated on the 13th March with the full year results for 2019 and which explicitly did not reflect the coronavirus outbreak. As stated on the 2nd April 2020, global economic development and prospects have significantly deteriorated since mid of March.
In the Q2 of this year, RTG's television advertising revenue across footprint was down by approximately 40% year on year. We currently expect that the decline of television advertising markets will slow down in the Q3 of 2020. Our current estimate for our TV advertising revenue in Q3 is around minus 10%, assuming a further normalization of market conditions. There is a high level of uncertainty regarding TV advertising revenue in the Q4 and as a consequence we are currently not in a position to provide a new outlook for full year 2020, except that Artea Group's full year 2020 revenue and adjusted EBITDA will be significantly below 2019 and other recent years. This brings us to the end of the presentation.
Thank you for your attention and we'll now happily respond to your questions. Thank you.
Thank you very much. We will now begin the question and answer session.
Perhaps while we wait short, sorry from our side, but we had a helicopter cruising over our heads that caused a little bit of a sound disturbance. I hope it was not too bad for some seconds, I hope.
Hello, can you hear me?
Yes. Yes.
Very good. Okay. This is Adrian from Bank of America. Good morning, everyone, and thanks for the presentation. So I've got 3 questions, please.
The first one is around your commentary, Thomas, for Q3 to be down 10% on TV advertising revenues. Could you possibly break that figure down between your 3 main markets of Germany, France and Netherlands? And also, if I could kindly ask you to break that figure down between July, August September? That's the first question or the first area. The second question is, can you talk a bit about the progress that you've made with ProSieben around D Force?
What's the traction of that product with advertisers and agencies? And then the third question is, I'm just curious if out of the crisis, do you expect your programming costs to be fundamentally lower because the downturn has shown you that you can show more reruns efficiently? Or do you expect it to be higher because competition keeps on rising from new entrants on the video markets? Thank you so much.
Yes. Well, the first point is on Q3. We said minus 10%, and that is across RGL's footprint. We don't break this down by territory, but I can tell you that we expect these 3 main territories to be broadly in line with these minus 10%, plus minus few percentage points. Problem with the breakdown and with the guidance is that if you look at Q3, September accounts for approximately 50% of advertising revenue.
And to be honest, visibility forward visibility is incredibly low. We talk of course to advertising agencies, we talk to advertising customers. So we do what we can in terms of market intelligence. But it frankly is very, very difficult to look beyond a few weeks for the moment in terms of bookings, cancellations and the like. In July, the markets, all markets continued to decline at different rates.
August was slightly better. We actually or will be slightly better. We expect Germany to potentially be in positive territory to be seen. And September will probably be down as you order of minus 10 to minus 15. But as I said, it's very, very early to tell.
So if you do the math, we've got July in the books, we've got August partly in the books, and we've got a very significant September, I mean significant for Q3. As I said, based on everything which we've seen, everything we discussed with the market and customers, we believe that a minus of around 10% is achievable if market conditions continue to normalize. And that would be a marked improvement on Q2, which was minus 40. So I think it's a big step in the right direction. In terms of program costs, yes, it's true that we reduced our program costs in the Q2 and we will probably continue to some extent depending on advertising markets to use program costs for the rest of the year.
But what we also just explained is that, while reducing our program costs, we didn't want to reduce the substance of our business defined as our market shares in terms of audience and advertising market shares. And to be honest, we're quite proud of the fact that we've managed to reduce our cost base quite significantly, while increasing our market share as compared to our commercial rivals in all 3 main markets in which we operate, at the same time significantly increase our cash conversion rate, I manage our liquidity and cash position. That we believe is a real achievement. We don't see program costs necessarily to go up or down in the next years. What we're going to see is that we are increasingly going to look at our program cost and budgets for linear and non linear offers combined and we'll see a shift from linear to non linear budgets.
And that's exactly what we announced in March. You remember when we said that we would significantly increase by a factor of 4 our program investments in streaming services. That's exactly what we did in the first half of the year despite the corona crisis and that helped us to increase our subscriber numbers quite significantly to 1,700,000. D Force is up and running. It's a very attractive offer for our advertising customers and agencies because it's effectively a one stop shop for booking addressable TV for both RTL and Prosim in Germany.
The addressable TV market is still relatively small for all sorts of reasons, technical, regulatory and others. But we expect this market to grow significantly. And as we grow this market and as we grow addressable TV, we'd see positive effects on our CPMs because targeted advertising, as you know, commands higher prices than non targeted advertising. So we're confident that the partnership with Porzema started well and we are exploring ways of expanding the partnership and advertising technology with Proxima in the next months.
Hi, good morning. This is Christophe from Value Square. I also had 3, if I may. The first one would be Vivendi. They came with results last week.
They reported in the segment of Havas that they see a serious difficulty to sell slots that they are having for TV advertising and so on. So I wonder if you could say something about the pricing that you currently see in TV advertising. Has that totally collapsed or has it stayed at an okay level? The second one was to get my head around the Dutch business that declined significantly in EBITDA. Is that if I'm thinking about it?
I'm thinking that in linear TV, you have a reasonable decline in line with your other businesses. But since you had such an increase in your streaming platform, that might have contributed to the costs that you had to take in that business? And could you confirm that it is indeed the increase in streaming offering in video land that has increased your cost and has a weight on your EBITDA? And then the last one would be on BBTV and Divi Move. Could you say something about these businesses in terms of profitability and business plan?
How do you see these businesses today? How do you see them going forward? And then perhaps more specifically on BBTV, how is your relationship with BBTV? And how is that process going forward in terms of the sale or purchase of the rest of the company? Thank you.
All right. Good. First on pricing, the main driver for revenue decline was not price, but volume. On prices, we offered some discounts, but frankly, fairly limited discounts overall as a policy. On the cost base, I mean, Bjorn explained as we reduced our cost base quite significantly.
And I explained that we increased our investments in streaming. So you see kind of 2 kind of opposite trends. We decreased our cost base in linear TV and pre metal, of course. And we increased our cost base, in particular programming in non linear TV. Overall, there's a significant cost decrease because otherwise we would not have been able to offset 50% of the revenue decline, almost 60% on an adjusted basis in the second quarter.
As far as broadband TV and Divi Move are concerned, let me talk about broadband TV first. Broadband TV continued to grow its top line. The business is approximately breakeven on an EBITDA level, partly due to the fact that it continues to grow. As we said in the past, we're looking for solution for this business with our minority shareholders. We've decided not to exercise our option to buy the business, which I think gives you a pretty clear indication of where we're heading.
So we're working with the minorities. This work or the results to work have been delayed by the corona crisis. But frankly, we very much hope that we'll find a good solution with our minority shareholders in the next months. Divi Move is very different because Divi Move has a European focus, is therefore much more aligned with our European broadcaster footprint. And Divi Move is also much more diversified business.
I mean, clearly, significant revenue, revenue source of Divi Move is indirect revenue with YouTube, but we're growing our direct revenue by setting advertising directly, and we're building very significantly our digital production business within Divi Move, which is highly attractive and effectively turning Divi Move into a pretty broad based talent agency for creators. That business is slightly negative, but consider this kind of loss to be an investment in the business. The revenue of Diviumboo is up. And as I said, the business is slightly negative in terms of profitability.
Good morning, everyone. This is Adam Berlin from UBS. I had a couple of questions on Fremantle and then one on the advertising market. Two questions on Fremantle. First is, are there constraints on physical production capacity, which could slow down the recovery?
Or another way of asking the question, by the time we get to 2021, do you think the revenues in Fremantle will be pretty much in line with what people would have thought 2021 would have looked like before the crisis? And the second question on Fremantle is, is the demand coming from broadcasters and SVOD platforms for content as strong as it was historically? Have you had to cancel any of the shows in the pipeline? Or is there still strong demand from the purchases of TV shows? Are the 2 questions on Fremantle.
And then just a question on TV advertising. Could you talk through which categories you're thinking are going to improve in Q3 versus Q2? Is it driven by some of those COVID focused sectors like travel and leisure coming back? Or is it just other sectors just being strong? Are there any sectors you think are growing their spend in Q3?
Thanks very much.
All right. Well, first on Fremantle. I mean, as we said, we're back to more than 80% of our productions, which were postponed as a result of corona, which is quite significant. There are some constraints, of course. There are some protocols, territory by territory, which we have to respect.
And some of our shows don't really work with an audience. And there are some constraints on audiences attending shows, as you know. So these are kind of some constraints related to corona. But I think much more importantly and much more fundamentally, there is huge demand for content, both on scripted and non scripted. Actually, I think that a number of broadcast and streaming platforms would have a gap in their program schedules in the foreseeable future, quite simply because of production interruptions and postponements during corona.
So the demand is there, and we're very, very confident that free metal will be able to serve this demand. So frankly, all depending on corona, infections, protocols, restrictions and so on, which are impossible to predict, but assuming a normalization and therefore a gradual lifting of the restrictions, we're very confident that Fremantle will be back to pre crisis levels pretty fast. That is our expectation. On television, advertising and segments, what we're seeing in terms of sector trends is that all sectors are improving with tourism remaining the obvious section. We see particular strong growth in health and pharma, body care and retail across all territories.
Then we see quite significant growth and recovery in automotive in Germany, good recovery in France, a bit more weakness in other territories. But as I said, health and pharma, body care and retail, particularly strong, but frankly, all sectors are improving in the Q3 with the exception of tourism.
Thanks very much.
We have no further questions.
So we wait one more second, some more seconds whether there are further questions?
There
seems to be delays in transmission, so let's just wait maybe for half a minute just in case there's a question which we've not yet heard.
This is again Christophe from Value Square. Since I have the opportunity to ask another question, I will do so. I was just thinking about the answer you have given on the TV ad markets that you say that the pricing has been stable. I was just wondering since TV advertisement and linear TV is so much under pressure in the ad markets and digital like Google and YouTube and all the others are doing so strong. I'm just wondering from a strategic perspective whether keeping the prices steady is something that you will be able to do for the foreseeable future?
Or do you believe that you will have to decrease your pricing in order to mitigate the volume loss that you are seeing towards digital channels? And second one was on DV Move.
Well, there was a question about advertising and pricing. I mean, I didn't say that we didn't provide any discounts. I just said that it was not our policy to significantly increase discounts. And pricing in television is a matter of demand and supply. And as you know, supply of television reach, GRPs, etcetera is decreasing.
In the last year, we've been able to increase net prices in most territories and it continues to be the right policy. By the way, we believe that when markets will pick up again, television and radio advertising will be high in demand because both television and radio advertising continue to be the only ways to build reach and convey marketing messages rapidly. So we're very, very confident that we'll benefit from recovery. And then there was second question on Divi Move, but I didn't Interrupted. Yes, it was uninterrupted.
So I apologize, but please feel free to reach out to us to follow-up on DV Move, if you so wish. Any other questions?
No, unfortunately not.
Good. Then thank you very much for joining our call on the last year results 2020. Of course, as Tom already said, we're still available to answer any follow-up questions. Sorry again for the technical problems we have to face. Again, thank you for joining and talk to you soon.
Bye bye. Thank you.
Thank you.
We want to thank all the participants of this conference. Goodbye.