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 Fahlbusch, 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 speaker for today's presentations are Thomas Rabe, the Group CEO, Elmar Heggen, our COO and Deputy CEO, and Björn Bauer, our CFO. The agenda on slide two shows the areas our management team will cover today. With this, I now hand over to Thomas.
Yeah, many thanks, Oliver. Good morning from me as well. Exactly five 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 COVID by focusing on four areas. First, the safety of our people. Secondly, the continuity of our business. Thirdly, liquidity, and fourth, 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 of March, with few exceptions. Since mid of May, we adopted a prudent return-to-office policy, and the result is, or has been, that a limited number of colleagues got infected.
We believe no infections were caught on premise. It's very important for our broadcasting business. In particular, the broadcasting business has continued without interruption. We witnessed an unprecedented revenue decline in the Q2 of - 28% for the group. Our largest revenue stream, TV advertising, went down by approximately 40% in Q2. We succeeded in offsetting 60% 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. That also means that we have sufficient liquidity for all 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 our streaming services, TVNOW and Videoland, with streaming revenue up 23% in the H1 of 2020.
Our broadcasters and Fremantle 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. With this, I will hand over to Björn, 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 2020, group revenue was down by 16.4% to EUR 2.65 billion, mainly due to the declining TV advertising market across Europe in Q2 as a result of the corona pandemic. Organically, revenue decreased by 15.4%.
In the H1 of the year, the group's operating cost base decreased by 9.1% year-on-year as a result of cost reductions made mainly in Q2. When you look at the Q2 alone, we 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 provide a more detailed look at our cost management in Q2. The total cost reduction across the group amounted to EUR 234 million, representing 50% of the revenue decline in this quarter.
On a comparable basis, i.e., adjusted for non-recurring items in the first half of 2019 and higher streaming investments in the first half of 2020, the compensation rate, as we call it, was almost 60%. The main drivers here were program cost savings at RTL Deutschland and Groupe M6, production cost savings at Fremantle, and personnel cost savings.
As a result, RTL Group generated a positive adjusted EBITDA of EUR 105 million in the Q2 . Looking now at the items below EBITDA, down to the net profit. In March 2020, Groupe M6 sold its shareholding in iGraal 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, Groupe M6 has become the leading shareholder in Global Savings Group, and the transaction resulted in a capital gain of EUR 78 million.
Following the decrease of the share price of Atresmedia and the decline of the Spanish TV advertising market in the first half of 2020, we have recorded a non-cash impairment of EUR 60 million against our associated participation in Atresmedia. The group's tax charge came in at EUR 85 million, significantly below the first half of 2019. As a result, the group's profit for the period decreased to EUR 156 million.
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 2020. 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 the iGraal transaction, which I just mentioned.
With no dividend payment for the fiscal year 2019, the cash generated in the first half of 2020 amounted to EUR 226 million. As a result of the measures taken, we were able to reduce our net debt to EUR 181 million, compared to EUR 384 million 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, RTL Group has absolute low levels of debt with no maturities before 2023. We have also access to significant unused and committed cash and credit facilities, all covenant-free, and we have sufficient liquidity for all conceivable recovery scenarios. Elmar will now start the business review with RTL Deutschland.
Thank you, Björn. In the first half of 2020, 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% and 20.5% in the first six months, with RTL Deutschland performing slightly better than the market.
Total revenue was down 16.9% to EUR 904 million, while adjusted EBITDA was EUR 174 million, 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- 59. This means that our German family of channels increased its lead over its main commercial competitor, ProSiebenSat.1, from 3.3-4 percentage points.
With its portfolio of TV channels, the streaming service TVNOW, and its journalistic digital platforms, rtl.de and n-tv.de, RTL Deutschland reached 31 million viewers and around seven million unique users every day in the first half of 2020. Our news channels and most popular news formats all reached audience highs during the corona lockdown periods. For example, n-tv scored its best monthly audience share ever in March.
One year ago, we announced the launch of our Format Creation Group, FC Group, to develop non-scripted formats exclusively for our broadcasters and streaming services. The first format of FC Group, Like Me,
I'm Famous, was commissioned by RTL Deutschland and has been available since Tuesday this week on TVNOW. Moving now to Groupe M6 on the next slide. The French net TV advertising market was estimated to be down 28% compared to the first half of 2019.
Total revenue of Groupe M6 was down 21.1% to EUR 557 million, mainly due to the decline in TV advertising revenue. Adjusted EBITDA in the first half of 2020 decreased to EUR 85 million, representing a margin of 15%. In the first half of the year, Groupe M6 offset 59% of the decline in revenue through cost savings. Again, this was achieved without cutting into the substance of our business.
The audience share of our French family of free to air channels in the commercial target group increased to 22.5%, supported by last year's acquisition of the children's channel Gulli. As in other countries, the main news shows on our flagship channel M6 recorded massive audience growth in March.
M6 also succeeded in launching a standout hit format during the lockdown period. "Plusieurs Familles" scored an average audience share of 20% in the commercial target group.
Finally, Groupe M6 continued its strategy to focus on its core businesses, generating substantial proceeds. After the sale of the football club, Girondins de Bordeaux, and MonAlbumPhoto in 2018. As explained by Björn, the combination of iGraal with GSG, Global Savings Group this year. The company recently announced it had entered into an exclusive negotiation with Stars to sell its home shopping business.
Let's now turn to RTL Nederland on slide numbers 13. The Dutch net TV advertising market was estimated to be down by 26.2% in the H1 of 2020. RTL Nederland revenue decreased by 11.9%, EUR 207 million, as higher streaming and platform revenue partly compensated for the strong decline in TV advertising. This resulted in a significantly lower adjusted EBITDA of EUR 2 million.
The combined Dutch family of channels delivered an audience share of 34.8%, up 0.9 points year-on-year. As a result, RTL Nederland increased its lead over its main commercial competitor, Talpa TV, from 7.1%- 9.3% share. Let's now turn to our global content business, Fremantle. Slide number 14.
Revenue at Fremantle was down by 14.6% to EUR 707 million, mainly due to fewer deliveries of shows and postponements of production as a result of the COVID-19 impact on numerous territories. Fremantle's adjusted EBITDA decreased to EUR 23 million.
Fremantle had major creative successes across all genres in the first half of 2020 with "American Idol," "America's Got Talent," "The Champions," the reality dating format, "Five Guys a Week" on Channel 4, and "Too 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 Pope" on Sky Italia, "Father Ted" on Channel 4, and the UFA Fiction film, "Betonrausch," on Netflix. After its launch in June 2020, "The Salisbury Poisonings," the four-part drama series from BBC One and Dancing Ledge 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, restart of Fremantle productions in most territories with significant content demand from broadcasters and streaming platforms. Of the around 200 shows in production, when lockdowns 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 statement.
Yes, many thanks, Elmar. Our industry is going through massive transformation. To successfully transform RTL 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 our streaming services. Second, better monetization of our reach through advert-targeted advertising and personalization, which requires investment in advertising technology and data.
To achieve these objectives, our strategy builds upon three 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.
Second, boost the growth of our streaming services and global content businesses, Fremantle. Thirdly, fostering alliances and partnerships in the 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 have leading television channels. These streaming services are complementary to the global services such as Netflix and Amazon Prime and Disney+ .
They leverage our competitive advantage in local programming. Growth in paying subscribers and streaming revenue in the first half was in line with the boost plans, which we presented in March for TVNOW and Videoland.
Streaming revenue was up 23%. Paying subscribers were up 45% to 1.77 million, and viewing time was up 36% on TVNOW and 31% on Videoland. We do not plan to reduce our content investment in streaming services. Quite the contrary. We'll see a substantial increase in TVNOW's originals, approximately one new format per week for the upcoming season in 2020-2021, including 11 new German fiction series.
Another driver for TVNOW will be the streaming of exclusive matches in the UEFA Europa and the UEFA Europa Conference League, starting with the season 2021-2022. Our ambitious targets for TVNOW and Videoland remain unchanged. Moving on to the next slide 18, our global content business, Fremantle. The strong drama pipeline, which includes many high-profile productions, working with world-class talent and creatives.
Including local dramas and dailies, Fremantle currently has 55 drama series in production and 450 non-scripted programs in development. Some future highlights. The third season of "My Brilliant Friend" for HBO and HBO. A new series about the personal and political life of Benjamin Netanyahu. The UFA feature film about Siegfried & Roy. A real-life drama series about U.K. Prime Minister Boris Johnson's turbulent life during the corona crisis.
Fremantle's announcement that the Academy Award winner, Paolo Sorrentino, will write and direct "The Hand of God" for Netflix. Let's turn to alliances and partnerships on slide 19. You'll remember that we made a new start at offering different forms of partnerships to European broadcasters, all of which are based on the philosophy of bundling resources to establish open and neutral European platforms.
I can say that despite the coronavirus crisis, we made good progress over the past five months. Starting with Smartclip, which is our tech platform, we're building an open tech platform for European broadcasters and streaming services. As part of this, Smartclip entered into a partnership with Atresmedia, with the objective to provide the largest addressable TV product offer in Spain. Smartclip is in similar talks with many other European broadcasters.
Bedrock is our open streaming platform for European broadcasters, which is going to serve Salto, the French streaming service, which is due to launch in autumn, which will serve Videoland, probably starting in 2021, which already serves the RTL 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. Finally, Fremantle, Penguin Random House UK, and BMG launched a joint podcast business as part of the new Bertelsmann Content Alliance UK.
The new company, Storyglass, will produce podcast projects across scripted, documentary, true 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 of April 2020 to withdraw the previous outlook, which we communicated on the 13th of March with the full year results for 2019, and which explicitly did not reflect the coronavirus outbreak. As stated on the 2nd of April 2020, global economic development and prospects have significantly deteriorated since mid of March.
In the Q2 of this year, RTL Group's television advertising revenue across the 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 - 10%, assuming a further normalization of market conditions.
There is a high level of uncertainty regarding TV advertising revenue in the Q4 . As a consequence, we're currently not in a position to provide a new outlook for the full year 2020, except that RTL Group's full year 2020 revenue and adjusted EBITA will be significantly below 2019 and other recent years. This brings us to the end of the presentation. Thank you for your attention. We'll now happily respond to your questions. Thank you.
Thank you very much. We will now begin the question and answer session. If you'd like to ask a question, please press star one on your touchtone telephone. When it's your turn to ask your question, you will be prompted by an automatic announcement. Please start with giving your name and company. In case you wish to cancel your question, please press star two.
Perhaps while we wait, a 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.
Oh, very good. Okay. This is Adrian de Saint Hilaire from Bank of America. Morning, everyone, and thanks for the presentation. I've got three 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 three main markets of Germany, France, and Netherlands?
Also, if I could kindly ask you to break that figure down between July, August, and 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?
The third question is, I'm just curious if out of the crisis, do you expect your programming cost to be fundamentally lower because the downturn has shown you that you can show more reruns efficiently? Do you expect it to be higher because competition keeps on rising from new entrants on the video markets? Thank you so much.
Yeah. The first point is on Q3. We said - 10%, and that is across RTL's footprint. We don't break this down by territory, but I can tell you that we expect the three main territories to be broadly in line with the - 10%, plus minus a 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.
To be honest, visibility forward visibility is incredibly low. We talk, of course, to advertising agencies. We talk to advertising customers. 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, all markets continued to decline at different rates. August was slightly better.
We will be slightly better. We expect Germany to potentially be in positive territory, to be seen. September will probably be down in the order of -10% to -15%. As I said, it's very early to tell. If you do the math, you know we've got July in the books, we've got August partly in the books, and we've got a very significant September, significant for Q3.
As I said, based on everything which we see and everything we discussed with the market and customers, we believe that a minus of around 10% is achievable if market conditions continue to normalize. That would be a marked improvement on Q2, which was -40%.
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 reduce program costs for the rest of the year.
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.
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 shares compared to our commercial rivals in all three main markets in which we operate, at the same time significantly increase our cash conversion rate and 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 costs and budgets for linear and non-linear offers combined, and we'll see a shift from linear to non-linear budgets. That's exactly what we announced in March.
You'll remember when we said that we would significantly increase, by a factor of four, 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 1.77 million. 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 ProSieben in Germany.
The addressable TV market is still relatively small for all sorts of reasons, technical, regulatory and others. We expect this market to grow significantly. As we grow this market and as we grow addressable TV, we'll see positive effects on our CPMs because targeted advertising, as you know, commands higher prices than non-targeted advertising.
We're confident that the partnership with ProSieben has started well, and we are exploring ways of expanding the partnership and advertising technology with ProSieben in the next months.
Thank you so much, Thomas.
Yeah. You're welcome.
Hi, good morning. This is Christophe Cherblanc from Société Générale . I also had three, 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. 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. 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.
Could you confirm that it is indeed the increase in streaming offering in Videoland that has increased your cost and has weighed on your EBITDA? The last one would be on BBTV and Divimove. 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? 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, Björn explained that we reduced our cost base quite significantly.
I explained that we increased our investments in streaming. You see two opposite trends. We decreased our cost base in linear TV and Fremantle, 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 or almost 60% on an adjusted basis in the Q2 . As far as BroadbandTV and Divimove are concerned, let me talk about BroadbandTV first. BroadbandTV continued to grow its top line.
The business is approximately break even 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. We're working with the minorities. This work or the results to work have been delayed by the corona crisis.
Frankly, we very much hope that we'll find a good solution with our minority shareholders in the next months. Divimove is very different because Divimove has a European focus, is therefore much more aligned with our European broadcaster footprint. Divimove is also much more diversified business. Clearly, a significant revenue source of Divimove is indirect revenue with YouTube.
We're growing our direct revenue by selling advertising directly, and we're building very significantly our digital production business within Divimove, which is highly attractive and effectively turning Divimove into a pretty broad-based talent agency for creators.
That business is slightly negative, consider this kind of loss to be an investment in the business. The revenue of Divimove is up, and as I said, the business is slightly negative in terms of profitability.
Thank you.
Yep.
Further question, please press star one on your touchtone telephone.
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?
The second question on Fremantle 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 purchasers of TV shows? Those are the two questions on Fremantle, then there's the 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. 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. Some of our shows don't really work with an audience, and there are some constraints on audiences attending shows, as you know.
These are some constraints related to Corona. I think much more importantly, and much more fundamentally, there is huge demand for content, both on scripted and non-scripted. I actually think that a number of broadcast and streaming platforms will have a gap in their program schedules in the foreseeable future, quite simply because of production interruptions and postponements during Corona.
The demand is there, and we're very confident that Fremantle will be able to serve this demand. Frankly, all depending on COVID infections, protocols, restrictions, and so on, which are impossible to predict. 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 exception. We see these particular strong growth in health and pharma, body care, and retail across all territories. We see quite significant growth and recovery in automotive in Germany, good recovery in France, a bit more weakness in other territories.
As I said, health and pharma, body care, and retail, particularly strong, but frankly, all sectors are improving this Q3 with the exception of tourism.
Thanks very much.
Yep.
We have no further questions.
Shall we wait one more second, some more seconds, whether there are further questions?
I think there'll 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.
Hi, this is again Christophe from Société Générale. 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 market, 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 market 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? The second one was on Divimove.
Well, there was a question about advertising and pricing. I didn't say that we didn't provide any discounts. I just said that it was not our policy to significantly increase discounts. Pricing in television is a matter of demand and supply. As you know, supply of television reach, GRPs, et cetera, is decreasing. In the last years, we've been able to increase our 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. We're very confident that we'll benefit from recovery. There was a second question on Divimove.
It was interrupted.
It was then interrupted. I apologize, but please feel free to reach out to us to follow up on Divimove if you so wish. Any other questions?
No, unfortunately not.
Good.
Thank you very much for joining our call on the half year results 2020. Of course, as Thomas already said, we're still available to answer any follow-up questions. Sorry again for the technical problems we had to face. Thank you for joining, talk to you soon. Bye-bye.
Thank you.
Thank you.
We want to thank all the participants of this conference. Goodbye.