Welcome to the Full Year 2017 Results Conference Call of RTL Group. Today's conference is being recorded. At this time, I would like to turn the conference over to Andrew Buckhurst. Please go ahead, sir.
Good morning, everyone, and thank you for joining us either in person or via the audio cast for our Analyst Meeting covering the results for the full year 2017. I'd like to introduce our speakers, our CEO, Bert Habits and our CFO, who is well known to all of you and now Deputy CEO, Elmer Hagen. Looking now at the agenda on Slide 2. We will start as usual with the highlights of 2017 and then proceed with a review of the group financials, which will then be followed by a business and strategy update.
We'll then finish with
the outlook statement before moving on to a Q and A session. I will now hand over to Bert to begin the presentation.
Thank you, Andrew, and good morning to everybody. As you know, we have redefined TV from television into total video. This means that our strategy has one very clear goal, to maximize consumer attentions of all our video offers across all platforms and across all screens. And this strategy pays off. Our 3 strategic pillars, broadcast, content and digital have all had another very successful year.
In broadcast, our main two profit centers, majoring group RTL Deutschland and Group MCs reported very strong results. In content, Fremantle Media had accelerated its successful push into high end drama production. And in digital, revenue growth continued to be very dynamic, reaching 23% growth for the years across all of our activities. This operational performance has resulted in another strong financial year, as you can see on Slide number 4. 2017 was again a record year with increased levels of revenue, EBITDA and EBITDA margin.
Revenue was up just over 2% at almost €6,400,000,000 EBITDA increased stronger than previously guided, up 4%, which results in a margin of 23%. And following this strong performance, the Board is proposing a final dividend of €3 per share. This results in a total dividend per year per share of €4 which based on the average price share price of 2017, would result in a yield of 5.9%. To summarize, we continue to deliver strong high profits, strong cash flows and good shareholder return, while continuing to invest in order to deliver upon our total video strategy. Moving on to Slide 5.
The group's digital revenue grew again very strongly and has become a key driver of all of our overall top line revenue. In 2013, digital revenues stood at just a level of 2 €30,000,000 Since then, it has grown 3.5x to reach €827,000,000 in 2019 'seventeen, sorry, and now represents 13% of the group's reported total revenue. Last year's target of achieving at least 15% of the group's total revenue within 3 to 5 years is firmly in sight. This will mean that digital revenue will contribute over €1,000,000,000 to the group. However, our growth rates for 2017 were below expectations.
This is because of major advertisers concern around brand safety. We proactively took this on board, especially in our ad tech businesses, where SpotX disabled 75 low quality publisher accounts and blacklisted more than 60,000 sites that did not meet our quality and verification standards of the inventory. In addition to these market issues, we have also been repositioning our AdTech business model towards the more premium OTT model and a change from managed to more pragmatic revenues. Moving on to the platform revenues. The group's platform revenues has also shown strong growth, up 14% to a level of €390,000,000 in 2017.
This has been driven by new deals across several territories and the continued uptake of our AGD offers in Germany. In Germany, which is clearly one of the main drivers for the group, the number of HD subscribers increased to 8,800,000 subscribers, an increase of 1.6 versus last year. We experienced substantial further growth in subscribers in 2017, following the launch of DVB 2 T2. And we believe that there is more to come, given the fact that German cable operators are still in the process of switching off analog cable. With the continued growth in the group's digital and platform revenue, RTL Group has an even more diversified portfolio this year.
As you can see on this chart, less than 48% of the group's revenue comes now from TV advertising, with content representing 20% of our revenue base and digital 13%, up 2% versus last year. Platform revenue represents 5% of the group's revenue, having increased significantly in the year 2017. This diverse geographical and revenue stream mix compares very favorable in our opinion with some of our competitors. Moving on to slide number 8. Our leading positions in broadcast, content and digital will help us to transition our business model away from linear TV to a total video world.
Our strength is highlighted on this page. First of all, we are leaders in Europe in long form advertising finance video on the month, while we are globally number 1 in short form video through our multi platform business. We are a leading content provider across all genres and increasingly active and successful in high end drama development. And we have built a leading ad stack stack offering a global presence while remaining very strong in our core markets, either through RTL Ad Connect or via our leading addressable TV platforms in Germany. This cross media, content and technology play is currently unique in the marketplace, and we intend to develop this position in order to drive future growth.
To do this, we need to expand. And by expand by expanding, I mean we have 3 priorities for the group. These 3 priorities recall our heritage of being pioneers. But today, this pioneering spirit of us as a group needs to be applied to the total video world. The 3 priorities that I have for the group are the following.
First of all, cross media innovation. The recent combination of TV and radio activities in France is one example of this. But our investments into virtual reality through inception is another one. Virtual reality presents amazing opportunities for brands to grab consumer attention and make an emotional connection to the consumer. Even better, if there are no distractions once you have a user in the headset and within this environment, we are seeing engagement of up to 40 minutes for high quality content.
Ultimately, virtual reality and augmented reality are a logical extension of TV and digital revenue, and will enhance the RTO Group's total video approach. Secondly, Fremantle Media will continue its successful push into high end drama production in all territories. And at the same time, our broadcasters will invest more into exclusive local content and will build and the broadcasters will continue to build their direct to consumer on demand businesses. And lastly, we will own more technology. Following the combination of SpottX and SmartClip into 1 company, we will now build both organically and through additional M and A, an independent monetization powerhouse for video.
This is vital in order to keep our destiny in our own hands as we compete with global giants like Google, Facebook, Amazon, etcetera. And by doing so, all of this, we will ensure that we will remain creative, are more customer focused, have the right technology and talent in place to meet the demands of the total video world. I will now hand on to Elmer, who will take you through the group's financial results.
Thank you, Wirt, and good morning, everyone. Before I get into a bit more detail, as you can see on Slide number 11, I'd just like to point out that what already Bert said, both revenue and EBITDA were up again at a record high with growth above 2% in revenue and almost 4% in EBITDA. We've now delivered a record EBITDA every year since we started reporting on it in 2013. The group's EBITDA to free cash flow was very strong, reaching 104% in 2017, another sign that the business is operating efficiently. Let's now move to Slide number 12.
Group revenue on a full year basis was up by 2.2% at €6,400,000,000 thanks to higher revenue from a meeting group by RTL Deutschland, Group MCs and our digital activities. Underlying revenue in 2017, which is at constant exchange rates and also at constant scope, was up 1.8%, more or less mirroring the reported growth. The group's operating cost base rose 2.6% year on year, mainly as a result of increased costs linked to the growth of our MPN activities and higher employee costs, part of which is linked to the restructuring the group has launched. Reported EBITDA came in at EUR 1,464,000,000 up 3.8% on last year. The increase is mainly driven by higher contributions from Germany, free metal media and the other segment, which included a one off following the sale of our Paris based buildings at Rubaiyar.
The EBITDA margin was slightly up at 23% from 22.6% in 2016. The group's net debt at the end of 2017 was €545,000,000 This results in a net debt to EBITDA ratio of 0.37 times outside of our target range. The group expects to be back within the guidance following the dividend payment that we intend to make at the end of April. Let's now look at the items below EBITDA down to net profit. Our net financial expense totaled €24,000,000 and is made up of a net interest charge of €22,000,000 and the costs in financial results other than interest of €2,000,000 The group's tax charge came in at €385,000,000 up 6.1% against last year.
This is partly as a result of the lower commission income related to the total loss pooling agreement with Bertelsmann, which came in at €2,000,000 compared to €60,000,000 last year. Our other effects impacting the 2017 tax line include the tax on the sale of the buildings in Paris, which added €32,000,000 to the tax charge, where there was an overall positive effect on the group's deferred tax positions amounting to €8,000,000,000 due to lower future tax rates in the number of territories, including the U. S. Despite the higher tax charge, the net profit increased by 2.6% to €739,000,000 Let's now move to the next slide, the cash flow statement. As mentioned earlier, our cash conversion reached 104% for the full year, up 7 percentage points on 2016.
The acquisitions line is relatively modest with small investments across all our main business units, while the large increase in the transactions with non controlling interests, primarily reflects the acquisition of the remaining change in Sportex. On the next slide, we show the adjustments made to arrive at the adjusted net profit, which as you know is the base for the ordinary dividend payout. As in previous exercises, the reported profit attributable to RTL Group shareholders remains the starting point for the exercise. The adjustments this year concerns the capital gain following the disposal of the French building at Rubaiyard, the non cash gain on the re measurement of Bibimove and specific restructuring costs. This results in an adjusted net profit of €679,000,000 Given the results, the Board has decided to maintain the final dividend at €3 per share.
This equates to a payment of €461,000,000 or 68% of the adjusted net profit, in line with the guidance and the group policy of a payout ratio between 50% 75%. The total amount of dividends for 2017, therefore, amounts to €4 per share when the interim dividend is taken into account. Based on the average share price for 2017, this translates into an attractive dividend yield of 5.9%. I will now hand you back to Bert for the review of the various businesses starting with Medellin Group RTL Deutsche Bank.
Thank you, Almar. 2017 was a great year for Medien Groupe FTL Deutschland with another set of record earnings. Advertising revenue at Medien Groupe Deutschland grew slightly, outperforming the overall net TV ad market, which is estimated to have declined between 0.5% 1.5% year on year. As a result of the higher TV and digital advertising as well as platform revenues, our biggest profit center finished 2017 with another record operating results. Revenues were up 4.7%, while EBITDA was up 3.5% to a level of €743,000,000 In terms of audience performance, our family of channels increased the combined audience share to 28.5 in the target group 1459.
This is a result this resulted in a lead over our main commercial competitor of 4.5 percentage points, which is an increase of 1.5 percentage points versus last year. And on the right hand side of the chart, you can see the competitive advantage that our family of stations has over the commercial competitor. Compared to 2 years ago, the audience lead has risen from 1.7% to 4.5 percentage points at the end of 2017. This is a reflection of the hard work undertaken by the programming team to launch local new programming really tailored and catered to our audiences. As we have remarked across all of our European territories and for a number of years now, our high degree of local content is what makes us stand out.
And being able to stand out in a more connected, more digital world where U. S. Content is available on a multitude of streaming platforms is really important. Audiences want local formats, and we heavily invest in them because they can bring continuity to the program grids over multiple seasons. The diversity of our offering is highlighted across our German TV channels.
And this very local focus and positioning is now also helping us to build our digital activities, either through B2B businesses or through the platform revenues that we generate. In 2017, we signed a new agreement with Vodafone, making our channels available for smartphones, tablets, also on a linear basis and in HD quality via the Giga KV app. Our German on demand platform TV Now will also be strengthened by a new channel of U. S. Series, showing that the world of linear and nonlinear TV is actually coming together.
I will now hand back to Almar to take you through Group EMCs.
Thank you, Bert. I will start with Group MCs on Slide 22. But as MCs already published its full year results 2 weeks ago, I'll be very brief. Please note that we are presenting the results of Group MCs as if the transaction with RT Radio had occurred already on 1st January 2017. The order share of the family of free to air channels was up year on year at 22.3%, largely thanks to the growth of Dublevinux and Visera.
This is a fine performance since 2016 included record audiences on the main channel around the Euro Football Championships. The net advertising market in France was estimated to be stable over the whole year with MCs outperforming substantially. Revenue for group MCs rose 3.9 percent to €1,500,000,000 with reported EBITDA coming in at €389,000,000 Please note that last year's result includes the positive one off effect amounting to €42,000,000 related to the settlement agreement with Orange. The highlight of 2017 was the successful acquisition by Group EMCIS of RTL Group's French radio activities. The integration of the TV and radio businesses under one roof will ensure that we can build across media powerhouse unlocking synergies and driving innovation.
And in terms of digital offers, MCs has been steadily building an increasingly attractive catch up service in display. And the success of this platform is demonstrated in its user numbers. 20,000,000 registered users generating 1,300,000,000 video views. And the attractiveness of MC's cross media offering will be enhanced further with stronger programming that for the first time would include a 4 year license for the French national football team. I will now hand you back to Bert that will continue with the business and the strategy update.
Thank you,
Elmar. Moving on to the Netherlands. 2017 was a tough year for RTL in the Netherlands. The combined Dutch family of stations delivered an audience share of 31.5%. While this was down 1.2% year on year, RTL is still significantly ahead of both the public broadcaster and its nearest commercial rival at a level of 19.4%.
As in 2016, lower viewing share impacted all broadcasters, with viewing share in the target group 25% to 54%, going down 4% year on year, while the younger demos, 20% to 34% even showed a steeper decline of 8%. This lower viewing time resulted in an advertising market that is estimated to have declined approximately 5% in 2017. Platform revenues with new agreements with Zeego and KPN have been signed and digital and our digital activities have helped mitigate part of the weak advertising revenue in total. Revenue was down 4% to a level of €475,000,000 and EBITDA was down to a level of €78,000,000 We have continued to invest in our SVOD platform VideoLANs, which has grown its subscriber base substantially, almost up 80% year on year. PDOLAND brings us substantial learnings in the field of technology, notably the user interface, but also in managing a subscriber base and the type of content that we need to make available for such a services.
These learnings will be very valuable for the group as we continuously adapt our local video offers. RTL Nederland has also invested in AdFactor, which operates in digital content marketing, especially in native advertising. It has a very large network of quality content creators and influencers. By combining this strength with the market leadership and branded content from RTL, we increase our reach and create even more opportunities for advertisers to sell their brands to specific target groups. And lastly, local exclusive content is our year at USP.
This is why we will further invest in this area across all major genres. This message equally applies equally well to the rest of our TV businesses. I'll move on now to PREMIB. The strength and depth of the production slate of Fremantle Media is something we are extremely proud of. Between 50% 60% of its revenue is secured each year, thanks to the long running daily soaps, game shows and big entertainment focus.
This allows new mentors to invest and develop into new formats with the most recent owners on the business. Drama takes a long time to successfully develop with a life cycle taking of 2 to 3 years from the original idea to bringing the Seri on air. Given its size and international footprint, Fremantle has been able to invest in talent, both off screen and on screen. The fruits of this long investment phase has now started to come through with signature shows such as The Young Pope, American Gods or Locally Charite. They all have been very successful.
But the real sign of success has been that all these shows have been removed, and the renewal for drama really ensures that there's catalog value being created. This will help the overall margin development of the business. As most of the overhead and development spends that it will require has already been occurred. As I mentioned earlier, on the drama front, there is much more to come. 2018 is going to get a great start, with Heartsong being aired on the BBC and Hulu and with a Netflix original called The Rain, which is scheduled in spring.
It's also called by many newspapers, the next must watch for everybody. Fremantle Media, big Australian drama Picnic at Henning Rock will be aired on FOXtel, BBC, Amazon in the U. S, Canal Plus in France and Deutsche Telekom in Germany. We'll move on to the financial part of the agreement. Revenue slightly decreased to €1,470,000,000 in 2017, solely due to negative exchange rate.
Having net production growth even on the miner, it is actually a remarkable achievement in a year where there was no significant revenue as American Idol was no longer on air. The fact that Fremantle was able to more than replace this with new show further demonstrates that the creative renewal is really firmly on track. Despite the lower reported revenues, EBITDA rose 8.5% to a level of $140,000,000 resulting in an increased margin to 9.5%. In 2017, there were 12,500 hours of free mental media content broadcast, of which over 3,000 were new. In terms of primetime drama, the numbers of hours aired was broadly stable year on year, up to a level of 928, of which 138 were new, with returning hours increasing to a level of 7.90.
Looking ahead into 2018. Over the course of the year, we expect an improvement in revenue and EBITDA. This is on the back of a strong drama pipeline. Led by shows like Picnic at Hemingway Rock, My Beautiful Friend, which is the first one of the Elena Ferrante novels, but also the relaunch of American Idol upcoming Sunday on ABC. The revenue guidance is currently based on a delivered schedule, which includes Dordland 68, the breach and the Ferrante Novo in the last quarter of 2018, and it excludes any positive possible FX impact.
We're now moving on to our digital activities. RTL Group started transforming its business several years ago from a linear TV business into a global total video powerhouse. This process is ongoing and further investments will be made around our video on demand offers. In our MPN, our businesses, which have recently been strengthened through the acquisition of United Screens and across our ad tech businesses. In the total video industry, scale really matters, and the combination of SpotX and SmartClip will enable us to compete more effectively in the dynamic programmatic video landscape.
We will shortly be able to offer a uniform unified solution that will result in a fully integrated app stack. And this combines this includes a combined apps and programmatic platform serving the full range of total video across all screens, including TV screens through OTT, including connected TV as well as address. Let's now have a look at our VOD plans, which are the main priority for us in the upcoming years. Previously, RTL Group was very much focused on an ad funded VOD model. These have steadily developed and have been enhanced over the last few years.
In the Netherlands, the group has its only dedicated SVOD offer, video lens, following extensive investments over the last few years, both in the ad tech platform and in the content, the number of subscribers has grown dynamically in 2017, up, as I mentioned before, 78%. We have now decided to enhance these direct to consumer offers by developing what we call a hybrid business model. This business model will offer the consumer the basic on demand ad funded model, but will also offer a more premium model based on the pay environment with more exclusive content in HD quality and obviously with a lower ad load. This hybrid model will require more investments in local digital first programming, enhanced with direct to consumer business models and shared use of a common technology platform where it makes sense. The first example of this is the use of the front and back end technology of the platform Sysplay in France, which we use for our on demand services in Belgium, in Croatia and Hungary.
In short, from PDO, as shown on the next page, we continue to grow very dynamically. RTL Group's footprint is both global and at the same time local. On the global basis, we are leaders with our investment in broadband TV, while our respective businesses are number 1 in the local markets, whether it's being in the U. S. Markets, Europe or in the Nordic countries.
And each of these multi platform networks bring in specific skills to the group, whether it being scale, data, branded content or direct sales capabilities will all have them. Management focus therefore is really focused on driving further integration to help push the businesses towards profitability. We'll move on to ad technology. The group's ad tech and programmatic business is a key pillar to the group's strategy and is increasingly focused on the big screen in the living room. At the beginning of last month, we announced that the first major step of the merger between Spodex and SmartGrip has been concluded.
Following this combination, the new company increases its international exposure strongly, with more than 40% of its business now being generated outside of the U. S. Additionally, this combination allows SpotX to focus significant resources on expanding investments and innovation at scale. Traditionally, TV advertising has been sold at a national level, but many global advertisers see Europe as one region, and together with media agencies, they have shifted to a more centralized buying strategy. RTL Ad Connect, our international sales house, is our response to this.
RTL Ad Connect helps advertisers who want to export their products or services internationally or simply want to do a big campaign across Europe. And their success in this field can really be demonstrated by the fact that revenue went up last year by 18%. Their mission is to provide a simplified access to a large portfolio of TV, VOD and MPM businesses and technology in a transparent and brand safe environment. As a group and through these largely new activities, we have unique access to data capabilities. And with this new technology, there comes a greater level of responsibility and regulation as well.
How we look
at the adtech ecosystem, how we transact with the consumer and how we take decisions in the future is going to go is going to be very, very different in a post GDPR world. We have responded to these legal requirements by creating the log in alliance in Germany and Gravity in France. And in addition to these steps, a group wide initiative in order to prepare for GDPR was launched during the course of 2017. Our vision for these ad tech businesses is to create an independent global monetization platform for video, providing a large innovative customer friendly alternative for publishers. I will now hand back to Almar, who will take you to the group outlook statement.
Thanks, Bert. And starting with advertising. Looking back at 2017, the performance of the overall television ad markets across our footprint generally rather disappointing, with most markets down or those that were up, but just up. Looking now at 2018, we've already had 1 major sports event, the Winter Olympics, and we face the summer dominated by sports by the World Cup in Russia. This inevitably will lead to a high degree of volatility in terms of TV advertising spending, and it is clear that those channels not caring sports would suffer in a month concerned.
Accordingly, we in the month concerned. Accordingly, we expect 2018 to be another challenging year for advertising with an overall slight top line growth from our broadcast markets. Our content division will benefit not only from the drama pipeline, but also from the delivery of the 1st season of American Idol at ABC. Accordingly, Altair Group expects Fremantle Media's revenue to grow between 4% 7% with EBITDA once again progressing. This revenue guidance excludes any possible impact from OREX as we cannot predict those movements.
And lastly, our digital revenues are expected to continue to show double digit revenue growth. Accordingly, the group's revenue is expected to grow moderately, I. E, between 2.5% and 5%. Arteil Group will continue to target a leverage ratio of between 0.5 and one times net debt to full year EBITDA for the fiscal year 2018 as we also did so in the past. And we will continue to focus on our EBITDA cash conversion, where we are targeting levels not below 85% to 90%.
Looking now at EBITDA, 2017 is an apportionate base of which to guide simply because it contains the pretty large one off capital gain recorded on the sale of our buildings in Paris. By eliminating this effect, our operational EBITDA came in at €1,370,000,000 Using this figure as a starting point for our 2018 EBITDA guidance, we expect that EBITDA will be broadly stable, I. E, between plus or minus 1%. This reflects continued program investments at both the level of our broadcasters and free metal media, but also additional costs in our digital businesses, including the ramp up of our video on demand offers. This brings us to the end of the presentation.
Thank you for your attention, and we are now available for any questions that you might have.
Thanks. Christine Whitaker from Liberum. Just two questions, please. First of all, just listening to your outlook, I think you said broadcasting would be up slightly. So I guess if you were to strip out things such as retransmission revenues that you get in Germany and so forth.
Could we take that as meaning that you expect TV advertising revenues as a whole to be down? And if so, sort of where would be the drivers of that in terms of the country by country? And second of all, just in terms of sort of the what you said
in terms of the ad tech side in terms
of more advertisers looking to buy advertising on the national sorry, on the European scale as opposed to national scale. I mean, just in terms of your own business, how much of that have you seen so far? And how much would you sell of your TV business programmatically? Would it be concentrated more on the remnant? Or would it be yours as well, the Prime slots?
Okay. I would take the outlook question and then hand over to Bert. The problem is it's still very early in the year. January, February are rather small months, not very much selling for the rest of the year. And as you know, our ambition is to operate and to further grow a portfolio of solid assets and to provide sustainable and profitable growth.
But we do not run from 1 quarter to the other, but we intend to strengthen our activities for the mid and for the long run. We believe that investments are needed to achieve this target, for example, to establish a very strong presence in the VLD activities. And as you know, we generally we are prudent when it comes to future predictions, especially if it is that early in the year. So we hope that we will be able to review the sort of statements throughout the course of this year, but we believe it's really too early to make another statement at this stage.
Coming back to your second question, RTL Ad Connect. Please be aware that we have been building this business for a long period of time already. Previously, it was branded IP network. So we rebranded the international sales house 2 years ago, coming from the thought that we saw a lot of big advertisers getting organized on a more global basis. If you look at the current at the article today of P&G and the FD, you can really see that they're taking out a lot of agencies and want to direct connect on the digital sites and diminish the number of publishers as well.
The direction of RT Out Connect taps on this development. We really want to be to cater for these global advertisers for both the TV commitments, which have done for many, many years in a row, but we're also building the ad tech stack within RTL AdComex to serve these clients in their domain. So this business is we're ramping up resources very quickly in this specific domain. Revenue is expected to continue to grow very rapidly. As a percentage of total business, this is actually very difficult to give an answer as this varies a lot from country by country basis.
But we see an increasing demand from our advertisers for pan European campaigns, both for TV and online video.
Just a follow-up question. In terms of the other broadcasters that you speak with in Europe, I mean, how much willingness is there to actually share their TV inventory or is there willingness more on the video on demand side?
It's actually both. So we both try to come to an agreement to sell part of their advertising space in TV, but also in the online video domain, and we see traction on both sides.
Good morning. It's Adrian from Bank of America Merrill Lynch. So I've got three questions, please. The first one, you've talked about 2.5% to 5% revenue growth, but flat EBITDA growth. Fremantle should have EBITDA growth.
So I'm just curious which businesses will absorb the revenue increases in Germany, is it France, the Netherlands? So that's the first topic. 2nd topic is around Germany. So you say you want to develop a pay VOD activity, but it's already quite a crowded market. And obviously, ProSidon, Vivendi have tried to crack the nuts, and they've lost quite a lot of money.
So I'm just wondering what's your tolerance for losses or what is the sort of future losses that you expect for the your own DoD activity? And the third question is, obviously, Bert, you know the Dutch market very well. And your predecessor used to tell us that, the market was impacted by Netflix and lower viewership in linear TV. What are the odds that this spreads to other key markets for the group? Thank you.
I would take the first one. Yes, it's true that we expect revenue to grow moderately, I. E. 2.5% to 5%. Yet, don't forget that also 2017 contained a number of positive effects.
For example, the fact that we've been getting a reimbursement for the paid advertising taxes in both France and Hungary, things that will not reoccur throughout the course of 2018. And as I mentioned earlier, there is an intention to start ramping up our investments in our video on demand offers. And that is why we currently expect that the additional revenue will be needed to basically offset the kind of positive impacts that we'll be able to benefit from in 2017 and to basically fuel our ambition to ramp up the VAT offers.
And coming back to your second question on building and paid on demand service in Germany. As you are aware, we already launched a PayTV service in the Netherlands called TV Now. We are building the subscriber base significantly. We've increased our share and paying subscriber base significantly over time as well. And we will cross leverage in further building these services, cross leverage our position in local and exclusive contracts in which a lot of these series and actually there was an announcement today in Germany, they've recommissioned 5 new drama series, which is part of the strategy of moving into local exclusive contents.
And we're building these services by cross leveraging on the one hand side, the local exclusive programming strategy that we've adopted already a
year ago
and at the same time using our marketing capabilities to bolster that. We're ramping up investment in this area, but we also are very firm and confident given the learnings in the Dutch landscape that we are able to create shareholder value by doing this. And coming back to your 3rd question on the Dutch landscape. Ad market has been down as I stated. It's partly caused by linear viewing time, but it's also linked to the fact that FMCG has been very difficult specifically in the Dutch market last year by declining their budgets more than in other countries.
We are selling the advertising based on the GRP model, which is more sensitive for the decline in linear viewing than in other countries. So all in all, it's not really comparable to say that what's happening in the Netherlands can be exported to the other European countries. But we're following this obviously on a very day to day basis, and that's also part of the reason we're expanding our direct to consumer on demand businesses in the hybrid model as explained.
Julien Roch with Barclays. The usual three questions. We get ad trends in your 5 main countries at the beginning of 2018. Every year, you highlight the fact that digital is going up, platform revenue is going up, content is going up, TV is going down. So it's all going in the right direction.
But you've seen no EBITDA growth for now 5 years and you're guiding again to no EBITDA growth for 5 years. Now I understand that you're not managing the company for the next quarter, but for future growth. And this year, it's about investing in new technology, pay TV and so on and so forth. So can we get a sense of when is the inflection point? When will you see profit growth?
Or can we expect reinvestment for the foreseeable future and no growth for the foreseeable future? My second question. And then the third one is on GDPR. You mentioned you launched a group wide initiative. Can we be a bit more concrete on what could be the potential impact on your ad business, especially online?
What's kind of the best case scenario, worst case scenario, some concrete example, so we can have a feel for that wonderful piece of legislation? Thank
you. So Julien, I'll start again on the outlook question. I know that you're also very tough cookie. But I think it's also fair to say that we've had 5 years of EBITDA growth in a row. Don't forget that EUR 1,464,000,000 this is by far the highest figure that we've never been able to publish.
Now our intention is to basically keep a high level of profitability whilst making the necessary investments in the transformation of our portfolio. This is probably not going to be done after a couple of months, but it's expected to take some years. But we believe it will help us to really build a strong and a sustainable business for the long run. So in other words, 2018 is expected to be a year of investments to contribute to that transformation. But it's done in a year, after which we have achieved an all time high.
So I think that you should also look at what has happened over the last 5 years. And I think that it's in the best interest of our shareholders that will make such investments now to safeguard and to ring fence our position in the market than to add another racketeer without having achieved the transformation in our portfolio.
Trends in general?
Yes, we can already give the main markets. In Germany, we have seen a good start into 2018 with January February that are expected to be slightly up. It's an estimate. So obviously, we don't own any reliable data as we speak, but we believe that in January February, the market was probably up 2% to 3%. March, we expect to be positively impacted because of the Easter effect.
But as you know, we typically tend to look at both March April together because depending on when Easter is, there's always a certain shift for the German advertising environment. France, we have seen January up by an estimated 4%, February down more or less by the same percentage, probably more like 5%. So overall, I would think that if you look at a stable performance of the French TV advertising market for the Q1, And I'm talking MCs as you know, when I talk about France, it's always us. The Netherlands, Bert, is probably the best place to witness. But here we are in a lucky position to have had a strong January February.
We believe that January was up 4% and February, probably even 7%. But we need to have in mind that there will be the World Cup broadcast in June, July. So Q2 is probably more difficult in the Netherlands, but it's yet a bit early to say. Last market Belgium, Belgium South, I have to say. January was stable, probably a +1 percent in fact this.
But I now look into February, March, was more concerned. That we believe the market has been down sharply, probably double digit for February, March. So a rather weak start into the Q1 2018.
And just obviously on Belgium, you've got obviously the full year impact of TF1 coming through, which will obviously provide a pretty heavy headwind for our activities considering we have pretty much twothree of the advertising market in Belgium South.
Okay. Well, maybe a last word on GDPR. We've actually early embarked on taking the necessary measures to prepare for GDPR, especially in our digital business and more specifically in the adtech business, especially with Smartclip being a very strong player in the European markets. So there, based on the current insights, we expect the short term impacts on our business to be limited. We're actually more concerned about the long term impact of what the privacy will bring us as the current direction of the proposals really means that we're going to be in a worse in a competitive disadvantage versus the existing walled garden base like Amazon, Netflix, YouTube and all of them.
So that's more of our concern. But at the same time, right now, this impact is impossible to assess as we're still discussing parts of the directive itself.
Senira Rabisi from Commerzbank. I would like to come back on situation in the Netherlands. First, Emma, you mentioned that January February was strong, maybe Q2 will be more difficult. But do you think you have reached now an inflection point in Netherlands? Do you think you are able to stabilize at least the EBITDA?
And what is the situation for Videoland? Can you maybe give some few words on the competitive environment from VideoLAN? What is the development of the market share compared to Netflix? And is VideoLAN profitable? And second question, maybe you can give us a color on the review process on broadband TV.
But your options now, what situation now, when could we expect a decision? Thank you.
Maybe on the Netherlands, I'll pick these two ones. Actually, the rebound of the market is a bit of a surprise to us in the 1st 2 months of the year. So, we really hope that this trend continues, but it's really early stage at the same time to conclude whether we have reached a point of return, balancing out of the 2 years of decline that we've experienced now in the Netherlands in the ad markets. The first insights in March give a similar increase of the markets, but it's really early stage to give any more guidance on this specifically. VideoLAN itself, Netflix is by far the market leader in the SVOD domain and the Netherlands.
It has grown very rapidly and it's rumored to have a paid subscriber base above the 2,000,000 level, 2,000,000 subscribers. We started VideoLAN 2 years ago. And especially last year, we've booked a lot of progress on all KPIs that we have for business. So both uptake and really having paid subscribers coming in and staying with us. So viewing time of the pattern is significantly up versus last year and also churn has reduced significantly.
So all in all, all KPI sets within this business have improved significantly. And therefore, we are very confident to continue our investments in this field, especially in the lives of these services in Dutch that have a very high adoption rate. And obviously, it's a learning phase for all of our direct to consumer business in the on demand space that we will develop in the broadcast in the countries where we have strong broadcasting presence.
Briefly on Sorry, the TV. Sorry, do
you want to Yes.
I just want to
you had one last question on whether or not MediaLAN is profitable.
I think given the investments in the content library and the tech, then you can safely assume it's not yet.
It's one of the reasons why with regard to outlook, we're a bit more prudent. But it's normal, it's a young business, and we are in the ramp up phase, and we really want to establish a significant presence and hence we accept a certain level of losses in a startup phase. I think it's normal if we establish a new business. On broadband, we're making progress. We continue to have good discussions with the minorities.
And we currently exploit in its early days whether or not there is an additional synergy potential available when basically putting broadband TV activities together with our other MPM, MCM activities. As I mentioned, it's early days. We don't believe that we have to act under any time pressure. So we'd like to review that until the end and then take an adequate decision on what is in the best interest of the company, but also its shareholders. So we believe that there are a number of options out there, compelling options that exist outside the sale, but we are just in the phase of getting our heads around this.
And as early as tomorrow, we'll meet with Mr. Manotis again to continue our thoughts.
Yes. Hi, it's Chris from HSBC. Two questions for me. First on the expectations for MCN growth overall for the year. I mean, it's been a bit volatile also in terms of video views for some of the smaller assets.
I'd just be curious how you see the development on some of the individual assets in 2018, whether you see a pickup for some of them. Related to that on SPOTEX, I understand that the measurements have been taken in 2017. What should we think about in terms of growth for 2018? And then the second question on the SVOD offering and the initiatives taken to sort of create a new maybe even pan European ad tech set up across your network. And given you've done or you're working together with PROCIVEN on the locking the lines, I mean, what are the odds that you're going to keep trying or try another time to come up with a sort of German Hulu and maybe go from there?
Do you see any improvement in terms of odds that if you were to try another time, you could get something going? And maybe related to that, you could comment on what do you see that the market is actually ready for multiple direct to consumer offers or whether it wouldn't be better to just try to get something more universal maybe together with
the public broadcasters etcetera? Thanks.
Let me try and take the first question on drafting a little bit of the growth picture across the divisions. I think on broadcast, we are we've drafted a picture where we expect slight revenue growth during the year. With regard to Fremantle, we've given a guidance of 4% to 7% revenue growth, given the strong lineup launches of our additional scripted series that we that are in the pipeline. Our NPN business is expected to grow double digits also in the year 2018. And with regards to our Ad Tech business, we expect this company and the combined entity of SmartClip and SPOTX to regain on their growth track.
They have had these growth issues last year because of the ramp safety issues. But at the same time, a lot of measures have been taken. And we're repositioning the business towards a more OTT premium environment, seeking more and more of our business in the big screen in the living room in the OTT and connected TV. And there the business is gaining substantial traction.
On your idea of creating a German rule, as you know, it is something that we have been discussing with the regulator in the past, and it was turned down. When I talked to Zohr's, they continue to repeat that. Unfortunately, it is highly unlikely to expect that they have changed their view in the meantime. So the way that they look at the market has probably not changed. So it is rather a difficult mission.
If we were to conclude with the antitrust authorities that they should look at the market differently and eventually get them to agree that such a business combination should be possible. Don't forget that they are in the market with Maxon since 2006. So I think also getting this aligned and agreed how such cooperation could work is probably not going to be an easy one, to say the least. That's why we're currently not relying on the regulator changing its view and attitude. I believe that time has come that we speed up our investments there, that we create a higher level of ambition compared to the past.
And that's why Meeting Group is continuously investing in TIGOR now, and this is something that we expect to continue over the years to come.
And to complement Elmer on that, with TV Now, we really take and try to build a different market position than the other existing SVOD services. We really focus ourselves in building the direct to consumer business across our local exclusive content footprints, And that's a different one than the existing offers in the markets. And we believe that this gives us a unique selling point also for the long run versus the increasing competitive fields of Netflix, Amazon and all the like.
Are there any further questions on the floor? Patrick?
It's Patrick Wellington at Morgan Stanley. Just on Fremantle, can you remind us of the longer term margin targets there?
You should be having a really
good year this year because
you got American Idol back in and you had Picnic at Hanging Cross delayed and suddenly we've got 4% to 7% growth. Will normal service be resumed in 2019? We go back down again. Secondly, on your brand safety issues, you said that issues have been resolved. Can we think that's sweeping a statement about brand safety issues?
And doesn't the shift to OTT restrict your inventory and provide a headwind to that business? And then thirdly, can you say something a bit about advertiser mood in general in 2018? I know you didn't have huge issues with FMCG last year, but touchy feely, how is it feeling with advertisers this year?
Are you asking us to be touchy feely with you, Patrick? Always.
Always wanted to be touchy.
I will take the first one and then Bert will continue with brand safety and the advertisers' mood. As you know, our target has always been to grow Fremantle back to a level of EBITDA margin without the D of around 10%. Even though we focus more and more on EBITDA as the KPI, we're not going to say now, well, it's an EBITDA target, the 10%. We stick to what we said in the past. And I'm with you that they have basically gained momentum to get closer to that target.
However, American Idol is back on air, but I think it's clear that we intended to be back on air not only for 2018, but for the longer run. Thus, we also agreed together with Fremantle to invest quite significantly into the relaunch of the format because it's in our common interest to have it on the air for multiple years. So I wouldn't attach too much expectation in terms of profitability to American Idol for 2018. It will help us to drive revenue and it hopefully will help us to drive profitability in the years to come. So we stick to the 10% return on sales, but it will take a bit of time, as we said, to get there.
But what we have seen in 2017 makes us comfortable that we will be able to achieve this.
And you had a quick question, I think, on 2019, Patrick, about Fremantle. I mean, just looking ahead, obviously, you've got the return, hopefully, of American Gods, so season 2 coming in, in 'nineteen. You'll have the 2nd season of The Young Pope. You'll probably have the 2nd season of 1 of the Elena Ferrante novels coming through. Beyond that, you've got hopefully Dorshant 89 as well coming through, whether that's 2019 or 2020 to be seen.
So I think you can safely say that the slate for Fremantle in terms of returning series, as was highlighted in the presentation, through 2018 2019 is incredibly strong, which gives us a lot of comfort in terms of revenue development. And as we said, because of the catalog value being created, margin improvement, both in absolute amounts and in terms of, obviously, the margin itself.
Now getting back to plant safety. I think I highlighted a few facts that we've undertaken in 2017. We haven't seen the end of the tunnel of this exercise. I think 2018 is going to be a year where we will have continued discussions around brand safety because it's actually not an easy exercise in a relatively young industry to prepare and really create 100% brand safe environments. So it's we haven't seen the end of the tunnel, I would say, on this specific one.
Although I must say that both the Ball Garden Place and our Amtech businesses are aggressively and proactively addressing this issue. On the advertising and advertisers mood, especially you're pointing out in the FMCG sector, it's early stage. The initial signs are, I would say, better than last year. The mood is better, but its negotiations are still ongoing. There are signs of moving some of the volumes back to TP, but it's very early stage at the same time.
Any more questions from the floor before we take one question through the audio?
Nothing?
Then operator, Stephie, could you open up the question, please?
Certainly. Thank you. We will take now a question from Silvia Konejo from Deutsche Bank.
Hi, good morning. Thanks for taking my questions. Just a follow-up on the German TV ad market. Do you expect to continue to gain advertising share from ProSieben after their audience weakness last year? And then and also like second question, given that ProSiben has raised the programming spend guidance to 4% to 5% growth.
Does your EBITDA guidance also reflect a competitive response?
Thanks.
Okay. Thank you for your questions. And the ad market share development in Germany, I think based on our favorable audience share performance of last year, but also the good start of this year, we expect to be well positioned for the contracting negotiations of this year for the agencies and the advertisers. So at the same time, we will have some big events
for which we don't own
the rights this year. So all in all, we are modest with the positive to gain a little bit of share because of this year based on our strong underlying performance. And on your second question on programming spends, we will continue with our guidance on programming spend up slightly above the inflation level, 2% to 3%, despite the pristine investments as we indicated in our storyline. Therefore, we also try to really optimize the synergy potential within the group in building our local exclusive content offer for both the linear channels and the on demand direct to
consumer channel. Thank you.
No more questions?
There are no further questions at this point. Thank you. We have now one further question from Conor O'Shea from Kepler Cheuvreux.
Yes, thank you. Just a couple of quick questions. I wonder, Hermel, if you could tell us, in Germany, in the Q4, I think your broadcasting revenues were up by almost 5%. I wonder if you could say what the contribution from advertising was in that growth? And also for the Netherlands business, I think down minus 2%, overall revenues broadcasting what the advertising drop was in Q4 alone?
And a second question on Belgium. You mentioned a very weak February, March. You think for now that's principally a Tier 1 impact or is that a wider market impact? I think Tier 1 themselves have been looking at a more gradual buildup in their monetization of their Belgian French speaking audiences? And then the third question, just a general question as to why you changed your disclosure in terms of profit by activity to EBITDA?
Is there any reason for doing that is to be more comparable to most direct care in Germany? Or is there some other reason for that? Sorry, Con, I didn't quite get
to your last question. Can you repeat it?
Sorry, yes. In terms of the disclosure to focus on EBITDA by activity, by regional activity as opposed to EBITA, just is there any specific reason for doing that? Is that to be more comparable with your most direct peer in Germany? Or is there some other reason for doing that?
Okay. Maybe I'll start with the last question because that's the one I still have in mind. There's no particular reason. We have given both EBITDA and EBITDA now for a number of years, and we'll always continue to show both figures. Yet if we talk to analysts, we often hear that they would like to compare us on a moderate basis to the main commercial rivals against whom we operate.
And most of them tend to disclose EBITDA rather than EBITDA. One of the reasons is also because our main shareholder is focusing on operational EBITDA. So we felt that aligning it will make it easier for most of the stakeholders while still showing the EBITDA that we have shown in the past in order not to lose information. Belgium, here, it's yes, I mean, TSR will have a certain impact, yet too early to quantify. I think that it is largely also due to a market downturn in February, March.
It's not possible to separate out how much of the decline is linked to the market entry of DFR and how much is basically linked to macro changes or any kind of Q1 in Belgium Q1 in Belgium to be down by having rather high single digit.
Okay. And maybe some last data on the advertising markets. In Germany, the advertising market in the Q4 was flat, so 0%. And for us, so for RGL, it's me, Medringhooper. And in the Netherlands, we don't have the precise number right now, but it's single digit down, still down in the Q4 last year.
Okay. Okay. Many thanks.
Thank you. We now move on and have a further question from Claudio Kael from Nai Credit. Please go ahead.
Yes, hello. Claus Kael from Nuclear Markets in Denmark. Two questions from my side. First of all, you mentioned that the fast moving consumer goods are in a slightly better mood and they potentially could spend more on TV here in 2018 compared to 2017. Would you just in any way give us an indication of what that could mean for RTL or potentially what kind of percentage of sales do they constitute or just to get a feeling for what this potentially could mean?
And secondly, your tax rate going forward, what would be a reasonable tax rate to assume in 'eighteen and 'nineteen?
That would be my questions.
Maybe I'll take the first question and on the tax related question, I'll jump in. On FMTG, the sector in total is approximately 35% of the total markets. So if they were going to bring back volume to TV, it will definitely help us. But at the same time, as I just pointed out, we're at the very beginning of March, we're in the middle of these contract negotiations. So the initial signs are good, but it's really difficult to see whether we can really materialize and sign up the contracts for this year.
And with regard to tax rate, I think that modeling using the 28.5% for the model is probably an appropriate tax rate, given the fact that recent decisions brought tax rates down in a number of territories. So I think that it's fair to model for the lower tax rate than what most of you have applied in the past, 28.5% probably is a good proxy.
Okay. Thank you very much.
There are no further questions.
There don't appear to be any more questions on the call or in the room. So I want to
thank everybody for participating today. I want
to thank the management for their presentation and their time. For those of you here in London, we have, if you want to stay, a light sandwich lunch, which is available. And then you can also have, obviously, access to the management on a one to 1 or one to many format. For those of you on the call, we'd obviously be in touch either by phone and certainly more formally around the Q1 results in the middle of May. So thank you once again and enjoy the rest of the day.
Thank you.
Thank you. Ladies and gentlemen, this concludes the call. Thank you for your participation. You may now disconnect.