Prosiebensat1 Media U/Adr

Please stand by. We're about to begin. Good morning, ladies and gentlemen, and welcome to our Q3 in nine months 2024 conference call of ProSieben Sat1 Media SE. This conference is being recorded. Today's call is hosted by Mr. Dirk Voigtlander. Please go ahead, sir.

Good morning, ladies and gentlemen, and welcome to ProSieben Sat1's Q3 2024 results conference call, also from my side. Today's conference call will be hosted by Martin Miltner, CFO of Proceedment Set 1. As always, Martin will first take you through the group's financial and operational performance of the first nine months. He will conclude his presentation with comments on our outlook for the full year. The presentation will be followed by a Q&A session. With these opening remarks, I now hand over to Martin.

Thank you, Dirk. Dear ladies and gentlemen, also from my side, a warm welcome to our Q3 analyst conference. Before we go into detail, let me give you a quick overview of our financial performance. In the first nine months, group revenues increased by 3% to €2,656,000,000. This reflects a solid performance in the entertainment segment, as well as the dynamic growth of our commerce and venture segment. However, in light of the demanding economic environment, entertainment advertising revenues in the DACH region declined by 6% in the third quarter. On the other hand, commerce and venture segment revenue grew by 19% in the first nine months, therefore compensating for the 13% revenue decline of the dating and video segment. Our adjusted EBITDA increased by 10% to 267 million euros in the first nine months. reflecting the group's revenue growth and cost savings, which more than compensated the increase in programming costs. In terms of our outlook for the full year, we confirm our targeted range for revenues and adjusted EBITDA. Due to the weaker development of TV advertising revenues in the third quarter and a TV advertising market that has also declined so far in the fourth quarter, we currently expect adjusted EBITDA to be below the targeted amount of 575 million euros. I will share more details about the outlook at the end of this presentation. First, however, I would now like to guide you through our financials for the third quarter and the first nine months of the year. In Q3, the general economic uncertainty on ongoing consumer restraint had a negative impact on the advertising market and therefore also on the revenue performance of the ProSiebenSat1 group. In addition, revenues in the dating and video segment decreased notably in a highly competitive environment. Despite the very dynamic and positive development of our commerce activities, the group therefore recorded a slight decline in revenues of 1% to 882 million euros. However, in organic terms, this means on a portfolio and currency adjusted basis, group revenues remain stable compared to the previous year. For the first nine months period, group revenues totalled €2,656,000,000, an increase of 3% compared to the previous year. The dynamic growth of the digital and smart advertising revenues in the DAF region and the significant increase in revenues in the commerce and venture segment were the main drivers of this development. The group's adjusted EBITDA decreased by 6% to 104 million euros in the third quarter. In addition to lower revenues in the high-margin TV advertising business, this development is also due to the decline in revenues in the dating and video segment, which is operating in a challenging and highly competitive environment this year. In the first nine months of the year, however, adjusted EBITDA increased by 10% to €267 million. This positive earnings development is a result of the Group's revenue growth across a large part of its portfolio, as well as consistent cost management, in particular targeted cost measures implemented last year. Adjusted net income for the third quarter amounted to 31 million euros. For the nine-month period, adjusted net income increased to 63 million euros, helped by an improved financial result and tax effects. Adjusted operating free cash flow decreased to 25 million euros in Q3. This reflects, among other things, the weaker earnings development in the third quarter of 2024. In addition, there was a growth-related increase in working capital at Flaconi due to its strong business development. By contrast, the adjusted operating free cash flow improved significantly over the nine-month period, amounting to €129 million. In addition to the increase in earnings, the positive effects here were mainly due to the postponement of investments and programming assets to the fourth quarter of 2024. Now let's turn to page 7 and take a closer look at our entertainment business. The entertainment segment revenues declined by 3% to 579 million euros in the third quarter. For the first nine months period, however, the segment recorded a 2% increase in revenues. The main reason for the decline in revenues in the third quarter were the European Football Championship and the Summer Olympics. Both sporting events led to an expected decline in audience share and therefore in TV advertising revenues, as both events were broadcast by public broadcasters and partially also by RTL. In addition, the German economy and in particular private consumption, which is relevant to our advertising business, did not develop as positively as economic institutes had predicted it at the beginning of the year. Nevertheless, our digital and smart advertising revenues in the DACH region increased by 1%. This was driven by a 15% increase in award revenues from the streaming platform JOIN, which also partially offset the losses of the advertising platform solutions business, such as Glomax and eSOM, which are also included in digital and smart. The high-margin distribution business continued its steady growth in Q3 with revenues up by 11%. The following factors contributed to this encouraging result. The increase in reach in both free-to-air and pay-TV channels. The strong growth in HD subscribers on digital platforms, bringing the total number of HD subscribers to 13.7 million households at the end of September. The continued expansion of our video and demand services join and new partnerships such as Together with Sky Deutschland. Adjusted EBITDA in the entertainment segment increased by 2% to 87 million euros in the third quarter. Consistent cost management and increased revenues from the distribution and content businesses compensated for the decline in high margin advertising revenues in the DACH region. At the same time, the group temporarily reduced its programming costs during the summer months in the context of the major sports events. In the first nine months, adjusted EBITDA increased by 14% to €203 million, despite higher programming expenses driven by the positive revenue development in the first half of the year. Please now turn to page number eight, where we are now coming to our commerce and venture segment. The commerce and venture segment increased its third quarter revenue by 20% year-on-year to €218 million. For the nine-month period, this represents a 19% increase. Almost the entire portfolio contributed to this continued positive performance. Our advertising business, i.e. our media for equity and media for revenue business, with seven ventures and seven growths, achieved a strong revenue increase of 19% in Q3. The digital platform and commerce businesses generated revenues of 189 million euros, up 20% year on year. The main revenue driver was the beauty and lifestyle vertical with Flaconi. Compared to last year, the vertical grew by 33% in the third quarter, despite the deconsolidation of Stylight at the beginning of February. In the previous year, Stylight still contributed 3 million viewers to third quarter revenues. The consumer advice vertical, with Verivox as the main revenue driver, achieved a revenue increase of 7%. The segment adjusted EBITDA benefited from the growth in revenues in the third quarter and showed a strong increase of 55%. On a nine-month basis, adjusted EBITDA tripled, increasing by 28 million euros to 42 million euros. In addition to the revenue development, the disposal of Regiondo in June 2023 had a positive impact. Let's now have a look at the performance of dating and video on page 9 of the presentation. The dating and video segment continued to face very strong competition. Revenues declined by 21% in the third quarter and by 13% in the first nine months of the year. The dating business was hit hard by the decline in revenues at eHarmony due to the increased competition in the U.S. At the end of September, we took a number of countermeasures to counteract this development by retraining comprehensive AI models within our customer journey. This has helped us to optimize our customer intake across channels and to rescale marketing activities across channels. The video business also suffered from the highly competitive market environment and recorded a revenue decline of 20% in the third quarter. The negative revenue trend also led to a 39% decline in adjusted EBITDA in Q3 2024. In addition, we made further investments in the video business to attract streamers from competing platforms to join our live streaming ecosystem. While this weighed on the profitability, these incentives have improved the competitive position of our applications in a dynamic market environment. Let me continue with comments on the financial leverage and net debt development on page 10. At the end of the third quarter, the Group's net financial debt amounted to €1.609 billion, which represented an improvement of €166 million compared to the end of Q3 of last year. This is mainly due to the positive development of adjusted EBITDA. Compared to the end of last year, The reported increase in net financial debt is mainly due to the group's cash flow development and its usual seasonality. As you know, the fourth quarter is usually the strongest quarter in terms of free cash flow development. Due to the growth in adjusted EBITDA, the financial leverage ratio improved to 2.7 times at the end of the third quarter and is therefore within the targeted range of 2.5 to 3 times for the financial year 2024. On the right side of the chart on page 10, you can see also the debt maturity profile of ProSiebenSat1. As it shows, we use various debt financing instruments for the purpose of the group financing. This group financing is on a continuous basis under our review with respect to the optimization of volumes and maturities. So let us now continue with our operational update. Overall, the macroeconomic environment in Germany has been stagnating in recent years. While we still saw positive GDP growth in 2022, the past two years have been challenging as the chart on the left-hand side shows. In 2024, the German economy also developed weaker than economic research institutes expected at the beginning of this year. The latest estimates suggest a slight GDP decline in 2024. Several factors played a role here. rising interest rates from mid-2022 to early 2024, ongoing economic and geopolitical uncertainties, and big structural shifts in areas like decarbonization, digital transformation, and increasing competition from Chinese players. These changes have put additional pressure on industrial companies and our home market. On top of that, private consumption, a key driver of our TV advertising revenues, has not shown the growth we had anticipated at the beginning of the year. Despite rising real incomes and falling inflation, consumer spending continues to remain limited as the tendency to save remains high. Looking at the development of the TV advertising market on the right-hand side of the chart, it is clear that the German TV advertising market was much more affected by macroeconomic challenges than other European countries. Compared to the Western European average, which includes the larger TV advertising markets of the UK, France, Italy and Spain, and compared to the pre-pandemic level in 2019, the German TV net advertising market shows a gap by around 14 percentage points. This takes into account that, according to our own market model, the German linear TV net advertising market will decline by around 3% year on year in 2024. Comparing the German TV advertising market with the average of the Eastern European TV advertising markets, the gap is even wider. However, we expect the digital video advertising market to grow by 21% year-on-year. While the growing digital video advertising business will partially offset the expected decline in TV advertising revenues, we now expect a low single-digit percentage decline in entertainment advertising revenues in the DACHG region due to a weaker second half of the year, especially in the important upcoming or more precise, ongoing fourth quarter. Let us now take a look at our audience share development. As expected, our audience shares improved again toward the end of the third quarter and even increased further in October. Therefore, it is now recovering from the decline during the months of the European Football Championship and the Summer Olympic Games. Our two main channels, ProSieben and Sat1, have played a key role here, especially in recent weeks. In fact, our programming investments in ProSieben, including new lineups, additions like TV Total Spezial, Chris Dudasin and Duell um die Geld, will continue to lead to an increase in audience shares. Meanwhile, Sat1 has reinforced its daytime and access time performance through a mix of new and established formats, creating an appealing primetime lineup. Overall, we are very satisfied with this development. To maintain and improve our ratings performance, we continue to invest in attractive content. In the fourth quarter, we have a strong lineup for both linear TV and join. This includes popular shows like The Taste on Sat.1, Joko & Klaas gegen ProSieben on ProSieben, and join originals like Skeks. Our goal is to stabilize linear market shares while driving joint growth with hybrid content and exclusive original programs. Besides, we also extended our first look deal with TYPA concepts as well as our collaboration with Heidi Klum on Germany's Next Top Model for several more years. Heidi Klum's recent win of the Blauer Panther TV and Streaming Awards for the 19th season of Germany's Next Top Model underscores the strength of the show and the importance of continually investing in content. These efforts align with our programming strategy to enhance and integrate local and live content across our platforms. A key highlight of enhancing our content in recent months was also the launch of our new Newstime studio at our new campus in Unterföhring. The studio covers 220 square meters and is equipped with state-of-the-art technology, including a 70 square meter curved LED wall, three additional movable LED walls and more. This setup offers maximum flexibility and a unique viewing experience. It is one of the most modern studios in Europe. Since October, all news time programs from Sat.1, ProSieben, Kabel1 and JOIN have been produced and broadcast from this state-of-the-art studio. The studio complex is also the first part of ProSieben Sat.1's new company headquarter in Unterföhring, which has been put into operation. This move marked a major milestone for us. It reinforces our commitment to delivering timely, high quality and reliable news to a broad audience. The second part of our new campus is still under construction and should be completed by the end of next year. Once a new campus is fully completed, we also anticipate to improve our free cash flow from 2026 onwards. Now let's talk about the center of our digital activities, our streaming platform JOIN. JOIN continued to grow in the third quarter. We once again experienced significant growth in all our APIs. Monthly video users increased by 62% compared to the previous year, reaching now around 6.8 million users. Video view time in minutes grew by 44% to 9 billion minutes compared to the previous year. Our advertising-based video on demand revenues increased by 15% in the third quarter compared to last year. We are very satisfied with the strong growth of JOIN. The development confirms our strategic focus on JOIN as an ad-supported streaming model and the expansion of our digital entertainment portfolio. Looking at our commerce and venture segment, we see that both our comparison portal Verivox and our online beauty provider Flaconi continue to grow. In fact, they experienced a CAGR growth of 7% and 20%, respectively, in just under five years. Verivox continued to benefit from the recovery in the energy market. In the third quarter, revenues increased by 9% compared to the previous year. On the other hand, Flaconi grew by 38% in the third quarter compared to the previous year. It thereby even outperformed the strong growth already experienced in the first two quarters of this year. As part of our strategy focus on the entertainment business, we announced the evaluation of a potential disposal of our non-core assets in April. These also included Verivox and Flaconi. We can say at this point that we are in a good and constructive discussion with potential builders. However, we hope you will understand that we are not yet able to provide more detailed information at this point about the ongoing process and the future results. Let me conclude the presentation with our financial outlook for 2024. Overall, we have completed the first nine months in line with our targets for the full year, even though the TV advertising market declined in the third quarter. Accordingly, we continue to target group revenues of around 3.95 billion euros in 2024, with a variance of plus minus 150 million euros. This takes into account a decline in entertainment advertising revenues in the German-speaking region in a low single-digit percentage range. On the other hand, we expect the strong revenue momentum in the commerce and venture segment to continue and to more than offset an expected revenue decline in the dating and video business. We are also confirming the target range for adjusted EBITDA forecast at the beginning of the year with a variance of plus or minus 50 million euros based on a target value of 575 million euros. However, due to the decline in high-margin TV advertising revenues in the third quarter and the TV ad market decline also in the fourth quarter to date, the group currently expects an adjusted EBITDA below the target of 575 million euros. The outlook takes into account the expenses associated with the programming offensive, which, despite the offsetting saving effects of efficiency measures, will have a negative impact on adjusted EBITDA but will sustainably strengthen growth in the entertainment business. With regard to the development of the adjusted operating free cash flow in the current financial year, we expect a development comparable to that of the adjusted EBITDA and a value roughly in line with the previous year. This being said, we would like to ensure you that we will continue to work hard on the execution of our strategy and to focus on a further optimization of the group's cost structure. Thank you for your attention. I'm now looking forward to your questions.