Television Franchise

Good afternoon, ladies and gentlemen, and welcome to the TF1 Group's conference call. At this time, I would like to turn the call over to Philippe Denry, CFO. Sir, please go ahead.

Thank you. Good evening, ladies and gentlemen. Thank you for joining us. I hope that you are all keeping safe. Already one year into the pandemic, the TF1 Group has remained committed to ensuring the health and safety of all staff and stakeholders. taking necessary sanitary measures while ensuring business continuity. I will start with the main key points, as usual, and then give an overview of our results for the first three months of 2021. Then I will be happy to take questions. First, let's move to financial results for the first quarter of 2021. Once more, the TF1 group has shown its agility and its capacity to improve its performances. Group revenues stand at 510 million euros. They are up by 3.2% compared to the first quarter of 2020, thanks to a growth of head-spanning and significant increase of revenue from new in. Profitability rose to 57 million euros at end of March of 2021, a plus 35% increase versus last year. The group is back to the double-digit profitability levels with an operational profit rate of 11.1%. This was achieved while keeping costs in check and our ratings on all our media brands. With €16 million growth on total revenues, we deliver a €15 million increase on the operating profit of the group. It's a profitable growth for the group. As a leader, TF1 seeks to make a real difference through its ESG involvement. In Q1, the channels launched a third edition of the Experts à la Une program, which promotes diversity on news shows thanks to the empowerment of female experts. Through better inclusion and exemplarity, we believe we can explore untapped potential. The recent prime status awarded to the TF1 group by the international rating agency ISS illustrates the sustainability performance. As a summary, I would point out the results of our three main activities for the first quarter as follows. First, broadcasting revenues were up by 1.4%, thanks to a 2.5 million increase of ad spending with our channels. This performance was achieved while persevering the value of our screens. In Q1, the programming investments were made, helped keep a very high content quality profile while significantly increasing our ratings, both on the four years and plus and on targeted population. Among the individuals aged between 25 and 49, The group's market share stands at 30.4% up by 1.6% versus last year. Second, the studio and entertainment segment performed very well with revenues up by 9 million euros plus 13% due to a significant increase in the production business which largely compensates the lockdown of theater, musical, and cinema, and the stop of our physical video business. Studio benefited from several bases of comparison. Profitability, which stands at 15%, is higher than in Q1 or 19, which stands at the time at 14%. Third, regarding the unified activity, revenues increased by a bit less than 4%. mainly thanks to e-commerce revenues, while advertising revenues were slightly down due to some disappointment of our U.S. business. Let's now get into more details for each activity. I will start commenting on the performance of the broadcasting segment. Revenues are at about 5 million euros year-on-year, with an increase of the operating profit of almost 4 million euros. Advertising revenues increased by 2.5 million euros year on year. This reflects a good top line level despite an unfavorable basis of comparison in the first two months of the quarter while some sectors such as leisure, cosmetics and tourism have not yet come back. The other revenues within the broadcasting segment are up by 2.9 million euros. Secondly, regarding the broadcasting schedule cost, the group has shown again its agility. It continued to reinvest in fresh, innovative programs, keeping costs broadly flat. This contributed to very good performance for the group channels, which together posted a 0.8 point increase versus last quarter in market share for people aged four years and plus. Regarding our ratings, The group has enjoyed a very good performance with 27.2% on 4 years and plus, the best Q1 since 2007, 33.7% on women below 50, best Q1 since 2010, and on the 25-49 age people, 30.4% best Q1 since 2013. Moving on to studio and entertainment segments, revenues increased by 9 million euros versus last year, mainly due to an excellent performance of our studio business, Newen, as already commented. Revenues at Newen in Q1 2020 were positively impacted by a strong demand for content as well as a catch-up effect since in a COVID context, some productions initially planned to be delivered in 2020 were postponed to 2021. The book of order grew in value terms compared to Q1 last year. The book of order end of Q1 represents around one year of activity. As displayed in the 2020 annual results presentation, we are pursuing a value-added partnership with platforms, and we have recently obtained a green light for a project for Netflix called Diamonds by our subsidiary in Belgium, Demensen. I would also like to note that all shootings are taking place at the moment in the different countries in full compliance with sanitary measures. The entertainment activities show their revenues increased slightly into one thanks to our music business. You have noted that the closing of the selling of TF1 games and Deux Jardins has taken place in April, this business will be deconsolidated starting from Q2 2021. This segment posted a current operating profit of €12 million, up by €10 million year-on-year. On Unifar now, revenues stand at €37 million, up by €1 million compared to last year. Advertising revenues are slightly down despite positive performance from French websites such as Marmiton. E-commerce activity grew this quarter due to the good performance of My Little Paris and Gambette Box subscriptions. Business solution activity is slightly down due to the situation, but is expected to improve during the following month. Current operating profit amounted to minus 2 million euros in line with the seasonality of the business. Just a quick word on the net profit. The net result attributable to the group stands at 34 million euros for the first quarter of 2021, including the investment in Salto. I remind you that Salto was launched in October 2020, and so we had no loss recognized in our accounts for the third three quarter of 2020. Let's now comment on the cash position. Excluding these obligations, the TF1 group had net cash positive €51 million at end of March 21 compared to a net debt cash €1 million at end of 20. The TF1 Group has generated during the quarter a free cash flow of around €50 million. It has a sound financial position and access to available bilateral credit facilities for more than €1 billion. Let's conclude now with the outlook. In the coming months, we will benefit from a strong lineup, including fresh and innovative content, as well as big events such as the Euro football competition. The Group's ad sales house of the broadcasting and unified segments will keep on developing new offers thanks to the segmented TV and programmatic, expecting to draw new clients and increase value. In the production segment, the acquisition of the Eisen Studio, which operates in Spain and in the UK, contributes to extend our European footprint and capture value from markets where demand for content production is particularly high and gives us an additional possibility to generate synergies. As proven in 2020, the group remains agile, showing its capacity to adapt, and to save opportunities in a growing total video market. Well, that concludes my review of the TF1 Group's results for the first quarter of 2021. Thank you again for having joined us. Should you have any questions, please do not hesitate to ask. And finally, I remind you that a recording of this conference call will be available. You will find the connection details on our website.

Ladies and gentlemen, if you wish to ask a question, please press 01 on your telephone keypad. The first question comes from Annick Mas from ExanBNP Paribas. Madame, please go ahead.

Good evening. My first question is on advertising. If you could give us some indication of how you see advertising developing in Q2, maybe also indicate which sectors are back strongest. My second one is on the majority acquisition you've announced yesterday. If you could give us maybe some of the financials around Aizen. There was some mentioned in the Figaro. Maybe you could narrow the range that was provided there. And then also, I guess, give us an update on what your expectations are with regards to the independence-dependence ratios that you depend on for production. And then finally, if you could give us, so again on studios, sorry, you gave the guidance on UniFi, you didn't give one on studios. Maybe, you know, can you explain why, what are the moving parts to think about this here for studios? Thank you.

Yes. Well, thank you, Annick. On the first question, advertising Q2, I would say that the visibility is low. Nevertheless, I would say that April is in line with expectation. We have not reached the same level of 2019. Nevertheless, of course, we are better than last year, April, where we had minus 50%. We have a sustainable trend on the advertising market for April. So we are rather confident, and I would say that For the moment, it stands and the market is still in line with what we had during the first quarter. So not 19, but definitely approaching what we got two years ago. Now, May is already too early. We have some sectors which, like leisure, travel, which cultural cause, cosmetics, which are not invested significantly or even not invested for the moment. And they have, of course, been very hurted by this situation. So it is compensated by sectors which have increased their budget in TV advertising, and that's the case for e-commerce, that's the case for retail, telecom, health care, of course, and household cleaning. So those are the sectors which are compensating the loss of others which remain not invested or very limited investment in TV advertising. Concerning your second question on ISIN, I would say that it's an opportunity for us to have activities in Spain where the demand is very strong for production and you want to have this opportunity, the global revenues of ISIN as a kind of... One year or it has, as for us, some specific effects depending on the delivery of some program and specifically on the production. But as an average, I would say the total revenues of Aizen is around 35 million a year as an average. What can I say? While they are working for platforms, They are more on originally more involved in entertainment program, but they have started to and they have been very successful recently with the receipt on the scripted, which is very positive and which will generate synergies on format and creativity with other subsidiaries of UN. and the target for all the UN family is to develop more synergies on the creativity and on format and definitely Aizen will contribute to the eight countries, seven countries, with Spain it's the eighth, seven countries where we already are present and producing content. So that's what I can say on ISM. Now, your third question was, if I remind, a dependent-independent ratio. I would say that, first of all, we always prefer to have more flexibility, including in the regulation. And this ratio, 30% dependent, is probably a bit tough for us. We hope that it will move, but in the same time, we are definitely not... We don't like vertical integration, and we have always said that we don't intend to have UN to take a significant part, more than 50% in TF1 channel production. So UN... It's a company which is targeted to work for all clients, including on the French market, and we can cope for the moment with this ratio. Hopefully, move on the regulation will give us more flexibility and no more on a calendar basis if the regulation will move a bit. Concerning the guidance for new WAN as compared to Unify, I would say that for us, What we've said is for NUEN that they should increase their share in revenues with platform as compared to historical and traditional broadcasters, NUEN and the subsidiaries. NUEN grew, but that's the case for Demencent, that's the case for Tuvalu as well, and a bit less Verizon, but they are working a lot for broadcast. They were used to work mainly for broadcasters, and the intention and the target they have is to increase their business with platforms like Netflix, like Amazon, and so on, and that is progressing quite well. The second thing we've said is that the proportion of international versus French market should increase and that the business, international business, should represent in the next around two years something like 50% of their revenue. That will depend, of course, of opportunity, but globally two main elements of strategy for a new end developing international business as well as developing business with platform.

Okay.

Thank you very much.

Thank you.

The next question comes from Lisa Young. It's from Ben Sachs. Madam, please go ahead. Good evening.

I have a few questions. First is on advertising. Is it possible to have the trend for January, February versus March and possibly the second half of March as well. I think previously you said January, February were down, but any sort of quantification would be helpful. And when you say the market so far in Q2 is in line with what you had in Q1, do you mean in terms of like, you know, two-year growth rate? I think in Q1 you were probably about like 8.5%, 9% below Q1 2019, or are you basically seeing, you know, so far in Q2, we're also about 9% below Q2 2019? That's the first question. The second one is on market consolidation in France. I mean, clearly, there's been a lot of headlines. So I'm just wondering, like, what sort of role do you see sort of TF1 playing, given, obviously, you're such a big player in this market, and regulation has always been a big constraint for the players. And I'm just wondering if you had any sort of discussion with regulators or politicians in terms of like how things could potentially change, for instance, like how they could look at market definition differently. And the third question is on your operating leverage for this year. I'm just wondering what sort of revenue to EBITDA drop through we should be expecting for the key business or for the groups or any sort of indication, I guess, could be helpful. Thank you.

Well, thank you, Lisa. On your first question, I said that the trend is Q2 in line with Q1. I'm not saying that in terms of, of course, the basis of comparison, Q2 is not the right basis of comparison, right to say that you should compare with 09P. But if I come back to your question, first of all, January and February were down. They were up in Q1, 020. before lockdown. January, February this year was down, but was compensated by an increase in revenues in March, which at the end gave the 0.7 on advertising for our broadcasting segment, which is a good performance based on, according to us, based on what we've seen from others on the market. and probably we don't have the figures. We hope that we have stabilized or even take market share on advertising for the Q1. So that's for the... I can't give you exactly January, February, and on the two-weeks time, March, first part or second part, because the trend and the way the advertising clients are committed... is now very volatile. But at the end of the day, I would say that March was good, positive, as compared to last year, of course, playing with a 15-day lockdown last year. But even during the first half of March, the trend was positive, but not for January, February, as already mentioned. Now, concerning Q2 in terms of trend, the way you look at it and saying, well, compared to Q1 or 19, you've delivered minus 9% in Q1 or 21, and basically that be considered to be something which could be applied at this stage more or less for April. We have not been in a position and we will not be in a position to get the same figures as in 2019 but hopefully we will be in a position to approach around what we have developed in line with Q1. Concerning the consolidation topic, which is the topic which is fully in the newspaper, I would say that I have no specific comment except that we have always been in favor of consolidation on the French market and we have always said that the French market is very specific as compared to other European countries for TV broadcasters in terms of number of actors, which are very numerous, I would say, as compared to the number of actors in the TV sector in UK, in Italy, in Germany. So the consolidation is something positive and we are in favor of this consolidation. I can't say more. Regulation is what it is. We can cope with the regulation and I'm sure that the regulator is fully aware of the situation of the market. and his capacity to understand the challenge of TV today. Now, concerning the last question, which was the operating leverage on the Ebit every day, I would say that the main leverage on the Ebit coming from additional revenue will always come from advertising. As you know, in our model, one euro advertising creates around 0.8590 benefit results on the operating profit. So that's, of course, in terms of leverage, one of the greater leverage we can have. Nevertheless, we think that working on synergies within all businesses of the group could and has already generated very good leverage as well, and that's a second leverage we expect to use in addition to whether you call it synergies or end optimization. we still have capacity to optimize that the case for programming and we can go further in terms of optimization of our resources as we have already demonstrated in O20 and even in Q1. So that is three main leverage and all going directly at a good proportion at the EBIT level.

And just to follow up on the point of regulation, I think the CSA, I think it called for a change to the sort of antitrust rules about the seven licenses that each broadcaster could own today. Any update? Should we expect any update on that at all in the coming weeks or months?

No specific update.

Okay. Thank you.

We'll see. I can't talk about it for the regulators.

Thank you. The next question comes from Connor O'Shea from Kepler Show. Sir, please go ahead.

Yes, thank you. Good evening, everybody. Three questions from my side as well. First question, Philippe, I wonder if you could just remind us of how much advertising revenue fell in March 2020. I think you mentioned minus 50% in April, but if we could just have the number for March. That would be very helpful. Second question, on the margins at studios, obviously extremely high in the first quarter. You mentioned a catch-up effect from some council projects. Can you give us a little bit of help in terms of thinking about margins from what you see in the order book at the moment, what we could expect for the margins. And then third question, just in terms of programming costs, obviously lockdowns lasting a bit longer than expected at the start of the year, probably meant you more flexibility in your strategy Q1. What are you thinking at this stage on the full year? in terms of, you know, potential outcome on programming costs.

Please, thank you. Well, starting with your last question on programming costs, I would say on a full year, we will not be in a position, of course, to make the same level of savings as last year. First of all, we have Euro events, which will generate additional costs, as compared to last year, where we have no sports, no sports, or probably not a lot of sports programs, so that's one of the reasons. Mechanically, if you take the benefit of a very specific situation of last year and the impact of the situation, which was non-recurrent, we estimate that everything being the same, there are a minimum of equivalent 900 million euro which will come back automatically in terms of investment during the year and in addition to that we will reinvest depending on the advertising market and if revenues are back especially Q2, Q3 we'll have to reinvest in order to generate the right ratings in order to capture the tithing clients and to offer them strong audiences and value. So basically I would say that we will have on the programming cost some savings as compared to what we had in 2019. Nevertheless, because of The opportunity we had last year, I just remind you that we had last year opportunity to have a very specific program we bought during the lockdown period at a specific cost, which basically has a difference, would generate around 13 million euros additional to what we had last year. And in addition to that, we'll add the cost of the euro, which basically mechanically put the level of programming cost, everything being the same, a bit more than $900 million. And the additional amount will depend between those $985 million, which was the amount we had invested in 2019, and those $900 whatever, That will depend on revenues and the trend on revenues in order to be, as we have demonstrated, we will be flexible and trying to optimize. So that's the kind of between 985 and with ADAPT. Now concerning your first question, In March, we had in March 20 a drop of around 25% of our revenues as compared to March 19. But don't take into account when I'm saying, because I see the back of your question, what you could calculate. Well, that means VAT is up by 20 or 25% mechanically and mathematically. And I would say that's not exactly the case because you don't have exactly the amount of drop in January, February. But basically... Yes, March was minus 25%. And, you know, I don't like too much to talk about a monthly basis because depending on whether to campaign, whether in March or April and so on, month by month, that's not to reflect the trend. But basically, that's the figure. Now back to your second question, which is the margin on studio. Well, I should admit that in this situation and the present situation, it's not very easy to try to have for you the breakdown in studio and entertainment. and we will try to improve information we'll give you the following quarter. Because it's true to say that as a basis of cooperation in studio and entertainment, you have a combination of cinema, music, and production itself and distribution. What I can say is that when you have 9 million It's an increase on the studio entertainment revenues for the quarter. You should roughly think production is around double, and which compensate the loss of revenues. I'm talking about revenues. due to what I've called the lockdown of theater and the cinema, the stop of video, and so on. So you get a range of what we have delivered into one. But we will give you, hopefully, because we will have, now we had the closing of the selling of the TF Saint-Germain du Jardin, So probably it will be clearer next quarter.

What is the deconsolidation impact from the gains from Q2, more or less?

We will deconsolidate gains, which for an amount which on a yearly basis is around 20 million euro. Revenue. So that's basically for the nine months equivalent.

Okay. Any impact on the EBITDA?

We don't expect significant impact on EBITDA. Now, in terms of profitability, we kept this... double-digit profitability for the production, which basically correspond to what we can deliver on a normative basis. I would say 15% is a top profitability we can deliver. It's between 10% and 15%, which is the normative profitability we can expect from Jijo.

Okay. Many thanks. Very clear. Thank you, Philippe.

The next question comes from Julien Roche from Barclays.

Sir, please go ahead. Just a quick one. Thank you very much for giving us the revenue of Eisen of about 35 million. Are the margins kind of in line with the rest of the business, as you just said, 10 to 15?

Yes, we don't expect to grow with a low margin. So we can expect Heisen to be in line with new end group margin, normative margin. And hopefully we should improve the profitability were through synergies.

Okay. And I suppose it's going to be in the next report, but is it possible to have an idea of how much you paid?

You know that we don't give figures of what we pay and what we invest, but in terms of multiple and basically those business a value which corresponds to more or less, I would say, one Euro revenue. More or less. But in terms of range, I would say that's the kind of magnitude we have in this business, which basically corresponds to a multiple which is between 7 to 10. with a double digit profitability. So at the end of the day, if you take 10% margin and you multiply by 10, you come to the revenues. But that is the right multiple and that roughly does give you the magnitude.

The next question comes from Richard from UBS. Sir, please go ahead.

Good evening, Philippe. Thank you very much indeed. I think most of my questions have actually already been answered. But just for clarity on two points, so just going back to if the run rate is sort of 8% down in Q2, that implies TV advertising is up 55% to 60%. Is that and what we're seeing in April so far. That's the first question. And the second thing, going back to the programming costs, obviously you said it's not going to be as high as 985, but it's probably not going to be as low as 900, given that you've got the Euros. Should we just take the midpoint of 985 and 900, depending on the magnitude of the advertising rebounds? Is that fair?

For your last question, I would say that as we don't give any guidance, you take the assumption you want, and if you take the middle, that's your... But roughly, just for you to understand why, just because at this stage, and we have demonstrated that the way we work now, we want to adjust our investment to the advertising market. So depending on after the lockdown and the following weeks and months, the market and the advertising market could react and come back to something which could be more significant. We will invest more than if we remain at a level which is more or less soft. So we will adjust. the investment we are going to make in our different crop grids of the different channels, depending on advertising market. Not globally, I would say, in terms of magnitude, but that would make the difference between the additional 10, 20 million we will invest or we will not invest if revenues are not at the rendezvous. So that's basically the way we look at it. Now, second point, and so In the model, we have to adjust the programming cost to the assumption you take on revenues. That's the only thing I can say which makes things more consistent with the way we work now as compared to fixed cost or maximum fixed cost in the past. Now, regarding the revenues for April, I think that the best way to look at, and even for Q2, is taking in terms of comparison 2019 and with the assumption that we will not this year come back normally, at least for the moment, to the level we had in 2019. And what I'm just saying is that last year there was a drop of 50% during April. of revenues in advertising. We hope to approach as far as possible in April what we got in 2019 but in Q2 we will not be the same level as we were in 2019 just because again some sectors are not invested for the moment in advertising because they are deeply by the situation, and again, travel, culture, leisure, cosmetic. So that will depend on what we can expect when the situation will come back to something comparable to 19 and to see if those are coming back as soon as possible, but probably not for the moment, not in April. Okay.

Thanks, Philippe.

Okay.

Thank you. Ladies and gentlemen, I would like to remind you that if you wish to ask a question, please press 01 on your telephone keypad. Okay. Please press 01 on your telephone keypad if you wish to ask a question.

Well, if there is no more question, I would like to thank you very much, all of you, for attending this meeting. Take care. Be careful. And we will come back with our call for the first half year on the 28th of July. Thank you very much. Take care.

Ladies and gentlemen, this concludes today's conference call. Thank you all for attending. You may disconnect.