Television Franchise

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

Thank you. Good evening, ladies and gentlemen. Thank you for joining us. I will start with the main key points and then give an overview of our results for the first nine months of 21. Then I will be happy to take questions as usual. Let's move to the financial results for the first nine months of 21. The TF1 Group posted strong results for the first nine months of 21, thanks to the combination of a positive trend in the TV ad market, a strong demand for content, as far as our production business is concerned, and cost control in line with our expectations. Group revenues stand at 1,651,000,000 euros, They are up by 21 percent compared to the first nine months or 20, and they are 37 million higher compared to end of September or 19 level. I would like to point out that revenues from our activities are up by 88 million euros year on year, which is plus 22 percent compared to last year, and 33 million euros versus September or 19 plus 7 percent. This performance illustrates the success of our group capacity to extend its core business to complementary activities like production distribution services. The current operating profit stands at 223 million euros plus 98 million euros versus last year and around 40 million higher than nine months or 19. Thanks to this, the group delivered a high current operating margin at 13.5% at the end of September 2021, 11.8% excluding government support of €27.7 million. TF1 remains focused on its ESG involvement. The AdSafe House launched in July an environmental advertising fund called Ecofunding. in order to support responsible advertising initiatives. This commitment has been recognized by the main extra-financial agencies. The group was recently awarded the third place in the GAIA ranking for companies over 500 million euros in sales by Etifinance, a French extra-financial agency. As a summary, I would point out the result of our two main activities for the first nine months at Solo. At the end of September, media revenue rose by 18% thanks to 202 million increase of ad spending on our linear and nonlinear screens. Investments in programming helped us secure higher ratings than last year. These higher ratings, as well as positive momentum in advertising, helped us regain value and score a significant increase. Profitability of this segment is 13.5%. The new end studio segment performed very well with revenues up by 69 million at end of September. That is to say 45% increase in a market where demand for content is high. Studio benefited from a catch-up effect as well as organic and external growth. Profitability stands at 13.3%. Let's now get into the details of our activities. I will start commenting on the performance of the media segment. Revenues rose by 221 million euros year-on-year with an increase of the operating profit of 72 million euros. First, advertising revenues significantly increased year-on-year by 21% growth. Our ad sales has worked to improve the value of our screens in specific day parts, such as access prime time, as a means to better monetize increasing audiences. The positive trend on the TV ad market, with only a few sectors still underperforming compared to 2019, cars, cosmetics, travel, also explains the growth of the ad revenue in Q3. Even if the basis of comparison stood at a high level last year, I'll remind you that we outperformed the market last year Q3 by 8.2%. Digital ad revenues, which rose by 12%, benefited from synergies and combined offers that we've developed between our linear and nonlinear activities. Other revenues within the media segment are up by 19.2 million euros, led by higher business services and music revenues. Regarding the cost of programs, the group has shown again its agility and its ability to save opportunities. It stands at 685 million euros, higher than in 2020, of course, when we had made significant one-off savings in a lockdown context. In a dynamic ad market, the group has continued to reinvest in fresh, innovative programs to offer stronger ratings to our clients. This led to a very good performance for the group's channel, whose ratings are up by 1.2 points for women below 50 and 0.8 points for people aged between 25 and 49. Moving on to the new end studio segment, revenue stand at 220 million euros. They increased by 69 million euros versus last year due to an excellent performance since the beginning of the year. Excluding the effect linked to the deconsolidation of the game sector, revenues of new end studio were up by 58%. Revenues at NUEN for the first nine months of 2021 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 in 2021. NUEN is pursuing its international development and acquired a majority stake in German production company Flair Films in September. after the acquisition of the Spanish studio Aizen in April. Newell also keeps on pursuing high-value added partnership with platforms like for Apple TV+, which has entered the post-production phase. And the book of orders stands at more than 1,800 hours and offers strong visibility for 2022. This segment posted a current operating profit 29 million euros, up by 25 million euros year-on-year. Just a quick word on the net profit. The net results attributable to the group stand at 147 million euros for the first nine months of 2021, including the investments in Salto. This level is higher than 2019 and already close to what was achieved at the end of December 2019. Let's now comment on the cash position. Excluding these obligations, the TF1 group had net cash of €36.3 million positive at end of September 2021 compared to no debt, €0.7 million at end of December 2020. The TF1 group generated at end of September the free cash flow of €165 million versus €51 million at end of 2020. It has a sound financial position and access to available bilateral credit facility for more than $1 billion. Now let's conclude with the outlook. For the end of 2021, our audiences and clients will benefit from a very strong and diversified lineup available both on linear and nonlinear. It will include new premium French scripted programs as well as entertainment programs that create a unique link. Convergence between TV and digital will reinforce the value creation for the benefit of our clients. UN Studio will pursue its objective of increasing international revenues and grow its book of orders with pure player platforms. Given these very good results, the TF1 Group increased its guidance and now anticipate a double-digit current operating margin rate above 12% for 2021. Well, that's concluded my review on the TF1 Group's results for the first nine months of 2021. Well, thank you again for having joined us, and should you have any questions, please do not hesitate to ask. Finally, I remind you that a recording of this conference call will be available. You will find the connection details on our website.

Thank you. Ladies and gentlemen, if you wish to ask a question, please press 01 on your telephone keypad. We have a first question from Annick Mass from Exxon BNP Paribas. Madame, please go ahead.

Good evening. My first question is on margin target for this year. Just looking into next year, why would you not be able to achieve that sort of margin level again? My next question is on Black Friday. If you could tell us how much Black Friday as an isolated event is making in terms of advertising revenues in Q4? And then just, I guess, generally for Q4, if you could give us an indication about ad trends, what you're seeing, which industries are performing well and which not so much. Thank you.

Yes. Well, your first question is, Suri was on a margin target for a year. Well, I would say that we have a limited visibility and as I mentioned, the nine months this year, the margin includes some credit, tax credit in our EBIT. Nevertheless, I would say that we will go on developing synergies and activities in production and services. I can't give any guidance today for 2020, definitely not, but that will depend on the global context and the economy in France. We will, of course, we are really focused now on improving or maintaining the profitability, which is in line with the expectation of our shareholders, too early to give you any kind of guidance. Now, your second question on the Black Friday, the Black Friday has some impact mainly on our digital business. more limited for the advertising on TV. Nevertheless, that will contribute. I can't give any figures specifically for the Black Friday, but that should help. But I think compared to 2019 and previous years, it's, of course, a basis of comparison favorable as compared to 2020, not different from the previous year. Now concerning Q4, the ad market. I just want to remind again that in terms of percentage, two things. As you know, one is the fact that we have to take into account for a specific part of the year the basis of comparison. And I remind you that on Q3, we made 8.2, outperforming the market last year. And the basis of comparison for 2021 is rather high as compared to other competitors and even compared to the market. We have delivered a bit more than 4% growth based on 8.2% last year. And we consider that Compared to 2019, the base basis, the performance is quite significant. Second point is on Q4, we have a view that for October, November, all together, the demand remain rather strong in line with what we have already seen during the first nine months trend. Nevertheless, the basis of comparison, of course, is nothing to do with the first six months of the year. So I would say that 2.4 is, for the moment, in line with the trend we had, taking into account the basis of comparison of last year, which was positive. and it's too early to see, to have any kind of visibility on December, which is important for us in order to deliver the target we have for Q4.

Okay, thank you very much.

Thank you.

Thank you. Next question from Kona O'Shea from KFH. So please go ahead.

Yes, thank you. Good evening, everybody. Three questions for me as well. First question on the digital advertising revenues in Q3 seem to be down year-on-year versus, I think, up 12% through nine months. So just wondering what was going on there. Second question on Newen, obviously excellent revenue figures again in Q3, but only a small drop through to Q3. to the EBITDA line again just to talk us around that and also whether the 1800 hours in the order book at this stage of the year is higher or lower than it was at the same time last year or if you prefer at the half month at the half year sorry in June and then the final question I think you mentioned Philippe that the margin benefited from tax credits this year. Can you just maybe give us an estimate of how much that was or any other government aid that you've benefited so far this year which might cycle out next year? Thank you.

Yes, I would say on the first question, digital in Q3 is a combination of table on revenues from a website But in the same time, we have a perimeter difference, which is due to the fact that we sold our business in Italy and in Germany. We closed Spain on the digital. So there is a perimeter effect, which explains the fact that we are down as compared to last year Q3. Apart from that, there is a good performance on MyTF1 and as we are reconfiguration of our website, the revenues digital coming from our website as zero minus during the Q3. On the full nine months, we have an improvement and a growth of 11.6%. But that explains the down of the digital and the change in the perimeter with digital sites we were operating and we had last year, we don't have any more in Spain and Italy. Sorry, no, in Italy and Germany, sorry. Now concerning new WAN, we have 1,800 hours compared to 1,500 previously. So the Bucca border has increased end of September, and it has increased because of a combination of perimeter. We include now in the Bucca border the Spain activity. with a number of hours which is rather significant as compared to the size of the company because they are working a lot with local broadcaster and so they produce a lot for local broadcaster which is part of the reason of the increase. The other part is linked with and results from a book of order coming from a platform like liaison I mentioned in my introduction. Altogether, the profitability of this segment is in line with what we have always said, between 10% and 50% profitability. when we have a 13.4% margin, it's probably in line. And again, it's always creation of value on the balance sheet and the profitability direct on the P&L, which has to be looked at with a good book of order in the lineup. Now, and I remind you also that normally, globally for the group, historically, Q3 was a quarter which was delivering a negative EBIT or zero, around zero, and now for the second time, from 2019 we have a significant EBIT during Q3 with 54 million this year for the first nine months and that is due to the contribution of of course the optimization on the broadcasting as well as from other activities which are contributing to the EBIT more significantly On tax credit, end of September, the amount in our EBIT correspond to 27.7 million euros for the first nine months. Not very significant, expecting no significant change in Q4 because we have taken most of the tax credit which has been based on the investment we've made last year in the programs and which are taken as a benefit when we broadcast the programs we have invested last year when the situation was very tough. And that's just a compensation of what we have invested and the low performance linked with the COVID, which is taken into account in our P&L this year. So that's what I can say on the tax credit.

Perfect. Thank you, Philippe.

Thank you. Next question from Christophe Cherlan from Societe Generale. Sir, please go ahead.

Yes, good evening. Two questions for me, please. First, on programming costs, I think last year in 2004 you had started to invest in programs, so is it fair to assume that The programming cost base of Q4 last year is going to be a good base, let's say a stable base for Q4 this year. The second question is about the tax rate, which is super low in Q3. In fact, it's very low at the nine-month stage. What should we expect for the full year? And can you remind us whether SALTO is reported, I mean, the associated contribution of SALTO is reported pre-tax with the tax saving associated in the tax charge. Is that the right way to look at the issue? Thank you.

So on your first question, programming cost, no, the Q4 last year, It's not the right basis of comparation just because we have the rugby world cup. Last year, sorry, I was just comparing with the 19 on 20. Well, I would say that it's a rather good basis of comparation or probably we could do a bit better. So we will try to optimize and be a bit lower than last year Q4. And if you compare with Q4 2019, we should be lower due to the fact, again, that we had the Rugby World Cup and we won't have any sports events this year. So altogether, it's a maximum we could stand Q4 2020. we should be a bit better. Now, concerning the second question, tax rate, yes, it's a lower tax rate just because the tax credit we benefit is not taxed as such, so the basis of the tax excludes the 27.7 million euros and as well as some specific credit we benefit in the production sector. So that's the two components which explain why the nominal tax rate is significantly lower and significantly lower this year just because the tax is not based on the EBIT including the credit. Next year we will not benefit from the tax credit and so we will come back close to the nominal rate in terms of tax. On Q4, your question, your second question, I missed your second question on Q4. The question of associates, yes, you will find on the line associates an amount of 19 million, a bit more than 19 million, and that goes mainly to our share in the losses of South Doe. And that doesn't include the tax benefit when we present on our side our losses, the share of losses we take in our accounting. So it's a free tax. Free benefit of tax.

And just to be clear, the $27 million of tax credit, which is tax-free, so to speak, is there more to come in Q4?

Limited, very limited. Very limited. a bit more than one, around two. Not more.

Okay. Thank you.

You're welcome.

Thank you. Next question from Julien Roque from Backless. Sir, please go ahead.

Oui, bonsoir, Philippe. Coming back on your answer on Q4 advertising, and I'm sorry, but j'ai rien compris. You're telling us that the... The trends are still good, but we need to mind the basis of comparison. Now, the problem is that you have now presented advertising differently, so we actually don't know what the basis of comparison is. But if I look at the numbers of advertising in the media division ex-digital, so what I would call non-digital advertising, which was 3.16 in Q3 and 3.14 last year. So you were up 14.6% this quarter. And I estimate that last year in Q3 you were up 7%, which would be a 22% two-year growth versus 2019. But I think that in Q4 you were only up 6% versus 2019, trying to re-establish, you know, the numbers on the new basis. So one, can we get some, yeah, can we get Q3 and Q4 growth versus 2019 under the new basis last year? And then can you re-explain what you mean by the trends are good, but mind the basis of contagion? Because on the numbers I have, it seems to me that the basis of contagion are easier in Q4 than in Q3. And then coming back, on your margin this year, so your more than 12% includes the 30 million, so the 27.7 plus the 2 million of tax credit, which are kind of one-off. So the underlying margin, we should take at least 12 less than 30 million to have a basis for next year, the right way to think about it. And then lastly, on the timing of the Autorité de la Concurrence, they said summer. Now I think they're saying autumn. So it looks like we move from June to September, if not October. Can you still close the deal before the end of 2022? Thank you.

Yes. Well, on the first question, let's make things simple and not too complicated. There is a line which is called TV Group Advertising Revenues. You get the first sign of the table in the press release. And that's mainly in the media sector. There is, if you compare, it's not a mistake. If you look at advertising revenues in the media sector, it's exactly the same figure except 100,000 which are advertising in the UN studio. So make things... simple and we have published last year the advertising revenue for the group which is basically digital and TV now based on that we had last year in Q4 for advertising TV revenue plus 4.5% which are revenues advertising revenues TV and digital and I'm just saying that we have a basis of comparison, which is another eye, and that we have to take into account this basis of comparison to understand that even if the trend remains good and the demand is there, well, in terms of rates, we have made a good performance last year in 2004. And we hope that we can make a rather good performance. But we have to take into account this basis of comparison. We have tried to make things more simple for you. If it's more complicated, tell us. We'll try to improve. But I think that with those two sectors, you get the understanding through our publication to what is coming in line with the strategy which has been explained for the last two or three years. with the revenues coming from advertising and the other revenues, because it's very important, as already explained, that all the components, which is not directly linked with advertising, production, distribution, services to telecom operators, services to our clients through all we have developed during the last two, three years, are clearly developed and explained in terms of figures. So just for the first question on 2.4 advertising, trend is good, basis of comparison 4.5. So we can expect for the moment in October, November, some improvement. but limited due to the basis of comparison.

If you look at it versus the total number, so Q4 was at 4.5, how much was Q3 up?

Q4, 4.5, yes. And Q3 was, yes, I get you the figures for Q4, yes. I will answer. I will come back on this. I think it was plus 2%.

Sorry, which is which? Is 4.5 Q4 and Q3 was 2% or is it Q3, 4.5 and Q4, 2?

Q3 was 8%. As I mentioned, Q3 was 8.2 on TV and 8 globally for Q3 on other typing. Is that clear? 8% Q3. That's correct. and 4.5% Q4.

Okay, so why are you talking about basis of comparison if they're easier? So the basis of comparison is 3.7% easier, so growth should accelerate in Q4 then.

I'm just saying that it's a rate, right? It's not an absolute value, and take that into account when you look at advertising and growth. I mean, it's easier to make 10% on zero than 10% on 100, right? Easy to understand. So basically, I'm just saying that we've made 4.5% on the high pages last year in Q4 on advertising, and that this basis of comparison, if you compare to 19, we all know that the market every year is not growing significantly. at a double-digit level. So I'm just saying that in Q4, we made 4.5%, which is rather high as compared to Q1 or Q2 this year, which were down, significantly down. And as a basis of comparison, compared to the outperforming of our business activity and advertising activity in H2 last year, combined Q3 and Q4, we have a high basis of comparison to go further, significantly further, in terms of rates. I'm not saying that we will not improve, but I'm just saying that it's a high basis of comparison. And I can't compare Q3 and Q4. You are well aware of the fact that those two orders are very different in terms of absolute value that July and August are definitely low months that we are not delivering in absolute value, the same amount in Q3 and Q4. And of course, Q3 is comparable to two months as compared to any other quarter. So again, we are just basing places on mathematic division and the rate, which is based on the absolute value in terms of component of this rate, which is basically the fact that the absolute value is higher in Q4 than in Q3. So if you're just saying, well, why should we have not more because the basis of comparison is lower, I'm just telling you, just take into account mathematics in order to understand why, basically, when the basis is higher, the rate is more difficult, any basis of comparison, to achieve the same rate. Right? That's it. And I'm just trying to make things simple and not too much complicated. Now, concerning your second question, concerning the 12% yes, it includes the tax credit. You have in our press release the retreating effect of this tax credit and the rate of is 11.8% on the first nine months as compared to 11.4 for 2019 and 9.2% rate for last year. So in the first nine months of this year, we have improved the margin rate by four points, zero four points, sorry, 11.8 as compared to 11.4 in 2019. We are just saying that, again, globally, we will deliver an EBIT of more than 12% for the year, which is the same reference as the 13.5 we have delivered on the first nine months. I remind you that in absolute value, we always, in Q3, deliver a better absolute value in terms of amount of the bit, but the rate for the Q4, for the reason I already explained, is lower than in H1. Now, concerning your third question regarding the competition commission, well, we have no reason to think that in the process the target of clearance before the end of the year would not happen and we are still exactly on our side as we see the process is in line with what we have and we have there is no delay things are progressing so Whatever you read or whatever it says, we think that we are in the calendar and in the right timing.

Thank you.

Thank you. We have no more questions for the moment. Ladies and gentlemen, just a reminder, if you wish to ask a question, please press 01 on your telephone keypad. It's 01 on your telephone keypad to ask a question. Thank you. Sir, we have no more questions. Back to you for the conclusion.

Well, thank you. Thank you for having joined us today. I hope that I made things a bit clear for you. And I will just remind you that... This call, you can get it on our website on replay. Thank you very much. Have a good evening, and thank you to all of you.

Thank you, ladies and gentlemen. This concludes the conference call. Thank you all for your participation. You may now disconnect.