Banijay Group N.V. (BNJ) Earnings Call Transcript & Summary

Welcome to the Banijay Group 9 Months 2024 Results. At this time, I would like to turn the conference over to Caroline Cohen, Head of Investor Relations. Caroline, please go ahead.

Thank you, Ivy. So good evening, everyone, and welcome to Banijay Group results webcast for the first 9 months of 2024. This is Caroline Cohen, Head of Investor Relations. Before we start, let me draw your attention to the disclaimer on Slide 2. I also want to remind you that this presentation is available on the company's website, and a recording of this call will be accessible in the coming days. Your speakers today are Francois Riahi, our CEO and CFO, Sophie Kurinckx-Leclerc. First, Francois will present our key financial and business highlights for the first 9 months. Sophie will then cover the results in more detail before Francois provides some concluding remarks, and then we will open the call for questions. Over to you, Francois.

Thank you, Caroline. Good evening, everyone, and thank you for joining us. We are very pleased to report a strong first 9 months for Banijay Group with high single-digit revenue growth and double-digit adjusted EBITDA growth. At content production and distribution, we continue to see a solid commercial activity, particularly with streamers. And as already explained in previous quarters, we will enjoy a strong end to the year, thanks to major show deliveries in Q4. In online sports betting and gaming, we delivered an outstanding performance fueled by a very busy sports calendar. We managed to capture market share gains across all activities and geographies and further develop the user experience, thanks to a new version of the Betclic app. In live events, we continue to consolidate the market and also delivered some of the most high-profile cultural and fashion shows of 2024 so far. All in all, thanks to where we stand after the first 9 months and our highly visible pipeline for Q4, we are confirming our 2024 earnings guidance, including organic adjusted EBITDA growth in the low teens. So let's have a look at our main figures for the first 9 months. Group revenue is up 8.9% year-on-year at EUR 3.1 billion. Adjusted EBITDA is up 15.3% to EUR 546 million, and adjusted net income is up 14.3% to EUR 248 million. We maintained a high level of cash conversion of 80%, driven by the earnings generated during the period and supported by our consistent tight control of cash expenses and capital expenditure. Our leverage is slightly up at 3.2x from 3.1x in December 2023, mostly due to acquisitions and dividends paid in Q2 and Q3. Let's move to business highlights now, starting with our content production business, where we are seeing high levels of commercial activity. Banijay Entertainment is known for its large diverse content catalog which includes some of the world's most iconic super brands. But we also continue to craft creative news that will become the next generation of the successful franchisees. As you can see on this slide, this period has seen multiple show comebacks, spinoffs, new adaptations and recognitions that are delivering record ratings for both linear broadcasters and streamers in all geographies. There is clearly in today's market, a competitive advantage in detaining powerful and successful formats that can travel all over the world. Let's focus, especially on global streamers. Banijay Group is the leading independent provider worldwide for global streamers. We are happy to say that we continue to see strong momentum with streamers, particularly as demand remains strong for scripted quality shows and increases for nonscripted content. On Amazon Prime, which is a key partner for us in adapting successful formats, LOL, Last One Laughing, has now been commissioned for a new adaptation in the U.K. following huge success with 10 other local country adaptations. And after its Rising Format Star Award in 2023 with the highest number of new launches for the year, Good Luck Guys has been commissioned for its eighth adaptation this time in Poland. In Italy, on Netflix, Supersex, The Life You Wanted and The Law According to Lidia Poet projects were among the top 5 most watched TV series in H1 2024 on Netflix, a fantastic result. Additionally, our commitment to producing quality content was also recognized during the award season. Looking ahead, as already mentioned, we have a strong pipeline of upcoming shows that I will talk about more of a bit later. Banijay's entertainment success has always been based on nurturing the best creative talent and we are constantly looking for new ways to partner with and support those who are doing exciting things in the sector. To meet the growing demand for talent-led premium documentaries, in Q3 2024, we launched 2 new levels, BD4 and Navybee, one in the U.S., one in the U.K. BD4 is a premium unscripted and documentary offering from Banijay's Americas led by award-winning producer, Daniel Silver. Navybee housed in Workerbee Group, an existing level of Banijay U.K. will be led by the renowned producer Demi Doyle and will focus on premium documentaries featuring high-profile names from the world of entertainment and sports. We have also, during the quarter, expanded our kids and family offering and made our first move in the entertainment category by acquiring Procidis, a French production company behind the iconic educational animation franchise Once Upon a Time, which has been broadcast in more than 100 countries, translated to 80 languages and that everybody knows including in this call, I'm sure. Moving now to Banijay Live, where we have continued to consolidate this fragmented market with 6 agencies acquired since December last year. In Q3 only, The Independents acquired 2 new creative agencies, Bureau Beatrice in Dubai, which specializes in dynamic, interactive and immersive experiences and Kitten Production in Paris which specializes in the production of stills, motion and digital content for the fashion industry. As you know, Banijay Group is a minority shareholder in The Independents, and in Q3, we increased our stake in the business to 14%. We have the option to become the controlling shareholder of The Independents in 2026. BalichWonderStudio was also active in the period, entering into the French market by investing in agence black lemon, which specializes in the design and production of experiences with strong editorial content. Through all these acquisitions and the synergies they create, The Independents and Balich are enhancing their ability to produce world-leading fashion shows and future events, which I will talk about now in the next slide. In total, this year, The Independents and Balich have produced well over 500 shows. The Independents with its ecosystem of specialized and complementary agencies played a major role in producing spring/summer 2025 fashion shows for top luxury brands in New York, Paris and Milan. At Balich, we're happy to say that in October, the organizing committee for the 2026 Winter Olympic Games selected them to produce the opening ceremony. This will be Balich's 17th Olympic ceremony, which is a world record. Let's move to sports betting and online gaming now where a busy sports calendar and an unmatched user experience drove outstanding financial performances as well as strong user growth and retention. As you can remember, this year is a exceptional year for us with a calendar where we had in Q1, the Africa Cup of Nations in Ivory Coast, where we are a leader in the market. In Q2, we -- in Q3, we had the Euro in Germany, which is always a big event for us and in Q3, we had the Olympics Games in Paris. So of course, this calendar has been very positive for the market for us, but we have also outperformed the market in capturing this growth. I give you 2 examples -- 3 examples. First, Euro 2024, which was as expected, the largest sport betting event of the year. If we compare it to Euro 2021, we had twice the number of unique active players. So we have been able to double the number of players on our platform between the 2 Euros in just 3 years. If we compare Euro 2024 with the last big football competition, which was the 2022 World Cup, it was only 18 months before because it was during the winter. The revenues during -- for the Euro 2024 were around 30% higher than during the World Cup, of course, with less games. You have more games in the World Cup. So these 2 indicators are very interesting to see the growth we have been enjoying during this period. Another big event was the Summer Olympic Games held in Paris in Q3. Betclic, so 4x the betting volume compared to Tokyo 2021. And I will say a little bit more about the Olympics on the next slide. We saw strong enthusiasm for the Olympics in Paris. As the first Summer Olympics in the country for 100 years, there was an amazing response from the French public which also boosted interest in sports betting during what is normally a quieter period for us. Thanks to high viewer engagement, strong performances of French athletes and betting available on 70 sports, we saw record betting levels in France, 3x the volume of online bets compared to Tokyo 2020. That's a good example and good illustration that outperforms the market because we saw an increase of 4x when the market did made 3x. And we saw on the market -- in the market, almost EUR 300 million bet online nationwide. What is interesting to mention is that, of course, as usual, football, tennis and basketball attracted a large part of the betting volumes. But individual sports, such as swimming and table tennis also enjoyed very good results in betting thanks to dramatic story lines and huge interest in French stars, Leon Marchand and Lebrun brothers. Although it was a one-off event, the spectacle and drama of the Olympics was a fantastic opportunity to leverage the agility of our platform to engage new and existing customers in new sports and products with hopefully lasting positive results. That's all from me for now. I'll be back at the end with some closing remarks on our outlook before we open the line for questions, but I give the floor to Sophie.

Thank you, Francois. So let's start with group revenue for the first 9 months where we delivered 8.9% growth and almost 10% growth in Q3. This performance was reflected in our adjusted EBITDA, up 15.3% at constant exchange rates. We also saw a 100 basis point improvement in our adjusted EBITDA margin to 17.5%, which is mainly explained by a larger contribution from Banijay Gaming, which has a higher EBITDA margin. At the group level, total external and personnel expense rose by 7.4% driven by higher sports betting in taxes, reflecting revenue growth and higher marketing expense at Banijay Gaming. Looking next at our consolidated P&L. LTIP expense were up slightly and are in line with the group's trajectory that LTIP expense will average around 10% of adjusted EBITDA over the duration of the incentive plan. The other finance costs mainly include the change in the fair value of financial instruments, including hedging on put and earn-out debt and currency losses and gains. The significant increase in income tax is driven by Betclic's strong results over the period. As a result of the above, adjusted net income rose by 14.3% to EUR 248 million. Let's go now to results by business, starting with content production and distribution, while revenue was down 2.8% at constant exchange rates. As highlighted by Francois, the traditional seasonality pattern and bias towards H2 is amplified in 2024 as already underlined in our last presentation. There will be a significant number of major scripted show deliveries in Q4, and we still expect organic revenue growth for the full year. In terms of live events, the jump in revenues reflect the contribution from Balich Wonder Studio, which has been included in group financial statements since Q4 2023. Let's look at content production and distribution earnings and cash flow next. Adjusted EBITDA was down 2% at constant exchange rates due to the seasonality already mentioned. CapEx increased due to an increase in distribution advances. The change in working capital is attributable to timing effects of different show production and a higher level of [ fiction ] in progress. This is clearly in line with the seasonality announced on the EBITDA. Income tax paid increased versus last year due to Balich consolidation as the total amount of income tax due in Saudi Arabia relating to fiscal year 2023 has been paid in 2024. Adjusted free cash flow conversion was 71%. Next, let's look at online sports betting and gaming, where we enjoyed an outstanding performance across all activities, thanks to the busy sports calendar that Francois has already mentioned. Revenue was up 44% with strong growth across all divisions. Sportsbook's revenue was up 45% driven by continued growth in the number of unique active players at 39% and a new version of the Betclic app that enriched user experience. Online casino, poker and turf revenues were up 41%, thanks to strong momentum in all geographies, the release of new games, products and features as well as the positive effect of cross-selling strategy. Banijay Gaming continues to deliver very high profitability and cash flows. As you can see from this slide, adjusted EBITDA was up 42.5% at constant exchange rates to EUR 265 million and adjusted free cash flow conversion remained high at 90%. Looking at cash flow generation. Adjusted free cash flow at group level reached EUR 437 million. CapEx expenditure increased to EUR 72 million from EUR 48 million in the first 9 months of 2023 due to higher IT costs capitalized in Banijay Gaming and increased distribution advances in the content production and distribution business. This resulted in a cash conversion rate after CapEx and lease payments of 80%, in line with our guidance for the year. The group's net debt stands at just under EUR 2.6 billion. The increase in net financial debt mainly reflects acquisitions, including the increased stake we took in the independence, the seasonality of cash payment and the dividend payment made during the year. We continue to have a strong cash position and a significant undrawn secured credit line. That's all from me. I will now hand back to Francois for some concluding remarks.

Thank you, Sophie. I will now say a few words about our guidance and outlook for 2024. So looking ahead to Q4 or what it is left in Q4, we have good visibility on our business and on a very busy period for Banijay Group. This is especially the case in the content production and distribution, where, again, once again, we are expecting major scripted show deliveries. This includes the second seasons of audience and distribution winners like Marie-Antoinette for Canal+, NCIS Sydney for Paramount+, SAS Rogue Heroes for the BBC, and The Rig for Amazon Prime. Thanks to all these deliveries, as already mentioned by Sophie, but I think it's important to underline it. We expect organic revenue growth for the full year in our TV production and distribution business despite numbers being down 8% in the first 3 quarters. So I think it gives a view on the impact we are expecting of our Q4 slate of deliveries. In live experiences, we expect softer demand for live events in Saudi Arabia, as can be seen in broader market trends. Balich had a very strong year in 2023 in Saudi Arabia and is suffering from some of these softer demand. For online sports betting and gaming, as in Q4, there are no major sporting events, except the Champions League, which is traditional, and we will focus on capitalizing in growth in the UAPs recorded in the last quarters. Thanks to all these elements and the good performance in the first 9 months, we are confirming our full year 2024 guidance, including the guidance on organic adjusted EBITDA growth of low teens, and we are more confident to achieve it. I recall that this guidance is based on the pro forma EBITDA of EUR 756 million, including the full year of Balich in 2023 and not on our reported of EUR 737 million last year. With our truly differentiated business model, we are well positioned to continue capturing and consolidating profitable, fast-growing and fragmented segments of the global entertainment industry, our business profile and our combination of growth and profitability makes us unique in the entertainment industry in Europe. That's all from me. Thank you for your attention, and back to you, Caroline.

Thank you, Francois. So it's now time for questions. [Operator Instructions]

[Operator Instructions] Our first question comes from the line of Thomas Singlehurst from Citi.

Tom here from Citi. A few things in no particular order. First one, I just wanted to just specify. I think you said you were talking about sort of growth for the full year for content production. And then you said minus 8% at the 9 months. I just want to specify that you're talking about the sort of production line within Banijay Entertainment and that -- it's that line that's going to move all the way back into positive territory. That was the first question. The second question was, I mean, obviously, the performance of the gaming business more broadly, Betclic has been fantastic. The sports schedule has obviously been heavily favorable. I guess the other side of the improvement in production is a moderation in growth for gaming -- just after a sense of how significant you think that moderation will be. Is there any chance that it moves into negative territory? Or should we continue to expect growth? And then finally, I know it's early days, but I would love to get a sense of where you -- what you think the overall growth environment is for 2025? I mean, on the positive side, you've got that sharp improvement in momentum for the content production business. And then we have seen some challenges in terms of ad-funded revenues to some of the free-to-air broadcasters, especially here in Europe. I know that's not the be all and end all of the business and the opportunity. But can you speak to whether that poses any challenges for next year?

Thank you very much for your questions. For your first question, what I was underlining is the TV production and distribution business, so excluding live events, et cetera. This is down on the first 3 quarters by 8% because of the delay of deliveries and the concentration of deliveries in Q4, and this will be growing this year. So our TV production and distribution will be growing in 2024 as long as we can predict. Of course, when we can always have one delivery that slips a little bit to the beginning of 2025. But our bet estimate is that we'll see growth in our TV production and distribution business, and that's a minus 8% for the first 3 quarters will be completely reversed at the end of the year. And I'm giving this precision because when you look at our figures for the first 3 quarters in the content production and distribution, it includes the integration of Balich. So it's not organic. It was the acquisition of Balich that we made at the last year. But I wanted to be clear on the fact that our TV production and distribution business will be growing in 2024 despite a tough year, and I think we can see in our competitors that the market has been a little bit tough for the production and distribution in 2024. And we managed to -- and we will manage to grow this business. And we are quite happy with our commercial activity, and I really believe that we are seeing what we are telling every quarter almost that the market is evolving in a way where to the scale and also the catalog of formats are very strong competitive advantages because you were mentioning. If you take the free-to-air broadcasters, of course, depending on the territory, it can be more or less difficult for them. But clearly, they are more and more focusing on very strong formats a very well-known format. We have been -- we have had the opportunity to mention in the past quarter and still in this one, we have -- I would say format that were not no more on air for many years in different countries that are coming back or some Big Brother, some Star Academy, some Survival, some Deal or No Deal, et cetera. And this is a trend that we see continuing in the broadcasters. And we see some growth with streamers. So to answer to your second question, we are not worried about not having growth anymore on our TV production and distribution because we believe that there is still a growth in demand for content, first, and we are agnostic to where this content is distributed. And second, that this market is very, very difficult for independent small producers everywhere and that companies like Banijay Group are taking market share, thanks to our competitive advantage. So we remain quite positive on the growth in this -- in this sector. And yes, it's too early for us to give you a guidance for 2025, but I've been, I think, quite clear on the trend I see so far in this market. Thomas, I hope I answered your questions.

Your next question comes from the line of Conor O'Shea from Kepler Cheuvreux.

A couple from my side. First question, just to come back on Q4, with Betclic in a kind of more normal environment without any sports events, can you give us a little bit of help in terms of the underlying level of revenue growth we could expect in that quarter? Are we still talking double digits for Q4? The second question, if you can give us a sense of the potential impact on where we are exactly with the proposals in France to put extra betting tax on wagers in that country? And then thirdly, regarding the potential increase in corporate tax rates in France, have you made any calculations about what the potential impact could be for 2024 and 2025?

Thank you, Conor, for these questions. For your first question, I'm not going to give you more color, but normal quarter for Betclic, double digit seems to be a good assumption. On the proposal in France, and of course, it's a big topic. I must say, it's not easy to predict or to read because we had several different information, rumors, amendments from the government that were rejected by the parliament. So it's very difficult to predict what will happen at the end. We have a risk and an opportunity for us. For the first time, the French government opened a way to authorizing online casino with the first meeting that was held yesterday. So there's a discussion going on. That's positive news. And of course, we are taking our part in the discussion because we believe that it would make a lot of sense to authorize online casino in France as we see the black market developing in France dramatically. There's also a risk, which is the discussions around the tax, which has been very difficult to really assess. What I would like to say about that is that France is not an easy market because it has the highest level of tax on online sports betting in Europe. The tax betting in France is over 60% of the revenues. And we believe that increasing this further would actually be counterproductive both for safe gaming and in terms of revenues for the state because it would fuel the black market on sports betting in addition to the fact that it exists on the online casino. And it would move players from a very strongly regulated market environment to a nonregulated environment, and we believe that the government would lose, actually, revenue if they do that. So you don't know where it stands because the government has included an amendment of that in the social security budget, which was rejected by the parliament, and then we see what comes in, et cetera. But if this was to come back, we would advocate against it. And we would be very careful that it does not create a confiscatory situation or inequity of treatment between the different types of gaming. And if it was so, we would challenge it. So again, when we have more clarity, and if we have -- if something is happening, which is changing, I would say, our situation, of course, we will update. On your first question...

The first question on the increase of the tax, corporate tax and [indiscernible]. In fact, it would be applicable to some companies whose annual turnover in France is equal or [indiscernible] to EUR 1 billion, but we don't reach this threshold in our group. And so this is why we will not be impacted.

Okay. Is that 100% confirmed that it relates to only revenues in France or the size of the company?

It has not been voted. So we can just can just...

It looks like that. Okay.

That, if it's that, we would not become -- no tax.

[Operator Instructions] And the question comes from the line of Annick Maas from Bernstein.

I'm just having one question today. There were some perhaps headlines out a few weeks ago that RTL is looking to potentially sell Fremantle. My question is, is this something you could be looking at? Is this also something that could go through from a competition authority point of view, given you have some locations where you're both very present? Yes, I would like to get your view on that, that would be great.

Thank you. I'm not sure that's what I read in the -- maybe it's not the same article, but that's not what I read that they are selling, and I would be very surprised if they were doing so. But I cannot comment further rumors or I don't think they confirm anything. So I cannot confirm -- of course, the only thing I can tell you is that we believe in the consolidation in this industry, so we believe we will see some consolidation because as I mentioned earlier, it makes sense, it makes more and more sense to have scale in this business. And on our side, we are very committed to be part and to continue to lead this consolidation, but I will not speak about competitors.

Thank you. There seems to be no further audio questions at this time. I will hand back for any webcast questions.

Thank you, Ivy. Yes, we got a couple of questions. The first one is, could you clarify the liquidity event you hinted for '24 as the year is [ coming to its end ]? And then there was a question regarding growth at content production and distribution for next year?

I think the question on growth and content and strength, I answered it already. On the liquidity event, we, of course, are dependent on the market situation. And we could not really make it happen before the end of 2024. But of course, we remain committed, and it remains a top priority for us to make it happen as soon as possible.

Ivy, there are no other questions. So I think that we can compete here the call. What do you want say...

No. Thank you for coming and we'll see you the March 6, 2025 for the full year results. Thank you very much.

Thank you very much. Bye.

Bye-bye.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.