Canal+ SA (CAN.L) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the presentation on synergies from the acquisition of MultiChoice Group by Canal+. [Operator Instructions] I would like to remind all participants that this call is being recorded. I will now hand over to CEO, Chairman of the Management Board, Maxime Saada, to open the presentation. Please go ahead.

Hello, everybody. I'm Maxime Saada, and I'm the CEO of Canal+. And I'm joined today by Amandine Ferre, our CFO; and by David Mignot, who has recently been appointed CEO of the newly combined Canal+ and MultiChoice business in Africa after leading Canal+ Africa for over 13 years with great success. Welcome to this morning's update on the MultiChoice acquisition. As you know, we will give an update on the Canal+ strategy on March 11, following our full year results announcement. Today, we will focus on the 2 main reasons behind the MultiChoice deal. First, the African growth opportunity. We believe that Africa has enormous potential, and we intend to leverage our 30 years of experience on the continent to capture that potential. Second, the benefits that we can extract from our greater scale are now becoming a reality. We are a truly global company following the acquisition of MultiChoice, and we can start delivering significant synergies at group level. We will provide details on the numbers in a few minutes. First, let's begin with the African growth opportunity. If you look at the countries on the African continent in which we operate, sub-Saharan Africa, the population today is approximately 1.2 billion people, and it is expected to grow by a further 800 million by 2050. So that will represent a total population of over 2 billion people by 2050. The economic growth is expected to be in the next 5 years close to 5% on the GDP forecast. If you look at the electrification rate, another, of course, key performance indicator for us, it is today limited at 56% of the population, which means that approximately half of the population today has no electricity and no capacity to have television, but this rate is expected to grow very fast. And actually, it is growing very fast in just a few -- just the last few years. When you look at the penetration of paid television, it is still very limited compared to much more mature markets at 32%. So there's a lot of room to grow there as well. And finally, the OTT penetration rate. So really, the competitive environment is very limited because we estimate that rate at less than 5%. So this is really a continent that is prime for growth on pay television. And we will now explain with David how we are in a perfect position to capture this opportunity with our track record, with our positioning on MultiChoice and with our plans for the business.

Well, thank you, Maxime. So prior to the acquisition, as you know, Canal+ was already a significant player in the African market, which complemented the strong footprint that we have in Europe. As Maxime said, I became CEO of Canal+ Africa in 2012. Back in the time in 2010, we had 400,000 subscribers in French-speaking Africa. And since then, as you see, our subscriber base has multiplied by more than 20. And today, we have around 9 million customers in French-speaking Africa, which means that we are today in 50% of homes that have electricity, and we have a 50% audience share of in-house channels. So when a household is connected to the grid, literally one of the very first thing they do is buy a TV set, and when they do, they want Canal+. And our goal is to maintain that 50% penetration rate as more and more homes access the grid. The other leader in Africa, MultiChoice has also demonstrated its ability to grow on the continent, having more than quadrupled its subscriber base over 2010 and 2023. But nonetheless, and as you know, MultiChoice has not been performing as well as it could be over the past 3 years. For us, this decline was due to a combination of internal and external factors. MultiChoice markets have been striked by currency devaluation, inflation, load shedding. And so the commercial engine that had been run hot historically, as you can see from the previous decade of growth, decelerated significantly. The key point here, and the reason why we are so confident on the potential of the business, is its continued underlying trend. First, content and channel, as with the wider group, we think about this in terms of local and global content, both of which are critical. We have over 100 local channels fully dedicated to the continent audience specificities, including superstrong channels, brands like SuperSports, which you can't miss if you're in Africa. We produce local series and TV shows, which are key for domestic consumptions in markets like South Africa, but also across the African continent as a whole. And in total, we provide every year 10,000 hours of fresh local movies and series and shows in more than 20 languages, and we develop this local content with creatives, who have a deep understanding of their audience being strongly rooted into many African cultures and languages. So on global content, it is important that we deliver partnerships and aggregation from the likes of Warner Bros., Universal, Netflix amongst others. What our subscribers in Africa watch is not so different to what our subscribers will watch in Europe. And again, we will be looking to really extend our partnerships as far as those collaborations are concerned, as we did with Warner Bros. at the start of the year, for example, and with Netflix onto our French-speaking Africa last year. In sport, as the African Cup of Nations just reminded us all, sport is huge in Africa, especially football. So we broadcast the AFCON across all of our markets in Africa. And we have the Premier League, Champions League, La Liga, Ligue 1 and much more. We also bring the NBA, the Formula One, MotoGP to Africa. And critically, we provide the sports that are valued by local audiences, just like PSL or Rugby in South Africa or Basket Africa League and so on and so forth. So sports rights are important in Africa, but they are important in different countries for different reasons, and it's of a great benefit to have a spread of them as with all content in sports, you have to think both local and global. At last, we also provide a range of international channels, like Discovery, CNN, National Geographic and many other mainstream TV networks. But, on top of content, distribution is key. And at first, clearly, brand is important. We have a lineup of brands that are most universally recognized in our territories, such as CANAL+ in French-speaking Africa, SuperSport in the English and Portuguese markets. You will see, as we develop the strategy going forward, how we are going to leverage the quality of these brands. And as ever and for distribution, just as for Canal+ in all of our markets, physical distribution is critical. With over 32,000 point of sales, we are incredibly well placed to take advantage of the development of the African marketplace. So when you take all of that together, it shows the size of the opportunity and why we are so excited with this acquisition. So we mentioned the challenges MultiChoice has faced, and we have already identified and are addressing some points around the offering and the incentivization, which we believe will turn performance around quickly. We will provide much more detail on our return to growth plan in our strategic update in March, but for now, I would think about this in 2 stages. First, we will get back to growth by restarting the commercial engine. So we've already relaunched the campaign for customer acquisition. And of course, by putting content with Canal+, we are improving the offer, which was already very strong. And our focus really is in bringing on new customers. We know how to do that, and we are bringing over the lessons we learned at Canal+ Africa. Then, once we've got the basic in place, we can start to unlock the full potential of the business and build the foundation for the long term. I will talk more about this in March, but for now, I can say it will involve like scaling up the work we are already doing in antipiracy, optimizing our marketing and advertising and revamping the distribution model. And throughout this journey, we will see the benefits of our new greater scale. And now let me hand over to Maxime.

Thank you, David. As David said, we will come back in March to give you more details on our plans for Africa. Now, we're going to cover the benefits that scale brings, starting with cost synergies. By pursuing our international growth and with significant organic growth in our geographies, as you know, we have been able to grow Canal+ from approximately 10 million subscribers at the end of 2015 to close to 30 million by 2024. Following the acquisition of MultiChoice, that number grew to over 40 million, and it really now puts us in a very strong position to capture significant scale benefits, which I'll talk about in a moment. And we are now closer to ever -- than ever to reaching our target of 50 million to 100 million subscribers. Moving forward, we will be focused on organic growth and on delivering the synergies at MultiChoice. But we also have the potential to accelerate our growth strategy through 2 other opportunities that we have covered in the past, Viaplay, the leading Scandinavian players, and Viu, the Southeast Asian OTT platform, which has approximately 15 million subscribers in Asia. Today, our truly unique business is focused, as you know, on Africa and Europe, where we have been present for decades. With over EUR 9 billion in total yearly revenues, we now have global scale, and we are the leader on our market. In 40 countries, we are the #1. As a reminder, we completed the acquisition of MultiChoice back in September, really at the end of September. We took control on September 22. So it's been under our ownership for just over 4 months. We made the decision not to do any due diligence prior to the acquisition so we could continue to buy shares of MultiChoice on the market. So we have been, since September 22, really, really focused on getting a grasp on the situation and identifying these potential synergies. As we have said, Canal+ is perfectly positioned to capture Africa's growth potential in the coming years. And we also expect significant revenue synergies following the acquisition. But today, we believe that it is premature to give some insights on revenue synergies. And our main focus will be on what we know, for sure we will deliver cost synergies. Because we're going to cover cost synergies, of course, it is important for us to have an idea of the baseline and where we are coming from. This is preliminary, and these numbers are unaudited, but we wanted to give you a view of our estimate of the 2025 cost base combined for Canal+ and MultiChoice. And if you look at that cost base, it is -- it sits at around EUR 8 billion in total with a very significant #1 cost base. We've said this in the past being content at EUR 4.6 billion. Again, this is a preliminary estimate. And technology and the other costs sitting at EUR 3.4 billion, so you have here the total cost base of approximately EUR 8 billion with most of it relying on content. And the second cost line is on technology. We will publish, of course, full year numbers in March and give at that time, audited numbers and confirm that cost base. I will now take you through the synergies in more detail. And to be clear, we're not just going to be looking at cost synergies at MultiChoice level, but really at Canal+ Group level overall on all our geographies because we do believe that this acquisition enables us to generate synergies -- cost synergies for all of the group in all of our geographies and not only at MultiChoice level and not only in Africa. I am pleased to say that by 2030, we expect to deliver a run rate of over EUR 400 million of EBITA cost synergies before implementation costs versus the 2025 cost baseline that I just mentioned. So all of these numbers, all of the cost synergy numbers will be compared to the cost baseline of 2025. So we expect more than EUR 400 million in cost synergies by 2030 for EBITA. Of course, 2030 is a few years away, and we will not wait until then to deliver synergies. By 2028, we expect to deliver over EUR 300 million in EBITA cost synergies. And as soon as this year, 2026, we're looking at over EUR 150 million EBITA cost synergies. This EUR 150 million are not hypothetical. They are a sure thing, and Amandine will come back to this in a moment. Of course, the implementation of those synergies will generate some one-offs, one-off costs. Our estimates for the costs are approximately EUR 35 million for 2026, EUR 40 million for 2028 and EUR 20 million for 2030. Again, approximately, the 2026 number, we're more confident on. As you know, we have been focused on cash generation since listing, and we intend to make sure that these synergies become a reality cash-wise as well, not only EBITA, but cash. Amandine Ferre will cover those. And Amandine, over to you.

We will convert a high proportion of EBITA synergies straight into cash, resulting in over EUR 300 million free cash flow after interest and taxes in 2030 run rate, over EUR 250 million in 2028 and already over EUR 150 million in 2026. To go into more detail, we have clearly identified and launched key initiatives to achieve these synergies and the expected time line to realize them. First, content, which is, as you know, the group main cost line. We have already begun and in some cases conclude negotiations with sports and general entertainment right holders. Some of the agreements that we have are multiyear agreements. And so we won't see all of the changes in the first year, but you will see a steady improvement across the period. Clearly, in terms of our internal content, we have much more control. You will start to see us getting the full benefit earlier than that. To give you some example, we looked at whether we should stop some external channels on specific topics and instead create our own channels and so have the benefit from lower cost generated by that. On the tech hardware and broadcast infrastructure side, where most of our suppliers are common within MultiChoice and Canal+, for example, cloud, satellite, dishes, set-top boxes, we got straight to work on negotiation and already get significant benefits. On the group tech infrastructure, that will take a little bit longer, partly because we need to evaluate what are the best systems and the processes to implement, for example, when it comes to CRM, cybersecurity, CDM, production tool, financial system. And so it will be only in the later phases of the integration, but you will see the full benefit of convergence. But we do expect to see significant scale benefits here. We have already this strategy in place within Canal+ for years. To give you a concrete example, we developed the Canal+ app for France at first and then expanded it to French-speaking Africa, Poland and Eastern European countries over the years. We are also working to find a solution on Showmax, which, as you know, has been losing a lot of money over the last few years. On the other cost line, when we are talking about group function, the first thing to say is, as always, that scale brings a lot of advantages regarding procurement. And we are already seeing that, and you will see some savings ramping up over time. On brand and marketing, again, we do expect savings, but they will be towards the back end of the period. On financing costs, you already saw that we had a very successful bond issuance back in December, and we also refinanced our bridge loan also in December as well as some of the MultiChoice debt with better condition and that means that our financing costs are significantly lower going forward. Finally, there will be some structural support cost savings that will appear over the time. I'm really pleased to say that although we only completed the acquisition of MultiChoice as of September, we already clearly identified and secured EUR 80 million of cash savings, and that will fade through in 2026. That was possible because we have anticipated the synergies work stream ahead of the acquisition to be ready for day 1 to be able to deliver as soon as possible. To give you a few examples, we secured better terms of some content deals on both sports and general entertainment. From day 1, we started negotiating with tech suppliers to improve conditions. And as I just mentioned, we also refinanced the MultiChoice debt at the Canal+ level in November, generating close to EUR 20 million in cash savings. We are confident in our ability to deliver these synergies because we have put together the right organization, systems and processes to make sure that it will happen. The cost synergy plan that we present is ambitious, but we are positioned to deliver it. First, Maxime made sure that we have the right people at the right place. We've already got the key group function working at a global level. All local functions have a reporting line at a global level. To give you some example, our Head of Sports Acquisition, who successfully negotiated the Champions League for France a few weeks ago, he is now also in charge of the MultiChoice sport acquisition. Same for third-party content deals such as the Warner deal that we announced a few weeks ago. They are now all managed globally by our group chief content acquisition Officer. Secondly, David has put in place a diverse unified management team in Africa, taking the best of both teams, Canal+ Africa and MultiChoice. And you will already start to see Africa becoming a more important part of the group. Third, I have put governance structure in place to ensure that we have a clear oversight to make sure these synergies are delivered. We put in place 2 teams, a synergy tracking office to ensure monitoring of synergies and make sure we leave no stone unturned and an integration office to implement and drive the implementation. Now, back to Maxime.

Thank you, Amandine. So in conclusion, we are very excited and very comforted by what we have seen at MultiChoice since we have taken over the company. In -- by 2026, this year, we will be able to deliver over EUR 150 million of EBITA and cash savings. More than EUR 80 million of these cash synergies have already been secured, more than half. By 2028, we expect those EBITA and free cash flow cost saving numbers to have grown significantly to more than EUR 300 million on the EBITA side and EUR 250 million on the cash side. And we are very confident that by 2030, we will be delivering at least EUR 400 million in EBITA cost savings and over EUR 300 million in free cash flow run rate savings. I hope that this short presentation has given you some insight into the potential -- the incredible potential for the combination of Canal+ and MultiChoice. With that concluded, Amandine, David and myself will be delighted to answer your questions.

[Operator Instructions] We'll take our first question from the line of Nicolas Langlet from BNP Paribas.

I have got 3 questions, please. First of all, regarding the '25 guidance for the EUR 550 million EBITA pre-business consolidation, are you able today to provide an updated guidance that includes MCG? Secondly, on Showmax, are there any cost synergies related to the specific platform and MCG management expected breakeven by 2027? Does the consolidation with Canal+ will obviously help accelerate that line? And finally, can you update us on the underlying momentum at MCG over the past 2 quarters as the subscriber churn stabilize? And if the subscriber base continues to deteriorate, how does that impact your ability to deliver the EUR 150 million synergies in '26 and the EUR 400 million by 2030?

So thank you very much. The sound was not perfectly clear. So please, apologies in advance if I don't -- if we don't answer exactly your questions. But I believe the #1 question was, are we in a capacity to give updated guidances? And we are not. We are not ready to do that. We are in the capacity to confirm that we will exceed the guidances, that we will reach the guidances. The second question was about Showmax, and I can confirm that we are in discussions -- advanced discussions with Comcast, but -- and I cannot, of course, comment these discussions. What we can say is that we are fully confident in our ability to reduce the loss significantly of Showmax, and that is included in the synergies that we are sharing with you each today. The third question was about the business of MultiChoice, and I will let David comment on this. But to answer your specific question about does it have any negative impact on our ability to deliver the synergies, the answer is clearly no. It has no impact. We will deliver the synergies no matter what. David, do you want to comment on the last few months?

Just -- yes, thank you, Maxime. Just as I said during the presentation, it's part of the Phase 1. So obviously, it's the first priority to get back to growth on the MultiChoice footprint. We have already filled some gap. I cannot comment more on numbers, but it's on the process too and combined with growth on our legacy perimeter. So yes, we are filling the gap and getting back to growth, but it will take a little bit of time.

Your next question comes from the line of Silvia Cuneo from Deutsche Bank.

I would like to ask a couple of questions. The first one is on the growth potential for Africa that you mentioned in the press release. Just wondering, and you partly touched upon this in the prior answer, what sort of growth do you need to deliver these synergies? It sounds like it's not really related to that. So can you talk about what could drive more upside potential to EBITA in terms of growth you would like to put in place? And then second question on the synergies mix, interesting that you mentioned some of these synergies will come also from other countries within the portfolio, so can you give us a rough idea of what percentage of the synergies is from Africa versus rest?

Thank you very much. On -- the first question was the growth potential in Africa, and we will cover that aspect when we come back in March with the full year announcement, and we do a strategic update on Canal+. And David will be -- will go into much more details about both how this growth will translate into subscribers for us in the next few years and how he and the team plan to achieve that growth. So we won't give much detail today. But what I want to highlight is that the synergy numbers that we're sharing today are exclusively cost synergies, and they do not include revenue synergies. And of course, we do expect revenue synergies because -- but as David said, it will take time. And we do not -- we don't want to share numbers until we're fully confident in our ability to deliver the synergies, and we're not ready yet to do that. On the second aspect, which is our ability to generate synergies outside of the MultiChoice perimeter, we are not ready to share a percentage today. But what I can say is that the majority of synergies will happen in Africa, but not exclusively. And our numbers include significant synergies outside of Africa. Why? Because a big part of the synergies come from the fact that we have global contracts, and we will have more of those tomorrow with either content providers or tech providers. And these content and tech providers, of course, operate all over the globe and all over our geographies. And since the cost basis of the European business of Canal+ is higher than the ones in Africa, then obviously, there will be significant impact on the cost base of our European businesses as well.

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

First question, just on the starting point for margins and operating profit for MultiChoice under harmonized accounting policies. I just want to be clear, are you saying that you're not in a position to give that today? Or was that a comment on a breakeven target by 2027? Just to be clear on that sort of pre-synergies, what kind of number we might be talking about there compared with the numbers that were in the bond presentation for the first half of 2025 for MCG stand-alone? Any information on that would be very helpful. Second question, just in terms of the cost synergies, I think, Amandine, you mentioned the structural costs will be -- take a little bit longer, the cost synergies to come through. Are they included in the 2030 target? And just generally, in these synergy targets, are they gross synergy targets? Are they net synergy targets? Obviously, you have to recruit subscribers at the MultiChoice end and that involves additional costs. And then the last question, just more general, just to understand the MultiChoice footprint and the competitive dynamics. Does the proposed merger of Netflix and HBO Max have an influence in competitive dynamics in English-speaking Africa in that footprint there where more U.S. content is consumed?

Okay. So on the first question regarding the starting point of MCG, so we published combined figures and the figures of MultiChoice with the same accounting rule as Canal+ in the bond insurance that we published in November. We are not yet ready to present the full picture of MultiChoice for 2025. We'll publish the figures on March 11. So you have to wait a few weeks to have the full year figures. And as you know, MultiChoice used to publish figures based on end of March figures and not end of December. So there is a huge work from the team, and so we are not ready yet to provide the figures. This is the first thing. Regarding the synergies and the cost synergies, the support synergies that we expect are going to come by the end of the scope going to 2013 that we give, but we expect to have the full blast in 2030. So it's not additional ones. And just to be clear, on the synergies that we provide today are the cost synergies. We are still working on the revenue synergies, and David teams are fully involved in that. And so the cost to get back to growth and generate a new subscriber on the acquisition because for that is not included here, we are only focusing on the cost synergies that we'll be able to have, thanks to this acquisition.

The last question.

Okay. So it doesn't include the extra cost for subscribers.

No, no without the revenue.

No, but we won't incur any costs that don't generate more revenues than the cost. When you want to increase your top line, we will do it in a way where it generates profits. Otherwise, we won't do it. It's not about increasing the revenues. It's about increasing the profit, just to clarify.

It's profitable growth that we expect. So it's not additional. Take the Warner.

Warner, sorry, it's never good when some of your potential competitors consolidate because they grow bigger, and so, they have more power on the market. But it so happens that the 3 companies you mentioned are very long-time partners in the past and for the future because we have secured very long-term deals with all of them, with Netflix, with Warner itself and with Paramount. So we don't expect any negative impact either short or medium term with these guys. And as you may remember, we just signed a deal with Netflix, introducing them for the first time, bundling them with Canal+ for the first time in French-speaking Africa. David is rolling it out as we speak. So we are actually extending our partnership. And we -- you may have seen that we renewed our partnership with Warner just at the end of the year for a number of years in English-speaking Africa in the MultiChoice territories. So we have a very strong relationship with all of these players, and we don't expect any adverse impact from the merger.

Your next question comes from the line of Christophe Emile Andre Cherblanc from Bernstein.

So I had 3 questions. The first one was on the synergies. I'm struck by the speed of year 1 synergies. So does it include your pulling the plug on some projects? And can you confirm you're keeping the same footprint that is you're not going to exit any non-South Africa market? That's the first question. The second one is on the delivery of synergies. Should we expect that to show up 100% at group level? Will you allocate some of the synergy to the South African subsidiary where you have some minorities? And the last one is on FX. In the past, you had FX -- MultiChoice had FX exposure. So is there a way for Canal+ to reduce that exposure or, let's say, better manage the risk? I saw that Amandine was mentioning improvement in financing costs, which is good. Is there a way to improve or reduce that FX risk?

On the first one, the -- we -- you may remember, we explained that prior to completing the acquisition, we launched work 6 months before, headed on our side by [ Makélélé ], on their side by Tim, their CFO, with work streams, including managers from both companies, sharing no confidential information, of course, but getting ready to identifying the synergies that we had to launch day 1. So we were very ready. And when David launched his organization, when we took control on September 22, and David put in place his management team, which, by the way, we assessed with a third-party company, and David chose the best of both teams and ended up with approximately half of the management from MultiChoice and half from Canal+. All of these managers had been involved with David in the action plan that David wanted to launch day 1 and that we launch at group level day 1 to generate the synergies. And so we immediately -- for example, I'll give you one example, on content, we immediately wrote to every content provider in Africa from MultiChoice to signify that we would not renew the contracts and that we had to negotiate the terms. And so we launched negotiations all across. And the first synergy was actually achieved by Amandine and her team on refinancing. And that's a significant one. Maybe you can come back to this one. But to answer your specific question, there is absolutely neither change in perimeter. It's exactly the same scope, and maybe David can complete on that. And there is no plan to exit countries of the -- it's exactly the same perimeter. And for example, on the Warner agreement, the channels, it's exactly the same channels that we renewed. Although there was a lot of speculation that we will lose these channels, we ended up signing a new contract with exactly the same channels. So to the full benefit of the South African consumers. David, do you want to comment on the scope and the perimeter?

Sure. On the -- it's a fixed cost business, as you know, and my view is like there is no small market. So it's even the opposite the way around. We -- as we speak, we are very busy assessing all and every country and inside countries, all, in every areas of the country in order to reaccelerate the global penetration on the footprint. We've done that historically on the French speaking with great success. So it's -- I would say, even it's the way around. We are assessing how we do reaccelerate on some second-tier part of the footprint.

We -- on the synergies, I also want to say that, of course, we are focusing on, as I said, global or multi-country providers, either on content or on tech. And so it will -- it should not affect any kind of African content. On the contrary, David is looking at how to invest, and he has been significantly consistently increasing our investments in Africa to strengthen the local content part, as he mentioned in his presentation, which is critical. And on your question at what level will we do synergies, they will be at every level. So group level, but also African level. And I cannot share the detail, but of course, some will happen over there as well.