MFE-Mediaforeurope N.V. (MFEB) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the MFE Full Year 202 Results Presentation. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sara Bersan. Please go ahead.

Good morning, ladies and gentlemen, and welcome to the MediaForEurope Full Year 2022 Results Presentation. Let me introduce immediately the speakers of today. The presentation will be hosted by our group CFO, Marco Giordani, and by Matteo Cardani, Managing Director of Publitalia. Now let me hand over immediately to Matteo for the advertising and audience outlook. Matteo, please go ahead.

Thank you, Sara. Good morning, everybody. Thank you for your attendance. So today, we comment on fiscal year 2022 with a short review of ongoing indicators for carbon trading. Despite high single-digit inflation in 2022 and the impact of the energy crisis. Since our last call in November, economic indicators are showing signs of recovery. At the end of 2022 and in the first month of 2023, as you can see in Chart 3, confidence in this set was turned positive again. Remarkably, the business confidence index are quite positive throughout all the past year and the beginning of this year, and this is a good news for the advertising market and the consumer confidence indexes are recovering. And this positive scenario with regard to confidence in the fix that are reflected also in Chart #4, where you can see the Good and Service Consumption. You have the whole picture over the past 3 years and is quite self-explanatory. So in year '21 and '22, you have the full recoveries for the downturn in year '20, beginning of '21. And then in the second half of year '22, you have a very stable situation with the services performing better than goods that are more impacted by energy prices. So having said that, we can move now to look to the advertising market. The advertising market performance in 2022, as you can see in Chart #5, it's minus 2.9% year-on-year. So we discounted the outbreak of the Ukraine war, of course. But the good news is that we had a good performance again in Q4 as a market, plus 1%. So it's 3 years in a row that the Q4 in Italy is a positive cue for the overall advertising market. And this was mainly explained by the fact that it was positively affected by the general positive confidence index, of course, the World Cup event. Moving to our performance in this scenario, our performance was quite good because we had a minus 1.8% year-on-year, and we outperformed both the total market and the addressable market of TV plus radio plus digital. And this is a remarkable result in a year in which our competitors broadcasted the World Cup event. So our consolidated market share on total advertising market is 40.5%. Moving forward and try to explain the main driver of these results. There are 2 main drivers. So the way the contribution of growing sector to the MFE performance and growing audience share. So the strength of our offer. So talking about sector dynamics in Chart #7, it's interesting to observe that the impact of the current situation remain symmetrical between goods and services. On the one hand, auto and household applicances in the 2 sectors was affected by the energy cost and the shortage of raw material and component were down double-digit year-on-year. And on the other hand, pharma, personal care, tourism and leisure above all, maintain or increase the level of advertising investment counterbalancing the performance of the weaker sector. So as you can see from the picture in number -- in Chart #7, we have 41% of sectors growing, 50% of sector declining single digit and only the remaining parts was down double digits. The weighted balance of these 3 main drivers explain our performance. Then just a comment on the following Chart #8. Where you can appreciate the fact that -- if you take a look at the retail sales trend by sector is, let's say, extremely positive 89% of MFE advertising revenues are produced by sector than in 2022 at a positive value sales trend, clearly including the inflation component. That means that all the main sectors were able to transfer inflation to consumer prices. There are only 11% of MediaForEurope advertising revenues that are produced by sectors that in 2022 were negative, and we are referring to the automotive and car sales. And here again, there is a positive news regarding the auto sector because since Q4, there has been a recovery, both in terms of car sales and consequently in advertising investment. And this was regarding sector dynamics. Then we move to the other second driver of our advertising growth. So the strength of our offer on the cross-media portfolio and our programming strategy. We are quite satisfied with a very well balanced range of own production, fiction and entertainment plus sport rights, of course, and a diversified portfolio of generalist and thematic channel. And as you can see at Page #9, on our main target, the commercial target, 15 to 64. And I feel in our auditing share in fiscal year 2022 grew by 2.3 points year-on-year. So honestly, an outstanding result. And our digital nonlinear audience is aligned on the same level, 40.2%. So we have a solid leadership both in linear and in digital arena. Then there are free charters that are quite important for us because they explain the prospective -- the near future and also in the medium and long term. At Page #10, you see, again thanks to audited total audience measurement. So this is the official auditor total of this measurement. The comparison between year 2022 versus year 2019, that is our benchmark. And you see that the total audience is growing plus 1.4% versus 2019. And connected TV and digital screens are adding plus 2.3% to the traditional audience trend performance that is almost flat, slightly declining. In the following chart, Chart #11. You see the explanation why this is very important for us because the benefit is also qualitative. Here again, this is Auditel total audience figures, where you can appreciate the fact that the double added value of second screen and connected TV that now are fully measured by Auditel since September '22. They had additional audiences and that they are adding additional audiences, mainly on younger viewer profile from digital screens. And you know that this delivered an additional benefit of a higher CPM than the one of the Linear TV. And this is, I think, quite well explained by Chart #12. Where you can appreciate the fact that you have, let's say, a positive, let's say, trading up between liner screens and digital screens. So Connected TV plus mobile, plus desktop in terms of a key performance indicator for us that is revenue per hour. So the index is really positive and highly positive on connected television. So each hour moving from Linear TV to Connected TV delivers a positive trade-off, a positive monetization outcome. Then the last chart, I would like to comment on is Chart #13, where from now on, we will also comment on Mediaset Spain advertising performance. Here, you have the fiscal year '22 performance. The overall trend of MFE advertising revenues minus 4.1%, mainly reflect the trend of the main medium in our portfolio, TV. As in all other European countries in 2022 TV advertising market in Spain was negative, around minus 4%. And therefore, Mediaset Spain performance was strongly conditioned by this factor. As in Italy, the worst performance sectors in TV year-on-year were repaid for Telcos and most of all automotive sector. So this was a contingency effect about the past year, while the overall advertising trend in Spain was positive -- low single-digit positive. So this is my presentation. And now I hand over to Marco for the financial part. I thank you.

Thank you, Matteo, and good morning to everybody also on my side. I will take you through the full year 2022 results, trying to give also some guidelines regarding the next 12 months? Frankly, let me say that 2022 has been pretty different from what we forecasted at the beginning of 2022 when we wrote down the budget. Clearly, the macroeconomic environment then appear to be radically different from what we forecasted at the beginning of the year. And so during the second part of the year, we were very much focused on trying to reduce the effect on our P&L of the negative information and news coming from the macroeconomic sector. In any case, we reached, in 2022 more than EUR 2.8 billion revenue on the consolidated level and EUR 322 million of adjusted group EBIT. In terms of net results, we reached a recurring net profit of EUR 247 million. And in my opinion, very importantly, higher than 2019 results. So the first year that we can compare without any, let's say, extraordinary events. And if you compare these EUR 247 million of debt profit in 2022 to the net profit of 2019, you can realize that we outperformed it by more than 30%. So a really remarkable result after 3 years. So frankly, very difficult macroeconomic conditions. Last comment on Page 15 is on the net financial position. The net financial position ended the 2022 with EUR 873 million debt. And I would like just to remind that during 2022, we distributed dividend for more than EUR 130 million. We financed the voluntary tender offer of Mediaset Espana minority for EUR 184 million. We have invested [indiscernible] EUR 65 million. And as you remember, we carried out a buyback program in autumn of roughly EUR 32 million. Cash -- free cash flow generation in 2022 has been more than EUR 360 million. So again, a very important result for 2022. Then moving to stepping in, in the Italian business in Page 16. Clearly, Matteo has already commented on advertising revenue. A few comments on the other revenue lines, lower as expected than 2021, but fully in line with our guidance. Clearly, 2022 has been affected by something that was already foreseen in comparison to 2021. We didn't have EUR 28 million of revenue coming from the Vivendi settlement. We cashed in, in 2021. We had lower revenue contribution from the DAZN contract because of the stop of the Serie championship during the World Cup and some other activities has been reduced in line with our expectations. Going to the 2023 guidance for other revenue, we are targeting the same numbers than 2022. Clearly, there could be changes over the year. But I mean, for the visibility we have today, we are expecting, as I said, a similar number than last year. Clearly, we are hoping that the cinema revenue could increase because of a normalization of the sector. But I mean, as you remember, this line is composed by several asset contribution and then clearly, there can be mix of performance. In any case, I repeat same line -- same guidance for 2023 in terms of other revenue line. Moving to cost. Clearly, everything was carried out and executed as forecasted. Frankly, we had a very remarkable last quarter performance in cost. When we announced that -- at the last conference call, the guidance was probably seen as too aggressive. But in reality, we were able to maintain our EUR 1.8 million total cost target. And I have to say that it has been difficult, mainly because in this number, you get all the energy cost increase that frankly has been material in 2022. And also all the effects coming from inflation trends that again has been pretty remarkable. So the effort, frankly, has been much more tougher than expected, but we were able to reach our guidance. As far as the nonrecurring cost, we had almost EUR 30 million of personnel layoffs, EUR 21.5 million of write-offs of the radio frequencies. As you remember, we bought the radio activities in 2017. Clearly, that acquisition has been accounted with some of the goodwill accounted in the frequency line. And as is normal, we are carrying out impairment test every year. And the increase of the average cost of capital this year affected the, let's say, the value in use of this activity at the end 2022. We consider it really as a source of accounting, let's say, measurement. In terms of value, we are very happy about the radio activities, very complementary to the TV business and frankly, also over the first quarter of this year, we are -- we are performing much better than the rest of the market in the radio activities, but then I believe question will arise on that. As far as the guidance on cost, we will provide a more accurate and detailed cost guidance once that emerge between Mediaset Espana and MFE will be completed. So over the course of this quarter. But I can anticipate few drivers of the cost trends in 2023. Certainly, programming costs will be flat on 2022. We are expecting a gradual decline of inflation, even if not so material in terms of savings, as you can imagine. We are not expecting any further decrease of cost of energy. So again, also on this side for 2023, we are not really expecting a great advantage in our, let's say, cost line. As far as the integration with Spain, clearly, there will be not so many months to collect savings. But certainly, the work will start as soon as the merger will be completed so that probably savings and integration costs over the course of 2023 will be probably flat or, in any case, neutral. Going down below EBIT line, you can see the performance. I believe that it has been pretty in line with our guidance. Moving to guidance 2023. Clearly, we have a big question mark yet caused by the lack of visibility on the dividend, coming from ProSieben that we don't know anything about. And clearly, I will comment the guidance without giving any kind of indication on the dividend because we don't have any information. Clearly, on the net financial expenses, we are expecting an important effect on interest charges, roughly EUR 10 million higher financial expenses compared to 2022 due to interest rates uplift and because, in terms of net financial position, we are not expecting material changes. Clearly, this calculation has been done without having a number on the withdrawal right that the Mediaset Espana minority shareholders could exercise in the coming weeks. And that's something that clearly will be more -- will be clear, certainly in a couple of weeks' time. On the associate line, again, I remind you, without the ProSieben guidance, we can say around EUR 10 million of guidance. Moving to Page 18 on the CapEx line. I don't think that are very not so much things to comment. Number was in line with our guidance in 2022, and we can confirm that in 2023, the investment line will be flat compared to 2022 in the range of EUR 270 million to EUR 280 million. Lastly, Page 19 on the cash flow. As far as the cash flow, the Italian cash flow was positive for EUR 138 million. Again, this means an amount more than double compared to the pre-COVID level. So the '19 free cash flow, again, a very remarkable number. You can appreciate in this chart, the financing of the voluntary tender offer in Mediaset Espana minority for around EUR 184 million and the increase of the ProSieben stake, as I mentioned at the beginning. And you can also appreciate here the more than EUR 30 million investment in the buyback carried out in autumn. As you can see, we reached a ratio of the group adjusted net debt to EBITDA of roughly 0.9x. And that clearly includes also the dividend distribution paid in September and the voluntary tender offer I mentioned before. And in terms of guidance, we can confirm guidance for the group adjusted net debt-to-EBITDA ratio of around 1x also 2023. Now I hand over to Sara. I believe that Q&A session could start. Thank you. Thank you, and we are yet to answer to your question.

Yes. Thank you very much, Matteo, Marco, and we can now -- we have time to take any questions from the guest.

[Operator Instructions] We will now take the first question from the line of Pierre Andrea Randone from Intermonte. Please go ahead.

Thank you, and good morning to everybody. My question is about the current trading. And if you can provide more color about what you already stated, both in terms of Italian outlook and Spanish outlook? And if you can also comment on the metrics you provided about total audience in order to give us the possibility to gauge the magnitude of the support you can have from this metric.

I thank you, Andrea. I try to address your questions. So first of all, current trading in Italy and Spain. With regard to Q1, we are supported by a positive gross domestic product forecast that is positive and slightly improving over the past weeks, and its relative compared to other European countries slightly better. And these explain the good performance of the advertising overall. We don't have official figures for Q1, but generally speaking is -- the overall market is almost flat or slightly positive. And our performance in Q1, I can anticipate is flat year-on-year, and this should be considered a remarkable result for a quarter that was up plus 2% in Q1 '22 versus '21. And as I said before, the result has been sustained by few factors. The resilience of the Italian macroeconomic indicators compared to the other European countries in terms of the gross domestic product and also the confidence index because honestly, the business confidence index is quite positive. Company's businesses were quite successful in transferring inflation to consumer prices. For sure, we have an issue with low-income households. They need to recover purchasing power, but this is not affecting the overall trend in retail value sales. Then the second thing is the trend of the common money as a positive impact in the advertising market, especially in television. This results is flat year-on-year results -- remarkable results compared to other European countries because we knew from early indicators from January, February that other countries, I mean, Spain, Germany, U.K. and France are suffering from a negative trend in television while, again, a confirmation that TV is central in our ecosystem. And again, the sector dynamics is quite interesting because the probable indicators we had from the automotive sector in Q4 is conferred by Q1. And so we still -- we have a sign-off recovery, a positive advertising trend in automotive that is double-digit increasing Q1 '23 versus Q1 '22. Moving from Italy to Spain the overall market is quite positive, while TV is suffering a little bit more in Spain, generally speaking, the TV market. But -- so we had a tough start in terms of the advertising market performance. But after the first 2 months, the advertising trends started to improve. And in this scenario, Mediaset Spain Q1 performance reflects the market trend. January was quite tough, February a little bit better, and March was definitely a positive progression, so the overall trend for the quarter is around mid-single digit down, and we will comment on that in the next conference call on Q1. And we are looking at the second quarter performance with cautious optimism taking into account that even in Spain, some industries like other ones seems to increase the advertising investment. So with this I hope to have covered your question about carbon trading, then I move back to the question regarding total audience, and I thank you for this question because this is quite crucial for our business perspective. So in the last 4 months of 2022, Auditel completed the total audience measurement, including also connected television in its official measurement. And we are around a penetration of 50% of connected television in Italian households and more than 40% of the TV sets are now connected television. And this trend will keep on growing, of course, because it's a structural trend. And this explains, let's say, the positive trade-offs in Chart #10. Well, for sure, we are facing a slight erosion of the linear audience '22 versus '19 is minus 0.9%. This is specifically for Mediaset because we have a very good performance in terms of share. The overall trend of television is, of course, a little bit more negative. But luckily, we are compensating with the additional audience coming from connected TV and digital screens. And if on average, as we commented in number in Chart #11 is plus 2%, plus 2.3% the value. The added value is really remarkable for younger audiences, central age audiences, so 15 to 34 or 25 to 54 and the good news is that since March, we have included in our standard reporting in the advertising cost valuation. Additional gross rating points coming from second screen live streaming, and this helps a lot. And last but not least, we strongly rely on the positive trade-off in Chart #12 because what does this chart say if we put 100 the average revenue per hour we get from linear television. That is a combination of a higher clattering, the higher number of advertising seconds in our compared to online video connected television, where you have lower advertising cluttering. But thanks to the fact that we are able to command a higher CPM on online video and even higher CPM on connected TV. We have a good -- a positive multiple. -- each hour moving from a linear TV consumption to an online video or connected TV consumption, both live or on demand generates a positive trade-off in revenue. So as far as this combination of quantity and prices stay on this positive net balance, we have a good perspective for our business. Sorry for the long answer, but I'd like to touch on this, and I thank you for the questions. I hope to have answered.

We will now take the next question, it comes from the line of Stefano Gamberini from Equita.

I have a few questions, if I may. The first, you are regarding the guidance on 2023. If I can ask regarding the other revenues, you underlined that you expect a flat trend but a potential upside. Could you give -- add a little bit more color why you expect a flat rent despite than that should improve? And on the other, what are the potential upside on this trend. The second is regarded the OpEx. If I understood correctly that at the end of the day, the guidance or we can say, a sort of flavor that you spent is in the region of a flat OpEx trend around EUR 1.8 billion. The third one, if you can give us a little bit more color on your comment about the presentation of the new CEO in ProSieben and its target for the strategy of the company, mainly focused on digitalization and increase of the downstream platform. And the very last question regarding e-towers. Do you see some changes? Do you feel that now the environment is closer for a consolidation in the tower sector? Or do you see still some obstacles for the merger with Rai Way?

Thank you, Stefano. As far as the other revenue, I mean, as I said, it's a part of several items. So clearly, every items are moving, let's say, without any correlation with the other. Let's say that what we are expecting more in terms of growth is coming from the cinema because clearly, with the pandemic emergency, clearly, cinema revenue almost disappeared. We believe that 2023 will be the first year in which there will be some kind of normality in the cinema, let's say, industry clearly, what we have lost will probably not recovered. But certainly, in terms of like-for-like, we think that 2023 could be higher than 2022. That's the main, let's say, item that should rent, let's say, uplift. Certainly, we have Infinity that performed very well. We are having 1 million subscribers, so clearly much more than the past. But clearly then, we will see how Champions League and content delivery will go on. We can have better for sure, better performance, but I don't know if it's going to be so material. All the other items are certainly moving in a more natural low single-digit trend. So in terms of the euro guidance, I don't think it's going to be so material, as far DAZN is concerned, as you know, we are collecting advertising for them. We have clearly some, let's say, item related to their oriental. So the performance will be more up to them in terms of editorial performance than up to us. In any case, again, I don't think that like-for-like, there will be great differences between 2022 and 2023, except the fact that we are going to play more gains in 2023 than in 2022 because in 2022, we had a workup stop of the Serie championship. So that's, again, another very easy, let's say, events that we can include. As far as OpEx, you are almost right. We are certainly trying to keep everything on a flattish side of last year, but we have several elements that are not depending totally on us. Energy cost is the first inflation is another one. Certainly, the top line performance will also affect cost. As you know, we have, in any case, variable costs connected to revenue. So again, that will affect the total the total cost line. And lastly, as I remember, the new Pan European organization that will be, let's say, put in place after the merger with Mediaset Espana. And again, we are entering almost the second half of the year. So we're not really expecting a big saving coming out of it, but we will start to move. And hopefully, we will have a little bit more visibility once the date of the merger will be sure. On ProSieben, I have not so many comments because, I mean, first of all, we don't have any other information that you don't have in the sense that, as you know, we are not represented in the Supervisory Board, so we don't know anything else than the company is officially staking. Regarding the presentation, I mean, certainly, we appreciated that the focus on the core business, I think was wise. And also I mean we are happy that even after several years of different kind of strategy. If you want, we are a little bit worried about the announcement they made on headcount reduction. We strongly believe that we need to invest more in local, let's say, production content and so activities. But clearly, we don't know the base out to which they are starting. Having said that, without having a base number, it's very difficult to comment. So I believe that you are more or less in the same position. It was a very high-end strategic presentation, but without having the 2020 base, without giving a number on the base, it's very difficult to comment. Lastly, on e-Towers. So frankly, we don't think the mood is radically different. We know that and we read on the newspaper that there were some, if you want, activities under water, but frankly, we prefer to wait official facts rather than comment on leaks in articles on the newspaper. I believe I have answered all your questions, Stefano.

Absolutely. Marco. Just a very quick question, if I may. Regarding OpEx in Spain. Do you have a guidance?

I mean as you have seen in 2022, the Spanish management was able to cut cost a lot. So again, we think that something close to flat could be a good indication. But you have also to remind that it suffers from some audience losses in the last part of 2022. So now audience is back on track. And so we are happy about that. New management is putting in place action to recapture the leadership in terms of audience, but we are also ready to invest more in content -- in local Spanish content in case, let's say, all the actions we are undertaking now will not be sufficient. So let's say, in a normal and present situation, we are okay with, let's say, some flattish kind of trend. But in case needed, we are ready to invest more in content to maintain the leadership in terms of audience on the Spanish market, too.

We will now take the next question. One moment please, it comes from the line of Antonella Frongillo from Intesa Sanpaolo.

Good morning, everyone. I have one question left on the guidance. Could you provide an indication on the tax rate for 2023 for Italy? And I have a follow-up question on ProSieben. How do you see the entry of a new shareholder, at the FS Group in the shareholding structure? If you can comment on that.

Thank you, Antonella. On the tax rate, we are using the natural 27% tax rate in Italy, a little bit less on the 25% on Spain. As you know, I mean, we are paying taxes where the activities are carried out. So we are paying taxes in Italy for the Italian activity and in Spain for the Spanish activities. So these are the 2, let's say, standard tax rate we are using for our forecast. And as far as ProSieben is concerned, I mean, clearly, we didn't know anything about the entrance of the Czech investor. Frankly, we ask them we are not having any relationship with them. So in any case, I believe that a stable shareholder structure. It's in any case better for the company than, let's say, an unstable and flat shareholder structure. Having said that, I believe that the management is fully equipped to deliver value for all shareholders, and that is what we are expecting. And I believe that the Czech inventory is more or less hoping the same. But as far as why, what's their plan we don't know anything. So we just speak with what they declare.

Thank you Matteo and thanks Marco, and thank you guys, for all the questions and for taking the time for the conference call today. As always, we'll be available for any questions or information or you would like to ask. Have a good day. Bye-bye.

That does conclude our conference for today. Thank you for participating. You may now disconnect.