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

Good day, and thank you for standing by. Welcome to the MFE-MEDIAFOREUROPE 2023 9 Months Results Web and Phone Conference Call. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Sara Bersan. Please go ahead.

Good morning, ladies and gentlemen, and welcome to the 9 Months 2023 Results Conference Call for MFE-MEDIAFOREUROPE. Today, the conference will be hosted by Marco Giordani, Group CFO, and Matteo Cardani, Managing Director of Publitalia. I will hand over immediately to Matteo for the audience and advertising outlook. Matteo, please go ahead.

Thank you, Sara. Good morning, everybody. Thank you for your attendance. We will go over the 9 months 2023 results today, starting with the review of the overall economic situation. The events in the Middle East over the last few weeks have increased the uncertainty. But for the time being, the current situation is unlikely to generate a major impact on the market. I'm saying this considering the 3 main factors that are commodity prices, especially energy. Of course, we had a shock last year when we had the war out back in Europe. But for the time being, there are major changes on this factor. The second factor is inflation. Again, last year, we all experienced a major increase in inflation. But until now, the inflation rate for consumption groups in Italy has been decreasing month after month since January, and it's reducing from 11%, 12% at the end of 2022 to 5% in October. And last but not the least, as we can see on Slide #3, business and consumer confidence indexes are still positive. So for the time being, business index didn't suffer any particular impact in October. If you take a look at consumption trends on Page #4, the number related to goods is slightly negative for the first 9 months, while the trend for services remains positive. So the overall trend is still slightly positive. Last but not the least, with regard to gross domestic product, both consumer and trend variations for Italy in Q3 are flat, reducing the forecast for 2023 anyway in the positive field for both Italy, plus 0.7%, and Spain, plus 2.4%. Both countries are better than the average of the Europe area around plus 0.6%. So moving from the macroeconomics in the total advertising market, both in Italy and Spain, the 9 months registered a positive evolution of revenues. Regarding the Italian advertising market, if you take a look at Slide #5, on the left-hand side, you can see the total market registering a growth of 1.3% year-on-year with Q3 at plus 0.4%, benefiting mainly from the growth of media such as radio, digital and out-of-home, with a good resilience of television, mainly compared to the trends in our remaining European countries. On the right-hand side of Chart #5, you see the progression of MFE advertising revenue on yearly basis between 9 months 2020, index returned 100, and 9 months 2023, against the total market and total market excluding MFE. As you can see, there are 2 different trends. Over the past 3 years, we generated a positive gap. And in 9 months 2023, the rest of the market is being [indiscernible]. And we expect, by the end of the year, the gap will rise, returning to the levels of the end of 2022, with 4 or 5 points of positive competitive edge on our side. Then moving to Page 6, you can see the MFE performance in 9 months that is minus 0.8% year-on-year and is absolutely in line with company expectations. Then we move to Chart #7, and we start looking at the main drivers and mainly MFE performance. The balance dynamics remain the economic sector, you see that the majority of sectors, 2/3 of the sectors are growing. And we are, let's say, positively impacted by the automotive sector that is performing well ahead of our forecast with the performance of around plus 20% year-on-year, and this reflects the growth in vehicle registration that is around the same growth rate of plus 20% year-on-year. There is the 24.9% of advertising investments coming from stable or slightly declining sectors like retail, tourism, and toys. And the remaining sectors, over the past 9 months, they were still facing challenges, but the positive signs of growth we have in Q4 are spreading throughout sectors. So food, automotive and pharma are still growing; and retail, media and finance that were suffering before, in Q4 '23, we have already October and November in our hands, are having the growing performance year-on-year. So the general picture of the sector dynamic is quite positive, and this is coupled with a very positive performance in our audience. As you can see in Chart #8, we confirm our leadership of 40.5% total share. This is total audience share in Italy. And this is thanks to the new autumn season with a very strong programming strategy. And please we move to chart -- to Slide #9. You can see what I can say are the most interesting things, because this is really quite outstanding, the fact that we have a resilience in the linear holdings, you see minus 0.7%. So this is the strength of our core programming. But on top of this, we had 2.5% of digital audience, and we delivered a total audience growth of 1.8% versus 2019. So the interesting thing is that we have a good linear audience, a good extended audience of our core programs on digital screens and connected TV. And on top of this, the new thing is that this growth is also supported by a hybrid and digital-first content distribution model on Mediaset Infinity Plus platform, which has delivered very good results over the last few months. For example, we have a TV series, My Home My Destiny, that is a top brand in total time spent on demand. And this series has never been broadcasted on the web channel. So it's a digital-first content, leading the top charts in Auditel TV ratings. And all this strategy delivers to Slide #10 results, where you see the combination of connected TV and second screen keeps adding viewers with a younger profile complementary to the linear TV audience. And we always commented the fact that the younger you are, the higher the CPM you command. And this explains Slide #11 that we have with regards to monetization, the pricing upside opportunity on addressable advertising, connected TV and digital characterized by higher revenue per hour compared to the linear offer. And this is, let's say, what we can say with regard to Italy. Then we move to advertising performance in Spain for the first 9 months. Generally speaking, the advertising market in Spain is performing better than other European countries. The overall advertising trend was positive, plus 2.4%. The TV advertising market is suffering a little bit in the 9 months is minus 2.3%. And as you can see, our performance is totally aligned to the average of the market. Regarding the sectors tendered, again, there were some negative performances in some sectors such as pharma, telco, and beverage, but as it happened in Italy, they are counterbalanced by the growth of sectors like personal care and, again, automotive growing with a double-digit trend. So both in Italy and Spain, the automotive sector is performing well ahead of our initial forecast. As I said, the MFE advertising performance in Spain was minus 2.3%, so in line with Italy, and the result was impacted by the general election called in advance at the end of July and by the political instability that has continued also after the election period. Anyway, the Slide #13 shows our solid leadership on commercial target, in which MFE is still the leader with a 28% share, both across regions. We had some problems on individual targets and which we are still working and solving with a new programming schedule expected for the beginning of '24. The most important results have been achieved thanks to the consolidation between Italy and Spain, materializing all the opportunities in terms of cross country revenue, that only the consolidation process was able to generate. So thanks to that, we were able to reach an advertising share in market higher than our original share with the stronger power region. So having covered, with these remarks, what's going on in the first 9 months, let's now take a look at Q4 and what we can say about the end of -- the closing of fiscal year '23, and initial early indicators for '24. Regarding Q4, in Italy, as stated in the press release a few days ago, advertising collection in October was up plus 8% year-on-year. This is actually the best performance in the month of October registered over the last 5 years and so good results. And November, we're showing a similar progression, and as a result, the overall trend is improving and advertising collection at the end of November is expected to be up year-on-year in the plus 1.0%, plus 1.5% range, so it will be plus 1.0%, plus 1.5%. We haven't got here clear visibility over December. However, we expect to close the fiscal year '23 advertising collection more or less in line with the year-on-year trend we registered at the end of November. So that is to say with a year-on-year trend up in the plus 1.0%, plus 1.5% range. Just to add some color, the rate of Q4 in the Italian advertising market increased by 5% over the past 5 years. Last year, in Q4, the advertising investments were, let's say, concentrated in the month of December because of the Football World Cup. Our understanding is that in Q4 2023, advertising budgets have been partially reallocated from December to October and November. So a bit for the closing of current year. Just a few words about 2024. According to our talks with media agencies, major advertising clients, initial forecasts that have been circulated on the markets in the past few weeks, we all understand that 2024 will have a positive growth year-on-year, thank also, for sure, to the most 2 important sporting event that will drive this growth, so Olympics and EuroCup. Of course, we will not broadcast these 2 sports events. So we cannot assume we will increase our market share in 2024. However, we know that the consensus after our press release on current trading is ranging between 0.5% and 1% year-on-year for 2024, and honestly, at this stage, we don't see any reason why we should not reach the results, assuming, of course, no further deterioration or escalation in the geopolitical scenario. What are the drivers of this good performance in the advertising market? Okay, revenues, I believe, coming from consolidation process. So MFE had the first ever capital funding in September 2021, and international sales force, and we see advertising with results are clear, and we see advertising is able to sell a unique proposition in a platform-dominated market, create access to content and products anytime anywhere, looking for omnichannel experience, and moreover, accelerate the digital development with a local approach for any future growth that we are already implementing in Italy and Spain. On top of this, I do think I strongly believe that if you are a broadcaster, you have to do and invest in strong programming, and this is currently what we are doing. In Italy, TV is healthier than in any other European countries with a total linear TV audience blocked in May, October period. And MFE, thanks to its strong programming schedule, has also [indiscernible] start to the autumn TV season. We are above our competitors in individuals and in commercial targets, and we are continuing to enrich the programming schedule in November and December. And as we commented, we are very satisfied about how digital audience is driving the improving performance of the total audience. So a unique offer in the market with a strategy of selling total video and total campaign that maximizes the total reach of our advertising campaigns. With regard to Italy, I'm closing. With regard to Spain, thanks for your attention. So Q4 in Spain, September and October results were definitely positive year-on-year. We were around plus 4%. And so the combined of the 2 months, and the trend of the 10 months has improved compared to the trend of the 9 months. Unfortunately, as you all know, the complexity of the current political situation in Spain, what happened over the past weeks in November, projected a shadow of limited visibility in the last few months with some uncertainties, in particular regarding institutional advertiser budget. Anyway, we are confident that fiscal year performance will be in line with the 9 months performance. With regard to 2024, as I said, we are working on a new programming schedule that will encompass to sustain our advertising market share in 2024. And thanks to the consolidation between Italy and Spain, we are materializing all the opportunity in terms of the cross-country revenues that only the consolidation process was able to generate. And as said, we have reached to represent share in the market higher than our original share. So in 2024, we'll continue to sustain our advertising market share. So I covered 9 months, Q4, expected closing for the current fiscal year, and the initial expectation for the next year for the 2 countries. So now I will hand over to Marco. Thank you.

Thank you, Matteo, and good morning to everybody, and let's start with an overview of the group results on Page 15. Let me start saying that the first 9 months of 2023 has been pretty difficult from the macroeconomic backdrop characterized by a sharp rise of inflation and energy cost and also interest rates clearly affected a lot our operations. In any case, a pretty strong discipline in cost management allowed us to achieve better or larger savings than forecasted, so that we were able to compensate these multiple headwinds. Clearly, the progress achieved in the integration process has contributed to the cost reduction. Frankly, we were prepared to do the merger, but we were faster than expected in realizing savings, mainly in everything related to technology and innovation, that helped us to increase our profitability and EBIT went up by almost 1%, compensating the fact that revenue, as Matteo was saying, was actually lower than last year. Looking at the numbers, we were, as I said, slightly below last year in terms of revenue. This decline is mainly due to the Spain area in the advertising. Matteo already explained the reason for it. On the other revenue line in Spain, we suffered from some seasonality, let's say, discontinuity comparing 2023 and 2022. So that we are expecting to recover in the fourth quarter to the level of last year on the other revenue. As I said, EUR 98.3 million was the EBIT for the 9 months, as I said, higher than last year. And as I said, this is a remarkable result because clearly, on cost, we've suffered, as I said, for many cost increase coming from the macro element. In terms of net profit, we ended the 9 months with EUR 71 million net profit, a little bit lower than last year. On that number, clearly, we were affected by the Prosieben contribution that all in all was lower by EUR 35 million in 2023 than in 2022. And as I said before, we've got also almost EUR 11 million of higher financial expenses due to the interest rates increase, because as you have appreciated, the level of the net financial position is stable, both on comparing it with the beginning of the year and also comparing it to end of September 2022. Then entering in a major detail. Matteo has already explained the trends as far as the advertising revenue is concerned. We got, on the other revenue line, EUR 17 million less than last year. As I said, that's a seasonality, let's say, effect as we are confirming our guidance to have, for the full year, the same level of other revenues than last year. As you know, this is a pretty, let's say, conglomerate, I would say, line in which many items are contributing. But as I said, we are confirming our guidance for the full year in line with last year. Moving down, and I'm going to repeat a little bit more. But I mean, we generated EUR 98.3 million EBIT. As I said, the integration between Italy and Spain has been a strong contribution in the savings. As you can see, we got, in the 9 months, almost EUR 38.6 million lower cost than last year. It will be less than 2.1% year-on-year. And as I said, let's say, I would like to repeat the fact that in Italy and Spain, CPI was pretty strong, 5.3% in Italy and 3.5% in Spain. So this is minus 2%. It's clearly something that was not expected, and it's also pretty surprising. Integration, as I said, was faster than expected. More than half of the announced cost synergies target has already been achieved, and that's clearly something that helped us in reaching the 9-month result. And in terms of guidance for the full year, 2023 full year, we're taking down the guidance to EUR 2.460 billion, a little bit less than the last guidance. Clearly, we have not yet completed the budget exercise for 2024. Very difficult to estimate the impact of the CPI on our number, because clearly we have a pretty short visibility on that. We are going to complete the integration between the Italian and the Spanish business for the last synergies and to implement also the innovation projects we have in mind. In any case, as Matteo was saying, the quality of content is important in Italy and also in Spain, and so we keep the quality of our spread pretty high also in 2024. In any case, I'm trying to summarize also what I said. We think that 2024 cost base will be flattish on 2023 level with a little bit less cost in Italy and with Spain slightly higher than 2023 for the reason we already explained. Moving then to, let's say, EBIT. Clearly, we can appreciate, on the financial line, the effect of the lower dividend paid by Prosieben in 2023 compared to 2022. That was pretty strong and frankly, not expected at the beginning of the year. But the improvement we got from the operations helped us in maintaining the net profit at EUR 71 million. Associate line. Clearly, it's also accounting the EUR 3.9 million contribution in the third quarter coming from the new consolidation, let's say, technique coming from Prosieben. So EUR 3.9 million is the effect of the, let's say, equity accounting of Prosieben stake for the third quarter 2023. Stepping into 2 geographical areas. Again, in terms of revenue, Matteo has already explained, let's say, almost everything. At the EBIT level in Italy, we registered a better performance than last year, mainly due to the lower cost base. As I said before, the savings in Italy were EUR 28.3 million, almost 2.1% lower than last year, again, and I'm repeating it, more than what the inflation and the energy cost to our accounts. Similar situation in Spain with, again, minus 2.1% in cost that helped to compensate the decline of the other revenue lines that, as I said, will be then compensated in the fourth quarter 2023. Moving to Page 19, CapEx. I mean, in that respect, no big news, we are confirming the guidance, the guidance of EUR 410 million for the group, of which EUR 270 million for Italy and EUR 140 million for Spain. Then moving to investment -- sorry, to cash flow. We closed the 9 months with EUR 413 million cash flow generated. In the line of equity investment, you can see the effect of the merger with Mediaset España with the withdrawal right payment and the cash out for the increase of the stake in Prosieben. And in the incoming dividends, you can appreciate the lower in cash income from Germany. All in all, for the full year, we can confirm the guidance of 1x EBITDA for the net debt at the end of the year. That's a stable performance compared to last year, but it's important to remind that in this number, we are also, let's say, paying out the dividend of EUR 114 million, paid in summer. And as I said before, the investment in Prosieben and the consolidation of Mediaset España, let's say, activities. In practical terms, free cash flow generation was able to cover shareholder remuneration and also investment in development. I think that now it's time for the Q&A session. And so I'll leave the floor to you, we are here to answer your questions. Thank you.

[Operator Instructions] And the questions come from the line of Fabio Pavan from Mediobanca.

I would like to focus on the advertising performance you have recorded in Q4. I was wondering if that is in line with your expectations or above your expectations? And the second part of the question is, it was mainly driven by the good results achieved in audience terms or thanks to your multichannel approach in the advertising sales. So any color would be extremely helpful.

Thank you for the question. So about Q4 performance, honestly, it was a little bit higher than our expectation. We did project a good Q4, but the start of the Q4 was better than expected. And the honest answer is a combination of the 2 main factors that you were mentioning. We benefited from positive audience trends, I mean, generally speaking, in terms of TV audience trends. So the whole medium is in good health, both in terms of linear and digital audiences. And on top of that, we gained audience share in a stable market. And then for sure, the cross media, let's say, selling proposal that we built over the past 3, 4 years was -- it is absolutely let's say, well accepted by the market. And thanks to the combination of a stable linear TV plus a growing connected TV and digital offer plus radio and all our portfolio of media, honestly, is a winning proposition. We always combine also the benefit of the consolidation with Spain. We started, more than 12 months ago, working this together, the Italy and Spain team, and a clear improvement is in the generation of innovation, mainly on the digital side. We have been launching new products in both countries very well accepted by the market. So these are the main drivers explaining a good performance a little bit above our expectation, but not so far from our positive expectations for Q4. So thank you for the question.

The questions come from the line of Andrea Randone from Intermonte.

Thank you, and good morning to everybody. My first question is about your European plans. In particular, about the recent interview to Mr. Stefano Sala, who was commenting rumors about interest also in Portugal or other regions. If you can provide us with more comments on this point, also in light of pretty good results and outlook you commented today, leaving you good resources in terms of financial items? And the second question is about the benefit coming from the integration. Again, if you can provide us with some examples about the cross-selling opportunities? And also, if you can elaborate on 2024 of the continuation of these benefits you can expect at the moment.

Yes. Thank you for the questions. I mean, as far as the first part, so the, let's say, possible investments outside the 2 countries, actually the 3 countries we are covering now, what I can tell you is that we are receiving a lot of interest coming from several geographical areas because of what Matteo was explaining. So the new approach in advertising collection, the new integrated approach is certainly reaching also, let's say, other geographical areas. So we are receiving a lot of interest about the rationale behind the pan-European project we are trying to execute. But in terms of substance, there is nothing. And so, as I said, I'm repeating, a lot of interest, but nothing really operative. So we have nothing to announce in the coming weeks or months in that respect. Regarding integration, as I said, I mean, we were explaining already in spring the rationale behind the integration with Spain. I mean, we disclosed at that time, EUR 55 million benefit coming from the integration, mainly half of it in cost and half in revenue. So regarding cost, the main areas of integration were clearly the technological part. So clearly integrating or using the same platform where in the past, the 2 companies were using 2 platforms. And so that's clearly a process that we were preparing already before the merger together with the Spanish team. So now that the organization is unified, clearly, it's much easier. There is one CTO that is clearly deciding what kind of technology the 2 countries or the 2 regions have to use, and that's clearly the rationale behind the savings. And as I said before, in the cost reduction, there is -- already, let's say, half of the savings that we were projecting in 3 years have already been achieved in less than 6 months, so that's clearly -- the rest of it will be achieved next year, again, faster than expected. As you can imagine, when you're talking about technology, you need to plan, so you cannot really get savings just changing contracts, you need to migrate technology. It's not easy, but, I'm repeating it, we are faster than we projected, and we are also finding that just sharing best experience, we can also get benefit on the EBIT line. Clearly, Spain was much more efficient in specific area. We are importing their way of doing in Italy, and that's also a way to, let's say, not create synergies, but just spending less. That's more or less all. So I hope that I've answered the question and thank you.

Our next questions come from the line of Stefano Gamberini from Equita.

I have 4 of them. The first is regarding the breakdown of advertising from linear TV and addressable TV. You underlined that there is a difference in price of 70%. Could you please give us what is the total share of addressable TV and digital to your total advertising collection? And if you remind us what is the target of advertising from addressable TV in the next years? The second, regarding the audience share, more or less the same trend, you have great benefits from digital audience, we can say. Could you give us an idea of the total number of viewers, including both linear and digital? What is the total number of viewers year-on-year just to understand the underlying trend in absolute figures? Then I have 2 further questions. The first is regarding dividend policy. If I'm not wrong, you have a payout of 50%. Could you confirm this payout also this year? And how you set this, we can say, the base now of the earnings? What I mean is, regarding the consolidation of Prosieben now at equity and not any more through dividends. This will be all included in the base of earnings to set the payout, as well as how you define, like you said, the nonrecurring items in this space? Lastly, my usual question regarding the integration of Ei Towers and Rai Way, do you see some changes? Or do you expect some novelties in forthcoming months?

Okay. I'll start answering the dividend policy question. I mean, I think that our dividend policy target is pretty clear. We said that we are going to distribute at least 50% of the reported net profit, and so that will be, let's say, we go on, we are not fairly changing anything. The contribution of Prosieben net business profit will be then accounted in the full year numbers. Unfortunately, we have no visibility on the last quarter. They are just following what are the guidance from Prosieben. But clearly, we don't know what the contribution will be impact. I'm repeating, we are confirming the dividend policy of at least 50% of the reported net profit on the full year. So whatever [indiscernible] we'll take, 50% of it will be distributed. As far as Ei Towers, Stefano, it's a pretty ordinary question, because every time you are asking it. Frankly, I'm confirming the answer. I mean, there is nothing, in my opinion, a lot of rumors. Sometimes you got some interview on [indiscernible] and that maybe seems to accelerate the process. Frankly, I don't see any acceleration. I'm pretty clear on that. We are flexible. We are ready to do whatever the majority shareholder will take to the table. Clearly, always looking at the value of the investment. And then, I'm repeating, we are not having any other, let's say, element to take to the table, then it is the value. So we will do whatever it is needed to facilitate a yield that, in my opinion, will not decrement shortly, because others are not really so keen in doing it. So that's my answer. And it is what the reality is given to me.

Okay. I'm taking the questions about mix in linear and addressable offer and the audience share trend. Stefano, for the time being, we don't give details and disclose the mix of our revenues and then these 2 segments. Anyway, with regard to audience sales, if you get back to the Chart #9, you have a clear evidence of the contribution of the total audience to the linear audience. So it is adding 2.5% in positive growth rate. The real thing is that the play out from revenue per hour, that is definitely higher in addressable advertising. And so the revenue contribution of digital and connected TV is more than proportional compared to the audience contribution. So it's definitely a positive sum game, because we have a base business with a linear audience with a flat trend, a fast-growing audience in digital, and we monetize this at a better exchange ratio compared to linear. And it is also due to the fact that in digital and connected TV, we can deliver good performance on light TV viewers, so the most difficult audience group to reach, and the market is available to pay a premium price for this added value delivery. On top of this, anyway, our proposition is the total video proposition. So what we are offering is a unique selling proposition, and we are also innovating both in Italy and Spain with new audience measurement tools for post-valuation campaigns and the total contribution. So we are sharing these with top client and top media agencies, and we are going to launch new innovation products in the next future of TV advertising contract in London beginning of December. Paola Colombo, our Chief Digital Officer, is talking about this together with our Spain colleague. So this is the mix that the market is recognizing as a positive mix. So I hope to have answered. I thank you.

The next questions come from [ Marianne Smith ] from UBS.

Just one for me. Just looking at the sector performance, it looks as though there's strength in grocery and autos, slight weakness in telcos and media. And I just wanted to check, at its peak, what percentage of the client base was auto in both Spain and Italy. And the same question for telcos, the media as well, please.

Thank you for your question. They are 2 strategic sectors. Both of them account more or less for 10% each of our total revenue performance. So we are definitely strategic from our point of view, but we are not so dependent on them, and this could be appreciated if you see that over the past few years, when the automotive sector was strongly affected by the sector crisis, we limited the impact on our [indiscernible] revenue. So let me say that, again, our strength is the diversification among sectors and we have a sort of a positive leverage game. So we follow the market. So when we have a growing sector, that we are the first to get, let's say, the positive contribution of this sector. And again, I'd like to say that Spain and Italy from many regards are sort of 2 countries and the fact that the 2 marketing teams are working together, we are ready to get early indicators coming from one country and spread into the other. And so we are, let's say, getting ready to get any sector adjustment. So we had -- just to give you at least 2 weeks meetings together, so taking care of the sector dynamics in order to understand, okay, automotive has get back, pharma is down, fast moving is up, and so we move accordingly, relying also on an integrated database of cross-country revenue across clients and across media. And so we leverage on this in order to develop integration under the perspective of cross-selling opportunities across country and across sectors.

[Operator Instructions]

I think we can close this conference call. Thank you very much, Marco, and thank you, Matteo. And thank you, guys, for the time and for the presentation. And the Investor Relations department will be available for any questions you may have. Thank you. Bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.