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

Good day, and thank you for standing by. Welcome to the MFE-MEDIAFOREUROPE H1 2024 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 first speaker today, Sara Bersan. Please go ahead.

Good morning, ladies and gentlemen, and welcome to the MFE-MEDIAFOREUROPE First Half 2024 Results Presentation. The presentation will be hosted by our group CFO, Marco Giordani, and by Matteo Cardani, Managing Director of Publitalia. Let me hand over immediately to Matteo for the audience and advertising outlook.

Thank you, Sara. Good morning, everybody. Thank you for attending. Today, we will look at our H1 '24 results with a shorter view of ongoing indicators for current trading. I'll start with a review of the overall economic situation in Italy and Spain, which generally speaking, is fairly positive. Inflation indexes show a decreasing trend more or less in both [indiscernible] the overall confidence index. Beyond minor oscillations in confidence indices, looking at consumption trends, goods and services, as you can see in Chart #3, trends are positive in the first half of the year in both countries. Moreover, gross domestic profit is registering a positive forecast for '24 from both Italy, plus 1%; and Spain, plus 2.3% better than the euro area GDP forecast for '24, which stands around plus 0.5%. The overall positive economic scenario leads me to the advertising market trend consideration. Generally speaking, the top 5 European countries are in a positive trend. The market is also positive in Italy, as you can see from chart in number 4. In the first half '24, Italy is plus 6.7% and Spain plus 5.5%, with television doing quite well in both countries. And the interesting thing is that if we exclude the structural crisis of the press, we have seen growth in the combination of media we manage in both countries. I mean, audiovisual, digital, digital out-of-home and so on. So this positive trend in the market derives also from a strong performance in almost all sectors in both countries, in particular, the driving sectors are grocery, automotive also supported by a positive trend of registration of retail and pharma. All these for strategic sectors are experiencing a positive value sales trend in both countries. Moving now to Chart #5, I want to remind the fact that this positive advertising market scenario further increases the efficiency of the MFE cross-media offer, which gives value to the media diversity, combining the resilience and longevity of linear legacy business, TV and radio and growth opportunity in new market segments. This is the main meaning of the picture you see in Chart #5. So the key point is that in order to meet the needs and expectation of both consumer and investor MFE offers the best of both worlds and places itself in the market with a flexible approach and a cross-media selling proposition that develops into directions. A dual approach combining longevity of legacy linear business and acceleration of new market segments and on top of this, exploiting Italy, Spain synergies on top of existing local business relationships to best support customers' internationalization strategies. Therefore, MFE, as you can see in Chart #6 and then 7 separately for Italy and Spain is in the interesting position to offer the possibilities with clients to plan campaign across anything from 1 to 8 media platforms, which achieved a total reach that not over the top 10 offers. As you can see on Slide 6 and 7, MFE achieved a monthly total reach among products higher than Google and Meta in both countries. This is definitely a competitive edge. If we move then to audience results. So speaking about volume and product growth, whichever way you look at it, broadcaster only first screen only, photo screen, MFE is unreplaceable in our customers' media plan. What do I mean? In the broadcaster-only arena, MFE leads in the commercial target audience with a 40.3% share in Italy and 28.4% in Spain. But if we, let's say, a larger perspective look at all individual and include over-the-top estimates, with regards to the first screen only competitive arena estimates based on official data from Auditel and Kantar. The interesting thing is that over-the-top offer accounts on the first screen for only 5.7% in Italy and 14.7% in Spain. This difference can be explained by the different digital penetration and age structure in the two countries. So the OTT penetration estimate for Italy is something below 50%, while in Spain is something above 50%. But there are two strong pieces of evidence. There is a clear over-the-top products of high penetration and less time spent viewing, and this creates a structural constraint on -- as we offer. To make it clear, let's think about Italy. You have probably an estimated household penetration around 45%, 50%, but this delivers only 5% in terms of time spend. And so there is a sort of paradox, the excess of abundance of offer and scarcity of really must watch content. And the second thing that we are all experiences in Italy and Spain and other Western countries is that after the pandemic growth, the rate of growth of subscription with on-demand platform is declining. We are not far from low single digit or even 0 growth rate because customers have definitely entered a stage of over-the-top platform selection. Then I move to -- and you can appreciate the things I just mentioned in Chart #8, 9, 10 and 11. Now I'm commenting on Chart #11, a key driver in building our total video, total audience offer is the strength of our own content production, which supports both linear resilience and digital development. You can see on Slide #11 that through connected TV and digital screens, live and on-demand, our leading programs deliver significant net positive addition from 5% to 30%, 50% and even 100% in best cases, both in terms of reach and audience profile. All these build the foundation of the materiality of our digital offer that is well represented by digital KPI metrics in Chart #12. In terms of total time spent, we are growing double digit. And our volumes are among the highest compared to other European major broadcasters with more than 1 billion hours view in the rolling 12-month period to June '24 and significantly for addressable advertising purposes. Logged-in unique users are over 8 million. Just to give you an idea, the proportion of this data reflects the weight of the two countries, so approximately 2/3 for Italy and 1/3 for Spain. Moving forward in our presentation, this is related to quantity of digital inventory now coming to price and so value leverages. As you can see in the chart, Slide #13, we have a positive multiplier between linear and digital. So each hour of content consumption moving from linear to digital delivered higher revenue per hour. The index is 170 compared to 100 as for linear. And this is explained by data-driven advertising. That is a key element of leverage supporting and sustaining this positive price multiplier. And of course, technology, so that is an enabler for the [ money increase ] and customer acquisition. So final remarks before commenting on the H1 results, there is a key point about the variety of our cross-media offers that, as I said, this produce volumes that are not comparable with our competitors. And this has led to a change in the media mix of our customers, who invest in an ever-increasing number of media -- of our media platform. Advertisers are striving for total reach and incremental reach. And in this regard, the linear part of our business definitely represents a competitive edge in the competition versus over-the-top streaming and video sharing platform. It's not only a legacy of the past, but is a competitive edge for the present competition. In both countries, the advertiser initial experiences with advertising video-on-demand offered by streaming platforms made them aware that they must definitely represent a solid complementary add-on to their planning in terms of reach -- incremental reach and upscale profiles. But nevertheless, until now, nothing can compete with the bulk and the baseline of reach offered by linear media, which when complemented by an addressable offer, build and unrivaled cross-media reach, which we described at the beginning of the presentation. This test for total reach explains the growing trend of cross-media advertising in our customers base. As you can see in the two Slides #14 and 15, you can appreciate that over the past years, MFE clients investing in at least three different media platform has gone from 66% in 2019 to 78% in 2013 (sic) [ 2023 ] in Italy and in Spain, MFE clients investing in free media has gone from 30% in 2019 to 50% -- 70% in 2013 (sic) [ 2023 ]. So they almost doubled. And then let's move now to MFE advertising performing in H1 '24. The overall MFE total result was plus 6.7%, plus 7.2% MFE Italy and plus 5.7% in Spain. So better than the advertising market trend in both cases. And in both countries, the overall result is the outcome of the convenience of resilient trend in linear media and double-digit growth in addressable media. I'll stop here with the H1 review, and I hand over to Marco.

Thank you, Matteo, and good morning, everybody, also on my side. Let's start with Page 18, with an overview on the group results. MFE Group achieved a result that are frankly above any expectation we had at the beginning of the year. Clearly, the progress achieved in the integration process has contributed to the efficiency also through action that has been planned and forecasted last year. All the KPIs are positive in the first half. Total revenue were up almost -- total consolidated revenue were up almost 8% compared to 2023 due to better-than-expected advertising collection, but also an excellent performance in the other revenue. The EBIT level, we grew 13% compared to last year, and the net profit grew by almost 20%. So frankly, a very good performance in the first half that also contributed to the performance of the group net financial position that ended the first half with EUR 554 million debt compared to last year, EUR 115 million better after having, let's say, clearly paid dividends last year and also invested in M&A, as you well known. In the first half, we were able to generate EUR 241 million of cash, really outstanding, frankly, performance. And that clearly the KPI that we must look at. It's really our key rationale for any decision we are taking. Then moving to Slide 19. We are stepping in the operating segment. As far as the Italian business is concerned, the total revenue went up by 8.6%. As I said before, together with the great performance of MFE advertising, we also accounted a very good performance in other revenue. At the EBIT level, Italy registered a very good result with almost EUR 60 million EBITA with an increase of more than 50% year-on-year, total cost better than our budget and fully aligned with the guidance. Clearly, we are managing the cost base with the natural and ordinary efficient approach. You know that we built our strategy to adapt cost also in relation to the revenue evolution. Clearly, the market was better than expected, and we were clearly pushing also on scheduling in order to collect as much as possible this money that the market was granting to us. As far as the Spanish business is concerned, total revenue was up almost 6%. And again, also, this is a combination of good results both in advertising collection and also in other revenue. Total cost was in line with our budget higher than last year. That is clearly due to the decision we already communicated to spend more on the grid. Also to renew, if you want to the grid with new content and adapt also the old content to the new audience and the new, let's say, user request. In any case, we reached a very good EBIT result of EUR 76 million. That is clearly the highest EBIT margin among the European broadcasters. Stepping in the P&L. As we said, we grew 8% to last year more or less -- a little bit more than EUR 106 million more than 2023. And we generated EUR 136 million of EBIT, 13% better than last year. Clearly, basing on these very good and outstanding results, we can reconfirm and recap the guidance for the full year. In terms of other revenue, we are guiding for EUR 430 million consolidated other revenue more or less EUR 330 million in Italy and EUR 100 million in Spain. As far as the total cost for 2024 -- for the full year 2024, we are confirming the guidance of EUR 2.560 billion with plus and minus EUR 30 million, again, linked to how the market -- the advertising market will perform in the second half. If we want to split this number in Italy and Spain, as far as Italy is concerned, we are guiding on the EUR 1.870 billion, again, with a range of plus and minus EUR 20 million. And in Spain, EUR 690 million with a range of plus and minus EUR 10 million again, linked to the market -- advertising market evolution. This guidance also means that also in 2024, we will be able to achieve very good result in the, let's say, financial discipline and in the cost control. You have to remind that, clearly, both in the two country, inflation was pretty strong and we suffer from a pretty high increase in the cost of labor -- the unit cost of labor after the renegotiation of the national contract and maintaining total cost flattish compared to 2023 for us will be really very important, and we are targeting the full year investment direction. Moving below EBIT. Financial charges has been negative for EUR 8 million in the first half in our -- in line with our expectations and better than last year. Clearly, this better performance is due to our cash generation and also that clearly taken a decrease of the debt level. In 2023, in the financial charges line, we accounted also the dividend cash in by -- from ProSieben so almost EUR 3 million. So the differences between 2024 and '23, actually, it's better than what we see in the line and the better performance is of around EUR 5 million. Regarding associates, the line is positive for a little bit more than EUR 10 million, of which EUR 4.7 million is the equity part of the ProSieben reported profit in the first half that you know already since the beginning of August. Net profit was EUR 104.7 million, as I said before, better than last year with an increase of 20%. In terms of guidance, we can confirm the net financial expenses for the full year of almost EUR 25 million. And on the associate line, again, we confirm the guidance of around positive, let's say, number for this line for around EUR 15 million, excluding any impact of the stake of ProSieben as we don't know anything about that. We can only rely on what the management is saying. And so we have to wait for the actual performance to then adjust the guidance. Moving to investments. Frankly, no news on that, more or less in line with last year and also for the investment line, we can confirm the guidance we gave already and despite the enrichment of the programming grid in Spain and the reopening of the cinema activity, we can guide to a total CapEx of around EUR 420 million, of which to EUR 270 million in Italy and EUR 140 million in Spain, lowering a little bit the level of CapEx by almost 10% year-on-year. Last page, Page 22, regarding the cash, as I said, it's where we focus our target, where we work more during our, let's say, operating activities. Free cash flows from activities amounted to EUR 344 million in the first half of 2024, better than last year. Free cash flow was EUR 223 million, again, a very good result. In the first six months of the year, we were able to generate EUR 241 million of cash. And as I said before, that the best proof on how we were able in the first half to outperform our guidance in the first half. Before entering the Q&A session, again, I'd like to remark the ability of the group to decrease the debt level on a like-for-like basis. We still believe that as a shareholder, the most important criteria to evaluate any company is the ability to generate cash. And clearly, the performance of the first half is a good sign of it. The idea in which we built up our strategy is the free cash flow generation of the group need to cover both shareholder remuneration to dividend distribution and also any possible M&A extraordinary projects. So that is where we are driving the company also in the second half of 2024. That's all for my presentation, and we can start now the Q&A section.

[Operator Instructions] And your first question comes from the line of Fabio Pavan from Mediobanca.

Two questions. The first one is on the advertising outlook. Clearly performance has been quite strong in the first nine months. What we should expect for the last few months, lower growth? Or you think the multi cross-media approach could allow you to continue to perform ahead of the market? And the second question is for Marco. Cash flow generation was quite stronger, what is kind of level we should have in mind for the full year?

With regard to our advertising outlook on the nine months based on current visibility MFE group advertising revenues in the first nine months of '24 maintain a trend above expectations, definitely. In fact, notwithstanding the European football championships and the Olympics Game in Q2 and Q3 which were broadcasted by our competitors, the advertising performance of nine months '24 for the group is aligned with the H1 '24 performance. And with regard to our expectation for the last part of the year, let me say that the advertising market visibility in both geographical areas remains low considering the instability of both geopolitical context, okay? And on conflicts in Ukraine, Middle East, moreover U.S. president election in November and the general macroeconomic situations, we also commented on the fluctuations in the confidence in decrease in the both countries. So not negative, but for sure, cautious. Furthermore, in Italy, the last quarter of the year will be compared with strong advertising revenue performance in the same period of 2023. And as we said several times during previous conference call, the weight of Q4 in the Italian advertising market increased by 5 points in the last four years. And so we reasonably do expect under balance and moreover, with regard to MFE Italy in the same period Q4 '23, our performance was the highest and this year, as you know, we will not broadcast. We do not have the rights for the Champions League. So this is not like-for-like counters. I hand over to Marco for the second question.

Thank you, Matteo. Clearly, the full year free cash flow will be highly dependent on the last quarter performance of the two advertising marketing, which we are operating. In any case, our best estimate is to be between EUR 300 million and EUR 350 million free cash flow generation for the full year, consolidated number, clearly and clearly not adjusted. So we have a free cash flow. As I said before, it's very hard to say exactly the right number because revenue performance in the last quarter would be the most important figure to assess exactly where we are going to end the year.

[Operator Instructions] And your next question comes from the line of [ Pierre ] Andrea Randone from Intermonte.

Thank you, and good morning to everybody. My first question is about ProSieben. If you can provide us with an update on what -- I mean, the talks you are with the company -- you have with the company. And I mean, in general, about the process of selling the non-core assets, if you have any news, we are not aware of? And the second question is about Slide #10, you presented, in particular, about the difference between OTT estimate you are reporting between Italy and Spain. In general, the question is we are aware you are running cross-fertilization of projects between Italy and Spain. I mean, where you are at this point, and what we can expect you can do more in the coming months?

As far as the ProSieben question. Frankly, we don't have anything to say because clearly, we are -- we got the message coming from the management that they are going to focus the core business. And clearly, we are supporting that as you know. And they are in the process of disposing to us. That's what the management set to the market. And clearly, we don't have any other information. We are now waiting for results of this kind of strategy, both in the core business. So we hope that the audience can improve following the investment in content -- in local content and on the noncore assets. On the other hand, we are waiting for news in the process of selling Verivox and Flaconi. But I mean clearly, we don't have any other information, the new, meaning the market. The last conference call of the company has been at the beginning of August and all the information we have is that one. So more than that, we can't say anything. Matteo?

Thank you, Marco, and thank you for the questions. So coming back to Chart #10. So these are the first evidence we are collecting in both countries. They are internal estimates but based on official data. So Auditel in Italy and Kantar in Spain, so two different sources, almost comparable, but not exactly the same. One is a joint industry committee. The other one is the commercial company estimate. Anyway, the main differences is in -- as I said, in the age structure of the population. Italy is definitely older as an average age compared to Spain and the penetration of digital devices is higher in Spain compared to Italy. But again, the crazy thing for me is the paradox that -- platforms that have almost 50% of penetration. Household penetration actually delivers such a tiny fraction of the total time spend on the first screen. And this means two things that they are definitely interesting, upscale profile, but they simply represent complement in the communication planning. If you want to build a plan, the broadcaster offer, still is the keystone to build an effective communication plan. On top of this, we are progressing quite good. We are satisfied in the collaboration between the two countries, both in the let's say, marketing offer of total video products. And on top of this, they are based on a common data and technology platform. So over the past year, the two teams are collaborating very well in this.

And the next question comes from the line of Milo Silvestre from Equita.

The first question concerns a follow-up on the advertising outlook. So if you can elaborate on the trend that you see in October. The second one concerns integration with Spain. If you can pass to quantify the synergies that you gained so far on the top line level. And the third one concerns digital. So if you can elaborate on the medium-term strategy on -- and if you see there is for additional investment in order to create more content to let the library grow.

So I'll start from the latter. As you can remember, when we merged Spain with Italy, we declare a guidance of EUR 55 million total synergy level, split more or less half in cost and half in revenue. What we can say is that the one regarding cost will be completed by the end of 2024. You remember, a big part of it has been already accomplished last year. So clearly, the cost integration process will end at the end of 2024. As far as revenue is concerned, clearly, they are coming. So you see already good performance. I believe that the target will be completed in the next two years probably. And frankly, maybe Matteo can also elaborate a little bit more on that. We found other potential, let's say, I wouldn't call them synergies, but I mean certainly, opportunities that the collaboration between the two countries are delivering. So if you want on revenue, we can also say that what has been the clear synergy will be beat in the coming years through, let's say, different commercial proposition and different collaboration. But then I'll leave to Matteo to elaborate more on that and also...

Yes. No, no. I thank you, Marco. I would like to say that the big opportunity, if you take a look at Chart #14 and 15, regarding the increase in revenue diversification in both countries that now we are in the position, thanks to integration to look across our portfolio of clients and media in both countries and we are accelerating in what I call the cross media, cross-country, cross-fertilization. I mean it may happen. It happens quite often that you have the same customer in both countries with different degree of cross-media differentiation and you can leverage on the best practice of country 1 to accelerate cross-media penetration in country 2 and the reverse. The question you raised before is about our advertising outlook for October, the remaining part of the year. The beauty and the difficulty of our market that we operate quite well, but with a limited advertising market visibility, we are receiving early signals from October that are quite good. But again, it's limited visibility. I would like to remind the fact that we should consider the last quarter of the year, mainly for Italy to be compared with a strong advertising revenue we had last year because, again, it was an exceptional result in the Q4 last year for us and also for the market. And we do expect a rebalance of the Q4 weight and we are doing well, but one should take into account that at least for Italy, we will not have the rights of the Champions League. Anyway, our editor is compensating with the investment in content as we did in summer -- during summer because our performance was good also because we kept on investing in our content even when there was the Olympics and the European football championship. Thank you, and I hope to have answered.

Okay. Thank you, Marco, and thank you, Matteo, and thank you all for your time. Investor Relations department will be available for any questions you may have. Have a good day.

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