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

Good day, and thank you for standing by. Welcome to the MFE-Mediaforeurope 2026 First Half Results Conference Call and Webcast. [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 evening, ladies and gentlemen, and welcome to MFE-Mediaforeurope Group First Half 2026 Results Conference Call. Thank you for joining us today. The speakers are Matteo Cardani, Chief Marketing Officer of MFE Advertising; and Simone Sole, Group CFO. Let me hand over the media to Matteo, who will take you through the advertising key business drivers of the first half. Matteo, please go ahead.

Thanks, Sara. Good evening, everybody. Thank you for joining us today. So we will begin with a review of our first half '26 results and provide a brief outlook on the key indicators shaping the current trading period. Before discussing our first half performance, just a brief recap of the broader context. The first 6 months of 2026 were shaped by macroeconomic and geopolitical environment that remain uncertain, definitely, with ongoing international tensions and pressures on energy cost. This led to a slowdown in advertising investment, particularly across traditional media. Because in times of uncertainty, in the very short term, performance-driven investments are less affected by cost-cutting tactics compared to brand-building investment. So that is why advertisers remain cautious and increasingly selective in their spending decision. And the market results in a limited visibility and a high degree of short-term volatility. In addition to this general macroeconomic environment, we should also remind the fact that the first part of the year and also Q3, July month, was also influenced by the FIFA World Cup. And I have to remind that the event was carried by other broadcasters different from MFE across all the 3 of our core markets. And these affected audience dynamics and advertising demand during the period, particularly in Spain and Germany where all this engagement around the tournament was especially strong. So simply a reminder of the fact that differently from other European broadcasters, Mediaforeurope did not have any sports rights around World Cup in '26. In the Chart #3, you see that the underlying economic indicators anyway remain broadly supportive. We still -- our experience is growth in consumer spending on goods and services across the 3 markets, a positive gross domestic product growth expectation, from 0.5% in Italy to 2.1% in Spain. Of course, there are some concerns in the 3 countries, and they are increasing concerns over the past months, that the average inflation above 2% could be a constraint in -- for growth of demand. Having said that, in the following chart, #4, you have the slide shows the contribution of each advertising sectors to MFE advertising revenue performance during the first half of '26 across our 3 core markets. So sectors are ranked based on their contribution, and this chart is quite self-explanatory. So you can see the differences across the 3 countries. And the different sector dynamics in the 3 countries partially explain different underlying market dynamics, mainly for the television core business. Moving to, let's say, our business performance KPIs, let's have a look at our audience performance, linear audience performance. Notwithstanding, let's say, all the effects that I mentioned before, our viewing metrics remain strong across all 3 markets. So despite a highly competitive viewing environment, the presence of major sporting events such as the Olympics, the Winter Olympic Games, hosted by Italy, and the FIFA World Cup, audience share levels across our markets remained broadly stable. The average audience share in the 3 markets is around 25%, as in H1 '25. And that means that regarding linear television on a daily reach, we approximately reached more than 70 million viewers. The scale and the quality of our audiences, of course, remain a competitive advantage. And you can appreciate the fact that 25% of audience share delivered an advertising revenue market share of 44% across our core markets. This is with regard to leaner audiences. And in Chart #6, you can appreciate the overall potential of our, let's say, audience platform across linear and digital across media reach. So reaching 190 million users in a month. What drives this, let's say, audience potential, of course, is content strategy, and I'm commenting Chart #7. We do believe in reach with quality -- we do believe in scale, reach and quality, and premium content drives the audience leadership across platforms. Across our 3 core markets, our flagship programs continue to attract large audiences and demonstrate the strength of our national content offering. And as the chart illustrates, our leading entertainment formats and scripted formats generate substantial incremental reach through connected TV, on-demand and second screen [ viewing ]. So thanks to this content strategy, we are significantly expanding audience delivering beyond the traditional linear television. We keep on investing on this content and format that has a high or transformative power from linear to digital net total video perspective. And from a material -- business material point of view, this is the foundation of our MFE Group KPIs regarding digital transformation. In Chart #8, you can have a short synthesis of our key performance indicators in H1. So we continue to strengthen our digital ecosystems across all 3 markets. Overall, our digital propane reached over 32 million viewers in Europe and more than 70 million [ browsers], providing us with a broad audience base that we are progressively working into deeper, more direct relationship. Now we have 15 million monthly logged-in users across the group. And of course, our focus is increasing on product qualified audience encouraging more users to engage regularly with our platform and to become registered, profiled, loyal users over time. And this, of course, will improve our digital monetization. If you take a look at the further KPI, total time spent, compared to the number of total video views, you can appreciate that compared to a plus 3.5% increase in total video views, we are delivering a plus 11% in total time spent. And this is a clear and engagement metrics, because when you have a time spent increase higher than video views increase, it's a clear signal of users' loyalty and content engagement with the premium quality content, I said before. So we confirm the fact that as audience consumption expand across platforms, we continue to benefit from a highly effective monetization model. In Chart #9, we confirm that if we take -- we put to EUR 100 the average revenue per hour on a linear TV hour consumption, our digital and addressable video offering generates revenue per hour index of EUR 178. So this demonstrates the increasing value of digital consumption. And so we are not scaled, but we are accelerating to some extent the gradual shift of audience consumption from linear only to linear plus digital environment. And each additional viewing hour in a digital addressable environment contributes more than proportionately to our revenue generation and profitability. Having said that, I'm moving to Chart #10. So this -- all in all, this is our trend in net advertising revenue, all media in the 3 regions, H1 '26. As I remind at the very beginning, at the opening of this presentation, the first half of '26 was marked by a challenging market environment impacted by international geopolitical context, a continued pressure on the linear TV advertising market, and all the European broadcaster are experiencing this pressure. And on top of this, we have, let's say, the [indiscernible] of the FIFA World Cup that made the second quarter comparatively more challenging for us compared to the Q1. So overall, we closed the first half of the year with advertising revenue of EUR 1.91 million, so down 5.2% year-on-year. So this is, let's say, the short-term perspective. But as we presented and commented on in our fiscal year '25 results presentation, we are strongly committed and we continue to execute our business contact strategy and deliver against our objectives. So we want to leverage our leading local position and progressively build a more integrated and scalable international advertising platform. So having said that, in Chart #11, the last 4 charts are evidence of these strategies going on. First of all, we are building a European platform. And so I confirm that we are strengthening our international advertising proposition. Our international advertising strategy is delivering tangible results. They are actually material, the international ad sales contribution. Early performance has been higher of expectation. There is a solid contribution from new business. And there is a growing interest from international clients and agencies that consider Mediaforeurope proposition real, viable alternative to an international market dominated only by global operators. So here, we are definitely on track or even better than our expectation. Secondly, regarding Chart #13, our digital revenues continue to outperform. We are particularly happy about the pace of our innovation in advertising products and technology. In particular, digital revenues continue to outperform, supported by the growing contribution from connected TV that is growing highly double digit, the increasing adoption of programmatic advertising. We are aligning our ad stack across the 3 regions. And so as a result, across MFE markets, digital revenues increased the share on total advertising revenues year-on-year. So the average growth is double digit. And I mentioned the fact that on a connected television, is highly high double-digit growth. So this is the second positive contribution to our business. The third, let's say, diversification area is the fact that we are expanding into new addressable market segments through the development of our small and medium business proposition. So I'm commenting Chart #14. Italy continues to lead these initiatives, and we are on track or even better than expected. In June, we launched -- we had the recent launch in Spain, and the rollout in Germany is taking place in the next month of October. So we are, let's say, on track with our, let's say, business development plan. Early performance has been encouraging. We are validating the attractiveness of the model across different geographies. And even, let's say, trial and repeat dynamics by new clients is really encouraging. So even if we are, for the time being, at an early stage of development, we will continue investing to further scale the business over time. Last, let's say, good news in this perspective, and I'm commenting Chart #15, in 1 week's time, so next Thursday on September 23, we will launch [ All to One ] Europe. It's the first European linear and digital simulcast advertising offer. So we will be combining the reach of leading broadcasters in Italy, Spain and Germany, across the countries, and we will provide advertising with a very simple -- easy to buy, with access to an audience of 14 million viewers almost in 1 single minute. So 9 p.m., Munich, Madrid, Milan, Italy, Germany and Spain, the same spot will be running across the 3 countries, achieving the highest, the fastest and the most safe and qualitative reach in just 1 single minute. So I want to remark these 4 drivers of our business compass because despite the tough market environment, we are, let's say, strongly committed to deliver our business costs and our business strategy and our plan. So having said that, now I hand over to Simone for the financial part of the presentation. Thank you.

Thank you, Matteo, and thank you, Sara, and good evening, everyone, and thank you for joining us. Let me start by taking you through the main highlights of the first half performance. Despite the challenging advertising market environment that Matteo just outlined for the first half, the Group delivered a significant improvement in profitability, supported by strong contribution from specialty entertainment business and, in particularly, the cost efficiency initiatives implemented across various geographies. Before commenting the key results presented on Slide 17, it's important to remind that year-on-year comparison of the Group first half financial performance is impacted by the change in the Group perimeter in the fourth quarter of 2025. To provide a clear, meaningful view to underlying the operating performance, we decided to have a presentation that compares the first half results with the respective 2025 pro forma figures, assuming, therefore, the consolidation of ProSiebenSat.1 as of January 1 in 2025. After this boring methodological introduction, let me let you through the key financial highlights of the first half results. Group adjusted EBIT reached EUR 146 million, up EUR 153 million year-on-year, reflecting strong operating step-up achieved during the period, which also translated into a material uplift in adjusted net profit, as we will discuss later in the presentation. As you know, the Group now reports its figures based on 2 business segments: Entertainment, our core business; and commerce and dating mainly in Germany. The main drivers of the first half growth was clearly the Entertainment business, where adjusted EBIT reached EUR 164 million, up to more than EUR 100 million year-on-year. The positive development reflects the combination of the operating performance and the progress on the cost efficiency and cost initiatives program. Entertainment costs were reduced by EUR 270 million, reporting almost 10% decrease year-on-year based on the pro forma figures. In addition, the EUR 64 million year-on-year reduction in Group investment demonstrates that the strong focus of the Group in cost and capital discipline during the first half and, I can guarantee, for the rest of the year. From a financial structure perspective, our net financial position for covenant purposes was EUR 857 million at the end of June, showing an improvement of more than EUR 100 million compared to the one in the first of January 2026, before clearly payment of any dividend. Even if H1 2026 showed significant improvement in profitability and our execution on the cost efficiency initiatives, we remain fully focused on delivering against our full year objectives. As we will detail throughout the presentation, the economic and financial performance achieved in the first half provide us with confidence to confirm all our full year guidance in 2026. Now let's move to the Group consolidated main economic results. Following the finalization of the purchase price allocation in relation to the acquisition of ProSiebenSat.1, starting from the first half of 2026, which is exactly 12 months after the acquisition of [ Cointreau], we decided to further improve the group financial disclosure by isolating PPA-related amortization items arising from the ProSiebenSat.1 acquisition as well as 1 of the previous acquisitions or business combinations made by the Group in the past. In line with the market practice and in order to provide a clear view of the underlying performance of the Group, we have isolated all the noncash component related to PPA amortization. We consider these metrics to be the most appropriate for assessing the underlying operating performance of the business. And these are the same metrics we use for our internal reporting purposes. In addition, in the first part of the year, the Group incurred one-off costs in connection with the Pasapalabra proceeding in Spain. Given its nonrecurring nature, we decided to exclude these expenses from the adjusted EBIT to provide, again, a more representative view of the recurring profitability, with the main focus on the entertainment business. The detailed impact of the PPA, including the relevant breakdown, is now available in the back half of this presentation because I don't want to make -- I want to make the best use of your time together with the related impact for the full year. Total net consolidated revenues were EUR 2.95 billion, compared with the pro forma figures of EUR 3.1 billion in the first half of 2025, impacted also by the changes in perimeter occurred in relation to some disposal in e-commerce and dating business. Net advertising revenues were something a little bit above EUR 2 billion, while other revenues amounted for EUR 875 million. On the cost side, also at the Group level, the reduced cost base -- the reduced cost recovered more than proportionally the negative revenue trend. Total operating expense has decreased from EUR 2.6 billion to EUR 2.38 billion, an improvement of EUR 285 million or approximately 10.7%, also including change occurred in ProSiebenSat.1 consolidation perimeter. TV rights amortization [indiscernible] also decreased by approximately EUR 69 million, from EUR 489 million to EUR 429 million, given also the change in the accounting methodology of TV rights amortization implemented by ProSiebenSat.1. As a result, adjusted EBIT moved from a negative of EUR 7.3 million on the 2025 pro forma basis to around EUR 146 million this year, up by EUR 153 million. Below the EBIT, financial losses were broadly stable around EUR 52 million. And conservatively, we continue to expect total interest charges of EUR 130 million for the full year, given also the interest trend in the Eurozone. Associates remained broadly unchanged in H1 and should amount to around EUR 20 million in the full year. At the bottom line, adjusted net profit increased by -- from EUR 7 million on a pro forma basis to EUR 50.5 million with an increase of around EUR 44 million. Let's move to the Entertainment business. Total revenue were EUR 2.37 billion compared to the pro forma figures of EUR 2.7 billion in the first half of last year. I don't want to comment more because Matteo has already commented the net advertising revenues in the different geographies. Let me give just a comment on other revenues that amounted to EUR 377 million, right above the EUR 370 million pro forma numbers in 2025. With Italy, Spain broadly flat, and Germany a little bit benefiting from growth in the SVOD revenues in [indiscernible]. While managing the top line in a challenging advertising environment, the strong progress in profitability was primarily driven by a significant reduction in the cost base. Total costs decreased from EUR 2.4 billion to EUR 2.2 billion, with an improvement of EUR 270 million year-on-year based on pro forma figures. These results show that we are proceeding with adequate speed to achieve our targets, even incorporating also some positive phasing and accounting alignment between ProSieben Sat.1 in the first half of the year. This cost discipline has more than offset the decline in the revenues, resulting in a marked increase -- a marked increase of the adjusted EBIT to EUR 164 million versus the pro forma 2025 of EUR 47.5 million. I have to say that we are bang on track with the cost initiative and the efficiency program. This allows to confirm the ambition guidance for the full year 2026. As a reminder, we expect to have, in 2026, in the entire year, between EUR 120 million and EUR 160 million total efficiency. And we can confirm also the progress in the next years to come. Let's move to investment now. Total Group investment in the first half amounted to EUR 485 million, compared to EUR 584 million on a pro forma basis in the first half of 2025. The largest component remains TV rights [indiscernible] up to EUR 389 million versus something above EUR 400 million in the same period last year. And technical intangible investment amounted to EUR 96 million, compared to EUR 144 million in the compared period. Overall, the total investment were approximately EUR 64 million lower year-on-year. The declining trend in the TV rights, cinema and technical investment is part of our plan of cash efficiencies and initiatives. At the same time, the Group confirmed its main strategic focus to invest in 2 main areas: local content and scalable technology, supporting and preserving the long-term value of the business. So the overall picture is one of lower total investment year-on-year while continuing to protect strategic investments required for the long-term competitiveness of the Group. We are confirming our guidance in Italy and Spain where we aim to achieve around EUR 400 million compared to EUR 337 million of last year. Let me go through the last slide, cash flow evolution and financial position. The Group generated EUR 47 million of free cash flow in the first half, whereby Italy and Spain, cash and generation remains strong. We are close to EUR 200 million, slightly less last year, but I mean, mainly reflecting the advertising market weakness in the relevant countries. We then had EUR 97 million equity investments, including -- sorry, investment and other items, which include the one-off cash impact of EUR 75 million related to the Pasapalabra proceedings. Changing consolidation to perimeter contributed for EUR 38 million, while dividends received and dividend paid has a limited overall impact. For covenant purposes, excluding [ IFS ] and ProSiebenSat.1 net debt, net financial position improved of around EUR 100 million to EUR 800 million, EUR 57 million at the end of June. Overall, as you know, we remain very focused on cash, capital allocation discipline and cost savings in order to further deleverage. On leverage, we can confirm the guidance that provided during the full year presentation, for which we expect in a reasonably fast deleveraging, targeting around 1x net debt-to-EBITDA ratio, this is just for Italy and Spain, in the next couple of years, assuming a stabilization of the advertising market in the coming years. I guess that was the last slide. So I would hand over to the Q&A session now.

[Operator Instructions] And now we're going to take our first question, and it comes from the line of Julien Roch from Barclays.

Yes. I hope your eye is better, Simone. I'll be greedy and I'll ask 4 questions. The first one for Matteo, is can we have TV trends in the third quarter in your 3 markets? And the other one for Simone, so the synergies were much higher in 2026 versus the initial plan you unveiled at the time of the merger. But you've never updated that plan, so higher synergies in '26 means lower in '27 '28. So can we have the extra synergies versus '26 in '27 and '28. The third question is now that you understand ProSieben better, what continue to increase free cash flow outside of cost cutting? How much is free cash flow is in entertainment versus commerce and dating. If you keep only Flaconi and dating, is the free cash flow better? And then lastly, any developments around the Vivendi stake? Are you speaking to them? What might happen here?

Okay. Let me try to answer the first question on finance. So first of all, we remain on our target, EUR 120 million, EUR 160 million synergies and cost efficiencies. The reason is -- there are different reasons, first of all, because still, I mean, there is a strong uncertainty on the revenue side. So we prefer to remain conservative on this. And secondly, because part of the synergy that you have seen in the first half in relation to, as I say, accounting alignment between ProSieben and MFE, especially regarding the TV rights depreciation. So we remain -- we are still there, maybe cash cautiously, but we remain still there. So no changes in the progression of the synergies going forward. To be honest, I don't want to avoid the question in the sense that, clearly, we have estimated a step-up of the synergies and the cost efficiency in the next 4 years. We are not yet at the time in which we can say that the synergies -- the total amount of the synergies and efficiency could be higher than expected. For sure, it will be faster. So I would say that probably they will be front-loaded -- more likely front-loaded than backloaded. Regarding cash flow, what can we do to improve cash flow on ProSieben? You know that cash flow in ProSieben, I mean ProSieben is very fourth quarter weighted in terms of cash flow. So unfortunately, this depends pretty much on the revenue progression throughout the years and the ability to cash in, in the fourth quarter of the -- in the last quarter of the year. What can we do? So for sure, Entertainment is producing cash. Not huge and not, certainly, we are not happy with the present level. No one is active with the present level of cash generated by the Entertainment business. So there is still some work to do. If Flaconi and dating are producing cash, probably you name the only 2 assets that are producing some cash. And therefore, yes, keeping Flaconi and dating helps in a way, but they are not core business. And therefore, let's say, they're not -- cannot be considered an asset of ProSieben, of the Group in the longer term, unless we find ways to extract synergies between Entertainment in these businesses. The last question was regarding Vivendi. Well, I mean, I believe -- I mean, there are no, let's say, stable contact with them. Clearly, there are contacts, very professional. I believe that they are happy shareholders, also because of the dividend that, in the meantime, we distributed. But honestly, there are no other, let's say, for the time being, there are no projects, no industrial cooperation, there are no plans whatsoever. So for the time being, they are shareholders. We manage the company and hope that they are happy being shareholder of MFE.

Julian, I answer the question about TV trends in Q3 in the 3 markets. Let me do one step backwards. Q2 was, of course, tough as expected because in the 3 countries, the World Cup affecting our revenue progression. And of course, the outbreak of the, let's say, the war, the tension between euro and the U.S. affected the initial part of Q2. Regarding Q3, what we are observing for the time being, there are no official market data. They are updated to June, maximum July, but there are no official market data on the trends in Q3. The general pattern we are observing is the sort of stabilization of the trend in the 3 countries. So Q3 is affected in July in the 3 countries for the final stage of the World Cup. That was the most important, with all the most important TV matches with the highest audiences. So July was still tough, but August and September are, to some extent, stabilizing. And so that is why, if I have to do a general remark regarding Q3, given current market indication, we expect consolidated advertising revenue to decline by low single digit year-on-year in Q3. And I anticipate a possible question from other people attending the conference. For the time being, honestly, we have really, really limited visibility on Q4. My general, let's say, general consideration is that while on the one end, in the 3 regions, we have a linear television decreasing low single digit with in, let's say, different degrees in the 3 countries. We are all experiencing in the 3 countries, in the 3 regions, a double-digit increase in digital and connected TV investment in the market, and we are profiting from that. So if we take a total video perspective, the combined balance between the linear TV underlying baseline trend and the growing connected TV plus digital is, of course, better than linear TV [indiscernible].

Okay. A quick -- really quick follow-up, Simone. So if you keep entertainment Flaconi and dating at ProSieben and sell all the other assets, how much free cash flow contribution do you get as they are...

No. First of all, Julien, it's important to say that ProSieben is an independent company. So we cannot do anything. So they have to, let's say, do things. So -- and they're doing a tremendous job in terms of restructuring the company upside down. So to be honest, we need some help in order to restate a proper, say, cash flow generation profile. We need to stabilize the advertising revenues clearly. Because clearly, I mean, now the situation is such for which, clearly, it's very difficult to make prediction. So I would be happy to answer this question once the advertising market in Germany and particularly on ProSieben and stabilized. Now it's very difficult. Sorry about that.

That's it.

But the business is safe. So it's running well. So the engine is a good engine. The problem is that the advertising market, they need some time to, let's say, restructure the company a little bit more. But they're doing a very good job.

The question comes the line of Fabio Pavan from Mediobanca.

First one is on the initiative for a pan-European advertising spot, it would be just like for 1 day or taking from September 23rd? Second question is for Simone, which kind of free cash flow we may expect for the full year when looking just at Italy and Spain.