ProSiebenSat.1 Media SE (PSM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Welcome to the full year 2022 results call. of ProSiebenSat.1 SE. This conference is being recorded. Today's call is hosted by Mr. Dirk Voigtländer. Please go ahead, sir.

Good morning, ladies and gentlemen, and welcome to ProSiebenSat.1 Analyst and Investor Conference Call on the occasion of the full year 2022 results published yesterday evening. Today's call will be hosted by Bert Habets, Group CEO of ProSiebenSat.1. Bert will first comment on the situation at our subsidiary,Jochen Schweizer mydays, and the financial results for 2022. He will then present our dividend proposal for the financial year 2022, our future general dividend policy as well as the new outlook for 2023. As always, the presentation will be followed by a Q&A session. With this, I would now like to hand over to Bert.

Thank you,Dirk, and good morning also from my side, and thank you for joining our call on the full year results 2022. As you might have read in the press release yesterday, the Supervisory Board of ProSiebenSat.1 Media SE has decided on a change in the position of the Chief Financial Officer. Our former group CFO, Ralf Peter Gierig, resigned from his position yesterday by mutual consent with the Supervisory Board. During my time at ProSiebenSat.1, I got to know him as a real capital market expert. Thanks to his profound corporate finance knowledge, the group is financially set in a stable and long-term manner. I would like to thank Ralf for the very good cooperation over the last 6 months and wish him all the best. At the same time, we welcome Martin Mildner to ProSiebenSat.1. Due to his extensive experience in the areas of e-commerce and digitization, he will be able to provide valuable impetus in the transformation journey of our group. I will now start the presentation. As you all know, we had to postpone the publication of our results due to open regulatory questions related to the business of our portfolio company, Jochen Schweizer mydays. I will give you more details on where we stand on this matter in a minute. Let me first start with a quick summary of our development in the financial year 2022. We closed 2022 in line with the expectations published in our updated outlook last October. Without a doubt, last year was marked by macroeconomic challenges, largely due to the war in Ukraine. The related economic knock-off effects influenced the development of our business significantly, especially towards the end of the year, this environment impacted both our advertising business and commerce business and led to a decline in revenues and earnings in the full year 2022. Our group revenues were at EUR 4 billion -- EUR 4.1 billion, while our adjusted EBITDA decreased to EUR 678 million. Despite this challenging market development, we continued our digital push. We acquired the full stake in Joyn, which underlines the direction in which we drive our group. Our streamings platform becomes the center of the digital entertainment presence and the entertainment and lifestyle brand for the whole family in the German-speaking region. This way, we will intensify the transformation of our entertainment business going forward and further improve our growth profile. At the same time, we will maintain strict financial discipline and cost efficiency. At the end of the presentation, I will present our outlook for the financial year 2023. We expect our revenues to grow slightly organically while taking into account the demanding economic environment in the first half of the year. For the second half of the year, we expect the macroeconomic environment to lighten up and recover in line with the current macroeconomic forecasts. Before going into details on our financials, I want to give you an overview on the regulatory matters regarding Jochen Schweizer mydays. As you may recall, ProSiebenSat.1 had to postpone the presentation of the financial results 2022 due to an information received at the end of February based on the results of an external assessment. We had to assume that the business activities of our 2 subsidiaries, Jochen Schweizer GmbH and MyDays GmbH, which mainly consists in the sale of vouchers, full in part under the Payment Services Supervision Act in German called ZAG. A task force comprising representatives from various internal departments and external experts dealt with the matter promptly, but above all, with [indiscernible]. As a result, Jochen Schweizer and MyDays adjusted their product portfolio on March 13 and March 14 by not offering certain voucher products anymore. For example, the vouchers above EUR 250. With this, we address the regulatory concerns, which were mentioned in the ad hoc announcement by the end of February. We are, of course, working on measures to reduce the impact as far as possible. Also, we managed to adjust the product portfolio without causing any meaningful implications for our customers and our partners. In April, the General Federal Financial Supervisory Authority, BaFin, informed Jochen Schweizer MyDays that they do not require authorization from BaFin to continue operating their now adjusted product portfolio. At the same time, Jochen Schweizer mydays are currently coordinating the modalities with BaFin concerning the voucher products that were issued before March 13, 14. While adapting Jochen Schweizer mydays product portfolio and clarifying the regulatory issues, we agreed with our new co shareholder, General Atlantic to take over Jochen Schweizer Mydays stake held by them. Hence, ProSiebenSat.1 now directly holds 89.9% of Jochen Schweizer Mydays. Jochen Schweizer himself continues to have a 10.1% stake. And as of March 31, 2025, we have the possibility to acquire his stake on the basis of an existing put call option agreement. In all transparency, I would also like to let you know that we are currently having an independent internal investigation conducted by an external law firm within ProSiebenSat.1 regarding ZAG. It is still ongoing as we speak. Furthermore, the Munich public prosecutor, the [indiscernible] in Munich has initiated monitoring process. In German, [Foreign Language], for which we are, of course, fully cooperating with the relevant authorities. The possible financial charges for our group in connection with the official investigations cannot be estimated at present, but might be significant. Furthermore, ProSiebenSat.1 has adjusted the accounting method previously applied at Jochen Schweizer MyDays. We thus change from applying IFRS 15 and to IFRS 9. What does this mean? Previously, all revenues, including the expected non-redemptions were recognized at the time of the sale of the voucher. Now revenues from redeem vouchers are recognized upon redemption and revenues from non-redeemed vouchers, to so-called no shows, are recognized as the expiry of their statute of limitations, which is normally 3 years. The adjusted accounting method does leads to a later revenue recognition. As a consequence, we expect a revenue decline in the low double-digit percentage range in the current financial year. In addition, the described adoption of the product portfolio could also have a slight negative impact on the revenue development. These effects, however, have already been reflected in our 2023 outlook, which I will present at the end of the presentation. The change in the accounting method also leads in the retrospective adjustment in the 2021 group P&L, which we have included in the appendix of this presentation. On that slide, you can also see to what extent the P&L has been affected by the changed accounting method at Jochen Schweizer MyDays. In both cases, there were only minor adjustments with regard to revenues and adjusted EBITDA. In addition, the changes in the accounting method led to an increase in liabilities on the balance sheet by applying IFRS 9. This results in a lower carrying amount of NuCom Group and hence, in the reduced goodwill impairment loss compared to the one reported in the third quarter. Now the goodwill impairment loss of NuCom Group for the financial year amount to EUR 122 million. In Q3 2022, we had reported a goodwill impairment loss of EUR 266 million. The difference of EUR 144 million, resulting from retroactive adjustments can also be looked up on the before mentioned group P&L page in the appendix. On 2022 results, which I'll comment on in a second, will also take the before mentioned effects into account. Please note that we are reporting full year results only. Due to the retrospective accounting adjustments, we do not yet have the individual results for the fourth quarter available. All teams were fully concentrating on closing the annual and consolidated financial statements as the highest priority. We will provide the prior year quarterly figures on our corporate website as soon as possible. With regard to the later publication of the annual and consolidated financial statements 2022, will report the figures for our first quarter of 2023 by the end of May. So not on May 11 as originally planned. I will now continue with a review of the group's financial key performance indicators for the year 2022. Group revenues declined by 7% to EUR 4.163 billion in the fiscal year 2022. Adjusted for portfolio and currency effects revenues declined by 5% or EUR 210 million. After a good start into 2022, partially due to COVID-19 catch-up effects, the outbreak of the war in February 2022 has triggered a lot of uncertainty in the German economy and a major energy crisis. This also led to high inflation weakened household purchasing power and a lower propensity to spend by consumers. Over the year, this affected our advertising customers' willingness to invest in the DACH region, especially in the seasonally important fourth quarter where we usually generate a substantial share of our full year advertising revenues. The deterioration of the economic environment also had a negative impact on our commerce business and affected the new group companies. In particular, our consumer advice business of Verivox was negatively impacted by the energy crisis throughout the year. The group's portfolio optimization, especially through the previous disposals of U.S. production business, Red Arrow Studios, Gravitas, Amorelie and moebel.de further contributed to this revenue decline with a net consolidation effect of EUR 218 million in total. With respect to earnings, group adjusted EBITDA declined by 19% in the full year '22. This can largely be attributed to lower revenues of our high-margin advertising business in the German-speaking region. Adjusted net income and adjusted operating free cash flow mainly reflects the negative development of adjusted EBITDA with percentage-wise similar declines. Nonetheless, the group achieved a substantial adjusted operating free cash flow of EUR 492 million and an adjusted net income of EUR 301 million in a difficult overall environment. All this in line with our October 2022 forecast update. Let's now have a closer look at entertainment. As already mentioned, we had a strong start into the year in Q1 with the gradual end of COVID-19 restrictions and the resulting substantial 9% increase in DACH advertising revenues in the entertainment segment. However, the macroeconomic environment became increasingly gloomy over the year due to the war and due to inflation and energy crisis. This translated into a portfolio currency adjusted revenue decline of 4% in the Entertainment segment in the full year 2022 after a flat revenue in the first 9 months. Entertainment advertising DACH revenues decreased by 6% or EUR 119 million to EUR 1.964 billion in '22. Revenues of the content business decreased by 28% due to de-consolidation effects. In July 22, ProSiebenSat.1 de-consolidated the U.S. part of the production business of Red Arrow Studios, which generated revenues of EUR 113 million in the second half of 2021. Already, in November 21, we sold the film distributor Gravitas Ventures, still having contributed revenues of EUR 37 million in the previous year. The distribution business developed well, with growth of 3%. Higher reach and increased HD penetration were the main drivers for continued promising developments. The Entertainment segment adjusted EBITDA dropped by 19% to EUR 563 million, mainly due to the decline of the high-margin business, which could only partly be compensated by program and other cost adjustments. In addition to the decline in revenues, the de-consolidation of the U.S. production business and Gravitas had also an impact. Revenues in the dating and Video segment amounted to EUR 518 million in 2022, representing a decrease of 4%. Revenue performance was impacted by high prior year comparable numbers. Adjusted for currency effects, the revenue decline was 12%. The dating business contributed a total of EUR 274 million to the segment in 2022. The 2% revenue decline is attributable to the general consumer restraint in Europe, which was almost entirely compensated by the strong development in the U.S. The U.S. dating brand eharmony, ranks now as the top-selling brand in our dating portfolio. Video revenues decreased by 7% in '22. This development was influenced by strong comparable figures in the previous year. In '21, the U.S. stimulus program and the restrictions imposed by COVID-19 stimulated the dating industry and especially the use of live video services. This positively impacted the usage and monetization of our video offerings in the U.S. market at a time. Compared to the reporting period before the pandemic outbreak, the segment was growing nicely. The CAGR on a pro forma basis has been 8% per year over the period 2019 to 2022. Revenues of The Meet Group consolidated since September '22 -- '20 are included here in the multiyear comparison on a pro forma basis. Adjusted EBITDA in the dating and video segment totaled EUR 99 million in the full year of 2022. A decrease of EUR 19 million year-on-year, mainly due to lower revenues and operational leverage. By contrast, currency effects had an offsetting impact. Now let's go to Commerce & Ventures. In the Commerce & Ventures segment, revenues were down by 4% to EUR 757 (sic) [ EUR 757 ] on an organic growth basis. The sale of Amorelie and moebel.de in 2021 had an impact on the reported revenue performance. These two assets still contributed EUR 64 million to the segment revenues in the previous year. On a reported basis, revenues declined by 12%. Due to its consumer focus, a large part of the Commerce & Ventures business depends on the overall economic development and consumer spending trends. The inflationary environment impacted later by the war caused the business to be under pressure. Also, the high inflation rate impacted the energy market on which we depend meaningfully with our Verivox online price comparison business Verivox. Secondly, the media for equity and the media for revenue business of 7 Ventures was down versus the previous year, also reflecting the weakening of the advertising market over the course of the year. Both rental car comparison provider, billiger-mietwagen.de and the Experience voucher business, Jochen Schweizer mydays showed a positive development due to lifting restrictions in the context of COVID-19, these businesses benefit from catch-up effects. Against the backdrop of the deterioration of the macroeconomic environment, adjusted EBITDA in the Commerce & Ventures segment decreased to EUR 41 million in the fiscal year, a decline of EUR 9 million compared to the previous year. Let me continue with comments on the financial leverage. As you can see on this slide, the group's net financial debt decreased to EUR 1.613 billion. compared to the end of the previous years despite the dividend payment in May in the amount of EUR 181 million. Compared to December 31, 2019, the level before the start of the pandemic, ProSiebenSat.1 was even able to reduce net financial debt by EUR 633 million. Against this backdrop, the financial leverage of 2.5x also remained within the target range of 1.5x to 2.5x despite the before mentioned increased dividend payment and decline in adjusted EBITDA. Also going forward, we will remain focused on solid financial position. ProSiebenSat.1 uses various debt instruments. In Q2 2022, the Group took advantage of the, at that time, favorable conditions in the debt market and extended its debt maturities. In December '22, ProSiebenSat.1 pre-paid EUR 275 million of its promissory notes issued in 2016 ahead of the stated maturity. These notes were originally due in December 2023. The pre-payment was made available from cash. Following this, the Group has no repayment obligation or need to refinance financial liabilities before 2025. This set, ProSiebenSat.1 is currently financed with two term loans and revolving credit facility as part of a syndicated facilities agreement provided by banks and various promissory loans. Before turning into the outlook, let me first remind you how we want to drive our monetization in the upcoming years. As discussed in our strategy update some weeks ago, we are focusing on digital monetization opportunities in our Entertainment segment in order to optimize and diversify our revenue streams. We optimize our classic TV advertising based on linear TV advertising, distribution and media for revenue and media for equity deals. This remains a strong revenue basis as we can leverage the high pricing power of TV mass reach and our idle inventory. At the same time, we scale our advanced TV advertising products such as addressable TV, programmatic TV or advanced targeting. By digitizing our TV inventory, we achieved higher reach and higher CPMs and thus a better monetization of our ad inventory. And on top, we want to build and expand on new direct-to-consumer initiatives, such as shoppable ads and life interaction. With this in focus, we will be able to monetize our growing digital reach and thus increase the digital share of our advertising revenues. The next slide shows where we stand in this journey. Since 2019, our TV core advertising revenues have been decreasing slightly while our digital and smart advertising revenues are growing double-digits despite economically challenging times. With our focus on digital entertainment and our streaming platform joined in the center, we will drive this digital growth even further. To put it in a nutshell, while we are facing structural challenges in the TV business, the digitization of our business is opening up new revenue streams that will allow us to grow in the Entertainment business segment for the long run. With this, let's have a closer look at the financial year and our expectations. For this, the macroeconomic development within our core markets, Germany, Austria and Switzerland are crucial. At the moment, we continue to see uncertainties here, all tied back to the war in the Ukraine and its consequences. According to the IFO economic forecast of Spring 2023 survey, we see GDP and private consumption to increase substantially as of the second half of this year. The first half of the year continues to be shaped by high inflation and associated consumer strength. On this basis, we thus expect the economic environment in the regions, Germany, Austria and Switzerland to remain challenging for us, in particular, in the first half of 2023. For the second half of the year, we anticipate an economic recovery based on the current data from the economic institutes. This slide shows how we reconcile our reported revenue and adjusted EBITDA figures for 2022 to reflect portfolio and currency effects. Thus, the portfolio and currency adjusted group revenues for the year amount to EUR 4.023 billion, mainly reflecting the disposal of the U.S. production business Red Arrow in mid-2022. The deviation of the adjusted EBITDA of EUR 778 million and the portfolio and currency adjusted figure of EUR 623 million is mainly attributable to the full consolidation of Joyn. These adjusted figures form the basis for our new financial targets for year 2023. Let's turn the page and discuss. As just explained, our 2023 forecast is based on the assumption that our business and in particular, our high-margin advertising business will be strongly impacted by the weaker macroeconomic environment in the first half of the year. However, as an early cyclical company, we are also likely to benefit from the expected recovery in the second half of 2023, as our advertising markets, in particular, closely correlate with the macroeconomic development. Adverse effects on the business that could arise from a further escalation of geopolitical tensions, for example, are not reflected in the outlook. On this basis, we forecast the following results, excluding further portfolio effects. We are aiming for a stable revenue development and anticipate group revenues of around EUR 4.1 billion, with a variance of plus/minus EUR 150 million. Adjusted for currency effects and for portfolio changes in 2022, we are aiming for revenue growth in the low single-digit percentage range. The revenue target is particularly influenced by the development of the entertainment advertising revenues in the German-speaking region. Reaching the midpoint of the target range, we expect total advertising market in the German-speaking region to decrease by around 2% for the full year. For the TV advertising market, including here, we anticipate a decline in the mid-single-digit percentage for the full year. This is expected to be partially compensated by the strong growth of the digital portfolio. We expect the development of advertising markets during the year to be divided into 2 parts. In the first half of 2023, we anticipate a low-double-digit percentage decrease in TV advertising market and TV advertising revenues compared to the previous years. In the second half of the year, by contrast, we anticipate a significant recovery in our important revenue business, parallel to the forecasted in economic development. Against the background of the portfolio changes in 2022 and the anticipated decline in high-margin TV advertising market, we expect an adjusted EBITDA of around EUR 600 million, with a variance plus/minus of EUR 50 million for the full year 2023. These expectations include negative consolidation effects in the mid 2-digit million euro amount from the full year of Joyn -- from the full acquisition of Joyn. First positive effects from a cost reduction program initiated at the beginning of this year are also reflected in the outlook. Since the beginning of the year, we have already been targeting material costs. Now we also start looking at personnel costs. All these effects are included in the fourth quarter of this year and are expected to be in low-double-digit million euro amount with a full -- the full run rate being achieved in 2024. As such, we assume the development of adjusted EBITDA during the year, in line with revenues to be divided in 2 parts. Considerable negative impacts on adjusted EBITDA in the first half of 2023, contrasting with significant catch-up effects in the second half. In the first quarter, our adjusted EBITDA will be in the mid-double-digit million euro amount due to difficult market environment. This is, of course, reflected in our full year outlook. The group total programming costs will amount to EUR 1 billion in 2023, this also includes programming costs for the full consolidation of Joyn. A significant part of the total programming costs will continue to relate to local program, which will also benefit the streaming platform Joyn. Our adjusted net income is mainly determined by the development of the adjusted EBITDA. Furthermore, this key figure is influenced by the financial results and by income taxes. On this basis, we expect adjusted net income for the full year to be in the mid 2-digit million range lower below the previous year of EUR 301 million. The adjusted operating free cash flow is our relevant cash flow management indicator and is on the basis on the development of adjusted EBITDA. Accordingly, we assume that the adjusted operating free cash flow for the full year will be in low 3-digit million euro amount below the previous year of EUR 492 million. We measure the midterm financial success of the company on the basis of ROCE, Return on Capital Employed. Due to the expected decline in adjusted EBITDA, we expect the ROCE in this year to be slightly below the previous year level of 12.4%. In general, we aim for a financial leverage ratio in the range of 1.5x and 2.5x at the end of the respective years. As a result, of the expected adjusted EBITDA phasing for 2023, the leverage factor in the first half of the year is expected to be considerably lower than the level anticipated for the year-end of 2023. As such, when reaching the midpoint of the adjusted EBITDA target for the year, we expect the leverage ratio to be between 2.5% and 3% at year-end. Irrespective of this expected outcome, maintaining a solid financial profile will remain one of the key objectives in financing -- in financial management, the company going forward. We also already talked about this in our strategic update. And I would like to highlight the importance of this framework regarding our digital transformation journey again. We remain committed to our medium- to long-term revenue target growth with 4% to 5% growth. This growth will be driven by our digital initiatives in the Entertainment segment, especially Joyn that will increase the digital share of our entertainment revenues. At the same time, we expect our commerce and dating businesses to return to the past growth trajectory as a result of the operational improvements that we are currently working on. We continue to achieve this growth with sustained high capital efficiency, thus further targeting our ProSiebenSat.1 return on capital employed to be above 50% in the medium term. This shows that we will always be making planned investments against the backdrop of the achievable value contribution and will specifically support those businesses that promise high earnings potential with moderate capital requirements. We also continue to aim for a financial leverage in the range of 1.5x to 2.5x adjusted EBITDA to net financial debt at the end of the respective year. This range enables us to maintain a balanced relationship between attractive returns on the equity and balance sheet strength. The fourth key quarter -- key parameter is our dividend policy, which we decided to adjust. In the future, we will generally aim to pay out 25% to 50% of adjusted net income. Besides the general economic environment, we will, from now on, take into particular focus an appropriate level of financial leverage when determining distributions to our shareholders. And we will also take into account requirements for investments into the business including the realization of strategic growth opportunities, particularly in the entertainment core business. Turning now to our dividend payment for the financial year 2022. We have to consider the adjusted criteria for distributions to shareholders as well as the expected burden business development. Against this backdrop, We, as the Executive Board, together with the Supervisory Board will propose to the Annual General Meeting to pay out a significantly reduced dividend of EUR 0.05 per share. This reduced proposal takes into account that our financial ratio is expected above the upper level of the target corridor at the end of 2023. In this context, I can also inform you that we will hold our Annual General Meeting on June 30. This reduced dividend proposal is in no means connected to Jochen Schweizer mydays. I want to highlight this explicitly. This year, the macroeconomic circumstances as well as the necessary transformation of ProSiebenSat.1, make it rather necessary that decisions follow, sometimes hard and unpopular. This applies to the dividend proposal as well as to the cost reduction programs that we have started. But these actions are necessary to put ProSiebenSat.1 in a powerful and especially future-fit position. We are all committed that 2023 has to be the year we will take decisive steps in order to reach our goals in building highly profitable local -- to build a highly profitable local all-in-one entertainment champion. With our sharpened focus on entertainment, especially our digital portfolio, we will get back on the growth trajectory, as well as to growth of earnings. Now it is all about executing our strategy, and that is what we will focus on. Thank you for your attention. And obviously, we are open for questions that you may have.

[Operator Instructions] We'll take our first question, Julien Roch from Barclays.

My first question is on German-speaking advertising down low-double-digits in the first half. Is that TV only? Or is that TV plus digital? And how much was it done in Q1? The second question is, thanks for breaking down officially DACH advertising between linear and non-linear but you were supposed to give us more KPI to flesh out your new strategy, and I don't see any of those new KPIs in the presentation. So could we get total consumption in minutes in Germany in '21 and '22, with the breakdown between linear and non-linear? And then the last question is -- can you explain what is the investigation on your Jochen Schweizer? I mean, is there a fraud? I don't really understand why there's an investigation now that you have resolved the accounting -- and why could this fine be significant?

Yes. Maybe to start with your first question on the TV advertising market. I think guidance for the year was mid-single digit down for the full year, which is TV only. So we expect to partially offset that negative trend by our increased digital revenue. And you can see in our guidance that we expect a net decline of 2% for our advertising business in the DACH region for the full year. On the second part, we are working still on the KPI set for guiding the streaming video business, which we will share and communicate with you in the second half of this year. I think today, we have shared more insights on digital video advertising revenues and our plans in order to further grow and accelerate that. And this is a new KPI that we will continue to report. And with regard to the investigation, I think this investigation is an internal investigation that has been started by the Supervisory Board and has been fully supported by the Executive Board. First of all, to get a better understanding on how the whole situation around the regulatory issues around Jochen Schweizer mydays, how this could occur? And secondly, obviously, we are also looking into possible consequences and possible wrongdoings or misconduct from the various management layers that are involved.

If you could -- follow-up. So is -- so the low-double-digit decline in the first half, that's TV only, but how much was Q1 down? And then coming back on my Jochen Schweizer question, you mentioned an external investigation, not an internal investigation. And you said the fine could be significant. So I mean what is the potential wrongdoing? Why is there an investigation? And why could the fine be significant?

Yes. Thank you for your questions. I think the first quarter was down 15% in TV advertising markets, so I think that answers your first question. And I think the second question is that we have started an external investigation, as I stated, initiated by the Supervisory Board with the support of the Executive Board. This investigation is ongoing. And it's very early stage to be concrete in terms of whether any fines may apply. There is a risk of fines being applicable and also in the light that we are a listed company, I think we need to be very transparent of the risks involved. So the risk of fines is there and could be significant, but it's at the same time, given the early stage of the investigation very difficult to be more precise on that. Be assured that we have taken a very proactive stance in dealing with all the questions and all the actions that we have been requested to do in order to mitigate all the risks associated to this to the maximum extent possible.

We'll take our next question. Lisa Yang from Goldman Sachs.

I have a few questions more, please. Firstly is on the free cash flow. So based on the midpoint of your guidance, which implies sort of EUR 78 million decline in the EBITDA in 2023. So why would the free cash flow be down by low 3-digit median amount, which I guess implies $100 million to $200 million, how we define it. So what's going on there to justify such a decline in cash flow. And related to that question, you expect the net debt to EBITDA to be between 2.5x to 3x. So if you take the midpoint, 2.7x that implies that you expected net debt to increase a little bit. Despite, I guess, the free cash flow which should still be positive, maybe in the EUR 200 million range. So what's going on outside the free cash flow to basically drive, I guess, an increase in your start increasing the net debt position or lack of improvement in net debt. Then on TV advertising, could you maybe comment on the trends you're seeing now in April and indications for May as well? I -- say you have given the guidance, but just wondering if you have seen any improvement of the minus 16% in Q1 in April and May? And last question, if I may, is you've given guidance of EUR 600 million for adjusted EBITDA for the full year. Could you give us a bit of how you see about the phasing of that EBITDA Q1, Q2 versus H2? Obviously, given the significant decline you might be having in the H1. What is yes -- EBITDA you're still expecting?

Yes. Thank you for your questions. With regard to the first two questions and both correlated to the free cash flow assessment. I think what is important to bear in mind is that we have started group cost reduction program, which has already more advanced stage at the level of ParshipMeet Group but also at Commerce & Ventures, we have started cost reduction plans on the individual assets that we own there. And we have also started to look into a significant cost reduction plan, including personnel costs and the entertainment section. There, we are less advanced. We are in early stage talks with the Works Council. And if you look at the free cash flow assessment for this year, you need to be a reminded that there will be a significant amount attached to restructuring costs with regards to the planned layoffs. I think the second element for assessing the free cash flow for this year is that investments and the cash flow needed for building the new campus next to our current buildings is coming at its peak in 2023, so that will be an additional impact on the cash flow, and there's a minor. But also third element, which is related to our interest payments on our debt, which is linked to the interest hikes in general, but also on our leverage factor. And that's the third element to bear in mind, to explain the drop in free cash flow. If I move on to your TV advertising market question, April and May insights. I think both months continue to be soft also in comparison to last year, we currently see in May an expected low-double-digit drop versus last year. So I think the second quarter of the year is still very challenging, but it's in line with our expectations.

And on the EBITDA saving?

On the EBITDA savings. So what we have done is that we have included in the fourth quarter of the year, low-double-digit saving into personnel costs, into our forecast. I think with regard to -- I understand. So with regard to the phasing, you will see that, as I explained also in my update that given the fact that we will see a very slow start of the year that our budget and our EUR 600 million guidance will be very much backloaded, assuming the economic recovery in the second half of the year.

[Operator Instructions] Matthew Walker from Credit Suisse.

The first question is on the programming cost, you mentioned the EUR 1 billion, is that for P&L or is it for cash flow? And then if you could also give us a figure for the amortization of programming that would be helpful. Second thing is if you could give us some guidance on the non-programming or PP&E CapEx as well. If you could also remind us if you do have any covenants on your debt or on the -- or on the RCF? And then just going back to the question on EBITDA phasing. I think you said something like Q1 EBITDA, mid-double digit. Does that mean it's like EUR 60 million compared to the EUR 123 million that you did in Q1? And then same question for Q2, what are you thinking versus the EUR 167 million that you did last year?

Yes. Thank you for your question. Yes, program costs will be at the mentioned EUR 1 billion and cash expense will be slightly below that number, in the range of EUR 950 million. On your second question, CapEx is expected to come down a little bit given the fact that we continue moving towards local programming costs, and we do not see any other major CapEx investments outside what have already alluded on. And with regards to your Q1 results, the decline in EBITDA is in the range of EUR 50 million to EUR 60 million, mainly as a consequence of the disappointing advertising markets in Q1, in combination with also a negative impact on our venturing business, which is also highly advertising-related. And the third element that explains this EUR 50 million to EUR 60 million range is the full consolidation impact of Joyn. And I think on Q2, it's very difficult to give concrete guidance because of the uncertainty of the ad markets and given the fact that we're just at the very beginning of May, in terms of insights and in bookings.

So just to be clear, that the EUR 50 million, EUR 60 million decline, it's not EUR 50 million, EUR 60 million EBITDA it's basically EUR 50 million to EUR 60 million decline for Q1. Is that right?

No, it is round about the EUR 50 million, EUR 60 million EBITDA decline.

So is it declining to EUR 50 million or EUR 60 million? Or is it basically declining by EUR 50 million or EUR 60 million because obviously, there's a difference.

So it is declining by -- in the range of EUR 50 million to EUR 60 million.

Got it. Okay. And then just a question on covenants.

Yes. There are no covenants in our current credit facilities.

[Operator Instructions] Our next question. Michael [ Wanick ] from [indiscernible].

I have a question on the credit facilities. Thank you for inviting us on the maturities. Could you also give us the average interest rate?

Yes. It's difficult to say given the fact that there are also hedges in place, et cetera. If you want to have more concrete information on that, I would revert back to Dirk in answering that question more precisely. Any other questions?

Adrien de Saint Hilaire from Bank of America.

I actually have one question, which is you've announced a new CFO. I don't think he's on the call, but I'm just curious what his priorities are going to be. Is there going to be a focus around disposals -- and maybe as a follow-up to this, Bert, you gave us an update recently about priorities, putting Entertainment at the core. So I'm just wondering if you've made any progress around potential for asset disposals -- asset monetization.

Yes. Well, as I stated, the new CFO, Martin Mildner has a very experience in capital markets and large M&A transactions, in the area of e-commerce and digitization. So I think both his expertise will be welcomed in our Commerce and Venture business but also in the transformation journey of our entertainment business. He will start in the course of next week. And we haven't agreed on a clear priority setting, but this will all be in line with the new strategic narrative that we have shared with you as well a couple of weeks ago.

And on the respond about the CFO change, is it fair to assume that it's connected around Jochen Schweizer investigation?

Yes, I have the -- what I've shared with you on the leaving of Ralf Gierig is that has -- he has resigned yesterday by mutual consent with the Supervisory Board from his position, and I have no further additions to that.

There are no questions at this time. I will turn the conference back to the speaker for any addition closing remarks.

Okay. Thank you. Ladies and gentlemen, this was the last question for today's call. As always, my colleagues in the Investor Relations team and myself will be available for any follow-up questions shortly. Thanks, everyone, and goodbye.

This concludes today's call. Thank you for your participation. You may now disconnect.