RTL Group S.A. (RRTL) Earnings Call Transcript & Summary

Good morning, good afternoon, ladies and gentlemen. Thank you for standing by. Welcome, and thank you for joining the RTL Group Full Year Results Call. [Operator Instructions] It's my pleasure, and I would now like to turn the conference over to Oliver Fahlbusch. Please go ahead.

Good morning, everyone, and thank you for joining our analyst call for RTL Group's full year results 2022. The speakers for today's presentation are Thomas Rabe, the group CEO; Elmar Heggen, our Deputy CEO and COO; and Björn Bauer, our CFO. The presentation for this call is available on our corporate website, rtl.com, following the link included in our press release under downloads. The agenda on Slide 2 shows the areas our management team will cover today. And with this, I now hand over to Thomas.

Yes. Thank you, Oliver, and good morning from me as well. In addition to our full year results in 2022 and the outlook for 2023, we'll give you an update on our strategy and growth plans. After that, we're happy to take your questions. Let's start on Slide 4 and the highlights. 2022 was a strong year for RTL Group despite numerous external challenges. Our families of TV channels in Germany, France and the Netherlands continue to generate high operating profit, as did our global content business, Fremantle, which achieved its highest ever adjusted EBITDA. RTL Group's growth businesses, streaming and content, progressed significantly in 2022. By the end of '22, we had a total of 5.5 million paying subscribers for RTL+ in Germany and Hungary, plus Videoland in the Netherlands, meaning that our subscriber base grew by 44% year-on-year. In summer 2021, we announced that we will accelerate the expansion of Fremantle, both organically and via M&A, targeting full year revenue of EUR 3 billion by 2025. We have made a big step towards this goal in 2022. Revenue from our global content business grew by 22% to over EUR 2.3 billion. In total, Fremantle completed 8 acquisitions and step-ups all in major territories and across all genres. To compete with the global streaming services, we remain convinced that market consolidation is necessary and that it will happen in the European TV market sooner or later. Although our larger consolidation moves were blocked by the regulators, we continue to work on scaling up our TV and streaming businesses via small acquisitions, alliances and partnerships. I will come back to this later. The strong results enabled us to pay once again an attractive dividend of EUR 4 per share to our shareholders. I'll now hand you over to Björn, who will take you through the group's financial results in more detail.

Yes. Thanks, Thomas. Good morning, everyone. In my presentation on the financial results, I will focus on 2 key points: first, our solid financial performance despite challenging TV advertising market since March 2022; and second, our active portfolio management and our investment in streaming and Fremantle impacted our income statement and cash flow statement for the financial year 2022. Let's start with a closer look at our key financials on Slide 6. In 2022, RTL Group's revenue increased by 8.8% to a record level of EUR 7.2 billion, exceeding EUR 7 billion for the first time in the group's history. Revenue growth was driven by scope effects at RTL Deutschland and higher revenue from Fremantle and RTL Netherlands. Due to the strong performance of Fremantle and RTL Netherlands, group revenue was up by 1.6% organically and this, despite lower TV advertising revenue from our 2 largest broadcasting operations in Germany and France, which demonstrates the resilience and diversification of our portfolio. Our full year adjusted EBITA decreased by 6% to EUR 1,083 million. This was mainly due to higher streaming start-up losses, which increased from EUR 166 million in 2021 to EUR 233 million in 2022. When you look at our underlying profitability before streaming, our adjusted EBITA before streaming start-up losses remained stable, on the same record level as last year. Group profit was EUR 766 million, after reaching the extraordinary record level of EUR 1.45 billion in 2021, which was significantly impacted by the capital gain from the sale of SpotX. Let's continue on Slide 7. Here, you see the development of RTL Group's total and TV advertising revenue on a quarterly basis. RTL Group started dynamically into 2022, with group revenue and TV advertising revenue both up by 11% compared to the first quarter of 2021. This is important context when we speak about the outlook for the full year of 2022. Since March, the European TV advertising market softened, resulting in a 3% decrease of RTL Group's TV advertising revenue in the second quarter and a decrease of 10% in both Q3 and Q4. In total, our TV advertising revenue was down by 4% for the full year 2022, but still, approximately in line with the pre-COVID level from the year 2019. In 2022, the overall decrease in TV advertising revenue was more than offset by the strong performances from Fremantle and RTL Netherlands, scope effects and positive FX effects. As a result, RTL Group's total revenue was up in every quarter of 2022. Moving on to Slide 8 that puts our operating profit in a longer-term perspective. When you look at our underlying profitability, with significantly higher streaming start-up losses, our adjusted EBITA before streaming start-up losses was EUR 1,316 million on prior year's record level. As we said before, 2022 was a peak year in terms of streaming start-up losses. The adjusted EBITA margin before streaming start-up losses was 18.9%. One of the main reasons for the margin decrease was the first time full year consolidation of Gruner + Jahr publishing business, which was impacted by lower print advertising revenue and significantly higher costs for energy and paper. In addition, Fremantle gained a higher share in the RTL Group business mix. Moving on to Slide 9. And now let's have a look at the items below EBITA down to group profit. In April 2021, RTL Group sold its interest in SpotX to the U.S. ad tech company, Magnite. In the accounts for the financial year 2021, the capital gain from the disposal of SpotX was a key driver for last year's record group profit. With Magnite's share price decreasing in 2022, the effect from the remeasurement of the 12.37 million Magnite shares held by RTL Group was minus EUR 67 million. This effect is reflected in the line fair value measurement of investment. In total, RTL Group recorded capital gains of EUR 107 million in 2022, mainly relating to the disposal of RTL Belgium and RTL Croatia. The group's tax charge came in at EUR 166 million. The significantly higher tax charge in 2021 was due to the taxable capital gain from the disposal of SpotX. The reported tax rate in 2022 of 18% was positively impacted by the recognition of deferred tax assets. Looking now on the next slide, the cash flow statement. Our operating free cash flow was EUR 565 million, while the operating cash conversion rate was 54% in 2022. The lower operating cash conversion rate was due to investments in Fremantle and our streaming business, as well as timing differences and noncash items positively impacting our adjusted EBITA. We continued to actively manage our portfolio, and this is reflected in various lines of the cash flow statement. The line acquisition/disposal of subsidiaries mainly reflects the cash received as part of the disposal of RTL Belgium and RTL Croatia, and the cash paid out for the Fremantle acquisition, Lux Vide, Element Pictures, 72 Films and Wildstar Films. The cash received from the sale of Videoland is reflected in the line acquisition/disposal of other investments, financial assets. The cash effect from the acquisition of Gruner + Jahr, net of cash acquired, is shown in the line acquisitions of companies under common control. Please keep in mind that EUR 210 million for the acquisition of Gruner + Jahr assets were already paid at the end of 2021. The cash flow -- cash outflow for the step-up to 100% in Eureka, a Fremantle acquisition, is reflected in the line transactions with non-controlling interests. To summarize, with a lower operating free cash flow and most importantly, the dividend payment, the net cash increased in 2022 by EUR 29 million. At the end of December 2022, RTL continued to be in a net cash position of EUR 108 million. On the next slide, I will go through the dividend proposal. Our dividend policy is based on the group's full year profit attributable to RTL Group shareholders and adjusted for any material noncash impact. And as you know, we target a payout ratio of at least 80%. In line with our dividend policy, our Board has proposed a dividend of EUR 4 per share for 2022, of which EUR 3.50 represents a dividend of ordinary activities, while the remaining EUR 0.50 relate to the disposal of RTL Belgium and RTL Croatia. The ordinary dividend is thus favorable to last year and demonstrates our intent for dividend continuity. The total proposed dividend of EUR 4 per share for 2022 results in a dividend payout ratio of 94%. And based on the average share price for 2022, this translates into a dividend yield of 9.5%. For the business review, I will now hand over to Elmar.

Thank you, Björn, and good morning from my side as well. For the business review, I will start with RTL Deutschland on Slide 13. In 2022, our largest unit, RTL Deutschland, continued the dynamic growth of its streaming service RTL+. The number of paying subscribers was up 48% year-on-year to more than 4 million at the end of December. The strategic partnership with Deutschland Telekom's Magenta TV and the diverse range of programming on RTL+ contributed significantly to the growth. In terms of audiences, RTL Deutschland reported a combined average order share of 26.8% in the target group of viewers aged 14 to 59, which was up 4.5%. This means our German family of channels increased its lead over its main commercial competitor for ProSiebenSat.1 from 3.5 to 4.5 percentage points. Our main channel, RTL, remains the leading commercial channel in the target group, 14 to 59, while Vox became third amongst the commercial channels in both the 15 to 50 -- the 14 to 59 and 14 to 49 age groups, overtaking their times for the first time on a full year basis. Looking now at the financials of RTL Deutschland in 2022. In the reporting period, the German net TV advertising market was estimated to be down between 8% and 9%, with RTL Deutschland performing in line with the market. Total revenue of RTL Deutschland was up 14.1% to EUR 2.77 billion, driven by the acquisition of Gruner + Jahr and Super RTL as well as the streaming service, RTL+. Adjusted EBITA was down 15.2% to EUR 459 million, mainly due to higher streaming start-up losses and lower TV advertising revenue. With a decreasing print advertising market and increased prices for energy and paper, the acquired publishing business from Gruner + Jahr did not contribute notably to RTL Deutschland adjusted EBITA in 2022. As a result, RTL Deutschland adjusted EBITA margin decreased to 17%. Thomas will provide more detail on the reorganization of the German publishing business in the strategy update. Let's now move to Groupe M6 on the next slide. The French net TV advertising market was estimated to be down 2% compared to 2021. Total revenue of Groupe M6 was slightly down by 2.4% to EUR 1.36 billion, mainly due to the decrease in advertising revenue. Accordingly, adjusted EBITA decreased by 7.6% to EUR 304 million. The adjusted EBITA margin remained high at 22%. The audience of our French family of free-to-air channels in the commercial target group was 22.3%, slightly down by 0.5%. While all the audience share of the main channel, M6, was down in the commercial target group, our free-to-air channels scored the best audience performance ever in the most important primetime slot. Following the merger with TF1, M6 will invest significantly to accelerate the growth of its advertising-funded streaming service 6play. Turning now to RTL Nederland on Slide 15. The Dutch net TV advertising market was estimated to be up by 8.7% in 2022. RTL Nederland's total revenue increased by 10.6% to EUR 636 million, driven by significantly higher TV advertising revenue and growing streaming revenue. This resulted in an adjusted EBITA of EUR 161 million, up 50%, 5-0, from 2021. The adjusted EBITA margin increased from 19% to 25%. The combined Dutch family of channels delivered an audience share of 34.7%, up 0.5 percentage points year-on-year. This audience growth was again driven by the main channel RTL 4, which scored higher ratings with shows such as The Masked Singer, De Verraders and Kopen Zonder Kijken. The increase in audience share was also thanks to RTL 4's current affairs programs in early prime time and the main evening news show. RTL Nederland's premium service, Videoland, recorded paid subscriber growth of 12% compared to the end of December 2021. Turning now to our global content business, Fremantle. Fremantle reported record results for 2022. Revenue was up 22% to EUR 2.35 billion, thanks to scope effects from acquisitions in 2021 and 2022, positive foreign exchange rate effects and organic revenue growth, which was at 7.8%. Accordingly, adjusted EBITA was up 15% to EUR 162 million. One year ago, Fremantle's CEO, Jennifer Mullin, presented the 'boost' plan for Fremantle to become a EUR 3 billion company by 2025 to you. In 2022, Fremantle delivered over 100 scripted productions, including high-end series, daily dramas and 17 films. As a result, Fremantle generated 35% of its total revenue in 2022 from drama and film productions, up from 23% in 2019. I will hand back to Thomas who will take you through the strategy update before presenting the outlook.

Yes, many thanks Elmar and Björn. Let me turn to Slide 18 and strategic framework, which remains unchanged. It's based on 3 priorities: core; growth; alliances and partnerships. Core means investing in premium content, strengthening our families of channels as well as cost and portfolio management. Growth areas are our streaming services, advertising technology and addressable TV as well as content production with Fremantle. And alliances and partnerships span from advertising sales and content production to technology and data. Moving on to Slide 19. Over the past years, we have transformed the portfolio of RTL Group. We've divested a series of small and non-core assets, significant capital gains, boosted Fremantle and built national streaming champions with RTL+ and Videoland. Unfortunately, we did not succeed with two larger consolidation moves in France and the Netherlands. In both countries, the competition authorities did not take into account the speed and extent of the changes in the European media landscape and the impact of these changes on local media companies. Above all, we see these as missed opportunities for us and the European media industry. As I already said, we remain convinced that market consolidation is necessary to compete with the global tech platforms and thus, we remain committed to scaling up our TV and streaming businesses. There are other ways to scale, not in one big step as initially contemplated, but a series of smaller steps, in particular, small acquisitions, such as the full acquisition of Super RTL in Germany, and partnerships and alliances across the areas shown on the slide. And that is advertising, sales and technology, streaming distribution and technology, content creation and distribution as well as data. An important development in the last years has been the increased demand from advertisers and agencies for global ad buying opportunities. to respond to this demand, we combined RTL AdConnect, Gruner + Jahr IMS and the media division of Smartclip to create RTL Ad Alliance, an international advertising sales channel. RTL Ad Alliance is the only European sales house that offers international cross-media campaigns. Its portfolio comprises RTL Group's TV channels, streaming services, radio stations and digital publishing, complemented by the advertising inventory of high-quality partners such as ITV in the U.K., RAI in Italy or NBC Universal in the United States. Another example is advertising technology. Here, we have created an ad tech platform based on the technology developer, Smartclip, which is used by most RTL companies and a series of third parties. And the third example, in Germany, is a distribution partnership with Deutsche Telekom, which has helped to accelerate the growth of RTL+. Moving on to Slide 20. The current macroeconomic environment has put the publishing business under particular pressure, with decreasing advertising and circulation revenue and higher costs for energy and paper. To further strengthen RTL Deutschland's leading position and journalistic relevance, we solidly reviewed our publishing business and portfolio. Following the review, we decided to focus on core brands such as Stern, GEO, Capital, Brigitte and Gala. They account for around 70% of RTL Deutschland's publishing revenue and circulation. All other brands and line extensions will be sold or discontinued. With the reorganization, costs will be reduced by EUR 70 million in all areas, especially in corporate functions, IT and facility management. By 2025, we'll invest around EUR 80 million in the transformation of our strong publishing brands, primarily in paid digital content and services. Looking at the combination of RTL Deutschland's TV streaming and publishing business more generally, fair to say that creates significant value for synergies of around EUR 75 million per annum in areas such as content creation, advertising space, tech and data and corporate functions. Moving on to Slide 21 with some more color on streaming, which remains a growth business for us and both which we have defined ambitious targets. With 5.5 million paying subscribers at the end of December 2022, our subscriber base grew by 44% year-on-year, mainly driven by RTL+ Germany. For the first time, we've included the number of paying subscribers from RTL+ in Hungary. Streaming revenue grew by 20% to EUR 267 million. As you can see on the slide, we increased our content spend by 45% with EUR 304 million in 2022. This translates into streaming start-up losses of EUR 233 million. As mentioned by Björn, 2022 was a peak year in terms of streaming start-up losses. For this year, we expect start-up losses of just below EUR 200 million, and I'll come back to this in a minute with the outlook statement. In Germany, we are gradually expanding our cross-media offer. In August 2022, RTL Deutschland launched the RTL+ Musik app. In addition to video content, RTL+ users now have access to more than 90 million songs from Deezer, one of the world's leading music streaming services. More recently, we added podcasts to RTL+ Musik, followed by a growing selection of audiobooks. Ultimately, we aim to bundle our entertainment offers in 1 multimedia app to provide to our customers a personalized, state-of-the-art experience. We plan to launch this multimedia app in the course of 2023. Overall, RTL is well on track to reach its ambitious streaming targets. By 2026, we plan to double our annual content spend to around EUR 600 million in comparison to 2022. On this basis, we aim to grow the number of paying subscribers for RTL+ and Videoland to 10 million, to increase our streaming revenue to EUR 1 billion and to reach profitability in 2026. Moving on to our global content business, Fremantle, on Slide 22. In 2002, Fremantle completed 8 acquisitions and step-ups in all major territories across all genres, from the Italian high-quality fiction produced by Lux Vide, to the award-winning film and drama produced by Element Pictures, to the documentary producer 72 Films and Wildstar Films. Working with world-class storytellers and partnering with international directors and actors, such as Angelina Jolie, Edward Berger, Salma Hayek Pinault and Richard Brown is key to the success of Fremantle. In the last years, Fremantle has become an even stronger, more creative, more diverse global content powerhouse, both in terms of geographic footprint and output across entertainment, drama and film as well as documentaries. While continuing to look for acquisitions and partnerships, we're now increasingly focused on the integration of the acquired companies in the Fremantle network and on lifting the margins. Finally, I will now take you through the group's outlook statement. The geopolitical and macroeconomic environment remain volatile. The impact on RTL Group's businesses is hard to predict. As of today, we expect moderately decrease in TV advertising market including continued strong growth in streaming and content. On this basis, we expect our full year revenue to increase between EUR 7.3 billion and EUR 7.4 billion in 2023; our adjusted EBITA for 2023 to be between EUR 1 billion and EUR 1.05 billion; the streaming start-up losses to be just below EUR 200 million; and consequently, our adjusted EBITA before streaming start-up losses to be between EUR 1.2 billion and EUR 1.25 billion. As mentioned by Björn earlier, our dividend policy remains unchanged. That means that RTL Group plans to pay out at least 80% of the adjusted full year net results. Based on our current projections, this would result in an ordinary dividend paid in 2024 and 2025, i.e., for the financial years 2023 and 2024, of approximately EUR 3.50 per share, in line with the 2022 and 2021 level. This brings us to the end of our presentation. Thank you for your attention, and we are now happy to take your questions.

[Operator Instructions] We have the first question from Julien Roch from Barclays.

Julien Roch from Barclays. My first question is, could you give us some indication of Q1 ad trends by country? And when you say moderately declining TV market for full year '23, is that for your 3 main countries? Or is there different stats there? My first question. The second one is, I couldn't find a total viewing in Germany which you were giving previously. So could you give that to us for 2022? It was 20.663 billion minutes total last year and 541 million for [indiscernible]. If we could have those 2 numbers. That's my second question. And then the third one is Fremantle revenues in 2023. You basically raised your target. Maybe some color on '23. What's left of the M&A contribution from last year, and organic? These are my 3 questions.

Great. Let me start with Q1 advertising trends, for 3 main territories, Germany, France and the Netherlands. The German market is particularly weak. We see a decline in advertising coming from start-ups, but also from the small- and medium-sized enterprises in Germany. So our current expectation is for advertising, the advertising market, TV advertising market in Q1 to be down by 15% to 20%. The situation is better in France. Here, we expect a slight decline. And it's even better in the Netherlands where we expect a slight growth in the first quarter. So it's a pretty mixed picture. If you take the German TV advertising market and compare it with 2019, it's actually down by 30%. And frankly, there's no good reason for that. So we believe there's a significant catch-up potential going forward. We expect the situation in Germany to improve in the course of the year. And this is also the basis for our planning and phasing, if you like, of our internal budget and so on. So we expect some Q1 to be weak, as I said, Q2 be slightly better also on the basis of slightly less onerous comparables as 2022. And then an improvement in the second half of the year. Modest decline, which is the word we used means that we expect advertising to be broadly in line with what we saw in 2022, so down by minus 3% approximately down.

Yes. So last year, the decline was minus 4%, and we're seeing low single-digit decline, but kind of in that area. And to your other question, that decline is related to our overall portfolio. So the mix between all of the key countries. The next question you had was on viewing time. So when you look at RTL Germany, the total viewing minutes in 2022 were 20.319 billion and the share of nonlinear, 3.4%. And in the Netherlands, just for comparison purposes, that share is 10%. In terms of 2023 outlook, you asked specifically about Fremantle, but I will kind of point us in a broader perspective. As we said before, the market environment is volatile. So the impact is a little bit hard to predict. But the outlook still is for revenue growth of EUR 7.3 billion to EUR 7.4 billion. When you look at all the scope changes, including Fremantle, they even out altogether, so the impact, the aggregate effect is not material. So the organic total growth we're expecting is fully organic, and that organic growth is driven by Fremantle where we're seeing continued healthy demand and trends for the business. The TV business, as discussed, is expected to go down by a low single digit, but this is nearly fully compensated by the growth of our streaming business.

The next question comes from Richard Eary from UBS.

Yes. I've got a couple of questions. Just following on from Julien's first question around guidance. Can you be a bit more specific about streaming revenue expectations? And then you said healthy growth of Fremantle. Can you maybe just elaborate on that? That was the first question. The second question just comes back to streaming. Streaming subs last year were up 44%. Revenues were up 20%. Can you just talk us through the mix issues that you're seeing and when you expect the RTL+ subscription to come in and how you expect that will impact on total ARPUs and whether we see a reversal of sub growth versus revenue growth in '23 and '24? The third thing was just on the working capital, and the cash flow. There was a big working capital outflow, EUR 503 million. I don't know whether you can shed more color on that. I think you said something earlier in the presentation, but I may have missed something. And lastly, Thomas, you talked about consolidation. I don't know whether you can elaborate on your comments on that and say where you're at on conversations with regulatory authorities to see whether there is any positive light that could come through over the next couple of years.

Yes. Thanks for your question. So let me start with consolidation. To be honest, there's little hope regarding the attitude of the regulators. We were the first group to test the regulatory authorities, and their definition of what they call relevant market. We thought we had good arguments to convince them that the broader definition of relevant market beyond TV advertising market was justified. We continue to believe that's the case, but the authorities have taken a very, I'd say, conservative approach. So unfortunately, and I'd say in the foreseeable future, until we see even more structural change in the TV business, particularly linear TV business, and more substitution of TV advertising or other forms of advertising, the regulators are not going to move. And that's why, unfortunately, we'll not be able to make the one big step of consolidation in France and the Netherlands, but now have to go through a series of smaller steps in the areas which I described on advertising, on technology, on streaming, on data content, et cetera. I see significant potential there, because in all these platforms, if you like, for consolidation or for smaller consolidation, steps are in place at RTL. We're probably the only European group to have such platforms. You think about advertising technology, streaming technology or international ad sales network, AdConnect, so we're extremely well placed. But let's not fool ourselves. Even if we're successful on all 8 paths to scale and make significant progress, which we intend to do, this will not be equivalent to 1 big step. But as I said, we've got to accept reality. It's tough, to be honest, but we accept reality, work with it and have defined a new strategy of these series of smaller steps, which we outlined, and will make sure that we update you on a regular basis on where we are, on where we are heading and what we're achieving. Björn, on the other points.

Yes. I will happily answer the revenue assumption question for '23 and also the working capital point. So first on '23 revenue, we're expecting our streaming business to grow revenue by around 25% in 2023 and Fremantle, we're expecting organic growth within the tune of 4% to 7% in line with kind of our previous guidance. In terms of working capital, the cash conversion rate was down in 2022 compared to previous year level. That's kind of driven by an investment cycle we are going through. The drivers are well understood and primarily relate to our investment in streaming, on the one hand, higher CapEx, on the other hand, buildup of inventory for program rights, for example, for fiction and other products. The other driver is the growth of the business of the organic growth of Fremantle in particular here, the SIM and scripted business where we also had a number of timing effects, but we expect this trend to reverse in '23, and expect both a gradual return to higher cash conversion rate that we've seen in the past.

And briefly on the streaming business, I mean Videoland and the Videoland metrics, we're already in a pretty good shape, right. We have 1.2 million subscribers, all of which are owned and operated. And they come at attractive ARPUs with low churn rate and thus attractive and increasingly attractive lifetime values, when we'll almost break even if you strip out some of the cost related to the migration of the Videoland platform on to the Bedrock platform, which we operate together with M6. If you look at RTL Germany, well, a slightly different situation there. We have significant momentum in the subscriber growth, as we explained. We had 4 million subscribers at the end of last year. We see continued momentum in the first months of this year. We have a very strong distribution partnership in Germany, which we don't have in the Netherlands. So Germany, it's with Deutsche Telekom, and approximately 50% of the RTL+ subscribers in Germany come via Deutsche Telekom, which I think is a healthy mix. What we need to do at RTL+ in Germany to become profitable is pretty straightforward, conceptually much harder, of course, in practice. We need to continue the momentum on subscribers' growth -- subscriber growth, increase the revenue per subscriber and we're making a significant step there in Germany with price increases, significant price increases, which we announced a few weeks ago. We're going to expand our content offer on RTL+, as I mentioned, from video to audio and text, which we believe will make the service even more attractive. And above all, we'll widen the relevance of the addressable market for our service. And we'll have to offer significant investments into our technical platform, optimize our technical cost of the platform. So we have a very detailed plan at RTL+, which we are in the course of fine-tuning with the heading past the profitability. And at least 4, 5 or 6 key KPIs and performance indicators, which we're monitoring very, very closely to get us to profitability and decent margins in the time frame, which I explained.

Can I just ask just a clarity question on the working capital? How do we think about that as we go into '23? I presume are we still going to outflow because of content investments in Fremantle [ vision to scripted ]. But what magnitude are we expecting in '23?

Yes. As I said earlier, we are expecting a gradual improvement of the cash [ flow ] rate in 2023, going to I would say levels of at least 70% to 80% in 2023.

But as Björn explained, I mean, historically, RTL's cash conversion rates were approximately 100%, which is great, but not necessarily a sign of growth of the business. Right? So the growth of our businesses, Fremantle and streaming, which, to a very large extent, organic growth, in particular, I mean streaming, mean that we consume a bit more working capital. I mean it's just if you think about CapEx for the streaming services, we are investing in CapEx to build a platform to increase and improve customer experience. So we almost had a peak there this year, in particular for the multi-purpose app in Germany. And at the same time, we're investing in content, as we said, and therefore, it's at a slightly higher content inventory. So think about at least part of the lower cash conversion rate to be an investment in the transformation of RTL and the organic buildup of new businesses, which, if successful, will create significant value for the shareholders.

The next question comes from Conor O'Shea Other from Kepler.

3 questions from my side as well. First question, just on the Dutch business. I understand there was a bit of a later catch-up post pandemic. There was tiny growth initially last year, but that seems to be continuing again this year. So can you just give a little bit of color why there's such a markedly improved performance there versus some of your other regions? I would have thought there's a much bigger nonlinear market. So can you explain what's going on there? Second question on the distribution revenues. I think according to my calculations, it was down about 7% year-on-year in Q4. So just wondering what's going on there. And if we should factor in growth -- a return to growth for 2023? And then the third question, just on the synergies. The EUR 70 million Gruner + Jahr by 2025. Can you give us an idea that -- are you expecting them to be back ended, the timing? And realistically, are those savings going to be partly or even fully offset by advertising declines in the print business in the meantime?

Okay. Let me start with Gruner. Elmar will then take the question on RTL Netherlands, and Björn on distribution revenue. So the synergy target for RTL and Gruner, EUR 75 million. Last year, we achieved EUR 30 million. When we initially announced the deal, the synergy number was slightly higher. It's now a bit lower, and that's due to the market situation in Germany, and it's due to the fact that we are effectively divesting or discontinuing 30% of the Gruner title portfolio. So we should get to the EUR 75 million mark by 2025. And the share of cost synergies will be significantly higher than in our initial plans, which I think is good news because we all know that cost synergy is somewhat tangible than revenue synergies. And part of the savings, which we're going to make as a result of restructuring the publishing business, EUR 70 million actually comes from full integration, for example, of corporate functions, IT, data, et cetera, between RTL and Gruner, which we didn't progress sufficiently on until now, so there's potential for more. Björn on distribution?

Yes. So as you pointed out, the distribution revenue on a reported basis is kind of stable versus last year in terms of a small increase of EUR 1 million. But keep in mind the previous year still had RTL Belgium and RTL Croatia with the distribution business included. So if you strip out the scope effect on an organic basis, for the full year distribution revenues actually grew by 4% and that growth was driven by RTL Germany. I mean you look specifically at Q4, there was indeed again on a reported basis, a decline. But again, fully compensated by these 2 scope effects. And on an organic base in Q4 was also around stable. But again, I think the important view is on the full year basis where they continue to increase by 4%.

Okay. Elmar?

Yes. As we mentioned earlier, we have seen a very robust and strong TV advertising market in the Netherlands throughout the course of 2022, with an expected market growth of 8.7% as we mentioned earlier, and RTL Nederland even outperformed that market growth. We believe that there are 2 sectors that we'd like to draw your attention to, the first one being the retail sector. There has been fierce competition amongst retailers. But there has been also a significant advertising around gaming and betting opportunities. That continued to be strong also in the first quarter in 2023, but we all know that these opportunities will cease to exist going forward. But probably it has helped to show a strong advertising income in the first quarter.

Yes, so due to regulation on betting which, unfortunately, betting in the Netherlands, was probably accelerated advertising for betting in the run up to the regulatory ban, but unfortunately, this phenomenon will disappear after regulatory...

And just a reminder, the regulatory ban kicks in when?

Currently, 1st of April.

1st of April. Okay. And do you have any idea of what proportion of the client base it is running at, at the moment in the Netherlands?

I can't give you a very precise figure as we speak. I would need to come back to that. We don't have a good enough figure as we speak.

Yes. And we don't really disclose advertising by segment, by customers for all sorts of reasons. So I don't think it's -- I don't think we want to disclose that number to be honest, but it's not insignificant. And it will lead to a normalization of the Dutch TV advertising market and the growth in 2023 versus 2022.

[Operator Instructions] We have a follow-up question from Mr. Roch.

Since there was no more questions, I'm coming back with another 3. So on streaming, thank you very much for the guidance of it's going to be around 25% in 2023. So it's upward 25% on EUR 267 million, I get EUR 335 million. And then because we analysts would use a ruler to do forecasts, if I put 25% growth in '24, '25, '26, I only get EUR 650 million and your guidance is EUR 1 billion. So we're expecting significant acceleration in '24, '25, '26 for streaming. So can you explain why that is? Is my first question. And then the second question is how much was TV advertising down in Germany in full year '22? And on what basis, you're going to give me the number, is that including RTL 2 or excluding RTL 2?

Well, I mean, first, the subscriber number we're aiming for, the 10 million is end of 2026, so there's a ramp-up until then. And then frankly, we're forecasting a significant ARPU increase in Germany, which is relating -- which will kick in, in the course of this year, but will not have a full year effect. And that increase is related to 2 factors. The first is a price increase, which we are currently putting in place for our video service. The most -- the main kind of video offer we made or the one which is most demand, is currently at EUR 4.99. We're increasing the price to EUR 6.99. That will kick in -- this will kick in, in the course of the year. And the second impact in Germany will be the MPA, the multipurpose app, comprising video, audio and text. And that, if it works, will drive ARPU very significantly. But as said, the MPA will be launched in the course of this year. So let's say, around summer -- before or after the summer break. So you'll not see the full year impact in 2023, but you will see it, if successful, in the subsequent years.

The second part of the question?

No, that I think was the question, why we -- I mean we're seeing kind of 25% growth this year and then an acceleration to get to EUR 1 billion in 2026. And I think well that's the 2 reasons I explained. Germany, I think, are part of the explanation.

I think, Julien, you had a second question if you don't mind?

Oh yes.

Yes. What was the historical growth or the actual growth of German TV advertising for RTL in 2022?

Our advertising Germany, minus 8%, '22.

And that's for you or that's for the market?

No, that's us. We think that this is in line with market. We lost a bit of market share in the first half of the year. We regained that market share in the second half of the year. We outperformed our commercial rival in terms of audience, as we explained, with a 4.5 percentage point audience delta between us and ProSieben. So there's a bit of catching up in the second half of the year. And then in a very soft Germany TV advertising market in the first quarter, so in January, we gained market share. But for 2022 assume that the minus 8% is…

8% to 9%.

8% to 9% is our number and it's also the market number.

And that includes RTL 2 because you were specifically asking.

Yes. Yes, absolutely. Absolutely. Yes, that's the way we always report these numbers consistently. And you can compare them on a year-by-year basis.

Next question comes from Stephan Simmroß from Simmross Capital.

Also one question from the investor side. So just a small question on 1 balance sheet item. The loans and bank overdrafts went up almost to the level of the cash and cash equivalents. Was this due to pending prolongation at the reporting date? Maybe you could say a word or 2 to this item.

Yes, just a second.

I mean the net cash position at the end of the year was EUR 180 million. We have EUR 500 million of kind of a long-term financing in place, that is kind of -- that is due in beginning of March, and that's why there was a reclassification from long-term liabilities to short-term liabilities. And I think that, that maybe kind of caused some, yes, confusion there on the changes. We did, in the meantime, and that was kind of also reported part of the subsequent events. We did prolong that external financing at stable rate, EUR 200 million for 3 years and EUR 300 million for 5 years.

Reclassified short term, long term. Long term, short term?

We have another follow-up from Mr. Eary.

Just trying to understand the streaming numbers and the content spend for '23. So if streaming revenues are going up by 25% from EUR 267 million towards call it EUR 335 million, and you are essentially reducing your losses to less than EUR 200 million. So you're making a saving of EUR 135 million if you get it to below that. And there's content increasing in terms of spend because you are now projecting from EUR 300 million to EUR 600 million. That would suggest the other OpEx in the business is coming down. Is that -- can you just explain why that is? And what's happening on the other OpEx? Is this just because of marketing and tech and [ martech's ] start-up costs that we should expect to come out, and that's what's going to be driving the operating leverage in the streaming business? So that would be helpful just to get some color.

Absolutely. I mean, first of all, if you look at our streaming numbers, they cover all streaming businesses in all territories. So at minus EUR 233 million last year, we'll be below minus EUR 200 million this year. And 1 factor is that we discontinued the streaming service in France, Salto. Right? And so that eliminated the start-up losses in France. And at the same time, we are reducing -- slightly reducing the start-up losses in Germany. And that is, to some extent, due to technical costs, which will go down in 2022 and also marketing expense. The content spend will continue to increase as we see this as a little bit significant and important driver for subscriber growth. Having said this, we now have much, much better data in Germany and also in the Netherlands on the content that actually drives inflow and drives usage, i.e., prevents churn, which means that we will, on the basis of that data, be able to make much and better informed content decisions and really focus on the content genres, which are particularly attractive and the metrics, which I just outlined. So a combination of factors really have to go through the P&L of the streaming businesses country by country, and then strip out Salto and then look at the different cost items to give you a better explanation. But the headlines are the ones I mentioned.

And there's no other revenues that are booked within the streaming business? It's literally the EUR 267 million in streaming revenues minus the EUR 233 million of losses, which is therefore EUR 500 million of costs of which you've said EUR 304 million of that is content, so there's EUR 200 million-odd that is sitting there in other costs?

Absolutely. Yes. Absolutely right. It's exactly the right way of looking at it. And then one additional element, which Björn just mentioned, is that we launched a streaming service in Hungary, right, that kicked in, in the fourth quarter of last year. It's relatively small, but it will grow in the course of 2023 also on the back of higher investment.

And our last question for today as a follow-up is from Mr. O'Shea.

Just one follow-up question, if I could. I might have missed the comment at the start. But, Thomas, when you said that you're going for small steps on consolidation around the deal in France, which was blocked, of course. You also looked into an alternative straight sale. And I think there were at least 3 bids in there, at double the share price at the time. You called out also signing the short deadline versus the renewal of the DTT license. But can you just talk us through sort of the thinking about that, as to why -- whether other factors evolved as to why you decided not to follow through that process?

Yes. Okay. Well, let me take you through the sequence of events and the time line, because it was pretty dynamic last half year. So the competition authorities informed us about their decision in October. The decision interestingly was not to say we blocked the deal. But their decision was to say, you want to combine TF1 and M6 on the basis that you either sell TF1 or M6. I mean, okay. So that's -- I mean that led to the obvious conclusion not to go forward with the deal. And we were then, as I think I put it at the time, inundated with offers or expressions of interest to acquire our share. So it's not the case that we actively -- sorry, that we actively went into the market. We received a series of expressions of interest and just felt that it was our fiduciary obligation to test the appetite and, of course, also the attractiveness potential and offers and then to decide whether we wanted to go on with them or not. And the problem is, and you rightly pointed to this, the deadline for the submission of the applications for the license renewal of the main channel, M6, was mid of January. And based on our assessments, but also conversations I had with the heads of the media authorities and the competition authorities in France, we concluded that there was a high risk that this transaction would not go through before the 15th January. But that was a precondition for making that application for the license renewal. And it's on that basis that we then decided to hold on to M6, to make the license renewal request. As you know, in the meantime, we've been selected as I think it's a technical expression in France [Foreign Language] selected for the license renewal for M6, which I think is good news. Whatever everybody expected, but it's good to know that we are selected. And we're now negotiating the [Foreign Language], right? So the terms and conditions of the license and the new license will then kick in in May. The strings attached to the new license, as you know, is that we're not allowed to sell our shares or to give up our controlling position at M6 for a period of 5 years. That is just a condition related to the license and the license renewal. So that's the situation. In the meantime, as you know, there's a new, let's say, anchor investor in the capital of M6, Monsieur Saadé with his CMA business. We've got a great relationship, work together constructively. He or his company is going to join the Board of M6 or has joined the Board I should say, Elmar. So we think it's great to have a new French partner in the business. We are currently conducting a strategic -- or M6's management, I should say, is conducting a strategic view of the business, in particular for the streaming business. And I think as we said before, the focus will be on AVOD, advertising from the video-on-demand as opposed to subscription-funded, given that M6 is not the #1 in the market, but the #2, and is a bit late in the game given that the French broadcasters bet on Salto, which didn't work out for all sorts of reasons. So that's the context, which we operate. But I can tell you, we're very happy shareholders of M6. But don't get me wrong. It's, I believe, one of the best run TV companies in Europe. It generated record results in 2021. You strip out the subsidies M6 received in 2021, the '22 results were broadly in line with prior year at record level. So we're happy shareholders of the company. Very good relationship with the management team. Fully support the strategic review and also investing in the business, particularly streaming going forward.

All right. If there are no further questions. Thank you very much for your interest in RTL Group and our full year results. Have a good day. And if there are further questions, we are, of course, available to answer them.

Thank you. Have a good day.

Thank you. Bye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you very much for joining, and have a pleasant day. Goodbye.