TF1 SA (TFI) Earnings Call Transcript & Summary

Hello and welcome to the TF1 conference call results for the first 9 months of 2022. My name is Stefano, and I will be your coordinator for today's event. Please note this call is being recorded. [Operator Instructions] I will now hand over to your host, Philippe Denery, CFO of the TF1 group, to begin today's conference. Thank you.

I will start, as usual, with the main key points and then give an overview of our results for the first 9 months of '22. Then I will be happy to take your questions. Let's move first to the financial results of the first 9 months of '22. The TF1 group posted strong results for the first 9 months of '22. The group revenues stand at EUR 1.740 billion, representing an increase of 5.4% compared to the first 9 months of '21. Media revenues are stable year-on-year with a slight decrease in advertising revenues, minus 1.7%. Revenues from other activities are up by EUR 108 million, plus 22% versus last year, thanks to a strong performance of Newen studio with revenues up by 45.4% (sic) [ 35.4% ], plus EUR 78 million. The current operating profit stands at EUR 239 million, plus EUR 16 million versus last year, plus 7%. Excluding the EUR 27.7 million of COVID tax credit at the end of September of '21, current operating profit would be up by 22%, plus EUR 43 million. Thanks to this, the group delivered a high current operating margin at 13.7% at end of September, plus 0.2 points versus end of September '21. Regarding ESG, TF1 remains focused on its commitment. The ad sales house proceeds with the Ecofunding initiative, which has reached EUR 3.8 million since its launch. Through these proceeds, we have financed around 700 climate-focused awareness campaign during the same period. In addition, at the end of June, the group confirmed its commitment to the ecological transition via a climate contract that consolidates our environmental action plan. We are committed to reduce our carbon emissions by 30% by end of 2030. Now I would like to point out the results of our 2 main activities for the first 9 months. First, at the end of September of '22, Media revenues rose by 1%, with advertising revenues down by 2% and nonadvertising revenues up by 11%. Profitability for this segment is 14.5%, up by 1.0 point. Second, the Newen Studios segment performed very well, with revenues up by EUR 78 million, as I said, at end of September, plus 35%. Newen Studios benefited from strong deliveries as well as organic and external growth. Profitability stands at 10.1%. Let's now get into the details of our activities. I will begin with the performance of the Media segment. Revenues rose by EUR 11 million year-on-year with an increase of operating profit of EUR 15 million. First, advertising revenues decreased year-on-year by 2%, with the third quarter down by 9%. Note that the basis of comparison for Q3 is strong, as Q3 '20 and Q3 '21 recorded a solid growth, around 8% in Q3 '20 and plus 4%, around 4%, in Q3 '21. Those quarters were driven by post-COVID effect and the broadcasting of the men's Euro in '21. Digital had revenues fell by 1%, impacted by the deconsolidation of 2 Unify publisher activities, Livingly in the States and Gofeminin in Germany, last year. However, MYTF1 revenues are up by 19% at the end of September, supported not only by replay but also by exclusive and premium content and a large cinema offer. The other revenues within the Media segment are up by EUR 30 million, led by higher distribution and entertainment revenues. Second point, the group has proved again its ability to adapt cost basis when facing different macro and market conditions. We are able to generate savings to fully absorb a slowdown in revenues. Our programming costs stand at EUR 640 million, which is a decrease of EUR 45 million compared to '21, when the advertising revenues are down by EUR 19 million versus '21, but what -- while we had been overall generating savings, the group has continued to invest in powerful content. This has led to a very good performance for the group's channel, who maintained their leadership on commercial targets, 33.2% for women below 50, plus 0.2 points; and 29.7% for people aged between 25 and 49, minus 0.3 points. Moving on to the Newen Studios segment. Due to an excellent performance in the third quarter, Newen studio revenues stand at EUR 298 million, representing again an increased of EUR 78 million versus last year. Newen studio benefited from the delivery of prestigious production such as Liaison for Apple TV and Marie-Antoinette for CANAL+. These high-value deals demonstrate Newen ability to produce quality content for new customers and historical partners. In addition, Newen keeps on pursuing its international development. [ The table had -- it ] benefits from the contribution of the Spanish and German studios iZen and Flare, acquired in '21; as well as from the acquisition of a stake in the British studio Rise Films in July '22, which strengthened Newen's presence in the documentary genre, although worth mentioning the acquisition in October '22 of the Anagram studio Sweden and Norway, which will allow Newen to position itself and capitalize on the expanding Scandinavian drama market. This segment posted a current operating profit of EUR 30 million at the end of September, plus EUR 1 million year-on-year. Just a quick word on the net profit. The net result attributable to the group stands at EUR 150 million for the first 9 months of '22, including the investment in Salto. It is up by EUR 3.5 million year-on-year. On the cash position, the group, the TF1 group, generated at the end of September a free cash flow of EUR 168 million versus EUR 140 million for the same period last year. Overall, the group has a sound financial position and access to available bilateral credit facilities for more than EUR 1 billion. Excluding lease obligation, the TF1 group had net cash of EUR 295.6 million at end of September '22 compared with net cash of EUR 198.5 million at end of December '21, plus around EUR 100 million. Let's conclude with our outlook. On the Media operating segment, the group will accelerate its transformation in order to be able to respond to the ongoing evolution of video consumption, especially by allocating its content across linear and nonlinear. Thanks to our unique and powerful lineup, including the football World Cup and the Star Academy, as example, the group will continue to support its advertising clients by offering them premium inventories. The Unify publisher activities sold to Reworld Media will be deconsolidated for the full fourth quarter. Newen studio will benefit from deliveries at the end of the year, enabling it to reach a solid level of performance. This segment will further develop its partnership with platforms and demonstrating its know-how in a wide variety of genre. Finally, in uncertain macroeconomic context, the group will continue to demonstrate agility in its overall cost management. Well, that's conclude my review of the TF1 group's results for the first 9 months of '22. Thank you again for having joined us today. Should you have any question, please do not hesitate asking your question. [Operator Instructions] And finally, I remind you that a recording of this conference call will be available, which you can find on our website.

[Operator Instructions] There are no questions in the line. The first question comes from the line of Benlamine of Kirao.

Do you hear me?

Yes, I do.

Just one question on Newen, please, to understand the EBIT margin decrease by almost 3 points this quarter. Can you give us a bit more information on why? And second, on the top line, can we have the pure organic growth of Newen on the third quarter, please?

Yes. Well, on the margin, I just should point out the fact that we have taken to account the cost of the stop of our daily soap Plus belle la vie for France Télévisions. It has a cost, which of course impacts the margin just because we have accounted what we'll incur in terms of costs for the stop of the drama or the soap. So that explain mainly why we get a lower margin [ that ] normally. And that is a good part of the explanation. Now concerning the growth of Newen, we have a combination of organic and external growth. Out of those EUR 78 million, we have EUR 35 million due to external growth which is the consequence of acquisition, [ everything being designed ] of the different companies we've mentioned already, globally Flare, iZen and the new acquisition in '22. So the EUR 35 million, which should be and should become current revenues in the future. And that's external growth. The other part of those EUR 78 million correspond to organic growth and which correspond to, among others, delivery of Liaison and delivery of Marie-Antoinette, delivery of other drama and other program which have been delivered during the quarter. So 45% external and 55% organic growth.

Okay. And -- great. Impressive. Just to come back on the Newen margin: The Plus belle la vie impact is around 4 million. I mean, does it represent the totality of the impact of the decrease or the 3 points?

It's a -- yes. It's a range. It's a range.

We have no further questions on the line. [Operator Instructions] The next question comes from the line of Eric Ravary of CIC.

[ Philippe, Eric Ravary ], CIC. Question on the advertising trend for Q4. Can we expect that the World Cup will have a positive effect for you and that the trend should be better in Q4 than in Q3 for advertising revenues?

Well, in terms of what we can say on Q4, I would say, October, in-line, I would say, more or less comparable to what we had last year, no negative sign. November, we benefit from a very good lineup, yes, so November should be better. December, it's too early to give any kind of trend or visibility, but as a whole, I would say, for the moment, Q4 and especially November and beginning of December, because of the lineup, because of the World Cup, is on a good basis or good trend. Concerning the World Cup, what I can say is that we have inventories. And we have sold and booked what we were anticipating to book at these dates, meaning that the percentage of order -- book of order is even a bit better [ that ] it is normally for a World Cup signed period before the broadcasting of the event. We're a bit better. It's normal because of the seasonality. And of course, there is -- the demand is stronger in November and December than in July, June, July -- end of June, July when it normally take place. So in line with expectation and a bit better than usually, but we know why because of the seasonality. So we are rather confident to get expectation on the World Cup. Of course, it will depend on the French football team and their capacity to go as far as possible and, if possible, in final. It would be very appreciated by a lot of people, including us.

We currently have no questions on the line. [Operator Instructions] The next question comes from the line of Vidusi Saraf of JPMorgan.

I want to ask about the Newen studio trend in Q4 [indiscernible] in Q4.

I'm not sure I get your question because the line was not very good, but if I understand your question: It's the studio in Q4 and the way we look at it. I think that basically, in terms of top line, they should be delivering but not at the level, of course, of Q3 but more as compared to traditionally in terms of top line and what they should deliver in Q4, so in line with other quarter. And we expect to remain in a range of profitability which should not be lower than what has been already delivered.

There are no further questions on the line. [Operator Instructions] There are no further questions on the line.

Okay, well, thank you very much to all of you. I suppose that there is no -- not so much question, but I hope that I've been so clear that there is no need for questions. I wish you a very good evening. And if you have any other questions later on, don't hesitate to call our team, as they are available for answering your questions. Thank you very much. Have a good evening.

Thank you for joining today's call. You may now disconnect.