TF1 SA (TFI) Earnings Call Transcript & Summary

Hello, and welcome to TF1 H1 2024 results. My name is Zach and I will be your coordinator for today's event. [Operator Instructions] I will now hand you over to Rodolphe Belmer, CEO; and Pierre-Alain Gerard, CFO. Please go ahead.

Good evening, and thank you for joining us for our H1 2024 results presentation. On today's agenda, I will first give you an update on our H1 activity and business highlights on our 2 operating segments. Then Pierre-Alain Gerard, TF1's Group CFO, will present our financial results. After that, I will conclude with an update on our outlook, and we'll then close with a Q&A session. First of all, we are happy to share that LCI, TMC and TFX have been selected by ARCOM, the French regulator, as part of the tender process for 5 DTT licenses. This milestone reflects the seriousness of our project and the contribution of these channels to the French media landscape. Then the key highlights of the first half of 2024. Let's look first at our audience results. TF1 Group strengthened its audience leadership with increases in both linear and streaming, confirming the success of TF1 Group's editor line and digital acceleration strategy. In H1 2024, the group's audience shares stood at 34.6% among women under 50, up 1.0 points and 31.5% among individuals aged 25 to 49, up 1.3 points. TF1+ that we launched at the beginning of this year, is establishing itself as a leader in terms of reach and set a new recording date with 35.4 million streamers for the month of May. Now our financial performance. The group's advertising revenue was up by more than 7% year-on-year, driven by strong performance in both linear and digital. TF1+ got off to a very good start. Its advertising revenue grew by 40% to EUR 65 million in the first half, reflecting the appeal of the platform for both advertisers and streamers. Over the first semester, linear advertising revenue was up 5% year-on-year, demonstrating that the strong development of our streaming does not cannibalize linear. Current operating profit from activities amounted to EUR 129 million, in line with our company compiled consensus. Current operating margin from activities was at 11.7% compared to 14.7% in H1 '23, as anticipated at this stage of the year and not representative of the evolution expected for the full year. The group maintains a strong financial position with a net cash of EUR 446 million at end June '24, up EUR 81 million compared to a year ago. Let's turn now to a detailed activity review of our media and Newen Studios business lines. As a reminder, TF1 reached is the key underpinning factor of the value we deliver to customers. In the first half of '24, the group maintained an unrivaled position, gathering 54% of French people every day, well above any other media business, such as YouTube or any SVOD services, for instance. The group also achieved record audience shares along with the fastest growth in the French [audiovisual] sector across commercial targets. Compared to H1 '23, audience share was up 1 point on women below 50 and 1.3 points, as I said before, among 25, 49-year old. TF1 channel, our flagship consolidated its leading position in the sector with several records during the first half. Among women under 50, its audience share was at 23.3%, up 0.4 points further widening the gap with it's main competitor. The channels called 49 of the top 50 ratings for this target group. Among those of 25 to 49-year old its audience share stood at 21%, up 1.1 points, again, significantly ahead of its main competitor. The channel also scored 47 of the top 50 ratings for this target group. Over the first semester, TF1 recorded the best ratings in each genre and the best audience in France during H1 with EUR 11.3 million for the Australia, France, football game. In H1, the strong performance of TF1 channel across all day parts confirmed the relevance of our programming strategy. It's notably illustrated by the relaunch of Plus belle la vie in the afternoon slot, which translated into an increase of audience share by 17 points among women below 50. We also maintained our leadership on access and prime time and even improved by 0.5 points, our audience share in access with our 2 other daily soaps two other than Plus belle la vie, which is also a daily soap. As a reminder, the distinctiveness of the strategy implemented with TF1+, is to leverage our solid lineup to efficiently address both linear and nonlinear expectations without incurring additional programming costs for nonlinear. Nonlinear represents now 22% of total usage among the 25 to 49-year old on TF1 channel compared to 14% a year ago. Overall, the group strategy in streaming enabled total audience to grow compared to last year. Let's turn now to our nonlinear activity results. The group's success in attracting linear audiences is a springboard for TF1. The streaming platform made a very good start translating into a 40% increase in its advertising revenue year-on-year, confirming its appeal for advertisers. As a reminder, our ambition with TF1+ is to create the leading free-to-view streaming platform with the ambition to double the group market share in digital advertising market in the medium term. Our strategy funnel is constructed around 5 main building blocks: brand awareness, visibility, consumption, ad inventories and monetization. During H1, we already made significant progress in the upstream part of the funnel. Brand awareness, we implemented a strong marketing campaign early '24, which demonstrated its effectiveness through the whole semester, illustrated by the increase in the aided awareness of TF1 platform, which reached 77% at the end of the month of May. Visibility, the development of long-term partnerships with all telcos and with connected TV suppliers and operating systems is bearing fruit. TF1+ was referenced in first visibility on connected TVs for 54% of households at the end of June '24, well above our target as our goal was to reach 55% by the end of the year. Consumption. We worked on 2 levers to boost consumption. The first one is the relevance of the content lineup available on the platform. As mentioned earlier, we implemented a virtuous linear streaming programming notably illustrated by the 4 major unscripted franchises heavily consumed on the platform in H1. The second one -- the second lever is the addition of innovative features such as the AI-enabled version of Tuvalu launched before the euro championship. As a result, TF1+ established itself as the leader in terms of reach with 33 million streamers per month on average across the first half and more than 35 million in May, a new record compared to 25 million streamers, which was our standard monthly viewing in 2023 with like TF1. TF1+ recorded almost 600 million of streamed hours according to Mediametrie, representing 1.5x more than our closest competitor. Based on our site-centric figures, consumption jumped by 58% versus last year. TF1+ is clearly the pivot leader across all target audiences, especially the youngest with a market share of 41% among individuals aged 15 to 34 and 38% among those aged 25 to 49. We keep working on each of these pillars to continuously enhance TF1+ performance. We are currently focusing on the following areas: ad inventories, our goal is to increase the ad pressure, the ad load in order to increase the ad inventories. At the end of June, the ad load was at around 5 minutes per hour on TF1+ higher than the average ad load that we had last year with MYTF1, which was at 4 minutes per hour. This promising initial results showed show that we are on track to achieve our target of 6 minutes per hour. CPM. On the value front, our aim is to increase CPM up to around EUR 15 notably through dataization, a comprehensive dataization of our advertising inventories. To illustrate, we are -- to illustrate, we launched a new development, a new feature, recommendation engine called SYNCHRO in Q2 of this year. The pioneering [indiscernible] recommendation algorithm, which encourages viewers to declare which family members are in front of the TV set. Thus, of course, multiplying the eyeballs, we can monetize to the advertising market to the advertisers. Throughout the first half of '24, we still increased our CPM value which is now reaching a level of over EUR 12 at the end of June. Now some words on Newen Studios or production units. At Newen Studios revenue amounted to EUR 120 million, down 10% year-on-year, in line with our expectation. The activity for 2024 being mostly skewed to the fourth quarter. Newen Studios current operating profit was at EUR 4 million in the first half of '24, similar to the '23 figure. The first half was marked by the launch of Plus belle la vie for TF1. The delivery of the productions of the Cuckoo for Channel 5 of Walden for WD Air as well as continued positive momentum in cinema with the movie, Lacazette, release in theaters at the end of '23 and distributed by TF1 Studios. The renewal of the encrypted program, [indiscernible] for further 2 years is exemplifying the normalization of TF1 group relation with France Television. In terms of external development, Newen Studios has just signed a binding agreement with Timothy O. Johnson and the A&E Networks to acquire a 63% stake in the Judson Production Group, JPG, a U.S. player in the production and distribution of TV movies in English. This investment is part of Newen strategy to develop and acquire global IPs. It enables new and studios, which already owns a 65% stake in Reel One, the remainder being held by A&E Networks to further strengthen its ambition in the dynamic and resilient TV movie market. It will also give Newen studios, privilege and long-term access to the North American market with medium-term business levels, fully secured by large output deals. Judson Production Group had a '23 revenue of around $60 million, which makes around EUR 55 million and an operating margin of around 30%. Subject to the usual adjustments, the price paid for the 63% stake in JPG is expected around EUR 80 million. In connection with the transaction, A&E Networks will then relinquish its option to sell its 35% stake in Reel One, to Newen Studios, meaning that overall, these operations will reduce the group net cash position by around EUR 65 million only. This acquisition is expected to close during the quarter.

Thank you, Rodolphe. Now let's move to a more detailed breakdown of our financial results for the first half of 2024. You will find additional information in our consolidated financial statements and their notes as well as our management report, all of which are available on our website. TF1 Group's consolidated revenue amounted to EUR 1.1 billion in the first half of 2024, up 6.3% year-on-year and in line with our company combined consensus. The group recorded a solid growth of 7.4% in linear and digital advertising revenue, totaling EUR 802 million. This performance reflects a more favorable macroeconomic context compared to last year and the launch of our new streaming platform, TF1+. Advertising revenue for TF1+ was EUR 65 million in H1, a 40% growth year-on-year, which is way above the market and confirms the appeal of the platform for advertisers. Again, we are only talking about advertising revenue here. as a broader streaming definition would be in the area of EUR 100 million. Newen Studio posted total revenue of EUR 120 million, down 10%, in line with the expectation of a 2024 activity, mostly skewed to H2. Now let's move to Slide 13, on current operating profit from activities. The group's current operating profit from activities amounted to EUR 129 million in the first half of 2024, in line with the company combined consensus. Margin was 11.7% compared to 14.7% in the first half of 2024, in line with the phasing of the year and not representative of the evolution expected for the full year. COPA in the Media segment came to EUR 125 million with an increase in programming costs year-on-year, notably related to the euro tournament. With a more favorable advertising market in 2024, programming costs returned to a level close to the first half of 2022 when there were no major sports events. Media COPA also includes [indiscernible], nonrecurring expenses related to the launch of the platform and recurring costs progressively covered by the optimization plan. Newen Studios COPA was EUR 4 million, close to 2023 figure. Let's turn to our optimization plan. As we mentioned, when announcing our H1 2023 results, we've been optimizing our cost base to finance our digital acceleration program. As a reminder, our target is to reach more than EUR 40 million in savings on real estate, IT, procurement and organization costs from 2025 onwards. Out of these savings, a portion of circa EUR 15 million of recurring reinvestment will be made in our digital plan covering mostly tech in relation to improving and scaling the streaming platform and HR in order to acquire new skills for our digital acceleration. At the end of June, more than 55% of savings are secured at 50% of the time line. So we are ahead of schedule. On Page 15, regarding the income statement, I have already commented the consolidated revenue and current operating profit from activities. Looking further down, operating profit after other operating income and expense stood at EUR 128 million, including EUR 13 million of nonrecurring expenses mainly related to an extension of the agreement on jobs and carrier management signed in July 2023. Net profit attributable to the group was EUR 96 million, broadly stable year-on-year, notably benefiting from financial income on surplus cash. Let's now analyze the evolution of the net cash position on Page 16. Net cash to EUR 447 million at end June 2024 compared to EUR 505 million at the end of December 2023, a decrease of circa EUR 60 million plus dividend payment of EUR 116 million. Free cash flow amounted to EUR 76 million and EUR 65 million after change in working cap, reflecting an operating cash flow of EUR 223 million, broadly stable year-on-year, lease obligation of minus EUR 5 million, improving by EUR 10 million year-on-year. Net CapEx of EUR 142 million, an increase of circa EUR 30 million year-on-year, roughly half coming from Newen, reflecting productions to be delivered in H2 2024 and half coming from our Media segment, notably with co-production CapEx and the acquisition of rights. Changes in working cap of minus EUR 10 million, reflecting more usual flows compared with an inflow of plus 54 last year when we had collected payments linked to the FIFA World Cup in Qatar. Acquisitions and disposal for EUR 8 million, notably related to the acquisition by Newen of Dog Haus in Germany that we already talked about at the beginning of the year and the buyout of noncontrolling interest at Newen level. Outlook. Now the next few months will be marked by a reinforced lineup for both linear and streaming with a significant number of franchises compared to last year, including new programs in all genres in our programming lineup. On French series, HP is coming back in H2 for the second part of the fourth season, and TF1 will also broadcast new landmark programs such as [indiscernible] and the much awaited Cat's eye. On unscripted, strong franchises are set to return such as Koh-Lanta, Star Academy and the Voice Kids, all of which being cellulite programs with strong linear and nonlinear consumption. TF1 will also continue adapting franchises that have already demonstrated their appeal in other countries like [indiscernible] to the French market. On sports, this includes, of course, the last 5 games of the euro tournament in July including France semifinal, which represents the best rating of the year so far with 16.1 million viewers. France football team will then return on TF1 with the UEFA Nations League. And the group will also broadcast major Rugby tournaments, Rugby Semi's tournaments, with the AutoNation series and DW-15 for women for the first time. In digital, the group will unlock additional potential from the operational optimization of TF1+, we'll keep working actively on increasing awareness, visibility daily consumption and we'll focus on increasing ad load and improving CPM, all the key pillars of the funnel of the revenue building of TF1+. Second element will the group will extend its range of program through a unique and new aggregation strategy for TF1+, a new strategy in the free streaming platform, which will enable to add new content at no additional programming costs for TF1+. The group intends to capitalize on TF1+ appeal and success to attract leading third-party content publishers. Initial milestone in that direction was reached in July with the -- on the audiovisual content from L’Equipe TV, Le Figaro TV and Deezer arrived on the platform. This strategy contributes to the rapid expansion and diversification of TF1+ catalog with now 20,000 hours of content available at any time compared to 15,000 hours when TF1+ launched in January -- back in January. The group will also accelerate the rollout of TF1+ after a very promising start in France by expanding its distribution to other French speaking markets. Since June, TF1+ has been available in Belgium and Luxembourg on all connected devices. This expansion is the first phase of a large scale rollout, including an introduction into Switzerland in September and the rest of the front [indiscernible] world letter. To sum up coming to the guidance. TF1+ delivered a robust performance in the first half of the year, strengthened its audience leadership and increased its advertising revenues, both in [digital] and in streaming. TF1+ got off to a very good start and confirmed its growth potential, demonstrating the relevance of the group digital acceleration strategy initiated last year. COPA is in line with expectations, and the group benefits from a strong financial position. In this context, the group confirms its objectives for 2024. Keep growing in digital, building on the promising launch of TF1+, maintained a broadly stable current party margin from activities continue to generate solid cash flow, enabling the group to aim for a growing dividend currency over the next few years. Now we are ready to take your questions.

[Operator Instructions] So our first question is from Anik Mas of Bernstein.

I was just wondering if you could give us a bit of an indication of what you see in terms of advertising trends over the next month, that would be great.

On this subject, we are -- we received the advertising demand for the next few months, even though, as usual, just we should say that our visibility in our sector is not very [apparent]. But what I could say is that when we see the demand is very solid. The first half of the year has been very solid in terms of demand, as you've seen. And we believe that the remainder of the year will stay also solid. As you probably know, the consensus of the consulting firms on the evolution of the advertising market for France in 2024 stands at around plus 3%. And we are -- we concur with this kind of order of magnitude. And across all the conversation we have with our customers, be it the advertisers or media agencies, media buying agencies. We see no signal that the demand should anyhow decelerate. Well, again well, visibility, as usual, well, I should take the price saying that was visibility remains short term on our kind of business.

Our next question is from Conor O'Shea from Kepler Cheuvreux.