TF1 SA (TFI) Earnings Call Transcript

Ladies and gentlemen, welcome to the TF1 Group 2020 First Half Results Presentation. I would like now to hand over to Mr. Gilles Pélisson, Chairman and CEO; and Mr. Philippe Denery, CFO. Gentlemen, please go ahead.

Well, good morning, everybody. This -- I will start with the highlight of the first half of 2020 for our group. As you -- I'm sure you realize during the COVID crisis, we believe our group has demonstrated in this very, very unique period, once again, its adaptability and strong reactivity. We are announcing this morning very strong ratings thanks, first of all, to the leadership we have on news cast, and then editorial choices who met, once again, the public expectations. We were able to significantly downsize our programming cost, offsetting more -- over 50% of the decrease in our Advertising revenues, which was a bad hit, of course. And then we managed an efficient management of the health crisis by protecting our employees' health, adapting working methods. 90% of our workers went in a part -- in a work from home possibilities and part-time working. And enabling, particularly important for TF1, the news activity to proceed. Looking forward, the TF1 Group is fully operational and ready to benefit from recovery. We are experiencing a gradual slowdown in the decline of the advertising market since the beginning of June, which is a positive. We made a strategic decision to keep fresh and premium programming for the last 4 months of 2020, so we should have a strong back-to-school period. We benefit from a very strong reactivity from Newen in resuming all shooting as early as possible by mid-May. And then we have a sound financial position with low debt and access to available bilateral credit facilities. So moving to the activity review on Page 4. The group, as you know, is capable of creating a unique bond through its very broad content offer. Of course, we benefited during that period of a very high level of TV viewing at close to 4 hours per day, which is a 26 minutes increase over last year. And this, of course, affected all age categories, renewing the interest of the younger generation, the 24 -- 25 to 49 categories coming back to watching television, which was really a good news. Our audience share on individuals of 29 -- 25 to 49 remained at very high level of 29.6%, which, as you know, is unique in Europe. High and quick reactivity on the grid management with more family-oriented program, we were able to buy movies like Harry Potter. We had the 7 movies in a row, Lord of The Rings. We had Koh-Lanta, which -- the Survivor, which did a unique season at 6.8 million viewers on average, posting a 42% audience market share, which was kind of unique. Moving to the news cast. Our leadership in -- on the news was once again consolidating, and this is really unique to the TF1 Group in Europe. We extended our daily news show in order to provide comprehensive and rigorous coverage. When you look at -- on Page 5, on the various results, to see the 6.3 million viewers on average at the 1:00 show is a 41% market share in audience, which is once again, outstanding. The gap with the -- our competitor, France Télévisions is 2.9 million per day. The 8:00 news at 6.7 million is a difference of 1 million with France Télévisions. We were able, of course, to attract the new Prime Minister of France, Jean Castex. When he made his first interview, he comes to speak at the 8:00 news on TF1. So these were a unique performance, increasing our difference with the #2 competitor, France Télévisions and really positioning the group as the leader in France on news coverage. And then, of course, LCI maintained a strong audience market share, being the #2 news channel in France. Moving to the -- on the video side, MYTF1 in terms of -- confirmed its leadership 1 year after its total revamping. We have now 21 million active user accounts. And when you compare the activity between September and June, it was a 47% video views increase on OTT, which is really a very significant increase and demonstrating the quality of the platform that we propose to the public. Moving to programming cost. I think the one of the thing we are the most proud this morning to announce is really the significant reduction of the programming cost. Of course, the news cast is kind of a fixed cost, so we were able to decrease them by 6%, but providing an extra almost an hour of news cast every day additional, so which was in itself a remarkable performance. We revisited formats for key franchise. We stretch episode like we did for The Voice, the final where we did for the Koh-Lanta. And of course, we tried to address the fact that we had no more public attendance, which was, of course, kind of a unique situation. We used the higher number of reruns, both on the TF1 and DTT channel. And then we were able to buy on the spot, extra supply of movies at an optimized price. So all in all, it was really the possibility of having a saving -- a total saving of EUR 107 million for the 6 months of 2020 on the programming cost. And which is 52% of the drop when you compare it with EUR 205 million decrease in advertising revenues. Moving to the advertising front. Very strong reactivity, of course, of our ad sales team which, as the leading ad sales house in France, had quite a few challenges. First, understanding the impact of the crisis in the various sectors of the industry. And not all sectors were affected, of course, in the same way. Accompanying historical clients during the crisis. We took the initiative of creating webinars where you would have 300, 400 people from agencies, from advertisers, talking and listening to the way our ad sales team wanted them to understand the situation and just in -- what were the possibilities offered to them when the market and economic activities would start again. We were able to attract during that period new advertisers, 106 of them came as new. Going from Bastide, which is laboratory, a French laboratory, which has never done any TV advertising, to Xiaomi, the Chinese company mobile. And then motivating advertisers to return to television for the end of the year, which, of course, is for us, our first priority, knowing that if, once again, television has demonstrated this very strong social bound during those crisis, it is very important that advertisers have the reflex to go back to television when their business is back up again. In term of return to television, we -- on Page 9, you would see that we had a gradual return depending on the sectors, as I was mentioning. On the top right-hand side, you have the less-impacted sectors such as e-commerce/Internet, telco and health. And these were more resilient, if I may say, during the lockdown and are now nearly coming back at the same level as before the crisis. Two, but it's 62%, are the sectors which are showing signs of recovery. Of course, once and foremost, the food and beverage sector, specialist retail, banking/insurance, hygiene and others. These are sectors which were strongly impacted during the lockdown. And then since the end of the lockdown, we observed a slowdown in the decline of their investments. So they are coming back progressively. And then you have a few sectors which remain impacted during -- on the long term. Of course, the travel and tourism industry are certainly the most concerning for us because we don't see, of course, at this stage, as long as borders and air travel are contained, not too much possibilities on that. Car industry is more of a mixed bag of attitude towards advertising. And then perfumes/cosmetic, I think we have good hopes to see them coming back in the last quarter. But as of today, they haven't been back yet. Moving to Newen. We saw a -- as I mentioned, the management team of Newen focused on a very quick return to activity after the lockdown. During the lockdown, we had a couple of exceptions. So some shooting continued such as the (sic) [ Le ] magazine de la santé for France Télévisions in France and the famous Belgian TV Show quiz, Blokken, on Deutsch-speaking Belgian television. The shooting restarted as early as possible. So you're talking about mid-May coming back for the 2 major French daily soap, the one on France Télévisions, Plus belle la vie, and the other one on TF1 Demain nous appartient, which are access -- both access shows. The book of orders remain at the very high level, over 1,500 hours. And then, of course, we were able to book from our catalogs whether it was with TF1 studio and Newen or the Canadian company we bought a year ago, Reel One, additional sales as most TV channels all over the world were in need of catalog products. One word on Unify. The Unify brand demonstrated once again their very strong attractiveness. Marmiton doubled its number of unique visitors coming to 40 million during the first half, so which is twice what we did a year before. And Doctissimo, the health portal, was 25% up compared to the year before. So all in all, a very amazing show and demonstration of attractiveness towards French public. The problem was, of course, as on television, a significant reduction of advertising spend in digital and programmatic due to the crisis. However, we were able to emphasize and accompany the resilience of our e-commerce business, our boxes. We were able to book with thanks to television -- TV advertising campaigns for My Little Box, Gambettes Box, which is the stockings, and Beautiful Box on TF1, adding 60,000 boxes on Beautiful Box during the first half of the year. Then one word on our social involvement and motivation through the crisis, this is Page 12. I just wanted to reemphasize how much the TF1 Group has supported a variety of good causes during this health crisis. It went from identifying hospital's urgent needs and putting together the product and service offers from companies, raising funds to support health workers, patients, vulnerable people and medical research. And then, of course, organizing game shows and donating the gains of the winners to charities involved in health care, fighting violence against women and food distribution. So all issues. So altogether, we supported almost 30 charities associated with the COVID-19 crisis and quite something to be very proud of at the end of the crisis. I will now pass to Philippe for presenting the results.

Thank you, Gilles. I will start commenting on the revenues for TF1 Group on H1 '20. So consolidated revenues for TF1 Group was EUR 883.5 million, down by EUR 262 million year-on-year. Revenues for the Broadcasting segment are down by EUR 207 million year-on-year. The trend reflects a 26% decrease in the advertising revenues, EUR 205 million year-on-year. Since March, advertisers have canceled and postponed their advertising campaigns. The situation has accelerated in April and May during the lockdown period. Since end of lockdown, the advertising market decline is slowing down thanks to progressive comeback of advertisers on some sectors, as Gilles has already explained. The other revenues within the Broadcasting segment are down by EUR 2.2 million year-on-year. Excluding the impact of the resale of sports rights of the Women's Football World Cup in Q2 in '19, revenue increased year-on-year thanks to the good performance of interactivity. Moving on to the Studios & Entertainment segment. The revenues are down by EUR 37 million, EUR 20 million due to the deconsolidation of Home Shopping business divested from Q2 '19. Revenues at Newen in H1 '20 were impacted by the inevitable suspension of shooting in France and abroad during the lockdown period. This drop is partially offset by the impact of the consolidation of Reel One acquired in Q4 '19 and the sales of catalogs, as Gilles has already mentioned. Moreover, the consolidation of cultural events and the shutdown of La Seine Musicale from March have impacted the TF1 entertainment activities. Let's now comment on Unify. Unify revenue from H1 '20 came out at EUR 68.4 million, down by EUR 17.2 million year-on-year. From the beginning of March, digital advertising, programmatic and business solutions, both in France and abroad, have suffered from the advertisers' cancellation or postponing their campaigns. By contrast, as Gilles has already mentioned, our social e-commerce activities have been more resilient, driven by TV advertising campaigns on TF1 TV channels, which helped support box sales and recruit new subscribers. Moving to programming cost for H1 '20. They amounted to EUR 338.8 million. The group has demonstrated a strong reactivity in its capacity to monitor closely its investment in programs in order to cope with the advertising market drop due to the crisis. In this respect, the group has succeeded in making EUR 107.4 million of savings during H2 '20, and that is as compared to last year's same period. All change of program are down. Measures implemented to reduce costs of programs include a significant extension of the daily news shows with additional 50% of broadcasting time at no extra cost, leading to savings of EUR 4.5 million in the news segment. Revisited formats for key variety [indiscernible] with stretched slots, as mentioned already by Gilles, a high number of reruns both on TF1 and DTT channels, extra supply of movies at an optimized price and very limited sports events in H1 '20. Now if I move to the current operating profit per segment, Slide 16. Current operating profit amounted to EUR 67.8 million, down by EUR 95 million. The group was able to limit this decrease through significant cost savings. If we now look into the different segments, the current operating profit for the Broadcasting segment stands at EUR 76 million, down by EUR 66.6 million year-on-year, leading to a current operating margin rate at 11.1%. Savings in programming costs absorbed over half of the drop of advertising revenues, demonstrating the group's flexibility. The Studios & Entertainment segment broke even at current operating profit level in the first half. The year-on-year fall is in line with the drop in revenues. Unify posted a current operating loss of EUR 8.1 million, down by EUR 11.3 million year-on-year, in line with the drop in revenues. And for clarification purposes, this includes a little bit less than EUR 2 million which were invested in TV advertising campaigns on the TF1 Group channel. Moving to consolidated income statement, Slide 17. I have already commented on the consolidated revenue and the current operating profit per segment. Regarding other charges, depreciation, amortization and provision, EUR 59 million of savings have been delivered. On one hand, they are explained by noncurrent savings on general expenses. On the other hand, tax savings due to, first, the end of the payment of press, radio and other taxes, which were canceled from January '20; and second, taxes based on the top line decrease during the period for an amount corresponding to around EUR 14 million linked with the top line drop. Overall, the impact of the COVID-19 crisis on the group's first half performance was around EUR 250 million in lost revenues and an impact on current operating profit of around EUR 100 million. The net profit attributable to the group stands positive at EUR 38.4 million for H1 '20, down by EUR 69 million, in line with the decrease of the current operating profit. Let's now comment on the balance sheet of the group at the end of June '20. Shareholders' equity attributable to the group was EUR 1.590 billion at the end of June '20, out of a total balance sheet of EUR 3.446 billion. The robust financial structure of the groups give us the capacity to absorb an expected drop in the cash position following the COVID-19 crisis for the broadcasting activities during the next few months. The group reported net debt of EUR 22 million at end of June '20. The group has a sound financial position with low debt and access to available bilateral credit facilities for around EUR 1 billion. If we look now to the trend of the net cash position more in details. The operating cash flow stands at EUR 138.7 million, down by EUR 97 million, which reflects the decline of the activity in H1 '20 as compared to H1 '19. The improvement of EUR 104.8 million in our change in operating working capital is mainly linked with the decrease of trade debtor in advertising. The level of net capital expenditure is quite stable year-on-year. The suspension of the shooting was offset by the consolidation of investment made by Reel One since Q4 '19. Given the impact of the COVID-19 crisis since H1 '20 and the ongoing uncertainty on how the virus will spread, the TF1 Group has withdrawn its guidance for '21 and confirm no dividend payment for this year. Now I now turn to Gilles Pélisson to conclude this presentation.

Thank you, Philippe. Moving to the lineup for the back-to-school period. As I mentioned earlier, we wanted to protect how the last 4 months of the year will be going once we have back advertisers interested in investing in television. So we think we have a full lineup with new seasons of key franchises, such as Voice Kids, such as Koh-Lanta, Survivor, such as the season 2 of Mask Singer. We will be introducing a new live show of District Z, which is an adventure show which was just shot in July. So plenty of hopes on that lineup. Then we will have TV premieres from French hit movies we -- as we didn't use those movies during the second quarter. The lineup on -- especially the Sunday night movies, which is a classic in France for TF1, will be strongly reinforced with Le Sens de la Fête, [indiscernible], A Star is Born with Lady Gaga and Bradley Cooper and international -- some international blockbusters. Then we will have some brand-new miniseries on the French side with Grand Hôtel with Carole Bouquet and Hippolyte Girardot; HPI with the French star, Audrey Fleurot; Pourquoi je vis; and the newest series like Little Big Lies (sic) [ Big Little Lies ] with Nicole Kidman, Meryl Streep and Reese Witherspoon; and then the return of all the famous franchise like Manifest, like Grey's Anatomy, like New Amsterdam, The Good Doctor, which will be back on air. And then finally, we strengthened very much the LCI grid programming with a new host, the Swiss star as an anchorman for many years on, I think, over 20 years on the most viewed in Switzerland TV broadcast, Darius Rochebin, will be joining LCI from 8 to 10 at night. And then Eric Brunet from RMC and BFM will also be joining us. On Newen, Page 23, new production in the pipeline. We have a very strong lineup of shooting for the H2 like Grand Hôtel is produced for TF1 and then Opera for the OCS cable channel. Two new daily soaps are being launched by Newen, one is for TF1, which will be coming before Demain nous appartient, and the -- its name is here, everything starts: Ici Tout Commence. The shooting has just started in July and it will be on air during the last quarter. And then Lisa, which is also a new TV telenovela for VTM, the Deutsch channel, shot by De Mensen, the Belgium company we acquired 2 years ago -- or 3 years ago. And then more than 10 production projects for platforms, especially for Netflix, like the movie Ferry -- or Undercover also produced by De Mensen, so showing a very strong presence both in -- well, in France, in Holland, in Belgium and in Canada of how Newen through its various subsidiaries can respond to the need for content for the various platforms. A last word on more opportunities to come. Regarding SALTO, the platform with local content -- French content on an unprecedented scale. The platform is currently under a beta test in July. And we saw it a few days ago, and it's working fine. And then that will be the launch in the fall of -- in the coming fall. And then one word maybe on the French regulation. As you know, this is almost a soap opera with new opportunities. We keep telling you that. So the whole idea is about support for private audiovisual group with a tax credit, which is being placed -- being put in place based on 15% of the program cost related to French and European drama incurred during March and December 2020. So this will be an accompaniment for us. And the decrees, which should be finally signed this summer on allowing, for the first time ever, advertising for movies on television and an opening on addressable TV. So giving us some hope about how the French market could open up in those directions. And then to conclude, I would say that the TF1 Group has demonstrated its very high reactivity to face this crisis. We are quite confident in the long-term sustainability of our activities, knowing that high TV convention level has renewed the relevance of TV as a media founding society altogether, and especially in a world of fake news, the importance for a group like TF1 to be the leader in a country like France on news cast and in the production and digital market, which offer us in addition to the television side in a total video approach, a very strong growth potential. So more than ever, the idea is moving to what we call total video linear and nonlinear viewing. This concludes our presentation, and I guess we are now ready to answer your questions.

[Operator Instructions] We have a question from Annick Maas from Exane BNP Paribas.

My first question is on programming costs. I think previously, you had guided or you had suggested that you could do a 10% cut year-on-year. I assume that might be now slightly more than what you had previously indicated. So if you could kind of comment on that? Then my second question is on the ad trends over the summer. I mean you suggested that some of the sectors are recovering. What sort of recovery level are we speaking? And then my third one. You suggested that you started producing again mid-May. What is typically the lead time to generate revenues on those production?

So I will start and then maybe Philippe can complete. On the programming cost, yes, we are -- as we say in French [Foreign Language]. The more you work on your tools, the better you are at it. I guess we're faced with 2 challenges, delivering higher news content, and in a longer period of time during the day as we had less advertising minutes, and delivering at a competitive cost. And as you may have seen on the chart, we delivered the news cast, which was about an hour additional every day with 6% economies. So this was a substantial achievement in itself. Then the rest of it was really being able to address in the various form of savings on programming. So whether it was for live entertainment where we stretch some contents and for example, the final of The Voice was done in various ways, but getting 2 or 3 additional prime times instead of 1 or 2. So something which was really unexpected, but which was the work of post production. Same for the final of the Survivor, Koh-Lanta, was stretched. And then using rerun at the highest rate, taking some risk in the management of our grid at a time where people were really wanted to see family shows, entertainment and positive programming, a little bit lighter given the seriousness of the crisis. And of course, the very bad news that we had on the news cast. Regarding ad trends, at this stage, on June, as we mentioned, we saw a pickup in June which was confirmed in July and August, which are very -- 2 very small months. Once again, July and August, the 2 of them equal basically September. So these are very -- 2 very small months. However, the pickup is good. So this is encouraging. But regarding September, October and the end of the year, very low visibility, as always, on these months. And we will see how, first of all, the pandemic is still present in the mind of the public, in the consumption, in the activity and the economy or whether we can sell with no worry and then the economy is able -- capable of picking up again at a good rate. This, at this stage, is totally not determined. And then finally on to the production, I think it's really a question of making sure that we were able to start as early as possible which we was managed mid-May. Very little additional cost so far. And this summer, Newen will be shooting like 15 production at the same time, and it seems to be working. We have some concern on the American studios because in the U.S., it seems like it's a little bit more complicated. However, it varies a lot, depending whether some things are -- some shows are shot inside and indoor or whether they need a lot of outdoor. And depending on the region of the U.S., we will see and we are monitoring that with Newen, Reel One, of course, and also for the content we get for U.S. series.

We have a next question from Conor O'Shea from Kepler Cheuvreux.

Yes. Yes, just to follow-up first on the advertising July and August. I think your main competitor said last night that July and August at the middle of these small months, but were back to some normality, flattish versus year-on-year. I mean it's still half -- together half the third quarter. So significant enough in itself. Would you confirm this in your remarks about…

It is what I just said.

Yes, sure. No, it's a good pickup, means flat. Okay. That's the first question. Second question, in terms of studios, in terms of the EBITDA that you generated in the second quarter. I mean the revenue decline was less, I think, than most people expected because of the catalog sales. Are the catalog sales not higher margin in themselves? And could you give us maybe an indication, I know it's difficult at this stage, but full year margins, bear in mind, a big ramp-up in production at Newen and some of the other moving parts, maybe the contribution of Reel One? If you could remind us of what that is in terms of perimeter effect? And then the final question, just in terms of what the -- working through the crisis has revealed to you in terms of potential permanent cost savings beyond 2020 and other things that you discovered that could help you build kind of a lower base for costs going forward when the market rebuilds next year and the year after?

Well, on the first question, I think that Gilles already answered and yes, flattish in July and August, which is good news. Concerning the studios, I would say that they will be impacted for the whole year because of this first half year. But they resume the business, and we can expect for the second half of the year, the same kind of top line and profitability than last year. If, of course, in the different countries where they are shooting and where they are doing the business, there is no lockdown or no significant change in the global environment. So now regarding specifically the catalog, yes, it's normally a good margin and it's a contribution to the business. In terms of top line, of course, it's not so significant because we are talking about a margin rate on a basis which is rather low as compared to the global business of Studios & Entertainment, but that will contribute to the improvement or to the contribution of this specific segment to the group. So that's what I can say today. And on the catalog, yes, this business should go on rather positively until the end of the year.

Okay. On the learnings of the working crisis -- on the working -- the way we work and how it's impacted us and what we can take away from it. I think we learned quite a few things. First of all, the whole company, because we wanted so much to protect the news cast people and the production, we shifted 90% of the workforce on work from home, which was a significant impact, worked very well because our systems were capable of handling the charge. And most businesses were capable of keeping on their activity. Of course, we discovered during that crisis, like I'm sure in many companies, that we would be able to do things from home that maybe never before had been imagined, especially in products, producing infographic, other things that were delocalized during the crisis. So that was a positive. And of course, we will keep those learnings with us for the future. We are currently experimenting on work from home. And between July and December, we will test and see in various departments how it is best to both accommodate the need of our people to -- in a more balanced way between being present on the job site and then working from their home. And we do believe that this is the way to go. The question is just the good balance. And it's not everywhere the same in the company, so it's adjusting and making sure we understand what's going on, what is in the best interest. And especially involving the training of managers, a lot of issues which are associated with working from home which we are now discovering as many companies, need to be addressed, challenged and rationalized. Then we will have certainly something on the addressing the square footage that we need as buildings. Like if we switch to 2 days away, who knows, away from the office, definitely, our need in square footage will be less. So all this will be addressed. My philosophy as a leadership team is really that if there were things which were put in place during the crisis which worked, the new normal should be that, and there is no reason to go back to the past. That's more the philosophy.

Okay. And sorry, just Philippe, could you give us an idea of the impact of consolidation of Reel One in terms of revenues in Q2 or H1, more or less? Is that significant?

Well, roughly, I would say that's a bit more than EUR 10 million in terms of contribution. Before that EUR 10 million, which offset the stop of some activities -- production activities in U.S.

Okay. So EUR 10 million in revenues?