TF1 SA (TFI) Earnings Call Transcript

Good evening, everyone, and thank you for joining us for our H1 results presentation. I'm Rodolphe Belmer, CEO of the group. And along with Mr. Pierre-Alain Gerard, we will walk you through the group's performance for the first half of 2026 before we answer your questions. Let's start with the key highlights on Page #3. In H1 2026, the group maintained its clear leadership in linear, both in terms of audience and in terms of advertising market share despite a particularly competitive environment, notably with the Winter Olympics in Q1 and the Football World Cup in Q2. Second, our H1 results are in line with our full year targets for digital growth and profitability against a difficult advertising and a regulatory backdrop. Third, the level of COPA, which stood at EUR 77 million in H1, is above expectations and validates the choices we have made to safeguard profitability, notably regarding the Football World Cup. Lastly, the group maintained a solid financial position, which gives us flexibility to keep executing on our strategy. In an environment that remains volatile and offers limited visibility, we maintain our 2026 targets. Let's go now into more details into business review, starting with our Media and Studio segments, starting with Media on Page 6 of the document. In H1, the group maintained its linear leadership across commercial targets. And the TF1 channel, our flagship channel kept its significant lead over its main competitor. As I said, this performance is particularly noteworthy given the very competitive environment in H1, including events such as the Football World Cup and the Winter Olympics. This reflects the strength of TF1 editorial offer across all major genres like entertainment with des Enfoirés, sports with the Six Nations tournaments and premium drama with L’Été 36. News also continued to perform strongly. The 1:00 p.m. and 8:00 p.m. bulletins maintained a significant gap versus the main competitor. LCI, our news channel, posted a record audience share in H1 and its best ever month in March at 3.2% share of the 4%-plus target. And Bonjour! is now firmly established as France's second morning show. Overall, the group once again demonstrated the resilience and appeal of its premium content offering. Moving to streaming now, Page 7. TF1+ continued to show strong momentum, a bit more than 2 years only after its inception. Platform attracted 42 million streamers per month on average in H1, up 20% year-on-year and reached a new monthly record of 44 million in June. The platform audience also benefited from the launch of our landmark distribution agreement with Netflix in late June. Early performance has been well ahead of expectations. On June 25, we recorded a new daily record of 8.3 million streamers on TF1+, driven by the Koh-Lanta final and the launch of Secret Story, which ranked among Netflix' Top 10 title. Overall, 573 million hours were streamed in the first half, up almost 7% year-on-year on a site-centric basis. Advertising pressure reached 5 minutes and 47 seconds per hour on average, up also 7% versus H1 2025 and close to our midterm target of 6 minutes. From a monetization standpoint, CPM stood at EUR 12.5. The platform's attractiveness to both streamers and advertisers translated into a growth of TF1+ advertising revenues of almost 20% year-on-year, reaching EUR 109 million. The group overall digital revenue, which also includes advertising revenues from TF1 Info and addressable TV, along with revenues from subscriptions of our TF1+ premium offer service and micro payments amounted to EUR 134 million, up 17% year-on-year. Micro payments continued to gain traction with more than 800,000 transactions recorded since the beginning of the year. The ramp-up is still constrained by the rollout of the offer across telecom operators as it has only been deployed at this stage on SFR eligible set-top box and more recently, very, very recently on Bouygues Telecom ones. Studio TF1 now, Page 8. Revenue amounted to EUR 124 million in the first half, slightly down year-on-year. As expected, activity this year is mainly weighted towards H2. Studio TF1 continued deliveries to its long-standing partners in France with content like A Priori for France Televisions. It also pursued its international collaborations, including The Teacher for Channel 5, while continuing to diversify its client mix with the streaming platforms with programs such as Day One for Prime Video. The first half was also marked by the successful theatrical release of Pour le Plaisir, Good Vibes Only in English, the first film distributed in cinemas by Studio TF1 in France with more than 700,000 admissions. Now I will hand over to Mr. Pierre-Alain Gerard.

Thank you, Rodolphe. Let's now turn to financials in more details. First, revenue on Page 10. Group revenue amounted to EUR 993 million in the first half of 2026, down 6% like-for-like and at constant FX, ahead of market expectations. In the Media segment, advertising revenue was EUR 714 million, down 9%. The evolution reflects the structural decline of the linear advertising market, exacerbated by advertisers' cautious stance in an unstable environment and by the exceptional competitive environment in June related to the Football World Cup. In this context, the group managed to maintain its leadership with a market share close to last year's level, demonstrating the relevance of its commercial offering. The launch of TF1 Prime notably helped us extract greater value from our premium prime time inventory, highlighting its unrivaled standing among advertisers. Regarding streaming, as mentioned by Rodolphe, TF1+ advertising revenue rose by almost 20% to EUR 109 million in the first half, and the overall digital revenue amounted to EUR 134 million. Non-advertising media revenue was EUR 156 million, down 19% on a reported basis, but slightly up, excluding scope effects related to the disposal completed last year, mainly My Little Paris and Play Two. At Studio TF1, revenue amounted to EUR 124 million, close to the level of last year. International activity was boosted by distribution deals, while France benefited from deliveries to Netflix in H1 2025. Turning now to profitability on Page 11. Our current operating profit from activities amounted to EUR 77 million in the first half with a margin from activities of 7.8%. This level is above market expectations and in line with our annual guidance. In Media, COPA stood at EUR 81 million. The EUR 44 million decrease year-on-year mainly reflects the decline in high-margin linear advertising revenue. Programming costs totaled EUR 433 million, down EUR 19 million year-on-year. As a reminder, we chose to maintain premium programming in the first quarter to support the launch of the new TF1 Prime/TF1 Reach ad segmentation. In the second quarter, we demonstrated agility on cost in a weak market and in a very competitive environment. This allowed us to limit the impact of the linear decline. As a result, the Media margin reached 14.3% in Q2 and 9.3% over the first half. At Studio TF1, COPA amounted to minus EUR 4 million. The EUR 10 million decline compared to last year mainly reflects base effects comprising a deal on music assets completed by JPG in Q1 2025, deliveries to Netflix in H1 2025 and a delivery schedule of high-margin TV movies more weighted towards the second half of the year. Overall, first half profitability confirms the group's disciplined execution in a challenging environment. Let me now move to the income statement. I have already commented on revenue and COPA. Operating profit stood at EUR 70 million. No particular one-offs to highlight beyond the amortization of the PPA related to JPG and nonrecurring costs related to digital acceleration. Net profit attributable to the group, excluding exceptional tax surcharge, came in at EUR 56 million, down EUR 37 million year-on-year. The impact of the 2026 finance bill amounted to EUR 5 million in the first half, including EUR 3 million already recognized in Q1. Net profit attributable to the group, including exceptional tax surcharge was EUR 51 million. On Page 13, our balance sheet remains a key strength to navigate an unstable environment while accelerating our digital transformation. Net cash reached EUR 432 million at end June. The evolution mostly reflects the dividend payment by TF1 of EUR 132 million in April and free cash flow after working cap of EUR 57 million in H1. A brief technical note to ease comparison with last year. The group has changed its assessment regarding French drama coproduction with the development of streaming and notably the acceleration of our OTT distribution strategy, as illustrated by our partnership with Netflix, the broadcast rights now carry greater economic value to the coproduction share. As a result, a larger portion of drama acquisition cost is now recognized as inventory rather than capitalized as intangible assets, mechanically reducing both CapEx and the corresponding amortization charges by approximately EUR 40 million in H1. The symmetrical inventory increase unwinds as content is broadcast and consumed, which is precisely what happened in H1, explaining why the reclassification has no impact on working cap. And of course, as this is purely accounting, this change of estimates has no impact on free cash flow after working cap. And now back to Rodolphe.

Well, thank you, Pierre-Alain. Let me conclude with our outlook. In the Media segment, TF1 will continue to offer the best of free family-oriented and serialised entertainment. Key highlights will include iconic franchises such as Koh-Lanta and Star Academy, which performed particularly well in digital and among younger audiences. The group will also benefit from a strong slate of premium drama, including Cat's Eyes Season 2, La Cible and La Comtesse de Monte Cristo. In sports, the second half will feature a solid lineup, notably with the matches of the French national football team and the Nations Championship in rugby. In digital, the three initiatives that we launched recently are expected to further contribute to our revenue acceleration in H2. First, with the distribution partnership with Netflix, which is live since late June and delivering early performance well ahead expectations. Second, the deployment of our Mid-tail solution through our TF1 Ad Manager platform. We have recently strengthened our local commercial footprint with partnerships -- with partners like Cityz Media in June to commercialize locally our local inventories. This agreement gives local advertisers access to TF1+ and addressable TV solutions through combined offers, thus supporting revenue growth with SMEs and retail networks. Third, the continued ramp-up of micro payments supported by the rollout of the offer across operators' set-top boxes. For Studio TF1, activity will again be weighted towards H2, notably due to Studio TF1 Americas delivery schedule. The theatrical film distribution division in France has four additional releases planned in the second half, notably the Jean Moulin biopic, starring Gilles Lellouche, which was part of the competition lineup of the Cannes Film Festival. Turning to Slide #16. In a context where visibility remains limited and with the linear advertising market still under strong pressure in France, we confirm our 2026 targets. strong double-digit revenue growth in digital in 2026, maintain a mid- to high single-digit margin from activities before capital gains in 2026, subject to the evolution of the linear market, aim for a growing dividend policy in the coming years. We will remain disciplined on cost, focused on digital acceleration, and we capitalize on our solid balance sheet to navigate this complex environment. That's all for this introductory presentation. And we are now with Pierre-Alain, ready to take your questions.

[Operator Instructions] The first question comes from Christophe Cherblanc with Bernstein.

I had quite a few, so I'll keep it to three. The first one is on the dividend. You're committing to a progressive dividend policy. Without giving precise numbers, what is the level of margin you need to reach to fully cover the dividend in '26? That would be the first question. And related to that, if that was not the case, are you happy to pay out more than 100% of profit? The second question is on the consolidation of the market. We've seen in Germany and in the U.K. a convergence between pay TV players and free-to-air broadcasters. Do you think that's something that could make sense in the French market? Or do you see specific features in the French market, which are such that it doesn't make sense? And the last one is just on the Studio. You mentioned the decline in H1. Is it fair to expect that on a full year basis, the COPA of Studio will be back to the level we saw in '25 with a double-digit margin?

Well, thank you, Christophe, for the set of questions. Maybe I'll leave the question on dividend to Pierre-Alain. On market consolidation, well, maybe a status on this topic. As you said, well, we've seen a wave of consolidation between pay and free broadcasters in Europe. We have looked at that quite in detail and analyzed those transactions, those evolutions. What we think and when we try to analyze what would be the level of synergy, we estimate that the level of synergy that we would have in France in such a scheme will be quite low and not totally certain that it would create value for our shareholders given the very small overlap between our lineup of content and the lineup of content of the pay TV players in France, which are very, very distinct and different in our business. The core of our cost base lies in the content cost, of course. Studio, well, the lower performance in H1 is mostly due to phasing effects, and we expect to return to a nominal trajectory in H2.

Yes. And regarding dividend, you're right. We don't have a policy in terms of payout. And as you said, we were aiming. It's an objective, but it has to be reassessed each year. You have noticed and you are not the only one that we have a stronger net cash position, and we are capitalizing on that when we say that we aim to increase the dividend.

So to be clear, you would not exclude to pay more than 100% of profit into dividend because you've got such a high net cash position? Or is it a no, no?

It will be reassessed depending on the market, on the outlook, et cetera. It's not something that will be automatic.

But what we can say is that we don't have specific principles and we don't have specific cap regarding our net results. I think that for the moment, what we said is that we reiterate, we confirm our guidance in terms of profitability, and we also confirm our guidance in terms of dividend policy. Of course, it has to be reassessed each year by the Board of Directors of TF1, but the policy is constant. And we estimate that we will cover our dividend policy with the profitability of the group in the immediate future, and we don't have cap in case it wouldn't be the case, it were not the case.

The next question comes from Eric Ravary with CIC CIB.

I have three questions. First one is on the advertising outlook. I know that you don't have precise visibility on September at this time of the year. But the question is more on your sentiment on the advertising trend for the last 4 months of the year, and any change in the mood of the advertisers? And also the basis effect, we know that the Q4 2025 was weak, so it should offer a positive basis effect. So could you give some comments on these prospects? Second one is on your programming cost cutting in Q2. Was this just in June to make some tactical savings versus the World Cup? Or was it more broad-based in over Q2? And so could you consider further significant programming savings in H2 beyond the World Cup in July? And last question is on the -- well the announcement of two contracts that were terminated, one with CANAL+ on the distribution of your small pay TV channels and the second one with the independent radio networks on advertising sales. Could you please quantify the impact both on revenues and EBIT of this end of contracts?

Well, on the advertising outlook, well, as you know, it's very difficult to give a firm outlook for our market, which is -- which tends to be increasingly marked by low level of visibility and forecastability. I don't know if it's pure English, but well you understand the notion. Still, when we look at the estimates provided by consulting firms specialized in our sector, which tends to converge towards a market that should evolve in the linear segment around minus 10% for the full year. And in total, if we include digital, minus 6% for the total market. We think that this view is fair, and we more or less share that perspective. And well for TF1, we're very big. We represent almost 50% of that market, the television advertising market, meaning that we more or less with some nuances, evolve like or in the same kind of trending line. And for the moment, there is no real improvement in the trend of the market that we can see around the corner in France. Programming cost, we have adjusted -- well, first, our strategy, our intention, our objective is to be able to continue to finance a superior lineup of content over time because that's the bedrock of our superiority and of our leadership on our markets, meaning that our view is to be able to -- is to strive to fight for the sustainability, the perennity of our programming cost. Of course, we have to adjust that principle to the reality and to the evolution of the market and to the evolution of the demand of our customer. We have adjusted slightly our programming cost in Q2 to adjust to a very low level of demand, mostly because of the World Cup broadcast by our competitor. And of course, we will adjust in the same way tactically in the second half if the market turns to be less solid than what we expect. But for the moment, we don't have plan of that kind, but we want to preserve the agility that's needed to protect our profitability in case the market turns out to be less positive than what we expect. Well, contract with CANAL+, it's a small contract. Low single-digit in terms of millions of euros annually. And the independent -- the concession contract that we had for the advertising of the independent radio stations in France, again, in terms of impact at the COPA level, it's a mid-single-digit level, million euros annually. Meaning not -- well, not good news, of course, but it's a bit insignificant at the group level.

[Operator Instructions] There are no more questions from the phone call. So we have a question from the web from Alexandra Depré. What is the reason behind the LFL decline in non-advertising revenue in Media?

Well, maybe I'll let Pierre-Alain who has already started touching upon this question in his presentation, answer in more details to your question, Alexandra.

Maybe I wasn't completely clear, but if you remove the perimeter impact from the sale of My Little Paris and Play Two, the revenue from non-advertising media segment is up -- slightly up. It's not a decrease.

Mostly perimeter effect. We divested last year. You remember that two small noncore companies that we had last year, one called My Little Paris. And the other one, it was Play Two in the Music Publishing business.

And if you do the math between the minus 6% and then minus 10% reported, you find that it's around EUR 40 million perimeter effect.

We have a follow-up question from the phone call, Mr. Christophe Cherblanc with Bernstein.